Paper 3 · November 2018 · Ratios and Interpretation
A sole trader's draft profit for the year ended 30 April 2015 is $40,000. After the accounts were drafted these errors were found: inventory costing $7,500 has a net realisable value of only $4,000; interest at 4% per annum on a $100,000 loan had not been accrued; no depreciation had been charged on equipment with a book value of $270,000, on which the rate is 5% per annum reducing balance; vehicle repairs of $10,000 had been debited to the motor vehicles account, which is depreciated at 10% per annum; and a customer owing $1,800 was declared bankrupt and is to be written off in full. Calculate the corrected profit for the year.
Model answer
8200
Also accepted: $8,200, 8,200
Explanation
$40,000 - $3,500 (inventory written down from cost $7,500 to net realisable value $4,000) - $4,000 (loan interest accrued, 4% x $100,000) - $13,500 (equipment depreciation, 5% x $270,000) - $10,000 (repairs wrongly capitalised, now charged as an expense) + $1,000 (depreciation over-provided on those repairs, 10% x $10,000) - $1,800 (bad debt) = $8,200.
Derived from ZIMSEC Accounting 6001/3 Paper 3 (Problem Solving), November 2018, Q1