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Chapter 5

Impact on financial statements

If inventory is overvalued then:

 assets are overstated in the statement of financial position

 profit is overstated in the statement of profit or loss (as cost
of sales is too low)

If inventory is undervalued then:

 assets are understated in the statement of financial position

 profit is understated in the statement of profit or loss (as cost
of sales is too high)

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