Question 3 (a)
Final accounts of a trader
12 marks
- Time to write
- About 24 minutes
- Notes
- Crux notes
Question
Question 3 (a) · 12 marksFrom a trader's Trial Balance on March 31, 2024, given below, prepare the Trading and Profit and Loss Account for the year that ended 31st March 2024 and the Balance Sheet as at that date:
| Debit Balance | (₹) | Credit Balances | (₹.) |
|---|---|---|---|
| Drawings | 14,400 | Bank Overdraft | 60,000 |
| Wages | 37,200 | Interest on Investment | 13,920 |
| Stock | 30,720 | Bills Payable | 11,040 |
| Loan to X | 9,600 | Interest on Loan to X | 768 |
| Rent | 12,000, | Capital | 2,40,000 |
| General Expenses | 3,552 | Reserves for Bad and Doubtful Debts | 600 |
| Investments | 1,44,000 | Sales | 5,52,000 |
| Purchases | 3,84,000 | Sundry Creditors | 30,216 |
| Freight and Carriage | 5,040 | ||
| Goodwill | 96,000 | ||
| Bills Receivable | 14,880 | ||
| Rates and Taxes | 4,320 | ||
| Sales Return | 5,040 | ||
| Insurance | 2,160 | ||
| Cash and Bank Balance | 8,880 | ||
| Debtors | 39,600 | ||
| Postage & Telegram | 9,120 | ||
| Land and Building | 60,000 | ||
| Plant and Machinery | 24,000 | ||
| Packing Charges | 960 | ||
| Bad Debts | 3072 | ||
| 9,08,544 | 9,08,544 |
Additional Information:
Closing Stock as on 31.03.2024 – ₹38,400.
Goods worth ₹1,680 were sent on 25.03.2024 as "Sale on approval Basis" for ₹1920, and no approval was received before the month ended.
20% of the goodwill to be written off.
Further bad debts of ₹840 were estimated, and the reserve for bad debts was increased to the extent of ₹3,600.
Depreciate land and building by 3% and also plant and machinery by 10%.
Goods worth ₹1,920 were distributed as free samples.
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
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 reserve for bad debts is raised to ₹3,600, the plain reading of "to the extent of". (2) The goods sent on approval are taken as recorded as a sale: the sale is reversed and the goods are added to the closing stock at cost. (3) Land and building are depreciated together at 3%, as printed; no split is given. (4) The free samples are taken out of purchases and charged as advertisement. (5) "Rent 12,000," carries a stray comma, as printed. The answer also shows the figures for the other readings of (1) and (2).
Write it in this order
- Read the data; tick every adjustment as you plan it 2 min
- 1 Trading Account, with the approval goods and free samples 4 marks 7 min
- 2 Profit and Loss Account, with every adjustment 4 marks 7 min
- 3 Balance Sheet 4 marks 6 min
- Check: every adjustment used, both sides agree, dates in 2 min
Final answer
Check your own figures against these.
- Gross profit
- ₹1,30,080
- Net profit
- ₹80,424
- Balance sheet total
- ₹4,07,280
Try it first. About 24 minutes for 12 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.
Basis of the answer
- Goods sent on approval. The goods (cost ₹1,680) were sent for ₹1,920 and recorded as a sale; no approval was received by the year end, so the sale is reversed (sales and debtors less ₹1,920) and the goods are added to the closing stock at cost (₹38,400 + 1,680 = ₹40,080). This is the adjustment the ICAI study material makes for goods awaiting approval.
- Bad debts and reserve. Further bad debts ₹840 are written off, and the reserve is raised to ₹3,600. A provision is kept against debts that may not be recovered.
- Free samples (₹1,920) are taken out of purchases and charged as advertisement.
- Depreciation: land and building together at 3% (₹1,800), as printed, and plant and machinery at 10% (₹2,400). Goodwill: 20% written off (₹19,200).
Trading and Profit and Loss Account for the year that ended 31st March 2024
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Opening Stock | 30,720 | By Sales (5,52,000 − returns 5,040 − approval sale 1,920) | 5,45,040 |
| To Purchases (3,84,000 − free samples 1,920) | 3,82,080 | By Closing Stock (38,400 + goods on approval 1,680) | 40,080 |
| To Wages | 37,200 | ||
| To Freight and Carriage | 5,040 | ||
| To Gross Profit c/d | 1,30,080 | ||
| 5,85,120 | 5,85,120 | ||
| To Rent | 12,000 | By Gross Profit b/d | 1,30,080 |
| To General Expenses | 3,552 | By Interest on Investment | 13,920 |
| To Rates and Taxes | 4,320 | By Interest on Loan to X | 768 |
| To Insurance | 2,160 | ||
| To Postage & Telegram | 9,120 | ||
| To Packing Charges | 960 | ||
| To Advertisement (free samples) | 1,920 | ||
| To Goodwill written off (20%) | 19,200 | ||
| To Depreciation on Land and Building (3%) | 1,800 | ||
| To Depreciation on Plant and Machinery (10%) | 2,400 | ||
| To Bad debts and reserve (3,072 + 840 + 3,600 − 600) | 6,912 | ||
| To Net Profit → Capital | 80,424 | ||
| 1,44,768 | 1,44,768 |
| Dr | ₹ |
|---|---|
| To Opening Stock | 30,720 |
| To Purchases (3,84,000 − free samples 1,920) | 3,82,080 |
| To Wages | 37,200 |
| To Freight and Carriage | 5,040 |
| To Gross Profit c/d | 1,30,080 |
| 5,85,120 | |
| To Rent | 12,000 |
| To General Expenses | 3,552 |
| To Rates and Taxes | 4,320 |
| To Insurance | 2,160 |
| To Postage & Telegram | 9,120 |
| To Packing Charges | 960 |
| To Advertisement (free samples) | 1,920 |
| To Goodwill written off (20%) | 19,200 |
| To Depreciation on Land and Building (3%) | 1,800 |
| To Depreciation on Plant and Machinery (10%) | 2,400 |
| To Bad debts and reserve (3,072 + 840 + 3,600 − 600) | 6,912 |
| To Net Profit → Capital | 80,424 |
| 1,44,768 | |
| Cr | ₹ |
| By Sales (5,52,000 − returns 5,040 − approval sale 1,920) | 5,45,040 |
| By Closing Stock (38,400 + goods on approval 1,680) | 40,080 |
| 5,85,120 | |
| By Gross Profit b/d | 1,30,080 |
| By Interest on Investment | 13,920 |
| By Interest on Loan to X | 768 |
| 1,44,768 |
Balance Sheet as at 31st March 2024
4 marks| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capital (2,40,000 + net profit 80,424 − drawings 14,400) | 3,06,024 | Cash and Bank Balance | 8,880 |
| Bank Overdraft | 60,000 | Debtors (39,600 − 1,920 − 840 = 36,840) less reserve 3,600 | 33,240 |
| Bills Payable | 11,040 | Bills Receivable | 14,880 |
| Sundry Creditors | 30,216 | Closing Stock | 40,080 |
| Loan to X | 9,600 | ||
| Investments | 1,44,000 | ||
| Goodwill (96,000 − 19,200) | 76,800 | ||
| Land and Building (60,000 − 1,800) | 58,200 | ||
| Plant and Machinery (24,000 − 2,400) | 21,600 | ||
| 4,07,280 | 4,07,280 |
The other reading
| Reading | Net profit ₹ |
|---|---|
| This answer: reserve raised to ₹3,600; approval sale had been recorded | 80,424 |
| Reserve raised by ₹3,600 (to ₹4,200); approval sale recorded | 79,824 |
| Reserve to ₹3,600; approval sale not recorded (stock added, sales unchanged) | 82,344 |
| Both other readings together | 81,744 |
Result: gross profit ₹1,30,080; net profit ₹80,424; balance sheet total ₹4,07,280.
Where the 12 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Trading Account, with the approval goods and free samples | 4 |
| 2 | Profit and Loss Account, with every adjustment | 4 |
| 3 | Balance Sheet | 4 |
| Total | 12 |
Report a problemopens an email to admin@getkunji.com with the question ID887-Q3aalready filled in.