The adjustment required for overvaluation of closing stock, while calculating adjusted profit for calculating goodwill is:

(A) Reduction from concerned year's profit

(B) Reduction from next year's profit

(C) Addition to next year's profit

(D) Addition to previous year's profit

Choose the correct answer from the options given below:

(A) and (C) only

The correct answer is option 2- (A) and (C) only.

(A) Reduction from concerned year's profit- Overvaluation of closing stock leads to an overstated profit for the concerned year. To rectify this, the overvaluation amount needs to be deducted from the concerned year's profit. This adjustment ensures that the profit figure reflects the true operational performance of the business for that particular period, which is essential for accurately calculating goodwill.

(C) Addition to next year's profit- Previous year closing stock becomes the opening stock of next year. Due to overvaluation of closing stock of previous year the opening stock of the next year also goes wrong. Overvaluation will lead to reduce the profit of the next year so overvalued amount is added to next year profit. This adjustment ensures that the profit reflects the true operational performance of the business for the period, which is essential for accurately calculating goodwill.

(B) Reduction from next year's profit- This is wrong as it is added in next year profit.

(D) Addition to previous year's profit- This is wrong as it is reduced from particular year profit and added in next year profit.