Effect of overstatement of opening stock

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

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

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.