Question

A manufacturing company receives an invoice on 29february 2002for work done on one of its machine 25500of the cost is actually for a machine upgrade which will improve efficiency the account department do not notice and charge the whole amount to maintenance cost machinery is depreciated at 25% per annum on straight line basis with proportional charge in the years of acquisition and disposal

Answer 1

Answer:

23,375.

Explanation:

The complete question statement is;

A manufacturing company receives an invoice on 29 February 2002 for work done on one of its machines. $25,500 of the cost is actually for a machine upgrade which will improve its efficiency.

The accounts department do not notice and charge the whole amount to maintenance costs. Machinery is depreciated at 25% per annum on a straight line basis, with a proportional charge in the years of acquisition and disposal.

By what amount with the profit for the year to 30 June 2002 be understated?

Solution:

Here we are given that the upgradation cost has been posted to maintenance cost, it means that asset value will not improve, will remain unchanged, infact it will be understated because of the wrong cost allocation

Now the amount understated till 30th June, would involve a time period of 4 months

Overall depreciation = 4/12 x 25/100 x 25500

Overall depreciation = 23375