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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Which of the following items, appearing only in financial accounts, is a reason for a difference between cost profit and financial profit that is classified as a purely financial matter excluded from cost accounts?

Loss on sale of investments is the item. It is a purely financial charge unrelated to production or normal operations, so it is recorded only in financial accounts and excluded from cost accounts, creating a reconciliation difference between the cost profit and the financial profit.

  1. ALoss on sale of investmentsCorrect
  2. BNotional rent on owned premises charged in cost books
  3. CUnder-absorption of factory overheads
  4. DDifferent stock valuation methods

Explanation

Loss on sale of investments is a financial item not related to the normal operations, so it appears only in financial accounts. Notional rent appears in cost accounts only. Under-absorbed overheads and stock valuation differences are cost-related differences that appear in both sets of books but differ in treatment or amount.

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