Question

Distinguish between the sales value of the split-off method and the NRV method.

Discuss the different between the sale value of the split-off method and the NRV method of accounting for by-products, focsuing on what conditions are necessary to use each method.

Answer 1

Both methods use market selling-price data in allocating joint costs, but they differ in which sales-price data they use. The sales value at splitoff method allocates joint costs to joint products on the basis of the relative total sales value at the splitoff point of the total production of these products during the accounting period. The net realizable value method allocates joint costs to joint products on the basis of the relative net realizable value (the final sales value minus the separable costs of production and marketing) of the total production of the joint products during the accounting period.

1.Sales value at split off method

a.​The sales-value-at-split-off method allocates joint cost based on each product’s proportionate share of market or sales value at the split-off point.

b.​In this method, the higher the market value, the greater the joint cost assigned to the product.

2.​Net Realizable Value Method

a.​The net realizable value method allocates joint costs based on hypothetical sales values because there may not be a ready market for the product at the split-off point.

b.​This method is particularly useful when one or more products cannot be sold at the split-off point but must be processed further.