Cost Accounting Vol-I

5
Non-integrated Accounts
Basic Concepts
Cost Control These are accounts maintained for the purpose of exercising control
Accounts
over the costing ledgers and also to complete the double entry in cost
accounts.
Integral
System
of
Accounting
Non-integral
System
of
Accounting
Reconciliation
A system of accounting where both costing and financial transactions

are recorded in the same set of books.
A system of accounting where two sets of books are maintained- (i)
for costing transactions; and (ii) for financial transactions.
In the Non-Integral System of Accounting, since the cost and
financial accounts are kept separately, it is imperative that those
should be reconciled; otherwise the cost accounts would not be
reliable. The reason for differences in the cost & financial accounts
can be of purely financial nature (Income and expenses) and notional
nature.
Principal Accounts Maintained in Non-integrated Accounting
system
Cost
Ledger This account is also known as General Ledger Adjustment Account.
Control
This account is made to complete double entry. All items of
Account
expenditure are credited to this account. Sales are debited to this
account and net profit/loss is transferred to this account. The
balance in this account at the end of the particular period represents
the net total of all the balances of the impersonal account.
Stores Ledger This account is debited for the purchase of materials and credited for
Control
issue of materials from the stores. The balance in this account
Account
indicates the total balance of all the individual stores accounts.
Abnormal losses or gains if any in this account are transferred to
Costing Profit & Loss Account.
The Institute of Chartered Accountants of India
5.2
Cost Accounting
Wages Control This account is debited with total wages paid (direct and indirect).
Account
Direct wages are further transferred to Work-in-Progress Account
and indirect wages to Production Overhead or Administration
Overhead or Selling & Distribution Overhead Account, as the case
may be. Wages paid for abnormal idle time are transferred to Costing
Profit & Loss Account either directly or through Abnormal Loss
Account.
Production
Overhead
Control
Account
This account is debited with indirect costs of production such as

indirect material, indirect labour, indirect expenses (carriage inward
etc.). Overhead recovered is credited to this Account. The difference
between overhead incurred and overhead recovered (i.e. Under
Absorption or Over Absorption of Overheads) is transferred to
Overhead Adjustment Account.
Work-inProgress
Control
Account
This account is debited with the total cost of production, which

includesdirect materials, direct labour, direct expenses, production
overhead recovered and is credited with the amount of finished
goods completed and transferred. The balance in this account
represents total balances of jobs/ works-in-progress, as shown by
several job accounts.
Administrative
Overhead
Control
Account
This account is debited with overhead incurred and credited with

overhead recovered. The overhead recovered are debited to Finished
Goods Control Account. The difference between Administrative
Overhead incurred and recovered is transferred to Overhead
Adjustment Account.
Finished
This account is debited with the value of goods transferred from
Goods Control Work-in-Progress Control Account, administration costs recovered.
Account
This account is credited with the Cost of Goods sold and Cost of
Sales Account is debited. The balance of this account represents the
value of goods lying in hand.
Selling
and
Distribution
Overhead
Control
Account
Cost of Sales
Account
This account is debited with Selling and Distribution Overhead

incurred and credited with the recovered Overhead. The difference
between incurred and recovered overhead is transferred to Overhead
Adjustment Account.
This account is debited with the cost of finished goods transferred
from Finished Goods Control Account for sale as well as with the
amount of selling and distribution overhead costs recovered. The
balance of this account is ultimately transferred to Sales Account or
Costing Profit & Loss Account.
Non-integrated Accounting
5.3
Costing Profit This account is debited with cost of goods sold, under-absorbed
&
Loss overheads and abnormal losses; and is credited with sales value, overAccount
absorbed overhead and abnormal gains. The net profit or loss in this
account is transferred to Cost Ledger Control Account.
Overhead
Adjustment
Account*
This account is to 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 & Loss Account.
* Sometimes, Overhead Adjustment Account is dispensed with and under/over absorbed
overheads is directly transferred to Costing Profit & Loss Account from the respective
overhead accounts.
Items of Costs which are included in Financial Accounts and
Cost Accounts
Items included (a) Purely Financial Expenses :

in
Financial
(i) Interest on loans or bank mortgages.
Accounts only
(ii) Expenses and discounts on issue of shares, debentures etc.
(iii) Other capital losses i.e., loss by fire not covered by
insurance etc.
(iv) Losses on the sales of fixed assets and investments
(v) Goodwill written off.
(vi) Preliminary expenses written off.
(vii) Income tax, donations, subscriptions.
(viii) Expenses of the companys share transfer office, if any.
(b) Purely Financial Income
(i)
(ii)
(iii)
(iv)
(v)
Items included (i)
in the Cost (ii)
Accounts only
(iii)
(iv)
Interest received on bank deposits, loans and investments.

Dividends received.
Profits on the sale of fixed assets and investments.
Transfer fee received.
Rent receivables.
Charges in lieu of rent where premises are owned.

Interest on capital at notional figure though not incurred.
Salary for the proprietor at notional figure though not incurred.
Notional Depreciation on the assets fully depreciated for which
book value is nil.
5.4
Cost Accounting
Basic Formulae
Format
of
Reconciliation
Statement
RECONCILIATION STATEMENT
(When Profit as per Cost Accounts is taken as a starting point)
Particulars
A.
B.
C.
Profit as per Cost Accounts

Add. Items having the effect of higher
profit in financial accounts:
(a) Over-absorption of Factory
Overheads/ Office & Adm.
Overheads / Selling & Distribution
Overheads in Cost Accounts
(b) Over-valuation of Opening Stock of
Raw Material / Work-in-progress /
Finished goods in Cost Accounts
(c) Under-valuation of Closing Stock of
Finished Goods in Cost Accounts
(d) Income excluded from Cost
Accounts : (e.g.) Interest &
Dividend on Investments
Rent received
Transfer Fees received etc.
Less: Items having the effect of lower
profit in financial accounts:
(a) Under-absorption of Factory
Overheads/ Office & Adm.
Overheads / Selling & Distribution
Overheads in Cost Accounts
(b) Under-valuation of Opening Stock
of Raw Material / Work-in-progress
/ Finished goods in Cost Accounts
(c) Over-valuation of Closing Stock of
Finished Goods in Cost Accounts
(d) Expenses excluded from Cost
Accounts : (e.g.)
Bad Debts written off
(`)
(`)
..
..
..
..
..
..
..
..
..
..
..
..
5.5
Preliminary Expenses / Discount

..
on Issue, written off
Legal Charges
..
(..)
D. Profit as per Financial Accounts (A + B
..
C)
Note: In case of Loss, the amount shall appear as a minus item.
Note: When profit as per Cost account is calculated from profit as
per financial accounts, then items which are added above will be
deducted and vice-versa.
Journal Entries under Non-integrated Accounting System
Material
Purchased
and Material
Issued
Wages Paid
At the time of purchase

(i) Dr. Stores Ledger Control A/c
xxxx
Cr. Cost Ledger Control A/c
If purchased on special requirement for a job
(ii) Dr. Work-in-Progress Control A/c
When Materials returned to vendor (Return outwards)
(i) Dr. Cost Ledger Control A/c
Cr. Store Ledger Control A/c
When direct material issued to production
(i) Dr. Work-in-Progress Control A/c
When indirect material issued to production
(i) Dr. Production Overhead Control A/c
When Materials returned to Store (Return inwards)
(i) Dr. Store Ledger Control A/c
Cr. Work-in-Progress Control A/c
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
When wages paid to workers

(i) Dr. Wages Control A/c
xxxx
xxxx
When wages (for direct labour) charged to the production
xxxx
Cr. Wages Control A/c
xxxx
When wages (for indirect labour) charged to the production
xxxx
5.6
Cost Accounting
Cr. Wages Control A/c
Production
Overheads
Administrative
Overheads
When production overheads incurred

When production overheads recovered (absorbed)
Cr. Production Overhead Control A/c
When administration overheads incurred
(i) Dr. Administrative Overhead Control A/c
When administration overheads recovered (absorbed)
(i) Dr. Finished Goods Ledger Control A/c
Cr. Administration Overhead Control A/c
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
Selling
and
Distribution
Overheads
When selling and distribution overheads incurred

(i) Dr. Selling and Distribution Overhead Control A/c
xxxx
xxxx
When selling and distribution overheads recovered
(absorbed)
(i) Dr. Cost of Sales A/c
xxxx
Cr. Selling and Distribution Overhead Control A/c
xxxx
Transfer
of
under/
over
absorbed
Overheads
In case of over absorption of overheads

(i) Dr. Production/Administration/Selling &
Dist. Overhead Control A/c
In case of under absorption of overheads
Cr. Production/ Administration/ Selling &
Dist. Overhead Control A/c
Sales
(i)
Dr. Cost Ledger Control A/c

Cr. Costing Profit & Loss A/c
Profit/ Loss
In case of Profit
(i) Dr. Costing Profit & Loss A/c
In case of Loss
Cr. Costing Profit & Loss A/c
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
5.7
SECTION- A
Question-1
What are the essential pre-requisites of integrated accounting system?
Solution:
Essential pre-requisites of Integrated Accounting System: The essential pre-requisites of
Integrated Accounting System include the following:
1.
The managements 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 other
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 coordination 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.
Under this system there is no need for a separate cost ledger. Of course, there will be a number of
subsidiary ledgers; in addition to the useful Customers Ledger and the Bought Ledger, there will
be: (a) Stores Ledger; (b) Finished Stock Ledger and (c) W-I-P Ledger.
Question-2
What are the advantages of integrated accounting?
Solution:
Advantages of Integrated Accounting: Integrated Accounting is the name given to a system of
accounting whereby cost and financial accounts are kept in the same set of books. Such a
system will have to afford full information required for Costing as well as for Financial
Accounts. In other words, information and data should be recorded in such a way so as to
enable the firm to ascertain the cost (together with the necessary analysis) of each product,
job, process, operation or any other identifiable activity. For instance, purchases are analysed
by nature of material and its end-use. Purchases account is eliminated and direct postings are
made to Stores Control Account, Work-in-Progress account, or Overhead Account. Payroll is
straightway analysed into direct labour and overheads. It also ensures the ascertainment of
marginal cost, variances, abnormal losses and gains. In fact all information that management
requires from a system of Costing for doing its work properly is made available. The integrated
accounts give full information in such a manner so that the profit and loss account and the
5.8
Cost Accounting
balance sheet can be prepared according to the requirements of law and the management
maintains full control over the liabilities and assets of its business.
The main advantages of Integrated Accounting are as follows:
(i)
Since there is one set of accounts, thus there is one figure of profit. Hence the question of
reconciliation of costing profit and financial profit does not arise.
(ii)
There is no duplication of recording of entries and efforts to maintain separate set of books.
(iii) Costing data are available from books of original entry and hence no delay is caused in
obtaining information.
(iv) The operation of the system is facilitated with the use of mechanized accounting.
(v)
Centralization of accounting function results in economy.
Question-3
Why is it necessary to reconcile the Profits between the Cost Accounts and Financial
Accounts?
Solution:
When the cost and financial accounts are kept separately, It is imperative that these should be
reconciled, otherwise the cost accounts would not be reliable. The reconciliation of two set of
accounts can be made, if both the sets contain sufficient detail as would enable the causes of
differences to be located. It is therefore, important that in the financial accounts, the expenses
should be analysed in the same way as in cost accounts. It is important to know the causes
which generally give rise to differences in the costs & financial accounts. These are:
(i)
(ii)
Items included in financial accounts but not in cost accounts
Income-tax
Transfer to reserve
Dividends paid
Goodwill / preliminary expenses written off
Pure financial items
Interest, dividends
Losses on sale of investments
Expenses of Cos share transfer office
Damages & penalties
Items included in cost accounts but not in financial accounts
Opportunity cost of capital
Notional rent
5.9
(iii) Under / Over absorption of expenses in cost accounts

(iv) Different bases of inventory valuation
Motivation for reconciliation is:
To ensure reliability of cost data
To ensure ascertainment of correct product cost
To ensure correct decision making by the management based on Cost & Financial data
To report fruitful financial / cost data.
Question-4
What are the reasons for disagreement of profits as per cost accounts and financial accounts?
Discuss.
Solution:
Reasons for disagreement of profits as per cost and financial accounts: The various
reasons for disagreement of profits shown by the two sets of books viz., cost and financial
may be listed as below:
1.
Items appearing only in financial accounts: The following items of income and
expenditure are normally included in financial accounts and not in cost accounts. Their
inclusion in cost accounts might lead to unwise managerial decisions. These items are:
(i)
Income:
(a) Profit on sale of assets

(b) Interest received
(c) Dividend received
(d) Rent receivable
(e) Share Transfer fees
(ii) Expenditure
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Loss on sale of assets

Uninsured destruction of assets
Loss due to scrapping of plan and machinery
Preliminary expenses written off
Goodwill written off
Underwriting commission and debenture discount written off
Interest on mortgage and loans
Fines and penalties
5.10
Cost Accounting
(iii) Appropriation
2.
3.
(a) Dividends
(b) Reserves
(c) Dividend equalization fund, Sinking fund etc.
Items appearing only in cost accounts: There are some items which are included in cost
accounts but not in financial account. These are:
(a) Notional interest on capital;
(b) Notional rent on premises owned.
Under or over-absorption of overhead: In cost accounts overheads are charged to
production at pre-determined rates where in financial accounts actual amount of
overhead is charged, the difference gives rise under or over-absorption; causing a
difference in profits.
4.
Different bases of stock valuation: In financial books, stocks are valued at cost or market
price, whichever is lower. In cost books, however, stock of materials may be valued on FIFO
or LIFO basis and work-in-progress may be valued at prime cost or works cost. Differences in
store valuation may thus cause a difference between the two profits.
5.
Depreciation: The amount of depreciation charge may be different in the two sets of books
either because of the different methods of calculating depreciation or the rates adopted. In
company accounts, for instance, the straight line method may be adopted whereas in
financial accounts it may be the diminishing balance method.
Question-5
List the Financial expenses which are not included in cost.
Solution:
Financial expenses which are not included in cost accounting are as follows:
Interest on debentures and deposit

Gratuity
Pension
Bonus of Employee,
Income Tax,
Preliminary Expenses
Discount on issue of Share
Underwriting Commissions.
Question-6
When is the reconciliation statement of Cost and Financial accounts not required?
5.11
Solution:
When the Cost and Financial Accounts are integrated - there is no need to have a separate
reconciliation statement between the two sets of accounts. Integration means that the same
set of accounts fulfil the requirement of both i.e., Cost and Financial Accounts.
Question-7
Is reconciliation of cost accounts and financial accounts necessary in case of integrated
accounting system?
Solution:
In integrated accounting system cost and financial accounts are kept in the same set of books.
Such a system will have to afford full information required for Costing as well as for Financial
Accounts. In other words, information and data should be recorded in such a way so as to
enable the firm to ascertain the cost (together with the necessary analysis) of each product,
job, process, operation or any other identifiable activity. It also ensures the ascertainment of
marginal cost, variances, abnormal losses and gains. In fact all information that management
requires from a system of Costing for doing its work properly is made available. The integrated
accounts give full information in such a manner so that the profit and loss account and the
balance sheet can be prepared according to the requirements of law and the management
maintains full control over the liabilities and assets of its business.
Since, only one set of books are kept for both cost accounting and financial accounting
purpose so there is no necessity of reconciliation of cost and financial accounts
SECTION-B
Problems on Non-Integrated Accounting System
Question-1
Pass journal entries in the cost books, maintained on non-integrated system, for the following:
(i)
Issue of materials:
(ii)
Allocation of wages:
(iii) Under/Over absorbed overheads:
Direct ` 5,50,000; Indirect ` 1,50,000

Direct ` 2,00,000; Indirect ` 40,000
Factory (over) ` 20,000;
Administration (under) ` 10,000
5.12
Cost Accounting
Solution:
Journal Entries in Cost Books
Maintained on non-integrated system
(`)
(i)
Work-in-Progress Ledger Control A/c
Dr.
5,50,000
Factory Overhead Control A/c
Dr.
1,50,000
To Stores Ledger Control A/c
(`)
7,00,000
(Being issue of materials)

(ii)
Work-in Progress Ledger Control A/c
Dr.
2,00,000
Factory Overhead control A/c
Dr.
40,000
To Wages Control A/c
2,40,000
(Being allocation of wages and salaries)

(i)
Dr.
20,000
To Costing Profit & Loss A/c
20,000
(Being transfer of over absorption of overhead)

Costing Profit & Loss A/c
Dr.
10,000
To Administration Overhead Control A/c
10,000
(Being transfer of under absorption of overhead)

Question-2
A Company operates separate cost accounting and financial accounting systems. The
following is the list of opening balances as on 1.04.2013 in the Cost Ledger.
Stores Ledger Control Account
WIP Control Account
Finished Goods Control Account
General Ledger Adjustment Account
Debit(`)
Credit(`)
53,375
--
1,04,595
--
30,780
--
--
1,88,750
Transactions for the quarter ended 30.06.2013 are as under:

(`)
Materials purchased
26,700
Materials issued to production
40,000
Materials issued to factory for repairs
900
5.13
Factory wages paid (including indirect wages ` 23,000)
77,500
Production overheads incurred
95,200
Production overheads under-absorbed and written-off

Sales
3,200
2,56,000
The Companys gross profit is 25% on Factory Cost. At the end of the quarter, WIP stocks
increased by ` 7,500.
Prepare the relevant Control Accounts, Costing Profit & Loss Account and General Ledger
Adjustment Account to record the above transactions for the quarter ended 30.06.2013.
Solution:
General Ledger Adj. A/c
Dr.
Particulars
To Sales
To Balance c/d
Cr.
(`)
Particulars
2,56,000 By Balance b/d

1,80,150 By Stores ledger control A/c
(`)
1,88,750
26,700
(Materials purchased)
By Wages control A/c
77,500
(Factory wages paid)
By Factory Overheads control A/c
95,200
(Production overhead incurred)
By Costing Profit & Loss A/c

4,36,150
48,000
4,36,150
Stores Ledger Control A/c

Dr.
Particulars
To Balance b/d
Cr.
(`)
Particulars
53,375 By WIP control A/c
(`)
40,000
(Materials issued to production)
To General ledger adj. A/c
26,700 By Factory overhead control A/c
(Materials purchased)
900
(Materials issued for repairing)
By Balance c/d
80,075
39,175
80,075
WIP Control A/c

Dr.
Cr.
Particulars
To Balance b/d
(`)
Particulars
1,04,595 By Finished goods control A/c
(`)
2,02,900
5.14
Cost Accounting
(Balancing figure)
To Stores ledger control A/c

To Wages control A/c
To Factory Overhead control A/c
40,000 By Balance c/d

54,500
1,15,900
3,14,995
1,12,095
3,14,995
Finished Goods Control A/c

Dr.
Cr.
Particulars
(`)
Particulars
To Balance b/d
30,780 By Cost of sales A/c

(Refer to note)
To WIP control A/c
2,02,900 By Balance c/d
2,33,680
Note:
Gross profit is 25% of Factory cost or 20% on sales.
(`)
2,04,800
28,880
2,33,680
Hence cost of sales = ` 2,56,000 20% of ` 2,56,000 = ` 2,04,800

Dr.
Cr.
Particulars
(`)
900 By Costing Profit & Loss A/c
Particulars
(`)
3,200
(Under-absorption of overhead)

23,000 By WIP control A/c

95,200
1,19,100
1,15,900
1,19,100
Cost of Sales A/c

Dr.
Particulars
To Finished goods control A/c
Cr.
(`)
Particulars
2,04,800 By Costing Profit & Loss A/c
(`)
2,04,800
Sales A/c
Dr.
Particulars
Cr.
(`)
Particulars
2,56,000 By GLA A/c
(`)
2,56,000
Wages Control A/c

Dr.
Particulars
Cr.
(`)
Particulars
77,500 By Factory overhead control A/c

(Wages paid for direct labour)
(`)
23,000
5.15
54,500
By WIP control A/c

(Wages paid for indirect labour)
77,500
77,500

Dr.
Cr.
Particulars
(`)
To Factory O/H Control A/c

To Cost of sales A/c
Particulars
(`)
3,200 By Sales A/c

2,04,800
48,000
2,56,000
2,56,000
2,56,000
(Profit)
Trial Balance (as on 30.06.2013)
Stores ledger control A/c

WIP control A/c
Finished goods control A/c
To General ledger adjustment A/c
Dr.
Cr.
(`)
(`)
39,175
1,12,095
28,880
1,80,150
1,80,150
1,80,150
Question-3
The Chief Cost Accountant of Omega Limited found to his surprise that the profit was the
same as per cost accounts as well as the financial accounts. He asked his deputy to find out
the reasons for the same. You are required to analyse and suggest a Reconciliation Statement
is necessary or not.
Solution:
Chief Cost Account of M/s Omega Ltd. noticed that the profit of the concern under Cost and
Financial Accounting Systems was the same. This fact indicates that the concern was using a
non-integrated accounting system. The figure of profit under Cost and Financial accounts will
be the same when the amount of total under charges equal to the amount of total overcharges
in each set of books.
The statement of profit under Cost Accounts is usually prepared on the basis of
standard/budgeted figures in respect of various elements of cost, whereas it is prepared on
actual basis under financial accounts.
5.16
Cost Accounting
Consider the following assumed statements of profit as per Cost and Financial Accounts of
M/s. Omega Ltd. to ascertain the reasons, which account for the figure of profit to be same
under two sets of accounts.
Statement of Profit of M/s Omega Ltd. as per Cost A/c
(`)
(`)
2,75,000
1,87,500
4,62,500
Direct Material (2,50,000 x ` 1.1)

Direct wages (2,50,000 x ` 0.75)
Prime Cost
Add: Factory overheads:
Variable
Fixed
Factory Cost
Add: Office Overheads:
Cost of Production:
Add: Selling & Dist Overhead
Variable
Fixed
Cost of Sales
Profit
Sales
60,000
75,000
30,000
63,500
1,35,000
5,97,500
50,000
6,47,500
93,500
7,41,000
9,000
7,50,000
Statement of Profit & Loss Account of M/s Omega Ltd.

(`)
To Direct Materials
To Direct Wages
To Factory expenses
To Office express
To Selling & Dist. Expenses
To Legal expenses
To Net profit
3,00,000 By Sales (2,50,000 units)

2,00,000
1,20,000
40,000
80,000
1,000
9,000
7,50,000
(`)
7,50,000
7,50,000
An analysis of Cost and Financial profit statement indicates the following facts:
(1) The profit of the concern under two sets of accounts is the same i.e. ` 9,000.
(2) A sum of ` 25,000 is under charged in Cost Accounts on account of direct material cost. The
estimated cost on this account was ` 2,75,000 whereas actual cost incurred amounted to `
3,00,000.
5.17
(3) Similarly, a sum of ` 12,500 is under charged in Cost Accounts on account of direct wages.
Estimated costs were ` 1,87,500 whereas actual costs comes to ` 2,00,000.
(4) A sum of ` 1,000 towards legal expenses is only charged in financial accounts and was not
shown in Cost Accounts.
(5) A sum of ` 15,000 difference between budgeted and actual factory overheads is over-charged
in Cost Accounts.
(6) A sum of ` 10,000 difference between budgeted and actual office overheads is overcharged in
Cost Accounts.
(7) A sum of ` 13,500 difference between budgeted and actual selling and distribution overheads
is overcharged in Cost Accounts.
Thus, the total amount of under charges is equal to total amount of over charges in each set of
books and it is equal to ` 38,500. As a result, the profit was the same as per cost accounts as well
as the financial accounts. The above analysis also indicates that though the figure of profit under
two sets of accounts is same but the figures of material, labour and overhead costs differ. It also
points out items, which are present in financial accounts and not in cost accounts.
The statement of reconciliation is necessary, as the two sets of accounts are non-integrated. It is
only the reconciliation statement which would indicate the amount of under charges and overcharges for different elements of cost. The knowledge of under charges and over-charges would
enable the management to initiate necessary action for control purposes. For example, in the
case of M/s Omega Ltd., the sum of ` 25,000 more has been spent on the materials for the
manufacturing of 2,50,000 units of the product. This is known as material cost variance. This
variance may arise either due to excess material usage or price. Information about the
occurrence of variances is provided by a statement of reconciliation to the accountants, so that
necessary control action may be taken. Such a statement also includes the items which have not
been included in Cost Accounts but are present in Financial Accounts.
Question-4
As of 31st March, 2014, the following balances existed in a firms cost ledger, which is
maintained separately on a double entry basis:
Debit(`)
Credit(`)
3,00,000
Work-in-progress Control A/c
1,50,000
Finished Goods Control A/c
2,50,000
Manufacturing Overhead Control A/c
15,000
Cost Ledger Control A/c
6,85,000
7,00,000
7,00,000
During the next quarter, the following items arose:
5.18
Cost Accounting
(`)
Finished Product (at cost)
2,25,000
Manufacturing overhead incurred
85,000
Raw material purchased
1,25,000
Factory wages
40,000
Indirect labour
20,000
Cost of sales
1,75,000
1,35,000
Sales returned (at cost)
9,000
Materials returned to suppliers
13,000
Manufacturing overhead charged to production
85,000
You are required to prepare the Cost Ledger Control A/c, Stores Ledger Control A/c, Work-inprogress Control A/c, Finished Stock Ledger Control A/c, Manufacturing Overhead Control
A/c, Wages Control A/c, Cost of Sales A/c and the Trial Balance at the end of the quarter.
Solution:
Cost Ledger Control Account
Dr.
Cr.
(`)
To
Store Ledger Control A/c
To
Balance c/d
(`)
13,000 By
9,42,000 By
By
By
Opening Balance
6,85,000
Store ledger control A/c
1,25,000
Manufacturing Overhead
Control A/c
85,000
Wages Control A/c
60,000
9,55,000
9,55,000

Dr.
Cr.
(`)
(`)
To
Opening Balance
3,00,000
By WIP Control A/c
To
Cost ledger control A/c
1,25,000
By Cost ledger control A/c (Returns)

By Balance c/d
4,25,000
1,35,000
13,000
2,77,000
4,25,000
5.19
WIP Control Account

Dr.
Cr.
(`)
To
Opening Balance
To
Wages Control A/c
To
To
(`)
1,50,000 By
40,000 By
Finished Stock
Ledger Control A/c
2,25,000
Balance c/d
1,85,000
1,35,000
85,000
4,10,000
4,10,000
Finished Stock Ledger Control Account

Dr.
Cr.
(`)
(`)
To
Opening Balance
2,50,000 By
Cost of Sales
1,75,000
To
WIP Control A/c
2,25,000 By
Balance c/d
3,09,000
To
Cost of Sales A/c (Sales Return)
9,000
4,84,000
4,84,000
Manufacturing Overhead Control Account

Dr.
Cr.
(`)
(`)
To
Cost Ledger Control A/c
85,000 By
Opening Balance
15,000
To
Wages Control A/c
20,000 By
WIP Control A/c
85,000
By
Under recovery c/d
1,05,000
5,000
1,05,000
Wages Control Account

Dr.
Cr.
(`)
To
Transfer to Cost Ledger

Control A/c
60,000
60,000
(`)
By
WIP Control A/c
40,000
By
Manufacturing Overhead
Control A/c
20,000
60,000
5.20
Cost Accounting
Cost of Sales Account
Dr.
Cr.
(`)
To
Finished Stock Ledger

Control A/c
(`)
1,75,000 By
By
Finished Stock Ledger

Control A/c (Sales return)
Balance c/d
9,000
1,66,000
1,75,000
1,75,000
Trial Balance
(`)
2,77,000
WIP Control A/c
1,85,000
Finished Stock Ledger Control A/c
3,09,000

Cost of Sales A/c
Cost ledger control A/c
(`)
5,000
1,66,000
----
9,42,000
9,42,000
9,42,000
Question-5
The following information have been extracted from the cost records of a manufacturing
company:
(`)
*
*
*
*
*
*
*
*
*
Stores
Opening balance
Purchases
Transfer from WIP
Issue to work-in-progress
Issue for repairs
Deficiency found in stock
Work-in-Progress:
Opening balance
Direct Wages applied
Overhead charged
9,000
48,000
24,000
48,000
6,000
1,800
18,000
18,000
72,000
*
*
*
*
Closing balance
Finished Production :
Entire production is sold at a profit of 10% on cost from work-in-progress
Wages paid.
Overhead incurred
5.21
12,000
21,000
75,000
Draw the Stores Leger Control A/c, Work-in-Progress Control A/c, Overheads Control A/c and
Costing Profit and Loss A/c.
Solution:
Particulars
To
To
To
Balance b/d
General Ledger
Adjustment A/c
Work in Process A/c
(`)
9,000
48,000
24,000
Particulars
By
By
By
By
(`)
Work in Process
Overhead Control A/c
Overhead Control A/c
48,000
6,000
1,800*
Balance c/d
25,200
81,000
(Deficiency)
81,000
*Deficiency assumed as normal (alternatively can be treated as abnormal loss)
Work in Progress Control A/c

Particulars
To Balance b/d
To Overheads Control a/c
(`)
18,000
48,000
18,000
72,000
Particulars
By Stores Ledger Control a/c

By Costing P/L A/c
(`)
24,000
1,20,000
(Balancing figures being Cost of

finished goods)
By
Balance c/d
1,56,000
12,000
1,56,000
Overheads Control A/c

Particulars

(`)
6,000
1,800
3,000
Particulars
By
By
Work in Process A/c

Balance c/d
(`)
72,000
13,800
(Under absorption)
(` 21,000- `18,000)
To Gen. Ledger Adjust. A/c
75,000
85,800
85,800
5.22
Cost Accounting
Particulars
(`)
To Work in progress
To Gen. Ledger Adjust. A/c
1,20,000
12,000
Particulars
(`)
1,32,000
By Gen. ledger Adjust. A/c

(Sales) (1,20,000+12,000)
(Profit)
1,32,000
1,32,000
Question-6
Journalise the following transactions assuming cost and financial accounts are integrated :
(`)
(i)
(ii)
Materials issued :
Direct
3,25,000
Indirect
1,15,000
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
Solution:
Journal Entries under Integrated system of accounting
Particulars
(i)
Work-in-Progress Ledger Control A/c

`
Dr.
3,25,000
Dr.
1,15,000
4,40,000
(Being issue of Direct and Indirect materials)

(ii)
Work-in Progress Ledger Control A/c
Dr.
4,87,500
Factory Overhead control A/c
Dr.
1,62,500
6,50,000
(Being allocation of Direct and Indirect wages)

(iii) Factory Overhead Control A/c
Dr.
2,50,000
5.23
2,50,000
(Being transfer of over absorption of Factory

overhead)
Dr.
1,75,000
To Administration Overhead Control A/c
1,75,000
(Being transfer of under absorption of

Administration overhead)
(iv) Sundry Creditors A/c
Dr.
1,50,000
To Cash/ Bank A/c
1,50,000
(Being payment made to creditors)

(v) Cash/ Bank A/c
Dr.
2,00,000
To Sundry Debtors A/c
2,00,000
(Being payment received from debtors)
Problem on Integrated Accounts

Question-7
BPR Limited keeps books on integrated accounting system. The following balances appear in the
books as on April 1, 2013.
Dr. (`)
40,950
38,675
52,325
1,47,875
27,300
9,975
(*Reserve & Surplus)

3,17,100
The transactions for the year ended March 31, 2014, were as given below:
Stores Control A/c

Work-in-progress A/c
Finished Goods A/c
Bank A/c
Trade Payables A/c
Non-Current Assets A/c
Trade Receivables A/c
Share Capital A/c
Provision for Depreciation A/c
Provision for Doubtful Debts A/c
Factory Overheads Outstanding A/c
Pre-Paid Administration Overheads A/c
Profit & Loss A/c*
Cr. (`)
22,750
18,200
1,82,000
11,375
3,725
6,250
72,800
3,17,100
5.24
Cost Accounting
Direct Wages
Indirect Wages
(`)
(`)
1,97,925
11,375
2,09,300
Purchase of materials (on credit)
2,27,500
2,50,250
Material issued for repairs
4,550
Goods finished during the year (at cost)
4,89,125
Credit Sales
6,82,500
Cost of Goods sold
5,00,500
Production overheads absorbed
1,09,200
Production overheads paid during the year
91,000
Production overheads outstanding at the end of year
7,775
Administration overheads paid during the year
27,300
Selling overheads incurred
31,850
Payment to Trade Payables
2,29,775
Payment received from Trade Receivables
6,59,750
Depreciation of Machinery
14,789
Administration overheads outstanding at the end of year
2,225
Provision for doubtful debts at the end of the year
4,590
Required:
Write up accounts in the integrated ledger of BPR Limited and prepare a Trial balance.
Solution
Stores Control A/c
Dr.
Cr.
(`)
To Balance b/d
To Trade Payables A/c
(`)
40,950 By WIP A/c

2,27,500 By Production overheads A/c
By Balance c/d
2,68,450
2,50,250
4,550
13,650
2,68,450
5.25
Wages Control A/c

Dr.
Cr.
(`)
To Bank (Direct wages)

To Bank (Indirect wages)
(`)
1,97,925 By Work-in-Progress A/c

11,375 By Production overheads A/c
2,09,300
1,97,925
11,375
2,09,300
Work-in-Progress A/c
Dr.
Cr.
(`)
To Balance b/d
(`)
38,675 By Finish goods A/c
To Stores control A/c
2,50,250
To Production overheads A/c
1,09,200
5,96,050
4,89,125
1,06,925
5,96,050
Production Overheads A/c

Dr.
Cr.
(`)
(`)
11,375 By WIP A/c
4,550 By Profit & Loss A/c
1,09,200
14,039
84,750 (Under-absorbed overheads
To Bank (` 91,000 ` 6,250)
Written off)
To Production overheads
outstanding
7,775
To Provision for depreciation
14,789
1,23,239
1,23,239
Production overhead incurred = Payment made + Closing Outstanding + Prov. for Depreciation Opening
Outstanding
Finished Goods A/c

Dr.
Cr.
(`)
To Balance b/d
52,325 By Cost of sales A/c
(`)
5,00,500
5.26
Cost Accounting
To Work-in-progress A/c
To Admin. overheads A/c
80,450
39,500
5,80,950
5,80,950
Administration Overheads A/c

Dr.
Cr.
(`)
To Pre-paid admin. overheads A/c
9,975 By Finished goods A/c
To Bank
(`)
39,500
27,300
To Admin. overheads outstanding
2,225
39,500
39,500
Cost of Sales A/c

Dr.
Cr.
(`)
To Finished goods A/c

To Selling overheads
5,00,500 To Sales A/c
(`)
5,32,350
31,850
5,32,350
5,32,350
Sales A/c
Dr.
Cr.
(`)
To Cost of sales A/c
5,32,350 By Trade Receivables A/c
To Profit & Loss A/c
1,50,150
6,82,500
(`)
6,82,500
6,82,500
Factory Overheads / Production Overheads Outstanding A/c

Dr.
Cr.
(`)
(`)
To Bank
6,250 By Balance b/d
6,250
To Balance c/d
7,775 By Production overheads
7,775
14,025
14,025
5.27
Prepaid Administration Overheads A/c

Dr.
Cr.
(`)
To Balance b/d
(`)
9,975 By Admin. overheads A/c
9,975
9,975
9,975
Provision for Depreciation A/c

Dr.
Cr.
(`)
To Balance c/d
(`)

By Production overheads A/c
26,164
11,375
14,789
26,164
Provision for Doubtful Debts A/c

Dr.
Cr.
(`)
To Balance c/d
(`)

By Profit & Loss A/c
4,590
3,725
865
4,590
Profit & Loss A/c

Dr.
Cr.
(`)
To Provision for doubtful debts
865 By Balance b/d
To Production overheads
To Balance c/d*
14,039 By Sales A/c
(`)
72,800
1,50,150
2,08,046
2,22,950
2,22,950
* Profit is transferred to Reserve & Surplus.

Dr.
Cr.
(`)
To Balance b/d
To Sales A/c
27,300 By Bank A/c

7,09,800
(`)
6,59,750
50,050
7,09,800
5.28
Cost Accounting
Trade Payables A/c
Dr.
Cr.
(`)
To Bank
To Balance c/d
(`)
18,200
15,925 By Stores control/Ac
2,27,500
2,45,700
2,45,700
Non Current Assets A/c

Dr.
Cr.
(`)
To Balance b/d
(`)
1,47,875 By balance c/d
1,47,875
Bank A/c
Dr.
Cr.
(`)
To Trade Receivables
(`)
22,750
By Direct wages
1,97,925
By Indirect wages
11,375
By Production overheads
91,000
(` 84,750 + `6,250)
By Admn. Overheads A/c
27,300
By Selling overheads A/c
31,850
By Trade Payables A/c
2,29,775
_______ By Balance c/d
47,775
6,59,750
6,59,750
Trial Balance
As on March 31, 2014
Stores control A/c

Work in Progress A/c
Dr.
Cr.
(`)
(`)
13,650
1,06,925
Finished goods A/c
80,450
Bank A/c
47,775
Trade Payables A/c
Non- current Assets A/c
5.29
15,925
1,47,875
50,050
Share capital A/c
1,82,000
Provision for depreciation A/c
26,164
Reserve & Surplus (Profit & Loss A/c)
2,08,046
Production overheads outstanding A/c
7,775
Outstanding administrative overheads A/c
2,225
Provision for doubtful debt
4,590
4,46,725
4,46,725
Reconciliation of Profits
Question-8
The financial books of a company reveal the following data for the year ended 31st March,
2014:
(`)
Opening Stock:
Finished goods 875 units
Work-in-process
01.04.2013 to 31.3.2014
Raw materials consumed
Direct Labour
Factory overheads
Administration overheads
Dividend paid
Bad Debts
Selling and Distribution Overheads
Interest received
Rent received
Sales 14,500 units
Closing Stock: Finished goods 375 units
Work-in-process
The cost records provide as under:
74,375
32,000
7,80,000
4,50,000
3,00,000
1,00,000
2,95,000
85,000
12,000
61,000
45,000
18,000
20,80,000
41,250
38,667
5.30
Cost Accounting
Factory overheads are absorbed at 60% of direct wages.
Administration overheads are recovered at 20% of factory cost.
Selling and distribution overheads are charged at ` 4 per unit sold.
Opening Stock of finished goods is valued at ` 104 per unit.
The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.
Required:
(i)
(ii)
Prepare statements for the year ended 31st March, 2014 show
the profit as per financial records
the profit as per costing records.
Present a statement reconciling the profit as per costing records with the profit as per
Financial Records.
Solution:
(i)
Statement of Profit as per financial records

OR
Profit & Loss Account of the company
(for the year ended March 31, 2014)
(`)
To Opening stock:
(`)
By Sales
Finished Goods
74,375 By Closing stock:
Work-in-process
32,000
20,80,000
Finished Goods
41250
Work-in-Process
38,667
To Raw materials consumed
7,80,000
To Direct labour
4,50,000 By Rent received
18,000
To Factory overheads
3,00,000 By Interest received
45,000
To Goodwill written off
1,00,000
To Administration overheads
2,95,000
To Selling & distribution overheads
61,000
To Dividend paid
85,000
To Bad debts
12,000
To Profit
33,542
22,22,917
22,22,917
5.31
Statement of Profit as per costing records

(for the year ended March 31,2014)
(`)
Sales revenue (14,500 units)
(A)
(`)
20,80,000
Cost of Sales:
Opening stock (875 units x ` 104)
Add: Cost of production of 14,000 units
91,000
17,92,000
(Refer to Working Note 1& 2)
` 17,92,000 375 units

Less: Closing stock
14,000 units
Production cost of goods sold (14,500 units)

Selling & distribution overheads (14,500 units x ` 4)
Cost of sales: (B)
(48,000)
18,35,000
58,000
18,93,000
Profit: {(A) (B)}

(ii)
18,93,000
1,87,000
Statement of Reconciliation
(Reconciling the profit as per costing records with the profit as per financial records)
(`)

Add: Admin. overheads over absorbed
(`)
1,87,000
3,667
(` 2,98,667 ` 2,95,000)
Opening stock overvalued (` 91,000 ` 74,375)

Interest received
Rent received
Less: Factory overheads under recovery
16,625
45,000
18,000
83,292
2,70,292
30,000
(` 2,98,667 ` 2,95,000)
Selling & distribution overheads under recovery
3,000
(` 61,000 ` 58,000)
Closing stock overvalued (` 48,000 ` 41,250)

Dividend
Bad debts
Profit as per financial accounts
6,750
1,00,000
85,000
12,000
2,36,750
33,542
5.32
Cost Accounting
Working Notes:
1.
Number of units produced
Sales
Add: Closing stock
Total
Less: Opening stock
Number of units produced
2.
Cost Sheet
Units
14,500
375
14,875
875
14,000
(`)
Raw materials consumed

Direct labour
Prime cost
Factory overheads (60% of direct wages)
Factory cost
Add: Opening work-in-process
Less: Closing work-in-process
Factory cost of goods produced
Administration overheads (20% of factory cost)
Cost of production of 14,000 units
TotalCost of Pr oduction ` 17,92,000
=
= ` 128
Cost of production per unit: =
No.of unitsproduced
14,000units
(`)
7,80,000
4,50,000
12,30,000
2,70,000
15,00,000
32,000
38,667
14,93,333
2,98,667
17,92,000
Question-9
A manufacturing company disclosed a net loss of ` 3,47,000 as per their cost accounts for the
year ended March 31,2014. The financial accounts however disclosed a net loss of
` 5,10,000 for the same period. The following information was revealed as a result of 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

(viii) Transfer fees (credit in financial books)
2,45,000
24,000
5.33
(ix) Stores adjustment (credit in financial books)
14,000
(x) Dividend received
32,000
Prepare a memorandum Reconciliation Account

Solution:
Memorandum Reconciliation Accounts
Dr.
Cr.
(`)
To
Net Loss as per Costing books
To
(`)
3,47,000
By
Administration overheads over

recovered in cost accounts
60,000
Factory overheads under

absorbed in Cost Accounts
40,000
By
Interest on investment not

included in Cost Accounts
96,000
To
Depreciation under charged in

Cost Accounts
50,000
By
Transfer fees in Financial books
24,000
To
Income-Tax not provided in Cost

Accounts
54,000
By
Stores adjustment
(Credit in financial books)
14,000
To
Interest on Loan Funds in

Financial Accounts
2,45,000
By
Dividend received in financial

books
32,000
By
Net loss as per Financial books
7,36,000
5,10,000
7,36,000
Question-10
The following figures have been extracted from the cost records of a manufacturing unit:
Stores: Opening balance
Purchases of material
Transfer from work-in-progress
Issues to work-in-progress
Issues to repair and maintenance
Deficiencies found in stock taking
Work-in-progress: Opening balance
Direct wages applied
Overheads applied
Closing balance of W.I.P.
(`)
32,000
1,58,000
80,000
1,60,000
20,000
6,000
60,000
65,000
2,40,000
45,000
Finished products: Entire output is sold at a profit of 10% on actual cost from work-inprogress. Wages incurred ` 70,000, overhead incurred ` 2,50,000.
5.34
Cost Accounting
Items not included in cost records: Income from investment ` 10,000, Loss on sale of capital
assets ` 20,000.
Draw up Store Control account, Work-in-progress Control account, Costing Profit and Loss
account, Profit and Loss account and Reconciliation statement.
Solution:
(A) Costing books
Stores Control Account
Particulars
(`)
To Balance b/d
To Work in progress control A/c
Particulars
(`)
32,000 By W.I.P. Control A/c

1,58,000 By Work overhead control A/c
80,000 By Costing Profit and Loss A/c
By Balance c/d
2,70,000
1,60,000
20,000
6,000
84,000
2,70,000
W.I.P. Control Account

Particulars
(`)
To Balance b/d
Particulars
(`)
60,000 By Stores control A/c
80,000
1,60,000 By Costing profit and loss A/c
4,00,000
(Cost of sales)
To Direct wages control A/c

To Works overhead control A/c
65,000
45,000
5,25,000
5,25,000
Works Overhead Control Account

Particulars
(`)

To Store ledger control A/c
Particulars
(`)
2,50,000 By W.I.P. Control A/c

20,000 By Costing profit & loss A/c
2,40,000
30,000
(under recovery)
2,70,000
2,70,000
Costing Profit & Loss Account

Particulars
To W.I.P. control A/c (Cost of

sales)
To Works overhead control A/c
(`)
Particulars
(`)
4,00,000 By General ledger

adjustment A/c
30,000 Cost of sales
4,00,000
To Stores control A/c (shortage)
6,000 10% profit
To Profit
4,000
40,000
4,40,000
5.35
4,40,000
4,40,000
(B) Financial Books

Profit & Loss Account
Particulars
(`) Particulars
To Opening stock
(`)
By Sales
Stores
32,000
W.I.P.
60,000
To Purchases
4,40,000
By Closing stock:
92,000
Stores
84,000
W.I.P.
45,000
1,29,000
1,58,000 By Income from investment
10,000
To Wages incurred
70,000 By Loss
To Overheads incurred
11,000
2,50,000
To Loss on sale of capital assets
20,000
5,90,000
5,90,000
Reconciliation statement
(`)
(`)
4,000
Add: Income from investment recorded in Financial accounts
10,000
14,000
Less: Under absorption of wages in Cost accounts
Loss on sales of capital asset only included in Financial accounts

Loss as per Financial accounts
5,000
20,000
25,000
11,000
Question-11
The following is the Trading and Profit & Loss Account of Omega Limited:
Dr.
Cr.
Particulars
(`)
Particulars
(`)
To Materials consumed
23,01,000
By Sales (30,000 units)
48,75,000
To Direct wages
12,05,750
By Finished goods Stock

(1,000 units)
1,30,000
5.36
Cost Accounting
To Production Overheads
6,92,250
By Work-in-progress:
To Administration Overheads
3,10,375
Materials
55,250
To Selling and Distribution Overheads
3,68,875
Wages
26,000
Production Overheads
16,250
To Preliminary Expenses written off
22,750
To Goodwill written off
45,500
To Fines
3,250
To Interest on Mortgage
13,000
To Loss on Sale of machine
16,250
To Taxation
1,95,000
To Net Profit for the year
3,83,500
By Dividends received
By Interest on bank deposits
55,57,500
97,500
3,90,000
65,000
55,57,500
Omega Limited manufactures a standard unit.

The Cost Accounting records of Omega Ltd. show the following:
(i)
Production overheads have been charged to work-in-progress at 20% on Prime cost.
(ii)
Administration Overheads have been recovered at ` 9.75 per finished Unit.
(iii) Selling & distribution Overheads have been recovered at ` 13 per Unit sold.
(iv) The Under- or Over-absorption of Overheads has not been transferred to costing P/L A/c.
Required:
(i)
Prepare a proforma Costing Profit & Loss account, indicating net profit.
(ii)
Prepare Control accounts for Production overheads, Administration Overheads and

Selling & Distribution Overheads.
(iii) Prepare a statement reconciling the profit disclosed by the Cost records with that shown
in Financial accounts.
Solution:
(i)

(`)
Materials
Wages
Prime Cost
Production overheads (20% of Prime Cost)
Less:
Work in Progress
Manufacturing cost incurred during the period
23,01,000
12,05,750
35,06,750
7,01,350
42,08,100
97,500
41,10,600
Add:
Less
Add
Administration Overheads (`9.75 x 31,000 units)

Cost of Production
Closing Finished goods stock( ` 44,12,850
3,02,250
44,12,850
1,42,350
1,000
31,000
Cost of Goods Sold

Selling & Distribution Overheads (`13 30,000 units)
Cost of Sales
Profit (Balancing figure)
Sales
(ii)
5.37
42,70,500
3,90,000
46,60,500
2,14,500
48,75,000
Production OH A/c
(`)
To Gen ledger Adj. A/c
(`)
6,92,250 By WIP A/c
To Overhead adj. A/c
7,01,350
9,100
(Over-absorption)
7,01,350
7,01,350
Administration Overheads A/c

(`)
To Gen Ledger Adj. A/c
(`)
3,10,375 By Finished goods A/c

By Overhead adj. A/c
3,02,250
8,125
(Under-absorption)
3,10,375
Selling & Distribution Overheads A/c
3,10,375
(`)
To Gen. Ledger Adj A/c

To Overhead Adj. A/c
(`)
3,68,875 By Cost of Sales A/c

21,125
3,90,000
(Over-absorption)
3,90,000
Reconciliation Statement
(iii)
3,90,000
(`)
Add:
Profits as per cost accounts

Production Overheads- over absorbed
Selling & Distribution Overheads- over absorbed
Dividend received
Interest on bank deposits
(`)
2,14,500
9,100
21,125
3,90,000
65,000
4,85,225
6,99,725
5.38
Cost Accounting
Less:
Administration Overheads- under-absorbed

Preliminary exp. Written off
Fines
Interest on Mortgage
Loss on sale of machinery
Taxation
Write-down of Finished stock (`1,42,350 `1,30,000)
Profit as per Financial Accounts
8,125
22,750
45,500
3,250
13,000
16,250
1,95,000
12,350
(3,16,225)
3,83,500
Question-12
ABC Ltd. has furnished the following information from the financial books for the year ended
31st March, 2014:
Profit & Loss Account
(`)
To
Opening stock (500 units at

` 140 each)
To
Material consumed
To
Wages
To
Gross profit c/d
(`)
70,000
By
Sales (10,250 units)
10,40,000
By
Closing stock
6,00,000
(250 units at ` 200 each)
28,70,000
50,000
12,10,000
29,20,000
29,20,000
To
Factory overheads
3,79,000
By
Gross profit b/d
To
Administration overheads
4,24,000
By
Interest
To
Selling expenses
2,20,000
By
Rent received
To
Bad debts
16,000
To
Preliminary expenses
20,000
To
Net profit
12,10,000
1,000
40,000
1,92,000
12,51,000
12,51,000
The cost sheet shows the cost of materials at ` 104 per unit and the labour cost at ` 60 per
unit. The factory overheads are absorbed at 60% of labour cost and administration overheads
at 20% of factory cost. Selling expenses are charged at ` 24 per unit. The opening stock of
finished goods is valued at ` 180 per unit.
You are required to prepare:
(i)
A statement showing profit as per Cost accounts for the year ended 31st March, 2014;
and
(ii)
5.39
A statement showing the reconciliation of profit as disclosed in Cost accounts with the
profit shown in Financial accounts.
Solution:
(i)
Statement of Profit as per Cost Accounts
Opening stock @ ` 180 per unit

Cost of production @ ` 240 per unit
(Refer Working Note 1)
Total
Less: Closing stock @ ` 240 per unit
Selling expenses @ ` 24 per unit
Cost of sales
Profit (Balancing figure)
Sales
Units
(`)
500
90,000
10,000
10,500
(250)
10,250
24,00,000
24,90,000
(60,000)
24,30,000
2,46,000
26,76,000
1,94,000
28,70,000
10,250
Working Notes:
(i)
Statement of Cost (10,000 units)

Total cost (`)
Cost per unit (`)
10,40,000
104.00
Wages
6,00,000
60.00
Factory Overhead 60% of wages
3,60,000
36.00
20,00,000
200.00
4,00,000
40.00
24,00,000
240.00
Materials
Factory cost
Administrative overhead 20% of factory cost
Total cost
(ii)
Statement of Differences between the two set of accounts:

Financial A/c (`)
Cost A/c (`)
Difference (`)
Factory overhead
3,79,000
3,60,000
19,000
Under recovery
Administrative
overhead
4,24,000
4,00,000
24,000
Under recovery
Selling expenses
2,20,000
2,46,000
26,000
Over recovery
Opening stock
70,000
90,000
20,000
Over recovery
Closing stock
50,000
60,000
10,000
Over recovery
Remarks (`)
5.40
Cost Accounting
(ii)
(`)
Profit as per cost accounts

Add: Over-recovery of selling overhead in Cost A/c
Add: Over-valuation of opening stock in Cost A/c
Add: Income excluded from Cost A/c
Interest
Rent
Less: Under recovery of Overhead in Cost A/c
Factory Overhead
Administrative Overhead
Less: Over-valuation of closing stock in Cost A/c
Less: Expenses excluded from Cost A/c
Bad debts
Profit as per financial account
1,94,000
26,000
20,000
1,000
40,000
19,000
24,000
16,000
20,000
41,000
(43,000)
(10,000)
(36,000)
1,92,000
Question-13
The following figures have been extracted from the cost records of a manufacturing company:
(`)
Stores :
Opening Balance
63,000
Purchases
3,36,000
Transfer from Work-in-progress
1,68,000
Issues to Work-in-progress
3,36,000
Issues to Repairs and Maintenance
42,000
Deficiencies found in Stock taking
12,600
Work-in-progress:
Opening Balance
1,26,000
Direct Wages applied
1,26,000
Overhead Applied
5,04,000
Closing Balance
Finished Products:
84,000
5.41
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
Solution:
(`)
To
To
To
Balance c/d
General Ledger Adjustment A/c
Work-in-progress A/c
(`)
63,000 By
3,36,000 By
1,68,000 By
Work-in-progress
Overhead A/c
Overhead A/c
3,36,000
42,000
(Deficiency Assumed as
Normal)
By
Balance c/d
5,67,000
12,600
1,76,400
5,67,000
Work-in-Progress Control Account

(`)
(`)
To
Balance b/d
1,26,000 By
Stores
Ledger
Control A/c
1,68,000
To
3,36,000 By
Costing Profits &

Loss
A/c
8,40,000
(Finished goods at
cost Balancing figure)
To
Wages Control A/c
1,26,000 By
To
Overhead A/c (applied)
5,04,000
Balance c/d
10,92,000
84,000
10,92,000
Costing Profit and Loss Account

(`)
To
Work-in-Progress A/c
8,40,000 By
(`)
General Ledger
Adjustment A/c Sales
(` 8,40,000 + ` 84,000)
To
General Ledger
Adjustment A/c (Profit)
9,24,000
84,000
9,24,000
9,24,000
5.42
Cost Accounting
Financial Profit and Loss Account
(`)
To
Opening Stock
Stores
WIP
63,000
1,26,000
1,89,000
(`)
By
Sales
9,24,000
By
Income from
investment
To
Purchases
3,36,000 By
Closing Stock
To
Wages
1,47,000
Stores
To
Overhead
5,25,000
WIP
To
Loss on sale of fixed assets
42,000 By
21,000
1,76,400
84,000
Loss
2,60,400
33,600
12,39,000
12,39,000
(`)
Profit as per Cost Account
84,000
Add: Income from investment
21,000
1,05,000
Less: Under absorption of overhead
96,600
42,000
Loss as per financial account
1,38,600
33,600
Note: Deficiency in stock taking may be treated as abnormal loss and it can be transferred from stores
ledger Control Account to Costing Profit and Loss Account. Then consequential changes in accounting
entries in overheads Control Account has to be done.
Working Notes:
Overheads Control Account
(`)
(`)
To
42,000 By
Work-in-Progress
To
12,600 By
Balanced c/d
To
Wages Control A/c

Indirect Wages
(`1,47,000 `1,26,000)
To
General Ledger Adjustment A/c
96,600
21,000
5,25,000
6,00,600
5,04,000
6,00,600
5.43
Question-14
A manufacturing company has disclosed a net loss of ` 2,13,000 as per their cost accounting
records for the year ended March 31, 2014. However, their financial accounting records
disclosed a net loss of ` 2,58,000 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
Prepare a Memorandum Reconciliation Account.

Solution:
Memorandum Reconciliation Account
Particulars
To
Net loss as per Costing

books
To
Factory overheads under

absorbed
(`)
Particulars
2,13,000 By
Administrative overhead
over absorbed in costs
5,000 By
Depreciation over charged in

Cost books (`80,000
(`)
3,000
10,000
`70,000)
Interest on investments not

included in Cost books
To
Income tax not provided

in Cost books
To
written off in Financial
books
3,000 By
Transfer fees not considered

in Cost books
To
Over-valuation of Closing
Stock of finished goods in
Cost books
7,000 By
Net loss as per Financial

books
65,000 By
2,93,000
20,000
2,000
2,58,000
2,93,000
5.44
Cost Accounting
Question-15
You are given the following information of the cost department of a manufacturing company:
(`)
Stores:
Opening Balance
12,60,000
Purchases
67,20,000
Transfer from work-in-progress
33,60,000
Issue to work-in-progress
67,20,000
Issue to repairs and maintenance
8,40,000
Shortage found in stock taking
2,52,000
Work-in-progress:
Opening Balance
25,20,000
Direct wages applied
25,20,000
Overhead applied
90,08,000
Closing Balance
15,20,000
Finished products:
Entire output is sold at a profit of 12% on actual cost from work-in-progress.
Other information:
(`)
Wages incurred
29,40,000
Overhead incurred
95,50,000
Income from Investment
4,00,000
8,40,000
Shortage in stock taking is treated as normal loss.

You are require to prepare:
(i)
Stores control account;
(ii)
Work-in-progress control account;
(iii) Costing Profit and Loss account;

(iv) Profit and Loss account and
(v) Reconciliation statement
5.45
Solution:
(a)
Stores Leger Control Account
Dr.
Cr.
(`)
(`)
To Balance b/d
12,60,000 By Work-in-progress control A/c
To General ledger
adjustment A/C
67,20,000 By Overhead control A/c
8,40,000
To Work-in progress
Control A/c
33,60,000 By Overhead control A/c

(Shortage)
2,52,000
By Balance c/d
67,20,000
35,28,000
1,13,40,000
1,13,40,000
W.I.P Control A/c
Dr.
Cr.
(`)
(`)
To Balance b/d
25,20,000 By Stores ledger control

A/c

To Direct wages Control A/c
67,20,000 By Costing P&L A/c (Cost

25,20,000 of Sales) (Balancing
figure)
To Overhead control A/c
33,60,000
1,58,88,000
15,20,000
2,07,68,000
2,07,68,000
Costing Profit and Loss A/c
Dr.
Cr.
(`)
To W.I.P Control A/c

To General ledger Adj. A/c
(Profit)
1,58,88,000 By General
Ledger Adj. A/c
19,06,560
Cost of sales
Add 12%Profit
1,77,94,560
(`)
1,58,88,00
0
19,06,560
1,77,94,560
1,77,94,560
5.46
Cost Accounting
Financial Profit and Loss A/c
Dr.
Cr.
(`)
To Opening stock : 12,60,000

Stores
W.I.P
25,20,000
To Purchases
To Wages
To Overhead
To Loss on sale of
fixed assets
(`)
(`)
By Sales
37,80,000 By Income from
investment
67,20,000 By Closing
stock:
29,40,000 Stores
W.I.P
95,50,000 By loss
(`)
1,77,94,560
4,00,000
35,28,000
15,20,000
8,40,000
2,38,30,000
50,48,000
5,87,440
2,38,30,000
Cr.
Dr.
(`)

Add: Income from investments
(`)
19,06,560
4,00,000
23,06,560
Less : Loss on sale of fixed assets

Under absorption of overheads (Refer to Working Note)
8,40,000
20,54,000
Loss as per Financial Accounts
28,94,000
5,87,440
Working Notes:
Overhead Control Account
Dr.
Cr.
(`)
To General Ledger Adj. A/c

(`)
9550000 By W.I.P control A/c

252000 By Balance c/d (under
90,08,000
20,54,000
absorption of overheads)

To Wages control A/c Indirect
wages (` 29,40,000- `25,20,000)
8,40,000
4,20,000
1,10,62,000
1,10,62,000
5.47
Question-16
R Limited showed a net loss of ` 35,400 as per their cost accounts for the year ended 31st
March, 2014. 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:
(`)
(i)
Administrative overhead under recovered
(ii)
Factory overhead over recovered
25,500
1,35,000
(iii) Depreciation under charged in Cost Accounts
26,000
(iv) Dividend received
20,000
(v)
16,800
Loss due to obsolescence charged in Financial Accounts
(vi) Income tax provided
43,600
(vii) Bank interest credited in Financial Accounts
13,600
(viii) Value of opening stock:

In Cost Accounts
1,65,000
In Financial Accounts
1,45,000
(ix) Value of closing stock:
(x)
In Cost Accounts
1,25,500
In Financial Accounts
1,32,000
Goodwill written-off in Financial Accounts
25,000
(xi) Notional rent of own premises charged in Cost Accounts
60,000
(xii) Provision for doubtful debts in Financial Accounts
15,000
Prepare a reconciliation statement by taking costing net loss as base.

Answer
Statement of Reconciliation
Sl. No.
1.
2.
Particulars
Net loss as per Cost Accounts

Additions
Factory O/H over recovered
Dividend Received
Amount (`)
Amount (`)
(35,400)
1,35,000
20,000
5.48
3.
4.
5.
6.
1.
2.
3.
4.
5.
6.
Cost Accounting
Bank Interest received

Difference in Value of Opening Stock
(1,65,000 1,45,000)
Difference in Value of Closing Stock
(1,32,000 1,25,500)
Notional Rent of own Premises
Deductions
Administration O/H under recovered
Depreciation under charged
Loss due to obsolescence
Income tax Provided
Goodwill written-off
Provision for doubtful debts
Net Profit as per Financial A/c.
13,600
20,000
6,500
60,000
25,500
26,000
16,800
43,600
25,000
15,000
2,55,100
(1,51,900)
67,800

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5

A system of accounting where both costing and financial transactions

The Institute of Chartered Accountants of India

This account is debited with indirect costs of production such as

This account is debited with the total cost of production, which

This account is debited with overhead incurred and credited with

This account is debited with Selling and Distribution Overhead

The Institute of Chartered Accountants of India

This account is to be debited for under-recovery of overhead and

Items included (a) Purely Financial Expenses :

Interest received on bank deposits, loans and investments.

Charges in lieu of rent where premises are owned.

The Institute of Chartered Accountants of India

Profit as per Cost Accounts

The Institute of Chartered Accountants of India

Preliminary Expenses / Discount

At the time of purchase

When wages paid to workers

The Institute of Chartered Accountants of India

When production overheads incurred

When selling and distribution overheads incurred

In case of over absorption of overheads

Dr. Cost Ledger Control A/c

The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India

Centralization of accounting function results in economy.

Items included in financial accounts but not in cost accounts

Goodwill / preliminary expenses written off

Pure financial items

Losses on sale of investments

Expenses of Cos share transfer office

Damages & penalties

Items included in cost accounts but not in financial accounts

Opportunity cost of capital

The Institute of Chartered Accountants of India

(iii) Under / Over absorption of expenses in cost accounts

(a) Profit on sale of assets

Loss on sale of assets

The Institute of Chartered Accountants of India

Interest on debentures and deposit

The Institute of Chartered Accountants of India

(iii) Under/Over absorbed overheads:

Direct ` 5,50,000; Indirect ` 1,50,000

The Institute of Chartered Accountants of India

Work-in-Progress Ledger Control A/c

Factory Overhead Control A/c

To Stores Ledger Control A/c

(Being issue of materials)

Work-in Progress Ledger Control A/c

Factory Overhead control A/c

To Wages Control A/c

(Being allocation of wages and salaries)

Factory Overhead Control A/c

To Costing Profit & Loss A/c

(Being transfer of over absorption of overhead)

To Administration Overhead Control A/c

(Being transfer of under absorption of overhead)

Transactions for the quarter ended 30.06.2013 are as under: