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Question : Net profit was calculated as being $ 10200. It was later discovered that capital expenditure of $ 3000 had been treated as revenue expenditure, and revenue receipts of $ 1400 had been treated as capital receipts.
What is the net profit after correcting this error?P.s: Please write the answer with explanation..
Thanks in advance…
If capital expenditure has been treated as revenue expenditure, it means that at the moment there is an expense in the Statement of profit or loss that should not be there.
So…the correct profit should be 3000 higher.If revenue receipts have been treated as capital receipts, then it means there is revenue that should be in the Statement of profit or loss but is not there at the moment.
So…the correct profit should be 1400 higher.So the correct profit here is 10200 + 3000 + 1400
capital receipt is taken account into income statement?? for example if capital receipt is 10000 $ , then will it be added to the gross profit while calculating net profit?
That is not what I wrote.
Revenue receipts should appear in the Statement of profit or loss (it is no longer called the Income Statement).
Capital receipts do not appear in the Statement of profit or loss.This question says that revenue receipts (so should have appeared) have been treated as capital receipts (and therefore are not appearing at the moment)
okk, i supposed capital receipts appears in the Statement of profit or loss. that is why this question seemed so confused to me.. i understood now.. thank you for your helping.. i am grateful to you..
Capital Receipt = not appear
Revenue Receipt = increases profit
Capital expenditure = increases profit
revenue expenditure = decreases profit?
&
what is an error called that is BOTH posted in the wrong account, wrong amount or wrong side??
thanks!
continuing my last post (see above)
wikepedia says a trial balance will not detect a transposition error:
https://en.wikipedia.org/wiki/Trial_balance
YET my bpp questions book says it will?
With regard to your first post, I am not completely sure what you mean!
A capital receipt occurs because you have sold a non-current asset. The profit or loss on sale will appear in the Statement of profit or loss (but not the receipt itself).
A revenue receipt will appear in this statement – it is because we have sold goods.
Capital expenditure will not affect the profit (unless it has been entered in the wrong account)
Revenue expenditure certainly will decrease profit.
An item posted in the wrong account is called an error of commission. There is no special name for the other two errors.
With regard to your second post.
A transposition error might or might not affect the trial balance.
If, for example, you have entered 120 in one account but by mistake entered 210 in the other account, then the trial balance will not balance (because the debit and credit will be of different amounts).
However, if the real amount is 120, but you have accidentally entered 210 in both accounts, then the trial balance will still balance (because the debit and credit are of the same amounts).
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