Chapter 7 - Reconciliation

Reconciliation
Question 1 - Study Material
The following figures are available from the financial records of ABC Manufacturing Co. Ltd. for the year ended
31-3-2006.
Particulars Amount (₹)
Sales (20,000 units) 25,00,000
Materials 10,00,000
Wages 5,00,000
Factory Overheads 4,50,000
Office and administrative Overhead (production related) 2,60,000
Selling and distribution Overheads 1,80,000
Finished goods (1,230 units) 1,50,000
Work-in-Progress:
Materials 30,000
Labour 20,000
Factory Overheads 20,000 70,000
Goodwill written off 2,00,000
Interest on capital 20,000
In the Costing records, factory overhead is charged at 100% wages, administration overhead 10% of factory
cost and selling and distribution overhead at the rate of ₹10 per unit sold.
Prepare a statement reconciling the profit as per cost records with the profit as per financial records.

Question 2 - Mtp April 2021

The following figures have been taken from the financial accounts of a manufacturing firm for the year ended
31st March, 2021:
Particulars (₹)
Direct material consumption 20,00,000
Direct wages 12,00,000
Factory overheads 6,40,000
Administrative overheads 2,80,000
Selling and distribution overheads 3,84,000
Bad debts 32,000
Preliminary expenses written off 16,000
Legal charges 4,000
Dividend received 40,000
Interest on fixed deposit 8,000
Sales - 48,000 units 48,00,000
Closing stock:
- Finished stock - 4,000 units 3,20,000
- Work-in-process 96,000
The cost accounts for the same period reveal that the Direct Material consumption was ₹22,40,000; Factory
overhead is recovered at 20% on prime cost; Administration overhead is recovered @ ₹4.8 per unit of
production; and Selling and Distribution overheads are recovered at ₹6.40 per unit sold.
Required: PREPARE Costing and Financial Profit & Loss Accounts and RECONCILE the difference in the profit
as arrived at in the two sets of accounts.

Question 3 - May 02
The financial book of a company reveal the following data for the year ended 31st March, 2002:
Particulars Amount (₹)
Opening Stock:
Finished goods 875 units 74,375

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Work-in-process [1.4.01 to 31.3.02] 32,000

Raw materials consumed 7,80,000
Direct Labour 4,50,000
Factory overheads 3,00,000
Goodwill 1,00,000
Administration overheads (production related) 2,95,000
Dividend paid 85,000
Bad Debts 12,000
Selling and Distribution Overheads 61,000
Interest received 45,000
Rent received 18,000
Sales 14,500 units 20,80,000
Closing Stock: Finished goods 375 units 41,250
Work-in-process 38,667
The cost records provide as under:
Factory overheads are recovered at 60% of direct wages.
Administration overheads (production related) are recovered at 20% of factory cost.
Selling and distribution overheads are charged at ₹4 per unit sold.
Opening stock of finished goods is valued at ₹104 per unit.
The company value Work-in-Progress at factory cost for both Financial and Cost Profit Reporting.
Required:
(i) Prepare statements for the year ended 31st March, 2002 to show the profit as per financial records and the
profit as per costing records.
(ii) Present a statement reconciling the profit as per costing records with the profit as per Financial Records.

Question 4 - Study Material

Following are the figures extracted from the Cost Ledger of a manufacturing unit.
Particulars Amount (₹)
Stores:
Opening balance 15,000
Purchases 80,000
Transfer from WIP 40,000
Issue to WIP 80,000
Issue to repai₹and maintenance 10,000
Sold as a special case of cost 5,000
Shortage in the year 3,000
Work-in-Progress:
Opening inventory 30,000
Direct labour cost charged 30,000
Overhead cost charged 1,20,000
Closing Balance 20,000
Finished Products:
Entire output is sold at 10% profit on actual cost from work-in-progress
Othe₹:
Wages for the period 35,000
Overhead Expenses 1,25,000
Ascertain the profit or loss as per financial accounts and cost accounts and reconcile them.

Reconciliation – Costing and Financial Profits – Absorption Based on Normal Capacity

Question 5 - Study Material, May 95
The following information is available from the financial books of a company having a normal production
capacity of 60,000 units for the year ended 31st March, 2006:
● Sales ₹10,00,000 (50,000 units).
● There was no opening and closing stock of finished units.

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● Direct material and direct wages cost were ₹5,00,000 and ₹2,50,000 respectively.
● Actual factory expenses were ₹1,50,000 of which 60% are fixed.
● Actual administrative expenses (production related) were ₹45,000 which are completely fixed.
● Actual selling and distribution expenses were ₹30,000 of which 40% are fixed.
● Interest and dividends received ₹15,000.
You are required to:
(a) Find out profit as per financial books for the year ended 31st March, 2006;
(b) Prepare the cost sheet and ascertain the profit as per cost accounts for the year ended 31st March, 2006
assuming that the indirect expenses are absorbed on the basis of normal production capacity; and
(c) Prepare a statement reconciling profits shown by financial and cost books.

Computing Costing and Financial Profits – Two Products

Question 6 - Rtp
A Firm of Sports equipment commenced business on 1st April manufacturing two varieties of bat, ‘Senior’ and
‘Sub-Junior. The following data has been extracted from the accounts records for the half-year period ended
30th September.
● Average Material Cost per unit – ‘Senior’ bat ₹80, ‘Sub-Junior’ bat ₹60.
● Average Cost of Labour per unit – ‘Senior’ bat ₹140, ‘Sub-Junior’ bat ₹110.
● Finished Goods sold – Senior: 300 bats, Sub-Junior: 700 bats.
● Sale Price per bat – Senior ₹500, Sub-Junior ₹390.
● Expenses incurred during the period – Works Expenses – ₹1,20,000, Office Expenses – ₹68,000.
You are required to prepare statements showing:
1. Profit per unit for each brand of bat, charge Labour and Material at actual average cost, Works Expenses at
100% on Labour Cost and Office Expenses at 25% of Works Costs.
2. Financial profit for the half-year ending 30th September.
3. Reconciliation between profit as shown by Cost Account and Financial Accounts.

Reconciliation – Reverse Working – Preparing Cost Sheet

Question 7 -
Ram Co. maintains its accounts on a non-integrated basis. Both Financial Accountant and Cost Accountant
have completed their accounts for the year ended 30th June and a Memorandum Account reconciling the two
profit figures has been prepared.
The Financial Accountant has prepared the detailed Profit & Loss Account for the year ended 30th June.
Particulars Amount (₹) Particulars Amount (₹)
By Trading A/c Cost of Goods
To Raw Material consumed: Manufactured c/d 4,74,772
Opening Stock 51,296
Add: Purchases 1,99,334
Less: Closing Stock (47,382) 2,03,248
To Direct Wages 80,072
To Production Overhead 1,90,680
To Opening WIP 24,496
Less: Closing WIP (23,724) 772
Total 4,74,772 4,74,772
To Opening Stock of Finished Goods 63,890 By Sales 6,25,600
By Closing Stock of Finished
To Cost of Goods Manufactured b/fd 4,74,772 Goods 65,702
To Gross Profit c/d 1,52,640
Total 6,91,302 Total 6,91,302
To Debenture Interest 2,000 By Gross Profit b/d 1,52,640
To Discount Allowed 2,964 By Discount Received 1,790
To Distribution Expenses 16,926
To Sales Expenses 30,562
To Administrative Expenses 53,058
To Net Profit c/d 48,920

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Total 1,54,430 Total 1,54,430

The Memorandum Account reconciling the profit shown in Financial and Cost Account for the year is as
follows:
Particulars Amount (₹) Particulars Amount (₹)
During as per Cost Accounts 1,00,300 Profit as per Financial Accounts 48,920
Difference in stock Valuation: Difference in Stock Valuation:
Opening Stock of Work in
Opening Stock of Raw Materials 320 Progress 350
Opening Stock of Finished
Closing Stock of Finished Goods 682 Goods 652
Closing Stock of Raw
Discount Received 1,790 Material 422
Closing Stock of Work in
Progress 296
Sales Expenses 30,562
Distribution Expenses 16,926
Debenture Interest 2,000
Discount Allowed 2,964
Total 1,03,092 Total 1,03,092
During the year, Production Overhead has been absorbed in the Cost Accounts at 250% of the Direct Wages. It
is observed that the Cost Account has lost his working papers and data is not available.
You are required to prepare a detailed statement showing how the profit as shown in the Cost Accounts was
arrived was arrived at. Any difference not explainable through the memorandum account should be taken as
difference in the “Administrative Expenses’’ charged in the two sets of accounts.

Question 8 - May 92, May 93

Given below is the Trading and Profit and Loss Account of a Company for the year ended 31st March, 1993:
Particulars Amount (₹) Particulars Amount (₹)
To Materials 27,40,000 By Sales (60,000 units) 60,00,000
To Wages 15,10,000 Stock (2,000 units) 1,60,000
To Factory expenses 8,30,000 Work-in-Progress:
To Administration expenses Materials
(production related) 3,82,400 64,000
Wages
To Selling expenses 4,50,000 36,000
To Preliminary expenses Factory Expenses
written off 60,000 20,000 1,20,000
Net profit 3,25,600 By Dividend Received 18,000
62,98,000 62,98,000
The Company manufactures standard units. In the Cost Accounts:
(i) Factory expenses have been allocated to production at 20% of Prime Cost:
(ii) Administrative expenses (production related) at ₹6 per unit produced: and
(iii) Selling expenses at ₹8 per unit sold.
Prepare the Costing Profit and Loss Account of the company and reconcile the same with the profit disclosed
by the Financial Accounts.

Question 9 - May 09
A manufacturing Company has disclosed a Net Loss of ₹2,13,000 as per their Cost Accounting Records for the
year ended 31st March. However, their Financial Accounting Records disclosed a Net Loss of ₹2,58,000 for the
same period. A scrutiny of data of both the sets of books of accounts revealed the following information (In ₹)
Particulars Amount (₹)
Factory Overheads under absorbed 5,000
Administration Overheads over absorbed 3,000
Depreciation charged in Financial Accounts 70,000

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Depreciation Charged in Cost Accounts 80,000

Interest on Investment not included in Cost Accounts 20,000
Income Tax provided in Financial Accounts 65,000
Transfer Fees (Credit in Financial Accounts) 2,000
Preliminary Expenses written off 3,000
Over-valuation of Closing stock of Finished Goods in Cost Accounts 7,000
Required:
a) Explain this in Reconciliation Statement
b) Draw Memorandum Reconciliation Account

Question 10 - Nov 12 (Similar)

From the following figures prepare a reconciliation statement:
Particulars Amount (₹)
Net Loss as per costing records 1,72,400
Works overhead under recovered in costing 3,120
Administrative overhead recovered in excess 1,700
Depreciation charged in financial records 11,200
Depreciation recovered in costing 12,500
Interest received not included in costing 8,000
Obsolescence charged (loss) in financial records 5,700
Income-tax provided in financial books 40,300
Bank Interest credited in financial books 750
Stores adjustment (credit) in financial books 475
Value of opening stock in: Cost accounts 52,600
Financial accounts 54,000
Value of closing stock in: Cost accounts 52,000
Financial accounts 49,600
Interest charged in cost accounts but not in financial accounts 6,000
Preliminary expenses written off in financial accounts 800
Provision for doubtful debts in financial accounts 150

Memorandum Reconciliation Account

Question 11 - Mtp March 2021
A manufacturing company disclosed a net profit ₹10,20,000 as per their cost accounts for the year ended 31st
March 2021. The financial accounts however disclosed a net profit of ₹6,94,000 for the same period. The
following information was revealed as a result of scrutiny of the figures of both the sets of accounts.
(₹)
(i) Factory Overheads under-absorbed 80,000
(ii) Administration Overheads over-absorbed 1,20,000
(iii) Depreciation charged in Financial Accounts 6,50,000
(iv) Depreciation charged in Cost Accounts 5,50,000
(v) Interest on investments not included in Cost Accounts 1,92,000
(vi) Income-tax provided 1,08,000
(vii) Interest on loan funds in Financial Accounts 4,90,000
(viii) Transfer fees (credit in financial books) 48,000
(ix) Stores adjustment (credit in financial books) 28,000
(x) Dividend received 64,000
PREPARE a Reconciliation statement.

Question 12 - May 2023

The following has been obtained from financial accounting and cost accounting records.

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Financial Accounting Cost Accounting

Factory Overhead 94,750 90,000
Administrative overhead 60,000 57,000
Selling Overhead 55,000 61,500
Opening Stock 17,500 22,500
Closing Stock 12,500 15,000
Indicate under-recovery and over-recovery and their effects on cost accounting profit.
Note: You are not required to prepare reconciliation statement.

Question 13 - Nov 2016

Given below is the Trading and Profit and Loss Account of a Company for the year ended 31st March, 2016:
Particulars Amount (₹) Particulars Amount (₹)
To Materials 26,80,000 By Sales (50,000 units) 62,00,000
To Wages 17,80,000 By Closing Stock (2,000 units) 1,50,000
To Factory expenses 9,50,000 By Dividend Received 20,000
To Administration expenses 4,80,200
To Selling expenses 2,50,000
To Preliminary expenses written off 50,000
Net profit 1,79,800
63,70,000 63,70,000
In the Cost Accounts:
(i) Factory expenses have been allocated to production at 20% of Prime Cost.
(ii) Administrative expenses absorbed at 10% of factory cost.
(iii) Selling expenses charged at ₹10 per unit sold.
Prepare the Costing Profit and Loss Account of the company and reconcile the same with the profit disclosed
by the Financial Accounts.

Question 14 - Nov 2022

X Ltd. follows Non-Integrated Accounting System. Financial Accounts of the company show a Net Profit of
₹5,50,000 for the year ended 31st March, 2022. The chief accountant of the company has provided following
information from the Financial Accounts and Cost Accounts:

Sr. No Particulars (₹)

(i) Legal Charge Provided in Financial accounts 15,250
(ii) Interim Dividend received credited in financial 4,50,000
accounts
(iii) Preliminary Expenses written off in financial 25,750
accounts
(iv) Over recovery of selling overheads in cost accounts 11,380
(v) Profit on sale of capital asset credited in financial 30,000
accounts
(vi) Under valuation of closing stock in cost accounts 25,000
(vii) Over recovery of production overheads in cost 10,200
accounts
(viii) Interest paid on Debentures shown in financial 50,000
accounts
Required:
Find out the Profit (Loss) as per Cost Accounts by preparing a Reconciliation Statement.

Question 15 - Rtp Nov 2022

The financial books of a company reveal the following data for the financial year ending on 31st March, 2022:

(₹)
Opening Stock:
Finished goods 875 units 1,48,750
Work-in-process 64,000

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01.04.2021 to 31.3.2022
Raw materials consumed 15,60,000
Direct Labour 9,00,000
Factory overheads 6,00,000
Goodwill written off 2,00,000
Administration overheads 5,90,000
Dividend paid 1,70,000
Bad Debts 24,000
Selling and Distribution Overheads 1,22,000
Interest received 90,000
Rent received 36,000
Sales 14,500 units 41,60,000
Closing Stock: Finished goods 375 units 82,500
Work-in-process 77,334
The cost records provide as under:
Factory overheads are absorbed at 60% of direct wages.
Administration overheads are recovered at 20% of factory cost.
Selling and distribution overheads are charged at ₹8 per unit sold.
Opening Stock of finished goods is valued at ₹208 per unit.
The company values work-in-process at factory cost for both Financial and Cost Profit Reporting.
Required:
1. PREPARE statements for the year ended 31st March, 2022 showing-
a. The profit as per financial records
b. The profit as per costing records.
2. PRESENT a statement reconciling the profit as per costing records with the profit as per Financial Records.

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