PRC-1 · Chapter 7 · Question 71 of 100
If an entity accidentally overstates its Closing Inventory value at the end of the period, how will this affect the financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Cost of Sales will be understated, and Net Profit will be overstated.
Explanation
Because Closing Inventory is subtracted in the Cost of Sales calculation, overstating it results in an artificially low Cost of Sales. This artificially inflates (overstates) Gross and Net Profit.
More IAS 2: Inventories MCQs
- Q73How does IAS 2 require trade discounts, rebates, and similar items to be treated when determining the cost of purchase for inventory?
- Q74A business imports raw materials and pays non-refundable import duties to the authorities. How are these duties treated in the financial…
- Q75In which of the following scenarios does IAS 2 require the use of the 'Specific Identification' method for assigning costs to inventory?
- Q76If circumstances that previously caused inventory to be written down below cost no longer exist, resulting in an increase in NRV, what is…
- Q77Which of the following costs is treated as a period expense rather than being capitalized into the cost of ending inventory?