Presentation on question one adjustments for bstai conference

ALAN RYAN BComm GDE(Bus) HDEA MEd

 I always leave it until 6th year
 I cover all the 60 mark options in 5th year that
are relevant for successful completion of Q1
adjustments, especially suspense;
depreciation & revaluation
 I usually leave out one topic (depending on
the group‟s progress), usually Published
Accounts, so I stress the importance to
students of mastering Q1 in case Published
Accounts comes up as a 60 marker

Alan Ryan BComm, GDE(Bus),
HDEA, MEd

 I would try to cover adjustments for Sole
Trader; Company Final Accounts and
Manufacturing Accounts all in one go so that
students don‟t feel that they have three
separate topics to master
 e.g. if we are mastering a Q1 adjustment that
appears on a Sole Trader past paper, I will
assign a similar Q1 adjustment for homework
but from a Company Final Account or
Manufacturing Account Question

HDEA, MEd

 Most questions worked on in class and for
homework would be from the past exam
papers and past pre exam papers, with all
tests coming from past pre exam papers
 After mastering the required adjustments for
a Question One, I encourage them to closely
watch their timing for future questions on
this topic by using an egg timer or similar
device for homework assignments, it focuses
their mind, speeds up the length of time to
complete Q1 and acts as a competitive spur

HDEA, MEd

 Focus their minds: Company Final accounts
came up in 2012 so Sole Trader or
Manufacturing Accounts should come up in
2013!
 Adjustments that we will cover today come up
in both these Q1 options
 Work on one exam question (2010 Sole
Trader) & give another for homework (e.g.
2008 Sole Trader or most of 2007 Company
Final accounts adjustments)

HDEA, MEd

HDEA, MEd

 Go down through the trial balance first
 Explain how to get the opening balance for
Depreciation of Buildings and Delivery Vans
 Note that Investments were only acquired
during the year
 Show that some of the Mortgage wasn‟t
received until start of April
 Purchases and Sales PS at end of a letter
 State that Stock 1/1/09 is opening stock

HDEA, MEd

 Commission – instil/drill into them to remember
to visualise where all expenses/gains go in the
bank account and then they go on the opposite
side of the expense/gain account, so commission
is therefore an expense
 Explain that while suspense is included in
Salaries & General Expenses this does not
necessarily mean that we subtract it to take it out
 Explain that Provision for Bad Debts is totally
unrelated to Bad debts and mention the prudence
concept

HDEA, MEd

 Discount (net): remind them of A before R in
the alphabet and put the A and R on either
side of a T account showing Allowed on the
debit(left) and Received on the credit(right)
 Mortgage Interest appearing in the trial
balance = the amount paid during the year
 Bank: emphasise the basic rule of:
DR Assets
CR Liabilities
implying that Bank is an overdraft in this
case

HDEA, MEd

 Explain what VAT/PAYE & PRSI are and that
therefore they are usually owed to the Revenue
Commissioners and will then go into the
Liabilities in the Balance Sheet
 Explain the difference between Drawings and
Capital (unless you have done Correction of
Errors question with them previously)
 State that Capital and Drawings will only appear
in Sole Trader and that in Company Final
Accounts and Manufacturing Account it will be
Authorised and Issued Share Capital that we
encounter with drawings not being possible

HDEA, MEd

 Involves separating patents from investment
income and transferring part of the new
patents figure into the p & l account
 Beware of the commencement year for
patents being written off, there may be a few
years written off before this year‟s accounts
 Always sort investment income provision
while doing this adjustment

HDEA, MEd

 Patents, which incorporate three months
investment income received, are to be written
off over a five year period commencing in
2009.
 Relevant figures from the trial balance:
 4% Investments (1/7/09) €120,000
 Patents € 60,400

HDEA, MEd

 „Incorporation/included in‟ rule:
 Option A: same side we would have added so
now we subtract
 Option B: opposite side we would have
subtracted so now we add
 Patents is on left(debit) side; investment
income is on right(credit) side so they are on
opposite sides so its Option B

HDEA, MEd

 Complete lines 1, 2 and 3
 Line 1 = the investment X number of months that
we have it for this year/12 X % interest rate
 Line 2 = the amount of investment income
received during the year (usually the amount
incorporated in Patents)
 Watch out for additional investment income
received directly into bank account if there is a
bank reconciliation adjustment
 Line 3 = Line 1 minus Line 2 (this is the amount
of investment income still owed to us and is
therefore a Current Asset in the Balance Sheet)

HDEA, MEd

 Usually involves disposal of delivery van;
purchase of new delivery van with a trade-in
allowance on the old van along with the
cheque payment for the new van being
treated as a purchase for resale as opposed
to a purchase of a fixed asset
 Following T accounts required:
 Delivery Vans
 Depreciation of Delivery Vans
 Disposal of Delivery Vans
 Purchases Account

HDEA, MEd

 Provide for depreciation on vans at the annual
rate of 12½% of cost from the date of
purchase to the date of sale. NOTE: On
31/03/2009 a van, which cost €24,000 on
30/09/2006, was traded in against a new van
which cost €48,000. An allowance of €12,000
was given on the old van. The cheque for the
net amount of this transaction was incorrectly
treated as a purchase of trading stock. This
was the only entry made in the books in
respect of this transaction.

HDEA, MEd

 Usually included in something in the trial
balance for which we will have to do an
account
 Usually have two errors to sort out, with one
of them generally to do with a wrong figure
being used for payment of
mortgage/debenture interest in the trial
balance
 Always sort provision of mortgage/debenture
interest here also

HDEA, MEd

 The suspense arises as a result of the
incorrect figure for mortgage interest
(although the correct entry had been made in
the bank account) and from €1,000 paid
towards PAYE and PRSI entered only in the
bank account.

HDEA, MEd

 „Incorporation/included in‟ rule:
 Option A: same side we would have added so
now we subtract
 Option B: opposite side we would have
subtracted so now we add
 Salaries & General Expenses is on left(debit)
side; suspense original balance figure is on
left (debit) side so they are on same sides so
its Option A

HDEA, MEd

 Now we need to adjust the accounts that we
sorted in the middle column of the three
column system by entering them into those T
accounts on the same side as they are on in
the middle column.

HDEA, MEd

 Similar to investment income we need to
complete Line 1, 2 & 3
 Line 1 = the mortgage X number of months that
we have the mortgage for this year/12 X %
interest rate(needs to be calculated in two parts if
part of the mortgage was received during the
year)
 Line 2 = the correct amount of interest paid
during the year(having sorted suspense)
 Line 3 = Line 1 minus Line 2 (this is the amount
of mortgage interest still owed by us and is
therefore a Current Liability in the Balance Sheet)

HDEA, MEd

 Usually involves working out depreciation
charge for the year and revaluing at the end
of the year.
 Accounts required:
 Buildings Account
 Depreciation of Buildings Account
 Revaluation Reserve Account

HDEA, MEd

 Provide for depreciation on buildings at a rate
of 3% of cost per annum. It was decided to
revalue the buildings at €850,000 on
31/12/2009.

HDEA, MEd

 Revaluation part involves two things:
 In Buildings Account let the revalued figure
equal to your closing balance at the end of
the year as Balance B/d on the debit side and
bring it back up to the credit side (remind
them of DR Assets CR Liabilities with Bal B/d)
 In the Depreciation of Buildings Account get
rid of all depreciation up to the date of
revaluation meaning there will be no closing
balance in this account if the revaluation is at
the end of the year as it is in 2010 question

HDEA, MEd

 Usually a figure in the trial balance, let this =
“the old” figure
 Usually asks in the adjustments to adjust
provision for bad debts to a certain % of
debtors, let this adjusted figure =“the new”
figure(make sure to check all other
adjustments so that the debtors figure that
you are getting a % of has taken all
adjustments into account)
 Let the difference between both = “the
change”

HDEA, MEd

 Rules for dealing with Provision for bad debts
 “The old” goes nowhere
 “The change” goes into the Trading & Profit &
Loss Account, if it goes up it goes down
under “Less expenses” as an expense and if it
goes down it goes up under “gross profit” as
a gain (now dealt with as an add-on to
operating income after expenses and before
arriving at operating profit)

HDEA, MEd

 “The new” goes into the Balance Sheet as a
minus figure subtracted from Debtors under
Current Assets

HDEA, MEd

Provision for bad debts to be adjusted to 3% of
debtors.
Relevant figures from trial balance:
Debtors € 76,500
Provision for Bad Debts € 3,900

HDEA, MEd

 Usually asked in Company Final Accounts
question but can potentially be asked in Sole
Trader/Manufacturing Account also
 Trial balance bank figure forms opening balance
in your own cash book
 Bank statement figure (given in the adjustment)
forms opening balance in the bank reconciliation
statement
 Explain that it‟s a miniature version of what they
did at Junior Cert level but you also have to
adjust the individual accounts that are affected

HDEA, MEd

 Not relevant for Sole Trader
 Usually worth 12 marks in Company Final
Accounts and potentially also in
Manufacturing Account but easy mistakes
made calculating figures

HDEA, MEd

 Always work out the interim preference dividend
first, the remainder of interim dividends is then
equal to interim ordinary dividends
 Work out the remaining number of months for
the final preference dividend
 The final ordinary dividend depends on the
wording of the adjustment, in 2007 the interim
ordinary dividend will reduce the amount of the
final ordinary dividend but potentially the final
ordinary dividend may not be affected by the
interim ordinary dividend.

HDEA, MEd

 (a) The Preference dividend due be paid
 (b) A final dividend on ordinary shares be
provided bringing the total dividend up to 11
cent per share

 Relevant figures from the trial balance:
 600,000 10% Authorised Preference Shares at
€1 each
 Issued Ordinary Shares €800,000
 Issued Preference Shares €400,000
 Interim dividends for 1st 6 months € 48,000
HDEA, MEd

 All four calculated figures go into “less
appropriations” being:
 Interim preference dividend
 Interim ordinary dividend
 Final preference dividend
 Final ordinary dividend
 Only the two final dividends go into the
Balance Sheet under Current Liabilities

HDEA, MEd

 alanryandungarvan@hotmail.com

HDEA, MEd

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