CASE -company is not able to ascertain inventory count hence it doesnt have sufficient appropriate evidence with regards to completeness and existance of inventory(The amount which the company is unable to ascertain is MATERIAL)
QUESTION -which of the following correctly summarises the effect of the issue relating to inventory count at the year end?
OPTIONS – A) opening inventory may be materially misstated B) gross profit may be overstated
DOUBT – The right answer shown is B but why is B the right answer would’t A be a more appropriate answer since based on given info only A could be said?
It is the y/e CLOSING inventory that is ascertained by inventory count. That it is NEXT year’s opening inventory is next year’s problem. The misstatement THIS year is profit overstatement (because cost of goods sold = opening inventory + purchases – closing inventory).