At each year-end, PT Limited transfers 20% of the profit for the year into the general reserve. Draft financial statements were drawn up for the year ending 30 September 2021. It was then found that inventory at 30 September 2021 had been overstated by $1500. What impact did correcting this error have on retained earnings and general reserve at 30 September 2021?
- Aretained earnings decrease $300; general reserve increase $300
- Bretained earnings decrease $1200; general reserve decrease $300
- Cretained earnings increase $300; general reserve increase $1200
- Dretained earnings increase $1500; general reserve no effect