PRC-1 · Chapter 7 · Question 70 of 100
If an entity discovers that its Opening Inventory was understated by Rs. 17,800 due to a carry-forward error, what is the direct impact on the current year's net profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Net profit is overstated by Rs. 17,800.
Explanation
Cost of Sales = Opening Stock + Purchases - Closing Stock. If Opening Stock is understated, Cost of Sales is mathematically understated (too low). If expenses are too low, the reported Net Profit is overstated.
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