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Correction of errors (IAS 8)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Correction of errors (IAS 8)

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 16, 2015 at 1:19 am #272061
    Joseph
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Apologies Mr. Little, i know these topics are supposed to be self study but i just couldn’t get it.

    Question : During 20X7 Philips Petroleum discovered that certain items had been included in inventory as at 31 Dec 20X6, valued at $4.2 million, which had been in fact sold before the year end.

    20X6 20×7(Draft)
    (millions) (millions)
    sales 47400 67200
    cost of goods sold (34,570) (55800)
    profit before tax 12830 11400
    income taxes (3,880) (3400)
    profit for the period 8950 8000

    Retained earnings at 1 January 20X7 were $13 million. The cost of goods sold for 20X7 includes the $4.2 million error in opening inventory. The income tax rate was 30% for 20X6 and 20X7.

    Required : Show the income statement for 20X7, with 20X6 comparative.

    Workings
    cost of goods sold (20X6) 34570 +4200=38770

    Workings
    income tax (20X6)
    As stated in question 3880
    Inventory adjustment (4200 x 30%) (1260)
    correct income tax for 20X6 2620

    My question Mr.Little : I do not understand how they came to the correct tax figure for 20X6, which is $2620. What i did was this:
    After getting the correct cost of sales(38770) i subtracted it from the sales figure for 20X6 to get a profit of $8,630,000. I then taxed this amount at a rate of 30%, getting a tax figure of $2,589,000. Apparently this is wrong and i can’t figure out why. Your assistance would be greatly appreciated Mr. Little.

    September 16, 2015 at 9:16 am #272097
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23362
    • ☆☆☆☆☆

    Without any adjustments at all, what’s 30% of the profit before tax for last year?

    The tax charge in any set of financial statements will almost certainly (probability of around 100%) not be simply profit before tax multiplied by the tax rate

    Ok?

    September 17, 2015 at 7:41 pm #272327
    Joseph
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Thank you Mr. Little, i believe i can move on to group accounts.

    September 17, 2015 at 10:31 pm #272338
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23362
    • ☆☆☆☆☆

    You’re welcome

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    Posts
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