Accounting

Anand dubey

Accounting of Materials
Direct and Indirect Materials
For the purpose of ascertaining the cost of various articles produced
in the factory, Materials utilized in production are classified as direct
materials and indirect materials.
Material, which forms part of the finished product, is defined as
direct material.
Material drawn for general shop use, maintenance and repair
services etc. are treated as indirect materials and charged as part of
the overhead charges.

Receipt of Stores & Accounting

Two sets of accounting records are maintained for Stores viz. Bin
Cards and Priced Stores Ledgers. The Store Holder maintains a Bin
Card for each item of store, wherein, every receipt and issue is
entered, and after each transaction, the balance is shown. Thus, the
factory for all materials maintains a continuous quantitative account.
The material code number allotted to each item is entered in the bin
card.
A priced store ledger is maintained by the Accounts Office in which all
receipts and issue showing quantity and value are posted for each
item of store in a separate folio and the balance shown after each

transaction.

Pricing of receipt vouchers

Receipts are priced at the cost of purchase plus all incidental charges

incurred upto the point of receipt of the stores at the Factory.

Thus, in the case of imported stores, Sea freight, Customs duty and
Port handling charges and Inland freight charges are all added to the

purchase price to arrive at the cost of stores in pricing receipt

vouchers. Components, standard tools required for general shop use,
packing boxes manufactured in the Factory are also transferred to
stock and accounted as receipts in the store ledgers. Such receipts are
priced at the actual cost of manufacture. Scraps arising in production
and surplus materials if any, are returned to stores on return notes.
These are accounted for as receipts in the store ledger and priced at
the latest ledger rates for the items.

Issue accounting and control

Materials are issued by the stores section to shops only against
authorized requisitions called Demand Notes.
In regard to petty casual work or minor internal factory services or
repairs and maintenance or for departmental store orders, the
planning department releases Supplementary Work Order Drafts
(SWOD). The SWOD serves the combined purpose of an estimate and
the manufacture/material Warrant. Materials are drawn by the shops
on the authority of the SWODs. For material required for general shop
use, maintenance etc. the planning department issues "Open
Warrants" on quarterly basis which constitute the authority for the
shops to draw materials on as required basis. Materials issued to
outside consignees are supported by issue voucher quoting reference

to the demand against which such issues are made.

Pricing of Demand Notes

Average Ledger Rate
The demand and return notes are priced at the latest ledger rates. The
ledger rate is calculated afresh, every time a new receipt occurs, taking
into account the balance available as the date of new receipt, as shown
below.
Balance in a ledger folio
Receipt

Quantity (Nos.), Value (Rs.), Rate (Rs.)

500
1000
2.00
1000
2500
1500
3500
2.33
(new rate)

Issues are thus priced at the latest (Weighted) average rate.

Material Abstract
The demand and return notes pertaining to a month,
after they are priced and posted in the store ledger, are

sent to the Electronic Data Processing Section for

preparing a material abstract. The material abstract is a
listing type of tabulation in which the expenditure
incurred against each work order and Warrant is shown
demand/return note-wise and also the net total against

each work order/warrant. The net expenditure for each

Warrant is posted in the cost card pertaining to the
concerned warrant.

Plant and Machinery

Definition:
(1) The expenditure on purchase/acquisition/manufacture and
erection of Plant & Machinery is capitalized and depreciated on
Straight Line Method. Cost of manufacture of machinery etc. carried
out for supplies to others should not, however, be capitalized.
(2) The expenditure may be divided into two categories viz. 'New

Capital Items' and 'Renewal and Replacements'.

(3) The line of demarcation between 'New Capital Items' and
'Renewal and Replacements' is as detailed below:

(a) The expenditure on provision of Plant and Machinery should

be categorised as pertaining to New Capital as follows:

(i) If the purchase/provision is due to an increase in

productive capacity caused by increase in the numbers
of the Army or scales of issue;
(ii) If it is an addition due to introduction of an entirely
new form of warfare or due to make up deficiency in
capacity to meet normal requirements as also to
establish indigenous production of those items which
are at present imported etc.; and
(iii) If it is on account of provision of safety devices of an
expansive type ordered by Factory Inspection etc.

(b) The expenditure should be treated as pertaining to

Renewals/
Replacements in the following instances:
(i) Renewals/Replacements of like for like items or those
involving improvements in methods of operation of
manufacture, and
(ii) all expenditure involving betterment in some form or
other including modernizing of obsolescent items.

List of Assets:
(i) Each Factory will maintain lists of all assets under Plant &
Machinery. Separate lists will be maintained for the different
shops and these will be in accordance with the entries in the
Block Registers maintained by Accounts Office.
The Factory will forward the above lists annually to Accounts
Office for
verification with the Block Registers maintained by Accounts
Office.
(ii) All additions to or reduction (including transfers from one shop
to
the other in the same Factory) will be supported by relevant
vouchers and a copy of each of such voucher should be
forwarded to the Accounts Office.
(iii) Inventory lists will be maintained by the Factory for all tools
and
shop plant held by the Shops, separate lists being prepared for
each shop or section. The Accounts Office will audit these lists.

Writing of Capital Assets of small value:

When an item of capital asset has depreciated to Rs.
500 or below or an
amount equal to the first year's depreciation at the
normal peace rate
whichever is less, or estimated residual value, in the
case of items
depreciated on Straight Line Method, it shall be written
off and kept at Nil
value in the Block Register until finally disposed of by
sail, break-up or
otherwise.

thanks