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CMA Intermediate · Cost Accounting · Integrated Accounting System

Aarav Industries completed jobs whose total cost was Rs 6,40,000 and transferred them to the finished goods store. Of these, goods costing Rs 5,00,000 were sold for Rs 6,25,000 on credit. Under an integrated system, what is the gross profit transferred to the Costing Profit and Loss Account on these sales?

Gross profit is sales Rs 6,25,000 less cost of goods sold Rs 5,00,000, which equals Rs 1,25,000. The Rs 6,40,000 transferred to finished goods is not the cost of sales, because only the goods actually sold are charged against revenue.

  1. ARs 1,25,000Correct
  2. BRs 1,40,000
  3. CRs 15,000
  4. DRs 1,85,000

Explanation

Cost of sales is the cost of goods sold, Rs 5,00,000, not the Rs 6,40,000 transferred to finished goods. Profit = 6,25,000 - 5,00,000 = Rs 1,25,000. Using 6,40,000 would give a wrong figure of loss Rs 15,000.

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