Business Daily from THE HINDU group of publications
Monday, Oct 01, 2007
ePaper
Business Daily from THE HINDU group of publications Monday, Oct 01, 2007 ePaper |
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Mentor
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Accountancy Arriving at process accounts
P. V. Ratnam A company manufactures a chemical product by a series of operations in three processes. Raw material is fed into Process I and the finished chemical that comes out of Process III is transferred to finished goods store. The particulars relating to operations for April 2007 are given in Table 1. Solution: The Process I A/c is shown in Table 2. Cost per unit = (total cost – value of normal loss) / (input quantity – normal loss quantity) 12,53,600 – 0 / 80,000 – 2400 = 16.154639 Abnormal loss = 600 x 16.154639 = 9,693 Output transfer to II = 74,000 x 16.154639 = 11,95,443 WIP (cb) = 3,000 x 16.154639 = 48,464 Note: Processed material awaiting transfer to next process. Hence, valued at full cost of production of 16.154639. Process II A/c is presented in Table 3. Cost per unit = (15,44,723 – 0) / (74,000 – 1,480) = 21.300648 Abnormal loss = 720 x 21.300648 = 15,336 Output transfer to III = 69,400 x 21.300648 = 14,78,265 WIP (cb) = 2,400 x 21.300648 = 51,122 Process III A/c is presented in Table 4. Cost per unit = (17,45,455 – 0) / (69,400 – 694) = 25.404695 Output to FG stock (69,000 x 25.404695) = 17,52,924 Abnormal gain (294 x 25.404695) = 7,469 
Abnormal loss, abnormal gain and normal loss accounts are presented in Tables 5, 6 and 7. Ratios and balance sheetThe information relating to a company for the year ended March 31, 2007, is as follows: Credit sales for the year — Rs 96 lakh; current ratio: 1.8 Net working capital — Rs 12 lakh; quick ratio: 0.8 Fixed assets turnover — two; reserves to capital: 1:5 Average collection period for credit sales: One month Prepare the balance-sheet of the company from the above data. Solution: WN1: Current Ratio = CA/CL =1.8, that is, 1.8/1.0 Net working capital = CA – CL / 1.8 – 1.0 = 0.8 Net working capital: 0.8 — 12 lakh CA: 1.8 — ? = Rs 27 lakh Net working capital: 0.8 — 12 lakh CL: 1.0 — ? = Rs 15 lakh Net working capital = Rs 12 lakh WN2: Quick ratio = Quick assets/CL = 0.8, that is, 0.8/1.0 CL: 1.0 — 15 lakh Quick assets: 0.8 — ? = Rs 12 lakh WN3: Stock = CA – QA (27 – 12) =15 lakh WN4: Debtors =96 x 1/12 = 8 lakh Cash and bank (B/F) = 4 lakh CA = 27 lakh WN5: Fixed assets turnover = turnover/fixed assets 2 = 96 lakh/fixed assets Fixed assets = 96/2 = 48 lakh (Assumption: Credit sales = Total sales, that is, no cash sales) WN6: Fixed assets = 48 lakh CA = 27 lakh Total assets = 75 lakh WN7: Total on liabilities side = 75 lakh Less CL = 15 lakh Reserves & Capital = 60 lakh WN 8: Reserves to capital = 1:5 That is, reserves = 10 lakh Capital = 50 lakh 
The balance sheet is presented on Table 8. More Stories on : Accountancy | Education
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