Question

(Account of a Library)

Following is the Receipts Payments Account of “Dhananjay Library, Mumbai” for the year ending 31.03.2020

Dr	Receipts and Payments Account for the year ending 31.03.2020.				Cr
Receipts		Amount ₹	Payments	Amount ₹
To Balance b/d		5,000	By Salaries	9,000
To Admission Fees		4,500	By Rent	7,500
To Subscriptions		20,000	By Investments	6,000
To Lecture Hall Hire Charges		4,200	By Stationery	1,350
To Miscellaneous Income		250	By Electricity Charges	850
To Interest on Investment		900	By Books	5,000
			By Outstanding Expenses (2018 - 19)	500
			By Balance c/d	4,650
		34850		34850

You are required to prepare an Income and Expenditure Account for the year ended 31.03.2020 and Balance Sheet as on that day.

The following information is also made available to you.

1) On 31.03.2019, the Library had the following Assets also; Books at ₹ 50,000, Furniture ₹ 6,500, and Machinery of ₹ 30,000

2) Subscription received in advance amounted to ₹ 500

3) Outstanding Salaries ₹ 1300 and for Rent ₹ 950

4) 50% of the Admission Fees should be capitalized.

5) Furniture to be depreciated at 10% p.a.

6) Library Books were purchased on 1st April 2019 charge Depreciation at 10% p. a.

7) The Investments were purchased on 01.04.2019 and they carry interest at 20*% p.a

Answer 1

Dr	In the books of Dhananjay Library, Mumbai Income and Expenditure Account for the year ended 31st March 2020						Cr
Expenditure		Amount ₹	Amount ₹	Income	Amount ₹	Amount ₹
To Salaries		9,000		By Subscription	20,000
Add: Outstanding Salary		1,300	10,300	Less: Subscription Received in Advance	500	19,500
To Rent		7,500		By Admission Fees	4,500
Add: Outstanding Rent		950	8,450	Less: 50% Capitalised	2,250	2,250
To Stationery			1,350	By Lecture Hall Hire Charges		4,200
To Electricity Charges			850	By Miscellaneous Income		250
To Depreciation				By Interest on Investments	900
Furniture		650		Add: Outstanding Interest	300	1,200
Library Books (5000 + 500)		5,500	6,150
To Surplus (Excess of Income over expenditure)			300
			27400			27400

 

Balance Sheet as on 31st March 2020
Liabilities	Amount ₹	Amount ₹	Assets	Amount ₹	Amount ₹
Capital Fund	91,000		Machinery		30,000
Add : 50 % Admission	2,250		Books	50,000
Add: Surplus	300	93,550	Add: Purchases	5,000
Outstanding Salaries		1,300		55,000
Outstanding Rent		950	Less: Depreciation (5000 + 500)	5,500	49,500
Subscription Received in Advance		500	Furniture	6,500
			Less: Depreciation	650	5,850
			Investments	6,000
			Add: Outstanding Interest	300	6,300
			Cash in Hand		4,650
		96300			96300

Working Notes :

(1) Opening Balance Sheet is prepared to find out opening capital fund :

Balance Sheet as on 31st March 2019
Liabilities	Amount ₹	Assets	Amount ₹
Outstanding Expenses	500	Books	50,000
Capital Fund (Balancing figure)	91,000	Furniture	6,500
		Machinery	30,000
		Cash in Hand (Opening balance of Receipt – Payment A/c)	5,000
	91500		91500

(2) Outstanding expenses of the previous year, paid in the current year so no entry for outstanding expenses (2018 – 19)

(3)

Interest on Investment @ 20 % on ₹ 6,000	=  ₹ 1,200
Interest on Investment received	= ₹ 900
Outstanding interest on investment	= ₹ 300

(4) 

Depreciation on library books at 10 % p.a. on opening balance of ₹ 50,000 (for whole year)	= ₹ 5,000
On purchases on 01 – 04 – 2019 (for whole year)	= ₹ 1,500
Total Depreciation	= ₹ 5,500

 (5) Subscriptions received in advance ₹ 500 is deducted from subscription received on credit side of Income and Expenditure A/c and then subscription received in advance is shown separately on the Liabilities side of the Balance Sheet.

(6) Outstanding salaries and outstanding rent are added to the respective head of Account on the debit side of the Income & Expenditure Account and both the outstanding items are recorded on the Liabilities side of the Balance Sheet.