Slavko Mitrovic is one of the owners of Salami 4 U, a small business that

manufactures and sells organic salami and other small goods. Slavko also manages the

business on a part-time basis, sharing the responsibilities with the other partners. Using

the business cheque book by accident, Slavko recently purchased a car for his beautiful

wife Natasha Mitrovic as a birthday present. Natasha is a sales representative for a large

computer company and will be using the car in her job. Based on the cheque butt, the

accountant recorded the transaction in the accounts of Salami 4 U as follows.

Motor Vehicles

Cash

(Purchase of motor vehicle)

20 000

20 000

One day later, Slavko realised his error and decided to purchase some salami making

equipment worth $20 000 out of his personal account to correct his error. Not realising the

transactions were linked, the accountant recorded the transaction in the accounts as follows.

Plant and Equipment

Owner's CapitalSlavko Mitrovic

(Capital contribution by ownerpurchase of

equipment for business by Slavko Mitrovic

from personal funds)

20 000

20 000

Required

(a) For each of the transactions recorded above:

(i) Determine if they have been recorded correctly or incorrectly based on the

concepts and principles that underlie the recording of accounting transactions.

(ii) If any transactions have been recorded incorrectly, discuss how the accounting

concept(s) or principle(s) have been breeched.

(iii) If any transactions have been recorded incorrectly, prepare BOTH the correcting

entry to correct the recorded error as well as the correct journal entry that

should have been recorded by the accountant in the first instance. Ignore GST.

(b) What if the car had been purchased for use by Slavko only when he was working in

the business? Under these circumstances, explain whether the transactions have been

recorded correctly or incorrectly based on the concepts and principles that underlie

the recording of accounting transactions.