Principles and Practice of Accounting Part 1

CA-CMA-CS

Principles and

Practice of

Accounting

Part 1

Dr CMA T K Sridhar

Edition: September, 2021

Price:

CA Foundation ₹250 [for volumes I and II]

CMA Foundation ₹200 [for volumes I and II]

CMA Inter ₹350 [for volumes I, II and III]

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CONTENT

Page

1 Theoretical Framework

1.1 Meaning and Scope of Accounting 1

1.2 Accounting Concepts, Principles and Conventions 4

1.3 Capital and Revenue Transactions 6

1.4 Contingent Assets and Contingent Liabilities 9

1.5 Accounting Policies 10

2.1 Accounting Process 11

2.2 Rectification of Error 33

3 Bank Reconciliation Statement 37

4 Inventories 49

5 Accounting for Depreciation 54

6 Final Accounts for Sole Proprietors 73

Final Accounts for Manufacturing Entities 87

7 Financial Statements for Not-for-Profit Organisation 90

Meaning and Scope of Accounting 1

1 THEORETICAL FRAMEWORK

1.1 MEANING AND SCOPE OF ACCOUNTING

Transaction and Event:

Term Meaning Example

1 Transaction Performance of an act or an agreement. Purchases, Sales, Rent

2 Event Result or consequence of a transaction Profit or Loss, Closing Stock

Accounting:

Generating Financial Information Using the Financial Information

Recording Classifying Summarising Analyzing Interpreting Communicating

Journal &

Subsidiary

Books

(in terms of

money)

Ledger Trail Balance

Profit & Loss

A/c

Balance Sheet

and Cash-flow

statement

Ratio

analysis

Explaining

ratios

Graphs,

Diagrams, etc.

Accountancy: refers to systematic knowledge of accounting.

Steps of ‘Accounting Cycle’.

Accounting Cycle

Bookkeeping

Recording of transactions in

the books of original entries →

Posting to

ledger →

Preparation of

Trail Balance →

Preparation of Final

A/c

↓ +

Adjustment Entries,

Closing Entries and

Transfer Entries

Journal Entries or

Subsidiary Books and

Journal Proper

{CMA inter D13, 4 marks}

Principles and Practices of Accounting 2

Distinction between book-keeping and accounting

Book-keeping Accounting

1 Process recording of

transactions

summarizing of the recorded

transactions

2 Level base for accounting language of accounting

3 Financial

Statement

is not a part is a part

4 Managerial

decision

cannot be taken can be taken

5 Sub-field No Yes

6 Financial Position cannot be ascertained can be ascertained

Users of Financial Statements

{CMA inter J12, 5 marks}

Users Purpose

External Management Profitability

Employees To claim bonus

Internal

Lenders To know the solvency position

Suppliers To decide the credit policy

Customers To ensure prompt supply of material

Government To levy tax and control

Investors To invest

Public For employment

Objectives of accounting

Objectives Description

1 To maintain systematic accounting

records.

Book keeping, Journal and Ledger

2 To ascertain the result Manufacturing, Trading and Profit or Loss

A/c

3 To ascertain the financial position. Balance Sheet

4 To ascertain the financial performance. Solvency Position

5 To communicate information to users. Financial Reports

Functions of accounting

1. Measurement: past performance and current position

2. Forecasting: future performance and financial position using past data

Meaning and Scope of Accounting 3

3. Decision-making

4. Comparison and evaluation

5. Control

6. Government regulation and taxation.

Limitations of accounting

1. Ignores qualitative elements like loyalty and skill of employees etc.

2. Records past events not about the future performance of the company

3. Ignores inflation except a few cases such as AS 11, AS 26, AS 28 etc.

4. Bias of accountant in recording and in judgment

5. Danger of window dressing.

Branches (sub fields) of accounting

1. Financial Accounting

2. Cost Accounting: Accounting and controlling the cost of a product, operation or function.

3. Management Accounting: the techniques for planning, controlling and decision making.

4. Social Responsibility Accounting: to know the social effects of business decisions

5. Human Resource Accounting: to know investments made in human resources and its impact

Role of Accountant in the society

1. Maintenance of books of accounts

2. Statutory Audit

3. Internal Audit

4. Taxation

5. Management Accounting and Consultancy Services

6. Financial Advice: Investments, insurance, business expansion, investigations and pension schemes

7. Other services: secretarial work, share registration work, company formation, receiverships,

liquidations, arbitrations, cost accountant, accountant and information services.


1.2 ACCOUNTING CONCEPTS, PRINCIPLES AND CONVENTIONS

Accounting Bases: for recording transactions

1. Accrual Basis (Mercantile)

2. Cash Basis

3. Hybrid Basis


Concepts, Principles and Conventions

1. Concepts: assumption having universal application for accounts preparation

2. Principles: rules of current practices and a guide for selection of conventions where alternatives

exist

3. Conventions: derived by usage and practice but may not have universal application

Concepts

1. Accounting Entity Concept: Owner ≠ business

2. Money Measurement Concept: Transactions measurable in money only are recorded


3. Accounting Period Concept (Periodicity / Time Period Concept): (01.04.XX – 31.03.X1)

4. Accrual Concept: Transactions are recorded when they occur (not paid).

5. Matching Concept: all expenses matched with the revenue of that period are recorded.

[Periodic profit = Periodic revenue – periodic expenses]

6. Going concern Concept: It is assumed that enterprise has long life (no intention for liquidation)

7. Cost Concept: the value of an asset is recorded at historical cost (acquisition cost)

8. Realization concept: Accounting entry is made only on realization of the transaction

9. Dual aspect concept: every transaction has two aspects. (every debit has a credit and vice versa)

Accounting Equation Approach: Equity = Assets – Liabilities

10. Consistency Concept: Same accounting policy is followed from one accounting period to another.


11. Conservatism convention: Revenues should be recognized when there is reasonable certainty of

collectability but the possible losses whether certain or not should be provided.

Three qualitative characteristics: prudence | neutrality | faithful representation

Prudence Concept: Anticipated losses are recognized but anticipated profits are ignored.

12. Full Disclosure Concept: (against to prudence concept)

13. Materiality Concept: the information influences the decision of users - should be disclosed.

{CMA inter D03, J06 & D08, 2, 2 & 3 marks}

{Any four: CMA inter D02, J03, J07 & D10, 2, 2, 2 & 5 marks}

Accounting Concepts, Principles and Conventions 5

Fundamental Accounting Assumptions

1. Going Concern

2. Consistency

3. Accrual

{CMA inter D03, J05, D13 & J14, 2, 2, 2 & 2 marks}

Components of Financial statements / general purpose financial statement

1. Profit & Loss Statement

2. Balance Sheet

3. Cash Flow Statement

4. Notes to Accounts – explanations

{CMA inter D03, J06, J07 & J08, 2, 2, 2 and 2 marks}

The Qualitative Characteristics of Accounting Information

Primary

1. Understandability by the users who has reasonable knowledge

2. Relevance to the decision makers [predictive and confirmatory roles from the past]

3. Reliability, free from material error and bias

4. Comparability of financial statements of one year with the financial statements another year of the

same company or other company

Non-primary

5. Materiality

6. Faithful representation

7. Substance over form

8. Neutrality

9. Prudence

10. Full, fair and adequate disclosure

11. Completeness

Capital and Revenue Transactions 6

1.3 CAPITAL AND REVENUE TRANSACTIONS

Capital Expenditures are

1. To acquire or bring into existence an asset, or

2. To acquire or bring into existence an advantage or benefit of enduring nature, or

3. To increase the productivity or earning capacity.

Examples:

1. Expenses incurred before the asset is put to use,

2. repairs of a newly purchased old machine,

3. Purchase of new machine.

Accounting Treatment: Debited to Respective Asset Account.


Revenue Expenditures are

1. To maintain productivity or earning capacity of business.

2. To carry out operating activity in normal course of business.

Examples:

1. Expenses incurred after the asset is put to use,

2. Expenses for replacement of worn-out part of machine,

3. Repairs of an existing machine.

Accounting Treatment: Debited to Trading / P&L Account


Capital Receipt: refers to that receipt which does not arise in normal course of business.

Accounting Treatment: It is credited to Respective Account.

Examples:

1. Raising Issue of Share Capital.

2. Insurance Claim received for machinery damaged by fire.

3. Subsidy received from government for purchase of machinery.

4. Premium received on issue of shares.


Revenue Receipt: refers to that receipt which arises in normal course of business.

Accounting Treatment: It is credited to Trading Account / P&L Account.

Examples:

1. Sale of Land and Building by real estate dealer.

2. Raising of Loan by a person engaged in business of finance and banking.

3. Sale of Shares and debentures by a dealer in securities.

Capital and Revenue Expenditure

Item of Expenditure Nature Reason for Classification

1 Repair of a second-hand machinery

before put to use

Capital These are incurred to put the capital

asset to use.

2 Interest on a term loan for the purchase

of machinery. The commercial

production has not begun till the last day

of the accounting year.

Capital These are incurred to acquire capital

asset & the commercial production has

not yet begun.

3 Interest on a term-loan for the purchase

of machinery. The commercial

production has already begun.

Revenue The commercial production has already

begun.

4 Repairs of Machine after the machine are

put to use.

Revenue These are incurred to maintain the

capital asset.

5 Amount spent for replacement of worn-

out part of machine asset

Revenue These are incurred to maintain the

capital

6 Annual Maintenance fee of a machine Revenue These are incurred to maintain the

capital asset.

7 Money spent to reduce working

expenses

Capital These are incurred to acquire long term

benefits.

8 Amount spent for replacement of a

petrol driven engine by CNG Kits

Capital These are incurred to reduce the

operating costs and thereby increasing

the profit.

9 Cost of Rings & Pistons of an engine

changed to get fuel efficiency



profit.

10 Overhauling expenses for the engine of a

motor car to get better fuel efficiency



profit.

11 Legal expenses to acquire a building Capital These are incurred to acquire ownership

right of the capital asset.

Capital and Revenue Transactions 8

Capital and Revenue Receipt

Item of Receipt Nature Reason for Classification.

1 Insurance claim for

machinery damaged by fire

Capital It is arising from investing and not from operating

activities in the normal course of business.

2 Subsidy received from

Government for plot of land

Capital It is arising from investing activities and not from

operating activities in the normal course of business.

3 General subsidy received

from Government

Revenue It is not for the purchase of any capital asset.

4 Bad Debt Recovered Revenue It is arising from Operating Activities in the normal

course of business.

5 Scrap Value of Machinery Capital It is arising from investing activities and not from


6 Premium received on issue

of Shares

Capital It is arising from financing activities and not from


Contingent Assets and Contingent Liabilities 9

1.4 CONTINGENT ASSETS AND CONTINGENT LIABILITIES

Contingent asset: usually arises from unplanned or unexpected events that give rise to the possibility

of inflow of economic benefits to enterprise.

Recognition: Contingent Asset is neither recognized nor disclosed in financial statements.

Example: A claim filed against 3rd party.

Contingent Liability: is an obligation which may or may not arise depending upon the happening or

non-happening of future uncertain event.

Recognition: A Contingent Liability is required to be disclosed by way of note to Balance Sheet unless

possibility of outflow of resource embodying economic benefits is remote.

Examples: Bills discounted but not yet matured & Arrears of Dividend on Cumulative Preference

Shares.

{CMA inter D10 & D12, 5 & 5 marks}

Provision: is a present liability of uncertain amount which can be measured reliably by using a

substantial degree of estimation.

Recognition: Provision should be recognized in financial statements.

Examples: Provision for Taxation & Provision for Depreciation.

Treatment of Present / Possible Obligation

Nature of Obligation Situation Present Obligation Possible Obligation

Probable Outflow and Reliable

Estimate

Recognize as

‘Provision’

Disclose as ‘Contingent Liability’

Probable Outflow and No Reliable

Estimate

Disclose as ‘Contingent

Liability’

Disclose as ‘Contingent Liability’

No Probable Outflow / Liability and

No Reliable Estimate

Disclose as ‘Contingent

Liability’

Do Nothing

Note: Provision is to be made if there is (a) Present Obligation, (b) probable Outflow, (c) Reliable

Estimate

Principles and Practice of Accounting 10

1.5 ACCOUNTING POLICIES

Accounting policy: refers to accounting principles and method of applying those principles adopted

by enterprise in the preparation of financial statements.

Primary consideration in the selection of accounting policies

Prudence Substance over-form Materiality


Areas in which a choice with regard to accounting policy is made by an enterprise.

1. Treatment of Contingent liabilities

2. Treatment of retirement benefits

3. Valuation of investments

4. Treatment of Intangible Assets

5. Methods of Depreciation depletion and amortization

6. Valuation of fixed assets

7. Valuation of inventory.

{CMA inter J03, D03 & D08}

A change in Accounting Policy is possible

1. To comply with law.

2. To comply with AS.

3. To ensure more appropriate presentation of financial statements.

Accounting Introduction – Journal | Ledger | Trail Balance 11

2.1 ACCOUNTING INTRODUCTION – JOURNAL | LEDGER | TRAIL BALANCE

Accounting equation:

1. Assets = Capital + Liabilities or

2. Capital = Assets – Liabilities

3. Closing Capital = Opening Capital + Profit + Additional Capital – Drawings.

Transactions which increase the Capital = Profit & Additional Capital

Transactions which decrease the Capital = Loss & Drawings

Account: a summary of relevant transactions at one place relating to a particular head.

Classification of accounts

Traditional Approach Equation Approach

Account Example Account Example

1 Personal Account 1 Capital Capital, Drawings, P/L

Natural Raj, Vimal 2 Assets Building, Cash, Bank

Artificial (Legal) IDBI Bank 3 Liabilities Debt, Creditors

Representative O/s expenses 4 Expenses Rent, Salaries

2 Impersonal Account 5 Income Sales, rent received

Real Building

Nominal Expenses, income

Double entry system (by Luca Pacioli): two aspects of a transaction are recorded. They are used

Capital Asset Liability Income Expenses

1 Debit (debito) Decrease Increase Decrease Decrease Increase

2 Credit (credito) Increase Decrease Increase Increase Decrease

Write a note on rule of debit and credit.

Type of Accounts Rules of Debit Rules of Credit

Personal Accounts Debit the Receiver Credit the Giver

Real Accounts Debit what comes in Credit what Goes out

Nominal Accounts Debit all Expenses and Losses Credit all Gains and Profits.

Liability: Results from past transactions or events; measurable in terms of money.



Distinguish between liability and provisions.

Liabilities Provision

1. Confirm amount is payable in future Estimated amount may be payable

2. Example: Purchasing in credit Example: For provision for doubtful debts


Distinguish between Reserve and Provisions

Reserves Provisions

1 It is an appropriation of profit It is charge against profit

2 It is created to meet unforeseen losses. It is created to meet known liability

3 It can be invested in a fund. It cannot be invested

4 Example: General Reserve Example: Provision for Doubtful Debt


Types of Entries

1. Opening Entry – to record assets, liabilities or capital appearing in the opening Balance Sheet.

2. Closing Entries – to close the nominal accounts by transferring them to Trading and P&L a/c

3. Transfer Entries – to transfer an amount from one account to another

4. Adjusting Entries – to record unadjusted / unrecorded items

5. Rectifying Entries – to rectify the errors.

Journal Entry

Steps to pass journal entry

1. Identify business transaction measurable in money

2. Find out two accounts affected in the transactions after leaving action word & supporting phrase

3. Find out the type of accounts affected in the transaction i.e., personal, real and nominal

4. Apply the accounting rule

5. Write the journal entry as follows

Date Particulars L.F. Debit Credit

₹ ₹

DD/MM/YY XXXX A/c Dr. ××××

To XXXX A/c ××××

(Being …….)

6. Owner is distinct from the business, hence

a. Credit Capital a/c (Owner → Business)

b. Debit Drawings a/c (Business → Owner)

7. In case of cash transaction, party’s name is not taken

8. Credit Transaction – If the name of the party is given for purchase or sale

9. Debit Purchases A/c – If purchases for trading motive

Credit Sales A/c – If sales for trading motive


10. If the purchases or sales in credit, then party’s name is taken. If party’s name is not given

a. Debit Debtors A/c in case of sales

b. Creditor A/c is credited in case of purchase.

Subsidiary books: Subsidiary Books (Special Journals) are the books of original entry (or prime entry).

1. Cash Journal

a. Single column cash book

b. Double column cash book

c. Triple column cash book

d. Petty cash book (with or without analytical)

2. Goods Journal

a. Purchases book

b. Sales book

c. Purchase return book

d. Sales return book

3. Bills Journal

a. Bills Receivable book

b. Bills Payable book

c. Debtors’ book

d. Creditors’ book

4. Journal Proper: (for recording transactions not recordable under any subsidiary books)

PRACTICAL PROBLEMS

Question 1: Analyse the effect of transaction on assets and liabilities and show that the both sides of

Accounting Equation (A= L+C)

1. Introduced ₹80,000 as cash and ₹5,000 by stock

2. Purchased Plant for ₹30,000 by paying ₹1,500 in cash and balance at a later date.

3. Deposited ₹60,000 in to the bank.

4. Purchased office furniture for ₹10,000 and made payment by cheque.

5. Purchased goods worth ₹8,000 for cash and for ₹3,500 in credit.

6. Goods amounting to ₹4,500 was sold for ₹6,000 on cash basis.

7. Goods costing to ₹8,000 was sold for ₹12,500 on credit.

8. Cheque issued to the supplier of goods worth ₹3,500.

9. Cheque received from customer amounting to ₹7,500.

10. Withdrawn by owner for personal use ₹2,500.

Answer:

Capital + Liabilities = Assets

Capital Asset

Crs

Trade

Crs

Trade

Drs

Cash Stock Plant Bank Furnit

1 85,000 80,000 5,000

85,000 + = 85,000

2 85,000 28,500 78,500 5,000 30,000


85,000 + 28,500 = 1,13,500

3 85,000 28,500 18,500 5,000 30,000 60,000

85,000 + 28,500 = 1,13,500

4 85,000 28,500 18,500 5,000 30,000 50,000 10,000

85,000 + 28,500 = 1,13,500

5 85,000 28,500 3,500 10,500 16,500 30,000 50,000 10,000

85,000 + 32,000 = 1,17,000

6 86,500 28,500 3,500 16,500 12,000 30,000 50,000 10,000

86,500 + 32,000 = 1,18,500

7 91,000 28,500 3,500 12,500 16,500 4,000 30,000 50,000 10,000

91,000 + 32,000 = 1,23,000

8 91,000 28,500 12,500 16,500 4,000 30,000 46,500 10,000

91,000 + 28,500 = 1,19,500

9 91,000 28,500 5,000 16,500 4,000 30,000 54,000 10,000

91,000 + 28,500 = 1,19,500

10 88,500 28,500 5,000 14,000 4,000 30,000 54,000 10,000

88,500 + 28,500 = 1,17,000

Question 2: Pass the journal

Capital contribution

1. Business started with cash of ₹1,00,000

2. Business commenced with a capital of ₹6,00,000

3. Business commenced with bank deposit of ₹1,00,000

4. Singar introduced capital of ₹1,00,000 by cash and ₹50,000 by stock

5. Singar commences business with bank deposit of ₹1,00,00,000

6. Singar commences business with following assets and liabilities: cash ₹5,000, stock ₹10,000,

furniture ₹10,000 and loan ₹5,000

7. Singar introduced further capital of ₹10,000

8. Singar was carrying on business in book publications. On 1st April, 2015, his assets were: Cash at

Bank, ₹35,000, Cash in hand. ₹3,700, Furniture ₹45,300, Stock of goods, ₹3,51,000, Amounts due

from Alex, ₹15,000, from Beem ₹16,000. He owed ₹1,00,000 to Mrs. Singar and ₹26,000 to Charan.

Drawings

9. Withdrawn by owner for personal use ₹25,000.

10. Cash paid for household expenses ₹10,000

11. Goods taken by owner for personal purpose (cost is ₹10,000 & sale price is ₹12,000)

12. Withdrawn from bank ₹35,000 for personal use.

Bank deposits / withdrawal

13. Open a bank account (current account) with SBI for 35,000


14. Deposited ₹6,00,000 in to the bank.

15. Cheque received for ₹50,000 from debtor and deposited in to the bank account in the same date.

16. Withdrawn from bank ₹10,000

17. Withdrawn from bank ₹10,000 for office use

18. Cheque received for ₹10,000 from debtor but deposited in to the bank after two days

Purchase of Assets

Installation charges / wages / trail run expenses

19. Patent is purchased for ₹2,00,000 in cash

20. Furniture is purchased for ₹2,00,000 in credit from Pepperfry

21. Building is purchased for ₹2,00,000 in credit

22. Land purchased for ₹1,00,000 by giving cheque ₹25,000 and balance at later date

23. Wages paid for plant installation is ₹10,000

24. Plant purchased for ₹50,000 and also incurred ₹5,000, ₹3,000 and ₹2,000 for installation wages,

carriage expenses and material for trail run respectively. Also, brokerage paid ₹2,500

Sale of Assets

25. Furniture costing ₹1,00,000 sold for ₹1,00,000

26. Furniture costing ₹1,00,000 sold for ₹1,20,000

27. Furniture costing ₹1,00,000 sold for ₹80,000

28. Furniture costing ₹1,00,000 sold for ₹1,20,000 in credit to I & Co and brokerage paid @ 5%

29. Furniture purchased for ₹1,00,000 by exchanging old furniture for ₹20,000 (book value of old

furniture is ₹25,000) and issued cheque for balance

Goods purchased / sold / other use

30. XYZ Stationery Mart Purchased stationery items for ₹10,000

31. Purchased goods for cash ₹4,00,000

32. Purchased goods worth ₹50,000 by cash and ₹30,000 by cheque

33. Purchased goods for credit from KYPSS is ₹20,000

34. Purchased goods for ₹15,000 in credit

35. Purchased goods worth ₹80,000 for cash and for ₹35,000 in credit.

36. Purchased goods worth ₹40,000 for cash and ₹45,000 on account.

37. Purchase of goods from SSA of the list price ₹1,00,000. He allowed 10% trade discount, ₹5,000

cash discount was also allowed for quick payment.

38. Sold goods for ₹80,000 by cash

39. Singar Books sold books for ₹50,000 by cheque

40. Cash sales for ₹70,000 (goods costing ₹50,000)

41. Sold goods for ₹25,000 in credit from A & Co

42. Sold goods for ₹15,000 in credit

43. Goods amounting to ₹45,000 was sold for ₹60,000 on cash basis.

44. Goods costing to ₹80,000 was sold for ₹1,25,000 on credit.

45. Goods sold to SSA for 16,000


Return

46. Purchase return ₹5,000

47. Sales return ₹8,000

Material issued / used other than sales

48. Goods (Cost ₹5,000 and sale price is ₹6,000) given as donation / charity

49. Goods ₹4,000 used for office expenses

50. Goods ₹10,000 used for fixture making

51. Goods ₹5,000 given as free sample

52. Goods 20,000 taken by owner

53. Goods given to employees as bonus (Cost is ₹10,000 and sale price is ₹12,000)

54. Goods costing ₹5,000 used for office purpose

Payments / Receipts by cash / bank / petty cash / owner / others

55. Received cash from Raj ₹4,00,000

56. Paid to Bala ₹5,00,000

57. Received a cheque from SSA ₹16,000

58. Nidhi pays Cash 14,000

59. Cheque received from a customer amounting to ₹75,000.

60. Cheque issued to the supplier of goods worth ₹35,000.

61. Received cheque from Raj ₹9,800 and allowed him discount ₹200

62. Cheque issued to Bala ₹4,900 and received discount ₹100

63. Paid a cheque of ₹2,00,000 to the supplier for Plant and Machinery.

64. A dividend of ₹0.6 per rupee is received from debtor who became insolvent. Amount owed by

him ₹1,00,000

65. Bad debt written off in the previous year is recovered – ₹5,000

66. Loan of ₹500 taken from Anand

67. Repayment of loan ₹1,00,000

68. Investments in shares / bonds / land ₹1,00,000

69. Investments in shares costing ₹1,00,000 sold for ₹1,00,000

70. Investments in bonds costing ₹1,00,000 sold for ₹1,20,000

71. Investments in land costing ₹1,00,000 sold for ₹80,000 and commission paid @ 5%

72. Furniture purchased for ₹50,000 and payment made by the owner

73. Car purchased for ₹9,75,000 and payment made by debtor for his due ₹10,00,000

Purchased stationery

74. Stationery purchased for cash ₹2,200

75. Stationery purchased for ₹5,000 from ABC Stationery Mart in credit

76. Stationery purchased ₹4,000 in credit


Expenses paid by cash / cheque / outstanding / advance

77. Rent 2,000

78. Insurance ₹2,500.

79. Salary ₹5,500.

80. Commission ₹3,000

81. Telephone bill ₹2,000

82. Wages ₹4,000

83. Electricity bill ₹2,500

84. Cartage ₹1,000

85. Trade expenses ₹500

86. Telephone ₹750

87. Sundry expenses ₹500

88. General expenses ₹1,000

89. Bank charges ₹100

90. Postage ₹50

91. Interest on loan and overdraft – ₹6,000

92. Interest on capital – ₹4,000

Income received by cash / cheque / accrued / advance / accrued but not due:

93. Interest on investment / drawings received ₹4,000

94. Dividend received ₹10,000

95. Rent received ₹5,000

Depreciation

96. Depreciation on plant and machinery is ₹25,000

Abnormal Loss

97. Goods costing ₹40,000 (sale value ₹50,000) lost in accident / theft (abnormal) without insurance

98. Goods worth ₹35,000 (sale value ₹60,000) lost in accident / theft (abnormal) with insurance and

claim received is ₹40,000

99. Goods worth ₹60,000 lost in accident / theft (abnormal) with insurance and claim receivable is

₹50,000

100. Assets destroyed in fire accident (W.D.V is ₹1,00,000) and insurance claim receivable is ₹50,000

101. Stationery worth ₹10,000 destroyed in fire accident

Question 3: Journalise the following transactions in the books of SHIVA

Date Transactions

01.05.2015 Started business with ₹5,00,000 of which 50% amount was borrowed from SBI and 20%

amount was borrowed from his sister Patta

05.05.2015 Purchased goods from Chinu Mart worth ₹1,60,000 at 25% trade discount and 40%

amount paid in cash

08.05.2015 Sold goods to Satish ₹60,000 at 20% trade discount and received ¼ amount in cash

15.05.2015 Paid to Chinu Mart ₹69,500 in full settlement of A/c

{CMA inter J15, 4×1=4 marks}


Answer:

Journal Entry

Date Particulars Debit [₹] Credit [₹]

01.05.2015 Cash A/c Dr 5,00,000

To Capital A/c 1,50,000

To Loan from Patt’s A/c 1,00,000

To Loan from SBI A/c 2,50,000

(Being business started)

05.05.2015 Purchases A/c Dr 1,20,000

To Cash A/c 48,000

To Chinu Mart A/c 72,000

(Being goods purchases and trade discount received)

08.05.2015 Cash A/c Dr 12,000

Satish A/c Dr 36,000

To Sales A/c 48,000

(Being goods sold and trade discount allowed)

15.05.2015 Chinu Mart A/c Dr 72,000

To Cash A/c 69,500

To Discount A/c 2,500

(Being payment made to Chinu Mart in full settlement)

Question 4: Singar was carrying on business in book publications. On 1st April, 2015, his assets were:

Cash at Bank, ₹35,000, Cash in hand. ₹3,700, Furniture ₹45,300, Stock of goods, ₹3,51,000, Amounts due

from Alex, ₹15,000, from Beem ₹16,000. He owed ₹1,00,000 to Mrs. Singar and ₹26,000 to Charan.

During April, his transactions were:

April Transactions ₹

2 Paid wages and salaries by cheque 6,000

3 Purchased on credit from Charan: 5 Financial A/c books @ ₹500 each

4 Sold goods for cash to Mahesh

Drawn cash for private use

5,000

3,000

6 Paid telephone bill in cash

Issued cheque in favor of Charan

Discount allowed by him

1,800

25,000

1,000

8 Received Cheque from Beem in full settlement 15,500

10 Sold to Alex on Credit: 10 Cost A/c books at 8% trade discount [list price ₹500]

11 Beem’s cheque returned dishonored by bank

12 Sold to Arun on credit: 5 FM books @ ₹600

15 Cash sales to Anand 6,000


Cash sent to bank 5,000

20 Purchased one two-wheeler on credit from TVS Co.

Issued Cheque in part payment

35,000

10,000

22 Beem declared insolvent, a dividend of 60% is received from his estate

23 Old newspapers sold for cash 250

25 Old furniture sold (cost, ₹4,000) 2,500

27 Purchased from Kumar 50 Cost A/c books @ ₹220

Arun returns one FM book as defective

28 Received from Alex cheque in full settlement of the amount due on 1st April

Sent cash to bank

14,500

11,000

30 Interest due to Mrs. Singar @ 9% p.a. for one month.

Goods taken for domestic use

500

Enter the transactions in the books of Singar.

Answer: Under theoretical system [preparing ledger and trail balance after passing journal entries]

Narration Journal Entry Dr Cr

01.04.15

Opening Entry

Bank A/c Dr 35,000

Cash A/c Dr 3,700

Furniture A/c Dr 45,300

Stock of Goods A/c Dr 3,51,000

Alex A/c Dr 15,000

Beem A/c Dr 16,000

To Mrs. Singar A/c 1,00,000

To Charan A/c 26,000

To Capital [Balance] 3,40,000

02.04.15 Wages and Salary paid

Wages and Salary A/c Dr 6,000

To Bank A/c 6,000

03.04.15 Purchases

from Charan

Purchases A/c Dr 2,500

To Charan A/c 2,500

04.04.15 Sold goods for cash

Cash A/c Dr 5,000

To Sales A/c 5,000

Drawings A/c Dr 3,000

To Cash A/c 3,000

06.04.15 Paid telephone bill

Telephone Bill A/c Dr 1,800

To Cash 1,800

Issued cheque

in favor of Charan

Charan A/c Dr 26,000

To Bank A/c 25,000

To Discount Received A/c 1,000

08.04.15 Received cheque Bank A/c Dr 15,500


from Beem Discount Allowed A/c Dr 500

To Beem A/c 16,000

10.04.15 Sales to Alex

Alex A/c Dr 4,600

To Sales A/c 4,600

11.04.15 Beem’s cheque

returned dishonored

Beem A/c Dr 16,000

To Bank A/c 15,500

To Discount Allowed A/c 500

12.04.15 Sale to Arun

Arun A/c Dr 3,000

To Sales A/c 3,000

15.04.15 Cash sales

Cash A/c Dr 6,000

To Sales A/c 6,000

Cash sent to bank

Bank A/c Dr 5,000

To Cash A/c 5,000

20.04.15 Two-wheeler

purchased

Two-wheeler A/c Dr 35,000

To Bank A/c 10,000

To TVS & Co. 25,000

22.04.15 Beem declared

insolvent

Bank A/c Dr 9,600

Bad Debts A/c Dr 6,400

To Beem A/c 16,000

23.04.15 Old newspaper sold

Cash A/c Dr 250

To Old Newspaper A/c 250

25.04.15

Old furniture sold

Cash A/c Dr 2,500

Loss on Sale A/c Dr 1,500

To Furniture A/c 4,000

27.04.15 Purchases

from Kumar

Purchased A/c Dr 11,000

To Kumar A/c 11,000

Arun returns

one shirt

Sales Return A/c Dr 600

To Arun A/c 600

28.04.15 Received

from Alex

Bank A/c Dr 14,500

Discount Allowed Dr 500

To Alex A/c 15,000

Sent cash

to bank

Bank A/c Dr 11,000

To Cash A/c 11,000

30.04.15 Interest due

Interest A/c Dr 750

To Mrs. Singar’s Loan A/c 750

Goods taken

for domestic use

Drawings A/c Dr 500

To Purchases A/c 500


LEDGER

Debit Credit

April Particulars ₹ April Particulars ₹

Capital A/c

To 1 By By Balance b/d 3,40,000

Mrs. Singar’s Loan A/c

1 By Balance b/d 1,00,000

Charan A/c

6 To Cash A/c 25,000 1 By Balance b/d 26,000

Discount Received A/c 1,000 3 Purchases A/c 2,500

30 Balance c/d 2,500

28,500 28,500

1 Balance b/d 2,500

Alex A/c

1 To Balance b/d 15,000 28 By Cash A/c 14,500

10 Sales A/c 4,600 30 Discount Allowed 500

Balance c/d 4,600

19,600 19,600

1 Balance b/d 4,600

Beem A/c


11 Bank A/c 15,500 8 Discount Allowed A/c 500

Discount Allowed A/c 500 22 Cash A/c 9,600

22 Bad Debts A/c 6,400

32,000 32,000

Arun A/c

12 To Sales A/c 3,000 27 By Returns Inwards A/c 600


3,000 3,000

1 To Balance b/d 2,400

TVS Co

20 To Bank A/c 10,000 20 By Two-wheeler A/c 35,000


35,000 35,000

1 Balance b/d 35,000


Kumar A/c

27 By Purchases A/c 11,000

Drawings A/c

4 To Cash A/c 3,000 30 By Balance c/d 3,500

30 Purchases A/c 500

3,500 3,500

Balance b/d 3,500

Stock A/c

1 To Balance b/d 3,51,000

Furniture A/c


25 Loss on Furniture A/c 1,500


45,300 45,300


Two-wheeler A/c

20 To TVS Co. A/c 35,000 30 By Balance c/d 35,000


Purchases A/c

3 To Charan A/c 2,500 By Drawings 500

27 Kumar A/c 11,000 Balance c/d 13,000

13,500 13,500

To Balance b/d 13,000

Sales A/c

To Balance c/d 2 By Cash 5,000

10 Alex A/c 4,600

12 Arun A/c 3,000

15 Cash A/c 6,000

18,600 18,600

Balance b/d 18,600

Wages & Salaries A/c

2 To Bank A/c 6,000

Telephone Expenses A/c

6 To Cash A/c 1,800

Old Newspaper A/c

23 To By Cash A/c 250


Bad Debts A/c

22 To Beem A/c 6,400

Loss on Sale of Furniture A/c

25 To Furniture A/c 1,500

Interest on Loan A/c

30 To Outstanding Interest on Loan 750

Discount Allowed A/c

8 To Beem A/c 500 30 By Beem A/c 500

28 Alex A/c 500 Balance c/d 500

1,000 1,000

Balance b/d 500

Returns Inward A/c

27 Arun A/c 600

Outstanding Interest on Loan A/c

30 By Interest on Loan A/c 750

Discount Received A/c

6 By Charan A/c 1,000

Cash A/c

1 To Balance b/d 15,000 09 By Purchases 21,000

8 Sales 22,000 09 Bank 15,000

9 Bank 14,500 24 Stationery 1,800

16 Michael 6,850 25 Cartage 350

23 Kumar 4,500 28 Bank 4,500

31 Wages 3,000

31 Postage 220


62,850 62,850

Balance b/d 16,980

Bank A/c

01 To Balance b/d 10,000 03 By Insurance 4,200

09 Cash 15,000 10 Telephone 2,300

20 John 10,700 14 Drawings 6,000

21 Sale 2,000 16 Cash 14,500

28 Cash 4,500 21 Card charge 40

31 Kumar 4,500

31 Rent 4,000

31 X 3,000



42,200 42,200

Balance b/d 3,6600

Trail Balance

Debit Credit

Cash in hand A/c 6,250 Capital A/c 3,40,000

Cash at Bank A/c 24,500 Mrs. Singar’s Loan 1,00,000

Alex A/c 4,600 Charan 2,500

Arun A/c 2,400 TVS Co. 25,000

Drawings A/c 3,500 Kumar 11,000

Stock A/c 3,51,000 Sales A/c 18,600

Furniture A/c 41,300 Old Newspapers A/c 250

Two-wheeler A/c 35,000 Discount Received A/c 1,000

Purchases A/c 13,000 Outstanding Interest 750

Wages and Salaries A/c 6,000

Telephone Expenses A/c 1,800

Bad Debts A/c 6,400

Loss on sale of furniture 1,500

Interest A/c 750

Returns Inward 600

Discount Allowed A/c 500

Total 4,99,100 4,99,100

Question 5: The Rough Book of M/s. Narain & Co. contains the following

Date Particulars

01.02.16 Purchased from Brown & Co. on credit;

5 gross pencils @ ₹100 per gross,

1 gross registers @ ₹240 per dozen

Less: Trade Discount @ 10%

02.02.16 Purchased for cash from the Stationery Mart; 10 gross exercise books @ ₹300 per dozen

03.02.16 Purchased computer for office use from M/s. Office Goods Co. on credit for ₹30,000.

04.02.16 Purchased on credit from The Paper Co.

5 reams of white paper @ ₹100 per ream.

10 reams of ruled paper @ 150per ream.


05.02.16 Purchased one dozen gel pens @ 15 each from M/s. Verma Bros. on credit.


Make out the purchased Book of M/s. Narain & Co.

Answer:

Purchase Book

Particulars ₹ L.F. ₹

01.02.16 M/s. Brown & Co.

5 gross pencils @ ₹100 per gross 500.00

1 gross registers @ ₹240 per doz. 2,880.00

3,380.00

Less: 10% trade discount (338) 3,042

04.02.16 The Paper Co.

5 reams white paper @ ₹100 per ream 500.00

10 reams ruled paper @ ₹150 per ream 1500.00

2,000.00

Less: 10% trade discount (200.00) 1,800

05.02.16 M/s. Verma Bros.

1 doz. gel pens @ ₹15 each 180 180

Total 5022

Note: Purchase of cash and purchase of computer cannot be entered in the Purchase Book.

Question 6: The following are some of the transactions of M/s Kishore & Sons of the year 2015 as per

their Waste Book. Make out their Sales Book.

Particulars

Sold to M/s. Gupta & Verma on credit;

30 shirts @ ₹800 per shirt

20 trousers @ ₹1,000 per trouser.


Sold furniture to M/s. Sehgal & Co. on credit ₹8,000

Sold 50 shirts of M/s. Jain & Sons @ ₹800 per shirt.

Sold 13 shirts to Cheap Stores @ ₹750 each for cash.

Sold on credit to M/s. Mathur & Jain.

100 shirts@ ₹750 per shirt

10 overcoats @ ₹5,000 per overcoat.

Less: Trade Discount @10%

Answer:

Sales Book

Date Particulars ₹ L.F ₹

2015 M/s. Gupta & Verma

30 Shirts @ ₹800 24,000


20 Trousers @ ₹1,000 20,000

44,000

Less: 10% (4,400)

Sales as per invoice no. dated… 39,600

M/s. Jain & Sons

50 shirts @ ₹800 40,000

Sale as per invoice no. dated….

M/s Mathur & Jain

100 shirts @ ₹750 75,000

10 overcoats @ ₹5,000 50,000

1,25,000

Less: 10% (12,500)

Sales as per invoice no. dated… 1,12,500

Total 1,92,100

Question 7: Record the following transactions in triple column cash book and balance it.

Date Particular ₹

01.08.2019 Cash balance 15,000

Bank balance 10,000

03.08.2019 Paid insurance premium by cheque 4,200

08.08.2019 Cash sales 22,000

Cash discount 750

09.08.2019 Payment for cash purchases 21,000

Cash discount 700

09.08.2019 Cash deposited in bank 15,000

10.08.2019 Telephone bill paid by cheque 2,300

14.08.2019 Withdrawn from bank for personal use 6,000

16.08.2019 Withdrawn from bank for office use 14,500

20.08.2019 Received cheque from John in full and final settlement

and deposited the same in the bank (Due is ₹11,000)

10,700

21.08.2019 Sales by credit card (card charges ₹40) 2,000

23.08.2019 Received cash from Michael 6,850

23.08.2019 Discount allowed 150

24.08.2019 Stationery purchased for cash 1,800

25.08.2019 Cartage paid in cash 350

25.08.2019 Cheque received from Kumar 4,500

28.08.2019 Cheque received from Kumar deposited in Bank 4,500


31.08.2019 Cheque deposited on Aug. 28 dishonored and returned by the bank

31.08.2019 Rent paid by cheque 4,000

31.08.2019 Paid wages to the watchman in cash 3,000

31.08.2019 Paid cash for postage 220

Issued cheque to X for full settlement of the due ₹3,200 3,000

Answer:

Cash Book

Date Particular DA Cash Bank Date Particular DR Cash Bank

₹ ₹ ₹ ₹

To By

01.08.19 Balance b/d 15,000 10,000 03.08.19 Insurance 4,200

08.08.19 Sales 22,000 09.08.19 Purchases 21,000

09.08.19 Cash C 15,000 09.08.19 Bank C 15,000

16.08.19 Bank C 14,500 10.08.19 Telephone 2,300

20.08.19 John 300 10,700 14.08.19 Drawings 6,000

21.08.19 Sale 2,000 16.08.19 Cash C 14,500

23.08.19 Michael 150 6,850 21.08.19 Card

charge

40

25.08.19 Kumar 4,500 24.08.19 Stationery 1,800

28.08.19 Cash C 4,500 25.08.19 Cartage 350

28.08.19 Bank C 4,500

31.08.19 Kumar 4,500

31.08.19 Rent 4,000

31.08.19 Wages 3,000

31.08.19 Postage 220

31.08.19 X 200 3,000

31.08.19 Balance

c/d

16,980 3,660

450 62,850 42,200 200 62,850 42,200

01.09.19 Balance

b/d

16,980 3,6600

Question 8: Shri Singar maintains a Columnar Petty Cash Book on the Imprest System. The imprest

amount is ₹500. From the following information, show how his Petty Cash Book would appear for the

week ended 12th September, 2018;

Date Particulars ₹

07.09.2018 Balance in hand 134.90

Received Cash reimbursement to make up the imprest 365.10


Stationery 49.80

08.09.2018 Miscellaneous Expenses 20.90

09.09.2018 Repairs 156.70

10.09.2018 Travelling 68.50

11.09.2018 Stationery 71.40

12.09.2018 Miscellaneous Expenses 6.30

Repairs 48.30

Answer: Petty Cash Book

Receipts Payments

Sep Dr Particulars Cr Particulars Total Stationery Travel Other Repairs

₹ ₹ ₹ ₹ ₹ ₹

7 To Balance b/d 134.90 By Stationery 49.80 49.80 - - -

8 Cash 365.10 Others 20.90 - - 20.90 -

9 Repairs 156.70 - - - 156.70

10 Travelling 68.50 - 68.50 - -

11 Stationery 71.40 71.40 - - -

12 Others 6.30 - - 6.30 -

Repairs 48.30 - - - 48.30

421.90 121.20 68.50 27.20 205.00

Balance c/d 78.10

500.00 500.00

13 Balance b/d 78.10

Question 9: Prepare question 4 under practical system [subsidiary books and journal proper]

Answer:

Cash Book

April Particulars Dis.

All

Cash Bank April Particulars Dis.

Rec

Cash Bank

1 To Balance b/d 3,700 35,000 2 By Wages & Salaries 6,000

4 Sales A/c 5,000 4 Drawings A/c 3,000

8 Beem A/c 500 15,500 6 Telephone Exp. 1,800

15 Sales A/c 6,000 6 Charan A/c 1,000 25,000

15 Cash A/c 5,000 11 Beem A/c 15,500

22 Beem A/c 9,600 15 Bank A/c 5,000

23 Old Newspaper 250 20 TVS Co A/c 10,000

23 Furniture A/c 2,500 28 Bank A/c 11,000

28 Alex A/c 500 14,500 30 Balance c/d 6,250 24,500

Cash A/c 11,000

1,000 27,050 81,000 1,000 27,050 81,000

Balance b/d 6,250 24,500


Purchases Book

April Particulars ₹ ₹

3 Charan [5 Financial A/c Books @ ₹500] [5×500] 2,500

27 Kumar [50 Cost A/c books @ ₹220] [50×220] 11,000

Total 13,500

Sales Book


10 Alex: [10 Cost A/c books @ ₹460] [10×460] 4,600

12 Arun [5 FM books @ ₹600] [5×600] 3,000

Total 7,600

Returns Inwards Book


27 Arun: [1 FM book @ ₹600] [Sales return] [1×600] 600

Total 600

Journal Proper

April Particulars Debit [₹] Credit [₹]

1 Bank A/c Dr 35,000

Cash A/c Dr 3,700

Furniture A/c Dr 45,300

Stock A/c Dr 3,51,000

Alex A/c Dr 15,000

Beem A/c Dr 16,000

To Mrs. Singar’s Loan A/c 1,00,000

To Charan A/c 26,000

To Capital A/c [Balance] 3,40,000

11 Beem A/c Dr 500

To Discount Allowed A/c 500

20 Two-wheeler A/c Dr 35,000

To TVS Co., A/c 35,000

22 Bad Debts A/c Dr 6,400

To Beem A/c 6,400

25 Loss on Sale of Furniture A/c Dr 1,500

To Furniture A/c. 1,500

30 Interest on Loan A/c. Dr 750


LEDGER

Debit Credit

Apr Particulars ₹ Apr Particulars ₹

Capital A/c

To 1 By By Balance b/d 3,40,000

Mrs. Singar’s Loan A/c

1 By Balance b/d 1,00,000

Charan A/c

6 To Cash A/c 25,000 1 By Balance b/d 26,000

Discount Received A/c 1,000 3 Purchases A/c 2,500


28,500 28,500

1 Balance b/d 2,500

Alex A/c


10 Sales A/c 4,600 30 Discount 500

Balance c/d 4,600

19,600 19,600

1 Balance b/d 4,600

Beem A/c

1 To Balance b/d 16,000 8 By Cash 15,500

11 Bank A/c 15,500 8 Discount Allowed 500

Discount Allowed 500 22 Cash 9,600

22 Bad Debts A/c 6,400

32,000 32,000

Arun A/c

12 To Sales 3,000 27 By Returns Inwards 600


3,000 3,000

1 To Balance b/d 2,400

TVS Co

20 To Bank A/c 10,000 20 By Two-wheeler 35,000


35,000 35,000


Kumar A/c

27 By Purchases A/c 11,000

Drawings A/c

4 To Cash 3,000 30 By Balance c/d 3,500

30 Purchases A/c 500

To Outstanding Interest on Loan A/c 750

30 Drawings A/c Dr 500

To Purchase A/c 500


3,500 3,500

Balance b/d 3,500

Stock A/c

1 To Balance b/d 3,51,000

Furniture A/c


25 Loss on Furniture A/c 1,500


45,300 45,300


Two-wheeler A/c

20 To TVS Co. 35,000 30 By Balance c/d 35,000


Purchase A/c

30 To Sundries 13,500 By Drawings 500

[from purchases book] Balance c/d 13,000

13,500 13,500

To Balance b/d 13,000

Sales A/c

To Balance c/d 2 By Cash 5,000

15 Cash 6,000

30 Sundries [from sales book] 7,600

18,600 18,600

Balance b/d 18,600

Wages & Salaries A/c

2 To Bank A/c 6,000

Telephone Expenses A/c

6 To Cash A/c 1,800

Old Newspaper A/c

23 To By Cash A/c 250

Bad Debts A/c

22 To Beem A/c 6,400

Loss on Sale of Furniture A/c

25 To Furniture A/c 1,500

Interest on Loan A/c

30 To O/s Interest A/c 750

Discount Allowed A/c

30 To Sundries for cash book 1,000 30 By Beem A/c 500

Balance c/d 500

1,000 1,000

Balance b/d 500

Returns Inward A/c

Sundries from

Return inward books

600


Outstanding Interest on Loan A/c

30 By Interest on Loan A/c 750

Discount Received A/c

By Sundries from Cash Book 1,000

Trail Balance

Debit Credit

Cash in hand 6,250 Capital Account 3,40,000

Cash at Bank 24,500 Mrs. Singar’s Loan 1,00,000

Alex 4,600 Charan 2,500

Arun 2,400 TVS Co. 25,000

Drawings A/c 3,500 Kumar 11,000

Stock A/c 3,51,000 Sales A/c 18,600

Furniture A/c 41,300 Old Newspapers A/c 250

Two-wheeler A/c 35,000 Discount Received A/c 1,000

Purchases A/c 13,000 Outstanding Interest 750

Wages and Salaries A/c 6,000

Telephone Expenses A/c 1,800

Bad Debts A/c 6,400

Loss on sale of furniture 1,500

Interest A/c 750

Returns Inward 600

Discount Allowed A/c 500

Total 4,99,100 4,99,100

Rectification Entries 33

2.2 RECTIFICATION OF ERRORS


Question 1: Pass rectification entries for the following errors assuming (a) error located before the

preparation of trail balance, (b) error located after trail balance but before the preparation of Final A/c

and (c) error located after the preparation of trail balance

(a) A sale of ₹60 posted to the credit of a customer’s account.

(b) ₹125 received from X posted to the credit of Y.

(c) An item of ₹27 in Sales Returns not posted to the customer’s account.

(d) Sale total under cast by ₹100.

(e) A purchase of ₹75 not entered in the day book.

Answer: Rectification of Error

Before TB After TB but before final a/c After the final a/c

Dr Cr Dr Cr Dr Cr

1 Customer’s A/c Dr 120 Customer’s A/c Dr 120 Customer’s A/c Dr 120

To Suspense A/c 120 To Suspense A/c 120

2 Y A/c Dr 125 Y A/c Dr 125 Y A/c Dr 125

To X A/c 125 To X A/c 125 To X A/c 125

3 Suspense A/c Dr 27 Suspense A/c Dr 27

To Customer’s A/c 27 To Customer’s A/c 27 To Customer’s A/c 27

4 Suspense A/c Dr 100 Suspense A/c Dr 100

To Sales A/c 100 To Sales A/c 100 To P/L Adj. A/c 100

5 Purchases A/c Dr 75 Purchases A/c Dr 75 P/L Adj. A/c Dr 75

To Creditor’s A/c 75 To Creditor’s A/c 75 To Creditor’s A/c 75

Question 2: How do you rectify the following errors?

1. The total of the discount allowed column is added short by ₹20 and the amount is posted to the

credit of discount received account. The correct total of the column is ₹320.

2. A sale of goods for ₹300 to Sundaram was entered in the purchase book.

3. Goods worth ₹200 taken by the proprietors for his private use were entirely omitted.

4. A sales returns of ₹500 from Bakshi was entered in the purchase day book.

5. Wages of ₹500 spent on erection of machinery debited to wages account.

6. Legal charges of ₹100 paid on purchase of building debited to legal expenses account.

7. Salary of ₹1,000 paid to manager was debited to his personal account.

8. Salary of ₹500 paid to ‘A’, the partner, was debited to his drawings account.

9. Sale of an old machine for ₹500 was entered in the sales day book.

10. Goods of the value of ₹200 returned by ‘R’ was taken into stock but no entry was passed in the

books.

11. Goods worth ₹500 returned to Antony were entered in the purchases day books and debited to the

account of Antony.

12. Furniture of ₹700 purchased for proprietor’s residence was entered in the purchase day book.

Answer: Rectification

Rectification Entries 35

Before the TB After TB but before Final a/c After Final a/c

1 Discount allowed Dr 320 Discount allowed Dr 320 P/L Adjustment A/c Dr 620

Discount received Dr 300 Discount received Dr 300

To Suspense 620 To Suspense 620

2 Sundaram’s A/c Dr 600 Sundaram’s A/c Dr 600 Sundaram’s A/c Dr 600

To Purchases A/c 300 To Purchases A/c 300 To P/L Adjustment A/c 600

To Sales A/c 300 To Sales A/c 300

3 Drawings A/c Dr 200 Drawings A/c Dr 200 Drawings A/c Dr 200


4 Sales Returns A/c Dr 500 Sales Returns A/c Dr 500

To Purchases A/c 500 To Purchases A/c 500

5 Machinery A/c Dr 500 Machinery A/c Dr 500 Machinery A/c Dr 500

To Wages A/c 500 To Wages A/c 500 To P/L Adjustment A/c 500

6 Buildings A/c Dr 100 Buildings A/c Dr 100 Buildings A/c Dr 100

To Legal expenses A/c 100 To Legal expenses A/c 100 To P/L Adjustment A/c 100

7 Salaries A/c Dr 1,000 Salaries A/c Dr 1,000 P/L Adjustment A/c Dr 1,000

To Manager A/c 1,000 To Manager A/c 1,000 To Manager A/c 1,000

8 A’s Salary A/c Dr 500 A’s Salary A/c Dr 500 A’s Salary A/c Dr 500

To A’s Drawings A/c 500 To A’s Drawings A/c 500 To A’s Drawings A/c 500

9 Sales A/c Dr 500 Sales A/c Dr 500 P/L Adjustment A/c Dr 500

To Machinery A/c 500 To Machinery A/c 500 To Machinery A/c 500

10 Sales Return A/c Dr 200 Sales Return A/c Dr 200 P/L Adjustment A/c Dr 200

To R’s A/c 200 To R’s A/c 200 To R’s A/c 200

11 Suspense A/c Dr 1,000 Suspense A/c Dr 1,000

To Purchase return A/c 500 To Purchase return a/c 500 To P/L Adjustment A/c 1,000

To Purchase A/c 500 To Purchase A/c 500

12 Drawings A/c Dr 700 Drawings A/c Dr 700 Drawings A/c Dr 700



Question 3: Trial Balance as at 31st March 2018:

Debit Credits

Totals b/fd 9,638 9,600 Total Disagree

Suspense Account 38 Difference is books

9,638 9,638

As the debit side is more, the difference is placed on the shorter side and the suspense a/c will be opened

with credit balance.

Suppose the following errors were discovered on 1st April 2018:

1. A credit item of ₹93 has been debited to the personal account of Raman as ₹39.

2. ₹75 written off as depreciation of plant and machinery a/c has not been debited to depreciation a/c.

3. A discount of ₹45 allowed to Natraj and Sons has been credited to them as ₹54.

4. The total of sales returns book has been under cast by ₹10.

Required:

1. Pass the rectification entries and show suspense a/c.

2. Find out the true net profit if the profit before discovering errors was ₹1,500.

Answer:

1 Suspense A/c Dr. 132 3 Natraj & Sons A/c Dr. 9

To Raman’s 132 To Suspense A/c 9

2 Depreciation Dr. 75 4 Sales Returns A/c Dr. 10

To Suspense 75 To Suspense A/c 10

Suspense A/c

₹ ₹

01.04.18 To Raman’s A/c 132 31.03.18 By Difference in books 38

Depreciation A/c 75

Natraj & Sons 9

132 132

Adjusted P/L A/c

₹ ₹

To Depreciation 75 By Net profit b/d 1,500

Sales returns 10

Adjustments NP 1,415

1,500 1,500

Bank Reconciliation Statement 37

3 BANK RECONCILIATION STATEMENT

Bank reconciliation statement (BRS): The bank reconciliation statement is a statement that reconciles

the balance as per the bank column of cash book with the balance as per the bank statement by giving

the reasons for such difference along with the amount.

{CMA foundation D10, 1 mark}

Steps for the preparation of BRS:

1. Start with balance as per cash book or balance as per pass book

1 Balance as per cash book Debit Balance

2 Balance as per pass book Credit Balance

3 Overdraft as per cash book Credit Balance

4 Overdraft as per pass book Debit Balance

2. List out the discrepancies. They are

(a) The cheque related

(b) Bank charges and bank credits

(c) Standing instruction receipts and payments

(d) Errors (under casting or over casting)

Rough Work

Cash Book (Bank Column)

Receipts (Dr) Payments (Cr)

(a) Cheque received / deposited

but not cleared

××× (i) Cheque issued but not

presented for payment

×××

Bank Pass Book

Payments (Dr) Receipts (Cr)

(a) Cheque issued but and presented for

payment but not recorded in cash book

××× (i) Cheque received / deposited and

cleared but not recorded in cash book

×××

(a) Cheque dishonored ×××

(b) Bank debits (interest on OD, charges, etc.) ××× (ii) Bank credits (Interest, etc.) ×××

(c) Standing instructions (Payments) ××× (iii) Standing instructions (Receipts) ×××

(d) Over casting is posted in the same side but under casting is posted in the opposite side


3. Prepare BRS

Bank Reconciliation Statement

Balance as per cash book (Debit Balance) ×××

Add (Credit items of cash book and pass book)

(i) Cheque issued but not yet presented for payment ×××

Cheque received / deposited and cleared but not recorded in cash book ×××

(ii) Bank credits (Interest on bank balance, subsidy) ×××

(iii) Standing instructions (Receipts) ×××

Nt. Over casting of credit side of cash book and pass book ×××

Nt. Under casting of debit side of cash book and pass book ××× ×××

Less (Debit items of cash book and pass book)

1 Cheque received / deposited but not yet cleared ×××

Cheque issued but and presented for payment but not recorded in cash book ×××

Cheque dishonored ×××

2 Bank debits (Interest on OD, charges, etc.) ×××

3 Standing instructions (Payments) ×××

Nt. Under casting of credit side of cash book and pass book ×××

Nt. Over casting of debit side of cash book and pass book ××× ×××

Balance as per pass book (Credit Balance) ×××

Note: If the balance arrived is positive then

If Then

1 Balance as per cash book Debit Balance Balance as per pass book Credit Balance

2 Overdraft as per cash book Credit Balance Overdraft as per pass book Debit Balance

Note: If the balance arrived is negative then

If Then

1 Balance as per cash book Debit Balance Overdraft as per pass book Debit Balance

2 Overdraft as per cash book Credit Balance Balance as per pass book Credit Balance


Preparation of BRS after preparing adjusted cash book

Adjusted Cash Book (Bank Column)


To Balance b/d ××× By

(ii) Bank Credits (Interest, etc.) ××× 2 Bank Debits (charges, etc.) ×××

(iii) Standing Instructions (Receipts) ××× Standing Instructions (Payments) ×××

Nt Error rectified Nt Error Rectified

Balance c/d ×××

××× ×××

Bank Reconciliation Statement after Adjusted Cash Book

Balance as per Adjusted Cash Book (Debit Balance) ×××

Add (Credit items of Cash book and Pass book)

(i) Cheque issued but not presented for payment ×××

Cheque received / deposited and cleared but not recorded in cash book ×××

Less (Debit items of Cash book and Pass book)

1 Cheque Received / Deposited but not Cleared ×××

Cheque issued but and presented for payment but not recorded in cash book ×××

Cheque dishonored ×××

Balance as per Pass Book (Credit Balance) ×××

PRACTICAL PROBLEMS

Question 1: On 31st March 2018, bank account of Mr. Singar Ltd. did not agree with the Balance as

shown by his pass book on that date. The entries in his cash book and pass book for the month of March

disclosed the following:

Cash book (Bank Column)

Receipts (Dr.) ₹ Payments (Cr.) ₹

01.3.18 To Balance b/d 10,000 04.3.18 By X Ltd (Cheque No. 600001) 4,000

02.3.18 A Ltd 5,000 15.3.18 Cash A/c 6,000

09.3.18 Cash A/c 5,000 29.3.18 Y Ltd. (Cheque No. 600003) 3,000

27.3.18 B & Co 6,000

31.3.18 C & Co. 3,000 31.3.18 Balance c/d 17,000

30,000 30,000


Date Pass Book Withdrawal Deposit Balance Dr. / Cr.

₹ ₹ ₹

01.3.18 Balance 10,000 Cr

04.3.18 A Ltd 5,000 15,000 Cr

07.3.18 Cheque 600001 4,000 11,000 Cr

09.3.18 Cash deposit 5,000 16,000 Cr

10.3.18 EMI deducted 3,000 13,000 Cr

15.3.18 Cash withdrawal 6,000 7,000 Cr

20.3.18 Cheque 600002 2,000 5,000 Cr

24.3.18 Dividend received 1,000 6,000 Cr

25.3.18 D Ltd. 7,000 13,000 Cr

30.3.18 B & Co 6,000 19,000 Cr

30.3.18 B & Co cheque returned dishonored 6,000 13,000 Cr

30.3.18 Cheque return charges 100 12,900 Cr

30.3.18 Interest 50 12,950 Cr

You are required to prepare a Bank Reconciliation Statement as at 31st March, 2018 without preparing

amended cash book.

Answer: Rough Work

Items for disagreement

Cash Book (Bank Column)


Cheque C & Co. 3,000 Y Ltd. (Cheque No. 600003) 3,000

Error Overcasting 1,000

Bank Pass Book

Withdrawals / Payments (Dr) Deposits / Receipts (Cr)

Cheque Cheque 600002 2,000 D Ltd. 7,000

B & Co cheque returned dishonored 6,000

Credits / Debits Cheque return charges 100 Interest 50

Stand. Instr. EMI deducted 3,000 Dividend received 1,000


Bank Reconciliation Statement

Balance as per cash book (Debit Balance) 17,000

Add (Credit items of cash book and pass book)

(i) Cheque issued but not presented for payment: Y Ltd (Cheque No. 600003) 3,000

Cheque deposited by our customer directly into bank: D Ltd 7,000

(ii) Bank credits: bank interest 50

(iii) Standing instruction receipts: dividend received 1,000 11,050

Less (Debit items of cash book and pass book)

1 Cheque deposited but not credited by banker: C & Co. 3,000

Cheque issued and debited by banker but not missed in cash book: Cheque 600002 2,000

Cheque deposited returned dishonored: B & Co. 6,000

2 Bank debits for charges: cheque return charges 100

3 Standing instruction payments: EMI deducted 3,000

Nt. Over casting of debit side of cash book 1,000 15,100

Balance as per pass book (Credit Balance) 12,950

Question 2: From the extracts of cash book (bank column) and pass book of Mr. Singar, prepare a

bank reconciliation statement as on 30th June 2016:

Cash book (Bank Column)

Dr. ₹ Cr. ₹

June.1 To balance b/d 5,650 June.8 By Rajamani 2,400

8 Shyam Sundar 1,200 12 Ramasarma 1,600

12 Sudhakar 800 16 Gopinath 1,200

18 Harikrishna 1,400 18 Drawings 1,000

20 Phani 1,350 28 New Venture Limited 1,800

25 Radheshyam 2,100 29 Elumalai 2,200

29 Evalappan 3,400 30 Balance c/d 7,300

30 Dhandapani 1,600

17,500 17,500

July.1 Balance b/d 7,300


Pass Book: Mr. Singar in Account with Sathyam Bank

Dr. ₹ Cr. ₹

July.1 To Mohinder Singh 1,800 July.1 By Balance b/d 4,200

1 New Venture Ltd. *1,800 1 Radheshyam 2,100*

2 Salary 2,500 2 Interest on securities 1,200

3 Elumalai *2,200 4 Evalappan 3,400*

5 Krishnaprasad 2,000

6 Dhandapani 1,600*

Items that appear in both the books are starred and reconciliation is shown below:

Answer:

Bank Reconciliation Statement As on 30.06.16 ₹ ₹

Bank balance as per cash book (in favor) 7,300

Less: Cheques deposited but not collected

Radheshyam 2,100

Evalappan 3,400

Dhandapani 1,600 7,100

Add: Cheques issued but not presented 200

New Venture limited 1,800

Elumalai 2,200 4,000

Balance as per pass book (in favor) 4,200

Favorable balance in Cashbook and Passbook

Question 3: From the following particulars prepare a Bank Reconciliation Statement, showing the

balance as per Cash Book as on 31.03.2008 the books of XYZ & Co.

Particulars ₹

1 Balance as per Pass Book 8,000

2 Cheque deposited but not credited by Bank 1,000

3 Cheques issued but not presented for payment 500

4 Cheques deposited into Bank without recording in Cash Book 600

5 Cheques issued to creditors but not recorded in Cash Book 700

6 Dividend collected by Bank but not recorded in Cash book 100

7 Debtors directly deposited into Bank but not recorded in Cash Book 2,000

8 Debit side of Cash Book was under cast by 1,000

9 Bank charges debited in Pass Book not recorded in Cash Book 50

10 Bank met a Bill payable for ₹1,000 on 31.03.2008 under advice to the firm on 02.04.2008 --


11 A bill for ₹2,000 discounted to ₹1,990 returned dishonored by Bank, noting charges being 10

12 A bill for ₹1,000 discounted with the Bank is entered in the Cash Book without recording

the discounting charges.

100

{CMA foundation J08, 6 marks}

Answer:

Particulars ₹ ₹

Bank Balance as per Book 8,000

Add Cheques deposited but not credited by the Bank 1,000

Cheques issued to creditors but not recorded in Cash Book 700

Bank Charges debited in the Pass Book but not entered in Cash Book 50

Bank met a bill payable, not recorded in Cash Book 1,000

Book with nothing charges 2,010

A bill discounted by the Bank without recording the discounting charges 100 4,860

12,860

Less Cheques deposited into bank without recording in Cash Book 500

Dividend collected by Bank, not recorded in Cash Book 600

Debtor directly deposited into Bank not recorded in Cash Book 100

Debit side of the Cash book was under cast 2,000

Bank Balance as per Cash Book 1,000 4,200

8,600

BRS after Adjusted Cashbook

Question 4: The following is a summary from Cash Book of M/s. Mitra Trading for the month of

September, 2012:

Particulars ₹ Particulars ₹

Balance b/d 1,507 Payment 15,520

Receipt 15,073 Balance b/d 1,060

16,580 16,580

On investigation it was found that

1. Bank charges of ₹35 were not entered in the cash book.

2. A cheque of ₹47 issued to supplier was entered by mistake as a receipt in the cash book.

3. A cheque of ₹81 was returned by the Bank marked as ‘refer to drawer’ but it’s not entered in cash

book.

4. The balance brought forward in September 2012 should have been ₹1,570.

5. Cheque paid to suppliers ₹214, ₹70 and ₹330 have not been presented for payment.

6. Deposits of ₹1,542 on 30th September were cleared by the Bank on 2nd October.

7. The bank charged a cheque wrongly to Mitra Trading ₹92.


8. Bank statement shows overdraft of ₹107 as on 30th September, 2012. Show what adjustments will

you make in the Cash Book and prepare a Bank Reconciliation Statement on 30.09.2012.


Answer: In the books of M/S Mitra Trading

Adjusted Cash Book for September 2012

Dr. Particulars ₹ Cr. Particulars ₹

To Original Balance B/d 1,060 By Bank Charges not recorded earlier 35

Error balance carried forward

(1,570 – 1,5700)

63 Cheques issued recorded as receipt,

now corrected (2×47)

94

Cheques returned 81

Revised balance c/d 913

1,123 1,123

Bank Reconciliation Statement as on 30.09.2012

Particulars ₹ ₹

Balance as per Cash Book 913

Add Cheques issued but not presented (214+70+330) 614

1,527

Less Deposits not cleared 1,542

Cheques charged by mistake 92 1,637

Overdraft as per Pass Book (107)

Pass book to Cash book

Question 5: From the following particulars, prepare the Bank Reconciliation Statement of Shri Krishan

as on 31st March,

1. Balance as per Pass Book is ₹10,000.

2. Bank collected a cheque of ₹500 on behalf of Shri Krishan but wrongly credited it to Shri Krishan’s

A/c (another customer)

3. Bank recorded a Cash deposit of ₹1,589 as ₹1,598.

4. Withdrawal column of the Pass Book under-cast by ₹100.

5. The credit balance of ₹1,500 as on page 5 of the Pass Book was recorded on page 6 as the debit

balance.

6. The Payment of a cheque of ₹350 was recorded twice in the Pass Book.

7. The Pass Book showed a credit for a cheque of ₹1,000 deposited by Shri Krishan (another customer

of the Bank).


Answer:


Bank Reconciliation Statement as at 31st March

A Credit Balance as per Pass Book 10,000

B Add (a) Cheque wrongly credited to another customers A/c 500

(b) Error in carrying forward 3,000

(c) Cheque recorded twice 350 3,850

13,850

C Less (a) Excess credit for Cash Deposit 9

(b) Under casting of withdraw column 100

(c) Wrong credit 1,000 1,109

D Debit Balance as per Cash book 12,741

OD balance in Passbook and Cashbook

Question 6: On November 30, 2007 the Passbook of Mr. ANIT KUMAR, a trader showed a Debit

Balance of ₹20,000, but the Passbook balance was different for the following reasons from the Cash

Book Balance.

(1) Mr. ANIT KUMAR deposited a cheque for collection of ₹1,000 on 5.10.2007 and made entry in Cash

Book, appears in the Pass-Book on 6.12.2007 at ₹990.

(2) Cheques issued to parties but not presented for payment till 30.11.2007 are of ₹525 ₹835 and ₹900.

(3) Cheques deposited for collection but not collected by the bankers till 30.11.2007, ₹8,760 and ₹410.

(4) Interest on Investments collected by bankers on 30.11.2007 ₹955 entered in Cash Book on4.12.2007

on receipt of bank intimation.

(5) Bank charges ₹90 (dated 27.11.2007) not entered in Cash Book.

(6) Bankers have made mistake in balancing by showing Debit balance in excess by ₹1,000 on

30.11.2007 which was rectified in Bank Pass Book on 7.12.2007 when notified.

Prepare Bank Reconciliation Statement as on November 30, 2007.

{CMA foundation D07, 6 marks}

Answer:

Mr. Anit Kumar

Bank Reconciliation Statement as on November 30, 2007

Particulars ₹ ₹

Debit Balance as per Pass Book 20,000

Add Cheque issued but not yet presented for payment (₹525 + ₹835 + ₹900) 2,260

Interest on investments collected by the bank entered in the Cash Book after

30.11.2007

955 3,215

23,215

Less Cheque of ₹1,000 deposited but collected by the Bank after 30.11.2007 1,000

Cheques deposited but collected after 30.11.2007 (₹410 + ₹8,760) 9,170


Bank Charges not recorded in the Cash Book 90

Bank’s Mistake in balancing by showing Debit Balance in excess 1,000 11,260

Credit Balance as per Cash Book (Overdraft) 11,955

Favourable Balance in Passbook and OD Balance in Cashbook

Question 7: From the following particulars, prepare a Bank Reconciliation Statement and arrive at the

balance as per Cash Book as on 31st March, 2009

Particulars ₹

A Credit balance as per Pass Book 9,700

B Cheques issued on 27th March, 2009, but presented for payment on 3rd April, 2009 19,000

C Cheques deposited in the Bank on 29th March, 2009, but credited on 2nd April, 2009 10,000

D Bank debited Bank Charges, but not yet recorded in Cash book 250

E Dividend on shares collected and credited by Bank, but not yet recorded in Cash Book 2,000

{CMA foundation J09, 7 marks}

Answer:

Bank Reconciliation Statement as on 31st March, 2009

Particulars ₹ ₹

A Credit balance as per Pass Book 9,700

C Add Cheques deposited into bank but not yet credited 10,000

D Bank charges debited by bank 250 10,250

19,950

B Less Cheques issued but not yet presented for payment 19,000

E Dividend on shares collected by Bank 2,000 21,000

Credit balance (Overdraft as per Cash Book) 1,050

OD in Passbook and Favorable Balance in Cashbook

Question 8: According to Cash Book of A, there was a bank balance of ₹1,050/- in favour on 30th June,

2005 his business Bank Account, However, according to Bank Statement A’s business account was

overdrawn by ₹3,600/-

On Scrutiny you find that –

(a) The receipts column of the Cash Book has been over added by ₹1,100.

(b) Cheques drawn and entered in the Cash Book in June, 2005 amounting to ₹1,670 were not presented

until July, 2005.

(c) Discount received from a supplier of ₹100 was not entered in Cash Book.

(d) An amount of ₹750 paid directly into A’s account by a customer not entered in the Cash Book.

(e) A cheque payment of ₹1,230 in April, 2005 has been entered in the Cash Book as ₹1,320.


(f) The Bank had charged the business account with a cheque for ₹2,200 in February, 2005, which

should have been passed through A’s private account.

(g) Bank Charges of ₹80 on 31.12.2004 and ₹100 on 30.6.2005 had not yet been entered in the Cash Book.

(h) Cheque to the value of ₹3,780 received from customers were recorded in the Cash Book on

28.06.2005 but not entered by the bank until 2.07.2005.

You are asked to make appropriate adjustments in the Cash Book as at 30.06.2005, and prepare a

Statement reconciling Cash Book balance with the balance shown by the Bank statement.


Answer: In the books of A Cash Book (Bank Column)

Debit ₹ Credit ₹

To Balance b/d 1,050 By Overcasting error rectified 1,100

Discount Received A/c 100 Bank charges (80 + 100) 180

Customer’s A/c (direct deposit) 750 Balance b/d 710

Error rectified (₹1,320- 1,230) 90

1,990 1,990

Bank Reconciliation Statement as on 30.06.2005

Particulars ₹ ₹

Bank as per amended cash book 710

Add Cheques drawn but not presented 1,670 1,670

2,380

Less Bank charges business account with a cheque which should have been

passed through A’s personal account

2,200

Less Cheque received and recorded in cash book but not included in Bank

statement

3,780 5,980

Bank overdraft as per the Pass book 3,600

Question 9: According to Manmohan’s cash book, there was a balance of ₹3,000 overdrawn on 30th June

2016, in his No.1 bank account.

On investigation you find:

1. Cheque drawn amounting to ₹5,000 had not been presented.

2. Cheque ₹2,500 entered in the cash book as paid into bank, had not yet been cleared.

3. A cheque ₹1,200 drawn on his No.1 account has been charged by the bank to his No.2 account.

4. The payment side of the cash book had been under cast by ₹700.

5. A dividend, ₹400, paid direct to the bank had not been recorded in the cash book.

6. Bank charges of ₹300 entered in the bank statement has not been entered in the cash book.

7. A cheque of ₹500, paid into the bank had been dishonored and shown as such by the bank, but no

entry of the dishonored had been made in the cash book.


8. A charge of ₹10 had been entered in the bank statement, but not entered in the cash book.

You are required:

(a) To show the appropriate adjustments to be made in the cash book, and

(b) To prepare a bank reconciliation statement for the No.1 account:

Answer:

(a)

Cash book No.1 Bank Account (adjusted)

₹ ₹

To Dividend paid direct to the bank 400 By Balance b/f 3,000

Balance carried forward 4,110 Adjustment of under casting 700

Bank charges 300

Cheques dishonored 500

Charges 10

4,510 4,510

(b)

Bank reconciliation statement No.1 Bank a/c as at 30.06.2016 ₹ ₹

Balance as per cash book (over draft) 4,110

Add Cheques not cleared 2,500

6,610

Deduct: Unpresented cheques 5,000

Cheques erroneously charged to No.2 Account 1,200 6,200

Balance as per bank pass book (over draft) 410

Inventories 49

4 INVENTORIES

Type of Inventory Objectives Inventory Record System

✓ I. Manufacturing Concern

✓ Raw material

✓ Work in progress

✓ Finished goods

✓ Stores, consumables and

✓ Packing Material

✓

✓ II. Trading Concern

Traded goods

✓ Determination of income

✓ Ascertainment of Financial Position

✓ Liquidity Analysis

✓ Statutory Compliances

✓ (Companies Act)

✓ 1. Period Inventory

✓ (Physical verification)

✓

✓ 2. Perpetual Inventory

✓ (Continuous basis)

Formulae (for Cost)

Inventory Valuation

Technique

Determination of Value

Whichever is lesser of

Cost Net Realizable Value

1. I. Historical Cost Method

2. 1. Not interchangeable

3. Specific identification

4.

5. 2. Interchangeable

6. FIFO

7. LIFO

8. Weighted Average Method

9. Simple Average Method

10.

11. II. Non-Historical Method

12. Adjusted Selling Price

Cost of Purchase

+ Purchase price ××

+ Duties ××

+ Freight SALE ××

- Rebate ××

- Trade discount ××

- Duty drawback ××

+ Conversion Cost

Direct Labor ××

Direct expenses ××

Variable overhead

(Actual production)

××

Fixed overhead

(Normal Production)

××

Exclude

- Holding &storage cost ××

Insurance ××

Interest and penalties ××

Administration cost ××

Selling & Dist. cost ××

Abnormal loss ××

××

Sale Price ××

- Cost of

Completion

××

- Cost of Sales ××

××


Question 1: The following information is extracted from the Stores Ledger:

Material X

Opening Stock Nil

January 1 Purchases 100 @ ₹1 p.u.

January 20 Purchases 100 @ ₹2 p.u.

January 22 Issues 60 for Job W 16

January 23 Issues 60 for Job W 17

Complete the receipts and issues valuation by adopting the First-in First-Out, Last-in First Out and the

Weighted Average Method. Also determine the price of material issue under simple average method.

Answer: Statement of Receipts and Issues by adopting First-in-First-Out Method

Date Particulars Receipts Issues Balance

Qty Rate Value Qty Rate Value Qty Rate Value

Jan 1 Purchase 100 1 100 – – – 100 1 100

Jan 20 Purchase 100 2 200 – – – 100 1 100

100 2 200

Jan. 22 Issue to Job W16 – – – 60 1 60 40 1 40

100 2 200

Jan. 23 Issue to Job W17 – – – 40 1 40

20 2 40 80 2 160

Statement of Receipts and Issues by adopting Last-In-First-Out method

Date Particulars Receipts Issues Balance

Qty Rate Value Qty Rate Value Qty Rate Value

Jan 1 Purchase 100 1 100 – – – 100 1 100

Jan 20 Purchase 100 2 200 – – – 100 1 100

100 2 200

Jan. 22 Issue to Job W 16 – – – 60 2 120 100 1 100

40 2 80

Jan. 23 Issue to Job W 17 – – – 40 2 80 80 1 80

20 1 20

Statement of Receipt and Issues by adopting Weighted Average method

Date Receipt Issue Balance

Particulars Qty Rate Value Qty Rate Value Qty Rate Value

Jan 1 Purchase 100 1 100 — — — 100 1 100

Jan 20 Purchase 100 2 200 — — — 200 1.50 300

Inventories 51

Jan. 22 Issue to Job W 16 — — — 60 1.50 90 140 1.50 210

Jan. 23 Issue to Job W 17 — — — 60 1.50 90 80 1.50 120

𝐏𝐫𝐢𝐜𝐞 𝐒𝐢𝐦𝐩𝐥𝐞 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐏𝐫𝐢𝐜𝐞 𝐌𝐞𝐭𝐡𝐨𝐝 =∑ 𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒𝑠

𝑁𝑜. 𝑜𝑓 𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒𝑠 =

1 + 2

2= 1.5

Inventory Record System

1. Period Inventory: (Physical verification)

𝐶𝑂𝐺𝑆 = 𝑂𝑝. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 (𝑘𝑛𝑜𝑤𝑛) + 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 (𝑘𝑛𝑜𝑤𝑛) − 𝐶𝑙. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 (𝑝ℎ𝑦𝑠𝑖𝑐𝑎𝑙𝑙𝑦 𝑐𝑜𝑢𝑛𝑡𝑒𝑑)

2. Perpetual Inventory: (continuous basis)

𝐶𝑙. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝑂𝑝. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 (𝑘𝑛𝑜𝑤𝑛) + 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 (𝑘𝑛𝑜𝑤𝑛) − 𝐶𝑂𝐺𝑆 (𝑘𝑛𝑜𝑤𝑛)

Note: in case of manufacturer, add cost of manufacture also

Value of Inventory

Question 2: From the following particulars ascertain the value of inventories as on 31st March 2018:

Inventory as on 1.4.2017 1,42,500

Purchases 7,62,500

Manufacturing expenses 1,50,000

Selling Expenses 60,500

Administrative Expenses 30,000

Financial Charges 21,500

Sales 12,45,000

At the time of valuing inventory as on 31st March, 2016, a sum of ₹17,500 was written off on a particular

item, which was originally purchased for ₹50,000 and was sold during the year for ₹45,000. Barring the

transaction relating to this item, the gross profit earned during the year was 20% on sales

Answer:

Particulars Total Abnormal

Stock

Normal

Stock

Inventory as on 1.4.2017 1,42,500 32,500 1,10,000

+ Purchases 7,62,500 - 7,62,500

+ Manufacturing expenses 1,50,000 1,50,000

Total 10,55,000 32,500 10,22,500

Sales 12,45,000 45,000 12,00,000

- Profit 20% on normal sale 2,52,500 12,500 2,40,000

- COGS [Sales - Profit] 9,92,500 32,500 9,60,000

Inventory as on 31.03.2018 62,500 0 62,500

Stock Reconciliation Statement

Question 3: X’s accounting year ends on 30.06.2011 but actual stock was not taken till 08.07.2011 on

which date it is valued at ₹29,700. The following additional information is available:


(i) Sales are entered in the sales book on the date of dispatch and returns inward entered in the

credit note register on the day goods are received back.

(ii) Purchases are entered in the purchase book on the day invoices are received.

(iii) Sales from 01.07.2011 to 08.07.2011 are ₹34,400

(iv) Purchases invoiced from 01.07.2011 to 08.07.2011 are ₹2,640 out of which goods ₹240 was not

received up to 08.07.2011.

(v) Invoices for goods purchased up to 30.06.2011 were of ₹2,000 of which goods worth ₹1,400 were

received between 01.07.2011 to 08.07.2011

(vi) Rate of G.P. 33.33% on cost.

Find out the value of stock on 30.06.2011.


Answer:

Statement of valuation of stock as on 30.06.2011 [reverse working] ₹

Stock as on 30.06.11 53,700

+ Purchases / Cost of Sales Return

Purchased less not received [01.06.11-08.07.11] 2,640 – 240 2,400

- Cost of Goods Sold / Purchase Return

Cost of goods sold [01.06.11-08.07.11] 75% × 34,400 25,800

Purchases but goods not received until 30.06.11 2,000 – 1,400 600

Stock as on 08.07.2011 29,700

COGS = Sales × (1-GPR%) | GPR on cost 33.33% or 25% on sales.

Question 4: Mr. Rustagi closes his books of accounts on 30th June every year. Due to some

unprecedented circumstances, he could not take his stock on that very date. i.e., 30.06.2013 for which

the stock was taken on 07.07.2013 and which was valued at ₹22,500.

Compute the value of stock on 30.06.2013. The following relevant transactions took place from 1st July

to 7th July, 2013.

➢ Sales amounting to ₹1,250 made on 6th July has been delivered on 8th July.

➢ Sales during the period amounted to ₹5,100. These goods were sold at a profit of 25% on cost with

the exception of one sale of ₹600 which has been sold at a profit of 20% on cost.

➢ Purchase during the period was ₹4,000 of which goods costing ₹3,500 were delivered on or before

7th July.

➢ Returns Inwards during the period amounted to ₹400 including ₹300 out of sales period to 30th

June, 2012 at a profit of 25% on cost.

➢ Goods sold on sale or return basis for ₹2,250 on 7th July were not included in the sales stated above.

➢ Mr. Rustagi received goods on consignment basis which was invoiced at ₹2,500 for Mr. Behara to

be sold on his behalf on 6th July.


Inventories 53

Answer:

Statement of valuation of stock as on 30.06.2011 [reverse working] ₹

Stock as on 30.06.13 21,160

+ Purchases less not received /

Cost of sale before 30.06.13 but not delivered before 30.06.13

Cost of the sales return (out of sale made before 30.06.13)

Purchased less not received [01.06.13-07.07.13] 3,500

Cost of return inward of sales before 30.06.13 300 × (

100

125)

240

Goods received on consignment basis 2,500

6,240

- Cost of Goods Sold less not delivered /

Purchases before 30.06.13 not received before 30.06.13

Purchase Return (out of sale made before 30.06.13)

Cost of goods sold [01.06.11-08.07.11]

Sales not delivered before 07.07.2014 1,250 In stock only -

Sales at 20% margin on cost 600 600 × (

100

120)

500

Sales at 25% margin on cost [BF] 3,250 3,250 × (

100

125)

2,600

Total Sales 5,100

Sale on approval basis 2,250 × (

100

125)

1,800

4,900

Stock as on 07.07.2013 22,500


5 ACCOUNTING FOR DEPRECIATION

Depreciation: loss in value of property, plant and equipment (PPE)

Depreciation is the allocation of the depreciable amount of PPE over its estimated useful life.

Nature: non-cash expenses

Depreciable amount = historical cost – scarp value

Causes of Depreciation

1. Physical wear and tear. [Loss of value of fixed assets due to use]

2. Effluxion of time [Passage of time]

3. Obsolescence [outdated] [value loss by change in technology or taste or fashion]

4. Depletion [physical deterioration of natural resources like ore deposits in mines, oil wells]

5. Amortization – value loss of intangible assets

6. Dilapidation – deterioration due to old age (e.g., old building)

7. Changes in economic environment

8. Expiration of legal rights.


Depreciable Assets (PPE) are assets which are:

used during more than one year

having a limited useful life

held by an enterprise for use in:

o the production or supply of goods and services

o for renting to others

o for administrative purposes

o not for the purpose of sale in the ordinary course of business.


Objectives for providing depreciation

1. Correct income measurement

2. True position statement: because of depreciation adjusted value of the fixed assets

3. Funds for replacement: at the end of its useful life.

4. Ascertainment of true cost of production: by charging depreciation as a cost


Factors affecting Amount of Depreciation

1. Original or Historical Cost (OC) (purchase cost + all expenses incurred up to put to use)

2. Expected Useful life (n)

3. Estimated Residual Value. (s)

Accounting for Depreciation 55

Method of depreciation and rate of depreciation

Time Base

1. Straight Line Method (SLM) or Fixed Installment Method

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒

𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒

𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝑑) =𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛

𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡%

2. Written Down Value Method (WDV) or Diminishing Value Method

𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝑑) = 1 − √𝑠𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒

𝑐𝑜𝑠𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑠𝑠𝑒𝑡𝑠

𝑛

𝑊𝑟𝑖𝑡𝑡𝑒𝑛 𝐷𝑜𝑤𝑛 𝑉𝑎𝑙𝑢𝑒 𝑖𝑛 ′𝑛′ 𝑦𝑒𝑎𝑟 (𝑊𝐷𝑉) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 (1 − 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛)𝑛

Situations in changing the method of depreciation

1. To comply with AS / Statue

2. To have better presentation of financial statements

Applicability of effect of change in method of depreciation:

1. Prospectively: from now onwards and no adjustments required for the prior period

2. Retrospectively: from past date and prior period adjustment is required as

Recalculate depreciation retrospectively as per new method and

In case of deficiency - Debited in Profit & Loss A/c

In case of surplus – Credited in Profit & Loss A/c



Method of Accounting: depreciation by

(I) Charging to asset (II) Creating provision for depreciation

Asset appears at written down value Asset appears at original cost

1 On Asset Purchase

Asset A/c Dr ×× Asset A/c Dr ××

To Bank A/c ×× To Bank A/c ××

2 On Depreciation

Depreciation A/c Dr ×× Depreciation A/c Dr ××

To Asset A/c ×× To Provision for Depreciation A/c ××

3 On Transfer to P/L A/c

P/L A/c Dr ×× P/L A/c Dr ××

To Depreciation A/c ×× To Depreciation A/c ××

4 On Sale of Asset

Bank A/c Dr ×× Bank A/c Dr ××

Loss on Sale of Asset A/c Dr ×× Provision for Depreciation A/c Dr ××

To Asset A/c ×× Loss on Sale of Asset A/c Dr ××

To Profit on Sale of Asset A/c ×× To Asset A/c ××

To Profit on Sale of Asset A/c ××

I Fixed Assets Account (at W.D.V)

Dr. ₹ Cr. ₹

To Balance b/d (WDV) ××× By Bank A/c ×××

Bank A/c (Purchases) ××× P & L A/c (Loss on Sale) ×××

P & L A/c (Profit on Sale) ××× Depreciation A/c (current year) ×××

Balance c/d (WDV) ×××

××× ×××

Or

II Fixed Assets Account (at Original Cost)

To Balance b/d (OC) ××× By Bank A/c ×××

Bank A/c (Purchases) ××× P & L A/c (Loss on Sale) ×××

P & L A/c (Profit on Sale) ××× Provision for Depreciation A/c

(Depreciation on asset sold)

×××

Balance c/d (OC) ×××

××× ×××


And

Provision for Depreciation A/c

To Asset A/c

(Depreciation on asset sold)

××× By Balance b/d ×××

Balance c/d ××× P & L A/c

(Depreciation for current year)

×××

××× ×××

PRACTICAL PROBLEMS

Calculation of Amount of Depreciation under SLM, WDV, and SYDM

Question 1: Calculate amount of depreciation under Straight Line Method, Written Down Value

Method, Sum of the Years’ Digits Method and pass journal entry assuming asset sold at its scrap

value at the end of useful life

Original Value of the Asset – ₹65,000

Scrap Value of the Asset – ₹5,000

Life – 4 years

Asset sold for ₹10,000 by the end of 4th year

Answer: Calculation of rate of depreciation under different methods

𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑖𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑢𝑛𝑑𝑒𝑟 𝑆𝐿𝑀 =

Original Cost − Scrap ValueLife

Original Cost =

65,000 − 5,0004 years

65,000 = 23.08%

𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑖𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑢𝑛𝑑𝑒𝑟 𝑊𝐷𝑉𝑀 = 1 − √𝑠𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒

𝑐𝑜𝑠𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑠𝑠𝑒𝑡𝑠

𝑛

= 1 − √5,000

65,000

4

= 47.34%

Depreciation under SLM / WDV & SYDM

Year Particulars SLM WDVM SYDM Calculation SYDM

0 Original Value 65,000 65,000 65,000

1 Depreciation 15,000 30,771 (65,000 − 5,000) ×4

4 + 3 + 2 + 1 24,000

1 Written Down Value 50,000 34,229 41,000

2 Depreciation 15,000 16,204 (65,000 − 5,000) ×3

4 + 3 + 2 + 1 18,000


3 Depreciation 15,000 8,533 (65,000 − 5,000) ×2

4 + 3 + 2 + 1 12,000


4 Depreciation 15,000 4,492 (65,000 − 5,000) ×1

4 + 3 + 2 + 1 6,000

4 Scrap Value 5,000 5,000 5,000


Accounting of depreciation

Year Journal Entries SLM WDVM SYDM

Debit Credit Debit Credit Debit Credit

0 Assets A/c Dr 65,000 65,000 65,000

To Cash A/c 65,000 65,000 65,000

1

Depreciation A/c Dr 15,000 30,771 24,000

To Assets 15,000 30,771 24,000

Profit and Loss A/c Dr 15,000 30,771 24,000

To Depreciation 15,000 30,771 24,000

2


To Assets 15,000 16,204 18,000


To Depreciation 15,000 16,204 18,000

3


To Assets 15,000 8,533 12,000


To Depreciation 15,000 8,533 12,000

Cash A/c Dr 10,000 10,000 10,000

Loss on Sale A/c Dr 10,000 - 1,000

To Assets A/c 20,000 9,462 11,000

¤ To Profit on Sale A/c 538 -

Accounting of Depreciation

Question: Asset purchased for ₹1,00,000, ₹50,000 and ₹2,00,000 on 1.1.2010, on 1.10.2011 and on 1.1.2012

respectively. On 1.10.2011, the asset purchased on 1.1.2010 was sold for ₹70,000. The rate of depreciation

of the above assets is 10% under straight line method. Prepare assets a/c under different methods of

accounting for the treatment of depreciation.

Answer: Method I [Charging depreciation to asset a/c]

Date Journal Entry Debit Credit

01.01.10 Assets A/c Dr 1,00,000

To Cash A/c 1,00,000

31.12.10 Depreciation A/c Dr 10,000

To Assets 10,000

Profit and Loss A/c Dr 10,000

To Depreciation 10,000

01.07.11 Assets A/c Dr 50,000

To Cash A/c 50,000

01.10.11 Cash A/c Dr 70,000



Depreciation A/c Dr 7,500

To Assets A/c 90,000


To Assets 1,250



01.01.12 Assets A/c Dr 2,00,000



To Assets 25,000



Dr. Assets A/c Cr.

Date Particular ₹ Date Particular ₹

01.01.10 To Bank – Purchase 1,00,000 31.12.10 By Depreciation –

(₹1,00,000 ×10/100)

10,000

Balance c/d 90,000

1,00,000 1,00,000

01.01.11 Balance b/d 90,000 01.10.11 Depreciation 7,500

01.07.11 Bank – Purchase 50,000 (₹1,00,000 ×10/100×9/12)

P/L A/c [Loss] 12,500

Cash 70,000

31.12.11 Depreciation 1,250

(₹50,000×10/100×3/12)

Balance c/d 48,750

1,40,000 1,40,000


Bank- Purchase 2,00,000 (₹2,50,000×10/100)

Balance c/d 2,23,750

2,48,750 2,48,750

01.01.13 2,23,750

Method II [Provision for depreciation method]

Date Journal Entries Debit Credit

01.01.10 Assets A/c Dr 1,00,000



31.12.10


To Provision for Depreciation A/c 10,000



01.07.11 Assets A/c Dr 50,000

To Cash A/c 50,000

01.10.11



Cash A/c Dr 70,000


Provision for Depreciation A/c Dr 17,500

To Assets A/c 1,00,000

31.12.11





01.01.12 Assets A/c Dr 2,00,000


31.12.12





Dr Assets A/c Cr

Date Particular Amount Date Particular Amount

01.01.10 To Bank – Purchase 1,00,000 31.12.10 By Balance c/d 1,00,000

1,00,000 1,00,000

01.01.11 Balance b/d 1,00,000 01.10.11 Provision for depreciation 17,500

01.10.11 Bank – Purchase 50,000 P/L A/c [Loss] 12,500

Cash 70,000

31.12.11 Balance c/d 50,000

1,50,000 1,50,000

01.01.12 Balance b/d 50,000 31.12.12 Balance c/d 2,50,000

Bank- Purchase 2,00,000

2,50,000 2,50,000

01.01.13 2,50,000


Dr Provision for Depreciation A/c Cr


31.12.10 To Balance c/d 10,000 31.12.10 By Depreciation 10,000

(₹1,00,000 ×10/100)

10,000 10,000

01.01.11 Assets A/c 17,500 01.01.11 Balance b/d 10,000


(₹1,00,000 ×10/100×9/12)


(₹50,000 ×10/100×3/12)

18,750 18,750

31.12.12 Balance c/d 26,250 01.01.12 Balance b/d 1,250


(₹2,50,000 ×10/100)

26,250 26,250

01.01.13 Balance b/d 26,250

Question 2: On 1st April, 2010, M/s. N. R. Sons & Co. purchased four machines for ₹2,60,000 each. On

1st April, 2011, one machine was sold for ₹2,05,000. On 1st July, 2012, the second machine was destroyed

by fire and insurance claim received ₹1,75,000 on 15th July, 2012. A new machine costing ₹4,50,000 was

purchased on 1st October, 2012. Books are closed on 31st March every year and depreciation has been

charged @ 15% per annum on diminishing balance method. You are required to prepare machinery

account for 4 years till 31st March, 2014. (Calculations to be shown in nearest rupee)


Answer:

Dr Machinery Account Cr

Date Particular ₹ Date Particular ₹

01.04.10 To Bank A/c 10,40,000 31.03.11 By Depreciation A/c 1,56,000

31.03.11 Balance c/d 8,84,000

10,40,000 10,40,000

01.04.11 Balance b/d 8,84,000 01.04.11 Bank a/c (machinery sold) 2,05,000


31.03.12 P& L A/c (Loss on sale) 16,000


8,84,000 8,84,000

01.04.12 Balance b/d 5,63,550 01.07.12 Insurance claim 1,75,000

P&L A/c (Loss on destroy) 5,806

Depreciation A/c 7,044


01.10.12 Bank 4,50,000 31.03.13 Depreciation A/c 90,106

31.03.13 Balance c/d 7,35,595

10,13,550 10,13,550

01.04.13 Balance b/d 7,35,595 31.03.14 Depreciation 1,10,339

31.03.14 Balance c/d 6,25,256

7,35,595 7,35,595

01.04.14 Balance b/d 6,25,256

Workings

Particulars M-1 M- 2 M-3 M- 4 M- 5

01.04.2010 Purchased of Machinery 2,60,000 2,60,000 2,60,000 2,60,000 -

Less Depreciation @ 15% p. a 39,000 39,000 39,000 39,000 -

W.D.V. on 31.03.11 2,21,000 2,21,000 2,21,000 2,21,000 -

Less Sold of machinery on 01.04.11 2,05,000 - - - -

Loss on Sale 16,000 - - - -

Less Depreciation @ 15% P.a. - 33,150 33,150 33,150 -

W. D. V. on 31.03.12 1,87,850 1,87,850 1,87,850 -

Less Depreciation @ 15% for 3 months i.e.,

01.04.12- 01.07.12

- 7,044 - - -

1,80,806 1,87,850 1,87,850

Less Amount from Insurance claim 1,75,000

Loss on fire 5,806

On 10.10.12 Purchased of machinery 4,50,000

Less Depreciation of 2 machines for full years 28,178 28,177

1,59,672 1,59,673

Less Depreciation for 6th months of new

machinery

- - 33,750

W.D.V. for 31.03.13 1,59,672 1,59,673 4,16,250

Less Depreciation for full year @ 15% p.a. 23,951 23,950 62,438

1,35,721 1,35,723 3,53,812

Machinery Disposal A/c

Question 3: On December, 2011 two machines, which were purchased on 1st October, 2008 costing

₹50,000 and ₹20,000 respectively had to be discarded and replaced by two new machines costing ₹50,000

and ₹25,000 respectively. One of the discarded machines was sold for ₹20,000 and other for ₹10,000.

The balance of Machinery Accounts as on April 1, 2011 was ₹3,00,000 against which the depreciation

provision stood at ₹1,50,000. Depreciation was provided @ 10% on Reducing Balance Method.

Prepare the Machinery A/c, Provision for Depreciation A/c and machinery Disposal A/c.



Answer:

Dr Machinery Account Cr

Date Particulars ₹ Date Particulars ₹

1-4-2011 To Balance c/d 3,00,000 31-12-2011 By Machinery Disposal 70,000

31-12-11 Bank 75,000 31-03-2012 Balance c/d 3,25,000

3,75,000 3,75,000

1-4-2013 Balance b/d 3,25,000

Dr Provision for Depreciation Account Cr


31.12.11 To Machinery Disposal a/c 20,175 01.04.11 By Balance b/d 1,50,000

[16,135+4,040] 31.12.11 P & L A/c [WN 1] 15,529

31.03.12 Balance c/d 1,45,354 31.03.12

1,65,329 1,65,329

1-4-12 Balance b/d 1,45,354

Dr Machinery Disposal Account Cr


31-12-11 To Machinery A/c 70,000 31-12-11 By Provision for Depreciation A/c 20,175

Bank 30,000

P & L A/c (Bal fig.) 19,825

70,000 70,000

Working Notes:

1. Depreciation on the machines till 1.4.12 Machine 1 Machine 2 Total

01.10.08 Original Value 50,000 20,000 70,000

Depreciation [01.10.08-31.03.09] 2,500 1,000 3,500

31.03.09 Written Down Value 47,500 19,000 66,500

Depreciation [01.04.09-31.03.10] 4,750 1,900 6,650


Depreciation [01.04.10-31.03.11] 4,275 1,710 5,985


Depreciation [01.04.11-31.12.11]

31.12.11 Written Down Value

Total depreciation on assets sold 16,135

[3,500+6,650+5,985]


2 Depreciation on Discarded Machine

Book Value of Machine as on 01.04.2011 53,865

Less Depreciation @ 10% for 9 months [till 31.12.11] 4,040

Value of Discarded Machine as on selling date 49,825

3 Depreciation of machinery in use

Value of machinery on 1st April, 2011 3,00,000

Less Cost of discarded machines: 70,000

2,30,000

Less Provision for Depreciation on 1 April, 2011 1,50,000

Less: Depreciation on discarded machines: 16,135 1,33,865

WDV of machinery in use 96,135

Depreciation @ 10% on 96,135 9,614

Add Depreciation for 3 months on ₹75,000 1,875

11,489

Question 4: From the following information prepare.

1. Fixed Assets Account and

2. Accumulated Depreciation Account:

Opening Balance Closing Balance

Fixed Assets in ₹ 4,00,000 5,50,000

Accumulated Depreciation in ₹ 80,000 1,35,000

Additional Information: A part of a machine costing ₹60,000 has been sold for ₹30,000 on which

accumulated depreciation was ₹15,000.


Answer:

Dr Fixed Assets A/c Cr

To Balance b/d 4,00,000 By Accu. Depreciation 15,000

Bank A/c 2,10,000 Bank A/c 30,000

Loss on sale of Asset 15,000


6,10,000 6,10,000

Dr Accumulated Depreciation A/c Cr

To Fixed Assets A/c 15,000 By Balance b/d 80,000

Balance c/c 1,35,000 Profit and Loss A/c 70,000

1,50,000 1,50,000


CHANGE IN METHODS OF DEPRECIATION AND ESTIMATION

Change in Estimated Useful Life

Question 5: A machine costing ₹13,75,000 is depreciated on straight line basis assuming 8 years

working life and zero residual value. After third year machine’s remaining useful life was reassessed

at 7 years. Calculate the amount of depreciation charged for 4th year.


Answer:

𝑊𝐷𝑉 𝑜𝑓 𝑀𝑎𝑐ℎ𝑖𝑛𝑒𝑟𝑦 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑 𝑜𝑓 3𝑟𝑑 𝑦𝑒𝑎𝑟 = 13, 75,000 – 3 × (13,75,000 − 0

8) = 8, 59,375

𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑓𝑜𝑟 4𝑡ℎ 𝑦𝑒𝑎𝑟 = (8,59,375 − 0

7) = 1, 22,768

Change in Method of Depreciation (Prospectively)

Question 6: A firm purchased, on 1st January, 2014, certain machinery for ₹19,40,000 and spent ₹60,000

on its erection. On 1st July in the same year additional machinery costing ₹10,00,000 was acquired. On

1st July, 2016 the machinery purchased on 1st January, 2014 having become obsolete was auctioned for

₹8,00,000 and on the same date fresh machine was purchased at a cost of ₹15,00,000.

Depreciation was provided for annually on 31st December at the rate of 10% per annum on the original

cost of the asset. In 2017 however, the firm changed this method of providing depreciation and adopted

the method of writing off 20% on the written down value.

Give the Machinery Account as it would stand at the end of each year from 2014 to 2018.

{CA foundation Similar in M97 & N11}

Answer:

Machinery A/c

Date Dr Particulars ₹ Date Cr Particulars ₹

01.01.14 To Bank A/c 19,40,000 31.12.14 By Depreciation A/c 2,50,000

Bank A/c 60,000 31.12.14 Balance c/d 27,50,000

Bank A/c 10,00,000

30,00,000 30,00,000

01.01.15 Balance b/d 27,50,000 31.12.15 Depreciation A/c 3,00,000


27,50,000 27,50,000

01.01.16 Balance b/d 24,50,000 01.07.16 Bank A/c 8,00,000

01.07.16 Bank A/c 15,00,000 P/L A/c (Loss) 1 7,00,000

31.12.16 Depreciation 2,75,000


39,50,000 39,50,000

1 𝑊𝐷𝑉 = 20 − 20 × 10% × 2.5 𝑦𝑒𝑎𝑟𝑠 = 15 𝑎𝑛𝑑 𝑠𝑎𝑙𝑒 𝑣𝑎𝑙𝑢𝑒 = 8 ℎ𝑒𝑛𝑐𝑒 𝑙𝑜𝑠𝑠 𝑖𝑠 7 (𝑖𝑛 𝑙𝑎𝑘ℎ𝑠)




21,75,000 21,75,000



17,40,000 17,40,000

Change in Method of Depreciation (Retrospectively)

Question 7: Green Channel Co. purchased a second-hand machine on 1st January, 2015 for ₹1,60,000.

Overhauling and erection charges amounted to ₹40,000. Another machine was purchased for ₹80,000

on 1st July, 2015. On 1st July, 2017, the machine installed on 1st January, 2015 was sold for ₹1,00,000. On

the same date another machine was purchased for ₹30,000 and was installed on 30th September, 2017.

Under the existing practice the company provides depreciation @ 10% p.a. on original cost. However,

from the year 2018 it decided to adopt WDV method and to charge depreciation @ 15% p.a. This change

was to be made with retrospective effect.

Prepare Machinery Account in the book of Green Channel Co. for the year 2015 to 2018.

{CA foundation M03}

Answer:

In the Books of Green Channel Co

Machinery Account

Date Dr Particulars ₹ Date Cr Particulars ₹

01.01.15 To Bank A/c 1,60,000 31.12.15 By Depreciation A/c 24,000

Bank A/c 40,000 31.12.15 Balance c/d 2,56,000

01.07.15 Bank A/c 80,000

2,80,000 2,80,000

01.01.16 Balance b/d 2,56,000 31.12.16 Depreciation A/c 28,000

31.12.16 Balance c/d 2,28,000

2,56,000 2,56,000

01.01.17 Balance b/d 2,28,000 01.07.17 Bank A/c 1,00,000

30.09.17 Bank A/c 30,000 P/L A/c (Loss) WN 1 50,000

31.12.17 Depreciation A/c 18,750

Balance c/d 89,250

2,58,000 2,58,000

01.01.18 Balance b/d 89,250 31.12.18 P/L A/c (WN 3) 6,910

Depreciation A/c 12,351

Balance c/d 69,989

89,250 89,250


Working Notes

1 Book Value of machines (Straight line method)

Particulars Machine I (₹) Machine II

(₹)

Machine III

(₹)

Cost 2,00,000 80,000 30,000

Depreciation for 2015 20,000 4,000

Written down value as on 31.12.2015 1,80,000 76,000

Depreciation for 2016 20,000 8,000

Written down value as on 31.12.2016 1,60,000 68,000

Depreciation for 2017 10,000 8,000 750

Written down value as on 31.12.2017 1,50,000 60,000 29,250

Sale proceeds 1,00,000

Loss on sale 50,000

2 Depreciation of machines (written down value method)

Cost 80,000 30,000

Depreciation

2015 6,000

2016 11,100

2017 9,435 1,125

Total depreciation for 2015 -2017 26,535 1,125

3 Retrospective effect of change in depreciation method for machines II and III (2015 – 2017);

Depreciation under written down value method (₹26,535 + ₹1,125) 27,660

Depreciation under straight line method (₹20,000 + ₹750) 20,750

Deficiency charged to profit and Loss A/c 6,910

Revaluation of Asset: in case of

1. Profit then credit, 1st: P/L a/c if any revaluation loss charged | 2nd Revaluation Reserve A/c

2. Loss then debit, 1st: Revaluation Reserve if exist | 2nd P/L A/c

OTHER METHODS OF DEPRECIATION (other than SLM and WDVM)

3. Accelerated Depreciation Method (Double / Triple Declining Method)

𝐴𝑐𝑐𝑒𝑙𝑒𝑟𝑎𝑡𝑒𝑑 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑅𝑒𝑔𝑢𝑙𝑎𝑟 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 × 𝑎𝑐𝑐𝑒𝑙𝑒𝑟𝑎𝑡𝑒𝑑 %

4. Sum of the Years’ Digit Method

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷)

= 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑏𝑙𝑒 𝐴𝑚𝑜𝑢𝑛𝑡 ×𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝐿𝑖𝑓𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑖𝑛𝑔 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟

𝑆𝑢𝑚 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟𝑠 𝑑𝑖𝑔𝑖𝑡


Source of Fund Base

5. Sinking Fund Method

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝐴𝑚𝑜𝑢𝑛𝑡 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑓𝑜𝑟 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡 ×𝑖

(1 + 𝑖)𝑛 − 1

6. Annuity Method: Depreciation under this method includes interest (𝑖) for investment on asset

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = (𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 −𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒

(1 + 𝑖)𝑛) ×

(1 + 𝑖)𝑛𝑖

(1 + 𝑖)𝑛 − 1

7. Insurance Policy Method: This method protects from risk of failure before the life of the asset

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 𝑝𝑟𝑒𝑚𝑖𝑢𝑚 𝑝𝑎𝑖𝑑

Consumption / Use Base

8. Depletion Method

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 + 𝑅𝑒𝑠𝑡𝑜𝑟𝑒 𝐶𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒

𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑖𝑛 𝐴𝑁𝑌 𝑢𝑛𝑖𝑡𝑠

9. Machine Hour Method / Production Units Method / Kilo Meter Method / etc.

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒

𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒 𝑖𝑛 ℎ𝑜𝑢𝑟𝑠 | 𝑢𝑛𝑖𝑡𝑠 | 𝑘𝑖𝑙𝑜 𝑚𝑒𝑡𝑒𝑟 | 𝑒𝑡𝑐.

Price Base

10. Revaluation Method: Suitable for loose tools

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒 + 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑 − 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑉𝑎𝑙𝑒


11. Repairs Provision Method

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 + 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑅𝑒𝑝𝑎𝑖𝑟 𝐶𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒

𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒

Depletion method

Question 8: Pensive Corporation’s subsidiary Pensive Oil drills a well with the intention of extracting

oil from a known reservoir. It incurs the following costs related to the acquisition of property and

development of the site:

₹

Land purchase 2,80,000

Road construction 23,000

Drill pad construction 48,000

Drilling fees 1,92,000

Total 5,43,000


In addition, Pensive Oil estimates that it will incur a site restoration cost of ₹57,000 once extraction is

complete, so the total depletion base of the property is ₹600,000.

Pensive’s geologists estimate that the proven oil reserves that are accessed by the well are 400,000

barrels. Pensive Oil extracts 100,000 barrels and 3, 00,000 barrels in the first and second year

Answer:

𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 𝑙𝑒𝑠𝑠 𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒

𝑇𝑜𝑡𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑛𝑎𝑡𝑢𝑟𝑎𝑙 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 =

5,43,000 + 57,000

4,00,000 = ₹1.50

Year Particulars ₹

1 Depreciation (1,00,000 barrels × ₹1,50) 1,50,000

2 Depreciation (3,00,000 barrels × ₹1,50) 4,50,000

Machine Hour Rate

Question 9: On 01.04.2012, machine purchased at ₹5,00,000 with a scrap value of ₹1,00,000 has life of

running 2,00,000 machine hours or producing 1,00,000 units

Year Machine Hours Production Units

2012-13 50,000 25,000

2013-14 1,00,000 50,000

2014-15 50,000 25,000

Calculate amount of depreciation under machine hour rate and production unit rate

Answer:

Machine Hour Rate =Original Cost − Residual Value

Useful Life in Hours=

5,00,000 − 1,00,000

2,00,000= ₹2

Production Unit Rate =Original Cost − Residual Value

Useful Life in Units=

5,00,000 − 1,00,000

1,00,000= ₹4

Year Particulars Machine Hour Production Unit

0 Original Value 5,00,000 5,00,000

1 Depreciation 50,000×₹2 1,00,000 25,000×₹4 1,00,000

1 Written Down Value 4,00,000 4,00,000

2 Depreciation 1,00,000×₹2 2,00,000 50,000×₹4 2,00,000

2 Written Down Value 2,00,000 2,00,000

3 Depreciation 50,000×₹2 1,00,000 25,000×₹4 1,00,000

3 Scrap Value 1,00,000 1,00,000

Depreciation with provision for repairs and renewals:

Question 10: On 01.01.10, an asset is purchased for ₹1, 00,000 has a residual value of ₹20,000 at the end

of 3rd year. Expected cost for repairs and renewal during the life is ₹70,000. Actual repair costs are

₹20,000, ₹25,000 and ₹30,000 in the years I, II and III respectively. At end of third year, the asset is sold

for ₹15,000.


Answer:

𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑜𝑖𝑛 =Original Cost − Residual Value + Repair Cost

Useful Life=

1,00,000 − 20,000 + 70,000

3 years= 50,000

Journal Entries Debit Credit

0 Assets A/c Dr 1,00,000


1 Depreciation A/c Dr 50,000

To Provision for repairs A/c 50,000



Repairs A/c Dr 20,000

To Cash A/c 20,000

Provision for repairs A/c Dr 20,000

To Repairs A/c 20,000






To Cash A/c 25,000








To Cash A/c 30,000



Cash A/c Dr 15,000

Provisions for repairs A/c Dr 75,000

Loss on sale A/c Dr 20,000

To Assets 1,00,000


Dr. Assets A/c Cr.


01.01.10 To Bank – Purchase 1,00,000 31.12.10 By Balance c/d 1,00,000

1,00,000 1,00,000

01.01.11 Balance b/d 1,00,000 31.12.11 Balance c/d 1,00,000

1,00,000 1,00,000

01.01.12 Balance b/d 1,00,000 31.12.12 Cash A/c 15,000

Provision A/c 75,000

Loss on Sale 10,000

1,00,000 1,00,000

Dr. Provision for repairs, renewal and depreciation A/c Cr.


31.12.10 To Repairs A/c 20,000 31.12.10 By Profit and Loss A/c 50,000

Balance c/d 30,000

50,000 50,000

01.01.11 Repairs A/c 25,000 01.01.11 Balance b/d 30,000

31.12.11 Balance c/d 55,000 01.10.11 Profit and Loss A/c 50,000

80,000 80,000

31.12.12 Repairs A/c 30,000 01.01.12 Balance b/d 55,000

Asset A/c 75,000 01.10.12 Profit and Loss A/c 50,000

1,05,000 1,05,000

Sinking Fund Method

Question 11: A plant and machinery was purchased on 01.04.2010 for ₹1,20,000. The plant and

machinery had a life of 3 years with the residual value of ₹20,000. Calculate amount of depreciation,

pass journal entries and prepare ledger a/c under Sinking fund method. Assume the rate of interest of

10% p.a. for sinking fund method.

Answer: Sinking Fund Method: Depreciation (D)

𝐴𝑚𝑜𝑢𝑛𝑡 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 ×𝑖

(1 + 𝑖)𝑛 − 1= (1,20,000 − 20,000) ×

0.1

(1 + 0.1)3 − 1= 30,211

Accounting under Sinking Fund Method

Year Journal Entries Debit Credit

0 Plant and Machinery A/c Dr 1,20,000

To Bank A/c 1,20,000

1 Profit and Loss A/c Dr 30,211

To Depreciation Fund Reserve A/c 30,211

Depreciation Fund Investment A/c Dr 30,211


To Bank A/c 30,211

2 Bank A/c Dr 3,021

To Interest on Depreciation Fund Investment A/c 3,021


Interest on Depreciation Fund Investment A/c Dr 3,021


Depreciation Fund Investment A/c Dr 33,232

To Bank A/c 33,232

3 Bank A/c Dr 6,344

To Interest on Depreciation Fund Investment A/c 6,344


Interest on Depreciation Fund Investment A/c Dr 6,344


Bank A/c Dr 63,443

To Depreciation Fund Investment A/c 63,443

Bank A/c Dr 20,000

Depreciation Fund Reserve A/c Dr 1,00,000

To Assets A/c 1,20,000

Final Accounts for Sole Properties 73

6 FINAL ACCOUNTS FOR SOLE PROPERTIES

Marshalling of Balance Sheet: order of arrangement of assets and liabilities in B/S

1. Liquidity Order: Liquid assets / liquid liabilities will be arranged first

2. Permanence Order: Fixed assets / Capital and L. T. Debt is arranged first


Treatment of items of Adjustments appearing inside the Trial balance

Item given in Trial Balance In Trading

& P/L A/c

In B/S

1 Closing Stock - Asset

2 Outstanding (accrued) Expense - Liability

3 Prepaid Expense - Asset

4 Accrued Income - Asset

5 Unearned Income - Liability

6 Depreciation Debit -

7 Bad Debts Debit -

8 Provision for Doubtful Debts - Liabilities

9 Discount allowed Debit -

10 Provision for Discount on Debtors - Liabilities

11 Discount Received Credit -

12 Reserve for Discount on Creditors - Assets

13 Interest on Capital Debit -

14 Interest on Drawings Credit -

Treatment of items of Adjustments appearing outside the Trial balance

Item of Adjustment Adjusting Entry Dr Cr

Stock in trade

1 Opening Stock Trading A/c Dr ×××

To Opening Stock ×××

Closing Stock Closing Stock Dr ×××

To Trading A/c ×××

Or

Opening Stock Purchases A/c (or Sales A/c) Dr ×××

To Opening Stock A/c ×××

Closing Stock Closing Stock A/c Dr ×××

To Purchases A/c (or Sales A/c) ×××


Other Stocks [such as stationery, loose tools, etc.,]

2 Opening Stock Stationery (respective stocks) A/c Dr ×××

To Opening Stock A/c ×××

Closing Stock Closing Stock A/c Dr ×××

To Stationery (respective stock) A/c ×××

3 Outstanding Expense Respective A/c Dr ×××

To Outstanding Expenses A/c ×××

4 Prepaid Expenses

(Unexpired Expenses)

Prepaid Expenses A/c Dr ×××

To Respective Expense A/c ×××

5. Accrued Income or

outstanding Income

(Income earned but not received)

Accrued Income A/c Dr ×××

To Respective Income A/c ×××

6. Unearned Income

(or Income received in advance)

Respective Income A/c Dr ×××

To Unearned Income A/c ×××

7. Depreciation

[Refer: Depreciation chapter]

Depreciation A/c Dr ×××

To Respective Asset A/c ×××

8. Interest on Capital Interest on Capital A/c Dr ×××

To Capital A/c ×××

9. Interest on Drawings Capital A/c Dr ×××

To Interest on Drawings ×××

10. Hidden Adjustment Interest on Investment

[since the date of investment]

Interest on Loan [since the date of loan]

11. Additional Bad Debts Bad Debts A/c Dr ×××

To Sundry Debtors A/c ×××

Provision for Doubtful Debts A/c Dr

To Bad Debts A/c ×××

If provision not available, then debit Profit and Loss A/c

12. Provision for Doubtful debts Profit and Loss A/c Dr ×××

To Provision for Doubtful Debts A/c ×××

13. Provision for Discount on Debtors Profit and Loss A/c Dr ×××

To Provision for Discount on Debtors ×××

14. Reserve for Discount on Creditors Reserve for Discount on Creditors Dr ×××

To Profit and Loss A/c ×××


Special Adjustments

1. Manager’s Commission on Profit Manager’s Commission Dr ×××

To Outstanding commission A/c ×××

2. Abnormal Loss of Stock Loss on Stock A/c Dr ×××


Profit or Loss A/c Dr ×××

To Loss on Stock A/c ×××

If insured & insurance claim receivable

Insurance Claim Receivable A/c Dr ×××

To Insurance Claim A/c ×××

3. Goods Sent on Approval Sales A/c Dr ×××

To Debtors A/c ×××

Stock with customers A/c Dr ×××


4. Goods taken by owner Drawings A/c Dr ×××


5 Goods given as sample Advertisement Expenses A/c Dr ×××


6 Goods given for donation Donation A/c Dr ×××


7 Mutual Owings Creditors / BP / Loan A/c Dr ×××

(Lower amount) To Debtors / BR / Investments A/c ×××

Question 1: Trail Balance of Mr. X is given below:


Purchases A/c 5,000 Sales A/c 7,000

Carriage Inwards 1,000 Capital A/c 5,000

Administration Expenses A/c 1,000 10% Loan 4,000

Selling Expenses A/c 1,000 Creditors 1,000

Fixed Assets A/c 4,000

12% Investments 2,000

Debtors A/c 1,000

Cash A/c 1,000

Opening Stocks A/c 1,000

17,000 17,000

Adjustment: Closing stock is ₹3,000

Required: Pass journal entries and prepare final accounts


Answer:

Stock in trade adjusted after preparing Trail Balance

Opening Stock &

Other Revenue Items

Trading A/c Dr 7,000

To Opening Stock A/c 1,000

To Purchases A/c 5,000

To Carriage Inwards A/c 1,000


To Administration A/c 1,000

To Selling and Distribution Expenses A/c 1,000

Closing Stock &

Other Revenue Items

Closing Stock Dr 3,000

Sales A/c Dr 8,000

To Trading A/c 11,000

Gross Profit A/c Trading A/c Dr 3,000

To Profit and Loss A/c 3,000

Net Profit A/c Profit and Loss A/c Dr 1,000

To Capital A/c 1,000

Trading and Profit and Loss A/c


Opening Stocks A/c 1,000 Sales A/c 7,000

Purchases A/c 5,000 Closing Stock A/c 3,000

Carriage Inwards 1,000

Gross Profit A/c 3,000

10,000 10,000

Administration Expenses A/c 1,000 Gross Profit A/c 3,000

Selling Expenses A/c 1,000

Net Profit A/c 1,000

3,000 3,000

Balance Sheet

Liabilities ₹ Assets ₹

Capital A/c 5,000 Fixed Assets A/c 4,000

Net Profit A/c 1,000 12% Investments 2,000

10% Loan 4,000 Debtors A/c 1,000

Creditors 1,000 Cash A/c 1,000

Stock in Trade 3,000

11,000 11,000


Alternative solution:

Stock in trade adjusted before preparing Trail Balance

Opening Stock Purchases A/c Dr 1,000


Closing Stock Closing Stock Dr 3,000


Adjusted Trail Balance






Fixed Assets A/c 4,000

12% Investments 2,000

Debtors A/c 1,000

Cash A/c 1,000

Closing Stocks A/c 3,000

17,000 17,000





Gross Profit A/c 3,000

7,000 7,000

Administration Expenses A/c 1,000 Gross Profit A/c 3,000

Selling Expenses A/c 1,000

Net Profit A/c 1,000

3,000 3,000

Balance Sheet



Net Profit A/c 1,000 12% Investments 2,000


Creditors 1,000 Cash A/c 1,000


Stock in Trade 3,000

11,000 11,000

Question 2: Trail Balance of Mr. X as on 31.03.2015 is given below




Administration Expenses A/c 1,000 10% Loan [as on 01.01.15] 4,000


Fixed Assets A/c 4,000 Commission Received 500

12% Investments [as on 01.01.14] 2,000 Rent Received 400

Debtors A/c 2,000 Interest on Investment 100

Cash A/c 1,000

Opening Stocks A/c 1,000

Drawings 1,000

19,000 19,000

Adjustment:

1. Closing stock is ₹ 3,000

2. Outstanding selling expense is ₹ 200

3. Advance administration expense is ₹ 400

4. Commission receivable is ₹ 100

5. Rent received in advance is ₹ 200

6. Provide Interest on Drawings @ 5%.

7. Provide Interest on Capital @ 6%.

8. Depreciate Fixed Assets at the rate of 5%.

Required:

1. Pass adjustment entries

2. Prepare adjusted Trail Balance

3. Prepare final accounts from adjusted Trail Balance

Answer:

Adjustment Entries





Outstanding Expenses Selling Expenses A/c Dr 200

To Outstanding Selling Expenses A/c 200

Advance Expenses Advance Administration Expenses A/c Dr 400

To Administration Expenses A/c 400


Outstanding Income Commission Receivable A/c Dr 100

To Commission Income A/c 100

Advance Income Rent Income A/c Dr 200

To Rent Received in Advance A/c 200

Hidden Adjustment (1)

Interest on Loan2

Interest on Loan A/c Dr 100

To Outstanding Interest on Loan A/c 100

Hidden Adjustment (2)

Interest on Investment3

Outstanding Interest on Investment A/c Dr 140

To Interest on Investment A/c 140

Interest on Drawings4 Capital A/c Dr 25

To Interest on Drawings 25

Interest on Capital Interest on Capital A/c Dr 360

To Capital A/c 360

Depreciation Depreciation A/c Dr 200

To Fixed Assets 200

Adjusted Trail Balance




Administration Expenses A/c 600 10% Loan [as on 01.01.15] 4,000


Fixed Assets A/c 3,800 Commission Income 600

12% Investments [as on 01.01.14] 2,000 Rent Income 200


Cash A/c 1,000 Outstanding Selling Expense A/c 200

Closing Stocks A/c 3,000 Rent Received in Advance 200

Drawings 1,000 Outstanding Interest on Loan A/c 100

Advance Administration Expenses 400 Interest on Drawings A/c 25

Commission Receivable 100

Interest on Loan A/c 100

Outstanding Interest on Investment A/c 140

Interest on Capital A/c 360

Depreciation 200

19,900 19,900

2 Loan × Period of Outstanding × Rate of Interest = 4,000 × 0.25 year × 10% = ₹100 3 Investment × Period of Outstanding × Rate of Interest less Interest on Investment already received

= 2,000 × 1 year × 12% = ₹240 – ₹100 = ₹ 140 4 As date of drawings not given, half year’s interest is calculated



Debit ₹ By Credit ₹

To Purchases A/c 3,000 Sales A/c 7,000


Gross Profit 3,000

7,000 7,000

Administration Expenses A/c 600 Gross Profit 3,000

Selling Expenses A/c 1,200 Commission Income 600

Interest on Loan A/c 100 Rent Income 200

Interest on Capital A/c 360 Interest on Investment 240

Depreciation 200 Interest on Drawings A/c 25

Net Profit 1,605

4,065 4,065

Balance Sheet as on 31.03.2015



Less: Drawings (1,000) 12% Investments [as on 01.01.14] 2,000

Add: Net Profit 1,605 6,940 Debtors A/c 2,000

10% Loan [as on 01.01.15] 4,000 Cash A/c 1,000

Creditors 1,000 Closing Stocks A/c 3,000

Outstanding Selling Expense A/c 200 Advance Administration Expenses 400

Rent Received in Advance 200 Commission Receivable 100

Outstanding Interest on Loan A/c 100 Outstanding Interest on Investment A/c 140

12,440 12,440

Question 3: The Following is the Trail Balance of X

Trail Balance




Administration Expenses A/c 600 10% Loan [as on 01.01.15] 4,000


Fixed Assets A/c 3,800 Commission Income 600

12% Investments [as on 01.01.14] 2,000 Rent Income 200


Cash A/c 1,000 Outstanding Selling Expense A/c 200


Closing Stocks A/c 3,000 Rent Received in Advance 200

Drawings 1,000 Outstanding Interest on Loan A/c 100

Advance Administration Expenses 400 Interest on Drawings A/c 25

Commission Receivable 100

Interest on Loan A/c 100

Outstanding Interest on Investment A/c 140

Interest on Capital A/c 360

Depreciation 200

19,900 19,900

Adjustments:

1. Stocks were lost in fire accident ₹500, which was insured and insurance claim was admitted for

₹400.

2. Goods were sold on sale or approval basis for ₹500 on which customer’s approval still pending

was for ₹300. Mr X marks up at the rate of 20% on cost.

3. Manger is entitled for a commission of 10% on profit after charging such commission.

4. The following transactions were omitted while preparing Trail Balance

a. Goods were taken by owner ₹50

b. Goods were distributed as sample ₹25

c. Goods were contributed to a Child Welfare Trust at free of cost ₹25

Required: Prepare Trading and Profit and Loss a/c and Balance Sheet after passing adjustment entries

Answer:

Special Adjustments

1 Manager’s Commission on Profit5 Manager’s Commission Dr 178

To Outstanding commission A/c 178

2 Abnormal Loss of Stock Loss on Stock A/c Dr 500

To Trading A/c 500

Profit or Loss A/c Dr 500

To Loss on Stock A/c 500

If insured & insurance claim receivable

Insurance Claim Receivable A/c Dr 400

To Insurance Claim A/c 400

3 Goods Sent on Approval

(pending approval only)

Sales A/c [at sale price] Dr 300

To Debtors A/c 300

Stock with customers A/c [at cost] Dr 250

To Trading A/c 250

4. Goods taken by owner Drawings A/c Dr 50

To Purchases A/c 50

5 Manager’s commission = Net Profit before Manager’s commission ×

10

110 = [1,955 ×

10

110 = 178]


5 Goods given as sample Advertisement Expenses A/c Dr 25

To Purchases A/c 25

6 Goods given for donation Donation A/c Dr 25

To Purchases A/c 25


Debit ₹ By Credit ₹

To Purchases A/c [3,000–50–25–25] 2,900 Sales A/c [7,000 – 300] 6,700

Carriage Inwards 1,000 Loss on Stock A/c 500

Gross Profit 3,550 Stock with Customers 250

7,450 7,450

Administration Expenses A/c 600 Gross Profit 3,550

Selling Expenses A/c 1,200 Commission Income 600

Interest on Loan A/c 100 Rent Income 200

Interest on Capital A/c 360 Interest on Investment 240

Depreciation 200 Interest on Drawings A/c 25

Donation 25 Insurance Claim 400

Advertisement 25

Loss on Stock 500

Manager’s Commission 182

Net Profit 1,823

5,015 5,015




Less: Drawings [1,000+50] (1,050) 12% Investments [as on 01.01.14] 2,000

Add: Net Profit 1,823 7,108 Debtors A/c [2,000 – 300] 1,700

10% Loan [as on 01.01.15] 4,000 Cash A/c 1,000

Creditors 1,000 Closing Stocks A/c 3,000

Outstanding Selling Expense A/c 200 Stock with Customers 250

Rent Received in Advance 200 Advance Administration Expenses 400

Outstanding Interest on Loan A/c 100 Commission Receivable 100

Outstanding Manager’s Commission 182 Outstanding Interest on Investment A/c 140

Outstanding Insurance Claim 400

12,790 12,790


Question 4: The company maintains 10% of debtors as provision towards bad debts. It has routed all

bad debts through the provision account. The opening balance of provision as on 01.04.2012 was

₹68,000. The closing provision i.e. on 31st March, 2013 was ₹92,000. Bad debts written off debited to

provision account was ₹28,000. How much should be debited to Profit & Loss Account towards

provision for doubtful debts for the year ended 31st March, 2013?


Answer:

Provision for bad and doubtful debts account

Date Dr. Particulars ₹ Date Cr. Particulars ₹

31.03.2013 To Sundry Debtors 28,000 01.04.2012 By Balance B/d 68,000

31.03.2013 Balance c/d 92,000 31.03.2013 P&L A/c 52,000

1,20,000 1,20,000

Question 5: On 1st April, 2013 the balance of provision for bad and doubtful debts was ₹13,000. The bad

debts during the year 2013-14 were ₹9,500. The sundry debtors as on 31st March, 2014 stood at ₹3,25,000

out of these debtors of ₹2,500 are bad and cannot be realized. The provision for bad and doubtful debts

is to be raised to 5% on sundry debtors.

(i) Pass necessary adjustment entries for bad debts and its provision on 31st March, 2014.

(ii) Prepare the necessary ledger accounts.

(iii) Show the relevant items in the profit and loss account and Balance Sheet.

{CMA inter J14, 3+3+2 = 8 marks}

Answer: (i)

In the books of Journal

Date Particulars Debit (₹) Credit (₹)

31.03.14 Bad Debts A/c Dr. 2,500

To Sundry Debtors A/c 2,500

(Being Bad Debts)

31.03.14 Provision for Bad & Doubtful Debts A/c Dr. 12,000

To Bad Debts A/c 12,000

(Being Bad Debts during the year)

31.03.14 Profit and Loss A/c Dr. 15,125

To Provision for Bad & Doubtful Debts A/c 15,125

(Being provision for DD transferred to Profit & Loss A/c)

(ii) Ledger

Bad Debts Account


31.03.14 To Balance b/d 9,500 31.03.14 By Provision for DD A/c 12,000

Sundry Debtors A/c 2,500

12,000 12,000


Provision for Doubtful Debts Account


31.03.14 To Bad Debts A/c 12,000 01.03.13 By Balance b/d 13,000

31.03.14 Balance c/d

[5% on (3,25,000 –

2,500)]

16,125 31.03.14 Profit and Loss A/c

(b/f)

15,125

28,125 28,125

Sundry Debtors Account


31.03.14 To Balance b/d 3,25,000 31.03.14 By Bad Debts A/c 2,500

31.03.14 Balance c/d 3,22,500

3,25,000 3,25,000

(iii)

Profit and Loss A/c for the year ended 31st March, 2014

Particulars ₹ ₹

To Provision for Bad & Doubtful Debts:

New Provision 16,125

Add Bad Debts (9,500 + 2,500) 12,000

28,125

Less Old Provision 13,000 15,125

Balance Sheet as on 31st March, 2014

Liabilities ₹ Assets ₹ ₹

Sundry Debtors 3,25,000

Less Further Bad Debts 2,500

3,22,500

Less Provision for Bad Debts 16,125 3,06,375

Question 6: Trail Balance of Mr. X is given below:






Fixed Assets A/c 4,000 Provision for Doubtful Debt A/c 150

Investments 2,000 Provision for Discount on Debtors 40

Debtors A/c 1,000 Discount on Creditors 35


Cash A/c 1,000

Stationery A/c 800

Opening Stock of Stationery 250

Opening Stock A/c 1,000

Bad Debts A/c 100

Discount on Debtors 50

Provision for Discount on

Creditors

25

18,225 18,225

Adjustment:

1. Closing stock was valued at ₹3,000

2. Closing Stock of Stationery was valued at ₹450

3. Write off ₹100 for bad debts

4. The Provision for Doubtful Debts is to be maintained at 10%

5. Create a Provision for Discount on Debtors and Reserve for Discount on Creditors at 5%

Required: Pass journal entries and prepare final accounts

Answer:

Stock in trade adjusted before preparing Trail Balance





Opening Stock of Stationery Stationery Dr 250

To Opening Stock of Stationery A/c 250

Closing Stock of Stationery Closing Stock of Stationery A/c Dr 450

To Stationery A/c 450

Additional Bad Debts Bad Debts A/c Dr 100

To Sundry Debtors A/c 100

Adjustment of Bad Debts

in Provision

Provision for Doubtful Debts A/c Dr 200

To Bad Debts A/c 200

Provision for

Doubtful debts created

Profit and Loss A/c Dr 140

To Provision for Doubtful Debts A/c 140

Adjustment of Discount

on Debtors

Provision for Discount on Debtors Dr 50

To Discount on Debtors 50

Provision for Discount

on Debtors created

Profit and Loss A/c Dr 51

To Provision for Discount on Debtors 51

Adjustment of Discount

on Creditors

Discount on Creditors A/c Dr 35

To Reserve for Discount on Creditors 35


Reserve for Discount

on Creditors created

Reserve for Discount on Creditors Dr 60

To Profit and Loss A/c 60

WN1 Debtors

Debtors 1,000

Less Additional Bad Debts 100

900

Less Provision for Doubtful Debts Required 90

810

Less Provision for Discount on Debtors Required 41

769

WN2 Creditors

Creditors 1,000

Less Reserve for Discount on Creditors Required 50

950


To Debit ₹ By Credit ₹



Gross Profit 4,000

8,000 8,000

Administration Expenses A/c 1,000 Gross Profit 4,000

Selling Expenses A/c 1,000 Reserve for Discount on Creditors 60

Stationery A/c 600

Provision for Doubtful Debt A/c 140

Provision for Discount on Debtors 51

Net Profit 1,269

4,060 4,060

Balance Sheet



Net Profit 1,269 6,269 12% Investments 2,000


Creditors 1,000 Provision for Doubtful Debts 90

Reserve for Discount on Creditors 50 950 810


Provision for Discount on

Debtors

41 769

Cash A/c 1,000

Closing Stock of Stationery 450

Closing Stock A/c 3,000

11,219 11,219

Final accounts of manufacturing entities

Who prepares It is prepared by an enterprise engaged in manufacturing activities

Purpose It is prepared to ascertain the cost of gods manufactured

How to close It is closed by transferring its balance to the debit of Trading Account

Stocks considered Opening and Closing Stock of Raw Materials and work in Progress

Stocks not considered Opening and Closing Stock of Finished Goods.

Question 7: On 31st March, 2007, the trial balance of Topa was as follows:

Debit Balances ₹ Credit Balances ₹

Stocks on 1st April, 2006

Raw Materials 2,10,000 Sundry Creditors 1,50,000

Work in Progress 95,000 Bills Payable 75,000

Finished Goods 1,55,000 Commission 4,500

Sundry Debtors 2,40,000 Provision for Doubtful Debts 16,500

Carriage on Purchases 15,000 Capital Account 10,00,000

Bills Receivable 1,50,000 Sales 16,72,000

Wages 1,30,000 Current Account of Topa 85,000

Salaries 1,00,000 Sale of Scrap 25,000

Telephone, Postage, etc. 10,000

Repairs to plant 11,000

Repairs to office Furniture 3,500

Purchases 8,50,000

Cash at Bank 1.70,000

Plant and Mach. 7,00,000

Office Furniture 1,00,000

Rent 60,000

Lighting 13,500

General Expenses 15,000

30,28,000 30,28,000

The following additional information is available:


a) Stocks on 31st March, 2007 were:

Raw materials - 1,62,000

Finished Goods - 1,81,000

Semi-finished Goods - 78,000

b) Salaries and wages unpaid for March, 2007, were respectively, ₹ 9,000 and ₹20,000.

c) Machinery is to be depreciated by 10% and office furniture by 7.5%

d) Provision for doubtful debts is to be maintained @ 1% sales.

e) Office premises occupy ¼ of total area. Lighting is to be charged as to 2/3 to factory and 1/3 to office.

Prepare the Manufacturing Account, Trading Account, Profit and Loss Account for the year ended 31st

March, 2007 and the Balance sheet as on 31st March, 2007.

Answer:

Manufacturing Account of Top for the year ended March 31, 2007

To Work in progress (on 1.4.08) 95,000 By work in progress 78,000

Materials

Consumed

(on 31st Mar 2007)

Opening Stock 2,10,000 Sale of Scrap 25,000

(+) Purchases 8,50,000 Cost of Goods

manufactured

10,60,000 & transferred to Trading

A/c

11,90,000

(-) Closing Stock 1,62,000 8,98,000

Wages 1,30,000

(+) Outstanding Wages 20,000 1,50,000

(+) O/s carriage on purchases 15,000

Repairs to Plant 11,000

Rent (3/4) 45,000

Lighting (2/3) 9,000

Depreciation of plant 70,000

12,93,000 12,93,000

Trading and Profit and Loss Account of Topa for the year ended March 31, 2007

To Opening Stock of Finished Goods 1,55,000 By Sales 16,72,000

Cost of Goods Manufactured 11,90,000 Closing Stock 1,81,000

Gross Profit c/d 5,08,000 (Finished goods)

18,53,000 18,53,000

Salaries 1,00,000 Gross Profit 5,08,000

(+) O/s 9,000 1,09,000 Commission 4,500

Telephone & Postage 10,000


Repairs to Furniture 3,500

Depreciation of Furniture 7,500

Lighting (1/3) 4,500

General Expenses 15,000

Prov. For Doubtful Debts 16,720

(-) Exiting provision 16,500 220

Net Profit 3,47,780

5,12,500 5,12,500

Balance sheet of Topa as in March 31, 2007

Liabilities Assets

Sundry Creditors 1,50,000 Fixed Assets

Bills Payable 75,000 Plant & Machinery 7,00,000

Expenses Payable: (-) Depreciation 70,000 6,30,000

Salaries 9,000 Office Furniture 1,00,000

Wages 20,000 29,000 (-) Depreciation 7,500 92,500

Current A/c of Topa: Current Assets:

Previous bal. 85,000 Cash at Bank 1,70,000

(+) Net Profit 3,47,780 4,32,780 Sundry Debtors 2,40,000

Capital A/c. 10,00,000 (-) Prov. for DD 16,720 2,23,280

Bills Receivable 1,50,000

Stocks:

Raw Materials 1,62,000

Finished Goods 1,81,000

Work in Progress 78,000 4,21,000

16,86,780 16,86,780


7 FINANCIAL STATEMENTS FOR NOT-FOR-PROFIT ORGANISATION

Accounts to be prepared

❖ Opening Statement of Affairs

❖ Receipts & Payments – is cash book and records all (capital and revenue) receipts and payments

❖ Income & Expenditure Account – is a revenue A/c (nominal A/c)

❖ Balance Sheet at the year end


Format Points

Opening Statement of Affairs

Liabilities Assets

General Fund ××× Non-current assets ×××

Endowment Fund ××× Endowment

Investment

×××

Liabilities ××× Current Assets ×××

××× ×××

Receipts and Payments (Revenue & Capital Items)

Receipts Payments

Balance b/d ××× Expenses Paid ×××

Subscription

Received

××× Assets Purchased ×××

Donations Received ×××

Others ××× Balance c/d ×××

××× ×××

Income and Expenditure A/c (Revenue Items)

Expenditure Income

Expenses incurred ××× Income earned ×××

Surplus ××× Deficiency ×××

××× ×××

Balance Sheet (Closing)

Liabilities Assets

General Fund ××× Non-current assets ×××

Endowment Fund ××× Endowment

Investment

×××

Liabilities ××× Current Assets ×××

××× ×××

Particulars N

1 Subscription

Periodical [p.m. /p.a.] R

Life C

Entrance Fee C/R

2 Donations

Small / Regular R

Legacy / Will C

Endowment C

Specific

(Building Fund, etc.)

C

3 Special Events

(Annual Dinner, Etc.)

Receipts R

Expenses R

Note: N – Nature of R/C

C – Capital Receipts /

Expenditure

R – Revenue Receipts / Expenses

Abbreviations

Financial Statements for Not-for-Profit Organisation 91

Working Note

Assets A/c

Debit Credit

Balance b/d ××× Sale ×××

Purchases ××× Items Decreasing ×××

Items Increasing ××× Balance c/d ×××

××× ×××

Capital / Liabilities A/c

Debit Credit

Redemption ××× Balance b/d ×××

Buy-back ××× Borrowings / ×××

Items Decreasing ××× Issues

Balance c/d ××× Items Increasing ×××

××× ×××

Debtors A/c

Balance b/d ××× Bank (receipts) ×××

Credit Sales ××× Discount ×××

Items Increasing ××× Items Decreasing ×××

Balance b/d ××× Balance c/d

××× ×××

Creditors A/c

Debit Credit

Bank (Payments) ××× Balance b/d ×××

Discount ××× Credit

Purchases

×××

Items Decreasing ××× Items Increasing ×××

Balance c/d Balance b/d ×××

××× ×××

Stocks (RM, FG, Consumable, Etc.)

Opening stock ×× OA

+ Purchases ×× CB

××

- Closing Stock ×× CA

××

Consumption of Stock ×× IE

Income

Income Received ×× CB

+ O/s of current year ×× CA

××

- Adv. of current year ×× CL

××

- O/s of previous year

received

×× OA

××

Adv. of previous year ×× OL

Income Earned ×× IE

Expenses

Expenses paid ×× CB

+ O/s of current year ×× CL

××

- Adv. of current year ×× CA

××

- O/s of previous year paid ×× OL

××

+ Adv. of previous year ×× OA

Expenses Incurred ×× IE

Abbreviation

CB – Cash Book Item

CL – Closing Liabilities (B/S item)

CA – Closing Assets (B/S Item)

OL – Opening Liabilities (B/S item)

OA – Opening Assets (B/S item)

IE – Income Expenditure Item


Problem Types

1. Basic problems

2. Preparation of Income and Expenditure A/c and Balance Sheet from Receipts and Payments A/c

3. Preparation of Receipts and Payments A/c from Income and Expenditure A/c

4. Preparation of Opening B/S and Closing B/S from Receipts and Payments A/c and Income and

Expenditure A/c

5. Preparation of Complete Ledgers

Practical Problems

Question 1: Rangakarmi, an amateur theatre organisation, charges its members an annual subscription

of ₹200 per member. It accrues for subscription owing at the end of each year and also adjusts for

subscription received in advance. The organization closes its accounts every year at 31st Dec. The

following particulars are available:

a) On 1st Jan., 2005, 20 members owed ₹4000 for the year 2004.

b) In December 2004, 5 members paid ₹1000 for the year 2005.

c) During the year 2005, the organization received cash subscription of ₹85,000. The details are:

For 2004 4,000

For 2005 79,000

For 2006 2,000

Total 85,000

d) At close of 31st December 2005, 15 members had not paid their 2005 subscriptions. Prepare the

subscriptions account.


Answer:

Subscription Account

₹ ₹

To Subscription O/S (Opening) 4,000 By Prepaid Subscription 1,000

Income & Expenditure Account 83,000 Bank a/c 85,000

Prepaid Subscription (closing) 2,000 Subscription Outstanding (closing) 3,000

89,000 89,000

Question 2: A sports club gives the following receipts and payments for the year ended march 31,

2016

Payments ₹ Payments ₹

Salaries 17,000 Magazines 2,172

Rent 7,220 Sundry Expenses 10,278

Figures of other assets and liabilities

31.12.2015 31.12.2016

₹ ₹

Salaries outstanding 710 170


Rent and electricity outstanding 854 973

Magazines outstanding 220 340

Pre-paid sundry expenses 417 620

Prepaid Salaries 1,000 750

Prepaid Magazines 455 350

How the above information shown in the income & expenditure account and the balance sheet.

Answer:

Details Salaries Rent Magazines Expenses

₹ ₹ ₹ ₹

Paid during the year 17,000 7,220 2,172 10,278

Add Outstanding 31.12.2016 170 973 340 ….. Liabilities

17,170 8,193 2,512 10,278

Less Prepaid 31.12.2016 750 …. 350 620 B/S Assets

16,420 8,193 2,162 9,658

Less Outstanding 31.12.2015 710 854 220 …..

15,710 7,339 1,942 9,658

Add Prepaid 31.12.2015 1,000 … 455 417

Income & Expenditure a/c 16,710 7,339 2,397 10,075

Question 3: From the following particulars prepare income and expenditure account for the year

2017-2018 of City Hospital.

Receipts ₹ Payments ₹

To Cash in hand 1,24,500 By Medicines 78,500

Subscriptions 1,75,000 Doctor’s Honorarium 70,000

Donations 65,000 Salaries to others 25,000

Interest on Investment 4,500 Investment 60,000

Fund for Charity Show 75,000 Lighting charges 5,000

Government Grant 1,00,000 Equipment 39,500

Proceeds of seminars 56,000 Charity show expenses 87,500

Expenses for seminars 49,000

Expenses for Medical camp 82,500

Cash in hand 1,03,000

6,00,000 6,00,000


Additional information 1.4.2017 31.3.2018

₹ ₹

Stock of medicines 1,15,000 89,450

Subscription due 85,000 97,500

Subscriptions received in advance 7,500 -

Salaries outstanding 8,000 6,000

Government Grant for Free Medical Camp

Donation for revenue expenditures purposes

Interest on Investment 10% & Investment were made in 1st April 2017

Answer:

City Hospital Income and Expenditure A/c for the year ended 31st March 2018

Expenditure ₹ ₹ Income ₹ ₹

To Medicines: By Subscription received 1,75,000

Opening stock 1,15,000 Add: Outstanding 97,500

Add: Purchases 78,500 2,72,500

1,93,500 Less: Outstanding 85,000

Less: Closing stock 89,450 1,04,050 1,87,500

Salaries paid 25,000 Add: Advance 7,500 1,95,000

Add: Outstanding 6,000 Donations 65,000

31,000 Interest on Investment 4,500

Less: Outstanding 8,000 23,000 Add: Accrued 1,500 6,000

Lighting charges 5,000 Proceeds for seminars 56,000

Doctors Honorarium 70,000 Less: Seminars expenses 49,000 7,000

Charity excess of expenses 87,500 12,500

Less: Fund for Charity show 75,000 12,500

Surplus 58,450

2,73,000 2,73,000



Capital Fund 3,09,000 Cash 1,24,500

O/s Salary 8,000 Stock 1,15,000

Subscription in Advance 7,500 O/s Subscription 85,000

3,24,500 3,24,500




Capital Fund 3,09,000 Cash 1,03,000

Add: Surplus 58,450 3,67,450 Investment 60,000

O/s Salary 6,000 Equipment 39,500

Government Grants 17,500 Stock 89,450

O/s Subscription 97,500

Accrued interest 1,500

3,90,950 3,90,950

Prepare Income & Expenditure A/c & Closing B/S from Receipts & Payments A/c

Question 4: The following is the Receipt and Payment Account of Sodepore recreation club for the year

ended 31.12.2008:

Receipt ₹ Payment ₹

To Cash in hand 1,000 By Rent of club house 2,600

Cash at bank 12,000 Painting of club house 1,400

Members’ subscription Wages of ground maintenance 3,000

2007 200 General expenses 2,600

2008 3,600 Electricity charges 3,600

2009 400 4,200 6% Investment [purchased on 1.11.08] 20,000

Life membership subscription 4,000 Secretary’s Honorarium 1,200

Sale of ticket of annual exhibition 20,000 Annual meeting expenses 800

Sale of refreshment 24,000 Sports equipment 3,600

Interest on investment 2,600 Payment to creditors for refreshment 11,000

Sales of furniture 200 Printing & stationery 1,000

(Original cost on 1.1.07 ₹1000) Insurance 600

Cash in hand 4,000

Cash at bank 12,600

68,000 68,000

The following information are available to you:

a. On 31.12.2007 outstanding subscription for 2007 was ₹300.

b. On 31.12.2007 advance subscription for 2008 received was ₹100

c. On 31.12.2008 outstanding subscription for 2008 was ₹600

d. A life membership scheme was intruded in 2007. Under this scheme, life membership premium is

₹1000 and it was to be apportioned to income 1/10th every year over a period of 10 years. Life

membership subscriptions totaling ₹5000 was collected during 2007.

e. On 1.1.2008 6% investment was ₹40,000 and accrued interest on such date was ₹2,400.


f. On 1.1.2007 furniture costing ₹16,000 were purchased and it was decided to write off depreciation

on furniture and sports equipment @ 10% on cost.

g. In 2007, a plot of land was purchased for ₹20,000 to construct club House.

h. Other assets & liabilities of club were (all figures in rupees) as follows:

Stock of

refreshment

Prepaid

insurance

Accrued

Rent

Creditors for

refreshment

31.12.2007 ₹3,800 ₹140 ₹400 ₹800

31.12.2008 ₹4,200 ₹100 ₹200 ₹1,000


Answer:

Sodepore Recreation Club Income & Expenditure A/c for the year ended 31.12.08

To ₹ By ₹

Painting of Club House 1,400 Sale of Tickets 20,000

Wages of ground maintenance 3,000 Interest 2,600

General expenses 2,600 Less Outstanding 2007 2,400

Electricity Charges 3,600 Add: Outstanding 2008 2,400

Secretary Honorarium 1,200 Subscription 4,200 2,600

Annual meeting expenses 800 Add: Outstanding 2008 600

Printing and Stationeries 1,000 Less: Outstanding 2007 200

Insurance 600 Less: Prepaid 2008 400

Less: prepaid 2018 100 Add: Prepaid 2007 100 4,300

Add: prepaid 2009 140 640 Life Membership Premium 900

Rent of Club House 2,600 Surplus on Refreshment

Add: Outstanding: 08 200 Sale of Refreshment 24,000

Less: Outstanding: 07 400 2,400 Less: Cost of sale

Depreciation Op. stock 3,800

Furniture 1,500 Add: Purchases (WN2) 11,200

Sports Equipment 360 1,860 Less: Cl. Stock 4,200 10,800 13,200

Loss on sale of Furniture (900-200) 700

Surplus 21,800

41,000 41,000

Sodepore Recreation Club Balance Sheet as on 31st December 2018


Capital Fund (WN1) 88,240 Land 20,000

Add: Surplus 21,800 1,10,040 Stock of Refreshment 4,200

Advance Subscription 400 Cash in hand 4,000

Creditors For Refreshment 1,000 Cash at bank 12,600


Rent accrued 200 Outstanding Subscription (2007+2008) 700

Life Member Subscriptions 7,600 Furniture 14,400

(4,000+3,600) Less: Sale (1,000-100) 900

13,500

Less: Depreciation (SLM) 1,500 12,000

Sports equipment 3,600

Less: Depreciation 360 3,240

Prepaid insurance 100

Investment (40,000+20,000) 60,000

Accrued interest 2,400

1,19,240 1,19,240

WN1

Sodepore Recreation Club Balance Sheet as on 31st December 2007


Capital Fund Land 20,000

(Balancing Figure) 88,240 Stock of Refreshment 3,800

Advance Subscription 100 Cash in hand 1,000

Creditors For Refreshment 800 Cash at bank 12,000

Rent accrued 400 Outstanding Subscription 300

Life Member Subscriptions 4,500 Furniture (Purchased 1.1.2007) 16,000

Less: Depreciation 1,600 14,400

Prepaid insurance 140

Investment 40,000

Accrued Income on Investment 2,400

94,040 94,040

WN2 Creditors for Refreshment a/c

Particulars ₹ Particulars ₹

To Cash a/c 11,000 By Balance b/d 800

Balance c/d 1,000 Purchases (B.F) 11,200

12,000 12,000

Prepare Income & Expenditure A/c | Closing B/S from opening B/S | Receipts and Payments A/c

Question 5: The Balance sheet of New City College as at 31st March 2003 was as follows:


Capital Fund 21,00,000 Land & Buildings 20,00,000

Building Construction Fund 8,00,000 Furniture 3,00,000


General Fund outstanding 6,40,000 Laboratory equipment 2,50,000

O/s Salaries (teachers) 1,60,000 Library books 3,60,000

Investments 6,50,000

Accrued tuition fees 10,000

Cash and Bank 1,30,000

37,00,000 37,00,000

The receipts and payments account for the year ended 31st March 2004 was drawn as under:

Receipts ₹ Payments ₹

To Opening balance (1.4.2003) 1,30,000 By Salaries & Allowance

[teachers & staffs]

42,00,000

Govt. grants - revenue 50,00,000 Non- teaching staffs 20,00,000

Donation for building construction 2,00,000 Printing and stationery 80,000

Tuition fees and session charges 18,20,000 Laboratory expenses 60,000

Investment income 70,000 Laboratory equipment 1,20,000

Rental income - college hall 40,000 Library books 2,50,000

Office expenses 60,000

Electricity & Telephones 75,000

Audit fees 2,000

Municipal taxes 1,000

Building repairs 40,000

Purchase of furniture 80,000

Games and sports expenses 20,000

Welfare expenses 30,000

New investments 1,50,000

Closing Balance - 31.03.2004 92,000

72,60,000 72,60,000

Other Information:

1 Tuition fee outstanding as on 31.03.2004 - ₹40,000

2 Salary of teaching staff outstanding for March 2004 - ₹2,50,000

3 Books received as donations from various parties - ₹30,000 (valued)

4 Outstanding building repair expenses as on 31.03.2004 - ₹15,000

5 Applicable depreciation rates:

Land and Buildings 2%

Furniture 8%

Laboratory equipment 10%


Library books 20%

You are required to prepare the Income and Expenditure account for the year ended 31st March 2004

and a Balance sheet as on that date.

{CMA inter J04, 8+8=16 marks}

Answer:

In the Books of New City College

Income and Expenditure A/c for the year ended 31.03.04

Expenditure ₹ Income ₹

To Teaching staff salary 42,00,000 By Tuition fees 18,20,000

Add: O/s current year 2,50,000 Add: O/s current year 40,000

Less: O/s last year 1,60,000 42,90,000 Less: O/s last year 10,000 18,50,000

Non-teaching staff salaries 20,00,000 Govt. grants 50,00,000

Printing and stationery 80,000 Rental income 40,000

Laboratory expenses 60,000 Investment income 70,000

Office expenses 60,000 Valued book donations 30,000

Electricity and telephones 75,000

Audit fees 2,000

Municipal taxes 1,000

Building repairs 40,000

Add: Outstanding 15,000 55,000

Sports and games 20,000

Welfare expenses 30,000

Depreciation

Land and building 40,000

Furniture 30,400

Laboratory equipment’s 37,000

Library books 1,28,000 2,35,400

Surplus 81,600

69,90,000 69,90,000

Balance sheet New City College:

Liabilities ₹ ₹ Assets ₹ ₹

Capital fund 21,00,000

Building 20,00,000

Add: Surplus 81,600 21,81,600 Less: Depreciation 40,000 19,60,000

Building construction fund 8,00,000 Laboratory equipment’s 2,50,000

Add: Donation 2,00,000 10,00,000 Add: additions 1,20,000

General fund 6,40,000 Less: Depreciation 37,000 3,33,000

O/s teachers’ salary 2,50,000 Furniture 3,00,000

Outstanding 15,000 Add: Additions 80,000


building repairs during the year

Less: Depreciation 30,400 3,49,600

Library books 3,60,000

Add: Additions 2,50,000

Add: Books donation 30,000

Less: Depreciation 1,28,000 5,12,000

Investment 6,50,000

Add: New investments 1,50,000 8,00,000

Cash 92,000

Accrued tuition fees 40,000

40,86,600 40,86,600

Preparation of Receipts and Payments A/c from Income and Expenditure A/c

Question 6: Income and Expenditure Account and the Balance Sheet of Nav Bharat Club are as under:

Income and Expenditure Account for the year ending 31st March, 2012

Dr Expenditure ₹ Cr Income ₹

To Upkeep of Ground 21,000 By Subscription 56,640

Printing & Stationery 2,800 Sale of old newspapers 530

Salaries 28,000 Lectures 8,000

Depreciation: Entrance Fee 2,900

Ground & Building 9,000 Misc. Incomes 1,200

Furniture 1,000

Repairs 3,500

Surplus 3,970

69,270 69,270

Balance Sheet as at 31st March, 2012


Capital Fund Ground & Building 1,43,200

Opening Balance 1,56,430 Furniture 9,000 1,52,200

Add: Entrance Fee 2,900 Sports Prize Fund:

Add: Surplus 3,970 1,63,300 Investment 43,000

Sports Prize Fund: Subscription 2,600

Opening Balance 51,000 Cash and Bank 19,400 65,000

Add: Interest received 4,500

55,500

Less: Prizes awarded 6,500 49,000

Outstanding Salary 4,200

Subscription in Advance 700


2,17,200 2,17,200

The following adjustments have been made in the above accounts:

(i) Upkeep of ground ₹1,500 and printing and stationery ₹510 relating to 2010-2011 were paid in 2011-

12.

(ii) One-half of entrance fee has been capitalized.

(iii) Subscription outstanding in 2010-11 was ₹3,100 and for 2011-12 ₹2,600.

(iv) Subscription received in advance in 2010-11 was ₹1,100 and in 2011-12 for 2012-13 ₹700.

(v) Outstanding salary on 31.3.2011 was ₹3,600.

Prepare Receipts and Payments Account for the year ended on 31st March, 2012.

{CMA inter D12, marks}

Answer:

Receipts and Payments Account for the year ended 31st March 2012

Dr Receipts Payments Cr

To Balance b/d (Balance figure) 5,840 By Upkeep of Ground 21,000

Subscription (*) 56,640 Add: O/S 2010-11 1,500 22,500

Less: O/S 2011-12 2,600 Printing & Stationery 2,800

Add: O/S 2010-11 3,100 Add: O/S 2010-11 510 3,310

Add: Adv 2011-12 700 Salaries 28,000

Less: Adv 2010-11 1,100 56,740 Add: O/S 31.3.11 3,600

Entrance fee (2,900+2,900) 5,800 Less: O/S 31.3.12 4,200 27,400

Lectures (fee) 8,000 Sports Prizes 6,500

Interest of prize fund Investment 4,500 Repairs 3,500

Sale of Newspapers 530 Balance c/d 19,400

Misc. incomes 1,200

82,610 82,610

Balance Sheet as at 31st March, 2011


Capital Fund 1,56,430 Building (1,43,200+9,000) 1,52,200

Sports Prize Fund: 51,000 Furniture (9,000+1,000) 10,000

Subscription in Advance 1,100 Investment 43,000

O/s ground upkeep expenses 1,500 O/s subscription 3,100

O/s printing expenses 510 Bank 5840

O/s salary 3,600

2,14,140 2,14,140

Preparation of Receipts and Payments A/c from Income and Expenditure A/c

Question 7: The following is the income and expenditure account of Rising Sun Club for the year ended

31.12.2010:



To Printing and stationery 3,200 By Entrance fees 3,000

Interest and bank charges 1,100 Subscription 80,200

Annual dinner expenses 18,400 Annual dinner income 15,000

General expenses 6,400 Profit on annual sports 18,300

Salaries 52,500

Audit fees 3,200

Honorarium to secretary 15,000

Depreciation on sports equipment 4,000

Surplus 12,700

1,16,500 1,16,500

The following adjustments were made to prepare the accounts:

Subscription outstanding on 1.1.10 ₹4,000

Subscription outstanding on 31.12.10 ₹6,300

Subscription received in advance on 31.12.09 ₹5,600

Subscription received in advance on 31.12.10 for 2011 ₹3,400

Salaries outstanding on 31.12.09 ₹5,200

Salaries outstanding on 31.12.10 ₹6,800

General expenses include insurance prepaid to the extent of ₹800, audit fees due for the year 2010 was

₹3,200. Audit fees paid in 2010 ₹2,800 for 2009

The club has the following assets: ₹

Football ground 1,80,000

Sports equipment on 1.1.2010 35,000

Sports equipment on 31.12.2010, such sports equipment after depreciation amounted to 37,000

The club had taken a loan of ₹30,000 from a bank a few years back which remain outstanding on

31.12.10. On 31.12.10 the cash in hand amounted to ₹20,000.

Prepare the receipts and payments account for the year ends 31.12.10 and a balance sheet as on that

date.


Answer:



Subscription advance 5,600 Subscription outstanding 4,000

Salaries outstanding 5,200 Sports equipment 35,000

Audit fees outstanding 2,800 Cash in hand 12,600


Bank Loan 30,000 Football ground 1,80,000

Capital fund 1,88,000

2,31,600 2,31,600

Receipts and Payments A/c for the year ended 31.12.10

Dr. Receipts ₹ Cr. Payments ₹

To Cash in Hand (B/F 12,600 By Printing & Stationary 3,200

Entrance Fees 3,000 Interest & Bank change 1,100

Subscription 80,200 Annual dinner Exp. 18,400

Add O/p Outstanding 4,000 General Expenses 6,400

Less Cl. Outstanding 6,300 Add Prepaid Insurance 800 7,200

Less Opening Advance 5,600 Salaries 52,500

Add Closing Advance 3,400 75,700 Add Opening outstanding 5,200

Annual dinner income 15,000 Less Closing Outstanding 6,800 50,900

Profit on annual sports 18,300 Audit fees 3,200

Add Op. Outstanding 2,800

Less Closing outstanding 3,200 2,800

Honorarium to Secretary 15,000

Sports Equipment (addition) 6,000

Cash in hand 20,000

1,24,600 1,24,600



Subscription advance 3,400 O/S Subscription 6,300

Outstanding Salaries 6,800 Prepaid Insurance 800

Outstanding Audit fees 3,200 Sports Equipment 37,000

Bank loan 30,000 Football Ground 1,80,000

Capital fund 1,88,000 Cash in hand 20,000

Add: Surplus 12,700 2,00,700

2,44,100 2,44,100

Sports Equipment A/c

Dr. Particulars ₹ Cr. Particulars ₹

To Balance b/d 35,000 By Depreciation 4,000

Bank (B/f) 6,000 Balance c/d 37,000

41,000 41,000


Preparation of Opening & Closing B/S from Receipts & Payments A/c & Income & Expenditure A/c

Question 8: From the following information relating to Evergreen Sports Club, prepare Balance Sheet

of the Club as on 1.1.2019 and on 31.12.2019:

No. Particulars ₹

(i) Assets as on 1.1.2019

Club Ground 80,000

Sports Equipment 50,000

Furniture 10,000

(ii) Accrued Subscription as on 1.1.2019 was 2,000

(iii) Creditor for stationary as on 1.1.2019 was 1,800

(iv) Receipts and Payments Account for the year ended 31.12.2019

Dr. Receipts ₹ Cr. Payments ₹

To Balance brought down 8,000 By Salaries 14,000

Subscription received (2018) 1,800 Printing and Stationery 3,500

Subscription Received (2019) 22,000 Fire Insurance 2,200

Subscription received (2020) 600 Advertisement 3,000

Sales of old Newspaper 500 Furniture 4,000

Rent Received 5,800 Investments 21,000

Entrance Fees 18,000 Balance c/d 9,000

56,700 56,700

Income and Expenditure Account for the year ended 31.12.2019

Dr. Expenditure ₹ Cr. Income ₹

To Salaries 16,000 By Subscription 24,000

Printing & Stationery 2,000 Entrance Fees 9,000

Advertisement 3,000 Rent 6,000

Fire Insurance 2,000 Sale of old newspapers 500

Depreciation:

Equipment 7,000

Furniture 1,000

Audit fees 800

Surplus 7,700

39,500 39,500


Answer: In the books of evergreen sports club

Balance Sheet as on 1st Jan. 2019



Capital Fund 1,48,200 Cash 8,000

Creditor for stationery 1,800 Club Ground 80,000

Sports equipment 50,000

Furniture 10,000

Subscription outstanding 2,000

1,50,000 1,50,000

Balance Sheet as on 31st December 2019

Liabilities ₹ ₹ Assets ₹

Capital fund 1,48,200 Cash 9,000

+ Entrance fees 9,000 Club Ground 80,000

+ Surplus 7,700 1,64,900 Sports Equipment (₹50,000 – ₹7,000) 43,000

Advance Subscription 600 Furniture (₹10,000 +₹4,000 –₹1,000) 13,000

Outstanding Salary 2,000 Investment 21,000

Creditors for stationery (Nt) 300 Outstanding Subscription (200+2000) 2,200

Outstanding audit fees 800 Advance for fire insurance 200

Outstanding Rent 200

1,68,600 1,68,600

Note Creditors for Stationery

Dr. ₹ Cr. ₹

To Cash A/c 3,500 By Balance b/d 1,800

Balance c/d (balancing fig) 300 Purchases 2,000

3,800 3,800

Complete preparation from raw data

Question 9: The following information were obtained from the books of Dignity Foundation Recreation

Club as on 31-03-2019. At the end of the first year of the club you are asked to prepare Receipts and

payments Account, income and Expenditure Account for the year ended 31-03-2019 and a balance Sheet

as at 31-03-2019 on mercantile basis.

1. Donation received for building and library room ₹1,00,000

2. Other revenue income and actual receipts:

Revenue Income (₹) Actual Receipts (₹)

Entrance Frees 20,000 20,000

Subscription 17,000 16,000

Locker rent 800 800

Sundry Income 1,400 860

Refreshment account - 20,000


3. Other revenue expenditure and actual payments:

Revenue Expenditure (₹) Actual Payment (₹)

Land (cost ₹10,000) - 10,000

Furniture (cost ₹1,46,000) - 1,30,000

Salaries 6,000 5,800

Maintenance of club 3,000 2,000

Rent 6,000 6,000

Refreshment account - 12,000

Donations to the extent of ₹12,500 were utilized for the purchase of library books, balance was still

unutilized. In order to keep it safe, 9% Govt. bonds of ₹80,000 were purchased on 31.03.2019 remaining

amount was put in the bank on 31.03.2019 under the term deposit. Depreciation at 10% p.a. was to be

provided for the whole year on Furniture and Library books.

{CMA inter D07, 6+6+4=16 marks}

Answer:

In the books of Dignity Foundation Recreation Club (Receipts & Payment A/c)

Receipts ₹ Payment ₹

To Balance b/d 1,08,140 By Land (cost) A/c 10,000

(Op. capital fund) Furniture (cost) A/c 1,30,000

Entrance fees A/c 20,000 Salaries A/c 5,800

Subscription A/c 16,000 Maintenance of Club. A/c 2,000

Locker Rent A/c 800 Rent A/c 6,000

Sundry income A/c 860 Refreshment A/c 12,000

Donation A/c 1,00,000 Library books A/c 12,500

Refreshment A/c 20,000 9% Govt. Bond A/c 80,000

Term Deposit A/c 7,500

2,65,800 2,65,800

Income and expenditure A/c


To Salaries A/c 6,000 By Entrance fees A/c 20,000

Maintenance of club A/c 3,000 Subscription A/c 17,000

Rent A/c 6,000 Locker rent A/c 800

Depreciation of library books 1,250 Sundry income A/c 1,400

Depreciation of Furniture A/c 14,600 15,850

Excess of income over expenditure 8,350

39,200 39,200


Balance sheet on 31.3.2019


Capital Fund 1,08,140 Land 10,000

(+) Surplus 8,350 1,16,490 Furniture 1,46,000

Donation Fund 1,00,000 (-) depreciation @10% 14,600 1,31,400

Outstanding salary 200 Subscription receivable 1,000

Maintenance of club 1000 1,200 Accrued income 540

Creditor for furniture 16,000 Library books 12,500

Refreshment A/c (20,000-12,000) 8,000 (-) depreciation @10% 1,250 11,250

9% Govt. Bond 80,000

Term Deposit 7,500

2,41,690 2,41,690

Documents

Principles and Practice of Accounting Part 1