Finished Goods - Quantity and Value

Finished stock with respect to a Process a/c is the output of the process.

Current Period Output/Stock

Quantity

The quantity of finished output/stock in a process is ascertained through the actual data available in relation to the process. Where no such information is available we assume that the actual output is nothing but the normal output.

Value

The value of finished goods/output of the process during a period is ascertained by valuing the quantity of output at the Normal Cost of Normal Output per unit of that process.

Opening Stock

The opening stock of a period is the closing stock of the previous period. The information relating to the quantity and value of the opening stock would be available from the data relating to the opening stock being brought forward.

The quantity information should be available to assume that there is opening stock of finished goods. Availability of the value of opening stock and the rate at which the stock has been valued would enable us to derive the quantity information.

In the absence of appropriate information relating to value or rate of valuation, we assume that the opening stock is also valued at the same rates as the current period stock.

Closing Stock

The quantity of closing stock of finished goods is ascertainable from the information relating to the process.

When there is opening stock, the rate at which the closing stock is valued is dependent on method adopted (FIFO, LIFO, Average) for deciding on the rate of valuation. In problem solving, in the absence of information relating to the method to be adopted, we assume FIFO method.

Where there is no opening stock, all the stock at the end would be from the current period output and as such the method adopted for valuation would be immaterial as the rate of valuation would be the same under all the methods (FIFO, LIFO, Average) adopted for deciding on the rate for valuation.

Accounting Treatment - Current Period Output, stock disposal

The completion of output in a process would not form an accounting transaction. However, the disposal of output during the current period would form an accounting transaction.

Process Stock a/c is not used

Where no separate stock a/c is maintained, the output would be disposed off from the Process a/c itself.
• Transfer to the subsequent process
Journal
Particulars
Process B a/c
To Process A a/c
Dr
• Transfer to the Finished Stock a/c
Journal
Particulars
Finished Stock a/c
To Process A a/c
Dr
• Sale
Journal
Particulars
Process Stock Sale a/c
To Process A a/c
Dr

Ledgers

Process A a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount

By Process B a/c
By Finished Stock a/c
By Process Stock Sale a/c

Process Stock a/c is used

• only for recording closing stock

Where Process Stock a/c is maintained only for recording closing stock, it amounts to not using the Process Stock a/c for recording the disposal of output during the current period.
• for recording all transactions throughout the accounting period

Where Process Stock a/c is maintained for recording all transactions relatng to process output throughout the accounting period, the total output whenever it is ready would be transferred from the Process a/c to the Process Stock a/c and all disposals of stock would be done from the Process Stock a/c.
• Transfer of output to process stock account
Journal
Particulars
Process A Stock a/c
To Process A a/c
Dr
• Transfer to the subsequent process
Journal
Particulars
Process B a/c
To Process A Stock a/c
Dr
• Transfer to the Finished Stock a/c
Journal
Particulars
Finished Stock a/c
To Process A Stock a/c
Dr
• Sale
Journal
Particulars
Process Stock Sale a/c
To Process A Stock a/c
Dr

Ledgers

Process A a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount

By Process A Stock a/c

Process A Stock a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Process A a/c
By Process B a/c
By Finished Stock a/c
By Process Stock Sale a/c

Accounting Treatment - Closing Stock of Process Output

The output that has not yet been disposed forms the closing stock of the Process.

Process Stock a/c is not used

Where no separate Process Stock a/c is maintained, the value of closing stock of output that has not yet been disposed would be carried forward to the subsequent accounting period within the Process a/c itself.

In such case, the posting in the Process a/c would read By Balance c/d.

Process a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount

By Balance c/d

800

72,000

To balance b/d 800 72,000

The posting is supported by the closing entry recorded at the end of the accounting period.

Journal
Particulars Amount
(Dr)
Amount
(Cr)
Creditors a/c

To Machinery a/c

To Process a/c
Dr
Dr
Dr

72,000

[For the value of assets and liabilities carried forward]

The value of process stock at the end would be an asset to the organisation and would appear in the Balance sheet.

Balance Sheet
Liabilities Amount Assets Amount

Process

72,000

Other Balances

The Process a/c may also carry the value of closing balances of Process Raw Materials as well as Process Work in Progress as a balance in the process account itself. In such case a single Balance c/d posting may represent all the values carried forward or there would be multiple postings with the label Balance c/d, each indicating a distinct value.
Process a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount

By Balance c/d
By Balance c/d

1,400
800

14,000
72,000

To balance b/d
To balance b/d
1,400
800
14,000
72,000

Say 1,400 units represents material stock and 800 units the output.

The posting is supported by the closing entry recorded at the end of the accounting period containing the Process a/c multiple times.

Journal
Particulars Amount
(Dr)
Amount
(Cr)
Creditors a/c

To Machinery a/c

To Process A a/c
To Process A a/c
Dr
Dr
Dr

14,000
72,000

[For the value of assets and liabilities carried forward]

The Balance sheet would also show the Process a/c multiple times.

Balance Sheet
Liabilities Amount Assets Amount

Process A
Process A

14,000
72,000

Process Stock a/c is used

The Process Stock a/c may be used only for the purposes of recording the closing stocks or for recording all the inflows and outflows of output all throughout the accounting period.
• only for recording closing stock

All the transactions relating to output disposals during the current period are recorded through the process a/c itself. The value of all the output stock being present in the process account, the value of the closing output stock is carried over from the process account to the Process Stock a/c.
Journal
Particulars Amount
(Dr)
Amount
(Cr)
Process Stock a/c
To Process a/c
Dr 72,000
72,000
Process a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount

By Process Stock a/c

800

72,000
The Process Stock a/c is used only for recording the closing stock, carrying it over to the subsequent period and transferring the stock back to the Process a/c of the subsequent period. It has a balance only on the last day of the accounting period and the first day of the accounting period if a balance has been brought forward from the previous accounting period till it is transferred to the Process a/c.
Process Stock a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount

To Process a/c

800

72,000

By Balance c/d

800

72,000
To Balance b/d 800 72,000
• for recording all transactions throughout the accounting period

All transactions relating to the Process output are recorded through the Process Stock a/c. On completion of production, the output is transferred to the Process Stock a/c and all disposals are made from there. The value of the undisposed output will exist as a balance in the Process Stock a/c itself.
Process A Stock a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount

To Process A a/c

By Process B a/c
By Finished Stock a/c
By Process Stock Sale a/c
By Balance c/d

800

72,000
To Balance b/d 800 72,000
Where the Process Stock a/c exists, its balance is carried forward to the subsequent accounting periods through the closing entry recorded at the end of the accounting period. It is shown as an asset in the balance sheet.
Journal
Particulars Amount
(Dr)
Amount
(Cr)
Creditors a/c

To Machinery a/c

To Process Stock a/c
Dr
Dr
Dr

72,000

[For the value of assets and liabilities carried forward]
Balance Sheet
Liabilities Amount Assets Amount

Process Stock

72,000

Accounting Treatment - Opening Stock of Output

How the opening stock of output is brought into books is dependent on the entry recorded for brining the closing stock into books at the end of the previous period.

No Separate Process Stock a/c

Where there is no separate Stock a/c, the opening stock of output would be present as an opening balance in the Process a/c itself. It is brought into books through the opening entry recorded at the beginning of the accounting period.
Journal
Particulars Amount
(Dr)
Amount
(Cr)
Machinery a/c

Process a/c
To Creditors a/c

Dr
Dr
Dr
Dr

72,000

[For the value of assets and liabilities brought forward]
Process a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Balance b/d 800 72,000

Process Stock a/c is used

The opening balance in the Process Stock a/c represents the opening stock of finished output relating to the process.
• only for recording closing stocks

If the Process Stock a/c is being used only for the purpose of recording closing stocks, the opening balance in the account is transferred to the respective process accounts. The account will show nil balance till the end of the accounting period when the closing stock of the current period is recorded again bringing in balance again into the account.
Process Stock a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Balance b/d 800 72,000 By Process a/c 800 72,000
Process a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Process Stock a/c 800 72,000

All other transactions relating to the material inflow and outflow during the accounting period are recorded through the process accounts.

• for recording all transactions

The opening stock of output would be present as an opening balance in the Process Stock a/c. It is brought into books through the opening entry recorded at the beginning of the accounting period.
Journal
Particulars Amount
(Dr)
Amount
(Cr)
Machinery a/c

Process Stock a/c
To Creditors a/c

Dr
Dr
Dr
Dr

72,000

[For the value of assets and liabilities brought forward]
Process Stock a/c
DrCr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Balance b/d 800 72,000

All other transactions relating to the output during the accounting period are recorded through the Process Stock a/c itself. The process account would be affected only when the transaction relating to transfer of completed output to stock account is recorded.

Illustration (with Opening Stock of Finished Goods)

The following details relate to an intermediary process (Y):

Opening Finished Stock : 1,200 units valued at 40,800; Transfer from Process X : 24,200 units @ 18/unit; Material introduced : 800 units @ 30/unit. Direct Labour : 1,43,400; Production Overheads : 2,35,000.

Normal Loss : 8% of total input processed. These units have a realisable value of 12/unit . The actual output from the process during the current period is 22,500 units. 1,500 units of completed production remained in stock at the end. The remainder of the goods have been transferred to Process Z.

Process Y a/c
Dr Cr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Process X a/c
To Material
To Direct Labour/Labor
24,200
800
4,35,600
24,000
1,43,400
2,35,000
By Normal Loss
By Abnormal Loss
By Process Y Stock a/c
2,000
500
22,500
10,000
18,000
8,10,000
25,000 8,38,000   25,000 8,38,000
Process Y Stock a/c
Dr Cr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Balance b/d
To Process Y a/c
1,200
22,500
40,800
8,10,000
By Process Z a/c
By Balance c/d
22,200
1,500
7,96,800
54,000
23,700 8,50,800   23,700 8,50,800
To Balance b/d 1,500 54,000

Notes/Assumptions

• Process Stock a/c is used for handling process outputs.

Working Notes

Input
Particulars Primary Secondary Total
Quantity Rate Value Quantity Rate Value Quantity Value
Current Period input 24,200 18 4,35,600 800 30 24,000 25,000 4,59,600
Input Processed (IP) 25,000 4,59,600
Processing
Particulars Quantity Cost Cost/Unit
Input Processed (IP)
+ Other Costs
Direct Labour/Labor
25,000 4,59,600

1,43,400
2,35,000
Total (IP | TC)
− Normal Loss (IP × 8%)
25,000
2,000
8,38,000
10,000

5.00
Normal (NO | NC | NCNO/U)
− Actual Output
23,000
22,500
8,28,000
8,10,000
36.00
Abnormal Loss(+)/Gain(−) +500 +18,000
• Normal Cost of Normal Output per unit  NCNO/U = $\frac{\mathrm{NC}}{\mathrm{NO}}$
• Actual output (22,500 × 36) and Abnormal Loss (500 × 36) are valued at NCNO/U
Output Stocks
Particulars Quantity Cost Cost/Unit
Opening Stock
+ Current Period Output
1,200
22,500
40,800
8,10,000
34
36
Total Stock
− Closing Stock
23,700
1,500
8,50,800
54,000
35.8987
36
Transfer to Process Z 22,200 7,96,800 35.8919
Closing Stock Valuation Rates
FIFO method
LIFO method
Average method

36
34
35.8987
• In the absence of any specific instruction, the closing stock is valued at current period rates under FIFO method.

Detailed Working

• Primary Material is the output of Process X introduced into the process.
• Secondary Material results in increase in quantity of input.
• Normal Loss Units

 NLU = 8% of input processed = IP × 8% = 25,000 units × 8% = 2,000 units
• Normal Output Units

 NOU = IP − NLU = 25,000 units − 2,000 units = 23,000 units
• Actual Output Units

The Output that is actually obtained in the process.

AOU = 22,500 units (given)

• Abnormal Loss or Gain

Since NOU > AOU, there is abnormal loss

• Total Cost

 TC = 4,59,600 + 1,43,400 + 2,35,000 = 8,38,000
• Normal Loss Realisation Rate per unit

NLRR/U = 5/unit

• Normal Loss Realisation

 NLR = NLU × NLRR/U = 2,000 × 5/unit = 10,000
• Normal Cost

 NC = TC × NLR = 8,38,000 − 10,000 = 8,28,000
• Normal Cost of Normal Output per unit

 NCNO/U = $\frac{\mathrm{NC}}{\mathrm{NO}}$ = $\frac{\mathrm{8,28,000}}{\mathrm{23,000}}$ = 36/unit
• Value of Actual Output

 VAO = AO × NCNO/Unit = 22,500 units × 36/unit = 8,10,000
• Value of Abnormal Loss

 VAL = ALU × NCNO/Unit = 500 units × 36/unit = 18,000

No Process Stock a/c

Process Y a/c
Dr Cr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Balance b/d
To Process X a/c
To Material
To Direct Labour/Labor
1,200
24,200
800
40,800
4,35,600
24,000
1,43,400
2,35,000
By Normal Loss
By Abnormal Loss
By Process Z a/c
By Balance c/d
2,000
500
22,200
1,500
10,000
18,000
7,96,800
18,000
26,200 8,42,800   26,200 8,42,800
To Balance b/d 1,500 54,000

Process Stock a/c used only for recording closing stock

Process Y a/c
Dr Cr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Process Y Stock a/c
To Process X a/c
To Material
To Direct Labour/Labor
1,200
24,200
800
40,800
4,35,600
24,000
1,43,400
2,35,000
By Normal Loss
By Abnormal Loss
By Process Z a/c
By Process Y Stock a/c
2,000
500
22,200
1,500
10,000
18,000
7,96,800
18,000
26,200 8,42,800   26,200 8,42,800
Process Y Stock a/c
Dr Cr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Balance b/d
To Process Y a/c
1,200
1,500
40,800
54,000
By Process Y a/c
By Balance c/d
1,200
1,500
40,800
54,000
2,700 94,800   2,700 94,800
To Balance b/d 1,500 54,000
Author : The Edifier