Valuation of Goodwill

polepalli deeraj

For every transaction we need to follow double entry system. Here, actually when loss happens due to fire we need to write loss by fire in credit side of trading account and debit side of profit and loss account. It means while crediting trading account the profit is increasing and while debiting profit and loss account the profit is decreasing. But here they only debited the profit and loss account it means they only decreased profit. They didn't follow the double entry. So they added the loss by fire to profit to rectify the entry

Thread Starter

But in trading account we deduct loss by fire from closing stock that means credit side, when loss is not recorded, is more right so profit is shown in excess than actual so we should deduct right..

polepalli deeraj

Yes

Thread Starter

But in trading account we deduct loss by fire from closing stock that means credit side, when loss is not recorded, is more right so profit is shown in excess than actual so we should deduct right..

polepalli deeraj

We are deducting it from closing stock to show it separately so that we can identify it

Thread Starter

Thank you . I got it . Thanks again