Answers
| Correction entries to be passed alongwith reason for same are listed below : | |||||||||||||
| Particulars | Dr. ($) | Cr. ($) | |||||||||||
| A) | Security Deposit a/c ..Dr | 8,000 | |||||||||||
| Prepaid Rent a/c ..Dr | 10,000 | ||||||||||||
| To Rent a/c | 18,000 | ||||||||||||
| Reason : Rent paid belongs to period of January 2020 and does not belong to the current period, hence the same is to be recorded as prepaid rent. | |||||||||||||
| Also, damage deposit paid is in the form of security deposit to be refunded at the end of the contract, hence recorded as security deposit. | |||||||||||||
| B) | Profit and loss a/c ..Dr | 5,500 | |||||||||||
| To Inventory a/c | 5,500 | ||||||||||||
| Reason : Inventory is recorded at cost or NRV, whichever is lower. Since cost i.e. 9,500 $ is lower in the current scenario, Inventory should be reduced to 9500 $ from 15,000 $. | |||||||||||||
| C) | Asset given on loan / Partner's a/c ..Dr | 8,000 | |||||||||||
| To Stereo a/c | 8,000 | ||||||||||||
| Reason : Since asset is not being used for business purpose, it should either be counted as drawings and reduced from partner's account and if it's for a specific period, it should be asset given on loan. | |||||||||||||
| D) | Revenue a/c ..Dr | 400 | |||||||||||
| To Deferred Revenue a/c | 400 | ||||||||||||
| Reason : Revenue is recognised only when services have been delivered. Since in the current case services have not been delivered but the consideration has been received, the same should be recorded as deferred revenue. | |||||||||||||
| E) | Legal expense a/c ..Dr | 50,000 | |||||||||||
| To Provision for Legal expense a/c | 50,000 | ||||||||||||
| Reason : Since lawyer has estimated that it is probable that 50,000 $ liability will be incurred, the same shall be recorded as a provision in the books of accounts. | |||||||||||||
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