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what is treatment of scrap in cost accounting ?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Uma asked about 3 years ago

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7 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered almost 3 years ago

The useful methods for the treatment of scrap are as follows: 1. If realisable value of normal scrap is insignificant (i.e., legitimate scrap and administrative scrap) it may be credited to Profit and Loss Account like other income. This method of treatment of scrap is suitable when the scrap is of very little value and when the market for it is uncertain. This method is known as treatment by neglect. This method is not suitable for effective control over scrap because detailed records of scrap are not kept and scrap cost is not shown as an element of cost in the cost sheet. Scrap which is not sold and is in stock is valued at nil for balance sheet purposes and thus vitiates the valuation of closing stock. Accounting of scrap by this method is also inaccurate as there is a time lag between the sales and the production. There is also a possibility that scrap may arise in one period but may be accounted (i.e., sold) in another period and thus distorts the profits of two periods. 2. The sale value of scrap may be deducted from the cost of materials consumed or factory overhead. This method is suitable when several production orders are commenced at a time and it is not possible to find scrap for each other. This method is, however, not effective in controlling scrap arising in different processes, jobs or orders. When overheads are absorbed on the basis of pre-determined rates, it is more appropriate to credit an estimated allowance for the scrap instead of the amount of actual scrap. The journal entries for recording the scrap are: (i) Dr. Scrap Account (with an estimated allowance) Cr. Factory Overhead Control Account (ii) Dr. Cash/Debtors (Amount realised on sale) Cr. Scrap Account. Profit or loss on sale of scrap may be transferred to the Profit and Loss Account at the end of the year. When scrap is sold on a day-to-day basis and no stock is maintained, the journal entry is: Dr. Cash/Debtors Account (with realisable value) Cr. Factory Overhead Control Account 3. The scrap may be assigned a cost if it can be related to the job which yielded the scrap. It will help in giving reasonable credit to the jobs which yielded scraps. This method of treatment is suitable when scraps from the various jobs widely differ in nature. 4. It is possible that scrap arising in one job may be used in another job. In such a case material transfer note for transfer of scrap from one job to another job should be prepared and credit should be given to the job where scrap arises and debit should be given to the job for the amount of scrap transferred to it. Sometimes, scrap may be returned to stores when some further processing has to be done before that can be utilised for other jobs. Job returning the scrap is credited with the value of the scrap returned to stores. 5. When the actual scrap is in excess of the pre-determined quantity (i.e., normal quantity), the cost of the excess scrap is transferred to Costing Profit and Loss Account after deducting there-from the sale proceeds of such excess scrap. The valuation of excess scrap is done in the same way as the valuation of abnormal waste is done. 6. The cost of defective scraps after deduction there-from the sale a proceeds of such scrap is transferred to Costing Profit and Loss Account because it is an abnormal loss.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered almost 3 years ago

Dear Friend, **Meaning Of Scrap** Scrap is a left over or residue after a product has been manufactured. The remnant of material resulting after producing the product is scrap. Thus, the residue of raw material incidentally realized in course of manufacturing goods is called scrap. Low quality raw material or abnormal size of raw material gives scrap material. Faulty or wrong product designing, substandard or unsuitable raw material, abnormal machine operation etc are the main causes of scraps. Thus a correct product design helps check scrap. **Accounting Treatment Of Scrap** Option 1 Nominal sales price realized out of negligible scrap is treated as other income in cost account. Option 2 A scrap account is opened with the full amount of the scrap of the process or job if such a scrap value is significant. Process account or job account is given credit by the value of scrap. The scrap account is closed by the balance either of profit or loss to the profit or loss account. Option 3 Net sales value of scrap after deduction of selling and distribution costs is deducted either from the overhead amount or from the material cost. Deduction out of overheads is made to adjust the overhead ratio if scrap is not possible to identify in relation to a process or a job.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered about 3 years ago

Meaning Of Scrap Scrap is a left over or residue after a product has been manufactured. The remnant of material resulting after producing the product is scrap. Thus, the residue of raw material incidentally realized in course of manufacturing goods is called scrap. Low quality raw material or abnormal size of raw material gives scrap material. Faulty or wrong product designing, substandard or unsuitable raw material, abnormal machine operation etc are the main causes of scraps

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 lochan answered about 3 years ago

Scrap may be treated in cost accounts in the following ways : Normal scrap: If there is no realizable value for scrap then cost of scrap is absorbed by good units. If there is any unrealized value of scrap,it is treated as income and credited to cost of scrap. Abnormal scrap : A separate scrap A/c is opened and it is debited with full cost of materials and if there is any scrap income then it is credited to this account.The balance of this scrap A/c should be transferred to costing profit & loss A/c. Thanks

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Data?1494421730 rohit awasthi answered about 3 years ago

hello Uma **`Scrap`** A scrap refers to the incidental residue derived from certain types of manufacture recoverable without further processing. The main feature of scrap is it has some disposable value and it arises from normal production process. Scrap arises form faulty operation, bad supervision, wrong tool setting, defective process and use of defective raw material. Scrap can be of three types (a) Pre-determined or Anticipated Scrap is fixed in advance at the time of anticipation of costs. (b) Administrative Scrap occurs due to obsolete design of a product. (c) Defective Scrap takes place due to basic defects in raw materials, production processes and other discrepancies leading to unsaleable products. Treatment of Scrap: Under the first method, the realisable value of scrap is credited to Costing Profit and Loss Account and termed as abnormal gain. The unit cost of the product includes the value of scrap. This method of recording scrap value is quite simple and can be employed very successfully where the quantum of scrap is negligible. Effective control over scrap lacks under this method as detailed records of scrap values are not preserved and are un-identified to different jobs and processes. Under the second method, the net sale proceeds of scrap (obtained after deducting selling and distribution costs) is deducted from material cost or factory overheads, thereby reducing the overall cost of materials and overheads. This method is most suitable where several production orders are undertaken simultaneously and scrap values are not worked out for each order. Again this method is very suitable in exercising control over scrap arising in different processes and jobs. Under the third method, which is an improvement over the first two methods, the scrap values realised are credited to each job, process or operation. This is a detailed method and is immensely helpful in identifying scrap values in case of every job, process or operation. Thanks

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Open uri20170510 32134 tcchcu?1494421832 Jitendra Suthar answered about 3 years ago

Hiii friend...... **Scrap:** When we produce any product, we have send the raw material in different manufacturing processes. At every manufacturing process, some material may be rest or residue which can easily recycle. This residual material will be scrap. Treatment of Scrap in Cost Accounting : --------------------------------------- - **If scrap cost is very low :** No, need to record. Its loss is suffered by products. Earning from selling of scrap will be other income. - **If scrap cost have some amount which can not be ignored :** Calculate net realisable value scrap = Total sale of scrape - Net sale and distribution expenses of scrap Now, we deduct correct cost of material = Total cost of material - net realisable value of scrap - **If scrap is identified with a particular job or process :** When scrap is identified with a particular job or process and its value is significant, the scrap account should be charged with full cost. The credit is given to job or process concerned. The profit and loss account in scrap account, on realisation, will be transferred to costing profit and loss account. Regards,

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Open uri20170510 32134 1nqu8aj?1494421649 sowmya answered about 3 years ago

Hii Uma Meaning Of Scrap Scrap is a left over or residue after a product has been manufactured. The remnant of material resulting after producing the product is scrap. Thus, the residue of raw material incidentally realized in course of manufacturing goods is called scrap. Low quality raw material or abnormal size of raw material gives scrap material. Faulty or wrong product designing, substandard or unsuitable raw material, abnormal machine operation etc are the main causes of scraps Treatment Of Scrap Option 1 Nominal sales price realized out of negligible scrap is treated as other income in cost account. Option 2 A scrap account is opened with the full amount of the scrap of the process or job if such a scrap value is significant. Process account or job account is given credit by the value of scrap. The scrap account is closed by the balance either of profit or loss to the profit or loss account. Option 3 Net sales value of scrap after deduction of selling and distribution costs is deducted either from the overhead amount or from the material cost. Deduction out of overheads is made to adjust the overhead ratio if scrap is not possible to identify in relation to a process or a job.

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