PRC-1 · Chapter 8 · Question 69 of 100
A company incurred Rs. 15,000 on repairs and maintenance of machinery, which was wrongly capitalized. Depreciation is charged at 10% per annum. What is the effect of this error on the profit for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Profit is overstated by Rs. 13,500
Explanation
Omitting the 15,000 expense overstates profit by 15,000. The false capitalization adds 1,500 in depreciation expense, understating profit by 1,500. Net effect is profit is overstated by 13,500.
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