Net Effect of Errors on Reported Profit

Steps:

• Omitted depreciation of $18,000 means expenses are understated, overstating profit by$18,000.
• Treating $6,000 profit as a loss records -$6,000 instead of +$6,000, understating profit by$12,000.
• Combine effects: overstatement of $18,000 minus understatement of$12,000 equals net overstatement of $6,000.

Why A is correct:

• Profit or loss statement requires expenses like depreciation to reduce profit and gains like disposal profits to increase it; net correction decreases draft profit by $6,000, confirming overstatement.

Why the others are wrong:

• B: Overlooks the $12,000 understatement from misclassifying the disposal, inflating the net overstatement.
• C: Inverts the net effect by treating both errors as understatements.
• D: Accounts only for the disposal error's half impact ($6,000) while ignoring depreciation.

Final answer: A