Delta

Company «Delta» was founded in 2006 as an Open Joint Stock Company. The main
activity of the company is selling TVs. You were hired as an independent expert to
prepare the financial statements for 2009 year.

Additional data:
1) Reporting date for the company – December 31, 2009.

2) The company should prepare the financial statements according to International

Accounting Standards (IAS).

3) The reporting currency – current units (CU)

The accounting policy of the company assumes the following:

 For bad debt expense the company uses the percentage of net credit
sales method.
 For inventory valuation the company uses the periodic inventory system
and the weighted-average method.
 Inventory-taking is made on the last day of each month.
 For accounting of depreciation of buildings the company uses the
straight-line method.
 For accounting of depreciation of selling equipment the company uses
the double-declining method.
 For accounting of depreciation of the lorry the company uses the
production method.
 The company uses the current portion of long-term debt.

For tax purposes:

 The company uses the Tax Code of the Kyrgyz Republic.
 Savage value and the useful life equal to the company’s accounting
estimates.

Required:

1. Make adjusting and correcting journal entries in the General Journal (4

points).

2. Fill-in the Worksheet (2 points).

3. Prepare the Financial Statements for the company (Balance Sheet,

Statement of Retained Earnings, Income Statement) (2 points).

4. Fill in the tax reconciliation form (2 points).

 Do not make the closing entries.

 Make all the numbers round.
 All calculations should be done a monthly basis.
 If required add accounts in the work sheet of the company.
You have to analyze the following transactions:

1. Your remuneration for the preparation of the financial statements for 2009 will
be 4 500 CU and will be paid in the second decade of the February.

2. On December 25, 2009 there was received a payment from the client in
amount of 4 000 CU that was recognized earlier as bad debt and written off in
July, 2009. When money were received the account “Other operating income”
was credited.

3. On December 28, 2009 inventory was shipped in amount of 17 500 CU.

Documents about shipping were not timely presented in the accounting
department therefore, there were not made any entries.

4. According to the accounting information, on December 1, 2009 the company

had 500 units of inventory. During December the following purchases were
made:

December 7 – 100 units at 186 CU per unit;

December 17 – 80 units at 190 CU per unit;
December 23 – 160 units at 186 CU per unit;
December 31 – 120 units at 187.50 CU per unit.

According to the inventory-taking, on December 31, 2009 the company had

260 units of inventory.

5. According to the company estimates, 2% of net credit sales are bad debt.
During the year 60% of sales were made on credit.

6. After analyzing the trial balance there was revealed an error that occurred in
2008. Depreciation expenses for the building in 2008 were accrued in amount
of 18 000 CU.

7. Company has a building that was put into operation on February 1, 2007. 60%
of its territory is used for selling purposes, and 40% - for administrative.
Salvage value of the building is 5 000 CU, and the useful life – 25 years.

8. On January 2, 2009 company acquired selling equipment on terms of financial

lease for 10 years, which represents its useful life. Payments in amount of 6
000 CU are made twice a year, on June 30 and December 31. The fair value of
the equipment in the beginning of the lease contract was 74 773 CU. Payments
were made on time and reflected in account “Selling lease expenses”. The
effective interest rate is 10%.

Selling equipment, besides this leased equipment, was acquired on July 1,

2008. Salvage value of this equipment is estimated to be 2% of its initial cost.
Useful life of this equipment is 10 years.
9. Lorry that is used for delivery of goods to customers was acquired on
December 2, 2008. Salvage value of the lorry is 12 000 CU, useful life – 870
000 km. The mileage by December 31 2009 was 33 000 km.

10. On November 28, 2009 the company insured its selling equipment and the
lorry. The contract became effective from December 1, 2009. The insurance
premium was paid on November 30, 2009 and was reflected on account
“Selling insurance expenses”

11. On December 1, 2006 the company acquired 5 800 shares of company

“Alpha”, that represent 5% of the voting stocks. Shares were classified as
investments available for sale. Financial year of “Alpha” ends on October 31.
On October 30, 2009 “Alpha” declared dividends in amount of 188 000 CU,
that it planned to pay in February, 2010. The fair market value of shares of
“Alpha” on December 31, 2009 is 125 CU per share.

12. Tax rate is 20%.

 General Journal
Date Account Titles and Explanation Debit Credit Notes
1. Accrued salary 4)
178560/9
Dr 8010 salary expenses 4500 60=186u
Cr 3520 accrued salary 4500 nits
*260=483
2. Accrued operating income 60
Dr 6100 Operating income 4000 Bb
Cr 1410 Account receivable 4000 92500-
48360=
3. Accrued Revenue 44140
Dr 1410 Account Receivable 17500 86060+4
4140=
Cr 6110 Sales revenue 17500 130200
4. 1. COGS
4 Dr 7190 inventory cost adjustments 44140 5)
1547800 *
. Cr 1890 inventory 44140 60%=
2.Writting-off 928680*
130200 0.02=
Dr 7100 COGS 18,574
Cr7210 goods Purchases 86060
Cr 7190 inventory cost adjustments 44140 7)
365000-
5. Accrued bad dept expense 5000=36
Dr 7550 bad dept expense 18574 0000*1/2
5=14400
Cr1491Allowance for DA 18574
6. - 8)
7. Accrued depreciation expense 100000-
74773=
Dr 7580 Depreciation expense 14400 25227*2/1
Cr 2193 Accumulated depreciation 14400 0=5045/12
=420*6=2
8. 1.Accrued payment (june) 520
Dr 3550 Accrued interest 3739 25227-
2261 5045=201
Dr 3330 Current portion of lt debt 82*2/10=4
Cr 8095 selling lease expense 6000 036/12=33
2. accrued payment (dec) 6*6=2016
+2520=45
Dr 3550 Accrued interest 3626 36
Dr 3330 Current portion of lt debt 2374
9) 302000-
Cr 8095 selling lease expense 6000 12000=29
3. Depreciation expense 2009 0000/8700
Dr 7580 Depreciation expense 4536 00=
0.33*3300
Cr 2193 Accumulated depreciation 4536 0=
9. Accrued depreciation expense 10999
Dr 7580 Depreciation expense 10999 10)
Cr 2197 Accumulated depreciation 10999 18000*
1/12=
10. Correct insurance expenses 1500
Dr 8080 Insurance expense 1500
Cr 1890 other prepaids 1500 11)188000
 *5%=
9400
11. Dr 1560 dividends receivable 9400
Cr 2830 Investments in associates 9400