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Adjusted selling price method

This method is also called as “retail inventory method”. This method is widely used in the retail business sector in which individual costs of all the items are not readily available.
 

The cost of inventory is ascertained by reducing the estimated percentage of gross margin from the sales value of inventory. The calculation of the estimated gross margin of profit may be made for individual items or by departments, as may be appropriate to circumstances.

 

 

 

Illustration 5

 

From the following particulars, calculate the value of retail inventory as on 31st March, 2012.

 

Particulars

Cost (₹)

Retail Price (₹)

Opening Inventory

50,000

75,000

Purchases

2,50,000

4,25,000

Sales

-

3,20,000


Solution:

Cost to Retail Price Rate = (Cost of goods available for sale / retail price of goods available for sale) X 100

= [(₹ 2,50,000 + ₹ 50,000) / (₹ 75,000 + ₹ 4,25,000 )] X 100

= (₹ 3,00,000 / ₹ 5,00,000) X 100 = 60%
 

Estimated ending inventory = Opening inventory + Purchases – Sales at retail price

= ₹ 75,000 + ₹ 4,25,000 - ₹ 3,20,000

= ₹ 1,80,000
 

C. Cost of estimated ending inventory = ₹ 1,80,000 X 60/100 = ₹ 1,08,000





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