How to approach it
- Clear the suspense account first: list what has been posted to it and where each item belongs.
- Then work down the notes in order, writing the double entry for each.
- Split loans into current and non-current portions; accrue any missing interest instalments.
- Compute depreciation after capital adjustments (e.g. installation costs moved out of expenses).
- Prepare both statements in full, with notes referenced to workings.
Key rules to apply
- IAS 2: write inventory down to NRV (selling price less costs to complete and sell); the write-down goes through cost of sales.
- IAS 23: eligible interest is capitalised into CWIP, not expensed.
- IAS 1: the part of a loan due within 12 months is a current liability.
- Directly attributable installation costs are part of PPE cost.
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Assuming the interest charged in the TB is the full year when one instalment is still unpaid (examiners' point).
- Reducing inventory for a write-down without increasing cost of sales.
- Not decoding the suspense account, so supplies purchased are never allocated.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q8 without copying it.
Original practice question
Clearing a suspense account
A trial balance shows a suspense credit of Rs 52m. It holds the proceeds of a rights issue of 4m shares at Rs 15 (par Rs 10) and supplies bought for Rs 8m. Half the supplies were used by the sales team, a quarter in building a CWIP asset, and a quarter are unused. Separately, monthly loan interest of Rs 5m is paid on the first day of the following month; 11 payments (Rs 55m) were recorded. Goods costing Rs 50m can be sold for Rs 45m after Rs 7m of repairs.
Required: Give the entries needed.
Worked solution
| Item | Dr | Cr | Rs m |
|---|---|---|---|
| Rights issue | Suspense | Share capital 40 / Share premium 20 | 60 |
| Supplies | Distribution costs 4 / CWIP 2 / Inventory 2 | Suspense | 8 |
| Interest accrual | Finance cost | Accrued interest | 5 |
| NRV write-down: 50 − (45 − 7) | Cost of sales | Inventory | 12 |
Suspense: credit 52 + debit 60 − credit 8 = nil.
Answer: Suspense clears to nil; finance cost becomes Rs 60m; inventory falls by Rs 12m through cost of sales.