From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending March 31, 2017. [Trial Balance Data: Drawings 20,000; Capital 2,00,000; Sundry debtors 80,000; Return outwards 2,000; Bad debts 1,000; Bank overdraft 12,000; Trade Expenses 2,400; Provision for bad debts 4,000; Printing and Stationery 2,000; Sundry creditors 60,000; Rent Rates and Taxes 5,000; Bills payable 15,400; Feright 4,000; Sales 2,76,000; Return inwards 7,000; Opening stock 25,000; Purchases 1,80,000; Furniture and Fixture 20,000; Plant and Machinery 1,00,000; Bills receivable 14,000; Wages 10,000; Cash in hand 6,000; Discount allowed 2,000; Investments 40,000; Motor car 51,000] Adjustments:
- Closing stock was ₹45,000.
- Provision for doubtful debts is to be maintained @ 2% on debtors.
- Depreciation charged on: furniture and fixture @ 5%, plant and machinery @ 6% and motor car @ 10%.
- A Machine of ₹30,000 was purchased on October 01, 2016.
- The manager is entitled to a commission of @ 10% of the net profit after charging such commission.
Trading and Profit & Loss Account of M/s Indian Sports House For the year ending March 31, 2017
| Particulars (Dr.) | Amount (₹) | Particulars (Cr.) | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 25,000 | By Sales | 2,76,000 |
| To Purchases | 1,80,000 | Less: Return Inwards | 7,000 |
| Less: Return Outwards | 2,000 | By Closing Stock | 45,000 |
| To Wages | 10,000 | ||
| To Freight | 4,000 | ||
| To Gross Profit c/d | 97,000 | ||
| 3,14,000 | 3,14,000 | ||
| To Bad Debts | 1,000 | By Gross Profit b/d | 97,000 |
| To Provision for Doubtful Debts (New) | 1,600 | By Provision for Bad Debts (Old) | 4,000 |
| To Trade Expenses | 2,400 | ||
| To Printing & Stationery | 2,000 | ||
| To Rent, Rates & Taxes | 5,000 | ||
| To Discount Allowed | 2,000 | ||
| To Depreciation: | |||
| - Furniture & Fixture (5% of 20,000) | 1,000 | ||
| - Plant & Machinery (Old: 70k@6% + New: 30k@3%) | 5,100 | ||
| - Motor Car (10% of 51,000) | 5,100 | ||
| To Manager's Commission | 6,891 | ||
| To Net Profit (Transferred to Capital) | 68,909 | ||
| 1,01,000 | 1,01,000 |
Working Notes:
- Provision for Doubtful Debts: 2% of ₹80,000 (Debtors) = ₹1,600.
- Depreciation on Plant & Machinery: Total value ₹1,00,000. New machine (₹30,000) purchased on Oct 01 implies old machine is ₹70,000. Depreciation = (70,%) + (30,% × 6/12) = 4,200 + 900 = ₹5,100.
- Manager's Commission: Net Profit before commission = Gross Profit (97,000) + Old Provision (4,000) - All Expenses (Bad debts 1,000 + New Prov 1,600 + Trade Exp 2,400 + Print 2,000 + Rent 5,000 + Disc 2,000 + Depr 11,200) = 1,01,000 - 25,200 = ₹75,800. Commission = 75,800 × (10/110) = ₹6,891.
Explanation
This solution prepares the Trading and Profit & Loss Account based on the provided trial balance and adjustments. The Trading Account calculates Gross Profit by accounting for direct expenses like Freight and Wages and adjusting stocks. The Profit & Loss Account then accounts for indirect expenses, depreciation (calculated pro-rata for the new machine), adjustments for bad debts provisions, and the manager's commission calculated on the net profit after the commission itself.
Solution Steps
Step 1: Calculate Net Sales and Purchases. Sales (₹2,76,000) - Sales Return (₹7,000) = ₹2,69,000. Purchases (₹1,80,000) - Return Outwards (₹2,000) = ₹1,78,000.
Step 2: Calculate Gross Profit. Cost of Goods Sold = Opening Stock (25,000) + Net Purchases (1,78,000) + Wages (10,000) + Freight (4,000) - Closing Stock (45,000) = ₹1,72,000. Gross Profit = Net Sales (2,69,000) - COGS (1,72,000) = ₹97,000.
Step 3: Calculate Depreciation. Furniture (5% of 20,000) = ₹1,000. Motor Car (10% of 51,000) = ₹5,100. Plant & Machinery (Old 70,000 @ 6% + New 30,000 @ 3% for 6 months) = ₹4,200 + ₹900 = ₹5,100. Total Depreciation = ₹11,200.
Step 4: Adjust Bad Debts and Provision. Bad Debts (Dr) = ₹1,000. New Provision (Dr) = 2% of ₹80,000 = ₹1,600. Old Provision (Cr) = ₹4,000. Net Credit to P&L = 4,000 - 1,000 - 1,600 = ₹1,400.
Step 5: Calculate Manager's Commission. Profit before commission = Gross Profit (97,000) + Old Provision Credit (4,000) - [Bad Debts (1,000) + New Prov (1,600) + Trade Exp (2,400) + Print (2,000) + Rent (5,000) + Disc (2,000) + Depreciation (11,200)] = ₹75,800. Commission = 75,800 × (10/110) = ₹6,891 (approx).