Question

From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending March 31, 2017.

Account Title	Amount ₹	Account Title	Amount ₹
Drawings	20,000	Capital	2,00,000
Sundry debtors	80,000	Return outwards	2,000
Bad debts	1,000	Bank overdraft	12,000
Trade Expenses	2,400	Provision for bad debts	4,000
Printing and Stationery	2,000	Sundry creditors	60,000
Rent Rates and Taxes	5,000	Bills payable	15,400
Freight	4,000	Sales	2,76,000
Return inwards	7,000
Opening stock	25,000
Purchases	1,80,000
Furniture and Fixture	20,000
Plant and Machinery	1,00,000
Bills receivable	14,000
Wages	10,000
Cash in hand	6,000
Discount allowed	2,000
Investments	40,000
Motor car	51,000
	5,69,400		5,69,400

Adjustments
1. Closing stock was ₹ 45,000.
2. Provision for doubtful debts is to be maintained @ 2% on debtors.
3. Depreciation charged on : furniture and fixture @ 5%, plant and Machinery @ 6% and motor car @ 10%.
4. A Machine of ₹ 30,000 was purchased on October 01, 2016.
5. The manager is entitle to a commission of @ 10% of the net profit after charging such commission.

Answer 1

Dr.	Trading Account				Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Opening Stock		25,000	Sales	2,76,000
Purchases	1,80,000		Less: Return Inwards	7,000	2,69,000
Less: Return Outwards	2,000	1,78,000	Closing Stock		45,000
Wages		10,000
Freight		4,000
Gross Profit		97,000
		3,14,000			3,14,000

 

Profit and Loss Account
Dr.									Cr.
Particulars			Amount Rs	Particulars					Amount Rs
Trade Expenses			2,400	Gross Profit					97,000
Printing and Stationery			2,000	Old Provision for Bad Debts				4,000
Rent Rates and Taxes			5,000		Less: Bad Debts			1,000
Discount Allowed			2,000		Less: New Provision			1,600	1,400
Depreciation on Motor Car			5,100
Depreciation on Furniture and Fixtures			1,000
*Depreciation on P & M of Rs 70,000			4,200
**Depreciation on P & M of Rs 30,000			900
Net Profit Before Manager’s Commission			75,800
			1,02,400						1,02,400
Manager’s Commission			6,891
Net Profit After Commission			68,909	Balance b/d					75,800
			75,800						75,800

 

Balance Sheet
Liabilities		Amount Rs	Assets		Amount Rs
Capital	2,00,000		Cash in Hand		6,000
Add: Net Profit	68,909		Sundry Debtors	80,000
Less: Drawings	20,000	2,48,909	Less: New Provision	1,600	78,400
O/S Manager’s Commission		6,891	Furniture and Fixtures	20,000
Bank Overdraft		12,000	Less: Depreciation	1,000	19,000
Bills Payable		15,400	Plant and Machinery	1,00,000
			Less: Depreciation 1*	4,200
			Less: Depreciation 2**	900	94,900
			Bills Receivable		14,000
			Investments		40,000
			Motor Car	51000
			Less: Depreciation	5100	45,900
			Closing Stock		45,000
		3,43,200			3,43,200

Working Notes

1. Manager’s Commission

= Net Profit before commission × `10/110`

 = 75,800 × `10/100`

= ₹ 6,891

2. Out of the machinery of ₹ 1,00,000, ₹ 30,000 worth of machinery was purchased on 01/October/2016.

Therefore, the depreciation on this machinery will be for 6 months at 6% p.a.

*Depreciation on machinery (30,000) = 30,000 ×`6/12 xx 6/100` = ₹ 900

**The rest of the machinery of ₹ 70,000 will bear depreciation at 6% p.a.

Depreciation on machinery (70,000) = 70,000 × `6/12` = ₹ 900

Note:

As per our solution Gross Profit is ₹ 97,000, however, as per book it is ₹ 1,01,000.