- 20 Marks
FA – L1 – Q62 – Correction of Errors
Question
The trial balance of Western Medical Supplies showed a short credit of ZM₵6,264 as at June 30, 20X9. A suspense account was opened for the difference and the profit for the year was then calculated at ZM₵956,180.
The following errors and adjustments were discovered subsequently:
(i) An invoice of ZM₵3,700 was debited to purchases but the goods were received after year-end and were not included in the closing inventory.
(ii) Store equipment costing ZM₵8,100 and having a book value of ZM₵3,600 was sold for ZM₵2,500. Cash was debited and store equipment was credited. No other entries were made.
(iii) A cheque of ZM₵1,850 received from a customer was dishonoured on June 25, 20X9 but no entry was made in the books. Cash there against was received after year-end.
(iv) Purchase of office equipment costing ZM₵15,200 was entered in the purchases account. Depreciation on office equipment is provided at the rate of 10%.
(v) A purchase invoice of ZM₵197 was debited to the supplier account as ZM₵917.
(vi) Purchase returns book was under-casted by ZM₵650.
(vii) The opening balance of furniture account was brought forward as ZM₵18,300 instead of ZM₵13,800. Depreciation on furniture is provided at the rate of 10%.
(viii) A balance of ZM₵730 in the sales ledger is to be offset against a balance of ZM₵880 in the purchase ledger.
Required:
(a) Prepare journal entries to adjust the above items.
(b) Recalculate the net profit for the year.
Answer
(A)
| Debit ZM₵ | Credit ZM₵ | ||
|---|---|---|---|
| 1 | Supplier/Creditor account/goods in transit | 3,700 | |
| Purchases | 3,700 | ||
| 2 | Accumulated Depreciation | 4,500 | |
| Loss on sale of store equipment | 1,100 | ||
| Store equipment a/c | 5,600 | ||
| 3 | Customer / receivables a/c | 1,850 | |
| Bank | 1,850 | ||
| 4 | Office Equipment | 15,200 | |
| Purchases | 15,200 | ||
| Depreciation expense | 1,520 | ||
| Accumulated depreciation – office equipment | 1,520 | ||
| 5 | Suspense a/c | 1,114 | |
| Supplier a/c (197 + 917) | 1,114 | ||
| 6 | Suspense a/c | 650 | |
| Purchase Returns | 650 | ||
| 7 | Suspense a/c | 4,500 | |
| Furniture a/c | 4,500 | ||
| Accumulated Depreciation | 450 | ||
| Depreciation expenses | 450 | ||
| 8 | Payables a/c | 730 | |
| Receivables a/c | 730 |
(B)
| Recalculation of net profit for the year | ZM₵ |
|---|---|
| Net profit as per question | 956,180 |
| Add: Reversal of purchases / goods in transit / increase in closing inventory | 3,700 |
| Equipment wrongly debited to purchases | 15,200 |
| Purchase returns | 650 |
| Reversal of depreciation on furniture | 450 |
| Less: loss on sale of store equipment | (1,100) |
| Depreciation on office equipment | (1,520) |
| Adjusted net-profit | 973,560 |
- Topic: Correction of Errors
- Uploader: Samuel Duah