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

Which of the following items appearing in the Financial Accounts would be shown as an addition to the profit as per Cost Accounts when preparing a Memorandum Reconciliation Account?

Interest received on bank deposits is added to costing profit in the reconciliation, because it is a financial income recorded in the financial accounts but excluded from cost accounts. Items such as loss on sale of plant, income-tax and preliminary expenses written off reduce profit and are deducted.

  1. AInterest received on bank depositsCorrect
  2. BLoss on sale of plant
  3. CIncome-tax paid
  4. DPreliminary expenses written off

Explanation

Cost accounts ignore purely financial incomes such as interest received, but financial accounts include them. Hence when reconciling from cost profit to financial profit, interest received is added. Losses and appropriations like tax and write-offs are deducted from the cost profit, so the other options are wrong direction.

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