From the following Trial Balance of M/s Karan on March 31, 2017, prepare a Trading and Profit and Loss Account and a Balance Sheet: [Trial Balance Data: Creditors/Debtors Dr 2,05,000/Cr 96,000; Bills Payable/Bills Receivables Dr 10,000/Cr 9,600; 15% Loan Cr 50,000; Sales/Purchases Dr 2,80,000/Cr 12,00,000; Discount Dr 4,000/Cr 3,000; Bad Debt Recovered/Bad Debt Dr 5,000/Cr 14,000; Interest on Investments Cr 6,000; Interest on Loan Dr 8,000/Cr 4,000; Vehicles Dr 6,50,000; Stock Dr 3,00,000; 10% Investments Dr 1,80,000; Cash in hand Dr 20,000; Cash at bank Dr 37,000] (I) Additional Information: (a) The cost of closing stock was ₹ 50,000 but the market value was ₹ 40,000. (b) Rent is due but not yet paid for March 2017 ₹ 500. (c) Insurance carried forward ₹ 900. (d) 1/3 of the commission received is in respect of work to be done in next year and commission paid represents only 1/4 of the actual commission to be paid during the year. (e) Vehicles were valued at 90% of the book value. (f) The Horse worth ₹ 30,000 was donated to a charitable organization. (II) Name the accounting concept followed while treating the adjustment (a), (b) and (d) above?
Prepare Trading and Profit & Loss Account and Balance Sheet based on trial balance and adjustments (a) to (f).
Trading and Profit & Loss Account and Balance Sheet prepared (See solution steps for figures).
Explanation
Based on the provided Trial Balance and adjustments, the financial statements are prepared. The Gross Profit is calculated by deducting Purchases and Opening Stock from Sales and adding Closing Stock. Net Profit is derived by adjusting for expenses like depreciation, outstanding rent, and losses, and adding incomes like Bad Debt Recovered. The Balance Sheet is balanced by calculating Capital as the balancing figure of the Trial Balance (₹3,16,400) and adjusting it for Net Profit.
Note: Adjustments (c) Insurance, (d) Commission, and (f) Horse donation could not be processed as the corresponding ledger accounts (Insurance, Commission, Horse) were not present in the provided Trial Balance data.
For Part II, the concepts are identified as: (a) Prudence, because stock is valued at lower of cost or market value; (b) and (d) Accrual, because expenses (Rent) and incomes (Commission) are recognized when they are incurred/earned, regardless of cash flow.