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Ratio Analysis

In this question we have closing stock of Finished goods so why have we taken COGS = Works cost? Shouldnt that be added back to arrive at works cost?

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Priyanka Udeshi

Priyanka Udeshi

CA Inter

6K+

08-Mar-21 03:13

19

Answers (3)

Cost of goods sold is nothing but the manufacturing cost of a product which does not include profit element in it. And also Opening and closing stock values do not include profits. Since we are not provided with the details of opening or closing stocks, we assume that the cost will be equal to the works cost (cost of manufacturing).


Madhuri Veluri

Madhuri Veluri

Moderator

08-Mar-21 12:43

Ma'am but we have stock of Finished goods in question which in turn is closing stock so why haven't we considered that?

Opening stock + Purchases - Closing stock = COGS. In the question, since we do not have details about purchases and opening stock, we considered COGS as works cost. But if you intend to take closing stock on the credit, the works cost will be reduced with the closing stock amount and shall be debited. It is just an alternative. You need to give a note in the exam stating the same formula mentioned above and your assumptions on the same.


Madhuri Veluri

Madhuri Veluri

Moderator

08-Mar-21 13:18

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