PRC-1 · Chapter 8 · Question 25 of 100
An entity incorrectly overstated its closing inventory by Rs. 15,000. What is the impact on the current year's profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Profit is overstated by Rs. 15,000
Explanation
Because closing inventory is subtracted when calculating Cost of Sales, an overstatement of closing inventory results in an understated Cost of Sales, which overstates gross and net profit.
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