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8. If the balance of an account on the debit side of the trial balance where the benefit has
already expired then it is treated as an expense.

9. Sales less cost of goods sold = gross profit.

10. If the debit side of the trading account exceeds its credit side then the balance is termed
as gross profit.

11. The provision for bad debts is debited to Sundry Debtors Account.
12. The provision for discount on creditors is often not provided in keeping with the principle
of conservatism.
13. The debts written off as bad, if recovered subsequently are credited to Debtors Account.
14. The adjustment entry in respect of income received in advance is debit Income received
in advance account and credit income account.
15. Premium paid on the life policy of a proprietor is debited to profit and loss account.
16. Depreciation account appear in the trial balance is taken only to profit and loss account.
17. Personal purchases included in the purchases day book are added to the sales account
in the Trading account.
18. Medicines given to the office staff by a manufacturer of medicines will be debited to
salaries account.
19. Goods worth ` 600 taken by the proprietor for personal use should be credited to Capital
Account.
20. If Closing Stock appears in the Trial Balance, the Closing inventory is then not entered
in Trading Account. It is only shown in the Balance Sheet.

Multiple Choice Questions

(1) A debit to an account may
(a) increase expense
(b) decrease an asset.

(c) increase a liability.

(2) Prepayment of insurance premium will appear in the Balance Sheet and in the Insurance
Account respectively as:

(a) a liability and a debit balance.

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(b) an asset and a debit balance.

(c) an asset and a credit balance.
(3) Gross profit is the difference between:
(a) sales and purchases
(b) sales and cost of sales.
(c) sales and total expenses.
(4) Payment made to a creditor subject to cash discount will :
(a) reduce a liability, reduce an asset and add to expenses.
(b) reduce a liability, add to an asset, and add to revenue.
(c) reduce an asset, reduce a liability, and add to revenue.
(5) A customer returns goods already charged to him. We should:
(a) debit his account.
(b) credit his account.
(c) make no entry on his account.
(6) Capital is the difference between
(a) Income and expenses
(b) Sales and Cost of goods sold

(c) Assets and liabilities

(7) The capital of a sole trader would change as a result of:
(a) A creditor being paid his account by cheque.
(b) Raw materials being purchased on credit.
(c) Wages being paid in cash.
(8) A decrease in the provision for doubtful debts would result in:

(a) An increase in liabilities.

(b) A decrease in working capital.
(c) An increase in net profit.
(9) A Company wishes to earn a 20% profit margin on selling price. Which of the following
is the profit mark up on cost, which will achieve the required profit margin?
(a) 33%

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(b) 25%
(c) 20%
(10) If sales is ` 2,000 and the rate of gross profit on cost of goods sold is 25%, then the cost
of goods sold will be
(a) ` 2,000.
(b) ` 1,500.
(c) ` 1,600.
(11) Sales for the year ended 31st March, 2022 amounted to ` 10,00,000. Sales included goods
sold to Mr. A for ` 50,000 at a profit of 20% on cost. Such goods are still lying in the
godown at the buyer’s risk. Therefore, such goods should be treated as part of
(a) Sales.
(b) Closing Inventory.
(c) Goods in transit.
(12) If sales revenues are ` 4,00,000; cost of goods sold is ` 3,10,000 and expenses are `
60,000, the gross profit is
(a) ` 30,000.
(b) ` 90,000.
(c) ` 3,40,000.

Theoretical questions
1. Write shorts notes on:
(a) Balance sheet.
(b) Trading account
(c) Closing entries
2. Distinguish between Provision and reserve fund.

Practical questions
1. From the following particulars extracted from the books of Ganguli, prepare trading and
profit and loss account and balance sheet as at 31st March, 2022 after making the
necessary adjustments:

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` `
Ganguli’s capital account 5,40,500 Interest received 7,250
(Cr.) as on 1.4.2021
Stock on 1.4.2021 2,34,000 Cash with Traders Bank Ltd. 40,000
Sales 14,48,000 Discounts received 14,950
Sales return 43,000 Investments (at 5%) as on 25,000
1.4.2021
Purchases 12,15,500 Furniture as on 1-4-2021 9,000
Purchases return 29,000 Discounts allowed 37,700
Carriage inwards 93,000 General expenses 19,600
Rent 28,500 Audit fees 3,500
Salaries 46,500 Fire insurance premium 3,000
Sundry debtors 1,20,000 Travelling expenses 11,650
Sundry creditors 74,000 Postage and telegrams 4,350
Loan from Dena Bank Ltd. 1,00,000 Cash in hand 1,900
(at 12%)
Interest paid 4,500 Deposits at 10% as on 1,50,000
1-4-2021 (Dr.)
Printing and stationery 17,000 Drawings 50,000
Advertisement 56,000

Adjustments:
(1) Value of stock as on 31st March, 2022 is ` 3,93,000. This includes goods returned
by customers on 31st March, 2022 to the value of ` 15,000 for which no entry has
been passed in the books.
(2) Purchases include furniture purchased on 1st January, 2022 for `10,000.
(3) Depreciation should be provided on furniture at 10% per annum.
(4) The loan account from Dena bank in the books of Ganguli appears as follows:
` `
31.3.2022 To Balance 1,00,000 1.4.2021 By Balance 50,000
c/d b/d
31.3.2022 By Bank 50,000
1,00,000 1,00,000

(5) Sundry debtors include ` 20,000 due from Robert and sundry creditors include
` 10,000 due to him.

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(6) Interest paid include ` 3,000 paid to Dena bank.

(7) Interest received represents ` 1,000 from the sundry debtors (due to delay on their
part) and the balance on investments and deposits.
(8) Provide for interest payable to Dena bank and for interest receivable on
investments and deposits.

(9) Make provision for doubtful debts at 5% on the balance under sundry debtors. No
such provision need to be made for the deposits.
2. Sengupta & Co. employs a team of eight workers who were paid `30,000 per month each
in the year ending 31st March, 2021. At the start of financial year 2021-2022, the
company raised salaries by 10% to `33,000 per month each.
On October 1, 2021 the company hired two trainees at salary of `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:

(i) Amount of salaries which would be charged to the profit and loss for the year ended
31st March, 2022.
(ii) Amount actually paid as salaries during 2021-22
(iii) Outstanding Salaries as on 31st March, 2022.
3. You are required, prepare a Trading and Profit and Loss Account for the year ending 31st
March, 2022 and a Balance Sheet as on that date from the Trial Balance given below:

Particulars ` Particulars `
Debit Balance:
Trade receivables 3,50,000 Salaries 2,20,000
Inventory 1st April, 2021 5,00,000 Purchases 12,50,00
Cash in Hand 5,60,000 Plant and Machinery 15,70,000
Wages 3,00,000 Credit Balance:
Bad Debts 50,000 Capital 25,00,000
Furniture and Fixtures 1,50,000 Trade payables 9,00,000
Depreciation 1,50,000 Sales 17,00,000

On 31st March, 2022 the Inventory was valued at `10,00,000.

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4. 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 2022 has been given below:
On 1.4.2021 he had a balance of ` 2,00,000 advance from customers of which ` 1,50,000
is related to year 2021-22 while remaining pertains to year 2022-23. During the year
2021-22 he made cash sales of ` 5,00,000. You are required to compute:
(i) Total income for the year 2021-22.
(ii) Total money received during the year if the closing balance in advance from
customers account is ` 1,70,000.
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, 2022

Particulars ` Particulars `
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 E
Income
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.

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ANSWERS/HINTS
True and False
1. True: Profit and loss account shows either net profit or net loss for a particular period.
2. False: Gains from the sale or exchange of assets are considered as the revenue of the
business. But this revenue not in the ordinary course of business so it is capital receipts.
3. True: The salary paid in advance is an asset it is not an expense because it neither
reduces assets or nor increase liabilities.
4. True: A loss is an expenditure of the business which does not bring any gain to the
business.
5. False: All liabilities which become due for payment within one year are classified as
current liabilities.

6. True: Current assets are all the assets which are expected to be realized or sold or
consumed within one year.
7. True: When an asset is purchase capital expenditure is incurred and when the asset is
put to use expenses are incurred in consumption.
8. True: Debit balance of accounts are treated as expenses whose benefit is already
received or expired.
9. True: Gross profit is obtained by deducting cost of goods sold from sales.
10. False: If the debit side of the trading account exceeds its credit side then the balance
is termed as gross loss.
11. False: The provision for bad debts is debited to debited to Profit and loss Account, in
Balance Sheet it is shown either on liability side or deducted from the head Debtors.
12. True: According to the provision of conservatism provision is maintained for the losses
to be incurred in future. Discount on creditors is an income so provision in not
maintained.
13. False: The debts written off as bad, if recovered subsequently are credited to Bad Debts
Recovered Account and becomes an income.
14. False: Income received in advance is reduces it from the concerned income in profit
and loss account. And, it is shows it as a liability in the current balance sheet under the
head Current Liabilities.
15. False: Premium paid on the life policy of a proprietor is to be debited to capital account,
as it is personal expense.

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16. True: Depreciation is charge on each of the asset on a certain percentage. Depreciation
is a charge to profit and loss account and should be debited to profit & loss account
by crediting the respective assets. If it appears in trial balance then it is taken only to
profit and loss account.
17. False: Personal purchases included in the purchases day book are deducted from the
purchases account in the Trading account.
18. True: Any benefit given to the staff is debited to the salary account.
19. False: Goods taken by the proprietor for personal use should be credited to Purchase
Account as less goods are left in the business for sale.
20. True: The closing Stock appears in the trial balance only when it is adjusted against
purchases by passing the entry. In this case, closing stock is not entered in Trading
Account and is shown only in Balance Sheet.

Multiple Choice Questions

1. (a) 2. (c) 3. (b) 4. (c) 5. (b) 6. (c)

7. (c) 8. (c) 9. (b) 10. (c) 11. (a) 12. (b)

Theoretical Questions
1. (a) The balance sheet may be defined as “a statement which sets out the assets
and liabilities of a firm or an institution as at a certain date.” Since even a single
transaction will make a difference to some of the assets or liabilities, the balance
sheet is true only at a particular point of time. That is the significance of the
word “as at.”
(b) At the end of the year, it is necessary to ascertain the net profit or the net loss.
For this purpose, it is first necessary to know the gross profit or gross loss with
the helps to Trading A/c. Gross Profit is the difference between the selling price
and the cost of the goods sold.

(c) Closing entries: The entries that have to be made in the journal for preparing
the Trading and the Profit and Loss Account that is for transferring the various
accounts to these two accounts are known as closing entries.
2. Provision means “any amount written off or retained by way of providing for
depreciation, renewal or diminution in the value of assets or retained by way of
providing for any known liability of which the amount cannot be determined with
substantial accuracy”.

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Reserve Fund: It signifies the amount standing to the credit of the reserve that is
invested outside the business in securities which are readily realisable e.g., when the
amounts set apart for replacement of an asset are invested periodically, in government
securities or shares. The account to which these amounts are annually credited is
described as the Reserve Fund.

Practical Questions
1. In the books of Ganguli
Trading and Profit & Loss Account for the year ended 31st March,2022
` ` ` `
To Opening stock 2,34,000 By Sales 14,48,000
To Purchases 12,15,500 Less: Returns (58,000) 13,90,000
Less: Transfer to furniture (10,000) By Closing stock 3,93,000
A/c
12,05,500
Less: Returns (29,000) 11,76,500
To Carriage inwards 93,000
To Gross profit c/d 2,79,500
17,83,000 17,83,000
To Salaries 46,500 By Gross profit 2,79,500
b/d
To Rent 28,500 By Interest 17,250
To Advertisement 56,000 By Discount 14,950
received
To Printing & stationery 17,000
To Interest 7,500
To Discount allowed 37,700
To General expenses 19,600
To Travelling expenses 11,650
To Fire insurance premium 3,000
To Postage & telegrams 4,350
To Provision for doubtful 4,750
debts (W.N.I)

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To Depreciation on 1,150
furniture
To Audit fees 3,500
To Capital A/c (Net profit 70,500
transferred)
3,11,700 3,11,700

Balance Sheet as at 31st March,2022

Liabilities ` ` Assets ` `

Capital account: Furniture 9,000

Balance on 1st 5,40,500 Additions during the 10,000
April,2021 year
Add: Net profit 70,500 19,000
6,11,000 Less: Depreciation (1,150) 17,850
Less: Drawings (50,000) 5,61,000 Investments 25,000
Loan from Dena Bank 1,00,000 Deposits 1,50,000
Ltd.
Insurance accrued on 3,000 Interest accrued on 10,000
bank loan (W.N.2) investment & deposits
(W.N.3)
Sundry creditors 64,000 Stock in trade 3,93,000
Sundry debtors 95,000
Less: Provision (4,750) 90,250
Cash with Traders Bank 40,000
Ltd.
Cash in hand
1,900
7,28,000 7,28,000

Working Notes:

1. Calculation of provision for doubtful debts: `

Sundry debtors as per trial balance 1,20,000
Less: Sales returns not recorded (15,000)
1,05,000

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Less: Cancellation against sundry creditors (10,000)

Adjusted balance of sundry debtors 95,000
Provision for doubtful debts @ 5% 4,750
2. Accrued interest on bank loan:
Annual interest @12% 6,000
Less: Interest paid to Dena bank (3,000)
Accrued interest 3,000
3. Interest accrued on investments and deposits:
Annual interest on investments @ 5% 1,250
Annual interest on deposits @ 10% 15,000
16,250
Less: Interest received on investments and deposits (6,250)
Accrued interest 10,000
2. `
(i) Salaries to be charged to profit and loss account for the year
ended 31st March, 2022:
Salaries of 8 employees for full year @ ` 33,000 per month each 31,68,000
Salaries of 2 trainees for 6 months @ ` 21,000 p.m. 2,52,000
34,20,000
(ii) Salaries actually paid in 2021-22
March, 2021 salaries paid in April, 2021 (8 x 30,000) 2,40,000
Salaries of 8 employees for April 2021 to March, 2022 paid in
May 2021 to March 2022 @ ` 33,000 for 11 months 29,04,000
Salaries of 2 trainees for October 2021 to February 2022 paid in
November 2021 to March 2022 @ ` 21,000 for 5 months 2,10,000
33,54,000
(iii) Outstanding salaries as at 31st March, 2022
8 employees @ ` 33,000 each for 1 month 2,64,000
2 trainees @ ` 21,000 each for 1 month 42,000
3,06,000

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3. Trading and Profit and Loss Account for the year ending 31st March, 2022

Particulars ` Particulars `

To Opening Inventory 5,00,000 By Sales 17,00,000

To Purchases 12,50,000 By Closing Inventory 10,00,000
To Wages 3,00,000
To Gross Profit 6,50,000
27,00,000 27,00,000
To Bad Debts 50,000 By Gross Profit 6,50,000
To Depreciation 1,50,000
To Salaries 2,20,000
To Net Profit transferred. to 2,30,000
Capital A/c
6,50,000 6,50,000

Balance Sheet as at 31st March, 2022

Liabilities ` ` Assets ` `
Trade payables 9,00,000 Cash in Hand 5,60,000
Capital: Trade receivables 3,50,000
Previous Balance 25,00,000 Closing Inventory 10,00,000 19,10,000
Add : Net Profit 2,30,000 27,30,000
Furniture & 1,50,000
Fixtures
Plant & Machinery 15,70,000 17,20,000
36,30,000 36,30,000

4. (i) Computation of Income for the year 2021-22:

`
Money received during the year related to 2021-22 5,00,000
Add: Money received in advance during previous years 1,50,000
Total income of the year 2021-22 6,50,000

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(ii) Advance from Customers A/c

Date Particulars ` Date Particulars `

To Sales A/c 1,50,000 1.4.2021 By Balance 2,00,000
b/d
(Advance related By Bank A/c 1,20,000
to current year (Balancing
transferred to Figure)
sales)
31.3.22 To Balance c/d 1,70,000
3,20,000 3,20,000
So, total money received during the year is:
`
Cash Sales during the year 5,00,000
Add: Advance received during the year 1,20,000
Total money received during the year 6,20,000

5. A) Computation of Net Profit:

Commission Manager = Rate of Commission X Net Profit before charging such
commission

So, Commission to manager = 10/100 X Net Profit before charging such

commission
= ` 2,00,000 = 10/100 X Net Profit before charging such commission
= Net Profit before charging such commission = ` 20,00,000
=> Net Profit (A) = ` (20,00,000 - 2,00,000) = `18,00,000
B) Computation of Selling Expenses:

Total income appearing in P&L A/c = ` 60,00,000

Total expenses other than selling expenses = `(26,00,000 + 13,00,000 +
2,00,000)= ` 41,00,000

So, Selling Expenses + Remaining Expenses + Net Profit = Total Income

= Selling Expenses = ` 60,00,000 -` 41,00,000 - ` 18,00,000
= Selling Expenses = ` 1,00,000

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C) Computation of Sales:
We have been given selling expenses amount to 1% of Sales
Selling Expenses 1,00,000
So, Sales = ×100 = × 100 = ` 100,00,000
1 1

D) Computation of Gross Profit:

In Trading A/c

Particulars ` Particulars `
To COGS 45,00,000 By Sales (from C 100,00,000
above)
To Gross Profit (Balancing Figure) 55,00,000

Total (F) 100,00,000 Total (F) 100,00,000

So, Gross Profit (D) = ` 55,00,000

E) Miscellaneous Income = Total Income in P&L - Gross Profit
= ` (60,00,000 - 55,00,000) = ` 5,00,000
F) = ` 100,00,000 (As computed in D above)
G) = ` 60,00,000 (Total of both sides of P&L is equal after balancing has been
done)

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UNIT – 2 FINAL ACCOUNTS OF MANUFACTURING

ENTITIES

LEARNING OUTCOMES

After studying this unit, you would be able to:

♦ Understand the purpose of preparing Manufacturing Account.
♦ Learn the items to be included in the Manufacturing Account
♦ Draw Manufacturing accounts of Manufacturing entities

UNIT OVERVIEW

MANUFACTURING BUSINESS ENTITIES

Final Accounts

Manufacturing Profit & Loss

Trading Account Balance Sheet
Account Account

2.1 INTRODUCTION
The manufacturing entities generally prepare a separate Manufacturing Account as a part of
Final accounts in addition to Trading Account, Profit and Loss Account and Balance Sheet. The
objective of preparing Manufacturing Account is to determine manufacturing costs of finished
goods for assessing the cost effectiveness of manufacturing activities. Manufacturing costs of
finished goods are then transferred from the Manufacturing Account to Trading Account.

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(a) Trading account shows Gross Profit while Manufacturing Account shows cost of
goods sold which includes direct expenses.
(b) Manufacturing account also deals with the raw materials, and work in progress while
the trading account would deal with finished goods only.

2.2 PURPOSE
A manufacturing account serves the following functions:

(1) It shows the total cost of manufacturing the finished products and sets out in detail,
with appropriate classifications, the constituent elements of such cost. It is, therefore,
debited with the cost of materials, manufacturing wages and expenses incurred directly
or indirectly to manufacture.
(2) It provides details of factory cost and facilitates reconciliation of financial books with
cost records. It also serves as a basis of comparison of manufacturing operations from
period to period.
(3) The Manufacturing Account may also be used for various other purposes. For example,
if the output is carried to the Trading Account at market prices, it shows the profit or
loss on manufacture. Similarly, it may also be used to fix the amount of production
linked bonus when such schemes are in force.

2.3 MANUFACTURING COSTS

Manufacturing costs are classified into:

+ Raw Material Consumed .…..….

+ Direct Manufacturing Wages ………
+ Direct Manufacturing Expenses ………
+ Direct Manufacturing Cost ………
+ Indirect Manufacturing expenses or
+ Manufacturing Overhead ………
Total Manufacturing Cost _____

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Raw Material consumed is arrived at after adjustment of opening and closing Inventory of raw
materials:

Raw Material Consumed = Opening inventory+ Purchases – Closing inventory

of Raw Materials of Raw Materials

If there remain unfinished goods at the beginning and at the end of the accounting period,
cost of such unfinished goods (also termed as Work-In-Process) is shown in the Manufacturing
Account.
Opening inventory of Work-in-Process is posted to the debit of the Manufacturing Account
and closing inventory of Work-in-Process is posted to the credit of the Manufacturing
Account.
DIRECT MANUFACTURING EXPENSES
Direct manufacturing expenses are costs, other than material or wages, which are incurred for
a specific product or saleable service.
Examples of direct manufacturing expenses are (i) Royalties for using license or technology if
based on units produced, (ii) Hire charge of the plant and machinery used on hire, if based on
units produced, etc.

When royalty or hire charges are based on units produced, these expenses directly vary with
production.
ILLUSTRATION 1
1,00,000 units were produced in a factory. Per unit material cost was ` 10 and per unit labour
cost was ` 5. That apart it was agreed to pay royalty @ ` 3 per unit to the Japanese collaborator
who supplied technology.
Required

Calculate Manufacturing Cost.

SOLUTION
In this case Manufacturing Cost comprises of –

Raw Material consumed (1,00,000 × ` 10) ` 10,00,000

Direct Wages (1,00,000 × ` 5) ` 5,00,000

Direct Expenses (1,00,000 × ` 3) ` 3,00,000

` 18,00,000

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INDIRECT MANUFACTURING EXPENSES OR OVERHEAD EXPENSES

These are also called Manufacturing overhead, Production overhead, Works overhead, etc.
Overhead is defined as total cost of indirect material, indirect wages and indirect expenses.
Overhead = Indirect Material + Indirect Wages + Indirect Expenses
Indirect material means materials which cannot be linked directly with the units produced,
for example, stores consumed for repair and maintenance work, small tools, fuel and
lubricating oil, etc.
Indirect wages are those which cannot be directly linked to the units produced, for example,
wages for maintenance works, holding pay, etc.

Indirect expenses are those which cannot be directly linked to the units produced, for
example, training expenses, depreciation of plant and machinery, depreciation of factory shed,
insurance premium for plant and machinery, factory shed, etc.
Accordingly, indirect manufacturing expenses comprise indirect material, indirect wages and
indirect expenses of the manufacturing division.
BY-PRODUCTS
In most manufacturing operations, the production of the main product is accompanied by the
production of a subsidiary product which has a value on sale. For example, the production of
hydrogenated vegetable oil is accompanied by the production of oxygen gas and the
production of steel yields scrap. The subsidiary product is termed as a by-product because its
production is not consciously undertaken but results out of the production of the main
product. It is usually very difficult to ascertain the cost of the product. Moreover, its value
usually forms a very small percentage of the main product.
By-product is a secondary product. This is produced from the same raw materials, which are
used for producing the main product and without incurring any additional expenses from the
same production process in which the main product is produced. Some examples of by-
product are given below:
(i) Molasses is the by-product in sugar manufacturing;
(ii) Butter milk is the by-product of a dairy which produces butter and cheese, etc.

By-products generally have insignificant value as compared to the value of main product. They
are generally valued at net realizable value, if their costs cannot be separately identified. It
is often treated, as Other Operating income” but the correct treatment would be to credit the
sale value of the by-product to Manufacturing Account so as to reduce to that extent, the cost
of manufacture of main product.

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2.4 DESIGN OF A MANUFACTURING ACCOUNT

There is no standardized design for the presentation of a Manufacturing Account. Given below
is a format covering various elements:
Manufacturing Account

Particulars Units Amount Particulars Units Amount

` `
To Raw Material Consumed: By By-products at net
Opening inventory realizable value

Add: Purchases …. By Closing Work-in- Process

Less: Closing inventory ….. By Trading A/c
To Direct Wages ….. …… Cost of production
To Direct expenses: ……
Prime cost ……
To Factory overheads:
Royalty .….
Hire charges …..
To Indirect expenses: …..
Repairs & Maintenance .….
Depreciation .…. …….
Factory cost …….
To Opening Work-in-process .……

Tutorial Note: Frequently, problems are set, in which all the ledger balances are not given.
Instead, details are given regarding the number of items in Inventories, quantity manufactured
etc. the figures for Inventories, sales etc., would therefore have to be worked out
independently from the data given.

The following general rules may be observed.

(a) The Manufacturing Account should have columns showing the quantities and values.
Frequently, all the quantities are not given and the quantities applicable to one or more of
the items would have to be worked out. For example, if the question does not state the total
number of items sold, the quantity can be worked out by adding opening inventory and units
manufactured and deducting closing inventory. It is, therefore, useful to have quantity
columns in the account so that it can be seen that both sides balance.

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 1.80 ACCOUNTING
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(b) The Manufacturing Account will show the quantity of raw materials in inventory at the
beginning and at the end of the year and the purchases during the year. As regards finished
goods, it will only show the quantity manufactured and, as regards work-in-progress, the
opening and closing amounts.
(c) The Trading Account will show the quantities of finished goods manufactured and sold
and the opening and closing inventory. It will not show the quantity of raw materials or work-
in-progress.
(d) For determining the value of closing inventory, in the absence of specific instruction
to the contrary, it must be assumed that sales have been on “first in-first out” basis, that is,
the closing inventory consists as far as possible of goods produced during the year, the
opening inventory being sold out.
It may be mentioned here that nowadays no manufacturing business entity prepares
manufacturing account as part of its final set of accounts. Even the items of manufacturing
account are shown either in trading account (in case of non-corporate entities) or in Statement
of profit and loss (in case of corporate entities).
The procedure of preparation of Trading Account, Profit and Loss Account and Balance Sheet
have already been explained in Unit 1 of this chapter. Students should refer the earlier unit
for attempting the problems based on the preparation of complete set of final accounts of a
sole proprietor.
ILLUSTRATION 2
Mr. Vimal runs a factory which produces soaps. Following details were available in respect of his
manufacturing activities for the year ended on 31.3.2022:

Opening Work-in-Process (10,000 units) 16,000

Closing Work-in-Process (12,000 units) 20,000

Opening inventory of Raw Materials 1,70,000

Closing inventory of Raw Materials 1,90,000

Purchases 8,20,000

Hire charges of machine @ ` 0.60 per unit manufactured

Hire charges of factory 2,20,000

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 PREPARATIONS OF FINAL ACCOUNTS OF 7.81
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Direct wages-Contracted @ ` 0.80 per unit manufactured and @ ` 0.40 per

unit of

Closing W.I.P.

Repairs and Maintenance 1,80,000

Units produced – 5,00,000 units

Required

Prepare a Manufacturing Account of Mr. Vimal for the year ended 31.3.2022.
SOLUTION
In the Books of Mr. Vimal
Manufacturing Account for the Year ended 31.3.2022

Particulars Units Amount Particulars Units Amount

` `
To Opening Work- in- 10,000 16,000 By Closing Work- 12,000 20,000
Process in-Process
To Raw Materials By Trading A/c – 5,00,000 19,00,800
Consumed: Cost of
finished
Opening inventory 1,70,000 goods
transferred
Add: Purchases 8,20,000
9,90,000
Closing Inventory (1,90,000) 8,00,000
To Direct Wages – W.N. (1) 4,04,800
To Direct expenses:
Hire charges
on Machinery
– W.N. (2) 3,00,000
To Indirect expenses:
Hire charges of
Factory Shed 2,20,000
Repairs Maintenance 1,80,000
19,20,800 19,20,800

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 1.82 ACCOUNTING
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Working Notes:

(1) Direct Wages – 5,00,000 units @ ` 0.80 = ` 4,00,000

12,000 units @ ` 0.40 = ` 4,800

` 4,04,800

(2) Hire charges on Machinery (5,00,000 units @ ` 0.60) ` 3,00,000

ILLUSTRATION 3
On 31st March, 2022 the Trial Balance of Mr. White were as follows:
Trial Balance as on 31st March, 2022

Particulars Dr. ` Particulars Cr. `

Stock on 1st April 2021

Raw Materials 21,000 Sundry Creditors 15,000
Work in Progress 9,500 Bills Payable 7,500
Finished goods 15,500 Sale of Scrap 2,500
Sundry Debtors 24,000 Commission Received 450
Carriage on Purchases 1,500 Provision for doubtful debts 1,650
Bills Receivable 15,000 Capital Account 1,00,000
Wages 13,000 Sales 1,67,200
Salaries 10,000 Bank Overdraft 8,500
Telephone, Postage etc. 1,000
Repairs to Office Furniture 350
Cash at Bank 17,000
Office Furniture 10,000
Repairs to Plant 1,100
Purchases 85,000
Plant and Machinery 70,000
Rent 6,000
Lighting 1,350
General Expenses 1,500
3,02,800 3,02,800

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 PREPARATIONS OF FINAL ACCOUNTS OF 7.83
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The following additional information is available:

Stocks on 31st March, 2022 were:
Raw Materials ` 16,200

Finished goods ` 18,100

Semi-finished goods ` 7,800
Salaries and wages unpaid for March 2022 were respectively, ` 900 and ` 2,000

Machinery is to be depreciated by 10% and office furniture by 71/2 %

Provision for doubtful debts is to be maintained @ 1% of sales
Office premises occupy 1/4 of total area.
Lighting is to be charged as to 2/3 to factory and 1/3 to office.
Prepare the Manufacturing Account Trading Account, Profit and Loss Account and the Balance
Sheet relating to 31st March 2022.
SOLUTION
In the books of Mr. White
Manufacturing Account for the year ended 31st March, 2022

Particulars ` Particulars `

Raw material consumed: By Closing Stock of Work in 7,800

Progress

To Opening Stock of Raw 21,000 By Sale of Scrap 2,500

Materials By Cost of goods
Manufactured

Add: Purchases 85,000 (Transferred to Trading 1,19,000

Account)
Less: Closing Stock 16,200 89,800

To Opening Stock of WIP 9,500

To Wages 13,000

Add: Outstanding Wages 2,000 15,000

To Carriage on Purchases 1,500

To Repairs to Plant 1,100

To Rent (3/4) 4,500

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 1.84 ACCOUNTING
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To Lighting (2/3) 900

To Depreciation of Plant 7,000

1,29,300 1,29,300

Trading Account for the year ended 31st March, 2022

Particulars ` Particulars `

To Opening Stock of finished 15,500 By Sales 1,67,200

goods
To Cost of goods transferred 1,19,000 By Closing Stock of finished 18,100
from Manufacturing A/c goods
To Gross Profit c/d 50,800

1,85,300 1,85,300

Profit and Loss Account for the year ended 31st March, 2022

Particulars ` Particulars `

To Salaries 10,000 By Gross Profit b/d 50,800

Add: Outstanding 900 10,900 By Commission 450
To Telephone & Postage 1,000
To Repairs to Furniture 350
To Depreciation of furniture 750
To Rent (1/4) 1,500
To Lighting (1/3) 450
To General Expenses 1,500
To Provision for doubtful
Debts: Required (1 % of 1,672
`1,67,200)
Less: Existing Provision 1,650 22

To Net Profit 34,778

51,250 51,250

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Balance Sheet as at 31st March, 2022

Capital and Liabilities ` Assets `

Capital Account 1,00,000 Plant & Machinery 70,000

Add: Net Profit 34,778 1,34,778 Less: Depreciation 7,000 63,000
Bank Loan 8,500 Office Furniture 10,000
Sundry Creditors 15,000 Less: Depreciation 750 9,250
Bills Payable 7,500 Closing Stock
Salary Payable 900 Raw Materials 16,200
Wages Payable 2,000 Work in Progress 7,800
Finished Goods 18,100
Sundry Debtors 24,000
Less: Provision for 22,328
Bad & Doubtful 1,672
Debts
Bills Receivable 15,000
Cash at Bank 17,000
1,68,678 1,68,678

NOTE: The ICAI has, through technical guide (issued in June, 2022) provided guidance on the
formats of financial statements for non-corporate entities. This would enable these entities
to communicate their financial performance and financial position in standardised formats
thereby enhancing their consistency and comparability. The said format of financial
statements has been given as Annexure – I at the end of the chapter for awareness of
students. It may be noted that this format does not form part of syllabus and has been given
here for the knowledge of students only.

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SUMMARY
♦ Direct manufacturing expenses are costs, other than material or wages, which are
incurred for a specific product or saleable service.
♦ Indirect Manufacturing expenses these are also called Manufacturing overhead,
Production overhead, Works overhead, etc.
♦ Overhead is defined as total cost of indirect material, indirect wages and indirect
expenses.
♦ Indirect material means materials which cannot be linked directly with the units
produced, for example, stores consumed for repair and maintenance work, small tools,
fuel and lubricating oil, etc. In most manufacturing operations, the production of the
main product is accompanied by the production of a subsidiary product which has a
value on sale.
♦ By-product is a secondary product. This is produced from the same raw materials,
which are used for producing the main product and without incurring any additional
expenses from the same production process in which the main product is produced.

TEST YOUR KNOWLEDGE

True and False
1. By-products valued at cost or net realisable value whichever is lower.
2. The manufacturing account is prepared to ascertain the profit or loss on the goods
produced.
3. If there remain unfinished goods at the beginning and at the end of the accounting
period, cost of such unfinished goods is shown in the Manufacturing Account.
4. Raw Material Consumed = Opening inventory of Raw Materials + Purchases – Closing
inventory of Raw Materials.

5. The Trading Account will show the quantities of finished goods, raw materials and work-
in-progress.
6. Overhead is defined as total cost of direct material, direct wages and direct expenses.
7. Manufacturing A/c is prepared by an enterprise engaged in trading activities.

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Multiple Choice Questions

1. Under-statement of closing work in progress in the period will

(a) Understate cost of goods manufactured in that period.

(b) Overstate current assets.
(c) Understate net income in that period.

(d) None of the three.

2. Sales is equal to
(a) Cost of goods sold – Gross profit.
(b) Cost of goods sold + Gross profit.
(c) Gross profit – Cost of goods sold.
(d) Net profit + cost of goods sold.

3. Indirect Manufacturing expenses are also called

(a) Manufacturing overhead.
(b) Production overhead.

(c) Works overhead.

(d) All the three.
4. Sale value of the by-product is credited to
(a) Manufacturing account.
(b) Capital account.
(c) Overheads account.

(d) Trading account.

5. Manufacturing account shows
(a) Total cost of manufacturing the finished products.
(b) It provides details of factory cost.
(c) It facilitates reconciliation of financial books with cost records.
(d) All the three.

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 1.88 ACCOUNTING
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Theoretical Questions
1. Write short note on by-products.
2. Differentiate between Direct Manufacturing Expenses and Indirect Manufacturing
expenses.

Practical Questions
1. 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 31.3.2022.

`
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 40,000
shed
- Depreciation on plant & 60,000
machinery
By-product at
selling price 20,000

You are required to prepare Manufacturing Account of Mr. Pankaj for the year ended on
31.3.2022.
2. Following are the Manufacturing A/c, Creditors A/c and Trading A/c provided by
Ms. Shivi related to 2021-22. There are certain figures missing from these accounts.

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 PREPARATIONS OF FINAL ACCOUNTS OF 7.89
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Raw Material A/c

Date Particulars Amount Date Particulars Amount

` `
To Opening Stock A/c 1,00,000 By Raw Material ..............
Consumed
To Creditors A/c ................ By Closing Stock A/c ..............
Creditors A/c

Date Particulars Amount Date Particulars Amount

` `
To Bank A/c 22,00,000 By Balance b/d 15,00,000
To Balance c/d 6,00,000

Manufacturing A/c

Particulars Amount Particulars Amount

` `
To Raw Material Consumed ................ By Trading A/c 17,94,000
To Wages 3,50,000
To Depreciation 2,00,000
To Direct Expenses 2,44,000

Additional Information:
1) Purchase of machinery worth ` 10,00,000 has been omitted. Machinery are
chargeable at a depreciation rate of 10%.
2) Wages include the following
Paid to Factory Workers - ` 3,00,000
Paid to labour at office - ` 50,000
3) Direct Expenses include following:
 Electricity charges of ` 80,000 of which 30% pertained to office.
 Fuel Charges of ` 20,000
 Freight Inwards of ` 35,000
 Delivery charges to customers - ` 20,000.

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

© The Institute of Chartered Accountants of India

 1.90 ACCOUNTING
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3. The following is the trial balance of Mr. Pandit for the year ended 31st March, 2022:
Trial Balance as on 31st March 2022

Particulars Dr. ` Particulars Cr.`

Opening Stock:
Raw Materials 1,50,000 Sundry Creditors 50,000
Finished goods 75,000 Purchase Returns 5,000
Purchase of Raw Materials 5,00,000 Capital 1,00,000
Land & Building 1,00,000 Bills Payable 24,000
Loose tools 30,000 Long-Term Loan 2,00,000
Plant & Machinery 30,000 Provision for Bad and 2,000
Doubtful Debts
Investments 25,000 Sales 8,50,000
Cash in Hand 20,000 Bank Overdraft 23,000
Cash at Bank 5,000
Furniture & Fixtures 15,000
Bills Receivable 15,000
Sundry Debtors 40,000
Drawings 20,000
Salaries 20,000
Coal and Fuel 15,000
Factory rent & rates 20,000
General Expenses 4,000
Advertisement 5,000
Sales Return 10,000
Bad Debts 4,000
Direct Wages (Factory) 80,000
Power 30,000
Interest Paid 7,000
Discount Allowed 3,000

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 PREPARATIONS OF FINAL ACCOUNTS OF 7.91
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Carriage Inwards 15,000

Carriage Outwards 7,000
Commission Paid 9,000

12,54,000 12,54,000

Additional Information
Stock of finished goods at the end of the year `1,00,000.

A provision for doubtful debts is to be created. at 5% on Sundry Debtors. Depreciation

on building ` 1,000 and ` 3,000 on Plant & Machinery to be provided.
Accrued commission of ` 12,500 is to be received for the year. Interest has accrued on
investment ` 15,000.
Salary Outstanding ` 2,000 and Prepaid Interest ` 1,500.
You are required to prepare Manufacturing, Trading and Profit and Loss Account for the
year ended 31st March, 2022.

ANSWERS/HINTS
True and False
1. False: By-products generally have insignificant value as compared to the value of main
product. Therefore, they are generally valued at net realizable value.
2. False: The objective of preparing Manufacturing Account is to determine
manufacturing costs of finished goods for assessing the cost effectiveness of
manufacturing activities.
3. True: Manufacturing account deals with the raw material and work in progress.

4. True: Raw Material consumed is arrived at after adjustment of opening and closing
inventory of raw materials and purchases.
5. False: The Trading Account will show the quantities of finished goods manufactured
and sold and the opening and closing inventory. It will not show the quantity of raw
materials or work-in-progress.
6. False: Overhead is defined as total cost of indirect material, indirect wages and indirect
expenses.

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7. False: Manufacturing A/c is prepared by the entities engaged in manufacturing

activities.

Multiple Choice Questions

1. (c) 2. (b) 3. (d) 4. (a) 5. (d)

Theoretical Questions
1. By-products generally have insignificant value as compared to the value of main
product. They are generally valued at net realisable value, if their costs cannot be
separately identified. It is often treated, as “Miscellaneous income” but the correct
treatment would be to credit the sale value of the by-product to Manufacturing
Account so as to reduce to that extent, the cost of manufacture of main product.
2. Direct manufacturing expenses are costs, other than material or wages, which are
incurred for a specific product or saleable service.
Indirect Manufacturing expenses are also called Manufacturing overhead,
Production overhead, Works overhead, etc. Overhead is defined as total cost of indirect
material, indirect wages and indirect expenses.
For detail, refer para 2.3

Practical Problems
1. In the Books of Mr. Pankaj
Manufacturing Account for the year ended on March 31,2022

Particulars Amount Particulars Amount

` ` `
To Opening W.I.P. 3,90,000 By Closing W-I-P 5,07,000
To Raw Material By by products 20,000
Consumed:
Opening inventory 3,02,000 By Trading A/c- 17,81,000
Purchases 12,10,000 Cost of finished

15,12,000 goods transferred

Less: Return (18,000)

14,94,000

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 PREPARATIONS OF FINAL ACCOUNTS OF 7.93
SOLE PROPRIETORS

Less: Closing inventory (3,10,000) 11,84,000

To Direct Wages 2,10,000

To Direct expenses:
Royalty 1,30,000
To Manufacturing
Overhead:
Indirect Material 16,000
Indirect Wages 48,000
Repairs & Maintenance 2,30,000
Depreciation on
Factory Shed 40,000
Depreciation on Plant &
Machinery 60,000 3,94,000

23,08,000 23,08,000

2. Manufacturing A/c

Particulars Amount ` Particulars Amount `

To Raw Material Consumed
(Balancing Figure) 10,00,000 By Trading A/c (W.N. 4) 18,00,000
To Wages (W.N. 2) 3,00,000
To Depreciation (W.N. 1) 3,00,000
To Direct Expenses (W.N. 3) 2,00,000

18,00,000 18,00,000

Raw Material A/c

Date Particulars Amount ` Date Particulars Amount `

To Opening Stock 1,00,000 By Raw Material 10,00,000
A/c Consumed (from
Trading A/c above)

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 1.94 ACCOUNTING
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To Creditors A/c 13,00,000 By Closing Stock A/c 4,00,000

(W.N. 5)
(Balancing Figure)

14,00,000 14,00,000

Working Notes:

1) Since purchase of Machinery worth ` 10,00,000 has been omitted.

So, depreciation omitted from being charged = ` 10,00,000 X 10%
= `1,00,000

Correct total depreciation expense = ` (2,00,000 + 1,00,000)

= ` 3,00,000
2) Wages worth ` 50,000 will be excluded from manufacturing account as they pertain to
office and hence will be charged P&L A/c.
3) Expenses to be excluded from direct expenses:
Office Electricity Charges (80,000 X 30%) 24,000
Delivery Charges to Customers 20,000
Total expenses not part of Direct Expenses 44,000
=> Revised Direct Expenses = ` (2,44,000 - 44,000) = ` 2,00,000
Fuel charges are related to factory expenses and also freight inwards are incurred for
bringing goods to factory/ godown so they are part of direct expenses.
4) Revised Balance to be transferred to Trading A/c:

Particulars Amount
`
Current Balance transferred 17,94,000
Add: Depreciation charges not recorded earlier 1,00,000
Less: Wages related to Office (50,000)
Less: Office Expenses (44,000)
Revised balance to be transferred 18,00,000

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5) Creditors A/c

Date Particulars Amount Date Particulars Amount

` `
To Bank A/c 22,00,000 By Balance b/d 15,00,000
To Balance c/d 6,00,000 By Raw Materials A/c (Bal. 13,00,000
figure)
28,00,000 28,00,000

3. In the books of Mr. Pandit

Manufacturing Account for the year ended 31st March, 2022

Particulars ` Particulars `

To Opening Stock of Raw 1,50,000 By Cost of Manufactured 8,08,000

Materials goods transferred to
Trading A/c
To Purchase 5,00,000
Less: Purchase Return 5,000 4,95,000

To Carriage Inwards 15,000

To Direct Wages 80,000
To Power 30,000
To Coal and fuel 15,000
To Factory Rent and Rates 20,000
To Depreciation on 3,000
Machinery
8,08,000 8,08,000

Trading Account for the year ended 31st March, 2022

Particulars ` Particulars `
To Opening Stock of finished goods 75,000 By Sales 8,50,000
To Cost of goods transferred from 8,08,000 Less: Sales Return 10,000 8,40,000
Manufacturing A/c By Closing Stock 1,00,000
To Gross Profit c/d 57,000
9,40,000 9,40,000

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 1.96 ACCOUNTING
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Profit and Loss Account for the year ended 31st March 2022

Particulars ` Particulars `

To Carriage Outward 7,000 By Gross Profit b/d 57,000

To Discount Allowed 3,000 By Accrued Commission 12,500
To Commission Paid 9,000 By Accrued Interest 15,000
To General Expenses 4,000
To Advertisement 5,000
To Salaries 20,000
Add: Outstanding 2,000 22,000
To Interest Paid 7,000
Less: Prepaid 1,500 5,500
To Provision for Bad & Doubtful 2,000
Debts
Add: Bad Debts 4,000
Less: Old Provision for Doubtful Debts 2,000 4,000
To Depreciation on Building 1,000
To Net Profit c/d 24,000
84,500 84,500

Balance Sheet as at 31st March, 2022

Capital and Liabilities ` Assets `

Capital 1,00,000 Plant & Machinery 30,000

Add: Net Profit 24,000 Less: Depreciation 3,000 27,000

1,24,000 Land & Building 1,00,000

Less: Drawings 20,000 1,04,000 Less: Depreciation 1,000 99,000
Bills Payable 24,000 Furniture & 15,000
Fixtures
Sundry Creditors 50,000 Investments 25,000
Salary Outstanding 2,000 Closing Stock 1,00,000
Long-Term Loans 2,00,000 Loose Tools 30,000

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Bank Overdraft 23,000 Sundry Debtors 40,000

Less: Provision for 2,000 38,000
Bad & Doubtful
Debts
Bills Receivable 15,000
Accrued 12,500
Commission
Accrued Interest 15,000
Prepaid Interest 1,500

Cash in Hand 20,000

Cash at Bank 5,000

4,03,000 4,03,000

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India
 ANNEXURE-I
FORMATS OF FINANCIAL STATEMENTS
FOR NON-CORPORATE ENTITIES

PART I – Form of BALANCE SHEET

Name of the Non-Corporate Entity…………….
Balance Sheet as at ………………
(Rupees in…………)
Particulars Note Figures as at the Figures as at the
No end of (Current end of
reporting period) (Previous
(in Rs.) reporting
__________ period) (in Rs.)
(DD/MM/YYYY) __________
(DD/MM/YYYY)
1 2 3 4
I. EQUITY AND LIABILITIES
(1) Owners’ Fund
(a) Owners Capital Account
(b) Reserves and surplus
(2) Non-current liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long-term provisions
(3) Current liabilities
(a) Short-term borrowings
(b) Trade payables:-
(A) total outstanding dues of
micro, small and medium
enterprises and
(B) total outstanding dues of
creditors other than micro,
small and medium
enterprises.

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ii

(c) Other current liabilities

(d) Short-term provisions

TOTAL

II. ASSETS

(1) Non-Current Assets

(a) Property, Plant and

Equipment and
Intangible assets

(i) Property, Plant and

Equipment

(ii) Intangible assets

(iii) Capital work-in-

progress

(iv) Intangible assets

under development

(b) Non-current investment

(c) Deferred tax assets (net)

(d) Long-term loans and

advances

(e) Other non-current assets

(2) Current assets

(a) Current investments

(b) Inventories

(c) Trade receivables

(d) Cash and bank balances

(e) Short-term loans and

advances

(f) Other current assets

TOTAL

See accompanying notes which form part of the financial statements

© The Institute of Chartered Accountants of India

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Notes

GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET

1. An asset shall be classified as current when it satisfies any of the following criteria:
(a) it is expected to be realized in, or is intended for sale or consumption in, the
company’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is expected to be realized within twelve months after the reporting date; or
(d) it is cash or cash equivalent unless it is restricted from being exchanged or
used to settle a liability for at least twelve months after the reporting date.
All other assets shall be classified as non-current.
2. An operating cycle is the time between the acquisition of assets for processing and
their realization in cash or cash equivalents. Where the normal operating cycle
cannot be identified, it is assumed to have a duration of 12 months.
3. A liability shall be classified as current when it satisfies any of the following criteria:
(a) it is expected to be settled in the company’s normal operating cycle;
(b) it is held primarily for the purpose of being traded;
(c) it is due to be settled within twelve months after the reporting date; or
(d) the Non-Corporate entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after the reporting date.
Terms of a liability that could, at the option of the counterparty, result in its
settlement by the issue of equity instruments do not affect its classification.
All other liabilities shall be classified as non-current.
4. A receivable shall be classified as a ‘trade receivable’ if it is in respect of the amount
due on account of goods sold or services rendered in the normal course of business.
5. A payable shall be classified as a ‘trade payable’ if it is in respect of the amount due
on account of goods purchased or services received in the normal course of business.

6. A Non-Corporate entity may disclose the following in the Notes to Accounts:

A. Owners Funds
For each owner following items for the year to be disclosed separately:
(a) opening balance;
(b) capital Introduced/Contributed during the year;

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iv

(c) remuneration for the year;

(d) interest for the year;
(e) withdrawals during the year;
(f) share of profit or loss for the year (share in % and amount);
(g) closing balance.
B. Reserves and Surplus
(i) Reserves and Surplus may be classified as:
(a) Capital Reserves;
(b) Revaluation Reserve;
(c) Other Reserves – (specify the nature and purpose of each
reserve and the amount in respect thereof);

(d) Undistributed Surplus i.e. balance in Statement of Profit and

Loss.
(ii) Debit balance of statement of profit and loss shall be shown as a
negative figure under the head ‘Undistributed Surplus’. Similarly, the
balance of ‘Reserves and Surplus’, after adjusting negative balance of
surplus, if any, shall be shown under the head ‘Reserves and Surplus’
even if the resulting figure is in the negative.
C. Long-Term Borrowings
(i) Long-term borrowings may be classified as:
(a) Term loans
 From banks
 From other parties

(c) Deferred payment liabilities.

(d) Loans and advances from related parties.
(e) Long term maturities of finance lease obligations

(f) Other loans and advances (specify nature).

(ii) Borrowings may further be sub-classified as secured and unsecured.
Nature of security shall be specified separately in each case.

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(iii) Where loans have been guaranteed by partners/proprietor/owners or

others, the aggregate amount of such loans under each head shall be
disclosed.
(iv) Terms of repayment of term loans and other loans may be stated.
D. Long-term provisions

The amounts may be classified as:

(a) Provision for employee benefits.
(b) Others (specify nature).

E. Short-term borrowings
(i) Short-term borrowings may be classified as:
(a) Loans repayable on demand
 From banks
 From other parties
(b) Loans and advances from related parties.

(b) Other loans and advances (specify nature).

(ii) Borrowings may further be sub-classified as secured and unsecured.
Nature of security shall be specified separately in each case.
(iii) Where loans have been guaranteed by partners/proprietor/ owners or
others, the aggregate amount of such loans under each head shall be
disclosed.

(iv) current maturities of Long term borrowings may be disclosed

separately.
F. Trade Payables
The following details relating to Micro, Small and Medium Enterprises shall be
disclosed in the notes:-
(a) the principal amount and the interest due thereon (to be shown
separately) remaining unpaid to any supplier at the end of each
accounting year;
(b) the amount of interest paid by the buyer in terms of section 16 of the
Micro, Small and Medium Enterprises Development Act, 2006, along
with the amount of the payment made to the supplier beyond the
appointed day during each accounting year;

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(c) the amount of interest due and payable for the period of delay in
making payment (which have been paid but beyond the appointed day
during the year) but without adding the interest specified under the
Micro, Small and Medium Enterprises Development Act, 2006;
(d) the amount of interest accrued and remaining unpaid at the end of
each accounting year; and
(e) the amount of further interest remaining due and payable even in the
succeeding years, until such date when the interest dues above are
actually paid to the small enterprise, for the purpose of disallowance of
a deductible expenditure under section 23 of the Micro, Small and
Medium Enterprises Development Act, 2006.
Explanation.-The terms 'appointed day', 'buyer',' enterprise', 'micro enterprise',
'small enterprise' and 'supplier', shall have the same meaning assigned to
those under clauses (b), (d), (e), (h), (m) and (n) respectively of section 2 of the
Micro, Small and Medium Enterprises Development Act, 2006.
G. Other current liabilities
The amounts may be classified as:
(a) Current maturities of finance lease obligations;
(b) Interest accrued but not due on borrowings;
(c) Interest accrued and due on borrowings;
(d) Income received in advance;
(e) Other payables (specify nature);
H. Short-term provisions

The amounts may be classified as:

(a) Provision for employee benefits.
(b) Others (specify nature).

I. Property, Plant and Equipment

(i) Classification may be given as:
(a) Land.

(b) Buildings.
(c) Plant and Equipment.

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(d) Furniture and Fixtures.

(e) Vehicles.
(f) Office equipment.
(g) Others (specify nature).
(ii) Assets under lease may be separately specified under each class of
asset.
(iii) A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing
additions, disposals acquisitions through business combinations,
amount of change due to revaluation (if change is 10% or more in the
aggregate of the net carrying value of each class of Property, Plant and
Equipment) and other adjustments and the related depreciation and
impairment losses/reversals shall be disclosed separately.
J. Intangible assets
(i) Classification may be given as:
(a) Goodwill.
(b) Brands /trademarks.
(c) Computer software.
(d) Mastheads and publishing titles.
(e) Mining rights.

(f) Copyrights, and patents and other intellectual property rights,

services and operating rights.
(g) Recipes, formulae, models, designs and prototypes.

(h) Licenses and franchise.

(i) Others (specify nature).
(ii) A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing
additions, disposals, acquisitions through business combinations,
amount of change due to revaluation (if change is 10% or more in the
aggregate of the net carrying value of each class of intangible assets)
and other adjustments and the related amortisation and impairment
losses or reversals shall be disclosed separately.

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K. Non-current investments
(i) Non-current investments shall be classified as trade investments and
other investments and further classified as:
(a) Investment property;
(b) Investments in Equity Instruments;

(c) Investments in preference shares;

(d) Investments in Government or trust securities;
(e) Investments in debentures or bonds;

(f) Investments in Mutual Funds;

(g) Investments in partnership firms;
(h) Other non-current investments (specify nature)

Under each classification, details may be given of names of the entities

(indicating separately whether such entities are joint ventures or
controlled special purpose entities) in whom investments have been
made (showing separately investments which are partly-paid). In
regard to investments in the capital of partnership firms, the names of
the firms (with the names of all their partners, total capital and the
shares of each partner) may be given.
(ii) Investments carried at other than at cost should be separately stated
specifying the basis for valuation thereof.
(iii) The following shall also be disclosed:
(a) Aggregate amount of quoted investments and market value
thereof;

(b) Aggregate amount of unquoted investments;

(c) Aggregate provision for diminution in value of investments.
L. Long-term loans and advances

(i) Long-term loans and advances may be classified as:

(a) Capital Advances;
(b) Loans and advances to related parties (giving details thereof);

(c) Other loans and advances (specify nature).

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(ii) The above may also be separately sub-classified as:

(a) Secured, considered good;
(b) Unsecured, considered good;
(c) Doubtful.
(iii) Allowance for bad and doubtful loans and advances shall be disclosed
separately.
M. Other non-current assets
Other non-current assets may be classified as:

(i) Security Deposits;

(ii) Bank deposits with more than 12 months maturity;
(ii) Others (specify nature).

N. Current Investments
(i) Current investments shall be classified as:
(a) Investments in Equity Instruments;
(b) Investment in Preference Shares;
(c) Investments in government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership firms;
(g) Other investments (specify nature).

Under each classification, details may be given of names of the entities

(indicating separately whether such entities are joint ventures or
controlled special purpose entities) in whom investments have been
made (showing separately investments which are partly-paid). In
regard to investments in the capital of partnership firms, the names of
the firms (with the names of all their partners, total capital and the
shares of each partner) may be given.
(ii) The following shall also be disclosed:
(a) The basis of valuation of individual investments;

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(b) Aggregate amount of quoted investments and market value

thereof;

(c) Aggregate amount of unquoted investments;

(d) Aggregate provision made for diminution in value of investments.
O. Inventories

(i) Inventories shall be classified as:

(a) Raw materials;
(b) Work-in-progress;

(c) Finished goods;

(d) Stock-in-trade (in respect of goods acquired for trading);
(e) Stores and spares;

(f) Loose tools;

(g) Others (specify nature).
(ii) Goods-in-transit may be disclosed under the relevant sub-head of
inventories.
(iii) Mode of valuation may be stated.
P. Trade Receivables
(i) Aggregate amount of trade receivables outstanding for a period
exceeding six months from the date they are due for receipt may be
stated separately.

(ii) Trade receivables may be sub-classified as:

(a) Secured, considered good;
(b) Unsecured considered good;

(c) Doubtful.
(iii) Allowance for bad and doubtful debts shall be disclosed separately.
Q. Cash and bank balances
(i) Cash and cash equivalents shall be classified as:
(a) Balances with banks;
(b) Cheques, drafts on hand;

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(c) Cash on hand;

(d) Others (specify nature).
(ii) Other bank balances shall be classified as
(a) Bank Deposits - Earmarked balances with banks.
(b) Margin money or deposits under lien shall be disclosed
separately.
(c) Bank deposits with original maturity for more than 3 months
but less than 12 months from reporting date.

(d) others (specify nature)

R. Short-term loans and advances
(i) Short-term loans and advances may be classified as:

(a) Loans and advances to related parties (giving details thereof);

(b) Others (specify nature).
(ii) The above may also be sub-classified as:
(a) Secured, considered good;
(b) Unsecured, considered good;
(c) Doubtful.

(iii) Allowance for bad and doubtful loans and advances may be disclosed
under the relevant heads separately.
S. Other current assets (specify nature).
This is an all-inclusive heading, which incorporates current assets that do not
fit into any other asset categories.
T. Contingent liabilities (to the extent not provided for)

(i) Contingent liabilities may be classified as:

(a) Claims against the non-corporate entity not acknowledged as
debt;

(b) Guarantees;
(c) Other money for which the non-corporate entity is contingently
liable.

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PART II – Form of STATEMENT OF PROFIT AND LOSS

Name of the Non-Corporate Entity…………………….
Statement of Profit and Loss for the year ended ………………………
(Rupees in…………)

Particulars Note Figures for the Figures for the

current reporting previous reporting
period (in) period (in)
From ________ From__________
(DD/MM/YYYY) (DD/MM/YYYY)

To __________ To____________
(DD/MM/YYYY) (DD/MM/YYYY)

1 2 3 4

I. Revenue from operations xxx xxx

II. Other income xxx xxx

III. Total Income (I + II) xxx xxx

IV. Expenses

(a) Cost of Goods Sold

(b) Employee benefits expense xxx xxx

(c) Depreciation and amortization xxx xxx

expense

(d) Finance Cost xxx xxx

(e) Other expenses xxx xxx

Total expenses xxx xxx

V Profit before exceptional and xxx xxx

extraordinary items

and tax (III-IV)

VI Exceptional items xxx xxx

VII Profit before extraordinary items xxx xxx

and tax (V - VI)

VIII Extraordinary Items xxx xxx

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IX Profit before tax (VII- VIII) xxx xxx

X Tax expense:

(i) Current tax xxx xxx

(ii) Deferred tax xxx xxx

XI Profit (Loss) for the period from xxx xxx

continuing operations (IX-X)

XII Profit/(loss) from discontinuing xxx xxx

operations

XIII Tax expense of discontinuing xxx xxx

operations

XIV Profit/(loss) from Discontinuing xxx xxx

operations (after tax) (XII-XIII)

XV Profit/ (Loss) (XI + XIV) xxx xxx

See accompanying notes which form part of the financial statements

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GENERAL INSTRUCTIONS FOR PREPARATION OF STATEMENT OF PROFIT AND LOSS

1. The provisions of this Part may be applied to the income and expenditure account in
like manner as they apply to a statement of profit and loss.
2. (A) Revenue from operations may disclose separately in the notes revenue from—
(a) Sale of products;

(b) Sale of services;

(c) Grants or donations received;
(d) Other operating revenues;

(e) Less: Excise duty

(B) In respect of a finance Non-Corporate entity, revenue from operations may
include revenue from—

(a) Interest; and

(b) Other financial services.
3. Cost of Goods Sold

Costs of Goods Sold shall be classified as:

(a) Cost of materials consumed;
(b) Purchases of Stock-in-Trade;
(c) Changes in inventories of finished goods;
(d) Work-in-progress and Stock-in-Trade.
4. Finance Costs

Finance costs may be classified as:

(a) Interest expense;
(b) Other borrowing costs;

(c) Applicable net gain/loss on foreign currency transactions and translation.

5. Other income
Other income shall be classified as:

(a) Interest Income;

(b) Dividend Income;
(c) Net gain/loss on sale of investments;

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(d) Other non-operating income (net of expenses directly attributable to such

income).

6. Following may be disclosed by way of notes regarding aggregate expenditure and

income on the following items:—
(i) (a) Employee Benefits Expense showing separately (i) salaries and wages,
(ii) Contribution to provident and other funds, (iii) staff welfare
expenses;
(b) Any item of income or expenditure which exceeds one per cent of the
revenue from operations or Rs.1,00,000 whichever is higher;
(c) Adjustments to the carrying amount of investments;
(d) Net gain or loss on foreign currency transaction and translation (other
than considered as finance cost);
(e) Details of items of exceptional and extraordinary nature;
(f) Prior period items.
(ii) Expenditure incurred on each of the following items, separately for each
item:—
(a) Consumption of stores and spare parts;

(b) Power and fuel;

(c) Rent;
(d) Repairs to buildings;

(e) Repairs to machinery;

(f) Insurance;
(g) Rates and taxes, excluding, taxes on income;

(h) Miscellaneous expenses.

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© The Institute of Chartered Accountants of India