FINAL ACCOUNTING - SPECIMEN QUESTION WITH ANSWERS PART 5

Question 21 :

The following is the schedule of balances as on 31.03.98 extracted from the books of Kalidas Gupta :

	Dr.(Rs.)	Cr.(Rs.)
Cash in Hand	2,800
Cash at flank	5,200
Sundry Debtors	172,000
Stock as on 01.04.97	124,000
Furniture & Fixture	42,800
Office Equipment	32,2 00
Building	120,000
Motor Car	40,000

Sundry Creditors		86,000
Loan from Mr. Goel		60,000
Reserve for Bad Debt		6,000
Purchases	280,000
Sales		460,000
Purchase Returns		5,200
Sales Returns	8,400
Salaries	22,000
Motor Car Expenses	7,200
Rent for Godown	11,000
Interest on Loan from Mr. Goel	5,400
Rent & Taxes	4,200
Discount Allowed	4,800
Discount Received		3,200
Freight	2,400
Carriage Outward	4,000
Drawings	24,000
Printing & Stationary	3,600
Electric Charges	4,400
Insurance Premium	11,000
General Expenses	6,000
Bad Debt	4,000
Bank Charges	3,200
Capital		324,000
	944,400	944,400

Prepare Trading and Profit & Loss Account for the year ended 31.03.98 and the Balance Sheet as on that date after making provision for the following —

1.        Depreciation :

(a)        Building used for business by 5%

(b)       Furniture and Fitting by 10% – one steel table purchased during the year for Rs. 2,800 was sold for the same price but the sale proceeds were wrongly credited to Sales Account.

(c)        Office Equipment by 15% – A type writer purchased during the year for Rs. 8,000 has been wrongly debited to Purchase Account.

(d)        Motor Car by 20% .

2.        Value of stock at the close of the year Rs. 88,000.

3.        One month’s Rent for godown is outstanding.

4.        One month’s salary is outstanding.

  5.       Interest on loan from Mr. Goel is 12% per annum. This loan was taken on 01.05,97.

6.       Reserve for bad debt to be maintained at 5% on Sundry Debtors.

7.       Insurance premium includes Rs. 8,000 paid towards proprietor’s Life Insurance Policy and the balance of the insurance charges cover the period from 01.04.97 to 01.07.98.

8.       Half of the building is used for residential purposes of Kalidas Gupta.

Answer :

Trading Account for the year ended 31.03.1998

	To	Opening Stock			124000	By	Sales	460000
	“	Purchases	280000				Less : Sale
		Less : Purchase of					of fitting	2800
		Office Equipment		8000				457200
		Less : Returns		5200	266800		Less : Returns	8400	448800
	“	Freight			2400
	“	Gross Profit c/d			143600	“	Closing Stock		88000
					536800				536800
		Profit and Loss Account for the ended 31.03.98
	To	Salaries		22000		By	Gross Profit c/d	143600
		Add : Outstanding		2000	24000	“	Discount Received	3200
	“	Rent for godown		11000
		Add : Outstanding		1000	12000
	“	Interest on Loan		5400
		Add : Outstanding		1200	6600
	“	Rates & Taxes			4200
	“	Discount Allowed			4800
	“	Carriage Outward			4000
	“	Printing & Stationery			3600
	“	Electric Charges			4400
	“	Insurance Premium		11000
		Less : Premium on
		own life policies		8000
	Less : Prepaid 3/15 x 3000			3000	2400
				600
	“ General Office Expenses				6000
	Res. for bad debt (5%)			8600
		Add: Bad debts		4000
				12600
		Less: Existing Res.		6000	6600

“	Bank Charges		3200
“	Motor Car Expenses		7200
“	Depreciation —
	Building	3000
	Furniture	4000
	Office Equipment	6000
	Motor Car	8000	21000

“   Net Profit transferred

			to Balance Sheet	36800			.
				146800			146800
				Balance Sheet of Kalidas Gupta
				as at 31.03.98
		Liabilities		Rs.	Assets		Rs.
		Capital A/c Balance		324000	Building	120000
		Add : Net Profit		36800	Less : Depreciation	6000	114000
				360800

Less : Drawings	35000	325800
(24000 + 8000 + 3000)
Loan from Mr. Goel		60000
Interest accrued		1200

Current Liabilities :
Sundry Creditors	86000
Outstanding Expenses —
Salaries	2000
Godown	1000	89000
		476000

Furniture & Fittings	42800
Less : Sales	2800
Less : Depreciation	40000
	4000	36000
Office Equipment	32000
Add : Purchase	8000
Less : Depreciation	6000	34000
Motor Car	40000
Less : Depreciation	8000	32000
Current Assets :
Stock in Trade		88000
Sundry Debtors	172000
Less : Res. for B/Debt	8600	163400
Cash at Bank		5200
Cash in hand		2800
Prepaid Insurance		600
		476000

Working : —
Drawings as per Trial Balance	24000
Add : Insurance Policy on own life	8000
	32000
Add : Depreciation of Building	3000
used for own life	35000

SELF-EXAMINATION QUESTIONS

1.       Define Capital Expenditure, Revenue Expenditure and Deferred Revenue Expenditure.

2.        Explain the basic principles in allocating expenditure between capital and revenue.

3.        Distinguish, giving examples, between Trial Balance and Balance Sheet.

4.        Pass entries to adjust the following :

a)       Salary paid Rs. 15,000; opening and closing outstanding salaries are Rs. 1,000 and Rs. 3,000 respectively.

b)       Consumption of materials at cost not recorded.

c ) Provide 5% on sundry debtors and 2% Reserve for discount allowable, closing balance of Sundry Debtors Rs. 60,000, from which Rs. 2,000 is to be written off.

5. A Company prepared its financial statement for the year ended 31st March, 1994, after transferring the difference in Trial Balance to a Suspense Account which was carried to the Balance Sheet.

In the next year the following errors were discovered relating to the year 1993-94 :

(a)       Wages included Rs. 8,000 towards installation of a new plant on 1st April 1993. The company charges depreciation on plant and machinery @ 15% p.a.

(b)       A cheque of Rs. 10,800 was paid to a creditor who allowed 10% cash discount but the payment was wrongly posted to purchase account Rs.1,080 only without any other entry.

(c)       Sundry Debtors include Rs. 1,500 which proved irrecoverable but was not written off. A Reserve for Bad Debt was created only on closing debtors.

(d)       A Bills receivable amount Rs. 6,000 was discounted for Rs. 5,800, but the proceeds was posted to Sales Account as Rs. 580 and no other entry was made in this respect.

Give the appropriate Journal entries to rectify the above errors.

6.          (a)  What is depreciation? What are causes of depreciation?

(b)      Bajaj & Co. close their account on 31st March every year. They purchased the machineries as follows :

(i)       Purchased the machineries costing Rs. 1,20,000 on 1.7.90.

(ii)      On 1.1.91, some machines were purchased costing Rs. 1,20,000.

(iii)      On 1.10.91, again purchased some machinery costing Rs. 20.000.

(iv)       On 1.1.92, purchased a new machine for Rs. 60,000.

(v)       One machine costing Rs. 40,000 which was purchased on 1.7.90, was sold for Rs. 12,000 on 1.4.92.

(vi)       They charge depreciation @ 331/3 % on the written-down value method.

(vii)      They have the practice to charge depreciation for the full year even if the machinery is used for a part of the year.

Prepare Machinery A/c in the Books of Bajaj & Co. for the three years — 1990-91, 1991-92, 1992-93.

[Ans. : Balance on 31.3.91 Rs. 1.6L ; 31.3.92 Rs. 1.6L and 31.3.93 Rs. 0.94815L]

7.        A Ltd. provides for doubtful debts @ 5% and for discount on debtors @ 2%. From the following details you are required to show the journal entries in the books of A Ltd.

Debtors as on 31.12.94 were Rs. 25,600 including bad debts of Rs. 600. Debts written off during the year excluding this Rs. 600 amounted to Rs. 1,330. Discount allowed during the year was Rs. 400. Provision for doubtful debts and that for discount on 1.1.94 were Rs. 2,740 and Rs. 380 respectively.

[Ans. : Provision for doubtful debts Rs. 440 ; Prov. for discount on debtors Rs. 475]

8.        The financial year of Mr. X ends on 31st March 1995 but the stock on hand was physically verified only on 7th April 1995. You are required to ascertain the value of closing stock (at cost) as on 31st March 1995 from the following information :–

(a)       The stock (valued at cost) as verified on 7th April 1995 was Rs. 1,54,000.

(b)       Sales have been entered in the Sales day book only after the despatch of goods and sales return only on receipt of the goods.

(c)        Purchases have been entered in the Purchase day book on receipt of the purchase invoice irrespective of the date of receipt of the goods.

(d)        Sales as per sales day book for the period 1st April 1995 to 7th April 1995 (before the actual verification) amounted to Rs. 68,800 of which goods of a sale value of Rs. 12,000 had not been delivered at the time of verification.

(e)       Purchases as per Purchase day book for the period 1st April 1995 to 7th April 1995 (before the actual verification) amounted to Rs. 58,000 of which goods for purchases of Rs. 15,000 had not been received at the date of verification and goods for purchases of Rs. 20,000 had been received prior to 31st March 1995.

(f)       In respect of goods costing Rs. 50,000 received prior to 31st March 1995, invoices had not been received up to the date of verification of stocks.

(g)        The gross profit is 25% on sales.

[Ans. : Value of Closing Stock on 31.3.1995 Rs. 1,03,600]

9.        (a) The net income of Mr. A. K. Bose for the year ended 31st December, 1994 under cash basis was Rs. 10,875. From the following particulars, pass Journal entries, to convert his income from cash basis to accrual basis and ascertain his income under accrual basis :

Accrued fees	1-1-1994 (Rs.)	31-12-94 (Rs.)
	350	450
Fees received in advance	100	50
Expenses outstanding	200	150
Prepaid expenses	100	175

[Ans. : Income under Accrual basis Rs. 11,150]

(b)       A manager is entitled to a commission at a certain percentage of net profit (such commission to be charged in arriving at the net profit).

The commission is to be allowed on the following rates :—

First Rs. 10,000 of the net profit			Nil
Next Rs. 20,000	"	"	@ 10%
Next Rs. 30,000	"	"	@ 15%
Next Rs. 60,000	"	"	@ 20%
Balance	"	"	@ 30%

The net profit before charging the manager’s commission is Rs. 1,45,000. Compute the amount of manager’s commission.

[Ans. : Manager's commission Rs. 18,500 + Rs, 1,500 = Rs. 20,000]

10.       Discuss how the following items shall be treated in the Final Accounts :–

(a)        Wages for extension of buildings;

(b)        Carriage on new machinery;

(c)        Preliminary expenses;

(d)        Interest paid on capital during constructions;

(e)        Advertisement expenditure in special advertisement drive.

11.       The following is the Balance Sheet of the retail business of Mr. Padamsi as on 31.12.1995 :

	Liabilities	Rs.	Assets	Rs.
	Mr. Padamsi’s Capital Account	1,25,000	Furniture & Fittings	25,000
	Creditors for goods	30,000	Stock	75,000
	Outstanding expenses (rent)	1,000	Sundry Debtors	20,000
			Cash at bank	35,000
			Cash in hand	1,000
		1,56,000		1,56,000

You are furnished with the following information :–

(1)       Mr. Padamsi always sells his goods at a profit of 25% on sales.

(2)       Goods are sold for cash and credit. Credit customers pay by cheque only.

(3)       Payments for purchases are always made by cheque.

(4)       It is Mr. Padmasi’s practice to bank his takings at the end of every week after paying the weekly expenses, viz., salaries to clerk Rs. 250, sundry expenses Rs. 50, and personal expenses Rs. 100.

Analysis the bank pass book for the period ended 31.3.1996 disclosed the following :

Payments to creditors	Rs. 75,000
Payment of rent	4,000

Amount remitted to the bank Rs. 1,35,000 (including cheques for Rs. 10,000 received from customers to whom the goods were sold on credit).

The following are the balances as on 31.3.1996 :

Stock	Rs. 32,500
Creditors for goods	32,500
Sundry Debtors	30,000

In the evening of 31.3.1996, the cashier absconded with the available cash in the cash box. You are required to prepare a statement, showing the amount of cash defalcated by the cashier, and also a profit and Loss Account for the year ended 31.3.1996.

[Ans. : Cash defalcated by the cashier Rs. 10,800 ; Net Profit Rs. 22,300 ; Balance Sheet total Rs. 1,78,500 and Cash sales Rs. 1,40,000]