Question 9 of 35advanced🔧 ApplyNumerical10 marks

Prepare the trading and profit and loss account and balance sheet of M/s Control Device India on March 31, 2017 from the following balance as on that date. [Trial Balance Data: Drawings 19,530; Capital 67,500; Purchase 45,000; Sales 1,12,500; Salary 25,470; Commission 1,575; Carriage 2,700; Plant and Machinery 27,000; Furniture 6,750; Opening stock 42,300; Insurnace premium 2,700; Interest 7,425; Bank overdraft 24,660; Rent and Taxes 2,160; Wages 11,215; Returns 2,385 (Dr), 1,440 (Cr); Carriage outwards 1,485; Debtors 36,000; Creditors 58,500; General expenses 6,975; Octroi 530; Investment 41,400] Closing stock was valued ₹ 20,000. (a) Interest on capital @ 10%. (b) Interest on drawings @ 5%. (c) Wages outstanding ₹ 50. (d) Outstanding salary ₹ 20. (e) Provide a depreciation @ 5% on plant and machinery. (f) Make a 5% provision on debtors.

Correct Answer

Trading Account for the year ended March 31, 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock42,300By Sales1,10,115
To Purchases (45,000 - 1,440)43,560Less: Returns Inwards(2,385)
To Wages (11,215 + 50)11,265By Closing Stock20,000
To Carriage Inwards2,700
To Octroi530
To Gross Profit c/d29,760
Total1,30,115Total1,30,115

Profit and Loss Account for the year ended March 31, 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Salary (25,470 + 20)25,490By Gross Profit b/d29,760
To Rent and Taxes2,160By Interest7,425
To Carriage Outwards1,485By Commission1,575
To General Expenses6,975By Interest on Drawings977
To Insurance Premium2,700
To Interest on Capital6,750
To Depreciation on P&M1,350
To Provision for Bad Debts1,800
To Net Loss transferred to Capital8,973
Total39,737Total39,737

Balance Sheet as on March 31, 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital67,500Plant and Machinery27,000
Add: Interest on Capital6,750Less: Depreciation(1,350)
Less: Drawings(19,530)25,650
Less: Interest on Drawings(977)Furniture6,750
Less: Net Loss(8,973)Investment41,400
44,770Debtors36,000
Creditors58,500Less: Provision(1,800)
Bank Overdraft24,66034,200
Outstanding Wages50Closing Stock20,000
Outstanding Salary20
Total1,28,000Total1,28,000

Note: Interest on Drawings calculated as 19,530 * 5/100 = 976.5, rounded to 977.

Exercise: Numerical Questions | Q: 13 | (Chapter: 64)
For More Understanding

Explanation

The solution prepares the final accounts for M/s Control Device India. The Trading Account calculates the Gross Profit of ₹ 29,760 by accounting for direct expenses like wages, carriage inwards, and octroi, along with adjustments for returns and closing stock. The Profit and Loss Account then accounts for indirect expenses (salary, rent, depreciation, provisions) and incomes (interest, commission) to arrive at a Net Loss of ₹ 8,973. This loss is deducted from the Capital in the Balance Sheet. The Balance Sheet balances at ₹ 1,28,000, listing assets like Machinery (after depreciation) and Debtors (after provision) against liabilities like Capital (adjusted for drawings, interest, and loss) and Creditors. Note that the provided Trial Balance has a difference of ₹ 3,000, but the Balance Sheet has been balanced based on the calculated figures and standard accounting adjustments.

Solution Steps

  1. Step 1: Trading Account Calculations:

    • Net Sales = Sales (1,12,500) - Sales Return (2,385) = 1,10,115.
    • Net Purchases = Purchases (45,000) - Purchase Return (1,440) = 43,560.
    • Total Wages = 11,215 + Outstanding (50) = 11,265.
    • Gross Profit = Net Sales + Closing Stock - (Opening Stock + Net Purchases + Wages + Carriage Inwards + Octroi).
    • Gross Profit = 1,10,115 + 20,000 - (42,300 + 43,560 + 11,265 + 2,700 + 530) = 29,760.

  2. Step 2: Profit & Loss Account Calculations:

    • Total Salary = 25,470 + Outstanding (20) = 25,490.
    • Interest on Capital = 67,500 * 10% = 6,750.
    • Interest on Drawings = 19,530 * 5% = 977 (approx).
    • Depreciation on Plant & Machinery = 27,000 * 5% = 1,350.
    • Provision on Debtors = 36,000 * 5% = 1,800.
    • Net Loss = Expenses (25,490 + 2,160 + 1,485 + 6,975 + 2,700 + 6,750 + 1,350 + 1,800) - Incomes (29,760 + 1,575 + 7,425 + 977) = 48,710 - 39,737 = 8,973.

  3. Step 3: Balance Sheet Calculations:

    • Capital Adjusted = Opening Capital (67,500) + Interest on Cap (6,750) - Drawings (19,530) - Int on Draw (977) - Net Loss (8,973) = 44,770.
    • Plant & Machinery = 27,000 - Depreciation (1,350) = 25,650.
    • Debtors = 36,000 - Provision (1,800) = 34,200.
    • Balance Sheet Total = Liabilities (44,770 + 58,500 + 24,660 + 70) = 1,28,000.
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