PRC-1 · Chapter 8 · Question 66 of 100
A company purchased a machine for Rs. 60,000 but mistakenly recorded the cost as Rs. 6,000 in the asset account. Depreciation is 10% per year on cost. What is the impact on profit for the first year due to this error?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Profit is overstated by Rs. 5,400
Explanation
Correct depreciation is 6,000 (10% of 60k). Recorded depreciation was 600 (10% of 6k). Depreciation expense is understated by 5,400, meaning profit is overstated by 5,400.
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