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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