This chapter-wise practice test covers Chapter 7: Cost Accounting System - Test 2 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. Vikram Steels Ltd. maintains separate cost and financial accounts. For the year ended March 31, 2026, the profit as per Financial Accounts was ₹ 18,40,000. The following differences were identified during reconciliation: (1) Factory overheads under-absorbed in cost accounts by ₹ 65,000; (2) Administration overheads over-absorbed by ₹ 24,000; (3) Depreciation charged in financial accounts was ₹ 3,20,000, while depreciation recovered in cost accounts was ₹ 2,80,000; (4) Interest on investments of ₹ 45,000 was credited only in financial accounts; (5) Provision for Income Tax of ₹ 4,00,000 was charged only in financial accounts; (6) Profit on sale of machinery of ₹ 30,000 was credited only in financial accounts; (7) Notional rent for owned premises of ₹ 80,000 was charged only in cost accounts; (8) Donations paid of ₹ 20,000 were charged only in financial accounts; (9) Opening stock was overvalued by ₹ 15,000 in cost accounts compared to financial accounts; and (10) Closing stock was undervalued by ₹ 10,000 in cost accounts compared to 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?
₹ 4,51,000 (correct answer)
₹ 4,26,000
₹ 4,75,000
₹ 4,11,000
Answer: A — ₹ 4,51,000
Explanation. Step 1: Add Fin Expenses (Tax 4,00,000 + Donation 20,000 = 4,20,000). Step 2: Less Fin Incomes (Interest 45,000 + Profit on sale 30,000 = 75,000). Step 3: Add Cost Expenses (Notional rent 80,000). Step 4: Add Under-absorbed Factory OH (65,000). Step 5: Less Over-absorbed Admin OH (24,000). Step 6: Less Depreciation diff (Fin 3,20,000 - Cost 2,80,000 = 40,000). Step 7: Add Opening stock overvaluation in Cost (15,000). Step 8: Add Closing stock undervaluation in Cost (10,000). Net Adjustment = 4,20,000 - 75,000 + 80,000 + 65,000 - 24,000 - 40,000 + 15,000 + 10,000 = ₹ 4,51,000.
Where it goes wrong. Students often misjudge the directional impact of stock valuation differences, adding instead of subtracting when cost stock is overvalued.
Question 2 · 2 marks · Chapter 7: Cost Accounting System · hard
Based on the reconciliation data, what is the Profit as per Cost Accounts?
₹ 22,66,000
₹ 22,91,000 (correct answer)
₹ 23,15,000
₹ 22,40,000
Answer: B — ₹ 22,91,000
Explanation. Step 1: Profit as per Financial Accounts = ₹ 18,40,000. Step 2: Add the net adjustment calculated to convert financial profit to cost profit = ₹ 4,51,000. Step 3: Profit as per Cost Accounts = 18,40,000 + 4,51,000 = ₹ 22,91,000. Option a is a trap resulting from omitting the stock valuation adjustments.
Where it goes wrong. Candidates may forget to adjust for the opening and closing stock valuation differences between the two sets of books.
Question 3 · 2 marks · Chapter 7: Cost Accounting System · medium
What is the total amount of purely financial expenses and incomes that are excluded from the cost accounts?
₹ 4,20,000
₹ 4,75,000
₹ 4,95,000 (correct answer)
₹ 5,15,000
Answer: C — ₹ 4,95,000
Explanation. Step 1: Identify purely financial items not included in cost accounts. Financial expenses = Income Tax (₹ 4,00,000) + Donations (₹ 20,000) = ₹ 4,20,000. Financial incomes = Interest on investments (₹ 45,000) + Profit on sale of machinery (₹ 30,000) = ₹ 75,000. Step 2: Total purely financial items = 4,20,000 + 75,000 = ₹ 4,95,000. Option a is a trap for omitting the financial incomes.
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 4 · 2 marks · Chapter 7: Cost Accounting System · hard
If Vikram Steels Ltd. had opted for an Integrated Accounting System instead of a non-integrated one, what would be the reported profit?
₹ 22,91,000
₹ 20,50,000
₹ 19,80,000
₹ 18,40,000 (correct answer)
Answer: D — ₹ 18,40,000
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 ₹ 18,40,000.
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 5 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. Apex Polychem Ltd. reconciles its cost and financial accounts for the year ended March 31, 2026. The Profit as per Cost Accounts is ₹ 15,60,000. The following information is extracted: (1) Factory overheads were over-absorbed in cost accounts by ₹ 35,000; (2) Administration overheads were under-absorbed by ₹ 18,000; (3) Depreciation charged in financial accounts is ₹ 1,50,000, while in cost accounts it is ₹ 1,80,000; (4) Interest on bank deposits of ₹ 25,000 was credited only in financial accounts; (5) Provision for Income Tax of ₹ 2,50,000 was charged only in financial accounts; (6) Profit on sale of investments of ₹ 12,000 was credited only in financial accounts; (7) Notional interest on capital of ₹ 40,000 was charged only in cost accounts; (8) The closing stock of finished goods was valued at ₹ 4,50,000 in cost accounts and at ₹ 4,20,000 in financial accounts (lower of cost or NRV); (9) The opening stock of finished goods was valued at ₹ 3,80,000 in both sets of books; and (10) A loss by fire of ₹ 1,10,000 was charged only in financial accounts.
What is the net adjustment amount to be deducted from the Profit as per Cost Accounts to arrive at the Profit as per Financial Accounts?
₹ 3,00,000 (correct answer)
₹ 2,70,000
₹ 3,30,000
₹ 2,50,000
Answer: A — ₹ 3,00,000
Explanation. Step 1: Add Fin Incomes (Interest 25,000 + Profit on sale 12,000 = 37,000). Step 2: Add Cost Expenses (Notional interest 40,000). Step 3: Less Over-absorbed Factory OH (35,000). Step 4: Add Under-absorbed Admin OH (18,000). Step 5: Add Depreciation diff (Cost 1,80,000 - Fin 1,50,000 = 30,000). Step 6: Less Closing stock diff (Cost 4,50,000 - Fin 4,20,000 = 30,000). Step 7: Less Fin Expenses (Tax 2,50,000 + Fire loss 1,10,000 = 3,60,000). Net Adjustment = 37,000 + 40,000 - 35,000 + 18,000 + 30,000 - 30,000 - 3,60,000 = -₹ 3,00,000.
Where it goes wrong. Candidates often miscalculate the directional impact of depreciation differences, subtracting instead of adding when cost depreciation exceeds financial depreciation.
Question 6 · 2 marks · Chapter 7: Cost Accounting System · hard
Based on the reconciliation data, what is the Profit as per Financial Accounts?
₹ 13,20,000
₹ 12,60,000 (correct answer)
₹ 12,90,000
₹ 12,30,000
Answer: B — ₹ 12,60,000
Explanation. Step 1: Profit as per Cost Accounts = ₹ 15,60,000. Step 2: Deduct the net adjustment calculated to convert cost profit to financial profit = ₹ 3,00,000. Step 3: Profit as per Financial Accounts = 15,60,000 - 3,00,000 = ₹ 12,60,000. Option a is a trap resulting from using an incorrect net adjustment of ₹ 2,40,000.
Where it goes wrong. Students may incorrectly calculate the net adjustment by omitting the fire loss or misapplying the closing stock valuation difference.
Question 7 · 2 marks · Chapter 7: Cost Accounting System · medium
What is the total amount of purely financial expenses and incomes that are excluded from the cost accounts?
₹ 3,60,000
₹ 3,75,000
₹ 3,97,000 (correct answer)
₹ 4,15,000
Answer: C — ₹ 3,97,000
Explanation. Step 1: Identify purely financial items. Financial expenses = Income Tax (₹ 2,50,000) + Loss by fire (₹ 1,10,000) = ₹ 3,60,000. Financial incomes = Interest on bank deposits (₹ 25,000) + Profit on sale of investments (₹ 12,000) = ₹ 37,000. Step 2: Total purely financial items = 3,60,000 + 37,000 = ₹ 3,97,000. Option a is a trap for omitting the financial incomes.
Where it goes wrong. Candidates often forget to include abnormal financial losses like fire damage when calculating total purely financial items.
Question 8 · 2 marks · Chapter 7: Cost Accounting System · hard
If Apex Polychem Ltd. had opted for an Integrated Accounting System instead of a non-integrated one, what would be the reported profit?
₹ 15,60,000
₹ 14,10,000
₹ 13,50,000
₹ 12,60,000 (correct answer)
Answer: D — ₹ 12,60,000
Explanation. Step 1: In an Integrated Accounting System, only one set of books is maintained, fulfilling both cost and financial reporting requirements. Step 2: 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 ₹ 12,60,000.
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. In the reconciliation of cost and financial accounts, which of the following items will result in an addition to the profit as per financial accounts to arrive at the profit as per cost accounts?
In the reconciliation of cost and financial accounts, which of the following items will result in an addition to the profit as per financial accounts to arrive at the profit as per cost accounts?
Under-absorption of factory overheads in cost accounts (correct answer)
Over-absorption of administration overheads in cost accounts
Over-valuation of closing stock in cost accounts
Profit on sale of machinery credited only in financial accounts
Answer: A — Under-absorption of factory overheads in cost accounts
Explanation. Step 1: Analyze the impact of each item on cost profit relative to financial profit. Step 2: Under-absorption of factory overheads means cost expenses are higher, making cost profit lower. To arrive at cost profit from financial profit, we must add this amount. Step 3: Over-absorption and over-valuation of stock make cost profit higher, requiring subtraction. Profit on sale in financial accounts makes financial profit higher, requiring subtraction to get cost profit.
Where it goes wrong. Students often confuse the directional impact of overhead absorption, adding over-absorbed amounts instead of subtracting them.
Question 10 · 2 marks · Chapter 7: Cost Accounting System · hard
Scenario. A company maintains non-integrated accounts. The profit as per cost accounts is ₹ 12,50,000. During the year, factory overheads were under-absorbed by ₹ 40,000 and selling overheads were over-absorbed by ₹ 15,000. Depreciation charged in financial accounts was ₹ 1,00,000 and in cost accounts was ₹ 1,20,000. What is the profit as per financial accounts?
A company maintains non-integrated accounts. The profit as per cost accounts is ₹ 12,50,000. During the year, factory overheads were under-absorbed by ₹ 40,000 and selling overheads were over-absorbed by ₹ 15,000. Depreciation charged in financial accounts was ₹ 1,00,000 and in cost accounts was ₹ 1,20,000. What is the profit as per financial accounts?
₹ 12,35,000
₹ 12,95,000 (correct answer)
₹ 12,75,000
₹ 13,15,000
Answer: B — ₹ 12,95,000
Explanation. Step 1: Start with Cost Profit = ₹ 12,50,000. Step 2: Add Under-absorbed Factory OH (₹ 40,000) as cost profit is lower. Step 3: Less Over-absorbed Selling OH (₹ 15,000) as cost profit is higher. Step 4: Add Depreciation diff (Fin 1,00,000 - Cost 1,20,000 = -20,000, meaning cost expenses are higher, so cost profit is lower. Add ₹ 20,000). Step 5: Fin Profit = 12,50,000 + 40,000 - 15,000 + 20,000 = ₹ 12,95,000.
Where it goes wrong. Candidates often subtract the depreciation difference instead of adding it, misjudging which set of books shows the higher profit.
Question 11 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. When preparing a Memorandum Reconciliation Account starting with the profit as per cost accounts on the debit side, which of the following items will be credited to the account to arrive at the profit as per financial accounts?
When preparing a Memorandum Reconciliation Account starting with the profit as per cost accounts on the debit side, which of the following items will be credited to the account to arrive at the profit as per financial accounts?
Under-absorption of factory overheads in cost accounts
Notional rent charged in cost accounts
Over-absorption of administration overheads in cost accounts (correct answer)
Under-absorption of selling overheads in cost accounts
Answer: C — Over-absorption of administration overheads in cost accounts
Explanation. Step 1: In a Memorandum Reconciliation Account starting with Cost Profit on the debit side, items that reduce cost profit or increase financial profit are debited (added). Step 2: Items that increase cost profit or reduce financial profit are credited (subtracted). Step 3: Over-absorption of administration overheads increases cost profit, so it must be credited to reduce the debit balance and arrive at the lower financial profit.
Where it goes wrong. Students often debit all overhead adjustments, forgetting that over-absorption increases cost profit and must be credited when reconciling downwards.
Question 12 · 2 marks · Chapter 7: Cost Accounting System · hard
Scenario. A company values its closing stock of finished goods at cost in the cost accounts, whereas in the financial accounts, it is valued at the lower of cost or net realizable value (NRV). If the cost is ₹ 5,00,000 and NRV is ₹ 4,60,000, and there are no other differences, how will this affect the reconciliation?
A company values its closing stock of finished goods at cost in the cost accounts, whereas in the financial accounts, it is valued at the lower of cost or net realizable value (NRV). If the cost is ₹ 5,00,000 and NRV is ₹ 4,60,000, and there are no other differences, how will this affect the reconciliation?
Profit as per cost accounts will be ₹ 40,000 lower than profit as per financial accounts.
Profit as per financial accounts will be ₹ 40,000 higher than profit as per cost accounts.
No difference will arise as both methods are acceptable under accounting standards.
Profit as per cost accounts will be ₹ 40,000 higher than profit as per financial accounts. (correct answer)
Answer: D — Profit as per cost accounts will be ₹ 40,000 higher than profit as per financial accounts.
Explanation. Step 1: Cost accounts value closing stock at ₹ 5,00,000, resulting in a lower Cost of Goods Sold and a correspondingly higher profit. Step 2: Financial accounts value it at ₹ 4,60,000, resulting in a higher Cost of Goods Sold and a lower profit. Step 3: The difference is ₹ 40,000. Therefore, the profit as per cost accounts will be ₹ 40,000 higher than the profit as per financial accounts.
Where it goes wrong. Candidates often reverse the impact of stock valuation, assuming that a lower NRV in financial accounts increases financial profit.
Question 13 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. Which of the following will NOT cause a difference between the profit as per cost accounts and the profit as per financial accounts?
Which of the following will NOT cause a difference between the profit as per cost accounts and the profit as per financial accounts?
Both cost and financial accounts value closing stock at cost, and there are no other differences. (correct answer)
Cost accounts charge notional rent, while financial accounts do not.
Financial accounts charge income tax, while cost accounts do not.
Factory overheads are under-absorbed in cost accounts.
Answer: A — Both cost and financial accounts value closing stock at cost, and there are no other differences.
Explanation. Step 1: Analyze each option for potential reconciliation differences. Step 2: Options b, c, and d all introduce discrepancies because the treatments or inclusions differ between the two sets of books (notional items, purely financial items, or overhead absorption). Step 3: Option a states that stock valuation is identical in both books and there are no other differences, meaning there is zero difference in profit.
Where it goes wrong. Students might assume that different overhead absorption rates always cause a difference, ignoring the specific condition of identical stock valuation and no other differences.
Question 14 · 2 marks · Chapter 7: Cost Accounting System · hard
Scenario. Profit as per financial accounts is ₹ 10,00,000. The following adjustments are made to arrive at profit as per cost accounts: Add: Under-absorption of factory overheads ₹ 25,000; Less: Over-absorption of administration overheads ₹ 10,000; Add: Notional rent ₹ 30,000; Less: Interest on investments ₹ 15,000. What is the profit as per cost accounts?
Profit as per financial accounts is ₹ 10,00,000. The following adjustments are made to arrive at profit as per cost accounts: Add: Under-absorption of factory overheads ₹ 25,000; Less: Over-absorption of administration overheads ₹ 10,000; Add: Notional rent ₹ 30,000; Less: Interest on investments ₹ 15,000. What is the profit as per cost accounts?
Where it goes wrong. Candidates often add all positive figures and subtract all negative figures without considering the directional impact of each specific adjustment on the profit.
Question 15 · 2 marks · Chapter 7: Cost Accounting System · medium
Scenario. When reconciling profit as per financial accounts to profit as per cost accounts, the opening stock of finished goods was found to be overvalued by ₹ 20,000 in the cost accounts compared to the financial accounts. What is the correct adjustment to be made?
When reconciling profit as per financial accounts to profit as per cost accounts, the opening stock of finished goods was found to be overvalued by ₹ 20,000 in the cost accounts compared to the financial accounts. What is the correct adjustment to be made?
Add ₹ 20,000, as overvaluation of opening stock in cost accounts increases cost of goods sold and reduces cost profit. (correct answer)
Deduct ₹ 20,000, as overvaluation of opening stock in cost accounts decreases cost of goods sold and increases cost profit.
Add ₹ 20,000, as overvaluation of opening stock in cost accounts decreases cost of goods sold and increases cost profit.
Deduct ₹ 20,000, as overvaluation of opening stock in cost accounts increases cost of goods sold and reduces cost profit.
Answer: A — Add ₹ 20,000, as overvaluation of opening stock in cost accounts increases cost of goods sold and reduces cost profit.
Explanation. Step 1: Opening stock is a component of Cost of Goods Sold (COGS = Opening Stock + Purchases - Closing Stock). Step 2: If opening stock is overvalued in cost accounts, the COGS is higher by ₹ 20,000. Step 3: Higher COGS results in a lower cost profit by ₹ 20,000. Step 4: To arrive at the lower cost profit from the financial profit, we must add ₹ 20,000.
Where it goes wrong. Students often confuse the impact of opening stock overvaluation, mistakenly believing it decreases COGS and increases profit, leading to an incorrect deduction.
What does this Chapter 7: Cost Accounting System - Test 2 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.
