Manufacturing Accounts

Example 1
 Difficult Entries
• Loose Tools
– Opening stock of Loose Tools xx
– + Puchases of Loose Tools xx
– - Closing Stock of Looose Tools (xx)
– Tool Used Charge to FOH xxxx

– Closing Stock of Loose tools take to B/S

 Production Cost
Vs.
Transfer Price
of Goods Completed

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 Production cost Vs. Transfer price
• Stock of raw materials, work in progress
and other finished goods are valued at cost.
• However, the stock of manufactured goods
can be valued at production cost or the
transfer price of goods completed.
• Provision of unrealized profit of on stock
should be made if closing stock of
manufactured goods is valued at transfer
price.
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 Provision of Unrealized Profit

• Be made on the closing stock valued at

production cost plus a percentage of factory
profit.
• Provision for unrealized profit

Mark up%
Stock (at transfer price) x
100%+ Mark up(%)

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Example 1

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A company manufactures and sells it own products.
It also purchases and sells other finished goods.

Production 100 units P1@ P100

Sales 80 units P2@ P160
Closing stock 20 units P1@ P20
Expenses for this period P50
Prepare manufacturing, trading and profit and loss
account for the following 2 situations would be
shown:
1. The factory output is transferred to the trading account
at factory cost.
2. The factory output is transferred to the trading account
at factory cost plus 20% factory profit, and the stock of
manufactured goods is valued at transfer price.
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1. Manufacturing, trading and profit and loss account (extract)

P P
Production cost of Gd completed (100 units*P1) 100
Sales (80 units*P2) 160
Less: COGS
Production cost of Gd completed 100
Less: Closing stock(at cost) (20 units*$1) 20 80
Gross Profit 80
Less: Expenses
Expenses 50
30

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 Increase/ Decreased in Provision of
Unrealized Profit

Accounting entries

Increase in Provision Decrease in Provision

Dr Profit and Loss Dr Provision for
Cr Provision for Unrealized Profit
Unrealized Profit Cr Profit and Loss

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 2.
Production cost of Gd completed (100 units*P1) 100
Add: Manufacturing profit (100*0.2) 20
Transfer price of Gds completed 120

Sales (80 units*$2) 160

Less: Cost of goods sold
Transfer price of Gd completed 120
Less: Closing stock(at transfer price) (20+20*0.2) 24 96
Gross Profit 64
Add: Manufacturing profit 20
84
Less: Expenses
Expenses 50
Provision for unrealized profit (24*20/120) 4 54
Net Profit 30

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