Accounting – 4.1 Capital and revenue expenditure and receipts | e-Consult
4.1 Capital and revenue expenditure and receipts (1 questions)
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Calculation:
The error involves incorrectly treating a depreciation expense as a payment to a supplier. This means the profit before tax is understated by £2,000.
Corrected Profit Before Tax = £25,000 + £2,000 = £27,000
Comment on the effect:
Effect on Profit Before Tax: The profit before tax is understated by £2,000. This is because an expense (depreciation) was not recorded, and a payment to a supplier was incorrectly recorded as a revenue deduction.
Impact on Financial Statements:
- Profit and Loss Account: The profit before tax will be lower than it should be, leading to an inaccurate representation of the company's profitability.
- Statement of Financial Position (Balance Sheet): The depreciation expense will not be reflected, resulting in an overstatement of the company's assets (as the value of assets decreases over time due to depreciation).
- Accuracy of Financial Reporting: The overall accuracy and reliability of the financial statements are compromised.