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Effect of overstatement of opening stock

Siddharth (Thinker) (267 Points)

12 February 2016

Hi, Please advice on the below case: What should be the effects in the current year if the closing stock of previous year which was recorded at Rs. 30,000, was overstated by Rs. 10,000.? What should be the JE in the CY?

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Varun (Article Assistant) (56 Points)
Replied 12 February 2016

Due to overstatement of stock, the net profit for previous year is overstated and the same for current year is understated. In the current year, to adjust the same the following journal entry is passed: Retained Earnings A/C .........Dr. 10000 To Stock A/C 10000

mohammad rasool baig (Management Consultant) (1026 Points)
Replied 12 February 2016

Please take care about deffered tax if it is applicable....

shankar.m (CA Final Nov-14) (67 Points)
Replied 13 February 2016

Last year's closing stock is overvalued. This will be bought forward as opening stock of current year,which is again overvalued,hence remove effect of overvaluation by crediting opening stock and debiting Reserves and Surplus.