Topic 9 – Liabilities

Lecture Illustration 1
Employee Benefits

The following information is used to calculate Somerton Ltd payroll for the week ending 30 June
2019:

Employee Gross pay Donations

G. Vines 1,190 30
M. Davis 1,550 60
S. Farmer 1,640 40
A. Peterson 980 25

Employees’ superannuation contribution is 10% of their gross pay. PAYG tax is taken out at 30%
after subtracting the donations and superannuation. All employees also have the following
deductions from their after tax pay: 3% life insurance and 5% medical insurance.

Required:
a. Calculate the ‘take home’ pay for each employee
b. Prepare the general journal entry to accrued the payroll and associated deductions
c. Prepare a cash payments journal entry to record the payment of wages
d. On 6 July 2019, the company forwarded a cheques to cover amounts withheld from
employees’ wages for the month of June. Total income tax deductions and other deductions
were four times the weekly deductions. Prepare a cash payments journal to record these
payments.

Employee Gross Donations Super PAYG After Tax Life Medica Take
Pay Ins l Ins Home Pay

Date Explanation Debit Credit

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 Cash Payments Journal (extract)
Debits Credits
Date Accounts Debited Chq Other Accs Cash at
No. Accounts Payable Bank

Lecture Illustration 2

Stanley Ltd had previously purchased inventory from Top Coat on credit for $8,000 including
GST.
On 1 August Top Coat agreed to accept a 90-day (due date fixed) bill of exchange from Stanley
Ltd to cover the amount of the account payable together with interest at 5% p.a.

Required:
Record the general journal entry to:
 record the issues of the bill
 payment of the bill on maturity date

Date Explanation Debit Credit

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Lecture Illustration 3

At 30 June 2019 Custom Autos adjusted its Provision for Warranties so that it would be equal to
5% of sales for the year ended on that date. Sales for the year ended 30 June 2019 were
$800,000 and the Provision for Warranties before the adjustment was $23,500. On 10
September 2020, a successful claim for warranty on faulty goods to the cost of $600 was made
on Custom Autos.

Required:
a. Prepare the general journal entry at 30 June 2019 to adjust the Provision for Warranties to
the required level.
b. Record the payment of the warranty claim on 10 September 2019 in the general journal.

Date Explanation Debit Credit

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