Question 3

Final accounts of a sole trader, 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

3- From the trial balance and additional information of M/s. Pranav & Sons. given below, prepare the Trading and Profit and Loss Account for the year that ended 31st March, 2021, and the Balance Sheet as on the same date:

ParticularsL.FDr. (Rs.)Cr. (Rs.)
Opening Stock1,60,350-----
Purchases and Sales9,75,03015,14,400
Debtors and Creditors3,01,2001,83,156
Wages1,38,822-----
Power and Fuel8,100-----
Salaries33,450-----
Bills Receivable and Bills Payables-------24,300
Loan to Shyam @ 10% p.a. (on 1/12/20)18,000-----
Drawing26,712-----
General Expenses-----4,200
Postage25,356-----
General Expenses34,986-----
Bad Debts3,150
Furniture43,500-----
Wages Outstanding12,000
Cash in Hand60,000
Provision for doubtful debt31,200
Capital60,000
Input CGST6,000
Input SGST6,000
Input IGST9,600
Output CGST4,800
Output SGST4,800
Output IGST11,400
Total18,50,25618,50,256

Additional Information:

  1. Closing stock valued at Rs. 75,300 as at 31st March 2021.

  2. Depreciation on the furniture @ 10% p.a.

  3. Sundry debtors include Rs. 3,000 due from a customer who has become insolvent

  4. The other debtors are not considered doubtful of recovery.

  5. Goods costing Rs. 9,000 plus IGST @ 12% were destroyed by fire; the insurance company admitted a claim of Rs. 9,600.

  6. Goods of Rs. 7,200 plus IGST @ 12% were received from Gupta and Co. on 27th March, 2021, but the purchase invoice was not recorded in the purchase 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

  1. "General Expenses" appears twice, ₹34,986 debit and ₹4,200 credit; the credit is read as general expenses outstanding (a liability) and the debit is charged in full, and netting the two is shown as the other reading.
  2. The goods destroyed and the goods received are "plus IGST", as the English text prints; the input credit on the destroyed goods is reversed, and the loss after the insurance claim goes to the profit and loss account.
  3. The unrecorded purchase is recorded with its IGST; the goods are taken as included in the closing stock.
  4. Interest on the loan to Shyam is accrued at 10% p.a. from 1/12/20 to 31st March, 2021, as the trial balance gives the rate and date but no interest.
  5. The insolvent customer's debt is written off; the remaining debtors being good, the provision is written back.
  6. GST balances are shown head by head, as in the trial balance: within each head (CGST, SGST, IGST) the input credit is set off against the output tax, and the net balance of the head is shown.

Write it in this order

Working notes first: they feed the statements.

  1. Read the data; tick every adjustment as you plan it 2 min
  2. 1 GST treatment: IGST on the unrecorded purchase, reversal on the destroyed goods, head-wise balances 3 marks 5 min
  3. 2 Other adjustments: insolvent debtor, accrued interest, depreciation 2 marks 4 min
  4. 3 Trading Account unrecorded purchase, fire withdrawal 4 marks 7 min
  5. 4 Profit & Loss Account provision write-back, accrued interest, fire loss, depreciation 5 marks 9 min
  6. 5 Balance Sheet 4 marks 7 min
  7. Check: every adjustment used, both sides agree, dates in 2 min

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

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.

  • WN7: The two General Expenses lines. The trial balance shows General Expenses twice: ₹34,986 on the debit side and ₹4,200 on the credit side. The credit is read as general expenses still owing at the year end, already included in the debit (the same trial balance in the B.Com (Hons.) paper prints it as "General expenses outstanding"): the full ₹34,986 is charged to the Profit & Loss Account and the ₹4,200 is shown as general expenses outstanding, a current liability. Netting the two instead is shown under "The other reading".

Trading Account for the year ended 31 March 2021

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

Dr₹Cr₹
To Opening Stock1,60,350By Sales15,14,400
To Purchases (9,75,030 + 7,200 − 9,000, WN1, WN2)9,73,230By Closing Stock75,300
To Wages1,38,822
To Power and Fuel8,100
To Gross Profit c/d3,09,198
15,89,70015,89,700
Dr₹
To Opening Stock1,60,350
To Purchases (9,75,030 + 7,200 − 9,000, WN1, WN2)9,73,230
To Wages1,38,822
To Power and Fuel8,100
To Gross Profit c/d3,09,198
15,89,700
Cr₹
By Sales15,14,400
By Closing Stock75,300
15,89,700

Profit & Loss Account for the year ended 31 March 2021

Dr₹Cr₹
To Salaries33,450By Gross Profit b/d3,09,198
To Postage25,356By Provision for doubtful debts written back (31,200 − 6,150 bad debts, WN4)25,050
To General Expenses (WN7)34,986By Interest accrued on loan to Shyam (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 → Capital2,36,226
3,34,8483,34,848
Dr₹
To Salaries33,450
To Postage25,356
To General Expenses (WN7)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 → Capital2,36,226
3,34,848
Cr₹
By Gross Profit b/d3,09,198
By Provision for doubtful debts written back (31,200 − 6,150 bad debts, WN4)25,050
By Interest accrued on loan to Shyam (WN3)600
3,34,848

Balance Sheet as at 31 March 2021

Liabilities₹Assets₹
Capital 60,000 + Net Profit 2,36,226 − Drawings 26,7122,69,514Furniture (43,500 − 4,350)39,150
Sundry creditors (1,83,156 + 8,064, WN1)1,91,220Closing stock75,300
Bills payable24,300Sundry debtors (3,01,200 − 3,000)2,98,200
Outstanding wages12,000Loan to Shyam18,000
General expenses outstanding (WN7)4,200Accrued interest on loan (WN3)600
IGST payable (WN6)2,016Cash in hand and at bank60,000
Insurance claim receivable (WN2)9,600
Input CGST credit (WN6)1,200
Input SGST credit (WN6)1,200
5,03,2505,03,250

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

The other reading

Reading of the ₹4,200 creditNet profit ₹Balance sheet
This answer: general expenses outstanding (expense ₹34,986 in full)2,36,226A liability of ₹4,200
Netted against General Expenses (expense ₹30,786)2,40,426No liability; closing capital ₹2,73,714; total unchanged at ₹5,03,250

Where the 18 marks sit

#ComponentMarks
1Trading Account (unrecorded purchase, fire withdrawal → GP 3,09,198)4
2Profit & Loss Account (provision write-back, accrued interest, fire loss, depreciation → NP 2,36,226)5
3Balance Sheet (foots at 5,03,250)4
4GST treatment: IGST on the unrecorded purchase, reversal on the destroyed goods, head-wise balances3
5Other adjustments: insolvent debtor, accrued interest, depreciation2
Total18
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