“It always seems impossible until it’s done.

” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Lesson 6 for week beginning 13 September 2021

Topics:
1. Accounting for impairment loss on AR using direct write off and allowance methods
2. Accounting for recovery of bad debts
3. Presentation and disclosure of AR, allowance for impairment of AR and impairment
loss on AR
4. Computation and interpretation of receivable ratios
5. Importance of cash management and controls
6. Preparation and interpretation of a bank reconciliation

Learning objectives:
Refer to the course outline.

Readings:
1. STH Chapters 4 and 5 (Part B)
2. SFRS(I) 9 on Financial Instruments (relevant paragraphs)

Textbook:
STH: Spiceland J. D., Thomas W., Herrmann D. (2019), “Financial Accounting”, 5th edition,
McGraw-Hill.

Discussion Questions

Question 1 (Applying online lessons Part I 6.2 to 6.4 to accounting for imparment loss on AR,
recovery of bad debts, and receivables intepretation)

MS Pte Ltd is a wholesaler providing winter wear and accessories to departmental stores and
retailers. All sales are on credit and the company offers an average credit term of 30 days. The
company reported the following accounts balances:

As at
1 January 20x9 31 December 20x9
$ $
Accounts Receivable (“AR”) 120,000 163,200
Allowance for Impairment of AR 6,000 ?

During the financial year ended on 31 December 20x9:

(1) Total sales revenue of $1,500,000 and sales return of $147,500 were reported in the
income statement for the financial year ended 31 December 20x9. Assume that the
revenue was generated evenly throughout the year.

21S1 AC1103 Lesson 6 Discussion Questions 1

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

(2) Bad debts of $4,800 were written off on 5 May 20x9.

(3) ABC Pte Ltd, whose debt of $10,000 was previously written off in 20x8 when the company
filed for bankruptcy, paid $2,000 as final settlement on 10 July 20x9.

(4) The AR aging as at 31 December 20x9 is as follows:

$ Estimated percentage
of uncollectible
Current 125,000 -
1 – 30 days past due 22,300 10%
31 – 60 days past due 8,900 30%
61 – 90 days past due 5,400 50%
> 90 days past due 1,600 90%
Total 163,200

Required

(a) Prepare the journal entries to record the following:

i. the bad debt written off on 5 May 20x9;
ii. the recovery of bad debt from ABC Pte Ltd on 10 July 20x9;
iii. the adjusting entries for impairment loss on AR at the financial year end on 31
December 20x9, assuming that there is no adjusting entry made for impairment loss
on AR and allowance for impairment of AR during the financial year.

(b) What is the net realizable value of accounts receivable as at 31 December 20x9?

(c) Between the direct write-off method and the allowance method, which is the preferred
method used in recording the impairment loss on accounts receivables? Explain why.
Which method is the company using?

(d) Calculate the amount of cash collected from the customers during the financial year ended
31 December 20x9. Assume that no customers paid in advance.

(e) Calculate the average collection period1. Has the credit control staff performed well in her
job? Justify your answer.

1
Average collection period = 365 days / Receivable turnover ratio.
Receivable turnover ratio = Net credit sales / Average Net Receivables.

21S1 AC1103 Lesson 6 Discussion Questions 2

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Question 2 AC1103 Semester 2 AY 2019/2020 Mid-Term Test Question

Terrakion Pte Ltd (the company) is an exclusive distributor of highly sought after Oshawott brand
of sofas in the South East Asia region. The company imports the sofas from the supplier, Illumise
Inc., from Italy and sells the sofas to the retailers in the South East Asian countries for $3,800
each on credit term 2/10, n/30. The company adopts a perpetual inventory system and a first-
in-first-out (“FIFO”) inventory valuation method to manage its inventories. The company adopts
Singapore Financial Reporting Standards (International) and its financial year ends on 31
December.

You recently joined the company as an intern from the Nanyang Business School. You are tasked
to prepare the financial statements for the financial year ended 31 December 2019 and get the
accounting records ready for the auditor’s review. Below is a list of account balances as at 31
December 2019. All accounts have normal balances unless otherwise stated.
$
Accounts Payable (AP) 86,000
Accounts Receivable (AR) 205,522
Accumulated Depreciation 102,550
Allowance for Impairment of AR 3,081
Borrowings 200,000
Cash 348,981
Depreciation 58,850
Dividends 10,323
Freight Out Expense 31,948
Impairment Loss on AR (Credit Balance) 15,200
Interest Expense 19,500
Interest Payable 1,500
Inventory 1,042,000
Motor Vehicles 435,500
Motor Vehicles Expenses 32,855
Prepaid Rent 43,200
Rent Expense 120,000
Retained Earnings 25,823
Salaries 133,200
Sales Discounts 25,465
Sales Returns and Allowances 59,800
Sales Revenue 1,645,400
Share Capital 500,000
Utilities Expense 12,410

21S1 AC1103 Lesson 6 Discussion Questions 3

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

After reviewing the documents and interviewing key employees, you obtained the following
information:

(1) You realised that all the inventory purchases were made on credit. You also found that
when a sale was made, the sales revenue was recorded but the Cost of Goods Sold (COGS)
was not recorded. You went through the documents and tabulated the following inventory
transactions:

Unit Cost
Date Transactions Note Quantity Price
$
1 January 2019 Beginning 50 1,800
Inventory
10 January 2019 Purchases i 230 2,000
January 2019 to June 2019 Sales ii 210
15 July 2019 Purchases 180 2,100
July 2019 to December 2019 Sales iii, iv 215
27 December 2019 Purchases v 60 1,900

Note
i Included a purchase return of 5 units on 15 January 2019. The supplier sent
a credit note but the company has omitted to record the return.

ii Included in the sales was a return of 3 units from a Thai retailer on 4 April
2019 due to over-order. The original sales was made on 10 March 2019 and
the customer settled that invoice on 15 March 2019. Both the sale and the
collection were recorded correctly. The company sent a credit note for
these 3 units but omitted to record the return. This Thai retailer has an
outstanding debt of $30,400 as at 31 December 2019.

iii Included in the sales were 3 units sold to an Indonesian retailer based on
FOB Destination point. The 3 units were shipped out on 29 December 2019
and arrived in Indonesia on 3 January 2020.

iv Included in the sales were 10 units consigned to a Vietnamese consignee

on 1 October 2019. You called the Vietnamese consignee and found that 6
units were sold by 31 December 2019. There was no other goods on
consignment.

21S1 AC1103 Lesson 6 Discussion Questions 4

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

v The inventory purchase was made based on FOB Shipping point. The
supplier shipped out the goods on 29 December 2019 and the goods arrived
on 15 January 2020.

(2) The company decided to write off bad debts amounting to $11,400 on 11 March 2019.
However, the accounts intern did not record this transaction.

A customer, whose debt of $15,200 was written off in March 2018 as he was declared a
bankrupt, came back on 15 June 2019 to negotiate for a final settlement of $7,600. The
accounts clerk at the company made the following journal entries on 15 June 2019.

Dr ($) Cr ($)
Dr Cash 7,600
Dr Allowance for Impairment of AR 7,600
Cr Impairment Loss on AR 15,200

Based on your review of the adjusted accounts receivables as at 31 December 2019, you
ascertained that 6% of the accounts receivables would be uncollectible. There is no other
entry made for Impairment Loss on AR or Allowance for Impairment of AR during the
financial year ended 31 December 2019.

(3) The company usually pays its quarterly rental of $36,000 in advance on every 1 February,
1 May, 1 August and 1 November. Its quarterly rental was increased by 20% to $43,200
with effect from the rent payment made on 1 November 2019. There was no other rental
paid during the financial year ended 31 December 2019.

(4) The company obtained its first loan of $360,000 from a bank on 1 April 2016, at an interest
rate of 5% per annum. Interest was payable semi-annually in arrears on every 31 March
and 30 September. This loan of $360,000 was fully repaid on 31 March 2019.

The company obtained its second loan of $300,000 on 1 October 2018 at an interest rate
of 6% per annum. The loan principal would be repaid in three equal instalments on 30
September 2019, 30 September 2020, and 30 September 2021. Interest was payable semi-
annually in arrears on every 31 March and 30 September. Other than these two
borrowings, the company has no other borrowings.

(5) Annual depreciation for the financial year ended 31 December 2019 was $75,150.

21S1 AC1103 Lesson 6 Discussion Questions 5

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

(6) At the beginning of the financial year, the share capital balance was $450,000 and the
company has recorded the issuance of additional share capital of $50,000 on 30 September
2019. There was no other share capital related transactions during the financial year ended
31 December 2019.

Required

(a) Calculate the ending inventory as at 31 December 2019 and COGS for the financial year
ended 31 December 2019. Show your answers in terms of units and dollar value.

(b) Prepare the adjusting / correcting journal entries for items (1) to (6), without dates and
narrations, for the financial year ended 31 December 2019. If no adjusting / correcting
journal entry is required for a particular item, state “no entry” and explain the reason.
Round your figures to the nearest dollar. Show adequate workings as marks are awarded
for workings.

(c) Assume that there is no income tax. Prepare the statement of profit and loss for the
financial year ended 31 December 2019.

(d) Prepare the statement of changes in equity for the financial year ended 31 December 2019.

(e) Prepare a classified statement of financial position as at 31 December 2019.

(f) After completing your work, the accounts clerk approached you and asked “I don’t
understand why you have to make additional journal entries to my work. Given that we
work in a computerized environment, I thought that as long as the trial balance could
balance, i.e. the sum of debits equal to the sum of credits, there should not be any errors
…”. Explain to the accounts clerk on three types of errors that are not revealed by the trial
balance in general. In your explanation, briefly illustrate each type of error with an
example.

21S1 AC1103 Lesson 6 Discussion Questions 6

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Question 3 Adapted from AC1103 Semester 2 AY 2019/2020 Exam Question 1

(Applying online lesson 6 Part II bank reconcilation)

Ludicolo Pte. Ltd. (the company) is an exclusive distributor of Lotad electric scooters (e-scooters)
in the South East Asia region. Lotad e-scooters are high-end e-scooters made in Germany. The
company imports the e-scooters from the supplier, Lombre AG, and sells the e-scooters to the
retailers in the South East Asian countries at $880 each on credit term 2/15, n/60.

You are tasked to prepare the financial statements for the financial year ended 31 March 2020
and get the accounting records ready for the auditor’s review. Below is a partial list of account
balances as at 31 March 2020. All accounts have normal balances unless otherwise stated.

$
Accounts Payable (AP) 11,900
Accounts Receivable (AR) 218,000
Bank Service Charges 3,852
Cash 240,365
Interest Income 638
Prepaid Rent 6,050
Rent Expense 56,100
Retained Earnings 130,845
Sales Revenue 1,245,200

After reviewing the documents and interviewing key employees, you obtained the following
information:

(1) The company usually pays its quarterly rental of $16,500 in advance on every 1 March, 1
June, 1 September and 1 December via General Interbank Recurring Order (GIRO), an
automated electronic payment service provided by the bank. Its quarterly rental was
increased by 10% with effect from the rent payment made on 1 December 2019. There
was no other rental paid during the financial year ended 31 March 2020. The company has
not recorded the cash payment made on 1 March 2020 as the bank statement was received
in early April.

(2) The company received a bank statement in early April which showed a balance of $218,900
as at 31 March 2020. The statement indicated bank service charges amounting to $250
being incurred for the month of March 2020. In addition, the statement also indicated that
the interest income earned on the average cash balance was $35 for the month of March
2020. The company has not recorded both amounts.

21S1 AC1103 Lesson 6 Discussion Questions 7

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

(3) The company recorded $113,120 of deposits in the Cash account during the month of
March 2020. The deposits recorded in the bank statement during the month of March 2020
were $108,000. The deposits-in-transit as at 29 February 2020 were $14,880.

(4) The company recorded a total of $145,500 cheque payments in the Cash account during
the month of March 2020. The total amount of cheques cleared by the bank during the
month of March 2020 were $133,400. Outstanding cheques as at 29 February 2020
amounted to $4,800 and they were cleared by the bank in March 2020.

Required

(a) Prepare the adjusting / correcting journal entries for the above notes (1) to (2), without
dates and narrations, for the financial year ended 31 March 2020. If no adjusting /
correcting journal entry is required for a particular note, state “no entry” and explain the
reason. Round your final answers to the nearest dollar. Show adequate workings as marks
are awarded for workings.

(b) Prepare the bank reconciliation statement for Ludicolo Pte Ltd as at 31 March 2020.

Self-Practice Questions

Question 4 Adapted from AC1101 17S2 Exam Question 3 Part II (Applying online lessons Part
I 6.2 to 6.3 to accounting for imparment loss on AR and recovery of bad debts)

SKY Ltd is the exclusive distributor of LifeFitness brand of fitness equipment. It sells the fitness
equipment to retailers, corporate customers and individuals. The company has a 30-day return
policy for the sale of the fitness equipment. SKY has the following account balances for the
financial year ended 31 March 2018:

Account Balances as at
1 April 2017 31 March 2018
$ $
Accounts Receivable (“AR”) 120,000 218,000
Allowance for Impairment of AR 10,000 ?

The AR aging as at 31 March 2018 is tabulated as follows:

$ Estimated percentage of uncollectible

Current 188,000 -
1 – 60 days past due 25,000 15%
> 60 days past due 5,000 85%
Total 218,000

21S1 AC1103 Lesson 6 Discussion Questions 8

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

SKY wrote off bad debts amounting to $2,500 on 15 January 2018 against the Allowance for
Impairment of AR account. A customer, whose debt of $1,000 was written off in February 2017
as he was declared a bankrupt, came back on 28 February 2018 to negotiate for a final settlement
of $500. The accounts intern at SKY made the following journal entries on 28 February 2018.
There is no other entry made for Impairment Loss on AR or Allowance for Impairment of AR.

Dr ($) Cr ($)
Dr Cash 500
Dr Allowance for Impairment of AR 500
Cr Impairment Loss on AR 1,000

Required Prepare the adjusting and/ or correcting entries, without dates and narration for
the financial year ended on 31 March 2018.

(Key Answers: Dr Impairment Loss on AR $1,000; Cr Allowance for Impairment of AR $1,000)

Question 5 Adapted from AC1103 19S2 Exam Question 3 (Applying online lessons Part I 6.2
to 6.3 to accounting for imparment loss on AR and recovery of bad debts)

Le Mariage reported a beginning balance of $468,000 for the Allowance for Impairment of
Accounts Receivable (AR) on 1 January 2019. On 12 July 2019, Le Mariage wrote off $52,800 of
debt (excluding GST) due from a tenant selling luxury watches when the tenant went into
liquidation in July 2019 to the Impairment Loss on AR account.

A tenant that was a restaurant operator, whose debt of $30,200 was written off in January 2018,
came back on 15 December 2019 to make a final settlement of $8,800. Both amounts exclude
GST. The following record was made for the cash received from the restaurant operator in
December 2019.:

Dr Cash $8,800
Cr Accumulated Impairment Loss on PPE $8,800

There is no other entry made for Impairment Loss on AR account and Allowance for Impairment
of AR account for the financial year ended 31 December 2019.

The AR aging analysis as at 31 December 2019 is tabulated as follows:

21S1 AC1103 Lesson 6 Discussion Questions 9

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

$ Estimated percentage of
uncollectible
Not past due 3,140,800 5%
1 – 60 days past due 1,322,000 20%
> 60 days past due 37,200 95%
Total 4,500,000

Required

Prepare the adjusting / correcting journal entries for the above, without dates and narrations,
for the financial year ended 31 December 2019. If no adjusting / correcting journal entry is
required, state “no entry” and explain the reason. Ignore the effects of GST in your journal
entries and round your final answers to the nearest dollar. Show adequate workings as marks
are awarded for workings.
(Key answers:
Dr Accumulated Impairment Loss on PPE $8,800; Cr Allowance for Impairment of AR $8,800;
Required ending balance of Allowance for Impairment of AR = $456,780;
Dr Allowance for Impairment of AR $20,020; Cr Impairment Loss on AR $20,020)

Question 6 AC1101 Semester 2 AY 2018/2019 Exam Question 2 (Inventory and AR)

Kiki Pte Ltd (Kiki) is a wholesale distributor that sells blender and mixer on credit. It adopts a
periodic inventory system and uses first-in first-out cost method to account for its inventories.
On 1 March 2019, Kiki had 100 units of blender of $190 each. An additional 100 units of blender
was purchased at $200 each on 15 March 2019. During March 2019, 80 units of the blender were
sold for $300 each. Although there was no purchase of mixer in March 2019, 30 units of mixer
were sold. At the end of March 2019, the inventory account was updated based on a physical
count of blender and mixer in its stores.

The following balances were extracted from the unadjusted trial balance of Kiki as at 31 March
2019. All of them have normal balances.

$
Accounts Receivable (AR) 59,000
Allowance for impairment of AR 1,770
Inventory 27,000
Cost of goods sold (for March 2019) 30,000
Impairment loss on AR (for March 2019) 700

21S1 AC1103 Lesson 6 Discussion Questions 10

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

During March 2019, the following events occurred but were not taken into account during the
preparation of the unadjusted trial balance for the month.

1. On 3 March, Zen Pte Ltd (Zen) returned both a mixer and a blender that Kiki sold on 1 March
2019. The return was made before Zen had paid Kiki for the goods. After much negotiation,
Zen was willing to accept the mixer back with a sales allowance of $50 but insisted on
returning the blender. Together with a credit note of $350, the mixer was delivered back to
Zen. While the credit sales transaction to Zen made on 1 March was recorded correctly, there
was no record made for the return of the goods and the issuance of the credit note. During
the physical inventory count in end March 2019, the returned blender was not counted as it
was set aside and incorrectly labeled as “sold & reserved for customer”.

2. On 15 March, a customer was declared bankrupt and could not pay the total debt owed of
$21,050. This debt had not been written off yet. It was estimated that 3% of adjusted
accounts receivable balance as at 31 March 2019 may not be collectible.

Required

(a) Prepare the adjusting and / or correcting entries, without dates and narration, for the
two events for the month ended 31 March 2019.
(Key answers: Event 1. Cr COGS $190; Event 2. Dr Impairment Loss on AR $20,408)

(b) If Kiki had used the weighted average cost method to account for its inventories, briefly
explain whether the inventory turnover ratio for March 2019 would be higher or lower
compared to the use of first-in first-out method. Inventory turnover ratio = Cost of goods
sold / Average inventory.
(Key answer: Higher)

Question 7 AC1102 Semester 2 AY 2018/2019 Exam Question 2

(Applying online lesson 6 Part II bank reconcilation)

Kashikoi Sage Pte Ltd (“KS”) has a financial year end of 31 December. It adopts a perpetual
inventory system to account for inventory and the allowance method to account for receivables
(whereby any write off would be against the allowance for impairment of accounts receivable).
KS did not perform any bank reconciliation for 2018 financial year as the former accountant had
left office in early February 2018. During the absence of former accountant, an inexperienced
clerk of KS had taken over the role to handle all the accounting related tasks.

You were recently appointed as KS’s accountant in December 2018, and are responsible for
preparing the financial statements for the financial year ended 31 December 2018 to be
submitted for annual audit. While reviewing the financial records, you found the following issues

21S1 AC1103 Lesson 6 Discussion Questions 11

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

which may explain the discrepancy between the balances shown in the bank statement and the
cash ledger as at 31 December 2018.

Issues

1. A cheque of $9,876 issued by Customer A in April 2018 was correctly recorded by KS’s clerk
upon receipt. However, the cheque was dishonoured by the bank. Upon notification of
the cheque being dishonoured, the clerk made an allowance for impairment of $9,876 and
this was the only journal entry made after the cheque was dishonoured. Customer A did
not provide a replacement cheque despite several reminders sent. In November 2018, the
clerk informed the Director of KS that Customer A was no longer contactable and proposed
to write off the debt of $9,876. The Director of KS approved the proposal but no record
was made for the write off by the clerk.

2. KS’s clerk received another cheque of $5,837 issued by Customer B in May 2018. The clerk
had correctly recorded the receipt but the cheque was dishonoured by the bank the next
day. Upon notification of the cheque being dishonoured, the clerk was busy and
overlooked to make any adjustment for the dishonoured cheque. After numerous
reminders sent, Customer B finally paid $5,837 on 24 December 2018 by making a bank
transfer to KS’s bank account. However, as the clerk was on Christmas vacation leave, no
record was made for the collection received in December 2018.

3. Customer C made a payment of $3,690 in August 2018 for a debt which had been previously
written off in 2017. As there was no longer any balance owed from Customer C in the
ledger after the write off, the clerk recorded the collection of $3,690, which had been
banked in, as if it was a cash sales transaction. All products were sold with at a markup of
50%.

4. Cheque no. 002468 of $1,120 issued to Supplier D in December 2017 for purchase of
supplies was still outstanding and no longer valid for encashment. Upon investigation, it
was found that Supplier D called up in the end of January 2018 to check on overdue
accounts and claimed that he did not receive the cheque. Supplier D requested for an
urgent payment in order to pay his workers in time for Chinese New Year. The former
accountant quickly issued a replacement cheque no. 003579 of $1,120 based on the
duplicate copy of invoice sent by Supplier D before leaving service. In his haste, he forgot
to reverse the payment record of outstanding cheque no. 002468 and had recorded the
purchase of supplies again in order to generate the replacement cheque no. 003579. In
other words, there was a duplicate record for the purchase and payment of supplies of
$1,120.

21S1 AC1103 Lesson 6 Discussion Questions 12

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Required

(i) Explain whether each of the four issues uncovered by you could cause the discrepancy
between the balances in the bank statement and the cash ledger as at 31 December 2018.

(ii) Assume that year end adjusting/correcting journal entries had not been made. Provide all
the necessary correcting journal entries for each of the four issues uncovered for the
financial year ended 31 December 2018. You are to indicate “no journal entry” if correcting
journal entries are not required for any of the issues.

(Key answers: Issue 1 – Cr Cash $9,876; Issues 2 and 3 – no impact on cash; Issue 4 – Dr Cash
$1,120)

Question 8 Adapted from AC1102 Semester 2 AY 2016/2017 Exam Question 2 Part 1

Note: This question contains Week 10 contents – disposal of PPE.

Peppa Pte Ltd (“Peppa”) sells specialised baking equipment and has financial year end of 31
March. Its accounts assistant met with an accident and was hospitalised before he could
reconcile the bank statement of March 2017.

You are the audit assistant assigned to audit the accounts for the financial year ended 31 March
2017. The owner who has minimal accounting knowledge showed you a draft bank
reconciliation statement that he had prepared but failed to reconcile.

Peppa Pte Ltd

Draft Bank Reconciliation Statement as at 31 March 2017 $
Unadjusted balance in ledger (note 1) 4,743
Add: unpresented cheques 234
Add: not sufficient fund cheques 88
Add: electronic collection from customers directly to bank account (note 2) 3,465
Less: bank charges (21)
Adjusted cash balance 8,509

During your investigation in late April 2017, you gathered more information after going through
the documents of the company.

21S1 AC1103 Lesson 6 Discussion Questions 13

 “It always seems impossible until it’s done.” ~ Nelson Mandela

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Additional Information

(1) The cash ledger account at 31 March 2017 reflected a credit balance of $4,743. As the
owner could not reconcile the account after performing the bank reconciliation, no entry
was made to update it to the adjusted balance indicated in the draft bank reconciliation
statement. You have examined that the records prior to March 2017 were correct except
for matters highlighted under additional information.

(2) Though the bank credited Peppa’s account with $3,465, $1,200 should be for PAPARA Pte
Ltd. No records had been made by Peppa for these electronic collections from customers
in March 2017.

(3) The bank statement showed a credit balance of $2,847 as at 31 March 2017. You have
verified that the amounts for the four reconciling items in the draft bank reconciliation
statement were correct except for note (2) above.

(4) The bank statement reflected $2,000 deposited in March 2017 for the sale of a heavy-
duty photocopy machine. This machine was bought for $5,850 (including delivery charge
of $50) in early April 2015. Peppa has a policy to carry all its property, plant and
equipment at cost and adopts double declining balance depreciation method for this
machine. The estimated useful life and salvage value of the machine were 5 years and
$500 respectively.

Peppa sold the machine towards at end of March 2017 and made a loss of $106. The only
journal entry regarding the machine for the financial year 2016/2017 was as follows:

Gain on disposal of machine $2,000

Cash $2,000

Required

(i) Prepare a revised bank reconciliation statement as at 31 March 2017 based on the
additional information in items from (1) to (4) above.

(ii) Prepare all the necessary journal entries in view of the revised bank reconciliation
statement prepared in requirement (i) above.

(Key answers: Adjusted bank and book balances = $1,413;

Entries arising from disposal of machine: Dr Accumulated Depreciation $3,744; Dr Loss on
Disposal of PPE $106 ; Dr Cash $4,000; Cr Machine $5,850; Cr Gain on Disposal of PPE $2,000)

21S1 AC1103 Lesson 6 Discussion Questions 14