Rocket Singh

Rocket Singh graduated from a technical school and he started materializing the
plans for a small business of producing tissue paper. With the increase in the
number of hotels, restaurants and food bazaars, he saw a great demand for the
product. Rocket Singh started his business on 1st January, 2010 with a capital of
Rs.2000000. He also borrowed Rs.100000 from his friends at the interest rate of 12%
p.a on the same day.
Rocket Singh purchased buildings worth Rs.800000, furniture for Rs.300000 and
equipment for Rs.550000. The useful life of the equipment was 10 years. He also had
made investments worth Rs.500000 at the interest rate of 15% p.a on 1 st July, 2010.
Singh had made purchases and sales both for cash as well as for credit. The
following is the summary of balances of various accounts for the transactions that
took place during the year.

Trial Balance as on December 31, 2010

Particulars Expenses/Assets Incomes/Liabilities
Capital 2000000
Drawings 2000
12% loan 100000
Investments 500000
Buildings 800000
Equipment 550000
Furniture and Fittings 300000
Purchases 1100000
Purchase Returns 5000
Sales 1300000
Sales Returns 3000
Salaries 11000
Wages 10000
Postage and General Expenses 4000
Interest on loan 11000
Stationery 3000
Cash in hand 10000
Cash at Bank 20000
 Bad Debts by Mr.Kamal 1000
Sundry Debtors 200000
Sundry Incomes/Liabilitiesors 150000
Carriage inwards 2000
Carriage Outwards 1000
Insurance Premium 2000
Office Expenses 5000
Rent 10000
Advertisement Expenses 10000
3555000 3555000

Mr. Singh knew that income statement is prepared to find the net income or net loss
resulting from the business transactions during an accounting period. He was aware
about accrual basis of accounting and according to the matching concept, all the
expenses incurred during the year should be matched with the incomes or revenues
during the same accounting year whether they are actually realized or not. If an
expense is incurred, whether paid it or not, it is considered as an expense during the
year. Finally, a balance sheet is a statement which shows what a business owns and
what a business owes as on a particular date.

Before proceeding to the preparation of Financial Statements, Rocket Singh has

received some more additional information.
1. The closing stock of goods lying in the stockroom was physically checked and
valued for Rs.15000 as per the market price which is lower than the cost price.
2. In addition to Mr. Kamal whose debt had been written off, Rocket Singh found
that Mr. Bhaskar also would not be able to pay his debt worth Rs.1000. He felt
that it would be right to write off this account also. Moreover, Singh has also
decided to make a provision for doubtful debts to the extent of 5% of sundry
debtors to cover the probable bad debts.
3. As a policy, Rocket Singh decided to depreciate the equipment on the straight
line method, buildings and furniture on the written down value method @ 2%
p.a. and 20% p.a. respectively.
4. He also noticed that the insurance premium of Rs.2000 was paid on equipment
for one year period from April 1, 2010 to March 31, 2011.
5. The salaries for the month of December, 2010 for Rs.1000 were not paid.
6. The interest on loan was not yet paid for the month of December 2010.
7. The interest on investments was received half-yearly and accrued on December
31 2010.
8. The benefit of advertisement expense was expected to be for two years and hence
it was decided that half of the advertisement expense would be written off in the
current year and the remaining half would be carried forward to the next year.
After considering the above given information, prepare income statement for the
year ended 31- 12-2010 and the balance sheet as on 31-12-2010.