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Question-1

Why is it necessary to record the adjusting entries in the preparation of final accounts?

Solution:
The purpose is to make a continuous assessment of the final affairs of the firm. It is necessary that all expenses and incomes for the year for which accounts are being prepared be taken.

Question-2

What is meant by closing stock? Show its treatment in final accounts?

Solution:
All goods purchased or produced during the accounting year are not completely sold out by the end of the year. The goods remaining unsold constitute the ‘Closing Stock’. In order to ascertain the gross profit or gross loss, closing stock has to be brought into the Final Account. 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

 

Question-3

State the meaning of:

(a) Outstanding expenses

(b) Prepaid expenses

(c) Income received in advance

 

(d) Accrued income

 


Solution:
(a) Outstanding expenses

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.

(b) Prepaid expenses

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’.

(c) Income received in advance

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’.

(d) Accrued income

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’.

Question-4

Why is it necessary to create a provision for doubtful debts at the time of preparation of final accounts?

Solution:
We make provisions for expected losses but we do not take credit for expected profit. A firm, therefore, make provision at the ned 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.

Question-5

What adjusting entries would you record for the following :

(a) Depreciation

(b) Discount on debtors

(c) Interest on capital

 

(d) Manager’s commission

 


Solution:
(a) Depreciation

When provision for depreciation account is not maintained:

Depreciation A/c                             Dr.

To Asset A/c

Profit and Loss A/c                          Dr.

To Depreciation

(b) Discount on debtors

Accounting Treatment

For Discount Allowed:

Discount Allowed A/c                 Dr.

To Debtors

(Being discount allowed on debtors)

(c) Interest on capital

Interest on Capital A/c                     Dr.

To Capital A/c

Profit and Loss A/c                           Dr

To Interest on Capital A/c

(d) Manager’s commission

Profit and Loss A/c                           Dr.

To Commission Payable or Outstanding commission A/c

 

Question-6

What is meant 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-7

Give the journal entries for the following adjustments :

(a) Outstanding salary Rs. 3,500.

(b) Rent unpaid for one month at Rs. 6,000 per annum.

(c) Insurance prepaid for a quarter at Rs. 16,000 per annum.

 

(d) Purchase of furniture costing Rs. 7,000 entered in the purchases book.

 


Solution:
(a) Outstanding salary Rs. 3,500.

Salary a/c Dr.                                3,500

To Salary outstanding a/c                               3,500

(Salary amounting to Rs. 3,500 outstanding accounted for)

(b) Rent unpaid for one month at Rs. 6,000 per annum.

Accrued rent a/c Dr.                     6,000

To Rent a/c                                                        6,000

(Rent unpaid due accounted for)

(c) Insurance prepaid for a quarter at Rs. 16,000 per annum.

Prepaid insurance a/c Dr.          16,000

To Insurance                                                    16,000

(Prepaid insurance for one quarter accounted for)

(d) Purchase of furniture costing Rs. 7,000 entered in the purchases book.

Furniture a/c Dr.                            7,000

To purchases                                                     7,000

 

Question-8

What are adjusting entries? Why are they necessary for preparing final accounts?

Solution:
As we know, basic accounting records are on the basis of Going Concern Assumption. But the Final Accounts are prepared every year on the basis of ‘Accounting Period Assumption’, ‘Revenue Recognition Assumption’ and ‘Matching Principle’ besides others. The purpose is to make a continuous assessment of the final affairs of the firm. It is necessary that all expenses and incomes for the year for which accounts are being prepared be taken. It, therefore, necessitates that: Expenditure whether paid or note be included
  Income whether received or not be included
  Expenditure relating to the succeeding years be excluded and
  Income relating to the succeeding years be also excluded.

 

Let us understand with the help of examples.

Suppose, a firm closes its books on 31st March and rent for the month of March has not yet been paid. This amount has to be paid in any case because the expense has been incurred. Therefore, it would be proper to include the rent for this month along with other expenses for the year.

Take another example. Insurance premium has been paid for twelve months beginning 1st October. It is apparent that insurance protection will be available for six months this year and six months next year. Half the premium, therefore, should be treated as the next year’s expense.

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-9

What is meant by provision for doubtful debts? How are the relevant accounts prepared and what journal entries are recorded in final accounts? How is the amount for provision for doubtful debts calculated?

Solution:
We know that in accounting we follow the ‘Convention of Conservatism’ while recording business transactions. This means that we make provisions for expected losses but we do not take credit for expected profit. A firm, therefore, make provision at the ned 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

The debit to the Profit and Loss Account will reduce the year’s profit suitably for the possible loss and the amount will be carried forward to the next year. Next year, when bad debts actually occur and are written off, the Bad Debts accounts will be debited to the Provision for Bad Debts Account; the amount of the bad debts will not be debited to the Profit and Loss Account since a debit was already given for it last year. It should be noted that the customer’s account or sundry debtors account is not affected by creation of the Provision for Doubtful Debts. When the debit is doubtful of recovery, the personal account of the debtor will not be credited as the recovery is still possible. The provision for doubtful debts accounts is deducted from the amount of book debts in the Balance Sheet but the two accounts are separate.

Question-10

Prepare a trading and profit and loss account for the year ending December 31, 2005. from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.
 

 

Account Title

Amount Rs.

Account Title

Amount Rs.

Stock

50,000

Sales

1,80,000

Wages

3,000

Purchases return

     2,000

Salary

8,000

Discount received

500

Purchases

1,75,000

Provision for bad debts

     2,500

Sales return

3,000

Capital

3,00,000

Sundry Debtors

82,000

Bills payable

22,000

Discount allowed

1,000

Commission received

 4,000

Insurance

3,200

Rent

6,000

Rent Rates and Taxes

4,300

Loan

35,000

Fixtures and fittings

20,000

 

 

Trade expenses

1,500

 

 

Bad debts

2,000

 

 

Drawings

32,000

 

 

Repair and renewals

1,600

 

 

Travelling expenses

4,200

 

 

Postage

300

 

 

Telegram expenses

200

 

 

Legal fees

500

 

 

Bills receivable    50,000    
Building 1,10,000    

 

5,51,800

 

5,51,800

Adjustments

1. Commission received in advance Rs.1,000.

2. Rent receivable Rs. 2,000.

3. Salary outstanding Rs. 1,000 and insurance prepaid Rs. 800.

4. Further bad debts Rs. 1,000 and provision for bad debts @ 5% on debtors and discount on debtors @ 2%.

5. Closing stock Rs. 32,000.

6. Depreciation on building @ 6% p.a.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening Stock

50,000

Sales      1,80,000

Less

Sales return 3,000

 

1,77,000

Wages

3,000

Closing Stock

   32,000

Purchases         1,75,000

Less

Purchase return    2,000

 

1,73,000

Gross loss

   17,000

 

2,26,000

 

2,26,000

       

Gross Loss b/d

17,000

Commission recd 4,000

Less

Adv recd             1,000

 

     3,000

Salary                 8,000

Add

Outstanding sal 1,000

 

9,000

Rent received      6,000

Add

Accrued rent        2,000

 

     8,000

Repairs and renewals

1,600

Discount received

       500

Travelling expenses

4,200

Net loss

   43,189

Trade expenses

1,500

   

Postage

   300

   

Telegram expenses

   200

   

Legal fees

   500

   

Insurance          3,200

Less: Prepaid        800

 

2,400

   

Bad debts         2,000

Add

Provision          1,000

                          3,000

Add

new provision   4,050

(5% on 81,000) 7,050

Less

Provision for

bad debts            2,500

 

 

 

 

 

 

 

4,550

   

Rent, rate and taxes

4,300

   

Discount on debtors

1,539

   

Depreciation

6,600

   

Discount allowed

1,000

   
 

54,689

 

   54,689

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital        3,00,000

Less

Net Loss         43,189

                      2,56,811

Less Drawings 32,000

 

 

 

2,24,811

Sundry Debtors 82,000

Less bad debts   1,000

                      81,000

Less prov.         4,050

For doubt debts

                      76,950

Less

Prov for discount 1,539

 

 

 

 

 

 

75,411

Bills Payable

22,000

Fixtures and fittings

20,000

Loan

35,000

Bills receivable

50,000

O/s Salary

  1,000

Building           1,10,000

Less depcn           6,600

1,03,400

   

Closing Stock

   32,000

   

Rent accrued

     2,000

 

2,82,811

 

2,82,811

 

Question-11

Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending December 31, 2005. from the following figures taken from his trial balance :
 

Account Title

Amount Rs.

Account Title

Amount Rs.

Opening stock

35,000

Sales

2,50,000

Purchases

1,25,000

Purchase return

6,000

Return inwards

25,000

Creditors

10,000

Postage and Telegram

600

Bills payable

20,000

Salary

12,300

Discount

1,000

Wages

3,000

Provision for bad debts

4,500

Rent and Rates

1,000

Interest received

5,400

Packing and Transport

500

Capital

75,000

General expense

400

 

 

Insurance

4,000

 

 

Debtors

50,000

 

 

Cash in hand

20,000

 

 

Cash at bank

40,000

 

 

Machinery

20,000

 

 

Lighting and Heating

5,000

 

 

Discount

3,500

 

 

Bad debts

3,500

   
     23,100    

 

3,71,900

 

3,71,900

Adjustments

1. Depreciation charged on machinery @ 5% p.a.

2. Further bad debts Rs.1,500, discount on debtors @ 5% and make a provision on debtors @ 6%.

3. Wages prepaid Rs.1,000.

4. Interest on investment @ 5% p.a.

5. Closing stock 10,000.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening stock

35,000

Sales         2,50,000

Less S/R       25,000

2,25,000

Purchases
 1,25,000

Less P/R
  6,000

1,19,000

Closing Stock

10,000

Wages           
3,000
Less prepaid wages 1,000

    2,000

   

Gross profit

   79,000

   
 

2,35,000

 

2,35,000

       

Postage and telegram

     600

Gross profit b/d

79,000

Salary

12,300

Discount

  1,000

Packing and transport

    500

Interest on investment

   1,155

General expense

    400

Interest received

   5,400

Depreciation

 1,000

   

Discount

 3,500

   

Bad debts              3,500

Add

Further bad debts 1,500

                                 5,000

Add new prov

5%on 48,500       2,425

                               7,425

Less

Prov for bad debts 4,500

 

 

 

 

 

 

 

 2,925

   

Rent and rates

 1,000

   

Insurance

 4,000

   

Lighting and heating

 5,000

   

Discount on debtors

 2,765

   

Net Profit

52,565

   
 

86,555

 

86,555

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 75,000

Add

Net profit 52,565

 

1,27,565

Debtors 50,000

Less

Bad debts 1,500

48,500

Less

Prov for bad debts 2,425

46,075

Less

Prov for discount

On debtors 2,765

 

 

 

 

 

 

 

 

43,310

Creditors

10,000

Cash in hand

20,000

Bills payable

20,000

Cash at bank

40,000

   

Machinery 20,000

Less

Depcn 1,000

 

19,000

   

Investment 23,100

Add

Interest on invt 1,155

 

24,255

   

Closing Stock

10,000

   

Prepaid wages

1,000

 

1,57,565

 

1,57,565

 

Question-12

The following balances has been extracted from the trial of M/s Runway Shine Ltd. Prepare a trading and profit and loss account and a balance sheet as on December 31, 2005.

 

Account Title

Amount

Account Title

Amount

 

Rs.

 

Rs.

Purchases

1,50,000

Sales

2,50,000

Opening stock

50,000

Return outwards

4,500

Return inwards

2,000

Interest received

3,500

Carriage inwards

4,500

Discount received

400

Cash in hand

77,800

Creditors

1,25,000

Cash at bank

60,800

Bill payable

     6,040

Wages

2,400

Capital

1,00,000

Printing and Stationery

4,500

 

 

Discount

400

 

 

Bad debts

1,500

 

 

Insurance

2,500

 

 

Investment

32,000

 

 

Debtors

53,000

 

 

Bills receivable

20,000

 

 

Postage and Telegraph

400

 

 

Commission

200

 

 

Interest

1,000

 

 

Repair

440

 

 

Lighting Charges

500

 

 

Telephone charges

100

 

 

Carriage outward            400    
       25,000    

 

 
4,89,440

 


4,89,440

Adjustments

1. Further bad debts Rs. 1,000. Discount on debtors Rs. 500 and make a provision on debtors @ 5%.

2. Interest received on investment @ 5%.

3. Wages and interest outstanding Rs. 100 and Rs. 200 respectively.

4. Depreciation charged on motor car @ 5% p.a.

5. Closing Stock Rs. 32,500.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening stock

50,000

Sales      2,50,000

Less

S/R             2,000

 



2,48,000

Purchases 1,50,000

Less P/R 4,500

1,45,500

Closing Stock

32,500

Carriage inwards

   4,500

   

Wages 2,400

Add O/s wages 100

   2,500

   

Lighting charges

      500

   

Gross profit

77,500

   
 

2,80,500

 

2,80,500

       

Printing and stationary

     4,500

Gross profit b/d

77,500

Discount

       400

Interest received

  3,500

Bad debts 1,500

Add further bad debts 1,000

2,500

Add:

New prov 2,600

 

 

 

    5,100

Interest received on investment

  1,600

Insurance

    2,500

Discount received

      400

Postage and telegraph

       400

   

Commission

       200

   

Interest 1,000

Add: O/s interest 200

    1,200

   

Repair

      440

   

Carriage outward

      400

   

Discount on debtors

      500

   

Depreciation on Motor car

   1,250

   

Telephone charges

     100

   

Net profit

66,010

   
 

83,000

 

83,000

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital    1,00,000

Add

Net profit 66,110

 



1,66,010

Debtors            53,000

Less:

Further bad debts 1,000

                        52,000

Less:

Prov for debt       2,600

                       49,400

Less

Discount on

Debtors                 500

 

 

 

 

 

 

 

 

48,900

Creditors

1,25,000

Cash in hand

77,800

Bills Payable

6,040

Cash at Bank

60,800

O/s wages

100

Bills receivable

20,000

O/s interest

200

Motor Car         25,000

Less: depcn       1,250

23,750

   

Investment       32,000

Add:

Interest on invt    1,600

 

33,600

   

Closing Stock

32,500

 

2,97,350

 

2,97,350

 

Question-13

The following balances have been extracted from the trial of M/s Haryana Chemical Ltd. You are required to prepare a trading and profit and loss account and balance sheet as on December 31, 2005 from the given information.

 

Account Title

 

Amount

Rs.

Account Title

 

Amount

Rs.

Opening stock

Purchases

Sales return

Cash in hand

Cash at bank

Carriage

Free hold land

Patents

General Expenses

Sundry Debtors

Building

Machinery

Insurance

Drawings

Motor vehicle

Bad debts

Light and Water

Trade expenses

Power

Salary and Wages
 

50,000

1,25,500

2,000

21,200

12,000

100

3,20,000

1,20,000

2,000

32,500

86,000

34,500

12,400

10,000

10,500

2,000

1,200

2,000

3,900

     5,400

     3,000

Sales

Purchases return

Creditors

Rent

Interest

Bills payable

Capital


3,50,000

    2,500

25,000

   5,000

   2,000

1,71,700

3,00,000

 

8,56,200

 

8,56,200

Adjustments

1. Closing stock was valued at the end of the year Rs. 40,000.

2. Salary amounting Rs. 500 and trade expense Rs. 300 are due.

3. Depreciation charged on building and machinery are @ 4% and @ 5% respectively.

 

4. Make a provision of @ 5% on sundry debtors.

 


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening Stock

50,000

Sales                    3,50,000

Less: S/R        2,000

3,48,000

Purchases      1,25,500

Less P/R             2,500



1,23,000

Closing stock

   40,000

Carriage

      100

   

Power

   3,900

   

Gross profit

2,11,000

   
 

3,48,000

 

3,48,000

       

General expenses

     2,000

Gross profit b/d

2,11,000

Insurance

   12,400

Rent

    5,000

Bad debts            2,000

Add: prov @ 5% 1,525

  

    3,525

Interest

    2,000

Salary and wages                5,400

Add:

O/S salary           500

 

  


   5,900

   

Light and water

   1,200

   

Trade expenses    2,000

Add; O/s trade exp 300

  

   2,300

   

Depreciation

Building              3,440

Machinery         1,725

 

 

  5,165

   

Gross profit

1,85,510

   
 

2,18,000

 

2,18,000

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 3,00,000

Add: Net profit 1,85,510

                               4,85,510

Less: drawings         10,000

 

 

4,75,510

Cash in hand

   21,200

Creditors

   25,000

Cash at Bank

   12,000

Bills Payable

1,71,700

Free hold land

3,20,000

O/S Salary

        500

Patents

1,20,000

O/S Trade expenses

        300

Sundry Debtors 32,500

Less provision 1,525

   30,975

   

Building   86,000

Less depcn 3,440

   82,560

   

Machinery 34,500

Less: depcn 1,725

   32,775

   

Motor vehicle

   10,500

   

Loan

     3,000

   

Closing Stock

    40,000

 

6,73,010

 

6,73,010

 

Question-14

From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending December 31, 2005.

 

Account Title

 

Amount

Rs.

Account Title

 

Amount

Rs.

Drawings

20,000

Capital

2,00,000

Sundry debtors

80,000

Return outwards

    2,000

Bad debts

1,000

Bank overdraft

12,000

Trade Expenses

2,400

Provision for bad debts

   4,000

Printing and Stationery

2,000

Sundry creditors

60,000

Rent Rates and Taxes

5,000

Bills payable

15,400

Feright

4,000

Sales

2,76,000

Return inwards

7,000

 

 

Opening stock

25,000

 

 

Purchases

1,80,000

 

 

Furniture and Fixture

20,000

 

 

Plant and Machinery

1,00,000

 

 

Bills receivable

14,000

 

 

Wages

10,000

 

 

Cash in hand

6,000

 

 

Discount allowed

2,000

 

 

Investments

 

   40,000    
 

51,000

   
 

5,69,400

 

5,69,400

Adjustments

1. Closing stock was Rs.45,000.

2. Provision for bad debts is to be maintained @ 2% on debtors.

3. Depreciation charged on : furniture and fixture @ 5%, plant and Machinery @ 6% and motor car @ 10%.

4. A Machine of Rs.30,000 was purchased on July 01, 2005.

5. The manager is entitle to a commission of @ 10% of the net profit after charging such commission.

 

 


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening Stock

  25,000

Sales         2,76,000

Less: S/R        7,000

2,69,000

Purchases   1,80,000

Less: P/R         2,000

1,78,000

Closing Stock

45,000

Wages

   10,000

   

Gross profit

1,01,000

   
 

3,14,000

 

3,14,000

       

Bad Debts      1,000

Add:

Prov for debt 1,600

 

   2,600

Gross profit b/d

1,01,000

Trade expenses

   2,400

Provision for bad debts

   4,000

Printing and Stationary

   2,000

   

Rent, rate and taxes

   5,000

   

Freight

   4,000

   

Discount allowed

   2,000

   

Depreciation

Furniture and fixture 1,000

Plant and machinery 6,000

Motor car        5,100

 

 

12,100

   

Gross Profit

74,900

   
       
       
       
       
       

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital            2,00,000

Add

Net profit          74,900

                        2,74,900

Less: drawings 20,000

 

 

 

2,54,900

Sundry Debtors 80,000

Less: prov for

Discount on

Debtors            1,600

 

 

78,400

Bank overdraft

12,000

Bills receivable

14,000

Sundry creditors

60,000

Cash in hand

6,000

Bills Payable

15,400

Furniture and fixture 20,000

Less: depcn               1,000

19,000

   

Plant and machinery 1,00,000

Less: depcn                6,000

94,000

   

Motor car          51,000

Less: depcn        5,100

45,900

   

Investments

40,000

   

Closing Stock

45,000

       
 

3,42,300

 

3,42,300

 

Question-15

Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars.

 

Account Title

 

Amount

Rs.

Account Title

 

Amount

Rs.

Sundry debtors

1,00,000

Bills payable

  85,550

Bad debts

3,000

Sundry creditors

  25,000

Trade expenses

2,500

Provision for bad debts

     1,500

Printing and Stationary

5,000

Return outwards

4,500

Rent, Rates and Taxes

3,450

Capital

2,50,000

Freight

2,250

Discount received

    3,500

Sales return

6,000

Interest received

11,260

Motor car

25,000

Sales

1,00,000

Opening stock

75,550

 

 

Furniture and Fixture

15,500

 

 

Purchases

75,000

 

 

Drawings

13,560

 

 

Investments

65,500

 

 

Cash in hand    36,000    
     53,000    

 

4,81,310

 

4,81,310

Adjustments

1. Closing stock was valued Rs. 35,000.

2. Depreciation charged on furniture and fixture @ 5%.

3. Further bad debts Rs. 1,000. Make a provision for bad debts @ 5% on sundry debtors.

4. Depreciation charged on motor car @ 10%.

5. Interest on drawing @ 6%.

6. Rent, rates and taxes was outstanding Rs.200.

7. Discount on debtors 2%.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

 

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening stock

75,550

Sales         1,00,000

Less: S/R        6,000

94,000

Purchases 75,000

Less: P/R 4,500

70,500

Closing Stock

35,000

   

Gross loss

17,050

 

1,46,050

 

1,46,050

       

Gross loss b/d

   17,050

Provision for bad debts

     1,500

Trade expenses

    2,500

Discount received

     3,500

Printing and Stationary

    5,000

Interest received

   11,260

Rent, rates and taxes 3,450

Add: O/S rent, rate

and taxes 200

 

    3,650

Interest on drawings

       814

Freight

   2,250

Net Loss

27,482

Bad debts 3,000

Add: further bad debt 1,000

4,000

Add: prov for bad debts 4,950

 

 

   8,950

   

Discount on debtors

   1,881

   

Depreciation

Furniture and fixture 775

Motor Car 2,500

 

  3,275

   
 

44,556

 

44,556

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital          2,50,000

Less:

Net Loss         27,482

                     2,22,518

Less drawings 13,560

                    2,08,958

Less:

Interest on drawings           814

 

 

 

 

 

 

2,08,144

Cash in hand

36,000

Sundry Creditors

25,000

Cash at bank

53,000

Bills payable

85,550

Debtors           1,00,000

Less:

further bad debt 1,000

                       99,000

Less: new
provision            4,950                       

                       94,050

Less:

discount on
debtors             1,881

 

 

 

 

 

92,169

O/S rent, rate and taxes

200

Furniture and
Fixture            15,500

Less: depcn         775

14,725

   

Motor Car       25,000

Less: depcn      2,500

 

22,500

   

Investments

65,500

   

Closing Stock

35,000

 

3,18,894

 

3,18,894

 

Question-16

Following balances have been extracted from the trial balance of M/s Keshav Electronics Ltd. You are required to prepare the trading and profit and loss account and a balance sheet as on December 31, 2005.

 

Account Title

 

Amount

Rs.

Account Title

 

Amount

Rs.

Opening stock

2,26,000

Sales

6,80,000

Purchases

4,40,000

Return outwards

15,000

Drawings

75,000

Creditors

50,000

Buildings

1,00,000

Bills payable

63,700

Motor van

30,000

Interest received

20,000

Freight inwards

3,400

Capital

3,50,000

Sales return

10,000

 

 

Trade expense

3,300

 

 

Heat and Power

8,000

 

 

Salary and Wages

5,000

 

 

Legal expense

3,000

 

 

Postage and Telegram

1,000

 

 

Bad debts

6,500

 

 

Cash in hand

79,000

 

 

Cash at bank

98,000

 

 

Sundry debtors

25,000

 

 

Investments

40,000

 

 

Insurance

3,500

 

   
 

22,000

   

 

11,78,700

 

11,78,700

The following additional information is available :

1. Stock on December 31, 2005 was Rs. 30,000.

2. Depreciation is to be charged on building at 5% and motor van at 10%.

3. Provision for doubtful debts is to be maintained at 5% on Sundry Debtors.

4. Unexpired insurance was Rs. 600.

5. The Manager is entitled to a commissiion @ 5% on net profit before charging such commission.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening Stock

2,26,000

Sales    6,80,000

Less: S/R 10,000

6,70,000

Purchases 4,40,000

Less: P/R     15,000

4,25,000

Closing Stock

30,000

Freight inwards

3,400

   

Heat and power

8,000

   

Gross profit

37,600

   
 

7,00,000

 

7,00,000

       

Trade expense

3,300

Gross profit b/d

37,600

Salary and wages

5,000

Interest received

20,000

Legal expense

3,000

   

Postage and telegram

1,000

   

Insurance 3,500

Less:

Unexpired insurance 600

 

2,900

   

Depreciation

Building 5,000

Motor van 3,000

 

8,000

   

Bad debts 6,500

Add:

Prov for doubtful debts 1,250

 

7,750

   

Net profit

26,650

   
 

57,600

 

57,600

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 3,50,000

Add

Net profit 26,650

3,76,650

Less drawings 75,000

 

 

 

3,01,650

Cash in hand

79,000

Sundry Creditors

50,000

Cash at bank

98,000

Bills Payable

63,700

Building 1,00,000

Less: depcn 5,000

 

95,000

   

Motor van 30,000

Less: depcn 3,000

 

27,000

   

Debtors 25,000

Less

Prov for bad debts 1,250

 

23,750

   

Investment

40,000

   

Machinery

22,000

   

Unexpired insurance

600

   

Closing Stock

30,000

 

4,15,350

 

4,15,350

 

Question-17

From the following balances extracted from the books of Raga Ltd. prepare a trading and profit and loss account for the year ended December 31, 2005 and a balance sheet as on that date.

 

Account Title

 

Amount

Rs.

Account Title

 

Amount

Rs.

Drawings

20,000

Sales

2,20,000

Land and Buildings

12,000

Capital

1,01,110

Plant and Machinery

40,000

Discount

1,260

Carriage inwards

100

Apprentice premium

5,230

Wages

500

Bills payable

1,28,870

Salary

2,000

Purchases return

10,000

Sales return

200

 

 

Bank charges

200

 

 

Coal, Gas and Water

1,200

 

 

purchases

1,50,000

 

 

Trade Expenses

3,800

 

 

Stock (Opening)

76,800

 

 

Cash at bank

50,000

 

 

Rates and Taxes

870

 

 

Bills receivable 24,500    
Cash in hand 30,000    

Sundry debtors

54,300

 

 

  466470   466570

The additional information is as under :

1. Closing stock was valued at the end of the year Rs, 20,000.

2. Depreciation on plant and machinery charged at 5% and land and building at 10%.

3. Discount on debtors at 3%.

4. Make a provision at 5% on debtors for bad debts.

5. Salary outstanding was Rs.100 and Wages prepaid was Rs. 40.

6. The manager is entitled a commission of 5% on net profit after charging such commission.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening Stock

76,800

Sales           2,20,000

Less: S/R            200

2,19,800

Purchases 1,50,000

Less: P/R     10,000

1,40,000

Closing Stock

  20,000

Carriage inwards

      100

   

Coal, Gas and water

    1,200

   

Wages          500

Less: prepaid 40

     460

   

Gross profit

  21,240

   
 

2,39,800

 

2,39,800

       

Salary     2,000

Add: O/S  100

     2,100

Gross profit

    21,240

Bank charges

       200

Discount

      1,260

Trade expenses

     3,800

Apprentice premium

       5,230

Rate and taxes

       870

   

Depreciation

Plant and
machinery 2,000

Land and
 building   1,200

 

    3,200

   

Discount on debtors

   1,548

   

Provision for bad debts

   2,715

   

Net Profit

  13,297

   
 

27,730

 

27,730

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 1,01,110

Add: Net profit 13,297

            1,14,407

Less: drawings 20,000

 

 

94,407

Cash in hand

30,000

Bills Payable

1,28,870

Cash at Bank

50,000

O/S salary

       100

Land and
building     12,000

Less: depcn 1,200

10,800

   

Plant and
machinery 40,000

Less: depcn 2,000

 

38,000

   

Bills receivable

24,500

   

Sundry Debtors 54,300

Less: prov         2,715

                      51,585

Less discount      1,548

 

 

50,037

   

Prepaid wages

      40

   

Closing Stock

20,000

 

2,23,377

 

2,23,377

 

Question-18

From the following balances of M/s Jyoti Exports, prepare trading and profit and loss account for the year ended March 31, 2006 and balance sheet as on this date.

 

Account Title

Debit Amount Rs.

Account Title

Credit Amount Rs.

Sundry debtors

9,600

Sundry creditors

2,500

Opening stock

22,800

Sales

72,670

Purchases

34,800

Purchases returns

2,430

Carriage inwards

450

Bills payable

15,600

Wages

1,770

Capital

42,000

Office rent

820

 

 

Insurance

1,440

 

 

Factory rent

390

 

 

Cleaning charges

940

 

 

Salary

1,590

 

 

Building

24,000

 

 

Plant and Machinery

3,600

 

 

Cash in hand

2,160

 

 

Gas and Water 240    
Octroi 60    
Furniture 20,540    
Patents 10,000    
  135200   135200

Closing stock Rs.10,000.

1. To provision for bad debts is to be maintained at 5 per cent on sundry debtors.

2. Wages amounting to Rs.500 and salary amounting to Rs. 350 are outstanding.

3. Factory rent prepaid Rs. 100.

4. Depreciation charged on Plant and Machinery @ 5% and Building @ 10%.

5. Outstanding insurance Rs.100.

 

 


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.      Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening stock

22,800

Sales

72,670

Purchases 34,800

Less: P/R 2,430

 

32,370

Closing Stock

10,000

Carriage inwards

450

   

Wages 1,770

Add: O/S 500

 

2,270

   

Octroi

60

   

Factory rent 390

Less: prepaid 100

290

   

Cleaning charges

940

   

Gas and water

240

   

Gross profit

23,250

   
 

82,670

 

82,670

       

Office rent

820

Gross profit b/d

23,250

Insurance 1,440

Add: O/S 100

 

1,540

   

Salary 1,590

Add: O/S 350

 

1,940

   

Bad debts

480

   

Depreciation

Plant and Machinery 180

Building 2,400

 

2,580

   

Net Profit

15,890

   
 

23,250

 

23,250

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 42,000

Add: Net profit 15,890

57,890

Cash in hand

2,160

Bills payable

15,600

Sundry Debtors 9,600

Less: prov for debtors 480

9,120

Sundry creditors

2,500

Building 24,000

Less: depcn 2,400

21,600

O/S Wages 500

Salary 350

Insurance 100

 

950

Plant & Machinery 3,600

Less: depcn 180

3,420

   

Furniture

20,540

   

Patents

10,000

   

Prepaid factory rent

100

   

Closing Stock

10,000

 

76,940

 

76,940

 

Question-19

The following balances have been extracted from the books of M/s Green House for the year ended December 31, 2005, prepare trading and profit and loss account and balance sheet as on this date.

 

Account Title

 

Amount

Rs.

Account Title

 

Amount

Rs.

Purchases

Bank balance

Wages

Debtors

Cash in hand

Legal expenses

Building

Machinery

Bills receivable

Office expenses

Opening stock

Gas and fuel

Freight and Carriage

Factory lighting
 



Office furniture Patent right

80,000

11,000

34,000

70,300

1,200

4,000

60,000

120,000

7,000

3,000

45,000

2,700

3,500

5,000

________

           5,000

         18,800
________

4,70,500

Capital

Bills payable

 Sales

Creditors

Return outwards

2,10,000

    6,500

2,00,000

   50,000

4,000
























_______

4,70,500

Adjustments

(a) Machinery is depreciated at 10% and buildings depreciated at 6%.

(b) Interest on capital @ 4%.

(c) Outstanding wages Rs. 50.

(d) Closing stock Rs.50,000.


Solution:
Trading and profit and Loss Account for the year ended December 31, 2005
 
Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening Stock

45,000

Sales

2,00,000

Purchases 80,000

Less: P/R     4,000

76,000

Closing Stock

  50,000

Wages           34,000

Add: O/S wages 50

34,050

   

Gas and fuel

2,700

   

Freight and Carriage

3,500

   

Factory Lighting

5,000

   

Gross profit

83,750

   
       

Legal expenses

4,000

Gross profit b/d

83,750

Office expenses

3,000

   

Depreciation

Machinery 12,000

Buildings      3,600

 

15,600

   

Interest on capital

8,400

   

Net profit

52,750

   
 

83,750

 

83,750

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 2,10,000

Add:

Interest on capital 8,400

                       2,18,400

Add: net profit 52,750

 

 

 

2,71,150

Cash in hand

  1,200

Bills Payable

    6,500

Cash at Bank

  11,000

Creditors

  50,000

Building     60,000

Less: depcn 3,600

 

  56,400

Outstanding wages

       50

Machinery 1,20,000

Less: depcn 12,000

 

1,08,000

   

Bills receivable

    7,000

   

Office furniture

    5,000

   

Patent right

  18,800

   

Debtors

  70,300

   

Closing Stock

  50,000

 

3,27,700

 

3,27,700

 

Question-20

From the following balances extracted from the book of M/s Manju Chawla on March 31, 2005. You are requested to prepare the trading and profit and loss account and a balance sheet as on this date.

 

Account Title

Amount

Amount

 

Rs.

Rs.

Opening stock

10,000

 

Purchases and Sales

40,000

80,000

Returns

200

600

Wages

6,000

 

Dock and cleaning charges

4,000

 

Lighting

500

 

Misc. Income

 

6,000

Rent

 

2,000

Capital

 

40,000

Drawings

2,000

 

Debtors and Creditors

6,000

7,000

Cash

3,000

 

Investment

6,000

 

Patent

4,000

 

Land and Machinery

43,000

 

Donations and Charity

600

 

Sales tax collected
Furniture

11,300

1,000

 

136600

136600

Closing stock was Rs.2,000.

(a) Interest on drawings @ 7% and interest on capital @ 5%.

(b) Land and Machinery is depreciated at 5%.

(c) Interest on investment @ 6%.

(d) Unexpired rent Rs.100.

(e) Charge 5% depreciation on furniture.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening Stock

10,000

Sales        80,000

Less: S/R       200

79,800

Purchases 40,000

Less: P/R       600

 

39,400

Closing Stock

  2,000

Wages

  6,000

   

Dock and cleaning charges

  4,000

   

Lighting

    500

   

Gross profit

21,900

   
 

81,800

 

81,800

       

Donation and charity

    600

Gross profit b/d

21,900

Depreciation

Land and machinery 2,150

Furniture              565

 

2,715

Miscellaneous income

  6,000

Interest on capital

2,000

Rent        2,000

Less: unexpired
 rent          100

 

1,900

Net Profit

25,985

Interest on drawing

  140

   

Interest on investment

  360

   

Sales tax collected

1,000

 

31,300

 

31,300

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 40,000

Less: int on capital 2,000

                       38,000

Less drawings
 2,000

                      36,000

Less:

int on drawings
140

 

 

 

 

35,860

Cash

3,000

Creditors

7,000

Debtors

6,000

Sales tax collected

1,000

Investment      6,000

Add: int on invt   360

6,360

   

Patent

4,000

   

Land and
machinery      43,000

Less: depcn     2,150

40,850

   

Furniture       11,300

Less: depcn       565

10,735

   

Unexpired rent

    100

   

Closing stock

  2,000

 

Question-21

The following balances were extracted from the books of M/s Panchsheel Garments on December 31, 2005.

 

 

Account Title

Debit Amount

Rs.

 

Account Title

Credit Amount

Rs.

Opening stock

16,000

Sales

1,12,000

Purchases

67,600

Return outwards

3,200

Return Inwards

4,600

Discount

1,400

Carriage inwards

1,400

Bank overdraft

10,000

General expenses

2,400

Commission

1,800

Insurance

4,000

Creditors

16,000

Scooter expenses

200

Capital

50,000

Salary

8,800

 

 

Cash in hand

4,000

 

 

Scooter

8,000

 

 

Furniture

5,200

 

 

Buildings

65,000

 

 

Debtors

6,000

1,200

 

 

Wages

 

 

                             1,94,400                                1,94,400

Prepare the trading and profit and loss account for the year ended December, 31 and a balance sheet as on that date.

(a) Unexpired insurance Rs 1,000.

(b) Salary due but not paid Rs. 1800.

(c) Wages outstanding Rs. 200.

(d) Interest on capital 5%.

(e) Scooter is depreciated @ 5%.

(f) Furniture is depreciated Rs.@ 10%.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening stock

16,000

Sales     1,12,000

Less: S/R    4,600

 

1,07,400

Purchases    67,600

Less: P/R       3,200

64,400

Closing stock

    15,000

Carriage inwards

  1,400

   

Wages              1,200

Add: O/S wages 200

  1,400

   

Gross profit

39,200

   
 

1,22,400

 

1,22,400

       

General expenses

2,400

Gross profit b/d

39,200

Insurance           4,000

Less: unexpired 1,000

 

3,000

Discount

  1,400

Scooter expenses

   200

Commission

  1,800

Salary                  8,800

Add: salary due 1,800

 

10,600

   

Depreciation

Scooter                400

Furniture              520

 

   920

   

Interest on capital

2,500

   

Net profit

22,780

   
 

42,400

 

42,400

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 50,000

Add: int on capital 2,500

52,500

Add: Net profit 22,780

 

 

75,280

Cash in hand

 4,000

Bank overdraft

10,000

Sccoter         8,000

Less: depcn     400

 

 7,600

Creditors

16,000

Furniture       5,200

Less: depcn     520

 4,680

O/S wages

    200

Buildings

65,000

O/S salary

1,800

Debtors

  6,000

   

Unexpired insurance

  1,000

   

Closing Stock

15,000

 

1,03,280

 

1,03,280

 

Question-22

Prepare the trading and profit and loss account and balance sheet of M/s Control Device India on December 31, 2006 from the following balance as on that date.

 

 

Account Title

Debit Amount
Rs.

Credit Amount
Rs.

Drawings and Capital

19,530

67,500

Purchase and Sales

45,000

1,12,500

Salary and Commission

25,470

1,575

Carriage

2,700

 

Plant and Machinery

27,000

 

Furniture

6,750

 

Opening stock

42,300

 

Insurnace premium

2,700

 

Interest

 

7,425

Bank overdraft

 

24,660

Rent and Taxes

2,160

 

Wages

11,215

 

Returns

2,385

1,440

Carriage outwards

1,485

 

Debtors and Creditors

36,000

58,500

General expenses

6,975

 
Investment      530

41,400

 
  273600 273600

Closing stock was valued Rs. 20,000.

(a) Interest on capital @ 10%.

(b) Interest on drawings @ 5%.

(c) Wages outstanding Rs.50.

(d) Outstanding salary Rs.20.

(e) Provide a depreciation @ 5% on plant and machinery.

f) Make a 5% provision on debtors.


Solution:

Trading and profit and Loss Account for the year ended December 31, 2005

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Opening Stock

42,300

Sales       1,12,500

Less: S/R      2,385

1,10,115

Purchases     45,000

Less: P/R        1,440

 

43,560

Closing Stock

20,000

Carriage

2,700

   

Wages           11,215

Add: O/S               50

 

11,265

   

Octroi

530

   

Gross profit

29,760

   
 

1,30,115

 

1,30,115

       

Salary and Commission 25,470

Ad; O/S                    20

25,490

Gross profit b/d

29,760

Insurance premium

2,700

Interest on drawing

    977

Rent and taxes

2,160

Interest

  7,425

Carriage outwards

1,485

Salary and Commission

  1,575

Interest on capital

6,750

Net Loss

8,973

Depreciation

1,350

   

Provision on debtors

1,800

   

General expenses

6,975

   
 

48,710

 

48,710

 

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Capital 67,500

Add: int on Capital 6,750

                     74,250

Less: drawings 19,530

                    54,720

Less: int on

Drawings         977

                   53,743

Less: Net Loss 8,973

 

 

 

 

 

 

 

44,770

Debtors   36,000

Less:

Provision for

bad debts   1,800

 

 

34,200

Bank Overdraft

24,660

Plant and
Machinery 27,000

Less: depcn 1,350

25,560

Creditors

58,500

Furniture

  6,750

O/S wages

      50

Investment

41,400

O/S Salary

       20

Closing stock

20,000

       
 

1,28,000

 

1,28,000

 

Question-23

The following balances appeared in the trial balance of M/s Kapil Traders as on March 31, 2006.
 
  Rs.
Sundry debtors 30,500
Bad debts 500
Provision for bad debts 2,000

 

The partners of the firm agreed to records the following adjustments in the books of the Firm: Further bad debts Rs.300. Maintain provision for bad debts 10%. Show the following adjustments in the bad debts account, provision account, debtors account, profit and loss account and balance sheet.


Solution:

Bad Debts Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

       

March 31, 2006

Bad debts

 

500

       

March 31, 2006

Further bad debts

 

300

       

March 31, 2006

Provision for bad debts @ 10%

 

3,020

Provision for Bad Debts Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

March 31, 2006

Balance b/d

 

30,500

March 31, 2006

Bad debts

 

500

March 31, 2006

Provision for bad debts

 

2,000

March 31, 2006

Further bad debts

 

300

       

March 31, 2006

Provision for bad debts @ 10%

 

3,020

 

Profit and Loss Account for the year ended March 31, 2006

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Bad debts 500

Add: further bad debts 300

800

Add: prov doe bad debts3,020

 

 

3,820

Provision for bad debts

2,000

   

Balance c/d

1,820

 

3,820

 

3,820

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

   

Debtors 30,500

Less:

further

bad debts    300

              30,200

Less:

prov for bad
debts        3,020

 

 

 

 

27,180

 

Question-24

Prepare the bad debts account, provision for account, profit and loss account and balance sheet from the following information as on December 31, 2005.
 
  Rs.
Debtors 80,000
Bad debts 2,000
Provision for bad debts 5,000

Adjustments :

Bad debts Rs.500 Provision on debtors @ 3%.

 

 


Solution:

Profit and Loss Account for the year ended March 31, 2006

Dr.     Cr.

Expenses / Losses

Amount (Rs.)

Revenues / Gain

Amount (Rs.)

Bad debts 2,000

Add: further bad debts 500

                            2,500

Add: prov doe bad debts 2,385

 

 

4,885

Provision for bad debts

5,000

Balance c/d

  115

   
 

5,000

 

5,000

Balance sheet as on 31 March, 2005

 

Liabilities

Amount (Rs)

Assets

Amount (Rs)

   

Debtors    80,000

Less:

further

bad debts    500

              79,500

Less:

prov for bad
debts         2,385

 

 

 

 










77,115

 





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