FIN611 Advance Financial Accounting assignment NO 2 FALL2012

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FIN611 Advance Financial Accounting assignment NO 2 FALL2012

Disscussion and solution


ADVANCED FINANCIAL ACCOUNTING (FIN611)
ASSIGNMENT NO. 02
DUE DATE: 21ST JANUARY 2013
MARKS: 25

TOPIC TO BE TESTED:

•

Accounting Policies, Changes in Accounting Estimates, & Errors (IAS – 8)



LEARNING OBJECTIVES:

•

To develop an understanding about the correct treatment of errors as per IAS-8,

found in financial statements.


ASSIGNMENT QUESTION:

When the financial statement of Local Industries Ltd. for the year ended December 31,
2012 was being prepared, it was discovered that due to arithmetical errors, inventories at
December 31, 2011 were understated by Rs. 30,000.

Following are the extracts from financial statement before the correction of error.

Income Statement


Dec. 31,


Dec. 31,

Particulars

Sales

Less: Cost of sales

Gross Profit



Less: Operating expenses

Net Profit

2012
Rs.
424,000

(300,000)

124,000



(30,000)

94,000

2011
Rs.
310,000

(204,000)

106,000



(16,000)

90,000







Statement of Retained Earnings


Dec. 31,


Dec. 31,

Particulars



Retained earnings at the beginning

Net profit for the year

Dividend paid

Retained Earnings at the end

2012
Rs.

164,000

94,000

(16,000)

242,000

2011
Rs.

84,000

90,000

(10,000)

164,000

Note: Paid-up capital of the company is Rs. 24,000


Required:

Prepare the following financial statements for the years 2011 and 2012 after
correcting the above mentioned error.


1. Income Statement;
2. Statement of Retained Earnings; &
3. Statement of Changes in Owners’ Equity.


07 Marks
07 Marks
08 Marks

(N OTE: 03 MARKS FOR GOOD FORMATTING AND PRESENTATION)