Instructions to prepare Trust Accounts

Special Note

These instructions are given only for the purpose of preparing Trust Accounts in
the Exam.

Special Accounts and Financial Statements prepared in Trust Accounting

1. Balance sheet of whole Trust
2. Income and Expenditure Account ( Income Statement/Revenue Account)
3. Estate Capital Account
4. Estate Cash Book
5. Supporting Ledger Accounts
6. Investment Accounts
7. Relevant Assets, Liabilities, Income, Expenses and Equity Accounts

Basic Principals
1, Determine the date of death of the person
2. Assets, Liabilities, income and Expenses before the death should be recorded in
the capital account.

End of the period

Date of (Financial Year)
Beginning of death
the period
(Financial Year)

01/01/2014 31/03/2014 31/10/2014

07 Months
03 Months

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Determination of Assets and Liabilities as at the date of death
- All assets as at the date of death – Market value of Assets as at the date of
death (31/03/2014)
- All Liabilities as at the date of death- Value of liabilities as at the date of
death. (31/03/2014)
- Income earned but NOT RECEVIED before the date of death should be
treated as ASSETS as at the date of death- Income earned before
31/03/2014
- Expenses incurred but NOT PAID before the date of death should be
treated as Liabilities as at the date of death- Expenses incurred before
31/03/2014

All Assets and Liabilities as at the date of death are recorded in the
ESTATE CAPITAL ACCOUNT.

Determination of Income and Expenses of the Trust

There is no specific time frame to prepare trust accounts, the time period is determined by the
information given in the question. Income receivables and expenses payable also depend on
the given information but NOT from the beginning of the period such as 01/01/2014 , for
instance; if there are income and expenses before 1st January 2014 those values should be
included in the accounts.

Estate Capital Account

This account shows the capital of the trust or estate.
- The net value of the estate at the date of death is recorded in this account.
- Any subsequent changes in this value caused by profit or loss on disposal
are also recorded.
- This account also shows, the manner in which the estate has been dealt
with in respect of funeral expenses, legal fees , residue distributed and
property retained in trust

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Following transactions are recorded in the Estate Capital Account

1. Assets as at date of death

Dr- Asset Account
Cr – Estate Capital Account

2. Liabilities as at date of death

Dr- Estate Capital Account
Cr – Liability Account

3. Income receivable (before the death)

Dr- Cash book
Cr- Estate Capital Account

4. Funeral expenses, legal fees

Dr- Estate Capital Account
Cr – Liability Account

5. Living Expenses of beneficiaries

Dr- Estate Capital Account
Cr – Cash Book

6. Beneficiaries’ Accounts (payments/ distributions)

Dr- Beneficiaries’ Accounts
Cr – Estate Capital Account

Closing Balance of Estate capital Account is recorded in the balance sheet at the
end of the period.

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 Late Mr.A
Estate Capital Account
As at 1st May 2014
Amount (
Description Amount Description Rs)
LIABILITIES ASSETS
All assets as at date of death xxxx
All Expenses payable as at date of death xxx Business Premises xxxx
Electricity P'ble xx Residential house xxxx
Telephone P'ble xx Rubber or other Estates xxxx
Water P'ble xx Debentures xxxx
All Liabilities as at Date of death Shares
All incomes receivables as at date of
Bank overdraft xx death xxx
Medical bills xx Debenture Interest xxx
Income tax payable xx Rent Income from business premises xxx
Personal Creditors xx Rent Income from estate xxx
Refundable rent Deposit Personal debtors
Funeral expenses and legal fee Life policy
Beneficiaries’ Accounts (payments/
Funeral expenses xx distributions)
Legal Fee xx Wife- Mrs. xxx
administration fees xx Elder Son- Mr. xxx
Younger Daughter- Miss. xxx
Younger Son- Mr xxx
Balance c/d xxxx
xxxx xxxx
Balance b/f xxxx

Receipts and payments Account (Estate Cash book)

Receipts and payments Account is prepared based on the Cash basis. All cash receipts and
payments are recorded in this account. Two columns are separately used for Capital
transactions and Revenue transactions. Double entry principal which is applicable to record
assets is used to record the transactions in this account.

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 ➢ Opening Balance Debit
All Cash Receipts Debit
All cash Payments Credit
➢ The balance of receipts and payment account at the end of the period is
recorded under current assets in the balance sheet.

Receipts and Payment Accounts

Description Capital Income Description Capital Income

Balance b/f xxxx xxxx

Receipts xxx xxx Payments xxx xxx

Balance c/d xx xx

Total xxx xxx Total xxx xxx

Balance b/f xx xx

Current Assets in the

Balance Sheet

01. Income received relating to the period after the death.

Dr – Cash Book (Income column)
Cr- Estate Income Account
02. Other income received after the death
Dr – Cash Book (Income column)
Cr- Estate Income Account
03. Income received for the period before the death
Dr – Cash Book (Capital column)
Cr- Estate Capital Account
04. Money received from disposal of assets
Dr – Cash Book (Capital column)
Cr- Estate Capital Account

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 05. Cash payments for expenses
Dr – Estate Income Account
Cr- Estate cash book
6. Cash payments of estate duty and liabilities at the date of death
Dr – Estate Capital Account
Cr- Estate cash book
7. Cash payments for expenses chargeable against estate capital
Dr – Estate Capital Account
Cr- Estate cash book

Late Mr.
Estate Cash Book
from 1st May 2014- 30th September 2014
Amount ( Amount (
Description Amount ( Rs) Amount ( Rs) Description Rs) Rs)
Capital Revenue Capital Revenue
Balance as at 1/05/2014 xxx
Income from states xxx xxx payables xxx
Rent Income from Business Premises xxx xxx Electricity xx xx
Debenture Interest Income xxx xxx Telephone xx xx
Dividents xxx Water xx xx
Life policy xxxx Medical bills xx
Income tax payable xx
Funeral expenses xx
Legal Fee xx
administration fees xx
Living expenses ( June-
Sep) xx
Balance c/d xxx xxx
xxx xxx xxx xxx
Balance b/f xxx xxx

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The balance of receipts and payment account at the end of the period is recorded
under current assets in the balance sheet.

Income and Expenditure Account (Estate Income Account )

Income and Expenditure Account is prepared based on the accrual basis. All
incomes and expenses relevant for the period are recorded in this account.
Income expenditure account or Income Statement is prepared for the
particular financial year. Following double entry principal is used to record the
transactions in this account.
➢ All incomes earned (received or not) Credit

All expenses incurred (paid or not) Debit

➢ The balance of Income and Expenditure Account at the end of the period is recorded
under Equity in the balance sheet. (Balance is known as surplus, it is added to the
Capital Account balance in the balance sheet. If total income is less than total
expenditure it is called deficit. Deficit should be deducted from the capital balance )

Income and Expenditure Account (Estate Income Account )

Description Rs Description Rs
Income
Expenses xxx

Other income xxx

Balance c/d xxx

Total xxxx Total xxxxx

Balance b/f xxx

Balance is added to the

Capital Balance as surplus
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 - This account records income and expenses of the estate or trust

Credit entries

- Income received

Debit entries

- Tax applicable for the estate

- Duty and expenses chargeable to income

- Annuity payment out of the income of the trust

Balance of estate income account is reported in the balance sheet

Estate Balance Sheet

Balance Sheet includes Assets, Liabilities, Income, Expense and Equities of the
estate

Balance Sheet
As at 31st March 2014
Rs Rs Rs Rs Rs
Capital xxx Non- Current
Assets
Add: xxx (xx) xxx
Surplus b/f xxx xxx
+ surplus for the period xx xxx xxx
(xx) xx xxx
Total Equity xxx Current Assets xxx
Non-current Liabilities xx
Bank Loan Total assets
Current Liabilities xx
Total equity and Liabilities xxx Total assets xxx

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Detailed instructions to prepare Trust Accounts

Step-01
Open new accounts for the following Accounts,

i. Estate Cash Book ,

ii. Income Account,
iii. Estate Capital Account
iv. Relevant ledger accounts.
Record opening balances each account except income account. There is no opening balance of
the income Account.

Step-02
Determine the date of death and financial period of the trust. The time period can be decided
based on the information given in the question.

Step-03

Identify relevant assets, liabilities before and after the death. All assets and
liabilities as at date of death should be recorded in the Capital account. Assets
and liabilities available at the end of the period are recorded in the balance sheet.

Step-04

Income received or receivable after the death is recorded in the income account.
Income receivable but not received before the death is reordered in the Capital
Account.
Step-05

Expense incurred or paid after the death is recorded in the income account.
Expense incurred but not paid before the death is reordered in the Capital
Account.

Note:
Necessary adjustments should be made to the relevant Income or Expense
account before you transfer the full amount of the expense to the Income
Account or Capital Account .

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 - Accrued Expenses
- Expense paid in advance
- Other adjustments
These adjustments are not special adjustments to the trust accounts. These are
common adjustments to all business entities.

Step-06

Accrued and Prepayment expenses and Expenses relevant for the period

Expense Account

Balance b/f xx Balance b/f xx

(Opening prepayments ) (Opening accrued/payables )

Receipts and Payment Account xxx Income and Expenditure Account ( xx

( payments during the period ) expense for the period)
Balance c/d xx Balance c/d xx
Total xxxx Total xxxx
Balance b/f ( closing prepayments) xx Balance b/f ( closing accrued ) xx

Current assets –
Balance sheet Current liabilities
– Balance sheet
- Opening prepayments and accrued expenses can be taken from the opening balance sheet
given.
- Closing prepayments and accrued expenses should be recorded in balance sheet.

Example

Electricity payable as at 1st April 2014 6,500

Rent prepayment as at 1st April 2014 50,000
Payments during the period
Electricity – 57,000
Rent – 375,000
Electricity payable as at 31st March 2015 16,500
Rent prepayment as at 31st march 2015 150,000

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 Electricity Account

Balance b/f Balance b/f 6,500

(Opening prepayments ) (Opening accrued/payables )

Receipts and Payment Account 57,000 Income and Expenditure Account ( 76,000
( payments during the period ) expense for the period)
Balance c/d 16,500
Total 73,500 Total 73,500
Balance/f ( closing accrued ) 16,500

Rent Account

Balance b/f 50,000 Balance b/f

(Opening prepayments ) (Opening accrued/payables )

Receipts and Payment Account 375,000 Income and Expenditure Account ( 275,000
( payments during the period ) expense for the period)
Balance c/d 150,000
Total 425,000 Total 425,000
Balance/f ( closing prepayments) 150,000

Step-07

Other Assets and Liabilities

All other Assets and Liabilities are recorded in the Balance Sheet as it is given in
the question.

Note

These instructions are given only for the purpose of preparing trust accounts in
the Examination.

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Example Question and Answer
Mr. A.B.C.D.Silva was living with his family members in his own house in Maharagama .
Mr Silva passed away on 1st June 2014 leaving his wife and 2 children. His assets and
liabilities are given below.
i. A Rubber Estate in Rathnapura cost 50,000,000/- market value Rs. 63,000,000/- sheet
rubber made in May 2014 were subsequently realized for Rs. Rs. 450,000(Net). Monthly
average net income from Rubber Estate from June 2014 onwards was Rs. 375,000/-
(Net) In addition to that , monthly sundry income of Rs. 20,000/- was generated by
selling fire wood of the rubber Estate from June . All incomes have been collected.

Analysis and Instructions

- Cost- : Rs 50,000,000/-
- Market value: Rs. 63,000,000/ (Record in the capital account under Assets and record
the same under assets in the Balance sheet)
- Income receivable before the death : Rs.450,000/- is recorded in the capital account
under Assets. The same amount is recorded in the estate cash Book ( Debit side)
- Income received after the death : Rs.1,500,000/- (375,000 X 4 ) is recorded in the
Revenue account ( credit) and estate cash Book ( Debit side)
- Income from fire wood: 80,000 (20,000X 4) is debited to the cash book and credited to
the revenue account.
( Note : please read Working No: 01 for more details. )

ii. Business Premises in Kottawa cost Rs. 17,700,000/-, Market value Rs. 20,500,000/-,This
had been given on rent at a monthly rent of Rs. 200,000/-, April and May rent income
was outstanding at the time of death. Each month rent is due on or before the last day
of that month. Tenant had paid a refundable rent deposit of Rs.5,000,000/-,
Administrator had collected all outstanding rent on 30th June along with June rent and
subsequent monthly rent on due dates.

Analysis and Instructions

- Cost- : Rs 17,700,000/-
- Market value: Rs. 20,500,000/ (Record in the capital account under Assets and record
the same under assets in the Balance sheet)

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 - Income receivable before the death : Rs.400,000/- ( April + May) is recorded in the
capital account under Assets. The same amount is recorded in the estate cash Book (
Debit side)
- Income received after the death : Rs.800,000/- (200,000 X 4 ) is recorded in the
Revenue account ( credit) and estate cash Book ( Debit side)
- Refundable deposit : this is a liability . It should be recorded in the capital account and
balance sheet at the end of the period.
( Note : please read Working No: 02 for more details. )

iii. Residential house in Mahargama where he lived with his family members. cost of Rs.
18,000,000/- and Market Value of Rs.22,000,000/-some repairs have been made for the
house during the April and May and the total cost of repair was Rs.525,000/- . Repair
cost has not been settled until 1st June 2014. Electricity and Telephone bills were in
arrears for the month of May 2014. Bills for the period were as follows, September bills
were in areas.

Expenses May June- September

September
Electricity Rs. 5,500/- Rs.30,100/- Rs.3,100/-
Telephone Rs.6,300/- Rs. 60,800/- Rs. 5,800/-

Analysis and Instructions

- Cost- : Rs 18,000,000/-
- Market value: Rs. 22,500,000/ (Record in the capital account under Assets and record
the same under assets in the Balance sheet)
- Expenses before the death: Rs.11, 800/- (5500 + 6300) and Rs 525,000 are recorded in
the capital account under Liabilities. The same amount is recorded in the estate cash
Book ( Credit side)
- Expenses after the death : Rs.90,900/- (30,100 + 60,800) is recorded in the Revenue
account ( Debit) and estate cash Book ( Credit side)
- September bills : this is a liability. It should be recorded in the balance sheet at the
end of the period.

(Note: Please read Working No: 03 for more details. )

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 iv. 10% Debentures in M/s ABC PLC Rs. 6,000,000/- invested on 1st January 2014. Interest
receivable half yearly on January and 1st July each Year.

Analysis and Instructions

- Market value: Rs. 6,000,000/ (Record in the capital account under Assets and record the
same under assets in the Balance sheet)
- Interest :
(6,000,000 X 10 % ) /12 = 50,000 per month
Interest before the death : January – May ( 50,000 X 5) = 250,000
Interest after the death : June (50,000 X 1) = 50,000
Interest after the death : July- September (50,000 X 3) = 150,000
- Interest before the death ( Rs 250,000) is recorded in the Capital Account and estate
Cash Book ( Debit side)
- Total Interest after the death : June- September (50,000 X 4) = 200,000 is recorded in
the Revenue Account ( Credit) Rs. 150,000 is recorded as liability and Rs 50,000 is
recorded in the cash Book( Debit )
(Note: Please read Working No: 04 for more details. )

v. He had purchased 50,000 ordinary shares of PQL PLC for Rs.5,000,000/-.Market value
Rs.7,000,000/-. M/s PQL PLC has paid to him a dividend. Rs. 700,000/- in July 2014 out
of the profit for the year 2013/2014.

Analysis and Instructions

- Market value: Rs. 7,000,000/ (Record in the capital account under Assets and record the
same under assets in the Balance sheet)
- Dividends : Rs.700, 000 is credited to the Revenue Account (Credit) debited to the cash
Book (Debit )

(Note: Please read Working No: 05 for more details. )

vi. Bank overdraft Rs.2,130,000/- Medical bills Rs.350,000/-, Income tax payable
Rs.420,000/-, Personal Creditors Rs.850,000/- Funeral expenses Rs.510,000/-. Legal and
administration fees have been agreed at Rs 275,000/- and 350,000/- respectively as at
1st June 2014.

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Analysis and Instructions

- Liabilities: All liabilities are recorded in the capital account and estate Cash Book (Credit)
- Unpaid Liabilities: Personal creditors and Bank Overdraft are recorded in the balance
sheet under liabilities.

vii. Personal Car cost Rs. 8,000,000/-. Market value Rs. 6,000,000/- Personal debtors
Rs.700,000/-. Life policy Rs. 7,000,000/-. Cash Balance Rs.500, 000/- as at the date of
death.

Analysis and Instructions

- Assets: All assets are recorded in the capital account. Cash Balance should be put into
the cash book.( opening Balance) value of Personal Car and debtors are recorded in the
balance sheet as assets.
- Money for life insurance policy: Debited to the cash book.

viii. Mr.Silva had made following payments to his family members just before his death.
These payments have to be treated as his wealth. Wife – Mrs. Silva - Rs. 2,000,000 ,
Son - Rs 1,000,000, Daughter- Rs.1000,000 ,

Analysis and Instructions

- Assets: the above payments are treated as a part of wealth of Mr.Silva . the total
amount ( Rs 4,000,000) should be recorded in the Capital Account and Balance sheet as
current Assets.
ix. Living expenses of beneficiaries
It is a part of estate but payment is a reduction of wealth of the estate.
Living expenses are recorded in the cash book (Capital Column)- Credit Side and Balance
Sheet under Current Assets.

Administrator has collected all dues including the life policy up to 30.09.2014 and settled all the
dues up to that date. Further he had paid Rs.35, 000/- per beneficiary per month from June to
September 2014 to meet their living expenses.

Prepare the following :

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 i. Estate capital Account of Late Mr.A.B.C.D. Silvas as at 1st June 2014
ii. Estate cash Book from 1st June 2014 to 30th September 2014
iii. Balance sheet of the Estate of late Mr.A.B.C.D. Silvas as at 30th September 2014

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