NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM

7CHAPTER

NON-INTEGRAL OR COST LEDGER

ACCOUNTING SYSTEM

INTRODUCTION

Just as financial accounting system is maintained with certain objectives in view, cost
accounting system is often distinctively maintained with a view to achieve its objectives. All
transactions are collected from the same invoices, vouchers or receipts which are also common
for financial accounts. Costs are then classified according to functions, departments or products.
Though real accounts and nominal accounts are of direct relevance in ascertaining the cost
of products, personal accounts and cash or bank account are not directly related to cost
ascertainment. When cost accounting system is maintained it involves maintenance of certain
books, for recording day-to-day transactions. It is not necessary to maintain cost accounting
under double-entry system of book-keeping. However, in order to ensure arithmetical accuracy
of data often the principles of double entry system of book-keeping is followed. Under double
entry system cost accounts are maintained in the main ledger which is termed as cost ledger.
In addition to this, many subsidiary ledgers are also maintained. In the cost ledger, control
accounts are maintained pertaining to each subsidiary ledger. In addition to control accounts,
two other accounts, viz, cost of sales account and costing profit and loss account are also
maintained in the cost ledger, in order to match cost with revenue. Apart from these accounts,
a general ledger adjustment account is opened in cost ledger to accommodate entries relating
to transactions adjustable against cash, bank, debtors, creditors etc. Entries in the accounts
are made once in each accounting period on the basis of periodical totals of transactions
contained in subsidiary ledgers.

INTERLOCKING SYSTEM

There two systems of maintaining cost records, viz, interlocking system and integral accounting
system. Under interlocking system, cost records are maintained in a separate set of books
independent of financial accounting. The ICMA terminology defines interlocking system of
accounting as “a system in which the cost accounting are distinct from the financial accounting.
The two sets of accounts being kept continuously in agreement or readily recognizable”.

The following are some of the advantages of interlocking accounting system:
1. When separate set of costing books are maintained it facilitates ready accomplishment

of its objectives.
2. It avoids the complications of recording the entries if it is integrated with financial

accounting.
3. It can be maintained according to convenience as it need not be statutorily maintained.
The following are some of the limitations of this accounting system:

349

350 METHODS AND TECHNIQUES OF COSTING

1. When cost accounting is independently maintained, it amounts to duplication of expenses
along with financial accounting.

2. The profit shown by cost books may vary with that shown by financial accounting.
This requires reconciliation which involves time and effort.

The integral accounting system is discussed in a separate chapter.

ENTRIES TO RECORD TRANSACTIONS UNDER INTERLOCKING SYSTEM

1. Materials Dr.
Dr.
(a) Purchase of materials for stock (cash or credit basis): Dr.
Stores ledger control a/c Dr.
To General Ledger adjustment a/c Dr.
Dr.
(b) Returns to suppliers: Dr.
General ledger adjustment a/c Dr.
To stores ledger control a/c Dr.
Dr.
(c) Materials purchased specifically for a job (i.e., direct issue)
Work-in-progress control a/c
To General ledger adjustment a/c

(d) Direct material issued from stores to Job:
Work-in-progress control a/c
To stores ledger control a/c

(e) Materials returned from jobs to stores:
Stores ledger control a/c
To work-in-progress a/c

(f ) Issue of indirect materials:
Factory overhead control a/c
To stores ledger control a/c

(g) Transfer of materials from one job to another:
Receiving job a/c
To giving job

(h) Normal wastage of materials and stores:
Factory overhead control a/c
To stores ledger control a/c

(i) Abnormal wastage of materials:
Costing P & L a/c
To stores ledger control a/c

(j) Abnormal gain of materials:
Stores ledger control a/c
To costing P & L a/c

2. Labour Dr.

(a) Payment of direct wages:
Wages control a/c
To General Ledger adjustment a/c

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 351

(b) Allocation of direct labour: Dr. CHAPTER 7
Work-in-progress a/c Dr.
To wage control a/c Dr.
Dr.
(c) Payment of indirect labour cost: Dr.
Wage control a/c
To General ledger adjustment a/c

(d) Allocation of indirect labour cost:
Overhead control a/c
To wage control a/c

(e) Normal idle time cost:
Factory overhead control a/c
To wage control a/c

(f) Abnormal idle time cost:
Costing P & L a/c
To wage control a/c

3. Direct Expenses Dr.
Work-in-progress control a/c
To General ledger adjustment a/c

4. Overheads

(a) For recording overhead incurred and accrued:

Factory control a/c Dr.

Administration control a/c Dr.

S & D control a/c Dr.

To General ledger adjustment a/c

(b) Allocation of factory overheads:

Work-in-progress control a/c Dr.

To factory overhead control a/c

(c) Absorption of administration overhead

Finished stock ledger control a/c Dr.

To administration overhead control a/c

(d) Absorption of selling and distribution overhead:

Cost of sales a/c Dr.

To S & D overhead control a/c

(e) If under/over absorbed amounts are carried forward to subsequent year, the balance
of each overhead a/c will have to be transferred to respective overhead suspense (or
reserve) account as follows

(i) Production overhead a/c Dr.

To production overhead suspense a/c

(For over recovery)

(ii) Administration overhead suspense a/c Dr.

To Administration overhead a/c

(For under recovery)

352 METHODS AND TECHNIQUES OF COSTING

(iii)Selling and distribution overhead suspense a/c Dr.

To S & D overhead a/c

(For under recovery)

(f) In case of under/over absorbed overheads are transferred to costing P & L a/c then
the relevant entries will be as follows:

(i) For over recovery:

Overhead control a/c Dr.

To costing P & L a/c

(ii) For under recovery:

Costing P & L a/c Dr.

To overhead control a/c

5. Finished Goods or Completed Jobs

(a) Transfer of completed jobs or finished goods produced to finished goods ledger:

Finished stock ledger control a/c Dr.

To work-in-progress control a/c

(b) Transfer of finished goods sold:

Cost of sales a/c Dr.

To finished stock ledger control a/c

(c) Transfer of cost of sales a/c to P & L a/c:

Costing P & L a/c Dr.

To cost of sales a/c

(d) To record sales:

General ledger adjustment a/c Dr.

To costing P & L a/c

6. Transfer of Profit or Loss Dr.
(a) In case of profit: Dr.
Costing P & L a/c
To General ledger adjustment a/c
(b) In case of loss:
General ledger adjustment a/c
To costing P & L a/c

LEDGERS MAINTAINED UNDER COST ACCOUNTING SYSTEM

Under cost accounting system the following ledgers are maintained:

1. Cost Ledger
It is the main ledger maintained in the cost department. It contains two accounts, viz
(a) control account for each of the subsidiary ledgers. Some of the control accounts maintained
in this ledger are stores ledger control account, work-in-progress ledger control account, etc.
(b) cost ledger control account to make the cost ledger self balancing.

2. Stores Ledger
All transactions relating to materials are found in this ledger. It contains a separate account
for each item of stores such as raw materials, component parts, indirect materials. The

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 353

concerned material account is debited with materials received and credited with materials CHAPTER 7
issued. The entries in each account is made from the invoice, materials received note, material
requisition note, etc. The balance in this account represent the cost of unused materials.

3. Work-in-Progress Ledger

This is also known as job ledger. It contains a separate account for each job or work-in-
progress. The elements of cost is debited to this account and is credited with the amount of
finished goods completed and transferred. The balance in this account represent cost of
incomplete job.

4. Finished Goods Ledger

This ledger contains a separate account for each item of finished product or completed job.
This account is debited with the cost of finished product and the amount of administration
overhead absorbed and credited with the cost of goods sold. The balance in this account
shows the closing stock of finished goods in terms of value.

Control Accounts

Under interlocking system, control accounts are maintained in the cost ledger to complete
double entry in cost books. These control accounts are nothing but total accounts or adjustment
accounts summarising mass of information contained in the subsidiary ledgers, i.e., stores
ledger, job ledger and finished stock ledger.

A control account is maintained in the cost ledger so that double entry in the cost ledger
may be completed and make it self-balancing. These control accounts are posted with the
totals of items which have been debited or credited in detail to the accounts in the ledgers
to which they relate. The balance in control accounts represents the total of balances in a
number of accounts of similar nature maintained in that subsidiary ledger to which the
control account relates. For example, the balance in stores ledger control account represents
in aggregate the detailed balances of stores accounts.

In addition to these control accounts for each of the subsidiary ledger, a cost ledger
control account is also kept in cost ledger. This is operated to make the cost ledger self-
balancing.

Advantages

1. It provides a check for ensuring that all expenditure is accounted for in cost accounts
with the help of control account.

2. It provides a basis for reconciliation with the financial accounts.

3. It provides a ready means of preparing monthly or periodical balance sheet, profit and
loss account and statistics relating to cost.

IMPORTANT CONTROL ACCOUNTS MAINTAINED UNDER INTERLOCKING
SYSTEM

The various control accounts under interlocking system are as follows:

1. Stores Ledger Control Account
This account is maintained in cost ledger. This records a summary of the value of stores
received, issued and balances on hand. Receipts are posted from materials received notes to
the debit side of this account. Similarly, issue of materials from material requisition or

354 METHODS AND TECHNIQUES OF COSTING

material abstract is posted to the credit side of the account. Thus for each entry in stores
ledger, there is a corresponding debit or credit, (though in total) in this account. The balance
of this account represents the total balance of stock which should agree with the aggregate
of the balances of individual accounts in the stores ledger.

2. Wages Control Account

This account records labour transactions in aggregate i.e., direct and indirect wages. This
account is debited with gross wages shown in wages analysis sheet. It is closed by transfer
of direct labour to work-in-progress and indirect labour to overhead, i.e., production
administration or selling and distribution overhead account; as the case may be. Wages paid
for abnormal idle time are transferred to costing profit and loss account.

3. Factory Overhead Control Account

This account records factory overhead expenses in aggregate. It is debited with the amount
of indirect materials, indirect labour and indirect expenses as available from indirect materials
analysis sheet, wages analysis sheet etc. This account is credited with the amount of overheads
recovered. The balance in the control account represents under or over-absorption which is
transferred to overhead adjustment.

4. Administration Overheads Control Account

This account is debited with the administrative overheads incurred and credited with the
amount of administrative overhead absorbed by finished goods. Any balance in this account
represent under or over-absorption of administrative overhead which is transferred to overhead
adjustment account.

5. Selling and Distribution Overhead Control Account

This account is debited with the amount of selling and distribution overhead incurred and
credited by the amount of such overheads absorbed by the cost of sales. Balance in this
account represents under or over-absorption of selling and distribution overhead which is
transferred to overhead adjustment.

6. Overhead Adjustment Account

This account is debited with under-absorbed overheads and credited with over-absorbed overhead
amount. The net balance in this account is transferred to costing profit and loss account.

7. Work-in-Progress Control Account

This account represents the total work-in-progress at any time. This account is debited with
the totals of materials, wages and overheads as transferred from the respective control
accounts. This account is credited when a job is completed. Thus, this account shows the total
value of unfinished jobs.

8. Stock Ledger Control Account

This account contains the summary of all finished goods transactions in total. It is debited
with the cost of finished goods transferred from work-in-progress control account and the
amount of administration overhead absorbed which is transferred from Administration
overhead control account. This account is credited with the total cost of goods sold which is
transferred to the cost of sales account.

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 355

9. Cost of Sales Account

This account is debited with the cost of goods sold by transfer from finished goods ledger
control account and also by the selling and distribution overhead absorbed. It is closed by
transferring its balance to costing profit and loss account.

10. Costing Profit and Loss Account

This account reveals the result of the business i.e., profit or loss of the business. This account
is debited with the cost of sales, abnormal losses and under-absorbed overhead and credited
with the sales value, abnormal gain and over-absorbed overhead. The balance in this account
represents profit and loss which is transferred to cost ledger control account.

11. Cost Ledger Control Account or General Ledger Adjustment Account CHAPTER 7

This account is also known as financial ledger control account. This account is maintained
to make the cost ledger self-balancing. Cost ledger contains only impersonal accounts. As no
personal accounts are kept and in order to complete double entry, it becomes necessary to
debit or credit all the transactions which arise in financial accounts to cost ledger control
account. In fact, the account represents the personal accounts shown in the financial ledger.
For example, wages are paid to the extent of Rs. 5,000, as no cash or bank account is
maintained in cost ledger, therefore, in order to complete double entry, wages account will
be debited and in place of Bank or cash account. General Ledger Adjustment account in the
cost ledger will be credited. Thus, all the financial transactions on account of material
purchases, wages, salaries and miscellaneous expenses are credited to cost ledger control
account by contra debit to various control accounts. In a similar way all the financial receipts
are debited to this account. Any transfer from cost books to financial books, e.g., cost of
capital, work done in the factory, will also be entered in this account.

The main object of this account is to complete double entry in cost accounting. Therefore,
purely cost accounting transactions say transfer entries with no relations to the finances are
not passed through this account as double entry is already complete. The balance in this
account represents the total of the balances of all personal accounts in the financial ledger.

Problem 1. The following figures have been ascertained from the costing records. You are

required to pass the necessary entries in the cost journal. Assume that a system of maintaining control

accounts prevails in the organisation.

Rs.

(1) Purchases 3,90,000

(2) Carriage inwards 5,850

(3) Stores issued 3,58,800

(4) Productive wages 3,46,320

(5) Unproductive wages 1,21,680

(6) Works on cost 3,48,400

(7) Materials used in repairs 3,120

(8) Cost of completed jobs 12,80,630

Solution:

COST JOURNAL

(1) Stores ledger control a/c Dr. 3,90,000
To general ledger adj. a/c
3,90,000
(Being the entry for purchase of materials)

356 METHODS AND TECHNIQUES OF COSTING

(2) Stores ledger control a/c Dr. 5,850
To general ledger adj. a/c
5,850
(Being carriage inward treated as part of the
cost of materials purchased)

(3) Work-in-progress ledger control a/c Dr. 3,58,800
To stores ledger control a/c
3,58,800
(Being stores issued to production)

(4) Wages control a/c Dr. 3,46,320
To general ledger adj. a/c
3,46,320
(Being payment of wages)

(5) Factory overhead control a/c Dr. 1,21,680
To cost ledger control a/c
1,21,680
(Being indirect wages incurred)

(6) Factory overhead control a/c Dr. 3,48,400
To cost ledger control a/c
3,48,400
(Being works overhead other than indirect wages)

(7) Factory overhead control a/c Dr. 3,120
To stores ledger control a/c
3,120
(Being materials used in repairs)

(8) Finished stock ledger control a/c Dr. 12,80,630

To work-in-progress ledger control a/c 12,80,630

(Being completed production transferred to finished stock)

Problem 2. The following transactions pertaining to materials took place during March 2001 in
ABC Company Ltd. Enter the transactions in the cost books.

(1) Materials purchased

Credit purchases Dr. 10,000 10,000
Cash purchases Dr. 8,000 8,000
Credit purchases for job no. 20 Dr. 1,000 1,000
(2) Return to suppliers Dr. 500 500
(3) Direct materials issued to jobs 4,000
(4) Indirect materials issued to jobs 400
(5) Materials returned from jobs to stores 200
(6) Materials transferred from job no. 8 to job no. 12 300

Solution: 10,000
COST JOURNAL
8,000
(1) (a) Stores ledger control a/c
To general ledger adj. a/c 1,000

(Being the amount of credit purchases) 500
(b) Stores ledger control a/c

To general ledger adj. a/c
(Being cash purchases)
(c) Work-in-progress ledger control a/c

To general ledger adj. a/c
(Being purchases for a special job no. 20)
(2) General ledger adj. a/c
To stores ledger control a/c
(Being the return to supplier)

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 357

(3) Work-in-progress ledger control a/c Dr. 4,000
To stores ledger control a/c
4,000
(Being the direct materials issued to jobs)

(4) Factory overhead control a/c Dr. 400
To stores overhead control a/c
400
(Being issue of indirect materials)

(5) Stores ledger control a/c Dr. 200
To work-in-progress control a/c
200
(Being the materials returned from jobs to stores)

(6) Job no. 12 a/c Dr. 300 CHAPTER 7

To job no. 8 a/c 300

(Being the transfer of materials from job no. 8 to job no. 12)

Problem 3. Pass Journal entries in the cost books (non-integrated system) for the following

transactions:

(1) Materials worth Rs. 25,000 returned to stores from job.

(2) Gross total wages paid Rs. 48,000. Employer’s contribution to PF and state insurance amount

to Rs. 2,000. Wages analysis book detailed Rs. 20,000 direct labour, Rs. 12,000 towards

indirect factory labour, Rs. 10,000 towards salaries to office staff and Rs. 8,000 for salaries

to selling and distribution staff. (University of Delhi, B.Com. (Hons.), April 1999)

Solution:

JOURNAL ENTRIES Dr. 25,000 25,000
(i) Stores ledger control a/c 50,000
Dr. 50,000
To work-in-progress a/c 50,000
(Being raw materials returned to stores) Dr. 20,000
(ii) Wages control a/c Dr. 12,000
Dr. 10,000
To general ledger control a/c Dr.
(Being payment of wages) 8,000
Work-in-progress control a/c
Factory overhead a/c
Office overhead a/c
Selling overhead a/c

To wages control a/c
(Allocation of wages to direct and indirect cost)

Problem 4. As at 31st March 2001, the following balances existed in a company’s cost ledger

Dr. Cr.

Stores ledger control a/c 6,02,870

Work-in-progress control a/c 2,44,730

Finished stock ledger control a/c 5,03,890

Manufacturing overhead control a/c 21,050

Cost ledger control a/c 13,30,440

13,51,490 13,51,490

During the next three months the following items arose Rs.
2,46,000
(1) Raw materials purchased
(2) Materials returned to suppliers 5,800
(3) Materials issued to production 2,54,630

358 METHODS AND TECHNIQUES OF COSTING

(4) Factory wages 1,01,060
(5) Manufacturing overhead incurred 1,83,020
(6) Indirect labour
(7) Manufacturing overhead charged to production 43,330
(8) Cost of sales 1,54,400
(9) Sales returns at cost 3,71,780
(10) Finished product at cost
Pass the necessary entries, open ledger accounts and prepare trial balance 10,760
4,21,670
Solution:

JOURNAL ENTRIES

(1) Stores ledger control a/c Dr. 2,46,000
To general ledger adj. a/c 5,800
2,46,000
(Being materials purchased) 2,54,630 5,800
1,01,060
(2) General ledger adj. a/c Dr. 1,01,060 2,54,630
1,83,020 1,01,060
To stores ledger control a/c 1,01,060
43,330 1,83,020
(Entry for materials returned to suppliers) 1,54,400
3,71,780 43,330
(3) Work-in-progress control a/c Dr. 1,54,400
10,760 3,71,780
To stores ledger control a/c 4,21,670
10,760
(Entry for issue of materials to production) 4,21,670

(4) Wages control a/c Dr.
To general ledger adj. a/c

(Entry for direct wages incurred)

(5) Work-in-progress control a/c Dr.

To wages control a/c

(Entry for direct wages charged to production)

(6) Works overhead control a/c Dr.
To general ledger adj. a/c

(Entry for works overhead incurred)

(7) Works overhead control a/c Dr.
To general ledger adj. a/c

(Entry for indirect wages incurred)

(8) Work-in-progress control a/c Dr.

To works overhead control a/c

(Entry for overhead charged to production)

(9) General ledger adj. a/c Dr.
To finished stock ledger control a/c

(Entry for cost of sales)

(10) Finished stock ledger control a/c Dr.
To general ledger adj. a/c

(Entry for sales return)

(11) Finished stock ledger control a/c Dr.
To work-in-progress control a/c

(Entry for finished goods transferred)

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 359

GENERAL LEDGER ADJUSTMENT ACCOUNT

To stores ledger control a/c 5,800 By balance b/d 13,30,440
By stores ledger control a/c 2,46,000
To finished stock ledger control a/c 3,71,780 By wages control a/c 1,01,060
By works overhead control a/c 1,83,020
To balance c/d 15,37,030 By works overhead control a/c 43,330
By finished stock ledger control a/c 10,760

19,14,610 19,14,610

STORES LEDGER CONTROL ACCOUNT CHAPTER 7

To balance b/d 6,02,870 By general ledger control 5,800
To general ledger adj. a/c 2,46,000 By work-in-progress control a/c 2,54,630
By balance c/d 5,88,440
8,48,870
8,48,870

MANUFACTURING OVERHEAD CONTROL ACCOUNT

To general ledger control a/c 1,80,020 By balance b/d 21,050
To general ledger control a/c 43,300 By work-in-progress control a/c 1,54,400
By balance c/d
2,26,350 50,900

2,26,350

WORK-IN-PROGRESS CONTROL ACCOUNT

To balance b/d 2,44,730 By finished stock ledger control a/c 4,21,670
To stores ledger control a/c 2,54,630 By balance c/d 3,33,150
To wages control a/c 1,01,060
To Mfg. overhead control a/c 1,54,400 7,54,820

7,54,820

FINISHED STOCK LEDGER CONTROL ACCOUNT

To balance b/d 5,03,890 By cost ledger control a/c 3,71,780
To work-in-progress control a/c 4,21,670 By balance c/d 5,64,540
To general ledger adj a/c
10,760 9,36,320

9,36,320

TRIAL BALANCE

Cost ledger control a/c Dr. Cr.
Stores ledger control a/c 15,37,030
Manufacturing overhead control a/c 5,88,440
WIP control a/c 50,900 15,37,030
Finished stock ledger control a/c
3,33,150
5,64,540
15,37,030

360 METHODS AND TECHNIQUES OF COSTING

Problem 5. A fire destroyed some accounting records of a company. You have been able to collect
the following from the spoilt papers/records and as a result of consultation with accounting staff in
respect of January 1997.

(i) Incomplete ledger entries

Beginning Inventory RAW MATERIALS ACCOUNT
32,000

Beginning Inventory WORK-IN-PROGRESS ACCOUNT 1,51,000
9,200 Finished stock

Closing balance CREDITORS ACCOUNT 16,400
19,200 Opening balance

Amount spent MANUFACTURING OVERHEAD ACCOUNT
29,600

Opening Inventory FINISHED GOODS ACCOUNT

2,400 30,000
Closing Inventory

(ii) Additional information:
(1) Cash book showed that Rs. 89,200 have been paid to creditors for raw materials.
(2) Ending inventory of work-in-progress included materials Rs. 5,000 on which 300 direct
labour hours have been booked against wages and overheads.
(3) The job card showed that workers have worked for 7,000 hours. The wage rate is Rs.
10 per labour hour.
(4) Overhead recovery rate was Rs. 4 per direct labour hour.

You are required to complete the above accounts in the cost ledger of the company.
(C.A. Inter, May 1997)

Solution:

To cash & bank (1) CREDITORS ACCOUNT 16,400
To balance c/d 92,000
89,200 By balance b/d
19,200 By purchases (Balancing figure)

1,08,400 1,08,400

WORK-IN-PROGRESS ACCOUNT

To balance b/d 9,200 By finished goods 1,51,000
By balance c/d materials (2) 5,000
To raw materials (Balancing figure) 53,000 Labour (2) (300 hrs. × 10) 3,000
Overhead (2) 300 hrs. × Rs. 4 1,200
To wages (3) 7,000 hrs. × Rs. 10 70,000
1,60,200
To overheads (4) 7,000 hrs. × Rs. 4 28,000

1,60,200

To balance b/d RAW MATERIALS ACCOUNT 53,000
To purchases 32,000 By work-in-progress a/c 71,000
92,000 By balance c/d
1,24,000
1,24,000

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 361

To balance b/d FINISHED GOODS ACCOUNT 1,45,000
To work-in-progress a/c 24,000 By cost of sales (Balancing figure) 30,000

1,51,000 By balance c/d 1,75,000

1,75,000

MANUFACTURING OVERHEAD ACCOUNT

To sundries (Amount spent) 29,600 By work-in-progress a/c (7,000 × 4) 28,000
By under-absorbed overhead 1,600

29,600 29,600

Problem 6. The following balances were extracted from a company’s ledger as on 31st December CHAPTER 7
1997.

Rs. Rs.

Raw materials control a/c 48,836

Work-in-progress control a/c 14,745

Finished stock control a/c 21,980

Nominal ledger control a/c 85,561

85,561 85,561

Further transactions took place during the following quarter as follows: Rs.

Factory overhead— allocation to WIP 11,786

Goods finished — at cost 36,834

Raw materials purchased 22,422

Direct wages — allocated to WIP 18,370

Cost of goods sold 42,000

Raw materials — issued to production 17,000

Raw materials — credited by suppliers 1,000

Inventory audit — raw materials losses 1,300

WIP rejected (with no scrap value) 1,800

Customer’s returns (at cost) of finished goods 3,000

Prepare all the ledger accounts in cost ledger.

(C.A. Inter, November 1998)

Solution:

RAW MATERIALS CONTROL ACCOUNT

To balance b/d 48,836 By WIP control a/c 17,000
To nominal ledger control a/c 22,422 By nominal ledger control a/c 1,000
By nominal ledger control a/c 1,300
By balance c/d
51,958

71,258 71,258

WORK-IN-PROGRESS CONTROL ACCOUNT

To balance b/d 14,745 By finished stock control a/c 36,834
To nominal ledger control a/c 11,786 By nominal ledger control a/c 1,800
To raw material control a/c 17,000 By balance c/d
To nominal ledger control a/c 18,370 23,267

61,901 61,901

362 METHODS AND TECHNIQUES OF COSTING

FINISHED STOCK CONTROL ACCOUNT

To balance b/d 21,980 By nominal ledger control a/c 42,000
To WIP control a/c 36,834 By balance c/d 19,814
To nominal ledger control a/c
3,000 61,814

61,814 85,561
22,422
NOMINAL LEDGER CONTROL ACCOUNT 11,786
18,370
To raw material control a/c 1,000 By balance b/d
To raw material control a/c 1,300 By raw materials control a/c 3,000
To finished stock control a/c 42,000 By WIP control a/c 1,41,139
To WIP control a/c 1,800 By WIP control a/c
To balance c/d 95,039 By finished stock control a/c

1,41,139

Problem 7. From the following balances and transactions extracted from the books of East-West
Company Ltd., journalise and write up the accounts in the cost ledger and prepare a trial balance as
at 31st December 2010. Also show the profit or loss for the month:

Dr. Cr.

Balances as on 1.12.2010:

Work-in-progress a/c 5,200

Finished goods a/c 2,300

Factory overhead suspense a/c 50

Office overhead suspense a/c 30

Stores ledger control a/c 1,150

General ledger adjustment a/c 8,730

8,730 8,730

Transactions for the month were: Rs.
Direct wages 7,500
Indirect wages
Works overhead absorbed in production 500
Office overhead absorbed in production 2,200
Stores issued to production 1,200
Goods finished during the month 4,900
Finished goods sold 18,000
Stores purchased 21,000
Stores issued to factory repair orders 5,000
Carriage inwards on stores issued for production
Factory expenses 200
Office expenses 80

1,450
1,170

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 363

Solution: JOURNAL ENTRIES 8,730
5,000
Work-in-progress ledger control a/c Dr. 5,200 4,980
Finished goods ledger control a/c Dr. 2,300 200
Factory overhead suspense a/c Dr. 7,500
Office overhead suspense a/c Dr. 50 500
Stores ledger control a/c Dr. 30 8,000
1,150
To general ledger adjustment a/c Dr. 50
(Being the opening entries for the balances) 5,000 1,450
Dr. 2,200
Stores ledger control a/c 4,980 CHAPTER 7
To general ledger adjustment a/c Dr. 30
200
(Being stores purchased) Dr.
7,500
Work-in-progress ledger control a/c Dr.
To stores ledger control a/c 500
Dr.
(Being the stores issued to production Rs. 4,900 and 8,000
carriage inward on stores issued Rs. 80) Dr.
50
Factory overhead control a/c Dr.
To stores ledger control a/c 1,450
Dr.
(Being stores issued to factory repairs) 2,200
Dr.
Work-in-progress ledger control a/c 30
To wages control a/c

(Being direct wages charged to production)

Factory overhead control a/c
To wages control a/c

(Being indirect wages charged to factory overhead)

Wages control a/c
To general ledger adjustment a/c

(Being the total wages brought into costing book from
financial books)

Factory overhead control a/c
To factory overhead suspense a/c

(Being the latter transferred to former a/c)

Factory overhead control a/c
To general ledger adjustment a/c

(Being the actual factory expenses brought into costing books)

Work-in-progress ledger control a/c
To factory overhead control a/c

(Being the overheads charged to production)

Office overhead control a/c
To office overhead suspense a/c

(Being suspense a/c transferred to former a/c

364 METHODS AND TECHNIQUES OF COSTING

Office overhead control a/c Dr. 1,170 1,170
To general ledger adjustment a/c Dr. 1,200
Dr. 18,000 1,200
(Being the actual office overheads brought into costing Dr. 20,300
books) Dr. 20,300 18,000
Dr. 21,000
Work-in-progress ledger control a/c 20,300
To office overhead control a/c Dr. 700
20,300
(Being the office overheads charged to production)
21,000
Finished goods control a/c
To work-in-progress ledger control a/c 700

(Being the work-in-progress transferred to former a/c 8,730
5,000
Cost of sales a/c 8,000
To finished goods control a/c 1,450
1,170
(Being the finished stock transferred to former a/c)
700
Costing profit & loss a/c 25,050
To cost of sales a/c
4,980
(Being cost of sales transferred to profit & loss a/c) 200
970
General ledger adjustment a/c
To costing profit & loss a/c 6,150

(Being the amount of sales brought into costing
profit & loss a/c)

Costing profit & loss a/c
To general ledger adjustment a/c

(Being the amount of profit)

COST LEDGER

GENERAL LEDGER ADJUSTMENT A/C

To costing P & L a/c 21,000 By balance b/d
To balance c/d 4,050 By stores ledger control a/c
By wages control a/c
By factory overhead control a/c
By office overhead control a/c
By costing P & L a/c

25,050

STORES LEDGER CONTROL ACCOUNT

To balance b/d 1,150 By WIP ledger control a/c
To general ledger adjustment a/c 5,000 By factory overhead control a/c
By balance c/d

6,150

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 365
7,500
WAGES CONTROL ACCOUNT
500
To general ledger adjustment a/c 8,000 By WIP ledger control a/c 8,000
By factory overhead control a/c 2,200

8,000 2,200

FACTORY OVERHEAD CONTROL ACCOUNT 1,200
1,200
To stores ledger control a/c 200 By WIP ledger control a/c 18,000
To wages control a/c 500 3,080
To factory overhead suspense a/c CHAPTER 7
To general ledger adjustment a/c 50 21,080
1,450 20,300
20,300
2,200 20,300

OFFICE OVERHEAD CONTROL ACCOUNT 21,000
21,000
To office overhead suspense a/c 30 By WIP ledger control a/c Cr.
To general ledger adjustment a/c 1,170 4,050

1,200 4,050

WORK-IN-PROGRESS LEDGER CONTROL ACCOUNT

To balance b/d 5,200 By finished goods control a/c
To stores ledger control a/c 4,900 By balance c/d
To wages control a/c 7,500
To factory overhead control a/c 2,200
To office overhead control a/c 1,200

21,080

FINISHED GOODS CONTROL ACCOUNT

To balance b/d 2,300 By cost of sales a/c
To WIP ledger control a/c 18,000

20,300

COST OF SALES ACCOUNT

To finished goods control a/c 20,300 By costing P & L a/c

COSTING PROFIT & LOSS ACCOUNT

To cost of sales a/c 20,300 By general ledger adjustment
To general ledger adjustment a/c 700 a/c (sales)

(profit)

21,000

TRIAL BALANCE AS ON 31.12.1992

General ledger control a/c Dr.
Stores ledger control a/c
WIP ledger control a/c 970
3,080

4,050

366 METHODS AND TECHNIQUES OF COSTING

Problem 8. On 31.3.1989, the following balances were extracted from the books of the Supreme

Manufacturing Company:

Dr. Cr.

Stores ledger control a/c 35,000

WIP control a/c 38,000

Finished goods control a/c 25,000

Cost ledger control a/c 98,000

98,000 98,000

The following transactions took place in April 1989:

Raw materials: Rs.
Purchased 95,000

Returned to suppliers 3,000

Issued to production 98,000

Returned to stores 3,000

Productive wages 40,000

Indirect labour 25,000

Factory overhead expenses incurred 50,000

Selling and administration expenses 40,000

Cost of finished goods transferred to warehouse 2,13,000

Cost of goods sold 2,10,000

Sales 3,00,000

Factory overheads are applied to production at 150% of direct wages and under or over absorbed
overhead being carried forward for adjustment in the subsequent months. All administrative and
selling expenses are treated as period cost and charged off to the profit and loss a/c of the month in
which they are incurred:

Show the following accounts.

(a) Cost ledger control a/c

(b) Stores ledger control a/c

(c) WIP control a/c

(d) Finished goods stock control a/c

(e) Factory overhead control a/c

(f) Costing P & L a/c

(g) Trial balance as at 30.4.1989 (C.A., Inter, May 1989)

Solution:

COST LEDGER CONTROL ACCOUNT

To costing P & L a/c (sales) 3,00,000 By balance b/d 98,000
To stores ledger control a/c 3,000 By stores ledger control a/c 95,000
To balance c/d By wage control a/c (production
95,000 and indirect) 65,000
By factory overhead control a/c 50,000
By selling & adm. overhead 40,000
By costing P & L a/c 50,000

3,98,000 3,98,000

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 367

STORES LEDGER CONTROL ACCOUNT 3,000
98,000
To Balance b/d 35,000 By cost ledger control a/c 32,000
To cost ledger control a/c 95,000 By work-in-progress control a/c 1,33,000
To WIP control a/c By balance c/d
3,000 3,000
2,31,000
1,33,000
20,000
WORK-IN-PROGRESS CONTROL ACCOUNT 2,36,000

To Balance b/d 38,000 By stores ledger control a/c 2,10,000 CHAPTER 7
To stores ledger control a/c 98,000 By finished goods a/c 28,000
To wages control a/c 40,000 By balance c/d
To factory overhead control a/c 60,000 2,38,000

2,36,000 60,000
15,000
FINISHED GOODS CONTROL ACCOUNT 75,000

To balance b/d 25,000 By cost of goods sold a/c 3,00,000
To work-in-progress control a/c 2,13,000 By Balance c/d
3,00,000
2,38,000
Cr.
FACTORY OVERHEAD CONTROL ACCOUNT
95,000
To wage control a/c (indirect labour) 25,000 By WIP control a/c 95,000

To cost ledger control a/c 50,000 By balance c/d 40,000
25,000
75,000 65,000

COSTING P & L ACCOUNT

To cost of goods sold a/c 2,10,000 By cost ledger control a/c
To selling & adm. overhead 40,000
To cost ledger control a/c
50,000
(costing profit)

3,00,000

TRIAL BALANCE AS ON 30.4.1989

Stores ledger control a/c Dr.
Work-in-progress control a/c 32,000
Finished goods control a/c 20,000
Factory overhead control a/c 28,000
General ledger control a/c 15,000

95,000

Working Notes:

To cost ledger control a/c WAGES CONTROL ACCOUNT
65,000 By WIP control a/c
By factory overhead control a/c

65,000

368 METHODS AND TECHNIQUES OF COSTING
To finished goods control a/c
COST OF GOODS SOLD 2,10,000
2,10,000 By costing P & L a/c 2,10,000
2,10,000

SELLING AND DISTRIBUTION OVERHEAD

To cost ledger control a/c 40,000 By costing P & L a/c 40,000

Problem 9. The following balances are extracted from Gujarat Chemical Company’s cost ledger

as on 31st March 1993:

Figures in 000

Rs. (Dr.) Rs. (Cr.)

Control accounts

Raw materials 500

Work-in-progress 230

Finished stock 130

General ledger adjustment a/c 860

860 860

Further transactions took place during the following quarter as follows: Fig. in 000’s
120
Factory overhead — allocated to WIP 400
Goods finished at cost 225
Raw materials purchased 80
Direct wages allocated to work-in-progress 165
Raw materials issued to production 515
Cost of goods sold 10
Raw materials — returned to suppliers 50
Sales returns (at cost) 12
Inventory audit — raw material shortage 18
Work-in-progress rejected (scrap value—nil)
You are required to:
(a) Write up the four accounts in the cost ledger
(b) Prepare a trial balances as on 31.3.1993
Solution:

RAW MATERIALS CONTROL ACCOUNT (RS. ’000)

To Balance b/d 500 By WIP (materials issued) 165
To General ledger adjustment a/c 225 By General ledger adjustment
10
(purchase returns)
By General ledger adjustment 12
538
(stock shortage)
By Balance c/d

725 725

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 369

WORK-IN-PROGRESS CONTROL ACCOUNT

To Balance b/d 230 By finished stock control a/c 400
To General ledger adjustment a/c By general ledger adjustment a/c 18

(factory overhead) 120 (rejections) 177
To Raw materials control a/c By balance c/d
595
(raw materials) 165
To General ledger adjustment a/c
80
(direct wages)

595

FINISHED STOCK CONTROL ACCOUNT CHAPTER 7

To Balance b/d 130 By General ledger 515
To WIP (completed production) 400 adjustment a/c (sales at cost) 45
To General ledger adjustment
By Balance c/d 560
(sales returns) 30

560

GENERAL LEDGER ADJUSTMENT ACCOUNT

To Finished stock control a/c 515 By balance b/d 860
(sales of cost) By WIP (factory overhead) 120

To raw material control a/c 10 By WIP (direct wages) 80
(purchase returns) By Raw material control a/c 225

To raw materials control a/c 12 By Finished stock control a/c 30
(stock shortage) 18 (sales returns)
760 1,315
To WIP (rejections)
To balance c/d

1,315

TRIAL BALANCE AS ON 31.3.1993 (FIGURES IN ’000)

Raw materials ledger control a/c Dr. Cr.
Work-in-progress control a/c 538 760
Finished stock control a/c 177
General ledger adjustment a/c
45

760 760

Problem 10. The following balances appear in the books of M.K. Company Ltd. on 1.1.2002:

General ledger adjustment a/c 15,200

Stores ledger control a/c 8,750

WIP ledger control a/c 4,280

Finished goods ledger control a/c 2,170

15,200 15,200

On 31.12.2002, the following information was supplied: 60,640
Purchase of stores 1,950
Purchase for special job
Direct wages 38,627

370 METHODS AND TECHNIQUES OF COSTING

Indirect factory wages 9,543 59,153
Administrative salaries 6,731
Selling and distribution salaries 4,252

Production expenses 10,432

Administration expenses 9,546

Selling and distribution expenses 6,430

Stores issued to production 56,501

Stores issued to maintenance a/c 2,556

Returns to suppliers 312

Production overhead absorbed by production 23,410

Administration overhead absorbed by finished goods 15,150

Selling overhead recovered on sales 9,515

Products finished during the year 1,18,517

Finished goods sold at cost 1,33,382

Sales 1,55,000

You are required to record the entries in cost ledger for the year 2002 and prepare a trial

balance.

Solution: COST LEDGER

GENERAL LEDGER ADJUSTMENT ACCOUNT

To stores ledger control a/c (returns) 312 By balance b/d 15,200
By stores ledger control a/c
To P & L a/c (sales) 1,55,000 60,640
purchases
To balance c/d 18,697 By WIP control a/c 1,950
59,153
(special purchases) 10,432
By wages control a/c
By production overhead a/c 9,546
By administration overhead a/c 6,430
By selling overhead a/c 10,658
By costing P & L a/c

1,74,009 1,74,009

STORES LEDGER CONTROL ACCOUNT

To Balance b/d 8,750 By work-in-progress control a/c 56,501
To General ledger adjustment a/c 60,640 By production overhead a/c 2,586
By General ledger adjustment a/c 312
By Balance c/d 9,991

69,390 69,390

WAGES CONTROL ACCOUNT

To General ledger adjustment a/c 59,513 By WIP control a/c 38,627
By production overhead a/c 9,543
By Administration overhead a/c 6,731
By selling & distribution overhead a/c 4,252

59,513 59,513

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 371
23,410
PRODUCTION OVERHEAD ACCOUNT
23,410
To general ledger adjustment a/c 10,432 By WIP control a/c
To stores ledger control a/c 2,586
To wages control a/c 9,543
To overhead adjustment a/c 849

23,410

WIP LEDGER CONTROL ACCOUNT

To balance b/d 4,280 By Finished goods ledger control a/c 1,18,517 CHAPTER 7
To General ledger adjustment a/c 1,950 By Balance c/d 6,251
To stores ledger control a/c 56,501
To wages control a/c 38,627 1,24,768
To production overhead a/c 23,410

1,24,768

ADMINISTRATION OVERHEAD ACCOUNT

To General ledger adjustment a/c 9,546 By Finished goods ledger control a/c 15,150
To wages control a/c 6,731 To overhead adjustment a/c 1,127

16,277 16,277

SELLING AND DISTRIBUTION OVERHEAD ACCOUNT

To General ledger adjustment a/c 6,430 By cost of sales a/c 9,515
To wages control a/c 4,252 By overhead adjustment a/c 1,167

10,682 10,682

FINISHED GOODS LEDGER CONTROL ACCOUNT

To Balance b/d 2,170 By cost of sales a/c 1,33,382
To administration overhead a/c 15,150 By Balance c/d 2,455
To WIP control a/c 1,18,517
To wages control a/c 1,35,837
6,731

1,35,837

COST OF SALES ACCOUNT

To selling and distribution By P & L a/c 1,42,897
1,42,897
overhead a/c 9,515

To finished goods ledger control a/c 1,33,382

1,42,897

OVERHEAD ADJUSTMENT ACCOUNT

To administration overhead a/c 1,127 By production overhead a/c 849
To selling and distribution 1,167 By costing P & L a/c 1,445

overhead a/c 2,294

2,294

372 METHODS AND TECHNIQUES OF COSTING

COSTING P & L ACCOUNT

To cost of sales a/c 1,42,897 By sales 1,55,000
1,55,000
To overhead adjustment a/c 1,445

To General ledger adjustment a/c–

net profit 10,658

1,55,000

TRIAL BALANCE Dr. Cr.
9,991 18,697
Stores ledger control a/c 6,251
Work-in-progress control a/c 2,455
Finished goods ledger control a/c
General ledger adjustment a/c

18,697 18,697

Problem 11. A firm maintains its books under non-integral accounting system. Enter the

following transactions in the cost books:

Rs.

(i) Credit purchase for a special job 30,000

(ii) Returned to suppliers 5,000

(iii) Materials returned from jobs to stores 500

(iv) Direct materials issued to jobs 10,000

(Osmania University, M.Com., Final, June 2003)

Solution:

COST JOURNAL

(i) Work-in-progress control a/c Dr. 30,000
To general ledger control a/c 30,000

(Being credit purchase for a special job)

(ii) General ledger control a/c Dr. 5,000
To work-in-progress control 5,000

(Being materials returned to suppliers)

(iii) Stores ledger control a/c Dr. 500

To work-in-progress control a/c 500

(Being materials returned from jobs to stores)

(iv) Work-in-progress control a/c Dr. 10,000
To stores ledger control a/c 10,000

(Being direct material issued to jobs)

Problem 12. Give journal entries for entering the following transactions in the non-integrated
accounting system in the cost records.

(a) Purchase of raw materials on credit Rs. 10,000
(b) Depreciation on machinery used for production Rs. 2,000
(c) Absorption of production overhead Rs. 6,000
(d) Cash period for indirect production wages Rs. 1,000

(Osmania University, M.Com., Final, May 1997)

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 373

Solution:

COST JOURNAL Dr. 10,000

(1) Stores ledger control a/c 10,000
To general ledger adjustment a/c

(Being raw materials purchased)

(2) Factory overhead control a/c Dr. 2,000
To general ledger adjustment a/c 2,000

(Being depreciation on machinery)

(3) Work-in-progress control a/c Dr. 6,000 CHAPTER 7
To factory overhead control a/c 6,000

(Being absorption of production overhead)

(4) Wages control a/c Dr. 1,000
To General ledger adjustment a/c
1,000
(Being cash paid to indirect production wages)

Problem 13. R.K. Ltd., operates separate cost accounting and financial accounting systems. The
following information has been extracted from the cost records of the company for the month of
January 2005.
.

(A) Control account balance 1-1-05 31-1-05

Rs. Rs.

Raw material 49,500 50,300

Work-in-progress 60,100 56,900

Finished goods 1,15,400 1,37,400

(B) Additional information for the month:

Raw materials purchased 1,08,000
Production overhead incurred 91,600
Production overhead absorbed (185%
of direct wages) 74,000
Factory cost of goods produced 2,22,000
Cost of goods sold
(Excluding selling and Administration overhead) 2,00,000
Selling and Administration overhead
incurred and absorbed 30,000
Sales 3,00,000
Loss of materials damaged by flood
2,400

You are required to:

(i) Prepare the following control accounts in the cost ledger:

(a) Raw material (b) Work-in-progress

(c) Finished goods (d) Production overhead

(ii) Ascertain profit as per cost accounts for the month of January 2005 assuming that under or
over absorbed overhead is written off to costing profit and loss account.

(University of Delhi, B.Com. (Hons) 2005)

374 METHODS AND TECHNIQUES OF COSTING

Solution:

RAW MATERIAL CONTROL ACCOUNT

To balance b/d 49,500 By costing P & L a/c 2,400
To cost ledger control a/c 1,08,000 By work-in-progress control a/c 1,04,800
By Balance c/d
50,300
1,57,500
1,57,500

WORK-IN-PROGRESS CONTROL ACCOUNT

To Balance b/d 60,100 By finished goods control a/c 2,22,000
To stores ledger control a/c 1,04,800 By Balance c/d 56,900
To wage control a/c
(W.N-1) 40,000 2,78,900
To production overhead control a/c
74,000 2,00,000
1,37,400
2,78,900 3,37,400

Working Note:

Wage control = 74,000 × = Rs. 40,000


FINISHED GOODS CONTROL ACCOUNT

To balance b/d 1,15,400 By cost of goods sold
To work-in-progress control a/c 2,22,000 By balance c/d

3,37,400

PRODUCTION OVERHEAD CONTROL ACCOUNT

To cost ledger adj. a/c 91,600 By work-in-progress control a/c 74,000
By profit & loss a/c 17,600

91,600 91,600

COSTING PROFIT & LOSS ACCOUNT

To cost of goods sold 2,00,000 By sales 3,00,000
3,00,000
To Abnormal loss 2,400

To production overhead under absorbed 17,600

To selling & administration overhead 30,000

To profit 50,000

3,00,000

Problem 14. The following figures have been extracted from the cost records of a manufacturing

unit:

Rs.

Stores: Opening balance 32,000

Purchase 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

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 375

Direct wages applied 65,000

Overhead applied 2,40,000

Closing balance of WIP 45,000

Finished product; Entire output is sold at a profit of 10% on actual cost from work-in-progress.

Wages incurred Rs. 70,000, overhead incurred Rs. 2,50,000.

Items not included in cost records: Income from investment Rs. 10,000. Loss on sale of capital

assets Rs. 20,000.

Draw up stores control account, work-in-progress control account, costing profit and loss account

and reconciliation statement. (C.A. PE-II, Group II, May 2005)

Solution:

IN COSTING BOOKS CHAPTER 7

STORES CONTROL ACCOUNT

To balance b/d 32,000 By WIP control a/c 1,60,000
To General ledger adjustment a/c 1,58,000 By works overhead control a/c 20,000
To work-in-progress control a/c By costing P & L a/c 6,000
80,000 By balance c/d 84,000

2,70,000 2,70,000

WIP CONTROL ACCOUNT

To Balance b/d 60,000 By stores control a/c 80,000
To stores control a/c 1,60,000
To Direct wages control a/c By costing P&L a/c (cost of sales) 4,00,000
To works overhead control a/c 65,000
2,40,000 To balance c/d 45,000

5,25,000 5,25,000

WORKS OVERHEAD CONTROL ACCOUNT

To general ledger adjustment a/c 2,50,000 By WIP control a/c 2,40,000
To stores ledger control a/c 20,000 By costing P & L a/c 30,000

(under recovery) 2,70,000

2,70,000

COSTING P & L ACCOUNT

To WIP control a/c (cost of sales) 4,00,000 By general ledger adjustment a/c:
To works overhead control a/c 30,000
To stores control a/c (shortage) 6,000 Cost of sales 4,00,000
To profit 4,000
Profit 10% 40,000

4,40,000

4,40,000 4,40,000

376 METHODS AND TECHNIQUES OF COSTING

IN FINANCIAL BOOKS

PROFIT & LOSS ACCOUNT

To opening stock: By sales 4,40,000
By closing stock:
– Stores 32,000 1,29,000
– Stores 10,000
– WIP 60,000 92,000 – WIP 84,000 11,000
1,58,000 45,000
To purchases
70,000
To wages 2,50,000

To overhead 20,000 By income from investment
By loss
To loss on sale of capital assets

5,90,000 5,90,000

RECONCILIATION STATEMENT 4,000
10,000
Profit as per cost accounts 14,000
Add: Income from investment recorded in financial accounts
25,000
Less: Under absorption of wages
in cost accounts
5,000
Loss on sale of capital 20,000
asset included in
financial at accounts only

Loss as per financial accounts 11,000

Problem 15. A company operates separate cost accounting and financial accounting systems. The

following is the list of opening balances as on 1-4-2001 in the cost ledger

Debit Credit

Rs. Rs.

Stores ledger control a/c 53,375 —

WIP control account 104,595 —

Finished goods control a/c 30,780 —

General ledger adjustment a/c — 1,88,750

Transactions for the quarter ended 30-6-2001 are as under:

Rs.

Materials purchased 26,700

Materials issued to production 40,000

Materials issued for factory repairs 900

Factory wages paid (including indirect wages Rs. 23,000) 77,500

Production overhead incurred 95,200

Production overheads under-absorbed and written off 3,200

Sales 2,56,000

The company’s gross profit is 25% on factory cost. At the end of the quarter, work-in-progress
stocks increased by Rs. 7,500.

Prepare the relevant control accounts, costing profit & loss a/c, and General ledger adjustment
account to record the above transactions for the quarter ended 30-6-2001.

(C.A. Inter, November 2001)

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 377

Solution: GENERAL LEDGER ADJUSTMENT ACCOUNT

To sales 2,56,000 By Balance b/d 1,88,750
To balance c/d 1,80,150 By stores ledger control a/c 26,700
By wages control a/c 77,500
By overhead control a/c 95,200
By costing profit & loss a/c 48,000

4,36,150 4,36,150

STORES LEDGER CONTROL ACCOUNT CHAPTER 7

To Balance b/d 53,375 By WIP control a/c 40,000
To General ledger adjustment a/c 26,700 By Factory overhead control a/c 900
By Balance c/d
39,175
80,075
80,075

WIP CONTROL ACCOUNT

To Balance b/d 1,04,595 By Finished goods control a/c 2,02,900
To stores ledger control a/c 40,000 By Balance c/d 1,12,095
To wages control a/c 54,500
To Factory overhead control 3,14,995
1,15,900

3,14,995

FINISHED GOODS CONTROL ACCOUNT

To Balance b/d 30,780 By cost sales a/c 2,04,800
To WIP control a/c 2,02,900 By balance c/d 28,880

2,33,680 2,33,680
Note:
Gross profit is 25% on factory cost or 20% on sales
Hence cost of sales = Rs. 2,56,000 – 20% of 2,56,000 = Rs. 2,04,800

FACTORY OVERHEAD CONTROL ACCOUNT

To stores ledger control a/c 900 By costing P & L a/c 3,200
To wages control a/c 23,000 By WIP control a/c 1,15,900
To general ledger adjustment a/c 95,200 1,19,100

1,19,100 2,04,800

COST OF SALES ACCOUNT

To finished goods control a/c 2,04,800 By costing P & L a/c

To costing P & L a/c SALES ACCOUNT
2,56,000 By General ledger adjustment a/c 2,56,000

378 METHODS AND TECHNIQUES OF COSTING

WAGES CONTROL ACCOUNT

To general ledger adjustment a/c 77,500 By factory overhead control a/c 23,000
By WIP control a/c 54,500

77,500 77,500

COSTING PROFIT AND LOSS ACCOUNT

To factory overhead control a/c 3,200 By sales a/c 2,56,000

To cost of sales a/c 2,04,800 2,56,000

To General ledger adjustment a/c profit 48,000 Cr.
–
2,56,000
1,80,150
TRIAL BALANCE AS ON 30-6-2001 1,80,150

Stores ledger control a/c Dr.
WIP control a/c 39,175
Finished goods control a/c 1,12,095
General ledger adjustment a/c 28,880

–

1,80,150

Questions

1. The following are the balances in the cost ledger of a manufacturing company on Ist January
1981:

Dr. Cr.

Stores ledger 4,500

Work-in-progress ledger 10,200

Finished goods ledger 6,800

Financial ledger 21,500

Summary of transactions during the year 1981: 20,000
Materials purchased 18,000
Materials issued to jobs

Materials issued for repairs in a factory 1,000
Direct wages paid 15,000
Indirect wages paid
Factory expenses paid 5,000
Administration expenses paid 6,000
Selling expenses paid 15,000
Cost of finished goods produced 7,000
Cost of finished goods sold 56,000
Sales 70,000
1,00,000

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM 379

Prepare control accounts and costing profit and loss account in the cost ledger assuming that the

overheads recovered and incurred are the same and that administration overheads are charged to

finished goods. (Madurai University, M.Com., Nov. 1988)

[Ans. Costing profit is Rs. 23,800]

2. Hewlett and Packard company maintains cost control accounts. The following balances have
been extracted from the books:

Dr. Cr.

Cost ledger control Rs. Rs.
Stores ledger control 20,000 60,000

Work-in-progress ledger control 10,000 CHAPTER 7
Finished goods control 30,000

60,000 60,000

Following transactions are recorded for the period:

Materials supplied to stores 1,00,000
Materials supplied directly to production 30,000

Materials returned from stores to supplier 50,000

Materials issued to production 70,000

Indirect materials 10,000

Wages and salaries (Direct wages Rs. 80,000, factory wages Rs. 10,000,

administrative salary Rs. 40,000, marketing salary Rs. 20,000) 1,50,000

Production overhead incurred 60,000

Factory overhead recovered at 90% of direct wages –

Administrative expenses 40,000

Office overhead absorbed 85,000

Marketing expenses 28,000

Marketing expenses recovered at Re. 1 per unit sold –

Cost of production 25,000

Cost of goods sold 3,20,000

Sales at Rs. 10 per unit 4,00,000

Prepare necessary ledger accounts in cost ledger and extract trial balance as on the last date

of period. (Bangalore University, M. Com., April 1999)

[Ans. Balances: Cost ledger control Rs. 92,000, Stores ledger control Rs. 35,000, WIP ledger
control Rs. 12,000, Finished goods control Rs. 45,000, Net profit Rs. 29,000]