Q.1 What is the primary purpose of reconciliation between cost and financial accounts?
To calculate sales tax
To identify reasons for profit differences
To prepare trial balance
To compute cash balance
Explanation - Reconciliation ensures that differences in profit reported by cost accounts and financial accounts are identified and explained.
Correct answer is: To identify reasons for profit differences
Q.2 Which document helps in reconciling cost and financial accounts?
Cash book
Reconciliation statement
Ledger folio
Petty cash voucher
Explanation - A reconciliation statement is prepared to match the results of cost and financial accounts.
Correct answer is: Reconciliation statement
Q.3 Which type of account generally shows higher profit due to exclusion of financial charges?
Financial accounts
Cost accounts
Capital accounts
Cash accounts
Explanation - Cost accounts often exclude items like interest and financing charges, leading to higher profit.
Correct answer is: Cost accounts
Q.4 Over-absorption of overheads in cost accounts leads to:
Higher profit in cost accounts
Lower profit in cost accounts
No effect
Equal profit in both accounts
Explanation - If overheads absorbed are more than actual, cost accounts show artificially higher profit.
Correct answer is: Higher profit in cost accounts
Q.5 Which of the following is recorded only in financial accounts?
Factory overheads
Interest paid
Direct materials
Direct wages
Explanation - Financial accounts record financing items such as interest, which cost accounts usually ignore.
Correct answer is: Interest paid
Q.6 Notional rent on owned premises is generally considered in:
Financial accounts only
Cost accounts only
Both accounts
Neither account
Explanation - Cost accounts may charge notional rent to include the economic cost of resources, while financial accounts do not.
Correct answer is: Cost accounts only
Q.7 Provision for doubtful debts is recorded in:
Cost accounts
Financial accounts
Both accounts
Not recorded at all
Explanation - Provision for doubtful debts is a financial adjustment not shown in cost accounts.
Correct answer is: Financial accounts
Q.8 Which of the following is a cause for difference between cost and financial profit?
Difference in stock valuation
Same stock valuation
Identical treatment of expenses
Use of same depreciation method
Explanation - Valuation of opening and closing stock may differ in cost and financial accounts, leading to profit variation.
Correct answer is: Difference in stock valuation
Q.9 If administration overheads are under-absorbed in cost accounts, the cost profit will be:
Higher
Lower
Equal
Unchanged
Explanation - Under-absorption means lower overheads charged, so cost profit is overstated compared to financial profit.
Correct answer is: Higher
Q.10 Financial accounts are prepared to show:
Cost per unit
Financial position and profit
Overhead absorption
Material control
Explanation - Financial accounts focus on external reporting of financial position and performance.
Correct answer is: Financial position and profit
Q.11 Which item may appear in cost accounts but not in financial accounts?
Bad debts
Notional interest
Provision for tax
Dividends paid
Explanation - Cost accounts may include notional charges like interest on capital to reflect economic cost.
Correct answer is: Notional interest
Q.12 In cost accounts, depreciation is usually charged based on:
Tax rules
Accounting standards
Usage or production
Government notifications
Explanation - Cost accounts often charge depreciation on the basis of usage to match cost with production.
Correct answer is: Usage or production
Q.13 Which of the following generally causes financial profit to be lower than cost profit?
Inclusion of notional charges
Provision for taxation
Over-absorption of overheads
Lower material cost
Explanation - Tax provision reduces financial profit, but is absent in cost accounts.
Correct answer is: Provision for taxation
Q.14 When depreciation is charged differently in cost and financial accounts, it causes:
No difference
Profit reconciliation difference
Equal profits
Error in trial balance
Explanation - Different depreciation methods create variations in profits, requiring reconciliation.
Correct answer is: Profit reconciliation difference
Q.15 Which of these is a purely financial charge?
Factory rent
Bank interest
Indirect materials
Depreciation
Explanation - Bank interest is financial in nature and not considered in cost accounts.
Correct answer is: Bank interest
Q.16 Profit as per financial accounts is Rs. 50,000. Over-absorption of overheads Rs. 5,000. Profit as per cost accounts will be:
45,000
55,000
50,000
60,000
Explanation - Over-absorption increases profit in cost accounts compared to financial accounts.
Correct answer is: 55,000
Q.17 Dividend paid is shown in:
Cost accounts only
Financial accounts only
Both accounts
Neither accounts
Explanation - Dividends are appropriation of profit shown only in financial accounts.
Correct answer is: Financial accounts only
Q.18 The need for reconciliation arises mainly because:
Both accounts record identical items
Different treatment of certain items
Cost accounts are optional
Financial accounts are inaccurate
Explanation - Reconciliation bridges differences caused by varied treatment of incomes and expenses.
Correct answer is: Different treatment of certain items
Q.19 Income from investments appears in:
Cost accounts
Financial accounts
Both accounts
None
Explanation - Investment income is not related to production, hence only in financial accounts.
Correct answer is: Financial accounts
Q.20 Reconciliation is not required when:
Separate sets of accounts are maintained
Only financial accounts are kept
Cost and financial accounts are integrated
Profit differs
Explanation - If integrated accounts are maintained, reconciliation is unnecessary.
Correct answer is: Cost and financial accounts are integrated
Q.21 Abnormal loss of material is shown in:
Costing P&L
Financial P&L
Both
Neither
Explanation - Abnormal losses are excluded from cost accounts and appear in financial accounts.
Correct answer is: Financial P&L
Q.22 Expenses shown only in cost accounts are called:
Financial charges
Notional expenses
Capital expenses
Revenue expenses
Explanation - Notional charges like rent or interest on owned assets are included only in cost accounts.
Correct answer is: Notional expenses
Q.23 Which account reflects the economic efficiency of operations?
Financial accounts
Cost accounts
Capital accounts
Bank accounts
Explanation - Cost accounts help in measuring efficiency of production and operations.
Correct answer is: Cost accounts
Q.24 Which of the following is NOT a reason for difference in profits?
Under/over-absorption of overheads
Different stock valuation methods
Same depreciation method used
Inclusion of notional charges
Explanation - Using the same depreciation method does not cause differences; differences arise when methods vary.
Correct answer is: Same depreciation method used
Q.25 Which statement is true about reconciliation?
It ensures errors are found
It explains profit differences
It merges two accounts
It eliminates cost accounting
Explanation - Reconciliation does not merge accounts but explains reasons for differences in profit figures.
Correct answer is: It explains profit differences