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 ₹ |
|---|---|---|---|
| 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 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 and Transport | 500 | Capital | 75,000 |
| 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
- Depreciation charged on machinery @ 5% p.a.
- Further bad debts ₹1,500, discount on debtors @ 5% and make a provision on debtors @ 6%.
- Wages prepaid ₹1,000.
- Interest on investment @ 5% p.a.
- Closing stock 10,000.
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
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 35,000 | By Sales 2,50,000 | |
| To Purchases 1,25,000 | Less: Return inwards 25,000 | 2,25,000 | |
| Less: Purchase return 6,000 | 1,19,000 | By Closing Stock | 10,000 |
| To Wages 3,000 | |||
| Less: Prepaid 1,000 | 2,000 | ||
| To Gross Profit c/d | 79,000 | ||
| Total | 2,35,000 | Total | 2,35,000 |
Profit & Loss Account for the year ended 31 March 2017
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Postage and Telegram | 600 | By Gross Profit b/d | 79,000 |
| To Salary | 12,300 | By Discount received | 1,000 |
| To Rent and Rates | 1,000 | By Interest received 5,400 | |
| To Packing and Transport | 500 | Add: Accrued interest on investment 1,155 | 6,555 |
| To General Expenses | 400 | ||
| To Insurance | 4,000 | ||
| To Lighting and Heating | 5,000 | ||
| To Discount (allowed) | 3,500 | ||
| To Depreciation on Machinery | 1,000 | ||
| To Bad debts & Provision & Discount on debtors (WN 2) | 5,690 | ||
| To Net Profit (to Capital) | 52,565 | ||
| Total | 86,555 | Total | 86,555 |
Balance Sheet as at 31 March 2017
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital 75,000 | Machinery 20,000 | ||
| Add: Net Profit 52,565 | 1,27,565 | Less: Depreciation 1,000 | 19,000 |
| Creditors | 10,000 | Investment 23,100 | |
| Bills Payable | 20,000 | Add: Accrued interest 1,155 | 24,255 |
| Closing Stock | 10,000 | ||
| Debtors 50,000 | |||
| Less: Further bad debts 1,500 | |||
| Less: New provision 2,910 | |||
| Less: Discount on debtors 2,280 | 43,310 | ||
| Cash in hand | 20,000 | ||
| Cash at bank | 40,000 | ||
| Wages prepaid | 1,000 | ||
| Total | 1,57,565 | Total | 1,57,565 |
Working Notes
- Depreciation on machinery = 20,000 × 5% = ₹1,000. Accrued interest on investment = 23,100 × 5% = ₹1,155.
- 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.
- Net wages = 3,000 − 1,000 prepaid = ₹2,000; prepaid ₹1,000 shown as an asset.
Gross Profit ₹79,000; Net Profit ₹52,565 (added to Capital → ₹1,27,565); Balance Sheet total ₹1,57,565.
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