Closing stock valuation

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MANJUNATHA M.R (Querist)
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15 April 2013 Dear Experts Ours is a Trading firm wholesale and retail dealers in agro seeds and fertilizers. My query is that what is the closing stock we should take at the end of financial year. As per physical stock we have only around 3lakhs it differs while taking opening stock+purchase-sales how to take and is there any ratio or formula to calculate closing stock for trading firms. Thanks in advance

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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15 April 2013 Value of closing stock should be consider as below.

Opening stock + purchases - Sales + gross profit on sale it is also called opening stock + purchases - Cost of sales. Here cost of sales means cost value of the sold items

For example if you have 1 item as opening with purchasing cost of Rs. 1000 and during the year you purchased another 3 items for Rs. 1000 each and you sold 2 items for Rs.1500 each during the year i.e means you have the profit of Rs. 500 on each item then closing stock value shall be as follows according to the above formula

1000+3000-3000+1000 = 2000 or 1000+3000-2000(i.e this 2000 is cost of goods sold i.e after deduction of profit portion on sale value) = 2000 as well as physically you have the value of closing stock is Rs. 2000 ( 2 items each one is @ Rs.1000) so this is tallied with the physical valuation.

So you are not considering the profit portion on the sale so your closing stock value as per books doesn't tally with the physical value of stock.

So according to the above formula compute closing stock it will satisfies you with the physical value of stock.

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