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

From the balances extracted of M/s Mohit Sons, prepare a Trading and Profit & Loss account for the year that ends on March 31, 2021. Also prepare a balance sheet as at the same date.

Debit Balances	₹	Credit Balances	₹
Stock	60,000	Sales	2,16,000
Wages	3,600	Purchase return	2,400
Salary	9,600	Discount received	600
Purchases	2,10,000	Provision for bad debts	3,000
Sales Return	3,600	Capital	3,48,000
S. Debtors	98,400	Bills Payable	26,400
Discount allowed	1,200	Commission received	4,800
Insurance	3,840	Rent	7,200
Rent, rates and taxes	5,160	Loan	41,760
Fixtures and fittings	24,000	Output CGST	18,000
Trade Expenses	1,800	Output SGST	18,000
Bad debts	2,400
Drawings	38,400
Repair and renewals	1,920
Travelling expenses	5,040
Postage	600
Legal fees	600
Bills Receivable	60,000
Building	1,32,000
Input CGST	12,000
Input SGST	12,000
	6,86,160		6,86,160

Adjustments:-

Commission received in advance ₹1,200.
Rent receivable ₹2,400.
Salary outstanding ₹1,200 and insurance prepaid ₹960.
Mr. Kunal is the Debtor for ₹6,000 and he is also the creditor of M/S Mohit of ₹3,600.
Further Bad-debts ₹1,200, and provision for Bad-debts @ 5% on debtors and a provision for discount on debtors @ 2%.
Closing Stock ₹38,400.
Depreciation on Building @ 6% p.a.

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

Mr. Kunal owes ₹6,000 and is owed ₹3,600, but the trial balance carries no creditors account, so a set-off cannot be completed consistently; the two balances are not set off, and the set-off figures are shown as the other reading.
Two adjustments are numbered (iv), as printed.
The provision for discount is calculated on the debtors left after the provision for bad debts.
Input and output GST are set off head by head.

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 Kunal's balances 3 marks 5 min
2 Trading Account returns netted 4 marks 7 min
3 Profit & Loss Account outstanding, prepaid, advance and receivable items; bad debts and both provisions; depreciation 6 marks 11 min
4 Balance Sheet 5 marks 9 min
Check: every adjustment used, both sides agree, dates in 2 min

1234

Final answer

Check your own figures against these.

Gross Loss: ₹20,400
Net Loss: ₹51,826.80
Closing capital: ₹2,57,773.20
Balance Sheet total: ₹3,40,333.20

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: Outstanding and prepaid items (adj. iii). An expense of the year still unpaid is charged in full and shown as a liability; an expense paid for the next year is taken out of this year's charge and shown as an asset. Salary 9,600 + outstanding 1,200 = ₹10,800; insurance 3,840 − prepaid 960 = ₹2,880.
WN2: Income received in advance and income receivable (adj. i, ii). Income received for the next year reduces this year's income and is a liability: commission 4,800 − 1,200 = ₹3,600. Income earned but not yet received is brought in by debiting an asset and crediting the income: rent 7,200 + receivable 2,400 = ₹9,600.
WN3: Kunal's balances (adj. iv, first). Kunal owes ₹6,000 and is owed ₹3,600. A set-off would debit his creditor balance and credit his debtor balance, but the trial balance carries no creditors account at all, so the debit side of that entry has nothing to reduce and the balance sheet would not agree (see "The other reading"). The two balances are therefore not set off: the ₹6,000 stays in debtors, and no creditor balance is recorded because none is in the books.
WN4: Bad debts and provisions (adj. iv, second). Customers who do not pay are bad debts, and a provision for discount is calculated on the debtors left after deducting the provision for bad debts. Debtors 98,400 − further bad debts 1,200 = ₹97,200. Provision for bad debts 5% = ₹4,860. Provision for discount 2% of (97,200 − 4,860 = 92,340) = ₹1,846.80. Charge to the Profit & Loss Account for bad debts: 2,400 + 1,200 + new provision 4,860 − old provision 3,000 = ₹5,460.
WN5: Depreciation (adj. vi). Building 1,32,000 × 6% = ₹7,920; building carried at ₹1,24,080.
WN6: GST (paper note 4). Head by head: CGST output 18,000 − input 12,000 = ₹6,000 payable; SGST output 18,000 − input 12,000 = ₹6,000 payable.
WN7: No cash or bank balance. The trial balance, as printed, has none, so the balance sheet shows none.

Trading Account for the year ended March 31, 2021

Dr	₹	Cr	₹
To Stock (opening)	60,000	By Sales (2,16,000 − returns 3,600)	2,12,400
To Purchases (2,10,000 − returns 2,400)	2,07,600	By Closing Stock	38,400
To Wages	3,600	By Gross Loss c/d	20,400
	2,71,200		2,71,200

Dr	₹
To Stock (opening)	60,000
To Purchases (2,10,000 − returns 2,400)	2,07,600
To Wages	3,600
	2,71,200
Cr	₹
By Sales (2,16,000 − returns 3,600)	2,12,400
By Closing Stock	38,400
By Gross Loss c/d	20,400
	2,71,200

Profit & Loss Account for the year ended March 31, 2021

Dr	₹	Cr	₹
To Gross Loss b/d	20,400	By Discount received	600
To Salary (9,600 + outstanding 1,200, WN1)	10,800	By Commission received (4,800 − in advance 1,200, WN2)	3,600
To Discount allowed	1,200	By Rent (7,200 + receivable 2,400, WN2)	9,600
To Insurance (3,840 − prepaid 960, WN1)	2,880	By Net Loss → Capital	51,826.80
To Rent, rates and taxes	5,160
To Trade Expenses	1,800
To Bad debts (2,400 + further 1,200 + new provision 4,860 − old provision 3,000, WN4)	5,460
To Provision for discount on debtors (2% of 92,340, WN4)	1,846.80
To Repairs and renewals	1,920
To Travelling expenses	5,040
To Postage	600
To Legal fees	600
To Depreciation on Building (WN5)	7,920
	65,626.80		65,626.80

Dr	₹
To Gross Loss b/d	20,400
To Salary (9,600 + outstanding 1,200, WN1)	10,800
To Discount allowed	1,200
To Insurance (3,840 − prepaid 960, WN1)	2,880
To Rent, rates and taxes	5,160
To Trade Expenses	1,800
To Bad debts (2,400 + further 1,200 + new provision 4,860 − old provision 3,000, WN4)	5,460
To Provision for discount on debtors (2% of 92,340, WN4)	1,846.80
To Repairs and renewals	1,920
To Travelling expenses	5,040
To Postage	600
To Legal fees	600
To Depreciation on Building (WN5)	7,920
	65,626.80
Cr	₹
By Discount received	600
By Commission received (4,800 − in advance 1,200, WN2)	3,600
By Rent (7,200 + receivable 2,400, WN2)	9,600
By Net Loss → Capital	51,826.80
	65,626.80

Balance Sheet as at March 31, 2021

Liabilities	₹	Assets	₹
Capital (3,48,000 − net loss 51,826.80 − drawings 38,400)	2,57,773.20	Building (1,32,000 − 7,920)	1,24,080
Loan	41,760	Fixtures and fittings	24,000
Bills Payable	26,400	Debtors 97,200 less provision for bad debts 4,860 and provision for discount 1,846.80 (WN4)	90,493.20
Salary outstanding	1,200	Bills Receivable	60,000
Commission received in advance	1,200	Closing Stock	38,400
CGST payable (WN6)	6,000	Rent receivable	2,400
SGST payable (WN6)	6,000	Insurance prepaid	960
	3,40,333.20		3,40,333.20

Result: Gross Loss ₹20,400 · Net Loss ₹51,826.80 · closing capital ₹2,57,773.20 · Balance Sheet total ₹3,40,333.20.

The other reading

If Kunal's balances are set off (₹3,600 taken off his debtor balance):

	Not set off (this answer)	Set off
Debtors after the further bad debt	97,200	93,600
Provision for bad debts (5%)	4,860	4,680
Provision for discount (2%)	1,846.80	1,778.40
Net loss	51,826.80	51,578.40
Balance sheet	Agrees at 3,40,333.20	Assets 3,36,981.60 against liabilities 3,40,581.60: short by ₹3,600, the creditor balance the trial balance does not carry

Where the 18 marks sit

#	Component	Marks
1	Trading Account (returns netted → gross loss 20,400)	4
2	Profit & Loss Account (outstanding, prepaid, advance and receivable items; bad debts and both provisions; depreciation → net loss 51,826.80)	6
3	Balance Sheet (foots at 3,40,333.20)	5
4	GST set-off and Kunal's balances	3
	Total	18

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