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Net income calculation

03 December 2013

Please help me out with this question...

What will be effect on the net income for the current year, if the opening stock is understated by ` 10,000 and the closing stock is overstated by ` 5,000?

(a) ` 15,000 overstated (b) ` 15,000 understated

Please explain also.....Thanks in advance and Regards.

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3 Replies

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 03 December 2013

150000 over stated,because when you under state opening stock by rs 10000.debit(Genera;;y Exp) will decline i.e Income indirectly and when you increase your closing stock,you indirectly increase your Income,In this way both will increase your income by rs 150000.

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krishnan chellappan (-) (93 Points)
Replied 04 December 2013

It's 15,000/- overstated. It's so because, if you understate the opening stock by 10,000, the debit side of the trading account reduces by 10,000 (because opening stock lies at debit of trading A/c) so ultimately there will be increase in profit of 10,000. And if you overstate the closing stock, credit side of the trading A/c will increase by 5000/- (because closing stock lies at credit side of trading A/c). So once again this will lead to raise in profit upto 5000/- (Profit=Total of credit-Total of debit) Ultimately the profit will raise upto 15,000/- which is the amount overstated.

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