INTRODUCTION

Definition of Accounting:

1. Accounting:
- Measurement, disclosure, provision of assurance abt info
- Help managers + other decision makers
- To make resources allocation decisions (4Ms – machine, money, materials, men)

2. Financial Accounting:

Historically involved processes by which financial info abt a business is

- Systematic recording: sorting f.transactions step-by-step

- Classifying: sorting out ea transactions under different groups
- Summarizing: giving complete concise picture of financial position of business in FSs
- Interpreting: how ea transaction affects f.position -> use for head plan
- Communicating: producing info abt f.status to ppl feel interested

3. Mana Accounting: mana info system analyzing data to provide info as a basis for
managerial actions – planning, controlling, decision making.

I. Types of business entity

 Advantages Disadvantages
Sole trader
- Easy to format - Ltd resources
- No special taxes - Ltd business life
- Prompt decisions - Unltd liability
- Easy dissolution - Scale of business of expertise
Partnership
- Additional K can be raised - Partners r jointly personally liable for
- Sharing of risk + losses btw more ppl all debts
- No company tax on the business - Disagreements
- Less stringent reporting obligations (no
pub f.accounts, no audit requirement)
Ltd Liability company
- Less risky - Legal + acct. regulations compliance
- Easier to transfer share fr 1 to others - FSs must be audited by independent
- Continuity auditor
- Tax advantage (CIT < PIT) - Published FSs
- Difficult to ↓ chartered K (vố n điều lệ)

II. USERS’ + STAKEHOLDERS’ NEEDS

1. Internal users

Shareholders Investment decision

- Assess their investment’s performance
 - Evaluate div-pmt ability via future plans + prospects
- Increase/hold/sell shares
Planning + Mana decision making
- Build plans
Managers
- Actual vs. Plan
- Performance improvement via fb on previous decision
Personal benefits
Employees - Assess comp.’s ability in giving remuneration, employment, oppo.s,
job security, … in long-term

2. External users

Loan security
Lenders
- Ability to meet interest pmts + eventually repay in advance
Trade contacts
- Suppliers on Cr - Long-term health + liquidation position
- Secure sources of supply for themselves
- Customers
Estimation of future operations
F.analysts + advisors - Profit performance?
- Identify investment oppo.s + future prospects
Tax authority Taxes duties + collection via profit assessment
- Resources allocation
Gov + legal agencies - Business activities
- Trends revealing w.i econ
- Econ contribution
Pub.
- Envirm.

III. The main element of FSs

1. BALANCE SHEET (Stm of F.position)

Definition: BS = A stm of A, L and E of a business @ a particular date

Assets: a resource

- A result of past events

- Future econ benefits r expected to flow to the business

Liabilities: a present obligation

 - A result of past event
- Result in an outflow of resource embodying econ benefits

Equity = Assets – Liability

2. INCOME STATEMENT (Stm of P&L)

IS = A sum of Income + Expenses over a time period (Income > Expense = Profit, or else Loss)

Income = Increase in econ benefits w.i acct. period via

- Inflows/enhancements of A
 - Decrease of L

Expenses = Decrease in econ benefits w.i acct. period via

- Outflows/depletions of A
- Increase of L

-> Decrease in E / div distributions

3. CASH FLOW

CF = A sum of historical $ inflows + outflows for a given period via Operating, Investing and
Financing activities

IV. GOVERNANCE

Definition: Corp governance = A system

- Control + direct companies and other entities

- Good CG = avoid conflicts btw shareholders and managers
1. Legal responsibilities of Directors
 - DoC = show reasonable competence + compensate for loss if due to their
negligence
- Fiduciary position = act honestly in the best interest of comp + in good faith

When exercising this duty, directors should consider:

- Decision consequences
- Employees’ interest
- Develop good rela w customers + suppliers
- Impact on local community + envirm
- Maintain high stds of business conduct + good reputation
- Act fairly btw all mems

2. Responsibility for FSs

FSs:

- Responsible by directors
- I.a.w applicable reporting framework (IFRS, VAS, …)
- Internal controls r essential to prevent material misstm due to error/fault
 REGULATORY FRAMEWORK
I. Regulatory systems

1. IFRSF
- Develop single set of high quality + understandable & enforceable IFRSs
- Promote use + rigorous app to IFRSs
- Take account of f.reporting needs of emerging econs + SMEs
- Convergence (đồ ng nhấ t) of national acct stds & IFRSs to high quality sols.

2. IASB
- Uniformity in acct principles among businesses + orgs for f.reporting globally
- IFRS producer

3. IFRS AC
- Assist IASB in std setting

4. IFRIC
- Review newly identified reporting issues (not specifically addressed in IFRS)
- Clarify issue / develop in absence of authoritative guidance -> reach consensus on a
appropriate treatment

5. GAAP – Generally Accepted Accounting Practice

II. IFRS – International Financial Reporting Standards

THE QUALITATIVE CHARACTERISTICS of

FINANCIAL INFORMATION

I. IASB’s Conceptual Framework

Definition: a set of principles

- Foundation of f.accounting
- IFRS base

Scope:

1. FSs objectives:
- Info abt f.position and its performance + changes
- Results of mana performance
2. Qualitative characteristics determining the usefulness of info in FSs
3. Definition + Recognition + Measurement of elements constructing FSs
4. Concepts of K + K maintenance

II. QUALITATIVE CHARACTERISTICS

Fundamental characteristics
(Content)
Relevance Faithful representation
Predicative value: Complete:
 - Predict future based on past - Including all info for users to
performance understand depicted econ phenomenon
Confirmative value: in FSs
- Confirm validity of predictions by - Description + explanation
comparing predictions vs. actual results Neutral:
Nature + Materiality (trọng yếu) of info: - No bias in content + presentation
- Affects d.m process - No manipulation for any purposes
- Must be professionally assessed Free fr error:
- No omission/errors in description
- No error in producing info
Substance over form:
- Econ reality of trans. > its legal form
Enhancing characteristics
(Representation)
Timeliness Comparability Understandability Verifiability
- Having info available - w other entities - Classifying, - Info faithfully
to d.makers in time - w previous periods characterizing, represents econ
representing clearly + phenomena
concisely - Independent
knowledgeable person
can reach same
consensus for a
particular depiction

III. ACCOUNTING CONCEPTS

Underlying assumptions
- The business will cont. in operation for >= next 12 mths. (-> No
Going concern liquidation/materially scale down operation)
- A shouldn’t be valued at “break-up” value
- Effect of transaction r recognized when occurring (Not when
Accruals basis
they r paid/received)
Accounting concepts
- Compliance w IFRS
Fair presentation - All relevant IFRS must be followed
- Use of an appropriate acct treatment
 - Consistent in acct treatment of similar items w.i ea acct
Consistency
period/btw 1 acct period to the next
Business entity - Business = a separate legal entity fr its owners
Prevent the business fr being over-optimistic abt future profits
Prudence - Anticipated profit (lãi dự tính): not recorded until actually
(tính thận trọng) realized
- Anticipated loss: a provision (dự trù) created
Matching - Revenue earned should be matched expenses incurred in earning it
Historical cost - Transactions r recorded in the accounts w their ori costs

*NOTE: Conflicts btw concepts

1. Accruals < Prudence -> By being prudent, there would be an allowance for irrecoverable
debts in FSs

2. Consistency < Prudence -> If circumstance changes, different appropriate treatment

should be adopted
SOURCES, RECORDS and BOOKS of PRIME ENTRY
I. Business transactions
1. Cash vs. Credit

2. Discount

- Trade discount (CK thương mại): reduction in list P

- Cash/Settlement discount (CK thanh toán): reduction in amount payable in return for pmt
in $/w.i a agreed period
(Eg) Apple has sent an invoice for $8,000 for net goods to Orange and the invoice states that
normal cr terms = 30 days. But, the invoice also offers a settlement discount of 4% if pmt made
w/i 10 days. Orange takes up the offer of settlement discount

II. Source documents

Source docs = source of all info recorded by a business

- Written offer to customer stating the fixed P to produce/deliver

Quotation
g/s
(báo giá)
- Can’t be changed once accepted by customer
- Detailing g/s that a company wanna purchase
Purchase ord
- 2 copies are made and stored by seller and buyer
Sales ord
- Detailing ord g/s fr seller to buyer
(Phiếu bán hàng)
Goods received note
- Listing goods received fr a supplier
(Phiếu nhập kho)
Goods dispatched note
- Listing goods sent out to a customer
(Phiếu xuất kho)
- A request for pmt on cr
Invoice
- Goods details on invoice = on sales/purchase ord
Statement - Listing transactions on customer’s account: invoices, cr notes, pmt
(Bảng kê thanh toán
received
nợ/Bảng đối chiếu công
nợ) - Sent out fr supplier to customer -> debt reconciliation
- Fr customer: request for supplier to issue cr note when returning
Dr note
goods received on cr
(Hđ điều chỉnh tăng)
- Fr supplier: inform customer of current debt obligations
- Negative invoice
Cr note
- Fr supplier: informing customer has been credited a certain amount
(Hđ điều chỉnh giảm)
on issued invoice due to goods return,…
Remittance advice - Sent fr customer to supplier w pmt
(Giấy bảo thanh toán) - Listing which invoices r being paid/still outstanding
Receipt
- Confirming a pmt has been received
(Biên lai)
Petty cash voucher
- Raising on a pmt fr/receipt into $
(Phiếu chi tiền mặt)
Cheques stubs - Issued to pay to supplier to clear a debt
 (Cuống phiếu cheque)
Wages, salary, and
- Listing all payroll incurred @ any time period
payroll records

III. Financial accounting process

1. Documenting – Source docs

Cheque Petty
Sales Sales cr Wages Journal Purchase Purchase
issued/ cash
invoices note docs. vouchers invoices cr note
received vouchers

2. Recording – Book of prime entry

Sales Purchase
Sales day Wages Petty Purchase
return Cash book Journal return
books book cash book daybook
daybook daybook

3. Summarizing/Posting – Ledgers

Receivable General ledger Payable

ledger/Sales ledger/Purchase
ledger Trial ledger ledger

4. Presenting – FSs
- BS
- IS
- CF
- Stm of changes in E
- Notes to FSs

IV. BOOK of PRIME ENTRY

Definition: Book of prime entry (Sổ sách ban đầu) = books in which transactions r recorded at 1st

1. Sales daybook (Sổ bán hàng)

 - For cr sales; invoices + cr notes
- To keep a list of all invoices sent out to customers ea day

2. Purchase daybook (Sổ mua hàng)

- For cr purchase
- To keep all invoices received ea day

3. Sales return daybook (Sổ hàng hóa bị trả lại)

- Record all sales return + cr notes raised
- If business has very few sales returns, cr notes raised may be recorded as a negative
entry in sales day book
4. Purchase return daybook (Sổ hàng hóa đem trả)
- Record all purchase returns + cr note received as the business send goods back to its
supplier
- If business has very few sales returns, cr notes received may be recorded as a
negative entry in purchase day book

5. Cash book (Sổ tiền)

- To keep a record of cash receipts + ptms via
+ notes, coins, cheques
+ bank transfer, standing ord, direct dr, bank interest and charges
- Left side = cash receipts, Right side = cash pmts
a. Bank statements
- To check the amount shown as a balance in cash book matches w amount on bank stm ->
Reconciliation
b. Bank overdraft
- A borrow fr bank by withdrawing the amount > current balance in bank account
(interest of outstanding balance be charged everyday)

6. Petty cash book (Sổ tiền mặt)

- Record occasional small pmts + receipts in cash
a. Imprest system (Phương thức kế toán tiền tạm ứng)
- An internal control system -> petty cash control
- Imprest amount (Lượng tiền mặt tối đa đầu tháng): Amount of $ in petty cash is kept @ an
agreed sum/”float”
-> Control pmt and receipt during daily operation via appropriate supporting docs
(vouchers, supporting docs, statements, …)
-> Issues request to top-up petty cash a/c to fulfill imprest amount
- Total float is replenished regularly by cash pmt fr bank account -> petty cash book
- Top-up amount = total voucher pmts since previous top-up

b. Example
 $
Petty cash at the end of the mth 93.50
Add: Expenditure
Stampts 17.00
Milk 25.00
Taxi fee 15.00
Stationery 7.50
Less: Receipt fr staff for photocopying (8.00)
Petty cash at the beginning of the mth 150

7. Journal
- To keep a record of unusual movements btw accounts
- To record corrections to errors made in writing up the nominal ledger accounts
- Narrative explanation: must accompany ea journal entry -> To indicate purpose +
authority of every transaction
- Journal entry is recorded as below format
 LEDGER ACCOUNTS and DOUBLE ENTRY
I. DOUBLE ENTRY BOOKKEEPING
Definition: Double entry bookkeeping = Ea acct event must be accounted as both Cr and Dr in
different accounts

Duality concept (Dual effect)

- Every f.transaction gives a dual effect on aspects of the business

- It is recorded twice so that every Dr is balanced by Cr

Rules

Dr entry Cr entry
Increase A, Expense L, Income
Decrease L A

1. Sales transactions
a. Cash sales

Eg: Sales of goods for $1,000 cash

DR CR
Cash at bank 1,000
Sales 1,000

b. Cr sales
Eg: Sales of goods on cr for $1,500 excl. 10% VAT

DR CR
AR 1,650
Sales (1,650/1.1) 1,500
VAT 150

c. Sales return

Eg: A customer returns goods value $300 exl. 10% VAT

DR CR
Sales return (330/1.1) 300
VAT 30
AR 330

2. Purchase transactions
a. Cash/Petty cash purchase/payment

Eg: Pmt of a rental bill totalling $1,100 incl. 10% VAT

DR CR
Rent expense (1,100/1.1) 1,000
VAT 100
Cash ar bank 1,100

b. Purchase return

Eg: The company returns goods value $440 excl. 10% VAT

DR CR
AP 440
Purchase return (440/1.1) 400
Cash at bank (Tax) 40

c. Cr purchase

Eg: Purchase of $1,540 goods on cr incl. 10% VAT

DR CR
Purchase expense 1,400
VAT 140
AP 1,540

3. Cash receipts
a. K contribution

Eg: Owner transfer $900 into bank account

DR CR
Cash at bank 900
K contribution 900

b. Receipt fr cr customers

Eg: A customer pay $1,100 to totally clear his current debt

DR CR
Cash at bank 1,100
AP 1,100

c. Discount allowed

Eg: Due to a payment term that if customers pay at once, there will be a 10% discount on total
paymet. A customer pay immediately an amount of $1,000

DR CR
Cash at bank 900
Discount allowed (1000*0.1) 100
Sales 1,000

4. Cash payment
a. Drawings

Eg: Owner withdraw $500 from the business bank account

DR CR
Drawings 500
Cash at bank 500
 b. Payments to cr suppliers

Eg: The company pays $1,540 in cash to clear its current debt

DR CR
AP 1,540
Cash at bank 1,540

c. Discount received

Eg: As follow the credit term, the company has a discount of 15% to the payment of $1,540

DR CR
AP 1,540
Discount received (1,540*0.15) 231
Cash at bank 1,309

5. Contra entry (Customer r supplier as well)

Eg: The company offset its debt to its receivable fr same supplier for $300

DR CR
AP 300
AR 300
_________________________________________

(Eg.1):

a. A cash sale of $250

DR CR
Cash at bank 250
Sales 250

CASH AT BANK a/c SALES a/s

$ $ $ $
Sales a/c 250 Cash a/c 250

b. Pmt of a rent bill totalling $150

DR CR
Rent expense 150
AP 150

RENT a/c CASH AT BANK a/c

$ $ $ $
Cash a/c 150 Rent a/c 150

c. Buying some goods for cash @ $100

DR CR
Purchase expense 100
Cash at bank 100

PURCHASE a/c CASH AT BANK a/c

$ $ $ $
Cash a/c 100 Purchase a/c 150

d. Buying some shelves for cash @ $200

DR CR
Shelves expense 200
Cash at bank 200

SHELVES (A) a/c CASH AT BANK a/c

$ $ $ $
Cash a/c 200 Shelves a/c 200

(Eg.2):

a. Sales of goods on cr to Mr.A for $2,000

DR CR
AR 2,000
Sales 2,000

AR a/c SALES a/s

$ $ $ $
Sales a/c 2,000 AR a/c 2,000

b. Receipt from A

DR CR
Cash at bank 2,000
AR 2,000

CASH AT BANK a/c AR a/s

$ $ $ $
AR a/c 2,000 Cash at 2,000
bank a/c

*NOTE: If bring together the orginal sales of goods on cr and the eventual settlement in cash,
the accounts will appear as below:

DR CR
AR 2,000
Sales 2,000
Cash at bank 2,000
AR 2,000

CASH AT BANK a/c SALES a/s

$ $ $ $
AR a/c 2,000 AR a/c 2,000

AR a/c
$ $
Sales 2,000 Cash at bank a/c 2,000

c. Purchase of goods on cr fr a supplier B Inc for $100 on 30 days’ cr

DR CR
Purchase expense 100
AP 100

Purchase a/c AP a/s

 $ $ $ $
AP a/c 100 Purchase a/c 100

d. Pmt to supplier B after 1 month

DR CR
AP 100
Cash at bank 100

AP a/c CASH AT BANK a/s

$ $ $ $
Cash a/c 100 AP a/c 100

*NOTE: If bring together the orginal purchase of goods on cr and the eventual settlement in
cash, the accounts will appear as below:

DR CR
Purchase expense 100
AP 100
AP 100
Cash at bank 100

CASH AT BANK a/c PURCHASES a/s

$ $ $ $
AP a/c 100 AP 100

AP a/c
$ $
Cash at bank a/c 100 Purchase a/c 100

II. Accounting equation

1. Accounting equation
A = E + L
(Eg.1a): 1/7 - Lisa starts a business w $2,500 in cash on . 3/7 - She purchases a market stall fr
Jennie, who is retiring fr her fruit & vegie business. The cost = $1,800. She also buys some
flowers + potted plans fr a trader in the wholesale market @ $650. This leaves $50 in cash.

- As @ 1/7

- As @ 3/7

2. Profit
A = (K introduced + Retained earnings) + L

(Eg.1b): 3/7 – Lisa sells all pf her flowers + plans for $900. So, she earns profit of $250 on
3/7.

-> It belongs to Lisa, but the business retains profit and doesn’t pay out anything to Lisa. So,
retained profit r accounted
 3. Drawings
A = K introduces + (Earned profits – Drawings) + L

(Eg.1c): Lisa decided to pay herself $180 as wages. But $180 isn’t an expense to be deducted
@ net profit, in stead, accounted @ drawings
(Eg.1d): 10/7 - Lisa purchases more flowers + plans @740 in cash. She is sick and decised to
accept help fr Rose, and pay a wage of $40 at the end of the day. Trading on 10/7 is very brisk,
Lisa + Rose sells all their goods for $1,100 in cash. Lisa pays Rose $40 and draw out $200 for
herself.

a. State the acct equation bf trading on 10.7

Assets = Capital + Liabilities

$ $
Stall 1,800
Flowers and plants 740
Cash
(770 – 740) 30
2,570 = 2,570 + $0

b. State te acct equation @ the end of 10/7, after paying Rose

i. But bf drawings

Assets = Capital + Liabilities

$ $
Stall 1,800 Original investment 2,500
Flowers and plants 0 Retained profit
Cash (70 + 1,100 – 740 – 40) 390
(30 + 1,100 - 40) 1,090
2,890 = 2,890 + $0

ii. After drawings

Assets = Capital + Liabilities

$ $
Stall 1,800 Original investment 2,500
Flowers and plants 0 Retained profit
Cash (390 - 200) 190
(1,090 - 200) 890
2,690 = 2,690 + $0

4.Payables and Receivables

(Eg.1e):

a. Lisa realizes she is gonna need more $ in the business, so:

i. She immediately invests a further $250 of her own K
ii. She persuades her uncle Taeyang to lend her $500 immediately.
Uncle Taeyang tells her to repay the loan whenever she likes, but in the mean time,
she must pay him $5 interest ea week @ the end of market day.

Assets = Capital + Liabilities

$ $ $
Stall 1,800 K as @ 10/7 2,690 Loan (Uncle Taeyang) 500
Cash Further investment 250
1,640
(890 + 250 + 500)
3,440 = 2,940 + 500

b. Lisa decides to buy a 2 nd-hand van to pick up flowers and plans fr her supplier and bring
them to her stall in the market.
She finds a car dealer, Jisoo, who agrees to sell her a van on cr for $700. Lisa agrees to
pay for the van after 30 days’ trial use.

Assets = Capital + Liabilities

$ $ $
Stall 1,800 K as @ 10/7 2,690 Loan (Uncle Taeyang) 500
Car 700 Further investment 250 Payables (car) 700
Cash 1,640
4140 = 2,940 + 1,200

c. During the week, Lisa’s uncle GD phones her to ask if she would sell him some garden
gnomes + furniture for his garden. Lisa tells to look for a supplier.
After some investigations, she buys what GD has asked for, paying $300 in cash to the
supplier.
GD accepts deli and agrees to pay $350, but he asks if she can wait until the end of mth
`for pmt. Lisa agrees.
Assets = Capital + Liabilities
$ $ $
Stall 1,800 K as @ 10/7 2,690 Loan (Uncle Taeyang) 500
Car 700 Further investment 250 Payables (car) 700
Cash Profit fr Uncle GD
(1640 – 300) 1,340 (350 – 300) 50
Receivables 350
(Uncle GD)
4190 = 2,990 + 1,200

d. Lisa buys flowers + plans costing $800, $750 in cash and $50 on 7 days’ cr. Lisa decides
to use Rose’s service again as an assistant on market day, @ an agreed wage of $40.

Assets = Capital + Liabilities

$ $ $
Stall 1,800 K as @ 10/7 2,690 Loan (Uncle Taeyang) 500
Car 700 Further investment 250 Payables (car) 700
Flowers + plants 800 Profit fr Uncle GD Payables
Cash (350 – 300) 50 (flowers + plants) 50
(1340 - 750) 590
Receivables 350
(Uncle GD)
4,240 = 2,990 + 1,250

e. 17/7 – Lisa succeeds in selling all her goods, earning $1,250 in cash. She decides to
withdraw $240 for her wwek’s work. Also pays Rose $40 in cash. She will make interest
pmt to her uncle Taeyang the next time they meet.

Assets = Capital + Liabilities

$ $ $
Stall 1,800 K as @ 10/7 2,690 Loan (Uncle Taeyang) 500
Car 700 Further investment 250 Payables (car) 700
Cash 1560 Profit fr Uncle GD 50 Payables
(590 + 1,250 – (350 – 300) (flowers + plants) 50
240 - 40)
Receivables 350 Retained profit 170 Payable for interest 5
(Uncle GD) (1,250 – 800 – 240 –
40 - 5)
4,410 = 3,155 + 1,255
 (Eg2): Taehyung had net A @ 1/1 and 31/12/20XX of $45,000 and $60,000 respectively.
During this yr, K introduced = $15,000 and made drawings of $2,000

Increase in Net A = $60,000 - $45,000 = $15,000

$15,000 = $15,000 + Profit for the period - $2,000

-> P&L = - $2,000

(Eg.3); Jimine starts a business w $56,000 in cash, buying inventory @ $10,000 in cash and
paying business expense of $5,000. Inventory is purchased on cr for $5,000.

Assets = Capital + Liabilities

$ $ $
10,00 56,00 Payables (inventory)
Inventory K introduces 5,000
0 0
Cash 51,00
(56,000 – 5,000) 0
61,00 56,00
= + 5,000
0 0

III. NOMINAL/GENERAL LEDGER

1. Definition:
a. Ledger accounts = a sum of all transactions listed in books of prime entry
b. GL = an acct. sum of financial affairs of a business, incl.
- Plant & machinery (NCA)

- Inventories (CA)

- Sales (Income)

- Rent (Expense)

- Total payables (CL)

2. Ledger account format:

3. Sum of main ledger accounts

4. Openning and Closing balance

IV. Receivables (sales) ledger + Payables (purchase) ledger
Definition:

- NOT w.i GL
- Contain personal accounts of indiv customers + suppliers: Ea a/c = bal. owed by/to an
indiv customer/supplier
- Don’t normally form part of double entry system

1. Receivables ledger (For customers’ personal accounts)

2. Payables ledger (For suppliers’ personal accounts)

3. Contra/Debts off-setting
4. Reconciliation
 FROM TRIAL BALANCE to FINANCIAL
STATEMENTS
I. Trial balance
Definition: Trial balance = a list of ledger balances shown in DR and CR, used as a basis to
prepare IS and BS

(Eg):

1. Balancing ledger accounts

- 3 situations
i. Total CR = Total DR
ii. Total CR > Total DR -> CR balance
iii. Total DR > Total CR -> DR balance

Example:

a. Trade AP and Trade AR balance off to 0

 b. Cash at bank: DR bal. of $6,500

c. Sales: CR bal. of $12,500

2. Imbalance trial balance

- Partial omission: Making DR/CR entry, but not the corresponding

(Eg): A purchase on cr is DR to Purchase account as $1,000; but
Errors of omission not CR to AP
(Lỗi ghi thiếu) - Complete omission: Neither DR nor CR is made
(Eg): A business receives an invoice fr a supplier for $1,350; but
this transaction is omitted fr the book entirely
Errors of commission - Putting DR/CR to correct side of the ledger but to the wrong
(Lỗi ghi nhầm tk thanh toán) account
(Eg): Pmt for a telephone bill of $300 is DR to Electricity expense
account instead of Telephone expense account
- Errors of casting/adding up
(Eg): Total daily cr sales in Sales day book is wrongly added up to
 $79,325 instead of correct amount $79,925
- An error is exactly cancelled by another error elwhere
(Eg): The $320 telephone bill is DR to Telephone expense and CR
Compensating errors to Cash as $230, while proceed fr Disposal of wastage of $540 is
(Lỗi tự triệt tiêu) DR to Cash and CR to Income as $450.
-> DR and CR would be lower by $90, and the mistake wouldn’t be
apparent when the trial balance is casted.
- A transaction is recoded in the way of breaking the rule of an
acct principle/concept
(Eg):
- Cash received fr customers is DR to AR, and CR to Cash
Errors of principle
instead of other way round
(Lỗi định khoản)
- Repairs a machine costing $300 is DR to Machine at cost,
instead of Repair expense, and CR to Cash
- A drawing of $1,400 is DR to Sales instead of Drawing,
and CR to Cash
- DR ≠ CR due to digits in an amount r accidentally recorded
Errors of transposition wrongly
(Sai số dịch vị) (Eg): A sale is recorded in Sales as $673, but incorrectly recorded
$763 in AR
- One-sided entries
- Making 2 DR/CR entries
Errors of double entry
(Eg): A purchase on cr of $1,000 is DR to both the purchase
account and AP

II. CORRECTION of ERRORS

1. Errors detected by trial balance

3 steps:
(1) Open a suspense account to capture the imbalance
(2) Investigation to identify errors
(3) Prepare a journal to correct errors by a reversal entry to suspense account and entry
to other appropriate account in errors

a. Transposition/other errors in posting fr books of prime entry

(Eg): A pmt of $1,234 for a telephone bill is correctly recorded in Cash book, but DR to
Telephone a/c as $1,243

DR CR
Telephone expense 1,243
Cash 1,234
Suspense 9

DR CR
Suspense a/c 9
Telephone expense 9
(Correction of error in recording a pmt for a telephone bill)

b. One-sided entries

(Eg): A pmt of $1,234 for a telephone bill is correctly recorded in Cash book, but there is no
DR entry to Telephone a/c

DR CR
Suspense a/c 1,234
Cash 1,234

DR CR
Telephone expense 1,234
Suspense a/c 1,234
(Correction of one-sided in recording a pmt for a telephone bill)

c. Two entries to the same side

(Eg): A telephone invoice of $1,234 is correctly DR to AP, but also DR to Telephone a/c
 DR CR
Telephone expense 1,234
AP 1,234
Suspense a/c 1,234

DR CR
Suspense a/c 1,234
AP 1,234
(Correction of commission errors in recording a telephone invoice)

d. Casting errors in GL

(Eg): The DR side of Cash book is understated $200

DR CR
Suspense a/c 200

DR CR
Cash 200
Suspense a/c 200
(Correction of casting errors on DR side of Cash book)

e. Errors on bringing fwd balances

(Eg): A CR balance of $1,800 on Telephone a/c wasn’t brought fwd into the current yr

DR CR
Suspense a/c 1,800
 DR CR
Suspense a/c 1,800
Telephone expense 1,800
(Correction of omitted CR balance brought fwd on Telephone a/c)

f. Extraction errors

(Eg): In preparing the trial balance, DR balance of $12,000 in Telephone a/c was omitted

DR CR
Suspense a/c 12,000

DR CR
Telephone expense 12,000
Suspense a/c 12,000
(Correction of extraction error of Telephone a/c balance in preparing trial balance)

2. Errors NOT detected by trial balance

a. Errors of commission

(Eg): A $1,234 pmt for telephone is CR to Electricity a/c

DR CR
Electricity expense 1,234
Cash 1,234
 DR CR
Telephone expense 1,234
Electricity expense 1,234
(Correction of commission error in reporting a pmt for a telephone bill)

b. Errors of principle

(Eg): The cost of purchasing a delivery van = $12,000: posted to Motor expense

DR CR
Motor expense 12,000
Cash/AP 12,000

DR CR
Non-current asset (Van) 12,000
Motor expense 12,000
(Correction of error of principle in reporting a purchase of deli van)

c. Errors of omission

(Eg): A day’s cash taking of $1,234 wasn’t paid into the bank / entered into Cash book

No entry at all

DR CR
Cash 1,234
Sales 1,234
(Correction of error of complete omission in cash taking)

d. Compensation errors
(Eg): A pmt of $600 for insurance is entered in Cash book correctly, but wrongly to Insurance
expense as $60. A pmt of $280 for gas is posted correctly to Cash book, but wrongly to Motor
expense as $820.

DR CR
Insurance expense 60
Cash 600
Motor expense 280
Cash 820

DR CR
Insurance expense 540
Motor expense 540
(Correction of error of compensating errors in recording pmts for insurance + motor)

e. Errors of original entry

(Eg): A purchase of $1,200 r CR to Cash book and DR to Purchase as $2,100. Cash book DR
balance will be understated by $900, but Purchase CR balance will be overstated by the same
amount.

DR CR
Purchase expense 2,100
Cash 1,200

DR CR
Cash 900
Purchase expense 900
(Correction of error of original entries in recording Cash and Purchase a/c)
 f. Complete reversal of entries

(Eg): If a cheque drawn for cash, $300 – DR to Bank a/c and CR to Cash a/c -> Bank a/c bal. will
be overstated, and Cash a/c also understated by $600. -> Wrong side of a/c

DR CR
Bank 300
Cash 300

DR CR
Cash 600
Bank 600
(Correction of error of completely reversal of entries in reporting a cheque drawn for cash)

Example

A trial balance has been prepared for a business as @ 31/3

Trial Balance as @ 31/3

Account DR CR
$ $
Capital 24,000
Equipment 25,000
Bank 2,800
Trade debtors 14,500
Trade creditors 9,300
Sales 35,600
Purchases 15,600
Expense 4,500
62,400 68,900
Correction:

Account DR CR
$ $
E1 Equipment 2,000
Cash 2,000
E2 Trade debtors 15,970
Suspense 3,600
Sales 19,570
Sales 3,600
Suspense 3,600
E3 Purchase 700
Cash 700
Suspense 1,400
Purchase 1,400
Suspense 1,400
E4 Suspense 1,500
Cash 1,500
Expense 1,500
Suspense 1,500

SUSPENSE a/c
$ $
Bal. derived fr TB 6,500 E2 – Sales 3,600
E3 – Purchase 1,400
 E4 – Expense 1,500
Bal. c/d Nil.
6,500 6,500
Bal. b/d Nil.

Corrected TB

Original bal. Adjustment Corrected bal.

Account DR CR DR CR DR CR
$ $ $ $ $ $
Capital 24,000 - - 24,000
Equipment 25,000 2,000 - 27,000
Bank 2,800 - 2,000 800
Trade debtors 14,500 - - 14,500
Trade creditors 9,300 - - 9,300
Sales 35,600 3,600 - 32,000
Purchases 15,600 1,400 - 17,000
Expense 4,500 1,500 - 6,000
Total 62,400 68,900 8,500 8,500 65,300 65,300

III. PREPARING FINANANCIAL STATEMENTS

4 steps

(1) Draw up and balance off ledger accounts

(2) Collect the balance on TB

(3) Preparing IS

(4) Draw up BS

1. Income Statement
3 steps

(1) Opening another ledger a/c – P/L

(2) Collecting all ledger a/c related to income and expense (Eg: Purchase, Rent, Sales, Bank
loan interest, …)
 (3) Transferring bal. of these accounts to P/L a/c -> Same items needed to draw up IS

*NOTE: P/L has NOT been balanced off

(Eg):

Purchase a/c bal. = $5,000 DR. To balance it to 0, we write in $5,000 CR. However, to comply w
double entry rule, there must be a DR entry -> Write $5,000 DR in P/L = bal. on Purchase a/c is
moved to P/L a/c

PURCHASE
$ $
AP 5,000 P/L 5,000

Doing same thing w other related a/c to deal w income and expense

RENT
$ $
Cash at bank 3,500 P/L 3,500

SALES
$ $
P/L 12,500 Cash at bank 10,000
AR 2,500
12,500 12,500

BANK LOAN INTEREST

$ $
Cash at bank 100 P/L 100

OTHER EXPENSES
$ $
Cash at bank 1,900 P/L 1,900

P/L
$ $
Purchase 5,000 Sales 12,500
Rent 3,500
Bank loan interest 100
Other expenses 1,900

STATEMENT of PROFIT OT LOSS

$ $
Revenue 12,500
COGS ( = Purchase in this case) (5,000)
Gross profit 7,500
Expenses
Rent 3,500
Bank loan interest 100
Other expenses 1,900
(5,500)
Profit/Loss 2,000

2. Balance Sheet
- Bal. on all remaining ledger a/c (incl. P/L) can be listed + rearranged to form BS
- They r carried down in books of business -> (1) Become Opening bal. for the next acct
period; (2) indicate A, L at the end of 1 period and the beginning of the next

(Eg):

- Gathering proprietor’s E fr (Cash introduced + K contribution + Profit – Drawings) into

E

(Eg):

DRAWINGS
$ $
Cash at bank 1,500 Capital 1,500

P/L
$ $
Purchase 5,000 Sales 12,500
Rent 3,500
Bank loan interest 100
Other expenses 1,900
Capital 2,000
12,500 12,500

CAPITAL
$ $
Drawings 1,500 Cash at bank 7,000
Balance c/d 7,500 P/L 2,000
9,000 9,000

Balance b/d 7,500

STATEMENT of FINANCIAL POSITION

$
ASSETS
Non-current assets 2,000
Current assets
Cash at bank 6,500
Total Assets 8,500

CAPITAL & LIABILITIES

Proprietor’s capital 7,500
Non-current liability
Bank loan 1,000
Total Capital & Liabilities 8,500

SALES TAX

I. Types of Sales tax

Definition: Sales tax = Indirect tax

- Levied on sales of g/s

- Administered by local tax authorities
- Generally, sales tax r recoverable, except:
 + Non-registered business
+ For certain goods -> Not reclaim by law
+ Sales incl. goods subject + not subject to sales tax

-> A part of COGS -> Incl in IS

1. Input/Output sales tax

Input = Sales tax paid/suffered on g/s brought by registered business -> Sales tax receivable

Output = Sales tax collected/charged on g/s sold by registered business -> Sales tax payable

Gross value = amount incl. sales tax

Net value = amount excl. sales tax
= Gross value/(1 + tax rate)
 Sales tax = Net value x Tax rate

2. Zero-rated tax
- G/s r taxable, but tax rate = 0%
- Suppliers w 0% sales tax output still can reclaim input sales tax in full
3. Exempt
- Can’t reclaim on their input

(Eg.1):

$
List price 1,657.00
Trade discount 10% 1,657 x 10% (165.70)
1,491.30
Settlement discount 5% 1,491.3 x 5% (74.57)
1,416.74
Sales tax 17.5% 1,416.74 x 17.5% 247.93

(Eg.2):

Pmt to authorities = [(1,200 - 810)/1.175] x 0.175 = $58.09

II. ACCOUNTING for SALES TAX

1. Irrecoverable sales tax

Irrecoverable = a cost of items purchased

 2. Income Statement

(Eg):
Journal entries

DR CR
AR 28,905
Sales 24,600
Sales tax (receivable) 4,305
(24,600 x 17.5% = 4,305)
Purchases 15,200
Sales tax (payable) 2,660
(15,200 x 17.5% = 2,660)
AP 17,860

Ledger a/c

SALES TAX
AP 2,660 AR 4,305
Balance c/d 1,645
4,305 4,305

3. Cash daybook, Sales/Purchase daybook

 4. Payables for Sales tax
- An outstanding payable (Bal. c/d on DR) for sales tax = Current L as pmt
to the authorities
- An outstanding receivable (Bal. c/d on CR) for sales tax = Current A as
refund owed by the authorities

(Eg):
 SALES TAX
AP 3,250 AR 4,000
Balance c/d 750
4,000 4,000

INVENTORY
Definition: (ISA2)

Inventories = Assets

- Held for sales in ordinary course of business

- In the process of production for sale

- Materials/supplies to be consumed in the production process/reding of services

*NOTE: Exceptions

- (IFRS 15 + IAS 11) Construction contracts

 - (IFRS 9 + IAS 32,39) Financial instruments

- (IAS 41) Biological A

Net Realizable Value = (Estimated selling price in ordinary course of business) – (Estimated
costs of completion) – (Estimated costs necessary to make sales)

I. COGS – Cost of Goods sold

COGS = Opening inventory + Purchases – Closing inventory

- Unsold goods held in inventory at the end of acct. period -> NOT incl. their purchases
goods in COGS
- Margin: Selling P (100%) – Margin (%) = COGS (-> Retail method for measurement
technique)
- Markup (-> Xác định giá bán): COGS (100%) + Markup (%) = Selling P
(Eg1):

Sales 215,000
OB 9,500
Add: Purchases 150,000
Less: CB (7,500)
COGS 152,000
Gross profit 63,000

(Eg.2a):

$ $
Sales 100,000
Opening inventory -
Add: Purchases (30,000 units) 60,000
Less: Closing inventory 20,000
(10,000 units @ $2)
COGS (40,000)
Gross profit 60,000

(Eg.2b):
 $ $
Sales 230,000
Opening inventory (10,000 units @ $2) 20,000
Add: Purchases (40,000 units @ $2.375) 95,000
Less: Closing inventory 12,000
(5,000 units)
COGS (103,000)
Gross profit 127,000

1. Carriage inwards/outwards

Carriage = Cost of transporting purchased goods (deli costs) fr suppliers to buyers

- Inward = Into the business – Paid by purchaser (Purchases)

- Outwards = Out of the business – Paid by suppliers (Expense)

(Eg):

$ $
Sales 162,100
Opening inventory 17,000
Purchases 75,000
Carriage inwards 2,000
Closing inventory (15,400)
COGS (78,600)
Gross profit 83,500
 Carriage outwards 2,500
Other expenses 56,000
(58,500)
Net profit 25,000

2. Goods written off/written down

- Treatments: Their value should be written down to

+ 0 = worthless
+ NRV -> sold off < COGS
- Write down: DR Expense – CR Inventory
- Write off: DR Expense – CR Allowance for inventory

(Eg):

Inventory a/c

At cost Realizable value Amount written down

$ $ $
Fashion goods 2,100 400 1,700
Other goods 5,500 5,500
 7,600 5,900 1,700

Income Statement

$ $
Sales 81,400
Opening inventory 8,800
Purchases 48,000
Closing inventory (5,900)
COGS (50,900)
Gross profit 30,500

*NOTE: By using $5,900 for closing inventories, COGS automatically incl. inventory written
down of $1,700

3. Inventory count

2 ways:

- Physical count
- Details record of inventory coming in/out

Rules:

- (+) inventory sold since the end of yr, @ cost

- (+) inventory returned to suppliers since the end of yr
- (-) the cost of inventory purchased/received into inventory since yr end

(Eg):

Inventory 05/01/2015 94,300

31/12/2014 – 05/01/2015
Purchases (8,000)
Sales (profit excl.)
18,000
30,000 x 60%
Purchase return 2,000
Inventory 31/12/2014 106,300

II. Accounting for Opening/Closing inventories

- Inventory a/c is used at the end of an acct. period – when inventory in hand is counted
+ valued

2 ways of recording of inventory

Perpetual/Continuous inventory system Periodic/Period-end inventory system

- All movements of inventory r recorded in - Purchases a/c: record receipts fr suppliers
Inventory a/c in
- All transactions involving receipt/issue of - Inventory a/c: record value of inventory @
inventory beginning/end of financial yr
+ must be recorded immediately  Value of inventory established
+ via use of tech & software once/f.yr
+ Bal. of Inventory a/c = Value of
inventory currently held
- Time-consuming
DR Inventory (CA) - Opening inventory:
CR AP/Cash at bank DR Income stm
 Bal. = asset CR Inventory
- Closing inventory:
DR Inventory
CR Income stm
- All purchases
DR Purchases
CR AP/Cash at bank
III. VALUING INVENTORIES
1. Basic rules
a. Expected selling price
b. NRV = Expected selling price – Costs incurred in getting ready for sale – Estimated
selling cost
c. Historical costs (eg: cost at which they were originally bought)
d. Current replacement cost = cost would be incurred to replace them (NOT discussed)

(IAS 2 principle)

*NOTE: Khi CB inventory > NRV

 Inventory write down:

DR Expense
CR Allowance/Provision of Inventory (TK dự phòng >< Inventory)

(Eg.1):
 Cost NRV Valuation Quantity Total value
Item
$ $ $ Units $
23
A 20 20 200 4,000
(30 – 7)
8
B 9 8 150 1,200
(12 – 2 – 2)
12
C 12 12 300 3,600
(22 – 8 – 2)
8,800

2. Cost of Inventories

a. Purchases costs
- Purchase price
- Import duties/other taxes
 - Transport, handling & any other cost directly attributable to the acquisition of
finished g/s
- Less any trade discounts, rebates and other similar amounts

- Trade vol. rebates = trade more, pay less = trade discount

- Conversion costs = a manufacturer's product/production costs other than the cost of
a product's direct materials
+ Direct costs
+ Indirect costs = Production overheads = Fixed (machine, plant,…) + Variable

*NOTE: Exceptions (IAS 2):

- Abnormal amounts of wasted materials, labor, or other production costs

 COGS
- Storage costs (if not essential to production process)
 Selling expense
- Administrative overheads – not contribute to bringing inventories to their present
location + cond.
 G&A
- Selling costs: promotion, marketing, …
 Selling expense
- Interest costs – when purchases w deferred settlement terms

(Eg.1):

(Eg.2):
Production overheads/unit @ normal capacity =400,000/50,000 = $8

Inventory cost = $8 x 40,000 = $320,000

COGS = $80,000 (Abnormal cost)

Per unit
Raw materials 100
Trade discount 15% (15)
Purchases 85
Import duty 5% 4.25
Labor cost 25
Production overheads 8
Total cost/unit @ normal capacity 122.25

3. Determining Purchases cost and Closing inventory

FIFO - Most common in practice

(Fist in, First out) - 1st goods purchased = 1st goods sold
- Prohibited
LIFO
- Last goods purchases = 1st goods sold
(Last in, First out)
- NO longer allow by IAS 2
a. Cumulative/Continuous WAC = a purchase price change w ea new
AVCO consignment
(Avg cost) b. Periodic WAC = A purchase price calculated at the end of period
on avg of opening inventory & purchases in the period
*NOTE: In case, unit cost increasing over time

 Closing inventory value of LIFO < Closing inventory value of FIFO

 COGS LIFO > COGS FIFO
 Profit LIFO < Profit FIFO

(Eg):
 a. FIFO

Dat Quantit Closing inventory

Description Unit cost Total cost
e y Q Unit cost Total cost
1 Opening bal. 100 2.00 200
6 Receipts 400 2.10 840
100 2.00 200
18 Issues
100 2.10 210
25 Receipts 300 2.12 636
300 2.10 630
30 Issues 200 2.12 424
100 2.12 212

b. LIFO

Dat Quantit Closing inventory

Description Unit cost Total cost
e y Q Unit cost Total cost
1 Opening bal. 100 2.00 200
6 Receipts 400 2.10 840
18 Issues 200 2.10 210
25 Receipts 300 2.12 636
300 2.12 636 100 2.00 200
30 Issues
100 2.10 210 100 2.10 210
Total 200 410

c. WAC

Cumulative

Dat Quantit Closing inventory

Description Unit cost Total cost
e y Q Unit cost Total cost
1 Opening bal. 100 2.00 200
6 Receipts 400 2.10 840 500 2.08 1,040
 18 Issues 200 2.08 416
25 Receipts 300 2.12 636 600 2.10 1,260
30 Issues 400 2.10 840 200 2.10 420

Periodic

Dat Quantit Closing inventory

Description Unit cost Total cost
e y Q Unit cost Total cost
1 Opening bal. 100 2.00 200
6 Receipts 400 2.10 840
25 Receipts 300 2.12 636
Total receipts 800 2.095 1,676
Total issues 600 2.095 1,257
200 2.095 419

TANGIBALE NON-CURRENT ASSETS

I. Capital expenditure vs. Revenue expenditure

(Eg.1):
Revenue expense = $15,000

Capital expense = $150,000 + $20,000 = $170,000

(Eg.2):

Revenue expense = $900

Capital expense = $30,000 + $10,000 = $40,000

II. Capital income vs. Revenue income

Capital income: Proceeds fr sale of non-trading assets

Revenue income:

- Sale of trading assets (inventory)

- Provision of services

- Interest + Div received

(Eg.1):

Capital income:

- Profit on the sale of an office building

Capital expenditure:

- The purchase of a property (office building)

- Solicitors’ fees in connection with the purchase of such a property

 (Legal fees associate w the purchase of a property may be added to the purchase
price and classified as capital expenditure. Cost of property in BS will include this
fee)

- Costs of adding extra storage capacity to a computer used by the business

- Cost of new plant

- Customs duty charges on the plant when imported into the country

(When customs duties paid by purchaser of NCA -> added to cost of machinery)

- The cost of installing the new plant in the premises of the business

- The “carriage” costs of transporting the new plant fr the supplier’s factory to the
premises of the business purchasing the plant

(When carriage cost paid by purchaser of NCA -> included in cost of NCA)

Revenue income:

- Revenue fr sales by credit card

Revenue expenditure:

- The annual depreciation of such a property

- Computer repairs and maintenance costs

- The wages of the machine operators

III. ISA 16 – Property, plant and equipment

1. Definition

are tangible assets that:

- are held by an entity
> for use in the production/supply of g/s
PPE
> for rental to others
> for administrative purposes
- are expected to be used during ≥ 1 period
The amount of cash/cash equivalents paid, or fair value of other
Cost consideration given to acquire an asset at the same time of its
acquisition/construction
Fair value The amount for which A could be exchanged btw knowledgeable,
 willing parties in an arm’s length transaction
The amount at which an A is recognized after deducting any
Carrying amount
accumulated depreciation and impairment losses

2. Recognition in the accounts

- Future econ benefits associated w A will flow to the entity

- Cost of A can be measured reliably

3. Initial measurement and Components of cost

PPE will be measured at cost, including:

- Purchase price (incl. import duties; excl. trade discount/sales tax paid)

- Initial estimate of cost of dismantling and removing the item and restoring the site
it is located on

- Directly attributable costs of bringing A to working condition for its intended use:

> Cost of site preparation

> Initial deli and assembly costs

> Pro fees (lawyers, engineers, …)

> Cost of testing after deducting the net proceeds fr selling samples produced when
testing equipment

> Staff costs arising directly fr the construction and acquisition of A

4. Subsequent expenditure

Definition: the amount added to the carrying amount of A, only when it improves cond. of A
beyond the previous performance

- Modification: extending A’s useful life (incl. increased capacity)

- Upgrade: improve output quality

- Adoption of a new production process: reduce operating costs

Measurement:

- Cost model: Cost - Acc.Dep.

- Revaluation model: Revaluation – Acc.Dep. – Impairment losses

(Eg.1):

Cost of plant 2,500,000

Initial deli and handling costs 200,000
Cost of site preparation 600,000
Consultants used for advice on the acquisition of the plant 700,000
Estimated dismantling costs to be incurred after 7 years 300,000
Capitalized costs 4,300,000

IV. Depreciation accountings

1. Definition

Depreciation:

- Allocation of depreciable amount of A over its life, meaning:

> Change against profit

> Deducted fr the value of NCA in BS

- Non-cash expense -> Not involve any movement of cash

- Total acc.dep. on NCA increases when A gets older until its fully depreciated

2. Recognition

- Directly/indirectly charge to Net P/L

 DR Depreciation expense

CR Acc.dep/Allowance for depreciation

- BS – Total bal. on Acc.dep. a/c set against value of NCA at cost a/c to derive CA

(Eg):

3. Useful life

Useful life should be reviewed periodically -> The effect of changes should be disclosed in
accounting period

4. Residual value

Residual value = Net amount expected to obtain for A at the end of its useful life after less its
expected costs of disposal
 - Immaterial in most cases

- If significant -> must be estimated at purchase date/any subsequent revaluation

5. Depreciation method

a. Straight line

(Eg.a):

Annual dep. = (60,000 – 7,000)/5 = 10,600

Yr1 Yr2 Yr3 Yr4 Yr5

Cost of A 60,000 60,000 60,000 60,000 60,000
Acc.dep. 10,600 21,200 31,800 42,400 53000
Carrying amount 49,400 38,800 28,200 17,600 7,000

b. Reducing balance

The annual dep. charge = a fixed % of CA of A, as at the end of previous year

(Eg.b):

Total depreciate amount = 10,000 – 2,160 = 7,840

Acc.dep.
A at cost 10,000
Dep. in yr1 (40%) 4,000 4,000
Carrying amount after yr1 6,000
Dep. in yr2 2,400 6,400
(40% of reducing bal.)
CA after yr2 3,600
Dep. in yr3 1,440 7,840
(40% of reducing bal.)
 Carrying amount after yr3 2,160

c. Sum of digits

The annual dep. charge = (Cost – Residual value) x Remaining useful life / d

[d – Sum of digits = n x (n+1)/2]

Sum of digits -> Greater dep. in the earlier yrs of A’s useful life and less in later yrs

(Eg.c):

d = [4 x (4 + 1)]/2 = 10

Yr1 (5,000 – 1,000) x 4/10 1,600 3,400

Yr2 (5,000 – 1,000) x 3/10 1,200 2,200
Yr3 (5,000 – 1,000) x 2/10 800 1,400
Yr4 (5,000 – 1,000) x 1/10 400 1,000

d. Change in method

Change in expected pattern of use of A -> Change in method -> Remaining CA dep under new
method

(Eg.d):

20X1 100,000 x 40% 40,000 60,000

20X2 60,000 x 40% 24,000 36,000
20X3 (100,000 – 64,000)/3 12,000 24,000
20X4 12,000 12,000
20X5 12,000 0
 e. Change in expected useful life

New dep. = Remaining dep. amount / Revised useful life

After the remaining useful life of A is revised, the remaining dep. amount should be spread over
the new remaining useful life

(Eg.e):

First 2 yrs: CA = 12,000 – 3,000 x 2 = 6,000

New annual dep. amount = 6,000/5 = 1,200

V. NCA Disposals
- Disposal of NCA = (Net sale price – Selling expense) – Net book value

- P/L on disposal = Net sale price – CA at the time of disposal

> Profit -> IS as Other income (below Gross profit)

> Loss -> IS as Expense

(Eg.1):
Annual dep. = (25,000 – 7,000)/6 = 3,000

CA at yr4 = 25,000 – 3,000 x 3 = 16,000

P?L on disposal = 17,500 – 16,000 = 1,500 -> profit

(Eg.2):

Disposal a/c
NCA, at cost 45,000 21,000 Acc.dep
30,000 Cash
P/L 6,000
51,000 51,000

VI. NCA Revaluation

General principle:

- When revaluation -> whole class of A should be revaluated

- Revaluation should be stated at fair value – based on pro valuation

- Should be regularly updated

1. Excess depreciation

Excess dep. = New dep charge (based on revalued CA) – Old dep charge (based on original
cost)

Ledger entries (ISA 16)

- Record new annual dep charge

 DR Dep. expense

CR Acc.dep.

- Record transfer of excess dep.

DR Revaluation surplus

CR Retained earnings

2. Revaluation downwards

Ledger entries:

DR Revaluation surplus

DR NCA – Acc.dep.

CR NCA – at cost

3. Dep on revalued assets

(Eg):
a. Annual dep. charge of Building = 30,000/30 = 1,000 -> This charge is made in ea of 1 st 5 yrs of
asset’s life

Value at the end of ea in 1st 5 yrs:

31/12/20X1: 49,000

31/12/20X2: 48,000

31/12/20X3: 47,000

31/12/20X4: 46,000

31/12/20X5: 45,000 (CA)

b. When revaluation

New asset value 150,000

Carrying amount as at 20X5 end (45,000)
Revaluation amount 105,000
 After revaluation: Annual dep. charge = Revaluation amount/Remaining useful life = 75,000/25 =
3,000

DR Building - at cost 45,000 (75,000 – 30,000)

DR Building – Acc.dep. 5,000

CR Land – at cost 55,000 (75,000 – 20,000)

CR Revaluation surplus 105,000

Building – at cost
Balance b/d 30,000
Revaluation surplus 45,000 75,000 Balance c/d
75,000 75,000

Building – Acc.dep.
Revaluation surplus 5,000 5,000 Balance b/d
Balance c/d -

5,000 5,000

Land – at cost
Balance b/d 20,000
Revaluation surplus 55,000 75,000 Balance c/d
75,000 75,000

Revaluation surplus
45,000 Building – at cost
5,000 Building – Acc.dep.
Balance c/d 105,000 55,000 Land – at cost
105,000 105,000

VII. The asset registers

Asset register = used to record all NCA -> internal control purposes