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4. A company’s statement of profit or loss for the year ended 31 December 20X5 showed a net profit of $83,600. It was later found that $18,000 paid for the purchase of a motor van had been debited to the motor expenses account. It is the company’s policy to depreciate motor vans at 25% per year on the straight line basis, with a full year’s charge in the year of acquisition.
What would the net profit be after adjusting for this error?
a) $106,100
b) $70,100
c) $97,100
d) $101,600
You must watch our free lectures on adjustment of profits.
Please do not use this forum to simply set test questions (for which you should have an answer in the same book in which you found the question anyway).
sir i wanted to know the reason behind this answer , the logic ,if this is possible
regardsHave you watched my free lectures on adjustments to profit (because it includes a very similar example!)?
The 18,000 should not have been charged to motor expenses. Correcting this will increase the profit by 18,000
The 18,000 should have been charged to motor van asset account – because it has not been, then they will not have charged depreciation on it.
They need to charge depreciation is 25% x 18,000, and this will reduce the profit.
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