112 COST ACCOUNTING SYSTEM MATERIAL - CA Study Web

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Page 1V’Smart Academy ( 88883 88886)112Chapter 11 : COST ACCOUNTING SYSTEMCOST ACCOUNTINGMATERIAL m SystemNon-integral accounting system where separate accounts books aremaintained to record financial and cost transactions.Non-integral accounting system is also known as ‘Cost Control Accounts’.Two set of accounts books are kept in non-integral system one for recordingcost transaction another for financial transaction.Double entry system is adopted for recording the transactions in both accountsbooks.Integral system is a system of accounting under which only one set ofbooks of account is maintained to record the both transactions (cost &financial). It is also known as integrated accounts system. There is no needfor cost ledger and cost ledger control account.Integrated accounts are like a hybrid between non-integrated and the financialsystem of accounting.In case of the non-integrated system, no personal or real accounts are preparedand all entries are passed through the General Ledger Adjustment account.Costing by Raj Awate – Amazing journey of logic and concept11.1

Page 2V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEM11.21. JOURNAL ENTRIES UNDER NON- INTEGRAL SYSTEMThe entries to be passed for various transactions under non-integral system aresummarized below :No.1TransactionsMaterial purchaseda) For StockJournal entries under nonintegral systemStores ledger Control A/c.To General ledger adjustment A/c.Work-in-progress A/c.b) For Jobs2.To General ledger adjustment A/c.Material issueda) Direct MaterialWork in progress A/c.To Stores Control A/c.b) Indirect MaterialFactory overhead A/c.To Stores Control A/c.3.Material returned from shop Stores Control A/c.floorsTo Work-in-progress A/c.4.Material returned to supplierGeneral ledger adjustment A/c.To Stores Control A/c.5.Material transferred from one Transfer Job A/c.Job to another jobTo transfer job A/c.6.Salary and wages paidWages control A/c.To general ledger adjustmentA/c7Distribution of wages :Direct wagesWork in progress A/cFactory overheadFactory overhead A/cOffice overheadOffice overhead A/cS & D expensesS & D overhead A/cTo wages control A/c8.Direct Expenses incurredWork-in-progress A/c.To general ledger adjustmentA/c9.Factory Overhead incurredfactory overhead A/c.Costing by Raj Awate – Amazing journey of logic and concept

Page 3V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMTo general ledger adjustmentA/c10.Factory Overhead recovered / Work-in-progress A/c.observedTo factory overhead A/c.11.Under absorbed overheadsCosting P & L A/cTo respective overhead A/c12.over absorbed overheadsRespective overhead A/cTo costing P & L A/c13.OfficeOverhead incurredOffice overhead A/c.To general ledger / Finished goods A/c.To office overhead A/c.SellingOverhead incurredSelling overhead A/c.To general ledger dFinished goods produced/ Cost of sales A/c.To selling overhead A/c.Finished goods A/c.To Work-in-progress A/c.18.Goods sold (At cost)Cost of Sales A/cTo Finished goods A/c.19.For SalesGeneral ledger adjustment A/c.To Sales A/c.20.Sales returnedSales A/c.To General ledger adjustmentA/c.21.Goods returned sold (At cost)Finished goods A/cTo Cost of sales A/c.22.Capital WorkSundry Assets / capital WIP A/c.To Work-in-progress A/c.23.Repair workRelevant Overhead A/c.To Work-in-progress A/c.Costing by Raj Awate – Amazing journey of logic and concept11.3

Page 4V’Smart Academy ( 88883 88886)11.4Chapter 11 : COST ACCOUNTING SYSTEM2. JOURNAL ENTRY UNDER INTERTAED ACCOUNTINGNo.1TransactionsJournal entries under integralsystemMaterial purchased on creditc) For StockStores Control A/c.Dr.To Sundry Creditors A/c.d) For JobsWork-in-progress A/c.DrTo Sundry Creditors A/c.2.Material issuedc) Direct MaterialWork in progress A/c.Dr.To Stores Control A/c.d) Indirect MaterialRelevant overhead A/c.DrTo Stores Control A/c.3.Material returned from shop floorsStores Control A/c.Dr.To Work-in-progress A/c.4.Material returned to supplierCreditors A/c.Dr.To Stores Control A/c.5.Material transferred from one Job to Transfer Job A/c.another jobTo transfer job A/c.Dr.6.Salary and wages paid-direct and Wages control A/c.indirectTo CashDr.7.Direct ExpensesDr.Work-in-progress A/c.To Cash8.Factory Overhead incurredfactory overhead A/c.DrTo cash A/c9.10.Factory OverheadobservedrecoveredUnder absorbed overheads/ Work-in-progress A/c.DrTo factory overhead A/c.P & L A/cDrTo respective overhead A/c11.Finished goods producedFinished goods A/c.Dr.To Work-in-progress A/c.12.Goods sold (At cost)Cost of Sales A/cTo Finished goods A/c.Costing by Raj Awate – Amazing journey of logic and conceptDr.

Page 513.V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMFor SalesDebtors A/c.11.5Dr.To Sales A/c.14.Sales returnedSales A/c.Dr.To Debtors A/c.15.Capital WorkSundry Assets A/c.Dr.To Work-in-progress A/c.16.Repair workFactory Overhead A/c.To Work-in-progress A/c.Costing by Raj Awate – Amazing journey of logic and conceptDr.

Page 6V’Smart Academy ( 88883 88886)11.6Chapter 11 : COST ACCOUNTING SYSTEMQUESTION 1.As of 31st March, 2014, the following balances existed in a firm’s cost ledger, which ismaintained separately on a double entry basis:Debit( )Credit( )Stores Ledger Control d Goods Control A/cManufacturingOverheadControl A/cCost Ledger Control A/cDuring the next quarter, the following items arose:( )Finished Product (at cost)2,25,000Manufacturing overhead incurredRaw material purchased85,0001,25,000Factory wages40,000Indirect labour20,000Cost of sales1,75,000Materials issued to production1,35,000Sales returned (at cost)9,000Materials returned to suppliers13,000Manufacturing overhead charged to production85,000You are required to prepare the Cost Ledger Control A/c, Stores Ledger Control A/c, WorkinprogressCosting by Raj Awate – Amazing journey of logic and concept

Page 7V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMControl A/c, Finished Stock Ledger Control A/c, Manufacturing Overhead ControlA/c, Wages Control A/c, Cost of Sales A/c and the Trial Balance at the end of the quarter.Costing by Raj Awate – Amazing journey of logic and concept11.7

Page 8V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMCosting by Raj Awate – Amazing journey of logic and concept11.8

Page 9V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMCosting by Raj Awate – Amazing journey of logic and concept11.9

Page 10V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMCosting by Raj Awate – Amazing journey of logic and concept11.10

Page 11V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMCosting by Raj Awate – Amazing journey of logic and concept11.11

Page 12V’Smart Academy ( 88883 88886)11.12Chapter 11 : COST ACCOUNTING SYSTEMThe financial books of a company reveal the following data for the year ended 31st March,2014:( )Opening Stock:Finished goods 875 units74,375Work-in-process32,00001.04.2013 to 31.3.2014Raw materials consumed7,80,000Direct Labour4,50,000Factory overheads3,00,000Goodwill written off1,00,000Administration overheads2,95,000Dividend paid85,000Bad Debts12,000Selling and Distribution Overheads61,000Interest received45,000Rent received18,000Sales 14,500 units20,80,000Closing Stock: Finished goods 375 units41,250Work-in-process38,667The cost records provide as under: Factory overheads are absorbed at 60% of direct wages. Administration overheads are recovered at 20% of factory cost. Selling and distribution overheads are charged at 4 per unit sold. Opening Stock of finished goods is valued at 104 per unit. The company values work-in-process at factory cost for both Financial and CostProfitReporting.Costing by Raj Awate – Amazing journey of logic and concept

Page 13V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMRequired:(i) Prepare statements for the year ended 31st March, 2014 show the profit as per financial records the profit as per costing records.(ii) Present a statement reconciling the profit as per costing records with the profit as perFinancial Records.Solution :Profit & Loss Account of the company (for the year ended March 31, 2014) To Opening stock: By SalesFinished GoodsBy Closing stock:Work-in-processFinished GoodsTo RM consumedWork-in-ProcessTo Direct labourBy Rent receivedTo Factory overheadsBy Interest receivedTo Goodwill written offTo Admini overheadsTo S & D overheadsTo Dividend paidTo Bad debtsTo ProfitStatement of cost sheet Direct materialCosting by Raj Awate – Amazing journey of logic and concept11.13

Page 14V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMDirect labourPrime cost factory OHFactory cost opening WIP-closing WIPFactory cost of finished goods office OHCost of production opening cost of FG-closing cost of FGCOGS S & D OHCOS ProfitSalesStatement of RECONCILATION Profit as per costing-difference of factory OHCosting by Raj Awate – Amazing journey of logic and concept11.14

Page 15V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEM11.15- difference of closing FG-difference of S & D-difference of goodwill-difference of dividend-difference of bad debts difference of office OH difference of opening FG interest received interest on rentProfit as per financial recordsWorking note.particularscostingfinancialdifferenceQUESTION 3.A manufacturing company disclosed a net loss of 3,47,000 as per their cost accounts for theCosting by Raj Awate – Amazing journey of logic and concept

Page 16V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEM11.16year ended March 31,2014. The financial accounts however disclosed a net loss of 5,10,000 for the same period. The following information was revealed as a result of scrutinyof the figures of both the sets of accounts.( )(i) Factory Overheads under-absorbed40,000(ii) Administration Overheads over-absorbed60,000(iii) Depreciation charged in Financial Accounts3,25,000(iv) Depreciation charged in Cost Accounts2,75,000(v) Interest on investments not included in Cost Accounts96,000(vi) Income-tax provided54,000(vii) Interest on loan funds in Financial Accounts2,45,000(viii) Transfer fees (credit in financial books)24,000(ix) Stores adjustment (credit in financial books)14,000(x) Dividend received32,000Prepare a memorandum Reconciliation AccountSolution :Memorandum Reconciliation Accounts To Net Loss as per CostingBybooksrecovered in cost accountsTo Factory overheads underBy Interest on investmentabsorbed in Cost Accountsnot included in Cost A/CToBy Transfer fees in FinancialDepreciationunderAdminicharged in Cost AccountsbooksTo Income-Tax not providedBy stores adjOHoverin Cost AccountsCosting by Raj Awate – Amazing journey of logic and concept

Page 17V’Smart Academy ( 88883 88886)Chapter 11 : COST ACCOUNTING SYSTEMTo Interest on Loan Funds inByDividend received inFinancial Accountsfinancial booksBy Net loss as per FinancialbooksWorking noteparticularscostingfinancialdifferencesCosting by Raj Awate – Amazing journey of logic and concept11.17

Costing by Raj Awate . Integral system is a system of accounting under which only one set of books of account is maintained to record the both transactions (cost & financial). It is also known as integrated accounts system. There is no need for cost ledger and cost ledger control account. Integrated accounts are like a hybrid between non-integrated and the financial system of accounting. In .