Question

HanLue Brothers, a manufacturing company, produces the following balances from its books at 30th September 2017:

	$
Stocks at 1 October 2016:
Raw materials	7,450
Work-in-progress(factory cost)	5,330
Finished goods(transfer value)	12,110
Purchases of raw materials	128,740
Purchases returns	310
Direct expenses	3,280
Return inwards	1,215
Carriage inwards	1,055
Rates	5,250
Light, heat and power	3,270
Direct Wages	187,240
Indirect Wages	14,320
Telephone	890
Factory repairs	2,215
Insurances	1,420
Factory salaries	38,000
Office salaries	24,000
Sales salaries	27,435
Plant & machinery ( at cost)	160,000
Provision for depreciation of plant & machinery at 1 October 2016	64,000
Bad debts (written off)	325
Bank	3,115
Sales	721,560
Furniture & equipment (at cost)
-Factory	42,000
-Office	48,000
Provision for depreciation of furniture & equipment at 1 October 2016
-Factory	8,400
-Office	9,600
Office machine at cost	12,000
Provision for depreciation on office machine	3,000
Carriage outwards	205
Discount allowed	950
Land	500,000
Capital	288,045
Debtors	18,526
Creditors	11,756
Bank Loan	175,000

         

Additional information:

(1) Closing stocks at 30 September 2017 are as follows:

	$
Raw materials	6,325
Work-in-progress(factory cost)	6,105
Finished goods(transfer value)	15,225

(2) Prepayments at 30 September 2017:

	$
Rates	450
Insurance	220

(3) Accruals at 30 September 2017:

	$
Direct wages	1,220
Telephone	70
Light, heat and power	210

(4) At 30 September 2017, depreciation is to be provided as follows:

	Per year on cost
Plant and machinery	20%
Furniture and equipment	10%

(5) Expenses are to be apportioned to the factory as follows:

	$
Rates	4 / 5
Insurances	3 / 4
Telephone	2 / 3
Light, heat and power	3 / 4

(6) It is the policy of the company to transfer goods manufactured to the warehouse at factory cost plus 15%

Required:

1. Prepare in vertical format, Manufacturing and Trading and Profit and Loss Accounts HanLue Brothers for the year ended 30 September 2017 and a Balance Sheet as at that date.             Show all workings.                                                                            

2. Explain two (2) differences between accounting for a manufacturing and retailing entity.                                                                                                                                  

Answer 1

Answer (a)

Manufacturing and Trading and Profit and Loss Account for the year ended on 30 September 2017 are:

Manufacturing Account for the year ended 30 September 2017
Particulars	$	$	$
Raw Materials
Opening stock		7,450
Purchases	1,28,740
Add: Carriage Inwards	1,055
	1,29,795
Less: Purchase Return	310
		1,29,485
Raw Material available		1,36,935
Less: Closing Stock		6,325
Cost of raw material used			1,30,610
Direct Labour			1,88,460
Direct Expenses			3,280
Prime Cost			3,22,350
Factory Overhead
Wages		38,000
Factory repairs		2,215
Depreciation on
factory Furniture and equipment		4,200
Plant and Machinery		32,000
Rates		3,840
Insurances		900
Telephone		640
Light, heat and power		2,610
Total Factory Overhead			84,405
			4,06,755
Less: excess of closing stock of WIP over opening stock			775
			4,05,980
Add: Mark up of 15%			60,897
Production cost transferred to Trading and Profit and Loss Account			4,66,877

Trading and Profit and Loss Statement
Particulars	$	$
Sales		7,21,560
Less: return Inwards		1,215
Net sales		7,20,345
Less: Opening Stock of finished goods	12,110
Production cost	4,66,877
Goods available for sale	4,78,987
Less: Closing Stock of finished goods	15,225
Cost of goods sold		4,63,762
Gross profit		2,56,583
Less: Expenses
Indirect Wages	14,320
Rates	960
Insurances	300
Telephone	320
Light, heat and power	870
Office salaries	24,000
Sales salaries	27,435
Bad debts (written off)	325
Depreciation on
Office Furniture and equipment	4,800
Office machine	2,400
Carriage outwards	205
Discount allowed	950
Total Expenses		76,885
Net profit		1,79,698

W.N. 1

Appotionment of expenses
Particulars	Amount in $	Factory	Other
Rates	4800.00	3840	960
Insurances	1200.00	900	300
Telephone	960.00	640	320
Light, heat and power	3480.00	2610	870

Answer (b)

Two differences between accounting for a manufacturing and retailing entity are:

1. Manufacturing statement is not prepared for retailing entity as retailing entities are those which sell products but do not make products. Retailers sell products directly to the end user. Staples, Wal-Mart, Target, American Eagle, GAP, and Home Depot are all retailers. They sell products that consumers and businesses use, rather than resell.

2. All manufacturing companies have three different inventory accounts to account for the steps in the production process, i.e. Raw materials inventory. Work-in-progress and Finished goods inventory while retailing entity has only inventory of products the deal in.

Thus, Inventory valuation is complex in manufacturing entity