Multiple choice

The inventory in the starting of current year is overstated by Rs. 5,000 and closing inventory is overstated by Rs. 12,000. The net income for current year will be ___________.

  1. Rs. 12,000 (understated)

  2. Rs. 17,000 (overstated)

  3. Rs. 7,000 (overstated)

  4. Rs. 7,000 (understated)

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Overstatement of closing stock results in overstatement of profit and overstatement of opening stock results in understatement of profit. In the instant case, there will be overstatement of profit by Rs 12,000 - Rs 5,000= Rs 7,000.

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