view below is made through a section box. As you can see the floor finish layers at the front of the cut shows currectly as desired (even in section), but taking a section through the walls shows the layes embedded inside the walls. If I switch join geometry then these layers disapper, but the wall finish then goes down till the floor core. I dont want that. I even ran a material takeoff to see if this was just a graphical issue but the finish quantity comes more than needed.
I tried playing around with the priorities, but I think everything seems fine with regards to that. Below is a section view. The problem is, if the section view is correct, why does the 3D view show the layers going through the wall? Also, note that in the 3D view, I made the section box intersect with the wall thickness. If I do not do that, then all is good. But the messing up of the quanitity takeoff bothers me. Check the revit file attached below.
I did. As i said at the start, that does make the finish layers behave properly. Even the quanitites come out correct. But the wall finish then penetrates the floor finishes. I do not want that. I tired changing the priorities of the layers of both wall & floor to check if it behaves differently but nothing happens.
Seems to me that this is the way it should be.
....bottom line, correcting the floor sketch boundary and priorities will get you to where you want to go.
This is correct. That how I want it to be. Please ignore how it will actually be constructed on site as I am using this example just for the issue I am facing. Now.... this result is achievable by me as show in the very first image when I created this post. The wall gypsum layer penerates just the oak flooring and not the sheathing. Thats what correct. But can you please try making the section box cut the thickness of the wall? i can see the image you shared has both the interior & exterior wall finishes visible. Because that is where revit is messing something up. I have attached image below where the quantites are incorrect. 
In the second image below i tried breaking down the floor into parts as suggested by @ToanDN , this methods shows the correct results as an approximation, but this will be a super tedious process for larger projects.
BTW: When I cut the Wall with a 3D Section Box, I get strange things are showing up here too.
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