Material issue is carried out by the storekeeper.
The materials should be issued at the right time, in right quantity and of right quality.
For these purpose, every organization must follow an issue procedure.
All issues should be recorded in the bin card by the storekeeper and in the stores ledger by cost department. For the authorization of material issues, material requisition note is prepared.
Whenever, materials are required from the store, the supervisor or departmental head writes a material requisition note.
It is a formal request to issue the material.
It contains information about the description, code, quantity of material and job or work order etc.
Generally, a material requisition note is prepared in triplicate:
(a) One copy is for further reference.
(b) Second copy is for accounting section
(d) Third copy is for storekeeper.
At the time of materials issue, the storekeeper posts the requisition in the bin cards.
LIFO method is exactly the opposite of FIFO method.
Under LIFO method, the last purchased materials are issued first.
The issues materials are priced at the unit cost of the latest lot or the most recent purchases.
Closing stock is calculated at earliest purchase price.
Three points should be noted regarding this method:
Material issues at actual cost.
Material issues for production at the latest price.
The closing stock is valued at the oldest price; it does not represent the current market values.
The main advantages of LIFO are given below:
This method is easy to understand and simple to operate.
This method also does not have any unrealistic profit or loss.
Issue price shows current market rates which is more realistic.
This method is the most suitable when prices are rising.
The main disadvantages of LIFO are given below:
Two similar jobs cannot be compared due to different rates of materials charged for different jobs.
The closing stock is valued at the oldest price and does not represent the current market values.
This system is not accepted by tax department.
This method is not suitable when prices are decreasing.
#####
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Theory: Cost Accounting |
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Cost Sheet, Unit Costing |
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Cost Reconciliation Statement |
#####
In some cases, materials received from suppliers are returned to him because materials may be poor in quality or defective.
Such returned materials are recorded on issue column of the store ledger.
It decreases materials in store.
Under FIFO method, according to date, rate or latest purchase.
Under LIFO method, according to date, rate or latest purchase.
Under SAP method, according to average price.
(Return from works, job or department)
Sometimes materials are returned to stores from production department along with materials returned note.
It is as an evidence document.
The materials returned may be unused or job cancels.
Such returned materials are recorded in receipts column of store ledger.
Under FIFO method, according to given date, rate or latest issue.
Under LIFO method, according to given date, rate or latest issue.
(Damaged, wastage or credit note)
Shortage means decrease in quantity.
It may be due to materials lost, damaged, shrinkage or evaporation.
The value of such material is irrecoverable.
It is recorded on the issue column of bin cards and store ledger.
It decreases materials in store.
If date or rate is given, according to given date or rate.
Under FIFO method, according to earliest balance.
Under LIFO method, according to latest balance.
Materials surplus, excess or debit note
Surplus means excess in quantity. It may be due to counting mistake.
It increases materials in store. It is recorded on the receipt column of bin cards and store ledger.
If date or rate is given, according to given date or rate.
Under FIFO method, according to earliest balance.
Under LIFO method, according to latest balance.
Sometimes goods are transferred from one department to other department.
It is normal work. Such as:
Goods transferred from Department A to Department B
Goods transferred from Job A to Job B
Goods transferred from Works B to Works C
It does not affect in store ledger.
Therefore, No entry for this transaction.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2A
ABC Manufacturing Company has following materials information:
Purchases of the month were: |
Issued of the month were as follows: |
Jan, 10 600 units @ Rs 10 per unit |
Jan, 12 400 units |
Jan, 15 900 units @ Rs 12 per unit |
Jan, 18 1,000 units |
Jan, 25 300 units @ Rs 15 per unit |
Jan, 28 200 units |
Required: Stores ledger for the month if materials were issued on last in first out principle.
[Answer: (100 + 100) = 200 units; Rs (1,000 + 1,500) = Rs 2,500]
SOLUTION:
Date |
Particulars |
Receipts |
Issues |
Balance |
||||||
|
|
Qty. |
Rate |
$/₹/Rs |
Qty. |
Rate |
$/₹/Rs |
Qty. |
Rate |
$/₹/Rs |
Jan, 1 |
Opening balance |
|
|
|
|
|
|
|
|
Nil |
Jan, 10 |
Materials purchased |
600 |
10 |
6,000 |
|
|
|
600 |
10 |
6,000 |
|
Purchase No. |
|
|
|
|
|
|
|
|
|
Jan, 12 |
Materials issued |
|
|
|
400 |
10 |
4,000 |
200 |
10 |
2,000 |
|
Requisition No. |
|
|
|
|
|
|
|
|
|
Jan, 15 |
Materials purchased |
900 |
12 |
10,800 |
|
|
|
200 |
10 |
2,000 |
|
Purchase No. |
|
|
|
|
|
|
900 |
12 |
10,800 |
Jan, 18 |
Materials issued |
|
|
|
900 |
12 |
10,800 |
|
|
|
|
Requisition No. |
|
|
|
100 |
10 |
1,000 |
100 |
10 |
1,000 |
Jan, 25 |
Materials purchased |
300 |
15 |
4,500 |
|
|
|
100 |
10 |
1,000 |
|
Purchase No. |
|
|
|
|
|
|
300 |
15 |
4,500 |
Jan, 28 |
Materials issued |
|
|
|
200 |
15 |
3,000 |
100 |
10 |
1,000 |
|
Requisition No. |
|
|
|
|
|
|
100 |
15 |
1,500 |
Therefore,
Value of closing stock: |
100 units @ Rs 10 |
= |
1,000 |
|
|
100 units @ Rs 15 |
|
1,500 |
|
|
200 units |
= |
Rs 2,500 |
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2B
The following information related to materials of ABC Polymers (P) Ltd for the month of February:
Date |
Receipts (in kg) |
Rate per kg ($/₹/Rs) |
Issue (in kg) |
1 Feb |
Opening balance 100 |
100 |
– |
5 Feb |
400 |
120 |
– |
10 Feb |
– |
– |
150 |
12 Feb |
– |
– |
300 |
15 Feb |
500 |
150 |
– |
19 Feb |
– |
– |
250 |
25 Feb |
– |
– |
200 |
27 Feb |
400 |
125 |
– |
29 Feb |
– |
– |
300 |
Required: Store Ledger account under LIFO method
[Answer: Closing stock (50 + 50 + 100) = 200 units; Rs 25,000]
SOLUTION
Store Ledger under LIFO Method
Date |
particulars |
Receipts |
Issues |
Balance |
||||||
|
|
Qty |
Rate |
$/₹/Rs |
Qty |
Rate |
$/₹/Rs |
Qty |
Rate |
$/₹/Rs |
1 Feb |
Opening balance |
|
|
|
|
|
|
100 |
100 |
10,000 |
5 Feb |
Materials purchased |
400 |
120 |
48,000 |
|
|
|
100 |
100 |
10,000 |
|
Purchase No. |
|
|
|
|
|
|
400 |
120 |
48,000 |
10 Feb |
Materials issued |
|
|
|
150 |
120 |
18,000 |
100 |
100 |
10,000 |
|
Requisition No. |
|
|
|
|
|
|
250 |
120 |
30,000 |
12 Feb |
Materials issued |
|
|
|
250 |
120 |
30,000 |
50 |
100 |
5,000 |
|
Requisition No. |
|
|
|
50 |
100 |
5,000 |
|
|
|
15 Feb |
Materials purchased |
500 |
150 |
75,000 |
|
|
|
50 |
100 |
5,000 |
|
Purchase No. |
|
|
|
|
|
|
500 |
150 |
75,000 |
19 Feb |
Materials issued |
|
|
|
250 |
150 |
37,500 |
50 |
100 |
5,000 |
|
Requisition No. |
|
|
|
|
|
|
250 |
150 |
37,500 |
25 Feb |
Materials issued |
|
|
|
200 |
150 |
30,000 |
50 |
100 |
5,000 |
|
Requisition No. |
|
|
|
|
|
|
50 |
150 |
7,500 |
27 Feb |
Materials purchased |
400 |
125 |
50,000 |
|
|
|
50 |
100 |
5,000 |
|
Purchase No. |
|
|
|
|
|
|
50 |
150 |
7,500 |
|
|
|
|
|
|
|
|
400 |
125 |
50,000 |
29 Feb |
Materials issued |
|
|
|
300 |
125 |
37,500 |
50 |
100 |
5,000 |
|
Requisition No. |
|
|
|
|
|
|
50 |
150 |
7,500 |
|
|
|
|
|
|
|
|
100 |
125 |
12,500 |
Therefore,
Value of closing stock: |
50 units @ Rs 100 |
= |
5,000 |
|
|
50 units @ Rs 150 |
= |
,500 |
|
|
100 units @ Rs 125 |
= |
12,500 |
|
|
200 units |
= |
Rs 25,000 |
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2C
The following information is given by ABC Manufacturing Company on March:
Receipt |
March |
1 |
500 units @ Rs 100 |
|
March |
5 |
1,000 units @ Rs 125 |
|
March |
12 |
1,500 units @ Rs 115 |
|
March |
21 |
1,200 units @ Rs 120 |
Issued |
March |
7 |
Issued 1,250 units |
|
March |
15 |
Issued 1,600 units |
|
March |
31 |
Issued 800 units |
Return from Job |
March |
22 |
25 units issued @ Rs 100 |
Shortage |
March |
28 |
10 units |
Required: Store Ledger under LIFO method
Under LIFO: (175 + 390) = 565 units; Rs 64,300]
SOLUTION:
Store Ledger under LIFO Method
Date |
Particulars |
Receipts |
Issues |
Balance |
||||||
|
|
Qty. |
Rate |
$/₹/Rs |
Qty. |
Rate |
$/₹/Rs |
Qty. |
Rate |
$/₹/Rs |
Mar 1 |
Purchase of materials |
500 |
100 |
50,000 |
|
|
|
500 |
100 |
50,000 |
Mar 5 |
Purchase of materials |
1000 |
125 |
125,000 |
|
|
|
500 |
100 |
50,000 |
|
|
|
|
|
|
|
|
1000 |
125 |
125,000 |
Mar 7 |
Issued of materials |
|
|
|
1,000 |
125 |
125,000 |
|
|
|
|
|
|
|
|
250 |
100 |
25,000 |
250 |
100 |
25,000 |
Mar 12 |
Purchase of materials |
1,500 |
115 |
172,500 |
|
|
|
250 |
100 |
25,000 |
|
|
|
|
|
|
|
|
1,500 |
115 |
172,500 |
Mar 15 |
Issued of materials |
|
|
|
1,500 |
115 |
172,500 |
|
|
|
|
|
|
|
|
100 |
100 |
10,000 |
150 |
100 |
15,000 |
Mar 21 |
Purchase of materials |
1,200 |
120 |
144,000 |
|
|
|
150 |
100 |
15,000 |
|
|
|
|
|
|
|
|
1,200 |
120 |
144,000 |
Mar 22 |
Returned from Job |
25 |
100 |
2,500 |
|
|
|
175 |
100 |
17,500 |
|
|
|
|
|
|
|
|
1,200 |
120 |
144,000 |
Mar 28 |
Shortage in stock |
|
|
|
10 |
120 |
1,200 |
175 |
100 |
17,500 |
|
|
|
|
|
|
|
|
1,190 |
120 |
142,800 |
Mar 31 |
Issued of materials |
|
|
|
800 |
120 |
96,000 |
175 |
100 |
17,500 |
|
|
|
|
|
|
|
|
390 |
120 |
46,800 |
Therefore,
Value of closing stock: |
175 units @ Rs 100 |
= |
17,500 |
|
|
390 units @ Rs 120 |
= |
46,800 |
|
|
565 units |
= |
Rs 64,300 |
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2D
ABC Manufacturing Company has following information on June:
June, 1 |
Opening balance of materials 1,500 kgs @ Rs 11,000 per quintal |
5 |
Purchased 2,500 kgs @ Rs 12,000 per quintal |
10 |
Issued 3,500 kgs. |
11 |
Returned from production department 250 kgs |
15 |
Issued 500 kgs. |
20 |
Purchased 2500 kgs @ Rs 12,500 per quintal |
22 |
Issued 1,000 kgs. |
25 |
Returned to suppliers 250 kg (20 June) |
30 |
Stock verification found 50 kgs as excess and adjusted. |
Required: Store Ledger under LIFO method
[Answer: Under LIFO: (250 + 1,300) = 1,550 units; Rs 193,000]
SOLUTION:
Given and working note:
One quintal = 100 kgs
Rate per kg = Amount ÷ 100
June 1 = Rs 11,000 ÷ 100 = Rs 110
June 2 = Rs 12,000 ÷ 100 = Rs 120
June 20 = Rs 12,500 ÷ 100 = Rs 125
June 30 = Rs 13,000 ÷ 100 = Rs 130
Store Ledger under LIFO Method
Date |
Particulars |
Receipts |
Issues |
Balance |
||||||
|
|
Qty. |
Rate |
$/₹/Rs |
Qty. |
Rate |
$/₹/Rs |
Qty. |
Rate |
$/₹/Rs |
Jun, 1 |
Opening balance |
|
|
|
|
|
|
1,500 |
110 |
165,000 |
5 |
Purchase of materials |
2,500 |
120 |
300,000 |
|
|
|
1,500 |
110 |
165,000 |
|
|
|
|
|
|
|
|
2,500 |
120 |
300,000 |
10 |
Issue of materials |
|
|
|
2,500 |
120 |
300,000 |
500 |
110 |
55,000 |
|
|
|
|
|
1,000 |
110 |
110,000 |
|
|
|
11 |
Return from Dpt |
250 |
110 |
27,500 |
|
|
|
750 |
110 |
82,500 |
15 |
Issue of materials |
|
|
|
500 |
110 |
55,000 |
250 |
110 |
27,500 |
20 |
Purchase of materials |
2,500 |
125 |
312,500 |
|
|
|
250 |
110 |
27,500 |
|
|
|
|
|
|
|
|
2,500 |
125 |
312,500 |
22 |
Issue of materials |
|
|
|
1,000 |
125 |
125,000 |
250 |
110 |
27,500 |
|
|
|
|
|
|
|
|
1,500 |
125 |
187,500 |
25 |
Returned to suppliers |
|
|
|
250 |
125 |
31,250 |
250 |
110 |
27,500 |
|
|
|
|
|
|
|
|
1,250 |
125 |
156,250 |
30 |
Surplus in store |
50 |
125 |
6,250 |
|
|
|
250 |
110 |
27,500 |
|
|
|
|
|
|
|
|
1,300 |
125 |
162,500 |
Therefore, value of closing stock:
|
250 units @ Rs 100 |
= |
27,500 |
|
|
1,300 units @ Rs 120 |
= |
162,500 |
|
|
1,550 units |
|
Rs 190,000 |
|
Keep in Mind (KIM)
Materials returned from job on 25th March are from old stock; it is not from new purchase. |
Therefore, it is recorded earliest than 500 units @ Rs 100 per unit. Because, it is purchased earliest. |
|
Materials returned from job on 28th March are from old stock. It is not from new purchase. |
Therefore, it is added with same rate of Rs 150 per unit. Because, it is from same lot. |
#####
PROBLEMS AND ANSWERS OF FIFO AND LIFO |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2A
The following information related to materials are given below:
Jan, 1 |
Opening balance of materials |
300 units @ Rs 20 per unit |
Jan, 3 |
Materials purchased |
400 units @ Rs 25 per unit |
Jan, 8 |
Materials issued as requisition No. 1 |
400 units |
Jan, 12 |
Materials purchased |
300 units @ Rs 28 per unit |
Jan, 15 |
Materials issued as requisition No. 2 |
200 units |
Jan, 21 |
Materials purchased |
300 units @ Rs 30 per unit |
Jan, 25 |
Materials issued as requisition No. 3 |
500 units |
Jan, 31 |
Surplus in stock |
5 units |
Required: Store ledger for closing stock under LIFO method
[Answer: 205 units, Rs 4,100;
*Materials surplus @ Rs 20 per unit;
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2B
The following information related to spare parts are given below:
Feb, 1 |
Opening balance of materials |
500 units @ Rs 100 per unit |
Feb, 5 |
Materials purchased lot No. 501 |
300 units @ Rs 120 per unit |
Feb, 10 |
Materials issued |
500 units |
Feb, 15 |
Materials purchased lot No. 502 |
400 units @ Rs 125 per unit |
Feb, 20 |
Materials issued |
500 units |
Feb, 25 |
Materials purchased lot No. 503 |
300 units @ Rs 140 per unit |
Feb, 28 |
Materials issued |
250 units |
Feb, 28 |
Materials returned to vendor due to defects |
20 units of lot No. 503 |
Required: Store ledger for closing stock under LIFO method
[Answer: (200 + 30) = 230 units;
Rs (20,000 + 4,200) = Rs 24,200]
*Returned to vendor @ Rs 140 per unit;
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2C
The following materials information is given by BK Manufactures:
Date |
Details |
Rate |
|
March, 1 |
Stock in hand 500 units |
100 |
|
5 |
Received 1,000 units |
125 |
|
7 |
Issued 750 units |
– |
|
10 |
Issued 250 units |
– |
|
12 |
Received 2,000 units |
150 |
|
21 |
Issued 1,500 |
– |
|
25 |
Returned from Job 20 units @ Rs 150 |
|
|
26 |
Received 2,000 units |
140 |
|
28 |
Shortage in stock 25 units |
|
|
31 |
Issued 2,500 units |
– |
|
Required: Value of closing stock under LIFO method
[Answer: Closing stock LIFO: 495 units; Rs 49,500;
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