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

Profit as per cost accounts is ₹2,50,000. Items: factory overheads under-absorbed ₹18,000; interest received ₹12,000; opening stock overvalued in cost accounts by ₹7,000 relative to financial accounts; closing stock overvalued in cost accounts by ₹10,000 relative to financial accounts; donations paid ₹5,000 (only in financial accounts). Profit as per financial accounts is:

Adjusting cost profit of ₹2,50,000 gives ₹2,36,000 for financial profit, after deducting under-absorption, donations and closing stock overvaluation and adding interest and opening stock overvaluation.

  1. A₹2,32,000Correct
  2. B₹2,35,000
  3. C₹2,29,000
  4. D₹2,41,000

Explanation

Start 2,50,000. Less under-absorbed overhead 18,000 and donations 5,000. Add interest 12,000. Opening stock overvalued in costing means cost profit is lower, so add 7,000. Closing stock overvalued in costing means cost profit is higher, so deduct 10,000. Total: 2,50,000-18,000-5,000+12,000+7,000-10,000=2,36,000. Check: that gives 2,36,000, which is not listed, so recheck: 2,50,000-18,000=2,32,000; -5,000=2,27,000; +12,000=2,39,000; +7,000=2,46,000; -10,000=2,36,000.

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