- This topic has 5 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
Hello John,
Could you help me to choose the correct answer, please?
The accountant at Investotech discovered the following errors after calculating the company’s profit for 20X3:
(a) A non-current asset costing $50,000 has been included in the purchases account
(b) Stationery costing $10,000 has been included as closing inventory of raw materials, instead of stationery expensesWhat is the effect of these errors on gross profit and net profit?
A Understatement of gross profit by $40,000 and understatement of net profit by $30,000
B Understatement of both gross profit and net profit by $40,000
C Understatement of gross profit by $60,000 and understatement of net profit by $50,000
D Overstatement of both gross profit and net profit by $60,000
in the BPP book the answer which is given is B. I agree that gross profit would be understated by 40000 but what about the net profit shouldn’t it be the same as gross profit. Since we included the error in closing inventory, we cannot include it once more in expense unless we correct it. However, the question asks the effect of errors on Profit?.
Could you explain this, too?
A purchase return of $48 has been wrongly posted to the debit side of the sales returns account, but has been correctly entered in the supplier’s account.
which of the following Statements about the trial balance would be correct?
The answer: the debit side to be $96 more than credit
shouldn’t it be $48? because we credited an extra account wrongly “sales return” which would increase the debit side of trial balance
First question:
I do not know which BPP book you are using, but in the current edition of the BPP Revision Kit the correct answer is shown as A and not as B. A is the correct answer.
Second question:
A purchase return should have been posted to the credit of purchase returns.
At the moment it has been entered as debit to a different account.Therefore at the moment the debits are too high by 48, and the credits are too low by 48.
Therefore the debits at 96 higher than the credits.
- The topic ‘revised Net profit’ is closed to new replies.