FINAL ACCOUNTING - SPECIMEN QUESTION WITH ANSWERS PART 3

Question 13 :

Vijay Stores submits you with the following information:

(a)  Assets as on 31st May	2001 (Rs.)	2000 (Rs.)
Cash	4,000	5,000
Dues from customers	60,000	50,000
Prepaid expenses	5,000	3,000
Stock at cost	40,000	35,000
Bank balance (as per pass book)	15,000	20,000
Fixed assets (cost as on 1.6.1996)	75,000	75,000
(b)  Liabilities as on 31st May
Suppliers of goods	37,000	43,000
Loan from Desouza	—	25,000
Outstanding expenses	3,000	2,000
(c)  On checking the bank pass book, you find that:
(i) cheques received from customers on or	55,000	45,000
before 31st May, but realised after 31st May, were
(ii) cheques issued by 31st May, but presented for
payment to the bank after 31st May, were	23,000	27,000
(d)  During the year ended 31st May, you find that:
	2000-2001 1999-2000
	Rs.	Rs.
(i)  cash withdrawn from bank amounted to	1,50,000	1,35,000
of which cash taken for personal use was	1,00,000	90,000
(ii)  cash deposited in bank out of collection from customers
— cash sales	60,000	55,000
(iii)  cash & cheques deposited in bank— collections from
credit customers	4,50,000	4,00,000
(iv)  cheques issued to suppliers amounted to	3,00,000	2.80.000
(v)  cheques issued for expenses	25,000	30,000
(vi)  discount allowed to customers	7,000	6,000
(vii)  discount allowed by suppliers	8,000	5,000
(viii)  cost of goods taken for personal use from stock	6,000	4,000

(e)       The cost of fixed assets was to be written off over 10-year period under straight line method.

(f)       Vijay Stores donated to Gujarat Earthquake Relief Fund by cheque Rs. 26,000.

(g)       Payment made to Desouza out of personal funds was Rs. 29,500 against Rs. 4,500 similarly paid in 1999-2000.

Vijay Stores asks you to prepare:

Either,

(i)       Statement of affairs as on 31st May, 2000 -2001, and

(ii)      Statement of profit or loss during the year ended 31st May, 2001.

Or,

(iii)      Trading and profit and loss account for the year ended 31st May, 2001, and

(iv)       Balance sheet as on 31st May, 2001

Show your working.

Answer :
Working Notes.
1.  Computation of Depreciation.
Cost of Fixed Asset	Rs. 75,000
Date of purchase	1.6.1996
Depreciation Method	Straight line
Useful Life	10 years
Rate of Depreciation	10%
Amount of Depreciation	Rs. 7,500
Accumulated Depreciation upto
31.5.2000 = (Rs. 7500)×4 =	Rs. 30,000
Deprn. for the F.Y.2000-20001	Rs. 7,500
Accumulated Deprn. upto 31.5.2001	Rs. 37,500
2.  Bank Reconciliation Statement
		For the year ended
		31.5.2001	31.5.2000
Balance as per Pass Book		15,000	20,000
Add: Cheques deposited but not credited by bank		55,000	45,000
		70,000	65,000
Less : Cheques issued but not presented for payment		23,000	27,000
Balance as per Book		47,000	38,000

Alternative (i) :
	Vijay Stores
Statement of Affairs as on 31st May 2001
	Current Year		Previous Year
Assets owned :	Rs.	Rs.	Rs.	Rs.
Cash		4,000		5,000
Bank		47,000		38,000
Debtors		60,000		50,000
Prepaid Expenses		5,000		3,000
Stock  at cost		40,000		35,000
Fixed Assets —
At cost	75,000		75,000
Less: Accumulated Deprn.	37,500	37,500	30,000	45,000
Total (A)		1,93,500		1,76,000
Less : Liabilities owed – Loan
from De Souza		—		25,000
Creditors	37,000		43,000
for goods
for Expenses	3,000	40,000	2,000	45,000
Total (B)		40,000		70,000
Capital (A) – (B)		1,53,500		1,06,000
(b) Statement of Profit/Loss for the year ended 31.05.2001
Capital at the end of the year		Rs. 1,53,500
Add: Drawings during the year
Cheque	1,00,000
Goods	6,000		1,06,000
			2,59,500
Less:  Business Liabilities paid out of personal funds :
Loan from Desouza	25,000
Interest thereon	4,500		29,500
			2,30,000
Deduct: Capital at the
commencement of the year			1,06,000
Profit earned during the year			1,24,000

Alternative (ii) :

Working Note No. 1 :

Cash and Bank Abstract.

		Particulars	Cash	Bank			Particulars	Cash	Bank
To	Opening Balance		5,000	38,000		By	Drawings	—	1,00,000
To	Bank (contra)		50,000			By	Cash (contra)		50,000
To	Cash sales		60,000			By	Bank (contra)	60,000
To	Cash (contra)			60,000		By	Creditors		3,00,000
To	Debtors			4,50,000		By	Expenses	51,000	25,000
						By	Donation	—	26,000
						By	Closing balance	4,000	47,000
			1,15,000	5,48,000				1,15,000	5,48,000
		Working Note No. 2 :
Dr.				Expenses A/c					Cr.
		Particulars		Rs.			Particulars		Rs.
	To	Prepaid A/c		3,000	By	Outstanding expenses			2,000
	To	Cash		51,000	By	Closing Prepaid			5,000
	To	Bank		25,000	By	Profit & Loss A/c			75,000
	To	Outstanding expenses		3,000
				82,000					82,000
		Working Note No. 3 :
Dr.				Sundry Debtors A/c					Cr.
		Particulars		Rs.			Particulars		Rs.
	To	Balance		50,000	By	Bank			4,50,000
	To	Sales		4,67,000	By	Discount			7,000
					By	Closing balance			60,000
				5,17,000					5,17,000
		Working Note No. 4 :
Dr.				Sundry Creditors A/c					Cr.
		Particulars		Rs.			Particulars		Rs.
	To	Bank		3,00,000	By	Opening balance			43,000
	To	Discount Recd.		8,000	By	Purchase A/c			3,02,000
	To	Balance (Closing)		37,000
				3,45,000					3,45,000

Alternative (iii) :

Vijay Stores

Trading and Profit & Loss A/c for the year ended 31st May 2001

		Particulars		Rs.		Particulars		Rs.
	To	Opening Stock		35,000	By	Sales
	To	Purchases		3,02,000		Cash	60,000
	To	Gross Profit c/d		2,36,000		Credit	4,67,000	5,27,000
					By	Capital A/c – cost of
						goods withdrawn		6,000
					By	Closing stock		40,000
				5,73,000				5,73,000
	To	Expenses		75,000	By	Gross Profit b/d		2,36,000
	To	Discount		7,000	By	Discount earned		8,000
	To	Interest		4,500
	To	Depreciation		7,500
	To	Donation		26,000
	To	Net profit for the year
		transferred to Capital A/c		1,24,000
				2,44,000				2,44,000
		Alternative (iv) :
				Vijay Stores
				Balance Sheet as at 31st May 2001
	Capital & Liabilities		Rs.	Rs.		Property & Assets	Rs.	Rs.
	Capital A/c				Fixed Assets
	As per last A/c			1,06,000		As cost	75,000
	Add :	1) Amt. introduced		29,500	Less : Deprn. to date		37,500	37,500
		2) Net profit		1,24,000	Stock			40,000
				2,59,500

Less :  Drawings	1,00,000
Cheque
Goods	6,000	1,06,000
		1,53,500
Sundry Creditors
For goods	37,000
For expenses	3,000	40,000
		1,93,500

Sundry debtors	60,000
Prepaid expenses	5,000
Cash-in-hand	4,000
Cash-at-bank	47,000

1,93,500

Question 14 :

Bhola submits the following trial balance as on 31st May, 2001:

Capital: Opening	Dr.(Rs.)	Cr. (Rs.)
	—	3,00,000
Drawings	60,000	—
Fixed assets—WDV— Opening	70,000	—
Fixed assets — purchased during the year	50,000	—
Stock on Ist June, 2000	30,000	—
Purchase	8,00,000	—
Purchase returns	—	35,000
Sales	—	9,00,000
Sales returns	50,000	—
Customers dues	1.25,000	—
Creditors for :
Fixed assets purchased	—	10,000
Goods purchased	—	1,00,000
Expenses	25,000	—
Fixed deposit with bank	1,00,000	—
Interest on bank fixed deposit	—	10,000
Cash	—	4,000
Bank balance in current account	50,000	—
Suspense (difference in trial balance)	—	1,000
	Rs. 13,60,000	13,60,000

Bhola informs you that:

(a)       Stock on 31.5.2001 is worth Rs.60,000 at sales price and Rs.50,000 at cost price.

(b)       Depreciation of Rs. 9,000 is to be provided for the year.

Bhola asks you to check up his books and pass necessary entries to correct the mistakes (if any).

On your checking you find that :–

(i)       A sum of Rs. 10,000 drawn from the bank on 1.1.2001 was debited to drawings account in full although Rs. 6,000 out of the said withdrawal was used in the business for meeting day to day expenses and payment, which were also entered in the cash book..

(ii)      Purchases of goods worth Rs. 8,000 made on 28th May, 2001 was not recorded in the books; although the sale thereof on 30th May, 2001 at Rs. 9,000 was properly recorded.

(iii)      Purchase returns of Rs. 500 was recorded through sales returns journal. However the posting to the Party’s account in the ledger was for the correct amount and on the correct side.

(iv)       Expenses paid include Rs. 3,000 in respect of period after 31st May, 2001. Bhola wants you to prepare his final accounts for the year ended 31st May. 2001.

Answer :

Note : Entries passed in the books in respect of Item Nos. (i) and (iii)

Re: Item No. (i)

Cash		Dr.	10,000
To Bank			10,000
Drawings		Dr.	10,000
Expenses		Dr.	6,000
To Cash			16,000

Thus there was a negative cash balance of Rs. 6,000

Re: Item No. (iii)

In this case purchase returns were passed through sales return. The effect of this was instead of crediting the Purchase Returns the same was debited to Sales Return. In the result there was a difference of Rs. 1000 which was shown in the trial balance under the head Suspense A/c.

Rectification Entries to be passed

Re: Item No. (1)
Cash			Dr.	6000
To Drawings				6000
(Being rectification of debit given on 01-01-2001 to
Drawings A/c as it is overstated by Rs. 6000, actual
drawing being Rs. 4000)
Re: Item No. 2
Purchase			Dr.	8000
To Suppliers				8000
(Being the passed to record the purchase on 28.5.2001)
Re: Item No. 3
Suspense			Dr.	1000
To Purchase Returns				500
To Sales Returns				500
(Being rectification of Purchase Return wrongly entered
in the Sales Return Day Book)
Re: Item No. 4
Prepaid Expenses			Dr.	3000
To Expenses				3000
(Being prepaid expenses wrongly debited to expenses
A/c)

Working Note No. 2 :  Effect of Entries in the Final A/cs

1.	Drawings	As per Trial Balance		Adjustment		Adjusted figures
		Dr	Rs.10,000	Cr	6,000	Dr	4,000
2.	Cash	Cr	4,000	Dr	6,000	Dr	2,000
3.	Purchase	Dr	8,00,000	Dr	8,000	Dr	8,08,000
4.	Suppliers	Cr	1,00,000	Cr	8,000	Cr	1,08,000
5.	Purchase Returns	Cr	35,000	Cr	500	Cr	35,500
6.	Sales Returns	Dr	50,000	Cr	500	Dr	49,500
7.	Suspense	Cr	1,000	Dr	1,000		—
8.	Expenses	Dr	25,000	Cr	3,000	Dr	22,000
9.	Prepaid Expenses	Dr	—	Dr	3,000	Dr	3,000

Bhola

Trading and Profit & Loss Account for the year ended 31.05.2001

To	Opening Stock		30,000	By	Sales	9,00,000
To	Purchase	8,08,000			Less: Returns	49,500	8,50,500
	Less: Returns	35,500	7,72,500	By	Closing Stock		50,000
To	Gross Profit c/d		98,000
	Total		9,00,500		Total		9,00,500
To	Expenses		22,000	By	Gross Profit b/d		98,000
To	Depreciation		9,000	By	Interest on Bank Deposit		10,000
To	Net Profit transferred to Capital A/c		77,000
			1,08,000				1,08,000
			BHOLA
		Balance Sheet as at 31st May, 2001
Sundry Creditors		1,18,000		Cash			2,000
	For Goods	1,08,000		Bank-Current A/c			50,000
	For Others	10,000		Fixed Deposit with Bank			1,00,000
		1,18,000		Stock (At Cost)			50,000
				Sundry Debtors			1,25,000
				Prepaid Expenses			3,000
Capital		3,23,000		Fixed Assets :
	As per Last A/c	3,00,000		Opening WDV		70,000
	Add : Profit for the year	77,000		Addition during the year		50,000
		3,77,000				1,20,000
	Less: Drawings	54,000		Less: Depreciation		9,000	1,11,000
		3,23,000
	Total	4,41,000		Total			4,41,000

Question 15 :

On 31st March, 2001 James owned

(i)       a shop which had cost him Rs. 40,000;

(ii)       furniture and fittings whose cost was Rs. 30,000 and on which depreciation of Rs. 28,000 was provided over the last 28 years;

(iii)      a delivery van which had cost him Rs. 150,000 on which depreciation of Rs. 120,000 was provided over the last 8 years;

(iv)       An inventory which cost him Rs. 13,000 and which was expected to be sold for Rs. 15,000.

As on that date :

(a)        his customers owed him Rs. 40,000;

(b)        his unpaid suppliers for goods amounted to Rs. 15,000;

(c)        he had given advance of Rs. 8,000 to his suppliers against orders to be executed after March 31, 2001;

(d)        he had received advance of Rs. 11,000 from his customers against orders to be executed after March 31, 2001;

(e)        expenses already paid for the period after March, 2001 were –

(i)       insurance for the year to end on 31st January, 2002 at Rs. 600 per month,

(ii)      subscription to periodicals for the year to end on June 30, 2001 at Rs. 30 per month;

(f)        expenses incurred during the year ended March 31, 2001 but not yet paid amounted to Rs. 2,000;

(g)         he had Rs. 1,300 in his cash box; fixed deposit of Rs. 100,000 with Union Bank of India carrying interest at 10% per annum payable on 31st December and 31st March every year; the bank owed him Rs. 3,000 in his business cash credit account. The cash credit account had drawing power of 80% of the amount of fixed deposit;

(h)        during the year ended March 31, 2001 James had withdrawn Rs. 48,000 for personal use and had earned a net profit of Rs. 63,390.

James asks you to –

(i)       prepare the balance sheet as at March 31, 2001

(ii)       open his accounts for the year starting on April, 2001.

Answer :
i)			James
	Balance sheet as at March 31, 2001
Liabilities	Rs.	Rs.	Assets		Rs.	Rs.	Rs.
Sundry creditors for :			Cash and bank balances :
Goods	15,000		Cash			1,300
Services	2,000		Balance with union
		17,000 Bank of India in
			Cash credit A/c			3,000
			Fixed deposit A/c			1,00,000
Advance from customers		11,000					1,04,300
Capital :
Opening balance	2,00,000		Customer’s dues				40,000
Net profit	63,390		Advance to suppliers of :
	2,63,390		Goods				8,000
Less : Drawings	48,000		Prepaid expenses : :
		2,15,390	Insurance (600 × 10)		6,000
			Periodicals (30 × 3)		90
						6,090	6,090
			Inventory at cost				13,000
			Delivery van cost			1,50,000
			Less : Provision for depreciation			1,20,000	30,000
			Furniture and fittings at cost			30,000
			Less : Provision for depreciation			28,000
							2,000
			Shop at cost				40,000
		243,390					2,43,390
ii)		James Ledger for 2001-2002
		Sundry creditors for goods
Date		Rs.	Date				Rs.
			1-4-2001	Opening balance			15,000
		Sundry creditors for services
Date		Rs.	Date				Rs.
			1-4-2001	Opening balance			2,000

Advance from customers

Date		Rs.	Date		Rs.
			1-4-2001	Opening balance	11,000
			Capital
Date		Rs.	Date		Rs.
			1-4-2001	Opening balance	215,390
			Cash
Date		Rs.	Date		Rs.
1-4-2001	Opening balance	1,300
		Union Bank of India – Cash Credit A/c
Date		Rs.	Date		Rs.
1-4-2001	Opening balance	3,000
		Fixed deposit with Union Bank of India
Date		Rs.	Date		Rs.
1-4-2001	Opening balance	100,000
			Customer’s A/c
Date		Rs.	Date		Rs.
1-4-2001	Opening balance	40,000
		Advance to suppliers of Goods
Date		Rs.	Date		Rs.
1-4-2001	Opening balance	8,000
	Advance to suppliers of services of Insurance & Periodicals
Date		Rs.	Date		Rs.
1-4-2001	Opening balance
	Insurance	6,000
	Periodicals	90
			Inventory
Date		Rs.	Date		Rs.
1-4-2001	Opening balance	13,000

Delivery van

Date		Rs.	Date		Rs.
1-4-2001	Opening balance	1,50,000
		Furniture and Fittings
Date		Rs.	Date		Rs.
1-4-2001	Opening balance	30,000
			Shop
Date		Rs.	Date		Rs.
1-4-2001	Opening balance	40,000
		Provision for depreciation on Delivery van
Date		Rs.	Date		Rs.
			1-4-2001	Opening balance	1,20,000
		Furniture and fittings
Date		Rs.	Date		Rs.
			1-4-2001	Opening balance	28,000