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Chapter 15
Final Accounts

Meaning
Financial Statements are the statements prepared at the end of the accounting period to determine the
financial performance, i.e., profit earned or loss incurred during the accounting period and also the
financial position of the business as on the date. A complete set of Financial Statements includes:
a- Trading and Profit and Loss Account; and
b- Balance Sheet.
They are also known as final accounts.
Financial Statements are the end-product of the accounting process prepared from the Trial Balance.
They are prepared to know:
i- the profit earned or loss incurred by the business during an accounting period. It is known
from the Trading and Profit and Loss Account.
ii- the assets owned and liabilities owed as on the date, i.e., financial position, by preparing
the Balance Sheet.
COMPONENTS OF FINANCIAL STATEMENTS BASED ON THE TYPE OF ORGANIZATIONS
CLASSIFIED ACCORDING TO NATURE:
Manufacturing Organizations Trading Organization
a. Manufacturing Account a. Trading Account
b. Trading Account b. Profit and Loss Account
c. Profit and Loss Account c. Balance Sheet
d. Balance Sheet

Manufacturing Account: This is prepared only by a manufacturing organisation. It is prepared to

determine the cost of goods manufactured. The items that appear in the Debit side of this account are
– Opening Work-in-progress (i.e., balance of goods yet to be finished), Raw materials consumed,
Direct labour, Direct expenses and factory overhead costs. The credit side includes closing work-in-
progress only. The difference, being cost of goods manufactured, is transferred to Trading A/c.
Following is the structure of a Manufacturing Account
Manufacturing Account
For the period ended on…
Particulars Amount Particulars Amount
To Opening WIP By Trading Account
To Raw materials consumed (cost of finished goods transferred)
(bal. fig.)
To Direct Labour By Closing WIP
To Direct Expenses
To Factory Overhead

Trading Account: This is prepared by a non-corporate trading business entity (manufacturer-cum-

trader or only trader). It is prepared to determine the gross operating results (i.e., Gross Profit or Gross
Loss). Its principle involves matching of the Cost of Goods Sold (COGS) of an accounting period against
the corresponding Sales. It considers only the direct costs and direct income (i.e., Sales) for
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determination of Gross Profit/ Gross Loss. It is a nominal account, and is closed by transfer of the Gross
Profit/ Gross Loss to the P/L A/c. The following items will appear in the debit side of the Trading Account
The following items will appear in the debit side of the Trading Account:
• Opening Stock: In case of trading concern, the opening stock means the finished goods only.
The amount of opening stock should be taken from Trial Balance.
• Purchases: The amount of purchases made during the year. Purchases include cash as well
as credit purchase. The deductions can be made from purchases, such as, purchase return,
goods withdrawn by the proprietor, goods distributed as free sample etc.
• Direct expenses: It means all those expenses which are incurred from the time of purchases
to making the goods in suitable condition. These expenses include freight inward, octroi, wages
etc.
• Gross profit: If the credit side of Trading A/c is greater than debit side of Trading A/c gross profit
will arise.

The following items will appear in the credit side of Trading Account:
• Sales Revenue: The sales revenue denotes income earned from the main business activity or
activities. The income is earned when goods or services are sold to customers. If there is any
return, it should be deducted from the sales value. As per the accrual concept, income should
be recognized as soon as it is accrued and not necessarily only when the cash is paid for.
• Closing Stock: In case of trading business, there will be closing stocks of finished goods only.
According to convention of conservatism, stock is valued at cost or net realizable value
whichever is lower.
• Gross Loss: When debit side of Trading A/c is greater than credit side of Trading A/c, gross
loss will appear.

The proforma of Trading Account is as follows:

TRADING ACCOUNT FOR THE YEAR ENDED
Particulars ` Particulars `
Opening Stock: Sales
Finished goods Less: Sales return
Purchases Closing stock
Less: Purchase returns Finished goods
Gross Profit (transferred to P&L A/c) Gross Loss (transferred to P&L A/c)
Total Total
PROFIT AND LOSS ACCOUNT
The next component of financial statements is the Profit & Loss Account. It is drafted after the
determination of Gross operating result i.e., Gross Profit or Gross Loss. This account
determines the Net Profit or Net Loss of an organisation for a particular accounting period. It
is prepared by charging the indirect expenses and losses against the Gross Profit and other
indirect incomes. It is closed by transfer of the Net Profit or Net Loss to the Capital Account of
the proprietor.

The following items will appear in the debit side of the Profit & Loss A/c:
• Cost of Sales: This term refers to the cost of goods sold. The goods can be manufactured
and sold or can be directly purchased and sold.
• Other Expenses: All expenses which are not directly related to main business activity will be
reflected in the P&L component. These are mainly the Administrative, Selling and distribution
expenses. Examples are salary to office staff, salesmen commission, insurance, legal charges,
audit fees, advertising, free samples, bad debts etc. It will also include items like loss on sale of
fixed assets, interest and provisions. Students should be careful to include accrued expenses as
well.
• Abnormal Losses: All abnormal losses are charged against Profit & Loss Account. It includes
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stock destroyed by fire, goods lost in transit etc.

The following items will appear in the credit side of Profit & Loss A/c:
• Revenue Incomes: These incomes arise in the ordinary course of business, which includes
commission received, discount received etc.
• Other Incomes: The business will generate incomes other than from its main activity. These
are purely incidental. It will include items like interest received, dividend received, etc. The end
result of one component of the P&L A/c is transferred over to the next component and the net
result will be transferred to the balance sheet as addition in owners’ equity. The profits actually
belong to owners of business. In case of company organizations, where ownership is widely
distributed, the profit figure is separately shown in balance sheet.
PROFIT & LOSS ACCOUNT
for the year ended
Particulars (`) Particulars (`)
To Trading A/c (Gross Loss By Trading A/c
transferred) To Administrative (Gross Profit transferred)
expenses By Other
To Office salaries Income By
To Communication Interest received
To Travel & Conveyance
To Office rent By Commission
To received By Profit on
Advertising To sale of assets By
Audit fees To Rent received
Insurance By Capital A/c
To Repairs & maintenance (Net loss transferred)
To Selling & Distribution expenses
To Bad debts
To Salesmen
commission To
Interest on loans
To Depreciation and
Amortisation To Financial
expenses
To Bank charges
To Loss on sale of assets
To Capital A/c
(Net profit transferred)
BALANCE SHEET
Balance Sheet is the financial statement that is prepared to show the financial position of the
organisation on a specific date. It is prepared after drafting Income Statements i.e., Trading Account and
P/L Account. It reflects the assets and liabilities of a concern at a particular point of time. The Balance
Sheet may be drafted either in Horizontal format or in Vertical format. In the horizontal format, the
Liabilities appear on the left-hand side, while the Assets appear on the right-hand side of the Balance
Sheet. This is the traditional format followed by non-corporate commercial organisations. In the vertical
format, the liabilities and assets appear in a top-down order.
The various items should appear in the Balance Sheet in a specific order which is known as Marshalling.
There are three approaches in this respect.
• Rigidity/ Permanence Order: Here, non-current or fixed assets come before the current
assets and non- current or long-term liabilities come before the current liabilities.
• Liquidity Order: Here, non-current or fixed assets come after the current assets and non-
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current or long- term liabilities come after the current liabilities.

• Mixed Order: Here, asset side items are arranged in order of liquidity while liability side items
are arranged in order of rigidity.
The components of assets and liabilities are discussed below.
LIABILITIES
• Capital: This indicates the cumulative claim of the owner of the business.
• Long Term or Non-Current Liabilities: These are obligations which are to be settled over
more than one accounting period. These funds are raised by way of loans from banks and
financial institutions. Such loans are normally obtained on the basis of some security e.g.,
against a charge on the fixed assets. They are called “Secured Loan”.
• Short Term or Current Liabilities: These are liabilities expected to be settled within the same
accounting period or same operating cycle period. These include –
- Sundry Creditors: It represents amounts payable to suppliers against purchase of goods.
- Advances from customers: It represents amounts taken from the customers as advance
against the orders already placed by them.
- Outstanding Expenses: These represent services procured but not paid for.
- Bills Payable: These are bills accepted by the firm to the creditors.
- Bank Overdrafts: This represents amount utilised over and above the balance in account
as approved by the bank in form of a short-term loan.

ASSETS
• Fixed Assets/ Non-current Assets: These represent the facilities or resources owned by the
business for a longer period of time. The basic purpose of these resources is not to buy and sell
them, but to use for future earnings. The benefit from use of these assets is spread over a very long
period. The fixed assets could be in tangible form such as buildings, machinery, vehicles,
computers etc, whereas some could be in intangible form viz. patents, trademarks, goodwill etc.
The fixed assets are subject to wear and tear which is called as depreciation. In the balance
sheet, fixed assets are always shown as “original cost less depreciation”.
• Investments: These are funds invested outside the business on a temporary basis. At times,
when the business has surplus funds, and they are not immediately required for business
purpose, it is prudent to invest it outside business e.g., in mutual funds or fixed deposit. The
purpose is to earn a reasonable return on this money instead of keeping them idle. Investments
can be classified into Current Investments and Non-current Investments. Non-current
Investments are investments which are restricted beyond the current period as to sale or
disposal. Whereas, current investments are investments that are by their nature readily
realizable and is intended to be held for not more than one year from the date on which such
investment is made.
• Current Assets: An asset shall be classified as Current when it is expected to be realised in, or
is intended for sale or consumption in the organisation’s normal Operating Cycle. It is held
primarily for the purpose of being traded. Current assets comprise of:
- Stocks/Inventories: This includes stock of raw material, semi-finished goods or WIP, and
finished goods.
- Debtors: They represent customer balances which are not paid. The bad debts or a
provision for bad debt is reduced from debtors and net figure is shown in balance sheet.
- Bills receivables: Credit to customers may be given based on a bill to be signed by them
and payable to the business at an agreed date in future.
- Cash in Hand: This represents cash actually held by the business on the balance
sheet date.
- Cash at Bank: this represents funds held as balances with bank.
- Prepaid Expenses: They represent payments made against which services are expected
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to be received in a very short period.

- Advances to suppliers: They represent amounts paid to suppliers in advance for
which goods or services are not received till the balance sheet date.
BALANCE SHEET AS ON……
Liabilities ` Assets `
Capital Fixed Assets:
Long term Liabilities: Land
Loans from banks or financial Building less depreciation
Institutions
Plant and Machinery
Current
less depreciation
Liabilities:
Vehicles less depreciation
Sundry
Computer systems less depreciation
creditors Bills Office equipment less depreciation
payable Current Assets:
Advances from customers Stocks
Outstanding expenses Sundry debtors less provisions
Bills receivables
Advances to suppliers
Prepaid expenses
Cash at bank
Cash in hand

Classification of Assets:
• Fixed Assets are those which are acquired for long use in the business itself and not for resale.
Forexample, plant and machinery, land and buildings, furniture and fixtures, patents and trade
marks areexamples of fixed assets.
• Current or Floating Assets are those that are meant to be converted into cash as soon as
possible. Stock of goods, amount due from customers to whom goods have been sold on credit and
balance at bank are examples of current (or floating) assets.
• Liquid Assets are those current assets which are already in the form of cash or which can be
readilyconverted into cash, such as Government Securities.
• Wasting Assets are those fixed assets which have a fixed content, like coal in a coal mine; the
value ofthe asset goes down as the contents are taken out. When the minerals have been taken out
totally, the mine will become useless.
• Intangible Assets are those fixed assets which cannot be seen or touched or felt. Goodwill (the
value of one’s name) is an intangible asset because there is no physical form to show it.
Intangible assetsare not necessarily useless.
• Fictitious Assets are valueless assets but shown as assets in the financial statements (such
as useless trade marks) or expenses treated as assets (such as expenses incurred to establish
a company i.e. preliminary expenses).
Classification of Liabilities:
• Fixed and Long-term Liabilities: Fixed liabilities are those liabilities which are payable on the
termination of the business such as capital of the proprietor, whereas long-term liabilities are
those which will be redeemed after a long period of time e.g. long-term loans
• Current liabilities: These are liabilities which have to be redeemed in the near future, usually
within a year. Trade creditors, bank overdraft, bills payable etc. are examples of current
liabilities.
• Contingent liabilities: These are not actual liabilities but their becoming actual liability depends
on the happening of certain events. If such events do not occur, no liability is incurred. Liability
in respect of pending suit is a contingent liability because it is only if and when suit is lost that
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the liability will be incurred. Bills discounted with a bank are also a contingent liability because
if the acceptor fails to meet the bill on due date, the firm will become liable to the bank. Such
liabilities are not shown in balance sheet; usually a foot note is appended at the balance sheet
for such liabilities
Trading Account Profit and Loss Account
Trading account is prepared to calculate the Profit and loss account is prepared to arriveat
gross profit (loss) for a particular period. the net profit (loss)
In trading account, cost of goods sold, sales and In profit and loss account, indirect expenses,
direct expenses are accounted. such as administrative expenses, selling
expenses, etc, are charged against the gross
The result of trading account i.e. gross profit profit and other revenues.
(loss) is transferred to profit and lossaccount. The balance in profit and loss account i.e. net
profit (loss) is transferred to capital account which
will be shown in the balance sheet.

Profit & Loss Account Balance sheet

1. Profit and loss account is an account 1. Balance sheet is a statement of assets

andliabilities.
2. Profit and loss account shows the profits 2. Balance sheet shows financial position of
earnedor losses incurred for the accounting period thebusiness.
3. Profit and loss account is prepared for the 3. Balance sheet is prepared as at the last day
accounting period ofthe accounting period.
4. The accounts that are transferred to the profit 4. The accounts which are shown in the balance
and loss account are closed and cease to exist. sheet do not lose their identity and become the
opening balances in the next accounting period

Objectives or Need or Importance of Financial Statements

The objectives or need or importance of the Financial Statements are:
• Trading and Profit and Loss Account (Also known as Income Statement)
- Determine Gross Profit or Gross Loss: Trading Account is prepared to know gross profit
earned or gross loss incurred by the business during the accounting period.
- Determine Net Profit or Net Loss: Profit and Loss Account shows net profit earned or net
loss incurred by the business during an accounting period.
- Comparison with the Previous Years’ Profits: Gross Profit and Net Profit for the accounting
period can be compared with that of the previous years’ profits. It helps in determining
whether the business is progressing as per plans or not.
- Details of Expenses and Income: Trading and Profit and Loss Account provide details of all
expenses (direct and indirect) and income of the business. It helps to determine how
expenses can be controlled and sources of income can be increased.
- Reserves: Reserves are created out of profits to meet future uncertainties and to strengthen
financial position of the firm. The amount set aside as reserves depends upon net profit
earned.
- Accounting Ratios: For financial analysis, ratios are calculated with the help of Trading and
Profit and Loss Account. For example, Gross Profit Ratio, Net Profit Ratio, Operating Ratio,
Return on Capital Employed, etc.

Balance Sheet (Also known as Position Statement)

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- Ascertaining Financial Position: Balance Sheet shows the financial position of the business
on a particular date hy reflecting its assets (i.e., what it owns) and liabilities (i.e., what it
owes).
- Comparison with Previous Year: The amounts under various heads of Balance Sheet can
be compared with that of previous year to assess the change in financial position.
- Determining Solvency Position: With the help of Balance Sheet, short-term solvency of the
business (i.e., ability to meet its short-term liabilities) by computing Current Ratio and Liquid
Ratio. Likewise long-term solvency can be ascertained by computing Debt to Equity Ratio,
Proprietary Ratio, etc.
Adjusting Entry
Adjusting Entry Treatment in Treatment In Treatment in
Trading A/c Profit and Loss Balance
A/c Sheet
Closing Closing Stock Dr. Shown on the — Shown on the
Stock To Trading A/c credit side. assets side.
Outstanding Expenses A/c Dr. Added to the Added to the Shown on the
Expenses To Outstanding Expenses A/c respective respective liabilities side.
expense on expense on the
the debit side. debit side.
Prepaid or Prepaid Expenses A/c Dr. Deducted Deducted from Shown on the
Unexpired To Expenses A/c from respective assets side.
Expenses respective expense on the
expense on debit side.
the debit side.
Accrued Accrued Income A/c Dr. — Added to the Shown on the
Income To Income A/c respective assets side.
income on the
credit side.
Unearned Income A/c Dr. — •Deducted from Shown on the
Income To Unearned Income A/c the respective liabilities side.
income on the
credit side.
Depreciation Depreciation A/c Dr. — Shown on the Deducted from
To Asset A/c debit side. the concerned
asset on the
assets side.
Further Bad Bad Debts A/c Dr. — Shown on the Deducted from
Debts To Debtor's A/c debit side. the debtors on
the assets
side.
Provision for Profit and Loss A/c Dr. — Shown on the Deducted from
Doubtful To Provision for Doubtful Debts debit side. the debtors on
Debts A/c the assets
side.
Provision for Profit and Loss A/c Dr. — Shown on the Deducted from
Discount on To Provision for Discount on debit side. debtors and
Debtors Debtors A/c Shown it on
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the assets
side.
Manager's Profit and Loss A/c Dr. — Shown on the Shown on the
Commission To Manager's Commission A/c debit side. liabilities side.
Payable on
Profit
Abnormal Loss by Accident A/c Dr. — Shown on the Deducted from
Loss (i) Loss To Asset A/c debit side. the concerned
of Assets asset.
Loss of Accidental Loss of Stock A/c Total value of Irrecoverable Amount due
Stock Dr. loss is shown loss is shown on from
To Trading A/c on the credit the debit side. insurance
side. company is
shown on the
assets side.
Goods Drawings A/c Dr. Value of such — Deducted from
Taken for To Purchases A/c goods is capital on the
Personal deducted liabilities side.
Use from
Purchases.
Goods Advertising A/c Dr. Value of such Shown on the
Distributed To Purchases A/c goods is debit side as
as Free deducted Advertisement
Sample from Expense.
purchases.

Cash Discount Trade Discount

It is a reduction granted by a supplier fromthe invoice It is a reduction granted by a supplier from
price in consideration of immediate or prompt the list price of goods or services on business
payment. consideration.
It is allowed to encourage the prompt payment. It is allowed to promote sales.
It is not shown in the invoice
It is shown by way of deduction in theinvoice
Cash discount account is opened in theledger. itself.
It is allowed on payment of money Trade discount account is not openedin the
It may vary with the time period within which ledger.
payment is received It is allowed on purchase of goods
It may vary with the quantity of goods
purchased or amount of purchases made.
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Question Bank
Que 1:
Following are the ledger balances presented by M/s. P. Sen as on 31st March 2015.
Particulars Amount Particulars Amount
Stock (1.4.2014) 10,000 Sales 3,00,000
Purchase 1,60,000 Return Inward 16,000
Carriage Inwards 10,000 Return Outward 10,000
Wages 30,000 Royalty on Production 6,000
Freight 8,000 Gas and Fuel 2,000
Additional Information:
• Stock on 31.3.2015: (i) Market Price ` 24,000; (ii) Cost Price ` 20,000;
• Stock valued ` 10,000 were destroyed by fire and insurance company admitted the claim to the
extent of ` 6,000.
• Goods purchased for ` 6,000 on 29th March, 2015, but still lying in-transit, not at all recorded in the
books.
• Goods taken for the proprietor for his own use for ` 3,000.
• Outstanding wages amounted to ` 4,000.
• Freight was paid in advance for ` 1,000
Ans:
In the books of M/s. P. Sen
Trading Account
(FOR THE YEAR ENDED 31/03/15)
Particulars Amount Amount Particulars Amount Amount
To Opening Stock 10,000 By Sales 3,00,000
To Purchase 1,60,000 Less: Return Inward 16,000 2,84,000
Less: Return Outward 10,000 By Closing Stock 20,000
1,50,000 Add: Stock Destroyed 10,000
Less: Goods taken by Proprietor 3,000 30,000
1,47,000 Add: Goods-in-Transit 6,000 36,000
Add: Goods-in-transit 6,000 1,53,000
To Wages 30,000
Add: Outstanding 4,000 34,000
To Carriage Inwards 10,000
To Freight 8,000
Less: Prepaid 1,000 7,000
To Royalty on Production 6,000
To Gas & Fuel 2,000
To Profit & Loss A/c (Gross 98,000
Profit)
3,20,000 3,20,000
Que 2:
Indicate where the following items will be shown in various components of Trading Account and P & L
Account:
(1) Wages (2) Salaries to office staff
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(3) Depreciation on office car (4) Power & fuel

(5) Repairs to machinery (6) Maintenance of office building
(7) Purchase returns or return outwards (8) Closing stock of WIP
(9) Opening stock of finished goods (10) Interest received
(11) Commission paid (12) Telephone
(13) Travel & conveyance (14) Insurance
(15) Audit fees (16) Carriage inward
(17) Freight outward (18) Bad debts
(19) Provision for outstanding rent (20) Return inwards or sales returns
(21) Discount earned (22) Depreciation on delivery van
(23) Printing and stationery (24) Sales
Ans:
Item Treatment Where
Wages Trading A/c Dr
Salaries to office staff P & L A/c Dr.
Depreciation on office car P & L A/c Dr.
Power & fuel Trading A/c Dr.
Repairs to machinery P& L A/c Dr
Maintenance of office building P & L A/c Dr
Purchase returns or return outward Trading A/c Dr less from purchases
Closing stock of WIP Trading A/c Cr
Opening stock of finished goods Trading A/c Dr
Interest received P & L A/c Cr
Commission paid P & L A/c Dr
Telephone P & L A/c Dr
Travel & conveyance P & L A/c Dr
Insurance P & L A/c Dr
Audit fees P & L A/c Dr
Carriage inward Trading A/c Dr
Freight outward P & L A/c Dr
Bad debts P & L A/c Dr
Provision for outstanding rent P & L A/c Dr
Return inwards or sales returns Trading A/c Cr less from sales
Discount earned P & L A/c Cr
Depreciation on delivery van P & L A/c Dr
Printing and stationery P & L A/c Dr.
Sales Trading A/c Cr.
Que 3:
From the following particulars presented by Sri Tirlhankar for the year ended 31st March 2015, Prepare
Profit andLoss Account.
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Gross Profit ` 1,00,000, Rent ` 22,000; Salaries, ` 10,000; Commission (Cr.) ` 12,000; Insurance ` 8,000; Interest (Cr.) `
6,000; Bad Debts ` 2,000; Provision for Bad Debts (1.4.2012) ` 4,000; Sundry Debtors ` 40,000; Discount
Received ` 2,000; Plant & Machinery ` 80,000.

Adjustments:
• Outstanding salaries amounted to ` 4,000;
• Rent paid for 11 months;
• Interest due but not received amounted to ` 2,000
• Prepaid Insurance amounted to ` 2,000;
• Depreciate Plant and Machinery by 10% p.a.
• Further Bad Debts amounted to ` 2,000 and make a provision for Bad Debts @5% on Sundry
Debtors.
• Commissions received in advance amounted to ` 2,000
Ans:
In the Books of Sri Tirlhankar
Profit and Loss Account
for the year ended 31st March 2015
Particulars Amount Amount Particulars Amount Amount

To, Rent 22,000 By Trading A/c (Gross 1,00,000

Profit)
Add: Outstanding 2,000 24,000 By Commission 12,000
To, Salaries 10,000 Less: Received in 2,000 10,000
advance
Add: Outstanding 4,000 14,000 By Interest 6,000
To, Insurance 8,000 Add: Accrued Interest 2,000 8,000
Less: Prepaid 2,000 6,000 By Discount received 2,000
To, Bad Debts 2,000 By Provisions for Bad Debts 4,000
Add: further Bad Debts 2,000 4,000 Less: New Provision @ 5% 1,900 2,100
on(` 40,000 – ` 2,000)
To, Depreciation on 8,000
: Plant & Machinery
To, Capital A/c 66,100
(Net Profit Transferred)
1,22,100 1,22,100
Que 4:
Prepare a Trading Account of trader for the year ending 31st March, 2014 from following data:
`
Stock on 1-4-2013 2,40,000
Cash purchases for the year 2,08,000
Credit purchases for the year 4,00,000
Cash sales for the year 3,50,000
Credit sales for the year 6,00,000
Purchases returns during the year 8,000
Sales returns during the year 10,000
Direct expenses incurred:
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Freight 10,000
Carriage 2,000
Import duty 8,000
Clearing charges 12,000
Cost of goods distributed as free samples during the year 5,000
Goods withdrawn by the trader for personal use 2,000
Stock damaged by fire during the year 13,000

The cost of unsold stock on 31st March, 2014 was `1,20,000 but its market value was ` 1,50,000.
Ans:
Trading Account of a trader
For the year ending 31st March, 2014

` `
To Opening stock 2,40,000 By Sales:
To Purchases Cash 3,50,000
Cash 2,08,000 Credit 6,00,000
Credit 4,00,000 9,50,000
6,08,000 Less: Sales returns 10,000 9,40,000
Less: Purchases Returns 8,000 By Stock damaged by fire 13,000
6,00,000 By Closing stock 1,20,000
Less: Goods Distributed as free sample 5,000
5,95,000
Less: Goods withdrawn 2,000 for personal use 5,93,000
To Freight 10,000
To Carriage 2,000
To Import duty 8,000
To Clearing changes 12,000
To Gross profit c/d 2,08,000
10,73,000 10,73,000
Que 5:
Prepare Trading and Profit and Loss Account of M/s Suraj Prakash & Sons for the year ending 31st
December, 2014from following information:

` `
Stock (1-1-2014) 2,00,000 Salaries 30,000
Purchases 2,55,000 Rent, rates & taxes 12,000
Wages 1,00,000 Depreciation 3,020
Carriage 5,000 Repairs 6,000
Purchases returns 13,250 Discount allowed 12,505
Export duty 9,000 Bad debts 9,000
Sales 5,75,000 Advertisement 2,500
Coal & coke 25,000 Gas & water 1,500
Sales returns 10,000 Factory lighting 2,500
Printing & stationery 2,250 General expenses 4,000
Stock (31-12-2015) 3,00,000
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Ans:
Trading and Profit and Loss Accounts of
M/s Suraj Prakash and Sons
For the year ending 31st December, 2014
` `
To Stock (1-1-2014) 2,00,000 By Sales 5,75,000
To Purchases 2,55,000 Less: Sales returns 10,000 5,65,000
Less: Purchases Return 13,250 2,41,750 By Stock (31-21-2014) 3,00,000
To Wages 1,00,000
To Carriage 5,000
To Coal and coke 25,000
To Gas and water 1,500
To Factory lighting 2,500
To Gross profit c/d 2,89,250
8,65,000 8,65,000
To Salaries 30,000 By Gross profit b/d 2,89,250
To Rent, rates & taxes 12,000
To Printing & stationery 2,250
To Depreciation 3,020
To Repairs 6,000
To Export duty 9,000
To Discount allowed 12,505
To Bad Debts 9,000
To Advertisement 2,500
To General expenses 4,000
To Net profit transferred to capital account 1,98,975
2,89,250 2,89,250
Que 6:
Shri Mittal gives you the following Trial Balance and some other information:
Trial Balances as on 31st March, 2017
Particulars Dr. ₹ Cr. ₹
Capital 8,70,000
Purchases and Sales 6,05,000 12,10,000
Opening Inventory 72,000
Trade receivables and Trade payables 90,000 1,70,000
14% Bank Loan (loan taken at year end) 2,00,000
Overdrafts (overdraft taken at year end ) 1,12,000
Salaries 2,70,000
Advertisements 1,10,000
Other expenses 60,000
Returns 40,000 30,000
Furniture 4,50,000
Building 8,90,000
Cash in Hand 5,000
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25,92,000 25,92,000
Closing Inventory on 31 March, 2017 was valued at ₹ 1,00,000.
st

Required: Prepare final accounts of Shri Mittal for the year ended 31st March, 2017.
Ans:
In the books of Shri Mittal
Trading Account
For the year ended 31st March, 2017
Particulars Amount ₹ Particulars Amount ₹
To Opening inventory 72,000 By Sales 12,10,000
To Purchases 6,05,000 Less: Returns (40,000) 11,70,000
Less: Returns (30,000) 5,75,000 By Closing 1,00,000
inventory
To Gross Profit 6,23,000
12,70,000 12,70,000
Profit and Loss Account
For the year ended 31st March, 2017
Particulars Amount ₹ Particulars Amount ₹
To Salaries 2,70,000 By Gross profit 6,23,000
To Advertisement 1,10,000
To Other expenses 60,000
To Net profit 1,83,000
6,23,000 6,23,000
st
Balance Sheet as on 31 March, 2017
Liabilities ₹ Amount ₹ Assets Amount ₹
Capital 8,70,000 Building 8,90,000
Add: Net profit 1,83,000 10,53,000 Furniture 4,50,000
14% Bank Loan 2,00,000 Trade receivables 90,000
Trade payables 1,70,000 Closing inventory 1,00,000
Overdrafts 1,12,000 Cash in hand 5,000
15,35,000 15,35,000
Que 7:
Mr. Mohan gives you the following trial balance and some other information:
Trial Balance as on 31st march, 2017
Particulars ₹ ₹
Capital 6,50,000
Sales 9,70,000
Purchases 4,30,000
Opening Inventory 1,10,000
Freights Inward 40,000
Salaries 2,10,000
Other Administration Expenses 1,50,000
Furniture 3,50,000
Trade receivables and Trade payables 2,10,000 1,90,000
Returns 20,000 12,000
Discounts 19,000 9,000
Bad Debts 5,000
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Investments in Government Securities 1,00,000

Cash in Hand and Cash at Bank 1,87,000
81,31,000 18,31,000
Other Information:
(i) Closing Inventory was ₹ 1,80,000;
(ii) Depreciate Furniture @ 10% p.a.
Required
Prepare Trading and Profit and Loss Account for the year ended on 31.3.2017 and Balance Sheet of
Mr. Mohan as on that date.
Ans:
In the books of Mr. Mohan
Trading Account
For the year ended 31st March, 2017
Particulars Amount ₹ Particulars Amount ₹
To Opening 1,10,000 By Sales 9,70,000
Inventory
To Purchases 4,30,000 Less: Returns (20,000) 9,50,000
Less: Returns (12,000) 4,18,000 By Closing Inventory 1,80,000
To Freight Inwards 40,000
To Gross profit 5,62,000
11,30,000 11,30,000
Profit and Loss Account
For the year ended 31st March, 2017
Particulars ₹ Particulars ₹
To Depreciation 35,000 By Gross profit 5,62,000
To Salaries 2,10,000 By Discount received 9,000
To Administration expenses 1,50,000
To Discount allowed 19,000
To Bad debts 5,000
To Net profit 1,52,000
5,71,000 5,71,000
Balance Sheet
As on 31st March, 2017
Liabilities Amount ₹ Assets Amount ₹
Capital 6,50,000 Furniture 3,50,000
Add: Net profit 1,52,000 8,02,000 Less: Depreciation (35,000) 3,15,000
Trade payables 1,90,000 Closing Inventory 1,80,000
Trade receivables 2,10,000
Investment in Govt 1,00,000
Securities
Cash in Hand and 1,87,000
Cash at Bank
9,92,000 9,92,000
Que 8:
From the following particulars prepare a Balance Sheet of Mr. X, for the year ended 31st March, 2015.
Capital: ₹ 2,00,000: Drawings : ₹ 40,000; Cash In Hand : ₹ 15,000 ; Loan from Bank : ₹ 40,000; Sundry
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Creditors: ₹ 40,000; Bills Payable: ₹ 20,000; Bank Overdraft : ₹ 20,000; Goodwill: ₹ 60,000; Sundry
Debtors: ₹ 80,000; Land and Building: ₹ 50,000; Plant and Machinery: ₹ 80,000; Investment: ₹ 20,000;
Bills Receivable : ₹ 10,000. Cash at Bank: ₹ 25,000.
The following adjustments are made at the time of preparing final accounts:
(i) Outstanding Liabilities for: Salaries ₹ 10,000; wages ₹ 20,000; Interest on Bank Overdraft
₹ 3,000; and Interest on Bank Loan ₹ 6,000.
(ii) Provide Interest on Capital @ 10% p.a.
(iii) Depreciation on Plant and Machinery by 10% p.a.
(iv) Bad Debts amounted to ₹ 10,000 and make a provision for Bad Debts @ 10% on Sundry
Debtors.
(v) Closing stock amounted to ₹ 1,20,000.
(vi) Net profit for the year amounted to ₹ 96,000 after considering all the above adjustments.
Ans:
Liabilities Amount (₹) Amount (₹) Assets Amount (₹) Amount (₹)
Capital 2,00,000 Goodwill 60,000
Add: Interest on 20,000 Land & Building 50,000
Capital @ 10%
Add: Net Profit 96,000 Plant & 80,000
Machinery
3,16,000 Less: 8,000 72,000
Depreciation @
10%
Less: Drawings 40,000 2,76,000 Investment 20,000
Bank Overdraft 20,000 Closing Stock 1,20,000
Add: Out. 3,000 23,000 Sundry Debtors 80,000
Interest
Bank Loan 40,000 Less: Bad Debts 10,000
Add: Out. 6,000 46,000 70,000
Interest
Sundry Creditors 40,000 Less: Prov. For 7,000 63,000
bad debts @
10%
Bills Payable 20,000 Bills Receivable 10,000
Outstanding Cash at Bank 25,000
Liabilities:
Salaries 10,000 Cash in Hand 15,000
Wages 20,000 30,000
4,35,000 4,35,000
Que. 9 ICAI SM
Pass closing entries for the following particulars as on 31st March 2015 presented by X Ltd.
Particulars Amount
Opening stock 10,000
Purchases 50,000
Wages 5,000
Returns outward 5,000
Sales 1,00,000
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Return inward 10,000

Salaries 8,000
Insurance 1,000
Bad debts 3,000
Interest received 3,000
Discount allowed 4,000
Discount received 3,000
Closing Stock `15,000

Ans.
In the Books of X Ltd. (31 Mar 2015)
Journal
2015 Particulars Amount Amount
Trading A/c Dr 75,000
To, Opening Stock A/c 10,000
To Purchase A/c 50,000
To Wages A/c 5,000
To, Returns inward A/c 10,000
Sales A/c Dr 1,00,000
Returns outward A/c. Dr 5,000
Closing Stock A/c. Dr 15,000
To, Trading A/c 1,20,000
Trading A/c Dr 45,000
To, Profit and Loss A/c 45,000
Profit and Loss A/c. Dr 16,000
To, Salaries A/c 8,000
To , Insurance A/c 1,000
To Bad Debts A/c 3,000
To, Discount allowed A/c 4,000
Interest received A/c Dr 3,000
Discount received A/c Dr 3,000
To, Profit and Loss A/c 6,000
Profit and Loss A/c Dr 35,000
To, Capital A/c 35,000
Que.10 ICAI SM
The following items appear in the Trial Balance as on 31st March, 2015.
Dr. ` Cr. `
Sundry debtors 42,000
Bad debts 3,500
Adjustments
1- After the trial balance was prepared, it was found that a debtor Z will not be able to pay `2000
because of his insolvency.
2- Create 6% provision for bad debts.
Pass the necessary adjustment entries in journal and show how these would appear in the profit and
loss Account and Balance sheet as on 31st March, 2015.
Ans.
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Adjustment Entries
Date Particulars Dr. ` Cr. `
1 Bad debts Accounts ----------Dr. 2,000
To Z (Debtor) 2,000
2 Profit and Loss Account -----Dr. 2,400
To Provision for bad debts Accounts 2,400
Profit and loss Account
For the year ending 31st March, 2015
Particulars ` Particulars `
To Bad debts (as given in trial 3,500
balance)
Add: Additional bad debts 2,000
Add: provision for bad debts 2,400 7,900
Balance Sheet
As on 31st March, 2015
Liabilities ` Assets `
Sundry debtors 42,000
Less: Additional Bad debts 2,000
40,000
Less: provision for Bad 2,400 37,600
debts
The provision for bad debts created is carried forward to the next accounting years. The bad debts
that will arise in the next year will be met out of this provision. In other words, bad debts when written
off will be debited to provision for bad debts where such a provision exists.
Que. 11 ICAI SM
Following Balances appeared in the books of Patnayak on 31st March, 2014.Pass the necessary
opening entry for 2014-15:
Credit balances: Capital `30,000: Bills Payable `5,000: Creditors `10,000
Debit balances: Furniture `4,000: Machinery `18,000; Debtors`12,000: B/R `9,000; Cash `2,000
Ans.
OPENING ENTRY IN THE BOOKS OF PATNAYAK
Apr. 1 Particulars L.F Dr. Amount Cr. Amount
Furniture A/c Dr. 4,000
Machinery A/c Dr. 18,000
Debtors A/c Dr. 12,000
Bills Receivable A/c Dr. 9,000
Cash A/c Dr. 2,000
To Capital A/c 30,000
To Bills Payable A/c 5,000
To Creditors A/c 10,000
(Being opening entry)
45,000 45,000
Que.12 ICAI SM
Consider the following balances in the Balance Sheet as on 31st March 2014. Pass the opening entry
on 1st April 2015.
Subodh’s Capital A/c 2,75,000
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Loan from HH Bank 4,25,000

Plant and Machinery 3,30,000
Cash in hand 20,000
Balance at CC Bank 1,75,000
Trade Debtors 3,55,000
Closing Stock 1,35,000
Trade Payables 2,95,000
Outstanding Expenses 40,000
Prepaid insurance 20,000

Ans.
The opening entry will be as follows:
Plant and machinery A/c Dr 3,30,000
Cash in hand A/c Dr. 20,000
Balance at CC bank A/c Dr. 1,75,000
Trade Debtors A/c Dr. 3,55,000
Closing Stock A/c Dr. 1,35,000
Prepaid Insurance Dr. 20,000
To Subodh’s Capital A/c 2,75,000
To Loan from HH bank A/c 4,25,000
To Trade Payables A/c 2,95,000
To Outstanding Expenses A/c 40,000
(Being Opening entry)
Que.13 ICAI SM
The following Trial Balance has been prepared from the books of Mr. Sexena as on 31st March, 2013
after making necessary adjustments for depreciation on Fixed Assets, outstanding and accrued items
and difference under Suspense Account.
Trial Balance as at 31st March, 2013
Particulars Dr. (`) Particulars Cr. (`)
Machineries 1,70,000 Sundry Creditors 82,000
Furniture 49,500 Capital Account 2,45,750
Sundry Debtors 38,000 Outstanding Expenses 1,500
Drawings 28,000 Salaries 600
Travelling Expenses 6,500 Printing 1,000
Insurance 1,500 Audit Fees 1,200
Audit Fees 1,000 Bank Interest 1,800
Salaries 49,000 Discounts 6,80,000
Rent 5,000 Sales (Less Return)
Cash in hand 7,800
Cash at Bank 18,500
Stock-in-trade(1-4-2012) 80,000
Prepaid Insurance 250
Miscellaneous Expenses 21,200
Discounts 1,200
Printing & Stationery 1,500
Purchase (Less Returns) 4,60,000
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Depreciation: 30,000
Machineries 5,500
Furniture 39,400
Suspense Account
10,13,850 10,13,850
Ans.
In the books of Mrs. Saxena
Trading and Profit and Loss Account
For the year ended 31st March, 2013
Particulars Amount Particulars Amount
To Opening Stock 80,000 By Sales 6,50,000
(`6,80,000-`30,000)
To Purchases 4,60,000 To Closing Stock 5,000 47,500
Less: Drawings 4,55,000
To Profit & Loss A/c
Gross Profit transferred 1,62,500
6,97,500 6,97,500
To Salaries: 49,000 By Trading A/c 1,62,500
(Gross Profit)
To Rent 5,000 To Bank Interest 1,200
To Insurance 1,500 To Selling Commission 4,500
To Audit Fees 1,000
To Printing & Stationery 1,500 To Discount Received 1,800
To Miscellaneous Exp. 21,200
To Discount Allowed 1,200
To Travelling Expenses 6,500
To Depreciation:
Machinery 37,500
Furniture 5,000 42,500
To Net Profit 40600
1,70,000 1,70,000
Balance Sheet
As at 31st March, 2013
Liabilities Amount Amount Assets Amount Amount
Capital Account 2,45,750 Machinery 2,50,000
Add: Net Profit 40,600 Less Depreciation 37,500 2,12,500
Less: Drawings 33,000 2,53,350 Furniture 50,0002
(28,000+5,000)
Less: Depreciation 5,000
45,000
Sundry Creditors 82,000 Stock 47,500
Outstanding 32,400
Liabilities Debtors
(38,000-5,600)
Salaries 1,500 Cash 7,800
Audit Fees 1,000 Bank 18,500
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Printing 600 3,100 Prepaid Insurance 250

Thakurlal’s A/c 25,500
(30,000-4,500)
3,63,950
Notes:
`
1. Machinery as per Trial Balance 1,70,000
Add: Depreciation 30,000
2,00,000
Additions 50,000
2. Furniture 49,500
Add: Depreciation 5,500
55,000
Less: Wrong Debit 5,000
3. Suspense A/c, is eliminated by item 50,000
(i) `45,000(50,000-5000) and item
(ii) by 5,600 (debited), respectively.
Que.14 ICAI SM
The following extracts from the trial balance as on 31st March, 2015 are given
Particulars Dr.` Cr. `
Sundry debtors 42,000
Bad debts 3,500
Provision for bad debts 3,800
Adjustments:
1- Additional bad debts `2,000
2- Maintain the provision for bad debts at 10% of debtors.
Show the relevant entries in the profit and Loss Account and balance Sheet as on 31st March, 2015.
Ans.
Profit and Loss Account
For the year ending 31st March, 2015
Particulars ` Particular `
To bad debts ( as given in trial 3,500
balance)
Add: Additional bad debts 2,000
5,500
Add: provision for bad Debts(New) 4,000
9,500
Less: old provision for bad debts 3,800 5,700
Balance Sheet as on 31st March 2015
Liabilities ` Assets `
Sundry debtors 42,000
Less: bad debts 2,000
40,000
Less: New provision 4,000 36,000
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1. When bad debts are given as an adjustment outside the trial balance, then such an amount of bad
debts is deducted from debtors ( as given in the trial balance) and the provision for bad debts is
calculated on the balance amount of debtors.
2. Provision for bad debts account in the beginning of the year appears in the trial balance on the
credit side. But the amount of bad debts in the trial balance appears on thee debit side.
Que. 15
Following is the Trial Balance of M/s Brijesh and Sons. Prepare final accounts for the year ended on
31st March, 2015.
Particulars Debit Credit
Stock as on 01.04.2014 2,00,000
Purchases and Sales 22,00,000 35,00,000
Bills receivables 50,000
Returns 100,000 50,000
Carriage Inwards 50,000
Debtors and Creditors 200,000 400,000
Carriage Outwards 40,000
Discounts 5,000 5,000
Salaries and wages 2,20,000
Insurance 60,000
Rent 60,000
Wages and salaries 80000
Bad debts 10000
furniture 4,00,000
Brijesh’s capital 5,00,000
Brijesh’s drawing 70,000
Loose tools 1,00,000
Printing & Stationery 30,000
Advertising 50,000
Cash in hand 45,000
Cash at bank 2,00,000
Petty cash 5,000
Machinery 3,00,000
Commission 10,000 30,000
Total 44,85,000 44,85,000
Adjustment
(i) Stock on 31 st March was valued at Cost price `4,20,000 and market price `400,000
(ii) Depreciate furniture @ 10% p.a. and machinery @ 20% p.a. on reducing balance method.
(iii) Rent of `5,000 was paid in advance.
(iv) Salaries & wages due but not paid `30,000.
(v) Make a provision for doubtful debits @ 5% on debtors.
(vi) Commission receivable `5,000
Ans.
Trading Account for the year ended 31st March 2015
Particulars Amount Amount Particulars Amount Amount
To Opening Stock By Sales 35,00,000
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To Finished Goods 2,00,000 Less: Sales 1,00,000 34,00,000

Returns
To purchases 22,00,000 By Closing Stock
Less: Purchases 50,000 21,50,000 Finished goods 4,00,000
returns
To Carriage 50,000
inwards
To Wages & 80,000
Salaries
To Gross profit c/d 13,20,000
38,00,000 38,00,000
st
Profit & Loss Account for the Year Ended 31 March 2015
Particulars Amount Amount Particulars Amount Amount
To Salaries & Wages 2,20,00 By Gross Profit b/d 13,20,000
Add: Not paid 30,000 2,50,000 By Discount Rect. 5,000
To Depreciation furniture 40,000 By Commission 30,000
To Depreciation Machinery 60,000 Add: Receivable 5,000 35,000
To Insurance 60,000
To Rent 60,000
Less: Paid in advance 5,000 55,000
To Printing & Stationery 30,000
To Advertising
To Carriage outwards 40,000
To Discounts 5,000
To Bad debts 10,000
To Commission 10,000
To Provision for doubtful 10,000
debts
Net Profit 7,40,000
13,60,00 13,60,000
0
Balance Sheet as on 31st March 2015
Capital & Liabilities ` ` Assets ` `
Brijesh’s Capital 5,00,000 Fixed Assets:
Less: Drawings (70,000) Furniture 4,00,000
Add: Net Profit for the 7,40,000 11,70,000 Less: 40,000 3,60,000
year Depreciation
Current Liabilities Machinery 3,00,000
Sundry Creditors 4,00,000 Less: 60,000 2,40,000
Depreciation
Outstanding salaries & 30,000 Loose Tools 1,00,000
wages
Current Assets:
Stocks 4,00,000
Sundry debtors 2,00,000
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Less: Provision 10,000 1,90,000

for doubtful debts
Bills receivables 50,000
Cash in hand 45,000
Cash at bank 2,00,000
Petty cash 5,000
Prepaid Rent 5,000
Commission 5,000
receivable
16,00,000 16,00,000
Notes:
(1) Closing stock is valued at market price here as it is less than cost price (conservatism concept)
(2) Returns in debit column mean sales return, while that in credit column means purchase returns
(3) Discounts in debit column mean allowed (expense) and that in credit means received (income)
(4) Commission in debit column mean allowed (expense) and that in credit means received
(income)
(5) There are two peculiar items given in the TB. One is Salaries & wages and the other is Wages
and salaries. The interpretation is – where first reference is made to wages. It’s assumed to be
directly for goods and taken to Trading A/c. If the first reference is to salaries. It’s assumed to be
related to office and taken to P & L.
Que 16: RTP May 21
The following is the trial balance of Manan as at 31st March 2020:
Dr. Cr.
` `
Manan’s capital account - 1,53,380
Stock 1st April, 2019 93,600 -
Sales - 7,79,200
Returns inward 17,200 -
Purchases 6,43,400 -
Returns outward - 11,600
Carriage inwards 39,200 -
Rent & taxes 9,400 -
Salaries & wages 18,600 -
Sundry debtors 48,000 -
Sundry creditors - 29,600
Bank loan @ 14% p.a. - 40,000
Bank interest 2,200 -
Printing and stationary expenses 28,800 -
Bank balance 16,000 -
Discount earned - 8,880
Furniture & fittings 10,000 -
Discount allowed 3,600 -
General expenses 22,900 -
Insurance 2,600 -
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Postage & telegram expenses 4,660 -

Cash balance 760 -
Travelling expenses 1740 -
Drawings 60,000 _______
10,22,660 10,22,660
The following adjustments are to be made:
1- Included amongst the debtors is ` 6,000 due from Rahul and included among the creditors ` 2,000 due to
him.
2- Provision for bad and doubtful debts be created at 5% and for discount @ 2% on debtors.
3- Depreciation on furniture & fittings @ 10% shall be written off.
4- Personal purchases of Manan amounting to ` 1200 had been recorded in the purchases day book.
5- Interest on bank loan shall be provided for the whole year.
6- A quarter of the amount of printing and stationary expenses is to be carried forward to the next
year.
7- Credit purchase invoice amounting to ` 800 had been omitted from the books.
8- Stock on 31st March 2020 was ` 1,57,200.
Prepare (i) Trading & profit and loss account for the year ended 31.3.2020 and (ii)Balance sheet as on 31st
March, 2020.
Ans:

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Trading and Profit and Loss Account of Mr. Manan

for the year ended 31st March,2020
Particulars ` Amount ` Amount ` `
To Opening Stock 93,600 By Sales 7,79,200
To Purchases 6,43,400 Less: Returns 17,200 7,62,000
Add: Omitted invoice 800 By Closing stock 1,57,200
6,44,200
Less: Returns 11,600
6,32,600
Less: Drawings 1,200 6,31,400
To Carriage 39,200
To Gross profit c/d 1,55,000
9,19,200 9,19,200
To Rent and taxes 9,400 By Gross profit b/d 1,55,000
To Salaries and wages 18,600 By Discount 8,880
To Bank interest 2,200
Add: Due 3,400 5,600
To Printing and stationary 28,800
Less: Prepaid (1/4) 7,200 21,600
To Discount allowed 3,600
To General expenses 22,900
To Insurance 2,600
To Postage & telegram 4,660
expenses
To Travelling expenses 1,740
To Provision for bad debts 2,300
[W.N.(2)]
To Provision for discount on 874
debtors [W.N.(2)]
To Depreciation on 1,000
furniture & fittings
To Net profit 69,006 ______
1,63,880 1,63,880

Balance Sheet of Manan

as at 31st March,2020
Liabilities ` ` Assets ` `
Capital 1,53,380 Furniture & fittings 10,000
Add: Net profit 69,006 Less: Depreciation 1000 9,000
2,22,386 Sundry debtors (W.N.1) 46,000
Less: Drawings: Less: Provision for bad
Cash 60,000 & doubtful debts (W.N.2) 2,300
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Goods 1,200 61,200 1,61186 43,700

Bank loan 40,000 Less: Provision for
Bank interest due 3,400 discount (W.N.2) 874 42,826
Sundry creditors (W.N.3) 28,400 Stock 1,57,200
Prepaid expenses:
Printing & stationary 7,200
Bank balance 16,000
_______ Cash balance 760
2,32,986 2,32,986

Working Notes:
(1) Sundry debtors
Balance as per trial balance 48,000
Less: Due to Rahul 2,000
46,000
(2) Provision for bad & doubtful debts:
@ 5% on ` 46,000 2,300
Provision for discount:
2% on ` 43,700 (46,000 -2,300) 874
(3) Sundry creditors
Balance as per trial balance 29,600
Less: Set off in respect of Rahul 2,000
27,600
Add: Purchase invoice omitted 800
28,400
Que 17: RTP May 22
Mr. Bansal submitted to you the following trial balance, which he has not been able to agree. Rewrite the trial balance
and prepare trading and profit and loss account for the year ended 31.3.2021 and a balance sheet as on that date after
giving effect to the undermentioned adjustments
Particulars Dr. Cr.
` `
Capital - 16,000
Opening stock 17,500 -
Closing stock - 18,790
Drawings 3,305 -
Returns inward - 550
Carriage inward 1,240 -
Deposit with X - 1,400
Returns outward 840 -
Carriage outward - 725
Rent paid 800 -
Rent outstanding 150 -
Purchases 13,000 -
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Sundry debtors 5,000 -

Sundry creditors - 2,200
Furniture 1,500 -
Sales - 29,000
Wages 850 -
Cash 1,370 -
Advertisement __950 _____
46,505 68,665
Adjustments:
1- Write off ` 600 as bad debt and make a provision for doubtful debts at 5% on balance sundry debtors.
2- Stock valued at ` 2,000 was destroyed by fire on 25th March,2021, but insurance company admitted a claim for `
1,500 only and paid the sum in April,2021
3- Depreciation to be provided on furniture at 10% per annum.
Ans:
Redrafted Trial Balance of Mr. Bansal
as on 31st March,2021
Particulars Dr. Cr.
` `
Capital - 16,000
Opening stock 17,500 -
Drawings 3,305 -
Returns inward 550 -
Carriage inward 1,240 -
Deposit with X 1,400 -
Returns outward - 840
Carriage outward 725 -
Rent paid 800 -
Rent outstanding - 150
Purchases 13,000 -
Sundry debtors 5,000 -
Sundry creditors - 2,200
Furniture 1,500 -
Sales - 29,000
Wages 850 -
Cash 1,370 -
Advertisement ___950 ___-__
48,190 48,190

Trading and Profit and Loss Account of Mr. Bansal

for the year ended 31st March,2021
Dr. Cr.
Particulars ` ` Particulars ` `
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To Opening stock 17,500 By Sales 29,000

To Purchases 13,000 Less: Returns (550) 28,450
inward
Less: Returns outward (840) 12,160 By Stock loss by fire 2,000

To Wages 850 By Closing stock 18,790

To Carriage inward 1,240
To Gross profit 17,490 ______
49,240 49,240
To Carriage outward 725 By Gross profit 17,490
To Rent 800
To Advertisement 950
To Bad debts 600
To Provision for doubtful 220
debts (5% of 4400)

To Loss of stock by fire 500

To Depreciation on furniture(10% 150
of `1,500)
To Net profit 13,545
17,490

17,490

Balance Sheet of Mr. Bansal

as at 31st March,2021
Liabilities ` Assets `
Capital 16,000
Add: Net profit 13,545 Furniture 1,500
29,545 Less: Depreciation 150 1,350
Less: Drawings 3,305 26,240 Deposit with X 1,400
Sundry creditors 2,200 Closing Stock 18,790
Outstanding rent 150 Sundry debtors 5,000
Less: Bad debts 600
4,400
Less: Provision for 220 4,180
Doubtful
Debts
Insurance claim receivable 1,500
______ Cash 1,370
28,590 28,590
Que 18: RTP May 23
The following is the trial balance of Prakesh as at 31st December, 2022
Dr. Cr.
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` `
Prakesh’s capital account 3,83,450
Stock 1st January, 2022 2,34,000 -
Sales - 19,48,000
Returns inward 43,000 -
Purchases 16,08,500 -
Returns outward - 29,000
Carriage inwards 98,000 -
Rent & taxes 23,500 -
Salaries & wages 46,500 -
Sundry debtors 1,20,000 -
Sundry creditors - 74,000
Bank loan @ 14% p.a. - 1,00,000
Bank interest 5,500 -
Printing and stationary expenses 72,000 -
Bank balance 40,000 -
Discount earned - 22,200
Furniture & fittings 25,000 -
Discount allowed 9,000 -
General expenses 57,250 -
Insurance 6,500 -
Postage & telegram expenses 11,650 -
Cash balance 1,900 -
Travelling expenses 4,350 -
Drawings 1,50,000 -
25,56,650 25,56,650
The following adjustments are to be made:
(1) Included amongst the debtors is ` 15,000 due from Ravi and included among thecreditors `
5,000 due to him.
(2) Provision for bad and doubtful debts be created at 5% and for discount @ 2% onsundry debtors.
(3) Depreciation on furniture & fittings @ 10% shall be written off.
(4) Personal purchases of Prakash amounting to ` 3,000 had been recorded in thepurchases
day book.
(5) Interest on bank loan shall be provided for the whole year.
(6) A quarter of the amount of printing and stationary expenses is to be carried forwardto the next
year.
(7) Credit purchase invoice amounting to ` 2,000 had been omitted from the books.
(8) Stock on 31.12.2022 was ` 3,93,000
Prepare (i) Trading & profit and loss account for the year ended 31.12.2022 and (ii) Balance sheet as on 31st
December, 2022.
Ans:
Trading and Profit and Loss Account of Mr. Prakash
for the year ended 31st December, 2022
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` ` ` `
To Opening stock 2,34,000 By Sales 19,48,000
To Purchases 16,08,500 Less: Returns 43,000 19,05,000
Add: Omitted By Closing stock
2000 3,93,000
invoice
16,10,500
Less: Returns 29,000
15,81,500
Less: Drawings 3000 15,78,500
To Carriage 98,000
To Gross profit c/d 3,87,500
22,98,000 22,98,000
To Rent and taxes 23,500 By Gross profit b/d 3,87,500
To Salaries and By Discount
46,500 22,200
wages
To Bank interest 5,500
Add: Due 8,500 14,000
To Printing and 72,000
stationary
Less: Prepaid (1/4) 18,000 54,000
To Discount allowed 9,000
To General expenses 57,250
To Insurance 6,500
To Postage & telegram expenses 11,650
To Travelling expenses 4350
To Provision for bad debts[W.N.(ii)]
5,750

To Provision for discount ondebtors

2185
[W.N.(iii)]
To Depreciation on
2,500
furniture & fittings
To Net profit 1,72,515
4,09,700

4,09,700

Balance Sheet of Prakash

as at 31st December, 2022
Liabilities ` ` Assets ` `
Capital 3,83,450 Furniture & fittings 25,000
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Add: Net profit 1,72,515 Less: Depreciation 2,500 22,500

5,55,965 Sundry debtors (W.N.1) 115,000
Less: Drawings: Less: Provision for bad
Cash & doubtful debts (W.N.2) 5,750
1,50,000
Goods 3000 1,53,000 4,02,965 1,09,250
Bank loan 1,00,000 Less: Provision for
Bank interest due 8,500 Discount (W.N.2) 2,185 1,07,065
Sundry creditors (W.N.3) 71,000 Stock 3,93,000
Prepaid expenses:
Printing & stationary 18,000
Bank balance 40,000
_______ Cash balance 1900
5,82,465 5,82,465

Working Notes:

(1) Sundry debtors

Balance as per trial balance 1,20,000
Less: Due to Ravi 5,000
1,15,000
(2) Provision for bad & doubtful debts:
@ 5% on ` 1,15,000 5,750
Provision for discount:
2% on ` 1,09,250 (1,15,000 -5,750) 2,185
(3) Sundry creditors
Balance as per trial balance 74,000
Less: Set off in respect of Ravi 5,000
69,000
Add: Purchase invoice omitted 2,000
71,000
Que 19: RTP Nov 21
The following are the balances as at 31st March, 2021 extracted from the books of Mr. Satender.
` `
Plant and Machinery 78,200 Bad debts recovered 1800
Furniture and Fittings 41,000 Salaries 90,200
Bank Overdraft 3,20,000 Salaries payable 9,800
Capital Account 2,60,000 Prepaid rent 1,200
Drawings 32,000 Rent 17,200
Purchases 6,40,000 Carriage inward 4,500
Opening Stock 1,29,000 Carriage outward 5,400
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Wages 48,660 Sales 8,61,200

Provision for doubtful debts 12,800 Advertisement Expenses 13,400
Provision for Discount on debtors 5,500 Printing and Stationery 5,000
Sundry Debtors 4,80,000 Cash in hand 5,800
Sundry Creditors 1,90,000 Cash at bank 12,500
Bad debts 4,400 Office Expenses 40,640
Interest paid on loan 12,000
Additional Information:
1. Purchases include sales return of ` 10,300 and sales include purchases return of
` 6,900.
2. Goods withdrawn by Mr. Satender for own consumption ` 14,000 included inpurchases.
3. Wages paid in the month of April for installation of plant and machinery amountingto ` 1,800
were included in wages account.
4. Free samples distributed out of purchases for publicity costing ` 3,300.
5. Create a provision for doubtful debts @ 5% and provision for discount on debtors@ 2.5%.
6. Depreciation is to be provided on plant and machinery @ 20% p.a. and on furniture and fittings @
10% p.a.
7. Bank overdraft is secured against hypothecation of stock. Bank overdraft outstanding as on
31.3.2020 has been considered as 80% of real value of stock (deducting 20% as margin) and after
adjusting the marginal value 80% of the same has been allowed to draw as an overdraft.

Prepare a Trading and Profit and Loss Account for the year ended 31st March, 2021, anda Balance Sheet as on that
date. Also show the rectification entries.
Ans:
Rectification Entries
Particulars Dr. Cr.
Amount Amount
` `
(i) Returns inward account Dr. 10,300
Sales account Dr. 6,900
To Purchases account 10,300
To Returns outward account 6,900
(Being sales return and purchases return
wrongly included in purchases and sales
respectively, now rectified)
(ii) Drawings account Dr. 14,000
To Purchases account 14,000
(Being goods withdrawn for own consumption
included in purchases, now rectified)
(iii) Plant and machinery account Dr. 1,800
To Wages account 1,800
(Being wages paid for installation of plant and
machinery wrongly debited to wages, now
rectified)
(iv) Advertisement expenses account Dr. 3,300
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To Purchases account 3,300

(Being free samples distributed for publicity out
of purchases, now rectified)

Trading and Profit and Loss Account of Mr. Satendra

for the year ended 31st March, 2021
Amount Amount
` ` ` `
To Opening stock 1,29,000 By Sales 8,54,300
To Purchases 6,12,400 Less: Sales return 10,300 8,44,000
Less: Purchases 6,900 6,05,500 By Closing stock 5,00,000
return
Carriage inward 4,500
Wages 46,860
Gross profit c/d 5,58,140
13,44,000 13,44,000
To Salaries 90,200 By Gross profit b/d 5,58,140
To Rent 17,200 By Bad debts recovered 1800
To Advertisement expenses 16,700
To Printing and 5,000
stationery
To Bad debts 4,400
To Carriage outward 5,400
To Provision for doubtful debts
5% of ` 4,80,000 24,000
Less: Existing provision 12,800 11,200
To Provision for discount on
debtors
2.5% of ` 4,56,000 11,400
Less: Existing provision 5,500 5,900
To Depreciation:
Plant and machinery
16,000
Furniture and fittings 4,100 20,100
To Office expenses 40,640
To Interest on loan 12,000
To Net profit
(Transferred to capital
account) 3,31,200 _______
5,59,940 5,59,940

Balance Sheet of Mr. Satendra

as on 31st March, 2021
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Amount Amount
Liabilities ` ` Assets ` `
Capital account 2,60,000 Plant and machinery 80,000
Add: Net profit 3,31,200 Less: Depreciation 16,000 64,000
5,91,200 Furniture and fittings 41,000
Less: Drawings 46,000 5,45,200 Less: Depreciation 4,100 36,900
Bank overdraft 3,20,000 Closing stock 5,00,000
Sundry creditors 1,90,000 Sundry debtors 4,80,000

Payablesalaries 9,800 Less: Provision for

doubtful debts 35,400
4,44,600
Prepaid rent 1,200
Cash in hand 5800
_______ Cash at bank 12,500
10,65,000 10,65,000
Que 20: RTP Nov 22
The following is the Trial Balance of Mr. T on 31st March,2022
Dr. Cr.
` `
Capital - 18,00,000
Drawings 2,10,000 -
Fixed Assets (Opening) 4,20,000 -
Fixed Assets (Additions 01.10.2022) 6,00,000 -
Opening Stock 1,80,000 -
Purchases 48,00,000 -
Purchases Returns - 2,07,000
Sales - 66,00,000
Sales Returns 2,97,000 -
Debtors 7,50,000 -
Creditors - 6,60,000
Expenses 1,50,000 -
Fixed Deposit with Bank 6,00,000 -
Interest on Fixed Deposit - 60,000
Cash - 24,000
Suspense A/c - 6,000
Depreciation 42,000 -
Rent (17 months upto 31.8.2022) 51,000 -
Investments 12% (01.8.2021) 7,50,000 -
Bank Balance 5,07,000 -
93,57,000 93,57,000
1- Stock on 31st March,2022 was valued at ` 3,00,000.
2- Depreciation is to be provided at 10% per annum on fixed assets purchased during the year.
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3- A scrutiny of the books of account revealed the following matters:

o ` 60,000 drawn from bank was debited to Drawings account, but out of this amount withdrawn ` 36,000
was used in the business for day-to-day expenses
o Purchase of goods worth ` 48,000 was not recorded in the books of account upto 31.03.2022, but the
goods were included in stock
o Purchase returns of ` 3,000 was recorded in Sales Return Journal and the amount was correctly posted
to the Party’s A/c on the correct side.
o Expenses include ` 18,000 in respect of the period after 31st March,2022.

Give the necessary Journal Entries in respect of (i) to (iv) and prepare the Final Accounts for the year ended 31st
March,2022
Ans:
Journal Entries
Particulars Dr. (`) Cr. (`)
(i) Expenses A/c Dr. 36,000
To Drawings 36,000
(Entry for the amount wrongly debited to the latter
A/c, now corrected)
(ii) Purchase A/c Dr. 48,000
To Creditors 48,000
(Entry for purchases not recorded)
(iii) Suspense A/c Dr. 6,000
To Purchase Returns A/c 3,000
To Sales Returns A/c 3,000
(Rectification entry for amount wrongly entered in
Sales Journal)
(iv) Prepaid Expenses A/c Dr. 18,000
To Expenses A/c 18,000
(Prepaid expenses adjusted)

Trading, Profit and Loss Account of Mr. T

for the year ending 31st March, 2022
Dr. Cr.
` `
To Opening Stock 1,80,000 By Sales 66,00,000
To Purchases 48,00,000 Less: Sales Return
Add: Amount not 48,000 (2,97,000– 3,000) 2,94,000 63,06,000
recorded
48,48,000 By Closing Stock 3,00,000
Less: Purchases Returns

(2,07,000+3,000) 210,000 46,38,000

To Gross Profit c/f 17,88,000
66,06,000 66,06,000
To Expenses 1,68,000 By Gross Profit 17,88,000
(1,50,000 – 18,000 +
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To Rent (51,000 – 36,000 By Interest on F. D. 60,000

15,000)
To Depreciation Add: 42,000 By Interest on Investments 60,000
Further Depreciation 30,000 72,000

To Net Profit 16,32,000

19,08,000 19,08,000

Balance Sheet
as on 31st March, 2022
Liabilities ` Assets `
Capital 18,00,000 Fixed Assets 4,20,000
Add: Net Profit 16,32,000 Additions 6,00,000
Less: Drawings 10,20,000
(2,10,000–36,000) 1,74,000 32,58,000 Less: Depreciation 30,000 9,90,000
Creditors 6,60,000 Stock 3,00,000
Add: Purchases 48,000 Debtors 7,50,000
not recorded 7,08,000 Investments 7,50,000
Overdraft 24,000 Interest accrued 60,000
Bank fixed deposit 6,00,000
Prepaid Expenses 33,000
(18,000+15,000)
Bank 5,07,000
39,90,000 39,90,000

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