14 April 2012
Assume that u have incurred Rs. 1,000 for producing 100 units. Assume that, only 90 units are sold at Rs. 11 and balance 10 unsold as on closing date. However, ur trading account show Rs. 1,000 as per cost incurred and sales of Rs. 990 thereby profit of Rs. 10 only which is not correct since u have some stock left out in ur hands. If u credit trading account with stock of Rs. 100 i.e. 10 units * Rs. 10, then profit will be Rs. 90 which is Rs. 990 + Rs. 100 - Rs. 1,000. Another way to derive profit is cost of 90 units sold is Rs. 900 and sale value is Rs. 990, then profit is Rs. 90.
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