FINAL ACCOUNTING - SPECIMEN QUESTION WITH ANSWERS PART 4

Question 16 :

Mr. Reddy, a retired Government Officer who started business as Stationery Merchant in Pune on 1st April 1994, gives you the following balances relating to the year ending 31st March, 2002. He also acts as a selling agent of Mr. Sharma and for this he is given a commission at the rate of 10% on sales.

	Trial Balance as at 31.03.2002
	Debit Balance		Credit Balance
Opening stock	Rs.	Sales	Rs.
	80,000		7,65,000
Sundry debtors	1,75,000	Capital	1,90,000
Furniture and fittings	36,000	Purchase return	2,000
Bills receivable	40,000	Discount received	2,000
Purchases	5,20,000	Sundry creditors	73,640
Wages	5,000	Consignor’s
Salaries	25,000	balance (01.04.01)	30,000
Sales return	3,000
Printing and advertising	12,000
Postage	4,500

Discount allowed	2,500
Building rent	9,600
Insurance	1,040
Other trade expenses	10,000
Cash sent to consignor	75,000
Suspense account	3,000
Drawings	15,000
Cash in hand	10,000
Balance with scheduled
bank in current account	11,000
In fixed deposit account	25,000
	10,62,640	10,62,640

Additional information :

(1)        Stock on 31.03.2002 valued at cost Rs. 64,000.

(2)        Business is carried on in a rented house. The ground floor, 50% of the accommodation, is used for business. Mr. Reddy lives with his family on the first floor.

(3)        The effect of advertising is expected to last for coming year also and as such half of printing and advertising is to be carried forward.

(4)        Provide depreciation on furniture and fittings @ 10% p.a.

(5)        A cheque of Rs. 5,000 received from a customer was returned dishonoured by bank but the same has not been recorded in the books. The customer has become insolvent and 60% is expected to be realized from his estate.

(6)        Furniture appearing in the books on 01.04.01 at Rs. 6,000 was disposed off on 30.09.01 at Rs. 3,500 in part exchange for a new furniture costing Rs. 5,000. A net invoice for Rs. 1,500 was passed through purchase day book.

(7)        Sales include Rs. 75,000 for goods sold in cash on behalf of Mr. Sharma. Trade expenses also include Rs. 4,000 as expenses in connection with this sale.

(8)        Suspense account represents money advanced to Sales Manager who was sent to Delhi in August 2001, for sales promotion. On returning to Pune, he submitted a statement disclosing that Rs. 1,200 was incurred for travelling, Rs. 500 for legal expenses and Rs. 900 for miscellaneous expenses. The balance lying with him is yet to be refunded.

(9)        Insurance premium covers a period of one month advance.

(10)        Opening stock has been valued at 20% below cost but final accounts should be prepared by taking stock at cost.

Prepare Mr. Reddy's Trading and Profit and Loss Account for the year ended 31st March 2002 and a Balance Sheet as on that date after taking into consideration the above mentioned information.

Answer :

Workings Notes.

(1)       Valuation of opening stock 80000 × 100/80 = Rs.100000

(2)       Net invoice of furniture Rs.(5000 – 3500) i.e 1500 passed

	through purchase day book.	Rs.
(3)	Cheque dishonoured by customer	5,000
	Less: 60% expected realiastion from estate	3,000
	Provision for bad & doubtful debt	2,000
(4)	Book value of furniture on 1.04.01 -	6,000
	Less: Depreciation from 1.04.01 to 30.09.01	300
	W.D.V as on 30.09.01	5,700
	Less: Sale value of furniture	3,500
	Loss on sale of furniture	2,200

(5)        Depreciation on furniture

Furniture & fittings as per Trial Balance as 31-03-02	36,000
Less: Book value of furniture sold on 30.09.01	6,000
Value of old furniture & fittings	30,000
Depreciation on old furniture @ 10% of Rs.30000	3,000
Depreciation on furniture sold for 6 months @ 10% on Rs.6000	300
Depreciation on new furniture for 6 months @ 10% on Rs.5000	250
	3,550
(6)  Insurance for 13 months	1,040
Prepaid Rent = 1040/13	80
(7)  Advanced to sales manager shown as suspense account	3,000
Less: Expense Sheet submitted
Travelling	1,200
Legal expenses	500
Misc. expenses	900
	2,600
Balance suspense A/c as on 31-03-02	400

(8)		Consignors Account
Particulars		Amount (Rs.)	Particulars	Amount (Rs.)
To	Cash sent	75,000	By Balance b/d	30,000
To	Expenses	4,000	By Consignment sales	75,000
To	Commission	7,500
To	Balance c/d	18,500
		105,000		105,000

In the Books of Mr.Reddy

Trading and Profit and Loss account for the year ended 31-03-02

Particulars

Amount

Amount

Amount

Particulars

Amount

Amount

Amount

(Rs)

(Rs)

(Rs)

(Rs)

(Rs)

(Rs)

To Opening stock

By

Sales

765,000

(Note 1)

100,000

Less : Returns

To Purchases

520,000

3,000

Less: Purchase

On behalf of

of furniture

consignor

75,000

78,000

687,000

(Note 2)

1,500

Less: Returns

2,000

3,500

516,500

By

Closing stock

64,000

To Wages

5,000

To Gross profit c/d

129,500

751,000

751,000

To Salaries

25,000

By

Gross profit

To Printing & Adv.

12,000

b/d

129,500

Less: Pre-paid

6,000

6,000

By

Discount

2,000

To Postage

4,500

By

Comm.

To Disc. Allowed

2,500

receivable on

To Trade Expenses

10,000

Consignment

7,500

Less: Expns. for

Consignment

4,000

6,000

To Provn for bad &

doubtful debts

(Note 3)

2,000

To Loss on sale of

furniture (Note 4)

2,200

To Depn. on furniture

(Note 5)

3,550

To Rent

9,600

Less: Drawings

4,800

4,800

To Insurance

1,040

Less: Prepaid

(Note 6)

80

960

To Travelling &

Conveyance

1,200

To Legal Expenses

500

To Misc. Expenses

900

To Net profit trfd. to

Capital A/c

78,890

139,000

139,000

                                                               Balance Sheet as at 31-03-02

Liabilities			Amount		Amount	Assets		Amount		Amount
Capital A/c opening bal.			(Rs.)		(Rs.)	Furniture & Fittings (old)		(Rs.)		(Rs.)
		190,000						36,000
Add:Understatement						Less: Furniture sold		6,000
of Net Profit in last yr						Less: Deprn. @ 10%		3,000
dur to undervaluation		20,000						27,000
Closing stock						Add: New furniture purchased		5,000
		210,000
Add:Profit for the year		78,890						32,000
Less:Drawings		288,890				Less: Deprn. For 6 mths @ 10%		250		31,750
	15,000					Sundry debtors		175,000
Cash						Add: Cheque dishonoured		5,000
Rent	4,800	19,800			269,090	Less:Pro.for bad debt		2,000		178,000
						Bills Recivables				40,000
Sundry Creditors					73,640	Closing Stock				64,000
						Cash at Bank		11,000
Consignors Balance						Less: Cheque dishonoured		5,000		6,000
(Note 8)					18,500	Fixed Deposit				25,000
						Cash in hand				10,000
						Prepaid Expenses
						Printing & Advt.		6,000
						Insurance		80		6,080
						Sales Managers
						Suspenses A/c (Note 7)				400
					361,230					361,230

 Question 17 :

The following is the Trial Balance extracted from the Books of Halder & Co. as at 31.12.96. You are asked to prepare the Trading A/c and Profit & Loss A/c for the year ended on 31st December, 1996 and a Balance Sheet as at that date taking into consideration the following :

(a)       Closing Stock has been valued at Rs. 38,000.

(b)       Outstanding Wages Rs. 200.

(c)        Prepaid Rates and Taxes Rs. 25

(d)       Depreciate Buildings @ 2.5%, Machinery @ 5% and Loose Tools @ 25% p.a.

(e)       Adjust the provision for doubtful Debts @ 5% on Debtors and make a provision for discount on Debtors @ 5%.

(f)       Make a Provision for Discount on Creditors @ 5%.

(g)       Allow 5% p.a. interest on capital and charge 4% p.a. interest on Drawings.

(h)       Interest on Investment received in advance Rs. 20.

(i)       Misc. Receipts accrued due but not received Rs. 10.

Trial Balance as at 31st December, 1996
	Dr. Amt.	Cr. Amt.
Capital A/c of Mr. Halder	Rs.	Rs.
	—	16,000
Drawings A/c	600	—
Building	25,000	—
Machinery	8,000	—
Furniture and Fittings	2,000	—
Goodwill	8,000	—
Stock (01.01.96)	5,500	—
Purchases	28,600	—
Carriage Inward	300	—
Sales	—	59,800
Returns	250	135
Carriage outward	100	—
Wages	4,300	—
Motive Power	230	—
Salaries	1,300	—
Rent, Rates & Taxes	340	—
Apprenticeship Premium (for the year)	—	200
Insurance	50	—
Advertisement	500	—
Printings and Stationery	45	—
Bad Debt	100	—
Discounts	130	160
Miscellaneous Receipts	—	300
Investments	3,000	—
Sundry Debtors	2,000	—
Sundry Creditors	—	5,000
Loose Tools	1,000	—
Loan	—	7,400
Interest on Loan	370	—
Interest on Investments	—	150
Provision for Doubtful Debts	—	140
Bank Overdraft	—	2,500
Cash in hand	70	—
TOTAL	91,785	91,785

Answer :
		HALDER & CO.
Dr.	Trading Account for the year ended on 31st December, 1996						Cr.
Particulars		Rs.	Rs.		Particulars	Rs.	Rs.
To Stock			5,500	By	Sales	59,800
To Purchase		28,600			Less : Return	250	59,550
Less : Return		135	28,465
To Carriage Inward			300	By	Stock (closing)		38,000
To Wages		4,300
Add : Outstanding		200	4,500
To Motive Power			230
To Profit & Loss A/c
(Gross Profit transferred)			58,555
			97,550			97,550
		Halder & Co.
Dr.	Profit & Loss Account for the year ended on 31st December, 1996						Cr.
Particulars		Rs.	Rs.		Particulars	Rs.	Rs.
To Carriage Outward			100	By Trading A/c
To Salaries		340	1,300	— Gross Profit			58,555
To Rent, Rates & Taxes				By Apprenticeship Premium A/c			200
Less : Prepaid		25	315	By Discount received			160
To Insurance			50	By Misc. Receipts		300	310
To Advertisement			500	Add :		10
To Printing & Stationery			45	By Interest on
To Bad Debt			100	Investment		150
To Discount (allowed)			130	Less : Received in
To Interest on Loan			370	advance		20	130
To Depreciation :		625		By Provision for Doubtful Debts :
Building @ 231%				Old Provision		140
Machinery @ 5%		400		Less : New Provision
Loose Tools @ 25%		250	1,275		@ 5% on Rs.2000	100	40
To Provision for Discount @ 5%				By Provision for
on Debtors on (2000–100)			95	discount on Creditors			250
To Interest on Capital @ 5%			800	By Interest on drawings @ 4%
To Capital A/c			54,577	(for 6 months on average)			12
			59,657				59,657

Balance Sheet as at 31st December, 1996

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Capital A/c :			Building	25,000
Opening balance	16,000		Less : Depreciation @ 2.5%	625	24,375
Add : Net Profit	54,577
Add : Interest on Capital	800		Machinery	8,000
	71,377		Less : Depreciation @ 5%	400	7,600
Less : Drawings	600		Furniture & Fittings		2,000
	70,777		Loose Tools	1,000
Less : Interest on			Less : Depreciation @ 25%	250	750
Drawings	12 70,765		Goodwill		8,000
Loan A/c		7,400	Investment		3,000
Sundry Creditors	5,000		Stock (closing)		38,000
Less : Provision for			Sundry Debtors	2,000
discount @ 5%	250	4,750	Less : Provision for	100
Bank Overdraft		2,500	doubtful Debts
Outstanding Wages		200	@ 5%	1,900
Interest received in advance		20	Less : Prov. for discount	95	1,805
			Cash in hand		70
			Accrued Misc. Receipts		10
			Prepaid Rates and Taxes		25
		85,635			85,635

Question 18 :

Prepare the final accounts from the following information :

Mr. T. Dutta is the proprietor of a large business of Silk Piece Goods. The following Trial Balance is prepared from his books as on 31.03.97.

Debit Balance                    Rs.                         Credit Balance                    Rs.

Land & Building	40,000
Purchases	3,26,700
Return Inward	2,500
Travelling Expenses	6,900
Printing & Stationery	1,600
Cash at Bank	30,795
Discount Allowed	1,800
Misc. Expenses	18,620
Sundry Debtors	64,000
Postage	800
Furniture	8,000

Sales	4,68,100
Income from investment	990
12% Bank Loan
secured on Fixed Assets	40,000
(no movements during
the year)	80,000
Capital A/c
Sundry Creditors	63,100
Bills Payable	2,600
Returns Outward	3,700
Discount Received	1,200

Cash in hand	5,900
Motor Car	16,000
Investment	12,000
Drawings	10,000
Bills Receivable	4,800
Stock (1.4.96)	63,680
Interest on Bank Loan	3,000
Salaries (Including an
advance of Rs. 1, 500)	22,000
Carriage Inwards	3,000
Establishment Expenses	1,595
Advertisement	16,000
	6,59,690	6,59,690

a)       Stock as on 31.03.97 was Rs. 1,20,000,

b)       Sundry Debtors include a sum of Rs. 3,000 due from Mr. B. and Sundry Creditors include a sum of Rs. 4,000 due to Mr. B.

c ) The Reserve for Doubtful Debts is to be maintained @ 10% on Sundry Debtors and Reserve for Discount on Debtors and Discount on Creditors are to be created

@   5%.

d)       Bills Receivable include dishonoured bill for Rs. 600.

e)       Stock worth Rs. 10,000 was destroyed by Fire in respect of which the Insurance Company admits a claim for only Rs. 7, 500.

f)       The Manager of Mr. T. Dutta is entitled to a Commission of 10% of Net Profit calculated after charging such Commission.

g)       3/4th of the advertisement expenses are to be carried forward.

h)       2.5% of the Net Profit is to be transferred to Reserve Fund.

i)       Depreciation is to be charged on --

(i)       Land & Building @ 2.5 %;

(ii)       Furniture @ 10% ; and

(iii)      Motor Car @ 20%

Answer :

In the books of Mr. T. Dutta

Dr.		Trading Account for the year ended 31.03.1997				Cr.
	Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock			63,680	By Sales	4,68,100
To Purchases		3,26,700		Less : Returns	2,500	4,65,600
Less : Returns		3,700		By Closing Stock		1,20,000
			3,23,000
To Carriage Inwards			3,000	By Stock Destroyed on fire		10,000
To Gross Profit (transferred to			2,05,920			.
	Profit & Loss A/c)
			5,95,600			5,95,600

In the books of Mr. T. Dutta

Dr.	Profit & Loss A/c for the year ended 31.03.1997					Cr.
	Particulars	Rs.	Rs.	Particulars	Rs.	Rs.

To Travelling Expenses		6,900
To Printing & Stationary		1,600
To Discount allowed		1,800
To Misc. Expenses		18,620
To Postage		800
To Interest on Bank Loan	3,000
Add : Due [(40,000×12%)-3000]	1,800	4,800
To Salaries   22,000
Less : Advance	1,500	20,500
To Establishment Expenses		1,595
To Advertisement	16,000
Less : Transferred to
Balance Sheet	12,000	4,000
To Loss on Stock
destroyed [10,000 - 7,500]		2,500
To Provision for Doubtful
Debts (New) [64,000 - 3,000
= 61,000+600=61,600×10/100]		6,160
To Provision for Discount on
Debtors (New) [61,600 - 6,160
= 55,440 x 5/100]		2,772

By Gross Profit (Transferred
from Trading A/c)	2,05,920
By Income on Investment	990
By Discount Received	1,200
By Discount on
Creditors (New)	3,005
(63,100 - 3,000 = 60,100 x 5/100)

To Depreciation :
	Land & Building – 5%	1,000
	Furniture – 10%	800
	Motor Car – 20%	3,200
To Commission (due)		12,188
To Reserve Fund		3,352
To Net Profit (to be added		1,18,528	.
	with Capital A/c)
		2,11,115	2,11,115

Question 19 :

The following is the Trial Balance of Mr. Nayan Bhattacharjee as on 31.12.98. Prepare a Trading & Profit & Loss account for the year 1998 and the Balance Sheet as on 31.12.98 from it.

	Particulars	(Dr.) Rs.	(Cr.) Rs.
	Purchase (Adjusted)	1,60,000
	Opening Stock	20,000
	Salary less Provident Fund	15,400
	Rent @ 500 p.m.	5,000
	P. F. remittance incl. proprietor’s contribution @ 50%	1,200
	Machinery	45,000
	Wages	15,000
	Furniture & Fittings	40,000
	Electricity	4,000
	Trade Expenses	1,550
	Debtors	25,500
	Interest on Loan	400
	Commission	200
	10% Bank Loan		10,000
	Creditors		15,000
	Building	30,000
	Capital		1,00,000
	Drawings	5,000
	Closing Stock	20,000
	Prepaid Wages	2,000
	Cash at Bank	14,000
	Sales		2,72,250
	Suspense A/c		7,000
		4,04,250	4,04,250

Adjustments :

1.        Wages include Rs. 1,000 paid for machinery erection charge.

2.        Goods costing Rs. 5,000 were destroyed by fire and insurance claim was received for Rs. 4,000.

3.        Sundry Debtors include Rs. 500 proved to be bad and provide @ 10% as Reserve for Bad Debt.

4.        Goods costing Rs. 5,000 were sent to a customer on “sale on approval” basis on 31.12.98. These were recorded as sales. The rate of gross profit was 1/6th of sale.

5.        Two cheques of Rs. 1,000 and Rs. 1,200 were deposited into bank on 29.12.98 but not cleared by the bank till 31.12.98.

6.        Goods withdrawn by the proprietor for personal use but no entry was passed Rs. 2,500.

7.        Discount allowed amounting to Rs. 3,500 had been posted to the debit of Sundry Debtors.

8.        Sales had been overcast on the credit side by Rs. 2,000.

9.        Cash withdrawn from bank Rs. 4,000 had been entered in the bank column of the cash book.

10.        Provide depreciation @ 10% p.a. on all fixed assets.

Answer :

IN THE BOOKS OF NAYAN BHATTACHARJEE

Dr.	Trading Account and Profit & Loss Account for the year ended 31.12.98							Cr.
	Particulars	Rs.	Rs.	Particulars			Rs.	Rs.
To	Opening Stock			20,000	By	Sales		2,72,250
To	Purchase 1,60,000		Less : Sale on App. basis					6,000
Less : Drawings			2,500	1,57,500				2,66,250
To	Wages		15,000
Less : Erection Charge			1,000	14,000	Less : Over Cost			4,000
2,62,250
To	Gross Profit c/d			80,750	By	Stock destroyed by Fire		5,000
					By	Cost of Goods not approved		5,000
				2,72,250				2,72,250
To	Salary A/c		15,400	16,000	By	Gross Profit b/d		80,750
Add : P.F. Deduc. (50% of Rs.600)			600
To	Rent A/c 5,000
Add : Outstanding			1,000	6,000

To	Contribution to P.F. (50% of Rs.1,200)		600
To	Electric Charge		4,000
To	Trade Expenses		1,550
To	Interest on loan	400
Add : Outstanding		100	500
To	Commission		200
To	Loss by Fire		1,000
To	Prov. for Bad Debt		1,200
To	Bad debt		500
To	Deprn. On :	4,600
	Machinery
	Building	3,000
	Furniture	4,000	11,600
To	Capital A/c (N.P. transferred)		37,600	.
			80,750	80,750

Balance Sheet as at 31.12.98

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Capital	1,00,000		Machinery	45,000
Add : Net Profit	37,600		Add : Erection Charges	1,000
	1,37,600			46,000
Less : Drawings (5,000+2,500)	7,500	1,30,100	Less : Depreciation @10%	4,600	41,400
10% Bank Loan		10,000	Building	30,000
Outstanding Rent		1,000	Less : Depreciation @10%	3,000	27,000
Outstanding Interest on Bank Loan		100	Furniture	40,000
Creditors		15,000	Less : Depreciation @10%	4,000	36,000
			Closing Stock (20,000 + 5,000)		25,000
			Prepaid Wages		2,000
			Cash at bank	14,000
			Less : Withdrawal	4,000	10,000
			Debtors	25,500
			Less : Unapproved Sales	6,000
			19,500
			Less : Bad Debt	500
			19,000
			Less : wrong debit	7,000
			12,000
			Less : P.B.D. @10%	1,200	10,800
			Insurance Claim		4,000
		1,56,200			1,56,200

Working Notes :

1.        For Adjustment No. 4 :

Goods are not actually sold when sent for approval unless these are approved on & before the closing date (here 31.12.98) the selling price of the goods (here cost + 1/6th of sale or 1/5th of cost = 5,000 + 1/5 × 5,000 = Rs. 6,000) should be deducted from a Sale and Debtors.

b.        Added with closing stock

2.        For adjustment No. 5 :

Two cheques of Rs. 1,000 and Rs.1,200 were deposited but not cleared by

Bank has not affected as per balance of Cash Book.

3.        For Adjustment No. 7, 8 & 9 :

Sundry debtors have credited by Rs. 7,000 to rectify wrong debit of discount ofRs. 3,500. Cash at bank has been reduced by Rs. 4,000 for omission of posting of withdrawal. Sales have been decreased by Rs. 4,000 due to overcasting.

Dr.	Suspense Account		Cr.
Particulars	Rs.	Particulars	Rs.
To Sundry Debtors (Rs.3,500 × 2)	7,000	By Balance b/d	7,000
To Bank A/c (Cash Withdrawal)	4,000	By Sales A/c (Over Costing)	4,000
	11,000		11,000

4.        In absence of any information regarding date of Bank Loan taken, Interest on Loan is Calculated for 6 months. So interest on Loan should be 10% of Rs.10,000 ×¹/₂ = 500.

Question 20 :

Mr. Salil Ghosh closes his Books on 31st December every year. The following matters are to be taken into consideration while preparing final accounts for the year ended 31.12.98 :

(i)       Goods costing Rs. 3,000 were taken by the proprietors for his personal use.

(ii)       Goods costing Rs. 3,500 were destroyed by fire, but Insurance Company admitted a claim for Rs. 3,000 only.

(iii)      Rs. 1,200 was paid for Insurance premium on 1.9.98 for the year ended 31.8.99.

(iv)       Sales for the period included Rs. 1,500 worth of goods (at cost price) also taken by the proprietor for personal consumption.

Answer :

In the Books of SALIL GHOSH

JOURNAL ENTRIES

Date		Particulars		L.F.	Rs.	Rs.
1.	Drawings A/c			Dr.	3,000
	To Purchase A/c					3,000
	(Being goods taken by proprietor for personal
	consumption)
2.	Stock Destroyed by Fire A/c			Dr.	3,500
	To Trading A/c					3,500
	(Being lost price of goods destroyed by fire)
	Admitted Insurance Claim A/c			Dr.	3,000
	P/L A/c			Dr.	500
	To Stock Destroyed by fire					3,500
	(Being amount recoverable from Insurance Co. and
	balanced being charged to P/L Account)
3.	Prepaid Insurance Premium A/c			Dr.	800
	To Insurance Premium A/c (8/12×1,200)					800
	(Being prepaid Insurance premium adjusted)
4.	Drawings A/c			Dr.	1,500
	To Purchase A/c					1,500
	(Being goods taken by proprietor for his personal
	consumption)