Reference no: EM132494647
Whilst preparing its financial statement for the year to 31 December 2019, a company discovers that because of an arithmetic error its inventory at 31 December 2018 was understated by K100, 000. This is a material error.
An extract from the company's draft income statement for the year to 31 December 2019 before correcting the error was as follows
2019 2018
000 000
Sales Sales 2,820 2,370
Cost of Cost of Sale 2,250 1,620
Gross p Gross Profit 570 750
Other e other expenses 360 330
Profit b Profit before tax 210 420
ax tax 42 84
Profit after tax 168 336
- Retained earnings were reported to be K710, 000 on December 2017.No dividends were paid in either 2018 or 2019
Question a) State what type of error this is and explain how you will account for it.
Question b) Prepare an extract from the company's income statement for the year 2019 stating comparative figures for 2018.
Question c) Prepare the journal entry to effect this adjustment
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