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

A firm's profit as per cost accounts is ₹4,80,000. The financial accounts show: dividend received ₹30,000, loss on sale of machinery ₹18,000, and income-tax provision ₹70,000. Cost accounts contain none of these items. What is the profit before tax as per financial accounts, assuming no other differences and treating income-tax provision as an appropriation?

Financial profit before tax is ₹4,92,000. Cost profit of ₹4,80,000 is increased by dividend received of ₹30,000 and reduced by the ₹18,000 loss on sale of machinery. Income-tax is an appropriation, so it is not deducted when arriving at profit before tax.

  1. A₹4,92,000Correct
  2. B₹4,62,000
  3. C₹5,28,000
  4. D₹4,22,000

Explanation

Start with cost profit ₹4,80,000, add dividend received ₹30,000 and deduct loss on machinery ₹18,000: 4,80,000+30,000-18,000 = ₹4,92,000. Income-tax is an appropriation and is not deducted to get profit before tax. Deducting it as well would give ₹4,22,000, which is wrong.

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