28 April 2012
Already posted for the experts to reply but i did not got any reply thats why again posting today. Respected Experts, Inventory consists of (a) Raw Material (b) Work - in progress (c) Finished Goods.
Suppose if on year 1 the closing raw material is Rs.100 closing work in progress 200 and closing finished goods is 300
and at the end of year 2 the closing raw material is Rs. 80 , closing work in progress is 250 and closing finished goods is 430. My doubts are
1) How it has to be shown in the credit side of the Trading & P&L a/c for the year ended 2 and also in the balance sheet? 2) I have seen in many financial statements it is shown with brack some times without bracket sometimes. What does this mean? 3) If inventory is more than the year one whether we should add or less it? 4) If inventory is more than the previous year means whether it is income or expense?
Please clarify me regarding the same. Thanks for all the experts who are so generous to share their expertise with me. With regards, Rajesh.
First of all i would like to suggest you to read Accounting Standard 2 issued by ICAI which would surely mitigate all your issues regarding Inventory.Now coming over to your problems Here are my answers:- 1.The closing stock of year 1 will become the opening stock of year 2 and will be shown on the debit side of P&L account and as such the closing stock of year 2 will be shown on the credit side of P&L account as it is. The closing stock of year 2 will also be shown in the Balancesheet under the head Current Assets. 2.Just for the sake of clarity the bifurcated closing stock is shown in brackets and the grand total is shown in the amount column of P&L account. 3.The closing or the opening stock has to be shown in the P&L account and the Balancesheet wherever applicable as it is and no addition or substraction is required to be done between such stock. 4. High closing stock may surely lead to inflated profits but nothing can be done in this case because the assessee has to shown the stock lying on the last date of financial year as it is. So Whatever be the case the closing stock has to be shown as it is and thereby may be sometimes it may lead to higher book profits.
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