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ACCA F3 Adjustments to Profits (part a)
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Hi opentuition!
I have a problem when trying to sort out this question on my exam, could you possibly help me to figure it out.
draft profit: $50,867
(1) a cash purchases of $90 has been entered in the cash book but no other entry was made.
(2) discounts allowed of $75 were entered as a credit in the discount allowed account.
(3) the balannce on the receivables control a/c was b/d as $43,788 instead of $43,878.
(4) sales credit notes of $1,314 were only entered in the receivables control a/c.
(5) A purchases credit note received from a supplier of $150 has not been entered in the books at all.
the revised profit for the period is:
A. $49,373
B. $49,463
C. $49,538
D. $49,643
This is my workings
draft profit $50,867
(1) less purchases ($90)
(2) less discount allowed ($150)
(3) add balance b/d $90
($43,878 – $43,788)
(4) less returns inwards ($1,314)
(5) add returrns outwards $150
adjusted profit $49,553
it’s my answer but I think it is incorrect.
You must ask this kind of question in the Ask the Tutor Forum, and not as a comment on a lecture.
Thank you for the amazing lecture!!?
Thank you for your comment 馃檪
Hi John,
I am just a bit confused about the fact you said that if closing inventory is lower, profit is lower. Where can I find the example for this? I thought is closing inventory is lower than profit is higher from the cost of sales equation (opening inv. + purchases – closing inv.)?
Thank you for your help
If closing inventory is lower, then cost of sales is higher (use the equation you have written and try it with some invented numbers 馃檪 )
If cost of sales is higher, then profit is lower.
Thank you for the quick answer ! Now I got it 馃榾
if the inventory is lower it means we are over stating the cost of sales and consquently lower gross profit and same to profit and reverse happens respectively to the above items if the inventory is higher than expected
True, although why have you repeated what I had written last week? 馃檪
Thank you for this lecture, the additional informations on this example treated touches so many aspect I might not think off. You are the best.
Sir, your lecture was really amazing. I’ve really understood now and i have gained knowledge. Thank you
Kind regards.
Sir I don’t understand why your didn’t add 2000 to the profit as the goods still alison’s goods. I though as the bookkeeper considered a sale, he removed in stock and we should resend it in s and increase the profit.
I do explain this in the lecture!
The inventory needs increasing by 2000, the sale needs removing (2400) and so the net effect on the profit is to reduce it by 400.
Take 2400 from the sales figure and add the inventory 2000 into the closing inventory and you will get the same result
But that is exactly what I have said!! 馃檪
Most of us are non English speaker. It takes us a while to understand what you’ve said:p
I appreciate that, but I explained in the lecture and I wrote in my reply also. What Lee wrote said no different.
I am afraid that the exams are in English and although the ACCA try to be fair, so many questions really depend on really understanding the English.
I appreciate that – I teach in a country where English is not the first language – but I explained in the lecture and I explained in my reply also. What Lee wrote said no different.
I am sorry, but the exams are in English and although the ACCA try to be fair, so many questions depend on really understanding the English.
I know john 馃檪 .Was just changing the English around a bit in case new English speakers were still having trouble. By the way hats off to your lectures far better than my university lectures.
No problem, and thanks a lot 馃檪
great lecture but I am unsure of the last part which was if $500 for electricity had been incorrectly credited to telephone. Why due to this would you need to adjust by $1000?
Kind regards
If we pay $500 for electricity we should debit the expense account.
Here it has obviously gone to the wrong account – that would not stop the trial balance balancing except that instead of debiting they have credited.
So……we need to debit telephone 500 to remove it from that account.
We also need to debit electricity 500 to make things correct.
In total it means we need to adjust by 1000.
Hello sir.Thank you for this amazing lecture.
However,am still not getting this part.I understood the what you explained about the $1000.But the $500 that we wrongly credited,did it affect our profit?
I thought that our profit would decrease by $500 only because our expense is actually increasing by $500 only,the other $500 is just to correct the error.
Because if initially itself we had correctly recorded the entry,wouldn’t have the expense been only $500?
Because the 500 has been credited to telephone, it would have made the telephone expense lower, which would have increased the profit.
So we remove it from telephone – the expense is higher and the profit lower by 500.
Then we charge it to electricity (debit) and that makes the electricity expense higher, and therefore the profit lower by another 500.
So total affect on profit is 1,000.
Thank you so much sir.I understood it now.
Thanks again!