Loo

Excess of Output IGST Inves

Less Adjusted against Balance of Input CGST 20.000 Plan
Fur
15,000
Less Remaining amount adjusted against Balance S000 Leas

o fInput SGST
Pate

5000 pe
BALANCE SHEET SuS

Liabilities Amount Assets

Amount
Input SGST Ads
10,000
22. Sale of Goods on Approval Basis Sometimes goods are sold to the
customer on approval (or return) basis, i e.,
if the goods are liked by him, he may keen
them and if they are
not liked by him, he may return them. Such goods
cannot be
regarded as sale unless consent is received during the accounting period. In case, the
goods have been recorded as actual sale and no consent has been received up to the end
ofaccounting period, the following entry will have to be passed to cancel the sale
Sales A/c Dr
To Debtors (Customer's) Ac
(Goods sold on sale or return basis recorded as sale, now rectified)
Accounting Treatment:() Sales will be reduced on the creditside of Trading
Account and Debtors will also be reduced on the Assets side of Balance Sheet
(i) Cost price of the Goods lying with the customer will be calculated and then
treated just like the closing stock. As such, it will be added to the Closing Stock on the
credit side of Trading Account and the stock thus increased will also be shown on the
Assets side of Balance Sheet.

ILLUSTRATION 23.
The following is the Trial Balance of Sh. Siya Ram as at 31st March, 2016.
Prepare Trading and Profit & Loss Account and Balance Sheet from the same:
 NITH ADJUSTME
FINANCAL S T A T
STATEMENTS
ENTS NITH ADJUSTMENTs
Dr. Balances
Materials Purchased 22.65
Cr. Balances
Administration ENpenses 1,15,725 Sales
40.60,000000
20 0 0 Wages
16,725 Outstanding Wages
2,10,000
Freight 42,775 Creditors 800
Rent
5,100 Capital
3,100 Bank 39,535
P e t t yC a s h
SGST 81,800
175 Loan 12,220
Debtors

Gitt to Wife 16,000

36,400 Incomeon Mortgage
50,000
35 000 Prize Distributed
2,,500 from Investments 925
Commission Paid
200
15.000 Paid in Advance
1,000
Commission 400
Mortgage Interest
1,600
20,000 Loose Tools
5,000
Investments
15.5,000000 8,500
Plant
60,000
Furniture
7,200
5.000 Leasehold Property 50,000
Patents ,000
Depreciation on Furniture 800
Suspense Account 2,080
Amount 3,61,280 3,61,280
=

10,000 Adjustments : -

1. Closing Stock amounted to 20,000.

e sold to the 2. Goods costing 5,000 were sent to a customer on Sale on Approval Basis' for
he may keep 76,400 on 29th March, 2016 and had been recorded in the books as actual sales.
ds cannot be
3. Make a provision for Doubtful Debts at 5% on debtors.
.
In case, the
4. 1/5th of Loose Tools are to be written off this year.
up to the end
to be allowed a Commission of 5% on Net Profit before
the sale 5. General Manager is
charging his Commission.

SOLUTION:
LOSS ACCOUNT
TRADING AND PROFIT & Cr.
of Trading March, 2016
Dr. for the year ending 31/st
aeet. Particulars
d and then Particulars
2,10,000
ock onthe To Materials Purchased 1,15,725 By Sales
on

wn onthe To Wages 42,775 Less: Goods sold 6,4000) 2,03,600

Returnable basis
To Freight 5,100
20,000
To Gross Profit c/d 65,000 By Closing Stock
Add: Goods on Retumable 5,0000) 25,000
basis
2,28,600
2 0 1 6

2,28,600
 FINANCIA
22.66 FINANCIAL STATEMENTS - WITH ADJUST.
16,725 By Gross Profit b/d
DJUSTMENTS LUST
To Administration Expenses
3,100 By Income from Investments P r e

To Rent 65,000
925 a n da B a

To Prize distributed 200

To Commission 1,000
To Mortgage Interest 1,600
Openin
To Provision for Bad-debts 1,500
Purchase
To Depreciation o n : -
P .K u m s

Furniture 800
W a g e s
Loose Tools 1,000 1,800
Carriag
To Balance c/d 40,000
Carriag

65,925
=
Salarie
65,925
To Commission payable By Balance b/d A d v e r t

to General Manager
40,000
T r a d e

5
R e n t
740,000 X100 2,000
E s t a b l

To Net Profit 38,000 Stable

40,000 Mortg
40,000
Sund
BALANCE SHEET as at 31st March, 2016
Cash
Liabilities Assets
Mach
Bank 12,220 Petty Cash 175
Creditors 39,535 Debtors 36,400
Outstanding Wages 800 Less Sales on Return
Commission payable to General basis 6,400
Adju
Manager 2,000 30,000
Loan on Mortgage 16,000 Less: Provision for
Capital 81,800 Bad-debts 1,500 28,500
Add: Net Profit 38,000 Closing Stock (720,000+5,000) 25,000
1,19,800 Commission paid in advance2) 400
Less: Drawings Investments 8,500
(Gift to wife) 2,500 1,17,300 Furniture 7,200
Loose Tools 5,000
Less: Depreciation 1,000 4,000
Plant 60,000
50,000
Leasehold Property
2,000 S
Patents
2,080
Suspense Account3)
1,87,855 1,87,855 Dr.
Working Notes:
() R6,400 in respect of
Sales and Debtors. 'Goods sent on sale or
return' basis will be deductea oooth from
Stock
Ing
Also, the cost of such goods, i.e.,
(2) 5,000 will be added to the
Paid in Advance' is
shown onCommission
the Assets side appearing inside the Trial Balance. Hencc will be
only.
on the debit shown
6 'Suspense A/c' is appearing on the
Assets side. side of Trial will be
Balance. Hence, itt w
 V XI
ANCIAL
uSTMENTS
65 009 CTATEMENTS-WITH ADJUSTMENTS
925 LLUSTRATION 24.
22.67
Prepa
are Trading and Profit &
anda Balance
neet as at that Loss
date from Account for the
the year ended 31st
Dr. Balances following March, 2017,
Trial Balance
Opening Stock Cr. Balances
Purchases less Returns 32,000 Sales less Returns
P .K u m a r
76,000 Sundry Creditors 2,20,000
3,000 Capital 30,000
Wages
Carriage Inwards 15,400 Mortgage and 67,800
65,925 Carriage Outwards
interest to date
2,600 Rent Outstanding 15,600
1,500 1,000
Salaries
40,000 Advertisements
40,000
9,000
Trade Expenses
4,800
Rent
12,000
Establishment
5,400
Stable Expenses
40,000 2,100
Mortgage Interest
600
Sundry Debtors
40,000
Cash in hand
2,500
Machinery 87,500
175
3,34,400 3,34,400
Adjustments:
(1) Closing Stock was R46,000.
(2) Provision for Doubtful Debts be created on Sundry Debtors@5% and a
8,500 provision for discount on Sundry Debtors at 2%.
5,000 (3) Salary of F3,000 paid to Sh. P. Kumar an employee of the firm, stand debited
400 to his personal account and it is to be corrected.
8,500 (4) A stationery bill for 200 remains unpaid and unrecorded.
,200
(5) Write off one-third of advertisement expenses.
000 (6) Sundry Creditors include 10,000 loan taken from Mr. Sudhir on Sept. 1, 2016
,000 bearing interest@12% p.a.
000
000 sOLUTIOW:
TRADING AND PROFIT & LOSS ACCOUNT
080 Cr.
Dr. year ending 31st March, 2017
for the
Particulars
Particulars
To Opening Stock 2,20,000
32,000 By Sales less returns
46,000
om To Purchases less returns 76,000 By Closing Stock
To Wages 15,400
To Carriage Inwards 2,600
To Gross Profit c/d 1,40,000
2,66,000
2,66,000
 22.68
ANCIAL STATEME
FINANCIAL STATEMENTS WITH An
To Cariage Outwards FINANCIAL
1,500 By Gross
To Salaries Profit b/d
40,000
Wages
Add: Salary to P. Kumar 3,000 43,000
STMENTS Salaries
To Advertisements
(1/3 of 9,000) ,000
1,40,000 Investments
To Trade Expenses T r a d eC h a r g e s

To Rent
4,800
12,000 Advertisement
To Establishment GeneralExpenses

To Stable Expenses 5,400

To Mortgage Interest 2,100 Furniture
(Including furnitu
To Provision for 600
Doubtful Debts 1,00,000 purche
To Provision for 2,000
Discount 1stJan. 2018)
on Debtors
760 Personal Expenses

To Stationery
200
To Interest on Loan Sharan

(On Sudhirs' (Outstanding)

Loan)
To Net Profit 700
63,940 Prepare Tradin
1,40,000 B a l a n c e Sh-
a
and
1,40,000 below:

BALANCE SHEET An asset v

as at 31st March, 2017 (i)
Liabilities proprietor
Assets stood adde=
Sundry Creditors 30,000 Cash in Hand (i) Purchases
Less : Loan from Sudhir
10,000 20,000 Sundry Debtors 2,500 2017.
Outstanding Rent 40,000
1,000 Less Provision for (ii) An advanc
Outstanding Stationery 200 Doubtful
Debts (iv) Advertiser
Mortgage and Interest
Loan from Sudhir 15,600 2,000 () Depreciat
Less Provision for 38,000 (vi) Write off
Add: Outstanding Interest 10,000
700 10,700 Discount (vii) Bank bala
Capital 67,800
Add : Net Profit Closing Stock T60 37,240 bank ch
63,940 1,31,740 Machinery 46,000
87,500 (vii) Closing
Advertisement Expenses costing
1,79,240 6,000
1,79,240
on
Notes. Interest SOLUTION:
Sudhirs' Loan is outstanding for 7
months.
ILLUSTRATION 25. Dr.
Following is the Trial Balance of
Head of Accounts
Sh. Devki Sharan as on 31st Part
Debit March, 2018
Head of Accounts To Opening Sto-
Credit To Purchases
Opening Stock
Purchases 60,000 Sales Less :Compute
Cash in Hand 3,00,000 Interest earned 6,20,000 To Direct Expe
Bank Balance 35,000 Trading Commission 8,000 To Wages
Sundry Debtors 75,000 Cash Discount 25,000 To Gross Profis
Direct Expenses 2,20,000 Outstanding Wages 12,000
20,000 Provision for 10,000
Doubtful Debts 20,000 To Salaries
To Trade Char
 2
1

.AL
-

EiNAN
JUSTA0MENTS0 0 STATEMENTS WITH ADJUSTMENTS
Wages 22.6
Salaries
50,000 Bad Debts
Investments
35,000 Capital Recovered 5,000
Trade Charges 1,20,000 Sundry Creditors 5,20,000
Advertisement
5,000 1,80,000
General Expenses
60,000
Furniture
10,000
(Including furniture costing
1,00,000 purchased on
Ist Jan. 2018)
4,00,000
Personal Expenses of Sh. Devki
Sharan
10,000
14,00,000
14,00,0000
Prepare Trading and Profit and Loss Account for the
year ended 31st March 2018
and a
1,40,00 the
Balance Sheet as at that date, taking into consideration
below adjustments given
()An asset was sold at its book value of F20,000 and cash was used by the
proprietor to purchase a Computer for his personal use. However, F20,000
stood added to Cash Account.
(i1) Purchases include a Computer costing {30,000 purchased on 1st November
2,500
2017.
(Giti) An advance of R40,000 to a supplier was wrongly included in Sundry Debtors.
(iv) Advertisement cost is to be allocated over five years.
) Depreciate Furniture at 10% p.a.; Computer at 20% p.a.
(vi) Write off bad debts F10,000 and create a provision of 5% for doubtful debts.
(vii) Bank balance as per Pass Book was F74,200. The difference was on account of
37,240 bankcharges debited by the bank.
46,00 (vi) Closing Stock was valued at R1,00,000 (Realisable Value 80,000). Goods
87,500
costing 10,000 were destroyed by fire on 5th April, 2018.
6,000

79,240 SOLUTION
TRADING AND PROFIT & LOSS ACCOUNT
Dr. Cr.
for the year ended 3Ist March, 2018
Particulars Particulars
To Opening Stock 60,000 By Sales 6,20,000
To Purchases By Closing Stock 80,000
3,00,000
d
Less: Computer 30,000 2,70,000
To Direct Expenses 20,000
To Wages 50,000
To Gross Profit c/d 3,00,000
7,00,000
7,00,000
To Salaries Profit b/d 3,00,000
To Trade Charges
35,000 By Gross 8,000
5,000 By Interest earned
 FINANCIAL S T

FINANCIAL STATEMENTS WITH An

22.70 ( 3 ) G o o d

By Trading Commission DJUSTMENT B a l a

To Advertisement
(1/5th of T60,000) 12,000 By Cash Discount year

By Old Provision for

To Bank Charges 12,005
800 Doubtful Debts
(75,000- 774,200) 20,000 iiiÚsTR
To General Expenses 10,000 Less Bad Debts
10,000 The foll

ToDepreciation: 10,000
On Computer Less: New Provision De
By Bad Debts Recovered
8,500
(for 5 months) ,500 1,500 S t o c k( 1 s t

On Furniture 32,5002) 35,000 5,000 C a s hi n H a

To Net Profit transferred to Purchases

Capital A/e 2,53,700 Returns

3,51,500 Carriage
3,51500 W a g e s

SundryDD-
BALANCE SHEET
Motorbik
Dr. as at 31st March, 2018
S a l a r y
C
Liabilities Assets
Printing

Sundry Creditors 1,80,000 Cash in Hand I n s u r a n c

p a i d
Outstanding Wages 10,000 (735,000- R20,000)
Capital 5,20,000 Bank Balance
15,000
Plant an
Add: Net Profit Sundry Debtors
74,200
2,53,700 2,20,000 Furnitur

7,73,700 Less : Advance to

Accrue
Less : Drawings Supplier 40,000 Drawin
Personal Exp. 1,80,000
710,000 + Asset Less Bad Debts 10,000
taken 20,000) 30,000 7,43,700 1,70,000
Less : New Provision Pr
8,500 1,61,500
Advance to Supplier 40,000 2017
Unexpired Advertisement adjust
(4/5th of T60,000) 48,000
Closing Stock 80,000
Investments 1,20,000
(ii
Computer 30,000
|Less: Dep. for5 months 2,500 27,500
Furniture 4,00,000 iii
Less Dep. 32,500 3,67,500
9,33,700 9,33,700
Working Notes:
(1) Entry for sale of asset
Drawings A/c Dr. 20,000
To Cash Alc SC
20,000
(2) Depreciation on Furniture : R D
On T3,00,000 for one year @ 10% 30,000
On 71,00,000 for 3 months @ 10% 2,500

32,500
 FNANCI2
TH
Goods ere
0,000 12000 Balance. destroyed by
Sheet date.
ADJUSTMENTS
5th
0,000 year ended 31st t
Hence, it willI not April,
March, 2018. be 2018, hich is 22.71
o,000 recorded in the an ent occurring after
.500 iLUSTRA TION 26.
the
financial statements for
following
ving is
is the
Trial
1,500 pebit Balances Balance of Mr.
Atul
5,000 as at
31st March,
Stock (1st April, 2016) Credit Balances 2017.
Cash in Hand
50,000 Bank
Purchases

10,000 Sales
3,51 500 Returns 8,20,000 Returns 24,000
Carriage 20,000 Outstanding Wages 12,40,000
15,000
Wages 12,000 Sundry Creditors 26,000
Sundry Debtors 60,000 Capital 75,000
Motorbike 2,00,000 3,20,000
Salary
15,000
Printing and Stationery 1,20,000
15,000 Insurance (Annual premium 22,000
74,200 paid on 1 st January 2017)
Plant and Machinery 16,000
Furniture 3,00,000
Accrued Income
40,000
5,000
Drawings
10,000
17,00,000
17,00,000
1,61,500 Prepare the Trading and Profit & Loss
40,000 2017 and the Balance Sheet Account for the year ending 31st March
as on that date after
taking into account the
adjustments following
48,000
80,000 (1) Closing Stock was valued at 780,000. includes It
were
20,00 sold and recorded as sales but not delivered goods costing 10,000 which
to the customer.
(ii) On 1st January, 2017 a new
was
machinery costing 780,000 purchased on
7,500 credit but no entry has been passed.
(ii) Depreciation is to be provided @ 10% p.a. on all fixed assets.
7,500 (iv) Motorbike was
sold at book value on Ist April, 2016 and the cash was used
,700 Mr. Atul for his personal use but it was left unrecorded.
by
(v) A fire occurred on 1st April, 2017
destroying goods costing 25,000.
(V) 2/3rd of the expenses on carriage are related to the goods purchased and 1/3rd
are related to sales.

SOLUTION: TRADING AND PROFIT & LOSS A/C

Dr.
for the year ended 3/st March, 2017 Cr.
Particulars Particulars
To Opening Stock 50,000 By Sales 12,40,000
To Purchases |Less : Sales Returns
8,20,000 20,000 12,20,000
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 STMENT
Treatment of Various
Adjustment Adjustment Entry Adjustments
1. Closing Stock
Treatment in Treatment in
Closing Stock A/c Trading A/c Profit & Loss Alc Treatment in
Dr. Balance Sheet
Shown on the
2. Outstanding To Trading A/c credit Shown on the assets
Expenses A/c side side
Expenses Dr. Added to the Added to the Shown on the
To Outstanding
Expenses A/c respective expense respective expense liabilities side
3. Prepaid or unexpired on the debit side on the debit side
Prepaid Expenses A/c Dr. Deducted
expenses To Expenses A/c from the Deducted from the Shown on the assets
respective expense respective expense side
4. Depreciation on the debit side on the debit side
Depreciation A/c Dr.
To Asset Alc Shown on the debit Deducted from the
side concerned asset on
the assets side
5. Accrued Income Accrued Income A/c Dr. Added to the Shown on the assets
(Income earned but To Income A/c
respective income side
notreceived) on the credit side
6. Uneaned Income Income A/c Dr. Deducted from the Shown on he
(Income received in To Unearned Income A/c respective income liabilities side
on the credit side
advance) Shown on the debit Added to the capital
7. Interest on capital Interest on Capital A/c Dr.
To Capital A/c side on the liabilities side
Dr. Shown on the credit Added to the
8. Interest on Drawings Drawings Ac
AWc side drawings and then
To Interest on Drawings deducted from
Capital
Shown on the debit Added to the loan on
Interest on Loan A/c
Dr. the liabilities side
9. Interest on Loan side
To Loan A/c
(taken from
from
Added to Bad-debts Deducted
someone) Dr. Trial debtors on the assets
Bad-debts A/c (given in
10. Further Bad-debts A/c
To Sundry Debtors Balance) on the debit side
side.
 11. Provision for Profit&Loss A/c
Doubtful debts To Provision for Dr.
Doubtful Debts A/c Added to Bad-debts
12. Provision for on Deducted from Deb-
Profit & Loss A/c the debit side
on
discount on Debtorss To Dr. tors the assets
Provision for side
Discount on Debtors A/c Shown on the debit
side as a
Deducted from
13. Abnormal loss of Insurance Company A/c separate Debtors on the assets
stock Dr. item side
Profit & Loss A/c Total amount of
To Purchases A/c Dr. is
loss Amount not Amount
deducted from recovered from the recovered
purchases on the from the insurance
debit side insurance company company is shown
on
is shown on
the debit the assets side.
14. Charity in the form Charity A/c side
of goods Dr. Deducted from Shown on the debit|
To Purchases A/c
purchases on the side
15. Goods distributed as Free
debit sidee
samples A/c Dr. -do- Shown on the
free samples To Purchases A/c debit
side
16. Drawings in goods Drawings A/c Dr. -do- Deducted from
To Purchases A/c capital on the
liabilitiesside.
17. Manager's Manager's Commission A/c Dr. Shown on the debit Shown on the
Commission To Outstanding Commission A/c side liabilities side
Dr. Added to sales Added to Debtors on
18. Goods sold but Debtors A/c on
the credit side the assets side
omitted t o be To Sales A/c
recorded Added to Creditors
Dr. Added to purchases
19. Goods purchased but Purchases A/c on the liabilities side
to be To Creditors A/c onthe debit side
omitted
Deducted from
recorded Dr. Deducted from sales
debtors on the assets
20. on the credit side
Sale of goods on (i) Sales A/c To Debtors A/c side
approval basis Added to closing
(Sale value of goods) Added to closing on the assets
Dr. stock
stock on the credit| side
(ii) Closing Stock A/c
To Trading A/c side
(Cost price of goods)
.