Question

After the accountant of Stallone Retailers had prepared the financial statements for the year ended 31 December Year​ 6, the following errors came to​ light:
1. A motor van purchased for ​8,000 during the year had been charged to motor running expenses. The motor van should be charged with depreciation at the rate of​ 20% of cost.
2. Closing​ inventories, which had been used in calculating gross​ profit, had been overvalued by​ £3,000.
3. The owner had withdrawn ​4,000 from the business in the form of goods acquired for​ resale, which had not been recorded.
4. An​ interest-free loan of ​2,200 from a relative of the owner was repaid during the year but this was not recorded.
The profit for the year before these errors were discovered was ​112,000.
What is the profit for the year after adjusting for these​ errors?

Answer 1

The adjusted profit of Stallone Retailers for the year ended December 31, Year 6 is £115,400.

Data Analysis:

1. Motor Van £8,000 Motor running expense £8,000

Depreciation expense  £1,600 Accumulated depreciation £1,600 ( £8,000 x 20%)

2. Cost of goods sold £3,000 Inventory £3,000

3. Drawings  £4,000 Inventory  £4,000

4. Loan  £2,200 Cash  £2,200

Adjustment of Profit

Profit before the errors  £112,000

Adjustments:

Motor running expense   £8,000

Depreciation expense    (£1,600)

Cost of goods sold         (£3,000)

Adjusted profit            £115,400

Thus, the adjusted profit is now £115,400.

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