Skip to content

CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Sharma Metals Ltd's cost accounts show profit of ₹4,80,000. Financial accounts show the following differences: stock valuation in cost books is ₹30,000 higher than in financial books (closing) while opening stock is the same; income tax of ₹50,000 debited in financial accounts only; interest received on investments ₹20,000 credited in financial accounts only. What is the profit as per financial accounts?

Financial profit is ₹4,20,000. Starting from cost profit of ₹4,80,000, deduct the overvalued closing stock in cost books (₹30,000) and income tax (₹50,000), then add interest income recorded only in financial books (₹20,000), giving ₹4,20,000.

  1. A₹4,20,000Correct
  2. B₹4,40,000
  3. C₹4,00,000
  4. D₹4,80,000

Explanation

Start with cost profit ₹4,80,000. Closing stock is higher in cost books by ₹30,000, so financial profit is lower: subtract 30,000. Income tax of 50,000 is subtracted. Interest received of 20,000 is added. 4,80,000 - 30,000 - 50,000 + 20,000 = 4,20,000. Ignoring the stock difference gives ₹4,50,000, which is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Cost Accounting Systems shows your real accuracy, how long you take and where you lose marks.

Practise Cost Accounting SystemsFree diagnostic mock

More Cost Accounting Systems questions