Y purchased some plant on 1 January 20X0 for $36,000 . The payment for the plant was correctly entered in the cash book but was entered on the debit side of the plant repairs account.
Y charges depreciation on the straight line basis at 20% per year, with a proportionate charge in the years of acquisition and disposal, and assuming no scrap value at the end of the life of the asset.
How will Y's profit for the year ended 31 March 20X0 be affected by the error?
Suggested solutions:
Working :
Depreciation for the year (3 months only) = Cost X 20% X 3/12
= 36,000 X 0.2 X 0.25
=1,800
| PROFIT | PROFIT |
| ADD PLANT REPAIRS EXDPENSES | 36,000 |
| LESS DEPRECIATION EXPENSES | 1,800 |
| ANSWER | 34,200 |
Comments: Profit should be increased by $34,200 or the profit was understated by $34,200.
To do the same topic again in ACCA F3 Profit Affected By Error