About Adjustments, depreciation and inventory in A Level Accounting
Adjustments, depreciation and inventory is one of the 7 main topics in our A Level Accounting (Cambridge (CAIE) 9706) question bank, and about 14% of its real questions come from it. Tayyari Karo has 62 real questions on this topic from 2021 to 2026, from Paper 1, Paper 2, Paper 3; 55 are multiple choice and marked instantly, and the rest are structured questions with a model answer. By difficulty: 50 medium, 12 hard.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
Try 8 real questions
These are real past-paper questions. Think of your answer first, then open the explanation.
May/June 2026 · Paper 1 · Adjustments, depreciation and inventory
What is the reason for charging depreciation on non-current assets?
- A - to ensure non-current assets are regularly revalued
- B - to have funds to replace the non-current assets
- C - to record a lower profit for the year in order to pay less tax
- D - to match the cost of non-current assets with the revenue generated
Show answer and explanation
Answer: D. D - to match the cost of non-current assets with the revenue generated
Depreciation applies the matching concept by spreading cost over the periods benefited.
May/June 2025 · Paper 1 · Adjustments, depreciation and inventory
Why does a sole trader account for accrued income?
- A - so that current liabilities are not overstated
- B - so that current liabilities are not understated
- C - so that profit is not overstated
- D - so that profit is not understated
Show answer and explanation
Answer: D. D - so that profit is not understated
Accrued income (income earned but not yet received) increases profit and creates a current asset. Without it, profit would be understated.
October/November 2024 · Paper 1 · Adjustments, depreciation and inventory
A business maintains an allowance for irrecoverable debts of 2% of trade receivables. Opening trade receivables $48 000. Closing trade receivables $37 000. An irrecoverable debt of $1 600 which had occurred during the year had not been written off. No adjustment had been made to deal with the allowance at 31 December. By which amount was the profit for the year overstated?
- A - $892
- B - $1 348
- C - $1 852
- D - $2 308
Show answer and explanation
Answer: C. C - $1 852
Irrecoverable debt not written off: -$1 600 (profit overstated). Opening allowance: $48 000 x 2% = $960. Closing allowance should be: $37 000 x 2% = $740. Decrease in allowance = $220 (profit overstated by $220). But we also need to write off the $1 600 first: ($37 000 - $1 600) x 2% = $708. Total overstated = $1 600 + $960 - $708 = $1 852. Answer C.
May/June 2023 · Paper 1 · Adjustments, depreciation and inventory
Current liabilities $4 000. Acid test 1.5:1. Current ratio 2.25:1. Value of inventory?
- A - $3 000
- B - $4 000
- C - $9 000
- D - $15 000
Show answer and explanation
Answer: A. A - $3 000
Current assets = 2.25 x $4 000 = $9 000. Quick assets = 1.5 x $4 000 = $6 000. Inventory = $9 000 - $6 000 = $3 000. Answer A.
May/June 2022 · Paper 1 · Adjustments, depreciation and inventory
What will be used to calculate the general provision for doubtful debts?
- A - total trade receivables only
- B - total trade receivables less irrecoverable debts only
- C - total trade receivables less provision for specific doubtful debts only
- D - total trade receivables less irrecoverable debts and provision for specific doubtful debts
Show answer and explanation
Answer: D. D - total trade receivables less irrecoverable debts and provision for specific doubtful debts
The general provision is calculated on total trade receivables after deducting irrecoverable debts and specific doubtful debts.
May/June 2021 · Paper 1 · Adjustments, depreciation and inventory
A businessman suspects some of his inventory has been stolen. Sales revenue $45 600, purchases $33 600, inventory at 1 May 2020 $8 300, inventory at 30 April 2021 $4 500. All goods are marked up at a rate of 33 1/3%. What was the value of inventory stolen?
- A - $600
- B - $3 200
- C - $4 400
- D - $7 000
Show answer and explanation
Answer: B. B - $3 200
Cost of goods sold = $45 600 x (100/133.33) = $34 200. Expected closing inventory = $8 300 + $33 600 - $34 200 = $7 700. Actual closing inventory = $4 500. Stolen inventory = $7 700 - $4 500 = $3 200.
October/November 2025 · Paper 2 · Adjustments, depreciation and inventory
(a) Calculate the opening inventory at 1 January 2023.
(b) Calculate the revenue for the year ended 31 December 2024.
(c) Calculate the closing inventory at 31 December 2024.
(d) Calculate the inventory turnover (days) for each year.
(e) Identify two possible drawbacks of reducing inventory levels.
(f) Identify two ways to improve inventory turnover other than reducing inventory.
Show model answer
(a) COS = 65% x $560 000 = $364 000. Opening = $364 000 - ($370 000 - $38 000) = $32 000.
(b) Revenue = $345 000 x 100/60 = $575 000.
(c) Closing = ($38 000 + $343 000) - $345 000 = $36 000.
(d) 2023: avg inventory ($38 000 + $32 000)/2 = $35 000. Days = $35 000/$364 000 x 365 = 36 days. 2024: avg ($36 000 + $38 000)/2 = $37 000. Days = $37 000/$345 000 x 365 = 40 days.
(e) Risk of stock-outs. Loss of trade discount. Increased delivery costs.
(f) Changing product range to items more in demand. Reducing selling prices/offer discounts. Advertise/promotion.
Inventory turnover = Average inventory / Cost of sales x 365 days.
October/November 2023 · Paper 3 · Adjustments, depreciation and inventory
(a) Calculate revised profit after amendments.
(b) Calculate change in P/E ratio.
(c) Advise whether directors should be concerned about P/E change.
(d) Explain three measures to decrease gearing.
(e) State three reasons for preparing a statement of profit or loss.
Show model answer
(a) Draft profit $148 250. Damages ($12 000). Irrecoverable debt ($3 800). Impairment ($4 000). Depreciation ($1 120). Sale or return ($2 500). Revised profit $124 830.
(b) Directors' EPS: 148 250/400 000 = 37.06 cents. P/E = 390/37.06 = 10.52. Published EPS: 124 830/400 000 = 31.21 cents. P/E = 310/31.21 = 9.93. Change: decrease of 0.59.
(c) Not concerned: small decrease, no immediate share issue planned. Concerned: market less confident, EPS percentage change higher.
(d) Issue new shares to strengthen equity. Revalue non-current assets upwards. Reduce dividends/increase profits to increase retained earnings. Use surplus funds to reduce non-current liabilities. Convert loans to shares. …
The full model answer is in the app.
