UP Board Solutions Class 10 Commerce Chapter 1 Final Accounts

Final Accounts Objective Type Questions (1 Mark)

Question 1. ......... is not a fixed asset.
(a) Land and Building
(b) Stock
(c) Furniture and Fixtures
(d) Plant and Machinery.
Answer: (b) Stock
In simple words: Stock represents goods held for sale, which are expected to be converted into cash within one year, making it a current asset, not a fixed asset. Fixed assets are long-term assets used in business operations.

🎯 Exam Tip: Differentiate clearly between fixed assets (long-term use) and current assets (short-term conversion to cash) to score well.

 

Question 2. ............. is shown in Trading Account.
(a) Gas and Fuel
(b) Salary
(c) Commission
(d) Rent.
Answer: (a) Gas and Fuel
In simple words: Gas and Fuel are direct expenses related to manufacturing or production, which are included in the Trading Account to determine Gross Profit. Salary, commission, and rent are indirect expenses shown in the Profit and Loss Account.

🎯 Exam Tip: Memorize which expenses are direct (Trading Account) and which are indirect (Profit and Loss Account) to accurately prepare financial statements.

 

Question 3. Profit and Loss Account is prepared by:
(a) Partnership Firm
(b) Sole Trader
(c) Company
(d) All of these.
Answer: (d) All of these.
In simple words: The Profit and Loss Account, which calculates net profit or loss, is a fundamental financial statement prepared by all types of business entities, including sole traders, partnerships, and companies.

🎯 Exam Tip: Understand that core accounting principles apply broadly across different business structures, making the Profit and Loss Account universally relevant.

 

Question 4. ........ is not current liability.
(a) Creditors
(b) Bills Payable
(c) Bank Overdraft
(d) Capital.
Answer: (d) Capital.
In simple words: Capital represents the owner's investment in the business and is a long-term liability, whereas creditors, bills payable, and bank overdrafts are current liabilities that need to be settled within a year.

🎯 Exam Tip: Clearly distinguish between current liabilities (short-term obligations) and long-term liabilities like capital to correctly classify items on the balance sheet.

 

Question 5. ........ is current Asset.
(a) Cash
(b) Furniture
(c) Machinery
(d) None of these.
Answer: (a) Cash
In simple words: Cash is the most liquid asset, readily available for use, and is classified as a current asset because it is expected to be consumed or converted within a short operating cycle. Furniture and machinery are fixed assets.

🎯 Exam Tip: Focus on the liquidity and short-term nature of current assets, with cash being the primary example, for accurate asset classification.

 

Question 6. Net Profit is shown in the capital by:
(a) Adding
(b) Deducting
(c) Adding or Deducting
(d) All of these are correct.
Answer: (a) Adding
In simple words: Net Profit increases the owner's equity in the business, so it is added to the Capital account in the Balance Sheet. Net Loss, conversely, would be deducted.

🎯 Exam Tip: Remember that net profit boosts the owner's investment (capital), while net loss reduces it, impacting the equity section of the balance sheet.

 

Question 7. ........ is not shown in Trading Account.
(a) Carriage inward
(b) Carriage outward
(c) Wages
(d) Factory Light
Answer: (b) Carriage outward
In simple words: Carriage outward is an expense related to selling and distribution, making it an indirect expense shown in the Profit and Loss Account. Carriage inward, wages, and factory light are direct expenses included in the Trading Account.

🎯 Exam Tip: Understand that direct expenses (e.g., related to production) are shown in the Trading Account, while indirect expenses (e.g., related to selling or administration) are in the Profit and Loss Account.

 

Question 8. ........ is not an account:
(a) Trading Account
(b) Profit and Loss Account
(c) Balance Sheet
(d) All of these.
Answer: (c) Balance Sheet
In simple words: The Balance Sheet is a statement of assets, liabilities, and equity at a specific point in time, providing a snapshot of the financial position, rather than being an account like the Trading Account or Profit and Loss Account.

🎯 Exam Tip: Distinguish between accounts (which summarize transactions over a period) and statements (which present financial position at a given date) for conceptual clarity.

 

Question 9. ........ is shown in the balance sheet:
(a) Salary
(b) Rent and Tax
(c) Repairs
(d) Cash.
Answer: (d) Cash.
In simple words: Cash is a current asset and is therefore recorded on the assets side of the Balance Sheet. Salary, rent, tax, and repairs are expenses shown in the Profit and Loss Account.

🎯 Exam Tip: Remember that the Balance Sheet reports assets, liabilities, and equity, while the Profit and Loss Account reports revenues and expenses.

 

Question 10. Trade expenses are written in:
(a) Trading Account
(c) Balance Sheet
(b) Profit and Loss Account
(d) None of these.
Answer: (c) Balance Sheet
In simple words: Trade expenses are generally indirect operating expenses that are recorded in the Profit and Loss Account to determine the net profit or loss. However, if the answer states Balance Sheet, it implies that certain prepaid or outstanding trade expenses might appear there as assets or liabilities, but the primary booking is in P&L. (Note: The provided answer is 'Balance Sheet', which is unusual for 'Trade Expenses' as a general term; typically, they are indirect expenses for P&L unless referring to their prepaid/outstanding status on the balance sheet.)

🎯 Exam Tip: While most trade expenses are indirect (P&L), be aware that their outstanding or prepaid portions will appear on the Balance Sheet as liabilities or assets, respectively.

 

Question 11. Which of the following is Fixed Asset Account?
(a) Capital
(b) Bills payable
(c) Debtors
(d) Plant and Machinery.
Answer: (d) Plant and Machinery.
In simple words: Plant and Machinery are assets purchased for long-term use in the business to generate revenue and are not intended for resale, classifying them as fixed assets. Capital, bills payable, and debtors are equity, liabilities, and current assets, respectively.

🎯 Exam Tip: Identify fixed assets by their characteristic of long-term use and non-resale intent, which distinguishes them from current assets and liabilities.

Final Accounts Definite Answer Type Questions (1 Mark)

Question 1. What kind of Assets have no real value?
Answer: Fictitious.
In simple words: Fictitious assets are expenses that are not written off in the year they are incurred and are shown on the asset side of the balance sheet for accounting purposes, but they do not have any physical existence or realizable value.

🎯 Exam Tip: Be precise with terminology; understanding the nature of different asset types (tangible, intangible, fictitious) is key for classification.

 

Question 2. What kind of Assets come into existence on the happening of certain event?
Answer: Contingent.
In simple words: Contingent assets are potential assets that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

🎯 Exam Tip: Distinguish contingent assets (potential, uncertain) from actual assets for proper financial reporting and disclosure.

 

Question 3. What term is used for the process or manner of disclosing Assets and Liabilities in Balance Sheet?
Answer: Marshalling.
In simple words: Marshalling refers to the arrangement of assets and liabilities in a particular order on the Balance Sheet, either in order of liquidity (ease of conversion to cash) or permanence (long-term existence).

🎯 Exam Tip: Knowing the marshalling principles helps ensure that the Balance Sheet presents financial information in a clear and standardized manner.

 

Question 4. Write the name of the book in which miscellanceous expenses are recorded.
Answer: Petty Cash Book.
In simple words: The Petty Cash Book is used to record small, day-to-day miscellaneous expenses that are impractical to record through the main cash book.

🎯 Exam Tip: The Petty Cash Book is essential for managing and tracking minor expenses, simplifying the main accounting records.

 

Question 5. What kind of expenditure is done for the acquisition of Assets with a view to increase productivity?
Answer: Capital.
In simple words: Capital expenditure is money spent by a business to acquire or upgrade long-term assets, such as property, plant, or equipment, with the expectation that these assets will provide benefits over several accounting periods, often by increasing productivity or capacity.

🎯 Exam Tip: Recognize that capital expenditures enhance future earning capacity, distinguishing them from revenue expenditures which are for day-to-day operations.

Final Accounts Very Short Answer Type Questions (2 Marks)

Question 1. What is meant by Gross Profit?
Answer: Gross Profit: The excess of the selling price of the sold goods over their purchase price including all direct expenses 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, such as raw materials, direct labor, and manufacturing overheads.

🎯 Exam Tip: Gross Profit is a key indicator of a company's production efficiency and pricing strategy; calculate it accurately by including all direct costs.

 

Question 2. What are Current Assets?
Answer: Current Assets: Current Assets are assets which are required by the business for the purpose of resale, as stock in trade or such assets which are constantly circulating and arise out of usual business dealings.
In simple words: Current assets are short-term resources that a company expects to convert into cash, use up, or sell within one year or one operating cycle, whichever is longer.

🎯 Exam Tip: Understanding current assets is crucial for assessing a company's liquidity and short-term financial health.

 

Question 3. What is meant by Fixed Assets? Mention any two.
Answer: Fixed Assets: Fixed assets are those assets which are held by way of possession and not for purpose of resale. They are permanent in nature and the business is carried on with their help. Example: Land, Building etc.
In simple words: Fixed assets are long-term tangible assets that a company owns and uses to generate income, not intended for quick sale. They provide a foundational structure for business operations.

🎯 Exam Tip: When listing examples, ensure they are clearly long-term and instrumental in business operations, such as Land and Building.

 

Question 4. Where would you show adjustment relating to Accrued Income?
Answer: Assets side of Balance sheet and credit side of P & L a/c.
In simple words: Accrued income, representing income earned but not yet received, is shown as an asset on the Balance Sheet (because it's owed to the business) and also credited to the Profit and Loss Account (because it's income for the period).

🎯 Exam Tip: Adjustments like accrued income always have a dual effect, impacting both the Income Statement (P&L) and the Balance Sheet.

 

Question 5. Which account is prepared for knowing the net profit?
Answer: Profit and Loss Account.
In simple words: The Profit and Loss Account (also known as the Income Statement) is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, ultimately showing the net profit or loss.

🎯 Exam Tip: Remember the primary purpose of the Profit and Loss Account is to ascertain the profitability of the business over a period.

Final Accounts Short Answer Type Questions (4 Marks)

Question 1. What do you understand by Final Account?
Answer: Final Account is the final process of accounting. The final account is prepared to show the final result of the company in a specific period. Trading, Profit and Loss account and Balance Sheet are included in the final account.
In simple words: Final Accounts are a set of financial statements prepared at the end of an accounting period to present the overall financial performance (Trading and P&L Account) and financial position (Balance Sheet) of a business.

🎯 Exam Tip: Highlight that Final Accounts encompass the Trading Account, Profit and Loss Account, and Balance Sheet, each serving a distinct purpose in financial reporting.

 

Question 2. Write the characteristics of fixed assets.
Answer:
(1) Fixed assets are held by way of possession and not for the purpose of resale.
(2) Fixed assets are permanent in nature and the business is carried on with their help.
In simple words: Fixed assets are long-term resources owned by a business, acquired for operational use rather than for sale, and they are crucial for the ongoing conduct of the business activities.

🎯 Exam Tip: Focus on the long-term utility and non-resale nature of fixed assets, as these are their defining characteristics.

 

Question 3. Give differences between Trial Balance and Balance Sheet.
Answer: Difference Between Trial Balance and Balance Sheet.

In simple words: The Trial Balance is an internal document checking mathematical accuracy before preparing final accounts, while the Balance Sheet is a mandatory financial statement that shows the company's financial position at a specific time.

🎯 Exam Tip: Emphasize that the Trial Balance is a preparatory step, whereas the Balance Sheet is an end product of the accounting cycle, serving different objectives.

Final Accounts Long Answer Type Questions (8 Marks)

Question 1. Keeping in mind adjustments for outstanding salary prepaid tax, accrued income, interest on capital @ 8% and 10% depreciation on plant and furniture, prepare Trading and Profit & Loss Account and Balance Sheet of Sagar Brothers with imaginary figures:
Answer:

Trading and Profit & Loss A/c
(for the year ending 31st Dec. 2018)

Balance Sheet
(As on 31st Dec. 2018)

In simple words: This exercise demonstrates how to incorporate various adjustments, such as outstanding expenses, prepaid expenses, accrued income, interest on capital, and depreciation, into the Trading and Profit & Loss Account to arrive at net profit, and then transfer these adjusted figures to the Balance Sheet to reflect the true financial position.

🎯 Exam Tip: Mastery of adjustments is critical; ensure each adjustment affects two accounts (one in P&L or Trading, and one in Balance Sheet) for accuracy.

 

Question 2. What is the manufacturing account? How does it differ from a Trading Account? Give an example of a manufacturing account using imaginary figures.
Answer: Manufacturing Account: Manufacturing Account is prepared by those undertakings, which undertake or engaged in the production activities. Manufacturing Account is prepared for knowing the cost of goods produced by the concern which further helps in fixing the selling price of the goods produced. A manufacturer purchases the raw materials for selling them by transforming them into finished goods. For this, several expenses are to be incurred by him like fuel, power, electricity, water, coal etc.

Fuel and Power: When fuel and power are used for undertaking the production or running the machinery, they are debited to Manufacturing or Trading Account as the case may be. The light used for lighting purpose does not mean power. Power should not be understood as lighting which is discussed below:

Lighting: The electricity which is used for making the Lighting in the factory building is shown at the debit side or Manufacturing or Trading Account. If the same meter of electricity is used for Lighting the factory and office building then the expenses shoukPbe apportioned appropriately. The expenses of Lighting for office building should be charged to Profit and Loss Account.

Stock: Stock of raw materials, semi-finished goods and finished goods are the three kinds of opening or closing stock remaining with the manufacturer. The manufacturer or producer can prepare his Trading Account in three ways:

(1) To prepare Manufacturing and Trading Account separately in such a way as to transfer the balance of Manufacturing Account to Trading Account.
(2) All types of stock, purchases sales and direct expenses are to be recorded in one account, known as Trading Account.
(3) After putting down the heading of Trading Account, its upper portion is prepared as Manufacturing Account and lower portion as Trading Account.

Example of a Manufacturing Account:

In simple words: A Manufacturing Account is prepared by production-oriented businesses to determine the cost of goods produced, encompassing all direct expenses incurred in the manufacturing process. It differs from a Trading Account, which focuses on buying and selling finished goods and calculates gross profit, whereas a Manufacturing Account calculates the manufacturing cost before goods are transferred for sale.

🎯 Exam Tip: When preparing a Manufacturing Account, ensure all direct factory-related expenses are included and that the final cost of production is accurately transferred to the Trading Account.

 

Question 3. What are the objects of preparing Trading Account? How does it differ from Profit and Loss Account? Prepare Trading Account using imaginary figures. Or What is a Trading Account? Distinguish between the Trading Account and Profit and Loss Account. Give a specimen of Trading Account.
Answer: Trading Account: The Trading Account is an account which shows the result of the buying and selling of goods. It contains in a summarized form of all the transactions occurred during a trading period which has a direct relation to the goods dealt in by the business. Trading Account is a part of the Profit and Loss Account and is made at the end of the financial year.

Gross Profit and Gross Loss: The excess of the selling price of the sold goods over their purchase price including all direct expenses is called Gross Profit. If the cost of the purchase price including all direct expenses exceeds the selling price of the goods sold, it is called Gross Loss. Gross Profit is transferred to the credit side and Gross Loss is transferred to the debit side of Profit and Loss Account.

To Know the Cost of Goods Sold: To know the Gross Profit or Gross Loss the calculation of the actual cost of goods sold is very necessary. The total of the following gives the cost of goods:

(1) Purchase price of the goods after deducting purchase returns.
(2) Carriage paid on purchases like Railway Freight, Carriage etc. These expenses are termed as Carriage Inward.
(3) Payment of toll tax or any other taxes in bringing the goods.
(4) Expenses for clearing charges made for goods.
(5) Wages in connection with goods.
(6) Manufacturing expenses, like fuel, power, coal etc.

The amount of Sales return is deducted from the number of Sales and then the value of a Closing stock is added to it. From the figure so obtained the total of above expenses including opening stock is deducted and the balance amount is the Gross Profit. Difference between the Trading Account and Profit and Loss Account: Following are the points of difference between Trading and Profit and Loss Account:

Specimen of Trading Account:

Trading Account of M/s ........
(for the year ending 31st March, 2011)

In simple words: The Trading Account is prepared to calculate the gross profit or loss from the core business of buying and selling goods by matching sales revenue against the cost of goods sold and direct expenses. It differs from the Profit and Loss Account which then considers all indirect incomes and expenses to determine the net profit or loss.

🎯 Exam Tip: Accurately identifying and separating direct expenses for the Trading Account from indirect expenses for the Profit and Loss Account is fundamental for correct financial reporting.

 

Question 4. Why is the Balance Sheet prepared? What is the difference between the Trial Balance and the Balance Sheet? Or What do you understand by Balance Sheet?
Answer: The information revealed by the Trading and Profit and Loss Account is no doubt very useful to the owner of a business, as it enables him to know the Gross and Net Profit or Loss. The Assets and Liabilities of a business change from day to day, as a result of business transactions. He also wants to find out the correct financial position of his business until the end of each financial period. In the first place, he would like to know whether net profit or loss disclosed by the Profit and Loss Account is correct and if so, then whether the impact of the same has been correctly shown in the Capital Account or not. The businessman is always concerned about his true position of Assets and Liabilities. In order, therefore, to obtain this information at the end of the trading period, he has to set out his Assets and Liabilities as on that date in the shape of a statement and this statement is called the Balance Sheet.

Definition of Balance Sheet: A Balance Sheet may be defined as a statement prepared with a view to determining the exact financial position of a business on a certain fixed date. The Balance Sheet is prepared from the Trial Balance after all the balances of Nominal Account are transferred to the Trading, Profit and Loss Account and the corresponding accounts in the ledger are closed. The balances now left in the Trial Balance and accounts remaining open in the ledger represent either Personal Accounts or Real Accounts. In other words, they represent either Assets or Liabilities existing at the date of the financial closing.

All such Assets and Liabilities are shown in the Balance Sheet in a classified form. On the right-hand side are shown the various Assets or possessions of the business, and on the left-hand side, the various Liabilities, i.e., the amount which the business owes to others. The excess of Assets over Liabilities represent the Capital. The figure of the capital should tally with the balance of the Capital Account in the ledger after adjustment of the Profit and Loss in the Capital Account. Difference between the Trial Balance and the Balance Sheet:

Specimen of Balance Sheet:

Balance Sheet. (as on .....)

In simple words: The Balance Sheet is a crucial financial statement that provides a snapshot of a company's financial health at a specific point in time by listing all its assets, liabilities, and owner's equity. It is distinct from a Trial Balance, which is merely a list of all ledger balances used to check arithmetical accuracy, not to present a financial position.

🎯 Exam Tip: Remember that the Balance Sheet follows the accounting equation (Assets = Liabilities + Equity) and is vital for assessing solvency and financial stability, unlike the Trial Balance which is an internal tool.

 

Question 5. What do you mean by Balance Sheet? State classification of assets and liabilities.
Answer: Manufacturing Account: Manufacturing Account is prepared by those undertakings, which undertake or engaged in the production activities. Manufacturing Account is prepared for knowing the cost of goods produced by the concern which further helps in fixing the selling price of the goods produced. A manufacturer purchases the raw materials for selling them by transforming them into finished goods. For this, several expenses are to be incurred by him like fuel, power, electricity, water, coal etc.

Classification of Assets and Liabilities:
(1) Fixed Assets: Fixed assets are those assets which are held by way of possession and not for the purpose of resale. They are permanent in nature and the business is carried on with their help. Example: Land, Building, Plant Machinery, Tools, Furniture, Fittings, etc.

(2) Floating Assets: Floating assets are assets which are required by the business for the purpose of resales, such as stock in trade or such assets which are constantly circulating and arise out of usual business dealings. They are held temporarily for subsequent conversion into money. Example: Debtors, Stock, etc.

(3) Wasting Assets: The assets which lose their value in a diminishing manner are known as Wasting Assets. Example: Patent of land, Copyright, etc.

(4) Liquid Assets: Liquid Assets are assets which can be immediately converted into cash. Example: Bills Receivable, Cash at Bank, etc.

(5) Nominal Assets: Nominal Assets are imaginary assets which do not have any shape or volume. They are also called Fictitious Assets. Example: Goodwill, Prepaid Expenses, Accrued Income.

Classification of Liabilities:
(1) Fixed Liabilities: Liabilities which are not to be paid in the near future but are payable after a long period is known as Fixed Liabilities. There are some liabilities which are paid after the liquidation of a business. Example: Capital, long term loan, etc.

(2) Current Liabilities: Liabilities which are to be paid in the near future are known as Current Liabilities. Example: Creditors, Bank Overdraft, Bank Loan, Bills Payable, etc.

(3) Contingent Liabilities: Contingent Liabilities are those liabilities which are paid on happening or non-happening of some event. Example: Suppose there is a matter under consideration in a court of law regarding less payment of taxes. If the decision of the court is favourable then no payment will be made and if the decision is unfavourable then the amount decided by the court will have to be paid.
In simple words: The Balance Sheet is a statement showing a business's financial position, and it categorizes assets based on their liquidity or permanence (e.g., fixed, floating, liquid) and liabilities based on their maturity (e.g., fixed, current, contingent) to provide a clear view of the company's financial structure.

🎯 Exam Tip: Accurately classify assets and liabilities based on their characteristics and time horizon (short-term vs. long-term) to ensure a complete and correct balance sheet presentation.

 

Question 6. Prepare Profit and Loss Account of M/s Keshav and Sons, for the year ending on 31st December 2010. From the following information: Cash in Hand Rs. 1,000; Cash at Bank Rs. 5,000; Machinery Rs. 21,000; Debtors Rs. 45,000 ; Discount (Cr.) Rs. 1,750 ; Repairs Rs. 1,200 ; Bad Debts Rs. 650 ; Advertising expenses Rs. 4,500; Insurance Premium Rs. 4,200; Capital Rs. 45,000; Gross Profit Rs. 81,000. Adjustments: (i) Prepaid Insurance Premium Rs. 600. (ii) Bad debts Rs. 500 and reserve for doubtful debt @ 5% on debtors (iii) Interest on Capital @ 6% p.a. (iv) Depreciation on Machinery @ 10%.
Answer:

Profit and Loss Account
(for the year ended 31st Dec., 2010)

In simple words: This Profit and Loss Account for M/s Keshav and Sons incorporates various revenue and expense adjustments, such as prepaid insurance, new bad debts, provision for doubtful debts, interest on capital, and depreciation, to accurately determine the net profit for the year.

🎯 Exam Tip: Pay close attention to each adjustment and its impact on the respective expense or income, ensuring proper calculation of final figures for the Profit and Loss Account.

 

Question 7. Prepare Balance Sheet of M/s Kingsley Brothers as on 31st December, 2010 from the following information: Cash Rs. 16,000; Bank Rs. 24,000; Debtors Rs. 61,000; Machinery Rs. 74,000; Building Rs. 1,50,000; Bills Receivable Rs. 15,000; Bills Payable Rs. 14,000; Creditors Rs. 21,000; Capital Rs. 2,75,000; Drawings Rs. 16,000 ; Bad Debt Reserve Rs. 4,500; Closing Stock Rs. 17,350; Net Profit Rs. 31,460; Furniture Rs. 6,000. Other Information: Net Profit was calculated after the following adjustments: (i) Outstanding salaries Rs. 5,000. (ii) Prepaid insurance premium Rs. 60. (iii) Bad Debts Rs. 4,000 and reserve for Bad Debts @ 5% on debtors. (iv) Interest on Capital and Drawings @ 6%. (v) Depreciation on Machinery @ 15%.
Answer:

Balance Sheet
(as on 31st Dec., 2010)

In simple words: This Balance Sheet for M/s Kingsley Brothers presents a classified view of assets and liabilities after incorporating several adjustments, including outstanding salaries, prepaid insurance, bad debts and provision, interest on capital and drawings, and depreciation on machinery, ensuring that the financial position at the year-end is accurately depicted.

🎯 Exam Tip: Verify that the Balance Sheet totals (Liabilities + Capital vs. Assets) match perfectly after all adjustments are applied, as this confirms the arithmetical accuracy of the final accounts.

UP Board Solutions for Class 10 Commerce