ICAEW AF · Chapter 7 · Question 7 of 12
A sole trader's draft profit for the year is £64,800. The following matters have not yet been reflected: 1. Closing inventory was understated by £2,300. 2. A machine costing £4,000, bought at the start of the year, was debited to the repairs account. Machinery is depreciated at 20% per year on cost, with a full year's charge in the year of purchase. 3. An electricity bill of £650 relating to the year has not been accrued. What is the revised profit for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) £69,650
Explanation
Increasing closing inventory reduces cost of sales, so profit rises by £2,300. Removing the machine from repairs adds back £4,000, but depreciation of 20% x £4,000 = £800 must be charged. The accrual reduces profit by £650. Revised profit = £64,800 + £2,300 + £4,000 - £800 - £650 = £69,650.
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