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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Following a year-end comparison, Gupta Industries finds the following: Profit as per cost accounts Rs 4,80,000. Items in financial books: income from dividends Rs 30,000; interest on bank loan Rs 45,000 not in cost books; over-absorbed factory overheads in cost books Rs 20,000; closing stock valued Rs 15,000 higher in cost books than in financial books. What is the profit as per financial accounts?

Profit as per financial accounts is Rs 4,30,000. Starting from cost profit of Rs 4,80,000, add dividend income of Rs 30,000, then deduct interest Rs 45,000, over-absorbed overhead Rs 20,000 and the Rs 15,000 excess stock value in cost books.

  1. ARs 4,30,000Correct
  2. BRs 4,50,000
  3. CRs 4,00,000
  4. DRs 4,70,000

Explanation

Start with cost profit 4,80,000. Add dividend income 30,000 (only in financial books). Deduct interest 45,000. Deduct over-absorbed overhead 20,000 (cost profit was inflated). Deduct higher stock valuation in cost books 15,000. Total = 4,80,000 + 30,000 - 45,000 - 20,000 - 15,000 = Rs 4,30,000. Rs 4,50,000 ignores the stock difference.

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