Inventories:

Problems of Calculating Stock: (in case of a trading business):

The following equation can be rearranged to calculate the missing figures:
Opening Stock + Purchases – Closing Stock = Cost of Sales
If Closing Stock is to be calculated:
Opening Stock + Purchases – Cost of Sales = Closing Stock
If Opening Stock is to be calculated:

!!
Opening Stock = Cost of sales + Closing Stock – Purchases

H
Suppose:

A
(1) Stock as on 15-07-2014 is given and we need to find stock as on 30-06-2014.

LL
It means given stock is sort of closing stock for these 15 days and we need to find out opening
stock.

A
(2) Stock as on 20-06-2013 is given and we need to find stock as on 30-06-2013. In this case a sort of

ER
opening stock of these 10 days is given and we need to find out closing stock.
B
When sale is recorded: sale is recorded when control is transferred from seller to buyer. Control is
transferred when risks and rewards are transferred from seller to buyer. Normally risks and rewards are
EM

transferred when the goods are despatched / delivered.

The invoice of goods is normally issued by seller at the time of delivery of goods. If however invoice is
EM

not issued, sale should still be recorded when the risks and rewards are transferred by seller to
buyer.The issuance of invoice is not important for recording of sale.
R

When purchase is recorded: purchase is recorded by buyer when control is transferred from seller to
buyer. Control is transferred when risks and rewards are transferred from seller to buyer. Normally risks
YS

and rewards are transferred when the goods are received.

The invoice of goods is normally received by buyer at the time of reciept of goods. If however invoice is
A

not received, purchase should still be recorded by buyer when the risks and rewards are transferred by
LW

seller to buyer. The receipt of invoice is not important for recording of purchase.
A

Page 1 of 22
Q.1 Mr. Tufail runs a retail store and makes up his annual accounts to 30 June each year. This year he
was unable to take stock of physical inventory till 11 July, 2006 on which date the value of physical stock
was calculated as Rs. 177,300. However, while making the valuation he made an error as a sub-total of
Rs. 21,500 on one of the stock sheet was entered to the summary of stock sheets as Rs. 12,500.The
following information relating to the period 1 July 2006 to 11 July 2006 is available:

(i) Sales invoices totaling Rs. 90,000 were issued. An invoice of Rs. 8,400 pertained to goods which
had not been delivered at the time of stock verification. Another invoice of Rs. 14,100 pertained
to goods which had been delivered on29 June 2006.

!!
(ii) Credit advices for sales returns amounting to Rs. 4,200 had been issued. These included advices
of Rs. 2,700 relating to goods returned prior to year end.

H
(iii) Purchase invoices of Rs. 60,100 were received. Of these, invoices totaling Rs. 11,100 were in

A
respect of goods received on 28 June 2006 whereas an invoice of Rs. 13,800 pertained to goods
received on 15 July, 2006.

LL
(iv) No invoices had been received for goods costing Rs. 9,400 which had been delivered prior to 30
June 2006.

A
Required:
Determine value of his physical stock at cost on 30 June 2006 if gross profit is 20% of cost price.

ER
Note: credit note / credit advice is a document (page) which is issued as an evidence of sale return
B
Exceptions to the situations where goods are despatched but risks and rewards are not transferred.
EM

When sale is recorded: sale is recorded when risks and rewards are transferred from seller to buyer.
Normally risks and rewards are transferred when the goods are despatched / delivered. However, there
are exceptions to the situation where goods are despatched but risks and rewards are not transferred.
EM

For example:

1. Sale or return basis:

R

On 1.1.2015, 1000 units are delivered by a manufacturer to a retailer on sale or return basis (means
YS

retailer can return the goods not purchased by customers). Upto 31.12.2015, 20 units are still left with
retailer which can be returned.
A

Conclusion: manufacturer should record the sale of 980 units during the year; while the remaining 20
LW

units should be included in the stock of manufacturer at cost rather than in the stock of retailer (even
though these units are physically held by retailer)
A

2. Sale on approval basis:

Page 2 of 22
Q.2 Sun Soya Oil & Company is a wholesaler of cooking oil. Due to an emergency, its annual stock taking
was delayed till 3 July 2012, on which date the physical stock was valued at Rs. 24 million.An
examination of related records disclosed that the following events took place on1st and 2nd July, 2012:

(i) Sales invoices amounting to Rs. 4 million were issued. These included invoices amounting to:
(a) Rs. 200,000 in respect of oil which was dispatched on 29 June 2012 but had not been
invoiced.
(b) Rs. 400,000 in respect of oil not dispatched until 5 July 2012 and;
(c) Rs. 200,000 in respect of oil on sale or return basis.

!!
(d) The average rate of gross profit is 33 % of cost.

H
(ii) Returns from customers totaled Rs. 600,000.
(iii) Purchase invoices amounting to Rs. 1.8 million were received. These included invoices worth:

A
(a) Rs. 600,000 for oil received in June 2012, and;
(b) Rs. 300,000 for oil received on 7 July 2012.

LL
(iv) Purchase returns totaled Rs. 400,000.
A review of the records also disclosed the following errors:

A
(a) Stocks lying in Abbotabad were not included in the physical count. The cost of such stock on 30
June 2011 and 3 July 2012 was Rs. 0.5 million and Rs. 3 million respectively.

ER
(b) An arithmetical error in the stock sheets on 3 July 2012 resulted in an overvaluation of Rs.
450,000.
Required:
B
Prepare a statement showing the correct amount of the stock as on 30 June 2012.
EM

Whether Receipt Means Sale?

Cash XX
EM

Sales XX (Yes)
Debtor XX
Sales XX (No)
R

Therefore receipt does not always means sale.

YS

Therefore when should sale be recorded? Sale should be recorded by seller when risks and rewards are
transferred from seller to buyer. Normally it is when the goods are despatched / delivered by seller to
buyer.
A

Whether Payment Means Purchases?

LW

Purchases XX
Cash XX (Yes)
Purchases XX
A

Creditors XX (No)
Therefore payment does not always means purchase. Purchase should be recorded by buyer when risks
and rewards are transferred from seller to buyer.

Page 3 of 22
Q.3 Khan Limited closes its accounts on June 30 each year. The company was unable to take stock of
physical inventory until July 14, 2009 on which date the physical inventory was valued at Rs. 185,000.
The following details are available in respect of the period July 1 to July 14, 2009:

1) Payments against purchases amounted to Rs. 48,000 and included:

 Rs. 5,000 in respect of goods received on June 28, 2009;
 Rs. 6,000 in respect of goods received on July 18, 2009;
 Rs. 2,000 in respect of goods received and returned to supplier on the same date i.e. July 7,
2009

!!
2) Collection against sales amounted to Rs. 60,000 and included:
 Rs. 1,500 in respect of goods which left the warehouse on June 29, 2009;

H
 Rs. 2,800 in respect of goods which were not dispatched until July 15, 2009;

A
 Rs. 760 in respect of goods invoiced and dispatched on July 10, 2009 but returned by the
customers on July 12. These were included in the stock taken on July 14, 2009.

LL
3) The rate of gross profit is 25% of selling price
4) Goods costing Rs. 6,000 were purchased on June 28 but remained unpaid till July 24, 2009.

A
5) An invoice amounting to Rs. 10,000 was raised on July 9, 2009 but remained uncollected till July 14,
2009.

ER
6) An item costing Rs. 9,000 which had been purchased on June 25, 2009 was damaged on July 4, 2009.
It can be repaired at a cost of Rs. 1,000 and sold for Rs. 7,000 and has been taken in stock at its net
realizable value.
B
7) Stock count sheets prepared on July 14, 2009 showed the following discrepancies:
 A page total of Rs. 5,000 had been carried to the summary as Rs. 6,000.
EM

 The total of another page had been undercast by Rs. 200.

8) Included in the physical count were goods costing Rs. 2,200 which were held on behalf of a supplier.
Required:
EM

Determine the amount of stock required to be disclosed in the financial statements as at June
30, 2009. (15)
Q.4 Afridi does not keep perpetual records of stock. At the end of each quarter, the value of stock is
R

determined through physical inventory. However, the record of inventory taken on 31 March2011 was
YS

destroyed in an accident and Afridi has extracted the following information for the purpose of stock
valuation:
A

(i) Invoices entered in the purchase day book, during the quarter, totaled Rs. 138,560 of which Rs.
28,000 related to the goods received on or before 31 December 2010. Invoices entered in April
LW

2011 relating to goods received in March 2011 amount to Rs. 37,000.

(ii) Sales invoiced to customers amounted to Rs. 151,073 of which Rs. 38,240 related to goods
dispatched on or before 31 December 2010. Goods dispatched to customers before 31 March
A

2011 but invoiced in April 2011 amounted to Rs. 25,421.

(iii) Credit notes of Rs. 12,800 had been issued to customers in respect of goods returned during the
period.
(iv) Purchases included Rs. 2,200 spent on acquisition of a ceiling fan for the shop.
(v) A sale invoice of Rs. 5,760 had been recorded twice in the sales day book.
(vi) Goods having sale value of Rs. 2,100 were given by way of charity.
(vii) Afridi normally sells goods at a margin of 20% on cost. However, he had allowed a special
discount of 10% on goods costing Rs. 6,000 which were sold on 15 February 2011.

Page 4 of 22
(viii) On 31 December 2010, the stock was valued at Rs. 140,525. However, while reviewing these
stock sheets on 31 March 2011 the following discrepancies were found:
a. A page total of Rs. 15,059 had been carried to the summary as Rs. 25,059.
b. 1,000 items costing Rs. 10 each had been valued at Rs. 0.50 each.
Required:
Calculate the amount of stock in hand as on 31 March 2011.

Q.5 Saqib is the sole proprietor of Saqib & Company. He keeps no running records of his stock but a
physical count of stock is made at the end of each quarter. The record of stock taken on 30 June 2013

!!
was accidentally destroyed before the items could be valued and therefore he needs to rely on the
following information for valuation of stock:1) The cost of the stock on 31 March 2013 based on physical

H
count was Rs. 800,525 but the following discrepancies have been detected in the stock sheets:

A
 A page total of Rs. 6,059 has been carried to the summary as Rs. 6,509.

LL
 The total of a page has been undercast by Rs. 980.
 100 units of a stock item which costed Rs. 50 each had been taken at 50 paisa each.

A
2) Invoices entered in the Purchase Book during the month of April, May and June 2013 totalled Rs.
138,560. Of this total, Rs. 12,300 related to goods received on or prior to 31 March 2013. Invoices

ER
amounting to Rs. 23,300 relating to goods received in June 2013 were entered in July 2013.
3) Invoices issued to customers in April, May and June 2013 amounted to Rs. 251,070. Of this total, Rs.
13,825 related to goods despatched on or before 31 March 2013. Goods despatched to customers
B
before 30 June 2013 but invoiced in July 2013 totalled Rs. 25,245.
4) Credit notes issued in respect of goods returned during the quarter amounted to Rs. 11,290.
EM

The gross margin earned by Saqib is 25% of cost.

Required:
Statement showing the computation of cost of stock at 30 June 2013. (11)
EM
R
YS
A
LW
A

Page 5 of 22
Answers:

A.1

Cost of stock as on July 11.2006 177,300)

Add Balance Understated 9,000)
Cost of Sales (W-1) 55,000)
Less: Purchases (W-2) (35,200)
Value of Stock as on June 30,2006 206,100)

!!
Working 1 Cost of Sales

H
Sales as per invoice 90,000)

A
Less: Goods no delivered 8,400)
Less: Goods delivered not invoiced 14,100)

LL
Sales: adjusted 67,500)
Less: Sales Return 4,200)

A
Prior period return (2,700) (1,500)
Net Sales 60,000)

ER
Cost of sales (66,000 X 100/120) 55,000)
Working 2 Purchases
As per invoice 60,100)
B
Invoice of June 28,2006 (11,100)
Invoice of June 15,2006 (13,800)
EM

35,200)
EM

A.2

Rupees In "000"
R

value of physical stock as on 3 July 2012 24,000)

Add: cost of sales between 1st and 3rd July
YS

A) Sales during 1-2 July 2012 4,000)

Goods dispatched on 29 June 2012 but not invoiced (200)
goods dispatched after stock taking (400)
A

goods on sales or return basis (200)

LW

3,200)
B) Return inward/Sales return (600)
2,600)
A

Gross profit margin @ 25% of above (650) 1,950)

Goods on sales or return basis (200 X 0.75) 150)

C) Purchase invoices received on 1 and 2 July (1,800)

goods received in June 2012 600)
goods received on 7 July 300)
(900)

Page 6 of 22
 D) Purchase return 400) (500)

Stock at Abbotabad 3,000)

Overvaluation of stock (450)

Value of stock as on 30 June 2012 28,150)

A. 3

!!
Khan Limited

H
Statement of Calculation of Stock
As on 30th June

A
Stock as on 14th July

LL
185,000
Less: Overcasting error (1,000)
Add: Under casting error 200

A
Less: Goods held on behalf of supplier (2,200)

ER
Adjustment of NRV 3,000
Purchases (W-1) (35,000)
Cost of sales (W-2) 48,705
B
Stock as on 30th June, 2013 198,705
EM

W-1 Purchases
Payments 48,000
EM

Received before 1st July (5,000)

Received after 14th July (6,000)
Goods returned to supplier (2,000)
R

35,000
YS

W-2 Cost of Sales

Collection against sales 60,000
Adjustments to the above
A

Last year sales (1,500)

Sold and not delivered (2,800)
LW

Sold and returned (760)

Sales on account 10,000
64,940
A

Margin = 25% of sales

= 75 + 25 = 100
Sales
Cost of Sales = × 75
100

Page 7 of 22
 64,940
= x 75
100
= 48,705
or
Creditors

Cash 48,000 b/d (5,000 + 6,000) 11,000

Purchase 35,000

!!
c/d 6,000 c/d (6,000 + 2,000) 8,000

H
Debtors

A
b/d 1,500 Cash 60,000

LL
Sale 64,940
c/d (2,800 + 760) 3,560 c/d 10,000

A
A.4

ER
Statement showing the amount of physical stock
As on March 31, 2011
Rupees
B
Stock as on December 31,2011 (Working -1) 140,025)
Add: Purchases for the quarter (Working - 2) 145,360)
EM

285,385)
Less: Adjusted Cost of sales (Working - 3) (100,345)
Less: goods given in charity (100/120 of Rs. 2,100) (1,750)
EM

Physical stock balance as on March 31,2011 183,290)

R

Working 1 Rupees
Stock as on December 31,2010
YS

Stock as valued previously 140,525)

Add: Cost of 1,000 items recorded at Re. 0.50 per item instead of Rs. 10 per item. 9,500)
150,025)
A

Less: error in carry forward of a page total (10,000)

LW

Actual stock as on December 31,2010 140,025)

Working-2
A

Purchases for the quarter ended March 31,2011

Total of Invoices from Jan. 01 to Mar. 31,2011 as per purchased day book 138,560)
Add: Goods purchased before march 31,2011 but recorded In April 2011 37,000)
Less: Invoices pertaining to Goods received before December 31,2011 (28,000)
Less: Purchase of ceiling fan (2,200)
145,360)
Working-3
Cost of sales for the quarter
Total of sales Invoices raised from January 01 to March 31,2011 151,073)

Page 8 of 22
Add: Goods dispatched before March 31,2011 but invoiced in April 2011 25,421)
Less: Goods dispatched before December 31,2010 but invoiced during the
quarter ended March 31,2011 (38,240)
Less: Sale invoice recorded twice (5,760)
Net sales 132,494)
Sales at lower markup *(6,480)
126,014

*6,000/100 x 120 = 7,200

!!
Less: discount (10%) = (720)

H
6,480

A
Cost of Sales
126,014-12,800 = 113,214 X 100/120 = 94,345

LL
Cost of Sales at lower markup = 6,000
Total cost of sales = 100,345

A
A. 5

Statement showing the amount of Physical Stock at Cost as on 31st March, 2013

ER
Rs.
(a) Stock at cost as on 31 March 2013 800,525
Add: Cost of undervalued items [Rs, 49.5 (50,00 - 0.5) x 100] 4,950
B
Total of a page under cast 980
EM

Less: Error in carry forward of a page total (Rs, 6,509 - Rs. 6,059) 450
Adjusted stock as on 31 March 2013 806,005
EM

(b) Purchases from April to June 2013 138,560

Add: Goods purchased before 30 June 2013 but recorded in July 2013 23,300
Less: Goods received before 31 March 2013 but recorded in the later
months 12,300
R

Adjusted cost of purchases for April to June 2013 149,560

YS

(c) Sales from 1 April 2013 to 30 June 2013 251,070

Add: Goods despatched before 30 June 2013 but invoice raised in July
2013 25,245
A

Less: Goods despatched before 31 March 2013 but recorded in the

later months 13,825
LW

Less: Credit notes issued to customers for sales return during April to
June 2013 11,290
251,200
A

Less: Gross margin @ 25% on cost (251,200 / 125 x 100) 50,240

Adjusted cost of sales for April to June 2013 200,960

(d) Stock as on 30 june 2013

Adjusted stock as on 31 March 2013 806,005
Purchases 149,560
Cost of sales (200,960)
physical stock as on 30 June 2013 754,605

Page 9 of 22
Disclosures of inventories:
The financial statements shall disclose:
(i) Accounting policies used in measuring inventories including cost formula used.
(ii) Total *carrying amount of inventories and the carrying amount in classification appropriate to
entity (if manufacturing business).
(iii) The amount of inventories recognized as an expense (means amount of cost of sales).
(iv) Amount of any write-down of inventories recognized as an expense (means any loss due to lower
NRV or because of damage of goods).
(v) The carrying amount of inventories pledged as security for liabilities.

!!
*carrying amount means closing value of inventory that will appear in statement of financial position.

H
Question 1

A
A company deals in Solar Panels which are imported from China. The company follows a perpetual
inventory system and values its inventory on weighted average basis. Details of sales and purchases

LL
during the year ended 30 June 2015 are as follows:
(i) Opening inventory on 1 July 2014 amounted to Rs. 49,000,000 and consisted of 2,450 solar
panels.

A
(ii) Purchases during the year were as follows:

ER
Quantity Price
Date
(Units) (Rs. In ‘000’)
30-Sep-2014 4,200 78,120
B
31-Mar-2015 4,350 87,000
EM

There are non refundable and refundable taxes of 12% and 17% respectively.
(iii) Sales during the year were as follows:
EM

Quantity Price
Date
(Units) (Rs. In ‘000’)
31-Jul-2014 2,100 52,500
R

31-Oct-2014 2,050 48,750

28-Feb-2015 2,300 55,200
YS

15-May-2015 2,260 53,110

(v) On 31 May 2015, 50 solar panels were totally damaged and were written off (means record as a
A

loss).
LW

(vi) On 30 June 2015 there was a significant decline in the prices of solar panels as a new type of solar
panel was introduced in the market. Selling prices are now Rs. 18,500 per unit. However, the
company has decided to make some modification in its product which will enable it to sell it at Rs.
22,000 per unit. Cost of modification will be Rs. 2,500 per unit.
A

Required:
Prepare disclosure of inventories (also called as note of inventories) in the financial statements for the
year ended 30 June 2015 in accordance with the requirements of IAS-2 ‘Inventories’. (13)

Page 10 of 22
Question 2
A company deals in imported equipment. The management follows periodic inventory system to maintain
and update its inventory records, and values its stock on weighted average.
The following information pertains to the year ended 31 December 2016.
 Opening inventory amounted to Rs. 12,000,000 and consisted of 600 units.
 Purchases during the year were:
Date Units Per Unit
31-Mar-16 300 21,500

!!
16-Jun-16 300 22,000

H
31-Oct-16 400 23,000

A
 Sales during the year were as follows:

LL
Date Units Rate/Unit
25-Feb-16 420 30,000

A
15-Jul-16 340 30,000
2-Sep-16 390 30,000


ER
On 10 April 2016, 50 units from the purchase on 31 March were found to be damaged and returned
to the supplier.
B
 During the year, 80 units were damaged in an accident in the warehouse and were written off.
EM

 75 units were returned by a customer on 25 September, from the sale made on 2 September 2016:
 During the stock count conducted on 31 December 2016, it was found that 100 units were slightly
damaged with an estimated selling price of 50% of the normal selling price. Estimated repair
EM

charges are Rs. 5,000 per unit.

Required:
(a) Value of inventory to be disclosed in the financial statements on 31 December 2016. (07)
R

(b) Pass necessary journal entry for the loss of inventory. (02)
YS

(c) Show the disclosures for inventory (also called as note of inventory) in financial statements for the
year ending 31 December 2016. (04)
A
LW
A

Page 11 of 22
A.1
Inventory is measured at lower of cost and NRV and cost is measured by using weighted
average method.

2015
1. Closing stock 43,680
2. Closing inventory comprises of items costing Rs. 50,015,000 valued at net realizable value of Rs.
43,680,000.
3. The inventory expenses (cost of sales) for the year is Rs. 189,138,000 (W-4)

!!
4. Damaged inventory of Rs. 1,116,000 has been written off. (50 × 22.328)

H
5. Loss due to lower NRV [50,015 – 43,680] 6,335

A
6. There are no inventories pledged as security.

LL
Workings:
Rs. In ‘000’

A
Purchases / receipts Sales / issuance Stock balance
Date
Qty PUC Value Qty PUC Value Qty PUC Value

ER
1-7-14 2,450 20.000 49,000
31-7-14 2,100 20.000 42,000 350 20.000 7,000
B
30-9-14 4,200 20.832 87,494 4,550 20.786 94,494
31-10-14 2,050 20.768 42,574 2,500 20.786 51,920
EM

28-2-15 2,300 20.768 47,766 200 20.786 4,154

31-3-15 4,350 22.400 97,440 4,550 22.328 101,594
15-5-15 2,260 22.328 50,462 2,290 22.328 51,132
EM

31-5-15 (50) 22.328 (1,116) 2,240 22.328 50,015

Total 8,500 183,818 8,710 182,802
R

(W-1) Cost of Purchases

Sep-14 Mar-15
YS

Purchase price (A) 78,120 87,000

Non-refundable taxes (A × 12%) 9,374 10,440
A

Total cost 87,494 97,440

LW

(W-2) Net Realizable Value

Rs. ‘000’
A

Estimated selling price (22 × 2,240) 49,280

Less: Estimated cost of completion/repair (2.5 × 2,240) (5,600)
43,680

(W-3) Loss due to lower NRV is (50,015 – 43,680) 6,335

Page 12 of 22
(W-4) cost of sales:
Rs. ‘000’
Opening stock 49,000
Purchases (87,494 + 97,440 -1,116) 183,818
Closing stock (43,680)
189,138
Or [42,000 + 42,574 + 47,766 + 50,462 + 6,335 (loss of NRV)] = 189,138
Note: cost of sales are increased by 6,337 which is that loss due to lower NRV. This loss is to be

!!
recorded immediately.

H
If Periodic Inventory System: [Solar Panels] (Weighted Average Method)
Disclosures:

A
Inventory is measured at lower of cost and NRV and cost is measured by using weighted average

LL
method.
Value of closing stock (W 1) 43,680

A
Loss due to lower NRV [47,645 – 43,680] = 3,965
Cost of damaged goods = 50 × 21.27 (W.1) = 1,064.5

ER
Cost of Sales:
Opening Stock 49,000
B
Add Purchases [87,494 + 97,440 – 1,064.5] 183,869
EM

Less Closing Stock (43,680)

189,189
EM

There are no inventories pledged as security.

W1

 49,000  87,494  97,440 

R

=  
 2,450  4,200  4,350 
YS

233,934
= = 21.27/unit
11,000
A

Closing Stock = 2,240 × 21.27 = 47,645

NRV = 2,240 × [22 – 2.5] = 43,680
LW
A

Page 13 of 22
A.2
(a) Cost of Closing Stock
Weighted average cost per unit – Opening stock (Rs.) + Purchases (Rs.) – Purchase returns (Rs.)/
Opening Units + Units Purchased – Units Returned

Rs. Units
Opening stock 12,000,000 600
Purchases 31-Mar-16 6,450,000 300

!!
16-Jun-16 6,600,000 300

H
31-Oct-16 9,200,000 400

A
Purchase returns (50*21,500) (1,075,000) (50)
Total 33,175,000 1,550

LL
Per unit = 33,175,000/1,550
21,403

A
value of closing stock
= 600 + 300 + 300 + 400 – 420 – 340 – 390 – 50 – 80 + 75 = 395

ER
Damaged units = 100
Good units = 395 – 100 = 295
B
Rs.
EM

Value of good units = 295 × 21,403 = 6,313,885

Value of damaged goods:
Cost (100 x 21,403) 2,140,300
EM

NRV per Unit:

Estimated selling price (50% x 30,000) 15,000
Less: Cost of repairs 5,000
R

NRV 10,000
YS

Total NRV of damaged goods = 100 x 10,000 = 1,000,000

Total Value of closing inventory on 31 Dec. (6,313,885 +
1,000,000) 7,313,885
A
LW

(b)
Cost of inventory lost in an accident = 80 x 21,403 = 1,712,240
Journal Entry:
A

Loss of stock 1,712,240

Purchases 1,712,240

Page 14 of 22
(c) Disclosures:

Stocks are valued at the lower of cost and Net Realisable

Value. Cost is calculated using weighted average.
31-Dec-16
1. Closing stock 7,313,952

2. Value of stock as on 31 December 2016 includes items costing Rs. 2,140,300 (W-1), which are
valued at 1,000,000 (its NRV).
3. Goods damaged during the year costing 1,712,240.

!!
4. Loss due to lower NRV is 1,140,300 [2,140,300 – 1,000,000]

H
5. Inventory expenses (cost of sales) for the year amounted to Rs. 24,148,525 (W-2)

A
(W-1) 100 x 21,403 = 2,140,300

LL
(W-2) Opening Stock = 12,000,000
Purchases [(6,450 + 6,600 + 9,200 – 1,075) – 1,772.24] 19,462,760
Closing Stock (7,313,885)

A
Cost of Sales 24,148,875
6.There are no inventories pledged as security.

ER
B
EM
EM
R
YS
A
LW
A

Page 15 of 22
Manufacturing Business:
In such a business a factory in addition to head office (in which there are admin and selling
departments) is needed to manufacture the goods. In such type of business an extra statement called as
cost of goods manufactured statement is also prepared in addition to an Income Statement.
Before the format of cost of goods manufactured; we have to understand the followings:
There are three types of stocks in a manufacturing business:
Raw Material also called as direct material (which is an integral part of finished goods)

!!
Finished goods (the products which are manufactured for being sold)

H
Work-in-process (semi-finished goods).

A
Direct labor
Salary of those employees directly involved in converting the raw material into finished goods

LL
Factory Overheads:

A
All expenses within factory except direct material and direct labor.
Indirect Material:

ER
Any material other than raw material e.g cleaning material or oil and lubricants of machinery.
Indirect Labour:
B
Salary of employees within factory but outside the production department e.g security guards.
EM

Prime cost:
Total of direct material and direct labor cost.
EM

Conversion cost:
Total of direct labor and factory overheads is called as conversion cost.
R
YS
A
LW
A

Page 16 of 22
Extra practice questions of Inventories:

Q.1 Raja makes up his annual accounts to 31st December each year. He was unable to take stock of
physical inventory till 9th January 2010 on which date the physical stock at cost was valued at Rs 75,200.
You are required to ascertain the value of physical stock at cost on 31s December, 2009 from the
following information regarding the period from 1st January, 2010 to 9th January, 2010.
(a) Purchase of goods amounted to Rs 25, 600 of which goods worth Rs 4,700 had been received on
28.12.2009 and goods worth Rs 5,900 has been received on 12.01.2010.

!!
(b) Sales of goods amounted to Rs 38,400 of which goods of value of a sale Rs 3,600 had not been
delivered at the time of stock verification and goods of a sale value of Rs 6,000 had been

H
delivered on 29.12.2009.

A
(c) Sales return amounted to Rs 1,080.

LL
(d) A sub-total of Rs 12,000 on one of the stock sheet had been carried to the summary of stock
sheets as Rs 21,000.

A
(e) In respect of goods costing Rs 4,000 received prior to 31st December 2009 invoice had not been
received up to the date of verification of stock.

ER
(f) The rate of gross profit was 20% on the cost price.
B
Q.2 Basher sells three types of products, which are used in electronic industry. He maintains periodic
inventory system and uses monthly weighted average as cost basis. His accounting year ends on 30 th
EM

June every year.

On 30th June, 2010, he could not carry out physical stock take due to some unavoidable reasons.
EM

However he managed to count stock on 3rd July, 2010 which was as follows:

Items Units
R

Aa 2,700
Bb 4,800
YS

Cc 1,400
Following transactions took place during first three days of July 2010:
A

Purchase Data:
LW

Rate/Unit Total Cost (Rs.)

Aa Rs. 15 15,000
A

Cc Rs. 23 52,900
Sales data:
Aa This product has good market and is sold at a price of Rs. 28 per unit. Total invoices for the period
were of Rs. 30,800.
Bb Due to technology change in last month, demand for this product has gone down. With lesser
demand, this product could only be sold for Rs. 22 per unit. However it is expected that price will
not fall further. During the period, total sales made were Rs. 5,500.

Page 17 of 22
Cc This is the most profitable product and is sold at a price of Rs. 65 per unit. Sales for the period
were Rs. 178,750.

Delivery cost for all type of products is Rs. 2 per unit.

In order to calculate weighted average cost per unit for the month of June 2010, following data is also
available:
Stock as on 1st June 2010 Purchases during June 2010
Items Units Rate (Rs.) Total (Rs.) Units Rate (Rs.) Total (Rs.)

!!
Aa 3,000 12 36,000 9.000 14 126,000

H
Bb 4,200 22 92,400 8,400 25 210,000

A
Cc 2,500 18 45,000 17,500 22 385,000

LL
Required:
Calculate value of inventory as at 30th June 2010. (13)

A
Q.3 Digital World (DW) closes its accounts on 30 June each year. This year physical stock

ER
taking was delayed and carried out on 10 July 2018. The cost of physical stock on that
date was determined at Rs. 1,126,000. Following further information is available:
B
(i) Purchase invoices received from suppliers during 1 July to 10 July 2018 amounted
to Rs. 366,000. These include invoices amounting to:
EM

 Rs. 28,000 for goods dispatched by a supplier but not received by DW till 10
July 2018.
 Rs. 20,000 for goods received on 28 June 2018.
EM

(ii) Goods costing Rs. 44,000 were received on 8 July 2018 but the corresponding
invoice was not received till 10 July 2018.
(iii) Details of credit notes from suppliers are as follows:
R

Credit notes date Goods returned date Rupees

YS

4 July 2018 27 June 2018 23,000

9 July 2018 7 July 2018 9,000
13 July 2018 9 July 2018 14,000
A
LW

(iv) Selling price of goods dispatched to customers from 1 July 2018 to 10 July 2018
amounted to Rs. 375,000. This included:
 Rs. 62,500 relating to goods invoiced but not received by customers till 10
A

July 2018.
 Rs. 34,000 relating to goods not invoiced till 10 July 2018.

(v) DW’s stocks-in-transit from suppliers as on 30 June 2018 were amounted to Rs.
36,000. Of these, goods costing Rs. 13,100 were received on 9 July 2018 and
remaining goods have not yet been received.

Page 18 of 22
(vi) Goods costing Rs. 150,000 were found to be damaged and are expected to realize
Rs. 110,000 after repairing at a cost of Rs. 26,000. It was ascertained that 40% of
the goods were damaged in July 2018.
(vii) It was discovered that goods included in the stock valuation at Rs. 16,600 were
mistakenly valued at their selling price.
(viii) DW sells goods at a mark-up of 25% on cost.

Required:
Compute the value of stock as at 30 June 2018. (10)

!!
H
A
LL
A
ER
B
EM
EM
R
YS
A
LW
A

Page 19 of 22
Answers:
A.1
Statement showing the value of physical stock on 31st December, 2009.
Rs. Rs.
th
Stock as on 9 January, 2010 75,200
st th
Add: Cost of goods sold and dispatched during 1 and 9 January, 2010 23,100
(Note 1)

!!
Less: Goods actually received during 1st and 9th January, 2010 (Note 2) 15,000

H
Less: Wrong carry forward (Rs. 21,000 – 12,000) 9,000
Value of stock on 31st December, 2009

A
74,300

LL
Working Notes:
(1) Cost of Goods Sold

A
Rs.
Sales 38,400

ER
Less: Goods not dispatched 3,600
Less: Goods dispatched on 29.12.2009 6,000
B
28,800
EM

Less sale return (1,080)

Net sales 27,720
Cost of sales (27,720 / 120 x 100) 23,100
EM

(2) Goods Actually Received During 1st and 9th January, 2010
R

Rs.
YS

Purchases 25,600
Less: Goods received on 28.12.2009 4,700
Less: Goods received on 12.1.2009 5,900
A

15,000
LW

A.2 Value of Inventory as on June 30, 2010.

Items Units (W-1) Cost/Unit (W-2) NRV/Unit (W-3) Lower Value
A

Aa 2,800 13.50 26.00 13.5 37,800

Bb 5,050 24.00 20.00 20 101,000
Cc 1,850 21.5 63.00 21.5 39,775
178,575

(W-1) closing stock units as on 30.06.2010

Aa Bb Cc

Page 20 of 22
 Stock on 3rd July 2,700 4,800 1,400
Less Purchases 1,000 -- 2,300
(15,000 ÷ 15) (52,900 ÷ 23)
Add Sold 1,100 250 2,750
(30,800 ÷ 28) (5,500 ÷ 22) (178,750 ÷ 65)
_____ _____ _____
th
Stock on 30 June 2,800 5,050 1,850

!!
Opening Stock  Purchases ( Amount)
(W-2) Average Cost/Unit =
Opening Stock  Purchases (Unit)

H
A
Aa = 13.50

LL
Bb = 24.00
Cc = 21.50

A
(W-3) NRV / unit:
Selling Price Delivery Cost NRV

ER
Aa 28 2 26
Bb 22 2 20
B
Cc 65 2 63
EM

Ans. 3
EM

Value of stock as on 10-7-2018 1,126,000

Purchases (W-1) (352,100)
Cost of sales (W-2) 300,000
R

Goods mistakenly included at selling price (16,600/125 x 25) (3,320)

YS

Stock as on 30-6-2018 1,070,580

Adjustment of NRV (W-3) (39,600)
Physical stock as on 30-6-2018 (At lower of cost and NRV) 1,030,980
A

Add: Stock in transit as on 30-6-2018 36,000

LW

Total value of stock 1,066,980

W-1) Purchases:
A

Given (according to invoices) 366,000

(i) Goods invoiced but not received (28,000)
(i) Goods received prior to year end (20,000)
(ii) Goods received on 8-7-2018 but invoice not received 44,000
(v) Goods received on 9-7-2018 from in-transit(include in 13,100
purchases as given figure is according to invoices)
375,100

Page 21 of 22
Less: Purchase Return:
7- July – 2018 9,000
9- July – 2018 14,000
23,000
Net Purchase (375,100 – 23,000) 352,100

W-2) Cost of Sales:

!!
Given Sales dispatched 375,000

H
As both goods in point (iv) are dispatched therefore these goods
are sold and as such no need of any adjustment.

A
x 100 = 300,000

LL
A
W-3) Adjustment of NRV of stock:

ER
Cost (150,000 x 60%) 90,000
NRV (84,000* x 60%) 50,400
*(110,000 – 26,000 = 84,000)
B
39,600
EM
EM
R
YS
A
LW
A

Page 22 of 22