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CMA Intermediate · Cost Accounting · Reconciliation of Costing and Financial Profit

Which of the following is a reason for difference between cost and financial profit that arises from a item charged in cost accounts but NOT in financial accounts?

Notional interest on capital employed is charged only in cost accounts as an imputed cost, with no cash payment or entry in financial books. Preliminary expenses, fire loss and goodwill write-off are financial-only items, so they are not the answer.

  1. ANotional interest on capital employedCorrect
  2. BPreliminary expenses written off
  3. CLoss by fire
  4. DGoodwill written off

Explanation

Notional interest on own capital is a cost-accounts-only charge, so it is added back when moving to financial profit. The other three are financial-account items not recorded in cost accounts.

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