Question 3

Final accounts of a sole proprietor from an adjusted 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 · 18 marks

Using the Trial Balance below and the further Information about Mr. Kailash, a Proprietor, prepare his Trading, Profit and Loss Account for the year that ended on 31st March 2025 and a Balance sheet as on that date.

TRIAL BALANCE OF MR. KAILASH

S.NO	Particulars	Dr.(Rs)	Cr.(Rs)
1.	Closing stock	48,000	-
2.	Sales/cost of goods sold	6,72,000	7,44,000
3.	Rent	13,200	7,800
4.	Office and Administration Expenses	15,840	-
5.	General Expenses	7,200	-
6.	Selling and Distribution Expenses	43,290	-
7.	Income Tax Paid	1,200	-
8.	Interest	4,500	5,400
9.	Discount	2,400	1,200
10.	Bad Debts	3,600	-
11.	Investments	60,000	-
12.	Loan from Bank	-	60,000
13.	Bills Receivable/Bills Payable	12,000	6,720
14.	Debtors/Creditors	2,52,000	1,08,960
15.	Provision for Doubtful Debts	-	12,000
16.	Provision for Discount on Debtors	-	2,880
17.	Capital/Drawings	15,930	3,69,600
18.	Plant and Machinery	60,000	-
19.	Land and Building;	72,000	-
20.	Furniture and Fixtures	36,000	-
21.	Outstanding office expenses	-	1,440
22.	Prepaid General Expense	1,440	-
23.	Input IGST/Output IGST	39,000	36,000
24.	Input CGST/Output CGST	4,800	7,200
25.	Input SGST/Output SGST	28,800	30,000
	TOTAL	13,93,200	13,93,200

Further Information:

Rent paid covers 11 months, and rent received covers 13 months.
Write off a further Rs.7,200 as Bad Debts.
An additional discount of Rs. 4,800 was given to debtors after the accounts were closed.
An additional discount of Rs. 2,400 was received from creditors after the accounts were closed.
Keep a provision for discount @2% on debtors.
Keep a provision for doubtful debts @10%.
A machine costing Rs 24,000 was bought on 1st July 2024; wages of Rs. 1,200 for its erection were debited to the General Expenses Account. Charge depreciation on Plant and Machinery @10% p.a.
An item of furniture costing Rs. 24,000 was bought on 1st July 2024 but was not recorded in the books, as no payment had been made for it. Wages of Rs.1,200 paid for its erection were debited to the General Expenses Account. Depreciate furniture @10%.
General Expenses include Rs. 4,800 spent on 1st July 2024 on putting up a cycle shed for employees and customers. Provide 5% depreciation on building.
On 1st April 2025 a fire destroyed goods costing Rs. 24,000.

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 trial balance is an adjusted one: closing stock and cost of goods sold are given, so the Trading Account sets sales against cost of goods sold. The paired rows are read as debit/credit pairs (for example interest paid ₹4,500 and received ₹5,400; drawings ₹15,930 and capital ₹3,69,600).
The machine bought on 1st July 2024 is read as already included in Plant and Machinery; only its erection wages were wrongly charged to General Expenses.
"Depreciate furniture @10%" and "Provide 5% depreciation on building" are read as yearly rates, charged for 9 months on the furniture and the cycle shed added on 1st July 2024, as the machine's rate is expressly "p.a.".
The additional discounts are given and received after the accounts were closed but relate to the year, so they are adjusted before the provisions; the provision for doubtful debts (10%) is on debtors after the further bad debts and the discount, and the provision for discount (2%) is on debtors after the doubtful-debts provision.
Income tax paid by a sole proprietor is his personal tax, treated as drawings.
The fire on 1st April 2025 happens after the year end; it changes no figure for the year and is disclosed in a note.
The GST balances are set off, input IGST first against output IGST, then against output CGST and output SGST, leaving the net amount payable.

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 set-off and net liability 2 marks 4 min
2 Trading Account 2 marks 4 min
3 Rent paid and received outstanding and advance 2 marks 4 min
4 Bad debts, provision for doubtful debts and provision for discount, after the additional discounts 3 marks 5 min
5 Capital items out of General Expenses; depreciation on plant, furniture and building 4 marks 7 min
6 Profit and Loss Account: other items and net loss 2 marks 3 min
7 Balance Sheet, including income tax as drawings and the fire as a note 3 marks 5 min
Check: every adjustment used, both sides agree, dates in 2 min

1234567

Try it first. About 36 minutes for 18 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.

Trading Account of Mr. Kailash for the year ended 31st March 2025

2 marks

Dr	₹	Cr	₹
To Cost of goods sold	6,72,000	By Sales	7,44,000
To Gross Profit c/d	72,000
	7,44,000		7,44,000

Dr	₹
To Cost of goods sold	6,72,000
To Gross Profit c/d	72,000
	7,44,000
Cr	₹
By Sales	7,44,000
	7,44,000

Profit and Loss Account for the year ended 31st March 2025

Dr	₹	Cr	₹
To Rent (13,200 for 11 months; 12 months, WN1)	14,400	By Gross Profit b/d	72,000
To Office and Administration Expenses	15,840	By Rent received (7,800 for 13 months; 12 months, WN1)	7,200
To Selling and Distribution Expenses	43,290	By Interest received	5,400
To Interest paid	4,500	By Discount received (1,200 + 2,400)	3,600
To Discount allowed (2,400 + 4,800)	7,200	By Net Loss transferred to Capital	36,030
To Bad debts and provision (WN2)	22,800
To Provision for discount on debtors (WN2)	1,440
To Depreciation (WN3)	14,760
	1,24,230		1,24,230

Dr	₹
To Rent (13,200 for 11 months; 12 months, WN1)	14,400
To Office and Administration Expenses	15,840
To Selling and Distribution Expenses	43,290
To Interest paid	4,500
To Discount allowed (2,400 + 4,800)	7,200
To Bad debts and provision (WN2)	22,800
To Provision for discount on debtors (WN2)	1,440
To Depreciation (WN3)	14,760
	1,24,230
Cr	₹
By Gross Profit b/d	72,000
By Rent received (7,800 for 13 months; 12 months, WN1)	7,200
By Interest received	5,400
By Discount received (1,200 + 2,400)	3,600
By Net Loss transferred to Capital	36,030
	1,24,230

General Expenses of ₹7,200 are fully reclassified (₹1,200 machine erection wages, ₹1,200 furniture erection wages and ₹4,800 cycle shed), so no General Expenses remain in the Profit and Loss Account (WN3).

Balance Sheet of Mr. Kailash as on 31st March 2025

Liabilities

Liabilities	Detail	₹
Capital	3,69,600 − net loss 36,030 − drawings 17,130 (15,930 + income tax 1,200)	3,16,440
Loan from Bank		60,000
Creditors	1,08,960 − discount 2,400 + furniture unpaid 24,000	1,30,560
Bills Payable		6,720
Outstanding office expenses		1,440
Outstanding rent	WN1	1,200
Rent received in advance	WN1	600
GST payable (net, WN4)		600
Total		5,17,560

Assets

Assets	Detail	₹
Land and Building	72,000 + cycle shed 4,800 − depreciation 3,780	73,020
Plant and Machinery	60,000 + erection wages 1,200 − depreciation 5,490	55,710
Furniture and Fixtures	36,000 + new 24,000 + erection 1,200 − depreciation 5,490	55,710
Investments		60,000
Closing stock		48,000
Debtors	2,40,000 − provision 24,000 − provision for discount 4,320 (WN2)	2,11,680
Bills Receivable		12,000
Prepaid General Expense		1,440
Total		5,17,560

Note (event after the balance sheet date). On 1st April 2025 a fire destroyed goods costing ₹24,000. It happened after the year end and does not relate to conditions on 31st March 2025, so no figure above changes; it is disclosed as a note.

Working notes

WN1Rent

Rent paid ₹13,200 covers 11 months, so a year's rent is 13,200 ÷ 11 × 12 = ₹14,400, and ₹1,200 is outstanding. An unpaid expense of the year is charged as an expense and shown as a liability. Rent received ₹7,800 covers 13 months, so the year's income is 7,800 ÷ 13 × 12 = ₹7,200, and ₹600 received in advance is a liability, because it is a benefit the firm still owes.

WN2Debtors, bad debts and provisions

(discount given after closing relates to the year, so it is adjusted first)

Debtors: 2,52,000 − further bad debts 7,200 − additional discount 4,800 = ₹2,40,000.
New provision for doubtful debts: 10% × 2,40,000 = ₹24,000.
Charge: bad debts 3,600 + further 7,200 + new provision 24,000 − old provision 12,000 = ₹22,800.
Provision for discount on debtors is worked out on debtors after deducting the provision for doubtful debts: 2% × (2,40,000 − 24,000) = ₹4,320. Charge: 4,320 − old 2,880 = ₹1,440.

WN3Capital items wrongly charged to General Expenses, and depreciation

Erection wages and the cycle shed give a benefit over many years, so they are capital expenditure, not revenue expenditure.

Plant and Machinery (10% p.a.): old machinery 36,000 × 10% = 3,600; machine bought 1-7-2024 with its erection wages (24,000 + 1,200) × 10% × 9/12 = 1,890; total 5,490.
Furniture (10%): old 36,000 × 10% = 3,600; new (24,000 + 1,200) × 10% × 9/12 = 1,890; total 5,490. The unpaid ₹24,000 for the new furniture is added to creditors.
Building (5%): 72,000 × 5% = 3,600; cycle shed 4,800 × 5% × 9/12 = 180; total 3,780.
Total depreciation: 5,490 + 5,490 + 3,780 = ₹14,760.

WN4GST set-off

(input credit used head by head; input IGST first against output IGST, then CGST, then SGST)

Head	Output	Input used	Net (₹)
IGST	36,000	36,000 of 39,000	0; excess input 3,000
CGST	7,200	4,800 CGST + 2,400 IGST	0
SGST	30,000	28,800 SGST + 600 IGST	600 payable

Net GST payable ₹600.

Where the 18 marks sit

#	Component	Marks
1	Trading Account	2
2	Rent paid and received (outstanding and advance)	2
3	Bad debts, provision for doubtful debts and provision for discount, after the additional discounts	3
4	Capital items out of General Expenses; depreciation on plant, furniture and building	4
5	Profit and Loss Account: other items and net loss	2
6	GST set-off and net liability	2
7	Balance Sheet, including income tax as drawings and the fire as a note	3
	Total	18

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