LaGreca SA uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2022, includes product X. Relevant per-unit data for product X are as follows.

Estimated selling price ............ €50
Cost .............................................. 40
Estimated selling expenses ....... 14

There are 1,000 units of product X on hand at December 31, 2022. Product X is incorrectly valued at €38 per unit for reporting purposes. All 1,000 units are sold in 2023.

Instructions

Compute the effect of this error on net income for 2022 and the effect on net income for 2023, and indicate the direction of the misstatement for each year.