sr. no. particulars page no. chapters/syjc/bk chapter 2.pdf · s.y.j.c. book-keeping and...

2 - 11

CHAPTER 2: PARTNERSHIP FINAL ACCOUNTS

Sr. No. Particulars Page No.

1. Theory 2 - 12

2. Section I :

From the Textbook - Solved Problems 2 - 27

3. Section II :

From the Textbook - Practical Problems 2 - 35

4. Section III :

Solved Additional Problems 2 - 54

5. Section IV :

Homework Problems 2 - 65

6. Section V :

Revision Problems 2 - 70

7. Section VI :

Objective type questions 2 - 75

2 - 12

S.Y.J.C. Book-keeping and Accountancy

Partnership Final Accounts

Partnership final accounts are prepared in a similar way as sole proprietorship accounts. They include Trading A/c, Profit & Loss A/c and the Balance Sheet.

Final accounts are prepared for the following purpose:-

i. To find out the gross profit or loss for the period

ii. To find out the net profit or loss for the period

iii. To know the financial position of the business as on a particular date

iv. To prepare various statements to plan for the future

v. To know how much are the debtors and creditors of the firm

vi. To know the sources of funds (liabilities) and the application of funds (assets)

vii. To calculate various ratios for analysis

viii. To provide audited financial statements and other documents to the bank for obtaining loans

ix. To value goodwill of the firm in cases of admission, retirement or death of a partner and on dissolution of the firm

x. To find the tax payable and make advance tax payments.

Preparation of Final Accounts

Final accounts of a partnership firm are similar to that of a sole trader. Only difference is that the profit is distributed among the partners whereas in a sole proprietorship it is added to the proprietor’s capital. First a trial balance is to be prepared from all the debit and credit balances of all the ledger accounts. From this, trading and profit & loss accounts are generated. Finally, a balance sheet is prepared to reflect the position as at period end. A trading account shows the gross profit or loss whereas a profit & loss account reflects the net position.

I. Manufacturing Account

It is prepared only for manufacturing concerns. It shows the cost of production.

II. Trading Account

Trading account is prepared in a trading concern and is a part of the profit & loss account. It records all transactions related to goods and direct expenses. If the credit side is greater than the debit side, the gross profit thus arrived at is transferred to the credit side of profit & loss account. On the other hand, if the debit side is greater than the gross loss is transferred to the debit side of the profit & loss account.

a. Debit side of Trading Account

• Opening stock

• Purchases after deducting amounts for goods destroyed by fire, goods withdrawn by partners, goods distributed as free samples, etc.

• Direct expenses meaning those expenses directly related to production or purchases of goods such as wages, freight inwards, factory rent, octroi, import duty, customs duty, manufacturing expenses such as electricity of factory, etc.

b. Credit side of Trading Account

• Sales of goods

• Closing stock

• Goods destroyed by fire, goods withdrawn by partners, goods distributed as free samples, etc. may alternately be shown here instead of as a deduction from purchases.

2 - 13

Partnership Final Account

Journal entries for Trading Account

1. Transferring items on the debit side such as opening stock, purchases, etc.

Since all these accounts show a debit balance in the trial balance and are all direct expenses, we need to debit the Trading A/c.

Trading A/c Dr. xxx

To Opening Stock A/c xxx

To Purchases A/c xxx

To Direct expenses A/c xxx

To Sales returns A/c xxx

(Being transfer of opening stock, purchases, direct expenses and sales returns to trading A/c)

2. Transferring items on the credit side such as sales, purchase returns and closing stock.

Since all the above items are credit balances in the trial balance, we need to transfer them to the credit side of the Trading A/c. Hence, we credit the Trading A/c and debit all these accounts thereby closing these accounts and transferring the balances to the Trading A/c.

Sales A/c Dr. xxx

Purchase Returns A/c Dr. xxx

Closing Stock A/c Dr. xxx

To Trading A/c xxx

(Being transfer of sales, purchase returns and closing stock to the Trading A/c)

3. Transfer of Gross Profit

Trading A/c Dr. xxx

To Profit & Loss A/c xxx

(Being transfer of gross profit to the profit & loss A/c)

4. Transfer of Gross Loss

Profit & Loss A/c Dr. xxx

To Trading A/c xxx

(Being transfer of gross loss to the profit & loss A/c)

Format of Trading Account is shown as below:

Name of the firm

Dr. Trading Account for the year ended 31st March… Cr.Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)

To Opening Stock xxx By Sales xxxTo Purchase xxx Less: Sales Return (Return Inward) xxx xxxLess: Purchase Return (Return Outward) xxx xxx By Goods Destroyed by fire/theft xxxTo Wages xxx By Goods withdrawn for personal use

(i.e. Drawing)xxx

To Wages and salaries xxx By Goods distributed as free sample xxxTo Freight xxx By Closing Stock xxxTo Carriage inward xxx By Gross Loss transferred to Profit and

Loss A/cxxx

To Octroi xxxTo Import Duty xxxTo Customs Duty xxxTo Works Manager Salary xxxTo Power, Fuel and Oil xxx

2 - 14


Dr. Trading Account for the year ended 31st March… Cr.Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)

To Coal, Gas, Water xxxTo Royalty xxxTo Factory Rent xxxTo Factory Insurance xxxTo Motive Power xxxTo Heating and Lighting xxxTo Trade Expenses xxxTo Gross Profit transferred to Profit and Loss A/c

xxx

xxx xxxExplanation of Trading A/c items:-

1. Opening Stock

Opening stock is nothing but the closing stock of the previous year/period. The closing stock of the previous year is brought forward as this year’s opening stock and is shown on the debit side as the first item.

2. Purchases

Purchases are goods bought by the business with the intention to sell them and earn a profit. These are goods that the firm usually deals in and does not include purchases of capital assets. They may be made in cash or on credit and are shown on the debit side. Purchase returns are goods returned for reasons such as defects, etc. and are shown as a deduction from the purchases figure.

3. Wages

Wages are payments made to workers. Wages paid for production related activities are direct expenses to be debited to the trading A/c. Wages which are in the nature of indirect expenses are to be debited to the profit & loss A/c.

4. Freight/Carriage Inward

Freight/Carriage inward refers to expenses incurred to bring the goods into the firm’s factory or godown. These are direct expenses and hence debited to Trading A/c.

5. Octroi and Customs Duty

These are taxes paid to bring the goods within the municipal/country limits. Octroi is charged by the local municipality whereas customs duty is paid when goods are imported from abroad.

6. Royalty

Royalty refers to amounts paid as charges for using some asset/technology such as mining rights, patents, special machinery, formulae, etc.

7. Trade expenses

These are expenses incurred for trading purposes. When trade expenses are given along with office /sundry / general expenses, then trade expenses are debited to trading A/c. If only trade expenses are given in the trial balance then they are transferred to the debit side of the profit & loss A/c.

8. Sales

Sale of goods may be in cash or on credit. They are reflected on the credit side of the Trading A/c. The amount of sales returns are shown as a deduction from the amount of sales.

9. Closing Stock

The stock in hand at the end of the year is known as the closing stock and is shown on the credit side of the trading A/c as the last item. It also appears on the Asset side of the Balance Sheet.

III. Profit & Loss A/c

Profit & Loss A/c is also a nominal account like a Trading A/c and is an extension thereof. It reflects the net profit or loss that the business has earned for the period. If the total of the credit side is greater than that of the debit side then the net profit is transferred to the credit side of partners’ accounts in the profit sharing ratio. On the other hand, if the debit

2 - 15


side total is greater than the credit side total, then the net loss is transferred to the debit side of partners’ accounts in the profit sharing ratio. When fixed capital method is followed, the net profit/loss is transferred to the current accounts of partners and when fluctuating capital method is followed then the net profit/loss is transferred to the capital accounts of the partners.

a. Debit side of Profit & Loss A/c

• Brought forward gross loss from Trading A/c

• All indirect expenses of the current period, which are due whether paid or payable

b. Credit side of Profit & Loss A/c

• Brought forward gross profit from Trading A/c

• All indirect incomes of the current period whether received or receivable

Journal entries for Profit & Loss Account

1. Transfer of indirect expenses to profit & loss A/c

Since all these accounts show a debit balance in the trial balance we need to debit the Profit & Loss A/c while closing these accounts and transferring the individual balances of every indirect expense account.


To Indirect expenses A/c xxx

(Being transfer of all indirect expenses to profit & loss A/c)

2. Transfer of revenue/income to profit & loss A/c

Since revenue/income accounts have a credit balance, we need to transfer these onto the credit side of the profit & loss A/c as we close invidually close them.

Income A/c Dr. xxx


(Being transfer of all incomes and revenue to profit & loss A/c)

3. Transfer of Net Profit


To Partners Capital/Current A/c xxx

(Being transfer of net profit to the partner’s capital/current accounts)

4. Transfer of Net Loss

Partners Capital/Current A/c Dr. xxx


(Being transfer of net loss to the partner’s capital/current accounts)

Format of Profit & Loss Ac/ from the book.

Name of the firm

Dr. Profit and Loss Account for the year ended 31st March….. Cr.Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)

To Gross loss b/d (Transferred from Trading A/c)

xxx By Gross Profit b/d (Transferred from Trading A/c)

xxx

To Salaries xxx By Interest received xxxTo Salaries and Wages xxx By Discount Received xxxTo Unproductive Wages xxx By Commission received xxxTo Office expenses xxx By Dividend received xxxTo Sundry expenses xxx By Rent received xxxTo Printing Stationary xxx By other Receipt xxxTo Postage and Telegram xxx By Profit on sale of Asset xxxTo Telephone charges xxx By Interest on Investments xxx

2 - 16


Dr. Profit and Loss Account for the year ended 31st March….. Cr.Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)

To Legal charges xxx By Old R.D.D xxxTo Electricity charges xxx Less: New Bad debts xxxTo Audit Fees xxx Less: Old Bad Debts xxxTo Bank charges xxx Less: New R.D.D. xxx xxxTo Interest paid xxx By Interest on Drawings xxxTo Warehouse rent xxx By Net Loss transferred to partner’s

capital/current accountsXY

xxxxxx xxx

To Rent, Rates and Taxes to Insurance xxxTo Trade expenses xxxTo Travelling expenses xxxTo Discount allowed xxxTo Advertisement xxxTo Export duty xxxTo Carriage outward xxxTo Packing charges xxxTo Conveyance xxxTo Bad debts xxxAdd: New Bad Debts xxxAdd: New R.D.D. xxx

xxxLess: Old R.D.D. xxx xxxTo Provident Fund contribution xxxTo Repairs and renewals xxxTo Interest on Capital xxxTo Salary to partners xxxTo Commission to partners xxxTo Interest on partners loan xxxTo Net Profit transferred to Partner’s Capital/current accountsXY

xxxxxx xxx

xxx xxxExplanation of Profit & Loss A/c items:-

1. Salaries and wages

Salaries and wages are amounts paid to staff. Salaries are paid to office staff whereas wages are paid to factory staff. If Salaries & Wages appears in the trial balance, treat it as an indirect expense and debit it to Profit & Loss A/c. If Wages & Salaries appears in the trial balance, treat it as a direct expense and debit it to the Trading A/c.

2. Insurance

Insurance premium paid or payable is an indirect expense and is incurred to provide for anticipated losses of goods, assets, factory, etc. It is debited to Profit & Loss A/c.

3. Bad debts

Bad debts are amounts owed by debtors but which can now not be recovered. Since, they are an expense, they are debited to the Profit & Loss A/c.

2 - 17


4. Reserve for Doubtful Debts

Provision made for doubtful debts is called reserve for doubtful debts. If it is shown in the trial balance, then it is shown on the credit side of Profit & Loss A/c. If it appears in the adjustments, then it is debited to Profit & Loss A/c and also shown as a deduction from Debtors in the balance sheet.

5. Discount allowed

Since it is an expense, it is debited to the Profit & Loss A/c.

6. Discount received

Since it is an income, it is credited to the Profit & Loss A/c.

7. Commission paid

Commission is paid to salesmen to increase sales and develop the business. Since it is an expense, it is debited to the Profit & Loss A/c.

8. Commission received

Sometimes, the firm may receive commission for the sales it makes on behalf of its principal. In such cases, the income is credited to the Profit & Loss A/c.

9. Dividend received

A firm may receive dividends on the investments it has made and the income is credited to the Profit & Loss A/c.

10. Depreciation

Depreciation is the provisions made for the wear and tear of assets and the passage of time. It is debited to the Profit & Loss A/c.

11. Rent paid

The firm may pay rent for the space it occupies such as a rented factory, or rented office building. It is debited to the Profit & Loss A/c.

12. Rent received

Sometimes, the firm may let out its premises to others for consideration. The same being income, is credited to the Profit & Loss A/c.

IV. Balance Sheet

Unlike the three earlier accounts, a balance sheet is not an account. It is a statement which shows the financial position of the firm as on a particular date. It comprises of sources of funds or the liabilities, which also includes the credit balances of partners’ capital/current accounts. The other half of the statement is made up of application of funds or in other words, the assets, which may sometimes include the debit balances of partners’ capital/current accounts. The Partnership Act, 1932 does not specify any particular format unlike the Companies Act, 2013. Nevertheless, we should try to follow one particular rule – arrange the items based on their liquidity. Either start with the most liquid i.e. Cash or begin with the most illiquid i.e. Fixed assets.

Here we have arranged the items starting with the most illiquid.

Balance Sheet of M/s…

As on 31st March ....

Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs.Partner’s Capital A/c

X

Y

xxx

xxx xxx

Goodwill xxx

Partner’s Current A/c

X

Y

xxx

xxx xxx Patents xxxReserve Funds xxx Copyrights xxxBank Loan xxx Trademarks xxxPartner’s Loan xxx Land & Building xxxOther loans xxx Freehold Property xxx

2 - 18


Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs.Sundry Creditors xxx Leasehold Property xxxBills Payable xxx Plant & Machinery xxxBank Overdraft xxx Furniture & Fixtures xxxOutstanding expenses xxx Vehicles xxxIncome received in advance xxx Investments xxx

Interest accrued on investments xxxLoans and advances xxxSundry Debtors xxxBills receivable xxxClosing Stock xxxLoose Tools xxxStationary xxxPrepaid Expenses xxxIncome receivable xxxBank xxxCash at hand xxxPartner’s Current A/c (debit balance) xxx

xxx xxxContingent Liability xxx

Explanation of Balance Sheet items:-

1. Fixed Assets

Fixed assets are assets used for production purposes or for running the business. They are not bought for resale.

a. Tangible Assets

These are assets which have a physical existence and can be seen.

E.g.: Machinery, buildings, Vehicles, etc.

b. Intangible Assets

These are assets which cannot be seen with our eyes and have no physical presence.

E.g.: Goodwill, Copyrights, Patents, etc.

2. Current Assets

These are assets which are held for a short period of time and change form. Cash is converted into goods purchased. Stock of goods is converted to debtors when credit sales are made. Debtors are converted to cash again when they pay off. They are short-lived and hence are not fixed.

E.g.: Cash, Bank, Debtors, Stock, etc.

3. Fictitious Assets

These are not real assets. These are intangible but have no resale value.

E.g.: Preliminary expenses, Accumulated losses, Discount on issue of securities, etc.

4. Liabilities

a. Fixed liabilities

These are long term liabilities and are usually available during the life of the business.

E.g.: Capital, Long-term loans, etc.

b. Current liabilities

These are short term liabilities and are usually on the books for less than a year.

E.g.: Bills payable, sundry creditors, bank overdraft, etc.

c. Contingent liabilities

These are not part of the balance sheet. These are not current liabilities but may become liabilities on the happening or not happening of a future uncertain event. They are shown as a note to the balance sheet.

2 - 19


Final Accounts Adjustments

We prepare final accounts based on information provided by the trial balance. But sometimes, there is additional information that is given along with the trial balance for which no entries have been passed. We need to consider the effects of such adjustments when we are preparing our final accounts based on the double entry system. Every adjustment outside of a trial balance has at least 2 effects. If all the effects necessary for an adjustment are not given, then the final accounts will not tally. Also, some adjustments are hidden or are silent such as Wages (10 months) or 12% Bank Loan. In such cases it is important that effects for these are also given when preparing the final accounts.

1) Closing Stock

Closing stock pertains to the stock of goods on hand at the end of the year. As per Accounting Standard-2, closing stock is valued at cost or market price, whichever is less. If closing stock is given in the trial balance, there is only one effect – Asset side of Balance sheet. If closing stock is given as an adjustment then there are two effects

a. Balance sheet – Asset side

b. Trading Account – Credit side

The Journal entry for the same is as follows –

Closing Stock A/c Dr. xxx

To Trading A/c xxx

Since closing stock is an asset, it is reflected on the asset side of the balance sheet. Also, since closing stock are goods unsold, the cost needs to be carried forward to the next period so that the profit of the current year is not disturbed. Hence, we need to credit the Trading A/c. This closing stock becomes the opening stock of the next year.

2) Outstanding expenses

These are expenses of the current year but which have not been paid. Since these pertain to the current year a provision needs to be made in the accounts of the current year.

a. Trading/Profit & Loss A/c – Debit Side (If an expense of the same name exists in the trial balance, then this outstanding portion needs to be added to that expense in the trading/profit & loss account.)

b. Balance Sheet – Liability side


Particular Expense A/c Dr. xxx

To Outstanding expense a/c xxx

Any expense payable becomes a liability. Hence, we need to show it on the liability side of the balance sheet. Also, since the expense is of the current year, we need to debit the trading/profit & loss account to arrive at the correct profit or loss.

3) Prepaid expenses

Conversely, there are certain expenses which are paid in advance but actually pertain to the next year.

a. Balance Sheet – Assets side

b. Trading/Profit & Loss A/c – Debit side (deduct from the particular expense head)


Prepaid expense A/c Dr. xxx

To Particular Expense A/c xxx

Since these are in the nature of assets, we show them on the asset side of the balance sheet. Also, since the expense is not of this year, we reduce the same from the particular expense in the trading/profit & loss account.

4) Income received in advance

Similar to prepaid expenses, there is income received in advance. This is income that pertains to the next year but has been already received this year.

a. Profit & Loss A/c – Credit side (deduct from the particular income)

b. Balance Sheet – Liability side


Particular Income A/c Dr. xxx

To Income received in advance A/c xxx

2 - 20


Using the earlier logic of prepaid expenses, since this income is received in advance, it does not belong to the current year and hence needs to be deducted from the particular income. Also, since it’s an amount received in advance, it becomes a liability for the firm.

5) Income receivable

Income receivable refers to the income due but not yet received. It is an income of the current year.

a. Profit & Loss A/c – Credit side (add to the particular income)

b. Balance sheet – Asset side


Income receivable A/c Dr. xxx

To Particular Income A/c xxx

Any outstanding income yet to be received is an asset of the firm. Hence it appears on the asset side of the balance sheet. Also, since it is an income of the current year, it is added to the particular income on the credit side of the profit and loss account.

6) Bad debts

A bad debt is the amount that debtors owe the firm but is now irrecoverable. It is in the nature of a loss and if it is shown in the trial balance then they appear on the debit side of the Profit & Loss A/c.

a. Profit & Loss A/c – Debit side (add to the already given bad debts)

b. Balance sheet – Asset side (deduct from sundry debtors)


Bad debts A/c Dr. xxx

To Sundry Debtors A/c xxx

Bad debts are debts which are irrecoverable and hence need to be written off. To write them off, we deduct them from the sundry debtors. Also, since bad debts are in nature a loss, they get debited to the profit and loss account.

7) Reserve for Doubtful Debts/ Provision for Doubtful Debts/ RDD

Firms make provisions for expected losses based on their prior experience. Provision for bad debts or doubtful debts is made to cover for possible losses from debtors going bad. If RDD already exists in the trial balance, then the same is credited to the profit & loss account since this is the old RDD and needs to be reversed. The effects for RDD appearing as an adjustment are as follows -

a. Profit & Loss A/c – Debit side (add to old bad debts)

b. Balance Sheet – Asset Side (Deduct from Sundry Debtors)


Reserve for Doubtful Debts A/c Dr. xxx


The Reserve for Doubtful Debts is created out of the current year’s profits and hence the same needs to be debited to the profit & loss account. Also, since they effectively reduce the amount of debtors that the firm expects to realize, we show them as a deduction from sundry debtors in the balance sheet.

Dr. Profit & Loss Account for the year ended ..... Cr.Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)

To Bad Debts

Add: New Bad Debts

Add: New RDD

Less: Old RDD

xxx

xxx

xxx

xxx

By Old RDD

Less: Old Bad Debts

Less: New Bad Debts

Less: New RDD

xxx

xxx

xxx

xxx xxxxxx

xxx

xxx xxxNote: If Old RDD is more than the total of the old bad debts, new bad debts and the new RDD, then it is shown on the credit

side of the profit & loss account so as to avoid a negative figure on the debit side of the profit and loss account.

2 - 21


8) Reserve for Discount on Debtors

Firms allow discounts to their customers and for this purpose create a reserve fund to finance the future discounts to debtors.

a. Balance Sheet – Asset side (deduct from sundry debtors)

b. Profit & Loss A/c – Debit side (add to discount allowed if already given in trial balance, else debit profit and loss account separately)


Reserve for Discount on Debtors A/c Dr. xxx


The logic is similar to creation of RDD. Since, the reserve is created for a possible expense; we need to debit the profit and loss account. Also, since it effectively reduces the amount of debtors, we deduct it from the sundry debtors amount in the balance sheet.

9) Reserve for Discount on Creditors

Firms also create reserves for discounts they expect from creditors.

a. Balance sheet – Liability side (deduct from sundry creditors)

b. Profit & Loss A/c – Credit side (add to discount received if already exists in trial balance, else credit separately)


Sundry Creditors A/c Dr. xxx

To Reserve for Discount on Creditors A/c xxx

Since this is an income for the firm, we need to credit the profit and loss account. Simultaneously, it also reduces the amount payable to the creditors and hence is deducted from sundry creditors.

10) Depreciation

Depreciation is charged on assets to account for the decrease in value due to wear and tear, passage of time, etc.

a. Profit & Loss A/c – Debit side

b. Balance Sheet – Asset side (deduct from particular fixed assets on which depreciation is charged)


Depreciation A/c Dr. xxx

To Fixed Asset A/c xxx


To Depreciation A/c xxx

Depreciation being an expense we debit the profit and loss account. We also deduct the same from the asset as it signifies a reduction in its value. To give effect to this, we pass two separate entries. The first one reduces the value of the asset whereas the second one debits the profit and loss account.

11) Interest

I. Interest on Partner’s Capital


b. Partner’s Capital/Current A/c – Credit side


Interest on Capital A/c Dr. xxx

To Partner’s Capital /Current A/c xxx


To Interest on Capital A/c xxx

Interest on capital is an expense of the firm and hence needs to be debited to the profit and loss account. On the other hand, it increases the amount owed by the firm to the partners and hence needs to be credited to the partners’ capital/current account.

2 - 22


II. Interest on Partner’s Drawings

a. Profit & Loss A/c – Credit side

b. Partner’s Capital/Current A/c – Debit side


Partner’s Capital/Current A/c Dr. xxx

To Interest on Drawings A/c xxx

Interest on Drawings A/c Dr. xxx


Interest on drawings is an income of the firm and hence needs to be credited to the profit and loss account. On the other hand, it decreases the amount owed by the firm to the partners and hence needs to be debited to the partners’ capital/current account.

III. Interest on loans taken


b. Balance Sheet – Liability side (Add to Loan A/c)


Interest on loan A/c Dr. xxx

To Loan A/c xxx

Interest on loans is an expense of the firm and hence needs to be debited to the profit and loss account. Also, since it increases the amount of loan that needs to be repaid, we need to add it to the loans on the liability side of the balance sheet.

IV. Interest on Investment

a. Balance Sheet – Asset side

b. Profit & Loss A/c – Credit side


Interest on Investment A/c Dr. xxx


Interest on investments that the firm has made is an income and hence will be credited to the profit and loss account.

V. Interest on loans given




Interest on Loan A/c Dr. xxx


Interest on loans given by the firm is an income and hence will be credited to the profit and loss account.

12) Goods destroyed

I. Insured goods destroyed by fire/accident and insurance company admits full claim and claim amount is receivable.


b. Trading A/c – Credit side (or deduct from Purchases A/c on the debit side of the Trading A/c)


Insurance claim A/c Dr. xxx

To Trading A/c xxx

Since the insurance company has admitted the claim in full, there is no loss to the firm due to the fire/accident. Hence, we credit the trading account to remove the value of goods destroyed so that it does not affect the calculation of correct profit/loss for the year. Since, the claim is still receivable, we show it on the asset side of the balance sheet.

2 - 23


II. Insured goods destroyed by fire / accident and insurance company admits partial claim.

a. Trading A/c – Credit side – Total value of goods destroyed

b. Profit & Loss A/c – Debit side – Actual loss amount

c. Balance Sheet – Asset side – Claim amount


Insurance claim A/c Dr. xxx

Goods lost by fire/accident A/c Dr. xxx

To Trading A/c or Purchases A/c xxx


To Goods lost by fire/accident A/c xxx

In this case, since only a partial claim has been accepted by the insurance company, the firm suffers a loss to the extent of the claim not admitted. The gross value of goods is credited to the trading account or purchases account to remove the value of goods from the current year’s calculations. The amount of claim is a receivable and hence is shown as an asset in the balance sheet. The part of the claim that has not been admitted is a loss and hence needs to be debited to the profit and loss account.

III. Uninsured goods lost by fire/accident

a. Trading A/c – Credit side (or deduct from Purchases A/c on the debit side of the Trading A/c)

b. Profit & Loss A/c – Debit side




This is a total loss to the firm and hence the value of goods is removed from the trading account or is reduced from the value of purchases so as to arrive at a correct gross profit/loss. The profit and loss account is then debited to record the loss sustained.

13) Goods lost due to theft






Goods stolen or lost due to theft are a loss to the firm. The same logic applies as in loss of uninsured goods. The value of goods is removed from the trading account or is reduced from the value of purchases so as to arrive at a correct gross profit/loss. The profit and loss account is then debited to record the loss sustained.

14) Goods distributed as free samples




Advertisement A/c Dr. xxx



To Advertisement A/c xxx

Goods distributed as free samples are in the nature of advertisement expenses for the firm. The value of goods is removed from the trading account or is reduced from the value of purchases as the goods are taken out from the firm. The profit and loss account is then debited to record the expenditure on advertisement.

2 - 24


15) Goods withdrawn by a Partner


b. Partners’ Capital/Current A/c – Debit side


Drawings A/c Dr. xxx


Partner’s Capital / Current A/c Dr. xxx

To Drawings A/c xxx

Goods withdrawn go out from the firm and hence need to be credited to the trading/purchase account. Also, since goods withdrawn are essentially in the nature of drawings, they are debited to the partners’ capital/current accounts.

16) Unrecorded purchases

Unrecorded purchases are goods purchased but not recorded in the books of accounts although they are included in the stock.

a. Trading A/c – Debit side (add to purchases)

b. Balance Sheet – Liability side (add to creditors)


Purchases A/c Dr. xxx

To Creditors A/c xxx

Since we have not recorded the purchase before, but the same has already been included in the closing stock, we need to pass an entry to record the purchases. We debit the purchase account and credit the creditors.

17) Unrecorded Sales

Sales made to customers on credit but not recorded in the sales book are known as unrecorded sales.

a. Trading A/c – Credit side (add to sales)

b. Balance Sheet – Asset side (add to debtors)


Debtors A/c Dr. xxx

To Sales A/c xxx

Since we have not recorded the sale we need to pass an entry to record the sale. We credit the sales account and debit the debtors.

18) Capital expenditure wrongly recorded as revenue expenditure and vice versa

Sometimes, capital expenses such as expenses incurred on installation of an asset are wrongly included as revenue expenditure. They are expended in the profit and loss account instead of getting capitalized.

a. Balance Sheet – Asset side (add to the particular asset)

b. Trading/Profit & Loss A/c – Debit side (deduct from the particular expense)


Asset A/c Dr. xxx

To Expense A/c xxx

Alternatively, revenue expenditure gets recorded as capital expenditure and this wrongly increases profit.

a. Balance Sheet – Asset side (reduce from the particular asset)

b. Trading/Profit & Loss A/c – Debit side (add to the particular expense)


Expense A/c Dr. xxx

To Asset A/c xxx

2 - 25


19) Capital receipts included in revenue receipts and vice versa

Cash receipts in the nature of revenue receipts such as rent received, interest received are sometimes wrongly capitalized and shown as capital receipt like sale of asset.

a. Balance Sheet – Asset side (add to the asset like machinery, etc.)



Asset A/c Dr. xxx

To Revenue Income A/c xxx

Also, sometimes capital receipts such as proceeds from sale of asset, etc. are credited to profit and loss account as revenue income.

a. Balance Sheet – Asset side (deduct from the asset like machinery, etc.)

b. Trading A/c – Credit side (deduct from sales or such other income)


Sales A/c Dr. xxx

To Asset A/c xxx

20) Bills Receivable dishonoured

When the drawee does not pay the amount of the bill, the bill is said to be dishonoured.

a. Balance Sheet – Asset side (deduct from bills receivable)

b. Balance Sheet – Asset side (add to debtors)


Debtors A/c Dr. xxx

To Bills Receivable A/c xxx

Since the bills receivable have been dishonoured, the drawee again becomes a debtor. Hence, we need to debit debtors account and credit the bills receivable account.

21) Bills Payable dishonoured

When the amount of bills payable is not paid by due date to the creditors, the bill is said to be dishonored.

a. Balance Sheet – Liability side (deduct from bills payable)

b. Balance Sheet – Liability side (add to creditors)


Bills Payable A/c Dr. xxx

To Creditors A/c xxx

Since the bills payable have been dishonoured, the drawer of the bills payable again becomes a creditor. Hence, we need to credit creditors account and debit the bills payable account.

22) Deferred expenses

Expenses paid in one year but whose benefit is availed of in more than one year are called deferred expenses. The expenses are spread over the number of years the benefits are expected. A proportionate amount is charged to the profit and loss account every year.

a. Profit & Loss A/c – Debit side (proportionate amount for the year)

b. Balance Sheet – Asset side (proportionate amount for the year)



To Deferred Expenses A/c xxx

Since the expenses incurred give benefits over more than one year, they represent assets of the firm. Every year a part of this fictitious asset is expensed out by crediting the deferred expense account and debiting the profit and loss account.

2 - 26


23) Commission to partner as a percentage of sales/profit

Partners sometimes are allowed a percentage of the sales they make or the profit they achieve as commission.


b. Partners’ Capital/Current A/c – Credit side



To Partners’ Capital/Current A/c xxx

Commission paid is an expense for the firm. After calculating the commission by applying the percentage given to the sales/profit figure, we need to the debit the profit and loss account. Also, since the commission payable to the partner increases the amount due to partners, we need to credit the partners’ capital/current account.

Summary of Adjustments:

Adjustments 1st Effect 2nd Effect1. Closing Stock Balance Sheet Asset Side Trading A/c Credit side2. Outstanding Expenses Add to that particular expenses on the

debit side of Trading/Profit and Loss A/c

Balance Sheet Liability Side

3. Prepaid Expenses Balance Sheet Asset side Deduct from that particular expenses on the debit side of Trading/profit and loss A/c

4. Income received in advance (Pre-received Income)

Deduct from that particular income on the credit side of Profit and Loss A/c

Balance Sheet Liability Side

5. Income receivable (Outstanding Income)

Balance Sheet Asset Side Add on that particular Income on the credit side pf profit and loss A/c

6. Bad Debts (Additional or New Bad debts)

Show to the Debit side of profit and loss A/c (Add to old Bad Debts)

Deduct from Sundry debtors in Balance Sheet Asset Side

7. Provision for Doubtful Debts (Reserve for Doubtful Debts, New R.D.D.)

Show to the debit side of profit and loss A/c (Add to old bad debts)

Deduct from Sundry Debtors in Balance Sheet Asset Side

8. a. Reserve For Discount on Debtors

Show to the debit Side of Profit and loss A/c (Add to discount received)

Deduct from Sundry Debtors Balance Sheet Asset Side

b. Reserve for Discount on Creditors

Deduct from sundry creditors in Balance Sheet Liability Side

Show to the credit side of profit and loss A/c (Add to discount received)

9. Depreciation Show on the debit side of the profit and loss A/c

Deduct from that particular asset in Balance Sheet Asset side

10. a. Interest on Capital Show to the debit side of profit and loss A/c

Partner’s capital/ current A/c/ credit side or add to capitals

b. Interest on Drawing Show to the debit side of partner’s capital/current A/c or Less from capital

Show to the credit side of profit and loss A/c

c. Interest on loan taken Show to the debit side of profit and loss A/c

Add to loan taken in the Balance Sheet liability side

11. Interest on Investment and loan given Balance sheet asset side Show to the credit side of profit and loss A/c

12. a. Insured Goods destroyed by Fire/accident

i. Balance sheet asset side (claim amount)

ii. Profit and loss A/c (loss amount)

Trading A/c – credit side (gross amount)

b. Uninsured Goods destroyed by Fire/ accident

Profit and loss A/c debit side Show to the credit side of Trading A/c

Goods Stolen Profit and Loss A/c debit side Show to the credit side of Trading A/c 13. Goods distributed as free samples Profit and loss A/c debit side (Add in

advertisements)Show to the credit side of trading A/c

2 - 27


Adjustments 1st Effect 2nd Effect14. Goods withdrawn by Partners for

personal usePartners capital/ current A/c debit side Show to the credit side of trading A/c

or Deduct from purchase A/c15. a. Unrecorded Purchases Add to purchase on the debit side of

Trading A/c Add to creditors on the Liability Side of Balance Sheet

b. Unrecorded Sales Add to debtors on the asset side of the Balance Sheet

Add to Sales on the credit side of Trading A/c

16. a. Capital Expenditure included in revenue expenditure

Add to that particular asset in Balance Sheet Asset side

Deduct from that particular revenue expenses on the debit side of Trading or profit and loss A/c

b. Revenue expenditure included in capital expenditure

Add to that particular revenue expenditure

Deducted from that particular Asset in Balance Sheet

17. Bills Receivable Dishonoured Add the amt of bill dishonored to sundry debtors in the Balance Sheet asset side

Deduct the Amount of bill dishonored from Bills Receivable

18. Bills Payable Dishonoured Deduct the amt of bill dishonored from Bills payable

Add the Amount of bill dishonored to sundry creditors in the Balance Sheet liability side

19. Deferred expenses of Advertisement paid for 5 years

Advertisement related to current year debited to profit and loss A/c

Remaining Amount of advertisement is shown on asset side of the Balance Sheet as Prepaid Advertisement

20. Revenue receipts included in capital receipts e.g. sales of goods included in sale of furniture

Add to furniture on the asset side of the Balance Sheet

Add to Sales on the credit side of Trading A/c

21. Commission to partners as percentage of gross profit/sales

Show to the debit side of profit and loss A/c Show to the credit side of Partner’s capital /currents A/c or add to partner’s capital A/c

Section I : From the Textbook - Solved Problems:-

1. From the following Trial Balance of M/s. Ganesh and Kartik, you are required to prepare Trading and Profit & Loss Account for the year ended 31st March, 2011 and Balance sheet as on that date after taking into account the additional information.

Trial Balance as on 31st March, 2011

Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Opening stock 18,000 Capital A/c - Ganesh 50,000Purchases 24,000 Kartik 30,000Wages 2,400 Sundry Creditors 10,000Carriage Inward 1,200 Bills Payable 7,800Cash in hand 3,800 Rent received 2,200Insurance 1,200 Sales 52,500Postage and Telegram 700Sundry Debtors 21,000Land and Building 40,000Furniture 28,000Travelling expenses 1,300Discount allowed 900Bad debts 2,000Bills Receivable 8,000

1,52,500 1,52,500

2 - 28


Additional Information: 1. Closing stock on 31st March, 2011 was valued at Rs 20,000. 2. Outstanding wages was Rs 1,000. 3. Depreciate Furniture by 10%. 4. Insurance paid in advance Rs 300.2. From the following Trial Balance and adjustments given below, your are required to prepare Trading and Profit and Loss

Account for the year ended 31st March, 2010 and Balance Sheet on as that date of M/s Sonal and Minal.Trial Balance as on 31st March, 2010

Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Opening stock 18,000 Capital A/c- Sonal

Minal35,00035,000

Cash in hand 2,400 Sales 47,200Discount allowed 900 Sundry Creditors 29,000Salaries 1,300 Bills Payable 7,000Land and Building 50,000 Bank loan 20,000Furniture 18,000 Discount received 1,500Plant and Machinery 22,000 Purchases Return 2,200Sundry Debtors 25,000Interest paid 850Bad debts 650Printing and Stationary 1,200Purchases 32,000Wages 2,800Sales Return 1,800

1,76,900 1,76,900 Adjustments: 1. The stock on hand on 31st March, 2010 was valued at Rs. 29,000. 2. Outstanding salary was Rs. 700. 3. Wages paid in advance to workers Rs. 1,200 . 4. Depreciate Land Building at 5 %p.a. and Plant and Machinery at 10% p.a. 5. Write off Rs. 1,000 for further Bad debts.3. Following is the trial balance of M/s. Ram and Gopal as on 31st March, 2009.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Sundry Debtors 28,000 Ram’s Capital A/c 50,000Postage and Telegram 1,000 Gopal’s Capital A/c 40,000Machinery 30,000 Bills payable 4,000Opening stock 32,000 Sundry Creditors 15,000Furniture 25,000 Sales 1,18,700Purchases 76,500 Bank Loan 15,000Wages 12,000 Outstanding wages 3,000Salaries 7,000Carriage Inward 1,000Carriage Outward 2,000Rent paid 1,500Bad debts 1,700Cash in hand 8,000Motor Car 20,000

2,45,700 2,45,700

2 - 29


Profit sharing ratio of Ram and Gopal is 3:2. Prepare Trading and Profit and Loss Account for the year ended 31st March, 2009 and Balance Sheet as on that date after taking into consideration the following adjustments.

1. The closing stock is valued at cost price Rs. 45,000 while its market price is Rs. 50,000. 2. Outstanding expenses were salaries Rs. 800, Rent Rs. 500. 3. Provide Depreciation on Machinery at 15% and Furniture at 10% p.a. 4. Goods costing Rs. 3,000 distributed as free sample. 5. Interest on Bank loan is payable Rs. 1,500.

4. Raja and Rani are partners of ‘Maharaja Traders’. They decided to share profits and losses in the ratio of 3:2. From the following Trial Balance and additional information, you are required to prepare Trading and Profit Loss Account for the year ended 31st March, 2013 and Balance Sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Purchases 90,500 Sales 1,20,300Sundry Debtors 34,000 Creditors 45,500Bills Receivable 35,000 Bills Payable 32,000Opening stock 34,600 Capital A/c - Raja

Rani

1,50,000

1,00,000Land and Building 1,20,000 Raja’s loan A/c 11,000Work’s Manager Salary 4,700 Commission received 2,500Motive Power 5,500Plant and Machinery 80,000Audit fees 3,400Salaries and Wages 14,500Trade expenses 2,100General expenses 1,800Wages and Salaries 20,700Loose tools 10,000Prepaid rent 4,500

4,61,300 4,61,300 Additional Information:

a. Stock on hand on 31st March, 2013 was cost Rs. 42,000 and its market price was Rs. 45,000. b. Audit fees paid in advance of Rs. 1,500. c. Motive power includes Rs. 3,000 paid for deposit of power meter. d. Goods worth Rs. 2,500 taken by Raja for his personal use are not entered in the books of account. e. Bills payable dishonoured of Rs. 2,500. f. Depreciate plant and machinery at 5% p.a. and loose tools at 10% p.a. g. Commission includes, pre-received amount of Rs. 1,000.

5. From the following Trial Balance of M/s Sharma and Varma, you are required to prepare a Trading and Profit and Loss Account for the year ended 31st March, 2013 and Balance Sheet as on that date after taking into consideration the additional information given below. Partners share profits and losses in their capital ratio.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Stock on 1st April, 2012 28,000 Capital A/c - Sharma

Varma 90,00060,000

Purchases 1,75,000 Sundry Creditors 30,000Salaries 17,500 Rent received 3,500Unproductive wages 1,800 Bank overdraft 24,500Carriage 1,200 Sales 2,26,750

2 - 30


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Royalties 2,500Freight 1,400Printing and Stationary 2,100Sundry debtors 40,000Furniture 20,000Leasehold property 95,000Investment 35,000Travelling expenses 1,750Advertisement (for 3 years) 4,275Bad debts 1,425Discount allowed 800Cash in hand 7,000

4,34,750 4,34,750 Additional Information: 1. Stock on hand on 31st March, 2013 was at cost Rs. 38,000. 2. Provide R.D.D at 5% on Sundry Debtors and Reserve for discount on debtors at 3%. 3. Goods worth Rs. 5,000 destroyed by fire and Insurance company admitted a claim of Rs. 4,300. 4. Rent of Rs. 800 is still receivable from the tenant. 5. Depreciate Furniture at 12% p.a.6. Rane and Chavan are partners sharing profits and losses in the ratio of 7:6. From the following Trial Balance and additional

information prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Opening stock 44,000 Reserve for doubtful debts 2,100Bills Receivable 28,000 Sundry creditors 55,400Wages and Salaries 12,000 Sales 2,00,000Sundry Debtors 52,000 General Reserve 28,000Purchases 1,30,000 Outstanding salaries 2,700Building 80,000 Capital A/c- Rane 80,000

Discount 1,400 Chavan 60,000General expenses 3,800Audit fees 4,000Bad debts 3,500Cash at Bank 11,500Travelling expenses 4,200Motor Car 45,000Trade expenses 4,300Ret for 9 months 4,500

4,28,200 4,28,200 Adjustments: a. Closing stock is valued at Rs. 42,000. b. Bills Receivables included dishonor bill of Rs. 4,000 c. Goods worth Rs. 2,100 were taken by Rane for his personal use was not entered in the books of account. d. Goods worth 4,000 were sold on 27th March, 2012, but no entry was made in the books of account. e. Write off 2,000 for bad debts and maintain R.D.D at 5% on Sundry debtors. f. Travelling expenses includes, personal travelling expenses of Mr. Chavan of Rs. 800. g. Depreciate Building at 7% p.a.

2 - 31


7. M/s. Vijay Raj Traders is a Partnership firm in which Vijay and Raj are partner sharing profits and losses in the ratio of 8:7. From the following Trial Balance prepare Trading and Profit Loss Account for the year ended 31st March, 2013 and Balance sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balance Amt. (Rs.)Current A/c-Raj 1,500 Capital A/c - Vijay 72,000Purchases 1,42,000 Raj 63,000Sundry Debtors 80,000 Current A/c - Vijay 2,490Bills Receivables 12,000 Sales 2,13,000Commission 3,000 Sundry Creditors 47,500Opening stock 27,000 Bills Payable 19,500Cash in hand 3,500 Commission 2,50010% Government bonds (Purchased on 1.1.2013) 20,000Rent and Taxes 2,390Building 70,000Furniture 15,000Salaries 21,000Wages 8,000Insurance 3,600Motor Car 10,000Bad debts 1,000

4,19,990 4,19,990 Adjustments: 1) Stock on hand on 31st March, 2013 was valued at Rs. 35,000. 2) Vijay is allowed a salary of Rs. 3,500 and Raj is entitled to get commission at 2% on sales. 3) Interest on partners capital@ 5% is to be provided. 4) Depreciate Furniture at 15% and Building at 10% p.a. 5) Rs. 2,000 due from customer is not recoverable. 6) Insurance is paid for the year ended on 30th June, 2013. 7) Prepaid commission is Rs. 1,000 and pre-received commission is Rs. 700.

8. Tambe and Pitale are partners sharing profits and lossess equally. From the following Trial Balance and adjustments, prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Land and Building 75,000 Capital A/c - Tambe 70,000Machinery (Addition on 1st July, 2011 Rs. 10,000)

55,000 Pitale 50,000

Opening stock 23,000 Sales 85,000Wages 5,750 Sundry Creditors 44,250Cash at Bank 3,500 10% Bank loan

(Taken on 1st October 2011) 20,000Sundry Debtors 32,800 Sundry Income 1,500Purchases 63,000 Pre-received rent 2,500Carriage 1,250 Provident fund 30,000Rent, Rates and Taxes 2,400Furniture and fixture 26,600Salaries 3,500Office expenses 2,450Drawing A/c - Tambe Pitale

5,0004,000

3,03,250 3,03,250

2 - 32


Adjustments:

1) Closing stock is valued at Rs. 20,000.

2) Goods worth Rs. 2,000 were purchased on 31st March, 2013 and included in closing stock but not recorded in the books of account.

3) Goods worth Rs. 2,500 were sold, but not recorded in the books of account.

4) Outstanding office expenses were Rs. 1,700.

5) Depreciate Machinery at 10% p.a.

6) Write off Rs. 1,500 for Bad debts.

9. Sachin and Nilesh are partners sharing profits and losses equally. From the following Trial Balance and adjustments. You are required to prepare a Trading and Profit and Loss Account for the year ended 31st March, 2010 and Balance sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)

Drawings: Sachin

Nilesh

5,000

4,000

Capital A/c - Sachin

Nilesh

70,000

60,000

Sundry Debtors 45,000 Current A/c - Sachin

Nilesh

4,750

3,800

Cash at Bank 22,800 Sundry Creditors 52,500

Land and Building 75,000 Bank overdraft 17,250

Opening stock 38,200 Sales 2,07,650

Import duty 6,400

Audit fees 3,750

Wages 4,150

Brokerage 2,400

Motor Van 40,000

Machinery 32,000

12% Debentures 25,000

Factory Rent 2,250

Salaries 7,500

Purchases 1,02,500

4,15,950 4,15,950

Adjustments:

1) Stock on hand on 31st March, 2010 was valued at Rs. 41,000.

2) Outstanding expenses were: salary Rs. 1,500, audit fees Rs. 1,250.

3) Interest on partner’s capital at 5% p.a. is allowed while interest on drawings is charged at 4% p.a.

4) Depreciate Machinery at 12.5% and Motor Van 8% p.a.

5) Sachin is entitled to get salary at Rs. 400 per month and Nilesh is to get 4% commission on Gross profit.

6) Sales includes, sale of machinery of Rs. 2,000 which is sold on 1st April, 2009.

7) Debentures purchased on 1st October, 2009.

2 - 33


10. Ramdeo and Mahadeo are partners sharing profits and losses in the ratio of 2:1. From the following Trial Balance and adjustments, prepare Trading and Profit and Loss Account for the year ended 31st March, 2011 and Balance Sheet as on 31st March, 2011.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Opening Stock 20,250 Sales 1,47,500Furniture and fixtures 15,000 Sundry Creditors 33,500Cash in hand 1,802 Dividend received 4,000Bad debts 1,250 Provident fund 17,500Salaries and wages 9,750 Interest on P.F. Investment 1,250Purchases 87,500 Capital A/c - Ramdeo 80,000Sundry Debtors 41,500 Mahadeo 40,000General expenses 1,900Land and Building 75,000Carriage inward 1,748Goodwill 30,000Provident fund contribution 1,250Advertisement (for 3 years)w.e.f. 1st October, 2010 4,800Provident fund investment 19,000Shares in B Ltd. 13,000

3,23,750 3,23,750 Adjustments: 1) Stock on hand on 31st March, 2011 was valued at Rs. 25,000. 2) Rs. 2,000 paid during the year as Building repairs wrongly debited to Building account. 3) Depreciate Land and Building at 10% p.a. 4) Maintain R.D.D. at 5% on Sundry Debtors. 5) Reserve for discount on Debtors and Creditors are to be made at 3% and 4% respectively. 6) Uninsured goods worth Rs. 2,000 were destroyed by fire.

11. From the following Trial Balance of M/s. Pravin and Ramesh, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2013 and Balance Sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Plant and Machinery 1,40,000 Capital A/c - Pravin

Ramesh2,00,0001,50,000

Goodwill 40,000 Sales 3,30,000Furniture 80,000 Sundry Creditors 1,05,000Coal, Gas and Water 4,300 12% Bank loan (Taken on 1st October, 2012) 40,000Land and Building 1,20,000Purchases 2,32,000Postage and Telegrams 2,200Export duty 15,500Wages and Salaries 31,000Rent and Taxes 7,200Cash in hand 18,000Freight 6,200Prepaid rent 3,600Sundry Debtors 76,000

2 - 34


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Insurance 4,200Opening stock 39,000Discount 5,800

8,25,000 8,25,000 Adjustments:

1) Closing stock in hand was valued at Rs. 61,000.

2) Goods distributed as free samples were Rs. 3,000.

3) Postal stamps in hand on 31st March, 2013 were Rs. 700.

4) Provides 5% interest on capitals.

5) Prepaid insurance Rs. 900.

6) Provide Reserve for doubtful debts at 5% on Sundry Debtors.

7) Wages paid for installation of machinery were included in Wages A/c Rs 5,000. Depreciate Machinery at 5%

12. Mr. Ajit and Mr. Sujit are partners of the firm sharing profits and losses in the ratio of 3:2. Their Trial Balance as on 31st March, 2012 was given below. Prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet as on that date.


Particulars Debit Amt. (Rs.) Credit Amt. (Rs.)Capital A/c - Ajit

Sujit

50,000

40,000Purchases and Sales 62,750 1,22,000Sundry Debtors and Creditors 24,000 47,000Interest 2,900 2,000Opening stock 21,500 -Wages 8,500 -Land and Building 75,000 -Loose tools 15,000 -Power, Fuel and Oil 2,750 -Export duty 1,200 -Salaries 10,800 -Electricity charges 1,400 -Investments 24,000 -Reserve fund - 8,000Ajit’s loan A/c - 10,000Bank overdraft - 11,000Patents 32,000 -Administration expenses 4,300 -Cash in hand 2,000 -Heating and lighting 1,900 -

2,90,000 2,90,000 Adjustments:

1) Stock on hand on 31.3.2012 was valued at Rs. 17,000. 2) 1/8th of the patents are to be written off. 3) Goods of Rs. 7,000 destroyed by fire and insurance company admitted a claim of Rs. 6,100. 4) Rs. 1,000 received on account is commission wrongly included in Ajay’s loan account. 5) Provide 8% Depreciation on Land and building and 5% on Loose Tools. 6) Outstanding expenses were: Salaries Rs. 1,200 Electricity charges Rs. 1,800. 7) Our customer, Mr. Rakesh failed to pay his due of Rs. 1,000.

2 - 35


13. Dhanesh and Ganesh are partners sharing profits and losses in their capital ratio. From the following Trial Balance and adjustments given below, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2011 and Balance Sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Stock on 1st April, 2010 88,000 Sales 6,40,000Purchases 3,40,000 Sundry Creditors 80,000Return inward 20,000 Bills Payable 72,000Carriage 8,000 Capital A/cs - Dhanesh 1,92,000Motive power 12,000 Ganesh 1,28,000Wages 1,12,000Sundry Debtors 1,44,000Salaries 76,000Insurance 4,800Postage 7,200Commission 10,000Plant and Machinery 1,20,000Furniture 32,000Advertisement 16,000Office Rent (Paid for 10 months) 20,000Buildings 48,000Cash in hand 6,000Bill Receivable 48,000

11,12,000 11,12,000 Adjustments:

1) Closing stock was valued at market price of at Rs. 1,76,000 which is 10% above the cost. 2) Depreciate Plant and Machinery and Building at 20% and 10% respectively. 3) Goods withdrawn by Dhanesh of Rs. 20,000 during the year were not recorded in the books of accounts. 4) Bad debts were Rs. 4,000 and provide for R.D.D. at 5% on Sundry Debtors. 5) Goods worth Rs. 12,000 were purchased and included in closing stock, but not recorded in the books of accounts. 6) Dishonoured Bill Payable of 8,000 was wrongly included in Bills Receivable, however balances of Debtors and

Creditors were taken correctly.

Section II : From the Textbook - Practical Problems :-

1. From the following Trial Balance of M/s. Ajay and Vijay, you are required to prepared Trading and Profit and Loss Account for the year ended 31st March, 2009 and Balance Sheet as on that date.


Particulars Debit Amt. (Rs.) Credit Amt. (Rs.)Capital A/c’s - Ajay Vijay

60,00035,000

Purchases and Sales 46,700 85,000Sundry Debtors and Creditors 28,000 25,000Bills Receivable and payable 5,000 6,000Commission 4,600 1,800Opening stock 18,000Wages 9,900Investment 13,500Postage and Telegrams 3,600Insurance 1,200

2 - 36


Particulars Debit Amt. (Rs.) Credit Amt. (Rs.)Plant and Machinery 40,700Furniture 18,000Cash in hand 2,500Carriage 3,200Bad debts 400Prepaid Rent 7,000Salaries 10,500

2,12,800 2,12,800 Adjustments:

1) The closing stock is valued at Rs. 31,000.

2) Outstanding expenses were wages Rs. 1,400, salaries Rs. 800.

3) Depreciate Plant and Machinery by 10%.

4) Insurance at Rs. 500 is paid in advance.

5) Provide for further bad debts of Rs. 1,500.

6) Commission due but not received Rs. 1,200.

Solution 1:

In the books of M/s Ajay and Vijay

Dr. Trading & Profit and Loss A/c for the year ended 31st March, 2009 Cr.

Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)

To Opening Stock 18,000 By Sales 85,000 To Purchases 46,700 To Wages 9,900 Add : O/s wages 1,400 11,300 To Carriage 3,200 By Closing Stock 31,000 To Gross Profit c/d 36,800

1,16,000 1,16,000 To Salaries 10,500 By Gross Profit b/d 36,800 Add : O/s salaries 800 11,300 By Commission 1,800 To Commission 4,600 Add: Commission due but not received 1,200 3,000 To Postage & Telegram 3,600 To Insurance 1,200 Less: Advance 500 700 To Bad debts 400 Add: New Bad debts 1,500 1,900 To Depreciation Plant & Machinery 4,070 To Net Profit c/d Ajay 6,815 Vijay 6,815 13,630

39,800 39,800

2 - 37


Balance Sheet as on 31st March, 2009

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Plant & Machinery 40,700Ajay 60,000 Less: Depreciation 4,070 36,630Add: Net Profit 6,815 66,815 Furniture 18,000Vijay 35,000 Investments 13,500Add: Net Profit 6,815 41,815 Prepaid Rent 7,000 Prepaid Insurance 500Sundry Creditors 25,000 Commission Receivable 1,200Bills Payable 6,000 Bills Receivable 5,000Outstanding Expenses Closing Stock 31,000Wages 1,400 Sundry Debtors 28,000Salaries 8,00 2,200 Less: New Bad Debts 1,500 26,500

Cash Balance 2,500 1,41,830 1,41,830

Working Notes: 1) Depreciation = 10% x Rs. 40,070 = Rs. 4,070 2) Distribution of Net Profit Ajay = Rs. 13,630 x ½ = Rs. 6,815 Vijay = Rs. 13,630 x ½ = Rs. 6,815

2. Sanjay and Sudhir are partners sharing profit and losses in the ratio 3:2. The Trial Balance of the firm on 31st March, 2010 was as follows:


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Opening stock 20,000 Capital A/cs - Sanjay

Sudhir40,00030,000

Purchases 30,000 Sales 70,000Debtors 12,000 Sundry Creditors 21,000Wages 5,000 Bills payable 20,000Salaries 10,000 Discount 5,000Land and Building 30,000 Outstanding Rent 1,500Plant and Machinery 25,000Furniture 16,000Advertisement (for 2 years) 6,000Bills Receivable 8,000Insurance 2,000Drawings - Sanjay Sudhir

2,0003,000

Cash in hand 5,500Rent 10,000Power and fuel 3,000

1,87,500 1,87,500 Adjustments:

1) Stock on hand on 31st March, 2010 was at Rs. 35,000. 2) Write off Rs. 2,000, for further Bad debts and maintain R.D.D. at 5% on debtors. 3) Depreciate Land and Building at 5% and Machinery at 10%. 4) Outstanding expenses were wages Rs. 2,000 and salary Rs. 1,000. 5) Credit purchases amounted to Rs. 4,000 were not recorded in the books of account. 6) Provide interest on Partners Capital at 5% p.a.

2 - 38


From the above Trial Balance and adjustments prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet as on that date.

Solution 2: Dr. Trading & Profit and Loss A/c for the year ended 31st March, 2012 Cr.

Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)To Opening Stock 20,000 By Sales 70,000 To Purchases 30,000 Add: Unrecorded purchases 4,000 34,000 To Wages 5,000 Add: Outstanding wages 2,000 7,000 To Power & Fuel 3,000 By Closing Stock 35,000 To Gross Profit c/d 41,000 1,05,000 1,05,000 To Commission By Gross Profit b/d 41,000 To Salaries 10,000 By Discount 5,000 Add: Outstanding salaries 1,000 11,000 To Advertisement 3,000 To Insurance 2,000 To Rent 10,000 To Bad debts 2,000 To New RDD 500 To Interest on Capital Sanjay 2,000 Sudhir 1,500 3,500 To Depreciation Plant & Machinery 2,500 Land & Building 1,500 4,000 To Net Profit c/d Sanjay 6,000 Sudhir 4,000 12,000 46,000 46,000

Balance sheet as on 31st March, 2012

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Land & Building 30,000 Sanjay 40,000 Less: 5% Depreciation 1,500 28,500 Less: Drawings 2,000 Add: Interest on Capital 2,000 Plant & Machinery 25,000 Add: Net Profit 6,000 46,000 Less: 10% Depreciation 2,500 22,500 Sudhir 30,000 Furniture 16,000 Less: Drawings 3,000 Add: Interest on Capital 1,500 Add: Net Profit 4,000 32,500 Closing Stock 35,000 Sundry Creditors 21,000 Sundry Debtors 12,000 Add: Unrecorded purchases 4,000 25,000 Less: New bad debts 2,000 Less: New RDD 500 9,500 Bills Payable 20,000 Bills Receivable 8,000 Outstanding wages 2,000 Prepaid Advertisement 6,000 Outstanding salaries 1,000 Less: Expensed for 1 year 3,000 3,000 Outstanding rent 1,500 Cash in hand 5,500 128,000 128,000

2 - 39


3. Rohan and Roshan are partners in ‘Shan Traders’ sharing profits and losses in the ratio of 2:1. From the following Trial Balance and adjustments prepare Trading and Profit and Loss Account for the year ended 31st March, 2011 and Balance Sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Opening stock 32,000 Sales 1,93,500Purchases 64,000 Sundry Creditors 15,000Plant and Machinery 30,000 Unpaid wages 1,500Furniture 18,500 Return outward 2,500

Carriage 1,500

Capital A/c - Rohan

Roshan

90,000

50,000Wages and Salaries 35,000Bills Receivable 5,000Sundry Debtors 32,000Conveyance 4,000Rent, Rates and Taxes 2,000Return Inward 3,500Cash in hand 14,750Land and Building 83,500Bad debts 1,750Patents 25,000

3,52,500 3,52,500 Adjustments:

1) Closing stock: Cost price Rs. 25,000 and market price Rs. 30,000.

2) An amount of Rs. 3,500 spent for repairs to Building is debited to Building account.

3) Depreciate Plant and Machinery and Building at 5% p.a.

4) Goods of Rs. 750 taken by Roshan for this personal use.

5) Included in wages advances given to workers Rs. 3,000.

6) Provide Rs. 1,500 for bad and doubtful debts on Debtors.

Solution 3:

In the books of M/s Rohan and Roshan



To Opening Stock 32,000 By Sales 1,93,500 To Purchases 64,000 Less : Return inward 3,500 1,90,000 Less: Return outward 2,500 61,500 By Goods taken by Roshan for

personal use 750

To Carriage 1,500 To Wages & Salaries 35,000 Less: Advance 3,000 32,000 By Closing Stock 25,000 To Gross Profit c/d 88,750 2,15,750 2,15,750To Depreciation By Gross Profit b/d 88,750 Plant & Machinery 1,500 Land & Building 4,000 5,500 To Rent, Rates and taxes 2,000

2 - 40




To Repairs 3,500 To New RDD 1,500 To Conveyance 4,000 To Bad debts 1,750 To Net Profit c/d Rohan 47,000 Roshan 23,500 70,500 88,750 88,750


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Land & Building 83,500

Rohan 90,000 Less: Repairs wrongly debited 3,500 Less: Drawings - Less: Depreciation 4,000 76,000 Add: Net Profit 47,000 1,37,000

Plant & Machinery 30,000 Roshan 50,000 Less: Depreciation 1,500 28,500 Less: Goods taken for personal use 750 Patents 25,000 Add: Net Profit 23,500 72,750 Furniture 18,500

Sundry Debtors 32,000 Less: New RDD 1,500 30,500 Closing Stock 25,000

Sundry Creditors 15,000 Bills Receivable 5,000 Unpaid wages 1,500 Advance to workers 3,000

Cash in hand 14,750 2,26,250 2,26,250

Working Notes:

1) Repairs wrongly debited to building

Since revenue expenditure has been wrongly capitalised we need to reverse the entry. Hence,

Repairs A/c Dr. 3,500

To Land & Building A/c 3,500

Repairs need to be debited to the profit and loss account.

2) Depreciation on

Plant and Machinery = Rs. 30,000 x 5% = Rs. 1,500

Land & Building (after deducting wrongly debited repairs)

Rs. (83,500 – 3,500) x 5% = Rs. 4,000

3) Closing stock is valued at cost and market price, whichever is less. In this case, it is at cost.

4) Distribution of Profit & Loss

Rohan – Rs. 70,500 x 2/3 = Rs. 47,000

Roshan – Rs. 70,500 x 1/3 = Rs. 23,500

2 - 41


4. Given below is the Trial Balance of M/s Roma and Mona partnership firm. Prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet as on that date.


Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)Stock on 1st April, 2011 52,000 Provident fund 50,000Sundry Debtors 84,000 Interest on P.F. Investment 2,800Bad debts 3,000 Sundry Creditors 84,000Premises 78,000 Rent Received 9,600Salaries 28,000 Reserve for Doubtful Debts 2,000Motor Vehicle 50,000 Discount received 3,600Purchases 1,76,000 Sales 3,20,000Provident Fund Investment 50,000 Capital A/c - Roma 50,000Provident Fund contribution 5,500 Mona 50,000

Wages 22,000Rent (for 10 months) 16,000Office Expenses 5,000Discount allowed 2,500

5,72,000 5,72,000 Adjustments:

1) Stock on 31st March, 2012 was valued at Rs. 80,000.

2) Goods of Rs 6,000 were sold and dispatched on 27th March, 2012, but no entry was made in the books of accounts.

3) Write off Bad debts of Rs. 4,000 and provide for R.D.D. at 5% on sundry debtors.

4) Provide reserve for discount on debtors at 2% and on creditors at 3%.

5) Outstanding wages Rs. 4,000 and outstanding salaries Rs 3,066.

6) Depreciate Motor Vehicle at 5% p.a.

Solution 4:

In the books of M/s Roma and Mona

Dr. Trading & Profit and Loss A/c for the year ended 31st March, 2012 Cr.Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)

To Opening Stock 52,000 By Sales 3,20,000 To Purchases 1,76,000 Add: Unrecorded Sales 6,000 326,000 To Wages 22,000 By Closing Stock 80,000Add: Outstanding wages 4,000 26,000 To Gross Profit c/d 1,52,000 4,06,000 4,06,000 To Salary 28,000 By Gross Profit b/d 1,52,000 Add: Outstanding Salary 3,066 31,066 By Rent received 9,600 To Old Bad debts 3,000 By Discount received 3,600 Add: New RDD 4,300 By Reserve for discount on creditors 2,520 Less: Old RDD 2,000 9,300 To Reserve for discount on debtors 1,634 To Depreciation 2,500 To Provident Fund contribution 5,500 To Rent 16,000 Add: Outstanding rent for 2 months 3,200 19,200 To Office expenses 5,000 To discount allowed 2,500

2 - 42



To Net Profit c/d Roma 45,510 Mona 45,510 91,020

1,67,720 1,67,720Balance Sheet as on 31st March, 2011

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Premises 78,000 Roma 50,000 Motor Vehicle 50,000 Add: Net Profit 45,510 95,510 Less: Depreciation 2,500 47,500 Mona 50,000 Add: Net Profit 45,510 95,510 Provident Fund Investment 50,000 Provident Fund 50,000 Sundry Debtors 84,000 Interest on PF Investment 2,800 Add: Unrecorded Sales 6,000 Sundry Creditors 84,000 Less: New Bad debts 4,000 Less: Reserve for discount on creditors 2,520 81,480 Less: New RDD 4,300

Outstanding Expenses - Wages 4,000 Less: Reserve for discount on debtors 1,634 80,066 Salary 3,066 Closing Stock 80,000 Rent 3,200 3,35,566 3,35,566

Working Notes:

1) Calculation of new RDD and RFDD

New RDD = 5% of ( Debtors + Unrecorded sales – New bad debts written off)

= 5% x (84000 + 6000 – 4000)

= 5% x (86000)

= 4300

Reserve for discount on debtors is calculated after calculating new RDD and deducting it from the net debtors.

= (86000 – 4300) x 2%

= 1634

2) Reserve for discount on creditors

= 3% of 84000

= 2520

3) Depreciation on Motor vehicle

= 5% of 50000

= 2500

4) Unpaid rent

Since rent amount is given to be for 10 months, there is a hidden adjustment. We need to compute rent for remaining 2 months and give the effects.

Rent for 2 months = 16000 / 10 x 2 = 3200

2 - 43


5. From the following Trial Balance of M/s. Kale and Gore, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2013 and Balance Sheet on that date. They share profits and losses in their capital ratio.


Debit Balances Amt. (Rs.) Credit Balances Amt (Rs)Opening stock 28,000 Capital A/c- Kale

Gore

80,000

40,000Purchases 1,16,400 Sundry Creditors 54,000Trade Expenses 2,400 Sales 2,12,000Royalties 6,200 Reserve for Doubtful Debts 1,800Wages and Salaries 14,800 Bills payable 36,000Advertisement 8,200Salaries 11,000Plant and Machinery 44,000Freehold Property 36,000Office Rent 4,000Motor Van 63,000Bills Receivable 16,000Sundry Debtors 60,000Cash in hand 10,000Bad debts 1,000General expenses 2,800

4,23,800 4,23,800 Adjustments:

1) Closing stock was valued at cost Rs. 76,000 while its market price was Rs. 80,000.

2) Uninsured goods worth Rs. 10,000 were stolen.

3) Goods worth Rs. 10,000 were sold and delivered on 31st March, 2013, but no entry is passed sales book.

4) Depreciate Plant and Machinery at 10% and Motor van at 15% p.a.

5) Bills Receivable includes a dishonoured bill of Rs. 4,000.

6) Create a reserve for doubtful debts at 5% on Debtors.

Solution 5:

In the books of M/s Kale and Gore



To Opening Stock 28,000 By Sales 2,12,000 To Purchases 1,16,400 Add: Unrecorded sales 10,000 2,22,000 To Trade expenses 2,400 By Uninsured goods To Wages and salaries 14,800 Stolen 10,000 To Royalties 6,200 By Closing Stock 76,000 To Gross Profit c/d 1,40,200 3,08,000 3,08,000 To Salaries 11,000 By Gross Profit b/d 1,40,200 To Advertisement 8,200 To Depreciation Plant & Machinery 4,400 Motor Van 9,450 13,850 To Office Rent 4,000

2 - 44




To Bad debts 1,000 Add: New RDD 3,700 Less: Old RDD 1,800 2,900 To General expenses 2,800 To Uninsured goods stolen 10,000 To Net Profit c/d Kale 58,300 Gore 29,150 87,450 1,40,200 1,40,200


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Plant & Machinery 44,000 Kale 80,000 Less: Depreciation 4,400 39,600 Add: Net Profit 58,300 1,38,300 Freehold Property 36,000Gore 40,000 Motor Van 63,000 Add: Net Profit 29,150 69,150 Less: Depreciation 9,450 53,550 Sundry Creditors 54,000 Bills Receivable 16,000 Bills Payable 36,000 Less: Dishonoured 4,000 12,000

Sundry Debtors 60,000 Add: Unrecorded Sales 10,000

Add: Bill receivable dishonoured 4,000 Less: New RDD 3,700 70,300 Closing Stock 76,000 Cash in hand 10,000 2,97,450 2,97,450

Working Notes:

1) Depreciation

Plant & Machinery – 10% x 44000 = 4400

Motor Van – 15% x 63000 = 9450

2) Reserve for Doubtful debts

Net Debtors = Debtors + Unrecorded sales + BR dishonoured

= 74000

New RDD = 5% x 74000 = 3700

3) Distribution of Profits

Profit is distributed in the ratio of the outstanding capitals. Since the capitals stand in the ratio of 80000:40000, profit sharing ratio is 2:1.

Kale = 87450 x 2/3 = 58300

Gore = 87450 x 1/3 = 29150.

6. Given below is the Trial Balance of M/s. Seeta and Geeta as on 31st March, 2010. You are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2010 and Balance Sheet on that date.

2 - 45



Debit Balance Amt. (Rs.) Credit Balance Amt. (Rs.)Current A/c - Geeta 4,000 Capital A/c - Seeta 1,20,000

Opening stock 88,000 Geeta 1,20,000Purchases 1,76,000 Current A/c - Seeta 5,000Wages 23,500 Sundry Creditors 1,03,000Salaries 15,000 Bank overdraft 60,000Office expenses 8,000 Sales 3,08,000Bank charges 2,600Legal charges 3,000Machinery 90,000Land and Building 1,30,000Interest 3,600Export duty 3,800Bad debts 4,000Sundry Debtors 82,000Travelling Expenses 3,200Electricity charges 2,300Furniture 37,0008% Debentures(Purchased on 1.10.2009) 40,000

7,16,000 7,16,000 Adjustments: 1) Stock on hand on 31st March, 2010 was valued at Rs. 80,000. 2) Goods costing Rs. 16,000 destroyed by fire and Insurance company admitted a claim of Rs. 13,000. 3) Provide for outstanding expenses: Salaries Rs. 3,000, Wages Rs. 2,400. 4) Depreciate Machinery at 10% p.a. Land and Building at 5% p.a. 5) Create Reserve for Bad and doubtful debts at 5% on Sundry Debtors. 6) Legal charges paid in advance paid in advance Rs. 1,200. 7) Provide interest on capital at 8%.

Solution 6: In the books of M/s. Seeta and Geeta


To Opening Stock 88,000 By Sales 3,08,000 To Purchases 1,76,000 Less: Goods destroyed 16,000 1,60,000 To Wages 23,500 Add: Outstanding wages 2,400 25,900 By Closing Stock 80,000 To Gross Profit c/d 1,14,100 3,88,000 3,88,000 To Salaries 15,000 By Gross Profit b/d 1,14,100 Add: Outstanding salaries 3,000 18,000 To Office expenses 8,000 By Interest on 8% Debentures 1,600 To Bank charges 2,600 To Legal charges 3,000 Less: Paid in advance 1,200 1,800 To Depreciation Machinery 9,000 Land & Building 6,500 15,500 To Interest 3,600

2 - 46



To Bad debts 4,000 To New RDD 4,100 To Travelling expenses 3,200 To Electricity charges 2,300 To Loss by fire 3,000 To Export duty 3,800 To Interest on Capital Seeta 9,600 Geeta 9,600 19,200 To Net Profit c/d Seeta 13,300 Geeta 13,300 26,600 1,15,700 1,15,700


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Machinery 90,000 Seeta 1,20,000 Less: Depreciation 9,000 81,000 Geeta 1,20,000 2,40,000 Land & Building 1,30,000 Current Account Less: Depreciation 6,500 1,23,500 Seeta 5,000 Furniture 37,000 Add: Interest On Capital 9,600 8% Debentures 40,000 Add: Net Profit 13,300 27,900 Add: Interest receivable 1,600 41,600 Geeta (4,000) Sundry Debtors 82,000 Add: Net Profit 13,300 Less: New RDD 4,100 77,900 Add: Interest On Capital 9,600 18,900 Closing Stock 80,000 Sundry Creditors 1,03,000 Insurance Claim receivable 13,000 Bank Overdraft 60,000 Prepaid legal charges 1,200 Outstanding wages 2,400 Outstanding salary 3,000 4,55,200 4,55,200

Working Notes: 1) Loss by fire Since only partial claim has been admitted by the insurance company, the balance Rs. 3,000 is treated as loss while

Rs. 13,000 is treated as a receivable. 2) Depreciation Machinery = 10% x 90000 = 9000 Land & Building = 5% x 130000 = 6500 3) New RDD = 5% x 82000 = 4100 4) Interest on Capital Seeta = 8% x 120000 = 9600 Geeta = 8% x 120000 = 9600 5) Interest on debentures = 8% x 40000 x 6 /12 (for 6 months from 1.10.2009 till 31.3.2010) = 1600 6) Distribution of Profit Since no ratio is mentioned, we divide the profit equally. Seeta = 26600 x ½ = 13300 Geeta = 26600 x ½ = 13300

7. Madhuri and Minakshi are in a partnership sharing profits and losses in the ratio 3:2. From the following Trial Balance and adjustments given below, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet on that date.

2 - 47



Debit Balance Amt. (Rs.) Credit Balance Amt. (Rs.)Building 4,00,000 Capital A/cs - Madhuri

Minakshi3,00,0002,00,000

Plant and Machinery 1,20,000 Sales 8,10,000Purchases 6,50,000 Sundry Creditors 1,00,000Carriage 7,000 Outstanding salaries 4,200

Opening stock 90,0008% Bank loan(Taken on 1.10.2011) 1,00,000

Wages 35,000Sundry debtors 1,50,000Salaries 28,000Postage and Telegram 4,000Insurance 5,000Bad debts 3,000Rent 4,000Discount 3,200Drawings A/c - Madhuri Minakshi

10,0005,000

15,14,200 15,14,200 Adjustments:

1) Stock on hand on 31st March, 2010 was valued at Rs. 1,10,000.

2) Depreciate Plant and Machinery at 10% p.a. and Building at 5% p.a.

3) Prepaid insurance Rs. 1,500.

4) Create R.D.D at 5% on Sundry Debtors.

5) Partners are allowed interest at 5% p.a. on their capitals.

6) Salaries include Rs. 2,500 as advance to workers.

Solution 7:

In the books of M/s. Madhuri and Minakshi


To Opening Stock 90,000 By Sales 8,10,000 To Purchases 6,50,000 To Carriage 7,000 To Wages 35,000 By Closing Stock 1,10,000 To Gross Profit c/d 1,38,000 9,20,000 9,20,000 To Depreciation By Gross Profit b/d 138,000 Building 20,000 Plant & Machinery 12,000 32,000 To Bad debts 3,000 To New RDD 7,500 To Salaries 28,000 Less : Advance 2,500 25,500 To Interest on Bank Loan 4,000 To Insurance 5,000 Less: Prepaid insurance 1,500 3,500

2 - 48



To Postage & Telegram 4,000 To Rent 4,000 To Discount 3,200 To Interest on capital Madhuri 15,000 Minakshi 10,000 25,000 To Net Profit c/d Madhuri 15,780 Minakshi 10,520 26,300

1,38,000 1,38,000 Balance Sheet as on 31st March, 2012

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Building 4,00,000 Madhuri 3,00,000 Less: Depreciation 20,000 3,80,000 Less: Drawings 10,000 Plant and Machinery 1,20,000Add: Interest on capital 15,000 Less: Depreciation 12,000 1,08,000 Add: Net Profit 15,780 3,20,780 Advance salary 2,500 Minakshi 2,00,000 Sundry Debtors 1,50,000 Less: Drawings 5,000 Less: New RDD 7,500 1,42,500 Add: Interest on capital 10,000 Prepaid Insurance 1,500 Add: Net Profit 10,520 2,15,520 8% Bank Loan 1,00,000 Closing Stock 1,10,000 Add: Interest accrued 4,000 1,04,000 Sundry Creditors 1,00,000 Outstanding salaries 4,200 7,44,500 7,44,500

Working Notes:

1) Depreciation

Building = 5% x 400000 = 20000

Plant & Machinery = 10% x 120000 = 12000

2) RDD = 150000 x 5% = 7500

3) Interest on Capital

Madhuri = 300000 x 5% = 15000

Minakshi = 200000 x 5% = 10000

4) Interest on loan = 100000 x 8% x 6/12 (for 6 months from 1.10.2011 till 31.3.2012)

= 4000

5) Distribution of net profit Madhuri = 26300 x 3/5 = 15780

Minakshi = 26300 x 2/5 = 10250

8. From the following Trial Balance of M/s. Mahesh and Umesh, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2013 and Balance Sheet as on that date. Profit sharing ratio of Mahesh and Umesh was 3/5th and 2/5th respectively.

2 - 49



Debit Balance Amt. (Rs.) Credit Balance Amt. (Rs.)Investments 56,000 Capital A/c - Mahesh

Umesh1,62,0001,08,000

Carriage 7,000Current A/c - Mahesh Umesh

16,20010,800

Loose tools 17,000 Sundry Creditors 99,000Building 1,50,000 Sales 4,20,000Salary 13,000 Bank overdraft 56,400Audit fees 8,500Opening stock 83,000Wages 7,500Purchases 1,97,000Motive Power 15,000Bad debts 6,400Printing and Stationary 4,000Debtors 96,000Cash at Bank 52,000Machinery 72,000Motor Van 88,000

8,72,400 8,72,400 Adjustments:

1) Stock on hand on 31st March, 2013 was valued at Rs. 76,000.

2) Interest on partner’s capital at 5% p.a. was allowed.

3) Goods worth Rs. 2,000 and Rs. 1,500 withdrawn by Mahesh and Umesh respectively for their personal use.

4) Mahesh is entitled to get salary of Rs. 6,500 and Umesh is to be given 2% commission on sales.

5) Rs. 2,500 due from customer is not recoverable.

6) Depreciate Motor Van at 8% p.a. and Building at 7% p.a.

Solution 8:

In the books of M/s. Mahesh and Umesh


To Opening Stock 83,000 By Sales 4,20,000 To Purchases 1,97,000 By Goods withdrawn for personal use To Carriage 7,000 Mahesh 2,000 To Wages 7,500 Umesh 1,500 3,500 To Motive power 15,000 By Closing Stock 76,000 To Gross Profit c/d 1,90,000 4,99,500 4,99,500 To Interest on Capital By Gross Profit b/d 190,000 Mahesh 8,100 Umesh 5,400 13,500 To Depreciation Building 10,500 Motor Van 7,040 17,540

2 - 50



To Salary 13,000 To Audit fees 8,500 To Bad debts 6,400 Add: Amount irrecoverable 2,500 8,900 To Printing and stationary 4,000 To Salary to Mahesh 6,500 To Commission to Umesh 8,400 To Net Profit c/d Mahesh 65,796 Umesh 43,864 1,09,660 1,90,000 1,90,000


Amt. (Rs.) Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Building 1,50,000 Mahesh 1,62,000 Less: Depreciation 10,500 139,500 Umesh 1,08,000 2,70,000 Motor Van 88,000 Current Accounts Less: Depreciation 7,040 80,960 Mahesh 16,200 Machinery 72,000 Less: Goods withdrawn 2,000 Add: Salary 6,500 Add: Interest on capital 8,100 Add: Net Profit 65,796 94,596 Investments 56,000 Umesh 10,800 Debtors 96,000 Less: Goods withdrawn 1,500 Less: Amount irrecoverable 2,500 93,500 Add: Commission 8,400 Closing Stock 76,000 Add: Interest on capital 5,400 Loose tools 17,000 Add: Net Profit 43,864 66,964 Cash at bank 52,000 Sundry Creditors 99,000 Bank Overdraft 56,400 5,86,960 5,86,960

Working Notes

1) Interest on partners’ capital

Mahesh = 5% x 162000 = 8100

Umesh = 5% x 108000 = 5400

Commission on Sales = 2% x 420000 = 8400

2) Depreciation

Motor Van = 8% x 88000 = 7040

Building = 7% x 150000 = 10500

3) Distribution of net profit

Mahesh = 109660 x 3/5 = 65796

Umesh = 109660 x 2/5 = 43864

9. Mohini and Rohini are in partnership firm sharing profits and losses equally. From the following Trial Balance and adjustments given below, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2010 and Balance Sheet as on that date.

2 - 51



Particulars Debit Amt. (Rs.) Credit Amt. (Rs.)Partner’s Capital A/c - Mohini Rohini

1,20,00090,000

Purchases and Sales 2,20,000 4,30,000Sundry Debtors and Creditors 45,000 35,000Bills Receivable and Bills Payable 55,000 50,000Discount 4,000 3,500Opening stock 25,000Wages and Salaries 23,000Manufacturing Expenses 9,000Factory Insurance 5,000Factory Building 1,30,000Plant and Machinery 75,000Advertisement (for 2 years w.e.f. 1st January, 2010) 10,000Salaries and Wages 45,000Warehouse Rent 6,000Import duty 11,500Cash in hand 5,00010% Government Bond (purchased on 1st July, 2009) 60,000

7,28,500 7,28,500 Adjustments:

1) Closing stock was valued at market price Rs. 92,000 which is 15% above its cost price.

2) Goods costing Rs. 3,000 purchased and received on 31st March, 2010 were not recorded in purchase book.

3) Depreciate Machinery at 10% p.a.

4) Outstanding wages were Rs. 2,500.

5) Goods of Rs. 2,000 were taken by Mohini for personal use but no entry was made in the books of account.

6) Maintain R.D.D. at 5% on Sundry Debtors.

Solution 9:

In the books of M/s. Mohini and Rohini


To Opening Stock 25,000 By Sales 4,30,000

To Purchases 2,20,000By Goods withdrawn by Mohini for personal use 2,000

Add: Unrecorded purchases 3,000 2,23,000 To Wages & salaries 23,000 Add: Outstanding wages 2,500 25,500 To Manufacturing expenses 9,000 By Closing Stock 80,000 To Factory insurance 5,000 To Import duty 11,500 To Gross Profit c/d 2,13,000 5,10,000 5,10,000 To RDD 2,250 By Gross Profit b/d 2,13,000 To Discount given 4,000 By Discount received 3,500 To Depreciation 7,500 By Interest on 10% bond 4,500

2 - 52



To Advertisement 10,000 Less : Prepaid 8,750 1,250 To Salaries and wages 45,000 To Warehouse rent 6,000 To Net Profit c/d Mohini 77,500 Rohini 77,500 1,55,000 2,21,000 2,21,000


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Factory building 1,30,000 Mohini 1,20,000 Plant & Machinery 75,000 Less: Goods withdrawn for personal use 2,000 Less: Depreciation 7,500 67,500 Add: Net Profit 77,500 1,95,500 Rohini 90,000 10% Government Bond 60,000 Add: Net Profit 77,500 1,67,500 Add: Accrued interest 4,500 64,500 Sundry Creditors 35,000 Add: Unrecorded Purchases 3,000 38,000 Sundry Debtors 45,000 Bills payable 50,000 Less: RDD 2,250 42,750 Outstanding wages 2,500 Bills receivable 55,000

Prepaid advertisement 8,750 Closing Stock 80,000 Cash in hand 5,000

4,53,500 4,53,500 Working Notes:

1) Closing Stock

Since market price is 15% above cost price, we value stock at cost price which is calculated as

Cost = Market Price x 100 = Rs. 80000 115

2) Depreciation = Rs. 70000 x 10% = Rs. 7000 3) RDD = 5% x Debtors = Rs. 45000 = Rs. 2250 4) Interest accrued on Government Bond = 10% x Rs. 60000 x 9/12 = Rs. 4500 5) Deferred Advertisement Since advertisement has been paid for 2 years but only 1 quarter is in current year, expenditure of 7 quarters is

deferred Deferred expenditure = Rs. 10000 x 7/8 = Rs. 8750 6) Distribution of Profit Mohini = Rs. 155000 x ½ = Rs. 77500

Rohini = Rs. 155000 x ½ = Rs. 77500

10. From the following Trial Balance of M/s. Sanjay and Vijay, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2013 and Balance Sheet as on that date after taking into consideration the adjustments given below.

2 - 53



Debit Balance Amt. (Rs.) Credit Balance Amt. (Rs.)Salaries and wages 12,000 Sales 1,10,000Postage and Telegram 1,750 Sundry Creditors 72,700Opening stock 23,500 Bills Payable 40,000

Plant and Machinery 70,00010% Bank loan(Taken on 1st October, 2012) 60,000

Advertisement 5,000 Outstanding Audit fees 5,900

Import duty 2,100Capital A/c - Sanjay Vijay

45,00045,000

Bad debts 1,000Purchases 98,500Sundry Debtors 45,800Bills Receivable 16,700Carriage outward 1,800Wages 14,000Printing and stationary 4,600Cash in hand 1,850Leasehold Premises 80,000

3,78,600 3,78,600 Adjustments:

1) Closing stock was valued at Rs. 30,000.

2) Postage stamps of Rs. 250 and stationary of Rs. 400 are unused.

3) Goods of Rs. 2,500 distributed as free samples.

4) Leasehold property is to be run for 10 years w.e.f. 1st October, 2012.

5) Depreciate Plant and Machinery at 10% p.a.

6) Mr. Rajan, our customer become insolvent and could not pay his debts of Rs. 1,500.

Solution 10:

In the books of M/s. Sanjay and Vijay


To Opening Stock 23,500 By Sales 1,10,000 To Purchases 98,500 By Goods distributed as free samples 2,500To Import duty 2,100 To Wages and stationary 14,000 By Closing Stock 30,000 To Gross Profit c/d 4,400 1,42,500 1,42,500 To Salaries and wages 12,000 By Gross Profit b/d 4,400 To Postage and telegram 1,750 Less: Unused postage 250 1,500 To Advertisement 5,000 Add: Free samples 2,500 7,500 To Bad debts 1,000 Add: Insolvent debtor 1,500 2,500 To Carriage outward 1,800 To Printing and stationary 4,600 By Net Loss c/d Less : Unused stationary 400 4,200 Sanjay 19,550

2 - 54



To Depreciation 7,000 Vijay 19,550 39,100 To Leasehold property written off 4,000 To Accrued interest 3,000 43,500 43,500


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Leasehold premises 80,000 Sanjay 45,000 Less: Write off 4,000 76,000 Less: Net Loss 19,550 25,450 Plant & Machinery 70,000 Vijay 45,000 Less: Depreciation 7,000 63,000 Less: Net Loss 19,550 25,450 Sundry debtors 45,800 Less: Insolvent debtor 1,500 44,300 10% Bank loan 60,000 Bills receivable 16,700 Add: Accrued interest 3,000 63,000 Unused Stationary 400 Sundry Creditors 72,700 Unused Postage stamps 250 Bills payable 40,000 Closing Stock 30,000 Outstanding audit fees 5,900 Cash in hand 1,850 2,32,500 2,32,500

Working Notes

1) Leasehold property is to be used for 10 year w.e.f. 1.10.2012. Hence, we need to write off the same over 10 years. Every year 1/10th of the amount needs to be charged to the profit and loss account, but since the period begins from 1.10.2012, in the current year only half of the annual amount will be expensed.

Write off = Rs. 80000 x 1/10 x ½ = Rs. 4000

2) Depreciation on Plant & Machinery = Rs. 70000 x 10% = Rs. 7000

3) Interest accrued on bank loan = Rs. 60000 x 10% x 6/12 = Rs. 3000

4) Since Mr. Rajan has become insolvent, his debt has turned bad and hence needs to be written off.

5) Distribution of Net Loss

Since no profit sharing ratio has been mentioned, we divide losses equally.

Sanjay = Rs. 39100 x ½ = Rs. 19550

Vijay = Rs. 39100 x ½ = Rs. 19550

Section III – Solved Additional Problems

1. A and B are running a partnership firm. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. RsPartner’s CapitalA 1,20,000B 1,50,000Purchases 1,54,879Sales 2,15,487Opening Stock 21,548Sundry Debtors 30,000

2 - 55


Particulars Debit Amt. Rs. Credit Amt. RsSundry Creditors 15,478Return Inwards 2,000Return Outwards 2,500Machinery 48,700Vehicle 25,400Reserve for Bad Debts 5,487Cash in Hand 12,21910% Investment (purchased 1.10.2011) 1,00,000Salaries & Wages 54,280Manufacturing expenses 65,987Audit fees 15,479Bank Overdraft 21,540

5,30,492 5,30,492 Adjustments


2) Goods costing Rs. 3,456 were stolen.

3) Depreciate Machinery at 10% and Vehicle at 7.5%

4) Wages of Rs. 3,456 were outstanding.

5) Maintain RDD at 10% of Debtors.

Solution 1:

In the books of M/s. A and B


To Opening Stock 21,548 By Sales 2,15,487 To Purchases 1,54,879 Less: Return inwards 2,000 213,487 Less: Returns outwards 2,500 Less: Goods stolen 3,456 148,923 To Manufacturing expenses 65,987 By Closing Stock 34,090 To Gross Profit c/d 11,119 2,47,577 247,577 To Goods stolen 3,456 By Gross Profit b/d 11,119 To Salaries and wages 54,280 By Old RDD 5,487 Add: Outstanding wages 3,456 57,736 Less: New RDD 3,000 2,487 To Audit fees 15,479 By Accrued Interest 5,000 To Depreciation Machinery 4,870 By Net Loss c/d Vehicle 1,905 6,775 A 32,420 B 32,420 64,840 83,446 83,446

2 - 56



Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Machinery 48,700 A 1,20,000 Less : Depreciation 4,870 43,830 Less : Net Loss 32,420 87,580 Vehicle 25,400

Less : Depreciation 1,905 23,495 B 1,50,000 10% Investment 1,00,000 Less : Net Loss 32,420 1,17,580 Add : Accrued Interest 5,000 1,05,000 Sundry Creditors 15,478 Sundry Debtors 30,000 Bank Overdraft 21,540 Less : New RDD 3,000 27,000 Outstanding wages 3,456 Closing Stock 34,090 Cash in hand 12,219 2,45,634 2,45,634

Working Notes:

1) Depreciation Machinery = Rs. 48,700 x 10% = Rs. 4,870 Vehicle = Rs. 25,400 x 7.5% = Rs. 1,9052) Reserve for bad debts = Rs. 30,000 x 10% = Rs. 3,000 Since Old RDD is more than New RDD, we need to credit the difference to the profit and loss account.3) Distribution of Net Profit Since, no profit sharing ratio has been mentioned, we assume an equal ratio. A = Rs. 64,840 x 1/2 = Rs. 32,420

B = Rs. 64,840 x 1/2 = Rs. 32,420 2. Ramesh and Suresh are running a partnership firm and share profits and losses in the ratio of 3:2. From the given Trial

balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after taking into consideration the additional information provided.

Trial Balance as on 31st March, 2013Particulars Debit Amt. Rs. Credit Amt. Rs

Purchases & Sales 1,24,500 2,54,800Capital – Ramesh 25,000Capital – Suresh 30,000Creditors & Debtors 14,570 54,200Machinery 72,000 Plant 50,000 Land and Building 1,32,000 RDD 2,500Bad Debts 5,400 Cash 840 Bank overdraft 26,400Salaries 45,025 Wages 25,060 Office expenses 1,240 Opening Stock 41,570 Postage & Telegram 1,250 Carriage Inward 3,245 12% Bank loan 1,25,000Discount Received 6,300Insurance 7,500 5,24,200 5,24,200

2 - 57


Adjustments 1) Closing stock was valued at Rs. 78,450. 2) Ramesh withdrew goods worth Rs. 10,050 for personal use. 3) Machinery is depreciated at 10% whereas plant at 5% 4) Insurance was for 2 years starting from 1.10.2012. 5) Partners decided to maintain RDD at 4% of Debtors.

Solution 2:

In the books of M/s Ramesh and Suresh


To Opening Stock 41,570 By Sales 2,54,800 To Purchases 1,24,500 Less: Goods withdrawn for personal use 10,050 1,14,450 To Wages 25,060 To Carriage inward 3,245 By Closing Stock 78,450 To Gross Profit c/d 1,48,925 3,33,250 3,33,250 To Bad Debts 5,400 By Gross Profit b/d 1,48,925 Less: Old RDD 2,500 By Discount received 6,300 Add: New RDD 583 3,483 To Depreciation Machinery 7,200 Plant 2,500 9,700 To Salaries 45,025 To Office expenses 1,240 To Postage & Telegram 1,250 To Accrued Interest 15,000 To Insurance 7,500 Less: Prepaid insurance 5,625 1,875 To Net Profit c/d Ramesh 46,591 Suresh 31,061 77,652 1,55,225 1,55,225

Balance Sheet as on 31st March, 2013Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)

Capital Accounts Machinery 72,000 Ramesh 25,000 Less: Depreciation 7,200 64,800 Less: Goods withdrawn for personal use 10,050 Plant 50,000 Add: Net Profit 46,591 61,541 Less : Depreciation 2,500 47,500 Land and Building 132,000 Suresh 30,000 Sundry Debtors 14,570 Add: Net Profit 31,061 61,061 Less: New RDD 583 13,987 12% Bank loan 1,25,000 Prepaid Insurance 5,625 Add: Accrued Interest 15,000 140,000 Closing Stock 78,450 Sundry Creditors 54,200 Cash 840 Bank overdraft 26,400 3,43,202 3,43,202

2 - 58


Working Notes:

1) Depreciation Machinery = Rs. 72000 x 10% = Rs. 7200 Plant = Rs. 50000 x 5% = Rs. 25002) Reserve for bad debts = Rs. 14570 x 4% = Rs. 5833) Prepaid Insurance Since Insurance is for 2 years and only 6 months are covered in this year, we need to calculate the expense for the

year. Insurance expense = Rs. 7500 x 1/4 = Rs. 1875 Prepaid insurance = Rs. 7500 - Rs. 1875 = Rs. 56254) Accrued interest on bank loan = Rs. 125000 x 12% = Rs. 150005) Distribution of Net Profit Ramesh = Rs. 77652 x 3/5 = Rs. 46591 Suresh = Rs. 77652 x 2/5 = Rs. 31061

3. Ram and Shyam share profits and losses in the ratio 1:2 of a partnership firm. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2012 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. RsSundry Debtors 45,000 Postage 500 Machinery 30,000 Opening Stock 15,000 Furniture 8,000 Purchases 57,000 Wages 11,000 Salaries 17,000 Rent Paid 7,000 Bad debts 1,000 Cash in hand 3,000 Motor Car 26,000 Capital A/c Ram 25,000 Shyam 25,000Bills Payable 3,000Creditors 9,000Sales 1,50,000Bank loan 8,000Outstanding wages 500 2,20,500 2,20,500

Adjustments:

1) Closing stock had a cost of Rs. 45,000 whereas the market price was Rs. 60,000.

2) Outstanding expenses - Salaries Rs. 1,500, Wages Rs. 2,000, Rent 1,200.

3) Repairs to Machinery of Rs. 2,000 were wrongly debited to Purchases.

4) Depreciation on Machinery and Furniture at 10% each.

5) Interest on bank loan payable was Rs. 1,800.

2 - 59


Solution 3:

In the books of M/s. Ram and Shyam

Dr. Trading & Profit and Loss A/c for the year ended 31st March, 2012 Cr.Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)To Opening Stock 15,000 By Sales 150,000 To Purchases 57,000 Less: Repairs wrongly debited 2,000 55,000 To Wages 11,000 Add: Outstanding wages 2,000 13,000 By Closing Stock 45,000 To Gross Profit c/d 112,000 195,000 195,000 To Repairs to Machinery 2,000 By Gross Profit b/d 112,000 To Postage 500 To Salaries 17,000 Add: Outstanding salaries 1,500 18,500 To Rent 7,000 Add: Outstanding rent 1,200 8,200 To bad debts 1,000 To Outstanding interest on bank loan 1,800 To Depreciation Machinery 3,000 Furniture 800 3,800 To Net Profit c/d Ram 25,400 Shyam 50,800 76,200 112,000 112,000

Balance Sheet as on 31st March, 2012Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)

Capital Accounts Machinery 30,000 Ram 25,000 Less: Depreciation 3000 27,000 Add: Net Profit 25,400 50,400 Furniture 8,000 Less: Depreciation 800 7,200 Shyam 25,000 Motor Car 26,000 Add: Net Profit 50,800 75,800 Sundry Debtors 45,000 Bank loan 8,000 Closing Stock 45,000 Add: Outstanding interest 1,800 9,800 Cash in hand 3,000 Creditors 9,000 Bills payable 3,000 Outstanding wages 500 Add: Additional Outstanding wages 2,000 2,500 Outstanding salaries 1,500 Outstanding rent 1,200 1,53,200 1,53,200

Working Notes:

1) Stock is valued at cost or market price whichever is less. Hence, we value closing stock at Rs. 45000.

2) Repairs were wrongly debited to Purchases. We need to pass an entry to reverse the effects. Hence, debit Repairs A/c and deduct the same from Purchases.

3) Depreciation

Machinery = Rs. 30,000 x 10% = Rs. 3,000

Furniture = Rs. 8,000 x 10% = Rs. 800

2 - 60


4) Distribution of Profit

Ram= Rs. 76,200 x 1/3 = Rs. 25,400

Shyam= Rs. 76,200 x 2/3 = Rs. 50,800

4. Amar and Akbar are running a partnership firm and share profits and losses in the ratio of 3:7. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2011 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Opening Stock 87,000Bills Receivable 25,400Wages and Salaries 64,000Purchases 2,90,000Sundry Debtors 88,000Building 5,48,000Discount 3,600Audit Fees 24,600Office Expenses 65,000Cash at bank 29,870Travelling expenses 45,590Motor Car 1,20,000Trade Expenses 45,600Rent for 10 months 20,000Reserve for doubtful debts 3,000Sundry Creditors 2,60,000Sales 6,80,000General Reserve 2,00,000Capital: Amar Akbar

2,13,6601,00,000

14,56,660 14,56,660 Adjustments: 1) Closing stock is valued at Rs. 1,54,000. 2) Bills receivable included dishonoured bill of Rs. 8,000. 3) Goods worth Rs. 2500 were taken by Amar for personal use. 4) Depreciate Motor Car at 20% 5) Maintain RDD at 5% of debtors. Solution 4: In the books of M/s. Amar and Akbar


To Opening Stock 87,000 By Sales 6,80,000 To Purchases 2,90,000 Less: Goods withdrawn for personal use 2,500 2,87,500 To Wages and salaries 64,000 To Trade expenses 45,600 By Closing Stock 1,54,000 To Gross Profit c/d 3,49,900 8,34,000 8,34,000 To Discount 3,600 By Gross Profit b/d 3,49,900 To Audit fees 24,600 To Office expenses 65,000

2 - 61



To Travelling expenses 45,590 To Depreciation on Motor Car 24,000 To Rent 20,000 Add : Outstanding rent 4,000 24,000 To New RDD 4,800 Less : Old RDD 3,000 1,800 To Net Profit c/d Amar 48,393 Akbar 1,12,917 1,61,310 3,49,900 3,49,900


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Building 5,48,000 Amar 2,13,660 Motor Car 1,20,000 Less: Goods withdrawn for personal use 2,500 Less: Depreciation 24,000 96,000 Add : Net Profit 48,393 259,553 Sundry Debtors 88,000 Akbar 1,00,000 Add: Bill dishonoured 8,000 Add : Net Profit 1,12,917 2,12,917 Less: New RDD 4,800 91,200 General Reserve 200,000 Bills receivable 25,400 Less: Dishonoured 8,000 17,400 Sundry Creditors 260,000 Closing Stock 154,000 Outstanding Rent 4,000 Cash at bank 29,870 9,36,470 9,36,470

Working Notes:

1) Bills receivable dishonoured has to be added back to debtors and reduced from bills receivable.

2) Depreciation= Rs. 1,20,000 x 20% = Rs. 24,000

3) New RDD

New amount of debtors= Rs. 88,000 + 8,000 = Rs. 96,000

New RDD= Rs. 96,000 x 5% = Rs. 4,800

4) Distribution of Profits

Amar= Rs. 1,61,310 x 3/10 = Rs. 48,393

Akbar = Rs. 1,61,310 x 7/10 = Rs. 1,12,917

5. Vijay and Lakshmi run a partnership firm and share profits and losses in the ratio of their capitals. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Capital A/c Vijay 5,00,000Lakshmi 5,00,000Current A/c Vijay 50,000Lakshmi 40,000

2 - 62


Particulars Debit Amt. Rs. Credit Amt. Rs.Purchases & Sales 5,00,000 15,00,000Debtors and Creditors 2,50,000 1,25,000

Bills Receivable and Payable 1,25,000 2,20,000Commission 5,000 25,000Opening Stock 60,000 Cash in hand 25,000 10% Government Bonds (purchased 1.10.12) 5,00,000 Office expenses 60,000 Salaries and Wages 2,00,000 Building 10,00,000 Furniture 2,00,000 Bad debts 30,000 Drawings – Vijay 25,000 Carriage inward 25,000 Rent Received 1,25,000 30,45,000 30,45,000

Adjustments:

1) Goods worth Rs. 15,000 were lost by fire. Insurance company admitted claim of Rs. 12,000.

2) Interest on partner’s capital is 7.5% p.a.

3) Interest on drawings at 6% p.a.

4) Depreciation is charged at 10% on all fixed assets

5) Maintain RDD at 6% on debtors

6) Closing stock was valued at cost of Rs. 1,23,000

Solution 5:

In the books of M/s. Vijay and Lakhmi


Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)To Opening Stock 60,000 By Sales 1,500,000 To Purchases 5,00,000 Less: Loss by fire 15,000 4,85,000 To Carriage inward 25,000 By Closing Stock 1,23,000 To Gross Profit c/d 10,53,000 16,23,000 16,23,000 To Loss by Fire 15,000 By Gross Profit b/d 10,53,000 Less: Insurance claim 12,000 3,000 By Commission 25,000 To commission 5,000 By Rent received 1,25,000 To Office expenses 60,000 By Interest on drawings To Salaries & Wages 2,00,000 Vijay 750 To Bad Debts 30,000 Lakshmi – 750 To New RDD 15,000 By Interest accrued on bonds 25,000 To Interest on Capital Vijay 37,500 Lakshmi 37,500 75,000 To Depreciation Building 1,00,000 Furniture 20,000 1,20,000

2 - 63



Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)To Net Profit c/d Vijay 3,60,375 Lakshmi 3,60,375 7,20,750 12,28,750 12,28,750


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Building 10,00,000 Vijay 5,00,000 Less: Depreciation 1,00,000 9,00,000 Lakshmi 5,00,000 10,00,000 Furniture 2,00,000 Less: Depreciation 20,000 1,80,000 Current Accounts Vijay 50,000 10% Government Bonds 5,00,000 Add: Interest on Capital 37,500 Add: Accrued Interest 25,000 5,25,000 Less: Drawings 25,000 Less: Interest on Drawings 750 Bills Receivable 1,25,000 Add: Net Profit 3,60,375 4,22,125 Sundry Debtors 2,50,000 Lakshmi (40,000) Less: New RDD 15,000 2,35,000 Add: Interest on Capital 37,500 Insurance Claim receivable 12,000 Less: Interest on Drawings - Closing Stock 1,23,000 Add: Net Profit 3,60,375 3,57,875 Cash in hand 25,000 Sundry Creditors 1,25,000 Bills Payable 2,20,000 21,25,000 21,25,000

Working Notes:

1) Interest on Partner’s Capital

Vijay= Rs. 5,00,000 x 7.5% = Rs. 37,500

Lakshmi = Rs. 5,00,000 x 7.5% = Rs. 37,500

2) Interest on Partner’s Drawings

Vijay= Rs. 25,000 x 6% x 6/12 = Rs. 750

Since, no dates have been given for drawings, we take an average of 6 months and hence calculate the interest for 6 months.

3) Depreciation

Building= Rs. 10,00,000 x 10% = Rs. 1,00,000

Furniture= Rs. 2,00,000 x 10% = Rs. 20,000

4) New RDD = Rs. 25,000 x 6% = Rs. 15,000

5) Interest accrued on bonds = Rs. 5,00,000 x 10% x 6/12 = Rs. 25,000

6) Distribution of Profit

Profits are distributed in the ratio of their capitals, i.e. equally.

Vijay = Rs. 7,20,750 x 1/2 = Rs. 3,60,375

Lakshmi = Rs. 7,20,750 x 1/2 = Rs. 3,60,375

2 - 64


6. Tom and Riddle share profits and losses in the ratio of 5:2 of their partnership firm. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2014 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Land & Building 2,51,110 Machinery 16,540 Opening Stock 65,240 Wages 1,25,643 Bank 3,26,548 Sundry Debtors 1,25,463 Purchases 5,46,872 Import duty 56,324 Rent, rates and taxes 65,987 Salaries 1,26,340 Office expenses 12,000 Drawings A/c Tom 65,423 Riddle 56,432 Capital A/c Tom 3,00,000Riddle 3,00,000Sales 10,00,000Creditors 2,30,000Rent received in Advance 9,922 18,39,922 18,39,922

Adjustments:


2) Goods worth Rs. 5,670 purchased on 25.03.2013, included in closing stock but not recorded in purchase book.

3) Depreciate Fixed Assets at 10%

4) Salaries of Rs. 12,500 are outstanding.

5) Write off bad debts of Rs. 3,500.

Solution:

In the books of M/s. Tom and Riddle


To Opening Stock 65,240 By Sales 10,00,000 To Purchases 5,46,872 Add: unrecorded purchases 5,670 5,52,542 To Wages 1,25,643 To Import duty 56,324 By Closing Stock 99,999 To Gross Profit c/d 3,00,250 10,99,999 10,99,999 To Depreciation By Gross Profit b/d 3,00,250 Land & Building 25,111 Machinery 1,654 26,765 To Bad debts 3,500 To Rent, rates and taxes 65,987 To Salaries 1,26,340

2 - 65



Add: Outstanding 12,500 1,38,840 To Office expenses 12,000 To Net Profit c/d Tom 37,970 Riddle 15,188 53,158 3,00,250 3,00,250


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.) Capital Accounts Land & Building 2,51,110 Tom 300,000 Less: Depreciation 25,111 2,25,999 Less: Drawings 65,423 Machinery 16,540 Add: Net Profit 37,970 2,72,547 Less: Depreciation 1,654 14,886 Riddle 3,00,000 Less: Drawings 56,432 Add: Net Profit 15,188 2,58,756 Sundry Creditors 2,30,000 Sundry Debtors 1,25,463 Add: Unrecorded purchases 5,670 2,35,670 Less: Bad debts 3,500 1,21,963 Outstanding salaries 12,500 Closing Stock 99,999 Rent received in Advance 9,922 Bank 3,26,548 7,89,395 7,89,395

Working Notes: 1) Depreciation Land & Building = Rs. 251,110 x 10% = Rs. 25,111 Machinery = Rs. 16,540 x 10% = Rs. 1654 2) Distribution of Profits Tom = Rs. 53,158 x 5/7 = Rs. 37,970 Riddle = Rs. 53,158 x 2/7 = Rs. 15,188

Section IV : Homework Problems

1. X and Y share profits and losses in the ratio of 1:1 of their partnership firm. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2011 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Capital Accounts X 1,60,000Y 1,60,000Sales 84,900Purchases 1,03,000 Debtors 16,000 Creditors 26,000Fixed Assets 3,00,000 Cash 3,000 Bad debts 300 Office expenses 5,000 Trading expenses 6,000

2 - 66


Particulars Debit Amt. Rs. Credit Amt. Rs.10% Bank loan 45,000Rent received 4,500Freight 1,900 Opening stock 17,800 Postage and telegram 540 Coal, Gas and water 7,860 Commission paid 9,000 Insurance 10,000 4,80,400 4,80,400

Adjustments: 1) Insurance is paid for 2 years. 2) Sales worth Rs. 5,000 were left unrecorded in the sales book. 3) Debtors worth Rs. 6,000 went bad. 4) Maintain RDD at 5% of debtors. 5) Depreciate fixed assets at 10% 6) Closing stock was valued at cost of Rs. 27,000 Answer: • Gross Loss = 19,660, • Net Loss = 76,250, • Balance Sheet = 3,19,250

2. Sachin and Ramesh share profits and losses in the ratio of 1:2 of their partnership firm. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2012 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Opening Stock 64,000 Audit Fees 21,000 Machinery 500,000 Furniture 60,000 Debtors 75,000 Creditors 50,000Salaries 137,000 Outstanding Salaries 31,000Purchases 630,000 Sales 12,54,000Import Duty 3,000 Rent 29,500 Drawings Sachin 50,000 Ramesh 60,000 Capital A/c Sachin 2,00,000Ramesh 2,00,000Current A/c Sachin 15,500 Ramesh 30,000 Office expenses 60,000 17,35,000 17,35,000

2 - 67


Adjustments: 1) Closing stock is valued at Rs. 23,000 2) Depreciation on Machinery is charged at 10% 3) Goods worth Rs. 23,000 were lost in fire; insurance claim admitted of Rs. 21,000 4) Create reserve for discount on debtors at 5% and on creditors at 7.5% 5) Office expenses outstanding of Rs. 2,000 6) Interest on drawings is charged at 6% Answer: • Gross Profit = 6,03,000 • Net Profit = 3,29,800 • Balance Sheet = 6,50,250

3. Amy and Rash share profits and losses equally in their partnership firm. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2010 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Wages 63,000 Salaries 1,63,000 Rent, rates and taxes 33,000 Purchases 3,41,300 Sales 7,30,000Opening Stock 23,300 Purchase returns 3,000Sales returns 3,300 Sundry income 23,30010% Bank loan 43,300Provident Fund 63,000Provident Fund Investment 63,000 Bad debts 4,300 RDD 8,300Cash at bank 1,03,000 Land and Building 93,000 Furniture 13,300 Debtors 73,000 Creditors 33,300Capital A/c – Amy 33,000 Rash 33,000Bank overdraft 6,300 9,76,500 9,76,500

Adjustments: 1) Closing Stock was valued at Rs. 33,300 2) Depreciate land and building and furniture at 10% 3) Goods worth Rs. 3,300 were distributed as free samples 4) Goods worth Rs. 13,000 were taken by Amy for personal use 5) Maintain RDD at 3% of debtors after writing off bad debts worth Rs. 5,300 Answer: • Gross Profit: 3,51,700 • Net Profit: 1,57,409 • Balance Sheet: 3,60,639

2 - 68


4. Ram and Rahim share profits and losses in the ratio of 1:1 of their partnership firm. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2014 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Opening Stock 90,000 Furniture and Fixtures 1,20,000 Building 10,00,000 Cash at hand 52,000 10% Investments 1,00,000 Sundry Debtors 60,000 Sundry Creditors 90,000Capital A/c – Ram 5,00,000 Rahim 5,00,000Sales 10,00,000Purchases 4,00,000 Salaries 40,000 Office expenses 20,000 Rent 30,000 Insurance 12,000 Bad debts 5,000 Factory expenses 60,000 Commission received 10,000Rent received 20,000Bills receivable 1,31,000 21,20,000 21,20,000

Adjustments: 1) Depreciate fixed assets at 10% 2) Closing stock cost Rs. 75,000 but market value was Rs. 1,50,000 3) Ram was to be paid salary of Rs. 60,000 p.a. 4) Rahim was eligible to commission of 1% on total sales 5) Write off bad debts of Rs. 3,400 6) Outstanding salary Rs. 12,000, Rent Rs. 3,000 and prepaid insurance Rs. 6,000. Answer: • Gross Profit: 5,25,000 • Net Profit: 2,63,600 • Balance Sheet: 14,38,600

5. Ahad and Marc share profits and losses in the ratio of 1:3. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2012 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Sales & Purchases 5,60,000 1010,000Capital A/c – Ahad 300,000 Marc 300,000Creditors & Debtors 45,600 65,400Machinery 1,54,000 Plant 23,000 Land and Building 10,00,000 RDD 8,000

2 - 69


Particulars Debit Amt. Rs. Credit Amt. Rs.Bad Debts 6,400 Cash 8,700 Bank overdraft 30,000Salaries 56,000 Wages 23,000 Office expenses 12,000 Opening Stock 45,000 Postage & Telegram 2,500 Carriage Inward 3,200 12% Bank loan 2,30,000Discount Received 16,000Insurance 20,000 19,59,400 19,59,400

Adjustments: 1) Closing Stock is valued at Rs. 60,000 2) Depreciation on Land and Building and Machinery is charged at 10% 3) Salaries were outstanding to the tune of Rs. 10,000 4) Goods of Rs. 5,600 used for current repairs to Plant were wrongly debited to purchases 5) Goods worth Rs. 6,000 were stolen Answer: • Gross Profit: 4,50,400 • Net Profit: 2,12,900 • Balance Sheet: 11,75,900

6. Rohit and Mohit share profits and losses in the ratio of 2:1 of their partnership firm. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. RsOpening Stock 50,000 Purchases & Sales 3,50,000 4,66,000Land & Building 1,50,000 Loose Tools 20,000 Plant & Machinery 2,00,000 Debtors & Creditors 1,00,000 2,00,000Audit Fees 10,000 Motive Power 25,000 Salaries and Wages 75,000 Trade expenses 45,000 General expenses 65,000 Wages and Salaries 35,000 Work’s managers salary 15,000 Prepaid rent 5,000 Bills Receivable and Payable 30,000 60,000Capital A/c – Rohit 2,50,000 Mohit 1,50,000Rohit’s Loan A/c 50,000Commission received 5,000Bad debts 6,000 11,81,000 11,81,000

2 - 70


Adjustments: 1) Stock was valued at Rs. 75,000 2) Wages paid in advance Rs. 7,500 3) Goods worth Rs. 10,000 taken by Mohit for personal use 4) Bills payable dishonoured worth Rs. 5,500 5) Depreciate Plant and Machinery at 10% and Loose tools at 5% Answer: • Gross Profit: 38,500 • Net Loss: 1,33,500 • Balance Sheet: 5,66,500

Section V : Revision Problems:

1. Asha and Lata share profits and losses in the ratio of their opening capitals. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Capital Accounts Asha 2,50,000 Lata 2,50,000Current Accounts Asha 10,000 Lata 64,000Land & Building 10,00,000 Furniture 60,000 Opening Stock 40,000 Import Duty 2,000 Wages & Salaries 23,000 Salaries & Wages 32,000 Carriage inwards 2,600 Carriage Outwards 6,200 Discount 12,450 12,540Purchases and Sales 4,52,600 11,87,610Rent 5,600 6,500Commission 7,800 8,700Bills receivable 54,000 12% Investment (purchases 1.10.12) 68,000 Provident Fund 86,000Provident Fund Investment 86,000 Provident Fund contribution 6,000 10% Bank Loan 56,000Factory rent 32,000 Sundry Debtors and Creditors 4,60,000 1,20,000Bank Overdraft 3,64,000Bad Debts 33,000 Reserve for Doubtful Debts 10,000Rent, Rates and Taxes 15,600 Brokerage 6,500 24,15,350 24,15,350

2 - 71


Adjustments:

1) Write off bad debts of Rs. 7,500 and maintain RDD at 5% of Debtors.

2) Provide for Reserve for discount on Debtors & Creditors at 5%

3) Depreciation at 10% on all fixed Assets.

4) Goods worth Rs. 10,500 were lost due to fire, insurance claim admitted of Rs. 10000.

5) Asha took goods of Rs. 8,700 for personal use.

6) Goods worth Rs. 12,000 were left to be recorded in the purchases book although they were purchases on 24.03.12.

7) Outstanding Salaries of Rs. 16,000 whereas wages of Rs. 12,300 were paid in advance.

8) Interest on Capital at 6% and on drawings at 7%

9) Bills receivable of Rs. 6,300 was dishonoured.

10) Closing stock is valued at Rs. 1,50,000 at cost and Rs. 1,67,000 at market price.

Solution 1:

In the books of M/s. Asha and Lata


To Opening Stock 40,000 By Sales 11,87,610 To Purchases 4,52,600 Less: Goods lost due to fire 10,500 Less: Goods taken for personal use 8,700 Add : Unrecorded purchases 12,000 4,45,400 To import duty 2,000 To Wages & Salaries 23,000 Less: Paid in advance 12,300 10,700 To Carriage inwards 2,600 By Closing Stock 1,50,000 To Factory Rent 32,000 To Gross Profit c/d 8,04,910 13,37,610 13,37,610 To Goods lost by fire 10,500 By Gross Profit b/d 8,04,910 Less: Insurance claim admitted 10,000 500 By Discount 12,540 To Depreciation By Rent 6,500 Land & Building 1,00,000 By Commission 8,700 Furniture 6,000 1,06,000 By Interest accrued 4,080

To Salaries and Wages 32,000 By Reserve for Discount on creditors 6,600

Add: Outstanding 16,000 48,000 By Interest on Drawings To Discount 12,450 Asha 609 To Rent 5,600 Lata – 609 To Commission 7,800 To Provident Fund contribution 6,000 To Interest accrued on bank loan 5,600 To Bad Debts 33,000 Add: New bad debts 7,500 Less: Old RDD 10,000 Add: New RDD 22,940 53,440 To Rent, rates and taxes 15,600 To Brokerage 6,500 To Reserve for discount on debtors 21,793

2 - 72



To Interest on Capital Asha 15,000 Lata 15,000 30,000 To carriage outwards 6,200 To Net Profit c/d Asha 2,59,228 Lata 2,59,228 5,18,456 8,43,939 8,43,939

Balance sheet as on 31st March, 2013

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital Accounts Land & Building 10,00,000 Asha 2,50,000 Less: Depreciation 1,00,000 9,00,000 Lata 2,50,000 5,00,000 Furniture 60,000 Current Accounts Less: Depreciation 6,000 54,000 Asha (10,000) Less: Goods taken for personal use 8,700 Provident Fund investment 86,000 Add: Interest on Capital 15,000 12% Investment 68,000 Less: Interest on drawings 609 Add: Accrued Interest 4,080 72,080 Add: Net Profits 2,59,228 2,54,919 Sundry Debtors 4,60,000 Add: Bill dishonoured 6,300 Lata 64,000 Less: New bad debts 7,500 Add: Interest on Capital 15,000 Less: New RDD 22,940

Less: Interest on drawings - Less: Reserve for discount on debtors 21,793 4,14,067

Add: Net Profits 2,59,228 3,38,228 Bill receivable 54,000 Less: Dishonoured 6,300 47,700 Provident Fund 86,000 Insurance Claim receivable 10,000 10% Bank Loan 56,000 Prepaid Wages 12,300 Add: Accrued Interest 5,600 61,600 Closing Stock 15,0,000 Sundry Creditors 1,20,000 Add: Unrecorded purchases 12,000 Less: Reserve for discount on creditors 6,600 1,25,400 Bank Overdraft 3,64,000 Outstanding Salaries 16,000 17,46,147 17,46,147

Working Notes:

1) Reserve for Doubtful Debts Net debtors after adjustments = Rs. 4,60,000 + Rs. 6,300 – Rs. 7,500 = Rs. 4,58,800 New RDD = Rs. 4,58,800 x 5% = 22,940 2) Reserve for Discount on Debtors (RFDD) Net debtors after deducting new RDD = Rs. 4,58,800 – Rs. 22,940 = Rs. 4,35,860 RFDD = Rs. 4,35,860 x 5% = 21793 3) Reserve for Discount on Creditors (RFDC) Net Creditors after adjustments = Rs. 1,20,000 + Rs. 12,000 = Rs. 1,32,000 RFDC = Rs. 1,32,000 x 5% = Rs. 6,600

2 - 73


4) Depreciation Land & Building = Rs. 10,00,000 x 10% = Rs. 1,00,000 Furniture = Rs. 60,000 x 10% = Rs. 6,000 5) Interest on Capital Asha = Rs. 2,50,000 x 6% = Rs. 15,000 Lata = Rs. 2,50,000 x 6% = Rs. 15,000 6) Interest on Drawings Asha = Rs. 8,700 * 7% = Rs. 609 7) Interest accrued on Investments = Rs. 68,000 x 12% x 6/12 = Rs. 4,080 8) Interest accrued on bank loan = Rs. 56,000 x 10% = Rs. 5,600 9) Distribution of Net Profit Asha = Rs. 5,18,456 x ½ = Rs. 2,59,228 Lata = Rs. 5,18,456 x ½ = Rs. 2,59,228

2. Ram and Lakhan share profits and losses in the ratio of 2:3. From the given Trial balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after taking into consideration the additional information provided.


Particulars Debit Amt. Rs. Credit Amt. Rs.Buildings 2,25,000 Plant & Machinery 3,15,000 Sales & Purchases 6,42,000 10,64,200Debtors & Creditors 3,00,000 2,97,800Bills Receivable and Payable 1,20,000 2,10,000Opening Stock 98,500 Returns Inwards 6,500 Returns Outwards 5,600Insurance (2 years w.e.f. 1.10.2012) 40,000 Rent (for 1 year till 30.6.12) 60,000 Commission 15,700 5,400Cash in hand 45,100 Salaries 98,000 Bad Debts 6,700 8% Government Bonds 1,98,700 General Reserve 1,00,000Travelling expenses 32,010 Trade expenses 52,000 Advertisement expenses 25,000 Loss due to theft 2,790 Capital A/c – Ram 3,00,000 Lakhan 3,00,000 22,83,000 22,83,000

Adjustments:

1) Advertisement was to be deferred over 5 years. 2) Closing stock was valued at Rs. 1,90,000. 3) Goods worth Rs. 12,500 were distributed as free samples. 4) Sale of scrap of Rs. 2,300 was included in Sales. 5) Depreciate fixed assets at 7.5% 6) Debtors worth Rs. 15,600 went bad.

2 - 74


Solution 2:

In the books of M/s. Ram and Lakhan


To Opening Stock 98,500 By Sales 10,64,200 To Purchases 6,42,000 Less: Sale of Scrap 2,300 Less: Goods distributed as free samples 12,500 Less: Returns inwards 6,500 10,55,400 Less: Returns outwards 5,600 6,23,900 To Trade expenses 52,000 By Closing Stock 1,90,000 To Gross Profit c/d 4,71,000

12,45,400 12,45,400 To Goods distributed as free samples 12,500 By Gross Profit b/d 4,71,000 To Insurance 40,000 By Sale of scrap 2,300 Less: Prepaid 30,000 10,000 By Commission 5,400 To Rent 60,000 By Interest on bonds 15,896 Less: Prepaid rent 15,000 45,000 To Commission 15,700 To Salaries 98,000 To Bad debts 6,700 Add: New bad debts 15,600 22,300 To Travelling expenses 32,010 To Advertisement 25,000 Less: Deferred expenditure 20,000 5,000 To Loss due to theft 2,790 To Depreciation Buildings 16,875 Plant & Machinery 23,625 40,500 To Net Profit c/d Ram 84,318 Lakhan 1,26,478 2,10,796 4,94,596 4,94,596

Balance sheet as on 31, 2013

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.) Capital Accounts Buildings 2,25,000 Ram 3,00,000 Less: Depreciation 16,875 2,08,125 Add: Net Profit 84,318 3,84,318 Plant & Machinery 3,15,000 Less: Depreciation 23,625 2,91,375 Lakhan 3,00,000 Add: Net Profit 1,26,478 4,26,478 8% Government Bonds 1,98,700 Add : Accrued interest 15,896 2,14,596 General Reserve 1,00,000 Prepaid Insurance 30,000 Deferred Advertisement 20,000 Prepaid rent 15,000 Sundry Debtors 3,00,000 Sundry Creditors 2,97,800 Less : New Bad debts 15,600 2,84,400 Bills payable 2,10,000 Bills receivable 1,20,000 Closing Stock 1,90,000 Cash in hand 45,100 14,18,596 14,18,596

2 - 75


Working Notes: 1) Deferred Advertisement Since advertisement is to be deferred over 5 years, we charge only 1/5th to this year’s profit and loss account being

the proportionate amount for 1 year. Hence, deferred advertisement = Rs. 25,000 x 4/5 = Rs. 20,000 2) Depreciation Buildings = Rs. 2,25,000 x 7.5% = Rs. 16,875 Plant & machinery = Rs. 3,15,000 x 7.5% = Rs. 23,625 3) Prepaid Insurance Insurance has been paid for 2 years of which only 6 months are in the current year. Therefore, Insurance is prepaid

for 18 months of the total 24 months Hence, Prepaid Insurance = Rs. 40,000 x 18/24 = Rs. Rs. 30,000 4) Prepaid Rent Rent has been paid for 1 year but only 9 months are in the current year. Therefore, Rent is prepaid for 3 months of

the total 12 months Hence, Prepaid Rent = Rs. 60,000 x 3/12 = Rs. Rs. 15,000 5) Distribution of Net Profit Ram = Rs. 2,10,796 x 2/5 = 84,318 Lakhan = Rs. 2,10,796 x 3/5 = Rs. 1,26,478

Section VI : Objective type questions:

(A) Answer one sentence only. 1. What is Balance Sheet?Ans. Balance sheet is a statement which shows financial position of all assets and liabilities of the business on a particular date.2. State the meaning of debit balance of Trading Account?Ans. Debit balance of trading account indicates gross loss of the business for a particular year.3. When is partner’s current account opened?Ans. partner’s capital account is opened if partners adopt fixed capital method.4. To which account Gross Profit transferred?Ans. Gross profit is transferred to the credit side of profit & loss account.5. What is closing stock?Ans. Stock of goods in hand at the end of the accounting year is called as closing stock.6. What is Final Accounts?Ans. Final accounts are accounts which are prepared at the end of the financial year by the partnership firm, consisting of

trading a/c, profit & loss a/c and balance sheet7. How is closing stock valued?Ans. Closing stock is valued at cost price or market price whichever is less.8. What do you mean by direct expenses?Ans. Expenses which are directly related to production of goods and purchases of goods are called as direct expenses.9. What do you mean by indirect expenses?Ans. Expenses which are not directly related to production of goods and purchases of goods are called as indirect expenses.10. What do you mean by accrued income?Ans. Income which is due for current accounting year but not yet received is known as outstanding income.11. What is Trial balance?Ans. A list of debit and credit balances of all ledger accounts is called as Trial balance.12. What is bad debts?

Ans. The amount which is irrecoverable from debtor is called as bad debts.

2 - 76


13. In the absence of partnership deed, what is profit sharing ratio of the partners?Ans. In the absence of partnership deed, profit and losses are shared equally by the partners.14. What do you mean by carriage inward?Ans. Transport expenses incurred to carry the goods purchased by the firm are called as carriage inward.15. What do you mean by freight?Ans. Expenses which are paid to railways or airways for carrying goods are called as freight.16. What are tangible assets? Ans. Tangible assets are those which are of permanent nature and can be seen by our eyes.17. What are intangible assets?Ans. Intangible assets are those which can not be seen by our eyes but have realisable value.18. What are contingent liabilities?Ans. A liability which may or may not occur in future, depending on happening of certain events is called as contingent liabilities. 19. What do you mean by Pre- received incomes?Ans. Income which is not related to the current accounting year but related to the future period is known as pre-received incomes.20. What are fictitious assets?Ans. Fictitious assets are those which are intangible in nature and do not have realisable value.21. What are outstanding expenses?Ans. Expenses which are due but not paid in the current accounting year is known as outstanding expenses

(B) Write a word or a term or a phrase which can substitute each of the following statements.

1. A statement showing financial position of the business on a particular date. Balance Sheet

2. The amount which is not recoverable from debtors. Bad debts

3. Stock in hand at the end of the accounting year. Closing stock

4. The transport expenses incurred to carry the goods purchased by the firm. Carriage inward

5. Income which is received before its due date. Pre-received income

6. The debit balance of Trading Account. Gross Loss

7. The credit balance of Trading Account. Gross Profit

8. A provision which is created on sundry debtors. Reserve for Doubtful Debts

9. The amount withdrawn by the partners from the business for their personal use. Drawings

10. The accounts which are prepared at the end of each financial year. Final Accounts

11. Expenses which are paid before due. Prepaid expenses

12. The statement showing list of all ledger balances. Trial Balance

13. The credit balance of Profit and Loss Account. Net profit

14. Expenses which are due but not paid at the end of the year. Outstanding expenses

15. Assets which are held in the business for a long period. Fixed assets

16. Goods returned to suppliers Purchase returns

17. An amount paid for the permission to use patents & copyrights Royalty

18. An account to which net loss is transferred in a partnership firm. Partners capital a/c

19. Concession given by firm to customer. Discount allowed

20. Concession given by suppliers to firm Discount received

21. Example of fictitious asset. Preliminary expenses

22. An account prepared by producer to find cost of production. Manufacturing a/c

23. Expenses which are paid off in one year but benefit is availed for number of years Deferred expenses

24. Assets which are not real assets of the business. Fictitious assets

2 - 77


(C) Fill in the blanks with appropriate alternative given in the brackets.

1. The gross profit is transferred to __________ account. (a) trading (b) profit and loss (c) capital (d) current

profit and loss

2. Wages paid for installation of machinery should be debited to __________ account. (a) machinery (b) wages (c) trading (d) profit and loss

Machinery

3. All indirect expenses are debited to ___________ account. (a) trading (b) capital (c) profit and loss (d) current

profit and loss

4. A statement showing finacial position of the business is called as __________. (a) Balance sheet (b) trial balalnce (c) capital (d) trading a/c

balance sheet

5. To find out net profit or net loss of the business ___________ account is prepared. (a) trading (b) capital (c) current (d) profit and loss

profit and loss

6. A _____________ is an intangible asset. (a) goodwill (b) stock (c) building (d) cash

Goodwill

7. Trading account is prepared on the basis of ____________ expenses. (a) indirect (b) direct (c) revenue (d) other

Direct

8. The interest on drawings is transferred to __________ side of the profit and loss account. (a) debit (b) credit (c) asset (d) liability

Credit

9. Final accounts are prepared on the basis of __________ and adjustments. (a) trial balance (b) capital a/c (c) trading A/c (d) profit & loss A/c

trial balance

10. ____________ is the list of all ledger balances. (a) balance sheet (b) trial balance (c) trading A/c (d) profit & loss A/c

Trial balance

11. Return outward are deducted from _____________. (a) purchases (b) sales (c) capital (d) debtors

Purchases

12. The withdrawals of partner from the business for their personal use is called as _________. (a) capital (b) profit (c) drawings (d) cash

Drawings

13. Income received in advance is shown on the ___________. (a) debit (b) credit (c) asset (d) liability

Liability

14. Prepaid expenses are shown on the _________ side of the Balance sheet. (a) assets (b) l iability (c) debit (d) credit

Assets

15. Profit & Loss Account is _____________ account (a) Real (b) nominal (c) income (d) Personal

Nominal

2 - 78


16. _____________ is a financial statement (a) Income (b) Trading a/c (c) balance sheet (d) Profit & loss a/c

Balance Sheet

17. A provision made for debts irrecoverable from the debtors is called _____________. (a) bad debts (b) reserve for discount on debtors (c) reserve for doubtful debts (d) additional new bad debts

reserve for doubtful debts

18. _____________ is notional loss of the business. (a) uninsured goods (b) goods destroyed by fire (c) depreciation (d) loss from sale of asset

depreciation

19. _____________ a/c prepared by producers to find cost of production. (a) Manufacturing (b) Trading (c) Purchase (d) Profit & loss

Manufacturing a/c

20. Wages & salaries are debited to _____________ account (a) Profit & loss (b) trading a/c (c) expense a/c (d) salary a/c

Trading a/c

21. _____________ a/c & _____________ a/c are recorded to balance sheet (a) profit & loss (b) nominal, personal (c) real, nominal (d) real, personal

Real, Personal

22. _____________ are intangible assets and do not have realisable value. (a) Good will (b) profit & loss (dr bal) (c) Trade-mark (d) Copy right.

Profit & loss (dr bal)

(D) State whether the following statements are TRUE/FALSE

1. All direct expenses are debited to Trading account. True2. The Balance Sheet is a nominal account. False3. Discount allowed to debtors is called as bad debts. False4. Profit and loss account is a nominal account True5. The interest on drawings is an income of the firm. True6. The interest on capital is an income of the firm. False7. Trading account is a nominal account. True8. Prepaid expenses are shown on the asset side of the Balance sheet. True9. Closing stock is always valued at market price. False10. Outstanding expenses are shown on the liability side of the Balance sheet. True11. Partners must share profits and losses equally. False12. Trial Balance is the base of Final account. True13. Debit balance of Trading account shows gross profit. False14. Credit balance of profit and loss account shows net profit of the business. True15. Return inward is deducted from purchases. False16. Unproductive wages are debited to trading a/c. False17. Royalty is debited to profit & loss a/c. False18. Wages & salaries is treated as indirect expense. False19. Balance sheet is not an account. True20. Fictitious assets are intangible assets. True21. Current assets are also called as floating assets. True22. Income received, but not earned is an asset. False23. Outstanding wages is a nominal a/c. False24. Final accounts are prepared end of the accounting year. True

sr. no. particulars page no. chapters/syjc/bk chapter 2.pdf · s.y.j.c. book-keeping and...

Documents