In certain continuous process industries, such as chemicals, the problem of accounting for the cost of by-products often occurs. The following data is available:
Sale of main product 10,000 @ Rs. 10 each.
Total production cost. 12,000 @ Rs. 6 each.
Selling & Admin. Expenses Rs. 20,000
Sales of by-products Rs. 4,800
Required: You are required to prepare income statements separately under the following two methods:
i. Deduct by-product revenues from the cost of production of the main product.
ii. Treat by-product revenues as an additional source of income in the income statement.
iii. Also indicate which method would you prefer and why?