Net profit as per financial account was Rs. 60,000. On reconciliation, the following facts were noticed. a) Factory overhead under recorded in cost account Rs. 8,000. b) Interest expense recorded in…

Reconciliation between Cost and Financial Accounts

The reconciliation between cost and financial accounts is necessary to determine the actual profit or loss for decision-making purposes. The net profit as per financial accounts is Rs. 60,000, but adjustments are required to arrive at the correct profit as per cost accounts.

Adjustments Required:

1. Factory Overhead Underrecorded in Cost Account (Rs. 8,000)

   • Since factory overhead is underrecorded in the cost account, it must be added to the financial profit to adjust for the understatement.
   • Adjustment: + Rs. 8,000

2. Interest Expense Recorded in Financial Account (Rs. 3,000)

   • Interest expense is a financial expense and not a product cost. It should be deducted from the financial profit to arrive at the cost profit.
   • Adjustment: - Rs. 3,000

3. Overvaluation of Opening Stock in Financial Account (Rs. 6,000)

   • Overvaluation of opening stock increases the cost of goods sold (COGS) in the financial accounts. Since the cost account records the correct value, the overvaluation must be deducted to correct the profit.
   • Adjustment: - Rs. 6,000

4. Income Tax Paid (Rs. 8,500)

   • Income tax is a financial expense and not a product cost. It should be deducted from the financial profit to arrive at the cost profit.
   • Adjustment: - Rs. 8,500

Reconciliation Statement:

Final Answer:

The profit as per cost accounts is Rs. 40,500.