Question 3 OR

Final accounts of a sole proprietor from a trial balance with GST

18 marks

Time to write: About 36 minutes
Topic: Final accounts of a sole proprietor
Notes: Crux notes

Question

Question 3 OR · 18 marks

The Trial Balance of Mr. Harish Chandra at 31st March 2024 is given below.

Particulars	Dr (₹)	Cr (₹)
Purchases	9,75,030
Sales		15,14,400
Provision for Doubtful Debts		31,200
Sundry Debtors	3,01,200
Sundry Creditors		1,83,156
Bills Payable		24,300
Opening Stock	1,60,350
Wages	1,38,822
Salaries	33,450
Furniture	43,500
Postage	25,356
Power and fuel	8,100
General expenses	34,986
Bad debts	3,150
Laon to Mohan @10% p.a. (on 1st Dec. 23)	18,000
Cash in hand and at bank	60,000
General expenses outstanding		4,200
Drawings	26,712
Capital		60,000
Outstanding wages		12,000
Input CGST	6,000
Input SGST	6,000
Input IGST	9,600
Output CGST		4,800
Output SGST		4,800
Output IGST		11,400
Total	18,50,256	18,50,256

After taking the following information into consideration, prepare the Trading and Profit and Loss Account for the year that ended 31st March, 2024 and the Balance Sheet as at that date:

The stock on 31st March. 2024 was ₹ 75,300.
Depreciation is to be charged on furniture @ 10%.
Sundry debtors include an item of ₹ 3,000 due from a customer who has become insolvent.
The other debtors are not considered doubtful of recovery.
Goods costing ₹ 9,000 plus IGST @ 12% were destroyed by fire; the insurance company admitted a claim of ₹ 9,600.
Received goods from Verma & Co of ₹ 7,200 plus IGST @ 12% on 27th March, 2024, but the purchase invoice had not been recorded in the Purchases book.

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

36 minfor 18 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 goods received from Verma & Co before the year end are read as included in the physically counted closing stock, so only purchases, input IGST and creditors are adjusted.
The IGST on the goods destroyed by fire had been taken as input credit; credit is not available on destroyed goods, so it is reversed and included in the loss.
The trial balance gives the loan's rate and start date ("1st Dec. 23" is read as 1st December 2023) but no interest, so four months' interest is accrued although the adjustments do not list it.
The insolvent customer's debt is written off; the existing provision absorbs all the bad debts, and, the remaining debtors being good, the rest of it is written back.
GST balances are shown head by head, as in the trial balance. "Laon" is printed so.

Write it in this order

Working notes first: they feed the statements.

Read the data; tick every adjustment as you plan it 2 min
1 GST treatment: IGST on the unrecorded purchase, reversal on the destroyed goods, head-wise balances 3 marks 5 min
2 Other adjustments: insolvent debtor, accrued interest, depreciation 2 marks 4 min
3 Trading Account unrecorded purchase, fire withdrawal 4 marks 7 min
4 Profit & Loss Account provision write-back, accrued interest, fire loss, depreciation 5 marks 9 min
5 Balance Sheet 4 marks 7 min
Check: every adjustment used, both sides agree, dates in 2 min

12345

Final answer

Check your own figures against these.

Gross Profit: ₹3,09,198
Net Profit: ₹2,36,226
Closing capital: ₹2,69,514
Balance Sheet total: ₹5,03,250

Try it first. About 36 minutes for 18 marks. Write it out, then open the solution and check your figures against the final answer.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Working notes

WN1: Unrecorded purchase (adj. vi). Purchases + ₹7,200; Input IGST + ₹864 (12%); Sundry creditors + ₹8,064 (1,83,156 → 1,91,220). The goods arrived before the year end, so they are taken to be inside the physically counted closing stock of ₹75,300; no stock adjustment is needed.
WN2: Goods destroyed by fire (adj. v). Their cost of ₹9,000 is withdrawn from purchases. The ₹1,080 IGST (12%) already taken as input credit on them must be reversed: section 17(5) of the CGST Act denies input tax credit on the items it lists, and clause (h) of that list covers goods lost, stolen or destroyed. The loss is cost ₹9,000 + reversed IGST ₹1,080 − insurance ₹9,600 = ₹480, charged to the Profit & Loss Account; the ₹9,600 claim is a receivable. Purchases = 9,75,030 + 7,200 − 9,000 = ₹9,73,230.
WN3: Interest on the loan given. Interest earned but not yet received is brought into the accounts by an adjusting entry (Accrued Interest A/c Dr, To Interest A/c), the asset going to the Balance Sheet and the income to the credit of the Profit & Loss Account. The trial balance shows the loan but no interest, so 18,000 × 10% × 4/12 (1 December to 31 March) = ₹600 is accrued.
WN4: Bad debts and the provision (adj. iii, iv). Customers who do not pay are bad debts and are losses. Bad debts = 3,150 (already written off) + 3,000 (insolvent customer) = ₹6,150, absorbed by the existing ₹31,200 provision. The other debtors are good, so no provision is carried forward and the unused ₹25,050 is written back to the Profit & Loss Account. Debtors = 3,01,200 − 3,000 = ₹2,98,200.
WN5: Depreciation. Furniture 43,500 × 10% = ₹4,350; furniture carried at ₹39,150.
WN6: GST balances (head-wise). CGST: input 6,000 − output 4,800 = ₹1,200 credit; SGST: input 6,000 − output 4,800 = ₹1,200 credit; IGST: input (9,600 + 864 − 1,080 = 9,384) against output 11,400 = ₹2,016 payable. Balances are carried head-wise, as the trial balance presents them; the CGST and SGST credits are available for set-off against the IGST liability when the return is filed.

Trading Account for the year ended 31 March 2024

Direct costs (opening stock, purchases, wages and power and fuel) are debited, and sales and closing stock are credited.

Dr	₹	Cr	₹
To Opening Stock	1,60,350	By Sales	15,14,400
To Purchases (9,75,030 + 7,200 − 9,000, WN1, WN2)	9,73,230	By Closing Stock	75,300
To Wages	1,38,822
To Power and Fuel	8,100
To Gross Profit c/d	3,09,198
	15,89,700		15,89,700

Dr	₹
To Opening Stock	1,60,350
To Purchases (9,75,030 + 7,200 − 9,000, WN1, WN2)	9,73,230
To Wages	1,38,822
To Power and Fuel	8,100
To Gross Profit c/d	3,09,198
	15,89,700
Cr	₹
By Sales	15,14,400
By Closing Stock	75,300
	15,89,700

Profit & Loss Account for the year ended 31 March 2024

Dr	₹	Cr	₹
To Salaries	33,450	By Gross Profit b/d	3,09,198
To Postage	25,356	By Provision for doubtful debts written back (31,200 − 6,150 bad debts, WN4)	25,050
To General Expenses	34,986	By Interest accrued on loan to Mohan (WN3)	600
To Loss by Fire (9,000 + 1,080 IGST − 9,600, WN2)	480
To Depreciation on Furniture (WN5)	4,350
To Net Profit → Capital	2,36,226
	3,34,848		3,34,848

Dr	₹
To Salaries	33,450
To Postage	25,356
To General Expenses	34,986
To Loss by Fire (9,000 + 1,080 IGST − 9,600, WN2)	480
To Depreciation on Furniture (WN5)	4,350
To Net Profit → Capital	2,36,226
	3,34,848
Cr	₹
By Gross Profit b/d	3,09,198
By Provision for doubtful debts written back (31,200 − 6,150 bad debts, WN4)	25,050
By Interest accrued on loan to Mohan (WN3)	600
	3,34,848

Balance Sheet as at 31 March 2024

Liabilities	₹	Assets	₹
Capital 60,000 + Net Profit 2,36,226 − Drawings 26,712	2,69,514	Furniture (43,500 − 4,350)	39,150
Sundry creditors (1,83,156 + 8,064, WN1)	1,91,220	Closing stock	75,300
Bills payable	24,300	Sundry debtors (3,01,200 − 3,000)	2,98,200
General expenses outstanding	4,200	Loan to Mohan	18,000
Outstanding wages	12,000	Accrued interest on loan (WN3)	600
IGST payable (WN6)	2,016	Cash in hand and at bank	60,000
		Insurance claim receivable (WN2)	9,600
		Input CGST credit (WN6)	1,200
		Input SGST credit (WN6)	1,200
	5,03,250		5,03,250

Result: Gross Profit ₹3,09,198 · Net Profit ₹2,36,226 · closing capital ₹2,69,514 · Balance Sheet total ₹5,03,250.

Where the 18 marks sit

#	Component	Marks
1	Trading Account (unrecorded purchase, fire withdrawal → GP 3,09,198)	4
2	Profit & Loss Account (provision write-back, accrued interest, fire loss, depreciation → NP 2,36,226)	5
3	Balance Sheet (foots at 5,03,250)	4
4	GST treatment: IGST on the unrecorded purchase, reversal on the destroyed goods, head-wise balances	3
5	Other adjustments: insolvent debtor, accrued interest, depreciation	2
	Total	18

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