Adjustment entry means not adjusted while preparing trial balance.
It is also known additional information.
Almost all the adjustment entry effects dual aspect.
One is debit and other is credit.
There are a number of adjustments to be made while finalizing the financial statements.
But our discussion will be limited to the following adjustments (limited by the curriculum):
1 |
Dividend |
13 |
Bad debts, provision and discount |
2 |
Transfer to reserve and fund |
14 |
Recovery of bad debts |
3 |
Adjustment of tax |
15 |
Goods loss by fire and insurance claim |
4 |
Closing stock |
16 |
Goods distribute as free sample |
5 |
Outstanding expenses |
17 |
Manager’s commission |
6 |
Prepaid expenses |
18 |
Bonus or pension to employees |
7 |
Accrued revenue or income |
19 |
Create reserve or fund |
8 |
Unearned or prepaid revenue |
20 |
Goods sold on sale or return basis |
9 |
Depreciation on assets |
21 |
Hidden adjustment: |
10 |
Appreciation on assets |
|
(a) Interest on loan or debenture |
11 |
Written off or amortized |
|
(b) Interest on investment |
12 |
Purchase or sale of fixed assets |
|
(c) Monthly rent and salary |
Some information is not clarified in additional adjustment.
These transactions should be adjusted on the basis of indication or hints.
Such adjustment is known as hidden adjustment.
The examples of such hidden information are:
10% Debentures or loan
5% Investment
Rent @ Rs 5,000 per month
7% Preference shares capital
According to above examples
10% interest should be payable on debenture or loan,
5% interest should be receivable on investment,
Total rent for the year would be Rs 60,000 viz (12 months x Rs 5,000),
7% preference dividend should be payable if dividend paid on equity shares capital.
Keep in Mind (KIM)
When account balance is given in percentage (%) in trial balance like 8% debentures, 7% investment, 5% government bond etc there may be hidden adjustment. |
There are four options for interest:
(a) Interest is not paid
(a) Partial interest paid (50%, 3 months, 6 months, 9 months etc)
(b) Full (100%) interest paid
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
ADJUSTMENT: 22A
The following extracted information of NG Company Ltd is given below:
Extracted Trial Balance
As on 31st December 2019
Particulars |
Debit |
Credit |
5% Investment |
200,000 |
− |
|
|
|
Required: Effect in final account
SOLUTION:
Given and working note:
Interest receivable on investment for one year = 200,000 @ 5% = 10,000
Interest is not received
Interest receivable = 10,000
Journal Entries
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Accrued interest account |
Dr |
|
10,000 |
|
|
To Interest received account |
|
|
|
10,000 |
|
[Being- interest receivable on 200,000@5%] |
|
|
|
|
|
|
|
|
|
|
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
|
Amount |
|
|
|
By Interest |
Nil |
|
|
|
|
Add: Accrued interest |
+10,000 |
10,000 |
|
|
|
|
|
|
Balance Sheet
Liabilities |
Amount |
Assets |
|
Amount |
|
|
Investment: |
|
|
|
|
5% Invest in debentures |
200,000 |
|
|
|
Add: Accrued interest |
+10,000 |
210,000 |
|
|
|
|
|
#####
Click on link for YouTube videos |
|
Share (Accounting for Share) |
|
Share in Nepali |
|
Debentures |
|
Final Account: Class 12 |
|
Final Account in Nepali |
|
Work Sheet |
|
Ratio Analysis (Accounting Ratio) |
|
Fund Flow Statement |
|
Cash Flow Statement |
|
Theory Accounting Xii |
|
Theory: Cost Accounting |
|
Cost Accounting |
|
LIFO−FIFO |
|
Cost Sheet, Unit Costing |
|
Cost Reconciliation Statement |
#####
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
ADJUSTMENT: 22B
The following extracted information of NG Company Ltd is given below:
Extracted Trial Balance
As on 31st December 2019
Particulars |
Debit |
Credit |
5% Investment |
200,000 |
− |
Interest received |
|
3,000 |
|
|
|
Required: Effect in final account
SOLUTION:
Given and working note:
Interest receivable on investment for one year = 200,000 @ 5% = 10,000
Interest already received on investment = 3,000
Interest receivable = 10,000 – 3,000 = 7,000
Journal Entries
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Bank account |
Dr |
|
3,000 |
|
|
Accrued interest account |
Dr |
|
7,000 |
|
|
To Interest received account |
|
|
|
10,000 |
|
[Being- interest paid and payable, 200,000@5%] |
|
|
|
|
|
|
|
|
|
|
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
|
Amount |
|
|
|
By Interest |
3,000 |
|
|
|
|
Add: Accrued interest |
7,000 |
10,000 |
|
|
|
|
|
|
Extracted Balance Sheet
Liabilities |
Amount |
Assets |
|
Amount |
|
|
Investment: |
|
|
|
|
5% Invest in debentures |
200,000 |
|
|
|
Add: Accrued interest |
7,000 |
207,000 |
|
|
|
|
|
###########
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
ADJUSTMENT: 22C
The following extracted information of NG Company Ltd is given below:
Extracted Trial Balance
As on 31st December 2019
Particulars |
Debit |
Credit |
5% Investment |
200,000 |
|
Interest received |
|
10,000 |
|
|
|
Required: Effect in final account
SOLUTION:
Given and working note:
Interest receivable on investment for one year = 200,000 @ 5% = 10,000
Interest already received on investment = 10,000
Interest receivable = 10,000 – 10,000 = nil
Journal Entries
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Accrued interest account |
Dr |
|
Nil |
|
|
To Interest received account |
|
|
|
Nil |
|
[Being- interest |
|
|
|
|
|
|
|
|
|
|
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
|
Amount |
|
|
|
By Interest |
10,000 |
|
|
|
|
Add: Accrued interest |
Nil |
10,000 |
|
|
|
|
|
|
Extracted Balance Sheet
Liabilities |
Amount |
Assets |
|
Amount |
|
|
Investment: |
|
|
|
|
5% Invest in debentures |
200,000 |
|
|
|
Add: Accrued interest |
10,000 |
210,000 |
|
|
|
|
|
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