The following balances were extracted from the books of Anushka Enterprises on March 31, 2017. [Trial Balance Data: Creditors 2,00,000; Loan from SBI 2,00,000; Sales 12,30,000; Debtors 2,00,000; Dividend Received on Shares 20,000; Bad Debt 2,000; Bad Debt Recovered 12,000; Bills Receivables 1,50,000; Interest on Loan 50,000; Goodwill 4,00,000; Purchases 2,10,000; Stock (1.4.2016) 1,00,000; Cash at Bank 3,00,000; Factory Repairs 40,000; Capital 7,24,000; Audit Fees 6,000; Petty Expenses 4,000; Salary 70,000; Life Insurance Premium 15,000; Premises 4,00,000; Insurance 25,000; Sales Returns 12,000; Employees Provident Fund 60,000; Provision for Doubtful Debts 75,000; Delivery Expenses 8,000; Dock Charges (Outward) 6,000; Packing Charges 17,000; Advance Salary 30,000; Warehouse Insurance 13,000; Loss in Exchange 9,000; Bank Charges 5,000; Bonus from Suppliers 3,45,000; Purchases Returns 10,000; Machinery 8,00,000; Discounting of Bills of Exchange 1,000] You are required to: (i) Prepare final accounts for the year ended March 31, 2017 after giving effect to the following adjustments: (a) Insurance is due but not yet paid for 31 March 2017 ₹ 500. (b) Salary Unexpired ₹ 900. (c) Write off a further Bad debts ₹ 2,000 and maintain the provision for bad debts at 5% on Debtors. (d) Machinery is to be valued at 90% less than the book value. (e) Goods kept in warehouse worth ₹ 10,0000 were used for staff welfare. (f) Half of the Bills Receivable were irrecoverable. (h) Closing Stock is ₹ 40,000 (ii) Name the accounting concepts which will be followed while treating the adjustment (a), (b), (c) and (d) above?
Prepare final accounts for the year ended March 31, 2017 after giving effect to adjustments (a) to (h).
See solution steps for Final Accounts
(a) Accrual Concept (b) Accrual Concept (c) Prudence Concept (d) Prudence Concept (or Conservatism Concept)
Explanation
The solution involves preparing the Trading and Profit & Loss Account to determine gross and net profit, followed by the Balance Sheet. Adjustments are treated as follows: (a) Outstanding insurance is added to the expense and shown as a liability. (b) Prepaid salary is deducted from the expense and shown as an asset. (c) Further bad debts are deducted from debtors; the new provision is calculated on the balance, and the net adjustment is made to P&L. (d) Machinery depreciation/loss is charged to P&L and deducted from the asset. (e) Goods for welfare are deducted from purchases and treated as a business expense. (f) Irrecoverable bills are treated as bad debts. The concepts rely on recognizing expenses when incurred (Accrual) and anticipating losses but not gains (Prudence).