Question

Q4.M/s. Muhannad Company is dealing with the dealing with imported Washing Machines. The company used to buy machineries from different countries and selling the machineries in Sultanate of Oman with 19% profit margin. The company was having following assets and liabilities as on 31st December 2019. The company was having liabilities namely Capital RO 425,8900, loan borrowed RO 105,900, amount payable to creditors RO 18,750, outstanding expenses RO 19,650 and salary payable to family members who are not employees of the business RO 4,500.The assets consist of Building RO 450,800, equipment RO425,800, furniture RO 28,600, Bank balance of RO 32,800. Treasury bills RO 12,500 short term notes receivables RO 13,600, money market funds RO 4,550 and money due to brother which borrowed for the personal expenses RO 3750.

You are required to find the short term cash equivalent Assets, Other current Assets, Fixed assets, Noncurrent liabilities, current liabilities, derecognized amounts spent out of the business purposes.

8) Mahmood company needed 3,700 units of raw material every month starting from January till June due to the orders which it has received from a customer and also to satisfy the regular demand the company has.The company started to place its order with different suppliers as it was not able to find a single supplier to satisfy all its needs. They have to procure the raw materials from different suppliers at the prevailing market price. In the month of January and February, they purchased at the rate of RO12.25 per unit and RO.12.40 per unit respectively. Due to high demand for raw materials in March, they have to pay RO.12.70 per unit. But the prices in April and May was less when compared with March which stood at RO 12.5 per unit and RO 12.55 per unit respectively. In June, the company has bought the raw materials at RO 12.65 per unit. All the raw materials purchased are converted in to finished goods in that particular month itself. In order to convert the raw materials purchased to finished goods, the company has to spend an additional cost of 250 baiza for each unit. However, the company already had 3,200 units of older stock that was purchased at RO 10 each (additional cost for manufacturing is included). The company sold 4,100 units @ RO 14.5 per unit in February, 4,800 units @ RO15.75 per unit in April and in June 5,268 units @ RO16.25 per unit. The company follows LIFO method of inventory valuation. ​​​​​​​​​​​

You are required to calculate ending inventory for the above transactions.

Q9. You are required to prepare Journal entries for the above Question No.8 using perpetual and periodic inventory system. ​​​

Q10.Mr. Q started his own business. As it is a very small business with little investment and very less transactions, he does not want to hire any employees to record the transactions happening in the business. As he is not from an Accounting background, he finds it very difficult to understand how to classify the transactions and record. Some transactions are given to you to help him classify transactions category under A) Current Assets B) Current Liabilities C) Long term liabilities D) Long term Assets E) Contingent Liability.

You are also required to guide him how you have classified a particular transaction by giving suitable reasons in the books of both the parties.

i) Suppose Mr. A has purchased goods for using it in manufacturing from Mr. B on credit for

RO 10,500.

ii) Mr. Q’s company borrowed money from Bank Muscat promising to repay it after 4 years.

iii) A Promised to deliver the goods to Mr. Z on November1st 2020. Mr. Z paid the cash of

RO. 6,800 before the goods were delivered to him.

iv) Mr. Q is working part time in ABC ltd. He did not receive the salary for the month of August.

v) Mr. A’s company sold goods to Mr. Ali on credit basis of RO 3,750 and later the same has been changed from credit into Note. ​​​​​

Answer 1

Answer : Question 4

Short term cash equivalents: Short term cash equivalents are the liquid assets which can be easily converted into cash. Examples are short term investments, marketable securities, treasury bills.

Short term cash equivalents:

Details	Amount RO
Treasury Bills RO	12,500
Short term notes receivable RO	13,600
Money Market Funds	4,550
Total Short Term Cash Equivalents	30,650

Other Current Assets: Other current assets refer to those assets which are not covered in cash and cash equivalents, marketable investments. Examples are loan advances to employees, advances paid to suppliers, etc.

In the above question the amount of other current asset is money due to bother which borrowed for personal expenses amounted to $3,750

Fixed Assets: The assets which are purchased for income generation and for long term use but not for sold are called fixed assets. Examples are land, building, plant and equipment, etc.

Calculation for fixed assets:

Details	Amount RO
Building	450,800
Equipment	425,800
Furniture	28,600
Total Fixed Assets	905,200

Noncurrent liabilities: The liabilities which are repaid in more than one accounting period are called as noncurrent liabilities or long-term liabilities. Examples are secured loan, bonds payable, notes payable, etc.

The amount of noncurrent liabilities are 105,900 RO from loan borrowed.

Current liabilities: The liabilities which are repaid within one accounting period are called as current liabilities. Examples are creditors, outstanding expense, short term borrowings, etc.

Calculation for current liabilities:

Details	Amount RO
Amount payable to creditors	18,750
Outstanding expenses	19,650
Total Fixed Assets	38,400

Derecognized amounts spent out of the business purposes: These are the amounts which are spent not for the business purposes.

Answer: Q8:

LIFO Method of Inventory: In Last in First out (LIFO) method of inventory the materials purchased last are sold first. In this method of inventory the closing stock consists of the inventory purchased earlier including the beginning balance if any.

The following steps show the calculation of amount of closing stock:

Step 1: Compute the number of units in closing stock:

Month Purchase Units Sales Units Beginning Balance 3,200 Jan 3,700 Feb 3,700 4,100 Mar 3,700 Apr 3,700 4,800 May 3,700 Jun 3,700 5,268 Total 25,400 14,168
Closing Stock Units = Beginning Stock + Purchases - Sales Closing Stock Units = 25,400 - 14,168 Closing Stock Units = 11,232 Units
Step 2: Compute the amount of closing stock: As LIFO method is used the closing stock amounts will be from earlier purchases.

Closing Stock
Details	Units	Rate Per Units (RO)	Amount (RO)
Beginning Balance	3,200	10.00	32,000.00
Jan	3,700	12.25	40,425.00
Feb	3,700	12.40	40,920.00
Mar	632	12.70	41,910.00
Total Closing Stock	11,232		155,255.00

Additional Cost = 0.250(3,700+3,700+632)                              =2,008 RO

Total Amount of Closing Stock = 155,255+2,008                                                        =157,263 RO

Note: Additional cost is applicable to only purchased units. The older stocks already included additional amount.