Draft profit for the year is £62,000. The following are then discovered: accrued wages of £1,800 were not recorded; depreciation of £6,000 on new equipment was not charged; closing inventory was overstated by £2,500; and an irrecoverable debt of £700 was not written off. What is the corrected profit?
Answer and explanation
Correct answer: B. £51,000
- Step 1: Each item either reduces profit or increases an expense.
- Step 2: Unrecorded wages £1,800, missing depreciation £6,000, overstated inventory £2,500 and the missing write-off £700 all reduce profit.
- Step 3: £62,000 - £1,800 - £6,000 - £2,500 - £700 = £51,000.
Answer
£51,000.
Why not the others: £73,000 adds all four adjustments instead of deducting them. £53,500 forgets to correct the overstated closing inventory. £56,000 adds the inventory overstatement instead of deducting it.
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