Overvaluing closing inventory overstates profit and current assets Steps:

• Inventory is valued at lower of cost or net realisable value (NRV) under IAS 2.
• Error uses cost exceeding NRV, overstating closing inventory.
• Overstated closing inventory reduces cost of goods sold (COGS = opening inventory + purchases - closing inventory).
• Lower COGS increases gross profit; overstated inventory also inflates current assets on the balance sheet.

Why A is correct:

• Reported profit is higher (due to understated COGS) and current assets are higher (due to overstated inventory value), per the lower of cost or NRV rule.

Why the others are wrong:

• B: Current assets are overstated (higher), not lower.
• C: Current assets are overstated (higher), not lower.
• D: Profit is overstated (higher), not lower.

Final answer: A