FRA Skills Test - Please help!

Kati

Please help!!!!
I have just finished the FRA skills test and there’s one thing that I cannot get off my mind!:crying:
I got confused when posting the Journal entries (acquisition) to the Motor Vehicles – cost a/c, as there was already a Bank debit entry there, however it wasn’t the cost of the new car but the amount that was paid for it (after adding admin expenses, VAT and taking off part exchange allowance)! When doing practice simulations I have never come across this so I was totally confused! Plus as a result I could not clear my suspense account. Could anybody please explain me how I should have posted those entries into Motor Vehicles – cost a/c in the Main Ledger!!!

Many Thanks in advance!!

StuPed

Used to have this problem myself! I think I understand what your asking for help on.

Say the invoice was like so;

Vauxhall Astra 2,250
Plus VAT 250 (<- That isnt VAT on 2250 i know lol)

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2,500
Plus: Road Tax 250
Admin 250

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Grand Total 3,000

So in respect to this invoice (assuming that VAT is being included in the valuation) the car is actually worth £2,500 and not the £3,000 which you grasped.
From what youre saying i imagine you had a 'T' account at the start like so;

DR................................Motor Vehicles at Cost.................................CR

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01/01/01.......Bank.................£2000 --
...................................................--
...................................................--

I have used £2000 as an example to represent what you say is what they ACTUALLY paid, therefore meaning that value is not the true value of the car due to VAT ect. In the case of getting the true value in the 'T' account you would then need to think about what you have got to add and take away. Firstly you mentioned a part exchange. That would in effect increase the value of the vehicle as it is being used for instead of cash, so to add value to the car you would debit motor vehicles at cost for the value of the part exchange, which in my scenario I will make £1000 (that way it works out all nicely!) Note: The credit side of that will go to the disposals a/c to show the disposal of the part exchange.

DR................................Motor Vehicles at Cost.................................CR

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01/01/01.......Bank ................£2000 --
01/01/01.......Part e/x.............£1000 --
...................................................--
...................................................--

The balance is now £3000 but as we mentioned that is not the true amount of the car so you then have to take out the parts that do not relate to the actual car. In my example, road tax (to Motor Expenses) and Admin (To sundry or again motor expenses maybe). So you need to deduct those values from cost so it would be a credit to the motor vehicles at cost account and debit to the expenses shown in brackets. You should then end up with something that looks like this;

DR................................Motor Vehicles at Cost.................................CR

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01/01/01.......Bank.................£2000 --01/01/01.....Road Tax...........£250
01/01/01.......Part e/x.............£1000 --01/01/01.....Admin...............£250
...................................................--Balance c/f ........................£2500
..........................................

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.--......................................

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Totals..................................£3000.--.Totals..............................£3000
..........................................

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.--......................................

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As you can see the balance carried forward is the correct value of the purchased car, £2500. Whilst the other expenses will be in the correct nominal. Although i cannot see the question entirely, from the info youve talked about that probably the best i can come up with. Possibly one of the entries i said needed to go to the suspense a/c but hopefully if you stick some of the right figures in it might tie up ok. Hope that has helped, if i can help further do say :001_smile: If it wasnt much help, never mind it was fun drawing 'T' accounts anyway :laugh:

Hope that helps,

StuPed

Kati

Thanks very much for your explanation. It's just i start getting myself into a panicing mode as it gets closer to the exam!

StuPed

Tell me about it! I was told just last week i was being entered after all (was under the impression that my employer wasnt going to) so im deperatly cramming in now! Still, Hope it all goes well for your exam! Good Luck! :laugh:

Kati

Good luck!!!! Although after reading your replies to other peoples questions i'm sure you won't have any problem passing the exams in June!!!!:)