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ACCA Applied Knowledge · Financial Accounting · Suspense accounts

Draft profit is $60,000. Closing inventory of $8,000 was omitted from the draft accounts: it was not counted in the closing inventory figure, and no entry was made at all. A suspense account was not affected. In addition, a non-current asset disposal proceeds of $5,000 were credited to sales (the asset had a carrying amount of $4,200 and the disposal has not been otherwise recorded). What is the corrected profit?

Corrected profit is $63,800. Closing inventory of $8,000 adds to profit, the $5,000 disposal proceeds wrongly in sales must be removed, and the $800 gain on disposal (5,000 less carrying amount 4,200) is then recognised: 60,000 + 8,000 - 5,000 + 800.

  1. A$67,200Correct
  2. B$68,000
  3. C$67,800
  4. D$63,800

Explanation

Adding omitted closing inventory of $8,000 increases profit: 60,000 + 8,000 = 68,000. Sales are overstated by $5,000 so remove: 63,000. Record profit on disposal of $800 (5,000 - 4,200): 63,800. Thus the correct result is $63,800.

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