PGBP

Dear Nishie,

First of all understand that Stoch has not been correctly valued & therefore adjustment has to be made for it's rectification..

Now, Opening Stock appears on the DEBIT SIDE of P&L A/c (i:e expenses side), so if this figure is overvalued that means the profit is less by that amount of overvaluation, & we have to add the amount of overvaluation to the figure of profit as a rectification..

                            P&LA/c

--------------------------------------------------------

Op Stock     1 Lac               Sales       50 Lacs

Expenses    25 Lacs         C/Stock      2 Lacs

Profit             26 Lacs

                      -------------                         ----------------

                     52 Lacs                                    52 Lacs

Now If I say that fifure of opening stock is excessive by Rs 0.50 Lacs, so what adjustment entry u would make -

26 Lacs +0.50 Lacs = 26.50 Lacs 

Because had opening Stock was correctly valued, the Profit would have been Rs. 26.50 Lacs

Just reverse is the case of Closing Stock

Dear Nishie...

Mr.Amir brother is correct...

Overvaluation of Op. stock amounts to reduction in profit which means you have to add back the excess amount inorder to find out the correct profit....

Undervaluation of Clo. stock also amounts to reduction in profit therefore we add back the difference amount undervalued to get the correct profit figure,....

I think you are clear now...