Chapter 8 Adjustments to Final Accounts

Adjustments Effect Upon Trading and Profit and Loss Account Trading Account = Opening Stock + Net Purchases + Carriage In - Closing Stock) PLUS particular Expense in the Profit and Loss Account. MINUS particular Expense in the Profit and Loss Account.

Balance sheet Included as a Current Asset.

1. Closing Stock

2. Expenses Due (Not paid) 3. Expenses Prepaid (paid for next year) 4. Gain Due

Included as a Current Liability. Included as a Current Asset.

PLUS particular Gain in the Profit and Loss Account. MINUS particular Gain in the Profit and Loss Account. Included as an Expense in the Profit and Loss Account.

Included as a Current Asset. Included as a Current Liability. Subtracted from the Cost of the Fixed Asset. Subtracted from Debtors. Subtracted from Debtors. PLUS Drawings.

5. Gain Prepaid

6. Depreciation

7. Bad Debts Provision

Creation (full amount) and Increase (the difference only) included as an Expense. Decrease ( the difference only) included as a Gain.

8. Goods Taken by the owner.

MINUS from Purchases in the Trading Account.

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Example: The following Trial Balance has been extracted as at 30 June 2004: Trial Balance Capital Drawings Purchases Sales Stock at 1 July 2003 Debtors Creditors VAT Returns In and Out Discount Allowed Commission Received Wages and Salaries Vehicle Expenses Rent and Rates Heating and Lighting Telephone General Expenses Bad Debts Vehicles at cost Depreciation Provision on Vehicles Shop Fittings at cost Depreciation Provision on Shop Fittings Bad Debts Provision Cash in hand Cash at Bank Dr Lm 19,050 105,240 168,432 9,427 3,840 5,294 1,492 1,237 243 30,841 1,021 8,796 1,840 355 1,752 85 8,000 3,500 6,000 2,400 150 155 21,419 218,923 Cr Lm 36,175

975 127

218,923

Adjustments as at 30 June 2004: 1. Stock at 30 June 2004 is valued at Lm11,517. 2. Vehicle Expenses owing Lm55. 3. Rent prepaid Lm275. 4. Depreciate Vehicles at 25% p.a. on the Net Book Value. 5. Depreciate Fittings at 10% p.a. on the cost. 6. The Provision for Bad Debts is to be equal to 2.5% of Debtors. 7. The owner took Lm240 goods for his own use. 8. Commission Received owing Lm57. For the year ending 30 June 2004, you are asked to prepare: a. The Trading Account and the Profit and Loss Account b. The Balance Sheet.
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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 105,240 Less 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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Balance Sheet as at 30 June 2004 Fixed Assets Shop Fittings Vehicle Cost 6,000 8,000 14,000 Total Deprc'n 3,000 4,625 7,625 Net Book Value 3,000 3,375 6,375

Current Assets Closing Stock Debtors Less Bad Debts Provision Cash at Bank Cash in Hand Rent Prepaid Commission Received Due Current Liabilities Creditors VAT Vehicle Expenses owing Net Current Assets Net Assets Financed by Capital at beginning Net Profit Drawings Capital at end (+240)

11,517 3,840 96 3,744 21,419 155 275 57 37,167

5,294 1,492 55

6,841 30,326 36,701

36,175 19,816 55,991 19,290 36,701

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Exercises 1. Peter Sultana, a sole trader, prepared the following Trial Balance as at 31 December 2001. Trial Balance as at 31 December 2001 Fixtures and Fittings Purchases and Sales Wages Office Equipment Capital 1 Jan 2001 Bad Debts written off Rates and Insurance Discount Allowed Sales Returns and Purchases Returns Carriage Inwards Postage and Stationery Stock 1 Jan 2001 Discount Received Debtors and Creditors Bad Debts Provision Carriage Outwards Drawings Advertising Cash at Bank Cash in Hand Premises Dr Lm 2,100 25,160 8,140 1,200 70 1,090 420 270 720 255 3,160 3,620 450 1,800 320 2,150 50 35,000 85,975 Cr Lm 39,210

44,260

315

290 1,750 150

85,975

Adjustments: i. ii. iii. iv. v. Stock at 31 December 2001 was valued at cost Lm4,200. Wages accrued were Lm150. Rates prepaid Lm120. P. Sultana wishes to increase his Bad Debts Provision to Lm180. Provide for depreciation as follows: Fixtures and Fittings Lm200. Office Equipment Lm80.

You are required to prepare: a.

b.

Trading and Profit and Loss Account for the year ended 31 December 2001; Balance Sheets as at 31 December 2001.

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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 Capital 1 May 1998 Debtors and Creditors Office Furniture Discount Allowed and Received Machinery Purchases and Sales Returns In and Out Wages and Salaries Bank Cash Bad Debts written off Rates and Insurance Premises Carriage Outwards Drawings Sundry Expenses Stock 1 May 1998 Dr Lm 3,460 700 680 600 9,450 760 2,960 750 70 190 270 6,000 520 1,700 120 1,980 30,210 Cr Lm 11,100 2,090 280 16,330 410

30,210

Adjustments : i. ii. iii. Stock at 30 April 1999 Lm2050. Wages and Salaries owing Lm50. Provide for depreciation as follows: a. b. iv. Office Furniture Lm70 Machinery Lm20.

Rates prepaid Lm70.

You are required to prepare: i. ii. Trading and Profit and Loss Account for the year ended 30 April 1999. 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. Dr (Lm) 3,000 71,059 Cr (Lm) 92,100 60,000 30,000 10,000

Trial Balance as at 31 December 2000 Drawings Purchases and Sales Capital 1 Jan 2000 Loan Stock 1 Jan 2000 Debtors and Creditors Premises Motor Van at cost Provision for Depreciation of Motor Van 1 Jan 2000 Bank Cash Wages Electricity Advertising Insurance Provision for Bad Debts

10,000 16,100 75,000 10,000 3,000 1,562 2,000 369 510 1,000 193,600

1,000

500 193,600

Adjustments: 1. 2. 3. 4. 5. Stock at 31 December 2000 Lm13,000 Electricity Owing Lm150 Insurance prepaid Lm500 Increase Provision for Bad Debts to Lm750 Depreciate Motor Vans on a reducing Balance Basis at the rate of 10 per cent per annum.

You are required to prepare: a. Trading and Profit and Loss Account for the year ended 31 December 2000. Balance Sheet as at 31 December 2000.

b.

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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 70,000 Wages and Salaries 21,000 Rates 1,500 Electricity 520 Purchases 49,000 Stock at 1 January 1997 2,600 Carriage Outwards 96 Sales 84,690 Returns Inwards 71 Motor Van at cost 5,000 Provision for depreciation on Motor Van at 1 Jan 1997 3,000 Loan from B.Caruana 20,000 Administration Expenses 11,200 Creditors 2,690 Insurance 240 Debtors 3,140 Cash in Hand 526 Bank Overdraft 1,400 Capital at 1 Jan 1997 66,226 Drawings 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. You are required to prepare: i. ii. A Trial Balance as at 31 December 1997; A Trading and Profit and Loss Account for the year ended 31 December 1997; A Balance Sheet as at 31 December 1997.

iii.

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5.

The Trial Balance of S Abela at 31 March 2001 was as follows: Dr Cr Lm Lm Stock at 1 April 2000 18,400 Purchases 60,080 Purchases Returns 240 Cash in hand 340 Cash at bank 10,084 Premises at cost 15,440 Lighting and Heating 836 Printing, and Stationery 112 Accountancy charges 656 Provision for doubtful debts 1,400 Sundry Debtors 14,400 Sundry Creditors 11,868 Wages 10,700 Salaries 3,500 Bad Debts 900 Capital 45,860 Drawings 3,000 Discount Allowed 2,520 Discount Received 1,840 Sales 83,580 Office Furniture at cost 2,500 Provision for Depreciation : Office Furniture 500 Rent and rates 1,600 Sales Returns 220 145,288 145,288 The following matters are to be taken into account: 1. 2. 3. 4. 5. Stock at 31 March 2001, Lm20,800. Provision for doubtful debts is to be increased to Lm1,600. Rent accrued due Lm200. Light and Heat paid in advance Lm80. Provide for depreciation on office furniture at 5% on cost.

You are required to prepare: a. Trading and Profit and Loss Accounts for the year ended 31 March 2001; Balance Sheet as at 31 March 2001.

b.

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6.

P.Abela owns a retail business, which sells curtain fabrics and accessories. On 31 December 1998 the balances of the accounts in his books were extracted and the following Trial Balance was drawn up. Trial Balance at 31 December 1998 Dr Lm 12,300 125,000 7,000 3,500 10,500 1,960 1,120 790 6,800 1,200 700 3,100 250 270 9,200 1,770 185,460 1,400 185,460 Cr Lm 16,770 158,300 2,450

Capital at 1 Jan 1998 Stock of Materials and accessories at 1 Jan 1998 Purchases and Sales Commission Received Rent Fixtures and Fittings at cost Motor Van at cost Advertising Motor Van Expenses Heat and Light Wages for assistant Accountants fees Insurance Debtors and Creditors Cash Bank Overdraft Bank charges and interest Drawings General Expenses Provision for Depreciation : Fixtures and Fittings

2,700 3,840

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. Pietru Abela depreciates the fixtures and fittings at 10% p.a. on cost. The Motor Vehicle was purchased on 1 January 1998. Pietru Abela decides to create a provision for depreciation on the Motor Vehicle of 20% p.a. on cost.

2.

3.

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4.

Pietru Abela had taken materials that cost Lm500 for his own use during the year. This amount had not been recorded in the accounts. Commission Received was owing at 31 December 1998 Lm950.

5.

You are required to prepare for Pietru Abela: a. Trading and Profit and Loss Account for the year ending 31 December 1992; b. A Balance Sheet as at 31 December 1992.

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