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Profit understated

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Profit understated

  • This topic has 7 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • July 5, 2014 at 8:51 pm #178220
    Vicks
    Participant
    • Topics: 17
    • Replies: 19
    • ☆

    Hi , would you be able to help me with the following question

    A manufacturing company receives an invoice on feb 2002 for work on machines. $25500 of the cost is for a machine upgrade which will improve efficiency. The account dept missed this, and charge the whole inv to manufacturing cost. Machinery is depn 25% pa straight line method with proportional change in the years of acquisition and disposal

    What amount of profit will be overstated ?

    July 6, 2014 at 8:07 am #178231
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    The 25500 should be capitalised as a non-current asset, and not charged in the Statement of profit or loss.

    Because at the moment it has been charged as an expense, we need to increase the profit by 25500 to correct it.

    Also, since it will be capitalised, we need to charge deprecation on the 25500 – the depreciation will reduce the profit.

    July 6, 2014 at 11:12 am #178239
    Vicks
    Participant
    • Topics: 17
    • Replies: 19
    • ☆

    Thank you very much i understand it now 🙂

    July 6, 2014 at 4:35 pm #178257
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

    July 7, 2014 at 3:07 pm #178338
    josy87
    Member
    • Topics: 173
    • Replies: 215
    • ☆☆☆

    hi Sir
    I know it’s not my question but I want to know if the answer could be

    profit + 25500 – (25500*11*25/1200)
    profit + 25500 – 5843.75

    $19,656

    July 23, 2014 at 5:47 pm #179531
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    josey87: what you are doing is correct. The only problem is that Vicks’s question did not say when the year end was. If it was December, then you are correct 🙂

    July 23, 2014 at 10:58 pm #179550
    josy87
    Member
    • Topics: 173
    • Replies: 215
    • ☆☆☆

    ok thanks Sir

    July 24, 2014 at 7:07 am #179556
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
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