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Numerical Questions · Q1
Q.

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 TitleAmount ₹Account TitleAmount ₹
Stock50,000Sales1,80,000
Wages3,000Purchases return2,000
Salary8,000Discount received500
Purchases1,75,000Provision for doubtful debts2,500
Sales return3,000Capital3,00,000
Sundry Debtors82,000Bills payable22,000
Discount allowed1,000Commission received4,000
Insurance3,200Rent6,000
Rent Rates and Taxes4,300Loan34,800
Fixtures and fittings20,000
Trade expenses1,500
Bad debts2,000
Drawings32,000
Repair and renewals1,600
Travelling expenses4,200
Postage300
Telegram expenses200
Legal fees500
Bills receivable50,000
Building1,10,000
5,51,8005,51,800

Adjustments

  1. Commission received in advance ₹1,000.
  2. Rent receivable ₹ 2,000.
  3. Salary outstanding ₹ 1,000 and insurance prepaid ₹ 800.
  4. Further bad debts ₹ 1,000 and provision for doubtful debts @ 5% on debtors and discount on debtors @ 2%.
  5. Closing stock ₹ 32,000.
  6. Depreciation on building @ 6% p.a.
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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

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock50,000By Sales 1,80,000 − Return 3,0001,77,000
To Purchases 1,75,000 − Return 2,0001,73,000By Closing Stock32,000
To Wages3,000By Gross Loss c/d17,000
2,26,0002,26,000
To Gross Loss b/d17,000By Discount received500
To Salary 8,000 + Outstanding 1,0009,000By Commission 4,000 − Advance 1,0003,000
To Insurance 3,200 − Prepaid 8002,400By Rent 6,000 + Receivable 2,0008,000
To Rent, Rates and Taxes4,300By Net Loss (transferred to Capital)43,189
To Discount allowed1,000
To Trade expenses1,500
To Provision for D/D (WN 2)4,550
To Provision for discount on debtors (WN 3)1,539
To Repair and renewals1,600
To Travelling expenses4,200
To Postage300
To Telegram expenses200
To Legal fees500
To Depreciation on Building (WN 1)6,600
54,68954,689

Balance Sheet of M/s Rahul Sons as at 31 March 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital 3,00,000Building 1,10,000 − Dep. 6,6001,03,400
  Less: Drawings 32,000Fixtures and fittings20,000
  Less: Net Loss 43,1892,24,811Closing Stock32,000
Bills payable22,000Sundry Debtors 82,000
Loan34,800  Less: Further bad debts 1,000
Commission received in advance1,000  Less: Provision for D/D 4,050
Outstanding salary1,000  Less: Discount on debtors 1,53975,411
Bills receivable50,000
Prepaid insurance800
Rent receivable2,000
2,83,6112,83,611

Working Notes

  1. Depreciation on building = 6% × ₹1,10,000 = ₹6,600.
  2. 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.
  3. Provision for discount on debtors @2% on (₹81,000 − ₹4,050) = 2% × ₹76,950 = ₹1,539.
  4. Net debtors in Balance Sheet = ₹81,000 − ₹4,050 − ₹1,539 = ₹75,411.
  5. 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.
  6. Capital = ₹3,00,000 − Drawings ₹32,000 − Net Loss ₹43,189 = ₹2,24,811.
✓Final answer

Gross Loss = ₹17,000; Net Loss = ₹43,189; Balance Sheet total = ₹2,83,611.

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