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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

A company keeps separate cost and financial books. In the cost books, the Costing Profit and Loss Account shows a profit of Rs 3,10,000. Cost records charged factory overheads under-absorbed of Rs 18,000 to the cost P&L, and cost records did not include interest received of Rs 12,000 which is in the financial books. Also, financial books charged Rs 25,000 as the income-tax provision, which the cost books ignore. Ignoring all other differences, and given that the cost books already show the under-absorbed overheads as a charge, what is the profit as per financial books?

Profit as per financial books is Rs 2,97,000. Start with cost profit of Rs 3,10,000, add interest received of Rs 12,000 not in cost books, and deduct the income-tax provision of Rs 25,000. The under-absorbed overheads were already charged in cost books, so no further adjustment is needed.

  1. ARs 2,97,000Correct
  2. BRs 2,85,000
  3. CRs 2,72,000
  4. DRs 3,09,000

Explanation

Starting from cost profit Rs 3,10,000, the under-absorbed overheads are already charged in the cost books, so no adjustment is needed for that. Add interest received Rs 12,000 (a financial income not in cost books): 3,22,000. Deduct income-tax provision Rs 25,000: 2,97,000. Option Rs 2,85,000 wrongly deducts Rs 12,000 instead of adding it and ignores the proper tax adjustment.

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