Question 3

Manufacturing, Trading and Profit & Loss Account and Balance Sheet

18 marks

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

Question

Question 3 · 18 marks

Prepare the Manufacturing Account and the Trading & Profit and Loss A/c of Mr. Devansh Rathi for the year ended 2024, and his Balance Sheet as at that date, from the following information:

Particulars	Dr. (₹)	Cr (₹)	Particulars	Dr. (₹)	Cr (₹)
Cash	360		Bank	9360
Creditors		14400	Factory wages	49200
Stock on 1.4.2023:			Sales		189600
Raw material	14400		Repairs to plant	1800
Work-in-progress	16800		Packing and transport	2640
Finished goods	3600		Plant bought on 1.10.2023	4800
Office Salaries	8400		Debtors	25200
Rent and taxes	3600		Light and Heat	1200
Purchases	80400		General expenses:
Capital A/c		87840	Factory	480
Plant as on 1.4.2023	36000		Office	840
Insurance	2160		Factory power	8640
Furniture	2160		Drawings	19200
Discount received		960	Bank charges	240
Provision for Doubtful debts		2400	Bad debts	1440
Advertisement	2280		Total	295200	295200

Additional Information:

Valued as per AS 2, the closing stock is as under:

Raw material ₹8,400;
Work-in-progress ₹4,200;
Finished goods ₹22,800; and
Packing material ₹360,

The items below are to be provided:

Factory power ₹1,320;
Rent and taxes ₹960;
Light and heat ₹360;
General expenses factory ₹120;
General expenses office ₹120; and
Insurance prepaid ₹480.

Provide depreciation @ 10% p.a. on plant and @ 5% p.a. on furniture.
Increase the provision for doubtful debts by ₹1,200.
Rent and taxes, light and heat and insurance are each to be allocated 80% to the factory and 20% to the office.

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 the Manufacturing AccountProper formats (heading, date, both sides): post the plain items, then each adjustment, and balance last.

What the paper leaves open

"The year ended 2024" gives no day; with stock dated 1.4.2023 and plant bought on 1.10.2023, it is read as the year ended 31st March 2024.
"Purchases" are read as raw materials, since this is a manufacturer whose trial balance carries raw-material stock and no goods bought for resale.
"Furniture" is read as office furniture, so its depreciation goes to Profit and Loss; read as factory furniture, ₹108 would move into factory cost, lowering gross profit but not net profit.
The plant bought on 1.10.2023 is depreciated for six months.
The unused packing material is carried forward as stock and reduces the packing and transport charge.

Write it in this order

Workings as you go: each statement feeds the next.

Read the data; tick every adjustment as you plan it 2 min
1 Manufacturing A/c: raw materials consumed, factory overheads, work-in-progress 6 marks 11 min
2 Trading A/c: finished-goods stocks 3 marks 5 min
3 Profit & Loss A/c: office share, packing, provision, depreciation 5 marks 9 min
4 Balance Sheet: capital account, outstandings, prepaid, net debtors, four-part closing stock 4 marks 7 min
Check: every adjustment used, both sides agree, dates in 2 min

1234

Final answer

Check your own figures against these.

Cost of production: ₹1,70,640
Gross profit: ₹38,160
Net profit: ₹20,652
Balance Sheet total: ₹1,06,572; The provision for doubtful debts closes at ₹3,600 (₹2,400 already standing, increased by ₹1,200) and is deducted from debtors; only the increase is charged

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.

Approach

For a manufacturing concern the income statement has three parts: a Manufacturing Account that strikes the cost of production, a Trading Account that takes that cost in place of purchases, and a Profit & Loss Account. Shared overheads such as rent and lighting are apportioned between factory and office in the stated proportions, and plant is depreciated separately from office furniture at its own rate. AS-2 counts raw materials, work-in-progress, finished goods and stores used in production as inventory, so the closing stock has four parts.

Working notes

WN1Apportionment of the three shared overheads

Overhead	Total for the year	Factory 80%	Office 20%
Rent and taxes (3,600 + 960 outstanding)	4,560	3,648	912
Light and heat (1,200 + 360 outstanding)	1,560	1,248	312
Insurance (2,160 − 480 prepaid)	1,680	1,344	336

WN2Depreciation

Asset	Cost ₹	Basis	Charge ₹
Plant held all year	36,000	10% for the full year	3,600
Plant bought 1 October 2023	4,800	10% for 6 months	240
Plant: total charge			3,840
Furniture (office)	2,160	5% for the full year	108

Manufacturing Account for the year ended 31 March 2024

Dr	₹	Cr	₹
To Work-in-progress (opening)	16,800	By Work-in-progress (closing)	4,200
To Raw materials consumed (opening 14,400 + purchases 80,400 − closing 8,400)	86,400	By Cost of Production c/d → Trading A/c	1,70,640
To Factory wages	49,200
To Factory power (8,640 + 1,320 outstanding)	9,960
To Repairs to plant	1,800
To General expenses: factory (480 + 120 outstanding)	600
To Rent and taxes: factory share	3,648
To Light and heat: factory share	1,248
To Insurance: factory share	1,344
To Depreciation on plant (WN2)	3,840
	1,74,840		1,74,840

Dr	₹
To Work-in-progress (opening)	16,800
To Raw materials consumed (opening 14,400 + purchases 80,400 − closing 8,400)	86,400
To Factory wages	49,200
To Factory power (8,640 + 1,320 outstanding)	9,960
To Repairs to plant	1,800
To General expenses: factory (480 + 120 outstanding)	600
To Rent and taxes: factory share	3,648
To Light and heat: factory share	1,248
To Insurance: factory share	1,344
To Depreciation on plant (WN2)	3,840
	1,74,840
Cr	₹
By Work-in-progress (closing)	4,200
By Cost of Production c/d → Trading A/c	1,70,640
	1,74,840

Trading Account for the year ended 31 March 2024

Dr	₹	Cr	₹
To Finished goods (opening)	3,600	By Sales	1,89,600
To Cost of Production b/d	1,70,640	By Finished goods (closing)	22,800
To Gross Profit c/d	38,160
	2,12,400		2,12,400

Dr	₹
To Finished goods (opening)	3,600
To Cost of Production b/d	1,70,640
To Gross Profit c/d	38,160
	2,12,400
Cr	₹
By Sales	1,89,600
By Finished goods (closing)	22,800
	2,12,400

Profit & Loss Account for the year ended 31 March 2024

Dr	₹	Cr	₹
To Office salaries	8,400	By Gross Profit b/d	38,160
To Rent and taxes: office share	912	By Discount received	960
To Light and heat: office share	312
To Insurance: office share	336
To General expenses: office (840 + 120 outstanding)	960
To Packing and transport (2,640 − 360 material unused)	2,280
To Advertisement	2,280
To Bank charges	240
To Bad debts	1,440
To Provision for Doubtful Debts: increase	1,200
To Depreciation on furniture (WN2)	108
To Net Profit → Capital A/c	20,652
	39,120		39,120

Dr	₹
To Office salaries	8,400
To Rent and taxes: office share	912
To Light and heat: office share	312
To Insurance: office share	336
To General expenses: office (840 + 120 outstanding)	960
To Packing and transport (2,640 − 360 material unused)	2,280
To Advertisement	2,280
To Bank charges	240
To Bad debts	1,440
To Provision for Doubtful Debts: increase	1,200
To Depreciation on furniture (WN2)	108
To Net Profit → Capital A/c	20,652
	39,120
Cr	₹
By Gross Profit b/d	38,160
By Discount received	960
	39,120

Balance Sheet as at 31 March 2024

Liabilities	₹	Assets	₹
Capital 87,840 + Net profit 20,652 − Drawings 19,200	89,292	Plant (36,000 + 4,800) less depreciation 3,840	36,960
Creditors	14,400	Furniture 2,160 less depreciation 108	2,052
Outstanding expenses (1,320 + 960 + 360 + 120 + 120)	2,880	Closing stock: raw material 8,400, work-in-progress 4,200, finished goods 22,800, packing material 360	35,760
		Debtors 25,200 less provision for doubtful debts 3,600	21,600
		Prepaid insurance	480
		Bank	9,360
		Cash	360
	1,06,572		1,06,572

Result: Cost of production ₹1,70,640 · Gross profit ₹38,160 · Net profit ₹20,652 · Balance Sheet total ₹1,06,572. The provision for doubtful debts closes at ₹3,600 (₹2,400 already standing, increased by ₹1,200) and is deducted from debtors; only the increase is charged.

Where the 18 marks sit

#	Component	Marks
1	Manufacturing A/c: raw materials consumed, factory overheads, work-in-progress (→ cost of production 1,70,640)	6
2	Trading A/c: finished-goods stocks (→ gross profit 38,160)	3
3	Profit & Loss A/c: office share, packing, provision, depreciation (→ net profit 20,652)	5
4	Balance Sheet: capital account, outstandings, prepaid, net debtors, four-part closing stock	4
	Total	18

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