Chapter 4 Financial Statements

Financial Statements Q.104 What do you you mean by ‘Final Accounts’? Accounts’? OR What What are are fina financ ncia iall stat statem emen ents ts?? Ans. Final Final accounts accounts are are also known known as financi financial al stateme statements. nts. Financi Financial al statement statementss are organi organized zed summar summaries ies of detail detailed ed inform informati ation on about about operat operating ing result resultss and financial position of the concern. These are prepared at the end of the accounting period, generally one year. Financial statements normally include the following: i. Trad Tradin ing g and and Prof Profit it & Los Losss Acc Accou ount nt,, and and ii. Balance Sheet. Q.105 What are the the objectives of preparing final accounts? Ans. Ans. Fina Financ ncia iall stat statem emen entts are are prep prepar ared ed to achi achiev evee the the basi basicc obje object ctiv ives es of accounting, which are : To find out the profit earned or loss incurred by the firm during a given period of time, and To depict its financial position at a given point of time. Q.108 What is meant by by direct expenses? expenses? Give two examples. examples. Ans. Ans. Direc Directt expens expenses es are those those expens expenses es,, which which are direct directly ly relate related d with with the quantity of goods produced. In this category, we include expenses incurred on purchase of raw materials/goods and on manufacturing of goods. Q.109 Important lists lists of direct direct expenses. expenses. Ans. In financial accounting, accounting, following expenses are treated as direct direct expenses: Expenses on purchase of goods. All expenses incurred on purchase of goods are consider direct expenses and are a part of cost of goods purchased. These are: i. Freight, carriage and cartage on purchase of goods. ii. Customs duty and octroi, etc. iii. Land Landin ing g and and clea cleari ring ng char charge ges. s. Thes Thesee are are expe expens nses es rela relati ting ng to clearing the goods purchased or imported. iv. Dock dues/charges. Manufacturing expenses. These are also called productive expenses. Following expenses are treated as manufacturing expenses: i. Wages or labour or productive wages or factory wages. ii. Coal, gas and water. Fuel and power. iii. Factory Factory expenses. expenses. Factory Factory expenses expenses are also related to production production of goods. goods. These may include. Factory rent, rates and taxes. Insurance premium of factory building, plant and machinery. Factory lighting or electricity. electricity.

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Consumable stores like, engine oil, lubricants, cotton waste. Packing charges to pack the goods manufactured to make it saleable Q.69 Wh Q.69 What at is is depr deprec ecia iati tion on? ? Ans. Deprecia Depreciation tion means means decrea decrease se in the the value value of fixed fixed assets assets due due to their their use use in business, passage of time or obsolescence. In accounting this term denotes the permanent decrease in the book value of a fixed asset. Every asset has a definite useful life, after which it becomes useless. It will be appropriate to write off its cost over its life on the basis of benefit derived from it or on some reasonable basis. Q.70 What Q.70 What is de depl plet etio ion? n? Ans. The term term ‘Deplet ‘Depletion’ ion’ refers refers to to the physic physical al deterior deterioration ation by by the exhaus exhaustion tion of natural resources, like, quarries, mines, oil-wells, etc. Due to mining or extraction, the stock of minerals/oil, etc. is depleted/reduced. In case of such such asse assets ts,, usua usuall lly y depr deprec ecia iati tion on is char charge ged d on the the basi basiss of quan quanti tity ty produced.

Q.71 What Q.71 What is amo amort rtis isat atio ion? n? Ans. Amortisa Amortisation tion refers refers to the the economic economic deterio deteriorati ration on of intangibl intangiblee assets assets like, like, goodwill, patents, trademark, copyright etc. It is the practice to write off the intangible assets over a reasonable period. When a part of an intangible assets is written off, it is called amortization. Q.72 What Q.72 What is is obso obsole lesc scen ence ce? ? Ans. The term term ‘Obsoles ‘Obsolescenc cence’ e’ refers refers to the the economic economic deter deteriorat ioration ion of asset assets, s, due to change in technology, invention of improved equipment, market decline due to change in taste and fashion, etc., or inadequacy of existing plant to meet meet the the incr increa eassed busi busine ness ss.. It is cons consid ider ered ed one one of the the caus causes es of depreciation. For example, a letter printing press have become obsolete, due to the invention of offset printing press. Traditional copiers have become obsolete, due to electronic copiers. Q.73 Q.73 What What are the caus causes es of dep deprec reciat iation ion? ? Ans. Following are the important causes of depreciation: i. Wear Wear and tear. tear. Fixe Fixed d asset assetss are are purch purchas ased ed for for use use in busi busines ness. s. Due Due to to constant use of fixed assets in business for generating income, the value of such assets is decreased. It is called ‘wear’ and ‘tear’. It is main cause of depreciation.













iii. iii.

iv. iv.

v. vi. vi.

passage of time, value of such assets goes down, even these are not used in the business. Obsole Obsolesce scence nce.. Due to to invent invention ion of of new techno technolog logy, y, the the asset assetss based based on old technology may become obsolete and out of date. Due to this reason, their effectiveness is decreased and value also goes down. Depl Deplet etio ion. n. Depl Deplet etio ion n is reduct reductio ion n of natu natura rall resou resourc rces es.. In case case of wasting assets, depletion is also a cause of fall in the value of assets like, mines, oils wells, quarries, etc. Acci Accide dent nts. s. Acci Accide dent ntss may als also o cause cause a perma permane nent nt fall fall in the the usefu usefull life as well as in the value of assets. Perm Perman anen entt fall fall in price price.. A perma permane nent nt fall fall in the mark market et valu valuee of investments is recorded as depreciation. Other assets are depreciated on the basis of its useful life.

Q.74 Q.74 Explai Explain n Asset Asset Disp Disposa osall Accou Account. nt. Ans. When deprec depreciati iation on is recorded recorded by by creating creating provisi provision on for depreci depreciation ation,, asset asset disposal account may be prepared separately for an asset sold or discarded. When any asset is sold, its cost is transferred from Fixed Asset A/c to Asset Dispos Disposal al A/c. A/c. The accumu accumulat lated ed deprec depreciat iation ion on it, is transf transferr erred ed from from Provision for Depreciation A/c to Asset Disposal A/c. The sale proceeds of asset sold are credited to Asset Disposal A/c. The balancing figure in the account on the debit side shows the profit and on the credit side shoes the loss on sale of fixed asset, which is transferred to Credit of Debit side of Profit & Loss Account, respectively. Q.75 What Q.75 What is pr prov ovis isio ion? n? Ans. Ans. Accord According ing to the Compani Companies es Act, Act, the term ‘provis ‘provision ion’’ means “any “any amount amount writte written n off or retain retained ed by way of provid providing ing deprec depreciat iation ion,, renewa renewals ls or diminution in the value of assets or retained by providing for any known liab liabil ilit ity y of whic which h the the amou amount nt cann cannot ot be dete determ rmin ined ed with with subs substa tant ntia iall accuracy.” Provision is a charge against profits to meet an anticipated loss for which exact amount cannot be ascertained. It can be provided for depreciation, for outsta outstandi nding ng expens expenses es,, to meet meet heavy heavy repair repairing ing and renew renewal al charge charges, s, fluctuations in the value of investments, for expected loss on accounts of bad debts, or for discount to be allowed on debtors, or any other known liabil liability ity,, for which which amount amount cannot cannot not be determ determine ined d with with substa substanti ntial al accuracy.













whether paid or not. Otherwise, profits calculated will not be true. It makes necessary to make a provision for outstanding expenses. True and fair picture of financial position. The balance sheet will not show true and fair picture of the financial position of the business, if adequate provisions for anticipated losses, liabilities are not shown either as liability or by deducting from the assets. Arrangement of funds for future losses and expenses. If provisions are not made, the whole profits shall be distributed and the firm may have have to face face the the prob proble lem m of shor shorta tage ge of fund fundss to meet meet futu future re liabilities and losses. Uniform charge against profits. Provision for certain heavy expenses helps in uniform and equitable distribution of such expenses. For example, heavy repairs and renewal charges expected in near future, provision for depreciation, provision for fluctuation in the value of investments, etc. Q.76 Give three examples of provisions. Ans. Following are the important examples of provisions (Any three): Provision for bad and doubtful debts. It is created on debtors to meet the loss loss on acco accoun untt of poss possib ible le bad bad debt debts. s. Amou Amount nt to be prov provid ided ed depends on the past experience. Provision for discount on debtors. It is created to meet the loss on account of further cash discount to be allowed to debtors, while collecting payment from them. Provision for tax. It is created to meet the liability on account of income tax on profits earned. Provision for depreciation. It is made for decrease in the value of fixed assets, due to their use in business, passage of time or obsolescence. Provision for repairs and renewals. Such provision is made to meet the cost of repairs and renewals of fixed assets. It helps in appropriate allocation of repairs and renewal cost. Provision for fluctuations in investments. Such provision is made for decrease in the market value of investment. Q.77 Wh Q.77 What at is res reserve erve? ? Ans. When a part of profits earned is set aside for the purpose of strengthening the financial position of the business, it is called creation of reserves and the amount so set aside is called reserve. It is an appropriation of profits. It may be created for a specific purpose.













Strengthening financial position. Amount equal to reserves created is appropriated out of profits and retained in the business. It increases the working capital. It is cost free source of internal financing. It helps in future to face financial problems. Helps Helps in future future expan expansio sion. n. Creati Creation on of reserv reservee improv improves es financ financial ial position, which helps in future expansion of the business without depending much on borrowed funds. Mainta Maintaini ining ng rate rate of divide dividend. nd. Compan Companies ies usuall usually y create create divide dividend nd equali equalizat zation ion reser reserve. ve. If in any any year, year, compan company’s y’s profit profitss are not sufficient to declare of dividend, dividend equalization reserve can be used for the same. Helps in redemption of liabilities. Reserve can be created to redeem prefe preferen rence ce share share capita capitall or debent debenture ures. s. For this this purpos purpose, e, capita capitall redemption reserve or debenture redemption reserve is created. Helps in meeting unforeseen contingencies. To meet any unknown loss of business, the existing reserve can be used. Q.79 What Q.79 What is is Gene Genera rall Rese Reserv rve? e? Ans. General General Reserve Reserve are created created out out of revenue revenue profit profitss to strength strengthen en the genera generall financial position of the business. It is not created for any specific purpose. Thes Thesee are are also also call called ed free free rese reserv rves es as thes thesee are are free freely ly avai availa labl blee for for distribution. Contingency reserve and undistributed balance of profit and loss account is also the part of general reserve. Following are the important objectives for which general reserves are created or utilised; For strengthening the financial position of the business. For expansion of business through internal financing. For maintaining the rate of dividend over various years (in case of companies). For meeting unforeseen losses. Q.80 Q.80 What What is speci specific fic reserv reserve? e? Ans. When a reserve reserve is created created for for a specific specific purpose purpose and can be utilized utilized only only for for that purpose, it is called a specific reserve. Q.81 What Q.81 What is res reser erve ve fund fund? ? Ans. Ans. When When the amoun amountt of reser reserve ve creat created ed is not not reta retain ined ed in the the busi busine ness ss but invested outside the business, it is called a revenue fund. For example, when the amount of debenture redemption reserve is invested outside the busin busin it is lled lled ‘Deben ‘Debentur tur Red tio Fund’. Fund’. In the follow following ing













Q.82 What is is Capital Capital Reserve Reserve? ? State the the example example of of capital capital profits profits.. Ans. Capital reserve reserve are created out of the profits of capital nature, nature, which which are not normally available for distribution as cash dividend. Capital reserves are usually used to write off capital losses. Following are some of the examples of capital profits: Profit on sale of fixed assets, Profit on revaluation of fixed assets and liabilities, Profit on purchase of an existing business, Profits earned prior to incorporation of a company, Premium on issue of shares and debentures, Profit on re-issue of forfeited shares,

Q.83 Distingui Distinguish sh between between revenue revenue reserve reserve and capital capital reserve? reserve? Ans. Difference between Revenue Reserve and Capital Reserve Basis of difference Revenue Reserve Capital reserve 1. Nature of profits 2. Use

3. Dividend

It is created out of It is created out of capital revenue profits. profits. General reserve can be Capital reserve are used to used used for any any purp purpos osee. meet capit apital al los losses or Specif Specific ic reserv reserves es can be purpo purpose se specif specified ied in the used for specific purpose Companies Act. only. Dividend can be Gene Genera rall lly, y, no divi divide dend nd distributed out of general can be distributed out of rese reserv rves es and and divi divide dend ndss capital reserves. equalization reserve.

Q.84 Distingui Distinguish sh between between Reserves Reserves and Provision Provisions. s. Ans. Ans. Differ Differenc encee betwe between en Reserv Reserves es and and Provisi Provisions ons.. Basis of difference Reserves 1. A charge or an A reserve is an Appropriation appropriation of profit. 2. Objective A re reserve is is cr created to to stren strength gthen en the financ financial ial position of the firm. 3. Debit Debited ed to A reserv reservee is debite debited d to

Provisions A prov provis isio ion n is a char charge ge against the profits. A provision is created to meet a specific and known liability. A provision is debited to















5. Balance Sheet

6. Distribution of profits

7. Gener eneral al and spec pecifi ific 8. Necessity

A reserve is shown on the liability side of the balance sheet. A reserve can be distributed as profits.

A prov provis isio ion n is usua usuall lly y deduct deducted ed from from the asset asset concerned. A provision can never be utilized for the distribution of profits. A re reserve erve may may be be ge genera nerall A prov provis isiion is alw always ays or specific. specific. Creation of reserve is Creati Creation on of provis provision ion is disc discrreti etionar onary y and and not not must. must.

Q.85 Q.85 Defi Define ne ‘Bi ‘Bill ll of of exch exchan ange ge’. ’. Ans. Ans. In simpl simplee word words, s, bill bill of excha exchang ngee is an orde orderr inst instru rume ment nt,, writ writte ten n by a creditor and accepted by a debtor to pay a certain amount on demand or after a certain period. According to Indian Negotiable Instruments Act, 1881, “A bill of exchange is an instrument in writing, an unconditional order signed by the maker directing to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.” Q.96 Q.96 What What do you you mean mean by ‘disco ‘discount unting ing of of a bill’ bill’?? Ans. If the drawer is in need of money, he can discount the bill with his bank and receive the amount immediately. The bank will deduct the discount on the amount of bill at a given rate for the outstanding period of the bill. For example, if a bill dated January 1, 2000 for Rs. 10,000 of a period of three months is discounted with bank of February 1, 2000. The bank will deduct the discount for two months, i.e., for February and March, 2000. The discount deducted by the bank is actually interest charged by the bank on the amount advanced by the bank against the bills receiv receivabl able. e. When When a bill bill has been discou discounte nted, d, on due date date paymen paymentt shall shall by received by the bank and not by the drawer as he has already received the













Q.98 Q.98 What What do you you mean mean by Capita Capitall Expen Expendit diture ure?? Ans. Ans. Capi Capita tall expe expend ndit itur uree is the the expe expend ndit itur uree whic which h is incu incurr rred ed on purc purcha hase se or construction of fixed assets such as building, plant and machinery, furniture and fixture, etc. It benefits the business for a long period. It helps in generating revenue for the business. Normally the amount involved in capital expenditure is also substantial. Following types of expenditure are generally treated as capital expenditure: Acquisition of a permanent assets. Expenditure on purchase of or on installation of a fixed asset. Overhauling charges of a second hand asset purchased. Extension of or improvement in fixed assets. The purchase of right to carry on business. Q.99 Q.99 Give Give four four example example of of capita capitall expend expenditu iture. re. Ans. Ans. Follow Following ing are are the examp example le of capit capital al expend expenditu iture: re: Purchase of business premises, Purchase of machinery, Acquisition of patent, copyright or a trade mark, and Installation charges of machinery. Q.100 What do you mean by Revenue Expenditure? Ans. Ans. Revenu Revenuee expendit expenditure ure may be defined defined as an expendit expenditure ure which which benefit benefitss the company for a short period. The benefits are normally derived within a year. Such expenditure is necessary to maintain the assets and to generate the revenue income in ordinary course of business. It is recurring in nature. It is necessary to generate revenue income in ordinary course of business. It does not add to value of assets or profit earning capacity. Q.101 Give example of revenue expenditure.













Basis of difference 1.Objective

2. Period

3. Earning capacity

4. Accou Accounti nting ng

5. Depreciation

Capital Expenditure It is is in i ncurred fo f or th t he purchase of tangible and intangible fixed assets. Capital expenditure benefits the firm for long period, usually more than one year. Capital expenditure incre ncreaases the the earni arning ng capacity of the business.

Revenue Expenditure It is incurred for the cond conduc uctt of dayday-to to-d -day ay business activities. The benefi benefits ts of revenu revenuee expend expenditu iture re are derive derived d imme immedi diat atel ely y or with within in one year. It does does not not incr increa ease se the the earni arning ng capa capaci citty. It is incu incurr rred ed for for gene genera rati ting ng revenue revenue and maintaini maintaining ng the fixed assets. Capita Capitall expend expenditu iture re is Reve Revenu nuee expe expend ndit itur uree is shown as an asset in the shown on the debit side of Balance Sheet. Trading and Profit & Loss A/c. Depreciation is charged No depreciation is on capital expenditure. charged on revenue expenditure as it is fully written off in the year of incurrence.

Q.103 What do you mean by Defferred Revenue Expenditure? Ans. Ans. The expen expendit diture ure for which which payme payment nt has been been made made or a liabil liability ity has has been incurred in the current year, but deferred from being charged against the income of the current year is called deffered revenue expenditure. Such deference is based on the presumption that it will be of benefit over a subsequent period or periods.













Q.107 What is trading trading account? Ans. Ans. Trad Tradin ing g acco accoun untt is firs firstt part part of inco income me stat statem emen ent. t. It is prep prepar ared ed for for calculating the gross profit earned or gross loss incurred on account of trading activities of an enterprise. It shows the data relating to goods purchased for resale and the goods sold. Expenses directly related with purchase of goods are also shown in this account. If sale proceeds exceed the purchase price and related expenses of goods sold, the difference is called gross profit. If purchased price and direct expenses of goods sold are more than the sales, the difference is called gross loss.

Particulars













.114 What is the difference difference between a Trading Trading Account and Profit & Loss A/c? Ans. Difference between Trading and Profit & Loss Account Basis of Difference Trading Account Profit and Loss Account 1. Nature Trading Ac A ccount sh s hows Profit Profit and Loss Loss Accoun Accountt result of buying and shows the net result of the selli selling, ng, i.e., i.e., gross gross profit profit business, i.e., net profit or or gross loss. net loss. 2. Items Opening Stock, net Gross Profit/ Gross Loss, purchases, direother oth ct er income income and gains gains,, expe expens nses es,, net net sale saless and and and all indirect expenses closin closing g stock stock are shown shown are are show shown n in Prof Profit it and and in Trading Account. Loss Account. 3. Sequence Trading Ac Account is is th the Profit & Loss Account is first part of income seco second nd part part of inco income me statement. stat statem emen entt and and prep prepar ared ed after trading account. 4. Transfer of balance The balance of trading The balance of Profit and account, i.e., gross profit Los Loss Acco Accoun unt, t, i.e. i.e.,, net net or gross loss is transferred profit or net loss is to Profit and Loss tra transfe nsferrred red to capi apital tal Account. account.















Performa for Profit and Loss Account P ar tic u l a rs

Am o u n t P a r ti c u la r s

Am o u n t

T o G ro s s L oss

XXX

B y G ro s s P ro f it

XXX

To To To To To To To To To To To To

XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

B y d isc ount re ceived B y i n t e r e s t r e c e i ve d B y o t h e r m is c i n c o m e s

XXX XXX XXX

T r a ve l l i n g E x p e n s e s P rintin g and S tatio ner y D is c o u n t a l l o w e d D e precia tion O ff ice E xp e n se s S a la ry In te res t Te le phone E xpen s es E le c t ric i ty E xp e n s e s C a rriag e o u tw a r d s A dvertisem e nts P o s ta g e

























Q.115 What is the the concept of operating profit? Ans. Ans. Oper Operat atin ing g prof profit it is exce excess ss of sale saless over over oper operat atin ing g cost cost.. Oper Operat atin ing g cost cost includes cost of goods sold and operating expenses (i.e., administrative expenses and selli selling ng and distri distribut buting ing expens expenses) es).. Calcul Calculati ation on of operat operating ing profit profit can be presented in the form of following equation: Operating Profit = Gross Profit – Operating expenses (Office and administrative expenses expenses + Selling Selling and distribut distribution ion expenses expenses + financial financial expenses, expenses, excluding excluding interest on loan) Q.116 Classify various assets. Ans. Various Various assets assets are broadly broadly clas classifie sified d into the the following following two two categorie categories: s: 1) Fixed Fixed assets. assets. These assets assets are purchased purchased for the purpose purpose of operating operating the business and not for resale as these are required in the business permanently. Main example of these are land, building, plant and machinery, furniture, etc. 2) Curr Curren entt asse assets ts.. Curr Curren entt asse assets ts are are kept kept for for shor shortt term erm and and are are required required for day-to-day day-to-day business business activity activity.. Stock Stock of raw material material,, semi-finished goods ane finished goods, debtors, bills receivables, bank balance, etc., are some of the examples of current assets. Q.117 Distinguish between tangible assets and intangible assets.













Q.119 Classify various liabilities. Ans. Liabilit Liabilities ies are are broadly broadly classif classified ied into into the followi following ng two categ categories ories:: 1) Fixed Fixed or long-t long-term erm liabilit liabilities ies.. These These liabil liabiliti ities es are payable payable after a long period, normally more then one year. For example, long-term loans, mortgage loan, debentures, etc. 2) Curren Currentt liabil liabiliti ities es.. These These are obligati obligations ons to be met in near future future (gener (generall ally y within within one year) year).. For exampl example, e, credi creditor torss for goods, goods, outsta outstandi nding ng expens expenses, es, bank bank overdr overdraft aft,, bills bills payabl payable, e, shortshort-ter term m loans, etc. Q.120 What is a Contingent liability? Ans. Ans. There There are some possib possible le liabili liabilitie tiess which are not actual actual liabil liabiliti ities es on the date of balance sheet, but which may become real liabilities after some time on happening of certain contingency. If that contingency happens, a liability will come into being, otherwise not. Such possible liabilities are termed as ‘Contingent Liabilities’. The contingent liabilities are mentioned only by way of foot notes in Balance Sheet. Q.121 State the examples of contingent liabilities. Ans. Following are some of the examples of contingent liabilities: i. Claims Claims ain the ack ledged ledged deb













4. Period

A trial balance prepared normally every month or whenever desired. 5. Rel Relatio ation n with with Prof Profit it Profit & Loss Account is and Loss Account prepared with the help of trial balance. 6. Resu Result lt of the the busi busine ness ss It is is not not poss possib ible le to to know know the result of the business just by seeing a trial balance. 7. Closing stock 8. Necessity

9. Adjustments

It is usually not shown in a trial balance. It is is no not co compulsory to to pre prepa pare re a tria triall bala balanc nce, e, but it is indispensable. A trial balance is prepared prepared without without making making any adjust adjustmen ment, t, such such as unpaid and prepaid expenses.

Balance sheet is prepared usually at the end of the accounting year. Balance sheet is prepared after after prepar preparing ing Profi Profitt & Loss account. Result of the business (net profit or net loss) is adjusted in the capital and thus may be shown in balance sheet. It is shown on the asset side of the balance sheet. It is a part of final accounts and is necessary to prepare. A balance sheet cannot be prepared prepared without without making making adjustments.















2.

Outstanding or Expenses A/c Dr. unpaid expenses To Outstanding exp.

3.

Prepaid expenses Prepaid Expenses A/c Dr. (or Unexpired To Expenses A/c expenses)

side of B/S a. Add to the concerned item on the Debit side of Trading/Profit & Loss A/c. a. Deduc eductt fro from m th the concerned expenses on the debit side of Prof rofit & Loss oss A/c. b. Show on the ass assets ets sid side of B/s.













10.

Provision discount creditors

11.

Interest on Capital

12.

Interest Drawing

13.

Interest on

for Prov Provis isio ion n for for disc discou ount nt on on creditors A/c Dr. To P & L A/c Interest on Capital Dr. To Capital A/c on Capital A/c Dr. To Interest on Drawing A/c payable Interest on Loan A/c Dr. loans To Loan A/c

A/c

Credit side of P & L A/c. Deduct from creditors on the the liab liabil ilit itie iess side side of B/S. a. Debit side o f P & L A/c. b. Add to capital on the liabilities side of B/S. Credit side of P & L A/c. Deduct from capital on the liabilities side of B/S. a. Debit side o f P & L A/c.













To Debtors A/c

(b)

deducted from sales as well as from debtors b. Cost: Add to closing Stock.

For cost of goods

18. (a)

Stock A/c Dr. To Trading A/c Abnorm Abnormal al loss loss of fixed fixed asset assetss by fire fire,, theft, theft, acci acciden dent, t, etc. etc. For gross Loss Loss Loss of Asset sset by…… by…….A .A/c /c a. Dr. To Assets A/c

(b)

For

insurance Insurance Co.

Dr.

Gross Loss: Deduct from respective asseton the assets side of B/S.

b. Net Loss: Debit side of













business

23.

To write off Profit & Loss A/c Dr. defe deferr rred ed reve revenu nuee To Deferred Rev. Expenses expenditure A/c

Q.

A/c. b. b. Add Add to resp respec ecti tive ve asse assett on assets side of B/S. Show Show the the amou amount nt to be written off on the debit side of P & L A/c. Show the balance amount on the the asse assetts side side of the B/S.

You are required to prepare Trading and Profit and Loss Account and Balance Sheet from the following balances and adjustments :













b) c) d) e) f) g) h)

Provide Provide for Depreciati Depreciation on of Machinery Machinery @ 5% p.a, Stock on 31.12.1997 31.12.1997 is is Rs. 40,925, Salaries Salaries unpaid Rs. 800, Furthe Furtherr Bad Debts Debts Rs. Rs. 400, Make a prov provisi ision on of 5% on Debtor Debtors, s, th Rent is paid paid upto upto 30 30 April, 1998, Unexpired Unexpired Insuranc Insurancee Rs. 300.

Q. The following Trial Balance was extracted from the books of M/s Bhim Raj Devendra Kumar on 31st December, 1994. You are required to prepare Trading and Profit & Loss Account for the year ending on 31st December, 1994 and a Balance Sheet as on that date:















Capital Drawing Debtors and Creditors Loan from bank Interest on Loan

-5,000 20,000 -300

30,000 ---10,000 9,500













Q. From the following Trial Balance of Mr. Ajay Agrawal, prepare Trading and Profit and Loss Account for the year ending 31st March, 1997 and a Balance Sheets













Adjustments:













c) d) e) f) g)

Provide Provide 5% Deprecia Depreciation tion on Machine Machinery ry Salaries Salaries unpaid Rs. 800 Half the amount amount of Ashok’s Ashok’s bill is is irrecoverabl irrecoverablee Create Create a provision provision at 5% on the Debtors Debtors th Rent is is prepai prepaid d upto 30 30 April, 1998 Rs. 500













Debit Balances Drawings Plant & Machinery Horse & carts Debtors

Rs. 1,700 12,000 2,600 3,600

Debit Balances Rent Misc. Expenses Bad debts Carriage Inwards

Rs. 450 150 500 160







































Chapter 4 Financial Statements

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