PRC-1 · Chapter 8 · Question 67 of 100
A company purchased machinery costing Rs. 120,000 on 1 July 2022. Policy is 20% reducing balance with time apportionment. The accountant incorrectly charged 20% straight-line for the full year. What is the impact on profit for the year ended 31 December 2022?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Profit is understated by Rs. 12,000
Explanation
Correct depreciation = 120,000 * 20% * 6/12 = 12,000. Incorrect depreciation = 120,000 * 20% * 12/12 = 24,000. Depreciation is overstated by 12,000, so profit is understated by Rs. 12,000.
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