ACCA FR · Chapter 1 · Question 7 of 10
In preparing its financial statements for the year ended 31 December 20X5, Marlin Co discovered that closing inventory at 31 December 20X4 had been overstated by $40,000 because of a counting error. Reported profit for 20X4 was $500,000. Draft profit for 20X5, calculated using the incorrect opening inventory, is $620,000. Ignoring tax, what is the correct profit for the year ended 31 December 20X5?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $660,000
Explanation
The error overstated 20X4 closing inventory, which is also 20X5 opening inventory. Overstated opening inventory overstates 20X5 cost of sales, so draft 20X5 profit is understated by $40,000. Correct 20X5 profit = $620,000 + $40,000 = $660,000. Under IAS 8 the 20X4 comparative is restated to $500,000 - $40,000 = $460,000.
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