Financial Accounting and Reporting 1

Oxford Textbook

Accounts Receivables (Page 170)

Question 2, 3
Question 2
a)
Accounts Receivables
Balance b/d RM 30,000 Allowance b/d RM 1,600
Sales RM 150,000 Cash RM 145,000
Balance c/d RM 33,400
RM 180,000 RM 180,000

Bad Debts = 33,400 × 10% = 3,340

b)
Allowance for doubtful debts
Accounts. R RM 1,160 Balance b/d RM 2,500
Balance c/d RM 4,680 Bad Debts RM 3,340
RM 5,840 RM 5,840

Question 3
a)
The balance of receivables will be indicator of the company policy of the credit balance. As
an accountant, we will evaluate or asses the debt collection policy.
b)
Date Accounts Titles Debit (RM) Credit (RM)
2015
Jan 1 No entry -
-
Jan 15 Accounts Receivables 2,000
Bad Debt Recovered Account 2,000
Mar 20 Allowance for Doubtful Debts 5,000
Accounts Receivables 5,000
May 16 Account Receivables 10,000
Bad Debt recovery account
Cash 10,000 10,000
 Accounts Receivables 10,000
Sept 12 Cash 6,500
Accounts Receivables 6,500
Bad Debt 6,500
Allowance for Doubtful Debts 6,500
Dec 31 Bad Debt 20,000
Allowance for Doubtful Debts 20,000

c) Allowance for Doubtful Debt

Balance b/d RM 30,000
Accounts Receivables RM 20,000

Receivables – Allowance for doubtful debt

2,000,000 – 35,000 = 1,965,000
d)
i) 500,000 × 1% = 5,000
ii) 35,000 + 5,000 = 40,000
Allowance for Doubtful Debts
Allowance for Doubtful Debts RM 35,000
Bad Debt expense RM 5,000
RM 40,000

iii) 2,000,000 – 40,000 = 1,960,000

Liabilities (Page 207)
Question 1, 2, 3, 4, 5
Question 1
a) Face Bhd
Statement of Financial Position
RM RM
Liability
Current Liability
Trade Payable 30,000
Accrued Salaries 2,000
Advances received from customers 3,000
Total 35,000
Non-Current Liability
Bond 50,000
Other Non-current Liability 10,000
 Total 60,000
Total Liability 95,000

b) If Face Bhd pays in 90 days

30,000 × 3% = 900
30,000 – 900 = 29,100 is settled
OR
30,000 × 97% = 29,100
c) RM 50,000

Question 2
Item Description

Defending a lawsuit Contingency Liability

Obligation to pay current tax Liability
Accrued Rent Liability
Metered power use, but not
yet billed by supplier Liability
Warranty obligation Provision
Promise to make good
environmental damage
where there is no legal
obligation to do so Provision
Provision for self-insurance Provision
Issue a convertible debt
instrument, where the holder
has the option to convert it
into ordinary shares. Liability
Bank Loan Liability
Unpaid contractual bonuses
to employees Liability
*Contingency liability can be recognised, however, provision liability cannot be recognised.

Question 3
a) Can be recognise, as it is a possibility and can be measured. Thus, it is a provision.
b) Cannot be recognised, as it is not probable and only be measured. Thus, it is a
contingency liability.
c) Cannot be recognised, as it is not probable and cannot be measured. Thus, it is a
contingency liability.
Question 4
The outflow of the company is probable, which is RM 300,000. As the Diamond Bhd should
recognise provision, as it is probable that the company would lose the case and the
measurement is estimated to RM 300,000.
Question 5
Should Pearl Bhd make a provision. Provision is only a type of liability. If Pearl wins the
case, the Pearl would receive money in the future. In accounting, you cannot be recognised
until you receive the money. Thus, Pearl can only make contingent asset for the amount that
they receive from Dane Bhd. This should be disclosed in the financial statement or in the
notes to the account. There is no actual amount.