Deposit/ Mark up Questions EXAM Question Help

[harshilgupta]

Can some one explain this

On 1 December 2013 Michelle commenced operations selling electric tools. On 8 December 2013 she received an order from MDF Suppliers for 50 drills at $40 each plus GST. Michelle applies a Mark up of 100% on all stock sold. With the order she recieved a deposit of $300 (rec 1) On 15 December 2013 she delivered 25 drills only to MDF Suppliers (inv 1). On 31 December 2013 she delivered the rest of the drills and received the balance out standing. (inv 2) (rec 2)

(a) Record the deposit in the relevant Special Journal.

(b) record the 15 December Transaction in the relevant Special Journal

(C) Explain the Impact on the Accounting equation for transaction 15 December

(d) Record the transaction 31 December in the relevant Special Journal

This Question is worth 10 Marks

I am not good with deposit/Mark up Questions

Can this question be explained in detail as to how the figures that go in the Journals are calculated?, which journals do they go in?  and the details  for the entry in the journal?

[Kuroyuki]

Can some one explain this

I have come across this in many practice exams

Im not really sure what exactly you are asking but ill explain why its recorded as prepaid sales and as a CL and not as sales revenue.
So under accrual accounting profit is calculated revenues earned less expenses incurred in the reporting period.
Sales revenue is recognized as earned when the goods are delivered.
So when the deposit has been received by the business the goods have not been delivered. Thus is recorded as prepaid sales revenue. The business now has a obligation to deliver goods or the other entity will ask for their money back resulting in a loss of economic benefit . Hence is a current liability. Once the goods are delivered a BDA will be made to recognise the prepaid sales revenue as earned.
Hope this helps, and sorry if its not what you were after.

[Damoz.G]

I'll do it on paper, and then post it on here. I could type it up straight away, but then I can't annotate it to explain it to you.

Should be up in about 30-45 Minutes (Gotta actually do it, and then scan it).

[Damoz.G]

I've typed up the figures, because it looked messy when I drew up the Journals. But I manually annotated it on paper for you.

Happy to answer further questions about it.

[lmaoss]

For part d of this question, am I missing something?
25 drills out of 50 have been delivered already on December 15.
And on December 31, the rest of the drills are delivered and paid for. Would that be instead in the Sales Journal, 25 x 40 = 1000 for Sales, $100 in GST and $1100 in Debtor's Control. Consequently the cash receipt entry would be different?

Also assuming that there is a discount of 5%, would you calculate this discount off the remaining balance of the debt or the entire amount of the debt. I'm getting different responses to this.

[Kuroyuki]

For part d of this question, am I missing something?
25 drills out of 50 have been delivered already on December 15.
And on December 31, the rest of the drills are delivered and paid for. Would that be instead in the Sales Journal, 25 x 40 = 1000 for Sales, $100 in GST and $1100 in Debtor's Control. Consequently the cash receipt entry would be different?

Also assuming that there is a discount of 5%, would you calculate this discount off the remaining balance of the debt or the entire amount of the debt. I'm getting different responses to this.

According to Neville box it's of the balance of the debt
"You can't get a discount on an amount already paid"

[Damoz.G]

For part d of this question, am I missing something?
25 drills out of 50 have been delivered already on December 15.
And on December 31, the rest of the drills are delivered and paid for. Would that be instead in the Sales Journal, 25 x 40 = 1000 for Sales, $100 in GST and $1100 in Debtor's Control. Consequently the cash receipt entry would be different?

It is 25*40=1000, but remember that the Debtor paid a Deposit of $300. So when you record it in the SJ, you have to deduct the deposit from the Sales price, but GST stays the same of the TOTAL Sales price.

Also assuming that there is a discount of 5%, would you calculate this discount off the remaining balance of the debt or the entire amount of the debt. I'm getting different responses to this.

As Dragon (Kuroyuki) has mentioned, the Discount applies to the balance of the debt at the time of the payment.

[lmaoss]

I meant for the delivery and invoice of the remaining 25 drills. The transaction after the prepaid sales one, isn't it just 1000, since if you deduct again, you'll be double counting?

[Damoz.G]

I meant for the delivery and invoice of the remaining 25 drills. The transaction after the prepaid sales one, isn't it just 1000, since if you deduct again, you'll be double counting?

Oh.......The opening poster updated his Post after I had already gotten all the information that night. Originally it was 40 drills, not 50, which is why I had $600+$60 for the remaining 15 drills.