Question 26 of 35advanced🔧 ApplyNumerical10 marks

Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars. [Trial Balance Data: Sundry debtors 1,00,000; Bills payable 85,550; Bad debts 3,000; Sundry creditors 25,000; Trade expenses 2,500; Provision for bad debts 1,500; Printing and Stationary 5,000; Return outwards 4,500; Rent, Rates and Taxes 3,450; Capital 2,50,000; Freight 2,250; Discount received 3,500; Sales return 6,000; Interest received 11,260; Motor car 25,000; Sales 1,00,000; Opening stock 75,550; Furniture and Fixture 15,500; Purchases 75,000; Drawings 13,560; Investments 65,500; Cash in hand 36,000; Cash in bank 53,000] Adjustments:

  1. Closing stock was valued ₹ 35,000.
  2. Depreciation charged on furniture and fixture @ 5%.
  3. Further bad debts ₹ 1,000. Make a provision for bad debts @ 5% on sundry debtors.
  4. Depreciation charged on motor car @ 10%.
  5. Interest on drawing @ 6%.
  6. Rent, rates and taxes was outstanding ₹200.
  7. Discount on debtors 2%.
Correct Answer

Working Notes:

  1. Provision for Bad Debts:

    • Sundry Debtors: ₹ 1,00,000
    • Less: Further Bad Debts: ₹ 1,000
    • New Debtors: ₹ 99,000
    • New Provision @ 5%: 99,000 * 5/100 = ₹ 4,950

  2. Discount on Debtors:

    • Debtors (after bad debts): ₹ 99,000
    • Less: New Provision for Bad Debts: ₹ 4,950
    • Balance: ₹ 94,050
    • Discount on Debtors @ 2%: 94,050 * 2/100 = ₹ 1,881

  3. Loss on Bad Debts and Provision:

    • Bad Debts (Trial Balance): ₹ 3,000
    • Add: Further Bad Debts: ₹ 1,000
    • Total Bad Debts: ₹ 4,000
    • Add: New Provision for Bad Debts: ₹ 4,950
    • Add: Discount on Debtors: ₹ 1,881
    • Total: ₹ 10,831
    • Less: Old Provision (Credit Balance): ₹ 1,500
    • Net Debit to P&L: ₹ 9,331

  4. Depreciation:

    • Furniture & Fixture: 15,500 * 5% = ₹ 775
    • Motor Car: 25,000 * 10% = ₹ 2,500
    • Total Depreciation = ₹ 3,275

  5. Interest on Drawings:

    • Drawings: ₹ 13,560
    • Interest @ 6%: 13,560 * 6/100 = ₹ 813.6 (or ₹ 814)

  6. Outstanding Rent:

    • Rent, Rates, Taxes (Trial Balance): ₹ 3,450
    • Add: Outstanding: ₹ 200
    • Total: ₹ 3,650

Trading and Profit and Loss Account for the year ended ...

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock75,550By Sales1,00,000
To Purchases75,000Less: Sales Return(6,000)
Less: Return Outwards(4,500)Net Sales94,000
Net Purchases70,500By Closing Stock35,000
To Freight2,250
To Gross Loss c/d19,300
Total1,67,600Total1,29,000
To Gross Loss b/d19,300By Discount Received3,500
To Trade Expenses2,500By Interest Received11,260
To Printing & Stationary5,000By Interest on Drawings813.60
To Rent, Rates & Taxes3,650By Net Loss27,482.40
To Bad Debts Adj. (Net)9,331
To Depreciation3,275
Total43,055.60Total43,055.60

Balance Sheet as at ...

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital2,50,000Motor Car25,000
Less: Drawings13,560Less: Depreciation(2,500)
Less: Int. on Drawings813.6022,500
Less: Net Loss27,482.40Furniture & Fixture15,500
2,08,144Less: Depreciation(775)
Bills Payable85,55014,725
Sundry Creditors25,000Closing Stock35,000
Outstanding Rent200Sundry Debtors1,00,000
Less: Bad Debts(1,000)
Less: Provision for Bad Debts(4,950)
Less: Discount on Debtors(1,881)
92,169
Investments65,500
Cash at Bank53,000
Cash in Hand36,000
Total3,18,894Total3,18,894
Exercise: Numerical Questions | Q: 6 | (Page 57)
For More Understanding

Explanation

This solution involves preparing the final accounts from a Trial Balance with adjustments.

  1. Trading Account: Calculates Gross Loss (19,300) because the cost of goods sold (Opening Stock + Net Purchases + Freight) exceeded Net Sales after accounting for Closing Stock.
  2. Profit & Loss Account: The Gross Loss is carried over. Adjustments for Bad Debts involved calculating a net debit of 9,331 (Bad debts + New Provision + Discount on Debtors - Old Provision). Depreciation, outstanding rent, and interest on drawings were accounted for. Despite credit items like Interest Received and Discount Received, the heavy expenses and Gross Loss resulted in a Net Loss of ₹ 27,482.40.
  3. Balance Sheet: The Capital account is reduced by Drawings, Interest on Drawings, and the Net Loss. Assets are reported at their written-down value after depreciation. Debtors are shown at their realizable value after deducting bad debts and provisions.
  4. Matching Principle: The Total of the Balance Sheet liabilities (₹ 3,18,894) matches the Total Assets.

Solution Steps

  1. Step 1: Prepare the Trading Account to find Gross Loss. Net Sales (94,000) + Closing Stock (35,000) - [Opening Stock (75,550) + Net Purchases (70,500) + Freight (2,250)] = Gross Loss (19,300).

  2. Step 2: Process Adjustments. Calculate Depreciation (3,275), Outstanding Rent (200), Interest on Drawings (813.60). For Bad Debts: Net impact on P&L is (3000+1000+4950+1881) - 1500 = 9,331.

  3. Step 3: Prepare the Profit and Loss Account. Debit side includes Gross Loss, Trade Expenses, Printing, Rent (adjusted), Depreciation, and Net Bad Debt expense. Credit side includes Incomes and Gains. Result is Net Loss (27,482.40).

  4. Step 4: Prepare the Balance Sheet. Liabilities side includes adjusted Capital, Bills Payable, Creditors, and Outstanding Rent. Assets side includes adjusted Fixed Assets (Motor Car, Furniture), Current Assets (Stock, Debtors adjusted, Investments, Cash).

  5. Step 5: Verify totals. Both sides of the Balance Sheet must tally at ₹ 3,18,894.

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