Skip to content

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

Financial profit is ₹3,00,000. Cost accounts show: overheads over-absorbed ₹15,000; closing stock valued ₹20,000 higher than in financial books; opening stock valued ₹8,000 higher than in financial books; dividend received ₹25,000 and loss on sale of investments ₹6,000, both only in financial books. Profit as per cost accounts is:

Reversing the adjustments from financial profit of ₹3,00,000 gives cost profit of ₹3,08,000. Remove dividend, add back the investment loss, add over-absorbed overheads and higher closing stock, and deduct the higher opening stock.

  1. A₹3,00,000
  2. B₹3,16,000
  3. C₹3,07,000Correct
  4. D₹3,22,000

Explanation

Work from financial profit to cost profit by reversing. Remove dividend (-25,000), add back loss on investments (+6,000): 2,81,000. Over-absorption raises cost profit: +15,000 = 2,96,000. Closing stock higher in costing: +20,000 = 3,16,000. Opening stock higher in costing lowers cost profit: -8,000 = 3,08,000. Result 3,08,000.

Did you get it right without looking?

One question tells you little. A timed set on Reconciliation of Costing and Financial Profit shows your real accuracy, how long you take and where you lose marks.

Practise Reconciliation of Costing and Financial ProfitFree diagnostic mock

More Reconciliation of Costing and Financial Profit questions