Home » Class 11 Accountancy » NCERT Solutions for Class 11 Accountancy Financial Accounting Part-2 Chapter 2 – Financial Statements

NCERT Solutions for Class 11 Accountancy Financial Accounting Part-2 Chapter 2 – Financial Statements


Short answers : Solutions of Questions on Page Number : 422


Q1 :Why is it necessary to record the adjusting entries in the preparation of final accounts?
Answer :  It is extremely important to record the adjusting entries in the preparation of final accounts.
1. This is done in order to assess the true net profit or net loss of the business organisation.
2. It helps us record those adjustments which were left or omitted and were not recorded in the accounts.
3. It assists us to separate all the financial transactions into a year-wise category. The financial statements include only those entries which belong to the current year. It rules out the previous and forthcoming years’ entries which are the basis for accrual basis of accounting.
4. Further, it provides us the room for making various provisions which are made at the end of the year, after assessing the entire year’s performance


Q2 :What is meant by closing stock? Show its treatment in final accounts.
Answer :
Closing stock implies the value of unsold goods at the end of an accounting period. The valuation of closing stock is done on the basis of its cost price or the realisable value, whichever of the two is lesser.
Example: If a good with the cost price of Rs 20,000 is purchased at the end of an accounting period and its realisable value is Rs 30,000, then the closing stock will be valued at Rs 20,000 not at Rs 30,000.
Treatment of closing stock
If closing stock is given in the adjustment, then there will be two postings.

Trading Account

Balance Sheet

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

 

 

 

 

 

  

 

 

 

 

 

 

  

Closing Stock

 

  

 

  

 

  

  

  

 

If closing stock is given in the trial balance, then it needs to be shown only in the assets side of the Balance Sheet.


Q3 :Write short notes on
(a) Outstanding expenses
(b) Prepaid expenses
(c) Income received in advance
(d) Accrued income
Answer :
(a) Outstanding Expenses: These refer to those expenses which belong to and are incurred in the current accounting period but are left unpaid. In other words, we can say that the services in exchange of these payments have been realised but the payments are not made. For example, if Rs 1000 wages are outstanding, then this means that labour worth Rs 1,000 has been used but has not been paid for till the end of the year.
(b) Prepaid Expenses: These refer to those expenses for which the benefits have not been realised but the payments have already been made in advance. These are basically the advance payments for the next year, which are made in the current accounting period.
Example: Prepaid insurance premium of Rs 1,000 means that the payment of Rs 1,000 is made in advance for the next accounting period.
(c) Income Received in Advance: This refers to the income received whose actual realisation of benefits will occur in the next accounting period. These are also called unearned incomes.
Example: Commission of Rs 1,200 for the year 2011-12 is received in 2010-11. This commission does not belong to the current year as it is related with the work to be done in the next accounting year i.e., 2011-12.
(d) Accrued Income: This refers to those incomes which have been earned during an accounting period but have not been actually realised in the current period. These are also called earned incomes.


Q4 :Give the performa of income statement and balance in vertical form.
Answer :

Income statement for the period ended———

 

Particulars

Amount

Rs

Amount

Rs

Sales (Gross)

 

 

Less: Returns

 

 

 

Net Sales

 

 

Cost of goods sold

 

 

 

Opening Stock

 

 

 

Purchases

 

 

 

Less: Returns

 

 

 

Carriage Inwards

 

 

 

Wages

 

 

 

Cost of Goods Available for Sale

 

 

Less: Closing Stock

 

 

Gross Profit

 

 

Operating Expenses

 

 

(a) Selling Expenses

 

 

 

Advertising

 

 

 

Discount

 

 

 

Allowances

 

 

 

Bad-Debts and Provisions

 

 

 

Carriage Outwards

 

 

 

Total Selling Expenses

 

 

(b) General and Administration Expenses

 

 

 

Salaries

 

 

 

Rent and Rates

 

 

 

Insurance

 

 

 

Depreciation

 

 

 

Postage

 

 

 

Repairs

 

 

 

General Expenses

 

 

 

Total Operating Expenses

 

 

 

Net Income from Operations (Operating
profit)

 

 

Other Income (Non-operating gains)

 

 

 

Interest Earned

 

 

 

Commission Earned

 

 

 

Profit on Sale of Fixed Assets

 

 

Less: Deductions
(Non-operating expenses)

 

 

 

Interest Paid

 

 

 

Loss by Fire

 

 

 

Net Non-operating Gains

 

 

 

Net Income (Net profit)

 

 

 

 

 

 

Income statement for the period ended ——–

 

Particulars

Amount

Rs

Amount

Rs

Current Assets

 

 

 

Cash in Hand

 

 

 

Cash at Bank

 

 

 

Bills Receivable

 

 

 

Accrued Income

 

 

 

Debtors

 

 

 

Stock

 

 

Prepaid Expenses

 

 

Total Current Assets

 

 

 Less: Current
Liabilities

 

 

 

Bank Overdraft

 

 

 

Outstanding Expenses

 

 

 

Bills Payable

 

 

 

Trade Creditors

 

 

 

Income Received in Advance

 

 

 

Total Current Liabilities

 

 

 

Net Working Capital

 

 

 

(Current assets and Current liabilities)

 

 

 Fixed Assets

 

 

 

Furniture and Fixtures

 

 

 

Patents

 

 

 

Plants and Machinery

 

 

 

Building

 

 

 

Land

 

 

 

Goodwill

 

 

 

Total Fixed Assets

 

 

 

Total Assets (After paying current
liabilities)

 

 

 Capital Employed

 

 

 

Long-term Liabilities

 

 

 

Loan

 

 

 

Mortgage

 

 

 

Total Long-term Liabilities

 

 

 

Net Assets (being the difference between
total assets and long-term liabilities)

 

 

 Capital (Proprietor)

 

 

 

 Capital in the Beginning

 

 

 Add: Capital Introduced During
the Current Year

 

 

 

 Interest on Capital, Salary, etc.

 

 

 

 Profit for the Current Year

 

 

 Less: Drawings During the Current
Year

 

 

 

 Interest on Drawings

 

 

 

 Loss for the Current Year

 

 

 

 Total Capital of the Proprietor at the End
of the Year

 

 


Q5 :Why is it necessary to create a provision for doubtful-debts at the time of preparation of final accounts?
Answer :   The provision for doubtful-debts is created with the motive of minimising the effect of actual loss caused by the bad-debts. The actual figure of the current year’s bad-debts will be known in the next year with the realisation of debtors. At that point of time, it will be known as to how many of the debtors have become bad. Thus, instead of waiting for the realisation of debtors, we create a provision for doubtful-debts in order to cover the expected future loss associated with the debtors becoming bad.


Q6 :What adjusting entries would you record for the following?
(a) Depreciation
(b) Discount on debtors
(c) Interest on capital
(d) Manager’s commission
Answer :

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

Depreciation

Assets

Less: Depreciation

<

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

Discount on Debtors

Debtors

Less: New Provision

Less: Further Bad Debts

Less: Discount on Debtors

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

Interest on Capital

Capital

Add: Interest on Capital

(d) Manager’s commission

There are two cases in manager’s commission.

Case 1: Manager’s commission based on profits before charging the manager’s commission.

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

Manager’s Commission

Outstanding Manager’s

Commission

Case 2: Manager’s commission based on profits after charging the manager’s commission.

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

Net Profit before

Outstanding Manager’s

Manager’s Commission

Commission

O/S Manager’s Commission

Net Profit after

Manager’s Commission


Q7 :What do you mean by provision for discount on debtors?
Answer :
The discount is allowed to those debtors who are ready to pay a huge amount in one shot. It is given in order to encourage them to repay the debt. The provision for discount on debtors is created on good debtors. The amount of good debtors is calculated by deducting the amount of Bad Debts, further Bad Debts and new provision for Doubtful Debts. The required percentage of the good debtors is calculated and the provision for discount on debtors is deducted from the Debtors’ amount in the Assets side of a Balance Sheet. As it is a loss for the business, it is shown in the Debit side of the Profit and Loss Account.


Q8 : Give the journal entries for the following adjustments:
(a) Outstanding salary at 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.
Answer :

S. No.

Particulars

L.F.

Debit

Rs

Credit

Rs

a)

Salaries A/c Dr.

3,500

To Outstanding Salaries
A/c

3,500

(Salaries of Rs 3,500 is
remaining outstanding)

b)

Rent A/c Dr.

500

To Outstanding Rent
A/c

500

(Rent unpaid for one month at
Rs 500 =

6000

)

12

c)

Prepaid Insurance A/c
Dr.

4,000

To Insurance A/c

4,000

(Insurance paid in advance
for 3 months i.e. Rs 400)

d)

Furniture A/c Dr.

7,000

To Purchases A/c

7,000

(Furniture was wrongly
debited to Purchases Account,

now rectified)


Long answers : Solutions of Questions on Page Number : 423


Q1 : What are adjusting entries? Why are they necessary for preparing the final accounts?
Answer : Adjusting entries are the entries of those adjustments which are given outside the trial balance and which help us reflect the true financial position i.e., profit or loss of an organisation. According to the double-entry system, all the adjustments given outside the Trial Balance are posted at two places. The adjusting entries are necessary they enable us to post and take into account those items which are omitted or entered with the wrong amount and/or recorded under wrong heads.
The treatment of adjusting entries is necessary.
(i) It helps us assess the true financial position of an organisation based on accrual basis of accounting.
(ii) It helps us know the actual figure of profit or loss.
(iii) It records the omitted entries and rectifies the errors made.
(iv) It helps in providing depreciation and making different provisions, such as Bad Debts and depreciation.


Q2 :What is meant by provision for doubtful-debts? How are the relevant accounts prepared and what journal entries are recorded in the final accounts? How is the amount for provision for doubtful-debts calculated?
Answer :
The provision for doubtful-debts is provided after deducting the amount of bad-debts from the debtors. The provision for doubtful-debts is provided because of the rationale that the actual amount of bad-debts will only be known in the next year, when the amount of debtors will get realised. Thus, it will only then be known as to how many of the debtors have become bad. Thus, in order to bridge-up the expected future loss, we create a provision for doubtful-debts.
For the provision for doubtful-debts, we prepare debtors account and provision for doubtful-debts account. For recording bad-debts, the following journal entry is passed.

Profit and Loss A/c

Dr.

To Provision for Bad and Doubtful Debts A/c

Example: An extract from a Trial Balance as on December 31, 2010.

Debtors

10,500

Provision for Doubtful Debts
as on January 01, 2010

1,000

Bad Debts Account

1,500

Adjustment:
(i) Further bad-debts amount to Rs 500.
(ii) Create a provision for doubtful-debts at 5% on debtors.
Explanation
The provision for Doubtful Debt as on January 01, 2010 was Rs 1,000 and the Bad Debts during the year were Rs 1,500. In addition to this, there was a further Bad Debt of Rs 500 which was known at the end of the year i.e., December 31, 2010. Now we need to create a provision for Doubtful Debts at 5% on debtors.

Profit and Loss A/c

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Bad Debts

1,500

Add: Further Bad Debts

500

Add: New Provision for Doubtful Debts

500

Less: Old Provision (given in Trial
Balance)

1,000

1,500

 

Balance Sheet

Liabilities

Amount

Assets

Amount

Debtors

10,500

Less:
Further Bad Debts

500

10,000

Less:
New Provision for Doubtful Debts

500

9,500

The amount of provision for Doubtful Debts is calculated by debiting the amount of further Bad Debts from debtors and calculating the given percentage of provision on remaining debtors. This provision is added to the Bad Debts amount in the profit and loss account and deducted from debtors in the assets side of a Balance Sheet.


Q3 : Show the treatment of prepaid expenses, depreciation and closing stock at the time of preparation of final accounts when they are given
(a) inside the Trial Balance
(b) outside the Trial Balance
Answer :
(i) Prepaid expenses
(a) When given inside the Trial Balance: It will be posted only in the Assets side of the Balance Sheet.

Balance Sheet

Assets

Amount

Prepaid Expenses

­­

When given outside the Trial Balance:

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

Concerned Expenses

Prepaid Expenses

Less: Prepaid Expenses

Depreciation

(a) If depreciation is given inside the Trial Balance, then it can be shown in the Debit side of the Profit and Loss A/c. It means that this depreciation amount has already been deducted from the concerned assets in the Balance Sheet.

Profit and Loss Account

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Depreciation

(b) If depreciation is given outside the Trial Balance, i.e. in the adjustments, then it is shown in the debit side of the Profit and Loss Account and deducted from the concerned assets in the Assets side of Balance Sheet.

 

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

Depreciation on Concerned Assets

Concerned Assets

Less: Depreciation

Closing stock

(a) The closing stock is valued at cost price or realisable value, whichever of the two is lesser. If given inside the Trial Balance, then it will be posted only in the Assets side of the Balance Sheet.

Balance Sheet

Liabilities

Amount

Assets

Amount

Closing Stock

(b) If the closing stock is given outside the Trial Balance then, it needs to be posted at two places.

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

Closing Stock

Closing Stock

 



Numerical questions : Solutions of Questions on Page Number : 423


Q1 : 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 doubtful
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

34,800

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 doubtful debts @ 5% on debtors and discount on debtors @ 2%.
5. Closing stock Rs 32,000.
6. Depreciation on building @ 6% p.a.
Answer :

Books of M/s. Rahul Sons.

Trading Account for the year ending December 31, 2010

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

50,000

Sales

1,80,000

Purchases

1,75,000

Less: Sales Returns

3,000

1,77,000

Less: Purchase Returns

2,000

1,73,000

Closing Stock

32,000

Wages

3,000

Gross Loss

17,000

2,26,000

2,26,000

 

Profit and Loss Account for the year ending December 31, 2010

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Gross Loss

17,000

Discount Received

500

Salary

8,000

Commission Received

4,000

Add: Outstanding Salary

1,000

9,000

Less: Advance Commission

1,000

3,000

Discount Allowed

1,000

Insurance

3,200

Rent

6,000

Less: Insurance Prepaid

800

2,400

Add: Rent Receivable

2,000

8,000

Rent Rates and Taxes

4,300

Trade Expenses

1,500

Net Loss

43,189

Bad-Debts

2,000

Add: Further Bad-Debts

1,000

Add: New Provision

4,050

Less: Old Provision

2,500

4,550

Discount on Debtors

1,539

Postage

300

Telegram Expenses

200

Depreciation on Building

6,600

Repair and Renewals

1,600

Travelling Expenses

4,200

Legal Fees

500

54,689

54,689

 

Balance Sheet for the year ending December 31, 2010

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

3,00,000

Debtors

82,000

Less: Net Loss

43,189

Less: Further Bad-Debts

1,000

Less: Drawings

32,000

2,24,811

Less: New Provision

4,050

Bills Payable

22,000

Less: Discount on Debtors (on Rs 76,950)

1,539

75,411

Loan

34,800

B/R

50,000

Advance Commission

1,000

Buildings

1,10,000

Outstanding Salary

1,000

Less: 6% Depreciation

6,600

1,03,400

Rent Receivable

2,000

Prepaid Insurance

800

Closing Stock

32,000

Furniture and Fittings

20,000

2,83,611

2,83,611

 


Q2 : Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending December 31, 2010. 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

Investment

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.
Answer:

Trading Account for the year ending December 31, 2010

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

35,000

Sales

2,50,000

Purchases

1,25,000

Less: Sales Returns

(25,000)

2,25,000

Less: Purchase Returns

(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

Profit and Loss Account for the year ending December 31, 2010

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Bad Debts

3,500

Gross Profit

79,000

Add: Further Bad-debts

1,500

Interest on Accrued Investment

1,155

Add: New Provision

2,910

Discount

1,000

Less: Old Provision

4,500

3,410

Interest Received

5,400

Discount on Debtors

2,280

Postage and Telegram

600

Salary

12,300

Rent and Rates

1,000

Packing and Transport

500

General Expenses

400

Insurance

4,000

Discount

3,500

Depreciation on Machinery

1,000

Lighting and Heating

5,000

Net Profit

52,565

86,555

86,555

Balance Sheet

as on December 31, 2010

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

10,000

Cash in Hand

20,000

Bills Payable

20,000

Cash at Bank

40,000

Capital

75,000

Add: Net Profit

52,565

1,27,565

Debtors

50,000

Less: Further Bad-Debts

1,500

Less New Provision

2,910

Less: Discount on Debtors

2,280

43,310

Investment

23,100

Add: Interest on Investment

1,155

24,255

Machinery

20,000

Less: Depreciation

1,000

19,000

Prepaid Wages

1,000

Closing Stock

10,000

1,57,565

1,57,565

 


Q3 : 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, 2010.

Account Title

Amount

Rs

Account Title

Amount

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

Motor car

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.
Answer :

Trading Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

50,000

Sales

2,50,000

Purchases

1,50,000

Less: Return Inwards

2,000

2,48,000

Less: Return Outwards

4,500

1,45,500

Closing Stock

32,500

Carriage Inwards

4,500

Wages

2,400

Add: Outstanding Wages

100

2,500

Gross Profit

78,000

2,80,500

2,80,500

Profit and Loss Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Carriage Outward

400

Gross Profit

78,000

Printing and Stationery

4,500

Interest Received

3,500

Discount

400

Discount Received

400

Bad Debts

1,500

Interest Received on Investment

1,600

Add: Further Bad Debts

1,000

Add: New Provision

2,600

5,100

Discount on Debtors

500

Insurance

2,500

Postage and Telegraph

400

Commission

200

Interest

1,000

Add: Outstanding Interest

200

1,200

Repair

440

Lighting Charges

500

Telephone Charges

100

Depreciation on Motor Car

1,250

Net Profit

66,010

83,500

83,500

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

1,25,000

Cash in Hand

77,800

Add: Interest Received

1,600

79,400

Bills Payable

6,040

Cash at Bank

60,800

Capital

1,00,000

Investment

32,000

Add: Net Profit

66,010

1,66,010

Debtors

53,000

Less: Further Bad Debts

1,000

Outstanding Interest

100

Less: New Provision

2,600

Outstanding Wages

200

Less: Discount on Debtors

500

48,900

Motor Car

25,000

Less: Depreciation

1,250

23,750

Bills Receivable

20,000

Closing Stock

32,500

2,97,350

2,97,350

 


Q4 :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

50,000

Sales

3,50,000

Purchases

1,25,500

Purchases return

2,500

Sales return

2,000

Creditors

25,000

Cash in hand

21,200

Rent

5,000

Cash at bank

12,000

Interest

2,000

Carriage

100

Bills payable

1,71,700

Free hold land

3,20,000

Capital

3,00,000

Patents

1,20,000

General Expenses

2,000

Sundry Debtors

32,500

Building

86,000

Machinery

34,500

Insurance

12,400

Drawings

10,000

Motor vehicle

10,500

Bad debts

2,000

Light and Water

1,200

Trade expenses

2,000

Power

3,900

Salary and Wages

5,400

Loan a 15%
(01.09.2005)

3,000

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.
Answer :

Trading Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

50,000

Sales

3,50,000

Purchases

1,25,500

Less: Return

2,000

3,48,000

Less: Return Outwards

2,500

1,23,000

Closing Stock

40,000

Carriage

100

Power

3,900

Gross Profit

2,11,000

3,88,000

3,88,000

Profit and Loss Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

General Expenses

2,000

Gross Profit

2,11,000

Insurance

12,400

Rent

5,000

Bad Debts

2,000

Interest

2,000

Add: Provision for Bad Debts

1,625

3,625

Accrued Interest on Loan

150

Light and Water

1,200

Trade Expenses

2,000

Add: Outstanding Trade Expenses

300

2,300

Salary and Wages

5,400

Add: Outstanding Salary

500

5,900

Depreciation on Building

3,440

Depreciation on Machinery

1,725

Net Profit

1,85,560

2,18,150

2,18,150

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

3,00,000

Cash in Hand

21,200

Add: Net Profit

1,85,560

Cash at Bank

12,000

Less: Drawings

10,000

4,75,560

Freehold Land

3,20,000

Creditors

25,000

Patents

1,20,000

Bills Payable

1,71,700

Sundry Debtors

32,500

Outstanding Trade Expenses

300

Less: Provision for Bad Debts

1,625

30,875

Outstanding Salary

500

Building

86,000

Less: Depreciation

3,440

82,560

Machinery

34,500

Less: Depreciation

1,725

32,775

Motor Vehicle

10,500

Loan

3,000

Add: Interest on Loan

150

3,150

Closing Stock

40,000

6,73,060

6,73,060

Working Note
In the question, the loan given by us bears an interest of 15% p.a. and interest is unpaid from 01-9-2010 to 31-12-2010. Thus, interest for loan is outstanding for four months and is calculated as follows:
Interest on loan = 3000 × 15100 × 412 = Rs 150


Q5 : From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending December 31, 2011.

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

Freight

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

Motor car

51,000

5,69,400

5,69,400

Adjustments
1. Closing stock was Rs 45,000.
2. Provision for doubtful 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.
Answer :

Trading Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

25,000

Sales

2,76,000

Purchases

1,80,000

Less: Return Inwards

7,000

2,69,000

Less: Return Outwards

2,000

1,78,000

Closing Stock

45,000

Wages

10,000

Freight

4,000

Gross Profit

97,000

3,14,000

3,14,000

 

Profit and Loss Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Trade Expenses

2,400

Gross Profit

97,000

Printing and Stationery

2,000

Old Provision for Bad Debts

4,000

Rent Rates and Taxes

5,000

Less: Bad Debts

1,000

Discount Allowed

2,000

Less: New Provision

1,600

1,400

Depreciation on Motor Car

5,100

Depreciation on Furniture and Fixtures

1,000

*Depreciation on P & M of Rs 70,000

4,200

**Depreciation on P & M of Rs 30,000

900

Net Profit Before Manager’s Commission

75,800

1,02,400

1,02,400

Manager’s Commission

6,891

Net Profit After Commission

68,909

Balance b/d

75,800

75,800

75,800

 

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

2,00,000

Cash in Hand

6,000

Add: Net Profit

68,909

Sundry Debtors

80,000

Less: Drawings

20,000

2,48,909

Less: New Provision

1,600

78,400

O/S Manager’s Commission

6,891

Furniture and Fixtures

20,000

Bank Overdraft

12,000

Less: Depreciation

1,000

19,000

Creditors

60,000

Bills Payable

15,400

Plant and Machinery

1,00,000

Less: Depreciation 1*

4,200

Less: Depreciation 2**

900

94,900

Bills Receivable

14,000

Investments

40,000

Motor Car

51000

Less: Depreciation

5100

45,900

Closing Stock

45,000

3,43,200

3,43,200

Working Notes
1. Manager’s Commission

= Net Profit before commission ×

10

110

= 75,800 ×

10

110

= Rs 6,891

2. Out of the machinery of Rs 1,00,000, Rs 30,000 worth of machinery was purchased on 01/July/2011. Therefore, the depreciation on this machinery will be for 6 months at 6% p.a.

*Depreciation on machinery (30,000) =

30,000 ×

6

×

6

= Rs 900

12

100

**The rest of the machinery of Rs 70,000 will bear depreciation at 6% p.a.

Depreciation on machinery (70,000) =

70,000 ×

6

= Rs 900

12

Note: As per our solution Gross Profit is Rs 97,000, however, as per book it is Rs 1,01,000.


Q6 : Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars.
Answer:

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

Cash in bank

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%.
Answer :

Trading Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

75,550

Sales

1,00,000

Purchases

75,000

Less: Sales Inwards

6,000

94,000

Less: Return Outwards

4,500

70,500

Closing Stock

35,000

Freight

2,250

Gross Loss

19,300

1,48,300

1,48,300

 

Profit and Loss Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Gross Loss

19,300

Discount

3,500

Bad Debts

3,000

Interest Received

11,260

Add: Further Bad-Debts

1,000

Interest on Drawings

814

Add: New Provision

4,950

Net Loss

27,482

Less: Old Provision

1,500

7,450

Discount on Debtors

1,881

Trade Expenses

2,500

Printing and Stationery

5,000

Rent, Rates and Taxes

3,450

Add: O/S Rent, Rates and Taxes

200

3,650

Depreciation on Furniture

775

Depreciation on Motor Car

2,500

43,056

43,056

 

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

85,550

Sundry Debtors

100,000

Sundry Creditors

25,000

Less: Further Debts

1,000

Capital

2,50,000

Less: New Provision

4,950

Less: Net Loss

27,482

Less: Discount on Debtors

1,881

92,169

Less: Drawings

13,560

Less: Interest on Drawings

814

Motor Car

25,000

2,08,144

Less: Depreciation

2,500

22,500

Outstanding Rent, Rates and Taxes

200

Furniture and Fixtures

15,500

Less: Depreciation

775

14,725

Investments

65,500

Cash in Hand

36,000

Cash in Bank

53,000

Closing Stock

35,000

3,18,894

3,18,894

Note: In NCERT book, the Gross Loss is Rs 17,050, the Net Loss is Rs 27,344 and the Total of Balance Sheet is Rs 3,19,032. However, as per the solution Net Loss and the Total of the Balance Sheet are Rs 27,482 and Rs 3,18,894 respectively.


Q7 : 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, 2011.

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

Machinery

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 commission @ 5% on net profit before charging such commission.
Stock on December 31, 2011 was Rs 30,000
Answer :

Trading Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

2,26,000

Sales

6,80,000

Purchases

4,40,000

Less: Sales Return

10,000

6,70,000

Less: Returns Outwards

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

Profit and Loss Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Trade Expenses

3,300

Gross Profit

37,600

Salary and Wages

5,000

Interest Received

20,000

Legal Expenses

3,000

Postage and Telegram

1,000

Bad Debts

6,500

Add: New Provision

1,250

7,750

Depreciation on Building

5,000

Depreciation on Motor Van

3,000

Insurance

3,500

Less: Unexpired Insurance

600

2,900

Net Profit

26,650

57,600

57,600

Manager’s Commission Payable

1,269

Balance b/d

26,650

Net Profit after Commission

25,381

26,650

26,650

 

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

3,50,000

Cash in Hand

79,000

Add: Net Profit

25,381

Cash at Bank

98,000

Less: Drawings

75,000

3,00,381

Buildings

1,00,000

Creditors

50,000

Less: Depreciation

5,000

95,000

Bills Payable

63,700

Manager’s Commission Payable

1,269

Motor Van

30,000

Less: Depreciation

3,000

27,000

Sundry Debtors

25,000

Less: New Provision

1,250

23,750

Investments

40,000

Machinery

22,000

Unexpired Insurance

600

Closing Stock

30,000

4,15,350

4,15,350


Q8 : 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, 2011 and a balance sheet as on that date.
Answer:

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