Following balances have been extracted from the trial balance of M/s Keshav Electronics Ltd. You are required to prepare the trading and profit and loss account and a balance sheet as on March 31, 2017.
| Account Title | Amount ₹ | Account Title | Amount ₹ |
|---|---|---|---|
| Opening stock | 2,26,000 | Sales | 6,80,000 |
| Purchases | 4,40,000 | Return outwards | 15,000 |
| Drawings | 75,000 | Creditors | 50,000 |
| Buildings | 1,00,000 | Bills payable | 63,700 |
| Motor van | 30,000 | Interest receivced | 20,000 |
| Freight inwards | 3,400 | Capital | 3,50,000 |
| Sales return | 10,000 | ||
| Trade expense | 3,300 | ||
| Heat and Power | 8,000 | ||
| Salary and Wages | 5,000 | ||
| Legal expense | 3,000 | ||
| Postage and Telegram | 1,000 | ||
| Bad debts | 6,500 | ||
| Cash in hand | 79,000 | ||
| Cash at bank | 98,000 | ||
| Sundry debtors | 25,000 | ||
| Investments | 40,000 | ||
| Insurance | 3,500 | ||
| Machinery | 22,000 | ||
| 11,78,700 | 11,78,700 |
The following additional information is available :
- Stock on March 31, 2017 was ₹ 30,000.
- Depreciation is to be charged on building at 5% and motor van at 10%.
- Provision for doubtful debts is to be maintained at 5% on Sundry Debtors.
- Unexpired insurance was ₹ 600.
- The Manager is entitled to a commissiion @ 5% on net profit after charging such commission.
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Start your 14-day free trial to unlock the full solution →We prepare the Trading A/c (finds Gross Profit ₹37,600), the Profit & Loss A/c (finds Net Profit ₹25,381 after a manager's commission of ₹1,269 charged on profit after the commission), and the Balance Sheet which totals ₹4,15,350. Heat & Power is a factory cost (Trading A/c); every adjustment is shown as a Working Note.
Concept & treatment. Direct expenses of buying/manufacturing (net purchases, freight inwards, heat & power) are debited to the Trading A/c to find Gross Profit. Indirect expenses (office, selling, financial, depreciation, provisions) and indirect incomes go to the Profit & Loss A/c. Depreciation is credited to the asset (shown as a deduction) and debited to P&L. A new provision for doubtful debts is debited to P&L and deducted from debtors. Closing stock, being unsold goods, is credited to Trading and shown as a current asset.
Trading and Profit & Loss Account for the year ended 31 March 2017
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 2,26,000 | By Sales 6,80,000 | |
| To Purchases 4,40,000 | Less Sales return 10,000 | 6,70,000 | |
| Less Return outwards 15,000 | 4,25,000 | By Closing Stock | 30,000 |
| To Freight inwards | 3,400 | ||
| To Heat and Power | 8,000 | ||
| To Gross Profit c/d | 37,600 | ||
| Total | 7,00,000 | Total | 7,00,000 |
| To Trade expense | 3,300 | By Gross Profit b/d | 37,600 |
| To Salary and Wages | 5,000 | By Interest received | 20,000 |
| To Legal expense | 3,000 | ||
| To Postage and Telegram | 1,000 | ||
| To Bad debts | 6,500 | ||
| To Insurance (3,500 − 600) | 2,900 | ||
| To Depreciation: Building | 5,000 | ||
| To Depreciation: Motor van | 3,000 | ||
| To Provision for doubtful debts | 1,250 | ||
| To Manager's commission | 1,269 | ||
| To Net Profit (to Capital) | 25,381 | ||
| Total | 57,600 | Total | 57,600 |
Balance Sheet as on 31 March 2017
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital 3,50,000 | Buildings 1,00,000 | ||
| Less Drawings 75,000 | Less Dep. 5,000 | 95,000 | |
| Add Net Profit 25,381 | 3,00,381 | Motor van 30,000 | |
| Creditors | 50,000 | Less Dep. 3,000 | 27,000 |
| Bills payable | 63,700 | Machinery | 22,000 |
| Manager's commission outstanding | 1,269 | Investments | 40,000 |
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