Question 21 of 35advanced🔧 ApplyNumerical10 marks

The following balances has been extracted from the trial of M/s Runway Shine Ltd. Prepare a trading and profit and loss account and a balance sheet as on March 31, 2017. [Trial Balance Data: Purchases 1,50,000; Sales 2,50,000; Opening stock 50,000; Return outwards 4,500; Return inwards 2,000; Interest received 3,500; Carriage inwards 4,500; Discount received 400; Cash in hand 77,800; Creditors 1,25,000; Cash at bank 60,800; Bill payable 6,040; Wages 2,400; Capital 1,00,000; Printing and Stationery 4,500; Discount 400; Bad debts 1,500; Insurance 2,500; Investment 32,000; Debtors 53,000; Bills receivable 20,000; Postage and Telegraph 400; Commission 200; Interest 1,000; Repair 440; Lighting Charges 500; Telephone charges 100; Carriage outward 400; Motor car 25,000] Adjustments:

  1. Further bad debts ₹ 1,000. Discount on debtors ₹ 500 and make a provision on debtors @ 5%.
  2. Interest received on investment @ 5%.
  3. Wages and interest outstanding ₹ 100 and ₹ 200 respectively.
  4. Depreciation charged on motor car @ 5% p.a.
  5. Closing Stock ₹ 32,500.
Correct Answer

Trading and Profit & Loss Account of M/s Runway Shine Ltd. For the year ending March 31, 2017

ParticularsAmount (₹)ParticularsAmount (₹)
To Opening Stock50,000By Sales2,48,000
To Purchases1,45,500(2,50,000 - 2,000)
(1,50,000 - 4,500)By Closing Stock32,500
To Wages2,500
(2,400 + 100)
To Carriage Inwards4,500
To Gross Profit c/d78,000
2,80,5002,80,500
To Bad Debts2,500By Gross Profit b/d78,000
(1,500 + 1,000)By Discount Received400
To Prov. for Bad Debts2,600By Interest Received5,100
(5% of 52,000)(3,500 + 1,600)
To Prov. for Discount500
To Discount400
To Printing & Stationery4,500
To Insurance2,500
To Postage & Telegraph400
To Commission200
To Interest1,200
(1,000 + 200)
To Repair440
To Lighting Charges500
To Telephone Charges100
To Carriage Outwards400
To Depreciation on Motor Car1,250
To Net Profit66,010
83,50083,500

Balance Sheet of M/s Runway Shine Ltd. As on March 31, 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital1,66,010Cash in Hand77,800
(1,00,000 + 66,010)Cash at Bank60,800
Creditors1,25,000Closing Stock32,500
Bills Payable6,040Investment32,000
Outstanding Wages100Accrued Interest1,600
Outstanding Interest200Bills Receivable20,000
Motor Car23,750
(25,000 - 1,250)
Debtors48,900
(53,000 - 1,000 - 2,600 - 500)
2,97,3502,97,350
Exercise: Numerical Questions | Q: 3 | (Chapter: 54)
For More Understanding

Explanation

The solution prepares the final accounts by first processing the Trading Account to determine the Gross Profit (₹78,000), derived from Sales, Purchases, and direct expenses like Wages and Carriage Inwards, adjusted for returns and outstanding wages. The Profit & Loss Account then calculates Net Profit (₹66,010) by accounting for indirect expenses (including adjustments for bad debts, provisions, depreciation, and outstanding interest) against the Gross Profit and other incomes like Interest Received (adjusted for accrual). Finally, the Balance Sheet balances at ₹2,97,350, incorporating the adjusted Capital (plus Net Profit), updated asset values (Debtors net of provisions, Motor Car net of depreciation), and outstanding liabilities.

Solution Steps

  1. Step 1: Trading Account Calculations - Sales (2,50,000 - Returns 2,000 = 2,48,000); Purchases (1,50,000 - Returns 4,500 = 1,45,500); Wages (2,400 + Outstanding 100 = 2,500). Gross Profit = 2,80,500 (Credits) - 2,02,500 (Debits) = 78,000.

  2. Step 2: Adjustments Processing - Bad Debts (1,500 + 1,000 = 2,500); Debtors for Provision (53,000 - 1,000 = 52,000); Provision for Bad Debts (5% of 52,000 = 2,600); Depreciation (5% of 25,000 = 1,250); Accrued Interest (5% of 32,000 = 1,600); Outstanding Interest (1,000 + 200 = 1,200).

  3. Step 3: Profit & Loss Account - Total Expenses = 17,490. Total Income = Gross Profit (78,000) + Discount Received (400) + Interest (3,500 + 1,600 = 5,100) = 83,500. Net Profit = 83,500 - 17,490 = 66,010.

  4. Step 4: Balance Sheet Preparation - Capital (1,00,000 + 66,010 = 1,66,010); Motor Car (25,000 - 1,250 = 23,750); Debtors (53,000 - 1,000 - 2,600 - 500 = 48,900). Total Liabilities = 2,97,350; Total Assets = 2,97,350.

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