After calculating your company's profit for the year, you discover that:
(a) A non-current asset costing $2,000 has been included in the purchases account; the asset has not been included in the closing inventory figure; nor has it been depreciated by
the normal 25% per annum.
(b) Closing inventory of raw materials, costing $500, have been treated as closing inventory of stationery.
These two errors have had the effect of.
- Understating gross profit by $2,500 and understating net profit by $1,500
- Understating both gross profit and net profit by $2,500
- Understating gross profit by $2,000 and understating net profit by $2,500
- Understating both gross profit and net profit by $1,500