PDFaid.Com #1 Pdf Solutions
Caultimates.com
Get More Updates From Caultimates.com Join with us : http://facebook.com/groups/caultimates
IPCC, Paper 3, Costing, Chapter 5 B.N.Pattabhi, M.Com., FCA
Caultimates.com
Dedicated to my Noble, Ever Loving, Ever Inspiring Parents Lalitamma & Nanjappa
Caultimates.com
1
• Understanding the systems of Accounting
2
• Differentiating between Integrated & Non-Integrated Systems of Accounting
3
• Identify and understand the ledgers maintained by finance & costing departments
4
• Understand & Appreciate the reasons for differences between Financial & Cost Accounting
5 6
• Master art of preparing a Reconciliation Statement • Master the journal entries passed in Integrated and Non-Integrated system of accounting
3
Caultimates.com
If an entity maintains one set of books of accounts for both cost & financial transactions such system of accounting is known as Integrated or Integral System of Accounting If an entity maintains separate set of books of account for cost and financial transactions such system of accounting is known as NonIntegrated System of Accounting Reconciliation is required in case of NonIntegrated System of Accounting
4
Caultimates.com
It is a system under which separate ledgers are maintained by accountants for cost and financial transactions, is also referred to as cost ledger accounting system. Under Non-Integrated system of accounting the cost accountants do not record/consider certain items which do not relate to the product produced or service rendered or are purely financial in nature. One of the special features of Non-Integrated system of accounting is that it considers even notional expenses like rent of own premises and interest on capital
5
Caultimates.com
1
• It contains fewer accounts as compared to financial accounts.
2
• Purchases, Expenses, Fixed Assets, Debtors & Creditors are excluded. All these are routed through a common account called cost ledger control account
3
• All accounts are called as control accounts, following are the accounts maintained and the purpose for which it is maintained
6
Caultimates.com
An Intro.
7
Caultimates.com
This is the principal ledger of the costing department
in which all impersonal accounts are maintained
it is a self balancing ledger since it will have a control account for each subsidiary ledger
8
Caultimates.com
This ledger records the movement of raw materials and consumables Records both quantity and values
9
Caultimates.com
It is also known as job ledger
it is contains accounts for unfinished jobs and processes.
All costs pertaining to a Job from the moment materials are issued to production till the job is completed are collected & posted to the respective job accounts in this ledger
10
Caultimates.com
It contains account for all the goods produced during the period,
once the production is complete WIP Ledger is Credited and FG Ledger is Debited
11
Caultimates.com
An intro.,
12
Caultimates.com
It is a balancing account for all other control accounts & is maintained to complete the double entry.
All expenses are Credited and sales is Debited to this A/c.
The balance in this account represents the sum total of all other control accounts.
13
Caultimates.com
All entries pertaining to raw materials & stores are routed through this account.
All purchases are Debited to this account and then transferred to respective control accounts based on the nature of the materials 14
Caultimates.com
All expenses pertaining to a job or process like Direct materials, labour, expenses & Factory Overheads recovered is Debited to this A/c &
The value of finished goods completed & transferred is Credited to this A/c
15
Caultimates.com
This A/c is Debited with the value of finished goods completed and transferred from WIP Control A/c and Administration overheads recovered.
This A/c is Credited with Cost of goods sold and consequently cost of sales account is Debited
16
Caultimates.com
This account is Debited with the total wages paid.
Total wages paid are then transferred to respective control A/c like direct wages to WIP, Indirect labour to FOH, Admin & S&D OHs to respective control A/c
This A/c is closed by transferring the abnormal labour costs if any to costing P&L A/c
17
Caultimates.com
This account is Debited with all those indirect costs incurred with in the factory and
Is Credited with OHs recovered into production.
18
Caultimates.com
This A/c is Debited with S&D OHs incurred and Credited with the OHs recovered
19
Caultimates.com
This A/c is Debited with cost of Finished goods sold and S&D OHs recovered.
The balance in this account is transferred to sales A/c or costing P&L A/c
20
Caultimates.com
This A/c is Debited with the cost of sales, under absorbed OHs & abnormal losses and
is Credited with sales, over absorbed OHs & abnormal gains. The net profit or loss is transferred to cost ledger
21
Caultimates.com
Overheads Adjustment A/c
This A/c is Debited with under recovery of OHs and
Credited with Over recovery of OHs.
The net balance in this account is transferred to costing profit and loss account
22
Caultimates.com
In all Overhead control accounts, the balance if any i.e difference between OH incurred and OH Absorbed representing under or over absorption of overhead is either transferred to Costing P&L A/c or OH Adjustment A/c
Sometimes, overhead adjustment account is done away with and under/over absorbed overheads is directly transferred to costing profit & loss account from the respective OH Control A/c
23
Caultimates.com
An intro.,
24
Caultimates.com
Materials Purchased Stores Ledger Control A/c Dr
To Cost Ledger Control A/c
Special Materials Purchased or a specific job Work In Progress Control A/c Dr
To Cost Ledger Control A/c
Materials Returned Cost Ledger Control A/c Dr
To Stores Ledger Control A/c
25
Caultimates.com
Direct Materials issued to production / Repairs Work In Progress Control A/c Dr
To Stores Ledger Control A/c
Indirect Materials issued to production Mfg/Prdn/Fac Overheads Control A/c Dr
To Stores Ledger Control A/c
Materials Returned from Factory to Stores Stores Ledger Control A/c Dr
to Work In Progress Control A/c
26
Caultimates.com
Wages Paid (Total of both Direct & Indirect wages) Wages Control A/c Dr
To Cost Ledger Control A/c
For Transferring wages Work In Progress Control A/c Dr
Factory OH control Account Dr
Admin OH Control Account Dr
S&D OH Control Account Dr
To Wages Control Account
Wages control A/c is Debited with total wages and then it is transferred to WIP control A/c & respective OH control A/cs in effect the wages control account is opened and closed immediately 27
Caultimates.com
Overheads Incurred Fac/ Admin/ S&D OH Control A/c Dr Fac/ Admin/ S&D OH Control A/c Dr
Fac/Admin/S&D OH Control A/c Dr
To Cost Ledger Control A/c
Factory Overheads Recovered
Work In Progress Control A/c Dr
To Factory Overheads Control A/c
Administration Overheads Recovered
Finished Goods Control A/c Dr
To Administration OH Control A/c
28
Caultimates.com
Selling & Distribution Overheads Recovered Cost of Sales A/c Dr
To S&D OH Control A/c
Under Recovered OHs Transferred to Costing P&L A/c Costing P&L A/c Dr
To Fact/Admin/S&D OH Control A/c
Over Recovered OHs Transferred to Costing P&L A/c Fact/Admin/S&D OH Control A/c Dr
To Costing P&L A/c 29
Caultimates.com
Sales
Cost Ledger Control A/c Dr
to Costing Profit & Loss A/c
To Transfer Profit
Costing Profit & Loss A/c Dr
To Cost Ledger Control A/c
To Transfer Loss
Cost Ledger Control A/c Dr
To Costing Profit & Loss A/c 30
Caultimates.com
It is a system of accounting wherein only one set of books of account is maintained for both cost and financial accounting. It combines the cost as well as financial entries and thereby caters to the needs of both internal and external users. The number of entries passed are higher than the entries passed in financial or Cost Accounting taken separately. The present day computerised accounting systems and enterprise level soft wares generally follow Integrated system of accounting
31
Caultimates.com
No need for reconciliation of cost & financial profits
Less / reduced efforts
Less Time consuming
Economical
32
Caultimates.com
Management’s decision on the level of integration
A suitable coding system
A pre determined routine with regards to provisions, accruals, prepaid expenses etc
Higher degree of cooperation between cost & financial accountants
33
Caultimates.com
In the integrated system of accounting, there is no common balancing ledger or A/c i.e cost ledger control or General Ledger Adjustment Account, instead the regular accounts like purchase, sales, bank, cash, debtors & creditors accounts are used.
All other financial accounts like fixed assets, depreciation etc are also used.
In a sense, we can conclude that it is an extension of Financial accounting system to cover the Cost Accounting aspects as well
34
Caultimates.com
The question of reconciliation will arise only under NonIntegrated System of Accounting.
The need for reconciliation arises mainly due to
Differential treatment of expenses
Purely Financial Transactions(both expenses & Income)
Items/ notional expenses included in cost accounting only
Change in the basis of valuation
35
Caultimates.com
Differential treatment of expenses Under Cost Accounting over heads are normally recovered or absorbed into production based on standing orders even before they are incurred, Whereas in Financial Accounting, expenses are recorded after they are incurred, hence there is bound to be a difference between the two sets of books of account
36
Caultimates.com
Purely Financial Transactions Interest paid Expenses on issue of shares or debentures Capital Losses, if any Loss on sale of fixed assets or investments Goodwill written off Preliminary Expenses written off
37
Caultimates.com
Interest Received Dividend Received Profit on sale of fixed assets & investments Transfer fees received Rent
38
Caultimates.com
Items or notional cost included in Cost A/c only Notional Rent Notional interest on capital Notional Salary for proprietor or partner Notional Depreciation on assets, which are already fully depreciated Change in valuation basis may also result in a
39
Caultimates.com
In some cases or questions students may be required to ascertain the profit as per cost accounts and then they will have to reconcile the two profits.
In such cases it is advisable that the students should first prepare a cost sheet with the available information and then prepare a reconciliation statement
40
Caultimates.com
Scheme of Journal Entries Non Integrated Accounts
41
Caultimates.com
The following balances are shown in the cost ledger of V Ltd as at 01.04.2002 work in progress 7056 FOH Suspense A/c 360 Finished Stock Account 5274 Stores ledger Control Account 9450 Administration OH Suspense A/c180 General Ledger Adjustment A/c 22320
42
Caultimates.com
The transactions during the year were as follows a. Stores issued to production b. Stores purchased c. Materials purchased for direct issue to production d. Wages paid (including indirect labour of Rs 2,520) e. Finished goods sold f. Administration expenses g. Selling expenses h. Factory overheads i. Stores issued for capital work in progress j. Finished goods transferred to warehouse k. Stores issued for factory repairs l. Factory overheads applied to production
45,370 52,400 1,135 57,600 1,18,800 5,400 6,000 15,600 1,500 1,08,000 2,000 16,830
43
Caultimates.com
m. n. o. p. q. r.
Administration overheads charged to production Factory overheads applicable to unfinished work Selling overheads allocated to sales Stores lost due to fire in stores (Not insured) Administration expenses on unfinished work Finished goods stock as at 31.03.2003
4,580 3080 5,500 150 850 14,274
It is the policy of the management to park the overheads relatable to work in progress in respective suspense accounts. You are required to Pass the necessary Journal entries in the cost ledger of the company
44
Caultimates.com
a.
Stores issued to production
45,370
WIP Control A/c Dr 45,370 To Stores ledger Control A/c 45,370 b.
Stores purchased
52,400
Stores Ledger Control A/c Dr 52,400 To Cost Ledger Control A/c 52,400 c.
Materials purchased for direct issue to production 1,135
WIP Control A/c Dr To Cost Ledger Control A/c
1,135 1,135 45
Caultimates.com
c.
Wages paid (including indirect labour of Rs 2,520) 57,600
Wages Control A/c Dr 57,600 To Cost Ledger Control A/c 57,600 WIP Control A/c Dr 55,080 Factory O H Control A/c Dr 2,520 57,600 To Wages Control A/c d.
Finished goods sold
Cost Ledger Control A/c To Costing P&L A/c
1,18,800 Dr 1,18,800 1,18,800
46
Caultimates.com
e.
Administration expenses
5,400
Administration OH Control A/c Dr 5,400 To Cost Ledger Control A/c 5,400 f.
Selling expenses
6,000
Selling & Distribution OH Control A/c Dr 6,000 To Cost Ledger Control A/c 6,000 g.
Factory overheads
15,600
Factory OH Control A/c Dr 15,600 To Cost Ledger Control A/c 15,600
47
Caultimates.com
h.
Stores issued for capital WIP
1,500
Cost Ledger Control A/c Dr 1,500 To Stores Ledger Control A/c 1,500 i.
Finished goods Xrd to warehouse 1,08,000 Finished Goods Control A/c Dr 1,08,000 To WIP Control A/c 1,08,000
j.
Stores issued for factory repairs
Factory OH Control A/c Dr 2,000 To Stores Ledger Control A/c Dr
2,000 2,000
48
Caultimates.com
k.
Factory OH applied to production 16,830
WIP Control A/c Dr To Factory OH Control A/c l.
16,830 16,830
Administration OH charged to production 4,580
Finished Goods Control A/c Dr 4,580 To Administration OH Control A/c 4,580 m.
Factory OH applicable to unfinished work 3080
Factory OH Suspense A/c Dr To Factory OH Control A/c
3,080 3,080
49
Caultimates.com
n.
Selling overheads allocated to sales 5,500
Cost of Sales A/c Dr 5,500 To Selling & Distribution OH Control A/c 5,500 o.
Stores lost due to fire (Not insured)
Costing P&L A/c Dr To Stores Ledger Control A/c p.
150 150 150
Administration exp on unfinished work
Administration OH Suspense A/c Dr To Administration OH Control A/c
850
850 850
50
Caultimates.com
Scheme of Journal Entries Integrated Accounts
51
Caultimates.com
a.
Stores issued to production
45,370
WIP Control A/c Dr 45,370 To Stores ledger Control A/c 45,370 b.
Stores purchased
52,400
Stores Ledger Control A/c Dr 52,400 To Sundry Creditors A/c 52,400 c.
Materials purchased for direct issue to production 1,135
WIP Control A/c Dr To Sundry Creditors A/c
1,135 1,135
52
Caultimates.com
c.
Wages paid (including indirect labour of Rs 2,520) 57,600
Wages Control A/c Dr 57,600 To Bank / Cash A/c 57,600 WIP Control A/c Dr 55,080 Factory O H Control A/c Dr 2,520 57,600 To Wages Control A/c d.
Finished goods sold
Sundry Debtors A/c To Sales A/c
1,18,800 Dr 1,18,800 1,18,800
53
Caultimates.com
e.
Administration expenses
5,400
Administration OH Control A/c Dr 5,400 To Bank / Cash A/c 5,400 f.
Selling expenses
6,000
Selling & Distribution OH Control A/c Dr 6,000 To Bank / Cash A/c 6,000 g.
Factory overheads
Factory OH Control A/c Dr To Bank / Cash A/c
15,600 15,600 15,600
54
Caultimates.com
h.
Stores issued for capital WIP
Capital WIP A/c Dr To Stores Ledger Control A/c i.
1,500 1,500 1,500
Finished goods Xrd to warehouse 1,08,000 Finished Goods Control A/c Dr 1,08,000 To WIP Control A/c 1,08,000
j.
Stores issued for factory repairs 2,000
Factory OH Control A/c Dr 2,000 To Stores Ledger Control A/c Dr 2,000
55
Caultimates.com
k.
Factory OH applied to production 6,830
WIP Control A/c Dr To Factory OH Control A/c l.
16,830 16,830
Administration OH charged to production 4,580
Finished Goods Control A/c Dr 4,580 To Administration OH Control A/c 4,580 m.
Factory OH applicable to unfinished work 3080
Factory OH Suspense A/c Dr To Factory OH Control A/c
3,080 3,080
56
Caultimates.com
n.
Selling overheads allocated to sales 5,500
Cost of Sales A/c Dr 5,500 To Selling & Distribution OH Control A/c 5,500 o.
Stores lost due to fire (Not insured)
Profit & Loss A/c Dr To Stores Ledger Control A/c p.
150
150
Administration exp on unfinished work
Administration OH Suspense A/c Dr 850 To Administration OH Control A/c
150 850
850 57
Caultimates.com
Reconciliation
58
Caultimates.com
Following is the summary of the trading and Profit & Loss Account of M/s ABC for the year ended 31.12.2012 Particulars Amount In Rs Particulars Amount In Rs To Materials consumed 2740000 Sales120000 units 6000000 To wages 1510000 Finished stock 4000 Units 160000 Factory Expenses 830000 WIP Materials 64000 Administration expenses 382400 Factory Exps 20000 Wages 36000 Dividend received 18000 S & D Expenses 450000 Preliminary Exp W/o 40000 Goodwill W/o 20000 Net Profit 325600 6298000 6298000
59
Caultimates.com
the company manufactures a standard unit in the cost accounts Factory expenses have been recovered from production at 20% on prime cost Administration expenses at Rs 3 Per unit on units produced S & D expenses at Rs 4 Per Unit on units Sold Your are required to prepare a statement of cost & Profit in the cost books of the company and to reconcile the profit disclosed with that shown in the financial statements. 60
Caultimates.com
ABC Limited Cost Sheet for the year Ending 31/12/2012 Particulars Raw Materials Consumed Direct Wages Prime Cost Add Factory Over Heads
Less Clsoing Stock of WIP Factory / Works Cost Add Administration Expenses Cost of Production Less Clsoing Stock of Finished Goods Cost of Goods Sold Add Selling & Distribution Expenses Cost of Sales Sales Profit
Amount in Rs 2740000 1510000 4250000 850000 5100000 120000 4980000 372000 5352000 172645 5179355 480000 5659355 6000000 340645
61
Caultimates.com
ABC Limited Reconciliation Statement F Y E 31/12/2012 Profit as per Cost Accounts 340645 Add Dividend Received 18000 Add FOH Over Recovered 20000 Add S&D OH Over Recovered 30000 68000 408645 Less Admin OH Under Recovered 10400 Over Valuation of Closing Stock 12645 Less Preliminary Expenses W/o 40000 Less Good Will W/o 20000 83045 Profit as per Financial Accounts
325600
62
Caultimates.com
