UNIT – 2 FINAL ACCOUNTS OF MANUFACTURING ENTITIES

CHAPTER7
CHAPTER OVERVIEW

PREPARATION OF FINAL
ACCOUNTS OF SOLE PROPRIETORS
Manufacturing
Account

Trading Account
Manufacturing
Final Accounts
Business Entities
Profit & Loss
Account

Balance Sheet

7.2.1. | P a g e By: - CA Nakul Katheria

UNIT – 2 FINAL ACCOUNTS OF MANUFACTURING ENTITIES

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.

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.

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.

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 _____

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

7.2.2. | P a g e By: - CA Nakul Katheria

UNIT – 2 FINAL ACCOUNTS OF MANUFACTURING ENTITIES
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.

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.

7.2.3. | P a g e By: - CA Nakul Katheria

UNIT – 2 FINAL ACCOUNTS OF MANUFACTURING ENTITIES
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. Itis 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 costof manufacture of main product.

There is no standardized design for the presentation of a Manufacturing Account. Given

belowis a format covering various elements:
Manufacturing Account

Particulars Units Amount Particulars Units Amount

To Raw Material By By-products at net
Consumed:Opening realizable value
inventory …. By Closing Work-in- Process
Add: Purchases ….. By Trading A/c
Less: Closing inventory ….. …… Cost of production
To Direct Wages ……
To Direct ……
expenses:Prime
cost .….
To Factory …..
overheads: …..
Royalty .….
Hire charges .…. …….
To Indirect expenses: …….
Repairs & .……
Maintenance
Depreciation
Factory cost
To Opening Work-in-
process

7.2.4. | P a g e By: - CA Nakul Katheria

UNIT – 2 FINAL ACCOUNTS OF MANUFACTURING ENTITIES
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
ofthe items would have to be worked out.

(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 instructionto
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.

7.2.5. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Past Year
Questions

NOVEMBER 2018
Question 1

Mr. Fazhil is a proprietor in business of trading. An abstract of his Trading and P&L
account is as follows:

Trading and P&L A/c

for the year ended 31st March, 2018

Particulars (`) Particulars (`)

To Cost of Goods sold 22,00,000 By Sales 45,00,000
To Gross Profit C/d 45,00,000
?

By Gross Profit B/d ?

To Salaries paid 12,00,000 By Other Income 45,000
To General Expenses 6,00,000

To Selling Expenses ?
To Commission to Manager (On net profit 1,00,000
before charging such commission)

To Net Profit ?

? ?
Selling expenses amount to 1% of total Sales You are required to compute the missing
figures.

Answer:

Trading and P&L A/c

for the year ended 31st March 2018

Q 7.1. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Dr. Cr.

Particulars ` Particulars `

To Cost of Goods Sold 22,00,000 By Sales 45,00,000

To Gross Profit c/d 23,00,000

45,00,000 45,00,000

To Salaries A/c 12,00,000 By Gross Profit b/d 23,00,000

To General Expenses 6,00,000 By Other Income 45,000

To Selling Expenses (1% of 45,00,000) 45,000

To Commission to Manager (on Net

Profit before charging such

commission)
1,00,000

To Net Profit 4,00,000

23,45,000 23,45,000

MAY 2019
Question 2

Following particulars are extracted from the books of Mr. Sandeep for the year ended
31st December, 2018.

Particulars Amount Particulars Amount

Debit Balances: ` Credit Balances: `

-
Cash in hand BIS 1,500 Capital BIS E
16,000
-
Purchase TR
12,000 Bank overdraft B2,000
r
Sales return TR 1,000 rSales 9,000
P2L
Salaries - 2,500 ~
Purchase return TR
2,000

Q 7.2. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

-
Tax and Insurance P2c 500 Provision for Bad debts
&
O
1,000
-
Bad debts pac 500 -As
Creditors C2,000
-BS
Debtors 5,000 Commission
- 500
-s
Investments sor
4,000 Bills payable BIS :

O
2,500
Opening stock 1,400

-
Drawings 2,000
Furniture
-
Bas O
1,600

-
Bills receivables
BIS :

3,000

35,000 35,000
Other information :

C
(i) Closing stock was valued at ` 4,500

I
(ii) Salary of ` 100 and Tax of ` 200 are outstanding whereas insurance ` 50 is prepaid.

(iii) Commission received in advance is `O

V 100.
- &

(iv) Interest accrued on investment is

v -
` 210 >
-
outstanding
(v) Interest on overdraft is unpaid ` 300
W
B

E
(vi) Reserve for bad debts is to be kept at ` 1,000
-

-
(vii) Depreciation on furniture is to be charged @ 10%

You are required to prepare the final accounts after making above adjustments.

Answer:
Trading & Profit and Loss Account of

Mr. Sandeep for the year ended 31st December, 2018

Particular s ` Amount Particular s ` Amount

To Opening Stock 1,400 By Sales 9,000
To Purchase 12,000 Less: Sales (1,000) 8,000
return
Less: Purchase (2,000) 10,000 By Closing stock 4,500
return
To Gross Profit 1,100

Q 7.3. | P a g e By: - CA Nakul Katheria

 MR: SANDEEP-

Profit 3et
Trading
loss Account Dec 2018 .
for the year
ending
and &

DR CR
Particulars- Amount Particulars Amount ,

1400
opening
To atook

By sales 9000

To Purchases 12000
less siretem Lood Good

less : Return Good

By closing
store 9500
10 , 000
12500
Progit
000
To Gross -

By Gross
Bugit 1100

&

Commission 500
B7
To salanes
a
2500 * less : Parance Goo) 400

By
&
100 2600 ols Ent on 210

outstanding
+ Myst

To TGX 2 InSu 500

&

toutstanding
200
3) Net

#
loss : G500

-
Prepaid 50 650

To Bad Debts :
500

To 300
Into on Old Ols

To
Dep
Fr (1600x10 160

Eo
o

Co Note
.

① Reserve for Bad Debts 1000

1000
Reserve
already
No Gadition to Reserve. is required
 Sandeep -

Balance sheet as at 31st Decen 201 Ba

-

Liabilities Amount Assets Amount

T
- itess 1600
Capital 16000
(60
-

less Dep 1440

-

-
9

Drawings Good 1500

case
~
Net loss : Csof 11500
Debtes 5000
>
-

Bank OID :
2000 lessan Go 4000

300 mystrut 9000

- Intos . 2300
-
↑ Intols 20 4210

salanes ols .
100
Brec 3000
200
-

Tox Ols ,

9500
estove
&
Blls Payasie Ald
soo
pepad this 50
Credites 2000
-
100
Ady Comin
: -

18700
18 700 -
--

-
-
 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

12,500 12,500
To Salary 2,500 By Gross Profit 1,100
Add: Outstanding 100 2,600 By Commission
salary
Less: Advance 500 400

To Tax & Insurance 500 By Accrued interest (100) 210

Add: Outstanding 200 By Net Loss 2,500
Prepaid insurance (50) 650
To Bad debt 500

Opening provision (1,000)

Closing provision 1,000 500
To Interest on overdraft 300
To Depreciation on 160
furniture

4,210 4,210

Balance Sheet of Mr. Sandeep

as on 31.3.2018
Particulars ` ` Particulars ` `
Capital 16,000 By Furniture 1,600

Less: drawing (2,000) Less: Depreciation (160) 1,440

Net loss (2,500) 11,500 Bill receivable 3,000
Bank overdraft 2,000 Investment 4,000

Add: interest 300 2,300 Add: accrued interest 210 4,210

Creditors 2,000 Debtors 5,000
Bills payable 2,500 Less: Provision on bad (1,000) 4,000
debts
Outstanding expenses:

Salary 100 Closing stock 4,500

Tax 200 300 Cash in hand 1,500

Q 7.4. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Commission received in 100 Prepaid insurance 50

advance

18,700 18,700

NOV 2019
Question 3

O
The balance sheet of Mittal on 1st January, 2018 was as follows:

Liabilities Amount ` Assets Amount `

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

Expenses payable 2,50,000 -

Furniture & Fixture 4,00,000

I O
Capital 51,00,000 -
Trade receivables
Cash at bank
14,50,000
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 ` 15,10,000.
*

This was after allowing for the following:

9
i. Interest on capital @ 6% p.a.

O
ii. Depreciation on plant and machinery @ 10% p.a. and on Furniture and Fixtures
O @ 5% p.a..
-
iii. A provision for Doubtful debts @ 5% of the trade receivables as at 31st
December 2018. 15 10,000
,

But while preparing the profit and loss account he had forgotten to provide for (1)
outstanding expenses totalling ` 1,85,000 and (2) prepaid insurance to the extent of `
25,000.
-

His current assets and liabilities on 31st December, 2018 were:

Trade receivables` 21,00,000; Cash at bank ` 5,20,000 and Trade payables `

-

13,84,000. During the year he withdrew ` 6,20,000 for domestic use. Closing

O
inventories is equal to net trade receivables at the year-end.
-

Q 7.5. | P a g e By: - CA Nakul Katheria

 Profit = , 10 , 000
15

less : but :
Exp : not

paided Gaso
&
Add: Prepaid Exp -
not
&

provided
25000

13150 , 000
Correct
NIBrgiL

P2 Alc (Revised)

To Expols 185 , 000 By NIProgit 15 , 10 , 000

2000

137
06 ·
ens
To Net
By + 1350000

Revised
35000
#
Balance sheet

9s at 37 Dec-2018 ,

Liabilities At :
Assets :
Amount

↑2M 31 , 00 1 000
Capital S1 , 00 , 00
Goy
-

E less bet
+ Brigh
I t on cap
1380000004
6136000 #IR 400000
27 , 90 , 000

G200
-

-Drawings less Dep 200d) 3, 00 ,000

Exp .

Payasie 185000 I
(400 1
000-s) 19aso

Tipayable 1384000 Cash S20000

-

Inyn 1995000
osovo
-
FEXD 95000
-

770 500
-
-
 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
You are required to draw up revised Profit and Loss account and Balance Sheet at the
end of the year
Answer:
Profit and Loss Account (Revised)

Particulars ` Particulars `
To Outstanding expenses 1,85,000 By Balance b/d 15,10,000
To Net profit 13,50,000 By Prepaid insurance 25,000

15,35,000 15,35,000

Balance Sheet of Mittal as on 31st December, 2018

Liabilities ` Assets ` `

Capital 51,00,000 Cash at Bank 5,20,000

Add: Net Profit 13,50,000 Trade receivables 21,00,000
64,50,000 Less: Provision for
doubtful debts (1,05,000) 19,95,000

Less: Drawings (6,20,000) Plant and 31,00,000

Machinery
58,30,000 Less: Depreciation (3,10,000) 27,90,000
Add: Interest on 3,06,000 61,36,000 Furniture & Fixtures 4,00,000
capital
Outstanding
expenses
O
1,85,000 Less: Depreciation (20,000) 3,80,000

Trade payables 13,84,000 Inventories 19,95,000

Prepaid insurance 25,000

77,05,000 77,05,000

Q 7.6. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

DEC 2020
Question 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
Particulars Amount Particulars Amount

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

To Creditors A/c - By Closing Stock -

Creditors A/c
Particulars Amount Particulars Amount

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

To Balance c/d 6,60,000 -

Manufacturing A/c

Particulars Amount Particulars Amount

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:

(i) Purchase of machinery worth ` 12,00,000 on 1st April; 2019 has been omitted,
Machinery is chargeable at a depreciation rate of 15%.
(ii) Wages include the following:
Paid to factory workers - ` 3,15,000
Paid to labour at office - ` 50,000
(iii) Direct expenses included the following :
Electricity charges - ` 80,000 of which 25% pertained to office

Q 7.7. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
Fuel charges - ` 25,000
Freight inwards - ` 32,000
Delivery charges to customers - ` 22,000

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

Particulars ` Particulars `
To Raw Material Consumed 9,15,000 By Trading A/c (W.N. 4) 18,32,000
(Balancing Figure)

To Wages (W.N. 2) 3,15,000

To Depreciation (W.N. 1) 3,95,000
To Direct Expenses (W.N. 3) 2,07,000

18,32,000 18,32,000

Raw Material A/c

Particulars ` Particulars `
To Opening Stock A/c 1,27,000 By Raw Material Consumed (from
Manufacturing A/c above)
9,15,000
To Creditors A/c (W.N. 5) 14,40,000 By Closing Stock A/c (Balancing 6,52,000
Figure)

15,67,000 15,67,000
Working Notes:
(1) Since purchase of Machinery worth ` 12,00,000 has been [Link],
depreciation omitted from being charged = 12,00,000 X 15%
= ` 1,80,000
Correct total depreciation expense = ` (2,15,000 + 1,80,000)
= 3,95,000
(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. So the revised wages amounting
` 3,15,000 will be shown in manufacturing account.

Q 7.8. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
(3) Expenses to be excluded from direct expenses:

Office Electricity Charges (80,000 X 25%) 20,000

Delivery Charges to Customers 22,000
Total expenses not part of Direct Expenses 42,000
=> Revised Direct Expenses = ` (2,49,000 - 42,000)
= ` 2,07,000
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 `
Current Balance transferred 17,44,000
Add: Depreciation charges not recorded earlier 1,80,000
Less: Wages related to Office (50,000)
Less: Office Expenses (42,000)
Revised balance to be transferred 18,32,000
(5) Creditors A/c

Particulars ` Particulars `
To Bank A/c 23,50,000 By Balance b/d 15,70,000
To Balance c/d By Raw Materials A/c (Bal.
figure)
6,60,000 14,40,000

30,10,000 30,10,000

JULY 2021
Question 5

Goods sold on approval or return basis are not recorded as credit sales initially when they
are sent-out,

Answer:
False: They are recorded as sales irrespective of whether the customer might accept or
reject the goods at the end of the period given for the approval.

Q 7.9. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
Question 6 3, 00 1 00

Bankeloane
Karuna decided to start business of fashion garments under the name of M/s. Designer
Wear on 1st April, 2020. She had a saving of about ` 10,00,000. She invested ` 3,00,000
out of her savings and borrowed equal amount from bank. She purchased a commercial Capita
space for ` 5,00,000 and further spent ` 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:
-

600/00
Boding
=

G O
30th June, 2020 - ` 15,000 principal+ ` 9,000 interest 30th
Al
September, 2020 - ` 15,000 principal+ ` 8,550 interest 31st prop.
>
-
December, 2020 - ` 15,000 principal+ ` 8,100 interest 31st
March, 2021 - ` 15,000 principal+ ` 7,650 interest.
>
-
Add .

Capita
pode
In view of further capital requirement, she transferred ` 2,00,000 from her saving bank
account to the bank account of the business. She paid security deposit of `- >
7,000 for et

telephone connection. Furniture of ` 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 O
20,00,000 -
Total Purchases -
17,00,000
-

Electricity Expenses paid -

- -
- 40,000
# -
Telephone Charges -O 50,000
Cartage Outwards - O
- 60,000 -
Travelling Expenses O
- 45,000
Entertainment Expenses
- a 5,000 -
Maintenance Expenses O 25,000
Misc. Expenses
-
Other Information:
C
15,000
- Electricity Expenses Payable
=
#O
20,000

(i) O
She withdrew ` 5,000 by cheque each month for her personal expenses.
(ii) Depreciation on building @ O
- -
-
O
5% p.a. and oil furniture @ 10% p.a.
- E
(iii) Closing stock in hand as on 31st March, 2021: ` 5,50,000
-

Prepare trading account, profit and loss account for the year ended 31-3-2021 and
Balance Sheet as on that date
Answer:

In the books of M/s Designer wear

Trading and Profit & Loss Account (for the year ending 31.3.2021)

Particulars Amount Particulars Amount

To Purchases 17,00,000 By Sales 20,00,000

To Gross profit 8,50,000 By Closing stock 5,50,000

25,50,000 25,50,000

Q 7.10. | P a g e By: - CA Nakul Katheria

 Da
Bank AIC G Ca
&
Bl 6, 00 , 000
Capital 3001000 -

3
,001000 Prepa 60000
lgam
At 33300
200000
AddCop FIR 10000

Sales 20 , 00,000 Elee 20000

-

60000
Cot
En SXD 5000

misEXP 15000

Pur 1700000

Tk S0000
-

TIXD 45000

Sidepost <000

-0
, 00 1 000
MEXD 25000

60000
=
DIR

pazoo
 Ms
Designer
.
were

profit for
ending
the 21-marh
Trading
and 2 loss account year 21 -

or
.
Ca
Particularse Amount Particulars , Amon

20,
By Sales
00 , 000

To Purchases 1700000

By 5) So , 008

closing
Store
Bagic
000
To Gross 25,50 , 000
-
-

By D Propos

To Telepho 501000
Charges
To 40, 000

Electrally
EXP
201000 60,000
Tos

Casey
To outward 60000

To Ent EXD 5000

To
Mis EXP 15000

To 45000

Tageing
EXP

To Mainany EXP 25000

To 33300
Int on loan
To Depo
-
B1 c (600000xs)) 30000

FIR
(1000x10 1000

525700
ToP

9
M/s beare
Designer
Balance sheet as at 31 Marn .
2021

Aut Assets Ant

Liabilities
3 BK 600000 30000
Capital , 00 1 00 570000
-

-
-

↑ Add. Capital 2 , 001000 FIR

- Cl0101000 9000

project
lessAm
525700
I stock S150,000
- Good 965700

[
89700
Ian
ouy Bank
3, 00 1 000 - Go 240000 -

7000
20000
El Bel Pay a sy

7225700
-
1225700
-

-
 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

To Interest 33,300 By Gross profit 8,50,000

(9,000+8,550+8,100+7,650)

To Telephone charges 50,000

To Travelling expenses 45,000

To Maintenance expenses 25,000

To Entertainment expenses 5,000

To Electricity exp 40,000

Add: outstanding 20,000 60,000

To Carriage outward 60,000

To Depreciation

Building 5% 30,000

Furniture 10% 1,000 31,000

To Misc. exp 15,000

To Net profit 5,25,700

8,50,000 8,50,000

Working note:

Bank Account

PARTICULARS RS. PARTICULARS RS.

To Capital 3,00,000 By Building 6,00,000

To Further capital 2,00,000 By Furniture 10,000

To Bank loan 3,00,000 By Bank loan repaid 60,000

To Sales 20,00,000 By Interest 33,300

By Security deposit 7,000

By Drawings 60,000

By Purchase 17,00,000

By Telephone charges 50,000

By Travelling expenses 45,000

Q 7.11. | P a g e By: - CA Nakul Katheria

 Entities
Non Corporate

-
an
acting
Those who
Y
&

manufacturing
Producy
2self

Manufacturing Entity
Final Als .

Manoecteny
Cost ?
↑ OK - objective

Ak
Trading
alp

a
#
Manufactory cost Goods
Manufactured
of
-

RIMConsumed XXX
-

f labou XXX

exp
+

des
samclose
 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

By Maintenance expenses 25,000

By Entertainment 5,000
expenses

By Electricity 40,000

By Carriage outward 60,000

28,00,000

By Misc. expenses 15,000

By Balance c/d 89,700

28,00,000

Pyo

DEC 2021
Question 7 · o marks .

On 31st March, 2021 the Trial Balance of Mr. Black was as follows:

Particulars Debit Particulars Credit

BIS
Stock on 1/4/2020 Sundry Creditors 1,50,000
Y BIS
Manufac & Raw Materials 2,10,000 Bills Payables 75,000
& Work-in-Progress factory 95,000 Sale of scrap
>
- Man ,
less
25,000
*
& Finished Goods & Trading 1,55,000 Commission received 4,500

Sundry Debtors BIS

2,40,000 Provision for doubtful debts @
16,500
- manufacris *
Carriages on Purchase 15,000 Capital account X 10,00,000
BIS
Bills Receivables 1,50,000 Sales
-
For -
16,72,000
~
Wages 1,30,000 Bank overdraft
&
85,000

Salaries P2L 1,00,000 Raw Matenul

consume

Telephone and Postage C

10,000

Repairs to office furniture O 3,500 ols + Perhase-es -

Cash at Bank BIS 1,70,000

270
1 000
+ esovo -162000

Office Furniture
BO 1,00,000

Q 7.12. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

①mu Repairs to Plant 11,000 >

- Plant Face
ang

Purchases 8,50,000

Plan and Machinery 7,00,000

-

10 manfecting s

000x
Factory
60 1
Rent 60,000 - 3

Lighting 13,500

G
General Expenses
1500x2/ = T
E 00
15,0

30,28,000 30,28,000
16 , 72 , 008
sales =

The following additional information is available: 1% Posies 16720

Stocks on 31st March,2021 were: si 16 500

im

Raw material
- ` 1,62,000 dana
Finished goods ` 1,81,000
100000
Work-in-progress ` 78,000

T
Salaries and wages unpaid for the year ended 31st March,2021 were respectively, `
D G
↑ 9,000 and ` 20,000. Machinery is to be depreciated by 10% and office furniture by 7½%.
A provision for doubtful debts is to be maintained @1% of sales. Rent is to be charged as
to 3/4 to factory and 1/4 to office. Lighting is to be charged as to 2/3 to factory and 1/3 to
office.

Prepare the Manufacturing Account, Trading Account and Profit and Loss Account for the
year ended on 31st March,2021.
Answer:

In the books of Mr. Black

Cost
Manufacturing Account for the year ended 31st March, 2021

Particulars ` Particulars `

Raw material consumed: By Closing Stock of 78,000

Work in Progress

To Opening Stock of Raw 2,10,000 By Sale of Scrap

-
Materials 99 25,000
By Cost of
goods
Manufactured

Q 7.13. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Add: Purchases 8,50,000 (Transferred to Trading 11,90,000 *

* Account)

Less: Closing Stock 1,62,000 8,98,000

& ↓
Tradings
-
To Opening Stock of WIP 95,000

To Wages 1,30,000
* *
Add: Outstanding 20,000 1,50,000 Cost -> Goods
Manufactured
Wages
&
-To Carriage on 15,000
Purchases
-
To Repairs to Plant 11,000

&
To Rent (3/4) O 60,
000X3/y 45,000
1500x2s
9 To Lighting (2/3)
-

9,000

To Depreciation of Plant
O 70,000

12,93,000 12,93,000

S
Trading Account for the year ended 31st March, 2021

Particulars ` Particulars `

To Opening Stock of finished goods 1,55,000 By Sales 16,72,000

To Cost of goods transferred from 11,90,000 By Closing Stock 1,81,000

& Manufacturing A/c *

↑ 4 9
Gross To Gross Profit c/d 5,08,000
Brogit 18,53,000 18,53,000

Profit and Loss Account for the year ended 31st March, 2021

Particulars ` Particulars `
S

To Salaries 1,00,000 By Gross Profit b/d 5,08,000

*
Add: Outstanding 9,000 1,09,000 By Commission 4,500

To Telephone & Postage 10,000

Q 7.14. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF

g
SOLE PROPRIETORS
-
To Repairs to Furniture 3,500 Manufac
To Depreciation of furniture 7,500 Tadny
To Rent (1/4) 15,000 preplac
To Lighting (1/3) 4,500

To General Expenses 15,000

To Provision for doubtful

Debts: Required (1% of
`1,67,200)
(102-Posoy
Less: Existing Provision & 220

To Net Profit 3,47,780

5,12,500 5,12,500

JUNE2022
Question 8 &

The following is the trial balance of Mr. B for the year ended 31st March,2021:

Particulars Dr. Particulars Cr.

·
Opening Stock: Sundry Creditors 1,75,000
Man
Raw Material 5,25,000 Purchase Return 17,500
Trading
Finished Goods O
2,62,500 Capital 3,50,000
- BIS
Purchase of Raw Material Mano
17,50,000 Bills Payable 84,000
BIS
Land & Building 3,50,000 Long Term Loan 7,00,000
-

Y
Loose Tools 1,05,000 Provision for bad

Plant and Machinery 1,05,000 and doubtful debts prese 7,000

Investments 87,500 Sales 29,75,000

Cash in Hand 70,000 Bank Overdraft 80,500

Cash at Bank BIS 17,500

Q 7.15. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Furniture and Fixtures BIS 52,500

BIS
Bills Receivables 52,500

Sundry Debtors BIS -

1,40,000
BIS
Drawings 70,000

Salaries Pac 70,000

Coal and Fuel an 52,500

9Factory rent and rates n 70,000

General Expenses 14,000

Advertisement 17,500
Provision for poubiyo pests
Sales Return 35,000
Destess 140

O
= , 000

Bad Debts 14,000

passion = St =
7000

Direct Wages (Factory) 2,80,000

Power 1,05,000 sign.

·
-
Interest paid 24,500
Possi
No Add ,

Discount allowed 10,500 -

-
T
Carriage inwards Fading 52,500

-
Carriage outwards 24,500

-
Commission paid 17,500

-
Dividend paid 14,000

43,89,000 43,89,000
Additional Information:

-
(i) Stock of finished goods at the end of the year was ` 3,50,000.
RIM XX
ng
O
(ii) A provision for doubtful debts is to be created @ 5% on Sundry Debtors. Provide
Income
e

Depreciation on building 3,500 and Plant and Machinery 10,500.

-
(iii) Accrued commission is 43,750. Interest has accrued on investment ` 52,500. &
y
- O
(iv) Salary Outstanding is ` 7,000 and Prepaid Interest is ` 5,250. Accred

Q 7.16. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
You are required to prepare Manufacturing, Trading and Profit & Loss Account for the year
ended 31st March,2021 and Balance Sheet as at that date. SoMar &

Answer:
In the books of Mr. B

Manufacturing Account for the year ended 31st March, 2021

Particulars ` Particulars `

To Opening Stock of 5,25,000 9

By Cost of Manufactured 28,28,000
Raw Materials goods transferred to
Trading A/c
To Purchase 17,50,000
*

some
Less: Purchase Return 17,500 17,32,500 >
- RIMT Beland
Manu

Y
>
-
To Carriage Inwards 52,500 other

To Direct Wages 2,80,000

To Power E
1,05,000

To Coal and fuel 52,500

To Factory Rent and 70,000
Rates

To Depreciation on 10,500
Machinery

28,28,000 28,28,000

Trading Account for the year ended 31st March, 2021

Particulars ` Particulars `
To Opening Stock of finished 2,62,500 By Sales 29,75,000
goods &

To Cost of goods transferred 28,28,000 Less: Sales Return 35,000 29,40,000

from Manufacturing A/c
By Closing Stock 3,50,000
#

99
To Gross Profit c/d 1,99,500

32,90,000 32,90,000

Q 7.17. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
Profit and Loss Account for the year ended 31st March, 2021

Particulars ` Particulars `

To Carriage Outward 24,500 By Gross Profit b/d 1,99,500

To Discount Allowed 10,500 By Accrued Commission* 43,750
To Commission Paid 17,500 By Accrued Interest 52,500
To Dividend Paid 14,000

To General Expenses 14,000

To Advertisement 17,500
To Salaries 70,000
Add: Outstanding 7,000 77,000 &
To Interest Paid 24,500

T
O
Less: Prepaid 5,250 19,250
To Provision for Bad & 7,000 FinalAns #

Xo-
Doubtful Debts

Add: Bad Debts 14,000 Bosision Nil

14000

T
Less: Old Provision for 7,000 14,000 Badass
Doubtful Debts

To Depreciation on Building 3,500

To Net Profit c/d 84,000

2,95,750 2,95,750
*Alternatively Accrued Commission may be treated as Expenses, in that case total
Commission will be ` 61,250 (`17,500 + `43,750) and Net Loss will be ` 3,500.

Balance Sheet as on 31st March, 2021

Capital and ` Assets `

Liabilities
Capital 3,50,000 Plant & Machinery 1,05,000

Add: Net Profit** 84,000 Less: Depreciation 10,500 94,500

4,34,000 Land & Building 3,50,000

Less: Drawings 70,000 3,64,000 Less: Depreciation 3,500 3,46,500

Q 7.18. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Bills Payable 84,000 Furniture & Fixtures 52,500

Sundry Creditors 1,75,000 Investments 87,500

Salary Outstanding 7,000 Closing Stock 3,50,000

Long-Term Loans 7,00,000 Loose Tools 1,05,000

Bank Overdraft 80,500

-n
Sundry Debtors

Destes in Balance Sheet

Less: Provision for Bad 1,40,000
& Doubtful Debts
② 1,33,000

Debters Bal 1140 1 000

Bills Receivable 52,500

lessrision 7000

133000
Accrued Commission 43,750
- Accrued Interest 52,500

Noo
-

Prepaid Interest 5,250

prom
Cash in Hand 70,000

El
Cash at Bank 17,500

14,10,500 14,10,500

**If Accrued Commission is treated as expenses in that case Net Loss of ` 3,500 will be
deducted from Capital Account and Closing Capital figure will be ` 2,76,500 and Accrued
Commission ` 43,750 will appear under liability side of Balance Sheet.

D &

Revision

BRS

NPO
30-35Mary
Ang
:
·

FinalAkcs
En Thursday
.

2 Question's
Dep
Fuday Mixo

& ingland

Q 7.19. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

RTP
Questionnaire

MAY 2020
Question 9

The following are the balances extracted from the books of Shri Raghuram as on
31.03.2018, who carries on business under the name and style of M/s Raghuram and
Associates at Chennai:
Particulars Debit (`) Credit (`)
Capital A/c 14,11,400

Purchases 12,00,000
Purchase Returns 18,000
Sales 15,00,000
Sales Returns 24,000

Freight Inwards 62,000

Carriage Outwards 8,500
Rent of Godown 55,000
Rates and Taxes 24,000

Salaries 72,000
Discount allowed 7,500
Discount received 12,000

Drawings 20,000
Printing and Stationery 6,000
Insurance premium 48,000
Electricity charges 14,000

Q 7.20. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

General expenses 11,000

Bank charges 3,800

Bad debts 12,200
Repairs the Motor vehicle 13,000
Interest on loan 4,400

Provision for Bad-debts 10,000

Loan from Mr. Rajan 60,000
Sundry creditors 62,000

Motor vehicles 1,00,000

Land and Building 5,00,000
Office equipment 2,00,000
Furniture and Fixtures 50,000

Stock as on 31.03.2017 3,20,000

Sundry debtors 2,80,000
Cash at Bank 22,000
Cash in Hand
16,000

Total 30,73,400 30,73,400

Prepare Trading and Profit and Loss Account for the year ended 31.03.2018 and the
Balance Sheet as at that date after making provision for the following:
(a) Depreciate Building by 5%, Furniture and Fixtures by 10%, Office Equipment by 15% and
Motor Car by 20%.
(b) Value of stock at the close of the year was ` 4,10,000.
(c) One month rent for godown is outstanding.
(d) Interest on loan from Rajan is payable @ 10% per annum. This loan was taken on 01.07.2017
(e) Provision for bad debts is to be maintained at 5% of Sundry debtors.
(f)Insurance premium includes ` 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.
Answer:

Q 7.21. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
M/s Raghuram & Associates
Trading Account for the year ended 31st March 2018

Particulars Details Amount Particulars Details Amount

To Opening Stock 3,20,000 By Sales 15,00,000

To Purchases 12,00,000 Less: Sales Returns (24,000) 14,76,000

Less: Purchase (18,000) 11,82,000 By Closing Stock 4,10,000

Returns

To Freight 62,000

To Gross Profit c/d 3,22,000

18,86,000 18,86,000

M/s Raghuram & Associates

Profit and Loss Account for the year ended 31st March 2018
Particulars Details Amount Particulars Details Amount
To Salaries 72,000 By Gross 3,22,000
profit b/d
To Rent for Godown 55,000
Add: Outstanding 5,000 60,000 By Discount 12,000
received

To Provision for Doubtful Debts

(W.N.4)
16,200
To Rent and Taxes 24,000

To Discount Allowed 7,500

To Carriage outwards 8,500
To Printing and stationery 6,000
To Electricity charges 14,000

To Insurance premium (W.N. 1) 4,800

To Depreciation (W.N. 2) 80,000

Q 7.22. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

To General expenses 11,000

To Bank Charges 3,800

To Interest on loan 4,400
Add: Outstanding (W.N. 3) 100 4,500
To Motor car expenses (Repairs) 13,000

To Net Profit transferred to

Capital A/c
8,700

3,34,000 3,34,000

Balance Sheet of M/s Raghuram & Associates

as at 31st March 2018
Liabilities Details Amount Assets Details Amount
` `

Capital 14,11,400 Land & Building 5,00,000

Add: Net Profit 8,700 Less: Depreciation (25,000) 4,75,000

Less: Drawings (20,000) Motor Vehicles 1,00,000

Less: proprietor’s Less: Depreciation (20,000)
Insurance Premium
(42,000)
Loan from Rajan
Add: Outstanding
60,000 Office equipment 2,00,000
Interest
100 Less: Depreciation (30,000)
Sundry Creditors
Outstanding rent
Furniture & Fixture 50,000
Less: Depreciation
(5,000)
Stock in Trade
Sundry Debtors
Less: Provision for 2,80,000
doubtful debts (14,000)

Q 7.23. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Cash at hand Cash

in bank
Prepaid insurance
(W.N. 1)

1485200 14825200
Working Notes:
(1) Insurance premium
Insurance premium as given in trial balance
48,000 Less: Personal premium (42,000)
Less: Prepaid for 3 months (1200)
Transfer to Profit and Loss A/c 4,800

Building @ 5% on 5,00,000 25,000

Motor Vehicles @ 20% on 1,00,000 20,000
Furniture & Fittings @ 10% on 50,000 5,000
Office Equipment @ 15% on 2,00,000 30,000
Total 80,000
(3) Interest on Loan
Interest on Loan ` 60,000 X 10% X 9/12 = 4,500
Less: interest as per Trial Balance = (4,400)
Amount (Outstanding) 100

(2) Depreciation
(4) Provision for bad debts A/c

Particulars Amount Particulars Amount

(`) (`)
To bad debts a/c 12,200 By balance b/d 10,000
To balance c/d 14,000 By P&L A/c 16,200
(5% of 2,80,000) 26,200

Q 7.24. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

26,200

NOV 2020
Question 10

A withdrawal of cash from the business by the proprietor should be charged to profit
and loss account as an expense

Answer:

False - Cash withdrawal by the proprietor from his business should be treated as his
drawings and not a business expense chargeable to profit and loss account. Such
drawings should be deducted from the proprietors capital.

Question 11

The following is the Trial Balance of T on 31st March, 2019 :

Particulars Dr. Cr.

Capital - 6,00,000
Drawings 70,000 -
Fixed Assets (Opening) 1,40,000 -

Fixed Assets (Additions 01.10.2019) 2,00,000 -

Opening Stock 60,000 -
Purchases 16,00,000 -
Purchases Returns - 69,000

Sales - 22,00,000
Sales Returns 99,000 -
Debtors 2,50,000 -

Creditors - 2,20,000
Expenses 50,000 -
Fixed Deposit with Bank 2,00,000 -
Interest on Fixed Deposit - 20,000

Q 7.25. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Cash - 8,000

Suspense A/c - 2,000

Depreciation 14,000 -
Rent (17 months upto 31.8.2019) 17,000 -
Investments 12% (01.8.2018) 2,50,000 -

Bank Balance 1,69,000

31,19,000 31,19,000
Stock on 31st March, 2019 was valued at ` 1,00,000. Depreciation is to be provided at
10% per annum on fixed assets purchased during the year. A scrutiny of the books of
account revealed the following matters:
i. ` 20,000 drawn from bank was debited to Drawings account, but out of this amount
withdrawn ` 12,000 was used in the business for day-to-day expenses.
ii. Purchase of goods worth ` 16,000 was not recorded in the books of account upto
31.03.2019, but the goods were included in stock.
iii. Purchase returns of ` 1,000 was recorded in Sales Return Journal and the amount
was correctly posted to the Party’s A/c on the correct side.
iv. Expenses include ` 6,000 in respect of the period after 31st March, 2019.
Give the necessary Journal Entries in respect of (i) to (iv) and prepare the Final Accounts
for the year ended 31st March, 2019.
Answer:

Journal Entries

Particulars Dr. (`) Cr. (`)

(i) Expenses A/c Dr. 12,000
To Drawings 12,000
(Entry for the amount wrongly debited to the latter
A/c, now corrected)

(ii) Purchase A/c Dr. 16,000

To Creditors 16,000
(Entry for purchases not recorded)

Q 7.26. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

(iii) Suspense A/c Dr. 2,000

To Purchase Returns 1,000

To Sales Returns 1,000

(Rectification entry for amount wrongly entered in

Sales Journal)
(iv) Prepaid Expenses A/c Dr. 6,000
To Expenses 6,000

(Prepaid expenses adjusted)

Trading, Profit and Loss Account of T

for the year ending 31st March, 2019

` `
To Opening Stock 60,000 By Sales 22,00,000

To Purchases 16,00,000 Less: Sales

Return

Add: Amount not recorded 16,000 (99,000– 1,000) 98,000 21,02,000

Less: Purchases Returns 16,16,000 By Closing Stock 1,00,000

(69,000+1,000) 70,000 15,46,000

To Gross Profit c/f 5,96,000

22,02,000
22,02,000

To Expenses (50,000 – 56,000 By Gross Profit 5,96,000

6,000 + 12,000)

To Rent (17,000 – 5,000) 12,000 By Interest on Fixed Deposit 20,000

To Depreciation By Interest on Investments 20,000

14,000
Add: Further Depreciation 24,000
10,000

To Net Profit 5,44,000

6,36,000 6,36,000

Q 7.27. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Balance Sheet as on 31st March, 2019

Liabilities ` Assets `
Capital 6,00,000 Fixed Assets 1,40,000
Add: Profit 5,44,000 Additions 2,00,000
Less: Drawings 3,40,000

Creditors 2,20,000 Stock

Add: Purchases 10,86,000 Debtors 3,30,000
not recorded
16,000 Investments
Overdraft Interest accrued

Bank fixed deposit

Prepaid Expenses
(6000+5000)
Bank

MAY 2021
Question 12

The following is the trial balance of Manan as at 31st March 2020:

Particulars `Dr. `Cr.

Manan’s capital account - 1,53,380
Stock 1st April, 2019 93,600 -
Sales - 7,79,200

Returns inward 17,200 -

Purchases 6,43,400 -
Returns outward - 11,600
Carriage inwards 39,200 -

Q 7.28. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Rent & taxes 9,400 -

Salaries & wages 18,600 -

Sundry debtors 48,000 -
Sundry creditors - 29,600
Bank loan @ 14% p.a. - 40,000

Bank interest 2,200 -

Printing and stationary expenses 28,800 -
Bank balance 16,000 -

Discount earned - 8,880

Furniture & fittings 10,000 -
Discount allowed 3,600 -
General expenses 22,900 -

Insurance 2,600 -
Postage & telegram expenses 4,660 -
Cash balance 760 -
Travelling expenses 1740 -

Drawings 60,000 _______

10,22,660 10,22,660

The following adjustments are to be made:

1. Included amongst the debtors is ` 6,000 due from Rahul and included among the
creditors ` 2,000 due to him.
2. Provision for bad and doubtful debts be created at 5% and for discount @ 2% on
sundry debtors.
3. Depreciation on furniture & fittings @ 10% shall be written off.
4. Personal purchases of Manan amounting to ` 1200 had been recorded in the
purchases day book.
5. Interest on bank loan shall be provided for the whole year.
6. A quarter of the amount of printing and stationary expenses is to be carried forward
to the next year.

Q 7.29. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
7. Credit purchase invoice amounting to ` 800 had been omitted from the books.
8. Stock on 31st March 2020 was ` 1,57,200.
Prepare (i) Trading & profit and loss account for the year ended 31.3.2020 and (ii) Balance
sheet as on 31st March, 2020.
Answer:

Trading and Profit and Loss Account of Mr. Manan

for the year ended 31st March,2020
Particulars ` Amount ` Amount ` `
To Opening stock 93,600 By Sales 7,79,200
To Purchases 6,43,400 Less: Returns 7,62,000
17,
200
Add: Omitted invoice 800 By Closing stock 1,57,200
6,44,200
Less: Returns 11,600
6,32,600
Less: Drawings 1,200 6,31,400
To Carriage 39,200
To Gross profit c/d 1,55,000
9,19,200 9,19,200
To Rent and taxes 9,400 By Gross profit b/d 1,55,000
To Salaries and wages 18,600 By Discount 8,880
To Bank interest 2,200
Add: Due 3,400 5,600
To Printing and stationary 28,800
Less: Prepaid (1/4) 7,200 21,600
To Discount allowed 3,600
To General expenses 22,900
To Insurance 2,600
To Postage & telegram 4,660
expenses
To Travelling expenses 1,740
To Provision for bad debts 2,300
[W.N.(2)]
To Provision for discount on 874
debtors [W.N.(2)]
To Depreciation on 1,000
furniture & fittings
To Net profit 69,006

Q 7.30. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
1,63,880 1,63,880

Balance Sheet of Manan

as at 31st March,2020
Liabilities ` ` Assets ` `

Capital 1,53,380 Furniture & fittings 10,000

Add: Net profit 69,006 Less: Depreciation 1000 9,000

2,22,386 Sundry debtors (W.N.1) 46,000

Less: Drawings: Less: Provision for bad

Cash 60,000 & doubtful debts (W.N.2) 2,300
Goods 1,200 61,200 43,700
Bank loan Less: Provision for

Bank interest due discount (W.N.2) 874

Sundry creditors (W.N.3) 28,400 Stock 1,57,200
Prepaid expenses:
Printing & stationary 7,200

Bank balance 16,000

_______ Cash balance

760

2,32,986 2,32,986
Working Notes:
(1) Sundry debtors
Balance as per trial balance 48,000
Less: Due to Rahul 2,000
46,000
(2) Provision for bad & doubtful debts:
@ 5% on ` 46,000 2,300
Provision for discount:
2% on ` 43,700 (46,000 -2,300) 874
(3) Sundry creditors
Balance as per trial balance 29,600
Less: Set off in respect of Rahul 2,000

Q 7.31. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
27,600
Add: Purchase invoice omitted 800
28,400

NOV 2021
Question 13

Outstanding salaries for the previous year shall be shown as liability in the current
year balance sheet.

Answer:

False: It shall be disclosed as a current liability in the opening balance sheet.

Question 14

The following are the balances as at 31st March, 2021 extracted from the books of Mr.
Satender.

Particulars Amount Particulars Amount

Plant and Machinery 78,200 Bad debts recovered 1800
Furniture and Fittings 41,000 Salaries 90,200
Bank Overdraft 3,20,000 Salaries payable 9,800

Capital Account 2,60,000 Prepaid rent 1,200

Drawings 32,000 Rent 17,200
Purchases 6,40,000 Carriage inward 4,500

Opening Stock 1,29,000 Carriage outward 5,400

Wages 48,660 Sales 8,61,200
Provision for doubtful debts 12,800 Advertisement Expenses 13,400
Provision for Discount on debtors 5,500 Printing and Stationery 5,000

Sundry Debtors 4,80,000 Cash in hand 5,800

Sundry Creditors 1,90,000 Cash at bank 12,500
Bad debts 4,400 Office Expenses 40,640

Interest paid on loan 12,000

Additional Information:
1. Purchases include sales return of ` 10,300 and sales include purchases return of

Q 7.32. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
` 6,900.
2. Goods withdrawn by Mr. Satender for own consumption ` 14,000 included in
purchases.
3. Wages paid in the month of April for installation of plant and machinery
amounting to ` 1,800 were included in wages account.
4. Free samples distributed out of purchases for publicity costing ` 3,300.
5. Create a provision for doubtful debts @ 5% and provision for discount on debtors
@ 2.5%.
6. Depreciation is to be provided on plant and machinery @ 20% p.a. and on
furniture and fittings @ 10% p.a.
7. Bank overdraft is secured against hypothecation of stock. Bank overdraft
outstanding as on 31.3.2020 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, 2021, and
a Balance Sheet as on that date. Also show the rectification entries.
Answer:

Trading and Profit and Loss Account of Mr. Satendra

for the year ended 31st March, 2021
Dr. Cr.
Amount Amount
To Opening stock 1,29,000 By Sales 8,54,300
To Purchases 6,12,400 Less: Sales return 10,300 8,44,000
Less: Purchases 6,900 6,05,500 By Closing stock
return
To Carriage inward 4,500 5,00,000
To Wages 46,860
To Gross profit c/d 5,58,140
13,44,000 13,44,000
To Salaries 90,200 By Gross profit b/d 5,58,140
To Rent 17,200 By Bad debts recovered 1800
To Advertisement expenses 16,700
To Printing and 5,000
stationery
To Bad debts 4,400
To Carriage outward 5,400

Q 7.33. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
To Provision for doubtful debts
5% of ` 4,80,000 24,000
Less: Existing provision 11,200
12,800
To Provision for
discount on
debtors
2.5% of ` 4,56,000 11,400
Less: Existing provision 5,900
5,500
To Depreciation:
Plant and
machinery16,000
Furniture and fittings 20,100
4,100
To Office expenses 40,640
To Interest on loan 12,000
To Net profit
(Transferred to capital
account) 3,31,200 _______
5,59,940 5,59,940
Balance Sheet of Mr. Satendra
as on 31st March, 2021
Liabilities Amount Assets Amount
` ` ` `
Capital account 2,60,000 Plant and machinery 80,000
Add: Net profit 3,31,200 Less: Depreciation 16,000 64,000
5,91,200 Furniture and fittings 41,000
Less: Drawings 46,000 5,45,200 Less: Depreciation 4,100 36,900
Bank overdraft 3,20,000 Closing stock 5,00,000
Sundry creditors 1,90,000 Sundry debtors 4,80,000

Payablesalaries 9,800 Less: Provision for

doubtful debts 35,400
4,44,600
Prepaid rent 1,200
Cash in hand 5800
_______ Cash at bank 12,500
10,65,000 10,65,000

Q 7.34. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

MAY 2022
Question 15

Mr. Bansal submitted to you the following trial balance, which he has not been able to
agree. Rewrite the trial balance and prepare trading and profit and loss account for the
year ended 31.3.2021 and a balance sheet as on that date after giving effect to the
undermentioned adjustments:

Particulars Dr. Cr.

Capital - 16,000
Opening stock 17,500 -

Closing stock - 18,790

Drawings 3,305 -
Returns inward - 550
Carriage inward 1,240 -

Deposit with X - 1,400

Returns outward 840 -
Carriage outward - 725

Rent paid 800 -

Rent outstanding 150 -
Purchases 13,000 -
Sundry debtors 5,000 -

Sundry creditors - 2,200

Furniture 1,500 -
Sales - 29,000

Wages 850 -
Cash 1,370 -
Advertisement 950

46,505 68,665

Q 7.35. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
Adjustments:
1. Write off ` 600 as bad debt and make a provision for doubtful debts at 5% on
balance sundry debtors.
2. Stock valued at ` 2,000 was destroyed by fire on 25th March,2021, but insurance
company admitted a claim for ` 1,500 only and paid the sum in April,2021.
3. Depreciation to be provided on furniture at 10% per annum.
Answer:

Trading and Profit and Loss Account of Mr. Bansal

for the year ended 31st March,2021
Dr. Cr.
Particulars ` ` Particulars ` `
To Opening stock 17,500 By Sales 29,000
To Purchases 13,000 Less: Returns (550) 28,450
inward
Less: Returns outward (840) 12,160 By Stock 2,000
destroyed by fire
To Wages 850 By Closing stock 18,790
To Carriage inward 1,240
To Gross profit 17,490
49,240 49,240
To Carriage outward 725 By Gross profit 17,490
To Rent 800
To Advertisement 950
To Bad debts 600
To Provision for 220
doubtful debts (5% of
` 4,400)
To Loss of stock by fire 500

NOV 2022
Question 16

A withdrawal of cash from the business by the proprietor should be charged to profit
and loss account as an expense

Answer:

Q 7.36. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
False: Cash withdrawal by the proprietor from his business should be treated as his
drawings and not a business expense chargeable to profit and loss account. Such
drawings should be deducted from the proprietors capital.
Question 17

The following is the Trial Balance of Mr. T on 31st March,2022:

Particulars Dr. Cr.

Capital - 18,00,000
Drawings 2,10,000 -

Fixed Assets (Opening) 4,20,000 -

Fixed Assets (Additions 01.10.2022) 6,00,000 -
Opening Stock 1,80,000 -
Purchases 48,00,000 -

Purchases Returns - 2,07,000

Sales - 66,00,000
Sales Returns 2,97,000 -

Debtors 7,50,000 -
Creditors - 6,60,000
Expenses 1,50,000 -
Fixed Deposit with Bank 6,00,000 -

Interest on Fixed Deposit - 60,000

Cash - 24,000
Suspense A/c - 6,000

Depreciation 42,000 -
Rent (17 months upto 31.8.2022) 51,000 -
Investments 12% (01.8.2021) 7,50,000 -
Bank Balance 5,07,000

93,57,000 93,57,000

Q 7.37. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
Stock on 31st March,2022 was valued at ` 3,00,000. Depreciation is to be provided at
10% per annum on fixed assets purchased during the year. A scrutiny of the books of
account revealed the following matters:
i. ` 60,000 drawn from bank was debited to Drawings account, but out of this amount
withdrawn ` 36,000 was used in the business for day-to-day expenses.
ii. Purchase of goods worth ` 48,000 was not recorded in the books of account upto
31.03.2022, but the goods were included in stock.
iii. Purchase returns of ` 3,000 was recorded in Sales Return Journal and the amount
was correctly posted to the Party’s A/c on the correct side.
iv. Expenses include ` 18,000 in respect of the period after 31st March,2022.
Give the necessary Journal Entries in respect of (i) to (iv) and prepare the Final Accounts
for the year ended 31st March,2022.
Answer:

Journal Entries

Particulars Dr. (`) Cr. (`)

(i) Expenses A/c Dr. 36,000
To Drawings 36,000
(Entry for the amount wrongly debited to the latter A/c,
now corrected)
(ii) Purchase A/c Dr. 48,000
To Creditors 48,000
(Entry for purchases not recorded)

(iii) Suspense A/c Dr. 6,000

To Purchase Returns A/c 3,000
To Sales Returns A/c 3,000

(Rectification entry for amount wrongly entered in Sales

Journal)
(iv) Prepaid Expenses A/c Dr. 18,000
To Expenses A/c 18,000

(Prepaid expenses adjusted)

Q 7.38. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS
Trading, Profit and Loss Account of Mr. T
for the year ending 31st March, 2022
Dr. Cr.
Particulars Amount Particulars Amount
To Opening Stock 1,80,000 By Sales 66,00,000
To Purchases 48,00,000 Less: Sales Return
Add: Amount not 48,000 (2,97,000– 3,000) 2,94,000 63,06,000
recorded
Less: Purchases 48,48,000 By Closing Stock 3,00,000
Returns

(2,07,000+3,000) 210,000 46,38,000

To Gross Profit c/f 17,88,000
66,06,000 66,06,000
To Expenses 1,68,000 By Gross Profit 17,88,000
(1,50,000 – 18,000 +
36,000)
To Rent (51,000 – 36,000 By Interest on FixedDeposit 60,000
15,000)
To DepreciationAdd: 42,000 By Interest on Investments 60,000
Further Depreciation 30,000 72,000

To Net Profit 16,32,000

19,08,000 19,08,000

Balance Sheet as on 31st March, 2022

Liabilities ` Assets `
Capital 18,00,000 Fixed Assets 4,20,000
Add: Net Profit 16,32,000 Additions 6,00,000

Less: Drawings 10,20,000

(2,10,000–36,000) 1,74,000 32,58,000 Less: Depreciation 30,000 9,90,000
Creditors 6,60,000 Stock 3,00,000

Add: 48,000 Debtors 7,50,000

Investments
7,08,000 7,50,000
Purchases not
recorded

Overdraft 24,000 Interest accrued 60,000

Bank fixed deposit 6,00,000

Q 7.39. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Prepaid Expenses 33,000

(18,000+15,000)

Bank 5,07,000

39,90,000 39,90,000

MAY 2023
Question 18

The following is the trial balance of Prakesh as at 31st December, 2022:

AQ Dr. Cr.
Prakesh’s capital account 3,83,450
Stock 1st January, 2022 2,34,000 -
Sales - 19,48,000
Returns inward 43,000 -

Purchases 16,08,500 -
Returns outward - 29,000
Carriage inwards 98,000 -

Rent & taxes 23,500 -

Salaries & wages 46,500 -
Sundry debtors 1,20,000 -
Sundry creditors - 74,000

Bank loan @ 14% p.a. - 1,00,000

Bank interest 5,500 -
Printing and stationary expenses 72,000 -

Bank balance 40,000 -

Discount earned - 22,200
Furniture & fittings 25,000 -
Discount allowed 9,000 -
General expenses 57,250 -

Q 7.40. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Insurance 6,500 -

Postage & telegram expenses 11,650 -

Cash balance 1,900 -
Travelling expenses 4,350 -
Drawings 1,50,000 -

25,56,650 25,56,650
The following adjustments are to be made:

(1) Included amongst the debtors is ` 15,000 due from Ravi and included among the
creditors ` 5,000 due to him.

(2) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on
sundry debtors.

(3) Depreciation on furniture & fittings @ 10% shall be written off.

(4) Personal purchases of Prakash amounting to ` 3,000 had been recorded in the
purchases day book.

(5) Interest on bank loan shall be provided for the whole year.

(6) A quarter of the amount of printing and stationary expenses is to be carried forward to
the next year.

(7) Credit purchase invoice amounting to ` 2,000 had been omitted from the books. (8)
Stock on 31.12.2022 was ` 3,93,000.

Prepare (i) Trading & profit and loss account for the year ended 31.12.2022 and (ii)
Balance sheet as on 31st December, 2022.

Answer:

Trading and Profit and Loss Account of Mr. Prakash

for the year ended 31st December, 2022

Particulars Amount Particulars Amount

To Opening stock 2,34,000 By Sales 19,48,000

To Purchases 16,08,500 Less: Returns 43,000 19,05,000

Add: Omitted invoice 2000 By Closing 3,93,000

stock

16,10,500

Q 7.41. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Less: Returns

29,000

15,81,500

Less: Drawings 3000 15,78,500

To Carriage 98,000

To Gross profit c/d 3,87,500

22,98,000 22,98,000

To Rent and taxes 23,500 By Gross 3,87,500

profit b/d

To Salaries and wages 46,500 By Discount 22,200

To Bank interest 5,500

Add: Due 8,500 14,000

To Printing and stationary 72,000

Less: Prepaid (1/4) 18,000 54,000

To Discount allowed 9,000

To General expenses 57,250

To Insurance 6,500

To Postage & telegram expenses 11,650

To Travelling expenses 4350

To Provision for bad debts [W.N.(ii)] 5,750

To Provision for discount on debtors 2185

[W.N.(iii)]

To Depreciation on furniture 2,500

& fittings

To Net profit 1,72,515

4,09,700
4,09,700

Balance Sheet of Prakash as at 31st December, 2022

Liabilities ` Assets `

Q 7.42. | P a g e By: - CA Nakul Katheria

 CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF
SOLE PROPRIETORS

Capital 3,83,450 Furniture & fittings 25,000

Add: Net profit 1,72,515 Less: Depreciation 2,500 22,500

5,55,965 Sundry debtors (W.N.1) 115,000
Less: Less: Provision for bad
Drawings:

Cash 1,50,000 & doubtful debts (W.N.2) 5,750

Goods 3000 1,53,000 4,02,965 1,09,250
Bank loan 1,00,000 Less: Provision for

Bank interest due 8,500 Discount (W.N.2) 2,185 1,07,065

Sundry creditors (W.N.3) 71,000 Stock 3,93,000
Prepaid expenses:
Printing & stationary 18,000

Bank balance 40,000

Cash balance 1900

5,82,465 5,82,465
Working Notes:

(1) Sundry debtors

Balance as per trial balance 1,20,000
Less: Due to Ravi 5,000
1,15,000
(2) Provision for bad & doubtful debts:
@ 5% on ` 1,15,000 5,750
Provision for discount:
2% on ` 1,09,250 (1,15,000 -5,750) 2,185
(3) Sundry creditors
Balance as per trial balance 74,000
Less: Set off in respect of Ravi 5,000
69,000
Add: Purchase invoice omitted 2,000
71,000

Q 7.43. | P a g e By: - CA Nakul Katheria