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Numerical Questions · Q7
Q.

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 TitleAmount ₹Account TitleAmount ₹
Opening stock2,26,000Sales6,80,000
Purchases4,40,000Return outwards15,000
Drawings75,000Creditors50,000
Buildings1,00,000Bills payable63,700
Motor van30,000Interest receivced20,000
Freight inwards3,400Capital3,50,000
Sales return10,000
Trade expense3,300
Heat and Power8,000
Salary and Wages5,000
Legal expense3,000
Postage and Telegram1,000
Bad debts6,500
Cash in hand79,000
Cash at bank98,000
Sundry debtors25,000
Investments40,000
Insurance3,500
Machinery22,000
11,78,70011,78,700

The following additional information is available :

  1. Stock on March 31, 2017 was ₹ 30,000.
  2. Depreciation is to be charged on building at 5% and motor van at 10%.
  3. Provision for doubtful debts is to be maintained at 5% on Sundry Debtors.
  4. Unexpired insurance was ₹ 600.
  5. The Manager is entitled to a commissiion @ 5% on net profit after charging such commission.
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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

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock2,26,000By Sales 6,80,000
To Purchases 4,40,000Less Sales return 10,0006,70,000
Less Return outwards 15,0004,25,000By Closing Stock30,000
To Freight inwards3,400
To Heat and Power8,000
To Gross Profit c/d37,600
Total7,00,000Total7,00,000
To Trade expense3,300By Gross Profit b/d37,600
To Salary and Wages5,000By Interest received20,000
To Legal expense3,000
To Postage and Telegram1,000
To Bad debts6,500
To Insurance (3,500 − 600)2,900
To Depreciation: Building5,000
To Depreciation: Motor van3,000
To Provision for doubtful debts1,250
To Manager's commission1,269
To Net Profit (to Capital)25,381
Total57,600Total57,600

Balance Sheet as on 31 March 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital 3,50,000Buildings 1,00,000
Less Drawings 75,000Less Dep. 5,00095,000
Add Net Profit 25,3813,00,381Motor van 30,000
Creditors50,000Less Dep. 3,00027,000
Bills payable63,700Machinery22,000
Manager's commission outstanding1,269Investments40,000

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