7 adjustments to final accounts

7/28/2019 7 Adjustments to Final Accounts

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Chapter 8

Adjustments to Final Accounts

Adjustments Effect Upon

Trading and Profit and Loss Account Balance sheet

1. Closing Stock Trading Account = Opening Stock + Included as a

Net Purchases + Carriage In - Closing Current Asset.

Stock)

2. Expenses Due PLUS particular Expense in the Profit and Included as a Current

(Not paid) Loss Account. Liability.

3. Expenses MINUS particular Expense in the Profit Included as a

Prepaid (paid for and Loss Account. Current Asset.

next year)

4. Gain Due PLUS particular Gain in the Profit and Included as a

Loss Account. Current Asset.

5. Gain Prepaid MINUS particular Gain in the Profit and Included as a Current

Loss Account. Liability.

6. Depreciation Included as an Expense in the Profit and Subtracted from the

Loss Account. Cost of the Fixed

Asset.

7. Bad Debts Creation (full amount) and Increase (the Subtracted from

Provision difference only) included as an Expense. Debtors.

Decrease ( the difference only) included as Subtracted from

a Gain. Debtors.

8. Goods Taken MINUS from Purchases in the Trading PLUS Drawings.

by the owner. Account.


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Trading Account and Profit and Loss account for the year ending 30 June 2004

Sales 168,432

less Returns Inwards (975) 167,457

Cost of Sales

Opening Stock 9,427

Purchases 105,240Less Returns Outwards (1,237)

104,003

Less (7) Goods Taken (240)

Net Purchases 103,763

113,190

Less (1) Closing Stock (11,517) (101,673)

Gross Profit 65,784

Add (8) Commission Received (+57) 300

Add (6) Reduction in Bad Debts Provision (150-96) 54 354

66,138

Less Expenses

Discount Allowed 127

Wages and Salaries 30,841

(2) Vehicle Expenses (+55) 1,076

(3) Rent and Rates (-275) 8,521

Heating and Lighting 1,840

Telephone 355

General Expenses 1,752

Bad Debts 85

(4/5) Depreciation: Vehicles 1,125

Shop Fittings 600 1,725 (46,322)Net Profit 19,816

Notes:


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2. Mario Zarb, a sole trader, prepared the following Trial Balance

as at 30 April 1999.

Trial Balance as at 30 April 1999 Dr Cr

Lm LmCapital 1 May 1998 11,100Debtors and Creditors 3,460 2,090Office Furniture 700Discount Allowed and Received 680 280Machinery 600Purchases and Sales 9,450 16,330Returns In and Out 760 410Wages and Salaries 2,960Bank 750Cash 70

Bad Debts written off 190Rates and Insurance 270Premises 6,000Carriage Outwards 520Drawings 1,700Sundry Expenses 120Stock 1 May 1998 1,980

30,210 30,210

Adjustments :

i. Stock at 30 April 1999 Lm2050.

ii. Wages and Salaries owing Lm50.

iii. Provide for depreciation as follows:

a. Office Furniture Lm70

b. Machinery Lm20.

iv. Rates prepaid Lm70.

You are required to prepare:

i. Trading and Profit and Loss Account for the year ended 30April 1999.

ii. Balance Sheet as at 30 April 1999.


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3. Raymond Abela, a sole trader prepared the following Trial Balance as

at 31 December 2000.

Trial Balance as at 31 December 2000 Dr (Lm) Cr (Lm)

Drawings 3,000Purchases and Sales 71,059 92,100Capital 1 Jan 2000 60,000Loan 30,000Stock 1 Jan 2000 10,000Debtors and Creditors 16,100 10,000Premises 75,000Motor Van at cost 10,000Provision for Depreciation of Motor Van 1 Jan 2000 1,000Bank 3,000Cash 1,562

Wages 2,000Electricity 369Advertising 510Insurance 1,000Provision for Bad Debts 500

193,600 193,600

Adjustments:

1. Stock at 31 December 2000 Lm13,0002. Electricity Owing Lm150

3. Insurance prepaid Lm5004. Increase Provision for Bad Debts to Lm7505. Depreciate Motor Vans on a reducing Balance Basis at the rate of

10 per cent per annum.


a. Trading and Profit and Loss Account for the year ended 31December 2000.

b. Balance Sheet as at 31 December 2000.


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4. The following balances at 31 December 1997 have been extracted from

the books of K.Borg.Lm

Premises at Cost 70,000Wages and Salaries 21,000Rates 1,500Electricity 520Purchases 49,000Stock at 1 January 1997 2,600Carriage Outwards 96Sales 84,690Returns Inwards 71Motor Van at cost 5,000Provision for depreciation onMotor Van at 1 Jan 1997 3,000

Loan from B.Caruana 20,000Administration Expenses 11,200Creditors 2,690Insurance 240Debtors 3,140Cash in Hand 526Bank Overdraft 1,400Capital at 1 Jan 1997 66,226Drawings 13,113

The following additional information dates to the year ended 31

December 1997:

a. Electricity accrued Lm300.b. Insurance prepaid Lm120.c. Motor Van to be depreciated by Lm1000.d. A Provision for Bad Debts is to be created on Debtors at the rate of

5%.e. Stock at 31 December 1997 is valued at Lm3,200.


i. A Trial Balance as at 31 December 1997;

ii. A Trading and Profit and Loss Account for the yearended 31 December 1997;

iii. A Balance Sheet as at 31 December 1997.


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5. The Trial Balance of S Abela at 31 March 2001 was as follows:

Dr Cr

Lm LmStock at 1 April 2000 18,400Purchases 60,080Purchases Returns 240Cash in hand 340Cash at bank 10,084Premises at cost 15,440Lighting and Heating 836Printing, and Stationery 112Accountancy charges 656Provision for doubtful debts 1,400Sundry Debtors 14,400Sundry Creditors 11,868

Wages 10,700Salaries 3,500Bad Debts 900Capital 45,860Drawings 3,000Discount Allowed 2,520Discount Received 1,840Sales 83,580Office Furniture at cost 2,500Provision for Depreciation : Office Furniture 500Rent and rates 1,600

Sales Returns 220145,288 145,288

The following matters are to be taken into account:

1. Stock at 31 March 2001, Lm20,800.2. Provision for doubtful debts is to be increased to Lm1,600.3. Rent accrued due Lm200.4. Light and Heat paid in advance Lm80.5. Provide for depreciation on office furniture at 5% on cost.


a. Trading and Profit and Loss Accounts for the year ended 31March 2001;

b. Balance Sheet as at 31 March 2001.


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6. P.Abela owns a retail business, which sells curtain fabrics andaccessories.On 31 December 1998 the balances of the accounts in his books wereextracted and the following Trial Balance was drawn up.

Trial Balance at 31 December 1998 Dr Cr

Lm LmCapital at 1 Jan 1998 16,770Stock of Materials and accessories at 1 Jan 1998 12,300Purchases and Sales 125,000 158,300Commission Received 2,450Rent 7,000Fixtures and Fittings at cost 3,500Motor Van at cost 10,500Advertising 1,960Motor Van Expenses 1,120

Heat and Light 790Wages for assistant 6,800Accountants fees 1,200Insurance 700Debtors and Creditors 3,100 2,700Cash 250Bank Overdraft 3,840Bank charges and interest 270Drawings 9,200General Expenses 1,770Provision for Depreciation : Fixtures and Fittings 1,400

185,460 185,460

Additional Information :

1. At 31 December 1998:a. Stocks of Materials and accessories were valued at

Lm10,500.b. Rent paid in advance Lm1000.c. Wages owing to assistant were Lm300.

2. Pietru Abela depreciates the fixtures and fittings at 10% p.a. on

cost.

3. The Motor Vehicle was purchased on 1 January 1998. PietruAbela decides to create a provision for depreciation on theMotor Vehicle of 20% p.a. on cost.


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4. Pietru Abela had taken materials that cost Lm500 for his ownuse during the year. This amount had not been recorded in theaccounts.

5. Commission Received was owing at 31 December 1998 Lm950.

You are required to prepare for Pietru Abela:

a. Trading and Profit and Loss Account for the year ending 31December 1992;

b. A Balance Sheet as at 31 December 1992.

7 adjustments to final accounts

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