Question 4

Click & Save Pte Ltd is an e-commerce company that offers online shopping in books, stationeries, music, videos, electronics, software, and fashion products in Singapore.

Following is the unadjusted trial balance of Click & Save Pte Ltd as at 31 December 2018.

Debit ($)

Credit ($)

Share capital

300,000

Retained earnings, 31 December 2017

82,500

Warehouse at cost

465,000

Motor vehicles at cost

300,000

Provision for depreciation

Warehouse

0

Motor vehicles

75,000

Cost of goods sold

1,691,100

Sales

2,775,900

General expenses

62,400

Wages and salaries

538,200

Allowance for doubtful debts

3,600

Accounts receivable

222,600

Accounts payable

174,900

Bank

37,950

Bank Loan

150,000

Inventory

245,700

Rent received in advance

4,800

Interest expense

3,750

3,566,700

3,566,700

You are given the following additional information:

(1) The company bought a small warehouse on 1 January 2018 that costs $465,000. The warehouse is expected to have a residual value of $30,000 at the end of its estimated useful life of 20 years.

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Timed Online Assignment - July Semester 2020

(2) Since the company does not occupy the entire warehouse, it rented out space to two tenants at $600 per month each starting on 1 October 2018. The first tenant paid $1,200 for two months' rent on 1 October 2018. However, no further payments have been made. On 1 October 2018, the second tenant paid $3,600 for six months' rental.

(3) On 1 January 2018, to finance the purchase of the warehouse, the company took a loan of $150,000 from the bank. The company only needed to start making the first principal repayment on 1 January 2021. The bank charged an interest of 5% per annum. Interest for the loan is payable on 1 January and 1 July. Interest for the six months had been paid on 1 July 2018. This has been recorded in the accounts.

(4) Wages and salaries are due but still remained unpaid at 31 December 2018, $7,550. This amount has not been included in the wages and salaries figure shown in the unadjusted trial balance above.

(5) The company estimated that as at 31 December 2018, 4% of accounts receivable will be uncollectible.

(6) No depreciation has been charged for the year ended 31 December 2018. The company depreciates non-current assets held at 31 December 2018 as follows:

Warehouse: Assuming straight line over 20 years.

Motor vehicles: Assuming a five-year life span and the double declining balance depreciation. All motor vehicles are assumed to have no residual value.

Required:

(a) Analyse the above and prepare the necessary 31 December 2018 adjusting journal entries to describe the information provided. No narrations required.

(16 marks)

(b) Compute the following after incorporating the adjustments to the trial balance:

(i) Net profit.

(ii) Total liabilities.

(iii) Equity.

It is not necessary to present your answer in the financial statement format. However, it is important to show your workings in a clear and succinct manner.

(9 marks)