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Practice questions

Kamal Kalra

5 Aug 2012

ACCOUNTANC

Financial Accounting

Class XII

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ACCOUNTANC Capital & RevenueCapital & Revenue

Income can be Capital income or Revenue income

Capital is from Capital gain eg Building purchased for Rs.10000 and sold forRs.15000

If Plant is purchased for 10000 depreciated to 6000 and sold for 12000 then capital profit

is 2000 (over the original price) and 4000 is revenue profit.

Revenue Income Arises out of regular business transactions

Capital Expenditure is expenses on long term assets . fixed assets, installation, patents etc

Revenue expenditure is expenses of running business, goods, repairs, expenses etc

Similarly Receipts can be classified as Capital or Revenue. Capital receipts can be share

capital or money from sale of FA and Revenue receipt is anything not in nature of Capital

receipt

Eg A second hand car is purchased for 20000 and 5000 is spent in overhauling it means

Rs.25000 is capital expenditure

If Inward freight for a plant was 1000 and installation 200 means 1200 is capital expenditure

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Final accountsFinal accounts

The Trading account gives the overall result of trading in a given period Rev-Exp

The Trading account gives the Gross Profit (or loss) Eg The following figures are taken from a Trial Balance

Purchases 30000

PR 5000

Sales 40000

SR 5000 Gives GP of 10000

Opening and closing stock

In above example if CS is 5000

Cost of Goods Sold= Net Purchases-CS= 25000-5000=20000

Hence GP=Net sales- cost of Goods sold=35000-20000=15000

Excercise

Stock as on 1.1.98 10000

Purchases 40000

PR 5000

Sales 60000

SR 10000

Closing stock 31.12.98 15000 Calculate GP

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SolutionSolution

Sales 60000

Less SR 10000 50000

Cost of Goods sold

Opening stock 10000

Add net purchases 35000

Less CS 15000 30000

GP 20000

In case any expenses are incurred on carriage in these are to be added COGS

In the above case if Rs.5000 was incurred on Carriage In that would make the

GP 15000. Merchandise can also be used for Goods

Sales Direct expenses= GP

GP-all other expenses= NP

Closing stock is shown as an asset in the BS and appears on the credit side of

the Trading account

GP=Sales (Opening stock + purchases + Direct expenses closing stock)

Or GP=Sales +CS OS-Purchases-Direct Expenses

Closing entries are passed only for entries of Trading & P&L A/c

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Prepare Final Accounts for SureshPrepare Final Accounts for Suresh

The following Trial Balance was taken from books of Suresh Prepare the Trading

and P&L A/cDebit Credit

Stock as on 1.1.98 2000

Purchases and Sales 20000 30000

Returns 2000 1000

Carriage 1000

Cartage 1000

Rent 1000

Interest 2000

Salaries 2000

General Expenses 1000

Discount 500

Insurance 500

Closing stock as on 31.12.98 is 5000

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Solution for SureshSolution for Suresh

Trading and P&L A/c for Suresh

Particulars Amount Particulars Amount

To Opening Stock 2000 By Sales 30000

To Purchases 20000 Less Return 2000 28000

Less Return 1000 19000 By Closing Stock 5000

To Carriage 1000

Cartage 1000

To GP c/d 10000 _______

33000 33000

To Rent 1000 By GP b/d 10000

.. Salaries 2000 Interest 2000

.. General Exp 1000 Discount 500

Discount 1000

Insurance 500

NP to Capital A/c 8000 ________

Total 12500 12500

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Manufacturing and Trading A/cManufacturing and Trading A/c

Mfg A/c gives the cost of goods manufactured during a period whereas Trading

a/c shows profit/loss of trading activity . P&L A/c shows overall profit or loss There could be combined Mfg and Trading activity. In such cases the cost of

production is transferred to Trading a/c and outside purchases of FG is added

In a Mfg A/c stock are of 3 types raw materials , WIP, Finished goods

RM consumed =Opening + Purchases Closing Stock (of RM)

Expenses of Carriage in, octroi , customs duty etc. will be charged to Mfg A/c Factory Overheads will cover all indirect expenses say labor for polishing etc.

Scrap sale is credited to Mfg A/c; if not sold its market value

Prepare a Mfg and a Trading A/c from following:

Stock as on 1.1.98 RM 10000 WIP 5000 FG 20000

..31.12.98 RM 5000 WIP 15000 FG 30000

Purchases RM 50000 Direct Wages 10000 Carriage in 5000

Factory Power 5000 Dep. on Machines 5000 Purchase of FG 30000

Cartage in on FG 2000 Sale of FG 100000

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Solution for Mfg and Trading A/cSolution for Mfg and Trading A/c

Manufacturing A/c

To WIP (opening) 5000 By WIP (Closing) 15000

To RM 10000

Purch50000 By Cost of Prod 70000

Less CS 5000 55000 to Trading a/c

To Wages 10000

Carr In 5000

Power 5000

Depreciation 5000

Total 85000 85000

Trading A/c

To Stock of FG (op) 20000 By FG Closing 30000

To cost of prod (Mfg a/c) 70000 By Sale 100000

To purchases FG 30000

To Cartage FG 2000

To GP to P&L 8000Total 130000 130000

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Distinguish Trading expenses and P&L a/cDistinguish Trading expenses and P&L a/c

Expenses linked to actual production like power duties carriage in wages cost of raw

material are all part of trading a/c whereas all overheads admin costs etc. are part of P&LA/c. In a manufacturing unit the Manufacturing A/c will precede the Trading A/c

From the following BalancSe prepare Closing entries/ Trading & P& L A/c BS

Op Stock 1250 Plant 6230

Sales 11800 Ret Out 1380

Dep 667 Cash 895

Comm cr 211 Salaries 750

Ins 380 Debtors 1905

Carriage in 300 Disc 328 dr

Furniture 670 BR 2730

Printing 481 wages 1589

Carriage out 200 return in 1659 Capital 9228 bank od 4000

Creditors 1780 purchases 8679

BP 541 petty cash 47

bad debts 180

Value of stock on 31.12.98 was 3700

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Solution : Journal EntriesSolution : Journal Entries

Debit Credit

Trading A/c 13477

To Opening Stock A/c 1250

Purchases A/c 8679

Wages A/c 1589

Return inwards A/c 1659

Carriage Inwards A/c 500

Sales A/c 11800

Return Outwards 1380

To Trading A/c 13180

Trading A/c 3403

To P&L A/c 3403

P&L A/c 2986

To Dep A/c 667

Insurance A/c 380

Printing A/c 481Carriage Outward a/c 200

Salaries A/c 750

Disc A/c 328

Bad Debt A/c 180

Commission A/c 311

To P&L A/c 311

P&L A/c 628

Capital A/c 628

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Trading (A) & P&L A/c (B)Trading (A) & P&L A/c (B)

A To Opening Stock 1250 By Sales 11800

Less Ret Inwards 1659 10141 To Purchases 8679 By Closing Stock 3700

Less Ret Out 1380 7299

To Wages 1589

To Carriage inwards 300

To Gross Profit bd 3403

Total 13841 13841

B By GP c/d 3403

To Dep 667 By Comm 211

Ins 380

Printing 481

Carriage out 200

Salaries 750

To Disc 328

Bad Debts 180

Net Profit to Capital a/c 628

Total 3614 3614

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Balance SheetBalance Sheet

Liabilities Assets

BP 541 Cash 895 Creditors 1780 petty cash 47

Bank od 4000 BR 2730

Capital 9228 Debtors 1905

Add profit 628 9856 closing stock 3700

Plant 6230

furniture 670

16177 16177

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Prepare Mfg & Trdg A/c BS from TBPrepare Mfg & Trdg A/c BS from TB

Particulars Debit Credit

ShriBankers Capital A/c 41000 ,, Drawing A/c 6100

Mrs.Bankers Loan A/c 4000

Sundry Creditors 45000

Cash 250

Bank 4000

Sundry Debtors 40500

Patents 2000

Plant & Machinery 20000

Land & Building 26000

.Purchases of RM 35000

RM 1.4.97 3500 WIP .. 2000

FG .. 18000

Carriage in 1100

Wages 27000

Salary of Works Manager 5600

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TB contd.TB contd.

Particulars Debit Credit

Factory Rent Taxes 3400 Factory Exp 2500

Royalty paid on Sales 1200

Sales Less returns 123400

Advertising 3000

Office Rent Insurance 4800

Printing 1000

Office Expenses 5800

Carriage Out 600

Discounts 1400 2100

Bad Debts 750

Total 215500 215500

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Thank

You