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While finalizing the current year’s profit, the company realized that there was an error in the valuation of closing stock of the previous year. In the previous year, closing stock was valued more by Rs.50,000. As a result
  • a)
    Previous year’s profit is overstated and current year’s profit is also overstated
  • b)
    Previous year’s profit is understated and current year’s profit is overstated
  • c)
    Previous year’s profit is understated and current year’s profit is also understated
  • d)
    Previous year’s profit is overstated and current year’s profit is understated
Correct answer is option 'D'. Can you explain this answer?
Most Upvoted Answer
While finalizing the current years profit, the company realized that t...
Explanation:
In this scenario, the company has identified an error in the valuation of the closing stock of the previous year. The closing stock was valued more by Rs.50,000. This error has an impact on both the previous year's profit and the current year's profit.

Impact on Previous Year's Profit:
When the closing stock is valued more, it means that the value of the closing stock is overstated. Closing stock is an asset, and any increase in its value will result in an increase in the profit for the year. Therefore, when the closing stock is valued more, it will lead to an overstatement of the previous year's profit.

Impact on Current Year's Profit:
The overstatement of the previous year's closing stock value will also have an impact on the current year's profit. The closing stock of the previous year becomes the opening stock of the current year. When the closing stock is overstated, it means that the opening stock of the current year is also overstated. As a result, the cost of goods sold (COGS) for the current year will be higher than it should be. This will lead to an overstatement of the current year's profit.

Therefore, the correct answer is option 'D'. Both the previous year's profit and the current year's profit are overstated due to the error in the valuation of the closing stock of the previous year.
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While finalizing the current years profit, the company realized that there was an error in the valuation of closing stock of the previous year. In the previous year, closing stock was valued more by Rs.50,000. As a resulta)Previous years profit is overstated and current years profit is also overstatedb)Previous years profit is understated and current years profit is overstatedc)Previous years profit is understated and current years profit is also understatedd)Previous years profit is overstated and current years profit is understatedCorrect answer is option 'D'. Can you explain this answer?
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While finalizing the current years profit, the company realized that there was an error in the valuation of closing stock of the previous year. In the previous year, closing stock was valued more by Rs.50,000. As a resulta)Previous years profit is overstated and current years profit is also overstatedb)Previous years profit is understated and current years profit is overstatedc)Previous years profit is understated and current years profit is also understatedd)Previous years profit is overstated and current years profit is understatedCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about While finalizing the current years profit, the company realized that there was an error in the valuation of closing stock of the previous year. In the previous year, closing stock was valued more by Rs.50,000. As a resulta)Previous years profit is overstated and current years profit is also overstatedb)Previous years profit is understated and current years profit is overstatedc)Previous years profit is understated and current years profit is also understatedd)Previous years profit is overstated and current years profit is understatedCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for While finalizing the current years profit, the company realized that there was an error in the valuation of closing stock of the previous year. In the previous year, closing stock was valued more by Rs.50,000. As a resulta)Previous years profit is overstated and current years profit is also overstatedb)Previous years profit is understated and current years profit is overstatedc)Previous years profit is understated and current years profit is also understatedd)Previous years profit is overstated and current years profit is understatedCorrect answer is option 'D'. Can you explain this answer?.
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