The following balances pertaining to fixed assets have been extracted from the trial balance of Macro Traders for the year ended 31 December 2021: Amount (K)
Non–current assets at cost	12,500,000
Accumulated depreciation	3,125,000
Depreciation expense	625,000
Gain on disposal of non-current assets	29,000

Depreciation on non-current assets is charged from the month of addition to the month prior to disposal using the reducing balance method at 20% per annum.

Depreciation expense for the current year has been correctly calculated and recorded except for the following:

(i) Physical verification of fixed assets carried out on 31 December 2021, revealed the following matters:

• Two laptops purchased on 1 July 2020 at a cost of K122,500 were withdrawn by the proprietor on 1 May 2021 for his personal use.

• Equipment costing K400,000 purchased on 1 January 2019 was damaged in rain in December 2021 and was scrapped.

• A machine costing K37,500 is not on the list of non-current assets but has been in the use of the sales department since 1 March 2021. On investigation, it was found that the machine was transferred from stock-in-trade but no adjustment was made in the books.

(ii) Installation of an assembly plant was completed on 1 December 2021. Installation charges amounting to K120,000 have not yet been recorded in the books due to the non-receipt of the invoice.

(iii) An invoice of K341,500 for a machine purchased on 1 October 2021 was mistakenly accounted for as K436,500.

Required:

Prepare necessary adjusting and closing entries for the year ended 31 December 2021.

Answer rating: 100% (QA)

All adjusting and closing entries are given in the below table which are self explainable Loss on sc... View the full answer