If the closing stock at the end of the year is overstated by Rs.7,500, the error cause an_______________________.

Overstatement of cost of goods sold for the year by Rs. 7,500

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Understatement of gross profit for the year by Rs. 7,500

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Overstatement of net income for the year by Rs. 7,500

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Understatement of net income for the year by Rs. 7,500

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Solution

The correct option is C Overstatement of net income for the year by Rs. 7,500
If the closing stock at the end of the year is overstated by RS-7,500, the error cause an overstatement of net income for the year by RS-7,500. Overstatement of closing stock reduces the value of cost of goods sold thereby increasing the profit.

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