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    In company final account after sales we show goods destroyed by fire and goods distributed freely for advertisement by company,in trading account on credit side , why it is so??
    Davneet Singh's image
    Davneet Singh

    Hi Chaitli

    If goods are given free  or destroyed by  fire

    Ideally Purchase should be credited(reduced)

    Example

    Advt Exp Dr

              To Purchase

    Some people instead of reducing Purchase show it on Credit Side so that it has the same effect

    Advt Exp Dr

              To Goods Destroyed by fire

     

    Example

    Suppose a Company purchased 1000 Kg Item @ 100

     

    Trading A/c is as follows

      Trading A/c    
    Particulars Amount Particulars Amount
    Purchases 100000    
    (1000kg*100)      
        Cl Stock 100000
        (1000kg*100)  
    Total 100000 Total 100000

     

    Suppose 600 Kg Sold @ 140

    Trading A/c
    Particulars Amount Particulars Amount
    Purchases 100000 By Sales 84000
    (1000kg*100)   (600kg*140)  
           
    Gross Profit 24000 Cl Stock 40000
        (400kg*100)  
      124000   124000

     

    Suppose 100 Kg goods distributed free by Advertisement

    Trading A/c
    Particulars Amount Particulars Amount
    Purchases 100000 By Sales 84000
    (1000kg*100)   (600kg*140)  
           
        By Goods Distrubuted free 10000
        (100*100)  
           
    Gross Profit 24000 Cl Stock 30000
        (300kg*100)  
      124000   124000
    By Advt Exp 10000 By Gross Profit 24000
           
    Net Profit 14000    
           

     

    Alternatively

    Trading A/c
    Particulars Amount Particulars Amount
    Purchases 100000 By Sales 84000
    (1000kg*100)   (600kg*140)  
    Less       
    By Goods Distrubuted free 10000    
    Net Purchases 90000    
           
    Gross Profit 24000 Cl Stock 30000
        (300kg*100)  
      114000   114000
    By Advt Exp 10000 By Gross Profit 24000
           
    Net Profit 14000    
           

     

     

    Both have the same effect

     

    Similar is the case with Goods Destroyed by fire

     

    Written on Oct. 9, 2016, 9:18 p.m.

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