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
APrevious year‘s profit is understated and current year‘s profit is overstated.
BThere will be no impact on the profit of either the previous year or the current year.
CPrevious year‘s profit is overstated and current year‘s profit is also overstated.
DPrevious year‘s profit is overstated and current year‘s profit is understated.
Correct answer
D. Previous year‘s profit is overstated and current year‘s profit is understated.
Explanation
C. Closing stock overstatement and opening stock understatement increases the profits and vice versa is also equally true.