Question : The adjustment required for overvaluation of closing stock, while calculating adjusted profit for calculate goodwill is
(A) reduction from concerned year's profit.
(B) reduction from next year's profit.
(C) addition to next year's profit.
(D) addition to previous year's profit
Choose the correct answer from the options given below:
Option 1: (A), (B) and (D) only
Option 2: (A) and (C) only
Option 3: (A) and (D) only
Option 4: (B), (C) and (D) only.
Correct Answer: (A) and (C) only
Solution : When closing stock is overvalued (increase in credit side) in Trading A/c, current year's gross profit will be increased. In order to eliminate this effect, overvaluation of closing stock will be reduced from current year's profit. Overvaluation of closing stock while calculating adjusted profit will be reduced from the concerned year's profit and added to the next year's profit.
