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Rectification of Errors Q10

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12 views2 pages

Rectification of Errors Q10

Uploaded by

Krishna 11
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Rectification of Errors Question 10

QUESTION 10 – Rectification of Errors (ICMAP Sep17)

Sultan Traders does not maintain a computerized system of book keeping. The accountant of
Sultan Traders was unable to balance the account for the year ended June 30, 2017. The total of
debit and credit balances were Rs. 898,050 and Rs. 907,279 respectively.

However, the accountant of Sultan Traders decided to prepare draft financial statements, inserting
the difference as a balancing figure in the statement of financial position. The draft statement of
profit or loss showed a profit of Rs. 51,510 for the year ending June 30, 2017.

The accountant opened a suspense account for the difference and began to check the accounting
records to find the differences. The accountant, on security, found the following errors and
omissions:
 The amount of Rs. 4,490 pertaining to sales return during the year, had been credited to
purchases return account.

 An amount of Rs. 4,800 paid for an item of plant purchases on January 01, 2017 had been
debited to repairs and maintenance account. The company charges depreciation on plant @
20% per annum using straight – line method.

 Cash discounts allowed during the year, amounting to Rs. 418 had not been posted to ledger
accounts.

 Cash discount received during the year, amounting to Rs. 459 had not been posted to ledger
accounts.

 Prepaid insurance, amounting to Rs. 290 prepared at July 01, 2016 had not been brought
down as an opening balance.

 A non – current asset had been sold during the year for Rs. 2,400. The proceeds of sale were
entered in the cash book but had been credited to the sales account in the general ledger. The
original cost of the asset was Rs. 6,000 and the accumulated depreciation (to date) of Rs.
4,000 were included in the non – current assets and accumulated depreciation accounts
respectively. The company depreciates non – current asset @ 25% per annum on straight –
line basis with proportionate depreciation in the year of purchase and none in the year of sale.

Required:
(i) Pass the necessary journal entries to rectify the errors. (09)
(ii) Prepare a revised statement of profit or loss after correcting the above errors for the year
ended June 30, 2017 (05)

Page 1 of 2 (kashifadeel.com)
Rectification of Errors Question 10

ANSWER 10 – Rectification of Errors (ICMAP Sep17)

Rectifying
1 Purchase return 4,490
Sales return 4,490
Suspense 8,980

2A Plant 4,800
Repair and Maintenance 4,800

2B Depreciation 480
Accumulated depreciation 480

3 Discount allowed 418


Suspense 418

4 Suspense 459
Discount received 459

5 Insurance expense 290


Suspense 290

6 Sales 2,400
Accumulated depreciation 4,000
Asset 6,000
Gain on disposal 400

Revised statement of profit or loss Rs.


Profit before correction 51,510
Purchase return 1 (4,490)
Sales return 1 (4,490)
Repair and maintenance 2A 4,800
Depreciation 2B (480)
Discount allowed 3 (418)
Discount received 4 459
Insurance expenses 5 (290)
Sales 6 (2,400)
Gain on disposal 6 400
REVISED PROFIT 44,601

Page 2 of 2 (kashifadeel.com)

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