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
Â 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)
*Â Fixed Assets*
	Furniture and Fixtures
	Patents
	Plants and Machinery
	Building
	Land
	Goodwill
	Total Fixed Assets
	Total Assets (After paying current liabilities)
*Â Capital Employed*
	Long-term Liabilities
	Loan
	Mortgage
	Total Long-term Liabilities
	Net Assets (being the difference between total assets and long-term liabilities)
*Â Capital (Proprietor)*
	Â Capital in the Beginning
Â *Add*: Capital Introduced During the Current Year
	Â Interest on Capital, Salary, etc.
	Â Profit for the Current Year
Â *Less*: Drawings During the Current Year
	Â Interest on Drawings
	Â Loss for the Current Year
	Â 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	)
	(Rent unpaid for one month at Rs 500 =		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 × ¹⁵⁄₁₀₀ × ⁴⁄₁₂ = 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 Managerâ€™s Commission	75,800

	1,02,400				1,02,400
Managerâ€™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 Managerâ€™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 Ã—		10
		110
= 75,800 Ã—	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 Ã—	6	Ã—	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 Ã—

= Rs 900

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

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