Senior Secondary (HKDSE) · Business, Accounting and Financial Studies

Period-end Adjustments Relating to the Preparation of Financial Statements: Practice Questions

3 multiple-choice questions marked as you go, and 3 written questions with worked solutions. All on Period-end Adjustments Relating to the Preparation of Financial Statements.

6 questions12 marksFree, no account

Question 1

1 mark

According to the accrual concept, which of the following statements regarding the adjustment of expenses at the end of an accounting period is correct?

Question 2

1 mark

Which of the following would be classified as revenue expenditure for a logistics company?

Question 3

1 mark

According to the accrual basis of accounting, which of the following statements is true regarding the recognition of expenses and revenues?

Question 4

2 marks

What is the effect on the current assets of a business if the adjusting entry for prepaid insurance is omitted at the period-end?

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Question 5

2 marks

State the accounting principle that necessitates the recognition of expenses in the same accounting period as the revenues they helped generate, even if cash has not yet been exchanged.

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Question 6

5 marks

The following unadjusted account balances were taken from the books of Omega Services as at 31 December 2023:

Salaries Expense: $HK\$180,000$
Rental Income: $HK\$60,000$
Trade Receivables: $HK\$150,000$
Allowance for Doubtful Debts (1 January 2023): $HK\$6,000$
Motor Vans (at cost): $HK\$200,000$

Additional information:

(i) Salaries for December 2023 amounting to $HK\$15,000$ have not yet been paid or recorded.

(ii) Rental income includes an amount of $HK\$10,000$ received in advance for the months of January and February 2024.

(iii) A trade debtor who owed $HK\$5,000$ was declared bankrupt. The company decided to write off this debt and adjust the allowance for doubtful debts to $5\%$ of the remaining trade receivables.

(iv) Motor vans are to be depreciated at $10\%$ per annum on cost.

Required:

(a) Prepare the adjusting journal entries as at 31 December 2023. Narrations are not required. (3 points)

(b) Calculate the total amount of current liabilities as at 31 December 2023 based on the above adjustments. (1 point)

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