Accounting assignment



Wood Toys

Answer 1) Post-trial balance adjustments

Post trail balance adjustments are made for bad and doubtful debts, stocks, accruals, prepayments and for depreciation. The purpose of this arises because of necessitate to relate the concepts of prudence and accruals.

Stocks

The prudence concept is applied to each item of stocks or similar items which must be valued at the net realisable value or at lower cost. The value of net realisable is calculated through the expected sales deducting expenses incurred in stock sales. Through this method the profit is not anticipated rather the entire losses are predictable. The closing stock value is determine by replacing the cost value of the stock which will sold for less than the cost along with the net realisable value of that stock. For instance, Wood Toys actual physical inventory that was unsold at the end of year was £3600 which was residual value, the stock on hand was amounting £ 4000 at the beginning to the year which has to be old during the year of business operation. The entry for this would be as followed:

 

Dr

Cr

Cost of Goods Sold

400

 

Stock on Hand

 

400

The above entry is the difference between the Stock at 1st January 2011and Stock at 31st December 2011. It is crucial for the value of the actual inventory to be recognized as the stock on hand at the end of the closing year. After this, the post trail balance will show the actual amount of stock on hand while in the new general ledger the COSG would be added(www.fao.org).

Deprecation

The accrual concept is applied to the charges of depreciation through matching the fixed asset costs by means of revenue which they have assisted to earn them. According to the predetermined policy, the asset classes cost has been spread over a number of accounting periods which are reducing balance method and straight line method. Both methods require the cost of assets and useful life of the assets in order to estimate their depreciation charges. Straight line method calculates deprecation on the cost of the asset while reducing balance emphases on the net book value which is cost minus depreciation provision.

Straight line (£)

Equipment cost

8,000

Provision for depreciation b/f 

0

Depreciation rate

10%

useful life

5 year

Depreciation charge

1440

 

Dr

Cr

Depreciation Expense

1,440

 

Accumulated Depreciation-

 

1440

The cost of the equipment was 8000 pound which has no provision for deprecation as company elapsed make hence, it is zero and also for straight line provision for depreciation is always nil. The useful life for the equipment is estimated to be 5 years with the deprecation rate of 5%. This charge is entered in to the statement of profit and loss as an expense and entry has been made to make this point clear.

Prepaid Expense

The cost that has been paid in advance is termed as prepaid expenses. It is important to calculate the amount of prepayments at the end of accounting period as it related to the next accounting period. It is consider the same approach take for the accruals. The prepaid insurance paid by the Wood Toys was 1000 ...