NCERT Solutions Class 11 Accountancy Chapter 9

Q.1 What are the objectives of preparing financial statements?

Ans.

The basic objective of preparing financial statements is:

• To present a true and fair view of the financial performance of the business.
• To present a true and fair view of the financial position of the business.

Q.2 What is the purpose of preparing trading and profit and loss account?

Ans.

Trading and profit and loss account is prepared to determine the profit earned or loss sustained by the business enterprise during the accounting period. It is basically a summary of revenues and expenses of the business and calculates the net figure termed as profit and loss.

Q.3 Explain the concept of cost of goods sold?

Ans.

Cost of goods sold includes the costs that are included in creating the products that a company sells.

Costs of goods sold = Purchases + Direct Expenses – Closing Stock.

Q.4 What is a balance sheet? What are its characteristics?

Ans.

Balance Sheet may be defined as “A statement which sets out the assets and liabilities of a firm or an institution as at a particular date.”

Characteristics of Balance Sheet:

• It is prepared at a particular date and not for a particular period.
• It is prepared after the preparation of profit and loss account.
• It shows financial position of a business as a going concern.
• Balance sheet is not an account but only a statement of assets and liabilities. On the left hand side, the liabilities of business are shown whereas on the right hand side assets of the business appear.
• Total of assets side must be equal to the total of liabilities side.

Q.5 Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure:

1. Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.
2. Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order.
3. Registration fees paid at the time of purchase of a building.
4. Expenditure incurred in the maintenance of a tea garden which will produce tea after four years.
5. Depreciation charged on a plant.
6. The expenditure incurred in erecting a platform on which a machine will be fixed.
7. Advertising expenditure, the benefits of which will last for four years.

Ans.

Distinction between Capital and Revenue expenditure:

a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable: Capital Expenditure

b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order: Capital Expenditure

c) Registration fees paid at the time of purchase of a building: Capital Expenditure

d) Expenditure incurred in the maintenance of a tea garden which will produce tea after four years: Capital Expenditure

e) Depreciation charged on a plant: Revenue Expenditure

f) The expenditure incurred in erecting a platform on which a machine will be fixed: Capital expenditure

g) Advertising expenditure, the benefits of which will last for four years: Deferred Revenue expenditure

Q.6 What is an operating profit?

Ans.

Operating profit is the profit earned through the normal operations and activities of the business. It is the excess of operating revenue over operating expenses.

Operating profit = Net profit + Non-Operating Expenses – Non Operating Incomes

Q.7 What are financial statements? What information do they provide?

Ans.

Financial statements are the statements prepared at the end of the accounting period to show financial performance during the accounting period and financial position of the business as on date. A complete set of financial statements includes Balance Sheet, Profit and Loss Account and schedules and notes forming part of Balance Sheet and Profit and Loss Account.

Financial statements are the end-product of the accounting function, drawn from the Trial Balance, they are prepared to know:

The profit earned or loss incurred from the business operations during an accounting period. It is known from the Profit and Loss Account. Few enterprises also prepare Trading Account in addition to the Profit and Loss Account.

The financial position, by preparing Balance Sheet.

Objective and Importance:

(a) Profit and Loss Account:

• Determine Gross Profit or Gross Loss.
• Determine Net Profit or Net Loss.
• Comparison with the Previous Year’s Profit.
• Details of Indirect Expenses.
• Maintaining Reserves.
• Calculation of Ratios.

(b) Balance Sheet:

• Ascertaining financial position.
• Comparison with previous year.
• Analysis of individual items.
• Calculating Ratios.

Q.8 What are closing entries? Give four examples of closing entries.

Ans.

The preparation of trading and profit and loss account requires that the balances of accounts of all concerned items are transferred to it for its compilation.

Opening stock account, purchases account, Wages account, Carriage inwards account and direct expenses account are closed by transferring to the debit side of the trading and profit and loss account.

This is done by recording the following entry:

The purchases return or return outwards are closed by transferring its balance to the purchases account.

The sales return or return inwards account is closed transferring its balance to the sales account as:

The sales account is closed by transferring its balance to the credit side of the trading and profit and loss account by recording the following entry:

Items of expenses, losses are closed by recording the following entries:

Items of Incomes, gains etc., are closed by recording the following entry:

Q.9 Discuss the need of preparing a balance sheet.

Ans.

The Balance sheet is a statement prepared for showing the financial position of the business summarizing its assets and liabilities at a given date.

It is prepared at the end of accounting period after trading and profit and loss account have been prepared.

All the account of assets, liabilities and capital are shown in the balance sheet. Accounts of capital and liabilities are shown on the left hand side known as liabilities and the other debit balances are shown on the right hand side known as assets.

Need of Preparing Balance Sheet:

Balance Sheet is prepared with a view to measure true financial position of a business at a particular point of time. It is a method to show the financial position of a business in a systematic and standard form.

Format of Balance Sheet:

Q.10 What is meant by grouping and Marshaling of assets and liabilities? Explain the ways in which a balance sheet may be marshaled.

Ans.

Grouping and Marshalling:

In a balance sheet, the assets and liabilities are arranged either in the order of liquidity or performance.

Assets and liabilities should be shown in a certain order in the Balance Sheet. Therefore, they should be arranged in certain groups and in a particular order. This is called Grouping and Marshalling of the Balance Sheet.

Grouping means putting items of a similar nature under a common accounting head. The arrangement of assets and liabilities in a particular order in the Balance Sheet is called Marshalling.

Assets and Liabilities are shown in the Balance sheet either in order of liquidity or in order of permanence.

In order of Liquidity:

Liquidity means the facility with which the assets may be converted into cash; those assets which take more time to convert into cash are written last. Liabilities are to be shown first as short-term liabilities and then as long term liabilities and last of all as capital.

In Order of Permanence:

Assets, which are to be used permanently in the business and are not meant to be sold, are written first. Assets which are most liquid such as cash in hand are written last. Liabilities may also be shown according to their performance arrangement. In this method, capital is shown first then long-term liabilities and short-term liabilities.

Q.11 From the following balances taken from the books of Simmi and Vimmi Ltd. for the year ending March 31, 2017. Calculate the gross profit.

Ans.

For computing the gross profit from the above information, it would be appropriate to prepare the Trading Account as all the above information are related with Trading account only.

Q.12 From the following balances extracted from the books of M/s Ahuja and Nanda. Calculate the amount of:

1. Cost of goods available for sale.
2. Cost of goods sold during the year.
3. Gross profit.

Ans.

\begin{array}{l}\text{(a)}\\ \text{Cost of goods available for sales which means total goods produced}\\ \text{during the year}\text{.}\\ \text{Cost of production:}\\ \text{= Opening stock + Purchases + Wages – Purchases Return}\\ \text{= ₹25,000 + (₹7,50,000 + ₹3,00,000) + ₹1,00,000 – ₹10,000}\\ \text{= ₹11,65,000}\end{array} \begin{array}{l}\text{Cost of Goods sold:}\\ \text{= Cost of Production – Closing Stock}\\ \text{= ₹11,65,000 – ₹30,000}\\ \text{= ₹11,35,000}\end{array}

(c) For computing gross profit, preparation of Trading account would be appropriate:

Q.13 Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2017.

Ans.

Computation of Gross Profit:

Operating profit:

= Gross profit – (Operating Expenses + Operating Income)

= ₹4,60,000 – (₹45,000 + ₹65,000)

= ₹3,50,000

Q.14 Operating profit earned by M/s Arora & Sachdeva in 2016-17 was ₹17,00,000. Its non-operating incomes were ₹1,50,000 and non-operating expenses were ₹3,75,000. Calculate the amount of net profit earned by the firm.

Ans.

Operating profit:

= Net profit + Non operating expenses – Non operating Income

Hence, Net profit:

= Operating profit + Non operating income – Non operating expenditure

Operating profit (given) = ₹17,00,000

Non Operating income = ₹1,50,000

Non Operating expenses = ₹3,75,000

Hence, Net profit =

= ₹17,00,000 + ₹1,50,000 – ₹3,75,000

= ₹14,75,000

Q.15 The following are the extracts from the Trial balance of M/s Bhola & Sons as on March 31, 2017:

Closing stock as on date was valued at ₹3,00,000.

You are required to record the necessary journal entries and show how the above items will appear in the trading and profit and loss account and balance sheet of M/s Bhola & Sons.

Ans.

Q.16 Prepare trading and profit and loss account and balance sheet as on March 31, 2017:

Closing stock as on March 31, 2017: ₹22,400

Ans.

Q.17 The following trial balance is extracted from the books of M/s Ram on March 31, 2017. You are required to prepare trading and profit and loss account and the balance sheet as on date:

Ans.

Q.18 The following is the trial balance of Manju Chawla on March 31, 2017. You are required to prepare trading and profit and loss account and a balance sheet as on date:

Closing stock: ₹2,000.

Ans.

There is a difference of ₹700 in debit side of trial balance consider debtors for ₹6,000.

Q.19 The following is the trial balance of Mr. Deepak as on March 31, 2017. You are required to prepare trading account, profit and loss account and a balance sheet as on date:

Closing stock: ₹35,000.

Ans.

Q.20 Prepare trading and profit and loss account and balance sheet from the following particulars as on March 31, 2017.

Closing stock: ₹30,000.

Ans.

Q.21 From the following trial balance of Mr. A. Lal.

Prepare trading, profit and loss account and balance sheet as on March 31, 2017:

Closing stock: ₹15,000.

Ans.

Q.22 Prepare trading and profit and loss account and balance sheet of M/s Royal Traders from the following balances as on March 31, 2017:

Closing stock: ₹8,000.

Ans.

Q.23 Prepare trading and profit and loss account from the following particulars of M/s Neema Traders as on March 31, 2017:

Stock on March 31, 2017: ₹16,000.

Ans.

Note: As per the solution, the gross profit is ₹18,790, whereas as per the textbook is ₹17,850.

As per the solution, the net profit is ₹11,530, whereas as per the textbook is ₹10,590.

As per the solution, the total of balance sheet is ₹2,70,770, whereas as per the textbook is ₹2,69,830.

Q.24 From the following balances of M/s Nilu Sarees as on March 31, 2017. Prepare trading and profit and loss account and balance sheet as on date.

Closing stock as on March 31, 2017: ₹22,000

Ans.

Note:

Total of debit side of Trail Balance is ₹3,64,700 and total of credit side of Trial Balance is ₹3,43,370. The difference in credit side is ₹21,330.

Difference in credit side of Trial Balance ₹21,330 will be treated as Liabilities and posted in Liabilities side of Balance Sheet.

As per the solution, the gross profit is ₹1,48,500, whereas as per the textbook is ₹1,56,500.

Q.25 Prepare trading and profit and loss account of M/s Sports Equipments for the year ended March 31, 2017 and balance sheet as on that date:

Closing stock as on March 31, 2017: ₹2,500.

Ans.

Q.26 Give the Performa of income statement and balance sheet in vertical form.

Ans.

*Either of the two will appear

**Either of the two will appear