Part 4: Correction of errors

Part 4: Correction of errors

Haywards Bay Seafoods sold its delivery truck on 30/9/X5 for $27,500.00 to Cranston Motors. The sale was on credit and will be part of accounts receivable, see the invoice below.

Haywards Bay Seafoods 97 Princess Hwy

Haywards Bay NSW 2530 INVOICE

DATE: 30/9/X5

ABN: 61 234 567 890 INVOICE # 25089

Invoice to: Customer No: CTG4512

Cranston Motors 23 Shellharbour Rd

Dapto NSW 2565 DESCRIPTION Quantity RATE AMOUNT

Ford Transit FT250 model - Serial number 87859HN65489JUY23 1 25,000.00 25,000.00

SUBTOTAL 25,000.00

10% GST 2,500.00

TOTAL 27,500.00

Payment due 30 days from the invoice date

The junior clerk in the accounts department prepared the following journal entries to account for the sale. The journal entries were based on the invoice above and the Depreciation Worksheet below.

STRAIGHT LINE DEPRECIATION

ASSET: Truck Ford Transit FT250 model 87859-HN65489-JUY23

ASSET COST INCLUDING INSTALLATION 65000

LESS RESIDUAL VALUE 0

= DEPRECIABLE AMOUNT 65000

RATE pa 10% ON DEPRECIABLE AMOUNT

DATE ASSET COST DEPRECIATION CURRENT ACCUMULATED DEPRECIATION CLOSING CARRYING AMOUNT

1/07/20X0 65000

30/06/20X1 6,500 6,500 58,500

30/06/20X2 6,500 13,000 52,000

30/06/20X3 6,500 19,500 45,500

30/06/20X4 6,500 26,000 39,000

30/06/20X5 6,500 32,500 32,500

30/09/20X5 1,625 34,125 30,875

The entries were posted to the ledger before they were checked.

Haywards Bay Seafoods

General Journal GJ1 Date Details Ref Debit Credit

30/9/X5 Depreciation Expense 1,625.00

Accumulated depreciation Truck 1,625.00

Depreciation expense for truck at time of sale.

30/9/X5 Accounts receivable 27,500.00

Disposal of truck 27,500.00

Sale proceeds from sale of truck

30/9/X5 Disposal of truck 65,000.00

Truck 65,000.00

Transfer of asset to disposal account.

30/9/X5 Accumulated depreciation 34,125.00

Disposal of truck 34,125.00

Transfer accumulated depreciation to disposal account

30/9/X5 Loss of disposal of assets 3,575.00 Disposal of truck 3,575.00

Transfer loss on disposal of truck You have looked at the above entries and realised there are errors in the journal entries.

REQUIRED

Open the excel workbook BSBFIA401_AE_Appx_Templates.xlsx, There are a series of worksheets starting with Part 4. Use the worksheet named in each of the questions below to provide your answer:

Refer to the policy and procedures for Haywards Bay Seafoods (found in file BSBFIA401_AE_Appx_HBSPolicyProcedure). Prepare journal entries to correct the errors you identified. You do not need to enter reference numbers into the journal. Make sure you follow the Haywards Bay Seafoods policy and procedure. Your journal entries should be entered on the template found in worksheet Part 4 Correction of errors. The date the errors were corrected is 15/10/X5. The entries accounting for depreciation are correct.

Prepare a memo for your manager. In the memo you should:

Explaining the errors you have identified.

How you think the errors should be fixed.

Request a meeting with your manager. The purpose of the meeting is:

To get her advice on the correctness of the entries you are suggesting to remedy the errors.

Gain her approval to process the corrections.

Write your memo on the worksheet called Part 4 Memo

Read the Haywards Bay Seafoods policy and procedure on correcting errors. In your own words outline what must be done to correct an accounting error. Type your answer into worksheet Part 4 Q III

Question 5

Brice sells large quantities of hair care products on credit to other hair salons. Generally, clients are given 30 days to pay their accounts. Unfortunately, there has been a history of bad debts in the past. As at 30/6/X1 Brice has $13,705.00 as accounts receivable.

An aged debtors list for Brice is shown below.

Accounts Receivable Current $ 30 -60 days Due $ 60-90 days due $ Over 90 days due $

Mortons Hair Salon 1,560.00 Cut and Curl 950.00 350.00 270.00 Celines Hair Explosion 500.00

Village Barber Shop 400.00 900.00 21st Century Hair 3,600.00 550.00 Blondi Hair 1,850.00 2,150.00 625.00 TOTAL 7,960.00 3,450.00 1,795.00 500.00

Brice has been trying to collect the $500 from Celines Hair Explosion but has recently found out that Celines has gone into liquidation. The liquidators have told Brice that creditors will only receive $0.50 for every $1.00 of debt owed.

On the template below:

Prepare journal entries to write off $250.00 as a bad debt from the debt owed by Celines Hair Explosion. You do not need to adjust the subsidiary ledger of Celines Hair Explosion.

In accordance with Brices policy and procedure for doubtful debts, Brice makes a provision for doubtful debts equal to 15% of debts owed that are 60 90 days overdue. Currently, Brice has $150.00 in his provision for doubtful debts.

Prepare journal entries to adjust the current balance in the provision for doubtful debts account to what it should be. Round your provision to the nearest whole dollar.

Note, you do not need to enter a reference number for these journal entries.

General Journal GJ1

Date Details Ref Debit $ Credit $

Question 6

Brice purchased an integrated security and fire protection system for the salon during the year. The system cost $45,000. You have checked the Australian Taxation Office (ATO) website and found that the effective life of the asset is 5 years for depreciation purposes.

You have also seen that the ATO has published formulae to calculate depreciation using the diminishing value and straight-line method.

Straight-line method

Depreciation Expense = Assets cost X Days held X 100%

365 Assets Effective life

Diminishing value method

Depreciation Expense = Opening carrying X Days held X 200%

amount 365 Assets Effective life

Brice has asked you to complete the following table so he can compare the different depreciation expenses over the life of the asset.

Year Depreciation expense

Straight line method $ Depreciation expense

Diminishing cost method $

1 9000 2 9000 3 9000 4 9000 5 9000 Total 45000 Brice has decided to use the diminishing value method to calculate depreciation. Prepare a journal entry to record the depreciation of this asset for the year ended 30/6/X1. The asset was purchased on 31/1/X1 for $45,000.00. Record the depreciation expense on the template below. When calculating the depreciation expense use the ATO formula above and round your answer to the nearest dollar.

Note, you do not need to enter a reference number for these journal entries.

General Journal GJ1

Date Details Ref Debit $ Credit $

List and compare three factors that Brice would consider when he was making the decision to choose between the diminishing value method or the straight-line method. Your answer should be a minimum of 50 words but no longer than 80 words.