In on the basis of cost price
In every business, stock is taken at the close and if the Stock Accounts are maintained properly and there is an effective system of internal check in operation, the possibility of fraud and errors is minimized.
The following points should be kept in mind while verifying the stock-in-trade:
(1) The method of stock-taking should be examined so that possibilities of fraud and errors may be found out. It should also be seen whether proper control is exercised over the receipt and the issue of goods in stock.
(2) The auditor should obtain a list of instructions issued in connection with the stock-taking.
(3) A few items should be checked in the rough stock sheets.
(4) The totals and balances of Stock Sheets should be thoroughly checked.
(5) The value of different items of stock should be examined with the help of Valuation Sheets, Invoices, etc.
(6) The principles and bases followed in the valuation of stock should be examined to ensure that they are those followed in previous years. To verify the work-in-progress and the closing stock, the accounts relating to costs should be checked.
(7) It should be seen that the valuation of stock is done on the basis of cost price or market price whichever is less, as stock is a floating asset and is meant for resale. The actual loss has been provided for and the stock is properly valued.
(8) The Goods Inward Register should be examined and it should be seen that the goods received on the closing day or earlier have been included in the stock.
(9) Similarly, the goods sold on or prior to the closing day, have not been included in the stock.
(10) It should also be ensured that the goods not related to the business have not been recorded in the stock.
(11) The percentage of gross profit to sale of the current year should be compared with that of the previous years. If there is some difference, that matter should be enquired into.