FUNDAMENTALS OF ACCOUNTING

UNIT – II (2020-21)
FINANACIAL STATEMENTS OF SOLE PROPRIETORSHIP AND PARTNERSHIP FIRM

Note: The study material is not exhaustive. These are only guidelines. The examples given are issued
to save time in dictation. Students are requested to refer the reference books.

 INTRODUCTION:
Financial Statements are organized summaries of detailed information about the financial
performance and position of a business. Financial Statements of a business include: a. Trading A/c, b.
Profit & Loss account (including Profit & Loss Appropriation A/c in case of Partnership firm) & c.
Balance Sheet. Trading A/c is prepared to ascertain the gross profit or gross loss. Profit & Loss A/c is
prepared to ascertain net profit/net loss of business operations during an accounting period Balance
Sheet is prepared to show the financial position of a business at a particular point of time

 Financial statements of manufacturing business concerns include preparation of the following

i. Manufacturing account
ii. Trading account
iii. Profit and loss account and
iv. Balance sheet.

 Financial statements of trading business concerns include preparation of the following :

i. Trading Account
ii. Profit and loss Account and.
iii. Balance sheet.

 SOLE PROPRIETORSHIP :

Meaning: The sole means single and proprietorship means ownership. So, sole proprietorship means
single ownership. A sole trader or sole proprietor business is one which is fully owned operated by
one individual. Although the owner can employ other staff, the owner retains full responsibility and
ownership for the business.

Legally, if you set up your business as a sole proprietorship, your business is considered to be an
extension ofyourself. Therefore, as a sole proprietor you are personally responsible for all the
liabilities and obligations yourbusiness incurs.

Advantages of sole proprietorship business are:

i. Single ownership
ii. Decisions are made by the owner
iii. All the profit is kept by the owner
iv. Sole trader businesses are usually easy to set up
v. Easy and least costly way of starting a business.

Disadvantages of sole proprietorship business are:

i. Capital mustbe raised by the owner either from savings or from a loan.

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 ii. Sole trader business have unlimited liability.
iii. Unless the business has employees, it will be unable to run if the owner is ill or on a holiday.
iv. The business has a lack of continuity in the death of the owner, the business would have to
close.

 PARTNERSHIP FIRM :
 Section 4 of the Indian Partnership Act, 1932, defines partnership as ''the relation between persons
who have agreed to share the profits of a business carried on by all or any o no of them acting as all”
 Partnership Deed :A document in writing containing the terms of partnership as agreed by the
partners is called the Partnership Deed, It contains :

1. The name of the firm and its address with nature of business;
2. If the firm is having branch offices, then name and address of the branch offices;
3. Name & addresses of partners;
4. Capital to be contributed by each partner;
5. Interest on capital contributed to be paid or not; if yes how much?
6. The amount of withdrawal for each partner to maintain the existence.
7. Interest on drawings to be charged or not; if yes how much?
8. Salary, commission & other perquisites are payable to an active partner or not?
9. How much interest to be payable to a partner for given loan?
10. Profit & Loss sharing ratio of Partners in Partnership firm. ;
11. Valuation of goodwill if there is a change in the constitution of the firm
12. Methods of keeping books of accounts.

In the Absence of Partnership Deed:

1. Profit or Loss shall he distributed equally by all partners.
2. No interest on capital shall be paid or no interest on drawing shall be charged,
3. No salary, commission or other perquisite would be given to partner.
4. 6% interest will be paid on loan given by any partner

Adjustments to Financial Statements (For Solo Proprietorship concern and Partnership Firm)

No Adjustment for
1 Interest on Capital
2 Interest on Drawing
3 Interest on Loan from Partner.
4 Interest on Loan to Partner.
5 Salaries to Partners.
6 Closing Stock.
7 Outstanding Expenses.
8 Prepaid Expenses.
9 Outstanding/Accrued income
10 Income Received in Advance
Trading, P & L/P& L Approp. A/c. Balance Sheet OR ‘Capital A/c.
Debit side of the P & L Approp. Credit Current/Capital A/c of
A/c. the Partners
Credit side of the P & L Approp. Debit Current/Capital A/c of the
A/c. Partners
Debit side of the P & L Approp. Credit Current/Capital A/c of
A/c. the Partners.
Credit side of the P & L Approp. Debit Current/Capital A/c of the
A/c. Partners
Debit side of the P & L Approp. Credit Current/Capital A/c of
A/c. the Partners.
Credit side of Trading A/c Assets side.
Add to the concerned expenses. Liabilities side.
Deduct from the concerned exps. Assets side.
Add to the concerned Income Assets side.
Deduct from the concerned Liabilities side.
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 Income
11 Depreciation on Fixed Asset Debit side of P&L A/c. Deduct from Concerned Asset
12 Goods Distributed as Free 1) Debit side of P&L A/c. ------------
Samples 2) Credit side of Trading A/c.
13 Goods Destroyed by fire. 1) Debit side of P&L A/c. ------------
(Uninsured) (With Full Amount)
2) Credit side of Trading A/c.
(With Full Amount)
14 Goods Destroyed by fire. 1) Debit side of P&L A/c. Asset side.
(Insured & Partly Claim) (With Loss Amount) (With Claim Amount)
2) Credit side of Trading A/c.
(With Full Amount)
15 Goods Destroyed by fire. Credit side of Trading A/c. Assets side.
(Insured & Full Claim) (With Full Amount) (With Full Amount).
16 Writing off further Bad Debts Add to 'Bad Debts' on the Debit Deduct from the Debtors.
side of the P & L A/c.
17 Provision for Bad Debts Show Bad Debts + New Provision Deduct from the Debtors.
- Old Prov. on the debit side OR if
it gives a negative figure old
prov.- Bad Debts – New prov. on
Credit side of P & LA/c.
18 Provision for Discount on Debtors. Show Discount Allowed+ New Deduct the New Provision from
Prov. - Old prov. debit side OR if Debtors After Adjustment of
it gives a negative figure old Bad Debts and Bad Debts
prov.- Discount Allowed - New Reserve, If any, from Assets
prov. on Credit side of P & LA/c. side.
19 Unrecorded Credit Purchases Add to Purchases on Debit side of Add to Creditors on Liabilities
Trading A/c. side
20 Unrecorded Cash Purchases Add to Purchases on Debit side Deduct from cash on Assets
of Trading A/c. side.
21 Unrecorded Credit Sales. Add to Sales on Credit side of Add to Debtors on Assets side.
Trading A/c.
22 Unrecorded Cash Sales. Add to Sales on Credit side of Add to Cash on Assets side.
Trading A/c.
23 Set off, where the same person is ------------ Deduct the smaller of the two
both Debtor for Rs. X & a Creditor amounts X and Y from both the
for Rs. Y. Debtors & Creditors.
24 Goods taken over by a Partner for Show it on the Credit side of the Add to the Drawings of the
personal use. Trading A/c. Partner and deduct such
increased Drawings from the
Capital on the Liabilities side.
25 Amount Applicable to one account Deduct from the wrong A/c and Deduct from the wrong A/c and
wrongly included in another add to the right A/c. add to the right A/c.
account.
26 Drawing or a Personal Expenses Deduct from the concerned Add to Drawings and deduct
included in a Business Expenses Business Expenses on the Debit total Drawings from the Capital
side. on the Liabilities side.
27 Machinery erection charges Deduct from Wages on the Debit Add to Machinery on the Assets
included in wages. side of the Trading A/c. side.
28 Purchase of Stationery included in 1) Deduct from Purchases on the ------------
Purchases debit side of the Trading A/c.
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 2) Add to Stationery on the Debit
side of the P & LA/c.
29 Purchase of Machinery included Deduct from Purchases on the
in Purchases Debit side of Trading A/c.
30 Goods Sold included in Deduct Cost of the goods from
Closing Stock. the closing Stock on Credit side of
Trading A/c.
31 Goods Sent on sale/return 1) Add the Cost price of the
included in Sales goods on Sale/Return to the
Closing stock on the Credit side
of the Trading A/c.
2) Deduct the selling price of the
goods on sale/return from the
Sales on the -Credit side of the
Trading A/c.
32 Bad Debts Recovered included in Show Bad Debts Recovered on
Creditors. the Credit side of the P & L A/c.
Add to Machinery on the Assets
side.
Deduct the Cost of the goods
from the Stock on the Assets
side.
1) Add the cost price of goods
on Sale/Return to the Stock on
Assets side.
2) Deduct the selling price of
these goods as Provision for
Goods on Sale/Return from
Sundry Debtors from Assets
side.
Deduct from Creditors on the
Liability Side

33 Goods taken over by a Partner 1) Deduct from Sales on the 1) Deduct from Debtors on
included in Debtors Credit side of the Trading A/c. Assets side.
2) Show it on the Credit side of 2) Add to Drawings before
the Trading A/c deducting total Drawings from
the Capital on the Liability Side
34 Sale of Machinery included in Deduct from Sales on the Credit Deduct from Machinery on
Sales. side of the Trading A/c Assets side.
35 Dishonoured Bill included in ------------ 1) Deduct from Bills Receivable
Bills Receivable. on the Assets side.
2) Add to Debtors on the Assets
side.
36 Dishonoured Bill included in ------------ 1 Deduct from Bills Payable on
Bills Payable. the Liabilities side.
2) Add Creditors also on the
Liabilities Side.
37 Unrecorded Credit Purchase ------------ 1) Add to Asset on Assets side.
of Asset 2) Show on Liabilities Side as
Creditors for Assets.
38 Bills Receivable discounted is ------------ 1) Deduct from bank bal. Assets
dishonoured side.
2) Add to the Debtors on Assets
side

 MANUFACTURING ACCOUNT:
A manufacturing account is prepared in a manufacturing business, in addition to trading account.
Thus, a firm engaged in manufacturing business prepares manufacturing account, trading account and
profit & loss account. In case manufacturing firm is engaged in manufacturing more than one product
then it prepares a separate manufacturing account for each type of product. Manufacturing account
may serve to indicate the results of the manufacturing department. It is intended to disclose the
factory cost of production. It lays down a great emphasis on the sequence and nature of costs which
constitute the facts cost of the product. In order to understand the manufacturing account it is

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necessary to know the meaning of terms like cost of material consumed, direct labour cost, direct
expenses, prime cost, factory overheads, gross works cost of production, networks cost of production.
These terms have been explained below:

 Cost of materials consumed :

This is also referred to as direct materials. It is the cost of such materials that actually become the
part of the cost unit. It is calculated as under:
(Rs.)
Opening stock of raw materials…………………………….xxx
Add: Purchases of raw materials…………………………..xxx
Less: Closing stock of raw materials.......................xxx
Cost of materials consumed ……………………………..xxx

• Direct labour Cost or Direct Wages: Wages paid to employees for the time they are engaged in
working on the direct materials.

• Direct expenses:
Expenses incurred specifically on behalf of the cost unit. A manufacturing business is set up for
manufacturing something, may that be pens, ball pens, pencils, electrical appliances, etc. These
things that the enterprise is set up to provide are termed "cost units".

• Prime Cost:it is also referred to as "direct cost". It is the aggregate of direct materials, direct wages
& direct expenses.

 Factory overheads: in addition to the direct materials cost, direct labour cost & direct expenses,
there are many othercosts which are incurred. For e.g. Costs incurred in factory, costs incurred in
the office and costs incurred in the selling anddistribution department. All indirect costs incurred in
the factory are termed as factory overheads/production overheads, for e.g. factory rent, factory
insurance, depreciation of plant, plant repair, factory fuel, factory stationary, factory telephonebill,
and factory supervisor's remuneration, storekeeper's salary, works manager's salary, etc.

 Gross Works Cost Of Production: The total of prime cost and factory overheads is sometimes
termed as gross works cost of production or gross works cost of manufacture. This cost does not
take into consideration the cost ofwork-in-progress both in the beginning and at the end.

 Not Works Cost Of Production: If the cost of work-in-progress in the beginning is added to the gross
works cost of production and from the sum of the twothe cost of work-in-progress at the end is
subtracted then the balance left is networks cost of production. Manytimes the terms 'gross works
cost of production' and 'networks cost of production' are not used and the amount arrived atafter
considering the opening and closing balances of work-in-progress accounts is termed as 'cost of
production. It shouldbe noted that the proceeds of by-products, scrap and rejected materials, if any,
are subtracted to arrive at cost of production.

The following diagram explains the inter relationship of manufacturing account, trading account and
profit and loss account:

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DIRECT MATERIALS + EXAMPLES
DIRECT LABOUR + FACTORY RENT
DIRECT EXPENSES = FACTORY INSURANCE
PRIME COST FACTORY SUPERVISORS' REMUNERATION
PLANT REPAIR
PLANT DEPRECIATION

MANUFACTURING ACCOUNT

PRIME COST FACTORY COST OR NETWORKS COST OF

+ PRODUCTION (TRANSFERRED TO TRADING A/c)
FACTORY OVERHEADSACCOUNT)
=
GROSS WORKS COST OF PRODUCTION
+
WORK-IN-POG RE S AT START
(-)
WORK-SN-PROGRES AT CLOSE

TRADING ACCOUNT

OPENING STOCK OF FINISHED GOODS SALE

+
NET WORK COT of PRODUCTION
(-)
CLOSING STOCK OF FINISHED GOODS =
+
GROSS PROFIT
(TRANSFERRED TO PROFIT AND LOSS A/C)

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 PROFIT AND LOSS ACCOUNT

ADMINISTRATION OVERHEADS GROSS PROFIT

+ SELLING OVERHEADS
+ DISTRIBUTION OVERHEADS
= NET PROFIT

EXAMPLES
OFFICE SALARIES EXAMPLES.
EXAMPLES
OFFICE ELECTRICITY VAN EXPENSES
SALARIES IN SALES DEPARTMENT
OFFICE RENT FREIGHT OUTWARD
COMMISION CF SALES AGENTS
OFFICE STATIONERY EXP PACKING EXPENSES
ADVERTIEMENT
INURANCE IN TRANSIT
OTHER EXPENSES OF SALES DEPARTMENT
REDISPATCHED

Performa of Manufacturing account

Dr (Name of the Firm) Cr
MANUFACTURING ACCOUNT for the year ending...
Particulars Rs. Particulars Rs.
To Direct malaria! used : By Networks cost of production xxx
Opening stock of Raw material xxx (TRANSFERRED TO TRADING ACCOUNT)
Add : Purchase xxx
Less :Returns xxx
Add: Carriage inward xxx
Less : Closing Stack xxx
xxx
Direct material used :
To Direct labour or wages xxx
To Direct expenses. xxx
To Factory overheads:
factory rent
factory insurance
factory supervisors' remuneration
plant repair
plant depreciation
Lighting & heating
Motive power
Indirect wages
Depreciation on factory building
Gross works cost of production : xxx
Add: work in progress (Opening) xxx
Less: work in progress (Closing ) xxx
Networks cost: xxx xxx

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 In the Books of...
Dr Trading Account for the year ended on... Cr
Particulars Rs. Particulars Rs.
To Opening Stock xxx By Sales xxx
To Purchases xxx Less : Sales Returnsxxx xxx
Less: Purchases Returns xxx By Goods burnt ay Fire xxx
xxx By Goods Stolen xxx
To Direct Expenses :
By Goods given as Charity xxx
Wages xxx
By Goods given as Samples xxx
Carriage Inwards xxx
Freight xxx By Goods withdrawn for Personal use xxx
Octroi xxx By Closing Stock xxx
Excise Duty xxx By Profit and Loss A/c : xxx
Custom/import Duties xxx (Gross Loss Transferred)
Unloading Charges xxx
Demurrage xxx
Port Charges xxx
Gas & Fuel xxx
Factory Expenses xxx
Royalty on Production.xxx
xxx
To Profit and Loss A/c :
xxx
(Gross Profit Transferred)
Total xxx Total xxx

Dr Profit and Loss Account for the year ended on... Cr

Particulars Rs. Particulars Rs.
To Trading A/c xxx By Trading A/c xxx
(Gross Loss Transferred) (Gross Profit Transferred)
To Administrative Expenses : By Revenue Incomes :
Salary xxx Commission Received xxx xxx
Rent and taxes xxx Discount Received xxx
Electricity xxx By Non-Trading/Non-operating Incomes :
Postage & Telegram xxx Dividend Received xxx
Printing and Stationery xxx Interest on Bank Deposits xxx
Insurance Premium xxx Rent Received xxx
Audit Fees xxx Sale of Old Newspapers xxx
Legal Expenses xxx Bad Debts Recovered xxx
Provident Fund Contribution xxx xxx Apprentice Premium xxx xxx
To Selling Expenses : By Profit & Loss Appropriation A/c :
Advertisementxxx (Net Loss Transferred)
Discount Allowed xxx
Salesmen's Salaries xxx
Commissionxxx
Travelling Expenses xxx
Bad Debts xxx
Provision for Bad Debts xxx xxx
To Distribution Expenses :
Carriage Outward xxx
Packing Expenses xxx
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 Delivery Van Expenses xxx xxx
To Financial Expenses :
Interest on Capital xxx
Interest on Loan xxx
Interest on Bank Overdraft xxx
xxx
Bank Charges xxx
To Miscellaneous Expenses & Losses :
Depreciation on Assets xxx
Loss by theft, charity or fire xxx
Loss on sale of assets xxx xxx
To profit and Loss Appropriation A/c
(Net Profit Transferred)
Total xxx Total xxx

Dr. Profit and Loss Appropriation Account for the year ended on... Cr.
Particulars Rs. Particulars Rs.
To Profit & Loss A/c : Xxx By profit and Loss A/c xxx
(Net Loss Transferred) (Net Profit Transferred)
To Interest on Capital Xxx By Interest on Drawings xxx
To Interest on Loan from Partner Xxx By Interest on Loan to Partner xxx
To Salary By Partners' Capital Accounts : xxx
Xxx
To Commission (Net Divisible Loss Transferred)
To Partners' Capital Accounts :
(Net Divisible Profit Transferred) xxx
Total xxx Total xxx

In the Books of...

Balance Sheet as at...
Liability Rs. Assets Rs.
Capital Account(s): Fixed Assets :
Opening Balance xxx Goodwill xxx
Add : Net Div. Profit xxx Patents & Trade Marks xxx
Add : Interest On Capital xxx Land and Buildings xxx
Add : Salary xxx Plant and Machinery xxx
xxx
xxx Furniture & Fixtures xxx
xxx
Less: Drawings xxx Investments (with details):
Less : Net Div. Loss xxx Current Assets :
Less : Interest on Drawings xxx xxx Stock-in-Trade xxx
Reserve Fund: xxx Sundry Debtors xxx
Long-Term Liabilities: Prepaid Expenses xxx
Loan on Mortgage xxx Accrued Income xxx
Current Liabilities : Bills Receivable xxx
Bank Overdraft xxx Cash in hand xxx
Sundry Creditors xxx Cash at Bank xxx xxx
Outstanding Expenses xxx Fictitious Assets ;
Income Received in Advance xxx Deferred Advertisement xxx
xxx xxx
Bills Payable xxx Preliminary Expenses xxx
Total xxx Total xxx

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Illustration -1

Prepare Manufacturing, Trading and Profit and loss accounts for the year ended March 31, 2019 and Balance-
sheet as at that date from the following balances extracted from the books of M/s Camel Manufacturing Co.

Particulars Debit (Rs.) Credit (Rs.)

Advertising 16,600
Bad debts 12,100
Provision for bad debts 20,000
Bank Charges 2,400
Capital Account 7,00,000
Current Account 32,460
Drawings 1,60,000
Discount 8,240
Factory Power 72,280
Furniture 18,000
General Expenses: Factory 4,100
Office 6,920
Insurance 18,040
Lighting and Heating 9,640
Plant on April 1,2018 3,00,000
Plant Purchased on Sept 30,2018 40,000
Purchases of raw-material 6,73,360
Packing & transport 21,700
Rents and rates 29,720
Repairs to plant 15,700
Salaries-Office 73,800
Sales 15,83,480
Stock on April 1,2018
Raw-materials 1,04,600
Finished Goods 1,47,600
Work in Progress 33,400
Factory Wages 4,14,000
Debtors 2,11,200
Creditors 1,23,000
Cash in hand 3,500
Cash at bank 78,520

Total 24,67,180 24,67,180

1. Stock on March 31, 2019 is:

Raw Material: 71,200

Work in Progress: 34,800
Finished Goods: 1, 93,000
Packing Material: 2,500

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2. Provide for the following liabilities:
a. Factory Power: 11,240
b. Rent & Rates: 7,720
c. Lighting & Heating: 3,200
d. General Expenses:
Factory : 500
Office: 800
e. Insurance Prepaid: 3,400
3. Provide depreciation @ 10%p.a on Plant and 5% p.a on Furniture.
4. Increase Provision for bad debts by Rs. 10,000
5. 5/6th of rent and rates, lighting & heating and insurance are to be allocated to the factory and 1/6 th to the
office.

Solution
Manufacturing a/c of M/s Camel Manufacturing Co ., for the year ending 31-03-2019

Particulars AmtRs. Particulars AmtRs.

To Material Consumed: By Net Works Cost of 13,09,280
Opening Stock:1,04,600 Production(Transferred
+Purchases: 6,73,360 to Trading A/c)
-Pur.Return: NIL
-Closing Stock: 71,200 7,06,760
To Factory Wages 4,14,000
PRIME COST 11,20,760
To Factory Power:72,280
+ Outstanding: 11,240 83,520
To General Expenses:4,100
+Outstanding: 500 4,600
To Insurance: 18,040
- Prepaid : 3,400
(5/6th to factory)14,640 12,200
To Light & Heating: 9,640
+Outstanding: 3,200
th
(5/6 to Factory) 12,840 10,700
To Rent and Rates: 29,720
+ Outstanding: 7,720
(5/6th to Factory) 37,440 31,200
To Depn on Plant 32,000
(3,00,000 1 yr +40,000
6mnts)To Repairs to Plant 15,700
To Gross Works COP 13,10,680
+ Opening WIP 33,400
Less:Closing WIP 34,800
Net Works COP 13,09,280

13,09,280 13,09,280

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 Trading A/c of M/s Camel Manufacturing Co, for the year ending 31-03-2019

Particulars AmtRs. Particulars AmtRs.

To Opening Stock A/c 1,47,600 By Sales A/c 15,83,480
To Cost of Production 13,09,280 By Closing Stock A/c 1,93,000
(Goods Manufactured)
To Gross Profit c/d? 3,19,600
17,76,480 17,76,480

P&L A /c of M/s Camel Manufacturing Co, for the year ending 31-03-2019

Particulars AmtRs. Particulars AmtRs.

To Office Salaries 73,800 By Gross Profit b/d 3,19,600
To Rent & Rates By Discount Received 8,240
(1/6 of 37,440) 6,240 a/c
To General Expense: 6,920
+ Outstanding: 800 7,720
To Advertising 16,600
To Bad Debts: 12,100
+ Bad Debts(A):-
+ BDR (A): 30,000
-BDR(T/B): 20,000 22,100
To Bank Charges 2,400
To Insurance 2,440
(1/6 of 14,640)
To Lighting and Heating(1/6 2,140
of 12,840)
To Packing & Trans: 21,700
Less: Closing 2,500
19,200
To Depreciation on 900
furniture
To Net Profit? 1,74,300
(Transferred to current a/c)

3,27,840 3,27,840

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Illustration-2
AB and XY were partners in a partnership firm, sharing profit and loss in the ratio of 7:3. The following is the
Trial Balance of their firm as at 31.3.2015:

Trial Balance as at 31.3.2015

Debit Balances AmtRs. Credit Balances AmtRs.

Drawings of AB 18,000 Capital of AB 1,00,000
Drawings of XY 16,000 Capital of XY 2,00,000
Current account of XY 20,000 Sales 3,50,000
Purchases 2,40,000 Creditors 60,000
Opening stock 60,000 Bad Debts Reserve 6,000
Debtors 66,000 Current Account of AB 15,000
Cash and bank 10,000 Investment of RBI Investment 5,000
Building 1,60,000 10% Mortgage Loan 3,00,000
Plant and Machinery 85,000 Discount 3,000
8% Investment with RBI 1,00,000 Discount Reserve on Debtors 1,000
Interest on Mortgage loan 20,000
Discount 3,000
Repairing Expenses 17,000
Carriage Inward 12,000
Fixed deposit with Bank 10,000
Stationary Expense 25,000
Salary 54,000
Bills Receivables 30,000
Furniture and Fixtures 60,000
Insurance Premium 34,000

10,40,000 10,40,000
Other Information:

1. A Plant and machinery of book value Rs. 20,000 on 1.4.2014, was sold for Rs. 35,000 on 1.10.2014, which was
purchased for Rs. 30,000. Calculate Depreciation @ 10% p.a.
2. Calculate Interest on Current Account @ 6% p.a. and on Drawing @ 5% p.a. and on Fixed Capital @ 7% p.a.
3. Write off further Bad Debts Rs. 1,000 and provide for BDR at 5% p.a. for Discount Reserve on Debtors @ 2%
p.a.
4. Out of total closing stock, 20% of the goods, its market value decreased by 10%; 30% of the goods, its market
value is increased by 5% and 10% of the goods, its market value is Rs. 800, which is 20% less than the cost price.
5. New furniture worth Rs. 15,000 purchased on 1.4.2014, was wrongly included in purchases.
6. Salary to be paid to both the partners at Rs. 300 p.m.
7. XY to be paid commission @ 10% on net profit before charging such commission.

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Dr. Trading A/c of AB & XY for the year ending 31-03-2015 Cr.

Particulars AmtRs. Particulars AmtRs.

To Opening Stock A/c 60,000 By Sales 3,50,000
To Purchases A/c: 2,40,000 By Closing Stock(WN1) 9,600
- Wrongly
Included: 15,000 2,25,000
To Carraige inward 12,000
To Gross Profit c/d? 62,600
3,59,600 3,59,600

Dr. Profit and Loss A/c Of AB &XY for the year ending 31-03-2015 Cr.

Pariculars AmtRs. Particulars AmtRs.

To int on Mortg loan: 20,000 By Gross Profit B/d 62,600
Add: Outstanding: 10,000 30,000 By int on Investment: 5,000
To Repairing 17,000 + Outstanding :3,000 8,000
To Stationary 25,000 By Discount Received A/c 3,000
To Salaries 54,000 By Excess BDR 1,750
To insurance premium a/c 34,000 By Profit on sale of Plant 11,000
To Bad debts(A)1,000 By net loss c/d? 84,385
+BDR (A) 3,250
4,250
-BDR (TB) 6,000
(1,750)Opp side
To Discount a/c(TB) : 3,000
+Discount Reserve : 1,235
4,235
-Discount Reserve(TB) 1,000 3,235
To Depreciation on Plant 7,500
(1,000+6,500)
1,70,735 1,70,735

Dr Profit and loss appropriation A/c of AB & XY For the year ending 31-03-2015 Cr.

Particulars AmtRs. Particulars AmtRs.

To Net loss b/d 84,385 By Int on Current a/c of XY 1,200
To Int on Current a/c of AB 900 By Int on Drawings:
To Int on Fixed Capital: AB 900
AB 7,000 XY 800
XY 14,000 By Net Divisible Loss? 1,10,585
To Salaries A/c AB:77,410
AB:3,600 XY:33,715
XY:3,600 7,200
1,13,485 1,13,485

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 Balance-sheet of AB &XY as on 31-03-2015

Liabilities AmtRs. Assets AmtRs.

Fixed Capital Building 1,60,000
AB 1,00,000 P&M: 85,000
XY 2,00,000 -Dep: 7,500
Capital Reserve 5,000 77,500
(35,000-30,000) -Sold: 19,000 58,500
10% Mortgage Loan 3,00,000 Furniture and fix:60,000
Creditors 60,000 +wrongly incl: 15,000 75,000
Purchases
O/s Interest on - 10,000 8%invst with RBI 1,00,000
Mortgage loan FD With Bank 10,000
Closing Stock 9,600
Debtors: 66,000
-Bad debts: 1,000
65,000
-BDR@5% 3,250
61,750
-Dist Res @ 2% 1,235 60,515
Bills Receivable 30,000
O/s Interest 3,000
Cash & Bank10,000
+P&M Sold:35,000 45,000
Current A/c:
AB 69,810
XY 53,575

6,75,000 6,75,000
Working Notes:

1) Closing Stock: Let Cost Price = 100 Rs.

- 20% of C.P = 20Rs.

M.V of 10% goods= 80Rs.When . 80 Rs .- M.V Rs. 800

100 Rs. - ? =Rs.1,000(10% of Goods C.P)

 C.P of 100% Goods = 10,000Rs.(10% =1,000Rs hence 100%= 10,000Rs.)

 1.10%Goods = C.P Rs.1000 M.V= Rs. 800
1. 20% Goods = C.P Rs.2000 M.V= Rs.1800
2.30%Goods = C.P Rs.3000 M.V= Rs. 3000
3. 40%Goods= C.P Rs.4, 000M.V= Rs.4 000
Closing Stock Rs. 9,600

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Ex-1 From the following balances prepare Manufacturing,Trading and Profit and Loss account.

Particulars AmtRs.
Opening Stock: Raw Material 49,140
Work-in Progress 3,000
Finished goods 25,920
Chemicals 1,170

Purchases: Raw-Materials 4,27,860

Chemicals 37,110
Factory Wages 4,68,000
Factory Overheads 36,000
Sales 12,00,000
Trade Discount(Cr.) 10,200
Carraige Outward 6,960
Salaries 67,200
General Expenses 54,930
Cash Discount(Dr.) 15,300
Depreciation:
Plant 48,000
Factory Building 1,200
Office 1,500

Balances as on 31-03-2015: Closing Stock of Raw-material in hand Rs.20580,WIP Rs.6000,Chemicals Rs.2280

and Finished goods Rs.37,140 (Ans :Net Profit Rs.32,910)

Ex.2 The following is the Trial Balance of Mr.Ramlal as at 31 st December, 2015

Paticulars Debit (Rs.) Credit (Rs.)

Ramlal’s Capital account 86,690
Stock (1.1.2015) 46,800
Sales 3,89,600
Return inwards 8,600
Purchases 3,21,700
Return outwards 5,800
Fright and carriage 18,600
Rent and taxes 5,700
Salaries &Wages 9,300
Sundry Debtors 24,000
Sundry Creditors 14,800
Bank loan @6%p.a 20,000
Bank interest 900
Printing and advertising 14,600
Miscellaneous income 250
Cash at bank 8,000
Discount earned 4,190
Furniture and fittings 5,000
Discount allowed 1,800
General expenses 11,450
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Insurance 1,300
Postage & telegram 2,330
Cash in hand 380
Travelling Expenses 870
Drawings 40,000
Total………………………… 5,21,330 5,21,330

The following adjustments should be made:

1. Included amongst the debtors is Rs.1,000 due from K.Abraham and included among the creditors
Rs.1,000 due to him.
2. Provision for bad and doubtful debts is to be created 5% and reserve for discount at 2% on sundry
debtors.
3. Depreciation on furniture and fittings at 10% p.a shall be written off.
4. Personal purchases amounting to Rs.600 have been included in the purchases day book.
5. A Quarter of the amount of printing and advertising is to be carried forward to the next year.
6. Credit purchases invoice amounting to Rs.400 had been omitted from the books.
7. Interest on bank loan shall be provided for the whole year.
8. Stock on 31-12-2015 was Rs. 78,600
Prepare Trading and Profit and loss account for the year ended 31st December,2015
And Balance-sheet as at that date.(ans:NPRs.35,953,B/s Rs.1,16,543)

Ex. 3 from the following Trial Balance and other information, prepare Trading Account and Profit and loss
Account for the year ended 31.3.2015 and Balance Sheet as on that date:

Trial Balance as at 31.3.2015

Debit Balances AmtRs. Credit Balances AmtRs.

Furniture 42,000 Capital of Mr. A 80,000
Purchases 1,05,000 Capital of Mr. B 1,00,000
Bank Balance 2,000 Creditors 30,000
Debtors 32,000 Sales 2,00,000
Opening Stock 35,000 Depreciation Provision on 6,000
Machinery
Salaries 12,000 Bills Payable 3,200
Building 80,000
Drawing of Mr. A 2,400
Drawing of Mr. B 1,800
Machinery 65,000
Lease Hold Property 30,000
(From 1.4.2012 for 5 years)
Insurance (Including Rs. 2,400 for 4,000
a year ended 30.9.2015)
Bills receivable 8,000

4,19,200 4,19,200

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Other Information:

1. Furniture appearing in the books on 1.4.2014 at Rs. 32,000 was disposed off on 30.9.2014 at Rs. 27,000 in
part exchange of a new furniture costing Rs. 30,000. The net invoice for Rs. 3,000 passed through purchase
book. Calculate depreciation on furniture @ 10% p.a.
2. During the year, a customer bill of Rs. 3,000 was discounted with the bank for Rs. 2,780. The bank has sent
intimation that the said bill is now dishonored. The transaction is not recorded in our books.
3. Building and Machinery are to be depreciated by 4% p.a. and by 6% p.a. respectively.
4. Closing stock worth Rs. 10,000 of which 25% of the goods, its market value is decreased by 10% and 35% of
the goods, its market value is Rs. 3,250.
5. Mr. A withdrew Rs. 200 at the beginning of each month while Mr. B withdrew Rs. 150 at the end of each
month. Interest on drawing to be charged by 12% p.a.
6. Salary for 2 months is still unpaid.

Ex. 4 From the following Trial Balance of X and Y, sharing profit and loss in the ratio of 3:2, prepare Financial
Statements for the year ended 31.3.2015:
Trial Balance as at 31.3.2015

Debit Balances AmtRs. Credit Balances AmtRs.

Drawing of X 10,000 Capital of X 1,00,000
Drawing of Y 15,000 Capital of Y 2,00,000
Current Account of Y 5,000 Current Account of X 10,000
Office Equipments 9,000 Bills Payable 15,000
Wages 10,000 Purchases Returns 3,000
Cash on hand 18,000 Loan from Mr. X 10,000
Opening Stock 50,000 Goods distributed as free sample 5,000
Debtors 55,000 Creditors 30,000
Insurance 10,000 Sales 2,50,000
Plant 95,000
Investments 30,000
Bad Debts 3,000
Building 1,00,000
Bills Receivable 17,000
Stationary Expenses 6,000
Octroi 3,500
Cash at Bank 16,500
Purchases 1,60,000
Goodwill 10,000
6,23,000 6,23,000
Other Information:

1. At the end of the year, closing stock valued at Rs. 20,000 of which, its market value was only Rs. 15,000.
2. Goods worth Rs. 5,000 supplied to Mr. X are included in Debtors.
3. Calculate Depreciation on Plant @ 5% p.a. and on Building @ 10% p.a.
4. Unpaid wages Rs. 3,000, prepaid insurance Rs. 1,000 and accrued but not received interest on Investments
Rs. 2,000.
5. Calculate interest on Current Account on partners @ 5% p.a. and on Fixed Capital @ 10% p.a.
6. During the year goods worth Rs. 7,000 destroyed by fire and insurance company has admitted a claim of Rs.
4,000 only.
7. Write off further Bad Debts of Rs. 3,000 and make provision for Doubtful Debts @ 5% on Debtors.

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Ex. 5 from the following Trial Balance and Adjustments of P and Q, Prepare Trading Account, Profit and loss
Account and Profit and Loss Appropriation Account for the year ended as on 31.3.2015 and Balance Sheet as
on that date:

Trial Balance as at 31.3.2015

Debit Balances AmtRs. Credit Balances AmtRs.

Drawings of P 3,000 Capital of P 45,000
Drawings of Q 2,000 Capital of Q 35,000
Debtors 30,000 Sales 1,50,000
Carriage 1,100 Creditors 17,000
Travelling Expenses 4,500 Provident Fund 13,000
Salaries 16,500 Interest on Provident Fund Invst. 1,300
Loan to Mr. P 10,000 Outstanding Salaries 1,500
Opening Stock 15,000 Bad Debts Reserve 300
Purchases 85,000 Bank Overdraft 5,000
Advertising Expenses 9,000
Vehicles 5,000
Investment in 10% Govt. Sec. 9,000
Provident Fund Investment 13,000
Plant and Machinery 60,000
Trademark 5,000

2,68,100 2,68,100
Adjustments:

1. At the end of the year, closing stock amounted to Rs. 15,000.

2. A debtor of Rs. 6,000 declared insolvent and liquidator has declared that 0.60 paisa will be paid against Re.
1 outstanding. Provide for Bad Debts Reserve @ 5%p.a.
3. Credit purchase Rs. 10,000 has left unrecorded in books.
4. On 1.10.2014, new furniture costing of Rs. 20,000 was purchased, which is wrongly debited to Purchase
Account. Depreciate furniture by 5% p.a.
5. Unsecured stock worth Rs. 3,000ws destroyed by fire.
6. Mr. Q is entitled to commission @ 10% p.a. on Net Profit after charging his commission.
7. Advertisement expense includes a cost of sales promotion scheme run during the year to the extent of Rs.
4,500. It is expected that the effect of this scheme will be felt for at least 3 years.
8. On 1.4.2014, Vehicles of book value Rs. 5,000u was sold for Rs. 6,000 on 1.10.2014 by cash which is
wrongly credited to Sales Account. Depreciate Vehicles by 10% p.a.

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