Allocation of Specific Costs - Ind AS - Indian Accounting Standards - Companies Law

Allocation of Specific Costs Allocation of costs in special situations Joint Products Two or more products generated simultaneously, by a single manufacturing process using common input, and being substantially equal in value. Example Butter, cheese and cream from milk Fuel oil, Gasoline, and Kerosene from Crude Oil. By Product A secondary or incidental product, as in a process of manufacture. By-products generally have insignificant value. Example In the manufacture of Sugar Sugar is the main product and molasses is by-product. Allocation of cost in case of Joint Products A production process may result in more than one product being produced simultaneously. This is the case, for example, when joint products are produced or when there is a main product and a by-product. When the costs of conversion of each product are not separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Sale value after completion of production less further processing cost after separately identified. Allocation of cost in case of By-Products As per Ind AS 2 - Most by-products, by their nature, are immaterial. When this is the case, No need to find out the cost of by-product. It is required to find out the cost of main product only. The following points help us to find out the cost of Main product: Find out the joint costs of main product by-products Compute Net realisable value of by product at the time of separation. Cost of main product = Joint cost of main product by-product Less NRV of by product. Cost of agricultural produce harvested from biological assets In accordance with Ind AS 41, Agriculture, inventories comprising agricultural produce that an entity has harvested from its biological assets are measured on initial recognition at their fair value less costs to sell at the point of harvest. This is the cost of the inventories at that date for application of this Standard.