28 April 2012
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.
29 April 2012
Hi Rajesh The answers to yur query : P&L A/c : is divided into Incomes and Expenditure,hence,Every information regarding stocks would be disclosed in Expenditure area. a) Raw Material : To be shown under seperate head Materials consumed and purchase of finished goods,calculated as Opening +Purchases-closing Stock of Raw material. In yur eg,it would be : 100+purch-80=consumed. If any finsihed goods is purchsed during the year,it would be shown under the same head. b)Finished and WIP would be shown under the same head of (Increase)/Decrease in stocks under expenditure side,calculated as: opening stock (wip & Finished )-Closing stock(WIP and Finished).in yur eg: Opening: 200+300=500 Closing: 250+430=680 since closing is more than opeing,hence there is an increase in stock,denoted by a negetive sign. ie, (180)
29 April 2012
In the balance ssheet: we would have to follow AS-2 which states the valuation principle: WIP : At cost Finished Goods : Cost or NRV,whichever is lower Raw material: If finished goods are valued at cost,Raw material would be valued at cost. If finished goods are valued at NRV,then valuation principle would beapplied on RM too,ie,cost or NRV whichever is lower.
stocks: Raw material :80 wip :250 FG : 430
incase of any loss occuring when valuation principle is applied,the same should be shown in balance sheet and the second effect would be in the P&L A/c(Not trading A/c).Ie the stock would reflect at the same price as mentioned before
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