Saturday, 4 May 2013
ssignment # 01
Total marks: 15
Learning objectives:
After solving this assignment, students will be able to:
• Understand the nature of adjusting entries
• Prepare the adjusting entries
Learning Outcome:
After going through this assignment, the learner would be able to
• Prepare adjusting entries after incorporating the necessary adjustments
Assignment Question:
XYZ is a fashion boutique. It targets teenagers andyoungsters. The following information is
related to the adjusting entries of the company as on March 31, 2012. The company records all
adjusting entries at the end of the each year. The fiscal year of the company ends on 31
st
March,
2012.
The company has its own textile unit for the manufacturing of the cloth. The depreciation
expense for the plant and machinery was recorded asRs. 61,700 for year 2012.
The company has taken loan from Babib Bank Limited.The amount of accrued interest is Rs.
10,839 for the fiscal year 2012.
XYZ outsource some embroidery material and work. The outsourcing is done on credit, and
billed monthly. The mount of unbilled services was Rs. 27,400 for the year 2012.
The company has taken a general business liability insurance policy from AdamJee Insurance
Limited. The annual prepaid premium is Rs. 12,000. XYZ purchased this policy on October 1,
2011. The company also maintains a 6 month property& casualty policy, which was taken on
December 1, 2011 for a total cost of Rs. 6,000. Both the policies were recorded as prepaid
insurance.
XYZ took a complete physical count of shop suppliesat March 31, 2011. The supplies on hand
amount to be Rs. 18,952. Management argued that this was greater than the requirements of the
company and it also increases the hoarding cost of the company so, it was decided to reduce this
level in the next year. In the year 2012, the company purchased supplies of Rs. 62,500 and
debited to the Supplies account. In March 31, 2012,the company significantly reduces its
inventory levels and as a result the ending inventory was Rs. 6,800.
During the fiscal year, XYZ signed a contract with Hospitality Inn Hotel to provide them
customized products for their Hotel. The manufacturing was started in the year 2005. XYZ
recorded the proceeds from the Hospitality Inn Hotel as Unearned Revenue account. The contact
has a flat fee of Rs. 189, and 678 products were sold to the Hotel. At March 31, 2012, 25% work
of the contract was completed.
XYZ use billboards for the advertisement of their products. ABC advertising company sold a
plan for multiple locations in the city. XYZ agreed to prepay the full amount of advertisement.
The amount of advertisement was Rs. 13,000. Due to full payment ABC promised to allow the
company to use the billboards for 13 months. XYZ Company paid the amount on June1, 2011,
and recorded the amount as prepaid in its Balance Sheet. Due to some reasons the advertisement
campaign was not started until July 1, 2011. The campaign will accomplish on July 31, 2012.
XYZ Company has taken shops on lease. Rent is paid on monthly basis and is payable on the
first of each month. XYZ paid rent for the month ofMarch on 1
st
March, and it will pay rent of
Aril on 1
st
April.
