Professional Documents
Culture Documents
TYPES OF INVENTORY
Raw materials Work in progress
PRIME COST
1.
Direct materials
Costs of the materials used during the period. Include the purchase price of the raw materials and the acquisition costs related to the purchase. Examples: Purchase of raw materials, Carriage inwards / freight charges on raw materials
2.
Direct labour Wages paid to the people who are directly involved in the manufacturing process. Example: Direct labour, Direct wages, Factory wages, Production wages, Manufacturing wages
3.
Direct expenses They refer to the expenses paid according to each unit of production. Examples: Royalties, hire purchase of special materials
OVERHEAD COST
1. Indirect materials Lubricants Loose tools 2.Indirect labour wages, salaries, bonus or commission to cleaners, crane drivers, foremen, supervisors and production managers.
3. Indirect expenses related to the factory, machinery and vehicles Rent and rates Depreciation Insurance Repairs and maintenance Factory power / electricity Internal transport Loss on disposal
FINANCIAL STATEMENT
Manufacturing Account 2. Income Statement 3. Balance Sheet
1.
1) Manufacturing Account
It shows the production cost or transfer price of goods completed during the accounting period.
Direct materials Direct labour Direct expenses Factory overhead expenses Work in progress Factory profit
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Manufacturing Account for the year ended. Opening stock of Raw Materials Add: Purchases of Raw Materials X Return Outwards (raw materials) (X) Carriage inwards (raw materials) (X) Drawings (raw materials) (X)
Direct material Wages Less: Closing stock of Raw Materials Cost of Raw Materials Consumed Direct labour Direct Labor Royalties Direct Expenses Prime Cost Factory Overhead Expenses: Production Managers salaries Overhead Factory Power Maintenance of Plant & Machinery Depreciation of Plant & Machinery
X X (X) X X X X X X X X
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Add: Opening Work in Progress Less: Closing Work in Progress Production Cost of finished goods Factory profit (% PCFG) Transfer price of finished goods
X X X X X
2) Income Statement
Profit or loss of the whole business during the
accounting period. Includes all the expenses and income related to the office and the running of the whole business such as:
Gross profit / loss from the trading account Factory profit / loss Administration expenses Selling and distribution expenses Financial expenses Increase / decrease in the provision for unrealized
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profit
Income Statement for the year ended Sales Less: Returns inwards Less: Cost of Goods Sold Opening stock of finished goods add: Transfer price of Finished goods Less: Drawings (finished goods) Returns outwards less: Closing stock of finished goods Gross Profit Add: Factory Profit Add: Other revenue Discount Received Reduction in provision for unrealized profit 14 X (X)
X
X X (X) (X) X (X)
(X) X X X X
X
Less: Other Expenses Selling expenses commissions on sales salesman salaries carriage outwards depreciation of delivery van Administrative expenses rental depreciation of office equipment printing postage Financial charges bad debts discount allowed interest increase in provision for unrealized profit
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Net profit
3) Balance Sheet
It shows the assets, liabilities and equities of the Whole business on a specific date of the accounting period.
Assets (closing inventory : raw materials, WIPs, and finished goods) Liabilities Equities
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X
X X
X (X)
X X
X X (X) X X X X
IMPORTANT !!
Some
expenses are related to both the manufacturing process and the administration of the office such as: Rent, electricity, insurance, depreciation on premises, motor vehicles etc. These expenses should be allocated to the factory and office and debited to the manufacturing account and the profit and loss account respectively. The bases of allocation are usually given in the examination questions.
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other finished goods are valued at cost. However, the stock of manufactured goods can be valued at production cost or the transfer price of goods completed. Provision of unrealized profit of on stock should be made if closing stock of manufactured goods is valued at transfer price.
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Reduction in Provision (other revenues) Dr Provision for Unrealized Profit Cr Profit and Loss
Drawings (expenses)
Balance c/d (prepaid)
Income Statement
Income Statement
Adjustment on depreciation
Accum.depreciation of non-current assets
Balance c/d Balance b/d) Income Statement
Accum.depreciation for previous years 1.Stated in question Depreciation for current years 2.cost-NBV 1.Policy given 2.No policy (cost-NBV)