Profit of XYZ Ltd before 30% tax for the last three years is: 2014 - Rs.1,80,000 2015- Rs.2,10,000 and 2016- Rs.2,20,000.In 2014, a new machinery costing Rs.20,000 was purchased but wrongly charged to revenue .In 2014, some old Furniture (Book Value Rs. 10,000) was disposed for Rs.6,000. Rs.______ is the correct profit before 30% tax after all the adjustments for the year 2014.

Select one:

a. 1,64,000

b. 2,04,000

c. 1,96,000

d. 1,56,000

Clear my choice


To calculate the correct profit for XYZ Ltd in 2014 after adjusting the errors, we need to go through the following steps:

### 1. **Profit before tax for 2014**:
The initial profit for 2014 is Rs. 1,80,000.

### 2. **Adjustment 1: Machinery costing Rs. 20,000**:
- The company wrongly charged the purchase of new machinery (Rs. 20,000) to revenue. This should have been capitalized instead of being expensed.
- Therefore, we need to **add back Rs. 20,000** to the profit, as it was wrongly deducted.

### 3. **Adjustment 2: Sale of old furniture (Book value Rs. 10,000, sold for Rs. 6,000)**:
- The company disposed of old furniture with a book value of Rs. 10,000 but sold it for Rs. 6,000.
- This results in a **loss of Rs. 4,000** (Rs. 10,000 - Rs. 6,000), which reduces the profit.
- Therefore, we need to **deduct Rs. 4,000** from the profit.

### 4. **Calculate the adjusted profit**:
\[
\text{Adjusted Profit} = 1,80,000 + 20,000 - 4,000 = 1,96,000
\]

Thus, the correct profit before 30% tax for 2014 is **Rs. 1,96,000**.

The correct option is:

**c. Rs. 1,96,000**

Would you like more details or have any questions?

Here are 5 related questions to expand on this concept:
1. How does capitalizing an asset instead of expensing it affect financial statements?
2. What is the difference between revenue and capital expenditures?
3. How do accounting errors impact tax calculations for a company?
4. Why is it important to account for the loss on the sale of assets like furniture?
5. How would the calculation change if the tax rate were 40% instead of 30%?

**Tip**: Always check whether expenditures should be capitalized or expensed, as this can significantly affect profits and taxes.

Profit of XYZ Ltd before 30% tax for the last three years is: 2014 - Rs.1,80,000 2015- Rs.2,10,000 and 2016- Rs.2,20,000. In 2014, a new machinery costing Rs.20,000 was purchased but wrongly charged to revenue. In 2014, some old Furniture (Book Value Rs. 10,000) was disposed for Rs.6,000. Rs.______ is the correct profit before 30% tax after all the adjustments for the year 2014.

Find the correct profit before 30% tax for XYZ Ltd in 2014 by adjusting for machinery costs and the sale of old furniture. Learn the step-by-step process for adjusting revenue errors and calculating the adjusted profit. Suitable for business and accounting students.

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