ExpertEasy1 markMultiple Choice
ACCA · Question 55 · 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.*
Which of the four adjustments will affect the Non-Current Assets figure in the Statement of Financial Position?
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.*
Which of the four adjustments will affect the Non-Current Assets figure in the Statement of Financial Position?
Answer options:
A.
Adjustment 1 only
B.
Adjustments 1 and 3
C.
Adjustments 1 and 4
D.
None of the adjustments
How to approach this question
Review each adjustment and determine which category of the Statement of Financial Position it affects. Turbines are non-current assets. Inventory, prepayments, and receivables are current assets.
Full Answer
A.Adjustment 1 only✓ Correct
Adjustment 1 (Depreciation on turbines) increases accumulated depreciation, thereby reducing the carrying amount of Property, Plant and Equipment (Non-Current Assets). Adjustments 2, 3, and 4 affect Prepayments, Inventory, and Receivables respectively, all of which are Current Assets.
Common mistakes
Thinking inventory or receivables are non-current assets.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
65 questions · hints · full answers · grading
More questions from this exam
Q01**Section A**
BioGenix Ltd, a pharmaceutical startup, has spent $2 million on researching a new ...MediumQ02**Section A**
Which of the following bodies is primarily responsible for issuing International F...EasyQ03**Section A**
SolarTech Manufacturing recently upgraded its primary assembly line. Which TWO of ...MediumQ04**Section A**
AgriGrow Ltd sells specialized farming equipment. A customer purchases a tractor f...MediumQ05**Section A**
Oceanic Logistics provides shipping services. They issue an invoice for $10,000 to...Medium