I.

Accounting problems about the correction of errors (local or internal company)

Mihoyo Company started operations on January 1, 2017. Financial statements for 2020 and 2021 contained the

December 31, 2020 December 31, 2021

Ending inventory P55,000 too high P65,000 too low
Depreciation expense 35,000 too high
Insurance expense 25,000 too low 25,000 too high
Prepaid insurance 25,000 too high

Additionally, a fully depreciated equipment was sold for P12,000 on December 31, 2021. The
sale was not recorded until 2022. No corrections have been made for any of the errors. (Ignore
income tax considerations

II. Correcting entries made

How much would be the total effect of the errors in Oakman’s 2021 net income? Understated by P157,000

2020 2021
Ending inventory:
2020 too high -55,000 -55,000
2021 too low 65,00
Depreciation-2020 too high 35,000
Insurance expense-2020 too low -25,000 25,000
Unrecorded gain 12,000
Effect on net income -45,000 P157,000

How much would be the understatement in Oakman’s Accumulated Profits balance at

December 31, 2021? P112,000

Effect on 2020 net income -45,000

Effect on 2021 net income 157,000
Net effect on December 31, 2021 Accumulate 112,00

III. Things to do to prevent the reoccurrence of the error

Reflect the cumulative effect of the error on periods prior to those presented in the carrying amounts of assets an
Make an offsetting adjustment to the opening balance of retained earnings for that period
Adjust the financial statements for each prior period presented, to reflect the error correction.
nd 2021 contained the following errors:

ted by P157,000

g amounts of assets and liabilities as of the beginning of the first period presented