ACCA · Question 55 · Preparing Basic Financial Statements

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 impact of creating the allowance for receivables (adjustment 3) on the draft profit? (State the amount and whether it is an increase or decrease, e.g., 'Decrease 8000').