The following information is given : Opening stock ₹ 2,13,000, Purchases ₹ 16,55,000, Sales ₹ 21,32,000, Carriage inwards ₹ 32,500, Carriage outwards ₹ 38,600, return inwards ₹ 42,000.
If rate of gross profit is 25% on cost, then value of closing stock will be :

Question

The following information is given : Opening stock ₹ 2,13,000, Purchases ₹ 16,55,000, Sales ₹ 21,32,000, Carriage inwards ₹ 32,500, Carriage outwards ₹ 38,600, return inwards ₹ 42,000. 
If rate of gross profit is 25% on cost, then value of closing stock will be :

Accepted Answer

The correct option is 4: ₹ 2,28,500

This problem requires students to apply the fundamental accounting principle of calculating Cost of Goods Sold (COGS) and deriving the closing stock value, which is done through the Trading Account framework. The calculation is correct because it meticulously follows three steps. First, the Net Sales must be calculated by subtracting Return Inwards from Gross Sales (₹ 21,32,000 - ₹ 42,000 = ₹ 20,90,000). Second, the COGS is computed using the given Gross Profit (GP) rate of 25% on Cost, which mathematically translates to 20% on Sales (25/125). COGS is therefore Net Sales multiplied by 100/125, resulting in ₹ 16,72,000 (₹ 20,90,000 x 4/5). Finally, the Closing Stock is found by subtracting this COGS from the Cost of Goods Available for Sale (COGAS), which correctly includes Opening Stock, Purchases, and the direct expense of Carriage Inwards (₹ 2,13,000 + ₹ 16,55,000 + ₹ 32,500 = ₹ 19,00,500). Thus, ₹ 19,00,500 - ₹ 16,72,000 yields the correct closing stock value of ₹ 2,28,500.

The incorrect option is 1: ₹ 2,57,800
This option is reached due to a substantial error in calculating the Cost of Goods Sold or the Cost of Goods Available for Sale (COGAS). One likely error leading to a significantly higher closing stock is a major misstatement of the COGS figure, perhaps calculating a COGS that is too low by misinterpreting the gross profit rate (e.g., if one incorrectly used a higher COGS or lower GP on sales). Another conceptual error could be failing to include the direct expense, Carriage Inwards, in the COGAS calculation, which would incorrectly inflate the remaining stock value. Such errors demonstrate a misunderstanding of how direct costs affect the inventory valuation.

The incorrect option is 2: ₹ 2,33,000
This value is very close to the correct answer, suggesting a minor mathematical or arithmetic error rather than a complete conceptual failure. A common mistake here would involve a small miscalculation in the total Net Sales or COGS, such as an error in the subtraction of Return Inwards or a slight misapplication of the profit rate during the division step. Crucially, the expense **Carriage Outwards** (₹ 38,600) is an indirect expense related to selling and should be entirely excluded from the Trading Account and COGS calculation. If an attempt was made to incorrectly adjust COGAS for this item, it would lead to an incorrect, yet proximal, result.

The incorrect option is 3: ₹ 2,36,700
Like Option 2, this value is a near miss but points to a specific misapplication of accounting principles. A primary conceptual pitfall is the failure to distinguish between a **direct expense** (Carriage Inwards, which is correctly included in COGAS) and an **indirect expense** (Carriage Outwards, which is a selling expense and must be excluded). If a student correctly adjusted for one of the direct costs but failed to accurately calculate COGS from the Net Sales, this result could be obtained. The integrity of the Closing Stock calculation depends entirely on the accuracy of the computed COGS, and small errors in the Net Sales or profit conversion ratio will naturally lead to one of the nearby incorrect options.