Valuation of WIP & FG

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This query is : Resolved

CA Shilpa Dekhane (Querist)

19 November 2007 Can anybody help me??

I am getting stock increase in quantitative terms i.e. sales are less and closing stock is high, but in value terms there is decrease in stock, i.e. value of Closing stock is less than value of opeing stock...

why this is happing?? I am not able to find out ...?

I am valuing the WIP at 75% of selling price, while whole FG is valued at SP.

Please help me...

CA. Vineet Grover

CA. Vineet Grover (Expert)

19 November 2007 Hi Shilpa,

As per AS - 2, inventories shall be valued at the lower of cost and NRV

Exclusions from the cost of inventores:
(1) abnormal amount of wasted material, labour or other production cost,
(2) storaeg costs unless those costs are necessary in the production process to further the production stage,
(3) administration overhead that donot contribute for bringing the goods to the present condition and location; and
(4) selling and distribution costs;

In furtherance to your queries, I feel what you mean to say is that in the system the data are not coming correctly. For that reason you need to check the valuation system inhibited in the system. If feel the stock maintained in your system is on average basis. For that purpose you need to manually value the stock as under:

Qty Value

Opening Stock *** ****
Add: Purchases *** ****
Less: Cost of sales *** ****
Closing Stock *** ****

For further queries feel free to reply

o.velavan

o.velavan (Expert)

19 November 2007 I need one more clarificaion is whether in that year,is the company attained gross loss or gross profit?

If the company attained gross loss

following points need to be considered
1.Check is there continious fall in selling price?
2.If the selling price is less than the cost,and further if u value the goods at selling price,then it is sure that,there should be a gross loss
3.As per AS2,FG should be valued at cost or NRV whichever is less.
4.WIP may be valued under absorbtion costing method-viz all factory overheads are to be considered while valuing WIP

5.Check the internal control system for billing,deliver,stock taking etc..

6.I feel that,there may be some arithmatical error also crept in.

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