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Particulars ` Particulars `
To Net loss as per cost accounts 3,47,000 By Administration overheads over- 60,000
absorbed
To Factory overheads under-absorbed 40,000 By Interest on investments not 96,000
included in costs
Unit 2: Reconciliation of Cost and Financial Accounting
To Income tax not recorded in cost 54,000 By Transfer fees in financial books 24,000
account
To Depreciation under absorbed in 50,000 By Stores adjustment 14,000
cost account
Notes
To Interest on loan funds in financial 2,45,000 By Dividend received 32,000
account
By Net loss as per financial books 5,10,000
7,36,000 7,36,000



Case Study Connexion Values’s Accounting Manager

onnexion Values’s Accounting Manager had just retired after more than thirty
years of service, their new Accounting Manager have an extensive IT background
Cbut little accounting experience. The previous Accounting Manager had little IT
knowledge but solid bookkeeping and financial management skills.
The previous Accounting Manager was accustomed to manual (not software-based)
reconciliations. He had prepared Profit and Loss Account both as per financial records and
as per cost records. He also prepared Reconciliation Statement as per the two records, all
of which are shown below.
Particulars `
Material consumption 50,00,000
Wages 30,00,000
Factory overheads 16,00,000
Administrative overheads 7,00,000
Selling and distribution overheads 9,60,000
Bad debts 80,000
Preliminary expenses (written-off) 40,000
Legal charges 10,000
Dividend received 1,00,000
Interest received on deposits 20,000
Sales (1,20,000 units) 1,20,000
Closing stocks :
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
` 56, 00,000. Factory overhead is recovered at 20% on prime cost. Administration overhead
is recovered at ` 6 per unit of production. Selling and distribution overheads are recovered
at ` 8 per unit sold.
Profit & Loss Account
Debit Credit
` in 000s
Particulars Amount ` Particulars Amount `
To direct materials 5,000 By sales 1,20,000 units 12, 000
To direct wages 3, 000 By closing stock WIP 240
Finished goods 4800 units 320
To factory overheads 1,600
To gross profit 2,960
Contd...
Total 12,560 Total 12,560
To administrative overheads 700 By gross profit 2,960
To S & D overheads 960 By dividends 100
LOVELY PROFESSIONAL UNIVERSITY 39
To legal charges 10 By interest 20
To preliminary expenses written off 40
To bad debts 80
To net profit 1,290
Total 3,080 Total 3,080