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Admas University: Learning Guide
Admas University: Learning Guide
Admas University: Learning Guide
ADMAS UNIVERSITY
Learning Guide
Unit of Competence Evaluate and Authorize Payment Requests
Module Title Evaluating and Authorizing Payment Requests
LG Code: EIS ABS 4 07 0812
TTLM Code: EIS ABS 4 M07 0812
INTRODUCTION
Losses result when assets are consumed, costs are expired or liabilities
are incurred without producing any benefit for either the current or any
future accounting period; this losses are not deferred because they have
not future service potential.
Costs deferred in earlier periods that have lost their service potential
are written-off as soon as the loss becomes evident and measurable.
Application of these expense recognition principles require costs to be
associated, if possible, with revenue on the basis of cause and effect; if
such an association is not practical, a systematic and rational allocation of
the cost is attempted; if neither of these two procedures is feasible, costs
are expensed as incurred or as soon as expiration of the service potential
of the costs becomes evident.
The standards for recognition of losses are less sever than the
standards for the recognition of gains.
The choice between the multiple step and the single step form of income
statements is an unsettled question in the income reporting.
Additional data
1) Inventory on dec-31-1997 (ending merchandise inventory) was valued at
birr 750,000
2) The company has 100,000 shares of common stock outstanding and
has no preferred stock holders
Required:
a) Prepare a multiple-step income statement for ABC-company
b) Prepare a retained earnings statement
c) Prepare a combined statement of income and retained earnings for
the given period.
ABC-Company
Multiples step income statement
for the year ended 31-Dec-1997
1) Sales revenue:
Gross sales ---------------------------------------------------------------------------
-9,125,000
Less: Sales returns and allowances ------------------------------------95,000
Sales discounts --------------------------------------------------55,000 ---------
--(150,000)
ABC –Company
Statement of Retained Earnings
for the Year Ended Dec-31-1997
ABC – Company
Combined Statement of Income and Retained Earnings
for the Year Ended Dec –31-1997
Net sales and other revenues and gains ---------------------------------9,019,500
Less: Costs, expenses and losses --------------------------------------(7,804,000)
Income before income tax------------------------------------------------- 1,215,500
Less: Income tax expense(40% of 1,215,500) --------------------------(486,200)
Net income ----------------------------------------------------------- 729,300
Less: Dividends --------------------------------------------------------------(150,000)
Change in retained earnings during the year -----------------------------579,300
Add: Beginning retained earnings ---------------------------------------- 550,000
Ending Retained earnings----------------------------------------1,129,300.00
ABC Company
Single-Step Income Statement
For the Year Ended Dec-31-1997
1) Revenues:
Net sales --------------------------------------------------8,975,000
Dividends Revenue------------------------------------------50,000
Gain on sale of office equipment ---------------------------10,000
Interest income ------------------------------------------------1,500
Royalities revenues ------------------------------------------28,000
Total revenues -------------------------------------------------------------9,064,500
2) Costs and expenses:
Cost of merchandise sold --------------------------------5,000,000
Selling expenses -------------------------------------------1,180,000
General and administrative expenses -------------------1,442,000
Loss on sale of delivery truck -------------------------------50,000 _
Loss from written-off of obsolute inventory--------------125,000
Interest expense -----------------------------------------------7,000
Income tax expense -------------------------------------486,200
Total costs and expenses ----------------------------------------------------
(8,335,200)
Net income ---------------------------------------------------------------------729,300
$729,300
Earnings per share of common = $7.293 / share
100,000