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CMA Intermediate · Cost Accounting · Integrated Accounting System

Kaveri Engineering Ltd records factory overheads in an integrated system. Factory overheads actually incurred were ₹1,86,000 and absorbed into WIP were ₹1,70,000. The under-absorbed amount is written off to Costing Profit and Loss A/c. Which entry is correct for the write-off?

Debit Costing Profit and Loss Account and credit Factory Overhead Control Account with ₹16,000. Actual overhead of ₹1,86,000 exceeds absorbed overhead of ₹1,70,000, so the debit balance is under-absorbed and is written off against profit.

  1. ADebit Costing Profit and Loss A/c ₹16,000, Credit Factory Overhead Control A/c ₹16,000Correct
  2. BDebit Factory Overhead Control A/c ₹16,000, Credit Costing Profit and Loss A/c ₹16,000
  3. CDebit Costing Profit and Loss A/c ₹1,70,000, Credit WIP Control A/c ₹1,70,000
  4. DDebit WIP Control A/c ₹16,000, Credit Factory Overhead Control A/c ₹16,000

Explanation

Under-absorption = 1,86,000 - 1,70,000 = 16,000, leaving a debit balance in Factory Overhead Control. Closing it requires crediting that account and debiting Costing P&L, reducing profit. The reverse entry in option 2 would treat it as over-absorption.

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