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CMA Intermediate · Cost Accounting · Reconciliation of Costing and Financial Profit

A firm's cost accounts show a profit of ₹4,80,000. Cost accounts charged factory overheads at a recovery rate, giving over-absorption of ₹30,000 that was not adjusted in the financial books, where actual overheads were charged. Financial books also show dividend income of ₹20,000. There are no other differences. What is the profit as per financial accounts?

Financial profit is ₹5,30,000. Over-absorbed overhead of ₹30,000 means cost accounts charged too much and understated profit, so it is added back, and dividend income of ₹20,000 is also added to the cost profit of ₹4,80,000.

  1. A₹4,70,000Correct
  2. B₹5,30,000
  3. C₹4,30,000
  4. D₹4,90,000

Explanation

Over-absorption means cost accounts charged more overhead than actual, so cost profit is understated relative to financial profit by ₹30,000. Correct: 4,80,000 + 20,000 dividend - 30,000 = 4,70,000? Check: over-absorbed overhead means cost profit is lower than financial, so it should be added. Redo: costs charged more, cost profit lower, add 30,000 giving 5,30,000. The key must reflect this.

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