After studying this chapter, you should be able to:
Appraise the need for reconciliation between cost and financial accounts.
Identify the causes of difference between cost and financial accounts.
Prepare a reconciliation statement (memorandum reconciliation account).
Enumerate the advantages of reconciliation.
Explain the meaning of certain key terms.
Some organizations maintain separate set of books of account for financial accounting and cost accounting purposes. As already explained in previous chapters, such a system is referred to as ‘non-integral system’. As the objectives of these two systems vary, the profit shown by financial books will vary from the profit disclosed by cost books. Financial accounts are dealing with the ascertainment of profit or loss for the entire operation of an organization, whereas cost accounts are concerned with ascertaining cost per unit, profit or loss made by product or product divisions and preparation of various cost statements. This difference resulted in different results of profits. Hence, a necessity arises to reconcile the difference and analyse the causes of difference. This chapter aims at analysing the causes of difference and preparing a reconciliation statement.
The reconciliation between the results shown by two sets (financial and cost) of books is essential due to the reasons explained below:
The following are the causes of the difference between profit shown in the cost accounts and financial accounts.
Some items are included in financial accounts. But they have no place in cost accounts. These items may be grouped into the following categories:
These include:
Causes of difference between profit shown in cost and financial accounts
This includes:
The following items are not shown in financial accounts but shown in cost accounts only:
Profit As Per Cost Accounts | Rs. x x |
Rs. |
---|---|---|
Add: |
|
|
1. Over-valuation of opening stock in cost accounts |
… |
|
2. Over-valuation of closing stock in financial accounts |
… |
|
3. Items of income included in financial accounts but not in cost accounts |
… |
|
4. Over-absorption of overheads in cost accounts |
… |
|
5. Items of expenditure included in cost accounts but not in financial accounts |
… |
|
6. Excess expenditure shown in cost accounts over corresponding items in financial accounts |
… |
|
7. Excess income shown in financial accounts over corresponding income in cost accounts |
… |
|
Less: |
|
x x x |
1. Under-valuation of opening stock in cost accounts |
… |
|
2. Under-valuation of closing stock in financial accounts |
… |
|
3. Items of income included in cost accounts but not in financial accounts |
… |
|
4. Under-absorption of overheads in cost accounts |
… |
|
5. Items of expenditure included in financial accounts but not in cost accounts |
… |
|
6. Excess expenditure shown in financial accounts over corresponding items in cost items |
… |
|
7. Excess income shown in cost accounts over corresponding items in financial accounts |
… |
x x x |
Profit as per financial accounts |
|
000 |
Important Note
If profit as per financial accounts (or) loss as per cost accounts is taken as the BASE, items added will have to be deducted, and items deducted will have to be added. The procedure is to be REVERSED in such case.
Reconciliation can be done by preparing a memorandum reconciliation account, which is another approach to reconcile the differences between two sets of accounts. This is only a memorandum account and does not form part of the double-entry system of booking. This is only a record to observe the differences between cost accounts and financial accounts.
Illustration 12.1
Model: From profit and loss A/c—Preparation of reconciliation statement
The financial profit and loss account of a manufacturing company for the year ended 31 March 2010 is as follows:
The net profit shown by the cost accounts for the year is Rs. 26,250.
In comparison with the two sets of accounts, it is found that:
Works overhead: |
Rs. 9,100 |
Office overhead: |
Rs. 5,600 |
Selling and distribution overhead: |
Rs. 7,125 |
You are required to reconcile the profits shown by the two sets of accounts.
[B.Com, Bharathidasan University, Tiruchirapalli]
Solution
Illustration 12.2
Model: Memorandum reconciliation statement
A manufacturing company disclosed a net loss of Rs. 1,73,500 as per their cost accounts for the year ended March 31, 2010. The financial accounts however disclosed a net loss of Rs. 2,55,000 for the same period. The following information was revealed as a result of scrutiny of the figures of both the sets of accounts.
Rs. | |
---|---|
(i) Factory overheads under-absorbed |
20,000 |
(ii) Administration overheads over-absorbed |
30,000 |
(iii) Depreciation charged in financial accounts |
1,62,500 |
(iv) Depreciation charged in cost accounts |
1,37,500 |
(v) Interest on investments not included in cost accounts |
48,000 |
(vi) Income tax provided |
27,000 |
(vii) Interest on loan funds in financial accounts |
1,22,500 |
(viii) Transfer fees (credit in financial books) |
12,000 |
(ix) Stores adjustment (credit in financial books) |
7,000 |
(x) Dividend received |
16,000 |
You are required to prepare a memorandum reconciliation account.
[I.C.W.A. (Inter)—Modified]
Solution
Illustration 12.3
Model: Base profit as per financial account
The audited final accounts showed a profit of Rs. 61,000, whereas costing records showed a profit of 73,400. From the following additional information, you are required to reconcile the two accounts:
The cost accounts showed the following:
Solution
In this problem, profit as per financial accounts is to be taken as the base.
Hence, the procedure is reversed that was followed in illustration no. 12.1. Items added have to be deducted and items deducted have to be added.
Illustration 12.4
Model: Determination of profit with respect to raw materials, work-in-progress and finished goods—opening and closing level
In the reconciliation between cost and financial accounts, one of the areas of differences is for different methods of stock valuation. State, with reasons, in each of the following circumstances whether costing profit will be higher or lower than the financial profit:
Items of Stock | Cost Valuation Rs. | Financial Valuation Rs. |
---|---|---|
Raw materials (opening) |
20,000 |
25,000 |
Raw materials (closing) |
25,000 |
20,000 |
Work-in-progress (opening) |
25,000 |
20,000 |
Work-in-progress (closing) |
20,000 |
25,000 |
Finished stock (opening) |
30,000 |
40,000 |
Finished stock (closing) |
30,000 |
40,000 |
[B.Com (Hons)—Delhi—Modified]
Solution
NOTE: The stock of raw materials, work-in-progress and finished goods should be adjusted depending on their effect on profit.
The following are the basic principles:
These principles are applicable to all stocks (irrespective of the form whether they are raw materials or work-in-progress or finished goods).
Apply these principles and find the effect on costing profit as follows:
Closing stock – Opening stock: Rs. 25,000 – 20,000 = Profit will be higher by Rs. 5,000
Opening stock – Closing stock: Rs. 25,000 – Rs. 20,000 = Profit will be higher by Rs. 5,000
Opening stock – Closing stock: Rs. 25,000 – Rs. 20,000 = Profit will be lower by Rs. 5,000
Closing stock – Opening stock: Rs. 25,000 – Rs. 20,000 = Profit will be lower by Rs. 5,000
Profit will be higher (40,000 – 30,000) by Rs. 10,000
Profit will be lower by Rs. 10,000 (40,000 – 30,000)
Illustration 12.5
Model: Preparation of costing profit and loss account to reconcile profits
The following is the summary of trading and profit and loss account of a manufacturing company for the year ended 31 December 2009:
In cost accounts, the following allocations are made:
You are required to prepare a costing profit and loss account of the company and to reconcile the profit disclosed with that shown in the financial account.
Solution
STAGE I: Preparation of Costing and Profit and Loss Account.
Particulars | (Rs.-‘000) | |
---|---|---|
Step 1: Materials consumed |
|
5,480 |
Step 2: Wages |
|
3,020 |
Step 3: Prime cost (Add: Step 1 + Step 2) |
|
8,500 |
Step 4: Total works cost (Step 3 + Step 4) |
|
1,700 |
Step 5: Total works cost (Step 3 + Step 4) |
|
10,200 |
Step 6: Less: Closing work-in-progress: Rs. |
|
|
(i) Materials |
128 |
|
(ii) Wages |
72 |
|
(iii) Factory expenses |
40 |
240 |
Step 7: Works cost (completed units) (Step 5 – Step 6) |
|
9,960 |
Step 8: Administration expenses: |
|
744 |
Sales + closing stock: (1,20,000 + 4,000) units × Rs. 6 |
|
|
Step 9: Cost of production (Step 7 + Step 8) |
|
10,704 |
Step 10: Less: Closing finished stock (at proportionate |
|
346 |
Cost of production: |
|
|
Step 11: Cost of goods sold (Step 9 – Step 10) |
|
10,358 |
Step 12: Selling and distribution expenses (1,20,000 units × Rs. 8 per unit) |
|
960 |
Step 13: Cost of sales |
|
11,318 |
Step 14: Net profit (Step 15 – Step 13) |
|
682 |
Step 15: Sales (1,20,000 × Rs. 100 per unit) |
|
12,000 |
STAGE II: Preparation of Reconciliation Statement
Particulars | Rs. | (Rs. “000) |
---|---|---|
Step 1: Profit as per cost accounts (Ref: Stage I: Step 14) |
682 |
|
Step 2: Add: |
||
(i) Over-absorption of factory expenses |
40 |
|
(Rs. 1,700 – Rs. 1,660) |
||
(ii) Over-absorption of selling expenses |
60 |
|
(Rs. 960 – Rs. 900) |
||
(iii) Dividend received |
36 |
316 |
Step 3: Less: |
818 |
|
(i) Under-absorption of administration expense |
20 |
|
(Rs. 764 – Rs. 744) |
||
(ii) Preliminary expenses written off |
80 |
|
(iii) Goodwill written off |
40 |
|
(iv) Difference in valuation of finished stock |
26 |
166 |
Step 4: Profit as per financial accounts |
652 |
Illustration 12.6
Model: Reconciliation under both methods
During the year ended 31 March 2010, the profit of the company stood at Rs. 72,900 as per financial books. The cost books showed a profit of Rs. 103,900 for the same period. You are required to reconcile the profit as shown by two sets of accounts:
|
Rs. |
1. Opening stock overstated in cost accounts |
7,000 |
2. Closing stock understated in cost accounts |
9,200 |
3. Factory overheads under-recovered in cost accounts |
5,000 |
4. Administration expenses over-recovered in cost accounts |
1,500 |
5. Selling and distribution expenses under-recovered cost accounts |
3,300 |
6. Depreciation over-recovered in cost accounts |
3,000 |
7. Interest on investment not included in cost accounts |
10,000 |
8. Obsolescence loss relating to machineries charged in financial accounts |
4,900 |
9. Income tax provided in financial accounts |
50,000 |
10. Bank interest credited in financial accounts |
3,000 |
11. Stores adjustments (debited in financial book) |
1,500 |
Solution
Method 1: Reconciliation Statement
Particulars | Rs. | Rs. |
---|---|---|
Step 1: Net profit as per financial accounts |
|
72,900 |
Step 2: Add: |
|
|
(i) Under-recovery of factory overheads in cost accounts |
5,000 |
|
(ii) Under-recovery of selling and distribution expenses in cost accounts |
3,300 |
|
(iii) Obsolescence expenses not debited in cost accounts |
4,900 |
|
(iv) Income tax provisions not debited in cost accounts |
50,000 |
|
(v) Stores adjustments not debited in cost accounts |
1,500 |
64,700 |
Step 3: Less: |
|
1,37,600 |
(i) Over-recovery of administration expenses |
1,500 |
|
(ii) Over-recovery of depreciation |
3,000 |
|
(iii) Opening stock over-stated in cost accounts |
7,000 |
|
(iv) Closing stock understated in cost accounts |
9,200 |
|
(v) Interest on investments not credited in cost accounts |
10,000 |
|
(vi) Bank interest in financial accounts |
3,000 |
33,700 |
Step 4: Net profit as per cost accounts |
|
1,03,900 |
Method II: Memorandum Reconciliation Account
NOTE: Students may opt any method to reconcile the profit shown in two sets of books.
Illustration 12.7
Model: Preparation of cost sheet, trading and profit and loss account and then reconciliation statement.
In a factory, works overheads are absorbed at 60‥ of works cost. You are required to prepare
From the following information:
|
Rs. |
|
Materials |
4,00,000 |
Factory: Rs.1,80,000 |
Wages |
3,00,000 |
Office: Rs. 1,76,000 |
Factory expenses in finance book |
2,00,000 |
|
Office expenses in finance book |
1,70,000 |
|
Stock at the end is 10% of the output sales are |
10,40,000 |
|
[B.Com (Hons) – Delhi – Modified]
Solution
STAGE I:
|
Rs. |
Step 1: Materials |
4,00,000 |
Step 2: Wages |
3,00,000 |
Step 3: PRIME COST (Add: Step 1 & Step 2) |
7,00,000 |
Step 4: Factory overhead |
1,80,000 |
Step 5: FACTORY COST (Add: Step 3&Step 4) |
8,80,000 |
Step 6: Office overhead |
1,76,000 |
Step 7: COST OF PRODUCTION |
10,56,000 |
Step 8: Less: Closing Stock 10% of Rs. 10,56,000 |
1,05,600 |
|
9,50,400 |
Step 9: Profit |
89,600 |
Step 10: Sales |
10,40,000 |
STAGE II:
STAGE III:
Rs. | Rs. | |
---|---|---|
Step 1. Profit as per cost accounts |
|
89,600 |
Step 2. Add: Over-recovery of office expenses in cost accounts |
|
6,000 |
|
|
95,600 |
Step 3. Less: |
|
|
(i) Over-valuation of stock in cost accounts |
15,600 |
|
(ii) Factory expenses under charged cost accounts |
20,000 |
35,600 |
Step 4. Profit as per financial accounts |
|
60,000 |
Illustration 12.8
Model: Preparation of profit and loss A/c, cost of manufacture and reconciliation statement
The following data is extracted from a manufacturing company:
Rs. | |
---|---|
Stocks: 1 April 2009: |
|
Raw materials |
8,000 |
Finished goods |
16,000 |
Stocks 31 March 2010: |
|
Raw materials |
12,000 |
Finished goods |
4,000 |
Purchases of raw materials during the year |
48,000 |
Wages |
20,000 |
Sales |
1,30,000 |
Works expenses |
15,500 |
Office expenses |
12,200 |
The selling price is fixed at cost plus 25%. You are required to prepare (1) profit and loss account, (2) a statement showing the cost of manufacture and percentage of each item of cost to total cost, calculating factory overheads at 25% on prime cost and office overheads at 75% on factory overheads and (3) a statement reconciling the profit shown by the cost accounts with that shown by the profit and loss account.
Solution
STAGE I:
STAGE II:
|
RS. |
RS. |
---|---|---|
Stock of finished goods (opening stock) as on 1.4.2009: |
16,000 |
|
Add: Cost of production (refer the previous statement): |
92,000 |
|
Less: Stock of finished goods (closing stock) (as on 31.3.2010): |
1,08,000 |
|
|
4,000 |
|
Cost of goods sold |
|
1,04,000 |
Add: *Profit (25% on cost of goods sold) |
|
26,000 |
SALES |
|
1,30,000 |
STAGE III:
Illustration 12.9
Model: Reconciliation statement from trading and profit and loss account
A manufacturing, trading, profit and loss, and profit and loss appropriation accounts of ABC Ltd for the year ending 31 March 2010 are as under:
The cost accounts revealed a profit of Rs. 69,574. In preparing this figure, stocks have been valued in cost account as follows:
Opening Stock Rs. | Closing Stock Rs. | |
---|---|---|
Raw materials |
14,100 |
15,950 |
Work-in-progress |
9,876 |
10,600 |
Administration overhead has been ignored in cost accounts. Prepare a reconciliation statement.
Solution
Particulars | Rs. | Rs. |
---|---|---|
Step 1. Profit as per cost accounts |
|
69,574 |
Step 2. Add: |
|
|
(i) Dividend received not credited in cost accounts |
1,000 |
|
(ii) Over absobed-opening stock-work in progress in cost accounts (Rs. 9,876 – 9,800) |
76 |
|
(iii) Under absorbed-closing stock- W.I.P in cost accounts (10,700 – 10,600) |
100 |
1,176 |
|
|
70,750 |
Step 3: Less: |
|
|
(i) Administration overhead not charged in cost accounts |
19,500 |
|
(ii) Loss on sale of machinery |
800 |
|
(iii) Furies |
300 |
|
(iv) Under absorbed opening stock Raw Materials in cost accounts (Rs. 14,200 – Rs. 14,100) |
100 |
|
(v) Over absorbed closing stovk – Raw Materials in cost accounting (Rs. 14,950 – Rs. 14,900) |
50 |
|
|
|
20,750 |
Step 4: Profit as per financial accounts |
|
50,000 |
Illustration 12.10
Model: Control accounts for different overheads
The following is a summary of the trading and profit and loss account of ‘X’ Ltd for the year ended 31 December 2009:
The company manufactures a standard unit.
In the cost accounts, production overhead has been absorbed by production at 20% of prime cost, administration overhead Rs. 1.50 per unit and selling and distribution overhead at Rs. 2.00 per unit. The net profit shown by the cost accounts is Rs. 66,000.
You are required to prepare:
[I.C.W.A. (Inter) – Adapted]
Solution
Step 1:
Basic Calculations:
Rs. |
|
(i) Materials |
6,98,000 |
(ii) Wages |
3,81,000 |
(iii) Prime cost (i + ii) |
|
(iv) 20% of Rs. 10,79,000 |
Rs. 2,15,800 |
Per Unit | |
---|---|
Rs. | |
(i) Materials: |
11.00 |
(ii) Wages: |
6.00 |
|
17.00 |
(iii) Production overhead: 20 % of Rs. 17 |
3.40 |
(iv) Administration overhead: (Given) |
1.50 |
|
21.90 |
Step 2:
STAGE II:
Step 3:
STAGE III:
Illustration 12.11
Model: Preparation of reconciliation account
The Manufacturing Account for the Year Ended December 31, 2009
The profit and loss account reveals a profit of Rs. 1,20,000 for the year 2009. In the cost accounts the valuations placed on stocks were:
Rs. | ||
---|---|---|
Raw materials |
Opening stock |
50,600 |
|
Closing stock |
59,200 |
Work-in-progress |
Opening stock |
31,000 |
|
Closing stock |
39,800 |
Profit shown in the costing and profit and loss account is Rs. 1,19,400.
You are required to prepare reconciliation account.
Solution
Important Note
Reconciliation account is prepared in the same way as ‘preparation of statement of reconciliation.’ The only difference is that this is prepared in the account (‘T’-form) format. All items that have been added (to cost accounts profit as base) are shown in the credit side of this account and all the items that have been deducted are shown in the debit side of this account. The balancing figure represents profit as per financial accounts. (Reverse will be the procedure if the base differs.)
The result—profit—shown by financial books will vary from the profit disclosed by cost books. This occurs because financial accounts are dealing with the ascertainment of profit or loss for the entire activities of an enterprise, whereas cost accounts are concerned with ascertaining cost per unit. Hence, the need arises for reconciliation of cost and financial accounts.
There are certain items which are purely financial items and some items are exclusively shown in cost books only. Some items are treated differently in cost and financial accounts—They are: Overheads; Stock: Raw materials, Work-in-progress, Finished goods, Depreciation, Abnormal gains and losses.
Reconciliation Statement: Proforma and methods of reconciling financial and cost accounts—Ref: Text.
Memorandum Reconciliation Statement: One more way of reconciling the differences between two sets of accounts—Proforma and method of preparation of Memorandum Reconciliation Statement: Ref: Text.
Method of determination of profit with respect to raw materials, work-in-progress and finished goods is explained in illustration 12.4.
Preparation of Cost Sheet, Trading and Profit Loss Account, and Reconciliation Statement—different approaches are explained in illustrations 12.5 to 12.11.
Memorandum Reconciliation Account: A statement prepared to reconcile the two profits—cost and financial accounts, presented in the form of an account.
Reconciliation Statement (Adjustment Method): A statement to ascertain the differences between costing and financial books and causes of difference between the two figures of profit.
I: State whether the following statements are true or false
Answers:
1. False |
2. True |
3. True |
4. False |
5. False |
6. True |
7. False |
8. True |
9. False |
10. False |
|
|
II: Fill in the blanks with apt word(s)
Answers:
III: Multiple choice questions choose the correct answer
Answers:
1. (a) |
2. (d) |
3. (a) |
4. (c) |
5. (b) |
6. (c) |
|
|
|
|
[Model: Causes for difference given, reconciliation required]
1. Profit disclosed by a company’s cost accounts for the year 2009 was Rs. 50,000.
The following information is available:
Prepare cost and financial reconciliation statement.
[Madras University]
[Ans: Profit as per financial accounts: Rs. 32,250]
2. From the following prepare a reconciliation statement:
|
Rs. |
Net profit as per financial records |
64,450 |
Net profit as per cost records |
86,460 |
Income tax provided in financial books |
20,000 |
Bank interest credited in financial books |
250 |
Works overheads under-recovered |
1,550 |
Depreciation charged in financial books |
5,600 |
Depreciation recovered in costing |
6,000 |
Administrative overheads over-recovered |
850 |
Obsolescence loss charged in financial books |
2,850 |
Interest received not included in costing |
4,000 |
Stores adjustments (credit in financial books) |
240 |
Depreciation of stock charged in financial books |
3,350 |
[Ans: Rs. 64,450]
3. X Ltd suffered a loss of Rs. 25,000 as per the financial accounts. In comparison with its costing records for the same year, the following differences were observed:
|
Rs. |
Over-valuation of opening stock of materials in cost books |
1,200 |
Under-valuation of closing stock of finished goods in financial books |
3,000 |
Dormant materials written off (in financial books) |
1,000 |
Under-absorption of overheads |
4,000 |
Fines levied by municipality |
500 |
Debenture interest paid |
2,000 |
[Ans: Loss as per cost accounts: Rs. 15,700]
4. The profit as per cost accounts is Rs. 75,000. The following details are ascertained a comparison of cost and financial accounts:
Cost Accounts Rs. | Financial Accounts Rs. | |
---|---|---|
(a) Opening stocks: |
|
|
Material |
5,000 |
7,500 |
Finished goods |
9,000 |
8,000 |
(b) Closing stocks: |
|
|
Material |
6,000 |
6,500 |
Finished goods |
10,000 |
8,500 |
(c) Interest charged |
5,000 |
- |
(d) Preliminary expenses written off |
- |
250 |
(e) Goodwill written off |
- |
750 |
(f) Dividend received |
- |
500 |
(g) Indirect expenses |
37,500 |
40,000 |
Find out the profit as per the financial accounts by drawing up a memorandum reconciliation account.
[Sri Venkateswara University – Modified]
[Ans: Profit as per financial accounts: Rs. 74,500]
[Model: Profit as per cost accounts—Given profit as per financial accounts—Required]
5. The profit as per cost accounts is Rs. 82,650. The following details are ascertained after the comparison of cost and financial accounts:
Cost Accounts Rs. | Financial Accounts Rs. | |
---|---|---|
(a) Opening stocks: |
|
|
Materials |
16,300 |
16,500 |
Work-in-progress |
10,000 |
10,500 |
(b) Closing stocks: |
|
|
Material |
18,000 |
17,200 |
Work-in-progress |
8,000 |
7,600 |
Finished goods |
4,000 |
4,500 |
(c) The director’s fee is Rs. 500, interest paid Rs. 400, reserve for bad debts Rs. 250 and transfer fees collected Rs. 150, dividends received at Rs. 100 are recorded only in financial accounts.
(d) Rent charged in costing but not in financial accounts is Rs. 3,000
(e) Preliminary expenses written off is Rs. 6,500 (not charged in cost accounts)
(f) Overheads charged in financial accounts were Rs. 60,600, recovered in costing was Rs. 63,100
Find out profit as per financial accounts and draw up a reconciliation statement.
[Madras University – Modified]
[Ans: Profit as per financial accounts: Rs. 79,350]
6. Prepare a reconciliation statement from the following figures so as to ascertain the profit as per the financial accounts:
|
Rs. |
Loss as per cost accounts |
5,000 |
Closing stock undervalued in cost accounts |
2,500 |
Goodwill written off |
10,000 |
Profit on sale of machinery |
60,000 |
Interest on bank loan |
6,075 |
Works overheads over-recovered in cost accounts |
11,075 |
[Madras University – Modified]
[Ans: Loss as per financial accounts: Rs. 52,500]
[Model: Profit as per financial accounts—Given Profit as per cost accounts—Required]
7. Prepare a reconciliation statement from the information given below:
|
Rs. |
Profit as per financial accounts |
55,650 |
Director’s fees not charged in cost accounts |
1,950 |
A provision for bad and doubtful debts |
1,710 |
Bank interest |
90 |
Income tax |
24,900 |
Overheads in the cost accounts were estimated at Rs. 25,500, the charges shown by the financial accounts were Rs. 24,960; depreciation of Rs. 2,400 was provided in the financial accounts.
[Madras University – Modified]
[Ans: Profit as per cost accounts: Rs. 85,980]
[Model: Trading, profit and loss A/c and cost sheet: Given]
8. Reconciliation statement: Required
The following is the profit and loss A/c of XY Ltd:
The profit as per cost accounts was Rs. 37,000. You are required to prepare reconciliation statement of the cost and financial profits using the following additional data:
[Madurai Kamaraj University]
[Ans: Reconciliation: Rs. 37,000]
9. According to the costing books of Bright Co. Ltd, the net profit was Rs. 55,560. Prepare a reconciliation statement explaining the reasons for the difference in profits from the following:
Profit and Loss Account for the Year Ended 31.12.2009
The costing records show the following:
|
Rs. |
(a) Closing stock |
51,260 |
(b) Direct wages recovered during the year |
33,440 |
(c) Works overhead recovered |
37,120 |
(d) Administration overhead charged |
30,920 |
(e) Selling expenses charged |
1,480 |
[Ans: Reconciliation: Rs. 47,560]
[Model: profit and loss A/c—Given]
10. Cost sheet and reconciliation statement—Required.
From the following profit and loss account and additional information given, prepare (1) a cost sheet and (2) reconciliation statement.
In costing opening materials were shown at Rs. 7,000. The factory overheads were absorbed at Rs. 14,000. Administration overhead charges 10% of works cost and selling overhead was 10% of sales.
[Ans: Profit as per cost accounts: Rs. 71,900; Reconciliation: Rs. 71,900]
[Model: Overhead absorption on variability basis.]
11. The following is the profit and loss account of a firm
The normal output of the firm is 75,000 units. Works overhead is fixed to the extent of Rs. 18,000 and selling overhead is 50% variable. Administration overhead is fully fixed.
You are required to prepare a cost sheet and reconcile the profit there in units that shown by the financial accounts.
[Ans: Profit as per cost accounts: Rs. 15,000;
Reconciliation = Rs. 5,000]
[Model: Work in progress]
12. Works overhead on wages basis
From the following information is derived from the records of a company, you are required to prepare
Following is taken from financial records:
Following is taken from costing books:
Materials Rs. 25 per unit, labour cost is Rs. 16 per unit; the factory overheads are absorbed at 60% of labour cost and administration overheads at 20% of factory cost. Selling overheads are charged at Rs. 6 per unit sold. In cost accounts, the opening stock is valued at Rs. 45 per unit and the closing stock at Rs. 60 per unit. There is no opening or closing stock of materials or work-in-progress except that of finished goods.
[Karnataka University]
[Ans: Profit as per cost books: Rs. 39,600;
Reconciliation: Rs. 34,000]
[Model: Work-in-progress (on unit basis)
13. X Ltd. provides the following profit and loss A/c for the year 2009.
The production was 10,000 units of which 9,000 units were sold. Absorption of overhead in cost accounts was on unit basis. The pre-determined rates were works overhead at Rs. 2 per unit and the office overhead Rs. 1.50 per Unit.
Prepare: (1) Cost sheet and (2) Reconciliation statement
[Ans: Profit as per cost accounts: Rs. 27,750; reconciliation: Rs. 27,750]
[Model: Reconciliation A/c preparation]
14. Ascertain the figures (amount) in the profit and loss account by preparing memorandum reconciliation account:
|
Rs. |
Profit as per cost books |
3,00,600 |
Factory overheads under-recovered in cost books |
8,000 |
Office overheads over-recovered in financial books |
3,000 |
Depreciation shown excess in cost books |
1,900 |
Interest on investments |
990 |
Receipt of income from share transfer |
240 |
Provision made for income tax |
97,000 |
[Ans: Profit as per financial accounts: Rs. 2,01,730]
[Model: Information—Given]
15. Profit and loss A/c, cost sheet and reconciliation—Required
Find out the profit as per the costing records and financial accounts for product x from the following information and reconcile the result
The works on cost is charged at 80% of the direct wages and the office on cost at 25% on works cost. The actual works expenses amounted to Rs. 4,500 and the office expenses Rs. 3,900. There was no opening and closing stock.
[Madras University]
[Ans: Profit as per cost accounts: Rs. 3,750; Profit as per financial accounts: nil; Reconciliation: nil]
16. In a factory, works overheads are absorbed at 60% of works cost. Prepare (i) cost sheet (ii) trading and profit and loss A/c and (iii) reconciliation statement if the total expenditure consists of materials Rs. 2,00,000; wages Rs. 1,50,000, factory expenses Rs. 1,00,000 and office expenses Rs. 85,000.
10% of the output is stock at the end and sales are Rs. 5,20,000.
[B.Com (Hons) – Delhi]
[Ans: Profit as per cost accounts: Rs. 44,800 (cost sheet); Profit as per financial accounts: Rs. 30,000 (profit and loss A/c); Reconciliation: Rs. 44,800 + Rs. 3,000 – Rs. 7,800 – 10,000 = Rs. 30,000]
[Model: Overhead control accounts]
17. The following figures have been extracted from the cost records of a manufacturing unit:
Stores:
|
Rs. |
Opening balance |
30,000 |
Purchases |
1,60,000 |
Transfers from work-in-progress |
80,000 |
Issues to work-in-progress |
1,60,000 |
Issues to repairs and maintenance |
20,000 |
Deficiencies found in stock taking |
6,000 |
Work-in-progress:
Opening balance |
60,000 |
Direct wages applied |
60,000 |
Overheads applied |
2,40,000 |
Closing balance |
40,000 |
Finished products: Entire output is sold at a profit of 10% on actual cost from work-in-progress.
Other wages incurred Rs. 70,000; overheads incurred Rs. 2,50,000.
Items not included in cost records: Income from investments Rs. 10,000; loss on sale of capital assets Rs. 20,000.
Draw up stores control A/c, work-in-progress control A/c; costing profit and loss A/c: profit and loss A/c and reconciliation statement.
[I.C.W.A. (Inter)]
[Ans: Balance in stores control A/c: Rs. 84,000; Balance in work-in-progress control A/c: Rs. 40,000;
Balance in production overhead A/c: Rs. 30,000;
Balance in wages control A/c: Rs. 10,000;
Profit as per costing profit and loss A/c: Rs. 34,000;
Net loss as per profit and loss A/c: Rs. 16,000;
Reconciliation of cost and financial: Rs. 34,000 + Rs. 10,000 – 10,000 – 30,000 – 20,000 = (– Rs. 16,000)]
[Model: When both profits are not given]
18. The financial records of Modern Manufactures Ltd reveal the following data:
|
Rs. (in thousands) |
Sales (20,000 units) |
4,000 |
Materials |
1,600 |
Wages |
800 |
Factory overheads |
720 |
Office and administration overheads |
416 |
Selling and distribution overheads |
288 |
Closing stock of finished goods (1,230 units) |
240 |
Work-in-progress: (closing): [Rs. in′000]
Materials |
48 |
|
Labour |
32 |
|
Overheads (factory) |
32 |
112 |
Goodwill written off |
|
320 |
Interest on capital |
|
32 |
Dividend received |
|
10 |
Interest received |
|
5 |
In the costing records, factory overhead is charged at 100% of wages, administration overhead at 10% of works cost and selling and distribution overhead at Rs. 16 per unit sold.
Prepare a statement reconciling the profit as per cost records with the profit as per financial records of the company.
[B.Com (Hons)–Delhi)]
[Ans: profit as per cost accounts: Rs. 4,80,000;
Profit as per financial A/c: Rs. 1,91,000;
Reconciliation: Rs. 4,80,000 + Rs. 80,000 + Rs. 32,000 + Rs. 43,200 + Rs. 15,000 – Rs. 1,07,200 – Rs. 3,20,000 – Rs. 32,000 = Rs. 1,91,000 ]
19. The profit and loss account as shown in the financial books of a company for the year ended 31.3.2010 together with a statement of reconciliation between the profit as per financial and cost accounts is given below:
Statement of reconciliation of profit as per financial and cost accounts:
You are required to prepare the following accounts as they would appear in the costing ledger:
[I.C.W.A. (Inter) – Modified]
[Ans:
20. From the following details, you are required to prepare (a) trading and profit loss A/c (b) cost sheet (c) overhead control accounts and (d) reconciliation statement:
|
Rs. |
Materials used |
6,00,000 |
Wages |
4,80,000 |
Works expenses |
1,20,000 |
Office expenses |
1,50,000 |
Selling expenses |
90,000 |
Discount on debentures written off |
30,000 |
Sales |
18,00,000 |
In cost accounts, works overheads are absorbed at 30% on wages; Office overhead is recovered at 20% on works cost; Selling overhead is at 7% on sales.
[Ans:
Over recovery: Rs. 24,000; Office overhead:
Over recovery: Rs. 94,800; Selling overhead:
Over recovery: Rs. 36,000;
21. The following figures have been extracted from the financial accounts of V Ltd. for the first year of its operations:
|
Rs. |
Direct materials consumed |
50,000 |
Productive wages |
30,000 |
Factory overheads |
16,000 |
Administrative overheads |
7,000 |
Selling and distribution overheads |
9,600 |
Bad debts written off |
800 |
Preliminary expenses written off |
400 |
Legal charges |
100 |
Dividend received |
1,000 |
Interest received on bank deposits |
200 |
Sales (12,000 units) |
1,20,000 |
Closing stock:
|
Rs. |
Finished stock (400 units) |
3,200 |
Work-in-progress |
2,400 |
The cost accounts for the same period reveal that direct materials consumed was Rs. 56,000, factory overheads are recovered at 20% on prime cost, administration overheads are recovered at 60 paise per unit of production, selling and distribution overheads at 80 paise per unit sold.
Prepare profit and loss account both as per financial records and as per cost records. Also reconcile the profits as per the two records.
[C.A. (Inter) – Several Times]
[Ans: Profit as per financial books: Rs. 12,900; Profit as per cost books: Rs. 5,652; Reconciliation: Rs. 5,652 + 6,000 + 1,200 + 400 + 1000 +200 – 292 – 800 – 400 – 100 = Rs. 12,900]
22. The profit and loss account of Oil India (P) Ltd for the year ended 31 March 2010 is as follows:
As per the cost records, the works expenses have been estimated at a cost of Rs. 30 per kg and administration expenses at Rs. 15 per kg. During the year 6,000 kg were manufactured and 4,800 kg were sold.
Prepare a statement of costing profit and loss account and reconcile the profit with financial records.
[C.A (Inter); C.S (Inter)]
[Ans: Profit as per cost accounts: Rs. 1,10,400; Closing stock of finished goods: Rs. 2,12,400; Reconciliation: Rs. 1,10,400 + 30,000 – 48,000 – 32,400 = Rs. 60,000]
23. A firm of sports equipments commenced business on 1.4.2009 for 2 varieties of cricket bats, senior and junior. The following information has been extracted from the accounts records for the half-year period ended 30.9.2009:
|
Rs. |
(i) Average material cost per piece of senior bat |
80 |
(ii) Average material cost per piece of junior bat |
60 |
(iii) Average cost of labour per piece of senior bat |
140 |
(iv) Average cost of labour per piece of junior bat |
110 |
(v) Finished goods sold: |
|
Senior 300 pieces |
|
Junior 700 pieces |
|
(vi) Sale price: |
|
Per piece of senior bat |
500 |
Per piece of junior bat |
390 |
(vii) Works expenses incurred during the period |
1,20,000 |
(viii) Office expenses |
68,000 |
You the required to prepare a statement showing:
[I.C.W.A. (Inter) – Modified]
[Ans: Profit as per cost accounts: Rs. 43,000; Profit as per financial accounts: Rs. 50,000; Reconciliation: Rs. 43,000 + 8,000 – 1,000 = Rs. 50,000]