when we create a provision for unrealised profit ..........in following years we only adjust the increase or decrease...........
for eg..........
2003 (15% mark up on factory goods)
closing stock = 60000(in P&L)
so unrealized profit= 8000(fully debited in P&L)
2004(15% mark up on factory profit)
closing stock= 85000
so unrealized profit = 11000(but only 3000 debited to increase the provision )
will it not overstate the profit....in 2003 we are charging full 8000 to P&L but in 2004 in place of 11000 we only debit 3000..........................
pls crct me where am i wrong.....i want to clear the concept
for eg..........
2003 (15% mark up on factory goods)
closing stock = 60000(in P&L)
so unrealized profit= 8000(fully debited in P&L)
2004(15% mark up on factory profit)
closing stock= 85000
so unrealized profit = 11000(but only 3000 debited to increase the provision )
will it not overstate the profit....in 2003 we are charging full 8000 to P&L but in 2004 in place of 11000 we only debit 3000..........................
pls crct me where am i wrong.....i want to clear the concept