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Topic to be tested:

  • Rectification of Errors and Financial Statements

Learning Objectives:

  • To understand the basic concepts regarding the rectification of errors.
  • To understand the effects of errors on financial performance.

GDB Question

 

Akram is running a small business under the name of Akram Bros. He has recently hired Anwar as a junior accountant to maintain the books of accounts of his business. Owing to little knowledge in accounting, Anwar could not perform well and following errors have been found in his work. You are required to give your opinions/answers as required in all the following cases regarding the given errors.

  1. There was an error in the valuation of closing stock of the previous year. In the previous year, the closing stock was valued more by Rs. 5,000. What will be its effect on current year’s profit? (Just mention whether the current year’s profit will be overstated, understated or remains unaffected).
  2. Amount of Rs. 1,000 was paid as rent to Iqbal, but it was wrongly debited to a debtor Ihsan’s account. What will be the effect of this error on arithmetical accuracy of trial balance? (Just mention whether the arithmetical accuracy of trial balance will be overstated, understated or remains unaffected).
  3. A revenue expenditure of Rs. 2,000 is treated as a capital expenditure in the books of accounts. What will be the effect of this error on Net profit? (Just mention whether the profit will be overstated, understated or remains unaffected).
  4. What will be the correct amount of profit if the profit before the correction of above errors is Rs. 40,000?

 

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i have no idea how to solve GDB, and how to submit it on LMS

I think below is the solution for it. You to click on the Post Message button at the end of the GDB and paste your solution.

If anybody else can review it before posting on GDB.

There was an error in the valuation of closing stock of the previous year. In the previous year, the closing stock was valued more by Rs. 5,000.
What will be its effect on current year’s profit? (Just mention whether the current year’s profit will be overstated, understated or remains unaffected).

Current year profit would be understated.


Amount of Rs. 1,000 was paid as rent to Iqbal, but it was wrongly debited to a debtor Ihsan’s account. What will be the effect of this error on arithmetical
accuracy of trial balance? (Just mention whether the arithmetical accuracy of trial balance will be overstated, understated or remains unaffected).

Arithmetical accuracy of trial balance will remain unaffected.


A revenue expenditure of Rs. 2,000 is treated as a capital expenditure in the books of accounts. What will be the effect of this error on Net profit?
(Just mention whether the profit will be overstated, understated or remains unaffected).

Profit will remain unaffected.


What will be the correct amount of profit if the profit before the correction of above errors is Rs. 40,000?

35,000

c.Profit shall be overstated.

d.Rs.42000

it mean revenue expenditure & profit before correction are = 42,000.

revenue should add in profit??

correct amount of profit after correction= Rs.42000

Revenue expense shall reduce profit by Rs.2000

what is the correct solution?

correct answer plz

a. understated

b. unaffected

c. overstated

d.42000 net profit (40,000+5000-1000-2000=42000)

MGT101 GDB Solution

a) overstated
b) unaffected
c) overstated
d) 33000

a. understated

b. unaffected

c. overstated

d.42000 net profit (40,000+5000-1000-2000) = 42000

Please Discuss here about this GDB.Thanks

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