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Accountancy

Ram started a toy car assembly business called Favourite Toys in 2014. He introduced Rs. 2 lakhs in cash and Rs. 33 lakhs by cheque as capital. He took loans and purchased machinery, furniture, inventory. By March 2015, sales were Rs. 90 lakhs but expenses included wages, supplies, insurance, losses from fire. The net profit and closing balances are to be determined from journalizing the transactions into accounts and preparing financial statements.

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20 views15 pages

Accountancy

Ram started a toy car assembly business called Favourite Toys in 2014. He introduced Rs. 2 lakhs in cash and Rs. 33 lakhs by cheque as capital. He took loans and purchased machinery, furniture, inventory. By March 2015, sales were Rs. 90 lakhs but expenses included wages, supplies, insurance, losses from fire. The net profit and closing balances are to be determined from journalizing the transactions into accounts and preparing financial statements.

Uploaded by

Shreyaa
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We take content rights seriously. If you suspect this is your content, claim it here.
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Ram did his Economics (Hons.

) from Delhi University and MBA from


Indian School of Business
(Hyderabad). He got job with a good salary. After 5 years of work
experience, he started his
business of assembling toy cars and named his business 'Favourite
Toys'. On 1st April, 2014 he
introduced a capital of ` 2 lakhs in cash and ` 33 lakhs by cheque. He
also took a loan of ` 10
lakhs from the State Bank of India, borrowed ` 5 lakhs from his
friend, Amit by cheque.
He took premises on rent at ` 10,000/- per month in Okhla Industrial
Area, New Delhi for
setting up of his new factory. On 1st April, 2014 he purchased
machinery of ` 10 lakhs and
furniture for his office worth ` 1,00,000 through a cheque. On the
same date he withdrew
` 8,00,000 from bank account for meeting day to day business
expenses. He hired an executive
to help him in setting up the business at a salary ` 10,000 per month.
He also took an insurance
cover at a premium of ` 50,000 per annum on 1st April. Within one
month, he was ready to
assemble toy cars. On 1st May, he made purchases for ` 70 lakhs out
of which ` 60 lakhs were
still payable and hired 5 workers on monthly wages of ` 8,000. On the
same date he purchased
a telephone and installed it, which cost him ` 2,000. The payment of
the telephone was made
through a cheque. He also paid ` 20,000 by cheque to print
catalogues for his products.
Payment of all routine expenses was made at the end of the year.
By the end of the year, all wages were paid every month in cash.
Machinery and Furniture were
depreciated @ 10% per annum. Total sales amounted to ` 90 lakhs.
He paid annual electricity
charges of ` 1,00,000 and telephone expenses ` 15,000 by cash. He
withdrew ` 1 lakhs from
bank for personal use. On 31st March 2015 he purchased
investments worth ` 10 lakhs through
bank. He repaid ` 5,00,000 with ` 25,000 as an interest to Amit on
account of the loan taken
earlier. There was a fire in the factory that destroyed goods worth `
2,00,000 out of which the
insurance company admitted a claim of ` 1,00,000. He paid ` 50,000
as carriage by cash. Interest
on bank loan was ` 50,000 due but not paid.
At the end of year closing stock was valued at ` 10 lakhs.
You are required to prepare the following:
(a) Journalize the above transactions, post them into ledger accounts
and prepare trial balance
for the year ended 31st March, 2015.
(b) Trading and Profit and Loss Account for the year ending 31st
March, 2015 and Balance sheet
as at 31st March, 2015.

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