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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

Closing Stock

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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 ....

Amount Amount
Particulars
Rs Rs
Sales (Gross)
Less: Returns
Net Sales
Cost of goods sold
Opening Stock
Purchases
Less: Returns
Carriage Inwards

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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 ....

Amount Amount
Particulars
Rs Rs
Current Assets
Cash in Hand
Cash at Bank
Bills Receivable

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Accrued Income
Debtors
Stock
Prepaid Expenses
Total Current Assets

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 :

(a)

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Depreciation Assets
Less: Depreciation

(b)

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Dr. Cr.
Amou Particula Amou Liabiliti Amou Amou
Particulars Assets
nt rs nt es nt nt
Discount on
Debtors
Debtors
Less: New Provision
Less: Further Bad
Debts
Less: Discount on
Debtors

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 :

Debit Credit
S. No. Particulars L.F.
Rs Rs
a) Salaries A/c Dr. 3,500
To Outstanding Salaries A/c 3,500
(Salaries of Rs 3,500 is remaining outstanding)

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b) Rent A/c Dr. 500

To Outstanding Rent A/c 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)

<< Previous Chapter 1 : Financial Statements - INext Chapter 3 : Accounts from Incomplete Records >>
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.

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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

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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

(b) When given outside the Trial Balance:

Dr. Cr.
Amoun Particular Amoun Liabilitie Amoun Amoun
Particulars Assets
t s t s t t
Concerned Prepaid
Expenses 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.

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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.

<< Previous Chapter 1 : Financial Statements - INext Chapter 3 : Accounts from Incomplete Records >>
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 Account Title Amount

Rs 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

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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, 2005
Dr. Cr.
Amount Amount
Particulars Particulars
Rs 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

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2,26,000 2,26,000

Profit and Loss Account for the year ending December 31, 2005
Dr. Cr.
Amount Amount
Particulars Particulars
Rs 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

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Balance Sheet for the year ending December 31, 2005

Amount Amount
Liabilities Assets
Rs 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

Q2 :
Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending
December 31, 2005. from the following figures taken from his trial balance :

Account Title Amount Account Title Amount

Rs 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

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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, 2005

Dr.
Amount Amo
Particulars Particulars
Rs R
Opening Stock 35,000 Sales 2,50,000
Purchases 1,25,000 Less: Sales Returns (25,000) 2,25,
Less: Purchase Returns (6,000) 1,19,000 Closing Stock 10,

Wages 3,000
Less: Prepaid Wages (1,000) 2,000
Gross Profit 79,000
2,35,000 2,35,

Profit and Loss Account for the year ending December 31, 2005
Dr.
Amount Amo
Particulars Particulars
Rs R
Bad Debts 3,500 Gross Profit 79
Add: Further Bad-debts 1,500 Interest on Accrued Investment 1
Add: New Provision 2,910 Discount 1
Less: Old Provision 4,500 3,410 Interest Received 5

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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

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, 2005.
Account Title Amount Account Title Amount
Rs 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

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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. C
Amount Amount
Particulars Particulars
Rs 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

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Profit and Loss Account

Dr. C
Amount Amount
Particulars Particulars
Rs 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

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 Account Title Amount

Rs 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

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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.
Amount A
Particulars Particulars
Rs
Opening Stock 50,000 Sales 3,50,000
Purchases 1,25,500 Less: Return 2,000
Less: Return Outwards 2,500 1,23,000 Closing Stock

Carriage 100
Power 3,900
Gross Profit 2,11,000

3,88,000

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Profit and Loss Account

Dr.
Amount A
Particulars Particulars
Rs
General Expenses 2,000 Gross Profit
Insurance 12,400 Rent
Bad Debts 2,000 Interest
Add: Provision for Bad Debts 1,625 3,625 Accrued Interest on Loan
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

Q5 :
From the following information prepare trading and profit and loss account of M/s Indian
sports house for the year ending December 31, 2005.

Account Title Amount Account Title Amount

Rs 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

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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.
Amount
Particulars Particulars
Rs
Opening Stock 25,000 Sales 2,76,00
Purchases 1,80,000 Less: Return Inwards 7,00
Less: Return Outwards 2,000 1,78,000 Closing Stock
Wages 10,000
Freight 4,000
Gross Profit 97,000
3,14,000

Profit and Loss Account

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Dr.
Amount
Particulars Particulars
Rs
Trade Expenses 2,400 Gross Profit
Printing and Stationery 2,000 Old Provision for Bad Debts 4,00
Rent Rates and Taxes 5,000 Less: Bad Debts 1,00
Discount Allowed 2,000 Less: New Provision 1,60
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
Manager's Commission 6,891
Net Profit After Commission 68,909 Balance b/d
75,800

Balance Sheet
Amount
Liabilities Assets
Rs
Capital 2,00,000 Cash in Hand
Add: Net Profit 68,909 Sundry Debtors 80,00
Less: Drawings 20,000 2,48,909 Less: New Provision 1,60

O/S Manager's Commission 6,891 Furniture and Fixtures 20,00

Bank Overdraft 12,000 Less: Depreciation 1,00
Creditors 60,000
Bills Payable 15,400 Plant and Machinery 1,00,00
Less: Depreciation 1* 4,20
Less: Depreciation 2** 90

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

Account Title Amount Account Title Amount

Rs 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%.

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Answer :

Trading Account
Dr.
Amount
Particulars Particulars
Rs
Opening Stock 75,550 Sales 1,00,000
Purchases 75,000 Less: Sales Inwards 6,000
Less: Return Outwards 4,500 70,500 Closing Stock
Freight 2,250
Gross Loss

1,48,300

Profit and Loss Account

Dr.
Amount
Particulars Particulars
Rs
Gross Loss 19,300 Discount
Bad Debts 3,000 Interest Received
Add: Further Bad-Debts 1,000 Interest on Drawings
Add: New Provision 4,950 Net Loss
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

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43,056

Balance Sheet
Amount
Liabilities Assets
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
Less: Drawings 13,560
Less: Interest on Drawings 814 Motor Car 25,000
2,08,144 Less: Depreciation 2,500

Outstanding Rent, Rates and Taxes 200 Furniture and Fixtures 15,500
Less: Depreciation 775
Investments

Q7 :
Following balances have been extracted from the trial balance of M/s Keshav Electronics
Ltd. You are required to prepare the trading and profit and loss account and a balance
sheet as on December 31, 2005.

Account Title Amount Account Title Amount

Rs Rs
Opening stock 2,26,000 Sales 6,80,000
Purchases 4,40,000 Return outwards 15,000
Drawings 75,000 Creditors 50,000
Buildings 1,00,000 Bills payable 63,700
Motor van 30,000 Interest received 20,000
Freight inwards 3,400 Capital 3,50,000
Sales return 10,000

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Trade expense 3,300

Heat and Power 8,000
Salary and Wages 5,000
Legal expense 3,000
Postage and Telegram 1,000
Bad debts 6,500
Cash in hand 79,000
Cash at bank 98,000
Sundry debtors 25,000
Investments 40,000
Insurance 3,500
Machinery 22,000
11,78,700 11,78,700

The following additional information is available :

1. Stock on December 31, 2005 was Rs 30,000.
2. Depreciation is to be charged on building at 5% and motor van at 10%.
3. Provision for doubtful debts is to be maintained at 5% on Sundry Debtors.
4. Unexpired insurance was Rs 600.
5. The Manager is entitled to a commission @ 5% on net profit before charging such
commission.

Answer :

Trading Account
Dr.
Amount
Particulars Particulars
Rs
Opening Stock 2,26,000 Sales 6,80,000
Purchases 4,40,000 Less: Sales Return 10,000
Less: Returns Outwards 15,000 4,25,000 Closing Stock
Freight Inwards 3,400
Heat and Power 8,000

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Gross Profit 37,600

7,00,000

Profit and Loss Account

Dr.
Amount
Particulars Particulars
Rs
Trade Expenses 3,300 Gross Profit
Salary and Wages 5,000 Interest Received
Legal Expenses 3,000
Postage and Telegram 1,000
Bad Debts 6,500
Add: New Provision 1,250 7,750
Depreciation on Building 5,000
Depreciation on Motor Van 3,000
Insurance 3,500
Less: Unexpired Insurance 600 2,900
Net Profit

Q8 :
From the following balances extracted from the books of Raga Ltd. Prepare a trading and
profit and loss account for the year ended December 31, 2005 and a balance sheet as on
that date.

Account Title Amount Account Title Amount

Rs Rs
Drawings 20,000 Sales 2,20,000
Land and Buildings 12,000 Capital 1,01,110
Plant and Machinery 40,000 Discount 1,260
Carriage inwards 100 Apprentice premium 5,230

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Wages 500 Bills payable 1,28,870

Salary 2,000 Purchases return 10,000
Sales return 200
Bank charges 200
Coal, Gas and Water 1,200
Purchases 1,50,000
Trade Expenses 3,800
Stock (Opening) 76,800
Cash at bank 50,000
Rates and Taxes 870
Bills receivable 24,500
Sundry debtors 54,300
Cash in hand 30,000
4,66,470 4,66,470

The additional information is as under:

1. Closing stock was valued at the end of the year Rs, 20,000.
2. Depreciation on plant and machinery charged at 5% and land and building at 10%.
3. Discount on debtors at 3%.
4. Make a provision at 5% on debtors for doubtful debts.
5. Salary outstanding was Rs 100 and Wages prepaid was Rs 40.
6. The manager is entitled a commission of 5% on net profit after charging such
commission.

Answer :

Trading Account
Dr.
Amount
Particulars Particulars
Rs
Opening Stock 76,800 Sales 2,20,000
Purchases 1,50,000 Less: Sales Return 200
Less: Purchases Return 10,000 1,40,000 Closing Stock

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Carriage Inwards 100

Wages 500
Less: Prepaid 40 460
Coal, Gas and Water 1,200
Gross Profit 21,240
2,39,800

Profit and Loss Account

Dr.
Amount
Particulars Particulars
Rs
Salary 2,000 Gross Profit
Add: Outstanding Salary 100 2,100 Discount
Bank Charges 200 Apprentice Premium
Trade Expenses 3,800
Rates and Taxes 870
Depreciation on Plant and Machinery 2,000
Depreciation on Land and Building 1,200
Provision for Doubtful Debts 2,715
Discount on Debtors 1,548
Net Profit 13,297

Q9 :
From the following balances of M/s Jyoti Exports, prepare trading and profit and loss
account for the year ended March 31, 2006 and balance sheet as on this date.

Account Title Debit Account Title Credit

Amount Amount
Rs Rs
Sundry debtors 9,600 Sundry creditors 2,500

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Opening stock 22,800 Sales 72,670

Purchases 34,800 Purchases returns 2,430
Carriage inwards 450 Bills payable 15,600
Wages 1,770 Capital 42,000
Office rent 820
Insurance 1,440
Factory rent 390
Cleaning charges 940
Salary 1,590
Building 24,000
Plant and Machinery 3,600
Cash in hand 2,160
Gas and Water 240
Octroi 60
Furniture 20,540
Patents 10,000
1,35,200 1,35,200

Closing stock Rs 10,000.

1. To provision for doubtful debts is to be maintained at 5 per cent on sundry debtors.
2. Wages amounting to Rs 500 and salary amounting to Rs 350 are outstanding.
3. Factory rent prepaid Rs 100.
4. Depreciation charged on Plant and Machinery @ 5% and Building @ 10%.
5. Outstanding insurance Rs 100.

Answer :

Trading Account
Dr.
Amount
Particulars Particulars
Rs
Opening Stock 22,800 Sales
Purchases 34,800 Closing Stock

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Less: Purchases Return 2,430 32,370

Carriage Inwards 450
Wages 1,770
Add: Outstanding Wages 500 2,270

Factory Rent 390

Less: Prepaid Rent 100 290
Gas and Water 240
Octroi 60
Cleaning Charges 940
Gross Profit 23,250
82,670

Profit and Loss Account

Dr.
Amount
Particulars Particulars
Rs
Office Rent 820 Gross Profit
Insurance 1,440
Add: Outstanding Insurance 100 1,540
Depreciation on Plant and Machinery 180
Salary 1,590
Add: Outstanding Salary 350 1,940
Provision for Doubtful Debts 480
Depreciation on Building 2,400

Q10 :
The following balances have been extracted from the books of M/s Green House for the
year ended December 31, 2005, prepare trading and profit and loss account and balance
sheet as on this date.

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Account Title Amount Account Title Amount

Rs Rs
Purchases 80,000 Capital 2,10,000
Bank balance 11,000 Bills payable 6,500
Wages 34,000 Sales 2,00,000
Debtors 70,300 Creditors 50,000
Cash in hand 1,200 Return outwards 4,000
Legal expenses 4,000
Building 60,000
Machinery 120,000
Bills receivable 7,000
Office expenses 3,000
Opening stock 45,000
Gas and fuel 2,700
Freight and Carriage 3,500
Factory lighting 5,000
Office furniture 5,000
Patent right 18,800
4,70,500 4,70,500

adjustments :
(a) Machinery is depreciated at 10% and buildings depreciated at 6%.
(b) Interest on capital @ 4%.
(c) Outstanding wages Rs 50.
(d) Closing stock Rs 50,000.

Answer :

Trading Account
Dr.
Amount
Particulars Particulars
Rs
Opening Stock 45,000 Sales

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Purchases 80,000 Closing Stock

Less: Return Outwards 4,000 76,000

Wages 34,000
Add: Wages Outstanding 50 34,050
Gas and Fuel 2,700
Freight and Carriage 3,500
Factory Lighting 5,000
Gross Profit 83,750

2,50,000

Profit and Loss Account

Dr.
Amount
Particulars Particulars
Rs
To Legal Expenses 4,000 By Gross Profit
To Office Expenses 3,000
To Depreciation on Machine 12,000
To Depreciation on Building 3,600
To Interest on Capital 8,400
To Net Profit* 52,750

83,750

Balance Sheet
Amount
Liabilities Assets
Rs
Capital 2,10,000 Bank Balance

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Q11 :
From the following balances extracted from the book of M/s Manju Chawla on March 31,
2005. You are requested to prepare the trading and profit and loss account and a balance
sheet as on this date.

Account Title Amount Amount

Rs Rs
Opening stock 10,000
Purchases and Sales 40,000 80,000
Returns 200 600
Wages 6,000
Dock and cleaning charges 4,000
Lighting 500
Misc. Income 6,000
Rent 2,000
Capital 40,000
Drawings 2,000
Debtors and Creditors 6,000 7,000
Cash 3,000
Investment 6,000
Patent 4,000
Land and Machinery 43,000
Donations and Charity 600
Sales tax collected 1,000
Furniture 11,300
1,36,600 1,36,600

Closing stock was Rs 2,000.

(a) Interest on drawings @ 7% and interest on capital @ 5%.
(b) Land and Machinery is depreciated at 5%.
(c) Interest on investment @ 6%.
(d) Unexpired rent Rs 100.
(e) Charge 5% depreciation on furniture.

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Answer :

Trading Account
Dr.
Amount
Particulars Particulars
Rs
Opening Stock 10,000 Sales 80,000
Purchases 40,000 Less: Sales Return 200
Less: Purchases Return 600 39,400 Closing Stock
Wages 6,000
Dock and Cleaning Charges 4,000
Gross Profit 22,400

81,800

Profit and Loss Account

Dr.
Amount
Particulars Particulars
Rs
Lighting 500 Gross Profit
Donations and Charity 600 Miscellaneous Income
Interest on Capital 2,000 Rent 2,000
Depreciation on Furniture 565 Less: Unearned Rent 100
Depreciation on Land and Machinery 2,150 Interest on Drawings
Net Profit 24,985 Interest on Investment

30,800

Balance Sheet
Amount
Liabilities
Rs

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Capital 40,000 Debtors

Add: Interest on Capital 2,000

Q12 :
The following balances were extracted from the books of M/s Panchsheel Garments on
December 31, 2005.

Account Title Debit Account Title Credit

Amount Amount
Rs Rs
Opening stock 16,000 Sales 1,12,000
Purchases 67,600 Return outwards 3,200
Return Inwards 4,600 Discount 1,400
Carriage inwards 1,400 Bank overdraft 10,000
General expenses 2,400 Commission 1,800
Insurance 4,000 Creditors 16,000
Scooter expenses 200 Capital 50,000
Salary 8,800
Cash in hand 4,000
Scooter 8,000
Furniture 5,200
Buildings 65,000
Debtors 6,000
Wages 1,200
1,94,400 1,94,400

Prepare the trading and profit and loss account for the year ended December, 31 and a
balance sheet as on that date.
(a) Unexpired insurance Rs 1,000.
(b) Salary due but not paid Rs 1,800.
(c) Wages outstanding Rs 200.
(d) Interest on capital 5%.
(e) Scooter is depreciated @ 5%.
(f) Furniture is depreciated Rs @ 10%.

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Answer :

Trading Account
Dr.
Amount
Particulars Particulars
Rs
Opening Stock 16,000 Sales 1,12,000
Purchases 67,600 Less: Return Inwards 4,600
Less: Return Outwards 3,200 64,400 Closing Stock
Carriage Inwards 1,400
Wages 1,200
Add: Outstanding Wages 200 1,400
Gross Profit 39,200
1,22,400

Profit and Loss Account

Dr.
Amount
Particulars Particulars
Rs
General Expenses 2,400 Gross Profit
Insurance 4,000 Discount
Less: Unexpired Insurance 1,000 3,000 Commission
Scooter Expenses 200
Salary 8,800
Add: Outstanding Salary 1,800 10,600
Interest on Capital 2,500
Depreciation on Scooter 400
Depreciation on Furniture 520
Net Profit 22,780
42,400

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Q13 :
Prepare the trading and profit and loss account and balance sheet of M/s Control Device
India on December 31, 2006 from the following balance as on that date.
Account Title Debit Credit
Amount Amount
Rs Rs
Drawings and Capital 19,530 67,500
Purchase and Sales 45,000 1,12,500
Salary and Commission 25,470 1,575
Carriage 2,700
Plant and Machinery 27,000
Furniture 6,750
Opening stock 42,300
Insurance premium 2,700
Interest 7,425
Bank overdraft 24,660
Rent and Taxes 2,160
Wages 11,215
Returns 2,385 1,440
Carriage outwards 1,485
Debtors and Creditors 36,000 58,500
General expenses 6,975
Octroi 530
Investment 41,400
2,73,600 2,73,600

Closing stock was valued Rs 20,000.

(a) Interest on capital @ 10%.
(b) Interest on drawings @ 5%.
(c) Wages outstanding Rs 50.
(d) Outstanding salary Rs 20.
(e) Provide a depreciation @ 5% on plant and machinery.
(f) Make a 5% provision on debtors.

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Answer :

Trading Account
Dr.
Amount
Particulars Particulars
Rs
Opening Stock 42,300 Sales 1,12,500
Purchases 45,000 Less: Sales Return 2,385
Less: Purchases Return 1,440 43,560 Closing Stock
Carriage 2,700
Wages 11,215
Add: Outstanding Wages 50 11,265
Octroi 530
Gross Profit 29,760
1,30,115

Profit and Loss Account

Dr.
Amount
Particulars Particulars
Rs
Salary 25,470 Gross Profit
Add: Outstanding Salary 20 25,490 Commission
Insurance Premium 2,700 Interest
Rent and Taxes 2,160 Interest on Drawings
Carriage Outwards 1,485 Net Loss
General Expenses 6,975
Interest on Capital 6,750
Depreciation on P & M 1,350
Provision on Debtors 1,800

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48,710

Q14 :
The following balances appeared in the trial balance of M/s Kapil Traders as on March 31,
2006

Rs
Sundry debtors 30,500
Bad debts 500
Provision for doubtful debts 2,000

The partners of the firm agreed to records the following adjustments in the books of the
Firm: Further bad debts Rs.300. Maintain provision for bad debts 10%. Show the
following adjustments in the bad debts account, provision account, debtors account, profit
and loss account and balance sheet.

Answer :

Profit and Loss Account

Dr.
Amount Amoun
Particulars Particulars
Rs Rs
Bad Debts 500
Add: Further Bad Debts 300
Add: New Provision 3,020
Less: Old Provision 2,000 1,820

Balance Sheet
Amount Amoun
Liabilities Assets
Rs Rs

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Debtors 30,500
Less: Further Bad Debts 300
Less: New Provision 3,020 27,1

Debtors Account
Dr. Cr.
Amount Amount
Date Particulars Date Particulars
Rs Rs
2006 2006
March 31 Balance b/d 30,500 March 31 Further Bad Debts 300
March 31 Provision for Doubtful Debts 3,020
March 31 Balance c/d 27,180

30,500 30,500

Q15 :
Prepare the bad debts account, provision for account, profit and loss account and balance
sheet from the following information as on December 31, 2005
Rs
Debtors 80,000
Bad debts 2,000
Provision for doubtful debts 5,000

Answer :

Profit and Loss Account

Dr.
Particulars Amount Particulars A

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Rs
Bad Debts 2,000 Old Provision for Doubtful Debts
Add: Further Bad Debts 500
Add: New Provision for Bad Debts 2,385 4,885

Balancing figure 115

5,000

Balance Sheet
Amount A
Liabilities Assets
Rs
Debtors 80,000
Less: Further Bad Debts 500
Less: New Provision on Debtors 2,385

Bad Debts Account

Dr. Cr.
Amount Amount
Date Particulars Date Particulars
Rs Rs
2005 2005
Dec.31 Balance b/d 2,000 Dec.31 Provision for Doubtful Debts 2,500
(as per the Trial Balance)

Dec.31 Sundry Debtors 500

2,500 2,500

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