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MGT101 GDB Spring 2019 Solution & Discussion

GDB Question: Mr. Aslam is running his small business under the name of Aslam and Sons. He has recently hired Mr. Anwar as a junior accountant to maintain the books of accounts of his business. Mr. Anwar has little knowledge in accounting and he is unable to prepare the Bank reconciliation statement and maintaining other necessary records. Recently, following causes of disagreement between bank column of cash book and business bank statement have been observed which was not reconciled by Mr. Anwar. Bank column of cash book showed a debit balance of Rs. 120,000. Cheque of Rs. 16,000 issued but not presented yet. Cheque of Rs. 38,000 deposited into the bank but not credited yet. Further, he has not reported the provision for doubtful debts of Rs. 10,000 in financial statement at the end of accounting period. Reported net profit by Mr. Anwar in profit and loss account was Rs. 450,000. Required: What will the balance as per bank statement after reconciliation the given causes of disagreements between bank column of cash book and bank statement? What will be the effect on net profit if above mentioned causes of disagreement between bank statement and bank column of cash book are not reconciled. Which fundamental accounting principle was violated due to the missing of reporting provision for doubtful debts in profit and loss account? What will be the correct amount of profit after considering the all above mentioned facts?

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Solution :
1. Balance as Per Cash Book (Dr) =120,000
Unpresented Cheque (Dr) =16,000

Uncredit Cheque (Cr) =38,000
Balance as per Sum statement Cr=98,000
2. Assets are overstated
3. Prodance and Matching Principle
4. Profit before Rectification =45,000
Less Provision for Debts =10,000
Profit after Rectification =440,000

Solution :
1. Balance as Per Cash Book (Dr) =120,000
Unpresented Cheque (Dr) =16,000

Uncredit Cheque (Cr) =38,000
Balance as per Sum statement Cr=98,000
2. Assets are overstated
3. Prodance and Matching Principle
4. Profit before Rectification =45,000
Less Provision for Debts =10,000
Profit after Rectification =440,000

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