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Net profit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Net profit

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
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  • January 20, 2019 at 10:01 am #502743
    yusra97
    Participant
    • Topics: 66
    • Replies: 61
    • ☆☆

    A company’s statement of profit or loss for the year ended 31 December 20X5 showed a net profit of $83,600. It was later found that $18,000 paid for the purchase of a motor van had been debited to the motor expenses account. It is the company’s policy to depreciate motor vans at 25% per year on the straight-line basis, with a full year’s charge in the year of acquisition..
    What would be the net profit after adjusting the error?
    sir here why are we adding 18000? it should be subtracted because they considered it an expense so expense should be subtracted from the net profit? please explain the concept here

    January 20, 2019 at 10:11 am #502750
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54748
    • ☆☆☆☆☆

    The 18,000 has been charged as an expense, but it should not have been charged as an expense because it was the purchase of an asset. Therefore the expense should be removed, and lower expenses means higher profit.

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