basis of certain assumptions Transactions are recorded in the books of accounts on th ing assumpt ‘Tho are three fundamental accou Going Concern 4) Consistency iat) Acerual \ entity is mandatorily required to follow these three fundamental accounting assumptions. In other ssumptions should be worls, the entity does not have any choice with regard to the fact whether the ptions are rental accounting, assu followed oF not re is noc required in the financial statements if all these fund Disch not followed, then it hay to he disclosed tollowed. However, ifany of these fundamental accounting assumptions aren the financial statements with proper reasoning EXERCISES what do you mean by GAAP?\Y = The ‘Aggregate method’ is not accepted by Ind AS-2 Mlustration Valuation of Closing Stock—Determ ination of NRV Capital Electronics, a dealer in Air-conditioner, purchases Air-condition machines from Hitachi Ltd for £35,000 per unit, Capital Electronics installs the air-conditioners at customer's premise without charging any extra amount, For this purpose, Capital Electronics appointed Roshan who is paid %1,500 for every installation, On Mar, 31, 2015, 120 units of air-conditioners were held as stock, Ifthe retail sale price of each unit is 236,000, determine t Solution As per Ind AS-2, cle e value of the unsold stock on that date. 12 stock should be sd at Cost or NRY, whichever is lower, Statemes n of Stock on Mar. 31, 2015 showing Valuati P air iia 35,000 | Saar arA EeaaaT a aS wes)8.12 F Net Realizable Value per unit Market Price or Retail Sale Price per unit 36,000 1.500 Net Realizable Value per unit (B) Value of Air conditioner per unit {Lower of 4) and (B)) 500 «+. Value of Stock on Mar, 31, 2018 (120 units » 834.500) 3740,000) Mlustration 4: Valuation of Closing Stock—Determination of Cost and NRV From the following data, you are required to estimate the value of stock at the end of the financial year Mar. 31, 2015 as per Ind AS-2: | Direct Materials (%) | Attributable Production | Estimated Selling | Expected | | Overhead %) | _ Expenses @) __| Market Price @) | | 42.000 I 8.400 I 3.200 50800 | [28.900 10,700 [3900 31,900 | Solution Statement showing Valuation of Stock on Mar. 31, 2015 Particulars ProductX@) | Product ¥®) | Cost of raw materials 200 | 28900 Add: Attributable production overhead 8400 10,700 =. Total Cost (A) 30,400 | Expected market price 30500 |Les: Estimated sling expenses 3.200 3s 37.60 | __ a8 «Value of stock on Mar. 31, 2015 (Lower of A) and (B)] 47,600 | Net Realizable Value (B) stration 5: Valuation of Raw Materials and Finished Goods—Application of LCM Rule 1d. produces product ‘Zee" using raw material, Dee, Material Dee is purchased at 21,000 per litre but its ¢ is on the decline. The output is expected to be sold at %4.400 per kg, while its total cost is & kg. 10,000 litres of Materials Dee and 200 kg of output are in stock at the year-end. Replacement cost of P is 800 per litre. How will you value the inventory? Solution Valuation of Raw materials ‘As per Ind AS-2, the valuation of raw materials depends on the expected selling price of the finished goods in which such raw materials are incorporated ‘The rule provides the following: If such finished products are expected to be sold at or above its cost: Raw Materials are to be shown at cost If such finished products are expected to be sold below cost: Raw Materials are to be shown at NRV. Here NRV equals the replacement cost of such raw-material In this case, the output is expected to be sold at &4.400 per Kg, while its total cost is 85,500 per Kz. «the stock of 10,000 litres of raw material will be valued at its replacement cost ie. at 8800 per liter . Value of stock of Raw-materials = 10,000 litres x 2800 = 880,00,000, Xpen- TM ie —————_Accounting for Inventories 8.13 Valuation { Cost or NRY, whichever is lower. eee the expected selling price of finished goods is €4.400 per Ke, while is total cost is 25,500 per Ke ‘Lat tinsshed goods should be valued at its NRV be. at 34.400 per Kg, 200 Kg. x 84,400 = 88,80,000, soxls should be valued at the stoc Value of stock of finished good ‘on of Stock including damaged goods aalue of stock as on Mar, 31, 2015 6: Faluatic allowing information find out the v IMlustratio k the fo 1) Cost of physical stock on Mar. 31, 2015 was €2.00,098. stock held on behalf of e te) Goods worth £10,000 were sent to a ik was expected to realize the normal sell sonsignor was %24,000. slling agent who is used to charge commission (@ 10% on Sales ng price of 100% over cost except for the following goods (b) Cost of (a) Stoc « damaged and an expenditure of 20% of normal selling price was Goods costing 715,000 wel sary to realize the cost 220,000 were damaged beyond repair and were expected to realize 29,500 only. ne = Goods costing n of Stock as on Mar. 31, 2015 Solution Statement showing valual a z z Cas of physical stock as on Mar. 31, 2015 2,00,000 Less: Reduction in valve of Damaged Goods Repairable Damaged Goods (WN: 1) ha Writing off Non-Repairable Damaged Goods (20,000 ~ 9.500) see ged ‘= Value of Physical Stock on Mar. 31,2015 1,83,500 Add: Goods in the hands of selling agent 10,000 Less: Commission to be paid to selling agent 1,000 9,000 | 192,500 | Less: Stock held on behalf of consignor (a) Sales are entered in the Sales Day Book on the day as despatched. (b) Purchases are entered in the Purchases Day Book as the invoices are received, (c) Purchases between Thursday and Sunday as per Purchases Day Book were €11,200, but of these, goods amounting to 24,200 were not received until after the stock was taken. (4) Sales between Thursday and Sunday as per Sales Day Book and Cash Book were €1,720 and 820,000 respectively. (¢) Goods invoiced during Mar. (prior to the last Thursday) but not received until after Thursday amounted. to 21,000, of which goods worth 2700 were received between Thursday and Sund (9) There is an arithmetical error in the stock sheet on Saturday resulting in over valu: (g) The rate of Gross Profit to sales is 25%. Ascertain the value of the stock (both physical and owned) as at the end of the financial year. [CU B Com, (Old) —Adapted\ jon of 710,000.8.26. Finoncial Accounting 1 Solution Stock Reconciliation Statement ay on Thursday Particulars z z 93,000] Value of Stock as on Sunway 16,200 109,290) Add Cost of goods so between Thuy to Sunday ((81,720 + 820,000) x 75/100] [WN 1] | Less: Goods purchased and received between Thut Jay to Sunday [811,200 ~ %4,200] 7.000] surchase of 2014-15 (WN: 2]] 700) Cost of goods received during Thursday and Sunday related 0 P | ; 10,000 ‘Over-casting in the stock sheet Bre Vaatue of Physical Stock on Thursday x1 to invoiced goods [WN: 2] 5 Value of Owned stock 0 92,590) ie Goods —in Transit WORKINGS. 1. GP rate on Cost & Sales 25% on Sales -, If Sales = 100; Profit = 25; COGS = 100 ~ 25 é 5/100 = 75% of Sales 2. Goods in Transit Amount of goods received during intermediary period relating to the earlier accounting period should be excluded from the stock taken on Sunday for determining ‘value of physical stock’ on Balance Sheet date, However, entire amount of such invoiced goods should be added for determining the ‘value of owned stock’(ie. the actual stock taking date), Mlustration 20; Actual stock taken prior to Balance Sheet date ~ Goods sent on approval basis ~ Goods Sent out on consignment Physical verification of stock in a business was done on June 23, 2015. The value of the stock was ¢4,80,000. The following transactions took place between June 23 to June 30, 2015: = 75 (i) Out of the goods sent on consignment, goods costing 224,000 were unsold. (ii) Purchases of 240,000 were made out of which goods worth 716,000 were delivered on July 5, 2015. (iii) Sales were 21,36,000, which include goods worth 232,000 sent on approval. Half of these goods were returned before June 30, 2015, but no information is available regarding the remaining goods. (iv) Goods are sold at cost plus 25%. However goods costing %24,000 had been sold for 712,000 Determine the value of stock on June 30,2015. {CA (Foundation) 2000, November (Dates Changed)| Solution Stock Reconciliation Statement as on Jun. 30, 2015, Particulars z z Value of Stock as on June 23, 2015 4,80,000 Add: Goods purchased and received between June 23, 2015 and June 30, 2015 (840,000 ~%16,000) 24,000 5,04,000 Less: Cost of goods sold between June 23 to June 30, 2015 (WN:1) 1,10,400 -, Value of Physical Stock on June 30, 2015 3,983,600 Add: Stock in the hands of customers [232,000 x 50% x 100/125(WN:2)] 12,800 Stock-in-Transit (i., purchased but not yet delivered) 16,000 Cost of unsold stock lying with consignee : 24,000 | 52,800. z. Value of Owned Stock as on June 30, 2015 446.400Sund-y Debtors : 3,00,000 rt Less: Prov. for Bad & Doubtful Debts | 15,000 | 2,85,000 Illustration 24: The following balances were extracted from the ledger of MrX for the year ended 31.03.2013 (Fig in 2). Debiors balance on 01.04.2012 98,412 Return Inward 30510 Sales (Including cash sales 21,00,000) 10,42,520 Carriage Outwards 5,760 Discount allowed 8,324 Provision for doubtful debts as at 31.03.2012 6876 Cash received from debtors 8,76,940 Subsequent enquiries re eal the following information: (i) A cheque for 23,528 from a customer has been returned by bank. (ii) Bad debts totaling 28,536 are to be written off, (ii) It was decided to maintain provision for doubtful debts @10% on debtors balance as on 31.03.2013. (iv) On 31.03.2013 a cheque is recived for 21,400 from a customer who owed to Mr X 27,000 and the debts had been written off as bad debts in year ended 31.03.2013. No entry in respect of this cheque has yet been made in the books. Write up (a) Sundry Debtors Account and (b) Provision for Doubtful Debts Account, for the year ended 31.03.2013, [CUB Com (Gen.), 2013)Books of Mr. X Dr. Sundry Debtors A/c Ce Date Particulars z Date Particulars van 1.4.12] To Balance bt | By Discount Allowed A’e To Sales Ave By Cash Bank Ac [Credit - (10,42,520 - 1,00,000)] By Returns Inward Ac To Bank A’e [Cheque dishonoured] By Bad Debts A’c By Balance cf 10,44.460 Dr. Provision for Doubtful Debts A/c Date Particulars z Date Particulars 313.13 | To Bad Debts Ac 8,536 | 14.13 By Balance bf 31.3.13 | To Balance c/f[1,20.150 X 10%] 12,015 | 313.13, | By PLAc (B Fig. ~ Transfer) 205551 Tlustration 25: Trial Balance as on 31st December. 2013 of Mr S. Saha contains the following items (Fig in¥:Tete 7,500 1,07,500, | Leys: Further Bad Debts iiustration 26: On 319t December, 2013 Sundry Debrors and Provision for Bad Debts stood at £90,000 and torso, respectivel) During the year 2014 Bad Debts amounting to 24,560 were written off. On 30th June, wid an amount of 8580 was received on account of a debt written off as bad last year. The Debior list on December 2014 was verified and it was found that amongst Sundry Debtors amounting, to 65,940, an of 1240 was written off to ay bad. It was decided to maintain the provision for bad debts at the same we as it was on 3Ist December, 2013, Prepare Bad Debts and Provision for Bad Debts Account. ti show how the relevant items would appear in the Profit and Loss Account and Balance Sheet as on 31 12.2014. (CU B Com (Hons), 2015) Solution Books of .. De Bad Debts A/e Cr Date Particulars @ | Date | Particulars To Debtors Ale 4,560 ]31.12.14 | By Provision for Bad Debts A/c 3112.14 | To Debtors A/e [Further B/ Debts} 940 [Transfer] 5,500 Dr: Pro Date Particulars. 311214 | To Bad Debt Ale 311214 | To Balance elf 1114 | By Balance bit 34.12.14 | Ry PIL Ale [Transfer B/Fig) 103375 PL [ Particulars, Balai as at 31.12.14 (includes) Liabilities | & | Ames | @ | 2 |] sidebtors 65,940 940) 65,000) 4875 3,025 | By B/Debis Recovery (Farther Debts ToProv for B/Debts ()PBD@75% 60,125a tity), —_ ents are true or false: ced Rg oe ee RB Mlustration 2: State with reasons whether the following state 's of second-hand machinery purchased is revenue expenditure g replacement of certain worn-out parts incurred before using a secon (a) Overhaul expense: (b) Major repair charges includit hand car purchased recently is a capital expenditure. (©) An expenditure intended to benefit the current period is revenue expenditure (4) Expenditure which results in acquisition of a permanent asset of enduring benefit to the business is capital expenditure. (©) Wages paid to workers to produce a tool to be captively consumed is capital expenditure. IGA. Foundation (Adapted) Solution SL | True/False Explanati No (a) | False It is a capital expenditure as it increases the productive capacity of the capital asset and wi provide future economic benefits of enduring nature (&) | True Its a capital expenditure as it increases the productive capacity of the capital asset and wil provide future economic benefits of enduring nature (© [True It does not provide any benefit of enduring nature (a) | True It provides benefit over a number of accounting periods. ©_[True Its incurred to bring into existence a tool which is a capital assetCapital and Revenve Transactions 12.12 sjostration 8: State with reasons whether the following statements are true or false: i neapenseincurredon white-washing of factory building done afterevery six months s Revenue expenditure miporaty shed put up at building construction site to house materials is capital expenditure advertising to introduce a new product is capital expenditure a1 fee paid to acquire a property is capital expenditure. iewsy A {xpenditure for renovation of a theatre which has increased the seating capacity by 10% is deferred ‘enue expenditure, - ravelling expenses of %80,000 paid to a technician for the installation of a new machine is debited to profitand Loss Account [GA Foundation (Adapted solution Mt | TruelFatse | Explanation | Itis related a c construction of a capital asset (which in turn happens to provide benefits of for maintaining an existing capital asset enduring ©) False | AS per Ind AS-38, it is always considered to be revenue expenditure (even though it provides fits over more than one accounting period). j) | True _| Itis required to acquire a fixed asset which provides benefits of enduring nature. Te false | It is a capital expenditure as it increases the productive capacity of the capital asset and will provide future economic benefits of enduring nature. c False | It isa capital expenditure as itis incurred to put the capital asset to use and provides benefits of enduring nature. So, it should be capitalized and debited to Machinery Ac Ilustration 4: State with reasons whether the following statements are true or false: (2) Expenditure which results in acquisition of a permanent asset is revenue expenditure, (>) Wages paid for erection of machinery are debited to the Machinery Account. (©) A legal fee paid to acquire a Building is a Capital expenditure. (3) Amount paid to Management Company for consultancy to reduce the working expenses is revenue expenditure (=) Wages incurred by a factory in manufacturing a part for its plant, is a revenue expense. [C.A. Foundation (Adapted)\ Explanation me Tris a capital expenditure as it has been incurred for acquiring capital asset that is expected to provide future economic benefits of enduring natute. Tris a capital expenditure as it has been incurred to put the capital aset to use and provides future economie benefits of enduring nature. It should be capitalized and hence, debited to Machinery Ac Ttis a capital expenditure as it provides benefits of enduring nature the operating costs ofthe entity and provides future Iisa capital expenditure as it is incurred to reduc ‘economic benefits over a long-term period. Tovides future economic benefits of enduring nature. Ttis incurred to bring into existence a capital aset and p Revenue or Deferred Revenue Expenditw i a : Hustration S: Do you consider the following to be Capital ae reasons, {.) Lezal expenses incurred for abuse of trademark ) Repairs for a motor truck purchased second hand before putting the same in use-re ys Mission, @ nmission Gi) rbe*Y” mission @ nd General a 6 Oe eg eo Final Accounts of Accounts of Sole Proprietorship Trading Concerns 15.38 wt yovided for salance of a business as on Dee. 31, 2 116: Valuation of Closing Stock ~ Further Bad De Particulars De® | Cre a 25,900] 10900 ppacourt Received 5200 s 6.12700 commission 11,300 pilsReccivble | 65,300 cariage Inward =| 14,900 mt & Machinery | 85,600] nese 22,400 sandy Creditors 60,000 sad 15,500 shld Premises 1,05,000 Capit 1,50,000 re Trad (a) The market price of the Closing Stock is 71,00,000 which includes a profit margin of 215,000, (o) Outstanding Liabilities for S 014 is giv | Particulars n below: Purchases Reserve Wages Discount Allowed Sundry Debtors Freight Bills Payable Furniture Carriage Outward Stock (Opening) (Cash at Bank Cash in hand es 971.100 Account and Profit and Loss Account for the year ending Dec. 31, 2014 and a Balance Sheet at date after taking into account the following adjustments: aries %4,500, Wages 9,800. (c) Depreciate Furniture by 15% and Plant and Machinery by 20%. (d) Sundry Debtors include %1,800 as bad which is to be written off ) Create a Provision for Bad Debts @ 5% on Sundry Debtors. Solution Fhtiem ote Valuation of Closing Stock: AS per Ind AS 2, Stock should be valued at the lower of ‘Cost’ or ‘Net Realisable Value (NRV)’ In “\, this problem, market price of the stock is to be considered as its ‘NRV’ because ‘estimated cost of Ww completion’ and ‘estimated cost nece [CUBCom ebts to be written off - Ourstanding Expenses Saal Dr De®) 3,40,000 cee) 971,100. (Gen), 2009 ~ Dates Changed| sary to make the sale’ does not exist. As ‘Cost price’ is lower than its ‘Market Price’/'NRV’, Cost Price is to be considered for value of unsold stock. Hence, the value of Closing Stock is (€1,00,000 ~ £15,000] = £85,000. ‘Trading and Profit & Loss Account for the year ended Dec. 31,2014 Cr cae ee lees ete rarer i |e | © Opening Stock 35,900, ]6.12,700] | ToPurchases 3,40,000 Less: Returns 25, em s.soswo | Less: Returns To 00 | 329,100 | By Closing Stock {See “Problem | 5,000 | To Wages, 45.800 Note’) | Add: Outstanding 9,800| 75,600 | To Carriage Inward iia i)5.39 To Gross Profit od To Salanes aad To Discount Allowed To Carag To Bad Debt Te Depreciation Furniture Plant & Machinery Ti Provision fr Bad debt To Capital Ave [NP transferred] Capital Add: Net Profit | Reserves | Sundry Creditors Bills Payable Outstanding Salaries | Outstanding Way Financial Accounting 1 12.400 | 2.03,900 671,800 15,500 | 4.500] 20,000 | 6,500 | 15,200 1,800 By Gross Profit bid By Discount Received By Commission 24.410 4,200 17,120 148.490 [220,600 2 2.03.99 5.209 1.309 £ ea 7,50,000) | Freehold P 1.48,490 | 2,98,490 | Plant & Machinery 85,600 ] 75,000 | Less: Depreciation @ 20% 7, 60,000 | Furniture 48,600 | 45,800 Depreciation @ 15% |__ 7.290] 4,500 | Investments 9,800 | Stock-in-Trade [See “Problem Note’) Sundry Debtors Less: Further Bad Debt Less: Provision for Bad Debt Bills Receivable Cash at Bank Cash in hand 493,590 | $5,800 1.400 4.000 4200] 900] 6530 2470 win [93500] Mlustration 7: Outstanding and prepaid Followi Expenses Goods used for free sample ~ Dishonour of cheques rial Balance was prepared from the books of accounts of a Trader as at Dee. 31, 2014: Dr. Trial Balance as on Dec. 31, 2014 { Particulars z Particulars Opening Stock 30,000 | Sundry Debtors 43,000 [ Sales Purchases 53,000 | Income Tax 900 | | Purchase Return Sales Return 1,500 | Cash at Bank 6,700 | | Discount Carriage on Purchase 1,000 | Closing Stock 32,000 | | Sundry Creditors Wages 15,000 | Furniture 12,000 | | Bills Payable Bills Receivable 10,500 | Plant & Machinery 65,000 | | CapitalFinal Accounts of Sok Sole Proprietorship Trading ¢ once: 15.48 4 $00] Baa Det 7 Son <2 9 9.400 | Freight and Duty | 1,200 | Drawings | | : 1,800 el ee 25i| g adjustments are to be made before preparing the final acoua’ ; wision for Bad Debts is to be maintained at $% o ps tobe written off uring tha peer ee ead nee sée £2,600 for the year 2015 and Rent paid durin ation on Plant and Machinery and Furniture is to be 3500 used for sample has not been recorded, mated that a customer’ cheque for 21,400 has been dishonoured i the year for 9 months, charged at 10% and 5% respectively. ms and is still to be entered ng Account, Profit and Loss Account and a Balance Sheet [CU BCom (Gen,), 1998 ~ Dates Changed) ‘Note Treatment of Closing Stock: Q As Closing Stock is appearing in Trial Balance, it means the following entry has already been passed. Closing Stock A/c Or. To Purchases A/c Purchase A/c has already been adjusted. So, no further adjustment in Trading A/c is required to made to “determine ‘adjusted Purchase’ or ‘COGS’, the Closing Stock will be reflected in Balance Sheet only, Dr. Trading and Profit & Loss Account for the year ended Dee. 31, 2014 Cr Particulars z z Particulars z a Stock 30,000 1,91,000 | To Purchases $3,000 2 Sales Return, __1,300| 1,89,500 Less: Purchase Return 1,600 | 400 | Less: Goods used for free sample 500 | 50,900 | ToW 15,000, Less: Prepaid 2,000 | 12,400 To Carn ‘on Purchases 1,000 To Freight & Duty 1,700 To Gross Profit ed 93,500 | “ ss 1,89,500. 93,500 Te Desh $00 | By Gross Profit bd es To Salaries 9.400 | By Discount To Insurance ir To Rent 1,800 Add: Outstanding [1,800 39] |___ 600} 2,400 To Bad Debt 500 Add: Further Bad Debt (WN: 1]|_1.700| _ 2.200a + Total Bad Debts to be written-off “alread, oe ek Da Mevts to be written-off : Bad Debts already written-off = €2,200 ~ 8500 = 21,700 ost by fire and insurance claim admitted Provis ,000 in goods and 215,000 in furinge on for bad debt— Goods withdryy, Mlustration 8: Goods lo Jor personal use Mr. S. N. Roy started a business on Apr, 1, 2014 with 210,000 cash, His Trial Balance as on Mar. 31, 2015 was as follows: Debit Balances: Bad Trade %5,000 ; Furniture 15,000; Drawings 23,500; \\ urchases 218,000; Advertisement %1,600; Debtors 89,000; Cash 24,700; Salaries 22,400; interes ance Premium %800; Machinery 230,000. 21,800; Pe on Loan 2200; Commission paid 2800; Insura Credit Balances: Capital 230,000; Creditors %5,000; Bank Loan 232,400; Commission Received 220 Sales 228,700, Additional Information: al consumption. The value of remaining stock 9,000, (4) Mr. Roy used goods of 21,000 for person ts40,568 10,500 5,300 0,865 r Less inure vages st ere 200 Flral Accounts of Sole Pre pprieto ‘onemns VSA2 alued at 85,000 were lost te Furiture @ 5% pa. and Machinery Pee Bank Loan was payat 4 Debt of 21,000 to be writen off 1 Debtors is 23,000 due fron achinery was purchae an was taken atthe beginning ind 4 provisig Mr. Pine ble vw 10 % ba The Tuded in creditors ? 1,600 due 1 Account, Profi and Loss Account forthe year nded Mar. 31, 2015 and a Balan Roy as on RE 1CU BCom, 2011 - Dates Changed solution Mr. S.N, Roy = Trading and Profit & Loss Account forthe year ended Mar, 34, 2015 Cr. Particulars, Clee Parieluts 2, 5,000 | By Sal ” 14,000 By Goods Destroyed by Fite ms w aby proprietor | 1,000 17,000 | By Cloning Siac m La00 fit oid 14,900 42,700 | 42300} aa 1,600 | By Gross Profit bid 2,400 | By Commission Received 200 Add: Outstanding (WN: 1] 3,040 | 3,240 | 00 n on Paid Premium | 00 Goods Destroyed by Fire 5,000 - 2,000 oa] 3,500 Add: Further Bad Debt a 750 | so0| 2,250) re 350| i 19,100 rm Assets ha c e 30,000 _ 730,000 Machinery a8 rs 160 Le Deca 042} | 150 Add: Goods withdrawn 1 DebtorsWORKING NOTES: 1, Outstanding Interest on Loan, = Interest due for twelve months ~ Interest paid = 832,400 x 10% Mlustration 9: Unrecorded credit sale ~ Asset purchased for resale ~ Manger’ commissi Mr. Kamal, a furniture merchant submits the following Trial Balance on Dec. 31, 2014, Bree De® | Cr@ Capital 50,400 | | Rent & Rates Office Furniture 11,500 Bad Debts, Stock on Jan. 1, 2014 14,600 Debtors and Creditors | Purchases and Sales 1,01,620 | 1,19,060 | | Loan to Debu (on.ul.1,2014 @ 6% pa) Return 2,100} 2,910} | Interest on Loan, General Expenses 2,300 Cash in hand Wages 2.400 Bad Debt Reserve Prepare Trading and Profit and Loss Account for the year ended on Dec. 31, 2014 and also a Bal as on the same date after taking into consideration the following: (a) A credit sale of 82,000 has not been recorded in the books. (b) Second hand furniture of 82,000 was purchased on Dec. 1,2014 for resale was included in Office Furinug (©) Bad Debts Reserve is to be increased to 5% on Debtors. (d) Goods costing 2500 has been taken by the proprietor for his private use. (e) Rent outstanding on Dec. 31, 2014 was 7400 and rates paid in advance 2800. (1) Stock on Dee. 31, 2014 was valued at 215,300 (g) Provide 10% depreciation on Office Furniture. (h) The manager is to be paid a commission of 10% of Net Profit before charging such commission. lance Shee ICU BCom (Gen.), 2008 ~ Adapted, ‘Solution Problem Note Purchase of second hand Furniture for resale {AAs the proprietor is a furniture merchant, purchase of furniture for resale isto be treated as goods ‘GEES not an asset. So, It isto be included in Purchase A/c. Moreover, such furniture isto be considered as unsold stock on closing date as it was not sold by the entity,Vo ‘concerns Fae syship Trading C ole Proprit Final Accounts x & Loss Ancwane fo the yar ended Dec. 31,2014 1 © z Particulars cle 1 sch 14600 | By Sales 119,000 | \0t.620 Add: Unrecorded Sales 2,000 | wctivereale | 2,000 1,060 | | 103.620 Less: Return 118,960 |__2910 By Closing Stock 17,300 | 100,710} [15,300 + 2,000 (See Prob. Note)] ss withdrawn 's00 | 1,00,210 2,400 of 19050 | 736,260 Fro | Expenses 2,300 | By Gross profit bd [19.050 By Interest on Loan 300 4d: Outstaning Rent ‘Add: Accrued Interest (WN:2] |__180| 450 3,600 By Bad Debt Reserve 1,050 Less: Prepaid Rates 800] 2,800 | De 520 syd Debt Reserve 1,600 syeition on Furniture 950 agers Commission [WN: 1] 1.238 pial Ac [NP transferred] 1142 20,550 20550, Balance Sheet as on Dec. 31, 2014 ___ Liabilities ane ‘Assets wiht ou 30,400 Olfice Furniture 11,500 S66: Ne psi 11,142 Less: Purchase of Furniture for resale |_2.000 61,542 9,500 Le: Drawings {Goods withdrawn) 500 | 61,042 | Less: Depreciation @ 10% 9s0| ¥.550 10,000 | Loan wo Debu @ 6% 15,000 4400 | Accrued Interest on Loan [WN° 2] 130 Mauger Commission [WN: 1} 1,238 | Stocke-in-Trade (15,300 + 2,000] 17.300 Debtors 30,000 ‘Add: Unrecorded Sales 2,000 32,000 Less: Bad Debt Reserve @ SY 1,000 | 30,400 Prepaid Rates 00 Cash in hand 480 72,080 T2080Effect on Final Account: As Wem yw made to Trading A/e is to be added with result of Trading Ale Profit Trading ER tmustration 18: Valuation of Stock — Commission ta works and general manager — Cheque deposited ing “p\bank but credited after Balance Sheet date acted from the books of Mr, Roy as on Mar, 31, 2015 The following Trial Balance was extr15.56 Final Ac 1s of Sole Proprietorship Trading Ce. lp Trial Balance ay on Mar 31,2015 i t T lars A ed i Machinery | 2009000 | Sandy Debio 02,000] | Capital Account | 00,000 runing Wages "| 3.45,006 Factory Lighting 9.5004 Sundry Creditors 4,65,600 [A588.500 | stock (Apr 1, 2014) 3.42.00 f Bank Loan @ 12% taken | 150,000 . 1,00,000 | Motor Car 1,20,000 |] 09 Aug. 1, 2014 rurchae “| “14600 Purchases 10.20.0004 Purchase Returns 17400 won Sales: 1,400 | Sales Returns. 31,004 ales :5,08,500 | | 5.40000 Boa Debi” 1400g}fFrovision for Doubetyy~ 20,00 95,000] Bank Charges s,o0gy70eo | | minty” | Sep eston Bank Loan] 00} ind Trae Mark | 230.0067 cash a ant 2,000 Expenses | 74.00 Cash in hand 11,200) the Trading and Profit and Loss Accounts for the year ended Mar. 31, 2015 and Balances Sheet as on uking into consideration the following information: kl and Power 2a Stock in hand as on Mar, 31, 2015 was: Cost price €3,05,000; Net Realisable Value €3,20,000. Lsigay J > epreviate Plant and Machinery @ 108+... Furniture @ 5% p.a., and Motor Car by 210,000, iy, JZ Mr Bosak, a customer from whom %{5,000 Was due, declared insolvent and nothing is expected to be realised out of his estate, Create provision for doubtful debts at $% on general debtors. (45.000 is due from Mr. Basu Ray and at the same time 8,000 is due to him. # A commission of 1% on the gross profit on after changing basis is to be provided to Works Manager. ‘al Manager is to be allowed a commission @ 2% on net profit after charging Works Manager's commission and before charging General Manager's commission. ‘Two cheques of €2,000 and 5,000 were deposited into Bank Of Mar. 29, 2015 but were credited by the bank on Apr. 5, 2015, ICU BCom (Hons), 2009 —Adapted\ 41.49) 5. Genel 7.50 In of stock: As per Ind AS 2, inventories should be valued at the lower of ‘Cost’ or ‘Net. Realizable Value (Net Realizable Value)’. In this problem, ‘Cost price’ is lower than its ‘NRV’, so cost price is to be considered for value of unsold stock. Due from Mr. Basak: As the words ‘nothing is expected to realize’ is mentioned in the problem, it ‘means the Debtor is doubtful to the extent of 100% of his due regarding his balance due. So, entire amount is to be considered as ‘Doubtful’ and a Provision of 100% of the due is to be made. Mr. Roy Trading and Profit & Loss Account for the year ended Mar. 31, 2015 Cr ____ Particulars z Particulars x lo Opening Stock 342,000] By Sales 25,08,500 10,20,000 Less: Sales Return 31,000 | 24,77,500 Less: Purchase Returns 17,400 | 10,02,600 | By Closing Stock {See ‘Problem Note'] 305,000 jo Purchases13.57 Finoncio! A & Row 12,800 " pmission (WN: 2] oars] ¢ od | 2.47.25] J1.38,500 | By Gross Profit id pa | 21,400 | By Pro: for Doubtful Debts (O18) 42,500 74,000 To Bad Det 14,000 To Bank Charges | 000 To Interest on Bank Loan 8,000 Add: Ourstanding 4.000} 12,000 $0,000 12% x 812) 8000] Plant & Machinery 20,000 Furniture 5.000 Motor Car 10,000] 35,000 To Provision for Doubtful Debt (New WN 1) ] $4,100. To General Managers Commission [WN: 3] ] 11,041 To Capital Ac [Net Profit wansfered} 540,984 20.9) at Mar. 31, 2015 "Liabilities z z Assets z tg Capital 8,00,000 Patent & Trade Mark 2, 0.00) ] Add: Net Profi 5.40.984 | 13,40,984 | Building 2.4000 12% Bank Loan 1,50,000 | Plant & Machinery 2,00,000 Outstanding Interest on Loan 4,000 | Less: Depreciation 20,000 | sundry Creditors 4,65,600 Furniture 1,00,000, letter | 5,000 4,60,600 | Less: Depreciation 000 | Outstanding Commissions: Motor Car 1,20,000 | Works Manager | 9475 Less: Depreciation 10,000 General Manager [11,041] 20,516 | Stock-in-Trade (See ‘Problem Note) ie Sundry Debtors 8,02,000 l Less: Set-off 5,000inal Aecounts of Sole Proprietorship Trading Concerns 15.58 + 7,97,000 Less: Provision for Bad Debt 54,100 | 7,42,900 ay 42,000 Sa 11,200 [19.76,100 | 19,76,100 nity is required to be passed for cheques deposited but not cleared by Bank till the date of Balance AB: Noe secause it was properly accounted for in the books. WORKING NOTES on for Doubtful Debt z Remarks 15,000 | [15,000 x 100%] as 100% of the due is doubtful 39,100 | [7,82,000 x 5%] 54,100 Customer ‘ jolvent Debtors Mr. Barak Other debtors [7,97,000 — 15,000] Works Manager’s Commission Works Manager is entitled to a commission of 1% on the gross profit. As Gross Profit will be arrived after sion, his commission is to be calculated on after charging basis. Total Debit considering Works Manager's commis Gross profit before considering works manager's commission = Total Credit of Trading A/c — of Trading A/c = €27,82,500 — %18,25,500 = %9,57,000 . Work’s Manager's Commission = %9,57,000 x 1/101 = 9,475 4. General Manager’s Commission Gross profit before considering General manager's commission ‘Alc including commission of works manager Total Credit of P/L A/c — Total Debit of P/L = %9,67,525 — 4,15,500 = %5,52,025 %5,52,025 x 2/100 = @11,041 s. General Manager's commission = a ss Machinery destroyed — Goods sent on approval basis1. Lows of Machinery by fire Stock - Items related to consignment business appearig Moser tification of Value of Closing P » ful Debts 0,000 || Salaries 40,000 pa 10,000 | | Printing & Stationer: 5.000 | 3,20,000 Advance Salary 40,000 Electricity and telephone 6.800 Sicha 60,000 Bills Payable 5.00 pas 75,000 Cochin 28.70 Purchases (Less closing stock) | 1,30,000 | Cash at Bank 20,00 Rent | 9,000 | 3,24,000 | Baapon Adjustments: 1. The Closis g Stock was valued at market price. But the cost price per unit of product was @12 which at tht ¢ was lower than market price by %3. 235,000 which was receivable from the consignee was included in Debtors Account. Bad Debt was %3 000 and 5% provision for Doubtful Debts was to be made on Debtors. 3. Depreciation on depreciable fixed assets was to be charged @ 10% per annum on Method 4. Cash found short by 21,000 at the time of cash counting Prepare Trading and Profit & Loss Account for the year ended Dec. 31, 2014 and a Balance Sheet as on date. {CU B Com (Hons), 2004 ~ Ade iminishing Balanceete 10,000 15,000 ich at that as 73,000 : Balance is on that Adapted Trading and Pre Rico Traders a & Loss Account for the y Cr. Particulars z wT Lx a | Opening Stock £60,000 | By Sales ~P2.10,000 ToPurcses (Less Closing Stock) | 1,30,000 ess: Return Inwards 4,000 | 2,06,000 saé:cnensuaton of CL Sueck[WN: 11] 15,000 | 1,45,000 | By Goods Sent on Consignment | 30,000 Carnage Inward 1,000 TeGross Profit e/d ToRent 9,000 | By Gross Profit bid 30,000 Carriage Outwards 5,000 | By Discount Received 4,000 ‘Salaries 40,000 | By Prov. for Doubtful Debts [Old] 10,000 To Advertisement 10,000 | By Profit on Consignment 5,000 ToPhnting & Stationery 5,000] [See “Problem Note") To Discount Allowed 6,000 | By Capital Aic(Net Loss transferred | 42,900 Electricity & Telephone 6,800 acest on Bak Loan 1300 | Throw for Doubtful Debt [New] 2,100 To Depreciation: Furniture 2,500 0 Bad Debt 3,000 ToCash Shortage 1,000 91,900 | 91,900 ae Balance Sheet as on Dec. 31, 2014 Pariiculars z oa Particulars z z Copia 5,00,000 Land 20,000 Less: Net Loss 900 | 4,57,100 | Furniture 40,000c 4s.000 | (240,000 ~ 15,000) » 10%) Less: Bad Debt 3.00 Advance Salar 3a (Cash at Bank | 29) Cash In hand 70), Les: Shortage of Ca 1000 | WORKING NOTES 1. Valuation of Closing Stock As per Ind AS ries should he valued at the lower of *Cost’ of “NRV'". In this problem, Cost pe per unit of product is 212 and i's market price is €15 {1243} As the stock was valued market price, it violates the rules of “Valuation of Closing Stock Closing Stock was over-valued by 275,000 x 3/15 = 815,000. Valuation of Closing stock = 875,000 ~ 215,000 = %60,000, tock was deducted from “Purchases” by its market value i.e. by an aditioal 5.000 more. So, 15,000 is to be added with Purchases in order to find Purchase (Less Closing Stock) balance ut the co 2. Bank Loan: ce of specific information it is assumed that Bank Loan has been continued from opening ie of the accounting period. Mlustration 18: Rectification for Sales Return and Purchase Return ~ Distribution of free sample ~ Hypothecation of Stockein-Trade are the balances as at Mar. 31, 201 S extracted from the books of Mr. XYZ. Particulars x Part Particulars Plant and Machinery 19,550 | Provision fo 375 | Rent Furniture and Fitines | 10.250 | on Debtors Carmage Inward ; Bank Overdraft 80,000 | Sundry Debiors 120,000 | Carriage Outward s einen 65,000 | Sundry Creditor aoa 21990 Drawings 8,000 | Interest paid on Loa 3.000] Advertisement Expenses | 339 Purchases 160,000 | Bad debs 100 | Printing and Stati Opening Stock 250 | Ba deb Recovered 450 | Cash inh 0| Cash a B ak 2 Provision for” Doubt 00 Det Prepaid Reni al taf solution De Les: Les RFinal Accounts of Sole Proprietorship Trading Concerns 15.64, formation: pai ; £22,575 woos inch sales return of €2.57S and sales include purchase return of 81.725 vahdeawn by Mt. XYZ for own consumption 83,500 included in parehaes pril for installation of Plant and Machinery amounting to 8450 was included is distributed for publicity costing 2825, ae ded or eee eee OV shoe fc Sisvecnt Uebiey Gone Frac oaPlant and machinery @19% ps and on fwnafture act fees @ 10%p.a ured against hypothecation of stock. Bank overdraft outstanding as on Mar, 31, 2015 stock (deducting 20° d to draw sding and Profit Loss Account for the year en lered as 80% of real value of as margin) and after adjusting the 1 80% of the same has been allowe Son overdraft. ided Mar. 31, 2015, and a Balance Sheet as on that IGA. Foundation, May 2005 ~ Dates Changed) F Me xvz , Trading and Profit & Le a “—Tariculrs | rice | es R |_2575 | 2,11,00 # wnby | By Closing stock [WN: 1} | 1.25.00 ae | nal on | oct ~ Las Plant & Mach, 450] 11715] a al tae | isis | [3.36.000 22,550 By Gross Profit bid | 4,300 | By Prov. for Doubtful Debts [old] | 1250 9y hacer Dado baaces ty +f | 3350] By Bad Debss Recovered AM: Dstituton of fe sample | gas) 4,175 | 10.160 | 1.00 | D Debts [New] | 6,000] Dis. on Debio 290 | cy Peal ™" ond F upenee Pag ee ‘i , on a 12g wot ING NOTES th withdrawn used for business expense Cavet Beny Fotry Made Combined Rectibestion Vanp Effect on Final Account: Drs in 2. Recording of Purchase Return in Sales Return Journal a Correct Entry Entry Made Stock in hand on Apr. 1, 2014 | 37,000 = Building 9,00) Additional information given was: | Capa (a) Stock on Mar. 31, 2015 was 730,000.Final Accounts of Sole Proprietorship Trading Concerns 15.68 123,000 as bad debts and maint a provision for bad debts at $% on Sundry Debtors: costing %5,000 were sent to a customer on ‘Sale or approval basis’ on Mat. 30, 2015, These “re recorded as actual sale. The rate of gross profit was 1/6" of sale. 11.200paidas rent of the office were debited to landlord account and were included in Sundry Debtors ral Manager to be given commission at 10% after charging the commission of Works Manager is own on net profits. Such commissions shall be calculated to the nearest multiple of rupee. Works Manager is to be given commission at 5% after charging commission of General Manager and is own on net profits. Such commissions shall be calculated to the nearest multiple of rupee. IGA. Inter, Nov. 1990 ~ Dates Changed] + Income tant personal tax of he proprietor. tis pay entity on behalf of the proprietor. So, sade Nae itis to be treated as ‘Drawings’. Sees es \y * Treatment of Works manager’s Commission: As the commission is based on the basis of the Net Proft itis to be considered as indirect expense and hence, itis to be debited to P/L Ae. Mex p. _Tading and Profit & Lass Accous for the yar ended Mar. 31, 2015 ce Er and the Subic Repairs to Plant 1,600 | By Provision for Bad Debts [Old] sd Further 3,000] 4,000 te 1200 Dito | Building 2,500 4,500 "vision for Bad Debts [New] 1,240 _ Com. (WN: 1) 724 rsCom.(wn:t)} | 3607] lA (Ne rites ra» [99,500 Balance Sheet as on Mar. 31, 2015 cal anes [acme uae | 24,500 0.000 Tad ye Mears Buiking all i15.69 Financial Accounting 1 132,139 Plant & Machinery Less: Drawings [h ax |__ 500 | 1,31,639 | Stock-in-Trade: | Sundry Creditor | ] 23300] tn hand Bills Payabl 3,000] With Customers he Salaries Outstanding 2,000 | Sundry Debtors | Outstanding Commission | | Less: Further Bad Debt 100 | General Ma NI 14] 32,000 Wor . 1 | 3.607 | Less: Goods sent on approval basis | 6.000 Bank Overdra 13.800 I Less Payment | |r ets ne | | Bits Receivable | Accrued Income Cashin hand WORKING NOTES 1. Outstanding Manager's Commission Net Profit before considering the commission to managers Excess of Credit over debit in P/L A/c = 299,500 ~ 16,540 = 882,960 pei commission allowed to General Manager be *X’ and Commission allowed to Works Manager be By the problem General Manager's Commission = X = 10 of Net Profit after cha } and his own, ng Works Manager's Conia orx= 9 ig2.960-y1 @ Works Manager's Commission = ¥ = 5% of Net Profit after charging General Manager's Commission and his own Or, Y= ©. [82,960 - x) Gi) 10s Putting the value of *X’ from equation (i) in (i) we get Y= = 182,960 {19 (82,960 -yy)) 105 10 y [82,960 — (7,541.82 ~~ yy] 105 i Y= [75,418.18+ + 105 I Y= 3,591,344 3,607 (Rounded off) 10 Putting the value of *Y" in equation (i) we g Wh (82,960 ~ 3,607] = ¢7,214on 21: Changes in value of stock awsetion 2 1 year ending Dec. 31, 2014 and Final Accounts of Sole Proprietorship Trading Concems 18.74) Set-off between debtors and Creditors owing Trial Balance of Sri Sarbanga Sundar Samaddat, prepare Trading @ Balance Sheet as on that date after adjustm Particulars Contribution 1d Profit & Lass p é 8,900 | Sales oz) 1,38,600 | Creditors poe i ont 2,600 | Return Ouward ioe : 22,800 | Provident Fund 6.550 30 a | an 39,000 | Interest on Deposit with Shreyashi Das | 450 ; '§,000 | Outstanding Trade Expenses | 1.600 ing advance 3,500] 28,200 | Provision for doubtful debts | 22m ore and Fixe | 8,600] Suspense A/c | 90 3 63950 000 0 ac Adjustments; Last year’s Closing Stock was valued at 10% below cost, Sri Samaddar wants to revert to cost b) Stock as on Dec. 31, 2014 was valued at 716,400 (at cost) Goods costing %650 pilfered by a dishonest aid employees and furniture (book value on Jan. 1, 2014 700) destroyed by an accidental fire on Dec. 31, 2014. ) Sunanda Bhowmick is included in both Debtors and Creditors - the amount due from him is 2430 and. the amount due to him is 8200, (@) New furniture costing 1,200 was purchased on Dec. 31, 2014 on credit but not yet recorded. ) Suspense A’e represents a cheque received from a Debtor in full setlement ofa claim for ®1,000. The cheque was deposited into bank and duly collected. (9 The employers contribution to provident fund €1,240 is yet to be provided. (8) Write off 2400 as bad and maintain provision for doubtful debts @ 5% on Debtors Depreciate all tangible fixed assets @ 10% p.a. Patent was acquired in 2013 and annual amortisation equal to 1/10" of original cost, started last year. (0) Creditors include supplier of stationery %200, [CU BCom (Hons), 1999 — Dates changed Ros! Sri Sarbanga Sundar Samaddar * Trading and Profit & Loss Account for the year ended Dec. 31, 2014 Cr. ___ Particulars x z Particulars z z ling stock [18,900 x 100/9] 21,000] By Sales 202,000 1,38,600 Less: Return Inward 890| 201,110eg. Ue Cet op ying ry, Ute 15.71 Financial Accounting 1 Tess: Return Outward T1580] 1,37,020 | tty Goods Pilfered To Gross Profit ed | |_ 10.140 | By Closing stock {214,160} To Printing and Stationery [2.000] By Gross Profit bid To Salaries | 24,200] | By tmerest om deposit 450 Less: Prepaid Salaries __3.500 Add: Accrued Interest | 450] 24,700 {1.000 » 10% x 6/12) ~ 450] Ada: Employers contbasion w PF | 1.240] 25,940] By Poison for Doubtful Debt ob] aaah rade Expenses | 12,650 By Bad Debts Recovered a To Goods Pilfered | | 650 | Towson Furniture destroyed (700 10%] 630 To Discount Allowed [WN: 1] | 100 | To Bad Debts | 400) To Provision for Doubtful Debt | 1,060 To Depreciation on | Freehold premises 3,900 | | Pore sd Pctre wo} 4.760 (790 + (700 » 10%)) To Amortization of Patent [W: 00 | To Balance e/d | 14.550 3,940 Orr | To Capital A‘e [Net Profit transferred] 16,650| By Balance b/d 14590) | By Under valuation of Opening stock 200 | [18,900 x 10/90) {See “Problem Note’) ut 16,650 it, Balance Sheet as on Dec. 31, 2014 Laniées de z Assets cree Capital 95,000 Right 5400 Add: Net profit | 16,650 | Less: Amortization [WN? 2] 600) 4800) 1,11,650 Freehold Premises 39,000 Less: Drawings 10,200 ase; Daweteliticn 3,900 35.10 ‘Add: Income Tax _7,900| 18,100] 93,550) Furniture and Fixture 8,600 Provident fund 6,550 Less: Value of Furniture destroyed | __ 700 ‘Add: Employers contribution 1.240] 7,790 fae 60 Creditors 16,020 Add: Unrecorded purchase of Furniture | 1,200 Less: Set-off 200 9,100 15,820 Less: Depreciation (10% x 7,900] 70] 83tt Less: Creditor for Stationery —_ 200 Deposit with Shreyasi Das | iiaFinal Accounts of Sole Proprietorship Trading Concerns 15.72 Tor Furniture 1,200 | Accrued interest on Deposit ] 450] | Stationery | 200 | Stock-in-‘Trade | 16,400} Trade Expenses | 1,600 } Debtors 22,800 | | Less: Set-off 200 | | | [22,60 | | 22,600 | Less: Due cleared [WN: I] 1,000 | 21,600 Less: Bad debts 400 | 21,200 | Prepaid Salaries 3,500 Bank balance | 6.950 119,960, 7,19,960 | a 1 L 4 Ul WORKING NOTES Amount received from Debtors __ Correct Entry Entry Made Dr | 900 ee Dr. | 900 | Bank A/c Dr. | 900 Suspense Ave scount Allowed Ale Dr.| 100] To Suspense A/c 900 | Discount Allowed Ale Dr. | 100 To Debtors Ale 1,000 Debtors Ale 1,000 a Itwill disappear after the above mentioned rectification ae on Suspense A/c appearing in Trial Balance: 2 Amortization of Patent Patent was acquired in 2013. So, amortization of 1/1¢ Patent value appearing in Trial Balance represents 9 30% 5.400 x 10/9 = 26,000. ea of patent p.a. = 6,000 x 1/10 = 2600 nee 22: Goods withdrawn by the proprietor ~ Insurance ectification of sale of goods on credit in the name of at assets was written-off in that year 0 of cost of Original cost of patent of the original cost. claim received against Abnormal Loss of other customer ) in Goods and 210,000 in Furniture, His X Biered f lied a business on Jan. 1, 2014 with ¥10,000 in Cash, 25:0 tal Balance on Dee. 31, 2014 was drawn as follows: ts ee | | TI _— saa rece te 00 | Sa we 5,000 | Cash 5.200 || Creditors 000 400 || Loan 2,400 1 Sgn F hieiecie de'9 eo,HOT Ne Gale o ange in accounting estimate’ and is to be given effect prospectively ©© Depreciation under new method (SLM) = WDV on 1,4.2014 x 10% = €15,000 x 10% = 1,500 Hlustration 26: Ascertainment of closing stock - Sale of private goods — Amortisation of Pateny Embezclement of cash The following Trail Balance has been prepared by Smt. Bijolly Acharya as on Mar, 31, 2015: Dr Trial Balance as on Mar. 31, 2015 Particulars z | Particulars z Drawing | 3,600 | Furniture & Fixture 3,100 || Capital yr Stock (Apr 1.2014) __| 12,300 | Bad Debt [___s60 |] sundry Debtors (advance) | _ 1,004,000 | Electricin [ue Sct | 1,290 || Sales \ 52,300 | Advertisemer ral | "se | tienes teturn Outward, 540 ce | 20:0]) Prison ora ets | ro | 12,800 | Cash at Bank ell | 200 | cas intana llieaal 2,060 i mall | 2060) azo en on Mar. 31, 2015 but actually taken or , peek ended Apr. 7, 2015 were: S avium ho Ap. 72015 a £10200, Tasnctns A ale ases A uniform 16 2/% profit from a Debtor whose balance had been written off as bad, was recorde se Jc from customers is entitled to 12% interest which is due for 2 months, 3 ntpety expenses include a deposit of £600 to the WB, State Electricity Board rere costing %1,600 purchased on Dec. 31, 2014 from Mis Assam Furniture Mart on credit was ited to be recorded ed by a dishonest employee - 2900. to be adjusted to 5% on Sundry Debtors; Loose Tools are valued at &1\ * cciation @ 10% p.a. on Plant & Machinery, @ 15% pa. on Furniture 10 be amortised in 10 equal installments. the year ended 31.3.15 and a Balance [CU BCom (Hons), 2000 - Adapted) Cash embezzl Provision for Bad Debts wide d Patent & Trade mark is t 4 to prepare Trading and Profit & Loss Account for 1 Stet as on that date, sition nha ute Value of Closing Stock on Balance Sheet date: gee + closing Stock is to be valued at the end of the cconing pet. Hower, he lve of fiven after seven days from the end of the accounts period, So we need to det aie atthe end of accounting period from such 0 Sete a sae ran on womxinerransane wt STO oem nova ore se et tne interim period [ie rom Balence Sheet rosea i oe og + Those goods which are acquired (e-, purchase of 60005, "07% crane St ea ent Wie 9S ea pelts eTeoue ca sterim period is to be added back. sm. Bijolly Achary# ‘Account for the ear ended Mar. 3 Trading and Profit & aaa rticulars er ening sock — —}— | 12,300 [By Sales é wchases | 52200] Less: Return nwa 7 \ vé ang | Les: BD Rees won |_sus shel chester |e eal Fueleb, Bang 15.83. Finonciol Accounting 1 } waned 5.07] Nasa Sle ofp (WN aif | ay Dies by Closing stock [WN 1] | a | 108207] fsa | 12,800] By Gross Profit bid ant sea | 400 | By Bad Debt Recovery er | | 2.000 18y Provision tor Had Debt (Old) ee $60 | By Capital A/c [Net Loss transferred] To Electricity 1 | Advenicme [| 4200 | To tsurance vu | ova | | 7 | To Depreciation |’ Pntnd Waray | sao) | Loose tools [1,510 ~ 1,02] | ToAmorization of Patent & Trader sas 2. Meee ce Sheet as on Mar. 31, 2015 oe ee cor eee | Capital 90,400 | ] Patent and Trademark | 4 i | Ade: Cait inroduced [Sate ot] 2x80 | | Less: Amortsation (1/10) 410 | penate poods (WN: 3)} aaa Freehold property | Plant and Machinery 34,000 | Less: Net Loss | 3.756 Less: Depreciation @ 10% | 3.400 89,524 Furniture and Fixture ~ 3.100] Less: Drawings |__ 3.600] 95,928] ada: Further purchase | 1,600 Advance from Debtors [8 > 000 ~ 4,700 Outstanding Interest on customer’ | | 20] Less: pion (6100x154) | 525| J advance | | | 1.0005 159% 319) aaa | 11.000 x 1260 x 2/13) | Loose | 12.750] Deposit with Waste | Creditors for Furniture | 100 | Swckin-Tade (1) [Asa aman | | Sundry Debtors 13,160 J Outstanding Rent | | 200] Les: Provision for bal dees 688 | | | | ang | | | | Cash 2,140 | Less: F | bezalement om =~ a ans 1 oo 1296) 1.02 520 101 oss P gpscross? 3, Recover Co Bad Del To Ba 3, Sale of pri Co Cash N tal Capit NB. It is assu Ilustration 2: Creditors From the follo year ended De Dr. Hectic tricity Machinery Mot OOF Car Poet Ren 450 p,_ — Tiabilities-side* Subseriptions and presentaig | ion 4: Concept building problem —Ascertainment of income from Mlustr in Financial Statement From the following extracts of Receipts & Payments A/c and additional information of Tiger Club, com, 5 show how it will appear in the ng the income from subscription for the year ended Mar. 31, 2015 and accounts of the club. Dr. Receipts & Pay | Receipts [To Subscriptions 1,50,000 | nents A/c for the year ended Mar. 31, 2015 (includes) a ol Payments 7 Additional Information: & 313.15 Subscriptions outstanding 60,000 | Subscriptions received in advance 30,000 Solution Subscriptions for the year ended Mar. 31, 2015: “Income from Subscriptions’ can be computed in two ways as under: Method I: By preparing ‘Statement for Subscriptions’ [ Particulars z eit] | Subscriptions received during 2014-15 (from Receipts & Payments Ale) 150,000 | Add: Subscriptions outstanding on Mar. 31, 2015 60,000 Advance Subscriptions on Apr. 1, 2014 45,000 | 1,05,000 33,000 | Less: Subscriptions outstanding on Mar. 31, 2014 30,000 Advance Subscriptions on Mar. 31, 2015 30,000 | 60,000 +. Subscriptions for the year ended Mar. 31, 2015 1,95,000 Method II: By preparing ‘Subscriptions A/c” Dr. Subscriptions A/e Cr. Date Particulars z Date Particulars g 1.4.14 | To Subscriptions Outstanding A/c 30,000] 1.4.14 | By Advance Subscriptions A’e [45,000ons for 0141s ¥ By Advance Subscriptions Ale & Expenditure Ne Ot NCO ol 8 of Nonprofit Organizations received in advance ‘Student Note The authors have followed | textbook and strongly recor 18.14 198 . 3.3.18] To Subscriptions Outstanding A {__ 30.000 sane oe 235,000] } cr x Anco | ta [95.000 | ee 30,000 0,000 | Method Ii, i.e., preparation of Subscriptions A/c across: all problems in this mmend the students to follow this method for theie practice purposerag 18.15. Financial Account JMastration 6: Concept building problem -Ascertainment of income from subscripa in Financial Statement 4 son maecrn dy car a bong ember inact each paying an annual subscription of £500, 85,000 wa ig a ran eoUts a ubsctption received during the year ended Mar.31, 2015 were €2 ay One including gh 2015 by rey 800 fo the year 2014 1S, Calculate the amount of subsenption te ann ane co 31,2015 by preparing a Subseries Sonne | 1S. Foundation, Dec, 2004 Dates Changed, Same Problem CS. Foundation, 7 1 sie Solution Pez | seh De eehichriiie. he Subscriptions A/e AN estat Co [Date [ar sri ae|OIe . Particulars uot [114 [To Arrear Subscription Ac 5,000 By Bank Ale ‘a sal ioe 31.3.15 | To Income & Expenditure Ac | tReccived during 2014-15) i est [ga (ecto for 2014-15:480¢ 001] 22,000] 31.315 By Area Subsrpion A [Fg ges ah, \ Jaieils | mayAceant stor sees 500 | =e ol eateihe as en ee ae solu WORKING: prot [ f Subscription recived or 2014-18 | ®] [2 Avvear Sabscription or 30 , | Subscription received in 2014-15 22310] | Gos Subiionfor 204-15 1850% 500) | 224 | ___Reseived for2014-15 _7,500 | 12,000] | .. Arrear Subscription for 2014 ial Subscript 15 [2.11,000 3. Arrear Subscription for 2013-14 =]. Arrear Subscription as on Mar.31, 2015 Arrear Subscription for 2013-14 (as on Apr. 1,2014) | 5,000] = Arrear Subscription for 2013-14 + Ame Less: Subscription of 2013-14 received during 2014-15 | 4,500 | Subscription for 2014-15 = 500+ 14.000= at so0} ©4500 " Arrear Subscription for 2013-1 Mustra From the fi the year ended Mar. 31, 2015. Subscriptions were received during the year 2014-15: For the year 2014-15 22,000 7: Ascertainment of income from subscription following, find out the amount of Subscription to be included in the Income & Expenditure Ac fr 230,000 For the year 2015-16 3,000 For the year 2013-14 Subscriptions outstanding as on Mar. 31, 2014 were 73,500 out of which 2500 were considered to be Ivance for 2014-15 was 2,000, Subscriptions irrecoverable. On the same date, subscriptions received-in- still Outstanding as on Mar. 31, 2015 amounted to %6,000. Solution Subscription to be included in the Income & Expenditure A/c for the year ended Mar. 31, 2015 is 37,000; ICS. Foundation, Nov, 1999-Dates changed) ce which is determined as under: Dr. Subscription A/c [Date | Particulars z | Date Particulars |3 1.4.14 | To Outstanding Subscriptions Ae | 3,500 1.4.14 | By Advance Subscriptions Ale 2.000 [ 313.15 | To Income & Expenditure A/c 37,000 By Bank A/c [2,000 + 30,000 +3,000) | 35.000 thdoen’ cafe Ee Suppliers. The item *C tors’ Ledger’ refers to receiving back of such advance 4. Cash sales, Legal Charges and B/Debt Recovery: Balancing sy Stem for these transactions as they do not i lustration 12: Self-Balancing Ra (x vk Ss ‘ash received in respect money fi “e's Cebit balance t of debit balance in Credie m the suppliers! creditors, No entry is required to be involve Debtors or Creditors system ~ Sales and Purchase Ledger Adjustment Account in Nominal ‘0 customer ~ Transfer of balances from one ledger to another ledger 1S in use: a Sales Ledger, a bought Ledger and a Nominal Ledger all of which are System. From the following part iculars prepare Sales Ledger Adjustment Alc in the Nominal Ledger Adjustment A/c in Passed under Self Al. edger — Interest charged Hassan has three Ledger kept in Self Balancing Nominal Ledger and the Bought Ledger (Figs in 2)tem 21.28 SelfBolancing and Sectional Balancing Sys 14.14 z Balance of Sundry Creditors (Dr.) 150 Balance of Sundry Creditors (Cr.) 4,500 Balance of Sundry Debtors (Cr.) 250 Balance of Sundry Debtors (Dr. 8,700 5 ¢ Credit purchases 45,000 Bills receivable endorsed to supplier (all 300 bls receivable drawn on customers 3.009 __ these bills were duly honoured) [Excluding bills renewed: ” Bills Receivable dishonouired and fresh 1.200 Bills payable accepted 2,000 bills drew with interest of 2200 Sales (including cash sales of 25,000) 60,000 __Cash paid to suppliers Return outward 1,500 Allowances to customer Interest on customers account overdue 300 Allowance received for payment ee gag Bad Debt writen off 50 Bad Debt Reserve Cash and cheques received from customers 32,000 Credit balance transferred from Sales Credit balance transferred from 85 Ledger to Bought Ledger Bought Ledger to Sales Ledger A eh od F to) i Ledger Purchase Ledger Balance (Dr.) 84 \eques dishonouret si pre ert 500 Sales Ledger Balance (Cr.) 112 ICU B Com (Hons), 1994 — Dates changed] Solution Books of K. Hassan In Nominal Ledger Dr. Sales Ledger Adjustment A/e cr Date Particulars =| Date Particulars a | | 1.4.14 | To Balance biF 8,700 | 1.4.14 | By Balance bf 250 | |313.15 | To Nominal Ledger Adjustment A/c: 31.3.15 | By Nominal Ledger Adjustment A/e: | Credit Sales [60,000 ~ 5,000) 55,000 Bills Receivable drawn 3,000 | Interest on customer's overdue for | sac Rear oo! ene 300 Cash and cheque received | 2000) Cheques dishonoured 500 Creditbalance transfered from Bought | Bills Receivable dishonoured 1,000 Ledger to Sales Ledger 85 200 Bill drawn including interest {WN:1] | 1,200 100 150 28,677 Interest on renewal bill Credit balance transferred from Sales Ledger to Bought Ledger 100 Bad debt written off 313.15 | To Balance c/f 112 | 31.3.15 | By Balance c’f [B’Fig.] 65,912In Bought Ledger Dr. Nominal Ledger Adjustment A/e Oseg|> p< eatacaad =| date [Particulars 1.4.14 | To Balance br 4,500] 1.4.14 | By Balance bf 31.3.15 | To Brought Ledger Adjustment A/e: 31.3.15 | By Brought Ledger Adjustment Ale: Credit Purchases 45,000 Bills Payable accepted Credit balance transferred from Return Outward Sales Ledger to Bought Ledger 100 Credit balance transferred from Bought Ledger to Sales Ledger Bills Receivable endorsed Cash paid Allowances received 31.3.15 | By Balance c/f [B/Fig,] 313.15 | To Balance e/f 84 lz 49.684 WORKINGS 1. Dishonour & Renewal of Bills Receivable: In such a case the following transactions occur ina sequen- tial manner: a. Dishonour of the existing bill of €1,000 (i.e. 1,200 — 2200); b. Interest charge for the extended period 2200; ¢. Drawing of the renewed bill of 1,200. 2. Transfer of ledger balances: * Transfer of credit balance from Bought Ledger to Sales Ledger: The creditors’ account of the Bought ledger is usually of credit balance. So, on such transfer Bought Ledger is debited and Sales Ledger is credited (via Nominal Ledger). * Transfer of credit balance from Sales Ledger to Bought Ledge ustration 13: Self-Balancing system — Neks,.SelfBolancing and Sectional Balancing System 21.32 ee .< Wem Note 1. Credit balance of Debtors as per General Ledger Adjustment A/c: It represents the Debit balance I of Debtors Ledger Adjustment A/c in General Ledger. 2. Debit balance of Creditors as per General Ledger Adjustment A/c: It represents Credit balance of Creditors Ledger Adjustment A/c in General Ledgor and hence, it ited accordin ~ 3, Rectification of discount: . gre daa: ¥ Discount Dacount allowed to debtors 8500 was recorded as discount received from creditors re rectiication of this errr wil effect the following a) Closing Debtors balance (b) Closing Creditors balance () Discount Received and (d) Discount Allowed Iilustration 18: Hindolco Enterprise has three ledgers - Debtors’ Ledger, Creditors’ Ledger and General Ledger which are hept under self balancing system, {rom the following particulars, prepare the relevant ad ustment accounts that would appear in General Ledger Ledger account balances on Jan. 1, 2014: X z Debtors’ Ledger (Dr) 70,000 Creditors’ Ledger (Cr) 40,500 ’ (Cr) 8,300 _ Bills Receivable 12,500 Creditors’ Ledger (Dr) 1,800 Bills Payable 6.900 Transactions during the year 2014: Purchases [including purchase of %59,900 Acceptance cancelled for renewal furniture %5,000] Interest charged for renewal Sales (including cash sale of 28,000) %70,700 Credit note issued to customers Cash paid to Creditors [including 30,500 Bills Receivable dishonoured (excluding creditors for furniture €2,300] endorsed bill) Collection from Debtors 351,300 Acceptance dishonoured due to some 2 1,200 Discount Allowed % 2,300 technical errors Discount Received % 3,200 Acceptance matured Proceeds from Bills Receivable %18,500 Sundry charges for acceptance dishonoured S00 discounted [Discount Charges 7500] Bills Receivable as endorsed dishonoured % 900 Bills Receivable endorsed % 2,600 Provision for Bad Debts 2 2,000 Bills Receivable matured on due date & 7,800 Bad debts written off 2 1,900 2 3,800 Debit note issued to suppliers % 4,300 Transfer from Debtors Ledger to Creditors Ledger Ledger account balances on Dec. 31, 2014: Debtors’ Ledger (Cr.)_—4,600 Bills Receivable 4,600 Creditors’ Ledger (Dr) 3,100 Bills Payable %7,900 Solution tions related to Bills Receivable and Bills Payable is given. However, the Value lem Note inthis problem, transactions ‘ yable Is Frac Soe the bills drawn’ and Value of bills accepted’ have not been provided. So, Bis Receivable AV ans Gite Payable A/c are to be prepared in order to determine such missing Ngures 20)3 nancial Accounting 1 Hooks of Hindotco Enterprise In General Ledger Dr. Debtors Ledger Adj Cr {pate | r Low tae [1116 [totale wr wn | 11.14 | By aaanc a Jarizis Ledger Adjustment Ai: 31.12.14 | By General Ledge Adjustment Ac [Weer saa Ree ea Caletion si300 | | Bills Receiabe dishonoured 3,00 Discount Allowed 2.300 Endorsed Bills Receivable 900 Aaa lowers 51100, 4.12.14 | To Balance et susoo ]anazia] ay fi Debtors Leduerto| 3.800 | Bills Reveivable dawn (WN2} | 25,000 | | By Balance e [Big] | pen ; [esr De, Creditors Ledger Adjustment Ale cr | Dawe | Parti = | Date Particulars z 114 | To Balance bt 1.800] Tita | By Balance bir 40,500 31.12.14 | To General Ledger Adjustment Ale: 31.12.14 | By General Ledger Adjustment Alc Cash paid [230,500 82,300) | 28,200 Credit Purchases 839, 900-5,000)| 54900 | Discount Received 3,200, Acceptance cancelled for renewal 2,200 Bills Receivable endorsed Interest for renewal of ils 200 Return Outward [WN:1] Acceptance dishonoured 1,200 | Transfer ftom Debtors Ledger to Sundry Charg 500 | Creditors Ledger 3,800 Endorsed B/R dishonoured 900 | Bills Payable accepted [WN:3] | 17.200 | 31.12.14 | By Balance e'f 3,100 31.12.14 | To Balance ef [Bi 42,400 I 103,500 1,03.500 WORKINGS 1. Issue of Debit & Credit Note: Debit note is i sued to suppliers when the goods are returned to them (ice Return Outward) and Credit note is issued to customers when they have returned the goods (ie, Return Inward). © Aibeiemnrs meerabiel Rees Malian eeeckeelll pean