This document discusses the accounting treatment of joint products and by-products. Joint products are two or more products of almost equal importance produced simultaneously from the same material through the same process, such as skimmed milk and butter from dairy production. By-products are secondary products of relatively small value produced incidentally when making the main product, such as butter milk from dairy. There are two types of costs for joint products - joint costs up to the separation point and separate costs after. Joint costs must be apportioned between joint products using methods like physical units or market value at separation or after further processing.

1. Joint Products & By-Products

2. Joint Products:
• Joint products represent two or more products of almost
equal importance which are produced in natural
proportions simultaneously from the same material in
the same process. Joint products are usually of equal
economic importance or commercial value. No single
product can be identified as of more value or as a major
product. ICMA London has defined Joint products as
“two or more products separated in processing, each
having a sufficiently high saleable value to merit
recognition as a main product.”
Examples:
• Dairy Industry-Skimmed milk, butter, cream etc.
• Oil refining- Gasoline, Petrol, Diesel, Coal, Tar, Kerosene
etc.

3. Features:
• Joint products are of almost equal importance
no single one of them can be regarded as the
main product.
• These are produced simultaneously from the
same material and common production process.
• Usually joint products require further processing
after the point of separation.

4. By Products:
• By products are the secondary products in terms of
sales value arising in the course of manufacturing
the main product. By products are products of
relatively small value which emerge incidentally in
the course of manufacturing the main product.
Features:
• By products are of relatively small value.
• They emerge incidentally in the course of
manufacturing the main product.
Example:
• Oil refinery-Petrol and diesel are main products,
coal, tar and wax are the by-products.
• Dairy Industry -butter and skimmed milk are the
main products but butter milk is the by product.
• Sugar Industry -Sugar is the main product and
Bagasse is the by product.

5. Co products:
• Co products, generally, refer to two or more
products produced simultaneously, but not
necessarily from the same processing
operations. Hence, they are the products
produced together. However, they are not
produced from the same raw material and by
same production process.
• Example: Different Vehicles like mopeds, motor
cycles, scooters and auto-rickshaw produced by
Bajaj Auto.

6. Joint Product V/S By Product
• Value: Joint products are of almost equal value.
Whereas by products are of relatively small value.
• Production: Joint products are produced
simultaneously unlike the by products which are
incidentally produced in addition to the main
product.
• Normally there exists a direct quantitative
relationship among joint products. It need not be
there in case of main product and by product.
• Joint products and By-products have different
accounting treatment.
• Normally Joint products require further processing
after the pint of separation. By products is generally
sold in the condition in which it emerges.

7. Accounting for Joint products
There are two types of costs relating to joint products.
• Joint Costs
• Separate Costs.
• When there are joint products emerging from a
particular process the products are not identified as
different individual products until a certain stage of
production. This point is called split off point or
point of separation. All the costs incurred up to the
split off point when the products get separated are
called joint costs. All the costs which are incurred
after the split off point are called subsequent cost or
separate costs.

8. While accounting for joint products the joint costs
actually pose the main problem. This is so because
joint costs cannot be traced to individual products
and the cost accountant is faced with problem of
apportioning the joint cost incurred to various joint
products produced.
On the contrary subsequent costs pose no problem
because such costs relate to individual products.
These are therefore charged to the appropriate
products. Accounting for Joint products means the
apportionment of joint costs to each of the joint
products. To ascertain the total cost of each joint
product it is necessary to apportion and assign the
joint cost to different joint products. Cost
determination is necessary for price fixation, stock
valuation and computation of profit on sale of
different joint products.

9. Methods of apportioning Joint costs:
• Physical units Method / Physical measurement
method:
Under this method the common costs of joint products are
allocated on the basis of physical output of each joint
product at the split-off point. This method is suitable
where the physical units of joint products are same.
Adoption of this method may be difficult when the
output of different joint products is not measurable in
the same units.
• Market Value Method:
This is the most popular and convenient method of
apportionment of the joint costs. The joint costs are
allocated on the basis of relative sales value of each joint
product. Joint costs are distributed to joint products on
the basis of their ability to earn revenue. The assumption
is that the product with higher sales value has to bear
larger portion of the joint costs, than the product with
lower sales value.
Market value may mean any of the following:

10. • Market Value of Separation Point:
Under this method the market value of the joint
products at the split off point is ascertained and the
joint costs are apportioned in that ratio. This
method is suitable where further processing costs
after separation point are incurred
disproportionately or where all the joint products
are not subject to further processing.
• Market value after further processing
method:
Under this method joint costs are apportioned in the
ratio of market value of the joint products after
further processing. Thus, the sales value at the
finished stage are taken as the basis for
apportionment. It is easy to ascertain the market
value of the products at the final stage; compared to
that at the separation point.