Question

Below is given the Trial Balance of Mr. Ram as at 31st December, 2015. You are required to prepare Trading and Profit & Loss Account and Balance Sheet as at that date.

Dr. Balances			(₹)	Cr. Balances	(₹)
Opening Stock			42,000	Sales	4,10,000
Purchases			2,00,000	Sundry Creditors	20,000
Plant			60,000	Purchases Return	8,000
Salary			33,000	Commission	7,500
Wages			44,000	Bank	24,000
Discount			2,000	Capital	1,50,000
Rent			27,500	Interest on Investments	700
Furniture (Including Furniture of ₹ 5,000 purchased on 1st July, 2015)			20,000	Special Rebate	800
Carriage in			5,800
Carriage out			3,200
Sundry Debtors			1,00,000
Office Expenses			6,600
Cash in hand			5,400
Investments at 14% p.a.			10,000
Insurance (Paid to 30th April, 2016)			1,500
Stock on 31st December, 2015			60,000
			6,21,000		6,21,000

Adjustments:-
1. Create a provision for Doubtful Debts @ 5% on Debtors and 2% for discount on Debtors.
2. Provide up-to-date interest on Investments.
3. Expenses for rent, wages, salaries and office expenses are uniform throughout the year and those for December, 2015 have not been paid.
4. Depreciate Plant by 10% p.a. and Furniture by 20% p.a.
5. Unearned Commission ₹ 1,500.

Answer 1

Financial Statements of Mr. Ram
Trading Account for the year ended December 31, 2015
Dr.							Cr.
Particulars				Amount (Rs)	Particulars	Amount (Rs)
Opening Stock				42,000	Sales	4,10,000
Purchases			2,00,000
Less: Purchases Return			8,000	1,92,000
Carriage Inwards				5,800
Wages		44,000
Add: Outstanding (WN6)		4,000		48,000
Gross Profit (Balancing Figure)				1,22,200
				4,10,000		4,10,000

Profit and Loss Account for the year ended December 31, 2015
Dr.								Cr.
Particulars			Amount (Rs)	Particulars			Amount (Rs)
Depreciation: (WN1)				Gross Profit			1,22,200
Plant		6,000		Commission	7,500
Furniture		3,500	9,500	Less: Unearned	1,500		6,000
Rent		27,500		Interest on Investment		700
Add: Outstanding (WN6)		2,500	30,000	Add: Accrued (WN4)		700	1,400
Provision for Doubtful Debts (WN2)			5,000	Special Rebate			800
Provision for Discount on Debtors (WN3)			1,900
Carriage Outwards			3,200
Insurance		1,500
Less: Prepaid (WN5)		500	1,000
Salaries		33,000
Add: Outstanding (WN6)		3,000	36,000
Office Expenses		6,600
Add: Outstanding (WN6)		600	7,200
Discount			2,000
Net Profit (Balancing Figure)			34,600
			1,30,400				1,30,400

Balance Sheet as on December 31, 2015
Liabilities		Amount (Rs)	Assets			Amount (Rs)
Capital	1,50,000		Fixed Assets
Add: Net Profit	34,600	1,84,600	Plant		60,000
			Less: Depreciation		6,000	54,000
Current Liabilities			Furniture		20,000
Sundry Creditors		20,000	Less: Depreciation		3,500	16,500
Outstanding Wages		4,000	14% Investments			10,000
Outstanding Rent		2,500
Outstanding Salaries		3,000	Current Assets
Outstanding Office Expenses		600	Closing Stock			60,000
Unearned Commission		1,500	Accrued Interest on Investments			700
Bank Overdraft		24,000	Prepaid Insurance			500
			Cash in Hand			5,400
			Sundry Debtors	1,00,000
			Less: Provision for Doubtful Debts	5,000
			Less: Provision for Discount on Debtors	1,900		93,100
		2,40,200				2,40,200

Working Notes:

WN1: Calculation of Amount of Depreciation
$\begin{array}{l}\mathrm{Depreciation}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Plant}=60,000\times \frac{10}{100}=\mathrm{Rs}6,000\\ \mathrm{Depreciation}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Furniture}=15,000\times \frac{20}{100}+5,000\times \frac{20}{100}\times \frac{6}{12}=\mathrm{Rs}3,500\end{array}$

WN2: Calculation of Provision for Doubtful Debts

$\begin{array}{lll}\mathrm{Provision}\mathrm{}\mathrm{for}\mathrm{}\mathrm{Doubtful}\mathrm{}\mathrm{Debts}\mathrm{}& =& \left(\mathrm{Sundry}\mathrm{}\mathrm{Debtors}-\mathrm{Further}\mathrm{}\mathrm{Bad}\mathrm{}\mathrm{Debts}\right)\mathrm{}\times \mathrm{}\frac{\mathrm{Rate}}{100}\\ & =& \left(1,00,000-0\right)\times \frac{5}{100}=\mathrm{Rs}5,000\end{array}$

WN3: Calculation of Provision for Discount on Debtors
$\begin{array}{lll}\mathrm{Provision}\mathrm{}\mathrm{for}\mathrm{}\mathrm{Discount}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Debtors}\mathrm{}& =& \left(\mathrm{Sundry}\mathrm{}\mathrm{Debtors}\mathrm{}-\mathrm{Further}\mathrm{}\mathrm{Bad}\mathrm{}\mathrm{Debts}\mathrm{}-\mathrm{Provision}\mathrm{}\mathrm{for}\mathrm{}\mathrm{Bad}\mathrm{}\mathrm{Debts}\right)\mathrm{}\times \mathrm{}\frac{\mathrm{Rate}}{100}\\ & =& \left(1,00,000-0-5,000\right)\times \frac{2}{100}=\mathrm{Rs}1,900\end{array}$

WN4: Calculation of Accrued Interest on Investments
$\begin{array}{l}\mathrm{Interest}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Investments}=14,000\times \frac{10}{100}=\mathrm{Rs}1,400\\ \mathrm{Interest}\mathrm{}\mathrm{Already}\mathrm{}\mathrm{Received}\mathrm{}=\mathrm{}\mathrm{Rs}\mathrm{}700\mathrm{}\\ \therefore \mathrm{}\mathrm{Accrued}\mathrm{}\mathrm{Interest}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Investments}\mathrm{}=\mathrm{}\mathrm{Rs}\mathrm{}700\end{array}$

WN5: Calculation of Prepaid Insurance
$\mathrm{Prepaid}\mathrm{}\mathrm{Insurance}=1,500\times \frac{4}{12}=\mathrm{Rs}500$

WN6: Calculation of Outstanding Expenses
$\begin{array}{l}\mathrm{Rent},\mathrm{}\mathrm{Wages},\mathrm{}\mathrm{Salaries}\mathrm{}\mathrm{and}\mathrm{}\mathrm{Office}\mathrm{}\mathrm{Expenses}\mathrm{}\mathrm{have}\mathrm{}\mathrm{been}\mathrm{}\mathrm{paid}\mathrm{}\mathrm{for}\mathrm{}11\mathrm{}\mathrm{months}.\\ \mathrm{Outstanding}\mathrm{}\mathrm{Expense}\mathrm{}\mathrm{will}\mathrm{}\mathrm{be}:\\ \mathrm{Outstanding}\mathrm{}\mathrm{Rent}=\mathrm{}27,500\times \mathrm{}\frac{1}{11}=\mathrm{Rs}\mathrm{}2,500\\ \mathrm{Outstanding}\mathrm{}\mathrm{Wages}=\mathrm{}44,000\times \mathrm{}\frac{1}{11}=\mathrm{Rs}\mathrm{}4,000\\ \mathrm{Outstanding}\mathrm{}\mathrm{Salary}=\mathrm{}33,000\times \mathrm{}\frac{1}{11}=\mathrm{Rs}\mathrm{}3,000\\ \mathrm{Outstanding}\mathrm{}\mathrm{Office}\mathrm{}\mathrm{Expenses}=\mathrm{}6,600\times \mathrm{}\frac{1}{11}=\mathrm{Rs}\mathrm{}600\end{array}$