BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

3
Financial Statements of Sole-proprietor

Ø INTRODUCTION

Final Accounts or Financial Statements are the end products of the financial accounting
process which involves the preparation of a summary of the accounts with a view to
determine:

(i) Net profit from the trading activities in terms of profit made or loss incurred for a given
period, and
(ii) Its financial position in terms of assets and liabilities as on the last date of the given
period.
For the purpose of determining the profit or loss, a statement known as Trading and
Profit and Loss Account (Income Statement) is prepared which incorporates all items of
expenses and losses and all incomes and gains occurring during the accounting period.
In order to show the financial position on the last date of the accounting period, another
statement known as Balance Sheet (Position Statement) is prepared which consists of all
assets, liabilities and capital of the business. These two statements are collectively known
as Final Accounts.

Final Accounts are prepared from the balances appearing in the trial balance. Debit balances
of assets are transferred on the right hand side of the balance sheet while expenses and losses
are debited to the Trading Account or to the Profit and Loss Account, depending upon the
nature of expenditure or loss. Credit account balances like capital, liabilities, provisions and
reserves are entered on the left hand side of the balance sheet while incomes and gains are
credited to Trading Account or Profit and Loss Account.

Ø TRADING ACCOUNT

Trading Account is the first part of income statement which is prepared to ascertain the
gross profit or gross loss for a given accounting period. Trading Account is prepared before
the preparation of profit & loss account. It shows the result of trading activities relating to
purchases & sales of goods & services. Trading account is prepared to calculate separately
the profit from sale & purchase transactions only. The profit or loss is termed as gross profit
or loss as various other expenses of an organsiation like administrative, selling & distribution,
maintenance expenses etc. are not deducted. Only the direct expenses which are incurred to
bring goods into saleable condition like freight, insurance, carriage inwards, rent & rates,
fuel, power, royalties on production, consumption of stores etc. are taken into account to
calculate gross profit/loss.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

• Need and importance of trading account

1. It provides information about Gross profit and Gross loss.

2. It provides information about the direct expenses.

• Format:

Dr. Trading A/c for the year ending…. Cr.

Particlualrs Amount Particlulars Amount
To Opening stock
To Purchases By Sales
Less: Puchase return/ Return Less: Sales Return/ Return
outward Inwards
To Wages / Wages & Salaries By Closing stock
To Direct expenses By Gross loss (if any transfer to
P&L A/c)
(Balancing figure)
To Carriage/ Carriage Inward/
Carriage on purchase
To Gas, fuel, power
To Freight, Octroi and Cartage
To Manufacturing expenses or
production expenses.
To Factory expenses
Factory lighting, Factory rent etc.
To Dock charges and Clearing
charges
To Import duty or Custom duty
To Royalty
To Gross Profit ( Transfer to P&L
A/c )
(Balancing figure)
xxxx xxxx

• Items appearing on the debit side

1. Opening stock: Stock on hand at the beginning of the year is termed as opening stock. The
closing stock of the previous accounting year is brought forward as opening stock of the
current accounting year. In the case of new business, there will not be any opening stock.

2. Purchases: Purchases made during the year, includes both cash and credit purchases of
goods. Purchase returns must be deducted from the total purchases to get net purchases.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

3. Direct Expenses: Expenses which are incurred from the stage of purchase to the stage of
making the goods in saleable condition are termed as direct expenses. Some of the direct
expenses are:

i. Wages: It means remuneration paid to workers. Wages are paid to workers who are directly
engaged in the loading, unloading and production of goods.
If the item ‘Wages and salary’ is given in the question it will be shown in the trading A/c.
On the contrary, if ‘Salaries and Wages’ is given it will be shown in the P&L A/c.
If wages are paid for bringing a new machine or for its installation it will be added to
the cost of the machine and hence will not be shown in the trading account.

ii. Cartage or carriage inwards or Freight: It means the transportation charges paid to
bring the goods from the place of purchase to the place of business. However, if any carriage
or freight is paid on bringing an asset, the amount should be added to the asset account and
must not be debited to trading account.

iii. Octroi Duty: This is levied by the Municipal Committee when the goods enter the city
and hence debited to Trading account.

iv. Customs duty or Import duty, Dock charges, Royalty etc.: Custom duty is paid on
import as well as on export of goods. Custom duty when paid on the purchase of goods is
charged to Trading account. In the absence of any information, these are debited to
trading account. Dock charges are levied on ships and their cargo while entering or leaving
docks. If dock charges are paid on import of goods they are shown on the debit side of
account. In the absence of information it is debited to trading account. Royalty is the
amount paid to owner of a mine or patent for using his right or patent. Royalty is usually
charged to Trading account because it increases the cost of production. However, if it is
specifically stated in the question that the royalty is based on sales, it will be charged to
P&L A/c.

v. Other expenses: All expenses incurred in the manufacture of goods are shown on the debit
side of trading account such as coal, gas, fuel, water, power, factory rent, factory lighting etc.

• Items appearing on the credit side

1. Sales: This includes both cash and credit sale made during the year. Net sales is derived by
deducting sales return from the total sales.

2. Closing stock: Closing stock is the value of goods which remain in the hands of the trader
at the end of the year. It does not appear in the trial balance. It appears outside the trial
balance. (As it appears outside the trial balance, first it will be recorded in the credit side of
the trading account and then shown in the assets side of the balance sheet). In trading account,
closing stock is shown at cost price or net realisable price market value whichever is lower.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Sometimes, the closing stock is given inside the trial balance. This will mean that the
entry to incorporate the closing stock in the books has already been passed. Hence in
such case, Closing stock will not be shown in the Trading account but will appear on the
asset side of balance sheet only.

• Balancing

The difference between the two sides of the Trading Account, indicates either Gross Profit or
Gross Loss. If the credit side total is more, the difference represents Gross Profit. On the
other hand, if the total of the debit side is more, the difference represents Gross Loss. The
Gross Profit or Gross Loss is transferred to Profit & Loss Account.

• Closing Entries

Like ledger accounts, trading account will be closed by transferring the gross profit or gross
loss to the profit and loss account.
i. If gross profit
Trading A/c.............Dr x x x
To profit and loss account x x x
(Gross Profit transferred to Profit and loss A/c)
ii. If gross loss.
Profit and loss A/c.........Dr x x x
To Trading A/c x x x
(Gross Loss transferred to Profit and loss A/c)

Ø PROFIT AND LOSS ACCOUNT

After calculating the gross profit or gross loss the next step is to prepare the profit and loss
account. To earn net profit a trader has to incur many expenses apart from those spent for
purchases and manufacturing of goods. If such expenses are less than gross profit, the result
will be net profit. When total of all these expenses are more than gross profit the result will be
net loss.
• Need and Importance of Profit & Loss A/c

1. To ascertain the Net profit or Net loss.

2. Comparison with previous years’ profits.
3. Control on expenses.
4. Maintaining Provisions and Reserves.

•
•
•

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

• Format:

Dr. P&L A/c for the year ending…. Cr.

Particlualrs Amount Particlulars Amount
To Gross loss b/d (Transferred By Gross profit b/d (Transferred
from Trading account) from Trading account)
To Salaries / Salaries and wages By Rent
To Rent, rates and taxes By Dicount received
To Printing & stationery By Commission received
To Postage & telegram By Interest on investment
To Lighting By Dividend on shares
To Insurance premium By Bad debts recovered
To Telephone charges By Apprentice premium
To Legal charges By Profit on sale of assets
To Audit fees By Income from other sources
To Travelling expenses By Miscellaneous recepits
To Establishment expenses By Net loss transfer to capital A/c
To Trade expenses
To General expenses
To Carraige outward/ carraige on
sales
To Advertisement
To Comission
To Brokerage
To Bad-debts
To Export duty
To Packing charges
To Delivery van expenses
To Stable expenses
To Repairs
To Depreciation
To Discount allowed
To Interest
To Bank charges
To Entertainment exp.
To Coveyance exp.
To Donation and charity
To Loss on sale of assets
To Sundry expenses
To License fee
To Loss by fire and theft
To Net profit trasnfer to Captial
A/c

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

• Items appearing on the debit side

Those expenses which are chargeable to the normal activities of the business are recorded in
the debit side of profit and loss account. They are termed as indirect expenses.

i. Office and Administrative Expenses: Expenses incurred for the functioning of an office
are office and administrative expenses – office salaries, office rent, office lighting, office rent
and rates, printing and stationery, postages, telephone charges, legal expenses, audit fee and
general or trade expenses.
ii. Repairs and Maintenance Expenses: These expenses relates to the maintenance of assets
- repairs and renewals, depreciation etc.

iii. Financial Expenses: Expenses incurred on borrowings – Interest paid on loan, interest on
capital and discount allowed.

iv. Selling and Distribution Expenses: All expenses relating to sales and distribution of
goods - advertising, travelling expenses, salesmen’s salary, commission paid to salesmen,
repacking charges, freight and carriage on sales, maintenance of vehicles for distribution of
goods and their running exps, insurance of stock in finished goods and goods in transit, bad
debts etc.

v. Abnormal loss: Abnormal loss such as loss of stock by fire not covered by insurance, loss
on sale of fixed assets, loss by theft etc. may occur during the accounting period.

• Items appearing on the credit side

Besides the gross profit, other gains and incomes of the business are shown on the credit side.
The following are some of the incomes and gains.
i. Interest received on investment
ii. Interest received on fixed deposits.
iii. Discount earned.
iv. Commission earned.
v. Rent Received
vi. Int on Drawings
• Balancing

The difference between the two sides of profit and loss account indicates either net profit or
net loss. If the total on the credit side is more the difference is called net profit. On the other
hand if the total of debit side is more the difference represents net loss. The net profit or net
loss is transferred to capital account.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

• Closing Entries

Profit and loss account should be closed by transferring the net profit or net loss to capital
account.
i. If net profit
Profit and Loss A/c.............Dr x x x
To Capital A/c x x x
(Net profit transferred to capital A/c)
ii. If net loss
Capital A/c....................Dr. x x x
To Profit and loss A/c x x x
(Net loss transferred to capital A/c)

Ø BALANCE SHEET:

This forms the second part of the final accounts. It is a statement showing the financial
position of a business. Balance sheet is prepared by taking up all personal accounts and real
accounts (assets and properties) together with the net result obtained from profit and loss
account. On the left hand side of the statement, the liabilities and capital are shown. On the
right hand side, all the assets are shown. Balance sheet is not an account but it is a
statement prepared from the ledger balances. So we should not prefix the accounts with
the words ‘To’ and ‘By’. Balance sheet is defined as ‘a statement which sets out the
assets and liabilities of a business firm and which serves to ascertain the financial
position of the same on any particular date’.

• Need:

The need for preparing a Balance sheet is as follows:

1. The main purpose of preparing a Balance sheet is to ascertain the true financial position of
the business at a particular point of time.
2. To know the nature and value of assets of the business
3. To ascertain the total liabilities of the business.
4. It gives information about the exact amount of capital at the end of the year and the
addition or deduction made into it in the current year.

• Format:

BALANCE SHEET as on……

Liabilities Amount Assets Amount
Capital Fixed assets:
Opening balance Furniture
Add: Additional capital brought Motor vehicle
Add: Int on capital Plant & Machinery
Add: Net profit Land & Building

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Less: Drwaings (Cash, Goods, Patents

Life insurance premium & Goodwill
Income tax) Loose tools
Less: Int. on drawings
Less: Net loss
Reserves Long term Investments
Fixed Liabilites:
Long term loans
Current Liabilities: Current Assets:
Bank overdraft Cash in hand
Bills payable Cash at Bank
Sundry debtors Bills receivable
Outstanding expenses Sudry debtors
Unearned income Closing stock
Prepaid expenses
Accrued income
xxxx xxxx

• Classification of assets

1. Fixed assets:

Fixed assets are assets of a relatively permanent nature used in the operations of business and
not intended for sale. Fixed assets are those which are acquired for continuous use and
last for many years such as Land & Building, Plant and machinery, Vehicles, Furniture etc.
These are always shown in the Balance sheet at cost less depreciation.

2. Current Assets:
Current assets are those which are either in the form of cash or can be easily converted
into cash within one year of the date of balance sheet. Current Assets include Cash, Bills
receivable, debtors, Prepaid expense, accrued income, closing stock etc.

3. Liquid Assets:

Liquid assets are those which are either in the form of cash or can be quickly converted
into cash, such as cash, bills receivable, accrued income etc. In other words, if prepaid
expenses and closing stock are excluded from current assets, the balance will be liquid
assets.

4. Fictitious Assets:

These are the assets which cannot be realized in cash or no further benefit can be derived
from these assets. Such assets include debit balance of P&L A/c and the expenditure not yet
written off such as advertisement expense etc. These assets are not really assets but are shown

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

on the asset side only for the purpose of transferring them to the profit & loss account
gradually over a period of time.

• Classification of Liabilities:

1. Long term Liabilities or Fixed Liabilities:

Those liabilities which are to be repaid after one year or more are termed as long term
liabilities. These include Public deposits, Long-term loans, debentures etc.

2. Current or Short-term liabilities:

Those liabilities which are expected to be paid within one year of the date of the Balance
sheet are termed as current or short-term liabilities. These include bank overdraft, creditors,
bills payable, outstanding expenses etc.

3. Capital:

Capital is the excess of assets over external liabilities. It refers to the amount invested in an
enterprise by the proprietor (in case of a proprietorship concern) or partners (in case of a
partnership concern), which is increased by the amount of profit earned and is decreased by
the losses incurred and the amount withdrawn (whether in the form of cash or kind).

Drawings Account which records the amount withdrawn by the proprietor whether in the
form of cash or kind) is closed by transferring its balance to the debit side of the capital
account. Usually, it is shown by way of deduction from the amount of capital in the balance
sheet.

Ø CONTINGENT ASSET AND CONTINGENT LIABILITY:

Contingent Asset has been defined by Kohler as, “An asset, the existence, value and
ownership of which depend upon the occurrence or non – occurrence of a specific event or
upon the performance or non-performance of a specified act; contrasts with contingent
liability, often growing out of such liability. Suppose the firm has filed a suit for some
property now in the possession of someone else. If the suit is decided in the firm’s favour, the
firm will get the property; at the moment it is a contingent asset. Similarly would be the
position for a patent applied for arising out of the firm’s own research effort. Contingent
liability in respect of contract for capital expenditure already entered into will give rise to an
asset on payment; at present it is only a contingent asset.

Contingent Liability is one which is not an actual liability but which will become one of the
happening of some event which is uncertain. Contingent Liability have two characteristics:

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Uncertainty as to whether the amount will be payable at all.; Uncertainty about the amount
involved. Examples of Contingent Liability are:
1. Liability for bills discounted:
In case a bill discounted from the bank is dishonored by the acceptor on the due date, the firm
will become liable to the bank.
2. Liability in respect of a suit pending in a court of law:
This would become an actual liability if the suit is decided against the firm.
3. Liability in respect of a guarantee given for another person:
The firm would become liable to pay the amount if the person for whom guarantee is given
fails to meet his obligation.
4. Arrears of dividends on cumulative preference shares.

Ø DIFFERENCE BETWEEN FIXED ASSETS AND CURRENT ASSETS:

Fixed assets Current assets

These are long lasting resources of These are short term resources of a
business. business.
These assets are used to operate the These assets are realized in cash or
business and to earn profits. consumed during the normal operating
cycle of business.
These assets are valued at cost less These assets are valued at cost or market
depreciation value whichever is less.
These assets are acquired out of long term These assets are acquired out of short term
funds of the business. funds of the business.
The profit on sale of these assets is a capital The profit on sale of these assets is a
profit. revenue profit.

Ø DIFFERENCE BETWEEN TANGIBLE ASSET AND INTANGIBLE ASSETS:

Tangible assets Intangible assets

These assets have physical identity. These assets do not have physical identity.
Fixed tangible assets are depreciated. Intangible assets are amortized.
Tangible assets can be fixed or current Intangible assets usually fall in the category
asset. of fixed assets.
Lenders accept such assets as a security for Lenders usually do not accept such asset as
a loan given. security for a given loan.
These assets may be lost due to fire. These assets cannot be lost due to fire.

Ø DIFFERENCE BETWEEN TRIAL BALANCE & BALANCE SHEET

Trial Balance Balance Sheet

It is prepared to check arithmetical It is prepared to know the true financial
accuracy of the books of accounts. position of the firm.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

It is not possible to have information about Since net profit or loss is recorded in the
net profit or net loss from trial balance. capital shown in balance sheet, it is
possible to have the information about net
profit or net loss from a balance sheet.
Though desirable, its not necessary It is necessary to prepare balance sheet.
The heading of its two columns are debit The heading of its two sides are assets and
and credit liabilities.
It is normally prepared whenever needed. It is normally prepared at the end of
accounting period
All types of accounts whether personal, real Only personal and real accounts are
or nominal must be written in it. included in it.
Normally, it does not contain closing stock It contains closing stock
It can be prepared without making It cannot be prepared without making
adjustments for outstanding expenses, adjustments for outstanding expenses,
prepaid expenses, accrued incomes etc. prepaid expenses, accrued income etc.
It is not accepted by the court as It is accepted by the court as documentary
documentary evidence. evidence. It is also helpful while making
payment of income tax & vat.

Ø ADJUSTMENTS:

Following are the Adjustments that are to be considered while preparing final accounts. Each
and every adjustment is to be posted in two places. The following is the summary of those
two places for each adjustment.

1. Closing Stock.
i. Trading Account Credit Side, show as an item.
ii. Balance Sheet Assets Side, show as an item.

2. Depreciation
i. Balance Sheet Assets Side, deduct from particular asset.
ii. Profit and Loss Account debit side, show as an item.

3. Outstanding Expenses
i. Profit and Loss Account Debit side, add with particular expense.
ii. Balance Sheet Liabilities side show as an item.

4. Prepaid Expenses
i. Profit and Loss Account Debit side, deduct from particular expense.
ii. Balance Sheet Assets side, show as an item.

5. Accrued Income or Outstanding Income

i. Profit and Loss Account Credit side, add with particular income.
ii. Balance Sheet Assets side, show as an item.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

6. Income Received in Advance

i. Profit and Loss Account Credit side, deduct from particular income.
ii. Balance Sheet Liabilities side, show as an item.

7. Interest on Capital
i. Balance Sheet Liabilities side, add with capital.
ii. Profit and Loss Account Debit side, show as an item.

8. Interest on Drawings
i. Balance Sheet Liabilities Side, deduct from capital.
ii. Profit and Loss Account Credit side, show as an item.

9. Bad Debts
i. Balance Sheet Assets side, deduct from sundry debtors.
ii. Profit and Loss Account Debit side, show as an item.

10. Provision for Bad debts

i. Balance Sheet Assets side, deduct from sundry debtors.
ii. Profit and Loss Account Debit side, show as an item.

11. Provision for Discount on debtors

i. Balance Sheet Assets side, deduct from sundry debtors.
ii. Profit and Loss Account Debit side, show as an item.

12. Provision for discount on creditors

i. Balance Sheet Liabilities side, deduct from sundry creditors.
ii. Profit and Loss Account Credit side, show as an item.

13. Drawings of Goods by proprietor

i. Balance Sheet Liabilities side, deduct from capital.
ii. Trading Account Credit side, show as an item.

14. Free Samples to customers

i. Trading Account Credit side, show as an item.
ii. Profit and Loss Account Debit side, show as an item.

15. Loss of Stock

i. Trading Account Credit side, show as an item.
ii. Profit and Loss Account Debit side, show as an item.

16. Manager Commission

i. Profit and Loss Account Debit side, show as an item.
ii. Balance Sheet Liabilities side show as an item.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Note: While calculating manager commission on Net Profit or Gross Profit due consideration
is to be given whether it is based on Profit before charging such commission or after
charging such commission.

Ø Effects of Adjustments in Final Accounts

Sr. Transaction Debit effect Credit effect
No.
1. Closing Stock Balance Sheet: current asset Trading A/c: credit side
[Note: if closing stock is given in Trial Balance, it will only be written on the asset side
of Balance Sheet]
2. Accrued/ Outstanding Trading or Profit & Loss Balance Sheet: current
Expense A/c: debit side (add to that liability
expense)
3. Pre-paid Expense Balance Sheet: current asset Trading or Profit & Loss
A/c: debit side (deduct from
that expense)
4. Accrued/ Outstanding Balance Sheet: current asset Trading or Profit & Loss
Income A/c: credit side (add to that
income)
5. Income received in Trading or Profit & Loss Balance Sheet: current
advance A/c: credit side (deduct from liability
that income)
6. Depreciation Profit & Loss A/c: debit side Balance Sheet: deduct from
that fixed asset
7. Bad Debt Profit & Loss A/c: debit side Balance Sheet: deduct from
Debtors
8. Bad Debt Reserve/ Profit & Loss A/c: debit side Balance Sheet: deduct from
Provision for Bad and Debtors
Doubtful Debts
[Note: apply % of BDR on : Debtors - Bad Debts (given in adjustments)]
9. Provision for Discount Profit & Loss A/c: debit side Balance Sheet: deduct from
on Debtors Debtors
[Note: apply % of discount on : Debtors - Bad Debts (given in adjustments) – BDR
(given in adjustments)]
10. Provision for Discount Balance Sheet: deduct from Profit & Loss A/c: credit side
on Creditors Creditors
11. Interest on Capital Profit & Loss A/c: debit side Balance Sheet: add to Capital
12. Interest on Drawings Balance Sheet: deduct from Profit & Loss A/c: credit side
Capital
13. Abnormal Loss of Profit & Loss A/c: debit side Trading A/c: credit side
Stock
14. Abnormal Loss of Balance Sheet: asset side Trading A/c: credit side

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Stock [with claim from (Insurance Co. A/c) – with (total amount of goods lost)
insurance co.] amount recoverable
Profit & Loss A/c: debit side
– with balance amount
15. Commission on Profit Profit & Loss A/c: debit side Balance Sheet: asset side
[Note: Commission as a % of net profit after charging such commission = Profit before
commission * rate / (100+rate)]
16. Goods in-transit Balance Sheet: asset side Trading A/c: credit side
17. Bad Debt Recovered Balance Sheet: add to Cash/ Profit & Loss A/c: credit side
Bank
18. Goods sent on approval Balance Sheet: add to Trading A/c: credit side [cost
Closing Stock [cost price] price]

Trading A/c: deduct from Balance Sheet: deduct from

Sales [selling price] Debtors [selling price]

Ø TREATMENT OF CERTAIN ITEMS:

i. Bad Debts given in the Trial Balance only

Q-1 From the following particulars, calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance Rs. 1, 00,000
Gross profit as per trial balance Rs. 50,000
Bad debts as per trial balance Rs. 1,000

Solution:
i. Calculation of Amount of Debtors to be shown in the balance sheet. Rs. 1,00,000 No
adjustment is required.
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts 1,000 By Gross Profit 50,000
To Net Profit 49,000

ii. Bad Debts given in the Adjustments only

Q-2 From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1,00,000
Gross profit as per trial balance 50,000
Bad debts as per Adjustments 2,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Solution:
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000
Less : Bad debts 2,000
98,000
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts 2,000 By Gross Profit 50,000
To Net Profit 48,000

iii. Bad Debts given in both, Trial Balance and Adjustments

Q-3. From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1, 00,000
Gross profit as per trial balance 50,000
Bad debts as per trial balance 1,000
Bad debts as per adjustments 2,000

Solution:
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000
Less : Bad debts 2,000
98,000
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts 2,000 By Gross Profit 50,000
Existing T.B. 1,000
Add: New Adj. 2,000
To Net Profit 47,000

iv. Provision for Bad Debts given in the Trial Balance only.

Q-4. From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1,00,000
Gross profit as per trial balance 50,000
Bad debts as per trial balance 1,000
Provision for bad debts as per adjustments 800

Solution :
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000
Less : Bad debts 2,000
98,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

ii. Calculation of amount of Net Profit

Profit and Loss Account
To Bad debts 2,000 By Gross Profit 50,000
Existing T.B. 1,000
To Provision for bad debts 800
To Net Profit 47,000

v. Provision for Bad Debts given in Adjustments only

Q-5. From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1,00,000
Gross profit as per trial balance 50,000
Bad debts as per trial balance 1,000
Bad debts as per adjustments 2,000
Provision for bad debts 2% on debtors as per adjustments.

Solution :
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000
Less : Bad debts Adjustments. 2,000
98,000
Less : Provision for bad debts Adjustments. 2,000
96,000
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts Trial Balance. 1,000 By Gross Profit 50,000
To Bad debts Adjustments. 2,000
To Provision for bad debts 2,000
To Net Profit 45,000

vi. Provision for Bad Debts given in both Trial Balance and Adjustments.
a. Increase
Q-6. From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1,00,000
Gross profit as per trial balance 50,000
Bad debts as per trial balance 1,000
Bad debts as per adjustments 2,000
Provision for Bad debts as per trial balance 800
Provision for bad debts 2% on debtors as per adjustments.

Solution :
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Less : Bad debts Adjustments. 2,000

98,000
Less : Provision for bad debts Adjustments. 1,960
96,040
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts Trial Balance. 1,000 By Gross Profit 50,000
To Bad debts Adjustments. 2,000
To Provision for bad debts Adjustments. 1,960
Less: Provision for Bad debts Trial Balance. 800
To Net Profit 45,840

b. Decrease
Q-7. From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1,00,000
Gross profit as per trial balance 50,000
Bad debts as per trial balance 1,000
Bad debts as per adjustments 2,000
Provision for Bad debts as per trial balance 2,100
Provision for bad debts 2% on debtors as per adjustments.

Solution :
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000
Less : Bad debts Adjustments. 2,000
98,000
Less : Provision for bad debts Adjustments. 1,960
96,040
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts Trial Balance. 1,000 By Gross Profit 50,000
To Bad debts Adjustments. 2,000
To P.B.D Adjustment. 1,960
Less P.B.D T.B. 2,100
To Net Profit 47,140

vii. Provision for Discount given in the Trial Balance only

Q-8. From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1,00,000
Gross profit as per trial balance 50,000
Bad debts as per trial balance 1,000
Bad debts as per adjustments 2,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Provision for Bad debts as per trial balance 800

Provision for Discount as per trial balance 300
Provision for bad debts 2% on debtors as per adjustments.
Solution :
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000
Less: Bad debts Adjustments. 2,000
98,000
Less : Provision for bad debts Adjustments. 1,960
96,040
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts Trial Balance. 1,000 By Gross Profit 50,000
To Bad debts Adjustments. 2,000 3,000
To Provision for bad debts Adjustments. 1,960
Less: Provision for Bad debts Trial Balance. 800
To Provision for Discount 300
To Net profit 46,140

viii. Provision for Discount given in the Adjustments only

Q-9. From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1,00,000
Gross profit as per trial balance 50,000
Bad debts as per trial balance 1,000
Bad debts as per adjustments 2,000
Provision for Bad debts as per trial balance 800
Provision for Discount 1%
Provision for bad debts 2% on debtors as per adjustments.
Solution :
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000
Less : Bad debts Adjustments. 2,000
98,000
Less : Provision for bad debts Adjustments. 1,960
96,040
Less : Provision for Discount 1% 960
95,080
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts Trial Balance. 1,000 By Gross Profit 50,000
To Bad debts Adjustments. 2,000
To Provision for bad debts Adjustments. 1,960
Less: Provision for Bad debts Trial Balance. 800

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

To Provision for Discount 1% 960

To Net profit 46,800

ix. Provision for Discount given in both Trial Balance and Adjustments
Q-10. From the following particulars calculate Amount of Debtors balance to be shown in the
balance sheet and amount of Net Profit assuming that all other items are not relevant.
Sundry debtors as per trial balance 1,00,000
Gross profit as per trial balance 50,000
Bad debts as per trial balance 1,000
Bad debts as per adjustments 2,000
Provision for Bad debts as per trial balance 800
Provision for Discount as per trial balance 300
Provision for Discount 1%
Provision for bad debts 2% on debtors as per adjustments.

Solution:
i. Calculation of Amount of Debtors to be shown in the balance sheet.
Sundry debtors 1,00,000
Less : Bad debts Adjustments. 2,000
98,000
Less : Provision for bad debts Adjustments. 1,960
96,040
Less : Provision for Discount 1% 960
95,080
ii. Calculation of amount of Net Profit
Profit and Loss Account
To Bad debts Trial Balance. 1,000 By Gross Profit 50,000
To Bad debts Adjustments. 2,000
To Provision for bad debts Adjustments. 1,960
Less: Provision for Bad debts Trial Balance. 800
To Provision for Discount 1% 960
Less : Provision for Discount Trial Balance. 300
To Net Profit 45,180

x. Manager Commission before charging

Q-11.
Gross Profit 1,00,000
Expense as per Profit and Loss A/C 80,000
Manager Commission 2% before charging such commission.

Solution:
Calculation of Manager Commission
Gross Profit 1,00,000
Less : Expenses 80,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Net profit before commission 20,000

Less : Manager Commission20,000x2/100. =400
Net Profit 19,600

xi. Manager Commission after charging such commission.

Q-12.
Gross Profit 1,00,000
Expense as per Profit and Loss A/C 80,000
Manager Commission 2% after charging such commission.
Solution:
Calculation of Manager Commission
Gross Profit 1,00,000
Less : Expenses 80,000
Net Profit before commission 20,000
Less : Manager Commission20,000x2/102. =392
Net Profit 19,608

• Implied Interest:

Sometimes, Trial Balance includes ‘Loan Account’ carrying a specified rate of interest. In
such a case, it is necessary to calculate the interest, even if nothing is mentioned in the
adjustments about the interest. If no amount of interest is shown in the Trial Balance, the full
amount of interest will be treated as outstanding. But if some amount of interest is shown in
the Trial Balance, it should be compared with the full amount of interest and the difference, if
any, will be treated as outstanding interest.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Numerical

Q-1 From the following information, prepare Trading Account for the year ending on 31st
March, 2016:

Opening Stock 1,50,000 Returns outward 10,000

Credit Sales 12,00,000 Wages and salary 4000
Cash Sales 60,000 Carriage inward 2000
Cash Purchase 50,000 Freight inward 3000
Credit Purchase 10,00,000 Cartage inward 1000
Returns inward 20,000 Closing Stock 84,000

Q-2 From the following information, prepare Trading Account for the year ending on 31st
March, 2016:

Adjusted Purchase 11,06,000 Sales 12,40,000

Freight and carriage inward 6000 Wages 4000
Freight and carriage outward 3000 Closing Stock 84,000

Q-3 From the following information, prepare Trading Account for the year ending on 31st
March, 2016:

Cost of Goods sold 11,16,000 Sales 12,40,000

Closing Stock 84,000

Q-4 From the following information, prepare Profit and Loss Account for the year ending on
31st March, 2016:

Gross Profit 5,00,000 Commission allowed 2000

Salary and Wages 10,000 Commission received 3000
Wages and Salary 1000 Interest allowed 3000
Carriage inward 2000 Interest received 4000
Carriage outward 5000 Dividend received 3000
Freight inward 3000 General Expenses 1000
Freight outward 5000 Discount received 2000
Discount allowed 1000 Rent received 5000
Rent paid 4000 Brokerage allowed 3000
Apprenticeship Premium 5000 Apprenticeship Premium 6000
Received Paid
Miscellaneous Income 3000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Q-5 From the following information, prepare Profit and Loss Account for the year ending on
31st March, 2016:

Gross Profit 62,000 Bad Debts 1000

Salary and Wages 20,000 Commission received 2000
Printing and Stationery 600 Interest on loan paid 2500
Entertainment expenses 1200 Interest received 3000
Carriage outward 1000 Postage and telegram 500
Audit Fees 2000 Telephone Expense 1000
Freight outward 500 Discount received 1000
Discount allowed 2000 Rent received 1000
Water and Electricity 1200 Miscellaneous Income 2000
Loss by fire 1000 Travelling Expense 1600
Repairs and Maintenance 600 Packing expense 500
Advertising and Publicity 4000 Legal charges 1000
Bank charges 400 Miscellaneous expense 1000
Loss on sale of machine 500 Loss by theft 5000
Rent, rates and taxes paid 4000 Profit (gain) on sale of 8500
Vehicle
Dividend received on shares 300 Income from investments 200
Loss due to Embezzlement 1000 Commission to salesmen 1500
Sales Promotion expense 400 Fire Insurance Premium 3600
Depreciation on Furniture:
- Sales office 1000
- Administrative office 2000

Q-6 Following is the extract of Trial Balance:

Name of Account Debit Balances Credit Balances

Debtors 1,10,000
Bad debts 7500
Provision for Bad and Doubtful Debts 5000
Additional Information:

i. Additional Bad Debt is Rs. 20,000

ii. Maintain Provision for Bad debts @ 5%
iii. Create Provision for discount on debtors @ 10%

Explain the effects of above while preparing Final accounts.

Q-7 Trial Balance of Shri Ram Enterprise as on 31st March, 2015 is given below. Considering
the additional information, prepare final accounts.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Name of Account Debit Balances Credit Balances

Land and Building 1,42,500
Plant and Machinery 42,500
Furniture 47,500
Motor Vehicles 47,500
Stock (1/4/14) 75,000
Purchase/ Sales 5,25,000 6,30,000
Returns 10,000 5000
Carriage inward 1000
Carriage outward 2000
Wages and salaries 4000
Salary and wages 20,000
Discount 2000 1000
Commission 1500 2000
Interest 2500 3000
Rent 3000
Repairs 600
Insurance 3600
Printing and Stationery 600
Water and Electricity 1200
Postage and telegram 500
Travelling Expense 1600
Conveyance charges 1200
Entertainment expense 1200
Staff welfare expense 1200
Sales promotion expense 2400
Bad Debts 1000
Depreciation on land and building 20,000
Miscellaneous expense/ income 1000 1500
Debtors/ Creditors 2,05,000 50,000
Bills Receivable/ Bills Payable 10,000 1600
12% Bonds (purchased on 1/10/14) 50,000
Loan from Bank 54,000
Cash on hand 5000
Cash at Bank 10,000
Drawings 10,000
Bad Debts recovered 4000
Capital 5,00,000
TOTAL 12,52,100 12,52,100

Additional Information:
i. Closing Stock as on 31/3/15 is Rs. 42,000.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

ii. Rent is payable at the rate of Rs. 300 per month.

iii. Insurance premium is paid for the year ending on 30th June, 2015.
iv. Write off further Rs. 5000 as bad debts.
v. Create provision for doubtful debts @ 10%.
vi. Create provision for discount on debtors @ 2%.
vii. Provide depreciation 15% p.a. on Plant and Machinery and 10% p.a. on
Furniture.
viii. Create a reserve for discount on creditors @ 2%.
ix. Dividend Rs. 8000 is receivable from Reliance Ltd.
x. Commission income worth Rs. 500 is in respect of the service to be provided in
May 2015.

Q-8 From the following information, calculate Manager’s commission @ 12% of Profit

(a) before charging such commission and

(b) after charging such commission.

Gross Profit 70,000

Salary 24,000
Rent and rates 4800
Office expenses 8000
Selling expenses 10,000
Advertisement 12,000
58,800
Profit before commission 11,200

Q-9 Prepare Final Accounts of Mr. Wise for the year 2016-17.

Debit Balances Credit Balances

Furniture and fittings 640
Motor car 6250
Building 7500
Capital 12,500
Bad debts 125
Bad debt reserve 200
Debtors and Creditors 3800 2500
Stock as on 1/4/16 3460
Purchase and Sales 5475 15,450
Bank Overdraft 2850
Returns 200 125
Advertising 450

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Interest on Bank O.D. 118

Cash 650
Commission 375
Taxes and insurance premium 782
General expenses 1250
Salary 3000
Wages 300
TOTAL 34,000 34,000

Additional information:
i. Stock as on 31/3/17 was Rs. 3250.
ii. Depreciation : Building 5% p.a., Furniture 10% p.a., Motor Car 20% p.a.
iii. Rs. 85 is due for interest on Bank O.D.
iv. Salaries Rs. 300 and Taxes Rs. 200 are outstanding.
v. Wages Rs. 50 is prepaid.
vi. One-third of the commission received is in respect of the work to be done next
year.
vii. Write off further Bad Debts Rs. 100 and maintain bad debt reserve @ 5% on
debtors.

Q-10 From the Trial Balance and adjustments of Ms. Anushka, prepare final accounts for
2017-18:

Name of Account Dr. Balances Name of Account Cr. Balances

Cash 10,000 Sales 1,80,500
Stock 40,800 Purchase return 195
Wages 22,525 Creditors 30,305
Purchase 1,30,295 Discount 530
Sales return 2400 Capital 37,500
Repairs 1675 Loan from Virat 20,000
(1/7/17)
Bad debts 2310
Interest on loan 600
Salary 8000
Freight 800
Octroi 500
Insurance 1000
Donation 125
Rent 2000
Machinery 16,000
Debtors (including 30,000
Ranveer for

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

dishonoured bill of Rs.

800)
TOTAL 2,69,030 TOTAL 2,69,030

Additional Information:
i. Wages include Rs. 2000 for erection of new machinery paid on 1/4/17.
ii. Stock on 31st March, 2018 was Rs. 40,925.
iii. Provide depreciation on machinery at 5% p.a.
iv. Salary unpaid Rs. 800.
v. Half the amount of Ranveer’s bill is irrecoverable.
vi. Create a provision at 5% on other debtors.
vii. Rent is paid up to July 2018.
viii. Unexpired insurance Rs. 300.

Q-11. Prepare final accounts from the following particulars as on 31st March, 2017:

Name of Account Debit Balances Credit Balances

Capital and Drawings 1400 10,000
Cash and Bank O.D. @ 5% 1500 2000
Purchase and Sales 12,000 15,000
Returns 1000 2000
Establishment charges 2500
Taxes 500
Debtors and Creditors 5000 1850
Bad debt reserve 1000
Bad debts 500
Commission 500
Investments 4000
Stock as on 1/4/16 3000
Furniture 600
Bills receivable and Bills payable 3000 2500
Collected GST 150
TOTAL 35,000 35,000

Additional information:
i. Salary Rs. 100 and taxes Rs. 400 are due but not paid.
ii. Interest accrued on investments Rs. 210.
iii. Depreciation on furniture is to be charged at 10% p.a.
iv. Bad debt reserve is to be maintained at 20%.
v. Stock on 31/3/17 was valued at Rs. 4500.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

vi. A fire occurred on 25th March, 2017 in the godown and stock of the value of Rs.
1000 was destroyed. Insurance company has agreed to compensate Rs. 800.

Q-12. Prepare final accounts in the books of Mr. John from the following particulars as on
31st March, 2017:

Name of Account Debit Balances Credit Balances

Capital and Drawings 6000 41,000
Plant and Machinery 51,000
Office Furniture 2600
Stock as on 1/4/16 48,000
Motor Van 12,000
Cash 400
Debtors and Creditors 45,000 52,000
Bank 6500
Factory wages 1,50,000
Office wages 14,000
Purchase and Sales 2,13,500 4,80,000
Returns 9300 5500
Bad debt reserve 2500
Bills receivable and Bills payable 7200 5600
Rent 6000
Lighting 800
Telephone 1350
Insurance 300
Loose Tools 6350
Gas and fuel 1000
Bad debts 2500
Discount 6500 3700
TOTAL 5,90,300 5,90,300

Additional information:
i. Discount at 2.5% is to be provided on debtors and creditors.
ii. Depreciation on Office furniture is to be charged at 10% p.a., Plant and
machinery at 30% p.a. and Motor Van at 33.33% p.a.
iii. Provision for bad and doubtful debts has to be increased to Rs. 3000.
iv. Stock on 31/3/17 was valued at Rs. 52,000.
v. A new machine was installed on 1/10/16 worth Rs. 10,000; but no entry was
made for the same as payment is not made.
vi. Manager is entitled to a commission at 10% of net profits arrived at after
charging such commission.
vii. Income tax of proprietor paid through cheque Rs. 500.
Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University
BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

viii. Provide interest on capital at 10% p.a.

Q-13 Suresh started business on April 1, 2010 with a capital of Rs. 30,000. The following
Trial Balance was drawn up from his books at the end of the year:

Dr. Trial Balance Cr.

Particulars Amount Particulars Amount
Drawings 4,500 Capital 40,000
Plant & Fixtures 8,000 Sales 1,60,000
Purchases 1,16,000 Creditors 12,000
Carriage inward 2,000 Bills payable 9,000
Wages 8,000
Return inward 4,000
Salaries 10,000
Printing 800
Advertisement 1,200
Trade charges 600
Rent 1,400
Debtors 25,000
Bills receivable 5,000
Investments 15,000
Discount 500
Cash at bank 16,000
Cash in hand 3,000

2,21,000 2,21,000
The value of stock as at 31 March, 2011 was Rs. 26,000. You are required to prepare his
Trading & Profit & Loss Account for the year ended 31st March 2011 and a Balance Sheet as
at that dat5e after taking the following facts into account:

1. Interest on capital is to be provided at 6% p.a.

2. An additional capital of Rs. 10,000 was introduced by Suresh on October 1,2010.
3. Plant & Fixtures are to be depreciated by 10% p.a.
4. Salaries outstanding on March 31, 2002 amounted to Rs. 500.
5. Accrued interest on investment amounted to Rs. 750.
6. Rs. 500 are bad debts and a Provision for Doubtful debts is to be created at 5% on the
balance of debtors.

Q-14 The following is the Trial Balance of Amrit Raj as at 31st March, 2012:

Particulars Amount Particulars Amount

Building 30,000 Capital 25,000
Furniture 2,640 Return outward 1,600

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Scooter 4,000 Sales 56,040

Return inward 2,300 Bad-debts provision 700
Stock on 1st April, 2011 8,000 Bank loan 5,000
Purchase 33,800 Commission 900
Bad –debts 300 Creditors 8,000
Carriage inward 700
General expenses 1,200
Interest on bank loan 300
Insurance & taxes 2,000
Scooter expenses 2,600
Salaries 4,400
Cash in hand 2,000
Debtors 3,000

97,240 97,240
st
You are required to prepare the final accounts for the year ending 31 March, 2012 taking
into account the following adjustments:

1. Closing stock on 31st March, 2012 was valued at Rs. 4,340.

2. Commission includes Rs. 300 being commission received in advance.
3. Salaries have been paid for 11 months.
4. Bank loan has been taken at 10% p.a. interest.
5. Depreciate Building by 5% and Scooter by 15%.
6. Write off 200 as further Bad-debts and maintain bad-debts provision at 5% on debtors.

Q- 15 From the following balances, prepare Trading, Profit & Loss Account & Balance sheet
as at 31st March, 2012.

Particulars Amount Particulars Amount

Capital 82,000 Sundry creditors 9,000
Life insurance premium 2,800 Sales 1,24,000
Plant & machinery 5,000 Return outward 1,000
Opening stock 15,000 Special rebates (Dr.) 800
Purchases 87,200 Special rebates (Cr.) 1.200
Return inwards 6,000 Rent for premises sublet 1,000
Sundry debtors 21,000 Lighting 400
Furniture 9,100 Motor car expenses
6,300
Motor car 40,000 Bank balance 15,200
Freight and duty 2,000 Loan from suresh at 12%p.a 10,000
Carriage inward 800 Interest on loan from suresh 900

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

(Dr)
Carriage outward 300
Trade expenses 15,400
1. Stock on 31st March, 2012 was valued at Rs. 25,000 (Realisable value Rs. 32,000).
2. Stock of Rs. 6,000 was burnt by fire on 25th March. It was fully insured and the
Insurance Company admitted the claim in full.
3. Goods worth Rs. 1,800 were distributed as free sample. Goods worth Rs. 1,500 were
used for personal use by the proprietor and goods worth Rs. 500 were given away as
charity.
4. Depreciate motor car by 15%.
5. Included in trade expenses is insurance premium of Rs. 2,400 paid for the year ending
30th June, 2012.

Q-16 Following is the trial balance of XYZ as at 31st Dec, 2007:

Particulars Debit Credit

Drawing and capital 18,000 80,000
Purchase and sales 82,600 1,55,000
Stock (1.1.07) 42,000
Return outward 1,600
Carriage inward 1,200
Wages 4,000
Power 6,000
Machinery 50,000
Furniture 14,000
Rent 22,000
Salary 15,000
Insurance 3,600
8% bank loan 25,000
Debtors 20,600
Creditors 18,900
Cash in hand 1,500

2,80,500 2,80,500
1. Closing stock Rs. 64,000.
2. Wages outstanding Rs. 2,400.
3. Bad debts Rs. 600 and provision for bad and doubtful debts to be 5% on debtors.
4. Rent is paid for 11 months.
5. Loan from the bank was taken on 1st July, 2007.
6. Provide depreciation on machinery @ 10% p.a
7. Provide manager’s commission at 10% on net profit after charging such commission.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Financial Statements of Sole Proprietor

Q-17 Following is the trial balance of XYZ as at 31st March, 2010:

Particulars Amount Particulars Amount

Plant and machinery 19,720 Capital 80,000
Manufacturing wages 34,965 Creditors 50,160
Salaries 10,135 Bank loan 10,000
Furniture 9,480 Purchase return 1,140
Freight on purchases 1,s980 Sales 2,46,850
Freight on sales 2,150 Provision for bad debts 6,000
Building 25,000
Manufacturing expenses 9,455
Fuel and power 1,276
Electricity (factory) 986
Insurance & taxes 4,175
Goodwill 30,000
Rent 2,400
Debtors 78,140
Sundry expenses 2,473
Opening stock 34,170
Building 5,165
Purchases 97,165
Sales return 3,170
General expenses 8,000
Bad-debts 1,485
Interest and bank charges 475
Advertising 4,500
Bank balance 7,540
Cash 145

3,94,150 3,94,150

1. Value of closing stock Rs. 29,638.

2. Depreciate plant & machinery 10%, furniture 5% and building Rs. 1,000. Also write
off goodwill by Rs. 3,000.
3. Provide 5% for doubtful debts on debtors.
4. Prepaid expenses: insurance Rs. 300 and taxes Rs. 190.
5. 3/5th of insurance and taxes; rent and general expenses to be charged to factory and the
balance to office.
6. Advertising is to be written off over three years.
7. Commission to manager at 10% on net profit after charging such commission.
HAPPY READING!!!

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University