1)The company has been involved in a dispute with a government environment agency relating to the release of noxious gases from its manufacturing plant in early June 2009. An expert investigation was conducted to determine if the company was at fault. The investigator’s report released on 1 August 2009 found Antelope Ltd to be responsible fro the release and damages amounting to $750 000 were awarded the company.
2)On 9 July 2009, the sales manager raised credit notes worth $15 000 relating to sales of faulty goods in the last 2 weeks of June 2009.
3)On 25 September 2009, the company received notification that a customer owing $65 000 had gone into liquidation. The liquidator advised that unsecured creditors are likely to receive a distribution of only 20c in the dollar. The liquidation was caused by a flood in July 2009 which destroyed the customer’s operating plant and warehouse. The damage was not covered by insurance.
Given Also assume the tax rate is 30% and profit before tax for the year was $360 000.

My answer :

So that can I just write the journal entry like this ignoring the tax .
Ans1) Damages $750 000
Cash at bank $750 000
(damages payable)
Ans2) Credit Note $15 000
A/C Receivable $15 000
(credit notes issued)
Ans3) Bad Debts $65 000
A/C Receivable $65 000
(bad debts recognised)

Quote:

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Originally Posted by biksuju

1)The company has been involved in a dispute with a government environment agency relating to the release of noxious gases from its manufacturing plant in early June 2009. An expert investigation was conducted to determine if the company was at fault. The investigator's report released on 1 August 2009 found Antelope Ltd to be responsible fro the release and damages amounting to $750 000 were awarded the company.
2)On 9 July 2009, the sales manager raised credit notes worth $15 000 relating to sales of faulty goods in the last 2 weeks of June 2009.
3)On 25 September 2009, the company received notification that a customer owing $65 000 had gone into liquidation. The liquidator advised that unsecured creditors are likely to receive a distribution of only 20c in the dollar. The liquidation was caused by a flood in July 2009 which destroyed the customer's operating plant and warehouse. The damage was not covered by insurance.
Given Also assume the tax rate is 30% and profit before tax for the year was $360 000.

my answer :

so that can i just write the journal entry like this ignoring the tax .
ans1) Damages $750 000
Cash at bank $750 000
(damages payable)
ans2) Credit Note $15 000
A/C Receivable $15 000
(credit notes issued)
ans3) Bad Debts $65 000
A/C Receivable $65 000
(bad debts recognised)

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You have not mentioned the accounting year end, it seems the question relates to post balance sheet events. These are events that arise after the end of the accounting year but before the accounts are approved for reporting.

From the face of it, all the transactions need to be recognized as follows:
1. Debit Loss from damages on environment
Credit Damages payable

Cash payment will be recorded when the amount is actually paid

2. Debit Sales returns and allowances
Credit Accounts Receivable

3. Debit Bad debts expense
Credit Allowance for doubtful debts

Accounts receivable will be credited when the loss actually materializes. At this stage there is a probability of receiving 20c in the dollar from the customer. The final decision of the liquidator is still awaited.

You have not mentioned the monetary loss due to damage to the property. Since the damage occurred after balance sheet date (June 2009), I would just make a disclosure note and will not record any loss.

For calculating tax, I think the tax authorities will not allow deduction of damages of $750,000 representing penalty for violating laws of the country. The other items are tax deductible.

Thanyou but how should I deduct the tax.. got no any idea for that do I use the formula for tax

The above information has been made available to assist in the preparation of the financial statements of Antelope Ltd. For the year ended 30 June 2009: and to preapare a notes n journal entry is that now the same answers u gave me or will be changed or the way I did is right...

Compute tax after adjusting entries 2 and 3