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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Under non-integrated accounting, Sharma Tools Ltd. has a profit of ₹4,85,000 as per financial accounts. The following differences are found: (i) Income-tax paid ₹60,000 and charged only in financial books; (ii) Interest on investments received ₹15,000 credited only in financial books; (iii) Factory overheads under-absorbed ₹25,000 in cost books only. Profit as per cost accounts is:

Cost profit is ₹5,05,000. Starting from financial profit of ₹4,85,000, add back income-tax of ₹60,000, deduct interest income of ₹15,000, and deduct under-absorbed overheads of ₹25,000 that appear only in cost books. These adjustments reconcile the two profits.

  1. A₹5,05,000Correct
  2. B₹4,85,000
  3. C₹5,45,000
  4. D₹5,15,000

Explanation

Start from the financial profit of ₹4,85,000. Add back tax, a purely financial charge: +60,000 gives 5,45,000. Deduct interest, a purely financial income: −15,000 gives 5,30,000. Deduct under-absorbed overheads, which reduce cost profit only: −25,000 gives 5,05,000. Wrongly adding the under-absorption gives 5,55,000, and leaving out tax gives 4,45,000.

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