Departmental accounting

To calculate Stock Reserve, you must follow the following steps:

Step 1: First u need the value of IDT (inter transfer) which can be ascertained using foloowing formuls: Closing Stock of Transferror dept x IDT  /  Total Direct expenses excluding op stock

Step 2: The vale of step 1 denotes the Value of IDT stock included in Transferee dept. Now we need the GP ratio at whch transferor dept sells goods to transferee. i.e. this amount is at selling price. So we need GP ratio on SP to eliminate Unrealised Profit i.e. St. reserve

GP ratio on sales = Gp of Transferor Dept x 100 / Total sales

# Total sales = Normal sales + IDT sales

Step 3 : Result of Step 1 x Result of Step 2

Treatment:

General P & L A/c

  To Stock Reserve A/c

Note:

In next year the stock reserve of current year will become realised and to be credited to P & L a/c

CAN ANYBODY TELL ME THAT WHY WE DONT TAKE OPENING STOCK IN CALCULATION OF OPENING STOCK IN CALCULATION OF DEPARTMENT CHAPTER FOR CALCULATION OF CLOSING STOCK RESERVE PLZ ANSWER MY QUESTION.

See stock reserve means profit which not yet realised. As per As-9 "Revenue Recognition" profit will only be recognised or recorded in books when it is realised. For example if we sell goods,then we realise both cost and profit element. so we do not calculate stock resrve for sales as it is already been realised.

Hence we calculate or create stock resrve only on goods remains unsold (i.e. closing stock) at the end of accounting period.

Now ur question: that why we r not includng op stock in stock resrve calculation.

This is becoz we generally assume that whatever stock was lying at the opening date(i.e Opening Stock) of a/cing year has been sold during the year. we assume that opening stock is to be sold on FIFO method basis.

In short stock resrve is only to be calculated on stock still lying with us for which we have not yet realised profit element on those stock

Still if u specifically knows that opening stock is not yet sold, then its stock reserve is automatically been calculated in stock reserve as closing stock  inlcudes all stocks remains unsold (whether it opening or stocks purchased or produced during the year)

thank u very much for your answer i was able to understand thank u very much