Q.A trader's closing stock could not be physically verified at the year end. From the following figures for the year ended 31.3.2023, ascertain the Closing Stock by preparing a Memorandum Trading Account, given that the trader always earns a gross profit of 25% on sales: Opening Stock ₹30,000; Purchases ₹1,80,000; Purchases Returns ₹5,000; Sales ₹2,60,000; Sales Returns ₹4,000; Wages ₹15,000.

Because the trader's normal gross profit rate on sales is known, the Memorandum Trading Account first enters Gross Profit at that rate and then finds Closing Stock as the balancing figure.

Step 1: Net Sales and Net Purchases

Net Sales = Sales − Sales Returns = 2,60,000 − 4,000 = ₹2,56,000

Net Purchases = Purchases − Purchases Returns = 1,80,000 − 5,000 = ₹1,75,000

Step 2: Gross Profit at 25% on Sales

Gross Profit = 25% × 2,56,000 = ₹64,000

Step 3: Memorandum Trading Account for the year ended 31.3.2023

Cross-check using the Cost of Goods Sold approach: COGS = Net Sales − Gross Profit = 2,56,000 − 64,000 = 1,92,000. Also, COGS = Opening Stock + Net Purchases + Wages − Closing Stock = 30,000 + 1,75,000 + 15,000 − Closing Stock = 2,20,000 − Closi …

The most serious error here is applying the 25% rate to Gross Sales (₹2,60,000) instead of Net Sales (₹2,56,000) after deducting Sales Returns — Gross Profit is always computed on net sales, never on gross sales before returns. A second common error is omitting Wages (a …