Many processes produce more than one output from the same input: sugar with molasses and bagasse, dairy with milk and cream, refining with several fractions. Costs incurred before the outputs separate are joint costs. CAS-19 sets out how they are divided.
Joint products and by-products
| Term | Meaning |
|---|---|
| Joint products | Two or more products of significant value produced together, none of which is clearly the main product |
| By-product | A product of small value relative to the main product, produced incidentally |
| Split-off point | The stage at which the products become separately identifiable |
Apportioning joint costs
Joint costs up to the split-off point are apportioned between joint products using a method that is reasonable and applied consistently, such as:
- Sales value at split-off point;
- Net realisable value (final sales value less further processing and selling costs);
- Physical units (weight, volume), where products are similar.
Costs incurred after the split-off point are charged to the individual products.
By-products
The net realisable value of by-products is deducted from the joint cost before apportionment to the main products. Where by-products are used captively, they are credited at a value consistent with CAS-4.
Example: a sugar mill
A mill crushes cane in a season. Joint cost up to the split-off point is ₹200 crore. Outputs: sugar, molasses and bagasse.
| Item | Amount |
|---|---|
| Joint cost | ₹200 crore |
| Less: molasses (net realisable value) | ₹18 crore |
| Less: bagasse used as boiler fuel, valued at the cost of alternative fuel | ₹7 crore |
| Cost of sugar | ₹175 crore |
If molasses were material enough to be a joint product, the ₹200 crore would instead be apportioned between sugar and molasses, for example in proportion to their net realisable values.
Disclosure
Cost statements should state the method used, the split-off point and the values credited for by-products. A change of method between periods distorts trends and must be disclosed.