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Hi,
With reference to the above question, it is very clear that in question (c), a profit on sale of $400 must be removed because the sale was not confirmed. This means that if we remove the sale, we have higher value in our inventory by $2,000. Why we didn’t adjust this by adding up $2,000 to the Net Profit? (Higher Closing Inventory => Higher Profit)
You could have done what you have said – increase the inventory and so increase the profit by 2,000.
However you also need to remove the sale that was recorded – reducing sales by the sales value of 2400 will reduce the profit by 2400.So the net effect of the two is to reduce the profit by 400.
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