Economics · Financial Accounting
A banking institution notes that a corporate borrower has included 'Carriage Outward' in the Trading Account, valued 'Closing Stock' at its market value (which is higher than cost), and omitted 'Depreciation' on delivery vehicles. How do these choices impact the company's financial statements and what correction would a credit officer suggest?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The officer would recommend that the company keep its current methods as they are legally permitted under accounting standards.
- 2The officer would suggest adding Depreciation to the Trading Account to further increase the Gross Profit margin.
- 3The officer would praise the high Gross Profit and ignore the depreciation as it is a non-cash item that doesn't affect liquidity.
- 4The officer would suggest moving Carriage Outward to P&L and valuing stock at cost, which would decrease Gross Profit but increase the reliability of Net Profit.✓
Correct answer
The officer would suggest moving Carriage Outward to P&L and valuing stock at cost, which would decrease Gross Profit but increase the reliability of Net Profit.
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