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

A. Previous year‘s profit is overstated and current year‘s profit is also overstated.
B. Previous year‘s profit is understated and current year‘s profit is overstated.
C. Previous year‘s profit is overstated and current year‘s profit is understated.
D. There will be no impact on the profit of either the previous year or the current year.

C. Closing stock overstatement and opening stock understatement increases the profits
and vice versa is also equally true.

Correct Answer: Previous year‘s profit is overstated and current year‘s profit is understated. ✔

Last Updated: August 01, 2017