May 2008: #5

DISPOSAL: (Birth to death)

Given,
Cost: 200000
NBV: 50000
Loss: 10000

We Know,
Cost – Provision for Depreciation= NBV

200000 – X = 50000
X= 150,000 = Depreciation (birth to death)

Now,
Current year depreciation of plant and machinery
Cost x %
= [500000-200000] x 10%
= 30,000

TO FIND OUT THE SELLING PRICE

we know,
gain/loss= S.P – NBV
-10000= X – 50000
x= 50000 - 10000
= 40000
Therefore, S.P= 40000
Suppose an Asset= Delivery Vehicle
-Cost Price= 10000
-Depreciation (Birth to Death) = 5000
-Selling Price= 2500
-Loss= [2500-(10000-5000)]= (2500)

Journal Entry:
1. Disposal a/c- DR (5Lac)
SUV CAR a/c- CR (5Lac)

2. P.R.DEP a/c- DR (3 Lac)

Disposal a/c- CR (3 Lac)

3. Bank a/c –DR (1 Lac)

Disposal a/c –CR (1 Lac)

4. Income Statement a/c- DR (1lac)

Disposal a/c- Cr (1Lac)

Gain Or Loss?

Formula = S.P – NBV

= 1Lac – [5Lac – 3Lac]
= 1 Lac – 2 Lac
= -1 Lac
= Loss
 Depreciation Calculation:
I/S Values:
2012: (25000 x 25%) = 6250
2013: 6250 (Same as before)
2014: (15000x25%) = 3750

Birth to Death Calculation:

2012: (10000x25%) = 2500
2013: 2500 (Same as before)
Total: 2500+2500= 5000

Ahmed: [12000+500] = £12500

Beena: [(750x12) + (8000x12x5%)] = £13800

Chandra: [(40x52x£3) + (50x6x£4.5)] = £7590

TOTAL WAGES: £33890

Credit Sales: Total Sales – Cash Sales

= 120000 – [(100x52) + (250x52) + (120000x2%) + (80x52) + 75000]
= 120000 –99760
= 20240

Creditors C/D= +PLCA CR – PLCA DR

Credit Purchase= +PLCA DR – PLCA CR

Debtors C/D= +SLCA DR – SLCA CR

Credit Sales= +SLCA CR – SLCA DR
Example-1
Sold goods of £200 on credit to Mr.X
Mr.X – Dr
Sales – Cr

Example-2
Mr.X paid £100 in cash
Cash – Dr
Mr.X – Cr

Example-3
Mr.X declared that he is bankrupt hence he cannot clear his remaining debt of
£100
Bad Debt – Dr
Mr.X – Cr

There are two types of ‘T’ accounts:

a) Temporary ‘T’ account --- Contains no b/d or c/d in the end (usually open for
a single year) [Eg, Bad debt a/c, Bad debt recovered account]

b) Permanent ‘T’’ account -- Contains b/d or c/d in the end (usually open to
operate for many years) [Eg, sales a/c, control a/c, bank a/c etc]

Journal Entries (Bad Debt Recovered)

a) Bank – Dr
Bad Debt Recovered a/c – Cr

b) Bad Debt Recovered a/c – Dr

Debtors a/c – Cr
Example: 4
After 3 years, Mr.X pay back £100 through bank

Bank—Dr (£100)
Bad Debt Recovered – Cr (£100)

Bad debt recovered – Dr (£100)

Mr.X -- Cr (£100)

Provision for doubtful debt calculation (Assumption of possible bad debt)

Increase/ Decrease in PFDD????

Formula = New Provision – Old Provision

**Old provision – usually given in the question

**New Provision – (Debtors x %)

(+ve) result means = INCREASE (Expense)

(-ve) result means = DECREASE (Income)

**PFDD ALWAYS HAS CREDIT BALANCE which means BALANCE B/D ON THE
CREDIT SIDE

** PFDD is a permanent account

Class Task

Given
i) Debtors- £5000
ii) PFDD- 5%
iii) Provision for doubtful debt- £500 (trial balance)----old provision
iv) Bad debt of £350 by Steve Smith
v) Bad debt recovered of £1000 by Miss Julia

Requirements:
a) Journal Entry (increase or decrease of PFDD, Bad debt , Bad debt recovered)
b) Open Bad debt a/c, Bad debt recovered a/c &PFDD a/c

Solving,
(a) PFDD
Formula to calculate increase or decrease:
New Provision – Old Provision
= [(5000 x 5%) – 500]
= 250 - 500
= -250 – Decrease

Now,
PFDD a/c Dr £250
Income Statement a/c CR £250

BAD DEBT

Bad Debt a/c Dr £350

Steve Smith a/c Cr 350
Bad Debt Recovered

Bank a/c Dr £1000

Bad debt recovered Cr £1000

Bad debt Recovered a/c Dr £1000

Miss Julia a/c Cr £1000
 Advanced Journal Entries - 1

Date Details £ £
1 Bank a/c 50000
Capital a/c 50000
2 Purchase a/c 7000
RP Singh a/c 7000
3 RP Singh a/c 3500
Return Outward or Purchase Return a/c 3500
4 Cash a/c 8900
Sales a/c 8900
5 Purchase a/c 5000
XYZ Traders a/c 4250
Discount Received a/c 750
6 Equipment a/c 9000
Bank a/c 9000
7 Sales Return a/c 4500
Steve Smith a/c 4500
8 Rates a/c 900
Cash a/c 900
9 Miss Jenifer a/c 5600
Discount allowed a/c 1400
Sales a/c 7000
10 Rent a/c 6000
Cash a/c 3000
Bank a/c 3000

11 Bad debt a/c 3900

Cash a/c 5000
Debtors a/c 8900
12 (M) Income Statement a/c 250
Increase in provision for doubtful debt a/c 250
[(9000 x 5%) – 200] = Increase by £250
13 Motor Van a/c 20000
Cash a/c 20000

(M) Income Statement a/c 4000

Provision for depreciation a/c 4000
[20000 x 20%]
14 (M) Prepayments (Rent) a/c 3000
 Bank or Income Statement a/c 3000
15 Drawings a/c 500
Cash a/c 500

Advanced Journal Entries - 2

Date Details £ £
1 Cash a/c 5000
Inventory a/c 7000
Capital a/c 12000
2 Purchase a/c 17000
ABC Traders a/c 17000
3 Motor Van a/c 70000
Audi Traders a/c 70000
4 Peter Jackson a/c 20000
Discount Allowed a/c 5000
Sales a/c 25000
5 Purchase a/c 45000
Discount Received a/c 6750
Cash a/c 38250
6 ABC Traders a/c 1020
Return Outward / Purchase Return a/c 1020
7 Bad debt a/c 8100
Cash a/c 7900
Debtors a/c 16000
8 (M) Income Statement a/c 17500
Provision For Depreciation a/c 17500
9 Bank a/c 4545
 Bad debt recovered a/c 4545

10 (M) Accruals- Income a/c 6000

Income Statement a/c 6000
11 Bank a/c 7900
Rent Received a/c 7900
12 (M) Decrease in Provision for doubtful debt 3000
Income Statement a/c 3000
[(600000x10%) – 9000]
13 Bad Debt a/c 6500
Bank a/c 1379
Debtors a/c 7879
14 Income Statement a/c 4000
Accrued- Heat and Light a/c 4000
15 Drawing a/c 6700
Inventory a/c 6700