Final Accounts (Financial Statements) (kes After you have studied this chapter, you should be able to: Understand the meaning and objective of financial statements Understand the items appearing in Trading Account and that in the Profit and Loss Account Leam the concept of gross profit and net profit Understand how to make closing entries. Know the meaning and preparation of manufacturing account. Ciassity items into assets and liabilities Leam the relationship between Profit and Loss Account and Balance Sheet. Pass necessary adjustment entries Prepare Trading Account, Profit and Loss Account and also Balance Sheet from Trial Balance and ‘additional information given. 2 Know the difference in the final accounts of sole traders, partnership firms and joint stock companies. introduction It was explained in Chapter 3 (Accounting Process) that transactions of a business enterprise ‘ue first recorded in the journal, posted therefrom into the ledger and then a trial balance is prepared. The next step after preparation of the trial balance is to prepare final accounts. These final accounts consist of the following basic financial statements: 1. Trading and Profit and Loss Account — to ascertain the profit or loss of the business _ Preparation of uring the financial year, and final accounts la 2, Balance sheet — to show the financial position of the business at the end of the ‘™ayanal ane of financial year. sccounting Trading and Profit and Loss Account is split into (a) Trading Account (to show the gross Profit), and (b) Profit and Loss Account (to show the net profit). This is explained below. 74RE a 12 Accounting" Mansy, apne te Se But before ascert ‘At the end of the year, the net profit/loss is to be a ‘ trading account. Thus, at . Profit, frst of all gross profit is ascertained by PIEPAUEN © ON oss. Gross profi at account is prepared to know the amount of gross PI ty difference between sales and cost of goods sold. Thus, Grose Profit = Sales ~ Cost of goods sold ‘Or Gross Profit + Cost of goods sold = Sales _ d data) : . The cost of goods sold is computed as follows (with assumed CRIN) + Hi OO _! Opening stock i Sy Add : Purchases (Less purchases returns) oe fa ‘Add: Dinect expenses : cea Cost of goods available forsale Less : Closing stock ~ hi : 7 eo Cost of Goods Sold a The term direct expenses includes all those expenses which the incurred in bringing ts goods toa saleable state, These direct expenses are cartage, freight, wages, etc. The above calculation may also be made by preparing Trading Account, which appeas x follows: Dr. ‘Trading Account for the year ending...... 6 Particulars | Particulars q To Opening stock — | By Sales (less returns) - ‘To Purchases (less returns) — | By Gosing stock - ‘To Direct expenses, — | By Gross Loss (balancing figure) : ‘To Gross Profit (balancing figure) Total =} Total = Poort Illustration 7.1 With the help of following information find out the lasing Stock: ’ { Gross Profit 5,000 Sales soa Opening Stock 10,000 Sales Returns a Purchases 1,00,000 a Solution: ‘To Opening Stock ‘To Purchases To Gross Profit,Final Accounts (Financial Statements) lustration 7.2 “Ascertain the cost of goods sold : Opening stock 5,000 Purchase returns 1,000 Closing Stock 6,000 Sales retums 1,800 Purchases 55,000 Wages 4,900 Sales 80,000 Solution: ‘Trading Account e z To Opening Stock 5,000 [By Sales "30,000 To Purchases 55,000 les: Sales returns 14800 78,200, Less: Purchase returns 1,000 54,000 |By Closing stock 6,000 To Wages 4,900 To Gross Profit (Balance Fig.) 20,300 84,200 34,200 Cost of goods sold = Sales ~ Gross Profit Cost of goods sold = 78,200 - 20,300 = € 57,900 Alternative Method = Op. stock + Net purchases + Wages - Closing stock = Cost of goods sold = 5,00 + (55,000 ~ 1,000) + 4,900 6,000 = 57,900 ‘Trading Account Items ‘Trading account is a nominal account and its purpose is to ascertain the ‘gross profit or gross loss.’ The first item on the debit side of trading account is opening stock. The other items on the debit side are purchases and all direct expenses. On the credit side, the main items are sales and closing stock. The difference between the two sides is either gross profit or gross loss as shown above in Trading Account. The main items of trading account are briefly described below : 1, Opening stock : The closing stock of the preceding year is the opening stock of the ‘current year. The opening stock is recorded in the books through an opening entry in the beginning of the accounting year. This amount remains unchanged during the year and appears in the trial balance at the end of the year. It should be noted that when a new business is started, there will be no opening stock in the fist year. 2. Purchases and Purchase Returns : The purchases account in the trial balance represents total purchases (credit + cash) during the year. Purchases include import duty, octroi, etc. The purchase returns account has a credit balance showing the return of goods to the supplies. In the trading account, the net purchases are shown on the debit side i.e., total purchases less purchases returns. 3, Direct Expenses : In a merchandising business of buying and selling, all expenses incurred on purchase of goods and to bring them in saleable condition are direct expenses and ‘are charged to Trading Account. However, in the case of a manufacturing business, direct ‘expenses also include the cost of converting raw materials into finished goods. Thus the direct ‘expenses to be debited to trading account include — wages, carriage/freight on purchases, expenses like power, lighting, gas, fuel, water rent, royalty paid on production, etc. 4, Sales and Sales Returns : The sales account appears in the credit side of a trial balance showing the gross total sales (cash + credit). The sales return has a debit balance and shows the Amount of goods returned by the customers. In the trading account, net sales (i.e. total sales ‘Minus sales retums) are shown on the credit side. 73Accounting for Managemen, 5. Closing stock : Closing stock means stock of unsold goods at the end of the accounting period. Normally, closing stock account does not appear in trial balance and it is given as =. adjustment outside the trial balance. This is because such an account is not maintained in th, ‘books. In order to ascertain the vale of closing stock, physical stock taking is done and stock js valued. Closing stock is then shown in the trading account on the credit side. fa ees : jon After considering the various items discussed above, the Trading Account will appear a. ~ posch? follows: , Rett ‘Mustrative Trading Account si i for the year ending... Partials | © | Particwars ‘To Opening stock By Sales. Add: Purchase Less: Sales returns Less: Purchases returns By closing stock ‘To Direct expenses By Gross loss c/d (Bal. Fig)* To Camtiage or freight inwards ‘To Wages ‘To Wage and salaries, To Power To Factory lighting ‘To Consumable stores, To Fuel and gas To Coal and water To Octroi, import duty and other taxes on materials ‘To Foremar’s salary ‘To Supervision-factory ‘To Factory manager's salary ‘To Royalty on production To Other direct expenses ‘To Gross profit c/d (Bal. Fig)* “Trading account will show either gross profit or gross loss. It is the balancing figure, Mlustration 7.3 Prepare Trading Account of RK. & Sons for the year ending 3ist March 2014 from the information given below. x ’ Opening stock 80,000 Purchases returns 8,000 Purchases 2,10,000 Sales retums 5,000 Carriage inwards 4,000 Closing stock 56,000 Wages 22,000 Power 7,400 Sales 3,04,000 Coal and gas 6,000Final Accounts (Financial Statements) Solution: Trading Account of RK. & Sons Jor the year ending 313-2014 Particulars e [Particulars r To Opening stock 20,000 [By Sales 306,000 To Purchases 2,10,000 Less Returns 5,000 2,89,000 ess: Returns 8,000 2,02,000 |By Closing stock 56,000 ‘To Cariage inwards 4000 To Wages 22,000 ‘To Power 7400 ‘To Coal and gas 6000 ‘To Gross Profit o/d 33,600 355,000 355,000, ‘Advantages of Trading Account 41, Trading account shows the amount of gross profit or gross loss i.e,, profit & loss from trading activities. Gross profit 2. Gross profit ratio (i aa *100] can be computed from data appearing in trading account. Gross profit ratio indicates the average margin on goods sold and shows whether selling prices are adequate to give a reasonable profit. 3. Opening and closing stock figures show the investment locked in stocks. It throws light on the efficiency of inventory management. PROFIT AND LOSS ACCOUNT After preparing the Trading Account, the next step is to prepare Profit and Loss Account. ‘The purpose of preparing Profit and Loss Account is to calculate the net profit or net loss of the business for a given accounting period. It was stated above that gross profit or loss as per trading account is transferred to Profit and Loss Account. Thus, profit and loss account starts with gross profit or gross loss, as the case may be. After this, all other expenses and losses (which have not appeared in trading account) are shown on the debit side of the Profit and Loss Account. These expenses may be classified as follows : 1. Office and Administrative Expenses : These include salaries paid to office staff, rent and rates of office premises, office lighting, printing and stationary, postage, audit fee, legal expenses, etc. 2, Selling and Distribution Expenses : These comprise of advertising expenses, salesmen’s salaries and commission, packing expenses, warehousing, freight on sales, export expenses, ‘upkeep of detivery vehicles, bad debts, insurance of finished stock, etc. 3. Financial changes : These include interest paid on bank or other loans and public Aeposits, etc, 4, Miscellaneous Expenses : Items like loss by theft or fire, donations, depreciation of fixed assets, etc, Other Incomes : On the credit side of Profit and Loss Account is shown incomes and gains, other than sales, These include interest income, dividend income, rent received, discount received, bad debts recovered, etc. 7578 Accounting for Management General form of the Profit and Loss Account is as follows: Profit and Loss Account for the year ending. : Particulars t[Paricuas in 4 To Gross Loss b/a Ty Gross Profit b/d (Tv. from Trading A/c) — ae (Gr. from Trading A/c, if there is oss) — | By Interest received 10 429% in To Salaries = | by discount received focariae To Salaries and wages = | Br commison received = Goss To Telephone expenses = | By rat on ste of ase : To Rent and rates = | By Baa debts recovere 7 To Repairs = | By net toss (Balancing Figure) - i To Bank charges = fo Rent a To Audit fees = feravelling To Cariage outward = B Sony & To Lighting = pais To Stationery = erence To Insurance = a To Postage or To Discount allowed = Sa Econt To Loss on sale of assets 7 tp Discoun To Salesmen commission = ‘o Net Profit To Packing expenses = To Seling expenses = Total To interest on loan = To Bad debts = To Provision for bad debts 2 To Depreciation = At the a me pan 7 stand close To Net Profit (Balancing figure) = es close Total = | totat = a Mlustration 7.4 to Trading : From the following Trial Balance, prepare a Trading Account and Profit and Loss Account Trial Balance as on 31st Dec., 2014 om bosing ent Dr. Side e | o Side z Aes Purchases 16,000 | Sales 30,000 the informz Wages 6500 | Capital 10.685 is Discount 1,300 | Mortgage and interest to date 3,050 Period. the Salaries 2,000 | Sundry creditors 2,100 ee The Travelling expenses 500 Carriage inward 215 Insurance 150 Commission 325 Rent and rates, 500 Cash in hand 25 Cash at Bank 275 Repairs 300 Sundry expenses 55 Mortgage interest 150 Building 4,000 Machinery 11500 Motor vehicles 500 Opening stock (1-1-2014) 5,750 Sundry debtors 3,250 Total 45,805 Total 25,805 Closing Stock on 31st Dec., 2014 was & 6,075.edd Ah Account : a 08 Final Accounts (Financial Statements) Solution Trading and Profit and Loss Account : {fo the year ending 31 Dec, 2014 Particulars: | Particulars - To Opening stock 5,780/| By Sales — as 30000 ‘To Purchases 16,000 | By Closing stock 6,075 Tp Wage 6500 To Caiage inwards 275 ‘To Gross Profit ¢/d 7,550 36,075 to Salaries 2.000 | By Gross Profit b/d 7.560 To Rent and rates 500 To Traveling expenses 500 Te Sundry expenses 55 Te Repair 300 te Insurance 150 1 Commission 5 To Mortgage interest 150 Te Discount 1300 ‘To Net Profit tr. to Capital a/c 2,270 Total 7,580 | Total 7380 CLOSING ENTRIES ‘At the end of the accounting year, all nominal accounts relating to expenses and incomes stand closed because these are transferred to Trading Account or Profit and Loss Account. In other words, all nominal accounts in the Trial Balance are transferred to Trading Account or Profit and Loss Account with the help of closing entries. After all these accounts are transferred to Trading and Profit and Loss Account, the balance of this account will show the net profit or los. ‘A journal entry made for the purpose of closing an expense or income account is known as a losing entry. The principal purpose of the year end process of closing income and revenue accounts is to reduce their balances to zero. Since the incomes and expenses accounts provide the information for preparing the Trading and Profit and Loss Account of a given accounting period, it is essential that these accounts have zero balances at the beginning of each new period. The closing entries have the effect of wiping the slate clean and preparing the ground for recording of income and expense accounts during the succeeding accounting period. ‘Closing Entries for Trading Account Each account having a debit balance is credited and Trading Account is debited. For example : 1. Trading Account oo Dr To Opening Stock 2. Trading Account To Purchases Compound Entries. There are several accounts to be debited and several account to be ‘edited. In such cases, compound entries may be passed as shown below. But it should be ensured that sum of debits must be equal to sum of credits. 1Accounting for Mi | The various closing entries for incomes and expenses accounts are as follows: 1, Entry for closing accounts relating to debit side of the Trading Account: Trading Account .. Dr. To Opening Stock Account To Purchases Account To Sales Retums Account To Wages Account To Carriage Inward Account To Factory Fuel, Gas, Water Account, etc. 2. Entry for closing all the accounts appearing on the credit side of the trading account Sales Account vw Dre Purchase Returns Account v. Dr. To Trading Account Entry for closing trading account by transferring gross profit to Profit and Loss Account. Trading Account Dr. To Profit and Loss Account In case of gross loss, the entry will b Profit and Loss Account Dr. To Trading Account Closing Entries for Profit and Loss Account 4. Entry for closing all expenses appearing on the debit side of the Profit and Loss Account. Profit and Loss Account .- Dr. To Salaries To Rent To Insurance To All other expense accounts (except those appear in the trading account) 5. Entry for closing alt income accounts appearing on the credit side of the Profit and Loss Account, Discount Income Account. Dr. Interest Received Account . Dr. Any Other Income Account (except sales) . Dr. To Profit and Loss Account Entry for transferring the net profit to capital account Profit and Loss Account +. Dr. To Capital Account In case of Net loss, the entry will be Capital Account To Profit and Loss Account Mustrat 75 Make closing entries from the Trial Balance given in Mlustration 7.4.Final Accounts (Financial Statements) Solution Closing Entries Particulars Dnt Cr. 1. Trading Account ou Dr 28,525 To Opening Stock Account 5,750 ‘To Purchases Account. 16,000 ‘To Wages Account 6,500 To Cartiage Inward Account 25 (For closing debit balances om the Trading Account) 2,| ‘Sales Account Dr. 30,000 Closing Stock Account Dr. 6,075 To Trading Account 36,075 (For closing credit balances appearing in ‘the Trading Account) 3.| Trading Account Dr. 7,550 To Profit and Loss Account 7,550 (For transferring gross profit to Profit and Loss Account) 4,[ Profit and Loss Account Dr. 5,280 To Salaries Account | 2,000 To Rent and Rates Account 500 To Travelling Expenses Account 500 To Sundry Expenses Account 55 ‘To Repairs Account 300 To Insurance Account 150 ‘To Commission Account 325, To Mortgage Interest Account 150 To Discount Account 1,300 (For closing debit balances of Profit and Loss Account) 5.) Profit and Loss Account w= Dr 2270 zi To Capital Account 2.270 (For transferring net profit to Capital Account) MANUFACTURING ACCOUNT Manufacturing account is generally prepared in those business entities which are engaged in ‘anufacturing business. This account is a part of final accounts and is prepared in addition to Trading and Profit and Loss Account and balance sheet. The main Purpose of preparing a ing Account is to determine the cost of manufacturing finished goods. Tt not only Shows the total cost of manufacturing goods but also the elementwise cost such as cost of materials consumed, direct labour cost, prime cost, factory overhead, etc. If more than one Product is being manufactured, an account is prepared for each product, Objectives ‘The main objectives of preparing a manufacturing account ate: 1. To show the cost of manufacturing the finished goods % To show the main elements of cost, such as cost of materi ‘and other direct and indirect expenses. Constituent Elements of Manufacturing cost cost comprises of the following items. > ials consumed, direct labour cost 797 Accounting for Manage, i Final Aces material cost. It is calculay — 1. Cost of materials consumed : It is the same as direct ed ag eee Opening stock of raw materials Loss Accou Add: Purchases of raw materials itlustratio Less: Closing stock of raw materials ee piasat = Cost of Materials Consumed iene relating to It should be noted that cost of procuring materials such as carriage inwards, custom jy stocks excise duties, etc. are included in the cost of purchases. : 2, Direct labour cost : Also known as direct wages, it comprises of wages paid to wore, Ray who are engaged on converting raw materials into finished goods. We 3, Direct expenses : These are the costs, other than material and wages, which are incurg, for specific product or service produced. Examples are hire of a special plant, like crane, for uy Purch in manufacturing a specific product, royalty payable for units produced, etc. Indire 4, Prime Cost : Ths is the total of all direct costs i.e. eae direct materials + direct wages + direct expenses. ana 5. Factory overhead: These are indirect manufacturing expenses, other than direc Indire material, direct labour and direct expenses. Examples of indirect expenses in manufacturing ax power cost, factory lighting, factory rent, factory supervisors salaries, and other factor expenses. sundr 6. Gross factory (works) cost: It is the total of prime cost and factory overhead. 7. Net factory (or works) cost : It is calculated as: Depre Gross factory (or works) cost on ‘Add: Opening stock of work in progress Sales Less: Closing stock of work in progress Office = Net factory (or works) cost Salari Proforma of a Manufacturing Account ‘Solution In the proforma given below, it should be noted that cost of goods manufactured as pe Manufacturing Account is transferred to Trading Account. Particulars br. ‘Manufacturing Account To Opening Particulars © | Particutars Oe Ps ; ‘o Direct materials consumed : By Net Factory (or works) cost fsa: card Opening stock www | transferred to aaa ‘Add: Purchases Trading Account Less: Closing stock Less: Cosi To Diect wages raw ma To Direct expenses Cost Prime cost pies To Factory overhead To Diet Factory lighting 0 Direct e Factory power fon Dep. on plant . To Factory Supervisor's salary el E tndinect Other factory exp. a B aoc Factory cost (Gross) Too Bacto ‘Add: Opening work in progress B esa ess: Closing work in progress pairs Net Factory (works) cost ana ast Accounts (Financial Statements) when preparing final accounts, the Manufacturing Account, ‘Trading Account and Profit and toss Account are combined into one account. This is shown in the following illustration. 76 sustain eee ee pare Manufacturing, Trading and Profit seating to the year ending 31-3-2013, ‘Stocks: and Loss Account from the following information 1-4-2012 31-3-2013 7 g . Raw material 30,000 31,000 Work in progress 39,000 50,700 Finished goods 42,000 47,000 Purchase of raw materials % 1,10,000 Indirect materials 8,000 Wages - Direct 25,000 ~ Indirect 12,000 Direct expenses - royalty on production % 19,000 Indirect expenses ~ Factory power % 7,500 ~ Repairs of plant 3,000 ~ Plant depreciation 6,000 Sundry expenses ~ factory 2,500 ~ Office 1,500 Depreciation of office computers 4,500 Cariage inward 2,000 Cariage outwards 3,500 Sales 3,00,000 Office rent and rates 8,500 Salaries 14,000 Solution : Manufacturing, Trading and Profit and Loss Account {for the year ending 31st March 2013. Paticulars @ | Particulars z Yo Opening stock of raw By Closing work in progress 50,700 Rates 30,000 By Net cost of goods Mi: Purchases 4,10,000 manufactured tr. to 4: Caniage inward 2,000 Trading Account 1,82,300 1,42,000 "8 sng stock of oe Materials 31,000 Tenge consumed 111,000 ny ‘wages 25,000 "Ipenses. (royalty) 19,000 Tor, Palme cost 41,585,000 tg ethead : ] Reinet Materials 8,000 . ‘Wages 12,000 Tee "Y Power 7,500 °F plant. 3,000 ma712 Accounting for Managemen = Plant depreciation 6,000 ~ Sundry expenses-factory 2,500 Gross Factory Cost 1,94,000 To opening work in progress 39,000 2.33.00 To Cost of goods manufactured 1,682,300 | By Sales 3,00,009 To Op. stock of finished goods 42,000 | By Closing stock of finished goods 41,0, To Gross profit c/d 1,22,100 © 3,47,000 3,41,00 To Depreciation of office By Gross profit b/d 1,22,1% computers 4,500 To Carriage outwards 3,500 ‘To Sundry office expenses 1,500 To Office rent and rates 8,500 To Salaries 14,000 To Net profit tr. to capital A/c 1,22,700 1.2,100 BALANCE SHEET After preparation of Trading and Profit and Loss Account, the next step is to prepare Balance Sheet. The Balance Sheet is defined as ‘a statement which sets out the assets and liabilities of a firm as at a certain date.’ The purpose of balance sheet is to show the financial position of the business at the end of the accounting period. The balance sheet is not an account and the two sides are not the debit and credit sides. Trading and Profit and Loss Account is prepared by transferring all nominal accounts to either Trading Account or Profit and Loss Account. The remaining real and personal accounts are used for preparing Balance Sheet. Real accounts represent various assets and personal accounts relate to capital, liabilities and assets. Characteristics: The following characteristics of balance sheet should be noted for its better understanding : 1, Balance Sheet is prepared as at a particular date and not for a period. It is prepared as on the last day of the accounting year. 2. Balance Sheet is always prepared after preparing Trading and Profit and Loss account. 3. Balance sheet is not an account (unlike trading and profit and loss account). It is @ statement portraying financial position of the business at a point of time. 4, Balance Sheet is based on the fundamental accounting equation i.e, Assets = Capital + Liabilities, Actually, a Balance Sheet is an elaboration of this equation in which the assets, liabilities and owners equity are listed and the sum of assets is shown to be equal to the sum of liabilities and owner's equity. If it is not equal, there is certainly an error somewhere. a4Lz 2pare Balane iabilities oft sition of tt Final Accounts (Financial Statements) BALANCE SHEET AND TRIAL BALANCE — DISTINCTION The main points of distinction between Trial Bi Trial Balance It is a list of all the debit and credit balances from the ledger accounts, 2, It contains all the personal, real and nominal accounts. ince and Balance Sheet are: Balance Sheet It isa statement of assets and abilities. It does not Include all the balances. It does not contain nominal accounts only personal and real accounts ate included. 3. Its purpose is to test the arithmetical accuracy | Its purpose is to show the financial position of the of accounts, 4, Tt is prepared before preparing Trading and Profit and Loss Account. business, It is prepared after preparing Trading and Profit and Loss Account. 5. It is prepared for internal use ie. managerial | It is prepared for external use ie. for parties like purpose. banks, creditors, shareholders, income tax authorities et. 6. Closing stock generally does not appear in the | Closing stock appears on the assets side of the tial balance. balance sheet. PROFIT AND LOSS ACCOUNT AND BALANCE SHEET — DISTINCTION The main points of distinction are : Profit and Loss Account Balance Sheet Profit and Loss Account shows the profit eared | Balance sheet shows the financial position as on or loss incurred during a period, generally one | the date ofits preparation. year. 2, Profit and Loss Account is prepared for a period, say one year. Balance sheet is prepared as on the last date of financial year. 3. It is prepared with the balances of nominal | It is prepared with the balance of real and personal accounts. accounts. 4, Nominal accounts transferred to Profit and Loss | Real and personal accounts appearing in the ‘Account are closed by passing closing entries. Sequence of Items In the Balance Sheet balance sheet become the opening balances in the next accounting year. (Marshalling) Items in the Balance Sheet are marshalled in the order of permanence or in the order of liquidity. In other words, items in the Balance Sheet may be put down in either of the two ways: (a) In order of permanence, or (b) In order of liquidity Order of permanence indicates the order of the longevity of their life in use and order of Uguidity indicates the order of the degree of ease with which they can be converted into cash, Generally speaking, order of permanence is most commonly used by industrial and commercial business and order of liquidity is used by banks and other financial institutions. Generally, sole traders and partnership concerns also follow the order of liquidity whereas ‘companies follow the order of permanence. 713> Accounting for Manageme, Various assets grouped in the two orders will appear as follows: (a) Order of Permanence Assets Liabilities Fixed assets: Owner's capital Goodwill Incomes received in advance Outstanding expenses Bank loan Patents and trade marks Land and building Plant and machinery Bills payable Other fixed assets Sundry creditors Investments Stocks in trade Pre-payments Sundry debtors Bills receivables Cash at bank Cash in hand (b) Order of Liquidity Assets Liabilities Cash in hand Sundry creditors Cash at bank Bills payable Bills receivables Bank loan Sundry debtors Outstanding expenses Pre-payments Incomes received in advance Stock in trade Owners capital Investments Fixed assets like: Plant & machinery Land and building Goodwill Patents ete. Note : The list of assets and liabilities given above is not exhaustive, From the above, it may be concluded that where the order of permanence is chosen, fixed assets will come first, starting with goodwill, land and building, plant and machinery and so on following by current assets in order of liquidity ending with cash. In the liquidity order, on the other hand, the reverse is followed, the most liquid (e.g., cash in hand) being taken first, the remainders following in descending order of liquidity. Fictitious assets, which are obviously 10! assets at all but merely debit balances not yet written off, will in either case appear at the bottom of the list. Liabilities may also be grouped in the same two ways—order of permanence and order of Viguidity. Thus, where permanence order is being followed, capital, reserves and undistributed profits-comprising the owner's interest will come first, followed by long term liabilities (secured and unsecured loans like debentures, mortgage, etc.) and current liabilities and provisions. Mlustration 7.7 On the basis of Trial Balance given in Illustration 7.4, prepare a Balance Sheet as on 31st Dec., 2014.ng for J dvance ance Final Accounts (Financial Statements) Balance Sheet as on 31st Dec, 2016 abies ©] Assets * aptal 10.655 Balding $000 ad : Profit (net) 2.270 | 12,928 | Machinery 1.500 Mortgage and interest 3050. | Motor vehicles 00 sundry creditors 2,100 | stock (closing) 6.075 Sundry debtors 3,250 Cash at Bank 2705 Cashin hand a 18.075 18075 Mustration 7.8 Prepare trading and profit and loss account and balance sheet of Lalitha from the following tral batance ‘Trial Balance as on 31st March 2014 ‘Amount Partiealars Debit Credit Talitha’s drawings and eapital, 5000 “0,000 Leasehold land 25,000 - Freehold premises 20,000 = Goodwill 7,000 = ‘Trademarks 13,000 — Machinery and plant 18,000 = Fixtures and fittings 2,000 — Stock at commencement 18,000 — Bill receivable and payable 14,000 16,000 Sundry debtors and creditors 16,000 24,000 Purchases and sales 0,000 1.50,000 Returns 1.000 2,000 Cariage in’ 44500 = Carage ‘out 00 = Motive power 1.200 zs Manufacturing wages 22,000 = Coa, fuel, gas ete, 800 = Factory expenses 4500 7 Salaries 18,000 a Rent, taxes and insurance 6,000 S Commission paid 2.300 = Interest income ea 3,000 Discount 4,000 6,000 Stationery 500 Trading expenses 1.800 = Cash in hand 700 Bank overdraft 280,000 745Accounting for Managemen, Solution: Books of Lalitha ‘trading and Profit & Loss Account {for the year 31-3-2014 —— Particulars gv] Particulars am |? To Opening stock 18,000 | By Sales 1,000 | 1.49.09) To Purchases £80,000 Less: Returns — ‘ Less: Returns 78,000 ‘To Carriage inwards 1,500 To M. Power 1,200 ‘To Manufacturing wages 22,000 To Coal, fuel, gas etc. 800 To Factory expenses 4,500 To Gross profit /d 23,000 — 1,49,000 | 7480 To Carriage out 500 | By Gross profit b/d 23,000 To Salaries 18,000 | By Interest 3,000 To Rent, taxes, insurance 6,000 | By Discount 6,000 To Commission 2,500 | By Net Loss Tr. to Capital A/c 1,300 To Discount 4,000 To Stationery 500 To Trading expenses Balance Sheet as on 31-3-2014 Particulars € Particulars t Bills payable 16,000 | Cash in hand 700 ‘Sundry creditors 24,000 } S. Debtors 16,000 Bank overdraft 39,000 || Bills receivable 14,000 Capital: Fixtures and fittings 2,000 Less: Loss Machinery and plant 15,000 Drawings 33,700 || Trade marks 13,000 Leasehold land 25,000 Freehold premises 20,000 Goodwill 7,000 ADJUSTMENT ENTRIES Under accrual basis of accounting, incomes are recognised when these are eamed and nt when cash is actually received. Similarly, expenses are recognised when these are incurred an not when actual payments are made. This means at the end of the accounting year, there mV he certain incomes earned but not received (i.e., accrued income) and incomes received but at eamed (ie. income received in advance). Similarly, there may be certain expenses like wad! and salaries which are due but not actually paid (i.e. outstanding expenses) and cert! expenses may have been paid but not due (i.e. prepaid expenses). These accrued incomes incomes received in advance, outstanding expenses and prepaid expenses etc. requ? adjustments at the end of the year so that true net income is determined on accraal bos: Besides these, there are other items ike closing stock, depreciation ete. which need adjustmentSa Sota i 2.000 My A hi ——5 s a we ry Er we 4 oe Bi | al? eared fa bee ning Viv nese re oY mr cee Final Accounts (Financial Statements) Adjustment entries are passed ither before or after preparation of trial balance. But generally adjustment are made after trial balance has been prepared. In such a case, i.e., when adjustment are given outside the trial balance, the dual effect of the adjustment will be in the final accounts itself. In other words, each adjustment will be treated twice while preparing Trading and Profit and Loss Account and Balance Sheet. For example, if wages are outstanding, and it is given outside the trial balance, it will be shown on the debit side of the trading account a5 an expense and then as a lability in the balance sheet. However, adjustments are sometimes made before the preparation of the trial balance, in this case adjustments appear in the trial balance. In such a case, in the preparation of final accounts, these adjustments appear only once. Principal type of transactions requiring adjustments are given below along with their adjustment entries. ra | Common Adjustments 1. Closing stock 2. Outstanding expenses 3. Prepaid expenses 4, Accrued incomes 5, Income received in advance 6. 7. 8. . Depreciation on fixed assets | . Bad debts Provision for bad and doubtful debts 9. Provision for discount on debtors 10. Provision for discount on creditors 11, Interest on capital 12. Interest on drawings 13, Interest on loan/investments/ deposits 14, Manager's commission 415, Drawing of goods by proprietor for personal use 16. Goods on sale or approval 17. Goods distributed as free samples 18. Loss of stock by fire, theft, etc. 41. Closing Stock ~ It was stated earlier in this chapter in relation to trading account items that closing stock is generally given outside the trial balance as an adjustment. The adjustment entry for closing stock is : Closing stock A/e one To Trading A/c As it is given outside the trial balance, it is treated twice in final accounts i. ‘trading account on the credit side and also in the balance sheet on the asset side. ‘When closing stock appears in the trial balance. Sometimes closing stock is recorded in the books before the trial balance is prepared. In such a case, purchases are adjusted for opening ‘nd closing stock. The following two entries are passed : it appears in () Purchases Account o» Dre To Opening Stock By this entry, the opening stock account is closed and it has the effect of increasing the amount of purchases. (i) Closing stock Account a Dr. To Purchases ee TAT718 ecount i. clos sa new a ng 9 and ope Im such a case, 3 This entry (ii) reduces the amour! ears ‘igure appearing in th, n ‘4 it then app’ jases fig 7 " e ty account. This closing stock account HEN "PPS cause purchase This Adjusted Pgs : ing ace stock will not appear in the trading ACCC" a adi the balance sh balance stands adjusted for stocks and 15 6S a appear only in the Shee at, stock appear in the trading account and the clos side. 2. Outstanding expenses : These are the oxi been incuted but not paid at the end of the YET become due on 3ist March but not paid in the ‘The adjustment entry is : pe 4000 Wages Account 4,000 ing Account To Wages Outstanding ae i be shown as 2 isi It will be added in wages shown in the Tr ‘in the Balance Sheet. , ; sages which are paid in the curey 3. Prepaid or unexpired expenses : These are the PEN eve accounting year accounting year but the benefit of this is to be received in cde andi mel example, insurance premium of € 6,000 for one year 1s paid on 1s} tied from April 1st cL closes on 31st March. This means insurance premium for nine months '-&+ Ne, Stet amounting to & 4,500 has been paid in advance i.e. prepaid. The adjustment entry is Prepaid Insurance Account Dr, 4,500 ‘To Insurance Account 4,500 ‘As a result of this, % 4,500 will be deducted from insurance premium of % 6,000 in the Proit and Loss Account. It will also be shown as an asset in the Balance Sheet at € 4,500 as Prey (or Unexpired) Insurance Premium Account. 4, Accrued Income : (Income earned but not received). This is the income which is ex during the current accounting year but is not received during that year. It may relate to incor like rent, commission, interest etc. For example, if a business has purchased 8% Govern Bonds of € 1,00,000 on which interest is payable on 30th June and 31st Dec., then for & accounting year ending on 3ist March, interest for three months i.e. dan., Feb. and amounting to € 2,000 wil be taken as accrued interest because this amount has become du! * 3ist March but will be payable on 30th June. The following adjustm Al sed 0 Ste ae 9 adjustment entry will be 92s ‘Accrued Interest Account ae ner Ts) To Interest Account " so Accrued interest will be shown on the credit ik x assets side of the Balance Sheet, side of Profit and Loss Account and also 0" | 5, Income Received in Advance (Uncarmed Income): . received in the current year but against which Pte is the income which has year. For example, rent of building let out has been received j @ % 5,000 per month i.e,, & 60,000. If accountin S months ie, from April to Dec. 31 amounting to € 4s 0 3st Mach, the adjustment entry to be passed i as folloge Rent Received Account i To Rent Received in Advance Account “7000 In the Profit and Loss Account, this rent 45,000 : fa . received i received on the credit side and inthe Balance Sheet ey" 24728 willbe deducted 8 ability. nt received in advance will be 50" ies, rent etc. which e wages, salaries, ren k Uae ple, wages of € 4,000 which js termed as outstanding i, expenses For cial year, J Aceount and wil also= Final Accounts (Financial Statements) 7219 6. Depreciation on Fixed Asset : Depreciation has been discussed in detail in a separate chapter. The following entry is passed for depreciation: Depreciation Account v= Dr To Fixed Asset Account Depreciation amount is shown as an expense on the debit side of the Profit and Loss ‘Account and in the Balance Sheet, depreciation amount is deducted from the fixed asset. 7. Bad Debts : When a business sells goods on credit basis, some of the customers may fail to pay. Bad debts represent that amount which is lost due to non-recovery from credit customers. In other words, losses on account of non-recoverable debts are called bad debts ‘Adjustment entry for recording bad debts is as under Bad debts Account Dr, To Debtors Account In the Profit and Loss Account, bad debts is shown on the debit side and in the Balance Sheet, the amount of bad debts is deducted from debtors. When bad debts appear in the Trial Balance, it will be shown only in Profit and Lass Account as an expense. Sometimes bad debts written off are recovered in the subsequent accounting year. In such a case, the recovered amount is credited to Bad Debts Recovered Account and then shown in the credit side of Profit and Loss Account as this represents a gain. 8, Provision for Bad (and Doubtful) Debts : As a matter of principle, all bad debts should be debited to Profit and Loss Account of the year in which the related credit sales take place. But this is very difficult because the actual writing off bad debts will be in some subsequent year. In order to ensure proper matching of revenues and expenses and calculate the true profit, it is necessary that a provision for the likely amount of bad debts is made at the end of the ‘accounting year. Such a provision is to be created on the balance of debtors account as a fixed percentage which may be based on the past experience. The following journal entry is passed for creating a provision for bad and doubtful debts. Profit and Loss Account a To Provision for Bad (and Doubtful) Debts This provision for bad debts is debited to Profit and Loss Account and in the Balance sheet, it is deducted from debtors. Mlustration 7.9 The following items appear in the Trial Balance as on 31st March, 2014. Dr Sundry debtors 42,000 Bad debts 3,500 Adjustments 1. After the trial balance was prepared, it was found that a debtor Z will not be able to pay % 2,000 because of his insolvency. 2. Create 6% provision for bad debts. Pass the necessary adjustment entries in journal and show how these would appear in the fit and Loss Account and Balance Sheet as on 31st March, 2014.7.20 ‘Accounting for Managemen, Solution: Adjustment Entries Date | Particulars za at 1 [Bad debts Account 20mm 2 ‘To Z (Debtor) 000 (Being the amount due from Z became irrecoverable) 2 | Profit and Loss Account v= Dt -_ To Provision for Bad Debts 2400 (Being 6% provision for bad debts on ® 40,000 i.e, 42,000 ~ 2,000) Profit and Loss Account for the year ending 31st March, 2014 Particulars || Particulars t To Bad debts (as given in trial balance) 3,500 Add: Additional bad debts 2,000 ‘Add: Provision for bad debts 2,400 | 7,900 Balance Sheet son 31st March, 2014 Liabilities e [Assets t Sundry debtors 42,000 Less : Additional bad debts 2,000 40,000 Less : Provision for bad debts 2,400 | 37,600 ‘The provision for bad debts created is carried forward to the next accounting year. The bad debts thst will arise in the next year will be met out of this provision, In other words, bad debts when written off wil ‘be debited to provision for bad debts where such a provision exists. Mlustration 7.10 The following extracts from the trial balance as on 31st March, 2014 are given Particulars Dr ont Sundry debtors 42,000 Bad debts 3,500 Provision for bad debts 3,800 Adjustments 1. Additional bad debts ® 2,000 2. Maintain the provision for bad debts at 10% of debtors. Show the relevant entries in the Profit and Loss Account and Balance Sheet as on 3! March, 2014.Final Accounts (Financial Statements) 721 Profit and Loss Account {forthe year ending 31 March, 2014 Paras © [Portus © To Bad debts (as given ~ aa in tral Balance) 3,500 Ad = Aditional bad debts 2,000 5,500 | ‘Aa: Provision for ‘bad debts Qiew) 4000 3500 es: Old provision for bad debts 3800 | 5,700 Balance Sheet as on 328t March 2016 —~ Partials [Particulars £ Sundry debtors 200 ess: Bad debts 2.000 fay 0,000 oars Less: New provision 4000| 36,000 oa Important Points: = 1, When bad debts are civen as an adjustment outside the til balance, then such an amount of bad 40,000 debts is deducted from debtors (as given in the trial balance) and the provision for bad debts is calculated on the balance amount of debtors. 2400 | 38 2. Provision for bad debts account in the beginning ofthe year appears in the tral balance on the — credit side, But the amount of bad debts in the tril balance appears onthe debit side. The bad debs 9. Provision for Discount on Debtors : This provision is created for allowing discount to hen weitten debtors to encourage prompt payments. The amount of this provision is calculated after deducting bad debts and provision for bad debts from the debtors. Mustration 7.11 iven Debtors as per trial balance & 31,000 ae Adjustments : Provide % 1,000 for bad debts, create 5% provision for bad debts and 2% ‘ovsion for discount on debtors. Pass joumal entry for provision for discount on debtors and show how it will appear in the balance sheet. i es ee Debtors after providing for bad debts = 31,000 - 1,000 ~ 30,000 Provision for bad debts = © 30,000 + 5% » € 1,500. Balance amount of debtors = © 30,000 ~ 1,500 » & 28,500 j Provision for discount on debtors = € 28,500 x 2% = € 570 aot? The following adjustment entry will be passed. sent Profit and Loss Account wD 570 To Provision for Discount on Debtors 570 aAccounting for Managemen, This amount of € 570 appears on the debit side of Profit and Loss Account and in the Balance Sheet it is deducted from debtors as shown below : Balance Sheet as on... . Liabilities 7 [| Assets ’ Debtors 31,000 Less : Bad debts 1,000 30,000 Less : Provision for bad debts 500 28,500 Less : Provision for discount on debtors 570 | 77,930 10. Provision for Discount on Creditors : Similar to provision for discount on debtors, a firm may create provision for discount on creditors. For this the following adjustment entry is passed : Provision for Discount on Creditors Account a Dr. To Profit and Loss Account This provision appears on the credit side of the Profit and Loss Account and in the Balance Sheet it is deducted from creditors. It is important to note that creating a provision for discount on creditors is against the accounting principle of conservatism. However, it is an accepted accounting practice. 14, Interest on Capital : Sometimes interest on capital of proprietor or partners is to be provided and treated as business expense. For this, the following adjustment entry is passed. Interest on Capital Account vw Dre To Capital A/c (of Proprietor or Partners) This entry will have the effect of increasing the balance in capital account by the amount of interest as it appears in the balance sheet. In the Profit and Loss Account, interest on capital appears on the debit side as an expense. 12, Interest on drawings : Drawings means the cash or goods withdrawn by the owner for his personal use. Sometimes, interest on such drawings is charged and treated as business income. For charging interest, the following entry is passed : Capital A/c (of proprietor) we Drs To Interest on Drawings Account. Interest on drawings is shown on the credit side of Profit and Loss Account and in the Balance Sheet it is deducted from the capital account of the proprietor or partner. 13. Interest on loan or deposit when rate of interest is given: Sometimes, the tial balance includes Loan Account (Cr. side) or Deposit Account (Dr. side) carrying a specific rate of interest. In such a case, one should check in the trial balance that interest at the rate given is shown as an expense or income, as the case may be. In case interest account does not appear, it means the entire interest should be treated as outstanding, even if problem is silent in this regard. If interest item appears in the trial balance, it should be checked that the interest is 0! the full period. In case, it is less, the remaining part should be treated as outstanding and if its adManage, Zina Accounts (Financial Statements) 123 nt and iy for more than, say 12 months, the difference should be treated as prepaid. For example, tral balance shows the following: eee i encore 7 Tasn @ 10% pa. - ae 0,000 000 Interest on oan (paid during the year) 4500 i on Total interest for the full year is 60,000 » 10% = & 6,000. However, only 4,500 has been 000 paid. The remaining € 1,500 is due for payment at the end of the year Le. it is outstanding. In a the Profit and Loss Account and Balance Sheet it will appear as follows: 500 me Profit and Loss Account or z z to Interest on loan 4500 570 ‘dd: Outstanding 1,500| 6000 a Balance Sheet tors, 2 ment eng, aie © Awe z ican $0,000 ‘ad : Interest Outstanding 1.500] 61,500 In case interest is on depositor investment, it will appear inthe ereditside of P& L Account and in the assets side of balance sheet. 1 the Balan 414, Manager’s Commission : Sometimes, the manager is entitled to a commission on profits ata fixed percentage. Such commission is calculated as. follows: ; against the () Commission on profits before charging suck commission: In such a case, commission is e. calculated as follows: ners is to be nen Rate of commission nis passed Profit before commission « = Suppose, profit before commission is € 1,00,000 and commission is payable at 5%, then the amount of commission will be: ‘e amount 1,00,000 « 5% = 5,000. st on capi? Profit after commission will be & 1,00,000 - 5,000 = 95,000. (8) Commission on profits after charging such commission : In this case, commission is calculated by the following formula : ne ownet Ss busi tae sssion « Rate of Commission Profit before commission * 709 Rate of commission In the above example, commission will be: " 100,00 « = € 4762 (Approx) , and Profit after commission will be € 1,00,000 ~ 4,762 = € 95,238. a The following entry is passed (with the amount of commission) : es, Ol Profit and Loss Account Dr. a ive To Commission Outstanding Account v Commission payable is shown as an expense in Profit and Loss Account and in the Balance et Sheet on the ability side.Accounting for Management 7.24 personal use: When the proprietor takes away some roprietor for P f 15, Drawing of a voy Ht should be treated as drawings and entered in his goods from the business for his personal use, personal account. The adjustment entry is: Drawing or Capital A/c Dr To Purchases A/c As the goods are recorded at cost price, the amount is deducted from purchases in the trading account. It is also added in Drawings Account or deducted from capital in the balance sheet liabilities side. ; 16. Goods on sale or approval. When the goods are sold subject to approval of the customer, there is a possibility that such goods are not approved and retumed. In case such goods sold on approval basis are lying with the customers at the ‘lose of the accounting year But not yet retumed, these should be treated as stock lying with customers. The following entries are passed. 1, Sales Account Dr To Debtors Account (This entry is at selling price of goods) 2. Stock Account Dr To Trading Account (This entry is at cost price) How to Show it in the Final Accounts? 1. In the Trading Account, it is deducted from sales at sale price and it is added in the closing stock at cost price. 2. In the Balance Sheet, it is deducted from debtors at sale price and added in closing stock at cost price. Mlustration 7.12 Pass the necessary entries to make the following adjustments as on 31st Dec., 2014 1. Stock on 31st Dec. 2014 was € 12,000 2, Depreciation at 10% on furniture valued at € 4,500 and machinery valued at € 50,000. 3, Interest accrued on securities % 650. 4, Bad debts during the year amounted to € 450 5, Unexpired insurance as on 31st Dec., 2014 was € 290. 6. Salaries outstanding on 31st Dec., 2014 were & 600. 7. . Make provision for discount on debtors and creditors @ 2.5%. The debtors and creditors at the end of the year were T 35,000 and & 24,000.led in the cloiy n closing stock |, 2014 dat & 50,000: , sand cred? Final Accounts (Financial Statements) Solution 1 | Stock Account To Trading Account (Being the value of elo 2 | Depreciation Account To Furniture Account To Machinery Account (Being depreciation at 10% on furniture and ‘machinery for the year) 12,000 550 3 | Interest Accrued Account To Interest Account (Being interest accrued on securities brought {nto account) 650 650 4 | Bad debts Account To Debtors Account (Being toss on account of non-recovery of debts debited to bad debts account) Dr. 450 450 5. | Unexpired or Prepaid Insurance Account To Insurance Account (Geing the amount of the unexpired insurance as ton the date of the balance sheet) 200 290 6 | Salaries Account ‘To Salaries Outstanding Account (Being the amount of outstanding salaries brought into account) 600 7(a)| Profit and Loss Account ‘To Provision for Discount on Debtors Account (Being provision made for discount on debtors @ 2.5%) 875 a5 17(b)| Provision for Discount on Creditors Account To Profit and Loss Account (Being provision made for discount on creditors @ 2.5%) 600 600 17, Goods distributed as free samples. When in order to promote sale of goods, free samples of goods are distributed to potential customers, the cost of free samples is charged to advertisement account. This will also reduce the stock of finished goods. In the final accounts, it is recorded as follows: 1. In the Trading Account, cost of free samples is deducted from purchases. 2. In the Profit and Loss Account, it is shown as Advertisement Expense on the debit side. ‘The entry to record this adjustment is: ‘Advertisement Accounts a 125= Accounting for Managemen, 18. Loss of stock by fire, theft etc. When some goods are lost by fire or theft ete., ij treated as abnormal loss. Such abnormal loss is recorded by the following entry: Profit and Loss Account Dr To Trading Account It is recorded in Trading Account credit side and in the Profit and Loss Account on the debjs side. When stock is insured, If the stock lost is insured, then the loss is fully or partly met by the insurance company. For example, if the loss is € 35,000 and is fully recoverable from the insurance company, the joumal entry will be: Insurance Co. Account eDr 35,000 To Trading Account 35,000 It will be shown on the credit side of Trading Account and on the assets side of the Balance Sheet as insurance claim. If loss of stock is partly accepted by insurance company, the journal entry will be (Suppose, out of loss of % 35,000, claim is accepted for only 25,000): = z Insurance Co. Account -Dr 25,000 Profit and Loss Account -Dr 10,000 To Trading Account 35,000 In the Trading Account credit side, it will show the full value of stock and in the Profit and Loss Account debit side that part of loss which is not insured. That part of claim which i accepted by insurance company, it is shown on the assets side of the balance sheet. Other Relevant Terms for Understanding Balance Sheet 1. Fixed assets and current assets 2. Fixed liabilities and current liabilities 3, Capital and revenue expenditures and incomes. 4, Tangible, Intangible and Fictitious Assets. 5, Contingent liabilities. All these terms have been explained in basic accounting terms in Chapter 1. justration 7.13 Taking the Trial Balance given in Illustration 7.4 and the following additional information, prepare Trading and Profit and Loss Account for the year ending 31st Dec., 2014 and Balance Sheet as on that date Additional information is as follows: 1. Make provision for rent and rates unexpired & 30 2. Depreciation on building @ 2.5%, machinery at 5%, motor vehicles at 7.5% 3. Bad debt amount to € 150 4, Liability for insurance % 20 5, Discount on debtors and creditors at 2.5% is to be providedhag art ble fro ly me mt the g the ject 1e Profit wi im which & Final Accounts (Financial Statements) 120 Solution ‘Trading and Profit and Loss Account br. {for the year ending 31st Dec, 2014 Particulars € "Particulars | ® To Opening stock 5,750 || By Sales. 30,000 To Purchases 16,000 |) By Closing stock 6.075 To Wages 6,500 To Carriage 25 ‘To Gross Profit ¢/d 7,550 36,075 36,075 ‘To Salaries 2,000 || By Gross Profit b/d 7,550 To Rent and rates 500 By Provision for 53 ess : Unexpired 30 470|| digcount on creditors To Travelling expenses Soca dae ebo To Sundry expenses 35 To Repairs 300 To Insurance 150 ‘Ad: Accrued 20) 170 Te Commission 325 ‘To Mortgage interest 150, | To Discount 1.300 ‘To Provision for discount on debtors 78 To Bad debts 150 To Depreciation on: Building 100 Machinery 8 Motor vehicles a] oa ‘To Net Profit 1,893 Total 7,603 || Total 7,603 Balance Sheet as on 31st Dec., 2013 Liabilities t el Assets ze | zt Gita 10,655 Baling 7000 ‘Adi: Net profit 11893 | 12,548 | Less: Depreciation 100 | 3,900 5. creitore 2,100 Machinery 1500 less: Provision for discount 53 | 2.067 || Lees: Depreciation 75 | 1435 Mortgage and interest 3050 || Motor vehicles 300 Outstanding insurance 20 || Lest: Depreciation 9 “63 Stock 6.075 Sundsy debtors 3.250 Tess Bad debts 150 3,00 Less: Provision for discount 78 | 3.022 Cash in hand 2 cash at Bank 215 Prepaid expenses x0 Total 17,665 || Total 17,665Accounting (= — semen —— OOO Mlustration 7.14 2014 is given ahead. Prepare hig ber, ; The trial balance of X for t id 31st Decel 2014 and his Balance Sheet he year ende' pa een t of the year ended Trading and Profit & Loss Account on that date. ‘trial Balance ie? Particulars 640 ~ Fumiture 7,500 ~ Building 6,250 = Machinery _ 12,500 Capital 125 — Bad debts - i Bad debts reserve 3.800 an Debtors and Creditors aaa ” See tet ae) 5415 15,450 Purchases and Sales iia a perth teclan 200 1% Sales Returns and Purchase Retums oe “ ‘Advertisement Interest, 18 - cash 650 - Commission — at Tax and Insurance 1,250 ~ General expenses 782 _ Salary 3,300 - a 34,000 34,000 Stock on 31* December, 2014 was valued at % 3,250. Depreciate building at 5%, furniture at 110% and machinery at 20%. Interest % 85 is payable on bank overdraft. Salary % 300 and tar 7120 are outstanding. Insurance prepaid is € 100 and one-third of the commission is received in Furniture purchased in January 2014 worth % 100 is included in purchases. Write off advance. % 100 as further bad debts and reserve for doubtful debts is to be made equal to 5% on debtors Solution Trading and Profit & Loss Account of Mr. X {for the year ended 31st December, 2014 Dr. a. Particulars @ | Particulars | t To Opening stock 3,460 | By Sales 15,450 7 To Purchases 5AT5 Less: Retums: 200 15,250 Less: Returns 125 By Closing stock 3,250 5,350 | Less: Purchase of furniture 100 5,250 ‘To Gross Profit ¢/d 9,790 18,500 | To Bad debts 125 By Gross Profit b/d Add: New bad debts 100 225 | By Commission 375 ‘To Advertisement 450 | Less: Received in advance 125 250Final Accounts (Financial Statements) To Interest 118 || By Provision for doubtful debts: | ee 1.250 Old balance 200 ‘dd: Outstanding tax 120 Less: New provision 185 5 (6% » of 3,700) 1,370 ass: Prepaid insurance 100} 1,270 To General expenses 12 To Salary 3,300 ‘da: Outstanding 300} 3,600 {To Interest of bank overdraft 85 To Depreciation on : Building 375 Fumiture %4 Machinery 1250] 1,699 To Net Profit transferred to Capital A/e 1.826 | 10,055 Balance Sheet as on 31st December, 2014 Particulars | Particutars e Capital 12,500 Furniture 640 ‘Adi: Net profit 1,826 | 14,326 | Add: Wrongly included | Creditors 2,500 in purchases __ 100 Bank overdraft 2,850 740, Add: Interest 85| 2,935 || Less: Depreciation % 666 Outstanding salary 300 | Buildings 7,500 Outstanding tax 120 || Less: Depreciation 375 | 7,125 Commission received in advance 125 || Machinery 6.250 | Less: Depreciation 1,250} 5,000 Debtors 3,800 Less: Further bad debts 300 3,700 Less: Provision 185 | 3,515 Cash 650 stock 3,250 Prepaid insurance ‘100 20,306 20,306 DIFFERENCE IN FINAL ACCOUNTS OF SOLE PROPRIETORS AND PARTNERSHIP FIRMS There is not much of a difference in the final accounts of sole proprietors and that of ship firms. The Illustration on the preparation of final accounts given above is that of a Proprietor, However, in the ease of partnership firms, capital account of each partner is kept arate. Profit or loss of the year is credited or debited to the respective capital accounts of Pattners in the neatie winvina cwein and ic shown as such in the balance sheet. If profit sharingON Accounting for Manageingy, Exceptional items Profit before extraordinary items and tax (V - VI) VIM. Extraordinary items vil. IX. Profit before tax (VII - VIII) X. Tax expenses: (1) Current tax (2) Deferred tax XI. Profit/Loss for the period from counting operations (VII - vil) XII. Profit/Loss from discounting operations XII. Tax expenses for discontinuing operations XIV. Profit/Loss from discounting operations (after tax) (KII- XIII) Profit/Loss for the period (XI - XIV) Earnings per equity share: (1) Basis (2) _ Diluted Xv, XvL, AWA) 1e eee en Problem 7.1 Purchases € 2,65,000, opening stock % 35,000 and closing stock % 60,000. If profit margin is 25% of selling price, find out the amount of sales. Solution: Cost of goods sold = Opening stock + Purchases - Closing stock = © 35,000 + 2,65,000 ~ 60,000 = 8 2,40,000 Profit is 25% or 1/4 of selling price then it is equal to 1/3 of cost of goods sold. 2. Profit = 2,40,000 x 1/3 «= & 80,000 Sales = Cost of goods sold + Profit = € 2,40,000 + 80,000 Sales = €3,20,000 Problem 7.2 The following is the Trial Balance of Mr. Murali as on 31-3-2014, Debit Balances || credit Batances Cash in hand Cash at Bank Purchases Wages Carriage outwards Opening stock Premises land Machinery Salaries Insurance Drawings Debtors Sales Capital Creditors, gem |} Final Accounts (Financial Statements) Taking the following adjustments into account, prepare his final accounts for the year ended 313-2014 + (i) Stock on 31-3-2014 is valued at & 5,800. (ii) Depreciate machinery by 10%. (iii) The insurance policy expires on 30-9-2014, (iv) € 2,000 spent on erection of a shed were included in wages. (¥) A fire occurred on 25-3-2014 in the godown and stock of the value € 1,000 was destroyed. The Insurance Company admitted the claim in full. Solution: ‘Trading and Profit and Loss Account for the year ending 31-3-2014 Debit Balances || Credit Balances 4 e To Opening stock 5,760 | [By Sates 98,100 To Purchases 40,175 || By Loss of stock by fire 1,000 To Wages, 15,210 By Closing stock 5,800 Less: Wages for erection 2000 | 13,210 ‘To Gross Profit ¢/d 45,755, —_—_—__ 5 706,900 1,06,900, To Salaries 78,000 ||By Gross Profit b/d 45,755 To Insurance 600 | Less: Prepaid 300 300 If profit margin’ To Carriage outwards 5,240 ‘To Depreciation on machinery 2000 1o Net Profit tr. to capital A/e 20,215, 45,755 e755 Balance Sheet as on 31-3-2016 Liabilities t [assest z Capital 70,000 Premises 30,000 Add: Net profit 20,215 |Add: wages for shed 2,000 | 32,000 90,215 Land —~ | 7,500 less: Drawings 5,245| 84,970 || Machinery — Less: Depreciation 18,000 7 _Gretitors 7,300 || Prepaid insurance 300 Ee (Closing stock 5,800 et Debtors 14,500 7008 ‘Insurance co. (for claim) 1,000 1 [Cash at bank 2,630 cash in hand 540 92,270136 ON Accounting for Managemen Problem 7.3 From the following Trial Balance prepare Trading and Profit and Loss Account for th © Ye ended 31st December, 2014 and Balance Sheet as on the dat “ Debit Gea; 7 ? Drawings 10,000 2 Stock on 1-1-2014 46,000 . Purchases and Purchases retums 1,50,000 609 Cash in hand 3,400 7 Bank balance 22,660 7 Freehold Premises 38,600 Trade expenses 840 - Printing, stationary and advertising 1,640 Professional charges 280 Commission received - 3.300 Investments as on ist Jan. @ 10% 4,000 - Interest on investments - 20 Sundry debtors and creditors 36,000 29,000 Wages 25,000 Salaries 14,000 z Capital - 1,16,700 Income tax 1,600 - Discount allowed and received 6,300 4,500 Sales retums and Sales 500 2,08,000 Bills receivable and Bills payable 3,200 10,000 Office furniture 3,080 Rent, rates and insurance 4,000 Bad debts provision 71,070 ‘Adjustments: (2) Provide for wages & 5,000 (b) Write off 5% depreciation on freehold premises and 10% on office furniture, (c) Insurance to the extent of ® 200 relates to 2015, (@) Stock on 31-12-2014 is & 52,000 (@) Charge interest on Capital at 5%. Solution: ‘Trading and Profit and Loss Account for the year ending 31st Dec. 2014 Particulars | Particulars z To Opening stock 46,000) By Sales 2,08,000 To Purchases 150,000 Less: Return 500 2,07,500 Less: Returns 600 1,49,400 —_— To wages 25,000 By Closing stock 52,000 Add: Outstanding 5,000 30,000 | To Gross Profit c/a 34,100 | To Trade expenses By Gross Profit b/a To Printing, stationery etc, By Commission received 3,300 To Professional charges By Interest on deposit 20008 FOF Many Final Accounts (Financial Statements) ia Account {Or thy esata 14.000 Add: ec m Pa To Discount allowed 6,300 By Discount received un To Rent and insurance 40m z 8 Les: Prepaid 200 3.800 0,000 ) To Depreciation: 6,000 Premises 1.930 2,000 Rumiture 3052235 34 Zo Interest on capita sms a 8 Tone Pott tr. to a capital Ae se aith 840 wh 640 20 ‘abies £ = ay Capital 1,14,700 Freehold premises S98, 600 000 ‘Net profit 7510 less: Depreciation 4930 95810 s irs on ep 5135 Furniture 3.080 00 i 128.005, Less: Depreciation me ums 000 es: Drawings 10,000 Coting stock 2000 000 7.18.05 sa : Jas Income tax 1.600 1,16,405| tnvestments 4.000 fee ‘Add: hecrved interest 20 4200 Sundry Ceitors 25,000] Insurance prepaid 200 Sai Bs payable 10,000] Debtors 36,000 200 Wages outstanding 5,000) Les: Provision 70 1 Bills receivables ash at bank (ath In hand a 070-378 Problem 7.4 From the following Trat Balance of "Y as on 1-3-2013 and addtional information, prepare Trading and Profit and Loss Account and Balance Sheet as a that date: ‘eal Balance Fortine z ae pening stock a cae Capital $,00,000 Debtors and Creditors 70.500 Purchases and Sales, 14.50,000 Returns 720,000 Dec. 201 aria : re i Migs sts - Son 26,000 08,000 ays Fata : ‘5002 ad debts Z —— Frovson for doubtful debts - 20,000 Band BP 60,000 14,000 = and insurance 136,000 i 2d blidings 0000 : gh Muni owe m0 : fae 1.00,000, : ae eee een acest 1,00,000 : 200 2%4,50,000 26,5000 ee me esenon a~ Accounting for Managemen; Additional Information: (a) Value of the closing stock, as on 31. -2013 is € 80,000 (b) Insurance prepaid is € 4,000. Wages and salaries outstanding is % 2,000. (q) Provide for doubtful debts on the debtors @ 10%. (@ Depreciate machinery and furniture @ 10% and @ 15% respectively. (e) Goods of the value of 10,000 were taken by the proprietor for his own use but no entry was made in the books of account. (B.com.) Solution: Trading and Profit & Loss Account Dr. for the year ended 31st March 2013 o. Particulars 8] Particulars | ? ‘To Opening stock 1,00,000|] By Sales '14,00,000 | To Purchases 8,00,000 Less: Returns 30,000 | 13,70,000 Less: Returns 20,000 | 7,80,000 | ‘Less: Goods taken | by proprietor 10,000 | To Carriage | ‘To Wages and salaries 50,000 | ‘Add: 0/S 2,000 | ‘To Gross Profit ¢/& By Closing Stock | To Bad debts 16,000 By Gross Profit b/d ‘Add: Provision for By Commission doubtful debts 12,000 28,000 Less: Existing provision 20,000 8,000 To Taxes and insurance 34,000 Less: Prepaid 4,000 | 30,000 To Discount allowed 24,000 To Depreciation: Machinery 116,000 Furniture 6,000 ‘To Net Profit tr. to | Capital A/e 4,54,000 38,000 5,38, 000 Balance Sheet as at 31st March, 2013 Particulars | Particulars editors 70,000 || Bank Bills payable 14,000 | Bills receivable Wages and salaries 0/S 2/000 || Prepaid insurance Capital Stock Less: Drawings Debtors © (1,00,000 + 10,000] Less: Provision for doubtful debts ‘ ‘Add: Net profit 12,46,000 || Machinery Less: Depreciation Furniture Less: Depreciation Land & buildings 73,30,000SO snot tne Problem 7. From the following Trial Balance of Baldev, you are required to prepare Final Accounts for the Oy year ended 31 March, 2013 after making the necessary adjustments. , >> —~ ) Bio Provision for doubtful debts oan to Ram 30% on 1 October, 2012 Interest on loan to Ram Cash at Bank om Gash in hand aa Stock—31st. March, 2013 74,000 = nn Trading profit = 117,200 50 Outstanding wages on Stet March, 2013 = 500 am Insurance claim received for lous of goods 5,000 Total 3,74,200, ‘Adjustments (0) Outstanding salaries ® 700, (ii) Prepaid insurance © 400. (li) Value of loose tools on 31st March, 2013-8 1,500 liv) A ew machinery was purchased on credit and installed on 31st December 2012 costing ‘© 15,000. No entry for the same has yet been made in the books. () Depreciate (on closing balance)—plant and machinery at 10 per cent, furniture and fixtures at 5 per cent. (W) The provision for doubtful debts is to be maintained at 5 per cent on debtors. the trial balance. This implies that Trading Account has alzeady been balance is drawn after preparing Trading Account. Prot & Loe Account of Baldev forth yearning et March, 2013 «. [Pertelars t 7,000 By Fading poe 7.300 700 | 14,700| By interest on ton 1.000 3.000) A: Ace for months 10m | 200 1.00 y nuance da eves S00 2.00 foo | 2.600 600 || By Provision for doubtful zoo ants (3 2012) «00 7387.40 Accounting for Managemen, To Depreciation on : Less: Provision required Loose tools 500 (5% of & 25,000) 1,250 3,8 Plants and machinery 11,500 [2,25,000 x 10%) Furniture and fixtures 200] 12,200 To Net Profit transferred to Capital Account 91,550 a 1,27,750 [nen Balance Sheet as at 31st March, 2013 Particulars & [Particutars t Capital 2,00,000 Freehold property 60,000 Add : Net Profit 91,550 Plant and machinery 1,00,000 2,91,550 ‘Add: New machine 15,000 Less: Drawings 10,000) 2,81,550 1,15,000 Bills payable 5,700 | Less: Depreciation 11,500 | 1,03,500 Creditors 40,000 | Furniture and Fixtures 4,000 Creditors for machinery 15,000 | Less: Depreciation 200 3,800 Outstanding wages 500 | Loose tools 2,000 Outstanding salaries 700 | Less: Depreciation 500 1,500 Debtors 25,000 ess: Provision 1,250 23,750 Loan to Ram “40,000 ‘Add: Interest accrued 1,000 | 41,000 Cash at Bank 25,000 Cash in hand 10,500 Closing stock 74,000 Prepaid insurance 400 343,450 3,43,450 Problem 7.6 You are required to prepare Trading and Profit & Loss Accounts balances and adjustments for the year ending on 31-12-2012 and Balance Sheet from the following Particulars Dre on Purchases/Sales 1,30,295 1,80,500 Cash in hand 500 - Cash at bank 9,500 - Stock as on 1-1-2012 40,000 - Wages 22,525 - Returns 2,400 195 Repairs 1,675 = Debtors/Creditors 30,000 30,305 Bad debts 2,310 = Loan (12% p.a.) - 0,000 Discounts 800 530 Capital = 37,500 Interest on loan 600 - Salaries 8,000 - Sales tax 800 -50 ay —| i> — = ea 0 | Mn 00, 00 00] o254 00 00] am 00 00 | im 00 50 | an 00 09 | un 2, 0st 140% a Tee al BES sm the fall i —F98 ge 0 i Final Accounts (Financial Statements) TA ctr . 500 = Insurance : 3,000 - Charity 125 - Rent 2,000 - Machinery 16,000 = Total 2,69,030, 269,030 ‘Adjustments: (©) Wages include € 2,000 for erection of new machinery installed on 1-1-2012 (i) Provide for depreciation on machinery @ 5% p.. (Gi) Stock on 31-12-2012 is € 40,925. (Gv) Salaries unpaid € 800, (w) Further bad debts ® 400. (Gi) Make a provisional of 5% on debtor for doubtful debts. (i) Rent is paid for one year upto 31st March, 2013. (ii) Unexpired insurance @ 300. (B.Com) Solution Dr. ‘Trading and Profit & Loss Accounts Gr. {forthe year ending 31st December, 2012 Particulars €[[Partiaware z To Opening stock 40,000] By Sales 1,80,500 To Purchases 130,295 Tess: Retums 2,400 ess: Returns 195] 1,30,100 178,100 To Oetroi 500|) Less: Sales tax 800) 1.77,300 ‘To Wages 22.505 By Closing stock 40,925 ess: Machinery 7,000] 20,525 ‘To Gross Profit ¢/d 27,100 218,225 2.48, To Repairs 1.675|| By Gross Profit b/d 27,100 ‘o Discount 800] By Discount 530 To Rent 2,000 ‘ass: Prepaid for 3 months 00] 1,500 To Charity 15 To Insurance 1,000 ‘ess: Prepaid 300) 700 To Salaries 8,000 ‘Ad: Outstanding '800) 2,800 ‘To Interest on loan 600 ‘dd: Outstanding 1,800 2,400) To ed debts 2310 ‘Ad: Further bad debts 400) ‘Aad: Provision 1480] 4,190] To Depreciation on machinery (5% on & 18,000) 00 To Net Profit transfered to Capital a/e 6,540 27,630 27,630Balance Sheet as on 31-12-2012 Liabilities © | Assets Capital 37,500 | ‘Machinery 16,000 Add : Net Profit 6,540 | 44,060 | Add : Wages for erection 2.000 Salaries outstanding | 800 18,000 Loan 20,000 Less : Depreciation 900 Add : Interest outstanding 1,800 | 21,800 | Debtors 30,000 —]| Less : Further bad debts 400 29,600 craton | sass Less : Provision for | bad debts 1,480 | Closing stock | Rent prepaid Insurance prepaid (Cash at Bank __ | cash in hand 96,945 Problem 7.7 Mr. AB had prepared the following Trial Balance from his Ledger as on 31st March, 2013. Particulars Dt ‘Stock as on Ast April, 2012 5,00,000 = Purchases and Returns es 31,00,000 45,000 Sales and Returns 4 55,000 461,50,000 Cash in Hand 2.50000 - Cash at Bank : 5,00,000 - Trader's Capital = 22.59.20 Rates and Taxes Drawings Salaries Postage and Telegram Insurance Salesmen Commission Printing and Stationery Advertisement Fumiture and Fittings Motor Car Discount General Expenses Carriage Inward Carriage Outward Wages Sundry Debtors/Creditors Total 69,29,200 You are required to prepare Trading and Profit & Loss Account for the year ended on 31st March, 2013 and Balance Sheet as on that date after considering the following adjustments : (i) Closing Stock as on 31st March, 2013 ¥ 1,45,000. (ii) AB had withdrawn goods worth & 50,000 during the year. (iii) Purchases include purchase of furniture worth ® 1,00,000. (iv) Debtors include ¥ 50,000 bad debts. (v) Sales include goods worth & 1,50,000 sent out to MN & Co. on approval and remained unsold as 0° 31st March, 2013. The cost of the goods was € 1,00,000.a x Final Accounts (Financial Statements) (vi) Provision for bad debts is to be created at 5% of sundry debtors, (vii) Depreciate Furniture and Fittings by 10% and Motor Cay by 20% (vii) Salesmen are entitled to commission of 10% on total sales, Solution: Trading and Profit and Loss Account for the year ended 31st March, 2013, mr. eet o Particulars Partcul eae To Opening Stock By Sales 41,50,000) To Purchases 31,00,000 Less: Returns 56,000 ‘Less: Returns 45,000 095,00 5 Less : Goods sent.on ass: For personal use 50,000, approval 3945.00 30.05,000 Less: Purchase of By Closing Stock 1.45.00 Fumiture 4,00,000 ‘Add: Cost of goods —— | 29,05,000 | sent on approval 1,00,000| 245,000 ‘To Cariage inward 10,000 To Wages 50,000 To Gross Profit c/4 0 | 41,50,000 41,30,000 To Rates and taxes 50,000 | By Gross Profit b/d | 725.000 To Salaries 95,000 || By Discounts received 75,000 ‘To Printing and stationery 95,500 | By Net Loss 5.02300 To Bad debts 50,000 To Postage and telegram 14,05,000, ‘To Salesmen’s commission 78,000 ‘Add: Outstanding 3,16,500 | 3,94,500, To Insurance 30,000 To Advertisement 1,70,000 To Provision for doubtful debts 40,000 (6% of € ,00,000)* To Discounts allowed 50,000 To General expenses 65,700 | To Cariage outward 72,000 | To Depreciation: | Fumiture and fittings 65,000 Motor car 13,02,300 |. 13.02,300 Balance Sheet as 31st March, 2013, Liabilities | Assets t Capital 22,89,200 Furniture & fittings 5,50,000 ess: et Loss 502,300 ‘Add: Additional purchase _1,00,000 77,56,500 50,000 tess (65,000 + 50,000) 95,000 | 16,61,900 | Less: Depreciation 585,000, 4,00,000 | Motor car 3,16,500 | Less: Depreciation 38,400 Sundry debtors 1A3—" Accounting for Managem, Less : Sales on approval 1,50,000 8,50,000 Less : Bad debts 50,000 Less : Provision for 8,00,000 bad debts @ 5% Cash in hand Cash in Bank Closing stock 1,45,000 Add : Cost of goods sent on approval 1,00,000 23,78,400' *Working Note 40,000 Total debtors Less : Bad debts % 10,00,000 Sale on approval 50,000 1,50,000 Debtors REVIEW QUESTIONS Objective Type Questions True or False ? Give reason in brief. 2,00,000 8,00,000 1. Profit and Loss Account sh a lows the financial position of the business. Provision for bad debts is debited to Profit and Loss Account. 3. Closing stock, when it appears in the trial balance, is taken only in the Trading Account. 4 Balance in the cash book shows the net income, 5. 6 Trial balance is prepared after preparing Profit and Loss Account. . Freight paid on purchase of materials 7. Premium paid on the life policy 8. Purchases return always has a 9. Unexpired expenses and pre 10. Fixed assets are shown in Answers. 1. False 2. Tre 3. False 6. True 7. False 8. True Theoretical Questions is added in the amount of purchases. of the proprietor is debited to Profit and Loss account. credit balance. paid expense have synonymous meaning. the balance sheet at their market value, 4, False 5. False 9. True 10. False 1. What do you mean by financial statements? What is their purpose? 2. Distinguish between: (i) Trial balance and balance sheet (i) Profit and loss account and balance sheet. 3 What is meant by adjustment entries at the time of preparing final accounts? Give examples 4. Explain the following terms with examples : (i) Prepaid expenses (ii) Outstanding expenses. (ii) Accrued income (iv) Provision for bad debts. ‘What is meant by the term marshalling in relation to balance sheet? 6, Distinguish between contingent liabilities and other liabilities, 5.unt, alse ample Final Accounts (Financial Statements) 745 Practical Questions 4. -Ascertain the gross profit from the following figures: t z Opening Stock 60,000. Carsage tnwards 6,000 Cosing Stock 90,000. Cartage Outwards 12,000 Purchases 340,000. Freight, duty and sales 3,90,000 clearing charges 15,000 [ans. 3,90,000 + 90,000 ~ 60,000 ~ 3,40,000 ~ 6000 - 15000 = & $9,000] 2 Ima Trial Balance, debtors appear at € 61,000 and creditors at € 33,000. Make provision for doubtful debts at 5% on debtors and provision for discount on creditors at 2% after considering the fact that included in debtors isthe amount of € 1,000 due from Shyam (one ofthe customers) and included in creditors isthe amount of € 3,000 due to Shyam, (B.Com. Osmania) ‘Ans. [Provision for doubtful debts 3,000; Provision for discount on creditors & 640] (Bint: Shyam is a debtor as well as a creditor to the extent of © 1000. Thus net debtors and creditors will reduce by € 1000, on which provisions will be created) 3, Ascertain the cost of goods sold from the following information Opening stock 9,000 Direct expenses 5,000 Purchases 30,500 Indirect expenses 75,400 losing stock ® 8000 (B.Com. Osmania) ‘Ans. [9,000 + 30,500 + 5,000 ~ 8,000 = € 36,500) 4 The following is the trial balance as on 31st Dec. 2012. Prepare Trading and Profit and Loss Account for the year ending 31st Dec. 2012 and Balance Sheet as on that date. Debit balances © [credit balances z Purchases, 10,000 Sales 1,20,000 Opening Stock 4000 | Returns outwards 600 Retums inwards 500 | Discount 500 Wages 15000 | Creditors 10,000 Coal and gas 000 |Loan 1,000 Factory rent 1000 | capital 7,150 Commission 150 (cash in hand (Cash at bank Debtors General expenses Salaries Office rent 139,250 hosing stock € 10,000 {Ans. Gross profit € 25,100; Net profit € 24,050; Balance Sheet total € 42,200] 5. From the following Trial balance of Mr. Mukesh as on 31-3-2013 you are required to prepare. Trading and Profit and Loss account for the year ended on 31-3-2013 and the Balance Sheet as on that date: Particulars a Beer claire Oe Capital and Drawings 12,000 100,000 Debtors and Creditors 0,500 40,000 10% Loan taken on 1-1-2013 a 10,000 (ash in hand 1.200 -‘Accounting for Manag. cool! gat els ee a 11,400 5 Cash at Bank 7 ; ye Provision for doubtful debts 12,000 Pan Furniture 28,400 . Cast Machinery 75,000 pete Opening stock 1,80,000 20g, opie Purchases & Sales 2,000 . in Returns inwards 24,800 ore pay Salaries ao ao beter 4,100 creditors Travelling expenses ee Insurance (including a premium of Pant © 600 pa. paid upto 30-62013) e in use Commission received 4, Outs 1,600 2.005 ; Discounts 3600 2 Dep carriage inwards ; an Eien [ans. ¢ ‘Adjustments: (@) Ghosing Stock € 68,500. (b) Write off & 500 as bad debts and maintain provision for doubtful debts at 5% on dts (c) Make a provision of 2% for discount on Debtors & Creditors. (a) Wages include % 1,600 for erection of new machinery purchased on 2-4-2012 (c) Depreciation on machinery at 5% and fumiture at 10%, (f) Commission eamed but not received © 500. ‘Ans, [Gross Profit € 59,900 ; Net Profit © 30,150; Balance Sheet % 1,67,600}. 6. Prepare the Final Accounts from the following tral balance for the year ended 213-200, (8.0m Debit “Amount | Credit “amast ee Rent Purchases “50,000 | Sales 7a Rates ‘Machinery 1,15,500 | Capital jt Apprentic Returns 18,000 | Returns Bank Sundry Debtors 1,42,000 | Sundry Creditors Bad debts Cash at Bank 34,655 | Provision for Bad debts Debtors ai Stock (1-4-2008) 64,504 Cash Rates & Taxes 9,800 Provision Wages 55,000 Salaries 67,000 —— Freight 6,555 Making Furniture 12,500 (Depr og sep i ; pea i aaa foie (1) Closing Stock % 98,000. W tes (2) Outstanding Salaries & 18,000. Appr (3) Write-off € 4,500 as Bad Debts. ns (4) Create a Provision for Bad Debts at 4% on s é (6) Provide 6% Depreciation on Machinery. = fe G Hint; « (6) Interest on Capital @ 3% is allowed, got! {Aans. Gross profit € 2,48,955; Net Profit € 1,40,975; Total of Balance sheet © 3.8572)12,009 28,400 75,000 30,000 2.000% 4,800 10,000 4,100 800 1,600 4,000 7800 | ebts at 5% on a 1 1-4-2012 77 57,600]. ar ended 31-28 ar ended 311% ro ———— 1 sa w @ Final Accounts (Financial Statements) 7, Prepare final accounts of Raman from the following details for the year ending 31st March 2013, Zz z Cash in hand 1200 Sales 2,00,200 Debtors 50,000 Furniture 15,000 Capital 100,000 Rent and taxes 10,000 Purchases 120,000 Wages 16,000 Opening stock 35,000 Salaries 20,000 Bills payable 22,000 Reserve for bad debts 4,000 Bills receivable 20,000 Greditors 24,000 Plant and Machinery 60,000 Adjustments: 41. Outstanding wages & 3,000, rent & 2,000, salaries & 4,000. 2 Depreciate Plant and machinery at 5% and furniture at 10%, 3 Increase reserve for bad and doubtful debts on debtors to 254%. 4, Closing stock € 40,000, (B.com.) [Ans Gross profit € 66,200; Net profit € 25,450, Balance sheet total € 1,80,450), Given below is the Trial Balance of Mr. Ravi on 31-3-2005: Particulars Dr. or. z z Capital - 42,500, Drawings 7,300 - Plant and machinery 9500 i Stock on 1-6-2008 14,600 - Purchases and Sales 103,620 119,060 Retums 2,100 2,900 General expenses 4,400 - Rent 1.200 2 Rates 2.000 = Apprentice Premium - 800 Bank - 2,400 Bad debts 4,720 - Debtors and creditors 42,000 20,000, Cash, 480 - Provision for Bad debts - 1.050 188,720 188,720 Making the following adjustments prepare his final accounts. () Depreciate Plant and machinery by 10%. (i Maintain the provision for Bad debts at 5% on debtor. (ii) Rent outstanding is € 400. (iv) Rates of & 00 are paid in advance. (0) Apprentice premium received in advance is € 200 (0) Stock in hand on 31-3-2009 is valued at € 17,000 at cost and ivs market value is estimated at 20,000. (Ans, Gross profit € 18.6 (B.lom,) lt profit € 8330; Total of Balance Sheet € 66,730) [Mint: stock is shown at € 17,000 at cost. The rule is cost or market price, whichever is less). 747 Se eee Palan ice of Ram Gopal & 3ist March 2 n Sons as M, and Balance March 2013, Accounting for Manageme, 1013, prepare the 7 Sheet as at that Fn 9. From the following Trial Bal Te and Profit and Loss A/c for the year ending 3 — ~ z Ch ~ 3,50, 15,000 0 Capital Drawings Plant and machinery Debtors and Creditors Retums Discount Commission Interest on bank loan Furniture Provision for doubtful debts Wages Salaries Advertisement Taxes and Insurance Purchases and Sales Stock (as on 31-3-2012) Carriage Land and buildings Cash in hand Cash at Bank 10% Bank loan as on 1-4-2012 Additional Information: (a) Stock was valued at % 35,000 as on 31-3-2013 (@) Salaries and wages were outstanding ® 5,000 and € 6,000 respectively as on 31% March 2013. (©) Depreciate land and buildings, plant and machinery and furnitures at 24%, 10% and 15% respectively. (@ Provide for doubtful debts at 10% on debtors. [Ans. Gross profit € 43,000; Net loss % 89,200, Total of B/S & 4,34,800} 2,05,000 50,000 8,000 7,000 15,000 12,000 55,000 50,000 45,000 15,000 13,000 2,60,000 70,000 5,000 t (B.Com. Delt 40. The following is the trial balance of Mr. Bharat for the year ending 31st March 2013 and addition! information given, prepare Trading and Profit & Loss Account and Balance Sheet as on 31-3-201% Trial Balance Particulars Dr a ariel < 700,000 Drawings - 00.00 Opening Stock 50,000 . Purchases 75,000 . Sundry Creditors 4,20,000 sa Sundry Debtors - - wail Sales 20,000 Discounts - 0 Commissions 16,000 ea Returns 12,000 ue Salaries 16,000 . 1,20,000 ad