After conducting an audit of the accounts of Parramatta Ltd, you discover that the following transactions and
Question:
After conducting an audit of the accounts of Parramatta Ltd, you discover that the following transactions and events were recorded during the current year. Parramatta Ltd uses the historical cost system.
1. The company borrowed $600000 from a bank at an interest rate of 10% to construct a new warehouse. At the completion of construction, the loan was repaid and the following entry was made:
Bank Loan Warehouse Cash at Bank | 600000 60000 | 660000 |
2. A patent with a cost of $160000 was being amortised over its useful life of 8 years. The amortisation entry made at the end of the current year was:
Retained Earnings Patents | 20000 | 20000 |
3. A speed-control device was installed on each of the company’s 8 delivery trucks at a cost of $300 each plus GST. The transaction was recorded as follows:
Maintenance Expense GST Receivable Cash at Bank | 2400 240 | 2640 |
4. At the beginning of the current year, a new vehicle was purchased for $36000. The vehicle had an estimated useful life of 4 years. Depreciation expense for the year was recorded as follows in order to avoid reporting a loss:
Depreciation Expense Accumulated Depreciation – Vehicle | 2000 | 2000 |
5. Inventory was acquired at $30 per unit throughout the current year until the last purchase was made in the last month of the year. At that time the company was able to negotiate a special deal and acquired 10000 units at $25 per unit. Ignore GST. The purchase was recorded as follows:
Inventory Cash at Bank Income | 300000 | 250000 50000 |
Required
For each item, determine which accounting concept(s) (if any) is violated, and explain why. For each violation, indicate the correct treatment.
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett