Question

Following incomplete information is available from the records maintained by Mr. Premnath.

Particulars	1.4.2009 Rs.	31.3.2010 Rs.
Cash Balance Bank Balance Sundry Debtors Stock Furniture Creditors 10% Bank Loan	12,000 26,000 20,000 24,000 24,000 20,000 20,000	13,000 30,000 26,000 26,000 24,000 20,000 20,000

Additional Information :

(1) Mr. Premnath introduced additional capital in the business amounted to Rs 15,000 on 1st January, 2010.

(2) He has paid life insurance premium Rs 10,000 from the business account and withdrawn goods worth Rs 5,000 for his personal use.

(3) Write off Rs 1,000 as bad debts and maintain reserve for doubtful debts at 5% on remaining debtors.

(4) Provide depreciation at 5% p.a. on furniture.

(5) The closing balance of sundry creditors has been overvalued by Rs 2,000 in the books of account.

(6) Provide Interest on Capital and Bank Loan @ 10% p.a.

Prepare :

(i) Statement of Affairs as on 1.4.2009.

(ii) Statement of Affairs as on 31.3.2010.

(iii) Statement of Profit or Loss for the year ended 31st March, 2010. 

Answer 1

In the books of Mr. Premnath
Statement of Affairs as on March 31, 2009
Liabilities	Amount (Rs)	Assets	Amount (Rs)
Creditors	20,000	Cash in Hand	12,000
10% Bank Loan	20,000	Cash at Bank	26,000
Capital (Balancing Figure)	66,000	Debtors	20,000
		Stock	24,000
		Furniture	24,000
	1,06,000		1,06,000

 

Statement of Affairs as on March 31, 2010
Liabilities		Amount (Rs)	Assets		Amount (Rs)
Creditors	20,000		Cash in Hand		13,000
Less: wrongly taken (over valuation)	2,000	18,000
10% Bank Loan		20,000	Cash at Bank		30,000
O/s Interest on Loan		2,000	Stock		26,000
Capital (B. Fig.)		75,550	Debtors	26,000
			Less: Bad Debts	1,000
			Less: P.D.D.	1,250	23,750
			Furniture	24,000
			Less: Depreciation @5%	1,200	22,800
		1,15,550			1,15,550

 

Statement of Profit or Loss for the year ended March 31, 2010
Particulars		Amount (Rs)
Capital at the end of the year 31.03.10		75,550
	Add: Drawings made during the year	15,000
	Less: Additional capital introduced during the year (01.01.10)	15,000
Adjusted capital at the end of the year 31.03.10		75,550
	Less: Capital in the beginning of the year 31.03.09	66,000
	Less: Interest on Capital	6,975
Profit for the year		2,575

Working Notes:

WN1 Calculation of Reserve for Doubtful Debts

\[\text{Reserve for Doubtful Debt} = 25,000 \times\frac{5}{100}= Rs 1,250\]

WN2 Calculation of Depreciation

\[\text{Depreciation on Furniture} = 24,000 \times\frac{5}{100}= Rs 1,200\]

WN3 Calculation of Outstanding Interest on Loan

\[\text{Outstanding Interest on Loan} = 20,000 \times\frac{10}{100}= Rs2, 000\]

WN4 Calculation of Interest on Capital

\[\begin{array}{l}\text{Interest on Capital} = 66,000 \times\frac{10}{100}= Rs 6,600 \\ \text{Additional Capital} = 15,000 \times\frac{10}{100}\times\frac{3}{12}= Rs 375 \\ \\ \text{Total Interest on Capital} = 6,600 + 375 = Rs 6,975\end{array}\]

WN5 Calculation of Total Drawings

\[\begin{array}{lr}\text{LIC} & 10,000 \\ \text{Goods Withdrawn} & 5,000 \\ \text{Total Drawings} & 15,000\end{array}\]