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FAR 200

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financial account

Text of FAR 200

Classify the different manufacturing costs and prepare the financial statements for manufacturing enterprises Describe the characteristics of a partnership, prepare the financial statements of a partnership and account for the changes in a partnership including the dissolution of a partnership Explain autonomous local branches and record the transactions and prepare financial statements for selling agencies and autonomous local branch Describe the nature of hire purchase transactions and show how they are accounted for in both the buyers and sellers books. Explain the conceptual foundation of non-profit organization, and preparation of related accounts

At the end of the course, students should be able to: Explain cost elements, cost classification structure of manufacturing account, manufacturing profits, provision for unrealized profit and WIP valuation Understand types of partnership, identify simple partnership, changes and dissolution in partnership Enable the preparation of related accounts to partnership and final accounts of partnership Explain the branch accounting, characteristics of branch and preparation of current account, income statement in columnar form and combined balance sheet. Explain the different between business enterprise and non-profit organization, in terms of conceptual foundation, preparation of related accounts and incomplete records.

1.2. 3.


Manufacturing accounts Partnership Branch accounting Accounting for hire purchase transactions Accounting for clubs and non-profit organizations

At the end of this chapter, you should be able to:

Distinguish between manufacturing and trading business Identify the elements of costs, classify into direct and indirect cost Prepare manufacturing account, income statement and balance sheet Calculate manufacturing profits, provision for unrealised profit. Discuss on WIP valuation and its treatment in the manufacturing account.

Trading business: Buy ready made goods from supplier

Manufacturing business:

Converting raw materials, together with other costs into finished goods

Direct cost All costs directly related to the process

Indirect cost All costs indirectly related to the process

Easily traceable to the productThe amount needed vary with the output produce Usually known as Prime cost

Do not easily traceable to the productThe amount needed vary with the output produce Usually known as Factory overhead



Major and important part of prime cost. Ex: rubber in the making of tyre. Direct


Wages/ salaries paid to workers employed directly in the process. Ex: salaries to factory operators or machine operator



Expenses directly related to the process. Ex: royalties, hire/ rent of special machine


opening and closing materials must be taken into account when calculating the cost of material other cost incurred in the purchase of raw material (ex: duty, freight and insurance) should be added to the purchase cost of raw material


Example: Opening stock Purchase of raw material 8,000 Carriage inward 200 Less: closing stock 12,000

8,200 (5,000) 15,200



Ex: Loose tools (opening + purchases closing)



Ex: supervisor salary



Rent and rates of factory Depreciation of plant and machinery

Total cost

Production cost

General and admin Selling and distr Financial expenses

Prime costs

Production costs

Direct materials

Indirect materials

Direct labor

Indirect labor

Direct expenses

Indirect expenses


is partly finished goods It can be valued at prime cost or production cost

Valued at prime cost Prime cost + opening WIP - closing WIP

Valued at production cost Cost of production + opening WIP - closing WIP



Finished goods transferred to the trading account is at cost plus mark-up Closing stock of finished goods is actually closing stock of the self-manufactured goods


it need to be determined?

The stock has not yet being sold,profit should not be recognised yet To comply with conservatism/ prudence concept Stock may tend to be overstated

Example: Opening stock RM1,100 (at market price) Closing stock RM2,200 (at market price) Finished goods transferred to trading account at cost plus 10% Answer: Unrealised profit on opening stock = 10/110 x RM1,1000 = RM100 Unrealised profit on closing stock = 10/110 x RM2,200 = RM200


is an increase of RM100 (expense) Provision for unrealised profit Balance b/d 100

Balance c/d

200 Income statement200