Question 2

Final accounts with goods on approval, free samples and provisions

18.33 marks

Time to write
About 37 minutes

From an older CBCS paper

Question

Question 2 · 18.33 marks

Q.2. From a trader's Trial Balance below, on March 31st, 2021, prepare, for the year ending 31st March, 2021, the Trading and Profit and Loss Account and the Balance Sheet as at that date, after giving effect to the adjustments listed below:

Debit BalancesRs.Credit BalancesRs.
Drawings25,200Bank Overdraft1,05,000
Wages65,100Interest on Investment24,360
Stock (1-04-2020)53,760Bills Payable19,320
Loan to Z16,800Interest on Loan to Z1,344
Rent21,000Capital4,20,000
General Expenses6,216Provision for Doubtful Debts1,050
Investments2,52,000Sales9,66,000
Purchases6,72,000Sundry Creditors52,878
Freight Charges8,820
Goodwill1,68,000
Bills Receivable26,040
Rate and Taxes7,560
Sales Return8,820
Insurance3,780
Cash and Bank Balance15,540
Postage and Telegram15,960
Land and Buildings1,05,000
Plant and Machinery42,000
Sundry Debtors69,300
Packing Charges1,680
Bad Debts5,376
Total15,89,95215,89,952

Adjustments:

  1. Closing Stock on 31-03-2021: Rs. 67,200.

  2. Goods worth Rs. 2,940 were sent out on 25-03-2021 as "Sales on approval basis" for Rs. 3,360; approval had not been received before the end of the month.

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

  4. Further bad debts had been estimated at Rs. 1,470. Raise the reserve for bad debts to Rs. 6,300.

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

  6. Goods worth Rs. 3,360 were distributed as free samples. [18.33 Marks]

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

37 minfor 18.3 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. 15,89,952 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 (standing reading for the B.Com approval sale).

Write it in this order

  1. Read the data; tick every adjustment as you plan it 2 min
  2. 1 Adjustments 5 marks 9 min
  3. 2 Trading Account 4 marks 7 min
  4. 3 Profit and Loss Account 4.7 marks 8 min
  5. 4 Balance Sheet 4.7 marks 9 min
  6. Check: every adjustment used, both sides agree, dates in 2 min

Try it first. About 37 minutes for 18.33 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. 15,89,952)

ItemTreatmentRs
2. Goods on approvalSale reversed at sale price (sales and debtors reduced by 3,360); goods added to stock at cost3,360 / 2,940
1. Closing stock67,200 + 2,94070,140
6. Free samplesPurchases reduced; charged to P&L as advertisement3,360
3. Goodwill written off20% × 1,68,00033,600
4. Bad debts and reserveFurther bad debts 1,470 (total 6,846); reserve raised from 1,050 to 6,300 on debtors of 69,300 − 3,360 − 1,470 = 64,4705,250
5. DepreciationLand and Buildings 3% × 1,05,000 (on the combined figure); Plant 10% × 42,0003,150 / 4,200

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 2021

DrRsRsCrRsRs
To Opening Stock53,760By Sales9,66,000
To Purchases6,72,000Less: Sales returns8,820
Less: Free samples3,3606,68,640Less: Goods on approval3,3609,53,820
To Wages65,100By Closing Stock (67,200 + 2,940)70,140
To Freight Charges8,820
To Gross Profit c/d2,27,640
10,23,96010,23,960

Profit and Loss Account for the year ended 31 March 2021

DrRsCrRs
To Rent21,000By Gross Profit b/d2,27,640
To General Expenses6,216By Interest on Investment24,360
To Rates and Taxes7,560By Interest on loan to Z1,344
To Insurance3,780
To Postage and Telegram15,960
To Packing Charges1,680
To Advertisement (free samples)3,360
To Goodwill written off33,600
To Bad Debts (5,376 + 1,470)6,846
To Reserve for bad debts (6,300 − 1,050)5,250
To Depreciation on Land and Buildings3,150
To Depreciation on Plant and Machinery4,200
To Net Profit (transferred to capital)1,40,742
2,53,3442,53,344
DrRs
To Rent21,000
To General Expenses6,216
To Rates and Taxes7,560
To Insurance3,780
To Postage and Telegram15,960
To Packing Charges1,680
To Advertisement (free samples)3,360
To Goodwill written off33,600
To Bad Debts (5,376 + 1,470)6,846
To Reserve for bad debts (6,300 − 1,050)5,250
To Depreciation on Land and Buildings3,150
To Depreciation on Plant and Machinery4,200
To Net Profit (transferred to capital)1,40,742
2,53,344
CrRs
By Gross Profit b/d2,27,640
By Interest on Investment24,360
By Interest on loan to Z1,344
2,53,344

Balance Sheet as at 31 March 2021

LiabilitiesRsRsAssetsRsRs
Capital4,20,000Goodwill1,68,000
Add: Net profit1,40,742Less: Written off33,6001,34,400
5,60,742Land and Buildings1,05,000
Less: Drawings25,2005,35,542Less: Depreciation3,1501,01,850
Bank Overdraft1,05,000Plant and Machinery42,000
Bills Payable19,320Less: Depreciation4,20037,800
Sundry Creditors52,878Investments2,52,000
Loan to Z16,800
Sundry Debtors (69,300 − 3,360 − 1,470)64,470
Less: Reserve for bad debts6,30058,170
Bills Receivable26,040
Closing Stock70,140
Cash and Bank Balance15,540
7,12,7407,12,740

Where the 18.33 marks sit

#ComponentMarks
1Adjustments5
2Trading Account4
3Profit and Loss Account4.66
4Balance Sheet4.67
Total18.33
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