Practice Questions
Practice Questions: Balance-Date Adjustments and Preparation of a Sole Proprietor's Financial Statements
This practice set guides you through adjustments to nominal accounts, bad debts and the provision for doubtful debts, depreciation, asset disposal and the preparation of Financial Statements from an Adjusted Trial Balance. Attempt each question yourself before checking the concise worked answers provided.
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How to practise adjustment questions effectively
- Read each adjustment twice and identify its type (accrued expense, prepaid, accrued revenue or unearned revenue) before touching any figure.
- For every adjustment, work out two effects: one in the Profit and Loss Account (adjusted revenue or expense) and one in the Statement of Financial Position (current asset or current liability).
- Practise the General Journal entry first, then post to the ledger, and finally prepare an Adjusted Trial Balance so that total debits equal total credits.
- For depreciation, write out the formula for all three methods (straight-line, reducing balance and revaluation) and practise comparing how each method affects profit.
- For the Provision for Doubtful Debts, always compute on the net Accounts Receivable, that is after first writing off any bad debts.
- Refer to the full worked-example sets to see complete ledgers and statements; on this page we focus on the calculation steps and the logic of each adjustment.
Common mistakes to avoid
- Forgetting that accrued salaries or rent both increase the expense AND create a current liability: two effects, not one.
- Confusing 'unearned' (a liability) with 'accrued/receivable' (an asset).
- Calculating the Provision for Doubtful Debts on gross Accounts Receivable, when it should be on the net balance after bad debts.
- In the reducing balance method, wrongly using the original cost each year instead of the previous year's net book value.
- Placing the gain or loss on disposal on the wrong side of the Disposal Account.
- Forgetting to transfer the current year's depreciation to the Profit and Loss Account and the Accumulated Depreciation to the Statement of Financial Position.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Bad Debts | 2,000 | |
| Accounts Receivable | 2,000 | |
| Profit and Loss | 2,400 | |
| Provision for Doubtful Debts | 2,400 | |
| Total | 4,400 | 4,400 |
Based on Question 2: Bad Debts of RM2,000 are written off and a Provision for Doubtful Debts of RM2,400 (5% × 48,000) is created. For full ledgers and statements, refer to the worked-example sets.
Practice Questions
Question 1
Question 1 (Perniagaan Seri Wangi). At 31 December 2025: (i) Rent paid RM12,000 but RM2,000 relates to next year; (ii) Salaries paid RM30,000 but RM3,000 is still owing; (iii) Commission received RM5,000 including RM1,000 for next year; (iv) Interest of RM800 has been earned but not yet received. Determine the amount of each item in the Profit and Loss Account and the Statement of Financial Position.
Answer
Rent (expense) = 12,000 - 2,000 = RM10,000; Prepaid rent (current asset) = RM2,000
Salaries (expense) = 30,000 + 3,000 = RM33,000; Accrued salaries (current liability) = RM3,000
Commission (revenue) = 5,000 - 1,000 = RM4,000; Unearned commission (current liability) = RM1,000
Interest (revenue) = RM800; Accrued interest / interest receivable (current asset) = RM800
Question 2
Question 2 (Kedai Runcit Maju). At 31 December 2025 the Accounts Receivable balance is RM50,000. The business writes off Bad Debts of RM2,000 and creates a Provision for Doubtful Debts of 5% on the net balance (first year). Show the entries in the Profit and Loss Account and the presentation in the Statement of Financial Position.
Answer
Net Accounts Receivable = 50,000 - 2,000 = RM48,000
Provision for Doubtful Debts = 5% × 48,000 = RM2,400
Profit and Loss Account (expenses): Bad Debts RM2,000 and Provision for Doubtful Debts RM2,400
Statement of Financial Position (Current Assets): Accounts Receivable 48,000 less Provision for Doubtful Debts 2,400 = RM45,600
Question 3
Question 3 (Perniagaan Indah Jaya). At 31 December 2025 the net Accounts Receivable is RM60,000 and the existing Provision for Doubtful Debts is RM2,500. The business maintains the provision at 4%. During the year, RM600 previously written off was recovered. Show the effect on the Profit and Loss Account and the Statement of Financial Position.
Answer
Required Provision for Doubtful Debts = 4% × 60,000 = RM2,400
Existing provision RM2,500 → decrease = 2,500 - 2,400 = RM100
The RM100 decrease in the Provision for Doubtful Debts is credited to the Profit and Loss Account (income)
Bad Debts Recovered RM600 are credited to the Profit and Loss Account (income)
Statement of Financial Position: Accounts Receivable 60,000 less Provision for Doubtful Debts 2,400 = RM57,600
Question 4
Question 4 (Syarikat Teknik Bina). A machine was bought on 1 January 2024 at a cost of RM80,000, with an estimated residual value of RM8,000 and a useful life of 6 years. Calculate the annual depreciation under the straight-line method, and the depreciation for Year 1 and Year 2 under the reducing balance method at 20%. Then determine the Accumulated Depreciation after 2 years for each method.
Answer
Straight-line method: (80,000 - 8,000) ÷ 6 = RM12,000 per year
Accumulated Depreciation after 2 years (straight-line) = 12,000 × 2 = RM24,000
Reducing balance method (20%):
Year 1 = 20% × 80,000 = RM16,000
Year 2 = 20% × (80,000 - 16,000) = 20% × 64,000 = RM12,800
Accumulated Depreciation after 2 years (reducing balance) = 16,000 + 12,800 = RM28,800
Question 5
Question 5 (Perniagaan Auto Cergas). A vehicle costing RM50,000 with Accumulated Depreciation of RM35,000 at the disposal date is sold for RM18,000 cash. Calculate the gain or loss on disposal and show the entries in the Disposal of Asset Account.
Answer
Net Book Value = 50,000 - 35,000 = RM15,000
Proceeds RM18,000 exceed NBV RM15,000 → Gain on disposal = RM3,000
Disposal of Asset Account:
Debit: Vehicle (cost) RM50,000; Gain on disposal RM3,000
Credit: Accumulated Depreciation RM35,000; Bank RM18,000
(Both sides total RM53,000)
The gain of RM3,000 is recorded as income in the Profit and Loss Account
Question 6
Question 6 (Kedai Buku Ilmu). Explain the effect on the Financial Statements if the following adjustments are omitted: (i) Accrued salaries RM4,000; (ii) Prepaid insurance RM1,500.
Answer
(i) Ignoring accrued salaries RM4,000: expenses are understated by RM4,000, so net profit is overstated by RM4,000; current liabilities are also understated by RM4,000.
(ii) Ignoring prepaid insurance RM1,500: expenses are overstated by RM1,500, so net profit is understated by RM1,500; current assets are understated by RM1,500.
Conclusion: without these adjustments the Financial Statements do not show the true position of the business, as they breach the accrual and matching concepts.
Question 7
Question 7 (Restoran Selera Kampung). Net profit before adjustments is RM45,000. Adjustments at the balance date: Accrued rent RM2,000; Depreciation of fittings RM6,000; Prepaid advertising RM1,000; Accrued interest revenue RM500. Calculate the adjusted net profit.
Answer
Net profit before adjustment = RM45,000
Less additional expenses: Accrued rent RM2,000 and Depreciation RM6,000 = -RM8,000
Add: Prepaid advertising RM1,000 (expense reduced) and Accrued interest revenue RM500 (revenue added) = +RM1,500
Adjusted net profit = 45,000 - 8,000 + 1,500 = RM38,500
What is the difference between the cash basis and the accrual basis?
How is the Provision for Doubtful Debts shown in the Statement of Financial Position?
When does a gain or loss arise on the disposal of a Non-Current Asset?
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