Some Accounting Questions - Printable Version

Some Accounting Questions - Printable Version

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Some Accounting Questions - insaan - 07-17-2006

Q NO 01
Ias16 y isnt cash discount deducted in computation of cost
whereas Ias specifically mentions to deduct discounts.

Q NO 02
Ias 11 any icidental income(i.e profit) may be reduced
from contract cost;what abt incidental losses?

Q NO 03
watz da Difference B/W cost of sales & COGS

- nabeelanwer - 07-18-2006

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by insaan
[br
Q NO 02
Ias 11 any icidental income(i.e profit) may be reduced
from contract cost;what abt incidental losses?

<hr height="1" noshade id="quote"></blockquote id="quote">

AOA,
HOw are you Juniad bhi, its my pleasure to answer your query. incidental losses form part of contract cost.

- rememberence - 07-18-2006

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by insaan
 Q NO 01
Ias16 y isnt cash discount deducted in computation of cost
whereas Ias specifically mentions to deduct discounts.

Q NO 02
Ias 11 any icidental income(i.e profit) may be reduced
from contract cost;what abt incidental losses?

Q NO 03
watz da Difference B/W cost of sales & COGS
<hr height="1" noshade id="quote"></blockquote id="quote">

Answer 1 Purchase price is net of cash discount always. So, the cash discount is already deducted and the asset is booked at net.

Answer 2 First of all get the concept of incidental gains. ABC Construction company has won the contract of destroying the existing building and then erection of new 16 floors building. The company has completely destroyed the old building within 1 month. Afterwards it has started construction of new building. The company has completed its all work within 2 years.

When the company destroyed the building, the management of the company sold the scrap material for Rs x million. Rs X shall be credited to WIP a/c. Furthermore after the completion of contract the company had some surplus material, and the company has following two options for it

(a) To sell the material in market
(b) To use this material on some other contract.

In both of the cases the material shall be credited to WIP A/C with amount for which it is sold/transfered to another contract. In case of sale, sales proceeds shall be credited and gain/loss shall be automatically booked in WIP A/C. In case of transfer, cost of WIP shall be credited resulting in no gain/loss.

Answer 3 Elaborate your question.

- insaan - 07-18-2006

Ans no 01then y trade discount is deducted

Ans no 02
ok for contract A/C exactly i got it..

achaa mujhe lagta hai k WIP A/C is just our amount due from customer A/C ,it exactly goes da same way ,cost incurred to +recognised profit - progress billing,means the balance shall be the amount due from/to customer
except 4 da difference dat B/S shows to date figures and contract A/C shows for the yr figures

infact a contract is like a continous sale ...

and then it wont be rite to call this A/C as contract A/C
this shall b WIP A/C

and as per my new teacher contract A/C is a bit different
it is of P/L nature
means we credit it with revenue recognised and debit with profit recognised & cost incurred
& balance is WIP which wud ultimately form part of cost incurred to date in computation of amount
due to / due form customers....
and this is exactly wat i also see in PAC solutions

but 1nce again i dont agree with this treatment
means if we credit contract A/C with revenue recognised wat we wud debit against it
means in case of progress billling it makes sense

Ans no 03
i mean what is the difference between Cost of sales and Cost of goods sold

- insaan - 07-18-2006

oh what if progress billing isnt available??

- Abdur.Rehman - 07-19-2006

Q3
Both are almost same
Just as a convention cost of sales is used for services industry and cost of goods sold for goods industry.
no major difference..
this is as per my practical experience..
no one told me that..
as i did audit of call center and telecom industry, both use these terms. whereas goods industry use CoGS

- nabeelanwer - 07-20-2006

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by insaan
 
achaa mujhe lagta hai k WIP A/C is just our amount due from customer A/C ,it exactly goes da same way ,cost incurred to +recognised profit - progress billing,means the balance shall be the amount due from/to customer
except 4 da difference dat B/S shows to date figures and contract A/C shows for the yr figures

infact a contract is like a continous sale ...

and then it wont be rite to call this A/C as contract A/C
this shall b WIP A/C

<hr height="1" noshade id="quote"></blockquote id="quote">

One thing more
Due From Customers is actually net of the following

Closing Stock xxxx
Unbilled Revenue xxxx
Overbilled Revenue (xxxx)
Provision for Expected Losses (xxxx)

if we net off above figures these will be same as we calculate AMOUNT DUE FROM CUSTOMERS as follows

Cost incurred to date
Add Porfit Recognized to date
Less Progress Billings to date

- insaan - 07-20-2006

abdur rehamn infact we are told a difference
cogs + admin & selling exp = cost of sales
u must hav studied this in costing

- insaan - 07-20-2006

haan nabeel
u cant say it to be atually net of following
Closing Stock xxxxUnbilled Revenue xxxxOverbilled Revenue (xxxx)Provision for Expected Losses (xxxx)

it is actuallly wat u hav stated earlier
hav a look at IAS 11,specially the example in the index
it wud help u
dekho basis of IAS treatment
cost complete consider karo ,prudence basis
profit only dat for which u are confident dat u wud earn
and then whatever work u hav done it shud be reduced by whatever u have billed to the customer
look it u dont bill any amount to the customer then ur WIP is cost incurred + profit recogised
and dun confuse urself in closing stock
closing stock is nothing but a future cost which u have incurred today

i think u havent read IAS ,1st get a grip on IAS ad its all over
dont just attempt Q's of zuberi and make basis for conclusions

- rememberence - 07-21-2006

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by insaan
 Ans no 01then y trade discount is deducted

Ans no 02
ok for contract A/C exactly i got it..

achaa mujhe lagta hai k WIP A/C is just our amount due from customer A/C ,it exactly goes da same way ,cost incurred to +recognised profit - progress billing,means the balance shall be the amount due from/to customer
except 4 da difference dat B/S shows to date figures and contract A/C shows for the yr figures

infact a contract is like a continous sale ...

and then it wont be rite to call this A/C as contract A/C
this shall b WIP A/C

and as per my new teacher contract A/C is a bit different
it is of P/L nature
means we credit it with revenue recognised and debit with profit recognised & cost incurred
& balance is WIP which wud ultimately form part of cost incurred to date in computation of amount
due to / due form customers....
and this is exactly wat i also see in PAC solutions

but 1nce again i dont agree with this treatment
means if we credit contract A/C with revenue recognised wat we wud debit against it
means in case of progress billling it makes sense

Ans no 03
i mean what is the difference between Cost of sales and Cost of goods sold
<hr height="1" noshade id="quote"></blockquote id="quote">

Para 27 is my basis. You show reference of IAS for ur basis. Waiting

My basis is that there is no difference b/w WIP n amount due from customer n its not so that WIP is added in amount due from customer to arrive at balance.

It equals in a sense that, suppose

Cost incurred to date is 1,000

Profit recognized is 100

Progress billing 900

Amount due from customer is 200 (1,000+100-900)

Now look 200 is also ur WIP, becoz cost recognized is 800 and total cost is 1,000 (200 being cost for future activities)

Moreover progress billings depicts ur revenue figure in a sense that cost recognized (activities completed) + profit figure.

Now u say

- rememberence - 07-21-2006

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by insaan
 Ans no 01then y trade discount is deducted

<hr height="1" noshade id="quote"></blockquote id="quote">

I think, the basic concepts and difference b/w cash discount and trade discount is not yet clear to u?

- insaan - 07-22-2006

trade discount & cash discount;
yup i also feel i am not clear on what trade discount and cash discount...plz clear this..

contract a/c
infact for wip a/c i also stand by your side and i also justify ur treatment by another viewpoint also,progress billing is just our sales and sales are recorded on accrual basis and not receipt basis
but wat makes me confuse are the following things

nobody among the following has followed urs treatment for contract a/c
means no1 credits contarct a/c with progress billings
javed zuberi
pac
my teacher

otherwise i myself feel dat urs treatment is da best justified
now wat i feel that more important than my concepts are my passing in exams..if i go in exams with these concepts but these are not acknowledged by the examiner than for sure i m da loser

besides WIP and amount due from customers may be the same as per IAS11

B/W i have another question what if the contract is not a long term contract...then wud its treatment be as per IAS2

- rememberence - 07-23-2006

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by insaan
 trade discount & cash discount;
yup i also feel i am not clear on what trade discount and cash discount...plz clear this..

contract a/c
infact for wip a/c i also stand by your side and i also justify ur treatment by another viewpoint also,progress billing is just our sales and sales are recorded on accrual basis and not receipt basis
but wat makes me confuse are the following things

nobody among the following has followed urs treatment for contract a/c
means no1 credits contarct a/c with progress billings
javed zuberi
pac
my teacher

otherwise i myself feel dat urs treatment is da best justified
now wat i feel that more important than my concepts are my passing in exams..if i go in exams with these concepts but these are not acknowledged by the examiner than for sure i m da loser

besides WIP and amount due from customers may be the same as per IAS11

B/W i have another question what if the contract is not a long term contract...then wud its treatment be as per IAS2

<hr height="1" noshade id="quote"></blockquote id="quote">

Ok, Yes definitely progress billing is not credited in T account of WIP n I also have not seen it except the treatment of Zuberi while he closes WIP T account when the contract is completed. My view is that it is credited to arrive at WIP/amount due from customer in accordance with clause (b) of para 42 & 43 of IAS 11.[/b] Look at this ideally it calculates ur unconsumed material/WIP. Cost incurred to date (may not tellie with ur cost recognized in P & L) + profit - progress billings (the definition of progress billing itself says "quantum of work done + share profit associated with that work, means revenue!).

[b]In exams the most important things is presentation of ur solution in accordance with IAS. WIP T account is outdated n is not expected in exams. The important thing is disclosure of amount due from customer/WIP. However, if the examiner ask u to prepare WIP T account u dont credit it with progress billing, rather u make a descriptive note to the examiner drawing his attention to disclosures required by IAS 11 where it is credited to arrive at WIP balance at year end. Value added and distinctive answers r very encouraged by examiner.

Difference b/w cash n trade discount>> cash discount is awarded at the time of transaction in return for bulk purchases(say 5% discount if you purchase above specific number of quantity) or special corporate relations with ur supplier. Purchase price of stocks, assets shall always be recorded net of cash discount.

Trade discount is given like if supplier says, that 2% discount shall be given if payment is made within 1 month. Now trade discount shall be treated as other income. and in case of assets(IAS 16) it shall be deducted from the cost of asset too.

Main difference is, cash discount>>dependant upon quantity or relations with supplier and immdeiately awarded at the time of transaction. Trade discount>>dependant upon settlement terms, and time.

Tell me if u r unclear on its accounting entries.

Objective of IAS 11 is to stipulate the treatment of contracts, if the start n end date of contract falls in two different accounting years. So, if contract is short term n completed within a year its treatment id v simple. All the revenue n cost shall be recognized in P & L in accordance with IAS 18. IAS 2 has nothing to do with short term contracts becoz IAS deals with inventory n incase of short term contract there is no inventory at year end.

- Abdur.Rehman - 07-29-2006

Admin and selling expenses are never part of cost of sales