Entry of defective product
Atharv Sankliya (1323 Points)
04 November 2021
entry of defective product and its treatment in trading and profit and loss account
Atharv Sankliya (1323 Points)
04 November 2021
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 04 November 2021
In cost accounting provision for defective goods is already created. That can be shown in the liabilities. Finally it is written off to trading account.
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 04 November 2021
Normal spoilage 5% of input
Total spoiled units 550 units
Total Cost `10,000
Sale value of spoilage `0.50 per unit
Standard output Input less 5% of Spoilage
4,750 units
Cost of abnormal spoilage
4 750
=10 000 -250 x .5 x300/4750
= `623.68
Net cost of abnormal spoilage `623.68 – (300 x 0.50) = `473.68
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 04 November 2021
Now the manufactur
ing manager can decide it to be like this
Purchases 4750
To payables a/c 4750
To Provision a/c 250
Then create a provision for 5%. When there is no defective goods
By Provision 250
By Payables 4750
To Bank a/c 5000
If there is a defect, and cannot be returned, write off the loss to profit and loss
By Payables 4750
By provision loss 250
To bank 5000
By Provision liability 250
To Inventory 250
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 04 November 2021
forgot to mention, 5000 units. I am feeling sleepy
Atharv Sankliya
(1323 Points)
Replied 05 November 2021
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 05 November 2021
Provisions is a different standard. Provision is usually created on accruals like receivables, warranties. Defective product provisioning will fall under capital provisioning like restructuring, dismantling Etc cause it is related to stock rather than purchases or payments.
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