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June 2023

CHAPTER 4 – FINAL ACCOUNTS WITH ADJUSTMENT

Let’s Discuss All Adjustments

ADJUSTMENT GIVEN JOURNAL TRADING B/S

One month rent for 55,000

gowdown is outstanding.

Interest on loan from 60,000

Rajan is payable @ 10% per

annum. This loan was taken

on 01.07.2017 4,400

Insurance premium includes 48,000

Rs.42,000 paid towards

proprietor's life insurance

policy and the balance of

the insurance charges

cover the period from

01.04.2017 to 30.06.2018.

Included amongst the D – 48,000

debtors is Rs.6,000 due C – 29,600

from Rahul and included

among the creditors

Rs.2,000 due to him.

Personal purchases of 28,800

Manan amounting to

Rs.1200 had been recorded

in the purchases day book.

A quarter of the amount of

printing and stationary

expenses is to be carried

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forward to the next year.

Credit purchase invoice 6,43,400

amounting to Rs.800 had

been omitted from the books.

Purchases include sales P – 1,60,000

return of Rs.2,575 and S – 2,15,300

sales include purchases

return of Rs.1,725.

Goods withdrawn by

Mr. XYZ for own

consumption Rs.3,500

included in purchases.

Wages paid in the month of

April for installation of

plant and machinery

amounting to Rs.450 were

included in wages account.

Free samples distributed

for publicity costing Rs.825.

Bank overdraft is secured O/D -

against hypothecation of 80,000

stock. Bank overdraft

outstanding as on 31.3.2017

has been considered as

80% of real value of

stock (deducting 20% as

margin) and after

adjusting the marginal

value 80% of the same

has been allowed to draw

as an overdraft.

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Rs.20,000 drawn from bank D – 70,000

was debited to Drawings

account, but out of this

amount withdrawn

Rs.12,000 was used in the

business for day-to-day

expenses.

Purchase of goods worth

Rs.16,000 was not recorded

in the books of account

upto 31.03.2019, but the

goods were included in stock.

Purchase returns of

Rs.1,000 was recorded in

Sales Return Journal and

the amount was correctly

posted to the Party’s A/c

on the correct side.

Expenses include Rs.6,000

in respect of the period

after 31st March, 2019.

The loan account from Dena

bank in the books of

Ganguli appears as follows:

Rs. Rs.

31.3.2020 To Balance c/d 1,00,000 1.4.2019 By Balance b/d 50,000

31.3.2020 By Bank 50,000

1,00,000 1,00,000

Interest received represents IR – 7,250

Rs.1,000 from the sundry I@5% -

debtors (due to delay on 25,000

38
their part) and the balance

on investments and deposits.

Interest paid include L @12% -

Rs.3,000 paid to Dena bank. 1,00,000

Machinery worth Rs. 45,000

purchases on 1.10.99 was

shown as purchases.

Commissions is payable at S–

2% on Sales. 23,10,000

· Office premises occupy

1/4 of total area.

· Lighting is to be charged

as to 2/3 to factory and

1/3 to office.

Mr R’s manager is entitled

to a commission of 10% on

the net profit after

charging his commission

Following transaction had

taken place during the

period from 1-4-1997 to

7th April, 1997.

· Sales Rs. 2, 50,000,

· Purchases 1,50,000,

· Stock on 7th April, 1997

was Rs. 1,80,0000 and

· Gross profit on sales

was 20%

Insurance premium

mentioned in the trial

balance was in respect of

building and machineries.

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Goods costing Rs.1,000

were sent to customer for

Rs.1,200 on 30th March,

1998 on sale or return

basis. This was recorded

as actual sales.

Rs.240 paid as rent of the

office were debited to

Landlord account and were

included in the list of debtors.

· General Manager is to

be given commission at

10% of net profit after

charging the commission

of the works manager

and his own.

· Works manager is to be

given commission at 12% of

net profit before charging

the commission of General

Manager and his own.

Machinery worth Rs. 35,000

purchases on 1/1/97 was

wrongly written off against

Profit and Loss Account.

This asset is to be brought

into account on 1/1/99

taking depreciation at 10%

per annum on straight line

basis up to 31/12/98.

Bill receivable include a

dishonored bill of Rs.8,000.

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Goods costing Rs.2,000

were given away as free

sample for publicity.

On 1.4.2004, machinery of

the value of Rs.10,000 was

destroyed by fire and the

insurance claim settled at

Rs.8,000 was credited to

Machinery account.

Reserve for bad debts is to

be kept at Rs.1,000

Prepaid Expense

Outstanding Expense

Accrued Income

Advance Income

BAD-DEBT,PROVISION FOR DOUBTFUL DEBT, PROVISION FOR DISCOUNT ON DEBTORS

Profit & Loss Account

Particulars Amount Particulars Amount

Balance Sheet

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 Closing Stock (Cost Or NRV Whichever is _____________)

FORMAT OF MANUFACTURING ACCOUNT

Manufacturing Account of ......... for the year ended………

Particulars Rs. Particulars Rs.

To Materials Consumed: By Net Factory Cost of production,

Opening Stock of Raw Materials transferred to Trading A/c

Add: Purchases of Raw Materials Sub-Total (bal. fig)

Less: Closing Stock of Raw Materials By NRV / Sale Value of By-Products,

Net balance = Materials Consumed To if any.

Direct Manufacturing Wages

To Direct Expenses, if any

Sub-Total Prime Cost

To Production Overheads

Sub-Total Gross Factory Cost

Add: Opening Stock of WIP

Less: Closing Stock of WIP

Total Total

Trading Account is prepared as under in this case:

TRADING ACCOUNT OF FOR THE YEAR ENDED

Particulars Rs. Particulars Rs.

To Opening Stock of Finished Goods To By Sales

Manufacturing Account, i.e. Cost of By Closing Stock of Finished Goods

Production To Gross Profit c/d to P&L

Account

Total Total

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 MUST DO QUESTION BEFORE EXAMS

1. Mr. Shyamal runs a factory, which produces detergents. Following details were available in

respect of his manufacturing activities for the year ended 31-03-2019.

Opening work-in-progress (9000 units) 26,000

Closing work-in-progress (14,000 units) 48,000

Opening inventory of Raw Materials 2,60,000

Closing inventory of Raw Materials 3,20,000

Purchases 8,20,000

Hire charges of Machinery @ Rs.0.70 per unit manufactured Hire charges of factory 2,60,000

Direct wages-contracted@ Rs. 0.80 per unit manufactured and @ Rs.0.40

per unit of closing W.I.P.

Repairs and maintenance Units produced - 5,00,000 units 1,80,000

You are required to prepare a Manufacturing Account of Mr. Shyamal for the year ended

31-03-2019.

Solution:

Manufacturing Account in Books of Mr.Shyamlal for the Year Ended 31st March,2019

Particulars Units Amount Particulars Units Amount

43
2. Karuna decided to start business of fashion garments under the name of M/s. Designer
st
Wear on 1 April, 2020. She had a saving of about Rs.10,00,000. She invested Rs.3,00,000

out of her savings and borrowed equal amount from bank. She purchased a commercial space

for Rs.5,00,000 and further spent Rs.1,00,000 on its renovation to make it ready for

business.

Loan and interest repaid by her in the first year are as follows:

30th June, 2020 - Rs.15,000 principal+ Rs.9,000 interest

30th September, 2020 - Rs.15,000 principal+ Rs.8,550 interest

31st December, 2020 - Rs.15,000 principal+ Rs.8,100 interest

31st March, 2021 - Rs.15,000 principal+ Rs.7,650 interest.

In view of further capital requirement, she transferred Rs.2,00,000 from her saving bank

account to the bank account of the business. She paid security deposit of Rs.7,000 for

telephone connection. Furniture of Rs.10,000 was purchased, All payments were made by

cheque and all receipts in cash were deposited in the bank.

At the end of the year, her business showed the following results:

Particulars Amount Particulars Amount

Total Sales 20,00,000 Total Purchases 17,00,000

Electricity Expenses paid 40,000 Telephone Charges 50,000

Cartage Outwards 60,000 Travelling Expenses 45,000

Entertainment Expenses 5,000 Maintenance Expenses 25,000

Misc. Expenses 15,000 Electricity Expenses Payable 20,000

Other Information:
(i) She withdrew Rs.5,000 by cheque each month for her personal expenses.
(ii) Depreciation on building @ 5% p.a. and oil furniture @10% p.a.
st
(iii) Closing stock in hand as on 31 March, 2021: Rs.5,50,000
Prepare trading account, profit and loss account for the year ended 31 -3-2021 and Balance Sheet
as on that date.
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Solution:

Trading & Profit and Loss Account in the Books of M/S Designer

Wear For The Year Ended 31st March 2021

Particular’s Amount Particular’s Amount

Balance Sheet as at 31st March, 2021

Liabilities Amount Assets Amount

45
 Working Note

Bank Account

Particular’s Amount Particular’s Amount

46
3. The balance sheet of Mittal on 1st January, 2018 was as follows:

Liabilities Amount Assets Amount

Trade payables 16,00,000 Plant & Machinery 31,00,000

Expenses payable 2,50,000 Furniture & Fixture 4,00,000

Capital 51,00,000 Trade receivables 14,50,000

Cash at bank 7,00,000

Inventories 13,00,000

69,50,000 69,50,000

During 2018, his profit and loss account revealed a net profit of Rs.15,10,000. This was after

allowing for the following:

(a) Interest on capital @ 6% p.a.

(b) Depreciation on plant and machinery @ 10% p.a. and on Furniture and Fixtures @ 5% p.a.
st
(c) A provision for Doubtful debts @ 5% of the trade receivables as at 31 December 2018.

But while preparing the profit and loss account he had forgotten to provide for

(1) outstanding expenses totaling Rs.1,85,000 and

(2) prepaid insurance to the extent of Rs.25,000.

st
His current assets and liabilities on 31 December, 2018 were: Trade receivables Rs.21,00,000;

Cash at bank Rs.5,20,000 and Trade payables Rs.13,84,000. During the year he withdrew

Rs.6,20,000 for domestic use. Closing inventories is equal to net trade receivables at the year- end.

You are required to draw up revised Profit and Loss account and Balance Sheet at the end of the

year.

Solution:

Profit & Loss Account (Revised) For the Year Ended 31 st December 2018

Particular’s Amount Particular’s Amount

47
 Liabilities Amount Assets Amount

4. Following are the Manufacturing A/c, Creditors A/c and Raw Material A/c provided by M/s.

Shivam related to financial year 2019 -20. There are certain figures missing in these accounts.

Raw Material A/c

Particular’s Amount Particular’s Amount

(Rs.) (Rs.)

To Opening Stock A/c 1,27,000 By Raw Materials Consumed

To Creditors A/c — By Closing Stock —

Creditors A/c

Particular’s Amount Particular’s Amount

(Rs.) (Rs.)

To Bank A/c 23,50,000 By Balance b/d 15,70,000

To Balance c/d 6,60,000 —

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 Manufacturing A/c

Particular’s Amount Particular’s Amount

(Rs.) (Rs.)

To Raw Material A/c — By Trading A/c 17,44,000

To Wages 3,65,000

To Depreciation 2,15,000

To Direct Expenses 2,49,000

Additional Information:
st
a. Purchase of machinery worth Rs.12,00,000 on 1 April; 2019 has been omitted, Machinery is

chargeable at a depreciation rate of 15%.

b. Wages include the following:

Paid to factory workers - Rs.3,15,000

Paid to labour at office - Rs.50,000

c. Direct expenses included the following:

Electricity charges - Rs.80,000 of which 25% pertained to office

Fuel charges - Rs.25,000

Freight inwards - Rs.32,000

Delivery charges to customers - Rs.22,000

You are required to prepare revised Manufacturing A/c and Raw Material A/c.

Solution:

Manufacturing A/c

Particular’s Amount Particular’s Amount

49
 Raw Material Account

Particular’s Amount Particular’s Amount

Working Note

1. Creditor Account

Particular’s Amount Particular’s Amount

2. Revised Balance to be Transferred to Trading Account

Particular’s Amount

3. Expenses to Excluded from Direct Expenses

Particular’s Amount

4. Correct Depreciation

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5. Mr. Birla is a proprietor engaged in business of trading electronics. An excerpt from his

Trading & P&L account is as follows:

Trading and P&L A/c for the year ended 31st March, 2020

Particular’s Rs. Particular’s Rs.

To Cost of Goods Sold 45,00,000 By Sales C

To Gross Profit c/d D

F F

To Rent A/c 26,00,000 By Gross Profit b/d D

To Office Expenses 13,00,000 By Miscellaneous Income E

To Selling Expenses B

To Commission to Manager (on 2,00,000

Net Profit before charging such

commission)

To Net Profit A

G 60,00,000

Commission is charged at the rate of 10%. Selling Expenses amount to 1% of total sales. You are

required to compute the missing figures.

Solution:
Trading and P&L A/c for the year ended 31st March, 2020

Particular’s Rs. Particular’s Rs.

To Cost of Goods Sold 45,00,000 By Sales

To Gross Profit c/d

To Rent A/c 26,00,000 By Gross Profit b/d

To Office Expenses 13,00,000 By Miscellaneous Income

To Selling Expenses

To Commission to Manager (on 2,00,000

Net Profit before charging such

commission)

To Net Profit

60,00,000

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 Working Note

1. Computation of Net Profit

2. Computation of Selling Expenses

3. Computation of Sales

4. Computation of Gross Profit

Trading Account

Particular’s Amount Particular’s Amount

52
5. Miscellaneous Income

6. Mr. Kotriwal is engaged in business of selling magazines. Several of his customers pay money

in advance for subscribing his magazines. Information related to year ended 31st March 2020

has been given below:

On 1.4.2019 he had a balance of Rs.2,00,000 advance from customers of which Rs.1,50,000 is

related to year 2019-20 while remaining pertains to year 2020-21. During the year 2019-20

he made cash sales of Rs.5,00,000. You are required to compute:

(i) Total income for the year 2019-20.

(ii) Total money received during the year if the closing balance in advance from customers

account is Rs.1,70,000.

Solution:

1. Computation of Income for the year 2019-20

Particular’s Amount

2. Advance from Customer Account

Particular’s Amount Particular’s Amount

Total Money Received During Year

Particular’s Amount

53
7. Sengupta & Co. employs a team of eight workers who were paid Rs.30,000 per month each in

the year ending 31st March, 2019. At the start of financial year 2019 -2020, the company

raised salaries by 10% to Rs.33,000 per month each.

On October 1, 2019 the company hired two trainees at salary of Rs.21,000 per month each.

The work force are paid salary on the first working day of every month, one month in arrears,

so that the employees receive their salary for January on the first working day of February

etc.

You are required to calculate:

(a) Amount of salaries which would be charged to the profit and loss f or the year ended 31st

March, 2020.

(b) Amount actually paid as salaries during 2019-20

Outstanding Salaries as on 31st March, 2020.

Solution:

1. Salaries to be Charged to Profit & Loss account for the year ended 31 st March, 2020

Particular’s Amount

2. Salaries Actually Paid in 2019-20

Particular’s Amount

3. Outstanding Salary as at 31st March, 2020

Particular’s Amount

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8. Mr. Pankaj runs a factory which produces motor spares of export quality. The following details

were obtained about his manufacturing expenses for the year ended on 31.3.2020.

Particular’s Amount Particular’s Amount

W.I.P. - Opening 3,90,000

- Closing 5,07,000

Raw Materials - Purchases 12,10,000

- Opening 3,02,000

- Closing 3,10,000

- Returned 18,000

- Indirect material 16,000

Wages - direct 2,10,000

- indirect 48,000

Direct expenses - Royalty on production 1,30,000

- Repairs and maintenance 2,30,000

- Depreciation on factory shed 40,000

- Depreciation on plant & machinery 60,000

By-product at

selling price 20,000

You are required to prepare Manufacturing Account of Mr. Pankaj for the year ended on 31.3.2020.

Solution:

Manufacturing Account in Books of Mr.Pankaj for the Year Ended 31st March,2020

Particular’s Amount Particular’s Amount

55
 SELF PRACTICE QUESTION

1. The following are the balances as at 31st March, 2017 extracted from the books of Mr. XYZ.

Particular’s (Rs.) Particular’s (Rs.)

Plant and Machinery 19,550 Bad debts recovered 450

Furniture and Fittings 10,250 Salaries 22,550

Bank Overdraft 80,000 Salaries payable 2,450

Capital Account 65,000 Prepaid rent 300

Drawings 8,000 Rent 4,300

Purchases 1,60,000 Carriage inward 1,125

Opening Stock 32,250 Carriage outward 1,350

Wages 12,165 Sales 2,15,300

Provision for doubtful debts 3,200 Advertisement Expenses 3,350

Provision for Discount on Printing and Stationery 1,250

debtors 1,375 Cash in hand 1,450

Sundry Debtors 1,20,000 Cash at bank 3,125

Sundry Creditors 47,500 Office Expenses 10,160

Bad debts 1,100 Interest paid on loan 3,000

Additional Information:

(a) Purchases include sales return of Rs.2,575 and sales include purchases return of Rs.1,725.

(b) Goods withdrawn by Mr. XYZ for own consumption Rs.3,500 included in purchases.

(c) Wages paid in the month of April for installation of plant and machinery amounting to Rs.450

were included in wages account.

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(d) Free samples distributed for publicity costing Rs.825.

(e) Create a provision for doubtful debts @ 5% and provision for discount on debtors @ 2.5%.

(f) Depreciation is to be provided on plant and machinery @ 15% p.a. and on furniture and fittings

@ 10% p.a.

(g) Bank overdraft is secured against hypothecation of stock. Bank overdraft outstanding as on

31.3.2017 has been considered as 80% of real value of stock (deducting 20% as margin) and

after adjusting the marginal value 80% of the same has been allowed to draw as an overdraft.

Prepare a Trading and Profit and Loss Account for the year ended 31st March, 2017, and a

Balance Sheet as on that date. Also show the rectification entries.

Solution:

Trading & Profit and Loss Account in the Books of Mr. XYZ

For The Year Ended 31st March 2017

Particular’s Amount Particular’s Amount

57
 Balance Sheet as at 31st March, 2017

Liabilities Amount Assets Amount

58