The following balances were extracted from the books of Shri R. Lal on March 31, 2017:
| Account Title | Amount (₹) | Account Title | Amount (₹) |
|---|---|---|---|
| Capital | 1,00,000 | Rent (Cr.) | 2,100 |
| Drawings | 17,600 | Railway freight on sales | 16,940 |
| Purchases | 80,000 | Carriage inwards | 2,310 |
| Sales | 1,40,370 | Office expenses | 1,340 |
| Purchases return | 2,820 | Printing and Stationery | 660 |
| Stock on April 01, 2016 | 11,460 | Postage and Telegram | 820 |
| Bad debts | 1,400 | Sundry debtors | 62,070 |
| Doubtful debts reserve April 01, 2016 | 3,240 | Sundry creditors | 18,920 |
| Rates and Insurance | 1,300 | Cash in bank | 12,400 |
| Discount (Cr.) | 190 | Cash in hand | 2,210 |
| Bills receivable | 1,240 | Office furniture | 3,500 |
| Sales returns | 4,240 | Salaries and Commission | 9,870 |
| Wages | 6,280 | Addition to buildings | 7,000 |
| Buildings | 25,000 |
Prepare the trading and profit and loss account and a balance sheet as on March 31, 2017 after keeping in view the following adjustments:
- Depreciate old building by ₹625 and addition to building at 2% and office furniture at 5%.
- Write-off further bad debts ₹570.
- Increase the bad debts reserve to 6% of debtors.
- On March 31, 2017 ₹570 are outstanding for salary.
- Rent receivable ₹200 on March 31, 2017.
- Interest on capital at 5% to be charged.
- Unexpired insurance ₹240.
- Stock was valued at ₹14,290 on March 31, 2017.
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.
The new reserve is 6% of (₹62,070 − ₹570) = ₹3,690; interest on capital is 5% of ₹1,00,000 = ₹5,000; depreciation is ₹625 (old building) + 2% of ₹7,000 = ₹140 (addition) + 5% of ₹3,500 = ₹175 (furniture). Gross profit is ₹53,190 and net profit ₹16,060.
Gross Profit ₹53,190; Net Profit ₹16,060; Balance Sheet total ₹1,22,950.
New reserve 6% × (62,070 − 570) = 3,690; interest on capital 5% × 1,00,000 = 5,000; depreciation 625 + 140 + 175. Gross Profit ₹53,190, Net Profit ₹16,060, Balance Sheet ₹1,22,950.
Trading and Profit and Loss Account for the year ended March 31, 2017
| Expenses / Losses | (₹) | Amount (₹) | Revenues / Gains | (₹) | Amount (₹) |
|---|---|---|---|---|---|
| Opening stock | 11,460 | Sales | 1,40,370 | ||
| Purchases | 80,000 | Less: Sales return | (4,240) | 1,36,130 | |
| Less: Purchase return | (2,820) | 77,180 | Closing stock | 14,290 | |
| Carriage inwards | 2,310 | ||||
| Wages | 6,280 | ||||
| Gross profit c/d | 53,190 | ||||
| 1,50,420 | 1,50,420 | ||||
| Railway freight on sales | 16,940 | Gross profit b/d | 53,190 | ||
| Office expenses | 1,340 | Rent | 2,100 | ||
| Postage and Telegram | 820 | Add: Accrued rent | 200 | 2,300 | |
| Printing and Stationery | 660 | Discount | 190 | ||
| Salary and Commission | 9,870 | ||||
| Add: Outstanding salary | 570 | 10,440 | |||
| Rates and Insurance | 1,300 | ||||
| Less: Unexpired insurance | (240) | 1,060 | |||
| Bad debts | 1,400 | ||||
| Add: Further bad debts | 570 | ||||
| Add: New doubtful debts provision | 3,690 | ||||
| 5,660 | |||||
| Less: Old provision | (3,240) | 2,420 | |||
| Interest on capital | 5,000 | ||||
| Depreciation on building | 625 | ||||
| Depreciation on addition to building | 140 | ||||
| Depreciation on furniture | 175 | ||||
| Net profit (to capital) | 16,060 | ||||
| 55,680 | 55,680 |
Balance Sheet as at March 31, 2017
| Liabilities | (₹) | Amount (₹) | Assets | (₹) | Amount (₹) |
|---|---|---|---|---|---|
| Sundry creditors | 18,920 | Cash at bank | 12,400 | ||
| Outstanding salaries | 570 | Cash in hand | 2,210 | ||
| Capital | 1,00,000 | Bills receivable | 1,240 | ||
| Add: Net profit | 16,060 | Add: Interest on capital | 5,000 | ||
| 1,21,060 | Debtors | 62,070 | |||
| Less: Drawings | (17,600) | 1,03,460 | Less: Further bad debts | (570) | |
| 61,500 | |||||
| Less: New provision | (3,690) | 57,810 | |||
| Accrued rent | 200 | ||||
| Unexpired insurance | 240 | ||||
| Building | 25,000 | ||||
| Less: Depreciation | (625) | 24,375 | |||
| Addition to building | 7,000 | ||||
| Less: Depreciation | (140) | 6,860 | |||
| Office furniture | 3,500 | ||||
| Less: Depreciation | (175) | 3,325 | |||
| Closing stock | 14,290 | ||||
| 1,22,950 | 1,22,950 |
Interest on capital ₹5,000 is charged to the debit of the Profit and Loss Account as an expense and, being due to the proprietor, is added on the assets side (or, equivalently, to capital) in the balance sheet — this is how the textbook presents it here.
Gross Profit ₹53,190; Net Profit ₹16,060; Balance Sheet total ₹1,22,950.
- CA Foundation 2025Set jan-202520 marksQ.(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)Adjustments :
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 (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 solutionSolution
(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:
IOCX=10012×1236,00,000=₹36,000
IOCY=10012×1221,60,000=₹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 outKeep 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.
TipUse 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 marksQ.(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)Additional Information to be considered :
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 (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)On admission of Sobha for 1/6th share in the profits, it was decided that :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 (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 solutionSolution
(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 outIn 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.
TipPost 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 marksQ.(a) The following is the schedule of balances as on 31.03.23 extracted from the books of M/s RM & Co.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 solutionSolution
(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 answerGross 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 answerBalance 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 answerThe Rs 3,50,000 profit is fully appropriated - P Rs 1,42,800, Q Rs 1,14,080, R Rs 93,120.
Watch outDo 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.
TipPrepare 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 marksQ.The following is the trial balance of Mr. B for the year ended 31st March, 2021: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 solutionSolution
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 answerCost 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 answerGross 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 answerNet 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 answerNet Profit ₹84,000; Closing Capital ₹3,64,000; Balance Sheet total = ₹14,10,500 (it ties out exactly).
Watch outKeep 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.
TipWork 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 marksQ.(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 :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)Additional Information :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 You are required to prepare :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 (i) Income and Expenditure Account for the year ended 31st March, 2021.(ii) Balance Sheet as on 31st March, 2021›Reveal solutionSolution
(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 answerGross 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 answerSurplus ₹1,02,000; closing Capital Fund ₹19,05,000; Balance Sheet total ₹20,42,000.
Watch outCapitalise 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.
TipFor 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 marksQ.(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:The following additional information is available: Stocks on 31st March, 2021 were:
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 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)Raw materials ₹ 1,62,000 Finished goods ₹ 1,81,000 Work-in-progress ₹ 78,000 ›Reveal solutionSolution
(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 answerAll 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 answerCost of Production = ₹11,90,000; Gross Profit = ₹5,08,000; Net Profit = ₹3,47,780.
Watch outTwo 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.
TipDo 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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