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Homework answers / question archive / Mensah Afrani made a net loss of €97,00 during the year to December, 1993
Mensah Afrani made a net loss of €97,00 during the year to December, 1993. was later discovered that , the following errors accounted for the loss, 1. Opening stock was over valued by $30,000. i. Wages and salaries owing of ¢11,000 was not taken into account. ii. General expenses was overcast by €24,000. iv. A credit sale of ¢65,700 was only entered in the sales ledger. V. A cash purchase of £60,000 was entered as £80,000 in the purchases account. vi. Rent received of €5,000 was credited to the rent account as £50,000). vii. A payment of ¢110,000 to a supplier was not entered in the books. vii. An insurance premium of $12,000 paid by cash was entered in the insurance account only. ou are required to: (a). State the effect of each one of these errors on the reported Net loss. (6). Prepare a statement to show the correct Net profit or loss after taking all the information in (i) to (ii) into account
a) Following is the effect of each transation on net loss
i) Opening stock was overvalued by 30000 that means debit side of Trading a/c increased by 30000 which means that net loss have been overvalued by 30000.So reduce the net loss by 30000
II) wages and salaries not taken into account...it means expenses are less recorded by 11000 which mean increase the net loss by 11000.
iii) general expenses are overvalued by 24000/- which means debit side of trading a/c is more by 24000/-which increases the net loss by 24000/- so reduce the net loss by 24000/-
iv) credit sale of 65700/-was only recorded in sales ledger it does not effect the net loss...though it does not effect the net loss accountry entry is wrong it should also debit debtor a/c.
V) cash purchase of 60000 enterd as 80000 which means debit side of trading account is more by 20000/- which has increased the net loss by 20000/- so reduce the net loss by 20000/-
vi) rent recieved 5000/-but credited 50000/- which means credit side of p&l account is more by 45000/-which means net loss is decreased by 45000/-so increase net loss by 45000/-
vii) payement made to supplier 110000/-was not entered in books it does not effect net loss beacuse these entry does not hits trading and P&l ac. however it would effect cash acnt and supplier a/c
viii) insurance premium paid of 12000/- was enter in insurace a/c it does not effect net loss because alredy it is debited to insurance a/c however it would effect cash a/c.
b)STATEMNT TO SHOW NET PROFIT & NET LOSS AFTER ADJUSTING i) TO III)
NET LOSS - (97000)
I) add the overstated opng stock - 30000
ii) reduce unaccounted wages and salaries -(11000)
iii) add general expenses oversted -24000
NET LOSS AFTER CONSIDERING EFFECT OF I) TO iii) IS 54000/-
