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ProblemABC Company entered into a forward contract to buy its own shares.Details for the same are given below and here, XXXX refers to the respective year.Contract date − 1st Jan XXXXMaturity date − 31st Dec XXXXExercise price of $110No of shares − 1500Market price − $100 (as on 1st Jan XXXX)Market price − $150 (as on 1st Mar XXXX)Market price − $130 (as on 31st Dec XXXX)Calculate the accounting entries for forward contract as per the given information.SolutionThe solution is explained below −Fair value of forward (on 31st March) = 1500 * (150 -110) => 60000Fair value of forward (on 31st ... Read More
The accounting for forward contracts is written as follows −Here, XXXX and XXX refer to the respective amount.RecognizeSince the agreement is for a future date, it should be accounted for now (date of signed, date of which physical exchange).CreditDebitAsset obligationXXXXAsset ReceivableXXXXRecording (seller perspective)Asset obligation credited for spot rate and asset receivables and contra asset debited/credited for forward rate. Contra asset is the difference between spot rate and forward rate.CreditDebitAsset obligationXXXXAsset ReceivableXXXXContra assetXXXXXXRecording (from buyer perspective)Payable amount credited at forward rate and contra asset credited/debited at contra asset account. Asset receivable debited.CreditDebitContracts receivableXXXXAsset obligationXXXXContra assetXXXXXXRecording on date of exchange (seller perspective)Asset ... Read More
ProblemPrepare a job sheet using the transactions given below −Amount ($)Raw materials750000Work in progress (job A)310000Utility costs50000Direct labour costs125000Advertising expenses310000Indirect labour costs202000Travel expenses40000Raw materials675000Insurance15000Work in progress (Job B)295000Finished goods1089700Direct labour costs98000Cost of goods sold963000Indirect labour costs103000Sales2058000Manufacturing overheads1158009564500Administrative expenses105000Carrying balancesSales commissions195000Raw materials30000Manufacturing overheads220000Work-in-progress88000Depreciation (equipment)45000Cost of goods sold28000146000SolutionThe job sheet for the respective transactions is as follows −Raw materialsManufacturing overheadsCarrying balance30000Work in progress (job B)295000Used in next year750000Depreciation overhead220000780000Sales commissions195000Work in progress (job A)675000Utilities overhead50000Balance105000Insurance overhead15000775000Work in progress (A+B)605000Balance170000Work in progressNet operating incomeCarrying balance88000Sales2058000Work in progress (job A)310000Cost of goods soldDirect labour costs125000Carrying balance28000Indirect labour costs202000Cost of goods sold in next year963000Work ... Read More
Job costing is the basic job costing method used to determine the cost of a specific job, performed according to the customer requirement. This is the type where work is done by contracts or separate projects.This type of costing is useful for the firms producing not identical products. Manufacturing firms use this method to control use of raw material, equipment and working hours and they will allocate the costs accordingly.ObjectivesThe objectives of job costing are as follows −Provides separate accounts for each process, maintain the development of each job, to estimate the costs, when transitioning from one process to another ... Read More
An offer is a kind of promise between the parties, which depends on a certain act/forbearance given. In other words, an offer is an invitation to enter into a contract with certain terms.According to the Section 2 (a) of Indian Contract Act, “An offer is defined as, when one person signifies to another about his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or business, he is said to make a proposal”.Here, Offeror/propose is a party making an offer to others.Offeree/propose is a party to whom ... Read More
Contracts are divided as follows −validity/enforceabilityformationperformanceSub classification of contracts is given below −Based onValidity/enforceability Formation PerformanceValid contractsExpress contractExecute contractVoid contractsImplied contractExecutor contractVoidable contractsQuasi-contracIllegal agreementsUnenforceable contractsE.com. contractsunilateral contractbilateral contractNow, let us understand the types of contracts in detail.Validity/enforceabilityValid contract − It is an agreement, which is binding and enforceable.Void contract − It is a contract, which cannot be enforced by law.Voidable contract − If consent of a party is not free then, the contract becomes voidable contract.Illegal contract − The law forbids it to be made for a contract.Unenforceable contract − If both the parties cannot sue on contract due to technical reasons, it is ... Read More
Following are the essentials of valid contract −Agreement − For a valid contract, agreement is the most essential element, which consists of offer and acceptance.Two parties − Minimum two parties are required for a contract. One will offer the contract and the other will accept the contract.Free consent − Consent is said to be free consent, if it is not created by force, needless influence, cheating, misrepresentation or fault.Legal relationships − These are must for parties to be in a contract because agreements are not enforceable by law.Capacity of contract − Ability of person/party to enter into a valid contract.According ... Read More
Accounting treatment for costs is explained below −Sr.NoCost treatment1MaterialsCost of material purchased/sent to the site is charged.Cost of material unused/returned to the store is credited to the contract account.Cost of material stored (for future use) is debited to the stock account.2LabourLabour charges and their related costs are charged to the contract account.Administrative, supervisory staff, salaries, incentives are charged to particular accounts.3PlantIf a plant is hired, then hiring charges are charged to the contract account.If a plant is purchased/sent to the site, its value is charged to the contract account and value of plant returned/remaining is debited from the contract account. ... Read More
Contract costing is one of the methods of job costing and it is also called terminal costing. In this, each contract is given a number and the records are maintained separately. This method is generally used by builders, construction firms, contractors etc. The main objective of this method is to identify cost and profit of each unit separately.Chartered institute of management accountants (CIMA) defines contract costing as “That form of specific order costing, which applies where the work is undertaken as per the special requirements of customers and each order is of long term duration”.Chartered institute of management accountants (CIMA) ... Read More
The job costing procedure consists of the following aspects −Direct materials cost is calculated with the help of requisition form.Employee wages are also calculated by the payroll department with the help of tickets issued.Overhead charges are also considered.Manufacturing overheads are as follows −Direct expensesDirect labourMaterial expensesManufacturing overheads of each department.Job costing accounting procedures includes the following −InquiryOrder placing (customer studies the rates, material, quality, time to complete the order etc.)EstimationAccountants do the cost of a job by keeping in view customer requirements and choices.Order receivingCustomer places the order, if the customer is satisfied with job costs.Production orderIt is an official ... Read More