[yiing]

Thanks for answering Muhammad.

Meaning if it is post year end correspondence, assurance provider would check whether payment has been made or not?

[yiing]

When checking the reasonableness of specific allowances for receivables, an assurance provider may test for both understatement and overstatement. For each of the following procedures, select whether they will provide evidence for understatement or overstatement in respect of specific allowances for receivables.
1. A review of pre year end correspondence with customers to identify any disputed balances.
A. Overstatement of allowances
B. Understatement of allowances

[yiing]

To find the receivable balances to be included in statement of financial position, should I include the credit balance? The answer given is 282460.

[yiing]

Hello sir, kindly help me with this question

For Morgan plc the direct production cost of each unit of inventory is 46. Production overheads are 15 per unit. Currently the goods can only be sold if they are modified at a cost of 17 per unit. The selling price of each modified unit is 80 and selling costs are estimated at 10% of selling price. At what value should each unmodified unit of inventory be included in the statement of financial position?
The answer given was 55. I knew I must value inventory at its lowest cost, but the question stated was the value of each unmodified unit of inventory. Shouldn’t it be 61 ?

[yiing]

Ok, thank u sir.

[yiing]

I’m so sorry sir, I can’t fully comprehend your explanation. The net profit is not affected when the errors are corrected, but the question did not mention about correction of errors, it only stated the effects of the errors.

[yiing]

The actual question:

Philip started in business on 1 January 2015 with 60000 in a bank account. Unfortunately, he did not keep proper books of account.
He must submit a calculation of profit for the year ending 31 December 2015 to the inspector of taxes. At 31 december 2015 he had inventory valued at cost 12000; a van had cost 13500 during the year and which had depreciated during the year 3000; accounts receivable of 24000; expenses prepaid of 600; a bank balance of 51000; a cash balance 450; trade accounts payable 12000; and expenses owing 1200. His drawings were: cash 750 per week, cheque payments 1500. Draw up statements to show the profit or loss for the year.

[yiing]

May I know why there are no effect on the net profit since stationery expense should be reduced ?

[yiing]

Dear sir, kindly help me to solve this question.

After calculating your company’s profits for 2014, you discover that:
(A) a non-current asset costing £50000 has been included in the purchases account
(B) stationery costing £10000 has been included as closing stock of raw materials, instead of stock of stationery
These two errors had the effect of :(a) understating gross profit by £40000 and understating net profit by £ 50000
Or
(B) understating both gross profit and net profit by £40000

The answer is (a), may I know how to get the answer?

[Author]

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