If depreciation expense is completely omitted from the year-end accounts, which combination is normally shown?
Correct answer: B. Assets overstated and profit overstated
- A. Assets understated and profit understated
- B. Assets overstated and profit overstated
- C. Assets understated and liabilities overstated
- D. Assets overstated and liabilities understated
Explanation
Omitting depreciation leaves the asset carrying amount higher than it should be and avoids recording an expense. Consequently, both reported assets and profit are overstated, assuming no tax effect.
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About Financial Statements
Financial statements present a business's financial performance and position through the income statement, statement of financial position, cash flow statement and changes in equity. Questions involve preparing and interpreting these statements, adjusting entries, depreciation, closing inventory, accrued and prepaid items, and distinguishing profit from cash flow.
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