Following balances have been extracted from the trial balance of M/s Keshav Electronics Ltd. You are required to prepare the trading and profit and loss account and a balance sheet as on March 31, 2017. [Trial Balance Data: Opening stock 2,26,000; Sales 6,80,000; Purchases 4,40,000; Return outwards 15,000; Drawings 75,000; Creditors 50,000; Buildings 1,00,000; Bills payable 63,700; Motor van 30,000; Interest received 20,000; Freight inwards 3,400; Capital 3,50,000; Sales return 10,000; Trade expense 3,300; Heat and Power 8,000; Salary and Wages 5,000; Legal expense 3,000; Postage and Telegram 1,000; Bad debts 6,500; Cash in hand 79,000; Cash at bank 98,000; Sundry debtors 25,000; Investments 40,000; Insurance 3,500; Machinery 22,000] The following additional information is available:
- Stock on March 31, 2017 was ₹ 30,000.
- Depreciation is to be charged on building at 5% and motor van at 10%.
- Provision for doubtful debts is to be maintained at 5% on Sundry Debtors.
- Unexpired insurance was ₹ 600.
- The Manager is entitled to a commission @ 5% on net profit after charging such commission.
Trading and Profit and Loss Account of M/s Keshav Electronics Ltd. For the year ending March 31, 2017
| Particulars (Dr.) | Amount (₹) | Particulars (Cr.) | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 2,26,000 | By Sales | 6,80,000 |
| To Purchases | 4,40,000 | Less: Sales Return | (10,000) |
| Less: Return Outwards | (15,000) | Net Sales | 6,70,000 |
| Net Purchases | 4,25,000 | By Closing Stock | 30,000 |
| To Freight Inwards | 3,400 | ||
| To Heat and Power | 8,000 | ||
| To Gross Profit c/d | 37,600 | ||
| Total | 7,00,000 | Total | 7,00,000 |
| To Trade Expense | 3,300 | By Gross Profit b/d | 37,600 |
| To Salary and Wages | 5,000 | By Interest Received | 20,000 |
| To Legal Expense | 3,000 | ||
| To Postage and Telegram | 1,000 | ||
| To Bad Debts | 6,500 | ||
| To Insurance | 3,500 | ||
| Less: Unexpired Ins. | (600) | ||
| Net Insurance | 2,900 | ||
| To Depreciation on Building | 5,000 | ||
| To Depreciation on Motor Van | 3,000 | ||
| To Provision for Doubtful Debts | 1,250 | ||
| To Manager’s Commission | 1,269 | ||
| To Net Profit transferred to Capital | 25,381 | ||
| Total | 57,600 | Total | 57,600 |
Balance Sheet of M/s Keshav Electronics Ltd. As on March 31, 2017
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital | 3,50,000 | Buildings | 1,00,000 |
| Add: Net Profit | 25,381 | Less: Depreciation | (5,000) |
| Less: Drawings | (75,000) | Net Buildings | 95,000 |
| Net Capital | 3,00,381 | Motor Van | 30,000 |
| Creditors | 50,000 | Less: Depreciation | (3,000) |
| Bills Payable | 63,700 | Net Motor Van | 27,000 |
| Outstanding Manager’s Comm. | 1,269 | Machinery | 22,000 |
| Investments | 40,000 | ||
| Closing Stock | 30,000 | ||
| Sundry Debtors | 25,000 | ||
| Less: Provision for D/D | (1,250) | ||
| Net Debtors | 23,750 | ||
| Cash at Bank | 98,000 | ||
| Cash in Hand | 79,000 | ||
| Prepaid Insurance | 600 | ||
| Total | 4,15,350 | Total | 4,15,350 |
Explanation
The solution involves identifying distinct items for the Trading Account (direct expenses/revenues) and the Profit & Loss Account (indirect expenses/revenues). Adjustments for depreciation, provisions, prepaid expenses, and manager's commission must be processed to arrive at the accurate Net Profit and Balance Sheet totals. The Manager's commission is calculated on the profit after charging such commission.
Solution Steps
Step 1: Calculate Gross Profit. Net Sales = 6,80,000 - 10,000 = 6,70,000. Net Purchases = 4,40,000 - 15,000 = 4,25,000. Cost of Goods Sold = Opening Stock (2,26,000) + Net Purchases (4,25,000) + Direct Exp (3,400 + 8,000) - Closing Stock (30,000) = 6,32,400. Gross Profit = 6,70,000 - 6,32,400 = 37,600.
Step 2: Calculate Adjustments. Depreciation (Building) = 1,00,000 * 5% = 5,000. Depreciation (Motor Van) = 30,000 * 10% = 3,000. Provision for Doubtful Debts = 25,000 * 5% = 1,250. Insurance Expense = 3,500 (Paid) - 600 (Prepaid) = 2,900.
Step 3: Calculate Profit before Commission. Total Credits (GP + Interest) = 37,600 + 20,000 = 57,600. Total Debits (Exp + Dep + Prov) = 3,300 + 5,000 + 3,000 + 1,000 + 6,500 + 2,900 + 5,000 + 3,000 + 1,250 = 30,950. Profit before Commission = 57,600 - 30,950 = 26,650.
Step 4: Calculate Manager's Commission. Commission = 26,650 * (5/105) = 1,269 (approx).
Step 5: Calculate Net Profit and Balance Sheet Total. Net Profit = 26,650 - 1,269 = 25,381. Capital A/c Balance = 3,50,000 + 25,381 - 75,000 = 3,00,381. Balance Sheet Total matches at 4,15,350.