Z Co’s statement of profit or loss showed a profit of $112,400 for the year ended 30 September 20X7. The
following errors were later discovered:
(1) Sales retums of $2,700 had been recorded as a new sale.
(2) A machine which had been held for two years and had originally cost $15,000, was depreciated
this year using 33 1/3% reducing balance basis. Z Co’s policy is to depreciate machines over four
What would be the net profit after adjusting for these errors?
Since the depreciation policy is to depreciate machines over 4 years, they should charge depreciation of 15,000/4 = 3,750 per year.
They have actually charged depreciation this year of 33 1/3% x (15,000 – (2 x 3,750)) = 2,500.
Therefore they have not charged enough depreciation this year and the profit will therefore be reduced by the difference of 1,250.
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