Page 32 - DCOM206_COST_ACCOUNTING_II

Unit 2: Reconciliation of Cost and Financial Accounting

2.2 Reasons for Differences in Profit Notes

Difference in profit or loss between cost and financial accounts may arise due to the following
reasons:

Figure 2.1: Reasons for Differences in Profit

1. Items of Incomes Shown Only in Financial Accounts: There are a number of items which
are included in financial accounts but find no place in cost accounts. While reconciling any
items under this category must be considered. Such items are classified into three categories
as under:
(i) Purely Financial Charges: Under this category, the following charges or examples are
considered:
(a) Loss on investments
(b) Discount on debentures and bonds
(c) Loss on the sale of capital assets

(d) Expenses of the company’s share transfer office
(e) Interest on bank loan and mortgages
(f) Capital expenditure
(g) Commission to partners and managing agents
(h) Damages payable at low
(i) Fines and penalties

(j) Goodwill written off, preliminary expenses
(k) Loss due to theft, fire, accident etc.
(l) Debit balance of profit and loss account written off
(m) Excess provision for depreciation

(n) Commission on issue of shares and debentures
(o) Cash discount allowed.
(ii) Purely Financial Incomes: Under this category, the following items of income are
included:

(a) Rent receivable
(b) Transfer fees received

LOVELY PROFESSIONAL UNIVERSITY 27