Question

The following is the trial balance of Ram Krishan Vyas on 31st March, 2016.
$$\begin{array}{cccc}\text{Name of Accounts}& \text{Amt.(Rs.)}& \text{Name of Accounts}& \text{Amt(Rs.)}\\ \text{Plant and Machinery}& 19,720& \text{Capital}& 80,000\\ \text{Manufacturing Wages}& 34,965& \text{Creditors}& 50,160\\ \text{Salaries}& \text{10,135}& \text{Bank Loan}& 10,000\\ \text{Furniture}& 9,480& \text{Purchases Return}& 1,140\\ \text{Freight on purchase}& 1,980& \text{Sales}& 2,46,850\\ \text{Freight on Sales}& 2,150& \text{Provision for Bad Debts}& 6,000\\ \text{Building}& 25,000& & \\ \text{Manufacturing Expenses}& 9,455& & \\ \text{Fuel and power}& 1,276& & \\ \text{Electricity (Factory)}& 986& & \\ \text{Insurance and Taxes}& 4,175& & \\ \text{Goodwill}& 30,000& & \\ \text{Rent}& 2,400& & \\ \text{Debtors}& 78,140& & \\ \text{Stable Expenses}& 2,473& & \\ \text{Opening Stock}& 34,170& & \\ \text{Horses and Carts}& 5,165& & \\ \text{Purchases}& 97,165& & \\ \text{Sales Return}& 3,170& & \\ \text{General Expenses}& 8,000& & \\ \text{Bad Debts}& 1,485& & \\ \text{Interest and Bank Charges}& 475& & \\ \text{Advertising}& 4,500& & \\ \text{Bank Balance}& 7,540& & \\ \text{Cash}& 145& & \\ & \underset{–}{}& & \underset{–}{}\\ & 3,94,150& & 3,94,150\\ & \underset{–}{}& & \underset{–}{}\end{array}$$

Prepare trading and profit and loss account and balance sheet after making the following adustments.
(i) Value of closing stock Rs. 29,638.
(ii) Depreciate plant and machinery @ 10% furniture @ 5% and horses and carts by Rs. 1,000 also write off goodwill by Rs. 3,000.
(iii) Provide 5% for doubtful debts on debtors.
(iv) Prepaid expenses: Insurance Rs. 300 and taxes Rs. 190.
(v) $\frac{3}{5}th$ of insurance and taxes, rent and general expenses to be charged to factory and the balance to the office.
(vi) Adverstising is to be written off over 3 years.
(vii) Commission to manager @ 10% on net profit after changing such commission.

Answer 1

Trading and Profit and Loss Account
Dr. for the year ended 31st March, 2016 Cr.
$$\begin{array}{cccc}\text{Particulars}& \text{Amt. (Rs.)}& \text{Particular}& \text{Amt. (Rs.)}\\ \text{Opening Stock}& 34,170& \text{Sales}2,46,850& \\ \text{Purchases}97,165& & \text{(-) Sales Return}\underset{–}{3,170}& 2,43,680\\ \text{(-)Purchases Return}\underset{–}{1,140}& 96,025& \text{Closing Stock}& 29,638\\ \text{Manufacturing Wages}& 34,965& & \\ \text{Freight on Purchase}& 1,980& & \\ \text{Manufacturing Expenses}& 9,455& & \\ \text{Fuel and Power}& 1,276& & \\ \text{Electricity (Factory)}& 986& & \\ \text{Insurance and Taxes}& 2,211& & \\ \text{Rent}& 1,440& & \\ \text{General Expenses}& 4,800& & \\ \text{Gross Profit c/d}& 86,010& & \\ & \underset{–}{}& & \underset{–}{}\\ & 2,73,318& & 2,73,318\\ & \underset{–}{}& & \underset{–}{}\\ \text{Salaries}& 10,135& \text{Gross Profit B/d}& 86,010\\ \text{Freight on Sales}& 2,150& \text{Old Provision for doutful debts}& 608\\ \text{Insurance and Taxes}& 1,474& & \\ \text{Rent}& 960& & \\ \text{Stable Expenses}& 2,473& & \\ \text{General Expenses}& 3,200& & \\ \text{Interest and Bank Charges}& 475& & \\ \text{Advertising}& 1,500& & \\ \text{Depreciation on:}& & & \\ \text{Plant and Machinery}1,972& & & \\ \text{Furniture}474& & & \\ \text{Horses and carts}\underset{–}{1,000}& 3,446& & \\ \text{Goodwill written off}& 3,000& & \\ \text{Manager's Commission}& 5,255& & \\ \text{Net Profit Transferred to Capital A/c}& 52,550& & \\ & \underset{–}{}& & \underset{–}{}\\ & 86,618& & 86,618\\ & \underset{–}{}& & \underset{–}{}\end{array}$$

Balance Sheet
as at 31st March, 2016
$$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Amt. (Rs.)}& \text{assets}& \text{Amt. (Rs.)}\\ \text{Bank Loan}& 10,000& \text{Cash}& 145\\ \text{Creditors}& 50,160& \text{Bank Balance}& 7,540\\ \text{Manager's commission}& 5,255& \text{Debtors}78,140& \\ \text{Capital}80,000& & (-)\text{New provision for doubtful}\underset{–}{3,907}& 74,233\\ (+)\text{Net Profit}\underset{–}{52,550}& 1,32,550& \text{Closing Stock}& 29,638\\ & & \text{Prepaid Insurance and Taxes}& 490\\ & & \text{Furniture}9,480& \\ & & \text{(-) Depreciation}\underset{–}{474}& 9006\\ & & \text{Horses and carts}5,165& \\ & & \text{(-)Depreciation}\underset{–}{1,000}& 4,165\\ & & \text{Plant and Machinery}19,720& \\ & & \text{(-)Depreciation}\underset{–}{1,972}& 17,748\\ & & \text{Buildings}& 25,000\\ & & \text{Advertising}& 3,000\\ & & \text{Goodwill}& 27,000\\ & \underset{–}{}& & \underset{–}{}\\ & 1,97,965& & 1,97,965\\ & \underset{–}{}& & \underset{–}{}\end{array}$$
Working Notes:
1. Rent to be debited
(i) In trading account $=2400\times \frac{3}{5}=Rs.1,440$
(ii) In profit and loss account $=2400\times \frac{2}{5}=Rs.960$

2. General expenses to be debited
(i) in trading account $=8000\times \frac{3}{5}=Rs.4,800$
(ii) in profit and loss account $=8,000\times \frac{2}{5}=Rs.3,200$

3. Insurance and taxes to debited
(i) in trading account $=(4,175-490)\times \frac{3}{5}=Rs.2,211$
(ii) in profit and loss account $=(4,175-490)\times \frac{2}{5}=Rs.1,474$

4. Depreciation on
(i) Plant and machinery $=(19,720)\times \frac{10}{100}=Rs.1,972\left(ii\right)Furniture=\left(9480\right)\times \frac{5}{100}=Rs.474$

5. Adverstising to be debited to
Profit and loss account $=4,500\times \frac{1}{3}=Rs.1500$

6. Manager's commission $=86,618-28,813=57805\times \frac{10}{110}=Rs.5,255$

7. Calculation of proision for doubtful debts
$$\begin{array}{cc}\text{Bad Debts}& 1,485\\ \text{(+) New Provision}& \underset{–}{3,907}\\ & 5,392\\ \text{(-)Old Provision}& \underset{–}{6,000}\\ & \left(608\right)\end{array}$$
When the resultant figure is negative, it will be shown on the credit side of profit and loss account.