CA Intermediate · Cost and Management Accounting · Cost Accounting Systems
Sharma Tools Ltd. keeps cost accounts separately from financial accounts. Financial profit for the year is ₹4,60,000. The following are noted: stores adjustment (credit in financial books only) ₹12,000; income from interest received (only in financial books) ₹25,000; over-absorbed factory overheads in cost books ₹18,000; depreciation charged in financial books ₹90,000 against ₹1,10,000 charged in cost books. What is the profit as per cost accounts?
The cost profit works out to ₹4,21,000 by removing financial-only income and the stores credit, adding over-absorbed overheads and deducting the extra cost-book depreciation.
- A₹4,63,000Correct
- B₹4,43,000
- C₹4,23,000
- D₹4,03,000
Explanation
Start with financial profit ₹4,60,000. Less: interest income not in cost books ₹25,000 and stores credit ₹12,000. Add: over-absorption ₹18,000 (cost books show higher profit), and add extra depreciation in cost books? No, extra depreciation lowers cost profit by ₹20,000. Result: 4,60,000 − 25,000 − 12,000 + 18,000 − 20,000 = ₹4,21,000. Because that is not listed, recheck: the stores credit is a financial gain absent from cost books, so deducting it is right. Over-absorption increases cost profit, so adding is right. The computed figure ₹4,21,000 does not match any option, so option A is wrong as keyed.
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