Accounting Online Program Certification Practice Test

What is the net profit after correcting the errors related to capital and revenue expenditure?

1. £10,200

2. £14,600

3. £16,200

4. £15,000

The correct answer is: £14,600

To determine the net profit after correcting the errors related to capital and revenue expenditure, it is essential to understand how these types of expenditures affect the financial statements. Capital expenditure involves the purchase of fixed assets that will provide long-term benefits, and these costs are capitalized on the balance sheet rather than expensed in the income statement in the year they occur. Conversely, revenue expenditure refers to the costs that are incurred for the day-to-day operations of the business and are charged directly to the income statement as expenses in the period they are incurred. In adjusting the net profit calculation, improper classification of these expenditures can significantly distort the profit figures. If capital expenditures have been incorrectly classified as revenue expenditures, it would increase the expenses in the income statement, leading to a lower net profit than what it should be. On the other hand, if revenue expenditures are treated as capital expenditures, it would inflate net profit. The selected answer of £14,600 reflects an adjustment made to the net profit figure that corrects the misclassifications of these expenditures. This value considers the necessary recalibrations to both maximize the accuracy of net profit and represent the true operational performance of the business moving forward. Understanding these adjustments is crucial in accurately reporting and interpreting a company's