To understand the basic concepts of deprecation and provision for doubtful debts and their effects on financial statements.
GDB Question A machine was bought on 1st November 2021 for Rs. 240,000 by the ABC Company. The estimated useful life of this machine determined by an expert value is 5 years. On the same date, the company has the balance of the trade receivable account as Rs. 100,000. At the end of the year, the customer invoice of Rs. 20,000 is confirmed to be uncollectible. The company maintained the provision for doubtful debts @ 5 percent per annum each year. The company closes the books of accounts on 31st December each year. It is the policy of the company to charge the depreciation on all non-current assets on “the basis of use.
The accountant of business also ignored to account for the provision for depreciation and provision for doubtful debts in financial statements at the end of the year 2021, which produced misleading results in financial statements. As a result, the profit shown in the Income Statement at the end of the year 2021 was Rs, 560,000. Mgt101 Gdb 1 Solution Spring 2022
- What is the amount of depreciation which should be presented as an expense in the Income statement for the period ended on 2021?
- What is the amount of trade receivable which should be presented as an asset in the Balance Sheet as on 31st December 2021?
- Which fundamental accounting principle was violated due to NOT reporting the provision for depreciation and provision for doubtful debts in the Income Statement?
- What will be the correct amount of profit after incorporating the information given above?
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