Accounting – 4.1 Capital and revenue expenditure and receipts | e-Consult
4.1 Capital and revenue expenditure and receipts (1 questions)
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Calculation:
The error involves incorrectly recording an expense as revenue. This means the profit before tax is overstated by £500.
Corrected Profit Before Tax = £12,000 - £500 = £11,500
Comment on the effect:
- The profit before tax is overstated by £500.
- This overstatement will lead to an incorrect calculation of taxable profit.
- Consequently, the business will pay more corporation tax than it should.
- Financial statements will be misleading, potentially affecting the decisions of stakeholders (e.g., investors, lenders).
- The accuracy of the financial statements is compromised, impacting the business's credibility.
Potential Consequences:
- Incorrect tax liability
- Misleading financial statements
- Poor decision-making by stakeholders
- Damage to the business's reputation