O-LevelAccountingAccounting principles and policies7707/12 · Oct/Nov 2023 · Q191 Mark

Ariadne prepares her financial statements to 31 December each year. She valued all her inventory at cost on 31 December 2021, even though some inventory with a cost of $500 had a net realisable value of $350. What was the effect of this error?

AGross profit for the year 2021 was overstated.

BTotal assets at 31 December 2021 were understated.

CProfit for the year 2022 was overstated.

DCapital at 31 December 2022 was understated.

✓ Correct answer

A: Gross profit for the year 2021 was overstated.

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Topic: Accounting principles and policies, O-Level Accounting (syllabus 7707). Multiple choice, 1 mark.
Source: O-Level Accounting, Oct/Nov 2023 Paper 1 Variant 2, question 19.

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Ariadne prepares her financial statements to 31 December each year. She valued all her inventory at cost on 31 December 2021, even though some inventory with a cost of $500 had a net realisable value of $350. What was the effect of this error?

✓ Correct answer

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