The following balances were extracted from the boo – Class 11 Accountancy

Do It Yourself · Q2

The following balances were extracted from the books of Avika Enterprises on 31st March 2017.

Particulars	Dr. (₹)	Cr. (₹)
Capital	—	24,500
Drawings	2,000	—
General Expenses	2,500	—
Buildings	21,000	—
Machinery	9,340	—
Stock (1.4.2016)	16,200	—
Power	2,240	—
Taxes and Insurance	1,315	—
Wages	7,200	—
Debtors and Creditors	6,280	2,500
Charity	105	—
Bad debts	550	—
Bank Overdraft	—	11,180
Sales and Purchases	13,500	65,360
Stock (31.03.2017)	23,500	—
Motor Vehicles	2,000	—
Motor Vehicle expenses	500	—
Provision for doubtful debts	—	900
Commission	—	1,320
Trade expenses	1,280	—
Bills payable	—	3,850
Cash	100	—
Total	1,09,610	1,09,610

You are required to:

(i) Prepare final accounts for the year ended March 31, 2017 after giving effect to the following adjustments:

1/5th of General expenses and Taxes & Insurance to be charged to factory and the balance to the office.
Write off a further Bad debts of ₹160 and maintain the provision for doubtful debts at 5% and create a provision for discount on Debtors at 10%.
Depreciate Machinery at 10% and Motor Vehicles by ₹240.
Provide ₹700 for interest on Bank Overdraft to be paid.
₹50 is to be carried forward to next year out of Insurance.
Provide for Manager's Commission at 10% on the Net Profit after charging such commission.

(ii) Name the accounting concepts which are followed while treating the adjustment (a), (b) and (d) above.

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✓ Free question

Concept understanding — Final Accounts of a Sole Proprietor

Final Accounts of a sole proprietor are the year-end financial statements — the Trading Account, the Profit & Loss Account and the Balance Sheet — prepared from the trial balance after passing adjusting entries, to show the profit earned and the financial position of the business.

Every adjustment has a double effect — it appears in the Trading/P&L Account and in the Balance Sheet. Forgetting one side is the single biggest cause of a Balance Sheet that does not tally.

The three statements

Trading Account — matches net sales against cost of goods sold (opening stock + purchases + direct expenses − closing stock) to give Gross Profit.
Profit & Loss Account — deducts indirect/operating expenses from gross profit and adds other incomes to give Net Profit, which is added to Capital.
Balance Sheet — a statement (not an account) of Assets = Capital + Liabilities on the closing date.

Typical year-end adjustments

Adjustment	Trading/P&L effect	Balance Sheet effect
Closing stock	Credit Trading A/c	Current asset
Outstanding expense	Add to expense (Dr)	Current liability
Prepaid expense	Deduct from expense	Current asset
Accrued income	Add to income (Cr)	Current asset
Depreciation	Debit P&L	Deduct from asset
Provision for doubtful debts	Debit P&L	Deduct from debtors
Drawings	—	Deduct from Capital

The governing logic

Adjustments enforce the accrual and matching concepts: expenses incurred but unpaid (outstanding) are charged this year; amounts paid in advance (prepaid) are carried forward. Drawings — cash or goods taken by the owner — reduce Capital and never appear as an expense.

Common trap

An item appearing inside the trial balance is given effect only once; an item in the adjustments is given the double effect. Closing stock usually sits only in adjustments, so it hits both the Trading Account credit and the Balance Sheet asset side.

Closing stock (₹23,500) is already in the TB → Balance-Sheet asset only (not credited to Trading). General expenses & Taxes/Insurance split 1/5 factory : 4/5 office. New doubtful-debts provision 5% × (6,280 − 160) = 306; discount provision 10% × (6,120 − 306) = 581.40; manager's commission 10/110 × 19,318.60 = 1,756.24. Gross Profit ₹25,467, Net Profit ₹17,562.36, Balance Sheet ₹60,048.60.

Working notes

Taxes & Insurance ₹1,315 less prepaid ₹50 = ₹1,265, split 1/5 factory (₹253) and 4/5 office (₹1,012). General expenses ₹2,500 split 1/5 factory (₹500) and 4/5 office (₹2,000).
Bad-debts line in P&L = old bad debts 550 + further 160 + new provision 306 − old provision 900 = ₹116.
Provision for discount on debtors = 10% × (6,120 − 306) = ₹581.40.
Manager's commission (after charging) = 10/110 × net profit before commission ₹19,318.60 = ₹1,756.24.

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

Expenses / Losses	(₹)	Amount (₹)	Revenues / Gains	Amount (₹)
Opening stock		16,200	Sales	65,360
Purchases		13,500
Wages		7,200
Power		2,240
General expenses (1/5 factory)		500
Taxes & insurance (1/5 factory)		253
Gross profit c/d		25,467
		65,360		65,360
General expenses (4/5 office)		2,000	Gross profit b/d	25,467
Taxes & insurance (4/5 office)		1,012	Commission received	1,320
Charity		105
Motor vehicle expenses		500
Trade expenses		1,280
Bad debts	550
Add: Further bad debts	160
Add: New provision for doubtful debts	306
Less: Old provision	(900)	116
Provision for discount on debtors		581.40
Depreciation on machinery		934
Depreciation on motor vehicles		240
Interest on bank overdraft (outstanding)		700
Manager's commission		1,756.24
Net profit (to capital)		17,562.36
		26,787.00		26,787.00

Balance Sheet as at March 31, 2017

Liabilities	(₹)	Amount (₹)	Assets	(₹)	Amount (₹)
Capital	24,500		Buildings		21,000
Add: Net profit	17,562.36		Machinery	9,340
	42,062.36		Less: Depreciation	(934)	8,406
Less: Drawings	(2,000)	40,062.36	Motor vehicles	2,000
Creditors		2,500	Less: Depreciation	(240)	1,760
Bank overdraft	11,180		Closing stock		23,500
Add: Interest outstanding	700	11,880	Debtors	6,280
Bills payable		3,850	Less: Further bad debts	(160)
Outstanding manager's commission		1,756.24	Less: Provision for doubtful debts	(306)
			Less: Provision for discount	(581.40)	5,232.60
			Cash		100
			Prepaid insurance		50
		60,048.60			60,048.60

Note

Closing stock (₹23,500) already appears as a debit in the trial balance, so it is shown only as a Balance-Sheet asset and is NOT credited again to the Trading Account. The book prescribes a 10% provision for discount on debtors (unusually high — a typical rate is about 2%); we apply the rate the book states.

Accounting concepts

(a) Splitting expenses between factory and office — the Matching concept (each cost is charged against the revenue/function it helps earn).
(b) Further bad debts and the provisions for doubtful debts and discount — the Prudence (Conservatism) concept (provide for all probable losses; never anticipate a gain).
(d) Providing outstanding interest on the bank overdraft — the Accrual concept (an expense is recorded when incurred, not when paid).

✓Final answer

Gross Profit ₹25,467; Net Profit ₹17,562.36; Manager's Commission ₹1,756.24; Balance Sheet total ₹60,048.60 . Concepts — (a) Matching; (b) Prudence; (d) Accrual.

Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

CA Foundation 2025Set jan-202520 marks

Q. (a) From the following schedule of balances extracted from the books of Mr. Piyush, prepare Trading and Profit and Loss Account for the year ended 31st March, 2024 and the Balance Sheet as on that date after making the necessary adjustments :

(15)

Particulars	Dr. (₹)	Cr. (₹)
Capital Account		8,85,000
Stock on 1.4.2023	3,86,000
Cash in hand	18,500
Cash at Bank	73,500
Investments (at 9%) as on 1.4.2023	50,000
Deposits (at 10%) as on 1.4.2023	3,00,000
Drawings	78,000
Purchases	24,95,000
Sales		29,86,000
Return Inwards	1,10,000
Return outwards		1,38,000
Carriage inwards	1,26,000
Rent	66,000
Salaries	1,15,000
Sundry Debtors	2,35,000
Sundry Creditors		1,37,500
Bank Loan (at 12%) as on 1.10.2023		2,00,000
Furniture as on 1.4.2023	25,000
Interest paid	12,500
Interest received		28,500
Advertisement	40,300
Printing & Stationery	32,200
Electricity Charges	57,700
Discount allowed	55,200
Discount received		24,600
Bad debts	18,500
General expenses	36,800
Motor Car Expenses	8,500
Insurance Premium	30,000
Travelling Expenses	21,800
Postage & Courier	8,100
	43,99,600	43,99,600

Adjustments :

(i) The value of stock as on 31st March, 2024 is ₹ 7,65,000. This includes goods returned by customers on 31st March, 2024 to the value of ₹ 25,000 for which no entry has been passed in the books.

(ii) Purchases include one furniture item purchased on 1st January, 2024 for ₹ 10,000. Depreciation @ 10% p.a. is to be provided on furniture.

(iii) One months' rent is outstanding and ₹ 12,000 is payable towards salary.

(iv) Interest paid includes ₹ 9,000 paid against Bank loan and Interest received pertains to Investments and Deposits.

(v) Provide for interest payable on Bank Loan and interest receivable on investments and deposits.

(vi) Make provision for doubtful debts at 5% on the balance under sundry debtors.

(vii) Insurance premium includes ₹ 18,000 paid towards proprietor's life insurance policy.

(b) X and Y are partners sharing profits and losses in the ratio of their effective capital. As on 1st April, 2023, they had ₹ 2,80,000 and ₹ 1,60,000 respectively in their Capital Accounts. X introduced a further capital of ₹ 20,000 on 1st June, 2023 and another ₹ 15,000 on 1st October 2023. On 31st January 2024, X withdrew ₹ 25,000. On 1st August, 2023 Y introduced further capital of ₹ 30,000. During the Financial year 2023-24, the partners drew the following amounts in anticipation of profit : X drew ₹ 5,000 at the beginning of each quarter and Y drew ₹ 1,500 per month at the end of each month beginning from April, 2023 As per partnership agreement, the profits were to be shared in capital ratio. The interest on Capital @ 12% p.a. is allowable and interest on drawings @ 10% p.a. is chargeable. You are required to calculate -

(i) Profit-sharing ratio;

(ii) Interest on capital; and

(iii) interest on drawings. (5)

›Reveal solution

(a) Prepare Mr. Piyush's Trading & P&L Account and Balance Sheet after 7 adjustments — Gross Profit ₹7,57,000, Net Profit ₹2,97,250, Balance Sheet total ₹14,44,750. (b) For partners X & Y, the effective (time-weighted) capital ratio is 5 : 3, interest on capital ₹36,000 / ₹21,600, interest on drawings ₹1,250 / ₹825.

Part (a) — Final Accounts of Mr. Piyush (15 Marks)

Working Notes (adjustments applied)

Unrecorded sales return (Adj i): goods worth ₹25,000 returned on 31.3.2024 are already inside closing stock ₹7,65,000. Pass the missing entry → add ₹25,000 to Return Inwards and reduce Debtors by ₹25,000. Debtors = 2,35,000 − 25,000 = ₹2,10,000.
Furniture wrongly in Purchases (Adj ii): remove ₹10,000 from Purchases and add to Furniture (bought 1.1.2024). Depreciation @10% = (25,000 × 10%) + (10,000 × 10% × 3/12) = 2,500 + 250 = ₹2,750. Furniture in B/S = 25,000 + 10,000 − 2,750 = ₹32,250.
Outstanding rent & salary (Adj iii): rent ₹66,000 represents 11 months, so 1 month outstanding = ₹6,000 (rent charge ₹72,000); salary payable ₹12,000 (salary charge ₹1,27,000).
Interest on Bank Loan (Adj iv & v): ₹2,00,000 × 12% × 6/12 (1.10.2023–31.3.2024) = ₹12,000; ₹9,000 already paid → provide ₹3,000 more (outstanding liability). Other interest paid = 12,500 − 9,000 = ₹3,500. Total interest expense = 12,000 + 3,500 = ₹15,500.
Interest receivable (Adj v): Investments 50,000 × 9% = ₹4,500 + Deposits 3,00,000 × 10% = ₹30,000 = ₹34,500 due; ₹28,500 already received → accrue ₹6,000. Interest income = ₹34,500.
Provision for doubtful debts (Adj vi): 5% × 2,10,000 = ₹10,500.
Proprietor's life insurance (Adj vii): ₹18,000 is drawings, not a business expense → Insurance = 30,000 − 18,000 = ₹12,000; Drawings = 78,000 + 18,000 = ₹96,000.

Trading and Profit & Loss Account for the year ended 31st March, 2024

Particulars	₹	Particulars	₹
To Opening Stock	3,86,000	By Sales 29,86,000
To Purchases 24,85,000		Less: Return Inwards 1,35,000	28,51,000
Less: Return Outwards 1,38,000	23,47,000	By Closing Stock	7,65,000
To Carriage Inwards	1,26,000
To Gross Profit c/d	7,57,000
	36,16,000		36,16,000
To Rent (66,000+6,000)	72,000	By Gross Profit b/d	7,57,000
To Salaries (1,15,000+12,000)	1,27,000	By Interest Received (28,500+6,000)	34,500
To Interest (12,000+3,500)	15,500	By Discount Received	24,600
To Advertisement	40,300
To Printing & Stationery	32,200
To Electricity Charges	57,700
To Discount Allowed	55,200
To Bad Debts	18,500
To Provision for Doubtful Debts	10,500
To General Expenses	36,800
To Motor Car Expenses	8,500
To Insurance Premium (30,000−18,000)	12,000
To Travelling Expenses	21,800
To Postage & Courier	8,100
To Depreciation on Furniture	2,750
To Net Profit (to Capital A/c)	2,97,250
	8,16,100		8,16,100

✓Final answer

(a) Trading & P&L: Gross Profit = ₹7,57,000; Net Profit = ₹2,97,250 .

Balance Sheet of Mr. Piyush as on 31st March, 2024

Liabilities	₹	Assets	₹
Capital 8,85,000		Furniture (25,000+10,000−2,750)	32,250
Add: Net Profit 2,97,250		Investments (9%)	50,000
Less: Drawings 96,000	10,86,250	Deposits (10%)	3,00,000
Bank Loan (12%)	2,00,000	Closing Stock	7,65,000
Sundry Creditors	1,37,500	Sundry Debtors 2,10,000
Outstanding Rent	6,000	Less: Provision 10,500	1,99,500
Outstanding Salary	12,000	Accrued Interest (on Invts & Deposits)	6,000
Outstanding Interest on Bank Loan	3,000	Cash in Hand	18,500
		Cash at Bank	73,500
	14,44,750		14,44,750

✓Final answer

(a) Balance Sheet total = ₹14,44,750 (both sides agree).

Part (b) — Interest on Capital & Drawings: X and Y (5 Marks)

(i) Profit-sharing ratio = ratio of effective (time-weighted) capital. Compute each partner's capital × months (product method):

Period (X)	Capital ₹	Months	Product ₹
1.4 – 31.5.23	2,80,000	2	5,60,000
1.6 – 30.9.23 (+20,000)	3,00,000	4	12,00,000
1.10.23 – 31.1.24 (+15,000)	3,15,000	4	12,60,000
1.2 – 31.3.24 (−25,000)	2,90,000	2	5,80,000
Total X			36,00,000

Period (Y)	Capital ₹	Months	Product ₹
1.4 – 31.7.23	1,60,000	4	6,40,000
1.8.23 – 31.3.24 (+30,000)	1,90,000	8	15,20,000
Total Y			21,60,000

Effective-capital ratio = 36,00,000 : 21,60,000 = 5 : 3.

(ii) Interest on capital @12% p.a. = 12% on each total product ÷ 12:

\text{IOC}_X = \frac{12}{100}\times\frac{36{,}00{,}000}{12} = ₹36{,}000

\text{IOC}_Y = \frac{12}{100}\times\frac{21{,}60{,}000}{12} = ₹21{,}600

(iii) Interest on drawings @10% p.a.

X: ₹5,000 at the beginning of each quarter (₹20,000 total). Average period for beginning-of-quarter drawings = 7.5 months → 20,000 × 10% × 7.5/12 = ₹1,250.
Y: ₹1,500 at the end of each month (₹18,000 total). Average period for end-of-month drawings = 5.5 months → 18,000 × 10% × 5.5/12 = ₹825.

Watch out

Keep X's two withdrawals separate: the ₹25,000 taken on 31.1.2024 is a capital withdrawal (it changes the interest-on-capital periods) while the quarterly ₹5,000 are drawings against profit (they attract interest on drawings). Lumping them together gives the wrong capital ratio and the wrong interest figures.

Tip

Use the product (capital × months) method for interest on capital — the very same products instantly give the effective-capital profit-sharing ratio, so you do the heavy arithmetic only once.

✓Final answer

(b) (i) Profit-sharing ratio 5 : 3; (ii) Interest on capital — X ₹36,000, Y ₹21,600; (iii) Interest on drawings — X ₹1,250, Y ₹825 .

CA Foundation 2024Set sep-202420 marks

Q. (a) The following Trial Balance is the Trial Balance of a Proprietor as on March 31st 2024. Prepare Trading and Profit & Loss Account for the year ending March 31st 2024 and a Balance Sheet as at that date.

(10)

Particulars	Amount (₹)	Particulars	Amount (₹)
Plant and Machinery	5,00,000	Capital	4,00,000
Office Furniture	26,000	Sundry Creditors	5,20,000
Opening Stock	4,80,000	Sales	48,00,000
Motor Van	1,20,000	Bills Payable	56,000
Sundry Debtors	4,57,000	Provision for Doubtful Debts	25,000
Cash in hand	4,000	Return Outwards	55,000
Cash at Bank	65,000	Discount Received	37,000
Wages	15,00,000
Salaries	1,40,000
Purchases	21,35,000
Bills Receivable	72,000
Return Inwards	93,000
Drawings	70,000
Advertisements	60,000
Factory Rent	8,000
Insurance	63,000
General Expenses	10,000
Bad debts	25,000
Discount allowed	65,000
	58,93,000		58,93,000

Additional Information to be considered :

(i) Closing Stock on March 31st 2024 is ₹ 5,20,000.

(ii) During the year, Plant and Machinery was purchased for ₹ 3,00,000 but it was debited to Purchase Account.

(iii) 3 months factory rent is due but not paid ₹ 3,000.

(iv) Provide depreciation at 5% per annum on furniture and 10% on plant and machinery and motor van.

(v) Further bad debts ₹ 7,000.

(vi) Provision for doubtful debts to be increased to ₹ 30,000 at year-end.

(vii) Provision for discount on Debtors to be made at 2%.

(b) The following is the Balance Sheet of Krish and Bala, sharing profit and loss in the ratio 3 : 2

(10)

Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Accounts :		Land & Buildings	28,000
Krish 25,000		Plant & Machinery	15,000
Bala 15,000	40,000	Stock	10,000
General Reserve	30,000	Debtors 25,000
Workmen's Compensation Reserve	10,000	Less : Provision for doubtful debts 4,000	21,000
Creditors	10,000	Bank	20,000
Employee's Provident Fund	8,000	Advertisement Expenditure	4,000
	98,000		98,000

On admission of Sobha for 1/6th share in the profits, it was decided that :

(1) Value of land and buildings to be increased by ₹ 5,000.

(2) Value of stock to be increased by ₹ 3,500.

(3) Provision of doubtful debts to be increased by ₹ 1,500.

(4) Liabilities of workmen's compensation reserve was determined to be ₹ 8,000.

(5) Sobha was to bring in further cash of ₹ 25,000 as her capital.

(6) Sobha brought in her share of goodwill ₹ 12,000 in cash. Prepare the Revaluation Account, the Capital Account and the Balance Sheet of the new firm.

›Reveal solution

(a) Prepare the Trading & P&L Account and Balance Sheet from the trial balance after 7 adjustments — Gross Profit ₹14,56,000, Net Profit ₹10,16,300, Balance Sheet ₹19,25,300. (b) On Sobha's admission for 1/6th share, prepare the Revaluation Account (profit ₹7,000), Partners' Capital Accounts and the new Balance Sheet (₹1,38,000).

Part (a) — Final Accounts of a Sole Proprietor (10 Marks)

Adjustments worked before posting:

Plant ₹3,00,000 wrongly debited to Purchases → remove it from Purchases and add it to Plant & Machinery (corrected value ₹8,00,000).
Depreciation: Plant 10% of ₹8,00,000 = ₹80,000; Motor Van 10% of ₹1,20,000 = ₹12,000; Furniture 5% of ₹26,000 = ₹1,300 (total ₹93,300).
Debtors: ₹4,57,000 − further bad debts ₹7,000 = ₹4,50,000; new Provision for Doubtful Debts ₹30,000; Provision for Discount 2% of (₹4,50,000 − ₹30,000) = ₹8,400.
Bad debts charged to P&L = ₹25,000 (given) + ₹7,000 (further) + ₹30,000 (new provision) − ₹25,000 (old provision) = ₹37,000.

Trading and Profit & Loss Account for the year ended 31st March 2024

Particulars	₹	Particulars	₹
To Opening Stock	4,80,000	By Sales 48,00,000
To Purchases 21,35,000		Less: Return Inwards 93,000	47,07,000
Less: Return Outwards 55,000		By Closing Stock	5,20,000
Less: Plant wrongly debited 3,00,000	17,80,000
To Wages	15,00,000
To Factory Rent (8,000 + 3,000)	11,000
To Gross Profit c/d	14,56,000
	52,27,000		52,27,000
To Salaries	1,40,000	By Gross Profit b/d	14,56,000
To Advertisements	60,000	By Discount Received	37,000
To Insurance	63,000
To General Expenses	10,000
To Discount Allowed	65,000
To Bad Debts (net, see note 4)	37,000
To Provision for Discount on Debtors	8,400
To Depreciation	93,300
To Net Profit (to Capital A/c)	10,16,300
	14,93,000		14,93,000

Balance Sheet as at 31st March 2024

Liabilities	₹	Assets	₹
Capital 4,00,000		Plant & Machinery 8,00,000
Add: Net Profit 10,16,300		Less: Depreciation 80,000	7,20,000
Less: Drawings 70,000	13,46,300	Office Furniture 26,000
Sundry Creditors	5,20,000	Less: Depreciation 1,300	24,700
Bills Payable	56,000	Motor Van 1,20,000
Outstanding Factory Rent	3,000	Less: Depreciation 12,000	1,08,000
		Closing Stock	5,20,000
		Sundry Debtors 4,57,000
		Less: Further Bad Debts 7,000
		Less: Provision for Doubtful Debts 30,000
		Less: Provision for Discount 8,400	4,11,600
		Bills Receivable	72,000
		Cash in hand	4,000
		Cash at Bank	65,000
	19,25,300		19,25,300

✓Final answer

(a) Gross Profit = ₹14,56,000; Net Profit = ₹10,16,300; Balance Sheet total = ₹19,25,300.

Part (b) — Admission of Sobha for 1/6th Share (10 Marks)

Revaluation Account

Particulars	₹	Particulars	₹
To Provision for Doubtful Debts	1,500	By Land & Buildings	5,000
To Profit transferred to:		By Stock	3,500
Krish 4,200
Bala 2,800	7,000
	8,500		8,500

Partners' Capital Accounts

Particulars	Krish	Bala	Sobha	Particulars	Krish	Bala	Sobha
To Advt. Expenditure (written off)	2,400	1,600	—	By Balance b/d	25,000	15,000	—
To Balance c/d	53,200	33,800	25,000	By Bank (Capital)	—	—	25,000
				By General Reserve	18,000	12,000	—
				By Workmen's Comp. Reserve (surplus)	1,200	800	—
				By Revaluation (profit)	4,200	2,800	—
				By Premium for Goodwill	7,200	4,800	—
	55,600	35,400	25,000		55,600	35,400	25,000

Balance Sheet of the new firm (Krish, Bala and Sobha) after admission

Liabilities	₹	Assets	₹
Capital: Krish	53,200	Land & Buildings (28,000 + 5,000)	33,000
Capital: Bala	33,800	Plant & Machinery	15,000
Capital: Sobha	25,000	Stock (10,000 + 3,500)	13,500
Workmen's Compensation Claim	8,000	Debtors 25,000
Creditors	10,000	Less: Provision (4,000 + 1,500) 5,500	19,500
Employee's Provident Fund	8,000	Bank (20,000 + 25,000 + 12,000)	57,000
	1,38,000		1,38,000

Working notes: General Reserve ₹30,000 (Krish ₹18,000, Bala ₹12,000) and the Workmen's Compensation Reserve surplus ₹2,000 (₹10,000 reserve − ₹8,000 determined liability) are distributed to the OLD partners in 3:2; only ₹8,000 remains as a liability. Advertisement Expenditure ₹4,000 (a fictitious/deferred-revenue asset) is written off to old partners 3:2. Sobha's goodwill ₹12,000 brought in cash is credited to old partners in their sacrificing ratio 3:2 (Krish ₹7,200, Bala ₹4,800).

✓Final answer

(b) Revaluation profit ₹7,000 (Krish ₹4,200, Bala ₹2,800); closing Capitals — Krish ₹53,200, Bala ₹33,800, Sobha ₹25,000; new Balance Sheet total ₹1,38,000.

Watch out

In part (a) the ₹3,00,000 plant wrongly debited to Purchases must be removed from Purchases AND depreciation charged on the corrected plant value ₹8,00,000 (not ₹5,00,000) — missing either is the most common error. In part (b), the Workmen's Compensation Reserve is NOT fully distributed: only the surplus over the determined liability (₹10,000 − ₹8,000 = ₹2,000) goes to old partners; ₹8,000 stays on the balance sheet as a liability.

Tip

Post every adjustment twice (a debit and a credit) — e.g. outstanding factory rent is both an expense in the Trading A/c and a liability in the Balance Sheet. On admission, reserves and fictitious assets belong to the OLD partners only (old ratio), while goodwill brought in is credited in the sacrificing ratio.

✓Final answer

(a) GP ₹14,56,000, NP ₹10,16,300, Balance Sheet ₹19,25,300. (b) Revaluation profit ₹7,000; new Balance Sheet ₹1,38,000 (Krish ₹53,200, Bala ₹33,800, Sobha ₹25,000).

CA Foundation 2023Set dec-202320 marks

Q. (a) The following is the schedule of balances as on 31.03.23 extracted from the books of M/s RM & Co. Particulars Dr. ₹ Cr. ₹ Bank charges 24,000 Buildings 9,00,000 Capital A/c 19,48,000 Carriage Outwards 30,000 Cash at bank 39,000 Cash in hand 21,000 Discount allowed 36,000 Discount received 24,000 Drawings 1,80,000 Electricity Charges 33,000 Freight on purchases 18,000 Furniture & fixtures 3,21,000 General office expenses 45,000 Insurance Premium 82,500 Interest on loan 35,000 Loan 6,00,000 Printing and Stationery 27,000 Purchase Returns 39,000 Purchases 21,30,000 Rent for Godown 82,500 Salaries 1,65,000 Sales 35,50,000 Sales Returns 63,000 Stock on 1.4.2022 9,30,000 Sundry Creditors 6,45,000 Sundry Debtors 12,90,000 Vehicles 3,00,000 Vehicles running expenses 54,000 TOTAL 68,06,000 68,06,000 Prepare Trading and Profit & Loss Account for the year ended 31st March 2023 and the Balance Sheet as at that date after making provision for the following:

Particulars	Dr. ₹	Cr. ₹
Bank charges	24,000
Buildings	9,00,000
Capital A/c		19,48,000
Carriage Outwards	30,000
Cash at bank	39,000
Cash in hand	21,000
Discount allowed	36,000
Discount received		24,000
Drawings	1,80,000
Electricity Charges	33,000
Freight on purchases	18,000
Furniture & fixtures	3,21,000
General office expenses	45,000
Insurance Premium	82,500
Interest on loan	35,000
Loan		6,00,000
Printing and Stationery	27,000
Purchase Returns		39,000
Purchases	21,30,000
Rent for Godown	82,500
Salaries	1,65,000
Sales		35,50,000
Sales Returns	63,000
Stock on 1.4.2022	9,30,000
Sundry Creditors		6,45,000
Sundry Debtors	12,90,000
Vehicles	3,00,000
Vehicles running expenses	54,000
TOTAL	68,06,000	68,06,000

(i) Value of stock as on 31.03.2023 is ₹ 4,10,000. This includes goods returned by customers on 31st March, 2023 to the value of ₹ 22,000 for which no entry has been passed in the books.

(ii) Purchases include furniture purchased on 01.10.2022 for ₹ 30,000.

(iii) Depreciate :

(1) Building by 5%

(2) Furniture and Fixtures by 10%

(3) Vehicles by 20%

(iv) Sundry debtors include ₹ 35,000 due from Goku and Sundry creditors include ₹ 25,000 due to him

(v) Provision for bad debts is to be maintained at 4% of Sundry Debtors.

(vi) Insurance premium includes ₹ 42,000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.05.2022 to 30.4.2023. (15 Marks) (b) P, Q and R are the 3 partners in partnership firm. Partnership deed includes the following :

(i) R is entitled to get salary of ₹ 10,000 p.a.

(ii) P, Q and R are to get interest @ 6% on their respective capital of ₹ 2,50,000 ; ₹ 1,50,000 and ₹ 1,00,000.

(iii) R is to get extra benefit of 10% of profit in excess of ₹ 50,000 after providing for

(i) and

(ii) mentioned above.

(iv) Q is entitled to 10% of profits after providing all the amounts in para (i),

(ii) and

(iii) mentioned above.

(v) The balance of profits will be shared by P, Q and R is ratio of 5 : 3 : 2. The profits for the year before providing above items are ₹ 3,50,000. You are required to prepare Profit and Loss Appropriation Account. (5 Marks)

›Reveal solution

(a) After all adjustments: Gross Profit Rs 8,66,000, Net Profit Rs 1,33,055, Balance Sheet Rs 30,79,055. (b) The appropriation shares are P Rs 1,42,800, Q Rs 1,14,080 and R Rs 93,120 (total Rs 3,50,000).

Part (a) - Trading and Profit & Loss Account and Balance Sheet (15 Marks)

Key adjustments: (i) record the unrecorded sales return Rs 22,000 (already in closing stock); (ii) move furniture Rs 30,000 out of Purchases into Furniture (depreciate half-year); (iii) depreciation 5%/10%/20%; (iv) set off Rs 25,000 mutual balance with Goku; (v) 4% provision for doubtful debts; (vi) remove Rs 42,000 life-insurance (drawings) and carry Rs 3,375 prepaid insurance.

Trading and Profit & Loss Account for the year ended 31st March 2023

Particulars	Rs	Particulars	Rs
To Opening Stock	9,30,000	By Sales 35,50,000 - Returns 85,000	34,65,000
To Purchases 21,30,000 - 30,000 furn. - 39,000 ret.	20,61,000	By Closing Stock	4,10,000
To Freight on purchases	18,000
To Gross Profit c/d	8,66,000
Total	38,75,000	Total	38,75,000
To Bank charges	24,000	By Gross Profit b/d	8,66,000
To Carriage outwards	30,000	By Discount received	24,000
To Discount allowed	36,000
To Electricity charges	33,000
To General office expenses	45,000
To Insurance premium (82,500 - 42,000 - 3,375)	37,125
To Interest on loan	35,000
To Printing & stationery	27,000
To Rent for godown	82,500
To Salaries	1,65,000
To Vehicles running expenses	54,000
To Depreciation (Bldg 45,000 + Furn 33,600 + Veh 60,000)	1,38,600
To Provision for doubtful debts (4% of 12,43,000)	49,720
To Net Profit	1,33,055
Total	8,90,000	Total	8,90,000

✓Final answer

Gross Profit = Rs 8,66,000; Net Profit = Rs 1,33,055 .

Balance Sheet as at 31st March 2023

Liabilities	Rs	Assets	Rs
Capital 19,48,000		Buildings 9,00,000 - 45,000	8,55,000
Less: Drawings (1,80,000 + 42,000) 2,22,000		Furniture & fixtures 3,51,000 - 33,600	3,17,400
Add: Net Profit 1,33,055	18,59,055	Vehicles 3,00,000 - 60,000	2,40,000
Loan	6,00,000	Closing Stock	4,10,000
Sundry Creditors 6,45,000 - 25,000	6,20,000	Sundry Debtors 12,43,000 - Prov. 49,720	11,93,280
		Cash at bank	39,000
		Cash in hand	21,000
		Prepaid insurance	3,375
Total	30,79,055	Total	30,79,055

Debtors working: 12,90,000 - 22,000 (return) - 25,000 (Goku set-off) = 12,43,000. Furniture: 3,21,000 + 30,000 = 3,51,000 (dep 32,100 + 1,500 = 33,600).

✓Final answer

Balance Sheet totals agree at Rs 30,79,055 .

Part (b) - Profit and Loss Appropriation Account (5 Marks)

Work the entitlements in the deed's own order: salary, interest, R's extra 10% over Rs 50,000, Q's 10%, then balance 5:3:2.

Profit before appropriations = Rs 3,50,000; less R's salary 10,000 and interest on capital (P 15,000 + Q 9,000 + R 6,000 = 30,000) = Rs 3,10,000.
R's extra = 10% of (3,10,000 - 50,000) = 10% x 2,60,000 = Rs 26,000; balance Rs 2,84,000.
Q's 10% of 2,84,000 = Rs 28,400; balance Rs 2,55,600.
Balance 5:3:2 -> P 1,27,800, Q 76,680, R 51,120.

Profit and Loss Appropriation Account

Particulars	Rs	Particulars	Rs
To R's Salary	10,000	By Profit and Loss A/c (net profit)	3,50,000
To Interest on Capital: P 15,000, Q 9,000, R 6,000	30,000
To R's Commission (extra 10%)	26,000
To Q's Commission (10%)	28,400
To Profit transferred: P 1,27,800; Q 76,680; R 51,120	2,55,600
Total	3,50,000	Total	3,50,000

Total to each partner: P Rs 1,42,800 (15,000 + 1,27,800); Q Rs 1,14,080 (9,000 + 28,400 + 76,680); R Rs 93,120 (10,000 + 6,000 + 26,000 + 51,120).

✓Final answer

The Rs 3,50,000 profit is fully appropriated - P Rs 1,42,800, Q Rs 1,14,080, R Rs 93,120 .

Watch out

Do not depreciate the new furniture for a full year - it was bought on 01.10.2022, so only half a year's depreciation (Rs 1,500). The unrecorded return reduces BOTH sales and debtors (not stock, which already includes it). Proprietor's life-insurance Rs 42,000 is drawings, not a business expense. In (b), compute R's extra and Q's commission on the correctly reduced base each time - the order of deduction matters.

Tip

Prepare the Balance Sheet last and let it prove your Net Profit - if the two sides agree (here at Rs 30,79,055), every adjustment has been carried through consistently. In appropriation problems, list the deed's clauses in sequence and reduce the residual profit after each step before applying the next percentage.

CA Foundation 2022Set may-202220 marks

Q. The following is the trial balance of Mr. B for the year ended 31st March, 2021: Particulars Dr. Particulars Cr. Opening Stock: Sundry Creditors 1,75,000 Raw Material 5,25,000 Purchase Return 17,500 Finished Goods 2,62,500 Capital 3,50,000 Purchase of Raw Material 17,50,000 Bills Payable 84,000 Land & Building 3,50,000 Long Term Loan 7,00,000 Loose Tools 1,05,000 Provision for bad and doubtful debts 7,000 Plant and Machinery 1,05,000 Sales 29,75,000 Investments 87,500 Bank Overdraft 80,500 Cash in Hand 70,000 Cash at Bank 17,500 Furniture and Fixtures 52,500 Bills Receivables 52,500 Sundry Debtors 1,40,000 Drawings 70,000 Salaries 70,000 Coal and Fuel 52,500 Factory rent and rates 70,000 General Expenses 14,000 Advertisement 17,500 Sales Return 35,000 Bad Debts 14,000 Direct Wages (Factory) 2,80,000 Power 1,05,000 Interest paid 24,500 Discount allowed 10,500 Carriage inwards 52,500 Carriage outwards 24,500 Commission paid 17,500 Dividend paid 14,000 43,89,000 43,89,000 Additional Information:

Particulars	Dr.	Particulars	Cr.
Opening Stock:		Sundry Creditors	1,75,000
Raw Material	5,25,000	Purchase Return	17,500
Finished Goods	2,62,500	Capital	3,50,000
Purchase of Raw Material	17,50,000	Bills Payable	84,000
Land & Building	3,50,000	Long Term Loan	7,00,000
Loose Tools	1,05,000	Provision for bad and doubtful debts	7,000
Plant and Machinery	1,05,000	Sales	29,75,000
Investments	87,500	Bank Overdraft	80,500
Cash in Hand	70,000
Cash at Bank	17,500
Furniture and Fixtures	52,500
Bills Receivables	52,500
Sundry Debtors	1,40,000
Drawings	70,000
Salaries	70,000
Coal and Fuel	52,500
Factory rent and rates	70,000
General Expenses	14,000
Advertisement	17,500
Sales Return	35,000
Bad Debts	14,000
Direct Wages (Factory)	2,80,000
Power	1,05,000
Interest paid	24,500
Discount allowed	10,500
Carriage inwards	52,500
Carriage outwards	24,500
Commission paid	17,500
Dividend paid	14,000
	43,89,000		43,89,000

(i) Stock of finished goods at the end of the year was ₹ 3,50,000.

(ii) A provision for doubtful debts is to be created @ 5% on Sundry Debtors. Provide Depreciation on building ₹ 3,500 and Machinery ₹ 10,500.

(iii) Accrued commission is ₹ 43,750. Interest has accrued on investment ₹ 52,500.

(iv) Salary Outstanding is ₹ 7,000 and Prepaid Interest is ₹ 5,250. You are required to prepare Manufacturing, Trading and Profit & loss account for the year ended 31st March, 2021 and Balance Sheet as at that date. (20 Marks)

›Reveal solution

Split factory costs into the Manufacturing Account (cost of production ₹28,28,000), carry that to the Trading Account (Gross Profit ₹1,99,500), charge office/selling items and credit the two accrued incomes in the P&L (Net Profit ₹84,000), then draw up the Balance Sheet, which ties out at ₹14,10,500.

Part (a) — Manufacturing Account (year ended 31 March 2021)

Carriage inwards is a cost of raw material and so is taken here; depreciation on plant & machinery (a factory asset) is also a manufacturing cost. No closing raw material or work-in-progress is given.

Particulars	₹	Particulars	₹
To Opening stock of Raw Material	5,25,000	By Cost of production c/d (to Trading)	28,28,000
To Purchases of Raw Material 17,50,000 − Return 17,500	17,32,500
To Carriage inwards	52,500
To Direct wages (factory)	2,80,000
To Coal and fuel	52,500
To Factory rent and rates	70,000
To Power	1,05,000
To Depreciation on Plant & Machinery	10,500
Total	28,28,000	Total	28,28,000

✓Final answer

Cost of production transferred to Trading A/c = ₹28,28,000 .

Part (b) — Trading Account (year ended 31 March 2021)

Particulars	₹	Particulars	₹
To Opening stock of Finished Goods	2,62,500	By Sales 29,75,000 − Return 35,000	29,40,000
To Cost of production (from Manufacturing A/c)	28,28,000	By Closing stock of Finished Goods	3,50,000
To Gross Profit c/d	1,99,500
Total	32,90,000	Total	32,90,000

✓Final answer

Gross Profit = ₹1,99,500 .

Part (c) — Profit & Loss Account (year ended 31 March 2021)

Adjustments: salaries + outstanding 7,000; interest paid − prepaid 5,250; new provision for doubtful debts 5% of 1,40,000 = 7,000 (equal to the old provision, so the net charge is just the bad debts); accrued commission ₹43,750 and accrued interest on investment ₹52,500 are incomes.

Particulars	₹	Particulars	₹
To Salaries (70,000 + 7,000 outstanding)	77,000	By Gross Profit b/d	1,99,500
To General expenses	14,000	By Accrued commission (income)	43,750
To Advertisement	17,500	By Accrued interest on investment	52,500
To Bad debts 14,000 + New provision 7,000 − Old provision 7,000	14,000
To Interest paid (24,500 − 5,250 prepaid)	19,250
To Discount allowed	10,500
To Carriage outwards	24,500
To Commission paid	17,500
To Depreciation on Building	3,500
To Dividend paid	14,000
To Net Profit (to Capital)	84,000
Total	2,95,750	Total	2,95,750

✓Final answer

Net Profit for the year = ₹84,000 .

Part (d) — Balance Sheet as at 31 March 2021

Liabilities	₹	Assets	₹
Capital 3,50,000 + Net Profit 84,000 − Drawings 70,000	3,64,000	Land & Building 3,50,000 − Dep 3,500	3,46,500
Long-term loan	7,00,000	Plant & Machinery 1,05,000 − Dep 10,500	94,500
Sundry creditors	1,75,000	Loose tools	1,05,000
Bills payable	84,000	Furniture & fixtures	52,500
Bank overdraft	80,500	Investments	87,500
Outstanding salary	7,000	Closing stock (finished goods)	3,50,000
		Sundry debtors 1,40,000 − Provision 7,000	1,33,000
		Bills receivable	52,500
		Cash in hand	70,000
		Cash at bank	17,500
		Accrued commission	43,750
		Accrued interest on investment	52,500
		Prepaid interest	5,250
Total	14,10,500	Total	14,10,500

✓Final answer

Net Profit ₹84,000; Closing Capital ₹3,64,000; Balance Sheet total = ₹14,10,500 (it ties out exactly).

Watch out

Keep factory items (raw material, carriage inwards, direct wages, coal & fuel, factory rent, power, plant depreciation) in the Manufacturing account and office/selling items in the P&L. Because the new provision for doubtful debts (₹7,000) equals the old one, the net P&L charge is only the bad debts (₹14,000). Both accrued commission and accrued interest are incomes (P&L credit + asset), while prepaid interest reduces the interest expense and appears as an asset.

Tip

Work top-down: Manufacturing → Trading → P&L → Balance Sheet, carrying each account's balancing figure forward. A tallied Balance Sheet (here ₹14,10,500 on both sides) is your proof that every adjustment has been posted on both sides.

CA Foundation 2021Set jul-202120 marks

Q. (a) Karuna decided to start business of fashion garments under the name of M/s. Designer Wear on 1st April, 2020. She had a saving of about ₹ 10,00,000. She invested ₹ 3,00,000 out of her savings and borrowed equal amount from Bank. She purchased a commercial space for ₹ 5,00,000 and further spent ₹ 1,00,000 on its renovation to make it ready for business. (10 Marks) Loan and interest repaid by her in the first year are as follows : 30th June, 2020 — ₹ 15,000 principal + ₹ 9,000 interest 30th September, 2020 — ₹ 15,000 principal + ₹ 8,550 interest 31st December, 2020 — ₹ 15,000 principal + ₹ 8,100 interest 31st March, 2021 — ₹ 15,000 principal + ₹ 7,650 interest In view of further capital requirement, she transferred ₹ 2,00,000 from her saving bank account to the bank account of the business. She paid security deposit of ₹ 7,000 for telephone connection. Furniture of ₹ 10,000 was purchased. All payments were made by cheque and all receipts in cash were deposited in the bank. At the end of the year, her business showed the following results : Particulars Amount Particulars Amount Total Sales 20,00,000 Total Purchase 17,00,000 Electricity Expenses paid 40,000 Telephone Charges 50,000 Cartage Outwards 60,000 Travelling Expenses 45,000 Entertainment Expenses 5,000 Maintenance Expenses 25,000 Misc. Expenses 15,000 Electricity Expenses Payable 20,000 Other Information :

Particulars	Amount	Particulars	Amount
Total Sales	20,00,000	Total Purchase	17,00,000
Electricity Expenses paid	40,000	Telephone Charges	50,000
Cartage Outwards	60,000	Travelling Expenses	45,000
Entertainment Expenses	5,000	Maintenance Expenses	25,000
Misc. Expenses	15,000	Electricity Expenses Payable	20,000

(i) She withdrew ₹ 5,000 by cheque each month for her personal expenses.

(ii) Depreciation on building @ 5% p.a. and on furniture @ 10% p.a.

(iii) Closing stock in hand as on 31st March, 2021 : ₹ 5,50,000 Prepare trading account, profit and loss account for the year ended 31-3-2021 and Balance Sheet as on that date. (b) Summary of Receipts and Payments of AMA Society for the year ended 31st March, 2021 are as follows : (10 Marks)

Receipts	Amount	Payments	Amount
Subscription Received	5,00,000	Payment for Medicine Supply	3,00,000
Donation Raised for meeting revenue expenditure	1,50,000	Honorarium to Doctors	1,00,000
Interest on Investments @ 9% p.a.	90,000	Salaries	2,80,000
Charity Show Collection	1,25,000	Sundry Expenses	10,000
		Equipment Purchase	1,50,000
		Charity Show Expenses	15,000

Additional Information :

Particulars	01.04.2020	31.03.2021
Subscription due	15,000	22,000
Subscription received in advance	12,000	7,000
Stock of medicine	1,00,000	1,50,000
Amount due for medicine supply	90,000	1,30,000
Value of equipment	2,10,000	3,00,000
Value of building	5,00,000	4,80,000
Cash Balance	80,000	90,000
Opening Balance of Capital Fund	18,03,000

You are required to prepare :

(i) Income and Expenditure Account for the year ended 31st March, 2021.

(ii) Balance Sheet as on 31st March, 2021

›Reveal solution

(a) Renovation is capitalised into the building (₹6,00,000); loan interest ₹33,300 and depreciation (building ₹30,000, furniture ₹1,000) hit the P&L; drawings reduce capital. Net Profit ₹5,25,700. (b) Convert receipts to income/expenditure (subscriptions, medicine consumed), derive depreciation from opening/closing asset values, prove the opening Capital Fund. Surplus ₹1,02,000.

Part (a) — M/s Designer Wear (Sole Proprietor) (10 Marks)

Trading Account for the year ended 31-3-2021

Dr Particulars	₹	Cr Particulars	₹
To Purchases	17,00,000	By Sales	20,00,000
To Gross Profit c/d	8,50,000	By Closing Stock	5,50,000
Total	25,50,000	Total	25,50,000

Profit & Loss Account for the year ended 31-3-2021

Dr Particulars	₹	Cr Particulars	₹
To Electricity (40,000 + 20,000 payable)	60,000	By Gross Profit b/d	8,50,000
To Telephone Charges	50,000
To Cartage Outwards	60,000
To Travelling Expenses	45,000
To Entertainment Expenses	5,000
To Maintenance Expenses	25,000
To Misc. Expenses	15,000
To Interest on Bank Loan (9,000+8,550+8,100+7,650)	33,300
To Depreciation — Building 30,000 + Furniture 1,000	31,000
To Net Profit (to Capital)	5,25,700
Total	8,50,000	Total	8,50,000

Balance Sheet as on 31-3-2021

Liabilities	₹	Assets	₹
Capital: 3,00,000 + 2,00,000 introduced + Net Profit 5,25,700 − Drawings 60,000	9,65,700	Building 6,00,000 − Dep 30,000	5,70,000
Bank Loan (3,00,000 − 60,000 repaid)	2,40,000	Furniture 10,000 − Dep 1,000	9,000
Electricity Expenses Payable	20,000	Telephone Security Deposit	7,000
		Closing Stock	5,50,000
		Cash at Bank (balancing)	89,700
Total	12,25,700	Total	12,25,700

Bank check: receipts (capital 3,00,000 + loan 3,00,000 + extra capital 2,00,000 + sales 20,00,000 = 28,00,000) − payments (building 6,00,000, purchases 17,00,000, expenses paid 2,80,000, interest 33,300, principal 60,000, deposit 7,000, furniture 10,000, drawings 60,000 = 27,10,300) = ₹89,700. ✓

✓Final answer

Gross Profit ₹8,50,000; Net Profit ₹5,25,700; Balance Sheet total ₹12,25,700 (capital ₹9,65,700, loan ₹2,40,000, cash at bank ₹89,700).

Part (b) — AMA Society (Not-for-Profit) (10 Marks)

Subscriptions (income): 5,00,000 + 22,000 (due, end) − 15,000 (due, begin) + 12,000 (advance, begin) − 7,000 (advance, end) = ₹5,12,000.

Medicine consumed: purchases = 3,00,000 + 1,30,000 (creditors end) − 90,000 (creditors begin) = 3,40,000; consumed = 1,00,000 (opening stock) + 3,40,000 − 1,50,000 (closing stock) = ₹2,90,000.

Depreciation: Equipment = (2,10,000 + 1,50,000 purchase) − 3,00,000 = ₹60,000; Building = 5,00,000 − 4,80,000 = ₹20,000. Investments = 90,000 interest ÷ 9% = ₹10,00,000.

Income & Expenditure Account for the year ended 31-3-2021

Dr — Expenditure	₹	Cr — Income	₹
To Medicine consumed	2,90,000	By Subscriptions	5,12,000
To Honorarium to Doctors	1,00,000	By Donation (revenue)	1,50,000
To Salaries	2,80,000	By Interest on Investments	90,000
To Sundry Expenses	10,000	By Charity Show Collection	1,25,000
To Charity Show Expenses	15,000
To Depreciation — Equipment 60,000 + Building 20,000	80,000
To Surplus (excess income over expenditure)	1,02,000
Total	8,77,000	Total	8,77,000

Balance Sheet as on 31-3-2021

Liabilities	₹	Assets	₹
Capital Fund: 18,03,000 + Surplus 1,02,000	19,05,000	Building	4,80,000
Subscription received in advance	7,000	Equipment	3,00,000
Amount due for medicine supply	1,30,000	Investments	10,00,000
		Stock of medicine	1,50,000
		Subscription due	22,000
		Cash balance	90,000
Total	20,42,000	Total	20,42,000

Opening Capital Fund proof: assets (15,000 + 1,00,000 + 2,10,000 + 5,00,000 + 80,000 + 10,00,000 = 19,05,000) − liabilities (12,000 + 90,000 = 1,02,000) = ₹18,03,000 ✓, matching the figure given.

✓Final answer

Surplus ₹1,02,000; closing Capital Fund ₹19,05,000; Balance Sheet total ₹20,42,000.

Watch out

Capitalise the ₹1,00,000 renovation into the building (don't expense it), and take the ₹90,000 interest to gross up investments to ₹10,00,000 — a common slip is to omit the investment asset, which then breaks the Balance Sheet. In (b), medicine consumed (not paid) is the expense.

Tip

For an NPO, always reconcile the opening Capital Fund from the opening Balance Sheet first — if it ties to the figure given (₹18,03,000 here), you have found every hidden asset/liability (like the ₹10,00,000 investment) before you even start.

CA Foundation 2021Set dec-202120 marks

Q. (a) Pass the Journal entries to rectify the following errors detected during preparation of the Trial Balance :

(i) Wages paid for construction of office building debited to wages account ₹. 20,000.

(ii) A credit sale of goods ₹. 1,200 to Ramesh has been wrongly passed through the Purchase Book.

(iii) An amount of ₹. 2,000 due from Mahesh Chand which had been written off as a bad debt in the previous year was unexpectedly recovered and has been posted to the personal account of Mahesh Chand.

(iv) Goods (Cost being ₹. 5,000 and Sales price being ₹. 6,000) distributed as free samples among prospective customers were not recorded anywhere.

(v) Goods worth ₹. 1,500 returned by Green have not been recorded anywhere. (5 Marks) (b) On 31st March, 2021 the Trial Balance of Mr. Black was as follows:

Particulars	Debit (₹.)	Particulars	Credit (₹.)
Stock on 1/4/2020:		Sundry Creditors	1,50,000
Raw Materials	2,10,000	Bills Payables	75,000
Work-in-Progress	95,000	Sale of scrap	25,000
Finished Goods	1,55,000	Commission received	4,500
Sundry Debtors	2,40,000	Provision for doubtful debts	16,500
Carriages on Purchases	15,000	Capital account	10,00,000
Bills Receivables	1,50,000	Sales	16,72,000
Wages	1,30,000	Bank overdraft	85,000
Salaries	1,00,000
Telephone and Postage	10,000
Repairs to office furniture	3,500
Cash at Bank	1,70,000
Office Furniture	1,00,000
Repairs to Plant	11,000
Purchases	8,50,000
Plant and Machinery	7,00,000
Rent	60,000
Lighting	13,500
General Expenses	15,000
	30,28,000		30,28,000

The following additional information is available: Stocks on 31st March, 2021 were:


Raw materials	₹ 1,62,000
Finished goods	₹ 1,81,000
Work-in-progress	₹ 78,000

Salaries and wages unpaid for the year ended 31st March, 2021 were respectively, ₹ 9,000 and ₹ 20,000. Machinery is to be depreciated by 10% and office furniture by 7½%. A provision for doubtful debts is to be maintained @ 1% of sales. Rent is to be charged as to 3/4 to factory and 1/4 to office. Lighting is to be charged as to 2/3 to factory and 1/3 to office. Prepare the Manufacturing Account, Trading Account and Profit and Loss Account for the year ended on 31st March, 2021. (15 Marks)

›Reveal solution

(a) For each error decide the correct entry, cancel the wrong one, and pass the net rectifying entry (e.g. capitalise the ₹20,000 construction wages, correct the ₹1,200 credit sale wrongly in the Purchase Book). (b) Route factory costs through a Manufacturing A/c (cost of production ₹11,90,000), take it to the Trading A/c (GP ₹5,08,000), then charge office/admin costs in the P&L A/c for a Net Profit of ₹3,47,780.

Part (a) — Rectification Journal Entries (5 Marks)

#	Particulars	Dr (₹)	Cr (₹)
(i)	Building A/c ... Dr	20,000
	To Wages A/c (wages for constructing the office building wrongly charged to Wages)		20,000
(ii)	Ramesh A/c ... Dr	2,400
	To Sales A/c (credit sale omitted)		1,200
	To Purchases A/c (wrongly recorded as a purchase)		1,200
(iii)	Mahesh Chand A/c ... Dr	2,000
	To Bad Debts Recovered A/c (recovery wrongly credited to his personal account)		2,000
(iv)	Advertisement / Free Samples A/c ... Dr	5,000
	To Purchases A/c (goods given as free samples, recorded at cost)		5,000
(v)	Sales Return A/c ... Dr	1,500
	To Green A/c (goods returned by Green, previously unrecorded)		1,500

Note on (ii): the correct entry is Ramesh Dr / Sales Cr ₹1,200, but the wrong entry was Purchases Dr / Ramesh Cr ₹1,200. Ramesh must therefore be debited ₹1,200 (to reverse the wrong credit) plus ₹1,200 (the debit he should have had) = ₹2,400, with Sales and Purchases each credited ₹1,200.

✓Final answer

All five errors rectified above; the only compound entry is (ii), where Ramesh is debited ₹2,400 against Sales ₹1,200 and Purchases ₹1,200. Free samples (iv) are recorded at cost ₹5,000, not sale price.

Part (b) — Manufacturing, Trading and P&L A/c of Mr. Black for the year ended 31-03-2021 (15 Marks)

Adjustments applied: wages + ₹20,000 unpaid = ₹1,50,000; salaries + ₹9,000 unpaid = ₹1,09,000; depreciation — plant ₹70,000 (10%), furniture ₹7,500 (7½%); provision for doubtful debts @ 1% of sales = ₹16,720 (old ₹16,500 → extra ₹220); rent 3/4 factory ₹45,000 : 1/4 office ₹15,000; lighting 2/3 factory ₹9,000 : 1/3 office ₹4,500.

Manufacturing Account

Particulars	₹	Particulars	₹
To Work-in-Progress (opening)	95,000	By Work-in-Progress (closing)	78,000
To Raw Materials consumed (2,10,000 + 8,50,000 + 15,000 − 1,62,000)	9,13,000	By Sale of Scrap	25,000
To Wages (1,30,000 + 20,000)	1,50,000	By Cost of Production c/d (bal. fig.)	11,90,000
To Repairs to Plant	11,000
To Rent — factory (3/4)	45,000
To Lighting — factory (2/3)	9,000
To Depreciation on Plant & Machinery	70,000
Total	12,93,000	Total	12,93,000

Trading Account

Particulars	₹	Particulars	₹
To Finished Goods (opening)	1,55,000	By Sales	16,72,000
To Cost of Production b/d	11,90,000	By Finished Goods (closing)	1,81,000
To Gross Profit c/d	5,08,000
Total	18,53,000	Total	18,53,000

Profit and Loss Account

Particulars	₹	Particulars	₹
To Salaries (1,00,000 + 9,000)	1,09,000	By Gross Profit b/d	5,08,000
To Telephone and Postage	10,000	By Commission Received	4,500
To Repairs to Office Furniture	3,500
To Rent — office (1/4)	15,000
To Lighting — office (1/3)	4,500
To General Expenses	15,000
To Depreciation on Office Furniture	7,500
To Provision for Doubtful Debts (16,720 − 16,500)	220
To Net Profit (to Capital)	3,47,780
Total	5,12,500	Total	5,12,500

✓Final answer

Cost of Production = ₹11,90,000; Gross Profit = ₹5,08,000; Net Profit = ₹3,47,780.

Watch out

Two classic slips: (1) charging the provision on the whole ₹16,720 instead of only the incremental ₹220 (the old ₹16,500 already exists) — the question fixes provision "@1% of sales", not on debtors; and (2) mis-splitting rent and lighting — factory shares (rent 3/4, lighting 2/3) belong in the Manufacturing A/c, office shares in the P&L A/c. Also remember carriage on purchases is a factory cost (goes into raw-material consumed), and sale of scrap is credited to the Manufacturing A/c.

Tip

Do the three accounts strictly in order — Manufacturing → Trading → P&L — carrying the balancing figure forward each time. Prepare a small adjustments memo (unpaid wages/salaries, depreciation, provision, rent/lighting split) before you start, so every figure lands in exactly one account.

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Working notes

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

Balance Sheet as at March 31, 2017

Accounting concepts

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