Prepare a trading and profit and loss account for the year ending March 31, 2017. from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.
| Account Title | Amount ₹ | Account Title | Amount ₹ |
|---|---|---|---|
| Stock | 50,000 | Sales | 1,80,000 |
| Wages | 3,000 | Purchases return | 2,000 |
| Salary | 8,000 | Discount received | 500 |
| Purchases | 1,75,000 | Provision for doubtful debts | 2,500 |
| Sales return | 3,000 | Capital | 3,00,000 |
| Sundry Debtors | 82,000 | Bills payable | 22,000 |
| Discount allowed | 1,000 | Commission received | 4,000 |
| Insurance | 3,200 | Rent | 6,000 |
| Rent Rates and Taxes | 4,300 | Loan | 34,800 |
| Fixtures and fittings | 20,000 | ||
| Trade expenses | 1,500 | ||
| Bad debts | 2,000 | ||
| Drawings | 32,000 | ||
| Repair and renewals | 1,600 | ||
| Travelling expenses | 4,200 | ||
| Postage | 300 | ||
| Telegram expenses | 200 | ||
| Legal fees | 500 | ||
| Bills receivable | 50,000 | ||
| Building | 1,10,000 | ||
| 5,51,800 | 5,51,800 |
Adjustments
- Commission received in advance ₹1,000.
- Rent receivable ₹ 2,000.
- Salary outstanding ₹ 1,000 and insurance prepaid ₹ 800.
- Further bad debts ₹ 1,000 and provision for doubtful debts @ 5% on debtors and discount on debtors @ 2%.
- Closing stock ₹ 32,000.
- Depreciation on building @ 6% p.a.
The business runs a Gross Loss of ₹17,000 and a Net Loss of ₹43,189 for the year ended 31 Mar 2017; the Balance Sheet totals ₹2,83,611. Every adjustment is taken to its two places, and closing debtors are shown net of further bad debts, the 5% provision and 2% discount.
Concept & treatment. The Trading Account matches net sales and closing stock against opening stock, net purchases and direct wages to find gross profit/loss. The Profit & Loss Account then charges all indirect expenses (with outstanding added, prepaid deducted) and credits incomes (accrued added, advance deducted) to find net profit/loss, which adjusts capital in the Balance Sheet.
Trading and Profit & Loss Account of M/s Rahul Sons for the year ended 31 March 2017
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 50,000 | By Sales 1,80,000 − Return 3,000 | 1,77,000 |
| To Purchases 1,75,000 − Return 2,000 | 1,73,000 | By Closing Stock | 32,000 |
| To Wages | 3,000 | By Gross Loss c/d | 17,000 |
| 2,26,000 | 2,26,000 | ||
| To Gross Loss b/d | 17,000 | By Discount received | 500 |
| To Salary 8,000 + Outstanding 1,000 | 9,000 | By Commission 4,000 − Advance 1,000 | 3,000 |
| To Insurance 3,200 − Prepaid 800 | 2,400 | By Rent 6,000 + Receivable 2,000 | 8,000 |
| To Rent, Rates and Taxes | 4,300 | By Net Loss (transferred to Capital) | 43,189 |
| To Discount allowed | 1,000 | ||
| To Trade expenses | 1,500 | ||
| To Provision for D/D (WN 2) | 4,550 | ||
| To Provision for discount on debtors (WN 3) | 1,539 | ||
| To Repair and renewals | 1,600 | ||
| To Travelling expenses | 4,200 | ||
| To Postage | 300 | ||
| To Telegram expenses | 200 | ||
| To Legal fees | 500 | ||
| To Depreciation on Building (WN 1) | 6,600 | ||
| 54,689 | 54,689 |
Balance Sheet of M/s Rahul Sons as at 31 March 2017
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital 3,00,000 | Building 1,10,000 − Dep. 6,600 | 1,03,400 | |
| Less: Drawings 32,000 | Fixtures and fittings | 20,000 | |
| Less: Net Loss 43,189 | 2,24,811 | Closing Stock | 32,000 |
| Bills payable | 22,000 | Sundry Debtors 82,000 | |
| Loan | 34,800 | Less: Further bad debts 1,000 | |
| Commission received in advance | 1,000 | Less: Provision for D/D 4,050 | |
| Outstanding salary | 1,000 | Less: Discount on debtors 1,539 | 75,411 |
| Bills receivable | 50,000 | ||
| Prepaid insurance | 800 | ||
| Rent receivable | 2,000 | ||
| 2,83,611 | 2,83,611 |
Working Notes
- Depreciation on building = 6% × ₹1,10,000 = ₹6,600.
- Provision for doubtful debts: debtors after further bad debts = ₹82,000 − ₹1,000 = ₹81,000; new provision @5% = ₹4,050. Charge to P&L = Bad debts ₹2,000 + Further bad debts ₹1,000 + New provision ₹4,050 − Old provision ₹2,500 = ₹4,550.
- Provision for discount on debtors @2% on (₹81,000 − ₹4,050) = 2% × ₹76,950 = ₹1,539.
- Net debtors in Balance Sheet = ₹81,000 − ₹4,050 − ₹1,539 = ₹75,411.
- Salary = ₹8,000 + outstanding ₹1,000 = ₹9,000; Insurance = ₹3,200 − prepaid ₹800 = ₹2,400; Commission = ₹4,000 − advance ₹1,000 = ₹3,000; Rent income = ₹6,000 + receivable ₹2,000 = ₹8,000.
- Capital = ₹3,00,000 − Drawings ₹32,000 − Net Loss ₹43,189 = ₹2,24,811.
Gross Loss = ₹17,000; Net Loss = ₹43,189; Balance Sheet total = ₹2,83,611.
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