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 ₹ |
|---|---|---|---|
| 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 received | 400 |
| 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 Stationery | 4,500 | ||
| Discount | 400 | ||
| Bad debts | 1,500 | ||
| Insurance | 2,500 | ||
| Investment | 32,000 | ||
| Debtors | 53,000 | ||
| Bills receivable | 20,000 | ||
| Postage and Telegraph | 400 | ||
| 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
- Further bad debts ₹ 1,000. Discount on debtors ₹ 500 and make a provision on debtors @ 5%.
- Interest received on investment @ 5%.
- Wages and interest outstanding ₹ 100 and ₹ 200 respectely.
- Depreciation charged on motor car @ 5% p.a.
- Closing Stock ₹ 32,500.
Trading A/c gives Gross Profit ₹78,000; P&L A/c gives Net Profit ₹66,010 (carriage inwards and wages are direct; carriage outward, repairs, telephone etc. are indirect); Balance Sheet total ₹2,97,350.
Concept & treatment. Carriage inwards is a direct expense (Trading A/c, debit); carriage outward is a selling expense (P&L, debit). Outstanding wages/interest are expenses of the year (debit) and a current liability. Accrued interest on investment is income earned (credit + asset). On debtors we write off further bad debts, create a 5% provision and allow a flat ₹500 discount — all reduce debtors. Depreciation reduces the motor car.
Trading Account for the year ended 31 March 2017
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 50,000 | By Sales 2,50,000 | |
| To Purchases 1,50,000 | Less: Return inwards 2,000 | 2,48,000 | |
| Less: Return outwards 4,500 | 1,45,500 | By Closing Stock | 32,500 |
| To Carriage Inwards | 4,500 | ||
| To Wages 2,400 | |||
| Add: Outstanding 100 | 2,500 | ||
| To Gross Profit c/d | 78,000 | ||
| Total | 2,80,500 | Total | 2,80,500 |
Profit & Loss Account for the year ended 31 March 2017
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Printing and Stationery | 4,500 | By Gross Profit b/d | 78,000 |
| To Discount (allowed) | 400 | By Interest received 3,500 | |
| To Insurance | 2,500 | Add: Accrued int. on investment 1,600 | 5,100 |
| To Postage and Telegraph | 400 | By Discount received | 400 |
| To Commission | 200 | ||
| To Interest 1,000 + Outstanding 200 | 1,200 | ||
| To Repair | 440 | ||
| To Lighting Charges | 500 | ||
| To Telephone Charges | 100 | ||
| To Carriage Outward | 400 | ||
| To Depreciation on Motor Car | 1,250 | ||
| To Bad debts, Provision & Discount on debtors (WN 2) | 5,600 | ||
| To Net Profit (to Capital) | 66,010 | ||
| Total | 83,500 | Total | 83,500 |
Balance Sheet as at 31 March 2017
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital 1,00,000 | Cash in hand | 77,800 | |
| Add: Net Profit 66,010 | 1,66,010 | Cash at bank | 60,800 |
| Creditors | 1,25,000 | Investment 32,000 | |
| Bill payable | 6,040 | Add: Accrued interest 1,600 | 33,600 |
| Wages outstanding | 100 | Debtors 53,000 | |
| Interest outstanding | 200 | Less: Further bad debts 1,000 | |
| Less: Provision @5% 2,600 | |||
| Less: Discount on debtors 500 | 48,900 | ||
| Bills receivable | 20,000 | ||
| Motor car 25,000 − Dep. 1,250 | 23,750 | ||
| Closing Stock | 32,500 | ||
| Total | 2,97,350 | Total | 2,97,350 |
Working Notes
- Accrued interest on investment = 32,000 × 5% = ₹1,600. Depreciation on motor car = 25,000 × 5% = ₹1,250.
- Debtors: 53,000 − further bad debts 1,000 = 52,000. Provision @ 5% = ₹2,600. Discount on debtors = ₹500 (given). Charge to P&L = old bad debts 1,500 + further 1,000 + provision 2,600 + discount 500 = ₹5,600 (no old provision in the trial balance). Net debtors = 53,000 − 1,000 − 2,600 − 500 = ₹48,900.
- Outstanding wages ₹100 and outstanding interest ₹200 are added to the respective expenses and shown as current liabilities.
Gross Profit ₹78,000; Net Profit ₹66,010; Balance Sheet total ₹2,97,350.
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