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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 ?
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.
hi Sir
I know it’s not my question but I want to know if the answer could beprofit + 25500 – (25500*11*25/1200)
profit + 25500 – 5843.75$19,656
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 🙂
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