Question

From the following Trial Balance of M/s Arjun and Sons as on 31st March, 2018, prepare Trading and Profit and Loss Account and Balance Sheet:

Heads of Accounts		Debit Balances (₹)	Credit Balances (₹)
Drawings	................................................................................	1,80,000	…
Capital	................................................................................	…	8,00,000
Purchases	................................................................................	8,26,000	...
Sales	................................................................................	…	15,50,000
Opening Stock	................................................................................	4,20,000	…
Returns Outward	................................................................................	…	16,000
Carriage Inwards	................................................................................	12,000	…
Wages	................................................................................	40,000	…
Power	................................................................................	60,000	…
Machinery	................................................................................	5,00,000	…
Furniture	................................................................................	1,40,000	…
Rent	................................................................................	2,20,000	…
Salary	................................................................................	1,50,000	…
Insurance	................................................................................	36,000	…
8% Bank Loan	................................................................................	…	2,50,000
Debtors	................................................................................	2,06,000	…
Creditors	................................................................................	…	1,89,000
Cash in Hand	................................................................................	15,000	…
Total		28,05,000	28,05,000

Adjustments:
(i) Closing Stock ₹ 6,40,000.
(ii) Wages Outstanding ₹ 24,000.
(iii) Bad Debts ₹ 6,000 and Provision for Bad and Doubtful Debts to 5% on Debtors.
(iv) Rent is paid for 11 months.
(v) Loan from bank was taken on 1^st October, 2017.
(vi) Provide Depreciation on Machinery @ 10% p.a.
(vii) Provide Manager’s Commission at 10% on net profit after charging such commission.

Answer 1

Financial Statements of M/s Arjun and Sons Trading Account for the year ended March 31, 2018
Dr.					Cr.
Particulars			Amount (Rs)	Particulars	Amount (Rs)
Opening Stock			4,20,000	Sales	15,50,000
Purchases		8,26,000		Closing Stock	6,40,000
Less: Return Outwards		(16,000)	8,10,000
Carriage Inwards			12,000
Wages		40,000
Add: Outstanding		24,000	64,000
Power			60,000
Gross Profit (Balancing Figure)			8,24,000
			21,90,000		21,90,000

Profit and Loss Account for the year ended March 31, 2018
Dr.					Cr.
Particulars			Amount (Rs)	Particulars	Amount (Rs)
Depreciation on Machinery			50,000	Gross Profit	8,24,000
Rent		2,20,000
Add: Outstanding Rent		20,000	2,40,000
Salary			1,50,000
Insurance			36,000
Interest on Bank Loan (for 6 Months)			10,000
Bad Debts		6,000
Add: Provision for Doubtful Debts		10,000	16,000
Manger’s Commission			29,273
Net Profit (Balancing Figure)			2,92,727
			8,24,000		8,24,000

Balance Sheet as on March 31, 2018
Liabilities		Amount (Rs)	Assets		Amount (Rs)
Capital	8,00,000		Fixed Assets
Less: Drawings	(1,90,000)		Machinery	5,00,000
Add: Net Profit	2,92,727	9,02,727	Less: 10% Depreciation	(50,000)	4,50,000
8% Bank Loan	2,50,000		Furniture		1,40,000
Add: Interest Outstanding	10,000	2,60,000	Current Assets
Current Liabilities			Closing Stock		6,40,000
Creditors		1,89,000	Debtors	2,06,000
Wages Outstanding		24,000	Less: Bad Debts	(6,000)
Rent Outstanding		20,000		2,00,000
Manger’s Commission Payable		29,273	Less: 5% Provision for Doubtful Debts	(10,000)	1,90,000
			Cash in Hand		15,000
		14,35,000			14,35,000

Working Notes:

WN1 Calculation of Interest on Loan

Bank Loan = Rs 2,50,000

Interest on Loan (from Oct. 01 to Mar. 31) = $2,50,000\times \frac{8}{100}\times \frac{6}{12}=\mathrm{Rs}10,000$

WN2 Calculation of Manager’s Commission
$$\begin{gathered} \mathrm{Manager}\text{'}\mathrm{s}\mathrm{Commission}=\mathrm{Profit}\mathrm{before}\mathrm{charging}\mathrm{Commission}\times \frac{10}{100+\mathrm{Rate}} \\ \mathrm{Profit}\mathrm{before}\mathrm{charging}\mathrm{Commission}=8,24,000-5,02,000=3,22,000 \\ \mathrm{Manager}\text{'}\mathrm{s}\mathrm{Commission}=3,22,000\times \frac{10}{100+10}=\mathrm{Rs}29,273 \end{gathered}$$