Question 1

**Section B - Case 2: Single Entity Accounts & Ratio Analysis**

*Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed:
1) Depreciation on new turbines of $50,000 was omitted.
2) An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
3) Closing inventory was overvalued by $30,000.
4) An irrecoverable debt of $15,000 needs to be written off.
Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.*

Calculate the adjusted Gross Profit for the year ended 31 December 20X8. (Assume depreciation is an administrative expense). (Enter numbers only)

Accepted Answer

Draft Gross Profit = Revenue - Cost of Sales. The only adjustment affecting Gross Profit is the closing inventory overvaluation (which increases Cost of Sales).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Deducting depreciation or bad debts from Gross Profit.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 1

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