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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

A company maintains separate cost and financial books. Profit as per cost accounts is Rs 4,85,000. The following are noted: factory overheads under-absorbed in cost books Rs 18,000 (financial books charge actual); interest on investments received Rs 12,000 (not in cost books); closing stock valued at Rs 1,30,000 in cost books versus Rs 1,22,000 in financial books. Profit as per financial accounts is:

Financial profit is Rs 4,71,000. From the cost profit of Rs 4,85,000 deduct under-absorbed overhead of Rs 18,000, add interest income of Rs 12,000, and deduct Rs 8,000 because closing stock was valued higher in the cost books than in the financial books.

  1. ARs 4,71,000Correct
  2. BRs 4,87,000
  3. CRs 4,79,000
  4. DRs 4,55,000

Explanation

Start with cost profit 4,85,000. Less under-absorbed overhead 18,000 (financial books bear the actual cost) = 4,67,000. Add interest 12,000 = 4,79,000. Less overvaluation of closing stock in cost books (1,30,000-1,22,000 = 8,000) = 4,71,000. Rs 4,79,000 ignores the stock difference.

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