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Valuation of closing stock.


Querist : Anonymous


Querist : Anonymous (Querist)
Sir, why we include full amount of direct expenses like carriage inwards and wages etc. in COST OF GOODS SOLD. My point is that these expenses should be proportionately distributed among COST OF GOODS SOLD and CLOSING STOCK.

Thanks in anticipation.


because firstly cost of goods sole means ...related to goods which are sold...and closing stock are those which are yet to be sold....and we cannot distribute cost of goods sold to goods not sold...and we can only include those cost which are incurred for either buying or manufacturing the goods yet to be sold in closing stock

CLOSING STOCK SHOULD BE VALUED ONLY AT LOWER OF COST PRICE OR NET REALISABLE VALUE. SO YOU CAN NOT APPORTION ANY OTHER COST .

Querist : Anonymous


Querist : Anonymous (Querist)
Tushar Sir,
For example our purchases are Rs.100000 and freight inward is Rs.5000. Half of the goods are sold for Rs.62500. According to me calculation should be:
Sales Rs.62500
Cost of goods sold
(100000+5000)/2 Rs.52500
Profit Rs.10000
Closing stock Rs.52500

In my view transportation charges should be divided proportionately between Goods sold and closing stock as I have done above. This rule we follow in consignment questions also.
My point is in case of consignment stock we add proportionate share of all the non-recurring expenses incurred by either consignor or consignee.

The cost incurred to bringing goods in contributes to landed cost and evenly distributed over the quantity brought in.

The calculation of Cost of goods sold starts after the goods placed into the stock.

Please mark the query as resolved, if satisfied !

Querist : Anonymous


Querist : Anonymous (Querist)
Thanks Paliwal Sir, as you said 'cost incurred to bringing goods in contribute to landed cost and evenly distributed over the quantity brought in'. This means expenses like freight inward and wages etc. are debited in Trading A/c but closing stock is valued only at cost of purchase (excluding the proportionate expenses). Sir, please explain in the context of example I have given above.


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