The following balances were extracted from the books of Ankita Enterprises on March 31, 2017. [Trial Balance Data: Capital Cr 1,92,680; Cash Dr/Cr 60; Purchases Dr 17,980; Sales Cr 22,120; Bank Dr 1,770; Plant Dr 450; Freehold Land Dr 3,000; Heating and Lighting Dr 130; Bills Receivables Cr 1,650; Return Inwards Cr 60; Salaries Dr 2,150; Creditors Cr 63,780; Debtors Dr 11,400; Stock (as on 01.04.2016) Dr 6,000; Printing Dr 450; Bills Payable Dr 3,750; Taxes Dr 380; Discount Received Cr 890; Commission (Dr.) Cr 800; Trucks Dr 25,000; Furniture Cr 12,000; Wages Dr 2,00,000; Drawings Cr 340; Returns Outward Dr 400] You are required to: (i) Redraft the Trial Balance. (ii) Prepare final accounts for the year ended March 31, 2017 after giving effect to the following adjustments: (a) Taxes are paid for 10 months only. (b) Creditors worth ₹ 780 have accepted bills payables. (c) Depreciate furniture by 10%. (d) Trucks were depreciated to the extent of ₹ 21,000. (e) Wages includes ₹ 2,000 for the making of Furniture. (f) Closing Stock is of ₹ 20,000. (g) Provide for Manager’s Commission at 10% on the Net Profit before charging such commission. (h) Land was acquired on 1st April, 2016 by paying a claim at 50% less than market value to the owner. (iii) Name the accounting principles which will be followed while treating the adjustment (a), (c) and (e) above?
Redrafted Trial Balance as on March 31, 2017
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Capital | — | 1,92,680 |
| Cash | 60 | — |
| Purchases | 17,980 | — |
| Sales | — | 22,120 |
| Bank | 1,770 | — |
| Plant | 450 | — |
| Freehold Land | 3,000 | — |
| Heating and Lighting | 130 | — |
| Bills Receivables | 1,650 | — |
| Return Inwards | 60 | — |
| Salaries | 2,150 | — |
| Creditors | — | 63,780 |
| Debtors | 11,400 | — |
| Stock (01.04.2016) | 6,000 | — |
| Printing | 450 | — |
| Bills Payable | — | 3,750 |
| Taxes | 380 | — |
| Discount Received | — | 890 |
| Commission | 800 | — |
| Trucks | 25,000 | — |
| Furniture | 12,000 | — |
| Wages | 2,00,000 | — |
| Drawings | 340 | — |
| Returns Outward | — | 400 |
| Total | 2,83,620 | 2,83,620 |
Prepare final accounts for the year ended March 31, 2017 after giving effect to the adjustments (a) to (h).
Trading and Profit & Loss Account for the year ended March 31, 2017
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 6,000 | By Sales | 22,120 |
| To Purchases | 17,580 | Less: Returns Inwards | (60) |
| Less: Returns Outward | (400) | 22,060 | |
| To Wages | 2,00,000 | By Closing Stock | 20,000 |
| Less: Furniture (E) | (2,000) | ||
| 1,98,000 | |||
| To Gross Loss c/d | 20,880 | ||
| 2,42,460 | 2,42,460 | ||
| To Salaries | 2,150 | By Discount Received | 890 |
| To Heating & Lighting | 130 | By Net Loss transferred to Capital | 44,106 |
| To Printing | 450 | ||
| To Taxes | 380 | ||
| Add: Outstanding (A) | 76 | ||
| To Depreciation: | |||
| Furniture (C) | 1,400 | ||
| Trucks (D) | 21,000 | ||
| To Commission | 800 | ||
| To Gross Loss b/d | 20,880 | ||
| 45,996 | 45,996 |
Balance Sheet as on March 31, 2017
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital | 1,92,680 | Cash | 60 |
| Less: Drawings | 340 | Bank | 1,770 |
| Less: Net Loss | 44,106 | Debtors | 11,400 |
| 1,48,234 | Bills Receivables | 1,650 | |
| Creditors | 63,780 | Plant | 450 |
| Less: Bills Payable | (780) | Freehold Land (at Cost) | 3,000 |
| 63,000 | Trucks | 25,000 | |
| Bills Payable | 3,750 | Less: Depreciation | (21,000) |
| Add: Creditors (B) | 780 | 4,000 | |
| 4,530 | Furniture | 12,000 | |
| Outstanding Taxes | 76 | Add: Wages (E) | 2,000 |
| Less: Depreciation (C) | (1,400) | ||
| 12,600 | |||
| Stock | 20,000 | ||
| 2,15,840 | 2,15,840 |
Note: Manager's Commission is not provided as there is a Net Loss.
The accounting principles followed are: (a) Accrual Concept (or Matching Concept): Taxes are outstanding for 2 months, meaning the expense belongs to this year and must be recorded. (c) Matching Concept: Depreciation is an expired cost that must be matched against the revenue of the current year. (e) Matching Concept (or Cost Concept): The cost incurred for making furniture is capitalized (added to furniture) to match it with the revenue generated over its useful life.
Explanation
The question requires correcting a Trial Balance with misplaced items and then preparing Final Accounts.
Part (i): The Trial Balance provided in the text was unbalanced (Dr 2,73,750 vs Cr 2,93,490). To redraft it, misplaced items were identified and moved to the correct side to achieve the target total of ₹2,83,620.
- Moved from Credit to Debit: Cash (60), Bills Receivables (1,650), Return Inwards (60), Furniture (12,000), Drawings (340), Commission (800).
- Moved from Debit to Credit: Bills Payable (3,750), Returns Outward (400), Discount Received (890).
Part (ii):
- Trading A/c: Wages were reduced by ₹2,000 (capitalized for furniture), resulting in a Gross Loss of ₹20,880.
- P&L A/c: Outstanding taxes (₹76) and depreciation on furniture (₹1,400) and trucks (₹21,000) were charged. The high depreciation and Gross Loss led to a Net Loss of ₹44,106. Manager's commission is not applicable on a loss.
- Balance Sheet: Furniture value was increased by the capitalized wages. Creditors decreased and Bills Payable increased by ₹780. Land was kept at cost per the Cost Principle.
Part (iii): Identifies the principles of Accrual and Matching concepts for the specific adjustments.