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If Depreciation is Excess charged by Rs. 500 and closing stock is under valued by Rs. 500 the net profit will be _______ due to these errors.
- a)Understated by Rs. 500.
- b)Overstated by Rs. 1,000
- c)Understated by Rs. 1,000
- d)Unaffected.
Correct answer is option 'C'. Can you explain this answer?
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If Depreciation is Excess charged by Rs. 500 and closing stock is unde...
Explanation:
Depreciation and closing stock are both important components of the profit and loss statement of a business. Any error in the valuation of these components can affect the reported net profit of the business. In this case, the excess charge of Rs. 500 in depreciation and the undervaluation of Rs. 500 in closing stock will have the following impact on the net profit:
1. Effect of excess depreciation: Excess depreciation means that the amount charged for depreciation is higher than the actual amount required. This will reduce the reported profit of the business. In this case, since the excess depreciation is Rs. 500, the reported profit will be lower by Rs. 500.
2. Effect of undervaluation of closing stock: Closing stock is the value of inventory that is left unsold at the end of the accounting period. If the closing stock is undervalued, it means that the value of unsold inventory is lower than its actual value. This will result in a lower reported profit. In this case, since the closing stock is undervalued by Rs. 500, the reported profit will be lower by Rs. 500.
3. Net effect on net profit: The excess depreciation and undervaluation of closing stock both have a negative impact on the net profit. The total impact of these two errors is Rs. 1,000 (Rs. 500 + Rs. 500). Therefore, the net profit will be understated by Rs. 1,000.
Conclusion:
In conclusion, the net profit of a business can be affected by errors in the valuation of important components such as depreciation and closing stock. In this case, the net profit is understated by Rs. 1,000 due to the excess charge of Rs. 500 in depreciation and the undervaluation of Rs. 500 in closing stock. It is important for businesses to ensure that the financial statements are accurate and free from errors to make informed decisions.
Depreciation and closing stock are both important components of the profit and loss statement of a business. Any error in the valuation of these components can affect the reported net profit of the business. In this case, the excess charge of Rs. 500 in depreciation and the undervaluation of Rs. 500 in closing stock will have the following impact on the net profit:
1. Effect of excess depreciation: Excess depreciation means that the amount charged for depreciation is higher than the actual amount required. This will reduce the reported profit of the business. In this case, since the excess depreciation is Rs. 500, the reported profit will be lower by Rs. 500.
2. Effect of undervaluation of closing stock: Closing stock is the value of inventory that is left unsold at the end of the accounting period. If the closing stock is undervalued, it means that the value of unsold inventory is lower than its actual value. This will result in a lower reported profit. In this case, since the closing stock is undervalued by Rs. 500, the reported profit will be lower by Rs. 500.
3. Net effect on net profit: The excess depreciation and undervaluation of closing stock both have a negative impact on the net profit. The total impact of these two errors is Rs. 1,000 (Rs. 500 + Rs. 500). Therefore, the net profit will be understated by Rs. 1,000.
Conclusion:
In conclusion, the net profit of a business can be affected by errors in the valuation of important components such as depreciation and closing stock. In this case, the net profit is understated by Rs. 1,000 due to the excess charge of Rs. 500 in depreciation and the undervaluation of Rs. 500 in closing stock. It is important for businesses to ensure that the financial statements are accurate and free from errors to make informed decisions.
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If Depreciation is Excess charged by Rs. 500 and closing stock is unde...
When depreciation is charged excess by Rs.500 and closing stock is undervalued by Rs.500 the net profit will be understated by Rs.1,000 due to these errors. because when depreciation is in excess in order to make it equal we decrease the amount of Rs.500 and when closing stock is undervalued we take the amount of Rs.500. Now the net profit will be understated by 1,000 rupees( 500+500 )
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If Depreciation is Excess charged by Rs. 500 and closing stock is under valued by Rs. 500 the net profit will be _______ due to these errors.a)Understated by Rs. 500.b)Overstated by Rs. 1,000c)Understated by Rs. 1,000d)Unaffected.Correct answer is option 'C'. Can you explain this answer?
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