Pg .

51
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.






Pg . 52
Example:
The following Trial Balance has been extracted as at 30 June 2004:

Trial Balance Dr Cr
Lm Lm
Capital 36,175
Drawings 19,050
Purchases 105,240
Sales 168,432
Stock at 1 July 2003 9,427
Debtors 3,840
Creditors 5,294
VAT 1,492
Returns In and Out 975 1,237
Discount Allowed 127
Commission Received 243
Wages and Salaries 30,841
Vehicle Expenses 1,021
Rent and Rates 8,796
Heating and Lighting 1,840
Telephone 355
General Expenses 1,752
Bad Debts 85
Vehicles at cost 8,000
Depreciation Provision on Vehicles 3,500
Shop Fittings at cost 6,000
Depreciation Provision on Shop Fittings 2,400
Bad Debts Provision 150
Cash in hand 155
Cash at Bank 21,419
218,923 218,923
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.

Pg . 53
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:














Pg . 54
Balance Sheet as at 30 June 2004



Fixed Assets

Cost Total Net Book


Deprc'n Value
Shop Fittings

6,000 3,000 3,000
Vehicle

8,000 4,625 3,375


14,000 7,625 6,375



Current Assets


Closing Stock

11,517
Debtors

3,840
Less Bad Debts Provision

96 3,744
Cash at Bank

21,419
Cash in Hand

155
Rent Prepaid

275
Commission Received Due

57


37,167
Current Liabilities


Creditors

5,294
VAT

1,492
Vehicle Expenses owing

55 6,841
Net Current Assets

30,326
Net Assets

36,701



Financed by


Capital at beginning

36,175
Net Profit

19,816


55,991
Drawings (+240)

19,290
Capital at end

36,701















Pg . 55
Exercises

1. Peter Sultana, a sole trader, prepared the following Trial Balance
as at 31 December 2001.

Trial Balance as at 31 December 2001 Dr Cr
Lm Lm
Fixtures and Fittings 2,100
Purchases and Sales 25,160 39,210
Wages 8,140
Office Equipment 1,200
Capital 1 Jan 2001 44,260
Bad Debts written off 70
Rates and Insurance 1,090
Discount Allowed 420
Sales Returns and Purchases Returns 270 315
Carriage Inwards 720
Postage and Stationery 255
Stock 1 Jan 2001 3,160
Discount Received 290
Debtors and Creditors 3,620 1,750
Bad Debts Provision 150
Carriage Outwards 450
Drawings 1,800
Advertising 320
Cash at Bank 2,150
Cash in Hand 50
Premises 35,000
85,975 85,975

Adjustments:

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

You are required to prepare:

a. Trading and Profit and Loss Account for the year ended 31
December 2001;
b. 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 Dr Cr
Lm Lm
Capital 1 May 1998 11,100
Debtors and Creditors 3,460 2,090
Office Furniture 700
Discount Allowed and Received 680 280
Machinery 600
Purchases and Sales 9,450 16,330
Returns In and Out 760 410
Wages and Salaries 2,960
Bank 750
Cash 70
Bad Debts written off 190
Rates and Insurance 270
Premises 6,000
Carriage Outwards 520
Drawings 1,700
Sundry Expenses 120
Stock 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 30
April 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 3,000
Purchases and Sales 71,059 92,100
Capital 1 Jan 2000 60,000
Loan 30,000
Stock 1 Jan 2000 10,000
Debtors and Creditors 16,100 10,000
Premises 75,000
Motor Van at cost 10,000
Provision for Depreciation of Motor Van 1 Jan 2000 1,000
Bank 3,000
Cash 1,562
Wages 2,000
Electricity 369
Advertising 510
Insurance 1,000
Provision for Bad Debts 500
193,600 193,600

Adjustments:

1. Stock at 31 December 2000 Lm13,000
2. Electricity Owing Lm150
3. Insurance prepaid Lm500
4. Increase Provision for Bad Debts to Lm750
5. 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.

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 70,000
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. A Trial Balance as at 31 December 1997;

ii. A Trading and Profit and Loss Account for the year
ended 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 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. 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.

You are required to prepare:

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

b. Balance Sheet as at 31 March 2001.



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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 Cr
Lm Lm
Capital at 1 Jan 1998 16,770
Stock of Materials and accessories at 1 Jan 1998 12,300
Purchases and Sales 125,000 158,300
Commission Received 2,450
Rent 7,000
Fixtures and Fittings at cost 3,500
Motor Van at cost 10,500
Advertising 1,960
Motor Van Expenses 1,120
Heat and Light 790
Wages for assistant 6,800
Accountants fees 1,200
Insurance 700
Debtors and Creditors 3,100 2,700
Cash 250
Bank Overdraft 3,840
Bank charges and interest 270
Drawings 9,200
General Expenses 1,770
Provision 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. Pietru
Abela decides to create a provision for depreciation on the
Motor Vehicle of 20% p.a. on cost.


Pg . 61
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.

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 31
December 1992;
b. A Balance Sheet as at 31 December 1992.