Preparation of Final Accounts

Preparation of Final Accounts

Illustration :
Pass necessary adjustment entries for the following adjustments:
1. Salaries outstanding Rs.20,000
2. Prepaid Insurance Rs.400
3. Interest accrued on investments Rs.1000
4. Commission received in advance Rs.2,000
5. To provide 10% interest on capital of Rs.5,00,000
6. Closing Stock Rs.4,00,000

Solution:

Adjustment Entries

Date	Particulars	L.F	Debit Rs.	Credit Rs.
1.	Salaries A/c Dr		20,000
	To Salaries outstanding A/c			20,000
	(Salaries outstanding)
2.	Prepaid Insurance A/c Dr		400
	To Insurance A/c			400
	(Insurance prepaid)
3.	Accrued Interest A/c Dr		1,000
	To Interest A/c			1,000
	(Interest accrued on investments)
4.	Commission received A/c Dr		2,000
	To Commission received in advance A/c			2,000
	(Commission received in advance)
5.	Interest on Capital A/c Dr		50,000
	To Capital A/c			50,000
	(10% interest on capital)
6.	Closing Stock A/c Dr		4,00,000
	To Trading A/c			4,00,000
	(Closing stock recorded)

Illustration :
Pass necessary adjusting entries for the following adjustments:

1. Interest charged on drawings Rs.5,000

2. Interest on loan outstanding Rs.3,000

3. Depreciation at 10% is to be charged on Machinery Rs.3,00,000.

4. Write off bad debts Rs.2,000

5. To provide provision for Bad & doubtful debts at 2% on Sundry debtors Rs.60,000

6. To provide Provision for discount on creditors at 2% on Sundry Creditors worth Rs.1,00,000

Date	Particulars	L.F	Debit Rs.	Credit Rs.
	Capital A/c Dr		5,000
	To Interest on drawings A/c			5,000
	(Interest charged on drawings)
2.	Interest on loan A/c Dr		3,000
	To Interest outstanding A/c			3,000
	(Interest due on loan)
3.	Depreciation A/c Dr		30,000
	To Machinery A/c 30,000			30,000
	(Depreciation on Machinery)
4.	Bad debts A/c Dr		2,000
	To Sundry debtors A/c			2,000
	(Bad debts written off)
5.	Profit and Loss A/c Dr		1,200
	To Provision for Bad & doubtful debts A/c			1,200
	(2% provision for Bad & doubtful debts)
6.	Provision for discount on creditors A/c Dr		2,000
	To Profit & Loss A/c			2,000
	(2% provision for discount on Creditors)

Illustration :

The Trial Balance as on 31st March 2004 shows Sundry debtors as Rs.12,000 and bad debts as Rs.300. No adjustment given.

Solution:

Profit and Loss Account for
Dr . the year ended 31st March 2004 Cr.

Particulars	Rs.	Particulars	Rs.
To Bad Debts	300

Balance Sheet as on 31st March 2004

Liabilities	Rs.	Assets	Rs.
		Sundry debtors	12,000

Illustration :
The Trial Balance as on 31st March 2004 shows the following:

Dr. Cr.

Sundry Debtors 40,800 ––
Bad debts written off 1,400 ––

Adjustment: Write off Rs.800/- as bad debts.

Solution:

Adjusting Entry

Date

Particulars

L.P.

Debit
Rs.

Credit
Rs.

Bad debts A/c Dr.

To Sundry debtors A/c

(bad debts written off)

800

Note:
In the above example, Trial Balance shows Rs.1,400 as Bad debts. This means the double entry in respect of Rs.1,400 i.e.debiting Bad
debts and crediting Sundry debtors is already completed. Hence Rs.1,400 found in the Trial Balance will not affect the sundry debtors of Rs.40,800.

But for the adjustment given outside the Trial Balance, the adjustment has to be done after the preparation of Trial Balance and
this would result in increasing bad debts by Rs.800 and decreasing debtors by Rs.800.

Profit and Loss Account for
the year ending 31st March 2004
Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Bad Debts	1,400
Add: Bad debts Written off	__800
		2,200

Balance Sheet as on 31st March 2004

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
			Sundry Debtors	40,800
			Less: Bad debts written off	___800
					40,000

Note:
Dr. Bad Debts Account Cr.

Particulars

Rs.

Particulars

Rs.

To Balance b/d

To Sundry Debtors

1,400

800

By Profit & Loss

2,200

Illustration :

The following items are found in the Trial Balance of Mr.Vivekanandan as on 31st March 2004.

Sundry debtors Rs. 64,000

Bad debts Rs. 1,200

Provision for Bad & doubtful debts Rs. 2,800

Adjustment:
Provide for bad & doubtful debts at 5% on Sundry debtors.

Give necessary entries and show how these items will appear in the final accounts.

Solution:

Step :1

Transfer Entry

Date

Particulars

LF.

Debit
Rs.

Credit
Rs.

2004

Mar 31

Provision for bad & doubtful debts A/c Dr.

To Bad debts A/c
(Transfer of bad debts)

1,200

Note:

If Provision for bad and doubtful debts account is maintained, the loss on account of bad debts is taken to Profit and Loss Account not
directly but via provision for bad and doubtful debts account.

Step 2:

Apply the rule:
Rs.
Bad debts 1,200
Add: New Provision required 5% on 64,000 3,200
Total required 4,400
Less: Existing provision 2,800
Amount required 1,600

Adjusting Entry

Date	Particulars	L.F	Debit Rs.	Credit Rs.
2004
31-Mar	Profit and Loass A/c Dr.		1,600
	To Provision for bad and doubtful debts A/c			1,600
	(Additional provision for bad and doubtful debts)

Profit and Loss Account for
the Period ended 31st March 2004
Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Provision for bad & doubtful debts A/c
Bad debts	1,200
Add: New provision	3,200
	4,400
Less: Old provision	2,800
		1,600

Balance Sheet as on 31st March 2004

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
			Debtors	64,000
			Less: Provision for Bad & doubt–ful debts (New)	3,200
					60,800

Note:

When the existing provision is larger than what is required even after the transfer of bad debts, the second step will give a negative
figure, which indicates that the profit and loss account is to be credited with the excess.

Illustration :

Following are the balances extracted from the Trial Balance of Mr. Mohan as on 31st March, 2002.

Trial Balance as on 31st March, 2002

particulars	Debit Rs.	Credit
Sundry debtors	60,000
Bad debts	5,000
Provision for bad & doubtful debts		10,000

Adjustment

Create provision for bad & doubtful debts @ 5% on Sundry Debtors.

Pass adjusting entry and show how these items will appear in the final accounts.

Solution:

Adjusting Entry

Date	Particulars	L.F	Debit Rs.	Credit Rs.
2002
31-Mar	Provision for Bad and Doubtful debts A/c Dr .		2,000
	To Profit & Loss A/c			2,000
	(Excess: 5% Provision for bad and doubtful debts)

Profit and Loss Account for

Dr. the year ending 31s’ March, 20029 Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
			By Provision for bad and doubt-ful debts:
			Old Provision for bad & doubtful debts	10,000
			Less:Bad debts 5000
			New Provision 3000	8,000
					2,000

Balance Sheet as on 31st March, 2002

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
			Sundry debtors	60,000
			Less: New Provision	3,000
					57,000

Illustration :

The following balances have been extracted from the trial balance of Mr.Ashok as on 31.3.2002.

Trial Balance of Mr.Ashok as on 31st March, 2002

particulars	Debit Rs.	Credit Rs
Debtors	2,01,200
Bad debts	9,400
Provision for bad & doubtful debts		24,000
Provision for Discount on debtors		1,200
Discount allowed	18,600

Adjustments:

1. Write off additional bad debts Rs.4,800

2. Create Provision of 10% for bad & doubtful debts on debtors.

3. Create Provision of 2% for discount on debtors.

Show how these items will appear in the Profit and Loss Account and Balance Sheet.

Solution:

Profit and Loss Account of Mr.Ashok
for the year ending 31st March, 2002
Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Provision for Bad & Doubtful debts A/c
Bad debts	9,400
Add: Bad debts written off	4,800
	14,200
Add: New Provision	19,640
	33840

Less: Old provision	24,000	9,840
To Provision for discount on debtors Discount allowed	18,600
Add: New provision	3,535
	22,135
Less: Old provision	_1,200

20,935

Balance Sheet as on 31st March, 2002

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
			Sundry debtors	2,01,200
			Less: Bad debts written off	4,800
				1,96,400
			Less: New provision for bad & doubt-ful debts	19,640
				1,76,760
			Less: New Provision for discount on debtors	____3,535
					1,73,225

Illustration :

From the following trial balance of a trader, make out a Trading and Profit and Loss account and Balance Sheet as on 31st March, 2000.

particulars	Debit Rs.	Credit Rs
Sales		4,20,000
Purchases	1,05,000
Printing Charges	2,500
Wages	77,500
Salaries	12,500
Opening Stock	2,25,000
Carriage Inwards	8,800
General Expenses	26,250
Trade Marks	5,000
Rates and Taxes	2,500
Capital		1,74,800
Discount received		1,250
Loan		1,75,000
Buildings	2,00,000
Furniture	25,000
Machinery	50,000
Cash	1,000
Bank	30,000
	7,71,050	7,71,050

Adjustments:

1. The closing stock was valued at Rs.3,20,000.

2. Outstanding Salaries Rs.10,000.

3. Prepaid rates & taxes Rs.500.

Solution:

Trading and Profit and Loss Account for
the year ending 31st March, 2000

particulars	Rs.	Rs.	particulars	Rs.	Rs.
To Opening Stock		2,25,000	By Sales		4,20,000
To Purchases		1,05,000	By Closing Stock		3,20,000
To Wages		77,500
To Carriage inwards		8,800
To Gross Profit c/d		3,23,700
(Transferred to Profit and Loss A/c)
		7,40,000			7,40,000
To Printing charges		2,500	By Gross Profit b/d		3,23,700
To Salaries	12,500		(Transferred from Trading A/c)
Add: Outstanding	10,000		By Discount received		1,250
		22,500
To General expenses		26,250
To Rates and Taxes	2,500
Less: Prepaid	__500
		2,000
To Net Profit		2,71,700
(Transferred to Capital A/c)		____________			____________
		3,24,950			3,24,950

Balance Sheet as on 31st March, 2000

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Outstanding Salary		10,000	Cash		1,000
Loans		1,75,000	Bank		30,000
Capital	1,74,800		Closing Stock		3,20,000
Add: Net Profit	2,71,700	4,46,500	Prepaid rates & taxes		500
			Building		2,00,000
			Furniture		25,000
			Machinery		50,000
			Trade Marks		5,000
		6,31,500			6,31,500

Illustration :

The following Trial Balance has been extracted from the books of Mr.Bhaskar on 31.03.2003.

Trial Balance

Particulars	Debit Rs.	Credit Rs.
Machinery	40,000
Cash at Bank	10,000
Cash in Hand	5,000
Wages	10,000
Purchases	80,000
Stock (01.04.2002)	60,000
Sundry debtors	40,000
Bills Receivable	29,000
Rent	4,000
Interest on Bank Loan	500
Commission received		3,000
General Expenses	12,000
Salaries	7,500
Discount received		4,000
Capital		90,000
Sales		1,20,000
Bank Loan		40,000
Sundry Creditors		40,000
Purchase returns		5,000
Sales returns	__4,000	__________
	3,02,000	3,02,000

Adjustments:

1. Closing Stock Rs.80,000

2. Interest on Bank loan not yet paid Rs.400

3. Commission received in advance Rs.1,000

Prepare Trading and Profit and loss Account for the year ended 31.03.2003 and Balance Sheet as on that date after giving effect to the
above adjustments.

Solution:

Trading and Profit and Loss Account of Mr.Bhaskar
for the year ending 31st March, 2003

Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock		60,000	By Sales	1,20,000
To Purchases	80,000		Less: Returns	___4,000	1,16,000
Less: Returns	__5,000	75,000	By Closing stock		80,000
To Wages		10,000
To Gross Profit c/d		51,000
(Transferred to Profit and Loss A/c)
		1,96,000			1,96,000
To Rent		4,000	By Gross Profit b/d		51,000
To Interest on Bank			(Transferred from Trading A/c)
Loan	500		By Commission received	3,000
Add: Outstanding	400		Less: Received in advance	1,000
		900			2,000
To General Expenses		12,000	By Discount received		4,000
To Salaries		7,500
To Net Profit		32,600
(Transferred to Capital A/c)
		57,000			57,000

Balance Sheet as on 31st March, 2003

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry Creditors		40,000	Cash in hand		5,000
Bank Loan	40,000		Cash at Bank		10,000
Add: Outstanding interest on loan	400		Bills receivable		29,000
		40,400	Sundry debtors		40,000
Commission received in advance		1,000	Closing Stock		80,000
Capital	90,000		Machinery		40,000
Add: Net Profit	32,600
		1,22,600
		2,04,000			2,04,000

Illustration :

The following are the balances extracted from the books of Mrs.Suguna as on 31st March, 2004.

Debit Balances	Rs.	Credit Balances	Rs.
Drawings	40,000	Capital	2,00,000
Cash at Bank	17,000	Sales	1,60,000
Cash in hand	60,000	Sundry Creditors	45,000
Wages	10,000
Purchases	20,000
Stock (31.03.03)	60,000
Buildings	1,00,000
Sundry debtors	44,000
Bills Receivable	29,000
Rent	4,500
Commission	2,500
General Expenses	8,000
Furniture	5,000
Suspense Account	5,000
	4,05,000		4,05,000

Adjustments:

Closing Stock Rs.40,000 valued as on 31.03.04.
Interest on Capital at 6% to be provided.
Interest on Drawings at 5% to be provided.
Depreciate buildings at the rate of 10% per annum.
Write off Bad debts Rs.1,000.
Wages yet to be paid Rs.500

Prepare Trading and Profit & Loss Account and Balance Sheet as on 31st March 2004

Solution:

Trading and Profit and Loss Account of Mrs. Suguna for
the year ending 31st Marh, 2004

Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock		60,000	By Sales		1,60,000
To Purchases		20,000	By Closing Stock		40,000
To Wages	10,000
Add: Outstanding	_____500
		10,500
To Gross Profit c/d (Transferred to Profit & Loss A/c)		1,09,500
		2,00,000			2,00,000
To Rent		4,500	By Gross Profit b/d (Transferred from Trading A/c)		1,09,500
To Commission		2,500	By interest on Drawings		2,000
To General Expenses		8,000
To Interest on Capital		12,000
To Depreciation on buildings		10,000
To Bad debts written off		1,000
To Net Profit (Transferred to Capital A/c)		73,500
		1,11,500			1,11,500

Balance Sheet of Mrs.Suguna as on 31st March, 2004

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry Creditors		45,000	Cash in hand		60,000
Outstanding wages		500	Cash at bank		17,000
Capital	2,00,000		Bills Receivable		29,000
Add: Net Profit	___73,500		Sundry Debtors	44,000
	2,73,500		Less: Bad debts written off	1,000
Add: Interest on Capital	__12,000				43,000
	2,85,500		Closing Stock		40,000
Less: Drawings	__40,000		Buildings	1,00,000
	2,45,500		Less: Depreciation	__10,000
Less: Interest on Drawings	___2,000				90,000
		2,43,500	Furniture		5,000
			Suspense Account		5,000
		2,89,000			2,89,000

Illustration :
Mr.Senthil’s book shows the following balances. Prepare his Trading and Profit and Loss account for the year ended 31st March 2005 and Balance Sheet as on that date.

Particulars	Debit Rs.	Credit Rs.
Stock on 1.4.2004	1,50,000
Purchases	1,30,000
Sales		3,00,000
Carriage inwards	2,000
Salaries	50,000
Printing and Stationery	8,000

Drawings	17,000
Sundry Creditors		20,000
Sundry debtors	1,80,000
Furniture	10,000
Capital		2,50,000
Postage & Telephone	7,500
Interest paid	4,000
Machinery	41,500
Loan Account		25,000
Suspense A/c		5,000
	6,00,000	6,00,000

Adjustments:

1. Closing Stock Rs.1,20,000

2. Provide 5% for bad & doubtful debts on debtors

3. Depreciate machinery & furniture by 5%

4. Allow interest on capital at 5%

5. Prepaid printing charges Rs.2,000

Solution:

Trading and Profit and Loss Account of Mr.Senthil for
the period ending 31st March 2005

Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock		1,50,000	By Sales		3,00,000
To Purchases		1,30,000	By Closing Stock		1,20,000
To Carriage inwards		2,000
To Gross Profit c/d (Transferred to Profit & Loss A/c)		1,38,000
		4,20,000			4,20,000
To Salaries		50,000	By Gross Profit b/d (Transferred from Trading A/c)		1,38,000
To Printing & Stationery	8,000

Less: Prepaid	2,000	6,000
To Postage & Telephone		7,500
To Interest paid		4,000
To Provision for Bad & Doubtful debts		9,000

To Depreciation on: Machinery Furniture	2075 _500
		2,575
To interest on Capital		12,500

To Net Profit
(Transferred to Capital A/c)

46,425

1,38,000

Balance Sheet of Mr.Senthil as on 31st March, 2004

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry Creditors		20,000	Sundry Debtors	1,80,000
Loan Account		25,000	Less: Provision for bad & doubtful debts	__9,000_.
Capital	2,50,000				1,71,000
Add: Net Profit	__46,425_.		Closing stock		1,20,000
	2,96,425		Prepaid Printing charges		2,000
Add: Interest on Capital	12,500		Furniture	10,000
	3,08,925		Less: Depreciation	___500
Less: Drawings	17,000				9,500

		2,91,925	Machinery	41,500
Suspense Account		5,000	Less: Depreciation	__2,075
					39,425
	3,41,925				3,41,925

Illustration :

From the Trial Balance of Mr.Raghuraman as on 31st March, 2003 prepare Final accounts.

Particulars	Debit Rs.	Credit Rs.
Capital		3,60,000
Drawings	6,400
Stock (1.4.2002)	18,000
Purchases	1,29,000
Sales		2,38,000
Sales Returns	4,000
Wages	32,000
Insurance Premium	3,000
Packing Expenses	4,000
Postage	200
Advertisement	2,000
Carriage outwards	16,000
Bad debts	600
Commission received		1,000
Bills Payable		18,000
Bank overdraft		6,000
Land & Buildings	2,61,000
Plant & Machinery	1,80,000
Sundry Debtors	50,800
Sundry Creditors		84,000
	7,07,000	7,07,000

Adjustments:

1. Closing Stock on 31.03.2003, Rs.15,000.

2. Write off bad debts Rs.800 and make provision for Bad & doubtful debts @ 5% on Sundry debtors.

3. Commission accrued but not received Rs.2,000.

Solution:

Trading and Profit and Loss Account of Mr.Raguraman
for the year ending 31st March, 2003
Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock		18,000	By Sales	2,38,000
To Purchase		1,29,000	Less:Sales Returns	____4,000
To Wages		32,000			2,34,000
To Packing Expenses		4,000	By Closing stock		15,000
To Gross Profit c/d (Transferred to Profit & Loss A/c)		66,000
		2,49,000			2,49,000
To Insurance		3,000	By Gross Profit b/d (Transferred from Trading A/c)		66,000
To Postage		200	By Commission received	1,000
To Advertisement		2,000	Add: Accrued Commission	2,000
To Carriage outwards		16,000			3,000
To Bad debts	600
Add: Bad debts written off	800
		1400
To Provision for bad & doubtful debts		2,500
To Net Profit (Transfered to Capital A/c)		43,900
		69,000			69,000

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry Creditors		84,000	Sundry Debtors	50,800
Bills Payable		18,000	Less: Bad debts
Bank Overdraft		6,000	written off	___800
Capital	3,60,00			50,000
Add: Net Profit	43,900		Less: Provision for Bad & Doubtful debts	2,500
	4,03,900				47,500
Less: Drawings	6,400		Closing Stock		15,000
		3,97,500	Accrued Commission		2,000
			Land & Building		2,61,000
			Plant & Machinery		1,80,000
	5,05,500				5,05,500

Illustration :

From the following particulars of Mrs. Sulochana, prepare Trading and Profit and Loss Account and Balance Sheet for the year ending 31st March, 2004.

Trial Balance

Particulars	Debit Rs.	Credit Rs.
Capital		7,50,000
Cash	40,000
Buildings	4,00,000
Salary	1,10,000
Rent & Taxes	21,000
Opening Stock	1,20,000
Machinery	1,20,000
Drawings	40,000
Purchases	5,00,000

Sales		7,50,000
Carriage inwards	5,000
Fuel, Gas	37,000
Sundry Debtors	2,50,000
Sundry Creditors		1,20,000
Bills Receivable	53,000
Dividend		28,000
Loan		60,000
Bad debts	2,000
Advertisement	16,000
Provision for Bad & Doubtful Debts		6,000
	17,14,000	17,14,000

Adjustments:
1. Closing stock Rs.1,40,000.
2. Write off Rs.10,000 as bad debts; Provide 5% for Bad and
Doubtful debts.
3. Make provision for discount on Debtors at 2%.
4. Provision for discount on Creditors at 2%.

Solution:

Trading and Profit and Loss Account of Mrs. Sulochana
for the year ending 31st March, 2004

Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock		1,20,000	By Sales		7,50,000
To Purchases		5,00,000	By Closing Stock		1,40,000
To Carriage inwards		5,000
To Fuel, Gas		37,000
To Gross Profit c/d (Transferred to Profit & Loss A/c)		2,28,000
		8,90,000			8,90,000
To Salary		1,10,000	By Gross Profit b/d (Transferred from Trading A/c)		2,28,000
To Rent & Taxes		21,000	By Dividend		28,000

To Advertisement		16,000	By Provision for discount on Creditors	2,400
To Provision for bad & doubtful debts A/c Bad debts	2,000
Add: Bad debts written off	10,000
	12,000
Add: New Provision	12,000
	24,000
Less: Old Provision	_6,000
		18,000
To Provision for discount on debtors		4,560
To Net Profit (Transferred to Capital A/c)		88,840
		2,58,400		2,58,400

Balance Sheet of Mrs.Sulochana as on 31st March, 2004

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry Creditors	1,20,000		Cash		40,000
Less: Provisio for discount on creditors	2,400	1,17,600	Bills Receivable		53,000
Loan		60,000	Sundry Debtors	2,50,000
Capital	7,50,000 88,840		Less: Bad debts written off	__10,000
Add: Net Profit	7,50,000 88,840			2,40,000
	8,38,840			2,40,000
Less: Drawings	40,000		Less: New Provision for Bad & doubtful debts	12,000
		7,98,840	Less: New Provision for discount on debtors	2,28,000
				4,560
					2,23,440
			Closing Stock		1,40,000
			Buildings		4,00,000

Machinery

1,20,000

9,76,440

Illustration :
Prepare Trading, Profit and Loss A/c and Balance Sheet as on 31.3.2005 from the following Trial Balance of Mr.Imran.

Particulars	Debit Rs.	Credit Rs.
Capital		1,50,000
Bank Overdraft		25,200
Sales		9,03,000
Furniture	30,600
Business Premises	1,20,000
Creditors		79,800
Opening Stock	1,32,000
Debtors	1,08,000
Rent		6,000
Purchases	6,60,000
Discount		2,400
Insurance	16,000
Wages	24,000
Salaries	54,000
Advertisement	13,200
Carriage on Purchases	10,800
Provision for bad and doubtful debts		7,000
Bad debts	800
Income tax	4,000
	11,73,4000	11,73,400

Adjustments:
1. Closing Stock on 31.03.2005 was Rs.1,20,000

2. Make a provision of 5% on Sundry debtors for bad and doubtful debts.

3. Rent received in advance Rs.2,000

4. Provide 10% depreciation on Furniture and Business Premises.

Solution:

Trading and Profit and Loss Account of Mr.Imran
for the year ending 31st March, 2005

Dr. Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening Stock		1,32,000	By Sales		9,03,000
To Purchases		6,60,000	By Closing stock		1,20,000
To Wages		24,000
To Carriage on Purchases		10,800
To Gross Profit c/d (Transferred to Profit & Loss A/c)		1,96,200
		10,23,000			10,23,000
To Insurance		16,000	By Gross Profit b/d (Transferred from Trading A/c)		1,96,200
To Salaries		54,000	By Rent	6,000
To Advertisement		13,200	Less: Received in advance	2,000
To Depreciation on:					4,000
Furniture	3,060		By Discount		2,400
Business Premises	12,000		By Provision for bad & doubtful debts Old Provision	7,000
		15,060	Less: Bad debts 800
To Net Profit		1,05,140	New Provision 5400	6,200
					800
		2,03,400			2,03,400

Balance Sheet of Mr.Imran as on 31st March, 2005

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry Creditors		79,800	Sundry Debtors	1,08,000
Bank Overdraft		25,200	Less: New Provision for bad and doubtful debts	___5,400
Rent received in advance		2,000			1,02,600
Capital	1,50,000		Closing Stock		1,20,000
Add: Net profit	1,05,140		Furniture	30,600
	2,55,140		Less: Depreciation	__3,060
Less: Income Tax	____4,000				27,540
		2,51,140	Business Premises	1,20,000
			Less: Depreciation	__12,000
					1,08,000
		3,58,140			3,58,140

Note:

Total of Bad debts written off and new provision for bad and doubtful debts is (Rs.800 + Rs.5,400) Rs.6,200. Old provision for
bad and doubtful debts given in the Trial Balance is Rs.7,000 which is greater than Rs. 6,200. So the difference will appear on the credit side of of the Profit and Loss account as follows:

Date

Particulars

L.F

Debit

Rs.

Credit

Rs.

Date

Particulars

L.F

Debit

Rs.

Credit

Rs.

Particulars

Rs.

Rs.

Particulars

Rs.

Rs.

Liabilities

Rs.

Rs.

Assets

Rs.

Rs.

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