The following balances were extracted from the books of M/s Panchsheel Garments on March 31, 2017. [Trial Balance Data: Opening stock 16,000; Sales 1,12,000; Purchases 67,600; Return outwards 3,200; Return Inwards 4,600; Discount 1,400; Carriage inwards 1,400; Bank overdraft 10,000; General expenses 2,400; Commission 1,800; Insurance 4,000; Creditors 16,000; Scooter expenses 200; Capital 50,000; Salary 8,800; Cash in hand 4,000; Scooter 8,000; Furniture 5,200; Buildings 65,000; Debtors 6,000; Wages 1,200] Prepare the trading and profit and loss account for the year ended March 31, 2017 and a balance sheet as on that date. (a) Unexpired insurance ₹ 1,000. (b) Salary due but not paid ₹ 1800. (c) Wages outstanding ₹ 200. (d) Interest on capital 5%. (e) Scooter is depreciated @ 5%. (f) Furniture is depreciated @ 10%. (g) Closing stock was ₹ 15,000.
Trading and Profit & Loss Account for the year ended March 31, 2017
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
|---|---|---|---|---|---|
| To Opening Stock | 16,000 | By Sales | 1,12,000 | ||
| To Purchases | 67,600 | Less: Return Inwards | (4,600) | 1,07,400 | |
| Less: Return Outwards | (3,200) | 64,400 | By Closing Stock | 15,000 | |
| To Carriage Inwards | 1,400 | ||||
| To Wages | 1,200 | ||||
| Add: Outstanding Wages | 200 | 1,400 | |||
| To Gross Profit c/d | 39,200 | ||||
| 1,22,400 | 1,22,400 | ||||
| To General Expenses | 2,400 | By Gross Profit b/d | 39,200 | ||
| To Insurance | 4,000 | By Discount | 1,400 | ||
| Less: Unexpired Ins. | (1,000) | 3,000 | By Commission | 1,800 | |
| To Scooter Expenses | 200 | ||||
| To Salary | 8,800 | ||||
| Add: Outstanding Salary | 1,800 | 10,600 | |||
| To Interest on Capital | 2,500 | ||||
| (5% of ₹ 50,000) | |||||
| To Depreciation: | |||||
| Scooter (5% of 8,000) | 400 | ||||
| Furniture (10% of 5,200) | 520 | 920 | |||
| To Net Profit | 22,780 | ||||
| 42,400 | 42,400 |
Balance Sheet as on March 31, 2017
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
|---|---|---|---|---|---|
| Capital | 50,000 | Buildings | 65,000 | ||
| Add: Interest on Capital | 2,500 | Scooter | 8,000 | ||
| Add: Net Profit | 22,780 | 75,280 | Less: Depreciation | (400) | 7,600 |
| Creditors | 16,000 | Furniture | 5,200 | ||
| Bank Overdraft | 10,000 | Less: Depreciation | (520) | 4,680 | |
| Outstanding Salary | 1,800 | Debtors | 6,000 | ||
| Outstanding Wages | 200 | Closing Stock | 15,000 | ||
| Prepaid Insurance | 1,000 | ||||
| Cash in hand | 4,000 | ||||
| 1,03,280 | 1,03,280 |
Explanation
This solution involves preparing final accounts from a given Trial Balance with adjustments.
- Trading Account: Calculates Gross Profit. Direct expenses like Carriage Inwards and Wages (including outstanding) are debited. Purchases are adjusted for Return Outwards, and Sales for Return Inwards. Closing Stock is credited.
- Profit & Loss Account: Calculates Net Profit. Indirect expenses (General Exp, Insurance net of prepaid, Salary including outstanding, Scooter Exp, Depreciation, Interest on Capital) are debited. Incomes (Discount, Commission) and Gross Profit are credited.
- Balance Sheet: Shows financial position. Assets include Fixed Assets (less depreciation), Debtors, Stock, Prepaid Exp, and Cash. Liabilities include Capital (adjusted for Interest and Profit), Creditors, Bank OD, and Outstanding wages/salary.
Solution Steps
Step 1: Prepare Trading Account to find Gross Profit.
- Net Sales = 1,12,000 - 4,600 = 1,07,400.
- Net Purchases = 67,600 - 3,200 = 64,400.
- Total Dr side = 16,000 (Op Stock) + 64,400 (Purch) + 1,400 (Carriage) + 1,400 (Wages + 200 out) = 83,200.
- Total Cr side = 1,07,400 (Sales) + 15,000 (Cl Stock) = 1,22,400.
- Gross Profit = 1,22,400 - 83,200 = 39,200.
Step 2: Prepare Profit & Loss Account to find Net Profit.
- Debit side expenses: Gen Exp (2,400) + Insurance (3,000) + Scooter Exp (200) + Salary (10,600) + Int on Cap (2,500) + Depreciation (920).
- Total Expenses = 19,620.
- Credit side incomes: GP (39,200) + Discount (1,400) + Commission (1,800) = 42,400.
- Net Profit = 42,400 - 19,620 = 22,780.
Step 3: Prepare Balance Sheet.
- Assets: Buildings (65,000) + Scooter (7,600) + Furniture (4,680) + Debtors (6,000) + Stock (15,000) + Prepaid Ins (1,000) + Cash (4,000) = 1,03,280.
- Liabilities: Capital (50,000 + 2,500 + 22,780 = 75,280) + Creditors (16,000) + Bank OD (10,000) + Out Salary (1,800) + Out Wages (200) = 1,03,280.