CA Intermediate · Cost and Management Accounting · Joint Products and By Products
Ganga Dairy produces a by-product whose sales are Rs 30,000, with selling and distribution expenses of Rs 4,000. Under the commonly used treatment, the net amount is credited to the profit and loss account as other income. What amount is credited?
The amount credited is Rs 26,000, being by-product sales of Rs 30,000 less selling and distribution expenses of Rs 4,000. Adding the expenses, which gives Rs 34,000, is the wrong sign.
- ARs 34,000
- BRs 30,000
- CRs 26,000Correct
- DRs 4,000
Explanation
Under the other income treatment, the by-product's net proceeds are credited, being sales less selling and distribution expenses: 30,000 - 4,000 = Rs 26,000. Rs 34,000 adds the expenses instead of deducting them.
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