Question

Suresh started business on 1st April, 2015 with a capital of Rs. 30,000. The following trial balance was drawn up form his books at the end of the year.

$\begin{array}{cccc}\text{Name of Accounts}& \text{Amt. (Rs.)}& \text{Name of Accounts}& \text{Amt. (Rs.)}\\ \text{Drawings}& 4,500& \text{Capital}& 40,000\\ \text{Plant and Fixtures}& 8,000& \text{Sales}& 1,60,000\\ \text{Purchases}& 1,16,000& \text{Creditors}& 12,000\\ \text{Carriage Inwards}& 2,000& \text{Bills Payable}& 9,000\\ \text{Wages}& 8,000& & \\ \text{Return Inwards}& 4,000& & \\ \text{Salaries}& 10,000& & \\ \text{Printing}& 800& & \\ \text{Advertisement}& 1,200& & \\ \text{Trade Charges}& 600& & \\ \text{Rent}& 1,400& & \\ \text{Debtors}& 25,000& & \\ \text{Bills Reveivable}& 5,000& & \\ \text{Investments}& 15,000& & \\ \text{Discount}& 500& & \\ \text{Cash at Bank}& 16,000& & \\ \text{Cash in Hand}& 3,000& & \\ & \overline{\underset{–}{\underset{–}{2,21,000}}}& & \overline{\underset{–}{\underset{–}{2,21,000}}}\\ & & & \end{array}$

The value of stock as at 31st March, 2016 was Rs. 26,000.

You are required to prepare his trading and profit and loss account for the year ended 31st March, 2016 and a balance sheet as on the date after taking the following facts into account.

(i) Interest on capital is to be provided at 6% per annum.

(ii) An additional capital of Rs. 10,000 was introduced by Suresh on 1st October,2016.

(iii) Plant and fixtures are to be depreciated by 10% per annum.

(iv) Salaries outstanding on 31st March, 2016 amounted to Rs. 500.

(v) Accrued interest on investment amounted to Rs. 750.

(vi) Rs. 500 are bad debts and provision for doubtful debts is to be created at 5% on the balance of debtors.

Answer 1

Trading and Profit and Loss Account

$\text{Dr.}\text{for the year ending 31st December, 2016}\text{Cr.}\begin{array}{ccccccc}\text{Particulars}& & \text{Amt. (Rs.)}& \text{Particulars}& & \text{Amt. (Rs.)}& \\ \text{Purchases}& & 1,16,000& \text{Sales}& 1,60,000& & \\ \text{Wages}& & 8,000& (-)\text{Return Inwards}& \underset{–}{4,000}& 1,56,000& \\ \text{Carriage Inwards}& & 2,000& \text{Closing Stock}& & 26,000& \\ \text{Gross Profit c/d}& & 56,000& & & & \\ & & \overline{\underset{–}{\underset{–}{1,82,000}}}& & & \overline{\underset{–}{\underset{–}{1,82,000}}}& \\ \text{Salaries}& 10,000& & \text{Gross Profit b/d}& & 56,000& \\ (+)\text{Outstanding Salaries}& \underset{–}{500}& 10,500& \text{Accrued Interest on Investment}& & 750& \\ \text{Printing}& & 800& & & & \\ \text{Advertisement}& & 1,200& & & & \\ \text{Trade Charges}& & 600& & & & \\ \text{Rent}& & 1,400& & & & \\ \text{Discount Allowed}& & 500& & & & \\ \text{Interest on Capital (W.N.)}& & 2,100& & & & \\ \text{Depreciation on Plant and Fixtures}& & 800& & & & \\ \text{Futher Bad Debts}& 500& & & & & \\ (+)\text{New Provision}& \underset{–}{1,225}& 1,725& & & & \\ \text{Net Profit Transferred to Capital A/c}& & 37,125& & & & \\ & & \overline{\underset{–}{56,750}}& & & \overline{\underset{–}{56,750}}& \end{array}$

Balance Sheet

as at 31st March, 2016

$\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt. (Rs.)}& \text{Assets}& & \text{Amt. (Rs.)}\\ \text{Bills Payable}& & 9,000& \text{Cash in Hand}& & 3,000\\ \text{Creditors}& & 12,000& \text{Cash at Bank}& & 16,000\\ \text{Outstanding Salary}& & 500& \text{Bills Receivable}& & 5,000\\ \text{Capital}& 40,000& & \text{Debtors}& 25,000& \\ (+)\text{Interest on Capital}& 2,100& & (-)\text{Bad Debts}& \underset{–}{500}& \\ (+)\text{Net Profit}& 37,125& & & 24,500& \\ & \overline{79,225}& & (-)\text{Provision for Doubtful Debts}& \underset{–}{1,225}& 23,275\\ (-)\text{Drawings}& \underset{–}{4,500}& 74,725& \text{Closing Stock}& & 26,000\\ & & & \text{Investments}& 15,000& \\ & & & (+)\text{Accrued Interest}& \underset{–}{750}& 15,750\\ & & & \text{Plant and Fixtures}& 8,000& \\ & & & (-)\text{Depreciation}& \underset{–}{800}& 7,200\\ & & \overline{\underset{–}{\underset{–}{96,225}}}& & & \overline{\underset{–}{\underset{–}{96,225}}}\\ & & & & & \end{array}$

Working Notes:

$\begin{array}{cc}1.\text{Interest on capital is calculated as follows}& \text{Amt (Rs.)}\\ \text{On Rs. 30,000}@6\%\text{per annum for 1 year}& 1,800\\ \text{On Rs. 10,000}@6\%\text{per annum for 6 months}& 300\\ & \overline{\underset{–}{Rs.2,100}}\end{array}$

2.Depreciation on plant and fixtures= $8,000\times \frac{10}{100}=Rs.800$

3.Provision for doubtful debts=(25,000 - 500)$\times \frac{5}{100}=Rs.1,225$