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Manchester Manufacturing Ltd produces industrial equipment. Financial year ending 31 December 2022. Examine their income statement for errors.

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Welcome to Income Statement Error Detection!

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Welcome to Income Statement Error Detection!

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As your teacher, I've prepared this exercise to help you develop critical thinking skills in accounting. You'll examine income statements from two UK companies, identify errors, and explain your corrections. This exercise aligns with UK GAAP standards.

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1. Work individually or in pairs
2. Review each company's income statement carefully
3. Identify ALL errors (mathematical, classification, missing items)
4. Document each error found
5. Provide correct calculations or classifications
6. Explain your reasoning for each correction
7. Submit your findings in a structured report

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You will be evaluated on:
- Accuracy in error identification
- Correctness of calculations
- Quality of explanations
- Understanding of UK accounting principles
- Attention to detail
- Professional presentation

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Brighton Brew Co. Ltd is a specialty coffee shop chain operating in Southeast England. Financial year ending 31 March 2023. Review their income statement and identify the errors.

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Brighton Brew Co. Ltd Income Statement (£)
Revenue: 450,000
Cost of Sales: 180,000
Gross Profit: 280,000 [Error 1]
Operating Expenses:
- Rent: 75,000
- Wages: 125,000
- Marketing: 25,000
- Utilities: 15,000
Total Operating Expenses: 240,000
Operating Profit: 30,000 [Error 2]
Interest Expense: 12,000
Profit Before Tax: 18,000
Tax (19%): 4,500 [Error 3]
Net Profit: 14,500 [Error 4]

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Consider these areas:
1. Check the gross profit calculation
2. Verify if all operating expenses are summed correctly
3. Review the tax calculation
4. Ensure final profit figure is accurate

Remember to apply UK tax rates and accounting standards!

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Manchester Manufacturing Ltd Income Statement (£)
Revenue: 2,800,000
Cost of Goods Sold: 1,600,000
Gross Profit: 1,100,000 [Error 1]

Operating Expenses:
- Direct Labour: 580,000 [Error 2]
- Factory Overhead: 320,000
- Administrative: 250,000
- Depreciation: 180,000
- Sales Commission: 85,000
Total Operating Expenses: 1,415,000

Operating Profit: -315,000
Other Income: 45,000
Profit Before Tax: -270,000
Tax Credit (19%): 61,300 [Error 3]
Net Loss: -208,700

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Look out for:
1. Gross profit calculation accuracy
2. Classification of direct labour (should be in COGS)
3. Tax credit calculation
4. Final loss figure accuracy

Consider UK manufacturing accounting practices!

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For each company, provide:
1. List of identified errors
2. Corrected calculations
3. Explanation for each correction
4. Revised income statement
5. Impact on financial ratios

Submit your work in a professional format with clear headings and explanations.

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Submit your completed work:
- Due date: One week from assignment
- Format: PDF document
- Include your name and student ID
- Show all calculations
- Reference relevant UK accounting standards

Good luck with your analysis!

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Here are some useful links to deepen your understanding of income statements and UK accounting standards:Institute of Chartered Accountants in England and Wales - Comprehensive guides on UK GAAPOpenLearn's Accounting Principles - Free courses and articlesAssociation of Chartered Certified Accountants - Detailed breakdowns of financial statements