ExpertHard1 markShort Answer
ACCA · Question 58 · 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:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Calculate the revised profit before tax after all four adjustments have been made (in $).
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:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Calculate the revised profit before tax after all four adjustments have been made (in $).
How to approach this question
Start with $450,000. Add net machine adjustment ($108,000). Add inventory adjustment ($15,000). Deduct allowance ($8,000). Add prepaid rent ($8,000). 450k + 108k + 15k - 8k + 8k = 573k.
Full Answer
Revised Profit = Draft Profit ($450,000) + Reversal of machine expense ($120,000) - Depreciation ($12,000) + Inventory undervaluation ($15,000) - Allowance for receivables ($8,000) + Prepaid rent ($8,000).
$450,000 + $108,000 + $15,000 - $8,000 + $8,000 = $573,000.
Common mistakes
Missing an adjustment or getting the sign wrong (e.g., deducting the inventory adjustment).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
65 questions · hints · full answers · grading
More questions from this exam
Q01Section A
GlobalHealth Initiative, an international NGO, receives a restricted grant of $500,000...MediumQ02Section A
Quantum AI Ltd, a tech startup, has developed a proprietary algorithm. The directors w...MediumQ03Section A
HydroGrid PLC, a public utility company, receives a $24,000 payment on 1 October 20X5 ...MediumQ04Section A
AgriGrow Ltd operates a large commercial farm. At year-end, they have 10,000 tonnes of...MediumQ05Section A
SteelForge Heavy Industries purchased a blast furnace on 1 January 20X2 for $5,000,000...Hard