A merchant keeps incomplete records. During 2010 the analysis of his cash book was as under:
Trading Account for the year ended 31st December, 2010 | |||||
Dr. |
| Cr. | |||
Particulars | Amount (Rs) | Particulars | Amount (Rs) | ||
Opening Stock | 1,800 | Sales | 4,700 | ||
Purchases | 3,100 | Closing Stock | 2,600 | ||
Gross Profit (Balancing Figure) | 2,400 |
|
| ||
| 7,300 |
| 7,300 | ||
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Profit and Loss Account for the year ended 31st December, 2010 | |||||
Dr. |
| Cr. | |||
Particulars | Amount (Rs) | Particulars | Amount (Rs) | ||
General Expenses | 900 | Gross Profit | 2,400 | ||
Salaries | 300 |
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Interest on Loan [1,500 * 6% * 6/12] | 45 |
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Depreciation on Building | 125 |
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Net Profit (Balancing Figure) | 1,030 |
|
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| 2,400 |
| 2,400 | ||
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|
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Balance Sheet as at 31st December, 2010 | |||||
Liabilities | Amount (Rs) | Assets | Amount (Rs) | ||
Capital | 7,500 |
| Fixed Assets |
| |
Add: Addition | 300 |
| Building | 2,500 |
|
Less: Drawings | 400 |
| Less:Depreciation | 125 | 2,375 |
Add: Net Profit | 1,030 | 8,430 |
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| |
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| Current Assets |
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Current Liabilities |
| Stock | 2,600 | ||
6% p.a. Loan from C | 1,500 | Debtors | 6,000 | ||
Interest on Loan | 45 | Cash at Bank | 900 | ||
Creditors | 1,900 |
|
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| 11,875 |
| 11,875 | ||
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Working Notes:-
- Opening Balance Sheet
Balance Sheet as at 1st January, 2010 | |||
Liabilities | Amount (Rs) | Assets | Amount (Rs) |
Capital (b.f.) | 7,500 | Fixed Assets |
|
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| Building | 2,500 |
Current Liabilities |
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|
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Bank Overdraft | 600 | Current Assets |
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Creditors | 1,500 | Stock | 1,800 |
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| Debtors | 5,300 |
| 9,600 |
| 9,600 |
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- Debtors A/c
Debtor’s Account | |||||||||
Dr. |
| Cr. | |||||||
Date | Particulars | J.F. | Amount (Rs) | Date | Particulars | J.F. | Amount (Rs) | ||
| Balance b/d |
| 5,300 |
| Cash A/c |
| 4,000 | ||
| Sales A/c (b.f.) |
| 4,700 |
| Balance c/d |
| 6,000 | ||
|
|
| 10,000 |
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| 10,000 | ||
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- Creditors A/c
Creditor’s Account | |||||||||
Dr. |
| Cr. | |||||||
Date | Particulars | J.F. | Amount (Rs) | Date | Particulars | J.F. | Amount (Rs) | ||
| Cash A/c |
| 2,700 |
| Balance b/d |
| 1,500 | ||
| Balance c/d |
| 1,900 |
| Purchases A/c (b.f.) |
| 3,100 | ||
|
|
| 4,600 |
|
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| 4,600 | ||
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Ans.
(a)
Income and Expenditure account is made in a not for profit organization for analysing the surplus or deficit. It is similar to Profit and Loss account and all the expenses and losses are debited to the Income and Expenditure account and all the Incomes are credited. The balance of Income over Expenditure is called Surplus and the balance of Expense over Income is called Deficit.
On the other hand, Receipts and Payments account is a substitute of Cash account. All the Cash transactions are recorded in it.
(b)
The methods of recording depreciation in books of accounts are:-
- Net Cost Method
Under this method, the assets are shown at the value net of depreciation i.e. depreciation is directly charged to the Asset on yearly basis and the asset appears in the books at the Net Value (less depreciation).
- Gross Block/ Original Cost Method
Under this method, depreciation expense is recorded in a separate account namely, Provision for Depreciation account. The same is transferred to asset only when the asset is disposed off. Hence, two separate accounts are shown in the Balance Sheet and the Assets are shown at their Gross Value.
Provision for Depreciation account is shown on the Assets side as a deduction from Gross Block of Assets.