2. Piyush Limited is a company with an authorized share capital of Rs.

2,00,00,000 in equity

shares of Rs.10 each, of which 15,00,000 shares had been issued and fully paid on 30 th June,

2018. The company proposed to make a further issue of 1,30,000 shares of Rs.10 each at a

price of Rs.12 each, the arrangements for payment being:

(i) Rs.2 per share payable on application, to be received by 1st July, 2018;

(ii) Allotment to be made on 10th July, 2018 and a further Rs.5 per share (including the

premium) to be payable;

(iii) The final call for the balance to be made, and the money received by 30th April, 2019.

Applications were received for 4,20,000 shares and were dealt with as follows:

1. Applicants for 20,000 shares received allotment in full;

2. Applicants for 1,00,000 shares received an allotment of one share for every two applied

for; no money was returned to these applicants, the surplus on application being used to

reduce the amount due on allotment;

3. Applicants for 3,00,000 shares received an allotment of one share for every five shares

applied for; the money due on allotment was retained by the company, the excess being

returned to the applicants; and

4. The money due on final call was received on the due date.

You are required to record these transactions (including cash items) in the journal of Piyush

limited.

Solution :

9
 Journal Entries In The Books Of ______________________________

Date Particular’s L/F Debit Credit

10
3. B Limited issued 50,000 equity shares of Rs.10 each payable as Rs.3 per share on application,

Rs.5 per share (including Rs.2 as premium) on allotment and Rs.4 per share on call. All these

shares were subscribed. Money due on all shares was fully received except from X, holding

1000 shares who failed to pay the allotment and call money and Y, holding 2000 shares, failed

to pay the call money. All those 3,000 shares were forfeited. Out of forfeited shares, 2,500

shares (including whole of X's shares) were subsequently re-issued to Z as fully paid up at a

discount of Rs.2 per share. Pass necessary journal entries in the books of B limited. Also

prepare Balance Sheet and notes to accounts of the company.

Solution:

Journal Entries In The Books Of ______________________________

Date Particular’s L/F Debit Credit

11
4. Alankit Limited issued at par 2,00,000 Equity shares of Rs.100 each payable Rs.25 on

application; Rs.30 on allotment; Rs.20 on first call and balance on the final call. All the shares

were fully subscribed. Mr. Dhawan who held 40,000 shares paid full remaining amount on first

call itself. The final call which was made after 3 months from first call was fully paid except a

shareholder having 4,000 shares who paid his due amount after 2 months along with interest

on calls in arrears. Company also paid interest on calls in advance to Mr. Dhawan. You are

required to prepare journal entries to record these transactions.

12
Solution:

Journal Entries In The Books Of ______________________________

Date Particular’s L/F Debit Credit

13
5. Samuel who was the holder of 12,000 preference shares of Rs.100 each, on which Rs.75 per

share has been called up could not pay his dues on Allotment and First call each at Rs.25 per

share. The Directors forfeited the above shares and reissued 10,000 of such shares to Mr.

Robort at Rs.65 per share paid-up as Rs.75 per share. You are required to prepare journal

entries to record the above forfeiture and re-issue in the books of the company.

Solution:

14
 Journal Entries In The Books Of __________________________

Date Particular’s L/F Debit Credit

15
 ISSUE OF DEBENTURES
ISSUE OF DEBENTURES WITH DIFFERENT TERMS OF ISSUE

Case 1 Case 2 Case 3 Case 4 Case 5 Case 6

Face Value (FV)

Issue Price (IP)

Redemption Price (RP)

Case 1 Case 2 Case 3 Case 4 Case 5 Case 6

Issue of Debentures as Collateral Security

16
 Treatment of Loss/Discount on Issue of Debentures

Case 1 – Debentures Case 1 – Debentures Redeemed in Installments

Redeemed in Lumpsum

Year O/S Debentures Ratio Discount / Loss to be Written Off

Journal Entry

Treatment for Payment of Interest on Debentures

Date Particulars L/F Debit Amount Credit Amount

17
SHARES / DEBENTURES ISSUED FOR CONSIDERATION OTHER THAN CASH

18
AT PAR AT PREMIUM @10% AT DISCOUNT @10%

AT PAR AT AT

PREMIUM DISCOUNT

@10% @10%

19
 MUST DO QUESTION BEFORE EXAMS

1. On 1st January 2018·Ankit Ltd. issued 10% debentures of the face value of Rs.20,00,000

at 10% discount. Debenture interest after deducting tax at source @10% was payable on

30th June and 31st December every year. All the debentures were to be redeemed after

the expiry of five year period at 5% premium. Pass necessary journal entries for the

accounting year 2018.

Solution:

Journal Entries In The Books Of _______________________

Date Particular’s L/F Debit Credit

20
2. On 1st April 2020 Sheru Ltd. issued 1,00,000 12% debentures of Rs.100 each at a discount

of 5%, redeemable on 31 March 2025. Issue was oversubscribed by 20,000 debentures,

who were refunded their money. Interest is paid annually on 31 March. You are required to

prepare:

a) Journal Entries at the time of issue of debentures.

b) Discount on issue of Debenture Account

c) Interest account and Debenture holder Account assuming TDS is deducted @ 10%.

Solution:

Journal Entries In The Books Of _______________________

Date Particular’s L/F Debit Credit

21
 Discount on issue of Debenture Account

Date Particular’s Amount Date Particular’s Amount

22
 Interest account

Date Particular’s Amount Date Particular’s Amount

Debenture Holder Account

Date Particular’s Amount Date Particular’s Amount

23
3. On 1st April 2020, XY Ltd. took over assets of Rs.4,50,000 and liabilities of 60,000 of

Himalayan Ltd. for the purchase consideration of Rs. 4,40,000. It paid the purchase

consideration by issuing 8% debenture of Rs.100 each at 10% premium on same date.

XY Ltd. issued another 3000, 8% debenture of Rs.100 at discount of 10% redeemable at

premium of 5% after 5 years. According to the terms of the issue Rs.30 is payable on

application and the balance on the allotment on debentures. It has been decided to write off

the entire loss on issue of discount in the current year itself. You are required to pass the

journal entries in the books of XY Ltd. for the financial year 2020-21

Solution:

Journal Entries In The Books Of _______________________

Date Particular’s L/F Debit Credit

24
4. Agrotech Ltd. issued 150 lakh 9% debentures of Rs.100 each at a discount of 6%, redeemable

at a premium of 5% after 3 years payable as: Rs.50 on application and Rs.44 on allotment.

Record necessary Journal entries for issue of debentures.

Solution:

Journal Entries In The Books Of _______________________

Date Particular’s L/F Debit Credit

25
5. Pure Ltd. issues 1,00,000 12% Debentures of Rs.10 each at Rs.9.40 on 1st January, 2018. Under

the terms of issue, the Debentures are redeemable at the end of 5 years from the date of

issue. Calculate the amount of discount to be written-off in each of the 5 years.

Solution:

Journal Entries In The Books Of _______________________

Year O/S Debentures Ratio Discount to be W/O

6. Riya Limited issued 20,000 14% Debentures of the nominal value of Rs.1,00,00,000 as follows:

a. To sundry persons for cash at 90% of nominal value of Rs.50,00,000.

b. To a vendor for purchase of fixed assets worth Rs.20,00,000 – Rs.25,00,000 nominal value.

c. To the banker as collateral security for a loan of Rs.20,00,000 – Rs.25,00,000 nominal value.

You are required to prepare necessary journal entries Journal Entries.

Solution:

Journal Entries In The Books Of _______________________

Date Particular’s L/F Debit Credit

26
27
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE

BONUS SHARES - PROVISIONS OF THE COMPANIES ACT, 2013

 Bonus issue means an issue of additional shares to existing shareholders free of cost in

proportion to their existing holding.

 A company may issue fully paid-up bonus shares to its shareholders out of —

(i) its free reserves;

(ii) securities premium account; or

(iii) capital redemption reserve account:

 Bonus shares should not be issued out of revaluation reserves (i.e., reserves created by

the revaluation of assets).

 Sub-section (3) of the Section also provides that the bonus shares shall not be issued in lieu of

dividend.

 As per Section 63(2) of the Companies Act, 2013, bonus shares cannot be issued unless party

paid-up shares are made fully paid-up. Para 39(ii) of Table F under Schedule I to the Companies

Act, 2013

RIGHT ISSUE

Rights issue is an issue of rights to a company’s existing shareholders that entitles them to buy

additional shares directly from the company in proportion to their existing holdings, within a

fixed time period. In a rights offering, the subscription price at which each share may be

purchased is generally at a discount to the current market price. Rights are often transferable,

allowing the holder to sell them in the open market. The difference between the cum-right and

ex-right value of the share is the value of the right.

28
 Journal Entries

Date Particular’s L/F Debit Credit

1. Due Entry For Bonus Issue

2. Issue of Bonus Issue

CONVERTING PARTY PAID INTO FULLY PAID BY BONUS

1. Due Entry for Bonus

2. Making Final Call Due

3. Adjustment of Final Call

29
 IMPORTANT FORMULA

Ex-Right Value of Share =

Value of Right =

MUST DO QUESTION BEFORE EXAMS

1. Pass Journal Entries in the following circumstances:

a) A Limited company with subscribed capital of Rs. 5,00,000 consisting of 50,000 Equity

shares of Rs.10 each; called up capital Rs.7.50 per share. A bonus of Rs.1,25,000 declared

out of General Reserve to be applied in making the existing shares fully paid up.

b) A Limited company having fully paid up capital of Rs.50,00,000 consisting of Equity shares

of Rs.10 each, had General Reserve of Rs.9,00,000. It was resolved to capitalize Rs.5,00,000

out of General Reserve by issuing 50,000 fully paid bonus shares of Rs.10 each, each

shareholder to get one such share for every ten shares held by him in the company.

Solution:

a) Journal Entries

Date Particular’s L/F Debit Credit

30
b) Journal Entries

Date Particular’s L/F Debit Credit

2. Following notes pertain to the Balance Sheet of Preet Ltd. as at 31st March, 2022
₹

Authorised capital:

15,000 12% Preference shares of Rs.10 each 1,50,000

1,50,000 Equity shares of Rs.10 each 15,00,000

16,50,000

Issued and Subscribed capital:

12,000 12% Preference shares of Rs.10 each fully paid 1,20,000

1,35,000 Equity shares of Rs.10 each, Rs.8 paid up 10,80,000

Reserves and Surplus:

General reserve 1,80,000

Capital Redemption Reserve 60,000

Securities premium (collected in cash) 37,500

Profit and Loss Account 3,00,000

On 1st April, 2022, the Company has made final call @ Rs.2 each on 1,35,000 equity shares.

The call money was received by 20th April, 2022. Thereafter, the company decided to capitalise

its reserves by way of bonus at the rate of one share for every four shares held.

Show necessary journal entries in the books of the company and prepare the extract of the

balance sheet as on 30th April, 2022 after bonus issue.

31
Solution:

In the book of _____________________________

Date Particular’s L/F Debit Credit

Extract of Balance Sheet

as at _____________
₹

32
3. A company offers new shares of Rs.100 each at 25% premium to existing shareholders on one

for four bases. The cum-right market price of a share is Rs.150. Calculate the value of a right.

What should be the ex-right market price of a share?

Solution:

33
 REDEMPTION OF PREFERENCE SHARES

METHOD OF REDEMPTION OF FULL PAID-UP SHARES

According to the Companies Act, 2013, preference shares issued by a company must be redeemed

within the maximum period (normally 20 years) allowed under the Act. Thus, a company cannot issue

irredeemable preference shares.

Redemption of redeemable preference shares must be filled in by:

a) the proceeds of a fresh issue of shares; or

b) the capitalisation of undistributed profits (by creating Capital Redemption Reserve); or

c) a combination of (a) and (b) above.

Note: The proceeds from issue of debentures CANNOT be utilised for the purpose.

Note: All the questions in this chapter have been solved on the basis that the companies referred

in the questions are governed by Section 133 of the Companies Act, 2013 and comply with the

Accounting Standards prescribed for them. Accordingly the balance in securities premium account

has not been utilized for the purpose of premium payable on redemption of preference shares.

Journal Entries

Date Particular’s L/F Debit Credit

1. Creation of CRR

2. Issue of New Shares

34
 3. Due Entry for Redemption of Preference Shares

4. Payment Entry

5. Adjustment of Premium on Redemption

MUST DO QUESTION BEFORE EXAMS

1. The Board of Directors of a Company decided to issue minimum number of equity shares of

Rs.9 to redeem Rs.5,00,000 preference shares. The maximum amount of divisible profits

available for redemption is Rs.3,00,000. Calculate the number of shares to be issued by the

company to ensure that the provisions of Section 55 are not violated. Also determine the

number of shares if the company decides to issue shares in multiples of Rs.50 only.

Solution:

35
2. X Ltd. gives you the following information as at 31st March, 2023 :

Particulars ₹

EQUITY AND LIABILITIES

1. Shareholders’ funds

a. Share capital 2,90,000

b. Reserves and Surplus 48,000

2. Current liabilities

Trade Payables 56,500

ASSETS

1. Property, Plant and Equipment 3,45,000

2. Non-current investments 18,500

3. Current Assets

Cash and cash equivalent (bank) 31,000

The share capital of the company consists of Rs.50 each equity shares of Rs.2,25,000 and Rs.100

each Preference shares of Rs.65,000(issued on 1.4.2021). Reserves and Surplus comprises Profit

and Loss Account only.

In order to facilitate the redemption of preference shares at a premium of 10%, the Company

decided:

a) to sell all the investments for Rs.15,000.

b) to finance part of redemption from company funds, subject to, leaving a bank balance of Rs.12,000.

c) to issue minimum equity share of Rs.50 each share to raise the balance of funds required.

You are required to pass the necessary Journal Entries to record the above transactions.

Solution:

Journal Entries

Date Particular’s L/F Debit Credit

36
Working Note :

37
3. C Limited had 3,000, 12% Redeemable Preference Shares of Rs.100 each, fully paid up. The

company had to redeem these shares at a premium of 10%.

It was decided by the company to issue the following:

a) 25,000 Equity Shares of Rs.10 each at par,

b) 1,000 14% Debentures of Rs.100 each

The issue was fully subscribed and all amounts were received in full. The payment was duly

made. The company had sufficient profits. Show Journal Entries in the books of the company.

Solution:

In the book of ____________________

Date Particular’s L/F Debit Credit

38
Working Note :

4. The capital structure of a company consists of 20,000 Equity Shares of Rs.10 each fully paid

up and 1,000 8% Redeemable Preference Shares of Rs.100 each fully paid up (issued on 1.4.2021).

Undistributed reserve and surplus stood as: General Reserve Rs.80,000; Profit and Loss Account

Rs.20,000; Investment Allowance Reserve out of which Rs.5,000, (not free for distribution as

dividend) Rs.10,000; Securities Premium Rs.2,000, Cash at bank amounted to Rs.98,000.

Preference shares are to be redeemed at a Premium of 10% and for the purpose of redemption,

the directors are empowered to make fresh issue of Equity Shares at par after utilising the

undistributed reserve and surplus, subject to the conditions that a sum of Rs.20,000 shall be

retained in general reserve and which should not be utilised. Pass Journal Entries to give effect

to the above arrangements.

Solution:

In the book of ____________________

Journal Entries

Date Particular’s L/F Debit Credit

39
Working Note :

5. The Balance Sheet of XYZ Ltd. as at 31st December, 2021 inter alia includes the following

information:

Particulars ₹

50,000, 8% Preference Shares of Rs. 100 each, Rs. 70 paid up 35,00,000

1,00,000 Equity Shares of Rs. 100 each fully paid up 1,00,00,000

Securities Premium 5,00,000

Capital Redemption Reserve 20,00,000

General Reserve 50,00,000

Bank 15,00,000
40
Under the terms of their issue, the preference shares are redeemable on 31st March, 2022 at 5%

premium. In order to finance the redemption, the company makes a rights issue of 50,000 equity

shares of Rs.100 each at Rs.110 per share, Rs.20 being payable on application, Rs.35 (including

premium) on allotment and the balance on 1st January, 2023. The issue was fully subscribed and

allotment made on 1st March, 2022. The money due on allotment were duly received by 31st March,

2022. The preference shares were redeemed after fulfilling the necessary conditions of Section 55

of the Companies Act, 2013.You are asked to pass the necessary Journal Entries.

(Ignore date column)

Solution:

In the book of ____________________

Journal Entries

Date Particular’s L/F Debit Credit

41
6. With the help of the details in Illustration 9 above and further assuming that the Preference

Shareholders holding 2,000 shares fail to make the payment for the Final Call made under

Section 55, you are asked to pass the necessary Journal Entries and show the relevant extracts

from the balance sheet as on 31st March, 2022 with the corresponding figures as on 31st

December, 2021 assuming that the shares in default are forfeited after giving proper notices.

(Ignore date column)

Solution:

In the book of ____________________

Journal Entries

Date Particular’s L/F Debit Credit

42
43
44
 REDEMPTION OF DEBENTURES

ADEQUACY OF DEBENTURE REDEMPTION RESERVE (DRR)

The Debenture Redemption Reserve shall be created out of the profits of the company available

for payment of dividend; the limits with respect to adequacy of DRR and investment or deposits,

as the case may be, shall be as under:

S. No Debentures issued by Adequacy of Debenture Redemption Reserve (DRR)

1. All India Financial Institutions (AIFIs) No DRR is required

regulated by Reserve Bank of India

and Banking

2. Companies for both public as well as

privately placed debentures

Other Financial Institutions (FIs) within DRR will be as applicable to NBFCs registered

the meaning of clause(72) of section 2 of with RBI (as per(3) below)

the Companies Act,2 013

3. For listed companies (other than AIFIs and Banking Companies as specified in Sr.No.1

above):

a. All listed NBFCs (registered with RBI under No DRR is required section 45-IA of the

RBI Act,) and listed HFCs

(Housing Finance Companies registered with National Housing Bank) for both public as

well as privately placed debentures

b. Other listed companies for both public as No DRR is required well as privately placed

debentures

4. For unlisted companies (other than AIFIs and Banking Companies as specified in Sr. No 1 above

a. All unlisted NBFCs (registered with No DRR is required

RBI under section 45-IA of the

45
 RBI (Amendment) Act, 1997) and

unlisted HFCs (Housing Finance

Companies registered with National

Housing Bank) for privately placed

debentures

b. Other unlisted companies DRR shall be 10% of the value of the outstanding

debentures issued

INVESTMENT OF DEBENTURE REDEMPTION RESERVE (DRR) AMOUNT

Further, as per Rule 18 (7) of the Companies (Share Capital and Debentures) Amendment Rules,

2019, following companies

a) All listed NBFCs

b) All listed HFCs

c) All other listed companies (other than AIFIs, Banking Companies and Other FIs); and

d) All unlisted companies which are not NBFCs and HFCs

shall on or before the 30th day of April in each year, in respect of debentures issued, deposit or

invest, as the case may be, a sum which should not be less than 15% of the amount of its debentures

maturing during the year ending on the 31st day of March of next year, in any one or more of

the following methods, namely:

a) in deposits with any scheduled bank, free from charge or lien;

b) in unencumbered securities of the Central Government or of any State Government;

c) in unencumbered securities mentioned in clauses (a) to (d) and (ee) of Section 20 of the Indian

Trusts Act, 1882;

d) in unencumbered bonds issued by any other company which is notified under clause (f) of

Section 20 of the Indian Trusts Act, 1882.

The amount deposited or invested, as the case may be, above should not be utilised for any purpose

other than for the redemption of debentures maturing during the year referred to above.

Provided that the amount remaining deposited or invested, as the case may be, shall not at any

time fall below 15% of the amount of debentures maturing during the 31st day of March of that year.

In case of partly convertible debentures, DRR shall be created in respect of non-convertible

portion of debenture issue.

The amount credited to DRR shall not be utilised by the company except for the purpose of

redemption of debentures.
46
Note: It should be noted that appropriation to DRR can be made any time before redemption

and Investments in specified securities as mentioned above can be done before 30th April for the

debentures maturing that year, however, for the sake of simplicity and ease, it is advisable to make

the appropriation and investment immediately after the debentures are allotted assuming that

the company has sufficient amount of profits (issued if allotment date is not given in the question).

Also, in some cases, the date of allotment could be missing, in such cases the appropriation and

investments should be done on the first day of that year for which ledgers accounts are to be

drafted

Journal Entries

Date Particular’s L/F Debit Credit

AFTER ALLOTMENT OF DEBENTURES

1. Creation of DRR

2. Purchase of DRRI

3. Receipt of Interest on DRRI

4. Transfer of Interest on DRRI

47
 AT TIME OF REDEMPTION

1. Sale of DRRI

2. Due Entry for Redemption of Debentures

3. Payment Entry

4. Transfer of DRR

MUST DO QUESTION BEFORE EXAMS

1. The following balances appeared in the books of Paradise Ltd (unlisted company other than

AIFI, Banking company, NBFC and HFC) as on 1-4-2021:

I. 12 % Debentures Rs.7,50,000

II. Balance of DRR Rs.25,000

III. DRR Investment 1,12,500 represented by 10% Rs.1,125 Secured Bonds of the Government

of Indiaof Rs.100 each.

Annual contribution to the DRR was made on 31st March every year. On 31-3-2022, balance at

bank was Rs.7,50,000 before receipt of interest. The investment were realised at par for

redemption of debentures at a premium of 10% on the above date.

You are required to prepare the following accounts for the year ended 31st March, 2022:

48
 1. Debentures Account

2. DRR Account

3. DRR Investment Account

4. Bank Account

5. Debenture Holders Account.

Solution:

12% Debentures A/c

Date Particular Amount Date Particular Amount

DRR A/c

Date Particular Amount Date Particular Amount

10% Secured Bonds Of Govt. (DRR Investment) A/c

Date Particular Amount Date Particular Amount

Bank A/c

Date Particular Amount Date Particular Amount

49
 Debenture holders A/c

Date Particular Amount Date Particular Amount

Working Note:

2. XYZ Ltd. has issued 1,000, 12% convertible debentures Rs.100 each redeemable after a period

of five years. According to the terms & conditions of the issue, these debentures were redeemable

at a premium of 5%. The debenture holders also had the option at the time of redemption to

convert 20% of their holdings into equity shares of Rs.10 each at a price of Rs.20 per share

and balance in cash. Debenture holders amounting Rs.20,000 opted to get their debentures

converted into equity shares as per terms of the issue. You are required to calculate the

number of shares issued and cash paid for redemption of Rs.20,000 debenture holders.

Solution:

Particular No. of Debentures

Working Note:

50
3. The Balance Sheet of BEE Co. Ltd. (unlisted company other than AIFI, Banking company, NBFC

and HFC) as at 31st March, 2021 is as under:

Particulars Note No. ₹

I. Equity and Liabilities

1. Shareholder's Funds

(a) Share Capital 1 2,00,000

(b) Reserves and Surplus 2 1,20,000

2. Non-current liabilities

(a) Long term borrowings 3 1,20,000

3. Current Liabilities

(a) Trade payables 1,15,000

Total 5,55,000

II. Assets

1. Non-current assets

(a) Property, Plant and Equipment 4 1,15,000

5,55,000

2. Current assets

(a) Inventories 1,35,000

(b) Trade receivables 75,000

(c) Cash and bank balances 5 2,30,000

Total 5,55,000

Notes to Accounts

1. Share Capital

Authorised share capital

30,000 shares of Rs.10 each fully paid 3,00,000

Issued and subscribed share capital

20,000 shares of Rs.10 each fully paid 2,00,000

2. Reserve and Surplus

Profit & Loss Account 1,20,000

3. Long term borrowings

12% Debentures 1,20,000

4. Property, Plant and Equipment

51
 Free hold property 1,15,000

5. Cash and bank balances

Cash at bank 2,00,000

Cash in hand 30,000 2,30,000

At the Annual General Meeting, it was resolved:

a) To give existing shareholders the option to purchase one Rs.10 share at Rs.15 for every four

shares (held prior to the bonus distribution). This option was taken up by all the shareholders.

b) To issue one bonus share for every five shares held.

c) To repay the debentures at a premium of 3%.

Give the necessary journal entries for these transactions.

Solution:

Journal Entries

Date Particular’s L/F Debit Credit

52
53
 FINAL ACCOUNTS WITH ADJUSTMENT
Let’s Discuss All Adjustments

ADJUSTMENT GIVEN JOURNAL TRADING B/S

One month rent for 55,000
gowdown is outstanding.

Interest on loan from 60,000

Rajan is payable @ 10% per
annum. This loan was taken
on 01.07.2017 4,400

Insurance premium includes 48,000

Rs.42,000 paid towards
proprietor's life insurance
policy and the balance of
the insurance charges
cover the period from
01.04.2017 to 30.06.2018.

Included amongst the D – 48,000

debtors is Rs.6,000 due C – 29,600
from Rahul and included
among the creditors
Rs.2,000 due to him.

Personal purchases of 28,800

Manan amounting to
Rs.1200 had been recorded
in the purchases day book.

A quarter of the amount of

printing and stationary
expenses is to be carried
forward to the next year.

54
Credit purchase invoice 6,43,400

amounting to Rs.800 had

been omitted from the books.

Purchases include sales P – 1,60,000

return of Rs.2,575 and S – 2,15,300

sales include purchases

return of Rs.1,725.

Goods withdrawn by

Mr. XYZ for own

consumption Rs.3,500

included in purchases.

Wages paid in the month of

April for installation of

plant and machinery

amounting to Rs.450 were

included in wages account.

Free samples distributed

for publicity costing Rs.825.

Bank overdraft is secured O/D -

against hypothecation of 80,000

stock. Bank overdraft

outstanding as on 31.3.2017

has been considered as

80% of real value of

stock (deducting 20% as

margin) and after

adjusting the marginal

value 80% of the same

has been allowed to draw

as an overdraft.

55
Rs.20,000 drawn from bank D – 70,000

was debited to Drawings

account, but out of this

amount withdrawn

Rs.12,000 was used in the

business for day-to-day

expenses.

Purchase of goods worth

Rs.16,000 was not recorded

in the books of account

upto 31.03.2019, but the

goods were included in stock.

Purchase returns of
Rs.1,000 was recorded in
Sales Return Journal and
the amount was correctly
posted to the Party’s A/c
on the correct side.

Expenses include Rs.6,000

in respect of the period

after 31st March, 2019.

The loan account from Dena

bank in the books of
Ganguli appears as follows:

Rs. Rs.
31.3.2020 To Balance c/d 1,00,000 1.4.2019 By Balance b/d 50,000
31.3.2020 By Bank 50,000

1,00,000 1,00,000

Interest received represents IR – 7,250

Rs.1,000 from the sundry I@5% -
debtors (due to delay on 25,000

56
their part) and the balance
on investments and deposits.

Interest paid include L @12% -

Rs.3,000 paid to Dena bank. 1,00,000

Machinery worth Rs. 45,000

purchases on 1.10.99 was
shown as purchases.

Commissions is payable at S–
2% on Sales. 23,10,000

 Office premises occupy

1/4 of total area.
 Lighting is to be charged
as to 2/3 to factory and
1/3 to office.

Mr R’s manager is entitled

to a commission of 10% on
the net profit after
charging his commission

Following transaction had

taken place during the
period from 1-4-1997 to
7th April, 1997.
 Sales Rs. 2, 50,000,
 Purchases 1,50,000,
 Stock on 7th April, 1997
was Rs. 1,80,0000 and
 Gross profit on sales
was 20%
Insurance premium
mentioned in the trial
balance was in respect of
building and machineries.

57
Goods costing Rs.1,000

were sent to customer for

Rs.1,200 on 30th March,

1998 on sale or return

basis. This was recorded

as actual sales.

Rs.240 paid as rent of the

office were debited to

Landlord account and were

included in the list of debtors.

 General Manager is to

be given commission at

10% of net profit after

charging the commission

of the works manager

and his own.

 Works manager is to be

given commission at 12% of

net profit before charging

the commission of General

Manager and his own.

Bill receivable include a

dishonored bill of Rs.8,000.

Goods costing Rs.2,000

were given away as free

sample for publicity.

On 1.4.2004, machinery of

the value of Rs.10,000 was

destroyed by fire and the

insurance claim settled at

58
Rs.8,000 was credited to

Machinery account.

Reserve for bad debts is to

be kept at Rs.1,000

Prepaid Expense

Outstanding Expense

Accrued Income

Advance Income

BAD-DEBT,PROVISION FOR DOUBTFUL DEBT, PROVISION FOR DISCOUNT ON DEBTORS

Profit & Loss Account

Particulars Amount Particulars Amount

Balance Sheet

59
 Closing Stock (Cost Or NRV Whichever is _____________)

FORMAT OF MANUFACTURING ACCOUNT

Manufacturing Account of ......... for the year ended………

Particulars Rs. Particulars Rs.

To Materials Consumed: By Net Factory Cost of production,

Opening Stock of Raw Materials transferred to Trading A/c

Add: Purchases of Raw Materials Sub-Total (bal. fig)

Less: Closing Stock of Raw Materials By NRV / Sale Value of By-Products,

Net balance = Materials Consumed To if any.

Direct Manufacturing Wages

To Direct Expenses, if any

Sub-Total Prime Cost

To Production Overheads

Sub-Total Gross Factory Cost

Add: Opening Stock of WIP

Less: Closing Stock of WIP

Total Total

Trading Account is prepared as under in this case:

TRADING ACCOUNT OF FOR THE YEAR ENDED

Particulars Rs. Particulars Rs.

To Opening Stock of Finished Goods To By Sales

Manufacturing Account, i.e. Cost of By Closing Stock of Finished Goods

Production To Gross Profit c/d to P&L

Account

Total Total

60
 MUST DO QUESTION BEFORE EXAMS

1. Mr. Shyamal runs a factory, which produces detergents. Following details were available in

respect of his manufacturing activities for the year ended 31-03-2019.

Opening work-in-progress (9000 units) 26,000

Closing work-in-progress (14,000 units) 48,000

Opening inventory of Raw Materials 2,60,000

Closing inventory of Raw Materials 3,20,000

Purchases 8,20,000

Hire charges of Machinery @ Rs.0.70 per unit manufactured Hire charges of factory 2,60,000

Direct wages-contracted@ Rs. 0.80 per unit manufactured and @ Rs.0.40

per unit of closing W.I.P.

Repairs and maintenance Units produced - 5,00,000 units 1,80,000

You are required to prepare a Manufacturing Account of Mr. Shyamal for the year ended

31-03-2019.

Solution:

Manufacturing Account in Books of Mr.Shyamlal for the Year Ended 31st March,2019

Particulars Units Amount Particulars Units Amount

61
2. Karuna decided to start business of fashion garments under the name of M/s. Designer
st
Wear on 1 April, 2020. She had a saving of about Rs.10,00,000. She invested Rs.3,00,000

out of her savings and borrowed equal amount from bank. She purchased a commercial space

for Rs.5,00,000 and further spent Rs.1,00,000 on its renovation to make it ready for

business.
Loan and interest repaid by her in the first year are as follows:
30th June, 2020 - Rs.15,000 principal+ Rs.9,000 interest
30th September, 2020 - Rs.15,000 principal+ Rs.8,550 interest
31st December, 2020 - Rs.15,000 principal+ Rs.8,100 interest
31st March, 2021 - Rs.15,000 principal+ Rs.7,650 interest.
In view of further capital requirement, she transferred Rs.2,00,000 from her saving bank
account to the bank account of the business. She paid security deposit of Rs.7,000 for
telephone connection. Furniture of Rs.10,000 was purchased, All payments were made by
cheque and all receipts in cash were deposited in the bank.
At the end of the year, her business showed the following results:
Particulars Amount Particulars Amount
Total Sales 20,00,000 Total Purchases 17,00,000
Electricity Expenses paid 40,000 Telephone Charges 50,000
Cartage Outwards 60,000 Travelling Expenses 45,000

62
 Entertainment Expenses 5,000 Maintenance Expenses 25,000
Misc. Expenses 15,000 Electricity Expenses Payable 20,000

Other Information:
(i) She withdrew Rs.5,000 by cheque each month for her personal expenses.
(ii) Depreciation on building @ 5% p.a. and oil furniture @10% p.a.
st
(iii) Closing stock in hand as on 31 March, 2021: Rs.5,50,000
Prepare trading account, profit and loss account for the year ended 31-3-2021 and Balance Sheet
as on that date.

Solution:

Trading & Profit and Loss Account in the Books of M/S Designer

Wear For The Year Ended 31st March 2021

Particular’s Amount Particular’s Amount

63
 Balance Sheet as at 31st March, 2021

Liabilities Amount Assets Amount

Working Note

Bank Account

Particular’s Amount Particular’s Amount

64
3. The balance sheet of Mittal on 1st January, 2018 was as follows:

Liabilities Amount Assets Amount

Trade payables 16,00,000 Plant & Machinery 31,00,000
Expenses payable 2,50,000 Furniture & Fixture 4,00,000
Capital 51,00,000 Trade receivables 14,50,000
Cash at bank 7,00,000
Inventories 13,00,000

69,50,000 69,50,000

During 2018, his profit and loss account revealed a net profit of Rs.15,10,000. This was after
allowing for the following:
(a) Interest on capital @ 6% p.a.
(b) Depreciation on plant and machinery @ 10% p.a. and on Furniture and Fixtures @ 5% p.a.
st
(c) A provision for Doubtful debts @ 5% of the trade receivables as at 31 December 2018.
But while preparing the profit and loss account he had forgotten to provide for
(1) outstanding expenses totaling Rs.1,85,000 and
(2) prepaid insurance to the extent of Rs.25,000.
st
His current assets and liabilities on 31 December, 2018 were: Trade receivables Rs.21,00,000;
Cash at bank Rs.5,20,000 and Trade payables Rs.13,84,000. During the year he withdrew
Rs.6,20,000 for domestic use. Closing inventories is equal to net trade receivables at the year- end.
You are required to draw up revised Profit and Loss account and Balance Sheet at the end of the
year.

65
Solution:

Profit & Loss Account (Revised) For the Year Ended 31st December 2018

Particular’s Amount Particular’s Amount

Liabilities Amount Assets Amount

4. Following are the Manufacturing A/c, Creditors A/c and Raw Material A/c provided by M/s.

Shivam related to financial year 2019-20. There are certain figures missing in these accounts.

66
 Raw Material A/c

Particular’s Amount Particular’s Amount

(Rs.) (Rs.)

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

To Creditors A/c — By Closing Stock —

Creditors A/c

Particular’s Amount Particular’s Amount

(Rs.) (Rs.)

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

To Balance c/d 6,60,000 —

Manufacturing A/c

Particular’s Amount Particular’s Amount

(Rs.) (Rs.)

To Raw Material A/c — By Trading A/c 17,44,000

To Wages 3,65,000

To Depreciation 2,15,000

To Direct Expenses 2,49,000

Additional Information:
st
a. Purchase of machinery worth Rs.12,00,000 on 1 April; 2019 has been omitted, Machinery is
chargeable at a depreciation rate of 15%.
b. Wages include the following:
Paid to factory workers - Rs.3,15,000
Paid to labour at office - Rs.50,000
c. Direct expenses included the following:
Electricity charges - Rs.80,000 of which 25% pertained to office
Fuel charges - Rs.25,000
Freight inwards - Rs.32,000
Delivery charges to customers - Rs.22,000
You are required to prepare revised Manufacturing A/c and Raw Material A/c.

67
Solution:

Manufacturing A/c

Particular’s Amount Particular’s Amount

Raw Material Account

Particular’s Amount Particular’s Amount

Working Note

1. Creditor Account

Particular’s Amount Particular’s Amount

2. Revised Balance to be Transferred to Trading Account

Particular’s Amount

68
3. Expenses to Excluded from Direct Expenses

Particular’s Amount

4. Correct Depreciation

5. Mr. Birla is a proprietor engaged in business of trading electronics. An excerpt from his

Trading & P&L account is as follows:

Trading and P&L A/c for the year ended 31st March, 2020

Particular’s Rs. Particular’s Rs.

To Cost of Goods Sold 45,00,000 By Sales C
To Gross Profit c/d D
F F
To Rent A/c 26,00,000 By Gross Profit b/d D
To Office Expenses 13,00,000 By Miscellaneous Income E
To Selling Expenses B
To Commission to Manager (on 2,00,000
Net Profit before charging such
commission)
To Net Profit A

G 60,00,000

Commission is charged at the rate of 10%. Selling Expenses amount to 1% of total sales. You are
required to compute the missing figures.

69
Solution:

Trading and P&L A/c for the year ended 31st March, 2020

Particular’s Rs. Particular’s Rs.

To Cost of Goods Sold 45,00,000 By Sales
To Gross Profit c/d

To Rent A/c 26,00,000 By Gross Profit b/d

To Office Expenses 13,00,000 By Miscellaneous Income
To Selling Expenses
To Commission to Manager (on 2,00,000
Net Profit before charging such
commission)
To Net Profit

60,00,000

Working Note

1. Computation of Net Profit

2. Computation of Selling Expenses

70
3. Computation of Sales

4. Computation of Gross Profit

Trading Account

Particular’s Amount Particular’s Amount

5. Miscellaneous Income

6. Mr. Kotriwal is engaged in business of selling magazines. Several of his customers pay money

in advance for subscribing his magazines. Information related to year ended 31st March 2020

has been given below:

On 1.4.2019 he had a balance of Rs.2,00,000 advance from customers of which Rs.1,50,000 is

related to year 2019-20 while remaining pertains to year 2020-21. During the year 2019-20

he made cash sales of Rs.5,00,000. You are required to compute:

(i) Total income for the year 2019-20.

(ii) Total money received during the year if the closing balance in advance from customers

account is Rs.1,70,000.

Solution:

71
1. Computation of Income for the year 2019-20

Particular’s Amount

2. Advance from Customer Account

Particular’s Amount Particular’s Amount

Total Money Received During Year

Particular’s Amount

7. Sengupta & Co. employs a team of eight workers who were paid Rs.30,000 per month each in

the year ending 31st March, 2019. At the start of financial year 2019-2020, the company

raised salaries by 10% to Rs.33,000 per month each.

On October 1, 2019 the company hired two trainees at salary of Rs.21,000 per month each.

The work force are paid salary on the first working day of every month, one month in arrears,

so that the employees receive their salary for January on the first working day of February

etc.

You are required to calculate:

(a) Amount of salaries which would be charged to the profit and loss for the year ended 31st

March, 2020.

(b) Amount actually paid as salaries during 2019-20

Outstanding Salaries as on 31st March, 2020.

Solution:

72
1. Salaries to be Charged to Profit & Loss account for the year ended 31st March, 2020

Particular’s Amount

2. Salaries Actually Paid in 2019-20

Particular’s Amount

3. Outstanding Salary as at 31st March, 2020

Particular’s Amount

8. Mr. Pankaj runs a factory which produces motor spares of export quality. The following details

were obtained about his manufacturing expenses for the year ended on 31.3.2020.

Particular’s Amount Particular’s Amount

W.I.P. - Opening 3,90,000

- Closing 5,07,000

Raw Materials - Purchases 12,10,000

- Opening 3,02,000

- Closing 3,10,000

- Returned 18,000

- Indirect material 16,000

Wages - direct 2,10,000

- indirect 48,000

73
Direct expenses - Royalty on production 1,30,000

- Repairs and maintenance 2,30,000

- Depreciation on factory shed 40,000

- Depreciation on plant & machinery 60,000

By-product at

selling price 20,000

You are required to prepare Manufacturing Account of Mr. Pankaj for the year ended on 31.3.2020.

Solution:

Manufacturing Account in Books of Mr.Pankaj for the Year Ended 31st March,2020

Particular’s Amount Particular’s Amount

74
9. Mr. Mohan gives you the following trial balance and some other information:

Particular’s ₹ ₹

Capital 6,50,000

Sales 9,70,000

Purchases 4,30,000

Opening Inventory 1,10,000

Freights Inward 40,000

Salaries 2,10,000

Other Administration Expenses 1,50,000

Furniture 3,50,000

Trade receivables and Trade payables 2,10,000 1,90,000

Returns 20,000 12,000

Discounts 19,000 9,000

Bad Debts 5,000

Investments in Government Securities 1,00,000

Cash in Hand and Cash at Bank 1,89,000

Input CGST 10,000

Input SGST 10,000

Output CGST 8,000

Output SGST 8,000

Output IGST 6,000

18,53,000 18,53,000

Other Information:

Closing Inventory was ` 1,80,000;

Depreciate Furniture @ 10% p.a.

Required
Prepare Trading and Profit and Loss Account for the year ended on 31.3.2022 and Balance Sheet
of Mr. Mohan as on that date.
Solution:

75
 In the book of ______________

Trading Account for the year ended ___________

Particular’s Amount Particular’s Amount

Profit and Loss Account for the year ended __________

Particular’s Amount Particular’s Amount

Balance Sheet as at ___________

Particular’s Amount Particular’s Amount

76
Working Note:

OUTPUT GST (`) INPUT GST (`)

Output liability Tax Payable Paid through ITC Tax paid in cash

(Tax head)

IGST CGST SGST

SELF PRACTICE QUESTION

1. The following are the balances as at 31st March, 2017 extracted from the books of Mr. XYZ.

Particular’s (Rs.) Particular’s (Rs.)

Plant and Machinery 19,550 Bad debts recovered 450

Furniture and Fittings 10,250 Salaries 22,550

Bank Overdraft 80,000 Salaries payable 2,450

Capital Account 65,000 Prepaid rent 300

Drawings 8,000 Rent 4,300

Purchases 1,60,000 Carriage inward 1,125

Opening Stock 32,250 Carriage outward 1,350

77
Wages 12,165 Sales 2,15,300

Provision for doubtful debts 3,200 Advertisement Expenses 3,350

Provision for Discount on Printing and Stationery 1,250

debtors 1,375 Cash in hand 1,450

Sundry Debtors 1,20,000 Cash at bank 3,125

Sundry Creditors 47,500 Office Expenses 10,160

Bad debts 1,100 Interest paid on loan 3,000

Additional Information:

(a) Purchases include sales return of Rs.2,575 and sales include purchases return of Rs.1,725.

(b) Goods withdrawn by Mr. XYZ for own consumption Rs.3,500 included in purchases.

(c) Wages paid in the month of April for installation of plant and machinery amounting to Rs.450

were included in wages account.

(d) Free samples distributed for publicity costing Rs.825.

(e) Create a provision for doubtful debts @ 5% and provision for discount on debtors @ 2.5%.

(f) Depreciation is to be provided on plant and machinery @ 15% p.a. and on furniture and fittings

@ 10% p.a.

(g) Bank overdraft is secured against hypothecation of stock. Bank overdraft outstanding as on

31.3.2017 has been considered as 80% of real value of stock (deducting 20% as margin) and

after adjusting the marginal value 80% of the same has been allowed to draw as an overdraft.

Prepare a Trading and Profit and Loss Account for the year ended 31st March, 2017, and a

Balance Sheet as on that date. Also show the rectification entries.

Solution:

Trading & Profit and Loss Account in the Books of Mr. XYZ

For The Year Ended 31st March 2017

Particular’s Amount Particular’s Amount

78
 Balance Sheet as at 31st March, 2017

Liabilities Amount Assets Amount

79
80
 RECTIFICATION OF ERROR

GLOSSARY OF SIGNIFICANT TERM USED

Stages of Occurrence of Errors

Stages when Errors occur

Graph

81
Practical Understanding

82
Sr. Rectification Of Error
Transaction Type
No. Before TB After TB After Final Accounts

1. A sale of Rs.5,000 to X was wrongly

debited to the Account of Y.

2. General expenses Rs.180 was posted in

the General Ledger as Rs.810

3. A Bill Receivable for Rs.1,550 was passed

through Bills Payable Book. The Bill was
given by P.
83
4. Legal Expenses Rs.1,190 paid to Mrs.

Neetu was debited to her personal

account.

5. While carrying forward the total of one

page of the Purchases Book to the next,

the amount of Rs.1,235 was written as

Rs.1,325.

6. Goods of the value of Rs.5,000 returned

by Mr. Sharma were entered in the Sales

Day Book and posted there from to the

credit of his account;

7. A sale of Rs.20,000 made to Mr. Amit

was correctly entered in the Sales Day

Book but wrongly posted to the debit of

Mr. Sumit as Rs.2,000

8. Bad Debts aggregating Rs.15,000 were

written off during the year in the Sales

ledger but were not adjusted in the

General Ledger

9. The total of “Discount Allowed” column in

the Cash Book for the month of

84
 September, 2020 amounting to Rs.12,500

was not posted

10. Machinery sold on credit to Mohan

recorded in Journal Properly but omitted

to be posted.

11. Purchase worth Rs.4,500 from Mr. X not

recorded in subsidiary books.

12. A return to creditor, Rs.295 was entered

in the Returns Inward Book; however, the

creditor's account was correctly posted.

13. Goods worth Rs.1,400 were dispatched to

a customer before the close of the year

but no invoice was made out.

14. Goods worth Rs.1,600 were sent on sale

or return basis to a customer and

entered in the Sales Book at the close of

the year, the customer still had the

option to return the goods. The gross

profit margin was 20% on Sale.

15. Rs.600 due from Mr. Q was omitted to be

taken ·to the trial balance.

85
16. Purchase of a scooter was debited to

conveyance account Rs.30,000. Mr.Ratan

charges 10% depreciation on scooter.

17. A credit purchase of goods from Mr. X

for Rs.20,000 was entered as sale.

18. A sale of Rs.2,760 was posted from Sales

Book to the Debit of M/s Sobhag

Traders at Rs.2,670

19. Rs.35,000 paid for purchase of Air

conditioner for the personal use of

proprietor debited to Machinery A/c.

20. Discount allowed to Radhe Mohan & Co.

Rs.180 has not been entered in the

Discount Column of the Cashbook. The

account of Radhe Mohan & Co. has,

however, been correctly posted.

21. The addition of the 'Freight' column in

the purchase journal was short by

Rs.1,500.

22. Goods to the value of Rs.1,050 returned

by a customer, Rani & Co., had been

86
 posted to the debit of Rani & Co. and also

to sales returns.

23. A bill of exchange (received from Raja &

Co.) for Rs.20,000 had been returned by

the bank as. dishonored and had been

credited to the bank and debited to bills

receivable account.

24. Discounts received Rs.1,320 had been

debited to discounts allowed.

25. A vehicle bought originally for Rs.7,000

four years ago and depreciated to

Rs.1,200 had been sold for Rs.1,500 in

the beginning of the year but no

entries, other than in the bank account

had been passed through the books.

26. An accrual of Rs.560 for telephone

charges had been completely omitted.

27. A bad debt of Rs.1,560 had not been

written off and provision for doubtful

debts should have been maintained at

10% of Trade receivables which are

87
 shown in the trial balance at Rs.23,390

with a credit provision for bad debts at

Rs.2,320.

28. The totals of debit side of “Expenses

Account” have been cast in excess by

Rs.50.

29. A cheque of Rs.500 issued to the

Suppliers’ account (shown under Trade

payables) towards his dues has been

wrongly debited to the purchases.

30. A credit sale of Rs.50 has been credited

to the Sales and also to the Trade

receivables Account.

31. The total of the Returns Inward Book for

July, 2020 Rs.1,240 was not posted in the

ledger.

32. Freight paid on a machine Rs.5,600 was

posted to the Freight Account as

Rs.6,500. 10% Depreciation is charge on

this machines.

88
33. A sale of machine on credit to Mr. Mehta

for Rs.9,000 on 30th Sept. 2020 was not

entered in the books at all. The book

value of the machine was Rs.6,750.

34. A purchase of goods from Ram amounting

to Rs.150 has been wrongly entered

through the Sales Book.

35. An amount of Rs.200 due from Mahesh

Chand, which had been written off as a

Bad Debt in a previous year, was

unexpectedly recovered, and had been
posted to the personal account of
Mahesh Chand.

36. A Cheque for Rs.100 received from Man

Mohan was dishonored and had been
posted to the debit of Sales Returns
Account.

37. A cheque for Rs.200 received from P. C.

Joshi had been dishonored and was passed
to the debit of “Allowances Account”.

89
 SELF PRACTICE QUESTION

1. The trial balance of Mr. W & H failed to agree and the difference Rs.20,570 was put into suspense pending investigation which disclosed that:

(i) Purchase returns day book had been correctly entered and totaled at Rs.6,160, but had not been posted to the ledger.

(ii) Discounts received Rs.1,320 had been debited to discounts allowed.

(iii) The Sales account had been under added by Rs.10,000.

(iv) A credit sale of Rs.1,470 had been debited to a customer account at Rs.1,740.

(v) A vehicle bought originally for Rs.7,000 four years ago and depreciated to Rs.1,200 had been sold for Rs.1,500 in the beginning of

the year but no entries, other than in the bank account had been passed through the books.

(vi) An accrual of Rs.560 for telephone charges had been completely omitted.

(vii) A bad debt of Rs.1,560 had not been written off and provision for doubtful debts should have been maintained at 10% of Trade

receivables which are shown in the trial balance at Rs.23,390 with a credit provision for bad debts at Rs.2,320.

(viii) Tools bought for Rs.1,200 had been inadvertently debited to purchases.

(ix) The proprietor had withdrawn, for personal use, goods worth Rs.1,960. No entries had been made in the books.

You are required to give rectification entries without narration to correct the above errors before preparing annual accounts.

Solution:

Journal Entries in the Books Of _____________________

Date Particular’s L/F Debit Credit

90
91
 SUSPENSE ACCOUNT

Particular’s Amount Particular’s Amount

92
 INVENTORY

Physical Stock vs Book Stock

Wherever required, the following adjustments are carried out in respect of value of Physical

Stock, to arrive at the Value of Inventory as per the Balance Sheet –

Value of Physical Stocks on the Closing Date XXX

Add Goods in Transit, i.e. goods in respect of which the Firm has the title and XXX

ownership, but lying with the Transporter / Carrier, pending delivery.

Add Goods held by Other Entities on our behalf (e.g. Our Stock held by Agent, Sub- XXX

Contractor, Job Worker, etc.) Goods sent on approval for which confirmation not

received from Customer.

Less Any goods sold in respect of title has been transferred to the Buyer, but delivery XXX

pending at Buyer's request.

Less Goods held by us on behalf of Other Entities (e.g. As Agent, as Sub-Contractor, as XXX

Job Worker, etc.)

Less Adjustments required to mark-down defectives / obsolete items, etc. to their XXX

NRV, if any.

Value of Stocks as per Balance Sheet

Verification of Stock on other than Balance Sheet date

Generally, Physical Stock Verification and Valuation is done at the end of the last day of the

accounting year. Sometimes, in big organizations, it may not be possible to verify the stocks

exactly on the last date of the accounting period. In such cases, stock is taken either few days

earlier or later, according to the situation. The following adjustments are carried out in order to

arrive at the Stock Value on the Balance Sheet date -

93
1. Stock Taking after Balance Sheet date 2. Stock Taking before Balance Sheet date
Value of Stocks on verification date (e.g. 6th April) Value of Stocks on verification date (e.g. 25th March)

(+)Cost of Sales made during the interim period (+) Purchases made during the interim period

(+)Sales Returns (at Cost Price) during the

(+)Purchase Returns during the interim period
period

(-)Purchases made during the interim period (-)Cost of Sales made during the interim period

(-)Sales Returns (at Cost Price) during the period (-)Purchase Returns during the interim period

Value of Stocks on Balance Sheet date, Value of Stocks on Balance Sheet date,

i.e. 31st March i.e. 31st March

MUST DO QUESTIONS BEFORE EXAMS

1. Sky Ltd. keeps no stock records but a physical inventory of stock is made at the end of each

quarter and the valuation is taken at cost. The company’s year ends on 31st March, 2018 and
st
their accounts have been prepared to that date. The stock valuation taken on 31 March, 2018

was however, misleading and you have been advised to value the closing stocks as on 31st

March, 2018 with the stock figure as on 31st December, 2017 and some other information is

available to you:
st
a) The cost of stock on 31 December, 2017 as shown by the inventory sheet was 80,000.
st
b) On 31 December, stock sheet showed the following discrepancies:

(i) A page total of Rs.5,000 had been carried to summary sheet as Rs.6,000.

(ii) The total of a page had been under cast by Rs.200.

c) Invoice of purchases entered in the Purchase Book during the quarter from January to

March, 2018 totaled Rs.70,000. Out of this Rs.3,000 related to goods received prior to
st
31 December, 2017. Invoices entered in April 2018 relating to goods received in March,

2018 totaled Rs.4,000.

d) Sales invoiced to customers totaled Rs.90,000 from January to March, 2018. Of this
st
Rs.5,000 related to goods dispatched before 31 December, 2017. Goods dispatched to
st
customers before 31 March, 2018 but invoiced in April, 2018 totaled Rs.4,000.

e) During the final quarter, credit notes at invoiced value of Rs.1,000 had been issued to

customers in respect of goods returned during that period. The gross margin earned by
94
 the company is 25% of cost.
st
You are required to prepare a statement showing the amount of stock at cost as on 31

March, 2018. Transfer of ownership takes place at the time of delivery of goods.

Solution:

Valuation of Physical Stock as at 31st March, 2018

Particular’s Amount

2. Closing stock is valued by Zebra Stores on generally accepted accounting principles. Stock
st th
taking for the year ended 31 March, 2020 was completed by 10 April, 2020, the valuation

of which showed a stock figure of Rs.5,02,500 at cost as on the completion date. After the

end of the accounting year and till the date of completion of stock taking, sales for the next

year were made for Rs.20,625 profit margin being 33.33 percent on cost. Purchases for the
next year included in the stock amounted to Rs.27,000 at cost less trade discount 10 percent.
During this period, goods were added to stock of the mark up price of Rs.900 in respect of
sales returns. After stock taking it was found that there were certain very old slow moving
items costing Rs.3,375 which should be taken at Rs.1,575 to ensure disposal to an interested
customer. Due to heavy floods, certain goods costing Rs.4,650 were received from the
supplier beyond the delivery date of customer. As a result, the customer refused to take
st
delivery and net realizable value of the goods was estimated to be Rs.3,750 on 31 March,
2020.
You are required to calculate the value of stock for inclusion in the final accounts for the year
st
ended 31 March, 2020
95
Solution:

Valuation of Stock as at 31st March, 2020

Particular’s Amount

3. Physical verification of stock in a business was done on 23rd February, 2020. The value of the

stock was Rs.28,00,000. The following transactions took place from 23rd February to 29th

February, 2020:

a) Out of the goods sent on consignment, goods at cost worth Rs.2,30,000 were unsold.

b) Purchases of Rs.3,00,000 were made out of which goods worth Rs.1,20,000 were delivered

on 5th March, 2020.

c) Sales were Rs.13,60,000 which include goods worth Rs.3,20,000 sent on approval. Half of

these goods were returned before 29th February, 2020, but no information is available

regarding the remaining goods.

d) Goods are sold at cost plus 25%. However goods costing Rs.2,40,000 had been sold for

Rs.1,50,000.

Determine the value of stock on 29th February, 2020.

Solution:

Valuation of Stock as at 29th February, 2020

Particular’s Amount

96
4. From the following particulars ascertain the value of inventories as on 31st March, 2020:
Rs.
Inventory as on 1.4.2019 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, 2019, a sum of Rs.17,500 was written off on a
particular item, which was originally purchased for Rs.50,000 and was sold during the year for
Rs.45,000. Barring the transaction relating to this item, the gross profit earned during the year
was 20 percent on sales.
Solution:
Statement of Inventory as at 31st March, 2020
Particular’s Amount

97
5. The following are the details of a spare part of Sriram mills:

1-1-2020 Opening Inventory Nil

1-1-2020 Purchases 100 unites @ Rs.30 per unit

15-1-2020 Issued for consumption 50 units

1-2-2020 Purchases 200 units @ Rs.40 per unit

15-2-2020 Issued for consumption 100 units

20-2-2020 Issued for consumption 100 units

Find out the value of Inventory as on 31-3-2020 if the company follows First in first out basis.

Solution:

Receipts Issues Balance

Date Units Rate Amount Units Rate Amount Units Rate Amount

98
 st
6. Raj Ltd. prepared their accounts financial year ended on 31 March 2019. Due to unavoidable
th
circumstances actual stock has been taken on 10 April 2019, when it was ascertained at

Rs.1,25,000. It has been found that;

a) Sales are entered in the Sales Book on the day of dispatch and return inwards in the

Returns Inward Book on the day of the goods received back.

b) Purchases are entered in the Purchase Book on the day the Invoices are received.
st
c) Sales between 1 April 2019 to 9th April 2019 amounting to Rs.20,000 as per Sales Day Book.
st
d) Free samples for business promotion issued during 1 April 2019 to 9th April 2019

amounting to Rs.4,000 at cost.

st th
e) Purchases during 1 April 2019 to 9 April 2019 amounting to Rs.10,000 but goods amounts

to Rs.2,000 not received till the date of stock taking.

f) Invoices for goods purchased amounting to Rs.20,000 were entered on 28th March 2019

but the goods were not included in stock.

Rate of Gross Profit is 25% on cost.

st
As certain the value of Stock as on 31 March 2019.

Solution:

Valuation of Physical Stock as at 31st March, 2019

Particular’s Amount

99
 NOT FOR PROFIT ORGANISATION

CALCULATION OF COST OF CONSUMABLES

Calculation Of Cost Of Consumables

Particular’s Amount

CREDITOR’S A/C

Particular’s Amount Particular’s Amount

Total Total

Q. Calculate the amount that will be posted to the Income and Expenditure Account for the year

ended 31st March, 2022:

Particular’s Amount

Stock of Stationery on 1st April, 2021 30,000

Creditors for Stationery on 1st April, 2021 20,000

Advances paid for Stationery carried forward from the year ended 31st March, 2021 2,000

Amount paid for Stationery during the year ended 31st March, 2022 1,08,000

Stock of Stationery on 31st March, 2022 5,000

Creditors for Stationery on 31st March,2022 13,000

Advance paid for Stationery on 31st March, 2022 3,000

100
Solution:

Calculation Of Cost Of Consumables

Particular’s Amount

CREDITOR’S A/C

Particular’s Amount Particular’s Amount

Total Total

CALCULATION OF INCOME TO BE CREDITED TO INCOME & EXPENDITURE ACCOUNT

101
Q. Calculate the amount that will be posted to the Income and Expenditure Account for the year

ended 31st March, 2022: Rs.

1st April, 2021 Subscriptions in Arrears 50,000

Subscriptions Received in Advance 30,000

31st March, 2022 Subscriptions in Arrears 25,000

Subscriptions Received in Advance 70,000

Subscriptions received during the year ended 31st March, 2022—Rs.3,00,000.

Subscription still in arrears for the year 2020-21—Rs.10,000.

Solution:

Calculation Of Subscription To Be Credited To Income & Expenditure Account

Particular’s Amount

Q. From the following particulars, calculate amount of subscriptions to be credited to the

Income and Expenditure

Account for the year ended 31st March, 2022: Rs.

(a) Subscriptions in arrears on 31st March, 2021 500

(b) Subscriptions received in advance on 31st March, 2021 for the year ended on 1,100

31st March, 2022

102
(c) Total subscriptions received during the year ended 31st March, 2022(including 35,400

Rs.400 for the year ended 31st March, 2021,Rs.200 for the year ended 31st

March, 2023 and Rs.300 for the year ended 31st March, 2024)

(d) Subscriptions outstanding for the year ended 31st March, 2022 400

Solution:

Calculation Of Subscription To Be Credited To Income & Expenditure Account

Particular’s Amount

CALCULATION OF EXPENSE TO BE DEBITED TO INCOME & EXPENDITURE ACCOUNT

103
Q. In the year ended 31st March, 2022, salaries paid amounted to Rs.2,04,000. Ascertain the

amount chargeable to the Income and Expenditure Account for the year ended 31st March, 2022

from the following additional information:

Particular’s Amount

Rs.

Prepaid Salaries on 31st March, 2021 24,000

Prepaid Salaries on 31st March, 2022 12,000

Outstanding Salaries on 31st March, 2021 18,000

Outstanding Salaries on 31st March, 2022 15,000

Solution:

Calculation Of Expense To Be Debited To Income & Expenditure Account

Particular’s Amount

Accounting Treatment of Some Special Items

1. Donation: it is gift in cash or kind from some person. It may be of two types:

a) Specific Donation: It is received for certain specific purpose like Building Donation,

Library Books donation etc. It should be capitalized and shown on the liabilities side of the

balance sheet.

b) General Donation: It is not received for any specific purpose and shown on the credit side

of Income and Expenditure Account.

2. Entrance Fees: It may also be known as admission fees. Entrance Fees should be capitalized
104
 and added to the capital fund for all organization. If the question gives any specific treatment

of Entrance fees, then it should be followed accordingly.

3. Legacy: It is an amount received by an organization as per the will of the person after the

death of the person. It should be capitalized and shown on the liabilities side of the balance

sheet by adding to the Capital Fund.

4. Life Membership Fees: It should be capitalized and shown on the liabilities side of the

balance sheet. If the question gives any specific treatment of Life membership Fees, then it

should be followed accordingly.

5. Endowment Fund Donation: It is a donation received and only income from that donation is to

be used for certain specific purpose. In such cases income relating to special funds should be

added to these funds on the liabilities side of the Balance Sheet. All the expenses should be

deducted from that fund on the liabilities side of the Balance Sheet.

6. Treatment of Sale of Old Newspaper and Periodicals: The amount received on such sale is

shown as Income on the credit side of income and expenditure account.

7. Sale of old Fixed Assets: The Sale proceeds of old Fixed Assets are treated as capital

receipts. The profit or loss on sale of fixed asset is shown in the Income and Expenditure A/c

8. Honorarium: It is paid to someone for receiving any services from person who are not the

employees of the Not for Profit Organisation.

MUST DO QUESTIONS BEFORE EXAMS

1. From the following balances and particulars of Republic College, prepare Income & Expenditure

Account for the year ended March, 2020 and a Balance Sheet as on the date:

Rs. Rs.

Seminars & Conference receipts 4,80,000

Consultancy Receipts 1,28,000

Security Deposit – Students 1,50,000

Capital Fund 16,06,000

Research Fund 8,00,000

Building Fund 25,00,000

Provident Fund 5,10,000

Tuition Fee Received 8,00,000

Government Grants 5,00,000

105
Donations 50,000

Interest & Dividends on Investments 1,85,000

Hostel Room Rent 1,75,000

Mess Receipts (Net) 2,00,000

College Stores-Sales 7,50,000

Outstanding expenses 2,25,000

Stock of-stores and Supplies (opening) 3,00,000

Purchases - Stores & Supplies 8,00,000

Salaries – Teaching 8,50,000

Research 1,20,000

Scholarships 80,000

Students Welfare expenses 38,000

Repairs & Maintenance 1,12,000

Games & Sports Expenses 50,000

Misc. Expenses 65,000

Research Fund Investments 8,00,000

Other Investments 18,50,000

Provident Fund Investment 5,10,000

Seminar & Conference Expenses 4,50,000

Consultancy Expenses 28,000

Land 1,00,000

Building 16,00,000

Plant and Machinery 8,50,000

Furniture and Fittings 6,00,000

Motor Vehicle 1,80,000

Provision for Depreciation:

Building 4,80,000

Plant & Equipment 5,10,000

Furniture & Fittings 3,36,000

Cash at Bank 6,4,2000

Library 3,60,000

1,03,85,000 1,03,85,000

106
Adjustment

Rs.

(1) Materials & Supplies consumed: (From college stores)

Teaching 50,000

Research 1,50,000

Students Welfare 75,000

Games or Sports 25,000

(2) Tuition fee receivable from Government for backward class Scholars 80,000

(3) Stores selling prices are fixed to give a net profit of 10% on selling price

(4) Depreciation is provided on straight line basis at the following rates:

(1) Building 5% 5%

(2) Plant & Equipment 10%

(3) Furniture & Fixtures 10%

(4) Motor Vehicle 20%

Solution:

In The Books of Republic College

Income & Expenditure Account for the year ended 31st March, 2020

Particular’s Amount Particular’s Amount

107
 Balance Sheet as at 31st March, 2020

Liabilities Amount Assets Amount

108
Working Note

109
2. From the following information supplied by M.B.S. Club prepare Receipts and Payments account

and Income and Expenditure. Account for the year ended 31st March, 2019.

01.04.2018 31.03.2019

Rs. Rs.

Outstanding Subscription 1,40,000 2,00,000

Advance Subscription 25,000 30,000

Outstanding Salaries 15,000 18,000

Cash in Hand and at Bank 1,10,000 ?

10% Investment 1,40,000 70,000

Furniture 28,000 14,000

Machinery 10,000 20,000

Sports Goods 15,000 25,000

Subscription for the year amount to Rs. 3,00,000/- Salaries paid Rs. 60,000. Face value of the

Investment was Rs. 1, 75,000, 50% of the investment was sold at 80% of Face value. Interest on

investment was received Rs. 14,000. Furniture was sold for Rs. 8,000 at the beginning of the

year. Machinery and Sports Goods purchased and put to use at the last date of the year.

Charge depreciation @ 15% p.a. on Machinery and Sports Goods and @ 10% p.a. on Furniture.

Following Expenses were made during the year.

Sports Expenses: Rs. 50,000

Rent: Rs. 24,000 out of which Rs. 2,000 outstanding

Misc. Expenses: Rs. 5,000

Solution:

Receipt & Payment Account for the year ended 31st March, 2019

Particular’s Amount Particular’s Amount

110
Income & Expenditure Account for the year ended 31st March, 2019

Particular’s Amount Particular’s Amount

111
Working Note

112
3. From the following Income and Expenditure Account and the Balance Sheet of a club, prepare

its Receipts and Payments Account and Subscription Account for the year ended 31st March, 2020:

Income & Expenditure Accounts for the year 2019-20

Expenditure Rs. Income Rs.

To Upkeep of Ground 10,000 By Subscription 17,320

To Printing 1,000 By Sale of Newspapers (old) 260

To Salaries 11,000 By Lectures 1,500

To Depreciation on Furniture 1,000 By Entrance Fee 1,300

To Rent 600 By Miscellaneous Income 400

By Deficit 2,820

23,600 23,600

Balance Sheet as at 31st March, 2020

Subscription in Advance 100 Furniture

(2020-21) Ground and Building

Prize Fund Prize Fund Investment

Opening Balance 25,000 Cash in Hand

Add: Interest 1,000 Subscription (outstanding )

26,000 (2019-20)

Less: Prizes (2,000) 24,000

General Fund

Opening Balance 56,420

Less: Deficit (2820)

53,600

Add: Entrance Fee 1,300 54,900

79,000 79,000

The following adjustments have been made in the above accounts:

(1) Upkeep of ground Rs. 600 and Printing Rs. 240 relating to 2018-2019 were paid in 2019-20.
(2) One-half of entrance fee has been capitalized by transfer to General Fund.
(3) Subscription outstanding in 2018-19 was Rs. 800 and for 2019-20 Rs.700.
(4) Subscription received in advance in 2018-19 was Rs.200 and in 2019-20 for 2020-21 Rs. 100.
113
Solution:

Receipt & Payment Account for The Year Ended 31st March, 2020

Particular’s Amount Particular’s Amount

Subscription Account

Particular’s Amount Particular’s Amount

114
4. You are provided with the followings:

Balance Sheet as on 31st March, 2017

Liabilities Rs. Assets Rs.

Capital Fund 1,06,200 Building 1,50,000

Subscription received in Advance 6,000 Outstanding Subscription 3,800

Outstanding Expenses 14,000 Outstanding Locker Rent 2,400

Loan 40,000 Cash in Hand 20,00

Sundry Creditors 10,000

1,76,200 1,76,200

The Receipts and Payment Account

For the year ended on 31st March, 2018

Receipts Rs. Payments Rs.

To Balance b/d By Expenses:

Cash in Hand 20,000 For 2017 12,000

To Subscriptions: For 2018 20,000 32,000

For 2017 2,000 By Land 40,000

For 2018 21,000 By Interest 4,000

For 2019 1,000 24,000 By Miscellaneous Expenses 4,700

To Entrance Fees 38,000 By Balance c/d

To Locker Rent 7,000 Cash in Hand 18,300

To Sale proceeds of old newspapers 1,000

To Miscellaneous Income 9,000

99,000 99,000

You are required to prepare Income and Expenditure Account for the year ended 31st March,

2018 and a Balance Sheet as at 31st March, 2018 (Working should from part of your answer).

Solution:
115
 Income & Expenditure Account for the year ended 31st March, 2018

Particular’s Amount Particular’s Amount

SELF PRACTICE QUESTION

1. Summary of Receipts and Payments of Bombay Medical Aid society for the year ended 31.12.2000

are as follows:

Opening Cash balance in hand Rs. 8,000 Subscription Rs. 50,000, Donation Rs. 15,000,

Interest on investments @ 9% p.a. Rs.9,000, Payments for medicine supply Rs. 30,000,

Honorarium to Doctors Rs. 10,0000, Salaries Rs. 28,000 Sundry Expenses Rs. 1,000,

Equipment purchase Rs. 15,000, Charity show expenses Rs. 1,500, Charity Show collection

Rs. 12,500.

Additional information:
116
 01.01.2000 31.12.200

Rs. Rs.

Subscription due 1,500 2,200

Subscription received in advance 1,200 700

Stock of medicine 10,000 15,000

Amount due for medicine supply 9,000 13,000

Value of equipment 21,000 30,000

Value of building 50,000 48,000

You are required to prepare Receipts and Payments Account and Income and Expenditure

Account for the year ended 31.12.2000 and Balance Sheet as on 31.12.2000.

2. Mahaveer Sports Club gives the following Receipts & Payments Account for the year ended

March 31, 1998:

Receipts and Payments Account

Receipts Rs. Payments Rs.

To Opening Cash& By Salaries 15,000

Bank Balance 5,200 By Rent & Taxes 5,400

To Subscriptions 34,800 By Electricity Charges 600

To Donations 10,000 By Sports Goods 2,000

To Interest on Investments 1,200 By Library Books 10,000

To Sundry Receipts 300 By Newspaper & Periodicals 1,080

By Misc. Expenses 5,400

By Closing Cash & Bank Balances 12,020

51,500 51,500

Liabilities As on 31.3.97 As on 31.3.98

Rs. Rs.

Outstanding Expenses:

Salaries 1,000 2,000

Newspapers & Periodicals 400 500

Rent & Taxes 600 600

Electricity Charges 800 1,000

117
Assets As on 31.3.97 As on 31.3.98

Rs. Rs.

Library Books 10,000

Sports Goods 8,000

Furniture and Fixtures 10,000

Subscription Receivable 5,000 12,000

Investment-Govt. Securities 50,000

Accrued Interest 600 600

Provide Depreciation on:

Furniture & Fixtures @ 10% p.a.

Sports Goods @ 20% p.a.

Library Books @ 10% p.a.

You are required to prepare Club’s opening Balance Sheet as on 01.04.97,Income and Expenditure

Account for the year ended on 31.3.98 and the Balance Sheet on the date.

118
 DEPRECIATION

(𝐂𝐨𝐬𝐭 𝐋𝐞𝐬𝐬 𝐑𝐞𝐬𝐢𝐝𝐮𝐚𝐥 𝐕𝐚𝐥𝐮𝐞)

1. Straight Line Method (SLM) or  Straight Line Depreciation = 𝐔𝐬𝐞𝐟𝐮𝐥 𝐋𝐢𝐟𝐞
𝐒𝐋𝐌 𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧
Fixed Instalment Method  SLM Deprn Rate = 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐀𝐬𝐬𝐞𝐭

2. Reducing Balance Method or

𝐑𝐞𝐬𝐢𝐝𝐮𝐚𝐥.𝐕𝐚𝐥𝐮𝐞
 WDV Depreciation Rate =1- n ,
𝐂𝐨𝐬𝐭.𝐨𝐟.𝐀𝐬𝐬𝐞𝐭

Written Down Value (WDV) Method where n = Useful Life.

3. Sum of Digits of Years Method Deprn p.a. =

𝐍𝐨.𝐨𝐟 𝐲𝐞𝐚𝐫𝐬 𝐨𝐟 𝐛𝐚𝐥𝐚𝐧𝐜𝐞 𝐮𝐬𝐞𝐟𝐮𝐥 𝐥𝐢𝐟𝐞 𝐢𝐧𝐜𝐥𝐮𝐝𝐢𝐧𝐠 𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐲𝐞𝐚𝐫
Depreciable Amt × 𝐓𝐨𝐭𝐚𝐥 𝐨𝐟 𝐃𝐢𝐠𝐢𝐭𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐔𝐬𝐞𝐟𝐮𝐥 𝐋𝐢𝐟𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐀𝐬𝐬𝐞𝐭 𝐢𝐧 𝐲𝐞𝐚𝐫𝐬

4. Machine Hour Method

5. Production Units Method of

Depreciation Depreciation =

6. Depletion Method of

Depreciation

CHANGE IN THE METHOD OF DEPRECIATION

The depreciation method applied to an asset should be reviewed at least at each financial year-

end and, if there has been a significant change in the expected pattern of consumption of the

future economic benefits embodied in the asset, the method should be changed to reflect the

changed pattern. Whenever any change in depreciation method is made, such change in method is

treated as change in accounting estimate as per Accounting Standards. Its effect needs to be

quantified and disclosed separately. A change in an accounting estimate may affect the current

period only or both the current period and future periods.

119
 REVISION OF THE ESTIMATED USEFUL LIFE OF PROPERTY, PLANT AND EQUIPMENT

The residual value and the useful life of an asset should be reviewed at least at each financial

year-end and, if expectations differ from previous estimates, the change(s) should be accounted

for as a change in an accounting estimate in accordance with Accounting Standards. Whenever

there is a revision in the estimated useful life of the asset, the written down value or the balance

depreciable amount should be charged over the revised remaining estimated useful life of the

asset.

REVALUATION OF PROPERTY, PLANT AND EQUIPMENT

After recognizing an asset initially, the asset whose fair value could be reliably measured should

be carried at the revalued amount, being the fair value at revaluation date and reduced by

successively accumulated depreciation and successive accumulated impairment losses (permanent

decline in value) (if any).

a) Revaluations must be made at adequate intervals (say yearly) for ensuring that carrying

amount doesn’t differ substantially from that which would be determined if fair value at end

of the reporting period is used

b) In case an item of PPE is revalued, whole class of such PPE to which such asset belongs should

be revalued

c) In case the carrying amount of an asset increases due to revaluation, such increase should be

credited to revaluation surplus and should be accumulated in equity. However, such increase

should be recognized in Profit and Loss statement to the extent of reversal of a previous

decrease of that asset that was recognized in the Profit and Loss account.

d) In case the carrying amount of an asset is decreased due to revaluation, such decrease should

be recognized in the Profit and Loss account. However, such decrease should be debited to

the revaluation surplus to the extent of reversal of a previous increase that was recognized in

revaluation surplus for that asset.

120
 REVALUATION

Increase Decrease

Credited directly to Exceptions : Charges to the Exceptions :

owner’s interests under When it is subsequent settlement of When it is

the heading of increase profit & loss subsequent Decrease

Revaluation surplus (Initially Decrease) (Initially Increase)

recognised in the Statement of Profit and loss Decrease should be debited directly to owner’s

to the extent that it reverses a revaluation interests under the heading of Revaluation

decrease of the same asset previously surplus to the extent of any credit balance

recognised in the Statement of Profit & loss existing in the Revaluation surplus in respect

of that asset

121
 MUST DO QUESTION BEFORE EXAMS

1. M/s. Green Channel purchased a second-hand machine on 1st January, 2017 for Rs.1,60,000.

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

Rs.80,000 on 1st July, 2017. On 1st July, 2019, the machine installed on 1st January, 2017

was sold for Rs.1,00,000. Another machine amounted to Rs.30,000 was purchased and was

installed on 30th September, 2019.

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

However, from the year 2020 it decided to adopt WDV method and to charge depreciation @

15% p.a. You are required to prepare Machinery account for the years 2017 to 2020.

Solution:

Machinery Account in Books of M/s. Green Channel

Particular’s Amount Particular’s Amount

122
Working Note

2. The M/s Nishant Transport purchased 10 Buses at Rs.15,00,000 each on 1st April 2017. On

October 1st, 2019, one of the Buses is involved in an accident and is completely destroyed and

Rs.7,00,000 is received from the insurance in full settlement. On the same date, another

truck is purchased by the company for the sum of Rs.18,00,000. The company write off 10%

on the original cost per annum. The company observe the calendar year as its financial year.

You are required to prepare the buses account for two year ending 31 Dec, 2020.

Solution:

Buses Account

Particular’s Amount Particular’s Amount

123
Working Note

3. A Plant & Machinery costing Rs.10,00,000 is depreciated on straight line assuming 10 year

working life and zero residual value, for four years. At the end of the fourth year, the

machinery was revalued upwards by Rs.40,000. The remaining useful life was reassessed at 8

year. Calculate Depreciation for the fifth year.

Solution:
124
4. On April 1, 2018 Shubra Ltd. purchased a machinery for Rs.12,00,000. On Oct 1, 2020, a part

of the machinery purchased on April 1, 2018 for Rs.80,000 was sold for Rs.45,000 and a new

machinery at a cost of Rs.1,58,000 was purchased and installed on the same date. The

company has adopted the method of providing 10% p.a. depreciation on the written down value

of the machinery.

Required : Show the necessary ledger accounts for the years ended 31st March 2019 to 2021

assuming that Provision for Depreciation Account is maintained.

Solution:

Machinery Account

Particular’s Amount Particular’s Amount

125
 Provision For Depreciation Account

Particular’s Amount Particular’s Amount

Machinery Disposal Account

Particular’s Amount Particular’s Amount

Working Note

126
5. Amazing group had Property, Plant & Equipment (PP&E) with a book value of Rs.35,00,000 on

31st December 2019. The balance in Revaluation Surplus on that date was Rs.3,00,000. As

part of their practice of revaluing the assets on yearly basis, another revaluation was carried

out on 31st December 2019. Evaluate the impact of Revaluation if the Fair Value as a result of

Revaluation done on 31st December 2019 was (a) Rs.37,00,000 (b) Rs.33,00,000 and (c)

Rs.31,00,000. Also, give the journal entries.

Solution:

a) Fair Value : Rs.37,00,000

Since this is an upward revaluation and the group had a balance in revaluation surplus (i.e.

there was an upward movement earlier), hence this will result in an additional credit of

Rs.2,00,000 to Revaluation Surplus and hence the total Revaluation Surplus balance (part of

other comprehensive income in Equity)shall increase to Rs.5,00,000.

The Accounting journal entry shall be:

Property, Plant & Equipment A/c Dr 2,00,000

To Revaluation Surplus A/c 2,00,000

b) Fair Value : Rs.33,00,000

Since this is a downward revaluation and the group had a balance in revaluation surplus

(i.e. there was an upward movement earlier), hence this will result in a reduction or a debit to

Revaluation Surplus tothe extent of balance therein and any excess shall be debited to Profit

& Loss A/c. In this case, there is a reduction in fair value of Rs.2,00,000 (35,00,000 –

33,00,000) and hence the entire amount shall be debited to Revaluation Surplus. Hence, the

total Revaluation Surplus balance (part of other comprehensive income in Equity) shall

decrease to Rs.1,00,000.
127
 The Accounting journal entry shall be:

Revaluation Surplus A/c Dr 2,00,000

To Property, Plant & Equipment A/c 2,00,000

c) Fair Value : Rs.31,00,000

Since this is also a downward revaluation and the group had a balance in revaluation surplus

(i.e. there was an upward movement earlier), hence this will result in a reduction or a debit to

Revaluation Surplus to the extent of balance therein and any excess shall be debited to Profit

& Loss A/c. In this case, there is a reduction in fair value of Rs.4,00,000 (35,00,000 –

31,00,000) and hence the Revaluation Surplus A/c shall be debited by Rs.3,00,000 and the

balance Rs.1,00,000 shall be debited to Profit & Loss A/c. Hence, the total Revaluation

Surplus balance (part of other comprehensive income in Equity) shall become Nil.

The Accounting journal entry shall be:

Revaluation Surplus A/c Dr 3,00,000

Profit & Loss A/c Dr 1,00,000

To Property, Plant & Equipment A/c 4,00,000

6. A machine was purchased for Rs.30,00,000 having an estimated total working of 24,000 hours.

The scrap value is expected to be Rs.2,00,000 and anticipated pattern of distribution of

effective hours is as follows :

Year

1–3 3,000 hours per year

4-6 2,600 hours per year

7 - 10 1,800 hours per year

Required

Determine Annual Depreciation under Machine Hour Rate Method.

Solution:

Statement of Annual Depreciation under Machine Hours Rate Method

128
7. M/s Akash & Co. purchased a machine for Rs.10,00,000. Estimated useful life and scrap value

were 10 years and Rs.1,20,000 respectively. The machine was put to use on 1.1.2014.

Required

Show Machinery Account and Depreciation Account in their books for 2019 by using sum of

years digits method.

Solution:

Machinery Account

Particular’s Amount Particular’s Amount

Depreciation Account

Particular’s Amount Particular’s Amount

Working Note

129
 QUESTIONS FOR SELF PRACTICE

1. On April 1, 2018 a firm purchased a machinery for Rs.2,00,000. On 1st October in the same

accounting year, additional machinery costing Rs.1,00,000 was purchased. On 1st October,

2019, the machinery purchased on 1st April 2018, having become obsolete was sold off for

Rs.90,000. On October 1, 2020, new machinery was purchased for Rs.2,50,000 while the
machinery purchased on 1st October 2018 was sold for Rs.85,000 on the same day. The firm
provides depreciation on its machinery @ 10% per annum on original cost on 31st March every
year. Show Machinery Account, Provision for Depreciation Account and Depreciation Account
for the period of three accounting years ending March 31, 2021.

130
 BANK RECONCILIATION STATEMENT

BRS

Transaction Effect
1. Cheque deposited not yet cleared
2. Cheque issued not yet presented
3. Direct deposit by customer into our bank account
4. Interest Charged by Bank/ Bank Charges
5. Interest Allowed by Bank
6. Cheque deposited dishonoured
7. Bills Receivable discounted, dishonoured
131
ERRORS IN CASHBOOK

8. Overcast of Debit Side (Receipt Side) of Cash Book

9. Undercast of Debit Side (Receipt Side) of Cash Book

10. Overcast of Credit Side (Payment Side) of Cash Book

11. Undercast of Credit Side (Payment Side) of Cash Book

ERRORS IN PASSBOOK
12. Overcast of Debit Side (Receipt Side) of Pass Book
13. Undercast of Debit Side (Receipt Side) of Pass Book
14. Overcast of Credit Side (Payment Side) of Pass Book
15. Undercast of Credit Side (Payment Side) of Pass Book
PRACTICAL UNDERSTANDING

132
 BRS WITH ADJUSTED CASH BOOK

Cash Pass
Transactions Effect
Book Book

Interest credited by the Bank

Bank charges not entered in Cash book

Bank paid house tax on our behalf, but no intimation received from bank in

this connection

Subsidy Rs.10,250 received from the government directly by the bank, but

not advised to the company.

133
On 15th March, 2017 the payments side of the Cash-book was under cast

by Rs.350.

On 20th March, 2017 the debit balance of Rs.2,156 as on the previous day,

was brought forward as credit balance in Cash-book.

A customer of the M/s ABC, who received a cash discount of 5% on his

account of Rs.2,000, paid to M/s ABC a cheque on 24th March, 2017. The

cashier erroneously entered the gross amount in the Cash-Book.

On 10th March, 2017 a bill for Rs.5,700 was discounted from the bank,
entered in Cash-book, but proceeds credited in Bank Statement amounted
to Rs.5,500 only.

A cheque issued amounting to Rs.1,725 returned marked ‘out of date’.

No entry made in Cash-book.

A bill receivable for Rs.1,530 discounted for Rs.1,500 with the bank

had been dishonoured on 30th March, 2017, but advice was received

on 1st April, 2017.

Bank recorded a Cash deposit of Rs.1,550 as Rs.1,505.

Bank collected a cheque of Rs.500 on behalf of Shri Hari but wrongly

credited it to Shri Hari’s Account (another customer of bank).

Withdrawal column of the Pass Book undercast by Rs.100.

The payment of a cheque of Rs.350 was recorded twice in the Pass Book.

The Pass Book showed a credit for a cheque of Rs.1,000 deposited by Shri

Hari (another customer of the bank).

Two cheques-one from ‘A’ for Rs.5,15,000 and another from ‘B’ for

Rs.12,500 were collected in the first week of April, 2021 although they

were banked on 25.03.2021.

A cheque for Rs.1,600 in favour of Y suppliers Ltd. was omitted by the bank

from the statement, the cheque was debited to another customer’s Account.

A cheque for Rs.172 drawn for payment of telephone bill was recorded in

the Cash Book as Rs.127 but was shown correctly in the Bank Statement.

Out of cheques issued worth Rs.34,000, cheques amounting to Rs.20,000

134
only were presented for payment till 30th June, 2018.

Cheques worth Rs.20,000 had been sent to Bank for collection but the

collection was reported by the Bank as under. (BRS Date – 30 June)

 Cheques collected before 30th June, 2018, Rs.14,000

 Cheques collected on 10th July, 2018, Rs.4,000

 Cheques collected on 12th July, 2018, Rs.2,000.

Out of the total cheques of Rs.8,900 issued on 27th March, one cheque of

Rs.7,400 was presented for payment on 4th April and the other cheque of

Rs.1,500 handed over to the customer, was returned by him and in lieu of

that a new cheque of the same amount was issued to him on 1st April. No

entry for the return was made. (BRS Date - 31-3-2020)

Out of total cash and cheques of Rs.6,800 deposited in the Bank on 24th

March, one cheque of Rs.2,600 was cleared on 3rd April and the other

cheque of Rs.500 was returned dishonoured by the bank on 4th April.

A debit of Rs.3,500 appearing in the bank statement for an unpaid

cheque returned for being 'out of date' had been re-dated and

deposited in the bank account again on 5th April 2020.

A bill payable of Rs.2,00,000 had been paid by the bank but was not

entered in the cash book and bill receivable for Rs.60,000 had been

discounted with the bank at a cost of Rs.1,000 which had also not been

recorded in cash book.

On 30th March, 2019 the company had entered into hire purchase agreement

to pay by bank order a sum of Rs.3,00,000 on the 10th of each month,

commencing from April, 2019. No entries had been made in Cash Book.

One deposit of Rs.1,50,000 was recorded in the Cash Book as if there is no

bank column therein.

A crossed cheque for Rs.3000 given to Abdul was returned by him and a

bearer cheque was issued to him in lieu on 1st July.

According to Suman’s standing instructions,

 Bankers have on 30th June, paid Rs.1,280 as interest to her creditors,
 Paid quarterly premium on her policy amounting to Rs.640 and

135
 Paid a second call of Rs.2,400 on shares held by her and lodged with
the bankers for safe custody.
 They have also received Rs.600 as dividend on her shares and
 Recovered an Insurance Claim of Rs.3,200, as their charges and
Commission charged on the above being Rs.400.
Bankers seem to have given a wrong credit for Rs.2,000 paid in by
her in No.2 A/c and wrong debit in respect of a cheque for Rs.1,200
drawn against her No.2 A/c. Prepare a Bank Reconciliation Statement
as on 30th June,2021.

MUST DO QUESTION BEFORE EXAMS

1. The following are the Cash Book (bank column) and Pass Book of Jain for the months of

March, 2019 and April, 2019:

Cash Book (Bank Column only)

Date Particulars Amount Dr. Rs. Date Particulars Amount Cr. Rs.

01/3/2019 To Balance b/d 60,000 03/3/2019 By Cash A/c 2,00,000

06/3/2019 To Sales A/c 3,00,000 07/3/2019 By Modi 60,000

10/3/2019 To Ram 65,000 12/3/2019 By Patil 30,000

18/3/2019 To Singhal 2,70,000 18/3/2019 By Suresh 40,000

25/3/2019 To Goyal 33,000 24/3/2019 By Ramesh 1,50,000

31/3/2019 To Patel 65,000 30/3/2019 By Balance c/d 3,13,000

7,93,000 7,93,000

Pass Book

Date Particulars Amount Dr. Rs. Amount Cr. Rs. Dr. or Cr. Balance Rs.
1/4/2019 By Balance b/d 3,65,000 Cr. 3,65,000
3/4/2019 By Goyal 33,000 Cr. 3,98,000
5/4/2019 By Patel 65,000 Cr. 4,63,000
7/4/2019 To Naresh 2,80,000 Cr. 1,83,000
12/4/2019 To Ramesh 1,50,000 Cr. 33,000
15/4/2019 To Bank Charges 200 Cr. 32,800
20/4/2019 By Usha 17,000 Cr. 49,800
136
25/4/2019 By Kalpana 38,000 Cr. 87,800
30/4/2019 To Sunil 6,200 Cr. 81,600

Reconcile the balance of Cash book on 31/3/2019

Solution:
Bank Reconciliation Statement as On 31/03/2019

Particulars Amount

2. On 30th December, 2019 the bank column of A. Philip’s cash Book showed a debit balance of

Rs.4,610. On examination of the cash book and bank statement you find that:

1. Cheques amounting to Rs.6,30,000 which were issued to trade payables and entered in the

cash book before 30th December, 2019 were not presented for payment until that date.

2. Cheques amounting to Rs.2,50,000 had been recorded in the cash book as having been paid

into the bank on 30th December, 2019, but were entered in the bank statement on1st

January,2020.

3. A cheque for Rs.73,000 had been dishonored prior to 30th December,2019, but no record

of this fact appeared in the cash book.

4. A dividend of Rs.3,80,000, paid direct to the bank had not been recorded in the cash book.

5. Bank interest and charges amounting to Rs.4,200 had been charged in the bank statement

but not entered in the cash book.

6. No entry had been made in the cash book for a trade subscription of Rs.10,000 paid vide

banker’s order in November, 2019.

7. A cheque for Rs.27,000 drawn by B. Philip had been charged to A. Philip’s bank account by

mistake in December, 2019.

You are required:

i. To make appropriate adjustments in the cash book bringing down the correct balance, and

ii. To prepare a statement reconciling the adjusted balance in the cash book with the balance

shown in the bank statement.

137
Solution: Cash Book ( Bank Column )
Date Particular’s Amount Date Particular’s Amount

Bank Reconciliation Statement as On 30/12/2019

Particulars Amount

138
 BILL OF EXCHANGE

CASE 1 – BILL HELD TILL MATUARITY

BUYER SELLER

CASE 2 – BILL DISCOUNTED WITH BANK

BUYER SELLER

139
 CASE 3 – BILL SENT FOR COLLECTION

BUYER SELLER

CASE 4 – BILL IS ENDORSED

BUYER SELLER

140
 CASE 5 – BILL IS RENEWED

BUYER SELLER

141
 CASE 6 – BILL IS RITIRED

BUYER SELLER

CASE 7 – ACCOMMODATION OF BILL

1. On 1st July, 2019 Gorge drew a bill for Rs.1,80,000 for 3 months on Harry for mutual

accommodation. Harry accepted the bill of exchange. Gorge had purchased goods worth

Rs.1,81,000 from Jack on the same date. Gorge endorsed Harry’s acceptance to Jack in full

settlement. On 1st September, 2019, Jack purchased goods worthRs.1,90,000 from Harry.

Jack endorsed the bill of exchange received from Gorge to Harry and paid Rs.9,000 in full

settlement of the amount due to Harry. On 1st October, 2019, Harry purchased goods worth

Rs.2,00,000 from Gorge. Harry paid the amount due to Gorge by cheque.

Give the necessary Journal Entries in the books of Harry and Gorge.

Solution:

JOURNAL OF HARRY

Date Particulars LF Dr. Cr.

142
 JOURNAL OF GEORGE

Date Particulars LF Dr. Cr.

143
2. For the mutual accommodation of ‘X’ and ‘Y’ on 1st April, 2019, ‘X’ drew a four months’ bill

on ‘Y’ for Rs.4,000. ‘Y’ returned the bill after acceptance of the same date. ‘X’ discounts

the bill from his bankers @ 6% per annum and remit 50% of the proceeds to ‘Y’. On due

date ‘X’ is unable to send the amount due and therefore ‘Y’ draws a bill for Rs.7,000, which is

duly accepted by ‘X’. ‘Y’ discounts the bill for Rs.6,600 and sends Rs.1,300 to ‘X’. Before the

bill is due for payment ‘X’ becomes insolvent. Later 25 paise in a rupee received from his estate.

Record Journal entries in the books of ‘X’.

Solution:

JOURNAL OF X

Date Particulars LF Dr. Cr.

144
3. Prepare Journal entries for the following transactions in Samarth’s books.

(i) Samarth’s acceptance to Aarav for Rs.1,250 discharged by a cash payment of Rs.500 and a

new bill for the balance plus Rs.25 for interest.

(ii) G. Gupta’s acceptance for Rs.4,000 which was endorsed by Samarth to Sahni was dishonoured.

Sahni paid Rs.20 noting charges. Bill withdrawn against cheque.

(iii) Harshad retires a bill for Rs.5,000 drawn on him by Samarth for Rs.20 discount.

(iv) Samarth’s acceptance to Patel for Rs.19,000 discharged by Sandeep Chadha’s acceptance

to Samarth for a similar amount.

Solution: JOURNAL OF ANIL

Date Particulars LF Dr. Cr.

145
 ACCOUNTS FROM INCOMPLETE RECORDS

Q1. Assets and Liabilities of Mr. X as on 31-03-2021 and 31-03-2022 are as follows:

31-03-2021 31-03-2022

₹ ₹

Assets

Building 1,00,000 ?

Furniture 50,000 ?

Inventory 1,20,000 2,70,000

Sundry debtors 40,000 90,000

Cash at bank 70,000 85,000

Cash in hand 1,200 3,200

Liabilities

Loans 1,00,000 80,000

Sundry creditors 40,000 70,000

Decided to depreciate building by 2.5%p.a. and furniture by 10% p.a. One Life Insurance Policy

of the Proprietor was matured during the period and the amount ₹ 40,000 is retained in the

business. Proprietor took @ ₹ 2,000 p.m. for meeting family expenses.

Prepare Statement of Affairs as on 31-03-2021 and 31-03-2022.

Solution :

Mr. X
Statement of Affairs

as on 31-03-2021 & 31-03-2022

Liabilities 31-03-2021 31-03-2022 Particular’s 31-03-2021 31-03-2022

₹ ₹ ₹ ₹

146
Q. Find out profit of Mr. X for the year ended 31-03-2022.

Determination of Profit by applying the method of the capital comparison

Q2. The Income Tax Officer, on assessing the income of Shri Moti for the financial years

2020-2021 and 2021-2022 feels that Shri Moti has not disclosed the full income. He gives

you the following particulars of assets and liabilities of Shri Moti as on 1st April, 2020

and 1st April, 2022.

1-4-2020 Assets : Cash in hand 25,500

Inventory 56,000

Sundry debtors 41,500

Land and Building 1,90,000

Wife’s Jewellery 75,000

Liabilities : Owing to Moti’s Brother 40,000

Sundry creditors 35,000

1-4-2022 Assets : Cash in hand 16,000

Inventory 91,500

Sundry debtors 52,500

Land and Building 1,90,000

Motor Car 1,25,000

147
 Wife’s Jewellery 1,25,000

Loan to Moti’s Brother 20,000

Liabilities : Sundry creditors 55,000

During the two years the domestic expenditure was ₹ 4,000 p.m. The declared incomes of

the financial years were ₹ 1,05,000 for 2020-2021 and ₹ 1,23,000 for 2021-2022 respectively.

State whether the Income-tax Officer’s contention is correct. Explain by giving your workings.

Solution :

Calculation of Capital of Shri Moti

₹ 1-4-2020 ₹ 1-4-2022

148
Q3. Calculate the bad debts from the below information:

Opening balance of Debtors ₹ 5,00,000

Closing balance of Debtors ₹ 7,00,000

Amount received in Cash ₹ 6,00,000

Discount allowed ₹ 10,000

Credit Sales ₹ 11,40,000

Bills Receivable ₹ 3,00,000

Bad Debts ???

Solution :

Debtors Account

Particular’s Amount Particular’s Amount

Purchases Ledger :

149
 Proforma of Total Creditors Account (assumed figures)

₹ ₹

Q4. Calculate the credit purchases from the below information:

Opening balance of creditors ₹ 4,00,000

Closing balance of creditors ₹ 5,00,000

Payments made in Cash ₹ 8,50,000

Discount received ₹ 20,000

Solution :

Total Creditors Account

Particulars Amount Particulars Amount

Nominal Accounts :

150
 Cash and Amount Bank Paid out of Total Pre Payment Expenses

Particulars Payment Accrued Private Fund for the

Period

1 2 3 4 5 (2+3+4) 6 7 (5-6)

₹ ₹ ₹ ₹ ₹ ₹

What are the purchases for 2021-2022? Let us prepare the Sundry Creditors Account.

Sundry Creditors Account

₹ ₹

151
Likewise prepare the Sundry Debtors Account:

Sundry Debtors Account

₹ ₹

Q5. A. Adamjee keeps his books on single entry basis. The analysis of the cash book for

the year ended on 31st March, 2022 is given below:

Receipts ₹ Payments ₹

Bank Balance as on 1st April, 2021 2,800 Payments to Sundry creditors 35,000

Received from Sundry Debtors 48,000 Salaries 6,500

Cash Sales 11,000 General expenses 2,500

Capital brought during the year 6,000 Rent and Taxes 1,500

Interest on Investments 200 Drawings 3,600

Cash purchases 12,000

Balance at Bank on 31st March,

2022 6,400

Cash in hand on 31st March, 2022 500

68,000 68,000

Particulars of other assets and liabilities are as follows:

1st April, 2021 31st March, 2022

Sundry debtors 14,500 17,600

Sundry creditors 5,800 7,900

Machinery 7,500 7,500

Furniture 1,200 1,200

Inventory 3,900 5,700

Investments 5,000 5,000

152
Prepare final accounts for the year ending 31st March, 2022 after providing depreciation at

10 per cent on machinery and furniture and ₹ 800 against doubtful debts.

Solution :

A. Adamjee

Trading Account for the year ended 31st March 2022

₹ ₹ ₹

Profit & Loss Account for the year ended 31st March 2022

₹ ₹ ₹

Balance Sheet as on 31st March 2022

Liabilities ₹ ₹ Assets ₹

153
Working Notes:

1. Balance sheet of A. Adamjee as on 1st April 2021

Liabilities ₹ Assets ₹

2. Ledger Accounts

A. Adamjee’s Capital Account

₹ ₹

Sales Account

₹ ₹

Total Debtors Account

₹ ₹

154
 Purchases Account

₹ ₹

Total Creditors Account

₹ ₹

Q6. From the following data furnished by Mr. Manoj, you are required to prepare a

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

Sheet as at that date. All workings should form part of your answer.

Assets and Liabilities As on 1st As on 31st

April 2021 March 2022

₹ ₹

Creditors 15,770 12,400

Sundry expenses outstanding 600 330

Sundry Assets 11,610 12,040

Inventory in trade 8,040 11,120

Cash in hand and at bank 6,960 8,080

Trade debtors ? 17,870

Details relating to transactions in the year:

Cash and discount credited to debtors 64,000

Sales return 1,450

Bad debts 420

155
Sales (cash and credit) 71,810

Discount allowed by trade creditors 700

Purchase returns 400

Additional capital-paid into Bank 8,500

Realisations from debtors-paid into Bank 62,500

Cash purchases 1,030

Cash expenses 9,570

Paid by cheque for machinery purchased 430

Household expenses drawn from Bank 3,180

Cash paid into Bank 5,000

Cash drawn from Bank 9,240

Cash in hand on 31-3-2022 1,200

Cheques issued to trade creditors 60,270

Solution :

In the books of Mr. Manoj

Trading Account for the year ending 31st March, 2022

₹ ₹ ₹ ₹

Profit & Loss Account for the year ending 31st March, 2022

₹ ₹

156
 Balance Sheet of Mr. Manoj as on 31st March, 2022

Liabilities ₹ ₹ Assets ₹

Working Notes:

(i) Cash Sales

Combined Cash & Bank Account

₹ ₹

(ii) Total Debtors Account

₹ ₹

157
(iii) Total Creditors Account

₹ ₹

(iv) Balance Sheet as on 1st April, 2021

Liabilities ₹ Assets ₹

(v)

(iv)

158
 SUBSIDIARY BOOKS

Q1. Enter the following transactions in Purchase Book and post them into ledger.

2022

April 4 Purchased from Ajay Enterprises, Delhi

100 Doz. Rexona Hawai Chappal @ ₹ 120 per doz.

200 Doz. Palki Leather Chappal @ ₹ 300 per Doz.

Less : Trade discount @ 10%

Freight charged ₹ 150.

April 15 Purchased from Balaji Traders, Delhi

50 doz. Max Shoes @ ₹ 400 per doz.

100 pair Sports Shoes @ ₹ 140 per pair.

Less : Trade discount @ 10%.

Freight charged ₹ 200.

April 28 Purchased from Tripti Industries, Bahadurgarh

40 pair leather shoes @ ₹ 400 per pair

100 doz. Rosy Hawai Chappal @ ₹ 180 per doz.

Less : Trade discount @ 10%.

Freight charged ₹ 100.

Solution :

Purchase Book

Date Particulars Details Gross Trade Net Freight Total

2022 Amount Discount Price Amount

159
 Ledgers

Dr. Purchases A/c Cr.

₹ ₹

Dr. Freight A/c Cr.

₹ ₹

Dr. Ajay Enterprises Cr.

₹ ₹

Dr. Balaji Traders Cr.

₹ ₹

160
Dr. Tripati Industries Cr.

₹ ₹

Q2. The following are some of the transaction of M/s Kishore & Sons of the year 2022 as

per their Waste Book. Make out their Sales Book.

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

30 shirts @ ₹ 800 per shirt.

20 trousers @ ₹1,000 per trouser.

Less : Trade Discount @ 10%

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

Sold 50 shirts to 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%

Solution :

Sales Book

Date Particulars Details Amount

₹ ₹

161
162
 CASH BOOK

Q1. Enter the following transactions in Cash Book with Discount and Bank Columns. Cheques

are first treated as cash receipt.

2022 ₹

Jan. 1 Chandrika commences business with Cash 20,000

Jan. 3 He paid into Current A/c 19,000

Jan. 4 He received cheque from Kirti & Co. on account 600

Jan. 7 He pays in bank Kirti & Co.’s cheque 600

Jan. 10 He pays Rattan & Co. by cheque and is allowed discount ₹ 20 330

Jan. 12 Tripathi & Co. pays into his Bank A/c 475

Jan. 15 He receives cheque from Warshi and allows him discount ₹ 35 450

Jan. 20 He receives cash ₹ 75 and cheque ₹ 100 for cash sale

Jan. 25 He pays into Bank, including cheques received on 15th and 20th 1,000

Jan. 27 He pays for cash purchase 275

Jan. 30 He pays sundry expenses in cash 50

Solution :

Dr. Cash Book Cr.

Date Receipts L.F. Dis. Cash Bank Date Payments L.F. Dis. Cash Bank

₹ ₹ ₹ ₹ ₹ ₹

163
Q2. Prepare a Petty Cash Book on the imprest System from the following:

2022 ₹

Jan. 1 Received ₹100 for petty cash

Jan. 2 Paid bus fare .50

Jan. 2 Paid cartage 2.50

Jan. 3 Paid for Postage 5.00

Jan. 3 Paid wages for casual labourers 6.00

Jan. 4 Paid for stationery 4.00

Jan. 4 Paid Bus charges 2.00

Jan. 5 Paid for the repairs to chairs 15.00

Jan. 5 Bus fare 1.00

Jan. 5 Cartage 4.00

Jan. 6 Postage 7.00

Jan. 6 Bus charges 3.00

Jan. 6 Cartage 3.00

Jan. 6 Stationery 2.00

Jan. 6 Refreshments to customers 5.00

Solution :

Petty Cash Book

Receipts Date V. Particulars Total Con- Cartage Statio- Postage Wages Sundries

2022 No.* veyance nery

₹ ₹ ₹ ₹ ₹ ₹ ₹ ₹

164
165
 TRIAL BALANCE

Q1. One of your clients, Mr. Singhania has asked you to finalise his accounts for the year ended

31st March, 2022. Till date, he himself has recorded the transactions in books of accounts.

As a basis for audit, Mr. Singhania furnished you with the following statement.

Dr. Balance Cr. Balance

(₹) (₹)

Singhania’s Capital 1,556

Singhania’s Drawings 564

Leasehold premises 750

Sales 2,750

Dues from customers 530

Purchases 1,259

Purchases return 264

Loan from bank 256

Trade payables 528

Trade expenses 700

Cash at bank 226

Bills payable 100

Salaries and wages 600

Inventories (1.4.2021) 264

Rent and rates 463

Sales return 98

5,454 5,454

The closing inventory on 31st March, 2022 was valued at ₹ 574. Mr. Singhania claims that he

has recorded every transaction correctly as the trial balance is tallied. Check the accuracy of the

above trial balance.

Solution :

166
 Corrected Trial Balance of Mr. Singhania as on 31st March, 2022

Particulars Dr. Amount Cr. Amount

₹ ₹

Q2. The following trail balance as on 31st March, 2022 was drawn from the books of fintech

traders:

L.F. Dr. Balance Cr. Balance

₹ ₹

Building 60,000 -

Machinery 17,000 -

Return Outward 2,600 -

Bad Debts 2,800 -

Cash 400 -

Discount Received 3,000 -

Bank Overdraft 10,000 -

167
Creditors 50,000 -

Purchases 1,00,000 -

Capital - 73,600

Fixtures - 5,600

Sales - 1,04,000

Debtors -- 60,000

Interest Received - 2,600

Input CGST A/c - 3,000

Input SGST A/c - 3,000

Input IGST A/c - 4,800

Output CGST A/c 5,400 -

Output SGST A/c 5,400 -

Total 2,56,600 2,56,600

Even though the debit and credit sides agree, the trial Balance contains certain errors. Check

the accuracy of trial balance.

Solution :

Corrected Trial Balance of Fintech traders as on 31st March, 2022

L.F. Dr. Balance Cr. Balance

₹ ₹

168
169