Homework Answers
1.
Note :- Closing balance of last year 20x1 will be opening balance of next year 20x2.
When ever opening inventory (20x2) is overstated, then the cost of goods sold ( opening inventory+purc purch - closing inventory ) will be reduced(understated) by such overstated value(400) . And which finally reduces gross profit and net income by 400.
When ever opening balance 20x2 is understated,then the cost of goods sold ( opening+ purchase - closing) will be more (overstated) by such understated vlaue(100).And which results in increase(overstated) of griss profit and net income by 100.
As a result of over stated of inventory by 400 the excess of revenue over expenses will be reduced by 400.And understand of inventory by 100 the excess of revenue over expenses will be more by 100
=( - 400+ 100) = -300
2. Effects on fund flow.
Fund flow will be reduced by(overstated) = -400
Fund flow will be increased by (understated)=100
Net fund reduced by (-400+100) = -300
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