alleryIf opening inventory is understated, current year's net income is:
AUnderstated by understatement
BOverstated by understatement
CEqual regardless of error
DUnaffected mathematically here
Answer & Solution
Correct answer: B. Overstated by understatement
1. COGS = Opening + Purchases − Closing.
2. Understating Opening reduces COGS.
3. Lower COGS means higher gross profit and higher net income.
_Source: ICAI BoS Foundation Paper 1, Ch 4 "Inventories", §2 (i) table_
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