Example 6 : Prospective Application
Alpha Bhd has in issue 2 million ordinary shares of RM1 each. During year x2, Alpha Bhd discovered that some products costing RM100,000 that had been sold in year x1 were incorrectly included in closing inventory of year x1. Alpha`s accounting records for year x2 show sales of RM1 million, cost of sales of RM720000(including the error in opening inventory) and expenses of RM110000.Current and previous years` tax rate is 25%.In year x1, Alpha`s summarised income statement was:
rm
sales 900000Cost of sales (450000)
Gross profit 450000Expenses (100000)
Profit before tax 350000Tax - 25% (87500)
Profit after tax 262500Opening retained profit was RM230000.Required:
Prepare the extracts of the financial statements and comparativesAnswers: x2 x1
sales 1000000 900000
cost of sales (620000) (550000) ------------- ----------------
Gross profit 380000 350000
Expenses (110000) (100000)
--------------- ----------------
profit before tax 270000 250000
Tax - 25% (67500) (62500) ------------------ -----------------------
Profit after tax 202500 187500 ---------------------- -------------------