ExpertHard1 markShort Answer
This question is part of a case study — click to read the full scenario(Case 51)
SCENARIO: AgriSteel Heavy Industries manufactures specialized farming machinery. Draft financial statements for the year ended 30 September 20X6 show a draft net profit of $1,200,000. The following adjustments are needed:
- Closing inventory was valued at cost $450,000, but includes damaged tractors costing $50,000 that can only be sold for $30,000 after $5,000 repair costs.
- A machine bought for $200,000 on 1 Oct 20X5 was incorrectly charged to repairs. Depreciation is 20% reducing balance.
- A provision for a legal claim of $80,000 needs to be created.
- The allowance for receivables needs to increase by $15,000.
Calculate the Net Realizable Value (NRV) of the damaged tractors. (Enter the number only)
ACCA · Question 60 · Single Entity Accounts
SCENARIO: AgriSteel Heavy Industries manufactures specialized farming machinery. Draft financial statements for the year ended 30 September 20X6 show a draft net profit of $1,200,000. The following adjustments are needed:
- Closing inventory was valued at cost $450,000, but includes damaged tractors costing $50,000 that can only be sold for $30,000 after $5,000 repair costs.
- A machine bought for $200,000 on 1 Oct 20X5 was incorrectly charged to repairs. Depreciation is 20% reducing balance.
- A provision for a legal claim of $80,000 needs to be created.
- The allowance for receivables needs to increase by $15,000.
Calculate the final adjusted net profit for the year. (Enter the number only)
SCENARIO: AgriSteel Heavy Industries manufactures specialized farming machinery. Draft financial statements for the year ended 30 September 20X6 show a draft net profit of $1,200,000. The following adjustments are needed:
- Closing inventory was valued at cost $450,000, but includes damaged tractors costing $50,000 that can only be sold for $30,000 after $5,000 repair costs.
- A machine bought for $200,000 on 1 Oct 20X5 was incorrectly charged to repairs. Depreciation is 20% reducing balance.
- A provision for a legal claim of $80,000 needs to be created.
- The allowance for receivables needs to increase by $15,000.
Calculate the final adjusted net profit for the year. (Enter the number only)
How to approach this question
Start with draft profit. Subtract inventory write-down. Add back machine cost. Subtract machine depreciation. Subtract legal provision. Subtract allowance increase.
Full Answer
Draft Profit = $1,200,000.
Less: Inventory write-down ($25,000).
Add: Reversal of machine expense $200,000.
Less: Machine depreciation ($40,000).
Less: Legal provision ($80,000).
Less: Allowance increase ($15,000).
Adjusted Profit = $1,200,000 - $25,000 + $160,000 - $80,000 - $15,000 = $1,240,000.
Common mistakes
Missing one of the adjustments or getting the sign wrong (e.g., deducting the $200,000 machine cost instead of adding it back).
Practice the full ACCA FA — Financial Accounting Practice Exam 3
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