Question

From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending December 31, 2011.

$\begin{array}{cccc}\text{Account Title}& \text{Amt.(Rs)}& \text{Account Title}& \text{Amt.(Rs)}\\ \text{Drawings}& 20,000& \text{Capital}& 2,00,000\\ \text{Sundry Debtors}& 80,000& \text{Return Outwards}& 2,000\\ \text{Bad Debts}& 1,000& \text{Bank Overdraft}& 12,000\\ \text{Trade Expenses}& 2,400& \text{Provision for Bad Debts}& 4,000\\ \text{Printing and Stationery}& 2,000& \text{Sundry Creditors}& 60,000\\ \text{Rent, Rates and Taxes}& 5,000& \text{Bills Payable}& 15,400\\ \text{Freight}& 4,000& \text{Sales}& 2,76,000\\ \text{Return Inwards}& 7,000& & \\ \text{Opening Stock}& 25,000& & \\ \text{Purchase}& 1,80,000& & \\ \text{Furniture and Fixture}& 20,000& & \\ \text{Plant and Machinery}& 1,00,000& & \\ \text{Bills Receivable}& 14,000& & \\ \text{Wages}& 10,000& & \\ \text{Cash in Hand}& 6,000& & \\ \text{Discount Allowed}& 2,000& & \\ \text{Investments}& 40,000& & \\ \text{Motor Car}& 51,000& & \\ & \overline{\underset{–}{\underset{–}{5,69,400}}}& & \overline{\underset{–}{\underset{–}{5,69,400}}}\end{array}$

Adjustments

1. Closing stock was Rs. 45,000.

2. Provision for bad 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 Rs 30,000 was purchased on July 1, 2011.

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

Answer 1

$\begin{array}{ccc}& \text{Trading and Profit and Loss Account}& \\ \text{Dr.}& \text{as on 31st December, 2011}& \text{Cr.}\end{array}$

$\begin{array}{ccccc}\text{Particulars}& \text{Amt.(Rs)}& \text{Particulars}& & \text{Amt.(Rs)}\\ \text{Opening Stock}& 25,000& \text{Sales}& 2,76,000& \\ \text{Purchases}1,80,000& & \text{(-)Return Inwards}& \underset{–}{7,000}& 2,69,000\\ \text{(-)Return Outwards}\underset{–}{2,000}& 1,78,000& \text{Closing Stock}& & 45,000\\ \text{Wages}& 10,000& & & \\ \text{Gross Profit c/d}& 1,01,000& & & \\ & \overline{\underset{–}{\underset{–}{3,14,000}}}& & & \overline{\underset{–}{\underset{–}{3,14,000}}}\\ \text{Bad Debts}& 1,000& \text{Gross Profit b/d}& & 1,01,000\\ \text{Trade Expenses}& 2,400& \text{Provision for Bad Debts}& 4,000& \\ \text{Printing and stationery}& 2,000& \text{(-)New Provision}& \underset{–}{1,600}& 2,400\\ \text{Rent, Rates and Taxes}& 5,000& & & \\ \text{Freight}& 4,000& & & \\ \text{Discount Allowed}& 2,000& & & \\ \text{Depreciation on Furniture}& 1,000& & & \\ \text{and Fixture}& & & & \\ \text{Depreciation on Plant and}& & & & \\ \text{Machinery (4,200+900)}& 5,100& & & \\ \text{Depreciation on Motor Car}& 5,100& & & \\ \text{Manager's Commission}& 6,891& & & \\ \text{Net Profit c/d}& 68,909& & & \\ & \overline{\underset{–}{\underset{–}{1,03,400}}}& & & \overline{\underset{–}{\underset{–}{1,03,400}}}\end{array}$

Working Notes:

1. Depreciation on Plant and Machinery Rs. 30,000
Machinery was purchased on 1 July, 2011.

Hence, Depreciation on Rs. 70,000 (1,00,000 - 30,000)
@ 6% = Rs. 4,200

and Dep on Rs. 30,000 @ 6% for six months = $\underset{\overline{\underset{–}{Rs.5,100}}}{900}$

2. Profit Before Manager's Commission = (1,03,400 - 27,600) = Rs. 75,800

Manager is entitled a commission @ 10% on the new profit after charging such commission = $[75,800\times \frac{10}{110}]=Rs.6,891$

Balance Sheet
as on 31st December, 2011

$\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt. (Rs.)}& \text{Assets}& & \text{Amt. (Rs.)}\\ \text{Capital}& 2,00,000& & \text{Sundry Debtors}& 80,000& \\ \text{(+)Net Profit}& 68,909& & \text{(-)Provision for Bad}& & \\ & \overline{2,68,909}& & \text{Debts}& \underset{–}{1,600}& 78,400\\ \text{(-)Drawings}& \underset{–}{20,000}& 2,48,909& \text{Furniture and Fixture}& 20,000& \\ \text{Bank Overdraft}& & 12,000& \text{(-)Depreciation}@& & \\ \text{Creditors}& & 60,000& 5\%& \underset{–}{1,000}& 19,000\\ \text{Bills Payable}& & 15,400& \text{Plant and Machinery}& & \\ & & & \text{(-)Depreciation}@& 1,00,000& \\ & & & 6\%(4,200+900)& \underset{–}{5,100}& 94,900\\ \text{Manager's Commission}& & 6,891& \text{Motor Car}& 51,000& \\ \text{Outstanding}& & & \text{(-)Depreciation}@10\%& \underset{–}{5,100}& 45,900\\ & & & \text{Cash in Hand}& & 6,000\\ & & & \text{Bills Receivable}& & 14,000\\ & & & \text{Investments}& & 40,000\\ & & & \text{Closing Stock}& & 45,000\\ & & \overline{\underset{–}{\underset{–}{3,43,200}}}& & & \overline{\underset{–}{\underset{–}{3,43,200}}}\end{array}$