Question 2

Final accounts with stock worked back, a fire loss and manager's commission

10 marks

Time to write
About 20 minutes

From an older CBCS paper

Question

Question 2 · 10 marks

From the particulars below, prepare, for the year ended 31st December, 2014, the Trading and Profit & Loss Account, and the Balance Sheet as on that date:

Particulars₹Particulars₹
Building6,00,000Loans (1-1-2014)3,60,000
Machinery2,64,000Capital6,24,000
Furniture1,20,000Creditors4,80,000
Bank1,08,000Purchase Returns1,20,000
Cash12,000Sales38,64,000
Debtors6,00,000Provident Fund Deducted from Salaries12,000
Opening Stock1,44,000
Purchases30,00,000
Sales Return1,44,000
Rent72,000
Establishment1,92,000
Interest (10%)24,000
Electricity12,000
Phone12,000
Commission72,000
Insurance Premium12,000
Bad debts24,000
Bills Receivable48,000
54,60,00054,60,000

Adjustments:

Charge depreciation on Building @ 5%, Machinery @ 15% and Furniture @ 10%. Stock was taken not on 31st December, 2014 but only on 7/1/2015; between 1/1/2015 and 7/1/2015 the transactions were: Sales ₹ 3,00,000, Purchase ₹ 1,80,000. Stock on 7/1/2015 was ₹ 2,16,000, the rate of Gross Profit being 20%. In the year, fire destroyed machinery of the value of ₹ 1,20,000; the insurance claim was settled at ₹ 96,000, which was credited to Machinery A/C. Also provide the Employer's share of P.F., ₹ 12,000, a Provision for Bad debts at 5%, and Commission of the Manager @ 10% on net profit after providing that commission.

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

20 minfor 10 marks

Read from the question

  • prepare, … AccountProper formats (heading, date, both sides): post the plain items, then each adjustment, and balance last.

What the paper leaves open

  1. The trial balance agrees as printed (₹ 54,60,000 here).
  2. Stock at 31st December is worked back from the stock taken on 7/1/2015 at the gross profit rate on sales.
  3. The date the machinery was destroyed is not given; depreciation on it is charged for the full year and this is stated. The claim was credited to the machinery account, so the loss (value less claim) is transferred from it.
  4. Interest at 10% on the loan for the year, the shortfall outstanding.

Write it in this order

  1. Read the data; tick every adjustment as you plan it 1 min
  2. 1 Closing stock worked back, fire loss and other workings 3 marks 5 min
  3. 2 Trading Account 2 marks 4 min
  4. 3 Profit and Loss Account with manager's commission 2½ marks 5 min
  5. 4 Balance Sheet 2½ marks 4 min
  6. Check: every adjustment used, both sides agree, dates in 1 min

Try it first. About 20 minutes for 10 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Workings (paper note)

ItemWorking₹
Stock on 31 December 2014Stock on 7.1.2015 2,16,000 + cost of sales 1-7 Jan (3,00,000 × 80%) 2,40,000 − purchases 1,80,0002,76,000
Loss by fireValue 1,20,000 − claim 96,000 (already credited to Machinery)24,000
Machinery after the loss2,64,000 − 24,0002,40,000
DepreciationBuilding 5% × 6,00,000; Machinery 15% × 2,40,000 (full year); Furniture 10% × 1,20,00030,000; 36,000; 12,000
Interest on loan10% × 3,60,000 = 36,000; paid 24,00012,000 outstanding
Provision for bad debts5% × 6,00,00030,000
Manager's commission10% of net profit after it = 3,96,000 × 10/11036,000

The fire date is not given, so depreciation is charged for the full year on the machinery that remains, and the ₹1,20,000 is taken as the destroyed machine's book value at the fire. (Charging a full year's depreciation on the destroyed machine as well, ₹18,000, would cut the fire loss to ₹6,000; the net profit is the same.)

Trading Account for the year ended 31 December 2014

Opening stock and purchases are debited and sales and closing stock credited.

Dr₹₹Cr₹₹
To Opening Stock1,44,000By Sales38,64,000
To Purchases30,00,000Less: Sales returns1,44,00037,20,000
Less: Purchase returns1,20,00028,80,000By Closing Stock2,76,000
To Gross Profit c/d9,72,000
39,96,00039,96,000

Profit and Loss Account for the year ended 31 December 2014

Expenses of the year are charged even if unpaid.

Dr₹Cr₹
To Rent72,000By Gross Profit b/d9,72,000
To Establishment1,92,000
To Interest on loan (24,000 + 12,000 outstanding)36,000
To Electricity12,000
To Phone12,000
To Commission72,000
To Insurance Premium12,000
To Bad debts24,000
To Provision for bad debts (5%)30,000
To Employer's contribution to P.F.12,000
To Depreciation on Building30,000
To Depreciation on Machinery36,000
To Depreciation on Furniture12,000
To Loss by fire24,000
To Manager's commission36,000
To Net Profit (transferred to capital)3,60,000
9,72,0009,72,000
Dr₹
To Rent72,000
To Establishment1,92,000
To Interest on loan (24,000 + 12,000 outstanding)36,000
To Electricity12,000
To Phone12,000
To Commission72,000
To Insurance Premium12,000
To Bad debts24,000
To Provision for bad debts (5%)30,000
To Employer's contribution to P.F.12,000
To Depreciation on Building30,000
To Depreciation on Machinery36,000
To Depreciation on Furniture12,000
To Loss by fire24,000
To Manager's commission36,000
To Net Profit (transferred to capital)3,60,000
9,72,000
Cr₹
By Gross Profit b/d9,72,000
9,72,000

Balance Sheet as at 31 December 2014

Liabilities₹₹Assets₹₹
Capital6,24,000Building6,00,000
Add: Net profit3,60,0009,84,000Less: Depreciation30,0005,70,000
Loans3,60,000Machinery (2,64,000 − 24,000)2,40,000
Interest outstanding12,000Less: Depreciation36,0002,04,000
Creditors4,80,000Furniture1,20,000
Provident Fund payable (12,000 + 12,000)24,000Less: Depreciation12,0001,08,000
Manager's commission outstanding36,000Closing Stock2,76,000
Debtors6,00,000
Less: Provision for bad debts30,0005,70,000
Bills Receivable48,000
Bank1,08,000
Cash12,000
18,96,00018,96,000

Where the 10 marks sit

#ComponentMarks
1Closing stock worked back, fire loss and other workings3
2Trading Account2
3Profit and Loss Account with manager's commission2.5
4Balance Sheet2.5
Total10
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