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CA Intermediate · Cost and Management Accounting · Joint Products and By Products

A distillery obtains a by-product whose net realisable value is ₹18,000 after deducting its separate selling expenses. Under the commonly prescribed treatment for a by-product of small value, how is this amount treated?

The by-product's net realisable value of ₹18,000 is either credited to the Profit and Loss account as other income or deducted from the joint cost of the main product. It is not loaded onto main products as extra cost.

  1. ACredited to the Profit and Loss account as other income, or deducted from the joint cost of the main productCorrect
  2. BApportioned to main products by physical units as extra cost
  3. CCarried forward as a liability
  4. DIgnored entirely with no entry

Explanation

For by-products of small value, the net realisable value is either credited to the Profit and Loss account as other income or deducted from the cost of production of the main product. It is not added to cost, not a liability, and not ignored.

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