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Numerical Questions · Q3
Q.

The following balances has been extracted from the trial of M/s Runway Shine Ltd. Prepare a trading and profit and loss account and a balance sheet as on March 31, 2017.

Account TitleAmount ₹Account TitleAmount ₹
Purchases1,50,000Sales2,50,000
Opening stock50,000Return outwards4,500
Return inwards2,000Interest received3,500
Carriage inwards4,500Discount received400
Cash in hand77,800Creditors1,25,000
Cash at bank60,800Bill payable6,040
Wages2,400Capital1,00,000
Printing and Stationery4,500
Discount400
Bad debts1,500
Insurance2,500
Investment32,000
Debtors53,000
Bills receivable20,000
Postage and Telegraph400
Commission200
Interest1,000
Repair440
Lighting Charges500
Telephone charges100
Carriage outward400
Motor car25,000
4,89,4404,89,440

Adjustments

  1. Further bad debts ₹ 1,000. Discount on debtors ₹ 500 and make a provision on debtors @ 5%.
  2. Interest received on investment @ 5%.
  3. Wages and interest outstanding ₹ 100 and ₹ 200 respectely.
  4. Depreciation charged on motor car @ 5% p.a.
  5. Closing Stock ₹ 32,500.
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✓ Free question

Trading A/c gives Gross Profit ₹78,000; P&L A/c gives Net Profit ₹66,010 (carriage inwards and wages are direct; carriage outward, repairs, telephone etc. are indirect); Balance Sheet total ₹2,97,350.

Concept & treatment. Carriage inwards is a direct expense (Trading A/c, debit); carriage outward is a selling expense (P&L, debit). Outstanding wages/interest are expenses of the year (debit) and a current liability. Accrued interest on investment is income earned (credit + asset). On debtors we write off further bad debts, create a 5% provision and allow a flat ₹500 discount — all reduce debtors. Depreciation reduces the motor car.

Trading Account for the year ended 31 March 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock50,000By Sales 2,50,000
To Purchases 1,50,000  Less: Return inwards 2,0002,48,000
  Less: Return outwards 4,5001,45,500By Closing Stock32,500
To Carriage Inwards4,500
To Wages 2,400
  Add: Outstanding 1002,500
To Gross Profit c/d78,000
Total2,80,500Total2,80,500

Profit & Loss Account for the year ended 31 March 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Printing and Stationery4,500By Gross Profit b/d78,000
To Discount (allowed)400By Interest received 3,500
To Insurance2,500  Add: Accrued int. on investment 1,6005,100
To Postage and Telegraph400By Discount received400
To Commission200
To Interest 1,000 + Outstanding 2001,200
To Repair440
To Lighting Charges500
To Telephone Charges100
To Carriage Outward400
To Depreciation on Motor Car1,250
To Bad debts, Provision & Discount on debtors (WN 2)5,600
To Net Profit (to Capital)66,010
Total83,500Total83,500

Balance Sheet as at 31 March 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital 1,00,000Cash in hand77,800
  Add: Net Profit 66,0101,66,010Cash at bank60,800
Creditors1,25,000Investment 32,000
Bill payable6,040  Add: Accrued interest 1,60033,600
Wages outstanding100Debtors 53,000
Interest outstanding200  Less: Further bad debts 1,000
  Less: Provision @5% 2,600
  Less: Discount on debtors 50048,900
Bills receivable20,000
Motor car 25,000 − Dep. 1,25023,750
Closing Stock32,500
Total2,97,350Total2,97,350

Working Notes

  1. Accrued interest on investment = 32,000 × 5% = ₹1,600. Depreciation on motor car = 25,000 × 5% = ₹1,250.
  2. Debtors: 53,000 − further bad debts 1,000 = 52,000. Provision @ 5% = ₹2,600. Discount on debtors = ₹500 (given). Charge to P&L = old bad debts 1,500 + further 1,000 + provision 2,600 + discount 500 = ₹5,600 (no old provision in the trial balance). Net debtors = 53,000 − 1,000 − 2,600 − 500 = ₹48,900.
  3. Outstanding wages ₹100 and outstanding interest ₹200 are added to the respective expenses and shown as current liabilities.
✓Final answer

Gross Profit ₹78,000; Net Profit ₹66,010; Balance Sheet total ₹2,97,350.

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