Dannyman limited reported a profit before tax of 2,000 cedis. The profit was arrived at after considering; provision for doubtful debt of 5000 cedis, Specific bad debt written off 2,000 cedis, depreciation 4000, financial gain 5,000, financial cost 41,000. Capital allowance of 5,000. Calculate the allowable financial cost of the company? A. 14,000 cedis B. 10,000 cedis C. 22,000 cedis D. 25,000 cedis E. 15,000 cedis
Question
Dannyman limited reported a profit before tax of 2,000 cedis. The profit was arrived at after considering; provision for doubtful debt of 5000 cedis, Specific bad debt written off 2,000 cedis, depreciation 4000, financial gain 5,000, financial cost 41,000. Capital allowance of 5,000. Calculate the allowable financial cost of the company? A. 14,000 cedis B. 10,000 cedis C. 22,000 cedis D. 25,000 cedis E. 15,000 cedis
Solution
To calculate the allowable financial cost of the company, we need to subtract the non-allowable expenses from the profit before tax.
First, let's identify the non-allowable expenses:
- Provision for doubtful debt: 5,000 cedis
- Specific bad debt written off: 2,000 cedis
- Depreciation: 4,000 cedis
Now, let's calculate the total non-allowable expenses: Total non-allowable expenses = Provision for doubtful debt + Specific bad debt written off + Depreciation Total non-allowable expenses = 5,000 + 2,000 + 4,000 Total non-allowable expenses = 11,000 cedis
Next, we subtract the total non-allowable expenses from the profit before tax to get the allowable financial cost: Allowable financial cost = Profit before tax - Total non-allowable expenses Allowable financial cost = 2,000 - 11,000 Allowable financial cost = -9,000 cedis
Since the allowable financial cost is negative, it means that the company does not have any allowable financial cost. Therefore, the correct answer is none of the options provided (E. 15,000 cedis).
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