At the beginning of the financial year on 1 January, a business acquired a new motor vehicle for $34 000. In error, this was recorded in the account for motor expenses. Motor vehicles are depreciated using the reducing balance method at the rate of 30% per annum. It is estimated that the motor vehicle will have a residual value of $4000 at the end of its life.
If the error is not corrected, what will be the effect on the profit for the year ended 31 December?

Q: What topic does this question test?

This question tests Errors and Suspense Accounts in A-Level Accounting (syllabus code 9706). It is worth 1 mark.

Q: Which exam paper is this question from?

This question appeared in the Cambridge A-Level Accounting Feb/Mar 2024 examination, Paper 1 Variant 2 (9706_m24_qp_12.pdf).

Question

At the beginning of the financial year on 1 January, a business acquired a new motor vehicle for $34 000. In error, this was recorded in the account for motor expenses. Motor vehicles are depreciated using the reducing balance method at the rate of 30% per annum. It is estimated that the motor vehicle will have a residual value of $4000 at the end of its life.
If the error is not corrected, what will be the effect on the profit for the year ended 31 December?

Oracle Prep · Accepted Answer

The correct answer is B: $23 800 understated.

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