Stock valuations FRA osborne books

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I've been working on Financial Records & Accounts using osborne books and question 9.8 on page 157 has really got me stuck. <BR><BR>Q A business has in error overcalculated the value of its closing stock by £1000. Befor the error is corrected what is the effect on this year's profits, and next year's?<BR><BR>A This year's profit is overstated by £1000<BR> Next year's profit will be understated by £1000<BR><BR>But I thought it would be the other way round as closing stock is taken away from profit and opening stock is added to profit isn't it? Can anyone please explain this to me?

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Stock valuations FRA osborne books

    Remember profit and loss is: Sales less Costs. (Costs are opening stock plus purchases, less closing stock)<BR>So imagine Sales of 50,000.00<BR> Less Costs<BR> opening Stock 10,000.00<BR> Purchases 15,000.00 <BR><BR> Less Closing stock 12,000.00<BR> <BR>This would give you a GROSS profit of 37,000.00<BR><BR>but if the closing stock was 11,000.00<BR>This gross profit would be reduced to 36,000.00<BR>Hope this helps (sorry if i have made it worse)<BR><BR>

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