Calculation of closing stock

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 July 2013 As we know that as per the Accounting Standard, an inventory is to be valued at cost or market value, whichever is lower.

Now let me explain my query with the help of an example.:

A trader deals in oil products. He purchases the oil from a manufacturer and sells it to consumers.
On purchase of oil from the manufacturer, he gets some litres of oil free on purchase of a specific quanti
ty. Out of his total purchases of 2,00,000 litres of oil, 50,000 litres was free.

On the other hand his sales figures are like this:
Out of total sales of 1,80,000 litres of oil the free sold was 25,000 litres.
The closing stock is 20,000 litres.
Out of this 20,000 litres, how much free stock is to be considered ?
The inflow of free stock is 50,000 litres and outflow is 25,000 litres. As per this condition the remaining free stock must be 25,000. But the overall closing stock is only 20,000 litres. How is the calculation made in this case ??

Nikhil Kaushik

Nikhil Kaushik (Expert)
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05 July 2013 the best way is to calculate the purchase cost at average cost.

So if the price for 150000 liters is Rs 1000000. then divide Rs 100000 by 200000 to get the average price and value the closing stock at the average price.

The free oil can be considered as trade discount.

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