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Page No 434:

Question 1:

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.

Page No 434:

Question 2:

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.

 

Page No 434:

Question 3:

State the meaning of:

(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.

Page No 434:

Question 4:

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

 

 

 

 

Page No 434:

Question 5:

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.

Page No 434:

Question 6:

What adjusting entries would you record for the following?

(a) Depreciation

(b) Discount on debtors

(c) Interest on capital

(d) Manager’s commission

Answer:

(a)

Dr.

 

      Cr.

   

Particulars

Amount

Particulars

Amount

 

Liabilities

Amount

Assets

Amount

Depreciation

  

 

 

 

 

 

 Assets

 

 

 

 

 

 

 

 

 

Less: Depreciation

 

 

  

  

 

 

 

 

 

 

                     

 (b)

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

 

 

  

  

 

 

 

 

 

 

                     

 (c)

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

                 

 

  

  

 

 

 

 

 

 

                     

 

Page No 434:

Question 7:

What is meant 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.

Page No 434:

Question 8:

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)

 

 

 

 

 



Page No 435:

Question 1:

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.

Page No 435:

Question 2:

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.

 

Page No 435:

Question 3:

Show the treatment of prepaid expenses, depreciation and closing stock at the time of preparation of final accounts when:

(a) When given inside the Trial Balance?

(b) When given 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 

 

­­

 

 

 

 

 

 

 

(b) When given outside the Trial Balance:

 

Dr.

 

      Cr.

   

Particulars

Amount

Particulars

Amount

 

Liabilities

Amount

Assets

Amount

 Concerned Expenses

  

 

 

 

 

 

 Prepaid Expenses

 

 

Less: Prepaid Expenses

 

 

 

 

 

 

   

 

                   

 

  

  

 

 

 

 

 

 

                       

 

(ii) 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

 

                   

 

  

  

 

 

 

 

 

 

                     

 

 

(iii) 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

 

 

  

  

 

 

 

 

 

 

                   

 

Page No 435:

Question 1:

Prepare a trading and profit and loss account for the year ending December 31, 2017. 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, 2017

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, 2017

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, 2017

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

 

 

 

 

 

 

 

 

                 

 

 

 



Page No 436:

Question 2:

Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending March 31, 2017. 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 March 31, 2017

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 March 31, 2017

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 March 31, 2017

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

 

 

 

 

 

 

 

 

 



Page No 437:

Question 3:

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 March 31, 2017.

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

 

 

 

 

 

 

 

 

 

 

                       

 



Page No 438:

Question 4:

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 March 31, 20170 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% (01.09.2010)

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 01-9-2017 to 31-12-2017. Thus, interest for loan is outstanding for four months and is calculated as follows:

 

Interest on loan =

3000 ×

15

×

4

= Rs 150

100

12

 



Page No 439:

Question 5:

From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending March 31, 2017.

 

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 October 01, 2016.

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