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VU Projects Video Lectures Handouts Past Papers Quizzes Assignment,GDB Members SMS Service FB Page

Topic to be tested:

  • Rectification of errors 

 

Learning Objectives:

  • To understand type of error and effects of identified error on trial balance and profitability
  • To know the accounting principle while treating capital or revenue expenditure in the books of accounts

 

GDB Question:

 

Mr. Arif is running his small retail business under the name of Arif Store. He has recently hired Mr. Hamid as a junior accountant to maintain the books of accounts of his business. Mr. Hamid has little knowledge in accounting. Recently, it has been observed that Mr. Hamid wrongly capitalized an amount of Rs. 10,000 paid for repair of business equipment. As a result, financial statements failed to reflect true and fair business affairs.

 

Required:

  1. Identify the “type of error” committed by Mr. Hamid. 
  2. What will be the effect of given error on arithmetical accuracy of trial balance? (Just mention whether the trial balance would be overstated, understated or remain unaffected)
  3. Which accounting principle would be violated if the given error is not rectified?
  4. Compute the correct amount of operating profit, if gross profit and operating expenses before correcting this error were Rs. 150,000 and Rs. 50,000 respectively.

 

Note: Be concise and avoid unnecessary detail to attempt the given questions.

 

Important Instructions:

 

  1. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
  2. Obnoxious or ignoble answer should be strictly avoided.
  3. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.

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Replies to This Discussion

Mgt101gdb solution:
Answers :

Error of principle
Remain Uneffected
Principle Voilated
90000

ONLY 4 LINE IS THE ANSWWER CUTE SAQMRA

g Sir Dilawar 

Mgt 101 gdb solution
1.error of principle
2-capital account is over stated; repair expense account is under stated
But overall trial balance is not effected.
3-materially misstated(refrence link. http://www.accountingcoach.com/accounting-principles/explanation)
4-after correcting the enteries
Profit =150,000-60,000=90,000

  • Identify the “type of error” committed by Mr. Hamid.(Error of Principle)
  • What will be the effect of given error on arithmetical accuracy of trial balance? (Just mention whether the trial balance would be overstated, understated or remain unaffected) (Unaffected)
  • Which accounting principle would be violated if the given error is not rectified? (Fundamental Principles of Accounting, " for understanding with these check this link http://www.managementstudyguide.com/fundamental-principles-of-accou...)
  • Compute the correct amount of operating profit, if gross profit and operating expenses before correcting this error were Rs. 150,000 and Rs. 50,000 respectively. (Gross profit - operating expenses {administrative & selling expenses other then financial expenses) [ 150,000 - 50,000 -10,000 = 90,000]

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