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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

A company using non-integrated accounting finds that its cost accounts charge a notional rent of ₹40,000 on its own premises, while financial accounts show no such expense. Financial profit is ₹2,00,000. Ignoring other differences, profit as per cost accounts is:

Cost profit is ₹1,60,000. Notional rent of ₹40,000 is an expense charged only in cost accounts, so it is deducted from the financial profit of ₹2,00,000. Adding it instead would wrongly treat the notional charge as income.

  1. A₹1,60,000Correct
  2. B₹2,40,000
  3. C₹2,00,000
  4. D₹1,40,000

Explanation

Notional rent is charged only in cost accounts, so it reduces cost profit. Cost profit = 2,00,000 − 40,000 = 1,60,000. Adding it to financial profit would wrongly give 2,40,000, which treats it as income.

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