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When performing his year-end inventory count Mahmood accidentally counted goods that were in the despatch area waiting to be delivered to customers. The goods had a cost of $50000 and were despatched prior to the year-end.
What impact does this uncorrected error have on profit and assets at y/e?
Assets – Overstated or Understated
Profits – Overstated or Understated
Answer my question pls. sir!
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Asset – Understated
Profit – Overstated
Assets are over-stated (because they included inventory that has already been sent out to customers).
Profit is over-stated also.