Accounting Book Keeping Notes
Internal Controls in a Computerized Information System-Questions and Answers
QUESTION ONE
- Explain the following terms as used in accounting for costs:
- Financial Accounting (3 marks) ii. Management Accounting (3 marks)
- iii. Cost Accounting (2 marks)
- Explain how the following accounts are used in cost accounts
- Ledger Adjustment Account ii. Stores Ledger Control Account iii. Work in Progress Ledger Control Account
iv. Finished Goods Ledger Control Account (3 marks each)
QUESTION TWO
Explain the reasons that cause the profit figures in the cost accounting books and those in the
financial books to be different. (Total: 20 marks)
QUESTION THREE
The profit shown in the financial books as at 31 March 2004 was Shs.l1,287 and for the same period, the cost accounting books showed a profit of Shs.2,704. After checking the two sets of accounts for the source of the differences, the following issues come to your attention:
| Cost Accounts | Financial Accounts | ||
| Shs | Shs | ||
| Depreciation Stock Valuations: | 9,826 | 10,520 | |
| Opening Stock | 27,510 | 25,500 | |
| Closing Stock | 18,218 | 18,750 | |
| Profit on sale of asset | 850 | ||
| Dividends Received | 2,635 | ||
| Imputed rent Charge | 3,250 |
Required:
Prepare a statement to reconcile the two profits, starting with the profits as per financial
accounts
(20 marks)
QUESTION FOUR:
The profit shown in the financial accounts is Shs.18,592 and for the same period, the cost accounts showed a profit of 20,496. Comparison of the two sets of accounts revealed the following:
| Stock Valuations: | Cost Accounts | Financial Accounts | |
| Raw Materials | Shs | Shs | |
| Opening Stock | 6,821 | 7,259 | |
| Closing Stock | 5,483 | 5,128 | |
| Finished Goods | |||
| Opening stock | 13,291 | 12,905 | |
| Closing stock | 11,430 | 11,131 |
Dividends and interest received of Shs.552 and a loss of 1,750 on the sale of a milling machine were not entered in the cost accounts
Required
Prepare a reconciliation of the two profits (20 marks)
QUESTION FIVE
Mali Yote Limited is a company engaged in the manufacture of specialist marine engines. It operates a job costing accounting system which is not integrated with financial accounts.
At the beginning of the month of May 2002, the operating balances in the cost ledger were as follows:
Sh. ‘000’
Stores ledger control account 85,000
Work in progress control account 167,000
Finished goods control account 49,000
Cost ledger control account 302,000
During the month, the following transactions took place.
| Materials: | Purchases 42,700 |
| Issues to: | Production 63,400 |
| General maintenance 1,400 | |
| Assembling of manufacturing equipment 7,600 | |
| Factory wages: | Total wages paid 124,000 |
Of the total wages paid. Shs.12,500,000 was incurred in the assembly of manufacturing equipment. Shs.35,700,000 was indirect wages and the balance was direct wages.
Other production overhead costs incurred amounted to Shs.152,000,000. Shs.30,000,000 of which was absorbed by the manufacturing equipment under assembly while Shs.7,500,000 was under absorbed overhead costs written off.
One of the engines manufactured by the company is produced under license. During the month of May 2002. Shs.2,100,000 was paid as royalty for that particular engine.
Selling overheads and distribution overhead costs were as follows:
Sh. ‘000’
Selling overheads 22,000
Distribution overheads 410,000
The company’s gross profit margin is 25% on factory cost.
At the end of May 2002, the stock of work in progress had increased by Shs.12,000,000. The manufacturing equipment under assembly was completed within the month and transferred out of the cost ledger at the end of the month.
Required: Prepare,
- Cost ledger control account (8 marks)
- Stores ledger control account (3 marks)
- Work in progress control account (3 marks)
- Finished goods control account (3 marks)
- Costing profit and loss account (3 marks
CASE STUDY
Company XYZ maintains separate cost and financial ledgers.
The financial accountant has prepared the following Profit Statement from the financial ledger:
Income Statement For 31st December 2007
| $ | $ |
| Sales Material purchases 73,200 Wages & Salaries 32,490 Expenses excluding depreciation 46,860 Depreciation 17,340 169,890 Stock Increase 2,800 | 188,300 |
| 167,090 | |
| 21,210 | |
| Investment Income | 8,180 |
| Profit | 29,390 |
The profit reported by the cost accountant was $19,206
The following are discovered:
- Neither investment income nor interest charges were included in the cost accounts
- Stock valuations in the cost accounts were
$ $
1/12/07 31/12/07
Raw materials 11,800 9,900 Work-in-progress 8,120 8,530
Finished goods 18,910 22,170
- The same depreciation methods and rates are used in both ledgers. However, in the cost ledger, depreciation continues to be charged at the rate of 10% per annum on fixed assets which have been fully depreciated. Fixed assets which had cost $468,000 have been fully depreciated in the financial ledger.
- In the cost ledger, production overheads incurred comprises:
- 5% of the cost of materials used
- 10% of the wages and salaries
- 80% of the expenses excluding depreciation
- 60% of the depreciation cost
Absorbed production overheads were $54,310 and the under-absorbed production overheads were carried forward, and not written off to the Income Statement
Required:
Prepare a reconciliation statement, commencing with the financial profit of $28,310 and showing how this can be reconciled to the cost ledger profit of $19,206
Suggested Solution:
Profit as per financial accounts $29,390
| Financial Ledger ($) | Cost Ledger ($) | Add ($) | Less ($) | |||
| Investment income | 8,180 | – | – | 8,180 | ||
| Increase in stock | 2,800 | 1770 | (W1) | – | 1,030 | |
| Over-depreciation | 3,900 | (W2) | – | 3,900 | ||
| Under-absorbed production overhead | 2,926 | (W3) | 2,926 | – | ||
| 2,926 | 13,110 | $(10,184) |
Profit as per Cost accounts $19,206
Workings: (W1):
| Opening Stock ($) | Closing Stock ($) | |
| Raw materials | 11,800 | 9,900 |
| Work-in-progress | 8,120 | 8,530 |
| Finished goods | 18,910 | 22,170 |
| Total | 38,830 | 40,600 |
Increase in stock = $40,600-$38,830 = $1,170
W2:Depreciation in cost ledger = 10% x$468,000/12 = $3,900 W3: Production Overhead:
| $ | |
| Opening stock of material | 11,800 |
| Add: Purchases | 73,200 |
| 85,000 | |
| Less: Closing Stock | _9,900 |
| Material Used | 75,100 |
Actual overhead incurred in cost accounts:
| $ | ||
| Material used | 5% x$75,100 | 3,755 |
| Wages & salaries | 10% x$32,490 | 3,249 |
| Expenses | 80% x$46,860 | 37,488 |
| Depreciation | 60% x($17,340+$3,900) | 12,744 |
| 57,236 | ||
| Less: Overhead absorbed | 54,310 | |
| Under-absorbed overhead | _2,926 | |
