Adjustments in Final Accounts: Written off, Amortization

Arjun EP

Published on: September 23, 2020

Adjustments in Final Accounts

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):

MAJOR ADJUSTMENTS OF FINAL ACCOUNTS:

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

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Amortized or written off on fictitious assets

Depreciation is charged on tangible assets but Intangible assets are written off or amortized.

It affects profit and loss or revenue and expenditures of an organization.

It is non-cash expenses.

It is debited in profit and loss account.

Some intangible assets are preliminary expenses, underwriting commission, discount on issue of share or debentures, profit and loss debit balance etc.

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

ADJUSTMENT: 11A

Extracted Trail Balance

Particulars	Debit	Credit
Preliminary expenses	100,000
Discount on debentures	50,000

Additional information:

Amortize preliminary expenses by 25%

Write off discount on debentures within 5 years

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet

Journal Entry

Date	Particulars		LF	Amount	Amount
	Amortize on preliminary expenses account	Dr		25,000
	To Preliminary expenses account				25,000
	(Being- preliminary expenses amortized 100,000 @25%)
	Discount on debentures written off account	Dr		10,000
	To Discount on debentures account				10,000
	(Being- discount on debentures written off
	50,000÷ 5 years)

P&L Account

Particulars		Amount	Particulars	Amount
To Written off on:			By Appreciation on land	150,000
Preliminary expenses	25,000
Discount on debentures	+10,000	35,000

Balance Sheet

Liabilities	Amount	Assets		Amount
		Miscellaneous expenditure:
		Preliminary expenses	100,000
		Less: Written off	(25,000)	75,000
		Discount on debentures	50,000
		Less: Written off	(10,000)	40,000