Accounts Notes: RECONCILATION OF COST AND FINANCIAL A/C

Tuesday 12 April 2011

RECONCILATION OF COST AND FINANCIAL A/C

Causes of differences:-

1) Purely financial items :
i) Appropriation of profits ►Transferred to reserves, goodwill, preliminary
expenses, dividend paid etc.
ii) Loss on sale of investment, penalties and fines
iii) Income ► Interest received on Bank deposits, profit on sale of investments,
fixed assets, transfer fees.

2) Purely cost account items: - Notional Rent / Interest / Salary

3) Valuation of stock:-

i) Raw-material = In financial a/c’s stock is valued at cost or market value
Whichever is less, while in cost a/c’s it is valued at LIFO, FIFO etc.

ii) Work in progress = In financial a/c’s administrative expenses are also
considered while valuing stock, but in cost a/c’s it may be
valued at prime (or) factory cost (or) cost of production

iii) Finished Goods = In financial a/c’s it is valued at cost or market price
whichever is less, in cost a/c’s it is valued at total cost of production.

4) Overheads: In financial = Actual expenses are taken
In cost = Expenses are taken at predetermined rate.

5) Depreciation: In financial = Charged in diminishing or fixed balance method
In cost = Charged in machine hour rate

6) Abnormal Gains: In financial = Taken to profit & Loss a/c
In cost = Excluded to cost a/c’s or charged in costing
profit & Loss a/c