From the following balances extracted from the book of M/s Manju Chawla on March 31, 2017. You are requested to prepare the trading and profit and loss account and a balance sheet as on this date. [Trial Balance Data: Opening stock 10,000; Purchases 40,000; Sales 80,000; Returns 200 (Dr), 600 (Cr); Wages 6,000; Dock and cleaning charges 4,000; Lighting 500; Misc. Income 6,000; Rent 2,000 (Cr); Capital 40,000; Drawings 2,000; Debtors 6,000; Creditors 7,000; Cash 3,000; Investment 6,000; Patent 4,000; Land and Machinery 43,000; Donations and Charity 600; Sales tax collected 1,000; Furniture 11,300] Closing stock was ₹ 2,000. (a) Interest on drawings @ 7% and interest on capital @ 5%. (b) Land and Machinery is depreciated at 5%. (c) Interest on investment @ 6%. (d) Unexpired rent ₹100. (e) Charge 5% depreciation on furniture.
Trading and Profit & Loss Account of M/s Manju Chawla for the year ended March 31, 2017
| Dr. Side (Expenses/Losses) | Cr. Side (Incomes/Gains) |
|---|---|
| Trading Account | |
| Opening Stock: 10,000 | Sales: 80,000 |
| Purchases: 40,000 | Less: Returns Inwards: 200 = 79,800 |
| Less: Returns Outwards: 600 = 39,400 | Closing Stock: 2,000 |
| Wages: 6,000 | |
| Dock and Cleaning Charges: 4,000 | |
| Gross Profit c/d: 22,400 | |
| Total: 81,800 | Total: 81,800 |
Profit & Loss Account Lighting: 500 | Gross Profit b/d: 22,400 Donations and Charity: 600 | Misc. Income: 6,000 Depreciation on Land & Machinery: 2,150 | Rent: 2,000 Depreciation on Furniture: 565 | Less: Unexpired Rent: 100 = 1,900 Interest on Capital: 2,000 | Interest on Drawings: 140 | Interest on Investment: 360 | Net Profit: 24,985 | Total: 30,800 | Total: 30,800
Balance Sheet of M/s Manju Chawla as on March 31, 2017
| Liabilities | Assets |
|---|---|
| Capital: 40,000 | Land and Machinery: 43,000 |
| Add: Interest on Capital: 2,000 | Less: Depreciation: 2,150 = 40,850 |
| Add: Net Profit: 24,985 | Furniture: 11,300 |
| Less: Drawings: 2,000 | Less: Depreciation: 565 = 10,735 |
| Less: Interest on Drawings: 140 = 64,845 | Patent: 4,000 |
| Creditors: 7,000 | Investment: 6,000 |
| Sales Tax Collected: 1,000 | Add: Accrued Interest: 360 = 6,360 |
| Rent Received in Advance: 100 | Closing Stock: 2,000 |
| Debtors: 6,000 | |
| Cash: 3,000 | |
| Total: 72,945 | Total: 72,945 |
Explanation
To solve this problem, we first identify the nature of each account. The Trading Account calculates Gross Profit by matching Net Sales (Sales minus Returns Inwards) with the cost of goods sold (Opening Stock + Net Purchases + Direct Expenses like Wages and Dock charges) and Closing Stock. The Profit & Loss Account starts with Gross Profit and deducts indirect expenses (Lighting, Donations, Depreciation, Interest on Capital) and adds indirect incomes (Misc. Income, Rent earned, Interest on Drawings/Investments). Note that 'Unexpired Rent' of ₹100 is treated as Rent Received in Advance (Liability) because the credit balance implies Rent Received, and the unexpired portion is not yet earned. Finally, the Balance Sheet balances Assets and Liabilities, adjusting for Capital additions (Profit, Interest) and subtractions (Drawings), and adjusting asset values for depreciation and accrued income.
Solution Steps
Step 1: Prepare Trading Account. Net Sales = 80,000 - 200 = 79,800. Net Purchases = 40,000 - 600 = 39,400. Cost of goods sold = 10,000 + 39,400 + 6,000 + 4,000 = 59,400. Gross Profit = (79,800 + 2,000) - 59,400 = 22,400.
Step 2: Prepare Profit & Loss Account. Debit side: Lighting (500) + Donations (600) + Depr. L&M (43,0005%=2,150) + Depr. Furniture (11,3005%=565) + Int. on Cap (40,000*5%=2,000). Total = 5,815.
Step 3: Calculate P&L Credits. Gross Profit (22,400) + Misc. Income (6,000) + Rent Earned (2,000 - 100 = 1,900) + Int. on Drawings (2,0007%=140) + Int. on Inv (6,0006%=360). Total = 30,800.
Step 4: Calculate Net Profit. Net Profit = Total Credits (30,800) - Total Debits (5,815) = 24,985.
Step 5: Prepare Balance Sheet. Liabilities: Adjusted Capital (40,000 + 24,985 + 2,000 - 2,000 - 140 = 64,845) + Creditors (7,000) + Sales Tax (1,000) + Rent in Advance (100) = 72,945. Assets: L&M (40,850) + Furniture (10,735) + Patent (4,000) + Investment (6,360) + Stock (2,000) + Debtors (6,000) + Cash (3,000) = 72,945.