Material Errors Topic

[5up3rman]

Been trying to get my head round the figures in this question not the theory of it.
Here's the question:

During 2007 LB Co discovered that certain items had been included in stock at 31 Dec 2006,
valued at 4.2 million, which had in fact been sold before the year end. The following figures for 2006(as reported)
and 2007(draft) are available.

2006
£'000
Sales 47,400
Cost of goods sold (34,570)
Profit before taxation 12,830
Tax (3,880)
Net Profit 8.950

2007(draft)
£'000
Sales 67,200
Cost of goods sold (55,800)
Profit before taxation 11,400
Tax (3,400)
Net Profit 8,000



Reserves at 1 Jan 2006 were £13 million. The cost of goods sold for 2007 includes the £4.2 million error in opening stock. The tax rate was 30% for 2006 and 2007.


Show profit and loss for 2007, with the 2006 comparative, and the adjusted earnings.

Ok so i cannot figure out in the figures above how they managed to get those figures for the tax, 3,880,000 & 3,400,00 respectively.
if you apply a rate of 30% to the profit i do not get the same figures.

i am posting the solution they have given.

[5up3rman]

P&L account

2006
£'000
Sales 47,400
cost of goods sold (38,770)
profit before tax 8,630
tax (2,620)
net profit 6,010



2007
£'000
Sales 67,200
cost of goods sold (51,600)
profit before tax 15,600
tax (4,660)
net profit 10,940




Retained Earnings
2006
opening retained earning
as previously reported 13,000
correction of prior period
error (4,200-1,260) --
as restated 13,000
net profit for year 6,010
closed retained earnings 19,010


2007
opening retained earning
as previously reported 21,950
correction of prior period
error (4,200-1,260) (2,940)
as restated 19,010
net profit for year 10,940
closed retained earnings 129,950