From the following information relating to the business of Mr. Selvam for the year ended 31st March 2023, ascertain (a) the Credit Purchases by preparing a Total Creditors Account, and (b) the Closing Stock by preparing a Memorandum Trading Account (goods are sold at a profit of

Question

From the following information relating to the business of Mr. Selvam for the year ended 31st March 2023, ascertain (a) the Credit Purchases by preparing a Total Creditors Account, and (b) the Closing Stock by preparing a Memorandum Trading Account (goods are sold at a profit of 20% on cost), and then prepare the Trading and Profit and Loss Account and the Balance Sheet as on that date.

Opening Statement of Affairs (1.4.2022): Cash ₹6,000; Stock ₹25,000; Debtors ₹20,000; Furniture ₹15,000; Creditors ₹16,000.

During the year: Cash Sales ₹40,000; Credit Sales ₹2,00,000; Cash received from Debtors ₹1,90,000; Cash paid to Creditors ₹1,90,000; Discount received from Creditors ₹2,000; Business Expenses paid ₹25,000; Drawings ₹18,000.

Balances as on 31.3.2023: Debtors ₹30,000; Creditors ₹24,000. Depreciate Furniture by 10% p.a.

Accepted Answer

**Step 1: Opening Capital as on 1.4.2022**

Opening Capital = (6,000 + 25,000 + 20,000 + 15,000) − 16,000 = 66,000 − 16,000 = **₹50,000**

**Step 2: Total Creditors Account (finding Credit Purchases)**

| Dr. | ₹ | Cr. | ₹ |
|---|---|---|---|
| To Cash/Bank | 1,90,000 | By Balance b/d | 16,000 |
| To Discount Received | 2,000 | By Credit Purchases (balancing figure) | 2,00,000 |
| To Balance c/d | 24,000 | | |
| **Total** | **2,16,000** | **Total** | **2,16,000** |

Credit Purchases = (1,90,000 + 2,000 + 24,000) − 16,000 = 2,16,000 − 16,000 = **₹2,00,000**

(Since there are no cash purchases stated, Total Purchases for the year = **₹2,00,000**.)

**Step 3: Total Sales for the year**

Total Sales = Cash Sales + Credit Sales = 40,000 + 2,00,000 = **₹2,40,000**

**Step 4: Memorandum Trading Account (finding Closing Stock at 20% Gross Profit on Cost)**

With Gross Profit at 20% on Cost, Cost of Goods Sold = Sales ÷ 1.20 = 2,40,000 ÷ 1.20 = ₹2,00,000, so Gross Profit = Sales − Cost of Goods Sold = 2,40,000 − 2,00,000 = **₹40,000**.

| Dr. | ₹ | Cr. | ₹ |
|---|---|---|---|
| To Opening Stock | 25,000 | By Sales | 2,40,000 |
| To Purchases | 2,00,000 | By Closing Stock (balancing figure) | 25,000 |
| To Gross Profit | 40,000 | | |
| **Total** | **2,65,000** | **Total** | **2,65,000** |

Closing Stock = (25,000 + 2,00,000 + 40,000) − 2,40,000 = 2,65,000 − 2,40,000 = **₹25,000**

**Step 5: Trading Account for the year ended 31.3.2023**

| Dr. | ₹ | Cr. | ₹ |
|---|---|---|---|
| To Opening Stock | 25,000 | By Sales | 2,40,000 |
| To Purchases | 2,00,000 | By Closing Stock | 25,000 |
| To Gross Profit c/d | 40,000 | | |
| **Total** | **2,65,000** | **Total** | **2,65,000** |

**Step 6: Profit and Loss Account for the year ended 31.3.2023**

| Dr. | ₹ | Cr. | ₹ |
|---|---|---|---|
| To Business Expenses | 25,000 | By Gross Profit b/d | 40,000 |
| To Depreciation on Furniture (10% of 15,000) | 1,500 | By Discount Received | 2,000 | …

Q.From the following information relating to the business of Mr. Selvam for the year ended 31st March 2023, ascertain

Concept understanding — Conversion Method — Single Entry to Double Entry

Dr.	₹	Cr.	₹
To Cash/Bank	1,90,000	By Balance b/d	16,000
To Discount Received	2,000	By Credit Purchases (balancing figure)	2,00,000
To Balance c/d	24,000
Total	2,16,000	Total	2,16,000

Dr.	₹	Cr.	₹
To Opening Stock	25,000	By Sales	2,40,000
To Purchases	2,00,000	By Closing Stock (balancing figure)	25,000
To Gross Profit	40,000
Total	2,65,000	Total	2,65,000

Dr.	₹	Cr.	₹
To Business Expenses	25,000	By Gross Profit b/d	40,000
To Depreciation on Furniture (10% of 15,000)	1,500	By Discount Received	2,000

Q.From the following information relating to the business of Mr. Selvam for the year ended 31st March 2023, ascertain

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