FRA June 2009 Q2

I'm having a go at this paper and finding it hard. I sit the exam in 2 weeks.

In task 2.1 they call it a 'Provision for doubtful debts adjustment' CR 300 which they carry across to the P&L a/c. I would have credited it to the bad debts expense a/c using what I have learnt from my Kaplan book. Any comments please? I'm confused

In task 2.1 they give a closing stock figure in the trial balance and don't use it in the P&L. I always have. Confused. Is it because they don't give you a purchases figure; they just give you cost of goods sold (ie they are making it simpler for you)?

One little mistake or omission, the whole thing cocks up and doesn't balance. Scary.

Thanx
Ben

Comments

  • dieselhead
    dieselhead Registered Posts: 28 ? ? ?
    Also have not dealt with VAT before in ETB. Was not obvious to me that it should go in balance sheet only
  • sharonj
    sharonj Registered Posts: 166 ? ? ?
    dieselhead wrote: »
    I'm having a go at this paper and finding it hard. I sit the exam in 2 weeks.

    In task 2.1 they call it a 'Provision for doubtful debts adjustment' CR 300 which they carry across to the P&L a/c. I would have credited it to the bad debts expense a/c using what I have learnt from my Kaplan book. Any comments please? I'm confused

    In task 2.1 they give a closing stock figure in the trial balance and don't use it in the P&L. I always have. Confused. Is it because they don't give you a purchases figure; they just give you cost of goods sold (ie they are making it simpler for you)?

    One little mistake or omission, the whole thing cocks up and doesn't balance. Scary.

    Thanx
    Ben

    Hi

    I would have debited the p and l 300 as an expense for the increase to doubtful debts and then in the balance sheet credited the debtors acc as I think that debtors is a current asset less the provision for doubtful debts. As for the closing stock figure I don't think it's included as you're right in that they've already worked out the cost of sales. There's no need to put sales less opening stock add purchases less closing stock as it's already been calculated.

    Think this is right. I did this practice exam about a couple of weeks ago and I was confused too by the cost of sales already being calculated too.

    Good luck

    meant to say that VAT if it is money owed to HMRC is always listed as a current liability on the balance sheet, unless it is money that HMRC owes the business, then it is listed as a current asset.
  • dieselhead
    dieselhead Registered Posts: 28 ? ? ?
    Thanks Sharon.

    I think they tend to throw in a few sligtly unusual scenarios, to try and sort the sheep from the goats.
    I still don't get the 'Provision for doubtful debts adjustment' bit - did you understand it?

    Ben
  • dieselhead
    dieselhead Registered Posts: 28 ? ? ?
    r u sitting the exam on 2 Dec?
  • sharonj
    sharonj Registered Posts: 166 ? ? ?
    dieselhead wrote: »
    r u sitting the exam on 2 Dec?

    Hi dieselhead

    No, I've decided to take the exam by cbe so haven't booked a place for the written exam. I didn't like having to wait over 6 weeks for the results last time. I was a wreck, so I've had a go at the practice exam for cbe's and then I'm just doing the past written papers to get used to the types of questions. Hopefully the computer based exam won't be too different from the paper one. Fingers crossed. Got to take my exam by end of the year though to follow the timetable set by my tutor (I'm distance learning).

    About the question to do with the provision for doubtful debts, I did understand that one,just.... I've just re read the question and realised that they actually asked you to reduce the amount of the provision from 1300 to 1000. This means that you actually have to credit the p and l acc and debit the provision for doubtful debts acc with 300. I always find these questions a bit confusing as you have the provision for doubtful debts adjustment acc and then the provision for doubtful debts acc. The balance on the provision for doubtful debts was 1300 credit. To reduce the balance you would have to debit the provision for doubtful debts acc and credit the provision for doubtful debts adjustment acc. You would then debit the provision for doubtful debts adjustment acc and credit the profit and loss acc. This would then be added to the gross profit figure calculated before overheads are deducted and therefore net profit would increase by 300.

    At least, that's what I think would happen but obviously I'm at the same level as you and could be completely wrong. Hope not otherwise it's not looking good for the exam in December.

    Good luck for the exam (that is asuming you're taking the one in December)
  • dieselhead
    dieselhead Registered Posts: 28 ? ? ?
    Yes, i'm doing the exam on 2 December; thanx for the good wishes.

    My Kaplan textbook makes no mention at all of a 'provision for doubtful debts adjustment account' (chapter 8, bad and doubtful debts)

    Best of luck with the CBE; I'm distance learnign as well
  • sharonj
    sharonj Registered Posts: 166 ? ? ?
    dieselhead wrote: »
    Yes, i'm doing the exam on 2 December; thanx for the good wishes.

    My Kaplan textbook makes no mention at all of a 'provision for doubtful debts adjustment account' (chapter 8, bad and doubtful debts)

    Best of luck with the CBE; I'm distance learnign as well


    Cheers, hopefully we'll both do ok.

    I use the Osborne books so don't have any knowledge of the Kaplan books but the Osborne books use an adjustment acc to sort of wash the entries over before it ends up on the provision for doubtful debts acc. The adjustment acc would never have a balance on it, it would be cleared off, depending on whether you are increasing or decreasing the provision for doubtul debts. All I do know is that the provision for doubful debts acc will always have a credit balance. It is treated as a liability that is offset against the asset of debtors.

    Someone from the forum advised me to get the Frank Woods business accounting books 1 and 2 as they give you another perspective. I bought mine off Ebay and only paid about £12 per book and they retail for about £60 new. You can also try Amazon as a lot of people sell used ones. Even though the Osborne books are good (can't speak for the Kaplan ones but they must be similar to the Osborne ones) the Frank Woods books just look at things slightly differently.
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