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Numerical Questions · Q8
Q.

From the following balances extracted from the books of Raga Ltd. prepare a trading and profit and loss account for the year ended March 31, 2017 and a balance sheet as on that date.

Account TitleAmount ₹Account TitleAmount ₹
Drawings20,000Sales2,20,000
Land and Buildings12,000Capital1,01,110
Plant and Machinery40,000Discount1,260
Carriage inwards100Apprentice premium5,230
Wages500Bills payable1,28,870
Salary2,000Purchases return10,000
Sales return200
Bank charges200
Coal, Gas and Water1,200
purchases1,50,000
Trade Expenses3,800
Stock (Opening)76,800
Cash at bank50,000
Rates and Taxes870
Bills receivable24,500
Sundry debtors54,300
Cash in hand30,000
4,66,4704,66,470

The additional information is as under :

  1. Closing stock was valued at the end of the year ₹, 20,000.
  2. Depreciation on plant and machinery charged at 5% and land and building at 10%.
  3. Discount on debtors at 3%.
  4. Make a provision at 5% on debtors for doubtful debts.
  5. Salary outstanding was ₹100 and Wages prepaid was ₹ 40.
  6. The manager is entitled a commission of 5% on net profit after charging such commission.
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Trading A/c gives Gross Profit ₹21,240; P&L A/c gives Net Profit ₹12,664 after a manager's commission of ₹633 (5% on profit after commission); the Balance Sheet totals ₹2,23,377. Note the two debtor adjustments applied in order — first the 5% provision for doubtful debts, then the 3% provision for discount on the reduced debtors.

Concept & treatment. Wages, carriage inwards and coal/gas/water are direct (Trading A/c debit). Discount received and apprentice premium are incomes (P&L credit). A provision for discount on debtors is charged on debtors after deducting the provision for doubtful debts, because discount is allowed only to those debtors expected to pay. Prepaid wages (asset) reduce wages; outstanding salary (liability) increases salary.

Trading and Profit & Loss Account for the year ended 31 March 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock76,800By Sales 2,20,000
To Purchases 1,50,000Less Sales return 2002,19,800
Less Purchases return 10,0001,40,000By Closing Stock20,000
To Carriage inwards100
To Wages 500 − Prepaid 40460
To Coal, Gas and Water1,200
To Gross Profit c/d21,240
Total2,39,800Total2,39,800
To Salary 2,000 + Outstanding 1002,100By Gross Profit b/d21,240
To Bank charges200By Discount1,260
To Trade Expenses3,800By Apprentice premium5,230
To Rates and Taxes870
To Depreciation: Land & Building1,200
To Depreciation: Plant & Machinery2,000
To Provision for doubtful debts2,715
To Provision for discount on debtors1,548
To Manager's commission633
To Net Profit (to Capital)12,664
Total27,730Total27,730

Balance Sheet as on 31 March 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital 1,01,110Land and Buildings 12,000
Less Drawings 20,000Less Dep. 1,20010,800
Add Net Profit 12,66493,774Plant and Machinery 40,000
Bills payable1,28,870Less Dep. 2,00038,000
Salary outstanding100Closing stock20,000
Manager's commission outstanding633Bills receivable24,500

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