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hello,
please can you help explain why the answer is C
Which of the following would be a plausible explanation of an overstatment of proft.
A. Delaying payments to payables
B. Shortening the useful economiclife of a non current asset
C. Overstatement of a prepayment
D. Overstatement of an accrual.cant get my head round this>
thanks
If the prepayment at the end of the year is too high, then the expense for the year will be too low. (The expense is the cash paid less the amount prepaid).
If the expense is too low then the profit is too high.
(it is the opposite for accruals, which is why D is not correct. Delaying payment to payables will have no affect on the profit (unless we lose discounts by paying late, but this would mean spending more and therefore less profit) – so A is not correct.
Shortening the life of a non current assets will mean charging more depreciation, so less profit, so B is not correct.thanks for that, it makes it a bit more sense now, another question not relating to the revision but a general paper question.
For the MCQ question if you have to choose more than 1 answer and you only get 1 right will you be awarded half the 2 marks so 1 mark?
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