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Question-1

What do you understand by Adjustment Entry? Why is it necessary to pass the Adjustment Entries?

Solution:
In a firm there are a number of transactions related to expenses and incomes, which have to be adjusted. If such items are not adjusted or brought into the current year’s books of account, the Final Accounts will not reveal a true and fair picture of the results. All such items which need to be brought into books of accounts at the time of preparing Final Accounts are called ‘adjustments’. Journal entries are passed to effect the required adjustments. These entries are known as Adjusting Entries.

Question-2

If closing stock is given outside the Trial Balance, where will you show it in the Final Accounts?

Solution:
Closing stock is valued at cost or market price whichever is lower and then incorporated in the accounts by passing the following adjustment entry:

Closing Stock A/c Dr.

To Trading A/c

Thereafter, the closing stock is treated in the Final Accounts as follows:

On the Credit side of the Trading Account as a separate item and
  On the asset side of the Balance Sheet as a separate item under Current Assets.

 

Question-3

What do you understand by Outstanding Expenses?

Solution:
Expenses which have been incurred during the year and whose benefit has been derived during the year, but not paid for yet are called outstanding expenses.

Question-4

How are outstanding expenses shown in the Final Accounts?

Solution:
The adjusting entry for this is :

 

Expense A/c Dr.

To Outstanding Expenses A/c

Question-5

What do you understand by prepaid expenses?

Solution:
In some cases, the benefit of the amount already spent will be available in the next accounting year also. Such a part of the expense is called a ‘ prepaid expense’.

Question-6

How are prepaid expenses shown in the final accounts?

Solution:
The adjusting entry for prepaid expense is –

 

Prepaid Expense A/c Dr.

To Expense A/c

Question-7

What do you understand by depreciation?

Solution:
The value of fixed assets reduce after year because of usage and passage of time which is known as depreciation.

Question-8

What are the methods of calculating depreciation?

Solution:
Straight line method and diminishing value method

Question-9

What do you understand by bad debts?

Solution:
Sometimes, some people fail to pay their dues either partially or completely. The amount that is irrecoverable is a loss and known as ‘Bad Debt’.

Question-10

What do you understand by provision for doubtful debts?

Solution:
Out of the credit sales made during the particular year, some debts are likely to become bad in the next year due to non – payments. The correct accounting is to make provision for such likely bad debts every year. This is known as provision for doubtful debts.

Question-11

What do you understand by Provision for Discount on Debtors?

Solution:
Debtors outstanding at the end of the year make payment in the next year and they may be entitled to cash discount if they make the payment by the due date. Because, the debt has arisen during the year, the discount is to be taken as expense for the year. Thus, a provision for discount on debtors is made.

Question-12

What is the entry for manager’s commission?

Solution:
Profit and Loss A/c Dr.

To Commission Payable or Outstanding commission A/c

Question-13

What is meant by capital?

Solution:
Funds invested by a proprietor to the business constitute the ‘capital’.

Question-14

Drawings is reduced from?

Solution:
Capital

Question-15

When should we pay interest on loan and how is it calculated?

Solution:
Interest must be paid on loans whether there is profit or loss. It is calculated by referring to the rate of interest agreed to be paid by the firm and the amount and period of the loan.

Question-16

What are outstanding expenses? What is its adjustment entry?

Solution:
Expenses which have been incurred during the year and whose benefit has been derived during the year, but not paid for yet are called outstanding expenses. At the end of the accounting year, all such expenses must be brought into the books; otherwise the profit will be overstated. These include outstanding wages, salaries etc.

 

Outstanding Expenses are shown as liabilities in the Balance Sheet under liabilities. The adjusting entry for this is :

 

Expense A/c Dr.

To Outstanding Expenses A/c

Question-17

What is meant by prepaid expenses? How is it adjusted in the Final accounts?

Solution:
In some cases, the benefit of the amount already spent will be available in the next accounting year also. Such a part of the expense is called a ‘ prepaid expense’. Common examples of such expenses are unexpired insurance, interest paid in advance, etc. in such situations, it is necessary to adjust unexpired part of expense in the concerned expense in order to get the true and fair financial position of the business.

 

The adjusting entry for prepaid expense is –

 

Prepaid Expense A/c Dr.

To Expense A/c

Question-18

Define Accrued income? What is its adjusting entry?

Solution:
Accrued incomes are those incomes which have been earned during the accounting period but have not been received till the end of the accounting period. Such incomes are called ‘Outstanding incomes’ or ‘Incomes earned but not yet received’. Common examples of such incomes are commission receivable, income on investments due but not yet received etc. As per the accrual concept of accounting, the full income of the period, both received and yet to be received, should be shown in the Final Accounts otherwise the profit and assets will remain understated. An adjusting entry passed is :

 

Accrued Income A/c Dr.

To concerned Income A/c

Question-19

What is unearned income? How is it adjusted in the Final Accounts?

Solution:
Sometimes an amount is received during a year in respect of an income that relates partially to the next year. The income which has been received during the current accounting year but relates to the next accounting year is called ‘Unearned Income’ or ‘Income Received in Advance’. Adjusting entry for the income received in advance is as follows:

 

Income A/c Dr.

To Income Received in Advance A/c

Question-20

What is the purpose of preparing a provision for the Doubtful debts account?

Solution:
A firm, makes provision at the end of the accounting year for likely bad debts in the next year. This is for the simple reason that out of the credit sales made during the particular year, some debts are likely to become bad in the next year due to non – payments. The correct accounting is to make provision for such likely bad debts every year. The entry for creating a provision is:

 

Profit and loss A/c Dr.

To Provision for Doubtful Debts

Question-21

The Trial Balance of Mr. Gopal Das as on 31st March 2008 was as follows:
 

Heads of Account

Dr. (Rs)

Cr. (Rs)

Purchases/Sales

812525

1262000

Provision for Doubtful Debts

 

26000

Sundry Debtors/Sundry Creditors

251000

152630

Bills payable

 

19750

Opening Stock

133625

 

Wages

115685

 

Salaries

27875

 

Furniture

36250

 

Postage

21130

 

Power and Fuel

6750

 

Trade Expenses

29155

 

Bad Debts

2625

 

Loan to [email protected]% (December 1 2007)

15000

 

Cash in Hand and at Bank

50000

 

Trade Expenses accrued, but not paid

 

3500

Drawings A/c / Capital A/c

22260

50000

Outstanding Wages

 

10000

 

1523880

1523880

Prepare the Trading and Profit and Loss Account for the year ended March 31 2008 and the Balance Sheet as on that date after taking into considerations the following information-

  1. Stock on 31st March 2008 was Rs. 62750
     
    Depreciation on furniture is to be charged @ 10%
     
    Provision for doubtful debts is to be maintained @ 5% on sundry debtors
     
    Sundry debtors include an item of Rs. 2500 due from a customer who has become insolvent.
     
    Goods of the value of Rs, 7500 have been destroyed by fire and insurance company admitted a claim for Rs. 5000.
     
    Received Rs. 6000 worth of goods on 27th March 2008 but the invoice of purchase was not recorded in Purchases Book.

 

 


Solution:

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock

 

133,625

By Sales

 

1,262,000

To Purchases

812,525

 

By abnormal loss by fire

 

7,500

Add: Omitted Purchases

6,000

818,525

By Closing stock

 

62,750

To Wages

 

115,685

 

 

 

To Power and Fuel

 

6,750

 

 

 

To Gross Profit c/d

 

257,665

 

 

 

 

 

1,332,250

 

 

1,332,250

To irrecoverable loss of stock

 

2,500

By Gross Profit b/d

 

257,665

To Salaries

 

27,875

By Prov for doubtful debts

26,000

 

To postage

 

21,130

Less: 5% provision

12,425

13,575

To Trade Expenses

 

29,155

By interest on loan

 

500

To Bad Debts

2,625

 

 

 

 

Add: Further bad debts

2,500

5,125

 

 

 

To Depreciation

 

3,625

 

 

 

To Net profit transferred to capital A/c

 

182,330

 

 

 

 

 

 

 

 

 

 

 

271,740

 

 

271,740

 

Balance Sheet

as at 31st March 2008

Liabilities

Rs.

Rs.

Assets

Rs.

Rs.

Current Liabilities

 

 

Current Assets

 

 

Creditors

152,630

 

Insurance Co.

 

5,000

Add: Omitted purchases

6,000

158,630

Cash in Hand

 

50,000

Bills payable

 

19,750

closing stock

 

62,750

Outstanding wages

 

10,000

Sundry Debtors

251,000

 

Trade expenses accrued

 

3,500

Less: Bad Debts

2,500

 

Capital

 

 

 

248,500

 

Opening Balance

50,000

 

Less: Provision

12,425

236,075

Less: Drawings

22,260

 

Loan to Ram

15,000

 

 

27,740

 

Add: Interest

500

15,500

Add Net Profit

182,330

210,070

Fixed Assets

 

 

 

 

 

Furniture

36,250

 

 

 

 

Less: Depreciation

3,625

32,625

 

 

 

 

 

 

 

 

401,950

 

 

401,950

 

Question-22

The Trial Balance of M/s Taj & Co as on 31st December 2008 was as follows:
 

Ledger Accounts

Dr. (Rs.)

Cr. (Rs.)

Purchases

162500

 

Sales

 

252400

Reserve for Doubtful Debts

 

5200

Sundry Debtors

50200

 

Sundry Creditors

 

30526

Bills Payable

 

3950

Opening stock

26725

 

Wages

23137

 

Salaries

5575

 

Furniture

7250

 

Postage

4226

 

Power and Fuel

1350

 

Trade Expenses

5831

 

Bad Debts

525

 

Loan to Suraj @ 10% (1st September 2002)

3000

 

Cash in Hand and at bank

10000

 

Trade Expenses Accrued not paid

 

700

Drawings A/c

 

700

Capital A/c

4452

 

Outstanding Wages

 

2000

Prepare the Trading and Profit and Loss Account for the year December 2008 and Balance Sheet after considering the following information-

  1. Depreciation on furniture @ 10% to be charged.
     
    Debtors include an item of Rs. 500 due from a customer who has become insolvent.
     
    Provision for bad debts @ 5% on Sundry Debtors is to be maintained.
     
    Goods valued @ Rs. 1500 destroyed by fire and insurance company admitted a claim for Rs. 1000.
     
    Stock on 31st December 2008 was Rs. 12550.

 

 


Solution:

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock

 

26,725

By Sales

 

252,400

To Purchases

 

162,505

By Goods lost by Fire A/c

 

1,500

To Wages

 

23,137

By Closing stock

 

12,550

To Power and Fuel

 

1,350

 

 

 

To Gross Profit c/d

 

52,733

 

 

 

 

 

266,450

 

 

266,450

To Depreciation on Furniture

 

725

By Gross Profit b/d

 

52,733

To Bad Debts

525

 

By Reserve for Doubtful Debts

 

5,200

Add: Further Bad Debts

500

 

By Interest on Loan (3000810/10084/12)

 

100

New Provision for Doubtful Debts

 

 

 

 

 

(50200-500)5/100

2,485

3,510

 

 

 

To Goods lost by fire (1500-1000)

 

500

 

 

 

To Salaries

 

5,575

 

 

 

To Postage

 

4,226

 

 

 

To Trade Expenses

 

5,831

 

 

 

To Net profit transferred to capital a/c

 

37,666

 

 

 

 

 

 

 

 

 

 

 

58,033

 

 

58,033

 

Balance Sheet

as at 31st March 2008

Liabilities

Rs.

Rs.

Assets

Rs.

Rs.

Current Liabilities

 

 

Current Assets

 

 

Outstanding Wages

 

2,000

Cash

 

10,000

Trade expenses not paid

 

700

Insurance Claim

 

1,000

Sundry creditors

 

30,526

Closing stock

 

12,550

Bills payable

 

3,950

Sundry Debtors

50,200

 

Capital

 

 

Less: Bad Debts

500

 

Opening balance

10,000

 

 

49,700

 

Less: Drawings

4,452

 

Less: Provision for Doubtful Debts

2,485

47,215

 

5,548

 

(49700*5/100)

 

 

Add: Net Profit

37,666

43,214

Loan

3,000

 

 

 

 

Add: Interest on loan

100

3,100

 

 

 

Fixed Assets

 

 

 

 

 

Furniture

7,250

 

 

 

 

Less: Depreciation

725

6,525

 

 

80,390

 

 

80,390

 

Question-23

From the following ledger balances of Mr. Charan Singh, prepare a Trading and Profit and loss Account for the year ended 31st March 2008 and a Balance Sheet as on that date after making the necessary adjustments.
 

Particulars

Rs.

Particulars

Rs.

Trade Expenses

800

Freight and duty

2000

Carraige outwards

500

Sundry Debtors

20600

Furniture and fixtures

5000

Return inwards

2000

Printing and stationery

400

Rent, Rates and taxes

4600

Sundry creditors

10000

Sales

120000

Return outwards

1000

Postage and telegraphs

800

Purchases

82000

Stock on 1.4.2007

20000

Plant and Machinery (additions on 1.10.2007)

5000

Drawings

6000

Capital

80000

Reserve for doubtful debts

800

Rent for premises sublet

1600

Insurance charges

700

Salaries and wages

21300

Cash in hand

6200

Cash at bank

20500

   

Adjustments:

  1. Stock on 31st March 2008 was 14000
     
    Provision for doubtful debts is to be maintained @ 5%
     
    Provision for depreciation, furniture and fixtures @ 5% pa and on plant and machinery at 20% pa.
     
    Insurance prepaid was Rs. 100
     
    A fire occurred in the godown and stock of the value of Rs. 5000 was destroyed. It was insured and the insurance company admitted full claim.

 

 


Solution:

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To opening stock

 

15,000

By Sales

120,000

 

To Purchases

82,000

 

Less: Return inwards

2,000

118,000

Less Return outwards

1,000

81,000

By loss of stock by fire

 

5,000

To Freight and duty

 

2,000

By closing stock

 

14,000

To Gross Profit c/d

 

39,000

 

 

 

 

 

137,000

 

 

137,000

To Trade expenses

 

800

By Gross Profit b/d

 

39,000

To Carraige outwards

 

500

By Rent for premises

 

1,600

To depreciation on furniture and fixtures

 

250

 

 

 

to dep on plant and machinery

 

 

 

 

 

(20000*20/100)

4,000

 

 

 

 

(5000*20/100*6/12)

500

4,500

 

 

 

To printing and stationery

 

400

 

 

 

To rent, rates and taxes

 

4,600

 

 

 

To Insurance

700

 

 

 

 

Less: Prepaid

100

600

 

 

 

To salaries and wages

 

21,300

 

 

 

To Postage and telegraphs

 

800

 

 

 

To provision for doubtful debts (closing)

 

 

 

 

 

(20000*5/100)

1,000

 

 

 

 

Add: Further Bad Debts

600

 

 

 

 

 

1,600

 

 

 

 

Less Provision for doubtful debts(opening)

800

800

 

 

 

To net profit transferred to Capital A/c

 

6,050

 

 

 

 

 

40,600

 

 

40,600

 

Balance Sheet

as at 31st March 2008

Liabilities

Rs.

Rs.

Assets

Rs.

Rs.

Current Liabilities

 

 

Current Assets

 

 

Sundry Creditors

 

10,000

Cash in hand

 

6,200

Capital

 

 

Cash at bank

 

20,500

Opening Balance

80,000

 

Sundry Debtors

20,600

 

Add Net Profit

6,050

 

Less: Further bad debts

600

 

 

86,050

 

 

20,000

 

Less: Drawings

6,000

80,050

Less: Provision for doubtful debts

1,000

19,000

 

 

 

Closing stock

 

14,000

 

 

 

Insurance claim

 

5,000

 

 

 

prepaid insurance

 

100

 

 

 

Fixed Assets

 

 

      Furniture and Fixtures 5,000  
      Less: Depreciation 250 4,750
      Plant and Machinery 25,000  
      Less: Depreciation 4,500 20,500
    90,050    

90,050

 

Question-24

From the following Trial Balance of Ram Narain as on 31st December 2008, prepare the Trading and Profit and loss Account and the Balance Sheet.
 

Particulars

Rs.

Particulars

Rs.

Opening Stock

15500

Land and Buildings

35000

Machinery

50000

Furniture and Fixtures

5000

Purchases

106000

Salaries

11000

General Expenses

2500

Capital

60000

Loan from Mrs. Ram Narain @ 9%

30000

Sundry Creditors

9600

Purchases Returns

2100

Sales

207300

Discount

1200

Rent

3000

Postage and Telegrams

1400

Stationery

1300

Wages

26000

Freight on Purchases

2800

Carraige on Sales

4000

Repairs

4500

Sundry Debtors

30000

Bad Debts

600

Cash in Hand

100

Cash at Bank

6400

Sales Returns

5100

   

The following further information was given:

  1. Wages for December 2008 amounting to Rs. 2100 have not yet been paid
     
    Included in general expenses is insurance premium Rs. 600, paid for the year ending 31st March 2008.
     
    A provision for doubtful debts @ 5% on debtors is necessary.
     
    Depreciation is to be charged as follows:
     
    1. Land and Building 2%
       
      Machinery @ 10%
       
      Furniture and Fixtures 15%
  1. The loan from Mrs. Ram Narain was taken on 1st July 2008. Interest has not been paid yet.
     
    The value of stock at hand on 31st December 2008 was Rs. 14,900.
     
    The manager is entitled to a commission on 10% of the net profit after charging such commission.

Solution:

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock

 

15,500

By Sales

207,300

 

To Purchases

106,000

 

Less: Sales Returns

5,100

202,200

Less Purchases Returns

2,100

103,900

By Closing stock

 

14,900

To Freight on Purchases

 

2,800

 

 

 

To Wages

26,000

 

 

 

 

Add outstanding wages

2,100

28,100

 

 

 

To Gross Profit c/d

 

66,800

 

 

 

 

 

217,100

 

 

217,100

To Salaries

 

11,000

By Gross Profit b/d

 

66,800

To Rent

 

3,000

By Discount

 

1,200

To Postage and Telegrams

 

1,400

 

 

 

To Stationery

 

1,300

 

 

 

To Repairs

 

4,500

 

 

 

To carraige on sales

 

4,000

 

 

 

To General Expenses

2,500

 

 

 

 

Less Prepaid insurance

600

1,900

 

 

 

To interest on loan @ 9%

 

1,350

 

 

 

To Bad Debts

600

 

 

 

 

Add: Provision for bad debts

1,500

2,100

 

 

 

To depreciation on:

 

 

 

 

 

Land and Building

700

 

 

 

 

Plant and Machinery

5,000

 

 

 

 

Fixtures and Furnitures

750

6,450

 

 

 

To commission to manager (Note)

 

2,818

 

 

 

To Net profit transferred to capital a/c

 

28,182

 

 

 

 

 

68,000

 

 

68,000

 

Balance Sheet

as at 31st March 2008

Liabilities

Rs.

Rs.

Assets

Rs.

Rs.

Sundry Creditors

 

9,600

Current Assets

 

 

Wages outstanding

 

2,100

Cash in Hand

 

100

Manager's commission (Note)

 

2,818

Cash at Bank

 

6,400

Mrs. Ram Narain's Loan

30,000

 

Sundry Debtors

30,000

 

Add: Interest on Loan

1,350

31,350

Less: Provision for Doubtful Debts

1,500

28,500

Capital

 

 

Closing stock

 

14,900

Openign Balance

60,000

 

unexpired insurance

 

600

Add: Net Profit

28,182

88,182

Fixed Assets

 

 

 

 

 

Furniture and Fixtures

5,000

 

 

 

 

Less: Depreciation

750

4,250

 

 

 

Machinery

50,000

 

 

 

 

Less: Depreciation

5,000

45,000

 

 

 

Land and Building

35,000

 

 

 

 

Less: Depreciation

700

34,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134,050

  

 

134,050

Note: Profit before charging commission is Rs. 31000. commission payable @ 10% of net profit after charging such commission.

Manager’s Commission

= Net Profit * % of commission/100 + % of commission

= Rs. 31000*10/110 = Rs. 2818.

Question-25

Prepare the Trading and Profit and Loss Account and the Balance Sheet from the following balances, relating to the year ending 31st March 2008.
 

Details

Rs.

Details

Rs.

Capital

100000

Creditors

12000

Return outwards

5000

Sales

164000

Bills payable

5000

Plant and Machinery

40000

Sundry Debtors

24000

Drawings

10000

Purchases

105000

Return inwards

3000

Wages

50000

Bank

10000

Repairs

500

Stock 1.4.2007

20000

Rent

4000

Manufacturing expenses

8000

Trade expenses

7000

Bad Debts

2000

Carriage

1500

Fuel and Power

1000

Additional Information:

  1. The closing stock was valued at Rs. 14500
     
    Depreciate Plant and Machinery Rs. 4000
     
    Allow 5% interest on capital and charge interest on drawings @ 6%
     
    A sum of Rs. 400 is due for repairs
     
    A cheque of Rs. 2000 deposited in the last week of December was reported to have been dishonored.

Solution:

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To opening stock

 

20,000

By Sales

164,000

 

To Purchases

105,000

 

Less: Return Inwards

3,000

161,000

Less: Return outwards

5,000

100,000

By Closing Stock

 

14,500

To Wages

 

50,000

By Gross Loss c/d

 

5,000

To Manufacturing Expenses

 

8,000

 

 

 

To Carriage

 

1,500

 

 

 

to Fuel and Power

 

1,000

 

 

 

 

 

180,500

 

 

180,500

To Gross Loss b/d

 

5,000

By Interest on Drawings

 

600

To Repairs

500

 

By Net Loss transferred to Capital A/c

 

27,300

Add: Unpaid Repairs

400

900

 

 

 

To Rent

 

4,000

 

 

 

To Trade expenses

 

7,000

 

 

 

To Bad Debts

 

2,000

 

 

 

To Interest on capital

 

5,000

 

 

 

To Dep.on Plant and Machinery

 

4,000

 

 

 

 

 

 

 

 

 

 

 

27,900

 

 

27,900

 

Balance Sheet

as at 31st March 2008

Liabilities

Rs.

Rs.

Assets

Rs.

Rs.

Current Liabilities

 

 

Current Assets

 

 

Creditors

12,000

 

Bank

10,000

 

Bills Payable

5,000

 

Less: Dishonoured cheque

2,000

8,000

Outstanding Repairs

400

17,400

Debtors

24,000

 

Capital

 

 

add: Dishonoured cheque

2,000

26,000

Opening Balance

100,000

 

Closing Stock

 

14,500

Add: Interest on capital

5,000

 

Fixed Assets

 

 

 

105,000

 

Plant and Machinery

40,000

 

Less: Drawings

10,000

 

Less: Depreciation

4,000

36,000

Interest on Drawings

600

 

 

 

 

Net Loss

27,300

67,100

 

 

 

 

 

 

 

 

 

 

 

84,500

 

 

84,500

 

Question-26

From the following Trial Balance, extracted from the books of MMN, prepare a Trading and Profit and Loss Account for the year ended 31st December 2008 and a balance Sheet as on that date:

 

Particulars

Debit (Rs.

Credit (Rs.)

Capital

 

90000

Drawings

6480

 

Land and Buildings

25000

 

Plant and Machinery

14270

 

Furniture and Fixtures

1250

 

Carraige inwards

4370

 

Wages

21470

 

Salaries

4670

 

Provision for Bad Debts

 

2470

Sales

 

91230

Sales Returns

1760

 

Bank Charges

140

 

Coal, Gas and Water

720

 

Rates and Taxes

840

 

Discount

 

120

Purchases

42160

 

Purchases Returns

 

8460

Bills Receivable

1270

 

Trade Expenses

1990

 

Sundry Debtors

37800

 

Sundry Creditors

 

12170

Stock (1st January 2008)

26420

 

Apprentice premium

 

500

Fire insurance

490

 

Cash at Bank

13000

 

Cash in Hand

850

 

Total

204950

204950

Adjustments:

Charge depreciation on Land and Building @ 2 ½%, on Plant and Machinery account @ 10% and on Furniture and Fixtures at 10%. Make a provision of 5% on debtors for Bad Debts. Carry Forward the following unexpired amounts:

  1. Fire insurance Rs. 125
     
    Rates and taxes Rs. 240
     
    Apprenticeship premium Rs. 400
     
    Charge 5% interest on capital
     
    Closing stock Rs. 29390

Solution:

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To opening stock

 

26,420

By Sales

91,230

 

To Purchases

42,160

 

Less: Return Inwards

1,760

89,470

Less: Return outwards

8,460

33,700

By Closing Stock

 

29,390

To Wages

 

21,470

 

 

 

To Carriage

 

720

 

 

 

To Coal, Gas and Water

 

4,370

 

 

 

To Gross Profit c/d

 

32,180

 

 

 

 

 

118,860

 

 

118,860

To Salaries

 

4,670

By Gross Profit

 

32,180

To Bank Charges

 

140

By Discount

 

120

To Rates and Taxes

840

 

By Apprentice premium

500

 

Less: Prepaid

240

600

Less: Unexpired

400

100

To Trade Expenses

 

1,990

By Old provision of doubtful Debts

 

2,470

To Fire insurance

490

 

 

 

 

Less: Prepaid

125

365

 

 

 

To Interest on capital

 

4,500

 

 

 

To Provision on Doubtful debts

 

1,890

 

 

 

To Depreciation on

 

 

 

 

 

Land and Building

625

 

 

 

 

Plant and Machinery

1,427

 

 

 

 

furnitur and Fixtures

125

2,177

 

 

 

to Gross Profit transferred to Capital A/c

 

18,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34,870

 

 

34,870

 

Balance Sheet

as at 31st March 2008

Liabilities

Rs.

Rs.

Assets

Rs.

Rs.

Current Liabilities

 

 

Current Assets

 

 

Creditors

 

12,170

Debtors

37,800

 

Apprentice premium

 

400

Less: Provision

1,890

35,910

Capital

 

 

Bills Receivable

 

1,270

Opening Balance

90,000

 

Closing stock

 

29,390

Add: Net Profit

18,538

 

Cash at bank

 

13,000

 

108,538

 

cash in hand

 

850

Add: Interest on Capital

4,500

 

Prepaid Fire Insurance

 

125

 

113,038

 

Perpaid Rates and Taxes

 

240

Less: Drawings

6,480

106,558

Fixed Assets

 

 

 

 

 

Plant and Machinery

14,270

 

 

 

 

Less: Depreciation

1,427

12,843

 

 

 

Land and Buildings

25,000

 

 

 

 

Less: Depreciation

625

24,375

 

 

 

Furniture and Fixtures

1,250

 

 

 

 

Less: Depreciation

125

1,125

 

 

119,128

 

 

119,128

 

Question-27

The following is the Trial Balance of Ram on 31st March 2008.

Heads of Accounts

Dr. (Rs)

Cr. (Rs)

Purchases

150000

 

Debtors

200000

 

Interest earned

 

4000

Salaries

30000

 

Sales

 

321000

Purchases returns

 

5000

Wages

20000

 

Rent

15000

 

Sales Return

10000

 

Bad Debts written off

7000

 

Creditors

 

120000

Capital

 

100000

Drawings

24000

 

Provision for Doubtful Debts

 

6000

Printing and Stationery

8000

 

Insurance

12000

 

Opening Stock

50000

 

Office Expenses

12000

 

Furniture and Fixtures

20000

 

Provision for Depreciation

 

2000

 

558000

558000

Prepare the Trading and Profit and Loss Account for the year ending March 31st 2008 and also the Balance Sheet as on that date for making the following adjustments:

  1. Depreciation Furniture and Fixtures by 10% on original cost
     
    Make a provision for Doubtful Debts equal to 5% on Debtors
     
    Salaries for the month of March amounting to Rs. 3000 were unpaid which mush be provided for. The balance in the account includes Rs. 2000 paid in advance
     
    Insurance is prepaid to the extent of Rs. 2000
     
    Provide Rs. 8000 for office expenses.
     
    Stock valued at Rs. 6000 was put up by Ram for his personal use, the cost of which has not been adjusted in the books of account.
     
    Closing stock valued at Rs. 68000 (Net Realizable Value Rs. 60000)

Solution:

Trading and Profit & Loss Account

for the year ended 31st March 2008

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

To Opening Stock

 

50,000

By Sales

321,000

 

To Purchases

150,000

 

Less: Returns

10,000

311,000

Less: Return

5,000

 

By Closing Stock

 

60,000

Less For personal use

6,000

139,000

 

 

 

To Wages

 

20,000

 

 

 

To Gross Profit c/d

 

162,000

 

 

 

 

 

371,000

 

 

371,000

To Salaries

30,000

 

By Gross Profit b/d

 

162,000

Add Outstanding Salaries

3,000

 

By Interest Earned

 

4,000

 

33,000

 

 

 

 

Less: Paid in advance

2,000

31,000

 

 

 

To Rent

 

15,000

 

 

 

To Bad Debts

7,000

 

 

 

 

Add: new Provision

10,000

 

 

 

 

 

17,000

 

 

 

 

Less: Old provision

6,000

11,000

 

 

 

To Printing and Stationery

 

8,000

 

 

 

To Insurance

12,000

 

 

 

 

Less: Prepaid

2,000

10,000

 

 

 

To Office Expenses

12000

 

 

 

 

Add: Outstanding

8,000

20,000

 

 

 

To Provision for Depreciation on Furniture and Fittings

 

2,000

 

 

 

To Net Profit transferred to Capital A/c

 

69,000

 

 

 

 

 

166,000

 

 

166,000

 

Balance Sheet

as at 31st March 2008

Liabilities

Rs.

Rs.

Assets

Rs.

Rs.

Current Liabilities

 

 

Current Assets

 

 

Creditors

 

120,000

Stock (note)

 

60,000

Outstanding salaries

 

3,000

Debtors

200,000

 

Outstanding Office Expenses

 

8,000

Less: Provision for doubtful Debts

10,000

190,000

Capital

 

 

Perpaid salaries

 

2,000

Opening Balance

100,000

 

Prepaid insurance

 

2,000

Add Net Profit

69,000

 

Fixed Assets

 

 

 

169,000

 

Furniture and Fixtures

20,000

 

Less Drawings

24,000

 

Less: Provision for Depreciation

 

 

Stock for personal use

6,000

139,000

(2000+2000)

4,000

16,000

 

 

 

 

 

 

 

 

270,000

 

 

270,000

Note: According to Accounting Standard 2 issued by ICAI closing stock is valued at lower of cost or net realizable value.





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