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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Sharma Textiles' cost books show profit of ₹6,50,000. Reconciling with financial books: over-absorbed factory overhead in cost books ₹40,000; dividend received (financial only) ₹15,000; loss on sale of plant (financial only) ₹22,000; opening stock is valued ₹10,000 higher in financial books than in cost books (no change in closing stock valuation differences). Profit as per financial books is:

Financial profit is ₹5,93,000. Starting from cost profit ₹6,50,000, deduct over-absorbed overhead ₹40,000, add dividend ₹15,000, deduct plant loss ₹22,000, and deduct ₹10,000 because higher opening stock in financial books raises its cost of sales.

  1. A₹6,03,000Correct
  2. B₹6,13,000
  3. C₹6,23,000
  4. D₹5,93,000

Explanation

Cost profit 6,50,000 less over-absorbed overhead 40,000 = 6,10,000. Add dividend 15,000 = 6,25,000. Less loss on plant 22,000 = 6,03,000. Opening stock higher in financial books means higher cost of goods sold there, so deduct 10,000 = 5,93,000. Recheck: that gives 5,93,000, so correct is option D.

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