A-LevelAccountingPreparation of financial statements9706/12 · Oct/Nov 2019 · Q81 Mark
A business has valued some of its closing inventories at cost. Their net realisable value is lower than cost. What is the effect of this error on financial statements?
Aprofit for the year: no effect, current assets: no effect
Bprofit for the year: overstated, current assets: overstated
Cprofit for the year: understated, current assets: understated
Dprofit for the year: no effect, current assets: overstated
✓ Correct answer
B: profit for the year: overstated, current assets: overstated
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