Question

There was an error in the valuation of closing stock of the previous year. In the previous year, the closing stock was valued more by Rs. 5,000. What will be its effect on current year’s profit? (Just mention whether the current year’s profit will be overstated, understated or remains unaffected)

Answer 1

Understated, since last years closing will be carried forward as a new opening balance and the op balance will be counted in cost of goods.