Maharashtra Board Class 11 Commerce BK Chapter 10 Single Entry System Solutions

Answer in One Sentence Only

 

Question 1. What do you mean by a Single Entry System?
Answer: A system of bookkeeping in which an accountant or businessman records only one aspect of business transaction (either debit or credit and ignores the other aspect is called ‘Single Entry System’. This incomplete method is typically adopted by small traders who cannot afford a full double entry setup.
In simple words: A single entry system is an easy way of keeping track of money where you only write down one side of a transaction. It is like keeping a simple list of what comes in and goes out without balancing everything perfectly.

🎯 Exam Tip: Always highlight that the single entry system is an incomplete and unscientific method of recording transactions to secure full marks.

 

Question 2. What is a Statement of Affairs?
Answer: A list of all assets and liabilities prepared under a single entry system to find out capital balance is called a statement of affairs. It resembles a balance sheet but is prepared from incomplete records.
In simple words: A Statement of Affairs is like a rough balance sheet. It lists what a business owns (assets) and what it owes (liabilities) to find out how much money the owner has invested.

🎯 Exam Tip: Remember that a Statement of Affairs is prepared under the single entry system, whereas a Balance Sheet is prepared under the double entry system.

 

Question 3. Which type of accounts are normally not kept under the Single Entry System?
Answer: Under a single entry system, records of impersonal accounts i.e. real accounts and nominal accounts are not maintained. This makes it difficult to prepare a proper trial balance or profit and loss account.
In simple words: In a single entry system, the business does not keep track of accounts related to assets, expenses, or incomes. It only keeps track of cash and people's accounts.

🎯 Exam Tip: Clearly state both "real accounts" and "nominal accounts" (or "impersonal accounts") to get full marks.

 

Question 4. Which statement is prepared under the Single Entry system to ascertain the capital balances?
Answer: A statement of Affairs is prepared under a single entry system to ascertain capital balances. This statement is prepared at both the beginning and the end of the financial year.
In simple words: To find out how much capital (money) the business has, we prepare a Statement of Affairs. It helps us calculate the starting and ending capital.

🎯 Exam Tip: Do not confuse "Statement of Affairs" with "Statement of Profit or Loss" which is used to find net profit.

 

Question 5. How Opening Capital is calculated under the Single Entry System?
Answer: Under a single entry system, opening capital is ascertained by preparing the opening statement of affairs. This is done using the asset and liability values from the beginning of the accounting period.
In simple words: To find the starting capital, we make a Statement of Affairs using the values of assets and liabilities from the very first day of the year.

🎯 Exam Tip: Remember that Opening Capital = Opening Assets minus Opening Liabilities. Mentioning this formula can secure extra marks.

 

Question 6. Which types of accounts are maintained under the Single Entry System?
Answer: Under a single entry system, all personal accounts and cash accounts are maintained. This is because tracking cash transactions and amounts due to or from individuals is highly critical for daily operations.
In simple words: Under this system, the business only keeps records of cash transactions and accounts of people (like customers and suppliers) they deal with.

🎯 Exam Tip: Be sure to mention both "personal accounts" and "cash book/accounts" as these are the only two types maintained.

 

Question 7. Can a Trial Balance be prepared under a Single Entry System?
Answer: A trial balance cannot be prepared under a single entry system. This is because the double-entry aspect of every transaction is not recorded, leaving the books incomplete.
In simple words: We cannot make a trial balance because we do not record both sides (debit and credit) of every transaction.

🎯 Exam Tip: State clearly that a trial balance is impossible to prepare due to the lack of double-entry records.

 

Question 8. Which type of organizations generally follow the Single Entry System?
Answer: Organizations having small sizes of business such as sole trading concerns and partnership firms follow a single entry system. These entities choose this method because it is simpler and more cost-effective than maintaining a full double-entry system.
In simple words: Small businesses like local shops or small partnerships use this system because they have fewer transactions and do not need complex accounting records.

🎯 Exam Tip: Clearly mention both sole trading concerns and partnership firms as key examples to secure full marks.

 

2. Write a Word, Term, or Phrase Which Can Substitute Each of the Following Statements.

 

Question 1. A statement that is similar to the Balance Sheet.
Answer: Statement of Affairs. It is prepared under the single entry system to estimate the financial position of a business on a particular date.
In simple words: A Statement of Affairs is like a simplified balance sheet used by small businesses to list what they own and what they owe.

🎯 Exam Tip: Do not confuse Statement of Affairs with a Balance Sheet; remember that the former is prepared from incomplete records.

 

Question 2. The system of Accounting is normally suitable for small business organizations.
Answer: Single Entry System. This system is highly suitable for small businesses because it is informal, easy to maintain, and does not require specialized accounting knowledge.
In simple words: The Single Entry System is a simple way of keeping track of money that is perfect for small shops and businesses.

🎯 Exam Tip: Remember that this system only maintains personal accounts and cash book records, making it ideal for small-scale operations.

 

Question 3. A statement similar to the Balance Sheet is prepared to find out the amount of opening capital.
Answer: Opening Statement of Affairs. This statement is prepared at the beginning of the accounting period using opening assets and liabilities to determine the starting capital.
In simple words: An Opening Statement of Affairs is a list of assets and liabilities made at the start of the year to find out how much money the owner started with.

🎯 Exam Tip: Always use the prefix 'Opening' when the statement is specifically prepared to find the opening capital.

 

Question 4. An excess of assets over liabilities.
Answer: Capital. This represents the owner's equity or net worth in the business, calculated by subtracting total liabilities from total assets.
In simple words: Capital is the net value of the business, which is what is left over when you subtract everything the business owes from everything it owns.

🎯 Exam Tip: Use the basic accounting equation (Assets - Liabilities = Capital) to remember this definition easily.

 

Question 5. Excess of closing capital over opening capital of proprietor under Single Entry System.
Answer: Profit. When the closing capital is greater than the opening capital (after adjusting for drawings and fresh capital), it indicates that the business has earned a profit during the year.
In simple words: If the money you have at the end of the year is more than what you started with, the extra amount is your profit.

🎯 Exam Tip: Be sure to mention 'Profit' or 'Net Profit' as the term for this excess, as it is a fundamental concept in single-entry calculations.

 

Question 6. Name of the method of accounting suitable to firms having limited transactions.
Answer: Single Entry System. This method is highly simplified and cost-effective for small-scale businesses.
In simple words: The Single Entry System is an easy way of keeping track of money, mostly used by very small shops or businesses with few daily transactions.

🎯 Exam Tip: Remember that this system is only suitable for small businesses because it does not record both aspects of a transaction.

 

Question 7. A System of accounting that is unscientific.
Answer: Single Entry System. It is considered unscientific because it does not maintain a double-sided record of every transaction.
In simple words: It is called unscientific because it does not follow strict, complete rules of accounting like the double-entry system does.

🎯 Exam Tip: Use the term "unscientific" or "incomplete" when describing the limitations of the Single Entry System in your exams.

 

Question 8. Further capital introduced by the proprietor in the business concern over and above his existing capital.
Answer: Additional Capital. This extra money is brought in to meet the expansion or working capital needs of the business.
In simple words: Additional capital is the extra money that the owner puts into the business after it has already started.

🎯 Exam Tip: Be clear that any fresh cash or assets brought in by the owner during the financial year is treated as additional capital when calculating profit.

Select the Most Appropriate Answer From the Alternatives Given Below and Rewrite the Sentence.

 

Question 1. The capital balances are ascertained by preparing _______________
(a) Statement of Affairs
(b) Cash Account
(c) Drawings Accounts
(d) Debtors Accounts
Answer: (a) Statement of Affairs
In simple words: A Statement of Affairs is like a simplified balance sheet used to find out how much capital the business has at the start or end of the year.

🎯 Exam Tip: Always write the complete sentence with the correct option filled in the blank if the question asks you to "rewrite the sentence".

 

Question 2. Under Single Entry System, Opening Capital = Opening Assets less _______________
(a) Opening Liabilities
(b) Closing Liabilities
(c) Debtors Account
(d) None of the options
Answer: (a) Opening Liabilities
In simple words: To find the starting capital, you take everything the business owned at the start (assets) and subtract everything it owed to others at the start (liabilities).

🎯 Exam Tip: Remember the basic accounting equation: Capital = Assets - Liabilities. For opening capital, use opening values; for closing capital, use closing values.

 

Question 3. Additional Capital introduced during the year is _______________ from closing capital in order to find out the correct profit.
(a) Added
(b) Deducted
(c) Divided
(d) Ignored
Answer: (b) Deducted
In simple words: When calculating profit from closing capital, we subtract any extra money the owner put into the business during the year so we do not mistake it for earned profit.

🎯 Exam Tip: Remember the formula: Profit = Closing Capital + Drawings - Additional Capital - Opening Capital. Subtracting additional capital is a key step to avoid overstating your profit.

 

Question 4. Single Entry System may be useful for _______________
(a) Sole traders
(b) Company
(c) Government
(d) None of the options
Answer: (a) Sole traders
In simple words: Small business owners or sole traders use this system because it is simple, cheap, and they do not have complicated transactions to track.

🎯 Exam Tip: Always associate the Single Entry System with small-scale businesses like sole proprietorships, as they are not legally required to maintain complex double-entry books.

 

Question 5. In order to find out the correct profit, drawings is _______________ from closing capital.
(a) Multiplies
(b) Divided
(c) Deducted
(d) Added
Answer: (d) Added
In simple words: Drawings are the money or goods taken by the owner for personal use. We add them back to the closing capital to find the true profit earned by the business.

🎯 Exam Tip: Since drawings reduce capital during the year, we must add them back to the closing capital to reconstruct the total earnings before personal withdrawals.

 

Question 6. The difference between assets and liabilities is called _______________
(a) Capital
Answer: (a) Capital
In simple words: Capital is the owner's actual share in the business, calculated by subtracting what the business owes (liabilities) from what it owns (assets).

🎯 Exam Tip: This is based on the fundamental accounting equation: Capital = Assets - Liabilities. Memorize this equation as it is the foundation of all balance sheets.

 

Question 7. When Closing Capital is greater than the Opening Capital, the difference is _______________
(a) Profit
(b) Loss
(c) Assets
(d) Liabilities
Answer: (a) Profit
In simple words: When the money you have at the end of the business year is more than what you started with, it means you have made a profit.

🎯 Exam Tip: Remember the basic relationship: Closing Capital - Opening Capital = Profit (when no drawings or additional capital are present). This is a fundamental concept often tested in exams.

 

Question 8. Opening Capital is Rs. 30,000; Closing Capital is Rs. 60,000; Withdrawals are Rs. 5,000; and further capital brought in is Rs. 3,000; Profit is _______________
(a) Rs. 45,000
(b) Rs. 35,000
(c) Rs. 32,000
(d) Rs. 22,000
Answer: (c) Rs. 32,000
In simple words: To find the profit, we take the closing capital (Rs. 60,000), add the withdrawals (Rs. 5,000), and then subtract the opening capital (Rs. 30,000) and the new capital (Rs. 3,000).

🎯 Exam Tip: Always write down the formula: Profit = Closing Capital + Drawings - Additional Capital - Opening Capital. Substituting the values step-by-step prevents simple calculation errors.

 

4. State True or False with Reasons:

 

Question 1. The double Entry System of Book-keeping is a scientific method of books of accounts.
Answer: This statement is True. In the double-entry system of book-keeping, there are two-fold effects. Both the effects are recorded simultaneously with an equal amount. This system also follows principles and rules of debit and credit. Due to this, there are very fewer chances of mistakes. So double entry system of Book-Keeping is a scientific method of the book of accounts. This systematic approach ensures that the financial records are always balanced and accurate.
In simple words: The double-entry system is called scientific because it records both sides of every transaction using strict rules, which helps keep the records accurate and free of errors.

🎯 Exam Tip: For "True or False with reasons" questions, clearly state whether the statement is True or False first, and then write at least two distinct points explaining why to secure full marks.

 

Question 2. Preparation of Trial Balance is not possible under the Single Entry System.
Answer: This statement is True. Under the single entry system, only cash and personal accounts of debtors and creditors are open. So it is not possible to prepare a Trial Balance under the single entry system as it has incomplete accounting information. This lack of a double-entry record makes it impossible to verify arithmetical accuracy.
In simple words: A trial balance needs both debit and credit aspects of every transaction to match. Since single entry only keeps track of cash and personal accounts, we do not have all the double-entry records needed to make a trial balance.

🎯 Exam Tip: Remember that a Trial Balance requires a complete double-entry system; since single entry is incomplete, preparing a Trial Balance is technically impossible.

 

Question 3. Statement of Affairs and Balance Sheet are one and the same.
Answer: This statement is False. There is a difference between a statement of Affairs and the Balance sheet. Statement of Affair shows estimated values of assets and liabilities. A Balance Sheet, on the other hand, is prepared using ledger accounts that have been fully closed and balanced.
In simple words: A Statement of Affairs is just an estimate of what a business owns and owes when records are incomplete. A Balance Sheet is an official, highly accurate document prepared from complete double-entry records.

🎯 Exam Tip: Clearly distinguish between the two by highlighting that a Statement of Affairs relies on estimates, whereas a Balance Sheet is prepared from a reliable ledger.

 

Question 4. The single Entry System is not useful for large organizations.
Answer: This statement is True. Under the Single Entry System, only the cash book and personal account of Creditors and Debtors are maintained. Real and Nominal accounts are not maintained. It has no proper set of rules to be followed. It is useful for small organisations and not for a large organisations. Large corporations require comprehensive financial reporting to satisfy legal and tax requirements.
In simple words: Large businesses have thousands of complex transactions and must follow strict laws. The single entry system is too simple and incomplete to handle their needs, so it is only used by small shops.

🎯 Exam Tip: Mention that large organizations are legally required to maintain double-entry books for tax and audit purposes, making single entry completely unsuitable.

 

Question 5. Only Cash and Personal accounts are maintained under the Single Entry System.
Answer: This statement is True. The single Entry System is an ancient and unscientific method of recording business transactions. This system maintains minimum accounts so it is easy for traders to write books of accounts. This system does not follow any accounting rules. To know the cash collections and amount payable or receivable only cash and personal accounts are maintained under a single entry system. Real and nominal accounts are completely ignored under this system.
In simple words: To keep things simple, small traders using this system only write down cash transactions and what they owe or are owed by others. They do not keep track of assets, expenses, or incomes in separate accounts.

🎯 Exam Tip: State clearly that real (assets) and nominal (expenses/income) accounts are omitted in a pure single entry system, which is a key point examiners look for.

 

Do You Agree With The Following Statements?

Question 1. Further capital introduced during the year increases profit.
Answer: Disagree. Introducing further capital increases the capital employed in the business but does not directly increase the operational profit earned during the year.
In simple words: Bringing more of your own money into the business makes your capital larger, but it doesn't mean you made a profit from selling goods or services.

🎯 Exam Tip: Remember that profit is calculated by comparing closing capital with opening capital, adjusting for drawings and fresh capital introduced.

 

Question 2. Interest in Drawings decreases the amount of profit under the Single Entry System.
Answer: Disagree. Interest on drawings is an income for the business and actually increases the profit under the Single Entry System when adjusted in the statement of profit or loss.
In simple words: When the owner pays interest to the business for taking out money, it counts as extra income for the business, which increases the total profit.

🎯 Exam Tip: Always treat interest on drawings as an addition to the closing capital when calculating profit under the single entry system.

 

Question 3. Real and Nominal accounts are not maintained under the Single Entry System.
Answer: Agree. Under the Single Entry System, only personal accounts and cash book transactions are maintained, while real and nominal accounts are ignored.
In simple words: The single entry system is an incomplete way of bookkeeping that only keeps track of cash and people who owe or are owed money, ignoring assets and expenses.

🎯 Exam Tip: Clearly state that only personal accounts and cash accounts are maintained under this system to secure full marks.

 

Question 4. The single Entry System is based on certain rules and principles.
Answer: Disagree. The Single Entry System is an unscientific and informal method of bookkeeping that does not follow any strict rules or standard accounting principles.
In simple words: Unlike double entry, single entry has no fixed rules, making it a very flexible but unreliable way to keep track of accounts.

🎯 Exam Tip: Highlight that the lack of standard rules and principles is why this system is called unscientific and incomplete.

 

Question 5. Statement of Profit is just like Profit and Loss Account.
Answer: Disagree. A Statement of Profit is prepared under the Single Entry System to estimate profit by comparing capitals, whereas a Profit and Loss Account is a formal ledger account prepared under the Double Entry System.
In simple words: A statement of profit is just a rough calculation sheet comparing starting and ending money, while a profit and loss account is a detailed, formal record of all incomes and expenses.

🎯 Exam Tip: Differentiate clearly between the two by mentioning that the Statement of Profit is an estimation, not a formal ledger account.

 

6. Fill in the Blanks.

 

Question 1. Statement of Affairs is just like _______________
Answer: Balance Sheet. A Statement of Affairs is prepared under the Single Entry System to find out the capital of the business, serving a similar purpose to a Balance Sheet.
In simple words: Both of these statements list what the business owns and what it owes to find out its financial position.

🎯 Exam Tip: Remember that while they look similar, a Statement of Affairs is based on estimates, whereas a Balance Sheet is prepared from ledger balances.

 

Question 2. Under Single Entry System, Profit = Closing Capital Less _______________
Answer: Opening Capital. To find the net profit, the opening capital is subtracted from the adjusted closing capital at the end of the accounting period.
In simple words: To see how much profit you made, you take the money you have at the end of the year and subtract the money you started with.

🎯 Exam Tip: Memorize the basic formula: Profit = Closing Capital + Drawings - Additional Capital - Opening Capital.

Question 3. In order to find out the correct profit, drawings are _______________ to the closing capital.
Answer: Added. This adjustment is necessary because drawings represent the capital withdrawn by the owner during the year.
In simple words: When calculating profit, we add back any money or goods the owner took for personal use to the final capital. This helps us see the true earnings of the business.

🎯 Exam Tip: Remember that drawings reduce capital, so to find the starting point or correct profit, we must reverse this by adding them back.

 

Question 4. In _______________ Book Keeping System, in every business transactions we find two effects.
Answer: Double Entry System. This system ensures that every debit has a corresponding credit, maintaining the accounting equation.
In simple words: The double-entry system records two sides of every transaction—what comes in and what goes out. This keeps the business books perfectly balanced.

🎯 Exam Tip: Always associate "two effects" or "dual aspect" with the Double Entry System of bookkeeping.

 

Question 5. The difference between Assets and Liabilities is called _______________
Answer: Capital. This represents the owner's equity or net worth in the business.
In simple words: Capital is the money left over for the owners after all the business debts are paid off from its total assets.

🎯 Exam Tip: Memorize the basic accounting equation: Capital = Assets - Liabilities.

 

Question 6. Single Entry System is more popular for _______________
Answer: Sole Trader. These small business owners prefer it due to its simplicity and low cost of maintenance.
In simple words: Small shopkeepers or single owners use this simple system because they do not have complex transactions or resources to maintain detailed accounts.

🎯 Exam Tip: Sole traders and small partnerships are the primary users of the Single Entry System because it is highly cost-effective.

 

Question 7. Additional Capital introduced during the year is _______________ from Closing Capital in order to find out the correct profit.
Answer: Deducted. This deduction prevents the newly introduced personal funds from being mistaken for business profits.
In simple words: Extra money put into the business during the year is not profit, so we subtract it from the final capital to find the actual profit earned.

🎯 Exam Tip: Be careful not to confuse drawings (which are added) with additional capital (which is deducted) when calculating profit from closing capital.

 

Question 8. Single Entry System is Suitable for _______________ business.
Answer: Small. It is ideal for businesses with limited transactions and simple operations.
In simple words: This system is best for tiny businesses like local grocery stores that do not need to follow strict, complex accounting rules.

🎯 Exam Tip: If a question asks about the suitability of the Single Entry System, the keyword "small" or "sole proprietorship" must be in your answer.

 

7. Find the Odd One:

Question 1. Interest on Drawings, Outstanding Expenses, Undervaluation of Assets, Prepaid Expenses.
Answer: Outstanding Expenses. Outstanding expenses represent a liability, whereas the other items listed are either incomes, assets, or internal adjustments.
In simple words: Outstanding expenses are unpaid bills that we still owe, while the other items are things we own or adjustments we make.

🎯 Exam Tip: Identify the core accounting nature (asset, liability, income, or expense) of each item to easily spot the odd one out.

 

Question 2. Interest on Capital, Interest on Loan, Overvaluation of Liabilities, Depreciation on Assets.
Answer: Overvaluation of Liabilities. This is an adjustment that increases the value of liabilities, while the other options represent expenses or losses for the business.
In simple words: Overvaluation of liabilities means showing we owe more money than we actually do, whereas the other items are regular business expenses.

🎯 Exam Tip: Remember that regular expenses decrease profit, whereas overvaluation of liabilities is a balance sheet adjustment.

 

Question 3. Creditors, Bills Payable, Bank Overdraft, Stock in Trade.
Answer: Stock in Trade. Stock in trade is a current asset, whereas creditors, bills payable, and bank overdrafts are all current liabilities.
In simple words: Stock in trade is the goods we have ready to sell (an asset), while all the other items are debts we have to pay back (liabilities).

🎯 Exam Tip: Classifying items into assets and liabilities is the quickest way to solve classification questions in bookkeeping.

8. Complete the Following Table:

 

Question 1. Closing Capital (Rs. 10,000) - Opening Capital (Rs. 5,000) = Profit
Answer: Rs. 5,000. Profit is calculated by subtracting the opening capital from the closing capital at the end of the accounting period.
In simple words: To find the profit, we subtract the money we started with from the money we ended with.

🎯 Exam Tip: Use the basic formula: Profit = Closing Capital - Opening Capital to solve these quick calculations.

 

Question 2. Opening Assets - Opening Liabilities (Rs. 20,000) = Opening Capital (Rs. 10,000)
Answer: Rs. 30,000. Opening assets are calculated by adding opening liabilities to opening capital, following the fundamental accounting equation.
In simple words: To find the total assets we started with, we add our starting capital to the liabilities we owed.

🎯 Exam Tip: Always remember the accounting equation: Assets = Capital + Liabilities.

 

Question 3. Find the Closing Capital using the following details:
Closing Assets (Rs. 10,000) - Closing Liabilities (Rs. 5,000) = Closing Capital [?]
Answer: Rs. 5,000. This is calculated by subtracting the closing liabilities from the closing assets to find the net worth of the business.
In simple words: To find the capital left at the end of the year, you subtract what you owe to others from the total value of what you own.

🎯 Exam Tip: Remember the basic accounting equation: Assets = Capital + Liabilities. Rearranging it gives Capital = Assets - Liabilities.

 

Question 4. Find the missing values:
Closing Capital [?] + Drawings (Rs. 15,000) = Adjusted Closing Capital (Rs. 40,000) - Opening Capital (Rs. 20,000) = Profit [?]
Answer: Closing Capital = Rs. 25,000, Profit = Rs. 20,000. We find the Closing Capital by subtracting Drawings from the Adjusted Closing Capital, and then we calculate the Profit by subtracting the Opening Capital from the Adjusted Closing Capital.
In simple words: We work backwards from the adjusted capital to find the starting closing capital, and subtract our initial investment to see how much profit we made.

🎯 Exam Tip: Always write down the step-by-step formula for Adjusted Closing Capital to avoid calculation errors when working backwards.

 

Question 5. Calculate the Capital using the given values:
Cash in Hand (Rs. 10,000) + Cash at Bank (Rs. 5,000) + Sundry Debtors (Rs. 8,000) - Bills Payable (Rs. 4,000) = Capital [?]
Answer: Rs. 19,000. This is calculated as: Rs. 10,000 + Rs. 5,000 + Rs. 8,000 - Rs. 4,000 = Rs. 19,000. This formula represents the total assets minus the total liabilities to determine the owner's equity.
In simple words: Add all your cash and money owed to you, then subtract the bills you have to pay to find your total capital.

🎯 Exam Tip: Group all assets together and subtract the liabilities to quickly find the capital amount.

 

9. Complete the following table. Put Proper mark in Box.

 

Question 1. Complete the table when the closing capital is given:
Answer:

Sr. No.	When the closing capital is given	Add	Less
1)	Drawings	✓
2)	Prepaid Expenses	✓
3)	Overvaluation of Liabilities	✓
4)	Undervaluation of Liabilities		✓
5)	Interest on Drawings	✓
6)	Opening Capital		✓
7)	Undervaluation of Assets	✓
8)	Interest on Capital		✓
9)	Depreciation of Assets		✓
10)	Bad debts		✓

This table helps in adjusting the closing capital to find the correct profit or loss for the year.
In simple words: When finding profit from closing capital, we add back items that reduced capital during the year (like drawings) and subtract items that increased it or represent expenses (like opening capital and depreciation).

🎯 Exam Tip: Memorize which items are added and which are deducted from the closing capital to quickly solve statement of profit or loss problems.

Practical Problems

 

Question 1. Mr. Poonawala keeps his books under the Single Entry System and gives the following information.
Capital as of 31.3.2017 – Rs. 60,000
Capital as on 31.3.2018 – Rs. 1,00,000
Drawings made during the year Rs. 2,000
Additional capital introduced during the year Rs. 12,000
Calculate Profit or Loss during the year.
Answer:
In the books of Mr. Poonawala
Statement of Profit or Loss for the year ended 31st March 2018. This statement helps Mr. Poonawala determine the financial progress of his business over the specified twelve-month period.

Particulars	Amt. (Rs.)	Amt. (Rs.)
Capital as on 31st March, 2018		1,00,000
Add : Drawings during the year		2,000
		1,02,000
Less : Additional capital introduced during the year		12,000
Adjusted closing capital		90,000
Less : Capital as on 31st March, 2017		60,000
Profit during the year		30,000

In simple words: To find the profit, we start with the capital at the end of the year, add any money taken out for personal use (drawings), and subtract any extra capital put in. Finally, we subtract the starting capital to see how much money the business actually made.

🎯 Exam Tip: Always remember the standard formula: Profit = Closing Capital + Drawings - Additional Capital - Opening Capital. Double-check your additions and subtractions to avoid simple calculation errors.

 

Question 2. Sujit a small trader provides you with the following details of his business.

 

Question 1. Prepare Opening Statement of Affairs, Closing Statement of Affairs, and Statement of Profit or Loss for the year ending 31st March 2018 from the following details:

Particulars	1.4.2017 (Rs.)	31.3.2018 (Rs.)
Cash in Hand	2,000	7,000
Debtors	40,000	60,000
Creditors	50,000	80,000
10% Govt. Bonds	—	9,000
Bank Overdraft	70,000	30,000
Motor Van	50,000	70,000
Furniture	15,000	15,000
Stock	70,000	90,000
Bills Receivable	70,000	90,000

Additional information:
1. Sujit withdraws Rs. 5,000 for his personal use, on 1st Oct. 2017.
2. He had also withdrawn Rs. 30,000 for rent of his residential flat.
3. Depreciation Furniture by 10% p.a. and writes off Rs. 1,000 from Motor Van.
4. Charge interest on Drawings Rs. 3,000.
5. 10% Govt. Bonds were purchased on 1st Oct. 2017.
6. Allow interest on capital at 10% p.a.
7. Rs. 1,000 is written off as bad debts and provides 5% p.a. R.D.D. on Debtors.

Answer:
In the books of Sujit
Opening and Closing Statement of Affairs as on 1st April 2017 and 31st March 2018

Liabilities	01.04.2017 (Rs.)	31.3.2018 (Rs.)	Assets	01.04.2017 (Rs.)	31.3.2018 (Rs.)
Creditors	50,000	80,000	Cash in hand	2,000	7,000
Bank Overdraft	70,000	30,000	Debtors	40,000	60,000
Capital (Balancing figure)	1,27,000	2,31,000	10% Govt. Bonds	—	9,000
			Motor van	50,000	70,000
			Furniture	15,000	15,000
			Stock	70,000	90,000
			Bills Receivable	70,000	90,000
Total	2,47,000	3,41,000	Total	2,47,000	3,41,000

In simple words: To find the opening and closing capital, we list all assets and liabilities for both dates. The difference between total assets and total liabilities gives us the capital balance for each period.

🎯 Exam Tip: Always remember to calculate the capital as a balancing figure in the Statement of Affairs by subtracting total liabilities from total assets.

Statement of Profit or Loss for the Year Ended 31st March 2018

Particulars	Amt. (Rs.)	Amt. (Rs.)
Capital as on 31st March, 2018		2,31,000
Add : Drawings – Cash	5,000
– Rent for Residential flat	30,000	35,000
Adjusted closing capital		2,66,000
Less : Capital as on 1st April, 2017		1,27,000
Profit before adjustments		1,39,000
Add: Incomes and gains during the year
(1) Interest on drawings	3,000
(2) Interest on Govt. Bonds (6 months)	450	3,450
		1,42,450
Less: Expenses and losses during the year
(1) Interest on capital	12,700
(2) Depreciation on furniture	1,500
(3) Depreciation on motor van	1,000
(4) Bad debts	1,000
(5) R.D.D. @ 5% on debtors	2,950	19,150
Net profit earned during the year		1,23,300

 

Question 3. Anjali keeps her books by the Single Entry System. Her position on 1.4.2016 was as follows.
Cash at Bank Rs. 4,000, Cash in Hand Rs. 1,000, Stock Rs. 6,000; Sundry Debtors Rs. 8,400, Plant and Machinery Rs. 7,500, Bill Receivable Rs. 2,600, Creditors Rs. 3500; Bills Payable Rs. 4,000
On 31.3.2017 her position was as follows; cash at Bank Rs. 3,900, Cash in Hand Rs. 2,000. Stock Rs. 9000, Sundry Debtors, Rs. 7,500; Plant and Machinery Rs. 7,500; Bills Payable Rs. 2,200, Bills Receivable Rs. 3,400; Creditors Rs. 1,500.
During the year Anjali introduced further Capital of Rs. 1,500 and she spent Rs. 700 per month for her personal use.
Depreciation Plant and Machinery by 5% p.a. and create Reserve for Doubtful debts @ 5% p.a. on the debtor. Prepare Opening and Closing Statement of Affairs and Statement of Profit or Loss for the year ended 31.3.2017.
Answer: In the books of Anjali
Opening and closing statement of Affairs as on _______________
This statement will help determine the opening capital as of 1st April 2016 and the closing capital as of 31st March 2017.
In simple words: To find the profit or loss under the single entry system, we first prepare the Statement of Affairs to find the opening and closing capitals. Then, we adjust these capitals for drawings and further capital introduced during the year to calculate the net profit.

🎯 Exam Tip: Always remember to convert monthly drawings to annual drawings by multiplying by 12 before adjusting the closing capital.

Statement of Affairs

Liabilities	01.04.2016 (₹)	31.3.2017 (₹)	Assets	01.04.2016 (₹)	31.3.2017 (₹)
Creditors	3,500	1,500	Cash at Bank	4,000	3,900
Bills Payable	4,000	2,200	Cash in Hand	1,000	2,000
Capital (Balancing figure)	22,000	29,600	Stock	6,000	9,000
			Sundry Debtors	8,400	7,500
			Plant and Machinery	7,500	7,500
			Bills Receivable	2,600	3,400
Total	29,500	33,300	Total	29,500	33,300

Statement of Profit or Loss for the Year Ended 31st March 2017

Particulars	Amt. (₹)	Amt. (₹)
Capital at the end of the year (31.03.2017)		29,600
Add : Drawings during the year (₹ 700 × 12)		8,400
Total		38,000
Less : Additional capital introduced during the year		1,500
Adjusted closing capital		36,500
Less : Capital at the beginning of the year (01.04.16)		22,000
Profit before adjustments		14,500
Less : Expenses and losses during the year (1) Depreciation on plant and machinery (2) R.D.D. @ 5% on debtors	375 375	750
Net profit earned during the year		13,750

 

Question 4. Mr. Vijay is dealing in the business of fruits. He maintains an accounting record with a single entry. The following figures are taken from his record.

Particulars	31.3.2017 (₹)	31.3.2018 (₹)
Building	50,000	60,000
Furniture	30,000	30,000
Plant and Machinery	20,000	40,000
Sundry Debtors	30,000	50,000
Stock	15,000	25,000
Cash Balance	10,000	20,000
Bills Receivable	5,000	10,000
Sundry Creditors	30,000	15,000
Bank Overdraft	8,000	—
Bank Balance	—	12,000

Additional information:
1. Mr. Vijay introduced ₹ 7,000 as fresh capital.
2. He spent ₹ 40,000 from his business for his daughter’s marriage.
3. Depreciate Building by ₹ 6,000.
4. Create a 5% reserve for doubtful debts on Sundry Debtor.

Prepare:
1. Opening Statement of Affairs.
2. Closing Statement of Affairs.

Answer:
1. Opening Statement of Affairs as on 31st March, 2017

Liabilities	Amt (₹)	Assets	Amt (₹)
Sundry Creditors	30,000	Building	50,000
Bank Overdraft	8,000	Furniture	30,000
Capital (Balancing Figure)	1,22,000	Plant and Machinery	20,000
		Sundry Debtors	30,000
		Stock	15,000
		Cash Balance	10,000
		Bills Receivable	5,000
Total	1,60,000	Total	1,60,000

2. Closing Statement of Affairs as on 31st March, 2018

Liabilities	Amt (₹)	Assets	Amt (₹)
Sundry Creditors	15,000	Building	60,000
Capital (Balancing Figure)	2,32,000	Furniture	30,000
		Plant and Machinery	40,000
		Sundry Debtors	50,000
		Stock	25,000
		Cash Balance	20,000
		Bills Receivable	10,000
		Bank Balance	12,000
Total	2,47,000	Total	2,47,000

These statements help determine the opening and closing capital balances before adjusting for depreciation and bad debts.
In simple words: The Opening and Closing Statements of Affairs are prepared like simplified balance sheets to find the starting capital and ending capital of the business.

🎯 Exam Tip: Always write "Balancing Figure" next to the Capital amount in both statements of affairs to show the examiner how you calculated it.

Question 3. Statement of Profit or Loss for the year ended 31.3.2018.
Answer:
In the books of Mr. Vijay
Opening and closing statement of Affairs as on _______________

Liabilities	01.04.2017 (Rs.)	31.03.2018 (Rs.)	Assets	01.04.2017 (Rs.)	31.03.2018 (Rs.)
Sundry creditors	30,000	15,000	Building	50,000	60,000
Bank overdraft	8,000	-	Furniture	30,000	30,000
Capital (Balancing figure)	1,22,000	2,32,000	Plant and Machinery	20,000	40,000
			Sundry Debtors	30,000	50,000
			Stock	15,000	25,000
			Cash Balance	10,000	20,000
			Bills Receivable	5,000	10,000
			Bank Balance	-	12,000
Total	1,60,000	2,47,000	Total	1,60,000	2,47,000

Statement of Profit or Loss for the year ended 31st March 2018

Particulars	Amt. (Rs.)	Amt. (Rs.)
Closing capital as on 31st March, 2018		2,32,000
Add: Drawings - amount spent for daughter's marriage		40,000
		2,72,000
Less: Additional capital introduced during the year		7,000
Adjusted closing capital		2,65,000
Less: Opening capital as on 1 April, 2017		1,22,000
Profit before adjustments		1,43,000
Less: Expenses and losses during the year
(1) Depreciation on building	6,000
(2) R.D.D. @ 5% on debtors	2,500	8,500
Net profit earned during the year		1,34,500

This systematic approach ensures that all financial changes are accurately captured for the period.
In simple words: This statement helps Mr. Vijay calculate his net profit by comparing his closing capital with his opening capital, after adjusting for drawings and additional capital introduced during the year.

🎯 Exam Tip: Always remember to add drawings back to the closing capital and deduct additional capital to find the adjusted closing capital before subtracting the opening capital.

 

Question 5. Miss. Fiza keeps her books on the Single Entry System and disclosed the following information about her business.

Particulars	1.4.2017 (Rs.)	31.3.2018 (Rs.)
Debtors	25,000	45,000
Investments	—	40,000
Plant and Machinery	10,000	10,000
Creditors	30,000	33,000
Stock	32,000	35,000
Cash at Bank	16,000	50,000
Bills Payable	5,000	8,000

Additional information:
1. Miss. Fiza transferred Rs. 2,000 per month during the first half-year and Rs. 1000 per

 

Question 5. ... month for the second half-year from a business account to her personal account.
2. She sold her private asset for Rs. 40,000 and brought the proceeds into her business.
3. She also took goods worth Rs. 12,000 for private use.
4. Plant and Machinery is to be depreciated by 10% p.a.
5. Provide R.D.D. on debtors at 5% p.a.

Prepare:
1. Opening Statement of Affairs
2. Closing Statement of Affairs
3. Statement of Profit or Loss for the year ended 31.3.2018
Answer:

In the books of Miss Fiza
Opening and Closing Statement of Affairs as on 1st April 2017 and 31st March 2018

Liabilities	01.04.2017 (Rs.)	31.3.2018 (Rs.)	Assets	01.04.2017 (Rs.)	31.3.2018 (Rs.)
Creditors	30,000	33,000	Debtors	25,000	45,000
Bills Payable	5,000	8,000	Investments	—	40,000
Capital (Balancing figure)	48,000	1,39,000	Plant and Machinery	10,000	10,000
			Stock	32,000	35,000
			Cash at Bank	16,000	50,000
Total	83,000	1,80,000	Total	83,000	1,80,000

Statement of Profit or Loss for the year ended 31st March 2018

Particulars	Amt. (Rs.)	Amt. (Rs.)
Closing capital as on 31st March, 2018		1,39,000
Add: Drawings during the year – Cash	18,000
– Goods	12,000	30,000
		1,69,000
Less: Additional capital introduced during the year		40,000
Adjusted closing capital		1,29,000
Less: Opening capital as on 1 April, 2017		48,000
Profit before adjustments		81,000
Less: Expenses and losses during the year
(1) Depreciation on Plant and Machinery	1,000
(2) R.D.D. @ 5% on debtors	2,250	3,250
Net profit earned during the year		77,750

Preparing these statements helps in determining the financial position and the net profit of the business under the single entry system.
In simple words: We find the opening and closing capital by preparing the Statement of Affairs for both dates. Then, we adjust the closing capital by adding drawings and subtracting additional capital and opening capital to find the net profit.

🎯 Exam Tip: Always remember to calculate depreciation and R.D.D. on the closing balances of assets, and clearly show the additions and deductions in the Statement of Profit or Loss to avoid calculation errors.

 

Question 6. Miss. Sanika keeps her books on the Single Entry System. The statement of affairs is given on 31st March 2018.

 

Question 1. Following is the Statement of Affairs of Miss Sanika:

Liabilities	Amt (Rs.)	Assets	Amt (Rs.)
Creditors	12,000	Plant and Machinery	17,000
Bills Payable	8,500	Debtors	19,500
Capital Balance	38,500	Stock	9,000
		Cash in Hand	7,500
		Bills Receivable	6,000
Total	59,000	Total	59,000

On 31st March 2018 their Assets and Liabilities were as follows:
Plant and Machinery Rs. 42,000, Stock Rs. 38,000, Cash in Hand Rs. 10,000, Creditors Rs. 7,000, Debtors Rs. 25,000, Bills Payable Rs. 6,000
Drawings during the year were Rs. 5,500, Plant and Machinery were found Overvalued by 5% p.a. and Stock was found Undervalued by 20% p.a., R.D.D. was to be created at 10% p.a. on Debtors, Interest on Capital was allowed at 10% p.a.
Prepare:
1. Closing Statement of Affairs.
2. Statement of Profit or Loss for the year ended 31st March 2018.
Answer:
In the books of Miss Sanika
Closing Statement of Affairs as on 31.03.2018

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Creditors	7,000	Plant and Machinery	42,000
Bills Payable	6,000	Stock	38,000
Capital (Balancing figure)	1,02,000	Cash in Hand	10,000
		Debtors	25,000
Total	1,15,000	Total	1,15,000

Statement of Profit or Loss for the year ended 31st March 2018

Particulars	Amt. (Rs.)	Amt. (Rs.)
Capital at the end of the year (31.03.2018)		1,02,000
Add: Drawings during the year		5,500
Adjusted closing capital		1,07,500
Less: Capital at the beginning of the year (01.04.17)		38,500
Profit before adjustments		69,000
Add: Income and gains during the year (1) Stock undervalued by 20%	9,500	9,500
Subtotal		78,500
Less: Expenses and losses during the year (1) Plant and machinery overvalued by 5% (2) R.D.D. @ 10% on debtors (3) Interest on capital @ 10%	2,000 2,500 3,850	8,350
Net profit earned during the year		70,150

In simple words: To find the profit, we first calculate the closing capital by subtracting liabilities from assets at the end of the year. Then, we add drawings, subtract the opening capital, add any undervalued assets, and subtract overvalued assets, R.D.D., and interest on capital to get the final net profit.

🎯 Exam Tip: Always calculate undervaluation and overvaluation on the true value of the assets, not directly on the book value. For example, if stock is undervalued by 20%, the true value is calculated as \( \text{Book Value} \times \frac{100}{100 - 20} \).

 

Question 7. Mr. Suhas commenced his business with the Capital of Rs. 1,50,000 on 1st April 2017. His financial position was as follows as on 31st March 2018, Cash Rs. 20,000, Stock Rs. 15,000, Debtors Rs. 30,000, Premises Rs. 90,000, Vehicles Rs. 45,000, Creditors Rs. 18,500, Bills Payable Rs. 10,000.
Additional information:
1. He brought additional capital Rs. 10,000 on 30th Sept. 2017, Interest on capital is to be provided at 5% p.a.
2. He withdrew Rs. 15,000 for personal use on which interest is to be charged at 5% p.a.
3. Write off Bad debts Rs. 500.
Prepare:
1. Closing Statement of Affairs
2. Statement of Profit or Loss for the year ended 31.3.2018.
Answer:
In the books of Mr. Suhas

Closing Statement of Affairs as on 31.3.2018

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Creditors	18,500	Cash	20,000
Bills Payable	10,000	Stock	15,000
Capital (Balancing figure)	1,71,500	Debtors	30,000
		Premises	90,000
		Vehicles	45,000
Total	2,00,000	Total	2,00,000

Statement of Profit or Loss for the year ended 31st March 2018

Particulars	Amt. (Rs.)	Amt. (Rs.)
Capital at the end of the year (31.03.2018)		1,71,500
Add: Drawings during the year		15,000
		1,86,500
Less: Additional capital introduced during the year		10,000
Adjusted closing capital		1,76,500
Less: Capital at the beginning of the year (01.04.17)		1,50,000
Profit before adjustments		26,500
Add: Income and gains during the year
(1) Interest on drawings @ 5% (6 months)	375
		26,875
Less: Expenses and losses during the year
(1) Interest on capital @ 5%         (Opening capital = 7,500, Additional capital = 250)	7,750
(2) Bad debts	500	8,250
Net profit earned during the year		18,625

This systematic calculation helps Mr. Suhas understand the true financial health and operational efficiency of his business over the financial year.
In simple words: To find the profit, we first calculate the closing capital by listing all assets and liabilities at the end of the year. Then, we adjust this closing capital by adding drawings, subtracting additional capital, and subtracting the opening capital, while also adjusting for interest and bad debts to get the final net profit.

🎯 Exam Tip: Always calculate interest on drawings and additional capital carefully based on the exact number of months they were used in the business to avoid losing marks.

 

Question 8. Ganesh keeps his books by the Single Entry Method. Following are the details of his business:

Particulars	1.4.2016 (Rs.)	31.3.2017 (Rs.)
Cash in Hand	15,000	22,000
Cash at Bank	30,000	45,000
Stock	8,000	13,000
Furniture	20,000	20,000
Plant and Machinery	90,000	1,10,000
Building	50,000	50,000
Debtors	27,000	38,000
Creditors	8,000	10,000

During the year he has withdrawn Rs. 25,000 for his private purpose and goods of Rs. 3,000 for household use. On 1st Oct. 2016. He sold his household furniture for Rs. 4,000 and deposited the same amount in a business Bank Account.
Provide Depreciation on Plant and Machinery at 10% p.a. (assuming additions were made on 1st Oct. 2016) and Furniture at 5%.
Prepare:
1. Opening Statement of Affairs
2. Closing Statement of Affairs
3. Statement of Profit or Loss for the year ended 31.3.2017.
Answer:
In the books of Ganesh
Opening and Closing Statement of Affairs as on 1st April 2016 and 31st March 2017

Liabilities	01.04.2016 (Rs.)	31.3.2017 (Rs.)	Assets	01.04.2016 (Rs.)	31.3.2017 (Rs.)
Creditors	8,000	10,000	Cash in Hand	15,000	22,000
Capital (Balancing figure)	2,32,000	2,88,000	Cash at Bank	30,000	45,000
			Stock	8,000	13,000
			Furniture	20,000	20,000
			Plant and Machinery	90,000	1,10,000
			Building	50,000	50,000
			Debtors	27,000	38,000
Total	2,40,000	2,98,000	Total	2,40,000	2,98,000

Statement of Profit or Loss for the year ended 31st March 2017

Particulars	Amount (Rs.)	Amount (Rs.)
Closing Capital as on 31.3.2017		2,88,000
Add: Drawings during the year:
- In Cash	25,000
- In Goods	3,000	28,000
Total		3,16,000
Less: Additional Capital introduced (Sale of personal furniture)		(4,000)
Adjusted Closing Capital		3,12,000
Less: Opening Capital as on 1.4.2016		(2,32,000)
Profit before adjustments		80,000
Less: Adjustments (Depreciation):
- Depreciation on Plant & Machinery (Working Note 1)	10,000
- Depreciation on Furniture (Working Note 2)	1,000	(11,000)
Net Profit for the year		69,000

Working Notes:
1. Depreciation on Plant & Machinery:
- On opening balance: Rs. 90,000 @ 10% for 1 year = Rs. 9,000
- On additions (Rs. 1,10,000 - Rs. 90,000 = Rs. 20,000): Rs. 20,000 @ 10% for 6 months (from 1st Oct 2016 to 31st Mar 2017) = Rs. 1,000
- Total Depreciation = Rs. 9,000 + Rs. 1,000 = Rs. 10,000

2. Depreciation on Furniture:
- Rs. 20,000 @ 5% for 1 year = Rs. 1,000
This systematic calculation helps Ganesh understand the true financial progress of his business despite keeping incomplete records.
In simple words: To find the profit, we first find the opening and closing capital by listing assets and liabilities. Then, we adjust the closing capital by adding drawings, subtracting new capital, and subtracting the opening capital and depreciation to get the final net profit.

🎯 Exam Tip: Always calculate depreciation on additions carefully by checking the date of purchase to apply the correct proportion of months.

Statement of Profit or Loss for the year ended 31st March 2017

Particulars	Amt. (Rs.)	Amt. (Rs.)
Capital at the end of the year (31.03.2017)		2,88,000
Add: Drawings during the year – Cash	25,000
– Goods	3,000	28,000
		3,16,000
Less: Additional capital introduced during the year		4,000
Adjusted closing capital		3,12,000
Less: Capital at the beginning of the year (01.04.16)		2,32,000
Profit before adjustments		80,000
Less: Expenses and losses during the year
(1) Depreciation on machinery @ 10%
– 90,000 @ 10% for 12 months	9,000
– 20,000 @ 10% for 6 months	1,000
(2) Depreciation on furniture @ 5%	1,000	11,000
Net profit earned during the year		69,000

 

Question 9. Peter keeps his books on the Single Entry System. From the following particulars, Prepare Opening and Closing Statement of Affairs and Statement of Profit or Loss for the year ending 31st March 2018.

Particulars	31.3.2017 (Rs.)	31.3.2018 (Rs.)
Bank Balance	46,000	38,000
Cash Balance	8,500	15,000
Sundry Debtors	80,000	1,30,000
Stock	70,000	1,00,000
Furniture	18,000	18,000
Sundry Creditors	40,000	45,000
Bills Payable	15,000	30,000

Additional Information:
1. Peter has withdrawn Rs. 15,000 from the business for his personal use.
2. He has introduced additional capital of Rs. 10,000 in the business on 1st January 2018.
3. Depreciate furniture @ 10% p.a.
4. Maintain reserve for doubtful debts @ 5% on Sundry Debtors.
5. Closing Stock is overvalued by 25% in the books.

Answer:
In the books of Peter
Statement of Affairs as on 31st March 2017 and 31st March 2018

Liabilities	31.3.2017 (Rs.)	31.3.2018 (Rs.)	Assets	31.3.2017 (Rs.)	31.3.2018 (Rs.)
Sundry Creditors	40,000	45,000	Bank Balance	46,000	38,000
Bills Payable	15,000	30,000	Cash Balance	8,500	15,000
			Sundry Debtors	80,000	1,30,000
			Stock	70,000	1,00,000
			Furniture	18,000	18,000
Capital (Balancing Figure)	1,67,500	2,26,000
Total	2,22,500	3,01,000	Total	2,22,500	3,01,000

Statement of Profit or Loss for the year ended 31st March 2018

Particulars	Amt. (Rs.)	Amt. (Rs.)
Capital at the end of the year (31.03.2018)		2,26,000
Add: Drawings during the year		15,000
		2,41,000
Less: Additional capital introduced during the year		10,000
Adjusted closing capital		2,31,000
Less: Capital at the beginning of the year (01.04.2017)		1,67,500
Profit before adjustments		63,500
Less: Expenses, losses and adjustments during the year:
(1) Depreciation on Furniture @ 10% p.a. on Rs. 18,000	1,800
(2) Reserve for Doubtful Debts (RDD) @ 5% on Rs. 1,30,000	6,500
(3) Overvaluation of Closing Stock (Working Note 1)	20,000	28,300
Net Profit earned during the year		35,200

Working Notes:
1. Calculation of Overvaluation of Closing Stock:
The book value of closing stock is Rs. 1,00,000, which is overvalued by 25%. This means the book value represents 125% of its actual cost.
Actual Cost of Stock = \( \text{Book Value} \times \frac{100}{100 + \text{Percentage of Overvaluation}} \)
Actual Cost = \( 1,00,000 \times \frac{100}{125} = \text{Rs. } 80,000 \)
Overvaluation Amount = \( 1,00,000 - 80,000 = \text{Rs. } 20,000 \). This overvalued amount is deducted from the profit. This systematic approach ensures that all adjustments are accurately reflected to show the true financial position of Peter's business.
In simple words: We first find the opening and closing capitals by listing assets and liabilities for both dates. Then, we adjust the closing capital by adding drawings and subtracting additional capital, and compare it with the opening capital to find the profit before adjustments. Finally, we subtract depreciation, bad debt reserves, and the overvalued stock amount to get the true net profit of Rs. 35,200.

🎯 Exam Tip: Always calculate the true value of overvalued stock using the formula \( \text{Book Value} \times \frac{100}{100 + \%} \) instead of simply calculating the percentage directly on the book value, which is a very common mistake.

Statement of Affairs as on 1st April 2017 and 31st March 2018

Liabilities	01.04.2017 (₹)	31.3.2018 (₹)	Assets	01.04.2017 (₹)	31.3.2018 (₹)
Sundry Debtors	40,000	45,000	Bank Balance	46,000	38,000
Bills Payable	15,000	30,000	Cash Balance	8,500	15,000
Capital (Balancing figure)	1,67,500	2,26,000	Sundry Debtors	80,000	1,30,000
			Stock	70,000	1,00,000
			Furniture	18,000	18,000
Total	2,22,500	3,01,000	Total	2,22,500	3,01,000

Statement of Profit or Loss for the year ended 31st March 2018

Particulars	Amt. (₹)	Amt. (₹)
Closing capital as on 31.03.2018		2,26,000
Add: Drawings during the year		15,000
		2,41,000
Less: Additional capital introduced during the year		10,000
Adjusted closing capital		2,31,000
Less: Opening capital as on 1 April, 2017		1,67,500
Profit before adjustments		63,500
Less: Expenses and losses during the year
(1) Depreciation on furniture @ 10%	1,800
(2) R.D.D. @ 5% on debtors	6,500
(3) Overvaluation of closing stock by 25%	20,000	28,300
Net profit earned during the year		35,200

 

Question 10. Suresh keeps his books by the Single Entry System. His position on 1.4.2017 was as follows.
Cash at Bank ₹ 4,000, Cash in Hand ₹ 3,000; Stock ₹ 8,000; Sundry Debtors ₹ 9,000; Plant & Machinery ₹ 10,000; Bills Receivable ₹ 3000; Creditors ₹ 1500; Bills Payable ₹ 2000.
On 31st March 2018, his position was as follows:
Cash at bank ₹ 6,400; Cash in Hand ₹ 1,800; Stock ₹ 10000; Sundry and Debtors ₹ 8,000; Plant & Machinery ₹ 10,000; Bills Payable ₹ 4,000; Bills Receivable ₹ 5,200; Creditors ₹ 2,000. During the year Suresh introduced further capital of ₹ 3,000 and his drawings were ₹ 700 per months. Depreciate Plant & Machinery by 5% and create a reserve for bad doubtful debts @ 5%.
Prepare:
1. Opening Statement of Affairs
2. Closing Statement of Affairs
3. Statement of Profit or Loss for the year ended 31.3.2018.
Answer:
In the books of Suresh

1. Opening Statement of Affairs as on 1st April 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Sundry Creditors	1,500	Cash at Bank	4,000
Bills Payable	2,000	Cash in Hand	3,000
Opening Capital (Balancing figure)	33,500	Stock	8,000
		Sundry Debtors	9,000
		Plant & Machinery	10,000
		Bills Receivable	3,000
Total	37,000	Total	37,000

2. Closing Statement of Affairs as on 31st March 2018

Liabilities	Amount (₹)	Assets	Amount (₹)
Sundry Creditors	2,000	Cash at Bank	6,400
Bills Payable	4,000	Cash in Hand	1,800
Closing Capital (Balancing figure)	35,400	Stock	10,000
		Sundry Debtors	8,000
		Plant & Machinery	10,000
		Bills Receivable	5,200
Total	41,400	Total	41,400

3. Statement of Profit or Loss for the year ended 31st March 2018

Particulars	Amt. (₹)	Amt. (₹)
Closing capital as on 31.03.2018		35,400
Add: Drawings during the year (₹ 700 × 12)		8,400
		43,800
Less: Additional capital introduced during the year		3,000
Adjusted closing capital		40,800
Less: Opening capital as on 1st April 2017		33,500
Profit before adjustments		7,300
Less: Expenses and losses during the year:
(1) Depreciation on Plant & Machinery @ 5% (5% of ₹ 10,000)	500
(2) Reserve for Bad & Doubtful Debts (R.D.D.) @ 5% (5% of ₹ 8,000)	400	900
Net profit earned during the year		6,400

This systematic calculation ensures that all adjustments are accurately accounted for to reflect the true financial performance of the business.
In simple words: To find the profit, we compare the capital at the end of the year with the capital at the start of the year, adding back any money withdrawn (drawings) and subtracting any new money invested. Finally, we subtract expenses like depreciation and bad debt reserves to get the final net profit.

🎯 Exam Tip: Always calculate drawings for the entire year (e.g., ₹ 700 per month × 12 months) before adding them to the closing capital, and ensure adjustments like depreciation are calculated on the closing values of assets.

Opening and Closing Statement of Affairs as on _______________

Liabilities	01.04.2017 (Rs.)	31.3.2018 (Rs.)	Assets	01.04.2017 (Rs.)	31.3.2018 (Rs.)
Creditors	1,500	2,000	Cash at Bank	4,000	6,400
Bills Payable	2,000	4,000	Cash in hand	3,000	1,800
Capital (Balancing figure)	33,500	35,400	Stock	8,000	10,000
			Sundry Debtors	9,000	8,000
			Plant and Machinery	10,000	10,000
			Bills Receivable	3,000	5,200
Total	37,000	41,400	Total	37,000	41,400

 

Statement of Profit or Loss for the Year Ended 31st March 2018

Particulars	Amt. (Rs.)	Amt. (Rs.)
Closing capital as on 31.03.2018		35,400
Add: Drawings during the year (Rs. 700 × 12)		8,400
		43,800
Less: Additional capital introduced during the year		3,000
Adjusted closing capital		40,800
Less: Opening capital as on 1.04.2017		33,500
Profit before adjustments		7,300
Less: Expenses and losses during the year:
(1) Depreciation on plant and machinery @ 5%	500
(2) R.D.D. @ 5% on debtors	400	900
Net profit earned during the year		6,400