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CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting

Sharma Ltd. prepared its profit before correcting errors as Rs 3,60,000. Later it found: (i) closing stock was overvalued by Rs 20,000; (ii) Rs 15,000 paid for repairs was debited to Machinery Account; (iii) Rs 8,000 of outstanding salary was not provided for. What is the corrected profit?

The corrected profit is Rs 3,17,000. Profit falls by Rs 20,000 for overvalued closing stock, Rs 15,000 for repairs wrongly capitalised and Rs 8,000 for unprovided salary, a total of Rs 43,000, deducted from the original Rs 3,60,000.

  1. ARs 3,17,000Correct
  2. BRs 3,32,000
  3. CRs 3,47,000
  4. DRs 3,02,000

Explanation

Overvalued closing stock reduces profit by Rs 20,000. Repairs are revenue expenditure wrongly capitalised, so profit falls by Rs 15,000. Unprovided outstanding salary reduces profit by Rs 8,000. Total reduction is Rs 43,000, so corrected profit is 3,60,000 - 43,000 = Rs 3,17,000. Option Rs 3,02,000 would arise from also deducting an extra Rs 15,000 twice.

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