Projects in Accountancy

6..101
MoDEL COMPREHENSIVE PROJECT-2
(With Solution)
1. NAME OF THE
PROJECT
Study of the Financial position of Kamal Auto
euo- d Shmdy
2.
OBJECTIVES OF THE Agency.
PROJECT
() To know whether
(i) To know how
the business can
effectively
pay its short term liabilities.
the capital and the
oal
(ii) To know the fixed assets have been used.
operating
(iv) To know the overall efficiency of the firm and
3.
profitability of the firm.
SOURCE
MATERIAL-PROJECT STATEMENT
Kamal Kamal Auto Agency
planned to start an Auto Agency to
there is a
very good margin of profit in this buy and sell motor cars and scooters. He knew
business. For this he estimated a that
R50 lakhs. He decided
to get a loan from
the capital requirement of
The
remaining amount he arranged from his bank The for 40,00,000 on the
security of
loan was sanctioned on the 15thhis
house.
savings.
201a2o2
He
of March
decided to use this
money to buy fixed assets
following fixed assets. required for the business. He
bought the
() Furniture and
fittings for 2,60,000
i) Office Equipment 7
(ii) Buildings 2,50,000.
2,40,000.

Petty expenses will be paid by the

petty cashier everyday. He will keep an
35,000. All the sales are on cash
basis. Cash received will be imprest amount of
will be paid by
cheque. All purchases of Cars and Scooters were deposited in the bank.
The expenses
for the month of
March, 201e were on credit. through bank. However the purchases
At the end of the
year the following information was available from
the books of accounts

(a) Purchases including credit purchases R)

of 7 2,00,000
(b) Sales 26,80,000
c) Electricity lighting expenses
31,80,000
(d) Telephone expenses 26,000
(e) Advertising expenses 11,800
( Salaries 12,000
(g) General expenses 1,30,000
(h) Petty expenses and 6,000
0) Printing and Stationery 30,000
The following expenses for the month of March 2044+ were 2022 4,000
yet to be paid.
() Salaries
(i) Electricity & lighting 13,400
(ii) Telephone & telegrams 1,600
600
At the end of the year,
the petty cashier had a balance of 5,000. The unsold stock as on that
date was 5,80,000. Unused stock of stationery was
1,000. Depreciation of 2% is to be charged
on Buildings and 10% on Furniture and Office
equipment.
Kamal wants to know his Auto Agency's-
(a) Short-term financial position,
 6.102 A Textbook of Accountancy-XII (Part-B
(6)
Profitability, production efficiency and operating efficiency, and
C T h e effectiveness with which, the capital,the working capital, the fixed assets and the total
assets have
been used.
4. TOOLS OF ANALYSIS
Ratios.
5. REQUIRED
) Kamal wants to
judge his performance during the year.
(i) He wants expand his business.
(ii) Comment on Financial
position.
6. PROCESSING THE INFORMATION
STEPS TO sOLVE THE PROBLEM:
Step )-Preparation of Journal
Step (ii) -Preparation of Ledger Accounts
Step (ii) -Preparation of Trial Balance
Step (iv)
Preparation of Trading and Profit& Loss Account
-

Step (v)-Preparation of Balance Sheet

Step (vi) -Calculation of short-term Solvency and Profitability ratios
KAMAL AUTO AGENCY
JOURNAL Dr. Cr.
Date Particulars Amount Amount

()
Mar. 31 Bank A/c Dr.
1
50,00,000
To Capital A/c
To Loan A/c
10,00,000
40,00,000
(Being amount invested in business.)
2. Building Alc Dr. 25,00,000
Office Equipments ANc Dr. 2,40,000
Furniture & Fittings Alc
Dr. 2,60,000
To Bank A/c
30,00,000
(Being amount spent on purchase of various assets.)
3 Petty Cash A/c Dr.
To Bank A/c
35,000
Being amount for petty cash expense for the whole
35,000
year.)
4. Bank A/c
To Sales Ac
Dr. 31,80,000
(Being total Sales during the year.) 31,80,000
5. Purchases Alc
Dr. 24,80,000
To Bank A
(Being cash purchase during the year. 24,80,000
26,80,000-2,00,000 24,80,000.)
6. Purchases Alc
Dr.
To Sundry Creditors ANc 2,00,000
(Being credit purchase made during the 2,00,000
year.)

carried forward..
 art-B
tal
Projects in Accountancy 6.103

brought forward
7. Salaries A/c Dr. 1,30,000
Electricity Ac Dr. 26,000
Telephone Expenses Ac Dr. 11,800
Advertising Expenses Alc Dr. 12,000
Interest on loan A/c Dr. 6,000
Printing& Stationary Ac Dr. 4,000
To Bank Ac 1,89,800
(Being various expenses paid.)
8. Salaries Alc Dr. 13,400
Electricity Expenses Alc Dr. 1,600
Telephone Expenses Alc Dr. 600
To Outstanding Expenses A/c 15,600
(Being expenses outstanding.)
9 Depreciation A/c Dr. 1,00,000
To Building A/c
50,000
To Office Equipment 24,000
To Furniture & Fittings
26,000
(Being depreciation charged on building 2% and
at 10% 0n equipment and furniture.)

10. Petty Cash Expenses Alc Dr. 30,000

To Petty Cash Alc 30,000
(Being petty expenses paid.)

LEDGER
Dr. BANK ACcOUNT ake hange tar, C
Date Particulars Amount Date Particulars Amount
2048 ()
To Capital A/c 10,00,000 By Building A/c 25,00,000
20 To Loan Alc 40,00,000 By ffice Equipment Alc 2,40,000
To Sales Alc 31,80,000 By Furniture & Fittings Alc 2,60,000
By Purchase A/c 24,80,00o
(26,80,000-2,00,00)
By Salaries A/c 1,30,000
By Electricity Expenses A/c 26,000
By Telephone Expenses A/c 11,800
By Advertising Expenses A/c 12,000
By Interest on Loan Alc 6,000
By Printing & Stationary Alc 4,000
2 5 y Petty
Cash Alc 35,000

Mar.31 By Balance c/d 24,75,200

20
81,80,000 81,80,000
Apr. 1 To Balance b/d 24,75,200
 6.104
A Textbook of Accountancy-XIl (Part
Dr.
CAPITAL ACCOUNT Cr.
Date Particulars
Amount Date Particulars Amount
2020 ()
Mar. 31 To Balance c/d ()
50,00,000 Mar.31 By Bank Alc 40,00,000
By Cash AVc 10.00,000
50,00,000 50.00,000
Apr.'1 To Balance b/d 50,00,000
Dr.
BUILDING ACCOUNT
Date Particulars Cr.
Amount Date Particulars Amount
20+0
) 2013
)
To Bank Ac 2202|
25,00,000 Mar.31 By Depreciation A/c 50,000
Mar.31 By Balance c/d 24,50,000
20+4- 25,00,000
Mar.31 To Balance b/d 25,00,000
24,50,000
Dr.
OFFICE EQUIPMENT ACCOUNT
Date Cr.
Particulars Amount Date Particulars
20 20+8 Amount
To Bank Alc ()
2,40,000 Mar.31 By Depreciation Alc 24,000
Mar.31 By Balance c/d 2,16,000
2022 284 2,40,000
Apr. 1 To Balance b/d
2,16,000
2,40,000
Dr.
FURNITURE & FITTINGS ACCOUNT
Date Particulars Cr.
Amount Date Particulars
Amount
202
R) 2014
Mar. 31 To Bank A/c R)
2,60,000 Mar. 31 By Depreciation A/c 26,000
2-02
Mar.31 By Balance c/d 2,34,000
2014 2,60,000
Apr. 1 To Balance b/d 2,60,000
2,34,000
Dr.
LOAN ACcOUNT
Cr.
Date Particulars Amount Date Particulars Amount
2022
2014
Mar. 31 To Balance c/d
()2013 ()
40,00,000 Mar.31 By Bank A/c
40,00,000
40,00,000
2014 40,00,000
Apr.1 By Balance b/d 40,00,000
 Projects in Accountancy
6.105
Dr SALES ACCOUNT
Cr.
Date Particulars Amount Date Particulars Amount
2022.201
Mar. 31
Tadi
To Prefit &-Lese A/c
()2013
()
31,80,000 B y Bank A/c 31,80,000
31,80,000 31,80,000
Dr. PURCHASES ACCOUNT
Cr.
Date Particulars
Amount Date Particulars
Amount
2013
2021 To Bank Alc 24,80,000 Mar. 31 By Proft ()
To Creditors A/c
2,00,000
&-Lose-Alc 26,80,000

26,80,000
26,80,000
Dr.
SALARIES ACCOUNT
Cr.
Date Particulars
Amount Date Particulars Amount
2e+32D2 )2014 2022
Mar. 31 To Bank A/c
1,30,000 Mar.31 By Profit & Loss A/c 1,43,400
20+4 20 22
Mar.31 To Salaries Outstanding
Exp. A/c 13,400
1,43,400 1,43,400
Dr. ELECTRICITY EXPENSES ACCOUNT
Cr
Date Particulars
Amount Date Particulars Amount
20413202-1 R)2014 2o ()
To Bank Ac
26,000 Mar.31 By Profit & Loss A/c 27,600
2o222014
Mar.31 To Outstanding Electricity 1,600
Expenses Alc
27,600 27,600
Dr. TELEPHONE EXPENSES ACCOUNT
Cr.
Date Particulars Amount Date Particulars Amount
2013 )2044
To Bank A/c 11,800 Mar. 31 By Profit & Loss A/c
2044 12,400
600
Mar.31 To Outstanding Telephone
Expenses A/c
12,400 12,400
Dr. OUTSTANDING EXPENSES AccOUNT Cr.
Date Particulars Amount Date Particulars Amount
20)22e1+ ()092 ()
Mar 31 To Balance c/d 15,600 Mar.31 By Salaries A/c 13,400
Mar.31 By Electricity Expenses Ac 1,600
By Telephone Expenses Alc 600
15,6002 15,600
Apr. 1 To Balance b/d 15,600
 6.106
A Textbook of Accountancy-XIl (Par

Dr. ADVERTISING EXPENSES ACCOUNT Cr.

Date Paticulars Date Particulars Amount

Amount
20 2013 (R)
To Bank A/c 12,000 Mar.31 By Profit& Loss Ac 12,000
12,000 12,000

Dr. INTEREST ON LOAN ACCOUNT Cr

Date Particulars Amount Date Particulars Amount

2o 20+8 ()
To Bank AWc 6,000 Mar. 31 By Profit & Loss A/c 6,000
6,000 6,000

Dr. PRINTING & STATIONERY EXPENSES ACCOUNT Cr.

Date Particulars Amount Date Particulars Amount

2018 (20 )
202 To Bank Alc 4,000 Mar.31 By Profit & Loss Ac 3,000
Mar 31 By Balance c/d 1,000
4,000 4,000
2 2 2014
Apr. 1 To Balance b/d 1,000

Dr. DEPRECIATION ACCOUNT Cr

Date Particulars Amount Date Particulars Amount

2022 2014
Mar.31 To Building Ac 50,000 Mar.31 By Profit & Loss Ac 1,00,000
Mar. 31 To Office Equipment Alc 24,000
Mar.31 To Furniture & Fitings A/c 26,000
1,00,000 1,00,000

PETTY CASH ACCOUNT Cr.

Dr.
Amount Date Particulars Amount
Date Particulars
() ()
20 2043 35,000 Mar. 31 By Petty Cash Expenses Alc 30,000
To Bank Ac
Mar.31 By Balance cld 5,000

35,000 35,000
202 2014
Apr. 1 To Balance b/d 5,000
 Projects in Accountancy 6.107

Dr PETTY CASH EXPENSE ACCOUNT Cr

Date Particulars Amount Date Particulars Amount
2019 (22 ()
2021 To Petty Cash A/c 30,000 Mar.31 By Profit & Loss A/c 30,000
30,000 30,000

Dr. CREDITORS ACCOUNT Cr

Date Particulars Amount Date Particulars Amount

20 22 20t4 ()093
Mar.31 To Balance c/ld 2,00,000 By Purchases Alc 2,00,000
2,00,000 263
2,00,000
Balance b/d 2,00,000
Mar 31 By
202
Dr. TRIAL BALANCE a Manh 3
Particulars Amount
Particulars Amount
) )
24,50,000 Capital Alc 10,00,000
Building ANc
2,16,000 Loan Alc 40,00,000
Office Equipment Alc
2,34,000 Creditors A/c 2,00,000
Furniture& Fittings Alc
26,80,000 Sales A/c 31,80,000
Purchases Alc
1,43,400 Outstanding Expenses AAc 15,600
Salaries Ac
Electricity Expenses Alc 27,600
Telephone Expenses A/c 12,400
Advertising Expenses ANc 12,000
Interest on Loan A/c 6,000
,000
Printing Stationery Ac
30,000
Petty Cash Expenses Alc
Pety Cash Alc 5000
Bank Alc 24,75,200
Depreciation Alc 1,00,000
83,95,600
83,95,600

Statement)
Adjustment required (See Project
1. Closing Stock 5,80,000
2 Unused Stationary 1,000
 6.108
A Textbook of Accountancy-XIl (Pan

TRADING AND PROFIT& LOSS AccOUNT pro

Dr.
For The Year Ended March 31,
20142022 Cr.
Particulars Amount Particulars Amount
To Purchase A/c () ()
To Gross Profit 26,80,000 By Sales Ac 31,80,000
(transfer to
10,80,000 By Closing Stock 5,80,000
Profit& Loss A/c)
37,60,000 37,60,000
To Salaries A/c
1,43,400 By Gross Profit A/c
To Electricity
To Telephone
Expenses A/c 27,600
10,80,000
To Advertising
Expenses A/c 12,400
Expenses Alc
To Interest on Loan Alc 12,000
To Printing & 6,000
Stationery Alc 4,000
Less: Unused
To Petty Cash
Stationery 1.000 3,000
To
Expenses Ac 30,000
Depreciation A/c Building 50,000
Office Equipment
24,000
Furniture & Fittings 26,000
To Net Profit
7,45,600
10,80,000
10,80,000

BALANCE SHEET OF KAMAL AUTO AGENCY

As at March 31,
2012022
Liabilities Amount Assets Amount
() ()
Capital A/c 10,00,000 Stock of unused stationery Alc
Add: Net Profit 1,000
Loan A/c
7.45.60017,45,600 Cash with Petty Cashier A/c 5,000
40,00,000 Bank Ac
Creditors Alc 24,75,200
Expenses Payable Alc
2,00,000Closing stock A/c 5,80,000
Building AWc 24,50,000
Salaries 13,400 Office Equipment Ac 2,16,000
Electricity 1,600 Furniture & Fittings A/c 2,34,000
Telephone 600

59,61,200 59,61,200
Projects in Accountancy
149
LE109
Calculation of Ratios
Coupa
Current Assets
(a) Current Ratio
Current Liabilities
Cwnat Rto
1,000+5,000 +24,75,200+5,80,000
30,61,200 =14.19 st
2,00,000+ 13,400+1,600+600 2,15,600

(b) Quick Ratio

Quick Assets
Current Liabilities
Quick Assets Petty Cash + Bank
24,80,000 = 11.5
=
24,75,000 + 5,000 24,80,000 2,15,600

(c) Gross Profit Ratio Gross Prot100

Net Sale cPL NPA

10,80,000x
31,80,000
100 =
33.96%

(d) Net Profit Ratio (on Before Tax Profit)

Net Profit Before aX 100
Net Sales P t a b i Lty Rsihs

7,45,600 x 100 23.45%

31,80,000
(Note: Tax Provision is not made)
Cost of goods sold +Operating
(e) Operating Ratio- expenses100
Net Sale
Cost of good sold Opening Stock +Purchases -Closing Stock

-(26,80,000 -

5,80,000 7 21.00.000) 21,00,000 +3,34,400

-

31,80,000

24,34,400x 100 76.55%

31,80,000

0 Capital Turnover Ratio -

Net Sales
31,80,000 =1.82 times
Proprietor's Capital 17,45,600
Net Sale
(g)Fixed Assets Turnover Ratio
Fixed Assets

Fixed Assets Land +Office Equipment +Furniture& fittings d

(09
-
(24,50,000 + 2,16,000 +2,34,000) -
29,00,b00
31,80,000= 1.09 times
29,00,000 NC
(h) Working Capital Current Assets - Current Liabilities L qma
-
7 (30,61,200-2,15,600) =
28,45,600
6.110 A Textbook of Accountancy-XIl (Part-6

) Working Capital Turnover Ratio

Net Sales
Working Capital
31,80,000 =1.18 times
28,45,600
6. OBSERVATION AND 'CONCLUSIONS
(a) Capability to pay the current liabilities
Current Ratio is .19
and Quick Ratio is
1 1
Both the above ratios
indicate that the firm can meet to short term liabilities quite comfortably.
The Creditors do not have to
worry about the capacity of Kamal's business to pay them in time. His
financial position is sound.
(b) Over ail Profitability and efficiency
The Gross Profit ratio is 33.9%. It
shows that the production efficiency is
ratio is 23.45% and the good and Net Profit
Operating Ratio is 76.55%. The operating expenses seem to be on the
side. He should try to reduce his higher
operating expenses so as to increase the Net Profit Ratio. His overall
performance is satisfactory.
(c) Utilisation of Various Resources-
Capital and Fixed Assets
As compared to the net
aales generated by the use of above
that all of them are mentioned resources. It appears
underutilised. The turnover ratios are not very encouraging. The Capital Turnover
ratio is only 1.82 times. The Fixed Assets Turnover ratio
is 1.09 times, which is
This needs improvement. If the resources are very unsatisfactory.
properly and effectively used, he can show far better
results in terms of profitability and
efficiency. He should try to bring them
expand his business by using the fixed assets to their full capacity because above
3 times. He can
these are underutilised.
(d) () Main Investing Activities Purchase of
Buildings, Furniture and Office Equipment.
i) Main Financing Activities : Loan Taken, Introduction of
on loan.
Capital and Payment of Interest
Viva Questions
1. What did Kamal deal in?
What inspired him to go in for this business?
3. How much capital did he need for his business?
4. Howdid he arrange his capital?
5. What wasthe main reason for his success in the
6. How did he pBan his business?
business?
7. How do you treat the unsold stock while preparing final accounts?
8. How can the short term fianancial position be judged?
9. How do you rate the
operational efficiéncy and profitability of the business?
10. What is the guarantee that a loap sanctioned if he decides to expand his business?
i l be
11. How were the expenses, wbich
remained unpaid at the end of the year, treated?
12.Do you justify the purcbase of fixed
assets y him in the beginning?
13. Do you think he shøúld expand his business? Giye one reason.
14. What other prodúcts he should start selling along with cars and scooters?

Sshla