Question

The following are the balances of Messrs Gupta & Co. as at 31st March, 2009:-

Particulars			(₹)	Particulars	(₹)
Cash in Hand			540	Patents	7,500
Cash at Bank			2,630	Salaries	25,000
Purchases			40,675	General Expenses	22,790
Returns Inwards			680	Insurance	600
Wages			8,480	Drawings	5,245
Fuel & Power			4,730	Sundry Debtors	14,500
Bad-debts			210	Sales	98,440
Bad-debts Provision			340	Returns Outwards	500
Carriage on Sales			3,200	Capital	92,000
Carriage on Purchases			2,040	S. Creditors	6,300
Stock (1.4.2008)			5,760	Rent Cr.	9,000
Building			32,000
Freehold Land			10,000
Machinery			20,000

Prepare Trading and Profit & Loss A/c and a Balance Sheet as at 31st March, 2009 after taking into account the following adjustments:-
(i) Stock on hand as on 31st March, 2009 is ₹ 6,800.
(ii) Machinery is to be depreciated at 10% and Patents at 20%.
(iii) Salaries for the month of March, 2009 amounting to ₹ 1,500 were unpaid.
(iv) Insurance includes a premium of ₹ 170 on a policy expiring on 30th September, 2009.
(v) Write off ₹ 500 as Bad-debts and create a provision for Doubtful Debts at 5% on Sundry Debtors.
(vi) Rent Receivable ₹ 1,000.

Answer 1

Financial Statements of Messrs Gupta & Co.
Trading Account for the year ended March 31, 2009
Dr.							Cr.
Particulars			Amount (Rs)	Particulars		Amount (Rs)
Opening Stock			5,760	Sales	98,440
Purchases		40,675		Less: Return Inwards	680	97,760
Less: Return Outwards		500	40,175	Closing Stock		6,800
Carriage on Purchases			2,040
Wages			8,480
Fuel & Power			4,730
Gross Profit (Balancing Figure)			43,375
			1,04,560			1,04,560

Profit and Loss Account for the year ended March 31, 2009
Dr.							Cr.
Particulars			Amount (Rs)	Particulars		Amount (Rs)
Depreciation: (WN1)				Gross Profit		43,375
Machinery		2,000		Rent received	9,000
Patents		1,500	3,500	Add: Accrued	1,000	10,000
Salaries		25,000		Net Loss (Balancing Figure)		4,200
Add: Outstanding		1,500	26,500
Insurance		600
Less: Prepaid (WN2)		85	515
Old Bad Debts		210
Add: Further Bad Debts		500
Add: New Provision (WN3)		700
Less: Old Provision		340	1,070
Carriage on Sales			3,200
General Expenses			22,790
			57,575			57,575

Balance Sheet as on March 31, 2009
Liabilities		Amount (Rs)	Assets		Amount (Rs)
Capital	92,000		Fixed Assets
Less: Net Loss	4,200		Machinery	20,000
Less: Drawings	5,245	82,555	Less: Depreciation	2,000	18,000
			Patents	7,500
Current Liabilities			Less: Depreciation	1,500	6,000
Creditors		6,300	Building		32,000
Outstanding Salaries		1,500	Freehold Land		10,000
			Current Assets
			Closing Stock		6,800
			Prepaid Insurance		85
			Sundry Debtors	14,500
			Less: Further Bad Debts	500
			Less: New Provision for Bad Debts	700	13,300
			Accrued Rent		1,000
			Cash at Bank		2,630
			Cash in Hand		540
		90,355			90,355

Working Notes:

WN1: Calculation of Depreciation

$\begin{array}{l}\mathrm{Depreciation}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Machinery}=20,000\times \frac{10}{100}=2,000\\ \mathrm{Depreciation}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Patents}=7,500\times \frac{20}{100}=1,500\end{array}$

WN2: Calculation of Pre-paid Insurance

If a policy is expiring on 30 September, 2009, it means insurance is pre-paid for the period 31 March 2009 – 30 September 2009 = 6 months

$\begin{array}{l}\mathrm{Pre}-\mathrm{paid}\mathrm{}\mathrm{Insurance}=170\times \frac{6}{12}=85\end{array}$

WN3: Calculation of Provision for Doubtful Debts

$\begin{array}{lll}\mathrm{Provision}\mathrm{}\mathrm{for}\mathrm{}\mathrm{Doubtful}\mathrm{}\mathrm{Debts}& =& (\mathrm{Sundry}\mathrm{}\mathrm{Debtors}\mathrm{}-\mathrm{Further}\mathrm{}\mathrm{Bad}\mathrm{}\mathrm{Debts}\mathrm{})\mathrm{}\times \mathrm{}\frac{\mathrm{Rate}}{100}\\ & =& (14,500-500)\times \frac{5}{100}=700\end{array}$