Motive Power in Final Accounts

Motive power in final accounts refers to the expenses related to the energy or power needed to run the machinery and equipment. Besides, the manufacturing or production-related industries are usually where these costs are found.

Motive power expenses can include costs such as:

• Electricity Costs: For running electric motors and machines.
• Fuel Costs: The cost of running engines, generators, or other fuel-powered equipment.
• Maintenance: The costs for maintaining the machinery to ensure efficient operation.
• Wages of Operators: This expense belongs to the wages that are paid to the worker.

At the end of the financial year, we record motive expenses in the final account in the Profit and Loss Account (Income Statement). It is recorded under factory overhead or manufacturing expenses. After that, these expenses are deducted from the revenue to calculate the net profit or loss of the business. Now let us move ahead to know the accounting treatment of motive power.

Accounting Treatment Motive Power in Final Accounts

Inclusion in Factory Overheads

• Motive power expenses are covered under factory or manufacturing overheads.
• These indirect expenses related to the production process are not attributed to any specific product.  
• In the Factory overhead section, we include all indirect costs related to manufacturing, such as utilities, maintenance, and machinery depreciation.

Presentation in Profit and Loss Account (Income Statement)

Factory overheads are a part of the Cost of Goods Sold (COGS), including motive power expenses. The gross profit, which represents all indirect manufacturing costs, including motive power charges, is added to the Profit and Loss Account by deducting COGS from revenue.

Calculation Example for Motive Power in Final Accounts

Recording of Motive Power Expenses:

In Factory Overheads:

Suppose other factory overheads are ₹2,600.

Total Factory Overheads = ₹1,400 (Motive Power) + ₹2,600 = ₹4,000

Allocation to WIP and COGS

• Now, the total factory overheads of ₹4,000 that you can assign to the Work in Progress account. 
• After completing all the products, now you will move these costs to the Goods Sold account and it will impact the final profit estimation.

When you include motive power expenses in the factory overheads then you can accurately capture all indirect costs of manufacturing. So that you manage your cost and financial reporting.

Also Check:

• Common Final Accounts Problems and How to Solve Them
• Establishment Expenses in Final Accounts
• Applicability of Accounting Standards
• Trade Expenses in Final Accounts

Significance of the Motive Power in Final Accounts

Impact on Cost of Production

By doing accurate tracking of your company’s motive power expenses you can determine the true cost of manufacturing products.

Role in Pricing Decisions

If you understand these expenses then you will be able to decide the right price for your product covering all costs. Therefore, it will lead to profitable pricing strategies.

Influence on Overall Profitability

The proper management of motive power in final accounts can affect your business’s net profit and help you in better financial planning and analysis.

Cost Control and Efficiency

Well, if you monitor your motive power expenses then you can find the areas where you can reduce the cost and improve the efficiency in the production process.

Compliance and Reporting

In business, it is very important to record expenses with the highest accuracy. So that in the future you can enhance the reliability of financial reports.

Conclusion

Companies need to understand Motive Power in Final Accounts expenses if they are producing goods. These expenses including gasoline and electricity have a direct impact on the cost of production as well as the business’s profit margin. Therefore, if you manage your motive power in financial accounts, you will ensure better financial planning and compliance with accounting standards. This leads to improved efficiency and more reliable financial reporting.

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