Answer-While finalizing the current year’s profit, the company realized that there was an error in th...

If closing inventory is overstated in the previous year Previous years profit is overstated The same amount becomes the opening inventory for the current year, thus inflating cost of goods sold and understating current years profit

Question

While finalizing the current year’s profit, the company realized that there was an error in the valuation of closing inventory of the previous year. In the previous year, closing Inventory was valued more by ₹50,000. As a result:

A Previous year’s profit is overstated and current year’s profit is also overstated

B Previous year’s profit is overstated and current year’s profit is understated

C Previous year’s profit is understated and current year’s profit is also understated

D No effect on profit

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While finalizing the current year’s profit, the company realized that there was an error in the valuation of closing inventory of the previous year. In the previous year, closing Inventory was valued more by ₹50,000. As a result:

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