Reconciliation of Cost and Financial Accounts- RULE RELATING TO ADDITION AND SUBTRACTION OF STOCK VALUATION

 

Reconciliation Statement- Difference in Valuation of Stock

RULE RELATING TO ADDITION AND SUBTRACTION OF STOCK VALUATION

When we prepare a reconciliation statement for reconciling the cost accounts and financial accounts profits, the following rule has to be followed regarding over-valuation and under-valuation of opening and closing stock in cost accounts:

(Assume that we have started from Cost Accounts Profits)

1. Opening Stock- considered as Expenditure –written in debit side

Add:  Amount of over-valuation in cost accounts

Deduct: Amount of under-valuation in cost accounts

2. Closing Stock- written in credit side of trading account- Income

Add:  Amount of under-valuation in cost accounts

Deduct: Amount of over-valuation in cost accounts

Now let us apply this rule in the following sum.

From the following figures, prepare a reconciliation statement

 

 

Profit as per financial accounts

Profit as per cost accounts

Income tax

Share transfer

Overhead as per cost accounts

Overheads charged in financial accounts

Reserve for bad debts

Director’s fees shown in financial accounts

Depreciation charged in financial accounts

Value of closing stock in cost accounts

Value of closing stock in financial accounts

Interest on investment

Goodwill written off

Stores adjustment(cr)

 

1,13,000

2,00,000

60,000

4,000

34,000

28,000

20,000

8,000

7,000

18,750

20,750

4,000

9,000

1,000

 

Solution

 

 

 

PROFIT AS PER COST ACCOUNTS

 

2,00,000

ADD:

1.        Overhead –over charged in cost accounts

2.        Share transfer fees-expense

3.        Undervaluation of opening closing stock

4.        Interest on investment-income

5.        Stores adjustment(cr) income

 

6,000

4,000

2,000

4,000

1,000

 

 

 

 

 

17,000

 

 

2,17,000

LESS:

1.        Income tax

2.        Reserve for doubtful debts

3.        Director’s Fees

4.        Depreciation charged in financial accounts

5.        Goodwill written off

 

60,000

20,000

8,000

7,000

9,000

 

 

 

 

 

1,04,000

PROFIT AS PER FINANCIAL ACCOUNTS

 

1,13,000

 

Comments

Post a Comment

Popular posts from this blog

. TATA MOTORS SET TO BEGIN THEIR MANUFACTURING UNIT IN RANIPET, TAMIL NADU Today , an important milestone for Tamil Nadu in General and Manufacturing industry N CM MK Stalin laid the foundation stone for Tata Motors Rs 9000 crore manufacturing plant in in Panapakkam, Ranipet district. It has an economic mileage for the Tamil Nadu. Just after six months of signing of MOUs with Tata Motor Groups, Tata Motor set to begin their manufacturing whch would fetch 5,000 jobs. MOU was signed in March,2024 for envisaging an investment woth Rs.9,000 crores over the period of 5 years which will provide direct and indirect employment opportunities for unemployed youths of Tamil Nadu. he plant will manufacture vehicles of flagship models of luxurious Jaguar and Land Rover, apart from four-wheelers of the Tata Motors portfolio. About Tata Motors Tata Motors is a leading global automobile manufacturer of cars, utility vehicles, pick-ups, trucks, and buses, offering an extensive range of inte...
Read more

BASIC CONCEPTS- PART 1

  INCOME TAX - BASIC CONCEPTS AND DEFINITIONS  1 Give the Meaning of Tax   A tax is a  compulsory financial charge  levied by a government on an individual, organization, or transaction. The revenue collected is used to fund public expenditures like infrastructure (roads, bridges), healthcare, defense, and education. It is not a voluntary payment or donation; it is a mandatory contribution. 2. What are the different Types of Tax ?   Taxes are broadly classified based on what is being taxed. The main types include: ·          Income Tax:  Tax on personal or corporate income/profits. ·          Goods and Services Tax (GST):  Tax on the supply of goods and services. ·          Customs Duty:  Tax on goods importe...
Read more
ALLOWANCE- U/S 10(14) 1) Allowances-Exemption depends on actual expenditure S.No Name of Allowances u/s 10(14) (i) Exemption 1 Helper Allowances Actual amount spent 2 Uniform Allowances Actual amount spent 3 Academic Research Allowance Actual amount spent 4 Conveyance Allowance Actual amount spent 5 Travellin or Transfer Allowance Actual amount spent 6 Daily Allowance Actual amount spent   2) Allowances - Exemption does not depend  on actual expenditure S.No Name of Allowances u/s 10(14) (ii) Exemption 1 Hill Allowances Rs.300 p.m. to Rs.7,000 p.m. 2 Border Area Allowances Rs.200  per month to Rs.1,300 per month 3 Compensatory Field Area ...
Read more