Cost Book Keeping | CMA Inter Syllabus

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Cost Book - Keeping

The Cost Accountant plays a pivotal role in ensuring that the process of cost data collection is smooth. The cost analysis and reporting will not be useful for managerial decision-making if the data collection process is erroneous. A robust cost accounting system is the prerequisite for a comprehensive data collection process. The cost accountant will have to carry out periodical checks to evaluate the system which may also be subjected to internal audit. The cost data collected must be reported in proper format in order to make it more informative. A comprehensive statement of cost and profit is the first step in cost record keeping .For analysis purpose, while the production manager requires the cost of production, the sales manager would be focussing on cost of sales. The cost report should be able to give various cost data separately, broken up into all its elements. The sales and marketing cost may be given for each channel of distribution, customers, regions etc. In 
addition to the product-wise break up, the cost data should be collected in a manner that will make available cost information to all those who are responsible for the costs. The statement of cost should give the figures of each element of cost broken up into direct and indirect and also according to functions like production, administration and selling & distribution. It is therefore logical that the format of the cost sheet (statement of cost) is derived from the requirements for which it is to be used. Apart from exhibiting the total cost, it should highlight other cost also so that comparison with budget can be made, variances analysed and cost could be controlled to increase profits.

It is important to note that in Financial Accounting, only external transactions (transactions between the organisation and other entities) are recorded which facilitates periodical reporting of assets, liabilities, revenues and expenditure of the organisation as a whole. On the other hand, cost accounting system records internal transactions (transactions between cost centres within the firm such that costs can be assigned to a particular cost unit in a suitable manner). For example, when material is purchased from a supplier it shall be recorded in financial accounting but when the same is issued from the stores department to production department it shall be recorded in cost books. As such, financial accounting records and cost accounting records are complementary to each other. In cost accounting, for record keeping, books are basically maintained under the following two systems:

1. Non-integral or non-integrated cost accounting – Under the non-integrated system, separate ledgers are maintained for financial transactions while the cost accounts department is responsible for maintaining cost accounts. CIMA termed this as interlocking accounts. CIMA official terminology defines interlocking accounts as a ‘set of accounting records where the cost and financial accounts are distinct, the two being kept continuously in agreement by the use of control accounts or reconciled by other means'.
2. Integral or integrated cost accounting – Where cost and financial accounts are maintained in a combined way, the system is called integral or integrated cost accounting system.CIMA official terminology defines integrated accounts as a ‘set of accounting records that integrates both financial and cost accounts using a common input of data for all accounting purposes’.

Thus, under the non-integrated system, separate ledgers are maintained for financial transactions and cost transactions. The cost accounts department is responsible for maintaining cost accounts. Under the integral or integrated system, only one set of books are maintained for financial as well as cost accounting transactions. 

 

Maintenance of Accounts

As such, the finance department is responsible for maintaining the financial ledgers. This department maintains the following ledgers.

1. General ledger: It includes all real, nominal and personal accounts except debtors and creditors accounts.

2. Debtors Ledger: It contains the personal accounts of trade debtors.

3. Creditors Ledger: It contains the personal accounts of trade creditors.

On the other hand, the cost accounting department maintains the following cost ledgers:

1. Stores ledger for recording all stores transactions

2. Work-in-progress ledger: Cost of materials, labour and overheads of all jobs, which are in progress, are posted to this account.

3. Finished goods/stock ledger: This ledger has the record of finished goods/stock.

4. Cost ledger: This ledger maintains the accounts relating to income and expenditure. The following accounts are maintained in this ledger.

1. Cost control accounts: These accounts are maintained to exercise control over the three subsidiary ledgers maintained above and also to complete the double entry in cost accounts. The important cost control accounts are as follows:
   • Stores ledger control a/c
   • Work-in-progress ledger control a/c
   • Finished goods ledger control a/c
   • General ledger adjustment a/c
2. Other accounts: They include all other impersonal accounts (real as well as nominal) which effect costs, e.g. wages control account, factory overhead accounts, administration overhead account, selling and distribution overhead account, cost of sales account etc. Depending upon the requirement, the following additional accounts may also be maintained.
   • Overhead suspense account
   • Capital orders account
   • Service orders account

 

Treatment of Elements of Cost

The following treatment is given to the various elements of cost:

• Materials: Certain transactions relating to material are recorded in the financial accounts also. Examples of such transactions are purchase of material, return of materials. These transactions are recorded in financial as well as cost accounts. On the other hand, certain transactions like issue of materials from stores, transfer of material from one job to the other one, return of excess materials to stores are recorded only in cost accounts.
• Labour: Wages paid are recorded in the cost accounts through wages control account and the general ledger adjustment account.
• Overheads: Various types of overheads like production, administration and selling and distribution are absorbed to the products on some suitable basis. The production overhead accounts is credited with the amount of overheads absorbed and the work in progress account is credited. In case of administrative overhead account, the amount absorbed is credited to the administrative overhead account and finished stock account is debited. Selling and distribution overheads are credited to the selling and distribution overhead account and corresponding debit is given to the cost of sales account. Finally, the amount of under/over absorbed overheads is transferred to the Costing Profit and Loss A/C

 

Non-Integrated Accounting

Non-Integrated Accounting is a system of accounting under which separate ledgers are maintained for cost and financial accounts by accountants. This system is also referred to as cost ledger accounting system. Under this system, cost accounting is restricted to recording only those transactions which relate to the product or service. This leads to the exclusion of certain expenses e.g., interest, bad debts and revenue / income from other than the sale of product or service. Non-Integrated Accounting system contains fewer accounts when compared with financial accounting because of the exclusion of purchases, expenses and also balance sheet items viz. fixed assets, debtors and creditors. Items of accounts which are excluded are represented by an account called Cost Ledger Control Account. The important ledgers to be maintained under non-integrated accounting system in the cost accounting department are discussed below.

1. Cost Ledger Control Account – This account is also known as General Ledger Adjustment Account or Financial Ledger Control Account. This ledger establishes a relation with financial account and helps to complete the double entry. This account is debited with the amount received or receivable from sales and credited with the amount paid / payable for material, wages, factory overhead, administration overhead and selling and distribution overhead. Profit / Loss of cost accounts is determined from this ledger. Opening and the closing balance of this account of a particular period represents the total of all balances of impersonal account.
2. Stores Ledger Control Account / Material Control Account – This account is debited with the amount of purchase (both cash and credit) and credited with the amount issued from stores. Abnormal losses and gains are transferred to costing profit and loss account. Entries are made on the basis of goods received notes and stores requisition. Stores purchased for special jobs are directly debited to work in progress account and not posted here.
3. Wages Control Account – Total wages (direct or indirect) paid or payable is debited to this account. Direct wages are transferred to work in progress account and indirect wages are transferred to respective overheads account i.e., factory, administration, selling and distribution.
4. Work in Progress Control Account – This account reflects total work in progress at any particular time.This account is debited with cost of production i.e., direct material, direct wages, direct expenses and factory overhead recovered. This account is credited with the value of finished goods completed, the value of which is transferred to Finished Goods Control Account.
5. Manufacturing / Production / Works / Factory Overhead Control Account – This account is debited with indirect manufacturing expenses incurred such as indirect material, indirect labour, indirect expenses. It is credited with the amount of overhead absorbed and is transferred to work in progress control account. The difference between overhead incurred and overhead absorbed (i.e., under or over absorbed overhead) is transferred to costing profit and loss account or overhead adjustment account. 
6. Finished Goods Control Account – This account is debited with the value of goods transferred from work in progress control account and administrative overhead recovered. This account is credited with the cost of sales account. The opening and closing balance represent the value of finished goods lying in godown.
7. Administration Overhead Control Account – This account is debited with administration overhead incurred. Administration overhead recovered is credited to this account and debited to finished goods control account. The difference between administration overhead incurred and recovered is transferred to overhead adjustment account or costing profit and loss account.
8. Selling and Distribution Overhead Control Account – This account is debited with selling and distribution overhead incurred. Selling and distribution overhead recovered is credited to this account and debited to cost of sales account. The difference between selling and distribution overhead incurred and recovered is transferred to overhead adjustment account or costing profit and loss account.
9. Cost of Sales Account – This account is debited with the cost of finished goods transferred from finished goods control account and selling & distribution overhead recovered (transferred from selling and distribution overhead control account). The balance of this account is transferred to costing profit and loss account.
10. Costing Profit and Loss Account – This account is debited with the amount of cost of sales (transferred from cost of sales account), under recovery of overheads and abnormal losses and is credited with sales value (the amount of sales value is debited to cost ledger control account), over absorbed overhead and abnormal gains. The net profit or loss in this account is transferred to cost ledger control account.
11. Overhead Adjustment Account – This account will be debited for under recovery of overhead and credited with over recovery of overhead amount. The net balance in this account is transferred to costing profit and loss account. Sometimes, overhead adjustment account is not maintained and under / over absorbed overheads is transferred to costing profit and loss account from the respective overhead accounts. 

Illustration 1

On 31st March, 2022 the following balances were extracted from the books of the ABC Ltd.

Particulars	Dr. (Rs.)	Cr. (Rs.)
Stores Ledger Control A/c	35,000
Work-in-Process Control A/c	38,000
Finished Goods Control A/c	25,000
Cost Ledger Control A/c		98,000
	98,000	98,000

The following transactions took place in April 2022:

Particulars	(Rs.)
Raw Materials:
- Purchased	95,000
- Returned to suppliers	3,000
- Issued to production	98,000
- Returned to stores	3,000
Productive wages	40,000
Indirect wages	25,000
Factory overhead expenses incurred	50,000
Selling and Administrative expenses	40,000
Cost of finished goods transferred to warehouse	2,13,000
Cost of Goods sold	2,10,000
Sales	3,00,000

Factory overheads are applied to production at 150% of direct wages, any under/over-absorbed overhead being carried forward for adjustment in the subsequent months. All administrative and selling expenses are treated as period costs and charged off to the Profit and Loss account of the month in which they are incurred.

Show the following Accounts:

(a)	Wages Control A/c	(b)	Cost of Goods sold A/c
(c)	Selling & Administrative Expenses A/c	(d)	Cost Ledger Control A/c
(e)	Stores Ledger Control A/c	(f)	Work-in-Process Control A/c
(g)	Finished Goods Stock Control A/c	(h)	Factory Overhead Control A/c
(i)	Costing Profit and Loss A/c	(j)	Trial Balance as at 30th April 2018

Solution:

(A)

Cost Ledger Control A/c

Particulars	(₹)	Particulars	(₹)
To Costing P & L A/c (sales)	3,00,000	By Balance b/d	98,000
To Stores Ledger Control A/c	3,000	By Stores Ledger Control A/c	5,000
		By Wages Control A/c (Productive+ Indirect wages)	65,000
		By Factory OH Control A/c	50,000
		By Selling & Admn. OH A/c	40,000
To Balance c/d	95,000	By Costing  P & L A/c (profit)	50,000
Total	3,98,000	Total	3,98,000

(b) 

 Stores Ledger Control A/c 

Particulars	(₹)	Particulars	(₹)
To Balance b/d	35,000	By Cost Ledger Control A/c	3,000
To Cost Ledger Control A/c	95,000	By Work-in-process Control A/c	98,000
To work-in-process Control A/c	3,000	By Balance c/d	32,000
Total	1,33,000	Total	1,33,000

(c) 

 Work – in- Process Control A/c 

Particulars	(₹)	Particulars	(₹)
To Balance b/d	38,000	By Stores Ledger Control A/c	3,000
To Stores Ledger Control A/c	98,000	By Finished Goods Control A/c	2,13,000
To Wages Control A/c	40,000
To Factory OH Control A/c	60,000	By Balance c/d	20,000
Total	2,36,000	Total	2,36,000

(d) 

 Finished Goods Control A/c 

Particulars	(₹)	Particulars	(₹)
To Balance b/d	25,000	By Cost of  goods sold A/c	2,10,000
To Work-in-Process Control A/c	2,13,000	By Balance c/d	28,000
Total	2,38,000	Total	2,38,000

(e)

 Factory Overhead Control A/c 

Particulars	(₹)	Particulars	(₹)
To Wages Control A/c (Indirect wages)	25,000	By Work-in-process A/c (150% of  ₹40,000)	60,000
To Cost Ledger Control A/c	50,000	By Balance c/d	15,000
Total	75,000	Total	75,000

(f) 

Costing Profit and Loss A/c

Particulars	(₹)	Particulars	(₹)
To Cost of Goods Sold A/c	2,10,000	By Cost Ledger Control A/c  (Sales)	3,00,000
To Selling and Admn. OH Control A/c	40,000
To Cost Ledger Control  A/c (Profit) (balancing figure)	50,000
Total	3,00,000	Total	3,00,000

(g) 

 Trial Balance as at 30th April 2022

Particulars	Dr. (₹)	Cr. (₹)
Stores Ledger Control A/c	32,000
Work-in-Process Control A/c	20,000
Finished Goods Control A/c	28,000
Factory Overhead Control A/c	15,000
Cost Ledger Control A/c		95,000
Total	95,000	95,000

Working Note: 

(i) 

Wages Control A/c

Particulars	(₹)	Particulars	(₹)
To Cost Ledger Control A/c	65,000	By Work-in-Process Control A/c	40,000
		By Factory OH Control A/c	25,000
Total	65,000	Total	65,000

(ii) 

 Cost of Goods Sold A/c

Particulars	(₹)	Particulars	(₹)
To Finished Goods Control A/c	2,10,000	By Costing P& L A/c	2,10,000
Total	2,10,000	Total	2,10,000

(iii) 

 Selling & Administrative Expenses A/c 

Particulars	(₹)	Particulars	(₹)
To Cost Ledger Control A/c	40,000	By Costing P& L A/c	40,000
Total	40,000	Total	40,000

 

Reconciliation of Costing and Financial Profit

Non-Integrated Accounting

Where separate set of books are maintained for cost accounting and financial accounting purposes, the profit disclosed by costing profit and loss account might differ from that shown in the financial accounts. This arises as there are certain items which are included in financial accounts of a manufacturing concern but are not included in cost accounts since they are not related to cost of production. These items fall into five categories, as shown below:-

1. Appropriation of profits not dealt in cost accounts
   Such appropriation of profits include:
   1. Appropriation to sinking funds
   2. Dividends paid
   3. Taxes on income and profits
   4. Transfers to general reserves
   5. Excess provision for depreciation of buildings, plant etc. and for bad debts
   6. Amount written off – goodwill, preliminary expenses, underwriting commission, discount on debentures issued; expenses of capital issue etc.
   7. Capital expenditures specifically charged to revenue
   8. Charitable donation
2. Purely financial expenses and losses
   Such financial expenses and losses are as follows:
   1. Losses on sale of investments, buildings, etc.
   2. Expenses on transfer of company’s office
   3. Interest on bank loan, debentures, mortgages, etc.
   4. Damages payable
   5. Penalties and fines
   6. Losses due to scrapping of machinery
   7. Remuneration paid to the proprietor in excess of a fair reward for services rendered
3. Purely financial income
   Such financial income include:
   1. Interest received on bank deposits
   2. Profits made on the sale of investments, fixed assets, etc.
   3. Transfer fees received 
   4. Rent receivable
   5. Interest, dividends, etc. received on investments.
   6. Brokerage received
   7. Discount, commission received
4. Purely cost accounting matters 
   Notional costs e.g., rent of premises owned by the proprietor. Notional cost such as: 
   1. Notional rent of the owned building and no rent is payable.
   2. Interest on Capital Employed but not actually paid.
   3. Notional salaries.
5. Items which are accounted for differently in cost accounting and financial accounting
   1. Different bases of stock valuation: In financial accounting stock valuation is as per AS 2 or as per Ind AS 2. In cost accounts, the stock of finished goods is valued at cost by FIFO, LIFO, average rate, etc. Items to be included or to be excluded in financial account is also as per the statutory norm. But that is not applicable in cost accounting. For example, cost of transporting goods to the location of sale is included in the in the cost of finished goods in financial accounting but the same is not true for cost accounting. This cost is excluded in cost accounting.
   2. Treatment of depreciation: In cost accounting, depreciation is charged on the basis of units produced or hours worked, while in financial accounts, it is usually treated as an annual charge.
   3. Abnormal losses and gains: These losses and gains are excluded from cost accounts while the same is incorporated in nominal accounts in financial accounts.
   4. Treatment of overhead: In cost accounting overheads are recovered at predetermined rates. The difference between actual overheads incurred and overhead absorbed is termed as under/over absorption of overheads. If this is not charged to costing profit and loss account, the profit/loss under financial accounting (where overheads are directly charged to profit and loss account) would differ from profit/loss under cost accounting.

Due to the above mentioned, the profit as shown under cost accounting would differ from the profit as shown in financial accounting. For this purpose, reconciliation statement needs to be prepared. 

 

Objects of Reconciliation

The objectives of preparing a reconciliation statement is given below:

1. To assure the mathematical accuracy and reliability of cost accounts.
2. To have proper cost control and ascertainment.
3. To find out the reasons for the profit or loss shown by the financial accounts.
4. To ensure correct profit or loss in financial accounts.
5. To ensure true and fair view of balance sheet of the business concern. 

 

Procedure of Reconciliation

Profits or loss as shown in costing Profit & Loss account may be reconciled with profit or loss as shown in Profit & Loss account (as per financial records) or vice versa. The procedure is simply to start with any of the two (as given in a particular problem) and make adjustments (add or less) for the causes for which the difference have risen. Thus, the profit or loss as per the other statement is derived. If the profit or loss as per Costing Profit & Loss account is the starting point, then profit or loss as per financial account is to be derived at, and vice versa. The standard format of the reconciliation statement is given in the below: 

Profit as per financial accounts		**
Add:
(a) Items of income included in Cost Accounts but not in Financial Accounts	**
(b) Items of expenditure included in Financial Accounts and not in Cost Accounts.	**
(c) Amounts by which items of income have been shown in excess in Cost Accounts over the corresponding entries in Financial Accounts	**
(d) Amounts by which items of expenditure have been shown in excess in Financial Accounts over the corresponding entries in Cost Accounts.	**
(e) Under absorption of Overheads in Cost Accounts.	**
(f) The amount by which closing stock of inventory is overvalued in Cost Accounts.	**
(g) The amount by which opening stock of inventory is undervalued in Cost Accounts.	**
Less:
(a) Items of income included in Financial Accounts but not in Cost Accounts.	**
(b) Items of expenditure (as interest on capital, rent on owned premises etc.,) included in Cost Accounts but not in Financial Accounts.	**
(c) Amounts by which items of expenditure have been shown in excess in Cost Accounts as compared to the corresponding entries in Financial Accounts.	**
(d) Amounts by which items of incomes have been shown in excess in Financial Accounts as compared to the corresponding entries in Cost Accounts.	**
(e) Over absorption of overheads in Cost Accounts	**
(f) The amount by which closing stock of inventory in undervalued in Cost Accounts	**
(g) The amount by which opening stock of inventory is overvalued in Cost Accounts	**
Profit as per cost accounts

Illustration 2

The net profits of a manufacturing company appeared at ₹ 64,500 as per financial records for the year ended 31st December, 2021. The cost books however, showed a net profit of ₹ 86,460 for the same period. A careful scrutiny of the figures from both the sets of accounts revealed the following facts.The net profits of a manufacturing company appeared at ₹ 64,500 as per financial records for the year ended 31st December, 2021. The cost books however, showed a net profit of ₹ 86,460 for the same period. A careful scrutiny of the figures from both the sets of accounts revealed the following facts.

		₹
(I)	Income-tax provided in financial books	20,000
(II)	Bank Interest (Cr) in financial books	250
(III)	Work overhead under recovered	1,550
(IV)	Depreciation charged in financial records	5,600
(V)	Depreciation recovered in cost	6,000
(VI)	Administrative overheads over-recovered	850
(VII)	Loss due to obsolescence charged in financial accounts	2,800
(VIII)	Interest on Investments not included in cost accounts	4,000
(IX)	Stores adjustments (Credit in financial books)	240
(X)	Loss due to depreciation in stock value Prepare Reconciliation Statement.	3,350

Solution:

Statement showing reconciliation of profit shown by cost and financial accounts as on 31-12-2021:

Particulars	Amount (₹)	Amount (₹)
Profit as per Financial Accounts		64,500
Add: Income tax provided in financial books only.	20,000
Works overhead under recovered	1,550
Loss to obsolescence considered. Financial A/c only.	2,800
Loss due to depreciation in stock	3,350	27,700
		92,200
Less: Bank interest credited in financial books.	250
Over recovery of depreciation	400
Administration OH’s over recovered	850
Interest on investment not included in cost books	4,000
Stores adjustment	240	5,740
Profit as per Cost Accounts		86,460

Illustration 3

The net profits shown by financial accounts of a company amounted to ₹18,550 whilst the profits disclosed by company’s cost account for that period were ₹ 28,660. On reconciling the figures, the following difference were noted.

Particular	Amount (₹)
(i) Director’s fee not charged in cost accounts	650
(ii) A provision for bad and doubtful debts	570
(iii) Bank interest (cr.)	30
(iv) Income-tax	8,300

(v) Overheads in the cost accounts were estimated at ₹ 8,500. The charges shown by the financial books was ₹ 8,320.

(vi) Work was started during the year on a new factory and expenditure ₹16,000 was incurred.

Depreciation of 5% was provided in financial accounts.

Prepare a Statement Reconciling the figures shown by the cost and financial accounts.

Solution:

Statement showing reconciliation of profit shown by cost and financial accounts 

Particular	Amount (₹)	Amount (₹)
Profit as per Financial Accounts		18,550
Add: Directors fee	650
Provision for bad debts	570
Income tax	8,300
Depreciation in financial books only	800	10,320
		28,870
Less: Bank interest	30
Over recovery of overheads	180	210
Profit as per Cost Accounts		28,660

Illustration 4

M/s Mysore Petro Ltd. showed a net loss of ₹ 2,08,000 as per their financial accounts for the year ended 31st March, 20X1. The cost accounts, however, disclosed a net loss of ₹1,64,000 for the same period. The following information was revealed as a result of the scrutiny of the figures of both the sets of books.

		Amount (₹)
(I)	Factory overhead under recovered	3,000
(II)	Administration overhead over recovered	2,000
(III)	Depreciation charged in financial books	60,000
(IV)	Depreciation recovered in costs	65,000
(V)	Interest on investment not included in costs	10,000
(VI)	Income-tax provided	60,000
(VII)	Transfer fee ( in financial Books)	1,000
(VIII)	Stores adjustment (credit in financial books). Prepare Reconciliation Statement.	1,000

Solution:

Statement Showing Reconciliation of Profit Shown by Cost and Financial Accounts

Particulars (₹)	Amount (₹)	Amount (₹)
Profit as per Financial Accounts		(2,08,000)
Add:  Under recovery of factory overheads	3,000
Income tax	60,000	63,000
		(1,45,000)
Less: Over recovery of Administration OH	2,000
Over recovery of depreciation	5,000
Interest on investments considered in Financial A/c	10,000
Transfer fee	1,000
Stores adjustment	1,000	19,000
Loss as per Cost Accounts		(1,64,000)

Illustration 5 

During a particular year, the auditors certified the financial accounts, showing profit of ₹1,68,000 whereas the same, as per costing books was coming out to be ₹ 2,40,000. Given the following information you are asked to prepare a Reconciliation Statement showing the reasons for the gap.

 Trading and Profit and Loss Account 

Dr.			Cr.
Particulars	Amount (₹)	Particular	Amount (₹)
To, Opening stock A/c	8,25,000	By, Sales	34,65,000
To, Purchases A/c	24,72,000	By, Closing stock A/c	7,50,000
To, Direct wages A/c	2,30,000
To, Factory overhead A/c	2,10,000
To, G.P. C/d	4,83,000
	42,15,000		42,15,000
To, Admn.Expenses A/c	95,000	By, G.P. b/d	4,83,000
To, Selling Expenses A/c	2,25,000	By, Sundry Income A/c	5,000
To, Net profit	1,68,000
	4,88,000		4,88,000

The costing records show:

(i) Book value of closing stock ₹7,80,000

(ii) Factory overheads have been absorbed to the extent of ₹1,89,800

(iii) Sundry income is not considered

(iv) Total absorption of direct wages ₹2,46,000

(v) Administrative expenses are covered at 3% of selling price.

(vi) Selling prices include 5% for selling expenses.

Solution:

Particulars	Amount (₹)	Amount (₹)
Profit as per Financial Accounts		1,68,000
Add:  Over valuation of Closing stock in Cost Accounts (7,80,000 - 7,50,000)	30,000
Under recovery of works overhead (2,10,000 - 1,89,800)	20,200
Under recovery of selling expenses in Cost Accounts. (2,25,000 – 1,73,250*)	51,750	1,01,950
		2,69,950
Less: Sundry income not considered in Cost Accounts	5,000
Over recovery of wages (2,46,000 - 2,30,000)	16,000
Over recovery Administration expenses (1,03,950** - 95,000)	8,950	29,950
Profit as per Cost Accounts		2,40,000

*5% of 34,65,000 = 1,73,250

**3% of 34,65,000 = 1,03,950

Illustration 6

A transistor manufacturer, who commenced his business on 1st June, 20X1 supplies you with the following information and asks you to prepare a statement showing the profit per transistor sold. Wages and materials are to be charged at actual cost, works overhead at 75% of wages and office overhead at 30% of works cost. Number of transistors manufactured and sold during the year was 540.

Other particulars:

Materials per set ₹ 240

Wages per set ₹ 80

Selling price per set ₹ 600

If the actual works expenses were ₹32,160 and office expenses were ₹61,800, prepare a Reconciliation Statement.

Solution:

Particulars	Unit	Total
Material	240	1,29,600
Wages	80	43,200
Prime cost	320	1,72,800
(+) Works overhead (75% of wages)	60	32,400
Works cost	380	2,05,200
(+) Office overheads (30% of work cost)	114	61,560
Total cost	494	2,66,760
(+) Profit	106	57,240
Sales	600	3,24,000

Trading and Profit & Loss Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Materials A/c	1,29,600	By, Sales A/c	3,24,000
To, Wages A/c	43,200
To, Works Overheads A/c	32,160
To, Gross Profit	1,19,040
	3,24,000		3,24,000
To, Office Expenses	61,800	By, Gross Profit b/d	1,19,040
To, Net Profit	57,240
	1,19,040		1,19,040

 Statement of Reconciliation

Particulars	Amount (₹)
Profit as per Financial Accounts	57,240
(-) Over recovery of works overheads (32,160 - 32,400)	(240)
(+) Under recovery of office expenses (61,800 - 61,560)	240
Profit as per Cost Accounts	57,240

Illustration 7

Given below is the Trading and Profit and Loss Account of Vikas Electronics for the accounting year ended 31st March, 20X1.

 Trading and Profit & Loss Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Direct Materials consumed	3,00,000	By, Sales A/c (2,50,000 units @ ₹ 3)	7,50,000
To, Direct Wages A/c	2,00,000
To, Factory expenses A/c	1,20,000
To, Office Expenses A/c	40,000
To, Selling & Distribution Exp. A/c	80,000
To, Net profit	10,000
	7,50,000		7,50,000

Normal output of the factory is 2,00,000 units. Factory overheads are fixed upto ₹60,000 and office expenses are fixed for all practical purposes, selling and distribution expenses are fixed to the extent of ₹50,000 the rest are variable. Prepare a Statement of Reconciliation of Profit as per Cost Accounts and Financial Accounts.

Solution:

Cost Sheet (or) Statement of Cost and Profit

Particulars	Amount (₹)	Amount (₹)
Material consumed		3,00,000
Direct wages		2,00,000
Prime cost		5,00,000
(+) Works/Factory expenses
Fixed (60,000 x 2,50,000/2,00,000)	75,000
Variable (1,20,000 - 60,000)	60,000	1,35,000
Works cost		6,35,000
(+) Office expenses (40,000 x 2,50,000/2,00,000)		50,000
Cost of production		6,85,000
(+) Selling & Distribution expenses
Fixed (50,000 x 2,50,000/2,00,000)	62,500
Variable (1,20,000 - 60,000)	30,000	92,500
Cost of sales/Total cost		7,77,500
(-) Loss		(27,500)
Sales		7,50,000

Statement of Reconciliation

Particulars	Amount (₹)	Amount (₹)
Profit as per Financial Accounts		10,000
Add:
Less: Over recovery of factory overheads (1,35,000 - 1,20,000)	15,000
Over recovery of office expenses (50,000 - 40,000)	10,000
Over recovery of Selling & Distribution overheads (92,500 - 80,000)	12,500	37,500
Loss as per Cost Accounts		(27,500)

Illustration 8

The following is the Trading and Profit and Loss account of M/s. Time and Trading limited for the year ended 31.12.20X1.

 Trading and profit & Loss Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Materials consumed	7,08,000	By, Sales A/c (30,000 units)	15,00,000
To, Direct Wages A/c	3,71,000	By, Finished stock A/c (1,000 units)	40,000
To, Works overheads A/c	2,13,000	By, Work-in-progress:
To, Admn. overheads A/c	95,500	Materials	17,000
To, Selling and Distribution overheads A/c	1,13,500	Wages	8,000
To, Net profit	69,000	Works OH	5,000
	15,70,000		15,70,000

Manufacturing a standard unit, the company’s cost records show that:

(i) Works overheads have been charged to work-in-progress at 20% on prime cost.

(ii) Administration overheads have been recovered at ₹3 per finished unit.

(iii) Selling and distribution overheads have been recovered at ₹4 per unit sold.

(iv) The unabsorbed or over absorbed overheads have not been adjusted into costing profit and loss account.

Prepare:

(a) A Costing Profit and Loss Account indicating Net Profit.

(b) A Statement Reconciling the Profit as disclosed by Cost Accounts and that shown in Financial Accounts.

Solution:

Costing Profit & Loss Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To, Materials	7,08,000	By, Sales	15,00,000
To, Direct wages	3,71,000
Prime Cost	10,79,000
To, Works OH (20%)	2,15,800
	12,94,800
(-) Closing WIP	30,000
Works cost	12,64,800
To, Administration OH’s (31,000 x 3)	93,000
Cost of Production	13,57,800
(-) Closing stock (13,57,800 x 1,000/31,000)	43,800
Cost of goods sold	13,14,000
To, Selling expenses (30,000 x 4)	1,20,000
	14,34,000
To Profit	66,000
	15,00,000		15,00,000

Statement of Reconciliation

Particulars	Amount (₹)	Amount (₹)
Profit as per Financial Accounts		69,000
Add: Under recovery of Admn. overheads (95,500 - 93,000)	2,500
Over valuation of closing stock in Cost A/c’s (43,800 - 40,000)	3,800	6,300
Less: Over recovery of Works overheads (2,15,800 - 2,13,800)	2,800
Over recovery of Selling & Distribution overheads (1,20,000 - 1,13,500)	6,500	9,300
Profit as per Cost Accounts		66,000

Illustration 9

The financial profit and loss account of a manufacturing company for the year ended 31st March, 20X1 is given below:

 Trading and Profit & Loss Account 

Dr.				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To, Opening stock A/c			By, Sales A/c	4,60,000
Raw Materials	25,000		By, Closing stock A/c
Finished Stock	40,000		Materials	30,000
W.I.P.	12,500	77,500	Finished stock	15,000
To, Purchases A/c		1,20,000	W.I.P.	20,700
To, Wages (Factory) A/c		30,000
To, Electric Power (Factory) A/c		65,000
To, Gross Profit c/d		1,82,200
		5,25,700		5,25,700
To, Administration Expenses A/c		20,500	By, Gross Profit b/d	1,88,200
To, Selling Expenses A/c		46,500	By, Misc. Revenue A/c	26,800
To, Bad Debts A/c		15,600
To, Net Profit A/c		1,32,400
		2,15,000		2,15,000

The cost accounts of the concern showed a net profit of ₹ 1,32,200. It is seen that the costing profit and loss account is arrived at on the basis of figures furnished below:

Opening stock of raw materials, finished stock and work-in-progress ₹ 90,800

Closing stock of raw materials, finished stock and work-in-progress ₹ 69,500

You are required to prepare a Memorandum Reconciliation Account and reconcile the difference in the profit and loss account.

Solution:

 Memorandum Reconciliation Account 

Dr.			Cr.
Particular	Amount (₹)	Particulars	Amount (₹)
To, Over valuation of op. stock in Cost A/c	13,300	By, Profit as per financial A/c	1,32,400
To, Miscellaneous revenue	26,800	By, Over valuation of closing Stock in cost A/c	3,800
To, Profit as per cost A/c	1,32,200	By, Bad debts not considered in cost A/c.	15,600
		By, Admn. expenses not considered in cost A/c	20,500
	1,72,200		1,72,200

Illustration 10

The following figures have been extracted from financial accounts of a manufacturing firm for the first year of its operation.

	Amount (₹)
Direct material consumption	50,00,000
Direct wages	30,00,000
Factory OH	16,00,000
Administration OH	7,00,000
Selling and distribution OH	9,60,000
Bad debts	80,000
Preliminary expenses written off	40,000
Legal charges	10,000
Dividends received	1,00,000
Interest on deposit received	20,000
Sales (1,20,000 units)	1,20,00,000
Closing stock
Finished stock - 4,000 units	3,20,000
Work-in-progress	2,40,000

The cost accounts for the same period reveal that the direct material consumption was ₹56,00,000. Factory OH recovered at 20% on prime cost; Administration OH is recovered @ ₹6 per unit of production; Selling and Distribution OH are recovered at ₹8 per unit sold.

You are required to prepare Costing and Financial Profit and Loss Accounts and reconcile the difference in the profit in the two sets of accounts.

Solution:

Costing P & L Account 

Dr.			Cr.
Particular	Amount (₹)	Particular	Amount (₹)
To, Materials	56,00,000	By, Sales	1,20,00,000
To, Direct wages	30,00,000
To, Prime cost	86,00,000
To, Factory OH’s (20%)	17,20,000
	1,03,20,000
(-) Closing WIP	2,40,000
Factory Cost	1,00,80,000
To, Admin. OH’s (1,24,000 x 6)	7,44,000
Cost of Production	1,08,24,000
(-) Closing stock of FG (1,08,24,000 x 4,000/1,24,000)	3,49,161
Cost of goods sold	1,04,74,839
To, Selling overheads	9,60,000
To, Profit	5,65,161
	1,20,00,000		1,20,00,000

 

Financial Trading and P & L Account 

Dr.			Cr.
Particular	Amount (₹)	Particular	Amount (₹)
To, Materials A/c	50,00,000	By, Dividend A/c	1,00,000
To, Wages A/c	30,00,000	By, Interest on deposit	20,000
To, Factory OH A/c	16,00,000	By, Sales A/c	1,20,00,000
To, Admn. OH A/c	7,00,000	By, Closing stock A/c
To, S & D OH A/c	9,60,000	Finished goods	3,20,000
To, Bad debts A/c	80,000	WIP	2,40,000
To, Preliminary expenses written off	40,000
To, Legal charges A/c	10,000
To, Net Profit	12,90,000
	12,68,000		12,68,000

 

Statement of Reconciliation

Particular	Amount (₹)	Amount (₹)
Profit as per Financial Accounts		12,90,000
Add: Over valuation of cl. Stock of Finished goods in Cost Accounts	29,161
Pure financial expenses not considered in Cost Accounts (80,000 + 40,000 + 10,000)	1,30,000	1,59,161
Less: Over recovery of material	6,00,000
Over recovery of FOH	1,20,000
Over recovery of AOH	44,000
Financial incomes not considered in Cost Accounts.	1,20,000	8,84,000
Profit as per Cost Accounts		5,65,161

Illustration 11

The following represent the Trading and Profit and Loss Account of a manufacturer of a standard fire extinguisher:

 Trading and P&L Account 

Dr.			Cr.
Particulars	Amount (₹)	Particular	Amount (₹)
To, Materials used	29,150.00	By, Sales A/c	75,000.00
To, Productive Wages A/c	18,610.00	By, Stock of Finished Goods A/c	1,812.50
To, Factory Expenses  A/c	14,055.00
To, Gross Profit c/d	20,527.50	By, Work-in-progress:
		Materials	2,800.00
		Labour	1,560.00
		Overheads	1,170.00
	82,342.50		82,342.50
To, Administration expenses A/c	13,650.00	By, Gross Profit b/d	20,527.00
To, Net Profit	6,877.50
	20,527.50		20,527.50

1,550 Extinguishers were manufactured during the year, and 1,500 were sold during the same period.

The cost records showed that Factory overheads work out at ₹ 8.25 and Administrative overheads at  ₹ 9.0625 per article produced: the Cost Accounts showing an estimated total profit of ₹ 7,031.25 for the year.

From the forgoing information you are required to prepare

(a) Factory Overhead Control of Account

(b) Administration overheads Control Account in costing books and

(c) An account showing reconciliation between the total net profit as per the Cost Accounts and the net profit shown in Financial Books.

Solution:

 Factory Overhead Control Account 

Dr.			Cr.
Particular	Amount (₹)	Particular	Amount (₹)
To, GLA A/c	14,055	By, FG control (1550 x 8.25)	12,787.50
		By, WIP	1,170.00
		By, Under recovery	97.50
	14,055		14,055

 Administration Overhead Control Account 

Dr.			Cr.
Particular	Amount (₹)	Particular	Amount (₹)
To, GLA A/c	13,650.000	By, FG (1550 x 9.0625)	14,046.875
To, Over recovery	396.875
	14,046.875		14,046.875

 Memorandum Reconciliation Account 

Dr.			Cr.
Particular	Amount (₹)	Particular	Amount (₹)
To, Over recovery of AOH	396.875	By, Profit as per Financial A/c	6,877.500
To, Profit as per Cost Accounts	7,031.250	By, Under recovery of FOH	97.500
		By, Over Valuation of Closing Stock in Cost Accounts (50 x 9.0625)	453.125
	7,428.125		7,428.125

 

Integrated Accounting System

In integral accounting or integrated cost accounting system, cost and financial records are kept in the same set of books. There is no separate set of books for costing and financial records. Thus there is no need for reconciliation of costing and financial results. 

Features of Integrated Accounting System

The following are the features of the integrated accounting system:

1. Complete analysis of costs and sales are kept.
2. Complete details of all receipts and payments in cash are kept.
3. Since, only one set of books is kept for both Financial and Cost Accounts. It avoids duplicate recording of transactions.
4. General Ledger Adjustment Account or Cost Ledger Adjustment Account is not maintained. Complete details of all assets and liabilities are kept and this system does not use a notional account to represent all impersonal accounts.
5. Subsidiary ledgers are kept for Stores, Work in Progress and Finished Goods Account. 

Advantages of Integrated Accounting System

The advantages of maintaning integrated accounting system are as follows:

1. As only one Profit and Loss Account is prepared under this system, the question of reconciling costing profit and financial profit does not arise.
2. Significant saving in the clerical efforts, as only one set of books is maintained.
3. Retrieving of information is easy and quick.
4. It is economical also as it is based in the concept of centralization of accounting function.

Essential Pre-requisites for integrated accounts

The essential pre-requisites for integrated accounts include the following steps:

1. The management decision about the extent of integration of the two sets of books. Some concerns find it useful to integrate upto the stage of primary cost or factory cost, while others prefer full integration of the entire accounting records.
2. A suitable coding system must be made available so as to serve the accounting purposes of financial and cost accounts.
3. An agreed routine, with regard to the treatment of provision for accruals, prepaid expenses, other adjustment necessary for preparation of interim accounts.
4. Perfect co-ordination should exist between the staff responsible for the financial and cost aspects of the accounts and an efficient processing of accounting documents should be ensured.

In the following table a comparative analysis of the journal entries in financial accounts, cost accounts and integral accounts are presented. 

Transactions	Financial Accounts	Cost Accounts	Integrat Accounts
Credit purchase of Material	Purchases A/c  To Creditors	Material Control A/c Dr To G L Adjustment A/c	Material Control Dr To Creditors A/c
Cash purchase of Material	Purchases A/c Dr To Cash / Bank A/c	Material Control A/c Dr To G L Adjustment A/c	Material Control A/c Dr To Cash / Bank A/
Purchase of special material for direct use in job	Purchases A/c Dr To Cash/Creditors A/c	WIP Control A/c Dr To G L Adjustment A/c	Material Control A/c Dr To Cash/Creditors A/c
Purchase of materials for repairs	Purchases A/c Dr To Cash/Creditors A/c	Factory OH Control A/c Dr To G L Adjustment A/c	Factory OH Control A/c Dr To Cash/Creditors A/c
Materials returned to suppliers	Creditors A/c Dr To Purchases A/c	G L Adjustment A/c Dr To Material Control A/c	Creditors A/c Dr To Material Control A/c
Payment to Creditors for supplies made	Creditors A/c Dr To Cash / Bank A/c	No Entry	Creditors A/c Dr To Cash / Bank A/c
Issue of Direct materials to production shop	No Entry	WIP Control A/c Dr To Materials Control A/c	WIP Control A/c Dr To Materials Control A/c
Issue of indirect materials to production shope	No Entry	Factory OH Control A/c Dr To Material Control A/c	Factory OH Control A/c Dr To Material Control A/c
Return of direct materials to stores	No Entry	Material Control A/c Dr To WIP Control A/c	Material Control A/c Dr To WIP Control A/c
Return of direct materials to stores	No Entry	Material Control A/c Dr To Factory OH Control A/c	Material Control A/c Dr To Factory OH Control A/c
Materials transferred from one job to another	No Entry	No Entry	No Entry
Adjustment of normal depreciation in material stocks	No Entry	Factory OH Control A/c Dr To Material Control A/c	Factory OH Control A/c Dr To Material Control A/c
Adjustment of normal surplus in material stocks	No Entry	Material Control A/c Dr To Factory OH Control A/c	Material Control A/c Dr To Factory OH Control A/c
Payment of Wages	Wages A/c Dr To Cash / Bank A/c	Wages Control A/c Dr To G L Adjustment A/c	Factory OH Control A/c Dr To Cash / Bank A/c
Analysis of distribution of wages	No Entry	WIP Control A/c Dr Factory OH Control A/c Dr Admin OH Control A/c Dr S&D OH Control A/c Dr To Wages Control A/c	WIP Control A/c Dr Factory OH Control A/c Dr Admin OH Control A/c Dr S&D OH Control A/c Dr To Wages Control A/c
Payment of Expenses	Expenses A/c Dr To Cash / Bank A/c	Factory OH Control A/c Dr Admin OH Control A/c Dr S&D OH Control A/c Dr To G L Adjustment A/c	Factory OH Control A/c Dr Admin OH Control A/c Dr S&D OH Control A/c Dr To Cash / Bank A/c
Recording of Depreciation	Depreciation A/c Dr To Asset A/c	Factory OH Control A/c Dr Admin OH Control A/c Dr S&D OH Control A/c Dr To G L Adjustment A/c	Factory OH Control A/c Dr Admin OH Control A/c Dr S&D OH Control A/c Dr To Asset A/c
Absorption of Factory Overhead	No Entry	WIP Control A/c Dr To Factory OH Control A/c	WIP Control A/c Dr To Factory OH Control A/c
Spoiled / Defective wor	No Entry	Costing Profit & Loss A/c Dr To WIP Control A/c	Costing Profit & Loss A/c Dr To WIP Control A/c
Recording of Cost of Jobs completed	No Entry	Finished Goods Control A/c  Dr To WIP Control A/c	Finished Goods Control A/c Dr To WIP Control A/c
Recording of Cost of Goods Sold	No Entry	Cost of Sales A/c Dr To Finished Goods Control A/c	Cost of Sales A/c Dr To Finished Goods Control A/c
Recording of Sales	Cash / Debtors A/c  Dr To Sales A/c	G L Adjustment A/c Dr To Costing P & L A/c	Cash / Debtors A/c Dr To Profit and Loss A/c
Absorption of Administration Overheads	No Entry	Finished Goods Control A/c  Dr To Admin OH Control A/c	Finished Goods Control A/c Dr To Admin OH Control A/c
Absorption of Selling Overheads	No Entry	Cost of Sales A/c Dr To S & D OH Control A/c	Cost of Sales A/c Dr To S & D OH Control A/c
Under absorption	No Entry	Costing Profit and Loss A/c  Dr To Overhead Adjustment A/c	Profit and Loss A/c Dr To Overhead Adjustment A/c
Over absorption of Overheads	No Entry	Overhead Adjustment A/c Dr To Costing Profit and Loss A/c	Overhead Adjustment A/c Dr To Profit and Loss A/c

G L Adjustment - Work in Progress Control

WIP Control - Factory Overheads Control

Admin OH Control - Administration Overhead Control

S & D OH Control - Selling and Distribution Overhead Control

Costing P & L - Costing Profit and Loss

Illustration 12

 Journalise the following transactions assuming that cost and financial accounts are integrated:

Particulars	Amount (₹)
Raw material purchased	40,000
Direct materials issued to production	30,000
Wages paid (30% indirect)	24,000
Wages charged to production	16,800
Manufacturing expenses incurred	19,000
Manufacturing overhead charged to Production	18,000
Selling and distribution cost	4,000
Finished products (at cost)	40,000
Sales	58,000
Closing stock	Nil
Receipts from debtors	13,800
payments to creditors	12,000

Solution:

Journals

		Dr.	Cr.
Particulars		Amount (₹)	Amount (₹)
Material Control A/c	Dr.	40,000
To, Creditors A/c			40,000
Work In Progress Control A/c	Dr.	30,000
To, Material Control A/c			30,000
Wages Control A/c	Dr.	24,000
To, Cash A/c			24,000
Factory Overheads Control A/c	Dr.	7,200
To, Wages Control A/c			7,200
Work-in-Progress Control A/c	Dr.	16,800
To, Wages Control A/c			16,800
Factory Overhead Control A/c	Dr.	19,000
To, Cash A/c			19,000
Work-in-Progress Control A/c	Dr.	18,000
To, Factory overhead Control A/c			18,000
S & D O.H. Control A/c	Dr.	4,000
To, Cash A/c			4,000
Cost of Sales A/c	Dr.	4,000
To, Selling & Distribution Overhead Control A/c			4,000
Finished Goods Control A/c	Dr.	40,000
To, Work-in-progress control A/c			40,000
Debtors A/c	Dr.	58,000
To, Profit & Loss A/c			58,000
Cash A/c	Dr.	13,800
To, Debtors A/c			13,800
Creditors A/c	Dr.	12,000
To, Cash A/c			12,000

Illustration 13

Pass the journal entries for the following transactions in a double entry cost accounting system:

	Particulars	Amount (₹)
(A)	Issue of material :
	Direct	5,50,000
	Indirect	1,50,000
(B)	Allocation of wages and salaries :
	Direct	2,00,000
	Indirect	40,000
(C)	Overheads absorbed in jobs :
	Factory	1,50,000
	Administration	50,000
	Selling	30,000
(D)	Under/over absorbed overheads : Factory (Over)	20,000
	Admn . (Under)	10,000

Solution:

Journals 

		Dr.	Cr.
Particulars		Amount (₹)	Amount (₹)
Work In Progress Control A/c	Dr.	5,50,000
Factory Overheads Control A/c	Dr.	1,50,000
To Material Control A/c			7,00,000
Work In Progress Control A/c	Dr.	2,00,000
Factory Overheads Control A/c	Dr.	40,000
To Wages Control A/c			2,40,000
Work In Progress Control A/c	Dr.	1,50,000
Finished goods Control A/c	Dr.	50,000
Cost of Sales A/c	Dr.	30,000
To Factory Overhead Control A/c			1,50,000
To Administrative Overhead Control A/c			50,000
To Selling Overhead Control A/c			30,000
Costing Profit & Loss A/c	Dr.	10,000
To Administrative Overhead Control A/c			10,000
Factory Overhead Control A/c	Dr.	20,000
To Costing Profit & Loss A/c			20,000

Illustration 14

Messsrs Essbee Ltd. maintains Integrated Accounts of Cost and Financial Accounts. From the following details write up Control Accounts of a factory and prepare a Trial Balance.

Particulars	Amount (₹)
Share Capital	3,00,000
Reserve	2,00,000
Sundry Creditors	5,00,000
Plant and Machinery	5,75,000
Sundry Debtors	2,00,000
Closing Stock	1,50,000
Bank & Cash Balance	75,000

 

TRANSACTIONS DURING THE YEAR WERE AS FOLLOWS:

Particulars	Amount (₹)
Stores purchased	10,00,000
stores issued to production	10,50,000
Stores in hand	95,000
Direct wages incurred	6,50,000
Direct wages charged to production	6,00,000
Manufacturing expenses incurred	3,00,000
Manufacturing expenses charged to production	2,75,000
Selling and distribution expenses	1,00,000
Finished stock production (at cost)	18,00,000
Sales at selling price	22,00,000
Closing stock	95,000
Payments to creditors	11,00,000
Receipts from debtors	21,00,000

Solution:

Creditors Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Cash A/c	11,00,000	By, Balance b/d	5,00,000
To, Balance c/d	4,00,000	By, Material Control A/c	10,00,000
	15,00,000		15,00,000
		By, Balance b/d	4,00,000

 Debtors Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Balance b/d	2,00,000	By, Cash A/c	21,00,000
To, P & L A/c	22,00,000	By, Balance c/d	3,00,000
	24,00,000		24,00,000
To, Balance b/d	3,00,000

Material Control A/c (or) Stores Ledger Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Balance b/d	1,50,000	By, Work-in-Progress Control A/c	10,50,000
To, Creditors A/c	10,00,000	By, Manufacturing Overhead Control A/c	5,000
		By, Balance c/d	95,000
	11,50,000		11,50,000
To, Balance b/d	95,000

Cash & Bank Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Balance b/d	75,000	By, Wages Control A/c	6,50,000
To, Debtors A/c	21,00,000	By, Manufacturing Overhead Control A/c	3,00,000
		By, Selling and Distribution O.H. Control A/c	1,00,000
		By, Creditors A/c	11,00,000
		By, Balance c/d	25,000
	21,75,000		21,75,000
To, Balance b/d	25,000

Work-in-Progress Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Material Control A/c	10,50,000	By, Fixed Goods Control A/c	18,00,000
To, Wages Control A/c	6,00,000	By, Balance c/d	1,25,000
To, Manufacturing Overhead Control A/c	2,75,000
	19,25,000		19,25,000
To, Balance b/d	1,25,000

Wages Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Cash & Bank A/c	6,50,000	By, Work-in-Progress Control A/c	6,00,000
		By, Manufactures Overhead Control A/c	50,000
	6,50,000		6,50,000

(Factory) Manufacturing Overhead Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Cash	3,00,000	By, Work-in-Progress Control A/c	2,75,000
To, Material Control A/c	5,000	By, Profit & Loss A/c	80,000
To, Wages Control A/c	50,000
	3,55,000		3,55,000

Selling & Distribution Overhead Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Cash A/c	1,00,000	By, Cost of Sales A/c	1,00,000
	1,00,000		1,00,000

Finished goods Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Work-in-Progress Control A/c	18,00,000	By, Cost of Sales	17,05,000
		By, Balance c/d	95,000
	18,00,000		18,00,000
To, Balance b/d	95,000

 Profit & Loss Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Factory Overheads Control A/c	80,000	By, Debtors A/c (Sale)	22,00,000
To, Cost of Sales	18,05,000
To, Reserve A/c (Profit)	3,15,000
	22,00,000		22,00,000

 Cost of Sales Account

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Selling & Distribution Control A/c	1,00,000	By, Profit & Loss A/c	18,05,000
To, Finished Goods Control A/c	17,05,000
	18,05,000		18,05,000

 Trial Balance 

Particulars	Debit	Credit
Share Capital		3,00,000
Reserves (2,00,000 + 3,15,000)		5,15,000
Creditors		4,00,000
Plant & Machinery	5,75,000
Debtors	3,00,000
Closing Stock:
Material	95,000
Work-in-progress	1,25,000
Finished goods	95,000
Cash & bank	25,000
	12,15,000	12,15,000

Illustration 15

The following balances are shown in the Cost Ledger of Vinak Ltd. as on 1st October, 20X1:

Particulars	Dr. (₹)	Cr. (₹)
Work in progress Account	7,056
Factory overheads suspense Account	360
Finished stock Account	5,274
Stores Ledger Control Account	9,450
Administration Overheads Suspense A/C	180
General Ledger Adjustment Account		22,320

Transactions for the year ended 30th September, 20X2

Particulars	Amount (₹)
Stores issued to production	45,370
Stores purchased	52,400
Material purchased for direct issued to production	1,135
Wages paid (including indirect labour ₹ 2,520)	57,600
Finished goods sold	1,18,800
Administration expenses	5,400
Selling expenses	6,000
Factory overheads	15,600
Store issued for Capital work-in-Progress	1,500
Finished goods transferred to warehouse	1,08,000
Store issued for factory repairs	2,000
Factory overheads recovered to production	16,830
Administration overheads charged to production	4,580
Factory overheads applicable unfinished work	3,080
selling overheads allocated to sales	5,500
Stores lost due to fire in store (not insured)	150
Finished goods stock on 30.9.20X1	14,274

You are required to record the entries in the cost ledger for the year ended 30th September, 20X2 and prepare a Trial Balance as on that date.

Solution:

Work-in-Progress Control Account 

Dr.				Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
To, Balance b/d	7,056	By, Finished Goods Control A/c		1,08,000
To, Material Control A/c	45,370	By, Balance c/d
To, General Ledger Adjustment A/c	1,135	Factory Overhead	3,080
To, Wages control A/c	55,080	Material & Wages	17,471
To, Factory overhead control A/c	16,830			20,551
To, Factory Overhead Control A/c	3080
	1,28,551			1,28,551

Factory Overhead Suspense Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Balance b/d	360	By, Work-in-Progress Control A/c	3,080
To, Wages Control A/c	2,520	By, Work-in-Progress Control A/c	16,830
To, General Ledger Adjustment A/c	15,600	By, Balance c/d	570
To, Material Control A/c	2,000
	20,480		20,480

 Finished Goods Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Balance b/d	5,274	By, Cost of Sales A/c	1,03,580
To, Work-in-progress Control A/c	1,08,000	By, Balance c/d	14,274
To Administrative OH Control A/c	4,580
	1,17,854		1,17,854

 Material Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Balance b/d	9,450	By, Work-in-Progress Control A/c	45,370
To, General Ledger Adjustment A/c	52,400	By, Capital Work-in-Progress Control A/c	1,500
		By, Factory Overhead Suspense A/c	2,000
		By, Costing Profit & Loss A/c	150
		By, Balance c/d	12,830
	61,850		61,850

 Administrative Overhead Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Balance c/d	180	By, Work-in-Progress Control A/c	4,580
To, General Ledger Adjustment A/c	5,400	By, Work-in-Progress Control A/c	850
		By, Balance c/d	150
	5,580		5,580

General Ledger Adjustment (GLA) Account

(or) Cost Ledger Control (CLC) Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Costing Profit & Loss A/c	1,18,800	By, Balance b/d	22,320
To, Balance c/d	55,805	By, Material Control A/c	52,400
		By, Work-in-Progress Control A/c	1,135
		By, Wages Control A/c	57,600
		By,  Administrative Overhead Control A/c	5,400
		By, Factory Overhead Control A/c	15,600
		By, Selling and Distribution Overhead Control A/c	6,000
		By, Costing Profit & Loss A/c	9,570
	1,70,025		1,70,025

Wages Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, General Ledger Adjustment A/c	57,600	By, Work-in-Progress Control A/c	55,080
		By, Factory Overhead Control A/c	2,520
	57,600		57,600

Costing Profit & Loss Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Material Control A/c	150	By, General Ledger Adjustment Control A/c (Sales)	1,18,800
To, Cost of Sales	1,04,500
To, General Ledger Adjustment Control A/c (profit)	14,150
	1,18,800		1,18,800

Selling and Distribution Overhead Control Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, General Ledger Adjustment A/c	6,000	By, Cost of Sales A/c	5,500
		By, Balance c/d	500
	6,000		6,000

Capital Work-in-progress Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Material Control A/c	1,500	By, Balance c/d	1,500
	1,500		1,500
To, balance b/d	1,500

Cost of Sales Account 

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To, Selling & Distribution Control A/c	5,500	By, Costing Profit & Loss A/c	1,09,080
To, Finished Goods Control A/c	1,03,580
	1,09,080		1,09,080

Trial Balance 

Particulars	Debit	Credit
Work-in-Progress Control	20,551
Factory overhead Suspense	570
Finished Goods Control	14,274
Material Control	12,830
Administrative Overhead Control	1,000
General Ledger Adjustment		51,225
Selling and Distribution Overhead Control	500
Capital Work-in-Progress	1,500
	51,225	51,225

 

Exercise

A. Theoretical Questions:

Multiple Choice Questions

1. Which of the following items is not included in preparation of cost sheet?
   A. Carriage inward
   B. Purchase returns
   C. Sales commission
   D. Interest paid
   
   
2. Which of the following items is not excluded while preparing a cost sheet?
   A. Goodwill written off
   B. Provision for taxation
   C. Property tax on factory building
   D. Transfer to reserves
   
   
3. Which of the following are direct expenses?
   i. The cost of special designs, drawings or layouts
   ii. The hire of tools or equipment for a particular job
   iii. Salesman’s wages
   iv. Rent, rates and insurance of a factory
   A. (i) and (ii)
   B. (i) and (iii)
   C. (i) and (iv)
   D. (iii) and (iv)
   
   
4. What is prime cost?
   A. Total direct cost only
   B. Total indirect costs only
   C. Total non-production csots
   D. Total production costs 
   
   
5. Which of the following is not an element of works overhead?
   A. Sales manager’s salary
   B. Plant manager’s salary
   C. Factory repairman’s wages
   D. Product inspector’s salary
   
   
6. For the purpose of Cost Sheet preparation, costs are classified based on:
   A. Functions
   B. Relevance
   C. Variability
   D. Nature
7. Salary paid to an office supervisor is a part of:
   A. Direct expenses
   B. Administration cost
   C. Quality control cost
   D. Factory overheads
8. Audit fees paid to cost auditors is part of:
   A. Selling and distribution cost
   B. Production cost
   C. Administration cost
   D. Not recorded in the cost sheet
   
   
9. A company has set up a laboratory for testing of products for compliance with standards. Salary of this laboratory stuffs are part of:
   A. Direct expenses
   B. Quality control cost
   C. Works overheads
   D. Research and development cost
   
   
10. Canteen expenses for factory workers are part of:
    A. Administration cost
    B. Factory overhead
    C. Marketing cost
    D. None of the above
    
    
11. Which of the following does not form part of prime cost?
    A. GST paid on raw materials (input credit can be claimed)
    B. Cost of transportation paid to bring materials to factory
    C. Cost of packing
    D. Overtime premium paid to workers
    
    
12. A company pays royalty to State Government on the basis of production, it is treated as:
    A. Direct expenses
    B. Factory overheads
    C. Direct Material Cost
    D. Administration Cost
    
    
13. In Reconciliation Statements, expenses shown only in financial accounts are:
    A. Added to financial profit
    B. Deducted from financial profit
    C. Ignored
    D. Added to costing profit
    
    
14. In Reconciliation Statement, expenses shown only in cost accounts are:
    A. Added to financial profit
    B. Deducted from financial profit
    C. Ignored
    D. Deducted from costing profit 
    
    
15. In Reconciliation Statement, transfers to reserves are:
    A. Added to financial profit
    B. Deducted from financial profit
    C. Ignored
    D. Added to costing profit
    
    
16. In Reconciliation Statement, incomes shown only in financial accounts are:
    A. Added to financial profit
    B. Deducted from financial profit
    C. Ignored
    D. Deducted from costing profit
    
    
17. In Reconciliation Statement, Closing Stock undervalued in Financial Accounts is
    A. Added to financial profit
    B. Deducted from financial profit
    C. Ignored
    D. Added to costing profit
    
    
18. Under non-integrated accounting system:
    A. Separate ledgers are maintained for cost and financial accounts
    B. Same ledger is maintained for cost and financial accounts by accountants
    C. (A) and (B) both
    D. None of the above
    
    
19. Under non-integrated accounting system, the account made to complete double entry is:
    A. Finished goods control account
    B. Work in progress control account
    C. Stores ledger control account
    D. General ledger adjustment account
    
    
20. Under non-integrated system of accounting, purchase of raw material is debited to 
    A. Purchase account
    B. Material control account / stores ledger control account
    C. General ledger adjustment account
    D. None of the above
    
    
21. When costing loss is ₹ 5,600, administrative overhead under-absorbed being ₹ 600, the loss as per financial accounts should be _______ .
    A. ₹ 5,000
    B. ₹ 5,600
    C. ₹ 6,200
    D. None of the above
    
    
22. Which of the following items should be added to costing profit to arrive at financial profit?
    A. Income tax paid
    B. Over absorption of works overhead
    C. Interest paid on debentures
    D. All of the above
    
    
23. Integral accounts eliminate the necessity of operating _______ .
    A. Cost ledger control account
    B. Store ledger control account
    C. Overhead adjustment account
    D. None of the above

Answer: 

1	D	2	C	3	A	4	A	5	A	6	A	7	B	8	C	9	B	10	B
11	D	12	A	13	A	14	B	15	A	16	B	17	A	18	A	19	D	20	B
21	C	22	B	23	A