NCERT Solutions for Class 11 Accountancy Chapter 10 Financial Statements

NCERT Solutions for Class 11 Accountancy Chapter 10 Financial Statements – 2

Accountancy is a conceptual subject that demands a lot of practise. The Central Board of Secondary Education (CBSE) has curated a standard syllabus for Class 11 Accountancy. Chapter 10, Financial Statements -2 has many theories that students need to understand thoroughly. The practise questions given at the end of the chapter can help students revise the concepts learned in the chapter and understand the right way to answer a question.

If you are looking for NCERT Solutions for Class 11 Accountancy Chapter 10, refer to the solutions by Extramarks. These are prepared by subject matter experts who understand the CBSE guidelines and ensure that all the answers are written in a simple language.

Class 11 Accountancy NCERT Solutions Chapter 10 Financial Statements 2

What are Financial Statements?

The formally written records that convey the various business activities, including the company’s financial information and performance, are known as financial statements. Financial statements also help in understanding the current position of the business. To ensure the tax and financing details and the purposes of investing, the government officials, accountants, agencies, firms, etc., often audit the financial statements. They mostly include:

Balance sheet: An overview of the stakeholders’ liabilities, assets, and equity is provided by a balance sheet as a written record.
Income statement: The income statement is all about the revenues and expenses of the company in a particular period of time.
Cash Flow statement: The measurement of the cash generated and utilised by a company in order to pay the obligations of debt, investments of funds, operating expenses and many more are calculated in the cash flow statement.

The financial analysts and the investors of a company depend upon the company’s current financial status and information to determine its performance and its direction in the near future. The annual report in this regard plays a major role. The accurate audited financial statement of a firm is contained in this report.

How to Prepare a Financial Statement?

When preparing a financial statement, the aggregation of financial accounting into a structured sequence is essential. The financial statements are then disseminated to the creditors, investors, the management body, etc. The evaluation of the financial statements is then carried out, which includes the cash flows, overall economic performance, and liquidity of the business. Given below are a few steps that are to be followed for the preparation of financial statements, which may vary from company to company:

Step 1: Includes the verification of the receipt of supplier invoices
Step 2: Is the verification of the issuance of the customer invoices
Step 3: Is the accruing of the wages that are yet to be paid
Step 4: Calculation of the depreciation is the fourth step
Step 5: To estimate the ending inventory balance
Step 6: Is the reconciliation of the bank accounts
Step 7: The posting of all ledger balances
Step 8: Analysing accounts
Step 9: Reviewing the financials is the eighth step
Step 10: Accruing income taxes is the ninth step
Step 11: Closing of accounts
Step 12: The final step involves issuing financial statements

What are Doubtful Debts?

There are many types of debts that an individual or a business is unlikely to collect. These are known as doubtful debts. Non-payment can include many reasons such as: oversupply, delivery, the position of the items, and the financial stress included in a customer’s operations. In case of such disputes, it is suggested to add this debt to the doubtful debt reserve in order to avoid overstatement of the business assets. And when there remains no doubt, the debt becomes terrible and uncollectable. These debts are doubtful of recovery and can turn miserable at any point. Every year, a certain percentage can be allocated as uncollectible out of the total credit provided to the buyer, which the business can analyse. This percentage is kept separately from the profits. The provision made in the process made out of the profits is termed as provision for doubtful debts.

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Solved Example for Accountancy Class 11 Chapter 10

Q1. Why do we need financial statements? Select one of the below given options:

To prevent future losses
To calculate profit and loss
To estimate the financial viability of a company
All the above

Ans. All the above

Fun Fact

Before the generation of numbering system, the accountants kept track of animals and grains with the help of tokens made of clay.

Q.1 Why is it necessary to record the adjusting entries in the preparation of final accounts?

Ans.

Accrual concept is the fundamental accounting concept and requires that all expenses, whether paid or not and all incomes and gains whether received or not, should be accounted to ascertain correct profit or loss, assets and liabilities. They are recorded through the adjustment entries.

Q.2 What is meant by closing stock? Show its treatment in final accounts?

Ans.

Closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. It is valued at cost or net realizable value (market value) whichever is less.

Closing stock given outside the Trial Balance is shown on the credit side of the Trading Account and also on the assets side of the Balance Sheet under the main head Current Assets.

Q.3 State the meaning of:

Outstanding expenses
Prepaid expenses
Income received in advance
Accrued income

Ans.

a) Outstanding expenses:

At the end of the accounting period sometimes a business enterprises is left with some unpaid expenses due to one reason or another. Such expenses are termed as outstanding expenses.

b) Prepaid Expenses:

Prepaid expenses are the expenses that have been paid but their benefit will not be exhausted in current accounting period but in next year.

c) Income received in advance:

Income received in advance represents income that has been received against which services are yet to be rendered or goods are yet to be sold.

d) Accrued Income:

These are certain items are received by a business enterprise but the whole amount of it does not belong to the next period. The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.

Q.4 Why is it necessary to create a provision for doubtful debts at the time of preparation of final accounts?

Ans.

Provision for doubtful debts is the amount set aside out of profits to meet future bad debts out of present doubtful debts.

Provision created for doubtful debts at the end of a particular year will be carried forward to the next year and it will be used for meeting the loss due to bad debts incurred during the next year. The provision for doubtful debts brought forward from the previous year is called the opening provision or old provision

Q.5 What adjusting entries would you record for the following?

Depreciation
Discount on debtors
Interest on capital
Manager’s commission

Ans.

a) Depreciation:

Depreciation is the decline in the value of assets on account of wear and tear and passage of time. It is treated as a business expenses and is debited to profit and loss account.

The entry for providing depreciation is:

Particulars		Dr. ₹	Cr. ₹
Depreciation A/c	Dr.
To Concerned Asset A/c

Particulars		Dr. ₹	Cr. ₹
Profit & Loss A/c	Dr.
To Depreciation A/c

b) Discount on Debtors:

A business enterprise allows discount to its debtors to encourage prompt payments.

Provision for discount is made on good debtors which are arrived at by deducting further bad debts and the provision for doubtful debts.

The following entry:

Particulars		Dr. ₹	Cr. ₹
Discount Allowed A/c	Dr.
To Debtors
(Being discount allowed on debtors)

Particulars		Dr. ₹	Cr. ₹
Profit & Loss A/c	Dr.
To Provision for discount on debtors A/c

In the balance sheet, it will be shown as a deduction from the debtors account.

c) Interest on Capital:

Interest is calculated at a given rate of interest on capital as at the beginning of the accounting year. If however any additional capital is brought during the year, the interest may also be computed on such amount from the date on which it was brought into the business.

Entry:

Particulars		Dr. ₹	Cr. ₹
Interest on Capital	Dr.
To Capital A/c

Particulars		Dr. ₹	Cr. ₹
Profit & Loss A/c	Dr.
To Interest on Capital A/c

In the final accounts, it is shown as an expense on the debit side of the profit and loss account and added to capital in the Balance Sheet.

d) Manager’s Commission:

The manager of the business is sometimes given the commission on the net profit of the company. The percentage of the commission is applied on the profit either before charging such commission or after charging such commission.

The managers commission will be adjusted in the books of accounts are:

Particulars		Dr. ₹	Cr. ₹
Profit and Loss	Dr.
To Manager’s Commission A/c

Q.6 What is meant by provision for discount on debtors?

Ans.

Provision for discount on Debtors means provision made for discount that is likely to be allowed to the debtors. It is calculated as a percentage of debtors.

Q.7 Give the journal entries for the following adjustments:

Outstanding salary ₹3,500.
Rent unpaid for one month at ₹6,000 per annum.
Insurance prepaid for a quarter at ₹16,000 per annum.
Purchase of furniture costing ₹7,000 entered in the purchase book.

Ans.

a) Outstanding salary: ₹3,500.

Entry:

Particulars		Dr. ₹	Cr. ₹
Salaries A/c	Dr.	3,500
To outstanding Salaries			3,500
(Being Salaries of ₹3,500 is remaining outstanding)

b) Rent unpaid for one month at ₹6,000 per annum.

Entry:

Particulars		Dr. ₹	Cr. ₹
Rent A/c	Dr.	3,500
To Outstanding Rent			3,500
(Being Rent unpaid for one month is ₹6000/12 = ₹500)

c) Insurance prepaid for a quarter at ₹16,000 per annum.

Entry:

Particulars		Dr. ₹	Cr. ₹
Prepaid Insurance	Dr.	4,000
To Insurance			4,000
(Being insurance paid in advance for 3 months (₹16,000/4) is ₹4,000)

d) Purchase of furniture costing ₹7,000 entered in the purchase book.

Entry:

Particulars		Dr. ₹	Cr. ₹
Furniture	Dr.	7,000
To Purchases A/c			7,000
(Being furniture was wrongly debited to Purchases Account, now rectified)

Q.8 What are adjusting entries? Why are they necessary for preparing final accounts?

Ans.

Adjustment entries are the entries passed to record expenses and incomes that relate to the accounting period are yet to be paid or received.

According to accrual concept of accounting, the profit or loss for an accounting year is not based on the revenues realised in cash and the expenses paid in cash during that year. Such items duly adjusted, the final accounts will not reflect the true and fair view of the state of affairs of the business.

All expenses and incomes for the year for which accounts are being prepared are accounted. Therefore it is necessary that:

Expenditure incurred whether paid or not, are accounted.
Income earned whether received or not, are accounted.
Expenditure relating to the succeeding years are excluded, and
Income relating to the succeeding years are excluded.

The purpose of making various adjustments is to ensure that the final accounts reveal the true profit or loss and the true financial position of the business. The items which usually need adjustments are:

Closing stock
Outstanding/expenses.
Prepaid/Unexpired expenses.
Accrued Income.
Income Received in advance.
Depreciation.
Bad debts.
Provision for doubtful debts.
Provision for discount on debtors.
Manager’s Commission and
Interest on capital.

Q.9 What is meant by provision for doubtful debts? How are the relevant accounts prepared and what journal entries are recorded in final accounts? How is the amount for provision for doubtful debts calculated?

Ans.

Provision for doubtful debts is the amount set aside out of profits to meet future bad debts out of present doubtful debts.

It means provision made against debts of the amount that are doubtful of recovery.

The entry for providing for doubtful debts is:

Particulars		Dr. ₹	Cr. ₹
Profit and Loss	Dr.
To Provision for Doubtful Debts
(Being the provision made for doubtful debts)

Debit to the Profit and loss account will reduce the year’s profit by the amount of provision and the amount will be carried forward to the next year. Next year, when bad debts actually occur and are written off, Bad debts account will be debited to the provision for doubtful debts account. The amount of the bad debts will not be debited to the Profit and Loss account since a debit was already given for it last year.

It should be noted that the customer’s account or sundry debtors account is not affected by creating Provision for Doubtful Debts.

Provision for Doubtful Debts Account is shown in the Balance Sheet by way of deduction from the amount of book debts.

Provision created for doubtful debts at the end of a particular year will be carried forward to the next year and it will be used for meeting the loss due to bad debts incurred during the next year.

The provision for doubtful debts brought forward from the previous year is called the opening provision or old provision. When such a provision already exists, the loss due to bad debts during the current year are adjusted against the same and while making provision for doubtful debts required at the end of the current year is called new provision. The balance of old provision as given in trial balance should also be taken into account.

Q.10 Show the treatment of prepaid expenses, depreciation, closing stock at the time of preparation of final accounts when:

When given inside the trial balance?
When given outside the trial balance?

Ans.

Prepaid Expenses:

When given inside the trial balance:

In this case, the adjustment entry for prepaid expenses is already passed. So it will be shown only in the Balance Sheet as Current Assets.

When given outside the trial balance:

Prepaid insurance is shown on the assets side of Balance Sheet as a separate item under Current Assets.

Next year, prepaid expenses is transferred to the expenses account. This principle applies to all expenses incurred during the year but whose benefit will accrue in the next year.

Depreciation:

When given inside the trial balance:

Depreciation given in the Trial Balance means entry for depreciation is passed in the books of accounts. It, therefore means that the concerned asset appears as its reduced value since the Depreciation amount is credited to it. Depreciation Account is transferred to the debit side of the Profit and Loss Account like other expenses.

When given outside the trial balance:

Depreciation given as an adjustment means that depreciation is yet to be accounted in the books of accounts.

Closing Stock:

Closing stock will appear on the assets side of the Balance Sheet in both the cases: (a) when it is shown in trial balance, and (b) when it is shown outside the trial balance. But it is shown in the Trading Account (Credit side) when its adjustment is shown outside the Trial Balance.

Q.11 Prepare a trading and profit and loss account for the year ending March 31, 2017. From the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.

Account Title	₹	Account Title	₹
Stock	50,000	Sales	1,80,000
Wages	3,000	Purchases return	2,000
Salary	8,000	Discount received	500
Purchases	1,75,000	Provision for doubtful debts	2,500
Sales return	3,000	Capital	3,00,000
Sundry debtors	82,000	Bills payable	22,000
Discount allowed	1,000	Commission received	4,000
Insurance	3,200	Rent	6,000
Rent Rates and Taxes	4,300	Loan	34,800
Fixtures and Fittings	20,000
Trade expenses	1,500
Bad debts	2,000
Drawings	32,000
Repair & renewals	1,600
Travelling expenses	4,200
Postage	300
Telegram expenses	200
Legal fees	500
Bills receivable	50,000
Building	1,10,000
	5,51,800		5,51,800

Adjustments:
1. Commission received in advance ₹1,000.
2. Rent receivable ₹2,000.
3. Salary outstanding ₹1,000 and insurance prepaid ₹800.
4. Further bad debts ₹1,000 and provision for doubtful debts @5% on debtors and discount on debtors @2%.
5. Closing stock ₹32,000
6. Depreciation on building @6% p.a.

Ans.

Trading and Profit & Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening stock		50,000	By Sales	1,80,000
To Purchase	1,75,000		(-) Sales Return	3,000	1,77,000
(-) Purchase Return	2,000	1,73,000	By Closing Stock		32,000
To Wages		3,000	By Gross Loss c/d		17,000
		2,26,000			2,26,000
To Gross Loss b/d		17,000	By Discount Received		500
To Salary	8,000		By Commission	4,000
(+) Outstanding salary	1,000	9,000	(-) Advance	1,000	3,000
To Discount allowed		1,000	By Rent	6,000
To Insurance	3,200		(+) Accrued Rent	2,000	8,000
(-) prepaid insurance	800	2,400	By Net Loss		43,189
To Rent, Rates & Taxes		4,300
To Trade Expenses		1,500
To Bad debts	2,000
(+) Further Bad debts	1,000
(+) New provision	4,050
(+) Discount	1,539
(-) Old Provision	2,500	6,089
To Postage		300
To Telegram expenses		200
To Repair & renewals		1,600
To Travelling expenses		4,200
To Legal fees		500
To Depreciation on Building		6,600
		54,689			54,689

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	3,00,000		Sundry Debtors	82,000
(-) Net Loss	43,189		(-) Further Bad Debts	1,000
	2,56,811		(-) New provision	4,050
(-) Drawings	32,000	2,24,811	(-) Discount	1,539	75,411
Bills Payable		22,000	Bills Receivable		50,000
Loan		34,800	Fixture& Fitting		20,000
Advance Commission		1,000	Prepaid insurance		800
Outstanding Salary		1,000	Building	1,10,000
			(-) Depreciation @ 6%	6,600	1,03,400
			Rent (Accrued)		2,000
			Closing stock		32,000
		2,83,611			2,83,611

Working Note:

Particulars	₹
Sundry Debtors	82,000
(-) Further Bad Debts	1,000
	81,000
(-) provision (5%)	4,050
	76,950
(-) Discount (2%)	1,539
	75,411

Q.12 Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending March 31, 2017 from the following figures taken from his trial balance:

Account Title	₹	Account Title	₹
Opening stock	35,000	Sales	2,50,000
Purchases	1,25,000	Purchase Return	6,000
Return Inwards	25,000	Creditors	10,000
Postage & Telegram	600	Bills payable	20,000
Salary	12,300	Discount	1,000
Wages	3,000	Provision for bad debts	4,500
Rent and Rates	1,000	Interest received	5,400
Packing & Transport	500	Capital	75,000
General expenses	400
Insurance	4,000
Debtors	50,000
Cash in hand	20,000
Cash at bank	40,000
Machinery	20,000
Lighting & Heating	5,000
Discount	3,500
Bad debts	3,500
Investment	23,100
	3,71,900		3,71,900

Adjustments:
1. Depreciation charged on machinery @5% p.a.
2. Further bad debts ₹1,500. Discount on debtors @5% and make a provision on debtors @6%.
3. Wages prepaid ₹1,000.
4. Interest on investment @5% p.a.
5. Closing stock ₹10,000.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening stock		35,000	By Sales	2,50,000
To Purchase	1,25,000		(-) Sales Return	25,000	2,25,000
(-) Purchase Return	6,000	1,19,000	By Closing Stock		10,000
To Wages	3,000
(-) Prepaid wages	1,000	2,000
To Gross Profit c/d		79,000
		2,35,000			2,35,000
To salary		12,300	By Gross Profit b/d		79,000
To Postage & Telegram		600	By Accrued Interest on Investment		1,155
To rent & Rates		1,000	By Discount		1,000
To Packing & Transport		500	By Interest Received		5,400
To general expenses		400
To Insurance		4,000
To Lighting & Heating		5,000
To discount		3,500
To Bad Debts	3,500
(+) Further Bad Debts	1,500
(+) New Provision	2,910
(-) Old Provision	4,500
(+) Discount	2,280	5,690
To Depreciation on Machinery		1,000
To Net Profit		52,565
		86,555			86,555

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	75,000		Investment	23,100
(+) Net profit	52,565	1,27,565	Accrued Interest	1,155	24,255
Creditors		10,000	Closing Stock		10,000
Bills payable		20,000	Prepaid Wages		1,000
			Machinery	20,000
			(-) Depreciation @5%	1,000	19,000
			Cash in Hand		20,000
			Cash at Bank		40,000
			Debtors	50,000
			(-) Bad Debts	1,500
				48,500
			(-) New Provision	2,910
				45,590
			(-) Discount	2,280	43,310
		1,57,565			1,57,565

Working Note:

Particulars	₹
Sundry Debtors	50,000
(-) Further Bad Debts	1,500
	48,500
(-) provision (6%)	2,910
	45,590
(-) Discount (5%)	2,280
	43,310

Q.13 The following balances has been extracted from the trial of M/s Runway Shine Ltd. Prepare a trading and profit and loss account and a balance sheet as on March 31, 2017.

Account Title	₹	Account Title	₹
Purchases	1,50,000	Sales	2,50,000
Opening stock	50,000	Return outwards	4,500
Return Inwards	2,000	Interest received	3,500
Carriage inwards	4,500	Discount received	400
Cash in hand	77,800	Creditors	1,25,000
Cash at bank	60,800	Bills payable	6,040
Wages	2,400	Capital	1,00,000
Printing & Stationery	4,500
Discount	400
Bad debts	1,500
Insurance	2,500
Investment	32,000
Debtors	53,000
Bills receivable	20,000
Postage & Telegraph	400
Commission	200
Interest	1,000
Repair	440
Lighting Charges	500
Telephone charges	100
Carriage outward	400
Motor car	25,000
	4,89,440		4,89,440

Adjustments:
1. Further bad debts ₹1,000. Discount on debtors ₹500 and make a provision on debtors @ 5%.
2. Interest received on investment @5%.
3. Wages and interest outstanding ₹100 and ₹200 respectively.
4. Depreciation charged on motor car @5% p.a.
5. Closing Stock ₹32,500.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening Stock		50,000	By Sales	2,50,000
To Purchase	1,50,000		(-) Return Inwards	2,000	2,48,000
(-) Purchase Return	4,500	1,45,000	By Closing Stock		32,500
To Carriage Inwards		4,500
To Wages	2,400
(+) Outstanding	100	2,500
To Gross Profit c/d		78,000
		2,80,500			2,80,500
To Carriage Outwards		400	By Gross Profit b/d		78,000
To Lighting Charges		500	By Interest Rcvd	3,500
To Repair		440	(+) Interest on Investment	1,600	5,100
To Printing & Stationery		4,500	By Discount Received		400
To Discount		400
To Insurance		2,500
To Bad Debts	1,500
(+) Further Bad Debts	1,000
(+) New provision	2,600
(+) Discount	500	5,600
To Postage& Telegraph		400
To Commission		200
To Interest	1,000
(+) Outstanding Interest	200	1,200
To Telephone Charges		100
To Depreciation on Motor Car		1,250
To Net profit		66,010
		83,500			83,500

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	1,00,000		Cash in Hand		77,800
(+) Net profit	66,010	1,66,010	Cash at Bank		60,800
Creditors		1,25,000	Investment	32,000
Bills Payable		6,040	(+) Interest on Investment	1,600	33,600
Outstanding Wages		100	Debtors	53,000
Outstanding Interest		200	(-) Bad Debts	1,000
				52,000
			(-) provision	2,600
			(-) Discount	500	48,900
			Bills Receivable		20,000
			Motor Car	25,000
			(-) Depreciation	1,250	23,750
			Closing Stock		32,500
		2,97,350			2,97,350

Q.14 From the following Trial Balance you are required to prepare trading and profit and loss account for the year ending March 31, 2017 and Balance Sheet on that date.

Account Title	₹	Account Title	₹
Opening stock	25,000	Sales	7,00,000
Furniture	16,000	Creditors	72,500
Purchases	5,55,300	Bank Overdraft	50,000
Carriage Inwards	4,700	Provision for bad and doubtful debts	2,100
Bad debts	1,800	Discount	500
Wages	52,000	Capital	2,00,000
Debtors	80,000	Purchases Return	20,000
Sales Return	15,000
Rent	24,000
Miscellaneous Expenses	3,400
Salaries	68,000
Cash	8,900
Drawings	14,000
Buildings	1,60,000
Advertising	10,000
Interest on Bank Overdraft	7,000
	10,45,100		10,45,100

Adjustments
1. Closing stock valued at ₹36,000.
2. Private purchases amounting to ₹5,000 debited to purchases account.
3. Provision for doubtful debts @ 5% on debtors.
4. Sign board costing ₹4,000 includes in advertising.
5. Depreciate furniture by 10%.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening Stock		25,000	By Sales	7,00,000
To Purchases	5,55,300		(-) Returns Inwards	15,000	6,85,000
(-) Return Outwards	20,000		By Closing Stock		36,000
(-) Private purchases	5,000	5,30,300
To Carriage Inwards		4,700
To wages		52,000
To Gross Profit c/d		1,09,000
		7,21,000			7,21,000
To Rent		24,000	By Gross profit b/d		1,09,000
To Miscellaneous expenses		3,400	By Discount		500
To salaries		68,000	By Net Loss		4,200
To Advertising	10,000
(-) Sign board advertising	4,000	6,000
To Interest on Bank overdraft		7,000
To Bad debts		1,800
To Provision for doubtful debt	4,000
(-) Existing provision	2,100	1,900
To Depreciation on furniture		1,600
		1,13,700			1,13,700

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Creditors		72,500	Building		1,60,000
Bank Overdraft		50,000	Cash		8,900
Capital	2,00,000		Furniture	16,000
(-) Drawings	14,000		(-) Depreciation 10%	1,600	14,400
	1,86,000		Closing stock		36,000
(-)Loss	4,200		Sign board		4,000
	1,81,800		Debtors	80,000
(-) Private purchases	5,000	1,76,800	(-) Provision for doubtful debts	4,000	76,000
		2,99,300			2,99,300

Q.15 From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending March 31, 2017:

Account Title	₹	Account Title	₹
Drawings	20,000	Capital	2,00,000
Sundry debtors	80,000	Return outwards	2,000
Bad debts	1,000	Bank overdraft	12,000
Trade expenses	2,400	Provision for bad debts	4,000
Printing & Stationery	2,000	Sundry creditors	60,000
Rent Rates & Taxes	5,000	Bills payable	15,400
Freight	4,000	Sales	2,76,000
Returns inwards	7,000
Opening stock	25,000
Purchases	1,80,000
Furniture & Fixture	20,000
Plant & machinery	1,00,000
Bills receivable	14,000
Wages	10,000
Cash in hand	6,000
Discount allowed	2,000
Investments	40,000
Motor car	51,000
	5,69,400		5,69,400

Adjustments:
1. Closing stock was ₹ 45,000.
2. Provision for doubtful debts is to be maintained @2% on debtors.
3. Depreciation charged on: furniture and fixture @5%, plant and machinery @6% and motor car @10%.
4. A machine of ₹ 30,000 was purchased on October 01, 2016.
5. The manager is entitle to a commission of @10% of the net profit after charging such commission.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening stock		25,000	By Sales	2,76,000
To Purchase	1,80,000		(-) Return Inwards	7,000	2,69,000
(-) Return Outwards	2,000	1,78,000	By Closing stock		45,000
To Wages		10,000
To gross profit c/d		1,01,000
		3,14,000			3,14,000
To bad debts		1,000	To Gross Profit b/d		1,01,000
To trade expenses		2,400	By provision for Bad Debts	4,000
To printing & Stationery		2,000	(-) New Provision	1,600	2,400
To Rent. Rates & Taxes		5,000
To Freight		4,000
To Discount Allowed		2,000
To Depreciation on furniture & Fixture		1,000
To Depreciation on Plant & machinery (₹4,200+₹900)		5,100
To Depreciation on motor car		5,100
To Manager’s Commission		6,891
To Net profit c/d		68,909
		1,03,400			1,03,400

Working Note:

$\begin{array}{l} 1 . \\ Depreciation on Plant and machinery \\ ₹30,000 Machinery was purchased on 1 October, 2016 . \\ Hence, Dep on ₹70,000 (1,00,000 – 30,000) @ 6% = ₹4,200 \\ and Dep on ₹30,000 @ 6% for six months = ₹900 \\ = ₹(4,200 + 900) = ₹5,100 \end{array}$ $\begin{array}{l} 2 . \\ Profit before Manager’s Commission: \\ = (1,03,400 – 27,600) = ₹75,800 . \\ manager is entitled to a commission @10% on the new profit \\ after charging such commission = ₹75,800 × \frac{10}{110} = ₹6,891 \end{array}$

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	2,00,000		Sundry Debtors	80,000
(+) Net profit	68,909		(-) provision for Bad Debts	1,600	78,400
	2,68,909		Furniture & Fixture	20,000
(-) Drawings	20,000	2,48,909	(-) Depreciation @ 5%	1,000	19,000
Bank Overdraft		12,000	Plant & machinery	1,00,000
Creditors		60,000	(-) Depreciation @ 6% (₹4,200+900)	5,100	94,900
Bills payable		15,400	Motor Car	51,000
Manager’s Commission outstanding		6,891	(-) Depreciation @ 10%	5,100	45,900
			Cash in Hand		6,000
			Bills Receivable		14,000
			Investments		40,000
			Closing Stock		45,000
		3,43,200			3,43,200

Q.16 Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars:

Account Title	₹	Account Title	₹
Sundry debtors	1,00,000	Bills Payable	85,550
Bad debts	3,000	Sundry creditors	25,000
Trade expenses	2,500	Provision for bad debts	1,500
Printing & Stationary	5,000	Return outwards	4,500
Rent, Rates and Taxes	3,450	Capital	2,50,000
Freight	2,250	Discount received	3,500
Sales return	6,000	Interest received	11,260
Motor car	25,000	Sales	1,00,000
Opening stock	75,550
Furniture & Fixture	15,500
Purchases	75,000
Drawings	13,560
Investments	65,500
Cash in hand	36,000
Cash in bank	53,000
	4,81,310		4,81,310

Adjustments:
1. Closing stock was valued ₹35,000.
2. Depreciation charged on furniture and fixture @5%.
3. Further bad debts ₹1,000. Make a provision for bad debts @5% on sundry debtors.
4. Depreciation charged on motor car @10%.
5. Interest on drawing @6%.
6. Rent, rates and taxes was outstanding ₹200.
7. Discount on debtors 2%.

Ans.

Trading & Profit and Loss Account As on ……….
Particulars		₹	Particulars		₹
To Opening Stock		75,550	By Sales	1,00,000
To Purchase	75,000		(-) Return Inwards	6,000	94,000
(-) Return Outwards	4,500	70,500	By Closing Stock		35,000
			By Gross Loss c/d		17,050
		1,46,050			1,46,050
To Gross Loss b/d		17,050	By Discount Received		3,500
To Bad Debts	3,000		By Interest Received		11,260
(+) Bad Debts	1,000		By Interest on Drawings		814
(+) Provision for Bad Debts	4,950		By Net Loss		27,482
(-) Old Provision	1,500	7,450
To Trade Expenses		2,500
To Printing & Stationery		5,000
To Rent, Rates & Taxes	3,450
(+) Outstanding Rent	200	3,650
To Freight		2,250
To Depreciation on Furniture		775
To Depreciation on Motor Car		2,500
To Discount on Debtors		1,881
		43,056			43,056

Note: Freight and carriage on Sales or Carriage outward ₹2,250 is an indirect expense.

Balance Sheet As on ……….
Liabilities		₹	Assets		₹
Capital	2,50,000		Cash in Hand
(-) Net Loss	27,482		Cash at Bank
	2,22,518		Investment
(-) Drawings	13,560		Motor Car	25,000
(-) Interest	814	2,08,144	(-) Depreciation @ 10%	2,500
Bills Payable		85,550	Furniture & Fixture	15,000
Sundry Creditors		25,000	(-) Depreciation @ 5%	775
Outstanding Rent, Rates & Taxes		200	Sundry Debtors	1,00,000
			(-) Bad Debts	1,000
			(-) Provision for Bad Debts	4,950
			(-) Discount on Debt	1,881	92,169
			Closing Stock		35,000
		3,18,894			3,18,894

Working Note:

Particulars	₹
Sundry Debtors	1,00,000
(-) Further Bad Debts	1,000
	99,000
(-) provision (5%)	4,950
	94,050
(-) Discount (2%)	1,881
	92,169

Q.17 Following balances have been extracted from the trial balance of M/s Keshav Electronics Ltd. You are required to prepare the trading and profit and loss account and a balance sheet as on March 31, 2017.

Account Title	₹	Account Title	₹
Opening stock	2,26,000	Sales	6,80,000
Purchases	4,40,000	Return outwards	15,000
Drawings	75,000	Creditors	50,000
Buildings	1,00,000	Bills payable	63,700
Motor van	30,000	Interest received	20,000
Freight inwards	3,400	Capital	3,50,000
Sales return	10,000
Trade expenses	3,300
Heat & Power	8,000
Salary & Wages	5,000
Legal expenses	3,000
Postage & Telegram	1,000
Bad debts	6,500
Cash in hand	79,000
Cash at bank	98,000
Sundry debtors	25,000
Investments	40,000
Insurance	3,500
Machinery	22,000
	11,78,700		11,78,700

The following additional information is available:
1. Stock on March 31, 2017 was ₹ 30,000.
2. Depreciation is to be charged on building at 5% and motor van at 10%.
3. Provision for doubtful debts is to be maintained at 5% on Sundry Debtors.
4. Unexpired insurance was ₹ 600.
5. The manager is entitled to a commission @5% on net profit after charging such commission.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening Stock		2,26,000	By Sales	6,80,000
To Purchase	4,40,000		(-) Return Inwards	10,000	6,70,000
(-) Return Outwards	15,000	4,25,000	By Closing Stock		30,000
To Freight Inward		3,400
To Heat & Power		8,000
To Gross Profit		37,600
		7,00,000			7,00,000
To Salary & Wages		5,000	By Gross Profit b/d		37,600
To Trade Expenses	3,300		By Interest Received		20,000
To Legal Expenses		3,000
To Postage & Telegram		1,000
To Bad Debts	6,500
(+) Provision	1,250
To Insurance	3,500
(-) Prepaid	600	2,900
To Depreciation on Building		5,000
To Depreciation on Motor Van		3,000
To Manager’s Commission (₹26,650 x 5/105)

1,269

To Net profit

25,381

57,600

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	3,50,000		Machinery		22,000
(+) Profit (Net)	25,381		Investments		40,000
	3,75,381		Buildings	1,00,000
(-) Drawings	75,000	3,00,381	(-) Depreciation	5,000	95,000
Creditors		50,000	Motor Van	30,000
Bills Payable		63,700	(-) Depreciation @ 10%	3,000	27,000
Manager’s Commission Outstanding		1,269	Cash in Hand		79,000
			Cash at Bank		98,000
			Sundry Debtors	25,000
			(-) Provision for Bad Debts	1,250	23,750
			Prepaid Insurance		600
			Closing Stock		30,000
		4,15,350			4,15,350

Q.18 From the following balances extracted from the books of Raga Ltd. prepare a trading and profit and loss account for the year ended March 31, 2017 and a balance sheet as on that date.

Account Title	₹	Account Title	₹
Drawings	20,000	Sales	2,20,000
Land & Buildings	12,000	Capital	1,01,110
Plant & machinery	40,000	Discount	1,260
Carriage inwards	100	Apprentice premium	5,230
Wages	500	Bills payable	1,28,870
Salary	2,000	Purchases return	10,000
Sales Return	200
Bank charges	200
Coal, Gas & Water	1,200
Purchases	1,50,000
Trade Expenses	3,800
Stock (opening)	76,800
Cash at bank	50,000
Rates and Taxes	870
Bills Receivable	24,500
Sundry Debtors	54,300
Cash in hand	30,000
	4,66,470		4,66,470

The additional information is as under:
1. Closing stock was valued at the end of the year ₹20,000.
2. Depreciation on plant and machinery charged at 5% and land and building at 10%.
3. Discount on debtors at 3%.
4. Make a provision at 5% on debtors for doubtful debts.
5. Salary outstanding was ₹100 and wages prepaid was ₹40.
6. The manager is entitled a commission of 5% on net profit after charging such commission.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening Stock		76,800	By Sales	2,20,000
To Purchase	1,50,000		(-) Sales Return	200	2,19,800
(-) Purchase Return	10,000	1,40,000	By Closing Stock		20,000
To Carriage Inwards		100
To Wages	500
(-) Prepaid	40	460
To Gas, Coal & Water		1,200
To Gross Profit c/d		21,240
		2,39,800			2,39,800
To Salary	2,000		By Gross Profit b/d		21,240
(+) Outstanding	100	2,100	By Discount		1,260
To Bank Charges		200	By Apprentice Premium		5,230
To Trade Expenses		3,800
To Rates & Taxes		870
To Depreciation on Plant & machinery		2,000
To Depreciation on Land & Building		1,200
To Provision for Doubtful Debts		2,715
To Discount Allowed		1,548
To Manager’s Commission (₹13,297 x 5/105)		633
To Net profit		12,664
		27,730			27,730

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	1,01,110		Land & Building	12,000
(+) Net Profit	12,664		(-) Depreciation	1,200	10,800
	1,13,774		Cash at Bank		50,000
(-) Drawings	20,000	93,774	Plant & Machinery	40,000
Bills Payable		1,28,870	(-) Depreciation	2,000	38,000
Outstanding Salary		100	Bills Receivable		24,500
Outstanding Manager’s Commission		633	Sundry Debtors	54,300
			(-) Provision	2,715
			(-) Discount	1,548	50,037
			Cash in Hand		30,000
			Closing Stock		20,000
			Prepaid Wages		40
		2,23,377			2,23,377

Q.19 From the following balances of M/s Jyoti Exports. Prepare trading and profit and loss account for the year ended March 31, 2017 and balance sheet as on this date.

Account Title	₹	Account Title	₹
Sundry debtors	9,600	Sundry Creditors	2,500
Opening stock	22,800	Sales	72,670
Purchases	34,800	Purchases returns	2,430
Carriage inwards	450	Bills payables	15,600
Wages	1,770	Capital	42,000
Office rent	820
Insurance	1,440
Factory rent	390
Cleaning charges	940
Salary	1,590
Building	24,000
Plant & Machinery	3,600
Cash in hand	2,160
Gas and water	240
Import duty (purchase)	60
Furniture	20,540
Patents	10,000
	1,35,200		1,35,200

Closing stock ₹10,000.
1. To provision for doubtful debts is to be maintained at 5% on sundry debtors.
2. Wages amounting to ₹500 and salary amounting to ₹350 are outstanding.
3. Factory rent prepaid ₹100.
4. Depreciation charged on Plant & machinery @5% and Building @10%.
5. Outstanding insurance ₹100.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars	₹
To Opening Stock		22,800	By Sales	72,670
To purchase	34,800		By Closing Stock	10,000
(-) Purchase Return	2,430	32,370
To Clearing Charges		940
To Carriage Inward		450
To Factory Rent	390
(-) Prepaid	100	290
To Gas & Water		240
To Import duty		60
To Wages	1,770
(+) Outstanding Wages	500	2,270
To Gross profit c/d		23,250
		82,670		82,670
To Office Rent		820	By Gross Profit b/d	23,250
To Insurance	1,440
(+) Outstanding Insurance	100	1,540
To Salary	1,590
(+) Outstanding Salary	350	1,940
To provision for Bad Debts		480
To Depreciation on Building		2,400
To Depreciation on Plant & machinery		180
To Net profit		15,890
		23,250		23,250

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	42,000		Sundry Debtors	9,600
(+) Net Profit	15,890	57,890	(-) Provision for Bad Debts @5%	480	9,120
Sundry Creditors		2,500	Building	24,000
Bills Payable		15,600	(-) Depreciation @10%	2,400	21,600
Outstanding Salary		350
Outstanding Wages		500
Outstanding Insurance		100	Plant & Machinery	3,600
			(-) Depreciation @5%	180	3,420
			Cash in Hand		2,160
			Furniture		20,540
			Patents		10,000
			Prepaid Rent (factory)		100
			Closing Stock		10,000
		76,940			76,940

Note: As per solution Net Profit is ₹15,890 and Total of the Balance Sheet is ₹76,940. However, textbook shows Net Profit ₹15,895 and Total of the Balance Sheet ₹76,945.

Q.20 The following balances have been extracted from the books of M/s Green House for the year ended March 31, 2017. Prepare trading and profit and loss account and balance sheet as on this date.

Account Title	₹	Account Title	₹
Purchases	80,000	Capital	2,10,000
Bank balance	11,000	Bills Payable	6,500
Wages	34,000	Sales	2,00,000
Debtors	70,300	Creditors	50,000
Cash in hand	1,200	Return outwards	4,000
Legal expenses	4,000
Building	60,000
Machinery	1,20,000
Bills Receivable	7,000
Office expenses	3,000
Opening stock	45,000
Gas and fuel	2,700
Freight and Carriage	3,500
Factory lighting	5,000
Office furniture	5,000
Patent right	18,800
	4,70,500		4,70,500

Adjustments:

Machinery is depreciated at 10% and buildings depreciated at 6%.
Interest on capital @ 4%.
Outstanding wages ₹50.
Closing stock ₹50,000.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars	₹
To Opening Stock		45,000	By Sales	2,00,000
To Purchase	80,000		By Closing Stock	50,000
(-) Return Outwards	4,000	76,000
To Gas & Fuel		2,700
To Freight & Carriage		3,500
To wages	34,000
(+) Outstanding Wages	50	34,050
To factory Lighting		5,000
To Gross profit		83,750
		2,50,000		2,50,000
To Legal Expenses		4,000	By Gross profit b/d	83,750
To Office Expenses		3,000
To Interest on Capital		8,400
To Depreciation on Building		3,600
To Depreciation on Machinery		12,000
To Net Profit		52,750
		83,750		83,750

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	2,10,000		Bank		11,000
(+) Interest On Capital	8,400		Debtors		70,300
	2,18,400		Office Furniture		5,000
(+) Net Profit	52,750	2,71,150	Cash in Hand		1,200
Bills Payable		6,500	Building	60,000
Creditors		50,000	(-) Depreciation @ 6%	3,600	56,400
Outstanding Wages		50	Machinery	1,20,000
			(-) Depreciation @ 10%	12,000	10,800
			Bills Receivable		7,000
			Patent Right		18,800
			Closing Stock		50,000
		3,27,700			3,27,700

Q.21 From the following balances extracted from the book of M/s Manju Chawla on March 31, 2017. You are requested to prepare the trading and profit and loss account and a balance sheet as on this date.

Account Title	₹	₹
Opening Stock	10,000
Purchases and Sales	40,000	80,000
Returns	200	600
Wages	6,000
Dock & Cleaning charges	4,000
Lighting	500
Misc. Income		6,000
Rent		2,000
Capital		40,000
Drawings	2,000
Debtors & Creditors	6,000	7,000
Cash	3,000
Investment	6,000
Patent	4,000
Land & machinery	43,000
Donations & Charity	600
Tax collected		1,000
Furniture	11,300
	1,36,600	1,36,600

Closing stock was ₹2,000.

Interest on drawings @ 7% and interest on capital @5%.
Land & Machinery is depreciated at 5%.
Interest on investment @6%.
Unexpired rent ₹100.
Charge 5% depreciation on furniture.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening stock		10,000	By Sales	80,000
To Purchase	40,000		(-) Sales Return	200	79,800
(-) Purchase Return	600	39,400	By Closing Stock		2,000
To Wages		6,000
To Dock & Clearing charges		4,000
To Gross Profit c/d		22,400
		81,800			81,800
To Donation & Charity		600	By Gross Profit b/d		22,400
To Interest on Capital		2,000	By Interest on Drawings		140
To Depreciation on furniture		565	By Interest on Investment		360
To Depreciation on Land & Machine		2,150	By Miscellaneous Income		6,000
To Lighting		500	By Rent Received	2,000
To Net Profit		24,985	(-) Un expired Rent	100	1,900
		30,800			30,800

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	40,000		Furniture	11,300
(+) Interest on Capital	2,000		(-) Depreciation @5%	565	10,735
	42,000		Land & Machinery	43,000
(+) Net Profit	24,985		(-) Depreciation @ 5%	2,150	40,850
	66,985		Investment	6,000
(-) Drawings	2,000		(+) Interest @ 6%	360	6,360
(-) Interest	140	64,845	Debtors		6,000
Unexpired Rent		100	Cash		3,000
Tax Collected		1,000	Patents		4,000
Creditors		7,000	Closing Stock		2,000
		72,945			72,945

Note:

As per solution Gross Profit is ₹22,400 However, textbook shows ₹21,900.
As per solution Net Profit is ₹24,985 However, textbook shows ₹25,185.
As per solution Total of Balance Sheet is ₹72,945 However, textbook shows ₹71,185.

Q.22 The following balances were extracted from the books of M/s Panchsheel Garments on March 31, 2017.

Account Title	₹	Account Title	₹
Opening stock	16,000	Sales	1,12,000
Purchases	67,600	Return outwards	3,200
Return Inwards	4,600	Discount	1,400
Carriage inwards	1,400	Bank overdraft	10,000
General expenses	2,400	Commission	1,800
Insurance	4,000	Creditors	16,000
Scooter expenses	200	Capital	50,000
Salary	8,800
Cash in hand	4,000
Scooter	8,000
Furniture	5,200
Buildings	65,000
Debtors	6,000
Wages	1,200
	1,94,400		1,94,400

Prepare the trading and profit and loss account for the year ended March 31, 2017 and a balance sheet as on that date:
(a) Unexpired insurance ₹ 1,000.
(b) Salary due but not paid ₹ 1,800.
(c) Wages outstanding ₹ 200.
(d) Interest on capital 5%.
(e) Scooter is depreciated @ 5%.
(f) Furniture is depreciated @10%.
Closing stock ₹ 15,000.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening Stock		16,000	By Sales	1,12,000
To Purchase	67,600		(-) Return Inwards	4,600	1,07,400
(-) Return Outwards	3,200	64,400	By Closing Stock		15,000
To Carriage Inwards		1,400
To Wages	1,200
(+) Outstanding Wages	200	1,400
To Gross Profit		39,200
		1,22,400			1,22,400
To General Expenses		2,400	By Gross Profit		39,200
To Insurance	4,000		By Discount		1,400
(-) Unexpired Insurance	1,000	3,000	By Commission		1,800
To Scooter Expenses		200
To Salary	6,800
(+) Outstanding Salary	1,800	10,600
To Interest on Capital		2,500
To Depreciation on Scooter		400
To Depreciation on furniture		520
To Net Profit		22,780
		42,400			42,400

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	50,000		Cash in Hand		4,000
(+) Interest on Capital	2,500		Scooter	8,000
(+) Net Profit	22,780	75,280	(-) Depreciation	400	7,600
Bank Overdraft		10,000	Furniture	5,200
Creditors		16,000	(-) Depreciation	520	4,680
Outstanding Salary		1,800	Buildings		65,000
Outstanding Wages		200	Debtors		6,000
			Unexpired Insurance		1,000
			Closing Stock		15,000
		1,03,280			1,03,280

Q.23 Prepare the trading and profit and loss account and balance sheet of M/s Control Device India on March 31, 2017 from the following balance as on that date.

Account Title	₹	₹
Drawings & Capital	19,530	67,500
Purchase & Sales	45,000	1,12,500
Salary & Commission	25,470	1,575
Carriage	2,700
Plant & machinery	27,000
Furniture	6,750
Opening stock	42,300
Insurance premium	2,700
Interest		7,425
Bank overdraft		24,660
Rent and Taxes	2,160
Wages	11,215
Returns	2,385	1,440
Carriage outwards	1,485
Debtors & Creditors	36,000	58,500
General expenses	6,975
Import duty (purchase)	530
Investment	41,400
	2,73,600	2,73,600

Closing stock was valued ₹20,000.

Interest on capital @10%.
Interest on drawings @5%.
Wages outstanding ₹50.
Outstanding salary ₹20.
Provide depreciation @5% on plant and machinery.
Make a 5% provision on debtors.

Ans.

Trading & Profit and Loss Account As on 31^st March, 2017
Particulars		₹	Particulars		₹
To Opening Stock		42,300	By Sales	1,12,500
To Purchase	45,000		(-) Sales Return	2,385	1,10,115
(-) Purchase Return	1,440	43,560	By Closing Stock		20,000
To Carriage		2,700
To Wages	11,215
(+) Outstanding Wages	50	11,265
To Import duty		530
To Gross Profit		29,760
		1,30,115			1,30,115
To Salary	25,470		By Gross Profit b/d		29,760
(+) Outstanding Salary	20	25,490	By Commission		1,575
To Rent & Taxes		2,160	By Interest		7,425
To Insurance Premium		2,700	By Interest on Drawings		977
To Carriage Outward		1,485	Net Loss		8,973
To General Expenses		6,975
To Interest on Capital		6,750
To Depreciation of Plant & Machinery		1,350
To Provision for Debtors		1,800
		48,710			48,710

Balance Sheet As on 31^st March, 2017
Liabilities		₹	Assets		₹
Capital	67,500		Furniture		6,750
(+) Interest on capital	6,750		Plant & machinery	27,000
(-) Loss (net)	8,973		(-) Depreciation @ 5%	1,350	25,650
(-) Drawings	19,530		Debtors	36,000
(-) Interest on Drawings	977	44,770	(-) Provision	11,800	34,200
Bank Overdraft		24,660	Investment		41,400
Creditors		58,500	Closing stock		20,000
Outstanding Wages		50
Outstanding Salary		20
		1,28,000			1,28,000

Q.24 The following balances appeared in the trial balance of M/s Kapil Traders as on March 31, 2017:
Sundry debtors: ₹30,500
Bad debts: ₹500
Provision for doubtful debts: ₹2,000

The partners of the firm agreed to records the following adjustments in the books of the firm: further bad debts ₹300, Maintain provision for bad debts 10%.

Show the following adjustments in the bad debts account, provision account, debtors account, profit and loss account and balance sheet.

Ans.

Dr. Bad Debts Account Cr.
Date	Particulars	J.F.	₹	Date	Particulars	J.F.	₹
2017				2017
Mar 31	To balance b/d		500	Mar 31	By Provision for Bad Debts A/c		800
Mar 31	To sundry Debtors A/c		300
			800				800

Dr. Provision for Bad Debts Account Cr.
Date	Particulars	J.F.	₹	Date	Particulars	J.F.	₹
2017				2017
Mar 3	To Bad Debts A/c		800	Apr 1	By Balance b/d		800
Mar 31	To Balance c/d (new provision)		3,020	Mar 31	By Profit & Loss A/c		1,820
			3,820				3,820

Dr. Debtors Account Cr.
Date	Particulars	J.F.	₹	Date	Particulars	J.F.	₹
2017				2017
Mar 31	To Balance b/d		30,500	Mar 31	By Further Bad Debts A/c		300
				Mar 31	By Provision for Bad Debts A/c		3,020
				Mar 31	By Balance c/d		27,180
			30,500				30,500

Dr. Profit & Loss Account Cr.
Date	Particulars		J.F.	₹	Date	Particulars	J.F.	₹
2017
	To Bad Debts A/c	500
	(+) Further Bad Debts	300		800
	To Provision for Bad Debts
	New	3,020
	(-) Old	2,000		1,020
				1,820

Balance Sheet As on 31^st March, 2017
Liabilities	₹	Assets		₹
		Sundry Debtors	30,500
		(-) Bad Debts	300
			30,200
		(-) Provision (New)	3,020	27,180

Q.25 Prepare the bad debts account, Provision for account, profit and loss account and balance sheet from the following information as on March 31, 2017.
Debtors: ₹80,000
Bad debts: ₹2,000
Provision for doubtful debts: ₹5,000.
Adjustments: Bad debts ₹500. Provision on debtors @3%.

Ans.

Dr. Bad Debts Account Cr.
Date	Particulars	J.F.	₹	Date	Particulars	J.F.	₹
2017				2017
Mar 31	To balance b/d		2,000	Mar 31	By Provision for Bad Debts A/c		2,500
Mar 31	To Debtors A/c		500
			2,500				2,500

Dr. Provision for Bad Debts Account Cr.
Date	Particulars	J.F.	₹	Date	Particulars	J.F.	₹
2017				2017
	To Bad Debts A/c		2,500		By Balance b/d (Old Provision)		5,000
	To Profit & Loss A/c (b/f)		115
	To Balance c/d @3% on 79,500		2,385
			5,000				5,000

Dr. Profit & Loss Account Cr.
Dt.	Particulars		J.F.	₹	Dt.	Particulars	J.F.	₹

	To Bad Debts	2,000				By Old Provision for doubtful debts		5,000
	(+) Further Bad Debts	500
	(+) New Provision for Bad Debts	2,385		4,885
	To Balancing Figure			115
				5,000				5,000

Balance Sheet As on 31^st March, 2017
Liabilities	₹	Assets		₹
		Debtors	80,000
		(-) Bad Debts	500
		(-) Provision for Bad Debts	2,385	77,115

Working Note:

₹2,500 + ₹2,385 – ₹5,000 = (₹115)

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

Ans.

The vertical format of a Profit and Loss Account is given below. This too is more commonly used for Profit Statements and reporting.

Profit and Loss Account for the year ended 31^st March, 2020
	Rs.
Gross Profit
Add: Other-Income:
Discount received
Commission received
Add; Non-Trading Income:
Bank Interest
Rent of Property let out
Dividend from Shares
Add: Abnormal Gains:
Profit on sale of machinery
Profit on sale of Investments

Less: Management expenses
Salaries (administrative)
Office rent, rate and taxes
Printing and Stationary
Telephone charges
Postage and Telegrams
Insurance
Audit fees
Legal Charges
Electricity charges
Less: Maintenance expenses
Repairs & renewals
Deprecation on:
Office equipment
Office Furniture
Office Buildings
Less: Selling and Distribution expenses
Salaries (selling staff)
Advertisement
God own rent
Carriage outward
Bad Debts
Provision for bad debts
Selling Commission
Less: Financial expenses
Bank charges
Interest on Loan
Discount on Bills
Discount allowed to customers
Less: Abnormal Losses
Loss on sale of machinery
Loss on sale of Investment
Loss by fire
Net Profit (transferred to Capital A/c)

The vertical format is intended to help them gain a better understanding of the financial information presented by the accountants and therefore improve their decision making. The information shown previously is now presented in the vertical format.

Balance Sheet as at 31^st March, 2020
	Rs.
Fixed Assets:
Land
Building
Plant and Machinery
Furniture
Delivery van
Current Assets:
Stock Debtors
Bills Receivables
Cash at Bank
Cash in Hand
Current Liabilities:
Creditors
Bills Payable
Outstanding Expenses
Working Capital
NET ASSETS EMPLOYED
FINANCED BY:
Capital
Add: Net Profit

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FAQs (Frequently Asked Questions)

The closing stock can be defined as the number of raw materials remaining unsold at the end of the accounting period. Based on the difference between the cost price and the value of its resale, the closing stock can be calculated.

When the expenditures of a business remain unpaid till the end of the accounting period, it is termed outstanding expenses. This may include the wages, salaries, loan interests and many more.

The income that is earned in the current year but remains unreceived till the end of the year is known as accrued income. Some of these incomes include rent, commission, loan interests and many more.

NCERT Solutions Class 11 Accountancy Chapter 10