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Which of the following is NOT an acceptable method of accounting for by-products?
(A) Net realisable value of the by-product is deducted from the cost of the main product
(B) Pre-separation costs are apportioned to the by-product to calculate its profit
(C) Sales value of the by-product is deducted from the cost of the main product
(D) By-product income less post-separation costs is added to the sales of the main product
Answer is B. In kaplan book, it is written that one of costing method of byproduct is treating it as joint product and apportioning joint costs. Can you help, professor? I am worried as it is ACCA official question and contradicting Kaplan.
The reason that B is correct is that if we were apportioning costs and calculating the profit from the product we would not then call it a by-product. A by-product is specifically not one of the main products and not something that we wish to calculate its profitability.
Alright, now I got that. If we are using cost method of joint cost pro-rata method so we will no longer say it byproduct?
That is correct. It would mean it was being treated as being a ‘full’ joint product and would therefore not be called a by-product.
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