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Midjourney Enterprises

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Fahad khan
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48 views2 pages

Midjourney Enterprises

Caf-1 far-1

Uploaded by

Fahad khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF or read online on Scribd
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Question #2: ‘The accountant of Midjourney Enterprises (ME) prepared the draft statement of profit or loss for the year ended 31 December 2023, which showed gross profit and net profit of Rs. 1,360,000 and Rs. 590,000 respectively. The following errors were found on a detailed review of the draft financial statements: (i) Purchase returns of Rs. 20,000 were recorded as sales returns of Rs. 2,000. (i) Free samples of goods costing Rs. 30,000 were distributed to potential customers, but were mistakenly recorded as credit sales at a mark-up of 30% on cost. (iii) Proceeds from the disposal of office equipment on 31 December 2023, amounting to Rs. 382,000, were credited to sales. The equipment had cost and carrying amount on 31 December 2023 of Rs. 500,000 and Rs. 320,000 respectively. ME depreciates office equipment at 20%. (iv) Transportation outward, amounting to Rs. 240,000, was recorded as transportation inward. This also resulted in overstatement of closing inventory by Rs. 36,000. (v) While recording impairment for an item of property, plant and equipment, its value in use of Rs, 1,200,000 was ignored. The item had a carrying value (before impairment) of Rs, 1,800,000 and fair value less costs of disposal of Rs. 1,000,000. ME uses periodic inventory system for recording its inventory. Rea ‘Compute the corrected gross profit and net profit of ME for the year 2023. (08) Answer #2: Mid Journey Enterprises Corrected Gross profit: Rs, 000" Gross Profit (Given) 1360 Cr. Sales Return _ 2Cr Purchase Return _ 20Cr Sales (39 Dr) Purchases 30Cr Sales (3820r) | Transportation inwards 240 Cr. Cost of Sales 6De) Corrected Gross Profit 2,195 cr, [ Corrected Net profit: Net Profit (Given) 590 Cr. “Decrease in Gross Profit [1,360 - 1,195] (165 Dr) Advertisement Expense (30 Dr) Gain on Disposal 62Cr. Transportation Outwards (2400r) | Impairment Loss 200 Cr. Corrected Net Profit a) b) ¢ 4) e) Suspense A/c 22 Sales Return Purchase Return (i) Sales 39 Debtor (30/100 x 130) (ii) Advertisement (Operating Exp) 30 Purchases sales 382 ‘Acc. Depreciation 180 Equipment Gain (Other income) (P/L) (i) Transportation Outwards 240 Cost of Sales 36 Stock 36 Acc. Impairment Loss 200 Impairment Loss (P/L) 200 Working Should be Carrying Amount Recoverable Amount: Value in Use FV Less CTS Higher of: 1,800 1,000 1,200 Impairment Loss [1800-1200] = 600 ‘Therefore, Impairment Loss to be reversed [800 - 600] = 20 39 30 500 62 240 Working has been Carrying Amount 1,800 Recoverable Amount: FV Less CTS 1,000 Impairment Loss [1800-1000] = 800 200

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