(a) During the month of May 2024, total 2000 units were introduced into Process-I. The normal loss was estimated at 5% on input…

(a) Normal loss = 5% × 2,000 = 100 units. Abnormal loss = actual scrapped 140 units − normal loss 100 units = 40 units.

(i) Statement of Equivalent Production

• Material: completed output 1,400 × 100% = 1,400; closing WIP 460 × 75% = 345; abnormal loss 40 × 100% = 40; total = 1,785 equivalent units (EU). Normal loss 100 units = nil EU.
• Labour: 1,400 + 230 (460 × 50%) + 40 = 1,670 EU.
• Overheads: same as labour = 1,670 EU.

(ii) Statement of Cost and Evaluation The cost of units introduced and the material added in the process are taken together as material (WIP 75% complete for material), as the data give one material stage of completion. Material cost = ₹5,800 + ₹1,440 = ₹7,240. Less: normal-loss scrap value = 100 units × ₹1 = ₹100. Net material cost = ₹7,140.

• Material cost per EU = 7,140 ÷ 1,785 = ₹4.00.
• Labour cost per EU = 3,340 ÷ 1,670 = ₹2.00.
• Overhead cost per EU = 1,670 ÷ 1,670 = ₹1.00. Total cost per fully completed unit = ₹4 + ₹2 + ₹1 = ₹7.00.

Evaluation:

• Transferred to next process: 1,400 × ₹7 = ₹9,800.
• Closing WIP: material 345 × ₹4 = ₹1,380; labour 230 × ₹2 = ₹460; overhead 230 × ₹1 = ₹230; total = ₹2,070.
• Abnormal loss: 40 × ₹7 = ₹280.
• Normal-loss scrap: 100 × ₹1 = ₹100. Check: 9,800 + 2,070 + 280 + 100 = ₹12,250.

(iii) Process-I Account Dr side:

• To Units introduced: ₹5,800
• To Direct material: ₹1,440
• To Direct labour: ₹3,340
• To Production overheads: ₹1,670 Total = ₹12,250

Cr side:

• By Normal loss: 100 units × ₹1 = ₹100
• By Abnormal loss A/c: 40 units × ₹7 = ₹280
• By Process-II A/c: 1,400 units × ₹7 = ₹9,800
• By Closing WIP A/c: 460 units = ₹2,070 Total = ₹12,250

(iv) Abnormal Loss Account Dr side:

• To Process-I A/c: 40 units × ₹7 = ₹280

Cr side:

• By Scrap realisation: 40 units × ₹1 = ₹40
• By Profit and Loss A/c: net abnormal loss = ₹240 Total = ₹280

(b) Cost accounting is not merely a record of past costs; it is a managerial system of foresight. Historical costing gives feedback, but standard costing, budgetary control, variance analysis, marginal costing, target costing and life-cycle costing help estimate costs before they are incurred. Thus it prevents losses rather than only explaining them after the event.

It turns losses into profits by identifying unprofitable products, processes, departments and orders; by fixing standards; and by taking corrective action on material, labour and overhead variances. For example, an adverse material-usage variance may show pilferage or defective material, prompting purchase or production correction.

It speeds up activities through process costing, operation costing, activity-based costing, just-in-time systems and throughput accounting. By locating bottlenecks and reducing cycle time, it improves capacity utilisation and delivery.

It eliminates waste by reporting scrap, spoilage, rework, idle time and abnormal loss. Value analysis, value engineering, lean accounting and Six Sigma use cost information to remove non-value-added activities.

Viewpoint: the statement is largely true for management accounting, but historical cost records remain the base. Foresight is useful only if data are timely, reliable and acted upon. Excessive cost-cutting can harm quality, employee morale and innovation. Hence cost accounting should support strategy, sustainability and ethical decision-making.

(c) Key differences between Special Audit and Accounts Investigation:

• Meaning and basis: Special audit is a statutory or specially ordered audit under a specific law, such as Section 142(2A) of the Income-tax Act, 1961. Accounts investigation is a fact-finding or forensic probe into suspected fraud, misstatement or misappropriation.
• Objective: Special audit gives an opinion on specified accounts, compliance or true and fair view. Investigation seeks to establish hidden facts, intent, responsibility and quantum of loss.
• Appointment: Special auditor is appointed by a government, tribunal or authority. Investigation may be ordered by the Central Government under Sections 210–213 of the Companies Act, 2013 (including by the SFIO under Section 212), or conducted by SEBI, tax authorities, police, forensic accountants or management.
• Scope: Special audit is usually limited to a specified period, unit or transaction. Investigation is wider and may examine bank accounts, e-mails, interviews, related parties and external evidence.
• Procedure: Special audit follows auditing standards and evidence rules. Investigation uses forensic, legal and investigative techniques.
• Reporting: Special audit report goes to the appointing authority. Investigation report may be used for prosecution, recovery or disciplinary action.

Examples: A special audit under Section 142(2A) of the Income-tax Act of an assessee’s accounts on the Assessing Officer’s direction; an SFIO investigation into accounting fraud, as in the Satyam case, or a SEBI investigation into insider trading.

Viewpoint: The two overlap because both examine accounts critically. A special audit may reveal issues that trigger an investigation, and an investigation often uses audit techniques. The main distinction lies in purpose, legal consequence and depth of enquiry.