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Date Particulars Amount: Cash A/c - DR Bank A/c - DR To Capital A/c 5,000 5,00,000 5,05,000

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15 views4 pages

Date Particulars Amount: Cash A/c - DR Bank A/c - DR To Capital A/c 5,000 5,00,000 5,05,000

Did all documents

Uploaded by

yashikaidnani26
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1.

Prepare the journal by recording the subsequent transactions:

Answer:

Date Particulars Amount


3- Dec Cash a/c -dr 5,000
Bank a/c -dr 5,00,000
To capital a/c 5,05,000
(being a cash and bank
balance contributed in
capital to start a business)
5-Dec Furniture A/c -dr 60,000
To Cash 30,000
30,000
To Bank
(Being furniture purchased
on cash and 50% though
bank)
7-Dec Purchase A/c -dr 31500
31500
To Bank

(Being goods purchased for


sale through bank)

8-Dec Bank A/c -dr 500000

To Sales. 500000
(Being goods sold)
10-Dec Rent a/c -dr 10,000
10,000
Electricity a/c -dr 10,000
30,000
Salary a/c -dr

To Bank

(Being rent, electricity and


salary paid through bank
acc)
2. Preparing the profit and loss account is a lengthy but at the same time interesting task. You
need a lot of information to prepare the profit and loss statement. Discuss any five essential
components out of the total eight components which contributes in preparing the profit and loss
statement.

Answer: The Profit and Loss Account statement of AN enterprise is important for representing
the state of business activities in an organization. Following are the key parts needed for the
preparation of a P&L Account.

Components:

1) Revenue: Revenue is that the add of the revenue attained from the operational activities of a
business and therefore the alternative non-operating financial gain earned by a business. For
instance, for a producing unit, the operating income may be the sale of finished goods. Non-
Operating financial gain can be interest earned on money investments.

2) Value of products sold: the value of products Sold indicates the full cost incurred in the
production of products and services. It embodies prices incurred within the purchase of raw
materials, direct labor and production. Earnings springs from the deduction of the value of
products sold from Total Revenue.

3) Operational Expenses: operational Expenses include all the expenses concerned in


the traditional course of operation like rent, salaries, insurance, and maintenance etcetera

4) Depreciation and money Charges: Depreciation is charged as a deduction in the value


of fastened assets on the account of damage and tear or obsolescence. Similarly, financial
charges like interest on loans are a charge on profits paid to debtors of the company.

5) Tax Rate: To gain net Profit, 1st expenses (3) and (4) are subtracted from the Gross Profit,
post that the applicable tax is deducted. 3. Following are the particulars offered for Z and X,
LLP. Particulars (Rs in ‘000) preserved Earnings 860 assets 250 provides a hundred and
fifty Salaries due 150 instrumentation 1500 honorary Revenue two
hundred Accounts due 540 money 550 postpaid Insurance three hundred stock a thousand.

3. Following are the particulars available for Z and X, LLP.

Particulars (Rs in ‘000)

Retained Earnings 860


Accounts Receivable 250
Supplies 150
Salaries Payable 150
Equipment 1500
Unearned Revenue 200
Accounts Payable 540
Cash 550
Prepaid Insurance 300
Common Stock 1000

Answer:
a. Prepare T Form Balance Sheet out of the details as shared in the table
The T shape balance sheet for the same is given

Given the particulars available for Z and X


To find T shape balance sheet
Solution:
Balance sheet of Z and X pvt ltd.
L
Liabilities Amount Assets Amount
retained earnings 860 accounts receivable 250
salaries payable 150 Supplies 150
accounts payable 540 Equipment 1500
unearned revenue 200 Cash 550
common stock 100 prepaid insurance 300
Total 2750 2750

b. Define and calculate the current ratio, discuss the significance of this ratio.

Answer: The current ratio is a liquidity ratio that measures a company’s ability to pay short-
term obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables. A
current ratio that is in line with the industry average or slightly higher is generally considered
acceptable. A current ratio that is lower than the industry average may indicate a higher risk
of distress or default. Similarly, if a company has a very high current ratio compared with its
peer group, it indicates that management may not be using its assets efficiently. The current
ratio is called current because, unlike some other liquidity ratios, it incorporates all current
assets and current liabilities. The current ratio is sometimes called the working capital ratio. To
calculate the ratio, analysts compare a company’s current assets to its current liabilities.

Significance of current ratio:

Current Ratio is computed to know the ability of a firm to pay off the short-term liabilities
of a firm with the help of current assets. It is assumed that all the current assets are likely to
be converted into cash to pay off the short-term liabilities of the firm. In other words, this
ratio is calculated to determine the short-term solvency of a firm. 2:1 is considered an ideal
current ratio. That means the current assets should be double the current liabilities of the
firm. But if the current ratio is very high, it is believed that the funds are lying idle and the
firm has poor control over its inventory or debtor’s turnover is slow.

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