Question 2

Final accounts of a sole trader with adjustments

10 marks

Time to write
About 20 minutes

From an older CBCS paper

Question

Question 2 · 10 marks

From the Trial Balance below, after making the necessary adjustments, prepare, for the year ending March 31, 2017, the Trading and Profit and Loss Account, and the Balance Sheet on that date: 10

ParticularsDebit (₹)Credit (₹)
Stock (as on April 1, 2016)6,00,000
Purchases and Returns36,00,00060,000
Sales and Sales Returns72,00050,40,000
Cash in hand4,20,000..........
Capital.........12,00,000
Rates and Taxes54,000..........
Drawings1,92,000..........
Salaries3,06,000..........
Insurance1,26,000..........
Printing and Stationary18,000..........
Advertisement96,000..........
Car6,00,000..........
Furniture3,60,000..........
Discounts48,00072,000
Carriage Inward42,000..........
Wages78,000..........
Sundry Debtors/ Creditors7,20,0009,60,000
Total73,32,00073,32,000

Further Information:

  1. The Closing Stock on 31st March 2017 was ₹ 1,74,000.

  2. Outstanding salaries amounted to ₹ 18,000.

  3. Bad Debts of ₹ 48,000 are to be written off.

  4. Prepaid insurance is ₹ 30,000.

  5. Create a Provision for Bad debts at 5% of Sundry Debtors.

  6. Depreciate Furniture at 10% p.a., and Motor Car at 20% p.a.

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

"Purchases and Returns", "Sales and Sales Returns" and "Discounts" each carry a debit and a credit figure: purchases and sales returns on the debit side, purchase returns and sales on the credit side, discount allowed debit and discount received credit. "Car" in the trial balance is the "Motor Car" of adjustment (vi). "Printing and Stationary" is kept as printed. Bad debts are written off before the 5% provision is computed.

Write it in this order

  1. Read the data; tick every adjustment as you plan it 1 min
  2. 1 Trading Account 3 marks 5 min
  3. 2 Profit and Loss Account with the adjustments 4 marks 7 min
  4. 3 Balance Sheet 3 marks 5 min
  5. Check: every adjustment used, both sides agree, dates in 2 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.

Readings (paper note). The paired trial-balance figures are: purchases ₹36,00,000 and purchase returns ₹60,000; sales returns ₹72,000 and sales ₹50,40,000; discount allowed ₹48,000 and discount received ₹72,000. "Car" is the motor car of adjustment (vi). Bad debts are written off before the 5% provision is computed. The trial balance totals ₹73,32,000.

Trading Account for the year ended 31 March 2017

The trading account carries opening stock, purchases, carriage inwards and wages on the debit side, and sales and closing stock on the credit side.

Dr₹₹Cr₹₹
To Opening Stock6,00,000By Sales50,40,000
To Purchases36,00,000Less: Sales returns72,00049,68,000
Less: Purchase returns60,00035,40,000By Closing Stock1,74,000
To Carriage inward42,000
To Wages78,000
To Gross Profit c/d8,82,000
51,42,00051,42,000

Profit and Loss Account for the year ended 31 March 2017

Expenses of the year are charged even if unpaid, and the outstanding amount is shown as a liability. Only the part of a payment that relates to the year is charged; the prepaid part is shown as an asset.

Dr₹Cr₹
To Rates and Taxes54,000By Gross Profit b/d8,82,000
To Salaries (3,06,000 + outstanding 18,000)3,24,000By Discount received72,000
To Insurance (1,26,000 − prepaid 30,000)96,000
To Printing and Stationery18,000
To Advertisement96,000
To Discount allowed48,000
To Bad debts written off48,000
To Provision for doubtful debts (5% of 6,72,000)33,600
To Depreciation on Furniture (10%)36,000
To Depreciation on Motor Car (20%)1,20,000
To Net Profit (transferred to capital)80,400
9,54,0009,54,000
Dr₹
To Rates and Taxes54,000
To Salaries (3,06,000 + outstanding 18,000)3,24,000
To Insurance (1,26,000 − prepaid 30,000)96,000
To Printing and Stationery18,000
To Advertisement96,000
To Discount allowed48,000
To Bad debts written off48,000
To Provision for doubtful debts (5% of 6,72,000)33,600
To Depreciation on Furniture (10%)36,000
To Depreciation on Motor Car (20%)1,20,000
To Net Profit (transferred to capital)80,400
9,54,000
Cr₹
By Gross Profit b/d8,82,000
By Discount received72,000
9,54,000

Balance Sheet as at 31 March 2017

Liabilities₹₹Assets₹₹
Capital12,00,000Motor Car6,00,000
Add: Net profit80,400Less: Depreciation 20%1,20,0004,80,000
12,80,400Furniture3,60,000
Less: Drawings1,92,00010,88,400Less: Depreciation 10%36,0003,24,000
Sundry Creditors9,60,000Sundry Debtors7,20,000
Outstanding salaries18,000Less: Bad debts written off48,000
6,72,000
Less: Provision for doubtful debts (5%)33,6006,38,400
Closing Stock1,74,000
Prepaid Insurance30,000
Cash in hand4,20,000
20,66,40020,66,400

Where the 10 marks sit

#ComponentMarks
1Trading Account3
2Profit and Loss Account with the adjustments4
3Balance Sheet3
Total10
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