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

In a Memorandum Reconciliation Account, the financial profit is ₹6,20,000. Items: over-absorbed overheads in cost accounts ₹18,000, notional rent charged in costs only ₹40,000, and donations paid in financial accounts only ₹12,000. What is the profit as per cost accounts?

Working back from financial profit of ₹6,20,000, cost profit would be ₹5,74,000, which is not listed. This item is flawed.

  1. A₹6,10,000Correct
  2. B₹6,34,000
  3. C₹6,46,000
  4. D₹5,90,000

Explanation

Work from financial profit to cost profit. Over-absorbed overheads inflate cost profit? No: over-absorption means costs were charged more, lowering cost profit relative to financial, so add back reversal: cost profit is lower by ₹18,000 for it. Notional rent reduces cost profit only, so cost profit is lower by ₹40,000. Donations reduce only financial profit, so cost profit is higher by ₹12,000. Cost profit = 6,20,000 − 18,000 − 40,000 + 12,000 = ₹5,74,000. Check against the options: none equals this value, so the stated key is incorrect.

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