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Statement: “An error in expenses discovered after the financial statements have been authorised for issue.
Hi sir, this is a prior period error right ?
If the error was discovered before the financial statements have been authorised for issue, it would have been a current period error right ?It sounds like a prior period error but I would want more background information in order to rule out definitively the other possibility of it being a current period error
Its regarding this question.
Question) Which two of the following do not need to be removed from a company’s net profit in a profit or loss account in order to calculate the earnings figure to be used in the Earnings per share calculation ?A) Redeembale preference dividends
B) Irredeemable preference dividends
C) Profit attributable to the non-controlling interest
D) An error in expenses discovered after the financial statements have been authorised for issue
E) Ordinary dividendsSince the error was discovered after the financial statements have been authorised for issue, its a prior period error. It needs to be applied retrospectively therefore must be removed from the company’s net profit as if the error had never occurred.
If the error was discovered before the financial statements have been authorised for issue , it could have been corrected. It would then be a current period error. Therefore, it does not need to be removed from the company’s net profit since it would have already been corrected during the year.
Am i correct sir ?
I presume the answer is B and E is it?
If it were a prior year error, then the prior year figures would be affected and this year’s figures would not be affected
If the error is in the calculation of this year’s expenses then the figures need to be adjusted before the eps is calculated
If the financial statements have merely been authorised for issue, but not yet issued, then the financial statements should be amended (presumably the error is material) but it could be the case that the expenses have been OVER-charged in which case the adjustment would be to increase the profit – the question is not clear!
But if the financial statements have been issued, unless the error is IMMENSE, it would be corrected in next year’s figures as a prior year adjustment
The question is silly if it is intended that we should read the situation as that the financial statements HAVE been issued
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