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Page No 364:

Question 1:

What are the objectives of preparing financial statements?

Answer:

The following are the objectives of preparing financial statements.

1. To ascertain profit earned or loss incurred by a business during an accounting period. This is estimated by preparing Trading and Profit and Loss Account.

2. To ascertain the true financial position of a business. This is reflected by the Balance Sheet.

3. To enable comparison of current year’s performance with that of the previous year’s, i.e., intra-firm comparisons. Also, to compare own performance with that of the other firms in the same industry, i.e., inter-firm comparisons.

4. To assess the solvency and credit worthiness of the business

5. To provide various provisions and reserves to meet unforeseen future conditions and to toughen the financial position of the business

6. To provide vital information to facilitate various users of accounting information in decision making process.

Page No 364:

Question 2:

What is the purpose of preparing trading and profit and loss account?

Answer:

The purposes of preparing Trading Account are:

1. To calculate gross profit earned or gross loss incurred during an accounting period

2. To estimate the cost of goods sold

3. To record direct expenses (i.e., expenses incurred on the purchases and manufacturing of goods)

4. To measure the adequacy and reasonability of direct expenses incurred by comparing purchases with direct expenses incurred

5. To compare the realised efficiency and performance with the desired or proposed targets

The purposes of preparing Profit and Loss Account are:

1. To calculate net profit or net loss

2. To ascertain net profit ratio and to compare this year’s net profit ratio with that of the desired and proposed target in order to assess the efficiency and effectiveness

3. To measure the adequacy and reasonability of indirect expenses incurred by ascertaining ratio between indirect expenses and net profit

4. To compare current year’s actual performance with desired and planned performance

5. To provide various provisions and reserves to meet unforeseen future conditions and to toughen the financial position of the business

Page No 364:

Question 3:

Explain the concept of cost of goods sold?

Answer:

Cost of goods sold (COGS) is the cost of merchandise that is sold to the customers. It includes cost of raw materials purchased, direct expenses incurred, value of opening stock, i.e., the value of the last year’s unsold stock and excludes closing stock if any, i.e., the value of current year’s unsold stock. The formula to calculate COGS is:

Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses − Closing Stock

Page No 364:

Question 4:

What is a balance sheet? What are its characteristics?

Answer:

Balance Sheet is a statement prepared to ascertain values of assets and liabilities of a business on a particular date. It is called Balance Sheet as it contain balances of real and personal accounts, which are not closed on a particular date.

Characteristics of Balance Sheet

1. It is a statement of assets and liabilities.

2. The total of Assets side must be equal to Liabilities sides.

3. It is prepared at a particular date.

4. It helps in ascertaining the financial position of the business.

Page No 364:

Question 5:

Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure:

(a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.

(b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order.

(c) Registration fees paid at the time of purchase of a building

(d) Expenditure incurred in the maintenance of a tea garden which will produce tea after four years.

(e) Depreciation charged on a plant.

(f) The expenditure incurred in erecting a platform on which a machine will be fixed.

(g) Advertising expenditure, the benefits of which will last for four years.

Answer:

Basis of Difference

Capital Expenditure

Revenue Expenditure

Meaning

It is incurred to increase the earning capacity of a business.

It is incurred to maintain the earning capacity of a business.

Purpose

It is incurred to acquire fixed assets to carry out operations.

It is incurred to conduct day to day activities.

Benefits

The benefits of such expenditures can be availed for more than one year.

The benefits of such expenditures can only be availed for one year.

Nature

It is non-recurring by nature.

It is generally recurring in nature.

Shown

Capital expenditure is shown in the assets side of the Balance Sheet.

Revenue expenditure is shown in the debit side of the trading and Profit and Loss Account.

 

(a) Capital expenditure

(b) Revenue expenditure

(c) Capital expenditure

(d) Capital expenditure

(e) Revenue expenditure

(f) Capital expenditure

(g) Deferred revenue expenditure

 

 

Page No 364:

Question 6:

What is an operating profit?

Answer:

Operating profit is a profit earned though normal activities of a business. It is the excess of gross profit over operating expenses. In other words, it is the excess of operating revenue over operating cost. It is also termed as earning before interest and tax (EBTI). It does not include incomes and expenses that are not related to main course of the business.

It is calculated by following formulae:

Operating Profit = Gross Profit − Operating Expenses

Or,

Operating Profit = Sales − Operating Cost

Operating Profit = Sales − COGS − Operating Expenses

Operating expenses include office and administrative expenses, selling and distribution expenses, discount, bad debts, etc.

Page No 364:

Question 1:

From the following balances taken from the books of Simmi and Vimmi Ltd.

for the year ending March 31, 2017, calculate the gross profit.

 

Rs

Closing stock

2,50,000

Net sales during the year

40,00,000

Net purchases during the year

15,00,000

Opening stock

15,00,000

Direct expenses

80,000

 

Answer:

Trading Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

15,00,000

Net Sales

40,00,000

Net Purchases

15,00,000

Closing Stock

2,50,000

Direct Expenses

80,000

 

 

Gross Profit

11,70,000

 

 

 

42,50,000

 

42,50,000

 

 

 

 

 

Page No 364:

Question 1:

What are financial statements? What information do they provide?

Answer:

Every business firm wants to know its financial position at the end of an accounting period. In order to assess its financial position, profit earned or loss incurred during an accounting period, the book value of its assets and liabilities is to be ascertained. In order to serve this purpose, financial statements are prepared. Financial statements are the statements showing profitability and financial position of a business at the end of the year. It includes:

1. Income statements, viz., Trading and Profit and Loss Account, which represents direct and indirect expenses incurred to generate revenues. On one hand, trading account discloses either gross profit or gross loss, on the other hand, profit and loss account discloses either net profit or net loss.

2. Statement of financial position, viz., Balance Sheet, which enlists the book value of all the assets and liabilities of the firm. Balance Sheet discloses the true financial position, solvency and credit worthiness of the business.

The information provided by the financial statements is in the form of gross profit or gross loss, net profit or net loss and book value of the assets and their liabilities. The value and relevance of the information provided by the financial statements varies from one user of accounting information to another. Various users of accounting information can be explained graphically as below.

1. Internal: Internal users are those persons who are directly related to the business. For example, owners, management, employees, workers, etc.

a. Owners: The information required by owners about profit earned or loss incurred during an accounting period. This information is provided by the financial statements in form of gross (net) profit or gross (net) loss.

b. Management: Financial statements provide vital information to the management for decision making, designing policies and future plans. There are various parameters such as ratio of direct (indirect) expenses to gross (net) profit, by the help of which management can check the adequacy, control and relevance of various expenses incurred and plans and policies implemented.

c. Employees and workers: They expect bonus at the year end, which is directly related to the profit of that particular period. The net profit as disclosed by the profit and loss account forms the basis of this expectation.

2. External: External users are those persons and institutions that are indirectly related to the business. For example, government, tax authorities, investors, etc.

a. Government: Government needs information in order to ascertain various macroeconomic variables, such as national income, GDP, employment opportunities generated, etc.

b. Tax authorities: Tax department is interested in knowing the actual sales, production, turnovers and exports and imports by the business. Tax department levies various taxes, such as income tax, VAT, excise tax, etc. The information disclosed by the financial statements form the basis of estimation of the tax dues of the business.

c. Investors: Financial statements help to know about the earning capacity, scope and potential to grow and to assess financial position of the business. It also helps in knowing various investments made by the business and also investments made by the organisations and individuals in the business. This information helps the investors to assess and determine whether investments by them will be fruitful or not.

d. Bank and other financial institutions: Financial statements provide information to banks and other financial institutions, such as LIC, GIC, etc., about the credit worthiness, solvency and repaying capacity of the business.

e. Creditors: Financial statements provide information to the creditors about the goodwill of the business and its credit worthiness and repaying capacity.

Page No 364:

Question 2:

What are closing entries? Give four examples of closing entries.

Answer:

The balances of all nominal accounts are transferred to the Trading and Profit and Loss Account. The entries required for such transfers are termed as closing entries.

The examples of closing entries are given below.

1. Closing entries to transfer the following items to the debit side of trading account from Trial Balance:

Trading A/c

Dr.

 

To Opening Stock A/c

 
 

To Purchase A/c

 
 

To Wages A/c

 
 

To Carriage A/c

 
 

To All Other Direct Expenses A/c

 

(Transferred debit balances to Trading Aaccount)

 

2. Closing entries to transfer the following items to the credit side of trading account from Trial Balance:

Sales A/c

Dr.

Closing Stock A/c

Dr.

 

To Trading A/c

 

(Transferred credit balances to Trading Account)

 

3. Closing entries to transfer the following items to the debit side of Profit and Loss Account from Trial Balance:

Profit and Loss A/c

Dr.

 

To Salaries

 
 

To Rent

 
 

To Bad Debts

 
 

To All in Direct Expenses

(Transferred debit balances to Profit and Loss Account)

 

4. Closing entries to transfer the following items to the credit side of Profit and Loss Account from Trial Balance:

Commission Received A/c

Dr.

Interest Received A/c

Dr.

All Other Indirect Income A/c

Dr.

 

To Profit and Loss A/c

 

(Transferred credit balances

to Profit and Loss Account)

 

Page No 364:

Question 3:

Discuss the need of preparing a balance sheet.

Answer:

The needs to prepare a Balance Sheet are given below.

1. It helps in determining the nature and book value of various assets, such as fixed assets, investments, current assets, etc. at the end of an accounting period.

2. It helps in ascertaining the nature and amount of various liabilities like long term liabilities, current liabilities, provisions, etc., which a business owes.

3. It discloses important information about capital invested in a business. The additional capital invested during the accounting period, drawings of the owners and profit (or loss) added to (or deducted from) the capital of the business.

4. It helps in assessing the solvency of a business.

5. It discloses the true financial position of a business at a particular point of time.

6. It lays down the basis for maintaining new books for next accounting period.

Page No 364:

Question 4:

What is meant by Grouping and Marshalling of assets and liabilities? Explain the ways in which a balance sheet may be marshalled.

Answer:

The rationale behind preparing financial statements is to present a summarised version of all financial activities in such a manner that all users can interpret and understand the information easily, appropriately and also take decisions accordingly.

 

Grouping of assets and liabilities: Grouping means showing similar assets and liabilities under a single head. For example, all assets that can be used for more than a year are clubbed together under the heading ‘fixed assets’, for example, building, furniture, machinery, etc.

 

Marshalling of asset and liabilities: When assets and liabilities are shown in a particular order of liquidity or permanence, they are said to be marshalled.

 

1. In order of liquidity: Liquidity means convertibility into cash. Assets that can be converted into cash in least possible time, i.e., more liquid assets are recorded first, followed by the lesser liquid assets. In a balance sheet, cash in hand is recorded at first and goodwill at last. In the same way, liabilities that are to be paid first, i.e., high priority liabilities are recorded first, followed by the lower priority ones. In a balance sheet, current liabilities are recorded first and then the long term liabilities and capital at the last.

 

Balance Sheet of.................., as on................

Liabilities

Amount

Rs

Assets

Amount

Rs

Current Liabilities:

Current Assets:

Bills Payable

Cash in Hand

Sunday Creditors

Cash at Bank

Bank Overdraft

Bills Receivable

Long Term Loans

 

Debtors

Capital:

Closing Stock

Opening balance

Long Term Investments

 

Add: Net Profit

Fixed Assets:

 

Less: Drawings

Furniture

 

Plant and Machinery

 

Land and Building

 

Goodwill

 

 

 

 

 

 

 

 

 

 

2. In order of permanence: It is just the reverse of the above method. In this, assets and liabilities are arranged in their reducing level of permanence. The assets with higher degree of permanence are recorded first, followed by the assets with lower degree of permanence. For example, goodwill, land and building have the highest degree of permanence and hence are recorded at the top, whereas, cash at bank and cash in hand are recorded at the bottom. In the same way, liabilities are shown according to their life in the business. Liabilities with higher level of permanence like, capital is recorded at the top and other liabilities with lower permanence are recorded at the bottom.

 

Balance Sheet of.................., as on................

Liabilities

Amount Rs

Assets

Amount

Rs

Capital:

Fixed assets:

 

Opening Balance

Goodwill

 

 

Add: Net profit

Land and Building

 

Less: Drawings

Plant and Machinery

 

Furniture

Long Term Loans

Long Term Investments

 

Current Liabilities:

Current Assets:

 

Bank Overdraft

Closing Stock

 

Sunday Creditors

Debtors

 

Bill Payable

Bills Receivable

 

Cash at Bank

 

Cash in Hand

 

 

 

 

 

 

 

 

 

 

 



Page No 365:

Question 2:

From the following balances extracted from the books of M/s Ahuja and Nanda. Calculate the amount of:

(a)

Cost of goods available for sale

(b)

Cost of goods sold during the year

(c)

Gross Profit

 

 

Rs

Opening stock

25,000

Credit purchases

7,50,000

Cash purchases

3,00,000

Credit sales

12,00,000

Cash sales

4,00,000

Wages

1,00,000

Salaries

1,40,000

Closing stock

30,000

Sales return

50,000

Purchases return

10,000

 

 

Answer:

(a) Cost of Goods Sold Available for Sales

Or

Cost of Goods Manufactured = Opening Stock + Net Purchases + Wages

 = 25,000 + 10,40,000 + 1,00,000

 = Rs 11,65,000

 

(b) Cost of Goods Sold = Opening Stock + Net Purchases + Wages – Closing Stock

 = 25,000 + 10,40,000 + 1,00,000 – 30,000

 = Rs 11,35,000

 

Or

 

Cost of Goods Sold = Net Sales – Gross Profit

= 15,50,000 – 4,15,000

= Rs 11,35,000

(c)

Trading Account

Dr.

Cr.

Particulars 

Amount

Rs

Particulars

Amount

Rs

Opening Stock

25,000

Sales

 

Purchases

 

 

Add: Credit Sales

12,00,000

 

Add: Credit Purchases

7,50,000

 

 

Add: Cash Sales

4,00,000

 

Add: Cash Purchases

3,00,000

 

 

16,00,000

 

10,50,000

 

 

Less: Sales Return

(50,000)

15,50,000

Less: Purchases Return

(10,000)

10,40,000

 

 

 

Wages

 

1,00,000

 

Closing Stock

 

30,000

Gross Profit

 

4,15,000

 

 

 

 

15,80,000

 

 

15,80,000

 

 

 

 

 

 

 

 

 

Gross Profit Rs 4,15,000

 

Page No 365:

Question 3:

Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv and Sons for the year ended March 31, 2017.

 

Rs

Opening stock

50,000

Net sales

11,00,000

Net purchases

6,00,000

Direct expenses

60,000

Administration expenses

45,000

Selling and distribution expenses

65,000

Loss due to fire

20,000

Closing stock

70,000

 

Answer:

Trading Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

50,000

Net Sales

11,00,000

Net Purchases

6,00,000

Closing Stock

70,000

Direct Expenses

60,000

   

Gross Profit

4,60,000

   
 

11,70,000

 

11,70,000

 

 

 

 

 

Operating Profit

=

Sales – (Opening Stock + Net Purchases + Direct Expenses + Administration Expenses +

Selling and Distribution Expenses) + Closing Stock

 

=

11,00,000 – (50,000 + 6,00,000 + 60,000 + 45,000 + 65,000) + 70,000

 

=

Rs 3,50,000

 

Page No 365:

Question 4:

Operating profit earned by M/s Arora and Sachdeva in 2016-17 was Rs 17,00,000. Its non-operating incomes were Rs 1,50,000 and non-operating expenses were Rs 3,75,000. Calculate the amount of net profit earned by the firm.

 

 

Answer:

Net Profit = Operating Profit + Non-operating Income – Non-operating Expenses

= 17,00,000 + 1,50,000 – 3,75,000

= Rs 14,75,000

 

Net profit earned by M/S Arora and Sachdeva in 2016–17 is Rs 14,75,000.

 

 

Page No 365:

Question 5:

The following are the extracts from the trial balance of M/s Bhola and Sons as on March 31, 2017

Account title

Debit

Rs

Credit

Rs

Opening Stock

2,00,000

 

Purchases

8,10,000

 

Sales

 

10,10,000

 

10,10,000

10,10,000

 

 

 

 

(Only relevant items)

Closing Stock as on date was valued at Rs 3,00,000.

You are required to record the necessary journal entries and show how the above items will appear in the trading and profit and loss account and balance sheet of M/s Bhola and Sons.

Answer:

Books of M/s Bhola and Sons

Journal

Date

 

Particulars

 

L.F.

Debit

Amount

Rs

Credit Amount Rs

2017

       

 

 

Mar.31

Trading A/c

Dr.

 

10,10,000

 

 

 

To Opening Stock A/c

     

2,00,000

 

 

To Purchases A/c

     

8,10,000

 

(Balances from Purchases Account and Stock Account

transferred to Trading Account)

   

 

 

 

       

 

Mar.31

Sales A/c

Dr.

 

10,10,000

 

 

Closing Stock A/c

   

3,00,000

 

 

 

To Trading A/c

     

13,10,000

 

(Balance from sales and closing stock transferred

to Trading Account)

   

 

 

 

       

 

Mar.31

Trading A/c

Dr.

 

3,00,000

 

 

 

To Profit and Loss (Gross Profit) A/c

     

3,00,000

 

(Balance of Trading Account (gross profit) transferred

to Profit and Loss Account)

   

 

         

 

Trading Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

2,00,000

Sales

10,10,000

Purchases

8,10,000

Closing Stock

3,00,000

Profit and Loss A/c – Gross Profit

3,00,000

   
       
 

13,10,000

 

13,10,000

 

 

 

 

 

Balance Sheet as on March 31, 2017

Liabilities

Amount

Rs

Assets

Amount

Rs

 

 

Closing Stock

3,00,000

 

 

 

 

 

 

 

 

 



Page No 366:

Question 6:

Prepare trading and profit and loss account and balance sheet, as on March 31, 2017 :

Account Title

Amount

Rs

Account Title

Amount

Rs

Machinery

27,000

Capital

60,000

Sundry debtors

21,600

Bills payable

2,800

Drawings

2,700

Sundry creditors

1,400

Purchases

58,500

Sales

73,500

Wages

15,000

 

 

Sundry expenses

600

 

 

Rent and taxes

1,350

 

 

Carriage inwards

450

 

 

Bank

4,500

 

 

Openings stock

6,000

 

 

 

Closing stock, as on March 31, 2017 Rs 22,400.

Answer:

Trading Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

6,000

Sales

73,500

Purchases

58,500

Closing Stock

22,400

Wages

15,000

   

Carriage Inwards

450

   

Profit and Loss (Gross Profit)

15,950

   
 

95,900

 

95,900

       

 

Profit and Loss Account as on March 31, 2017

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Sundry Expenses

600

Trading (Gross Profit)

15,950

Rent and Taxes

1,350

   
       

Net Profit

14,000

   
 

15,950

 

15,950

 

 

 

 

         

  

Balance Sheet as on March 31, 2017

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

60,000

 

Fixed Assets 

 

 

Add: Net Profit

14,000

 

Machinery

27,000

   

74,000

 

 

 

 

Less: Drawings

2,700

71,300

Current Assets 

 

   

 

 

Bank

4,500

Sundry Creditors

 

1,400

Closing Stock

22,400

Bills Payable

 

2,800

Sundry Debtors

21,600

   

 

75,500

 

75,500

 

 

 

 

 

 

 

Page No 366:

Question 7:

The following trial balance is extracted from the books of M/s Ram on March 31, 2017. You are required to prepare trading and profit and loss account and the balance sheet as on date:

 

Account title

Amount

Rs

Account title

Amount Rs

Debtors

12,000

Apprenticeship premium

5,000

Purchases

50,000

Loan

10,000

Coal, gas and water

6,000

Bank overdraft

1,000

Factory wages

11,000

Sales

80,000

Salaries

9,000

Creditors

13,000

Rent

4,000

Capital

20,000

Discount

3,000

 

 

Advertisement

500

 

 

Drawings

1,000

 

 

Loan

6,000

 

 

Petty cash

500

 

 

Sales return

1,000

 

 

Machinery

5,000

 

 

Land and building

10,000

 

 

Income tax

100

 

 

Furniture

9,900

 

 

 

 

Answer:

Trading Account as on March 31, 2017

Dr.

 

 

 

 Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Purchases

 

 

50,000

Sales

80,000

 

Coal, Gas and Water

 

 

6,000

 

Less: Sales Return

1,000

79,000

Factory Wages

 

 

11,000

 

 

Profit and Loss (Gross Profit)

12,000

 

 

 

 

79,000

79,000

 

 

 

 

 

                   

 

Profit and Loss Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Salaries

9,000

Trading (Gross Profit)

12,000

Rent

4,000

Apprenticeship Premium

5,000

Discount

3,000

   

Advertisement

500

   

Net Profit

500

   
       
 

17,000

 

17,000

 

 

 

 

 

Balance Sheet as on March 31, 2017

Liabilities

 

Amount

Rs

Assets

 

Amount

Rs

Capital

20,000

 

Machinery

 

5,000

 

Add: Profit and Loss (Net Profit)

500

 

Land and Building

 

10,000

 

 

20,500

 

Furniture

 

9,900

 

Less: Drawings

(1,000)

 

Loan (Given)

 

6,000

 

Less: Income Tax

(100)

19,400

Debtors

 

12,000

 

 

 

 

Petty Cash

 

500

Loan (Taken)

 

10,000

   

 

 

Creditors

 

13,000

   

 

 

Bank Overdraft

 

1,000

   

 

 

 

 

 

 

   

 

 

 

 

 

43,400

   

 

43,400

 

 

 

 

 

 

 

 

 

 



Page No 367:

Question 8:

The following is the trial balance of Manju Chawla on March 31, 2017. You are required to prepare trading and profit and loss account and a balance sheet as on date:

Account title

Debit Amount Rs

Credit Amount Rs

Opening stock

10,000

 

Purchases and sales

40,000

80,000

Returns

200

600

Productive wages

6,000

 

Dock and Clearing charges

4,000

 

Donation and charity

600

 

Delivery van expenses

6,000

 

Lighting

500

 

Sales tax collected

 

1,000

Bad debts

600

 

Misc. incomes

 

6,000

Rent from tenants

 

2,000

Royalty

4,000

 

Capital

 

40,000

Drawings

2,000

 

Debtors and Creditors

6,000

7,000

Cash

3,000

 

Investment

6,000

 

Patents

4,000

 

Land and Machinery

43,000

 

 

Closing stock Rs 2,000.

Answer:

Trading Account as on March 31, 2017

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

10,000

Sales

80,000

 

Purchases

40,000

 

 

Less: Sales Returns

(200)

79,800

 

Less: Purchases Returns

(600)

39,400

 

 

Productive Wages

6,000

Closing Stock

2,000

Dock and Clearing Charges

4,000

 

 

Royalty

4,000

 

 

Profit and Loss (Gross Profit)

18,400

 

 

 

 

 

 

 

 

 

 

 

81,800

 

81,800

 

 

 

 

               

 

Profit and Loss Account as on March 31, 2017

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Donation and Charity

600

Trading (Gross Profit)

18,400

Delivery Van Expenses

6,000

Misc. Incomes

6,000

Lighting

500

Rent from Tenants

2,000

Bad Debts

600

   

Net Profit

18,700

   
       
 

26,400

 

26,400

 

 

 

 

 

Note: As per the solution, net profit is Rs 18,700; however, according to the answer given in the book, it is Rs 18,400.

 

Balance Sheet as on March 31, 2017

Liabilities

 

Amount

Rs

Assets

 

Amount

Rs

Capital

40,000

 

Patents

 

4,000

 

Add: Profit and Loss (Net Profit)

18,700

 

Land and Machinery

 

43,000

 

 

58,700

 

Investment

 

6,000

 

Less: Drawings

(2,000)

56,700

Debtors

 

6,700

 

 

 

 

Cash

 

3,000

Sales Tax Collected

 

1,000

Closing Stock

 

2,000

Creditors

 

7,000

   

 

 

 

 

 

 

   

 

 

 

 

 

64,700

   

 

64,700

 

 

 

 

 

 

 

 

                   

 

Note: There is a misprint in the trial balance given in the question. In order to match the trial balance, debtors have been taken as Rs 6,700; however, the debtors given in the trial balance is Rs 60,000.

Page No 367:

Question 9:

The following is the Trial Balance of Mr. Deepak as on March 31, 2017. You are required to prepare trading account, profit and loss account and a balance sheet as on date:

 

Account title

Debit Amount Rs

Account title

Credit Amount Rs

Drawings

36,000

Capital

2,50,000

Insurance

3,000

Bills payable

3,600

General expenses

29,000

Creditors

50,000

Rent and taxes

14,400

Discount received

10,400

Lighting (factory)

2,800

Purchases return

8,000

Travelling expenses

7,400

Sales

4,40,000

Cash in hand

12,600

 

 

Bills receivable

5,000

 

 

Sundry debtors

1,04,000

 

 

Furniture

16,000

 

 

Plant and Machinery

1,80,000

 

 

Opening stock

40,000

 

 

Purchases

1,60,000

 

 

Sales return

6,000

 

 

Carriage inwards

7,200

 

 

Carriage outwards

1,600

 

 

Wages

84,000

 

 

Salaries

53,000

 

 

 

Closing stock Rs 35,000.

 

 

Answer:

Trading Account as on March 31, 2017

Dr.

       

Cr.

Particulars

 

Amount

Rs

Particulars

 

Amount

Rs

Opening Stock

 

40,000

Sales

4,40,000

 

Purchases

1,60,000

 

 

Less: Sales Return

6,000

4,34,000

 

Less: Purchases Return

(8,000)

1,52,000

Closing Stock

 

35,000

 

 

 

 

 

 

Lighting (Factory)

 

2,800

 

Carriage Inwards

 

7,200

 

Wages

 

84,000

 

Profit and Loss (Gross Profit)

1,83,000

 

 

4,69,000

4,69,000

 

 

                 

 

Profit and Loss Account as on March 31, 2017

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Insurance

 

3,000

Trading (Gross Profit)

 

1,83,000

General Expenses

 

29,000

Discount Received

 

10,400

Rent and Taxes

 

14,400

   

 

 

Travelling Expenses

 

7,400

   

 

 

Carriage Outwards

 

1,600

   

 

 

Salaries

 

53,000

   

 

 

Net Profit

 

85,000

   

 

 

 

 

 

1,93,400

   

 

1,93,400

 

 

 

 

 

 

 

 

                 

 

Balance Sheet as on March 31, 2017

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

2,50,000

 

Plant and Machinery 

1,80,000

 

Add: Net Profit

85,000

 

Furniture 

16,000

3,35,000

 

Sundry Debtors 

1,04,000

 

Less: Drawings

(36,000)

2,99,000

Closing Stock 

35,000

 

 

Bills Receivable 

5,000

Creditors 

50,000

Cash in Hand 

12,600

Bills Payable 

3,600

 

 

 

 

 

3,52,600

3,52,600

 

 

 

 



Page No 368:

Question 10:

Prepare trading and profit and loss account and balance sheet from the following particulars as on March 31, 2017.

 

Account Title

Debit Amount Rs

Credit Amount Rs

Purchases and Sales

3,52,000

5,60,000

Return inwards and Return outwards

9,600

12,000

Carriage inwards

7,000

 

Carriage outwards

3,360

 

Fuel and power

24,800

 

Opening stock

57,600

 

Bad debts

9,950

 

Debtors and Creditors

1,31,200

48,000

Capital

 

3,48,000

Investment

32,000

 

Interest on investment

 

3,200

Loan

 

16,000

Repairs

2,400

 

General expenses

17,000

 

Wages and salaries

28,800

 

Land and buildings

2,88,000

 

Cash in hand

32,000

 

Miscellaneous receipts

 

160

Sales tax collected

 

8,350

 

Closing stock Rs 30,000.

 

 

Answer:

Trading Account as on March 31, 2017

Dr.

           

Cr.

Particulars

 

Amount

Rs

Particulars

 

Amount

Rs

Opening Stock

 

57,600

Sales

5,60,000

 

Purchases

3,52,000

 

 

Less: Return Inwards

(9,600)

5,50,400

 

Less: Return Outwards

(12,000)

3,40,000

Closing Stock

 

30,000

Carriage Inwards 

7,000

   

 

 

Fuel and Power

 

24,800

   

 

 

Wages and Salaries

 

28,800

   

 

 

Profit and Loss (Gross Profit)

 

1,22,200

   

 

 

       

 

 

 

 

 

5,80,400

   

 

5,80,400

 

 

 

 

 

 

 

 

                         

 

Profit and Loss Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Carriage Outwards

3,360

Trading (Gross Profit)

1,22,200

Bad Debts

9,950

Interest on Investment

3,200

Repairs

2,400

Miscellaneous Receipts

160

General Expenses

17,000

   

Net Profit

92,850

   

 

1,25,560

 

1,25,560

 

 

 

 

  

Balance Sheet as on March 31,2017

Liabilities

 

Amount

Rs

Assets

 

Amount

Rs

Capital

3,48,000

 

Land and Building

 

2,88,000

 

Add: Net Profit

92,850

4,40,850 

Investment

 

32,000

 

     

Debtors

 

1,31,200

Loan

 

16,000

Closing Stock

 

30,000

Creditors

 

48,000

Cash in Hand

32,000

Sales Tax Collected

 

8,350

   

 

 

5,13,200

 

5,13,200

 

 

 

 

  

 

               

 

Page No 368:

Question 11:

From the following trial balance of Mr. A. Lal, prepare trading, profit and loss account and balance sheet as on March 31, 2017.

 

Account Title

Debit Amount Rs

Credit Amount Rs

Stock as on April 01, 2016

16,000

 

Purchases and Sales

67,600

1,12,000

Returns inwards and outwards

4,600

3,200

Carriage inwards

1,400

 

General expenses

2,400

 

Bad debts

600

 

Discount received

 

1,400

Bank over draft

 

10,000

Interest on bank overdraft

600

 

Commission received

 

1,800

Insurance and taxes

4,000

 

Scooter expenses

200

 

Salaries

8,800

 

Cash in hand

4,000

 

Scooter

8,000

 

Furniture

5,200

 

Building

65,000

 

Debtors and Creditors

6,000

16,000

Capital

 

50,000

Closing stock Rs 15,000.

 

Answer:

Trading Account as on March 31, 2017

Dr.

           

Cr.

Particulars

 

Amount

Rs

Particulars

 

Amount

Rs

Opening Stock

 

16,000

Sales

1,12,000

 

Purchases

67,600

   

Less: Sales Return Inwards

(4,600)

1,07,400

 

Less: Return Outwards

(3,200)

64,400

Closing Stock

 

15,000

Carriage Inwards 

1,400

   

 

 

Profit and Loss (Gross Profit)

 

40,600

   

 

 
       

 

 

 

 

 

1,22,400

   

 

1,22,400

 

 

 

 

 

 

 

 

                       

 

Profit and Loss Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

General Expenses

2,400

Trading (Gross Profit)

40,600

Bad Debts

600

Discount Received

1,400

Interest on Bank Overdraft

600

Commission Received

1,800

Insurance and Taxes

4,000

   

Scooter Expenses

200

   

Salaries

8,800

   

Net Profit

27,200

   
 

43,800

 

43,800

 

 

 

 

 

Balance Sheet as on March 31, 2017

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

50,000

 

Building

 

65,000

 

Add: Net Profit

27,200

77,200

Furniture

 

5,200

 

     

Scooter

 

8,000

Creditors

 

16,000

Debtors

 

6,000

Bank Overdraft

 

10,000

Closing Stock

   

15,000

   

 

 

Cash in Hand

   

4,000

 

 

 

1,03,200

     

1,03,200

 

 

 

 

 

 

 

 

 

 



Page No 369:

Question 12:

Prepare trading and profit and loss account and balance sheet of M/s Royal Traders from the following balances as on March 31, 2017.

 

Debit balances

Amount Rs

Credit balances

Amount Rs

Stock

20,000

Sales

2,45,000

Cash

5,000

Creditors

10,000

Bank

10,000

Bills payable

4,000

Carriage on purchases

1,500

Capital

2,00,000

Purchases

1,90,000

 

 

Drawings

9,000

 

 

Wages

55,000

 

 

Machinery

1,00,000

 

 

Debtors

27,000

 

 

Postage

300

 

 

Sundry expenses

1,700

 

 

Rent

4,500

 

 

Furniture

35,000

 

 

 

Closing stock Rs 8,000.

Answer:

Trading Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

20,000

Sales

2,45,000

Purchases

1,90,000

Closing Stock

8,000

Carriage on Purchases

1,500

Profit and Loss (Gross Loss)

13,500

Wages

55,000

   
       
 

2,66,500

 

2,66,500

 

 

 

 

  

Profit and Loss Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Trading (Gross Loss)

13,500

   

Postage

300

   

Sundry Expenses

1,700

   

Rent

4,500

Net Loss

20,000

       
 

20,000

 

20,000

 

 

 

 

 

 

Balance Sheet of M/s Royal Traders as on March 31, 2017

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

2,00,000

 

Machinery

 

1,00,000

 

Less: Net Loss

(20,000)

 

Furniture

 

35,000

 

Less: Drawings

(9,000)

1,71,000

Debtors

 

27,000

 

     

Closing Stock

 

8,000

Creditors

 

10,000

Bank

 

10,000

Bills Payable

 

4,000

Cash

   

5,000

   

 

         

 

 

 

1,85,000

     

1,85,000

 

 

 

 

 

 

 

 

 

 



Page No 370:

Question 13:

Prepare trading and profit and loss account from the following particulars of M/s Neema Traders as on March 31, 2017.

Account Title

Debit Amount
Rs

Account Title

Credit Amount
Rs

Buildings

23,000

Sales

1,80,000

Plant

16,930

Loan

8,000

Carriage inwards

1,000

Bills payable

2,520

Wages

3,300

Bank overdraft

4,720

Purchases

1,64,000

Creditors

8,000

Sales return

1,820

Capital

2,36,000

Opening stock

9,000

Purchases return

1,910

Machinery

2,10,940

 

 

Insurance

1,610

 

 

Interest

1,100

 

 

Bad debts

250

 

 

Postage

300

 

 

Discount

1,000

 

 

Salaries

3,000

 

 

Debtors

3,900

 

 

 Stock on March 31, 2017 Rs 16,000.
 

 

 

Answer:

Trading Account as on March 31, 2017

Dr.

           

Cr.

Liabilities

Amount

Rs

Assets

Amount

Rs

Opening Stock

 

9,000

Sales

1,80,000

 

Purchases

1,64,000

 

 

Less: Sales Return

(1,820)

1,78,180

 

Less: Purchases Return

(1,910)

1,62,090

Closing Stock

 

16,000

 

 

 

 

   

 

 

Carriage Inwards

 

1,000

   

 

 

Wages

 

3,300

   

 

 

Profit and Loss (Gross Profit)

18,790

   

 

 

 

 

 

 

   

 

 

 

 

 

1,94,180

   

 

1,94,180

 

 

 

 

 

 

 

 

                       

 

Profit and Loss Account as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Insurance

1,610

Trading (Gross Profit)

18,790

Interest

1,100

   

Bad Debts

250

   

Postage

300

   

Discount

1,000

   

Salaries

3,000

   

Net Profit

11,530

   
 

18,790

 

18,790

 

 

 

 

  

Balance Sheet as on March 31, 2017

Liabilities

Amount
Rs

Assets

Amount
Rs

Capital

2,36,000

 

Building

23,000

 

Add: Net Profit

11,530

2,47,530

Plant

16,930

 

 

 

 

Machinery

2,10,940

Loan

 

8,000

Debtors

3,900

Creditors

 

8,000

Closing Stock

16,000

Bills Payable

 

2,520

 

 

Bank Overdraft

 

4,720

 

 

 

 

 

 

 

 

 

 

 

2,70,770

 

2,70,770

 

 

 

 

 

 

             

 

Note: As per the solution, the gross profit, net profit and the total of balance sheet are Rs 18,790, Rs 11,530 and Rs 2,70,770 respectively; whereas, as per the answer given in the book, these are Rs 17,850, Rs 10,590 and Rs 2,69,830.

 

 

Page No 370:

Question 14:

From the following balances of M/s Nilu Sarees as on March 31, 2017. Prepare trading and profit and loss account and balance sheet as on date.

 

Account Title

Debit Amount Rs

Account Title

Credit Amount
Rs

Opening stock

10,000

Sales

2,28,000

Purchases

78,000

Capital

70,000

Carriage inwards

2,500

Interest

7,000

Salaries

30,000

Commission

8,000

Commission

10,000

Creditors

28,000

Wages

11,000

Bills payable

2,370

Rent and taxes

2,800

 

 

Repairs

5,000

 

 

Telephone expenses

1,400

 

 

Legal charges

1,500

 

 

Sundry expenses

2,500

 

 

cash in hand

12,000

 

 

Debtors

30,000

 

 

Machinery

60,000

 

 

Investments

90,000

 

 

Drawings

18,000

 

 

 

Closing stock, as on March 31, 2017 Rs 22,000.

 

 

Answer:

Trading Account of M/s Nilu Sarees as on March 31, 2017

Dr.

   

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Opening Stock

10,000

Sales

2,28,000

Purchases

78,000

Closing Stock

22,000

Carriage Inwards

2,500

   

Wages

11,000

   

Profit and Loss (Gross Profit)

1,48,500

   
       
 

2,50,000