Closing Stock of Raw Material in Process Account

Raw Material Types - Values

The raw materials that we charge to a process account are of two types.

Closing Stock of Raw Material

The value of closing stock of raw material is arrived at based on its type.

Raw Materials directly introduced into the process
This is the stock left out of the stock of raw material acquired from sources outside the processes and introduced into the process during the current period.
The value of closing stock of such type of raw material can be ascertained using rates obtained from the following data.
- The cost of acquisition of stock of this type during the current period
- The value of opening stock of this type
Received from the previous process
This is stock left out of the output of the previous process brought in to be input in the process as raw material.
The value of closing stock of such type of raw material can be ascertained using rates obtained from the following data.
- The value attributed to the stock received during the current period at the time of transfer from the previous process
- The value of opening stock of this type

Where there is no opening stock

Where there is no opening stock, the rate of valuation of closing stock of raw material would be the rate at which the current period stock has been received. All the methods i.e. FIFO, LIFO and Average would give the same rate for valuation.

Opening Stock of Raw Material

The value of opening stock of raw material would be readily available. It is a value that has been ascertained in the previous accounting period and carried down to the current period.

Accounting Treatment - Closing Stock of Raw Materials

No Separate Process Raw Material a/c

Where no separate Process Raw Material a/c is being maintained for the process, the value of closing stock of raw material is carried forward to the subsequent accounting period as a balance within the same Process a/c.

In such case, the posting in the Process a/c would read By Balance c/d.

Process a/c
DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
			By Balance c/d	1,400	14,000
To balance b/d	1,400	14,000

The posting is supported by the closing entry recorded at the end of the accounting period.

Journal
Particulars		Amount (Dr)	Amount (Cr)
Creditors a/c – – To Machinery a/c – To Process a/c –	Dr Dr Dr	– – –	– – 14,000 –
[For the value of assets and liabilities carried forward]		– – –	– – 14,000 –

The value of raw materials at the end would be an asset to the organisation and would appear in the Balance sheet.

Balance Sheet
Liabilities	Amount	Assets	Amount
		Process	14,000

Process Raw Material a/c is used

The Process Raw Material a/c may be used only for the purposes of recording the closing stocks or for recording all the inflows and outflows of raw materials all throughout the accounting period.

only for recording closing stock

All the transactions relating to the raw material inflow and outflow during the current period are recorded through the process a/c itself. The value of all the stock being present in the process account, the value of the closing stock of raw material is carried over from the process account to the Process Raw Material a/c.

Journal
Particulars		Amount (Dr)	Amount (Cr)
Process Raw Material a/c To Process a/c	Dr	14,000	14,000
[For the value of closing stock of process raw materials]		14,000	14,000

Process a/c
DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
			By Process Raw Material a/c	1,400	14,000

The Process Raw Material a/c is used only for recording the closing stock, carrying it over to the subsequent period and transferring the stock back to the Process a/c of the subsequent period. It has a balance only on the last day of the accounting period and the first day of the accounting period if a balance has been brought forward from the previous accounting period till it is transferred to the Process a/c.

Process Raw Material a/c
DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process a/c	1,400	14,000	By Balance c/d	1,400	14,000
	–	–		–	–
To Balance b/d	1,400	14,000

for recording all transactions

All transactions relating to the Process Raw Material inflow and outflow are recorded through the Process Raw Material a/c. Whenever some material is consumed for the process, it is transferred from the Process Raw Material a/c to the Process a/c.

The value of the closing stock of Raw Materials will exist as a balance in the Process Raw Material a/c itself.

Process Raw Material a/c
DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
			By Process a/c By Balance c/d	1,400	14,000
	–	–		–	–
To Balance b/d	1,400	14,000

This account is used all throughout the accounting period to record transactions relating to acquisition, consumption, losses, disposals, returns etc. of materials.

Where the Process Raw Material a/c exists, its balance is carried forward to the subsequent accounting periods through the closing entry recorded at the end of the accounting period. It is shown as an asset in the balance sheet.

Journal
Particulars		Amount (Dr)	Amount (Cr)
Creditors a/c – – To Machinery a/c – To Process Raw Material a/c –	Dr Dr Dr	– – –	– – 14,000 –
[For the value of assets and liabilities carried forward]		– – –	– – 14,000 –

Balance Sheet
Liabilities	Amount	Assets	Amount
		Process Raw Material	14,000

Accounting Treatment - Opening Stock of Raw Materials

How the opening stock of raw materials is brought into books is dependent on the entry recorded for brining the closing stock into books at the end of the previous period.

No Separate Process Raw Material a/c

Where there is no separate Raw Material a/c, the opening stock of raw material would be present as an opening balance in the Process a/c itself. It is brought into books through the opening entry recorded at the beginning of the accounting period.

Journal
Particulars		Amount (Dr)	Amount (Cr)
Machinery a/c – Process a/c – To Creditors a/c – –	Dr Dr Dr Dr	– – 14,000 –	– – –
[For the value of assets and liabilities brought forward]		– – 14,000 –	– – –

Process a/c
DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d	1,400	14,000

Process Raw Material a/c is used

The opening balance in the Process Raw Material a/c represents the opening stock of raw material relating to the process.

only for recording closing stocks
If the Process Raw Material a/c is being used only for the purpose of recording closing stocks, the opening balance in the account is transferred to the respective process accounts. The account will show nil balance till the end of the accounting period when the closing stock of the current period is recorded again brining in balance again into the account.
Process Raw Material a/c
DrCr
Particulars Quantity
(in Units) Amount Particulars Quantity
(in Units) Amount
To Balance b/d 1,400 14,000 By Process a/c 1,400 14,000
Process a/c
DrCr
Particulars Quantity
(in Units) Amount Particulars Quantity
(in Units) Amount
To Process Raw Material a/c 1,400 14,000
All other transactions relating to the material inflow and outflow during the accounting period are recorded through the process accounts.

Process Raw Material a/c
DrCr
To Balance b/d	1,400	14,000	By Process a/c	1,400	14,000

Process a/c
DrCr
To Process Raw Material a/c	1,400	14,000

for recording all transactions

The opening stock of raw material would be present as an opening balance in the Process Raw material a/c. It is brought into books through the opening entry recorded at the beginning of the accounting period.

Journal
Particulars		Amount (Dr)	Amount (Cr)
Machinery a/c – Process Raw Material a/c – To Creditors a/c – –	Dr Dr Dr Dr	– – 14,000 –	– – –
[For the value of assets and liabilities brought forward]		– – 14,000 –	– – –

Process Raw Material a/c
DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d	1,400	14,000

All other transactions relating to the material inflow and outflow during the accounting period are recorded through the Process Raw Material a/c itself. The process account would be affected only when the transaction relating to material consumption is recorded.

Illustration - No Opening Stock

Problem

Transfer from Process I : 2,500 units @ 20/unit; material introduced in the process : 500 units @ 30/unit. Direct Labour : 24,000 and Production Overheads : 12,000, Normal Loss : 10% of total input processed. Normal Loss units are capable of being disposed off @ 5/unit. Closing stock consisted of 400 units of the material received from Process I and 50 units of the material introduced in the process. The actual output transferred to Process III is 2,100 units.

Solution

Process a/c with given data filled in

Process II a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process I a/c To Material To Direct Labour/Labor To Production Overheads	2,500 500	24,000 12,000	By Normal Loss By Process III By Balance c/d	2,100

Working Notes

Raw Material Stocks and Valuations
Particulars	Primary Material			Secondary Material			Total
Particulars	Quantity	Rate	Value	Quantity	Rate	Value	Quantity	Value
Current Period Input − Closing Stock	2,500 400	20 20	50,000 8,000	500 50	30 30	15,000 1,500	3,000 450	65,000 9,500
Input Processed (IP)							2,550	55,500
Closing Stock Valuation Rates FIFO method LIFO method Average method		20 20 20			30 30 30

Since all the methods give the same rate, the method followed for deciding on the rate at which the closings stocks are to be valued is immaterial.

Processing
Particulars	Quantity	Cost	Cost/Unit
Input Processed (IP) + Other Costs Direct Labour/Labor Production Overheads	2,550	55,500 24,000 12,000
Total (IP \| TC) − Normal Loss (IP × 10%)	2,550 255	91,500 1,275	5.00
Normal (NO \| NC \| NCNO/U) − Actual Output	2,295 2,100	90,225 82,559	39.3137
Abnormal Loss(+)/Gain(−)	+195	+7,666

Normal Cost of Normal Output per unit
NCNO/U = $\frac{NC}{NO}$
Actual output (2,100 × 39.3137), Abnormal Gain (195 × 39.3137) are all valued at NCNO/U

Detailed Working

Normal Loss Units
NLU = 10% of total input processed
= IP × 10%
= 2,550 units × 10%
= 255 units
Normal Output Units
NOU = IP − NLU
= 2,550 units − 255 units
= 2,295 units
Actual Output Units
The Output that is transferred to Process III.
AOU = 2,100 units
Abnormal Loss or Gain
Since AOU < NOU, there is abnormal loss
Abnormal Loss Units
ALU = NOU − AOU
= 2,295 units − 2,100 units
= 195 units

Valuations

Total Cost
TC = Value of Processed Input + Direct Labour/Labor cost + Production Overheads
= 55,500 + 24,000 + 12,000
= 91,500
Normal Loss Realisable Rate per unit
NLRR/U = 5/unit
Normal Loss Realisation
NLR = NLU × RR/U
= 255 units × 5/unit
= 1,275
Normal Cost
NC = TC − NLR
= 91,500 − 1,275
= 90,225
Normal Cost of Normal Output per unit
NCNO/U = $\frac{NC}{NO}$
= $\frac{90,225}{2,295 units}$
= 39.3137/unit
Value of Actual Output
VAO = AOU × NCNO/U
= 2,100 units × 39.3137/unit
= 82,559
Value of Abnormal Loss Units
VALU = ALU × NCNO/U
= 195 units × 39.3137/unit
= 7,666
Note
For adjusting approximation error,
NC − VALU = VAO
90,225 − 7,666 = 82,559
82,559 = 82,559
No adjustment needed.

Process a/c filled with data from calculations

Process II a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process I a/c To Material To Direct Labour/Labor To Production Overheads	2,500 500	50,000 15,000 24,000 12,000	By Normal Loss By Abnormal Loss By Process III By Balance c/d By Balance c/d	255 195 2,100 400 50	1,275 7,666 2,100 8,000 1,500
	3,000	1,01,000		3,000	1,01,000
To Balance b/d To Balance b/d	400 50	8,000 1,500

The closing stocks of raw materials are assumed to have been carried down in the Process a/c itself.

The two postings of balance c/d can be supported by a including the Process a/c on the credit side of the closing entry twice.

Journal
Particulars		Amount (Dr)	Amount (Cr)
Creditors a/c – – To Machinery a/c – To Process a/c To Process a/c –	Dr Dr Dr	– – –	– – 8,000 1,500 –
[For the value of assets and liabilities carried forward]		– – –	– – 8,000 1,500 –

using Process Material a/c (for carrying balances)

Process II a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process I a/c To Material To Direct Labour/Labor To Production Overheads	2,500 500	50,000 15,000 24,000 12,000	By Normal Loss By Abnormal Loss By Process III By Process II Material By Process II Material	255 195 2,100 400 50	1,275 7,666 2,100 8,000 1,500
	3,000	1,01,000		3,000	1,01,000

Process Material a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process II a/c To Process II a/c	400 50	8,000 1,500	By Balance c/d	450	9,500
	450	9,500		450	9,500
To Balance b/d	450	9,500

with separate material accounts for each kind of material

Process II a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process I a/c To Material To Direct Labour/Labor To Production Overheads	2,500 500	50,000 15,000 24,000 12,000	By Normal Loss By Abnormal Loss By Process III By Process II Primary Material By Process II Secondary Material	255 195 2,100 400 50	1,275 7,666 2,100 8,000 1,500
	3,000	1,01,000		3,000	1,01,000

Process II Primary Material a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process II a/c	400	8,000	By Balance c/d	400	8,000
	400	8,000		400	8,000
To Balance b/d	400	8,000

Process II Secondary Material a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process II a/c	50	1,500	By Balance c/d	50	1,500
	50	1,500		50	1,500
To Balance b/d	50	1,500

using Process Material a/c (for all stock transactions)

Process II Primary Material a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process I a/c	2,500	50,000	By Process II a/c (?) By Balance c/d	2,100 400	42,000 8,000
	2,500	50,000		2,500	50,000
To Balance b/d	400	8,000

Process II Secondary Material a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Bank	500	15,000	By Process II a/c (?) By Balance c/d	450 50	13,500 1,500
	500	15,000		500	15,000
To Balance b/d	50	1,500

Process II a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process II Primary Material To Process II Secondary Material To Direct Labour/Labor To Production Overheads	2,100 450	42,000 13,500 24,000 12,000	By Normal Loss By Abnormal Loss By Process III	255 195 2,100	1,275 7,666 2,100
	2,550	91,500		2,550	91,500

Illustration - With Opening Stock

Problem

The following details relate to a terminal process (C):

Opening Stock consisted of material Received from Process B : 500 units @ 42/unit and material introduced in the process : 100 units @ 24/unit. During the current period material received by transfer from Process B : 12,800 units @ 40/unit and material introduced in the process : 1,600 units @ 25/unit. Direct Labour cost : 86,480 and Production Overheads : 64,766.

Normal Loss : 5% weight loss and 3% scrap (of total input processed). Normal Loss units are capable of being disposed off @ 12/unit. Closing stock consisted of 725 units of the material received from Process B and 75 units of the material introduced in the process.

The actual output transferred to Finished Stock is 13,400 units.