Why opening and closing stock

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CA Ankith Jain (Querist)
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15 February 2016 Dear all, a very simple question, can anybody tell me why opening stock and closing stock are considered for deriving profit? Ex: sales closing stock-opening stock-purchases-cost=profit. Whereas actually the profit is sales-costs.So why stocks are considered?

CA Mehta Ankur N.

CA Mehta Ankur N. (Expert)
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15 February 2016 Very Intelligent Question ...

But in practical life its not possible to find the exact cost... If i say we have manufactured one brass part products , its Sales Price is Rs. 100 , in this sale price of individual product is derivable & but we just dont make one product , we manufacture no of products & i.e. in bulk quantity...

In that we have to use Cost Accounting Concept & Which is not in convergence with our Income Tax Laws prevailing in Our India or any other law too..

Thats why this is most usable & appropriate way to find out the profit...

& One more point, Some time it might happen that when we purchase some raw material cost of which is say Rs. 100 per kg. Now due to market condition raw material price goes down to Rs. 80.. then it not considered in your way of Sales - Cost.

Still other small points also.