After preparing draft financial statements at the end of her first year of trading, Lucy discovered two errors.
1 Damaged inventory had been valued at cost price, $340. It was expected to sell for $180.
2 100 items which had been expected to sell for $12 each had been valued at their cost price of $7 each. Carriage inwards of $1 for each item had not been included in the cost.
What was the effect of these errors on the gross profit?

Q: What topic does this question test?

This question tests Accounting principles and policies in O-Level Accounting (syllabus code 7707). It is worth 1 mark.

Q: Which exam paper is this question from?

This question appeared in the Cambridge O-Level Accounting Oct/Nov 2021 examination, Paper 1 Variant 2 (7707_w21_qp_12.pdf).

Question

After preparing draft financial statements at the end of her first year of trading, Lucy discovered two errors.
1 Damaged inventory had been valued at cost price, $340. It was expected to sell for $180.
2 100 items which had been expected to sell for $12 each had been valued at their cost price of $7 each. Carriage inwards of $1 for each item had not been included in the cost.
What was the effect of these errors on the gross profit?

Oracle Prep · Accepted Answer

The correct answer is A: overstated $60.

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