Section A: Theory of Financial Accounting
Question 2
- Explain with examples, the following component of cost in a Manufacturing Account:
(i) Direct material cost;
(ii) Direct labour cost;
(iii) Factory overhead.
(b) Describe the three types of stocks in a manufacturing concern.
Observation
Some of the candidates attempted this question on not-for-profit making organization and performed poorly. However, few candidates were able to present their points correctly. Some of the suggested responses were:
- Sources of income for a not-for-profit making organization:
- Subscriptions;
- Entrance fees/membership fees;
- Life membership fees;
- Income from commercial activities (e.g. bar operations, rent of grounds, sale of publications, investment income);
- Proceeds from social activities (games, dance, bazaars, funfairs etc);
- Donations/gifts/grants;
- Disposal of assets;
- Interest on bank deposits;
- Fines/charges on members.
- Levies
- Differences between Receipts and Payments Account and Income and Expenditure Account.
Receipts and Payments Account |
Income and Expenditure Account |
1. It is a real account. |
1. It is a nominal account. |
2. It is the equivalent of the cashbook of a profit making organization. |
2. It is the equivalent of the profit and loss account of a profit making organization. |
3. There may be an opening balance. |
3. There is no opening balance. |
4. Cash transactions are recorded whether they relate to past, present or future periods. |
4. They contain items for the current period making adjustments for accruals and prepayments. |
5. It records capital and revenue items. |
5. It records revenue items only. |
6. It does not record depreciation of fixed assets. |
6. It records depreciation of fixed assets. |
7. The closing balance may be cash in hand, cash at bank or bank overdraft. |
7. The closing balance may be either surplus or deficit. |
8. Receipts are debited and payments credited. |
8. Expenses are debited and income credited. |