A trial balance of Shayan Trading Company for the year ended 30 June, 2019 was prepared by the Accountant. A scrutiny of the various accounts revealed that the following adjustments are needed:- a) Salaries amounting to Rs. 135,000 of certain employees

To address the required journal entries based on the adjustments needed for Shayan Trading Company's trial balance, we can prepare the necessary adjusting entries as follows: ### Adjusting Journal Entries 1. **Salaries Expense:** - **Entry:** ```plaintext Salaries Expense Dr Rs. 135,000 Salaries Payable Cr Rs. 135,000 ``` - **Explanation:** This entry recognizes the unpaid salaries for June 2019. 2. **Depreciation Expense:** - **Entry:** ```plaintext Depreciation Expense Dr Rs. 50,000 Accumulated Depreciation - Computer Equipment Cr Rs. 50,000 ``` - **Explanation:** This entry records the annual depreciation (20% of Rs. 250,000) on computer equipment. (Calculation: Rs. 250,000 x 20% = Rs. 50,000) 3. **Office Supplies Expense:** - **Entry:** ```plaintext Office Supplies Expense Dr Rs. 23,000 Office Supplies Cr Rs. 23,000 ``` - **Explanation:** This entry accounts for the used office supplies. (Calculation: Rs. 45,000 purchased - Rs. 22,000 remaining = Rs. 23,000 used) 4. **Accrued Interest Income:** - **Entry:** ```plaintext Interest Receivable Dr Rs. 16,000 Interest Income Cr Rs. 16,000 ``` - **Explanation:** This entry records the accrued interest for 2 months on the investment. (Calculation: Rs. 800,000 x 12% per annum x (2/12) = Rs. 16,000) 5. **Utility Expense:** - **Entry:** ```plaintext Utility Expense Dr Rs. 18,500 Utilities Payable Cr Rs. 18,500 ``` - **Explanation:** This entry recognizes the utility bill expense that is due to be paid in July. 6. **Loan Repayment:** - **Entry:** ```plaintext Interest Expense Dr Rs. 10,000 Loan Payable Dr Rs. 130,000 Cash / Bank Cr Rs. 140,000 ``` - **Explanation:** This entry records the interest expense and the loan repayment due on July 1st. Although the repayment is not made until July, it is recognized as a liability for June. ### Overall Impacts of Adjustments on Net Income if Omitted Now, let’s analyze the impact on net income with these adjustments omitted. 1. **Salaries Expense:** - Increase in net income by Rs. 135,000 (because it was not recorded). 2. **Depreciation Expense:** - Increase in net income by Rs. 50,000 (because it was not recorded). 3. **Office Supplies Expense:** - Increase in net income by Rs. 23,000 (because it was not recorded). 4. **Interest Income:** - Increase in net income by Rs. 16,000 (because it was not recorded). 5. **Utility Expense:** - Increase in net income by Rs. 18,500 (because it was not recorded). 6. **Interest Expense on Loan:** - Increase in net income by Rs. 10,000 (because it was not recorded). ### Total Impact on Net Income Now, summing up these amounts: - **Total Increase in Net Income if Adjustments are Omitted:** - Salaries: Rs. 135,000 - Depreciation: Rs. 50,000 - Office Supplies: Rs. 23,000 - Interest Income: Rs. 16,000 - Utility Expenses: Rs. 18,500 - Interest Expense: Rs. 10,000 **Total = Rs. 135,000 + Rs. 50,000 - Rs. 23,000 + Rs. 16,000 - Rs. 18,500 - Rs. 10,000 = Rs. 149,500 (Net Income would be overstated by this amount)** In conclusion, the failure to record these adjustments would result in an overstatement of net income by Rs. 149,500 for the year ended June 30, 2019. Update (2024-10-03): To address the requirements, we will first prepare adjusting journal entries for each of the identified adjustments, and then we will explain the impact of omitting these adjustments on the net income. ### 1) Adjusting Journal Entries Here's how the adjusting journal entries would look based on the given adjustments: **a) Accrued Salaries** - **Journal Entry:** ``` Salaries Expense 135,000 Accrued Salaries Payable 135,000 ``` - **Description:** To record unpaid salaries for June 2019. **b) Depreciation on Computer Equipment** - **Journal Entry:** ``` Depreciation Expense 50,000 Accumulated Depreciation 50,000 ``` - **Description:** To record depreciation on computer equipment (20% of Rs. 250,000). **c) Office Supplies Adjustment** - **Journal Entry:** ``` Office Supplies Expense 23,000 Office Supplies Inventory 23,000 ``` - **Description:** To adjust office supplies expense based on the physical verification (45,000 purchases - 22,000 remaining = 23,000 used). **d) Accrued Interest on Investment** - **Journal Entry:** ``` Interest Receivable 16,000 Interest Income 16,000 ``` - **Description:** To recognize accrued interest for two months on the investment (Rs. 800,000 * 12% / 12 * 2). **e) Accrued Utility Bills** - **Journal Entry:** ``` Utility Expense 18,500 Accrued Utility Payable 18,500 ``` - **Description:** To record utility bills due for June 2019. **f) Accrued Loan Interest** - **Journal Entry:** ``` Interest Expense 10,000 Accrued Interest Payable 10,000 ``` - **Description:** To record interest expense due on the loan as of June 2019. ### 2) Overall Impact on Net Income if Adjustments are Omitted If these adjustments are omitted, the following impacts on net income will occur: - **Salaries Expense (a):** Not recording Rs. 135,000 will overstate net income. - **Depreciation Expense (b):** Not recording Rs. 50,000 will also overstate net income. - **Office Supplies Expense (c):** Not recognizing Rs. 23,000 used will overstate net income. - **Interest Income (d):** Not recording Rs. 16,000 will understate income, but the omission leads to an overall overstatement of net income. - **Utility Expense (e):** Not recording Rs. 18,500 will overstate net income. - **Interest Expense (f):** Not recording Rs. 10,000 will lead to overstatement of net income. ### Total Impact on Net Income - Total expenses omitted (a, b, c, e, f) = Rs. 135,000 + Rs. 50,000 + Rs. 23,000 + Rs. 18,500 + Rs. 10,000 = **Rs. 236,500** - Total income omitted (d) = Rs. 16,000 Thus, the overall impact on net income if adjustments are omitted would result in an **overstatement of net income by Rs. 236,500 (total expenses omitted) - Rs. 16,000 (income omitted) = Rs. 220,500**. Hence, the omission of these adjustments will lead to an overstatement of the net income by Rs. 220,500.