Forums
Back
Departmental accounts
Accountancy
In this book back question from study material, why do we credit the stock reserve of opening stock in general profit and loss account? What does that have to do with FIFO method?
Answers (4)
That's because opening and closing stock of furniture department contains an element of profit. What would that element be is dependent on profits which Saw mill department makes. Last year it was 15%, this year 20%. These %es are applied to opening and closing stock, assuming FIFO method.
Sir there is a similar question which is illustration 7 in the book where we don't follow FIFO. In that sum we take the difference between the opening stock reserve and closing stock reserve and debit it to the general profit and loss account. Why under FIFO we are not taking the difference but rather crediting the opening stock reserve and debiting the closing stock reserve to the general p&l a/c?
Thread Starter
Mayilvizhi MaanSir there is a similar question which is illustration 7 in the book where we don't follow FIFO. In that sum we take the difference between the opening stock reserve and closing stock reserve and debit it to the general profit and loss account. Why under FIFO we are not taking the difference but rather crediting the opening stock reserve and debiting the closing stock reserve to the general p&l a/c?
You can also present the same way as Illustration 7. You shall get same Net profit. FIFO here is only for highlighting that last year gross profit % will be applied on opening stock and this year gross profit % on closing stock. Even in Illustration 7, they applied % assuming FIFO, even when they did not mention that FIFO is assumed.
Your Reply