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While finalizing the current year‘s accounts, the company realized that an error was made in the calculation of closing stock of the previous year. In the previous year, closing stock was valued more by 50,000. As a result
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APrevious year‘s profit is overstated and current year‘s profit is also overstated.
BPrevious year‘s profit is understated and current year‘s profit is overstated.
Closing stock overstatement and opening stock understatement increases the profits and vice versa is also equally true.
DThere will be no impact on the profit of either the previous year or the current year.
Correct Answer: C. Closing stock overstatement and opening stock understatement increases the profits and vice versa is also equally true.
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