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Punit Tibrewal (Querist)
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03 April 2010 let Realisable value = 10000/-
Cost of disposal = 2000/-

therefore, NRV = 10000 - 2000 = 8000/-

this NRV is shown as closing stock.

in next year when actual sale is done, how do we account for the cost of disposal in books of acounts..???

kartik_somu

kartik_somu (Expert)
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03 April 2010 cost of disposal will be accounted as an expense when incurred

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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03 April 2010 cost of disposal can be accounted actually incurred

Punit Tibrewal

Punit Tibrewal (Querist)
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03 April 2010 what should be the sale value...???

10000/- or 8000/-..??

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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03 April 2010 Rs.10000

Punit Tibrewal

Punit Tibrewal (Querist)
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04 April 2010 but showing sale value of 10000/- gives us profit as 2000/- which can't be.?????

shakuntala chhangani

shakuntala chhangani (Expert)
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07 April 2010 Hi everybody, stock is to be valued at cost or NRV whichever is less. In the abovementioned question cost is not given. Chalo let us assume that the cost is 9000 in which case stock will be valued at 8,000 (NRV being lower). Now when on the credit side of trading A/c stock is taken as 8,000, profit will get reduced by Rs. 1,000 (cost 9,000 dr. to trading A/c valuation 8,000). now this lower amount will become opening stock for the next year. Sales will be recorded at actual selling price. the difference will be profit or loss. If the sales takes place before finalisation of A/c then actual selling price will be taken for comparision of cost and NRV otherwise estimated amount of NRV will be taken for comparision. Further taking sales as 10,000 will not show a profit of 2,000 as at that time only you will recognise exp. of disposal of Rs. 2,000.
Regards, Ca Shakuntala Chhangani

Punit Tibrewal

Punit Tibrewal (Querist)
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07 April 2010 bue expenses of disposal is shown in P/L A/C, wouldn't that give a profit of Rs. 2000/- in trading account...?????

shakuntala chhangani

shakuntala chhangani (Expert)
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07 April 2010 Of course yes. but when we talk about profitability, it is always net effect.

Punit Tibrewal

Punit Tibrewal (Querist)
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08 April 2010 okk...thanks for help

shakuntala chhangani

shakuntala chhangani (Expert)
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09 April 2010 you are most welcome. Happy to help