Sunshine Ltd. keeps no stock records but a physical inventory of stock is made at the end of each quarter and the valuation is taken at cost. The…

CA Foundation · Accounting · MTP · January 2025
Sunshine Ltd. keeps no stock records but a physical inventory of stock is made at the end of each quarter and the valuation is taken at cost. The company’s year ends on 31 st March, 2024 and their accounts have been prepared to that date. The stock valuation taken on 31 st March, 2024 was however, misleading and you have been advised to value the closing stocks as on 31st March, 2024 with the stock figure as on 31st December, 2023 and some other information is available to you: (i) The cost of stock on 31 st December, 2023 as shown by the inventory sheet was - 80,000. (ii) On 31 st December, stock sheet showed the following discrepancies: (a) A page total of 5,000 had been carried to summary sheet as 6,000. (b) The total of a page had been undercast by - 200. (iii) Invoice of purchases entered in the Purchase Book during the quarter from January to March, 2024 totalled - 70,000. Out of this 3,000 related to goods received prior to 31 st December, 2023. Invoices entered in April, 2024 relating to goods received in March, 2024 totalled - 4,000. (iv) Sales invoiced to customers totalled - 90,000 from January to March, 2024. Of this 5,000 related to goods dispatched before 31st December, 2023. Goods dispatched to customers before 31st March, 2024 but invoiced in April, 2024 totalled - 4,000. (v) During the final quarter, credit notes at invoiced value of 1,000 had been issued to customers in respect of goods returned during that period. The gross margin earned by the company is 25% of cost. You are required to prepare a statement showing the amount of stock at cost as on 31st March, 2024.

Suggested Answer and Working Notes:

Valuation of Physical Stock as at March, 31,2024 Particulars ₹ Stock at cost on 31st December, 2023 80,000 Add: (1) Undercasting of a page total 200 (2) Goods purchased and delivered during January – March, 2024 ₹ (₹ 70,000 - 3,000 +4,000) 71,000 (3) Cost of sales return ₹ (₹ 1,000 - 200) 800 72,000 1,52,000 Less:(1) Overcasting of a page total ₹ (₹ 6,000 - 5,000) 1,000 (2) Goods sold and dispatched during January – March, 2024 ₹ (₹ 90,000 - 5,000 +4,000) 89,000 Less: Profit margin (₹ 25/125 ×₹ 89,000) 17,800 71,200 72,200 Value of stock as on 31st March, 2024 79,800 Note: In the above solution, transfer of ownership is assumed to take place at the time of delivery of goods. If it is assumed that transfer of ownership takes place on the date of invoice, therefore - 4,000 goods delivered in March, 2024 for which invoice was received in April, 2024, would be treated as purchases of the accounting year 2024-2025 and thus excluded. Similarly, goods dispatched in March, 2024 but invoiced in April, 2024 would be excluded and treated as sale of the year 2024-2025.

Topics: Inventories

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