Economics · Accounting Errors and Rectification
Zenith Manufacturing Hub is a mid-sized factory that has been struggling with its internal accounting controls. As the financial year ends, the owner, Mr. Khanna, is presented with a draft Trial Balance that shows a healthy profit. However, upon a detailed review by a professional consultant, several discrepancies are found: 1. Factory rent for March (Rs. 50,000) was unpaid and omitted. 2. A customer owing Rs. 20,000 was insolvent, with only 40% recoverable, but no entry was made. 3. A new office computer system worth Rs. 1,00,000 was charged to 'Office Expenses'. 4. Closing stock worth Rs. 3,00,000 included Rs. 50,000 of consignment goods held for another firm. 5. Owner withdrew Rs. 10,000 worth of goods for personal use, unrecorded. 6. Depreciation on the factory building (Value Rs. 50,00,000) at 5% was omitted. Based on the scenario, how will the rectification of these errors and adjustments collectively impact the Net Profit of Zenith Manufacturing Hub?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
- 1The profit will decrease significantly due to the combined effect of higher expenses (rent, bad debts, depreciation) and the reduction in closing stock value.✓
- 2The profit will remain the same because the adjustments in the Balance Sheet will offset the changes in the Profit and Loss Account.
- 3The profit will increase because the computer purchase was a large expense that will now be converted into an asset.
- 4The profit will decrease by the sum of outstanding rent, the bad debt portion, depreciation, and the office expense correction, while being slightly offset by the drawings.
Correct answer
The profit will decrease significantly due to the combined effect of higher expenses (rent, bad debts, depreciation) and the reduction in closing stock value.
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