Questions on Accounting For Costs


  1. Explain the following terms as used in accounting for costs:
    • Financial Accounting
    • Management Accounting
    • Cost Accounting (12 marks)
  1. Explain how the following accounts are used in cost accounts
    • Ledger Adjustment account
    • Stores Ledger Control Account
    • Work in Progress Ledger Control Account
    • Finished Goods Ledger Control Account (8 marks)        (Total: 20 marks)


  1. Explain the reasons that cause the profit figures in the cost accounting books and those in the financial books to be different. (Total: 20 marks)
  2. The profit shown in the financial books as at 31 March 2004 was Sh.11,287 and for the same period, the cost accounting books showed a profit of shs.2,704. After checking the two sets of accounts for the source of the differences, the following issues come to your attention:
  Cost Accounts Financial Accounting
  Shs Shs
Depreciation 9,826 10,520
Stock valuations    
Opening stocks 27,510 25,500
Closing stocks 18,218 18,750
Profit on sale of asset - 850
Dividends Received - 2,635
Imputed Rent Charge 3,250 -


Prepare a statement to reconcile the two profits, starting with the profit as per financial accounts.    (Total:20 Marks)


The profit shown in the financial accounts is Shs.18,592 and for the same period, the cost accounts showed a profit of 20,496. Comparison of the two sets of accounts revealed the following:

Stock Valuations: Cost Accounts Financial Accounts
  1. Raw Materials
Shs Shs
    • Opening Stock
6,821 7,259
    • Closing Stock
5,483 5,128
  1. Finished Goods
    • Opening Stock
13,291 12,905
    • Closing Stock
11,430 11,131

Dividends and interest received of shs.552 and a loss of 1,750 on the sale of a milling machine were not entered in the cost accounts


Prepared a reconciliation of the two profits. (Total: 20 marks)


The following are the final accounts of XYZ Limited for the year ending 31st December 2004

Manufacturing Trading Profit and Loss Appropriation Account

Total Factory Costs c/d 311,000 Sales 480,000
Finished Goods: opening stock 20,000    
Cost of Goods Manufactured      
And Transferred b/d 311,000    
Less Closing stock (22,000)    
Gross Profit c/d 171,000   ______
  480,000   480,000
Office Salaries: 35,000 Gross Profit b/d 171,000
Office Expenses: 20,000 Dividends Received 3,000
Salesman Commissions 18,000 Interest on Bank Deposits 1,000
Selling Expenses: 15,000    
Loss on sale of land 1,000    
Distribution Expenses 13,000    
Interest on Mortgage 2,000    
Fines 1,000    
Net Profit c/d 70,000   ______
  175,000   175,000
Taxation 24,000 Net Profit b/d 70,000
Transfers to General Reserve 9,000 Retained Earnings b/f 36,000
Ordinary share dividend 18,000    
Preference Dividends 11,000    
Goodwill written off 37,000   _______
  106,000   106,000
    Retained Profit b/f 37,000

Additional Information

1. The cost accounting records show the following:

2. Profits were shs.114,000. Office salaries and office expenses provided for as (in the financial books)

  1. Opening Stocks: Raw Materials 26,000
    • Work in Progress 21,000
    • Finished Goods 23,000

(ii) Closing Stocks: Raw Materials 30,000

    • Work in Progress 20,000
    • Finished Goods 24,000


Prepare a Memorandum Reconciliation Account. (Total: 20 Marks)