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Valuation of closing stock

Shubham Jain (Haryana) (131 Points)

26 January 2015

I see in one question that closing stock as per financial account is (direct mat.+wages+factory OH)/(total unit)*unit closing stock whereas as per cost book profit is ( direct mat.+wages + factory OH + office OH)/(total unit produced)* units in closing stock what is the reason behind it can someone tell me

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4 Replies

Jaikishan (CA) (168 Points)
Replied 27 January 2015

Dear Shubham,

In financial accounts two types of accounts are prepared, Trading and Profit and loss account, wherein in trading account only the cost which is directly attributable to trading is mentioned (Variable cost, labour and factory). In profit and loss account seperate office overheads is taken into consideration.

In cost records seperate trading and P&L account are not prepared, hence all the factors like variable, factory, office are included in cost of production. Cost of sales is worked after cost of production.