ILLUSTRATIONS – TaxDose.com

ILLUSTRATIONS :

Illustration :
A business house maintains provision of 5% against bad debts and 3% for discount on debtors and a reserve
for discount on creditors at 2%. On 1st April, 2011 it had the following balances:
Provision for Bad and Doubtful Debts … Rs.5,000
Provision for Discount on Debtors … Rs. 2,850
Provision for Discount on Creditors … Rs. 4,800

During the year 2011-12, bad debts, discount allowed to debtors and discount received from creditors amounted to Rs. 3,950, Rs. 8,800 and Rs. 9,840 respectively while for 2012-13 they amounted to Rs. 1,800, Rs. 7,000 and Rs. 6,800 respectively. Sundry Debtors were Rs. 1,20,000 on March 31, 2012 and ` 80,000 on March 31, 2013. Sundry Creditors on these two dates were Rs. 2,10,000 and Rs. 1,95,000 respectively.

Show provision for bad debts account, provision for discount on debtors account and reserve for discount on creditors account along with relevant portions of profit and loss account.

Solution:

Provision for Bad Debts Account

Date	Particulars	Rs.	Date	Particulars	Rs.
2012 31-Mar	To Bad Debts	3,950	2011 1-Apr	By Balance b/fd	5,000
31-Mar	To Balance c/d	6,000
		_______	2012 March 31	By Profit & Loss A/c (Balancing Figure)	4,950
		9,950			9,950
2013 31-Mar	To Bad Debts	1,800	2012 1-Apr	By Balance b/d	6,000
31-Mar	By Profit & Loss A/c (Balancing Figure)	200
31-Mar	To Balance c/d	4,000			_______
		6,000			6,000
			2013 April 1	By Balance b/d	4,000

Provision for Discount on Debtors A/c
Dr. Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
2012 31-Mar	To Discount Allowed	8,800	2011 1-Apr	By Balance b/fd	2,850
31-Mar	To Balance c/d	3,420
		_______	2012 March 31	By Profit & Loss A/c (Balancing Figure)	9,370
		12,220			12,220
2013 31 -Mar	To Discount Allowed	7,000	2012 1-Apr	By Balance b/d	3,420
31-Mar	To Balance c/d	2,280	2013 31-Mar	By Profit & Loss A/c (Balancing Figure)	5,860
		9,280			9,280
			2013 1-Apr	By Balance b/d	2,280

Reserve for Discount on Creditors A/c

Dr. Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
20114/1/2017	To Balance b/fd	4,800	2012 March 31	By Discount Received	9,840
2012 March 31	To Profit & Loss A/c (Balancing Figure)	9,240	March 31	By Balance c/d	4,200
		14,040			14,040


2012 1-Apr	To Balance b/d	4,200	2013 March 31	By Discount Received	6,800
2013 March 31	To Profit & Loss A/c (Balancing Figure)	6,500		March 31 By Balance c/d	3,900
		10,700			10,700

2013
April 1

To Balance b/d

3,900

Profit and Loss Account for the year ended 31st March, 2012

Dr. Cr.

*Particulars*	Rs.	Rs.	Particulars	Rs.	Rs.
To Bad Debts:	3,950		By Discount Received	9,840
Add: New Provision			Add: New Reserve for
for Bad and Doubtful			Discount on Creditors	4,200
Debts	6,000			14,040
	9,950		Less: Old Reserve	4,800	9,240
Less: Old Provision	5,000	4,950
To Discount Allowed	8,800
Add: New Provision for Discount	3,420
	12,220
Less: Old Provision	2,850	9,370
Less: Old Provision		9,370

Profit and Loss Account for the year ended 31st March, 2013
Dr. Cr.

Particulars	Rs.	Rs.	ParticularsRs.	Rs.	Rs.
To Discount Allowed	7,000		By Old Provision for
Add: New Provision	2,280		bad and doubtful
for Discount	9,280		debts	6,000
Less: Old Provision	3,420	5,860	Less: Bad Debts	1,800
			Less: New Provision	4,200	200
			By Discount Received	4,000
			Add: New Reserve for	6,800
			Discount on Creditors	3,900
				10,700
			Less: Old Reserve	4,200	6,500
			Less: Old Reserve		6,500

Illustration :

Following is the trial balance of Amar as on 31st March, 2013:


Capital Account		8,00,000
Drawing Account	60,000
Stock (1.4.2012)	4,50,000
Purchases	26,00,000
Sales		31,00,000
Furniture	1,00,000
Sundry Debtors	4,00,000
Freight and Octroi	4,6,000
Trade Expenses	5,000
Salaries	55,000

*Rent* *Advertising Expense* s *Insurance Premium*	*24,000* *50,000* *4,000*
*Commission*		*13,000*
*Discount*	*2,000*
*Bad Debts*	*16,000*
*Provision for Bad Debts*		*9,000*
*Creditors*		*2,00,000*
*Cash in hand*	*52,000*
*Bank*	*58,000*
*Goodwill (at cost)*	*2 00 000*
	*41,22,000*	*41,22,000,*

Adjustments:

Stock on 31st March, 2013 was valued at r 5,30,000.
Salaries have been paid only for 11 months.
Unexpired insurance included in the figure of r 4,000 appearing in trial balance is r 1,000.
Commission earned but not yet received amounting to r 1,220 is to be recorded in books of account.
Provision for bad debts is to be brought upto 3% of sundry debtors.

(t) Manager is to be allowed a commission of 10% of net profits after charging such commission.

Furniture is depreciated @10% per annum.
Only 1/4th of advertising expenses is to be written off.

Prepare trading and profit and loss account for the year ended 31st March, 2013 and balance sheet as on that date. Also show adjustments entries and closing entries.

Solution:

Mr. Amar

Trading and Profit and Loss Account

for the year ended 31st March, 2013

Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Stock (1.4.2012)		4,50,000	By Sales		31,00,000
To Purchases		26,00,000	By Closing Stock		5,30,000
To Freight & Octroi		46,000
To Gross Profit transferred to P&L a/c		5,34,000
		36,30,000			36,30,000
To Trade Expenses		5,000	By Gross Profit
To Depreciation		10,000	transferred from
			trading A/c		534,000
To Salaries	55,000		Commission	1,300
Add: Outstanding	5,000	60,000	Add: Commission
To Rent		24,000	earned but not
To Advertising			received	1220	14,220
Expenses	50,000
Less: Amount C/f	37,500	12,500

To Insurance Premium	4,000
Less: Unexpired
Insurance	1,000	3,000
To Discount		2,000
To Provision for Bad
Z
	12,000
Add: Bad Debts	16,000
Less: Old provision	9,000	19,000
To Commission payable to Manager		37,520
To Net Profit transferred to Capital
Account		3,75,200	_________
		5,48,220	5,48,220

Balance Sheet as on 31^st March, 2013

*Liabilities*	*Rs.*	*Rs.*	*Assets*	*Rs.*	*Rs.*
Capital			Fixed Assets:
Opening Balance	800,000		Goodwill		2,00,000
Add: Net profit	3,75,200		Furniture	100,000
Less: Drawings	60,000	11,15,200	Less: Depreciation	10,000	90,000
Creditors		2,00,000	Current Assets:
Outstanding Salary		5,000	Unexpired Insurance		1,000
Commission Payable to			Unexpired advertising
Managers		37,520	expenses		37,500
			Commission earned
			but not received		1,220
			Stock		5,30,000
			Sundry Debtors	4,00,000
			Less: Provision for bad
			debts	12,000	3,88,000
			Cash at bank		58,000
		_________	Cash in hand		52,000
		13,57,220			1,35,7220

Journal Book

Adjustment Entries :

Particulars	Rs.	Rs.
Stock Account Dr.	530,000
To Trading Account		5,30,000
(Being closing stock credited to trading account)

Salaries Account Dr.	5,000
To Salaries Outstanding Account		5,000
(Being the amount of salaries outstanding on 31st March, 2013)

Unexpired Insurance Dr.	1,000
To Insurance Premium Account		1,000
(Being the amount of unexpired insurance premium as on 31st March, 2013)

Commission Earned But not Received Dr.	1,220
To Commission Account		1,220
(Being the amount of commission earned but not received till 31st March, 2013)

Bad Debts Account Dr.	16,000
To Provision for Bad Debts Account		16,000
(Transfer of bad debts to provision for bad debts)

Profit and Loss Account Dr.	19,000
To Provision for Bad Debts Account		19,000
(Being credit given to provision for bad debts to make its balance 3% of ` 40,000)

Profit and Loss Account Dr.	37,520
To Commission Payable to Manager		37,520
(Being commission payable to manager @10% of net profits remaining after charging such commission)

Depreciation Account Dr.	10,000
To Furniture Account		10,000
(Being the amount of depreciation provided on furniture @10% per annum)

Unexpired Advertising Expenses Account Dr.	37,500
To Advertising Expenses Account		37,500
(For advertising expenses carried forward to next year)

Trading Account Dr.	30,96,000
To Stock Account (1.4.2012)		4,50,000
To Purchases Account		26,00,000
To Freight & Octroi Account		46,000
(Transfer of various nominal accounts showing debit balances to trading account)

Sales Account Dr.	31,00,000
To Trading Account		31,00,000
(Transfer of sales account to trading account)
Note: Entry for closing stock has already been passed by way of adjustment

Trading Account Dr.	5,34,000
To Profit and Loss Account		5,34,000
(Transfer of gross profit from trading account to profit and loss Account)

Profit and Loss Account Dr.	1,16,500
To Trade Expenses Account		5,000
To Salaries Account		60,000
To Rent Account		24,000
To Advertising Expenses Account		12,500
To Insurance Premium Account		3,000
To Discount Account		2,000
To Depreciation Account		10,000
(Transfer of various nominal accounts showing debit balances to profit and loss account)

Commission Account Dr.	14,220
To Profit and Loss Account		14,220
(Transfer of credit balance in commission account to profit and loss Account)

Profit and Loss Account Dr.	3,75,200
To Capital Account		3,75,200
(Transfer of net profit to capital account)

Note: Profit and Loss Account has already been debited in respect of provision for bad debts and commission payable to manager. Refer to adjustments entries.

Illustration :
Following are the balances in the ledger of Mr. Patel for the year ended 31st March, 2013:

	Rs.
Stock (1.4.2012):
Raw materials	1,00,000
Semi-finished goods	50,000
Finished goods	2,60,000
Purchases:
Raw materials	8,00,000
Finished goods	1,70,000
Carriage inwards on raw materials	30,000
Manufacturing wages	1,00,000
Salary of the supervisor	36,000
Rent of the factory	70,000
Gas and water	30,000
Return of raw materials	13,000
Fuel and coal	33,000
Factory power	1,25,000
Fire insurance	13,000
Sales returns	1,20,000
Depreciation on factory building	12,000
Stock on 31.3.2013:
Raw materials	80,000
Semi-finished goods	1,30,000
Finished goods	2,20,000
Sales	22,00,000
Carriage outwards	35,000
Office salaries	1,50,000

Prepare manufacturing account and trading and profit and loss accounts for the year ended March, 2013.

Manufacturing Account
for the year ended 31st March, 2013
Dr. Cr.

*Particulars*	r	r	*Particulars*	r	r
To Opening stock:			By Closing stock:
Raw materials	1,00,000		Raw materials	80,000
Semi-finished Goods	50,000	1,50,000	Semi-finished goods	1 30 000	2,10,000
To Purchases	8,00,000		By Cost of production
*Less :* Returns	13,000	7,87,000	transferred to
			Trading Account		11,76,000
To Carriage on raw materials		30,000
To Manufacturing wages		1,00,000
To Factory expenses:
Salary of supervisor	36,000
Rent of factory	70,000
Gas and water	30,000
Fuel and coal	33,000
Factory power	1,25,000
Fire insurance	13,000
Depreciation	12,000	3,19,000
		13,86,000			13,86,000

Trading and Profit and Loss Account
for the year ended 31st March, 2013
Dr. Cr.

Particulars	Rs.	Particulars	Rs.
To Opening stock of finished goods	2,60,000	By Sales 22,00,000
To Cost of production transferred from Manufacturing Account	11,76,000	Less: Returns 1,20,000	20,80,000
To Purchases	1,70,000	By Closing Stock of finished goods	2,20,000
To Gross Profit c/d	6,94,000
	23,00,000		23,00,000
To Carriage outwards	35,000	By Gross Profit b/d	6,94,000
To Office salaries	1,50,000
To Net Profit transferred to Capital A/c	5,09,000		______________
	6,94,000		6,94,000

Illustration :
From the following particulars of Mr. Murthy, prepare Manufacturing, Trading and Profit and Loss Accounts for the year ended 31.3.2013 and the Balance Sheet as on the date after making necessary adjustments:

Capital (1.4.2012)	2,500
Drawings account	700
Sundry creditors	800
Discount received	702
Bank overdraft	4,000
Provision for bad and doubtful debts	60
Purchases returns	53
Sales	6,750
Sales returns	8.6
Stock of finished goods (1.4.2012)	900
Plant and machinery (including machinery for ` 50,000 purchased on 1.1.2013)	1,700
Furniture	1,500
Building	1,500
Purchases	302,3
Sundry debtors	1,100
Manufacturing wages	6,000
Manufacturing expenses	5,000
Carriage inwards	400
Carriage outwards	420
Bad debts	150
Salaries	280
Interest and bank charges (Dr.)	12.6
Discount allowed	15
Insurance (Dr.)	30
Cash at bank	14
Cash in hand	3
Stock of finished goods (31.3.2013)	755

The following adjustments are to be made:
(i) Interest on capital at 10% p.a. (no interest is to be provided on drawings)

(ii) Outstanding expenses:
`
(a) Salaries 100

(b) Manufacturing wages 5

( a ) M a c h i n e r y a t 1 0 %

( b ) F u r n i t u r e a t 1 0 %

( c ) B u i l d i n g a t 2 . 5 %

(iv) Pre-paid expenses: `

(a) Insurance 100

(b) Salary 5

(v) Provision for bad and doubtful debts at 10% on debtors.

Furniture costing Rs. 50,000 was sold for Rs. 35,000 on 1.4.2012 and this amount was later credited to furniture account.

Particulars	Rs.000	Rs.000	Particulars	Rs.000	Rs.000
To Purchases	3,023		By Trading Account (transfer of cost of goods produced)		4,247.50
Less : Returns	53
		2,970
To Carriage inwards		40
To Manufacturing
wages	600
Add: Outstanding	____5	605
To Manufacturing expenses		500
To Depreciation on Machinery		132.5
		4,247.50			4,247.50
To Opening stock		90,000	By Sales	6,75,000
			Less: Returns	____860	6,741.40
To Manufacturing A/c (cost of goods produced)		4,247.50	By Closing Stock		755
To Gross profit c/d		2,349			_________
		7,496.40			7,496.40
To Salaries	28,000		By Gross Profit b/d		2,348.90
Add : Outstanding	___10__		By Discount		70.2
	290
Less : Pre-paid ____	____5___	28.5
To Interest and bank charges	12.6
Add : Outstanding __	__100__	_22.6
To Discount allowed		15
To Insurance	300
Less : Pre-paid __	__100__	200
To Carriage outwards		42
To Provision for bad Debts		65
To Loss on sale of furniture		15
To Depreciation on:
Building	3,750
Furniture	1,350	51
To Interest on capital		250
To Net profit transferred to capital account		1,653.50			________
		2,419.10			2,419.10

Mr. Murthy
Balance Sheet as on 31st March, 2013

*Liabilities*	*Rs.000*	*Rs.000*	*Assets*	*Rs.000*	*Rs.000*
Capital	2,500		Fixed Assets:
*Add:* Profit	1,653.5		Building	1,500
Interest	250		*Less:* Depreciation	37.5	1,462.5
	4,403.5		Plant and machinery	1,200
*Less:* Drawings	700	3,703.5	*Add:* Additions	500
Current Liabilities:				1,700
Bank overdraft		400	*Less:* Depreciation	132.5	1,56705
Sundry creditors		800	Furniture	185
Outstanding expenses:			*Less:* Cost of
Salaries	10		furniture disposed of
Manufacturing wages	5		during the year	50
Interest on bank loan	___10___	25	*Less:* Depreciation	13.5	121.5
			Current Assets:
			Stock		755
			Debtors	1,100
			*Less:* Provision for bad and doubtful
			debts	110	990
			Cash at bank		14
			Cash in hand		3
			Pre-paid expenses:
			Insurance	10
			Salary	__5__	__15__
		4,928.5			4,928.5

Working Note:

Working Note:

(i) Provision for bad and doubtful debts:

Provision required Add: Bad debts

Less: Existing provision

Rs.11,000

1,500

12,500

6,000

6.500

(ii) Book value of furniture sold has been deducted for calculating depreciation.

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