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??

Chaitali Jiwankar

Oct. 9, 2016, 1:08 a.m.

Answers!

Davneet Singh

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

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

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