IGCSE Accounting Paper-1: Specimen Questions with Answers 225 - 225 of 338
Passage
Avinash’ financial year ends on 31 December. On 31 December 2018, he prepared a trial balance and found an excess of $7600 on the debit side. The difference was credited to the Suspense A/c and later on the following errors were detected-
(I) Sale of Old furniture $1400 were credited to Sales A/c
(II) Purchases book was overcast by $600
(III) Goods returned to Anupam $3000 recorded in Sales Return Book, however Anupam’s A/c was correctly debited
(IV) Bought goods from Aviral $1000 was recorded in Sales book.
However, the same was correctly posted to the credit of Aviral’s A/c.
(V) Installation Cost of Plant $500 debited to Wages A/c
(VI) Capital introduced $1500 had been correctly entered in the cash book but debited in the drawings A/c
Question 225 (2 of 2 Based on Passage)
Describe in Detail
Essay▾Complete the following statement to calculate the correct profit for the year. Where an error does not affect the profit, indicate with a tick in the no effect column. (Marks 12)
Avinash
Statement of Correction of Profit for the year ended 31 December 2018
| No Effect | Increase$ | Decrease$ | $ | |
| Draft Profit | 22000 | |||
| Error (I) | ||||
| Error (II) | ||||
| Error (III) | ||||
| Error (IV) | ||||
| Error (V) | ||||
| Error (VI) | ||||
| Corrected Profit |
Explanation
Avinash
Statement of Correction of Profit for the year ended 31 December 2018
| No Effect | Increase$ | Decrease$ | $ | |
| Draft Profit | 22000 | |||
| Error (I) | 1400 | |||
| Error (II) | 600 | |||
| Error (III) | 6000 | |||
| Error (IV) | 2000 | |||
| Error (V) | 500 | |||
| Error (VI) |  Image of the Right Loading image••• | |||
| 7100 | 3400 | 3700 | ||
| Corrected Profit | 25700 |
- Error I- Sales A/c was wrongly credited instead of Furniture A/c. The profit was increased by the increased sales, so it needs to be decreased.
- Error II- Overcast of Purchase Book had previously reduced the profits. The correction would increase the profits.
- Error III- Excess Sales Returns had decreased profits. The correction would increase the profits.
- Error IV- Increased Sales (by $1000) and reduced purchases (by $1000) had wrongly increased the profits by $2000. So, the profits need to be reduced by $2000.
- Error V- Wages A/c was wrongly debited instead of Plant A/c. Wages being a revenue expenditure reduces profits. So, the profits need to be increased.
- Error VI- Neither capital nor drawings are recorded in P&L A/c. So, it had not affected the profits.