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Final Accounts

Study Note - 4
Final Accounts

This Study Note includes

● Introduction
● Profit and Loss Account
● Balance Sheet

4.0 Introduction
Preparation of final accounts is the final destination of the accounting process. As discussed
earlier these final accounts include two statements – Income statement which reflects the out-
come of business activities during an accounting period (i.e. profit or loss) and the balance
sheet which show the position of the business at the end of the accounting period (i.e. resources
owned as assets and sources of funds as liabilities plus capital). The objective of financial state-
ments is to provide information about the financial strength, performance and changes in fi-
nancial position of an enterprise that is useful to a wide range of users in making economic
decisions. Financial statements should be understandable, relevant, reliable and comparable.
Reported assets, liabilities and equity are directly related to an organization’s financial posi-
tion. Reported income and expenses are directly related to an organization’s financial perfor-
mance.

Financial statements are intended to be understandable by readers who have “a reasonable


knowledge of business and economic activities and accounting and who are willing to study
the information diligently”.

The formats of these statements are standard. They depend on the need of each type of organi-
zation and the requirement of information to be disclosed to the stakeholders. However, for
company type of organizations, the formats are governed by the schedule VI to the companies’
act 1956. Students are advised to refer to this schedule. In this chapter, we will see how concep-
tually these statements are prepared and what each of them contains.

a) Profitability Statement – This statement is related to a complete accounting period. It


shows the outcome of business activities during that period in a summarised form. The
activities of any business will include, purchase, manufacture, and sell. To carry out
these main activities company will require to spend money for other services such as
labour, rent, insurance, advertising, travel etc, which are related to the same period.
b) Balance sheet – Business needs some resources which have longer life (say more than a
year). Such resources are, therefore, not related to any particular accounting period, but
are to be used over the useful life thereof. The resources do not come free. One requires
finance to acquire them. This funding is provided by owners through their investment,
bank & other through loans, suppliers by way of credit terms. The Balance sheet shows

A 100 ACCOUNTING
the list of resources and the funding of the resources i.e. assets and liabilities (towards
owners and outsiders). It is also referred as Sources of funds (i.e. liabilities & capital)
and application of funds (i.e. assets)
Let us discuss these statements in depth.

4.1 Profit and loss account


The income statement, as it is called, shows revenue items and expenses incurred to earn this
revenue during the period. We see application of the concepts of matching and accounting
period here. It must be ensured to match revenues and expenses to the accounting period to
which they are related. As accounting exhibits the business activity in monetary terms, the P &
L also follows the activity flow. For example, the details given in P & L a/c will be different
depending on whether the business is engaged in manufacturing and selling or only trading or
rendering services.

Based on the nature of business activity, the P & L a/c is split into one or more components. In
case of a manufacturing business, the stakeholders will want to know the result of manufactur-
ing activity first, then the result when the manufactured goods are sold and then the net results
after deducting the indirect expenses from the sales revenue. A trading business will reflect
only buying and selling as first component and then the net result. A service business will
reflect results out of acquiring or generating a service and then the net result in terms of profit
or loss.
This could be clear from the following:

Type of business Information required Components of P &


L
Manufacturing business: 1. Cost of Production 1. Manufacturing
Activity is manufacturing 2. Gross profit or Gross Loss on a/c
articles from raw material, sales 2. Trading a/c
and then selling it. 3. Net profit 3. P & L a/c
Trading business: Activity 1. Gross profit or gross loss on 1. Trading a/c
is buying and selling of sales 2. P & L a/c
articles 2. Net profit or loss
Service business 1. Net profit or loss 1. P & L a/c

Depending on these components, the detailing of the components can be done. The basic idea
is, however, to show details of revenue earned from various streams and expenses incurred to
earn that. Let us see these in depth.

a) Sales Revenue: The sales revenue denotes income earned from the main business activity
or activities. The income is earned when goods or services are sold to customers. As per
the accrual concept, income should be recognised as soon as it is accrued and not neces-
sarily only when the cash is paid for. The Accounting standard 7 (in case of contracting

ACCOUNTING A 101
Final Accounts

business) and Accounting standard 9 (in other cases) define the guidelines for revenue
recognition. The essence of the provisions of both standards is that revenue should be
recognised only when significant risks and rewards (vaguely referred to as ownership in
goods) are transferred to the customer. For example, if an invoice is made for sale of goods
and the term of sale is door delivery; then sale can be recognised only on getting the proof
of delivery of goods at the door of customer. If such proof is pending at the end of account-
ing period, then this transaction cannot be taken as sales, but will be treated as unearned
income. In the P & L a/c sales are always shown as net of returns.

b) Stocks: In case of manufacturing business, there will be stock of raw material, work-in-
process (W.I.P.) and finished goods. In case of trading business, there will be stocks of
finished goods only. Stocks of raw material and WIP will be shown in the manufacturing
a/c, whereas stock of finished goods will be shown in trading a/c

c) Cost of sales: This term refers to the cost of goods sold. The goods could be manufactured
and sold or bought and sold. The cost of goods sold will include the basic cost of goods, and
all the expenses that can be directly identified with goods. For example, consider the case
of a TV dealer. He procures TV sets @ Rs 8500 per piece as the basic price. The expenses like
freight paid to bring TV sets to the stores will be included as cost of goods sold. In case of
manufacturing business, the examples of direct expenses to be included as cost of produc-
tion are wages paid, power & fuel, factory expenses etc. The student must be able to distin-
guish these expenses and show them in a proper component. The cost of sales will always
include the cost of raw material or finished goods purchased for sale.

d) Expenses: All expenses which are not directly related to main business activity will be
reflected in the P & L component. These are mainly the Administrative, Selling and distri-
bution expenses. Examples are salary to office staff, salesmen commission, insurance, legal
charges, audit fees, advertising, free samples, bad debts etc. It will also include items like
loss on sale of fixed assets, interest and provisions. Students should be careful to include
accrued expenses as well.

e) Other Incomes: The business will generate incomes other than from its main activity. These
are purely incidental. It will include items like interest received, discount received, com-
mission received, profit on sale of asset, scrap sales.etc.

The end result of one component of the P & L a/c is transferred over to the next compo-
nent and the net result will be transferred to the balance sheet as addition in owners’
equity. The profits actually belong to owners of business. In case of company organiza-
tions, where ownership is widely distributed, the profit figure is separately shown in
balance sheet.

A 102 ACCOUNTING
Dr Manufacturing Account for the year ended ----- Cr
Particulars Amount Particulars Amount
Opening stock Closing stock
Raw material Raw material
Work in process Work in process

Purchases of raw material Scrap sales


less purchase returns
Factory rent
Power & fuel Cost of Production
Stores & spares consumed (transferred to Trading a/c)
Wages
Manufacturing expenses
Depreciation on factory assets
Total Total

Dr Trading Account for the year ended --------- Cr


Particulars Amount Particulars Amount
Opening stock Sales
Finished goods less sales returns

Cost of production Closing stock


(transferred from manufacturing
a/c) Finished goods

Gross Profit Gross Loss


(transferred to P & L a/c) (transferred to P & L a/c)
Total Total

ACCOUNTING A 103
Final Accounts

Dr Profit and Loss Account for the year ended ------ Cr


Particulars Amount Particulars Amount
Gross Loss Gross Profit
(transferred from Trading
(transferred from Trading a/c) a/c)

Administrative expenses Other Income


Office salaries Interest received
Communication Commission received
Travel & Conveyance Profit on sale of assets
Office rent Rent received.
Depreciation of office assets
Audit fees
Insurance
Repairs & maintenance

Selling & Distribution expenses


Advertising
Salesmen commission
Delivery van expenses
Depreciation on delivery vans
Bad debts

Financial expenses
Bank charges
Interest on loans

Loss on sale of assets

Net profit Net loss

Total Total

Profit and Loss Appropriation Account

We know that the net profit or loss is added to or deducted from owner’s equity. The net profit
may be used by the business to distribute dividends, to create reserves etc. In order to show
these adjustments, a P & L Appropriation a/c is maintained. Distribution of profits is only
appropriation and does not mean expenses. After passing such distribution entries, the re-
maining surplus is added in owner’s equity.
The format of P & L Appropriation a/c is given below.

A 104 ACCOUNTING
Profit and Loss Appropriation Account for the year ended ———————-
Particulars Amount Particulars Amount
To proposed dividend By Net profit transferred
To Transfer to General Reserve from P & L a/c
To surplus carried to Capital a/c
Total Total

Please note these formats are illustrative only and details could change depending on the na-
ture of business. Also, note that in trading a/c there could be either a gross profit or gross loss.
Here, both are shown to enable students to understand where to reflect the same. Same is the
case of net profit or net loss.

Many times these components are also shown in vertical format, mainly by company organiza-
tions.
Illustration 1
Indicate where the following items will be shown in various components of P & L a/c:

1) Wages 2) Salaries to office staff


3) Depreciation on office car 4) Neon sign advertisement
5) Power & fuel 6) Repairs to machinery
7) Maintenance of office building 8) Purchase returns or return outwards
9) Closing stock of WIP 10) Opening stock of finished goods
11) Interest received 12) Commission paid
13) Telephone 14) Travel & conveyance
15) Insurance 16) Audit fees
17) Carriage inward 18) Freight outward
19) Bad debts 20) Provision for outstanding rent
21) Return inwards or sales returns 22) Discount earned
23) Depreciation on delivery van 24) Printing and stationery
25) Sales

ACCOUNTING A 105
Final Accounts

Item Treatment Where


Wages Manufacturing a/c Dr
Salaries to office staff P & L a/c Dr
Depreciation on office car P & L a/c Dr
Power & fuel Manufacturing a/c Dr
Repairs to machinery Manufacturing a/c Dr
Maintenance of office building P & L a/c Dr
Purchase returns or Trading a/c Dr less from purchases
return outwards
Closing stock of WIP Manufacturing a/c Cr
Opening stock of finished goods Trading a/c Dr
Interest received P & L a/c Cr
Commission paid P & L a/c Dr
Telephone P & L a/c Dr
Travel & conveyance P & L a/c Dr
Insurance P & L a/c Dr
Audit fees P & L a/c Dr
Carriage inward Manufacturing a/c Dr
Freight outward P & L a/c Dr
Bad debts P & L a/c Dr
Provision for outstanding rent P & L a/c Dr
Return inwards or sales returns Trading a/c Cr less from sales
Discount earned P & L a/c Cr
Depreciation on delivery van P & L a/c Dr
Printing and stationery P & L a/c Dr
Sales Trading a/c Cr

4.2 Balance Sheet


In a horizontal format, typical balance sheet has two sides viz. Assets and Liabilities. The term
Liability here is used broadly to include owners’ capital and equity. Let us see the meaning of
various items included therein. In vertical format also they are shown as one under the other.
Liabilities
In accounting nomenclature, all credit balances in personal accounts are called as liabilities.
These are obligations of business or sources of funds.
1) Capital: This indicates the initial amount the owner or owners of the business contrib-
uted. This contribution could be at the time of starting business or even at a later stage to
satisfy requirements of funds for expansion, diversification etc. As per business entity
concept, owners and business are distinct entities, and thus, any contribution by owners
by way of capital is liability of the business. However, as this obligation is towards the
owners, it is reflected separately in the balance sheet. In case of company organization, the
capital is shown as “share capital”.

A 106 ACCOUNTING
2) Reserves and Surplus: The business is a going concern and will keep making profit or loss
year by year. The accumulation of these profit or loss figures (called as surpluses) will keep
on increasing or decreasing owners’ equity. In case of non-corporate forms of business, the
profits or losses are added to the capital a/c and not shown separately in the balance sheet.
However, in case of corporate entities, the accumulated profits or losses are not added to
‘share capital’, but shown as a separate item in balance sheet. Reserves reflect profits kept
aside for future exigencies. In case non-corporate as well as corporate entities, the reserves
are to be shown as separate item in balance sheet.
3) Long Term Liabilities: These are obligations which are to be settled over a longer period of
time say 5-10 years. These funds are raised by way of loans from banks and financial insti-
tutions. Such borrowed funds are to be repaid in installments during the tenure of the loan
as agreed. Such funds are usually raised to meet financial requirements to procure fixed
assets. These funds should not be generally used for day-to-day business activities. Such
loan are normally given on the basis of some security from the business e.g. against a charge
on the fixed assets. So, long term loan are called as “Secured Loan” also.
4) Short Term or Current Liabilities: These are obligations that are to be settled within very
short period of time which is normally within the year. These are used in running day-to-
day running of business activities. Current liabilities comprise of:
a) Sundry Creditors - Amounts payable to suppliers against purchase of goods. This is
usually settled within 30- 180 days.
b) Advances from customers – At times customer may pay advance i.e. before they get
delivery of goods. Till the business supplies goods to them, it has an obligation to pay
back the advance in case of failure to supply. Hence, such advances are treated as liabil-
ity till the time they get converted to sales.
c) Outstanding Expenses: These represent services procured but not paid for. These are
usually settled within 30 – 60 days e.g. phone bill of Sept is normally paid in Oct.
d) Bills payable: There are times when suppliers do not give clean credit. They supply
goods against a promissory note to be signed as a promise to pay after or on a particular
date. These are called as bills payable or notes payable.
e) Bank overdrafts: Banks may give fund facilities like overdraft whereby, business is
permitted to issue cheques up to a certain limit. The bank will honour these cheques
and will recover this money from business. This is a short term obligation.
Assets
In accounting language, all debit balances in personal and real accounts are called as assets.
Assets are broadly classified into fixed assets and current assets.
1) Fixed Assets: These represent the facilities or resources owned by the business for a longer
period of time. The basic purpose of these resources is not to buy and sell them, but to use
for future earnings. The benefit from use of these assets is spread over a very long period.
The fixed assets could be in tangible form such as buildings, machinery, vehicles, comput-
ers etc, whereas some could be in intangible form viz. patents, trademarks, goodwill etc.

ACCOUNTING A 107
Final Accounts

The fixed assets are subject to wear and tear which is called as depreciation. In the balance
sheet, fixed assets are always shown as “original cost less depreciation”.
2) Investments: These are funds invested outside the business on a temporary basis. At times,
when the business has surplus funds, and they are not immediately required for business
purpose, it is prudent to invest it outside business e.g. in mutual funds or fixed deposit. The
purpose if to earn a reasonable return on this money instead of keeping them idle. These
are assets shown separately in balance sheet.
3) Current Assets: These are assets held for running day-to-day business activities. They
don’t remain in the same form. Typically, material stock when used in production gets
converted to finished goods, which when sold either becomes cash or receivable. This cycle
continues for relatively short period of time i.e. a year. Current assets comprise of:
a) Stocks: This includes stock of raw material, semi-finished goods or WIP, and finished
goods. Stocks are shown at lesser of the cost or market price. Provision for obsoles-
cence, if any, is also reduced. Generally, stocks are physically counted and compared
with book stocks to ensure that there are no discrepancies. In case of discrepancies, the
same are adjusted to P & L a/c and stock figures are shown as net of this adjustment.
b) Debtors: They represent customer balances which are not paid. The bad debts or a
provision for bad debt is reduced from debtors and net figure is shown in balance sheet.
c) Bills receivables: Credit to customers may be given based on a bill to be signed by
them payable to the business at an agreed date in future. At the end of accounting
period, the bills accepted but not yet paid are shown as bills receivables.
d) Cash in Hand: This represents cash actually held by the business on the balance sheet
date. This cash may be held at various offices, locations or sites from where the busi-
ness activity is carried out. Cash at all locations is physically counted and verified with
the book balance. Discrepancies if any are adjusted.
e) Cash at Bank: Dealing through banks is quite common. Funds held as balances with
bank are also treated as current asset, as it is to be applied for paying to suppliers. The
balance at bank as per books of accounts is always reconciled with the balance as per
bank statement, the reasons for differences are identified and required entries are passed.
f) Prepaid Expenses: They represent payments made against which services are expected
to be received in a very short period.
g) Advances to suppliers: When amounts are paid to suppliers in advance and goods or
services are not received till the balance sheet date, they are to be shown as current
assets. This is because advances paid are like right to claim the business gets.
Please note that both current assets and current liabilities are used in day-to-day business
activities. The current assets minus current liabilities are called as working capital or net current
assets. The following report is usual horizontal form of balance sheet. Please note that the
assets are normally shown in descending order of their liquidity. Also, capital, long term
liabilities and short term liabilities are shown in that order.

A 108 ACCOUNTING
The Balance Sheet as on ———————

Capital & Liabilities Amount Assets Amount


Capital
Fixed Assets
(separate figures are shown
for each owner) Land less depreciation
Building less depreciation
Long term Liabilities Plant and Machinery
less depreciation
Loans from banks or
financial institutions Vehicles less depreciation
Computer systems
less depreciation
Current Liabilities Office equipments
less depreciation
Sundry creditors
Bills payable Current Assets
Advances from customers Stocks
Outstanding expenses Sundry debtors
less provisions
Bills receivables
Cash in hand
Cash at bank
Prepaid expenses
Advances to suppliers
Total Total

Illustration 2
Indicate where the following items will be shown in the balance sheet.
1) Credit balance in the bank column of the cash book
2) Debit balance to the account of A who is a customer
3) Credit balance in a/c of B who is supplier
4) Debit balance in a/c of C who is a supplier

ACCOUNTING A 109
Final Accounts

5) Credit balance in a/c of D who is a customer


6) Outstanding rent
7) Insurance paid for the next year
8) Loan from HDFC bank for 7 years
9) Interest due on loan
10) Provision for doubtful debtors
11) Net profit for the year
12) Machinery
13) Accumulated depreciation on vehicle
14) Cash at Bangalore office
15) Balance with Citi Bank

Answer:
1) Credit balance in the bank column of cash book indicates a liability towards bank. This
is actually a bank overdraft. Hence, it should be shown as current liability.
2) Debit balance in A’s a/c mean amount due from him as a customer. To be shown as
sundry debtors.
3) Credit balance in supplier’s a/c is a liability, hence will be shown under current liabili-
ties.
4) Debit balance in supplier’s a/c reflects an advance given to supplier, hence will be
shown under current asset.
5) Credit balance in customer’s a/c means advance from customer, hence will be shown
as current liability.
6) Outstanding rent will be shown under current liability.
7) Insurance paid for next year is ‘prepaid’ for current year, hence will be taken as current
Asset
8) Loan from HDFC is for 7 years which is a long term loan, hence will be shown as long
term liability.
9) Interest due on loan is current liability.
10) Provision for doubtful debts will be reduced from the sundry debtor’s amount under
current assets as it denotes chances of not receiving the money from customers.
11) Net profit for the year will be added to the owners’ capital in balance sheet.
12) Machinery is a fixed asset.
13) Accumulated depreciation on vehicle is reduction in its value, so will be shown as de-
duction from vehicle under fixed assets.

A 110 ACCOUNTING
14) Cash at Bangalore office is a current asset.
15) Balance with Citi bank is current asset.
Mixed bag illustrations
Q 1: Complex Corporation operates in an industry that has a high rate of bad debts. On 31st
March 2005, the Accounts Receivables showed a balance of Rs 750000 before any year end
adjustment and the balance in the Reserve of doubtful debts was Rs. 37500. The year end bal-
ance in the reserve for doubtful debts a/c will be based on the following ageing schedule.

Days outstanding Amount Rs. Probability of collection


Less than 16 450000 0.99
16 – 30 150000 0.94
31 – 45 75000 0.80
46 – 60 45000 0.65
61 – 75 15000 0.50
Over 75 15000 0.00

Find out the appropriate balance in the Reserve for doubtful debts account as on 31st March
2005. Show how Debtors balance be shown in the balance sheet. Calculate the effect of year end
adjustment on account of reserve for doubtful debts.
Answer 1:
We need to work out the provision for doubtful debts based on the collection probability given
e.g. in the first ageing band, the probability of collection is given as 0.99 which means 1% of the
outstanding amount in this band is unlikely to be collected, so a provision of 1% will be needed.
The total provision required based on the ageing is shown in the following table.

Days Amount Probability Provision Provision


outstanding Rs. of collection required Amount Rs
Less than 16 450000 0.99 1% 4500
16 – 30 150000 0.94 6% 9000
31 – 45 75000 0.80 20% 15000
46 – 60 45000 0.65 35% 15750
61 – 75 15000 0.50 50% 7500
Over 75 15000 0.00 100% 15000
Total 750000 66750

ACCOUNTING A 111
Final Accounts

It will be seen that the existing provision in the books stands at Rs 37500, as against the re-
quired provision of Rs 66750. This means additional provision of Rs 29250 will be required to
be made as year end adjustment for the year ended 31-03-2005. The answer will be:
a) Appropriate balance in Reserve for doubtful debts a/c as on 31-03-2005 is Rs 66750.
b) Debtors amount will be shown in the balance sheet as under

Outstanding debtors 750000


Less: Reserve for doubtful debts 37500
Additional provision required 29250 66750

Net Debtors 683250

c) The effect of this additional provision of Rs 29250 will reduce the profit for the year by
the same amount
Q 2 A property dealer owned many properties which it had acquired by taking bank loans.
There were separate loan agreements for different properties. In some cases, interest was paid
in advance and in other cases it was payable in arrears. These properties were let out to differ-
ent tenants on various agreements. Some agreements provided for rentals in advance while the
others provided for rent payable in arrears. The dealer has given the following balances:

31-03-2005 31-03-2006
Interest payable 12000 14500
Interest prepaid 8000 6400
Rentals due from tenants 15000 19000
Rentals received in advance 3000 2500

During the year 2005-06, the amount of interest payable transferred to P & L a/c was Rs 56000
and cash collected from tenants for rentals was Rs 116000.
You are required to prepare Interest Payable a/c and Rental Income a/c for the year ended
2005-06

Answer 2: Please note although 4 different figures are given, we are asked to prepare only two
accounts. This means the opening as well as closing balances will have to be written in these 2
accounts only. Thus, we should find out what these 4 figures represent. This is shown in fol-
lowing table:
31-03-2005 31-03-2006
Opening Closing
Interest payable Liability Liability
Interest prepaid Asset Asset
Rentals due from tenants Asset Asset
Rentals received in advance Liability Liability

A 112 ACCOUNTING
Please be careful to notice how the opening and closing balances are shown. Now, students
should be able to interpret the balancing figures in these accounts.

Dr Interest payable Cr
J. Amount J. Amount
Date Particulars F. Rs Date Particulars F. Rs
To Balance By balance b/d
(prepaid) 8000 (due) 12000
To Cash paid
(balancing figure) 51900 By P & L /ac 56000
By balance b/d
To Balance (due) 14500 (prepaid) 6400
74400 74400
To Balance By balance b/d
(prepaid) 6400 (due) 14500

Dr Rentals Income Cr
J. Amount J. Amount
Date Particulars F. Rs Date Particulars F. Rs
To Balance By balance b/d
(receivable) 15000 (advance) 3000
To P & L a/c 120500 By cash received 116000
(balancing figure)
To Balance By Balance
(advance) 2500 (receivable) 19000
138000 138000
To Balance By balance b/d
(receivable) 19000 (advance) 2500

The balancing figure in Interest payable a/c will reflect interest actually paid during the year,
whereas the balancing figure in Rentals Income is the income taken to P & L a/c for the year.
Q3 The book-keeper of a supermarket prepared a schedule of balances of individual sup-
pliers’ accounts in the creditors’ ledger as on 31st March 2005 and arrives at the total of Rs
6,923,062.40. The accountant was in charge of general ledger. He maintained the Sundry Credi-
tors’ Account in the general ledger which is given below:

ACCOUNTING A 113
Final Accounts

Dr Sundry Creditors Control a/c Cr


Date Particulars Amount Rs Date Particulars Amount Rs
Purchase
30-Apr-05 returns 44,814.40 1-Apr-05 By balance b/d 7,141,690.40

30-Apr-05 Bank 7,705,016.00 30-Apr-05 Purchases 8,038,679.20

30-Apr-05 To balance c/d 6,775,064.80 30-Apr-05 Discount received 212,545.60


Debtors control a/c
- 30-Apr-05 (contra) 243,980.00

15,404,895.20 15,620,895.20

Subsequently, on investigation, the accountant discovered several mistakes in the control a/c
as well as individual creditors’ a/cs as given below:
1) One supplier was paid Rs 817.60 out of petty cash. This was correctly recorded to his
personal a/c, but was omitted to be posted to control a/c
2) Credit side of a supplier’s a/c was under-cast by Rs 2400
3) A supplier’s credit balance of Rs 43,851.20 was by mistake taken as Rs 46,752.80 while
preparing the schedule of balances of all suppliers a/cs.
4) There was an omission of a supplier credit balance of Rs 53,945.60 from the schedule.
5) Discounts received of Rs 1004.80 and Rs 650.40 were posted to wrong side of suppliers’
a/cs.
6) Goods of Rs 316.80 were returned to a supplier not entered in purchase return book.
7) Debtors control contra represents the sale of goods to suppliers.
Prepare a statement rectifying the errors and prepare the control a/c.
Answer:
First of all, there’s a totaling error in the control a/c Total of debit side should be Rs
14,524,895.20 and credit side is Rs 15,636,895.20. This needs to be corrected. There is a
difference of Rs 1,112,000 due to this. The revised credit balance should be Rs 7,887,064.80
instead of Rs 6,775,064.80 as shown in the control a/c.
In addition, the errors that have affected the control a/c should be corrected. These are:
a) Discounts received will reduce the balance due to creditors, hence should appear on
the debit side in control a/c. Here, it appears on credit side. We must show double the
amount on credit side to rectify this error.

A 114 ACCOUNTING
b) Payment to a supplier of Rs 817.60 were omitted hence, it must be written on debit side
of control a/c
c) Purchase return of Rs 316.80 omitted should be recorded.
The other errors will affect only individual a/cs and not control a/c. The revised control
a/c is shown below:

Dr Sundry Creditors Control a/c Cr


Date Particulars Amount Rs Date Particulars Amount Rs

30-Apr-05 Purchase returns 44,814.40 1-Apr-05 By balance b/d 7,141,690.40

30-Apr-05 Bank 7,705,016.00 30-Apr-05 Purchases 8,038,679.20


Discount received Discount
30-Apr-05 (rectified) 425,091.20 30-Apr-05 received 212,545.60
Debtors control
a/c ( contra) Debtors control
30-Apr-05 rectified 487,960.00 30-Apr-05 a/c ( contra) 243,980.00
Purchase returns
(omission
30-Apr-05 rectified) 316.80
Bank (payment
30-Apr-05 recorded) 817.60

30-Apr-05 To balance c/d 6,972,879.20

15,636,895.20 15,636,895.20

The effect on individual accounts will be as follows: Amount Rs


Total of the schedule as given 6,923,062.40
Add: under-casting of credit side 2,400.00
Add: omission of a supplier in schedule 53,945.60
Less: Wrong amount taken (43,851.20 – 46,752.80) (2,901.60)
Less: Discounts received recorded on wrong side rectified (3,310.40)
(1004.80)*2 & (650.4)*2
Less: purchase return omitted, now rectified (316.80)

Revised balance in individual a/cs tallied with control a/c 6,972,879.20


Q4 The accountant of Modern Manufacturing Company has given the following details
from its ledger for the year ended 31st March 2005

ACCOUNTING A 115
Final Accounts

Item Amount (Rs)


Advertising 160000
Depreciation on factory equipment 560000
Depreciation on office equipment 320000
Direct wages 3200000
Raw material purchases 16160000
Opening stock – Raw material 640000
Opening stock WIP 960000
Opening stock Finished goods 1920000
Sales 40992000
Stores and consumables 400000
Factory insurance 80000
Heating 1200000
Power 1600000
Salaries of factory staff 2000000
Electricity of office 1200000
General expenses 720000
Postage & telephone 232000
Office salaries 5600000

The closing stock as on 31st March 2005 was valued as – raw material Rs 800000, WIP Rs 720000
and finished goods Rs 2400000. It was revealed that an advertising bill of Rs 80000 was due but
not paid and Rs 120000 was paid for electricity charges in advance. These were not entered in
books of a/c

Prepare the Manufacturing, Trading and P & L a/c clearly showing factory cost of production,
gross profit and net profit.
Answer:

A 116 ACCOUNTING
In the books of Modern Manufacturing Company
Manufacturing Account for the year ended 31st March 2005
Amount Amount
Particulars Rs. Particulars Rs.
Opening stock Closing stock

Raw material 640,000 Raw material 800,000

Work in process 960,000 Work in process 720,000

Purchases of raw material 16,160,000

Factory Insurance 80,000

Power 1,200,000 Cost of Production 25,280,000


(transferred to Trading
Heating 1,600,000 a/c)

Stores & spares consumed 400,000

Wages 3,200,000

Salary of factory staff 2,000,000


Depreciation on factory
equipment 560,000

Total 26,800,000 Total 26,800,000


Trading Account for the year ended 31st March 2005
Amount Amount
Particulars Rs. Particulars Rs.

Opening stock Sales 40,992,000

Finished goods 1,920,000 less sales returns

Cost of production Closing stock


(transferred from
manufacturing a/c) 25,280,000 Finished goods 2,400,000

Gross Profit 16,192,000


(transferred to P & L a/c)

Total 43,392,000 Total 43,392,000

ACCOUNTING A 117
Final Accounts

Profit and Loss Account for the year ended 31 st March 2005
Amount Amount
Particulars Rs. Particulars Rs.
Administrative expenses Gross Profit
(transferred from
Office salaries 5,600,000 Trading a/c) 16,192,000
Postage & Telephone 232,000
Electricity (1200000 - 120000) 1,080,000
Depreciation of office
equipment 320,000
General expenses 720,000
Selling & Distribution
expenses

Advertising (160000 + 80000) 240,000


Net profit 8,000,000
Total 16,192,000 Total 16,192,000
Q5 Following is the trial Balance of M/s Brijesh and Sons. Prepare final accounts for the
year ended on 31st March 2006.
Particulars Debit Rs Credit Rs
Stock as on 01-04-2005 200000
Purchases and sales 2200000 3500000
Bills receivables 50000
Returns 100000 50000
Carriage Inwards 50000
Debtors and creditors 200000 400000
Carriage Outwards 40000
Discounts 5000 5000
Salaries and wages 220000
Insurance 60000
Rent 60000
Wages and salaries 80000
Bad debts 10000
Furniture 400000
Brijesh’s capital 500000
Brijesh’s drawing 70000
Loose tools 100000
Printing & stationery 30000
Advertising 50000
Cash in hand 45000
Cash at bank 200000
Petty Cash 5000
Machinery 300000
Commission 10000 30000
Total 4485000 4485000

A 118 ACCOUNTING
Adjustments: (1) Stock on 31st March was valued at Cost price Rs 420000 and market price Rs
400000. (2) Depreciate furniture @ 10% pa and machinery @ 20% pa on reducing balance method.
(3) Rent of Rs 5000 was paid in advance. (4) Salaries & wages due but not paid Rs 30000. (5)
make a provision for doubtful debts @ 5% on debtors. (6) Commission receivable Rs 5000

Answer:
Trading Account for the year ended 31st March 2006
Amount Amount Amount Amount
Particulars (Rs.) Rs. Particulars (Rs.) Rs.

Opening stock Sales 3,500,000

Finished goods 200,000 less sales returns 100,000 3,400,000

Purchases 2,200,000

Less purchases returns 50,000 2,150,000 Closing stock

Carriage inwards 50,000 Finished goods 400,000

Wages & salaries 80,000

Gross Profit c/d 1,320,000

Total 3,800,000 Total 3,800,000

ACCOUNTING A 119
Final Accounts

Profit & Loss Account for the Year Ended 31st March 2006
Amount Amount Amount Amount
Particulars Rs. Rs. Particulars Rs. Rs.
Administrative
expenses Gross Profit b/d 1,320,000

Salaries & wages 220,000 Discount received 5,000

Add unpaid 30,000 250,000 Commission received 30,000


Depreciation on
furniture 40,000 Add receivable 5,000 35,000
Depreciation of
Machinery 60,000

Insurance 60,000

Rent 60,000

Less paid in advance 5,000 55,000

Printing & Stationery 30,000


Selling & Distribution
expenses

Advertising 50,000

Carriage Outwards 40,000

Discounts 5,000

Bad debts 10,000

Commission 10,000
Provision for doubtful
debts 10,000

Net profit 740,000

Total 1,360,000 Total 1,360,000

A 120 ACCOUNTING
The Balance Sheet as on 31st March 2006
Amount Amount Amount Amount
Capital & Liabilities Rs. Rs. Assets Rs. Rs.

Brijesh's Capital 500,000 Fixed Assets

Less drawings 70,000 Furniture 400,000


Add Net Profit for the
year 740,000 1,170,000 Less depreciation 40,000 360,000
Long term Liabilities Machinery 300,000

Less depreciation 60,000 240,000

Loose tools 100,000


Current Liabilities Office equipments

Sundry creditors 400,000


Outstanding salaries &
wages 30,000 Current Assets

Stocks 400,000
Sundry debtors 200,000
Less provision for
doubtful debts 10,000 190,000

Bills receivables 50,000

Cash in hand 45,000

Cash at bank 200,000

Petty cash 5,000

Prepaid Rent 5,000

Commission receivable 5,000

Total 1,600,000 Total 1,600,000

ACCOUNTING A 121
Final Accounts

Notes:
1) Closing stock is valued at market price here as it is less than cost price (conservatism concept)
2) Returns in debit column mean sales return, while that in credit column means purchase returns
3) Discounts in debit column mean allowed (expense) and that in credit means received (income)
4) Commission in debit column mean allowed (expense) and that in credit means received (in-
come)
5) There are two peculiar items given in the TB. One is Salaries & wages and the other is Wages
and salaries. The interpretation is – where first reference is made to wages, it’s assumed to be
directly for goods and taken to trading a/c. If the first reference is to salaries, it’s assumed to be
related to office and taken to P & L.

Q6 Mr. Arvindkumar had a small business enterprise. He has given the trial balance as on 31st
March 2006 as below.

Particulars Debit Rs Credit Rs.


Mr. Arvinkumar’s capital 100000
Machinery 36000
Depreciation on machinery 4000
Repairs to machinery 5200
Wages 54000
Salaries 21000
Income tax of Mr. 1000
Arvindkumar
Cash in had 4000
Land & Building 149000
Depreciation on building 5000
Purchases 250000
Purchase returns 3000
Sales 498000
Citi Bank 7600
Accrued Income 3000
Salaries outstanding 4000
Bills receivables 30000
Provision for doubtful debts 10000
Bills payable 16000
Bad debts 2000
Discount on purchases 7080
Debtors 70000
Creditors 62520
Opening stock 74000
Total 708200 708200

A 122 ACCOUNTING
Additional information:

1) Stock as on 31st March 2006 was valued at Rs 60000


2) Write off further Rs 6000 as bad debt and maintain a provision of 5% on doubtful debt.
3) Goods costing Rs 10000 were sent on approval basis to a customer for Rs 12000 on 30th
March 2006. This was recorded as actual sales.
4) Rs 2400 paid as rent for office was debited to Landlord’s a/c and was included in debt-
ors.
5) General Manager is to be given commission at 10% of net profits after charging his
commission.
6) Works manager is to be given a commission at 12% of net profit before charging Gen-
eral Manager’s commission and his own.

You are required to prepare final accounts in the books of Mr. Arvindkumar.

Answer :

In the books of Mr. Arvindkumar


Trading Account for the year ended 31st March 2006
Amount Amount Amount Amount
Particulars Rs. Rs. Particulars Rs. Rs.

Opening stock Sales 498,000


less sent on
Finished goods 74,000 approval (12,000) 486,000

Purchases 250,000
Less purchases
returns (3,000) 247,000 Closing stock

Carriage inwards Finished goods 60,000


Add sent on
Wages 54,000 approval 10,000 70,000

Gross Profit c/d 181,000

Total 556,000 Total 556,000

ACCOUNTING A 123
Final Accounts

Profit and Loss Account for the year ended 31st March 2006
Amount Amount
Particulars Rs. Particulars Rs.

Administrative expenses Gross Profit b/d 181,000

Salaries 21,000 Discount received 7,080

Repairs to machinery 5,200


Depreciation of
Machinery 4,000

Depreciation of Building 5,000

Rent 2,400
Selling & Distribution
expenses

Bad debts 2,000

Additional bad debts 6,000


Provision for doubtful
debts 2,480

Less Provision opening (10,000) 480


Commission to works
manager 18,000
Commission to General
Manager 12,000

Net profit 120,000

Total 188,080 Total 188,080

A 124 ACCOUNTING
The Balance Sheet as on 31st March 2006
Amount Amount Amount Amount
Capital & Liabilities Rs . Rs Assets Rs . Rs

Arvind kumar’s Capital 100,000 Fixed Assets


Less drawings (income
tax) (1,000) Land & building 149,000
Add Net Profit for the
year 120,000 219,000 Machinery 36,000
Long term Liabilities Current Assets

Current Liabilities Stocks 60,000

Sundry creditors 62,520 Add sent on approval 10,000 70,000

Outstanding salaries 4,000 Sundry debtors 70,000


Less goods on
approval (12,000)

Citi Bank Overdraft 7,600 Less Bad debts (6,000)


Less related to
Bills payable 16,000 landlord (2,400)
Less provision for
Commission payable 30,000 doubtful debts (2,480) 47,120

Bills receivables 30,000

Cash in hand 4,000

Accrued Income 3,000

Total 339,120 Total 339,120

ACCOUNTING A 125
Final Accounts

Notes:
1) The closing entries are passed for the items: depreciation, accrued income, outstanding salary.
Hence, they are directly taken to the respective places in Balance sheet and P & L a/c.
2) Income tax paid for Mr. Arvindkumar will be treated as drawings.
3) Commission payable to works manager & general manager is computed as below:
Profit before charging any commission 150,000
Commission to works manager @ 12% on 150000 18,000
Profit after works manager’s commission 132,000
Commission to General Manager 12,000
(132000/110 x 100)
Q7 Jamnadas provides you with the following T. B. as on 31st March 2005.
Particulars Debit Rs Credit Rs
Stock as on 1st April 04 35000
Depreciation 5000
Accumulated depreciation 40000
Fixed asset 50000
Loss on sale of fixed asset 8000
Investments 125000
Profit on sale of investments 80000
Sales at 20% gross margin 800000
Purchases 750000
Customers’ accounts 100000 20000
Creditors’ accounts 5000 60000
Expenses 42000
Discount 18000 12000
Commission 50000 80000
Amounts due to principals 8000
Amounts due from dealers 75000
Deposits with Principals 100000
Deposits from Dealers 150000
Cash 7000
Income on investments 5000
Interest on deposits with Principals 12000
Interest on deposits from dealers 18000
Prepaid/outstanding expenses
As on 31st March 2004 7000 13000
As on 31st March 2005 9000 6000
Fixed deposits with bank 200000
Interest on fixed deposits with bank 20000
Drawings/Capital 60000 300000
Banks 58000
Total 1664000 1664000

A 126 ACCOUNTING
The cost of fixed assets sold is Rs 30000, accumulated depreciation being Rs 9000.

Prepare the financial statements. Also, separately show Accumulated depreciation a/c, and
expenses a/c.

Answer:
Answer:
Dr Accumulated depreciation a/c Cr
Amount Amount
Date Particulars Rs Date Particulars Rs
31-Mar-05 To Asset (sold) 9000 1-Apr-04 By balance b/d 44000
(balancing figure)
By P & L
31-Mar-05 (depreciation) 5000
31-Mar-05 To Balance c/d 40000
49000 49000
By balance b/d 40000

Dr Expenses a/c Cr
Amount Amount
Date Particulars Rs Date Particulars Rs
To Balance
1-Apr-04 (prepaid) 7000 1-Apr-04 By balance b/d (due) 13000
To Cash paid
(balancing By P & L /ac (42000-
31-Mar-05 figure) 45000 31-Mar-05 13000+7000) 36000
To Balance By balance b/d
31-Mar-05 (due) 6000 31-Mar-05 (prepaid) 9000
58000 58000
To Balance
(prepaid) 9000 By balance b/d (due) 6000

Trading Account for the year ended 31st March 2005


Amount Amount
Particulars Rs. Particulars Rs.
Opening stock Sales 800,000
Finished goods 35,000 -
Purchases 750,000
- Closing stock
Finished goods 145,000

Gross Profit c/d 160,000


Total 945,000 Total 945,000

ACCOUNTING A 127
Final Accounts

Profit and Loss Account for the year ended 31st March 2005
Amount Amount
Particulars Rs. Particulars Rs.
Administrative expenses Gross Profit b/d 160,000
Expenses 36,000 Profit on sale of investment 80,000
Depreciation 5,000 Discount received 12,000
Loss on sale of fixed asset 8,000 Commission received 80,000
Discount allowed 18,000 Income from investments 5,000
Interest deposits -
Commission given 50,000 principals 12,000
Interest on deposits to dealers 18,000 Interest bank deposits 20,000

Net profit 234,000


Total 369,000 Total 369,000

Sales 800,000
Gross margin on sales @ 20% 160,000
Cost of goods sold 640,000
Goods available for sale 785,000this is op stock 35000 + purchases 750000
Hence, closing stock should be 145,000(785000- 640000)

Now, the balance sheet is given below.

A 128 ACCOUNTING
The Balance Sheet as on 31st March 2005

Amount Amount Amount Amount


Capital & Liabilities Rs. Rs. Assets Rs. Rs.

Jamnadas's Capital 300,000 Fixed Assets 80,000


Less drawings less acc Dep for
(income tax) (60,000) sold (30,000)
Add Net Profit for the
year 234,000 474,000 Balance of assets 50,000
Depreciation
opening 44,000
less acc Dep for
Long term Liabilities sold (9,000)

Current Liabilities Add for the year 5,000

Sundry creditors 60,000 Net acc Dep 40,000


Advance from
Customers 20,000 Net fixed Asset 10,000

Dues to Principals 8,000

Bank overdraft 58,000 Investments 125,000

Outstanding expenses 6,000

Deposits from dealers 150,000 Current Assets

Stocks 145,000

Sundry debtors 100,000


Deposits with
Principals 100,000

Cash in hand 7,000


Fixed deposit with
Bank 200,000

Dues from dealers 75,000


Advance to
suppliers 5,000

Prepaid expenses 9,000

Total 776,000 Total 776,000

ACCOUNTING A 129
Final Accounts

Please carefully interpret the balances given. Customer balances are in debit as well as credit column.
While debit indicates Debtor and credit means advances received from customers. Same logic will apply
to suppliers, commission, discounts. Computation of closing stock was very important in this case.

Q8 Abhay runs a small shop and deals in various goods. He has not been able to tally his
trial balance and has closed it by taking the difference to suspense a/c. It is given below.

Particulars (as on 31st March 2005) Debit Rs Credit Rs


Abhay’s capital 150000
Drawings 75000
Fixed assets 135000
Opening stock 36500
Purchases & returns 675000 13500
Sales & returns 34000 850000
Due from customer & to creditors 95000 325000
Expenses 45750
Cash 3000
Bank deposits & interest earned 55000 5750
Suspense a/c 4000
Advertising 200000
Total 1351250 1351250

Mr. Abhay has requested you to help him in tallying his trial balance and also prepare his final
accounts. On investigation of his books you get the following information:

1) Closing Stock on 31st March 2005 was 45000 at cost and could sell over this value.
2) Depreciation of Rs 13500 needs to be provided for the year.
3) A withdrawal slip indicated a cash withdrawal of Rs 15000 which was charged as draw-
ing. However, it was noticed that Rs 11000 was used for business purpose only and was
entered as expenses in cash book.
4) Goods worth Rs 19000 were purchased on 24th March 2005 and sold on 29th March 2005
for Rs 23750. Sales were recorded correctly, but purchase invoice was missed out.
5) Purchase returns of Rs 1500 were routed through sales return. Party’s a/c was correctly
posted.
6) Expenses include Rs 3750 related to the period after 31st March 2005.
7) Purchase book was over-cast by Rs 1000. Posting to suppliers’ a/c is correct.
8) Advertising will be useful for generating revenue for 5 years.

A 130 ACCOUNTING
Answer: Rectification of errors:

a) Cash withdrawn was recorded as


Cash a/c Dr 15000
To Bank 15000

But it was charged to drawing and Rs 11000 was recorded as expenses as well i.e.
Drawings a/c Dr 15000
Expenses a/c Dr 11000
To Cash 26000

This resulted in negative cash of Rs 11000. The rectification entry to be passed is

Cash a/c Dr 11000


To Drawings 11000

b) Omitted transaction to be recorded


Purchases a/c Dr 19000
To Suppliers’ a/c 19000

c) Incorrect recording of purchase returns corrected by


Suspense a/c Dr 3000
To Purchase return a/c 1500
To sales return a/c 1500

d) Incorrect expenses rectified by


Prepaid expenses a/c Dr 3750
To Expenses a/c 3750

e) Over-casting of purchase book rectified by


Suspense a/c Dr 1000
To Purchases 1000

ACCOUNTING A 131
Final Accounts

Based on these rectifications we can now proceed to complete the final accounts.
Trading Account for the year ended 31st March 2005

Amount Amount Amount Amount


Particulars Rs. Rs. Particulars Rs. Rs.

Opening stock 36,500 Sales 850,000

Purchases 675,000 Less Returns (34,000)

Less returns (13,500) Add rectification 1,500 817,500


Less additional
returns (1,500) Closing stock
Add purchases
missed out 19,000 Finished goods 45,000
Less over-casting
rectified (1,000) 678,000

Gross Profit c/d 148,000

Total 862,500 Total 862,500


Profit and Loss Account for the year ended 31st March 2005
Amount Amount Amount Amount
Particulars Rs. Rs. Particulars Rs. Rs.

Expenses 45,750 Gross Profit b/d 148,000


Interest bank
Less prepaid (3,750) 42,000 deposits 5,750

Depreciation 13,500

Advertising 200,000
Less Deferred over 5
years (160,000) 40,000

Net profit 58,250

Total 153,750 Total 153,750

A 132 ACCOUNTING
The Balance Sheet as on 31st March 2005

Amount Amount Amount Amount


Capital & Liabilities Rs. Rs. Assets Rs. Rs.

Abhay's Capital 150,000 Fixed Assets 135,000

Less drawings (75,000) less Depreciation (13,500) 121,500


Add wrong charge to
drawing 11,000 Current Assets
Add Net Profit for
the year 58,250 144,250 Stocks 45,000

Sundry debtors 95,000

Current Liabilities Cash in hand (3,000)

Sundry creditors 325,000 Add Rectification 11,000 8,000


Add missed out Fixed deposit with
purchases 19,000 344,000 Bank 55,000

Prepaid expenses 3,750


Deferred revenue
expenditure 160,000

Total 488,250 Total 488,250

ACCOUNTING A 133
Final Accounts

Q 9: Apte and Sapte are partners sharing profits and losses equally. From the following trial
balance of their firm and adjustments prepare Trading and Profit and Loss A/C for the year
ended 31st March 2004and Balance Sheet on that date.

Trial Balance as on 31st March 2004

Dr. Cr.
Particulars Amount Particulars Amount
Opening stock 45000 Capital A/Cs
Purchases 160200 Apte 50000
Sales Returns 1000 Sapte 50000
Debtors 40000 Sales 223800
Wages 8000 Purchase Returns 4200
Royalties 4000 Commission 12000
Furniture 25000 Provident Fund 60000
Reserve for
Machinery 85000 doubtful debts 2100
Advertisement for 4
years 8000 Creditors 40000
Salaries 24000
Provident Fund
contribution 6000
Provident Fund
investment 12000
Insurance 2400
Cash 13000
Depreciation on
Machinery 8500
442100 442100

Adjustments: 1) The cost price of the closing stock was Rs.80000 while its market price was
Rs.85000. 2) Goods of Rs.8000 were sold on 30th March 2004 but no entry thereof has been made
in the sale books. 3) During the year goods worth Rs.4000 withdrawn by Sapte for his personal
use. 4) Depreciate Furniture by 15%. 5) Write off Rs. 1600 as Bad Debts and maintain Reserve
for Doubtful Debts at 5% on Sundry Debtors, provide discount on debtors at 3% and discount
on creditors at 2%. 6) Prepaid insurance Rs.600 and salaries include Rs.4500 paid as advance
against salary. 7) Provide interest on capital at 12% pa and interest on drawing is to be 12% pa
for six months.

A 134 ACCOUNTING
Trading and Profit and Loss A/C
For the year ended 31st March 2004

Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
Rs. Rs. Rs. Rs.
To opening stock 45000 By sales 223800
To purchases 160200 less sales returns 1000
Less purchase 222800
Return 4200 156000 Add unrecorded 8000 230800

To wages 8000 By goods(Withdrawn


To Royalties 4000 by Sapte) 4000
To Gross Profit c/d 101800 By closing stock 80000
314800 314800
To salaries 24000 By Net Profit b/d 101800
Less advance 4500 19500 By Commission received 12000
To Advertisement 8000 By Reserve for discount
Less Prepaid 6000 2000 on creditors 800
To provident fund By interest on Drawings
Contribution 6000 Apte-
To insurance 2400 Sapte 240 240

Less prepaid 600 1800


To Bad Debts 1600
Add new R.D.D. 2320
3920
less old R.D.D. 2100 1820
To Depreciation
Machinery 8500
Furniture 3750 12250
To Reserve for discount
on debtors 1322
To interest on capital
Apte 6000
Sapte 6000 12000
To Net Profit
Apte 29074
Sapte 29074 58148
114840 114840

ACCOUNTING A 135
Final Accounts

Partners Capital A/C


Dr. Cr.
Particulars Apte Sapte Particulars Apte Sapte
To Drawings 4000 By Balance b/d 50000 50000
To interest on By interest on
Drawings 240 capital 6000 6000
To Balance c/d 85074 80834 By Net Profit 29074 29074
85074 85074 85074 85074

Balance Sheet as on 31st March 2004

Liabilities Amount Amount Assets Amount Amount


Rs. Rs. Rs. Rs.
Capital A/Cs Machinery 85000

Apte 85074 Furniture 25000

Sapte 80834 165908 Less Depreciation 3750 21250

Creditors 40000 Provident Fund


Investment 12000
Less Reserve for Debtors 40000
Discount on Add unrecorded 8000
creditors 800 39200 48000
Provident Fund 60000 Less Bad Debts 1600
46400
Less R.D.D. 2320
44080
Less Reserve for
Discount on
Debtors 1322 42758
Cash 13000
Prepaid Insurance 600
Prepaid
Advertisement 6000
Advance Salaries 4500
Closing stock 80000
265108 265108

A 136 ACCOUNTING
Q 10: Sara and Lara are partners sharing profit and losses in the ratio of 2:1 respectively. The
trial balance of their firm as on 31st March 2005 was as follows:
Trial Balance as on 31st March 2005

Particulars Amt.(Dr.) Particulars Amt.(Cr.)


Purchases 48000 Capital A/Cs
Wages 23000 Sara 25000
Opening stock 25000 Lara 20000
Land and building 30000 Creditors 49000
Debtors 45000 Unpaid wages 1000
Machinery 25000 Sales 131100
Royalties 1800 Commission 2200
Carriage Inwards 1300
Carriage
Outwards 1700
Office expenses 2550
Bad Debts 750
Power and fuel 8000
Furniture 3000
Drawings
Sara 3000
Lara 2000
Cash in hand 500
Cash at bank 4300
Advertisement 3000
Insurance 400
228300 228300

Adjustments: 1) Closing stock on 31st March 2005 was valued at Rs. 18500. 2) Goods worth
Rs.3000 were taken by Sara for his personal use were not entered in the books of accounts. 3)
Goods worth Rs.5000 were destroyed by fire and insurance company admitted the claim for
Rs.3500. 4) Write off Rs.1000 for Bad Debts and create R.D.D. at 5% for debtors.5) Insurance is
paid for the year ended 30th June 2005. 6) Charge Depreciation on Land and Building at 2 ½%
Machinery at 10% and Furniture at 15%. 7) Prepare Trading and Profit and Loss Account for
the year ended 31st March 2005 and Balance-sheet on that date.

ACCOUNTING A 137
Final Accounts

Trading and profit and Loss Account


For the year ended 31st March 2005
Dr. Cr.

Particulars Amount Amount Particulars Amount Amount


Rs. Rs. Rs. Rs.
To opening stock 25000 By Sales 131100
To Purchases 48000 By Goods(Taken over by
To wages 23000 Sara) 3000
To carriage inward 1300 By Goods(Destroyed by
To Royalties 1800 fire) 5000
To power and fuel 8000 By closing stock 18500
To Gross Profit 50500
157600 157600
To office expenses 2550 By Gross Profit 50500
To Bad Debts 750 By Commission 2200
Add further 1000
1750
Add new R.D.D. 2200 3950
To carriage outward 1700
To Advertisement 3000
To insurance 400
Less prepaid 100 300
To loss by fire 1500
To Depreciation
Land & Building 750
Machinery 2500
Furniture 450 3700
To Net Profit
Sara 24000
Lara 12000 36000
52700 52700

Partners Capital A/C


Dr. Cr.
Particulars Sara Lara Particulars Sara Lara
To Drawing 3000 2000 By Balance b/d 25000 20000
To goods 3000 By Net Profit 24000 12000
To Balance c/d 43000 30000
49000 32000 49000 32000

A 138 ACCOUNTING
Balance-sheet as on 31st March 2005

Liabilities Amount Amount Assets Amount Amount


Rs. Rs. Rs. Rs.

Capital A/Cs Land & Building 30000


Sara 43000 Less Depreciation 750 29250
Lara 30000 73000 Machinery 25000
Creditors 49000 Less Depreciation 2500 22500
Unpaid wages 1000 Furniture 3000
Less Depreciation 450 2550
Debtors 45000
Less Bad Debts 1000
44000
Less R.D.D. 2200 41800
Closing stock 18500
Insurance claim 3500
Prepaid Insurance 100
Cash in hand 500
Cash at Bank 4300
123000 123000

ACCOUNTING A 139