ExpertMedium1 markMultiple Choice
ACCA · Question 54 · Preparing basic financial statements
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:
- Depreciation on new turbines of $50,000 was omitted.
- An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
- Closing inventory was overvalued by $30,000.
- 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.*
If the draft Current Assets figure was $800,000 before any adjustments, what is the revised Current Assets figure?
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:
- Depreciation on new turbines of $50,000 was omitted.
- An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
- Closing inventory was overvalued by $30,000.
- 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.*
If the draft Current Assets figure was $800,000 before any adjustments, what is the revised Current Assets figure?
Answer options:
A.
$755,000
B.
$761,000
C.
$821,000
D.
$711,000
How to approach this question
Adjust the draft Current Assets. Add the new prepayment. Subtract the inventory reduction. Subtract the irrecoverable debt (which reduces receivables). Depreciation affects non-current assets, not current.
Full Answer
B.$761,000✓ Correct
Draft Current Assets = $800,000.
Add: Prepayment of insurance = $6,000.
Less: Reduction in inventory value = $30,000.
Less: Irrecoverable debt written off (reduces receivables) = $15,000.
Revised Current Assets = $800,000 + $6,000 - $30,000 - $15,000 = $761,000.
(Depreciation affects Non-Current Assets).
Common mistakes
Deducting the $50,000 depreciation from current assets.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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