Hanan Al Balushi (LLC) is an organization manufacturing machine component and supplying to retailers across Oman. Mr. Hussein, the CEO, when reviewing the financial statements of the company as a part of the internal control system, realized that the bank balance in the cashbook is not tallying with the balance in the bank statement. Mr. Hussein requested Mr. Hamed, the financial accountant of the company to identify the reasons for the differences.
Mr. Hamed has requested his team members to investigate the reasons for the differences. The following is a summary of a cash book as presented by Hanan AL Balushi (LLC) finance team for the month of October.
All receipts are banked, and all payments are made by cheque.
On Investigation the following were discovered.
1. Bank charges of OMR 136 entered on the bank statement have not been entered in the cash book.
2. Cheques drawn amounting to OMR 267 had not been presented to the bank for payment.
3. Cheques received totaling OMR 762 had been entered in the cashbook and paid into the bank account but had not been credited by the bank until 3rd November.
4. A cheque for OMR22 for sundries has been entered in the cash book as a receipt instead of as a payment.
5. A cheque received from K. Abdullah for OMR 80had been returned by the bank and marked ‘No funds available’. No adjustment has been made in the cashbook.
6. A standing order for a business rates installment of OMR 150 on 30th October had not been entered in the cashbook.
7. All dividends received are credited directly to the bank account. During October amounts totaling to OMR 62 were credited by the bank account but no entries were made in the cashbook.
8. A cheque drawn for OMR 66 for stationery had been incorrectly entered in the cashbook as OMR 60.
9. The balance brought forward in the cash book should have been OMR 711, noy OMR 761
Investment In Machinery
The organization invested in a machinery on 1st January 2018, which produces machine components. The initial investment cost of the machine tool is OMR 150,000. This machine can be used for a useful life 5 years and has a salvage value of 25,000. The maximum number of machine components that could be produced using the machine is 25,000 units. It is noted that this machine has a high productivity in the early years and the productivity reduced over a period. The machine produces 8000 units in 2018 and 7500 units in 2019.
Mr. Hussein requested Mr. Hamed to use the most suitable depreciation policy based on the use of the asset as the company incurred a loss 2 years ago selecting the incorrect depreciation policy to evaluate the machinery. Mr.Hamed, has still not decided in the depreciation policy. Hence, he is planning to evaluate the different depreciation policies and select the most suitable depreciation policy for the organization.
Based on the above given scenario.
Assume you are Mr. Hamed, You are required to prepare a report should.
a. Explain the need for preparing bank reconciliation statement with suitable examples from the given scenario.
b. Preparation of the updated cash book and bank reconciliation statement.
c. Calculation of depreciation for the years 2018 and 2019 based on straight line method, reducing balance method, Activity based method and Sum of the years digit method.
d. Advising the management, the most suitable depreciation policy with suitable justification.
Your assignment should be structured as follows
· Title page
· Annexures (If any)