2. A manufacturing company receives an invoice on 29 February 20X2 for work done on one of its machines.
$25,500 of the cost is actually for a machine upgrade, which will improve efficiency.
The accounts department do not notice and charge the whole amount to maintenance costs.
Machinery is depreciated at 25% per annum on a straight-line basis, with a proportional charge in the years of acquisition and disposal.
By what amount will the profit for the year to 30 June 20X2 be understated?
Cost less 4 months depreciation = 25,500 – 2,125 = $23,375