Question 1

Section B - Case 2

Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
1) A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
2) Closing inventory was undervalued by $15,000.
3) An allowance for receivables of $8,000 needs to be created.
4) Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.

What is the net impact of adjustment 1 (the machine correction and depreciation) on the draft profit?

Accepted Answer

Combine the two parts of the correction: Add back the $120,000 incorrect expense. Deduct the $12,000 correct depreciation expense. +120,000 - 12,000 = +108,000.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Only adjusting for one part of the error.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 6

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