Question

On $31stMarch$, goods sold at a sale price of $Rs.30,000$ were lying with customer, Mohan to whom these goods were sold on 'sale or return basis' and recorded as actual sales. Since no consent was received from Mohan, the adjustment entry was made presuming goods were sent on approval at a profit of cost plus $20$%. In the balance sheet, the stock with customers account will be shown at _________.

• A. $Rs.30,000$
• B. $Rs.24,000$
• C. $Rs.20,000$
• D. $Rs.25,000$

Answer 1

The correct option is D $Rs.25,000$

If the goods are sent on sale or return basis, the unsold goods must be included in the stock at cost. As the transaction has not been treated as actual sale, the profit margin needs to be reversed and the stock is to be shown in balance sheet at its cost.
$Profit=20$% of cost $=1/5th$ of cost $=1/6th$ of Sale $=1/6\times 30,000=Rs.5,000$. Thus, the goods to be shown in balance sheet $=30,000-5,000=25,000$.