Raghu Steel Pipes Accoutancy Projects PDF

Comprehensive Project - Raghu Steel Pipes
Project Problem
Raghu Prasad Yadav, 24 years, was a resident of Rampur Village in Bihar. He belonged to a
middle class family and did his B.Com (Hons.) from Bihar University, Patna. He wanted to be a
successful businessman but was unable to decide the line of business which would best suit him.
One day, while talking to his friend, he got convinced about starting the business and started a
steel pipes and angles business at a backward area of Bihar on 1 st April, 2005. He invested cash
of 70,000 in the business and opened a current a/c with the bank for 20,000. He took a loan
of 2,00,000 for five years from ICICI Bank @ 10% p.a. against security of his property. He
purchased iron rods from Ram & Co. worth 50,000 on credit, machinery 40,000, furniture
10,000 and small piece of land for 1,00,000 on the same date. Raghu withdrew goods worth
4,000 for domestic use. He hired a worker on April 1 itself and agreed to pay him wages of
5,000 p.m. On April 12, Raghu returned goods worth 2,000 to Ram and Co. being defective.
On May 30, Raghu sold steel pipes to Gupta & Co. worth 55,000 on credit. On June 30, he sold
steel angle worth 1,00,000 to Kumar & Co. who settled his payment as 25% in cash, 15%
through a cheque and drew a bill for balance for three months. However on July 4, Gupta & Co.
discovered some defects in the pipes and returned the same worth 10,000.
Raghu paid office and administrative expenses of 2,000 and selling and distribution expenses of
5,000 on July 6 and advertisement expenses of 10,000 on August 3. On September 4, he
purchased iron rods worth 25,000 from Khanna and Co. who drew a bill for 6 months on Raghu
which he duly accepted. Due to a theft on October 9, goods worth 10,000 were lost for which
insurance company paid a claim of 5,000. On October 17, Raghu paid Ram and Co. 30,000.
On December 16, he received 10,000 from Gupta and Co. On January 22, Raghu contributed
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8,000 to the Prime Minister’s Relief Fund. A part of the machinery broke down on February 12,
the expenses incurred for its repairs were 2,000.
Raghu sold steel rods worth 60,000 to Sharma and Co. on March 2 and received 20,000 in
cash and the balance was payable after 3 months. He sold steel rods to Rakesh and Co. worth
65,000 for cash on March 4. Sharma become insolvent on March 15 and Raghu received 50 Paisa
in a rupee from his estate. On March 20, he purchased iron rods worth 83,000 from Shyam &
Co.
Other transactions during the year were:

Wages paid 55,000 and outstanding amount 5,000
Electricity Bills Paid 7,000
Heating and Lighting Expenses 5,500.
Telephone Charges 3,000
Carriage and Freight 1,000
Miscellaneous Expenses 500
On 31st March 2006, Closing stock was 60,000; depreciation on furniture and machinery is to
be provided @ 10% p. a.; Interest on capital to be provided @ 5% p.a. and Interest on drawings to
be charged @ 2% p.a.
From the above information,

(a) Pass journal entries, post the entries in the ledger and prepare a Trial Balance
(b) From the prepared Trial Balance, prepare Trading and Profit & Loss A/c for the year and a
Balance Sheet as at 31st March, 2006 and analyze the profitability and the financial
position of the business.
Page 2
Project Solution
Journal
Date Particulars Debit Credit
Amount Amount
2005
April 1 Cash A/c Dr. 70,000
To Capital A/c 70,000
(Being started business with cash)
April 1 Bank A/c Dr. 20,000
To Cash A/c 20,000
(Being cash deposited into bank)
April 1 Cash A/c Dr. 2,00,000
To Loan from ICICI Bank A/c 2,00,000
(Being loan taken from ICICI Bank)
April 1 Purchases A/c Dr. 50,000
To Ram & Co. 50,000
(Being goods purchased from Ram & Co.)
April 1 Machinery A/c Dr. 40,000
Furniture A/c Dr. 10,000
Land A/c Dr. 1,00,000
To Cash A/c 1,50,000
(Being fixed assets purchased)
April 1 Drawings A/c Dr. 4,000
To Purchases A/c 4,000
(Being goods withdrawn for personal use)
April 12 Ram & Co. Dr. 2,000
To Purchases Return A/c 2,000
Page 3
(Being goods returned to Ram & Co.)
May 30 Gupta & Co. Dr. 55,000
To Sales A/c 55,000
(Being goods sold to Gupta & Co.)
June 30 Kumar & Co. Dr. 1,00,000
To Sales A/c 1,00,000
(Being goods sold to Kumar & Co.)
June 30 Cash A/c Dr. 25,000
Bank A/c Dr. 15,000
Bill Receivable A/c Dr. 60,000
To Kumar & Co. 1,00,000
(Being account settled by Kumar & Co. by cash,
cheque and B/R)
July 04 Sales Return A/c Dr. 10,000
To Gupta & Co. 10,000
(Being goods returned by Gupta & Co.)
July 06 Office & Administration Expenses A/c Dr. 2,000
Selling & Distribution Expenses A/c Dr. 5,000
To Cash A/c 7,000
(Being expenses paid)
August 3 Advertisement Expenses A/c Dr. 10,000
To Cash A/c 10,000
(Being advertisement expenses paid)
Sept. 04 Purchases A/c Dr. 25,000
To Khanna & Co. 25,000
(Being goods purchased from Khanna & Co.)
Sept. 04 Khanna & Co. Dr. 25,000
To Bills Payable A/c 25,000
(Being bill accepted, drawn by Khanna & Co.)
Oct. 03 Cash A/c Dr. 60,000
Page 4
To Bills Receivable A/c 60,000
(Being bills receivable met on maturity
Oct. 09 Loss by theft A/c Dr. 10,000
The Purchases A/c 10,000
(Being goods lost by theft)
Oct. 09 Insurance Co. Dr. 5,000
To Loss by theft A/c 5,000
(Being insurance Co. admitted claim of 5,000
against loss by theft)
Oct. 09 Cash A/c Dr. 5,000
To Insurance Co. 5,000
(Being claim received from insurance & Co.)
Oct.17 Ram & Co. Dr. 30,000
To Cash A/c 30,000
(Being cash paid to Ram & Co.)
Dec. 16 Cash A/c Dr. 10,000
To Gupta & Co. 10,000
(Being cash received from Gupta & Co.)
Jan. 22 Charity A/c Dr. 8,000
To Cash A/c 8,000
(Being charity give to prime minister’s relief fund)
Feb. 12 Repair Expenses A/c Dr. 2,000
To Cash A/c 2,000
(Being repair expenses of machinery paid)
March 02 Sharma & Co. Dr. 80,000
To Sales A/c 80,000
(Being goods sold to Sharma & Co.)
March 02 Cash A/c Dr. 40,000
To Sharma & Co. 40,000
(Being cash received from Sharma & Co.)
Page 5
To Sales A/c 65,000
(Being goods sold for cash)
March 07 Bills Payable A/c Dr. 25,000
To Cash A/c 25,000
(Being amount paid against bills payable on
maturity)
Bad Debts A/c Dr. 20,000
To Sharma & Co. 40,000
(Being 50 paisa in a rupee received from Sharma &
Co)
March 20 Purchases A/c Dr. 83,000
To Shyam & Co. 83,000
(Being goods purchased from shyam & Co.)
March 31 Wages A/c Dr. 55,000
Electricity Expenses A/c Dr. 7,000
Heating & Lighting Expenses A/c Dr. 5,500
Telephone Charges A/c Dr. 3,000
Carriage & Freight A/c Dr. 1,000
Miscellaneous Expenses A/c Dr. 500
To Cash A/c 72,000
March 31 Depreciation A/c Dr. 5,000
To Furniture A/c 1,000
To Machinery A/c 4,000
(Being depreciation provided on furniture and
machinery)
March 31 Interest on Capital A/c Dr. 3,500
To Capital A/c 3,500
(Interest on capital provided @ 5% p.a.)
Page 6
March 31 Capital A/c Dr. 80
To Interest on Drawings A/c 80
(Being interest on drawings charged @ 2% p.a.)
March 31 Interest on Loan A/c Dr. 20,000
To Loan from ICICI Bank A/c 20,000
(Being interest on loan unpaid)
March 31 Capital A/c Dr. 4,000
To Drawing A/c 4,000
(Being amount of drawings charged to capital A/c)
March 31 Wages A/c Dr. 10,000
To Outstanding Wages A/c 10,000
(Being advance wages paid adjusted )
Page 7
Ledger
Cash Account
Date Particulars Amt Date Particulars Amt
2005 2005
Apr. 1 To Capital A/c 70,000 April 1 By Bank A/c 20,000
Apr. 1 To Loan form ICICI 2,00,000 April 1 By Machinery A/c 40,000
Bank A/c
June 30 To Kumar & Co. 25,000 April 1 By Furniture A/c 10,000
Oct. 3 To Bills Receivable 60,000 April 1 By Land A/c 1,00,000
A/c
Oct. 9 To Insurance Co. 5,000 July 6 By Office & Administration Exp. 2,000
Dec. 16 To Gupta & Co. 10,000 July 6 By Selling & Distribution Exp. 5,000
Mar. 2 To Sharma & Co. 40,000 Aug.3 By Advertisement Exp. A/c 10,000
Mar. 4 To Sales A/c 65,000 Oct.17 By Ram & Co. 30,000
Mar. 15 To Sharma & Co. 20,000 2006
Jan. 22 By Charity A/c 8,000
Feb. 12 By Repair Exp. A/c 2,000
Mar. 7 By Bills Payable A/c 25,000
Mar. 31 By Wages A/c 55,000
Mar. 31 By Electricity Exp. A/c 7,000
Mar.31 By Heating & Lighting Exp. A/c 5,500
Mar. 31 By Telephone Charges A/c 3,000
Mar. 31 By Carriage & Freight A/c 1,000
Mar. 31 By Miscellaneous Exp. A/c 500
Mar. 31 By Balance c/d 1,71,000
4,95,000 4,95,000
2006
Apr.1 To Balance b/d 1,71,000
Page 8
Bank Account
2005 2006
Apr. 1 To Cash A/c 20,000 Mar. 31 By Balance c/d 35,000
June 30 To Kumar & Co. 15,000
35,000 35,000
2006
Apr. 1 To Balance b/d 35,000
Capital Account
2006 2005
Mar. 31 To Drawing A/c 4,000 April 1 By Cash A/c 70,000
Mar. 31 To Interest on 80 2006
Drawing A/c Mar. 31 By Interest on Capital A/c 3,500
Mar. 31 To Balance c/d 1,20,000 Mar. 31 By P& L A/c (profit) 50,580
1,24,080 1,24,080
2006
April 1 By Balance c/d 1,25,000
Loan From ICICI Bank A/c

2005 2005
Mar. 31 To Balance c/d 2,20,000 Apr. 1 By Cash A/c 2,00,000
2006
Mar. 31 By interest on Loan A/c 20,000
2,20,000 2,20,000
2006
April 1 By Balance b/d 2,20,000
Page 9
Purchases Account
2005 2005
Apr. 1 To Ram & Co. 50,000 Apr. 1 By Drawing A/c 4,000
Sept. 4 To Khanna & Co. 25,000 Oct. 9 By Loss by theft A/c 10,000
Mar. 15 To Shyam & Co. 83,000 2006
Mar. 31 By Trading A/c 1,44,000
1,58,000 1,58,000
Ram & Co.

2005 2005
Apr. 12 To Purchases Apr. 1 By Purchases A/c 50,000
Return A/c 2,000
Oct. 17 To Cash A/c 30,000
2006 To Balance c/d 18,000
Mar. 31
20,000 20,000
2006
Apr. 1 By Balance b/d 18,000
Machinery Account
2005 2006
April 1 To Cash A/c 40,000 Mar. 31 By Depreciation A/c 4,000
Mar. 31 By Balance c/d 36,000
40,000 40,000
2006
April 1 To Balance b/d 36,000
Page 10
Furniture Account
2005 2006
April 1 To Cash A/c 10,000 Mar. 31 By Depreciation A/c 1,000
10,000 10,000
2006
Land Account
2005 2006
April 1 To Cash A/c 1,00,000 Mar. 31 By Balance c/d 1,00,000
1,00,000 1,00,000
2006
April 1 To Balance b/d 1,00,000
Drawings Account
2005 2006 4,000
April 1 To Purchases A/c 4,000 Mar. 31 By Capital A/c
4,000 4,000
Purchases Return Account

2006 2005
Mar. 31 To Trading A/c 2,000 April 12 By Ram & Co. 2,000
2,000 2,000
Page 11
Gupta & Co.
2005 2005
May 30 To Sales A/c 55,000 July 4 By Sales Return A/c 10,000
Dec. 16 By Cash A/c 10,000
2006
55,000 55,000
2006
Sales Account
2006 To Trading A/c 3,00,000 2005 By Gupta & Co. 55,000
Mar. 31 May 30
June 30 By Kumar & Co. 1,00,000
2006 By Sharma & Co. 80,000
Mar. 2
Mar. 4 By Cash A/c 65,000
3,00,000 3,00,000
Kumar & Co.

2005 2005
June 30 To Sales A/c 1,00,000 June 30 By Cash A/c 25,000
June 30 By Bank A/c 15,000
June 30 By Bills Receivable A/c 60,000
50,000 50,000
Page 12
Bills Receivable Account
Date Particulars Amount Date Particulars Amt
2005 2005
June 30 To Kumar & Co. 60,000 Oct. 3 By Cash A/c 60,000
60,000 60,000
Sales Return Account

2005 2006
July 4 To Gupta & Co. 10,000 Mar. 31 By trading A/c 10,000
10,000 10,000
Office & Administrative Expenses Account

2005 2006 2,000

July 6 To Cash A/c 2,000 Mar. 31 By P& L A/c
2,000 2,000
Selling & Distribution Expenses Account

2005 2006
July 6 To Cash A/c 5,000 Mar. 31 By P& L A/c 5,000
5,000 5,000
Page 13
Advertisement Expenses Account
2005 2006
Aug. 3 To Cash A/c 10,000 Mar. 31 By P& L A/c 10,000
10,000 10,000
Khanna & Co.

2005 To Bills Payable 2005
Sept.4 A/c 25,000 Sept. 4 By Purchases A/c 25,000
25,000 25,000
Bills Payable Account

2006 2005
March 7 To Cash A/c 25,000 Sept. 4 By Khanna & Co. 25,000
25,000 25,000
Loss by Theft Account

2005 2005
Oct. 9 To Purchases A/c 10,000 Oct. 9 By Insurance Co. A/c 5,000
2006
Mar. 31 By P& L A/c 5,000
10,000 10,000
Page 14
Insurance Co.
2005 To Loss By theft 2005
Oct. 9 A/c 5,000 Oct. 9 By Cash A/c 5,000
5,000 5,000
Wages Outstanding Account

Date Particulars Amt Date Particulars Amount
2006 2006
Jan. 15 To Balance c/d 5,000 Mar. 31 By Wages A/c 5,000
5,000 5,000
2006
April 1 By Balance b/d 5,000
Charity Account
2006 2006
Jan 22 To Cash A/c 8,000 Mar. 31 By P& L A/c 8,000
8,000 8,000
Repair Expenses Account

2006 2006
Feb. 12 To Cash A/c 2,000 Mar. 31 By P& L A/c 2,000
2,000 2,000
Page 15
Sharma & Co.
2006 2006
March 2 To Sales A/c 60,000 March 2 By Cash A/c 20,000
March 15 By Cash A/c 20,000
March 15 By Bad Debts A/c 20,000
60,000 60,000
Bad Debts Account

2006 2006
Mar. 15 To Sharma & Co. 20,000 March 31 By P& L A/c 20,000
20,000 20,000
Shyam & Co.

2006 2006
Mar. 31 To Balance c/d 83,000 Mar. 20 By Purchases A/c 83,000
83,000 83,000
Wages Account
2006 2006
Mar. 31 To Cash 55,000 Mar. 20 By Trading A/c 60,000
Mar. 31 To Wages
Outstanding A/c 5,000
60,000 60,000
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Electricity Expenses Account
2006 To Cash A/c 7,000 2006 By P& L A/c 7,000
Mar. 31 Mar. 31
7,000 7,000
Heating & Lighting Expenses Account

2006 2006
Mar. 31 To Cash A/c 5,500 Mar. 31 By Trading A/c 5,500
5,500 5,500
Telephone Charges Account

2006 2006
Mar. 31 To Cash A/c 3,000 Mar. 31 By P& L A/c 3,000
3,000 3,000
Carriage & Freight Account

2006 2006
Mar. 31 To Cash A/c 1,000 Mar. 31 By Trading A/c 1,000
1,000 1,000
Miscellaneous Expenses Account

2006 2006
Mar. 31 To Cash A/c 500 Mar. 31 By P& L A/c 500
500 500
Page 17
Depreciation Account
2006 2006
Mar. 31 To Furniture A/c 1,000 Mar. 31 By P& L A/c 5,000
Mar. 31 To Machinery
A/c 4,000
5,000 5,000
Interest on Capital Account

Date Particulars Amount Date Particulars Amount
2006 2006
Mar. 31 To Capital A/c 3,500 March 31 By P& L A/c 3,500
3,500 3,500
Interest on Drawing Account

2006 2006
Mar. 31 To P& L A/c 80 March 31 By Capital A/c 80
80 80
Interest on Loan Account

2006 To Loan from 2006
Mar. 31 ICICI Bank A/c 20,000 March 31 By P& L A/c 20,000
20,000 20,000
Page 18
Trial Balance
as on 31st March 2006
Particulars Amt Particulars Amt
Cash A/c 1,71,000 Capital A/c 69,420
Bank A/c 35,000 Loan from ICICI Bank A/c 2,20,000
Purchases A/c 1,44,000 Ram & Co. 18,000
Machinery A/c (Less Depreciation) 36,000 Purchases Return A/c 2,000
Furniture A/c (Less Depreciation) 9,000 Sales A/c 3,00,000
Land A/c 1,00,000 Shyam & Co. 83,000
Gupta & Co 35,000 Interest on Drawings A/c 80
Sales Return A/c 10,000 Wages Outstanding A/c 5,000
Office & Administrative A/c 2,000
Selling & Distribution A/c 5,000
Advertisement Exp. A/c 10,000
Loss by theft A/c 5,000
Charity A/c 8,000
Repair Expense A/c 2,000
Bad Debts A/c 20,000
Wages A/c 60,000
Electricity Exp. A/c 7,000
Heating & Lighting Exp. A/c 5,500
Telephone Charges A/c 3,000
Carriage & Freight A/c 1,000
Miscellaneous Exp. A/c 500
Depreciation A/c 5,000
Interest on Capital A/c 3,500
Interest on Loan A/c 20,000
6,97,500 6,97,500
Page 19
Trading and Profit & Loss Account
For the year ended 31st March 2006
To Purchases A/c 1,44,000 By Sales A/c 3,00,000
Less Purchases Return 2,000 1,42,000 Less Sales Return 10,000 2,90,000
To Wages A/c 60,000 By Closing stock A/c 60,000
To heating & lighting A/c 5,500
To carriage & freight A/c 1,000
To Gross Profit c/d 1,41,500
3,50,000 3,50,000
To office & administrative Exp. A/c 2,000 By Gross Profit b/d 1,41,500
To selling & distribution Exp. A/c 5,000 By interest on drawing 80
To advertisement Exp. A/c 10,000
To loss by theft A/c 5,000
To charity A/c 8,000
To repair Exp. A/c 2,000
To Bad Debts A/c 20,000
To electricity Exp. A/c 7,000
To telephone Charges 3,000
To Miscellaneous Exp. A/c 500
To Depreciation A/c 5,000
To interest on Loan A/c 20,000
To interest on Capital A/c 3,500
To Net Profit Transferred of Capital 50,580
A/c
1,41,580 1,41,580
Page 20
Balance Sheet
As on 31st March 2006
Liabilities Assets
Capital 69,420 Land 1,00,000
Add Net Profit 50,580 1,20,000 Machinery (less Depreciation) 36,000
Loan from ICICI Bank 2,20,000 Furniture ( less Depreciation) 9,000
Creditors: Stock 60,000
Ram & Co. 18,000 Debtors:
Shyam & Co. 83,000 Gupta & Co. 35,000
Wages Outstanding 5,000 Cash at Bank 35,000
Cash in Hand 1,71,000
4,46,000 4,46,000
Page 21
Accounting Ratios
1. Profitability Ratios
Gross Profit
(i) Gross Profit Ratio = Net Sales
× 100
1,41,500
= × 100
2,90,000
= 48.79%
Net Profit
(ii) Net Profit Ratio = × 100
Net Sales
50,580
= 2,90,000 × 100
= 17.44%
2. Turnover Ratios
Net Sales
(i) Fixed Assets Turnover Ratio = Fixed Assets
2,90,000
= 1,45,000
= 2 Times
Net Sales
(ii) Working Capital Turnover Ratio = Working capital
2,90,000
= 1,95,000
Page 22
= 1.02 Times
Net Sales
(iii) Total Assets to Turnover Ratio = Total Assets
2,90,000
=
4,46,000
=.65 Times
3. Liquidity Ratios
Current Assets
(i) Current Ratio = Current Liabilities
3,01,000
= 1,06,000
= 2.83 ∶ 1
Liquid Assets
(ii) Liquid Ratios =
Current Liabities
2,41,000
= 1,06,000
= 2.27 : 1
Comments
(i) As current ratio and liquid ratios are 2.83 : 1 and 2.27 : 1 respectively. It shows strong
short-term financial position of Raghu.
(ii) Gross profit margin on sales is 48.79% and Net profit margin on sales is 17.44%, which
shows the good profitability in terms of sales.
(iii) In terms of turnover ratios, It seems that the amount of sales is to be improved so that it
improves the fixed assets turnover, working capital turnover and total assets turnover.
Page 23

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Comprehensive Project - Raghu Steel Pipes

Other transactions during the year were:

From the above information,

Loan From ICICI Bank A/c

Ram & Co.

Purchases Return Account

Kumar & Co.

Sales Return Account

Office & Administrative Expenses Account

2005 2006 2,000

Selling & Distribution Expenses Account

Khanna & Co.

Bills Payable Account

Loss by Theft Account

Wages Outstanding Account

Repair Expenses Account

Bad Debts Account

Shyam & Co.

Heating & Lighting Expenses Account

Telephone Charges Account

Carriage & Freight Account

Miscellaneous Expenses Account

Interest on Capital Account

Interest on Drawing Account

Interest on Loan Account

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