ExpertMedium2 marksMultiple Choice
ACCA · Question 23 · Preparing a trial balance
A company's draft profit is $50,000. It is discovered that closing inventory was overstated by $5,000, and a depreciation charge of $2,000 was omitted. What is the revised profit?
A company's draft profit is $50,000. It is discovered that closing inventory was overstated by $5,000, and a depreciation charge of $2,000 was omitted. What is the revised profit?
Answer options:
A.
$57,000
B.
$53,000
C.
$47,000
D.
$43,000
How to approach this question
Analyze the impact of each error on profit. Closing inventory increases profit, so an overstatement must be deducted. Expenses decrease profit, so an omitted expense must be deducted.
Full Answer
D.$43,000✓ Correct
Closing inventory reduces cost of sales, thereby increasing profit. If it is overstated by $5,000, profit is overstated by $5,000 and must be reduced. Omitting an expense (depreciation of $2,000) also overstates profit. Revised profit = $50,000 - $5,000 - $2,000 = $43,000.
Common mistakes
Thinking that an overstatement of closing inventory means profit is understated.
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