Learner
4016 Points
Posted on 10 February 2010
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