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

Account TitleAmt.(Rs)Account TitleAmt.(Rs)Drawings20,000Capital2,00,000Sundry Debtors80,000Return Outwards2,000Bad Debts1,000Bank Overdraft12,000Trade Expenses2,400Provision for Bad Debts4,000Printing and Stationery2,000Sundry Creditors60,000Rent, Rates and Taxes5,000Bills Payable15,400Freight4,000Sales2,76,000Return Inwards7,000Opening Stock25,000Purchase1,80,000Furniture and Fixture20,000Plant and Machinery1,00,000Bills Receivable14,000Wages10,000Cash in Hand6,000Discount Allowed2,000Investments40,000Motor Car51,000¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯5,69,400––––––––––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯5,69,400––––––––––––––––

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.

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Solution

Trading and Profit and Loss Account Dr. as on 31st December, 2011 Cr.

ParticularsAmt.(Rs)ParticularsAmt.(Rs) Opening Stock25,000 Sales2,76,000 Purchases 1,80,000(-)Return Inwards 7,000–––––––2,69,000(-)Return Outwards 2,000–––––––1,78,000 Closing Stock45,000 Wages10,000 Gross Profit c/d1,01,000¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯3,14,000––––––––––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯3,14,000–––––––––––––––– Bad Debts1,000 Gross Profit b/d1,01,000 Trade Expenses2,400 Provision for Bad Debts4,000 Printing and stationery2,000(-)New Provision 1,600–––––––2,400 Rent, Rates and Taxes5,000 Freight4,000 Discount Allowed2,000 Depreciation on Furniture1,000 and Fixture Depreciation on Plant and Machinery (4,200+900)5,100 Depreciation on Motor Car5,100 Manager's Commission6,891 Net Profit c/d68,909¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯1,03,400––––––––––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯1,03,400––––––––––––––––

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 = 900¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯Rs. 5,100––––––––

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 = [75,800×10110]=Rs. 6,891

Balance Sheet
as on 31st December, 2011

Capital and LiabilitiesAmt. (Rs.)Assets Amt. (Rs.)Capital2,00,000Sundry Debtors80,000(+)Net Profit68,909(-)Provision for Bad¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯ 2,68,909Debts 1,600––––––––78,400(-)Drawings 20,000––––––––2,48,909Furniture and Fixture20,000Bank Overdraft12,000(-)Depreciation@Creditors60,0005% 1,000–––––––19,000Bills Payable15,400Plant and Machinery(-)Depreciation@1,00,0006%(4,200+900) 5,100––––––94,900Manager's Commission6,891Motor Car51,000Outstanding(-)Depreciation@10% 5,100–––––––45,900Cash in Hand6,000Bills Receivable14,000Investments40,000Closing Stock45,000¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯3,43,200––––––––––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯3,43,200––––––––––––––––


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