NCERT Solution for Class 11 Accountancy Chapter 10 - Financial Statements - 2

NCERT Solutions are an extremely helpful study material to prepare for the CBSE Class 11 Accountancy examinations. This study material provides in-depth knowledge to students, and the NCERT solutions compiled by the subject matter wizards are excellent for scoring good marks in the annual exam.

NCERT Solutions for Class 11 Commerce Accountancy Chapter 10 – Financial Statements – 2 provides students with all-inclusive data for all the concepts. As the students have to learn the basic fundamentals of the subject of Accountancy, the NCERT Class 11 Solutions is a comprehensive study material which explains the concepts in a detailed way.

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Short Questions for NCERT Accountancy Solutions Class 11 Chapter 10

1. Why is it necessary to record the adjusting entries in the preparation of final accounts?

Recording adjusting entries in preparing final accounts is necessary because of the following reasons:

1. It helps in assessing whether the final accounts reflect true profit or loss, and it also shows the true financial position of a business.
2. It ensures accounts comply with the accrual basis of accounting.
3. It makes sure that all financial transactions belong to the current fiscal year. No transactions of past or future are taken into account.
4. It provides the scope for introducing different provisions, which can be made at year-end, only after assessing the whole year’s performance.

2. What is meant by closing stock? Show its treatment in final accounts.

The cost of goods that remains unsold in the inventory after the completion of the accounting period is referred to as the closing stock. The closing stock value is determined by comparing the realisable value and cost price. The lesser among the two values is considered as the value of the closing stock.

In final accounts, the closing stock is adjusted by:

1) Crediting the closing stock to trading and profit and loss account.

2) Placing it on the asset part of the balance sheet.

The following entries need to be passed for adjustment

Closing Stock A/c Dr.

To Trading A/c

3. State the meaning of the following:

(a) Outstanding expenses

(b) Prepaid expenses

(c) Income received in advance

(d) Accrued income

(a) Outstanding expenses: Such expenses are incurred in the present accounting period but are not paid. As expense is generated during the accounting period, it makes perfect sense to charge it against revenue earned to arrive at true profit or loss. These are liabilities and need to be paid.

(b) Prepaid expenses: Those types of expenses in which the associated benefit has not been materialised but the payment is already done in advance are known as prepaid expenses.

(c) Income received in advance: The income is received in the present accounting period, and the benefits will be realised in the upcoming accounting period, such income is called income received in advance.

(d) Accrued income: Income that is earned in the accounting period but yet to be received by the end of the accounting period is known as accrued income. It is the due to be received in future accounting periods. It is shown on the asset side of the balance sheet.

4. Give the proforma of the income statement and balance in vertical form.

5. Why is it necessary to create a provision for doubtful debts at the time of preparation of final accounts?

In an ideal scenario, it is expected that debtors will be paying all the amount owed by them to the business, in reality, it doesn’t happen as some debtors might default on paying. It can be the full amount or a part of the sum borrowed. It is uncertain as to how much will that debt actually becomes bad debt. A business has to make a reasonable estimate for such an event. This estimate is called the provision for bad debts. It is created by debiting the P & L account.

Profit and loss A/c Dr

To Provision for doubtful debts A/c

6. What adjusting entries would you record for the following?

(a) Depreciation

(b) Discount on debtors

(c) Interest on capital

(d) Manager’s commission

(a) Depreciation

(b) Discount on debtors

(c) Interest on capital

(d) Manager’s commission

Two types of manager commission can be seen as follows:

Case 1: When the commission is applied to the profit before charging the commission.

Case 2: When the commission is applied to the profit after charging the commission.

7. What is meant by the provision for discounts on debtors?

A business allows discounts to debtors to encourage them to clear their debts. The amount of discount that a debtor will receive is estimated and accounted for by creating a provision for discount on debtors. It is only for those debtors who repay on time. The journal entry for such an event can be written as follows:

Profit and Loss A/c

Dr.

To Provision for Discount on Debtors A/c

Discount to debtors is an expense, and hence it is shown in the expense side of the P & L account and deducted from the assets side in the balance sheet.

8. Give the journal entries for the following adjustments:

(a) Outstanding salary at ₹ 3,500.

(b) Rent unpaid for one month at ₹ 6,000 per annum.

(c) Insurance prepaid for a quarter at ₹ 16,000 per annum.

(d) Purchase of furniture costing ₹ 7,000 entered in the purchases book.

Long Question for NCERT Accountancy Solutions Class 11 Chapter 10

1. What are adjusting entries? Why are they necessary for preparing the final accounts?

In the accrual base of accounting, profit and loss for a year are not dependent only on revenues in cash or expenses paid in cash during the year. Some parts of the receipts and expenses that occurred in a year might belong to previous/future accounting periods. There can be some expenses which are yet to be brought to the books of account. Adjusting these items will provide a true and fair view of the business.

Recording adjusting entries in preparing final accounts is necessary because of the following reasons:

1. It helps in assessing whether the final accounts reflect true profit or loss also, it shows the true financial position of the business.

2. It ensures accounts comply with the accrual basis of accounting.

3. It makes sure that all financial transactions belong to the current fiscal year. No transaction of past or future is taken into account.

4. It provides the scope for introducing various provisions which can be made at year-end, only after assessing the whole year’s performance.

2. What is meant by the provision for doubtful debts? How are the relevant accounts prepared, and what journal entries are recorded in the final accounts? How is the amount for provision for doubtful debts calculated?

In an ideal scenario, it is expected that debtors will be paying all the amount owed by them to the business, in reality, it doesn’t happen as some debtors might default on paying. It can be the full amount or a part of the sum borrowed. It is uncertain as to how much will that debt actually becomes bad debt. A business has to make a reasonable estimate for such an event. This estimate is called the provision for bad debts. It is created by debiting the P & L account.

Profit and loss A/c Dr

To Provision for doubtful debts A/c

Provision for doubtful debts is shown as the deduction from debtors on the asset side of the balance sheet. It presents a true and fair view of the business. Provision for doubtful debts created at the end of the accounting period is carried forward to the next accounting period.

Adjustment entries for the provision for doubtful debts

Profit and Loss Account

Balance Sheet

3. Show the treatment of prepaid expenses, depreciation and closing stock at the time of preparation of final accounts when:

(a) Given inside the trial balance?

(b) Given outside the trial balance?

(i) Prepaid expenses

(a) When given inside the trial balance: It will be added only to the asset side of the balance sheet.

(b) When given outside the trial balance:  It will be posted in the P & L account as well as the balance sheet

(ii) Depreciation

In the trial balance, depreciation is shown in the P & L account, as it is an expense. When present in the trial balance, it means a deduction has been taken from the concerned asset, and when depreciation is shown outside the trial balance, it needs to be recorded both in the P & L account as well as the balance sheet.

1) Inside Trial Balance

2) Outside Trial Balance

(iii) Closing stock

(a) Closing stock is valued based on the least among cost price or realisable value. If present in the trial balance, it gets posted only on the assets side of the balance sheet.

(b) When closing stock is given outside trial balance, it gets posted in two places, i.e. P & L account and balance sheet.

Numerical Question for NCERT Accountancy Solutions Class 11 Chapter 10

1. Prepare a trading and profit and loss account for the year ending December 31, 2017, from the balances extracted from M/s Rahul Sons. Also, prepare a balance sheet at the end of the year.

Adjustments

1. Commission received in advance ₹ 1,000.

2. Rent receivable ₹ 2,000.

3. Salary outstanding ₹ 1,000 and insurance prepaid ₹ 800.

4. Further, bad debts ₹ 1,000 and provision for doubtful debts @ 5% on debtors and discount on debtors @ 2%.

5. Closing stock ₹ 32,000.

6. Depreciation on building @ 6% p.a.

The solution is given below:

2. Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending March 31, 2017, from the following figures taken from their trial balance:

Adjustments

1. Depreciation charged on machinery @ 5% p.a.

2. Further, bad debts ₹ 1,500, discount on debtors @ 5% and make a provision on debtors @ 6%.

3. Wages prepaid ₹ 1,000.

4. Interest on investment @ 5% p.a.

5. Closing stock 10,000.

The solution is given below:

3. The following balances have been extracted from the trial of M/s Runway Shine Ltd. Prepare the trading and profit and loss accounts and a balance sheet as on March 31, 2017.

Adjustments

1. Further, bad debts ₹ 1,000, discount on debtors ₹ 500 and make a provision on debtors @ 5%.

2. Interest received on investment @ 5%.

3. Wages and interest outstanding ₹ 100 and ₹ 200, respectively.

4. Depreciation charged on motor car @ 5% p.a.

5. Closing Stock ₹ 32,500.

The solution is given below:

4. The following balances have been extracted from the trial of M/s Haryana Chemical Ltd. You are required to prepare the trading and profit and loss accounts and balance sheet as on March 31, 2017, from the given information.

Adjustments

1. Closing stock was valued at the end of the year at ₹ 40,000.

2. Salary amounting ₹ 500 and trade expense of ₹ 300 are due.

3. Depreciation charged on building and machinery are @ 4% and @ 5%, respectively.

4. Make a provision of 5% on sundry debtors.

The solution is given below:

Working Note

The loan given bears an interest of 15% p.a., and the interest is unpaid from 01-9-2017 to 31-12-2017. Thus, interest for the loan is outstanding for four months. It is calculated as follows:

5. From the following information, prepare the trading and profit and loss accounts of M/s Indian sports house for the year ending March 31, 2017.

Adjustments

1. Closing stock was ₹ 45,000.

2. Provision for doubtful debts is to be maintained @ 2% on debtors.

3. Depreciation charged on: furniture and fixture @ 5%, plant and Machinery @ 6% and motor car @ 10%.

4. A Machine of ₹ 30,000 was purchased on October 01, 2016.

5. The manager is entitled to a commission of 10% of the net profit after charging such a commission.

The solution is given below:

Working Notes

1. Manager’s Commission

2. Out of the machinery of ₹ 1,00,000, ₹ 30,000 worth of machinery was purchased on 1st October 2016. Therefore, the depreciation on this machinery will be for 6 months at 6% p.a.

6. Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars.

Adjustments

1. Closing stock was valued ₹ 35,000.

2. Depreciation charged on furniture and fixture @ 5%.

3. Further bad debts ₹ 1,000. Make a provision for bad debts @ 5% on sundry debtors.

4. Depreciation charged on motor car @ 10%.

5. Interest on drawing @ 6%.

6. Rent, rates and taxes were outstanding for ₹ 200.

7. Discount on debtors 2%.

The solution is given below:

.

7. Following balances have been extracted from the trial balance of M/s Keshav Electronics Ltd. You are required to prepare the trading and profit and loss accounts and a balance sheet as on March 31, 2017.

The following additional information is available:

1. Stock on December 31, 2017, was ₹ 30,000.

2. Depreciation is to be charged on the building at 5% and the motor van at 10%.

3. Provision for doubtful debts is to be maintained at 5% on sundry debtors.

4. Unexpired insurance was ₹ 600.

5. The manager is entitled to a commission @ 5% on net profit before charging such commission.

The solution is given below:

8. From the following balances extracted from the books of Raga Ltd., prepare the trading and profit and loss accounts for the year ended March 31, 20117 and a balance sheet as on that date.

The additional information is as under:

1. Closing stock was valued at the end of the year ₹ 20,000.

2. Depreciation on plant and machinery charged at 5% and land and building at 10%.

3. Discount on debtors at 3%.

4. Make a provision at 5% on debtors for doubtful debts.

5. Salary outstanding was ₹ 100, and wages prepaid was ₹ 40.

6. The manager is entitled to a commission of 5% on net profit after charging such commission.

The solution is given below:

9. From the following balances of M/s Jyoti Exports, prepare the trading and profit and loss accounts for the year ended March 31, 2017, and the balance sheet as on this date.

Closing stock ₹ 10,000.

1. To provision for doubtful debts is to be maintained at 5 per cent on sundry debtors.

2. Wages amounting to ₹ 500 and salary amounting to ₹ 350 are outstanding.

3. Factory rent prepaid for ₹ 100.

4. Depreciation charged on Plant and Machinery @ 5% and Building @ 10%.

5. Outstanding insurance of ₹ 100.

The solution is given below:

10. The following balances have been extracted from the books of M/s Green House for the year ended March 31, 2017. Prepare the trading and profit and loss accounts and balance sheet as on this date.

Adjustments:

(a) Machinery is depreciated at 10%, and buildings depreciated at 6%.

(b) Interest on capital @ 4%.

(c) Outstanding wages of ₹ 50.

(d) Closing stock of ₹ 50,000.

The solution is given below:

11. From the following balances extracted from the book of M/s Manju Chawla on March 31, 2017, prepare the trading and profit and loss accounts and a balance sheet as on this date.

The closing stock was ₹ 2,000.

(a) Interest on drawings @ 7% and interest on capital @ 5%.

(b) Land and machinery are depreciated at 5%.

(c) Interest on investment @ 6%.

(d) Unexpired rent ₹ 100.

(e) Charge 5% depreciation on furniture.

The solution is given below: