Greetings!

and Welcome to Week 9 Discussion Forum activities

Instructions:

·         There are 3 Sections to complete as per below , Students required

to follow further Instructions in BOLD to complete what is required
accurately;

·         Students are required to reply WITH DISCUSSION to at least 2

other students respective responses to Section A and B ONLY;

·         Please post by 11.55pm Saturday 22 nd May, 2021 for your responses

to be marked. 

NOTE: This is an ASSESSED activity.

Section A: Answer ANY ONE of these 3 Questions below: Chapter 12 –

Receivables

1. Jane, a student of accounting, posed the following question: ‘When one looks at
the disposal of accounts receivable, there are three different accounting methods
for what is essentially the same thing. How can this be? Discuss.

2.   ‘Classification of receivables as current or non-current is not that important.

The money is received eventually anyway, so what’s the big deal?’ Discuss.

3.   ‘Control over receivables is not quite as important as control over cash.’

Discuss.

Control over receivables is as important as control over cash.  Often in

business when we supply goods to our customers we have to wait up to
30 days before we receive a cash payment.  This may be after we have
paid for the goods we have supplied.  It is vital for the survival of a
business through adequate cash flow that we collect accounts
receivable within the deemed credit period and that we avoid  bad
debts at all costs.
 

Section B: Answer ANY ONE of these 3 Questions below: Chapter 16 –

Liabilities
1.   ‘Classification of liabilities as current or non-current is not that important. The
money is paid out eventually anyway, so what’s the big deal? Discuss.

2.   ‘The accounting treatment for a provision and a contingent liability is the

same.’ Discuss.

3.   If a company is regarded as solvent, then it can be concluded that the

company has no liquidity problems. Discuss.

Section C: COMPULSORY: Answer ALL 2 Questions below – Chapter 12 &

16

1.   Ageing of accounts receivable and adjustment of allowance

GST version

The accountant for City Auto Group Ltd prepared an aged analysis of accounts
receivable balances at 30 June 2022. The percentages of each age group are
based on historical analysis and are presented in the table below.  GST Inclusive.

It is company policy to use the allowance method to account for bad debts.  On 30
June 2022, the balance in the Allowance for Doubtful Debts prior to any
adjustments totaled $4095 credit.
Required:

(a) Prepare the journal entry to adjust for the estimated bad debts at 30 June
2022. Show your working or calculation;

(b) Prepare the journal entry on 30 September, to write off $2360 (GST Inclusive)
owing by Mike’s Auto Wreckers.

2.   Classification of liabilities

Classify each of following items as a contingent liability, a provision or neither.

 
(a) an unresolved lawsuit against the entity for copyright infringement;

(b) allowance for doubtful debts;

(c) an agreement to act as guarantor for another firm’s borrowings;

(d) environmental damage that an entity has undertaken to repair;

(e) one thousand 12% debentures issued at $100;

(f)  a warranty provided at time of purchase that the manufacturer undertakes to

repair items that fail within 12 months.

Chapter 12

section A

3).i disagree with the statement as, it is important for any business to have ample cash flows from the
collectable accounts receivable in the period as specified by the credit terms to avoid bad debts
therefore control over receivables is just as important as control over cash.

chapter 16

section B

2). I disagree with that statement, as the treatment of provision and contingent liabilities differs in the
sense that for provision liabilities refers to when a business has been obliged to make a payment in
other words the outflow of economic benefits due to a past event whereas for contingent liabilities are
those liabilites where payment is made for an past event if it has been confirmed by occurence or
nonoccurrence a uncertain future event

section C

a) ($2,477.475, $2,831.40, $35,393, $8,494.20, $11,325.60 = $60,521.675)

Net GST (100%) =$60,521.675 *100/110

= $55,0197.0455

= $55,020 (rounded up)- closing balance of doubtful debts

Bad debt expense = closing balance of allowance for Doubtful Debts - opening balance of allowance of
doubtful debts

= $55,020 - $4095
 = $50,925

Therefore, Journal entry are as follows: Bad debts expense $50,925

Allowance for doubtful debts $50,925

b). journal entry for writing off bad debt: Allowance for doubtful debts $2145 (2360*100/110)

GST payable $215

Accounts receivable control -Mike’s Auto Wreckers $2360

2. classifying liabilities

a. contingent liability

b. neither

c. contingent liability

d .provision

e. neither

f. provision