Calculating Closing Stock in Accounting

The question asks us to determine the amount of closing stock based on the provided financial figures including Sales, Opening Stock, Purchases, Direct Expenses, and the rate of Gross Profit on Cost.

Understanding Key Accounting Terms

• Sales: The total revenue generated from selling goods.
• Opening Stock: The value of inventory at the beginning of the accounting period.
• Purchases: The value of goods bought for resale during the period.
• Direct Expenses: Expenses directly related to bringing goods to their place of sale, such as productive wages and carriage inwards.
• Closing Stock: The value of inventory at the end of the accounting period.
• Cost of Goods Sold (COGS): The direct costs attributable to the production or purchase of the goods sold by a company during a period. The formula is: Opening Stock + Purchases + Direct Expenses - Closing Stock.
• Gross Profit: The profit a company makes after deducting the costs associated with making and selling its products. Formula: Sales - COGS.

Relationship between Sales, COGS, and Gross Profit

Sales = COGS + Gross Profit

We are given that the Rate of Gross Profit is 20% on Cost. This means Gross Profit $= 20\%$ of COGS, or $\frac{20}{100} \times \text{COGS}$.

Step-by-Step Calculation of Closing Stock

Let's use the given information to find the Cost of Goods Sold (COGS) first.

Given:

• Sales = Rs. 6,00,000
• Gross Profit Rate on Cost = 20%

If we let COGS = $x$, then Gross Profit = 20% of $x = 0.20x$.

Using the relationship: Sales = COGS + Gross Profit

Rs. 6,00,000 = $x + 0.20x$

Rs. 6,00,000 = $1.20x$

Now, we can calculate COGS ($x$):

$x = \frac{6,00,000}{1.20}$

$x = 5,00,000$

So, the Cost of Goods Sold (COGS) is Rs. 5,00,000.

Next, we need to calculate the total direct expenses:

Direct Expenses = Productive Wages + Carriage Inwards

Direct Expenses = Rs. 10,000 + Rs. 7,000

Direct Expenses = Rs. 17,000

Now we can use the COGS formula to find the Closing Stock:

COGS = Opening Stock + Purchases + Direct Expenses - Closing Stock

We know COGS = Rs. 5,00,000, Opening Stock = Rs. 50,000, Purchases = Rs. 5,00,000, and Direct Expenses = Rs. 17,000.

Rs. 5,00,000 = Rs. 50,000 + Rs. 5,00,000 + Rs. 17,000 - Closing Stock

Rs. 5,00,000 = Rs. (50,000 + 5,00,000 + 17,000) - Closing Stock

Rs. 5,00,000 = Rs. 5,67,000 - Closing Stock

Now, rearrange the formula to solve for Closing Stock:

Closing Stock = Rs. 5,67,000 - Rs. 5,00,000

Closing Stock = Rs. 67,000

Therefore, the amount of closing stock is Rs. 67,000.