CMA Intermediate · Cost Accounting · Overheads
Under cost accounting treatment, interest on capital employed in a firm's own funds, when notionally included in cost sheets for decision making, is:
Notional interest on the firm's own capital is included in cost accounts for decision making but excluded from financial accounts, as no actual payment is made. It appears as a reconciling item between the two profits.
- AExcluded from financial accounts but included in cost accounts as a notional costCorrect
- BIncluded in both financial and cost accounts
- CExcluded from both sets of accounts
- DIncluded in financial accounts but excluded from cost accounts
Explanation
Interest on own capital is a notional (imputed) cost. It is not an actual payment, so financial accounts do not record it as an expense. Cost accounts may include it for comparison and pricing, and it is adjusted in the reconciliation.
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