In the preceding pages, we have explained that inventory is to be valued at cost or market price, whichever is less. We have also explained the various methods for calculation of the cost as well as the market price. However, in certain cases, it will not be possible for the business to take inventory on the date of the balance sheet. The inventory might have been taken on a date earlier or later to the date of the balance sheet. In such a case, the value of inventory on the date of the balance sheet can be found out by making suitable adjustments in the value of the inventory as taken on a particular date. Some of the important adjustments and their treatment are explained below: () If Inventory is taken on a date after the balance sheet date: For example, if the balance sheet is prepared on 31 December, 2001 and the inventory has been taken on 31 January 2002, the following adjustments will generally be required: Inventory as on 31 January 2002 Less: Purchases made between 1 January, 2002 to 31 January, 2002 Less: Sales returns (at cost price between Jan. 1, 2002 to 31 Jan. 2002) Add: Sales (at cost price between 1 January 2002 to 31 January 2002) Add: Purchases returns between 1 January, 2002 to 31 January, 2002 Value of Inventory as on 31 Dec., 2001 (ii) If'inventory is taken on a date before the balance sheet date: In case the inventory is taken, say, on 30 November, 2002, and the balance sheet has to be prepared as on 31 December, 2002, the above adjustment will be done in a reverse order taking inventory as on 30 November, 2001 as the base. In other words, items which have been added above will be subtracted and items which have been subtracted above will be added to find out the value of inventory as on 31 December, 2002. Particular care has to be taken of the items which have been sold at a rate of gross profit lower or higher than the normal rate of gross profit i57 3. Accounting Research and Terminology Bulletin, Final Edition Ch. 6. p. 42. The following illustrations will help the students in understanding the various adjustments required for valuation of inventories. Illustration 7.8. The financial year of Mr Philip ends on 31 March, 2004 but the stock on hand will be physically verified only on 7 April, 2004. You are required to determine the value of Closing Stock (at cost) as on 31 March, 2004 from the following information: (i) The stock valued at cost) as verified on 7 April, 2004 was Rs 15,400. (ii) Sales have been entered in the Sales Day Book only after the despatch of goods and Sales Returns only on receipt of the goods. (ii) Purchases have been entered in the Purchase Day Book on receipt of purchase invoice irrespective of the date of receipt of goods. (iv) Sales as per the Sales Day Book for the period 1 April, 2004 to 7 April, 2004 (before the actual verification) amounted to Rs 6,880 of which goods of sale value Rs 1,200 had not been delivered at the time of verification. (v) Purchases as per the Purchased Day Book for the period 1 April, 2004 to 7 April, 2004 (before the actual verification) amounted to Rs 5,800 of which goods for purchases of Rs 1,500 had not been received at the date of verification and goods for purchases of Rs 2,000 had been received prior to 31 March, 2004. (vi) In respect of goods costing Rs 5,000 received prior to 31 March, 2004, invoices had not been received until the date of verification of stocks. (vii) The gross profit is 25 per cent on sales