Asok Nadhani-Accountancy-Final Accounts- Practical Problems 2

Final Accounts

Practical Problems

By Asok Nadhani

Illustration: 4

The following are the balances as at 31^st March, 2010 extracted from the books of M

Particulars	Rs.	Particulars	Rs.
Plant & Machinery	40,500	Bad Debt	2,200
Furniture and Fittings	15,250	Bad debt recovered	1,250
Bank Overdraft	1,60,000	Salaries	32,650
Capital Account	1,15,000	Payable Salaries	5,350
Drawings	15,000	Prepaid Rent	500
Purchases	2,30,500	Rent	6,500
Opening Stock	1,32,250	Carriage inward	2,350
Wages	22,325	Carriage outward	3,250
Provisions for Doubtful Debts	5,700	Sales	2,90,600
Provisions for discount On Debtors	1,375	Advertisement Expenses	6,750
Sundry Debtors	1,52,500	Printing & Stationery	2,200
Sundry Creditors	77,500	Cash in Hand	2,300
		Cash at Bank	7,250

Additional Information

1.     Difference in the trial balance, if any, can be taken as miscellaneous income.

2.     Bank overdraft is secured against hypothecation of stock. The bank overdraft out standing as on 31.3.2010 accounted for 80% of drawing power. Such drawing power is ascertained by deducting 20% as margin from the value of stock as on that date.

3.     Purchases include sales return of Rs.5,500 and sales include purchases returns of Rs.4,750.

4.     Goods withdrawn by M for own consumption Rs.7,500 were included in purchases.

5.     Wages paid for installation of plant & machinery amounting to Rs.750 was included in wages account.

6.     Depreciation is to be provided on plant & machinery @ 15% p.a. and furniture & 10% per annum.

7.     Create a provision for doubtful debts @ 5% and provision for discount on debtors @ 2 ¹/₂%.

8.     A debit balance of Rs.2,500 in the account of Ram, a creditor is included in the list of sundry debtors.

9.     Free samples distributed for publicity costing Rs.1,250.

Prepare a Trading and Profit and Loss Account for the year ended 31^st March, 2010 and a Balance Sheet as on that date.

Solution

In the books of M

Trading and Profit and Loss Account

For the year ended 31^st March, 2010

Dr.					Cr.
Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock		1,32,250	By Sales	2,90,600
To Purchases	2,30,500		Less: Purchase return wrongly                include	4,750
Less: Goods withdrawn by M	7,500			2,85,850
	2,23,000		Less: Sales Return	5,500	2,80,350
Less: Sales return wrongly                include	5,500		By Closing Stock       (Rs.1,60,000 x 100/90 x 100/90)		2,50,000
	2,17,500
Less: Purchase Return	4,750
	2,12,750
Less: Free Sample distributed	1,250	2,11,500
To Carriage inward		2,350
To Wages	22,375
Less: Installation of Plant &                Mach.	750	21,575
To Gross Profit c/d		1,62,675
(Transferred to P & L A/c)
		5,30,350			5,30,350
To Salaries		32,650	By Gross Profit b/d		1,62,675
To Rent		6,500	By Bad debt recovered		1,250
To Advertisement Expenses	6,750		By Misc. Income (W.N. – 2)		17,500
Add: Free sample distributed	1,250	8,000
To Printing & Stationery		2,200
To Bad Debts		2,200
To Carriage Outward		3,250
To Provision for doubtful debts
New Provision -	7,500
Old Provision -	5,700	1,800
To Prov. for discount on debtors
New Provision for discount -	3,563
Old Provision for discount -	1,375	2,188
To Depreciation on:-
Plant & Machinery @ 15% p.a.	6,187
Furniture & Fitting @ 10% p.a.	1,525	7,712
To Net Profit		1,14,925
(Transferred to Capital A/c)
		1,81,425			1,81,425

Balance Sheet

As on 31.3.2010

Liabilities			Amount	Assets		Amount
			Rs.			Rs.
Capital Account		1,15,000		Plant & Machinery	40,500
Add: Net Profit		1,14,925		Add: Installation charges	750
		2,29,925			41,250
Less : Drawings				Less: Depreciation @15% p.a.	6,187	35,063
Opening Balance	15,000			Furniture & Fittings	15,250
Goods withdrawn by M	7,500	22,500	2,07,425	Less : Depreciation	1,525	13,725
Bank Overdraft			1,60,000	Closing Stock		2,50,000
Sundry creditors			77,500	(Rs.1,60,000 x 100/90 x 100/90)
Payable Salaries			5,350	Sundry Debtors	1,52,500
				Less: Credit balance included	2,500
					1,50,000
				Less: Prov. for dubt. debts @ 5%	7,500
					1,42,500
				Less: Prov. for Discount @ 2.5%	3,563	1,38,937
				Advance to Suppliers		2,500
				Prepaid Rent		500
				Cash  at Bank		7,250
				Cash in Hand		2,300
			4,50,275			4,50,275

Working Note:-

1.  Rectification Entries:

	Rectification Entry		Dr.	Dr.
			Rs.	Rs.
(i)	Return inward A/c	Dr.	5,500
	Sales A/c	Dr.	4,750
	To Purchases A/c			5,500
	To Returns outward A/c			4,750
	(Sales Returns and Purchase Return wrongly includes in Purchases and Sales A/c respectively, now rectified)
(ii)	Drawing A/c	Dr.	7,500
	To Purchases A/c			7,500
	(Goods withdrawn for own consumption included in Purchases A/c, now rectified)
(iii)	Plant & Machinery A/c	Dr.	750
	To Wages A/c			750
	(Wages paid for installation of Plant & Machinery wrongly debited to Wages A/c now rectified)
(iv)	Advance to Suppliers A/c	Dr.	2,500
	To Sundry Debtors A/c			2,500
	(Advance to Suppliers wrongly included in the list of Debtors, now  rectified)
(v)	Advertisement expenses A/c	Dr.	1,250
	To Purchases A/c			1,250
	(Free samples distributed for publicity out of purchases now rectified)

2.

Trial Balance of M (After rectification)

As on 31^st March, 2010

Particulars	Dr.	Cr.
Plant & Machinery	41,250
Furniture & Fittings	15,250
Bank Overdraft		1,60,000
Capital account		1,15,000
Drawings	22,500
Purchases	2,16,250
Returns outward		4,750
Opening Stock	1,32,250
Wages	21,575
Provision for doubtful debts		5,700
Provision for discount on debtors		1,375
Sundry Debtors	1,50,000
Sundry Creditors		77,500
Advance to suppliers	2,500
Bad debts	2,200
Bad debt recovered		1,250
Salaries	32,650
Outstanding salaries or Payable Salaries		5,350
Prepaid rent	500
Rent	6,500
Carriage inward	2,350
Carriage outward	3,250
Sales		2,85,850
Returns inward	5,500
Advertisement expenses	8,000
Printing & Stationery	2,200
Cash in hand	2,300
Cash in Bank	7,250
Miscellaneous income (Balancing Figures)		17,500
	6,74,275	6,74,275

Illustration: 5

The following is the Trial Balance of Mr. A on 31^st December, 2010.

Particulars	Dr.	Cr.
	Rs.	Rs.
Purchases	15,000
Sundry Debtors	20,000
Interest earned		600
Salaries	3,000
Sales		32,100
Purchases Returns		500
Wages	2,000
Rent	1,500
Sales Returns	1,000
Bad Debts Written off	700
Sundry Creditors		12,000
Capital Account		10,000
Drawings	2,400
Provision for Bad Debts		600
Printing and Stationery	800
Insurance	1,200
Opening Stock	5,000
Office Expenses	1,200
Furniture and Fixture	2,000
Total	55,800	55,800

Prepare a Trading and Profit & Loss Account for the year ended December 31, 2010 and also the Balance Sheet as on that date after making the following adjustments:

(a)    Depreciate Furniture and Fixture by 10% on original cost.

(b)    Make a provision for Doubtful Debts of 5% on Sundry Debtors.

(c)    Salaries for the month of December amounting to Rs.300 were unpaid which must be provided for and the balance in the account included Rs.200 paid in advance.

(d)   Insurance is paid to the extent of Rs.200.

(e)    Provide Rs.800 for office expenses.

(f)     Stock valued at Rs.600 was put by Mr. A to his personal use, the cost of which has not been adjusted in the book of Account.

(g)   Closing stock was valued at Rs.6,000.

Solution:

Trading and Profit and Loss Account of Mr. A

For the year ended December 31^st, 2010

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock		5,000	By Sales	32,100
To Purchases	15,000		Less: Return	1,000	31,100
Less: Return	500		By Closing Stock		6,000
	14,500
Less : Goods used by proprietors for personal use	600	13,900
To Wages		2,000
To Gross Profit c/d		16,200
		37,100			37,100
To Salaries	3,000		By Gross Profit b/d		16,200
Add: Salaries unpaid for the month of December.	300		By Interest earned		600
	3,300		By Provision for Bad Debts		600
Less: Advance salary paid	200	3,100
To Office Expenses	1,200
Add: Additional expenses provided.	800	2,000
To Rent		1,500
To Insurance	1,200
Less: Prepaid	200	1,000
To Printing and Stationery		800
To Bad Debt		700
To Provision for Bad Debts @ 5% on Debtors		1,000
To Depreciation on Furniture and Fixture @ 10%		200
To Net profit		7,100
		17,400			17,400

Balance Sheet of Mr. A

as at December 31^st, 2010

Liabilities		Rs.	Rs.	Assets	Rs.	Rs.
Capital Account		10,000		Furniture and Fixture	2,000
Add : Net Profit		7,100		Less : Depreciation	200	1,800
		17,100		Closing Stock		6,000
Less: Drawings				Sundry Debtors	20,000
Opening Balance	2,400			Less : Provision for Bad debts @ 5%	1,000	19,000
For Proprietor use	600	3,000	14,100	Advances salary paid to Staff		200
Sundry Creditors			12,000	Prepaid Insurance Expenses		200
For Expenses:
For Office		800
For Salaries for December.		300	1,100
			27,200			27,200