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CMA Intermediate · Cost Accounting · Cost Book-Keeping

Which of the following is a reason for a difference between profit shown by cost accounts and financial accounts that arises from a difference in treatment, not from an item being entirely excluded from one set of books?

Different bases of stock valuation cause a difference even though stock appears in both sets of books. The two systems value it differently. Donations, profit on investments and goodwill write-off are purely financial items that never enter cost accounts at all.

  1. ADifferent bases of stock valuationCorrect
  2. BDonations paid to a charity
  3. CProfit on sale of investments
  4. DWriting off goodwill

Explanation

Stock valuation methods (for example, cost books using FIFO or including some overheads versus financial books using lower of cost and net realisable value) affect both sets of books but differently. Donations, profit on sale of investments and goodwill write-off are financial items entirely excluded from cost accounts.

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