As a new account assistant, Miss Fizah has been assigned to calculate the amount that should appear on Terrar Bhd’s financial statement for inventory under the lower-of-cost-or-NRV (LCRNV) rule as applied to each item in inventory. The company applies the loss method and uses an Allowance Account to record for the write down of the inventory to net realisable value (NRV). However, Madam Rabiatul, Terrar Bhd’s accountant had an argument with Mr. Zaman, senior accountant of the company regarding the method to be used to record the write down of the inventories. Madam Rabiatul wants to use the loss method to write down inventory because it is more clearly discloses the decline in the net realisable value and does not distort the cost of goods sold. But, Mr. Zaman prefers the cost-of-goods-sold method to write down because it does not call attention to the decline in net realizable value. On 31 December 2018, the Terrar Bhd recorded an intangible asset, patent, at a revalued amount of RM6,500,000. The patent is related to a new sustainable technology in the motor engine, which was developed by the R&D team of the company. The patent was initially recorded at RM8,000,000 on 1 January 2016. The management of the company expected that the estimated future benefits from the patent would be consumed evenly for the next eight (8) years. In 2019, due to the new competition in the market, the company revalued the patent to market value of RM4,000,000. Due to this latest development the company revalued the remaining useful life of the patent to be three (3) years. Beside the patent, other intangible assets of Terrar Bhd consist of: Question is 1) Assume that you are the Head of Accounting Department, explain to Miss Fizah: What is net realisable value; and Explain the rationale for the use of the LCNRV rules it applies to inventories. 2)With regards to the argument between Madam Rabiatul and Mr. Zaman: What is the issue facing Madam Rabiatul and Mr Zaman? Is there any possible ethical issue involved? (CTPS)
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
As a new account assistant, Miss Fizah has been assigned to calculate the amount that should appear on Terrar Bhd’s financial statement for inventory under the lower-of-cost-or-NRV (LCRNV) rule as applied to each item in inventory. The company applies the loss method and uses an Allowance Account to record for the write down of the inventory to net realisable value (NRV).
However, Madam Rabiatul, Terrar Bhd’s accountant had an argument with Mr. Zaman, senior accountant of the company regarding the method to be used to record the write down of the inventories. Madam Rabiatul wants to use the loss method to write down inventory because it is more clearly discloses the decline in the net realisable value and does not distort the cost of goods sold. But, Mr. Zaman prefers the cost-of-goods-sold method to write down because it does not call attention to the decline in net realizable value.
On 31 December 2018, the Terrar Bhd recorded an intangible asset, patent, at a revalued amount of RM6,500,000. The patent is related to a new sustainable technology in the motor engine, which was developed by the R&D team of the company. The patent was initially recorded at RM8,000,000 on 1 January 2016. The management of the company expected that the estimated future benefits from the patent would be consumed evenly for the next eight (8) years. In 2019, due to the new competition in the market, the company revalued the patent to market value of RM4,000,000. Due to this latest development the company revalued the remaining useful life of the patent to be three (3) years. Beside the patent, other intangible assets of Terrar Bhd consist of:
Question is
1) Assume that you are the Head of Accounting Department, explain to Miss Fizah:
- What is net realisable value; and
- Explain the rationale for the use of the LCNRV rules it applies to inventories.
2)With regards to the argument between Madam Rabiatul and Mr. Zaman:
- What is the issue facing Madam Rabiatul and Mr Zaman? Is there any possible ethical issue involved? (CTPS)
- Would the method suggest by Mr Zaman affect Terrar Bhd’s stakeholder (s)? (CTPS)
- If you are Madam Rabiatul, what would you do to overcome the issue? (CTPS)
Step by step
Solved in 3 steps
