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Question 9 on pilot paper??

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › Question 9 on pilot paper??

  • This topic has 1 reply, 2 voices, and was last updated 14 years ago by joseph89.
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  • Author
    Posts
  • April 16, 2011 at 2:41 pm #48117
    ro1sin
    Participant
    • Topics: 4
    • Replies: 17
    • ☆

    A company’s income statement 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 percent 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?

    The answer they give is C: 83,600 +18,000 – (18,000*25%) = 97,100.

    This confused me, why is the asset value added to the Net profit before the depreciation expense is subtracted?

    Can anyone answer?

    Thanks,
    Roisin

    April 23, 2011 at 7:25 pm #80892
    joseph89
    Member
    • Topics: 17
    • Replies: 59
    • ☆☆

    because motor van must be capitalized and because they by mistake treated it like a revenue expenditure and deducted it (18000 $) from profit you have to add that back, and also you have to deduct motor vans( 18,000*25%) depreciation.

    Best regards
    Joseph

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