Net income calculation

Please help me out with this question...

What will be effect on the net income for the current year, if the opening stock is understated by ` 10,000 and the closing stock is overstated by ` 5,000?

(a) ` 15,000 overstated                            (b) ` 15,000 understated 

(c) ` 5,000 overstated                              (d) ` 5,000 understated 

Please explain also.....Thanks in advance and Regards.

Replies (3)

150000 over stated,because when you under state opening stock by rs 10000.debit(Genera;;y Exp) will decline i.e Income indirectly and when you increase your closing stock,you indirectly increase your Income,In this way both will increase your income by rs 150000.

It's 15,000/- overstated. It's so because, if you understate the opening stock by 10,000, the debit side of the trading account reduces by 10,000 (because opening stock lies at debit of trading A/c) so ultimately there will be increase in profit of 10,000. And if you overstate the closing stock, credit side of the trading A/c will increase by 5000/- (because closing stock lies at credit side of trading A/c). So once again this will lead to raise in profit upto 5000/- (Profit=Total of credit-Total of debit) Ultimately the profit will raise upto 15,000/- which is the amount overstated.

agreed with above.. 15000 overstated. In such questions always analyse the impact by debit/credit...makes it easier to understand

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