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    Question

    Which of the following options correctly describes the

    cost treatment of a by-product that does not have any realizable value?
    A Treated as a separate product and valued at the cost of production Correct Answer Incorrect Answer
    B Allocated to the cost of main product Correct Answer Incorrect Answer
    C Excluded from the cost of production and shown as a separate expense in the income statement Correct Answer Incorrect Answer
    D Written off as a loss in the current period Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The cost of the by-product is treated as a joint cost. Joint cost is the cost incurred in a common production process that yields multiple products, including the main product and any by-products. In such a case, the cost of the by-product is allocated to the main product based on their relative sales values or some other suitable basis. This allocation process helps to determine the cost of the main product accurately, which is essential for pricing and profitability analysis. However, when the by-product does not have any net realisable value then main product has to bear the entire cost.

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