This chapter-wise practice test covers Chapter 7: Cost Accounting System - Test 1 for CA Intermediate Group 2 students preparing for the January 2027 examination attempt. It carries 30 marks across 15 questions in case scenarios and standalone practical MCQs with a time limit of 35 minutes and no negative marking.
15 questions across 1 chapter, 30 marks and 35 minutes in the timed paper. Every answer below is shown with the working behind it and the authority it rests on.
Law and standards used: ICAI Study Material for CA Intermediate Paper 4: Cost and Management Accounting (relevant for 2027 attempt).
Questions
15
Marks
30
Time limit
35 minutes
Attempt
January 2027
Group
Group 2
Law basis
ICAI Study Material for CA Intermediate Paper 4: Cost and Management Accounting (relevant for 2027 attempt)
Content as of
2026-11-10
Chapters covered
Chapter 7: Cost Accounting System (15 Q)
Questions, answers and explanations
Question 1 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. Apex Polychem Ltd. maintains non-integrated cost and financial accounts. The opening balances as on April 1, 2026, were: Stores Ledger Control A/c ₹ 1,20,000; Work-in-Process (WIP) Control A/c ₹ 85,000; Finished Goods Control A/c ₹ 1,40,000; and Cost Ledger Control A/c ₹ 3,45,000 (Cr). Transactions during April included: materials purchased on credit ₹ 4,50,000; materials issued to production ₹ 3,80,000; materials issued to factory maintenance ₹ 20,000; direct wages paid ₹ 2,10,000; indirect wages paid ₹ 40,000; and other factory overheads incurred ₹ 1,50,000. Factory overheads were absorbed at ₹ 2,20,000. Finished goods produced at cost were ₹ 6,80,000, and finished goods sold at cost were ₹ 7,10,000. Sales revenue for the month was ₹ 9,50,000.
What is the closing balance of the Stores Ledger Control Account as on April 30, 2026?
₹ 1,50,000
₹ 1,70,000 (correct answer)
₹ 1,90,000
₹ 1,40,000
Answer: B — ₹ 1,70,000
Explanation. Step 1: Opening Balance = ₹ 1,20,000. Step 2: Add Purchases = ₹ 4,50,000. Step 3: Less Issues to Production (₹ 3,80,000) and Maintenance (₹ 20,000) = ₹ 4,00,000. Closing Balance = 1,20,000 + 4,50,000 - 4,00,000 = ₹ 1,70,000. Option a is a trap for students who forget to deduct the maintenance material issued from stores.
Where it goes wrong. Students commonly omit indirect material issues to factory maintenance from the Stores Ledger Control Account.
Question 2 · 2 marks · Chapter 7: Cost Accounting System · hard
What is the closing balance of the Work-in-Process (WIP) Control Account as on April 30, 2026?
₹ 2,15,000 (correct answer)
₹ 1,95,000
₹ 2,35,000
₹ 2,00,000
Answer: A — ₹ 2,15,000
Explanation. Step 1: Opening WIP = ₹ 85,000. Step 2: Add Direct Materials (₹ 3,80,000), Direct Wages (₹ 2,10,000), and Absorbed Factory Overheads (₹ 2,20,000). Total Debits = 8,95,000. Step 3: Less Finished Goods Produced = ₹ 6,80,000. Closing WIP = 8,95,000 - 6,80,000 = ₹ 2,15,000. Option b is a trap for using actual overheads instead of absorbed overheads.
Where it goes wrong. Students often mistakenly use actual factory overheads incurred rather than the overheads absorbed into production.
Question 4 · 2 marks · Chapter 7: Cost Accounting System · hard
What is the closing balance of the Cost Ledger Control Account as on April 30, 2026?
₹ 4,85,000 (Cr)
₹ 4,95,000 (Dr)
₹ 3,45,000 (Cr)
₹ 4,95,000 (Cr) (correct answer)
Answer: D — ₹ 4,95,000 (Cr)
Explanation. Step 1: Opening Balance = ₹ 3,45,000 (Cr). Step 2: Credits = Purchases (₹ 4,50,000) + Wages (₹ 2,50,000) + Other OH (₹ 1,50,000) + Profit (₹ 2,50,000) = ₹ 11,00,000. Step 3: Debits = Sales (₹ 9,50,000). Note: Over-absorbed OH is adjusted within cost books and does not hit CLCA. Step 4: Closing Balance = 3,45,000 + 11,00,000 - 9,50,000 = ₹ 4,95,000 (Cr).
Where it goes wrong. Students frequently debit the Cost Ledger Control A/c for over-absorbed overheads, which is incorrect as it is an internal cost adjustment.
Question 5 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. Zenith Consumer Care Ltd. maintains separate cost and financial accounts. For the year ended March 31, 2026, the profit as per Financial Accounts was ₹ 12,75,000. The following differences were identified during reconciliation: (1) Factory overheads under-absorbed in cost accounts by ₹ 45,000; (2) Administration overheads over-absorbed by ₹ 18,000; (3) Depreciation charged in financial accounts was ₹ 2,80,000, while depreciation recovered in cost accounts was ₹ 2,50,000; (4) Interest on investments of ₹ 35,000 was credited only in financial accounts; (5) Provision for Income Tax of ₹ 3,20,000 was charged only in financial accounts; (6) Profit on sale of machinery of ₹ 22,000 was credited only in financial accounts; (7) Notional rent for owned premises of ₹ 60,000 was charged only in cost accounts; and (8) Donations paid of ₹ 15,000 were charged only in financial accounts.
What is the net adjustment amount to be added to the Profit as per Financial Accounts to arrive at the Profit as per Cost Accounts?
₹ 2,45,000
₹ 2,60,000
₹ 2,75,000 (correct answer)
₹ 3,05,000
Answer: C — ₹ 2,75,000
Explanation. Step 1: Add items where Cost profit is higher: Factory OH under-abs (₹ 45,000), Depreciation diff (₹ 30,000), Income Tax (₹ 3,20,000), Donations (₹ 15,000). Total Add = ₹ 4,10,000. Step 2: Less items where Cost profit is lower: Admin OH over-abs (₹ 18,000), Interest (₹ 35,000), Profit on sale (₹ 22,000), Notional rent (₹ 60,000). Total Less = ₹ 1,35,000. Step 3: Net Adjustment = 4,10,000 - 1,35,000 = ₹ 2,75,000.
Where it goes wrong. Candidates often misclassify under/over-absorption effects, adding instead of subtracting or vice versa.
Question 6 · 2 marks · Chapter 7: Cost Accounting System · hard
What is the total amount of purely financial expenses and incomes that are excluded from the cost accounts?
₹ 3,92,000 (correct answer)
₹ 3,72,000
₹ 3,57,000
₹ 4,07,000
Answer: A — ₹ 3,92,000
Explanation. Step 1: Identify purely financial items not included in cost accounts. These include Interest on investments (₹ 35,000), Provision for Income Tax (₹ 3,20,000), Profit on sale of machinery (₹ 22,000), and Donations paid (₹ 15,000). Step 2: Sum these items = 35,000 + 3,20,000 + 22,000 + 15,000 = ₹ 3,92,000. Option b is a trap for omitting the profit on sale of machinery.
Where it goes wrong. Students often forget to include non-operating incomes like profit on sale of assets when calculating total purely financial items.
Question 7 · 2 marks · Chapter 7: Cost Accounting System · medium
Based on the reconciliation data, what is the Profit as per Cost Accounts?
₹ 14,85,000
₹ 15,15,000
₹ 14,55,000
₹ 15,50,000 (correct answer)
Answer: D — ₹ 15,50,000
Explanation. Step 1: Profit as per Financial Accounts = ₹ 12,75,000. Step 2: Add the net adjustment calculated to convert financial profit to cost profit = ₹ 2,75,000. Step 3: Profit as per Cost Accounts = 12,75,000 + 2,75,000 = ₹ 15,50,000. Option b is a trap resulting from using an incorrect financial profit base of ₹ 12,40,000.
Where it goes wrong. Candidates may use outdated or misread figures for the base financial profit before applying the reconciliation adjustments.
Question 8 · 2 marks · Chapter 7: Cost Accounting System · hard
If Zenith Consumer Care Ltd. had opted for an Integrated Accounting System instead of a non-integrated one, what would be the reported profit?
₹ 12,75,000 (correct answer)
₹ 15,50,000
₹ 14,85,000
₹ 13,00,000
Answer: A — ₹ 12,75,000
Explanation. Step 1: Understand that an Integrated Accounting System maintains only one set of books that fulfills both cost and financial reporting requirements. Step 2: Therefore, there is only one single figure of profit, which aligns with the statutory Financial Accounts profit. Step 3: The reported profit would be exactly the Profit as per Financial Accounts, which is ₹ 12,75,000.
Where it goes wrong. Students might mistakenly select the cost profit figure, forgetting that integrated systems eliminate the need for a separate cost profit calculation.
Question 9 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. When materials are issued from stores to production for a specific job under a non-integrated accounting system, which of the following is the correct journal entry?
When materials are issued from stores to production for a specific job under a non-integrated accounting system, which of the following is the correct journal entry?
Work-in-Process Control A/c Dr. To Stores Ledger Control A/c (correct answer)
Stores Ledger Control A/c Dr. To Work-in-Process Control A/c
Work-in-Process Control A/c Dr. To Cost Ledger Control A/c
Cost Ledger Control A/c Dr. To Stores Ledger Control A/c
Answer: A — Work-in-Process Control A/c Dr. To Stores Ledger Control A/c
Explanation. Step 1: In a non-integrated system, the Stores Ledger Control A/c tracks inventory movements. Step 2: When materials are issued to production, the Work-in-Process Control A/c must be debited to reflect the increase in production costs. Step 3: The Stores Ledger Control A/c is credited to reduce the inventory balance. The Cost Ledger Control A/c is not involved in internal material transfers.
Where it goes wrong. Candidates often incorrectly route internal cost transfers through the Cost Ledger Control A/c, which only interfaces with the financial ledger.
Question 10 · 2 marks · Chapter 7: Cost Accounting System · hard
Scenario. Profit as per financial accounts is ₹ 5,00,000 and profit as per cost accounts is ₹ 4,60,000. The difference is due to: (i) Under-absorption of factory overheads by ₹ 15,000; (ii) Under-absorption of administration overheads by ₹ 10,000; (iii) Interest on investment of ₹ 25,000 not included in cost accounts; (iv) Notional rent charged in cost accounts only. What is the amount of notional rent?
Profit as per financial accounts is ₹ 5,00,000 and profit as per cost accounts is ₹ 4,60,000. The difference is due to: (i) Under-absorption of factory overheads by ₹ 15,000; (ii) Under-absorption of administration overheads by ₹ 10,000; (iii) Interest on investment of ₹ 25,000 not included in cost accounts; (iv) Notional rent charged in cost accounts only. What is the amount of notional rent?
₹ 30,000
₹ 50,000
₹ 40,000 (correct answer)
₹ 60,000
Answer: C — ₹ 40,000
Explanation. Step 1: Cost Profit is ₹ 40,000 lower than Fin Profit. Step 2: Under-absorption of factory (₹ 15,000) and admin (₹ 10,000) OH means cost expenses are lower, increasing cost profit by ₹ 25,000. Step 3: Interest (₹ 25,000) is a financial income, decreasing cost profit by ₹ 25,000. Net effect so far is zero. Step 4: To make cost profit ₹ 40,000 lower, notional rent must be ₹ 40,000.
Where it goes wrong. Students often miscalculate the directional impact of under-absorption on the cost profit relative to financial profit.
Question 11 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. In an integrated accounting system, when finished goods are completed and transferred to the finished goods warehouse at a cost of ₹ 5,00,000, which of the following is the correct journal entry?
In an integrated accounting system, when finished goods are completed and transferred to the finished goods warehouse at a cost of ₹ 5,00,000, which of the following is the correct journal entry?
Finished Goods Control A/c Dr. 5,00,000 To Cost Ledger Control A/c 5,00,000
Finished Goods Control A/c Dr. 5,00,000 To Work-in-Process Control A/c 5,00,000 (correct answer)
Cost of Sales A/c Dr. 5,00,000 To Finished Goods Control A/c 5,00,000
Work-in-Process Control A/c Dr. 5,00,000 To Finished Goods Control A/c 5,00,000
Answer: B — Finished Goods Control A/c Dr. 5,00,000 To Work-in-Process Control A/c 5,00,000
Explanation. Step 1: In an integrated system, control accounts for inventory stages are still maintained for internal cost tracking. Step 2: When goods are completed, they move from Work-in-Process to Finished Goods. Step 3: Therefore, Finished Goods Control A/c is debited and Work-in-Process Control A/c is credited. The Cost Ledger Control A/c is eliminated in integrated systems.
Where it goes wrong. Candidates might mistakenly use the Cost Ledger Control A/c, forgetting it is exclusive to non-integrated systems.
Question 12 · 2 marks · Chapter 7: Cost Accounting System · hard
Scenario. Profit as per cost accounts is ₹ 8,00,000. The closing stock of finished goods was valued at ₹ 2,50,000 in cost accounts and at ₹ 2,20,000 in financial accounts (lower of cost or NRV). There are no other differences. What is the profit as per financial accounts?
Profit as per cost accounts is ₹ 8,00,000. The closing stock of finished goods was valued at ₹ 2,50,000 in cost accounts and at ₹ 2,20,000 in financial accounts (lower of cost or NRV). There are no other differences. What is the profit as per financial accounts?
₹ 8,30,000
₹ 7,50,000
₹ 8,00,000
₹ 7,70,000 (correct answer)
Answer: D — ₹ 7,70,000
Explanation. Step 1: Cost accounts value closing stock at ₹ 2,50,000, while financial accounts value it at ₹ 2,20,000. Step 2: This means cost accounts have a higher closing stock by ₹ 30,000, resulting in a lower Cost of Goods Sold and a correspondingly higher profit by ₹ 30,000 compared to financial accounts. Step 3: Financial Profit = Cost Profit - ₹ 30,000 = 8,00,000 - 30,000 = ₹ 7,70,000.
Where it goes wrong. Students often add the stock valuation difference instead of subtracting it, misjudging which set of books shows the higher profit.
Question 13 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. Under a non-integrated accounting system, the Wages Control Account is debited with total wages paid (direct and indirect). Which of the following represents the correct credit entries to distribute the wages?
Under a non-integrated accounting system, the Wages Control Account is debited with total wages paid (direct and indirect). Which of the following represents the correct credit entries to distribute the wages?
Work-in-Process Control A/c (Total wages), Cost Ledger Control A/c (Indirect wages)
Work-in-Process Control A/c (Direct wages), Production Overhead Control A/c (Indirect wages) (correct answer)
Cost Ledger Control A/c (Direct wages), Production Overhead Control A/c (Indirect wages)
Work-in-Process Control A/c (Direct wages), Costing Profit & Loss A/c (Indirect wages)
Answer: B — Work-in-Process Control A/c (Direct wages), Production Overhead Control A/c (Indirect wages)
Explanation. Step 1: The Wages Control A/c acts as a clearing account for total wages paid. Step 2: Direct wages are directly attributable to production, so the Work-in-Process Control A/c is credited. Step 3: Indirect wages are factory overheads, so the Production Overhead Control A/c is credited. The Cost Ledger Control A/c was already credited when the wages were initially paid.
Where it goes wrong. Candidates may incorrectly credit the Cost Ledger Control A/c again during the distribution phase, causing double counting.
Question 14 · 2 marks · Chapter 7: Cost Accounting System · hard
Scenario. In a non-integrated system, the Cost Ledger Control Account had a credit balance of ₹ 4,00,000 at the beginning of the month. During the month, materials purchased on credit were ₹ 3,00,000, direct wages paid were ₹ 2,00,000, and factory overheads incurred were ₹ 1,00,000. Sales on credit were ₹ 8,00,000. What is the closing balance of the Cost Ledger Control Account?
In a non-integrated system, the Cost Ledger Control Account had a credit balance of ₹ 4,00,000 at the beginning of the month. During the month, materials purchased on credit were ₹ 3,00,000, direct wages paid were ₹ 2,00,000, and factory overheads incurred were ₹ 1,00,000. Sales on credit were ₹ 8,00,000. What is the closing balance of the Cost Ledger Control Account?
Question 15 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. Which of the following combinations of items will result in NO difference between the profit as per cost accounts and the profit as per financial accounts, assuming all other factors remain constant?
Which of the following combinations of items will result in NO difference between the profit as per cost accounts and the profit as per financial accounts, assuming all other factors remain constant?
Notional rent charged in cost accounts and interest on investment credited in financial accounts of equal amounts.
Over-absorption of factory overheads in cost accounts and under-absorption of administration overheads of equal amounts.
Depreciation charged in financial accounts is exactly equal to depreciation recovered in cost accounts, and there are no other differences. (correct answer)
Income tax paid (financial) and donation paid (financial) of equal amounts.
Answer: C — Depreciation charged in financial accounts is exactly equal to depreciation recovered in cost accounts, and there are no other differences.
Explanation. Step 1: Analyze each option for potential reconciliation differences. Step 2: Options a, b, and d all introduce discrepancies because the treatments or inclusions differ between the two sets of books (e.g., notional vs financial items, or varying overhead absorption). Step 3: Option c states depreciation is identical in both books, meaning it is an expense recognized equally in both, causing zero difference in profit.
Where it goes wrong. Candidates might assume that equal amounts of different overhead absorptions cancel out, ignoring their distinct directional impacts on profit.
What does this Chapter 7: Cost Accounting System - Test 1 practice test cover?
This practice test carries 30 marks across 15 questions covering core costing principles, cost accounting standards, formulas, mathematical models, and practical ICAI case scenarios.
How many questions are there and what is the time limit?
There are 15 questions carrying 2 marks each, giving a maximum score of 30 marks in 35 minutes with no negative marking.
Which study material and syllabus apply to these questions?
Questions strictly reflect the official ICAI Study Material for CA Intermediate Paper 4 Cost and Management Accounting for the 2027 examination sessions.
Can I sit this test in both exam and practice modes?
Yes. Practice mode gives immediate answers with mathematical step-by-step workings and trap explanations after each question. Exam mode simulates actual exam conditions with a live timer and issues a downloadable performance certificate.
