Question 1 (b)

Final accounts with goods on approval, fire loss and other adjustments

10 marks

Time to write: About 20 minutes

From an older CBCS paper

Question

Question 1 (b) · 10 marks

From Sunita's Trial Balance below, prepare: 10

the Trading and Profit and Loss Account for the year that ended on 31st March, 2017 and
the Balance Sheet as at that date.

Debit Balances	₹	Credit Balances	₹
Stock on 1-4-2016	84,000	Capital	3,60,000
Plant and Machinery	4,20,000	Wages Outstanding	4,800
Rent	36,000	Sales	6,00,000
Depreciation on Plant and Machinery	18,000	Creditors	54,000
Wages	24,000	Bills Payable	19,200
Salary for 11 months	13,200	Discount	14,400
Cash	32,400	Commission	9,600
Purchases	3,24,000
Debtors	96,000
Discount	2,400
Carriage Inwards	4,800
Bad debts	7,200
	10,62,000		10,62,000

Adjustments:

Stock on 31st March, 2017 was ₹ 1,15,200.
Fire destroyed stock of ₹ 7,200, and the Insurance Company accepted a claim for ₹ 4,320.
₹ 1,920 paid as office rent was debited to the Landlord account (included in Debtors).
Write off further bad debts of ₹ 4,800.

Sales include sales on return basis; approval for a sale of ₹ 3,000 had not been received by 31-3-2017. On this sale, the rate of gross profit was 25% on cost.

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

(i)–(iv)4 items, each marked on its own: give each its share.
prepare … AccountProper formats (heading, date, both sides): post the plain items, then each adjustment, and balance last.

What the paper leaves open

The trial balance agrees as printed (₹ 10,62,000 here).
"Sales on return basis": the unapproved sale is reversed at sale price and the goods added to stock at cost (sale price ÷ 1.25).
"Salary for 11 months" leaves one month outstanding, which the answer provides.
The rent wrongly debited to the landlord is transferred from debtors to rent.
The fire loss less the claim admitted is charged to profit and loss.

Write it in this order

Read the data; tick every adjustment as you plan it 1 min
1 Adjustments approval, fire, rent, bad debts, salary 3 marks 5 min
2 Trading Account 2 marks 4 min
3 Profit and Loss Account 2½ marks 5 min
4 Balance Sheet 2½ marks 4 min
Check: every adjustment used, both sides agree, dates in 1 min

1234

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)

Item	Treatment	₹
Goods sent on approval, not yet approved	Sales reduced by the sale price; debtors reduced; goods added to stock at cost (3,000 ÷ 1.25)	3,000 / 2,400
Closing stock	1,15,200 + 2,400	1,17,600
Fire	Goods destroyed credited to Trading; loss less claim admitted (7,200 − 4,320) to P&L; claim an asset	2,880
Rent debited to the landlord	Moved from debtors to rent (36,000 + 1,920)	37,920
Further bad debts	7,200 + 4,800	12,000
Salary for 11 months	One month outstanding (13,200 ÷ 11); salary 13,200 + 1,200	14,400

Sales on approval are not sales until approved and must be recorded separately from ordinary sales, and the Trading Account's sales and purchases are those of goods bought for resale. Expenses of the year are charged even if unpaid, the unpaid amount being shown as a liability. The depreciation of ₹18,000 and the outstanding wages of ₹4,800 are already in the trial balance.

Trading Account for the year ended 31 March 2017

Dr	₹	Cr	₹	₹
To Opening Stock	84,000	By Sales	6,00,000
To Purchases	3,24,000	Less: Goods on approval	3,000	5,97,000
To Wages	24,000	By Closing Stock (1,15,200 + 2,400)		1,17,600
To Carriage Inwards	4,800	By Loss by fire (goods destroyed)		7,200
To Gross Profit c/d	2,85,000
	7,21,800			7,21,800

Profit and Loss Account for the year ended 31 March 2017

Dr	₹	Cr	₹
To Rent (36,000 + 1,920)	37,920	By Gross Profit b/d	2,85,000
To Salary (13,200 + 1,200 outstanding)	14,400	By Discount received	14,400
To Depreciation on Plant and Machinery	18,000	By Commission	9,600
To Discount allowed	2,400
To Bad debts (7,200 + 4,800)	12,000
To Loss by fire (7,200 − claim 4,320)	2,880
To Net Profit (transferred to capital)	2,21,400
	3,09,000		3,09,000

Dr	₹
To Rent (36,000 + 1,920)	37,920
To Salary (13,200 + 1,200 outstanding)	14,400
To Depreciation on Plant and Machinery	18,000
To Discount allowed	2,400
To Bad debts (7,200 + 4,800)	12,000
To Loss by fire (7,200 − claim 4,320)	2,880
To Net Profit (transferred to capital)	2,21,400
	3,09,000
Cr	₹
By Gross Profit b/d	2,85,000
By Discount received	14,400
By Commission	9,600
	3,09,000

Balance Sheet as at 31 March 2017

Liabilities	₹	₹	Assets	₹	₹
Capital	3,60,000		Plant and Machinery		4,20,000
Add: Net profit	2,21,400	5,81,400	Closing Stock		1,17,600
Creditors		54,000	Debtors	96,000
Bills Payable		19,200	Less: Goods on approval	3,000
Wages Outstanding		4,800	Less: Rent debited to landlord	1,920
Salary Outstanding		1,200	Less: Further bad debts	4,800	86,280
			Insurance claim receivable		4,320
			Cash		32,400
		6,60,600			6,60,600

Where the 10 marks sit

#	Component	Marks
1	Adjustments (approval, fire, rent, bad debts, salary)	3
2	Trading Account	2
3	Profit and Loss Account	2.5
4	Balance Sheet	2.5
	Total	10

Keyboard: ← → previous and next question, / search

Report a problemopens an email to admin@getkunji.com with the question ID8408-Q1balready filled in.