Subject matter is related with 3CD reporting for Trading Concern.
while computing Stock-in-trade/Turnover ratio, whether only closing stock is to be taken into account or Both Opening+Closing stock are to be taken into account?
Regards
2 Replies
Swapnil Jain
(Finance - FP&A)
(564 Points)
Replied 11 October 2011
The above ratio is to include only closing stock as ‘stock in trade’. The
term `stock-in-trade' used there in does not include stores and spare
parts or loose tools.
Only finished goods to be included, raw material and work in
progress to be ignored for this calculation.
There are some organizations which calculate the stock in trade by
taking the average finished goods [opening stock + closing stock of finished goods]/2. It is also seen in some of the organization that a
annual average is taken to calculate this ratio. This is done with sole
aim of removing the anomalies of abnormal closing stock at the year
end. The necessary disclosure needs to be made to indicate the
calculation adopted. The method followed also needs to be
consistently followed.
It should also be seen that the numerator and denominator are
consistent and comparable. The turnover and the stock in trade both
should be either inclusive of taxes or exclusive of taxes. The ratio
would give a distorted result if either the numerator or the
denominator is inclusive or exclusive of taxes and the other is not.
It also needs to be noted that with the implementation of section
145A the stock and the turnover need to be inclusive of the vat,
excise, service tax. Alternatively the auditor is required to prepare
and present the adjusted statement of trading account in clauses
22(a)
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