Maharashtra Board Class 11 Commerce BK Chapter 9 Final Accounts of a Proprietary Concern Solutions

Class 11 Commerce BK Chapter 9 Exercise Solutions

1. Answer in One Sentence.

Question 1. What is Trading Account?
Answer: An account in which direct expenses are compared with direct incomes to find out gross profit or gross loss for a given period is known as Trading Account.
In simple words: A Trading Account compares direct revenues with direct costs to calculate the gross profit or loss for a business over a period.

🎯 Exam Tip: Students should remember that the Trading Account is the first step in preparing final accounts, focusing on direct business activities.

 

Question 2. What do you mean by Profit and Loss Account?
Answer: An account in which indirect expenses are compared with indirect incomes to find out net profit or net loss for a given period is known as the Profit and Loss Account.
In simple words: A Profit and Loss Account calculates the net profit or loss by matching indirect expenses with indirect incomes for a specific period.

🎯 Exam Tip: The Profit and Loss Account follows the Trading Account and includes all operating and non-operating revenues and expenses.

 

Question 3. Why Balance Sheet is prepared?
Answer: The balance sheet is prepared to ascertain the financial position of the business on a specific date usually at the end of the accounting year.
In simple words: A Balance Sheet provides a snapshot of a business's financial health, showing its assets, liabilities, and owner's equity at a particular point in time.

🎯 Exam Tip: Understand that the Balance Sheet is a statement of financial position, not an account, and it reflects the accounting equation: Assets = Liabilities + Equity.

 

Question 4. State the meaning of Final Accounts.
Answer: Final Accounts are the group of Trading Account, Profit and loss account and Balance sheet prepared to know the results of business for a given period.
In simple words: Final Accounts are a complete set of financial statements including the Trading Account, Profit and Loss Account, and Balance Sheet, prepared at the end of an accounting period to determine a business's profitability and financial position.

🎯 Exam Tip: Final accounts provide a comprehensive overview of a business's performance and financial status, essential for decision-making.

 

Question 5. What is Net Profit?
Answer: When the total credit side of Profit and Loss A/c is greater than the total of debit side, it indicates credit balance which is known as net profit.
In simple words: Net Profit is the positive difference when a company's total revenues exceed its total expenses (both direct and indirect) over an accounting period.

🎯 Exam Tip: Net profit is a key indicator of a business's overall profitability after all costs, including taxes and non-operating expenses, have been accounted for.

 

Question 6. What do you mean by Gross Profit?
Answer: When the total credit side of Trading A/c is greater than the total of debit side, it indicates credit balance, which is called gross profit.
In simple words: Gross Profit is the profit a company makes after deducting the direct costs associated with producing and selling its products or services, like cost of goods sold.

🎯 Exam Tip: Gross profit shows the profitability of a company's core operations before considering indirect expenses.

 

Question 7. State the meaning of Accrued Income?
Answer: Income that is due and accumulated but not yet actually received during the current accounting year is called accrued income.
In simple words: Accrued income refers to revenue earned but not yet collected, which is recorded in the current accounting period even though cash will be received later.

🎯 Exam Tip: Accrued income is an asset and an adjustment typically made at the end of the accounting period to follow the accrual concept.

 

Question 8. State the meaning of Outstanding Expenses?
Answer: The expenses which are incurred in the current year, but not paid partly or fully during the current accounting year are termed as outstanding expenses.
In simple words: Outstanding expenses are costs incurred during an accounting period but not yet paid, representing a liability for the business.

🎯 Exam Tip: These expenses are recorded to ensure that all costs related to the current period are accounted for, aligning with the matching principle.

 

Question 9. What is Depreciation?
Answer: Depreciation means a continuous reduction in the value of property or asset due to wear and tear, accident, fall in the market price, the passage of time, etc.
In simple words: Depreciation is the systematic reduction in the recorded cost of an asset over its useful life, reflecting its decrease in value due to use, age, or obsolescence.

🎯 Exam Tip: Depreciation is a non-cash expense that is crucial for accurately valuing assets and determining a business's true profitability.

 

Question 10. What do you mean by Prepaid Expenses?
Answer: The expense which is paid in advance before they are due for payment is called prepaid expenses.
In simple words: Prepaid expenses are payments made for goods or services that will be consumed in a future accounting period, initially recorded as an asset.

🎯 Exam Tip: Prepaid expenses are an asset until they are used up, at which point they are expensed to match the period in which the benefit is received.

 

2. Give a word, term, or phrase which can substitute each of the following statements:

Question 1. Expenses are paid before it is due.
Answer: Prepaid Expenses
In simple words: Expenses paid in advance for future benefits are known as prepaid expenses.

🎯 Exam Tip: Recognize that prepaid expenses are assets until the service or benefit is received.

 

Question 2. Income due but not yet received.
Answer: Accrued Income
In simple words: Income earned but not yet collected is termed as accrued income.

🎯 Exam Tip: Accrued income is an asset on the balance sheet, reflecting revenue earned in the current period.

 

Question 3. Carriage paid on the sale of goods.
Answer: Carriage Outwards
In simple words: The cost of transporting goods to customers after they are sold is called carriage outwards.

🎯 Exam Tip: Carriage outwards is an indirect expense, typically recorded in the Profit and Loss Account.

 

Question 4. Statement of Assets and liabilities.
Answer: Balance Sheet
In simple words: The financial statement that summarizes a company's assets, liabilities, and owner's equity at a specific point in time is the Balance Sheet.

🎯 Exam Tip: The Balance Sheet provides a clear view of a company's financial position and adheres to the fundamental accounting equation.

 

Question 5. Account prepared to know Net Profit or Net loss.
Answer: Profit and Loss A/c
In simple words: The account prepared to determine the overall profitability of a business for a period, after all incomes and expenses are considered, is the Profit and Loss Account.

🎯 Exam Tip: Remember that the Profit and Loss Account provides the final net profit or loss figure for an accounting period.

 

Question 6. Value of goods remaining unsold at the end of the year.
Answer: Closing Stock
In simple words: The unsold inventory at the end of an accounting period is referred to as closing stock.

🎯 Exam Tip: Closing stock is valued at cost or market price, whichever is lower, and appears on both the Trading Account and the Balance Sheet.

 

Question 7. The provision was made to compensate the loss on account of likely debts.
Answer: Provision for Bad and Doubtful Debts
In simple words: A provision created to cover potential losses from customers who may not pay their debts is called Provision for Bad and Doubtful Debts.

🎯 Exam Tip: This provision is an estimated expense, reducing the value of debtors to reflect a more realistic recoverable amount.

 

Question 8. The accounts are prepared at the end of the accounting year to know the profit or loss and financial position of the business.
Answer: Final Accounts
In simple words: The complete set of financial statements prepared at year-end to assess profitability and financial health are known as Final Accounts.

🎯 Exam Tip: Final accounts are crucial for evaluating business performance and compliance with accounting standards.

 

Question 9. An amount spent on promoting the sale of goods.
Answer: Selling Expenses
In simple words: Costs incurred specifically to market and sell products or services are classified as selling expenses.

🎯 Exam Tip: Selling expenses are indirect costs and are typically recorded in the Profit and Loss Account.

 

Question 10. Additional information is provided below the Trial Balance.
Answer: Adjustments
In simple words: Extra information given after the trial balance, requiring modifications to account balances to reflect the true financial position and performance, are called adjustments.

🎯 Exam Tip: Adjustments are critical for adhering to the accrual and matching principles, ensuring financial statements are accurate.

 

3. Select the most appropriate alternatives given below and rewrite the sentence:

Question 1. ________ is excess of assets over liabilities.
(a) Goodwill
(b) Capital
(c) Investments
(d) Drawings
Answer: (b) Capital
In simple words: Capital represents the owner's equity or the net worth of the business, which is the amount by which assets exceed liabilities.

🎯 Exam Tip: Remember the accounting equation: Assets - Liabilities = Capital (Owner's Equity).

 

Question 2. Discount earned is transferred to credit side of ________ account.
(a) Current
(b) Profit and Loss
(c) Trading
(d) Capital
Answer: (b) Profit and Loss
In simple words: Discount earned is an indirect income for the business and is therefore recorded on the credit side of the Profit and Loss Account.

🎯 Exam Tip: All indirect incomes and expenses are posted to the Profit and Loss Account.

 

Question 3. ________ is a statement which shows the financial position of business on a specific date.
(a) Trading Account
(b) Trial Balance
(c) Profit and Loss A/c
(d) Balance Sheet
Answer: (d) Balance Sheet
In simple words: The Balance Sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time, showing assets, liabilities, and equity.

🎯 Exam Tip: Unlike accounts that cover a period, the Balance Sheet presents a financial picture on a precise date.

 

Question 4. Outstanding expenses are shown on the ________ side of Balance sheet.
(a) Assets
(b) Liability
(c) Both
(d) None of these
Answer: (b) Liability
In simple words: Outstanding expenses represent amounts owed by the business for services received but not yet paid, hence they are shown as a liability on the Balance Sheet.

🎯 Exam Tip: Liabilities represent obligations that a company must pay in the future.

 

Question 5. Interest on Drawing is credited to ________ Account.
(a) Trading
(b) Profit and Loss
(c) Capital
(d) All
Answer: (c) Capital
In simple words: Interest on drawings is charged to the owner's capital account because it reduces the owner's equity in the business.

🎯 Exam Tip: Interest on drawings directly impacts the owner's capital as it is an income for the business but a charge against the owner's personal withdrawal.

 

Question 6. Debit balance of Trading Account means ________.
(a) Gross Loss
(b) Net Loss
(c) Net Profit
(d) Gross Profit
Answer: (a) Gross Loss
In simple words: A debit balance in the Trading Account means that the direct expenses and cost of goods sold are greater than the direct incomes (sales), resulting in a gross loss.

🎯 Exam Tip: The Trading Account identifies gross profit or loss before indirect expenses are considered.

 

Question 7. Carriage Inward is debited to ________ Account.
(a) Trading
(b) Profit and Loss
(c) Capital
(d) Bank
Answer: (a) Trading
In simple words: Carriage inward refers to the cost of transporting purchased goods to the business premises, which is a direct expense and therefore debited to the Trading Account.

🎯 Exam Tip: Direct expenses, like carriage inward, are essential for bringing goods into a saleable condition and are thus part of the cost of goods sold.

 

Question 8. Excess of credit over to debit in Profit and Loss A/c indicates ________.
(a) Net Profit
(b) Gross Profit
(c) Gross Loss
(d) Net Loss
Answer: (a) Net Profit
In simple words: When the total of all incomes (credit side) in the Profit and Loss Account exceeds the total of all expenses (debit side), it results in a net profit.

🎯 Exam Tip: A net profit indicates that the business has successfully covered all its operating and non-operating expenses.

 

Question 9. Closing stock is always valued at cost or market price which is ________.
(a) more
(b) less
(c) zero
(d) equal
Answer: (b) less
In simple words: Closing stock is valued using the principle of "cost or market price, whichever is lower" to ensure assets are not overstated and to adhere to the conservatism principle.

🎯 Exam Tip: This valuation method is crucial for accurate financial reporting and avoids overstating a company's assets.

 

Question 10. When specific date is not given, in that case interest on drawings is charged for ________ month.
(a) Four
(b) Six
(c) Eight
(d) Nine
Answer: (b) Six
In simple words: If no specific date for drawings is mentioned, it is assumed that the withdrawals were made evenly throughout the year, so interest is charged for an average of six months.

🎯 Exam Tip: This is a conventional accounting assumption used to simplify interest calculation on drawings when precise timing is unknown.

 

4. State True or False with reasons:

Question 1. In every adjustment at least there are three effects.
Answer: This statement is False.
There are at least two effects in every adjustment of final accounts.
In simple words: According to the double-entry system, every adjustment has at least two effects, affecting two accounts in opposite ways to maintain the balance.

🎯 Exam Tip: Always remember the double-entry principle; each adjustment impacts at least two accounts (one debit, one credit) in the financial statements.

 

Question 2. Every item of Trial Balance has only one effect.
Answer: This statement is True.
Every transaction is recorded through journal or subsidiary books with the principle of the double-entry book-keeping system. Journal and subsidiary books are posted to the ledger account and trial balance is prepared from the balances of the ledger so there are already two effects passed. So every item of Trial Balance has only one effect.
In simple words: Items in the Trial Balance have already undergone double-entry during initial recording and posting to the ledger, so when preparing final accounts, each item from the Trial Balance affects only one financial statement.

🎯 Exam Tip: Items from the trial balance appear only once in the final accounts (either Trading, P&L, or Balance Sheet) because their dual effect was already captured when they were initially recorded.

 

Question 3. Income due but not received is a liability.
Answer: This statement is False.
Income due but not received is an Asset and not a liability.
In simple words: Income earned but not yet received is an asset because it represents a future economic benefit or a claim to cash that the business expects to receive.

🎯 Exam Tip: Classify "accrued income" as a current asset, as it represents a right to receive payment.

 

Question 4. Goodwill is not a fictitious asset.
Answer: This statement is True.
Goodwill is the reputation or name and fame of a business organization in the market. It is the money value of a business reputation earned by a business. It is an intangible asset.
Fictitious assets are created by accounting entry in the books of accounts it doesn't have any realizable value.
E.g.: Share issue expenses.
In simple words: Goodwill is a real, albeit intangible, asset representing the monetary value of a business's reputation and customer loyalty, unlike fictitious assets that have no intrinsic value.

🎯 Exam Tip: Distinguish between intangible assets (like goodwill, patents) which have value but no physical form, and fictitious assets (like preliminary expenses) which are not real assets but accounting adjustments.

 

Question 5. The credit balance of the Profit & Loss account shows a net profit.
Answer: This statement is True.
The credit side of profit and loss A/c represents incomes when the credit side is greater than the debit side (expenses) it shows the Net Profit of the year.
In simple words: When total incomes (credits) exceed total expenses (debits) in the Profit and Loss Account, the resulting credit balance indicates a net profit.

🎯 Exam Tip: A credit balance signifies a positive outcome, meaning revenues surpassed expenses, leading to net profit.

 

5. Fill in the blanks:

Question 1. Gross Profit is transferred to ________ account.
Answer: Profit and Loss A/c
In simple words: The gross profit, calculated in the Trading Account, is carried forward to the Profit and Loss Account to determine the net profit or loss after accounting for indirect expenses.

🎯 Exam Tip: Gross Profit is the starting point for the Profit and Loss Account, reflecting the profitability of direct operations.

 

Question 2. Debit Balance of Trading Account indicates ________.
Answer: Gross Loss
In simple words: A debit balance in the Trading Account means direct costs exceeded direct revenues, resulting in a gross loss for the business.

🎯 Exam Tip: A gross loss signals that the revenue from sales was insufficient to cover the direct costs of goods sold.

 

Question 3. Income Receivable appears on ________ side of Balance Sheet.
Answer: Asset
In simple words: Income that is due to be received is an asset because it represents a future economic benefit or a claim to cash.

🎯 Exam Tip: Assets are economic resources owned or controlled by the business that are expected to provide future benefits.

 

Question 4. Interest on Bank Loan is debited to ________ A/c.
Answer: Profit and Loss A/c
In simple words: Interest paid on a bank loan is an indirect financing expense and is recorded on the debit side of the Profit and Loss Account.

🎯 Exam Tip: All financial expenses, such as interest on loans, are typically treated as indirect expenses and charged to the P&L account.

 

Question 5. Profit and Loss account is prepared to find out ________ results of the business.
Answer: Net Working
In simple words: The Profit and Loss account is prepared to ascertain the net operational results of the business, specifically the net profit or net loss, after considering all incomes and expenses.

🎯 Exam Tip: The primary purpose of the P&L account is to reveal the ultimate profitability of a business for an accounting period.

 

Question 6. All indirect/operating expenses are transferred to ________ account.
Answer: Profit and Loss A/c
In simple words: All expenses not directly related to the production or purchase of goods for sale are categorized as indirect or operating expenses and are transferred to the Profit and Loss Account.

🎯 Exam Tip: The Profit and Loss Account records all administrative, selling, distribution, and financial expenses of a business.

 

Question 7. Interest of proprietor's drawing is credited to ________ account.
Answer: Profit and Loss A/c
In simple words: Interest charged on a proprietor's drawings is an income for the business, hence it is credited to the Profit and Loss Account.

🎯 Exam Tip: While interest on drawings reduces the owner's capital, it is recognized as an income to the business in the Profit and Loss Account.

 

Question 8. An excess of debit over credit in the Profit & Loss A/c represents the ________.
Answer: Net Loss
In simple words: If the total expenses (debit side) in the Profit and Loss Account are greater than the total incomes (credit side), the resulting debit balance signifies a net loss.

🎯 Exam Tip: A net loss indicates that the business's total expenses exceeded its total revenues for the period.

 

Question 9. All direct expenses are transferred to ________ account.
Answer: Trading A/c
In simple words: All expenses directly associated with the production or purchase of goods are recorded in the Trading Account to calculate the gross profit or loss.

🎯 Exam Tip: Direct expenses are fundamental to determining the cost of goods sold and are distinct from indirect operating expenses.

 

Question 10. Balance Sheet is ________ of assets & liabilities.
Answer: Statement
In simple words: A Balance Sheet is a structured statement, not an account, that presents a company's financial position by listing its assets, liabilities, and equity.

🎯 Exam Tip: Emphasize that a Balance Sheet is a statement, not an account, indicating its snapshot nature rather than a cumulative record.

 

6. Find the odd one:

Question 1. Rent, Salary, Insurance, Plant, and Machinery.
Answer: Plant and Machinery
In simple words: "Plant and Machinery" is a fixed asset, whereas Rent, Salary, and Insurance are all expenses incurred by the business.

🎯 Exam Tip: Clearly differentiate between assets (which provide future economic benefit) and expenses (which are consumed in the current period).

 

Question 2. Purchases, Closing stock, Debtors, Factory Rent.
Answer: Debtors
In simple words: Purchases, Closing Stock, and Factory Rent are items related to the Trading Account, while Debtors are a current asset shown on the Balance Sheet.

🎯 Exam Tip: Categorize items by their typical placement in the financial statements (Trading Account, Profit & Loss Account, Balance Sheet).

 

Question 3. Capital, Bills Payable, Debtors, Outstanding wages.
Answer: Debtors
In simple words: Capital, Bills Payable, and Outstanding Wages are all liabilities or equity, whereas Debtors represent assets (amounts receivable from customers).

🎯 Exam Tip: Group items based on their nature as assets, liabilities, or equity for clear distinction.

 

Question 4. Advertisement, Travelling Expenses, Factory Rent, Insurance.
Answer: Factory Rent
In simple words: Advertisement, Travelling Expenses, and Insurance are generally indirect expenses (Profit & Loss Account), while Factory Rent is a direct expense (Trading Account).

🎯 Exam Tip: Accurately classify expenses as direct (Trading Account) or indirect (Profit & Loss Account).

 

Question 5. Cash in Hand, Debtors, Outstanding Income, Reserve for Doubtful Debts.
Answer: Reserve for Doubtful Debts
In simple words: Cash in Hand, Debtors, and Outstanding Income are all assets, whereas Reserve for Doubtful Debts is a provision that reduces the value of debtors and is not a direct asset itself.

🎯 Exam Tip: Understand that a reserve or provision reduces the value of an asset rather than being an asset itself.

 

7. Do you agree or disagree with the following statements:

Question 1. Reserve for bad debts is created by debiting Profit and Loss Account.
Answer: Agree
In simple words: Creating a Reserve for Bad Debts is an expense that reduces the business's profit, so it is debited to the Profit and Loss Account.

🎯 Exam Tip: Provisions for potential losses, like bad debts, are expenses and are appropriately charged to the Profit and Loss Account.

 

Question 2. A balance Sheet is a statement as well as an account.
Answer: Disagree
In simple words: A Balance Sheet is exclusively a statement presenting financial position at a specific date, not an account which records transactions over a period.

🎯 Exam Tip: Differentiate between statements (like the Balance Sheet) which summarize balances, and accounts (like Ledger accounts) which record individual transactions.

 

Question 3. Indirect Expenses are debited to Trading Account.
Answer: Disagree
In simple words: Indirect expenses are costs not directly related to production and are debited to the Profit and Loss Account, not the Trading Account.

🎯 Exam Tip: Only direct expenses, related to the cost of goods sold, are debited to the Trading Account.

 

Question 4. Bank Overdraft is treated as an Internal Liability.
Answer: Disagree
In simple words: A bank overdraft is an external liability, as it is money owed to an external party (the bank), not an internal source of funds.

🎯 Exam Tip: Internal liabilities relate to the owner's capital, while external liabilities are obligations to third parties.

 

Question 5. Capital is excess of Liabilities over Assets.
Answer: Disagree
In simple words: Capital is the excess of Assets over Liabilities, representing the owner's claim on the business's net assets.

🎯 Exam Tip: Always remember the fundamental accounting equation: Assets = Liabilities + Capital, or Capital = Assets - Liabilities.

 

8. Correct and Rewrite the following statements:

Question 1. The balancing figure of the Trading Account is Net Profit or Net Loss.
Answer: The balancing figure of the Trading Account is Gross Profit or Gross Loss.
In simple words: The Trading Account calculates the direct profitability, resulting in either a Gross Profit or Gross Loss, which is then transferred to the Profit and Loss Account.

🎯 Exam Tip: Understand the sequence: Trading Account for Gross Profit/Loss, then Profit and Loss Account for Net Profit/Loss.

 

Question 2. All direct expenses are debited to the Profit and Loss Account.
Answer: All direct expenses are debited to Trading Account.
In simple words: Direct expenses, being directly related to the goods produced or purchased, are correctly debited to the Trading Account.

🎯 Exam Tip: Differentiate between direct expenses (Trading Account) and indirect expenses (Profit and Loss Account) for proper classification.

 

Question 3. When the credit side of the Profit and Loss Account is greater than the debit side, it is called Net Loss.
Answer: When the credit side of the Profit and Loss account is greater than the debit side, it is called Net Profit.
In simple words: If the total incomes (credit side) exceed the total expenses (debit side) in the Profit and Loss Account, the result is a Net Profit, not a Net Loss.

🎯 Exam Tip: A credit balance indicates an excess of income over expenses, which means profit.

 

Question 4. Capital A/c.................Dr.
To Profit and Loss Account
(Being Net Profit transferred to Capital A/c)
Answer: Profit and Loss Account.................Dr.
To Capital A/c
(Being Net Profit transferred to Capital A/c)
In simple words: When net profit is transferred, the Profit and Loss Account is debited to close it, and the Capital Account is credited to increase the owner's equity.

🎯 Exam Tip: Remember that net profit increases owner's capital, thus the Capital Account is credited during the transfer.

 

Question 5. Trading A/c...............Dr.
To Sales A/c
(Being Sales transferred to Trading A/c)
Answer: Sales A/c............Dr
To Trading A/c
(Being sales transferred to Trading A/c)
In simple words: To close the Sales Account and transfer its balance to the Trading Account, the Sales Account is debited and the Trading Account is credited.

🎯 Exam Tip: Sales are an income for the Trading Account, so they are credited to the Trading Account to increase its balance.

 

9. Calculate the following.

Question 1. Calculate the Capital

Assets (Rs.)	Liabilities (Rs.)
Building - 20,000	Bills Payable - 18,000
Furniture - 15,000	Creditors - 20,700
Debtors - 30,000	Outstanding Wages - 1,250
Investments - 10,000
Cash at Bank - 5,000
Plant and Machinery - 20,000

Solution:
Capital = Assets – Liabilities
\( = \text{Rs. } 1,00,000 – \text{Rs. } 39,950 \)
\( = \text{Rs. } 60,050 \)
In simple words: Capital is calculated by subtracting total liabilities from total assets, reflecting the owner's net investment in the business.

🎯 Exam Tip: Always sum up all assets and all liabilities separately before applying the formula Capital = Assets - Liabilities.

 

Question 2. The machinery of Rs. 35,500 is purchased on 1st July 2018 and on the same day 4,500 are spent on the installation of the Machinery. The proprietor has decided to Depreciate Machinery at the rate of 7% p.a. Calculate the amount of depreciation, assuming that accounting year is ending on 31st March every year.
Solution:
Cost of Machinery = Purchase Price + Installation Charges
\( = 35,500 + 4,500 \)
\( = \text{Rs. } 40,000 \)
Depreciation for 9 months = \( 40,000 \times \frac{7}{100} \times \frac{9}{12} = \text{Rs. } 2,100 \)
In simple words: First, determine the total cost of the machinery by adding purchase price and installation charges. Then, calculate depreciation for the period from purchase (July 1, 2018) to year-end (March 31, 2019), which is 9 months, at the given annual rate.

🎯 Exam Tip: Remember to include all costs incurred to bring an asset to its working condition in its initial cost. Also, calculate depreciation for the exact period the asset was in use during the accounting year.

 

Question 3. Mr. Pramod borrowed a Loan from the State Bank of India Rs. 3,50,000 on 1st Oct. 2018 at the rate of interest of 12% p.a. Calculate the Interest on a bank loan for the year 2018-19, assuming that the financial year-end on 31st March every year.
Solution:
Interest on Bank loan for 6 months = \( 3,50,000 \times \frac{12}{100} \times \frac{6}{12} = \text{Rs. } 21,000 \)
In simple words: Calculate the interest on the loan amount for the duration it was outstanding within the financial year, which is from October 1, 2018, to March 31, 2019, at the specified annual interest rate.

🎯 Exam Tip: Always calculate interest for the precise period the loan was utilized within the accounting year, not for the full year unless specified.

 

Question 4. Annual Insurance Premium 8,000 is paid on 1st Dec 2018. Calculate the amount of Insurance Premium for the accounting year ending on 31st March 2019.
Solution:
Annual Insurance Premium for 12 months = Rs. 8,000
Less: Prepaid for 8 months = Rs. 5,333
Insurance for 4 months (01.12.18 to 31.03.19) = Rs. 2,667
In simple words: Determine the portion of the annual insurance premium that pertains to the current accounting year (December 2018 to March 2019, which is 4 months) and treat the remaining 8 months as prepaid.

🎯 Exam Tip: When dealing with annual payments, always prorate the expense to match the current accounting period, classifying any future portion as a prepaid asset.

 

Question 5. Calculate the Gross Profit/Gross Loss
Purchases A/c Rs. 15,500, Sales A/c Rs. 30,000, Carriage Inward Rs. 1,200, Opening Stock Rs. 5,000, Purchases Returns Rs. 500, Closing Stock Rs. 18,000
Solution:
Cost of Goods Sold = Opening Stock + Purchases – Purchases Returns + Carriage Inward – Closing Stock
\( = 5,000 + 15,500 – 500 + 1,200 – 18,000 \)
\( = \text{Rs. } 3,200 \)
Gross Profit = Sales – Cost of goods sold
\( = 30,000 – 3,200 \)
\( = \text{Rs. } 26,800 \)
In simple words: First, calculate the Cost of Goods Sold by adjusting opening and closing stock, purchases, returns, and carriage inward. Then, subtract this Cost of Goods Sold from the total Sales to find the Gross Profit.

🎯 Exam Tip: Remember the formula for Cost of Goods Sold and ensure all direct expenses and related adjustments are correctly applied before calculating gross profit.

 

Practical Problems

Question 1. From the following Balances of Jayashri Traders, you are required to prepare Trading Account for the year ended 31/03/2019.

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
Opening Stock	41,000
Purchases	59,000
Purchases Returns		7,000
Sales Returns	1,600
Sales		1,03,000
Wages	3,400
Carriage Inward	1,000
Royalty	4,000
Total	1,10,000	1,10,000
Closing Stock	Rs. 40000

Solution:

In the books of Jayashri Traders

Dr. Trading Account for the year ended 31st March, 2019 Cr.
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Opening Stock	41,000	By Sales	1,03,000
To Purchases	59,000	Less: Sales Return	1,600
Less: Purchase Return	7,000		1,01,400
	52,000	By Closing Stock	40,000
To Wages	3,400
To Carriage Inward	1,000
To Royalty	4,000
To Gross Profit c/d	40,000
	1,41,400		1,41,400

In simple words: The Trading Account is prepared by listing opening stock and all direct expenses on the debit side, and sales (net of returns) and closing stock on the credit side, with the balancing figure being the Gross Profit.

🎯 Exam Tip: Ensure that only direct expenses and revenues related to the core trading activity are included in the Trading Account. Sales returns reduce sales, and purchase returns reduce purchases.

 

Question 2. Prepare Profit and Loss Account of Sanjay Brothers for the year ended 31st March 2018 from the following balances.
1. Bank charges Rs. 22,000
2. Interest (Cr.) Rs. 16,000
3. Sundry expenses 42,000
4. Insurance Rs. 35,000
5. Salaries 40,000
6. Rates and Taxes Rs. 13,000
7. Postage 8,000
8. Advertisement Rs. 40,000
9. Rent paid 32,000
10. Bad debts Rs. 10,000
11. Commission (Cr) Rs. 17,500
12. Printing & Stationery Rs. 21,000
13. Loss by fire 18,000
14. Discount (Dr) Rs. 23,000
15. Discount (Cr) Rs. 37,000
16. Misc. Income 14,000
17. Depreciation 34,000
18. Carriage Outwards Rs. 60,000
19. Godown Expenses Rs. 40,000
Note: Gross Profit Rs. 4,07,500
Solution:
In the books of the Sanjay Brothers.

Dr. Profit and Loss Account for year ended 31st March, 2019. Cr.
Particulars	Amt. (Rs.)	Particular	Amt. (Rs.)
To Bank charges	22,000	By Gross Profit b/d	4,07,500
To Sundry Expenses	42,000	By Interest	16,000
To Insurance	35,000	By Commission	17,500
To Salaries	40,000	By Discount	37,000
To Rates and Taxes	13,000	By Misc. Income	14,000
To Postage	8,000
To Advertisement	40,000
To Rent paid	32,000
To Bad debts	10,000
To Printing & Stationery	21,000
To Loss by fire	18,000
To Discount	23,000
To Depreciation	34,000
To Carriage Outwards	60,000
To Godown Expenses	40,000
To Net Profit c/d	54,000
	4,92,000		4,92,000

In simple words: The Profit and Loss Account starts with the Gross Profit from the Trading Account, then lists all indirect expenses on the debit side and all other indirect incomes on the credit side, with the balancing figure representing the Net Profit.

🎯 Exam Tip: Systematically transfer the Gross Profit, then meticulously list all indirect expenses (debits) and indirect incomes (credits) to arrive at the Net Profit or Net Loss.

Question 3. From the following Trial Balance of Sanjiv & Sons. Prepare Trading Account and Profit & Loss Account for the year ending on 31st March 2019 and a Balance Sheet as on that date.

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
Opening stock	22,000
Purchases & Sales	1,78,000	4,60,000
Carriage Outward	4,800
Plant and Machinery	50,000
Debtors and Creditors	44,000	76,000
Returns	2,000	4,000
Buildings	58,000
Motor Van	40,000
Printing & Stationery	3,000
Wages	28,000
Reserved for Bad debts		3,200
Commission		2,400
Office expenses	5,400
Carriage	9,000
Furniture	20,000
Premises	81,000
Loose Tools	20,400
Drawings	24,700
Bank Overdraft		22,000
Cash in hand	71,000
Dividend		3,300
Capital		1,40,000
Salaries	44,000
Bills Receivable & Bills Payable	5,600	8,400
Bad debts	2,400
Advertisement (for 3 year)	6,000
Total	7,19,300	7,19,300

Additional information:
1. Closing stock on 31st March 2019, was at cost Rs. 60,000 and Market Price Rs. 70,000.
2. Outstanding expenses: Wages 4,000, Salary 2,400
3. Provide depreciation at 10% on Motor Van and 5% on Furniture.
4. Write off Rs. 2,000 for bad debts and create R.D.D. at 5% on debtors.
5. Provide 10% p.a. interest on capital.

Solution:
In the books of Sanjiv & Sons

Dr.	Trading and Profit and Loss Account for the year ended 31st March, 2019				Cr.
Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening stock		22,000	By Sales	4,60,000
To Purchase	1,78,000		Less: Returns	2,000	4,58,000
Less: Returns	4,000	1,74,000	By Closing stock		60,000
To Wages	28,000
Add: Outstanding	4,000	32,000
To Carriage		9,000
To Gross Profit c/d		2,81,000
		5,18,000			5,18,000
To Carriage Outward		4,800	By Gross Profit b/d		2,81,000
To Printing and Stationery		3,000	By Commission		2,400
To Office Expenses		5,400	By Dividend		3,300
To Salaries	44,000
Add: Outstanding	2,400	46,400
To Bad debts (T)	2,400
Add: New B.D.(A)	2,000
Add: New R. D. D. (A)	2,100	6,500
Less: old R.D.D.(T)	3,200	3,300
To Advertisement	6,000
Less: Prepaid	4,000	2,000
To Interest on Capital		14,000
To Depreciation on :
Motor Van	4,000
Furniture	1,000	5,000
To Net Profit c/d		2,02,800
		2,86,700			2,86,700

Balance Sheet as of 31st March, 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	1,40,000		Plant and Machinery		50,000
Less: Drawings	24,700		Debtors (T)	44,000
	1,15,300		Less: New B.D.(A)	2,000	42,000
Add: Interest on Capital	14,000		Less: New R.D.D. (A)	2,100	39,900
	1,29,300		Building		58,000
Add: Net Profit	2,02,800	3,32,100	Motor Van	40,000
Creditors	76,000		Less: Dep - @ 10%	4,000	36,000
Bank Overdraft	22,000		Furniture	20,000
Bills payable	8,400		Less: Dep - @ 5%	1,000	19,000
Outstanding Wages	4,000		Premises		81,000
Outstanding Salaries	2,400		Loose Tools		20,400
			Cash in hand		71,000
			Bills Receivable		5,600
			Prepaid Advertisement		4,000
			Closing stock		60,000
		4,44,900			4,44,900

In simple words: This solution demonstrates the preparation of the Trading, Profit & Loss Account, and Balance Sheet for Sanjiv & Sons based on the given trial balance and adjustments, which is fundamental to understanding a business's financial performance and position.

🎯 Exam Tip: Pay close attention to adjustments as they require double entry, impacting both the Trading/Profit & Loss Account and the Balance Sheet. Accurately allocating expenses and revenues to the correct accounts and applying depreciation and provisions are critical for scoring.

Question 4. From the following Trial Balance of Nandini & Co. as of 31st March 2019. Prepare Final Accounts after considering the adjustments given below.

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
Loose Tools	1,10,000
Furniture & Fixtures	81,000
Bad debts	1,400
Sundry Debtors	81,600
Stock (31st March 2018)	52,000
Purchases	77,000
Sales Cash		21,000
Sales Credit		81,000
Returns	400	600
Advertisements	4,800
Rate taxes & Insurances	6,000
Repairs & maintenance	1,200
Salaries (2/3rd for factory)	18,000
Rent (Paid for 11 months)	2,200
Machinery (Includes 24,000 purchased on 1st Oct. 2018)	84,000
Capital		3,60,000
R.D.D.		8,000
Sundry Creditors		70,000
Drawings	14,000
Interest		1,200
Dividend		2,800
Bank Balance	40,000
Royalty	6,000
9% Bank loan (30th Sept 2018)		40,000
Carriage Outwards	4,000
Discount	1,000
	5,84,600	5,84,600

Adjustments:
1. Closing stock valued at Rs. 1,00,000.
2. Write off Rs. 2,000 as bad debts and create a provision for doubtful debts @ 5% on Sundry Debtor.
3. Depreciate Machinery by 10% p.a. and Loose Tools is valued at Rs. 1,00,000.
4. Charge Interest on Capital @ 2% p.a.
Solution:
In the books of Nandini & Co.

Dr.	Trading and Profit and Loss Account for the year ended 31st March, 2019				Cr.
Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening stock		52,000	By Sales
To Purchases	77,000		Cash	21,000
Less: Returns	600	76,400	Credit	81,000	1,02,000
To Salaries (factory)		12,000	Less: Returns	400	1,01,600
To Royalties		6,000	By Closing Stock		1,00,000
To Gross Profit c/d		55,200
		2,01,600			2,01,600
To Advertisement		4,800	By Gross Profit b/d		55,200
To Bad debts (T)	1,400		By Interest		1,200
Add: New B.D.(A)	2,000		By Dividend		2,800
Add: New R.D.D (A)	3,980	7,380	By Excess R.D.D.		620
Less: Old R.D.D. (T)	8,000
To Rates Taxes and Insurance		6,000
To Repairs and Maintenance		1,200
To Salaries (office)		6,000
To Rent (11m)	2,200
Add: Outstanding (1m)	200	2,400
To Interest on bank loan		1,800
To Carriage outward		4,000
To Discount		1,000
To Depreciation on :
Machinery	7,200
Loose Tools	10,000	17,200
To Interest on Capital		7,200
To Net Profit c/d		8,220
		59,820			59,820

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	3,60,000		Loose Tools	1,10,000
Less: Drawings	14,000		Less: Depreciation	10,000	1,00,000
	3,46,000		Furniture & Fixtures		81,000
Add: Interest on Capital	7,200		Sundry Debtors (T)	81,600
	3,53,200		Less: New B.D. (A)	2,000	79,600
Add: Net Profit	8,220	3,61,420	Less: New R.D.D (A)	3,980	75,620
Creditors		70,000	Machinery	84,000
9% Bank loan	40,000		Less: Depreciation @ 10%
Add: Outstanding Interest on loan	1,800	41,800	(6,000 + 1,200)	7,200	76,800
Outstanding Rent		200	Bank Balance		40,000
			Closing Stock		1,00,000
		4,73,420			4,73,420

In simple words: This solution provides the complete final accounts for Nandini & Co., including the Trading Account to determine gross profit, the Profit & Loss Account for net profit, and the Balance Sheet for the financial position after incorporating all necessary adjustments.

🎯 Exam Tip: Accurately calculating depreciation based on the purchase date for assets like machinery and managing provisions for bad and doubtful debts are critical. Remember that a one-month outstanding rent adjustment needs careful attention as the trial balance shows 11 months paid.

Question 5. Prepare Final accounts of Abdul Traders for the year ending 31st March 2019 with the help of the following Trial Balance and Adjustments.
Trial Balance as of 31st March 2019.

Debit Balance	Amount (Rs.)	Credit Balance	Amount (Rs.)
Salaries	10,000	Interest Received	2,400
Purchases	71,400	Capital	1,60,000
Rent (11 months)	2,200	Sales	85,000
Machinery	56,000	Provision for Bad Debts	2,000
Advance against wages	4,000	Commissions Received	1,600
Opening stock	20,000	Bills Payable	9,200
Bad debts	1,000	Creditors	56,000
Prepaid Insurance	2,400
Wages	2,600
Loose Tools	26,000
Commission receivable	400
Sundry Debtors	64,000
Cash	1,000
Bank	3,000
Drawings	7,600
Freight Inward	1,000
Bills Receivable	13,600
Loan to Aruna	30,000
	3,16,200		3,16,200

Adjustments:
1. Closing stock valued at Rs. 89,600
2. Outstanding expenses Salaries 2,000, Wages 4,000
3. Charge depreciation on Machinery @ 10%
4. Bad debts are written off Rs. 2,000 and create a provision for bad and doubtful debts 5% on Sundry Debtors.
Solution:
In the books of Abdul Traders.

Dr.	Trading and Profit and Loss A/c for the year ended 31st March, 2019				Cr.
Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening stock		20,000	By Sales		85,000
To Purchases		71,400	By Closing Stock		89,600
To Wages	2,600
Add: Outstanding	4,000	6,600
To Freight Inward		1,000
To Gross Profit c/d		75,600
		1,74,600			1,74,600
To Salaries	10,000		By Gross Profit b/d		75,600
Add: Outstanding	2,000	12,000	By Interest Received		2,400
To Rent (11m)	2,200		By Commission Received		1,600
Add: Outstanding (1m)	200	2,400
To Bad debts (T)	1,000
Add: New B. D. (A)	2,000
Add: New R.D.D (A)	3,100	6,100
Less: Old R.D.D (T)	2,000	4,100
To Dep. on Machinery		5,600
To Net Profit c/d		55,500
		79,600			79,600

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	1,60,000		Machinery	56,000
Less: Drawings	7,600		Less: Depreciation @ 10%	5,600	50,400
	1,52,400		Advance against wages		4,000
Add: Net Profit	55,500	2,07,900	Prepaid Insurance		2,400
Bills Payable		9,200	Loose Tools		26,000
Creditors		56,000	Commission Receivable		400
Outstanding Salaries		2,000	Sundry Debtors (T)	64,000
Outstanding Wages		4,000	Less: New B. D.(A)	2,000	62,000
Outstanding Rent		200	Less: New R.D.D. (A)	3,100	58,900
			Cash		1,000
			Bank		3,000
			Bills Receivable		13,600
			Loan to Aruna		30,000
			Closing Stock		89,600
		2,79,300			2,79,300

In simple words: This solution comprehensively presents the final accounts for Abdul Traders, showcasing the calculation of gross profit in the Trading Account, net profit in the Profit & Loss Account, and the overall financial health in the Balance Sheet, integrating all adjustments.

🎯 Exam Tip: When dealing with rental expenses, ensure the outstanding portion for the full accounting year is correctly identified and recorded. Also, remember to net off new bad debts and R.D.D. against the old provision from the trial balance for accurate profit and loss impact.

Question 6. Following is the Trial Balance of Geeta Enterprises. You are required to prepare a Trading and Profit & Loss Account for the year ended 31st March 2019 and the Balance Sheet as of that date after taking into account the additional information provided to you.
Trial Balance as of 31st March, 2019

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
Capital A/c		50,000
Drawings	1,750
Opening Stock	8,000
Purchases & Sales	16,500	22,500
Returns	625	750
Carriage Outward	425
Wages - Productive	1,000
Unproductive	600
Salaries	1,000
Travelling expenses	1,125
Trade Expenses	325
Fuel and Coal	250
Discount	460	550
Sundry expenses	225
Bad Debts	200
Plant & Machinery	20,000
Furniture	5,500
Packing expenses	175
Sundry Debtors & Creditors	10,090	6,750
Cash in hand	2,200
Investments	10,250
Reserve for Doubtful debts		150
	80,700	80,700

Additional information:
1. Closing stock of goods on 31st March 2019 valued at Rs. 7,100 at cost price and Rs. 7,500/- as market price.
2. Travelling expenses include 125 spent on personal traveling.
3. Rs. 175 is to be written off as bad debts which were due from Mr. Ashok, a debtor, and 5% R.D.D. is to be maintained on debtors.
4. Reserve for discount on debtors as well as on creditors is to be maintained at 2% and 3% respectively.
5. Provide 10% depreciation on Plant & Machinery and Furniture.
Solution:
In the books of Geeta Enterprises.

Dr.	Trading and Profit & Loss Account for the year ended 31st March, 2019				Cr.
Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening stock		8,000	By Sales	22,500
To Purchase	16,500		Less: Sales Return	625	21,875
Less: Purchase Return	750	15,750	By Closing Stock		7,100
To Productive wages		1,000
To Fuel and Coal		250
To Gross Profit c/d		3,650
		28,975			28,975
To Carriage Outward		425	By Gross Profit b/d		3,650
To Unproductive Wages		600	By Discount		550
To Salaries		1,000	By Provision for Discount on Creditors		203
To Travelling Expenses	1,125		By Net Loss c/d		2,942
Less: Drawings	125	1,000
To Discount		460
To Sundry Expenses		225
To Packing Expenses		175
To Bad debts (T)	200
Add: New B.D. (A)	175
Add: New R.D.D. (A)	496	871
Less: Old R.D.D.(T)	150	721
To Deprecation on :
Plant and Machinery	2,000
Furniture	550	2,550
To Provision for Discount on Debtors		189
		7,345			7,345

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	50,000		Plant and Machinery	20,000
Less: Drawings	1,750		Less: Depreciation @ 10%	2,000	18,000
	48,250		Furniture	5,500
Less: Travelling Exp.	125		Less: Depreciation @ 10%	550	4,950
	48,125		Sundry Debtors (T)	10,090
Less: Net Loss	2,942	45,183	Less: New B.D.(A)	175	9,915
Sundry Creditors	6,750		Less: New R.D.D. (A)	496	9,419
Less: Provision. for Discount on Creditors @ 3%	203	6,547	Less: Provision for Discount on Debtors @ 2%	189	9,230
			Cash in hand		2,200
			Investments		10,250
			Closing Stock		7,100
		51,730			51,730

In simple words: This solution compiles the financial statements for Geeta Enterprises, starting with the Trial Balance and incorporating various adjustments to present a complete Trading Account, Profit & Loss Account, and a structured Balance Sheet.

🎯 Exam Tip: Accurately treating personal travel expenses as drawings and their impact on net loss (reducing capital) is important. Also, careful calculation of new bad debts and R.D.D., along with reserves for discount on debtors and creditors, directly affects net profit/loss and balance sheet figures.

Question 7. Following are the closing ledger balances of Deepak & Co. Prepare Trading Account and Profit & Loss Account for the year ended 31st March 2019 and Balance sheet as of that date.
Ledger Balances of Mr. Deepak and Co. as of 31st March, 2019

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
Bank	30,000	Capital	1,20,000
Bills Payable	7,500	Insurance Premium	18,000
Furniture	19,500	(1.1.2019 to 31.12.2019)
Commission Received	3,000	Salaries	30,000
Stock (1.4.2018)	27,000	Bank loan	30,000
Building	37,500	Sundry expenses	7,500
Wages	7,500	Interest paid	1,500
Creditors	37,500	Machinery	25,500
Bad Debts	4,500	Sales	96,000
R.D.D. (old)	3,000	Purchases	42,000
Sales Returns	1,500	Debtors	31,500
		Purchases returns	3,000
		Cash in hand	16,500
	3,22,125		3,22,125

Adjustments:
1. Closing stock was valued at Rs. 60,000
2. An amount of 3,000 is still to be received on account of commission.
3. Provision for discount on debtors and Provision for discount on Creditors are to be created 2% and 3% respectively.
4. Amount of Furniture is to reduce by 4,500 and Building by 10%.
5. Outstanding expenses Salaries Rs. 4,500 and Wages 1,500.
Solution:
In the books of Deepak & Co.

Dr.	Trading and Profit and Loss Account for the year ended 31st March, 2019				Cr.
Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening Stock		27,000	By Sales	96,000
To Purchases	42,000		Less: Sales Return	1,500	94,500
Less: Purchase Return	3,000	39,000	By Closing Stock		60,000
To Wages	7,500
Add: Outstanding	1,500	9,000
To Gross Profit c/d		79,500
		1,54,500			1,54,500
To Bad debts (T)	4,500		By Gross Profit b/d		79,500
Less: Old R.D.D.(T)	3,000	1,500	By Commission Received	3,000
To Insurance Premium	18,000		Add: Commission Receivable	3,000	6,000
Less: Pre-paid for 9m	13,500	4,500	By Provision for Discount on creditors		1,125
To Salaries	30,000
Add: Outstanding	4,500	34,500
To Sundry Expenses		7,500
To Interest paid		1,500
To Provision for Discount On debtors		630
To Depreciation on :
Furniture	4,500
Building	3,750	8,250
To Net Profit c/d		28,245
		86,625			86,625

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	1,20,000		Bank		30,000
Add: Net Profit	28,245	1,48,245	Furniture	19,500
Bills Payable		7,500	Less: Depreciation	4,500	15,000
Bank Loan		30,000	Building	37,500
Creditors	37,500		Less: Depreciation @ 10%	3,750	33,750
Less : Provision for Discount on Creditors @ 3%	1,125	36,375	Prepaid Insurance		13,500
Outstanding Salaries		4,500	Machinery		25,500
Outstanding Wages		1,500	Debtors	31,500
			Less: Provision for Discount on Debtor @ 2%	630	30,870
			Commission Receivable		3,000
			Cash in hand		16,500
			Closing Stock		60,000
		2,28,120			2,28,120

In simple words: This solution presents the final accounts for Deepak & Co., outlining the Trading Account to determine gross profit, the Profit & Loss Account for net profit, and the Balance Sheet for the financial position after all adjustments have been applied.

🎯 Exam Tip: When preparing final accounts, correctly accounting for prepaid and outstanding expenses/incomes, along with depreciation and provisions, is crucial. Pay attention to the timing of prepaid insurance and outstanding commission to ensure accurate adjustments.

Question 8. Following is the Trial Balance extracted from the books of Raju Traders. You are required to prepare Trading A/c, Profit & Loss A/c for the year ending on 31st March 2019 and Balance Sheet as of that date after Considering the additional information given below.
Trial Balance as of 31st March 2019

Particulars (Debit)	Amount (Rs.)	Particulars (Credit)	Amount (Rs.)
Raju's Drawings	5,000	Capital	2,00,000
Opening stock	30,000	Sales	1,64,000
Wages	5,000	Returns outward	2,400
Purchases	60,000	Creditors	40,000
Trade Expenses	800	Discount	1,600
Royalties	1,600	Bills payable	13,600
Salaries	20,000
Debtors	80,000
Plant & Machinery	56,000
Printing & Stationery	2,400
Bad debts	900
Discount	1,200
Furniture	16,000
Advertisement	3,000
Carriage outwards	600
Computers	1,20,000
Bills Receivable	16,000
Cash in hand	1,100
Cash at Bank	2,000
	4,21,600		4,21,600

Adjustments:
1. Closing stock is valued at Rs. 40,000 at Cost Price and Rs. 44,000 as Market Price.
2. Provide Depreciation on Plant & Machinery, Furniture, Computers @ 5%, 10%, 15% respectively.
3. Salaries are paid for 10 months only.
4. Further Bad debts amounted to 400 and provide 10% R.D.D. on Sundry Debtors.
5. Advertisement is paid for 2 years.
Solution:
In the books of Raju Traders.

Dr.	Trading and Profit & Loss A/c for the year ended 31st March, 2019				Cr.
Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening Stock		30,000	By Sales		1,64,000
To Purchases	60,000		By Closing Stock		40,000
Less: Return Outward	2,400	57,600
To Wages		5,000
To Royalties		1,600
To Gross Profit c/d		1,09,800
		2,04,000			2,04,000
To Trade Expenses		800	By Gross Profit b/d		1,09,800
To Salaries. (10m)	20,000		By Discount		1,600
Add: Outstanding (2m)	4,000	24,000
To Printing & Stationery		2,400
To Bad Debts (T)	900
Add: New B. D. (A)	400
Add: New R.D.D.(A)	7,960	9,260
To Discount		1,200
To Advertisement (2y)	3,000
Less: Prepaid (1y)	1,500	1,500
To Carriage Outwards		600
To Depreciation on :
Plant & Machinery	2,800
Furniture	1,600
Computer	18,000	22,400
To Net Profit c/d		49,240
		1,11,400			1,11,400

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	2,00,000		Debtors (T)	80,000
Less: Drawings	5,000		Less: New B.D.(A)	400	79,600
	1,95,000		Less: New R.D.D. (A)	7,960	71,640
Add: Net Profit	49,240	2,44,240	Plant and Machinery	56,000
Creditors		40,000	Less: Dep. @ 5%	2,800	53,200
Bills Payable		13,600	Furniture	16,000
Outstanding Salaries		4,000	Less: Dep. @ 10%	1,600	14,400
			Computers	1,20,000
			Less: Dep. @ 15%	18,000	1,02,000
			Bills Receivable		16,000
			Cash in hand		1,100
			Cash at bank		2,000
			Closing Stock		40,000
			Prepaid Advertisement		1,500
		3,01,840			3,01,840

In simple words: This solution presents the full set of final accounts for Raju Traders, including the Trading, Profit & Loss Account, and Balance Sheet, after meticulously integrating all adjustments for depreciation, bad debts, outstanding expenses, and prepaid advertisements to provide a clear financial picture.

🎯 Exam Tip: When dealing with multiple depreciation rates for different assets (Plant & Machinery, Furniture, Computers), calculate each separately. Ensure outstanding salaries and prepaid advertisements are correctly apportioned for the accounting period and reflected in both the Profit & Loss Account and the Balance Sheet.

Question 9. From the following Trial Balance of Shradha Enterprises, you are required to prepare Final Accounts for the year ending on 31st March 2019.
Trial Balance as of 31st March 2019

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Opening Stock	2,40,000	Capital	13,00,000
Purchases	8,50,000	Sundry Creditors	1,20,000
Returns Inward	15,000	Bills Payable	60,000
Wages	29,000	Sales	25,00,000
Power and Fuel	21,800	Return Outward	8,000
Travelling Expenses	14,700	Discount	2,000
Audit fees	7,000	Bank Overdraft	1,54,000
Royalty	72,000	Reserve for Bad and doubtful debts	8,000
Discount	1,750
Postage	13,500
Bad debts	3,000
Sundry Debtors	5,20,000
Furniture	1,20,000
Plant & Machinery	15,00,000
Freehold Premises	7,02,000
Rent, Rates and Insurance	42,250
	41,52,000		41,52,000

Adjustments:
1. Insurance is prepaid to the extent of Rs. 2,250
2. Closing stock is valued at Rs. 3,80,000 Cost price and Rs. 4,00,000 as Market price.
3. Outstanding Expenses are Wages 6,000 and Rent Rs. 5,000
4. Write off further had debts 1,500 and provide 5% Reserve for doubtful debts.
5. Depreciation on Furniture and Plant & Machinery at 10% p.a. and on Freehold Premises at 15% p.a.
Solution:
In the books of Shradha Enterprises

Dr.	Trading and Profit & Loss Account for year ended 31st March, 2019				Cr.
Particulars	Amt. (Rs.)	Amt. (Rs.)	Particular	Amt. (Rs.)	Amt. (Rs.)
To Opening Stock		2,40,000	By Sales	25,00,000
To Purchases	8,50,000		Less: Return Inwards	15,000	24,85,000
Less: Return Outward	8,000	8,42,000	By Closing Stock		3,80,000
To Wages	29,000
Add: Outstanding	6,000	35,000
To Power and Fuel		21,800
To Royalty		72,000
To Gross Profit c/d		16,54,200
		28,65,000			28,65,000
To Travelling Expenses		14,700	By Gross Profit b/d		16,54,200
To Audit Fees		7,000	By Discount		2,000
To Discount		1,750
To Postage		13,500
To Bad debts (T)	3,000
Add: New B.D.(A)	1,500
Add: New R.D.D.(A)	25,925	30,425
Less: Old R.D.D.(T)	8,000	22,425
To Rent, Rates and Insurance	42,250
Less: Prepaid Insurance	2,250	40,000
Add: Outstanding Rent	5,000	45,000
To Depreciation on:
Furniture	12,000
Plant & Machinery	1,50,000
Freehold Premises	1,05,300	2,67,300
To Net Profit c/d		12,84,525
		16,56,200			16,56,200

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	13,00,000		Sundry Debtors (T)	5,20,000
Add: Net Profit	12,84,525	25,84,525	Less: New B.D.(A)	1,500	5,18,500
Sundry Creditors		1,20,000	Less: New R.D.D.(A)	25,925	4,92,575
Bills Payable		60,000	Furniture	1,20,000
Bank Overdraft		1,54,000	Less: Depreciation @ 10%	12,000	1,08,000
Outstanding Wages		6,000	Plant & Machinery	15,00,000
Outstanding Rent		5,000	Less: Depreciation @ 10%	1,50,000	13,50,000
			Freehold Premises	7,02,000
			Less: Depreciation @ 15%	1,05,300	5,96,700
			Prepaid Insurance		2,250
			Closing Stock		3,80,000
		29,29,525			29,29,525

In simple words: This solution provides the complete final accounts for Shradha Enterprises, including the Trading Account to calculate gross profit, the Profit & Loss Account for net profit, and the Balance Sheet for assets and liabilities, after incorporating all complex adjustments.

🎯 Exam Tip: Accurately calculating and applying depreciation rates to different fixed assets (furniture, plant & machinery, freehold premises) is essential. Also, carefully adjust for prepaid insurance, outstanding wages, and rent, and ensure the new bad debts and R.D.D. are correctly managed against any existing provision.

 

Question 9.
From the following Trial Balance of Shradha Enterprises, you are required to prepare Final Accounts for the year ending on 31st March 2019.
Trial Balance as of 31st March 2019

8,50,000

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Opening Stock	2,40,000	Capital	13,00,000
Purchases	Sundry Creditors	1,20,000
Returns Inward	15,000	Bills Payable	60,000
Wages	29,000	Sales	25,00,000
Power and Fuel	21,800	Return Outward	8,000
Travelling Expenses	14,700	Discount	2,000
Audit fees	7,000	Bank Overdraft	1,54,000
Royalty	72,000	Reserve for Bad and doubtful debts	8,000
Discount	1,750
Postage	13,500
Bad debts	3,000
Sundry Debtors	5,20,000
Furniture	1,20,000
Plant & Machinery	15,00,000
Freehold Premises	7,02,000
Rent, Rates and Insurance	42,250
Total	41,52,000	Total	41,52,000

Adjustments:
1. Insurance is prepaid to the extent of Rs. 2,250
2. Closing stock is valued at Rs. 3,80,000 Cost price and Rs. 4,00,000 as Market price.
3. Outstanding Expenses are Wages Rs. 6,000 and Rent Rs. 5,000
4. Write off further had debts Rs. 1,500 and provide 5% Reserve for doubtful debts.
5. Depreciation on Furniture and Plant & Machinery at 10% p.a. and on Freehold Premises at 15% p.a.
Solution:
In the books of Shradha Enterprises

Dr. Trading and Profit & Loss Account for year ended 31st March, 2019		Cr.
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Opening Stock	2,40,000	By Sales	25,00,000
To Purchases	8,50,000	Less: Return Inwards	15,000
Less: Return Outward	8,000		24,85,000
	8,42,000	By Closing Stock	3,80,000
To Wages	29,000
Add: Outstanding	6,000
	35,000
To Power and Fuel	21,800
To Royalty	72,000
To Gross Profit c/d	16,54,200
	28,65,000		28,65,000
To Travelling Expenses	14,700	By Gross Profit b/d	16,54,200
To Audit Fees	7,000	By Discount	2,000
To Discount	1,750
To Postage	13,500
To Bad debts (T)	3,000
Add: New B.D.(A)	1,500
Add: New R.D.D.(A)	25,925
	30,425
Less: Old R.D.D.(T)	8,000
	22,425
To Rent, Rates and Insurance	42,250
Less: Prepaid Insurance	2,250
	40,000
Add: Outstanding Rent	5,000
	45,000
To Depreciation on :
Furniture	12,000
Plant & Machinery	1,50,000
Freehold Premises	1,05,300
	2,67,300
To Net Profit c/d	12,84,525
	16,56,200		16,56,200

Balance Sheet as of 31st March 2019

Liabilities		Assets
Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)
Capital	13,00,000	Sundry Debtors (T)	5,20,000
Add: Net Profit	12,84,525	Less: New B.D.(A)	1,500
	25,84,525		5,18,500
Sundry Creditors	1,20,000	Less: New R.D.D.(A)	25,925
Bills Payable	60,000		4,92,575
Bank Overdraft	1,54,000	Furniture	1,20,000
Outstanding Wages	6,000	Less: Depreciation @ 10%	12,000
Outstanding Rent	5,000		1,08,000
		Plant & Machinery	15,00,000
		Less: Depreciation @ 10%	1,50,000
			13,50,000
		Freehold Premises	7,02,000
		Less: Depreciation @ 15%	1,05,300
			5,96,700
		Prepaid Insurance	2,250
		Closing Stock	3,80,000
	29,29,525		29,29,525

In simple words: This solution provides the Trading Account, Profit & Loss Account, and Balance Sheet for Shradha Enterprises, adjusting for prepaid insurance, closing stock valuation, outstanding expenses, bad debts, RDD, and asset depreciation as of March 31, 2019.

🎯 Exam Tip: Pay close attention to adjustments, especially those affecting multiple accounts like depreciation, outstanding expenses, and provisions for bad debts, as they are crucial for accurate final accounts. Valuation of closing stock (cost vs. market price) should always be at the lower of the two.

 

Question 10.
From the following Trial Balance of Ayub & Co. as of 31st March 2019, you are required to prepare Trading Account, Profit and Loss Account for the year ending 31st March 2019, and Balance Sheet as of that date after making necessary adjustments.
Trial Balance as of 31st March 2019

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Cash in hand	4,575	Discount	900
Cash at Bank	15,450	Loan from Abhay	15,000
Drawings	18,000	Creditors	18,225
Furniture	6,000	Sales	1,95,000
Plant & Machinery	45,000	Returns Outward	3,000
Opening Stock	30,000	Capital	90,000
Purchases	1,20,000
Salaries & Wages	33,600
Debtors	30,600
Returns Inward	7,500
Audit Fees	2,250
Rent, Rates and Taxes	5,400
Bad debts	600
Travelling Expenses	750
Insurance	1,200
Interest on Loan from Abhay	450
Trade Expenses	300
Sundry expenses	450
Total	3,22,125	Total	3,22,125

Adjustments:
1. Stock on hand on 31st March 2019 valued at Rs. 60,000
2. Rent amounting to Rs. 600 Prepaid.
3. Bad Debts Rs. 600 and create a Provision for Doubtful Debts 5%
4. Depreciation on Plant & Machinery by 10% and Furniture is valued at Rs. 4,500
5. Outstanding Salaries Rs. 900
Solution:
In the books of Ayub and Co.

Dr. Trading and Profit and Loss Account for year ended 31st March, 2019		Cr.
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Opening Stock	30,000	By Sales	1,95,000
To Purchases	1,20,000	Less: Return Inwards	7,500
Less: Return Outward	3,000		1,87,500
	1,17,000	By Closing Stock	60,000
To Trade Expenses	300
To Gross Profit c/d	1,00,200
	2,47,500		2,47,500
To Salaries and Wages	33,600	By Gross Profit b/d	1,00,200
Add: Outstanding	900	By Discount	900
	34,500
To Audit fees	2,250
To Rent, Rates and Taxes	5,400
Less: Prepaid Rent	600
	4,800
To Bad debts (T)	600
Add: New B.D. (A)	600
Add: New R.D.D. (A)	1,500
	2,700
To Travelling Expenses	750
To Insurance	1,200
To Interest on loan	450
To Sundry Expenses	450
To Depreciation on :
Furniture	1,500
Plant and Machinery	4,500
	6,000
To Net Profit c/d	48,000
	1,01,100		1,01,100

Balance Sheet as of 31st March 2019

Liabilities		Assets
Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)
Capital	90,000	Cash in hand	4,575
Less: Drawings	18,000	Cash at bank	15,450
	72,000	Furniture	6,000
Add: Net Profit	48,000	Less: Depreciation	1,500
	1,20,000		4,500
Loan from Abhay	15,000	Plant and Machinery	45,000
Creditors	18,225	Less: Depreciation @ 10%	4,500
Outstanding Salaries	900		40,500
		Debtors (T)	30,600
		Less: New B.D.(A)	600
			30,000
		Less: New R.D.D.(A)	1,500
			28,500
		Prepaid Rent	600
		Closing Stock	60,000
	1,54,125		1,54,125

In simple words: This solution provides the complete final accounts for Ayub & Co., including the Trading, Profit & Loss Accounts and the Balance Sheet, after accounting for closing stock, prepaid rent, bad debts, RDD, depreciation on assets, and outstanding salaries.

🎯 Exam Tip: Remember to correctly apply prepaid and outstanding adjustments to both the respective accounts (P&L or Trading) and the Balance Sheet (Assets or Liabilities) to ensure accuracy in final accounts.

 

Question 11.
From the following Trial Balance of Rajnish & Sons and the additional information given below prepare Trading & Profit and Loss Account for the year ending on 31st March 2018 and Balance Sheet as on that date.
Trial Balance as of 31st March 2018

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Stock (01.04.2017)	1,20,000	Capital	6,00,000
Purchases	4,00,000	Sales	3,00,000
Wages	17,000	Return outward	8,000
Carriage	6,000	Sundry Creditors	1,80,000
Salaries	60,000	Bills Payable	90,000
Rent, Rates and Taxes	12,000	8% Loan (taken on 01.10.2017)	1,00,000
Insurance	8,000	Bank Overdraft	79,200
Royalties	10,000
Discount	4,500
Courier charges	5,200
Bad Debts	7,000
Trade Expenses	2,500
Drawings	15,000
Machinery	3,00,000
Furniture	1,50,000
Patents	50,000
Sundry Debtors.	1,90,000
Total	13,57,200	Total	13,57,200

Adjustments:
1. Closing Stock valued at Rs. 3,00,000 cost price and Rs. 3,20,000 at Market price.
2. Salaries were paid for 10 months only.
3. Insurance is paid for one year ending on 30.06.2018
4. One of the debtors Mr. Amit became insolvent, from whom Rs. 10,000 was not received.
5. 5% R.D.D. is to be maintained on Debtors.
6. Depreciate Machinery & Furniture @ 10% and 5% respectively.
Solution:
In the books of Rajnish & Sons

Dr. Trading and Profit & Loss Account for year ended 31st March, 2018		Cr.
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Opening Stock	1,20,000	By Sales	3,00,000
To Purchases	4,00,000	By Closing Stock	3,00,000
Less: Return Outward	8,000
	3,92,000
To Wages	17,000
To Carriage	6,000
To Royalties	10,000
To Gross Profit c/d	55,000
	6,00,000		6,00,000
To Salaries (10 m)	60,000	By Gross Profit b/d	55,000
Add: Outstanding (2m)	12,000	By Net Loss c/d	1,14,700
	72,000
To Rent, Rates and Taxes	12,000
To Insurance	8,000
Less: Prepaid Insurance. (3m)	2,000
	6,000
To Discount	4,500
To Courier charges	5,200
To Bad Debts (T)	7,000
Add: New B.D.(A)	10,000
Add: New R.D.D.(A)	9,000
	26,000
To Trade Expenses	2,500
To Interest on loan	4,000
To Depreciation on :
Machinery	30,000
Furniture	7,500
	37,500
	1,69,700		1,69,700

Balance Sheet as of 31st March 2018

Liabilities		Assets
Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)
Capital	6,00,000	Machinery	3,00,000
Less: Drawings	15,000	Less: Depreciation @ 10%	30,000
	5,85,000		2,70,000
Less: Net Loss	1,14,700	Furniture	1,50,000
	4,70,300	Less: Depreciation @ 5%	7,500
Sundry Creditors	1,80,000		1,42,500
Bills Payable	90,000	Patents	50,000
8% Loan	1,00,000	Sundry Debtors (T)	1,90,000
Add: Int.on loan outstanding	4,000	Less: New B.D.(A)	10,000
	1,04,000		1,80,000
Bank Overdraft	79,200	Less: New R.D.D.(A)	9,000
Outstanding Salaries	12,000		1,71,000
		Closing Stock	3,00,000
		Prepaid Insurance	2,000
	9,35,500		9,35,500

In simple words: This solution presents the final accounts for Rajnish & Sons, including the Trading, Profit & Loss Accounts, and the Balance Sheet, after applying adjustments for closing stock, outstanding salaries, prepaid insurance, further bad debts, RDD, and depreciation on assets. The net loss is transferred to capital.

🎯 Exam Tip: When dealing with net loss, remember it decreases the capital on the liabilities side of the Balance Sheet. Always use the lower of cost or market price for closing stock valuation.

 

Question 12.
From the following Trial Balance of John & Sons, you are required to prepare Trading Account, Profit and Loss Account for the year ending 31st March 2019 and Balance Sheet as of that date.
Trial Balance as of 31st March 2019

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Drawings (1st July 2018)	12,000	Sundry Creditors	40,000
Cash in hand	8,000	Returns	4,500
Cash at Bank	20,000	Dividend	100
Bills Receivable	15,000	Rent	200
Wages	1,800	Sales	53,200
Discount	700	Bank Loan	5,000
Rent	2,000	Capital	99,700
Advertisement	3,000
Bad debts	1,200
Travelling Expenses	800
Purchases	40,000
Machinery	15,000
Motor Car	18,000
Returns	1,200
Stock (1st April 2018)	10,000
Sundry Debtors	35,000
Carriage outwards	1,000
6% Investment (1st Sept 2018)	18,000
Total	2,02,700	Total	2,02,700

Adjustments:
1. Closing Stock Rs. 27,000
2. Charge Depreciation on Machinery and Motor car @ 10% and 5% respectively.
3. Create R.D.D. 5% on Sundry Debtors
4. Interest on Drawings @ 5% p.a.
5. Create Discount on Sundry Creditors 3%
6. Advertisement Rs. 1,000 is prepaid.
7. Outstanding Rent Rs. 1,500
Solution:
In the books of John and Sons

Dr. Trading and Profit and Loss A/c for the year ended 31st March, 2019		Cr.
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Opening Stock	10,000	By Sales	53,200
To Purchases	40,000	Less: Returns	1,200
Less: Returns	4,500		52,000
	35,500	By Closing Stock	27,000
To Wages	1,800
To Gross Profit c/d	31,700
	79,000		79,000
To Discount	700	By Gross Profit b/d	31,700
To Rent	2,000	By Dividend	100
Add: Outstanding	1,500	By Rent	200
	3,500	By Interest on Drawing	450
To Advertisement	3,000	By Interest on Investment	630
Less: Prepaid	1,000	By Provision for Discount on Creditors	1,200
	2,000
To Travelling Expenses	800
To Depreciation on :
Machinery	1,500
Motor Car	900
	2,400
To Bad debts (T)	1,200
Add: New R.D.D. (A)	1,750
	2,950
To Carriage Outwards	1,000
To Net Profit c/d	20,930
	34,280		34,280

Balance Sheet as of 31st March 2019

Liabilities		Assets
Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)
Capital	99,700	Cash in hand	8,000
Less: Drawings	12,000	Cash at bank	20,000
	87,700	Bills Receivable	15,000
Less: Interest on Drawings (9m)	450	Machinery	15,000
	87,250	Less: Dep. @ 10%	1,500
Add: Net Profit	20,930		13,500
	1,08,180	Motor Car	18,000
Sundry Creditors	40,000	Less: Dep. @ 5%	900
Less: Provision for Discount on Creditors @ 3%	1,200		17,100
	38,800	Sundry Debtors (T)	35,000
Bank loan	5,000	Less: New R.D.D. (A)	1,750
Outstanding Rent	1,500		33,250
		6% Investment	18,000
		Add: Int. Receivable	630
			18,630
		Closing Stock	27,000
		Prepaid Advertisement	1,000
	1,53,480		1,53,480

In simple words: This solution provides the complete final accounts for John & Sons, including the Trading, Profit & Loss Accounts, and the Balance Sheet, after applying adjustments for closing stock, depreciation, RDD, interest on drawings and investments, provision for discount on creditors, prepaid advertisement, and outstanding rent.

🎯 Exam Tip: Ensure that all adjustments, especially those involving interest on drawings (affecting capital) and provisions for discount on creditors/debtors, are correctly double-entered in both the P&L Account and the Balance Sheet for accuracy.

 

Question 13.
From the following Trial Balance of Pushkraj, you are required to prepare Trading Account and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as of that date.
Trial Balance as of 31st March 2019

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Drawings	2,000	Capital	80,000
Motor Car	30,000	Sundry Creditors	25,000
Cash in hand	1,000	Dividend	4,800
Bills Receivable	20,000	Commission	2,535
Wages	1,000	8% Loan (taken on 1.7.2018)	13,700
Discount	235	Purchases Returns	400
Rent	300	Sales	38,680
Advertisement	2,500
Bad Debts	500
Travelling expenses	1,000
Purchases	27,400
Machinery	30,000
Office expenses	500
Sales Returns	680
Opening Stock	10,000
Sundry Debtors	35,500
Carriage Outward	500
Cash at Bank	2,000
Total	1,65,115	Total	1,65,115

Adjustments:
1. Stock on 31st March 2019 was valued at Rs. 28,000
2. Create a Provision for doubtful debts on Sundry Debtors @ 5%
3. Depreciate Motor car by 5% p.a. and Machinery by 7% p.a.
4. Outstanding expenses Rent Rs. 800 & Wages Rs. 1,000
5. Charge interest on Capital @ 3% p.a.
6. Goods of Rs. 4,000 withdrawn by the proprietor for personal use.
Solution:
In the books of Pushkraj

Dr. Trading and Profit and Loss A/c for the year ended 31st March, 2019.		Cr.
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Opening Stock	10,000	By Sales	38,680
To Purchases	27,400	Less: Sales Return	680
Less: Purchases Return	400		38,000
	27,000	By Drawings of goods	4,000
To Wages	1,000	By Closing Stock	28,000
Add: Outstanding	1,000
	2,000
To Gross Profit c/d	31,000
	70,000		70,000
To Discount	235	By Gross Profit b/d	31,000
To Rent	300	By Dividend	4,800
Add: Outstanding	800	By Commission	2,535
	1,100
To Advertisement	2,500
To Bad debts (T)	500
Add: New R.D.D.(A)	1,775
	2,275
To Travelling Expenses	1,000
To Office Expenses	500
To Carriage Outwards	500
To Depreciation on :
Motor car	1,500
Machinery	2,100
	3,600
To Interest on loan	822
To Interest on capital	2,400
To Net Profit c/d	23,403
	38,335		38,335

Balance Sheet as of 31st March 2019

Liabilities		Assets
Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)
Capital	80,000	Motor car	30,000
Less: Drawings	2,000	Less: Dep. @ 5%	1,500
	78,000		28,500
Less: Drawings of Goods	4,000	Cash in hand	1,000
	74,000	Bills Receivable	20,000
Add: Interest on capital	2,400	Machinery	30,000
	76,400	Less: Dep. @7%	2,100
Add: Net Profit	23,403		27,900
	99,803	Sundry Debtors (T)	35,500
Sundry Creditors	25,000	Less: New R.D.D.(A)	1,775
8% Loan	13,700		33,725
Add: Outstanding Interest	822	Cash at Bank	2,000
	14,522	Closing Stock	28,000
Outstanding Wages	1,000
Outstanding Rent	800
	1,41,125		1,41,125

In simple words: This solution provides the complete final accounts for Pushkraj, including the Trading, Profit & Loss Accounts, and the Balance Sheet, after applying adjustments for closing stock, RDD, depreciation on assets, outstanding expenses, interest on capital, and goods withdrawn for personal use.

🎯 Exam Tip: Remember to deduct goods withdrawn for personal use from Purchases in the Trading Account and from Capital in the Balance Sheet. Ensure correct calculation of interest on capital and outstanding interest on loans.

 

Question 14.
From the following Trial Balance of Jyoti, Trading Co. Prepare the Trading Account and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as of that date.
Trial Balance as of 31st March 2019

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Stock (1.4.2018)	9,500	Capital	2,00,000
Sales Returns	750	R.D.D.	1,000
Loose Tools	55,000	Sales	38,750
Debtors	50,800	Purchases return	455
Bills Receivable	4,000	Creditors	47,000
Purchases	29,455	Bills Payable	8,000
Furniture	15,000	Discount	1,845
Salaries	5,000
Carriage Outward	3,000
Legal expenses	2,000
Insurance	2,200
Goodwill	20,000
Machinery	40,000
Wages	2,345
Bank	30,000
Drawings	8,000
Investments	20,000
Total	2,97,050	Total	2,97,050

Adjustments:
1. Closing stock valued at Rs. 58,000 Cost Price while the Market price is Rs. 60,000
2. Write off Rs. 1,200 as Bad debts and create provision for doubtful debts 2% on Sundry Debtors and also create provision for discount on Creditors 5%.
3. Loose Tools is valued at Rs. 52,000 and depreciate Furniture by 10% p.a.
4. Outstanding expenses Salary Rs. 1,000 and Wages Rs. 225
5. Charge interest on Capital 2% and on Drawings 10%.
Solution:
In the books of Jyoti Trading Co.

Dr. Trading and Profit and Loss A/c for the year ended 31st March, 2019		Cr.
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Opening Stock	9,500	By Sales	38,750
To Purchases	29,455	Less: Sales Return	750
Less: Purchases Return	455		38,000
	29,000	By Closing Stock	58,000
To Wages	2,345
Add: Outstanding	225
	2,570
To Gross Profit c/d	54,930
	96,000		96,000
To Salaries	5,000	By Gross Profit b/d	54,930
Add: Outstanding	1,000	By Discount	1,845
	6,000	By Interest on Drawing	400
To Carriage Outwards	3,000	By Provision for Discount on Creditors	2,350
To Legal expense	2,000
To Insurance	2,200
To New B.D.(A)	1,200
Add: New R.D.D. (A)	992
	2,192
Less: Old R.D.D. (T)	1,000
	1,192
To Interest on Capital	4,000
To Depreciation on :
Loose Tools	3,000
Furniture	1,500
	4,500
To Net Profit c/d	36,633
	59,525		59,525

Balance Sheet as of 31st March 2019

Liabilities		Assets
Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)
Capital	2,00,000	Loose Tools	55,000
Less: Drawings	8,000	Less: Depreciation	3,000
	1,92,000		52,000
Add: Interest on capital	4,000	Debtors (T)	50,800
	1,96,000	Less: New B.D.(A)	1,200
Less: Interest on Drawings	400		49,600
	1,95,600	Less: New R.D.D (A)	992
Add: New Profit	36,633		48,608
	2,32,233	Bills Receivable	4,000
Creditors	47,000	Furniture	15,000
Less: Provision for Discount on Creditors @ 5%	2,350	Less: Dep. @10%	1,500
	44,650		13,500
Bills Payable	8,000	Goodwill	20,000
Outstanding Salaries	1,000	Machinery	40,000
Outstanding Wages	225	Bank	30,000
		Investments	20,000
		Closing Stock	58,000
	2,86,108		2,86,108

In simple words: This solution provides the comprehensive final accounts for Jyoti Trading Co., including the Trading, Profit & Loss Accounts, and the Balance Sheet, incorporating adjustments for closing stock, bad debts, RDD, depreciation on assets, outstanding expenses, and interest on capital and drawings.

🎯 Exam Tip: Accurately calculate and apply provisions for bad debts and discounts on debtors and creditors, as these often require careful adjustment in both the P&L account and the Balance Sheet.

 

Question 15.
From the following Trial Balance of Manish Enterprise, Prepare the Trading Account and Profit and Loss Account for the year ended 31st March 2019 and Balance sheet as of that date.
Trial Balance as of 31st March 2019

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Cash in hand	5,200	Capital	50,000
Opening stock	10,370	Bank Loan	15,000
Goodwill	10,000	Bills Payable	8,500
Patents	4,000	Creditors	38,260
Cash at Bank	4,400	General Reserve	1,500
Freight	2,500	Dividend	2,000
Power & Fuel	1,500	Interest on Fixed Deposit	3,440
Furniture	12,000	Sales	40,000
Purchases	35,260
Mobile charges	3,200
Factory Salaries	2,400
Repairs	800
Lighting	1,000
Carriage outward	360
Professional charges	1,240
Debtors	40,000
Plant & Machinery	13,700
Office Equipments	10,000
Carriage Inwards	770
Total	1,58,700	Total	1,58,700

Adjustments:
1. Closing Stock was Rs. 32,000.
2. Write off 50% of patents, depreciate Plant & Machinery by 10% p.a and Office Equipment by 20%.
3. Reserve for bad debts is to be created 5% and discount on Debtors 2%.
4. Outstanding expenses Mobile charges Rs. 300 and Freight Rs. 500
5. Charge Interest on Capital @ 5%.
6. Goods of Rs. 2,000 distributed on free samples.
Solution:
In the books of Manish Enterprise

Dr. Trading and Profit and Loss A/c for the year ended 31st March, 2019		Cr.
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Opening Stock	10,370	By Sales	40,000
To Purchases	35,260	By Goods distributed as free samples	2,000
To Power and fuel	1,500	By Closing Stock	32,000
To Factory salaries	2,400
To Carriage Inwards	770
To Freight	2,500
Add: Outstanding	500
	3,000
To Gross Profit c/d	20,700
	74,000		74,000
To Mobile charges	3,200	By Gross Profit b/d	20,700
Add: Outstanding	300	By Dividend	2,000
	3,500	By Interest on Fixed Deposit	3,440
To Repairs	800
To Lighting	1,000
To Carriage Outward	360
To Professional charges	1,240
To Reserve for Bad debts	2,000
To Provision for Discount on Debtors	760
To Interest on Capital	2,500
To Advertisement	2,000
To Depreciation on :
Patents	2,000
Plant and Machinery	1,370
Office Equipments	2,000
	5,370
To Net Profit c/d	6,610
	26,140		26,140

Balance Sheet as of 31st March 2019

Liabilities		Assets
Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)	Amt. (Rs.)
Capital	50,000	Cash in hand	5,200
Add: Interest on Capital	2,500	Goodwill	10,000
	52,500	Patents	4,000
Add: Net profit	6,610	Less: Written off	2,000
	59,110		2,000
Bank loan	15,000	Cash at bank	4,400
Bills Payable	8,500	Furniture	12,000
Creditors	38,260	Debtors (T)	40,000
General Reserve	1,500	Less: New R.D.D. (A)	2,000
Outstanding Mobile charges	300		38,000
Outstanding Freight	500	Less: Provision for Dis. on Debtors @ 2%	760
			37,240
		Plant and Machinery	13,700
		Less: Dep. @ 10%	1,370
			12,330
		Office Equipments	10,000
		Less: Dep. @ 20%	2,000
			8,000
		Closing Stock	32,000
	1,23,170		1,23,170

In simple words: This solution provides the final accounts for Manish Enterprise, including the Trading, Profit & Loss Accounts, and the Balance Sheet, after applying adjustments for closing stock, patent write-off, depreciation on assets, RDD, discount on debtors, outstanding expenses, interest on capital, and goods distributed as free samples.

🎯 Exam Tip: When goods are distributed as free samples, they reduce the value of purchases in the Trading Account and are treated as an advertisement expense in the Profit & Loss Account.

 

Class 11 Commerce BK Textbook Solutions Digest

 

• 11th Bk Chapter 1 Practical Problems
• 11th Bk Chapter 2 Practical Problems
• 11th Bk Chapter 3 Practical Problems
• 11th Bk Chapter 4 Practical Problems
• 11th Bk Chapter 5 Practical Problems
• 11th Bk Chapter 6 Practical Problems
• 11th Bk Chapter 7 Practical Problems
• 11th Bk Chapter 8 Practical Problems
• 11th Bk Chapter 9 Practical Problems
• 11th Bk Chapter 10 Practical Problems

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Class 11 Commerce BK Chapter 9 Exercise Solutions

1. Answer in One Sentence.

Question 1. What is Trading Account?
Answer: An account in which direct expenses are compared with direct incomes to find out gross profit or gross loss for a given period is known as Trading Account.
In simple words: A Trading Account compares direct costs with direct sales to determine if a business made a gross profit or a gross loss over a specific period.

🎯 Exam Tip: Focus on understanding the core purpose of each account for foundational knowledge and quick recall.

 

Question 2. What do you mean by Profit and Loss Account?
Answer: An account in which indirect expenses are compared with indirect incomes to find out net profit or net loss for a given period is known as the Profit and Loss Account.
In simple words: A Profit and Loss Account matches indirect expenses with indirect incomes to calculate the business's net profit or net loss for an accounting period.

🎯 Exam Tip: Distinguish clearly between direct and indirect expenses/incomes to accurately understand Trading vs. Profit and Loss Accounts.

 

Question 3. Why Balance Sheet is prepared?
Answer: The balance sheet is prepared to ascertain the financial position of the business on a specific date usually at the end of the accounting year.
In simple words: A Balance Sheet is created to show a company's financial health, detailing its assets, liabilities, and equity at a specific moment in time.

🎯 Exam Tip: Remember that the Balance Sheet presents a snapshot of financial position on a *specific date*, unlike income statements which cover a *period*.

 

Question 4. State the meaning of Final Accounts.
Answer: Final Accounts are the group of Trading Account, Profit and loss account and Balance sheet prepared to know the results of business for a given period.
In simple words: Final Accounts comprise the Trading Account, Profit and Loss Account, and Balance Sheet, which together provide a complete financial overview of a business for an accounting period.

🎯 Exam Tip: Understand that Final Accounts are a comprehensive set, not just one document, reflecting both performance and position.

 

Question 5. What is Net Profit?
Answer: When the total credit side of Profit and Loss A/c is greater than the total of debit side, it indicates credit balance which is known as net profit.
In simple words: Net Profit is the profit remaining after all expenses, both direct and indirect, have been deducted from all revenues during an accounting period.

🎯 Exam Tip: Net profit is a key indicator of overall business profitability after considering all operational and non-operational costs.

 

Question 6. What do you mean by Gross Profit?
Answer: When the total credit side of Trading A/c is greater than the total of debit side, it indicates credit balance, which is called gross profit.
In simple words: Gross Profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with its services.

🎯 Exam Tip: Gross profit reflects the efficiency of core operations before accounting for overheads and other indirect expenses.

 

Question 7. State the meaning of Accrued Income?
Answer: Income that is due and accumulated but not yet actually received during the current accounting year is called accrued income.
In simple words: Accrued income is money earned but not yet collected, meaning the service or good has been provided, but payment is still pending.

🎯 Exam Tip: Remember that accrued income is an asset because it represents a future economic benefit that the business has a right to receive.

 

Question 8. State the meaning of Outstanding Expenses?
Answer: The expenses which are incurred in the current year, but not paid partly or fully during the current accounting year are termed as outstanding expenses.
In simple words: Outstanding expenses are costs incurred during the current period that remain unpaid at the end of that period.

🎯 Exam Tip: Outstanding expenses are liabilities, representing an obligation to pay for services or goods already received.

 

Question 9. What is Depreciation?
Answer: Depreciation means a continuous reduction in the value of property or asset due to wear and tear, accident, fall in the market price, the passage of time, etc.
In simple words: Depreciation is the systematic reduction in the recorded cost of a tangible asset over its useful life due to various factors like usage, obsolescence, or time.

🎯 Exam Tip: Depreciation is a non-cash expense that impacts an asset's book value and a company's profitability and tax liability.

 

Question 10. What do you mean by Prepaid Expenses?
Answer: The expense which is paid in advance before they are due for payment is called prepaid expenses.
In simple words: Prepaid expenses are payments made for goods or services that will be consumed or used in a future accounting period.

🎯 Exam Tip: Prepaid expenses are considered assets until they are used up or expire, at which point they become an expense.

 

2. Give a word, term, or phrase which can substitute each of the following statements:

Question 1. Expenses are paid before it is due.
Answer: Prepaid Expenses
In simple words: This refers to payments made in advance for services or goods yet to be consumed.

🎯 Exam Tip: Recognize that payments made for future benefits are recorded as assets initially.

 

Question 2. Income due but not yet received.
Answer: Accrued Income
In simple words: This is revenue earned but not yet collected.

🎯 Exam Tip: Accrued income is an asset as it represents a right to receive payment.

 

Question 3. Carriage paid on the sale of goods.
Answer: Carriage Outwards
In simple words: This is the cost of transporting goods from the seller to the buyer after the sale.

🎯 Exam Tip: Differentiate "Carriage Outwards" (selling expense) from "Carriage Inwards" (direct expense, part of cost of goods sold).

 

Question 4. Statement of Assets and liabilities.
Answer: Balance Sheet
In simple words: This financial statement presents a company's assets, liabilities, and equity at a specific point in time.

🎯 Exam Tip: The Balance Sheet provides a snapshot of a business's financial health on a given date.

 

Question 5. Account prepared to know Net Profit or Net loss.
Answer: Profit and Loss A/c
In simple words: This account summarizes revenues, costs, and expenses over a period to determine net profitability.

🎯 Exam Tip: The Profit and Loss Account measures financial performance over a period, ending with net profit or loss.

 

Question 6. Value of goods remaining unsold at the end of the year.
Answer: Closing Stock
In simple words: This refers to the inventory of goods that a business has on hand at the end of an accounting period.

🎯 Exam Tip: Closing stock is an asset and directly affects the Cost of Goods Sold and profitability.

 

Question 7. The provision was made to compensate the loss on account of likely debts.
Answer: Provision for Bad and Doubtful Debts
In simple words: This is an estimate of the amount of accounts receivable that may not be collected.

🎯 Exam Tip: Creating this provision adheres to the prudence concept, anticipating future losses from uncollectible debts.

 

Question 8. The accounts are prepared at the end of the accounting year to know the profit or loss and financial position of the business.
Answer: Final Accounts
In simple words: These are the set of financial statements, including the Trading Account, Profit and Loss Account, and Balance Sheet, prepared at year-end.

🎯 Exam Tip: Final Accounts offer a complete picture of a business's financial performance and position at the close of an accounting cycle.

 

Question 9. An amount spent on promoting the sale of goods.
Answer: Selling Expenses
In simple words: These are costs incurred to market, sell, and deliver products or services to customers.

🎯 Exam Tip: Selling expenses are typically indirect expenses and are charged to the Profit and Loss Account.

 

Question 10. Additional information is provided below the Trial Balance.
Answer: Adjustments
In simple words: These are modifications made to account balances at the end of an accounting period to ensure all revenues and expenses are recorded in the correct period.

🎯 Exam Tip: Adjustments are crucial for adhering to the accrual basis of accounting and presenting a true and fair view of financial statements.

 

3. Select the Most Appropriate Alternatives Given Below and Rewrite the Sentence:

Question 1. _______________ is excess of assets over liabilities.
(a) Goodwill
(b) Capital
(c) Investments
(d) Drawings
Answer: (b) Capital
In simple words: Capital represents the owner's equity or the residual interest in the assets of the entity after deducting its liabilities.

🎯 Exam Tip: Remember the fundamental accounting equation: Assets = Liabilities + Capital, which implies Capital = Assets - Liabilities.

 

Question 2. Discount earned is transferred to credit side of _______________ account.
(a) Current
(b) Profit and Loss
(c) Trading
(d) Capital
Answer: (b) Profit and Loss
In simple words: Discount earned is an indirect income for the business, thus it is recorded on the credit side of the Profit and Loss Account.

🎯 Exam Tip: All indirect incomes and gains are credited to the Profit and Loss Account, while direct incomes go to the Trading Account.

 

Question 3. _______________ is a statement which shows the financial position of business on a specific date.
(a) Trading Account
(b) Trial Balance
(c) Profit and Loss A/c
(d) Balance Sheet
Answer: (d) Balance Sheet
In simple words: The Balance Sheet provides a detailed summary of a company's assets, liabilities, and equity at a precise moment in time.

🎯 Exam Tip: Understand that the Balance Sheet reflects "position" at a point, while the Trading and P&L Accounts reflect "performance" over a period.

 

Question 4. Outstanding expenses are shown on the _______________ side of Balance sheet.
(a) Assets
(b) Liability
(c) Both
(d) None of these
Answer: (b) Liability
In simple words: Outstanding expenses represent amounts owed by the business for services already received, making them a current liability.

🎯 Exam Tip: Liabilities represent obligations of the business to external parties or owners.

 

Question 5. Interest on Drawing is credited to _______________ Account.
(a) Trading
(b) Profit and Loss
(c) Capital
(d) All
Answer: (c) Capital
In simple words: Interest on drawings reduces the owner's capital as it represents a charge for the use of business funds for personal purposes.

🎯 Exam Tip: Interest on drawings directly affects the owner's equity, decreasing the capital balance.

 

Question 6. Debit balance of Trading Account means _______________.
(a) Gross Loss
(b) Net Loss
(c) Net Profit
(d) Gross Profit
Answer: (a) Gross Loss
In simple words: A debit balance in the Trading Account indicates that the direct expenses exceed the direct incomes, resulting in a gross loss.

🎯 Exam Tip: Remember that for revenue accounts, a credit balance signifies profit/income, while a debit balance indicates a loss/expense exceeding income.

 

Question 7. Carriage Inward is debited to _______________ Account.
(a) Trading
(b) Profit and Loss
(c) Capital
(d) Bank
Answer: (a) Trading
In simple words: Carriage inward is a direct expense incurred to bring goods into the business premises, making it a component of the cost of goods sold shown in the Trading Account.

🎯 Exam Tip: All direct expenses related to purchases and manufacturing are debited to the Trading Account.

 

Question 8. Excess of credit over to debit in Profit and Loss A/c indicates _______________.
(a) Net Profit
(b) Gross Profit
(c) Gross Loss
(d) Net Loss
Answer: (a) Net Profit
In simple words: When total incomes (credit side) in the Profit and Loss Account surpass total expenses (debit side), the result is a Net Profit.

🎯 Exam Tip: A credit balance for an income statement account indicates a gain, whereas a debit balance indicates a loss.

 

Question 9. Closing stock is always valued at cost or market price which is _______________.
(a) more
(b) less
(c) zero
(d) equal
Answer: (b) less
In simple words: Closing stock is valued at the lower of cost or market price, adhering to the principle of conservatism in accounting.

🎯 Exam Tip: This valuation method (lower of cost or market) ensures that assets are not overstated, aligning with the prudence concept.

 

Question 10. When specific date is not given, in that case interest on drawings is charged for _______________ month.
(a) Four
(b) Six
(c) Eight
(d) Nine
Answer: (b) Six
In simple words: If the date of drawings is not specified, it is conventionally assumed that drawings were made evenly throughout the year, so interest is calculated for an average period of six months.

🎯 Exam Tip: This six-month assumption is a standard convention in accounting unless a specific date for drawings is provided.

 

4. State True or False with reasons:

Question 1. In every adjustment at least there are three effects.
Answer: This statement is False.
There are at least two effects in every adjustment of final accounts.
In simple words: According to the double-entry system, every accounting adjustment must have a minimum of two effects-a debit and a credit-to maintain balance.

🎯 Exam Tip: Emphasize the 'double-entry' principle; every transaction and adjustment impacts at least two accounts in opposite directions.

 

Question 2. Every item of Trial Balance has only one effect.
Answer: This statement is True.
Every transaction is recorded through journal or subsidiary books with the principle of the double-entry book-keeping system. Journal and subsidiary books are posted to the ledger account and trial balance is prepared from the balances of the ledger so there are already two effects passed. So every item of Trial Balance has only one effect.
In simple words: Items in a Trial Balance are already net balances from ledger accounts, meaning the dual effect of each transaction has already been processed, showing only one final balance per account.

🎯 Exam Tip: Understand that the Trial Balance is a summary of ledger balances, reflecting the cumulative effect of previous double-entry postings, not the initial entries themselves.

 

Question 3. Income due but not received is a liability.
Answer: This statement is False.
Income due but not received is an Asset and not a liability.
In simple words: Income earned but not yet collected is an asset because it represents a future economic benefit or a right to receive cash.

🎯 Exam Tip: Accrued income is an asset (receivable), while unearned income is a liability (advance received for future service).

 

Question 4. Goodwill is not a fictitious asset.
Answer: This statement is True.
Goodwill is the reputation or name and fame of a business organization in the market. It is the money value of a business reputation earned by a business. It is an intangible asset.
Fictitious assets are created by accounting entry in the books of accounts it doesn't have any realizable value.
E.g.: Share issue expenses.
In simple words: Goodwill is a real, albeit intangible, asset representing the value of a business's reputation and customer loyalty, unlike fictitious assets which have no realizable value.

🎯 Exam Tip: Distinguish between intangible assets (like goodwill, patents, trademarks, which have real value) and fictitious assets (like preliminary expenses or deferred revenue expenditures, which are not real assets but rather deferred expenses).

 

Question 5. The credit balance of the Profit & Loss account shows a net profit.
Answer: This statement is True.
The credit side of profit and loss A/c represents incomes when the credit side is greater than the debit side (expenses) it shows the Net Profit of the year.
In simple words: A credit balance in the Profit and Loss Account signifies that total revenues and gains for the period exceeded total expenses and losses, resulting in a net profit.

🎯 Exam Tip: A credit balance for an income statement account indicates a gain, whereas a debit balance indicates a loss. This is a fundamental concept for understanding financial statements.

 

5. Fill in the blanks:

Question 1. Gross Profit is transferred to _______________ account.
Answer: Profit and Loss A/c
In simple words: The profit from core trading activities is moved to the Profit and Loss Account to calculate overall business profitability after considering all other incomes and expenses.

🎯 Exam Tip: Gross Profit is the starting point for calculating Net Profit in the Profit and Loss Account.

 

Question 2. Debit Balance of Trading Account indicates _______________.
Answer: Gross Loss
In simple words: A debit balance means that the direct costs of goods sold and other direct expenses were more than the revenue from sales.

🎯 Exam Tip: A debit balance in a revenue or profit account signifies a loss, while a credit balance indicates a gain.

 

Question 3. Income Receivable appears on _______________ side of Balance Sheet.
Answer: Asset
In simple words: Income that is due but not yet received is an asset because it represents a future inflow of economic benefits to the business.

🎯 Exam Tip: All items representing future economic benefits or rights to receive cash are classified as assets on the Balance Sheet.

 

Question 4. Interest on Bank Loan is debited to _______________ A/c.
Answer: Profit and Loss A/c
In simple words: Interest on a bank loan is an indirect financial expense for the business, and thus it is recorded on the debit side of the Profit and Loss Account.

🎯 Exam Tip: Financial expenses, such as interest paid, are typically indirect costs and are hence charged to the Profit and Loss Account.

 

Question 5. Profit and Loss account is prepared to find out _______________ results of the business
Answer: Net Working
In simple words: The Profit and Loss account is prepared to determine the final operational profitability of the business after all incomes and expenses are considered.

🎯 Exam Tip: The primary outcome of the Profit and Loss Account is to reveal the net profit or net loss, which indicates the business's overall operational efficiency.

 

Question 6. All indirect/operating expenses are transferred to _______________ account.
Answer: Profit and Loss A/c
In simple words: Expenses not directly related to production or purchase of goods, but necessary for the general running of the business, are recorded here.

🎯 Exam Tip: Clearly differentiate between direct expenses (Trading Account) and indirect expenses (Profit and Loss Account).

 

Question 7. Interest of proprietor's drawing is credited to _______________ account.
Answer: Profit and Loss A/c
In simple words: This interest is considered an income for the business from the proprietor's personal use of funds, thus it is credited to the Profit and Loss Account.

🎯 Exam Tip: Interest on drawings is treated as an income to the business, increasing its net profit, and then adjusted in the capital account.

 

Question 8. An excess of debit over credit in the Profit & Loss A/c represents the _______________.
Answer: Net Loss
In simple words: If the total expenses (debit) are greater than the total incomes (credit) in the Profit & Loss Account, the business has incurred a net loss.

🎯 Exam Tip: A debit balance in an income statement account (like P&L) always indicates a loss, while a credit balance indicates a profit.

 

Question 9. All direct expenses are transferred to _______________ account.
Answer: Trading A/c
In simple words: Expenses directly linked to the purchase or production of goods, such as wages or carriage inwards, are debited to the Trading Account.

🎯 Exam Tip: Direct expenses are essential for calculating Gross Profit, appearing in the Trading Account.

 

Question 10. Balance Sheet is _______________ of assets & liabilities.
Answer: Statement
In simple words: The Balance Sheet is a structured financial document that lists assets, liabilities, and owner's equity at a specific point in time.

🎯 Exam Tip: Unlike accounts, a statement typically doesn't have debit and credit sides but presents information in a classified format.

 

6. Find the odd one:

Question 1. Rent, Salary, Insurance, Plant, and Machinery.
Answer: Plant and Machinery
In simple words: Plant and Machinery is a tangible asset, while Rent, Salary, and Insurance are expenses incurred during business operations.

🎯 Exam Tip: Distinguish between assets (economic resources owned by the business) and expenses (costs incurred to generate revenue).

 

Question 2. Purchases, Closing stock, Debtors, Factory Rent.
Answer: Debtors
In simple words: Debtors represent an asset (amounts owed to the business), whereas Purchases, Closing Stock, and Factory Rent are typically components of the Trading Account.

🎯 Exam Tip: Identify whether an item is an asset, liability, expense, or income to correctly classify it within financial statements.

 

Question 3. Capital, Bills Payable, Debtors, Outstanding wages.
Answer: Debtors
In simple words: Debtors are assets (amounts receivable), while Capital, Bills Payable, and Outstanding Wages are all liabilities or equity items.

🎯 Exam Tip: Group items based on their nature - assets, liabilities, or equity - to find the outlier.

 

Question 4. Advertisement, Travelling Expenses, Factory Rent, Insurance.
Answer: Factory Rent
In simple words: Factory Rent is a direct expense related to production, whereas Advertisement, Travelling Expenses, and Insurance are generally indirect operating expenses.

🎯 Exam Tip: Carefully differentiate between direct expenses (Trading A/c) and indirect expenses (Profit & Loss A/c).

 

Question 5. Cash in Hand, Debtors, Outstanding Income, Reserve for Doubtful Debts.
Answer: Reserve for Doubtful Debts
In simple words: Reserve for Doubtful Debts is a provision against assets, while Cash in Hand, Debtors, and Outstanding Income are all actual assets.

🎯 Exam Tip: Understand that a reserve or provision is a contra-asset account, reducing the value of an asset rather than being an asset itself.

 

7. Do you agree or disagree with the following statements:

Question 1. Reserve for bad debts is created by debiting Profit and Loss Account.
Answer: Agree
In simple words: Creating a reserve for bad debts is an expense for the business, reflecting potential uncollectible amounts, and is therefore charged to the Profit and Loss Account.

🎯 Exam Tip: The provision for doubtful debts is an estimated expense to match potential future losses with current period revenues.

 

Question 2. A balance Sheet is a statement as well as an account.
Answer: Disagree
In simple words: A Balance Sheet is strictly a statement, not an account, as it presents a summary of financial position without debit and credit sides like a ledger account.

🎯 Exam Tip: Clearly differentiate between financial statements (like Balance Sheet, which are summaries) and ledger accounts (which record individual transactions).

 

Question 3. Indirect Expenses are debited to Trading Account.
Answer: Disagree
In simple words: Indirect expenses are debited to the Profit and Loss Account, as they are not directly linked to the production or purchase of goods.

🎯 Exam Tip: Remember that only direct expenses (related to production/purchase) are debited to the Trading Account to determine Gross Profit.

 

Question 4. Bank Overdraft is treated as an Internal Liability.
Answer: Disagree
In simple words: Bank Overdraft is an external liability, as it represents a short-term debt owed to a bank, an outside party.

🎯 Exam Tip: Internal liabilities relate to owners (e.g., capital), while external liabilities are obligations to third parties (e.g., banks, creditors).

 

Question 5. Capital is excess of Liabilities over Assets.
Answer: Disagree
In simple words: Capital is the excess of assets over liabilities, not the other way around, representing the owner's claim on the business's net assets.

🎯 Exam Tip: Revisit the accounting equation: Assets = Liabilities + Capital, which implies Capital = Assets - Liabilities.

 

8. Correct and Rewrite the following statements:

Question 1. The balancing figure of the Trading Account is Net Profit or Net Loss.
Answer: The balancing figure of the Trading Account is Gross Profit or Gross Loss.
In simple words: The Trading Account calculates the preliminary profit or loss from core buying and selling activities, before considering overheads.

🎯 Exam Tip: Distinguish between Gross Profit/Loss (from Trading A/c) and Net Profit/Loss (from Profit & Loss A/c).

 

Question 2. All direct expenses are debited to the Profit and Loss Account.
Answer: All direct expenses are debited to Trading Account.
In simple words: Expenses directly involved in producing or acquiring goods are recorded in the Trading Account to determine the gross profit.

🎯 Exam Tip: Direct expenses are crucial for calculating the Cost of Goods Sold and the subsequent Gross Profit.

 

Question 3. When the credit side of the Profit and Loss Account is greater than the debit side, it is called Net Loss.
Answer: When the credit side of the Profit and Loss account is greater than the debit side, it is called Net Profit.
In simple words: If total incomes exceed total expenses in the Profit and Loss Account, the business has achieved a net profit.

🎯 Exam Tip: An excess of credits over debits in any income/revenue account indicates a gain or profit.

 

Question 4. Capital A/c.................Dr.
To Profit and Loss Account
(Being Net Profit transferred to Capital A/c)
Answer: Profit and Loss Account...............Dr.
To Capital A/c
(Being Net Profit transferred to Capital A/c)
In simple words: When a business makes a net profit, it increases the owner's capital, so the Profit and Loss Account is debited and the Capital Account is credited.

🎯 Exam Tip: Net profit increases owner's equity, so it is transferred as a credit to the Capital Account via a debit from the Profit and Loss Account.

 

Question 5. Trading A/c...............Dr.
To Sales A/c
(Being Sales transferred to Trading A/c)
Answer: Sales A/c............Dr
To Trading A/c
(Being sales transferred to Trading A/c)
In simple words: Sales revenue, being an income, is credited to the Sales Account and then transferred to the credit side of the Trading Account to determine gross profit.

🎯 Exam Tip: Sales, as a direct income, are always credited to the Trading Account to calculate the Gross Profit.

 

9. Calculate the following.

Question 1. Calculate the Capital

Assets	Rs.	Liabilities	Rs.
Building	20,000	Bills Payable	18,000
Furniture	15,000	Creditors	20,700
Debtors	30,000	Outstanding Wages	1,250
Investments	10,000
Cash at Bank	5,000
Plant and Machinery	20,000

Solution:
Capital = Assets - Liabilities
= Rs. 1,00,000 - Rs. 39,950
= Rs. 60,050
In simple words: Capital is calculated by subtracting total liabilities from total assets, which reflects the owner's stake in the business.

🎯 Exam Tip: Always use the accounting equation (Assets = Liabilities + Capital) to find the missing component in financial calculations.

 

Question 2. The machinery of Rs. 35,500 is purchased on 1st July 2018 and on the same day Rs. 4,500 are spent on the installation of the Machinery. The proprietor has decided to Depreciate Machinery at the rate of 7% p.a. Calculate the amount of depreciation, assuming that accounting year is ending on 31st March every year.
Solution:
Cost of Machinery = Purchase Price + Installation Charges
= 35,500 + 4,500
= Rs. 40,000
Depreciation for 9 months = \( 40,000 \times \frac{7}{100} \times \frac{9}{12} \)
= Rs. 2,100
In simple words: Depreciation is calculated on the total cost of the asset, including installation, for the period it was used within the accounting year, reflecting the asset's wear and tear.

🎯 Exam Tip: Remember to calculate depreciation on the *total cost* of the asset (purchase price + installation) and for the *actual period* it was in use during the accounting year.

 

Question 3. Mr. Pramod borrowed a Loan from the State Bank of India Rs. 3,50,000 on 1st Oct. 2018 at the rate of interest of 12% p.a. Calculate the Interest on a bank loan for the year 2018-19, assuming that the financial year-end on 31st March every year.
Solution:
Interest on Bank loan for 6 months = \( 3,50,000 \times \frac{12}{100} \times \frac{6}{12} \)
= Rs. 21,000
In simple words: The interest on the bank loan is calculated based on the loan amount, annual interest rate, and the number of months the loan was active within the financial year.

🎯 Exam Tip: Always calculate interest for the specific period the loan was outstanding within the financial year, not necessarily the full year if the loan was taken mid-year.

 

Question 4. Annual Insurance Premium Rs. 8,000 is paid on 1st Dec 2018. Calculate the amount of Insurance Premium for the accounting year ending on 31st March 2019.
Solution:
Annual Insurance Premium for 12 months = Rs. 8,000
Less: Prepaid for 8 months = Rs. 5,333
Insurance for 4 months (01.12.18 to 31.03.19) = Rs. 2,667
In simple words: The expense for the current accounting year is only for the portion of the premium that has been consumed within that period, with the remaining part treated as prepaid.

🎯 Exam Tip: Apply the accrual concept to allocate expenses to the correct accounting period; only the portion of the premium related to the current year is treated as an expense, the rest is prepaid.

 

Question 5. Calculate the Gross Profit/Gross Loss
Purchases A/c Rs. 15,500, Sales A/c Rs. 30,000, Carriage Inward Rs. 1,200, Opening Stock Rs. 5,000, Purchases Returns Rs. 500, Closing Stock Rs. 18,000
Solution:
Cost of Goods Sold = Opening Stock + Purchases - Purchases Returns + Carriage Inward - Closing Stock
= 5,000 + 15,500 - 500 + 1,200 - 18,000
= Rs. 3,200
Gross Profit = Sales - Cost of goods sold
= 30,000 - 3,200
= Rs. 26,800
In simple words: Gross Profit is found by first calculating the Cost of Goods Sold, which includes opening stock, net purchases, and direct expenses, and then subtracting this from total sales.

🎯 Exam Tip: Ensure accurate calculation of 'Net Purchases' (Purchases - Purchases Returns) and 'Cost of Goods Sold' as these are critical for determining Gross Profit.

 

Practical Problems

Question 1. From the following Balances of Jayashri Traders, you are required to prepare Trading Account for the year ended 31/03/2019.

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
Opening Stock	41,000
Purchases	59,000
Purchases Returns		7,000
Sales Returns	1,600
Sales		1,03,000
Wages	3,400
Carriage Inward	1,000
Royalty	4,000
Total	1,10,000	1,10,000
Closing Stock	Rs. 40,000

Solution:
In the books of Jayashri Traders
Dr. Trading Account for the year ended 31st March, 2019 Cr.

Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening Stock		41,000	By Sales	1,03,000
To Purchases	59,000		Less: Sales Return	1,600	1,01,400
Less: Purchase Return	7,000	52,000	By Closing Stock		40,000
To Wages		3,400
To Carriage Inward		1,000
To Royalty		4,000
To Gross Profit c/d		40,000
		1,41,400			1,41,400

In simple words: The Trading Account calculates the Gross Profit by comparing direct revenues (Sales and Closing Stock) with direct costs (Opening Stock, Net Purchases, Wages, Carriage Inward, and Royalty).

🎯 Exam Tip: Accurately calculate Net Sales (Sales - Sales Returns) and Net Purchases (Purchases - Purchases Returns) as these figures are crucial for the Trading Account.

 

Question 2. Prepare Profit and Loss Account of Sanjay Brothers for the year ended 31st March 2018 from the following balances.
1. Bank charges Rs. 22,000
2. Interest (Cr.) Rs. 16,000
3. Sundry expenses Rs. 42,000
4. Insurance Rs. 35,000
5. Salaries Rs. 40,000
6. Rates and Taxes Rs. 13,000
7. Postage Rs. 8,000
8. Advertisement Rs. 40,000
9. Rent paid Rs. 32,000
10. Bad debts Rs. 10,000
11. Commission (Cr) Rs. 17,500
12. Printing & Stationery Rs. 21,000
13. Loss by fire Rs. 18,000
14. Discount (Dr) Rs. 23,000
15. Discount (Cr) Rs. 37,000
16. Misc. Income Rs. 14,000
17. Depreciation Rs. 34,000
18. Carriage Outwards Rs. 60,000
19. Godown Expenses Rs. 40,000
Note: Gross Profit Rs. 4,07,500
Solution:
In the books of the Sanjay Brothers.
Dr. Profit and Loss Account for year ended 31st March, 2019. Cr.

Particulars	Amt. (Rs.)	Amt. (Rs.)	Particular	Amt. (Rs.)	Amt. (Rs.)
To Bank charges		22,000	By Gross Profit b/d		4,07,500
To Sundry Expenses		42,000	By Interest		16,000
To Insurance		35,000	By Commission		17,500
To Salaries		40,000	By Discount		37,000
To Rates and Taxes		13,000	By Misc. Income		14,000
To Postage		8,000
To Advertisement		40,000
To Rent paid		32,000
To Bad debts		10,000
To Printing & Stationery		21,000
To Loss by fire		18,000
To Discount		23,000
To Depreciation		34,000
To Carriage Outwards		60,000
To Godown Expenses		40,000
To Net Profit c/d		54,000
		4,92,000			4,92,000

In simple words: The Profit and Loss Account determines the net profit by crediting Gross Profit and other incomes, and debiting all indirect operating expenses, financial expenses, and losses for the period.

🎯 Exam Tip: Systematically list all indirect expenses on the debit side and indirect incomes on the credit side to accurately calculate the Net Profit or Loss, always ensuring Gross Profit is brought down as the first credit item.

 

Question 3. From the following Trial Balance of Sanjiv & Sons. Prepare Trading Account and Profit & Loss Account for the year ending on 31st March 2019 and a Balance Sheet as on that date.

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
Opening stock	22,000
Purchases & Sales	1,78,000	4,60,000
Carriage Outward	4,800
Plant and Machinery	50,000
Debtors and Creditors	44,000	76,000
Returns	2,000	4,000
Buildings	58,000
Motor Van	40,000
Printing & Stationery	3,000
Wages	28,000
Reserved for Bad debts		3,200
Commission		2,400
Office expenses	5,400
Carriage	9,000
Furniture	20,000
Premises	81,000
Loose Tools	20,400
Drawings	24,700
Bank Overdraft		22,000
Cash in hand	71,000
Dividend		3,300
Capital		1,40,000
Salaries	44,000
Bills Receivable & Bills Payable	5,600	8,400
Bad debts	2,400
Advertisement (for 3 year)	6,000
	7,19,300	7,19,300

Additional information:
1. Closing stock on 31st March 2019, was at cost Rs. 60,000 and Market Price Rs. 70,000.
2. Outstanding expenses: Wages Rs. 4,000, Salary Rs. 2,400
3. Provide depreciation at 10% on Motor Van and 5% on Furniture.
4. Write off Rs. 2,000 for bad debts and create R.D.D. at 5% on debtors.
5. Provide 10% p.a. interest on capital.
Solution:
In the books of Sanjiv & Sons
Dr. Trading and Profit and Loss Account for the year ended 31st March, 2019 Cr.

Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening stock		22,000	By Sales	4,60,000
To Purchase	1,78,000		Less: Returns	2,000	4,58,000
Less: Returns	4,000	1,74,000	By Closing stock		60,000
To Wages	28,000
Add: Outstanding	4,000	32,000
To Carriage		9,000
To Gross Profit c/d		2,81,000
		5,18,000			5,18,000
To Carriage Outward		4,800	By Gross Profit b/d		2,81,000
To Printing and Stationery		3,000	By Commission		2,400
To Office Expenses		5,400	By Dividend		3,300
To Salaries	44,000
Add: Outstanding	2,400	46,400
To Bad debts (T)	2,400
Add: New B.D.(A)	2,000
Add: New R. D. D. (A)	2,100	6,500
Less: old R.D.D.(T)	3,200	3,300
To Advertisement	6,000
Less: Prepaid	4,000	2,000
To Interest on Capital		14,000
To Depreciation on:
Motor Van	4,000
Furniture	1,000	5,000
To Net Profit c/d		2,02,800
		2,86,700			2,86,700

Balance Sheet as of 31st March, 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	1,40,000		Plant and Machinery		50,000
Less: Drawings	24,700		Debtors (T)	44,000
		1,15,300	Less: New B.D.(A)	2,000	42,000
Add: Interest on Capital	14,000		Less: New R.D.D. (A)	2,100	39,900
		1,29,300	Building		58,000
Add: Net Profit	2,02,800	3,32,100	Motor Van	40,000
Creditors	76,000		Less: Dep - @ 10%	4,000	36,000
Bank Overdraft	22,000		Furniture	20,000
Bills payable	8,400		Less: Dep - @ 5%	1,000	19,000
Outstanding Wages	4,000		Premises		81,000
Outstanding Salaries	2,400		Loose Tools		20,400
			Cash in hand		71,000
			Bills Receivable		5,600
			Prepaid Advertisement		4,000
			Closing stock		60,000
		4,44,900			4,44,900

In simple words: The final accounts consolidate all trial balance figures and adjustments into the Trading Account, Profit and Loss Account, and Balance Sheet, providing a comprehensive view of the business's performance and financial standing.

🎯 Exam Tip: Pay close attention to adjustments, ensuring each has a dual effect in the Trading/P&L Account and the Balance Sheet, and carefully re-calculate affected balances like debtors and assets.

 

Question 4. From the following Trial Balance of Nandini & Co. as of 31st March 2019. Prepare Final Accounts after considering the adjustments given below.

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
Loose Tools	1,10,000
Furniture & Fixtures	81,000
Bad debts	1,400
Sundry Debtors	81,600
Stock (31st March 2018)	52,000
Purchases	77,000
Sales Cash	21,000
Sales Credit	81,000
Returns	400	600
Advertisements	4,800
Rate taxes & Insurances	6,000
Repairs & maintenance	1,200
Salaries (2/3rd for factory)	18,000
Rent (Paid for 11 months)	2,200
Machinery (Includes 24,000 purchased on 1st Oct. 2018)	84,000
Capital		3,60,000
R.D.D.		8,000
Sundry Creditors		70,000
Drawings	14,000
Interest		1,200
Dividend		2,800
Bank Balance	40,000
Royalty	6,000
9% Bank loan (30th Sept 2018)		40,000
Carriage Outwards	4,000
Discount	1,000
	5,84,600	5,84,600

Adjustments:
1. Closing stock valued at Rs. 1,00,000.
2. Write off Rs. 2,000 as bad debts and create a provision for doubtful debts @ 5% on Sundry Debtor.
3. Depreciate Machinery by 10% p.a. and Loose Tools is valued at Rs. 1,00,000.
4. Charge Interest on Capital @ 2% p.a.
Solution:
In the books of Nandini & Co.
Dr. Trading and Profit and Loss Account for the year ended 31st March, 2019 Cr.

Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening stock		52,000	By Sales
To Purchases	77,000		Cash	21,000
Less: Returns	600	76,400	Credit	81,000	1,02,000
To Salaries (factory)		12,000	Less: Returns	400	1,01,600
To Royalties		6,000	By Closing Stock		1,00,000
To Gross Profit c/d		55,200
		2,01,600			2,01,600
To Advertisement		4,800	By Gross Profit b/d		55,200
To Bad debts (T)	1,400		By Interest		1,200
Add: New B.D.(A)	2,000		By Dividend		2,800
Add: New R.D.D (A)	3,980	7,380	By Excess R.D.D.		620
Less: Old R.D.D. (T)	8,000
To Rates Taxes and Insurance		6,000
To Repairs and Maintenance		1,200
To Salaries (office)		6,000
To Rent (11m)	2,200
Add: Outstanding (1m)	200	2,400
To Interest on bank loan		1,800
To Carriage outward		4,000
To Discount		1,000
To Depreciation on:
Machinery	7,200
Loose Tools	10,000	17,200
To Interest on Capital		7,200
To Net Profit c/d		8,220
		59,820			59,820

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	3,60,000		Loose Tools	1,10,000
Less: Drawings	14,000		Less: Depreciation	10,000	1,00,000
		3,46,000	Furniture & Fixtures		81,000
Add: Interest on Capital	7,200		Sundry Debtors (T)	81,600
		3,53,200	Less: New B.D. (A)	2,000	79,600
Add: Net Profit	8,220	3,61,420	Less: New R.D.D (A)	3,980	75,620
Creditors	70,000		Machinery	84,000
9% Bank loan	40,000		Less: Depreciation @ 10%
Add: Outstanding Interest on loan	1,800	41,800	(6,000 +1,200)	7,200	76,800
Outstanding Rent		200	Bank Balance		40,000
			Closing Stock		1,00,000
		4,73,420			4,73,420

In simple words: This problem requires comprehensive accounting treatment, incorporating various adjustments such as closing stock valuation, bad debts, depreciation, and interest on capital, to arrive at accurate financial statements.

🎯 Exam Tip: Systematically apply each adjustment, ensuring its dual effect is correctly recorded in both the income statement and the balance sheet to maintain accounting equation balance.

 

Question 5. Prepare Final accounts of Abdul Traders for the year ending 31st March 2019 with the help of the following Trial Balance and Adjustments.
Trial Balance as of 31st March 2019.

Debit Balance	Amount (Rs.)	Credit Balance	Amount (Rs.)
Salaries	10,000	Interest Received	2,400
Purchases	71,400	Capital	1,60,000
Rent (11 months)	2,200	Sales	85,000
Machinery	56,000	Provision for Bad Debts	2,000
Advance against wages	4,000	Commissions Received	1,600
Opening stock	20,000	Bills Payable	9,200
Bad debts	1,000	Creditors	56,000
Prepaid Insurance	2,400
Wages	2,600
Loose Tools	26,000
Commission receivable	400
Sundry Debtors	64,000
Cash	1,000
Bank	3,000
Drawings	7,600
Freight Inward	1,000
Bills Receivable	13,600
Loan to Aruna	30,000
	3,16,200		3,16,200

Adjustments:
1. Closing stock valued at Rs. 89,600
2. Outstanding expenses Salaries Rs. 2,000, Wages Rs. 4,000
3. Charge depreciation on Machinery @ 10%
4. Bad debts are written off Rs. 2,000 and create a provision for bad and doubtful debts 5% on Sundry Debtors.
Solution:
In the books of Abdul Traders.
Dr. Trading and Profit and Loss A/c for the year ended 31st March, 2019 Cr.

Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening stock		20,000	By Sales		85,000
To Purchases		71,400	By Closing Stock		89,600
To Wages	2,600
Add: Outstanding	4,000	6,600
To Freight Inward		1,000
To Gross Profit c/d		75,600
		1,74,600			1,74,600
To Salaries	10,000		By Gross Profit b/d		75,600
Add: Outstanding	2,000	12,000	By Interest Received		2,400
To Rent (11m)	2,200		By Commission Received		1,600
Add: Outstanding (1m)	200	2,400
To Bad debts (T)	1,000
Add: New B. D. (A)	2,000
Add: New R.D.D (A)	3,100	6,100
Less: Old R.D.D (T)	2,000	4,100
To Dep. on Machinery		5,600
To Net Profit c/d		55,500
		79,600			79,600

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	1,60,000		Machinery	56,000
Less: Drawings	7,600		Less: Depreciation @ 10%	5,600	50,400
		1,52,400	Advance against wages		4,000
Add: Net Profit	55,500	2,07,900	Prepaid Insurance		2,400
Bills Payable	9,200		Loose Tools		26,000
Creditors	56,000		Commission Receivable		400
Outstanding Salaries	2,000		Sundry Debtors (T)	64,000
Outstanding Wages	4,000		Less: New B. D.(A)	2,000	62,000
Outstanding Rent	200		Less: New R.D.D. (A)	3,100	58,900
			Cash		1,000
			Bank		3,000
			Bills Receivable		13,600
			Loan to Aruna		30,000
			Closing Stock		89,600
		2,79,300			2,79,300

In simple words: The solution integrates the trial balance with all given adjustments for closing stock, outstanding expenses, depreciation, and bad debt provisions to accurately present the Trading Account, Profit and Loss Account, and the Balance Sheet.

🎯 Exam Tip: When dealing with multiple adjustments, handle each item carefully, ensuring its impact on both the Trading/P&L Account and the Balance Sheet is correctly reflected to avoid errors.

 

Question 6. Following is the Trial Balance of Geeta Enterprises. You are required to prepare a Trading and Profit & Loss Account for the year ended 31st March 2019 and the Balance Sheet as of that date after taking into account the additional information provided to you.
Trial Balance as of 31st March, 2019

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
Capital A/c		50,000
Drawings	1,750
Opening Stock	8,000
Purchases & Sales	16,500	22,500
Returns	625	750
Carriage Outward	425
Wages - Productive	1,000
Unproductive	600
Salaries	1,000
Travelling expenses	1,125
Trade Expenses	325
Fuel and Coal	250
Discount	460	550
Sundry expenses	225
Bad Debts	200
Plant & Machinery	20,000
Furniture	5,500
Packing expenses	175
Sundry Debtors & Creditors	10,090	6,750
Cash in hand	2,200
Investments	10,250
Reserve for Doubtful debts		150
	80,700	80,700

Additional information:
1. Closing stock of goods on 31st March 2019 valued at Rs. 7,100 at cost price and Rs. 7,500/- as market price.
2. Travelling expenses include Rs. 125 spent on personal traveling.
3. Rs. 175 is to be written off as bad debts which were due from Mr. Ashok, a debtor, and 5% R.D.D. is to be maintained on debtors.
4. Reserve for discount on debtors as well as on creditors is to be maintained at 2% and 3% respectively.
5. Provide 10% depreciation on Plant & Machinery and Furniture.
Solution:
In the books of Geeta Enterprises.
Dr. Trading and Profit & Loss Account for the year ended 31st March, 2019 Cr.

Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening stock		8,000	By Sales	22,500
To Purchase	16,500		Less: Sales Return	625	21,875
Less: Purchase Return	750	15,750	By Closing Stock		7,100
To Productive wages		1,000
To Fuel and Coal		250
To Gross Profit c/d		3,650
		28,975			28,975
To Carriage Outward		425	By Gross Profit b/d		3,650
To Unproductive Wages		600	By Discount		550
To Salaries		1,000	By Provision for Discount on Creditors		203
To Travelling Expenses	1,125		By Net Loss c/d		2,942
Less: Drawings	125	1,000
To Discount		460
To Sundry Expenses		225
To Packing Expenses		175
To Bad debts (T)	200
Add: New B.D. (A)	175
Add: New R.D.D. (A)	496	871
Less: Old R.D.D.(T)	150	721
To Depreciation on:
Plant and Machinery	2,000
Furniture	550	2,550
To Provision for Discount on Debtors		189
		7,345			7,345

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	50,000		Plant and Machinery	20,000
Less: Drawings	1,750		Less: Depreciation @ 10%	2,000	18,000
		48,250	Furniture	5,500
Less: Travelling Exp.	125		Less: Depreciation @ 10%	550	4,950
		48,125	Sundry Debtors (T)	10,090
Less: Net Loss	2,942	45,183	Less: New B.D.(A)	175	9,915
Sundry Creditors		6,750	Less: New R.D.D. (A)	496	9,419
Less: Provision. for Discount on Creditors @ 3%	203	6,547	Less: Provision for Discount on Debtors @ 2%	189	9,230
			Cash in hand		2,200
			Investments		10,250
			Closing Stock		7,100
		51,730			51,730

In simple words: This solution meticulously applies all adjustments, including those for closing stock, personal travel expenses, bad debts, RDD, discount provisions, and depreciation, to derive the accurate Trading and Profit & Loss Accounts and the Balance Sheet.

🎯 Exam Tip: When dealing with personal expenses embedded in business accounts (like drawings from travelling expenses), ensure they are adjusted against the capital account and not treated as business expenses.

 

Question 7. Following are the closing ledger balances of Deepak & Co. Prepare Trading Account and Profit & Loss Account for the year ended 31st March 2019 and Balance sheet as of that date.
Ledger Balances of Mr. Deepak and Co. as of 31st March, 2019

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
Bank	30,000	Capital	1,20,000
Bills Payable	7,500	Insurance Premium	18,000
Furniture	19,500	(1.1.2019 to 31.12.2019)
Commission Received	3,000	Salaries	30,000
Stock (1.4.2018)	27,000	Bank loan	30,000
Building	37,500	Sundry expenses	7,500
Wages	7,500	Interest paid	1,500
Creditors	37,500	Machinery	25,500
Bad Debts	4,500	Sales	96,000
R.D.D. (old)	3,000	Purchases	42,000
Sales Returns	1,500	Debtors	31,500
		Purchases returns	3,000
Cash in hand	16,500
	3,22,125		3,22,125

Adjustments:
1. Closing stock was valued at Rs. 60,000
2. An amount of Rs. 3,000 is still to be received on account of commission.
3. Provision for discount on debtors and Provision for discount on Creditors are to be created 2% and 3% respectively.
4. Amount of Furniture is to reduce by Rs. 4,500 and Building by 10%.
5. Outstanding expenses Salaries Rs. 4,500 and Wages Rs. 1,500.
Solution:
In the books of Deepak & Co.
Dr. Trading and Profit and Loss Account for the year ended 31st March, 2019 Cr.

Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening Stock		27,000	By Sales	96,000
To Purchases	42,000		Less: Sales Return	1,500	94,500
Less: Purchase Return	3,000	39,000	By Closing Stock		60,000
To Wages	7,500
Add: Outstanding	1,500	9,000
To Gross Profit c/d		79,500
		1,54,500			1,54,500
To Bad debts (T)	4,500		By Gross Profit b/d		79,500
Less: Old R.D.D.(T)	3,000	1,500	By Commission Received	3,000
To Insurance Premium	18,000		Add: Commission Receivable	3,000	6,000
Less: Pre-paid for 9m	13,500	4,500	By Provision for Discount on creditors		1,125
To Salaries	30,000
Add: Outstanding	4,500	34,500
To Sundry Expenses		7,500
To Interest paid		1,500
To Provision for Discount On debtors		630
To Depreciation on:
Furniture	4,500
Building	3,750	8,250
To Net Profit c/d		28,245
		86,625			86,625

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	1,20,000		Bank		30,000
Add: Net Profit	28,245	1,48,245	Furniture	19,500
Bills Payable		7,500	Less: Depreciation	4,500	15,000
Bank Loan		30,000	Building	37,500
Creditors	37,500		Less: Depreciation @ 10%	3,750	33,750
Less: Provision for Discount on Creditors @3%	1,125	36,375	Prepaid Insurance		13,500
Outstanding Salaries		4,500	Machinery	25,500
Outstanding Wages		1,500	Debtors	31,500
			Less: Provision for Discount on Debtor @ 2%	630	30,870
			Commission Receivable		3,000
			Cash in hand		16,500
			Closing Stock		60,000
		2,28,120			2,28,120

In simple words: This solution meticulously processes all ledger balances and adjustments, correctly calculating depreciation, outstanding commission and expenses, and provisions for discounts, to present accurate final accounts.

🎯 Exam Tip: When preparing final accounts with adjustments, always ensure that each adjustment has a double effect: one in the Trading/P&L Account and one in the Balance Sheet.

 

Question 8. Following is the Trial Balance extracted from the books of Raju Traders. You are required to prepare Trading A/c, Profit & Loss A/c for the year ending on 31st March 2019 and Balance Sheet as of that date after Considering the additional information given below.
Trial Balance as of 31st March 2019

Particulars (Debit)	Amount (Rs.)	Particulars (Credit)	Amount (Rs.)
Raju's Drawings	5,000	Capital	2,00,000
Opening stock	30,000	Sales	1,64,000
Wages	5,000	Returns outward	2,400
Purchases	60,000	Creditors	40,000
Trade Expenses	800	Discount	1,600
Royalties	1,600	Bills payable	13,600
Salaries	20,000
Debtors	80,000
Plant & Machinery	56,000
Printing & Stationery	2,400
Bad debts	900
Discount	1,200
Furniture	16,000
Advertisement	3,000
Carriage outwards	600
Computers	1,20,000
Bills Receivable	16,000
Cash in hand	1,100
Cash at Bank	2,000
	4,21,600		4,21,600

Adjustments:
1. Closing stock is valued at Rs. 40,000 at Cost Price and Rs. 44,000 as Market Price.
2. Provide Depreciation on Plant & Machinery, Furniture, Computers @ 5%, 10%, 15% respectively.
3. Salaries are paid for 10 months only.
4. Further Bad debts amounted to Rs. 400 and provide 10% R.D.D. on Sundry Debtors.
5. Advertisement is paid for 2 years.
Solution:
In the books of Raju Traders.
Dr. Trading and Profit & Loss A/c for the year ended 31st March, 2019 Cr.

Particulars	Amt. (Rs.)	Amt. (Rs.)	Particulars	Amt. (Rs.)	Amt. (Rs.)
To Opening Stock		30,000	By Sales		1,64,000
To Purchases	60,000		By Closing Stock		40,000
Less: Return Outward	2,400	57,600
To Wages		5,000
To Royalties		1,600
To Gross Profit c/d		1,09,800
		2,04,000			2,04,000
To Trade Expenses		800	By Gross Profit b/d		1,09,800
To Salaries (10m)	20,000		By Discount		1,600
Add: Outstanding (2m)	4,000	24,000
To Printing & Stationery		2,400
To Bad Debts (T)	900
Add: New B. D. (A)	400
Add: New R.D.D.(A)	7,960	9,260
To Discount		1,200
To Advertisement (2y)	3,000
Less: Prepaid (1y)	1,500	1,500
To Carriage Outwards		600
To Depreciation on:
Plant & Machinery	2,800
Furniture	1,600
Computer	18,000	22,400
To Net Profit c/d		49,240
		1,11,400			1,11,400

Balance Sheet as of 31st March 2019

Liabilities	Amt. (Rs.)	Amt. (Rs.)	Assets	Amt. (Rs.)	Amt. (Rs.)
Capital	2,00,000		Debtors (T)	80,000
Less: Drawings	5,000		Less: New B.D.(A)	400	79,600
		1,95,000	Less: New R.D.D. (A)	7,960	71,640
Add: Net Profit	49,240	2,44,240	Plant and Machinery	56,000
Creditors	40,000		Less: Dep. @ 5%	2,800	53,200
Bills Payable		13,600	Furniture	16,000
Outstanding Salaries		4,000	Less: Dep. @ 10%	1,600	14,400
			Computers	1,20,000
			Less: Dep. @ 15%	18,000	1,02,000
			Bills Receivable		16,000
			Cash in hand		1,100
			Cash at bank		2,000
			Closing Stock		40,000
			Prepaid Advertisement		1,500
		3,01,840			3,01,840

In simple words: This solution comprehensively addresses all adjustments including closing stock, various depreciation rates on fixed assets, outstanding salaries, bad debts, RDD, and prepaid advertisement, to present the final accounts accurately.

🎯 Exam Tip: When multiple assets have different depreciation rates, calculate each separately and sum them up for the total depreciation expense in the Profit & Loss Account.

 

Question 9. From the following Trial Balance of Shradha Enterprises, you are required to prepare Final Accounts for the year ending on 31st March 2019.
Trial Balance as of 31st March 2019

Debit balances	Amount (Rs.)	Credit Balances	Amount (Rs.)
Opening Stock	2,40,000	Capital	13,00,000
Purchases	8,50,000	Sundry Creditors	1,20,000
Returns Inward	15,000	Bills Payable	60,000
Wages	29,000	Sales	25,00,000
Power and Fuel	21,800	Return Outward	8,000
Travelling Expenses	14,700	Discount	2,000
Audit fees	7,000	Bank Overdraft	1,54,000
Royalty	72,000	Reserve for Bad and doubtful debts	8,000
Discount	1,750
Postage	13,500
Bad debts	3,000
Sundry Debtors	5,20,000
Furniture	1,20,000
Plant & Machinery	15,00,000
Freehold Premises	7,02,000
Rent, Rates and Insurance	42,250
	41,52,000		41,52,000

Adjustments:
1. Insurance is prepaid to