The following balances have been extracted from the books of M/s Green House for the year ended March 31, 2017, prepare trading and profit and loss account and balance sheet as on this date. [Trial Balance Data: Purchases 80,000; Capital 2,10,000; Bank balance 11,000; Bills payable 6,500; Wages 34,000; Sales 2,00,000; Debtors 70,300; Creditors 50,000; Cash in hand 1,200; Return outwards 4,000; Legal expenses 4,000; Building 60,000; Machinery 120,000; Bills receivable 7,000; Office expenses 3,000; Opening stock 45,000; Gas and fuel 2,700; Freight and Carriage 3,500; Factory lighting 5,000; Office furniture 5,000; Patent right 18,800] Adjustments: (a) Machinery is depreciated at 10% and buildings depreciated at 6%. (b) Interest on capital @ 4%. (c) Outstanding wages ₹ 50. (d) Closing stock ₹ 50,000.
Trading and Profit & Loss Account of M/s Green House For the year ended March 31, 2017
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 45,000 | By Sales | 2,00,000 |
| To Purchases | 80,000 | By Closing Stock | 50,000 |
| Less: Return Outwards | (4,000) | ||
| 76,000 | |||
| To Wages | 34,000 | ||
| Add: Outstanding Wages | 50 | ||
| 34,050 | |||
| To Gas and Fuel | 2,700 | ||
| To Freight and Carriage | 3,500 | ||
| To Factory Lighting | 5,000 | ||
| To Gross Profit c/d | 83,750 | ||
| 2,50,000 | 2,50,000 | ||
| To Legal Expenses | 4,000 | By Gross Profit b/d | 83,750 |
| To Office Expenses | 3,000 | ||
| To Depreciation: | |||
| Machinery (10% of 1,20,000) | 12,000 | ||
| Building (6% of 60,000) | 3,600 | ||
| 15,600 | |||
| To Interest on Capital | |||
| (4% of 2,10,000) | 8,400 | ||
| To Net Profit transferred to Capital | 52,750 | ||
| 83,750 | 83,750 |
Balance Sheet of M/s Green House As on March 31, 2017
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital | 2,10,000 | Bank Balance | 11,000 |
| Add: Interest on Capital | 8,400 | Cash in Hand | 1,200 |
| Add: Net Profit | 52,750 | Debtors | 70,300 |
| 2,71,150 | Bills Receivable | 7,000 | |
| Bills Payable | 6,500 | Closing Stock | 50,000 |
| Creditors | 50,000 | Office Furniture | 5,000 |
| Outstanding Wages | 50 | Patent Right | 18,800 |
| Building | 60,000 | ||
| Less: Depreciation | (3,600) | ||
| 56,400 | |||
| Machinery | 1,20,000 | ||
| Less: Depreciation | (12,000) | ||
| 1,08,000 | |||
| 3,27,700 | 3,27,700 |
Explanation
This solution prepares the final accounts for M/s Green House. The Trading Account calculates the Gross Profit by deducting direct expenses (Purchases, Wages, Factory expenses) and Opening Stock from Sales, adding the Closing Stock. The Profit & Loss Account then accounts for indirect expenses (Office expenses, Legal expenses) and adjustments like depreciation and interest on capital to arrive at the Net Profit. Finally, the Balance Sheet balances the updated Capital account (incorporating profit and interest) and liabilities against the depreciated asset values and current assets.
Solution Steps
Step 1: Trading Account Setup: Transfer Sales (2,00,000), Opening Stock (45,000), and Net Purchases (80,000 - 4,000) to the Trading Account.
Step 2: Direct Expenses: Add Wages (34,000 + 50 outstanding), Gas/Fuel (2,700), Freight (3,500), and Factory Lighting (5,000) to the debit side.
Step 3: Gross Profit Calculation: Credit Closing Stock (50,000) and balance the account to find Gross Profit (83,750).
Step 4: Profit & Loss Adjustments: Debit Legal/Office expenses. Calculate Depreciation (Machinery: 12,000; Building: 3,600) and Interest on Capital (2,10,000 * 4% = 8,400).
Step 5: Balance Sheet Preparation: Update Capital with Net Profit and Interest. Add Outstanding Wages to Liabilities. Deduct Depreciation from Building and Machinery values in Assets.