Question

Mr. Waseem is working as an accountant in a business organization under the name of ABC Brothers. He has recently prepared financial statements by
using the data available in Trial Balance of ABC Brothers and he has presented the financial statements to the Manager accounts of the organization.
Manager accounts observed the following errors in the income statement prepared by Mr. Waseem, which produce inaccurate financial affairs of business.
A! Carriage inwards of Rs. 35.000 wrongly reported under the head of selling expenses.
B: Carriage outwards of Rs. 15,000 wrongly reported under the head cost of goods sold
C. Selling expenses of Rs. 20,000 wrongly reported under the head of administration expenses.
D. Financial expenses of Rs. 13.000 wrongly reported under the head of selling expenses.
Required:
11. What will be correct amount of Gross profit, if Gross profit before correcting the given errors was Rs. 335,000?
2. What will be correct amount of Cost of goods sold, if the reported amount of sales was Rs. 400,000?
3. What will be the effect of error "A. Carriage inwards of Rs. 35,000 wrongly reported under the head of selling expenses" on Cost of goods sold?
(Just mention whether the Cost of goods sold would be overstated understated or remains unaffected)
4. What will be the effect of given errors on net profit? (Just mention whether the net profit would be overstated, understated or remains unaffected)​

Answer 1

Answer:

I can take time this question is very long

Answer 2

Explanation:

• Carriage inward is a direct expenses which will be accounted in trading account ,so the treatment for carriage inward is 1 st less 35,000 in selling expenses and tha carriage inward is added to direct expenses - it gives the effect of changes in gross profit of 35000 less
• Carriage inward is a selling expenses which was reported under the head selling overheads ,the treatment would be 15000 less to cost of goods sold and the added 15000 in selling overheads so the effect of this error is change in cost of good sold
• Selling expenses are to be added in selling overheads to know the cost of sales ,where the administration overheads are the expenses which to be accounted to prime cost so 20,000 of selling expenses are to be reduced and added to selling overheads - effect will be increase in selling overhed and cost of sale
• Financial expenses are to be added to the administration expenses so the amount of 13000 is reduced from selling expense and added to administration expenses there no much effect will be there

Answer:

(1)

Gross profit before change = 3,35,000

Carriage inward =(35000)

Gross profit after change = 3,00,000

(2)

Sales = 4,00,000

selling expenses = (20,000)

Financial expenses = 13,000

Carriage outward = (15,000)

Cost of good sold = 3,78,000

(3)

Carriage inward is a direct expenses which will be accounted in trading account ,so the treatment for carriage inward is 1 st less 35,000 in selling expenses and tha carriage inward is added to direct expenses - it gives the effect of changes in gross profit of 35000 less

(4) Net profit will be understated