Question 3

Final accounts of a sole trader with rectifications and adjustments

18.75 marks

Time to write: About 38 minutes

From an older CBCS paper

Question

Question 3 · 18.75 marks

From the balances below, taken from the books of Mr. BROWN, prepare, for the year ended 31.03.2020, a trading and profit and loss account, and a balance sheet on that date.

	₹		₹
Purchases	1,06,920	Mr. BROWN's Capital A/C	90,000
Computer at cost	27,570	Cash at bank	6,000
Cash in hand	4,254	Sundry Creditors	19,500
Bills payable	15,330	Furniture and fittings at cost	2,310
Rent	18,810	Bills receivable	10,080
Discount received	33,000	Sundry Debtors	51,234
Trade charges	1,380	Return outward	17,148
Sales	91,080	Rent due	480
Drawings	7,800	Wages	2,700
Discount allowed	810	Return inward	1,500
Salaries	25,170

Further information:

The closing stock on 31.03.20 was valued at its cost, ₹38,400 (market value ₹39,300).
₹9,000 paid to Mr. Black against a bill payable were wrongly debited to Mr. Brown's account and were included in the list of debtors.
Travelling expenses of ₹7,500 paid to the sales representative for the month of March 2020 were debited to the representative's personal account and were included in the list of Sundry debtors.
Depreciation is to be provided on furniture and fittings at 10%p.a.
Provide for doubtful debts at 5% of sundry debtors.
The proprietor used goods costing ₹2,250.
Salaries include 18,000 paid to the sales representative, who is also entitled to a commission of 5% on net sales.

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

38 minfor 18.8 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

The trial balance agrees as printed (both sides ₹2,66,538 here).
Item (b) says the payment was debited to the proprietor's own name and included among debtors; it is read as a payment against a bill payable wrongly posted to a debtor's account, corrected by debiting bills payable and crediting debtors.
"Rent due" is an outstanding liability already in the balances.
Commission at 5% on net sales (sales less returns inward). No mark is printed for the question; the paper asks for any four of six, equal marks.

Write it in this order

Read the data; tick every adjustment as you plan it 2 min
1 Adjustments and rectifications 4.8 marks 9 min
2 Trading Account 4 marks 7 min
3 Profit and Loss Account 5 marks 9 min
4 Balance Sheet 5 marks 9 min
Check: every adjustment used, both sides agree, dates in 2 min

1234

Try it first. About 38 minutes for 18.75 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 balances total ₹2,66,538 on each side)

Item	Treatment	₹
(a) Closing stock	At cost, being lower than market value (39,300)	38,400
(b) Payment against a bill payable posted to a debtor	Bills Payable Dr, Debtors Cr	9,000
(c) Representative's travelling expenses in debtors	Travelling expenses Dr, Debtors Cr	7,500
(d) Depreciation on furniture	10% × 2,310	231
(e) Provision for doubtful debts	5% × (51,234 − 9,000 − 7,500 = 34,734)	1,736.70
(f) Goods used by the proprietor	Drawings Dr, Purchases Cr	2,250
(g) Representative's commission	5% × net sales (91,080 − 1,500)	4,479

Closing stock is valued at the lower of cost and market value (prudence). Expenses of the year are charged even if unpaid, the unpaid amount being a liability. "Rent due" (₹480) is already among the balances. No opening stock is given, and no depreciation is asked for on the computer.

Trading Account for the year ended 31 March 2020

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

Dr	₹	₹	Cr	₹	₹
To Purchases	1,06,920		By Sales	91,080
Less: Returns outward	17,148		Less: Returns inward	1,500	89,580
Less: Goods used by proprietor	2,250	87,522	By Closing Stock		38,400
To Wages		2,700
To Gross Profit c/d		37,758
		1,27,980			1,27,980

Profit and Loss Account for the year ended 31 March 2020

Dr	₹	Cr	₹
To Rent	18,810	By Gross Profit b/d	37,758
To Trade charges	1,380	By Discount received	33,000
To Discount allowed	810
To Salaries	25,170
To Travelling expenses (representative)	7,500
To Commission to representative (5% of 89,580)	4,479
To Depreciation on furniture	231
To Provision for doubtful debts	1,736.70
To Net Profit (transferred to capital)	10,641.30
	70,758		70,758

Dr	₹
To Rent	18,810
To Trade charges	1,380
To Discount allowed	810
To Salaries	25,170
To Travelling expenses (representative)	7,500
To Commission to representative (5% of 89,580)	4,479
To Depreciation on furniture	231
To Provision for doubtful debts	1,736.70
To Net Profit (transferred to capital)	10,641.30
	70,758
Cr	₹
By Gross Profit b/d	37,758
By Discount received	33,000
	70,758

Balance Sheet as at 31 March 2020

Liabilities	₹	₹	Assets	₹	₹
Capital	90,000		Computer at cost		27,570
Add: Net profit	10,641.30		Furniture and fittings	2,310
	1,00,641.30		Less: Depreciation	231	2,079
Less: Drawings (7,800 + 2,250)	10,050	90,591.30	Closing Stock		38,400
Sundry Creditors		19,500	Sundry Debtors (51,234 − 9,000 − 7,500)	34,734
Bills payable (15,330 − 9,000)		6,330	Less: Provision for doubtful debts	1,736.70	32,997.30
Rent due		480	Bills receivable		10,080
Commission outstanding		4,479	Cash at bank		6,000
			Cash in hand		4,254
		1,21,380.30			1,21,380.30

Where the 18.75 marks sit

#	Component	Marks
1	Adjustments and rectifications	4.75
2	Trading Account	4
3	Profit and Loss Account	5
4	Balance Sheet	5
	Total	18.75

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