When preparing the financial statements for the year ending 31 Dec X9, a material error was found in relation to the value of closing inventory included in the year ending 31 Dec X8 financial statements. The closing inventory value used at 31 Dec X8 was 68,000 but it should have been 86,000.

Which one of the following statements is correct in relation to the financial statements for the year ending 31 Dec X9?

a. A prior year adjustment should be shown in the Statement of Changes in Equity, to decrease retained earnings at 31 Dec 20X8 by 18,000. The comparative financial statements for the year ending 31 Dec 20X8 should be re-stated to reflect the decrease in profits in that year.

b. No adjustment should be made.

c. any adjustment to profits should be recognised in the Statement of Profit or Loss.

d. A prior year adjustment should be shown in the Statement of Changes in Equity, to increase retained earnings at 31 Dec 20X8 by 18,000. The comparative financial statements for the year ending 31 Dec 20X8 should be re-stated to reflect the increase in profits in that year.