MGT101 Financial Accounting GDB 1 Solution 2020

GDB NO 1 Question:-

Mr. Waseem is working as an accountant in a business organization under the name of ABC Brothers. He has recently prepared financial statements by using the data available in Trial Balance of ABC Brothers and he has presented the financial statements to the Manager accounts of the organization. Manager accounts observed the following errors in the income statement prepared by Mr. Waseem, which produce inaccurate financial affairs of the business. (MGT101 Financial Accounting GDB 1 Solution 2020 below….. )

Carriage inwards of Rs. 35,000 wrongly reported under the head of selling expenses.
Carriage outwards of Rs. 15,000 wrongly reported under the head cost of goods sold.
Selling expenses of Rs. 20,000 wrongly reported under the head of administration expenses.
Financial expenses of Rs. 13,000 wrongly reported under the head of selling expenses.

Required:

What will be the correct amount of Gross profit, if Gross profit before correcting the given errors was Rs. 335,000?
What will be the correct amount of Cost of goods sold, if the reported amount of sales was Rs. 400,000?
What will be the effect of error “ Carriage inwards of Rs. 35,000 wrongly reported under the head of selling expenses” on the Cost of goods sold? (Just mention whether the Cost of goods sold would be overstated, understated or remains unaffected)
What will be the effect of given errors on net profit? (Just mention whether the net profit would be overstated, understated or remains unaffected)

MGT 101 GDB SOLUTION BY STUDENT -1

1.Correct Gross Profit:

Gross Profit	335,000
Carriage Inward	(35,000)
Carriage Outward	15,000
Correct Gross Profit	315,000

2. The correct amount of Cost of Goods Sold:

COGS after less the Sales from corrected gross profit = 400,000 – 315,000 = 85,000

Cost of Goods Sold	85,000	Sales	400,000
Gross Profit	315,000
	400,000		400,000

3.Effect of error “A”:

Cost of goods sold = Understanding

Reason: Carriage inward was not included in COGS

4.Effect of a given error on Net Profit:

Net Profit = Unaffected

Reason: Expenses were interpreting in the wrong heads of account.

MGT 101 GDB SOLUTION BY STUDENT -2

Another solution idea of MGT101:-

	Sales	400,000
	GF	(335,000)
	CGS before correcting	65,000
add	carriage inward	35,000
less	carriage outward	(15,000)
	Cost of goods sold after correcting the error	85,000
	Gross profit after correcting the error	315,000

Cost of goods sold will be understated
Net profit will be overstated

Hint:- Carriage inward is a part of the cost of goods sold not selling expense Carriage outward is part of selling expense not a cost of goods sold.

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