What do these NCERT solutions for Class 11 Accountancy Financial Accounting II Chapter 2 (Financial Statements II) cover?

Every question from the latest NCERT textbook for this chapter are answered step by step, organised as Question TYU – I, Questions for Practice – Short Answers, Question SA – Q1, Question SA – Q2, Question SA – Q3, Question SA – Q4, Question SA – Q5 and Question SA – Q6.

Are these solutions based on the new NCERT syllabus?

Yes. The answers follow the current NCERT textbook for Class 11 Accountancy Financial Accounting II and the latest CBSE syllabus, so the question numbers and wording match the book you use in class.

How should I use these solutions to prepare for exams?

Attempt each question on your own first, then compare your working with the answer here. Note the steps or keywords you missed, and revise the chapter notes before taking a chapter-wise MCQ test to check your understanding.

Are the NCERT solutions for Class 11 Accountancy Financial Accounting II Chapter 2 (Financial Statements II) free?

Yes. All Circle of Learning NCERT solutions and chapter notes are free to read online, with no sign-up needed.

NCERT Solutions for Class 11 Accountancy Financial Accounting…

Class	Subject	Book	Chapter	Session	Questions covered
XI	Accountancy	Financial Accounting II (NCERT)	2 – Financial Statements - II	2026-27	27 of 27

Chapter at a glance

Adjustment	Adjusting entry	Trading / P&L	Balance sheet
Closing stock	Closing Stock Dr. To Trading	Credit of trading account	Current asset
Outstanding expense	Expense Dr. To Outstanding Expense	Added to the expense	Current liability
Prepaid expense	Prepaid Expense Dr. To Expense	Deducted from the expense	Current asset
Accrued income	Accrued Income Dr. To Income	Added to the income	Current asset
Income received in advance	Income Dr. To Income Received in Advance	Deducted from the income	Current liability
Depreciation	Depreciation Dr. To Asset	Debit of P&L	Deducted from the asset
Bad debts / provision for doubtful debts	Bad Debts Dr. To Debtors; P&L Dr. To Provision	Bad debts + new provision – old provision	Deducted from debtors
Provision for discount on debtors	P&L Dr. To Provision for Discount	Debit of P&L	Deducted from debtors (after provision for doubtful debts)
Interest on capital	Interest on Capital Dr. To Capital	Debit of P&L	Added to capital
Interest on drawings	Drawings (Capital) Dr. To Interest on Drawings	Credit of P&L	Deducted from capital
Manager’s commission on net profit after charging it	P&L Dr. To Commission Payable	Profit before commission × rate ÷ (100 + rate)	Current liability

Test Your Understanding

Question TYU – I

Tick the correct answer:
1. Rahul’s trial balance provide you the following information: Debtors ₹ 80,000; Bad debts ₹ 2,000; Provision for doubtful debts ₹ 4,000. It is desired to maintain a provision for bad debts of ₹ 1,000. State the amount to be debited/credited in profit and loss account: (a) ₹ 5,000 (Debit) (b) ₹ 3,000 (Debit) (c) ₹ 1,000 (Credit) (d) none of these.
2. If the rent of one month is still to be paid the adjustment entry will be: (a) Debit outstanding rent account and Credit rent account (b) Debit profit and loss account and Credit rent account (c) Debit rent account and Credit profit and loss account (d) Debit rent account and Credit outstanding rent account.
3. If the rent received in advance ₹ 2,000. The adjustment entry will be: (a) Debit profit and loss account and Credit rent account (b) Debit rent account Credit rent received in advance account (c) Debit rent received in advance account and Credit rent account (d) None of these.
4. If the opening capital is ₹ 50,000 as on April 01, 2016 and additional capital introduced ₹ 10,000 on January 01, 2017. Interest charge on capital 10% p.a. The amount of interest on capital shown in profit and loss account as on March 31, 2017 will be: (a) ₹ 5,250 (b) ₹ 6,000 (c) ₹ 4,000 (d) ₹ 3,000.
5. If the insurance premium paid ₹ 1,000 and pre-paid insurance ₹ 300. The amount of insurance premium shown in profit and loss account will be: (a) ₹ 1,300 (b) ₹ 1,000 (c) ₹ 300 (d) ₹ 700.

Answer

Q	Answer	Working
1	(c)	Bad debts 2,000 + new provision 1,000 – old provision 4,000 = – 1,000 → ₹ 1,000 credited to P&L
2	(d)	Rent A/c Dr. To Outstanding Rent A/c
3	(b)	Rent A/c Dr. To Rent Received in Advance A/c
4	(a)	50,000 × 10% + 10,000 × 10% × 3/12 = 5,000 + 250 = ₹ 5,250
5	(d)	1,000 – 300 = ₹ 700

Questions for Practice – Short Answers

Question SA – Q1

Why is it necessary to record the adjusting entries in the preparation of final accounts?

Answer

Many items relating to the year are not recorded in the books by the year-end — expenses due but unpaid, incomes earned but not received, payments made in advance, depreciation, provisions, closing stock. Adjusting entries are needed to:

Follow the accrual and matching concepts.
Show the true profit or loss of the period.
Show the true financial position — all assets and liabilities on the balance sheet date.
Make results of different years comparable.

Question SA – Q2

What is meant by closing stock? Show its treatment in final accounts?

Answer

Closing stock is the value of goods remaining unsold at the end of the accounting period, valued at cost or net realisable value, whichever is lower.

Treatment: Adjusting entry Closing Stock A/c Dr. To Trading A/c.

Shown on the credit side of the trading account (reduces cost of goods sold).
Shown on the assets side of the balance sheet as a current asset.

If closing stock appears inside the trial balance (already adjusted against purchases), it is shown only in the balance sheet.

Question SA – Q3

State the meaning of: (a) Outstanding expenses (b) Prepaid expenses (c) Income received in advance (d) Accrued income

Answer

Term	Meaning	Example
(a) Outstanding expenses	Expenses of the current year that are due but not yet paid	Salary of March unpaid on 31 March
(b) Prepaid expenses	Expenses paid in the current year for a future period	Insurance paid for the next year
(c) Income received in advance	Income received in the current year that relates to a future period	Rent received for April in March
(d) Accrued income	Income earned in the current year but not yet received	Interest on investment due but not received

Question SA – Q4

Give the proforma of income statement and balance sheet in vertical form.

Answer

Income Statement (vertical) for the year ended …

Particulars	₹
Revenue from operations (net sales)	xxx
Less: Cost of goods sold (opening stock + net purchases + direct expenses – closing stock)	(xxx)
Gross profit	xxx
Less: Operating expenses (office & administration, selling & distribution)	(xxx)
Operating profit	xxx
Add: Non-operating incomes	xxx
Less: Non-operating expenses / losses	(xxx)
Net profit	xxx

Balance Sheet (vertical) as at …

Particulars	₹
I. Sources of funds
Capital (opening + net profit – drawings)	xxx
Long-term liabilities (loans)	xxx
Current liabilities (creditors, bills payable, outstanding expenses)	xxx
Total	xxx
II. Application of funds
Fixed assets (less depreciation)	xxx
Investments	xxx
Current assets (stock, debtors less provision, bills receivable, cash, prepaid expenses)	xxx
Total	xxx

Question SA – Q5

Why is it necessary to create a provision for doubtful debts at the time of preparation of final accounts?

Answer

Some debtors may not pay in future. Following prudence (conservatism) and matching, the expected loss on this year’s credit sales is charged to this year’s profit by creating a provision. It:

Shows a more realistic profit.
Shows debtors at their realisable value in the balance sheet.
Spreads the burden of bad debts evenly over the years.

Question SA – Q6

What adjusting entries would you record for the following: (a) Depreciation (b) Discount on debtors (c) Interest on capital (d) Manager’s commission

Answer

Item	Adjusting entry	Transfer
(a) Depreciation	Depreciation A/c Dr. To Asset A/c	P&L A/c Dr. To Depreciation A/c
(b) Discount on debtors	P&L A/c Dr. To Provision for Discount on Debtors A/c	—
(c) Interest on capital	Interest on Capital A/c Dr. To Capital A/c	P&L A/c Dr. To Interest on Capital A/c
(d) Manager’s commission	Manager’s Commission A/c Dr. To Commission Payable A/c	P&L A/c Dr. To Manager’s Commission A/c

Question SA – Q7

What is meant by provision for discount on debtors?

Answer

It is a provision made at the end of the year for the cash discount expected to be allowed to debtors who will pay promptly next year. Since the sales were made this year, the expected discount is charged to this year’s P&L. It is calculated on debtors after deducting bad debts and the provision for doubtful debts (because doubtful debtors will not pay and earn no discount), and is shown as a deduction from debtors in the balance sheet.

Question SA – Q8

Give the journal entries for the following adjustments: (a) Outstanding salary ₹ 3,500. (b) Rent unpaid for one month at ₹ 6,000 per annum. (c) Insurance prepaid for a quarter at ₹ 16,000 per annum. (d) Purchase of furniture costing ₹ 7,000 entered in the purchases book.

Answer

Date	Particulars	Dr. (₹)	Cr. (₹)
(a)	Salary A/c …Dr.	3,500
	To Outstanding Salary A/c		3,500
	(Salary due but not paid)
(b)	Rent A/c …Dr.	500
	To Outstanding Rent A/c		500
	(One month’s rent unpaid (6,000 ÷ 12))
(c)	Prepaid Insurance A/c …Dr.	4,000
	To Insurance A/c		4,000
	(Insurance prepaid for a quarter (16,000 × 3/12))
(d)	Furniture A/c …Dr.	7,000
	To Purchases A/c		7,000
	(Furniture wrongly entered in purchases book, now rectified)
	Total	15,000	15,000

Questions for Practice – Long Answers

Question LA – Q1

What are adjusting entries? Why are they necessary for preparing final accounts?

Answer

Adjusting entries are journal entries passed at the end of the accounting period to bring into the books items that relate to the period but have not been recorded, or to correct the amounts of items recorded, so that the final accounts follow the accrual basis.

Common adjustments: closing stock, outstanding and prepaid expenses, accrued income and income received in advance, depreciation, bad debts and provisions for doubtful debts and discount, interest on capital and drawings, manager’s commission, goods taken for personal use, abnormal losses.

Why necessary

Matching — revenues and the expenses incurred to earn them must belong to the same period.
True profit — without adjustments profit is over- or under-stated.
True financial position — outstanding liabilities and accrued assets must appear in the balance sheet.
Prudence — provisions for expected losses are made.
Comparability and compliance with accounting standards and law.

Question LA – Q2

What is meant by provision for doubtful debts? How are the relevant accounts prepared and what journal entries are recorded in final accounts? How is the amount for provision for doubtful debts calculated?

Answer

Provision for doubtful debts is an amount set aside out of profits to meet the probable loss from debts that may not be recovered.

Calculation: Usually a percentage (based on past experience) of the debtors remaining after writing off further bad debts: e.g. debtors ₹ 82,000, further bad debts ₹ 1,000, provision 5% → 5% × 81,000 = ₹ 4,050.

Journal entries

Further bad debts: Bad Debts A/c Dr. To Debtors A/c.
Transfer bad debts: Provision for Doubtful Debts A/c Dr. To Bad Debts A/c (or P&L A/c Dr. To Bad Debts A/c).
New provision: P&L A/c Dr. To Provision for Doubtful Debts A/c with (bad debts + new provision – old provision); if negative, Provision A/c Dr. To P&L A/c.

Accounts: In the Provision for Doubtful Debts Account the old provision is on the credit side (b/d); bad debts and the new provision (c/d) are on the debit side; the balancing figure is the amount charged to (or written back from) P&L.

In final accounts: P&L debit side shows bad debts + new provision – old provision; the balance sheet shows debtors less the new provision.

Question LA – Q3

Show the treatment of prepaid expenses, depreciation, closing stock at the time of preparation of final accounts when: (a) When given inside the trial balance? (b) When given outside the trial balance?

Answer

Item	Given inside the trial balance (already recorded)	Given outside the trial balance (adjustment)
Prepaid expenses	Shown only on the assets side of the balance sheet	Deducted from the expense in P&L and shown as an asset
Depreciation	Shown only on the debit side of P&L (asset already shown net)	Debited to P&L and deducted from the asset in the balance sheet
Closing stock	Shown only on the assets side of the balance sheet (purchases already adjusted)	Credited to trading account and shown on the assets side

An item inside the trial balance has already had both aspects recorded, so it appears once; an adjustment outside the trial balance has both aspects recorded now, so it appears twice in the final accounts.

Questions for Practice – Numerical Questions

Question Num – Q1

Prepare a trading and profit and loss account for the year ending March 31, 2017 from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.

Account title	Dr. (₹)	Cr. (₹)
Stock	50,000
Wages	3,000
Salary	8,000
Purchases	1,75,000
Sales return	3,000
Sundry debtors	82,000
Discount allowed	1,000
Insurance	3,200
Rent, rates and taxes	4,300
Fixtures and fittings	20,000
Trade expenses	1,500
Bad debts	2,000
Drawings	32,000
Repair and renewals	1,600
Travelling expenses	4,200
Postage	300
Telegram expenses	200
Legal fees	500
Bills receivable	50,000
Building	1,10,000
Sales		1,80,000
Purchases return		2,000
Discount received		500
Provision for doubtful debts		2,500
Capital		3,00,000
Bills payable		22,000
Commission received		4,000
Rent		6,000
Loan		34,800
Total	5,51,800	5,51,800

Adjustments: 1. Commission received in advance ₹ 1,000. 2. Rent receivable ₹ 2,000. 3. Salary outstanding ₹ 1,000 and insurance prepaid ₹ 800. 4. Further bad debts ₹ 1,000 and provision for doubtful debts @ 5% on debtors and discount on debtors @ 2%. 5. Closing stock ₹ 32,000. 6. Depreciation on building @ 6% p.a.

Answer

Working notes

Item	Working	₹
Debtors after bad debts	82,000 – 1,000	81,000
Provision for doubtful debts	5% × 81,000	4,050
Provision for discount	2% × (81,000 – 4,050)	1,539
P&L charge for bad debts	2,000 + 1,000 + 4,050 – 2,500	4,550
Depreciation on building	6% × 1,10,000	6,600

Trading Account of M/s Rahul Sons for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		50,000	By Sales	1,80,000
To Purchases	1,75,000		Less: Sales return	(3,000)	1,77,000
Less: Purchases return	(2,000)	1,73,000	By Closing stock		32,000
To Wages		3,000	Gross loss c/d		17,000
		2,26,000			2,26,000

Profit and Loss Account of M/s Rahul Sons for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Gross loss b/d		17,000	By Commission received	4,000
To Salary	8,000		Less: Received in advance	(1,000)	3,000
Add: Outstanding	1,000	9,000	By Rent	6,000
To Discount allowed		1,000	Add: Receivable	2,000	8,000
To Insurance	3,200		By Discount received		500
Less: Prepaid	(800)	2,400	Net loss (transferred to capital)		43,189
To Rent, rates and taxes		4,300
To Trade expenses		1,500
To Bad debts & provision (2,000 + 1,000 + 4,050 – 2,500)		4,550
To Repair and renewals		1,600
To Travelling expenses		4,200
To Postage		300
To Telegram expenses		200
To Legal fees		500
To Depreciation on building		6,600
To Provision for discount on debtors		1,539
		54,689			54,689

Balance Sheet of M/s Rahul Sons as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	3,00,000		Sundry debtors	82,000
Less: Net loss	(43,189)		Less: Further bad debts	(1,000)
Less: Drawings	(32,000)	2,24,811	Less: Provision @ 5%	(4,050)
Loan		34,800	Less: Provision for discount @ 2%	(1,539)	75,411
Bills payable		22,000	Bills receivable		50,000
Commission received in advance		1,000	Closing stock		32,000
Outstanding salary		1,000	Rent receivable		2,000
			Prepaid insurance		800
			Fixtures and fittings		20,000
			Building	1,10,000
			Less: Depreciation	(6,600)	1,03,400
		2,83,611			2,83,611

Gross loss ₹ 17,000; Net loss ₹ 43,189; Balance sheet total ₹ 2,83,611

Question Num – Q2

Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending March 31, 2017 from the following figures taken from his trial balance (also the balance sheet):

Account title	Dr. (₹)	Cr. (₹)
Opening stock	35,000
Purchases	1,25,000
Return inwards	25,000
Postage and Telegram	600
Salary	12,300
Wages	3,000
Rent and Rates	1,000
Packing and Transport	500
General expense	400
Insurance	4,000
Debtors	50,000
Cash in hand	20,000
Cash at bank	40,000
Machinery	20,000
Lighting and Heating	5,000
Discount	3,500
Bad debts	3,500
Investment	23,100
Sales		2,50,000
Purchase return		6,000
Creditors		10,000
Bills payable		20,000
Discount		1,000
Provision for bad debts		4,500
Interest received		5,400
Capital		75,000
Total	3,71,900	3,71,900

Adjustments: 1. Depreciation charged on machinery @ 5% p.a. 2. Further bad debts ₹ 1,500, discount on debtors @ 5% and make a provision on debtors @ 6%. 3. Wages prepaid ₹ 1,000. 4. Interest on investment @ 5% p.a. 5. Closing stock ₹ 10,000.

Answer

Working notes

Item	Working	₹
Debtors after bad debts	50,000 – 1,500	48,500
Provision @ 6%	6% × 48,500	2,910
Provision for discount @ 5%	5% × (48,500 – 2,910)	2,279.50
P&L charge for bad debts	3,500 + 1,500 + 2,910 – 4,500	3,410
Accrued interest	5% × 23,100	1,155

Trading Account of M/s Green Club Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		35,000	By Sales	2,50,000
To Purchases	1,25,000		Less: Return inwards	(25,000)	2,25,000
Less: Purchase return	(6,000)	1,19,000	By Closing stock		10,000
To Wages	3,000
Less: Prepaid	(1,000)	2,000
Gross profit c/d		79,000
		2,35,000			2,35,000

Profit and Loss Account of M/s Green Club Ltd. for the year ended March 31, 2017

Particulars	₹	Particulars	₹
To Postage and telegram	600	Gross profit b/d	79,000
To Salary	12,300	By Discount	1,000
To Rent and rates	1,000	By Interest received	5,400
To Packing and transport	500	By Accrued interest on investment	1,155
To General expenses	400
To Insurance	4,000
To Lighting and heating	5,000
To Discount	3,500
To Bad debts & provision (3,500 + 1,500 + 2,910 – 4,500)	3,410
To Depreciation on machinery	1,000
To Provision for discount on debtors	2,279.50
Net profit (transferred to capital)	52,565.50
	86,555		86,555

Balance Sheet of M/s Green Club Ltd. as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	75,000		Debtors	50,000
Add: Net profit	52,565.50	1,27,565.50	Less: Further bad debts	(1,500)
Creditors		10,000	Less: Provision @ 6%	(2,910)
Bills payable		20,000	Less: Provision for discount @ 5%	(2,279.50)	43,310.50
			Cash in hand		20,000
			Cash at bank		40,000
			Closing stock		10,000
			Prepaid wages		1,000
			Accrued interest		1,155
			Investment		23,100
			Machinery	20,000
			Less: Depreciation	(1,000)	19,000
		1,57,565.50			1,57,565.50

Gross profit ₹ 79,000; Net profit ₹ 52,565.50; Balance sheet total ₹ 1,57,565.50

Question Num – Q3

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

Account title	Dr. (₹)	Cr. (₹)
Purchases	1,50,000
Opening stock	50,000
Return inwards	2,000
Carriage inwards	4,500
Cash in hand	77,800
Cash at bank	60,800
Wages	2,400
Printing and Stationery	4,500
Discount	400
Bad debts	1,500
Insurance	2,500
Investment	32,000
Debtors	53,000
Bills receivable	20,000
Postage and Telegraph	400
Commission	200
Interest	1,000
Repair	440
Lighting charges	500
Telephone charges	100
Carriage outward	400
Motor car	25,000
Sales		2,50,000
Return outwards		4,500
Interest received		3,500
Discount received		400
Creditors		1,25,000
Bills payable		6,040
Capital		1,00,000
Total	4,89,440	4,89,440

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 respectively. 4. Depreciation charged on motor car @ 5% p.a. 5. Closing Stock ₹ 32,500.

Answer

Working notes

Debtors after bad debts = ₹ 52,000; provision @ 5% = ₹ 2,600 (no old provision exists). Accrued interest = 5% × 32,000 = ₹ 1,600.

Trading Account of M/s Runway Shine Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		50,000	By Sales	2,50,000
To Purchases	1,50,000		Less: Return inwards	(2,000)	2,48,000
Less: Return outwards	(4,500)	1,45,500	By Closing stock		32,500
To Carriage inwards		4,500
To Wages	2,400
Add: Outstanding	100	2,500
Gross profit c/d		78,000
		2,80,500			2,80,500

Profit and Loss Account of M/s Runway Shine Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To Printing and stationery		4,500	Gross profit b/d	78,000
To Discount		400	By Interest received	3,500
To Bad debts (1,500 + 1,000) & provision 2,600		5,100	By Accrued interest on investment	1,600
To Insurance		2,500	By Discount received	400
To Postage and telegraph		400
To Commission		200
To Interest	1,000
Add: Outstanding	200	1,200
To Repair		440
To Lighting charges		500
To Telephone charges		100
To Carriage outward		400
To Depreciation on motor car		1,250
To Discount on debtors		500
Net profit (transferred to capital)		66,010
		83,500		83,500

Balance Sheet of M/s Runway Shine Ltd. as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	1,00,000		Debtors	53,000
Add: Net profit	66,010	1,66,010	Less: Further bad debts	(1,000)
Creditors		1,25,000	Less: Provision @ 5%	(2,600)
Bills payable		6,040	Less: Discount	(500)	48,900
Outstanding wages		100	Bills receivable		20,000
Outstanding interest		200	Cash in hand		77,800
			Cash at bank		60,800
			Closing stock		32,500
			Accrued interest		1,600
			Investment		32,000
			Motor car	25,000
			Less: Depreciation	(1,250)	23,750
		2,97,350			2,97,350

Gross profit ₹ 78,000; Net profit ₹ 66,010; Balance sheet total ₹ 2,97,350

Question Num – Q4

From the following Trial Balance you are required to prepare trading and profit and loss account for the year ending March 31, 2017 and Balance Sheet on that date.

Account title	Dr. (₹)	Cr. (₹)
Opening stock	25,000
Furniture	16,000
Purchases	5,55,300
Carriage inwards	4,700
Bad debts	1,800
Wages	52,000
Debtors	80,000
Sales return	15,000
Rent	24,000
Miscellaneous expenses	3,400
Salaries	68,000
Cash	8,900
Drawings	14,000
Buildings	1,60,000
Advertising	10,000
Interest on bank overdraft	7,000
Sales		7,00,000
Creditors		72,500
Bank overdraft		50,000
Provision for bad and doubtful debts		2,100
Discount		500
Capital		2,00,000
Purchases return		20,000
Total	10,45,100	10,45,100

Adjustments: 1. Closing stock valued at ₹ 36,000. 2. Private purchases amounting to ₹ 5,000 debited to purchases account. 3. Provision for doubtful debts @ 5% on debtors. 4. Sign board costing ₹ 4,000 included in advertising. 5. Depreciate furniture by 10%.

Answer

Working notes

The sign board is a fixed asset; it is added to furniture and depreciated with it at 10%: (16,000 + 4,000) × 10% = ₹ 2,000. Private purchases are drawings.

Trading Account of the trader for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		25,000	By Sales	7,00,000
To Purchases	5,55,300		Less: Sales return	(15,000)	6,85,000
Less: Purchases return	(20,000)		By Closing stock		36,000
Less: Private purchases (drawings)	(5,000)	5,30,300
To Carriage inwards		4,700
To Wages		52,000
Gross profit c/d		1,09,000
		7,21,000			7,21,000

Profit and Loss Account of the trader for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To Bad debts & provision (1,800 + 4,000 – 2,100)		3,700	Gross profit b/d	1,09,000
To Rent		24,000	By Discount	500
To Miscellaneous expenses		3,400	Net loss (transferred to capital)	4,600
To Salaries		68,000
To Advertising	10,000
Less: Sign board (capitalised)	(4,000)	6,000
To Interest on bank overdraft		7,000
To Depreciation on furniture (incl. sign board)		2,000
		1,14,100		1,14,100

Balance Sheet of the trader as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	2,00,000		Debtors	80,000
Less: Net loss	(4,600)		Less: Provision @ 5%	(4,000)	76,000
Less: Drawings	(14,000)		Cash		8,900
Less: Private purchases	(5,000)	1,76,400	Closing stock		36,000
Creditors		72,500	Furniture (16,000 + sign board 4,000)	20,000
Bank overdraft		50,000	Less: Depreciation @ 10%	(2,000)	18,000
			Buildings		1,60,000
		2,98,900			2,98,900

Gross profit ₹ 1,09,000; Net loss ₹ 4,600; Balance sheet total ₹ 2,98,900

Question Num – Q5

From the following information prepare trading and profit and loss account of M/s Indian Sports House for the year ending March 31, 2017 (and the balance sheet).

Account title	Dr. (₹)	Cr. (₹)
Drawings	20,000
Sundry debtors	80,000
Bad debts	1,000
Trade expenses	2,400
Printing and Stationery	2,000
Rent, Rates and Taxes	5,000
Freight	4,000
Return inwards	7,000
Opening stock	25,000
Purchases	1,80,000
Furniture and Fixture	20,000
Plant and Machinery	1,00,000
Bills receivable	14,000
Wages	10,000
Cash in hand	6,000
Discount allowed	2,000
Investments	40,000
Motor car	51,000
Capital		2,00,000
Return outwards		2,000
Bank overdraft		12,000
Provision for bad debts		4,000
Sundry creditors		60,000
Bills payable		15,400
Sales		2,76,000
Total	5,69,400	5,69,400

Adjustments: 1. Closing stock was ₹ 45,000. 2. Provision for doubtful debts is to be maintained @ 2% on debtors. 3. Depreciation charged on: furniture and fixture @ 5%, plant and machinery @ 6% and motor car @ 10%. 4. A Machine of ₹ 30,000 was purchased on October 01, 2016. 5. The manager is entitled to a commission @ 10% of the net profit after charging such commission.

Answer

Working notes

Item	Working	₹
Depreciation on plant	70,000 × 6% + 30,000 × 6% × 6/12	5,100
Bad debts account	Bad debts 1,000 + new provision 1,600 – old provision 4,000	(1,400) written back
Profit before commission		75,800
Manager’s commission	75,800 × 10/110	6,890.91

Freight is treated as freight outwards (P&L), as in the textbook answer.

Trading Account of M/s Indian Sports House for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		25,000	By Sales	2,76,000
To Purchases	1,80,000		Less: Return inwards	(7,000)	2,69,000
Less: Return outwards	(2,000)	1,78,000	By Closing stock		45,000
To Wages		10,000
Gross profit c/d		1,01,000
		3,14,000			3,14,000

Profit and Loss Account of M/s Indian Sports House for the year ended March 31, 2017

Particulars	₹	Particulars	₹
To Trade expenses	2,400	Gross profit b/d	1,01,000
To Printing and stationery	2,000	By Provision written back (4,000 – 1,000 – 1,600)	1,400
To Rent, rates and taxes	5,000
To Freight (outward)	4,000
To Discount allowed	2,000
To Depreciation: furniture 1,000; plant 5,100; motor car 5,100	11,200
To Manager’s commission	6,890.91
Net profit (transferred to capital)	68,909.09
	1,02,400		1,02,400

Balance Sheet of M/s Indian Sports House as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	2,00,000		Sundry debtors	80,000
Add: Net profit	68,909.09		Less: Provision @ 2%	(1,600)	78,400
Less: Drawings	(20,000)	2,48,909.09	Bills receivable		14,000
Bank overdraft		12,000	Cash in hand		6,000
Sundry creditors		60,000	Closing stock		45,000
Bills payable		15,400	Investments		40,000
Manager’s commission payable		6,890.91	Furniture and fixture	20,000
			Less: Depreciation	(1,000)	19,000
			Plant and machinery	1,00,000
			Less: Depreciation	(5,100)	94,900
			Motor car	51,000
			Less: Depreciation	(5,100)	45,900
		3,43,200			3,43,200

Gross profit ₹ 1,01,000; Net profit ₹ 68,909.09; Balance sheet total ₹ 3,43,200; Manager’s commission ₹ 6,890.91

Question Num – Q6

Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars.

Account title	Dr. (₹)	Cr. (₹)
Sundry debtors	1,00,000
Bad debts	3,000
Trade expenses	2,500
Printing and Stationery	5,000
Rent, Rates and Taxes	3,450
Freight	2,250
Sales return	6,000
Motor car	25,000
Opening stock	75,550
Furniture and Fixture	15,500
Purchases	75,000
Drawings	13,560
Investments	65,500
Cash in hand	36,000
Cash in bank	53,000
Bills payable		85,550
Sundry creditors		25,000
Provision for bad debts		1,500
Return outwards		4,500
Capital		2,50,000
Discount received		3,500
Interest received		11,260
Sales		1,00,000
Total	4,81,310	4,81,310

Adjustments: 1. Closing stock was valued ₹ 35,000. 2. Depreciation charged on furniture and fixture @ 5%. 3. Further bad debts ₹ 1,000. Make a provision for bad debts @ 5% on sundry debtors. 4. Depreciation charged on motor car @ 10%. 5. Interest on drawing @ 6%. 6. Rent, rates and taxes was outstanding ₹ 200. 7. Discount on debtors 2%.

Answer

Working notes

Interest on drawings = 6% × 13,560 = ₹ 813.60 (taken for a full year). Provision = 5% × 99,000 = ₹ 4,950; discount = 2% × (99,000 – 4,950) = ₹ 1,881. Freight is treated as an indirect expense, as in the textbook answer.

Trading Account of M/s Shine Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		75,550	By Sales	1,00,000
To Purchases	75,000		Less: Sales return	(6,000)	94,000
Less: Return outwards	(4,500)	70,500	By Closing stock		35,000
			Gross loss c/d		17,050
		1,46,050			1,46,050

Profit and Loss Account of M/s Shine Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
Gross loss b/d		17,050	By Discount received	3,500
To Trade expenses		2,500	By Interest received	11,260
To Printing and stationery		5,000	By Interest on drawings	813.60
To Rent, rates and taxes	3,450		Net loss (transferred to capital)	27,482.40
Add: Outstanding	200	3,650
To Freight		2,250
To Bad debts & provision (3,000 + 1,000 + 4,950 – 1,500)		7,450
To Depreciation: furniture 775; motor car 2,500		3,275
To Provision for discount on debtors		1,881
		43,056		43,056

Balance Sheet of M/s Shine Ltd. as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	2,50,000		Sundry debtors	1,00,000
Less: Net loss	(27,482.40)		Less: Further bad debts	(1,000)
Less: Drawings	(13,560)		Less: Provision @ 5%	(4,950)
Less: Interest on drawings	(813.60)	2,08,144	Less: Provision for discount @ 2%	(1,881)	92,169
Bills payable		85,550	Cash in hand		36,000
Sundry creditors		25,000	Cash in bank		53,000
Outstanding rent, rates and taxes		200	Closing stock		35,000
			Investments		65,500
			Furniture and fixture	15,500
			Less: Depreciation	(775)	14,725
			Motor car	25,000
			Less: Depreciation	(2,500)	22,500
		3,18,894			3,18,894

Gross loss ₹ 17,050; Net loss ₹ 27,482.40; Balance sheet total ₹ 3,18,894

Question Num – Q7

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	Dr. (₹)	Cr. (₹)
Opening stock	2,26,000
Purchases	4,40,000
Drawings	75,000
Buildings	1,00,000
Motor van	30,000
Freight inwards	3,400
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
Sales		6,80,000
Return outwards		15,000
Creditors		50,000
Bills payable		63,700
Interest received		20,000
Capital		3,50,000
Total	11,78,700	11,78,700

Adjustments: 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 commission @ 5% on net profit after charging such commission.

Answer

Working notes

Profit before commission = ₹ 26,650; commission = 26,650 × 5/105 = ₹ 1,269.05. Heat and power is a direct expense; salary and wages are taken to P&L, as in the textbook answer.

Trading Account of M/s Keshav Electronics Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
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
Gross profit c/d		37,600
		7,00,000			7,00,000

Profit and Loss Account of M/s Keshav Electronics Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To Trade expenses		3,300	Gross profit b/d	37,600
To Salary and wages		5,000	By Interest received	20,000
To Legal expenses		3,000
To Postage and telegram		1,000
To Bad debts 6,500 + provision 1,250		7,750
To Insurance	3,500
Less: Unexpired	(600)	2,900
To Depreciation: building 5,000; motor van 3,000		8,000
To Manager’s commission		1,269.05
Net profit (transferred to capital)		25,380.95
		57,600		57,600

Balance Sheet of M/s Keshav Electronics Ltd. as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	3,50,000		Sundry debtors	25,000
Add: Net profit	25,380.95		Less: Provision @ 5%	(1,250)	23,750
Less: Drawings	(75,000)	3,00,380.95	Cash in hand		79,000
Creditors		50,000	Cash at bank		98,000
Bills payable		63,700	Closing stock		30,000
Manager’s commission payable		1,269.05	Prepaid insurance		600
			Investments		40,000
			Machinery		22,000
			Buildings	1,00,000
			Less: Depreciation	(5,000)	95,000
			Motor van	30,000
			Less: Depreciation	(3,000)	27,000
		4,15,350			4,15,350

Gross profit ₹ 37,600; Net profit ₹ 25,380.95; Balance sheet total ₹ 4,15,350; Manager’s commission ₹ 1,269.05

Question Num – Q8

From the following balances extracted from the books of Raga Ltd. prepare a trading and profit and loss account for the year ended March 31, 2017 and a balance sheet as on that date.

Account title	Dr. (₹)	Cr. (₹)
Drawings	20,000
Land and Buildings	12,000
Plant and Machinery	40,000
Carriage inwards	100
Wages	500
Salary	2,000
Sales return	200
Bank charges	200
Coal, Gas and Water	1,200
Purchases	1,50,000
Trade Expenses	3,800
Stock (Opening)	76,800
Cash at bank	50,000
Rates and Taxes	870
Bills receivable	24,500
Sundry debtors	54,300
Cash in hand	30,000
Sales		2,20,000
Capital		1,01,110
Discount		1,260
Apprentice premium		5,230
Bills payable		1,28,870
Purchases return		10,000
Total	4,66,470	4,66,470

Adjustments: 1. Closing stock was valued at the end of the year ₹ 20,000. 2. Depreciation on plant and machinery charged at 5% and land and building at 10%. 3. Discount on debtors at 3%. 4. Make a provision at 5% on debtors for doubtful debts. 5. Salary outstanding was ₹ 100 and Wages prepaid was ₹ 40. 6. The manager is entitled a commission of 5% on net profit after charging such commission.

Answer

Working notes

Provision = 5% × 54,300 = ₹ 2,715; discount = 3% × (54,300 – 2,715) = ₹ 1,547.55. Profit before commission = ₹ 13,297.45; commission = × 5/105 = ₹ 633.21.

Trading Account of Raga Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		76,800	By Sales	2,20,000
To Purchases	1,50,000		Less: Sales return	(200)	2,19,800
Less: Purchases return	(10,000)	1,40,000	By Closing stock		20,000
To Carriage inwards		100
To Wages	500
Less: Prepaid	(40)	460
To Coal, gas and water		1,200
Gross profit c/d		21,240
		2,39,800			2,39,800

Profit and Loss Account of Raga Ltd. for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To Salary	2,000		Gross profit b/d	21,240
Add: Outstanding	100	2,100	By Discount	1,260
To Bank charges		200	By Apprentice premium	5,230
To Trade expenses		3,800
To Rates and taxes		870
To Depreciation: plant 2,000; land & building 1,200		3,200
To Provision for doubtful debts		2,715
To Provision for discount on debtors		1,547.55
To Manager’s commission		633.21
Net profit (transferred to capital)		12,664.24
		27,730		27,730

Balance Sheet of Raga Ltd. as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	1,01,110		Sundry debtors	54,300
Add: Net profit	12,664.24		Less: Provision @ 5%	(2,715)
Less: Drawings	(20,000)	93,774.24	Less: Provision for discount @ 3%	(1,547.55)	50,037.45
Bills payable		1,28,870	Bills receivable		24,500
Outstanding salary		100	Cash at bank		50,000
Manager’s commission payable		633.21	Cash in hand		30,000
			Closing stock		20,000
			Prepaid wages		40
			Land and buildings	12,000
			Less: Depreciation	(1,200)	10,800
			Plant and machinery	40,000
			Less: Depreciation	(2,000)	38,000
		2,23,377.45			2,23,377.45

Gross profit ₹ 21,240; Net profit ₹ 12,664.24; Balance sheet total ₹ 2,23,377.45; Manager’s commission ₹ 633.21

Question Num – Q9

From the following balances of M/s Jyoti Exports, prepare trading and profit and loss account for the year ended March 31, 2017 and balance sheet as on this date.

Account title	Dr. (₹)	Cr. (₹)
Sundry debtors	9,600
Opening stock	22,800
Purchases	34,800
Carriage inwards	450
Wages	1,770
Office rent	820
Insurance	1,440
Factory rent	390
Cleaning charges	940
Salary	1,590
Building	24,000
Plant and Machinery	3,600
Cash in hand	2,160
Gas and Water	240
Octroi	60
Furniture	20,540
Patents	10,000
Sundry creditors		2,500
Sales		72,670
Purchases returns		2,430
Bills payable		15,600
Capital		42,000
Total	1,35,200	1,35,200

Adjustments: Closing stock ₹ 10,000. 1. Provision for doubtful debts is to be maintained at 5 per cent on sundry debtors. 2. Wages amounting to ₹ 500 and salary amounting to ₹ 350 are outstanding. 3. Factory rent prepaid ₹ 100. 4. Depreciation charged on Plant and Machinery @ 5% and Building @ 10%. 5. Outstanding insurance ₹ 100.

Answer

Working notes

Cleaning charges (factory) are treated as a direct expense, as in the textbook answer.

Trading Account of M/s Jyoti Exports for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To Opening stock		22,800	By Sales	72,670
To Purchases	34,800		By Closing stock	10,000
Less: Purchases returns	(2,430)	32,370
To Carriage inwards		450
To Wages	1,770
Add: Outstanding	500	2,270
To Factory rent	390
Less: Prepaid	(100)	290
To Cleaning charges		940
To Gas and water		240
To Octroi		60
Gross profit c/d		23,250
		82,670		82,670

Profit and Loss Account of M/s Jyoti Exports for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To Office rent		820	Gross profit b/d	23,250
To Insurance	1,440
Add: Outstanding	100	1,540
To Salary	1,590
Add: Outstanding	350	1,940
To Provision for doubtful debts		480
To Depreciation: plant 180; building 2,400		2,580
Net profit (transferred to capital)		15,890
		23,250		23,250

Balance Sheet of M/s Jyoti Exports as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	42,000		Sundry debtors	9,600
Add: Net profit	15,890	57,890	Less: Provision @ 5%	(480)	9,120
Sundry creditors		2,500	Cash in hand		2,160
Bills payable		15,600	Closing stock		10,000
Outstanding wages		500	Prepaid factory rent		100
Outstanding salary		350	Patents		10,000
Outstanding insurance		100	Furniture		20,540
			Plant and machinery	3,600
			Less: Depreciation	(180)	3,420
			Building	24,000
			Less: Depreciation	(2,400)	21,600
		76,940			76,940

Gross profit ₹ 23,250; Net profit ₹ 15,890; Balance sheet total ₹ 76,940

Note: The gross profit agrees with the textbook (₹ 23,250). Net profit is ₹ 15,890 and the balance sheet total ₹ 76,940; the textbook’s ₹ 15,895 and ₹ 76,945 are ₹ 5 higher, an arithmetic slip.

Question Num – Q10

The following balances have been extracted from the books of M/s Green House for the year ended March 31, 2017, prepare trading and profit and loss account and balance sheet as on this date.

Account title	Dr. (₹)	Cr. (₹)
Purchases	80,000
Bank balance	11,000
Wages	34,000
Debtors	70,300
Cash in hand	1,200
Legal expenses	4,000
Building	60,000
Machinery	1,20,000
Bills receivable	7,000
Office expenses	3,000
Opening stock	45,000
Gas and fuel	2,700
Freight and Carriage	3,500
Factory lighting	5,000
Office furniture	5,000
Patent right	18,800
Capital		2,10,000
Bills payable		6,500
Sales		2,00,000
Creditors		50,000
Return outwards		4,000
Total	4,70,500	4,70,500

Adjustments: (a) Machinery is depreciated at 10% and buildings depreciated at 6%. (b) Interest on capital @ 4%. (c) Outstanding wages ₹ 50. (d) Closing stock ₹ 50,000.

Answer

Trading Account of M/s Green House for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To Opening stock		45,000	By Sales	2,00,000
To Purchases	80,000		By Closing stock	50,000
Less: Return outwards	(4,000)	76,000
To Wages	34,000
Add: Outstanding	50	34,050
To Gas and fuel		2,700
To Freight and carriage		3,500
To Factory lighting		5,000
Gross profit c/d		83,750
		2,50,000		2,50,000

Profit and Loss Account of M/s Green House for the year ended March 31, 2017

Particulars	₹	Particulars	₹
To Legal expenses	4,000	Gross profit b/d	83,750
To Office expenses	3,000
To Depreciation: machinery 12,000; building 3,600	15,600
To Interest on capital	8,400
Net profit (transferred to capital)	52,750
	83,750		83,750

Balance Sheet of M/s Green House as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	2,10,000		Debtors		70,300
Add: Interest on capital	8,400		Bills receivable		7,000
Add: Net profit	52,750	2,71,150	Bank balance		11,000
Bills payable		6,500	Cash in hand		1,200
Creditors		50,000	Closing stock		50,000
Outstanding wages		50	Patent right		18,800
			Office furniture		5,000
			Machinery	1,20,000
			Less: Depreciation	(12,000)	1,08,000
			Building	60,000
			Less: Depreciation	(3,600)	56,400
		3,27,700			3,27,700

Gross profit ₹ 83,750; Net profit ₹ 52,750; Balance sheet total ₹ 3,27,700

Question Num – Q11

From the following balances extracted from the book of M/s Manju Chawla on March 31, 2017, prepare the trading and profit and loss account and a balance sheet as on this date.

Account title	Dr. (₹)	Cr. (₹)
Opening stock	10,000
Purchases and Sales	40,000	80,000
Returns	200	600
Wages	6,000
Dock and cleaning charges	4,000
Lighting	500
Misc. Income		6,000
Rent		2,000
Capital		40,000
Drawings	2,000
Debtors and Creditors	6,000	7,000
Cash	3,000
Investment	6,000
Patent	4,000
Land and Machinery	43,000
Donations and Charity	600
Sales tax collected		1,000
Furniture	11,300
Total	1,36,600	1,36,600

Adjustments: Closing stock was ₹ 2,000. (a) Interest on drawings @ 7% and interest on capital @ 5%. (b) Land and Machinery is depreciated at 5%. (c) Interest on investment @ 6%. (d) Unexpired rent ₹ 100. (e) Charge 5% depreciation on furniture.

Answer

Working notes

Rent appears on the credit side, so it is an income; the unexpired portion (₹ 100) is rent received in advance and is deducted from the income and shown as a liability. Lighting is treated as a direct expense, as in the textbook answer.

Trading Account of M/s Manju Chawla for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		10,000	By Sales	80,000
To Purchases	40,000		Less: Returns	(200)	79,800
Less: Returns	(600)	39,400	By Closing stock		2,000
To Wages		6,000
To Dock and cleaning charges		4,000
To Lighting		500
Gross profit c/d		21,900
		81,800			81,800

Profit and Loss Account of M/s Manju Chawla for the year ended March 31, 2017

Particulars	₹	Particulars	₹	₹
To Donations and charity	600	Gross profit b/d		21,900
To Interest on capital	2,000	By Misc. income		6,000
To Depreciation: land & machinery 2,150; furniture 565	2,715	By Rent	2,000
Net profit (transferred to capital)	24,985	Less: Received in advance (unexpired)	(100)	1,900
		By Interest on drawings		140
		By Accrued interest on investment		360
	30,300			30,300

Balance Sheet of M/s Manju Chawla as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	40,000		Debtors		6,000
Add: Interest on capital	2,000		Cash		3,000
Add: Net profit	24,985		Closing stock		2,000
Less: Drawings	(2,000)		Accrued interest		360
Less: Interest on drawings	(140)	64,845	Investment		6,000
Creditors		7,000	Patent		4,000
Sales tax collected		1,000	Land and machinery	43,000
Rent received in advance		100	Less: Depreciation	(2,150)	40,850
			Furniture	11,300
			Less: Depreciation	(565)	10,735
		72,945			72,945

Gross profit ₹ 21,900; Net profit ₹ 24,985; Balance sheet total ₹ 72,945

Note: The gross profit agrees with the textbook (₹ 21,900). The textbook’s net profit of ₹ 25,185 adds the ₹ 100 to rent instead of deducting it; with the correct treatment the net profit is ₹ 24,985 and the balance sheet total ₹ 72,945.

Question Num – Q12

The following balances were extracted from the books of M/s Panchsheel Garments on March 31, 2017. Prepare the trading and profit and loss account for the year ended March 31, 2017 and a balance sheet as on that date.

Account title	Dr. (₹)	Cr. (₹)
Opening stock	16,000
Purchases	67,600
Return Inwards	4,600
Carriage inwards	1,400
General expenses	2,400
Insurance	4,000
Scooter expenses	200
Salary	8,800
Cash in hand	4,000
Scooter	8,000
Furniture	5,200
Buildings	65,000
Debtors	6,000
Wages	1,200
Sales		1,12,000
Return outwards		3,200
Discount		1,400
Bank overdraft		10,000
Commission		1,800
Creditors		16,000
Capital		50,000
Total	1,94,400	1,94,400

Adjustments: (a) Unexpired insurance ₹ 1,000. (b) Salary due but not paid ₹ 1,800. (c) Wages outstanding ₹ 200. (d) Interest on capital 5%. (e) Scooter is depreciated @ 5%. (f) Furniture is depreciated @ 10%. (g) Closing stock was ₹ 15,000.

Answer

Trading Account of M/s Panchsheel Garments for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		16,000	By Sales	1,12,000
To Purchases	67,600		Less: Return inwards	(4,600)	1,07,400
Less: Return outwards	(3,200)	64,400	By Closing stock		15,000
To Carriage inwards		1,400
To Wages	1,200
Add: Outstanding	200	1,400
Gross profit c/d		39,200
		1,22,400			1,22,400

Profit and Loss Account of M/s Panchsheel Garments for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To General expenses		2,400	Gross profit b/d	39,200
To Insurance	4,000		By Discount	1,400
Less: Unexpired	(1,000)	3,000	By Commission	1,800
To Scooter expenses		200
To Salary	8,800
Add: Outstanding	1,800	10,600
To Interest on capital		2,500
To Depreciation: scooter 400; furniture 520		920
Net profit (transferred to capital)		22,780
		42,400		42,400

Balance Sheet of M/s Panchsheel Garments as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	50,000		Debtors		6,000
Add: Interest on capital	2,500		Cash in hand		4,000
Add: Net profit	22,780	75,280	Closing stock		15,000
Bank overdraft		10,000	Prepaid insurance		1,000
Creditors		16,000	Buildings		65,000
Outstanding salary		1,800	Scooter	8,000
Outstanding wages		200	Less: Depreciation	(400)	7,600
			Furniture	5,200
			Less: Depreciation	(520)	4,680
		1,03,280			1,03,280

Gross profit ₹ 39,200; Net profit ₹ 22,780; Balance sheet total ₹ 1,03,280

Question Num – Q13

Prepare the trading and profit and loss account and balance sheet of M/s Control Device India on March 31, 2017 from the following balance as on that date.

Account title	Dr. (₹)	Cr. (₹)
Drawings and Capital	19,530	67,500
Purchase and Sales	45,000	1,12,500
Salary and Commission	25,470	1,575
Carriage	2,700
Plant and Machinery	27,000
Furniture	6,750
Opening stock	42,300
Insurance premium	2,700
Interest		7,425
Bank overdraft		24,660
Rent and Taxes	2,160
Wages	11,215
Returns	2,385	1,440
Carriage outwards	1,485
Debtors and Creditors	36,000	58,500
General expenses	6,975
Octroi	530
Investment	41,400
Total	2,73,600	2,73,600

Adjustments: Closing stock was valued ₹ 20,000. (a) Interest on capital @ 10%. (b) Interest on drawings @ 5%. (c) Wages outstanding ₹ 50. (d) Outstanding salary ₹ 20. (e) Provide a depreciation @ 5% on plant and machinery. (f) Make a 5% provision on debtors.

Answer

Trading Account of M/s Control Device India for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
To Opening stock		42,300	By Sales	1,12,500
To Purchases	45,000		Less: Returns	(2,385)	1,10,115
Less: Returns	(1,440)	43,560	By Closing stock		20,000
To Carriage		2,700
To Wages	11,215
Add: Outstanding	50	11,265
To Octroi		530
Gross profit c/d		29,760
		1,30,115			1,30,115

Profit and Loss Account of M/s Control Device India for the year ended March 31, 2017

Particulars	₹	₹	Particulars	₹
To Salary	25,470		Gross profit b/d	29,760
Add: Outstanding	20	25,490	By Commission	1,575
To Insurance premium		2,700	By Interest	7,425
To Rent and taxes		2,160	By Interest on drawings	976.50
To Carriage outwards		1,485	Net loss (transferred to capital)	8,973.50
To General expenses		6,975
To Interest on capital		6,750
To Depreciation on plant and machinery		1,350
To Provision for doubtful debts		1,800
		48,710		48,710

Balance Sheet of M/s Control Device India as at March 31, 2017

Particulars	₹	₹	Particulars	₹	₹
Liabilities			Assets
Capital	67,500		Debtors	36,000
Add: Interest on capital	6,750		Less: Provision @ 5%	(1,800)	34,200
Less: Net loss	(8,973.50)		Closing stock		20,000
Less: Drawings	(19,530)		Investment		41,400
Less: Interest on drawings	(976.50)	44,770	Furniture		6,750
Bank overdraft		24,660	Plant and machinery	27,000
Creditors		58,500	Less: Depreciation	(1,350)	25,650
Outstanding wages		50
Outstanding salary		20
		1,28,000			1,28,000

Gross profit ₹ 29,760; Net loss ₹ 8,973.50; Balance sheet total ₹ 1,28,000

Question Num – Q14

The following balances appeared in the trial balance of M/s Kapil Traders as on March 31, 2017: Sundry debtors ₹ 30,500; Bad debts ₹ 500; Provision for doubtful debts ₹ 2,000. The partners of the firm agreed to record the following adjustments in the books of the Firm: Further bad debts ₹ 300. Maintain provision for bad debts 10%. Show the following adjustments in the bad debts account, provision account, debtors account, profit and loss account and balance sheet.

Answer

Debtors after further bad debts = 30,500 – 300 = ₹ 30,200; new provision = 10% × 30,200 = ₹ 3,020.

Bad Debts Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Balance b/d	500	Mar 31, 2017	By Provision for Doubtful Debts	800
Mar 31, 2017	To Sundry Debtors	300
		800			800

Provision for Doubtful Debts Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Bad Debts	800	Mar 31, 2017	By Balance b/d	2,000
Mar 31, 2017	To Balance c/d	3,020	Mar 31, 2017	By Profit and Loss	1,820
		3,820			3,820

Profit and Loss Account (extract) — debit side: To Provision for Doubtful Debts ₹ 1,820

Sundry Debtors Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Balance b/d	30,500	Mar 31, 2017	By Bad Debts	300
			Mar 31, 2017	By Balance c/d	30,200
		30,500			30,500

Balance Sheet (extract) — Sundry debtors ₹ 30,200 less provision ₹ 3,020 = ₹ 27,180 (assets side).

New provision ₹ 3,020; Profit and Loss Account debited with ₹ 1,820

Question Num – Q15

Prepare the bad debts account, provision account, profit and loss account and balance sheet from the following information as on March 31, 2017: Debtors ₹ 80,000; Bad debts ₹ 2,000; Provision for doubtful debts ₹ 5,000. Adjustments: Bad debts ₹ 500; Provision on debtors @ 3%.

Answer

Debtors after further bad debts = 80,000 – 500 = ₹ 79,500; new provision = 3% × 79,500 = ₹ 2,385.

Bad Debts Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Balance b/d	2,000	Mar 31, 2017	By Provision for Doubtful Debts	2,500
Mar 31, 2017	To Sundry Debtors	500
		2,500			2,500

Provision for Doubtful Debts Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Bad Debts	2,500	Mar 31, 2017	By Balance b/d	5,000
Mar 31, 2017	To Profit and Loss (excess)	115
Mar 31, 2017	To Balance c/d	2,385
		5,000			5,000

Profit and Loss Account (extract) — credit side: By Provision for Doubtful Debts (excess) ₹ 115

Sundry Debtors Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Balance b/d	80,000	Mar 31, 2017	By Bad Debts	500
			Mar 31, 2017	By Balance c/d	79,500
		80,000			80,000

Balance Sheet (extract) — Sundry debtors ₹ 79,500 less provision ₹ 2,385 = ₹ 77,115 (assets side).

New provision ₹ 2,385; Profit and Loss Account credited with ₹ 115

Topic checklist

Need for adjusting entries
Closing stock; outstanding and prepaid expenses; accrued and advance incomes
Depreciation, bad debts, provision for doubtful debts and for discount on debtors
Interest on capital and drawings; manager’s commission
Preparing final accounts with adjustments; vertical form