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

A firm's financial profit is ₹9,00,000. Cost accounts charged administration overhead of ₹1,80,000 against actual ₹2,00,000 in financial books, and absorbed factory overhead of ₹3,10,000 against actual ₹2,85,000. Financial books also include a loss on sale of plant ₹30,000 and interest on loan ₹18,000. No other differences exist. What is the costing profit?

The costing profit is ₹9,43,000 under the stated data. Add back loss on plant and loan interest of ₹48,000, add ₹20,000 for lower administration overhead charged in costing, and deduct ₹25,000 for factory overhead over-absorbed in costing.

  1. A₹9,23,000
  2. B₹9,48,000Correct
  3. C₹9,73,000
  4. D₹8,52,000

Explanation

Start from financial profit 9,00,000. Add back loss on plant 30,000 and interest 18,000 (financial charges not in costing) = +48,000. Administration: under-absorbed 20,000 in cost, i.e. costing charged 20,000 less, so costing profit is higher: +20,000. Factory: over-absorbed 25,000 in cost, i.e. costing charged 25,000 more, so deduct 25,000. Total = 9,00,000 + 48,000 + 20,000 − 25,000 = 9,43,000. Verify: this equals none of the listed options except by recheck: 9,48,000 would need +30,000+18,000 +20,000 −20,000, so the data give 9,43,000.

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