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The answer in the paper stated: D(27.8%), but doesn’t it mean that overstated closing inventory >> overstated profits. Thus for correction we need to reduce the profit by$5000 (due to increased cost of sales by $5000)? If it is so, then the answer is B (16.7%).
QUESTION 3
The draft accounts of Anthea Co. for the year ended 31 December 20X9 include the following:
Revenue $80,000
Gross profit $20,000
It was subsequently discovered that revenue had been understated by $10,000 and closing inventory overstated by $5,000. After correction of these errors the gross profit percentage will be:
A 33.3% B 16.7% C 31.3% D 27.8%anyone?
Has anyone downloaded F3 Course notes, pls see the answer for Question3 Chapter18. It looks as it is a mistake there, pls correct me if I’m wrong.
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Adjusted Revenue = $80,000 + $10,000 = $90,000.
Original COGS = $80,000 – Gross Profit $20,000 = $60,000
Adjusted COGS = $65,000
So adjusted Gross profit =$90,000 – $65,000 = $25,000.$25,000 / Adjusted Revenue $90,000 = o.2777 i.e. 27.8%
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