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During 2021, Gamma Ltd discovered that some of their products sold during 2020 were incorrectly included in inventory as 31 December 2020 at R6

 

During 2021, Gamma Ltd discovered that some of their products sold during 2020 were incorrectly included in inventory as 31 December 2020 at R6 500. Assume a tax rate of 30%. Assume that the prior period error effect is considered to be material Gamma Ltd.'s accounting records are as follows: Sales Cost of sales Profit before tax Taxation Profit 2021 Additional information: 208 000 (173 500) 35 000 (10 500) 24 500 2020 147 000 (107 000) 40 000 (12 000) 28 000 The profit for 2021 includes R13 500 for the error made in opening inventory 2020 opening retained earnings was R40 000 and closing retained earnings was R68 000. Gamma's income tax rate was 30% in 2021 as well as in 2020. It had no other income or expenses. Gamma Ltd has R10 000 of share capital throughout 2020 and 2021, as well as retained earnings REQUIRED: Disclose the effect of the error in the financial statements for the year ended 31 December 2021

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