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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. 2,50,000. As a result-
  • a)
    Previous year’s profit is overstated and current year’s profit is also overstated by Rs. 2,50,000
  • b)
    Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000
  • c)
    Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000
  • d)
    Previous year’s profit is overstated and current year’s profit is understated by Rs. 2,50,000
Correct answer is option 'D'. Can you explain this answer?
Most Upvoted Answer
While finalizing the current year’s profit, the company realized that ...
In the previous year closing stock is more by 2,50,000 therefore credit side will be more by 2,50,000 and ultimately the gross profit for the previous year will be more.Now the closing stock for the Previous year is the opening stock of Current year.Therefore in current year debit side will be more by 2,50,000 which will ultimately reduce the gross profit for the current year.
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Community Answer
While finalizing the current year’s profit, the company realized that ...
Explanation:
There are two key points to consider in this scenario: the impact on the previous year's profit and the impact on the current year's profit.

Impact on Previous Year's Profit:
- The closing stock was valued more by Rs. 2,50,000 in the previous year.
- This means that the previous year's profit was overstated by Rs. 2,50,000. The closing stock is an asset, and an overvaluation of this asset leads to an overstatement of profit.

Impact on Current Year's Profit:
- Since the closing stock was overvalued in the previous year, it means that the opening stock for the current year is also overstated by Rs. 2,50,000.
- As a result, the current year's profit is understated by Rs. 2,50,000. This is because the overvaluation of closing stock in the previous year leads to an overstatement of the opening stock for the current year, which in turn affects the current year's profit.
Therefore, the correct answer is option 'D' - Previous year's profit is overstated and current year's profit is understated by Rs. 2,50,000.
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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. 2,50,000. As a result-a) Previous year’s profit is overstated and current year’s profit is also overstated by Rs. 2,50,000 b) Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000 c) Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000 d) Previous year’s profit is overstated and current year’s profit is understated by Rs. 2,50,000 Correct 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 stock of the previous year. In the previous year, closing stock was valued more by Rs. 2,50,000. As a result-a) Previous year’s profit is overstated and current year’s profit is also overstated by Rs. 2,50,000 b) Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000 c) Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000 d) Previous year’s profit is overstated and current year’s profit is understated by Rs. 2,50,000 Correct 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 stock of the previous year. In the previous year, closing stock was valued more by Rs. 2,50,000. As a result-a) Previous year’s profit is overstated and current year’s profit is also overstated by Rs. 2,50,000 b) Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000 c) Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000 d) Previous year’s profit is overstated and current year’s profit is understated by Rs. 2,50,000 Correct 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 stock of the previous year. In the previous year, closing stock was valued more by Rs. 2,50,000. As a result-a) Previous year’s profit is overstated and current year’s profit is also overstated by Rs. 2,50,000 b) Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000 c) Previous year’s profit is understated and current year’s profit is overstated by Rs. 2,50,000 d) Previous year’s profit is overstated and current year’s profit is understated by Rs. 2,50,000 Correct answer is option 'D'. Can you explain this answer?.
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