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Review Your SQE 1 Practice Records

Examination Timing: 00H01M59S

Where do you record an abatement of fees when a firm does not keep a separate abatements ledger?

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You have chosen the incorrect answer.
Your selected option: A

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The correct answer is D. An abatement of fees is an adjustment that reduces the amount of the bill delivered to the client by the firm, which impacts both the profit costs and VAT recorded. Therefore, the correct entries involve debiting the profit costs ledger and the HMRC ledger (to reflect the reduction in VAT owed) and crediting the client ledger account. This ensures that the firm's records accurately reflect the reduced liability.

  • Key Point: Properly recording an abatement of fees requires adjustments in both the profit costs ledger and the HMRC ledger to account for the reduction in VAT. This process ensures compliance with accounting standards and maintains accurate financial records.

Option A is incorrect because it suggests an inappropriate entry in the cash account instead of adjusting the profit costs and HMRC ledger.

Option B is incorrect because it assumes the existence of an abatement of fees ledger, which the scenario specifies does not exist.

Option C is incorrect because it does not address the necessary VAT adjustments.

Option E is incorrect because it inaccurately involves the cash account instead of the client ledger account.

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