2.2. During 2021, Gamma Ltd discovered that some of their products sold during 2020 were incorrectly included in inventory as31 December 2020 at R6 500. Assume a tax rate of 30%.Assume that the prior period error effect is considered to be material.Gamma Ltd.'s accounting records are as follows:2021SalesCost of salesProfit before tax208 000(173 500)35 000(10 500)24 5002020147 000(107 000)40 000(12 000)28 000TaxationProfitThe profit for 2021 includes R13 500 for the error made in opening inventoryAdditional information:2020 opening retained earnings was R40 000 and closing retained earnings was R68 000.Gamma's income tax rate was 30% in 2021 as well as in 2020. It had no other income or expenses.Gamma Ltd has R10 000 of share capital throughout 2020 and 2021, as well as retained earnings.REQUIRED:Disclose the effect of the error in the financial statements for the year ended 31 December 2021

Financial statements refers to the written documents of a company that reflects the financial…

ing 2021, Gamma Ltd discovered that some of their products sold during ember 2020 at R6 500. Assume a tax rate of 30%. that the prior period error effect is considered to be material. Ltd.'s accounting records are as follows: sales fore tax 1 2021 208 000 (173 500) 35 000 (10 500) 24 500 2020 147 000 (107 000) 40 000 (12 000) 28 000 fit for 2021 includes R13 500 for the error made in opening inventory

ing 2021, Gamma Ltd discovered that some of their products sold during ember 2020 at R6 500. Assume a tax rate of 30%. that the prior period error effect is considered to be material. Ltd.'s accounting records are as follows: sales fore tax 1 2021 208 000 (173 500) 35 000 (10 500) 24 500 2020 147 000 (107 000) 40 000 (12 000) 28 000 fit for 2021 includes R13 500 for the error made in opening inventory

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

2.2. During 2021, Gamma Ltd discovered that some of their products sold during 2020 were incorrectly included in inventory as
31 December 2020 at R6 500. Assume a tax rate of 30%.
Assume that the prior period error effect is considered to be material.
Gamma Ltd.'s accounting records are as follows:
2021
Sales
Cost of sales
Profit before tax
208 000
(173 500)
35 000
(10 500)
24 500
2020
147 000
(107 000)
40 000
(12 000)
28 000
Taxation
Profit
The profit for 2021 includes R13 500 for the error made in opening inventory
Additional information:
2020 opening retained earnings was R40 000 and closing retained earnings was R68 000.
Gamma's income tax rate was 30% in 2021 as well as in 2020. It had no other income or expenses.
Gamma Ltd has R10 000 of share capital throughout 2020 and 2021, as well as retained earnings.
REQUIRED:
Disclose the effect of the error in the financial statements for the year ended 31 December 2021

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