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Question-1

Explain the objects of preparing of Profit and Loss Account?

Solution:
Profit and Loss Account is prepared to calculate the net profit or net loss of the business for a given accounting period.

 

“A Profit and Loss Account is an account into which all gains and losses are collected in order to ascertain the excess of gains over the losses or vice versa” – Prof. Carter.

Question-2

Give any three points of distinction between Capital and Revenue Expenditure?

Solution:

Basis

Capital Expenditure

Revenue Expenditure

Purpose

It is incurred for acquisition of fixed assets for use in business

It is incurred for conduct of business

Capacity

It increases the earning capacity of the business

It is incurred for earning profits

Period

Its benefit extends to more than one year

Its benefit extends to only one year

Question-3

What is the difference between Profit and Loss Account and Trading Account?

Solution:

Basis

Trading Account

Profit and Loss Account

1. Relation

Trading Account is a part of Profit and Loss Account

Profit and Loss Account is the main account

2. Nature

The Gross Profit or Gross Loss are ascertained from the Trading Account

The Profit and Loss Account is prepared to ascertain the net profit or net loss of the business

3. Transfer of Balance

The balance of the Trading Account is transferred to the Profit and Loss Account

The Balance of the Profit and Loss Account is transferred to the Capital Account of the proprietor.

4. Items

Items shown in the Trading Account are Purchases, Sales, Stock, direct expenses etc.

Items like indirect expenses related to sales, distribution, administration, finance etc. are shown in the Profit and loss Account

 

Question-4

Write a short note on Contingent liability?

Solution:
A Contingent Liability is a liability that becomes payable on the happening of an event. In case, the event does not happen, no amount is payable. Such liabilities are not shown in the Balance Sheet; they are revealed by way of a note. The following are the examples of contingent liabilities.

Question-5

Distinguish between a Balance Sheet and Trial Balance? Any five points.

Solution:

Basis

Balance Sheet

Trial Balance

1. Purpose

The purpose is to portray the financial position.

The purpose is to establish the arithmetical accuracy of the books of account.

2. Information about profits

It provides information as to the profitability and financial position of the firm

No such information is possible from the Trial Balance

3. Necessity

It is essential to prepare the balance Sheet to complete the accounting process

Though desirable, it may be possible to dispense with its preparation

4. Headings

The two sides are headed as assets and liabilities

The two columns are headed as debit and credit.

5. Coverage

Only personal and real accounts appear in the Balance Sheet

In the Trial Balance all accounts must be written; no account can be left out

 

Question-6

Write short notes on

a. Capital Expenditure

b. Operating Profit

Solution:
a. Capital Expenditure:
Capital Expenditure is the amount spent by an enterprise on purchase of fixed assets that are used in the business to earn income and are not intended for resale. Fixed assets purchased may be tangible or intangible. Capital Expenditure yields benefit over a period extending beyond the accounting period.

b. Operating Profit:
Operating Profit is the excess of gross profit over operating expenses. Gross profit is the excess of net sales revenue over cost of goods sold. Operating expenses includes office and administration expenses, selling and distribution expenses, cash discount allowed, interest on bills payable and other short term debts, bad debts and so on.

Net sales means cash sales + credit sales – sales return.

Operating Profit = Net Sales – Operating Cost
                       = Net Sales – (cost of Goods sold+ Administration and Office Expenses + Selling and Distribution Expenses)

or

Operating Profit = Net Profit + Non – Operating Expenses – Non-Operating Income.

Question-7

The following information was taken from an income statement:
 
 

Rs.

Opening Stock 5,000
Sales 16,000
Carriage Inward 1,000
Sales Returns 1,000
Gross Profit 6,000
Purchases 10,000
Purchases Returns 900

 

Calculate the closing stock and cost of goods sold.

 


Solution:
Closing Stock - Rs. 6100,

Cost of Goods sold - Rs. 9000.

Question-8

Calculate gross profit and cost of goods sold from the following information Net Sales - Rs. 1,00,000 & Gross Profit is 25% on cost.

Solution:
Gross Profit - Rs. 20,000;

Cost of Goods sold - Rs. 80,000.

Question-9

Ascertain cost of goods sold from the following:
 
 

Rs.

Opening Stock 8,500
Purchases 30,700
Direct Expenses 4,800
Indirect Expenses 5,200
Closing Stock 9,000

Solution:
Cost of Goods sold – Rs. 35,000.

Question-10

From the following figures ascertain the gross profit:
 
Details Rs.
Opening Stock ( 1.1.2007) 25000
Freight and packing 10000
Sales 190000
Goods purchased during 2007 140000
Closing Stock (31.12.2007) 30000
Packing expenses on sales 6000

 

 


Solution:
Gross Profit – Rs. 45,000
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock

 

25,000

By Sales

 

190,000

To Frieght and packing

  10,000 By Closing stock   30,000
To Purchases   140,000      
To Gross Profit c/d   45,000
 
   
    220,000     220,000

Hint: Packing Expenses on sales is an indirect expense, therefore, it should not considered while computing cost of goods sold.

Question-11

Calculate closing stock from the following:
 
Details Rs.
Sales 20000
Return Inwards 500
Return outwards 1000
Purchases 12300
Carraige Inwards 400
Gross Profit 8000

 

 


Solution:
Closing Stock – Rs. 200
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Purchases 12,300  

By Sales

20,000

 

Less: Purchases Returns 1,000 11,300 Less: sales Returns 500 19,500
To Carraige inwards   400      
      By Closing stock   200
To Gross Profit c/d   8,000      
           
           
    19,700     19,700

 

Question-12

Prepare the Trading Account from the transactions given below:
 
Details Rs.
Opening Stock 2300
Purchases 2900
Sales Returns 50
Sales 2540
Purchases Returns 240
Closing Stock 4770
Carriage Inwards 10
Depreciation 200

 

 


Solution:
Gross Profit – Rs. 2290
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock

 

2,300

By Sales

2,540

 

To Purchases 2,900   Less: sales Returns 50 2,490
Less: Purchases Returns 240 2,660      
To Carraige inwards   10 By Closing stock   4,770
    4,970      
To Gross Profit c/d   2,290      
           
    7,260     7,260

 

Question-13

From the following information, prepare the Trading Account for the year ending 31st March 2008.
 
 

Rs.

Adjusted Purchases 6,60,000
Sales 7, 44, 000
Closing Stock 50,400
Freight and Carriage Inwards 3,600
Wages 6,000
Freight and Cartage Outwards 2000

Solution:
Gross Profit – Rs. 74, 400.
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Adjusted Purchases   660,000

By Sales

 

744,000

To Freight and carraige in   3,600      
To Wags   6,000      
To Gross Profit c/d   74400      
    744,000     744,000

Hints

1. Adjusted Purchases = Net Purchases + Opening Stock – Closing Stock

2. Closing Stock has not been shown on the credit side of Trading Account since it has already been adjusted while calculating adjusted purchases.

3. Freight and carriage outwards are indirect expenses and hence not debited to Trading Account.

Question-14

From the following figure, prepare the Profit and Loss Account of Sohan Lal as it would appear in the 1st year that ended on 31st March 2008
 
Details Rs.
Salaries and Wages 3000
Commission Paid 200
Postage and telegrams 150
Insurance 300
Interest Paid 400
Carriage Outwards 500
Advertising 1000
Discount Allowed 1800
Rent Received 1700
Interest on Investment 1500
Bad Debts 900
Brokerage Paid 95

 

The Gross Profit was 45% of sales, which amounted to Rs. 65, 000.

 


Solution:
Net Profit - Rs. 24,105.
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Salaries and Wages   3,000

By Gross Profit(65000*45/100)

 

29,250

To Commission paid   200 By rent received   1,700
To postage and telegrams   150 By interest on investments   1,500
To insurance   300      
To interest paid   400      
To Carraige outwards   500      
To Advertising   1,000      
To Discount allowed   1,800      
To Bad debts   900      
To Brokerage paid   95      
To Net profit c/d   24,105      
           
    32,450     32,450

 

Question-15

From the following information, prepare the Profit and Loss Account for the year ending 31st March 2008.
 
Details Rs.
Gross Profit 120000
Rent 5000
Salary 35000
Commission Paid 19000
Interest on Loan 5000
Advertisement 8000
Interest Received 8000
Discount Received 6000
Printing and Stationery 4000
Legal Charges 10000
Bad Debts 2000
Loss by Fire 6000
Depreciation 4000

 

 

 


Solution:
Net Profit - Rs. 36,000.
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Rent   5,000

By Gross Profit

 

120,000

To Salary   35,000 By Interest Received   8,000
To Commission Paid   19,000 By Discount Received   6,000
To Interest on Loan   5,000      
To Advertisement   8,000      
To Printing and Stationery   4,000      
To Legal Charges   10,000      
To Bad debts   2,000      
To Loss by fire   6,000      
to Depreciation   4,000      
To Net Profit c/d   36,000      
           
    134,000     134,000

Question-16

From the following particulars prepare Balance Sheet as on 31st March 2008.
 
Details Debit (Rs.) Credit (Rs.)
Capital  

40000

Drawings 4400  
Debtors and Creditors 6400  
Cash in Hand 360  
Cash at Bank 7200  
Plant 10000  
Furniture 3700  
Net Profit   1660
General Reserve   1000
Closing Stock 14800  
Total 46860 46860

 

 


Solution:
Balance Sheet Total Rs. 42, 460.
 

Balance Sheet

as at 31st March 2008

Liabilities Rs Rs Assets Rs Rs
Capital 40,000   Current Assets    
Less: Drawings 4,400   Cash in Hand   360
Add Net Profit 1,660 37,260 Cash at Bank   7,200
Creditors   4,200 Sundry Debtors   6,400
General Reserve   1,000 Stock   14,800
           
      Fixed Assets    
      Plant   10,000
      Furniture   3,700
           
    42,460     42,460

 

Question-17

From the following information, prepare a Balance Sheet of a trader as on 31st March 2008 arranging the assets and liabilities.
 
Details Rs. Details Rs.
Goodwill 20000 Capital 180000
Liabilities for Expenses 1200 Cash in Hand 1000
Investment 20000 Bills Payable 10700
Net Profit 92600 Sundry Debtors 50000
Land and Building 60000 Bank 20000
Sundry Creditors 63000 Bills Receivable 13000
Plant and Machinery 40000 Provision for Bad Debts 2500
Closing Stock 80000 Furniture 16000
Drawings 30000    

 

 


Solution:
Balance Sheet Total – Rs. 3,17,500.
 

Balance Sheet

as at 31st March 2008

Liabilities Rs Rs Assets Rs Rs
Capital 180,000   Goodwill   20,000
Less: Drawings 30,000   Cash in hand   1,000
Add Net Profit 92,600 242,600 Investments   20,000
Creditors   63,000 Sundry Debtors   47,500
Bills Payable   10,700 Land and Buildings   60,000
Liabilities for expenses   1,200 Bank   20,000
      Bills Receivable   13,000
      Plant and Machinery   40,000
      Closing Stock   80,000
      Furniture   16,000
           
           
    317,500     317,500

Question-18

Prepare the Trading and Profit and Loss Account and Balance Sheet of Jagat Shah as on 31st March 2008 from the following balances.
 
Details Rs. Details Rs.
Capital 3600 Machinery 700
Sales 8200 Purchases 4000
Sales Returns 100 Stock on April 1, 2007 1000
Drawings 400 Wages 1000
Carriage Inward 50 Salaries 600
General Expenses 200 Rent 500
Purchases Returns 50 Debtors 3000
Cash 400 Carriage Outward 200
Advertising 200 Creditors 500

 

The Closing Stock was valued at Rs. 2000.

 


Solution:
Gross Profit Rs. 4,100; Net Profit – Rs. 2,400; Total of Balance Sheet – Rs. 6,100.
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock   1,000

By Sales

8,200

 
To Purchases 4,000   Less: Sales Return 100 8,100
Less: Purchases Retruns 50 3,950 By Closing Stock   2,000
To Wages   1,000      
To Carraige Inwards   50      
To Gross Profit c/d   4,100      
           
    10,100     10,100
           
To Salaries   600 By Gross Profit b/d   4,100
To General Expenses   200      
To Rent   500      
To Carraige outward   200      
To Advertising   200      
To Net Profit c/d   2,400      
           
    4,100     4,100
 

Balance Sheet

as at 31st March 2008

Liabilities Rs Rs Assets Rs Rs
Capital 3,600        
Less: Drawings 400   Cash   400
Add Net Profit 2,400 5,600 Debtors   3,000
Creditors   500 Stock   2,000
Bills Payable          
Liabilities for expenses          
      Fixed Assets    
      Machinery   700
           
           
           
           
    6,100     6,100

 

Question-19

From the following balances of Anand, prepare a Trading Account, Profit and Loss Account, and Balance Sheet as on 31st March 2008
 
Details Rs. Details Rs.
Capital 36000 Cerditors 8720
Bills Payable 2527 Sales 78182
Loan 12000 Debtors 3885
Salaries 4000 Discount 1000
Postage 273 Bad Debts 287
Interest 1295 Insurance 417
Machinery 10000 Stock (Opening) 9945
Purchases 62092 Wages 4300
Buildings 23780 Fixtures and Fittings 16155

 

Value of goods on hand – Rs. 14, 300.

 


Solution:
Gross Profit Rs. 16,145; Net Profit – Rs. 8,873; Total of Balance Sheet – Rs. 68,120.
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock   9,945

By Sales

 

78,182

To Purchases   62,092      
To Wages   4,300 By Closing Stock   14,300
To Gross Profit c/d   16,145      
           
    92,482     92,482
           
           
To Salaries   4,000 By Gross Profit b/d   16,145
To Discount   1,000      
To Postage   273      
To Bad Debts   287      
To Interest   1,295      
To Insurance   417      
           
To Net Profit c/d   8,873      
           
    16,145     16,145
 

Balance Sheet

as at 31st March 2008

Liabilities Rs Rs Assets Rs Rs
Capital 36,000        
Less: Drawings     Cash    
Add Net Profit 8,873 44,873 Debtors   3,885
Creditors   8,720 Stock   14,300
Bills Payable   2,527      
Liabilities for expenses          
Loan   12,000 Fixed Assets    
      Machinery   10,000
      Buildings   23,780
      Furniture and Fixtures   16,155
           
           
    68,120     68,120

 

Question-20

From the following Trial Balance prepare a Trading and Profit and Loss Account for the year ending March 31, 2008 and the Balance Sheet as on that date.
 
Particulars Debit Balance Credit Balance
Capital   500000
Plant and Machinery 100000  
Land and Buildings 120000  
Sales   900000
Furniture and Fittings 50000  
Trade Expenses 30000  
Cash at Bank 250000  
Wages and Salaries 60000  
Repairs 10000  
Purchases 600000  
Opening Stock 200000  
Sundry Creditors/Sundry Debtors 100000 120000
Purchases Returns   10000
Rent   12000
Discount 8000  
Drawings 10000  
Bills Receivable/Bills Payable 40000  
Bad Debts 4000  
Interest   10000
TOTAL 15,82,000 15,82,000

 

The Stock on 31st March 2008 was valued at Rs. 1,40,000.

 


Solution:
Gross Profit – Rs. 1,90,000; Net Profit – Rs. 1,60,000; Balance Sheet Total – Rs.8,00,000.
 

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock   200,000

By Sales

  900,000
To Purchases 600,000        
Less Purchases Returns 10,000 590,000 By Closing Stock   140,000
To Wages   60,000      
To Gross Profit c/d   190,000      
          1,040,000
           
           
      By Gross Profit b/d   190,000
To Trade Expenses   30,000 By interest received   10,000
To Repairs   10,000 By Rent Received   12,000
To Discount   8,000      
To Bad Debts   4,000      
           
           
           
To Net Profit c/d   160,000      
    212,000     212,000
 

Balance Sheet

as at 31st March 2008

Liabilities Rs Rs Assets Rs Rs
Capital 500,000        
Less: Drawings 10,000   Cash   250,000
Add Net Profit 160,000 650,000 Debtors   100,000
Creditors   120,000 Stock   140,000
Bills Payable   30,000 Bills Receivable   40,000
Liabilities for expenses          
Loan     Fixed Assets    
      Machinery   100,000
      Buildings   120,000
      Furniture and Fixtures   50,000
           
           
    800,000     800,000

 





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