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  • A Level Accounting Chapter 16 - BY - Macklean

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    A level Acounting chapter 16 H Randall

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    A level Acounting chapter 16 H Randall

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    159 visualizações22 páginas

    A Level Accounting Chapter 16 - BY - Macklean

    Enviado por

    Macklean Lionel
    A level Acounting chapter 16 H Randall

    Direitos autorais:

    © All Rights Reserved
    Baixe no formato PDF ou leia online no Scribd
    Sinalizar o conteúdo como inadequado
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    w Manufacturing accounts Chapter objectives ‘This topic tests your ability to: prepare the manufacturing, trading and profit and loss accounts of a manufacturing, éenlerpeisein good form ecognise ‘Prime Cost distinguish between factory overheads and other overheads ‘eat work in progress correctly account for manufacturing profit corecty provide for unrealised profit included inthe valuation of closing socks of finished goods disclose stocks of raw materials, workin progress and fnihed goods corectly in the balance shoot z a noooog 16.1. Manufacturing, trading and profit and loss accounts iui eich snieacel rf a ing iy ll eal Unity wick vwh emoradachsing sont which shows th cet of goods produced This cot of precuctio? ‘Stransnedthe fading count to coclte the cont of gods Sold. ‘The manafactaring acco compas to mai eto: 1. Prime cot section (a) Direct mater (has conan the goods made). (0) Dice abour (wages lth operatives wo actualy mae th pods) (@ (Other ec perenne aarp on ech eit prodoced chic, iF question lndLats tat separa sortable for power machine) 2) Overhead ection: Debi hs with ary ovehend (2) Indirect material Qsbiating oll nd cotton waste far cleaning machines and other Thats no conained in th goods mae) (b) Indinect abou (wages of eupervior, toremen,cemer,facory canten safe) (© Other indirect expenses actory ret rates, heating, lighting ete, deprecation of factory tnuldings machinery. et) ‘Allott ovebeads of the butness which dna eae othe factory mst be debited in the poten esto Sia ofc nei orn progres Purchases of raw materials ust be adjusted by the diferenein opening a losing sacks of ‘emateaetnd oto mata edn e per ae Tatory costo the piod ms be ajusted by the ference in ing sas of werk bs progres to Bnd cot ef goede prodaoal in tbe period. for uation of arin progres, ce 43, ‘nes epportoring oecheads beeen he manufacturing and profit and Jos acon an the overhends are subject fo accruals and peepayment djs forthe scans and prepayments bore making te epportnanent only Outline form of Manufacturing, Trading and Profit and Loss Account Dizect materials Direct Labour Other direct expenses Prime Cost, Factory overheads Add: Opening work in progress Deduct: Closing work in progress Cost of goods produced transfered to "Trading Account sae ios et ose fidetermome, tee! ome Adm iseaon costs Eanes Nett 16.1.1. Example Ross, Wye Limited: extract from tral balance at ist December 1-8, eo Stocks at L188 "Rae material +200 Workin ‘200 Finished 0s Bom Purchases rave materials 144000 Fens materials 7000 Factory wages “aie sngiooo Spire 2500 Kentandrats “acon 20000 Talo ae Heatingand lighting factory 7100 ee 300 Camngs in 1be0 ge ous ans Offcesslnes salesmen 13000 fe 5300 Debenure ntrest a0 Sale entreoeiable (ther information: ‘Stocks a Ist December 158 Raw matrsle "Work progress Finished goods Rentand ae paid in advance fal ee ‘Wages and salaries accrued: factory = direct indirect salesmen other Depreciation forthe year! ~ Machinery ~Ofieeeseipment =Delivery vans alse Required (@) Manufacturing trading and profit &loss account for Ross, Wye Ltd, for year to 31 December 1958, (] A balance sheet extract as at 31 December 19-8 showing stocks on hand at that date, @ ) ROSS, WYE LIMITED Manufacturing, Trading and Profit and Loss Account for the year ended Sist December 198 . Raw materials Stock at L1-8 Purchases 144.000 (Carriage noearde 1360 i560 Jess Stock at 3112-8 ‘300 Direct wages (W1) PRIME COST ‘Aad factory overhesds Tndiyct materials Indiect wages (W2) Rent and Rates (W3) Heating and lighting Depression ~machinary Adds Workin progres at 11-8 dem Work inproges af 3112-8 Cost of goods priced wansfered to rating Account sales Tes Cost of ales Sock of finished goods 311-8 Ct of goods procuced Jess stock at 3112-8 Gross profit “Ada: Rent receivable Less: Selling and distribution (W4) ‘Administration (WS). Finance costs (Debenture Interest) Net Prost Balance sheet extract asa 3st December 19-8: Curent assets ‘Stocks Raw materials Workin po nashed gous 2000 woo 15300 16,000 a0 147260 222,000 369.260 Workings TB Acad Tt eepue) © e © 1, Direct wages mio = 12000 axm00 2. Indirect wages 2000 = tam Ma 3. Facony sont and rates mom = 007000 4 Saling and distribution Salesmers salaries ow 2000400 CCariage otwards 375 Depreciation vans p00 Bs 5. Administration Rent and rates ~ffces to (eon) 11800 Heating and lighting 3400 Salaries 800 7m 9509 Depreciation office machinery 11000 BIO 16.1.2 Exerciees Exercise 1: THE JOBBITT CO. LTD. - to provide practice in the preparation of manufac: ‘uring, trading and profit and ives wecounts in good form ‘The Jobbitt Co, Lid. commenced as manufacturers of window frames on Ist October 19-7. The following balances were extracted from the company’s books at 30th Septemiyer 19-8 De c * 4 Sales zoa000 ave mats 115,00 Direct labour 210,000 Indirect materials 10000 Indiv lbour 2200 Kentandvstes S000 cote 15.000 Blctity Tfecory ‘300 = oie 2am Suis Hlactory ana “ofices aon Sundry expenses —dministetion "2000 ter information: Socks a th Sepember 19.8 £ Raw materals 13.000 rein progress 00 Fished gous 200 eye erro rh srr aw 2 acon 22.000 Ofte equipment tno Ropuired “Manufacturing, trading ae profit an lots account for The Jobb Co. Ld for he year to 30h Septnber19 San ans fam blared asa Sees eee forcamentascets Exercise 2: COLLETTE FABRICATIONS LTD. to provide practice in the apportionment of ‘overheads when accruals and prepayments are involved ‘Prepare a manufacturing, trading and profit and loss aecount forthe year to 30th April 19-9 fom, {the following which has been extracted from the books of Collette Fabrications Lia at that date 300 Sales Purchase of aw materials Direct Indlect Wages Rent and rates esting and lighting Insurance Office Saris Carnage inwards Carriage outwards ‘Motor van expenses ‘Loose tools Discounts receivable Stocks af1.5195: Rew materials Workin progress hished goeds Loose tos. (Other information: ‘Stocks at 304:19-9: Raw matriale Workin progress Pro Loose tools “The following expenses mast be accrued at 30th April 19- Rent Heating and Lighting “The following expenses were prepaid at 30th April 19-8: Rates — Expenses are tobe apportonad follows: Rent and rate Fairy 75 Ofc 25% eating and lighting: Factory, Ofer Insurance: Factory Offices Mtr van cots: Factory 5% Provide depen fiw Macibery Office machinery and equipment Motor vars 1622 Profits/losses on manufacture gaa etek rd ela Soyer ho a ar mo gai angen Ema Sy et inc Ca eg Oa, ae ey cea « 00,000 376,00 195,000 26,000 60,00 55400 0 1530 330 3,000 4135 15000 4000 36.000 5,000, 500 é 400 14.00 5,000, 10,00 increases the profits of the firm. The difference between the it and loss account (E the cost of production exceeds the cost of similar ‘bought-in’ goods, a factory loss results) ‘Teaiment of profitslsses on manufacture Jn manufacturing account: ‘Add factory profit to cost of production Deduct factory loss from cost of production, In profit and loss account: "Add factory profit to net profit on trading Decluct factory loss from net profit on trading. ‘profit’ and ‘gross ‘profit on trading’ is important and the two must be kept separate until they are aggregated in the 16 Manufacturing accounts Model: Prime cost Factory overbeads ior in progress adjustment da fc ox Deduct oy es “Taner fo Tading acount sles es cost ose Gres prot {es alrntraion ec: overeads Nex prot res)on wading ‘a acoy prt or Deduct coy oes Overal et prt as) > > mB oeml > Perec 16.21 Example hg owing tes hw en enacted fom hols Beta Widget ot December 185 » & me. 0 stocks a 11-9: aw mei ‘te Wook a prog Pi ene gods a Purchase of ae terials 2% Se © Dinct dour 0 Renvand snes <0 Bec “ (fice las é Soasstsri29 Raw males % ‘Work popes Fy Fed gous & a Depreciation for he year: Factory oce ‘Rent rales and elcirieity are tobe apportioned: Factory 75%, Ofces 25% Finished goods are to be transferred tothe trading account ta profit of 15% on factory cot. BETTA WIDGETTS ID. ‘Manufacturing, Tading and Profit nd loss account forthe year ended 31st December. bean 00 Teyemeterisls —Slecest 11-9 16 Purchases m us ese stoc 2 3112-9 a 1s Dizet labour 20, idm cost wm ‘Ada. Factory Ovecheads: emt andres o Else = Depreciation a Work in progress t 21-9 u ‘Work in progres t 3112-9 a cory cor of goods produced Add "factory profit (5% of £500) Transered to Trading acount Jalagle 816 eon eto Sales 0 A lees Cost of ales ‘Stock of ished goods at 11-9 40 Coat of goods produced 58 65 des stock a 3212-9 ‘3 a ‘Geos profit 7 Jess Soles 6 Rentand rates FA Blctaty ia Depreistin 3 we Net oss on trading @ ‘Add factory pot +B Overall Net profit s 162.2 Exercises Exercise 1: BONNIE AND CLYDE ~ an exercise involving factory profit Bonnie and Clyde are in partnership, manufacturing kitchenware. The following details are ‘extracted from their tial balance as at 3ist March 19-7: De ce Sales 400 Socks 14-6 Rave materiale 2 Workinprogress 8 Finished goods u Raw mates % Direc labour 2 Factory overheads s Rent receivable 20 Office overheads es Stocks at Sst Mach 19.7 were Pd av material 3 ‘Work in 5 Heished goods 28 Depreciation charges forthe year: Factory 8 Ofces 2 Completed production sto be transferred othe warehouse in the sum of 350000 Reguired ‘A Manufacturing, Tending and Profit and Loss account for Bonnie and Clyde for year to 31 Mar 197. Exercise 2: KONTAKKI LTD. ~ an exercise involving a factory loss Kontakki Lid, manufactures products for the leisure industry. The following information is extracted from the company’s books at 30th June 19-5: 00 Sods at 17-7: Raw materials 0 ‘Workin i Finished goes Es Purchase Raw materials 10 Brished goods a Direct wages s Office sais 2 ent and rates » Heating are lighting ie 2 5 Depreciation charge forthe yea Machinery 2 aT er Salesmen’s cars 15 sales 200 308 eo ‘Stocks 2806-8: Raw materials cs ‘Work in progress rr ilshed goods 2» Rent, rates, heating and lighting are to be apportioned on the following basis: Factory 75% Office 25% Finished goods are to be transferred to the trading account at £250,000, Reguired 'A Manufacturing, Trading and Profit and Loss Account for Kontakki Ltd, forthe year to 30th Jun 19-8 16.3 Elimination of unrealised manufacturing profit from unsold stocks of finished goods “The Prudence Concept requires that profit shall not be anticipated before it is ralised, Tf the valuation of closing stocks f inched goods inchudes an element of factory profit, this uunealised profit must be eliminated inthe prot and loss aecount and balance sheet by making, ‘an appropriate provision. ‘The enres to be made forthe annual adjustment tothe provision at a flows Increase in provision: TUcbit puoi and lose account ‘credit provision account with the amount of the increase Decrease in provision: debit provision account ‘credit profit and loss account withthe amount ofthe decrease In balance sheet: deduct provision from slock of finshed goods Exanple Correat assets e ‘ Sats: Rav materiale gow ‘Workcnprogrs rsh goods. 0000 less prover unvealiod prot bao p00 74000 [Nate Adjustment for unrealised prot on stock should only be made if required or implied by the question. 16.8.1 Example ‘The following information is available after the preparation of the manufacturing and trading accounts of Dickery Dock Ltd forthe year ended 3Ist December 18-6 De ca < é ‘Gros profit on trading saw ‘Manubacring proft e000 Seling, distcution and administation 4000 Provision for unrealized pro it on stock a L194 2000 Stocks st 112196 Haw materials 000 ‘Work in progress Ped Finished goods a0 “The stock of finshed goods at 3.12-6 included unrealised profit on manufacture of £2,100, DICKERY DOCK ETD Profit and loss account forthe year ended Sist December 1-6. e . ‘Gross profit on taing sae Sling cstabution and administration 24000 Net profit on trading ‘4000 Add Manufacturing pot 12000 iss incense in provision for unrealised profit 1001180 Overall net proft 2590 Balance sheet extract asa 3st Decombir 19-6: Current Assets ‘Stocks: Raw materials Workin progres Bnabedly Jess provision for unrealised profit 16.32 Exercises 8000 2100) 10 manuracturng accounts ‘Exercise 1: DORRITT AND DOMBIE LTD - an exercise involving the treatment of provision for unrealised profit on stock of finished goods Dorett and Dombie Ltd, manufactures an electronic unit under licence. At Sist March 19-2, the {ollovring balances appeared in the trial balance: Sales (4500) wits Purchase ~ Raw materials Finished goods (232 units) Stocks at 14-1 —Rew materials Work in progress Finished goods (122 units) Wages Paine indirect Licence fees roperty expenses Canteen expences Other administration Selling and distbution Office salaries Provision for unrealised profitat L4i-8 Further information: Stocks at31.3-2 ~Raw materials = Work in progress “Finished goods (264 units) Depreciation for year” machinery ‘anteen equipment (Office machinery ‘The following expenses were owing at 313-2: Property expenses Canteen expenses Other administration Selling and distbation De eon Seana’ S4eRees a8 cael c ewo 1900 are Property and canteen expenses are to be apportioned as follows: Factory 80% Offices 20%. ‘Production is transferred to the warehouse ata mark-up of 10%. ‘The provision for unrealised profit on closing stock of finished goods at 31.3.2 must be increased 0 £6,000. Required year ended 31st March 19-2. ‘A manufacturing, trading and profit and loss account for Dorstt and Dombie Ltd. for the () a balance sheet extract as at 3st March 19-2 showing the item of stocks. (© calculation ofthe total (absorption) cost of each unit of production completed in the year. 305 Exercise 2: THE PREMIER MANUFACTURING CO LTD ~ an exercise involving the calcu lation of unrealised profit in closing stock of finished goods. ‘The following tral balance has been extracted from the books of The Premier Manufacturing Co Ltd. at 21st December 19-6 tore ne cree on ie — am, os = coord ica — mete SE ieee este Cs = offices ri 3 “oe esa = an oe aa % — Bet Frachold property (at cast) Provision for deprecation of freehold property Plantand machinery (at ost) Provision for deprciaton of plant and machinery ‘Motor vehicles (test) Provision for deprecation of motor vehicles Oifice machinery and equipment (ot cst) Provision for deprecation of office equipment Debtors and reitors Bank Provision for unwelised profit ‘Shane capital (10000 oedinary shares of £1 each) Se debentures [Retained prods Notes A. Stock at 3112-8: [Raw materiale ‘Work in progress Finished goods ‘Loose tole 2. Accrued expenditure at 31.12.65 Rent —fctory offs Dinect wager Indies wages Selling and distebution 3. Prepayments ates —fctory offices a z 16 Manutacturing accounts . “it ‘s 4 pty open i Flees seen tea Sic & Sim ides whe yin! ef ted ga orto nb yw ee m0 1 Pov emt tenn ett ps wher ae Py pn em gn tn Pea tg soc deme tics Oe Erase er re (©) State how the following concepts are relevant tothe financial statements you have prepared. for (a) above: a tone (i) going concem concept Carter, a soe trader, commenced business on 1 September 19-6 as & manufacturer of three types of products. ‘The following balances were extracted from his tial balance at 31 August 197, Puschasor of re matarile 230000 Retens Sey 00 4090 Carragein 7000 Selng snd distbation cots atin00 Rent ‘sto Royalties 12000 lode factory sbour 25000 Bites 125000 ‘dmv corte 35000 Sates i 0000 Genera factory ex 00 Pant and machinery a cst 140.00 Delivery ane att 1000 ‘The following information is also available: (2) Rent was paid until the end of November 19-7 and was to be apportioned between the factory and general administration on the basis of 2 (@) Selling and distribution costs of £5,000 were accrued on 31 August 19-7, (@) Plant and machinery are deprecated by 20% per annum on cost and dolivery vans are to be Aepreciated by 30% per annum on cost (@) The stock of raw materials at 31 August 19-7 was valued at £40,000, {goods of 3,000 units. Carter is uncertain as to how to value the goods which at present are felling for an average price of £30 per unit. During the year 25,000 units have been produced Required (2) The manufacturing account for the year ended 31 August 187 (7 marks) () Using two accepted methods of valuing the closing stock of finished goods complete the teadlng and prota Ios accouns forthe year ended 31 August 17 (marks) (@) Explain to Carter the difficulties involved in calculating a separate cost of sales figure for ‘each ofthe thee products produced, (Grmarks) (ota 25 marks) (AEB) 1 manuaciuiny accouns ‘Ansoer ® Coner Manufactating account forthe year ended 31 August 19-7 2 Tato notes avr materials Jess tums out ada carage wards les stock of raw materials at 328-7 233,000 Diret labour 125,000, Royalties 12.000 PRIME COST (15 per unit) wm. ‘Ada factory overheads Indirect labour 24000 3 Factory sent 8000 General factory expenses 25.000 Depreciation of plant and machinery 2500 4 Factory cost of production (b) Trading and profit and loss account fr the year ended 31 August 19-7 Closing stock valued a: pine cost tacos of production 5 ree © « Sales 40,000 540000 Tess returns 4,000 1200 em00 aa Cost of goods produced 450000 4so00 6. les losing stock Gras e95000) 45000405900 (6/5 x 450,000) 000 396000, Gross profit m0 4500 Rent 4200 4000 ‘Admiistrative costs 35,000 35.000, Selling and distbutioncosts 28 2800 Depretation= delivery vans _ 3000 30 7900 000 Net profit 00 7300 (© ical involved in cleulating a separate cost of sles gure for enh of tree products {) Analyzes re required of dret expenses lie materi, diet abour and royalties) for ‘eek product dni involves analysing the materials requisions and payeol records Between the sepaate products (i) Difficulty may be experienced in apportioning fatry overheads fo exch product on an Pit sal Niacin hour order aout Kou ts shuld be calclated asa meant of apportioning the overheads equlably. aor nates 4. The correct model for prime cost is important, Carriage inwards must be added to cost of saw materials. ‘The words ‘Prime Cost are an essential part ofthe answer ‘A common errors to show depreciation of plant and machinery inthe P&L a/e “Another common ertor isthe subtraction of total ovetheads from prime cost ‘The two methods of valuing stock refered to inthe question are at prime cost and total cos. Prime cost is not an acceptable method forthe purpose of SSAP 9. In this type of question, the profit and loss accounts are best presented in columnar form as here. 310 +6 Manufacturing accounts 17. This important to show the practical dificulies involved in calculating ceparate coets for tach product This pat of the question carries 6 marks only, but that may be enough make a fiference of two grades The ansver mast be both clesr and concise 1. Prime costineludes the A. cost of il to lubricate machinery B cartiage inwards factory heating and lighting 1D storekeopers wages 2 Ia manufacturing company loose tools willbe normally be depreciated using the A. straight line method Bredueing balance method. © revaluation method D_ machine hour method. 3A manufacturing company’ ot of production as £10000. The ised goods were ‘tansfezred from it lactry to the w: ‘ot ELID000, At the yearend 9% of these goods ‘Were stl in stock, The stock of frished goods wil be shown. ‘A. inthe trading account and in the balance sheet as £9,000 Bin the trading account as £9900 and inthe balance sheet as £000 inthe trading account 2¢ £9,900 and inthe balance sheet as £53910. Din the trading account and inthe balance sheet as £2,900, 4 Afaotory losis |A. credited to the mansfacturing account and debited in the profit and loss account |B debited to the manufacturing account and credited in the profit and los account debited in both the manufacturing account and in the proit and loss account. ignored in the manufacturing account and in the profit and loss account [5 When a manufacturing company adds factory profit the cost of goods transferred omits factory tits warehouse, it 'A. has no effet om the gross prfitbut increases the net prof 1B increases both the gross profit and the net profit CC reduces the gross profit but increases the net profit TD reduces both te gross profit and the net profit 6 The profit and lose account ofa manufacturing company will not include an annwol depre-

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