PRC-1 · Chapter 8 · Question 87 of 100
A draft income statement shows a gross profit of Rs. 850,000 and a net profit of Rs. 460,000. It is discovered that closing inventory is overstated by Rs. 42,000, and a maintenance cost of Rs. 12,000 was capitalized (depreciation was charged at 10%). What is the corrected net profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 407,200
Explanation
Closing inventory overstatement: reduces profit by 42,000. Maintenance capitalized: requires expensing 12,000 (reduces profit) and reversing the false 1,200 depreciation (adds 1,200 to profit). NP = 460,000 - 42,000 - 12,000 + 1,200 = 407,200.
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