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Numerical Questions · Q10
Q.

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 TitleAmount ₹Account TitleAmount ₹
Purchases80,000Capital2,10,000
Bank balance11,000Bills payable6,500
Wages34,000Sales2,00,000
Debtors70,300Creditors50,000
Cash in hand1,200Return outwards4,000
Legal expenses4,000
Building60,000
Machinery1,20,000
Bills receivable7,000
Office expenses3,000
Opening stock45,000
Gas and fuel2,700
Freight and Carriage3,500
Factory lighting5,000
Office furniture5,000
Patent right18,800
4,70,5004,70,500

Adjustments :

  1. Machinery is depreciated at 10% and buildings depreciated at 6%.
  2. Interest on capital @ 4%.
  3. Outstanding wages ₹ 50.
  4. Closing stock ₹ 50,000.
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Trading A/c gives Gross Profit ₹83,750; P&L A/c gives Net Profit ₹52,750 after charging interest on capital ₹8,400; the Balance Sheet totals ₹3,27,700. Interest on capital is debited to P&L and added back to capital in the Balance Sheet.

Concept & treatment. Factory lighting, gas & fuel, freight & carriage and wages are direct expenses (Trading A/c). Interest on capital is a charge against profit (P&L debit) but is a return to the owner, so it is added to capital in the Balance Sheet. Outstanding wages are added to wages and shown as a current liability.

Trading and Profit & Loss Account for the year ended 31 March 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock45,000By Sales2,00,000
To Purchases 80,000By Closing Stock50,000
Less Return outwards 4,00076,000
To Wages 34,000 + Outstanding 5034,050
To Gas and fuel2,700
To Freight and Carriage3,500
To Factory lighting5,000
To Gross Profit c/d83,750
Total2,50,000Total2,50,000
To Legal expenses4,000By Gross Profit b/d83,750
To Office expenses3,000
To Depreciation: Machinery12,000
To Depreciation: Building3,600
To Interest on capital8,400
To Net Profit (to Capital)52,750
Total83,750Total83,750

Balance Sheet as on 31 March 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital 2,10,000Building 60,000
Add Interest on capital 8,400Less Dep. 3,60056,400
Add Net Profit 52,7502,71,150Machinery 1,20,000

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