Closing stock of previous year is overvalued by Rs. $50, 000$ . Due to this.

Previous year's profit is overstated and current year's profit is understated

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Previous year's profit is understated and current year's profit is overstated

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Previous years profit is overstated and current year's profit is overstated

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Previous year's profits is understated and current year's profit is understated

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Solution

The correct option is A Previous year's profit is overstated and current year's profit is understated
Closing stock of the previous year is credited to the trading account of previous year which increases the credit total and the gross profit of the year. Closing stock of previous year is the opening stock of current year. Opening stock of current year is debited to the trading account of current year, if the opening stock is overvalued the current year profit will decrease.
For example, the actual value of closing stock of previous year is Rs. 20000 overvalued at Rs 70000, the value of credit side total will increase and the gross profit will increase. For the current year previous year closing stock is the opening stock and is debited in the trading account. The debit side total is deducted from the credit side total to calculate the gross profit, if the debit side total is more the gross profit will fall.

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Closing stock of previous year is overvalued by Rs. 50,000. Due to this.

Closing stock of previous year is overvalued by Rs. $50, 000$ . Due to this.