Do It Yourself · Q3
Q.
The following balances were extracted from the books of Anushka Enterprises on March 31, 2017.
| Particulars | Amount (₹) |
|---|---|
| Creditors | 2,00,000 |
| Loan from SBI | 2,00,000 |
| Sales | 12,30,000 |
| Debtors | 2,00,000 |
| Dividend Received on Shares | 20,000 |
| Bad Debt | 2,000 |
| Bad Debt Recovered | 12,000 |
| Bills Receivables | 1,50,000 |
| Interest on Loan | 50,000 |
| Goodwill | 4,00,000 |
| Purchases | 2,10,000 |
| Stock (1.4.2016) | 1,00,000 |
| Cash at Bank | 3,00,000 |
| Factory Repairs | 40,000 |
| Capital | 7,24,000 |
| Audit Fees | 6,000 |
| Petty Expenses | 4,000 |
| Salary | 70,000 |
| Life Insurance Premium | 15,000 |
| Premises | 4,00,000 |
| Insurance | 25,000 |
| Sales Returns | 12,000 |
| Employees Provident Fund | 60,000 |
| Provision for Doubtful Debts | 75,000 |
| Delivery Expenses | 8,000 |
| Dock Charges (Outward) | 6,000 |
| Packing Charges | 17,000 |
| Advance Salary | 30,000 |
| Warehouse Insurance | 13,000 |
| Loss in Exchange | 9,000 |
| Bank Charges | 5,000 |
| Bonus from Suppliers | 3,45,000 |
| Purchases Returns | 10,000 |
| Machinery | 8,00,000 |
| Discounting of Bills of Exchange | 1,000 |
You are required to:
(i) Prepare final accounts for the year ended March 31, 2017 after giving effect to the following adjustments:
- Insurance is due but not yet paid for 31 March 2017 ₹500.
- Salary Unexpired ₹900.
- Write off a further Bad debts ₹2,000 and maintain the provision for bad debts at 5% on Debtors.
- Machinery is to be valued at 90% less than the book value.
- Goods kept in warehouse worth ₹1,00,000 were used for staff welfare.
- Half of the Bills Receivable were irrecoverable.
(h) Closing Stock is ₹40,000.
(ii) Name the accounting concepts which will be followed while treating the adjustment (a), (b), (c) and (d) above.
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Start your 14-day free trial to unlock the full solution →Goods ₹1,00,000 for staff welfare: deduct from purchases, charge as a P&L expense. Machinery valued at 90% less than book value = carried at ₹80,000, so depreciation is ₹7,20,000. Half the bills receivable (₹75,000) are irrecoverable. Old provision ₹75,000 far exceeds the new 5% provision, so the excess is written back to P&L. Gross Profit ₹10,18,000, Net Profit ₹3,47,500, Balance Sheet ₹15,17,000 (carrying a ₹3,000 Suspense A/c for the trial balance's ₹3,000 printing shortfall).
Working notes
- Purchases and staff welfare (e): goods costing ₹1,00,000 used for staff welfare are deducted from purchases in the Trading Account and shown as Staff Welfare Expenses ₹1,00,000 in the Profit and Loss Account. Net purchases = 2,10,000 − 10,000 (returns) − 1,00,000 = ₹1,00,000.
- Depreciation on machinery (d): valued at 90% less than book value = 10% of ₹8,00,000 = ₹80,000; depreciation charged = 8,00,000 − 80,000 = ₹7,20,000.
- Bad debts and provision (c): Debtors 2,00,000 − 2,000 (further bad debts) = 1,98,000; new provision at 5% = ₹9,900. Old provision 75,000 − [bad debts 2,000 + further 2,000 + new provision 9,900 = 13,900] = ₹61,100 excess, credited (written back) to the P&L Account.
- Bills receivable (f): half of ₹1,50,000 = ₹75,000 is irrecoverable — a loss to the P&L; the remaining ₹75,000 is shown as an asset.
- Life Insurance Premium ₹15,000 is the proprietor's personal expense, so it is treated as Drawings (not a business expense).
- Suspense A/c ₹3,000: the trial balance as printed does not tie (see the note below); the ₹3,000 difference is carried as a Suspense Account on the asset side so the Balance Sheet agrees.
Trading and Profit and Loss Account for the year ended March 31, 2017
| Expenses / Losses | (₹) | Amount (₹) | Revenues / Gains | (₹) | Amount (₹) |
|---|---|---|---|---|---|
| Opening stock | 1,00,000 | Sales | 12,30,000 | ||
| Purchases | 2,10,000 | Less: Sales returns | (12,000) | 12,18,000 | |
| Less: Purchases returns | (10,000) | Closing stock | 40,000 | ||
| Less: Goods for staff welfare | (1,00,000) | 1,00,000 | |||
| Factory repairs | 40,000 | ||||
| Gross profit c/d | 10,18,000 | ||||
| 12,58,000 | 12,58,000 | ||||
| Salary | 70,000 | Gross profit b/d | 10,18,000 | ||
| Less: Unexpired (prepaid) | (900) | 69,100 | Dividend received on shares | 20,000 | |
| Insurance | 25,000 | Bad debt recovered | 12,000 | ||
| Add: Outstanding insurance | 500 | 25,500 | Bonus from suppliers | 3,45,000 | |
| Warehouse insurance | 13,000 | Provision for doubtful debts (excess written back) | 61,100 | ||
| Interest on loan | 50,000 | ||||
| Audit fees | 6,000 | ||||
| Petty expenses | 4,000 | ||||
| Delivery expenses | 8,000 | ||||
| Dock charges (outward) | 6,000 | ||||
| Packing charges | 17,000 | ||||
| Loss in exchange | 9,000 | ||||
| Bank charges | 5,000 | ||||
| Discounting of bills of exchange | 1,000 | ||||
| Staff welfare expenses | 1,00,000 | ||||
| Loss on bills receivable (half irrecoverable) | 75,000 | ||||
| Depreciation on machinery | 7,20,000 | ||||
| Net profit (to capital) | 3,47,500 | ||||
| 14,56,100 | 14,56,100 |
Balance Sheet as at March 31, 2017
| Liabilities | (₹) | Amount (₹) | Assets | (₹) | Amount (₹) |
|---|---|---|---|---|---|
| Capital | 7,24,000 | Goodwill | 4,00,000 | ||
| Add: Net profit | 3,47,500 | Premises | 4,00,000 | ||
| 10,71,500 | Machinery (8,00,000 − 7,20,000) | 80,000 | |||
| Less: Drawings (Life Insurance Premium) | (15,000) | 10,56,500 | Bills receivable (1,50,000 − 75,000) | 75,000 | |
| Loan from SBI | 2,00,000 | Debtors | 2,00,000 | ||
| Creditors | 2,00,000 | Less: Further bad debts | (2,000) | ||
| Employees provident fund | 60,000 | Less: Provision for doubtful debts | (9,900) | 1,88,100 | |
| Outstanding insurance | 500 | Closing stock | 40,000 | ||
| Cash at bank | 3,00,000 | ||||
| Advance salary | 30,000 | ||||
| Prepaid salary | 900 | ||||
| Suspense A/c | 3,000 | ||||
| 15,17,000 | 15,17,000 |
Note
Two points about this textbook problem:
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