MGT101 - Financial Accounting - I - Lecture Handout 33

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FINANCIAL STATEMENTS OF MANUFACTURING CONCERN

In this lecture, we will discuss financial statements of manufacturing concern. In manufacturing concern, cost of goods sold statement is also prepared.

Illustration #1

Following trial balance has been extracted from the books of Hassan Manufacturing Concern on June 30, 2002.

Hassan Manufacturing Concern
Trial balance
As on June 30, 2002
Particulars Amount
Dr. (Rs.)
Amount
Cr. (Rs.)
Raw Material stock Jul. 01, 2001 35,500  
Work in process Jul. 01, 2001 42,000  
Finished goods stock Jul. 01, 2001 85,000  
Raw material purchased 250,000  
Wages 180,000  
Freight inward 12,000  
Plant and machinery 400,000  
Office equipment 45,000  
Vehicles 200,000  
Acc. depreciation Plant   195,200
Acc. depreciation Office equipment   12,195
Acc. depreciation Vehicles   97,600
Factory overheads 125,000  
Electricity 80,000  
Salaries 140,000  
Salesman commission 120,000  
Rent 200,000  
Insurance 150,000  
General Expense 60,000  
Bank Charges 8,500  
Discounts Allowed 20,000  
Carriage outward 35,000  
Sales   1,500,000
Trade Debtors 250,000  
Trade Creditors   220,000
Bank 165,000  
Cash 110,000  
Drawings 175,000  
Capital July 01, 2001   863,005
Total 2,888,000 2,888,000

Notes:

  • Stock on June 30, 2002.
    o Raw Material 42,000
    o Work in Process 56,500
    o Finished Goods 60,000
  • 50% of electricity, insurance and salaries are charged to factory and balance to office.
  • Depreciation to be charged on Plant & Machinery at 20%, Office Equipment at 10% and Vehicles at 20%on WDV.
  • Write off bad debts Rs. 30,000.
  • All the wages are direct expense.

Required:

You are required to prepare profit and loss account for the year and balance sheet as on june30, 2002.

Solution

Profit & Loss Account

Hassan Manufacturer Concern
Profit and Loss Account
For the Year Ending June 30, 2002
Particulars Note Amount Rs.
Sales
Less: Cost of Goods Sold 1
1,500,000
796,960
Gross Profit
Less: Administrative Expenses 2
Less: Selling Expenses 3
703,040
518,761
155,000
Operating Profit 29,279
Less: Bank Charges 8,500
Net Profit Before Tax 20,779

Balance Sheet

Hassan Manufacturer Concern
Profit and Loss Account
For the Year Ending June 30, 2002
Particulars Note Amount Rs.
Fixed Assets at WDV 4 275,284
Current AssetsCurrent
Liabilities
5
6
653,500
(220,000)
Working Capital
Total Assets Employed
Financed by:

Capital
Add: Profit for the year
Less: Drawings
Total Liabilities
  433,500
708,784

863,005
20,779
(175,000)
708,784

Notes to the Accounts

Note # 1 Cost of Goods Sold

Stock of Raw Material Jul 01, 2001

35,500
Add. Purchases
250,000
Add. Freight Inward
12,000
297,500
Less: Closing Stock of Raw Material
(42,000)
Raw Material Consumed
255,500
Direct labor
180,000
Factory Overheads
Factory Overheads
125,000
Electricity (50% of 80,000)
40,000

Salaries (50% of 140,000)
70,000
Insurance (50% of 150,000)
75,000
Plant Depreciation (Note 5)
40,960

350,960
Total Factory Cost
786,460
Add: Work in Process Jul 01, 2001
42,000
Less: Work in Process Jun 30, 2002
(56,500)
Cost of Goods Manufactured
771,960
Add: Finished Goods Stock Jul 01, 2001
85,000
Less: Finished Goods Stock Jun 30, 2002 (
(60,000)
Cost of Goods Sold
796,960

Note # 2 Administrative Expenses

Salaries (50% of 140,000)

70,000
General Expenses
60,000
Rent
200,000
Insurance (50% of 150,000)
75,000
Discount Allowed
20,000
Bad Debts
30,000
Office Electricity (50% of 80,000)
40,000
Depreciation Vehicles (Note 5) 2
20,480
Depreciation Office Equip. (Note5)
3,281
Administrative Expenses
518,761

Note # 3 Selling Expenses

Salesman Commission

120,000
Carriage Outward
35,000
Selling Expenses
155,000

Note # 4 Fixed Assets at WDV

  Cost Rate Opening For the year Closing WDV
Plant & Mach. 400,000 20% 195,200 40,960 236,160 163,840
Vehicles 200,000 20% 97,600 20,480 118,080 81,920
Office Equipment 45,000 10% 12,195 3,281 15,476 29,524
        64,721   275,284

Note # 5 Current Assets

Stock
Raw Material

42,000
Work in Process
56,500
Finished Goods
60,000

158,500
Debtors
250,000
Less: Bad Debts
(30,000)
Bank
165,000
Cash
110,000
Current Assets
653,500

Note # 6 Current Liabilities

Trade Creditors

220,000

Illustration # 2

Following trial balance has been extracted from the books of Javed Furniture Manufacturers on June 30, 2002.

Javed Furniture Manufacturers
Trial balance
As on June 30, 2002
Particulars Amount
Dr. (Rs.)
Amount
Cr. (Rs.)
Raw Material stock Jul. 01, 2001 52,500  
Work in process Jul. 01, 2001 97,250  
Finished goods stock Jul. 01, 2001 33,750  
Raw material purchased 925,000  
Wages 812,500  
Freight inward 8,750  
Plant and machinery 700,000  
Office equipment 50,000  
Acc. depreciation Plant   125,000
Acc. depreciation Office equipment   20,000
General factory overheads 77,500  
Office electricity 18,750  
Factory power 34,250  
Salaries administrative staff 110,000  
Salaries sales staff 75,000  
Salesman commission 28,750  
Rent 30,000  
Insurance 10,500  
General Admin. Expense 33,500  
Bank Charges 5,750  
Discounts Allowed 12,000  
Carriage outward 14,750  
Sales   2,500,000
Trade Debtors 355,750  
Trade Creditors   312,500
Bank 142,000  
Cash 21,250  
Drawings 50,000  
Capital July 01, 2001   742,000
Total 3,699,500 3,699,500

Notes:

  • Stocks on June 30, 2002
    o Raw Material Rs. 60,000
    o Finished Goods Rs. 100,000
    o Work in Process Rs. 37,500.
  • Out of total wages Rs. 450,000 is direct and balance indirect.
  • 80% of Rent and Insurance are to be apportioned to factory and balance to administrative office.
  • Depreciation to be charged on Machinery at 20% and Office Equipment at 10% on cost.

You are required to prepare profit and loss account for the year and balance sheet as on june30, 2002.

Solution

Javed Furniture Manufacturer
Profit and Loss Account
For the Year Ending June 30, 2002
Particulars Note Amount Rs.
Sales
Less: Cost of Goods Sold
1 2,500,000
2,016,400

Gross Profit

Less: Administrative Expenses
Less: Selling Expenses

 

2

3

483,600


175,350
118,500

Operating Profit   189,750
Less: Financial Charges 4 17,750
Net Profit Before Tax   172,000

 

Javed Furniture Manufacturer
Balance sheet
For the Year Ending June 30, 2002
Particulars Note Amount Rs.
Fixed Assets at WDV 5 460,000

Current Assets
Current Liabilities

 

6
7

 

716,500
(312,500)

Operating ProfitWorking Capital
Total Assets Employed
Financed by:

Capital
Add: Profit for the year
Less: Drawings
Total Liabilities
  404,000
864,000

742,000
172,000
(50,000)
864,000

Working 1 – Cost of Goods Sold

Stock of Raw Material Jul 01, 2001

52,500
Add. Purchases
925,000
Add. Carriage Inward
8,750

986,250
Less: Closing Stock of Raw Material
(60,000)
Raw Material Consumed
926,250
Direct labor
450,000

Factory Overheads
General Factory Overheads
77,500
Power
34,250
Rent (80% of 30,000)
24,000
Insurance (80% of 10,500)
8,400
Plant dep. On cost (Note 5)
140,000
Indirect Labor
362,500

646,650
Total Factory Cost
2,022,900
Add: Work in Process Jul 01, 2001
97,250
Less: Work in Process Jun 30, 2002
(37,500)
Cost of Goods Manufactured
2,082,650
Add: Finished Goods Stock Jul 01, 2001
33,750
Less: Finished Goods Stock Jun 30, 2002
(100,000)
Cost of Goods Sold
2,016,400

Working 2 – Administrative Expenses

Administrative Salaries

110,000
Rent (20% of 30,000)
6,000
Insurance (20% of 10,500)
2,100
General Admin Expenses
33,500
Office Electricity
18,750
Depreciation Office Equip. (Note5)
5,000
Administrative Expenses
175,350

Working 3 – Selling Expenses

Salesman’s Salary

75,000
Commission on Sales
28,750
Carriage Outward
14,750
Selling Expenses
118,500

Working 4 – Financial Expenses

Bank Charges

5,750
Discount Allowed
12,000
Financial Expenses
17,750

Working 5 – Fixed Assets at WDV

  Cost Rate Opening For the year closing WDV
Plant and Mach. 700,000 20% 125,000 140,000 265,000 435,000
Office equipment. 50,000 10% 20,000 5,000 25,000 25,000
        145,000   460,000

Working 6 – Current Assets

Stock
Raw Material

60,000
Work in Process
37,500
Finished Goods
100,000
Debtors
355,750
Bank
142,000
Cash
21,250
Current Assets
716,500

Working 7 – Current Liabilities

Creditors

312,500

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