Question 3

Final accounts with goods on approval, free samples and provisions

10 marks

Time to write
About 20 minutes

From an older CBCS paper

Question

Question 3 · 10 marks

From a trader's Trial Balance below, on March 31st, 2005, prepare, for the year ending 31st March, 2005, the Trading and Profit and Loss Account, and the Balance Sheet as at that date, after giving effect to the adjustments listed below:

Debit BalancesAmount Rs.Credit BalancesAmount Rs.
Drawings7,200Bank Overdraft30,000
Wages18,600Interest on Investment6,960
Stock15,360Bills Payable5,520
Loan to Z4,800Interest on loan to Z384
Rent6,000Capital1,20,000
General Expenses1,776Reserve for bad and doubtful debts300
Investments72,000Sales2,76,000
Purchases1,92,000Sundry Creditors15,108
Freight Charges2,520
Goodwill48,000
Bills Receivable7,440
Rate and Taxes2,160
Sales Return2,520
Insurance1,080
Cash and Bank Balance4,440
Postage and Telegram4,560
Land and Buildings30,000
Plant and Machinery12,000
Sundry Debtors19,800
Packing Charges480
Bad Debts1,536
Total4,54,2724,54,272

Adjustments:

  1. Closing Stock on 31.3.2005: Rs 19,200.

  2. Goods worth Rs 840 were sent out on 25.3.2005 as "Sale on Approval basis" for Rs 960; approval had not been received before the end of the month.

  3. Goodwill: 20% of it is to be written off.

  4. The further bad debts were estimated at Rs 420. Raise the reserve for bad debts to Rs 1,800.

  5. Depreciate Land and Building at 3%, and Plant and Machinery at 10%.

  6. Goods worth Rs 960 were distributed as free samples. 10

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 (Rs 4,54,272 here).
  2. Land and buildings are depreciated at 3% on the combined figure, as printed.
  3. The goods on approval are taken as already recorded as a sale and are reversed at sale price, with the goods added to stock at cost.

Write it in this order

  1. Read the data; tick every adjustment as you plan it 1 min
  2. 1 Adjustments 3 marks 5 min
  3. 2 Trading Account 2 marks 4 min
  4. 3 Profit and Loss Account 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.

Adjustments (paper note; the trial balance totals Rs 4,54,272)

ItemTreatmentRs
(b) Goods on approvalSale reversed at sale price (sales and debtors reduced by 960); goods added to stock at cost960 / 840
(a) Closing stock19,200 + 84020,040
(f) Free samplesPurchases reduced; charged to P&L as advertisement960
(c) Goodwill written off20% × 48,0009,600
(d) Bad debts and reserveFurther bad debts 420 (total 1,956); reserve raised from 300 to 1,800 on debtors of 19,800 − 960 − 420 = 18,4201,500
(e) DepreciationLand and Buildings 3% × 30,000 (on the combined figure); Plant 10% × 12,000900 / 1,200

Goods sent on approval are not sales until approved and are recorded separately; bad debts are losses charged against profit, and the reserve for doubtful debts is raised by a charge to Profit and Loss.

Trading Account for the year ended 31 March 2005

DrRsRsCrRsRs
To Opening Stock15,360By Sales2,76,000
To Purchases1,92,000Less: Sales returns2,520
Less: Free samples9601,91,040Less: Goods on approval9602,72,520
To Wages18,600By Closing Stock (19,200 + 840)20,040
To Freight Charges2,520
To Gross Profit c/d65,040
2,92,5602,92,560

Profit and Loss Account for the year ended 31 March 2005

DrRsCrRs
To Rent6,000By Gross Profit b/d65,040
To General Expenses1,776By Interest on Investment6,960
To Rates and Taxes2,160By Interest on loan to Z384
To Insurance1,080
To Postage and Telegram4,560
To Packing Charges480
To Advertisement (free samples)960
To Goodwill written off9,600
To Bad Debts (1,536 + 420)1,956
To Reserve for bad debts (1,800 − 300)1,500
To Depreciation on Land and Buildings900
To Depreciation on Plant and Machinery1,200
To Net Profit (transferred to capital)40,212
72,38472,384
DrRs
To Rent6,000
To General Expenses1,776
To Rates and Taxes2,160
To Insurance1,080
To Postage and Telegram4,560
To Packing Charges480
To Advertisement (free samples)960
To Goodwill written off9,600
To Bad Debts (1,536 + 420)1,956
To Reserve for bad debts (1,800 − 300)1,500
To Depreciation on Land and Buildings900
To Depreciation on Plant and Machinery1,200
To Net Profit (transferred to capital)40,212
72,384
CrRs
By Gross Profit b/d65,040
By Interest on Investment6,960
By Interest on loan to Z384
72,384

Balance Sheet as at 31 March 2005

LiabilitiesRsRsAssetsRsRs
Capital1,20,000Goodwill48,000
Add: Net profit40,212Less: Written off9,60038,400
1,60,212Land and Buildings30,000
Less: Drawings7,2001,53,012Less: Depreciation90029,100
Bank Overdraft30,000Plant and Machinery12,000
Bills Payable5,520Less: Depreciation1,20010,800
Sundry Creditors15,108Investments72,000
Loan to Z4,800
Sundry Debtors (19,800 − 960 − 420)18,420
Less: Reserve for bad debts1,80016,620
Bills Receivable7,440
Closing Stock20,040
Cash and Bank Balance4,440
2,03,6402,03,640

Where the 10 marks sit

#ComponentMarks
1Adjustments3
2Trading Account2
3Profit and Loss Account2.5
4Balance Sheet2.5
Total10
Keyboard: ← → previous and next question, / search

Report a problemopens an email to admin@getkunji.com with the question ID7761-Q3already filled in.