undefined | unit 1 introduction to management

COM3

UNIT I

Preparation of Final Accounts of Companies

Part A

Q1) What is the purpose of preparing Final Accounts?(7 marks)

A1) The final account is the account prepared by the Joint Stock Company at the end of the fiscal year. The purpose of creating a final account is to provide a clear picture of the financial situation of the organization to its management, owners or other users of such accounting information.

Final account preparation involves preparing a set of accounts and statements at the end of the fiscal year.

Trading and profit and loss accounts.

Balance sheet.

Profit and loss appropriation account.

Purpose of Final Account preparation.

The final account is prepared for the following purposes:

To determine the profit and loss incurred by the company within a certain financial period.

To determine the financial status of the company.

To serve as a source of information to inform users of accounting information (owners, creditors, investors and other stakeholders) about the solvency of the company.

Trading Account

The results of the purchase and sale of goods are known as the trading account. This sheet is provided to show the difference between the sales price and the cost price. It is prepared to show the trading results of the business i.e. The total profit or total loss maintained by the business. It records the direct costs of the business company.

J.R.According to Batlibboi,

The trading account shows the results of buying and selling goods. When we prepare this account, the general establishment costs are not taken into account and only the transaction of goods is included."

Profit and loss accounts

This account is prepared to check the net profit/loss and fiscal year expenses of the business during the fiscal year. It records the indirect expenses of the business company like rent, salary, and advertising expenses. Profit and loss a/C includes expenses and losses and gains and losses incurred in business other than the production of goods and services.

Balance sheet

The balance statement shows the financial status of the business at a specific date. The financial status of a business is discovered by aggregating its assets and liabilities on a specific date. The excess of assets over liabilities represents the capital sunk into the business and reflects the financial health of the enterprise.

Now it is known as a statement of the financial status of the company.

Q2) What all expenses come under the head of Trading A/C? (8 marks)

A2) Trade and manufacturing operating companies deal with the sale and purchase of goods. Therefore, only the manufacturing and trading entities prepare the trading account. Service providers do not prepare for this.

Advantages of preparing a trading account format

It is a very important statement from the point of view of the cost of goods. By preparing a trading account, an entity may take a decision to continue or discontinue a particular product, which helps to obtain maximum profit or reduce losses.

With the help of a trading account, the sales tax authority can, in accordance with the sales tax declaration filed by the business. It also helps the excise duty authorities to assess the excise duty of a business enterprise.

The management, having in mind the market competition, determines the price of the product with the help of a trading account.

Items in trading account format

The trading account contains the following details:

Details of raw materials, semi-finished goods and finished products, opening stock.

Close inventory details of raw materials, semi-finished products, and finished products.

Total purchase of goods less purchase return.

Total sales of goods less sales return.

All direct costs associated with the purchase or sale or manufacture of goods.

Item of income (Cr.Side)

Less sales return than total sales of goods.

Close the stock of the product.

Expenditure item (Doctor) side.

Item of expenditure (Dr.Side)

Opening stock.

Total purchase of goods less purchase return.

All the direct cost like carriage interior & freight cost, rent, electricity and power cost, wages for godown or factory, packing cost, etc. for workers and supervisors.

Notes

The trial count will not be displayed on the close. But, firstly, we need to show the amount of closing shares on the income side of the trading account, and secondly, on the balance sheet under current assets.

We value closing inventory at either lower cost or market price.

On the day of preparation of the trading account, we value the physically available closed shares.

However, the trading account can also be prepared in horizontal form, but the content remains the same.

Trading Account Format

Particulars	Amount	Particulars	Amount
To opening stock	xxx	By sales	xxx
To purchase	xxx	Less: Returns	xxx
Less: returns	xxx	By Closing stock	xxx
To direct expenses:	xxx	By Gross loss c/d
Freight & carriage	xxx
Custom & insurance	xxx
Wages	xxx
Gas, water & fuel	xxx
Factory expenses	xxx
Royalty on production	xxx
To Gross profit c/d	xxx

Q3) Draw the format of P/LA/C.(7 marks)

A3) All companies generally prepare profit and loss accounts/statements at the end of the year to gain visibility of income, revenue, expenses, and losses incurred in a certain range of periods. It is important to prepare a profit and loss statement because this information helps organizations make the right business decisions, such as where to cut costs, from where the business can generate more profit, and which parts of the business are suffering from losses.

Profit and loss accounts / statements.

Types of profit and loss.

Gross profit/gross loss.

Profit / loss.

Trading account is prepared to check gross profit/loss while profit and loss account is created to check profit and loss/net loss.

Profit and loss accounts are made to check the annual profit or loss of a business. This account only shows overhead. All items of income and expenses, whether cash or non-cash, are considered in this account.

Only revenue or expenses related to the current period are debited or credited to the profit and loss account. The profit and loss account starts with gross profit on the credit side and, if there is a total loss, appears on the debit side. Items not displayed in the profit and loss account format

Drawing: the drawing is not the company's expense. Therefore, we debit it to capital a/c, and not to profit and loss a/c.

Income tax: for a company, income tax is an expense, but for a sole proprietor, it is his personal expense. Therefore, we debit it to the capital A/C.

Discounts: as we know, discounts are of two types–trade discounts and cash discounts. We deduct the trade discount from the amount charged and therefore do not show it in the account books. On the other hand, if the customer pays the amount on a certain date, a cash discount will be possible. We view cash discounts in account books. Therefore, we debit it to the profit and loss account.

Bad debt: it is because of the customer and the amount he does not pay it. We debit this amount to profit and loss a/c in the event that preparations have already been made for a bet that is worse than it is initially written off from it. When bad loans are recovered, it is again. Now it is not credited to the account of the party, but recovered account should be credited to the bad debt and is written on the credit side of the profit and loss account

Profit and Loss Account Format

Particulars	Amount	Particulars	Amount
To Gross loss b/d	xxx	To Gross profit b/d	xxx
Management expenses:	xxx	Income:	xxx
To salaries	xxx	By Discount received	xxx
To office rent, rates, and taxes	xxx	By Commission received	xxx
To printing and stationery	xxx	Non-trading income:	xxx
To Telephone charges	xxx	By Bank interest	xxx
To Insurance	xxx	By Rent received	xxx
To Audit fees	xxx	By Dividend received	xxx
To Legal charges	xxx	By Bad debts recovered	xxx
To Electricity charges	xxx	Abnormal gains:	xxx
To Maintenance expenses	xxx	By Profit on sale of machinery	xxx
To Repairs and renewals	xxx	By Profit on sale of investments	xxx
To Depreciation	xxx	By Net Loss(transferred to Capital A/c)	xxx
Selling distribution expenses:
To Salaries	xxx
To Advertisement	xxx
To Godown	xxx
To Carriage outward	xxx
To Bad debts	xxx
To Provision for bad debts	xxx
To Selling commission	xxx
Financial expenses:
To Bank charges	xxx
To Interest on loan	xxx
To Discount allowed	xxx
Abnormal losses:	xxx
To Loss on sale of machinery	xxx
To Loss on sale of investments	xxx
To Loss by fire	xxx
To Net Profit(transferred to capital a/c)	xxx
TOTAL		TOTAL

Q4) Explain any six types of adjustment in Final Account. (7 marks)

A4) Types of adjustment entry for the final account

Closing stocks:

The value of the closing stock is checked at the end of the fiscal year, so it is displayed as an adjustment. It must be credited to the transaction a/c and displayed on the asset side of b/S.

The adjustment entry is:

Closing stock a/c ------ Dr.

To trade A / c

DR Trading account and balance sheet CR

Rs
	By Sales
	By Trading Stock

Balance sheet

Liabilities	Rs	Assets	Rs
		Closing Stock

2. Unpaid expenses:

These are expenses incurred in the fiscal year, but no payments have been made. Any unpaid or unpaid expenses will be added to such expense a/c in P&L a/c and will be displayed as current liability in B/S.

For example, monthly rent in May 2002 Rs. 1,000 remains unpaid. A calendar year is an accounting year.

Adjusting entries:

Rent account Dr. Rs.1000

To Outstanding Rent a/c Rs. 1,000

Dr Profit and loss accounts Cr

Particulars	Amount	Particulars	Amount
TO Rent Account Add: Outstanding	[11 month rent] [December]	11,000 1,000	12,000

Balance sheet

Liabilities	Rs	Assets
Outstanding Expenses: Rent	1,000

3. Prepaid Expenses

These are the costs paid, but part of the amount paid extends to the next year. It is also called" expiring expenses". The prepaid amount paid should be deducted from such expenses and displayed as current assets in the B/S.

For example, Rs premium a total of 2,400 people were paid on July 1, 2002. A calendar year is an accounting year. The annual premium is paid for 1 month, so the 6-month premium concerns half of the current year and the other half the following year.

Hence Rs. 1,200 must be treated as an upfront payment, deducted from the premium paid and displayed as an asset on b/S.

Adjusting entries:

Prepaid insurance a / c Dr Rs. 1, 200

To Premium A / c Rs. 1, 200

Profit and Loss Account

Particulars	Amount	Amount	Particulars	Amount
To Insurance Premium a/c Less: Prepaid insurance	2,400 1,200	1,200

Balance Sheet

Liabilities	Rs	Assets	Rs
		Prepaid Insurance	1,200

4. Accrued income:

It is an income that has already been earned [i.e. the service has already been rendered], but no money has been received. For example, interest on investments accrued Rs. 1,200.

Interest in the current year is due to the end of the year. That amount can actually be received in the next year. Currently, it represents income, which has become accounts receivable or accrued. Therefore, P&L is credited to a/c, IS accounts receivable and appears as an asset in b/S.

Adjusting entries:

Accrued interest a / c Dr. Rs. 1,200

To be interested in a / c Rs. 1,200

Profit and Loss Account

By Interest on investment

Add: Interest accrued

……

1,200

Balance Sheet

Liabilities	Rs	Assets	Rs
		Interest accrued	1,200

Income received in advance:

These are the income received during the current year, but part of the amount received is related to the following year. Such amounts must be deducted from the total amount received in P & L A / C and displayed on the debt side of B / S, which represents the amount that the business is obliged to return.

For example, business concerns have received a three-year apprenticeship premium equivalent to Rs.6, 000. Rs in this amount.2, 000 IE, 1/3 of Rs.6, 000 is for the current year and must be credited to P&L a/c as income. And balance Rs. As business is obliged to return 4, 000 represents responsibility.

Adjusting entries:

Apprentice premium A / c Dr Rs. 4000

To Apprentice premium received in advance Rs. 4000

Profit and Loss Account

		Rs	Rs
	By Apprentice Premium Less: Received in advance	6,000 4,000	2,000

Balance Sheet

Liabilities	Rs	Assets	Rs
Apprentice Premium received in advance	4,500

5. Depreciation of assets:

Depreciation implies a decrease or decrease in the value of an asset due to its constant use. It may also occur due to wear and tear, the passage of time and obsolescence. It's a loss to business.

It is usually calculated at a certain percentage to the value of the asset, and so the amount obtained is shown first on the debit side of the P & L A/C, and then subtracted from the original value of the asset of B/s.

For example, a business has furniture worth Rs. At the end of the year 50, 000 it is depreciated by 5%.

Adjusting entries:

Depreciation A / c Dr Rs. 2,500

To Furniture A / c to Rs. 2,500

[5% Rs 50,000 = 2,500]

Profit and Loss Account

Particulars	Amount	Particulars	Amount
To Depreciation a/c Furniture	2,500

Balance Sheet

Liabilities	Rs	Assets		Rs
		Furniture Less: Depreciation	50,000 2,500	47,500

Q5) Show the adjustments of Bad Debts in Final A/C.(7 marks)

A5) Debt represents money from the debtor [i.e., the uncollected portion of the credit sale]. When a debt becomes irretrievable, it becomes a bad debt and is treated as a loss. The amount of non-performing loans is debited to P&L a/c and deducted from the various debtors of B/S.

For example, a trader's ledger balance on sundry debtors shows Rs with 20,000. 1,000 are estimated to be unrecoverable.

Adjusting entries:

Bad debts a / c Dr Rs. 1,000.

To Sundry debtor a / c to Rs. 1,000.

a) Provision for bad and doubtful debt:

Every business has a lot of trading through margin trading. This gives rise to a significant amount of book debts or debtors. But 100% of these debts are rarely recovered.

Therefore, it would be necessary to bring down the balance of the debtor to it true position. The usual practice is to calculate such a bad debt at a certain rate, based on the past experience of the debtor. It is called reserves or reserves for doubtful debts.

However, the allowance for bad loans and bad debt is calculated on good debt, that is, after deducting previously unadjusted bad loans.

For example:

At the end of the year the sundries debtors of traders stood in the Rs.21, 000. It is estimated to be Rs. 1,000 is written off as bad loans and a 5% allowance is created for bad debt.

Adjusting entries:

Bad Debts a/c Dr. Rs. 1,000

To Sundry Debtors a/c Rs. 1,000

To Profit and Loss a/c Dr. Rs. 2,000

To Bad Debts a/c Rs. 1,000

To Provision for Doubtful Debts 1,000

Profit and Loss Account

	Rs
TO Bad Debts To Reserve for doubtful Debts	1,000 1,000

If there is an old provision for doubtful debts, it should be adjusted [deducted] against the new provision.

Balance Sheet

Liabilities	Rs	Assets	Rs
		Sundry Debtors Less: Bad Debts Less: Provision for Doubtful Debts	21,000 1,000	19,000
			20,000
			1,000

b) Provision for discounts to debtors:

Cash discounts are allowed to debtors to prompt quick payments. After providing bad loans and bad debts, the debtor's balance represents the debt from a healthy party.

They may pay their dues on time and try to take advantage of the acceptable cash discounts themselves. Therefore, this discount should be expected and offered. It is, therefore, the usual practice in business is to offer debtors discounts at a certain percentage on good debt.

For example:

Suppose a trader has various debtors equivalent to rs.20, 000 and he estimates that a provision for a discount of 5% is desirable, after a provision of 2% for bad debts. Then about healthy debt, i e a provision of 19,000 at 2% has been made as a reserve for debtors ' discounts.

Adjusting entries:

Profit and Loss a/c Dr. Rs.380

To Reserve for Discount on Debtors a/c Rs.380

Profit and Loss Account

	Rs
To ad Debts To Reserve for Doubtful Debts To Reserve for Discount on Debtors	1,000 380

Balance Sheet

Liabilities	Rs	Assets		Rs
		Sundry Debtors Less: Provision for Doubtful on Debts Less: Provision for Doubtful Debts	20,000 1,000 19,000 380	18,620

Q6) How are books maintained in electronic mode?(5 marks)

A6) Maintenance of books in electronic mode

The second note to Section 128 of the CA, 2013, allows the company to store such account books or other relevant papers in electronic mode in a prescribed manner Rule 3 of the company (account) rules stipulates the way accounts are held in electronic mode in 2014.

According to the rules:

Account books and other related books and papers maintained in electronic mode will remain accessible in India for further reference.

the account books and other related books and papers contained in sub-rule(1) shall be fully retained in the form originally generated, transmitted or received, or in a form that accurately presents the information generated, transmitted or received, and the information contained in the electronic records shall be complete and unaltered.

The information received from the branch must be kept in a manner that does not change and indicates the information received from the branch

Information in electronic records of documents may be displayed in an easy-to-read format.

If an appropriate system exists as the Audit Committee for the storage, retrieval, display or printing of electronic records, or as the board of Directors deems appropriate, such records shall be disposed of or unavailable unless permitted by law.

The company must be faithful with the registrar on an annual basis at the time of submission of financial statements:

a) Name of the service provider;

b) Internet Protocol address service provider;

c) Location of the service provider, if applicable）

In 1956, there was no specific provision for the maintenance of electronic mode books. However, in the Registrar of the enterprise there were provisions for the submission of electronic records containing financial statements in electronic mode. Section 610E provided that all provisions of the Information Technology Act 2000 on electronic records, including the manner and form in which electronic records are filed, apply or relate to electronic records under Section 610B, unless they are inconsistent with this law.

Q7) Define Form and content of financial statements. (8 marks)

A7) Form and content of financial statements-

Section 129 of the CA (1), 2013 requires that the financial statements of the Company shall be

A true and fair understanding of the company's situation;,

Obeying with the rules of accounting standards notified under Section 133;

A form or form provided to a company of a different class or class of Schedule III;

This subsection shall not apply to insurance companies or banking companies or companies engaged in generating or supplying electricity, or to any other class of companies whose forms of financial statements are specified in or under the law governing such class of companies.

Section subsection(5)129 further provides that, if the company's financial statements do not comply with the accounting standards set out in Subsection (1), without compromising the subsection-

In Paragraph (1), the Company shall disclose any deviations from financial statements, accounting standards, the reasons for such deviations, and any financial impact arising from such deviations.

Subsection (6) Section 129 prohibits the class from complying with the requirements of any of the rules made in this section or on its basis if the central government believes it is necessary to grant such exemptions in the public interest, on its own or by notice, for applications by the class or class of companies. Such exemption may be unconditionally or subject to the conditions specified in the notice.

A similar provision was in CA, 1956. Section 211 (1) all the company's balance sheets shall be true and fair to the company's situation at the end of the fiscal year, and in accordance with the provisions of this section, shall be in the form set forth in part I of Schedule VI, or in any form in which circumstances close to it are permitted, or in any other form that may be approved by the central government in general or in particular cases. if you do not agree to the terms of this agreement, you will be bound by the terms of this agreement. And in the preparation of the balance sheet must have, as far as possible, in the general instructions for the preparation of the balance sheet under the heading "notes" at the end of that part. :

Subsection (2) all profit and loss accounts of the Company shall give a true and fair view of the company's profit and loss for the fiscal year and, as mentioned above, shall be included in Part II of Schedule VI.

Nothing contained in this sub sections (1) and (2)does not apply to insurance companies or banking companies or companies engaged in generating or supplying electricity, or to companies of any other class whose forms of balance sheet and profit and loss accounts are set forth in the laws governing such classes of companies.

Subsection (3) the central government authorized to exempt any class of companies that comply with any of the requirements of Schedule VI, if it is deemed necessary to grant an exemption for the public interest, unconditionally or in accordance with the conditions specified in the notice by the Official Gazette.

Subsection (3A) mandated that all of the company's profit and loss accounts and balance sheets comply with accounting standards, and that if the company's profit and loss accounts and balance sheets do not comply with accounting standards, the company would disclose in its profit and loss accounts and balance sheets any deviations from accounting standards, the reasons for such deviations and any financial effects resulting from such deviations.

Subsection (4) the central government, with the consent of the board of Directors of the company, has authorized, by order, any of the requirements of this law to change in relation to the company in relation to the matters listed on the balance sheet or profit and loss account of the company for the purpose of adapting to the situation of the company.

Accounting standards

Section 129, 2013 of the CA requires that financial statements comply with accounting standards notified under Section 133 and Section 133 stipulates that the central government may prescribe accounting standards or an addendum to it, recommended by the Association of CPAs of India, after consultation with and consideration of recommendations made by the National Financial Reporting body.

Article 7 of the Company (Accounting Standards) Regulation (2014) stipulates that, as a transition provision, the accounting standards under the Company Act 1956 (i.e., the Company (Accounting Standards) Regulation, 2006) shall be considered as accounting standards until established by the central government under Article 133.

Similar provisions were provided in subsections of sections (3A), (3B) and (3C) 211, 1956 of CA.

Q8) What is the Format of financial statements?(8 marks)

A8) Format of financial statements

Section 129, 2013 of the CA requires that financial statements must be in a form or form that is provided to companies of different classes or classes of Schedule III.

Schedule III to the CA, 2013 provides that the disclosure requirements set out in this schedule are not replaced, in addition to the disclosure requirements set out in the accounting standards set out in the Companies Act, 2013. The additional disclosures specified in the accounting standard shall be made by a note to the account or an additional statement unless it is required to be disclosed on the surface of the financial statements. Similarly, all other disclosures required by the Companies Act shall be described in the account notes in addition to the requirements set out in this schedule. Such provisions were also found in Section 211 of the Companies Act and in Schedule VI, 1956.

However, Schedule III of the Companies Act 2013 also includes general instructions for the preparation of consolidated financial statements, and where the preparation of consolidated financial statements, i.e., consolidated balance sheets and consolidated income statements, is required, the Company shall comply with the requirements of this schedule that apply to the company in the preparation of the balance sheet and income statement. The consolidated financial statements shall also disclose information in accordance with the requirements set forth in the applicable accounting standards. It is also necessary to disclose certain additional information in the consolidated financial statements.

Section of Section(3)of the CA Section 129,2013 in addition to the financial statements it is provided on the basis of subsection(2)if the company has one or more subsidiaries, another statement containing in such a form that the salient features of the financial statements of its subsidiaries or subsidiaries may be prescribed. The central government may provide consolidation of the company's accounts by the prescribed method. Subsection description stipulates that for the purposes of this subsection, the word "Subsidiary" shall include quasi-company and joint venture.

Sub section (4)Section 129 applies to the preparation, adoption and audit of the financial statements of the holding company the provisions of this law stipulate that mutatis mutandis shall apply to the consolidated financial statements described in Subsection (3).

Rule 5, 2014 of the company (accounting) rules shall be in the form of a statement containing prominent features of the financial statements of subsidiaries or subsidiaries, affiliates or companies and joint ventures or ventures of the company under the first provision of Paragraph 3 of paragraph 129 of the Aoc-1.

Rule 6 stipulates the method of consolidation of accounting; it requires that the consolidation of the financial statements of the company must be carried out in accordance with the provisions of Schedule III of the law and the applicable accounting standards.

In 1956, there was no such provision in CA, which mandated the compulsory consolidation of financial statements by companies with subsidiaries.

However, Section 212 required a balance sheet of the holding company that contains certain matters relating to its subsidiaries and a sheet of the holding company for attachment to the balance sheet of the holding company

a) copy of the subsidiary's balance sheet,

b) Another set of the profit and loss account,

c) a copy of the board's report,

d) a copy of the auditor's report and

e) A statement of the interests of the holding company to the subsidiaries specified in Sub section(3).

However, subsection (2) (A), where it had subsidiaries, affiliates and joint ventures, was required to produce the balance sheet, income statement, auditor report and director report of the subsidiary in accordance with the requirements of CA, 2013. What is worth mentioning here is that CA, 2013 includes the definitions of "subsidiary" and "affiliate".

Q9) How to prepare Financial Statements?

A9) The preparation of monetary statements involves the method of aggregating accounting information into a uniform financial set. The completed financial statements are distributed to management, lenders, creditors and investors who use them to assess the performance, liquidity, and cash flow of the business.

Step 1: confirm receipt of vendor invoices

Compare and receive logs payable to all suppliers that may be charged. Comparing Accounts for expenses on invoices that have not been received.

Step 2: confirm the issue of customer invoices

Compare the shipment log to accounts receivable to ensure that all customer invoices have been issued. Issue an invoice that has not yet been prepared.

Step 3: generate unpaid wages

Accrues expenses for wages earned at the end of the reporting period, but not yet paid.

Step 4: calculate depreciation

To calculate depreciation and amortization for all fixed assets in accounting records.

Step 5: value stock

Perform a field inventory count to close, or use an alternative method to estimate the closing inventory balance. Use this information to derive the cost of the goods sold and record their amounts in accounting records.

Step 6: adjust your bank account

Perform bank adjustments, create journal entries, and record all the adjustments required to match accounting records to bank statements.

Step 7: post the account balance

Post all sub ledger balances to the general ledger.

Step 8: verify your account

Review the balance table account and use journal entries to adjust the account balance to match the corresponding details.

Step 9: check your finances

Print preliminary versions of financial statements and check them for errors. Repeat until all errors are corrected.

Step 10: generating income tax

Based on the corrected income statement, you will accrue income tax expenses.

Step 11: close the account

Close all sub ledgers for that period and open during the next reporting period.

Step I2: issue financial statements

Print the final version of the financial statement. Based on this information, write a footnote that accompanies the statement. Finally, prepare a cover letter explaining the key points of the financial statements. This information is then assembled into packets and distributed to a standard list of recipients.

Financial statements are the way companies tell their stories. Thanks to GAAP, there are four basic financial statements that everyone needs to prepare.

Q10) What are the Basic accounting assumptions? (7 marks)

A10) Basic accounting assumptions-

Certain assumptions are utilized in the preparation of monetary statements. They are usually not particularly indicated because they are supposed to be abided. Disclosure is only necessary if they are not followed.

The following are generally accepted as basic accounting assumptions:

Ongoing concern

Organizations are usually considered to be of continuous concern, that is, to be in continuous operation in the near future. It is assumed that the organization has no intention, no need to stop operations or scale down.

Consistency

It is assumed that the accounting policy follows consistently from one period to another. Frequent changes are not expected.

Axial

Revenues and expenses are recorded when they are earned or incurred in the relevant period (not when money is received or paid).

Nature of accounting policy

Accounting policy refers to the method of applying these principles adopted by the organization in the preparation of accounting principles and financial statements.

There is no single list of accounting policies that apply in all situations. The different circumstances in which the organization operates make alternative accounting principles acceptable. The choice of the right accounting principles calls for a greater degree of judgment by the management of the organization.

The various standards of the Association of Certified Public Accountants of India, combined with the efforts of the government and other regulatory bodies, reduce the number of acceptable alternatives in recent years, especially in the case of legal entities, the continued efforts in this regard in the future may further reduce the number, but the availability of alternative accounting principles is not likely to be completely eliminated, with the different situations faced by the organization in mind.

Part B

Q1) From the following ledger balance presented by Sen. on 31st March, 2016 prepare a trading account:

Particulars	Rs	Particulars	Rs
Stock (1-4-2015) Purchase Wages Carriage inwards Freight inward	10,000 1,60,000 30,000 10,000 8,000	Sales Returns inward Return outward Gas and Fuel	3,00,000 16,000 10,000 8,000

Other information:

Closing value of stock for 31st March, 2016. 20,000

Unpaid wages reached Rs. 4,000

Gas and fuel were paid in advance for Rs. 1,000. (7 marks)

A1)

Trading account for the year ended 31st March, 2016

Dr Cr

Particulars	Rs	RS	Particulars	Rs	Rs
To Opening Stock To purchase Less: Return outwards To wages Add: Outstanding To carriage inwards To freight inwards To Gas and fuel Less: Prepaid To Gross profit c/d	1,60,000 10,000	10,000 1,50,000 34,000 10,000 8,000 7,000 85,000	By Sales Less: Returns inward BY Closing Stock	30,00,000 16,000	2.84,000 20,000

	30,000 4,000
	8,000 1,000

					3,04,00
		3,04,00

Q2) From the following details presented by Thilak for the year 31st March, 2017, we will prepare a profit and loss account.

Particulars	Rs	Particulars	Rs
Gross profit Rent paid Salaries Commissions (Cr.) Discount received Insurance Premium paid	1,00,000 22,000 10,000 12,000 2,000 8,000	Interest received Bad debts Provisions for bad debts(1-4-2016) Sundry debtors Buildings	6,000 2,000 4,000 40,000 80,000

Adjustment:

The unpaid salary reached Rs. 4,000

The rent was paid for 11 months

Interest expense reached Rs but was not received. 2,000.

Prepaid insurance has reached Rs. 2,000

Depreciating buildings by 10%

Further bad debts reached Rs. over 3,000 of 5%、

The fee received in advance reached Rs. 2,000. (8 marks)

A2)

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

Dr. Cr.

Particulars	Rs	RS	Particulars	Rs	Rs
To Rent Add: Outstanding (22,000x1/11) To Salaries Add: Outstanding To Insurance premium Less: Prepaid insurance To Provision for bad and doubtful debts(closing) Add: Bad debts Add: Further bad debts Less: Opening provisions for bad and doubtful debts To Depreciate on building (80,000 x 10%) To Net profit (transferred to capital A/c)	22,000 2,000	24,000 14,000 6,000 2,900 8,000	By Gross profit b/d By Commission Less: Received in advance By Discount received By interest received Add: Accrued	- 12,000 2,000	1,00,000 10,000 2,000 8,000
	10,000 4,000			6,000 2,000
	8,000 2,000
	1,900 2,000 3,000
	6,900 4,000

		65,100
		1,20,000
					1,20,000

Working notes:

Debtors: 40,000

Less: further bad loans: 2,000: 38,000

Allowance for bad and bad debt of 5%: 38,000x5 % =Rs. 1,900

Q3) As of 31st December, 2017, from the balance below, prepare a profit and loss account.

Particulars	Rs	Particulars	Rs
Gross profit Salaries Office rent paid Advertisement	50,000 18,000 12,000 8,000	Rent received Discount received Carriage outwards Fire insurance premium	2,000 3,000 2,500 6,500

Adjustment:

Rent accrued, but not yet received Rs. 500

Fire insurance premiums are prepaid in the range of Rs. 1,500

Offer the manager's Commission at 10% of the profit before meeting such a commission. ( 7 marks)

A3)

Dr. Cr.

Particulars	Rs	RS	Particulars	Rs	Rs
To Salaries To Office rent To Advertisement To Carriage outwards To Fire insurance premium Less: Prepaid To Manager’s commission To Net profit (transferred to capital account)	6,500 1,500	18,000 12,000 8,000 2,500 5,000 1,000 9,000	By Gross profit b/d By Rent received Add: Rent accrued By Discount received	2,000 500	50,000 2,500 3,000 55,500

		55,500

Profit and Loss Account for the year ended 31st December, 2017

Dr. Cr.

Particulars	Rs	Rs	Particulars	Rs	Rs
To Salaries To Office Rent To Advertisement To Carriage outwards To Fire insurance premium Less: Prepaid TO Manager’s commission To Net profit (transferred to capital account)	6,500 1,500	18,000 12,000 8,000 2,500 5,000 1,000 9,000 55,500	By Gross profit/d By Rent received Add: Rent accrued By Discount received	2,000 500	50,000 2,500 3,000 55,500

Working notes:

Manager’s Commission= Net profit before charging commission x Rate of Commission/100

Net profit = 55,500 – (18,000 + 12,000 + 8,000 + 2,500 + 5,000) = Rs. 10,000

Manager’s commission = 10,000x 10/100 = 1,000

Q4) Prepare a trading and profit and loss account from the following balances obtained from Siva books:

Particulars	Rs	Particulars	Rs
Stock on 01.01.2016 Purchase Sales Expenses on purchase Bank charges paid	9,000 22,000 42,000 1,500 3,500	Bad debts Sundry expenses Discount allowed Expenses on sale Repairs on office furniture	1,200 1,800 1,700 1,000 600

Adjustment:

Closing value of the stock on 31st December, 2016 Rs 4,500

The manager is entitled to receive a commission@5% of the net profit after providing such a commission. (8 marks)

A4)

Solution

Dr. Trading and Profit and Loss Account for the year 31st December, 2016 Cr.

Particulars	Rs.	Particulars	Rs
To Opening stock To Purchase To Expense’s on purchase To Gross profit c/d To Bank charges To Bad debts To Sundry expenses To Discount allowed TO Expense on sale To Repairs on office furniture TO Manager’s commission To Net profit (transferred to capital A/c)	9,000 22,000 1,500 14,000	By Sales By Closing stock By Gross profit b/d	42,000 4,500
	46,500		46,500
	3,500 1,200 1,800 1,700 1,000 600 200 4,000		14,000
	14,000		14,000

Working Note:

Commission = Net profit before charging commissions x Rate of commissions/(100+ Rate of commissions) x 100

Net profit = 14,000 – (3,500 + 1,000+1,200+1,800+1,700+600) = Rs 4,200

Manager’s commission = 4,200 x 5/105 = Rs 200

Q5) From the following details, we have prepared Madhu's balance sheet and finished 31st March, 2018. During the final account creation, the following adjustments were made:

Particulars	Rs	Particulars	Rs
Capital Drawings Cash in hand Loan from Bank Bank over draft Investment Bills receivables	2,00,000 40,000 15,000 40,000 20,000 20,000 10,000	Sundry creditors Bill payable Goodwill Sundry debtor Land and Building Vehicles Cash at bank	40,000 20,000 60,000 80,000 50,000 80,000 25,000

Adjustments:

Unpaid debt: salary Rs. 10,000; pay Rupees. 20,000; interest on bank overdraft Rs. Bank loan Rs 3,000 and interest. 6,000

Provide interest on capital@10%p.a.

Bad debts reached Rs. Make provisions for bad debts of 10,000 and @10% to sundry debtors.

Closing stock reached Rs. 1,20,000

Provide depreciation on car @10%p.a.

Net profit for the year reached Rs. 96,000 after considering all the above adjustments. (8 marks)

A5)

In the book of Madhu

Balance Sheet as on 31st March, 2018

Particulars	Rs	Rs	Particulars	Rs	Rs
Capital Add: Net profit Add: Interest on capital Less: Drawings Loan from bank Add: Interest outstanding Bills payable Sundry creditors Bank overdraft Add: Interest outstanding Outstanding liabilities Salaries Wages	2,00,000 96,000 20,000	2,76,000 46,000 20,000 40,000 23,000 30,000	Good will Land and Building Vehicles Less: Depreciation Investment Stock in trade Sundry debtors Less: Bad debts Less: Provision for bad and doubtful debts Bills receivable Cash at bank Cash in hand	80,000 8,000	60,000 50,000 72,000 20,000 1,20,000 63,000 10,000 25,000 15,000
	3,16,000 40,000
				80,000 10,000
	40,000 6,000
	20,000 3,000			70,000 7,000
	10,000 20,000
		4,35,000
					4,35,000

Q6) The following balance was extracted from Thomas's book as of 31st March, 2018 additional information:

Particular	Rs	Paricular	Rs
Purchase Return inward Opening stock Freight inwards Wages Investments Bank Charges Land Machinery Buildings Cash at bank Cash in hand	75,000 2,000 10,000 4,000 2,000 10,000 1,000 30,000 30,000 25,000 18,000 4,000 2,11,000	Capital Creditors Sales Return outwards	60,000 30,000 1,20,000 1,000 2,11,000

Close the stock by Rs. 9,000

Provide depreciation@10% on machinery

Interest accrued on the investment Rs. 2,000

Prepare a trading account, a profit and loss account and a balance sheet. (7 marks)

A6)

In the book of Thomas

Dr. Trading and Profit and Loss Account for the year ended 31st March, 2018 Cr.

Particulars	RS	Rs	Particulars	Rs	Rs
To Opening stock TO Purchase Less: Return outward To Freight inwards To wages To Gross profit c/d To Depreciation on machinery To Bank charges To Net profit (transferred to a/c)	75,000 1,000	10,000 74,000 4,000 2,000 37,000	By Sales Less: Return inward By Closing stock By Gross profit b/d BY Accrued interest on investment	1,20,000 2,000	1,18,000 9,000


		1,27,000			1,27,000
		3,000 1,000 35,000			37,000 2,000
					39,000
		39,000

Balance Sheet as on 31st March, 2018

Particulars	RS	Rs	Particulars	Rs	Rs
Capital Add: Net profit Creditors	60,000 35,000	95,000 30,000	Land Building Machinery Less Depreciation Investment Add: Accrued interest Stock in trade Cash at bank Cash in hand	30,000 3,000	30,000 25,000 27,000 12,000 9,000 18,000 4,000
				10,000 2,000

Q7) Below is a balance extracted from Nagarajan's book as of 31st March, 2016.

Particulars	Rs	Particulars	Rs
Purchase Wages Freight inwards Advertisement Carriage outwards Cash Machinery Debtors Bills receivable Stock on 1st January, 2016	10,000 600 750 500 400 1,200 8000 2,250 300 1,000 25,000	Sales Commission received Rent received Creditors Capital	15,100 1,900 600 2,400 5,000 25,000

After adjusting for the following, we will prepare trading and profit and loss accounts for the year ending 31st March, 2016 and balance sheet as of that date:

Fees received Rs in advance. 400

Ads paid Rs in advance. 150

Unpaid wages Rs. 200

Stock at the end was Rs. 2,100. (8 marks)

A7)

In the book of Nagrajan

Dr. Trading and Profit and Loss Account for the year ended 31st March, 2016 Cr.

Particulars	Rs	Rs	Particulars	Rs	Rs
To Opening stock To Purchase TO Wages Add: Outstanding To Freight inwards To Gross profit c/d TO Advertisement Less: Prepaid advertisement To Carriage outwards TO Net profit (transferred to capital a/c)	600 200	1,000 10,000 800 750 4,650	By Sales By Closing stock By Gross profit b/d By Commission received Less: Received in advance By Rent received	1,900 400	15,100 2,100
	500 150
		17,200			17,200 4,650
		350 400 6,000			1,500 600


		6,750			6,750

Q8) Consider the following balance extracted from Jain's book, as of 31st December, 2016. Prepare the final account.

Capital

Debtors

Creditors

Purchase

Sales

Income tax of Jain paid

Opening stock

20,000

8,000

10,500

60,00

80,000

500

12,000

Offices Salaries

Establishment expenses

Selling expense

Furniture

Cash at bank

Miscellaneous receipt

Drawings

6,600

4,500

2,300

10,000

2,400

600

4,800

Adjustment

Unpaid salaries for January, 2016 amounted to Rs. 600

Furniture depreciate by 10% p.a.

5% p.a on interest on capital

Stock for 31st December, 2016 Rs 14,000. (8 marks)

A8)

In the book of Jain

Dr. Trading and profit and Loss Account for the year ended 31st Dec,2016 Cr.

Particular	Rs	Rs	Particular	Rs	Rs
To Opening Stock To Purchase To Gross Profit c/d To Office salaries Add: Outstanding To Establish expenses To Selling expenses To Depreciation on furniture (10,000 x 10%) To interest on capital (20,000 x 5%) To Net profit (transferred to capital a/c)	6,600 600	12,000 60,000 22,000	By sales By closing stock By Gross Profit b/d By miscellaneous receipt		80,000 4,000
		94,000			94,000
		72,00 4,500 2,300 1,000 1000 6,600			22,000 600

		22,600			22,600

Balance Sheet as on 31st December, 2016

Liabilities	Rs	Rs	Assets	Rs	Rs
Capital Add: Net profit Add: Interest on capital Less: Drawings 4,800 Income tax 500 Creditors Office salaries outstanding	20,000 6,600 1,100 27,600 5,300	22,300 10,500 600	Furniture Less: Depreciation Stock in trade Debtors Cash at bank	10,000 1,000	9,000 14,000 8,000 2,400


		33,400

Q9) Edward's books include: We will prepare his trading and profit and loss a/c for the year to 31st December, 2016 and ended the balance sheet for the day.

Debit balances	Rs	Credit balances	Rs
Drawings Sundry debtors Coal, gas and water Return inward Purchase Stock on 1-11-2016 Travelling expenses Interest on loan paid Petty cash Repairs Investment	5,000 60,000 10,500 2,500 2,56,500 89,700 51,250 300 710 4,090 70,000	Capital Loan at 6% p.a. Sales Interest on investment Sundry creditors	1,31,500 20,000 3,56,500 2,550 40,000
	5,50,550		5,50,550

Adjustment:

The closing price of stock was Rs. 1, 30,000 on 31th December, 2016.

Create a 5% allowance for bad debt and bad debt to sundries debtor

Create a provision at 2% for debtor’s discount

Interest on the loan is postponed for 9 months. (7 marks)

A9) In the books of Edward

Dr. Trading and Profit and Loss Account for the year ended 31st Dec, 2016 Cr.

Particulars	₹	₹	Particulars	₹	₹
To opening stock To purchase To Coal, gas and water To Gross profit c/d To travelling expenses To interest on loan paid (Add: Interest Outstanding 20,000/6 x 9/12) To Repair To Provide Provision for bad and doubtful debts To Provision for Discount on debtors Net Profit (transferred to capital a/c)	300 900	89,000 2,56,500 10,500 1,27,300	By sales Less: Returns inward By Closing stock By Gross profit b/d By Interest on Investment	3,56,00 2,500	3,54,500 1,30,000

					4,84,000
		4,84,000
		51,250 1,200 4,090 3,000 1,140 69,170			1,23,300 2,550
		1,29,850			1,29,850

Balance Sheet as on 31st December, 2016

Q10) Karyan & co. operates the cloth business. And then, in 2008, the company's accounting books show the debtor in Rs. 4, 00,000. Of those debtors, Rs. 20,000 was recognized as bad debts since those debtors became insolvent. Display positions in financial statements. (5 marks)

A10)

Profit /loss Account as on 31st

Dr Cr

Particulars	Amt	Particulars	Amt
To bad debts	20,000

Balance sheet as on 31st

Liabilities	Amt	Assets	Amt
		Sundry debtors:4,00,000 Bad debts 20,000	3,80,000

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