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Can anyone help me about understatement and overstatement ?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Can anyone help me about understatement and overstatement ?

  • This topic has 3 replies, 2 voices, and was last updated 3 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • January 31, 2025 at 5:22 am #715091
    abirul
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    As I know understatement is a number which is higher than the correct numbers. and overstatement is a number which is less than the correct numbers

    Correct number : 270
    Understatement: 278

    Overstatement: 262

    Is that correct ? I’m getting confused whenever i solving asset expenditure and expenses problem i got confused. When a expense correct amount is 600 in question recorded as 520 is that effect in assets understatement or overstatement ?

    January 31, 2025 at 10:16 am #715102
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    If a number is entered lower than it should be, then it is understated.
    If a number is entered higher than it should be, then it is overstated.

    So recording 520 when it should be 600 means that at the moment it has been understated.

    February 2, 2025 at 5:00 am #715124
    abirul
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    Wodl Co uses absorption costing and an overhead absorption rate based on machine hours. The following information is available for its Stitching department for February:

    Budget Actual

    Overhead costs $16,340 $17,230

    Number of machine 4,300 4,250
    hours

    Which of the following statements about overhead absorption in the Stitching department for February are true?

    Overhead costs were over-absorbed by $203
    Overhead costs were under-absorbed by $203
    Overhead costs were under-absorbed by $1,080
    Overhead costs were over-absorbed by $1,080

    Sir, if actual budget is 1080 higher than it should be why over-absorbed 1080 is wrong
    Sorry sir i am huge confused about that even in Finanacial Accounting I’m getting wrong attemp in overstated and understated question in Asset Expenditure and Expenses

    February 2, 2025 at 9:07 am #715132
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    The amount that has been absorbed (i.e. charged) using absorption costing is $16,150.
    The actual overheads are $17,230.

    Therefore they have under-charged (ie. under -absorbed) by the difference of $1,080.

    Have you watched our free lectures on absorption costing?

  • Author
    Posts
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