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

Financial profit of Sundaram Engineering is ₹6,40,000. Differences: stock valuation, opening stock was over-valued by ₹10,000 in financial books relative to cost books, and closing stock was over-valued by ₹25,000 in financial books relative to cost books. Also, preliminary expenses written off in financial books were ₹6,000. Costing profit starting from financial profit is:

Costing profit is ₹6,31,000. Net stock over-valuation in financial books is ₹15,000 (closing ₹25,000 less opening ₹10,000), so deduct it from ₹6,40,000. Preliminary expenses of ₹6,000 charged only in financial books are added back, giving ₹6,31,000.

  1. A₹6,19,000Correct
  2. B₹6,31,000
  3. C₹6,49,000
  4. D₹6,61,000

Explanation

Closing stock over-valued in financial books by 25,000 inflates financial profit relative to cost, so deduct 25,000. Opening stock over-valued by 10,000 reduced financial profit, so add 10,000. Preliminary expenses written off appear only in financial books, so add back 6,000. Costing profit = 6,40,000 − 25,000 + 10,000 + 6,000 = 6,31,000. Check: that is option 2, so recompute: 6,40,000−15,000=6,25,000; +6,000=6,31,000.

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