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Sir, I’m still confused in which type of situation will affect the profit. Could u pls help with this question.
A company, Y, purchased some plant in 1 January 20X0 for $38,000. The payment for the plant was correctly entered in the cash book but was entered on the debit side of plant repairs account.
Y charges depreciation on the straight-line basis at 20% pa, with a proportionate charge in the year of acquisition and assuming no scrap value at the end of the life of the asset.How will Y’s profit for the year ended 31 March 20X0 be affected by the error?
Have you watched the free lecture on adjustments to profit (because there is a very similar problem as part of the example that I go through in the lecture).
They have recorder plant repairs (and expense) which were not plant repairs and therefore should not show as an expense. Correcting this will increase the profit.
Because they had not recorded assets purchased they will not have charged depreciation which they should have. Correcting this and charging depreciation will reduce the profit.
Ok sir, thanks, I have watched the lectures, it’s just I need more practice with this type of question 🙂
Hey john,
I’m confused in this question about what is accounting treatment for this question. I used accounting equation to solve it. Profit= closing assets +drawings-capital introduced – opening AssetsA business’s bank balance increased by $750,000 during its last financial year. During the same period it issued shares of $1 million and repaid a loan note of $750,000. It purchased non-current assets for $200,000 and charged depreciation of $100,000. Working capital (other than the bank balance) increased by $575,000.
What was its profit for the year?
A $1,175,000 B $1,275,000 C $1,325,000 DThis is a question on Statement of cash flows (not on the accounting equation).
You know the increase in the bank balance, and you know the Cash generated from investing activities and the Cash generated from financing activities. So you can work backwards to calculate the cash generated from operating activities, and from there you can calculate the profit.
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