I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 EXAM FOCUS POINT 

If you are asked in an exam question to calculate the balance remaining on the suspense account after 

certain errors have been adjusted, the key is to first recognise which errors affect the suspense 

account, and then to put the adjustments through correctly, as in the above example. 

BPP Tutor Toolkit Copy

---

CHAPTER 16  

//

  CORRECTION OF ERRORS 

 

285 

ANSWER 

D $51,500 

Maintenance costs should be debited to the repairs and maintenance account in the statement of profit 

or loss, not to the motor vehicles at cost account. In order to calculate the revised profit for the year, we 

need to first calculate how much depreciation has been incorrectly charged, add this back to profit for 

the year and then deduct the full amount of maintenance charge, as follows. 

 

     

$     

Profit for the year before correction of errors 

 

65,000 

Add back depreciation charge (18,000 × 25%) 

 

4,500 

Less maintenance 

 

 (18,000) 

Corrected profit for the year 

 

  51,500 

 

QUESTION 

Effect on the financial statements II

 

Beta Co has total assets of $555,000 and profit for the year of $160,000 recorded in the financial 

statements for the year ended 31 December 20X3. Inventory costing $45,000, which was received into 

the warehouse on 2 January 20X4, was included in the financial statements at 31 December 20X3 

in error.  

What would be the profit for the year and total assets after adjusting for this error? 

 

Profit for the year  Total assets 

A  

$205,000   

$600,000 

B  

$115,000   

$600,000 

C  

$205,000   

$510,000 

D  

$115,000   

$510,000 

ANSWER 

D 

Profit for the year $115,000 

Total assets $510,000 

The inventory received on 2 January 20X4 should not be included in the financial statements at  

31 December 20X3, as it relates to the following year. The inventory value should be deducted from total 

assets. To work out the effect on profit for the year, remember that cost of sales is calculated as follows. 

 

          $     

Cost of sales 

 

  Opening inventory 

          X 

  Plus purchases 

          X 

  Less closing inventory 

       

 

(X) 

 

      X 

So if closing inventory is overstated, cost of sales will be understated, and gross profit will be overstated. 

Therefore we need to deduct the value of the inventory included in error from profit for the year.  

 

   

 

 

 

 

 

 

BPP Tutor Toolkit Copy

---