Stock reserve and markdowns

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 September 2011 Hi. I am an accountant at a manufacturing concern. At year end, we journalise our closing stock (per stock take) into our books (dr stokc b/sheet, cr stock i/statement or trading a/c. We created a stock reserve last year, but do not reflect it as a reserve a/c in the books. We do a spreadsheet with gross stock, then show the reserve (minus) and journalise the Net reserve into the books. There was substantial markdowns during year and the chief accountant suggested we put through these entries and reduce the reserve by the markdown amount.

dr. stock reserve a/c 776284.57
cr. stock markdown a/c 711307.46
cr. commission a/c 64977.11

dr. discount allowed a/c 426543.94
cr. stock markdown a/c 426543.94
(being notional markup on discounted sales.

We have decided to open account for the stock reserve in our books and reflect the reserve as oppose to show the net.

My question is this. If we put through these entries our b/sheet stock will differ from the i/statement stock by R776284.57. Could we just put through and entry dr. say purchese and cr. i/statement stock? This will result in b/sheet stock agreeing with the i/statement stock. Also this entry will not have any effect on profits. Please let me have your thoughts on this matter please. Rgds.

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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26 September 2011 well i am not able to understand your accounting entries and all sorts, but want to make clear, if you want to show Stock Reserve in the books and Closing Stock at Gross Value. Then Pass the following entires

Stock Reserve A/c DR (with reserve amount)
P/L A/c DR (with net amount)
To Closing Stock ( gross amount)

This will not affect your profit and loss account or u can create stock reserve with net amount and then pass the entry

Stock Reserve A/c DR
To Closing Stock

In the aforesaid case the Closing Stock will appear on gross basis

Comment for any doubts