Iqbal Corporation uses the lower FIFO cost and net realizable value method on an individual item basis, applying the direct method. The inventory at December $31,2022,$ included product AG$.$

Relevant per$-$unit data for product AG follow:

Estimated selling price $$50$

Cost $$45$

Replacement cost $$51$

Estimated selling expense $$19$

Normal profit $$14$

There were $1,000$ units of product AG on hand at December $31,2022.$ Product AG was incorrectly valued at $$35$ per unit for reporting purposes. All $1,000$ units were sold in $2023.$

Instructions

Assume that Iqbal follows ASPE, and answer the following questions.

a$.$ Was net income for $2022$ overstated or understated? By how much? $($Ignore income tax aspects.$)$

b$.$ Was net income for $2023$ overstated or understated? By how much?

c$.$ An icon reads, Finance. Show whether the current ratio, inventory turnover ratio, and debt to total assets ratio would be overstated, understated, or not affected for the years ended December $31,2022,$ and December $31,2023.$ Explain briefly.

d$.$ Assume that management did not discover the error in inventory until after the end of the fiscal year but before the closing entries were made and the financial statements were released. Should the adjustment be recorded? How would the error be treated if it were discovered after the financial statements were released?

e$.$ How would your responses above change if Iqbal followed IFRS?