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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Under non-integrated accounting, Kapoor Engineering Ltd. records a purchase of raw materials worth ₹2,40,000 on credit and issues ₹1,80,000 of it to production, of which ₹20,000 is indirect material. Using the cost ledger, which entry is made for the issue of materials?

Debit Work-in-Progress Control ₹1,60,000 for direct materials and Factory Overhead Control ₹20,000 for indirect materials, and credit Stores Ledger Control ₹1,80,000. Issues reduce stores, and indirect materials are overheads rather than direct production cost.

  1. AWork-in-Progress Control A/c Dr. 1,60,000 and Factory Overhead Control A/c Dr. 20,000 to Stores Ledger Control A/c 1,80,000Correct
  2. BWork-in-Progress Control A/c Dr. 1,80,000 to Stores Ledger Control A/c 1,80,000
  3. CStores Ledger Control A/c Dr. 1,80,000 to Work-in-Progress Control A/c 1,60,000 and Factory Overhead Control A/c 20,000
  4. DWork-in-Progress Control A/c Dr. 2,40,000 to Stores Ledger Control A/c 2,40,000

Explanation

Direct materials of 1,60,000 (1,80,000 − 20,000) go to Work-in-Progress Control, and indirect materials of 20,000 go to Factory Overhead Control, both credited to Stores Ledger Control for 1,80,000. Charging the full 1,80,000 to WIP ignores indirect material. Reversing the entry is wrong because issues reduce stores.

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