he following transactions took place during 2021 and were not recorded in the book’s of Monpa: 1. The business purchased an equipment that worth £100,000 on 04/01/2021 by check. It is expected to have a life of 6 years and is estimated to have a residual value of £10,000. Monpa follows the straight-line method for calculating depreciation. The purchase of the equipment was not recorded in the firm’s accounting books too. 2. The firm sold goods for £122,295 on credit. The cost of these goods is £78,900. 3. £1,750 was paid during the year for Heat and Light (This transaction was recorded). However, before the end of the year, the Heat and Light bill arrived for the last quarter showing a charge of £590 and was not paid nor recorded for the year. 4. A customer who owes the business £2,250 declared his bankruptcy and was considered to become bad. 5. The firm paid £15,000 of interest by check during the year 2021. 6. The advertising expense for the year
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The following transactions took place during 2021 and were not recorded in the book’s of Monpa:
1. The business purchased an equipment that worth £100,000 on 04/01/2021 by check. It is expected to have a life of 6 years and is estimated to have a residual value of £10,000. Monpa follows the straight-line method for calculating
2. The firm sold goods for £122,295 on credit. The cost of these goods is £78,900.
3. £1,750 was paid during the year for Heat and Light (This transaction was recorded). However, before the end of the year, the Heat and Light bill arrived for the last quarter showing a charge of £590 and was not paid nor recorded for the year.
4. A customer who owes the business £2,250 declared his bankruptcy and was considered to become bad.
5. The firm paid £15,000 of interest by check during the year 2021.
6. The advertising expense for the year was £8,000.
7. The business is subject to 30% tax which was not paid during the year.
Required: -
a) Record all these transactions in a Journal.
b) Open Ledger accounts and bring down the balances in the Income Statement & Statement of financial position at 31.12.2021.
c) Make entries to record the transactions 1 to 7 (above), opening any additional accounts as necessary.
d) Prepare Income Statement and Statement of Financial Position for the year ending
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