Financial Reporting Module 1 Assumed Knowledge tasks
Elements and recognition criteria
1. Identify the definition for each of these elements:
a. Assets
b. Liabilities
c. Equity
d. Income
e. Expenses
2. What are the recognition criteria?
3. Classify the following as either assets, expenses, income or liabilities:
a) Wages
b) A gold ring
c) Stationery
d) Accounts payable
e) Debtors
f) Sales
4. Identify the IFRS standard you would use to account for each of the following:
a) Land held for rentals
b) Buildings used by the entity
c) Inventory
d) Short-term leave entitlements
5. How do we account for a transaction or event that does not meet the recognition
criteria but is material to users’ decision making?
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Financial Reporting Module 1 Assumed Knowledge tasks
Activity – merchandise transactions
Dion is a fashion designer and has no knowledge of basic accounting principles. Dion has
asked for your assistance with regard to the following merchandise transactions.
What are the journal entries required to account for these transactions (using the perpetual
method)?
1. Dion purchased stock for $300 on credit.
2. At the end of the month, he paid the creditor $300 for the stock purchased.
3. Dion sold items to Angela, a customer, for $500 cash. The stock originally cost Dion $300.
4. Angela decided to return $50 worth of stock which originally cost Dion $30.
5. Mary, a customer, bought some items for $500 on credit. This originally cost $300.
6. At the end of the month, Mary paid for her credit purchase of $500.
7. Another customer who purchased $500 of stock on credit decided to settle his account early.
As a ‘thank-you’ Dion offered the customer a $25 discount, which the customer accepted.
8. Dion performed a stock-take and found that inventory on the floor was $25 less than what was recorded
in the system.
The template for preparing the journal entries for these transactions is provided on the next page.
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Financial Reporting Module 1 Assumed Knowledge tasks
Template – merchandise transactions
1. Stock purchased on credit
DR
CR
2. Payment to creditor
DR
CR
3. Customer sale (cash)
DR
CR
DR
CR
4. Sales return
DR
CR
DR
CR
5. Customer sale (credit)
DR
CR
DR
CR
6. Customer payment for credit purchase
DR
CR
7. Customer payment and discount
DR
DR
CR
8. Stock-take
DR
CR
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Financial Reporting Module 1 Assumed Knowledge tasks
Activity – Balance day adjustments - transactions and events
Jenny is a fashion designer who has decided to start her own business called 'Great Designs'.
She starts her business on 1st June 2016. The following events occurred during the month:
Date Event
1st Jenny, the owner, puts $25,000 cash into her business.
Great Designs rents a small shop for $800 per month and pays for the first 3 months
1st
with cash.
The business purchases $18,000 of equipment required to design and make her
3rd
products. It is expected to last for 10 years. $7,000 of the purchase is paid with cash.
4th The business obtains a credit card with a $2,000 limit.
Simon, a purchaser from Kmart is very excited to meet with Jenny. He promises that he
5th will place an order with her for $10,000 on the 15th of June. Jenny believes this will
cost $8,000 to complete.
6th The business buys $15,000 worth of stock. Pays $5,000 in cash and the rest is on credit.
Simon places a $10,000 order that will cost $8,000 to complete. He provides a $5,000
15th
cash deposit.
30th The order for Simon is completed and despatched along with an invoice.
30th The business pays $1,000 for utility bills (Phone / electricity / gas / water) with cash.
30th The business pays Jenny $4,000 cash for wages.
30th The business pays off $3,000 of the equipment purchase with cash.
TASK: Prepare all the relevant journal entries and balance day adjustments
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