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Over/Under Provision of audit fees

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Over/Under Provision of audit fees

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by MikeLittle.
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  • Author
    Posts
  • October 29, 2015 at 2:45 pm #279534
    takamori
    Member
    • Topics: 17
    • Replies: 26
    • ☆

    Hello Mike,

    I have trouble understanding this accrual concept. Let’s say for year end 2013 a company made accruals of USD 2,000 audit fees. The double entry would be:
    Dr. Audit fee 2,000
    Cr. Accruals 2,000

    If the bill arrives in 2014, it appears that the audit fee is only USD 1,500 which means there is an over provision of USD 500. Also, the company decides to make a provision of USD 2,000 again. Will the over provision of audit fee be reflected in the detailed income statement like this?

    2014
    Current year audit fee 2,000
    Prior year (over)/under provision (500) – negative

    2013
    Current year audit fee 2,000
    Prior year (over)/under provision 0 – zero

    If this is correct, let’s say for the year end 2015 the company decides to make a provision amounting to USD 2,000 again. And the bill for year 2014 audit fee is USD 2,500. Will the detailed income statement show something like this?

    2015
    Current year audit fee 2,000
    Prior year (over)/under provision 500 – positive

    2014
    Current year audit fee 2,000
    Prior year (over)/under provision (500) – negative

    And may I know what are the double entries for all the adjustments? I find this topic quite confusing.

    October 29, 2015 at 5:42 pm #279570
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22698
    • ☆☆☆☆☆

    This looks to me like you need an F3 refresher course with John Moffat’s videos!

    In 2013, entries in the Audit and Accountancy T Account would be:

    Dr C/D 2,000 Cr PorL 2,000

    In 2014

    Dr Cash 1,500, C/D 2,000 Cr PorL 1,500

    In 2015

    Dr Cash 2,500, C/D 2,000 Cr B/D 2,000, PorL 2,500

    In 2016

    Cr B/D 2,000

    Put those in a T account to visualise it better (below each “C/D” and above each “B/D” put double underlines

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