Section A Guide

Question 1

What to do if land gets revalued

Answer 1

1. Calculate difference between value of land in the trial balance and the revalued amount
2. Add the difference to the balance of the land in BS (debit land)
3. Add the difference (credit) into the revaluation reserve in the equity part of the balance sheet

debit land (difference), credit revaluation reserve (difference)

Question 2

What to do when company disposes one of the items and depreciation for that

Answer 2

1. Calculate acc. depreciation for the year adjusting for months if not FY and subtract this from the cost of the disposed to find NBV
2. Debit disposal proceeds (what they sold for, given in Q) in cash or accounts receivable if on credit
3. Calculate gain/loss on disposal (proceeds - NBV)
4. Credit the original value of the disposed from the total balance of the disposed (i.e. total balance - cost of disposed)
5. Calculate total accum. depreciation of the disposed item - depreciation of non disposed portion PLUS depreciation of disposed portion (where you do dep x at cost) = dep expense IS
6. Add this to ac. dep on TB for the total ac. dep on BS

Question 3

what do do with depreciation expense

Answer 3

if straight line - cost of equipment x depreciation rate (and add the depreciation of disposed proportion back if there is a disposal) = expense
ac dep = TB ac dep + new depreciation expense (minus ac dep of something if disposed)

reducing balance - NBV x depreciation rate (cost-ac. dep of previous year already in TB times depreciation rate)

Question 4

trade receivables and doubtful debt what to do

Answer 4

1. minus the bad debt written off from TB of trade receivables to find new balance on BS of trade receivables
2. calculate provision for DD - new trade receivables balance x proportion doubtful = provision for DD on BS
3. calculate provision release (or gain) by finding difference between current provision and existing provision from TB = goes on income statement

Question 5

inventory adjustments from write down and selling for percentage of cost and then COGS and sales

Answer 5

1. Find ending inventory = inventory at cost from Q - write down (cost of items which have become obsolete x loss of value which is 1 minus the percentage of cost they are being sold at) = BS
2. COGS = start inventory from TB + purchases from TB - purchase returns - ending inventory = IS
3. Sales = revenue from TB - returns from TB = IS

Question 6

adjusting prepayments (use insurance as example)

Answer 6

1. Remove old prepayment (debit insurance expense and credit prepaid insurance so u have 0 prepayed in the end)
2. Calculate new prepayment - work out what portion of the insurance payment is for the next period which is your new prepayed insurance which you debit, then credit by same amount insurance expense
3. Work out this years insurance expense total = TB value of insurance expense + the debit of insurance expense from removing old prepayment and minus the new prepayment
   NB - you are recognising the old prepayment as an expense now and then removing the new prepayment from the total expense as it is not in this period
4. Calculate new prepaid insurance balance on BS - TB value of prepaid expense minus itself and then plus new prepaid insurance

Question 7

adjusting for accruals (use provision for unpaid interest as example)

Answer 7

1. Take the interest expense from TB and subtract the accrued interest given on TB
2. Calculate interest expense for this year (loan x interest rate)
3. Interest expense for this year higher than above sum - this difference is your new accrued expense for this year on BS
4. Interest expense on IS is loan x interest rate from before

Question 8

retained earnings - adjusting for dividends

Answer 8

1. Calculate profit for the year from your provisional IS (sales - COGS - expenses - tax)
2. Subtract the dividend or adjust for whatever else the question wants
3. Retained earnings carried forward = old RE from TB + the above sum
4. reduce cash by dividend amount paid

Question 9

Share capital and premium and proceeds from issuing new shares

Answer 9

1. Share issue proceeds = shares x price per share (add this to cash balance)
2. Share capital account = old TB value + amount of shares x par value
3. Share premium account = old Tb value + amount of shares x above par value

Question 10

Taxes adjustments

Answer 10

1. Tax expense on IS is what they tell you in Q
2. Tax payable on BS is the same if NO UNDER/OVER PROVISION from previous year
3. If underprovision last year - your tax payable account has a debit balance so you need to credit (add) the underprovision amount to this year’s tax liability account
4. If overprovision - your tax payable account now has a credit balance from before so you debit (subtract) the overprovision from last year in the tax liability account