What will be the effect of first adjustment?

Dear Student 

Effect of 1st Adjustment :
Shed constructed for Rs 40,000 charged to revenue account means it has been accounted as expense. THerefore we have to rectify this error and recompute the profit as follows :
Profit for the Year 2012 25,000
Add : Shed charged to profit and loss account 40,000
Less : Depreciation @ 10% P.A for 6 months 2,000
Adjusted profit for the year 2012 63,000

Now this adjusted profit would be taken into account for calculating average profits and goodwill.

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