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Hi, john sir,
john sir plz guide me in following two questions. i could not totally understand these. i solved the question 2 by many ways but could not found answer. plz guideQ#1. which of the following may be included in the cost account but would be exlcluded in financial account ?
a.factory manager
b.Depreciation of equipment
c. distribution expense
d. notional rent.Correct answer is mentioned ‘d’ option. but why ‘d’ is correct? why ‘a’ is not?
Q#2
A transport company calculates cost per tonne per km . the following data is available.Average load(tonnes) Average distance No of journeys
4 40 10
5 60 12
6 65 8Please guide me , waiting for your kind rply
For question 1, choices a b and c are all real costs that are relevant for both cost and financial accounts.
However, notional rent means ‘pretend’ rent. It is not a real expense and is only there for costing purposes. Because it is not a real expense it is not relevant for financial accounts.For question 2, you have not said what the question wants!
Thanx for ur kind reply but please tell me depreciation of office building is also a notional charge,then why we charge it in financial account. plz also recommend me some material to know it well.
No – depreciation of office buildings is not notional at all. It is a ‘real’ cost.
However it is not relevant for costing – costing is calculation the cost of producing units, and the cost of offices is not a cost of production!I cannot recommend other materials. Why should I? Because our lectures and course notes cover everything you need (including the above) to be able to pass the exam well.
I assume that you are watching the lectures?
THANX FOR YOUR KIND REPLY.
I started to read notes and watching lectures. but john sir one of my teacher i think said that depreciation is always a notional cost. it do not includes actual cashflow. thats why i am confused about the depreciation. plz tell me is it not that depreciation a notional charge? depreciation of factory or office involves actual cash outflow?
i said recommend me other material because i supposed that it is not available in your notes. i am quite happy with your notes and lectures. just tell me about my question plz. i will be very thankful to u
Although I know what your teacher means, he/she is wrong to say that depreciation is a notional cost. It is a real cost.
The whole purpose of depreciation is to spread the cost of an asset over its useful life.
If I spend 10,000 on a machine that is going to last 5 years, then it really is costing me 10,000 (it is not a ‘pretend’ or notional cost). However instead of charging the cost all in one year, we spread it and maybe charge 2,000 every year for 5 years. Again, it is a real cost.
And of course there is an actual cash outflow – we paid out 10,000 for the machine. But again we spread it over the expected life.
oh, you are great john sir, i can not remain with out praising you. i completely got it. now it is clear for me and it also makes a sense. But john once i think , i read it that depreciation is notional charge and that made me confused i think. but what was the reason that teacher said it is notional, is there a reason or something else? whatever i got your concept. thanx again
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