Abdullah is happy with the development all around. Dubai was rocking. A camel ride to a Mercedes ride in a thirty years life-span has made most of the economists to think on all the well-established developmental models on growth phases. Abdullah has learnt from his parents that how tough it was during those days. He strongly supported the architects of all their plans though several of his friends criticized him for giving Dubai a spoilt image. It has given Dubai a strong, dynamic positioning in world’s map. It has made people like Abdullah to start their own venture.

Abdullah started a business on desert safari two years back and he was pretty sure of the profitability of his business. He went by the general thumb rule, if standard of living increases without any extra effort, the business is growing. As he left his study during school, for pursuing his other dreams, he has kept an accountant for maintaining the common minimum legal requirements. The accountant knew that if he can balance both the sides of a B/S, his job is intact (as Abdullah knew the matching concept). So before the submission date, he prepared the following financial statements for the current financial year and submits it to Mr. Abdullah.

After seeing this financial statements, Abdullah was happy as both side of the balance sheet was matching. But he got a doubt after referring to the previous year’s balance sheet. The reserve and surpluses for year 20X5 was AED 6,700. Abdullah realized that there is some duplication from entry. The moment he deducted AED 500 from liability side, the equilibrium got disturbed. He tried to balance them out, but it only increased his restlessness. He also remembered that the selling of old asset had occurred in 20X5.

Assuming Abdullah has given you the opportunity for finding out the mistake in the financial statements and rectify the same, please prepare a new balance sheet. He requests you to prepare a fresh income statement and balance sheet after considering January 20X7 into account. So, your balance sheet will be as on 31.01.X7. The following are the latest 10 transactions occurred in the month of January. Following are the transactions for January month:

The bank has sent a summary of bank statements and it indicates a debit balance of AED 16,500. The following three events are the culprit to give you a error in bank reconciliation:

(a) Cheque of AED 1,00,000, which you had paid as repayment for loan principal amount to National Bank of Dubai, is yet to be presented to your banker (cheque outstanding).

(b) A sum of AED 50,000 which you had presented to your banker, has to be collected.

(c) Bank has debited AED 5,000 for non-fund based transaction charges.

Case Questions

(a) Enter the following transactions in the journal, open ledger for all the entries and prepare financial statements, for both, December ending and January ending?

(b) Prepare a bank reconciliation statement to prove that actually cash balance, based on bank statement, is matching with your cash balance (based on your records) at AED 28,500 (negative) and explain it to Abdullah.

Transcribed Image Text:

Al Maktoum Desert Safari P&L a/c (for the month ended December 31, 20X6) (all figures in '00 AED) Revenues Investment by owner Service Revenue: Unearned Service Revenue: Expenses Salaries Advertisement Vehicle rent Pre paid vehicle rent Drawing Depreciation Sundry expenses Net Profit 19,400 5,000 14,000 400 18,300 2,800 1,600 5,400 4,600 1,800 100 2,000 1,100