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?
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
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.
CAclubindia
