b.com – ii – advanced and cost...

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2014

Compiled and Solved by:

Sameer Hussain

B.COM – II – ADVANCED AND COST ACCOUNTING

PRIVATE

Compiled & Solved by: Sameer Hussain www.a4accounting.weebly.com

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B . C o m – I I – A d v a n c e d a n d C o s t A c c o u n t i n g – 2 0 1 4 ( P r i v a t e )

ADVANCED AND COST

ACCOUNTING – 2014

PRIVATE Instructions: (1) Attempt any FIVE questions in all, THREE questions from Section – A and TWO

questions from Section – B. (2) All questions carry equal marks. (3) Answers without necessary computations will not be accepted.

SECTION “A” (ADVANCED ACCOUNTING)

Q.No.1 COMPANY – ABSORPTION The balance sheet data of Adnan Company Limited as on December 31, 2014 is as under: Authorized capital Rs.1,000,000; Paid up capital Rs.600,000; Share premium Rs.50,000; Retained earnings (debit balance) Rs.100,000; Reserves Rs.50,000; 6% Bonds payable Rs.100,000; Accounts payable Rs.60,000 and Preliminary expenses Rs.100,000. Adnan Limited was absorbed by Noman Limited on the following terms: a) All the assets and accounts payable were taken over by the absorbing company at book value. b) Adnan Ltd. received 40,000 shares of Rs.10 each and cash Rs.60,000 from the absorbing company. c) Bonds holders received 11,000 shares of Rs.10 each from absorbing company. d) Noman Ltd. paid liquidation expenses of Rs.10,000 to Adnan Ltd. in cash. REQUIRED Give entries in the books of Adnan Company Limited and Noman Company Limited. SOLUTION 1 Computation of Other Assets: Paid – up share capital 600,000 Share premium 50,000 Reserves 50,000

Total shareholders’ equity 700,000 Add: Liabilities: 6% Bonds payable 100,000 Accounts payable 60,000

Total liabilities 160,000

860,000 Less: Retained earnings (100,000)

Total assets 760,000 Less: Preliminary expenses (100,000)

Other assets Rs.660,000

Computation of Purchase Consideration: To Shareholders: 40,000 Ordinary shares @ Rs.10 each 400,000 Cash 60,000 To Bond Holders: 11,000 ordinary shares @ Rs.10 each 110,000 Liquidation Expense: Cash 10,000

Purchase consideration Rs.580,000


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ADNAN COMPANY LIMITED GENERAL JOURNAL

Date Particulars P/R Debit Credit

1 Realization 660,000 Other assets 660,000 (To record the transfer of assets to Noman Ltd.)

2 Accounts payable 60,000 Realization 60,000 (To record the transfer of liabilities to Noman Ltd.)

3 Receivable from Noma Company Ltd. 580,000 Realization 580,000 (To record the purchase consideration)

4 Shares – in 510,000 Cash 70,000 Receivable from Noma Company Ltd. 580,000 (To record the cash and shares received from Noma Ltd.)

5 Bonds payable 100,000 Realization 10,000 Shares – in 110,000 (To record the shares issued to the bond holders)

6 Realization 10,000 Cash 10,000 (To record the liquidation expenses paid)

7 Ordinary share capital 600,000 Share premium 50,000 Reserves 50,000 Retained earnings 100,000 Preliminary expenses 100,000 Payable to shareholders 500,000 (To record the closing of shareholders’ equity)

8 Payable to shareholders 40,000 Realization 40,000 (To record the closing of realization account)

9 Payable to shareholders 460,000 Cash 60,000 Shares – in 400,000 (To record the cash & shares issued to the shareholders)

Realization

1 Other assets 660,000 2 Accounts payable 60,000 5 Shares – in 10,000 3 Receivable from Noman Ltd. 580,000 6 Cash 10,000 8 Payable to shareholders 40,000

680,000 680,000


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NOMAN COMPANY LIMITED GENERAL JOURNAL


1 Other assets 660,000 Capital reserve 20,000 Accounts payable 60,000 Payable to Adnan Company Ltd. 580,000 (To record the assets and liabilities taken over from

Adnan Company Ltd.)

2 Payable to Adnan Company Ltd. 580,000 Ordinary shares capital (51,000 x 10) 510,000 Cash 70,000 (To record the shares and cash issued to Adnan Ltd.)

Q.No.2 INSTALLMENT SALES On April 1, 2014, LG Co. sold 15 TV sets on installment basis at Rs.20,000 each, the cost being Rs.15,000 per TV. The terms of sales were:

i) Rs.6,000 per TV should be paid at the time of signing of agreement. The balance should be paid in 7 monthly installment of Rs.2,000 per TV.

ii) Interest at 12% per annum should be paid on unpaid balance along with the installment. After the payment of May installment one customer is unable to pay further installments, TV set was repossessed having a market value of Rs.5,000. REQUIRED Record journal entries including adjusting and closing entries in respect of the above transactions for the year ended on June 30, 2014. (Note: Company follows perpetual system and installments are due on last day of the month). SOLUTION 2 Computation of Installment Sales: Installment sales = Units sold x Selling price per unit Installment sales = 15 x 20,000 Installment sales = Rs.300,000 Computation of Cost of Installment Sales: Cost of installment sales = Units sold x Cost price per unit Cost of installment sales = 15 x 15,000 Cost of installment sales = Rs.225,000 Computation of Unrealized Gross Profit: Unrealized gross profit = Installment sales – Cost of installment sales Unrealized gross profit = 300,000 – 225,000 Unrealized gross profit = Rs.75,000 Computation of Unrealized Gross Profit Rate (DGP%): Unrealized gross profit rate = Unrealized gross profit x 100

Installment sales Unrealized gross profit rate = 75,000 x 100

300,000 Unrealized gross profit rate = 25%


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Computation of Cash Collection: Down payment (6,000 x 15) 90,000 Add: Installment received (2,000 x 15 x 3 – 2,000) 88,000

Total cash collection Rs.178,000

Computation of Realized Gross Profit: Realized gross profit = Cash collection X DGP% Realized gross profit = 178,000 x 25% Realized gross profit = Rs.44,500 Computation of Interest Income on 30 April 2014: Installment sales 300,000 Less: Down payment (90,000)

Unpaid balance on 30 April 2014 210,000

Interest income = 210,000 x 12% Interest income = 25,200 x 1/12 Interest income = Rs.2,100 Computation of Interest Income on 31 May 2014: Unpaid balance on 30 April 2014 210,000 Less: Installment received on 30 April 2014 (30,000)

Unpaid balance on 31 May 2014 180,000

Interest income = 180,000 x 12% Interest income = 21,600 x 1/12 Interest income = Rs.1,800 Computation of Interest Income on 30 June 2014: Unpaid balance on 31 May 2014 180,000 Less: Installment received on 31 May 2014 (30,000)

Unpaid balance on 30 June 2014 150,000

Interest income = 150,000 x 12% Interest income = 18,000 x 1/12 Interest income = Rs.1,500 Computation of Gain or Loss on Repossession: Installment accounts receivable cancelled (2,000 x 5) 10,000 Less: Unrealized gross profit (10,000 x 25%) (2,500)

Book value 7,500 Less: Merchandise repossessed at fair market value (5,000)

Loss on repossession Rs.2,500

LG CO.

GENERAL JOURNAL


April 1 Installment accounts receivable 300,000 2014 Installment sales 300,000 (To record the good sold on installment basis)


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April 1 Cost of installment sales 225,000 2014 Merchandise 225,000 (To record the cost of installment sales)

April 1 Cash 90,000 2014 Installment accounts receivable 90,000 (To record the down payment received)

April 30 Cash 32,100 2014 Installment accounts receivable 30,000 Interest income 2,100 (To record the cash collected on installment basis)

May 31 Cash 31,800 2014 Installment accounts receivable 30,000 Interest income 1,800 (To record the cash collected on installment basis)

June 30 Cash 29,500 2014 Installment accounts receivable 28,000 Interest income 1,500 (To record the cash collected on installment basis)

June 30 Merchandise repossessed 5,000 2014 Unrealized gross profit 2,500 Loss on repossession 2,500 Installment accounts receivable 10,000 (To adjust the repossession of merchandise)

LG CO.

ADJUSTING ENTRIES


June 30 Installment sales 300,000 2014 Cost of installment sales 225,000 Unrealized gross profit 75,000 (To adjust the unrealized gross profit)

June 30 Unrealized gross profit 44,500 2014 Realized gross profit 44,500 (To adjust the realized gross profit)

LG CO.

CLOSING ENTRIES


June 30 Realized gross profit 44,500 2014 Interest income 5,400 Expense and revenue summary 49,900 (To close the all income accounts)

June 30 Expense and revenue summary 2,500 2014 Loss on repossession 2,500 (To close the loss on repossession)

June 30 Expense and revenue summary 47,400 2014 Retained earnings 47,400 (To close the expense and revenue summary account)


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Q.No.3 CASH FLOW STATEMENT Mazhar Company Limited presents the comparative balance sheet data as follows:

Debit Balances 31 – 12 – 2014 31 – 12 – 2013

Cash Rs.18,000 Rs.10,000 Accounts receivable 58,000 70,000 Inventories 100,000 115,000 Prepaid expenses 14,000 8,000 Machinery 200,000 180,000 Land 100,000 120,000 Goodwill 30,000 40,000

Credit Balances

Allowance for depreciation 60,000 44,000 Accounts payable 56,000 70,000 Accrued expenses 52,000 40,000 10% Bonds payable 30,000 100,000 Share capital 250,000 200,000 Retained earnings 72,000 89,000

Other Information:

Land costing Rs.20,000 was sold for Rs.40,000.

Machinery costing Rs.40,000 was sold for Rs.18,000, the book value of the machinery was Rs.14,000.

Company declared cash dividend of Rs.25,000 and stock dividend of Rs.15,000. REQUIRED Prepare a cash flow statement for the year ended December 31, 2014. SOLUTION 3 Computation of Net Income: Retained earnings (2014) 72,000 Less: Retained earnings (2013) (89,000)

Net decrease in retained earnings (17,000) Add: Dividends: Cash dividend 25,000 Stock dividend 15,000

Total dividends 40,000

Net income Rs.23,000

MAZHAR COMPANY LIMITED

CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2014

Cash Flow from Operating Activities: Net income 23,000 Adjustments: Depreciation expense (16,000 + 26,000) 42,000 Amortization of goodwill 10,000 Gain on sale of land (20,000) Gain on sale of machinery (4,000)

Cash flow before changes in working capital 51,000 Add: Decrease in accounts receivable 12,000 Add: Decrease in merchandise inventory 15,000


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Less: Increase in prepaid expenses (6,000) Less: Decrease in accounts payable (14,000) Add: Increase in accrued expenses 12,000

Net cash flow from operating activities 70,000 Cash Flow from Investing Activities: Sale of land 40,000 Purchase of machinery (60,000) Sale of machinery 18,000

Net cash flow from investing activities (2,000) Cash Flow from Financing Activities: Payment of bonds payable (70,000) Issue of shares capital 35,000 Cash dividend paid (25,000)

Net cash flow from financing activities (60,000)

Net increase in cash and cash equivalents 8,000 Add: Opening cash and cash equivalents balance 10,000

Closing cash and cash equivalents balance Rs.18,000

Q.No.4 ANALYSIS OF FINANCIAL STATEMENTS Sony Company Limited presents the following selected balances from its financial statements:

Cash Rs.2,000 Allowance for depreciation Rs.50,000 Accounts receivable 78,000 Allowance for bad debts 3,000 Merchandise inventory 80,000 Accounts payable 68,000 Marketable securities 20,000 Accrued expenses 15,000 Plant assets 350,000 Bonds payable 70,000 Retained earnings 100,000 Share capital (par value Rs.10) 200,000 Reserves 34,000

Other Information: Cash sales Rs.75,000; Credit sales Rs.1,130,000; Sales returns Rs.5,000; Cost of goods sold Rs.800,000; Operating expenses Rs.300,000. Inventories and accounts receivable remained almost same throughout the year. REQUIRED Calculate the following: (i) Current ratio (ii) Quick ratio (iii) Debit ratio (iv) Equity ratio (v) Receivable turnover days (vi) Inventory turnover days (vii) Book value per share (viii) Rate of return on sales SOLUTION 4 Computation of Total Liabilities: Accounts payable 68,000 Accrued expenses 15,000

Total current liabilities 83,000 Bonds payable 70,000

Total liabilities Rs.153,000


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Computation of Total Assets: Cash 2,000 Marketable securities 20,000 Accounts receivable 78,000 Less: Allowance for bad debts (3,000) 75,000

Total quick assets 97,000 Merchandise inventory 80,000

Total current assets 177,000 Add: Fixed Assets: Plant assets 350,000 Less: Allowance for depreciation (50,000)

Total fixed assets 300,000

Total assets Rs.477,000

Computation of Shareholders’ Equity: Share capital 200,000 Retained earnings 100,000 Reserves 34,000

Total shareholders’ equity Rs.334,000

Computation of Net Income: Cash sales 75,000 Credit sales 1,130,000 Less: Sales returns (5,000)

Net credit sales 1,125,000

Net sales 1,200,000 Less: Cost of goods sold (800,000)

Gross profit 400,000 Less: Operating expenses (300,000)

Net income Rs.100,000

(a) Current Ratio:

Current ratio = Total current assets

Total current liabilities Current ratio = 177,000

83,000 Current ratio = 2.13 : 1

(b) Quick Ratio: Quick ratio = Total quick assets

Total current liabilities Quick ratio = 97,000

83,000 Quick ratio = 1.17 : 1


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(c) Debt Ratio: Debt ratio = Total liabilities

Total assets Debt ratio = 153,000

477,000 Debt ratio = 0.32:1

(d) Equity Ratio: Equity ratio = Total shareholders’ equity

Total assets Equity ratio = 334,000

477,000 Equity ratio = 0.70:1

(e) Accounts Receivable Turnover: Receivable turnover in times = Net credit sales

Average receivable Receivable turnover in times = 1,125,000

75,000 Receivable turnover in times = 15 times Receivable turnover in days = 365

Receivable turnover in times Receivable turnover in days = 365

15 Receivable turnover in days = 25 days

(f) Inventory Turnover: Inventory turnover in times = Cost of goods sold

Average inventory Inventory turnover in times = 800,000

80,000 Inventory turnover in times = 10 times Inventory turnover in days = 365

Inventory turnover in times Inventory turnover in days = 365

10 Inventory turnover in days = 36.5 days

(g) Book value Per Share: Book value per share = Shareholders’ equity

Number of shares Book value per share = 334,000

(200,000/10) Book value per share = 334,000

20,000 Book value per share = Rs.16.7 per share


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(h) Rate of Return on Sales: Rate of return on sales = Net income X 100

Net sales Rate of return on sales = 100,000 X 100

1,200,000 Rate of return on sales = 8.33%

Q.No.5 BRANCH ACCOUNTING Following are the selected balances taken from trial balance of head office and branch of Dell Company Limited on December 31, 2014:

Account Titles Head Office Branch

Sales revenue Rs.115,000 Rs.85,000 Merchandise inventory 6,000 8,000 Purchases 100,000 --- Shipment to branch 48,000 --- Allowance for overvaluation 13,000 --- Shipment from head office --- 60,000 Purchase discount 2,000 --- Operating expenses 12,000 8,000 Branch current account (Debit) 240,000 --- Head office current account (Credit) --- 240,000

Other Information: The closing inventory of head office was Rs.10,000 and that of branch was Rs.5,400; Prepaid operating expenses (head office) Rs.4,000 and accrued operating expense (branch) Rs.2,000. REQUIRED

(a) Income statement of branch. (b) Consolidated income statement of head office and branch. (c) Entries in the books of head office to incorporate branch profit/loss and adjustment of

allowance for overvaluation. SOLUTION 5 (a) Computation of Allowance for Overvaluation:

Particulars Billed Cost Allowance for over valuation

Merchandise inventory opening 8,000 7,000 1,000 Add: Merchandise supplied 60,000 48,000 12,000

Unadjusted allowance for overvaluation 68,000 55,000 13,000 Less: Merchandise inventory ending (5,400 x 25/125) (5,400) (4,320) (1,080)

Adjusted allowance for overvaluation 62,600 50,680 11,920

Computation of Allowance for Overvaluation Rate: Allowance for overvaluation rate = Allowance for overvaluation X 100

Cost price Allowance for overvaluation rate = 12,000 X 100

48,000 Allowance for overvaluation rate = 25%


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DELL COMPANY LIMITED INCOME STATEMENT

(BRANCH BOOK) FOR THE PERIOD ENDED 31 DECEMBER 2014

Sales revenue 85,000 Less: Cost of Goods Sold: Merchandise inventory (beg) 8,000 Add: Shipment from head office 60,000

Merchandise available for sale 68,000 Less: Merchandise inventory (end) (5,400)

Cost of goods sold (62,600)

Gross profit 22,400 Less: Operating expenses (8,000 + 2,000) (10,000)

Net profit Rs.12,400

SOLUTION 5 (b)

DELL COMPANY LIMITED CONSOLIDATED INCOME STATEMENT

(HEAD OFFICE BOOK) FOR THE PERIOD ENDED 31 DECEMBER 2014

Sales revenue (115,000 + 85,000) 200,000 Less: Cost of Goods Sold: Merchandise inventory (beg) (6,000 + 7,000) 13,000 Add: Net Purchases: Purchases 100,000 Less: Purchase discount (2,000)

Net purchases 98,000

Merchandise available for sale 111,000 Less: Merchandise inventory (end) (10,000 + 4,320) (14,320)

Cost of goods sold (96,680)

Gross profit 103,320 Less: Operating expenses (12,000 + 8,000 – 4,000 + 2,000) (18,000)

Net profit Rs.85,320

SOLUTION 5 (c)

DELL COMPANY LIMITED (HEAD OFFICE BOOK)

FOR THE PERIOD ENDED 31 DECEMBER 2014


1 Branch 12,400 Profit and loss account 12,400 (To record the net profit reported by branch)

2 Allowance for overvaluation 11,920 Profit and loss account 11,920 (To adjust the allowance for overvaluation account)

3 Profit and loss account 24,320 Retained earnings 24,320 (To close the profit and loss account)


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SECTION “B” (COST ACCOUNTING) Q.No.6 MANUFACTURING CONCERN Following balances are provided by Karachi Industries on December 31, 2014: Beginning inventory material Rs.10,000 Beginning inventory goods in process 35,000 Beginning inventory finished goods 51,000 Direct labour 100,000 Factory overhead ? Carriage – in 25,000 Administrative expenses 50,000 Selling expenses 80,000 Net sales 690,000 Net profit 60,000 Ending inventory material 15,000 Ending inventory goods in process (Material Rs.10,000; Labour Rs.8,000 and factory overhead ?) ? Ending inventory finished goods (Material Rs.16,000; Labour Rs.20,000 and factory overhead Rs.25,000) ? Note: Factory overhead applied on the basis of direct labour cost. REQUIRED

(a) Compute the missing amounts. (b) Prepare closing entries in General Journal.

SOLUTION 6 (a) Computation of Factory Overhead Rate: Factory overhead rate = Factory overhead X 100

Direct labour Factory overhead rate = 25,000 X 100

20,000 Factory overhead rate = 125% Computation of Factory Overhead: Factory overhead = Direct labour x Factory overhead rate Factory overhead = 100,000 x 125% Factory overhead = Rs.125,000 Computation of Goods in Process Ending Inventory: Direct material Rs.10,000 Direct labour 8,000 Factory overhead (8,000 x 125%) 10,000

Goods in process ending inventory Rs.28,000

Computation of Finished Goods Ending Inventory: Direct material Rs.16,000 Direct labour 20,000 Factory overhead 25,000

Finished goods ending inventory Rs.61,000


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Computation of Purchases of Raw Material: Net sales 690,000 Less: Gross Profit: Net profit 60,000 Add: Operating Expenses: Administrative expenses 50,000 Selling expenses 80,000

Total operating expenses 130,000

Gross profit (190,000)

Cost of goods sold 500,000 Add: Finished goods ending inventory 61,000

Finished goods available for sale 561,000 Less: Finished goods beginning inventory (51,000)

Cost of goods manufactured 510,000 Add: Goods – in- process ending inventory 28,000

Total goods – in – process during the period 538,000 Less: Goods – in – process opening inventory (35,000)

Total manufacturing cost 503,000 Less: Conversion Cost: Direct labour 100,000 Add: Factory overhead 125,000

Total conversion cost (225,000)

Direct material used 278,000 Add: Raw material ending inventory 15,000

Raw material available for use 293,000 Less: Raw material opening inventory (10,000)

Net purchases of raw material 283,000 Less: Carriage – in (25,000)

Purchases of raw material Rs.258,000

SOLUTION 6 (b)

KARACHI INDUSTRIES CLOSING ENTRIES

FOR THE PERIOD ENDED 31 DECEMBER 2014


1 Manufacturing account 553,000 Raw material beginning inventory 10,000 Goods – in – process beginning inventory 35,000 Purchases of raw material 258,000 Direct labour 100,000 Factory overhead 125,000 Carriage – in 25,000 (To close the various manufacturing account)

2 Raw materials ending inventory 15,000 Goods – in – process ending inventory 28,000 Manufacturing account 43,000 (To close the various manufacturing accounts)


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3 Expense and revenue summary 510,000 Manufacturing account 510,000 (To close the manufacturing account)

4 Expense and revenue summary 181,000 Finished goods beginning inventory 51,000 Administrative expenses 50,000 Selling expenses 80,000 (To close the various expense accounts)

5 Sales 690,000 Finished goods ending inventory 61,000 Expense and revenue summary 751,000 (To close the various income accounts)

6 Expense and revenue summary 60,000 Capital 60,000 (To close the expense and revenue summary account)

Q.No.7 JOB ORDER COSTING Azhar Manufacturing Company uses job order cost system. The ledger accounts show the following inventories:

31 – 01 – 2015 01 – 01 – 2015

Raw material Rs.30,000 Rs.20,000 Work in process 49,000 40,000 Finished goods 40,000 20,000

Manufacturing operations for the month of January 2015 are summarized as follows: a) Material purchased on account Rs.80,000 b) Material returned to supplier 4,000 c) Material issued to job 66,000 d) Labour used 30,000 e) Depreciation on machinery 4,000 f) Factory overhead cost incurred 30,000 g) Indirect labour used 10,000 h) The factory overhead rate is applied 110% of direct labour cost. i) The jobs were completed and shipped to customer at billed price 160,000 REQUIRED Give journal entries and set up T – Accounts for raw material, work in process and finished goods and complete them in all respect. SOLUTION 7

AZHAR MANUFACTURING COMPANY GENERAL JOURNAL


1 Raw material 80,000 Accounts payable 80,000 (To record the purchase of raw material on credit)

2 Accounts payable 4,000 Raw material return 4,000 (To record the raw material return to supplier)


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3 Work – in – process 66,000 Raw material 66,000 (To record the raw material used)

4 Work in process 30,000 Accrued payroll 30,000 (To record the direct labour assigned to production)

5 Factory overhead 4,000 Allowance for depreciation – Machinery 4,000 (To record the depreciation on machinery)

6 Factory overhead 30,000 Accounts payable 30,000 (To record the actual factory overhead cost incurred)

7 Factory overhead 10,000 Accrued payroll 10,000 (To record the indirect labour used)

8 Work in process (30,000 x 110%) 33,000 Factory overhead applied 33,000 (To record the applied factory overhead)

9 Finished goods 120,000 Work in process 120,000 (To record the cost of finished goods)

10 Cost of goods sold 100,000 Finished goods 100,000 (To record the cost of goods sold)

11 Accounts receivable 160,000 Sales (13,000 + 16,000) 160,000 (To record the goods sold to customers on account)

12 Cost of goods sold 11,000 Under – applied factory overhead 11,000 (To close the factory overhead account)

Raw Material

Jan. 1 Balance 20,000 2 Accounts payable 4,000 1 Accounts payable 80,000 3 Work in process 66,000 Jan. 31 c/d balance 30,000

100,000 100,000

Work in Process

Jan. 1 Balance 40,000 9 Finished goods 120,000 3 Raw material 66,000 Jan. 31 c/d balance 49,000 4 Accrued payroll 30,000 8 Factory overhead 33,000

169,000 169,000


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Finished Goods

Jan. 1 Balance 20,000 10 Cost of goods sold 100,000 9 Work in process 120,000 Jan. 31 c/d balance 40,000

140,000 140,000

Factory Overhead

5 Allowance for depreciation 4,000 8 Work in process 33,000 6 Accounts payable 30,000 12 Cost of goods sold 11,000 7 Accrued payroll 10,000

44,000 44,000

Q.No.8 PROCESS COSTING Muneeb Company uses a process cost system. The following information is taken from finishing department on February 28, 2015: Units completed and transferred to warehouse 20,000 units Units in process on February 28, 2015 (100% completed as to material and 60% as to conversion cost) 5,000 units During February units received from cutting department 25,000 units Cost Report: Cost transferred from cutting department Rs.250,000 Raw material Rs.100,000 Direct labour Rs.69,000 Factory overhead Rs.46,000 REQUIRED

(a) Compute: (i) Equivalent production units. (ii) Unit cost. (iii) Cost of units completed. (iv) Cost of units in process on February 28, 2015.

(b) Prepare General Journal entries to record the cost: (i) Transferred in. (ii) Charged to. (iii) Transferred out.

SOLUTION 8 (a)

MUNEEB COMPANY EQUIVALENT PRODUCTION UNITS

(FINISHING DEPARTMENT) FOR THE PERIOD FEBRUARY 2015

Particulars Material Equivalent Units

Labour Equivalent Units

Overhead Equivalent Units

Units completed & transferred out 20,000 20,000 20,000 Add: Work in process (ending): Direct material (5,000 x 100%) 5,000 Direct labour (5,000 x 60%) 3,000 Factory overhead (5,000 x 30%) 3,000

Equivalent production in units 25,000 23,000 23,000


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Computation of per Unit Cost and Total per Unit Cost (Finishing Department):

Particular Cost Equivalent Units Per Unit Cost

Cost from cutting department 250,000 25,000 Rs.10.00 Direct material 100,000 25,000 Rs.4.00 Direct labour 69,000 23,000 Rs.3.00 Factory overhead 46,000 23,000 Rs.2.00

Total per unit cost 465,000 Rs.19.00

MUNEEB COMPANY

COST OF UNITS COMPLETED AND TRANSFERRED TO FINISHED GOODS (FINISHING DEPARTMENT)

FOR THE PERIOD FEBRUARY 2015 cost of Units Completed: Units completed x Unit cost Total cost of units completed (20,000 x 19.00) 380,000

Total cost of units completed and transferred to finished goods Rs.380,000

MUNEEB COMPANY

COST OF WORK IN PROCESS ENDING INVENTORY (FINISHING DEPARTMENT)

FOR THE PERIOD FEBRUARY 2015 (WIP ending units x % of completion) x unit cost of element Cost from cutting department (5,000 x 10) 50,000 Direct material (5,000 x 100% x 4.00) 20,000 Direct labour (5,000 x 60% x 3.00) 9,000 Factory overhead (5,000 x 60% x 2.00) 6,000

Cost of work in process ending inventory Rs.85,000

SOLUTION 8 (b)

MUNEEB COMPANY GENERAL JOURNAL

FOR THE PERIOD FEBRUARY 2015


1 Work in process (Finishing department) 250,000 Work in process (Cutting department) 250,000 (To record the transfer of goods to finishing department)

2 Work in process (Finishing department) 215,000 Raw material 100,000 Accrued payroll 69,000 Factory overhead applied 46,000 (To record the cost added in finishing department)

3 Finished goods 380,000 Work in process (Finishing department) 380,000 (To record the goods completed and transferred to

finished goods)

b.com – ii – advanced and cost...

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