Financial Accounting

Transcription

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2 Financial Accounting (As Per Revised Syllabus (CBCS) for Second Semester, B.Com. of All Universities in Andhra Pradesh w.e.f ) Prof. (Mrs) Prashanta Athma Professor, Department of Commerce, Osmania University, Hyderabad, Telangana State. MUMBAI NEW DELHI NAGPUR BENGALURU HYDERABAD CHENNAI PUNE LUCKNOW AHMEDABAD ERNAKULAM BHUBANESWAR KOLKATA GUWAHATI

3 Author No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the publisher. First Edition : 2016 Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd., Ramdoot, Dr. Bhalerao Marg, Girgaon, Mumbai Phone: / , Fax: himpub@vsnl.com; Website: Branch Offices : New Delhi : Pooja Apartments, 4-B, Murari Lal Street, Ansari Road, Darya Ganj, New Delhi Phone: , ; Fax: Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur Phone: , ; Telefax: Bengaluru : No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands, Madhava Nagar, Race Course Road, Bengaluru Phone: ; Telefax: Hyderabad : No , Lingampally, Besides Raghavendra Swamy Matham, Kachiguda, Hyderabad Phone: , ; Mobile: Chennai : New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai Mobile: Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth (Near Prabhat Theatre), Pune Phone: / ; Mobile: Lucknow : House No 731, Shekhupura Colony, Near B.D. Convent School, Aliganj, Lucknow Mobile: Ahmedabad : 114, SHAIL, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura, Ahmedabad Phone: ; Mobile: Ernakulam : 39/176 (New No: 60/251) 1st Floor, Karikkamuri Road, Ernakulam, Kochi , Phone: , ; Mobile: Bhubaneswar : 5 Station Square, Bhubaneswar (Odisha). Phone: , Mobile: Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank, Kolkata , Phone: , Mobile: , Guwahati : House No. 15, Behind Pragjyotish College, Near Sharma Printing Press, P.O. Bharalumukh, Guwahati , (Assam). Mobile: , DTP by : Rakhi Printed at : M/s Sri Sai Art Printer Hyderabad. On behalf of HPH.

4 Dedicated to my Dad

5 Preface The book on Financial Accounting is tailor-made to meet the requirements of contents of the new syllabi of B.Com. Semester II of the Universities in Andhra Pradesh and also provide requisite knowledge in Accounting. An earnest and sincere attempt is made to present the information in a non-technical, simple and lucid manner so as to enable the reader to understand the subject with ease. The book contains sufficiently a large number of illustrations for a better grasp in the subject matter. Wherever necessary, working notes and explanations have been provided. At the end of each Chapter, questions and problems are given for practice. Suggestions for improvement of the book are solicited. I express my heartfelt gratitude to my husband Mr. S. Chandra Babu, HR and Legal Professional, who was a constant source of inspiration, support and encouragement throughout the completion of the book. I also thank the publishers for the timely publication and my special thanks to Mr. Krishna Poojari for the keen interest taken by him in bringing out this book. Author

6 Paper 104 Syllabus Krishna University Financial Accounting I. B.Com. General/CA/ASM/TAX (Semester II) PPW: 06 Hours Sr. No. Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Final Accounts Modules/Units Meaning Features Manufacturing Account Preparation of Trading Account, Profit and Loss Account and Balance Sheet with Adjustments Problems. Consignment Accounts Consignment Features Proforma Invoice Account Sales Del Credre Commission Accounting Treatment in the Books of Consigner and Consignee Valuation of Closing Stock Normal and Abnormal Loss Problems. Joint Venture Accounts Joint Venture Features Difference between Joint Venture and Consignment Accounting Procedure Methods of Keeping Records Problems. Depreciation Methods of Depreciation - Straight line method - Diminishing balancing method Sum of Digits Method - Problems. Provisions and Reserves Meaning Provision vs. Reserve Preparation of Bad Debts Accounts Provision of Bad Debts Accounts Provision for Bad and Doubtful Debts Accounts Provision for Discount on Debtors Accounts Provision for Discount on Creditors Accounts Repairs and Renewals Account Problems.

7 Paper 104 Syllabus Sri Venkateswara University Financial Accounting II I. B.Com. General/CA/ASM/TAX (Semester II) PPW: 06 Hours Sr. No. Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Modules/Units Final Accounts And Rectification of Errors Meaning Features Manufacturing Account Preparation of Trading Account, Profit and Loss Account and Balance Sheet with Adjustments Types of Errors Rectification of Errors Suspense Account Problems. Consignment Accounts Consignment Features Proforma Invoice Account Sales Del Credre Commission Accounting Treatment in the Books of Consigner and Consignee Valuation of Closing Stock Normal and Abnormal Loss Problems. Joint Venture Accounts Joint Venture Features Difference between Joint Venture and Consignment Accounting Procedure Methods of Keeping Records Problems. Depreciation Methods of Depreciation Straight Line Method Diminishing Balancing Method Problems. Provisions and Reserves Meaning Provision vs. Reserve Preparation of Bad Debts Accounts Provision for Bad and Doubtful Debts Accounts Provision for Discount on Debtors Accounts Provision for Discount on Creditors Accounts Provision for Repairs and Renewals Account Problems.

8 Paper 104 Sr. No. Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Syllabus Andhra University Visakhapatnam Fundamentals of Accounting II B.Com. (CBCS), General Course Structure (Semester II) Depreciation Modules/Units PPW: 06 Hours Meaning of Depreciation Methods of Depreciation: Straight Line Written Down Value Sum of the Years Digits Annuity and Depletion Problems. Provisions and Reserves Meaning Provision vs. Reserve Preparation of Bad Debts Accounts Provision for Bad and Doubtful Debts Provision for Discount on Debtors Provision for Discount on Creditors Repairs and Renewals Reserve Accounts Problems. Bills of Exchange Meaning of Bill Features of Bill Parties in the Bill Discounting of Bill Renewal of Bill Entries in the Books of Drawer and Drawee Problems. Consignment Accounts Consignment Features Proforma Invoice Account Sales Del Credre Commission Accounting Treatment in the Books of Consigner and Consignee Valuation of Closing Stock Normal and Abnormal Losses Problems. Joint Venture Accounts Joint Venture Features Differences between Joint Venture and Consignment Accounting Procedure Methods of Keeping Records Problems.

9 Paper 104 Syllabus Acharya Nagarjuna University Nagarjunanagar Fundamentals of Accounting II I Year B.Com. (CBCS), General (Semester II) PPW: 06 Hours Sr. No. Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Depreciation Modules /Units Meaning of Depreciation Methods of Depreciation: Straight Line Written Down Value Sum of the Years Digits Annuity and Depletion Problems. Provisions and Reserves Meaning Provision vs. Reserve Preparation of Bad Debts Account Provision for Bad and Doubtful Debts Provision for Discount on Debtors Provision for Discount on Creditors Repairs and Renewals Reserve A/c Problems. Bills of Exchange Meaning of Bill Features of Bill Parties in the Bill Discounting of Bill Renewal of Bill Entries in the Books of Drawer and Drawee Problems. Consignment Accounts Consignment Features Proforma Invoice Account Sales Del Credre Commission Accounting Treatment in the Books of Consigner and Consignee Valuation of Closing Stock Normal and Abnormal Losses Problems. Joint Venture Accounts Joint Venture Features Differences between Joint Venture and Consignment Accounting Procedure Methods of Keeping Records Problems.

10 Contents 1. Final Accounts Rectification of Errors Consignment Joint Venture Bills of Exchange Depreciation Provisions and Reserves

11 Chapter 1 Final Accounts Objectives The objectives of the study are to: Understand the concept of Final Accounts Grasp the treatment of adjustments Learn the preparation of Final Accounts Structure Introduction Trading Account Explanation to Certain Items Manufacturing Account Profit and Loss Account Balance Sheet Adjustments Depreciation Bad Debts Provision for Bad and Doubtful Debts Provision for Discount on Debtors Provision for Discount on Creditors Outstanding Expenses Prepaid Expenses Income Earned But not Received Unearned Income Interest on Capital Interest on Drawings Loss of Stock by Fire/Theft

12 2 Financial Accounting Closing Stock Interest on Loan Charity and Samples Goods Used for Personal Purpose Manager s Commission on Net Profit Dishonor of Bills Receivable Received from Debtors Dishonor of Cheque Received from Debtors Credit Purchase of a Machine Installation Charges of a Machine Summary Glossary Questions Problems INTRODUCTION Any business organization would be interested in knowing the profit or loss made by the concern (financial result); the assets owned and the liabilities owed to the other parties (financial position) at the end of the financial year. The accounting record made in order to ascertain the financial result and the financial position is termed as Final Account. It refers to the Manufacturing Account, Trading Account, Profit and Loss Account and Balance Sheet. TRADING ACCOUNT A Trading Concern would buy and sell the stock of goods and in the process, makes a gross profit or incurs gross loss. The Account prepared to ascertain the gross profit or gross loss for a period is termed as Trading Account. It gives the overall result of trading, i.e., purchasing and selling of goods. The excess of net sales over the cost of goods sold is considered as gross profit and the excess of cost of goods sold over the net sales is the gross loss. Cost of Goods sold = Opening Stock + Net Purchases (Purchases Purchase Returns) + Direct Expenses Closing Stock Gross Profit/Gross Loss = Net Sales Cost of Goods Sold Proforma of Trading Account Dr. Trading Account of... for the year ending... Cr. Particulars Amount (`) Particulars Amount (`) To Opening Stock... By Sales To Purchases... Less: Returns Inwards Less: Returns Outwards... By Closing Stock To Stores Consumed... To Wages... To Carriage Inwards...

13 Final Accounts 3 To Cartage Inwards... To Octroi... To Fuel... To Motive Power... To Import Duty... To Dock Charges... To Clearing Charges... To Royalty... To Manufacturing Expenses... To Depreciation on Machinery... To Factory Rent... To Factory Lighting... To Factory Heating... To Factory Insurance... To Oil, Gas and Water... To Gross Profit... Explanation to Certain Items Opening Stock: It means the goods lying unsold by the businessman at the beginning of the financial/accounting year. Closing Stock: It means the goods lying unsold by the businessman at the end of the financial/accounting year which would become the opening stock for the next accounting year. Purchases: It includes the total purchase of goods for resale, i.e., cash and credit purchases. Net purchases should be taken which is the net of purchase returns, i.e., purchases purchase returns. Wages: It is the amount paid to the workers in the factory. If wages are paid for the purchase of fixed asset, it should be added to the concerned asset. Customs and Import Duty: It is the expenditure incurred when the goods are imported from outside the country. Freight, Carriage and Cartage: When these expenses are incurred on purchases, they become the direct expenses and hence appear in Trading Account. If they are incurred on sales, then such expenses are treated as indirect expenses and taken in the Profit and Loss Account. Royalty: It is the amount paid to the owners of mines, patent for using their rights, which is a direct expense. In case it is based on sales, then it would appear in the Profit and Loss Account. Packing Material: It is used for packing the goods purchased for bringing them to the business concern or incurred for converting them into a saleable state which are considered to be direct expenses and hence taken in Trading Account. Whereas, if it is incurred for making the product attractive for sale, it would be then an indirect expense which would appear in Profit and Loss Account.

14 4 Financial Accounting Illustration 1 From the following information, prepare the Trading Account for the year ending 31st March Cost of goods sold ` 7,79,700; Sales ` 8,55,000; Closing Stock ` 60,500 Solution Dr. Trading A/c for the year ending 31st March 2015 Cr. Particulars Amount (`) Particulars Amount (`) To Cost of Goods Sold 7,79,700 By Sales 8,55,000 To Gross Profit (transferred to P & L A/c) 75,300 8,55,000 8,55,000 Note: Cost of goods sold= Opening Stock + Purchases Closing Stock + Direct Expenses. Therefore, closing stock is not taken as it is already adjusted in cost of goods sold. Illustration 2 From the following information, prepare the Trading Account for the year ending 31st March Adjusted Purchases ` 7,79,700; Sales ` 8,55,000; Closing Stock ` 60,500; Freight and Cartage Inward ` 4,700, Wages ` 3,500; Freight and Cartage Outwards ` 2,900. Solution Dr. Trading A/c for the year ending 31st March 2015 Cr. Particulars Amount (`) Particulars Amount (`) To Adjusted Purchases 7,79,700 By Sales 8,55,000 To Freight and Cartage Inward 4,700 To Freight and Cartage Inward 3,500 To Gross Profit (transferred to P & L A/c) Notes: 67,100 8,55,000 8,55, Adjusted Purchases = Opening Stock + Purchases Closing Stock + Direct Expenses. Therefore, closing stock is not taken as it is already adjusted in Adjusted Purchases. 2. Freight and Cartage outwards is on sales and hence will appear in Profit and Loss Account (Debit Side) and not in Trading Account.

15 Final Accounts 5 Illustration 3 From the following information, prepare the Trading Account for the year ending on 31st March Opening Stock ` 90,000; Credit Purchases ` 6,50,000; Cash Purchases ` 60,000; Returns Outward ` 3,000; Cash Sales ` 36,000; Credit Sales ` 8,20,000; Cartage Inwards ` 400; Closing Stock ` 60,400; Freight Inwards ` 1,300; Wages and Salaries ` 3,600; Carriage Inwards ` 1,400; Returns Inwards ` 15,000. Solution Dr. Trading A/c for the year ending 31st March 2015 Cr. Particulars Amount(`) Particulars Amount (`) To Opening Stock 90,000 By Sales To Purchases: Cash 36,000 Cash 60,000 Credit 8,20,000 Credit 6,50,000 8,56,000 7,10,000 Less: Sales Returns 15,000 8,41,000 Less: Returns Outward 3,000 7,07,000 By Closing Stock 60,400 To Wages and Salaries 3,600 To Carriage Inwards 1,400 To Freight Inwards 1,300 To Cartage Inwards 400 To Gross Profit (transferred to P & L A/c) Illustration 4 97,700 9,01,400 9,01,400 Prepare a Trading Account for the year ended as at March 31, 2015 from the following particulars. Stock (April 1, 2014) ` 2,000; Credit Purchases ` 20,000; Cash Purchases ` 30,000; Purchase Returns ` 1,000; Cash Sales ` 50,000; Credit Sales ` 20,000; Loss of Goods by Fire ` 1,500; Octroi Duty ` 750; Drawing of Goods by Proprietor ` 500; Clearing Charges ` 250; Goods Given for Charity ` 100; Closing Stock ` 3,500; Railway Freight ` 1,500; Wages ` 500; Carriage Inwards ` 100; Returns Inwards ` 2,000; Goods Given in Samples ` 100; Commission on Purchases ` 200; Goods Sent on Consignment at Cost ` 1,500. Solution Dr. Trading A/c for the year ending 31st March 2015 Cr. Particulars Amount (`) Particulars Amount (`) To Opening Stock By Sales To Purchases: Cash 50,000 Cash 30,000 Credit 20,000 Credit 20,000 70,000 50,000 Less: Sales Returns 2,000 68,000

16 6 Financial Accounting Less: Returns Outward 1,000 49,000 By Goods Sent on 1,500 Consignment Goods Withdrawn 500 By Profit and Loss A/c 1,500 Charity 100 (Loss by Fire) Sample By Closing Stock 3,500 48,300 To Railway Freight 1,500 To Octroi Duty 750 To Clearing Charges 250 To Wages 500 To Carriage Inwards 100 To Commission on 200 Purchases To Gross Profit (transferred to P & L A/c) 22,900 74,500 74,500 MANUFACTURING ACCOUNT When a concern is a manufacturing concern, the manufacturer purchases the raw materials and converts them into finished goods and sells the finished products to the customers. While converting the raw material into the finished products, the manufacturer incurs various expenses and he would be interested in ascertaining the cost of the goods manufactured during a particular period. Hence, Manufacturing Account is prepared. The opening and closing stock of goods may consist of raw materials, work-in-progress and finished goods. Proforma of a Manufacturing Account Dr. Manufacturing Account of... for the year ending... Cr. Particulars Amount (`) Particulars Amount (`) To Opening Stock By Sales... Raw Materials... Less: Returns Inwards... Work-in-progress... By Closing Stock... To Purchase of Raw Material Less: Returns Outwards To Wages... To Freight... To Import Duty... To Octroi... To Coal, Gas and Water... To Factory Rent... To Motive Power... To Factory Insurance... To Consumable Stores... By Trading Account (Cost of Manufacture transferred to Trading Account)

17 Final Accounts 7 In case of a Manufacturing Concern, Trading Account would appear as follows: Dr. Trading Account of... for the year ending... Cr. Particulars Amount (`) Particulars Amount (`) To Opening Stock... By Sale of Finished Goods... Finished Goods... Less: Returns Inwards... To Manufacturing Account... By Closing Stock of Finished Goods... To Purchase of Finished Goods... Less: Returns Outwards... To Direct Expenses on Finished Goods... To Gross Profit Illustration 5 Following are the balances extracted from the books of M/s Harish Motors as on 31st March 2015, you are required to prepare the Manufacturing Account for the year ended on that date. Extracts from the books of M/s Harish Motors as on 31st March 2015 Particulars (`) Raw Materials (Opening Stock) 45,000 Work-in-progress (Opening Stock) 30,000 Finished Goods (Opening Stock) 40,000 Raw Material Purchases 1,10,000 Finished Goods Purchases 55,000 Productive Wages 60,000 Coal and Fuel 12,000 Sales 3,50,000 Carriage Inwards 2,000 Railway Freight 1,000 Repairs to Machinery 3,250 Royalty 2,250 Purchase Returns 900 Sales Returns 2,000 Factory Insurance 3,000 Factory Rent 45,000 Stock on 31st March 2015: Raw materials 18,000 Work-in-progress 42,000 Finished Goods 23,000

18 8 Financial Accounting Solution Dr. M/s Harish Motors Manufacturing Account for the year ended March 31, 2015 Cr. Particulars Amount (`) Particulars Amount (`) To Opening Stock By Closing Stock Raw- Material 45,000 Raw- Materials 18,000 Work-in-progress 30,000 75,000 Work-in-progress 42,000 60,000 To Purchases 1,10,000 By Manufacturing Cost (transferred to Trading Account) Less: Returns 900 1,09,100 To Productive Wages 60,000 To Coal and Fuel 12,000 To Carriage Inwards 2,000 To Railway Freight 1,000 To Repairs to Machinery 3,250 To Royalty 2,250 To Factory Insurance 3,000 To Factory Rent 45,000 2,52,600 3,12,600 3,12,600 Note: Stock and Purchase of Finished Goods; Sales and Sales Returns would appear in Trading Account and not in Manufacturing Account. PROFIT AND LOSS ACCOUNT Profit and Loss Account is prepared to ascertain the net profit or net loss of an organization. The excess of the amount on the credit side over the debit side of the account is termed as Net Profit and it is a case of Net Loss when the total of the amount on the debit side exceed the credit side. Net Profit increases the owner s equity and hence added to capital, whereas Net Loss reduces owner s equity and therefore deducted from capital. The items on the debit side of the Profit and Loss Account may be classified into: (a) (b) (c) (d) Management Expenses: Salaries to the employees, office rent, postage and telegram expenses, telephone charges, lighting expenses of the office, trade expenses, audit fees, director s fees, insurance and taxes, repairs, office rent, law charges, subscriptions to trade committees, etc. Financial Expenses: Interest on capital, interest on loan, bad debts, discount on debtors, bank expenses, charity, discount on bills discounted, etc. Selling and Distribution Expenses: Advertisement expenses, export duty, carriage outward, commission to sales agents, salaries to selling personnel, insurance of goods sold, packing expenses, transportation charges, sales tax, remuneration to sales agents, etc. Other Expenses: Depreciation on office furniture, vehicles and other indirect expenses.

19 Final Accounts 9 The items on the credit side of the Profit and Loss Account are Gross Profit brought forward from the Trading Account, discount received, rent received, commission received, interest on investments received, interest on bank deposits, interest on drawings, bad debts recovered, profit on joint venture, rent from subletting, etc. Illustration 6 A book-keeper has submitted you the following Trial Balance. Particulars Dr (`) Cr (`) Capital 7,600 Cash in Hand 50 Purchases 8,500 Sales 11,000 Cash at Bank 880 Fixtures and Fittings 200 Freehold Premises 1,300 Lighting and Heating 50 Bills Receivable 800 Returns Inward 100 Salaries 1,200 Creditors 2,000 Debtors 5,000 Stock on April 1, ,500 Printing 200 Bills Payable 1,200 Rates, Taxes and Insurance 120 Discount Received 420 Discount Allowed ,220 22,220 Stock on March 31, 2015 was valued at ` 2,000. You are required to prepare a Trading and Profit and Loss A/c for the year ended March 31, Solution Dr. Trading and Profit and Loss Account for the year ended 31st March 2015 Cr. Particulars Amount (`) Particulars Amount (`) To Opening Stock 3,500 By Sales 11,000 To Purchases 8,500 Less: Returns ,900 To Gross Profit c/d 900 By Closing Stock 2,000 12,900 12,900

20 10 Financial Accounting To Salaries 1,200 By Gross Profit b/d 900 To Lighting and Heating 50 By Discount Received 420 To Printing 200 By Net Loss 570 To Rates, Taxes and Insurance 120 To Discount Allowed 320 1,890 1,890 BALANCE SHEET The financial position of the business as on a particular date is represented in the Balance Sheet. It is a statement showing the balances of all the ledger accounts as at the end of the financial year. It consists of assets owned and liabilities owing. It is a sheet of balances of all the real and personal accounts. Financial transactions that take place in a business concern are recorded in the Journal and then posted to the Ledger from the Journal. Later, the balances of Ledger are recorded in the Trial Balance. From the Trial Balance, the balances of Nominal Accounts are transferred to the Trading Account and the Profit and Loss Account. The balances of Real and Personal Accounts from the Trial Balance are taken in the Balance Sheet. The Gross Profit or Gross Loss in the Trading Account is transferred to the Profit and Loss Account and the Net Profit/Net Loss in the Profit and Loss Account is transferred to the Balance Sheet. Thus, the Balance Sheet consists of the ledger accounts directly taken from the Trial Balance and certain items indirectly through the gist (Net Profit/Net Loss) of the Profit and Loss Account. Hence, the Balance Sheet is a summary of the whole of the accounting record. The two statements, viz., Trading and the Profit and Loss Account (Income Statement) and Balance Sheet together are termed as Final Accounts. There are no hard and fast rules for the order of writing assets and liabilities in case of a sole trader concern and partnership firms. But still, the Balance Sheet is prepared either according to the Order of Permanence or Order of Liquidity. Arrangement of assets and liabilities in any of these two orders is called as Marshalling of Assets and Liabilities. The proforma of Profit and Loss Account and Balance Sheet are already learnt in the earlier chapter. ADJUSTMENTS Adjustments are the transactions which are related to the Accounting Period for which Final Accounts are prepared but are not taken in the Trial Balance of that period due to the reason that either they are not recorded or recorded not completely. Sometimes, they are recorded and appear in Trial Balance but they do not belong to that Accounting Period of the Final Accounts. Therefore, these transactions have to be adjusted by making Adjustment Entries at the time of preparing the Final Accounts. Adjustment Entries recorded appear at two places one in Trading and Profit and Loss Account and the other in Balance Sheet. Sometimes, the double effect would be in Balance Sheet itself or in Trading and Profit and Loss Account itself. The point to be remembered is that if one record of adjustment is debit the other record must be credit.

21 Final Accounts 11 The various adjustments are given below. 1. Depreciation It is the diminution in the value of a fixed asset. It is treated as expenditure and appears in the Profit and Loss Account on the debit side, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Depreciation A/c. Dr. To Concerned Fixed Asset A/c (Being depreciation provided on the asset) Profit and Loss A/c. Dr. To Depreciation A/c (Being depreciation transferred to Profit and Loss Account) Profit and Loss Account: Debit Balance Sheet: Deduct from the concerned asset (Assets Side) 2. Bad Debts These are the amounts which cannot be recovered from the Debtors. It is treated as loss and appears in the Profit and Loss Account on the debit side, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Bad Debts A/c. Dr. To Debtors A/c (Being bad debts written off) Profit and Loss A/c. Dr. To Bad Debts A/c (Being bad debts transferred to Profit and Loss Account) Profit and Loss Account: Debit Balance Sheet: Deduct from the Sundry Debtors (Assets Side) 3. Provision for Bad and Doubtful Debts These are the amounts whose recovery is doubtful. It is a provision which appears in Profit and Loss Account on the credit side, if given in Trial Balance, as it is brought forward from the last year. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Provision for Bad and Doubtful Debts A/c. Dr. To Debtors A/c (Being provision for doubtful debts made) Profit and Loss A/c. Dr. To Provision for Bad and Doubtful Debts A/c (Being provision for doubtful debts transferred to Profit and Loss Account)

22 12 Financial Accounting Profit and Loss Account: Debit Balance Sheet: Deduct from the Sundry Debtors (Assets Side) Alternatively, in the Profit and Loss Account, the difference between the provision given in the Trial Balance (opening balance) and the adjustment provision would be accounted for. If the Trial Balance provision is more than the Adjustment provision, then the difference would appear on the credit side of the Profit and Loss Account and vice versa. Provision for Doubtful Debts would be ascertained after deducting the amount of adjustment bad debts from the Sundry Debtors. 4. Provision for Discount on Debtors It is calculated after deducting adjustment bad debts and provision for bad and doubtful debts from the Sundry Debtors. It is a provision which appears in the Profit and Loss Account on the credit side, if given in Trial Balance, as it is brought forward from the last year. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Provision for Discount on Debtors A/c. Dr. To Debtors A/c (Being provision for discount on debtors made) Profit and Loss A/c. Dr. To Provision for Discount on Debtors A/c (Being provision for discount on debtors transferred to Profit and Loss Account) Profit and Loss Account: Debit Balance Sheet: Deduct from the Sundry Debtors (Assets Side) 5. Provision for Discount on Creditors It is the discount earned from the creditors. It is the discount on the creditors of this year, which would be received in the next year. As it relates to the current year, it must be recorded in the current year Profit and Loss Account. Hence, provision for discount on creditors account is debited and profit and loss account is credited. (i) (ii) Creditors A/c. Dr. To Provision for Discount on Creditors A/c (Being provision for discount on creditors made) Provision for Discount on Creditors A/c. Dr. To Profit and Loss A/c (Being provision for discount on creditors transferred to Profit and Loss Account) Profit and Loss Account: Credit Balance Sheet: Deduct from the Sundry Creditors (Liabilities Side) 6. Outstanding Expenses These are the expenses which relate to the current financial year but not yet paid. Normally, expenses of the current month are paid in the first week of next month. Therefore, some expenses

23 Final Accounts 13 remain outstanding at the time of preparing the final accounts for the financial year. It is treated as a liability and appears in the Balance Sheet, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Concerned Expenses A/c. Dr. To Outstanding Expenses A/c (Being the entry for outstanding expenses) Profit and Loss A/c. Dr. To Concerned Expenses A/c (Being expenses transferred to Profit and Loss Account) Trading and Profit and Loss Account: Add to the concerned expenses (Debit Side) Balance Sheet: Liability 7. Prepaid Expenses These are the unexpired expenses which relate to the next financial year, but paid during the current financial year. It is treated as an asset and appears in the Balance Sheet, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Prepaid Expenses A/c. Dr. To Concerned Expenses A/c (Being the entry for prepaid expenses) Concerned Expenses A/c. Dr. To Profit and Loss A/c (Being expenses transferred to Profit and Loss Account) Trading and Profit and Loss Account: Deduct from the concerned expenses (Debit Side) Balance Sheet: Asset 8. Income Earned But Not Received When the income is earned in the current financial year, but not yet received, then such an item is treated as an asset and appears in the Balance Sheet, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Income Earned A/c. Dr. To Concerned Income A/c (Being the entry for income earned) Concerned Income A/c. Dr. To Profit and Loss A/c (Being the income transferred to Profit and Loss Account) Profit and Loss Account: Add to the concerned income (Credit Side) Balance Sheet: Asset

24 14 Financial Accounting 9. Unearned Income It is the income which is received in the current financial year, but the services for which will be rendered in the next financial year. Such an item is treated as a liability and appears in the Balance Sheet, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Concerned Income A/c. Dr. To Income Received in Advance A/c (Being the entry for unearned income) Profit and Loss A/c. Dr. To Concerned Income A/c (Being the income transferred to Profit and Loss Account) Profit and Loss Account: Deduct from the concerned income (Credit Side) Balance Sheet: Liability 10. Interest on Capital It is a financial expenditure and appears in Profit and Loss Account on the debit side, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Interest on Capital A/c. Dr. To Capital A/c (Being interest on capital provided for) Profit and Loss A/c. Dr. To Interest on Capital A/c (Being interest on capital transferred to Profit and Loss Account) Profit and Loss Account: Debit Balance Sheet: Added to the Capital (Liabilities Side) 11. Interest on Drawings It is a gain and appears in Profit and Loss Account on the credit side, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Drawings A/c. Dr. To Interest on Drawings A/c (Being interest on drawings provided for) Interest on Drawings A/c. Dr. To Profit and Loss A/c (Being interest on drawings transferred to Profit and Loss Account) Profit and Loss Account: Credit Balance Sheet: Added to the drawings and deducted from the Capital (Liabilities Side)

25 Final Accounts Loss of Stock by Fire/Theft In a business concern, the goods may be destroyed by fire or stolen by thieves. If the goods are not insured, it would be a total loss and if they are insured, to the extent the Insurance Company admits would be recovered by the business concern and to the extent it is not admitted would be a loss to the concern. The effect would be: (i) Loss by Fire/Theft A/c. Dr. To Trading A/c (Being loss of stock by fire/theft) If not insured (ii) Profit and Loss A/c. Dr. To Loss by Fire/Theft A/c (Being the transfer of loss to Profit and Loss Account) Trading Account: Treat it as Closing Stock (Credit Side) Profit and Loss Account : Loss (Debit Side) If insured and the Insurance Company admits the loss fully (ii) Insurance Company. Dr. To Loss by Fire/ Theft A/c (Being the transfer of loss to the Insurance Company) Trading Account: Treat it as Closing Stock (Credit Side) Balance Sheet: Insurance Company as a Debtor (Assets Side) If insured but the Insurance Company admits only a portion of such loss (ii) Insurance Company. Dr. Profit and Loss A/c. Dr. To Loss by Fire/Theft A/c (Being the transfer of loss to Profit and Loss Account) Trading Account: Treat it as Closing Stock (Credit Side: full amount) When the stock is destroyed, closing stock is reduced to that extent and the gross profit is also reduced. As gross profit is compared from period to period, it is necessary to eliminate abnormal losses and hence, the loss of stock is taken as closing stock reversing the earlier effect. Profit and Loss Account: Loss (Debit Side: to the extent not admitted by the Insurance Company) Balance Sheet: Insurance Company as a Debtor (Assets Side: to the extent admitted by the Insurance Company) 13. Closing Stock It is the stock which is not yet sold and remaining with the business concern at the end of the accounting period. It will be treated as an asset and appears in the Balance Sheet, if given in Trial

26 16 Financial Accounting Balance. Normally, Closing Stock is given as an adjustment. But, sometimes, when the purchases are adjusted, opening stock does not appear in Trial Balance instead Closing Stock is given in Trial Balance. In such a case, adjusted purchases are taken in the Trading Account and Closing Stock appears in the Balance Sheet. Adjusted Purchases = Opening Stock + Net Purchases Closing Stock If Closing Stock appears as an adjustment outside the Trial Balance, then the effect would be: (i) Closing Stock A/c. Dr. To Trading A/c (Being closing stock brought into the books) Trading Account: Credit Balance Sheet: Asset 14. Interest on Loan It is a financial expenditure and appears in Profit and Loss Account on the debit side, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Interest on Loan A/c. Dr. To Loan A/c (Being interest on loan provided for) Profit and Loss A/c. Dr. To Interest on Loan A/c (Being interest on loan transferred to Profit and Loss Account) Profit and Loss Account: Debit Balance Sheet: Added to the Loan (Liabilities Side) 15. Charity and Samples Sometimes, the business concerns may distribute goods as charity or samples. Such an item is an expenditure which appears in the Profit and Loss Account on the debit side, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) Charity/Samples A/c. Dr. To Purchases A/c (Being goods used for charity and samples) (ii) Profit and Loss A/c. Dr. To Charity/Samples A/c (Being charity/samples transferred to Profit and Loss Account) Trading Account: Deduct from Purchases (Debit Side) Profit and Loss Account: Expense (Debit Side)

27 Final Accounts Goods Used for Personal Purpose When the proprietor uses the goods from the business concern for his personal use, they should be treated as Drawings. The effect would be: (i) Drawings A/c. Dr. To Purchases A/c (Being goods used for personal purpose) Trading Account: Deduct from Purchases (Debit Side) Balance Sheet: Added to the drawings and deducted from the Capital (Liabilities Side) 17. Manager s Commission on Net Profit It is an expenditure which appears in the Profit and Loss Account on the debit side, if given in Trial Balance. If it appears as an adjustment outside the Trial Balance, then the effect would be: (i) (ii) Manager s Commission A/c. Dr. To Outstanding Commission A/c (Being commission to manager recorded) Profit and Loss A/c... Dr. To Manager s Commission A/c (Being manager s commission transferred to Profit and Loss Account) Profit and Loss Account: Expense (Debit Side) Balance Sheet: Outstanding Commission (Liabilities Side) Calculation of Manager s Commission (a) (b) Manager s Commission given as a percentage of net profit before charging such commission: Commission = Net Pr ofit Percentage of Commission 100 Manager s Commission given as a percentage of net profit after charging such commission: Commission = Net Pr ofit Percentage of Commission 100 Percentage of Commission 18. Dishonor of Bills Receivable Received from Debtors The bills receivable received from the debtor, when dishonored, the position would be reversed. The entry would be: (i) Debtors A/c. Dr. To Bills Receivable A/c (Being bills receivable received dishonored) Balance Sheet: Add to Debtors (Assets Side) Balance Sheet: Deduct from Bills Receivable (Assets Side)

28 18 Financial Accounting 19. Dishonor of Cheque Received from Debtors The cheque received from the debtor, when dishonored, the position would be reversed. The entry would be: (i) Debtors A/c. Dr. To Bank A/c (Being cheque received dishonored) Balance Sheet: Add to Debtors (Assets Side) Balance Sheet: Deduct from Bank (Assets Side) 20. Credit Purchase of a Machine The machinery purchased, when given in Trial Balance, it would appear as an asset in the Balance Sheet. If the same is given as an adjustment, then the entry would be: (i) Machinery A/c. Dr. To Creditors A/c (Being credit purchase of a machine) Balance Sheet: Add to Machine (Assets Side) Balance Sheet: Add to Creditors (Liabilities Side) 21. Installation Charges of a Machine The installation charges of a machine purchased, when given in Trial Balance, it would be added to the machine and appears as an asset in the Balance Sheet. If the same is given as an adjustment as already included in wages, then the entry would be: (i) Machinery A/c. Dr. To Wages A/c (Being credit purchase of a machine) Trading Account: Deduct from Wages (Debit Side) Balance Sheet: Add to Machine (Assets Side) Illustration 7 From the following Ledger Accounts, prepare a Profit and Loss Account and Balance Sheet as on 31st March Ledger Accounts Debit (`) Credit (`) Salaries 10,000 Establishment Expenses 7,000 Wages Outstanding 3,000 Unexpired Insurance 500 Rent 25,000 Plant and Machinery 40,000 Land and Buildings 60,000

29 Final Accounts 19 Adjustments: (a) Outstanding salaries amounted to ` 2,000. (b) Prepaid rent amount to ` 3,000. (c) The value of Plant and Machinery be depreciated by 10%. (d) Establishment Expenses for March 2015 are still to be paid amounted to ` 700. Prepare Profit and Loss Account and Balance Sheet. Solution Extracts of Profit and Loss Account for the year ended 31st March 2015 Particulars (`) Particulars (`) To Salaries 10,000 Add: Outstanding 2,000 12,000 To Rent 25,000 Less: Prepaid 3,000 22,000 To Establishment Expenses 7,000 Add: Outstanding 700 7,700 To Depreciation on Plant and Machinery 40,000*10/100 4,000 Extracts of Balance Sheet as on 31st March 2015 Liabilities (`) Assets (`) Wages Outstanding 3,000 Unexpired Insurance 500 Salaries Outstanding 2,000 Prepaid Rent 3,000 Outstanding Establishment Expenses 700 Plant and Machinery 40,000 Less: Depreciation 4,000 36,000 Land and Building 60,000 Illustration 8 From the following Trial Balance of Krishang, prepare Trading and Profit and Loss Account for the year ending 31st March 2015 and Balance Sheet as on that date. Trial Balance of Krishang as on 31st March 2015 Particulars Debit (`) Credit (`) Buildings 50,000 Capital 96,000 Purchases and Sales 15,000 40,450 Opening Stock (1/4/2014) 8,000 Debtors and Creditors 10,000 5,000 Drawings 3,500

30 20 Financial Accounting Adjustments: Sales Returns and Purchase Returns 1, Freight 3,250 Office Salaries 10,000 Wages 1,200 Postage and Telegrams 1,000 Machinery 20,000 Bills Receivable and Bills Payable 9,000 3,000 Advertisement 4,000 Cash in Hand 5,000 Loose Tools 4,000 1,44,950 1,44,950 (a) Closing Stock was valued at ` 10,000. (b) Depreciate Building by 5% and Loose Tools are revalued at ` 3,500. (c) Interest on Capital is at 5% and on Drawings is at 10%. Solution Dr. Trading and Profit and Loss Account of Krishang for the year ending Cr. Particulars Amount (`) Particulars Amount (`) To Opening Stock 8,000 By Sales 40,450 To Purchases 15,000 Less: Returns 1,000 39,450 Less: Returns ,500 By Closing Stock 10,000 To Freight 3,250 To Wages 1,200 To Gross Profit c/d 22,500 49,450 49,450 To Office Salaries 10,000 By Gross Profit b/d 22,500 To Postage and Telegrams 1,000 By Interest on Drawings (@ 10 on ` 3,500) To Advertisement 4,000 To Depreciation: Building 2,500 Loose Tools (4,000 3,500) 500 To Interest on Capital (96,000 * 5/100) 4,800 To Net Profit ,850 22,850

31 Final Accounts 21 Particulars Balance Sheet of Krishang as on Amount (`) Particulars Amount (`) Capital 96,000 Cash in Hand 5,000 Add: Interest (5%) 4,800 Machinery 20,000 1,00,800 Buildings 50,000 Add: Net Profit 50 Less: Depreciation (5%) 2,500 47,500 1,00,850 Loose Tools 4,000 Less: Drawings 3,500 Less: Depreciation 500 3,500 Less: Interest on Drawing ,000 Sundry Debtors 10,000 Sundry Creditors 5,000 Bills Receivable 9,000 Bills Payable 3,000 Closing Stock 10,000 1,05,000 1,05,000 Illustration 9 From the following Trial Balance, prepare Trading and Profit and Loss Account for the year ended 31st March 2015 and Balance Sheet as on that date. Trial Balance as on 31st March 2015 Particulars (`) Particulars (`) Printing and Stationery 1,600 Bills Payable 10,000 Trade Expenses 750 Provision for Doubtful Debts 600 Freehold Property 38,000 Sales 1,80,000 Cash at Bank 21,000 Discount Received 4,000 Cash in Hand 3,000 Capital 1,34,800 Purchases 1,50,000 Sundry Creditors 30,000 Opening Stock 45,000 Interest on Investments 200 Audit Fees 200 Commission Received 3,500 Investments on 10% 4,000 Purchase Returns 1,000 Sundry Debtors 35,000 Wages 22,000 Salaries 12,000 Income Tax 1,100 Discount Allowed 6,000 Sales Returns 400 Bills Receivable 2,500 Furniture 2,050 Rent, Rates and Insurance 4,500 Drawings 15,000 3,64,100 3,64,100

32 22 Financial Accounting Adjustments: (a) (b) Provide ` 1,500 for further bad debts and doubtful debts at 5% on Sundry Debtors. Make provision for discount on Debtors at 3% of Debtors and Reserve for Discount on Creditors at 3%. (c) Outstanding wages ` 6,000. (d) Closing Stock ` 60,000. (e) Provide 5% depreciation on Freehold Property. (f) Charge Interest on 6% and Interest on Drawings ` 500. Solution Dr. Trading and Profit and Loss Account for the year ending 31st March 2015 Cr. Particulars (`) (`) Particulars (`) (`) To Opening Stock 45,000 By Sales 1,80,000 To Purchases 1,50,000 Less: Returns 400 1,79,600 Less: Returns 1,000 1,49,000 By Closing Stock 60,000 To Wages 22,000 Add: Outstanding 6,000 28,000 To Gross Profit c/d 17,600 2,39,600 2,39,600 To Printing and Stationery 1,600 By Gross Profit b/d 17,600 To Trade Expenses 750 By Discount Received 4,000 To Audit Fees 200 By Commission 3,500 To Salaries 12,000 By Interest on Investments 200 To Discount Allowed 6,000 Add: Accrued To Rent, Rates and Insurance 4,500 By Interest on Drawings 500 To Bad Debts 1,500 By Provision for Discount on Creditors 900 (3% of 30,000) To Provision for Doubtful Debts By Net Loss c/d 11,668 New Reserve Less: Old Reserve 1, ,075 To Provision for Discount on Debtors 955 To Depreciation on Freehold Property 1,900 To Interest on Capital 8,088 38,568 38,568

33 Final Accounts 23 Balance Sheet as on 31st March 2015 Particulars (`) (`) Particulars (`) (`) Bills Payable 10,000 Cash in Hand 3,000 Sundry Creditors 30,000 Cash at Bank 21,000 Less: Discount on Creditors ,100 Bills Receivable 2,500 Outstanding Wages 6,000 Closing Stock 60,000 Capital 1,34,800 Sundry Debtors 35,000 Add: Interest (6%) 8,088 Less: Bad Debts 1,500 1,42,888 33,500 Less: Net Loss 11,668 Less: New Reserve (5%) 1,675 1,31,220 31,825 Less: Drawings 15,000 Less: Discount on Debtors (3%) Less: Interest on Drawings 500 Investment 4, ,870 1,15,720 Add: Interest Accrued 200 4,200 Less: Income Tax 1,100 1,14,620 Freehold Property 38,000 Less: Depreciation (5%) 1,900 36,100 Furniture 2,050 1,59,720 1,59,720 Illustration 10 The following Trial Balance is extracted from the books of Sri on March 31, Trial Balance of Sri on March 31, 2015 Particulars Dr (`) Cr (`) Salaries 35,000 General Expenses 7,000 Taxes and Insurance 8,000 Sundry Debtors 25,000 Stock 46,000 Purchases 60,000 Wages 4,000 Sales 1,50,000 Bank Overdraft 17,000 Commission 3,500 Advertising 9,000 Interest 2,000 Furniture 60,000 Building 60,000 Motor Vehicle 80,000

34 24 Financial Accounting Capital 1,25,000 Bad Debts 2,000 Provision for Doubtful Debts 2,500 Loan 60,000 Sundry Creditors 40,000 Adjustments: 3,98,000 3,98,000 (a) Stock on hand on March 31, 2015 was estimated to be ` 40,000. (b) Depreciate: 6% and Motor 10%. (c) (d) ` 1,500 is due for interest on Loan. Write off further ` 1,000 as Bad Debts and Provision for Bad Debts is to be made equal to 6% on Sundry Debtors. You are required to prepare Trading and Profit and Loss Account, Balance Sheet as on that date. Solution Dr. Trading and Profit and Loss Account of Sri for the year ending March 31, 2015 Cr. Particulars (`) Particulars (`) To Opening Stock 46,000 By Sales 1,50,000 To Purchases 60,000 By Closing Stock 40,000 To Wages 4,000 To Gross Profit c/d 80,000 1,90,000 1,90,000 To Salaries 35,000 By Gross Profit b/d 80,000 To General Expenses 7,000 By Commission 3,500 To Advertising 9,000 To Depreciation: Building 3,600 Motor Vehicles 8,000 To Interest 2,000 Add: Outstanding 1,500 3,500 To Taxes and Insurance 8,000 To Bad Debts 2,000 Add: Further Bad Debts 1,000 3,000 Add: New Provision 1,440 4,440 Less: Old Provision 2,500 1,940 To Net Profit 7,460 83,500 83,500

35 Final Accounts 25 Balance Sheet of Sri as on 31st March 2015 (Order of Liquidity) Liabilities (`) (`) Assets (`) (`) Bank Overdraft 17,000 Cash in Hand 25,000 Outstanding Interest 1,500 Less: Bad Debts 1,000 Sundry Creditors 40,000 24,000 Loan 60,000 Less: New Reserve (6%) 1,440 22,560 Capital 1,25,000 Stock 40,000 Less: Net Loss 7,460 1,32,460 Furniture 60,000 Motor Vehicles 80,000 Less: Depreciation 8,000 72,000 Building 60,000 Less: Depreciation (6%) 3,600 56,400 2,50,960 2,50,960 Illustration 11 The following is the Trial Balance of Murali Ltd. Prepare a Trading Account, Profit and Loss Account and Balance Sheet as on 31st March Trial Balance of Murali Ltd. as on 31st March 2015 Particulars Dr (`) Cr (`) Sundry Creditors 60,000 Sundry Debtors 1,50,000 Capital Account 8,00,000 Drawings 52,000 Insurance 8,000 General Expenses 35,000 Salaries 1,45,000 Patents 70,000 Machinery 2,50,000 Freehold Land 1,00,000 Building 3,90,000 Stock on 1/4/ ,000 Carriage on Purchases 25,000 Carriage on Sales 30,000 Fuel and Power 48,000 Wages 1,20,000 Return Outwards 10,000 Return Inwards 5,000 Sales 10,00,000

36 26 Financial Accounting Purchases 3,50,000 Cash at Bank 29,000 Cash in Hand 5,000 The following adjustments are to be made: (a) Stock on 31st March 2015 was valued at ` 70,000. (b) 18,70,000 18,70,000 A Provision for Bad and Doubtful Debts is to be created to the extent of 5% on Sundry Debtors. (c) Depreciate Machinery by 20% and Patents by 10%. (d) (e) Solution Wages include a sum of ` 10,000 spent on the erection of a Cycle Shed for employees and customers. Salaries for the Month of March 2015 amounting to ` 10,000 were unpaid. Dr. Trading and Profit and Loss Account of Murali Ltd. for the year ending Cr. Liabilities (`) (`) Assets (`) (`) To Opening Stock 58,000 By Sales 10,00,000 To Purchases 3,50,000 Less: Sales Returns 5,000 9,95,000 Add: Carriage on Purchases 25,000 Less: Return Outward 10,000 3,65,000 To Wages 1,20,000 Less: Wages for Cycle Shed 10,000 1,10,000 By Closing Stock 70,000 To Fuel and Power 48,000 To Gross Profit 4,84,000 10,65,000 10,65,000 To Insurance 8,000 By Gross Profit 4,84,000 To General Expenses 35,000 To Salaries 1,45,000 Add: Outstanding 10,000 1,55,000 To Carriage on Sales 30,000 To Provision for Bad Debts To Depreciation on: 7,500 Machinery 50,000 Patents 7,000 To Net Profit 1,91,500 4,84,000 4,84,000

37 Final Accounts 27 Balance Sheet of Murali Ltd as on Liabilities (`) (`) Assets (`) (`) Capital 8,00,000 Freehold Land 1,00,000 Add: Net Profit 1,91,500 Building 3,90,000 9,91,500 Machinery 2,50,000 Less: Drawings 52,000 9,39,500 Less: Depreciation 50,000 2,00,000 Sundry Creditors 60,000 Patents 70,000 Outstanding Salaries 10,000 Less: Depreciation 7,000 63,000 Cycle Shed 10,000 Stock 70,000 Sundry Debtors 1,50,000 Less: Provision for Bad Debts 7,500 1,42,500 Cash at Bank 29,000 Cash in Hand 5,000 10,09,500 10,09,500 Illustration 12 From the following Trial Balance of Radha, prepare a Trading and Profit and Loss Account for the year ended 31st March 2015 and a Balance Sheet as on that date. Trial Balance of Radha as on 31st March 2015 Particulars Dr (`) Cr (`) Capital 1,00,000 Furniture 20,000 Purchases 1,50,000 Debtors 2,00,000 Interest Earned 4,000 Salaries 30,000 Sales 3,21,000 Purchase Returns 5,000 Wages 20,000 Rent 15,000 Sales Returns 10,000 Bad Debt written off 7,000 Creditors 1,20,000 Drawings 24,000 Provision for Bad Debts 6,000 Printing and Stationery 8,000 Insurance 12,000

38 28 Financial Accounting Opening Stock 50,000 Office Expenses 12,000 Provision for Depreciation 2,000 Additional information: (a) (b) (c) (d) Depreciate Furniture by 10% on original cost. 5,58,000 5,58,000 A Provision for Doubtful Debts is to be created to the extent of 5% on Sundry Debtors. Salaries for the month of March 2009 amounting to ` 3,000 were unpaid which must be provided for. However, salaries included ` 2,000 paid in advance. Insurance amounting to ` 2,000 is prepaid. (e) Provide for outstanding Office Expenses ` 8,000. (f) Stock used for private purpose ` 6,000. (g) Closing Stock in trade ` 60,000. Solution Dr. Trading and Profit and Loss Account of Radha for the year ended 31st March 2015 Cr. Liabilities (`) (`) Assets (`) (`) To Opening Stock 50,000 By Sales 3,21,000 To Purchases 1,50,000 Less: Sales Returns 10,000 3,11,000 Less: Purchase Returns 5,000 By Closing Stock 60,000 1,45,000 Less: Goods taken for private purpose 6,000 1,39,000 To Wages 20,000 To Gross Profit c/d 1,62,000 To Salaries 30,000 3,71,000 3,71,000 Add: Outstanding 3,000 By Gross Profit b/d 1,62,000 Less: Prepaid 2,000 31,000 To Rent 15,000 To Printing and Stationery 8,000 To Insurance 12,000 Less: Prepaid 2,000 10,000 To Office Expenses 12,000 Add: Outstanding 8,000 20,000 To Bad Debts 7,000 To Provision for Bad Debts 33,000 By Interest 4,000

39 Final Accounts 29 New 10,000 Less: Old 6,000 4,000 To Provision for Depreciation 2,000 To Net Profit 69,000 1,66,000 1,66,000 Balance Sheet of Radha as on 31st March 2015 Liabilities (`) (`) Assets (`) (`) Capital 1,00,000 Furniture (at cost) 20,000 Add: Net Profit 69,000 Less: Provision for Depreciation (` 2,000 + ` 2,000) 4,000 16,000 Less: Drawings (` 24,000 + ` 6,000) 30,000 1,39,000 1,69,000 Stock in trade 60,000 Debtors 2,00,000 Creditors 1,20,000 Less: Provision for Bad Debts 10,000 1,90,000 Outstanding Liabilities: Prepaid Expenses: Salaries 3,000 Salaries 2,000 Office Expenses 8,000 11,000 Insurance 2,000 4,000 2,70,000 2,70,000 Illustration 13 The following is the Trial Balance of Sirish Marketing as on 31st March You are required to prepare the Trading and Profit and Loss Account for the year ended 31st March 2015 and Balance Sheet as on that date after making necessary adjustments. Trial Balance of Sirish Marketing as on 31st March 2015 Particulars Dr (`) Cr (`) Stock on 1/4/2015 6,20,000 Purchases 15,00,000 Sales 30,00,000 Wages and Salaries 2,00,000 Discount Received 15,000 Carriage Inwards 45,000 Bills Payable 2,50,000 Insurance 32,000 Creditors 10,00,000 Trade Expenses 40,000 Bills Receivable 3,50,000

40 30 Financial Accounting Adjustments: Debtors 16,00,000 Capital 9,50,000 Furniture 1,20,000 Commission 50,000 Interest 25,000 Cash in Hand 5,73,000 Cash at Bank 50,000 Rent & Taxes 25,000 Sale of Furniture on 31/3/15 15,000 (a) Stock on 31st March 2015 ` 8,00, ,30,000 52,30,000 (b) Furniture sold was appearing in the Balance Sheet on 31st March 2013 ` 20,000 (c) Solution Included in the Debtors, an amount of ` 10,000 which is expected to realize not more than 50 paise in the rupee. Dr. Trading and Profit and Loss Account of Sirish Marketing for the year ending Cr. Particulars (`) Particulars (`) To Opening Stock 6,20,000 By Sales 30,00,000 To Purchases 15,00,000 By Closing Stock 8,00,000 To Wages and Salaries 2,00,000 To Carriage Inwards 45,000 To Gross Profit c/d 14,35,000 38,00,000 38,00,000 To Insurance 32,000 By Gross Profit b/d 14,35,000 To Commission 50,000 By Discount Received 15,000 To Interest 25,000 To Trade Expenses 40,000 To Rates and Taxes 25,000 To Loss on Sale of Furniture 5,000 To Bad Debts 5,000 To Net Profit 12,68,000 Notes: 14,50,000 14,50, When wages and salaries are given, the item would appear in Trading Account and if the same item is given as salaries and wages, the item would appear in Profit and Loss Account. 2. Debtors ` 10,000 Good Debts (10, ) ` 5,000 Bad Debts ` 5,000

41 Final Accounts Cost of Furniture sold ` 20,000 Sale Value ` 15,000 Loss on Sale of Furniture ` Balance Sheet of Sirish Marketing as on 31st March 2015 (Order of Liquidity) Liabilities (`) (`) Assets (`) (`) Bills Payable 2,50,000 Cash in Hand 5,73,000 Sundry Creditors 10,00,000 Cash at Bank 50,000 Capital 9,50,000 Debtors 16,00,000 Add: Net Profit 12,68,000 22,18,000 Less: Bad Debts 5,000 15,95,000 Bills Receivable 3,50,000 Closing Stock 8,00,000 Furniture 1,20,000 Less: Sale of furniture 20,000 1,00,000 34,68,000 34,68,000 Illustration 14 The following is the Trial Balance of Mr. Pradeep on 31st March Trial Balance of Mr. Pradeep on 31st March 2015 Particulars Dr (`) Cr (`) Capital Sundry Creditors Plant & Machinery Office Furniture and Fittings Stock as on 1st April 2008 Motor Van Sundry Debtors Cash in Hand Cash at Bank Wages Salaries Purchases Sales Bills payable Bills Receivable Returns Inwards Provision for Doubtful Debts Drawings Return Outwards Rent Factory Lighting and Heating 5, ,800 1,200 4, ,000 1,400 21, ,000 5,200 48,

42 32 Financial Accounting Insurance General Expenses Bad Debts Discount ,930 58,930 The following adjustments are to be made: (a) Stock on 31st March 2015 ` 5,200. (b) 3 months factory lighting and heating is due, but not paid ` 30. (c) 5% depreciation to be written off on Furniture. (d) Write off further Bad Debts ` 70. (e) (f) The provision for doubtful debts to be increased to ` 300 and provision for discount on 2% to be made. During the year, Machinery was purchased for ` 2,000, but it was debited to Purchases Account. You are required to prepare a Trading and Profit and Loss Account and the Balance Sheet. Solution Dr. Trading and Profit and Loss Account of Mr. Pradeep for the year ended Cr. Particulars (`) (`) Particulars (`) (`) To Opening Stock 4,800 By Sales 48,000 To Purchases 21,350 Less: Return Inwards ,070 Less: Return Outwards 550 By Closing Stock 5,200 20,800 Less: Purchase of Machinery 2,000 18,800 To Wages 15,000 To Factory Lighting and 80 Heating Add: Outstanding To Gross Profit c/d 13,560 52,270 52,270 To Salaries 1,400 By Gross Profit b/d 13,560 To Rent 600 By Discount 370 To Insurance 630 To General Expenses 100 To Discount 650 To Bad Debts 250 Add: Further Bad Debts To Provision for Doubtful Debts New 300

43 Final Accounts 33 Less: Old To Provision for Discount on Debtors 84 To Depreciation on Furniture 13 To Net Profit 10,083 13,930 13,930 Balance Sheet of Mr. Pradeep as on Liabilities (`) (`) Assets (`) (`) Capital 4,000 Plant and Machinery 5,000 Add: Net Profit 10,083 Add: Purchases 2,000 7,000 14,083 Motor Van 1,200 Less: Drawings ,383 Office Furniture 260 Bills Payable 560 Less: 5% Sundry Creditors 5,200 Sundry Debtors 4,570 Outstanding Factory Lighting and Heating 30 Less: Further Bad Debts 70 4,500 Less: Provision for Bad Debts 300 4,200 Less: Provision for Discount on Debtors 84 4,116 Closing Stock 5,200 Bills Receivable 720 Cash at Bank 650 Cash in Hand 40 19,173 19,173 Illustration 15 Following is the Trial Balance of Smt. Ramya. Prepare Trading and Profit and Loss Account for the year ended 31/03/2015 and a Balance Sheet as on that date. Trial Balance of Smt. Ramya as on 31st March 2015 Particulars (`) (`) Capital 20,000 Drawings 4,000 Stock (1/4/2014) 15,000 Return Inwards 500 Carriage Inwards 1,200 Deposit with Ram 2,500

44 34 Financial Accounting Return Outwards 800 Carriage Outwards 750 Loan to 5% p.a. on 1/4/2014 1,000 Interest on the above loan 25 Rent 800 Rent Outstanding 100 Purchases 13,000 Debtors 5,000 Creditors 2,000 Provision for Doubtful Debts 1,000 Advertisement Expenses 800 Bad Debts 500 Patents 645 Sales 25,000 Discount Allowed 300 Wages 750 Cash 80 Goodwill 2,100 48,925 48,925 Adjustments: (a) (b) (c) (d) The Manager of Smt. Ramya is entitled to a commission of 5% of the net profit calculated after charging such commission. Increase Bad Debts by ` 500. Provision for Doubtful Debts is to be of 10% and provision for discount on Debtors is to 5% on Sundry Debtors. Stock valued at ` 2,000 was destroyed by fire on 25/03/2015 but the insurance company admitted a claim of ` 1,000 only and paid it in June ` 300 out of the advertisement expenses are to be carried forward to the next year. (e) Closing Stock was valued at ` 20,000. Solution Dr. Trading and Profit and Loss Account of Smt. Ramya for the year ended Cr. Particulars Amount (`) Amount (`) Particulars Amount (`) To Opening Stock 15,000 By Sales 25,000 Amount (`) To Purchases 13,000 Less: Returns ,500 Less: Returns ,200 By Loss of Stock by Fire 2,000 To Wages 750 By Closing Stock 20,000 To Carriage Inwards 1,200 To Gross Profit c/d 17,350 46,500 46,500 To Carriage Outwards 750 By Gross Profit b/d 17,350

45 Final Accounts 35 To Rent 800 By Provision for Doubtful Debts To Bad Debts 500 Old Provision 1,000 Add: New Bad Debts 500 1,000 Less: New Provision To Provision for Discount on Debtors By Interest on Loan 25 To Advertisement Expenses 800 Add: Accrued Interest Less: Prepaid To Discount Allowed 300 To Accidental Loss 1,000 To Manager s Commission 638 To Net Profit c/d 12,759.5 Particulars 17,950 17,950 Balance Sheet of Smt. Ramya as on the date 31st March 2015 Amount (`) Amount (`) Particulars Amount (`) Amount (`) Capital 20,000 Goodwill 2,100 Add: Net Profit 12,759.5 Patents ,759.5 Closing Stock 20,000 Less: Drawings 4,000 28,759.5 Debtors 5,000 Creditors 2,000 Less: New Bad 500 Manager s Commission 638 Debts 4,500 Outstanding Rent 100 Less: Provision for Bad Debts Less: Provision for Discount on Debtors ,847.5 Loan to Chandra 1,000 Add: Accrued Interest on Loan 25 1,025 Deposit with Ram Prepaid 2,500 Advertisement 300 Insurance Claim 1,000 Cash in Hand 80 31, ,497.5

46 36 Financial Accounting Working Notes: 1. Calculation of provision for doubtful debts Total Debtors as per Trial Balance 5,000 Less: New Bad Debts 500 4,500 Provision for doubtful debts is to be 10% on 4, Provision for Discount on Debtors is to be 5% on (4, ) 4,050 ` Goods lost by fire ` 2000, Insurance claim admitted is ` 1,000 only. Therefore, the net loss of ` 1,000 (2,000 1,000) is to be charged to Profit and Loss Account. 3. Profit before charging Manager s Commission is `13, Commission is 5% after charging such commission. Illustration 16 The position would be as below. Profit before charging Commission 105 Less: Manager s Commission 5 Net Profit after charging Commission 100 Therefore, Commission = 13,397.5 * 5/105 ` 638 The following is the Trial Balance of Lakshmi as on 31st March Trial Balance of Lakshmi as on 31st March 2015 Debit Balance (`) Credit Balance (`) Drawings 15,000 Capital 1,20,000 Sundry Debtors 75,000 Sundry Creditors 85,000 Cash in Hand 5,000 Loan 50,000 Interest 1,500 Sales 1,62,000 Stock 45,000 Purchase Returns 7,300 Cash at Bank 10,000 Discount 2,500 Bad Debts 5,000 Bills Payable 15,000 Land and Buildings 1,00,000 Rent Received 4,000 Sales Returns 8,000 Provision for Bad Debts 8,500 Purchases 1,30,000 Carriage Outwards 2,500 Carriage Inwards 4,500 Establishment Charges 13,000 Rates and Taxes 3,750

47 Final Accounts 37 Advertisement 5,550 General Expenses 5,000 Wages 15,000 Bills Receivable 10,500 Adjustments: 4,54,300 4,54,300 (a) The Stock in hand on March 31, 2015 is valued at ` 80,000. (b) Depreciate Land and 10% p.a. (c) Bad Debts Provision is to be increased by ` 2,000. (d) Provide for the Manager s Commission at 6% on the net profit after charging such commission. You are required to prepare the Trading and Profit and Loss Account for the year ending 31st March 2015 and a Balance Sheet as on that date. Solution Dr. Trading and Profit and Loss of Lakshmi for the year ending March 31st 2015 Cr. Particulars Amount (`) Amount (`) Particulars Amount (`) Amount (`) To Opening Stock 45,000 By Sales 1,62,000 To Purchases 1,30,000 Less: Returns 8,000 1,54,000 Less: Returns 7,300 1,22,700 By Closing Stock 80,000 To Carriage Inwards 4,500 To Wages 15,000 To Gross Profit c/d 46,800 2,34,000 2,34,000 To Interest 1,500 By Gross Profit b/d 46,800 To Bad Debts 5,000 By Discount 2,500 Add: New Provision 10,500 By Rent Received 4,000 15,500 Less: Old Provision 8,500 7,000 To Carriage Outwards 2,500 To Establishment Charges 13,000 To Rates and Taxes 3,750 To Advertisement 5,550 To General Expenses 5,000 To Depreciation on 10,000 Buildings To Manager s Commission 283 (5,000 * 6/106) To Net Profit 4,717 53,300 53,300

48 38 Financial Accounting Liabilities Balance Sheet of Lakshmi as on 31st March 2015 (Order of Liquidity) Amount (`) Amount (`) Assets Amount (`) Amount (`) Bills Payable 15,000 Cash in Hand 5,000 Manager s Commission 283 Cash at Bank 10,000 Sundry Creditors 85,000 Bills Receivable 10,500 Loan 50,000 Sundry Debtors 75,000 Capital 1,20,000 Less: New Provision 10,500 64,500 Add: Net Profit 4,717 Stock 80,000 1,24,717 Land and Buildings 1,00,000 Less: Drawings 15,000 1,09,717 Less: Depreciation 10,000 90,000 Working Notes: 1. Calculation of Manager s Commission: 2,60,000 2,60,000 Net Profit before Manager s Commission (106) = 5,000 (53,300 48,300) Manager s Commission (6) = 283 (5,000 * 6/106) Net Profit after Manager s Commission (100) = 4, Bad Debts provision is to be increased by ` 2,000 SUMMARY Old Provision ` 8,500 Increase in Provision ` 2,000 New Provision ` 10,500 Any business organization would be interested in knowing the profit or loss made by the concern (financial result); the assets owned and the liabilities owed to the other parties (financial position) at the end of the financial year. The accounting record made in order to ascertain the financial result and the financial position is termed as Final Account. It refers to the Manufacturing Account, Trading Account, Profit and Loss Account and Balance Sheet. The Account prepared to ascertain the gross profit or gross loss for a period is termed as Trading Account. It gives the overall result of trading, i.e., purchasing and selling of goods. In case, the concern is also a Manufacturing Concern, the Manufacturing Account is prepared to ascertain the cost of the goods manufactured during a particular period, which is transferred to the Trading Account. Profit and Loss Account is prepared to ascertain the net profit or net loss of an organization. Net Profit increases the owner s equity and hence added to capital, whereas Net Loss reduces the owner s equity and therefore deducted from capital. Balance Sheet represents the financial position of the business as on a particular date. The Balance Sheet consists of the ledger accounts directly taken from the Trial Balance and certain items indirectly through the gist (Net Profit/Net Loss) of the Profit and Loss Account. Hence, the Balance `

49 Final Accounts 39 Sheet is a summary of the whole of the accounting record. The two statements, viz., Trading and the Profit and Loss Account (Income Statement) and Balance Sheet together are termed as Final Accounts. GLOSSARY Final Account: The accounting record made in order to ascertain the financial result and the financial position. It refers to the Manufacturing Account, Trading Account, Profit and Loss Account and Balance Sheet. Trading Account: The Account prepared to ascertain the gross profit or gross loss for a period. It gives the overall result of trading, i.e., purchasing and selling of goods. Manufacturing Account: The Account prepared to ascertain the cost of the goods manufactured during a particular period. Profit and Loss Account: The Account prepared to ascertain the net profit or net loss of an organization. Balance Sheet: The statement prepared to ascertain the financial position of the business as on a particular date. Marshalling of Assets and Liabilities: It is the arrangement of assets and liabilities in the Balance Sheet either in Permanency Order or in Liquidity Order. QUESTIONS 1. What are Final Accounts? What purpose do they serve? 2. Discuss any of the six adjustment entries. 3. What is the purpose of Manufacturing and Trading Account? 4. Differentiate between: (a) (b) (c) (d) (e) Outstanding Income and Income received in advance Outstanding Expenses and Prepaid Expenses Interest on Capital and Interest on Drawings Provision for Discount on Debtors and Provision for Discount on Creditors Provision for Doubtful Debts and Provision for Discount on Debtors 5. Distinguish between Trial Balance and Balance Sheet. PROBLEMS 1. Following are the balances extracted from the books of M/s Geetha Cycles as on 31st March You are required to prepare the Manufacturing Account for the year ended on that date. Particulars Raw Materials (Opening Stock) Work-in-progress (Opening Stock) Finished Goods (Opening Stock) (`) 40,000 17,500 40,000

50 40 Financial Accounting Raw Material Purchases Finished Goods Purchases Productive Wages Coal and Fuel Sales Carriage Inwards Railway Freight Repairs to Machinery Royalty Purchase Returns Sales Returns Factory Insurance Factory Rent Stock on 31st March 2015: Raw Materials Work-in-progress Finished Goods 1,00,000 45,000 50,000 10,000 3,80,000 1, ,000 2,000 1,000 2,250 3,250 42,000 17,500 40,000 20,000 (Ans.: Manufacturing Cost Transferred to Trading Account: ` 2,11,500) 2. Ascertain the Gross Profit from the following figures. Opening Stock of the Goods Closing Stock of the Goods Purchases Purchase Returns Sales Sales Returns Carriage Inwards Carriage Outwards Freight, Duty and Clearing Charges Rent and Taxes (Ans.: Gross Profit: ` 82,000) 3. Prepare Trading Account from the following Trial Balance. Trial Balance as on 31st March 2015 Amount (`) 20,000 30,000 80,000 2,000 1,60,000 3,000 2,000 4,000 5,000 3,500 Particulars Dr. (`) Cr. (`) Ram s Capital 25,000 Ram s Drawings 700 Purchases and Sales 9,000 15,000 Sales Return and Purchase Returns Stock (1/4/2014) 2,000 Wages 1,000 Building 15,000 Freight and Carriage 1,500

51 Final Accounts 41 Advertisement 200 Taxes and Insurance 100 Debtors and Creditors 10,000 1,000 Cash at Bank 1,000 Cash in Hand ,200 41,200 Adjustments: Stock on 31st March 2015 was valued at ` 1,500. (Ans.: Gross Profit: ` 1,700) 4. Prepare Profit and Loss Account from the following Trial Balance. Trial Balance Particulars Dr. (`) Cr. (`) Capital 8,000 Cash in Hand 50 Purchases 7,500 Sales 10,000 Furniture 1,000 Lighting and Heating 100 Bills Receivable 850 Salaries 2,000 Creditors 1,800 Debtors 6,200 Stock on April 1, ,500 Printing 250 Bills Payable 1,500 Rates, Taxes and Insurance 200 Discount Received 500 Discount Allowed ,800 21,800 Adjustments: Stock on 31st March 2015 was valued at ` 2,000; Gross Profit ` 1,000. (Ans.: Net Loss: ` 1,200) 5. From the following Trial Balance of Ram Mohan & Co., prepare a Trading and Profit and Loss Account for the year ended 31st March Trial Balance as on 31st March 2015 Particulars Dr. (`) Cr. (`) Ram Mohan s Capital 30,000 Ram Mohan s Drawings 800 Purchases and Sales 9,000 12,000 Sales and Purchase Returns Stock (1/4/2014) 1,500 Wages 600 Building 20,000

52 42 Financial Accounting Freight and Carriage 2,500 Trade Expenses 500 Advertisement 300 Interest 450 Taxes and Insurance 150 Debtors and Creditors 6,000 2,000 Bills Receivable and Bills Payable 1, Cash at Bank 1,500 Cash in Hand 150 Salaries 1,000 45,600 45,600 Adjustment: Stock on 31st Mar 2015 was valued at ` 2,500. (Ans.: Gross Profit: ` 1,580, Net Profit: ` 80) 6. Following is the Trial Balance of Prabhu Corporations as on 31st March Prepare the Trading and Profit and Loss Account for the year ended 31st March 2015 and the Balance Sheet as on that date. Trial Balance of Prabhu Corporations as on 31st March 2015 Particulars Dr. (`) Cr. (`) Capital 2,00,000 Stock (1/4/2014) 20,000 Purchases 64,000 Sales 1,20,000 Sales Returns 2,000 Wages 15,000 Manufacturing Expenses 19,000 Salaries 5,000 Insurance 1,500 Postage 300 Advertisement 1,500 Bad Debts 500 Bills Payable 14,000 Discount 800 Land and Buildings 80,000 Plant and Machinery 90,000 Furniture 2,000 Sundry Debtors 23,000 Sundry Creditors 45,000 Drawings 5,000 Cash in Hand 1,000 Cash at Bank 50,000 3,79,800 3,79,800

53 Final Accounts 43 Adjustments: (a) Closing Stock as on 31st March 2015, was ` 30,000. (b) Provide depreciation on Land and 10%, on 5%, and on Plant and 10%. (c) Outstanding expenses: Salaries ` 2,000 and Wages ` 1,600. (d) Insurance paid for 15 months up to March (Ans.: Gross Profit: ` 28,400; Net Profit: ` 1,600; Balance Sheet Total: ` 2,59,200) 7. From the following figures, prepare Trading and Profit and Loss Account for the year ended 31 March 2015 and Balance Sheet as on that date. Particulars Capital Drawings Sundry Creditors Bills Payable Sundry Debtors Bills Receivable Loan advanced to Deepak & Co. Fixtures and Fittings Opening Stock Cash in Hand Cash at State Bank of India Overdraft with Central Bank of India Purchases Duty and Clearing Charges Sales Salaries Returns from Customers Return to Creditors Commission and Travelling Expenses General Expenses Rent Paid Commission Received Adjustments: (a) Closing Stock ` 50,000. (b) Interest to be received ` 200. (c) Outstanding salaries ` 500. (d) Depreciate fixtures and fittings by 10%. (e) Commission received in advance ` 600. (`) 30,000 6,000 43,000 4,000 51,000 5,000 12,000 8,500 47, ,500 6,000 50,000 3,500 1,28,000 9,500 1,000 1,100 4,700 2,500 2,000 4,000 (f) Allow interest on capital at 8%. (Ans. Gross Profit: ` 77,600; Net Profit: ` 58,750; Balance Sheet Total: ` 1,39,250) 8. Prepare Trading, Profit and Loss Account and Balance Sheet from the following Trial Balance of M/s Himalaya Publishers.

54 44 Financial Accounting Trial Balance of M/s Himalaya Publishers as on 31st March 2015 Particulars Dr (`) Cr (`) Capital 1,50,000 Machinery 35,000 Stock (1/4/2014) 15,000 Wages 55,000 Carriage Inwards 600 Salaries 4,500 Factory Rent 2,200 Repairs 300 Fuel and Power 2,000 Furniture 6,000 Building 55,000 Sundry Debtors 32,000 Sales 2,00,000 Purchases 1,25,000 Sundry Creditors 11,500 Return Outwards 1,500 Return Inwards 3,500 Drawings 8,550 Discount Allowed 850 Discount Received 200 Office Expenses 1,500 Manufacturing Expenses 500 Bills Payable 9,000 Bills Receivable 4,500 Cash in Hand 2,600 Cash at Bank 14,800 Office Rent 2,800 Stock on 31st March 2015 was valued at ` 30,000. 3,72,200 3,72,200 (Ans.: Gross Profit: ` 27,700; Net Profit: ` 17,950; Balance Sheet: ` 1,79,900) 9. From the following Trial Balance of Mr. Krishna Gupta, prepare Trading and Profit and Loss Account for the year ended 31 March, 2015 and a Balance Sheet as on that date, after giving effect to the adjustments. Trial Balance of Mr. Krishna Gupta as on 31st March 2015 Particulars Dr. (`) Cr, (`) Capital Drawings Stock ( ) Returns Inwards 32,500 1,74,450 5,540 1,80,000

55 Final Accounts 45 Carriage Inwards Deposits with Mr. Kamal (Interest free) Carriage Outwards Loan to 5% Given on Return Outwards Interest on above loan Rent Rent Outstanding Purchases Debtors Goodwill Creditors Advertisement Expenses Provision for Doubtful Debts Bad Debts Patents and Trade Marks Cash in Hand Sales Discount allowed Wages Plant and Machinery (Purchased on ) Adjustments (a) 12,400 13,750 7,250 10,000 8,200 11,29,700 40,000 17,300 9,540 4,000 5, ,300 7,540 30,000 8, ,300 30,000 12,000 12,79,140 15,11,090 15,11,090 Increase Bad Debts by ` 6,000. Make Provision for Doubtful 10% and Provision for Discount on 5%. (b) The value of the Closing Stock is ` 1,87,920. (c) Wages include ` 2000 paid for the erection of Machinery on (d) Provide depreciation on 10% p.a (Ans: Gross Profit: ` 1, 47,830, Net Profit: ` 1,13,910, Balance Sheet Total: ` 2,92,710) 10. The following Trial Balance is extracted from the books of Ram on March 31st, Trial Balance of Ram as on March 31st, 2015 Particulars Dr. (`) Cr. (`) Salaries General Expenses Taxes and Insurance Sundry Debtors Stock Purchases Wages 25,000 6,200 10,500 45,000 30,000 1,00,000 5,000

56 46 Financial Accounting Sales Bank Overdraft Commission Advertising Interest Furniture Building Motor Vehicles Capital Sundry Creditors Bad Debts Provision for Bad Debts Loan The following adjustments are to be made: 6,500 2,800 12,000 75,000 70,000 2,000 1,50,000 8,000 3,000 1,30,000 46,000 3,000 50,000 3,90,000 3,90,000 (a) Stock in hand on March 31, 2015 was estimated to be ` 30,000. (b) (c) (d) (e) (f) Depreciate 6% p.a., 10% p.a. and Motor 5% p.a. ` 1,000 is due for interest on loan. Insurance amounting to ` 1,500 is prepaid. One-third of the commission received is in respect of work to be done next year. Write off further ` 2,000 as Bad Debts and Provision for Bad Debts is to be made equal to 5% on Sundry Debtors. Prepare a Trading and Profit and Loss Account for the year ending March 31, 2015 and a Balance Sheet as on that date. (Ans.: Gross Profit: ` 45,000, Net Loss:` 15,850, Balance Sheet Total: ` 2,20,150)

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