- This topic has 5 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
when a manufacturer prepare financial st. it get the figure of cost of goods manufactured thru manufacturing account where all actuals cost incurred remain.
But in cost accounting we find out cogs thru applying pre-determined overhead absorption rate.So different cogs as per two accounting system.Is that how it shld work?
another thing , IAS 2 states to follow absorption costing in inventory valuation…but in financial accounting we use actual overhead and not standard OAR.so can u explain how we follow absortion costing in preparing financial st. too
or ias 2 means in financial statement inventory shld be valued at prime cost + manufacturing o/h at actual cost and not on standard o/h rate basis which we do in cost accounting system.is that right
Another thing in case manufacturer values closing goods on basis of predetermined overhead absorption rate………will that value be used for closing inventory in financial statement or actual oherhead amount is required. If so then how the actual overhead are used in valuing closing inventory
In financial accounts we must include all factory costs in the valuation of inventory (including fixed production costs), and we use actual costs.
Management accounts are prepared for the benefit of management and there are no rules. They will either prepare statements using marginal costing or absorption costing depending on which they find more useful (and the exam, of course, tests you on both). If they use absorption costing then they do use a standard absorption rate.
I do suggest that you watch my free lectures – they are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
As u said we use actual cost……then how can we find out while preparing profit and loss account that how much of factory overhead actually incurred will go to the goods sold and how much remain in finished goods inventory. Here we cant use the predetermined overhead rate managemnt account use under absorption costing as in final accounts we use actual cost and not standard…..so how do we also determine value of each good under financial accounting system based on actual cost.
And further this will lead to different cogs as per cost and financial accounting system. Is that how it shld be?
But what you are asking is of no relevance at all to Paper F2.
(In financial accounts we will absorb by dividing the actual fixed production overheads by the actual production.)
We stopped calling it the profit and loss account many years ago – it is the Statement of Profit or Loss 🙂
- The topic ‘question’ is closed to new replies.