Following Balance Sheet of M/S Combined Industriesrelates to the year ended Dece

Question

Following Balance Sheet of M/S Combined Industriesrelates to the year ended

December 31, 2000.

Assets

Rs

Liabilities & Equity

Rs.

cash

200,000

Accrued expenses

25,000

Accounts receivable

650,000

Loan payable

200,000

inventory

800,000

Accounts payable

650,000

Un-expired insurance

40,000

Capital stock

1,000,000

Plant and equipment

1,150,000

Surplus

965,000

2,840,000

2,840,000

Additional information:

1. Possibility of bad debts on AccountsReceivable has not been considered yet. It is

estimated that bad debts will Rs. 20,000.

2. Rs. 150,000 representing cost of large scalenewspaper. Advertising campaign to

be completed in year 2000 has been included in the inventories.It is also found

that inventories include merchandise Rs. 65,000 received onDecember 31, 2000

has not been recorded as purchases.

3. Un-expired insurance consists of Rs. 4,000.The cost of fire insurance for the year

2000 is Rs. 31,000 includes the cash surrender value of officerlife insurance

policy.

4. Books show that plant & equipment has acost of Rs. 2,000,000 with

depreciation of Rs. 850,000 recognized in prior years. However,the balances

include fully depreciated equipment of Rs. 150,000 that has beenscraped and is

no longer in hand.

5. Accrued expenses of Rs. 25,000 representaccrued salaries of Rs. 35,000 less non

current advances of Rs. 10,000 made to company officials.

6. Loan payable represents a loan from bankthat is payable in regular quarterly

installments of Rs. 20,000. Interest of Rs. 2,000 accrued on theloan on December

31, 2000 has been recorded in the books.

7. Tax liability not shown is estimated at Rs.45,000.

8. Capital stock had been issued for a totalconsideration of Rs. 1,850,000 the

amount received is in excess of par and stated values of thestock being reported

as surplus. Capital stock represents 100,000 shares of Rs. 10each.

Required:

By considering IAS (1) Presentation of FinancialStatements, you are required to

prepare corrected Balance Sheet with accounts properlyclassified.

Assets

Rs

Liabilities & Equity

Rs.

cash

200,000

Accrued expenses

25,000

Accounts receivable

650,000

Loan payable

200,000

inventory

800,000

Accounts payable

650,000

Un-expired insurance

40,000

Capital stock

1,000,000

Plant and equipment

1,150,000

Surplus

965,000

2,840,000

2,840,000

Explanation / Answer

1) Provision for Bad debts to be shown under Currentliabilities and deduct Provision form Accounts receivables. 2) Deduct from Inventory 150,000(advertising Compaign) anddeduct from Surplus. For merchandise Deduct from Surplus and Add toAccounts Payable 3) not clear 4) Deduct 150,000 from Plant & Equipment and deduct fromSurplus 5) Accrued Expenses 35,000 and Staff Advance 10,000(AccountsReceiveable - Non-Trade) 6) No adjustment required since entry has already been madefor accrued interest. 7) Provision for Tax Liability should be shown on libilityside and surplus should be reduced by 45,000 8) Capital Reserve (1,850,000 - 1,000,000) should be shownunder separate head in liability side and Surplus should be reducedto that extent.

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