The accountant at Investotech discovered the following errors after calculating the company's profit for 2003
a. A non current asset costing $50,000 has been included in the purchases account
b. Stationary costing $10,000 has been included as closing inventory of raw materials, instead of stationary expenses
what is the effect of these errors on grossprofit and net profit?
Understatement of gross profit by $40,000 and understatement of net profit by $30,000
sir here what's the logic are they using? nca has been included in purchase account so reducing the profit ..then stationary expense as closing inventory will increase the profit?
and then it's affecting the gross profit but how 40 and 30 net profit?
Ask the Tutor ACCA FA
Correction of error
7y ago#1Inventory of raw materials will have affected the gross profit.
But is wasn't inventory of raw materials it was stationery. So it does not affect gross profit but affects net profit (because stationary expense only affects net profit and not gross profit).
why inventory of raw material have affected the gross profit whereas stationary expense wont? if it's not affecting why are we subtracting? 50-10=40 gross profit nd net profit 40-10=30
7y ago#3Gross profit is sales less cost of goods sold.
Stationery is not part of the cost of the goods sold, it is an expense which is charge after gross profit when arriving at net profit.
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