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Could you tell me what if we made the mistake when accounting for non-current asset instead of current asset.
I understand that then the balance of non-current asset will overstate but i dont understand that it will lead to overtstatement of profitNon-current assets will be depreciated and the depreciation expense will reduce the profit. Current assets are not depreciated and so there is no depreciation expense.
So, it is just related on profit?, what else will be affected if we mistate to debit on current asset instead of non-current asset
Obviously the Statement of financial position will be affected (showing the items in the correct place).
Also, as I wrote earlier, the profit will be affected (because of depreciation).
Also, because the profit is affected, so to will the retained earnings be affected on the Statement of financial position.
Yeah, now i am studying about F7, but it’s so hard:(, i have to practice everyday to understand, and i am very glad to your help:).
Oh i forgot that i had the question involved in this question:
Y purchased some plant on 1 January 20X0 for 38000, the payment for the plant was correctly entered in the cash book but was entered on the debit side of the plant repair account.
Y charge depreciation on the straight line basis at 20% per year, with the proportionate charge in the year of acquisition and disposal, no scrap value at the end of life of assetHow will the profit for the year end 31 March 20X0 be affected by error?
I know that the profit totally will be understated but why it won’t be equal to 38000 otherwise it had to deduct for accumulated depreciation until 31 March??
Repairs should not be there, so the profit is understated by 38,000.
Also, however, since there should be plant of 38,000 there should also be depreciation expense of 20% x 3/12 x 38,000.
That is my problem, i am still confused that we do not account for on Non-current Asset account because having misstatement is on Repair account, so why do we still have the depreciation account ? And then no need to depreciate…
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