Question:1

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

Solution:

It is extremely important to record the adjusting entries in the preparation of final accounts.

1. This is done in order to assess the true net profit or net loss of the business organisation.

2. It helps us record those adjustments which were left or omitted and were not recorded in the accounts.

3. It assists us to separate all the financial transactions into a year-wise category. The financial statements include
only those entries which belong to the current year. It rules out the previous and forthcoming years’ entries which are
the basis for accrual basis of accounting.

4. Further, it provides us the room for making various provisions which are made at the end of the year, after
assessing the entire year’s performance.

Question:2

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

Solution:
Closing stock implies the value of unsold goods at the end of an accounting period. The valuation of closing stock is
done on the basis of its cost price or the realisable value, whichever of the two is lesser.

Example: If a good with the cost price of Rs 20,000 is purchased at the end of an accounting period and its realisable
value is Rs 30,000, then the closing stock will be valued at Rs 20,000 not at Rs 30,000.

Treatment of closing stock

If closing stock is given in the adjustment, then there will be two postings.

Trading Account Balance Sheet

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount

Closing Stock

If closing stock is given in the trial balance, then it needs to be shown only in the assets side of the Balance Sheet.

Question:3

State the meaning of:

(a) Outstanding expenses

(b) Prepaid expenses

(c) Income received in advance

(d) Accrued income

Solution:
(a) Outstanding Expenses: These refer to those expenses which belong to and are incurred in the current accounting
period but are left unpaid. In other words, we can say that the services in exchange of these payments have been
realised but the payments are not made. For example, if Rs 1000 wages are outstanding, then this means that labour
worth Rs 1,000 has been used but has not been paid for till the end of the year.

(b) Prepaid Expenses: These refer to those expenses for which the benefits have not been realised but the payments
have already been made in advance. These are basically the advance payments for the next year, which are made in
the current accounting period.

Example: Prepaid insurance premium of Rs 1,000 means that the payment of Rs 1,000 is made in advance for the
next accounting period.

(c) Income Received in Advance: This refers to the income received whose actual realisation of benefits will occur in
the next accounting period. These are also called unearned incomes.

Example: Commission of Rs 1,200 for the year 2011-12 is received in 2010-11. This commission does not belong to
the current year as it is related with the work to be done in the next accounting year i.e., 2011-12.

(d) Accrued Income: This refers to those incomes which have been earned during an accounting period but have not
been actually realised in the current period. These are also called earned incomes.

Question:4

Give the performa of income statement and balance in vertical form.

Solution:
Income statement for the period ended ….
Amount Amount
Particulars
Rs Rs
Sales (Gross)
Less: Returns
Net Sales
Cost of goods sold
Opening Stock
Purchases
Less: Returns
Carriage Inwards
Wages
Cost of Goods Available for Sale
Less: Closing Stock
Gross Profit
Operating Expenses
(a) Selling Expenses
Advertising
Discount
Allowances
Bad-Debts and Provisions
Carriage Outwards
Total Selling Expenses
(b) General and Administration Expenses
Salaries
Rent and Rates
Insurance
Depreciation
Postage
Repairs
 General Expenses
Total Operating Expenses
Net Income from Operations (Operating
profit)
Other Income (Non-operating gains)
Interest Earned
Commission Earned
Profit on Sale of Fixed Assets
Less: Deductions (Non-operating expenses)
Interest Paid
Loss by Fire
Net Non-operating Gains
Net Income (Net profit)

Income statement for the period ended ….

Amount Amount
Particulars
Rs Rs
Current Assets
Cash in Hand
Cash at Bank
Bills Receivable
Accrued Income
Debtors
Stock
Prepaid Expenses
Total Current Assets
Less: Current Liabilities
Bank Overdraft
Outstanding Expenses
Bills Payable
Trade Creditors
Income Received in Advance
Total Current Liabilities
Net Working Capital
(Current assets and Current liabilities)
Fixed Assets
Furniture and Fixtures
Patents
Plants and Machinery
Building
Land
Goodwill
Total Fixed Assets
Total Assets (After paying current liabilities)
Capital Employed
Long-term Liabilities
Loan
Mortgage
Total Long-term Liabilities
Net Assets (being the difference between total assets and long-term liabilities)

Capital (Proprietor)
 Capital in the Beginning
Add: Capital Introduced During the Current Year
Interest on Capital, Salary, etc.
Profit for the Current Year
Less: Drawings During the Current Year
Interest on Drawings
Loss for the Current Year
Total Capital of the Proprietor at the End of the Year

Question:5

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

Solution:

The provision for doubtful-debts is created with the motive of minimising the effect of actual loss caused by the bad-
debts. The actual figure of the current year’s bad-debts will be known in the next year with the realisation of debtors.
At that point of time, it will be known as to how many of the debtors have become bad. Thus, instead of waiting for the
realisation of debtors, we create a provision for doubtful-debts in order to cover the expected future loss associated
with the debtors becoming bad.

Question:6

What adjusting entries would you record for the following?

(a) Depreciation

(b) Discount on debtors

(c) Interest on capital

(d) Manager’s commission

Solution:

(a)

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Depreciation Assets
Less: Depreciation

(b)

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Discount on Debtors Debtors
Less: New Provision
Less: Further Bad Debts
Less: Discount on Debtors

(c)

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Interest on Capital Capital
Add: Interest on
Capital

(d) Manager’s commission

There are two cases in manager’s commission.

Case 1: Manager’s commission based on profits before charging the manager’s commission.

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Manager’s Commission Outstanding Manager’s
Commission

Case 2: Manager’s commission based on profits after charging the manager’s commission.

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Net Profit before Outstanding Manager's
Manager's Commission Commission

O/S Manager's Commission

Net Profit after

Manager’s Commission
Question:7

What is meant by provision for discount on debtors?

Solution:

The discount is allowed to those debtors who are ready to pay a huge amount in one shot. It is given in order to
encourage them to repay the debt. The provision for discount on debtors is created on good debtors. The amount of
good debtors is calculated by deducting the amount of Bad Debts, further Bad Debts and new provision for Doubtful
Debts. The required percentage of the good debtors is calculated and the provision for discount on debtors is
deducted from the Debtors’ amount in the Assets side of a Balance Sheet. As it is a loss for the business, it is
shown in the Debit side of the Profit and Loss Account.

Question:8

Give the journal entries for the following adjustments:

(a) Outstanding salary at Rs 3,500.

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

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

(d) Purchase of furniture costing Rs 7,000 entered in the purchases book.

Solution:
S. Debit Credit
Particulars L.F.
No. Rs Rs
a) Salaries A/c Dr. 3,500
To Outstanding Salaries A/c 3,500
(Salaries of Rs 3,500 is remaining outstanding)

b) Rent A/c Dr. 500

To Outstanding Rent A/c 500
(Rent unpaid for one month at Rs 6000
)
500 = 12

c) Prepaid Insurance A/c Dr. 4,000

To Insurance A/c 4,000
(Insurance paid in advance for 3 months i.e. Rs
400)

d) Furniture A/c Dr. 7,000

To Purchases A/c 7,000
(Furniture was wrongly debited to Purchases
Account,
now rectified)

Question:9
What are adjusting entries? Why are they necessary for preparing the final accounts?

Solution:

Adjusting entries are the entries of those adjustments which are given outside the trial balance and which help us
reflect the true financial position i.e., profit or loss of an organisation. According to the double-entry system, all the
adjustments given outside the Trial Balance are posted at two places. The adjusting entries are necessary they
enable us to post and take into account those items which are omitted or entered with the wrong amount and/or
recorded under wrong heads.

The treatment of adjusting entries is necessary.

(i) It helps us assess the true financial position of an organisation based on accrual basis of accounting.

(ii) It helps us know the actual figure of profit or loss.

(iii) It records the omitted entries and rectifies the errors made.

(iv) It helps in providing depreciation and making different provisions, such as Bad Debts and depreciation.

Question:10

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

Solution:
The provision for doubtful-debts is provided after deducting the amount of bad-debts from the debtors. The provision
for doubtful-debts is provided because of the rationale that the actual amount of bad-debts will only be known in the
next year, when the amount of debtors will get realised. Thus, it will only then be known as to how many of the
debtors have become bad. Thus, in order to bridge-up the expected future loss, we create a provision for doubtful-
debts.

For the provision for doubtful-debts, we prepare debtors account and provision for doubtful-debts account. For
recording bad-debts, the following journal entry is passed.

Profit and Loss A/c Dr.

To Provision for Bad and Doubtful Debts A/c

Example: An extract from a Trial Balance as on December 31, 2010.

Debtors 10,500
Provision for Doubtful Debts as on January 01, 2010 1,000
Bad Debts Account 1,500

Adjustment:
(i) Further bad-debts amount to Rs 500.
(ii) Create a provision for doubtful-debts at 5% on debtors.

Explanation
The provision for Doubtful Debt as on January 01, 2010 was Rs 1,000 and the Bad Debts during the year were Rs
1,500. In addition to this, there was a further Bad Debt of Rs 500 which was known at the end of the year i.e.,
December 31, 2010. Now we need to create a provision for Doubtful Debts at 5% on debtors.

Profit and Loss A/c

Dr. Cr.
Particulars Amount Particulars Amount
Bad Debts 1,500
Add: Further Bad Debts 500
 Add: New Provision for Doubtful Debts 500

Less: Old Provision (given in Trial Balance) 1,000 1,500

Balance Sheet
Liabilities Amount Assets Amount
Debtors 10,500
Less: Further Bad Debts 500
10,000
Less: New Provision for Doubtful Debts 500 9,500

The amount of provision for Doubtful Debts is calculated by debiting the amount of further Bad Debts from debtors
and calculating the given percentage of provision on remaining debtors. This provision is added to the Bad Debts
amount in the profit and loss account and deducted from debtors in the assets side of a Balance Sheet.

Question:11

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

(a) When given inside the Trial Balance?

(b) When given outside the Trial Balance?

Solution:

(i) Prepaid expenses

(a) When given inside the Trial Balance: It will be posted only in the Assets side of the Balance Sheet.

Balance Sheet

Assets Amount
Prepaid
Expenses

(b) When given outside the Trial Balance:

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Concerned Expenses Prepaid Expenses
Less: Prepaid
Expenses
(ii) Depreciation

(a) If depreciation is given inside the Trial Balance, then it can be shown in the Debit side of the Profit and Loss A/c.
It means that this depreciation amount has already been deducted from the concerned assets in the Balance Sheet.

Profit and Loss Account

Dr. Cr.
Particulars Amount Particulars Amount
Depreciation

(b) If depreciation is given outside the Trial Balance, i.e. in the adjustments, then it is shown in the debit side of the
Profit and Loss Account and deducted from the concerned assets in the Assets side of Balance Sheet.

Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Depreciation on Concerned Assets Concerned Assets
Less: Depreciation

(iii) Closing stock

(a) The closing stock is valued at cost price or realisable value, whichever of the two is lesser. If given inside the
Trial Balance, then it will be posted only in the Assets side of the Balance Sheet.

Balance Sheet

Liabilities Amount Assets Amount

Closing Stock

(b) If the closing stock is given outside the Trial Balance then, it needs to be posted at two places.
Dr. Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Closing Stock
Closing Stock

Question:12
Prepare a trading and profit and loss account for the year ending December 31, 2017. from the balances extracted of
M/s Rahul Sons. Also prepare a balance sheet at the end of the year.

Account Title Amount Account Title Amount

Rs Rs

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 2,500
debts
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 4,300 Loan 34,800
Taxes
Fixtures and fittings 20,000
Trade expenses 1,500
Bad debts 2,000
Drawings 32,000
Repair and 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 Rs 1,000.
2. Rent receivable Rs 2,000.
3. Salary outstanding Rs 1,000 and insurance prepaid Rs 800.
4. Further bad debts Rs 1,000 and provision for doubtful debts @ 5% on debtors and discount on debtors @ 2%.
5. Closing stock Rs 32,000.
6. Depreciation on building @ 6% p.a.

Solution:
Books of M/s. Rahul Sons.
Trading Account for the year ending December 31, 2017

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 50,000 Sales 1,80,000

Purchases 1,75,000 Less: Sales Returns 3,000 1,77,000
Less: Purchase Returns 2,000 1,73,000 Closing Stock 32,000

Wages 3,000 Gross Loss 17,000

2,26,000 2,26,000

Profit and Loss Account for the year ending December 31, 2017

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Gross Loss 17,000 Discount Received 500

Salary 8,000 Commission Received 4,000
Add: Outstanding Salary 1,000 9,000 Less: Advance Commission1,000 3,000
Discount Allowed 1,000

Insurance 3,200 Rent 6,000

Less: Insurance Prepaid 800 2,400 Add: Rent Receivable 2,000 8,000
Rent Rates and Taxes 4,300
Trade Expenses 1,500 Net Loss 43,189
Bad-Debts 2,000
Add: Further Bad-Debts 1,000
Add: New Provision 4,050
Less: Old Provision 2,500 4,550
Discount on Debtors 1,539
Postage 300
 Telegram Expenses 200
Depreciation on Building 6,600
Repair and Renewals 1,600
Travelling Expenses 4,200
Legal Fees 500

54,689 54,689

Balance Sheet for the year ending December 31, 2017

Amount Amount
Liabilities Assets
Rs Rs

Capital 3,00,000 Debtors 82,000

Less: Net Loss 43,189 Less: Further Bad-Debts 1,000
Less: Drawings 32,000 2,24,811 Less: New Provision 4,050
Bills Payable 22,000 Less: Discount on Debtors (on Rs 76,950) 1,539 75,411
Loan 34,800 B/R 50,000
Advance Commission 1,000 Buildings 1,10,000
Outstanding Salary 1,000 Less: 6% Depreciation 6,600 1,03,400
Rent Receivable 2,000
Prepaid Insurance 800
Closing Stock 32,000
Furniture and Fittings 20,000

2,83,611 2,83,611

Question:13
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 Amount Account Title Amount

Rs Rs
Opening stock 35,000 Sales 2,50,000
Purchases 1,25,000 Purchase return 6,000
Return inwards 25,000 Creditors 10,000
 Postage and 600 Bills payable 20,000
Telegram
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 and 500 Capital 75,000
Transport
General expense 400
Insurance 4,000
Debtors 50,000
Cash in hand 20,000
Cash at bank 40,000
Machinery 20,000
Lighting and 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 Rs 1,500, discount on debtors @ 5% and make a provision on debtors @ 6%.
3. Wages prepaid Rs 1,000.
4. Interest on investment @ 5% p.a.
5. Closing stock 10,000.
Solution:
Trading Account for the year ending March 31, 2017
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 35,000 Sales 2,50,000

Purchases 1,25,000 Less: Sales Returns (25,000) 2,25,000
Less: Purchase Returns (6,000) 1,19,000 Closing Stock 10,000

Wages 3,000
Less: Prepaid Wages (1,000) 2,000
Gross Profit 79,000
2,35,000 2,35,000

Profit and Loss Account for the year ending March 31, 2017
Dr. Cr.
 Amount Amount
Particulars Particulars
Rs Rs

Bad Debts 3,500 Gross Profit 79,000

Add: Further Bad-debts 1,500 Interest on Accrued Investment 1,155
Add: New Provision 2,910 Discount 1,000
Less: Old Provision 4,500 3,410 Interest Received 5,400
Discount on Debtors 2,280
Postage and Telegram 600
Salary 12,300
Rent and Rates 1,000
Packing and Transport 500
General Expenses 400
Insurance 4,000
Discount 3,500
Depreciation on Machinery 1,000
Lighting and Heating 5,000
Net Profit 52,565

86,555 86,555

Balance Sheet
as on March 31, 2017
Amount Amount
Liabilities Assets
Rs Rs

Creditors 10,000 Cash in Hand 20,000

Bills Payable 20,000 Cash at Bank 40,000
Capital 75,000
Add: Net Profit 52,565 1,27,565 Debtors 50,000
Less: Further Bad-Debts 1,500

Less New Provision 2,910

Less: Discount on Debtors 2,280 43,310

Investment 23,100
Add: Interest on Investment 1,155 24,255

Machinery 20,000
Less: Depreciation 1,000 19,000

Prepaid Wages 1,000

 Closing Stock 10,000

1,57,565 1,57,565

Question:14
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 Amount Account Title Amount
Rs Rs
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 400
received
Cash in hand 77,800 Creditors 1,25,000
Cash at bank 60,800 Bill payable 6,040
Wages 2,400 Capital 1,00,000
Printing and 4,500
Stationery
Discount 400
Bad debts 1,500
Insurance 2,500
Investment 32,000
Debtors 53,000
Bills receivable 20,000
Postage and 400
Telegraph
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 Rs 1,000. Discount on debtors Rs 500 and make a provision on debtors @ 5%.
2. Interest received on investment @ 5%.
3. Wages and interest outstanding Rs 100 and Rs 200 respectively.
4. Depreciation charged on motor car @ 5% p.a.
5. Closing Stock Rs 32,500.
Solution:
Trading Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 50,000 Sales 2,50,000

Purchases 1,50,000 Less: Return Inwards 2,000 2,48,000

Less: Return Outwards 4,500 1,45,500 Closing Stock 32,500

Carriage Inwards 4,500

Wages 2,400
Add: Outstanding Wages 100 2,500
Gross Profit 78,000

2,80,500 2,80,500

Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Carriage Outward 400 Gross Profit 78,000

Printing and Stationery 4,500 Interest Received 3,500

Discount 400 Discount Received 400

Bad Debts 1,500 Interest Received on Investment 1,600
Add: Further Bad Debts 1,000
Add: New Provision 2,600 5,100

Discount on Debtors 500

Insurance 2,500
Postage and Telegraph 400

Commission 200
Interest 1,000
Add: Outstanding Interest 200 1,200
Repair 440

Lighting Charges 500

Telephone Charges 100
 Depreciation on Motor Car 1,250

Net Profit 66,010

83,500 83,500

Balance Sheet
Amount Amount
Liabilities Assets
Rs Rs

Creditors 1,25,000 Cash in Hand 77,800

Add: Interest Received 79,400
1,600
Bills Payable 6,040 Cash at Bank 60,800

Capital 1,00,000 Investment 32,000

Add: Net Profit 66,010 1,66,010 Debtors
53,000
Less: Further Bad Debts
1,000
Outstanding Interest 100 Less: New Provision
2,600
Outstanding Wages 200 Less: Discount on Debtors 500 48,900

Motor Car 25,000

Less: Depreciation 1,250 23,750
Bills Receivable 20,000
Closing Stock 32,500

2,97,350 2,97,350

Question:15
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.

Amount Amount
Particulars Particulars
( ) ( )

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%.
Solution:
Trading A/c
Dr. For the year ended 31st March, 2017 Cr.
Amount Amount
Particulars Particulars
( ) ( )
Opening Stock 25,000 Sales 7,00,000
Purchases 5,55,300 Less: Sales Return (15,000) 6,85,000
Less: Private Purchases (5,000) Closing Stock 36,000
Less: Purchases Return (20,000) 5,30,300
Carriage Inwards 4,700
Wages 52,000
Gross Profit c/d 1,09,000

7,21,000 7,21,000

Profit and Loss A/c

Dr. For the year ended 31st March, 2017 Cr.
Amount Amount
Particulars Particulars
( ) ( )
Bad debts 1,800 Gross Profit b/d 1,09,000
Provision for Doubtful debts 4,000 Discount Received 500
Less: Old Provision (2,100) 3,700 Net Loss to be transferred 4,600
Rent 24,000
Miscellaneous Expenses 3,400
Salaries 68,000
Advertising 10,000
Less: Sign Board (4,000) 6,000
Interest on Bank Overdraft 7,000
Depreciation on Furniture 2,000

1,14,100 1,14,100

Balance Sheet
Dr. As at 31st March, 2017 Cr.
Amount Amount
Liabilities Assets
( ) ( )
Capital 2,00,000 Furniture 16,000
Add: Sign Board 4,000
Less: Drawings (19,000) Less: Depreciation (2,000) 18,000
Less: Net Loss (4,600) 1,76,800 Building 1,60,000
Creditors 72,500 Debtors 80,000
 Bank Overdraft 50,000 Less: Provision (New) (4,000) 76,000
Closing Stock 36,000
Cash 8,900

2,98,900 2,98,900

Question:16
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 Amount Account Title Amount

Rs Rs
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 4,000
debts
Printing and 2,000 Sundry creditors 60,000
Stationery
Rent Rates and 5,000 Bills payable 15,400
Taxes
Freight 4,000 Sales 2,76,000
Return inwards 7,000
Opening stock 25,000
Purchases 1,80,000
Furniture and Fixture 20,000
Plant and 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 Rs 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 Rs 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.

Solution:
 Trading Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 25,000 Sales 2,76,000

Purchases 1,80,000 Less: Return Inwards 7,000 2,69,000
Less: Return Outwards 2,000 1,78,000 Closing Stock 45,000

Wages 10,000

Freight 4,000
Gross Profit 97,000

3,14,000 3,14,000

Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Trade Expenses 2,400 Gross Profit 97,000

Printing and Stationery 2,000 Old Provision for Bad Debts 4,000
Rent Rates and Taxes 5,000 Less: Bad Debts 1,000
Discount Allowed 2,000 Less: New Provision 1,600 1,400
Depreciation on Motor Car 5,100

Depreciation on Furniture and Fixtures 1,000

*Depreciation on P & M of Rs 70,000 4,200
**Depreciation on P & M of Rs 30,000 900
Net Profit Before Manager’s Commission 75,800

1,02,400 1,02,400
Manager’s Commission 6,891

Net Profit After Commission 68,909 Balance b/d 75,800

75,800 75,800

Balance Sheet
Amount Amount
Liabilities Assets
Rs Rs

Capital 2,00,000 Cash in Hand 6,000

 Add: Net Profit 68,909 Sundry Debtors 80,000
Less: Drawings 20,000 2,48,909 Less: New Provision 1,600 78,400

O/S Manager’s Commission 6,891 Furniture and Fixtures 20,000

Bank Overdraft 12,000 Less: Depreciation 1,000 19,000
Creditors 60,000
Bills Payable 15,400 Plant and Machinery 1,00,000
Less: Depreciation 1* 4,200
Less: Depreciation 2** 900 94,900
Bills Receivable 14,000

Investments 40,000
Motor Car 51000
Less: Depreciation 5100 45,900
Closing Stock 45,000

3,43,200 3,43,200

Working Notes

1. Manager’s Commission

= Net Profit before 10

commission × 110

= 75,800 10
× 110
= Rs 6,891

2. Out of the machinery of Rs 1,00,000, Rs 30,000 worth of machinery was purchased on 01/October/2016. Therefore,
the depreciation on this machinery will be for 6 months at 6% p.a.

*Depreciation on machinery 30,000 6 6 = Rs

×
(30,000) = × 12 100 900

**The rest of the machinery of Rs 70,000 will bear depreciation at 6%

p.a.

Depreciation on machinery 70,000 6 = Rs

(70,000) = × 12 900

Note: As per our solution Gross Profit is Rs 97,000, however, as per book it is Rs 1,01,000.
Question:17
Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars.

Account Title Amount Account Title Amount

Rs Rs

Sundry debtors 1,00,000 Bills payable 85,550

Bad debts 3,000 Sundry creditors 25,000
Trade expenses 2,500 Provision for bad 1,500
debts
Printing and 5,000 Return outwards 4,500
Stationary
Rent, Rates and 3,450 Capital 2,50,000
Taxes
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 and 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 Rs 35,000.
2. Depreciation charged on furniture and fixture @ 5%.
3. Further bad debts Rs 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 Rs 200.
7. Discount on debtors 2%.

Solution:
Trading Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 75,550 Sales 1,00,000

Purchases 75,000 Less: Sales Inwards 6,000 94,000

 Less: Return Outwards 4,500 70,500 Closing Stock 35,000

Freight 2,250
Gross Loss 19,300

1,48,300 1,48,300

Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Gross Loss 19,300 Discount 3,500

Bad Debts 3,000 Interest Received 11,260
Add: Further Bad-Debts 1,000 Interest on Drawings 814
Add: New Provision 4,950 Net Loss 27,482
Less: Old Provision 1,500 7,450
Discount on Debtors 1,881
Trade Expenses 2,500
Printing and Stationery 5,000
Rent, Rates and Taxes 3,450
Add: O/S Rent, Rates and Taxes 200 3,650
Depreciation on Furniture 775
Depreciation on Motor Car 2,500

43,056 43,056

Balance Sheet
Amount Amount
Liabilities Assets
Rs Rs

Bills Payable 85,550 Sundry Debtors 100,000

Sundry Creditors 25,000 Less: Further Debts 1,000
Capital 2,50,000 Less: New Provision 4,950
Less: Net Loss 27,482 Less: Discount on Debtors 1,881 92,169
Less: Drawings 13,560
Less: Interest on Drawings 814 Motor Car 25,000
2,08,144 Less: Depreciation 2,500 22,500

Outstanding Rent, Rates and Taxes 200 Furniture and Fixtures 15,500
Less: Depreciation 775 14,725
 Investments 65,500
Cash in Hand 36,000
Cash in Bank 53,000
Closing Stock 35,000

3,18,894 3,18,894

Note: In NCERT book, the Gross Loss is Rs 17,050, the Net Loss is Rs 27,344 and the Total of Balance Sheet is Rs
3,19,032. However, as per the solution Net Loss and the Total of the Balance Sheet are Rs 27,482 and Rs 3,18,894
respectively.

Question:18
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 Amount Account Title Amount

Rs Rs
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 expense 3,300
Heat and Power 8,000
Salary and Wages 5,000
Legal expense 3,000
Postage and 1,000
Telegram
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 December 31, 2017 was Rs 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 Rs 600.
5. The Manager is entitled to a commission @ 5% on net profit before charging such commission.

Solution:
Trading Account
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 2,26,000 Sales 6,80,000

Purchases 4,40,000 Less: Sales Return 10,000 6,70,000
Less: Returns Outwards 15,000 4,25,000 Closing Stock 30,000

Freight Inwards 3,400

Heat and Power 8,000
Gross Profit 37,600

7,00,000 7,00,000

Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Trade Expenses 3,300 Gross Profit 37,600

Salary and Wages 5,000 Interest Received 20,000
Legal Expenses 3,000
Postage and Telegram 1,000
Bad Debts 6,500
Add: New Provision 1,250 7,750
Depreciation on Building 5,000
Depreciation on Motor Van 3,000
Insurance 3,500
Less: Unexpired Insurance 600 2,900
Net Profit 26,650

57,600 57,600
 Manager’s Commission Payable 1,269 Balance b/d 26,650
Net Profit after Commission 25,381
26,650 26,650

Balance Sheet
Amount Amount
Liabilities Assets
Rs Rs

Capital 3,50,000 Cash in Hand 79,000

Add: Net Profit 25,381 Cash at Bank 98,000

Less: Drawings 75,000 3,00,381 Buildings 1,00,000

Creditors 50,000 Less: Depreciation 5,000 95,000
Bills Payable 63,700

Manager’s Commission Payable 1,269 Motor Van 30,000

Less: Depreciation 3,000 27,000

Sundry Debtors 25,000

Less: New Provision 1,250 23,750

Investments 40,000

Machinery 22,000
Unexpired Insurance 600

Closing Stock 30,000

4,15,350 4,15,350

Note:
In NCERT, Q-7 adjustment (5) is a misprint. The answer represents the Net Profit after the Manager’s Commission.
However, in the adjustment, the Net Profit has been mentioned before the Manager’s Commission.

Question:19
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, 20117 and a balance sheet as on that date.

Account Title Amount Account Title Amount

Rs Rs
Drawings 20,000 Sales 2,20,000
 Land and Buildings 12,000 Capital 1,01,110
Plant and 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 and 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 Rs, 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 Rs 100 and Wages prepaid was Rs 40.
6. The manager is entitled a commission of 5% on net profit after charging such commission.
Solution:
Trading Account
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 76,800 Sales 2,20,000

Purchases 1,50,000 Less: Sales Return 200 2,19,800
Less: Purchases Return 10,000 1,40,000 Closing Stock 20,000

Carriage Inwards 100

Wages 500
Less: Prepaid 40 460
Coal, Gas and Water 1,200
Gross Profit 21,240
2,39,800 2,39,800
 Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Salary 2,000 Gross Profit 21,240

Add: Outstanding Salary 100 2,100 Discount 1,260
Bank Charges 200 Apprentice Premium 5,230

Trade Expenses 3,800

Rates and Taxes 870
Depreciation on Plant and Machinery 2,000
Depreciation on Land and Building 1,200
Provision for Doubtful Debts 2,715
Discount on Debtors 1,548

Net Profit 13,297

27,730 27,730

Manager’s Commission 633 Balance b/d 13,297

Net Profit after Commission 12,664

13,297 13,297

Balance Sheet
Amount Amount
Liabilities Assets
Rs Rs

Capital 1,01,110 Cash at Bank 50,000

Add: Net Profit 12,664 Land and Building 12,000
Less: Drawings 20,000 93,774 Less: Depreciation 1,200 10,800
Plant and Machinery 40,000
Bills Payable 1,28,870 Less: Depreciation 2,000 38,000
Outstanding Salary 100 Bills Receivable 24,500
Outstanding Manager's Commission 633 Sundry Debtors 54,300
Less: New Provision 2,715
Less: Discount on Debtors 1,548 50,037
Cash in Hand 30,000
Closing Stock 20,000
Prepaid Wages 40

2,23,377 2,23,377
Question:20
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 Debit Account Title Credit

Amount Amount
Rs Rs

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 payable 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 and Machinery 3,600

Cash in hand 2,160

Gas and Water 240

Octroi 60

Furniture 20,540

Patents 10,000

1,35,200 1,35,200

Closing stock Rs 10,000.

1. To provision for doubtful debts is to be maintained at 5 per cent on sundry debtors.
2. Wages amounting to Rs 500 and salary amounting to Rs 350 are outstanding.
3. Factory rent prepaid Rs 100.
4. Depreciation charged on Plant and Machinery @ 5% and Building @ 10%.
5. Outstanding insurance Rs 100.

Solution:
Trading Account
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 22,800 Sales 72,670

Purchases 34,800 Closing Stock 10,000
Less: Purchases Return 2,430 32,370
Carriage Inwards 450

Wages 1,770
Add: Outstanding Wages 500 2,270

Factory Rent 390

Less: Prepaid Rent 100 290
Gas and Water 240
Octroi 60
Cleaning Charges 940
Gross Profit 23,250

82,670 82,670

Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Office Rent 820 Gross Profit 23,250

Insurance 1,440
Add: Outstanding Insurance 100 1,540
Depreciation on Plant and Machinery 180
Salary 1,590
Add: Outstanding Salary 350 1,940
Provision for Doubtful Debts 480
Depreciation on Building 2,400
Net Profit 15,890

23,250 23,250

Balance Sheet
 Amount Amount
Liabilities Assets
Rs Rs

Capital 42,000 Sundry Debtors 9,600

Add: Net Profit 15,890 57,890 Less: New Provision 480 9,120

Sundry Creditors 2,500 Building 24,000

Bills Payable 15,600 Less: Depreciation 2,400 21,600

Outstanding Salary 350 Plant and Machinery 3,600

Outstanding Wages 500 Less: Depreciation 180 3,420

Outstanding Insurance 100 Cash in Hand 2,160

Furniture 20,540
Patents 10,000
Closing Stock 10,000
Prepaid Factory Rent 100

76,940 76,940

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

Question:21
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 Amount Account Title Amount

Rs Rs

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 120,000

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 :
(a) Machinery is depreciated at 10% and buildings depreciated at 6%.
(b) Interest on capital @ 4%.
(c) Outstanding wages Rs 50.
(d) Closing stock Rs 50,000.

Solution:
Trading Account
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 45,000 Sales 2,00,000

Purchases 80,000 Closing Stock 50,000
Less: Return Outwards 4,000 76,000

Wages 34,000

Add: Wages Outstanding 50 34,050

Gas and Fuel 2,700

Freight and Carriage 3,500

Factory Lighting 5,000
Gross Profit 83,750

2,50,000 2,50,000

Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

To Legal Expenses 4,000 By Gross Profit 83,750

To Office Expenses 3,000
To Depreciation on Machine 12,000
 To Depreciation on Building 3,600
To Interest on Capital 8,400
To Net Profit* 52,750

83,750 83,750

Balance Sheet
Amount Amount
Liabilities Assets
Rs Rs

Capital 2,10,000 Bank Balance 11,000

Add: Interest on Capital 8,400 Debtors 70,300
Add: Net profit 52,750 2,71,150 Cash in Hand 1,200

Building 60,000
Bills Payable 6,500 Less: Depreciation 3,600 56,400
Creditors 50,000 Machinery 1,20,000
Outstanding Wages 50 Less: Depreciation 12,000 1,08,000
Bills Receivable 7,000
Patent Right 18,800
Office Furniture 5,000
Closing Stock 50,000

3,27,700 3,27,700

Question:22
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 Amount Amount

Rs Rs

Opening stock 10,000

Purchases and Sales 40,000 80,000

Returns 200 600

Wages 6,000

Dock and cleaning 4,000

charges

Lighting 500
Misc. Income 6,000

Rent 2,000

Capital 40,000

Drawings 2,000

Debtors and Creditors 6,000 7,000

Cash 3,000

Investment 6,000

Patent 4,000

Land and Machinery 43,000

Donations and Charity 600

Sales tax collected 1,000

Furniture 11,300

1,36,600 1,36,600

Closing stock was Rs 2,000.

(a) Interest on drawings @ 7% and interest on capital @ 5%.
(b) Land and Machinery is depreciated at 5%.
(c) Interest on investment @ 6%.
(d) Unexpired rent Rs 100.
(e) Charge 5% depreciation on furniture.

Solution:
Trading Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 10,000 Sales 80,000

Purchases 40,000 Less: Sales Return 200 79,800
Less: Purchases Return 600 39,400 Closing Stock 2,000
Wages 6,000
Dock and Cleaning Charges 4,000
Gross Profit 22,400

81,800 81,800
 Profit and Loss Account
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Lighting 500 Gross Profit 22,400

Donations and Charity 600 Miscellaneous Income 6,000
Interest on Capital 2,000 Rent 2,000
Depreciation on Furniture 565 Less: Unearned Rent 100 1,900
Depreciation on Land and Machinery 2,150 Interest on Drawings 140
Net Profit 24,985 Interest on Investment 360

30,800 30,800

Balance Sheet

Amount Amount
Liabilities Assets
Rs Rs

Capital 40,000 Debtors 6,000

Add: Interest on Capital 2,000 Cash 3,000
Add: Net Profit 24,985 Investment 6,000
Add: Interest on
Less: Drawings
2,000 Investment 360 6,360
Less: Interest on Drawings 140 64,845 Patent 4,000

Creditors 7,000 Land and Machinery 43,000

Sales Tax Collected 1,000 Less: Depreciation 2,150 40,850
Unearned Rent 100
Furniture 11,300
Less: Depreciation 565 10,735
Closing Stock 2,000

72,945 72,945

Note: In the NCERT textbook, the answer provided for question number 11 is different from the solution. However, the
answer should be
Gross profit = Rs 22,400 instead of Rs 21,900
Net profit = Rs 24,985 instead of Rs 25,185
Total of Balance Sheet = Rs 72,945 instead of Rs 71,185
Question:23
The following balances were extracted from the books of M/s Panchsheel Garments on March 31, 2017.

Debit Credit
Account Title Amount Account Title Amount
( ) ( )

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%.
(g) Closing stock was 15,000.
Solution:
Trading Account
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 16,000 Sales 1,12,000

Purchases 67,600 Less: Return Inwards 4,600 1,07,400
Less: Return Outwards 3,200 64,400 Closing Stock 15,000
Carriage Inwards 1,400
Wages 1,200
Add: Outstanding Wages 200 1,400
Gross Profit 39,200
1,22,400 1,22,400

Profit and Loss Account

Dr. Cr.
 Amount Amount
Particulars Particulars
Rs Rs

General Expenses 2,400 Gross Profit 39,200

Insurance 4,000 Discount 1,400
Less: Unexpired Insurance 1,000 3,000 Commission 1,800
Scooter Expenses 200

Salary 8,800
Add: Outstanding Salary 1,800 10,600
Interest on Capital 2,500

Depreciation on Scooter 400

Depreciation on Furniture 520

Net Profit 22,780

42,400 42,400

Balance Sheet
Amount Amount
Liabilities Assets
Rs Rs

Capital 50,000 Cash in Hand 4,000

Add: Interest on Capital 2,500 Scooter 8,000

Add: Net Profit 22,780 75,280 Less: Depreciation 400 7,600

Bank Overdraft 10,000 Furniture 5,200

Creditors 16,000 Less: 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

Question:24
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 Debit Credit
Amount Amount
Rs Rs

Drawings and Capital 19,530 67,500

Purchase and Sales 45,000 1,12,500

Salary and Commission 25,470 1,575

Carriage 2,700

Plant and 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 and Creditors 36,000 58,500

General expenses 6,975

Octroi 530

Investment 41,400

2,73,600 2,73,600

Closing stock was valued Rs 20,000.

(a) Interest on capital @ 10%.
(b) Interest on drawings @ 5%.
(c) Wages outstanding Rs 50.
(d) Outstanding salary Rs 20.
(e) Provide a depreciation @ 5% on plant and machinery.
(f) Make a 5% provision on debtors.
Solution:
Trading Account
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Opening Stock 42,300 Sales 1,12,500

Purchases 45,000 Less: Sales Return 2,385 1,10,115
Less: Purchases Return 1,440 43,560 Closing Stock 20,000
Carriage 2,700
 Wages 11,215
Add: Outstanding Wages 50 11,265
Octroi 530
Gross Profit 29,760
1,30,115 1,30,115

Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Salary 25,470 Gross Profit 29,760

Add: Outstanding Salary 20 25,490 Commission 1,575
Insurance Premium 2,700 Interest 7,425
Rent and Taxes 2,160 Interest on Drawings 977
Carriage Outwards 1,485 Net Loss 8,973
General Expenses 6,975
Interest on Capital 6,750
Depreciation on P & M 1,350
Provision on Debtors 1,800

48,710 48,710

Balance Sheet

Amount Amount
Liabilities Assets
Rs Rs

Capital 67,500 Plant and Machinery 27,000

Add: Interest on Capital 6,750 Less: Depreciation 1,350 25,650
Less: Net Loss 8,973 Furniture 6,750

Less: Drawings 19,530 Debtors 36,000

Less: Interest on Drawings 977 44,770 Less: New Provision 1,800 34,200
Bank Overdraft 24,660 Investment 41,400
Creditors 58,500 Closing Stock 20,000
Outstanding Wages 50
Salary Outstanding 20

1,28,000 1,28,000
Question:25
The following balances appeared in the trial balance of M/s Kapil Traders as on March 31, 2017

Rs
Sundry debtors 30,500
Bad debts 500
Provision for doubtful 2,000
debts

The partners of the firm agreed to records the following adjustments in the books of the Firm: Further bad debts
Rs.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.
Solution:
Profit and Loss Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Bad Debts 500

Add: Further Bad Debts 300
Add: New Provision 3,020
Less: Old Provision 2,000 1,820

Balance Sheet

Amount Amount
Liabilities Assets
Rs Rs

Debtors 30,500
Less: Further Bad Debts 300
Less: New Provision 3,020 27,180

Debtors Account
Dr. Cr.

Amount Amount
Date Particulars Date Particulars
Rs Rs

2017 2017
March 31 Balance b/d 30,500 March 31 Further Bad Debts 300
March 31 Provision for Doubtful Debts 3,020
March 31 Balance c/d 27,180

30,500 30,500

Bad Debts Account

Dr. Cr.

Amount Amount
Date Particulars Date Particulars
Rs Rs

2017 2017
March 31 Balance b/d 500 March 31 Provision for Doubtful Debts 800
(As per the Trial Balance)

March 31 Sundry Debtors 300

800 800

Provision for Doubtful Debts Account

Dr. Cr.

Amount Amount
Date Particulars Date Particulars
Rs Rs

2017 2016
March 31 Bad Debt 800 April 01 Balance b/d (Old Provision) 2,000
April 01 Profit and Loss 1,820
(Balancing figure)
March 31 Balance b/d 3,020
(New Provision)

3,820 3,820

Question:26
Prepare the bad debts account, provision for account, profit and loss account and balance sheet from the following
information as on March 31, 2017
Rs
Debtors 80,000
Bad debts 2,000
Provision for doubtful 5,000
debts

Adjustments:
Bad Debts Rs 500 Provision on Debtors @ 3%.
Solution:
Profit and Loss Account
Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Bad Debts 2,000 Old Provision for Doubtful Debts 5,000

Add: Further Bad Debts 500
Add: New Provision for Bad Debts 2,385 4,885

Balancing figure 115

5,000 5,000

Balance Sheet
Amount Amount
Liabilities Assets
Rs Rs

Debtors 80,000
Less: Further Bad Debts 500
Less: New Provision on Debtors 2,385 77,115

77,115

Bad Debts Account

Dr. Cr.

Amount Amount
Date Particulars Date Particulars
Rs Rs

2017 2017
Dec.31 Balance b/d 2,000 Dec.31 Provision for Doubtful Debts 2,500
 (as per the Trial Balance)

Dec.31 Sundry Debtors 500

2,500 2,500

Provision for Doubtful Debts Account

Dr. Cr.

Amount Amount
Date Particulars Date Particulars
Rs Rs

2017 2017
Dec.31 Bad Debts 2,500 Jan.01 Balance b/d (Old Provision) 5,000

Dec.31 Balance b/d 2,385

(New Provision)

Dec.31 Profit and Loss 115*

(Balancing Figure)

5,000 5,000

*Note: In this case, the old provision exceeds the sum total of Bad debts and the New Provision. Thus, the balancing
figure is Rs 115 and is calculated as Rs 2,500 + Rs 2,385 – Rs 5,000 = Rs (115)