5

Non Integrated Accounting

Question 1
Why is it necessary to reconcile the Profits between the Cost Accounts and Financial
Accounts? (5 Marks, May 2004), (6 Marks, May 2006), (2 Marks, November 2009)
Answer
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) Items included in financial accounts but not in cost accounts Appropriation of profits
 Income-tax
 Transfer to reserve
 Dividends paid
 Goodwill / preliminary expenses written off
 Pure financial items
 Interest, dividends
 Losses on sale of investments
 Expenses of Co’s share transfer office
 Damages & penalties
(ii) Items included in cost accounts, but not in financial accounts
 Opportunity cost of capital
 Notional rent
(iii) Under / Over absorption of expenses in cost accounts

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 5.2 Cost Accounting

(iv) Different bases of inventory valuation

Motivation for reconciliation are:
 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 2
Discuss the limitations of Uniform costing. (2 Marks, November 2004)
(Out of Syllabus for the student of Intermediate (IPC), shifted to Advanced Management
Accounting, Chartered Accountancy Final Course)
Answer
Limitations of Uniform Costing
(i) Sometimes it is not possible to adopt uniform standards, methods, and procedures of
costing in different firms due to differing circumstances in which they operate.
(ii) Many firms do not wish to share cost information and other data with their competitors.
(iii) Small firms believe that uniform costing is beneficial only in case of large firms.
(iv) It induces monopolistic trend in the business, due to which prices may be increased
artificially and supplies withheld.
Question 3
The following figures have been extracted from the cost records of a manufacturing unit:
`
Stores: Opening balance 32,000
Purchases of material 1,58,000
Transfer from work-in-progress 80,000
Issues to work-in-progress 1,60,000
Issues to repair and maintenance 20,000
Deficiencies found in stock taking 6,000
Work-in-progress: Opening balance 60,000
Direct wages applied 65,000
Overheads applied 2,40,000
Closing balance of W.I.P. 45,000
Finish products: Entire output is sold at a profit of 10% on actual cost from work-in-progress.
Wages incurred ` 70,000, overhead incurred ` 2,50,000.

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 Non Integrated Accounting 5.3

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. (13 Marks, May 2005)
Answer
(A) Costing books

Stores Control Account

Particulars ` Particulars `
To Balance b/d 32,000 By W.I.P. Control A/c 1,60,000
To General ledger adjustment 1,58,000 "Work overhead control A/c 20,000
A/c
To Work in progress control 80,000 "Costing Profit and Loss A/c 6,000
A/c
"Balance c/d 84,000
2,70,000 2,70,000

W.I.P. Control Account

Particulars ` Particulars `
To Balance b/d 60,000 By Stores control A/c 80,000
To Stores control A/c 1,60,000 By Costing profit and loss A/c
To Direct wages control A/c 65,000 (Cost of sales) 4,00,000
To Works overhead control 2,40,000 By Balance c/d 45,000
A/c
5,25,000 5,25,000
Works overhead control account
Particulars ` Particulars `
To General ledger 2,50,000 By W.I.P. Control A/c 2,40,000
adjustment A/c
To Store ledger control A/c 20,000 By Costing profit & loss A/c 30,000
(under recovery)
2,70,000 2,70,000
Costing Profit & Loss Account
Particulars ` Particulars ` `
To W.I.P. control A/c (Cost 4,00,000 By General ledger

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 5.4 Cost Accounting

of sales) adjustment A/c

Cost of sales 4,00,000
10% profit 40,000 4,40,000
To Works overhead 30,000
control A/c
To Stores control A/c 6,000
(shortage)
To Profit 4,000
4,40,000 4,40,000

(B) Financial Books

Profit & Loss Account

Particulars ` ` Particulars ` `
To Opening stock By Sales 4,40,000
Stores 32,000 By Closing
stock:
To W.I.P. 60,000 92,000 By Stores 84,000
By W.I.P. 45,000 1,29,000
To Purchases 1,58,000 By Income from 10,000
investment
To Wages incurred 70,000 By Loss 11,000
To Overheads incurred 2,50,000
To Loss on sale of 20,000
capital assets
5,90,000 5,90,000

Reconciliation statement `
Profit as per cost accounts 4,000
Add: Income from investment recorded in financial accounts 10,000
14,000
Less: Under absorption of wages in cost accounts 5,000
Loss on sales of capital asset only included in financial 20,000 25,000
accounts
Loss as per financial accounts 11,000

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 Non Integrated Accounting 5.5

Question 4
Discuss the essential requisites for the installation of Uniform costing system.
(3 Marks, May 2005)
(Out of Syllabus for the student of Intermediate (IPC), shifted to Advanced Management
Accounting, Chartered Accountancy Final Course)
Answer
The Essential requisites for the installation of a Uniform Costing System are:
(i) The firms in the industry should be willing to share / furnish relevant data / information.
(ii) A spirit of cooperation and mutual trust should prevail among the participating firms.
(iii) Mutual exchange of ideas, methods used, special achievements made, research and
know-how etc. should be frequent.
(iv) Bigger firms should take the lead towards sharing their experience and know-how with
the smaller firms to enable the latter to improve their performance.
(v) Uniformity must be established with regard to several points before the introduction of
uniform costing in an industry. Uniformity should be with regard to the following points:
 Size of various units covered by uniform costing.
 Production methods.
 Accounting methods, principles and procedures used.
Question 5
What are the essential pre-requisites of integrated accounting system? Discuss.
(3 Marks, November 2006; November 2007)
Answer
Estimated Pre-requisites for integrated accounts:
(i) The management’s decision about the extent of integration of the two sets of books.
(ii) A suitable coding system must be made available so as to serve the accounting
purposes of financial and cost accounts.
(iii) An agreed routine, with regard to the treatment of provision for accruals, pre-paid
expenses, other adjustments necessary for preparation of interim accounts.
(iv) 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.

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 5.6 Cost Accounting

Question 6
What are the advantages of inter-firm comparison system? Discuss.
(4 Marks, November 2006)
(Out of Syllabus for the student of Intermediate (IPC), shifted to Advanced Management
Accounting, Chartered Accountancy Final Course)
Answer
Advantages of inter-firm comparison:
(i) Such a comparison gives an overall view of the industry as a whole to its members – the
present position of industry, progress made during the past and future of the industry.
(ii) It helps a concern in knowing its strengths or weaknesses in relation to others so that
remedial measures may be taken.
(iii) It ensures an unbiased specialized reporting on particular problems of the concern.
(iv) It develops cost consciousness among members of industry.
(v) It helps Government in effecting price regulation.
(vi) It helps to improve the quality of products manufactured and to reduce the cost of
production. It is thus, advantageous to the industry as well as to the society.
Question 7
Enumerate the factors which cause difference in profits as shown in Financial Accounts and
Cost Accounts. (3 Marks, May 2007)
Answer
Causes of difference:
(a) Items included in financial accounts but not in cost accounts such as:
Interest received on bank deposits, loss/profit on sale of fixed assets and investments,
dividend, rent received.
(b) Items included in cost accounts on notional basis such as rent of owned building, interest
on own capital etc.
(c) Items whose treatment is different in the two sets of accounts such as inventory
valuation.
Question 8
As of 31st March, 2008, the following balances existed in a firm’s cost ledger, which is
maintained separately on a double entry basis:
Debit Credit
` `
Stores Ledger Control A/c 3,00,000 

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 Non Integrated Accounting 5.7

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:
`
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
Materials issued to production 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-in-
progress 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.
(15 Marks, May 2008)
Answer Cost Ledger Control Account
Dr. Cr.
` `
To Store Ledger Control A/c 13,000 By Opening Balance 6,85,000
To Balance c/d 9,42,000 By Store ledger control A/c 1,25,000
By Manufacturing Overhead
Control A/c 85,000
By Wages Control A/c 60,000
9,55,000 9,55,000

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 5.8 Cost Accounting

Stores Ledger Control Account

Dr. Cr.
` `
To Opening Balance 3,00,000 By WIP Control A/c 1,35,000
To Cost ledger control A/c 1,25,000 By Cost ledger control A/c
(Returns) 13,000
By Balance c/d 2,77,000
4,25,000 4,25,000
WIP Control Account
Dr. Cr.
` `
To Opening Balance 1,50,000 By Finished Stock Ledger 2,25,000
Control A/c
To Wages Control A/c 40,000 By Balance c/d 1,85,000
To Stores Ledger Control A/c 1,35,000
To Manufacturing Overhead
Control A/c 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 9,000
Return)
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 5,000
1,05,000 1,05,000

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 Non Integrated Accounting 5.9

Wages Control Account

Dr. Cr.
` `
To Transfer to Cost Ledger By WIP Control A/c 40,000
Control A/c 60,000
By Manufacturing Overhead
Control A/c 20,000
60,000 60,000
Cost of Sales Account
Dr. Cr.
` `
To Finished Stock Ledger By Finished Stock Ledger
Control A/c 1,75,000 Control A/c (Sales return) 9,000
By Balance c/d 1,66,000
1,75,000 1,75,000

Trial Balance
` `
Stores Ledger Control A/c 2,77,000
WIP Control A/c 1,85,000
Finished Stock Ledger Control A/c 3,09,000
Manufacturing Overhead Control A/c 5,000
Cost of Sales A/c 1,66,000
Cost ledger control A/c -- 9,42,000
9,42,000 9,42,000
Question 9
A manufacturing company has disclosed a net loss of ` 2,13,000 as per their cost accounting
records for the year ended March 31, 2009. 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

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 5.10 Cost Accounting

(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 7,000
accounts
Prepare a Memorandum Reconciliation Account. (7 Marks, May 2009)
Answer
Memorandum Reconciliation Account
Particulars ` Particulars `
To Net loss as per costing 2,13,000 By Administrative overhead 3,000
books over absorbed in costs
To Factory overheads under 5,000 By Depreciation over charged 10,000
absorbed in cost books (80,000 –
70,000)
To Income tax not provided 65,000 By Interest on investments 20,000
in cost books not included in cost books
To Preliminary expenses 3,000 By Transfer fees not 2,000
written off in financial considered in cost books
books
To Over-valuation of Closing 7,000 By Net loss as per financial 2,58,000
Stock of finished goods in books
cost books
2,93,000 2,93,000
Question 10
List the Financial expenses which are not included in cost. (2 Marks, November, 2009)
Answer
Financial expenses which are not included in cost accounting are as follows:
 Interest on debentures and deposit
 Gratuity
 Pension
 Bonus of Employee,

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 Non Integrated Accounting 5.11

 Income Tax,
 Preliminary Expenses
 Discount on issue of Share
 Underwriting Commissions.
Question 11
What are the main advantages of Integrated accounts? (2 Marks, May 2010), (4 Marks, May 2012)
Answer
Integrated Accounts is the name given to a system of accounting, whereby cost and financial
accounts are kept in the same set of books. There will be no separate sets of books for
Costing and Financial records. Integrated accounts provide or meet out fully the information
requirement for Costing as well as for Financial Accounts.
Advantages: The main advantages of Integrated Accounts are as follows:
(a) No need for Reconciliation- The question of reconciling costing profit and financial profit
does not arise, as there is one figure of profit only.
(b) Less efforts- Due to use of one set of books, there is a significant extent of saving in
efforts made.
(c) Less Time consuming- No delay is caused in obtaining information as it is provided from
books of original entry.
(d) Economical process- It is economical also as it is based on the concept of “Centralisation
of Accounting function”.
Question 12
A manufacturing company has disclosed a net loss of ` 8,75,000 as per their cost accounting
records for the year ended March 31, 2010. However, their financial accounting records
disclosed a net loss of ` 7,19,250 for the same period. A scrutiny of the data of both the sets
of books of accounts revealed the following information:
`
(i) Factory overheads over-absorbed 47,500
(ii) Administration overheads under-absorbed 32,750
(iii) Depreciation charged in Financial Accounts 2,25,00
(iv) Depreciation charged in Cost Accounts 2,42,250
(v) Interest on investments not included in Cost Accounts 62,750
(vi) Income Tax provided in Financial Accounts 7,250
(vii) Transfer fees (credit in Financial Accounts) 12,500

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 5.12 Cost Accounting

(viii) Preliminary expenses written off 27,500

(ix) Under-valuation of opening stock in Cost Accounts 6,250
(x) Under valuations of closing stock in Cost Accounts’ 17,500
Required :
Prepare a Memorandum Reconciliation A/c (8 Marks, November, 2010)
Answer
` `
Net Loss as per Cost Accounting Records 8,75,000
Add: Factory overheads over absorbed 48,500
Excess charge of depreciation in Cost Accounting 17,250
Interest on Investments not included in Cost 62,750
Accounting
Transfer fees 12500
Under-valuation of cost stock in Cost Accounts 17,500 1,57,500
(7,17,500)
Less: Administration overheads under absorbed 32,750
Income Tax provided in financial accounts 7,250
Preliminary expenses written off 27,500
Under-valuation of opening stock in Cost Accounts 6,250 73,750
Net Loss as per Financial Accounting Records (7,91,250)
Question 13
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

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 Non Integrated Accounting 5.13

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
Loss on sale of fixed assets 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 (12 Marks, May 2011)
Answer
Stores Leger Control Account
Dr. Cr.
` `
To Balance b/d 12,60,000 By Work-in-progress control A/c 67,20,000
To General ledger 67,20,000 By Overhead control A/c 8,40,000
adjustment A/C
To Work-in progress 33,60,000 By Overhead control A/c 2,52,000
Control A/c (Shortage)
By Balance c/d 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 33,60,000
To Stores ledger control A/c 67,20,000 By Costing P&L A/c (Cost of 1,58,88,000
To Direct wages Control A/c 25,20,000 Sales) (Balancing figure)
To Overhead control A/c 90,08,000 BY Balance c/d 15,20,000
2,07,68,000 2,07,68,000

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 5.14 Cost Accounting

Costing Profit and Loss A/c

Dr. Cr.
` ` `
To W.I.P Control A/c 1,58,88,000 By General Ledger
To General ledger Adj. 19,06,560 Adj. A/c
A/c (Profit) Cost of sales 1,58,88,000
Add 12%Profit
19,06,560 1,77,94,560
1,77,94,560 1,77,94,560
Financial Profit and Loss A/c
Dr. Cr.
` ` ` `
To opening stock : 12,60,000 By Sales 1,77,94,560
Stores
W.I.P 25,20,000 37,80,000 By Income from 4,00,000
investment
To Purchases 67,20,000 By Closing
stock:
To Wages 29,40,000 Stores 35,28,000
W.I.P 15,20,000 50,48,000
To Overhead 95,50,000 By Loss 5,87,440
To Loss on sale of 8,40,000
fixed assets
2,38,30,000 2,38,30,000
Reconciliation Statement
` `
Profit as per Cost Accounts 19,06,560
Add: Income from investments 4,00,000
23,06,560
Less : Loss on sale of fixed assets 8,40,000
Under absorption of overheads (working note) 20,54,000 28,94,000
Loss as per Financial Accounts 5,87,440

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 Non Integrated Accounting 5.15

Working Notes:
Overhead Control Account
Dr. Cr.
` `
To General Ledger Adj. A/c 9550000 By W.I.P control A/c 90,08,000
To Stores Ledger Control A/c 252000 By Balance c/d 20,54,000
(under absorption of
overheads)
To Stores ledger control A/c 8,40,000
To Wages control A/c Indirect 4,20,000
wages (` 29,40,000-25,20,000)
1,10,62,000 1,10,62,000
Question 14
The following information have been extracted from the cost records of a manufacturing
company:
`
Stores
* Opening balance 9,000
* Purchases 48,000
* Transfer from WIP 24,000
* Issue to work-in-progress 48,000
* Issue for repairs 6,000
* Deficiency found in stock 1,800
Work-in-Progress:
* Opening balance 18,000
* Direct Wages applied 18,000
* Overhead charged 72,000
* Closing balance 12,000
Finished Production :
* Entire production is sold at a profit of 10% on cost from work-in-
progress
* Wages paid. 21,000
* Overhead incurred 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. (8 Marks, November 2011)

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 5.16 Cost Accounting

Answer
Stores Ledger Control A/c
Particulars ` Particulars `
To Balance b/d 9,000 By Work in Process 48,000
To General Ledger 48,000 By Overhead Control A/c 6,000
Adjustment A/c By Overhead Control A/c 1,800*
To Work in Process A/c 24,000 (Deficiency )
By Balance c/d 25,200
81,000 81,000
*Deficiency assumed as normal (alternatively can be treated as abnormal loss)
Work in Progress Control A/c
Particulars ` Particulars `
To Balance b/d 18,000 By Stores Ledger Control a/c 24,000
To Stores Ledger Control 48,000 By Costing P/L a/c 1,20,000
A/c (Balancing figures being
To Wages Control A/c 18,000 Cost of finished goods)
To Overheads Control a/c 72,000 By Balance c/d 12,000

1,56,000 1,56,000
Overheads Control A/c
Particulars ` Particulars `
To Stores Ledger Control A/c 6,000 By Work in Process 72,000
To Stores Ledger Control A/c 1,800 A/c 13,800
To Wages Control A/c 3,000 By Balance c/d
(21,000-18000) (Under
To General Ledger Adjustment 75,000 absorption)
A/c
85,800 85,800
Costing Profit & Loss A/c

Particulars ` Particulars `
To Work in progress 1,20,000 By General ledger 1,32,000
To General Ledger Adjustment A/c 12,000 Adjustment A/c (Sales)
(Profit) (1,20,000+12,000)

1,32,000 1,32,000

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 Non Integrated Accounting 5.17

Question 15
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:
(`)
(i) Administrative overhead under recovered 25,500
(ii) Factory overhead over recovered 1,35,000
(iii) Depreciation under charged in Cost Accounts 26,000
(iv) Dividend received 20,000
(v) Loss due to obsolescence charged in Financial Accounts 16,800
(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:
In Cost Accounts 1,25,500
In Financial Accounts 1,32,000
(x) 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.
(8 Marks, November 2012)
Answer
Statement of Reconciliation
Sl. Particulars Amount (`) Amount (`)
No.
Net loss as per Cost Accounts (35,400)
Additions
1. Factory O/H over recovered 1,35,000

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 5.18 Cost Accounting

2. Dividend Received 20,000

3. Bank Interest received 13,600
4. Difference in Value of Opening Stock 20,000
(1,65,000 – 1,45,000)
5. Difference in Value of Closing Stock 6,500
(1,32,000 – 1,25,500)
6. Notional Rent of own Premises 60,000 2,55,100
Deductions
1. Administration O/H under recovered 25,500
2. Depreciation under charged 26,000
3. Loss due to obsolescence 16,800
4. Income tax Provided 43,600
5. Goodwill written-off 25,000
6. Provision for doubtful debts 15,000 (1,51,900)
Net Profit as per Financial A/cs 67,800
Question 16
Journalise the following transactions assuming cost and financial accounts are integrated :
(`)
(i) Materials 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
(5 Marks, November, 2013)

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 Non Integrated Accounting 5.19

Answer
Journal Entries under Integrated system of accounting
Particulars ` `
(i) Work-in-Progress Ledger Control A/c Dr. 3,25,000
Factory Overhead Control A/c Dr. 1,15,000
To Stores Ledger Control A/c 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
To Wages Control A/c 6,50,000
(Being allocation of Direct and Indirect wages)
(iii) Factory Overhead Control A/c Dr. 2,50,000
To Costing Profit & Loss A/c 2,50,000
(Being transfer of over absorption of Factory
overhead)
Costing Profit & Loss A/c 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)
Question 17
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 informations:
`
(i) Factory overheads under absorbed 30,500

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 5.20 Cost Accounting

(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.
(4 Marks, May, 2014)
Answer
Memorandum Reconciliation Accounts
Dr. Cr.
Particulars Amount Particulars Amount
(`) (`)
To Net Loss as per Cost 48,700 By Administration overheads 65,000
Accounts over recovered in Cost
Accounts
To Factory overheads 30,500 By Depreciation overcharged 45,000
under absorbed in Cost in Cost Accounts
Accounts (` 2,70,000 – ` 2,25,000)
To Provision for Income tax 52,400 By Transfer fees in Financial 10,200
Accounts
To Obsolescence loss 20,700 By Notional Rent of own 54,000
premises
To Overvaluation of closing 9,500 By Overvaluation of Opening 23,000
stock in Cost stock in Cost Accounts*
Accounts**
To Net Profit (as per Financial 35,400
Accounts)
1,97,200 1,97,200

© The Institute of Chartered Accountants of India

 Non Integrated Accounting 5.21

* Overvaluation of Opening Stock as per Cost Accounts

= Value in Cost Accounts – Value in Financial Accounts
= ` 1,38,000 – ` 1,15,000 = ` 23,000.
** Overvaluation of Closing Stock as per Cost Accounts
= Value in Cost Accounts – Value in Financial Accounts
= ` 1,22,000 – ` 1,12,500 = ` 9,500.
Question 18
Following information have been extracted from the cost records of XYZ Pvt. Ltd:
`
Stores:
Opening balance 54,000
Purchases 2,88,000
Transfer from WIP 1,44,000
Issue to WIP 2,88,000
Issue for repairs 36,000
Deficiency found in stock 10,800

Work-in-progress: `
Opening balance 1,08,000
Direct wages applied 1,08,000
Overheads charged 4,32,000
Closing balance 72,000

Finished Production: `
Entire production is sold at a profit of 15% on cost at WIP
Wages paid 1,26,000
Overheads incurred 4,50,000
Draw the Stores Ledger Control Account, Work-in-Progress Control Account, Overheads
Control Account and Costing Profit and Loss Account. (8 Marks, November, 2014)
Answer
Stores Ledger Control A/c
Particulars (`) Particulars (`)
To Balance b/d 54,000 By Work in Process A/c 2,88,000
To General Ledger 2,88,000 By Overhead Control A/c 36,000

© The Institute of Chartered Accountants of India

 5.22 Cost Accounting

Adjustment A/c By Overhead Control A/c 10,800*

To Work in Process A/c 1,44,000 (Deficiency)
By Balance c/d 1,51,200
4,86,000 4,86,000
*Deficiency assumed as normal (alternatively can be treated as abnormal loss)
Work in Progress Control A/c
Particulars (`) Particulars (`)
To Balance b/d 1,08,000 By Stores Ledger Control a/c 1,44,000
To Stores Ledger Control A/c 2,88,000 By Costing P/L A/c 7,20,000
To Wages Control A/c 1,08,000 (Balancing figures being Cost
To Overheads Control a/c 4,32,000 of finished goods)
By Balance c/d 72,000
9,36,000 9,36,000
Overheads Control A/c
Particulars (`) Particulars (`)
To Stores Ledger Control A/c 36,000 By Work in Process A/c 4,32,000
To Stores Ledger Control A/c 10,800 By Balance c/d 82,800
To Wages Control A/c 18,000 (Under absorption)
(`1,26,000- `1,08,000)
To Gen. Ledger Adjust. A/c 4,50,000
5,14,800 5,14,800
Costing Profit & Loss A/c
Particulars (`) Particulars (`)
To Work in progress 7,20,000 By Gen. Ledger Adjust. A/c 8,28,000
To Gen. Ledger Adjust. A/c 1,08,000 (Sales) (` 7,20,000 × 115%)
(Profit)
8,28,000 8,28,000

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