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WAEC Financial Accounting 1991 (August) Question 27

Question 27

Final Accounts of a Sole Trader

If the opening stock is undervalued,

  1. A.goods available would be understated and gross profit overstated
  2. B.goods available and gross profit would be understated
  3. C.goods available would be overstated and gross profit understated
  4. D.gross profit and goods available would be overstated
  5. E.cost of goods sold would be overstated.
Show the answer and explanation

Answer: A (goods available would be understated and gross profit overstated)

Explanation

Lower opening stock lowers goods available and cost of sales, so gross profit comes out too high.