Accountancy Forum

Hello,

I got stuck on a MCQ while solving the exam kit of FTC for 1.1.

Here is the question

<b><i>After calculating your company's profit for 20X3 you discover that

1.A non-current asset costing $50,000 has been included in the purchases account.

2.Stationary costing $10,000 has been included as closing inventory of raw materials, instead of inventory of office stationary.

The two errors have an effect of

A.Understating gross profit by $40,000 and understating net profit by $50,000.

B.understating both gross profit and net profit by $40,000.

C.understating gross profit by $60,000 and understating net profit by $50,000.

D.overstating both gross profit and net profit by $60,000.</i></b>

I made the following conclusions

Error 1 should understate Gross Profit by $50,000 as the Cost of Sales are overstated by $50,000. Thus Net Profit is also understated by $50,000.

Error 2 should overstate the gross profit by $10,000 as the cost of sales are understated by $10,000.Thus the Net profit is also overstated by $10,000.

Therefore, both Gross profit and net profit are understated by $40,000. So according to my calculations the answer should be <u>B</u>.

But the answers' section says the answer is A. My conclusion about error 1 is correct. But not about error 2.

It says error 2 will only affect the gross profit and have no affect on the net profit. How can that be?

Can someone explain?

Very Good Question I Also want to know about the answer , anyone can help....

Dear Brother Due to overstatement of Purchases Cost of Sales Increases and due to which Gross Profits and Net Profits Both Decreased by 50,000....

Stationary which is an Expense instead it had added to closing stock due to which Cost of sales decreased by 10,000 and so Gross Profits and Net Profits both Increased by 10,000.....

So 50,000 Decreament and 10,000 Increament Results to be overall 40,000 Decreament in<b> OF GROSS PROFITS</b>.....

Now Stationary Expense is also understated by 10,000 due to which Net Profits are OverStated by 10,000....thus, 40,000 Decreament in Gross Profits and 10,000 UnderStatement of Expenses Results in 40,000 Decreased GP which is also having an impact on NP and so by 10,000 Net Profits also Overstated....so 40,000-10,000=>30,000 Understatement of NP....

Kits may have wrong options

Nice to see you back in the forum mr. amir

Thanks Imran Actually dear brother I personally feel very Pleasent to see your postswhere you were defending ULEMA-E-KIRAMs and TALIBANS OF JAMIA HAFSA(RAZI ALLAH-TA'ALA-ANHA)[ALLAH<S.W.T> TAMAM SHUHADA-E-KIRAM KO JANNAT KA ALA MAQAM ATA FARMAIN A'MEN YA RABAL AALAMEEN] Actually there are some people who try to preach and propagate ROSHAN KHYAL VERSION OF ISLAM without taking it's lasting impact to RUIN UMMAT-E-MUSLIMA DOWN to NEVER DAWN AGAIN....Just because they think they are preaching true ISLAM....I Decided not to post any more in this forum because here some people want autonomous power and they can't see their opponents and just because of this they try to personally abuse me and other people just because we are having soft corner for TALIBS....

And So I can't afford to see such ironic comments Against ULEMA-E-KIRAM from these ROSHAN KHAYALS thats why i decided not to post any more here...However After seeing your posts and COOL-LIONESS posts i concluded that yes there are some people who are against PERVEZ MUZALLAL's HAWWARIES....SO KEEP DEFENDING ISALM MAY ALLAH(S.W.T) GIVE you more and more courage to defent THE TRUTH A'amen

Regards,
Muhammad Amir

BY the way this MUZALLAL mean (awesome fanatic INTHA PASAND ZALEEL)

Nice to see. You know aamir it also hurts me when some one call these Muslims brothers as terrorist and extremist and use harsh and shamefull words against them. I always condemn it strongly. Though i dont have enough knowledge and ability to defend my arguments but atleast i have ability to say wrong as wrong. Any way you should contribute your opinion atleast i ll be happy that there are certain people who if cant prevent evil atleast have ability to rate it as evil
Once again thanks for your contribution and hopefully you will contribute in future
Regards
Imran

Thank You Very Much Imran Brother;

I will Insha-Allah Post here regularly....

Nice to see people like you who have an ability to struggle to defend evil(ASTEEN KAY SANNPP)....

Regards,
Muhammad Amir