CA Foundation · Accounting · Inventories
A retailer values its stock by the retail method. Opening stock: cost ₹30,000, selling price ₹50,000. Purchases during the year: cost ₹1,70,000, selling price ₹2,00,000. There were no markups or markdowns. Sales for the year were ₹1,80,000. What is the closing stock at cost?
Closing stock at cost is ₹56,000. Goods available at retail total ₹2,50,000 and at cost ₹2,00,000, giving a cost ratio of 80%. Closing stock at retail is ₹2,50,000 less sales of ₹1,80,000, which is ₹70,000. Converting at 80% gives ₹56,000.
- A₹70,000
- B₹59,500
- C₹56,000Correct
- D₹1,44,000
Explanation
Goods available at cost = 30,000 + 1,70,000 = ₹2,00,000; at retail = 50,000 + 2,00,000 = ₹2,50,000. Cost ratio = 2,00,000/2,50,000 = 80%. Closing stock at retail = 2,50,000 − 1,80,000 = ₹70,000, and at cost = 70,000 × 80% = ₹56,000. Using only the purchases ratio (85%) gives ₹59,500, which is wrong because opening stock is ignored.
Did you get it right without looking?
One question tells you little. A timed set on Inventories shows your real accuracy, how long you take and where you lose marks.
More Inventories questions
- Which of the following is a correct reason for writing down inventories below cost to net realisable value?
- As per AS 2 (Valuation of Inventories), at the balance sheet date inventories are generally valued at:
- Stock was counted on 5 April at ₹2,40,000 at cost. Between 1 April and 5 April, sales were ₹50,000 at a profit of 25% on sales, and purchase…
- Verma Ltd has a normal capacity of 20,000 units per year and fixed production overheads of ₹6,00,000. In the current year, due to a strike, …
- As per AS 2 (Valuation of Inventories), inventories are ordinarily valued at:
- Mehta Foods processes a main product and a by-product. Total joint processing cost is ₹5,00,000. The by-product is immaterial in value and c…