While closing the current year’s accounts, a company finds that last year’s closing stock was overstated by 50,000. What is the result?
Correct answer C. Previous year‘s profit is overstated and current year‘s profit is understated
Explanation
Overstated closing stock lowers cost of sales and raises last year's profit. The same figure becomes this year's opening stock, raising cost of sales and understating this year's profit.
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