The following balances were extracted from the books of Avika Enterprises on 31st March 2017. [Trial Balance Data: Capital Cr 24,500; Drawings Dr 2,000; General Expenses Dr 2,500; Buildings Dr 21,000; Machinery Dr 9,340; Stock (1.4.2016) Dr 16,200; Power Dr 2,240; Taxes and Insurance Dr 1,315; Wages Dr 7,200; Debtors and Creditors Dr 6,280/Cr 2,500; Charity Dr 105; Bad debts Dr 550; Bank Overdraft Cr 11,180; Sales and Purchases Dr 13,500/Cr 65,360; Stock (31.03.2017) Dr 23,500; Motor Vehicles Dr 2,000; Motor Vehicle expenses Dr 500; Provision for doubtful debts Cr 900; Commission Cr 1,320; Trade expenses Dr 1,280; Bills payable Cr 3,850; Cash Dr 100] You are required to: (i) Prepare final accounts for the year ended March 31, 2017 after giving effect to the following adjustments: (a) 1/5th of General expenses and Taxes & Insurance to be charged to factory and the balance to the office. (b) Write off a further Bad debts of ₹ 160 and maintain the provision for doubtful debts at 5% and create a provision for discount on Debtors at 10%. (c) Depreciate Machinery at 10% and Motor Vehicles by ₹ 240. (d) Provide ₹ 700 for interest on Bank Overdraft to be paid. (e) ₹ 50 is to be carried forward to next year out of Insurance. (f) Provide for Manager’s Commission at 10% on the Net Profit after charging such commission. (ii) Name the accounting concepts which are followed while treating the adjustment (a), (b) and (d) above?
Prepare final accounts for the year ended March 31, 2017 after giving effect to the adjustments (a) to (f).
Dr. Trading and Profit & Loss Account and Cr. Balance Sheet as on 31st March 2017 (See solution steps for table)
The accounting concepts followed are: (a) Matching Concept: Expenses are allocated between factory (direct/indirect production) and office to match them with the revenue generated. (b) Prudence (Conservatism) Concept: Provision for doubtful debts and discount on debtors is created to anticipate all possible losses. (d) Accrual Concept: Interest on Bank Overdraft is recognized as it is incurred (payable), regardless of whether it is paid.
Explanation
The solution involves preparing the Trading Account to find Gross Profit, the Profit & Loss Account to find Net Profit, and the Balance Sheet to show the financial position. Key adjustments include apportioning expenses, accounting for bad debts and provisions (using the new bad debts to adjust debtors before calculating provisions), depreciating assets, and accounting for outstanding expenses and prepaid insurance. The Manager's Commission is calculated on the Net Profit after charging such commission (NP * 10/110).