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Numerical Questions · Q2
Q.

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 TitleAmount ₹Account TitleAmount ₹
Opening stock35,000Sales2,50,000
Purchases1,25,000Purchase return6,000
Return inwards25,000Creditors10,000
Postage and Telegram600Bills payable20,000
Salary12,300Discount1,000
Wages3,000Provision for bad debts4,500
Rent and Rates1,000Interest received5,400
Packing and Transport500Capital75,000
General expense400
Insurance4,000
Debtors50,000
Cash in hand20,000
Cash at bank40,000
Machinery20,000
Lighting and Heating5,000
Discount3,500
Bad debts3,500
Investment23,100
3,71,9003,71,900

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.
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Prepare the Trading A/c (gross profit), then the P&L A/c (net profit), then the Balance Sheet. Net purchases and net wages go to Trading; every income including accrued interest and every expense including depreciation and the bad-debts/provision/discount block go to P&L. Gross Profit ₹79,000, Net Profit ₹52,565, Balance Sheet total ₹1,57,565.

Concept & treatment. Direct items (opening stock, net purchases, direct wages) are debited to the Trading Account and net sales / closing stock credited — the balancing figure is gross profit, carried down to the P&L. Indirect expenses are debited and indirect incomes credited to the Profit & Loss Account; its balance (net profit) is added to Capital. Prepaid wages are removed from wages (asset), accrued interest on investment is income earned but not received (asset), depreciation reduces machinery, and on debtors we charge further bad debts, a new 6% provision and a 5% discount (all reduce debtors on the Balance Sheet).

Trading Account of M/s Green Club Ltd. for the year ended 31 March 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock35,000By Sales 2,50,000
To Purchases 1,25,000  Less: Return inwards 25,0002,25,000
  Less: Purchase return 6,0001,19,000By Closing Stock10,000
To Wages 3,000
  Less: Prepaid 1,0002,000
To Gross Profit c/d79,000
Total2,35,000Total2,35,000

Profit & Loss Account for the year ended 31 March 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Postage and Telegram600By Gross Profit b/d79,000
To Salary12,300By Discount received1,000
To Rent and Rates1,000By Interest received 5,400
To Packing and Transport500  Add: Accrued interest on investment 1,1556,555
To General Expenses400
To Insurance4,000
To Lighting and Heating5,000
To Discount (allowed)3,500
To Depreciation on Machinery1,000
To Bad debts & Provision & Discount on debtors (WN 2)5,690
To Net Profit (to Capital)52,565
Total86,555Total86,555

Balance Sheet as at 31 March 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital 75,000Machinery 20,000
  Add: Net Profit 52,5651,27,565  Less: Depreciation 1,00019,000
Creditors10,000Investment 23,100
Bills Payable20,000  Add: Accrued interest 1,15524,255
Closing Stock10,000
Debtors 50,000
  Less: Further bad debts 1,500
  Less: New provision 2,910
  Less: Discount on debtors 2,28043,310
Cash in hand20,000
Cash at bank40,000
Wages prepaid1,000
Total1,57,565Total1,57,565

Working Notes

  1. Depreciation on machinery = 20,000 × 5% = ₹1,000. Accrued interest on investment = 23,100 × 5% = ₹1,155.
  2. Debtors block: 50,000 − further bad debts 1,500 = 48,500. New provision @ 6% on 48,500 = ₹2,910; discount @ 5% on (48,500 − 2,910 = 45,590) = ₹2,280 (rounded). Charge to P&L = old bad debts 3,500 + further 1,500 + new provision 2,910 + discount 2,280 − old provision 4,500 = ₹5,690. Net debtors on Balance Sheet = 48,500 − 2,910 − 2,280 = ₹43,310.
  3. Net wages = 3,000 − 1,000 prepaid = ₹2,000; prepaid ₹1,000 shown as an asset.
✓Final answer

Gross Profit ₹79,000; Net Profit ₹52,565 (added to Capital → ₹1,27,565); Balance Sheet total ₹1,57,565.

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