CA FOUNDATION

PRINCIPLES & PRACTICE OF

Revision
Batch
New Edition

Chapter 11

Final Accounts
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Chapter 11 – Final accounts of Sole Proprietors

Marks Allocated on this Topic in Previous 5 Examinations

Dec. 2022 June 2022 Dec. 2021 July 2021 Jan. 2021
2 + 10 = 12 20 2 + 15 = 17 10 -

Introduction

Entity

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Financial Statement

Types of Account

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Overview of Financial Statement

Trading Account

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Profit & Loss Account

Balance Sheet

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Adjustments

Before you start remember these points it will help you to form difficult entries

Entries made on the basis of nature of the Account

Balance in the Effect of the transaction on it

Nature of A/c. Type of A/c.
Account is Increase in it Decrease in it
Assets Real or Personal Dr. Dr. Cr.
Capital Personal Cr. Cr. Dr.
Liability Personal Cr. Cr. Dr.
Expense Nominal Dr. Dr. Cr.
Income Nominal Cr. Cr. Dr.

Debit/Credit Vs. Add/Less

1st 2nd 3rd 4th

Dr. Cr. Dr. Cr.

Dr. Cr. Cr. Dr.
+ + - -

1. Closing Stock

Journal Entry Increase/Decrease Effect

Closing Stock A/c Dr. Increase in Asset 1st Balance Sheet – Asset Side

To Trading A/c. Decrease in Expenses 2nd Trading A/c - Credit Side

2. Outstanding Expenses

Journal Entry Increase/Decrease Effect

Trading/P&L A/c - Add to the concerned expenses on

Expenses A/c. Dr Increase in Expenses 1st
the debit side

To Outstanding Expenses A/c. Increase in Liability 2nd Balance Sheet – Liability Side

3. Prepaid Expenses

Journal Entry Increase/Decrease Effect

Prepaid Expenses A/c. Dr Increase in Asset 1st Balance Sheet - Asset

To Expenses A/c Decrease in Expenses 2nd Trading/P&L A/c - Deduct from the concerned expense
on the debit Side.

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4. Income Outstanding

Journal Entry Increase/Decrease Effect

Income Receivable A/c. Dr. Increase in Asset 1st Balance Sheet – Asset Side.

To Income A/c. Increase in Income 2nd Profit & Loss A/c – Add to the concerned income on the
credit side

5. Income Received in Advance

Journal Entry Increase/Decrease Effect

Income A/c. Dr. Decrease in Income 1st Profit & Loss A/c – Deduct from concerned income on
the credit side.

To Income Received in Advance Increase in Liability 2nd Balance Sheet – Liability Side
A/c.

6. Depreciation

Journal Entry Increase/Decrease Effect

Depreciation A/c. Dr Increase in Expenses 1st Profit & Loss A/c – Debit Side.

To Fixed Asset A/c. Decrease in Asset 2nd Balance Sheet – Deduct from Respective Asset on the
Asset Side

7. Interest on Capital

Journal Entry Increase/Decrease Effect

Interest on Capital A/c. Dr. Increase in expenses 1st P&L Appropriation / Profit & Loss A/c – Debit Side.

To Capital A/c. Increase in Capital 2nd Balance Sheet – Add to Capital.

8. Interest on Drawings

Journal Entry Increase/Decrease Effect

Drawings/Capital Dr. Decrease in Capital 1st Balance Sheet – Deduct from Capital on Liability Side

To Interest on Drawings Increase in Income 2nd P&L Appropriation / Profit & Loss A/c – Credit Side.

9. Loss by Fire

Journal Entry Increase/Decrease Effect

Loss by Fire A/c. Dr. Increase in Loss 1.1 Profit & Loss A/c – Debit Side (Actual loss, if any)

Insurance Claim A/c. Dr. Increase in Asset 1.2 Balance Sheet – Asset Side (with insurance claim
admitted by Insurance Co.)

To Goods Lost A/c. Decrease in Stock 2nd Trading A/c – Credit Side (with full amount of loss)

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10. Goods withdrawn for Personal Use / Personal Purchases recorded in the purchase day book

Journal Entry Increase/Decrease Effect

Drawings A/c Dr. Increase in Drawings 1st Balance Sheet – Liability Side (Deduct from Capital as
Drawings)

To Purchase A/c. Decrease in Purchase 2nd Trading A/c – Credit Side or Deduct from Purchases.

11. Goods distributed as free sample

Journal Entry Increase/Decrease Effect

Advertisement A/c. Dr. Increase in Expenses 1st Profit & Loss A/c – Debit Side

To Purchase A/c. Decrease in Purchase 2nd Trading A/c – Credit Side or Deduct from Purchases

12. Purchase of Fixed Asset wrongly debited to Purchase A/c.

Journal Entry Increase/Decrease Effect

Fixed Asset A/c Dr. Increase in Asset 1st Balance Sheet – Add to the concerned Fixed Asset on
the Asset Side

To Purchase A/c. Decrease in Purchase 2nd Trading A/c – Deduct from Purchase

13. Purchase includes Sales Return

Journal Entry Increase/Decrease Effect

Sales Return A/c Dr. Increase in Sales Return 1st Trading A/c – Add to Sales Return

To Purchase A/c. Decrease in Purchase 2nd Trading A/c – Deduct from Purchase

14. Sales include Purchase Return

Journal Entry Increase/Decrease Effect

Sales A/c Dr. Decrease in Sales 1st Trading A/c – Deduct from sale on the credit side

To Purchase Return A/c. Increase in Purchase Return 2nd Trading A/c – Add to Purchase Return

15. Wages for installation of Fixed asset (Capital Exp.) included in wages A/c.(Revenue Exp.)

Journal Entry Increase/Decrease Effect

Fixed Asset A/c Dr. Increase in Asset 1st Balance Sheet – Add to the concerned Fixed Asset on
the Asset Side

To Wages A/c. Decrease in Wages 2nd Trading A/c - Deduct from the wages on the debit Side.

16. Included amongst the debtors (due from Mr.A) and included among the creditors (Due to Mr.A)

Journal Entry Increase/Decrease Effect

Creditors A/c Dr. Decrease in Creditors 1st Balance Sheet – Deduct from the creditors on the Liability

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Side

To Debtors A/c. Decrease in Debtors 2nd Balance Sheet – Deduct from the debtors on the Asset Side

17. Credit purchases omitted from the books

Journal Entry Increase/Decrease Effect

Purchase A/c Dr. Increase in Expenses 1st Trading A/c - Add to the Purchase on the debit Side

To Creditor A/c. Increase in Liability 2nd Balance Sheet – Add to the creditors on the liability side

18. Make a provision on creditors for discount

Journal Entry Increase/Decrease Effect

Reserve for Discount A/c Dr. Decrease in Creditor 1st Balance Sheet – Deduct from the creditors on the
liability side

To Profit & Loss A/c. Increase in Income 2nd Profit & Loss A/c – Credit Side

19. Bad Debt, Provision for Doubtful Debt & Provision for discount on debtors
Profit & Loss A/c Balance Sheet – Asset Side

Debtors xxx

Less: Bad Debt (Adjustment) xxx

Bad Debt (Trial Balance) xxx
xxx
Add: Bad Debt (Adjustment) xxx xxx
Less: Provision for D.D (Closing Bal.) xxx
Add: Provision for D.D (Closing - Opening) xxx
xxx
Add: Provision for Discount (Closing - Opening) xxx
Less: Provision for Discount (Closing Bal.) xxx
xxx

If Item Given in Trial Balance

Sr. No. Item Treatment

1 Closing Stock Balance Sheet – Asset Side

Outstanding Expenses Balance Sheet – Liability Side

2

Prepaid Expenses Balance Sheet – Asset Side

3

Income Outstanding Balance Sheet – Asset Side

4

Income Received in Advance Balance Sheet – Liability Side

5

Depreciation Profit & Loss A/c – Debit side

6

Interest on Capital Profit & Loss A/c / Profit & Loss Appropriation A/c – Debit side
7

Interest on Drawings Profit & Loss A/c / Profit & Loss Appropriation A/c – Credit side
8

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Manufacturing Account

Manufacturing Account

Given below is a format covering various elements:

Dr. Manufacturing A/c for the year ended…… Cr.
Particulars Units Amount Particulars Units Amount
To Opening Work-in-process By By-products at net realizable
To Raw Material Consumed: …. value
Opening inventory ….. …… By Closing Work-in- Process
Add: Purchases ….. …… By Trading A/c
Less: Closing inventory Cost of production
…… ……
To Direct Wages
To Direct
expenses: .….
Prime cost …..
To Factory …..
overheads: …….
.….
Royalty …….
.….
Hire charges .……

To Indirect expenses:
Repairs & Maintenance
Depreciation
Factory cost

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1. The following are the balances as at 31st March, 2019 extracted from the books of Mr.
XYZ.

₹ ₹
Plant and Machinery 19,550 Bad debts recovered 450
Furniture and Fittings 10,250 Salaries 22,550
Bank Overdraft 80,000 Salaries payable 2,450
Capital Account 65,000 Prepaid rent 300
Drawings 8,000 Rent 4,300
Purchases 1,60,000 Carriage inward 1,125
Opening Stock 32,250 Carriage outward 1,350
Wages 12,165 Sales 2,15,300
Provision for doubtful debts 3,200 Advertisement Expenses 3,350
Provision for Discount on Printing and Stationery 1,250
debtors 1,375 Cash in hand 1,450
Sundry Debtors 1,20,000 Cash at bank 3,125
Sundry Creditors 47,500 Office Expenses 10,160
Bad debts 1,100 Interest paid on loan 3,000

Additional Information:

1. Purchases include sales return of ₹ 2,575 and sales include purchases return of ₹ 1,725.

2. Goods withdrawn by Mr. XYZ for own consumption ₹ 3,500 included in purchases.

3. Wages paid in the month of April for installation of plant and machinery amounting to
₹ 450 were included in wages account.

4. Free samples distributed for publicity costing ₹ 825

5. Create a provision for doubtful debts @ 5% and provision for discount on debtors @
2.5%.

6. Depreciation is to be provided on plant and machinery @ 15% p.a. and on furniture and
fittings @ 10% p.a.

7. Bank overdraft is secured against hypothecation of stock. Bank overdraft outstanding

as on 31.3.2019 has been considered as 80% of real value of stock (deducting 20% as
margin) and after adjusting the marginal value 80% of the same has been allowed to
draw as an overdraft.

Prepare a Trading and Profit and Loss Account for the year ended 31st March, 2019, and a
Balance Sheet as on that date. Also show the rectification entries.

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Solution:

Rectification Entries
Particulars Dr. Cr.
(i) Returns inward account Dr. 2,575
Sales account Dr. 1,725
To Purchases account 2,575
To Returns outward account 1,725
(Being sales return and purchases return wrongly
included in purchases and sales respectively, now
rectified)
(ii) Drawings account Dr. 3,500
To Purchases account 3,500
(Being goods withdrawn for own consumption included in
purchases, now rectified)
(iii) Plant and machinery account Dr. 450
To Wages account 450
(Being wages paid for installation of plant and machinery
wrongly debited to wages, now rectified)

(iv) Advertisement expenses account Dr. 825

To Purchases account 825
(Being free samples distributed for publicity out of
purchases, now rectified)

Trading and Profit and Loss Account of Mr. XYZ

For the year ended 31st March, 2019

Dr. Cr.
To Opening stock 32,250 By Sales 2,13,575
2,11,000
To Purchases 1,53,100 Less: Sales return 2,575
Less: Purchases return 1,725 1,51,375 By Closing stock
1,25,000
To Carriage inward 1,125 80,000 * 100/80 * 100/80
To
Wages 11,715
To
Gross profit c/d 1,39,535
3,36,000 3,36,000

To Salaries 22,550 By Gross profit b/d 1,39,535

To Rent 4,300 By Bad debts recovered 450

To Advertisement expenses 4,175

To Printing and stationery 1,250
To Bad debts 1,100
To Carriage outward 1,350

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To Provision for doubtful debts

5% of ₹ 1,20,00 6,000
Less: Existing provision 3,200 2,800
To Provision for discount on
debtors
2.5% of ₹ 1,14,000 2,850
Less: Existing provision 1,375 1,475
To Depreciation:
Plant and machinery 3,000
Furniture and fittings 1,025 4,025
To Office expenses 10,160
To Interest on loan 3,000
To Net profit
(Transferred to capital account)
83,800 _______
1,39,985 1,39,985

Balance Sheet of Mr. XYZ as on 31st March, 2019

Amount Amount
Liabilities ₹ ₹ Assets ₹ ₹
Capital account 65,000 Plant and machinery 20,000

Add: Net profit 83,800 Less: Depreciation 3,000 17,000

1,48,800 Furniture and fittings 10,250
Less: 11,500 1,37,300 Less: Depreciation 1,025 9,225
Drawings
Bank overdraft 80,000 Closing stock 1,25,000
Sundry creditors 47,500 Sundry debtors 1,20,000

Payable salaries 2,450 Less: Provision for doubtful 6,000

debts
Provision for bad
debts 2,850 1,11,150
Prepaid rent 300
Cash in hand 1,450
_______ Cash at bank 3,125
2,67,250 2,67,250

2. Following particulars are extracted from the books of Mr. Sandeep for the year ended 31st
December, 2018.
Particulars Amount Particulars Amount
Debit Balances: ₹ Credit Balances: ₹

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Cash in hand 1,500 Capital 16,000

Purchase 12,000 Bank overdraft 2,000
Sales return 1,000 Sales 9,000
Salaries 2,500 Purchase return 2,000
Tax and Insurance 500 Provision for Bad debts 1,000
Bad debts 500 Creditors 2,000
Debtors 5,000 Commission 500
Investments 4,000 Bills payable 2,500
Opening stock 1,400
Drawings 2,000
Furniture 1,600
Bills receivables 3,000
35,000 35,000

Other information :

(i) Closing stock was valued at ₹ 4,500

(ii) Salary of ₹ 100 and Tax of ₹ 200 are outstanding whereas insurance ₹ 50 is prepaid.
(iii) Commission received in advance is ₹ 100.
(iv) Interest accrued on investment is ₹ 210
(v) Interest on overdraft is unpaid ₹ 300
(vi) Reserve for bad debts is to be kept at ₹ 1,000

(vii) Depreciation on furniture is to be charged @ 10%

You are required to prepare the final accounts after making above adjustments.

Solution:

Trading & Profit and Loss Account of Mr. Sandeep

for the year ended 31st December, 2018

Particular s ₹ ₹ Particular s ₹ ₹
To Opening Stock 1,400 By Sales 9,000
To Purchase 12,000 Less: Sales return (1,000) 8,000
Less: Purchase return (2,000) 10,000 By Closing stock 4,500
To Gross Profit 1,100

12,500 12,500
To Salary 2,500 By Gross Profit 1,100
Add: Outstanding 100 2,600 By Commission 500
salary Less: Advance (100) 400

To Tax & Insurance 500 By Accrued interest 210

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Add: Outstanding 200 By Net Loss 2,500

Prepaid insurance (50) 650
To Bad debt 500
Opening provision (1,000)
Closing provision 1,000 500
To Interest on overdraft 300
To Depreciation on 160
furniture
4,210 4,210

Balance Sheet of Mr. Sandeep as on 31.3.2018

Particular s ₹ ₹ Particular s ₹ ₹
Capital 16,000 By Furniture 1,600
Less: drawing (2,000) Less: Depreciation (160) 1,440
Net loss (2,500) 11,500 Bill receivable 3,000
Bank overdraft 2,000 Investment 4,000
Add: interest 300 2,300 Add: accrued interest 210 4,210
Creditors 2,000 Debtors 5,000
Bills payable 2,500 Less: Provision on bad debts (1,000) 4,000
Outstanding expenses:
Salary 100 Closing stock 4,500
Tax 200 300 Cash in hand 1,500
Commission received in advance 100 Prepaid insurance 50

18,700 18,700

3. Below is the trial balance of Shah as December 31, 2015

Debit Balance Rs. Credit Balance Rs.
Drawings 1,500 Capital Account 50,000
Adjusted purchases 6,99,200 Loan from Desai
Salaries 4,500 @ 9% (taken on 1st July 2014) 20,000
Carriage on Purchases 400 Sales 7,20,000
on sales 500 Discount 500
Rates and Insurance 400 Sundry Creditors 20,000
Buildings 27,000
Furniture 6,000
Sundry Debtors 8,000
Cash on Hand 250
Cash at Bank 1,500
Stock (31st December, 2015) 61,250
8,10,500 8,10,500

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Additional information:

1. Rates have been prepaid to the extent of Rs. 175.

2. Bad debts Rs. 500 have to written off. A provision for doubtful debts @ 5% on debtors is
necessary.
3. Building has to be depreciated at 2% and Furniture @ 10%.
4. The manager is entitled to a commission of 5% of net profits before charging such
commission.
Solution: Trading and Profit and Loss Account of Shah for the Year ended on December 31, 2015
Particulars Rs. Particulars Rs.
To Adjusted Purchases 6,99,200 By Sales 7,20,000
To Carriage on Purchases 400
To Gross Profit c/d 20,400
7,20,000 7,20,000
To Salaries 4,500 By Gross Profit b/d 20,400
To Carriage on Sales 500 By Discount 500
To Rates & Insurance:
Paid 400
Less: Prepaid 175 225
To Bad Debts written off 500
To Provision for Doubtful Debts
(5% of Rs. 7,500) 375
To Depreciation:
Buildings (2%) 540
Furniture (10%) 600 1,140
To Interest 1,800
To Commission payable to manager
(5% of Rs. 11,860*) 593
To Net Profit 11,267
20,900 20,900

*Rs. 20,900 less Rs. 9,040 (the total of all expenses so far), Manager is entitled to 5% of this figure.

(1) The trial balance gives “Adjusted Purchases”. It means that the opening stock has already been
transferred to the Purchases Account and thus been closed. Further, entry for closing stock has
already been passed by debiting the Closing Stock Account and crediting Purchases Account. That is
why closing stock appears inside the trial balance. It will now be shown in the Balance Sheet and not
in the Trading Account since purchases already stand reduced.

(2) There is a Loan of Desai @ 9% taken in 2014 i.e. in last accounting year. As per mercantile system
interest up to 31.12.14 must have been provided in the last years a/c itself. The trial balance makes
no mention of any interest being paid to him. Hence, interest @ 9% must be provided for the whole of
current year only.

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Balance Sheet of Shah as at December 31, 2015

Liabilities Amount Assets Amount

Fixed Assets:
Capital Account 50,000 Buildings 27,000
Less: Depreciation 540 26,460
Add : Net Profit 11,267 Furniture: 6,000
Less: Drawings 1,500 59,767 Less: Depreciation 600 5,400
Current Assets:
Loan from Desai 20,000 Cash on hand 250
Add: Interest Due 1,800 21,800 Cash at Bank 1,500
Sundry Debtors 7,500
Less: Provision for Doubtful 375 7,125
debt
Sundry Creditors 20,000 Stock 61,250
Commission Payable 593 Prepaid Rates 175
1,02,160 1,02,160

4. From the following Trial Balance of Hari and additional information prepare Trading and Profit &
Loss Account for the year ended 31st March, 2016 and a Balance Sheet as on that date:
Trial Balance as at 31st March, 2016
Dr.(Rs.) Cr.(Rs.)
Capital - 1,00,000
Furniture 20,000 -
Purchases 1,50,000 -
Debtors 2,00,000 -
Interest Earned - 4,000
Salaries 30,000 -
Sales -
3,21,000
Purchase Returns - 5,000
Wages 20,000 -
Rent 15,000 -
Sales Return 10,000 -
Bad Debt Written off 7,000 -
Creditors - 1,20,000
Drawings 24,000 -
Provision for Bad Debts - 6,000
Printing & Stationery 8,000 -
Insurance 12,000 -
Opening Stock 50,000 -
Office Expenses 12,000 -
Provision for Depreciation - 2,000

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5,58,000 5,58,000
Additional Information’s:
(1) Depreciate Furniture by 10% on original cost;
(2) A provision for Doubtful Debts is to be created to the extent of 5% on Sundry Debtors;
(3) Salaries for the month of March, 2016 amounting to Rs.3,000 were unpaid which must be provided
for. However salaries included Rs.2,000 paid in advance;
(4) Insurance amounting to Rs.2,000 is prepaid;
(5) Provide for outstanding office expenses Rs.8,000;
(6) Stock used for private purpose Rs.6,000;
(7) Closing Stock-in-Trade Rs.60,000.

Solution:
M/s Hari
Trading and Profit and Loss Account for the year ended on 31.3.2016
Particulars Rs. Particulars Rs.
To Opening stock 50,000 By Sales 3,21,000
To Purchases 1,50,000 (-) Return 10,000 3,11,000
(-) Return 5,100 1,45,000 By Goods used 6,000
To Wages 20,000 By Closing stock 60,000
To Gross profit c/d 1,62,000
3,77,000 3,77,00
0
To Salaries 30,000 By Gross Profit b/d 1,62,000
(+) Outstanding salary 3,000 By Interest 4,000
(-) Advance salary 2,000 31,000
To Rent 15,000
To Bad debts 7,000
(+) Provisions 4,000 11,000
To Printing and Stationery 8,000
To Insurance 12,000
(-) Prepaid 2,000 10,000
To Office expenses 12,000
(+) Outstanding 8,000 20,000
To Depreciation 2,000
To Net profit transferred to Capital 69,000
a/c
1,66,000 1,66,000

M/s Hari
Balance Sheet as on 31.3.2016
Liabilities Rs. Assets Rs.
Capital 1,00,000 Furniture 20,000
(+) Net profit 69,000 (-) Dep. Provision: Bal. B/f 2,000

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(-) Drawings 24,000 + Current year dep. 2,000 4,000 16,000

(-) Goods taken 6,000 1,39,000 Stock 60,000
Creditors 1,20,000 Debtors 2,00,000
Salary payable 3,000 (-) Provision: old b/f 6,000
Expense payable 8,000 (-) Additional provision 4,000 1,90,000
Advance salary 2,000
Prepaid insurance 2,000
2,70,000 2,70,000

Adjustment Entries
No. Particulars Dr. Rs. Cr. Rs.
1. Depreciation a/c Dr. 2,000
To Depreciation provision a/c 2,000
(Depreciation for the current year provided by SLM)
2. Bad debt a/c Dr. 4,000
To Provision for Bad debt a/c 4,000
(Provision for additional bad debts created. Required prov. 5% on
Debtors of Rs.2,00,000 i.e. Rs.10,000 less existing prov. Rs.6,000 )
3. Salary a/c Dr. 3,000
To Salary payable a/c 3,000
(Being salary for the month of March due)
Advance Salary Dr. 2,000
To Salary a/c 2,000
(Being advance salary paid transferred to advance a/c)
4. Prepaid Insurance a/c Dr. 2,000
To Insurance expenses a/c 2,000
(Being premium paid for next year, transferred to prepaid a/c)
5. Office expenses a/c Dr. 8,000
To Expenses payable a/c 8,000
(Being provision made for expense payable)
6. Drawings a/c Dr. 6,000
To Goods used a/c 6,000
(Being goods withdrawn by owner for personal use)
7. Stock a/c Dr. 60,000
To Trading a/c 60,000
(Being closing stock adjusted)

Transfer Entries / Book Closing Entries

No. Particulars Dr. Rs. Cr. Rs.
1. Purchase return a/c Dr. 5,000
To Purchase a/c 5,000
(Being purchase return balance transferred to purchases a/c)

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No. Particulars Dr. Rs. Cr. Rs.

2. Trading a/c Dr . 2,15,000
To Opening stock a/c 50,000
To Purchase a/c 1,45,000
To Wages a/c 20,000
(Being direct expenses of goods transferred to trading a/c)
3. Sales a/c Dr. 10,000
To Sales return a/c 10,000
(Being sales return a/c transferred to sales a/c)
4. Sales a/c Dr. 3,11,000
Goods used a/c Dr. 6,000
To Trading a/c 3,17,000
(Being sales a/c and goods used a/c transferred to trading a/c)
5. Trading a/c Dr. 1,62,000
To Profit & Loss a/c 1,62,000
(Being gross profit shown by trading a/c transferred to P&L a/c)
6. Interest a/c Dr. 4,000
To Profit & Loss a/c 4,000
(Being indirect incomes transferred to P&L a/c)
7. Profit & Loss a/c Dr. 97,000
To Salary a/c 31,000
To Rent a/c 15,000
To Bad debt a/c 11,000
To Printing and stationery a/c 8,000
To Insurance a/c 10,000
To Office expense a/c 20,000
To Depreciation a/c 2,000
(Being expenses a/c transferred to P&L a/c)
8. Profit & Loss a/c Dr. 69,000
To Capital a/c 69,000
(Being net profit as per P&L a/c transferred to capital a/c)
9. Capital a/c Dr. 30,000
To Drawings a/c 30,000
(Being drawing adjusted against capital a/c)

5. From the following Trial Balance of K. Katrak as on 31-3-2016. Prepare Trading Account, Profit and Loss
Account for the year ended 31-3-2016, and a Balance Sheet as on that date after making necessary
adjustments:
Trial Balance
Dr. Rs. Cr. Rs.
K. Katrak's Drawings 12,000 K. Katrak's Capital 60,000
Furniture & Fixtures 4,000 Returns Outward 2,000
Plant & Machinery 30,000 Sales 1,30,000

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Opening Stock 20,000 Creditors 12,000

Purchases 80,000 Loan at 6% p.a. taken from
Salaries and wages 22,400 M. Mehta on 1-10-2015 10,000
Debtors 20,400 Discount 600
Return Inward 5,000
Postage & telegrams 1,500
Rent, Rates and taxes 3,600
Bad debts written off 400
Trade Expenses 200
Interest on loan from M. Mehta 150
Insurance 800
Travelling Expenses 500
Sundry Expenses 300
Cash-in-hand 3,050
Cash at Bank 10,300
2,14,600 2,14,600

Adjustments
(1) Closing stock was valued at Rs.21,000;
(2) Of the debtors Rs.400 are bad and should be written off. Create a reserve for bad debts at 5%
on Sundry Debtors and a reserve for discount on Debtors at 2.5%.
(3) Salaries Rs.800 for March,16 were not paid.
(4) Interest on Capital is to be calculated at 6% p.a. and on drawings Rs.330.
(5) Prepaid Insurance amounted to Rs.100.
(6) Depreciate Furniture & Fixture by 5% and plant and machinery by 10%.

Solution:
M/S K. K. Katrak
Trading and Profit & loss Account for the year ended on 31.13.16
Particulars Amount Particulars Amount
To Opening stock 20,000 By Sales 1,30,000
To Purchase 80,000 (-) Return Inward 5,000 1,25,000
(-) Return outward 2,000 78,000 By Closing stock 21,000
To Gross profit 48,000
1,46,000 1,46,000
To Depreciation: Furniture 200 By Gross Profit
48000
Plants & Mach. 3,000 By Discount
3,200 600
To Sundry expenses
300
To Travelling expenses
500
To Trade expenses
200
To Salary & wages 22,400
+ Salary payable 800
23,200
To Postage & Telegram
1,500
To Rent, Rates & Taxes

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Particulars Amount Particulars Amount

To Bad debts 400 3,600
+ Addl Bad debts written off
400
+ Provision for bad debts 1,000 1,800

To Interest on loan from Mr. Mehta

150 300
+ Interest payable 150
To Insurance 800 700
(-) Prepared Insurance 100 475
To Discount on debtor Provided 12,825
To Net profit transferred to P&L 48,600 48,600
app.

Profit & loss Appropriation Account

Particulars Amount Particulars Amount
To Interest on capital 3,600 By Net profit as per P&L account 12,825
To Balance profit transferred to 9,555 By Interest on drawings 330
capital a/c
13,155 13,155

Interest on capital, interest on drawing, salary/commission etc. to owners and transfer to reserves
etc. is taken in P&L appropriation a/c.

Loan from Mr. Mehta has been taken 6 month ago for which the interest accrued is Rs.300 out of
which Rs.150 has already been paid and accounted balance Rs.150 is payable and is accounted now.

Balance sheet as on 31.13.16

Liabilities Rs. Assets Rs.
Capital 60,000 Furniture & fixture 4,000
(+) Interest on Capital 3,600 (-) Depreciation 200 3,800
(-) Drawing 12,000 Plant & Machinery 30,000
(-) Interest on drawing 330 (-) Depreciation 3,000 27,000
(+) Profit transfer from P&L a/c 9,555 60,825 Debtors 20,400
(-) Bad debt written off 400
Loan 10,000 20,000
Interest payable 150 (-) Provision for bad debt 5% 1,000
Creditors 12,000 19,000
Outstanding salary 800 (-) Provision for discount 2.5% 475 18,525
Closing stock 21,000
Prepaid Insurance 100
Cash 3,050

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+ Bank 10,300 13,350

83,775 83,775

RTP & MTP QUESTIONS – JUNE 2023

Sr. No. Paper Question No. Marks 

1 RTP - June 2023 -

2 MTP I – June 2023

3 MTP II – June 2023

CA ZUBAIR KHAN