Cost Accounting

2013

COST ACCOUNTING

ASSIGNMENT

QUESTION:

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

Particulars | Dec. 31, 2012 (Rs.) | Dec. 31, 2011 (Rs.) |

Sales | 424,000 | 310,000 |

Less: cost of sales. | (300,000) | (204,000) |

Gross Profit | 124,000 | 106,000 |

Less: operating expenses | (30,000) | (16,000) |

Net Profit | 94,000 | 90,000 |

STATEMENT OF RETAINED EARNING

Particulars | Dec. 31, 2012 (Rs.) | Dec. 31, 2011 (Rs.) |

Retained Earnings at the beginning | 164,000 | 84,000 |

Net Profit for the year | 94,000 | 90,000 |

Dividend paid | (16,000) | (10,000) |

Retained Earnings at the End | 242,000 | 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

(NOTE: 03 MARKS FOR GOOD FORMATTING AND PRESENTATION)

ANSWER:

1. INCOME STATEMENT

-------------------------------------------------

Local Industries Ltd

Income Statement

for the Year Ended December 31, 2011

Particulars | Rs. |

Sales | 310,000 |

Less: Cost of sales | (204,000+30,000) |

Gross Profit | 76,000 |

Less: operating expenses | (16,000) |

Net Profit | ______ 60,000 |...