Question

Miss Kavita Commenced her business with a Capital of Rs 1,30,000 on 1^st April 2010. Her financial Position was as follows as on 31^st March, 2011, Cash Rs 9,120, Stock Rs 10,250, Bills Payable Rs 12,880, Creditors Rs 17,180, Debtors Rs 31,550, Bill Receivable Rs 29,120, Premises Rs 85,750, Vehicles Rs 40,250.
Additional Information:
1) She brought additional capital Rs 20,000 on 30^th September 2010. Interest on capital is to be provided at 5% p.a.
2) She withdrew Rs 10,000 for personal use on which interest is to be charged at 6% p.a.
3) R.D.D. is to be provided at 2½% p.a. after providing bad debts Rs 1,000.
4) Depreciate Vehicles at 2% and Premises at 4%.

Answer 1

Statement of Affairs

as on March 31,2011

Liabilities	Amount (Rs)	Assets	Amount (Rs)
Bills Payable	12,880	Cash in Hand	9,120
Creditors	17,180	Stock	10,250
Capital (Balancing Figure)	1,75,980	Debtors	31,550
		Premises	85,750
		Vehicle	40,250
		Bills Receivable	29,120
		Prepaid Expenses	-
	206,040		206,040

Statement of Profit or Loss

for the year ended March 31,2011

Particulars	Amount (Rs)
Capital at the end of the year	175,980
Add: Drawings made during the year	10,000
Less: Additional capital introduced during the year	(20,000)
Adjusted capital at the end of the year	165,980
Less: Capital in the beginning of the year	(130,000)
	35,980
Add: Interest on Drawings	300
Less: Interest on Capital	(7,000)
Bad-Debts	(1,000)
Reserve for Douthful Debt( 30,550 x `2.5/100`)	(764)
Depreciation on Premises	(3430)
Depreciation on Vehicle	(805)
Profit for the year	23,281

Working Notes:

WN1: Calculation of Depreciation on Premises and Vehicle:

Depreciation on Premises = 85,750 x `4/100` = Rs. 3,430

 

Depreciation on Vehicle = 40,250 x `2/100` = Rs. 805.

 

WN2: Calculation of Interest on Capital:

 

Interest on Capital (on Rs. 130,000) = 130,000 x `5/100` = Rs. 6,500.

 

Interest on Capital (on Rs. 20,000 for 6 months ) = 20,000 x `5/100` x `6/12` = Rs. 500.

Therefore, Total Interest on Capital = Rs. 7,000 ( 6,500 + 500)

 

WN3 :Calculation of Interest on Drawings:

Interest on Drawing = 10,000 x `6/100` x `6/12` = Rs. 300.

Notes:
1.When date of drawings is not mentioned, then interest on drawings is to be charged for 6 months.
2. As per the book, the Profit as per Statement is Rs 22,620 but according to our solution it should be Rs 23,281.