If the opening inventory of a business is undercast, it will

Answer: Option D

What is Opening Inventory?

Opening inventory is the value of goods a business has at the beginning of an accounting period. These goods are available for sale during that period.

What does Undercasting mean?

Undercasting means recording the opening inventory at a lower value than its actual amount.

How it Affects Gross Profit:

Gross Profit = Revenue – COGS

COGS = Opening Inventory + Purchases – Closing Inventory

If opening inventory is undercast, then COGS will be shown as lower.

Lower COGS → Higher Gross Profit.

How it Affects Net Profit:

Net Profit = Gross Profit – Operating Expenses

Since Gross Profit is overstated due to lower COGS, Net Profit will also be overstated.

Why the Other Options are Incorrect:

Option A: Incorrect, because net profit does not decrease in this case.

Option B: Incorrect, because both gross profit and net profit do not decrease; they increase.

Option C: Incorrect, because undercasting opening inventory does not directly increase the value of assets.

Correct Effect:

Both Gross Profit and Net Profit increase when opening inventory is undercast.

Therefore, the correct answer is Option D.