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During the year, owner took goods out of the business for personal use without paying for them, no entries has been made in the accounts to record this.
The goods cost 250 ( the amount that has been deducted under purchases) and selling price is 450.
This is 5th point in que 108 (Na)of BPP kit.
The answer is to add 450 to trading profits for tax adjusted trading profits computation
My que is ..if its written that “the amount has been deducted under purchases”
then we only have to add profit (200) to trading profits…bcoz 250 is already deducted under purchases .thereby reducing the profits by 250. What will be the answer to this ? add whole 450 or just 200. ?
The cost has been correctly recorded in purchases – this is a cost to the business BUT these goods have not been sold by the business and have instead been taken by the business for personal use and for that NO ADJUSTMENT has been made by the business in the accounts and hence the accounting profit is understated. Therefore the correct adjustment required is to add back to profit the full market value.
If the business had already reduced purchases in the accounts by the amount of the purchase cost then the adjustment of profit would only need to be an add back of the profit margin.