Chapter 2 PROFIT RECONCILIATION STATEMENT

Q1. The net profit of ESSEL PACKING CO LTD appeared 64,377 as per financial records for the year ended 31st December, 2008. The cost books, however, showed a net profit of Rs 86,200 for the same period. A scrutiny of the figures from both the sets of accounts revealed the following facts:
Particulars

Rupees

Works overhead under recovered in costs
1,560
Administration overhead over - recovered in costs
850
Depreciation charged in financial accounts
5,600
Depreciation recovered in costs
6,250
Interest on investments not included in costs
4,000
Loss due to obsolescence charged in financial accounts
2,850
Income-tax provided in financial accounts
20,150
Bank interest and transfer fees in financial books
375

Stores adjustment (credit in financial books)

237

Loss due to depreciation in stock values (charged in financial accounts)
3,375
Prepare a statement showing the reconciliation between the figure of net profit as per cost accounts and the figure of net profit shown in the financial books.

Q2. Prepare a reconciliation statement from the following data:
Particulars

Rupees

Net loss as per cost accounts
34,480
Net loss as per financial accounts
43,209
Works overheads under recovered in cost accounts
624
Depreciation overcharged in cost accounts
260
Administration overheads recovered in excess in cost
340
Interest on investments
1,750
Goodwill written off in financial books
1,140
Income-tax paid
8,060

Stores adjustment (credit in financial books)

95

Depreciation of stock charged in financial books
1,350

Q3. A Company’s profit as per cost accounts is Rs 2,30,630 whereas the financial accounts showed a profit of Rs 1,66,240. Following is the summarised financial profit & loss account. You are required to prepare a reconciliation statement, indicating the reasons for disagreement between the two profits.
Particulars

Rupees

Particulars

Rupees

To Raw Material Consumed
25,42,120
By Sales
34,65,000
To Direct Wages
2,31,330
By Sundry Income
3,160
To Factory Overheads
2,08,260


To Administration Expenses
98,450


To Selling Expenses
2,21,760


To Net Profit
1,66,240


Total
34,68,160
Total
34,68,160
The costing records show:
i.                 Stock overvalued in cost accounts by Rs 30,760.
ii.                Factory overheads absorbed Rs 1,97,140.
iii.              Direct wages absorbed during the year Rs 2,48,670.
iv.              Administration overheads 3% of selling price.
v.               Selling expenses absorbed 5% of Sales.

Q4. The profit disclosed by a Company’s cost accounts for the year was Rs 30,114, while the net profit shown by the financial accounts amounted to Rs 19,760. On reconciling the figures the following differences are brought to light:
a.     Overheads in the cost accounts were estimated at Rs 7,500. The actual charge for the year shown by the financial accounts was Rs 6,932.
b.     Expenses not charged in the cost accounts was Rs 750.
c.     The company has allotted Rs 600 to General Reserve.
d.     Work was commenced during the year on a new factory and expenditure of Rs 12,000 was incurred. Depreciation of 5% was provided for in the financial accounts.
e.     Transfer fees received amounted to Rs 28.
f.      The amount charged for income tax Rs 9,000.
Prepare a statement reconciling the figures shown by the cost and financial accounts.

Q5. A Company’s Trading and Profit & Loss Account is as follows:
Particulars

Rupees

Rupees

Particulars

Rupees

To Purchases
37,815

By Sales
1,12,500
Less: Closing Stock
6,120
31,695
(75,000 units @ Rs1.50)

To Wages (Direct)

15,750
By Profit on sale of

To Works Expenses

18,195
Machinery
3,900
To Selling Expenses

10,650


To Administration Exp

8,010


To Depreciation

1,650


To Net Profit

30,450


Total

1,16,400
Total
1,16,400
The profit as per Cost Accounts was Rs 29,475. Prepare reconciliation statement to reconcile Cost Profit with Financial Profit.
Further information as per Cost Accounts:
a.     Closing Stock was taken as Rs 6,240
b.     The work expenses taken at 100% of Direct Wages.
c.     Selling and Administration Expenses were charged at 10% of sales and at Rs 0.10 per unit respectively.
d.     Depreciation was taken at Rs 1,200.

Q6. A company’s Trading and Profit & Loss Account is as follows:
Particulars

Rupees

Rupees

Particulars

Rupees

To Opening Stock
100,000

By Sales
1,75,000
To Purchases
80,000




1,80,000



Less: Closing Stock
80,000
1,00,000


To Direct Wages

20,000


To Factory Expenses

15,000


To Gross Profit c/d

40,000


Total

1,75,000
Total
1,75,000
To Administration Exp

10,000
By Gross Profit b/d

To Selling Expenses

15,000


To Net Profit c/d

15,000


Total

40,000
Total
40,000
Costing records show the following:
a.     Stock Ledger closing balance Rs 89,000
b.     Direct Labour Rs 23,000
c.     Factory Overheads Rs 13,000
d.     Administration Overheads and Selling Exps each are calculated at 8% of the selling price.
Prepare Costing P&L a/c and statement of reconciliation between the P&L as per the two a/cs.

Q7. The following is the trading and profit & loss account of a manufacturing company for the year ending 31st December, 2008
Particulars

Rupees

Particulars

Rupees

To Opening Stock of FG
400
By Sales (2,400 Units)
9,600
(100 units at Prime Cost)

By Closing Stock of FG
600
To Materials
3,000
(200 Units at Prime Cost)

To Wages
    2,000


To Works Overheads
2,200


To Selling & Distribution Overheads
800


To Net Profit
1,800


Total
10,200
Total
10,200
Factory overheads are charged at 40% of prime cost, selling expenses are charged at Rs 3 per unit sold. Closing stock is valued at prime cost. Prepare a Cost Sheet and a reconciliation statement.

Q8. During the year a Company’s profits have been estimated from the costing system to be Rs 23,063 whereas the final accounts prepared by the auditors disclose profit of Rs 16,624. Given the following information you are required to prepare a Reconciliation Statement showing clearly the reasons for the difference.
Particulars

Rupees

Particulars

Rupees

To Opening Stock
2,47,179
By Sales
3,46,500
To Purchases
82,154



3,29,333


Less: Closing Stock
75,121



2,54,212


To Direct Wages
23,133


To Factory Overheads
20,826


To Gross Profit c/d
48,329


Total
3,46,500
Total
3,46,500
To Administration Exp
9,845
By Gross Profit b/d
48,329
To Selling Expenses
22,176
By Sundry Income
316
To Net Profit
16,624


Total
48,645
Total
48,645
The costing records show:
a.     A Stock Ledger closing balance of Rs 78,197
b.     A direct wages absorption account of Rs 24,867
c.     A factory overhead absorption account of Rs 19,714
d.     Administration expenses calculated at 3% of selling price.
e.     Selling expenses are 5% on selling price.
f.      No mention of sundry income.

Q9. Profit disclosed by a Company’s cost accounts for the year was Rs 50,000, whereas the net profit as disclosed by the financial accounts was Rs 29,750. Following information is available:
a.     Overheads as per cost accounts were estimated at Rs 8,500. The charge for the year shown by the financial accounts was Rs 7,000.
b.     Directors fees in the financial accounts only Rs 2,000.
c.     The company allowed Rs 5,000 as provision for doubtful debts.
d.     Work was commenced during the year on a new factory and expenditure of Rs 30,000 was made. Depreciation at  5% p.a. was provided for in the financial accounts for 6 months.
e.     Share transfer fees received during the year were Rs 1,000.
f.      Provision for income tax was Rs 15,000.
Prepare a Reconciliation Statement showing clearly the reasons for the difference.

Q10. In a factory of a moderate size, factory overheads are taken at 200% of the wage bill, while the administrative overheads are taken at 15% of the factory cost. Selling overheads are taken at 10% of the sales value. For the year 2007-2008 the company’s Profit & Loss Account showed the following position:
Particulars

Rupees

Particulars

Rupees

To Raw Material Consumed
10,000
By Sales
50,000
To Wages
5,000
By Income from

To Factory Overheads
11,000
Investment
2,000
To Administration Ohds
3,000


To Interest charges
3,000


To Selling Expenses
5,000


To Loss on sale of car
1,000


To Net Profit
14,000


Total
52,000
Total
52,000
Prepare reconciliation between the profit as per financial accounts given above and the profit in the cost accounts, after determining the same.

Q11. From the accounts of Allied Co. Ltd, following manufacturing, trading and profit & loss accounts for the year ended 31st December, 2008 was extracted:
Particulars

Rupees

Particulars

Rupees

To Opening Stock of Raw Materials
29,500
By Clg. Stock of RM
32,000
To Raw Materials purchased
1,86,500
By Work-in-progress

To Wages paid
2,81,000
   Materials          4,000

To Wages accrued
17,000
   Wages              5,500

To Factory Expenses
1,90,750
   Factory Exps    3,300
12,800


By Cost of Goods Manufactured (9,000 units)
6,59,950
Total
7,04,750
Total
7,04,750
To Cost of Goods Manufactured
6,59,950
By Sales (7,600 units)
9,12,000
To Administrative Expenses
To Selling & Distribution Exps
1,22,500
1,64,000
By Closing Stock (1,400 units)
1,17,600
To Preliminary Exps written off
10,000
By Int. on investment
1,300
To Goodwill written off
7,500
By Dividend earned
5,500
To Net Profit transferred to Appropriation a/c

72,450


Total
10,36,400
Total
10,36,400
The following procedure is adopted in costing of the product:
a.     Factory expenses are allocated to production @ 60% of the direct labour cost.
b.     Administrative Expenses are applied @ 12 per unit over the units produced.
c.     Selling & Distribution Expenses are so charged to work out 20% of the selling price.
You are required to prepare a cost sheet in respect of the above and reconcile costing profit with financial profit.

Q12. The following figures have been extracted from the financial accounts of a manufacturing firm for the first year of its operation.
Particulars

Rupees

Direct Material Consumption
50,00,000
Direct wages
30,00,000
Factory Overheads
16,00,000
Administration Overheads
7,00,000
Selling & Distribution Overheads
9,60,000
Bad Debts
80,000
Preliminary Expenses written off
40,000
Legal Charges
10,000
Dividends Received
1,00,000
Interest on deposits received
20,000
Sales (1,20,000 units)
1,20,00,000
Closing Stock:

Finished Goods (4,000 units)

3,20,000

Work-in-progress
2,40,000
The cost accounts for the same period reveal that the Direct material consumption was Rs 56,00,000; Factory Overheads is recovered at 20% on Prime Cost; Administration expenses is recovered @ Rs 6 per unit of production; selling & distribution overheads are recovered at Rs 8 per unit sold.
You are required to prepare Costing and Financial Profit & Loss Accounts and reconcile the difference in the profits as arrived at in the two sets of accounts.

Q13. From the following particulars prepare:
a.     Profit and Loss Account
b.     Cost Sheet calculating factory overheads at 25% on prime cost and office overheads at 75% of factory overheads.
c.     A profit reconciliation statement
Selling price is fixed at cost plus 25%
Particulars

Rupees

Stock on 1st January, 2008

Raw Materials
2,000
Finished Goods
4,000
Stock on 31st December, 2008

Raw Materials
3,000
Finished Goods
1,000
Purchase of Raw Materials
12,000
Wages
5,000
Sales
32,500

Factory overheads

3,875

Office expenses
3,050

Q14. Falcon radio manufacturing company commenced business on 1st January, 2008. It supplies you the following information:
i.                 Two types of radios are manufactured viz “Shamma” and  “Parvana”
ii.                There were no radios in stock or in course of manufacture at the end of the year.
iii.              The number of radios sold during the year were “Shamma” 1,200 and  “Parvana” 840
iv.              The other particulars were as follows:

“Shamma”

“Parvana”

Particulars

Rupees

Rupees

Materials per radio

120

150

Wages per radio
60
90
Selling price per radio
350
450
v.               In cost records:
a.     Wages and materials are to be charged at the actual cost.
b.     Works overheads at 80% on wages.
c.     Office overheads at 20% on works cost.
vi.               Actual office expenses are Rs 1,10,000 and factory expenses Rs 1,06,000.
You are required to prepare
i.       A cost sheet in the columnar form showing total and per unit profit of both the types of radio manufactured.
ii.      Profit & Loss Account as per financial books.
iii.    A statement to reconcile profit as per both the books

Q15. A company manufacturing table fans, supplies to you the following data and asks you to prepare a statement showing profit per table fan. Wages and materials are charged at cost, works overheads at 80% of wages, and office on cost at 20% of works cost. You are also required to prepare a statement reconciling the profit, as shown by the cost accounts with the profits as shown by the financial accounts for the year ended 31st March,2008.
Two types of table fans are manufactured namely Model A and Model B. There is no fan in stock, number of fans sold were A-1,500 and B-1,050
The other particulars were as under:

Model A

Model B

Particulars

Rupees

Rupees

Materials per fan

100

80

Wages per fan
80
60
Selling price per fan
300
250
Prepare the relevant statements, showing the actual profits for the year if the works indirect expenses were Rs 82,000 and office on cost Rs 75,000.

Q16. The following is the Trading, Profit & Loss Account for the Year ended 30the June 2008:
Particulars

Rupees

Particulars

Rupees

To Stock (1.7.2007)
7,500
By Sales
4,72,500
To Purchases               2,05,000

By Stock on hand
12,750
Less: Returns                   2,500
2,02,500
(30.6.2008)

To Wages
63,750


To Factory Expenses
15,750


To Depreciation: Plant
18,300


To Gross Profit c/d
1,77,450


Total
4,85,250
Total
4,85,250
To Office Expenses
32,685
By Gross Profit b/d
1,77,450
To Selling & Distribution Exps
51,330
By Profit on sale of Land
3,750
To Provision for Bad Debts
2,000
By Int. on investment
1,875
To Interest on bank overdraft
705


To Loss on sale of Investments
1,500


To Goodwill written off
4,000


To Net Profit
90,855


Total
1,83,075
Total
1,83,075
Stock Valuation is done as under:

Opening Stock

Closing Stock

Particulars

Rupees

Rupees

Material

4,050

6,900

Labour
2,250
3,600
Overheads
1,200
2,250
Total
7,500
12,750
In Cost Accounts:
i.                 Recovery rate applied were: Factory on cost @ 5% on sales; Selling & distribution on cost @ 12% of sales; Office overheads Rs 28,000.
ii.                Stock is valued at Prime Cost only.
iii.              Non – Cost items should be excluded.
Ascertain profit shown by cost accounts either by preparing a Memorandum Reconciliation Account or by drawing a statement.

Q17. The net profit of a company amounted to Rs 60,412 for the year ending 31st December, 2008, as per the financial records. The cost records, however, revealed a different figure. A scrutiny of the two sets of accounts disclosed the following facts:
a.     Work overhead recovered in Cost Accounts during the period amounted to Rs 28,450 while the actual amount of these expenses was Rs 21,390 only.
b.     Actual office expenses for the period were Rs 19,850, whereas the office overheads recovered in Cost Accounts amounted to Rs 14,500.
c.     The annual rental value of premises owned by the Company, amounting to Rs 10,800 was charged in Cost Accounts but not in financial accounts.
d.     Selling and distribution expenses for the period amounting to Rs 16,490 were excluded from costing records.
e.     Expenses not included in cost accounts and shown in financial accounts are:
Ø      Interest on bank loan Rs 1,600
Ø      Bank charges Rs 160
Ø     Directors fees Rs 750
Ø      Penalty due to late completion on contract Rs 2,500
f.      Gains during the year not included in Costs accounts:
Ø    Transfer fees Rs 45
Ø    Profit on sale of investments Rs 4,250
Ø    Interest on investments Rs 9,450
g.     The following appropriations had been made in arriving at the profit figure of Rs 60,412;
Ø    Transfer to Dividend Equalisation Fund Rs 10,500
Ø    Transfer to Income-Tax Rs 6,400
Ø    Transfer to Debenture Redemption Fund Rs 9,000
h.     A sum of Rs 10,000 given as donation to the Prime Ministers Relief Fund had been charged to Profit & Loss Account as business expense.
i.       Excess depreciation charged in Cost Accounts Rs 2,400
Prepare Reconciliation Statement and find the amount of net profit / loss as per the costing records.

Q18. The profit as per cost accounts is Rs 1,50,000.
The following details are ascertained on comparison of Cost and Financial Accounts.

Cost Accounts

Financial Accounts


a. Opening Stock

 

 


Ø  Material

10,000

15,000


Ø  Finished Goods
18,000
16,000

b. Closing Stock



Ø  Material

12,000
13,000

Ø  Finished Goods
20,000
17,000

c. Interest charged but not paid Rs 10,000



d. Write off Preliminary Expenses Rs 500 and Goodwill Rs 1,500
e. Dividend on Units of Unit Trust of India received Rs 1,000
f. Indirect expenses charged in financial accounts Rs 80,000 but Rs 75,000 recovered in   cost accounts.
Find out the profit as per financial accounts by drawing up a Memorandum Reconciliation Account.