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WAEC Financial Accounting 1998 Question 22

Question 22

Final Accounts of a Sole Trader

Which of the following is/are true? I. Depreciation charges increase profits II. Reduction in provision for bad debt increases profits III. Undervalued stock increases profits

  1. A.II and III only.
  2. B.I and III only
  3. C.III only
  4. D.II only
  5. E.I only.
Show the answer and explanation

Answer: D (II only)

Explanation

Reducing the bad debt provision is credited to profit and loss, raising profit; depreciation lowers profit and undervaluing (closing) stock lowers profit.