Valuing Stock and Writing Off

Valuing Stock:
Valuing stock is an important aspect of accounting. It involves assessing the value of inventory held by a business at a particular point in time. The valuation of stock is important because it is used to determine the cost of goods sold and the amount of gross profit earned by a business.

Writing Off:
Writing off is the process of reducing the value of an asset to zero on the balance sheet. This is done when the asset is no longer useful or has lost its value completely.

Transaction Details

In the given scenario, a sum of Rs. 50,000 was written off a particular item of stock on 31.3.2019. This item was originally purchased for Rs.1,80,000 and was sold for Rs.1,00,000. However, the gross profit earned during the year was 25% on cost.

Calculation of Gross Profit

The gross profit earned during the year can be calculated as follows:

Cost of Goods Sold = Opening Stock + Purchases - Closing Stock
Gross Profit = Sales - Cost of Goods Sold
Gross Profit % = Gross Profit / Cost of Goods Sold * 100

Let's assume that the opening stock was Rs.1,00,000, purchases during the year were Rs.5,00,000 and the closing stock was Rs.1,50,000. Then the cost of goods sold would be:

Cost of Goods Sold = 1,00,000 + 5,00,000 - 1,50,000
Cost of Goods Sold = Rs.4,50,000

The gross profit earned during the year would be:

Gross Profit = 6,25,000 - 4,50,000
Gross Profit = Rs.1,75,000

The gross profit percentage on cost would be:

Gross Profit % = 1,75,000 / 4,50,000 * 100
Gross Profit % = 38.89%

Impact of Writing Off on Valuation

When a sum of Rs. 50,000 was written off a particular item of stock, it reduced the value of the inventory held by the business. As a result, the cost of goods sold would have reduced by Rs. 50,000. This would have increased the gross profit earned during the year. However, the impact of the write off on the overall valuation of stock would depend on the number of units of the item sold during the year.