Profit for the year is first calculated as KSh 400,000. It is then found that rent paid of KSh 30,000 for next year was charged as an expense. What is the correct profit?
Answer and explanation
Correct answer: B. KSh 430,000
- Step 1: The prepayment belongs to next year, so the expense was overstated by 30,000. Step 2. Corrected profit = 400,000 + 30,000 = KSh 430,000. Answer: KSh 430,000. Why not the others: KSh 370,000: That deducts the prepayment instead of adding it back. KSh 400,000: That leaves the error uncorrected. KSh 460,000: That adds the prepayment twice.
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