CA Foundation · Accounting · Theoretical Framework
Ganesh Stores bought goods costing ₹1,20,000 during the year, of which goods costing ₹30,000 remain unsold at the year-end. The net realisable value of the unsold goods is ₹26,000. Following the convention of conservatism and the usual rule of stock valuation, at what value will the closing stock be shown?
Closing stock is shown at ₹26,000. Inventory is valued at the lower of cost and net realisable value, in line with conservatism, so the expected loss of ₹4,000 is recognised now instead of overstating assets and profit at the cost of ₹30,000.
- A₹30,000
- B₹26,000Correct
- C₹28,000
- D₹1,20,000
Explanation
Closing stock is valued at cost or net realisable value, whichever is lower. Cost is ₹30,000 and NRV is ₹26,000, so ₹26,000 is used, anticipating the loss of ₹4,000. Showing ₹30,000 would overstate profit and ignore conservatism.
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