Question 1

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 adjustment to the draft profit to correct the initial incorrect expensing of the machine (before calculating depreciation)?

Accepted Answer

The machine was incorrectly expensed, reducing profit by $120,000. To correct this, the $120,000 expense must be reversed (added back to profit).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Deducting the $120,000 or confusing it with the depreciation adjustment.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 6

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