ACCA FA · Chapter 10 · Question 5 of 12
A company's draft profit for the year is $48,200. The following errors are then discovered: 1. Closing inventory was understated by $2,600. 2. A machine costing $5,000, bought at the start of the year, was debited to repairs. Machinery is depreciated at 20% per year straight-line. 3. An accrual for expenses of $750 was omitted. What is the corrected profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $54,050
Explanation
Start with $48,200. Add the understated inventory $2,600; add back the machine wrongly expensed $5,000; deduct depreciation on it of $5,000 x 20% = $1,000; deduct the omitted accrual $750. $48,200 + $2,600 + $5,000 - $1,000 - $750 = $54,050. Forgetting the depreciation gives $55,050, and adding the accrual instead of deducting it gives $55,550.
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