On reconciliation of Financial and Cost Accounting, following informations were disclosed: i) Profit shown by Cost Account Rs.80,000 ii) Works overhead under recovered in Cost Account Rs.5,000 iii)…

Reconciliation of Cost and Financial Accounts

The reconciliation between Cost Accounting and Financial Accounting is done to adjust differences arising due to accounting treatments. Below is the step-by-step reconciliation:

Given Data:

1. Profit as per Cost Account: Rs. 80,000
2. Works overhead under recovered in Cost Account: Rs. 5,000
3. Office overhead under recovered in Financial Account: Rs. 10,000
4. Depreciation under charged in Cost Account: Rs. 6,000
5. Profit on sale of fixed assets (Financial Account only): Rs. 5,000

Reconciliation Steps:

1. Start with Cost Profit:

   • Cost profit = Rs. 80,000

2. Add under-recovered overheads (Cost Account perspective):

   • Works overhead under recovered (Rs. 5,000) → Add (since it was not fully absorbed)
   • Adjusted profit = 80,000 + 5,000 = Rs. 85,000

3. Add under-recovered office overhead (Financial Account perspective):

   • Office overhead under recovered (Rs. 10,000) → Add (since it was not fully absorbed in Cost Account)
   • Adjusted profit = 85,000 + 10,000 = Rs. 95,000

4. Adjust for depreciation under-charged in Cost Account:

   • Depreciation was under-charged (i.e., less depreciation was recorded in Cost Account)
   • Deduct Rs. 6,000 (since Financial Account has the correct depreciation)
   • Adjusted profit = 95,000 - 6,000 = Rs. 89,000

5. Adjust for profit on sale of fixed assets (Financial Account only):

   • Profit on sale of fixed assets (Rs. 5,000) was not recorded in Cost Account
   • Deduct Rs. 5,000 (since it is a Financial Account item)
   • Final Financial Profit = 89,000 - 5,000 = Rs. 84,000

Final Reconciliation Statement:

Thus, the Financial Profit is Rs. 84,000.