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While finalizing the current year's profit, the company realized that there was an error in the valuation of closing inventory of the previous year. In the previous year, closing inventory 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 year's profit, the company realized t...
Yess,, when we find cost of good sold,, we use
CoGS=purchases+direct expenses+opening stock-closing stock
if we have a high closing stock, obviously it shows a low COGS,, and high profit in previous year,,, but in starting of this year that inventory has become an opening inventory,, which makes COGS high and profit low,,, because ultimately profit is = sales-COGS
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Community Answer
While finalizing the current year's profit, the company realized t...
Explanation:

Previous years profit:
- The closing inventory was valued more by Rs.50,000 in the previous year. This means that the cost of goods sold for the previous year was understated by Rs.50,000.
- As a result, the profit for the previous year is overstated by Rs.50,000.

Current years profit:
- Since the closing inventory was overstated in the previous year, it would lead to an understatement of opening inventory for the current year.
- This would lead to an overstatement of the cost of goods sold and consequently an understatement of the profit for the current year.
Therefore, the correct answer is option 'D' - Previous years profit is overstated and current years profit is understated.
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While finalizing the current year's profit, the company realized that there was an error in the valuation of closing inventory of the previous year. In the previous year, closing inventory was valued more by Rs.50,000. As a result.a)Previous year's profit is overstated and current year's profit is also overstatedb)Previous year's profit is understated and current year's profit is overstatedc)Previous year's profit is understated and current year's profit is also understatedd)Previous year's profit is overstated and current year's profit is understatedCorrect answer is option 'D'. Can you explain this answer?
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While finalizing the current year's profit, the company realized that there was an error in the valuation of closing inventory of the previous year. In the previous year, closing inventory was valued more by Rs.50,000. As a result.a)Previous year's profit is overstated and current year's profit is also overstatedb)Previous year's profit is understated and current year's profit is overstatedc)Previous year's profit is understated and current year's profit is also understatedd)Previous year's profit is overstated and current year's 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 year's profit, the company realized that there was an error in the valuation of closing inventory of the previous year. In the previous year, closing inventory was valued more by Rs.50,000. As a result.a)Previous year's profit is overstated and current year's profit is also overstatedb)Previous year's profit is understated and current year's profit is overstatedc)Previous year's profit is understated and current year's profit is also understatedd)Previous year's profit is overstated and current year's 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 year's profit, the company realized that there was an error in the valuation of closing inventory of the previous year. In the previous year, closing inventory was valued more by Rs.50,000. As a result.a)Previous year's profit is overstated and current year's profit is also overstatedb)Previous year's profit is understated and current year's profit is overstatedc)Previous year's profit is understated and current year's profit is also understatedd)Previous year's profit is overstated and current year's profit is understatedCorrect answer is option 'D'. Can you explain this answer?.
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