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Manufacturing Account | Advantages | Format | Problem and solution

Arjun EP

Published on: July 4, 2020

Meaning of Final Accounts

Each and every limited company must prepare financial statement at the end of a financial period.

Usually financial period is for a year.

Under financial statement, income statement (combined trading account and profit and loss account); profit and loss appropriation account balance sheet and cash flow statement are prepared.

Final account is prepared by every business organization at the end of accounting period.

Trading account is prepared to determine gross profit or gross loss of the company.

Profit and loss account is prepared to find out net profit or net loss of the business activities of the company.

Profit and loss appropriation account is prepared to show the provision made for dividend, transfer to reserve fund etc out of the net profit of the company.

The balance sheet shows the financial position of the business firm as well as non-profit organization.

Apart from the above financial statements, a separate manufacturing account is prepared by manufacturing company.

The stock of raw materials, work-in-progress and finished goods are adjusted in manufacturing account.

Different manufacturing costs are aggregated to calculate the cost of manufacturing.

Some manufacturing concerns add mark-up profit before transferring the cost of manufacture to income statements.

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Preparation of Final Accounts

Final accounts are also known as financial statements.

These are prepared to know about operating results and overall financial position to the company.

Joint Stock Company needs to prepare its final account at the end of every financial year.

Generally, final accounts of a manufacturing company involve the following statements:

(1) Manufacturing account

(2) Trading account

(3) Profit and loss account

(4) Profit and loss appropriation account

(5) Balance sheet

According to Company Act, annual financial statement should be prepared by the board of directors of a public limited company every year at least thirty (30) days prior to the holding of its annual general meeting.

In the case of private limited company, within the six months of the expiry of its financial year.

According to company act, financial statement involves the following statements:

a. Balance sheet as at the last date of the accounting or financial year.

b. Profit and loss account of the accounting or financial year.

c. Description of cash flow of the accounting or financial year.

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Manufacturing Account | Manufacturing Account in Final Accounts

Manufacturing account is prepared by manufacturing company.

Manufacturing company purchases raw materials and converts raw materials into finished goods.

To convert raw materials into finished goods, different expenses and overheads are needed.

Advantages, features and importance of manufacturing account

The main features of manufacturing account are given below:

It helps to determine cost of production and cost of sales.

It provides information about direct expenses (manufacturing or factory expenses).

It helps to control direct expenses.

Manufacturing Account

ABC Manufacturing Company

As on 31^st December 20X1

Particulars		Amount	Particulars		Amount
To Opening stock:			By Closing stock:
Raw materials	xxxx		Raw materials	xxxx
Work in progress	xxxx	xxxx	Work in progress	xxxx	xxxx
To Raw materials purchase	xxxx		By Scrap sold		xxxx
Less: Return	(xxx)		By Cost of production (b/f)		xxxx
To Carriage inward (on purchase)		xxxx
To Import duty		xxxx
To Excise duty		xxxx
To Clearing charge		xxxx
To Dock charge (dock dues)		xxxx
To Store consumed		xxxx
To Coal, gas, stem, water		xxxx
To Heat, light and power		xxxx
To Royalty (for manufacturing)		xxxx
To Wages (productive)		xxxx
To Coolie expenses		xxxx
To Motive power		xxxx
To Factory insurance		xxxx
To Repairs to factory building		xxxx
To Repair to plant and machinery		xxxx
To Depreciation on factory assets		xxxx
To Other factory expenses		xxxx
		xxxxx			xxxxx

Note: manufacturing = factory expenses = production = works

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1A

ABC Manufacturing Company has following information for the year ended December, 2021:

Raw materials (1 Jan)	20,000	Purchase return	60,000
Work in progress (1 Jan)	100,000	Depreciation on plant	20,000
Wages	90,000	Depreciation on machinery	40,600
Gas and coal	72,000	Factory insurance	7,400
Purchase of raw materials	440,000	Scrap sold	3,000
Carriage inward	16,000	Motive power	12,000
Import duty	10,000	Store consumed	5,000
Repair to plant	52,250	Raw materials (31 Dec)	80,000
Repair to factory building	39,750	Work in progress (31 Dec)	20,000
Production royalty	24,000	Other factory expenses	25,000

Required: Manufacturing account

[Answer: Cost of production = 811,000]

SOLUTION:

Manufacturing Account

ABC Manufacturing Company

As on 31^st December 2021

Particulars		Amount	Particulars		Amount
To Opening stock:			By Closing stock:
Raw materials	20,000		Raw materials	80,000
Work in progress	+100,000	120,000	Work in progress	+20,000	100,000
To Raw materials purchase	440,000		By Scrap sold		3,000
Less: Return	(60,000)	380,000	By Cost of production (b/f)		811,000
To Carriage inward		16,000
To Wages		90,000
To Gas and coal		72,000
To Import duty		10,000
To Repair to plant		52,250
To Repair to factory building		39,750
To Production royalty		24,000
To Depreciation on plant		20,000
To Depreciation on machinery		40,600
To Factory insurance		7,400
To Motive power		12,000
To Store consumed		5,000
To Other factory expenses		25,000
		914,000			914,000

Cost of production = Dr 914,000 – Cr 103,000 = 811,000

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Problems and Answers of Manufacturing Account (Final Accounts)

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1A

EP Footwear (P) Limited has following extracted manufacturing data for the current year:

	Amount $		Amount $
Stock (1 Jan):		Motive power	37,500
Raw materials	100,000	Depreciation on machinery	62,500
Work in progress	50,000	Stock (31 Dec):
Purchase of raw materials	500,000	Raw materials	50,000
Carriage inward	48,300	Work in progress	150,000
Direct wages	101,700

Required: Manufacturing account

[Answer: Cost of goods produced = $700,000

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1B

AM Textile (P) Limited has following extracted manufacturing data for the current year:

	Amount $		Amount $
Stock (1 Jan):		Lubricant and grease	3,000
Raw materials	124,000	Factory insurance	5,000
Work in progress	106,000	Factory rent	120,000
Finished goods	Nil	Repairs of machinery	6,000
Purchase of raw materials	860,000	Depreciation on machinery	30,000
Freight inward	35,000	Sales of scrap	28,000
Manufacturing wages	360,000	Stock (31 Dec):
Import duty	60,000	Raw materials	108,000
Dock dues	12,000	Work in progress	92,000
Motive power	50,000	Finished goods	Nil