Question

From the following trail balance of M/s Arjun & Sons as 31st December,2016 prepare trading and profit and loss account and balance sheet.

$\begin{array}{ccc}\text{Name of Accounts}& \text{Debit Balance}& \text{Credit Balance}\\ \text{Drawings and Capital}& 18,000& 80,000\\ \text{Purchases and Sales}& 82,600& 1,55,000\\ \text{Stock (1st January, 2016)}& 42,000& \\ \text{Return Outwards}& & 1,600\\ \text{Carriage Inwards}& 1,200& \\ \text{Wages}& 4,000& \\ \text{Power}& 6,000& \\ \text{Machinery}& 50,000& \\ \text{Furniture}& 14,000& \\ \text{Rent}& 22,000& \\ \text{Salary}& 15,000& \\ \text{Insurance}& 3,600& \\ 8\%\text{Bank Loan}& & 25,000\\ \text{Debtors}& 20,600& \\ \text{Creditors}& & 18,900\\ \text{Cash in Hand}& 1,500& \\ & \overline{\underset{–}{\underset{–}{2,80,500}}}& \overline{\underset{–}{\underset{–}{2,80,500}}}\\ & & \end{array}$

Additional Information:

(i) Closing stock Rs. 64,000.

(ii) Wages outstanding Rs. 2,400

(iii) Bad debts Rs. 600 and provision for bad doubtful debts to be 5% on debtors.

(iv) Rent is paid for 11 months.

(v) Loan form the bank was taken on 1st July, 2016.

(vi) Provide depreciation on machinery @ 10% per annum.

(vii) Provide manager's commission at 10% on net profit after charging such commission.

Answer 1

Trading and Profit and Loss Account

$\text{Dr.}\text{for the year ending 31st December, 2016}\text{Cr.}\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs.)}& \text{Particulars}& & \text{Amt. (Rs.)}\\ \text{Opening Stock}& & 42,000& \text{Sales}& & 1,55,000\\ \text{Purchases}& 82,600& & \text{Closing Stock}& & 64,000\\ (-)\text{Returns Outwards}& \underset{–}{1,600}& 81,000& & & \\ \text{Carriage Inwards}& & 1,200& & & \\ \text{Wages}& 4,000& & & & \\ (+)\text{Outstanding Wages}& \underset{–}{2,400}& 6,400& & & \\ \text{Power}& & 6,000& & & \\ \text{Gross Profit c/d}& & 82,400& & & \\ & & \overline{\underset{–}{\underset{–}{2,19,000}}}& & & \overline{\underset{–}{\underset{–}{2,19,000}}}\\ \text{Rent}& 22,000& & \text{Gross profit b/d}& & 82,400\\ (+)\text{Outstanding Rent}& \underset{–}{2,000}& 24,000& & & \\ \text{Salary}& & 15,000& & & \\ \text{Insurance}& & 3,600& & & \\ \text{Outstanding Interest on Bank Loan}& & 1,000& & & \\ \text{Further Bad Debts}& 600& & & & \\ (+)\text{New Provision}& \underset{–}{1,000}& 1,600& & & \\ \text{Depreciation on Machinery}& & 5,000& & & \\ \text{Manager's Commission}& & 2,927& & & \\ \text{Net Profit Transferred to Capital A/c}& & 29,273& & & \\ & & \overline{\underset{–}{\underset{–}{82,400}}}& & & \overline{\underset{–}{\underset{–}{82,400}}}\\ & & & & & \end{array}$

Balance Sheet

as at 31st December, 2016

$\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt. (Rs.)}& \text{Assets}& & \text{Amt. (Rs.)}\\ \text{Bank Loan}& 25,000& & \text{Cash in Hand}& & 1,500\\ (+)\text{Outstanding Interest}& \underset{–}{1,000}& 26,000& \text{Debtors}& 20,600& \\ \text{Creditors}& & 18,900& (-)\text{Further Bad Debts}& \underset{–}{600}& \\ \text{Outstanding Wages}& & 2,400& & 20,000& \\ \text{Outstanding Rent}& & 2,000& (-)\text{Provision for Doubtful Debts}& \underset{–}{1,000}& 19,000\\ \text{Manager's Commission}& & 2,927& \text{Closing Stock}& & 64,000\\ \text{Capital}& 80,000& & \text{Furniture}& & 14,000\\ (+)\text{Net profit}& 29,273& & \text{Machinery}& 50,000& \\ (-)& & & (-)\text{Depreciation}& \underset{–}{5,000}& 45,000\\ & \overline{1,09,273}& & & & \\ (-)\text{Drawings}& \underset{–}{18,000}& 91,273& & & \\ & & \overline{\underset{–}{\underset{–}{1,43,500}}}& & & \overline{\underset{–}{\underset{–}{1,43,500}}}\\ & & & & & \end{array}$

Working Notes:

1. Interest on bank loan will be calculated for 6 months i.e. from July to December =$25,000\times \frac{5}{100}\times \frac{6}{12}=Rs.1,000$
2. Rent per month=$\frac{22,000}{11}=2,000,\therefore 2,000$ will be the outstanding rent.
3. Depreciation on Machinery = $50,000\times \frac{10}{100}=Rs.5,000$
4. Provision for Doubtful Debts = (20,600 - 600)$\times \frac{5}{100}=Rs.1,000$
5. Manager's commission = 82,400 - 50,200 =$32,200\times \frac{10}{100}=Rs.2,927$