Physical verification of stock in a business was done on 23rd June 201...
Stock Valuation Overview
The physical verification of stock on 23rd June 2018 revealed a value of ₹48 lakh. Following this, several transactions took place impacting the stock valuation.
Sales Transactions
- Total sales amounted to ₹13,60,000.
- Included in this were goods worth ₹3,20,000 sold on an approval basis.
- Half of these goods were returned before 30th June 2018, while the status of the remaining goods is unknown.
Cost and Selling Price Analysis
- Goods are sold at a cost plus a 25% markup.
- Therefore, the selling price of goods costing ₹40,000 was incorrectly recorded at ₹10,000, indicating a potential loss or discounting issue.
Why Take 80% of ₹1,60,000 for Cost of Goods on Approval?
- The total goods sold on approval amounted to ₹3,20,000.
- Since half of these goods (i.e., ₹1,60,000) were returned, we consider the remaining ₹1,60,000 as the potential revenue from sales.
- The goods sold on approval are often treated cautiously until the approval is confirmed, hence why only 80% (₹1,60,000) is accounted for.
Conclusion
The approach of taking 80% for goods on approval reflects a conservative accounting method, ensuring that only the goods likely to be retained are factored into the overall stock valuation. This is crucial for providing an accurate financial picture for the business.
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