An appropriate way to account for by-products is to:

A) subtract the net realisable value of the by-products from the cost of the joint process.
B) deduct the by-product's sales value at split-off from the production cost of the main products.
C) allocate a portion of the joint cost to the by-product.
D) subtract the net realisable value of the by-products from the cost of the joint process AND/OR deduct the by-product's sales value at split-off from the production cost of the main products.

Question

Patricia Clements · Accepted Answer

Final Answer : D, Explanation :  Both options presented in choice D are appropriate ways to account for by-products. The net realisable value of the by-products can be deducted from the cost of the joint process, or the by-product's sales value at split-off can be deducted from the production cost of the main products. In some cases, both methods may be used depending on the nature of the by-products and the joint process. Allocating a portion of the joint cost to the by-product (choice C) is not always appropriate as it assumes that the by-product is a separate cost centre, which may not always be the case. Subtracting the net realisable value of the by-products from the cost of the joint process (choice A) may overstate the cost of the main products, while deducting the by-product's sales value at split-off (choice B) may understate the cost of the main products. Hence, choice D is the best choice as it provides two appropriate ways of accounting for by-products.

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