Final Accounts - Illustration :

Illustration 8 

On 31st March, 2003, the Trial Balance of Mr. Good did not agree. The difference was transferred to a Suspense Account. In May 2003, the errors of March 1997 were discovered. They are:

1)       The Returns Outwards Book was overcast by Rs. 700.

2)       Purchase of furniture Rs. 2000 was passed through the Purchases Book.

3)       Wages to workmen for installation of machinery Rs.1250 was charged to Wages A/c.

4)       Payment of rent of Mr. Goods house Rs. 750 was charged to Rent A/c.

5)       Goods returned by a customer amounted to Rs. 950 were taken into stock but no entry was made in the book.

6)       Sale of goods worth Rs. 1700 has been passed through Purchases book. The Customer's A/c has been however debited correctly.

7)       Sale of Rs. 2250 to M/s Wye Ltd was credited to their A/c.

8)       Sales Book total while being carried forward to the next page was written as Rs. 219431 instead Rs. 291341.

9)       A sale of Rs. 760 has been posted to the credit of the customer's Mr. Zed A/c as Rs. 670.

10)       A cheque for Rs. 1500 received from M/s Sky Bros was dishonoured and posted to the debit of Allowances A/c.

Give journal entries to rectify the above errors without affecting the current year's Profit and Loss Adjustment A/c

Prepare the Profit & Loss Adjustment A/c.

Solution :

		Particulars		Dr.	Cr.
1)	P & L Adjustment A/c		Dr	700
	To Suspense A/c				700
2)	Furniture A/c		Dr	2000
	To P & L Adjustment A/c				2000
3)	Machinery are		Dr	1250
	To P & L Adjustment A/c				1250

4)		Drawings A/c					Dr	750
		To P & L Adjustment A/c						750
5)		P&L Adjustment A/c					Dr.	950
		To Customer’s A/c						950
6)		Suspense A/c					Dr	3400
		P&L Adjustment A/c						3400
7)		M/s Wye Ltd. A/c					Dr	4500
		To Suspense A/c						4500
8)		Suspense A/c					Dr	71910
		To P&L Adjustment A/c						71910
9)		Suspense A/c					Dr	1430
		To Mr. Z’s A/c						1430
10)		M/s Sky Bros. A/c					Dr	1500
		To P&L Adjustment A/c						1500
		P&L Adjustment A/c					Dr	79160
		To Capital A/c						79160
Dr.				Profit And Loss Adjustment Account				Cr.
Date		Particulars			Rs.	Date	Particulars	Rs.
	To	Suspense A/c			700	By Furniture		2000
	”	Customer’s A/c			950	”	Machinery	1250
	”	Capital A/c (Bal. fig)			79160	”	Drawings	750
	”					”	Suspense	3400
						”	Suspense	71910
						”	M/s Sky Bros.	1500
					80810			80810

Illustration 9 :

The books of accounts of B. Quick for the year ending 31st March, 2003 were closed with a difference in books carried forward. The following errors were detected subsequently:

(i)       Goods Rs. 125 returned to Mita Bros. were recorded in the Returns Inward Book as Rs. 251 and from there it was posted to the debit of Mita Bros. Account.

(ii)      A credit sale of Rs. 760 was wrongly posted as Rs. 670 to the customers account in the Sales Ledger.

(iii)      Closing Stock was overstated by Rs. 5,000 being casting error in the schedule of inventory.

(iv)       Paid acceptance to Bala Ram for Rs. 7,600 was posted to the debit of Sita Ram as Rs. 6,700.

(v)       Goods purchased from A & Co. Rs. 3,250 entered in the Sales Day Book for Rs. 3,520.

(vi)       Rs. 1,500 being the total of the discount column on the credit side of the Cash Book was not posted. Pass rectification entries in the next year.

Solution :

In the books of B. Quick

JOURNAL ENTRIES

		Particulars		LF	Dr.(Rs.)	Cr.(Rs.)
i)	Suspense A/c (251×2)			Dr.	502
	To Mita Bros. (251 – 125)					126
	To Profit & Loss Adjustment A/c					376
	(Being the amount of purchase return to Mita Bros.
	Rs. 125 wrongly recorded in return inward book as Rs.
	251 and posted to the debit of Mita Bros. A/c — now
	rectified)
ii)	Sundry Debtors A/c			Dr.	90
	To Suspense account (760 – 670)					90
	(Being credit sale of Rs. 760 wrongly posted to the
	customers account as Rs. 670 — now rectified).
iii)	Suspense A/c			Dr.	5,000
	To P&L adjustment A/c					5,000
	(Being Closing Stock amount was wrongly overcast
	— now rectified).

iv)	Bala Ram’s A/c			Dr.	7,600
	To Sita Ram’s A/c				6,700
	To Suspense A/c				900
	(Being acceptance paid to Bala Ram Rs. 7,600 wrongly
	posted to the debit of Sita Ram as Rs. 6,700 — now
	rectified).
v)	Profit & Loss Adjustment A/c			Dr.	6,770
	To M/s A. & Co. A/c				6,770
	(Being goods purchased from A & Co. Rs. 3,250
	entered wrongly in Sales Day Book as Rs. 3,520 —
	now rectified).
vi)	Suspense A/c			Dr.	1,500
	To Profit & Loss Adjustment account				1,500
	(Being the amount of discount column on the Credit
	side of Cash Book was not posted — now rectified).

Illustration 10 :

Following mistakes occurred in a computerised accounting system :–

(a)        Payment of Rs. 10,000 to a party by cheque was recorded through the receipt column of the bank account;

(b)        Receipt of Rs. 25,000 from a customer was entered through the payment column of the bank account;

(c)        Purchase invoice of Rs. 51,000 was entered through the sales journal as Rs. 15,000;

(d)        Sales bill of Rs. 46,000 was entered through the purchase journal as Rs. 64,000;

(e)        Returns inwards of Rs. 6,000 was entered through the purchase journal as Rs. 60,000;

(f)        Returns outwards of Rs. 5,000 was entered through the sales journal as Rs. 500.

What will be the changes in final accounts on rectification of the above mistakes? Pass the rectification entries and pinpoint the changes.

Solution :

Rectification and effects

a)	Sundry Debtors	Dr.	20,000
	To Bank Account		20,000

Effect : Liability to suppliers-reduced by Rs. 20,000; Bank balance-reduced by Rs. 20,000;

(No impact on Profit/loss)

b)	Bank Account					Dr.	50,000
	To Sundry Creditors Account						25,000
	To Sundry Debtors Account						25,000
	(assuming the supplier party wrongly debited)
	Effects :  Dues from customers-reduced by Rs.
	25,000;		Bank balance -increased by Rs. 50,000
			Dues to supplier party-increased by
			Rs. 25,000; No impact on Profit/loss.
c)	Purchases Account					Dr.	51,000
	Sales Account						15,000
	To Party Account						51,000
	To Sundry Account						15,000
	Effect :		Liabilities to suppliers-increased by Rs. 51,000;
			Purchases-increased by Rs.51,000;
			Sundry debtors-reduced by Rs. 15,000
			Sales reduced by Rs. 15,000
			Profit reduced by Rs. 66,000
d)	Sundry Creditors Account					Dr.	64,000
	Sundry Debtors Account					Dr.	46,000
	To Purchases Account						64,000
	To Sales Account						46,000
	Effect :		Personal account of the party reduced by Rs. 64,000;
			Sales-increased by Rs. 46,000;
			Sundry debtors-increased by Rs. 46,000;
			Profit-increased by Rs. 1,10,000
e)	Returns Inwards Account					Dr.	6,000
	Sundry creditors Account					Dr.	60,000
	To Sundry Debtors Account						6,000
	To Purchases Account						60,000
	Effect :		Amount due to supplier party-reduced by Rs. 60,000;
			Purchase-reduced by Rs. 6,000;
			Sundry debtors-reduced by Rs. 6,000;
			Profit-goes up by Rs. 54,000.

f)	Returns Outwards Account	Dr.	5,000
	Sales Account	Dr.	500
	To Sundry Debtors Account		500
	To Sundry Creditors account		5,000
	Effect :  Amount due from supplier party- reduced

by Rs. 5,000; Purchase returns-increased by Rs. 5,000; Sales-reduced by Rs. 500; Sundry debtors-reduced by Rs. 500; Profit-goes up by Rs. 4,500.

Illustration 11 :

The trial balance of M/s Ganguly & Co. as at 31.03.2003 did not agree. In order to close the books the accountant transferred the difference to the Suspense A/c newly opened and carried forward the difference to the next period for necessary adjustments. Later, the following errors, arising in 2002-03 were detected —

(a)        Sales Day book was overcast by Rs. 100 in January, 2003.

(b)        Furniture purchased for Rs. 2,500 cash was posted to the purchase account in the Ledger.

(c)        Credit Sale of Rs. 97 was posted to the credit of the Customer's Account as Rs. 79.

(d)        Rs. 50 allowed as Cash discount to a Trade Debtor was not debited to the Discount Account.

(e)        An item of purchase of Rs. 162 was recorded in the Purchase Day Book as Rs. 62 and posted to the debit of the Supplier's Account as Rs. 26. Show the necessary journal entries to rectify these errors and show Suspense Account; and Profit and Loss Adjustment Account and state the ultimate effect of these correcting entries in the books for 2003-04.

Solution :

In the books of M/s GANGULY & CO.

JOURNAL

Date (2003)		Particulars		L/F	Dr. (Rs.)	Cr.(Rs.)
April 1
a)	Profit & Loss Adjustment A/c			Dr.	100
	To Suspense A/c					100
	(Being Sales day book overcast by Rs. 100, now
	rectified)

b)		Furniture A/c						Dr.	2,500
		To Profit & Loss Adjustment A/c								2,500
		(Being furniture purchased has been posted to the
		purchase A/c, now rectified)
c)		Customers A/c						Dr.	176
		To Suspense A/c								176
		(Being credit sale of Rs.97 wrongly posted to the credit
		of Customer's A/c, as Rs. 79)
d)		Profit & Loss Adjustment A/c						Dr.	50
		To Suspense A/c								50
		(Being discount allowed not posted to discount
		allowed A/c, now rectified)
e)		Profit & Loss Adjustment A/c						Dr.	100
		Suspense A/c						Dr.	88
		To Supplier A/c								188
		(Being purchase of Rs. 162 entered in the purchase
		book as Rs. 62 but posted to the debit of supplier A/c
		as Rs. 26, now rectified)
Dr.					Suspense Account					Cr.
Date		Particulars		L/F	Amount		Date	Particulars	L/F	Amount
	To	Balance b/f (Bal. Fig.)			238		By	Profit & Loss Adj. A/c		100
	To	Supplier A/c			88		By	Customer A/c		176
							By	Profit & Loss Adj. A/c		50
					326					326
Dr.				Profit & Loss Adjustment Account						Cr.
Date		Particulars		L/F	Amount		Date	Particulars	L/F	Amount
	To	Supplier's A/c			100		By	Furniture A/c		2,500
	To	Suspense A/c			100
	To	Suspense A/c			50
	To	Partner's Capital A/c			2,250					.
					2,500					2,500

2.4           ADJUSTED TRIAL BALANCE

A Trial Balance should be prepared before the adjusting entries are recorded in order to ensure that the debits are equal to the credits. In addition another Trial Balance prepared after recording the adjusting entries. This Trial Balance is called an Adjusted Trial Balance which provides a convenient source of information for the preparation of final accounts.

 Illustration 12 :

From the following details prepare an Adjusted Trial Balance after passing the necessary adjustment entries :

	Rs.		Rs.
Purchase	65,000	Sundry Creditors	35,000
Carriage Inward	1,000	Plant and Machinery	10,000
Wages	6,000	Buildings	5,000
Salaries	10,000	Furniture	3,000
Rent, rates and taxes	1,800	Bills Receivable	10,000
Insurance	1,500	Sundry Debtors	40,000
interest paid	1,000	Capital	66,000
Sales	95,000	Sundry Expenses	5,000
Cash and Bank	21,500	Opening stock	21,000
Bills Payable	5,800

Notes –

1.        Salaries and wages due to be paid Rs. 2,000 and Rs. 1,500 respectively.

2.        Insurance was paid to the extent of Rs. 300 advance.

3.        A sum of Rs. 500 to be written off as bad debt out of' sundry debtors and a provision of 5% to be created for doubtful debts.

4.        Sundry expenses include Rs. 2 000 spent for the personal purpose of the proprietor

5.        Sales for the period include Rs. 500 worth of goods (cost price) taken by the proprietor for personal consumption. He has also taken goods worth Rs. I 000 (cost price) for personal consumption which has not been recorded in the I books

6.        Depreciation to be provided as follows :–

	Plant and Machinery		10%
	Building		5%
	Furniture		10%
7.  Closing Stock Rs. 20,000
Solution :
	JOURNAL ENTRIES
	Particulars		L.F.	Dr.	Cr.
Salaries A/c			Dr.	2.000
To Outstanding Salaries A/c					2 000
(Outstanding salaries adjusted)

Wages A/c				Dr.	1 500
To  Outstanding Wages A/c					1,500
(Outstanding wages adjusted)
Drawings A/c				Dr.	2 000
To Sundry Expenses A/c					2 000
(Sundry Exp. A/c now adjusted)
Sales A/c				Dr.	500
To Sundry Debtors A/c					500
(Goods taken by the proprietor for personal
consumption and included in sales now cancelled)
Drawings A/c				Dr.	1 500
To Purchase A/c					I 500
(Goods taken by the proprietor at cost price for personal
consumption)
Prepaid Insurance A/c				Dr.	300
To Insurance A/c					300
(Insurance premium paid in advance adjusted)
Bad Debts A/c				Dr.	500
To Sundry Debtors A/c					500
(Amount written off as bad debt)
Bad Debts A/c				Dr	1950
(5% on (40000-500-500)
To Provision for Bad Debts a/e					1950
(Provision for Bad Debts created @ 5% on Debtors)
Depreciation A/c				Dr	1550
To Plant & Machinery					1000
To Buildings					250
To Furniture					300
(Depreciation provided on various assets)
Closing Stock A/c				Dr	20000
To Purchases					20000
(Closing stock adjusted to purchases)

Note: Since here provisions for Doubtful Debts is to be created before preparing final accounts Bad Debts A/c has been debited instead of P & L A/c.

  

Trial Balance as at ..........

	Dr	Cr
	Rs.	Rs.
Purchases (65000 - 1500 - 20000)	43500
Carriage Inward	1000
Wages (6000 +1000)	7000
Salaries (10000 +2000)	12000
Rent, Rates &Taxes	1800
Interest (1500 - 300)	1200
Interest Paid	1000
Sales (95000 - 500)		94500
Cash & Bank	21500
Bills Payable		5800
Sundry Creditors		35000
Plant & Machinery (10000 - 1000)	9000
Buildings (5000 - 250)	4750
Furniture (3000 - 300)	2700
Bills Receivable	10000
Sundry Debtors (40000 – 500 - 500)	39000
Capital		66000
Sundry Expenses (5000 – 2000)	3000
Opening Stock	21000
Outstanding Salaries		2000
Outstanding Wages		1000
Drawings (2000 +1500)	3500
Prepaid Insurance	300
Bad-Debts (500 +1950)	2450
Provision for Bad Debts		1950
Depreciation	1550
Closing Stock	20000	.
	206250	206250

Balance Sheet

The Balance Sheet is a statement which sets out the Assets and Liabilities as on a certain date. It is prepared with a view to measure the true financial position at a particular point of time. The Balance Sheet has the following form.

  

Balance Sheet as on ........

Liabilities	Amount	Assets	Amount
Sundry on Trade		Cash in hand
Creditors		[including petty cash]
Bills payable		Cash at hank
Loans		Loans (Dr)
Mortgage		Closing Stock
Reserve or Reserve Fund		Investments
Capital		Furniture & Fittings
Add: Interest on capital		Loose Tools
Add: New profit		Plant & Machinery
Less: Drawings		Land & Buildings
Less: Interest on Drawings		Freehold & leasehold Land
Less: Net Loss		Business Premises
Less: Income tax		Patents & Trade Marks
		Goodwill

A Balance Sheet has the following characteristics :

a)       It is prepared at a particular date and not for a period.

b)       it is prepared only after preparation of the Trading and Profit & Loss A/c. Without the Profit & Loss A/c it will not give the financial position of the firm adequately.

c ) Capital is equal to the difference of assets and liabilities. Therefore the two sides of the balance sheet must have the same totals otherwise it is an indication of the presence of errors.

d)       It is not an account but only a statement of assets and liabilities..

e)       The balance sheet shows the financial position of a business at going concern concept.

Difference between a Trial Balance and a Balance Sheet

Trial Balance                                         Balance Sheet

The purpose of a trial balance is to establish the arithmetical accuracy of the books of accounts.

No information about profits can be obtained from the trial balance.

It may be possible to dispense with the preparation of the trial balance though its preparation is desirable.

The Balance Sheet aims at reflecting the financial position of the business.

Information about profit can be obtained from the balance sheet.

To complete the accounting process the balance must be essentially be prepared.

  

All accounts personal, real and trial balance be written up.

Normally Trial balances are prepared monthly.

A trial balance can be prepared with or without adjustment. A trial balance incorporating adjustments is known as the adjusted trial balance.

Closing stock does not appear in the trial balance however

it may appear where an adjusted trial balance is prepared.

Only personal and real accounts find place in the balance sheet.

Balance sheet is prepared at the end of the trading period.

A Balance sheet cannot to be prepared without making adhustments and without taking into account all events and transactions for the year.

Closing stock appears at the balance sheet.

Assets & Liabilities Arrangement

Assets may be grouped as follows :–

In order of Liquidity                                 In order of Performance

Cash in hand                                           Goodwill

Cash at bank                                           Patents

Investments                                            Land & Buildings

Sundry Debtors                                        Machinery

Stock of finished goods                             Furniture

Stock of raw materials.                               Stock of partly finished

goods. Stock of partly finished goods           Stock of raw materials

Furniture                                                 Stock of finished goods.

Machinery                                              Sundry Debtors

Land and Buildings                                   Investment

Patents                                                   Cash at bank

Goodwill                                                 Cash in hand

Liquidity : Liquidity means the case with which assets may be converted into cash. Assets which are most difficult in this respect are written last.

Permanence : Assets which are to be used permanently in the business and are meant to be sold are written first.

Liabilities : Liability may be shown according to the urgency with which payment has to be made. Short term liabilities such as bills payable, and sundry creditors for supply of goods may be shown first, then long term liabilities and lastly capital. Another way is to show capital, long term liabilities and last short term liabilities.

  

Assets and Liabilities-Classification :–

Assets may be classified as –

a)       Fixed Assets

i)          Tangible fixed assets.

ii)           Intangible fixed assets.

iii)        Investments (longterm)

b)       Current Assets

Fixed Assets : Fixed asset is an asset acquired for continuing use within the business with a view to earning income or making profits from its use either directly or indirectly. A fixed asset is not acquired for sale to a customer.

A tangible fixed asset is a physical asset, i.e. One that has real solid existence, e.g. Plant & Machinery.

An intangible fixed asset is an asset which does not have a physical existence, e.g. Goodwill.

An investment might also be a fixed asset, investment purchased with a view to holding them for more than a year are classified as fixed assets.

Current Assets : Current assets are either items owned by the business with the intention of their resale or cash including cash at bank deposited by the business. These assets are "Current" in the sense that they are continuously flowing.

Other current Assets are :–

Short term investment. This includes short term trade investment.

Prepayments :

These are amounts which are already paid by the business for benefits which have not yet been consumed.

Trade Debtors :

These are debtors to the business for supply of goods to them.

Liabilities :

These are debts of the business that must be paid within one year. They are –

i)      Loans payable within a year.

ii)      Bank Overdraft.

iii)     Trade creditors for supply of goods.

iv)      Bills of exchange.

v)       Outstanding payments.

vi)      Interest on loans due and accrued but not paid.

  

Long term liabilities:

Long term liability is a debt which is not payable within one year.

Owners equity or capital.

The amount owing to the proprietors as capital is shown separately.

Illustration 13 :

The following Trial Balances as on 31st May. 2000 and 31st May, 2001 are furnished to you by Ashar and Sons:

	31st May, 2001		31st May, 2000
	Dr.	Cr.	Dr.	Cr.
Fixed capitals:	Rs.	Rs.	Rs.	Rs.
	—	6,00,000	—	7,00,000
Ashar
Bismilla	—	4,00,000	—	2,00,000
Cawasji	—	2,00,000
Current accounts:	—	10,000	5,000	—
Ashar
Bismilla	—	60,000	—	40,000
Cawasji	10,000	—	—	—
Customers dues	11,00,000	—	9,00,000
Suppliers	—	80,000	—	1,50,000
Fixed assets (cost)	3,00,000	—	2,00,000	—
Provision for depreciation	—	1,30,000	—	90,000
Stock	65,000	—	1,05,000	—
Cash	10,000	—	10,000	—
Bank	20,000	—	—	30,000
Prepaid expenses	20,000	—	15,000	—
Outstanding expenses	—	45,000	—	25,000
	15,25,000	15,25,000	12,35,000	12,35,000

You are asked to interpret the above trial balances.

Solution :

Working Note.

For interpretation of the Trial Balances it should be redrafted in the following format to find out the changes occurred in the two financial years i.e. 1999-2000 and 2000-2001.

  

Items		As at	As at
		31.5.2001	31.5.2000		Changes
Liabilities :					Dr	Cr
Capital A/c	— Ashar	6,00,000	7,00,000		1,00,000	2,00,000
Capital A/c	— Bismilla	4,00,000	2,00,000
Capital A/c	— Cawasji	2,00,000				2,00,000
Current A/c	— Ashar	10,000	5,000			15,000
						20,000
Current A/c	— Bismilla	60,000	40,000
Suppliers		80,000	1,50,000		70,000
Outstanding Expenses		45,000	25,000			20,000
Provision for Depreciation		1,30,000	90,000			40,000
		15,25,000	12,10,000		1,70,000	4,95,000
Assets :
Fixed Assets		3,00,000	2,00,000		1,00,000
Customers	— Cawasji	11,00,000	9,00,000		2,00,000
Current A/c		10,000			10,000
Stock		65,000	1,05,000			40,000
Cash		10,000	10,000
Bank		20,000	(30,000)		50,000
Prepaid Expenses		20,000	15,000		5,000
		15,25,000	12,00,000		3,65,000	40,000

Interpretation of Trial Balance :

1.       The trial balances of both the years are prepared after preparation of Profit and Loss Account. The net profits or losses, if any, are adjusted to the current account of the partners.

2.        Cawasji was admitted as partner during the financial year 2000-2001. The treatment of goodwill, if any, had not been shown in the accounts. However, it appears from

the movement of fixed capital accounts that Ashar had sacrificed his share of profit in the business which was acquired by both Bismilla and Cawasji which had the effect of bringing in cash by them and withdrawal of cash by Ashar. The capital accounts being in the nature of fixed capital, normally no profit and /or drawings have been transacted through these accounts. However, in the absence

of any information as to goodwill of the firm and profit sharing ratios of the partners, it is not possible to state about the movement of funds.

3.       The changes in the current accounts of the partners is due to transactions relating to sharing of profits according to profit sharing ratios and credits on account of interest in capital in the one hand and correspondingly the drawings and debit of interest on drawings (if any) on the other hand. However, the debit of Rs. 10,000 in the new partner Caswaji may be on account of adjustment of goodwill which might have been debited to maintain a current account balance of Rs. 2,00,000 as may be agreed by the partners. In absence of relevant information the exact position could not be ascertained.

  

4.       The net current assets of the firm and changes therein during the financial year is stated below :

	As at	As at	Changes
	31.5.2001	31.5.2000	Increase	Decrease
Stock	65,000	1,05,000	—	40,000
Customers	11,00,000	9,00,000	2,00,000	—
Cash	10,000	10,000	—	—
Bank	20,000	—	20,000	—
Prepaid expenses	20,000	15,000	5,000	—
Total current assets (A)	12,15,000	10,30,000	2,25,000	40,000
Less :
Current liabilities—
Suppliers	80,000	1,50,000	—	70,000
Expenses	45,000	25,000	20,000	—
Bank overdraft	—	30,000	—	30,000
Total current liabilities (B)	1,25,000	2,05,000	20,000	1,00,000
Net current assets (A)- (B)	10,90,000	8,25,000		2,65,000

The above statement reveals :–

(a)       There is overall increase in the net current assets by Rs. 2,65,000.

(b)       Current assets to current liabilities ratios

For the year 2000-2001 — Rs. 9.72 to Re. 1 For the year 1999-2000 — Rs. 5.02 to Re. 1

which shows an improvement of Rs. 4.70 to Re. 1 The changes in the ratios are due to :

	Rs.	Rs.
Increase in debtors A/c	2,00,000
Increase in bank balance	20,000
Decrease in suppliers A/c	70,000
Decrease in bank A/c	30,000
Decrease in Prepaid Expenses	5,000	3,25,000
Less:
Decrease in stock	40,000
Increase in liability for expenses	20,000	60,000
		2,65,000

  

Increases in bank balances, repayment of bank overdraft and reduction in stock are signs of good and positive sound position of firm’s/company’s trading activities. However, there is no change in the cash balance. It is assumed that cash balance represents petty cash.

In the absence of sales and purchase figures, the changes in debtors by Rs. 2,00,000 and reduction in creditors by Rs. 70,000 could not be properly explained.

Prepaid expenses have gone by up by Rs. 5,000 which may be considered as normal.

Outstanding expenses have gone up by Rs. 20,000. However, the firm possesses a cash and bank balances of Rs. 30,000 which is sufficient to repay them on due dates of payment.

5.       Cost of fixed assets has gone up by Rs. 1,00,000; similarly accumulated depreciation by Rs. 40,000. No information has been provided for any sale or discard of any fixed assets. In the absence of such information exact outflow of fund in this regard could not be ascertained.