Cost Accounting

7 System
CHAPTER

Integrated Accounting • It is a system of accounting whereby cost and financial accounts are
kept in the same set of books.
• Integrated accounting records provide the necessary information for
ascertainment of cost of each unit, batch or job or any other cost unit
and simultaneously financial statement viz. Profit and Loss A/c and
Balance Sheet.
• In this system, transactions are recorded based on double entry book-
keeping and costs are classified on the basis of function which enables
the firm to ascertain product cost.
Advantages of • No need for reconciliation
Integrated Accounting • Less efforts required
System • Less time consuming
• Economical process i.e; less costly
Essential Pre- • Deciding the extent of integration of the two sets of books. Some
requisites of companies find it useful to integrate upto the stage of primary cost or
Integrated System factory cost while others prefer an integration of the entire accounting
records.
• A suitable coding system must be developed to serve the purpose of
both financial and cost accounts.
• To lay down the procedure for the treatment of provision for accruals
prepaid expenses and other adjustments necessary for preparing
interim accounts.
• Perfect co-ordination should exist between the staff responsible
for financial aspects and cost aspects of the accounts. An efficient
processing of accounting documents is to be ensured.
Non-Integrated • Under this system, two different sets of records are maintained for
Accounting System or Financial Accounts and Cost Accounts.
Inter-locking System • It is defined as a system in which the cost accounts are distinct from
financial accounts, the two sets of accounts being kept continuously in
agreement by the use of control accounts or made readily reconcilable
by other means.
• At the end of each accounting period, it is necessary to reconcile the
Cost and Financial Accounts to maintain the accuracy between both
sets of books.
 Principal Ledgers • Cost Ledger – It is the main principal ledger. This ledger consists of
Maintained Under all impersonal accounts and is made self-balancing by maintaining a
Non-Integrated control account for each of the other three ledgers.
System • Stores Ledger/Job Ledger – This ledger deals with material
transaction. It contains a separate account for each item of store (i.e. raw
material, components etc.). This account is debited with all purchases
of materials for the stores and credited with all issues of materials. The
balance of this account represents the cost of unconsumed stores.
• Work-in-Progress Ledger – In this ledger, separate accounts are
maintained for each job/work in progress. Each such account is
debited with material cost, wages, direct expenses and production
overheads chargeable to the work and is credited with the cost of
work completed/finished goods produced. The balance of this account
represents the cost of unfinished work.
• Finished goods Ledger – In this ledger, accounts of completely finished
products, jobs are contained. Individual accounts are maintained for
each type of finished job, products etc. Each such account is debited
with the cost of finished goods and the amount of administration
overheads absorbed and is credited with the cost of goods sold. The
balance of this account represents the cost of unsold finished goods.
Cost Ledger Control • It is also known as General Ledger Adjustment Account.
Account • This account is operated to make cost ledger self-balancing.
• All transactions of income and expenditure, which originate in financial
accounts, are entered in this account for eventual transfer to some
control account.
• Main purpose of this account is to complete entry in cost ledger. No
entry should be made direct from financial books to cost books. All
entries pass through general ledger adjustment account.
• The balance of this account at the end of a particular period represents
the total of all balances of impersonal account.
Need for • To find out the reasons for difference in profit or loss in Cost and
reconciliation Financial Accounts.
• Reliability of cost and financial data is verified by reconciling both the
accounts.
• Reconciliation of cost and financial accounts helps in standardization
of policies like inventory valuation, overhead absorption, depreciation
provision etc.
• The accuracy of cost accounting methods and practices followed by
the concern like absorption and recovery of overheads, depreciation
allowance, inventory valuation is cross verified with the financial
accounts.
• It promotes co-operation and co-ordination between the two accounts.
• To ensure that there is no over or under recovery of overheads
• It helps the management in identifying the reasons for deviation
in profits of the two accounts for internal control and efficient
management of operations.

230 Cost and Management Accounting PW

 No Requirement of • When the cost and financial accounts are integrated then there is no
Reconciliation need to have a separate reconciliation statement between the two sets
of accounts.
Reasons for • tems s o n on y in financia acco nts
Difference in Costing (a) Purely financial charges
an inancia Profit • Loss on sale of capital assets
Loss • Interest on bank loans and mortgages etc.
• Fines and penalties
• Amount written off for goodwill or preliminary expenses.
(b) Purely financial incomes
• Profit from sale of capital assets
• Rent received/receivable
• Interest or dividend received
(c) Appropriations of profit
• Dividend paid
• Transfer to reserves
• Income tax
• Items shown only in cost accounts - These are usually notional
charges called as imputed costs/opportunity costs. Example:
• Salary or own manager at notional figures though not incurred.
• A charge in lieu of rent when premises are owned and no rent is payable.
• Under or over-absorption of overheads in cost accounts – In cost
accounts, overheads are recovered on pre-determined basis whereas
under financial accounts, overheads are charged on actual basis, thus
leading to the difference between the two.
• Different basis of stock valuation – Basis of stock valuation in cost
and financial accounts may be different leading to a difference in the
profits. In cost accounts, stock will be valued at FIFO, LIFO or average
stock etc. but in financial accounts the principle is cost or market value
whichever is lower.
• Basis of depreciation – Different methods of providing depreciation
adopted in two sets of books may also lead to some difference in the
profit of loss figures.

PRACTICAL QUESTIONS
1. Journalise the following transactions assuming cost and financial accounts are integrated: [SM]

`
Raw materials purchases 20,000
Direct Materials issued to production 15,000
Wages paid (30 indirect) 12,000
Direct wages charged to production 8,400
Manufacturing expenses incurred 9,500

Cost Accounting System 231

 `
Manufacturing overheads charged to production 9,200
Selling and Distribution costs 2,000
Finished Products (at cost) 20,000
Sales 29,000
Closing stock Nil
Receipts from Debtors 6,900
Payment to Creditors 11,000

2. Pass journal entries in the cost books, maintained on non-integrated system, for the following:
(a) Issue of materials Direct `5,50,000, Indirect `1,50,000
(b) Allocation of wages Direct `2,00,000, Indirect `40,000
(c) Under/Over absorbed overheads: Factory (over) `20,000;

3. Journalise the following transactions assuming cost and financial accounts are integrated:
[Nov 2013, MTP July 2020]
`
(i) Material issued
Direct 3,25,000
Indirect 1,15,000
(ii) Allocation of wages (25 indirect) 6,50,000
(iii) Under/Over absorbed overheads:
Factory (Over) 2,50,000
Administration (Under) 1,75,000
(iv) Payment to Sundry Creditors 1,50,000
(v) Collection from Sundry Debtors 2,00,000

4. Enter the following transactions relating to SK & Co. for the month of March, in the financial and
cost books:
` `
Wages and salaries 20,000
Less Deductions:
Employee Provident Fund 1,600
State Insurance Premium 800
Income Tax 200 2,600
Net wages paid 17,400
Employer’s Contribution is as follows:
Provident fund 1,600
State Insurance 400 2,000

232 Cost and Management Accounting PW

 From the wages and salaries analysis, following details of total wages and salaries are available:
` `
Direct labour 12,000
Indirect factory labour 5,800
Salaries to administration staff 2,600
Salaries to selling and distribution staff 1,600 22,000

5. SK Manufacturing Co. Ltd. opens the costing records, with the balances as on 1st July, 2021 as
follows:
(`) (`)
Material Control A/c 1,24,000 -
Work-in-Process Control A/c 62,500 -
Finished Goods Control A/c 1,24,000 -
Production Overhead Control A/c 8,400 -
Administrative Overhead Control A/c - 12,000
Selling & Distribution Overhead Control A/c 6,250 -
Cost Ledger Control A/c - 3,13,150
3,25,150 3,25,150
The following are the transactions for the quarter ended 30th September 2021:

`)
Materials purchased 4,80,100
Materials issued to jobs 4,77,400
Materials to works maintenance 41,200
Materials to administration office 3,400
Materials to selling department 7,200
Wages direct 1,49,300
Wages indirect 65,000
Transportation for indirect materials 8,400
Production overheads 2,42,250
Absorbed production overheads 3,59,100
Administration overheads 74,000
Administration allocation to production 52,900
Administration allocation to sales 14,800
Sales overheads 64,200
Sales overheads absorbed 82,000
Finished goods produced 9,58,400
Finished goods sold 9,77,300
Sales 14,43,000
Make up the various accounts as you envisage in the Cost Ledger and prepare a Trial Balance as
at 30th September, 2021.
Cost Accounting System 233
 6. On 31st March, the following balances were extracted from the books of the SK Company:

Debit (`) Credit (`)

Stores Ledger Control A/c 35,000
Work-in-progress 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:
`
Material purchased 95,000
Material returned to suppliers 3,000
Material issued to production 98,000
Material returned to stores 3,000
Productive wages 40,000
Indirect labour 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 supplied to production at 150 of direct wages, any under/over absorbed
overhead being carried and charged off to the Profit and Loss Account for the month in which
they are incurred. Show the following accounts:
(a) Cost ledger control a/c
(b) Stores ledger control a/c
(c) Work in progress control a/c
(d) Finished goods stock control a/c
(e) Factory overhead control a/c
(f) Costing profit and loss a/c
(g) Trial balance as at 30th April

7. A manufacturing business has a single production department. It absorbs production overheads

into costs on a direct labour hour basis. The production overhead budget for the year ending 31st
March was `8,00,000 and budgeted direct labour hours were 1,00,000.

During the year to 31st March, the following costs were incurred:

234 Cost and Management Accounting PW

 `
Direct materials 4,20,000
Indirect materials 40,000
Direct labour 7,50,000
Indirect labour 3,15,000
Indirect expenses 5,05,000
Opening stock of work-in-progress was `90,000 and closing work-in-progress was `70,000. The
number of labour hours worked was 1,10,000 hours.
ou are required to:
(a) Prepare the production overhead account
(b) Prepare the work-in-progress account
(c) Prepare the under-over-absorbed overhead account (Overhead adjustment A/c)

8. A fire destroyed some accounting records of a company. ou have been able to collect the following
from the spoilt papers/records and as a result of consultation with accounting staff in respect of
January: [SM]
(i) Incomplete Ledger Entries

Raw Material A/c

` `
Beginning Inventory 32,000

Work in Progress A/c

` `
Beginning Inventory 9,200 Finished Stock 151000

Creditors A/c
` `
Closing Balance 19,200 Opening Balance 16400

Manufacturing Overheads A/c

` `
Amount Spent 29,600

Finished Goods A/c

` `
Opening Inventory 24,000 Closing Inventory 30000

Cost Accounting System 235

 (ii) Additional Information:
(a) The cash book showed that `89,200 have been paid to creditors for raw material
(b)Ending inventory of work in progress included material `5,000 on which 300 direct
labour hours have been booked against wages and overheads
(c) The job card showed that workers have worked for 7,000 hours. The wage rate is `10 per
labour hour.
(d)Overhead recovery rate was `4 per direct labour hour.
ou are required to complete the above accounts in the cost ledger of the company.

9. SK Ltd. keeps books on integrated accounting system. The following balances appear in the books
as on 1st January:
Dr. (`) Cr. (`)
Stores Control A/c 18,000
Work-in-progress A/c 17,000
Finished goods A/c 13,000
Bank A/c 10,000
Creditors A/c 8,000
Fixed Assets A/c 55,000
Debtors A/c 12,000
Share Capital A/c 80,000
Depreciation provision A/c 5,000
Profit & Loss A/c 32,000
1,25,000 1,25,000

Transactions for the year ended 31st December, were as given below:
` `
Wages-direct 87,000
Wages-indirect 5,000 92,000
Purchase of materials (on credit) 1,00,000
Materials issued to production 1,10,000
Materials for repairs 2,000
Goods finished during the year (at cost) 2,15,000
Sales (credit) 3,00,000
Cost of goods sold 2,20,000
Production overhead absorbed 48,000
Production overheads incurred 40,000
Administration overhead incurred 12,000
Selling overhead incurred 14,000
Payments of creditors 1,01,000
Payments of debtors 2,90,000
Depreciation of machinery 1,300
Prepaid rent (included in factory overheads) 300
Write up accounts in the integrated ledger and prepare a trial balance.
236 Cost and Management Accounting PW
10. In the absence of the Chief Accountant, you have been asked to prepare a month’s cost accounts
for a company which operates a batch costing system fully integrated with the financial accounts.
The following relevant information is provided to you: [SM]
(`) (`)
Balances at the beginning of the month:
Stores Ledger Control Account 25,000
WIP Ledger Control Account 20,000
Finished goods Ledger Control Account 35,000
Prepaid Production overheads brought forward from previous month 3,000
Transactions during the month:
Material purchased 75,000
Materials issued:
To production 30,000
To factory maintenance 4,000 34,000
Material transferred between batches 5,000
Total wages paid:
To direct workers 25,000
To indirect workers 5,000 30,000
Direct wages charged to batches 20,000
Recorded and non-productive time of direct workers 5,000
Selling and Distribution Overhead incurred 6,000
Other production overheads incurred 12,000
Sales 1,00,000
Cost of finished goods sold 80,000
Cost of goods completed and transferred into finished goods 65,000
during the month
Physical value of work-in-process at the end of the month 40,000
The production overhead absorption rate is 150 of direct wages charged to work-in-process.
Required to prepare the following accounts for the month:
(a) Stores Ledger Control Account
(b) Work-in-Process Control Account
(c) Finished Goods Control account
(d) Production Overhead Control Account
(e) Costing Profit & Loss Account
11. A company operates on historic job cost accounting system, which is not integrated with the
financial accounts. At the beginning of a month, the opening balances in cost ledger were:
[SM, RTP Dec 2021]
Cost Accounting System 237
 `(in lakhs)
Stores Ledger Control Account 80
Work-in-progress Control Account 20
Finished goods Control Account 430
Building Construction Account 10
Cost Ledger Control Account 540
During the month, the following transactions took place:
Materials- Purchased 40
Issued to production 50
Issued to maintenance 6
Issued to building construction 4
Wages- Gross wages paid 150
Indirect wages 40
For building construction 10
Works Overheads- Actual amount incurred (excluding 160
items shown above)
Absorbed in building construction 20
Under absorbed 8
Royalty paid on production 5
Selling, distribution and administration overheads 25
Sales 450
At the end of the month, the stock of raw material and work-in-progress was `55 lakhs and `25
lakhs respectively. The loss arising in the raw material account is treated as factory overheads.
The building under construction was completed during the month. Company’s gross profit
margin is 20 on sales. Prepare the relevant control accounts to record the above transactions
in the cost ledger of the company.

12. The following figures have been extracted from the cost record of a manufacturing company:
Stores `
Opening balances 63,000
Purchases 3,36,000
Transfer from Work-in-progress 1,68,000
Issue for Work-in-progress 3,36,000
Issue for repairs and maintenance 42,000
Deficiencies found in stock taking 12,600
Work-in-progress:
Opening balances 1,26,000
Direct Wages applied 1,26,000
Overhead Applied 5,04,000
Closing Balance 84,000

238 Cost and Management Accounting PW

 Finished Products: Entire output is sold at a profit of 10 on actual cost from work-in-progress.
Others: Wages incurred `1,47,000; Overhead incurred `5,25,000; Income from investment
`21,000; Loss on sale of fixed assets `42,000.
Draw the stores control account, work-in-progress control account, costing profit and loss
account, profit and loss account and reconciliation statement.

13. SK Ltd. has furnished its Profit and Loss account for the year ended 31st March, and also given a
statement showing reconciliation between the profit as per financial records and cost records.
The profit and loss account is given below:
Profit an oss acco nt for t e year en e st March
Particulars ` Particulars `
To Opening stock By Sales 17,80,000
Raw Materials 95,500 By Closing Stock
WIP 45,000 Raw Materials 99,000
Finished goods 78,000 WIP 58,000
To Purchases 6,42,000 Finished goods 80,000
To Direct Wages 2,22,000 By Dividend received on shares 1,65,000
To Factory overheads 2,45,000
To Administrative Expenses 1,98,500
To Selling Expenses 3,42,000
To Goodwill written off 80,000
To Interest on loans 50,000
To Legal Charges 42,000
To Net Profit 1,42,000
Total 21,82,000 Total 21,82,000
Reconciliation statement as on 31st March is given below:

` `
Profit as per financial records 1,42,000
Add:
Raw Material - Closing stock 1,500
WIP - Opening Stock 2,000
Finished goods - Opening Stock 3,000
Finished goods - closing stock 1,000
Goodwill written off 80,000
Interest on loans 50,000

Cost Accounting System 239

 ` `
Legal charges 42,000 1,79,500
Less:
Raw material - Opening Stock 2,500
WIP - closing stock 3,500
Dividend received on shares 1,65,000 1,71,000
Profits as per cost records 1,50,500
ou are required to draw up the following accounts in the cost ledger of SK Ltd.
(a) Material Control Account
(b) WIP Control Account
(c) Finished goods control account
(d) Cost of sales account
(e) Costing profit and loss account

14. A manufacturing company has disclosed net loss of `48,700 as per their cost accounting records
for the year ended 31st March, 2014. However, their financial accounting records disclosed net
profit of `35,400 for the same period. A scrutiny of data of both the sets of books of accounts
revealed the following information: [May 2014]
`
(i) Factory overheads under absorbed 30,500
(ii) Administrative overheads over absorbed 65,000
(iii) Depreciation charged in financial accounts 2,25,000
(iv) Depreciation charged in cost accounts 2,70,000
(v) Income tax provision 52,400
(vi) Transfer fee (credited in financial accounts) 10,200
(vii) Obsolescence loss charged in financial accounts 20,700
(viii) Notional rent of own premises charged in cost accounts 54,000
(ix) Value of opening stock:
(a) in cost accounts 1,38,000
(b) in financial accounts 1,15,000
(x) Value of closing stock:
(a) in cost accounts 1,22,000
(b) in financial accounts 1,12,500
Prepare a memorandum reconciliation account by taking costing loss as base.
15. SK company showed a net loss of `4,16,000 as per their financial accounts for the year ended
31st March. The cost accounts, however, disclosed a net loss of `3,28,000 for the same period.
The following information was revealed as a result of scrutiny of the figures of both the sets of
books: [SM]
(a) Factory overheads under-recovered `6,000
(b) Administration overheads over-recovered `4,000
(c) Depreciation charged in financial accounts `1,20,000
240 Cost and Management Accounting PW
 (d) Depreciation recovered in costs `1,30,000
(e) Interest on investment not included in costs `20,000
(f) Income tax provided `1,20,000
(g) Transfer fees (credit in financial books) 2,000
(h) Stores adjustment (credit in financial books) 2,000
Prepare a memorandum reconciliation account.
16. The cost accountant of a company has arrived at a profit of `73,24,150 based on cost accounting
records for the year. As cost auditor, you find the following differences between financial accounts
and cost accounts.
(a) Decrease in value of
WIP and Finished goods as per F/A `1,28,21,995
As per cost accounts `1,31,04,220
(b) Profit on sale of fixed assets `61,500
(c) Loss on sale of investments `11,200
(d) Voluntary retirement compensation included in salaries and Wages in F/A `16,75,000
(e) Donation paid `25,000
(f) Major repairs and maintenance written off in F/A `13,26,000
Amount in Cost Accounts `6,08,420
(g) Insurance claim relating to previous year received during the year `14,29,000
(h) Profit from retail trading activity `7,12,300
ou are required to prepare a reconciliation statement between the profit figures as per costing
and financial accounts. Calculate the profit as per financial books.

17. M/s SK Ltd. has furnished you the following information from the financial books for the year
ended 31st March:
` `
Opening Stock of finished goods Sales (10,250 units) 358,750
500 units @ `17.50 each 8,750 Closing stock of finished goods
Material consumed 130,000 250 units @ `25 each 6,250
Wages 75,000
Gross Profit c/d 151,250
365,000 365,000
Factory Overheads 47,375 By Gross Profit b/d 151,250
Administration Overheads 53,000 Interest 125
Selling Expenses 27,500 Rent received 5,000
Bad Debts 2,000
Preliminary Expenses 2,500
To Net Profit 24,000
156,375 156,375

Cost Accounting System 241

 The cost sheet shows:
(a) The cost of materials as `13 per unit;
(b) The labour cost as `7.50 per unit;
(c) The factory overheads are absorbed at 60 of labour cost;
(d) The administration overheads are absorbed at 20 of factory cost;
(e) selling expenses are charged at `3 per unit;
(f) The opening stock of finished goods is valued at `22.50 per unit.
ou are required to prepare:
(i) The cost sheet showing the number of units produced and the cost of production, by elements
of costs, per unit and in total.
(ii) The statement of profit or loss as per cost accounts for the year ended 31st March
(iii) The statement showing the reconciliation of profit or loss as shown by the cost accounts
with the profit as shown by the financial accounts.

18. SK Company Limited furnishes the summary of Trading and Profit & Loss Account for the year
ended 31st December:

` `
To Raw Materials 139,600 By Sales (12,000 units) 480,000
To Direct Wages 76,200 By Finished Stock (200 Units) 8,000
To Production Overheads 42,600 By Work-in-progress:
To Administration OHs 39,100 Materials 28,200
To Selling and Distribution OHs
To Preliminary Expenses written 42,700 Wages 11,796
off 2,200 Production Overheads 7,999 47,995
To Goodwill Written off 2,501 By Interest on Securities 6,000
To Dividends (Net) 3,000
To Income-tax 4,100
To Net Profit 189,994
541,995 541,995
The company manufactures a standard unit, scrutiny of cost records for the same period shows
that:
(a) Factory overheads have been allocated to the production at 20 on prime Cost
(b) Administration overheads have been charged at `3 per unit on units produced.
(c) Selling and distribution expenses have been charged at `4 per unit on units sold.
ou are required to prepare a statement of cost to work out profit as per Cost Accounts and to
reconcile the same with that shown in the financial accounts.

242 Cost and Management Accounting PW

19. The Profit & loss Account of SK Ltd. for the year ended 31st March, is as follows:

` `
To Material 480,000 By Sales 960,000
To Wages 360,000 By Closing Stock 180,000
To Factory Expenses 240,000 By Work in progress:
To Gross Profit 120,000 Materials 30,000
Wages 18,000

Factory Expenses 12,000 60,000

1,200,000 1,200,000
To Administrative expenses 60,000 By Gross Profit b/d 120,000
To Net Profit 66,000 By Dividend received 6,000
126,000 126,000
As per the costing records the indirect factory overheads have been absorbed at `30 per kg and
administrative overheads at `15 per kg. During the year 6,000 kgs were manufactured and 4,800
kgs were sold. Prepare Costing P&L A/c and reconcile the costing profit with the financial profit.

20. From the information given below, prepare

(a) a statement showing costing profit or loss; and
(b) another statement reconciling the costing profits with those shown by financial accounts:
` `
Materials 150,000 Sales (1,50,000 units) 300,000
Direct Wages 75,000
Indirect Factory Expenses 45,000
Office Expenses 13,500
Selling and Distribution
Expenses 9,000
Net Profit 7,500
300,000 300,000
The normal output of the factory is 2,25,000 units. Factory expenses of a fixed nature are `27,000.
Office expenses are for all practical purposes constant. Selling and distribution expenses are
constant to the extent of `3,000 and the balance varies with sales.

21. SK Co. manufactures two sizes of machine components, Size A and B. The following data refer to
the year ended March 31st:
Size A Size B
Production 125 units 400 units
Sales 120 units 360 units
Wages cost per unit `40 `30
Material cost per unit `15 `12
Selling price per unit `125 `90

Cost Accounting System 243

 All expenses other than wages and materials are analyzed under ‘works overheads’ which during
the year amounted to `9,000 and ‘office overheads’ which amounted to `10,000. In fixing the
selling price it was estimated that works overheads should be taken at 50 on wages and office
overhead expenses at 33(1/3) on work cost.
ou are required to compute the following:
(a) The total cost of each unit on the basis of the above overhead percentages;
(b) The net profit for the year shown by the financial accounts, valuing unsold stocks at actual
material and wages cost plus works overhead at 50 on wages; and
(c) The reconciliation of net profit in (b) above with the estimated total net profit based on cost figures.

PRACTICE QUESTIONS
22. Journalize the following transactions assuming the cost and financial accounts are integrated:
[May 2022]
Particulars Amount (`)
Direct Materials issued to production `5,58,000
Allocation of Wages (Indirect) `7,50,000
Factory Overheads (Over absorbed) `2,25,000
Administrative Overheads (Under absorbed) `1,55,000
Deficiency found in stock of Raw material (Normal) `2,00,000
23. As at 31st March, 2022, the following balances existed in a firm’s cost ledger: [SM]
Dr. (`) Cr. (`)
Stores Ledger Control a/c 3,01,435 -
Work-in-process Control a/c 1,22,365 -
Finished Stock Ledger Control a/c 2,51,945 -
Manufacturing overhead Control a/c - 10,525
Cost Ledger Control a/c - 6,65,220
6,75,745 6,75,745
During the next three months the following items arose:

(`)
Finished product (at cost) 2,10,835
Manufacturing overhead incurred 91,510
Raw materials purchased 1,23,000
Factory wages 50,530
Indirect labour 21,665
Cost of sales 1,85,890
Material issued to production 1,27,315
Sales returned at cost 5,380
Material returned to suppliers 2,900
Manufacturing overhead charged to production 77,200
ou are required to pass the journal entries. Write up the accounts and schedule the balances,
stating what each balance represents.

244 Cost and Management Accounting PW

24. The following are the balances existed in the books of JPG Ltd. for the year ended, 31st March,
2019: [RTP May 2020]
Particulars Dr. (`) Cr. (`)
Stores Ledger Control A/c 30,00,000
WIP Control A/c 15,00,000
Finished goods Control A/c 25,00,000
Manufacturing Overheads Control A/c 1,50,000
Cost Ledger Control A/c 68,50,000
During the year 2019-20, the following transactions took place:

Particulars Amount (`)

Finished Product (at cost) 22,50,000
Manufacturing Overhead incurred 8,50,000
Raw material purchased 12,50,000
Factory wages 4,00,000
Indirect labour 2,00,000
Cost of sales 17,50,000
Materials issued to production 13,50,000
Sales returned (at cost) 90,000
Material returned to suppliers 1,30,000
Manufacturing overhead charged to production 8,50,000
Required:
Prepare the following control accounts and Trial Balance at the end of the year.
Cost Ledger, Stores Ledger, Work-in-process, Finished Stock, Manufacturing Overhead, Wages
and Cost of sales.

25. The following balances were extracted from a Company’s ledger as on 30th June, 2018 [Nov 2018]

Debit (`) Credit (`)

Raw material control A/c 2,82,450
Work-in-progress control A/c 2,38,300
Finished stock control A/c 3,92,500
General ledger adjustment A/c 9,13,250
9,13,250 9,13,250

The following transactions took place during the quarter ended 30th September, 2018:

`
Factory overheads – allocated to work-in-progress 1,36,350
Goods finished – at cost 13,76,200
Raw material purchased 12,43,810
Cost Accounting System 245
 `
Direct wages – allocated to work-in-progress 2,56,800
Cost of goods sold 14,56,500
Raw materials – issued to production 13,60,430
Raw materials – credited by suppliers 27,200
Raw materials losses – inventory audit 6,000
Work-in-progress rejected (with no scrap value) 12,300
Customer’s returns (at cost) of finished goods 45,900
ou are required to prepare:
(i) Raw material control a/c
(ii) Work-in-progress control a/c
(iii) Finished stock control a/c
(iv) General ledger adjustment a/c

26. From the following details show the necessary accounts in the Cost Ledger:
Materials W.I.P Finished
Stock
Opening Balance 8,000 5,000 10,000
Closing Balance 11,000 9,000 12,000

Transactions during the period `

Material purchased 25,000
Wages paid (including `2,000 indirect) 10,000
Overheads incurred 8,000
Overheads absorbed 9,000
Sales 50,000

27. Following are the figures extracted form the Cost Ledger of a manufacturing unit: [SM]
Stores `
Opening balance 15,000
Purchases 80,000
Transfer from WIP 40,000
Issue to WIP 80,000
Issue to repairs and maintenance 10,000
Sold as a special case at cost 5,000
Shortage in the year 3,000

246 Cost and Management Accounting PW

 Stores `
Work-in-Process:
Opening inventory 30,000
Direct labour cost charged 30,000
Overhead cost charged 1,20,000
Closing balance 20,000
Finished Products:
Entire output is sold at 10 profit on actual cost from work-in-process.
Others:
Wages for the period 35,000
Overhead expenses 1,25,000
Ascertain the profit or loss as per financial accounts and cost accounts and
reconcile them.

28. The following incomplete accounts are furnished to you for the month ended 31st March: [SM]
Stores control Account
` `
1.03 To Balance b/d 54,000
Work in Progress Control Account
` `
1.03 To Balance b/d 6,000
Finished goods control Account
` `
1.03 To Balance b/d 75,000

Factory overhead control Account

` `
Total Debits for March 45,000
Creditors Account
` `
1.03 To Balance b/d 30,000
Additional Information:
(a) The factory overheads are applied by using a budgeted rate based on direct labour hours.
The budget for overheads for the year is `6,75,000 and budget of direct labour hours is
4,50,000.
(b) The balance in the account of creditors on 31st March is `15,000 and payments made to
creditors in March, amount to `1,05,000.
Cost Accounting System 247
 (c) The finished goods inventory as on 31st March, is `66,000.
(d) The cost of goods sold during the month was `1,95,000.
(e) On 31st March, there was only one unfinished job in the factory. The cost records show that
`3,000 (1,200 direct labour hours) of direct labour cost and `6,000 of direct material cost
had been charged.
(f) A total of 28,200 direct labour hours were worked in March. All factory workers earn same
rate of pay.
(g) All actual factory overheads incurred in March, have been posted.
ou are required to find:
(1) Materials purchased during March.
(2) Cost of goods completed in March.
(3) Overheads applied to production in March.
(4) Balance of work in progress on 31st March.
(5) Direct materials consumed during March.
(6) Balance of Stores Control Account on 31st March.
(7) Over-absorbed or under-absorbed overheads for March.

29. R Limited showed a net loss of `35,400 as per their cost accounts for the year ended 31st march,
2012. However, the financial accounts disclosed a net profit of `67,800 for the same period. The
following information were revealed as a result of scrutiny of the figures of cost accounts and
financial accounts: [Nov 2012]

`
(a) Administrative overhead under recovered 25,500
(b) Factory overhead over recovered 1,35,000
(c) Depreciation under charged in cost accounts 26,000
(d) Dividend received 20,000
(e) Loss due to obsolescence charged in Financial Accounts 16,800
(f) Income tax provided 43,600
(g) Bank interest credited in Financial Accounts 13,600
(h) Value of opening stock
In Cost Accounts 1,65,000
In Financial Accounts 1,45,000
(i) Value of closing stock
In Cost Accounts 1,25,500
In Financial Accounts 1,32,000
(j) Goodwill written-off in Financial Accounts 25,000
(k) Notional rent of own premises charged in Cost Accounts 60,000
(l) Provision for doubtful debts in Financial Accounts 15,000
Prepare a reconciliation statement by taking costing net loss as base.

248 Cost and Management Accounting PW

30. A manufacturing company has disclosed a net loss of `2,25,000 as per their cost accounting records
for the year ended March 31, 2019. However, their financial accounting records disclosed a net
loss of `2,70,000 for the same period. A scrutiny of data of both the sets of books of accounts
revealed the following information:

`
(i) Factory overheads under-absorbed 5,000
(ii) Administration overheads over-absorbed 3,000
(iii) Depreciation charged in financial accounts 70,000
(iv) Depreciation charged in cost accounts 80,000
(v) Interest on investments not included in cost accounts 20,000
(vi) Income tax provided in financial accounts 65,000
(vii) Transfer fees (credit in financial accounts) 2,000
(viii) Preliminary expenses written off 3,000
(ix) Over-valuation of closing stock of finished goods in cost accounts 7,000
Required: Prepare a Memorandum Reconciliation Account.

31. A manufacturing company has disclosed a net loss of `3,47,000 as per their cost accounts for the
year ended March 31, 2018. 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 scrutiny of the figures of
both the sets of accounts.
`
(i) Factory overheads under-absorbed 40,000
(ii) Administration overheads over-absorbed 60,000
(iii) Depreciation charged in financial accounts 3,25,000
(iv) Depreciation charged in cost accounts 2,75,000
(v) Interest on investments not included in cost accounts 96,000
(vi) Income tax provided 54,000
(vii) Interest on loan funds in Financial Accounts 2,45,000
(viii) Transfer fees (credit in financial accounts) 24,000
(ix) Stores adjustment (credit in financial books) 14,000
(x) Dividend received 32,000
Required: Prepare a Memorandum Reconciliation Account.
32. M/s Abid Private Limited disclosed a net profit of `48,408 as per cost books for the year ending
31st March 2019. However, financial accounts disclosed net loss of `15,000 for the same period.
On scrutinizing both the set of books of accounts, the following information was revealed:
[May 2019]
Cost Accounting System 249
 Works overheads under recovered in cost books 48,600
Office overheads over-recovered in cost books 11,500
Dividend received on shares 17,475
Interest on fixed deposits 21,650
Provision for doubtful debts 17,800
Obsolescence loss not charged in cost accounts 17,200
Stores adjustments (debited in financial accounts) 35,433
Depreciation charged in financial accounts 30,000
Depreciation recovered in cos books 35,000
Prepare a Memorandum Reconciliation Account.

33. The net loss of Waywell Ltd. appeared at `1,18,500 as per cost records for the year ending
31.03.2019. The following information was revealed as a result of scrutiny of the figures of financial
and cost records: [May 2019]
Amount (`)
Factory overheads over absorbed in cost accounts 32,500
Administrative overheads under absorbed in cost accounts 38,250
Depreciation charged in financial accounts 4,55,800
Depreciation recovered in cost accounts 4,99,700
Loss due to obsolescence charged in financial accounts 11,400
Income tax provision made in financial accounts 32,650
Interest on investments not included in cost accounts 96,000
Store adjustment (Credit) in financial accounts 12,800
Value of opening stock in Cost accounts 18,85,600
Financial accounts 19,62,500
Value of closing stock in Cost accounts 21,15,800
Financial accounts 21,98,900
Imputed rent charged in cost accounts 1,80,000
Selling and distribution expenses not charged in cost accounts 72,450
Donation to Prime Minister Relief Fund 11,000
Loss on sale of furniture 7,250
Bad debts written off 18,300

Required: Prepare a reconciliation statement and arrive at the profit or loss as per financial
accounts.

34. GK Ltd. showed net loss of `2,43,300 as per their financial accounts for the year ended 31st
March, 2018. However, cost accounts disclosed net loss of `2,48,300 for the same period. On
scrutinizing both the set of books of accounts, the following information were revealed:

[May 2018]

250 Cost and Management Accounting PW

 `
(i) Works overheads over recovered 30,400
(ii) Selling overheads under recovered 20,300
(iii) Administrative overheads under recovered 27,700
(iv) Depreciation over charged in cost accounts 35,100
(v) Bad debts w/off in financial accounts 15,000
(vi) Preliminary expenses w/off in financial accounts 5,000
(vii) Interest credited during the year in financial accounts 7,500
Prepare a reconciliation statement reconciling losses shown by financial and cost accounts by
taking costing net loss as base.

35. In a factory, work overheads are absorbed at 60 of labour cost and office overheads at 20 of
work cost. Prepare
(i) cost sheet,
(ii) Trading and Profit & Loss Account and
(iii) Reconciliation Statement if total expenditure consists of Materials `2,00,000; Wages
`1,50,000; Factory Expenses `1,00,000 and Office expenses `85,000. 10% of the output is
stock at the end and sales are `5,20,000.

36. The following figures are available from the financial records of ABC Manufacturing Co. Ltd. for
the year ended 31st March:

(`)
Sales (20,000 units) 25,00,000
Materials 10,00,000
Wages 5,00,000
Factory Overheads 4,50,000
Administrative Overhead (production related) 2,60,000
Selling and distribution Overheads 1,80,000
Finished goods (1,230 units) 1,50,000

(`) (`)
Work-in-Process:
Material 30,000
Labour 20,000
Factory overheads 20,000 70,000

Cost Accounting System 251

 (`) (`)
Goodwill written off 2,00,000
Interest on loan 20,000

In the costing records, factory overheads is charged at 100% of wages, administrative overheads
10 of factory cost and selling and distribution overheads at the rate of `10 per unit sold.
Prepare s statement reconciling the profit as per cost records with the profit as per financial
records.

37. During the year a company’s profits have been estimated from the costing system to be `46,126,
whereas the final accounts prepared by the auditors disclose a profit of `33,248. Given the following
information, you are required to prepare a reconciliation statement showing clearly the reasons
for the difference:
PROFIT AND LOSS ACCOUNT
For the year ended 31st March
` `
To opening Stock 494,358 By Sales 693,000
To Purchases 164,308
658666
Less : Closing Stock 150,242
508,424
To Direct Wages 46,266
To Factory Overheads 41,652
To Gross Profit c/d 96,658
693,000 693,000
To Administrative expenses 19,690 By Gross Profit b/d 96,658
To Selling expenses 44,352 By Sundry Incomes 632
To Net Profit 33,248
97,290 97,290

Stock Ledger closing balance is `156,394;

(a) Credit balance in Wages Control A/c is `49,734;
(b) Credit balance in Factory Overhead Control A/c is `39,428;
(c) Administration expenses are charged to sales at 3 of selling price in cost accounts;
(d) Selling price includes 5 (on sales) provision or selling expenses;
(e) Sundry incomes are not considered in Cost Accounts

252 Cost and Management Accounting PW

38. The following is the summarized Trading and Profit and Loss Account of Ltd. for the year
ended 31st March, 2019:

Particulars Amount (`) Particulars Amount (`)

Direct Material 14,16,000 Sales (30,000 units) 30,00,000
Direct Wages 7,42,000 Finished stock (2,000 units) 1,67,500
Works Overheads 4,26,000 Work-in-progress:
Administration Overheads 1,50,000 Materials 34,000
Selling & distribution
overheads 1,65,000 Wages 16,000
Net Profit for the year 3,22,500 Work overheads 4,000 54,000
32,21,500 32,21,500
The company’s cost records show that in course of manufacturing a standard unit (i) works
overheads have been charged 20 on prime cost, (ii) administration overheads are related
with production activities and are recovered at `5 per finished unit, and (iii) selling and
distribution overheads are recovered at `6 per unit sold.
ou are required to prepare:
(i) Costing Profit and Loss Account indicating the net profits
(ii) A statement showing reconciliation between profit as disclosed by the Cost Accounts and
Financial Accounts

39. The following figures have been extracted from the financial accounts of a manufacturing firm
for the first year of its operation: [SM]
(`)
Direct Material Consumption 50,00,000
Direct Wages 30,00,000
Factory Overheads 16,00,000
General administrative overheads 7,00,000
Selling and Distribution Overheads 9,60,000
Bad debts 80,000
Preliminary expenses written off 40,000
Legal charges 10,000
Dividends received 1,00,000
Interest received on deposits 20,000
Sales (1,20,000 units) 1,20,00,000
Closing stock:
Finished goods (4,000 units) 3,20,000
Work-in-Process 2,40,000

Cost Accounting System 253

 The cost accounts for the same period reveal that the direct material consumption was `56,00,000.
Factory overheads is recovered at 20 on prime cost. Administration overheads is recovered at
`6 per unit of goods sold. Selling and distribution overheads are recovered at `8 per unit sold.
Prepare the profit and loss accounts both as per financial records and as per cost records.
Reconcile the profits as per the two records.

40. The financial books of a company reveal the following data for the year ended 31st March, 2018:
[ RTP May 2021]
Particulars `
Opening Stock:
Finished goods 625 units 53,125
Work-in-process 46,000
01.04.2017 to 31.03.2018
Raw materials consumed 8,40,000
Direct labour 6,10,000
Factory overheads 4,22,000
Administration overheads (production related) 1,98,000
Dividend paid 1,22,000
Bad Debts 18,000
Selling and Distribution Overheads 72,000
Interest received 38,000
Rent received 46,000
Sales 12,615 units 22,80,000
Closing stock: Finished goods 415 units 45,650
Work-in-process 41,200
The cost records provide as under:
 Factory overheads are absorbed at 70 of direct wages
 Administration overheads are recovered at 15 of factory cost
 Selling and distribution overheads are charged at `3 per unit
 Opening stock of finished goods is valued at `120 per unit
 The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.
Required:
(a) Prepare a statement for the year ended 31st March, 2018. Show
 The profit as per financial records
 The profit as per costing records
(b) Prepare a statement reconciling the profit as per costing records with the profit as per
Financial Records.

254 Cost and Management Accounting PW

41. The Trading and Profit and Loss account of a company for the year ended 31-03-2016 is as under:
[Nov 2016]
` `
To Material 26,80,000 By Sales (50,000 units) 62,00,000
To Wages 17,80,000 By Closing stock (2000 units) 1,50,000
To Factory Expenses 9,50,000 By Dividend received 20,000
To Administration Expenses 4,80,200
To Selling Expenses 2,50,000
To Preliminary Expenses 50,000
To Net Profit 1,79,800
63,70,000 63,70,000

In the Cost accounts:

(i) Factory expenses have been allocated to production at 20 of Prime Cost.
(ii) Administrative expenses absorbed at 10 of factory cost
(iii) Selling expenses charged at `10 per unit sold.
Prepare the Costing Profit and Loss Account of the company and reconcile the Profit/Loss with
the profit as shown in the Financial Accounts.

42 The profit and loss account of ABC Ltd. for the year ended 31st March, 2021 is given below:[July 2021]
Profit an oss Acco nt for t e year en e st March, 2021)
To Direct Material 6,50,000 By Sales 15,00,000
To Direct Wages 3,50,000 (15,000 units)
To Factory overheads 2,60,000 By Dividend received 9,000
To Administrative overheads 1,05,000
To Selling overheads 85,000
To loss on sale of investments 2,000
To Net Profit 57,000
15,09,000 15,09,000
Factory overheads are 50 fixed and 50 variable
Administrative overheads are 100 fixed
Selling overheads are completely variable
Normal production capacity of ABC Ltd. is 20,000 units
Indirect expenses are absorbed in the cost accounts on the basis of normal production capacity.
Notional rent of own premises charged in cost accounts is amounting to `12,000.
ou are required to:
(i) Prepare a cost sheet and ascertain the Profit as per cost Records for the year ended 31st
March, 2021.
(ii) Reconcile the profit as per Financial records with Profit as per Cost Records.
Cost Accounting System 255
 SOLUTION OF PRACTICE QUESTIONS
22. Journal Entries

Particular Dr. (`) Cr. (`)

(i) WIP Ledger Control A/c Dr. 5,88,000
To Stores Ledger Control A/c 5,88,000
(ii) Factory Overhead Control A/c Dr. 7,50,000
To Wages Control A/c 7,50,000
(iii) Factory Overheads Control A/c Dr. 2,25,000
To P&L A/c 2,25,000
(iv) P&L A/c Dr. 1,55,000
To Administrative Overheads Control A/c 1,55,000
(v) Factory Overheads Control A/c Dr. 2,00,000
To Stores Ledger Control A/c 2,00,000

23. Journal Entries

S.No. Particular Dr. (`) Cr. (`)
1. Finished Goods Ledger Control A/c Dr. 2,10,835
To WIP Control A/c 2,10,835
2. Manufacturing Overheads Control A/c Dr. 91,510
To cost Ledger Control A/c 91,510
3. Stores Ledger Control A/c Dr. 1,23,000
To Cost Ledger Control A/c 1,23,000
4. Wages Control A/c Dr. 72,195
To Cost Ledger Control A/c 72,195
5. WIP Control A/c Dr. 50,530
To Wages Control A/c 50,530
6. Manufacturing Overhead Control A/c Dr. 21,665
To Wages Control A/c 21,665
7. Cost of Sales A/c Dr. 1,85,890
To Finished Stock Ledger A/c 1,85,890
8. WIP Control A/c Dr. 1,27,315
To Stores Ledger Control A/c 1,27,315
9. Finished Stock Ledger Control A/c Dr. 5,380
To Cost of Sales A/c 5,380
10. Cost Ledger Control A/c Dr. 2,900
To Stores Ledger Control A/c 2,900
11. WIP Control A/c Dr. 77,200
To Manufacturing Overhead Control A/c 77,200

Stores Ledger Control A/c (SLC)

To Balance b/d 3,01,435 By Work-in-progress Control a/c 1,27,315
To Cost Ledger Control 1,23,000 By Cost Ledger Control a/c 2,900
By Balance c/d 2,94,220
4,24,435 4,24,435

256 Cost and Management Accounting PW

 Wages Control A/c

To Cost Ledger Control 72,195 By Work-in-progress a/c 50,530

By Manufacturing Overhead 21,665
A/c
72,195 72,195

Manufacturing Overhead Control A/c

To Cost Ledger Control 91,510 By Balance b/d 10,525
To Wages Control 21,665 By Work-in-progress 77,200
By Balance c/d 25,450
1,13,175 1,13,175

Work in Progress Control A/c (WIP)

To Balance b/d 1,22,365 By Finished Goods Ledger 2,10,835
To Wages Control 50,530 Control 1,66,575
To Stores Ledger Control 1,27,315 By Balance c/d (B/F)
To Manufacturing Overhead 77,200
3,77,410 3,77,410

Finished Stock Ledger Control A/c

To Balance b/d 2,51,945 By Cost of Sales a/c 1,85,890
To WIP Control a/c 2,10,835 By Balance c/d 2,82,270
To Cost of Sales a/c 5,380
4,68,160 4,68,160

Cost of Sales A/c

To Finished Goods Ledger 1,85,890 By Finished Stock Ledger 5,380
Control Control a/c 1,80,510
By Balance c/d
1,85,890 1,85,890

Cost Ledger Control A/c (CLC)

To Stores Ledger Control 2,900 By Balance b/d 6,65,220
a/c 9,49,025 By Manufacturing OH Control 91,510
To Balance c/d By Stores Ledger Control 1,23,000
By Wages Control 72,195
9,51,925 9,51,925

Cost Accounting System 257

 Trial Balance at the End of the Month
Stores Ledger Control a/c 2,49,220 -
Work in Progress Ledger Control a/c 1,66,575 -
Finished Goods Ledger Control a/c 2,82,270 -
Manufacturing Overheads Control a/c 25,450 -
Cost of Sales a/c 1,80,510 -
Cost Ledger Control a/c - 9,49,025
Total 9,49,025 9,49,025

24.
Cost Ledger Control A/c
To Stores Ledger Control a/c 1,30,000 By Balance b/d 68,50,000
To Cost of Sales a/c 16,60,000 By Manuf. Overhead Control 8,50,000
To Balance c/d (Balance) 77,60,000 a/c 12,50,000
By Stores Ledger Control a/c 6,00,000
By Wages Control a/c
95,50,000 95,50,000

Stores Ledger Control A/c

To Balance b/d 30,00,000 By Cost Ledger Control a/c 1,30,000
To Cost Ledger Control a/c 12,50,000 By Work in Progress Control a/c 13,50,000
By Balance c/d (Balance figure) 2,77,000

42,50,000 42,50,000

Work in Progress Control A/c

To Balance b/d 15,00,000 By Finished Stock Led. Control a/c 22,50,000
To Wages Control a/c 4,00,000 By Balance c/d (Balancing Fig- 18,50,000
To Stores Ledger Control a/c 13,50,000 ure)
To Manuf. O/H Control a/c 8,50,000

41,00,000 41,00,000

Finished Stock Ledger Control A/c

To Balance b/d 25,00,000 By Cost of Sales A/c 17,50,000
To Work in Progress Control A/c 22,50,000 By Balance c/d (Bal. Fig.) 30,90,000
To Cost of Sales A/c 90,000
48,40,000 48,40,000

258 Cost and Management Accounting PW

 Manufacturing Overhead Control A/c
To Cost Ledger Control A/c 8,50,000 By Balance B/d 1,50,000
To Wages Control A/c 2,00,000 By Work in Progress Control A/c 8,50,000
By Balance c/d (Balancing figure) 50,000
10,50,000 10,50,000

Wages Control A/c

To Cost Ledger Control A/c 6,00,000 By Work in Progress Control A/c 4,00,000
By Manuf. Overhead Control A/c 2,00,000

6,00,000 6,00,000

Cost of Sales A/c

To Finished Stock Led. Cont. A/c 17,50,000 By Finished Stock Led. Cont. A/c 90,000
By Cost Ledger Control A/c 16,60,000
17,50,000 (Bal.) 17,50,000
Trial Balance

Particulars Debit Credit

Cost Ledger Control A/c 77,60,000
Stores Ledger Control A/c 27,70,000
Work in Progress Control A/c 18,50,000
Finished Stock Ledger Control A/c 30,90,000
Manufacturing Overhead Control A/c 50,000
77,60,000 77,60,000

25.

Raw Material Control A/c

To Balance B/d 2,82,450 By General Ledger Adj. A/c 27,200
To General Ledger Adj. A/c 12,43,810 By Work in Progress Control 13,60,430
A/c 6,000
By Costing P&L A/c (Loss) 1,32,630
15,26,260 By Balance c/d (Balance 15,26,260
figure)

Cost Accounting System 259

 Work in Progress Control A/c
To Balance b/d 2,38,300 By Finished goods Control A/c 13,76,200
To Raw material control A/c 13,60,430 By Costing P&L A/c 12,300
To Wages control A/c 2,56,800 By Balance c/d (Balancing 6,03,380
To Factory OH control A/c 1,36,350 Figure)
19,91,880 19,91,880

Finished Stock Ledger Control A/c

To Balance b/d 3,92,500 By Cost of Sales A/c 14,56,500
To Work in Progress Control 13,76,200 By Balance c/d (Bal. Fig.) 3,58,100
A/c 45,900
To General Ledger Adjustment
A/c
18,14,600 18,14,600

General Ledger Adjustment A/c

To Costing P&L (Sales) (Bal. 25,68,910 By Balance B/d 9,13,250
fig.) 27,200 By Raw material control a/c 12,43,810
To Raw material control A/c By Wages control A/c 2,56,800
By Factory OH control A/c 1,36,350
By Finished Goods Control A/c 45,900
9,55,000 25,96,110

26.
Store Ledger Control Account
To Bal. b/d 8,000 By WIP LC A/c (bal fig.) 22,000
To GLA A/c 25,000 By Bal. c/d 11,000
33,000 33,000

Wages Control Account

By Fixed overhead control A/c
To GLA A/c 10,000 (Bal. fig.) 2,000
By WIP LC A/c 8,000
10,000 10,000

Fixed Overhead Control Account

To Wages Control A/c 2,000 By WIP LC A/c 9,000
To GLA A/c 8,000 By Costing P&L A/c (Bal fig.) 1,000
10,000 10,000

260 Cost and Management Accounting PW

 WIP LC Account
To Bal. b/d 5,000 By FG LC A/c (Bal fig.) 35,000
To Store ledger control A/c 22,000
To Wages Control A/c 8,000 By Bal. c/d 9,000
To Fixed overhead control
A/c 9,000
44,000 44,000

Finished Goods Ledger Control Account

To Bal. b/d 10,000 By Cost of Sales (Bal fig.) 33,000
To WIP LC A/c 35,000 By Bal. c/d 12,000
45,000 45,000

Cost of Sales Account

To FG LC A/c 33,000 By Costing P&L A/c 33,000
33,000 33,000

Costing P&L Account

To Cost of sales A/c 33,000 By GLA A/c 50,000
To Fixed overhead control A/c 1,000
To GLA A/c (Bal fig.) 16,000
50,000 50,000

GLA Account
To Costing P&L A/c
50000–16000 34,000 By Bal. b/d 23,000
To Bal. c/d (Bal fig.) 32,000 By SLC A/c 25,000
By Wages Control A/c 10,000
By Fixed overhead control A/c 8,000
66,000 66,000

27.
Stores Ledger Control Account
To Balance b/d 15,000 By Work-in-Progress 80,000
To Cost Ledger Adjustment 80,000 By Overhead A/c 10,000
A/c 40,000 By Cost Ledger Control A/c 5,000
To Work-in-Progress A/c By Overhead A/c (shortage) 3,000
By Balance c/d 37,000
1,35,000 1,35,000
Assumed normal

Cost Accounting System 261

 Wages Control Account
To Cost Ledger Control A/c 35,000 By WIP Control A/c 30,000
By Overheads Control A/c 5,000
10,92,000 35,000

Overheads Control Account

To Stores Ledger Control A/c 10,000 By Work-in-Progress 1,20,000
To Stores Ledger Control A/c 3,000 By Balanced c/d 23,000
To Wages Control A/c 5,000
To Cost Ledger Control A/c 1,25,000
1,43,000 1,43,000

Work-in-Progress Control Account

To Balance b/d 30,000 By Stores Ledger Control A/c 40,000
To Stores Ledger Control A/c 80,000 By Costing Profit & Loss A/c 2,00,000
To Wages Control A/c 30,000 (Finished Goods at Cost
To Overhead A/c (Applied) 1,20,000 Bal. Fig.) 20,000
2,60,000 By Balance c/d 2,60,000

ostin Profit oss Acco nt

To Work-in-Progress A/c 2,00,000 By General Ledger Adjustment 2,20,000
To General Ledger Adjustment A/c Sale (2,00,000 + 10 )
A/c 20,000
(Profit) 2,20,000 2,20,000

inancia Profit oss Acco nt

To Material 90,000 By Sales A/c 2,20,000
(op. + Purchase – sale) 30,000 By Closing WIP 20,000
To Opening WIP 35,000 By Closing stock of raw material 37,000
To Wages 1,25,000 By Net loss 3,000
To Overhead expenses
2,80,000 2,80,000

Reconciliation Statement
Profit as Per Cost Account 20,000
Less: Under Absorption of Overhead (23,000)
Loss as per Financial Accounts
(3,000)

262 Cost and Management Accounting PW

28. Working Notes:
Budgeted Factory Overheads 6, 75, 000
(a) Overhead recovery rate = = = `1.50 per direct labour hour
Budgeted Direct Labour hours 4, 50, 000
(b) Direct labour cost WIP (on 31st March) `3,000
Direct labour hours of WIP 1,200 hours
Direct labour cost on WIP 3, 000
Direct wage rate per hour = = = `2.50 per hour
Direct Labour hours of WIP 1, 200
(c) Total direct wages charged to production = 28,200 2.50 = `70,500
(1) Material purchased during March
Payment made to creditors `1,05,000
Add: Closing balance in creditors account `15,000
`1,20,000
Less: Opening balance `30,000
Material purchased during March `90,000
(2) Cost of Goods completed in March
Cost of goods sold during the month `1,95,000
Add: Closing finished goods inventory `66,000
`2,61,000
Less: Opening finished goods inventory `75,000
Cost of goods completed in March `1,86,000
(3) Overheads applied to production in March = 28,200 `1.50 = `42,300
(4) Balance of WIP on 31st March
Direct material cost `6,000
Direct labour cost `3,000
Overheads (1,200 hours 1.50) `1,800
`10,800
(5) Direct material consumed during March
Dr. Work in Progress Control A/c Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
1.03 To Opening Balance 6,000 By Finished goods 1,86,000
To Direct wages 70,500 31.3 By Balance of WIP 10,800
To Factory overheads 42,300
To Material Consumed
(Bal. Fig.) 78,000
1,96,800 1,96,800

Cost Accounting System 263

 (6) Balance of Stores Control Account on 31st March
Dr. Stores Control A/c Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
1.03 To Opening Balance 54,000 By WIP Control A/c 78,000
To Creditors A/c 90,000 31.3 By Balance c/d 66,000
1,44,000 1,44,000

(7) Over-absorbed or Under-absorbed overheads for 31st March

Dr. Factory Overhead A/c Cr.

Amount Amount
Date Particulars (`) Date Particulars (`)
To General Ledger Adj. A/c 45,000 31.3 By Factory overhead applied 42,300
By Costing P&L A/c 2,700
45,000 (under absorbed) 1,44,000
29. Reconciliation Statement

Particulars + (`) – (`)

Net loss as per costing records 35,400
Less: Administration overhead under-recovered 25,500
Depreciation in under charged 26,000
Obsolescence loss not charged 16,800
Income-tax not provided 43,600
Goodwill written off 25,000
Provision for doubtful debts 15,000
Add: Factory overhead over recovered 1,35,000
Dividend received 20,000
Interest received not included 13,600
Difference in value of Opening stock 1,65,000 – 1,45,000 20,000
Difference in value of Closing stock 1,32,000 – 1,25,500 6,500
Notional rent of own premises 60,000
2,55,100 1,87,300
Net profit as per financial records 67,800

264 Cost and Management Accounting PW

30.
Memorandum Reconciliation Account

Particulars ` Particulars `
To Net loss per costing books 2,25,000 By Administrative overhead 3,000
over absorber in costs

To Factory overheads over absorbed 5,000 By Depreciation over charged in 10,000

cost
To Income tax not provided in cost 65,000 20,000
By Interest on investment
To Preliminary expenses written off in 3,000 2,000
P&L By Transfer fee 2,70,000
To Over-valuation of closing stock of 7,000 By Net loss as per financial
finished goods books
3,05,000 3,05,000
31. Memorandum Reconciliation Account
Particulars ` Particulars `
To Net loss per costing books 3,47,000 By Administrative overhead 60,000
over absorber in costs
To Factory overheads under absorbed 40,000 By Interest on investments 96,000
To Under charged depreciation 50,000 By Transfer fees 24,000
To Income tax provided 54,000 By Stores Adjustment 14,000
To Interest on loan funds 2,45,000 By Dividend Received 32,000
By Net loss as per financial 5,10,000
books
7,36,000 2,93,000
32. Memorandum Reconciliation Account
Particulars ` Particulars `
To Work overheads under recovered 48,600 To Net Profit as per cost books 48,408
To Provision for doubtful debts 17,800 By Office overheads over recovered 11,500
To Obsolescence loss 17,200 By Dividend received on shares 17,475
To Store adjustment (Debit) 35,433 By Interest on fixed deposits 21,650
By Depreciation over charged 5,000
By Net loss as per financial accounts 15,000
1,19,033 1,19,033
33. Reconciliation statement
Particulars + (`) - (`)
Loss as per cost accounts - 1,18,500
Add: Over absorbed factory overheads 32,500 -
Less: Under absorbed administration overheads - 38,250
Add: Over charged depreciation in cost accounts 4,99,700 – 4,55,800 43,900 -

Cost Accounting System 265

 Less: Loss due to obsolescence - 11,400
Less: Income tax provision - 32,650
Add: Interest on investment 96,000 -
Add: Stores adjustment (credit) 12,800 -
Less: Difference in value of opening stock (19,62,500 – 18,85,600) - 76,900
Add: Difference in value of closing stock (21,98,900 – 21,15,800) 83,100 -
Add: Imputed rent charged in cost accounts 1,80,000 -
Less: Selling & distribution expenses not charged in cost accounts - 72,450
Less: Donation to Prime Minister Relief Fund - 11,000
Less: Loss on sale of furniture - 7,250
Less: Bad debts written off - 18,300
4,48,300 3,86,700
Profit as per profit & loss account 61,600
34. Reconciliation Statement
Particulars + (`) – (`)
Loss as per cost accounts - 2,48,300
Add: Over recovered Works OHs 30,400 -
Less: Under recovered Selling OHs - 20,300
Less: Under recovered administrative OHs - 27,700
Add: Depreciation over charged in cost accounts 35,100 -
Less: Bad Debts w/off in financial accounts - 15,000
Less: Preliminary expenses w/off in financial accounts - 5,000
Add: Interest credited during the year in financial accounts 7,500 -
73,000 3,16,300
Loss as per financial account - 2,43,300

35. Cost Sheet for the Period

`
Materials 2,00,000
Labour 1,50,000
Prime Cost 3,50,000

Factory Overhead 90,000

Factory Cost 4,40,000

Office Overhead 88,000
Cost of Production 5,28,000
Less: Closing Stock (10 of 5,28,000) 52,800
Profit 4,75,200
Sales 44,800
5,20,000

266 Cost and Management Accounting PW

 It is assumed that administration overheads are related to production.
Profit an oss Acco nt for t e Perio
Particulars ` Particulars `
To Materials 2,00,000 By Sales 5,20,000
To Labour 1,50,000 By Closing Stock (10 of 4,50,000) 45,000
To Factory Expenses 1,00,000
To Office Expenses 85,000
To Profit 30,000
5,65,000 5,65,000
Reconciliation Statement
Particulars + (`) – (`)
Profit as per cost Account 44,800
Add: Over-recovery of office expense in Coat Account 3,000
Less: Over-valuation of stock in Cost Account 7,800
Factory overhead under-charged in Cost Account 10,000 17,800
47,800 17,800
36. Profit & Loss Account
To Materials 10,00,000 By sales 25,00,000
To Wages 5,00,000 By Closing Stock 1,50,000
To Factory Overheads 4,50,000 By Work-in-Progress 70,000
To Administrative Overheads 2,60,000
To Selling and Distribution 1,80,000
Overheads
To Interest on Capital 20,000
To Goodwill Written off 2,00,000
To Net Profit 1,10,000
27,20,000 27,20,000

Cost Sheet
Materials 10,00,000
Add: Wages 5,00,000
Prime Cost 15,00,000
Add: Factory overhead 100 of wages 5,00,000
Gross Factory Cost 20,00,000
Less: Closing WIP (70,000)
Net Factory Cost 19,30,000
Add: Administrative overheads 10 of factory cost 1,93,000
Cost of Production (21,230 units) 21,23,000

Cost Accounting System 267

 Less: Closing stock of finished goods (1,230 units) (1,23,000)
Cost of goods sold 20,00,000
Add: Selling & Dist. Overheads `10 per unit 2,00,000
Cost of sales (20,000 units) 22,00,000
Add: Profit 3,00,000
Sales 25,00,000
Reconciliation Statement

Profit as per Cost Records 3,00,000

Add: Overabsorption of Factory Overheads 50,000
Overabsorption of Selling & Distribution Overheads 20,000
Undervaluation of Closing Stock of Finished Goods in Cost Account 27,000 97,000
Less:Under-absorption of Administration Overheads 3,97,000
Interest on Capital Not Charged in Cost Account 67,000
Goodwill Not Written off in Cost Account 20,000
Profit as per Financial Records 2,00,000 2,87,000
1,10,000

37. Reconciliation statement

Particulars + (`) – (`)
Profit as per profit & loss account 33,248 -
Add: Undervalued closing stock 1,56,394 – 1,50,242 6,152 -
Less: Over absorbed wages in cost accounts 49,734 – 46,226 - 3,468
Add: Under absorbed factory overheads 41,652 – 39,428 2,224 -
Less: Over absorbed administration overheads (6,93,000 3 ) – 19,690 - 1,100
Add: Under absorbed selling expenses 44,352 - (6,93,000 5 ) 9,702 -
Less: Sundry income not considered in cost accounts - 632
51,326 5,200
Profit as per cost accounts 46,126 -

38. Units produced = Units sold + Cl. Stock FG – Op. Stock FG = 30,000 + 2,000 – 0 = 32,000
ostin Profit oss Acco nt
Particulars Amount (`) Particulars Amount (`)
Material consumed 14,16,000 Sales (30,000 units) 30,00,000
Direct wages 7,42,000
Prime cost 21,58,000
Work overheads (20% of prime 4,31,600
cost)
Gross factory cost 25,89,600
Less: Work-in-progress (60,000)

268 Cost and Management Accounting PW

 Net Factory cost 25,29,600
Administration overheads 1,60,000
(5 32,000)
Cost of production 26,89,600
Less: Finished stock (1,68,100)
26,89,600
× 2,000
32,000
Cost of goods sold 25,21,500
Selling & distribution overheads 1,80,000
(6 30,000)
Cost of sales 27,01,500
Profit (Bal. fig.) 2,98,500
30,00,000 30,00,000

Reconciliation Statement
Particulars + (`) - (`)
Profit as per cost accounts 2,98,500 -
Add: Over recovered work OHs 5,600 -
Less: Over valued closing WIP in cost accounts - 6,000
Add: Under recovered Administration OHs 10,000 -
Less: Over valued Cl. stock in cost accounts - 600
Add: Over recovered selling & distribution OHs 15,000 -
3,29,100 6,600
Profit as per profit & loss account 3,22,500 -
39. (a) Statement of Profit as per Financial Records

Particulars ` Particulars `
To Direct material 50,00,000 By Sales (1,20,000 units) 1,20,00,000
To Direct wages 30,00,000 By Closing stock
To Factory Overheads 16,00,000 WIP 2,40,000
To Gross Profit c/d 29,60,000 Finished goods 3,20,000
1,25,60,000 (4,000 units) 1,25,60,000
To General Administrative overheads 7,00,000 By Gross Profit b/d 29,60,000
To Selling and distribution overheads 9,60,000 By Dividend received 1,00,000
By Bad Debts 80,000 By Interest received 20,000
To Preliminary expenses written off 40,000
To Legal charges 10,000
To Profit 12,90,000
30,80,000 30,80,000

Cost Accounting System 269

 Units produced = Units sold + Closing stock – opening stock = 1,20,000 + 4000 – 0 = 1,24,000
Statement of Profit as per ostin ecor s
Particulars `
Direct Material 56,00,000
Direct labour 30,00,000
Prime cost 86,00,000
Factory overheads (86,00,000 20 ) 17,20,000
Factory cost 1,03,20,000
Less: Closing WIP (2,40,000)
Cost of Production (1,24,000 units) 1,00,80,000
10080000
Less: Closing stock × 4000 (3,25,160)
124000
Cost of goods sold (1,20,000 units) 97,54,840
Administrative overheads (1,20,000 `6) 7,20,000
Selling and distribution overheads (1,20,000 `8) 9,60,000
Cost of sales 1,14,34,840
Profit (Bal. fig.) 5,65,160
Sales 1,20,00,000

(b) Reconciliation Statement

Particulars + (`) – (`)
Profit as per cost accounts 5,65,160 -
Add: Excess of material consumption 6,00,000 -
Add: Factory overheads 1,20,000 -
Add: Administrative overheads 20,000 -
Add: Dividend received 1,00,000 -
Add: Interest received 20,000 -
Less: Bad Debts - 80,000
Less: Preliminary expenses written off - 40,000
Less: Legal charges - 10,000
Less: Bad Over-valuation of stock - 5,160
14,25,160 1,35,160
Profit as per financial accounts 12,90,000 -

40. (a) Statement of Profit as per Financial Records

Particulars ` Particulars `
To Opening stock of Finished goods 53,125 By Sales 22,80,000
To work-in-process 46,000 By Closing stock of Finished 45,650
Goods
To Raw materials consumed 8,40,000 By Work-in-process 41,200
To Direct labour 6,10,000 By Rent received 46,000
To Factory overheads 4,22,000 By Interest received 38,000

270 Cost and Management Accounting PW

 Particulars ` Particulars `
To Administration overheads 1,98,000
To Selling & Distribution overheads 72,000
To Dividends paid 1,22,000
To Bad Debts 18,000
To Profit 69,725
24,50,850 24,50,850
Units produced = Units sold + Closing stock – opening stock = 12,615 + 415 – 625 = 12,405
Statement of Profit as per ostin ecor s
Particulars `
Raw material consumed 8,40,000
Direct labour 6,10,000
Prime cost 14,50,000
Factory overheads (6,10,000 70 ) 4,27,000
Factory cost 18,77,000
Add: Opening WIP 46,000
Less: Closing WIP (41,200)
Factory cost of goods purchased 18,81,800
Add: Administration overheads (15 18,81,800) 2,82,270
Cost of Production 21,64,070
Add: Opening stock (625 120) 75,000
Less: Closing stock (72,397)
Cost of goods sold 21,66,673
Selling and distribution overheads (12,615 3) 37,845
Cost of sales 22,04,518
Profit (Bal. fig.) 75,482
Sales 22,80,000
(b) Reconciliation Statement
Particulars + (`) – (`)
Profit as per cost accounts 75,482 -
Add: Over absorbed administration overheads 84,270 -
Add: Over valued opening stock of finished goods 21,875 -
Add: Interest received 38,000 -
Add: Rent received 46,000 -
Add: Factory overheads over absorbed 5,000 -
Less: Selling & distribution overheads under - 34,155
recovered
Less: closing stock overvalued - 26,747
Less: Dividend - 1,22,000
Less: Bad debts - 18,000
2,70,627 2,00,902
Profit as per financial accounts 69,725 -
Note – It is assumed that administration overheads are related to production.

Cost Accounting System 271

41. Costing Profit & Loss Account
Particulars Amount Particulars Amount
To Material 26,80,000 By Prime Cost c/d (B/F) 44,60,000
To Wages 17,80,000
44,60,000 44,60,000
To Prime Cost b/d 44,60,000 By Factory Cost c/d (B/F) 53,52,000
To Factory Exp. (44,60,000 20 ) 8,92,000
53,52,000 53,52,000
To Factory Cost b/d 53,52,600 By Cost of Production c/d (B/F) 58,87,200
To Admin. Exp. 5,35,200
(10 53,52,000)
58,87,200 58,87,200
To Cost of Production b/d 58,87,200 By Cost of Goods Sold c/d (B/F) 56,60,769
To Opening Finished Goods - By Closing Finished Goods 2,26,431
58,87,200
× 2,000
52,000
58,87,200 58,87,200
To Cost of Goods Sold b/d 56,60,769 By Cost of Sales c/d (B/F) 61,60,769
To Selling Exp. (10 50,000) 5,00,000
61,60,769 61,60,769
To Cost of Sales b/d 61,60,769 By Sales 62,00,000
To Profit 39,231
62,00,000 62,00,000
Reconciliation Statement
Particulars + (`) – (`)
Profit as per cost accounts 39,231 -
Less: Under recovered Factory Expenses - 58,000
Add: Over recovered Administrative Expenses 55,000 -
Less: Over valued closing stock in cost accounts - 76,431
Add: Over recovered selling expenses 2,50,000 -
Add: Dividend received 20,000 -
Less: Preliminary expenses - 50,000
3,64,231 1,84,431
Profit as per financial account 1,79,800 -

42. (i) Cost Sheet

Particulars Amount
Raw material consumed 6,50,000
Direct wages 3,50,000
Prime Cost 10,00,000
2,60,000 × 50%
Add: Fixed factory overheads × 15,000 97,500
20,000

272 Cost and Management Accounting PW

 Add: Variable factory overheads (2,60,000 50 ) 1,30,000 2,27,500
Add: Notional rent of own premises 12,000
GFC/NFC/COP/COGS 12,39,500
1,05,000 78,750
Add: Administrative overheads × 15,000
20,000
Add: selling & Distribution overheads 85,000
Cost of Sales 14,03,250
Add: Profit (Balancing figure) 96,750
Sales 15,00,000

(ii) Reconciliation Statement

Particulars + (`) – (`)
Profit as per P&L Account 57,000 -
Add: Under recovered factory overheads (2,60,000 – 2,27,500) 32,500 -
Less: Notional rent of own premises - 12,000
Add: Under recovered administrative overheads (1,05,000 – 78,750) 26,250 -
Add: Loss on sale of investment 2,000 -
Less: Dividend received - 9,000
Total 1,17,750 21,000
Profit as per ost Acco nt 96,750 -



Cost Accounting System 273