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FINANCIAL STATEMENTS OF SOLE PROPRIOTORSHIP

 

Distinction between Capital Expenditure and Revenue Expenditure

Basis Capital Expenditure Revenue Expenditure
1. Purpose It is incurred for acquisition of fixed assets It is incurred for day to dayrunning of a business
2. Capacity It enhances earning capacity of the business It does not increase capacity it only maintains the capacity
3. Benefit It provides benefit for > 1 year Its benefits gets exhausted with 1 year
4. Nature of Account It is an asset account It is an expenses account
5. Depiction It is shown in the balance sheet It is shown in the trading account or profit and loss account
6. Examples Cost of plant and machinery, land and building furniture and fixture Salaries, telephone rent, electricity, insurance etc.

 

Classify the following items into capital and revenue expenditure.

  • Used car purchased for ` 2,20,000, 30,000, spent on its repairs.
  • Wages paid in connection with installation of a new machinery ` 10,000.
  • Repairs of machinery ` 6,000.
  • White wash (i.e. painting) of office building ` 25,000.
  • Manufacturing wages of ` 15,000.
  • Paper purchased for use of as stationary ` 2,000.
  • Renovation of office building ` 6,00,000.
  • Brokerage of ` 2,00,000 paid on purchase of New Land.
  • Computers upgraded ` 12,000.
  • Repairs of ` 16,000 necessitated due to negligence.
  • Custom duty paid on important of machinery ` 60,000.
  • Advertising expenses to launch a new product ` 50,00,000.
  • ` 26,000 spent on repairs and white washing at the time of purchase of an old building in order o make it usable.
  • Expenditure of ` 35,000 to put a more ventilators in the factory as per the compliance at with government order.
  • Cost of air-conditioning of the office production manager ` 35,000.
  • Temporary sheds put at a project site to house material for construction of building ` 60,000.
  • ` 25,000 paid as compensation to an employee who was retrenched.
  • Purchase of 10 cars by a car dealer for ` 60,00,000.
  • ` 600 were paid in connection with cartage on goods purchased.
  • ` 16,000 interest accrued on the loan obtained and utilized for construction of factory building which is still under construction.

Preparation of Trading Account

Particulars Amount Particulars Amount
To Opening stock

To Purchases

Less : Purchase Returns

or

Returns outward

To wages

To Wages and Salaries

To Direct Expenses

To Carriage,                 or

To Carriage inwards,    or

To Carriage on Purchase

To Gas, Fuel and Power

To Freight, octroi and cartage

To Manufacturing expenses, or

Productive Expenses

To Factory Expenses, such as :

Factory Lighting

Factory Rent etc.

To dock charges and Clearing charges

To Import Duty or Custom Duty

To Royalty

To Gross Profit

Transferred to P & L A/c

(Balancing Figure)

`

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_________

_________

By sales

Less : Sales Returns

or

Returns inward

By Closing Stock

By Gross loss

(if any) transferred to   Profit and Loss A/c

(Balancing figure)

`

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_________

_________

 

 

Q.1.   Prepare a Trading Account for the year 31st March 2014 from the following    balances.

(i) Opening stock, ` 5,00,000 (ii) Purchases ` 25,00,000
(iii) Sales ` 62,50,000 (iv) Freight ` 40,000
(v) Octroi ` 30,000 (vi) Wages ` 3,60,000
(vii) Factory Lighting ` 80,000 (viii) Coal, Gas and Water ` 24,000
(ix) Purchases Return ` 1,30,000 (x) Sales Return ` 1,80,000
(xi) Carriage on purchase ` 90,000 (xii) Carriage on sales ` 1,20,000
(xiii) Factory Rent ` 26,000 (xiv) Office Rent ` 1,50,000
(xv) Import Duty ` 90,000 (xvi) Export Duty ` 70,000

 

Closing stock is valued at 5,80,000.

Also Calculate :

  • Cost of goods sold (COGs)
  • Adjusted Purchases
  • Gross Profit by using sales and cogs.
  • Direct expenses

Also pass closing entries for the above account heads.

P.Q.1.          Prepare a Trading Account for the year 31st March 2014 from the following    balances.

(i) Stock on 1st April, 2013 ` 50,000 (ii) Purchases ` 5,50,000
(iii) Wages ` 25,000 (iv) Carriage Inwards ` 5,000
(v) Sales (Inclusive of sales tax) ` 8,80,000 (vi) Return Outwards ` 45,000
(vii) Freight Inwards ` 3,000 (viii) Return Inward ` 20,000
(ix) Freight Outward ` 40,000 (x) Sales Tax Paid ` 30,000
(xi) Octroi ` 6,000    

Closing stock on 31st March 2014 was valued at ` 60,000.

Also Calculate :

  • Cost of goods sold (COGs)
  • Adjusted Purchases
  • Gross Profit by using (COGs)
  • Direct expenses and sales

Also pass closing journal entries for the above account heads.

Q.2.   From the following information, prepare the Trading Account for the year ended      31st March 2014.

(i) Stock on 1st April, 2013 `70,000 (ii) Freight `2,50,000
(iii) Freight Outward `70,000 (iv) Wages `3,50,000
(v) Octroi `25,000 (vi) Fuel and Power `65,000
(vii) Office Rent ` 30,000 (viii) Office Rent ` 26,000
(ix) Trade Expenses `22,000 (x) Sales `95,00,000
(xi) Closing Stock `1,80,000    

Also Calculate :

  • Cost of goods sold (COGs)
  • Adjusted Purchases
  • Gross Profit by using (COGs)
  • Direct expenses and sales

Also pass closing journal entries for the above account heads.

 

Q.3.   Calculate Gross Profit when

(i) Total Purchases ` 15,00,000 (ii) Return ` 80,000
(iii) Current Inward ` 12,000 (iv) Direct Expenses ` 75,000
(v) of the goods are sold ` 18,00,000    

 

P.Q.2.          Calculate COGs and Closing stock from the following information

(i) Sales `12,00,000 (ii) Sales Return `1,50,000
(iii) Gross  Profit `1,70,000 (iv) Opening Stock `45,000
(v) Purchases `6,00,000 (vi) Purchases Return `30,000
(vii) Carriage Inward `28,000    

 

Q.4.   Calculate gross Profit and cost of Goods sold from the following information

(i) Net Sales ` 80,00,000 (ii) Gross Profit = 25% on cost.

 

P.Q.3.          Calculate gross Profit and Sales from the following information

(i) COGs ` 40,00,000 (ii) Gross Profit = 20% on cost.

Q.5.   From the following information, calculate cost of goods sold.

(i) Net Sales ` 30,00,000 (ii) Gross Profit = 25% on sales

 

P.Q.4.          From the following calculate cost of goods sold.

(i) Cost of Goods sold ` 30,00,000 (ii) Gross Profit = 25% on sales

 

P.Q.5.          Calculate closing stock from the following data

(i) Opening Stock ` 1,00,000 (ii) Cash Sales ` 3,00,000
(iii) Credit Sales ` 2,00,000 (iv) Purchase ` 3,50,000
(v) Gross Profit =  on cost.    

 

P.Q.6.          Calculate Net Sales and Gross Profit from the following information

(i) Cost of Goods Sold ` 10,00,000 (ii) Gross Profit 20% on sales

 

P.Q.7.          Calculate Gross Profit and Cost of Goods Sold from the following information:

 

P.Q.8.          Assertion cost of goods sold from the following:

(A)

(i) Opening Stock ` 85,000 (ii) Purchases ` 4,15,000
(iii) Direct expenses ` 48,000 (iv) Indirect expenses ` 42,500
(v) Closing Stock ` 45,000    

(B)

(i) Opening Stock ` 4,50,000 (ii) Cash Sales ` 1,65,000
(iii) Credit Sales ` 36,00,000 (iv) Returns Outward ` 30,000
(v) Wages and salaries ` 12,000 (vi) Carriage Inward ` 6,000
(vii) Carriage Outward ` 3,000 (viii) Cash Purchases ` 28,00,000
(ix) Credit Purchases ` 1,50,000 (x) Return Inward ` 60,000
(xi) Closing Stock ` 2,60,000
but its market value is 2,52,000
(xii) Freight Outward ` 3,000

(C)

(i) Excise Duty ` 2,500 (ii) Octroi and Import duty ` 3,500
(iii) Purchases ` 60,000 (iv) Sales ` 1,50,000
(v) Sales of Motor Car ` 60,000 (vi) Dock Charges ` 1,500
(vii) Sale of delivery vans ` 25,000 (viii) Factory rent and rates ` 2,000
(ix) Factory Heating, lighting and insurance ` 5,000 (x) Carriage on sales ` 1,500
(xi) Carriage on sale of machinery ` 2,000 (xii) Opening Stock ` 12,000

 

Format of a Profit and Loss Account

Particulars Amount Particulars Amount
 

To Gross Loss b/d

(Transferred from Trading A/c)

Office expenses :

To Salaries

To Salaries & Wages

To Rent, Rates & Taxes

To printing & Stationary

To postage and telegram

To Lighting

To Insurance premium

To Legal Charges

To Audit fees

To Travelling Expenses

To Establishment Expenses

To Trade Expenses

To Trade Expenses

To General Expenses

Selling and distribution expenses :

To Carriage Outwards, or       Carriage on Sales

To Advertisement

To Commission

To Brokerage

To Bad-debts

To Export duty

To Packing charges

To Delivery Van Expenses

To Stable expenses

Miscellaneous expenses :

To Discount

To Repairs

To Depreciation

To Interest (Dr.)

To Bank Charges

To Entertainment Expenses

To Conveyance Expenses

To Donation and Charity

To Loss on Sale of Assets

To Net Profit –

Transferred to Capital A/c

`

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_________

_________

 

By Gross Profit b/d

(Transferred from        Trading A/c)

By Rent from Tenant

By Rent (Cr.)

By Discount received

Or Discount (Cr.)

By Commission Received

By Interest on Investments

By Dividend on Shares

By Bad-Debts Recovered

By Apprentice Premium*

By Profit on sale of Assets

By Income from other Sources

By Miscellaneous Receipts

By Net Loss (if any)

Transferred to Capital A/c

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_________

_________

 

Q.6.   From the following particulars, prepare a profit and loss account for the   year ending 31st March, 2014.

S.No. Items Amount ` S.No. Items Amount `
(i) Gross Profit  26,50,000 (xii) Discount Allowed  35,000
(ii) Trade Expenses  25,000 (xiii) Lighting  8,500
(iii) Carriage on Purchase  60,000 (xiv) Commission Received  10,000
(iv) Carriage on Sale  15,000 (xv) Bad Debts  11,000
(v) Postage and Telegram  12,000 (xvi) Discount Dr.  2,000
(vi) Office Rent  78,000 (xvii) Discount (Cr.)  8,000
(vii) Audit Fees  20,000 (xviii) Interest on Loan  25,000
(viii) Legal charges  5,000 (xix) Export Duty  12,000
(ix) Donation  12,500 (xx) Miscellaneous Receipt  15,000
(x) Sundry Expenses  3,800 (xxi) Travelling Expenses  24,000
(xi) Selling Expenses  30,500      

Also give closing journal entries.

PQ.9  Prepare profit and loss account for the year ended 31st March 2014 from the following particulars.

S.No. Items Amount `
(i) General Expenses 18,000
(ii) Gross Profit  10,80,000
(iii) Charity  5,000
(iv) Carriage Outward  30,000
(v) Office Lighting 4,000
(vi) Office Expenses  21,000
(vii) Law Charges 6,500
(viii) Fire Insurance 30,000
(ix) Advertisements 6,000
(x) Bank Charges 8,000
(xi) Telephone Expenses 14,000
(xii) Establishment Expenses 2,000
(xiii) Commission 4,000
(xiv) Miscellaneous Expenses 6,000
(xv) Rent Rates and Taxes 22,000
(xvi) Discount Received 35,000
(xvii) Interest on Investment 35,000
(xviii) Traveller’s Salary 36,000
(xix) Sundry Receipt  15,000
(xx) Repairs 3,600
(xxi) Indirect Expenses 5,500
(xxi) Indirect Expenses  5,500
(xxiii) Commission (Cr.) 8,000

Also give closing journal entries.

 

Q.7    Calculate Gross Profit, Operating Profit and Net Profit from the following

S.No. Items Amount `
(i) Opening Stock 3,00,000
(ii) Commission Paid 3,000
(iii) Purchases 22,00,000
(iv) Commission Received 7,500
(v) Sales 46,00,000
(vi) Travelling Expenses 7,500
(vii) Purchases Returns 80,000
(viii) Office Expenses 4,500
(ix) Sales Return 1,20,000
(x) Interest on Long term loans 30,000
(xi) Wages 90,000
(xii) Advertising 15,000
(xiii) Dividend on investment 3,600
(xiv) Printing and stationery 4,500
(xv) Salaries 1,80,000
(xvi) Loss on Sale of machinery 46,000
(xvii) Lighting 24,000
(xviii) Loss by Theft  30,000

 

Closing Stock was ` 3,80,000 (cost) whereas its market value is
` 3,25,000.

Q.8    From the following figures, calculate operating profit.

S.No. Items Amount `
(i) Net Profit 2,80,000
(ii) Rent  Received 30,000
(iii) Donation  3,500
(iv) Interest on loans  24,000
(v) Gain on sale of M/c 28,000

 

PQ.10 Calculate Gross Profit, Operating Profit and Net Profit from the following

S.No. Items Amount `
(i) Sales 10,00,000
(ii) Office Expenses 24,000
(iii) Loss by theft 12,000
(iv) Rent Received  3,000
(v) Interest on Loan 15,000
(vi) Salaries 22,000
(vii) Advertisement  25,000
(viii) Bad Debts 12,000
(ix) Cost of goods sold 5,10,000
(x) Audit Fees 11,000
(xi) Charity 3,000
(xii) Interest Received 4,500
(xiii) Rent, Rates and Taxes 15,000

 

PQ.11 Compute Operating Profit from the following information :

S.No. Items Amount `
(i) Net Profit 1,50,000
(ii) Loss by Fire 8,000
(iii) Interest on Loan 7,000
(iv) Loss on Sale of machine  4,000
(v) Interest and Dividend Received 7,600
(vi) Profit on sale of investment 15,000
(vii) Charity  3,500
(viii) Salaries 4,500

 

 

BALANCE SHEET

Liabilities Amount` Assets Amount`
Current Liabilities :-

Bank Overdraft

Bills Payable

Sundry Creditors

Outstanding expenses

Unread Income

Fixed Liabilities :-

Long term loans

Reserves Capital

Add : Net Profit

Less : Drawings

Less : Income Tax

Less : Life Insurance Premium

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_________

_________

Current Assets :-

Cash in Hand

Cash at Bank

Short term Investment

Sundry Debtors

Closing Stock

Prepaid Expenses(3)

          Accrued Income

Long Term Investments

Fixed Assets :-

      Furniture

Loose Tools

Motor Vehicle

Plant and Machinery

Land and Buildings

Patents

Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_________

_________

 

Q.9    From the following balances of M/s F.B. Fashions, prepare a Balance Sheet as at   31st March 2014.

Particulars Dr. (`) Cr. (`)
Plant and Machinery 20,20,000  
Furniture 3,00,000  
Land and Building 15,00,000  
Cash in Hand 50,000  
Bank Overdraft   4,50,000
Debtors and Creditors 6,80,000 5,00,000
Bills Receivable and Bills Payable 2,50,000 1,50,000
Closing Stock 10,00,000  
Short term Investments 2,00,000  
Capital   37,50,000
Drawing 2,10,000  
Net Profit   13,40,000
  61,90,000 61,90,000

 

Q.10  A traders has earned a net profit of 1,14,400 for the year ended 31st March,   2014, other balances are as under

Particulars Dr. (`) Cr. (`)
Cash in Hand 12,000  
Furniture and Fixtures 15,000  
Bills Payable   6,400
Creditors   1,22,600
Closing Stocks 1,40,000  
Motor Car 80,000  
Building 3,00,000  
Plant and Machinery 2,40,000  
Bills Receivable 8,800  
Loan   1,00,000
Investment 40,000  
Drawing 12,000  

 

 

Q.11. Following is the Trial Balance of M/s D.K. Associates as at 31st March 2014.

Dr. Balances Amount ` Cr. Balances Amount `
Stock 1-4-2013

Purchases

Wages

Returns Inwards

Carriage on Purchases

Carriage on Sales

Office Salaries

Duty on Imported Goods

Rent and Taxes

Cash

Bank Balance

Bad-debts

Discount allowed

Land and Building

Scooter

Scooter Repairs

B/R

Commission

Sundry Debtors

Interest on X’s Loan

Drawings

20,000

1,16,000

4,000

7,040

4,720

1,420

9,600

5,400

4,800

2,200

15,640

1,200

1,280

40,000

13,200

1,700

7,000

3,600

50,800

3,000

12,000

3,24,600

Discount Received

Return Outwards

Sales

B/P

Sundry Creditors

Creditors for Rent

Capital

Loan from X

Commission

 

1,500

5,200

1,97,300

6,000

11,200

1,000

80,000

20,000

24,00

 

 

 

 

 

 

 

 

 

 

 

 

3,24,600

 

Q.12. From the following balances of the Ledger of Sh. Akhileshwar Singh, prepare          Trading and Profit & Loss Account and Balance Sheet :

Particulars Dr. (`) Cr. (`)
Stock 1-4-2014

Stock on 31-3-2013

Purchases and Sales

Returns

Commission on Purchases

Freight, Octroi and Carriage

Wages and Salary

Fire Insurance Premium

Business Premises

Sundry Debtors

Sundry Creditors

Goodwill

Patents

Coal, Gas and Power

Printing and Stationery

Postage and Telegram

Travelling Expenses

Drawings

Depreciation

General Expenses

Capital

Investments

Interest on Investments

Custom Duty on Imported Goods

Cash in Hand

Banker’s Account

Commission

Loan on Mortgage

Interest on Loan

B/P

B/R

Income Tax

Horses and Carts

Discount on Purchases

60,000

92,400

4,46,000

25,000

2,400

52,000

21,200

1,640

80,000

52,200

 

16,000

16,800

15,200

4,200

1,420

8,500

14,400

2,000

16,700

 

16,000

 

9000

5,140

 

9,200

 

6,000

 

9,080

6,000

40,600

 

10,43,480

 

 

6,91,600

30,400

 

 

 

 

 

 

53,400

 

 

 

 

 

 

 

 

 

1,79,520

 

1,600

 

 

10,400

8,800

60,000

 

4,360

 

 

 

3,200

10,43,480

 

Q.13. From the following balances prepare Final Accounts as at 31st March 2014.

Dr. Balances Amount ` Cr. Balances Amount `
Stock 1-4-2013

Purchases

Sales

Productive Expenses

Unproductive Expenses

Trade Expenses

Returns in

Returns Out

Loose Tools

Trade Marks

Discount Cr.

Salaries

Fixed Deposit with Punjab

National Bank

Cash in Hand

Motor Vehicles

Leasehold Land

Capital

Life Insurance Premium

2,35,000

4,68,000

13,00,000

2,70,000

58,000

12,000

66,000

28,000

72,000

50,000

21,000

96,000

 

1,00,000

13,000

5,00,000

6,00,000

13,37,450

6,00,000

Freight In

Freight Out

Rent (Factory 1/3, Office 2/3)

Legal Expenses

Miscellaneous Receipts

Sundry Debtors

Sundry Creditors

Donation

Bad-Debts

Bad-Debts Recovered

Bank Charges

Loan on Mortgage

Interest on Loan

 

11,000

30,000

75,000

80,000

50,000

3,00,000

1,61,000

60,000

4,00,750

40,000

28,000

2,00,000

2,40,000

 

 

 

 

 

 

PQ.13. Following Trial Balance is extracted from the books of a merchant on
31st March, 2014.

Dr. Balances Amount ` Dr. Balances Amount `
Furniture and Fittings

Motor Vehicles

Building

Bad Debts

Sundry Debtors

Stock on 1st April, 2013

Purchases

Sales Return

Rent Advertising

Interest

Cash in Hand

6,400

62,500

75,900

1,250

38,000

34,600

55,750

2,000

4,500

1,180

6,600

Taxes and Insurance

General Charges

Salaries

Credit Balances :

Capital

Bills Payable

Sundry Creditors

Sales

Bank Overdraft

Purchases Return

Commission

12,250

7,820

33,000

 

1,28,900

2,000

25,000

1,15,450

28,500

1,250

1,750

From the above, prepare Trading and Profit and Loss Account for the year ended 31st March, 2014 and Balance sheet as at that date.

 

PQ.14. The following balances were extracted from the books of Harish Chandra on          31st March, 2014.

Dr. Balances Amount ` Dr. Balances Amount `
Capital

Drawings

General Expenses

Building

Machinery

Stock

Power

Taxes and Insurance

Wages

Debtors

Creditors

Bad Debts

2,45,000

20,000

25,000

11,000

93,400

1,62,000

22,400

13,150

72,000

62,800

25,000

5,500

Loan

Sales

Purchases

Motor Car

Reserve Fund (Cr.)

Commission (Cr.)

Car Expenses

Bills Payable

Cash

Bank Overdraft

Charity

78,800

6,53,600

4,70,000

20,000

9,000

13,200

18,000

38,500

800

33,000

1,050

 

Prepare final accounts for the year ended 31st March, 2014.

 

 

Q.13. Arrange the following assets in order of

(i)       Permanence

(ii)      liquidity

(a) Sundry Debtors (g) Cash at Bank
(b) Stock (h) Plant and Machinery
(c) Long Term Investments (i) Motor Vehicle
(d) Land and Building (j) Loose Tools
(e) Cash in Hand (k) Furniture
(f) Goodwill (l) Marketable securities

 

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