Spring Week FFMA Week 1

Question 1

What are the steps to preparing a Profit and Loss statement

Answer 1

1. Adjust for Depreciation
2. Adjust for Bad Debts
3. Calculate Cost of Sales
4. Calculate Interest Expense
5. Prepare the Statement of Profit or Loss

Question 2

What is the formula for Cost of Sales?

Answer 2

Cost of Sales = Opening Inventory + Purchases − Closing Inventory

Question 3

What does reducing balance mean for depreciation?

Answer 3

• Reducing balance means that you take the original cost of the item and subtract from it the accumulated depreciation stated on the trial balance and then you take the percentage of the figure that you get

Question 4

What must you always remember when calculating interest expense?

Answer 4

You must always remember to include any interest on loans as-well as the interest expense stated on the trial balance

Question 5

Is PDD (Provision for Doubtful Debt) included in the bad debt expense?

Answer 5

No it is not included in the bad debt expense line. The bad debt line is a sum of the bad debt expense on the trial balance and also any specific write offs

Question 6

How do you calculate PDD?

Answer 6

• You calculate PDD by doing New Provision - Old Provision
• To find out the New Provision you subtract the trade receivables - specific write offs total = a value
• Then you take that value and you take a percentage of the value (the percentage that they give you) and that is your New Provision
• Your old provision is taken from the trial balance

Question 7

What is the left side and the right side in the trial balance?

Answer 7

The left side is debits and the right side is credits

Question 8

What order do you list current and non current liabilities and assets in the statement of financial position?

Answer 8

1. Non Current Assets
2. Current Assets
3. Current Liabilities
4. Non-Current Liabilities