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Hi sir,
There is fall in value in investment portfolio.When expense increases,the profit should be understated.And the total assets should be understated too since value is reduced by $2m .But the question stated the profit and asset overstated.May I know the reason for this.
Thank you.:)
If the expense IS increased, profit will be reduced. But if the adjustment for recognition of impairment loss is NOT made – expense will not be increased (as it should have been) and profit will not be reduced (as it should have been) – therefore the misstatement (“error”) means that profit is overstated (and similarly assets).
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