Page 207 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Opening stock + Closing stock
= ` 1,80,000
2
Now, the closing stock value only is to be computed which is excess of ` 10,000 over opening
stock.
Closing stock = Opening stock + ` 10,000 ...(2)
Substitute the found value of closing stock (2) in the equation (1)

Opening stock + Opening stock + ` 10,000 = ` 3,60,000
2 Opening stock = ` 3,50,000
` 3,50,000
Opening stock = = ` 1,75,000
2
Closing stock = ` 1,75,000 + ` 10,000 = ` 1,85,000

Example 3: Find out the value of creditors from the following:
Sales ` 1,00,000 Opening stock ` 10,000

Gross profit on Sales 10% Closing stock ` 20,000
Creditors velocity 73 days Bills payable ` 16,000
All purchases are credit purchases.

To find out the volume of purchases, the formula of cost of goods sold should be taken into
consideration.
Cost of goods sold = Opening stock + Purchases - Closing stock
X = ` 10,000 + Y - ` 20,000

Cost of goods sold = Sales - Gross profi t
= ` 1,00,000-10% on ` 1,00,000
= ` 90,000
The next step is to apply the found value in the early equation.
Purchases = ` 90,000 - ` 10,000 + ` 20,000
= ` 1,00,000
To find out the value of creditors, the creditor velocity and creditors turnover ratio-

365 days
Creditors velocity =
Creditors turnover ratio
Credit purchases
Creditors turnover ratio =
Bills payable + Sundry creditors
` 1,00,000
=
` 16,000 + Sundry creditors

The next step is to find out the sundry creditors; the reversal process is to be adopted.
365 days
73 days =
Creditors turnover ratio
365 days
Creditors turnover ratio = = 5 times
73 days

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