Types of Standards Costing

Types of Standards 

Ideal standard

Ideal Standard is a standard, which:can be attained under the most favourable conditions. No provision is made e.g. for shrinkage. spoildqe or matching breakdowns. Users of this type of standard believes that the resulting unfavourable

Accountiug for Fixed Assets

variance will remind management of the need tor improvement in all phases of’operations. Ideal standard are rot widely used in practice because they may influence employee motivation adversely.

Normal Standard:

These standards are based on past average, adjusted with anticipated future changes. We can say these are the standard that may be achieved under normal operating condiiions. These siandard are however difficult to set because they require a degree ol forecasting. The variances thrown out under this system are deviation from normal efficiency, normal sales volume or normal productive volume. If the actual performance is found to be abnormal. large variance” may result and it is necessary to revise standard find out actual result. 

Meaning of Partnership

MEANING OF PARTNERSHIP

Partnership form of business organisation came into existence on account of limitations of sole proprietary concerns. The major limitations of sole proprietary concerns are those of shortage of funds, uncertainty about existence, unlimited personal liability etc. In case of a partnership business two or more persons join hands together to do a business. Thus, the risk, funds, responsibility all are shared. The Indian Partnership Act, 1932 is applicable to contracts of Partnership. According to Section 4 of the said Act partnership is “the relation between persons who have agreed to share the profits of a business carried on by all or any ofthcmacting for all”. Persons who have entered into partnership with one another are called individually ‘partncrs’ and collectively a ‘firm’ and the name undcr which the business is carried on is called the ‘firm’s name’.

The term ‘firm’ is merely a commercial notion. Law does not invest the firm with legal personality apart from its partners except for the purposes of assessment of income-tax. A ‘firm’ cannot become a member of another partnership firm though its partners can join any other firm as partners.

 

Weighted Average Price Method | Highest in First Out Method

Highest in First Out Method (HIFO)

According to this method, the inventory of materials or goods should be valued at the lowest possible prices. Materials or goods purchased at the highest prices are treated as being first issued/sold irrespective of the date of purchase. This method is very suitable when the market is constantly fluctuating because cost of heavily priced materials or goods is recovered from the production or sales at the earliest However, the method involves too many calculations as is the case of FIFO or LIFO method. The method has therefore, not been adopted widely.

Base Stock Method

The method is based on the contention that each enterprise maintains at all times a minimum quantity of materials or finished goods in its stock. This quantity is termed as base stock. The base stock is deemed to have been created out of the first lot purchased and, therefore, it is always valued at this price and is carried forward as a fixed asset. Any quantity over and above the base stock is valued in accordance with any other appropriate method. As this method aims at matching current costs to current sales, the LIFO method will be most suitable for valuing stock of materials or finished goods other than the base stock. The base stock method has the advantage of charging out materials/goods at actual cost Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock.

Next if First out Method (NIFO)

The method attempts to value materials issues or goods sold at an actual price which is as near as possible to the market price. Under this method the issues are made or cost of goods sold is taken ai the next price, i.e., the price of materials or goods which has been ordered but not yet received. In other words, issues of goods for further processing or sale are at the latest price at which the company has been committed even though materi.als’goods have not yet been physically received. This method is bettetthan marked price method under which every time when materials or goods are issued or sold, their market price will have to be ascertained. In case of this method materials or goods will. be issued at the price at which anew order has been placed and this price will hold good for all future issues till a next order is placed. For example, 100 units of material A purchased @ Re I per unit are lying in the store and an order for another 100 units @ Rs 1.25 has already been placed. If a requisition of 50 units from a department is made, they will be issued to the department at Rs 1.25 per unit (i.e., the price at which the materials are yet to be received).

The value of inventory on a particular date is ascertained by deducting the cost of materials issued or goods sold from the total value of materials or goods purchased. Calculations of issue prices are complicated in this method and therefore the method is not widely used.

Weighted Average Price Method

This method is based on the presumption that once the materials are put into a common bin, they lose their separate identity. Hence, the inventory consists of no specific batch of goods. The inventory is thus priced on the basis of average prices paid for the goods, weighted according to the quantity purchased at each price.

Weighted Average Price Method is very popular on account of its being based on the total quantity and value of malcrials purchased besides reducing number of calculations. As a matter of fact the new average price is to be calculated only when a fresh purchase of materials is made in place of calculating it every now and then as is the case with the FIFO, L!FQ, NIFO or HIFO methods. However, in case of this method different prices of materials are charged from production particularly when the frequency of purchases and issues/sales is quite large and the concern is following perpetual inventory system.

Admission of Partner – When the goodwill account is not appearing in the books

When the goodwill account is not appearing in the books. There can be several alternatives.

(i) The new partner may bring cash for his share of goodwill. The amount so brought in by the new partner will be credited to the old partners in the ratio in which they sacrifice on admission of the new partner.

Alternatively, the amount brought in cash for goodwill by the new partner be credited to the goodwill account. It may then be transferred to old partners’ capital accounts in the sacrificing ratio. However, thc method is not preferable to one discussed above.

Another alternative could be to credit the new partner’s capital account with the bash brought in by him for capital and goodwill. A goodwill account is raised in the books with full value and the amount is credited to the old partners in the old profit sharing ratio. The goodwill account is then written off to all partners in the new profit sharing ratio.

 

Cost Accounting Basics : Historical Costing and Standard Costing

Historical Costing: In this system, costs are ascertained

only after they are incurred and that is why it is called as historical costing system. For example, costs incurred in the month of April, 2007 may be ascertained and collected in the month of May. Such type of costing system is extremely useful for conducting post mortem examination of costs, i.e. analysis of the costs incurred in the past. Historical costing system may not be useful from cost control point of view but it certainly indicates a tend in the behavior of costs and is useful for estimation of costs in future

Standard Costing :- Standard costs are predetermined costs relating to material, labor and overheads Though they are predetermined, they are worked out on scientific basis by conducting technical analysis. They are computed for all elements of costs such as material, labor and overheads The main objective of fixation of standard cost is to have benchmark against which the actual performance can be compared.

This means that the actual costs are compared with the standards. The difference is called as ‘variance’ If actual costs are more than the standard, the variance is ‘adverse’ while actual costs are less than the standard, The.variance is favourable. The adverse variances are analyzed and reasons for the same are found out. Favorable variance may also be analyzed to find out the reasons behind the same. Standard costing, thus is an important technique for cost control and reduction.

Distinction between Sale and Consignment

The following arc the points of distinction between a transaction of sale and a consignment transaction:

(i) Meaning: A contract of sale is a contract where the seller transfers or agrees to transfer the ownership of goods to the buyer for a consideration termed as “Price”. While consignment is despatbh of goods from one person to another at different place for the purpose of warehousing and ultimate selling.

(ii) Transfer of ownership: In case of sale, the ownership and risk ofthe goods passes to the buyerwliile in case of consignment, the ownership and theriskofgoodscontinues with the consignor till the consignee sells the goods to some other person.

(iii) Relationship: In case of sale, the relationship between the two parties is that of the seller and the buyer while in case of consignment, the relationship between the consignor and consignee is that of a principal and an agent.

 

 

 

Partnership Accounts – Partners Retirement

RETIREMENT OF PARTNER 

Section 32 of the Partnership Act deals with the statutory provisions relating to retirement of a partner from partnership firm. These provisions are summarised below:

(i) A partner may retire from the firm

(a) in accordanc with an express agreement; or

(b) with consent of all other partners; or

(c) where the partnership is at will, by giving a notice in writing to all the other partners of his intention to retire.

(ii) A retiring partner may carry on business competing with that of the (in  and may advertise such business. Btt he has no right to:

(a) use the name of the firm,

(b) represent himself as carrying on the business of the firm,.or

(c) solicit the custom of the old customers of the firm except when he obtains these rights by an agreement with the other partners of the firm.

  • A retiring partner will not be liable for liabilities incurred by the firm after his retirement.  However, he must give a public notice to that effect Such a public notice is not necessary in case of a sleeping or dormant partner.
  • Retirement of a partner by death or insolvency also does not require, any public notice.

CBSE XI Accountancy – Balance Sheet

BALANCE SHEET 

Balance Sheet has two sides. On the left hand side, the “liabilities” of the business are shown while on the right hand side the assets of the business appear.

It will be useful here to quote definitions of the Balance Sheet given by some prominent writers. According to Palmer, “The Balance Sheet is a statement at a given date showing on one side the trader’s property and possessions and on the other side his liabilities.” According to Freeman, “A Balance Sheet is an itemised list of the assets, liabilities and proprietorship of the business of an individual at a certain date.” The definition given by the American Institute of Certified Public Accountants makes the meaning of Balance Sheet more clear. According to it, Balance Sheet is ‘a list of balances of the asset and liability accounts. This list depicts the position of assets and liabilities of a specific business at a specific point of time.”

Proforma of Balance Sheet

There is no prescribed form of Balance Sheet for a sole proprietary and partnerhip concern. However, the assets and liabilities may be shown in any of the following order.

1. Liquidity Order.

2. Permanency Order.

1. Liquidity order. In case a concern adopts liquidity order, the assets which are more readily convertible into cash come first and those which cannot be so readily converted come next and so on. Similarly those liabilities which are payable first come first, and those payable later, come next and so on.

Depreciation Accounting – Uniform Charge Methods

Uniform Charge Methods 

In case of these methods depreciation is charged on uniform basis year after year. Such methods are considered appropriate only for such assets which are uniformly productive. Following three methods fall in this category.

Fixed instalment method. This is also termed as Straight Line Method (SLM).

According to this method, depreciation is charged evenly every year throughout the effective life of the asset The amount of depreciation is calculated as follows.

 Depreciation = Original Cost of the Fixed Asset — Estimated Scrap Value/ Life of tie Asset in Number of Accounting Periods

Depreciation to be charged each year can also be expresscd as a percentage of cost.

Merits. (I) The method is simple to understand and easy to apply.

(ii) The value of the asset can be reduced to zero (or its scrap value) under this method. 

Fundamentals of Accounting – Ledger

Ledger is the principal book of accounts where similar transactions relating to a particular person or property or revenue or expense are recorded. In other words, it is a set of accounts. It contains all accounts of the business enterprise whether real, nominal or personal. The main function of a ledger is to classify or sort out all the items appearing in the journal or other subsidiary books under their appropriate accounts so that at the end of the accounting period each account will contain the entire information of all the transactions relating to it in a summarised or condensed form.

For instance, all the transactions that have taken place with Mr. Mathur will be entered in Mathur’s Account.

Similarly, all items relating to cash, sales, purchases, salaries, discount, etc. appear in their respective accounts.

Ledger is defined as a “Book which contains in a summarised and classified form of permanent record of all transactions. Ledger is called the principal book of account as final information pertaining to financial position of a business emerges from this book.

Role of Agriculture in the Indian Economy

ROLE OF AGRICULTURE IN THE INDIAN ECONOMY

Over the years 1921 -91, the size of labour force dependent on agriculture had more than doubled and over the next decade is projected to going by more than 25 per cent. This is contrary to the development economists’ observation that as country develops the share of labour force dependent upon agriculture as a source of livelihood declines. The occupational structure of the country has shown a lack of flexibility, the large proportion of the increasing labour force, in the absence of any alternative employment opportunities, has been absorbed in agriculture. It is observed that while the share of agriculture in GDP has been declined significantly, its share in the manufacturing sector has gone up. However, corresponding to this structural shift in production, the structure of employment has shown little change.

Since agriculture contributes significantly in the National Income, this sector is treated as major source of savings and hence capital formation for the economy. The pace of development is largely conditioned by the rate of capital formation in the economy. Since independence, large investment, both public and private, has been made in agriculture. In areas where agricultural practices are traditional, investment has also been on traditional lines like land and its improvement, tools and implements, farm structures, etc. But the pailern of investment in progressive areas, where modern technology has been adopted, has been predominantly in irrigation, land improvements, farm machinery and other infrastructures. Of course in recent years public investment in agriculture sector has declined. To stimulate growth, substantial capital investments are required for various infrastructure and inputs.