IIBF Unit 13.pptx

Prof.Shantilal Hajeri 1
Accounting and Financial Management

Final Accounts
Preparation of financial statements is the basic objective of financial accounting.
These financial statements are basically in two forms – Profitability Statement and
Balance Sheet.
a) Profitability Statement
This financial statement is referred to as “Profit and Loss Account”.
Trading A/c/Manufacturing Account are shown separately within the Profitability
Statement
b) Balance Sheet.
Balance Sheet is a listing of the assets and liabilities of an organization at any
given point of time.

Profitability Statement
• The purpose of this statement is to disclose the result of
operations of the business transactions during a given period of
time.
• As such, by nature, profit & loss account is a period statement
which relates to a specific duration of time.
• Hence, profit and loss account is always referred to as “Profit
and Loss Account for the year ended on 31st March 2023.”

Profitability Statement
• Profit and loss account consists of two elements:
• One element is the inflows that result from the sale of goods
and services to customers which are called as revenues.
• The other element reports the outflows that were made in order
to generate those revenues; these are called as expenses.

Manufacturing Account
• This is applicable to only the manufacturing firms and not to the
trading firms
• This part of Profit and Loss Account discloses the result of
manufacturing operations carried out by the organization.
• The final result disclosed by the Manufacturing Account is the
Cost of Production incurred by the organization
• Cost of Production is carried forward to Trading Account

Trading Account
• This part of Profit and Loss Account discloses the result of
trading operations carried out by the organization.
• Cost of Production is brought forward from Manufacturing
Account
• The final result disclosed by the Trading Account is the Gross
Profit earned by the organization.
• Few firms maintain a combined account of Manufacturing and
Trading Account
• Gross Profit carried forward to P/L account

Preparation of Trading Account
Prepare Trading Account on the basis of the following
information
• Opening Stock 200
• Purchases 1,000
• Sales 2,200
• Closing stock 225
12
PROF.SHANTILAL HAJERI

Answer: Trading Account
Debit Credit
To Opening Stock 200 By Sales 2,200
To purchases 1,000 By Closing stock 225
To Gross Profit 1,225
Total 2,425 2,425
13

Preparation of Trading Account
Prepare Trading Account on the basis of the following
information
• Opening Stock 200
• Purchases 1,000
• Sales 2,200
• Closing stock 225
• Purchases Returns 100
• Sales Returns 200
14

Answer: Trading Account
Debit Credit
To Opening Stock 200 By Sales Net 2,000
To purchases Net 900 By Closing stock 225
To Gross Profit 1,125
Total 2,225 2,225
15

Profit and Loss Account
• This part of Profit and Loss Account discloses the final result of
business transactions of the organization.
• The final result disclosed by the Profit and Loss Account is the
Profit After Tax (PAT) earned by the organization.
• Gross Profit is brought forward from Trading account
• According to Prof. Carter, “Profit and loss account is an account
into which all gain and losses are collected in order to ascertain
the excess of gains over the losses or vice versa”

Profit and Loss Account
Expenditure Amount Income Amount
To salary 150 By gross profit 725
To electricity 75 By interest 5
To telephone 50 By other income 10
To travelling 15
To rent 50
To bad debts 2
To insurance 10
To professional fees 4
To interest 50
To depreciation 31
To Income Tax 40
To net profit 263
Total 740 Total 740
19

Format of Operating statement
• Gross Sales
• Less: Sales Returns
• Net Sales
• Less: Cost Of Goods Sold
• Raw Materials Cost
• Opening Stock Of Raw Material
• Add Purchase Of Raw Material
• Freight
• Raw Materials Available
• Less Closing Stock Of Raw Material
• Raw Materials Consumed
• Direct Labour Cost
• Manufacturing Expenses
• Total Production Cost
• Add Opening Work-In-Progress
• Total

• Less Closing Work-In-Progress
• Cost Of Goods Manufactured
• Add Opening Finished Goods
• Cost Of Goods Available For Sale
• Less Closing Finished Goods
• Cost Of Goods Sold
• Gross Profit
• Less Operating Expenses
• Administrative Expenses
• Selling And Distribution Expenses
• Operating Profit

• Operating Profit
• Add Non-Operating Income (Such As Dividend Received
• Profit On Sale Of Assets Etc.)
• Less Non-Operating Expenses (Such As Discount On
Issue Of Shares Written Off, Loss On Sale Of Assets,
Etc.)
• Profit (Or) Earnings Before Interest & Tax (EBIT)
• Less Interest
• Profit (Or) Earnings Before Tax (EBT)
• Less Provision For Income-Tax
• Net Profit (Or) Earnings After Tax (EAT)
• Earnings Per Share Of Common Stock

Profit and Loss Appropriation Account
• This part of Profit and Loss Account, which is mainly applicable
to company form of organization, discloses the manner in which
the PAT earned by the organization is appropriated.
• The amount of profit not appropriated or retained is transferred
to Reserves and Surplus in the Balance Sheet

Balance Sheet
• Balance sheet is a statement of Liabilities and Assets as on a
given date.
• Liabilities= Amount owed to others. They represent a source of
funds. Liabilities have credit balances.
• Assets= Amount owed to you by others. Assets have debit
balances.
• Every credit has corresponding debit and vice versa. Hence, the
balance sheet should always tally.

All the liabilities are classified into two sources.
1. Long Term Source. LTS
2. Short Term Source. STS

Components of Owned Funds
1) Paid up Capital
+ 2) Free Reserves.
+ 3) Profit
- 4) Loss
- 5) Drawings.
Net Owned Funds (NOF)
= 1+2+3-4-5
It is also called as Equity or Tangible Net Worth
More the equity better the financial health of a firm.
It is expected to be one third of total debts.
DEBT-EQUITY RATIO: 3:1

Glossary of Capital
1)Authorised Capital.
The Maximum capital that a company can raise.
2) Issued Capital.
Capital offered to the public for subscription.
3) Subscribed Capital.
Capital for which the public has submitted their applications.
4) Called up Capital
Capital which has been called by a company for payment
5) Paid up Capital.
Amount paid by share holders

Components of Fixed Assets
Tangible Assets
1. Land & Building
2. Plant & machinery
3. Furniture & Fixtures
4. Vehicles
5. Electrical equipments
6. Computers & Electronic Equipments.
7. Capital Work in Progress
8. Other Fixed Assets.

Components of Fixed Assets
Intangible Assets
An asset which appears in the balance sheet but may not reflect
a real asset.
Examples:
Loss, Drawings, Goodwill, Patents, Deferred Revenue
Expenditure, Preliminary expenses not written off.

Components of Non Current Assets
1. Investments. Which cannot be withdrawn within 12 months.
Fixed Deposits from banks can be withdrawn before maturity.
Hence, they are part of Current Assets even if they are kept
for more than 12 months.
2. Earnest Money/Security Deposit.
Money kept as security for getting agency, contract etc.

Components of Current Assets
1. Cash on Hand
2. Balance in Bank accounts
3. Raw materials
4. Work in Process
5. Finished Goods/Stock
6. Debtors/Receivables
7. Advances paid.
8. Prepaid Expenses
9. Accrued Income
10. Fixed Deposits with Banks
11. Investments in Shares and mutual funds
12. Other Current Assets

Classification of uses
Use of funds has two major groups.
1) Long Term Uses (LTU)
a) Fixed Assets. (FA) +
b) Non Current Assets.
(NCA)
2) Short Term Uses (STU)
Current Assets (CA)
Long Term Sources should be more than Long Term uses. Then
it is called Long Term Surplus

Contingent Liabilities and Assets
• Contingent Liabilities are shown as a foot note. Contingent liabilities mean
they are not the liabilities at present but they may become liabilities in
future.
• Example: Guarantees given by a firm for a loan taken by other firm. Third
party Claims not accepted by the firm and the matter is pending in the
court.
• Contingent Assets are shown as a foot note. Contingent liabilities mean
they are not the Assets at present but they may become Assets in future.
• Example: Suit for money filed against the third parties who have rejected
our claims.
• Insurance claims lodged but not yet settled.

Overview of a balance sheet
• Liabilities.
1) Owned Funds
2) Term Liabilities
3) Current Liabilities
Assets
1) Fixed Assets
(a)Tangible Assets: It refers to these assets which can be
seen, touched and have volume such as machinery,
furniture etc.
(b)Intangible Assets: These assets do not have physical
existence. E.g., Goodwill, patents, trademarks and
copyrights.
2) Non Current Assets.
3) Current Assets.

13.3 Adjustment entries: Introduction
While preparing the final accounts, we have to make certain
closing adjustment entries such as providing depreciation on
fixed assets.
The purpose of these entries is to match the transactions
pertaining to the period and to arrive at a true and correct
position of assets and liabilities and profit and loss statement.
A concern is required to pass certain entries at the end of the
year to adjust the various items of Incomes and expenses, such
entries are called as adjustment entries.

Adjustment entries
• Closing Entries
• Periodically, usually at the end of the accounting
period, all revenue and expense account
balances are transferred to an account called
income summary or profit and loss account and
are then said to be closed.
• The balance in the profit and loss account, which
is the net income or net loss for the period, is
then transferred to the capital account and thus
the profit and loss account is also closed.
• The entries which are passed for transferring
these accounts are called as closing entries.

Closing Entries
Transferring the balances in various accounts to Manufacturing
Account, Trading Account or Profit and Loss Account
1. Purchase Account
2. Purchase Return Account
3. Sales Account
4. Sales Return Account
5. Opening Stock
6. Closing Stock
7. Direct Manufacturing Expenses
8. Gross Profit/Loss
9. Net Profit/Loss
10. All revenue expenses Account
11. All revenue incomes Account
12. Drawings Account

Adjustment Entries
• Due to the adoption of accrual accounting, after the preparation
of trial balance, adjustments relating to the accounting period
have to be made in order to make the financial statements
complete.
• These adjustments are needed for transactions which have not
been recorded but which affect the financial position and
operating results of the business.
• Examples: Prepaid Expenses, Unpaid expenses, Income
Accrued but not received, Depreciation

Features of Adjustment Entries
• Affect both Profit and Loss Account and Balance Sheet
• Do not affect cash account. They are non cash transactions
• They are prepared on the last day of the accounting period. For
example, 31st March.
• After the passing of the entries there will be corresponding
change in the balances in the concerned accounts

List of Adjustment Entries
• Closing Stock
• Outstanding Expenses
• Prepaid Expenses
• Accrued Income
• Income Received in Advance
• Depreciation on Asset
• Interest on Capital
• Interest on Drawing
• Bad debts
• Provision for doubtful debts
• Provision for Discount on Debtors
• Provision for Discount on Creditors
• Loss of Stock by Accident, Fire etc.

Journal Entry for Closing Stock
Closing Stock A/c Dr.
To Trading A/c

Journal Entry for Outstanding Expenses
Expenses A/c Dr.
To Outstanding Expenses A/c
Example:
Telephone bill of Rs.1,000 for March 2022 was
paid in April 2022
Telephone Expenses A/c Dr.
To Outstanding Expenses A/c
1,000
1,000

Journal Entry for Prepaid Expenses
Prepaid Expenses A/c Dr.
To Expenses A/c
Example:
Insurance Premium of Rs.24,000 was paid on 1-1-
2022
Prepaid Expenses A/c Dr.
To Insurance Premium A/c
1,000
1,000

Journal Entry for Accrued Income
Accrued Income A/c Dr.
To Income A/c
Example:
Interest of Rs.6,000 on Fixed deposit for 2021-22
was received in April 2022
Accrued Income A/c Dr.
To Interest Received A/c
6,000
6,000

Journal Entry for Income Received in Advance
Income A/c Dr.
To Income Received in Advance A/c
Example:
An advance of Rs.5,000 has been received in
March 2022 against order but goods are supplied
in April 2022
Sales A/c Dr.
To Income Received in
Advance A/c
5,000
5,000

Journal Entry for Depreciation on Asset
Depreciation A/c Dr.
To Asset A/c
Example:
• On 1-4-2021, Machinery was purchased for Rs.
10,000. Depreciation at the rate of 10% has to be
written off on reducing balance
Depreciation A/c Dr.
To Machinery A/c
1,000
1,000

Journal Entry for Interest on Capital
Interest on Capital A/c Dr.
To Capital A/c
Example:
• Vishal and Vithal have a capital of Rs.10,000 and
Rs.20,000 respectively. Interest at the rate of
10% has to be paid on Capital
Interest on Capital A/c Dr.
To Vishal A/c
To Vithal A/c
3,000
1,000
2,000

Journal Entry for Interest on Drawing
Capital A/c Dr.
To Interest on Drawings A/c
Example:
• Vishal and Vithal have a balance of Rs.15,000
and Rs.25,000 respectively in their drawings a/c.
Interest at the rate of 10% has to be charged on
drawings
Vishal A/c Dr.
Vithal A/c Dr.
To Interest on Drawings A/c
1,500
2,500
4,000

Journal Entry for Bad debts
Bad Debts A/c Dr.
To Debtors A/c
Example:
• Rupendra has purchased goods of Rs.5,000 on
credit and he has failed to pay the same despite
repeated reminders
Bad Debts A/c Dr.
To Rupendra A/c
5,000
5,000

Journal Entry for Provision for Doubtful Debts
P & L Provision for Doubtful Debts A/c Dr.
To Provision for Doubtful Debts A/c
Example:
• The total Debtors are Rs.50,000. Provision of
5% for Doubtful Debts required
P & L Provision for Doubtful
Debts A/c Dr.
To Provision for Doubtful Debts
A/c
2,500
2,500

Journal Entry for Provision for Discount on Debtors
P & L Provision for Discount on Debtors A/c Dr.
To Provision for Discount on Debtors A/c
Example:
• The total Debtors are Rs.50,000. Provision of
2% for Discount on Debtors required
P & L Provision for Discount on
Debtors A/c Dr.
To Provision for Discount on
Debtors A/c
1,000
1,000

Journal Entry for Provision for Discount on Creditors
Provision for Discount on Creditors A/c Dr.
To P & L Provision for Discount on
Creditors A/c
Example:
• The total Creditors are Rs.40,000. Provision of
3% for Discount on Creditors required
Provision for Discount on
Creditor A/c Dr.
To P & L Provision for Discount
on Creditors A/c
1,200
1,200

Journal Entry for Loss of Stock by Accident, Fire etc
Abnormal Loss A/c Dr.
To Trading A/c
Example:
• The Goods worth Rs.5,000 were destroyed in
fire
Abnormal Loss A/c Dr.
To Trading A/c
5,000
5,000

Provision for Doubtful Debts.
• When a business man sells goods on credit, he may
not recover the full amount for so may reasons.
• He has to estimate a certain percentage of total debts
which may not be recovered, for example 5% of total
debtors.
• Since this is the likely loss to the business man but he
cannot identify the particular debt, he will create a
provision for doubtful debts so that he can know the
correct profit or loss figure.
• Provision is also called as Reserve.
• The amount is credit to an account called “Provision for
Doubtful Debts”
68
Prof.Shantilal Hajeri

Q.1 Provision for Doubtful Debts examples.
S.N Particulars Amount
1
Debtors as on 31-3-2022 before
adjustment 10000
2 Bad Debts as on 31-3-2022 before
adjustment 500
3 Provision for Doubtful Debts as on 31-3-
2022 before adjustment 800
4 New Bad Debts identified 100
5
Rate of Provision for Doubtful Debts
required 10%
On the basis of the following information calculate Debtors,
Bad Debts and Provision for Doubtful Debts after
adjustment
69

Answer to Q 1
1 Debtors as on 31-3-2016 before adjustment 10000
2 Additions due to adjustments 0
3 Deductions due to adjustments 0
5 Debtors as on 31-3-2016 after adjustment 9900
6 Rate of Provision for Doubtful Debts required 10%
7 Amount of Provision required 990
8 Existing Provision for Doubtful Debts 800
9 Additional Provision to be made 190
10 Debtors less provision for Doubtful Debts 8910
70

adjustment 700
3 Provision for Doubtful Debts as on 31-3-2022
before adjustment 500
6 Goods sent on “buy or return” basis were not
returned by the customer. 800
On the basis of the following information calculate Debtors,
Bad Debts and Provision for Doubtful Debts after
adjustment
71

Answer to Q 2
72

adjustment 700
6 An advance received from a customer was not
credited to him after sales. 2000
On the basis of the following information calculate Debtors, Bad
Debts and Provision for Doubtful Debts after adjustment
73

Answer to Q 3
74

Exercise 2. Provision on Debtors
• Calculate the provision on Debtors based on the following
information
1. Debtors as per Trial Balance. Rs. 50,000
2. A credit sale of Rs. 2000 was not entered in the register
3. A credit sale of Rs. 2000 was entered as Rs. 3000 in the register
4. New Bad Debts were Identified to the tune of Rs.3,000
5. Opening provision on Debtors Rs. 2,000
6. Provision on Debtors required 5% of Debtors

Answers
1 Debtors as per Trial Balance 50000
2 Additions if any 2000
3 Sub Total 1 52000
4 Deductions if any 1000
5 Sub Total 2 51000
6 New Bad Debts Identified 3000
7 Value of Debtors for provisioning 48000
8 Rate of Provision 5%
9 Provision required 2400
10 Provision already made 2000
11 New provision to be made 400
Entries to be passed
Debit P L Provision on Doubtful Debts 400
Credit G L Provision on Doubtful Debts 400

Provision for Doubtful Debts for practice.
adjustment 800
6 An advance received from a customer was not
credited to him after sales. 1500
On the basis of the following information calculate Debtors, Bad
Debts and Provision for Doubtful Debts after adjustment
77

Reserves
• Profit Management is one of the functions of
Financial Manager.
• The amount of profit is dealt in two ways.
1. A certain percentage is paid as dividend to the
share holders.
2. The remaining portion is retained in the
business. It is transferred to Reserves and
Surplus in the Balance Sheet.
• This information is given in the “Profit and Loss
Appropriation Account”.

Treatment of Subsidy
• Subsidy is a non refundable amount received from Govt or
other funding agencies.
• It can be shown under net won funds under capital under a
separate sub head.
• Similarly premium on shares and debentures are shown as
capital under a separate sub head.
• If the market value of a building has gone up and far more than
the book value a firm can create revaluation reserve.

Exercises on Adjustment entries
Pass the necessary journal entries for the following transactions
1. Insurance Premium of Rs.12,000 was paid on 1-11-2017
2. Telephone bill of Rs.13,000 for March 2018 was paid in April 2018
3. Electricity bill of Rs.10,000 for March 2018 was paid in April 2018
4. Interest of Rs.5,000 on Fixed deposit for 2017-18 was received in
April 2018
5. An advance of Rs.20000 has been received in March 2018 against
order but goods are not yet supplied
80

Answers Date is 31 March 2018 for all entries
Particulars LF Debit Credit
Prepaid Expenses A/c Dr. 7,000
To Insurance A/c 7,000
Telephone Expenses A/c Dr. 13,000
To Outstanding Expenses A/c 13,000
Electricity Expenses A/c Dr. 10,000
To Outstanding Expenses A/c 10,000
Accrued Income A/c Dr. 5,000
To Interest Received A/c 5,000
Sales A/c Dr. 20000
To Advance Income A/c 20000

Exercise 2. Provision on Debtors
• Calculate the provision on Debtors based on the following
information
1. Debtors as per Trial Balance. Rs. 50,000
2. A credit sale of Rs. 2000 was not entered in the register
3. A credit sale of Rs. 2000 was entered as Rs. 3000 in the register
4. New Bad Debts were Identified to the tune of Rs.3,000
5. Opening provision on Debtors Rs. 2,000
6. Provision on Debtors required 5% of Debtors
82

Answers
1 Debtors as per Trial Balance 50000
2 Additions if any 2000
3 Sub Total 1 52000
4 Deductions if any 1000
5 Sub Total 2 51000
6 New Bad Debts Identified 3000
7 Value of Debtors for provisioning 48000
8 Rate of Provision 5%
9 Provision required 2400
10 Provision already made 2000
11 New provision to be made 400
Entries to be passed
Debit P L Provision on Doubtful Debts 400
Credit G L Provision on Doubtful Debts 400

April 2022
5. An advance of Rs.10,000 has been received in March 2022
against order but goods are supplied in April 2022
84

MCQ 1
• Insurance Premium of Rs.6,000 was paid on 1-12-2021. The journal entry for
the same is
A) Debit Insurance Premium A/c 4000 Credit Prepaid Expenses A/c 4000
B) Credit Insurance Premium A/c 4000 Debit Prepaid Expenses A/c 4000
C) Credit Insurance Premium A/c 2000 Debit Prepaid Expenses A/c 2000
D) Debit Insurance Premium A/c 2000 Credit Prepaid Expenses A/c 2000
85

MCQ 2
• Telephone bill of Rs.4,000 for March 2022 was paid in April 2022. The journal entry
for the same is
A) Debit Telephone Expenses A/c 4000 Credit Prepaid Expenses A/c 4000
B) Debit Telephone Expenses A/c 4000 Credit Outstanding Expenses A/c 4000
C) Credit Telephone Expenses A/c 4000 Debit Outstanding Expenses A/c 4000
D) Debit Telephone Expenses A/c 4000 Credit Accrued Income A/c 4000
86

MCQ 3
• New bad debt of Rs.3,000 identified as on March
2022.The journal entry for the same is
A) Debit bad debt A/c 3,000 Credit Debtors A/c 3,000
B) Debit bad debt A/c 3,000 Credit Creditors A/c 3,000
C) Debit bad debt A/c 3,000 Credit Reserve for Doubtful
Debt A/c 3,000
D) Credit bad debt A/c 3,000 Debit Debtors A/c 4000
87

MCQ 4
• Some expenses would have been incurred in the
accounting year but payment for the same would
not have been made within the accounting year.
These are shown as ____ expenses.
A Prepaid
B Outstanding
C Unaccounted
D None of these

MCQ 5
• The final result disclosed by the Trading Account is
the ____ Profit earned by the organization Gross Net
Operating real
A Prepaid
B Outstanding
C Unaccounted
D None of these

MCQ 6
• Net sales Rs,7,50,000/-, opening stock Rs.1,14,375/-, purchases
Rs.483,375/- and closing stock Rs.1,47,750/-. The Gross Profit is___
A. Rs.3,00,000/-
B. Rs.30,000/-
C. Rs.4,47,750/-
D. Rs.5,62,125/-

MCQ 7
• The total Debtors are Rs.41,000. Bad Debts identified Rs.1,000. Provision of
5% for Doubtful Debts required. Existing Provision for Doubtful Debts is 900.
• New Provision for Doubtful Debts to be made during the current year is
A. Rs.1,100 /-
B. Rs.2,000/-
C. Rs.2,050/-
D. Rs.3,000/-

Example 1:Trial Balance as on 31-3-2022
Credit Balances
Particulars Credit Classification
Cash Credit from Bank 150 Personal
Creditors 700 Personal
Interest on investments 10 Nominal
Loan from banks 300 Personal
Provision for Doubtful Debts 70 Personal
Provision for Tax payable 60 Personal
Purchases returns 80 Nominal
Reserves and Surplus 800 Personal
Sales 12000 Nominal
Share Capital 600 Personal
Total 14770

Example 1:Trial Balance as on 31-3-2022
Debit Balances
Particulars Debit Classification
Administrative Expenses 2500 Nominal
Advance Tax paid 50 Personal
Bad Debts 100 Nominal
Bank balance 419 Personal
Debtors 1500 Personal
Building WDV 950 Real
Furniture WDV 81 Real
Insurance Premium 100 Nominal
Interest on Loans 70 Nominal
Investments 300 Personal
Opening stock 400 Real
Purchases 8200 Nominal
Sales returns 100 Nominal

Profit and Loss Statement
Income Amount Total
Purchases returns 80
Sales 12000
Interest on investments 10 12090
Expenditure Amount Total
Administrative Expenses 2500
Bad Debts 100
Insurance Premium 100
Interest on Loans 70
Purchases 8200
Sales returns 100 11070
Profit (+)/Loss(-) +1020

Balance Sheet
Liabilities Amount Total
Creditors 700
Loan from banks 300
Cash Credit from Bank 150
Provision for Doubtful Debts 70
Provision for Tax payable 60
Reserves and Surplus 800
Share Capital 600
Profit* from PL Stmt 1020 3700
Assets Amount Total
Advance Tax paid 50
Cash and Bank balance 419
Debtors 1500
Investments 300
Building WDV 950
Furniture WDV 81
Opening stock 400 3700

Example :Trial Balance as on 31-3-2022 Credit Balances
Particulars Credit
Cash Credit from Bank 150
Creditors 700
Interest on investments 10
Loan from banks 300
Provision for Depreciation Building 50
Provision for Depr. on Furniture 19
Provision for Doubtful Debts 70
Provision for Tax payable 60
Purchases returns 80
Reserves and Surplus 800
Sales 12000
Share Capital 600
97

Trial Balance as on 31-3-2022 Debit Balances
Particulars Debit
Administrative Expenses 2500
Advance Tax paid 50
Bad Debts 100
Cash and Bank balance 419
Debtors 1500
Fixed Assets: Building Gross 1000
Fixed Assets: Furniture Gross 100
Insurance 100
Interest on Loans and CC 70
Investments 300
Opening stock 400
Purchases 8200
Sales returns 100
Closing stock 500 98

Solution 1: Trading Account
Debit Credit
To Opening
Stock
400 By Sales 12000
To purchases 8200 Less Sales
returns
100 11900
Less
purchases
returns
80 8120 By Closing
stock
500
To Gross
Profit c/f
3880
Total 12400 Total 12400
99

Solution 1: Profit and Loss Account
Debit Credit
To Administrative
Expenses
2500By Gross Profit b/f 3880
To Bad Debts 100 Interest on
investments
10
To Insurance 100
Interest on Loans 70
To Net Profit 1120
Total 3890Total 3890
100

Solution 1: Balance Sheet as on 31-3-2022
Liabilities Assets
Cash Credit from Bank 150 Advance Tax paid 50
Creditors 700 Cash and Bank balance 419
Loan from banks 300 Debtors 1450
Provision for Tax
payable
60 Less Provision 70 1380
Reserves and Surplus 800 Fixed Assets: Building
Gross (1000-50)
950
Share Capital 600 Fixed Assets: Furniture
Gross (100-19)
81
Net Profit 1120 Investments 300
Advance Tax Paid 50
Closing stock 500
Total 3730 Total 3730
101

Numerical Exercise-1

Numerical Exercise
• From the following Trial Balance of Omkar you are required to prepare
Trading Account and Profit and Loss Account for the year ending on
31st March 2018 and Balance Sheet as on that date.
• Adjustments :
1) Closing Stock valued at . 42,000.
2) Write off 1,200 Bad Debts and create a provision for bad & doubtful
debts at 2% on debtors.
3) Outstanding expenses - Legal Expenses 750 and Wages 225
4) Charge depreciation on Office Equipments 2.5% and Machinery 5%.
5) Prepaid - Insurance ` 900

Exercise 2

Exercise 2
Adjustments :
1) Stock as on 31st March 2019, amounted to ` 57,000
2) Depreciate Machinery and Furniture @ 5%
3) Unexpired Insurance ` 1,000.
4) 800 are written off as bad debts and create a
Provision for Reserve for Doubtful Debts 5% on
Sundry Debtors and Reserve for Discount on
Debtors 2% and discount on Creditors 3%.
5) Outstanding Expenses – Wages 2,200 and Office
Rent 1,400.
6) Goods withdrawn worth 2,000 by owner for
personal use.

April 2022
5. An advance of Rs.10,000 has been received in March 2022
against order but goods are supplied in April 2022
109

IIBF Unit 13.pptx

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IIBF Unit 13.pptx