Matching Concept

Mr. Sumit has...

Question

Mr. Sumit has been hired to be the accountant for his favorite band. Let's assume that the group has a concert coming up in New York on April 15, 2017. However, there are a lot of expenses like airline tickets, hotel deposits, security, buses, stage hands, equipment technicians, and advertising which have been paid in March 2017 i.e. the prior accounting period. Sumit, as the accountant, posted all of the expenses for airline tickets, hotel deposits, security, buses, stage hands, equipment technicians, and advertising in March 2017. Is this correct? If not, in which period shall all these expenses be recorded.

Yes, he is correct

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No, expenses should be recorded in April 2017

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Expenses should not be recorded

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None of the above

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Solution

The correct option is B No, expenses should be recorded in April 2017
Neither the revenue nor the related expenses will be recorded in March 2017, but both will be matched in the period the concert takes place: the first month of Financial Year 2017-18. These expenses shall be recorded as prepaid expenses which will be shown as asset in March 2017. In this way, the revenue earned is linked to the related expenses.

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Liabilities		₹	Assets	₹
Capital A/cs:			Land and Building	50,000
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B	60,000		Furniture	30,000
C	40,000	1,60,000	Stock	20,000
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		2,00,000		2,00,000

D is admitted as a new partner on 1st April, 2018 for an equal share and is to pay ₹ 50,000 as capital .
Following are the adjustments required on D's admission :
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A, B

and

C

are partners sharing profits and losses in the ratio of

3 : 2 : 1

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31^{s t}

March,2018 is as follows:

Liabilities	(Rs.)	Assets	(Rs.)
Capital A/cs: A 60,000 B 60,000 C 40,000 Creditors Bills Payable	1,60,000 30,000 10,000	Land and Building Plant and Machinery Furniture Stock Debtors Bills Receivable Bank	50,000 40,000 30,000 20,000 30,000 20,000 10,000
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April,2018 for an equal share and is to pay

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which was previously discounted with the banker, was dishonoured on

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—

₹5,400; Stock of Stationery in Hand on 31st March, 2018

—

₹250.
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—

₹ 1,500; Payment made for Stationery during the year ended 31st March, 2018

—

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