PRC-1 · Chapter 8 · Question 73 of 100
A company constructed a building for Rs. 800,000 but mistakenly capitalized an additional Rs. 25,000 opening ceremony expense. Depreciation at 5% p.a. was charged on the total Rs. 825,000. What is the combined impact of these errors on the company's assets and profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Assets overstated by Rs. 23,750; Profit overstated by Rs. 23,750
Explanation
Gross assets are overstated by 25k. Accumulated depreciation is overstated by 1,250 (5% of 25k). Net assets are overstated by 23,750. Expenses omitted: 25k ceremony. False expense added: 1,250 depreciation. Net expenses understated by 23,750, making profit overstated by 23,750.
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