CBSE Sample Papers

CBSE Sample Papers from CBSEtuts.com

Inventory Valuation Method – First In First Out Method

by Leave a Comment

First In First Out Method (FIFO)

Under this method, it is assumed that the materials/goods first received are the first to be issued/sold. Thus, according to this method, the inventory on a particular date is presumed to be composed of the items which have been acquired most recently

Advantages. The FIFO method has the following advantages:

1. It values stock nearer to current market prices since stock is presumed to be consisting of the most recent purchases.

2. It is based on cost and, therefore, no unrealised profit enters into the financial accounts of the company.

3. The method is realistic since it takes into account the normal procedure of utilisinglselling those materials/goods which have been longest in stock.

Disadvantages. The method suffers from the following disadvantages: [Read more…]

Inventory cost

by Leave a Comment

Inventory cost The term Inventory includes (I) Stock of raw materials, (ii) Stock of work-in-progress, and (iii) Stock of finished Goods. The computation of the cost of inventory is also a tedious process. The vaftiation of tbe stock of raw materials will depend upon the method of pricing materials issues followed by the business. Materials may be issued to production according to First In First Out ([FIFO) Method, Last In First Out (LIFO) Method, Weighted Average Price Method, etc. In each of these cases, the value of the inventory of raw materials may widuly differ. This will be clear with the help of the following example.

A business buys raw materials in two different lots. In the first lot 1,000 units are purchased @ Rs 10 per unit. In the second lot, 2,000 units are purchased @ Rs 12 per unit. In case the stock of raw materials at the cod of the accounting period is of 1,000 units, the value of the inventory according to each of the methods stated above will be as follows:

FIFO method:

1,000 Units @ Ps 12 per unit = Rs 12,000

(Since materials first purchased will be taken to have been issued to production first of all, the inventory of raw material will, therefore, consist of latest purchases).

LIFO method:

l,000UuiLs@RslOperunit=Rs 10,000

(Since materials purchased in the last will be taken to have been issued to production first of all, the inventory will, therefore, consist of the earliest purchases).

Weighted Average Price Method:

1,000 Units @ Ps 11.333 = Rs 11,333

(The total units purchased are 3,000 for a total cost of Es 34,000. This gives a

weighted average priceRs 11.333 per unit).

Fundamentals of Accounting – Cost of goods Sold or Purchased

by Leave a Comment

Cost of goods sold. Income determination requires in case of both manufacturing and trading concerns, the cost of goods sold. In case of trading concerns, the job is comparatively easy since the cost of goods sold can be easily found out be taking into account the cost at which the goods have been purchased. However, in case of manufacturing concerns, the cost of goods sold is to be found out taking into consideration the cost involved in their manufacture. Manufacturing costs can be both direct as well as indirect. Direct costs are those costs which can be directly, conveniently and wholly identified with specific products, jobs or manufacturing processes, e.g., cost of raw materials used for manufacturing the products, cost of factory labour etc. Indirect manufacturing costs are those costs which cannot be directly be identified with specific jobs products or processes, e.g., salary paid to the factory manager, rent, rates, lighting, depreciation of factory machines, etc. These cost are to be apportioned on different products on some reasonable basis e.g., the salary paid to the factory manager may be charged to different products on the basis of direct wages for each product. Similarly, rent paid for the factory may be charged to different products on the basis of departmental area occupied by each of the production departments. Apportionment of the indirect costs so made cannot be fairly accurate and, therefore, the cost of the products so computed cannot also be very accurate. Moreover, some costs such as depreciation of plant and machinery or depreciation of factory buildings cannot themselves be determined accurately. Depreciation depends on the cost of the assets, its scrap value and the estimated life of the assets. It is very difficult to make a fair estimate about the scrap value and life of the asset. The amount of depreciation charged may not, therefore, be very correct. Thus, when estimation of the various elements which constitute cost cannot correctly by made, the measurement of income on the basis of such estimates cannot also be very accurate.

 

Objectives of Inventory Valuation

by Leave a Comment

OBJECTIVES OF INVENTORY VALUATION 

Inventory has to be properly valued because of the following reasons:

(i) Determination of income. The valuation of inventory is necessary for determining the ne income earned by a business during a particular period. Gross profit is the excess of sales over cost of goods sold. Cost of goods sold is ascertained by adding opening inventory to and deducting closing inventory from purchases.

(ii) Determination of financial position. The inventory at the end of a period is to be shown as a current asset in the balance sheet of the business. In ease the inventory is not properly valued, the balance sheet will not disclose the correct financial position of the business.

Meaning of Inventory

by Leave a Comment

MEANING OF INVENTORY

Inventories are unconsumed or unsold goods purchasecior manufactured. According to the International Accounting Standard: 2 (lAS: 2), inventories are tangible froperty.

(a) held for sale in the ordinary course of business,

(b) in the process of production for such sale, or

(c) to be consumed in the production of goods or services for sale.

Thus, the term inventory includes stock of (i) finished goods, (ii) work in-progress and (iii) raw matcrials and components. In case of a trading concern inventory primarily consists of finished goods while in case of a manufacturing concern, inventory consists of raw materials, components, stores, work-in-process and finished goods.

Accountancy Class 11 – Rectifying Journal Entries

by Leave a Comment

1. Its 540 received from M. Mehta was posted to the debit of his account. 

The amount of M. Mehta should have been credited by P.s 540. It has been debited. In order to set the matters right, it is necessary to credit his account by Ps 1,080 (i.e., to cancel unnecessary debit of P.s 540 and to give him credit of Ps 540).

2. Rs 100 being Purchases Returns was posted to the debit of Purchases Account.

The Purchases Returns Account should have been credited by a sum of P.s 100 on account of return of the goods. It has not been at all credited. It has, therefore, been credited by Es 100. The Purchases Account should not have been at all debited. It has, therefore, been credited by P.s 100. Suspense Account has been debited by Rs 200, since no other account is available and it must have been credited earlier on account of these errors.

3. Discount Rs 200 received, entered in the cash book was not posted to the Ledger. 

The amount of discount received is credited to the Discount Account. It has not been done, Discount Account, has therefore, been credited now, Suspense Account has been debited because it must have been credited earlier on account of this error.

4. Its 574 paid for repairs to motor-car was debited to the motor-car account as Rs 574.

Repairs to motorcar is a revenue expenditure. It should has been debited 10 the Repairs Account. 11 has not been done. The Repairs Account has, therefore, been debited by P.s 574. Motor Car Account has been unnecessarily debited by Rs 174. It should, therefore, be credited by this amount. The difference has been put to the Suspense Account.  [Read more…]

Accountancy Class 11 – Rectifying Accounting Entries

by Leave a Comment

RECTIFYING ACCOUNTING ENTRIES 

The errors committed in the books of accounts when located out, have to be corrected. However, corrections in the books of accounts should he done by passing proper rectifying entries and not by culling or erasing figures. Such entries, as explained earlier, are passed in the General Journal or Journal Proper. The passing of proper rectifying entries is being explained below with suitable examples.

Example 1, The Sales Book overcast by Ps 50.

Over-casting of Sales Book will result in over-credit to Sales Account by Ps 50 since the total of the Sales Book is posted to the credit of the Sales Account at the end of a period. There can be two situation in such a case:

(i) The error might have been located out by the accountant before transferring the difference to the Suspense Account In such a case, there is mistake only in one account, i.e., the Sales Account. It has been credited more by Ps 50. The error can be rectified if the Sales Account is debited by Ps 50. Thus, the following will be the rectifying entry in the Journal Propet

No account is to be credited since the error affects only one account.

(ii) The error might have been located out by the accountant after transferring the difference in the Trial Balance to a Suspense Account In such a case two accounts are involved: (a) Sales Account, and (b) Suspense Account. Since Sales Account had been credited more by Ps 50 the credit side of the Thai Balance must have been more than the debit side of the Trial Balance. The Suspense Account should, therefore, have been put on the debit side of the Thai Balance in order to balance the two sides

The Sales Account has been &edited more by Ps 50. In order to rectify the error, the Sales Account should therefore be debited by Ps 50. Suspense Account has been debited because of this mistake which has now been found out. It should therefore, be closed by giving credit to it.

CBSE XI Accountancy – Balance Sheet

by Leave a Comment

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.

Important Points Regarding Manufacturing Account

by Leave a Comment

Important Points Regarding Manufacturing Account

1. Stocks. In case of a manufacturer, there can be stocks of three types:

 Stock of raw materials. It includes stock of raw materials or finished components which might have been purchased by the manufactrn-er for using them in the products manufactured by him but still lying unsold.

Stock of work-in-process. This is also tenned as stock of work-in-progress. It includes goods in semi-finished form.

Stock of finished goods. It includes stock of those goods which have been completely processed and are lying unsold at the end of a period with the manufacturer. It also includes stock of those finished goods which might have been purchased by a manufacturer-cum-trader from outside parties, but still lying unsold with him at the end of the accounting period.

2. Raw materials consumed. It is customary to show in the Manufacturing Account, the value of raw materials consumed for manufacturng goods during a particular period.

3.Carriage inwards, etc. The expenses incurred for bringing the raw materials to the factory or the octroi or customs duty paid by the manufacturer on the raw materials purchased or imported by him will also be charged to Manufacturing Account.

4.Cost of production. The Manufacturing Account gives the cost of manufacturing the goods during a particular period. This is comuted by deducting from the total of the dedit side of the Manufacturing Account, the total of the various items appearing on the credit side of the Manufacturing Account as shown in the proforma of the Manufacturing Account given earlier in the chapter.

5. Sale of scrap. In manufacturing operations, certain scrap is unavoidable, it may or may not have any sales value. In order to calculate the true cost of manufacturing the goods, it is necessary that the money realised on account of sale of scrap (or realisable value of the scrap in case it has not been sold) should be considered. The amount of scrap is, therefore, credited to the Manufacturing Account.