Net profit after adjusting error (video below)

A business statement of profit or loss and other comprehensive income for the year ended 31 December 20X6 showed a net profit of $20,900. It was later found that $4,500 paid for the purchase of a motor van had been debited to motor expenses account. It is the company’s policy to depreciate motor vans at 25 per cent per year, with a full year’s charge in the year of acquisition.

What would the net profit be after adjusting for this error?

Answer

$

Draft net profit                                                         20,900

Add: purchase price                                                4,500

Less: additional depreciation (4,500 x 25%)       (1,125)

Adjusted profit                                                        24,275  

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