principles and practice of accounting part 1
TRANSCRIPT
CA-CMA-CS
Principles and
Practice of
Accounting
Part 1
Dr CMA T K Sridhar
Edition: September, 2021
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CONTENT
Page
1 Theoretical Framework
1.1 Meaning and Scope of Accounting 1
1.2 Accounting Concepts, Principles and Conventions 4
1.3 Capital and Revenue Transactions 6
1.4 Contingent Assets and Contingent Liabilities 9
1.5 Accounting Policies 10
2.1 Accounting Process 11
2.2 Rectification of Error 33
3 Bank Reconciliation Statement 37
4 Inventories 49
5 Accounting for Depreciation 54
6 Final Accounts for Sole Proprietors 73
Final Accounts for Manufacturing Entities 87
7 Financial Statements for Not-for-Profit Organisation 90
Meaning and Scope of Accounting 1
1 THEORETICAL FRAMEWORK
1.1 MEANING AND SCOPE OF ACCOUNTING
Transaction and Event:
Term Meaning Example
1 Transaction Performance of an act or an agreement. Purchases, Sales, Rent
2 Event Result or consequence of a transaction Profit or Loss, Closing Stock
Accounting:
Generating Financial Information Using the Financial Information
Recording Classifying Summarising Analyzing Interpreting Communicating
Journal &
Subsidiary
Books
(in terms of
money)
Ledger Trail Balance
Profit & Loss
A/c
Balance Sheet
and Cash-flow
statement
Ratio
analysis
Explaining
ratios
Graphs,
Diagrams, etc.
Accountancy: refers to systematic knowledge of accounting.
Steps of ‘Accounting Cycle’.
Accounting Cycle
Bookkeeping
Recording of transactions in
the books of original entries →
Posting to
ledger →
Preparation of
Trail Balance →
Preparation of Final
A/c
↓ +
Adjustment Entries,
Closing Entries and
Transfer Entries
Journal Entries or
Subsidiary Books and
Journal Proper
{CMA inter D13, 4 marks}
Principles and Practices of Accounting 2
Distinction between book-keeping and accounting
Book-keeping Accounting
1 Process recording of
transactions
summarizing of the recorded
transactions
2 Level base for accounting language of accounting
3 Financial
Statement
is not a part is a part
4 Managerial
decision
cannot be taken can be taken
5 Sub-field No Yes
6 Financial Position cannot be ascertained can be ascertained
Users of Financial Statements
{CMA inter J12, 5 marks}
Users Purpose
External Management Profitability
Employees To claim bonus
Internal
Lenders To know the solvency position
Suppliers To decide the credit policy
Customers To ensure prompt supply of material
Government To levy tax and control
Investors To invest
Public For employment
Objectives of accounting
Objectives Description
1 To maintain systematic accounting
records.
Book keeping, Journal and Ledger
2 To ascertain the result Manufacturing, Trading and Profit or Loss
A/c
3 To ascertain the financial position. Balance Sheet
4 To ascertain the financial performance. Solvency Position
5 To communicate information to users. Financial Reports
Functions of accounting
1. Measurement: past performance and current position
2. Forecasting: future performance and financial position using past data
Meaning and Scope of Accounting 3
3. Decision-making
4. Comparison and evaluation
5. Control
6. Government regulation and taxation.
Limitations of accounting
1. Ignores qualitative elements like loyalty and skill of employees etc.
2. Records past events not about the future performance of the company
3. Ignores inflation except a few cases such as AS 11, AS 26, AS 28 etc.
4. Bias of accountant in recording and in judgment
5. Danger of window dressing.
Branches (sub fields) of accounting
1. Financial Accounting
2. Cost Accounting: Accounting and controlling the cost of a product, operation or function.
3. Management Accounting: the techniques for planning, controlling and decision making.
4. Social Responsibility Accounting: to know the social effects of business decisions
5. Human Resource Accounting: to know investments made in human resources and its impact
Role of Accountant in the society
1. Maintenance of books of accounts
2. Statutory Audit
3. Internal Audit
4. Taxation
5. Management Accounting and Consultancy Services
6. Financial Advice: Investments, insurance, business expansion, investigations and pension schemes
7. Other services: secretarial work, share registration work, company formation, receiverships,
liquidations, arbitrations, cost accountant, accountant and information services.
Principles and Practices of Accounting 4
1.2 ACCOUNTING CONCEPTS, PRINCIPLES AND CONVENTIONS
Accounting Bases: for recording transactions
1. Accrual Basis (Mercantile)
2. Cash Basis
3. Hybrid Basis
{CMA inter D09, 3 marks}
Concepts, Principles and Conventions
1. Concepts: assumption having universal application for accounts preparation
2. Principles: rules of current practices and a guide for selection of conventions where alternatives
exist
3. Conventions: derived by usage and practice but may not have universal application
Concepts
1. Accounting Entity Concept: Owner ≠ business
2. Money Measurement Concept: Transactions measurable in money only are recorded
{CMA inter D11, 5 marks}
3. Accounting Period Concept (Periodicity / Time Period Concept): (01.04.XX – 31.03.X1)
4. Accrual Concept: Transactions are recorded when they occur (not paid).
5. Matching Concept: all expenses matched with the revenue of that period are recorded.
[Periodic profit = Periodic revenue – periodic expenses]
6. Going concern Concept: It is assumed that enterprise has long life (no intention for liquidation)
7. Cost Concept: the value of an asset is recorded at historical cost (acquisition cost)
8. Realization concept: Accounting entry is made only on realization of the transaction
9. Dual aspect concept: every transaction has two aspects. (every debit has a credit and vice versa)
Accounting Equation Approach: Equity = Assets – Liabilities
10. Consistency Concept: Same accounting policy is followed from one accounting period to another.
{CMA inter D12, 5 marks}
11. Conservatism convention: Revenues should be recognized when there is reasonable certainty of
collectability but the possible losses whether certain or not should be provided.
Three qualitative characteristics: prudence | neutrality | faithful representation
Prudence Concept: Anticipated losses are recognized but anticipated profits are ignored.
12. Full Disclosure Concept: (against to prudence concept)
13. Materiality Concept: the information influences the decision of users - should be disclosed.
{CMA inter D03, J06 & D08, 2, 2 & 3 marks}
{Any four: CMA inter D02, J03, J07 & D10, 2, 2, 2 & 5 marks}
Accounting Concepts, Principles and Conventions 5
Fundamental Accounting Assumptions
1. Going Concern
2. Consistency
3. Accrual
{CMA inter D03, J05, D13 & J14, 2, 2, 2 & 2 marks}
Components of Financial statements / general purpose financial statement
1. Profit & Loss Statement
2. Balance Sheet
3. Cash Flow Statement
4. Notes to Accounts – explanations
{CMA inter D03, J06, J07 & J08, 2, 2, 2 and 2 marks}
The Qualitative Characteristics of Accounting Information
Primary
1. Understandability by the users who has reasonable knowledge
2. Relevance to the decision makers [predictive and confirmatory roles from the past]
3. Reliability, free from material error and bias
4. Comparability of financial statements of one year with the financial statements another year of the
same company or other company
Non-primary
5. Materiality
6. Faithful representation
7. Substance over form
8. Neutrality
9. Prudence
10. Full, fair and adequate disclosure
11. Completeness
Capital and Revenue Transactions 6
1.3 CAPITAL AND REVENUE TRANSACTIONS
Capital Expenditures are
1. To acquire or bring into existence an asset, or
2. To acquire or bring into existence an advantage or benefit of enduring nature, or
3. To increase the productivity or earning capacity.
Examples:
1. Expenses incurred before the asset is put to use,
2. repairs of a newly purchased old machine,
3. Purchase of new machine.
Accounting Treatment: Debited to Respective Asset Account.
{CMA inter D01, 4 marks}
Revenue Expenditures are
1. To maintain productivity or earning capacity of business.
2. To carry out operating activity in normal course of business.
Examples:
1. Expenses incurred after the asset is put to use,
2. Expenses for replacement of worn-out part of machine,
3. Repairs of an existing machine.
Accounting Treatment: Debited to Trading / P&L Account
{CMA inter D01, 4 marks}
Capital Receipt: refers to that receipt which does not arise in normal course of business.
Accounting Treatment: It is credited to Respective Account.
Examples:
1. Raising Issue of Share Capital.
2. Insurance Claim received for machinery damaged by fire.
3. Subsidy received from government for purchase of machinery.
4. Premium received on issue of shares.
Principles and Practices of Accounting 7
Revenue Receipt: refers to that receipt which arises in normal course of business.
Accounting Treatment: It is credited to Trading Account / P&L Account.
Examples:
1. Sale of Land and Building by real estate dealer.
2. Raising of Loan by a person engaged in business of finance and banking.
3. Sale of Shares and debentures by a dealer in securities.
Capital and Revenue Expenditure
Item of Expenditure Nature Reason for Classification
1 Repair of a second-hand machinery
before put to use
Capital These are incurred to put the capital
asset to use.
2 Interest on a term loan for the purchase
of machinery. The commercial
production has not begun till the last day
of the accounting year.
Capital These are incurred to acquire capital
asset & the commercial production has
not yet begun.
3 Interest on a term-loan for the purchase
of machinery. The commercial
production has already begun.
Revenue The commercial production has already
begun.
4 Repairs of Machine after the machine are
put to use.
Revenue These are incurred to maintain the
capital asset.
5 Amount spent for replacement of worn-
out part of machine asset
Revenue These are incurred to maintain the
capital
6 Annual Maintenance fee of a machine Revenue These are incurred to maintain the
capital asset.
7 Money spent to reduce working
expenses
Capital These are incurred to acquire long term
benefits.
8 Amount spent for replacement of a
petrol driven engine by CNG Kits
Capital These are incurred to reduce the
operating costs and thereby increasing
the profit.
9 Cost of Rings & Pistons of an engine
changed to get fuel efficiency
Capital These are incurred to reduce the
operating costs and thereby increasing
profit.
10 Overhauling expenses for the engine of a
motor car to get better fuel efficiency
Capital These are incurred to reduce the
operating costs and thereby increasing
profit.
11 Legal expenses to acquire a building Capital These are incurred to acquire ownership
right of the capital asset.
Capital and Revenue Transactions 8
Capital and Revenue Receipt
Item of Receipt Nature Reason for Classification.
1 Insurance claim for
machinery damaged by fire
Capital It is arising from investing and not from operating
activities in the normal course of business.
2 Subsidy received from
Government for plot of land
Capital It is arising from investing activities and not from
operating activities in the normal course of business.
3 General subsidy received
from Government
Revenue It is not for the purchase of any capital asset.
4 Bad Debt Recovered Revenue It is arising from Operating Activities in the normal
course of business.
5 Scrap Value of Machinery Capital It is arising from investing activities and not from
operating activities in the normal course of business.
6 Premium received on issue
of Shares
Capital It is arising from financing activities and not from
operating activities in the normal course of business.
Contingent Assets and Contingent Liabilities 9
1.4 CONTINGENT ASSETS AND CONTINGENT LIABILITIES
Contingent asset: usually arises from unplanned or unexpected events that give rise to the possibility
of inflow of economic benefits to enterprise.
Recognition: Contingent Asset is neither recognized nor disclosed in financial statements.
Example: A claim filed against 3rd party.
Contingent Liability: is an obligation which may or may not arise depending upon the happening or
non-happening of future uncertain event.
Recognition: A Contingent Liability is required to be disclosed by way of note to Balance Sheet unless
possibility of outflow of resource embodying economic benefits is remote.
Examples: Bills discounted but not yet matured & Arrears of Dividend on Cumulative Preference
Shares.
{CMA inter D10 & D12, 5 & 5 marks}
Provision: is a present liability of uncertain amount which can be measured reliably by using a
substantial degree of estimation.
Recognition: Provision should be recognized in financial statements.
Examples: Provision for Taxation & Provision for Depreciation.
Treatment of Present / Possible Obligation
Nature of Obligation Situation Present Obligation Possible Obligation
Probable Outflow and Reliable
Estimate
Recognize as
‘Provision’
Disclose as ‘Contingent Liability’
Probable Outflow and No Reliable
Estimate
Disclose as ‘Contingent
Liability’
Disclose as ‘Contingent Liability’
No Probable Outflow / Liability and
No Reliable Estimate
Disclose as ‘Contingent
Liability’
Do Nothing
Note: Provision is to be made if there is (a) Present Obligation, (b) probable Outflow, (c) Reliable
Estimate
Principles and Practice of Accounting 10
1.5 ACCOUNTING POLICIES
Accounting policy: refers to accounting principles and method of applying those principles adopted
by enterprise in the preparation of financial statements.
Primary consideration in the selection of accounting policies
Prudence Substance over-form Materiality
{CMA inter J04, 2 marks}
Areas in which a choice with regard to accounting policy is made by an enterprise.
1. Treatment of Contingent liabilities
2. Treatment of retirement benefits
3. Valuation of investments
4. Treatment of Intangible Assets
5. Methods of Depreciation depletion and amortization
6. Valuation of fixed assets
7. Valuation of inventory.
{CMA inter J03, D03 & D08}
A change in Accounting Policy is possible
1. To comply with law.
2. To comply with AS.
3. To ensure more appropriate presentation of financial statements.
Accounting Introduction – Journal | Ledger | Trail Balance 11
2.1 ACCOUNTING INTRODUCTION – JOURNAL | LEDGER | TRAIL BALANCE
Accounting equation:
1. Assets = Capital + Liabilities or
2. Capital = Assets – Liabilities
3. Closing Capital = Opening Capital + Profit + Additional Capital – Drawings.
Transactions which increase the Capital = Profit & Additional Capital
Transactions which decrease the Capital = Loss & Drawings
Account: a summary of relevant transactions at one place relating to a particular head.
Classification of accounts
Traditional Approach Equation Approach
Account Example Account Example
1 Personal Account 1 Capital Capital, Drawings, P/L
Natural Raj, Vimal 2 Assets Building, Cash, Bank
Artificial (Legal) IDBI Bank 3 Liabilities Debt, Creditors
Representative O/s expenses 4 Expenses Rent, Salaries
2 Impersonal Account 5 Income Sales, rent received
Real Building
Nominal Expenses, income
Double entry system (by Luca Pacioli): two aspects of a transaction are recorded. They are used
Capital Asset Liability Income Expenses
1 Debit (debito) Decrease Increase Decrease Decrease Increase
2 Credit (credito) Increase Decrease Increase Increase Decrease
Write a note on rule of debit and credit.
Type of Accounts Rules of Debit Rules of Credit
Personal Accounts Debit the Receiver Credit the Giver
Real Accounts Debit what comes in Credit what Goes out
Nominal Accounts Debit all Expenses and Losses Credit all Gains and Profits.
Liability: Results from past transactions or events; measurable in terms of money.
{CMA inter D13 & D15, 4 & 4 marks}
Principles and Practice of Accounting 12
Distinguish between liability and provisions.
Liabilities Provision
1. Confirm amount is payable in future Estimated amount may be payable
2. Example: Purchasing in credit Example: For provision for doubtful debts
{CMA inter J09, 3 marks}
Distinguish between Reserve and Provisions
Reserves Provisions
1 It is an appropriation of profit It is charge against profit
2 It is created to meet unforeseen losses. It is created to meet known liability
3 It can be invested in a fund. It cannot be invested
4 Example: General Reserve Example: Provision for Doubtful Debt
{CMA inter D09, 5 marks}
Types of Entries
1. Opening Entry – to record assets, liabilities or capital appearing in the opening Balance Sheet.
2. Closing Entries – to close the nominal accounts by transferring them to Trading and P&L a/c
3. Transfer Entries – to transfer an amount from one account to another
4. Adjusting Entries – to record unadjusted / unrecorded items
5. Rectifying Entries – to rectify the errors.
Journal Entry
Steps to pass journal entry
1. Identify business transaction measurable in money
2. Find out two accounts affected in the transactions after leaving action word & supporting phrase
3. Find out the type of accounts affected in the transaction i.e., personal, real and nominal
4. Apply the accounting rule
5. Write the journal entry as follows
Date Particulars L.F. Debit Credit
₹ ₹
DD/MM/YY XXXX A/c Dr. ××××
To XXXX A/c ××××
(Being …….)
6. Owner is distinct from the business, hence
a. Credit Capital a/c (Owner → Business)
b. Debit Drawings a/c (Business → Owner)
7. In case of cash transaction, party’s name is not taken
8. Credit Transaction – If the name of the party is given for purchase or sale
9. Debit Purchases A/c – If purchases for trading motive
Credit Sales A/c – If sales for trading motive
Accounting Introduction – Journal | Ledger | Trail Balance 13
10. If the purchases or sales in credit, then party’s name is taken. If party’s name is not given
a. Debit Debtors A/c in case of sales
b. Creditor A/c is credited in case of purchase.
Subsidiary books: Subsidiary Books (Special Journals) are the books of original entry (or prime entry).
1. Cash Journal
a. Single column cash book
b. Double column cash book
c. Triple column cash book
d. Petty cash book (with or without analytical)
2. Goods Journal
a. Purchases book
b. Sales book
c. Purchase return book
d. Sales return book
3. Bills Journal
a. Bills Receivable book
b. Bills Payable book
c. Debtors’ book
d. Creditors’ book
4. Journal Proper: (for recording transactions not recordable under any subsidiary books)
PRACTICAL PROBLEMS
Question 1: Analyse the effect of transaction on assets and liabilities and show that the both sides of
Accounting Equation (A= L+C)
1. Introduced ₹80,000 as cash and ₹5,000 by stock
2. Purchased Plant for ₹30,000 by paying ₹1,500 in cash and balance at a later date.
3. Deposited ₹60,000 in to the bank.
4. Purchased office furniture for ₹10,000 and made payment by cheque.
5. Purchased goods worth ₹8,000 for cash and for ₹3,500 in credit.
6. Goods amounting to ₹4,500 was sold for ₹6,000 on cash basis.
7. Goods costing to ₹8,000 was sold for ₹12,500 on credit.
8. Cheque issued to the supplier of goods worth ₹3,500.
9. Cheque received from customer amounting to ₹7,500.
10. Withdrawn by owner for personal use ₹2,500.
Answer:
Capital + Liabilities = Assets
Capital Asset
Crs
Trade
Crs
Trade
Drs
Cash Stock Plant Bank Furnit
1 85,000 80,000 5,000
85,000 + = 85,000
2 85,000 28,500 78,500 5,000 30,000
Principles and Practice of Accounting 14
85,000 + 28,500 = 1,13,500
3 85,000 28,500 18,500 5,000 30,000 60,000
85,000 + 28,500 = 1,13,500
4 85,000 28,500 18,500 5,000 30,000 50,000 10,000
85,000 + 28,500 = 1,13,500
5 85,000 28,500 3,500 10,500 16,500 30,000 50,000 10,000
85,000 + 32,000 = 1,17,000
6 86,500 28,500 3,500 16,500 12,000 30,000 50,000 10,000
86,500 + 32,000 = 1,18,500
7 91,000 28,500 3,500 12,500 16,500 4,000 30,000 50,000 10,000
91,000 + 32,000 = 1,23,000
8 91,000 28,500 12,500 16,500 4,000 30,000 46,500 10,000
91,000 + 28,500 = 1,19,500
9 91,000 28,500 5,000 16,500 4,000 30,000 54,000 10,000
91,000 + 28,500 = 1,19,500
10 88,500 28,500 5,000 14,000 4,000 30,000 54,000 10,000
88,500 + 28,500 = 1,17,000
Question 2: Pass the journal
Capital contribution
1. Business started with cash of ₹1,00,000
2. Business commenced with a capital of ₹6,00,000
3. Business commenced with bank deposit of ₹1,00,000
4. Singar introduced capital of ₹1,00,000 by cash and ₹50,000 by stock
5. Singar commences business with bank deposit of ₹1,00,00,000
6. Singar commences business with following assets and liabilities: cash ₹5,000, stock ₹10,000,
furniture ₹10,000 and loan ₹5,000
7. Singar introduced further capital of ₹10,000
8. Singar was carrying on business in book publications. On 1st April, 2015, his assets were: Cash at
Bank, ₹35,000, Cash in hand. ₹3,700, Furniture ₹45,300, Stock of goods, ₹3,51,000, Amounts due
from Alex, ₹15,000, from Beem ₹16,000. He owed ₹1,00,000 to Mrs. Singar and ₹26,000 to Charan.
Drawings
9. Withdrawn by owner for personal use ₹25,000.
10. Cash paid for household expenses ₹10,000
11. Goods taken by owner for personal purpose (cost is ₹10,000 & sale price is ₹12,000)
12. Withdrawn from bank ₹35,000 for personal use.
Bank deposits / withdrawal
13. Open a bank account (current account) with SBI for 35,000
Accounting Introduction – Journal | Ledger | Trail Balance 15
14. Deposited ₹6,00,000 in to the bank.
15. Cheque received for ₹50,000 from debtor and deposited in to the bank account in the same date.
16. Withdrawn from bank ₹10,000
17. Withdrawn from bank ₹10,000 for office use
18. Cheque received for ₹10,000 from debtor but deposited in to the bank after two days
Purchase of Assets
Installation charges / wages / trail run expenses
19. Patent is purchased for ₹2,00,000 in cash
20. Furniture is purchased for ₹2,00,000 in credit from Pepperfry
21. Building is purchased for ₹2,00,000 in credit
22. Land purchased for ₹1,00,000 by giving cheque ₹25,000 and balance at later date
23. Wages paid for plant installation is ₹10,000
24. Plant purchased for ₹50,000 and also incurred ₹5,000, ₹3,000 and ₹2,000 for installation wages,
carriage expenses and material for trail run respectively. Also, brokerage paid ₹2,500
Sale of Assets
25. Furniture costing ₹1,00,000 sold for ₹1,00,000
26. Furniture costing ₹1,00,000 sold for ₹1,20,000
27. Furniture costing ₹1,00,000 sold for ₹80,000
28. Furniture costing ₹1,00,000 sold for ₹1,20,000 in credit to I & Co and brokerage paid @ 5%
29. Furniture purchased for ₹1,00,000 by exchanging old furniture for ₹20,000 (book value of old
furniture is ₹25,000) and issued cheque for balance
Goods purchased / sold / other use
30. XYZ Stationery Mart Purchased stationery items for ₹10,000
31. Purchased goods for cash ₹4,00,000
32. Purchased goods worth ₹50,000 by cash and ₹30,000 by cheque
33. Purchased goods for credit from KYPSS is ₹20,000
34. Purchased goods for ₹15,000 in credit
35. Purchased goods worth ₹80,000 for cash and for ₹35,000 in credit.
36. Purchased goods worth ₹40,000 for cash and ₹45,000 on account.
37. Purchase of goods from SSA of the list price ₹1,00,000. He allowed 10% trade discount, ₹5,000
cash discount was also allowed for quick payment.
38. Sold goods for ₹80,000 by cash
39. Singar Books sold books for ₹50,000 by cheque
40. Cash sales for ₹70,000 (goods costing ₹50,000)
41. Sold goods for ₹25,000 in credit from A & Co
42. Sold goods for ₹15,000 in credit
43. Goods amounting to ₹45,000 was sold for ₹60,000 on cash basis.
44. Goods costing to ₹80,000 was sold for ₹1,25,000 on credit.
45. Goods sold to SSA for 16,000
Principles and Practice of Accounting 16
Return
46. Purchase return ₹5,000
47. Sales return ₹8,000
Material issued / used other than sales
48. Goods (Cost ₹5,000 and sale price is ₹6,000) given as donation / charity
49. Goods ₹4,000 used for office expenses
50. Goods ₹10,000 used for fixture making
51. Goods ₹5,000 given as free sample
52. Goods 20,000 taken by owner
53. Goods given to employees as bonus (Cost is ₹10,000 and sale price is ₹12,000)
54. Goods costing ₹5,000 used for office purpose
Payments / Receipts by cash / bank / petty cash / owner / others
55. Received cash from Raj ₹4,00,000
56. Paid to Bala ₹5,00,000
57. Received a cheque from SSA ₹16,000
58. Nidhi pays Cash 14,000
59. Cheque received from a customer amounting to ₹75,000.
60. Cheque issued to the supplier of goods worth ₹35,000.
61. Received cheque from Raj ₹9,800 and allowed him discount ₹200
62. Cheque issued to Bala ₹4,900 and received discount ₹100
63. Paid a cheque of ₹2,00,000 to the supplier for Plant and Machinery.
64. A dividend of ₹0.6 per rupee is received from debtor who became insolvent. Amount owed by
him ₹1,00,000
65. Bad debt written off in the previous year is recovered – ₹5,000
66. Loan of ₹500 taken from Anand
67. Repayment of loan ₹1,00,000
68. Investments in shares / bonds / land ₹1,00,000
69. Investments in shares costing ₹1,00,000 sold for ₹1,00,000
70. Investments in bonds costing ₹1,00,000 sold for ₹1,20,000
71. Investments in land costing ₹1,00,000 sold for ₹80,000 and commission paid @ 5%
72. Furniture purchased for ₹50,000 and payment made by the owner
73. Car purchased for ₹9,75,000 and payment made by debtor for his due ₹10,00,000
Purchased stationery
74. Stationery purchased for cash ₹2,200
75. Stationery purchased for ₹5,000 from ABC Stationery Mart in credit
76. Stationery purchased ₹4,000 in credit
Accounting Introduction – Journal | Ledger | Trail Balance 17
Expenses paid by cash / cheque / outstanding / advance
77. Rent 2,000
78. Insurance ₹2,500.
79. Salary ₹5,500.
80. Commission ₹3,000
81. Telephone bill ₹2,000
82. Wages ₹4,000
83. Electricity bill ₹2,500
84. Cartage ₹1,000
85. Trade expenses ₹500
86. Telephone ₹750
87. Sundry expenses ₹500
88. General expenses ₹1,000
89. Bank charges ₹100
90. Postage ₹50
91. Interest on loan and overdraft – ₹6,000
92. Interest on capital – ₹4,000
Income received by cash / cheque / accrued / advance / accrued but not due:
93. Interest on investment / drawings received ₹4,000
94. Dividend received ₹10,000
95. Rent received ₹5,000
Depreciation
96. Depreciation on plant and machinery is ₹25,000
Abnormal Loss
97. Goods costing ₹40,000 (sale value ₹50,000) lost in accident / theft (abnormal) without insurance
98. Goods worth ₹35,000 (sale value ₹60,000) lost in accident / theft (abnormal) with insurance and
claim received is ₹40,000
99. Goods worth ₹60,000 lost in accident / theft (abnormal) with insurance and claim receivable is
₹50,000
100. Assets destroyed in fire accident (W.D.V is ₹1,00,000) and insurance claim receivable is ₹50,000
101. Stationery worth ₹10,000 destroyed in fire accident
Question 3: Journalise the following transactions in the books of SHIVA
Date Transactions
01.05.2015 Started business with ₹5,00,000 of which 50% amount was borrowed from SBI and 20%
amount was borrowed from his sister Patta
05.05.2015 Purchased goods from Chinu Mart worth ₹1,60,000 at 25% trade discount and 40%
amount paid in cash
08.05.2015 Sold goods to Satish ₹60,000 at 20% trade discount and received ¼ amount in cash
15.05.2015 Paid to Chinu Mart ₹69,500 in full settlement of A/c
{CMA inter J15, 4×1=4 marks}
Principles and Practice of Accounting 18
Answer:
Journal Entry
Date Particulars Debit [₹] Credit [₹]
01.05.2015 Cash A/c Dr 5,00,000
To Capital A/c 1,50,000
To Loan from Patt’s A/c 1,00,000
To Loan from SBI A/c 2,50,000
(Being business started)
05.05.2015 Purchases A/c Dr 1,20,000
To Cash A/c 48,000
To Chinu Mart A/c 72,000
(Being goods purchases and trade discount received)
08.05.2015 Cash A/c Dr 12,000
Satish A/c Dr 36,000
To Sales A/c 48,000
(Being goods sold and trade discount allowed)
15.05.2015 Chinu Mart A/c Dr 72,000
To Cash A/c 69,500
To Discount A/c 2,500
(Being payment made to Chinu Mart in full settlement)
Question 4: Singar was carrying on business in book publications. On 1st April, 2015, his assets were:
Cash at Bank, ₹35,000, Cash in hand. ₹3,700, Furniture ₹45,300, Stock of goods, ₹3,51,000, Amounts due
from Alex, ₹15,000, from Beem ₹16,000. He owed ₹1,00,000 to Mrs. Singar and ₹26,000 to Charan.
During April, his transactions were:
April Transactions ₹
2 Paid wages and salaries by cheque 6,000
3 Purchased on credit from Charan: 5 Financial A/c books @ ₹500 each
4 Sold goods for cash to Mahesh
Drawn cash for private use
5,000
3,000
6 Paid telephone bill in cash
Issued cheque in favor of Charan
Discount allowed by him
1,800
25,000
1,000
8 Received Cheque from Beem in full settlement 15,500
10 Sold to Alex on Credit: 10 Cost A/c books at 8% trade discount [list price ₹500]
11 Beem’s cheque returned dishonored by bank
12 Sold to Arun on credit: 5 FM books @ ₹600
15 Cash sales to Anand 6,000
Accounting Introduction – Journal | Ledger | Trail Balance 19
Cash sent to bank 5,000
20 Purchased one two-wheeler on credit from TVS Co.
Issued Cheque in part payment
35,000
10,000
22 Beem declared insolvent, a dividend of 60% is received from his estate
23 Old newspapers sold for cash 250
25 Old furniture sold (cost, ₹4,000) 2,500
27 Purchased from Kumar 50 Cost A/c books @ ₹220
Arun returns one FM book as defective
28 Received from Alex cheque in full settlement of the amount due on 1st April
Sent cash to bank
14,500
11,000
30 Interest due to Mrs. Singar @ 9% p.a. for one month.
Goods taken for domestic use
500
Enter the transactions in the books of Singar.
Answer: Under theoretical system [preparing ledger and trail balance after passing journal entries]
Narration Journal Entry Dr Cr
01.04.15
Opening Entry
Bank A/c Dr 35,000
Cash A/c Dr 3,700
Furniture A/c Dr 45,300
Stock of Goods A/c Dr 3,51,000
Alex A/c Dr 15,000
Beem A/c Dr 16,000
To Mrs. Singar A/c 1,00,000
To Charan A/c 26,000
To Capital [Balance] 3,40,000
02.04.15 Wages and Salary paid
Wages and Salary A/c Dr 6,000
To Bank A/c 6,000
03.04.15 Purchases
from Charan
Purchases A/c Dr 2,500
To Charan A/c 2,500
04.04.15 Sold goods for cash
Cash A/c Dr 5,000
To Sales A/c 5,000
Drawings A/c Dr 3,000
To Cash A/c 3,000
06.04.15 Paid telephone bill
Telephone Bill A/c Dr 1,800
To Cash 1,800
Issued cheque
in favor of Charan
Charan A/c Dr 26,000
To Bank A/c 25,000
To Discount Received A/c 1,000
08.04.15 Received cheque Bank A/c Dr 15,500
Principles and Practice of Accounting 20
from Beem Discount Allowed A/c Dr 500
To Beem A/c 16,000
10.04.15 Sales to Alex
Alex A/c Dr 4,600
To Sales A/c 4,600
11.04.15 Beem’s cheque
returned dishonored
Beem A/c Dr 16,000
To Bank A/c 15,500
To Discount Allowed A/c 500
12.04.15 Sale to Arun
Arun A/c Dr 3,000
To Sales A/c 3,000
15.04.15 Cash sales
Cash A/c Dr 6,000
To Sales A/c 6,000
Cash sent to bank
Bank A/c Dr 5,000
To Cash A/c 5,000
20.04.15 Two-wheeler
purchased
Two-wheeler A/c Dr 35,000
To Bank A/c 10,000
To TVS & Co. 25,000
22.04.15 Beem declared
insolvent
Bank A/c Dr 9,600
Bad Debts A/c Dr 6,400
To Beem A/c 16,000
23.04.15 Old newspaper sold
Cash A/c Dr 250
To Old Newspaper A/c 250
25.04.15
Old furniture sold
Cash A/c Dr 2,500
Loss on Sale A/c Dr 1,500
To Furniture A/c 4,000
27.04.15 Purchases
from Kumar
Purchased A/c Dr 11,000
To Kumar A/c 11,000
Arun returns
one shirt
Sales Return A/c Dr 600
To Arun A/c 600
28.04.15 Received
from Alex
Bank A/c Dr 14,500
Discount Allowed Dr 500
To Alex A/c 15,000
Sent cash
to bank
Bank A/c Dr 11,000
To Cash A/c 11,000
30.04.15 Interest due
Interest A/c Dr 750
To Mrs. Singar’s Loan A/c 750
Goods taken
for domestic use
Drawings A/c Dr 500
To Purchases A/c 500
Accounting Introduction – Journal | Ledger | Trail Balance 21
LEDGER
Debit Credit
April Particulars ₹ April Particulars ₹
Capital A/c
To 1 By By Balance b/d 3,40,000
Mrs. Singar’s Loan A/c
1 By Balance b/d 1,00,000
Charan A/c
6 To Cash A/c 25,000 1 By Balance b/d 26,000
Discount Received A/c 1,000 3 Purchases A/c 2,500
30 Balance c/d 2,500
28,500 28,500
1 Balance b/d 2,500
Alex A/c
1 To Balance b/d 15,000 28 By Cash A/c 14,500
10 Sales A/c 4,600 30 Discount Allowed 500
Balance c/d 4,600
19,600 19,600
1 Balance b/d 4,600
Beem A/c
1 To Balance b/d 16,000 8 By Cash A/c 15,500
11 Bank A/c 15,500 8 Discount Allowed A/c 500
Discount Allowed A/c 500 22 Cash A/c 9,600
22 Bad Debts A/c 6,400
32,000 32,000
Arun A/c
12 To Sales A/c 3,000 27 By Returns Inwards A/c 600
30 Balance c/d 2,400
3,000 3,000
1 To Balance b/d 2,400
TVS Co
20 To Bank A/c 10,000 20 By Two-wheeler A/c 35,000
30 Balance c/d 25,000
35,000 35,000
1 Balance b/d 35,000
Principles and Practice of Accounting 22
Kumar A/c
27 By Purchases A/c 11,000
Drawings A/c
4 To Cash A/c 3,000 30 By Balance c/d 3,500
30 Purchases A/c 500
3,500 3,500
Balance b/d 3,500
Stock A/c
1 To Balance b/d 3,51,000
Furniture A/c
1 To Balance b/d 45,300 25 By Cash A/c 2,500
25 Loss on Furniture A/c 1,500
30 Balance c/d 41,300
45,300 45,300
1 Balance b/d 41,300
Two-wheeler A/c
20 To TVS Co. A/c 35,000 30 By Balance c/d 35,000
1 Balance b/d 35,000
Purchases A/c
3 To Charan A/c 2,500 By Drawings 500
27 Kumar A/c 11,000 Balance c/d 13,000
13,500 13,500
To Balance b/d 13,000
Sales A/c
To Balance c/d 2 By Cash 5,000
10 Alex A/c 4,600
12 Arun A/c 3,000
15 Cash A/c 6,000
18,600 18,600
Balance b/d 18,600
Wages & Salaries A/c
2 To Bank A/c 6,000
Telephone Expenses A/c
6 To Cash A/c 1,800
Old Newspaper A/c
23 To By Cash A/c 250
Accounting Introduction – Journal | Ledger | Trail Balance 23
Bad Debts A/c
22 To Beem A/c 6,400
Loss on Sale of Furniture A/c
25 To Furniture A/c 1,500
Interest on Loan A/c
30 To Outstanding Interest on Loan 750
Discount Allowed A/c
8 To Beem A/c 500 30 By Beem A/c 500
28 Alex A/c 500 Balance c/d 500
1,000 1,000
Balance b/d 500
Returns Inward A/c
27 Arun A/c 600
Outstanding Interest on Loan A/c
30 By Interest on Loan A/c 750
Discount Received A/c
6 By Charan A/c 1,000
Cash A/c
1 To Balance b/d 15,000 09 By Purchases 21,000
8 Sales 22,000 09 Bank 15,000
9 Bank 14,500 24 Stationery 1,800
16 Michael 6,850 25 Cartage 350
23 Kumar 4,500 28 Bank 4,500
31 Wages 3,000
31 Postage 220
31 Balance c/d 16,980
62,850 62,850
Balance b/d 16,980
Bank A/c
01 To Balance b/d 10,000 03 By Insurance 4,200
09 Cash 15,000 10 Telephone 2,300
20 John 10,700 14 Drawings 6,000
21 Sale 2,000 16 Cash 14,500
28 Cash 4,500 21 Card charge 40
31 Kumar 4,500
31 Rent 4,000
31 X 3,000
Principles and Practice of Accounting 24
31 Balance c/d 3,660
42,200 42,200
Balance b/d 3,6600
Trail Balance
Debit Credit
Cash in hand A/c 6,250 Capital A/c 3,40,000
Cash at Bank A/c 24,500 Mrs. Singar’s Loan 1,00,000
Alex A/c 4,600 Charan 2,500
Arun A/c 2,400 TVS Co. 25,000
Drawings A/c 3,500 Kumar 11,000
Stock A/c 3,51,000 Sales A/c 18,600
Furniture A/c 41,300 Old Newspapers A/c 250
Two-wheeler A/c 35,000 Discount Received A/c 1,000
Purchases A/c 13,000 Outstanding Interest 750
Wages and Salaries A/c 6,000
Telephone Expenses A/c 1,800
Bad Debts A/c 6,400
Loss on sale of furniture 1,500
Interest A/c 750
Returns Inward 600
Discount Allowed A/c 500
Total 4,99,100 4,99,100
Question 5: The Rough Book of M/s. Narain & Co. contains the following
Date Particulars
01.02.16 Purchased from Brown & Co. on credit;
5 gross pencils @ ₹100 per gross,
1 gross registers @ ₹240 per dozen
Less: Trade Discount @ 10%
02.02.16 Purchased for cash from the Stationery Mart; 10 gross exercise books @ ₹300 per dozen
03.02.16 Purchased computer for office use from M/s. Office Goods Co. on credit for ₹30,000.
04.02.16 Purchased on credit from The Paper Co.
5 reams of white paper @ ₹100 per ream.
10 reams of ruled paper @ 150per ream.
Less: Trade Discount @ 10%
05.02.16 Purchased one dozen gel pens @ 15 each from M/s. Verma Bros. on credit.
Accounting Introduction – Journal | Ledger | Trail Balance 25
Make out the purchased Book of M/s. Narain & Co.
Answer:
Purchase Book
Particulars ₹ L.F. ₹
01.02.16 M/s. Brown & Co.
5 gross pencils @ ₹100 per gross 500.00
1 gross registers @ ₹240 per doz. 2,880.00
3,380.00
Less: 10% trade discount (338) 3,042
04.02.16 The Paper Co.
5 reams white paper @ ₹100 per ream 500.00
10 reams ruled paper @ ₹150 per ream 1500.00
2,000.00
Less: 10% trade discount (200.00) 1,800
05.02.16 M/s. Verma Bros.
1 doz. gel pens @ ₹15 each 180 180
Total 5022
Note: Purchase of cash and purchase of computer cannot be entered in the Purchase Book.
Question 6: The following are some of the transactions of M/s Kishore & Sons of the year 2015 as per
their Waste Book. Make out their Sales Book.
Particulars
Sold to M/s. Gupta & Verma on credit;
30 shirts @ ₹800 per shirt
20 trousers @ ₹1,000 per trouser.
Less: Trade Discount @ 10%
Sold furniture to M/s. Sehgal & Co. on credit ₹8,000
Sold 50 shirts of M/s. Jain & Sons @ ₹800 per shirt.
Sold 13 shirts to Cheap Stores @ ₹750 each for cash.
Sold on credit to M/s. Mathur & Jain.
100 shirts@ ₹750 per shirt
10 overcoats @ ₹5,000 per overcoat.
Less: Trade Discount @10%
Answer:
Sales Book
Date Particulars ₹ L.F ₹
2015 M/s. Gupta & Verma
30 Shirts @ ₹800 24,000
Principles and Practice of Accounting 26
20 Trousers @ ₹1,000 20,000
44,000
Less: 10% (4,400)
Sales as per invoice no. dated… 39,600
M/s. Jain & Sons
50 shirts @ ₹800 40,000
Sale as per invoice no. dated….
M/s Mathur & Jain
100 shirts @ ₹750 75,000
10 overcoats @ ₹5,000 50,000
1,25,000
Less: 10% (12,500)
Sales as per invoice no. dated… 1,12,500
Total 1,92,100
Question 7: Record the following transactions in triple column cash book and balance it.
Date Particular ₹
01.08.2019 Cash balance 15,000
Bank balance 10,000
03.08.2019 Paid insurance premium by cheque 4,200
08.08.2019 Cash sales 22,000
Cash discount 750
09.08.2019 Payment for cash purchases 21,000
Cash discount 700
09.08.2019 Cash deposited in bank 15,000
10.08.2019 Telephone bill paid by cheque 2,300
14.08.2019 Withdrawn from bank for personal use 6,000
16.08.2019 Withdrawn from bank for office use 14,500
20.08.2019 Received cheque from John in full and final settlement
and deposited the same in the bank (Due is ₹11,000)
10,700
21.08.2019 Sales by credit card (card charges ₹40) 2,000
23.08.2019 Received cash from Michael 6,850
23.08.2019 Discount allowed 150
24.08.2019 Stationery purchased for cash 1,800
25.08.2019 Cartage paid in cash 350
25.08.2019 Cheque received from Kumar 4,500
28.08.2019 Cheque received from Kumar deposited in Bank 4,500
Accounting Introduction – Journal | Ledger | Trail Balance 27
31.08.2019 Cheque deposited on Aug. 28 dishonored and returned by the bank
31.08.2019 Rent paid by cheque 4,000
31.08.2019 Paid wages to the watchman in cash 3,000
31.08.2019 Paid cash for postage 220
Issued cheque to X for full settlement of the due ₹3,200 3,000
Answer:
Cash Book
Date Particular DA Cash Bank Date Particular DR Cash Bank
₹ ₹ ₹ ₹
To By
01.08.19 Balance b/d 15,000 10,000 03.08.19 Insurance 4,200
08.08.19 Sales 22,000 09.08.19 Purchases 21,000
09.08.19 Cash C 15,000 09.08.19 Bank C 15,000
16.08.19 Bank C 14,500 10.08.19 Telephone 2,300
20.08.19 John 300 10,700 14.08.19 Drawings 6,000
21.08.19 Sale 2,000 16.08.19 Cash C 14,500
23.08.19 Michael 150 6,850 21.08.19 Card
charge
40
25.08.19 Kumar 4,500 24.08.19 Stationery 1,800
28.08.19 Cash C 4,500 25.08.19 Cartage 350
28.08.19 Bank C 4,500
31.08.19 Kumar 4,500
31.08.19 Rent 4,000
31.08.19 Wages 3,000
31.08.19 Postage 220
31.08.19 X 200 3,000
31.08.19 Balance
c/d
16,980 3,660
450 62,850 42,200 200 62,850 42,200
01.09.19 Balance
b/d
16,980 3,6600
Question 8: Shri Singar maintains a Columnar Petty Cash Book on the Imprest System. The imprest
amount is ₹500. From the following information, show how his Petty Cash Book would appear for the
week ended 12th September, 2018;
Date Particulars ₹
07.09.2018 Balance in hand 134.90
Received Cash reimbursement to make up the imprest 365.10
Principles and Practice of Accounting 28
Stationery 49.80
08.09.2018 Miscellaneous Expenses 20.90
09.09.2018 Repairs 156.70
10.09.2018 Travelling 68.50
11.09.2018 Stationery 71.40
12.09.2018 Miscellaneous Expenses 6.30
Repairs 48.30
Answer: Petty Cash Book
Receipts Payments
Sep Dr Particulars Cr Particulars Total Stationery Travel Other Repairs
₹ ₹ ₹ ₹ ₹ ₹
7 To Balance b/d 134.90 By Stationery 49.80 49.80 - - -
8 Cash 365.10 Others 20.90 - - 20.90 -
9 Repairs 156.70 - - - 156.70
10 Travelling 68.50 - 68.50 - -
11 Stationery 71.40 71.40 - - -
12 Others 6.30 - - 6.30 -
Repairs 48.30 - - - 48.30
421.90 121.20 68.50 27.20 205.00
Balance c/d 78.10
500.00 500.00
13 Balance b/d 78.10
Question 9: Prepare question 4 under practical system [subsidiary books and journal proper]
Answer:
Cash Book
April Particulars Dis.
All
Cash Bank April Particulars Dis.
Rec
Cash Bank
1 To Balance b/d 3,700 35,000 2 By Wages & Salaries 6,000
4 Sales A/c 5,000 4 Drawings A/c 3,000
8 Beem A/c 500 15,500 6 Telephone Exp. 1,800
15 Sales A/c 6,000 6 Charan A/c 1,000 25,000
15 Cash A/c 5,000 11 Beem A/c 15,500
22 Beem A/c 9,600 15 Bank A/c 5,000
23 Old Newspaper 250 20 TVS Co A/c 10,000
23 Furniture A/c 2,500 28 Bank A/c 11,000
28 Alex A/c 500 14,500 30 Balance c/d 6,250 24,500
Cash A/c 11,000
1,000 27,050 81,000 1,000 27,050 81,000
Balance b/d 6,250 24,500
Accounting Introduction – Journal | Ledger | Trail Balance 29
Purchases Book
April Particulars ₹ ₹
3 Charan [5 Financial A/c Books @ ₹500] [5×500] 2,500
27 Kumar [50 Cost A/c books @ ₹220] [50×220] 11,000
Total 13,500
Sales Book
April Particulars ₹ ₹
10 Alex: [10 Cost A/c books @ ₹460] [10×460] 4,600
12 Arun [5 FM books @ ₹600] [5×600] 3,000
Total 7,600
Returns Inwards Book
April Particulars ₹ ₹
27 Arun: [1 FM book @ ₹600] [Sales return] [1×600] 600
Total 600
Journal Proper
April Particulars Debit [₹] Credit [₹]
1 Bank A/c Dr 35,000
Cash A/c Dr 3,700
Furniture A/c Dr 45,300
Stock A/c Dr 3,51,000
Alex A/c Dr 15,000
Beem A/c Dr 16,000
To Mrs. Singar’s Loan A/c 1,00,000
To Charan A/c 26,000
To Capital A/c [Balance] 3,40,000
11 Beem A/c Dr 500
To Discount Allowed A/c 500
20 Two-wheeler A/c Dr 35,000
To TVS Co., A/c 35,000
22 Bad Debts A/c Dr 6,400
To Beem A/c 6,400
25 Loss on Sale of Furniture A/c Dr 1,500
To Furniture A/c. 1,500
30 Interest on Loan A/c. Dr 750
Principles and Practice of Accounting 30
LEDGER
Debit Credit
Apr Particulars ₹ Apr Particulars ₹
Capital A/c
To 1 By By Balance b/d 3,40,000
Mrs. Singar’s Loan A/c
1 By Balance b/d 1,00,000
Charan A/c
6 To Cash A/c 25,000 1 By Balance b/d 26,000
Discount Received A/c 1,000 3 Purchases A/c 2,500
30 Balance c/d 2,500
28,500 28,500
1 Balance b/d 2,500
Alex A/c
1 To Balance b/d 15,000 28 By Cash A/c 14,500
10 Sales A/c 4,600 30 Discount 500
Balance c/d 4,600
19,600 19,600
1 Balance b/d 4,600
Beem A/c
1 To Balance b/d 16,000 8 By Cash 15,500
11 Bank A/c 15,500 8 Discount Allowed 500
Discount Allowed 500 22 Cash 9,600
22 Bad Debts A/c 6,400
32,000 32,000
Arun A/c
12 To Sales 3,000 27 By Returns Inwards 600
30 Balance c/d 2,400
3,000 3,000
1 To Balance b/d 2,400
TVS Co
20 To Bank A/c 10,000 20 By Two-wheeler 35,000
30 Balance c/d 25,000
35,000 35,000
1 Balance b/d 35,000
Kumar A/c
27 By Purchases A/c 11,000
Drawings A/c
4 To Cash 3,000 30 By Balance c/d 3,500
30 Purchases A/c 500
To Outstanding Interest on Loan A/c 750
30 Drawings A/c Dr 500
To Purchase A/c 500
Accounting Introduction – Journal | Ledger | Trail Balance 31
3,500 3,500
Balance b/d 3,500
Stock A/c
1 To Balance b/d 3,51,000
Furniture A/c
1 To Balance b/d 45,300 25 By Cash A/c 2,500
25 Loss on Furniture A/c 1,500
30 Balance c/d 41,300
45,300 45,300
1 Balance b/d 41,300
Two-wheeler A/c
20 To TVS Co. 35,000 30 By Balance c/d 35,000
1 Balance b/d 35,000
Purchase A/c
30 To Sundries 13,500 By Drawings 500
[from purchases book] Balance c/d 13,000
13,500 13,500
To Balance b/d 13,000
Sales A/c
To Balance c/d 2 By Cash 5,000
15 Cash 6,000
30 Sundries [from sales book] 7,600
18,600 18,600
Balance b/d 18,600
Wages & Salaries A/c
2 To Bank A/c 6,000
Telephone Expenses A/c
6 To Cash A/c 1,800
Old Newspaper A/c
23 To By Cash A/c 250
Bad Debts A/c
22 To Beem A/c 6,400
Loss on Sale of Furniture A/c
25 To Furniture A/c 1,500
Interest on Loan A/c
30 To O/s Interest A/c 750
Discount Allowed A/c
30 To Sundries for cash book 1,000 30 By Beem A/c 500
Balance c/d 500
1,000 1,000
Balance b/d 500
Returns Inward A/c
Sundries from
Return inward books
600
Principles and Practice of Accounting 32
Outstanding Interest on Loan A/c
30 By Interest on Loan A/c 750
Discount Received A/c
By Sundries from Cash Book 1,000
Trail Balance
Debit Credit
Cash in hand 6,250 Capital Account 3,40,000
Cash at Bank 24,500 Mrs. Singar’s Loan 1,00,000
Alex 4,600 Charan 2,500
Arun 2,400 TVS Co. 25,000
Drawings A/c 3,500 Kumar 11,000
Stock A/c 3,51,000 Sales A/c 18,600
Furniture A/c 41,300 Old Newspapers A/c 250
Two-wheeler A/c 35,000 Discount Received A/c 1,000
Purchases A/c 13,000 Outstanding Interest 750
Wages and Salaries A/c 6,000
Telephone Expenses A/c 1,800
Bad Debts A/c 6,400
Loss on sale of furniture 1,500
Interest A/c 750
Returns Inward 600
Discount Allowed A/c 500
Total 4,99,100 4,99,100
Rectification Entries 33
2.2 RECTIFICATION OF ERRORS
Principles and Practice of Accounting 34
Question 1: Pass rectification entries for the following errors assuming (a) error located before the
preparation of trail balance, (b) error located after trail balance but before the preparation of Final A/c
and (c) error located after the preparation of trail balance
(a) A sale of ₹60 posted to the credit of a customer’s account.
(b) ₹125 received from X posted to the credit of Y.
(c) An item of ₹27 in Sales Returns not posted to the customer’s account.
(d) Sale total under cast by ₹100.
(e) A purchase of ₹75 not entered in the day book.
Answer: Rectification of Error
Before TB After TB but before final a/c After the final a/c
Dr Cr Dr Cr Dr Cr
1 Customer’s A/c Dr 120 Customer’s A/c Dr 120 Customer’s A/c Dr 120
To Suspense A/c 120 To Suspense A/c 120
2 Y A/c Dr 125 Y A/c Dr 125 Y A/c Dr 125
To X A/c 125 To X A/c 125 To X A/c 125
3 Suspense A/c Dr 27 Suspense A/c Dr 27
To Customer’s A/c 27 To Customer’s A/c 27 To Customer’s A/c 27
4 Suspense A/c Dr 100 Suspense A/c Dr 100
To Sales A/c 100 To Sales A/c 100 To P/L Adj. A/c 100
5 Purchases A/c Dr 75 Purchases A/c Dr 75 P/L Adj. A/c Dr 75
To Creditor’s A/c 75 To Creditor’s A/c 75 To Creditor’s A/c 75
Question 2: How do you rectify the following errors?
1. The total of the discount allowed column is added short by ₹20 and the amount is posted to the
credit of discount received account. The correct total of the column is ₹320.
2. A sale of goods for ₹300 to Sundaram was entered in the purchase book.
3. Goods worth ₹200 taken by the proprietors for his private use were entirely omitted.
4. A sales returns of ₹500 from Bakshi was entered in the purchase day book.
5. Wages of ₹500 spent on erection of machinery debited to wages account.
6. Legal charges of ₹100 paid on purchase of building debited to legal expenses account.
7. Salary of ₹1,000 paid to manager was debited to his personal account.
8. Salary of ₹500 paid to ‘A’, the partner, was debited to his drawings account.
9. Sale of an old machine for ₹500 was entered in the sales day book.
10. Goods of the value of ₹200 returned by ‘R’ was taken into stock but no entry was passed in the
books.
11. Goods worth ₹500 returned to Antony were entered in the purchases day books and debited to the
account of Antony.
12. Furniture of ₹700 purchased for proprietor’s residence was entered in the purchase day book.
Answer: Rectification
Rectification Entries 35
Before the TB After TB but before Final a/c After Final a/c
1 Discount allowed Dr 320 Discount allowed Dr 320 P/L Adjustment A/c Dr 620
Discount received Dr 300 Discount received Dr 300
To Suspense 620 To Suspense 620
2 Sundaram’s A/c Dr 600 Sundaram’s A/c Dr 600 Sundaram’s A/c Dr 600
To Purchases A/c 300 To Purchases A/c 300 To P/L Adjustment A/c 600
To Sales A/c 300 To Sales A/c 300
3 Drawings A/c Dr 200 Drawings A/c Dr 200 Drawings A/c Dr 200
To Purchases A/c 200 To Purchases A/c 200 To P/L Adjustment A/c 200
4 Sales Returns A/c Dr 500 Sales Returns A/c Dr 500
To Purchases A/c 500 To Purchases A/c 500
5 Machinery A/c Dr 500 Machinery A/c Dr 500 Machinery A/c Dr 500
To Wages A/c 500 To Wages A/c 500 To P/L Adjustment A/c 500
6 Buildings A/c Dr 100 Buildings A/c Dr 100 Buildings A/c Dr 100
To Legal expenses A/c 100 To Legal expenses A/c 100 To P/L Adjustment A/c 100
7 Salaries A/c Dr 1,000 Salaries A/c Dr 1,000 P/L Adjustment A/c Dr 1,000
To Manager A/c 1,000 To Manager A/c 1,000 To Manager A/c 1,000
8 A’s Salary A/c Dr 500 A’s Salary A/c Dr 500 A’s Salary A/c Dr 500
To A’s Drawings A/c 500 To A’s Drawings A/c 500 To A’s Drawings A/c 500
9 Sales A/c Dr 500 Sales A/c Dr 500 P/L Adjustment A/c Dr 500
To Machinery A/c 500 To Machinery A/c 500 To Machinery A/c 500
10 Sales Return A/c Dr 200 Sales Return A/c Dr 200 P/L Adjustment A/c Dr 200
To R’s A/c 200 To R’s A/c 200 To R’s A/c 200
11 Suspense A/c Dr 1,000 Suspense A/c Dr 1,000
To Purchase return A/c 500 To Purchase return a/c 500 To P/L Adjustment A/c 1,000
To Purchase A/c 500 To Purchase A/c 500
12 Drawings A/c Dr 700 Drawings A/c Dr 700 Drawings A/c Dr 700
To Purchases A/c 700 To Purchases A/c 700 To P/L Adjustment A/c 700
Principles and Practice of Accounting 36
Question 3: Trial Balance as at 31st March 2018:
Debit Credits
Totals b/fd 9,638 9,600 Total Disagree
Suspense Account 38 Difference is books
9,638 9,638
As the debit side is more, the difference is placed on the shorter side and the suspense a/c will be opened
with credit balance.
Suppose the following errors were discovered on 1st April 2018:
1. A credit item of ₹93 has been debited to the personal account of Raman as ₹39.
2. ₹75 written off as depreciation of plant and machinery a/c has not been debited to depreciation a/c.
3. A discount of ₹45 allowed to Natraj and Sons has been credited to them as ₹54.
4. The total of sales returns book has been under cast by ₹10.
Required:
1. Pass the rectification entries and show suspense a/c.
2. Find out the true net profit if the profit before discovering errors was ₹1,500.
Answer:
1 Suspense A/c Dr. 132 3 Natraj & Sons A/c Dr. 9
To Raman’s 132 To Suspense A/c 9
2 Depreciation Dr. 75 4 Sales Returns A/c Dr. 10
To Suspense 75 To Suspense A/c 10
Suspense A/c
₹ ₹
01.04.18 To Raman’s A/c 132 31.03.18 By Difference in books 38
Depreciation A/c 75
Natraj & Sons 9
132 132
Adjusted P/L A/c
₹ ₹
To Depreciation 75 By Net profit b/d 1,500
Sales returns 10
Adjustments NP 1,415
1,500 1,500
Bank Reconciliation Statement 37
3 BANK RECONCILIATION STATEMENT
Bank reconciliation statement (BRS): The bank reconciliation statement is a statement that reconciles
the balance as per the bank column of cash book with the balance as per the bank statement by giving
the reasons for such difference along with the amount.
{CMA foundation D10, 1 mark}
Steps for the preparation of BRS:
1. Start with balance as per cash book or balance as per pass book
1 Balance as per cash book Debit Balance
2 Balance as per pass book Credit Balance
3 Overdraft as per cash book Credit Balance
4 Overdraft as per pass book Debit Balance
2. List out the discrepancies. They are
(a) The cheque related
(b) Bank charges and bank credits
(c) Standing instruction receipts and payments
(d) Errors (under casting or over casting)
Rough Work
Cash Book (Bank Column)
Receipts (Dr) Payments (Cr)
(a) Cheque received / deposited
but not cleared
××× (i) Cheque issued but not
presented for payment
×××
Bank Pass Book
Payments (Dr) Receipts (Cr)
(a) Cheque issued but and presented for
payment but not recorded in cash book
××× (i) Cheque received / deposited and
cleared but not recorded in cash book
×××
(a) Cheque dishonored ×××
(b) Bank debits (interest on OD, charges, etc.) ××× (ii) Bank credits (Interest, etc.) ×××
(c) Standing instructions (Payments) ××× (iii) Standing instructions (Receipts) ×××
(d) Over casting is posted in the same side but under casting is posted in the opposite side
Principles and Practice of Accounting 38
3. Prepare BRS
Bank Reconciliation Statement
Balance as per cash book (Debit Balance) ×××
Add (Credit items of cash book and pass book)
(i) Cheque issued but not yet presented for payment ×××
Cheque received / deposited and cleared but not recorded in cash book ×××
(ii) Bank credits (Interest on bank balance, subsidy) ×××
(iii) Standing instructions (Receipts) ×××
Nt. Over casting of credit side of cash book and pass book ×××
Nt. Under casting of debit side of cash book and pass book ××× ×××
Less (Debit items of cash book and pass book)
1 Cheque received / deposited but not yet cleared ×××
Cheque issued but and presented for payment but not recorded in cash book ×××
Cheque dishonored ×××
2 Bank debits (Interest on OD, charges, etc.) ×××
3 Standing instructions (Payments) ×××
Nt. Under casting of credit side of cash book and pass book ×××
Nt. Over casting of debit side of cash book and pass book ××× ×××
Balance as per pass book (Credit Balance) ×××
Note: If the balance arrived is positive then
If Then
1 Balance as per cash book Debit Balance Balance as per pass book Credit Balance
2 Overdraft as per cash book Credit Balance Overdraft as per pass book Debit Balance
Note: If the balance arrived is negative then
If Then
1 Balance as per cash book Debit Balance Overdraft as per pass book Debit Balance
2 Overdraft as per cash book Credit Balance Balance as per pass book Credit Balance
Bank Reconciliation Statement 39
Preparation of BRS after preparing adjusted cash book
Adjusted Cash Book (Bank Column)
Receipts (Dr) Payments (Cr)
To Balance b/d ××× By
(ii) Bank Credits (Interest, etc.) ××× 2 Bank Debits (charges, etc.) ×××
(iii) Standing Instructions (Receipts) ××× Standing Instructions (Payments) ×××
Nt Error rectified Nt Error Rectified
Balance c/d ×××
××× ×××
Bank Reconciliation Statement after Adjusted Cash Book
Balance as per Adjusted Cash Book (Debit Balance) ×××
Add (Credit items of Cash book and Pass book)
(i) Cheque issued but not presented for payment ×××
Cheque received / deposited and cleared but not recorded in cash book ×××
Less (Debit items of Cash book and Pass book)
1 Cheque Received / Deposited but not Cleared ×××
Cheque issued but and presented for payment but not recorded in cash book ×××
Cheque dishonored ×××
Balance as per Pass Book (Credit Balance) ×××
PRACTICAL PROBLEMS
Question 1: On 31st March 2018, bank account of Mr. Singar Ltd. did not agree with the Balance as
shown by his pass book on that date. The entries in his cash book and pass book for the month of March
disclosed the following:
Cash book (Bank Column)
Receipts (Dr.) ₹ Payments (Cr.) ₹
01.3.18 To Balance b/d 10,000 04.3.18 By X Ltd (Cheque No. 600001) 4,000
02.3.18 A Ltd 5,000 15.3.18 Cash A/c 6,000
09.3.18 Cash A/c 5,000 29.3.18 Y Ltd. (Cheque No. 600003) 3,000
27.3.18 B & Co 6,000
31.3.18 C & Co. 3,000 31.3.18 Balance c/d 17,000
30,000 30,000
Principles and Practice of Accounting 40
Date Pass Book Withdrawal Deposit Balance Dr. / Cr.
₹ ₹ ₹
01.3.18 Balance 10,000 Cr
04.3.18 A Ltd 5,000 15,000 Cr
07.3.18 Cheque 600001 4,000 11,000 Cr
09.3.18 Cash deposit 5,000 16,000 Cr
10.3.18 EMI deducted 3,000 13,000 Cr
15.3.18 Cash withdrawal 6,000 7,000 Cr
20.3.18 Cheque 600002 2,000 5,000 Cr
24.3.18 Dividend received 1,000 6,000 Cr
25.3.18 D Ltd. 7,000 13,000 Cr
30.3.18 B & Co 6,000 19,000 Cr
30.3.18 B & Co cheque returned dishonored 6,000 13,000 Cr
30.3.18 Cheque return charges 100 12,900 Cr
30.3.18 Interest 50 12,950 Cr
You are required to prepare a Bank Reconciliation Statement as at 31st March, 2018 without preparing
amended cash book.
Answer: Rough Work
Items for disagreement
Cash Book (Bank Column)
Receipts (Dr) Payments (Cr)
Cheque C & Co. 3,000 Y Ltd. (Cheque No. 600003) 3,000
Error Overcasting 1,000
Bank Pass Book
Withdrawals / Payments (Dr) Deposits / Receipts (Cr)
Cheque Cheque 600002 2,000 D Ltd. 7,000
B & Co cheque returned dishonored 6,000
Credits / Debits Cheque return charges 100 Interest 50
Stand. Instr. EMI deducted 3,000 Dividend received 1,000
Bank Reconciliation Statement 41
Bank Reconciliation Statement
Balance as per cash book (Debit Balance) 17,000
Add (Credit items of cash book and pass book)
(i) Cheque issued but not presented for payment: Y Ltd (Cheque No. 600003) 3,000
Cheque deposited by our customer directly into bank: D Ltd 7,000
(ii) Bank credits: bank interest 50
(iii) Standing instruction receipts: dividend received 1,000 11,050
Less (Debit items of cash book and pass book)
1 Cheque deposited but not credited by banker: C & Co. 3,000
Cheque issued and debited by banker but not missed in cash book: Cheque 600002 2,000
Cheque deposited returned dishonored: B & Co. 6,000
2 Bank debits for charges: cheque return charges 100
3 Standing instruction payments: EMI deducted 3,000
Nt. Over casting of debit side of cash book 1,000 15,100
Balance as per pass book (Credit Balance) 12,950
Question 2: From the extracts of cash book (bank column) and pass book of Mr. Singar, prepare a
bank reconciliation statement as on 30th June 2016:
Cash book (Bank Column)
Dr. ₹ Cr. ₹
June.1 To balance b/d 5,650 June.8 By Rajamani 2,400
8 Shyam Sundar 1,200 12 Ramasarma 1,600
12 Sudhakar 800 16 Gopinath 1,200
18 Harikrishna 1,400 18 Drawings 1,000
20 Phani 1,350 28 New Venture Limited 1,800
25 Radheshyam 2,100 29 Elumalai 2,200
29 Evalappan 3,400 30 Balance c/d 7,300
30 Dhandapani 1,600
17,500 17,500
July.1 Balance b/d 7,300
Principles and Practice of Accounting 42
Pass Book: Mr. Singar in Account with Sathyam Bank
Dr. ₹ Cr. ₹
July.1 To Mohinder Singh 1,800 July.1 By Balance b/d 4,200
1 New Venture Ltd. *1,800 1 Radheshyam 2,100*
2 Salary 2,500 2 Interest on securities 1,200
3 Elumalai *2,200 4 Evalappan 3,400*
5 Krishnaprasad 2,000
6 Dhandapani 1,600*
Items that appear in both the books are starred and reconciliation is shown below:
Answer:
Bank Reconciliation Statement As on 30.06.16 ₹ ₹
Bank balance as per cash book (in favor) 7,300
Less: Cheques deposited but not collected
Radheshyam 2,100
Evalappan 3,400
Dhandapani 1,600 7,100
Add: Cheques issued but not presented 200
New Venture limited 1,800
Elumalai 2,200 4,000
Balance as per pass book (in favor) 4,200
Favorable balance in Cashbook and Passbook
Question 3: From the following particulars prepare a Bank Reconciliation Statement, showing the
balance as per Cash Book as on 31.03.2008 the books of XYZ & Co.
Particulars ₹
1 Balance as per Pass Book 8,000
2 Cheque deposited but not credited by Bank 1,000
3 Cheques issued but not presented for payment 500
4 Cheques deposited into Bank without recording in Cash Book 600
5 Cheques issued to creditors but not recorded in Cash Book 700
6 Dividend collected by Bank but not recorded in Cash book 100
7 Debtors directly deposited into Bank but not recorded in Cash Book 2,000
8 Debit side of Cash Book was under cast by 1,000
9 Bank charges debited in Pass Book not recorded in Cash Book 50
10 Bank met a Bill payable for ₹1,000 on 31.03.2008 under advice to the firm on 02.04.2008 --
Bank Reconciliation Statement 43
11 A bill for ₹2,000 discounted to ₹1,990 returned dishonored by Bank, noting charges being 10
12 A bill for ₹1,000 discounted with the Bank is entered in the Cash Book without recording
the discounting charges.
100
{CMA foundation J08, 6 marks}
Answer:
Particulars ₹ ₹
Bank Balance as per Book 8,000
Add Cheques deposited but not credited by the Bank 1,000
Cheques issued to creditors but not recorded in Cash Book 700
Bank Charges debited in the Pass Book but not entered in Cash Book 50
Bank met a bill payable, not recorded in Cash Book 1,000
Book with nothing charges 2,010
A bill discounted by the Bank without recording the discounting charges 100 4,860
12,860
Less Cheques deposited into bank without recording in Cash Book 500
Dividend collected by Bank, not recorded in Cash Book 600
Debtor directly deposited into Bank not recorded in Cash Book 100
Debit side of the Cash book was under cast 2,000
Bank Balance as per Cash Book 1,000 4,200
8,600
BRS after Adjusted Cashbook
Question 4: The following is a summary from Cash Book of M/s. Mitra Trading for the month of
September, 2012:
Particulars ₹ Particulars ₹
Balance b/d 1,507 Payment 15,520
Receipt 15,073 Balance b/d 1,060
16,580 16,580
On investigation it was found that
1. Bank charges of ₹35 were not entered in the cash book.
2. A cheque of ₹47 issued to supplier was entered by mistake as a receipt in the cash book.
3. A cheque of ₹81 was returned by the Bank marked as ‘refer to drawer’ but it’s not entered in cash
book.
4. The balance brought forward in September 2012 should have been ₹1,570.
5. Cheque paid to suppliers ₹214, ₹70 and ₹330 have not been presented for payment.
6. Deposits of ₹1,542 on 30th September were cleared by the Bank on 2nd October.
7. The bank charged a cheque wrongly to Mitra Trading ₹92.
Principles and Practice of Accounting 44
8. Bank statement shows overdraft of ₹107 as on 30th September, 2012. Show what adjustments will
you make in the Cash Book and prepare a Bank Reconciliation Statement on 30.09.2012.
{CMA inter J14, 6 marks}
Answer: In the books of M/S Mitra Trading
Adjusted Cash Book for September 2012
Dr. Particulars ₹ Cr. Particulars ₹
To Original Balance B/d 1,060 By Bank Charges not recorded earlier 35
Error balance carried forward
(1,570 – 1,5700)
63 Cheques issued recorded as receipt,
now corrected (2×47)
94
Cheques returned 81
Revised balance c/d 913
1,123 1,123
Bank Reconciliation Statement as on 30.09.2012
Particulars ₹ ₹
Balance as per Cash Book 913
Add Cheques issued but not presented (214+70+330) 614
1,527
Less Deposits not cleared 1,542
Cheques charged by mistake 92 1,637
Overdraft as per Pass Book (107)
Pass book to Cash book
Question 5: From the following particulars, prepare the Bank Reconciliation Statement of Shri Krishan
as on 31st March,
1. Balance as per Pass Book is ₹10,000.
2. Bank collected a cheque of ₹500 on behalf of Shri Krishan but wrongly credited it to Shri Krishan’s
A/c (another customer)
3. Bank recorded a Cash deposit of ₹1,589 as ₹1,598.
4. Withdrawal column of the Pass Book under-cast by ₹100.
5. The credit balance of ₹1,500 as on page 5 of the Pass Book was recorded on page 6 as the debit
balance.
6. The Payment of a cheque of ₹350 was recorded twice in the Pass Book.
7. The Pass Book showed a credit for a cheque of ₹1,000 deposited by Shri Krishan (another customer
of the Bank).
{CMA inter D14, 4 marks}
Answer:
Bank Reconciliation Statement 45
Bank Reconciliation Statement as at 31st March
A Credit Balance as per Pass Book 10,000
B Add (a) Cheque wrongly credited to another customers A/c 500
(b) Error in carrying forward 3,000
(c) Cheque recorded twice 350 3,850
13,850
C Less (a) Excess credit for Cash Deposit 9
(b) Under casting of withdraw column 100
(c) Wrong credit 1,000 1,109
D Debit Balance as per Cash book 12,741
OD balance in Passbook and Cashbook
Question 6: On November 30, 2007 the Passbook of Mr. ANIT KUMAR, a trader showed a Debit
Balance of ₹20,000, but the Passbook balance was different for the following reasons from the Cash
Book Balance.
(1) Mr. ANIT KUMAR deposited a cheque for collection of ₹1,000 on 5.10.2007 and made entry in Cash
Book, appears in the Pass-Book on 6.12.2007 at ₹990.
(2) Cheques issued to parties but not presented for payment till 30.11.2007 are of ₹525 ₹835 and ₹900.
(3) Cheques deposited for collection but not collected by the bankers till 30.11.2007, ₹8,760 and ₹410.
(4) Interest on Investments collected by bankers on 30.11.2007 ₹955 entered in Cash Book on4.12.2007
on receipt of bank intimation.
(5) Bank charges ₹90 (dated 27.11.2007) not entered in Cash Book.
(6) Bankers have made mistake in balancing by showing Debit balance in excess by ₹1,000 on
30.11.2007 which was rectified in Bank Pass Book on 7.12.2007 when notified.
Prepare Bank Reconciliation Statement as on November 30, 2007.
{CMA foundation D07, 6 marks}
Answer:
Mr. Anit Kumar
Bank Reconciliation Statement as on November 30, 2007
Particulars ₹ ₹
Debit Balance as per Pass Book 20,000
Add Cheque issued but not yet presented for payment (₹525 + ₹835 + ₹900) 2,260
Interest on investments collected by the bank entered in the Cash Book after
30.11.2007
955 3,215
23,215
Less Cheque of ₹1,000 deposited but collected by the Bank after 30.11.2007 1,000
Cheques deposited but collected after 30.11.2007 (₹410 + ₹8,760) 9,170
Principles and Practice of Accounting 46
Bank Charges not recorded in the Cash Book 90
Bank’s Mistake in balancing by showing Debit Balance in excess 1,000 11,260
Credit Balance as per Cash Book (Overdraft) 11,955
Favourable Balance in Passbook and OD Balance in Cashbook
Question 7: From the following particulars, prepare a Bank Reconciliation Statement and arrive at the
balance as per Cash Book as on 31st March, 2009
Particulars ₹
A Credit balance as per Pass Book 9,700
B Cheques issued on 27th March, 2009, but presented for payment on 3rd April, 2009 19,000
C Cheques deposited in the Bank on 29th March, 2009, but credited on 2nd April, 2009 10,000
D Bank debited Bank Charges, but not yet recorded in Cash book 250
E Dividend on shares collected and credited by Bank, but not yet recorded in Cash Book 2,000
{CMA foundation J09, 7 marks}
Answer:
Bank Reconciliation Statement as on 31st March, 2009
Particulars ₹ ₹
A Credit balance as per Pass Book 9,700
C Add Cheques deposited into bank but not yet credited 10,000
D Bank charges debited by bank 250 10,250
19,950
B Less Cheques issued but not yet presented for payment 19,000
E Dividend on shares collected by Bank 2,000 21,000
Credit balance (Overdraft as per Cash Book) 1,050
OD in Passbook and Favorable Balance in Cashbook
Question 8: According to Cash Book of A, there was a bank balance of ₹1,050/- in favour on 30th June,
2005 his business Bank Account, However, according to Bank Statement A’s business account was
overdrawn by ₹3,600/-
On Scrutiny you find that –
(a) The receipts column of the Cash Book has been over added by ₹1,100.
(b) Cheques drawn and entered in the Cash Book in June, 2005 amounting to ₹1,670 were not presented
until July, 2005.
(c) Discount received from a supplier of ₹100 was not entered in Cash Book.
(d) An amount of ₹750 paid directly into A’s account by a customer not entered in the Cash Book.
(e) A cheque payment of ₹1,230 in April, 2005 has been entered in the Cash Book as ₹1,320.
Bank Reconciliation Statement 47
(f) The Bank had charged the business account with a cheque for ₹2,200 in February, 2005, which
should have been passed through A’s private account.
(g) Bank Charges of ₹80 on 31.12.2004 and ₹100 on 30.6.2005 had not yet been entered in the Cash Book.
(h) Cheque to the value of ₹3,780 received from customers were recorded in the Cash Book on
28.06.2005 but not entered by the bank until 2.07.2005.
You are asked to make appropriate adjustments in the Cash Book as at 30.06.2005, and prepare a
Statement reconciling Cash Book balance with the balance shown by the Bank statement.
{CMA foundation D06, 14 marks}
Answer: In the books of A Cash Book (Bank Column)
Debit ₹ Credit ₹
To Balance b/d 1,050 By Overcasting error rectified 1,100
Discount Received A/c 100 Bank charges (80 + 100) 180
Customer’s A/c (direct deposit) 750 Balance b/d 710
Error rectified (₹1,320- 1,230) 90
1,990 1,990
Bank Reconciliation Statement as on 30.06.2005
Particulars ₹ ₹
Bank as per amended cash book 710
Add Cheques drawn but not presented 1,670 1,670
2,380
Less Bank charges business account with a cheque which should have been
passed through A’s personal account
2,200
Less Cheque received and recorded in cash book but not included in Bank
statement
3,780 5,980
Bank overdraft as per the Pass book 3,600
Question 9: According to Manmohan’s cash book, there was a balance of ₹3,000 overdrawn on 30th June
2016, in his No.1 bank account.
On investigation you find:
1. Cheque drawn amounting to ₹5,000 had not been presented.
2. Cheque ₹2,500 entered in the cash book as paid into bank, had not yet been cleared.
3. A cheque ₹1,200 drawn on his No.1 account has been charged by the bank to his No.2 account.
4. The payment side of the cash book had been under cast by ₹700.
5. A dividend, ₹400, paid direct to the bank had not been recorded in the cash book.
6. Bank charges of ₹300 entered in the bank statement has not been entered in the cash book.
7. A cheque of ₹500, paid into the bank had been dishonored and shown as such by the bank, but no
entry of the dishonored had been made in the cash book.
Principles and Practice of Accounting 48
8. A charge of ₹10 had been entered in the bank statement, but not entered in the cash book.
You are required:
(a) To show the appropriate adjustments to be made in the cash book, and
(b) To prepare a bank reconciliation statement for the No.1 account:
Answer:
(a)
Cash book No.1 Bank Account (adjusted)
₹ ₹
To Dividend paid direct to the bank 400 By Balance b/f 3,000
Balance carried forward 4,110 Adjustment of under casting 700
Bank charges 300
Cheques dishonored 500
Charges 10
4,510 4,510
(b)
Bank reconciliation statement No.1 Bank a/c as at 30.06.2016 ₹ ₹
Balance as per cash book (over draft) 4,110
Add Cheques not cleared 2,500
6,610
Deduct: Unpresented cheques 5,000
Cheques erroneously charged to No.2 Account 1,200 6,200
Balance as per bank pass book (over draft) 410
Inventories 49
4 INVENTORIES
Type of Inventory Objectives Inventory Record System
✓ I. Manufacturing Concern
✓ Raw material
✓ Work in progress
✓ Finished goods
✓ Stores, consumables and
✓ Packing Material
✓
✓ II. Trading Concern
Traded goods
✓ Determination of income
✓ Ascertainment of Financial Position
✓ Liquidity Analysis
✓ Statutory Compliances
✓ (Companies Act)
✓ 1. Period Inventory
✓ (Physical verification)
✓
✓ 2. Perpetual Inventory
✓ (Continuous basis)
Formulae (for Cost)
Inventory Valuation
Technique
Determination of Value
Whichever is lesser of
Cost Net Realizable Value
1. I. Historical Cost Method
2. 1. Not interchangeable
3. Specific identification
4.
5. 2. Interchangeable
6. FIFO
7. LIFO
8. Weighted Average Method
9. Simple Average Method
10.
11. II. Non-Historical Method
12. Adjusted Selling Price
Cost of Purchase
+ Purchase price ××
+ Duties ××
+ Freight SALE ××
- Rebate ××
- Trade discount ××
- Duty drawback ××
+ Conversion Cost
Direct Labor ××
Direct expenses ××
Variable overhead
(Actual production)
××
Fixed overhead
(Normal Production)
××
Exclude
- Holding &storage cost ××
Insurance ××
Interest and penalties ××
Administration cost ××
Selling & Dist. cost ××
Abnormal loss ××
××
Sale Price ××
- Cost of
Completion
××
- Cost of Sales ××
××
Principles and Practice of Accounting 50
Question 1: The following information is extracted from the Stores Ledger:
Material X
Opening Stock Nil
January 1 Purchases 100 @ ₹1 p.u.
January 20 Purchases 100 @ ₹2 p.u.
January 22 Issues 60 for Job W 16
January 23 Issues 60 for Job W 17
Complete the receipts and issues valuation by adopting the First-in First-Out, Last-in First Out and the
Weighted Average Method. Also determine the price of material issue under simple average method.
Answer: Statement of Receipts and Issues by adopting First-in-First-Out Method
Date Particulars Receipts Issues Balance
Qty Rate Value Qty Rate Value Qty Rate Value
Jan 1 Purchase 100 1 100 – – – 100 1 100
Jan 20 Purchase 100 2 200 – – – 100 1 100
100 2 200
Jan. 22 Issue to Job W16 – – – 60 1 60 40 1 40
100 2 200
Jan. 23 Issue to Job W17 – – – 40 1 40
20 2 40 80 2 160
Statement of Receipts and Issues by adopting Last-In-First-Out method
Date Particulars Receipts Issues Balance
Qty Rate Value Qty Rate Value Qty Rate Value
Jan 1 Purchase 100 1 100 – – – 100 1 100
Jan 20 Purchase 100 2 200 – – – 100 1 100
100 2 200
Jan. 22 Issue to Job W 16 – – – 60 2 120 100 1 100
40 2 80
Jan. 23 Issue to Job W 17 – – – 40 2 80 80 1 80
20 1 20
Statement of Receipt and Issues by adopting Weighted Average method
Date Receipt Issue Balance
Particulars Qty Rate Value Qty Rate Value Qty Rate Value
Jan 1 Purchase 100 1 100 — — — 100 1 100
Jan 20 Purchase 100 2 200 — — — 200 1.50 300
Inventories 51
Jan. 22 Issue to Job W 16 — — — 60 1.50 90 140 1.50 210
Jan. 23 Issue to Job W 17 — — — 60 1.50 90 80 1.50 120
𝐏𝐫𝐢𝐜𝐞 𝐒𝐢𝐦𝐩𝐥𝐞 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐏𝐫𝐢𝐜𝐞 𝐌𝐞𝐭𝐡𝐨𝐝 =∑ 𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒𝑠
𝑁𝑜. 𝑜𝑓 𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒𝑠 =
1 + 2
2= 1.5
Inventory Record System
1. Period Inventory: (Physical verification)
𝐶𝑂𝐺𝑆 = 𝑂𝑝. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 (𝑘𝑛𝑜𝑤𝑛) + 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 (𝑘𝑛𝑜𝑤𝑛) − 𝐶𝑙. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 (𝑝ℎ𝑦𝑠𝑖𝑐𝑎𝑙𝑙𝑦 𝑐𝑜𝑢𝑛𝑡𝑒𝑑)
2. Perpetual Inventory: (continuous basis)
𝐶𝑙. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝑂𝑝. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 (𝑘𝑛𝑜𝑤𝑛) + 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 (𝑘𝑛𝑜𝑤𝑛) − 𝐶𝑂𝐺𝑆 (𝑘𝑛𝑜𝑤𝑛)
Note: in case of manufacturer, add cost of manufacture also
Value of Inventory
Question 2: From the following particulars ascertain the value of inventories as on 31st March 2018:
Inventory as on 1.4.2017 1,42,500
Purchases 7,62,500
Manufacturing expenses 1,50,000
Selling Expenses 60,500
Administrative Expenses 30,000
Financial Charges 21,500
Sales 12,45,000
At the time of valuing inventory as on 31st March, 2016, a sum of ₹17,500 was written off on a particular
item, which was originally purchased for ₹50,000 and was sold during the year for ₹45,000. Barring the
transaction relating to this item, the gross profit earned during the year was 20% on sales
Answer:
Particulars Total Abnormal
Stock
Normal
Stock
Inventory as on 1.4.2017 1,42,500 32,500 1,10,000
+ Purchases 7,62,500 - 7,62,500
+ Manufacturing expenses 1,50,000 1,50,000
Total 10,55,000 32,500 10,22,500
Sales 12,45,000 45,000 12,00,000
- Profit 20% on normal sale 2,52,500 12,500 2,40,000
- COGS [Sales - Profit] 9,92,500 32,500 9,60,000
Inventory as on 31.03.2018 62,500 0 62,500
Stock Reconciliation Statement
Question 3: X’s accounting year ends on 30.06.2011 but actual stock was not taken till 08.07.2011 on
which date it is valued at ₹29,700. The following additional information is available:
Principles and Practice of Accounting 52
(i) Sales are entered in the sales book on the date of dispatch and returns inward entered in the
credit note register on the day goods are received back.
(ii) Purchases are entered in the purchase book on the day invoices are received.
(iii) Sales from 01.07.2011 to 08.07.2011 are ₹34,400
(iv) Purchases invoiced from 01.07.2011 to 08.07.2011 are ₹2,640 out of which goods ₹240 was not
received up to 08.07.2011.
(v) Invoices for goods purchased up to 30.06.2011 were of ₹2,000 of which goods worth ₹1,400 were
received between 01.07.2011 to 08.07.2011
(vi) Rate of G.P. 33.33% on cost.
Find out the value of stock on 30.06.2011.
{CMA inter J12, 6 marks}
Answer:
Statement of valuation of stock as on 30.06.2011 [reverse working] ₹
Stock as on 30.06.11 53,700
+ Purchases / Cost of Sales Return
Purchased less not received [01.06.11-08.07.11] 2,640 – 240 2,400
- Cost of Goods Sold / Purchase Return
Cost of goods sold [01.06.11-08.07.11] 75% × 34,400 25,800
Purchases but goods not received until 30.06.11 2,000 – 1,400 600
Stock as on 08.07.2011 29,700
COGS = Sales × (1-GPR%) | GPR on cost 33.33% or 25% on sales.
Question 4: Mr. Rustagi closes his books of accounts on 30th June every year. Due to some
unprecedented circumstances, he could not take his stock on that very date. i.e., 30.06.2013 for which
the stock was taken on 07.07.2013 and which was valued at ₹22,500.
Compute the value of stock on 30.06.2013. The following relevant transactions took place from 1st July
to 7th July, 2013.
➢ Sales amounting to ₹1,250 made on 6th July has been delivered on 8th July.
➢ Sales during the period amounted to ₹5,100. These goods were sold at a profit of 25% on cost with
the exception of one sale of ₹600 which has been sold at a profit of 20% on cost.
➢ Purchase during the period was ₹4,000 of which goods costing ₹3,500 were delivered on or before
7th July.
➢ Returns Inwards during the period amounted to ₹400 including ₹300 out of sales period to 30th
June, 2012 at a profit of 25% on cost.
➢ Goods sold on sale or return basis for ₹2,250 on 7th July were not included in the sales stated above.
➢ Mr. Rustagi received goods on consignment basis which was invoiced at ₹2,500 for Mr. Behara to
be sold on his behalf on 6th July.
{CMA inter J14, 6 marks}
Inventories 53
Answer:
Statement of valuation of stock as on 30.06.2011 [reverse working] ₹
Stock as on 30.06.13 21,160
+ Purchases less not received /
Cost of sale before 30.06.13 but not delivered before 30.06.13
Cost of the sales return (out of sale made before 30.06.13)
Purchased less not received [01.06.13-07.07.13] 3,500
Cost of return inward of sales before 30.06.13 300 × (
100
125)
240
Goods received on consignment basis 2,500
6,240
- Cost of Goods Sold less not delivered /
Purchases before 30.06.13 not received before 30.06.13
Purchase Return (out of sale made before 30.06.13)
Cost of goods sold [01.06.11-08.07.11]
Sales not delivered before 07.07.2014 1,250 In stock only -
Sales at 20% margin on cost 600 600 × (
100
120)
500
Sales at 25% margin on cost [BF] 3,250 3,250 × (
100
125)
2,600
Total Sales 5,100
Sale on approval basis 2,250 × (
100
125)
1,800
4,900
Stock as on 07.07.2013 22,500
Principles and Practice of Accounting 54
5 ACCOUNTING FOR DEPRECIATION
Depreciation: loss in value of property, plant and equipment (PPE)
Depreciation is the allocation of the depreciable amount of PPE over its estimated useful life.
Nature: non-cash expenses
Depreciable amount = historical cost – scarp value
Causes of Depreciation
1. Physical wear and tear. [Loss of value of fixed assets due to use]
2. Effluxion of time [Passage of time]
3. Obsolescence [outdated] [value loss by change in technology or taste or fashion]
4. Depletion [physical deterioration of natural resources like ore deposits in mines, oil wells]
5. Amortization – value loss of intangible assets
6. Dilapidation – deterioration due to old age (e.g., old building)
7. Changes in economic environment
8. Expiration of legal rights.
{CMA foundation D01, 4 marks}
Depreciable Assets (PPE) are assets which are:
used during more than one year
having a limited useful life
held by an enterprise for use in:
o the production or supply of goods and services
o for renting to others
o for administrative purposes
o not for the purpose of sale in the ordinary course of business.
{CMA inter D12, 3 marks}
Objectives for providing depreciation
1. Correct income measurement
2. True position statement: because of depreciation adjusted value of the fixed assets
3. Funds for replacement: at the end of its useful life.
4. Ascertainment of true cost of production: by charging depreciation as a cost
{CMA inter J09, 5 marks}
Factors affecting Amount of Depreciation
1. Original or Historical Cost (OC) (purchase cost + all expenses incurred up to put to use)
2. Expected Useful life (n)
3. Estimated Residual Value. (s)
Accounting for Depreciation 55
Method of depreciation and rate of depreciation
Time Base
1. Straight Line Method (SLM) or Fixed Installment Method
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒
𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝑑) =𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡%
2. Written Down Value Method (WDV) or Diminishing Value Method
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝑑) = 1 − √𝑠𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒
𝑐𝑜𝑠𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑠𝑠𝑒𝑡𝑠
𝑛
𝑊𝑟𝑖𝑡𝑡𝑒𝑛 𝐷𝑜𝑤𝑛 𝑉𝑎𝑙𝑢𝑒 𝑖𝑛 ′𝑛′ 𝑦𝑒𝑎𝑟 (𝑊𝐷𝑉) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 (1 − 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛)𝑛
Situations in changing the method of depreciation
1. To comply with AS / Statue
2. To have better presentation of financial statements
Applicability of effect of change in method of depreciation:
1. Prospectively: from now onwards and no adjustments required for the prior period
2. Retrospectively: from past date and prior period adjustment is required as
Recalculate depreciation retrospectively as per new method and
In case of deficiency - Debited in Profit & Loss A/c
In case of surplus – Credited in Profit & Loss A/c
{CMA inter D06 & D07, 2 & 2 marks}
Principles and Practice of Accounting 56
Method of Accounting: depreciation by
(I) Charging to asset (II) Creating provision for depreciation
Asset appears at written down value Asset appears at original cost
1 On Asset Purchase
Asset A/c Dr ×× Asset A/c Dr ××
To Bank A/c ×× To Bank A/c ××
2 On Depreciation
Depreciation A/c Dr ×× Depreciation A/c Dr ××
To Asset A/c ×× To Provision for Depreciation A/c ××
3 On Transfer to P/L A/c
P/L A/c Dr ×× P/L A/c Dr ××
To Depreciation A/c ×× To Depreciation A/c ××
4 On Sale of Asset
Bank A/c Dr ×× Bank A/c Dr ××
Loss on Sale of Asset A/c Dr ×× Provision for Depreciation A/c Dr ××
To Asset A/c ×× Loss on Sale of Asset A/c Dr ××
To Profit on Sale of Asset A/c ×× To Asset A/c ××
To Profit on Sale of Asset A/c ××
I Fixed Assets Account (at W.D.V)
Dr. ₹ Cr. ₹
To Balance b/d (WDV) ××× By Bank A/c ×××
Bank A/c (Purchases) ××× P & L A/c (Loss on Sale) ×××
P & L A/c (Profit on Sale) ××× Depreciation A/c (current year) ×××
Balance c/d (WDV) ×××
××× ×××
Or
II Fixed Assets Account (at Original Cost)
To Balance b/d (OC) ××× By Bank A/c ×××
Bank A/c (Purchases) ××× P & L A/c (Loss on Sale) ×××
P & L A/c (Profit on Sale) ××× Provision for Depreciation A/c
(Depreciation on asset sold)
×××
Balance c/d (OC) ×××
××× ×××
Accounting for Depreciation 57
And
Provision for Depreciation A/c
To Asset A/c
(Depreciation on asset sold)
××× By Balance b/d ×××
Balance c/d ××× P & L A/c
(Depreciation for current year)
×××
××× ×××
PRACTICAL PROBLEMS
Calculation of Amount of Depreciation under SLM, WDV, and SYDM
Question 1: Calculate amount of depreciation under Straight Line Method, Written Down Value
Method, Sum of the Years’ Digits Method and pass journal entry assuming asset sold at its scrap
value at the end of useful life
Original Value of the Asset – ₹65,000
Scrap Value of the Asset – ₹5,000
Life – 4 years
Asset sold for ₹10,000 by the end of 4th year
Answer: Calculation of rate of depreciation under different methods
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑖𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑢𝑛𝑑𝑒𝑟 𝑆𝐿𝑀 =
Original Cost − Scrap ValueLife
Original Cost =
65,000 − 5,0004 years
65,000 = 23.08%
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑖𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑢𝑛𝑑𝑒𝑟 𝑊𝐷𝑉𝑀 = 1 − √𝑠𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒
𝑐𝑜𝑠𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑠𝑠𝑒𝑡𝑠
𝑛
= 1 − √5,000
65,000
4
= 47.34%
Depreciation under SLM / WDV & SYDM
Year Particulars SLM WDVM SYDM Calculation SYDM
0 Original Value 65,000 65,000 65,000
1 Depreciation 15,000 30,771 (65,000 − 5,000) ×4
4 + 3 + 2 + 1 24,000
1 Written Down Value 50,000 34,229 41,000
2 Depreciation 15,000 16,204 (65,000 − 5,000) ×3
4 + 3 + 2 + 1 18,000
2 Written Down Value 35,000 18,025 23,000
3 Depreciation 15,000 8,533 (65,000 − 5,000) ×2
4 + 3 + 2 + 1 12,000
3 Written Down Value 20,000 9,492 11,000
4 Depreciation 15,000 4,492 (65,000 − 5,000) ×1
4 + 3 + 2 + 1 6,000
4 Scrap Value 5,000 5,000 5,000
Principles and Practice of Accounting 58
Accounting of depreciation
Year Journal Entries SLM WDVM SYDM
Debit Credit Debit Credit Debit Credit
0 Assets A/c Dr 65,000 65,000 65,000
To Cash A/c 65,000 65,000 65,000
1
Depreciation A/c Dr 15,000 30,771 24,000
To Assets 15,000 30,771 24,000
Profit and Loss A/c Dr 15,000 30,771 24,000
To Depreciation 15,000 30,771 24,000
2
Depreciation A/c Dr 15,000 16,204 18,000
To Assets 15,000 16,204 18,000
Profit and Loss A/c Dr 15,000 16,204 18,000
To Depreciation 15,000 16,204 18,000
3
Depreciation A/c Dr 15,000 8,533 12,000
To Assets 15,000 8,533 12,000
Profit and Loss A/c Dr 15,000 8,533 12,000
To Depreciation 15,000 8,533 12,000
Cash A/c Dr 10,000 10,000 10,000
Loss on Sale A/c Dr 10,000 - 1,000
To Assets A/c 20,000 9,462 11,000
¤ To Profit on Sale A/c 538 -
Accounting of Depreciation
Question: Asset purchased for ₹1,00,000, ₹50,000 and ₹2,00,000 on 1.1.2010, on 1.10.2011 and on 1.1.2012
respectively. On 1.10.2011, the asset purchased on 1.1.2010 was sold for ₹70,000. The rate of depreciation
of the above assets is 10% under straight line method. Prepare assets a/c under different methods of
accounting for the treatment of depreciation.
Answer: Method I [Charging depreciation to asset a/c]
Date Journal Entry Debit Credit
01.01.10 Assets A/c Dr 1,00,000
To Cash A/c 1,00,000
31.12.10 Depreciation A/c Dr 10,000
To Assets 10,000
Profit and Loss A/c Dr 10,000
To Depreciation 10,000
01.07.11 Assets A/c Dr 50,000
To Cash A/c 50,000
01.10.11 Cash A/c Dr 70,000
Accounting for Depreciation 59
Loss on Sale A/c Dr 12,500
Depreciation A/c Dr 7,500
To Assets A/c 90,000
31.12.11 Depreciation A/c Dr 1,250
To Assets 1,250
Profit and Loss A/c Dr 8,750
To Depreciation 8,750
01.01.12 Assets A/c Dr 2,00,000
To Cash A/c 2,00,000
31.12.12 Depreciation A/c Dr 25,000
To Assets 25,000
Profit and Loss A/c Dr 25,000
To Depreciation 25,000
Dr. Assets A/c Cr.
Date Particular ₹ Date Particular ₹
01.01.10 To Bank – Purchase 1,00,000 31.12.10 By Depreciation –
(₹1,00,000 ×10/100)
10,000
Balance c/d 90,000
1,00,000 1,00,000
01.01.11 Balance b/d 90,000 01.10.11 Depreciation 7,500
01.07.11 Bank – Purchase 50,000 (₹1,00,000 ×10/100×9/12)
P/L A/c [Loss] 12,500
Cash 70,000
31.12.11 Depreciation 1,250
(₹50,000×10/100×3/12)
Balance c/d 48,750
1,40,000 1,40,000
01.01.12 Balance b/d 48,750 31.12.12 Depreciation 25,000
Bank- Purchase 2,00,000 (₹2,50,000×10/100)
Balance c/d 2,23,750
2,48,750 2,48,750
01.01.13 2,23,750
Method II [Provision for depreciation method]
Date Journal Entries Debit Credit
01.01.10 Assets A/c Dr 1,00,000
Principles and Practice of Accounting 60
To Cash A/c 1,00,000
31.12.10
Depreciation A/c Dr 10,000
To Provision for Depreciation A/c 10,000
Profit and Loss A/c Dr 10,000
To Depreciation 10,000
01.07.11 Assets A/c Dr 50,000
To Cash A/c 50,000
01.10.11
Depreciation A/c Dr 7,500
To Provision for Depreciation A/c 7,500
Cash A/c Dr 70,000
Loss on Sale A/c Dr 12,500
Provision for Depreciation A/c Dr 17,500
To Assets A/c 1,00,000
31.12.11
Depreciation A/c Dr 1,250
To Provision for Depreciation A/c 1,250
Profit and Loss A/c Dr 8,750
To Depreciation 8,750
01.01.12 Assets A/c Dr 2,00,000
To Cash A/c 2,00,000
31.12.12
Depreciation A/c Dr 25,000
To Provision for Depreciation A/c 25,000
Profit and Loss A/c Dr 25,000
To Depreciation 25,000
Dr Assets A/c Cr
Date Particular Amount Date Particular Amount
01.01.10 To Bank – Purchase 1,00,000 31.12.10 By Balance c/d 1,00,000
1,00,000 1,00,000
01.01.11 Balance b/d 1,00,000 01.10.11 Provision for depreciation 17,500
01.10.11 Bank – Purchase 50,000 P/L A/c [Loss] 12,500
Cash 70,000
31.12.11 Balance c/d 50,000
1,50,000 1,50,000
01.01.12 Balance b/d 50,000 31.12.12 Balance c/d 2,50,000
Bank- Purchase 2,00,000
2,50,000 2,50,000
01.01.13 2,50,000
Accounting for Depreciation 61
Dr Provision for Depreciation A/c Cr
Date Particular Amount Date Particular Amount
31.12.10 To Balance c/d 10,000 31.12.10 By Depreciation 10,000
(₹1,00,000 ×10/100)
10,000 10,000
01.01.11 Assets A/c 17,500 01.01.11 Balance b/d 10,000
31.12.11 Balance b/d 1,250 01.10.11 Depreciation 7,500
(₹1,00,000 ×10/100×9/12)
31.12.11 Depreciation 1,250
(₹50,000 ×10/100×3/12)
18,750 18,750
31.12.12 Balance c/d 26,250 01.01.12 Balance b/d 1,250
01.10.12 Depreciation 25,000
(₹2,50,000 ×10/100)
26,250 26,250
01.01.13 Balance b/d 26,250
Question 2: On 1st April, 2010, M/s. N. R. Sons & Co. purchased four machines for ₹2,60,000 each. On
1st April, 2011, one machine was sold for ₹2,05,000. On 1st July, 2012, the second machine was destroyed
by fire and insurance claim received ₹1,75,000 on 15th July, 2012. A new machine costing ₹4,50,000 was
purchased on 1st October, 2012. Books are closed on 31st March every year and depreciation has been
charged @ 15% per annum on diminishing balance method. You are required to prepare machinery
account for 4 years till 31st March, 2014. (Calculations to be shown in nearest rupee)
{CMA inter J14, 6 marks}
Answer:
Dr Machinery Account Cr
Date Particular ₹ Date Particular ₹
01.04.10 To Bank A/c 10,40,000 31.03.11 By Depreciation A/c 1,56,000
31.03.11 Balance c/d 8,84,000
10,40,000 10,40,000
01.04.11 Balance b/d 8,84,000 01.04.11 Bank a/c (machinery sold) 2,05,000
31.03.12 Depreciation 99,450
31.03.12 P& L A/c (Loss on sale) 16,000
Balance c/d 5,63,550
8,84,000 8,84,000
01.04.12 Balance b/d 5,63,550 01.07.12 Insurance claim 1,75,000
P&L A/c (Loss on destroy) 5,806
Depreciation A/c 7,044
Principles and Practice of Accounting 62
01.10.12 Bank 4,50,000 31.03.13 Depreciation A/c 90,106
31.03.13 Balance c/d 7,35,595
10,13,550 10,13,550
01.04.13 Balance b/d 7,35,595 31.03.14 Depreciation 1,10,339
31.03.14 Balance c/d 6,25,256
7,35,595 7,35,595
01.04.14 Balance b/d 6,25,256
Workings
Particulars M-1 M- 2 M-3 M- 4 M- 5
01.04.2010 Purchased of Machinery 2,60,000 2,60,000 2,60,000 2,60,000 -
Less Depreciation @ 15% p. a 39,000 39,000 39,000 39,000 -
W.D.V. on 31.03.11 2,21,000 2,21,000 2,21,000 2,21,000 -
Less Sold of machinery on 01.04.11 2,05,000 - - - -
Loss on Sale 16,000 - - - -
Less Depreciation @ 15% P.a. - 33,150 33,150 33,150 -
W. D. V. on 31.03.12 1,87,850 1,87,850 1,87,850 -
Less Depreciation @ 15% for 3 months i.e.,
01.04.12- 01.07.12
- 7,044 - - -
1,80,806 1,87,850 1,87,850
Less Amount from Insurance claim 1,75,000
Loss on fire 5,806
On 10.10.12 Purchased of machinery 4,50,000
Less Depreciation of 2 machines for full years 28,178 28,177
1,59,672 1,59,673
Less Depreciation for 6th months of new
machinery
- - 33,750
W.D.V. for 31.03.13 1,59,672 1,59,673 4,16,250
Less Depreciation for full year @ 15% p.a. 23,951 23,950 62,438
1,35,721 1,35,723 3,53,812
Machinery Disposal A/c
Question 3: On December, 2011 two machines, which were purchased on 1st October, 2008 costing
₹50,000 and ₹20,000 respectively had to be discarded and replaced by two new machines costing ₹50,000
and ₹25,000 respectively. One of the discarded machines was sold for ₹20,000 and other for ₹10,000.
The balance of Machinery Accounts as on April 1, 2011 was ₹3,00,000 against which the depreciation
provision stood at ₹1,50,000. Depreciation was provided @ 10% on Reducing Balance Method.
Prepare the Machinery A/c, Provision for Depreciation A/c and machinery Disposal A/c.
{CMA inter J13, 5 marks}
Accounting for Depreciation 63
Answer:
Dr Machinery Account Cr
Date Particulars ₹ Date Particulars ₹
1-4-2011 To Balance c/d 3,00,000 31-12-2011 By Machinery Disposal 70,000
31-12-11 Bank 75,000 31-03-2012 Balance c/d 3,25,000
3,75,000 3,75,000
1-4-2013 Balance b/d 3,25,000
Dr Provision for Depreciation Account Cr
Date Particulars ₹ Date Particulars ₹
31.12.11 To Machinery Disposal a/c 20,175 01.04.11 By Balance b/d 1,50,000
[16,135+4,040] 31.12.11 P & L A/c [WN 1] 15,529
31.03.12 Balance c/d 1,45,354 31.03.12
1,65,329 1,65,329
1-4-12 Balance b/d 1,45,354
Dr Machinery Disposal Account Cr
Date Particulars ₹ Date Particulars ₹
31-12-11 To Machinery A/c 70,000 31-12-11 By Provision for Depreciation A/c 20,175
Bank 30,000
P & L A/c (Bal fig.) 19,825
70,000 70,000
Working Notes:
1. Depreciation on the machines till 1.4.12 Machine 1 Machine 2 Total
01.10.08 Original Value 50,000 20,000 70,000
Depreciation [01.10.08-31.03.09] 2,500 1,000 3,500
31.03.09 Written Down Value 47,500 19,000 66,500
Depreciation [01.04.09-31.03.10] 4,750 1,900 6,650
31.03.10 Written Down Value 42,750 17,100 59,850
Depreciation [01.04.10-31.03.11] 4,275 1,710 5,985
31.03.11 Written Down Value 38,475 15,390 53,865
Depreciation [01.04.11-31.12.11]
31.12.11 Written Down Value
Total depreciation on assets sold 16,135
[3,500+6,650+5,985]
Principles and Practice of Accounting 64
2 Depreciation on Discarded Machine
Book Value of Machine as on 01.04.2011 53,865
Less Depreciation @ 10% for 9 months [till 31.12.11] 4,040
Value of Discarded Machine as on selling date 49,825
3 Depreciation of machinery in use
Value of machinery on 1st April, 2011 3,00,000
Less Cost of discarded machines: 70,000
2,30,000
Less Provision for Depreciation on 1 April, 2011 1,50,000
Less: Depreciation on discarded machines: 16,135 1,33,865
WDV of machinery in use 96,135
Depreciation @ 10% on 96,135 9,614
Add Depreciation for 3 months on ₹75,000 1,875
11,489
Question 4: From the following information prepare.
1. Fixed Assets Account and
2. Accumulated Depreciation Account:
Opening Balance Closing Balance
Fixed Assets in ₹ 4,00,000 5,50,000
Accumulated Depreciation in ₹ 80,000 1,35,000
Additional Information: A part of a machine costing ₹60,000 has been sold for ₹30,000 on which
accumulated depreciation was ₹15,000.
{CMA inter J10, 5 marks}
Answer:
Dr Fixed Assets A/c Cr
To Balance b/d 4,00,000 By Accu. Depreciation 15,000
Bank A/c 2,10,000 Bank A/c 30,000
Loss on sale of Asset 15,000
Balance c/d 5,50,000
6,10,000 6,10,000
Dr Accumulated Depreciation A/c Cr
To Fixed Assets A/c 15,000 By Balance b/d 80,000
Balance c/c 1,35,000 Profit and Loss A/c 70,000
1,50,000 1,50,000
Accounting for Depreciation 65
CHANGE IN METHODS OF DEPRECIATION AND ESTIMATION
Change in Estimated Useful Life
Question 5: A machine costing ₹13,75,000 is depreciated on straight line basis assuming 8 years
working life and zero residual value. After third year machine’s remaining useful life was reassessed
at 7 years. Calculate the amount of depreciation charged for 4th year.
{CMA inter D14, 2 marks}
Answer:
𝑊𝐷𝑉 𝑜𝑓 𝑀𝑎𝑐ℎ𝑖𝑛𝑒𝑟𝑦 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑 𝑜𝑓 3𝑟𝑑 𝑦𝑒𝑎𝑟 = 13, 75,000 – 3 × (13,75,000 − 0
8) = 8, 59,375
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑓𝑜𝑟 4𝑡ℎ 𝑦𝑒𝑎𝑟 = (8,59,375 − 0
7) = 1, 22,768
Change in Method of Depreciation (Prospectively)
Question 6: A firm purchased, on 1st January, 2014, certain machinery for ₹19,40,000 and spent ₹60,000
on its erection. On 1st July in the same year additional machinery costing ₹10,00,000 was acquired. On
1st July, 2016 the machinery purchased on 1st January, 2014 having become obsolete was auctioned for
₹8,00,000 and on the same date fresh machine was purchased at a cost of ₹15,00,000.
Depreciation was provided for annually on 31st December at the rate of 10% per annum on the original
cost of the asset. In 2017 however, the firm changed this method of providing depreciation and adopted
the method of writing off 20% on the written down value.
Give the Machinery Account as it would stand at the end of each year from 2014 to 2018.
{CA foundation Similar in M97 & N11}
Answer:
Machinery A/c
Date Dr Particulars ₹ Date Cr Particulars ₹
01.01.14 To Bank A/c 19,40,000 31.12.14 By Depreciation A/c 2,50,000
Bank A/c 60,000 31.12.14 Balance c/d 27,50,000
Bank A/c 10,00,000
30,00,000 30,00,000
01.01.15 Balance b/d 27,50,000 31.12.15 Depreciation A/c 3,00,000
Balance c/d 24,50,000
27,50,000 27,50,000
01.01.16 Balance b/d 24,50,000 01.07.16 Bank A/c 8,00,000
01.07.16 Bank A/c 15,00,000 P/L A/c (Loss) 1 7,00,000
31.12.16 Depreciation 2,75,000
Balance c/d 21,75,000
39,50,000 39,50,000
1 𝑊𝐷𝑉 = 20 − 20 × 10% × 2.5 𝑦𝑒𝑎𝑟𝑠 = 15 𝑎𝑛𝑑 𝑠𝑎𝑙𝑒 𝑣𝑎𝑙𝑢𝑒 = 8 ℎ𝑒𝑛𝑐𝑒 𝑙𝑜𝑠𝑠 𝑖𝑠 7 (𝑖𝑛 𝑙𝑎𝑘ℎ𝑠)
Principles and Practice of Accounting 66
01.01.17 Balance b/d 21,75,000 31.12.17 Depreciation A/c 4,35,000
Balance c/d 17,40,000
21,75,000 21,75,000
01.01.18 Balance b/d 17,40,000 31.012.18 Depreciation A/c 3,48,000
Balance c/d 13,92,000
17,40,000 17,40,000
Change in Method of Depreciation (Retrospectively)
Question 7: Green Channel Co. purchased a second-hand machine on 1st January, 2015 for ₹1,60,000.
Overhauling and erection charges amounted to ₹40,000. Another machine was purchased for ₹80,000
on 1st July, 2015. On 1st July, 2017, the machine installed on 1st January, 2015 was sold for ₹1,00,000. On
the same date another machine was purchased for ₹30,000 and was installed on 30th September, 2017.
Under the existing practice the company provides depreciation @ 10% p.a. on original cost. However,
from the year 2018 it decided to adopt WDV method and to charge depreciation @ 15% p.a. This change
was to be made with retrospective effect.
Prepare Machinery Account in the book of Green Channel Co. for the year 2015 to 2018.
{CA foundation M03}
Answer:
In the Books of Green Channel Co
Machinery Account
Date Dr Particulars ₹ Date Cr Particulars ₹
01.01.15 To Bank A/c 1,60,000 31.12.15 By Depreciation A/c 24,000
Bank A/c 40,000 31.12.15 Balance c/d 2,56,000
01.07.15 Bank A/c 80,000
2,80,000 2,80,000
01.01.16 Balance b/d 2,56,000 31.12.16 Depreciation A/c 28,000
31.12.16 Balance c/d 2,28,000
2,56,000 2,56,000
01.01.17 Balance b/d 2,28,000 01.07.17 Bank A/c 1,00,000
30.09.17 Bank A/c 30,000 P/L A/c (Loss) WN 1 50,000
31.12.17 Depreciation A/c 18,750
Balance c/d 89,250
2,58,000 2,58,000
01.01.18 Balance b/d 89,250 31.12.18 P/L A/c (WN 3) 6,910
Depreciation A/c 12,351
Balance c/d 69,989
89,250 89,250
Accounting for Depreciation 67
Working Notes
1 Book Value of machines (Straight line method)
Particulars Machine I (₹) Machine II
(₹)
Machine III
(₹)
Cost 2,00,000 80,000 30,000
Depreciation for 2015 20,000 4,000
Written down value as on 31.12.2015 1,80,000 76,000
Depreciation for 2016 20,000 8,000
Written down value as on 31.12.2016 1,60,000 68,000
Depreciation for 2017 10,000 8,000 750
Written down value as on 31.12.2017 1,50,000 60,000 29,250
Sale proceeds 1,00,000
Loss on sale 50,000
2 Depreciation of machines (written down value method)
Cost 80,000 30,000
Depreciation
2015 6,000
2016 11,100
2017 9,435 1,125
Total depreciation for 2015 -2017 26,535 1,125
3 Retrospective effect of change in depreciation method for machines II and III (2015 – 2017);
Depreciation under written down value method (₹26,535 + ₹1,125) 27,660
Depreciation under straight line method (₹20,000 + ₹750) 20,750
Deficiency charged to profit and Loss A/c 6,910
Revaluation of Asset: in case of
1. Profit then credit, 1st: P/L a/c if any revaluation loss charged | 2nd Revaluation Reserve A/c
2. Loss then debit, 1st: Revaluation Reserve if exist | 2nd P/L A/c
OTHER METHODS OF DEPRECIATION (other than SLM and WDVM)
3. Accelerated Depreciation Method (Double / Triple Declining Method)
𝐴𝑐𝑐𝑒𝑙𝑒𝑟𝑎𝑡𝑒𝑑 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑅𝑒𝑔𝑢𝑙𝑎𝑟 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 × 𝑎𝑐𝑐𝑒𝑙𝑒𝑟𝑎𝑡𝑒𝑑 %
4. Sum of the Years’ Digit Method
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷)
= 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑏𝑙𝑒 𝐴𝑚𝑜𝑢𝑛𝑡 ×𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝐿𝑖𝑓𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑖𝑛𝑔 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
𝑆𝑢𝑚 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟𝑠 𝑑𝑖𝑔𝑖𝑡
Principles and Practice of Accounting 68
Source of Fund Base
5. Sinking Fund Method
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝐴𝑚𝑜𝑢𝑛𝑡 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑓𝑜𝑟 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡 ×𝑖
(1 + 𝑖)𝑛 − 1
6. Annuity Method: Depreciation under this method includes interest (𝑖) for investment on asset
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = (𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 −𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒
(1 + 𝑖)𝑛) ×
(1 + 𝑖)𝑛𝑖
(1 + 𝑖)𝑛 − 1
7. Insurance Policy Method: This method protects from risk of failure before the life of the asset
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 𝑝𝑟𝑒𝑚𝑖𝑢𝑚 𝑝𝑎𝑖𝑑
Consumption / Use Base
8. Depletion Method
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 + 𝑅𝑒𝑠𝑡𝑜𝑟𝑒 𝐶𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒
𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑖𝑛 𝐴𝑁𝑌 𝑢𝑛𝑖𝑡𝑠
9. Machine Hour Method / Production Units Method / Kilo Meter Method / etc.
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒
𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒 𝑖𝑛 ℎ𝑜𝑢𝑟𝑠 | 𝑢𝑛𝑖𝑡𝑠 | 𝑘𝑖𝑙𝑜 𝑚𝑒𝑡𝑒𝑟 | 𝑒𝑡𝑐.
Price Base
10. Revaluation Method: Suitable for loose tools
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒 + 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑 − 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑉𝑎𝑙𝑒
{CMA foundation D05, 4 marks}
11. Repairs Provision Method
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝐷) = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 + 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑅𝑒𝑝𝑎𝑖𝑟 𝐶𝑜𝑠𝑡 − 𝑆𝑐𝑟𝑎𝑝 𝑉𝑎𝑙𝑢𝑒
𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒
Depletion method
Question 8: Pensive Corporation’s subsidiary Pensive Oil drills a well with the intention of extracting
oil from a known reservoir. It incurs the following costs related to the acquisition of property and
development of the site:
₹
Land purchase 2,80,000
Road construction 23,000
Drill pad construction 48,000
Drilling fees 1,92,000
Total 5,43,000
Accounting for Depreciation 69
In addition, Pensive Oil estimates that it will incur a site restoration cost of ₹57,000 once extraction is
complete, so the total depletion base of the property is ₹600,000.
Pensive’s geologists estimate that the proven oil reserves that are accessed by the well are 400,000
barrels. Pensive Oil extracts 100,000 barrels and 3, 00,000 barrels in the first and second year
Answer:
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 𝑙𝑒𝑠𝑠 𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒
𝑇𝑜𝑡𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑛𝑎𝑡𝑢𝑟𝑎𝑙 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 =
5,43,000 + 57,000
4,00,000 = ₹1.50
Year Particulars ₹
1 Depreciation (1,00,000 barrels × ₹1,50) 1,50,000
2 Depreciation (3,00,000 barrels × ₹1,50) 4,50,000
Machine Hour Rate
Question 9: On 01.04.2012, machine purchased at ₹5,00,000 with a scrap value of ₹1,00,000 has life of
running 2,00,000 machine hours or producing 1,00,000 units
Year Machine Hours Production Units
2012-13 50,000 25,000
2013-14 1,00,000 50,000
2014-15 50,000 25,000
Calculate amount of depreciation under machine hour rate and production unit rate
Answer:
Machine Hour Rate =Original Cost − Residual Value
Useful Life in Hours=
5,00,000 − 1,00,000
2,00,000= ₹2
Production Unit Rate =Original Cost − Residual Value
Useful Life in Units=
5,00,000 − 1,00,000
1,00,000= ₹4
Year Particulars Machine Hour Production Unit
0 Original Value 5,00,000 5,00,000
1 Depreciation 50,000×₹2 1,00,000 25,000×₹4 1,00,000
1 Written Down Value 4,00,000 4,00,000
2 Depreciation 1,00,000×₹2 2,00,000 50,000×₹4 2,00,000
2 Written Down Value 2,00,000 2,00,000
3 Depreciation 50,000×₹2 1,00,000 25,000×₹4 1,00,000
3 Scrap Value 1,00,000 1,00,000
Depreciation with provision for repairs and renewals:
Question 10: On 01.01.10, an asset is purchased for ₹1, 00,000 has a residual value of ₹20,000 at the end
of 3rd year. Expected cost for repairs and renewal during the life is ₹70,000. Actual repair costs are
₹20,000, ₹25,000 and ₹30,000 in the years I, II and III respectively. At end of third year, the asset is sold
for ₹15,000.
Principles and Practice of Accounting 70
Answer:
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑜𝑖𝑛 =Original Cost − Residual Value + Repair Cost
Useful Life=
1,00,000 − 20,000 + 70,000
3 years= 50,000
Journal Entries Debit Credit
0 Assets A/c Dr 1,00,000
To Cash A/c 1,00,000
1 Depreciation A/c Dr 50,000
To Provision for repairs A/c 50,000
Profit and Loss A/c Dr 50,000
To Depreciation 50,000
Repairs A/c Dr 20,000
To Cash A/c 20,000
Provision for repairs A/c Dr 20,000
To Repairs A/c 20,000
2 Depreciation A/c Dr 50,000
To Provision for repairs A/c 50,000
Profit and Loss A/c Dr 50,000
To Depreciation 50,000
Repairs A/c Dr 25,000
To Cash A/c 25,000
Provision for repairs A/c Dr 25,000
To Repairs A/c 25,000
3 Depreciation A/c Dr 50,000
To Provision for repairs A/c 50,000
Profit and Loss A/c Dr 50,000
To Depreciation 50,000
Repairs A/c Dr 30,000
To Cash A/c 30,000
Provision for repairs A/c Dr 30,000
To Repairs A/c 30,000
Cash A/c Dr 15,000
Provisions for repairs A/c Dr 75,000
Loss on sale A/c Dr 20,000
To Assets 1,00,000
Accounting for Depreciation 71
Dr. Assets A/c Cr.
Date Particular Amount Date Particular Amount
01.01.10 To Bank – Purchase 1,00,000 31.12.10 By Balance c/d 1,00,000
1,00,000 1,00,000
01.01.11 Balance b/d 1,00,000 31.12.11 Balance c/d 1,00,000
1,00,000 1,00,000
01.01.12 Balance b/d 1,00,000 31.12.12 Cash A/c 15,000
Provision A/c 75,000
Loss on Sale 10,000
1,00,000 1,00,000
Dr. Provision for repairs, renewal and depreciation A/c Cr.
Date Particular Amount Date Particular Amount
31.12.10 To Repairs A/c 20,000 31.12.10 By Profit and Loss A/c 50,000
Balance c/d 30,000
50,000 50,000
01.01.11 Repairs A/c 25,000 01.01.11 Balance b/d 30,000
31.12.11 Balance c/d 55,000 01.10.11 Profit and Loss A/c 50,000
80,000 80,000
31.12.12 Repairs A/c 30,000 01.01.12 Balance b/d 55,000
Asset A/c 75,000 01.10.12 Profit and Loss A/c 50,000
1,05,000 1,05,000
Sinking Fund Method
Question 11: A plant and machinery was purchased on 01.04.2010 for ₹1,20,000. The plant and
machinery had a life of 3 years with the residual value of ₹20,000. Calculate amount of depreciation,
pass journal entries and prepare ledger a/c under Sinking fund method. Assume the rate of interest of
10% p.a. for sinking fund method.
Answer: Sinking Fund Method: Depreciation (D)
𝐴𝑚𝑜𝑢𝑛𝑡 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 ×𝑖
(1 + 𝑖)𝑛 − 1= (1,20,000 − 20,000) ×
0.1
(1 + 0.1)3 − 1= 30,211
Accounting under Sinking Fund Method
Year Journal Entries Debit Credit
0 Plant and Machinery A/c Dr 1,20,000
To Bank A/c 1,20,000
1 Profit and Loss A/c Dr 30,211
To Depreciation Fund Reserve A/c 30,211
Depreciation Fund Investment A/c Dr 30,211
Principles and Practice of Accounting 72
To Bank A/c 30,211
2 Bank A/c Dr 3,021
To Interest on Depreciation Fund Investment A/c 3,021
Profit and Loss A/c Dr 30,211
Interest on Depreciation Fund Investment A/c Dr 3,021
To Depreciation Fund Reserve A/c 33,232
Depreciation Fund Investment A/c Dr 33,232
To Bank A/c 33,232
3 Bank A/c Dr 6,344
To Interest on Depreciation Fund Investment A/c 6,344
Profit and Loss A/c Dr 30,211
Interest on Depreciation Fund Investment A/c Dr 6,344
To Depreciation Fund Reserve A/c 36,555
Bank A/c Dr 63,443
To Depreciation Fund Investment A/c 63,443
Bank A/c Dr 20,000
Depreciation Fund Reserve A/c Dr 1,00,000
To Assets A/c 1,20,000
Final Accounts for Sole Properties 73
6 FINAL ACCOUNTS FOR SOLE PROPERTIES
Marshalling of Balance Sheet: order of arrangement of assets and liabilities in B/S
1. Liquidity Order: Liquid assets / liquid liabilities will be arranged first
2. Permanence Order: Fixed assets / Capital and L. T. Debt is arranged first
{CMA inter J07, 5 marks}
Treatment of items of Adjustments appearing inside the Trial balance
Item given in Trial Balance In Trading
& P/L A/c
In B/S
1 Closing Stock - Asset
2 Outstanding (accrued) Expense - Liability
3 Prepaid Expense - Asset
4 Accrued Income - Asset
5 Unearned Income - Liability
6 Depreciation Debit -
7 Bad Debts Debit -
8 Provision for Doubtful Debts - Liabilities
9 Discount allowed Debit -
10 Provision for Discount on Debtors - Liabilities
11 Discount Received Credit -
12 Reserve for Discount on Creditors - Assets
13 Interest on Capital Debit -
14 Interest on Drawings Credit -
Treatment of items of Adjustments appearing outside the Trial balance
Item of Adjustment Adjusting Entry Dr Cr
Stock in trade
1 Opening Stock Trading A/c Dr ×××
To Opening Stock ×××
Closing Stock Closing Stock Dr ×××
To Trading A/c ×××
Or
Opening Stock Purchases A/c (or Sales A/c) Dr ×××
To Opening Stock A/c ×××
Closing Stock Closing Stock A/c Dr ×××
To Purchases A/c (or Sales A/c) ×××
Principles and Practice of Accounting 74
Other Stocks [such as stationery, loose tools, etc.,]
2 Opening Stock Stationery (respective stocks) A/c Dr ×××
To Opening Stock A/c ×××
Closing Stock Closing Stock A/c Dr ×××
To Stationery (respective stock) A/c ×××
3 Outstanding Expense Respective A/c Dr ×××
To Outstanding Expenses A/c ×××
4 Prepaid Expenses
(Unexpired Expenses)
Prepaid Expenses A/c Dr ×××
To Respective Expense A/c ×××
5. Accrued Income or
outstanding Income
(Income earned but not received)
Accrued Income A/c Dr ×××
To Respective Income A/c ×××
6. Unearned Income
(or Income received in advance)
Respective Income A/c Dr ×××
To Unearned Income A/c ×××
7. Depreciation
[Refer: Depreciation chapter]
Depreciation A/c Dr ×××
To Respective Asset A/c ×××
8. Interest on Capital Interest on Capital A/c Dr ×××
To Capital A/c ×××
9. Interest on Drawings Capital A/c Dr ×××
To Interest on Drawings ×××
10. Hidden Adjustment Interest on Investment
[since the date of investment]
Interest on Loan [since the date of loan]
11. Additional Bad Debts Bad Debts A/c Dr ×××
To Sundry Debtors A/c ×××
Provision for Doubtful Debts A/c Dr
To Bad Debts A/c ×××
If provision not available, then debit Profit and Loss A/c
12. Provision for Doubtful debts Profit and Loss A/c Dr ×××
To Provision for Doubtful Debts A/c ×××
13. Provision for Discount on Debtors Profit and Loss A/c Dr ×××
To Provision for Discount on Debtors ×××
14. Reserve for Discount on Creditors Reserve for Discount on Creditors Dr ×××
To Profit and Loss A/c ×××
Final Accounts for Sole Properties 75
Special Adjustments
1. Manager’s Commission on Profit Manager’s Commission Dr ×××
To Outstanding commission A/c ×××
2. Abnormal Loss of Stock Loss on Stock A/c Dr ×××
To Trading A/c ×××
Profit or Loss A/c Dr ×××
To Loss on Stock A/c ×××
If insured & insurance claim receivable
Insurance Claim Receivable A/c Dr ×××
To Insurance Claim A/c ×××
3. Goods Sent on Approval Sales A/c Dr ×××
To Debtors A/c ×××
Stock with customers A/c Dr ×××
To Trading A/c ×××
4. Goods taken by owner Drawings A/c Dr ×××
To Purchases A/c (or Sales A/c) ×××
5 Goods given as sample Advertisement Expenses A/c Dr ×××
To Purchases A/c (or Sales A/c) ×××
6 Goods given for donation Donation A/c Dr ×××
To Purchases A/c (or Sales A/c) ×××
7 Mutual Owings Creditors / BP / Loan A/c Dr ×××
(Lower amount) To Debtors / BR / Investments A/c ×××
Question 1: Trail Balance of Mr. X is given below:
Debit ₹ Credit ₹
Purchases A/c 5,000 Sales A/c 7,000
Carriage Inwards 1,000 Capital A/c 5,000
Administration Expenses A/c 1,000 10% Loan 4,000
Selling Expenses A/c 1,000 Creditors 1,000
Fixed Assets A/c 4,000
12% Investments 2,000
Debtors A/c 1,000
Cash A/c 1,000
Opening Stocks A/c 1,000
17,000 17,000
Adjustment: Closing stock is ₹3,000
Required: Pass journal entries and prepare final accounts
Principles and Practice of Accounting 76
Answer:
Stock in trade adjusted after preparing Trail Balance
Opening Stock &
Other Revenue Items
Trading A/c Dr 7,000
To Opening Stock A/c 1,000
To Purchases A/c 5,000
To Carriage Inwards A/c 1,000
Profit and Loss A/c Dr 2,000
To Administration A/c 1,000
To Selling and Distribution Expenses A/c 1,000
Closing Stock &
Other Revenue Items
Closing Stock Dr 3,000
Sales A/c Dr 8,000
To Trading A/c 11,000
Gross Profit A/c Trading A/c Dr 3,000
To Profit and Loss A/c 3,000
Net Profit A/c Profit and Loss A/c Dr 1,000
To Capital A/c 1,000
Trading and Profit and Loss A/c
Debit ₹ Credit ₹
Opening Stocks A/c 1,000 Sales A/c 7,000
Purchases A/c 5,000 Closing Stock A/c 3,000
Carriage Inwards 1,000
Gross Profit A/c 3,000
10,000 10,000
Administration Expenses A/c 1,000 Gross Profit A/c 3,000
Selling Expenses A/c 1,000
Net Profit A/c 1,000
3,000 3,000
Balance Sheet
Liabilities ₹ Assets ₹
Capital A/c 5,000 Fixed Assets A/c 4,000
Net Profit A/c 1,000 12% Investments 2,000
10% Loan 4,000 Debtors A/c 1,000
Creditors 1,000 Cash A/c 1,000
Stock in Trade 3,000
11,000 11,000
Final Accounts for Sole Properties 77
Alternative solution:
Stock in trade adjusted before preparing Trail Balance
Opening Stock Purchases A/c Dr 1,000
To Opening Stock A/c 1,000
Closing Stock Closing Stock Dr 3,000
To Purchases A/c 3,000
Adjusted Trail Balance
Debit ₹ Credit ₹
Purchases A/c 3,000 Sales A/c 7,000
Carriage Inwards 1,000 Capital A/c 5,000
Administration Expenses A/c 1,000 10% Loan 4,000
Selling Expenses A/c 1,000 Creditors 1,000
Fixed Assets A/c 4,000
12% Investments 2,000
Debtors A/c 1,000
Cash A/c 1,000
Closing Stocks A/c 3,000
17,000 17,000
Trading and Profit and Loss A/c
Debit ₹ Credit ₹
Purchases A/c 3,000 Sales A/c 7,000
Carriage Inwards 1,000
Gross Profit A/c 3,000
7,000 7,000
Administration Expenses A/c 1,000 Gross Profit A/c 3,000
Selling Expenses A/c 1,000
Net Profit A/c 1,000
3,000 3,000
Balance Sheet
Liabilities ₹ Assets ₹
Capital A/c 5,000 Fixed Assets A/c 4,000
Net Profit A/c 1,000 12% Investments 2,000
10% Loan 4,000 Debtors A/c 1,000
Creditors 1,000 Cash A/c 1,000
Principles and Practice of Accounting 78
Stock in Trade 3,000
11,000 11,000
Question 2: Trail Balance of Mr. X as on 31.03.2015 is given below
Debit ₹ Credit ₹
Purchases A/c 5,000 Sales A/c 7,000
Carriage Inwards 1,000 Capital A/c 6,000
Administration Expenses A/c 1,000 10% Loan [as on 01.01.15] 4,000
Selling Expenses A/c 1,000 Creditors 1,000
Fixed Assets A/c 4,000 Commission Received 500
12% Investments [as on 01.01.14] 2,000 Rent Received 400
Debtors A/c 2,000 Interest on Investment 100
Cash A/c 1,000
Opening Stocks A/c 1,000
Drawings 1,000
19,000 19,000
Adjustment:
1. Closing stock is ₹ 3,000
2. Outstanding selling expense is ₹ 200
3. Advance administration expense is ₹ 400
4. Commission receivable is ₹ 100
5. Rent received in advance is ₹ 200
6. Provide Interest on Drawings @ 5%.
7. Provide Interest on Capital @ 6%.
8. Depreciate Fixed Assets at the rate of 5%.
Required:
1. Pass adjustment entries
2. Prepare adjusted Trail Balance
3. Prepare final accounts from adjusted Trail Balance
Answer:
Adjustment Entries
Opening Stock Purchases A/c Dr 1,000
To Opening Stock A/c 1,000
Closing Stock Closing Stock Dr 3,000
To Purchases A/c 3,000
Outstanding Expenses Selling Expenses A/c Dr 200
To Outstanding Selling Expenses A/c 200
Advance Expenses Advance Administration Expenses A/c Dr 400
To Administration Expenses A/c 400
Final Accounts for Sole Properties 79
Outstanding Income Commission Receivable A/c Dr 100
To Commission Income A/c 100
Advance Income Rent Income A/c Dr 200
To Rent Received in Advance A/c 200
Hidden Adjustment (1)
Interest on Loan2
Interest on Loan A/c Dr 100
To Outstanding Interest on Loan A/c 100
Hidden Adjustment (2)
Interest on Investment3
Outstanding Interest on Investment A/c Dr 140
To Interest on Investment A/c 140
Interest on Drawings4 Capital A/c Dr 25
To Interest on Drawings 25
Interest on Capital Interest on Capital A/c Dr 360
To Capital A/c 360
Depreciation Depreciation A/c Dr 200
To Fixed Assets 200
Adjusted Trail Balance
Debit ₹ Credit ₹
Purchases A/c 3,000 Sales A/c 7,000
Carriage Inwards 1,000 Capital A/c 6,335
Administration Expenses A/c 600 10% Loan [as on 01.01.15] 4,000
Selling Expenses A/c 1,200 Creditors 1,000
Fixed Assets A/c 3,800 Commission Income 600
12% Investments [as on 01.01.14] 2,000 Rent Income 200
Debtors A/c 2,000 Interest on Investment 240
Cash A/c 1,000 Outstanding Selling Expense A/c 200
Closing Stocks A/c 3,000 Rent Received in Advance 200
Drawings 1,000 Outstanding Interest on Loan A/c 100
Advance Administration Expenses 400 Interest on Drawings A/c 25
Commission Receivable 100
Interest on Loan A/c 100
Outstanding Interest on Investment A/c 140
Interest on Capital A/c 360
Depreciation 200
19,900 19,900
2 Loan × Period of Outstanding × Rate of Interest = 4,000 × 0.25 year × 10% = ₹100 3 Investment × Period of Outstanding × Rate of Interest less Interest on Investment already received
= 2,000 × 1 year × 12% = ₹240 – ₹100 = ₹ 140 4 As date of drawings not given, half year’s interest is calculated
Principles and Practice of Accounting 80
Trading and Profit and Loss A/c
Debit ₹ By Credit ₹
To Purchases A/c 3,000 Sales A/c 7,000
Carriage Inwards 1,000
Gross Profit 3,000
7,000 7,000
Administration Expenses A/c 600 Gross Profit 3,000
Selling Expenses A/c 1,200 Commission Income 600
Interest on Loan A/c 100 Rent Income 200
Interest on Capital A/c 360 Interest on Investment 240
Depreciation 200 Interest on Drawings A/c 25
Net Profit 1,605
4,065 4,065
Balance Sheet as on 31.03.2015
Liabilities ₹ Assets ₹
Capital A/c 6,335 Fixed Assets A/c 3,800
Less: Drawings (1,000) 12% Investments [as on 01.01.14] 2,000
Add: Net Profit 1,605 6,940 Debtors A/c 2,000
10% Loan [as on 01.01.15] 4,000 Cash A/c 1,000
Creditors 1,000 Closing Stocks A/c 3,000
Outstanding Selling Expense A/c 200 Advance Administration Expenses 400
Rent Received in Advance 200 Commission Receivable 100
Outstanding Interest on Loan A/c 100 Outstanding Interest on Investment A/c 140
12,440 12,440
Question 3: The Following is the Trail Balance of X
Trail Balance
Debit ₹ Credit ₹
Purchases A/c 3,000 Sales A/c 7,000
Carriage Inwards 1,000 Capital A/c 6,335
Administration Expenses A/c 600 10% Loan [as on 01.01.15] 4,000
Selling Expenses A/c 1,200 Creditors 1,000
Fixed Assets A/c 3,800 Commission Income 600
12% Investments [as on 01.01.14] 2,000 Rent Income 200
Debtors A/c 2,000 Interest on Investment 240
Cash A/c 1,000 Outstanding Selling Expense A/c 200
Final Accounts for Sole Properties 81
Closing Stocks A/c 3,000 Rent Received in Advance 200
Drawings 1,000 Outstanding Interest on Loan A/c 100
Advance Administration Expenses 400 Interest on Drawings A/c 25
Commission Receivable 100
Interest on Loan A/c 100
Outstanding Interest on Investment A/c 140
Interest on Capital A/c 360
Depreciation 200
19,900 19,900
Adjustments:
1. Stocks were lost in fire accident ₹500, which was insured and insurance claim was admitted for
₹400.
2. Goods were sold on sale or approval basis for ₹500 on which customer’s approval still pending
was for ₹300. Mr X marks up at the rate of 20% on cost.
3. Manger is entitled for a commission of 10% on profit after charging such commission.
4. The following transactions were omitted while preparing Trail Balance
a. Goods were taken by owner ₹50
b. Goods were distributed as sample ₹25
c. Goods were contributed to a Child Welfare Trust at free of cost ₹25
Required: Prepare Trading and Profit and Loss a/c and Balance Sheet after passing adjustment entries
Answer:
Special Adjustments
1 Manager’s Commission on Profit5 Manager’s Commission Dr 178
To Outstanding commission A/c 178
2 Abnormal Loss of Stock Loss on Stock A/c Dr 500
To Trading A/c 500
Profit or Loss A/c Dr 500
To Loss on Stock A/c 500
If insured & insurance claim receivable
Insurance Claim Receivable A/c Dr 400
To Insurance Claim A/c 400
3 Goods Sent on Approval
(pending approval only)
Sales A/c [at sale price] Dr 300
To Debtors A/c 300
Stock with customers A/c [at cost] Dr 250
To Trading A/c 250
4. Goods taken by owner Drawings A/c Dr 50
To Purchases A/c 50
5 Manager’s commission = Net Profit before Manager’s commission ×
10
110 = [1,955 ×
10
110 = 178]
Principles and Practice of Accounting 82
5 Goods given as sample Advertisement Expenses A/c Dr 25
To Purchases A/c 25
6 Goods given for donation Donation A/c Dr 25
To Purchases A/c 25
Trading and Profit and Loss A/c
Debit ₹ By Credit ₹
To Purchases A/c [3,000–50–25–25] 2,900 Sales A/c [7,000 – 300] 6,700
Carriage Inwards 1,000 Loss on Stock A/c 500
Gross Profit 3,550 Stock with Customers 250
7,450 7,450
Administration Expenses A/c 600 Gross Profit 3,550
Selling Expenses A/c 1,200 Commission Income 600
Interest on Loan A/c 100 Rent Income 200
Interest on Capital A/c 360 Interest on Investment 240
Depreciation 200 Interest on Drawings A/c 25
Donation 25 Insurance Claim 400
Advertisement 25
Loss on Stock 500
Manager’s Commission 182
Net Profit 1,823
5,015 5,015
Balance Sheet as on 31.03.2015
Liabilities ₹ Assets ₹
Capital A/c 6,335 Fixed Assets A/c 3,800
Less: Drawings [1,000+50] (1,050) 12% Investments [as on 01.01.14] 2,000
Add: Net Profit 1,823 7,108 Debtors A/c [2,000 – 300] 1,700
10% Loan [as on 01.01.15] 4,000 Cash A/c 1,000
Creditors 1,000 Closing Stocks A/c 3,000
Outstanding Selling Expense A/c 200 Stock with Customers 250
Rent Received in Advance 200 Advance Administration Expenses 400
Outstanding Interest on Loan A/c 100 Commission Receivable 100
Outstanding Manager’s Commission 182 Outstanding Interest on Investment A/c 140
Outstanding Insurance Claim 400
12,790 12,790
Final Accounts for Sole Properties 83
Question 4: The company maintains 10% of debtors as provision towards bad debts. It has routed all
bad debts through the provision account. The opening balance of provision as on 01.04.2012 was
₹68,000. The closing provision i.e. on 31st March, 2013 was ₹92,000. Bad debts written off debited to
provision account was ₹28,000. How much should be debited to Profit & Loss Account towards
provision for doubtful debts for the year ended 31st March, 2013?
{CMA inter D13, 2 marks}
Answer:
Provision for bad and doubtful debts account
Date Dr. Particulars ₹ Date Cr. Particulars ₹
31.03.2013 To Sundry Debtors 28,000 01.04.2012 By Balance B/d 68,000
31.03.2013 Balance c/d 92,000 31.03.2013 P&L A/c 52,000
1,20,000 1,20,000
Question 5: On 1st April, 2013 the balance of provision for bad and doubtful debts was ₹13,000. The bad
debts during the year 2013-14 were ₹9,500. The sundry debtors as on 31st March, 2014 stood at ₹3,25,000
out of these debtors of ₹2,500 are bad and cannot be realized. The provision for bad and doubtful debts
is to be raised to 5% on sundry debtors.
(i) Pass necessary adjustment entries for bad debts and its provision on 31st March, 2014.
(ii) Prepare the necessary ledger accounts.
(iii) Show the relevant items in the profit and loss account and Balance Sheet.
{CMA inter J14, 3+3+2 = 8 marks}
Answer: (i)
In the books of Journal
Date Particulars Debit (₹) Credit (₹)
31.03.14 Bad Debts A/c Dr. 2,500
To Sundry Debtors A/c 2,500
(Being Bad Debts)
31.03.14 Provision for Bad & Doubtful Debts A/c Dr. 12,000
To Bad Debts A/c 12,000
(Being Bad Debts during the year)
31.03.14 Profit and Loss A/c Dr. 15,125
To Provision for Bad & Doubtful Debts A/c 15,125
(Being provision for DD transferred to Profit & Loss A/c)
(ii) Ledger
Bad Debts Account
Date Dr. Particulars ₹ Date Cr. Particulars ₹
31.03.14 To Balance b/d 9,500 31.03.14 By Provision for DD A/c 12,000
Sundry Debtors A/c 2,500
12,000 12,000
Principles and Practice of Accounting 84
Provision for Doubtful Debts Account
Date Dr. Particulars ₹ Date Cr. Particulars ₹
31.03.14 To Bad Debts A/c 12,000 01.03.13 By Balance b/d 13,000
31.03.14 Balance c/d
[5% on (3,25,000 –
2,500)]
16,125 31.03.14 Profit and Loss A/c
(b/f)
15,125
28,125 28,125
Sundry Debtors Account
Date Dr. Particulars ₹ Date Cr. Particulars ₹
31.03.14 To Balance b/d 3,25,000 31.03.14 By Bad Debts A/c 2,500
31.03.14 Balance c/d 3,22,500
3,25,000 3,25,000
(iii)
Profit and Loss A/c for the year ended 31st March, 2014
Particulars ₹ ₹
To Provision for Bad & Doubtful Debts:
New Provision 16,125
Add Bad Debts (9,500 + 2,500) 12,000
28,125
Less Old Provision 13,000 15,125
Balance Sheet as on 31st March, 2014
Liabilities ₹ Assets ₹ ₹
Sundry Debtors 3,25,000
Less Further Bad Debts 2,500
3,22,500
Less Provision for Bad Debts 16,125 3,06,375
Question 6: Trail Balance of Mr. X is given below:
Debit ₹ Credit ₹
Purchases A/c 5,000 Sales A/c 8,000
Carriage Inwards 1,000 Capital A/c 5,000
Administration Expenses A/c 1,000 10% Loan 4,000
Selling Expenses A/c 1,000 Creditors 1,000
Fixed Assets A/c 4,000 Provision for Doubtful Debt A/c 150
Investments 2,000 Provision for Discount on Debtors 40
Debtors A/c 1,000 Discount on Creditors 35
Final Accounts for Sole Properties 85
Cash A/c 1,000
Stationery A/c 800
Opening Stock of Stationery 250
Opening Stock A/c 1,000
Bad Debts A/c 100
Discount on Debtors 50
Provision for Discount on
Creditors
25
18,225 18,225
Adjustment:
1. Closing stock was valued at ₹3,000
2. Closing Stock of Stationery was valued at ₹450
3. Write off ₹100 for bad debts
4. The Provision for Doubtful Debts is to be maintained at 10%
5. Create a Provision for Discount on Debtors and Reserve for Discount on Creditors at 5%
Required: Pass journal entries and prepare final accounts
Answer:
Stock in trade adjusted before preparing Trail Balance
Opening Stock Purchases A/c Dr 1,000
To Opening Stock A/c 1,000
Closing Stock Closing Stock Dr 3,000
To Purchases A/c 3,000
Opening Stock of Stationery Stationery Dr 250
To Opening Stock of Stationery A/c 250
Closing Stock of Stationery Closing Stock of Stationery A/c Dr 450
To Stationery A/c 450
Additional Bad Debts Bad Debts A/c Dr 100
To Sundry Debtors A/c 100
Adjustment of Bad Debts
in Provision
Provision for Doubtful Debts A/c Dr 200
To Bad Debts A/c 200
Provision for
Doubtful debts created
Profit and Loss A/c Dr 140
To Provision for Doubtful Debts A/c 140
Adjustment of Discount
on Debtors
Provision for Discount on Debtors Dr 50
To Discount on Debtors 50
Provision for Discount
on Debtors created
Profit and Loss A/c Dr 51
To Provision for Discount on Debtors 51
Adjustment of Discount
on Creditors
Discount on Creditors A/c Dr 35
To Reserve for Discount on Creditors 35
Principles and Practice of Accounting 86
Reserve for Discount
on Creditors created
Reserve for Discount on Creditors Dr 60
To Profit and Loss A/c 60
WN1 Debtors
Debtors 1,000
Less Additional Bad Debts 100
900
Less Provision for Doubtful Debts Required 90
810
Less Provision for Discount on Debtors Required 41
769
WN2 Creditors
Creditors 1,000
Less Reserve for Discount on Creditors Required 50
950
Trading and Profit and Loss A/c
To Debit ₹ By Credit ₹
Purchases A/c 3,000 Sales A/c 8,000
Carriage Inwards 1,000
Gross Profit 4,000
8,000 8,000
Administration Expenses A/c 1,000 Gross Profit 4,000
Selling Expenses A/c 1,000 Reserve for Discount on Creditors 60
Stationery A/c 600
Provision for Doubtful Debt A/c 140
Provision for Discount on Debtors 51
Net Profit 1,269
4,060 4,060
Balance Sheet
Liabilities ₹ Assets ₹
Capital A/c 5,000 Fixed Assets A/c 4,000
Net Profit 1,269 6,269 12% Investments 2,000
10% Loan 4,000 Debtors A/c 1,000
Creditors 1,000 Provision for Doubtful Debts 90
Reserve for Discount on Creditors 50 950 810
Final Accounts for Sole Properties 87
Provision for Discount on
Debtors
41 769
Cash A/c 1,000
Closing Stock of Stationery 450
Closing Stock A/c 3,000
11,219 11,219
Final accounts of manufacturing entities
Who prepares It is prepared by an enterprise engaged in manufacturing activities
Purpose It is prepared to ascertain the cost of gods manufactured
How to close It is closed by transferring its balance to the debit of Trading Account
Stocks considered Opening and Closing Stock of Raw Materials and work in Progress
Stocks not considered Opening and Closing Stock of Finished Goods.
Question 7: On 31st March, 2007, the trial balance of Topa was as follows:
Debit Balances ₹ Credit Balances ₹
Stocks on 1st April, 2006
Raw Materials 2,10,000 Sundry Creditors 1,50,000
Work in Progress 95,000 Bills Payable 75,000
Finished Goods 1,55,000 Commission 4,500
Sundry Debtors 2,40,000 Provision for Doubtful Debts 16,500
Carriage on Purchases 15,000 Capital Account 10,00,000
Bills Receivable 1,50,000 Sales 16,72,000
Wages 1,30,000 Current Account of Topa 85,000
Salaries 1,00,000 Sale of Scrap 25,000
Telephone, Postage, etc. 10,000
Repairs to plant 11,000
Repairs to office Furniture 3,500
Purchases 8,50,000
Cash at Bank 1.70,000
Plant and Mach. 7,00,000
Office Furniture 1,00,000
Rent 60,000
Lighting 13,500
General Expenses 15,000
30,28,000 30,28,000
The following additional information is available:
Principles and Practice of Accounting 88
a) Stocks on 31st March, 2007 were:
Raw materials - 1,62,000
Finished Goods - 1,81,000
Semi-finished Goods - 78,000
b) Salaries and wages unpaid for March, 2007, were respectively, ₹ 9,000 and ₹20,000.
c) Machinery is to be depreciated by 10% and office furniture by 7.5%
d) Provision for doubtful debts is to be maintained @ 1% sales.
e) Office premises occupy ¼ of total area. Lighting is to be charged as to 2/3 to factory and 1/3 to office.
Prepare the Manufacturing Account, Trading Account, Profit and Loss Account for the year ended 31st
March, 2007 and the Balance sheet as on 31st March, 2007.
Answer:
Manufacturing Account of Top for the year ended March 31, 2007
To Work in progress (on 1.4.08) 95,000 By work in progress 78,000
Materials
Consumed
(on 31st Mar 2007)
Opening Stock 2,10,000 Sale of Scrap 25,000
(+) Purchases 8,50,000 Cost of Goods
manufactured
10,60,000 & transferred to Trading
A/c
11,90,000
(-) Closing Stock 1,62,000 8,98,000
Wages 1,30,000
(+) Outstanding Wages 20,000 1,50,000
(+) O/s carriage on purchases 15,000
Repairs to Plant 11,000
Rent (3/4) 45,000
Lighting (2/3) 9,000
Depreciation of plant 70,000
12,93,000 12,93,000
Trading and Profit and Loss Account of Topa for the year ended March 31, 2007
To Opening Stock of Finished Goods 1,55,000 By Sales 16,72,000
Cost of Goods Manufactured 11,90,000 Closing Stock 1,81,000
Gross Profit c/d 5,08,000 (Finished goods)
18,53,000 18,53,000
Salaries 1,00,000 Gross Profit 5,08,000
(+) O/s 9,000 1,09,000 Commission 4,500
Telephone & Postage 10,000
Final Accounts for Sole Properties 89
Repairs to Furniture 3,500
Depreciation of Furniture 7,500
Lighting (1/3) 4,500
General Expenses 15,000
Prov. For Doubtful Debts 16,720
(-) Exiting provision 16,500 220
Net Profit 3,47,780
5,12,500 5,12,500
Balance sheet of Topa as in March 31, 2007
Liabilities Assets
Sundry Creditors 1,50,000 Fixed Assets
Bills Payable 75,000 Plant & Machinery 7,00,000
Expenses Payable: (-) Depreciation 70,000 6,30,000
Salaries 9,000 Office Furniture 1,00,000
Wages 20,000 29,000 (-) Depreciation 7,500 92,500
Current A/c of Topa: Current Assets:
Previous bal. 85,000 Cash at Bank 1,70,000
(+) Net Profit 3,47,780 4,32,780 Sundry Debtors 2,40,000
Capital A/c. 10,00,000 (-) Prov. for DD 16,720 2,23,280
Bills Receivable 1,50,000
Stocks:
Raw Materials 1,62,000
Finished Goods 1,81,000
Work in Progress 78,000 4,21,000
16,86,780 16,86,780
Principles and Practice of Accounting 90
7 FINANCIAL STATEMENTS FOR NOT-FOR-PROFIT ORGANISATION
Accounts to be prepared
❖ Opening Statement of Affairs
❖ Receipts & Payments – is cash book and records all (capital and revenue) receipts and payments
❖ Income & Expenditure Account – is a revenue A/c (nominal A/c)
❖ Balance Sheet at the year end
{CMA inter D10, 5 marks}
Format Points
Opening Statement of Affairs
Liabilities Assets
General Fund ××× Non-current assets ×××
Endowment Fund ××× Endowment
Investment
×××
Liabilities ××× Current Assets ×××
××× ×××
Receipts and Payments (Revenue & Capital Items)
Receipts Payments
Balance b/d ××× Expenses Paid ×××
Subscription
Received
××× Assets Purchased ×××
Donations Received ×××
Others ××× Balance c/d ×××
××× ×××
Income and Expenditure A/c (Revenue Items)
Expenditure Income
Expenses incurred ××× Income earned ×××
Surplus ××× Deficiency ×××
××× ×××
Balance Sheet (Closing)
Liabilities Assets
General Fund ××× Non-current assets ×××
Endowment Fund ××× Endowment
Investment
×××
Liabilities ××× Current Assets ×××
××× ×××
Particulars N
1 Subscription
Periodical [p.m. /p.a.] R
Life C
Entrance Fee C/R
2 Donations
Small / Regular R
Legacy / Will C
Endowment C
Specific
(Building Fund, etc.)
C
3 Special Events
(Annual Dinner, Etc.)
Receipts R
Expenses R
Note: N – Nature of R/C
C – Capital Receipts /
Expenditure
R – Revenue Receipts / Expenses
Abbreviations
Financial Statements for Not-for-Profit Organisation 91
Working Note
Assets A/c
Debit Credit
Balance b/d ××× Sale ×××
Purchases ××× Items Decreasing ×××
Items Increasing ××× Balance c/d ×××
××× ×××
Capital / Liabilities A/c
Debit Credit
Redemption ××× Balance b/d ×××
Buy-back ××× Borrowings / ×××
Items Decreasing ××× Issues
Balance c/d ××× Items Increasing ×××
××× ×××
Debtors A/c
Balance b/d ××× Bank (receipts) ×××
Credit Sales ××× Discount ×××
Items Increasing ××× Items Decreasing ×××
Balance b/d ××× Balance c/d
××× ×××
Creditors A/c
Debit Credit
Bank (Payments) ××× Balance b/d ×××
Discount ××× Credit
Purchases
×××
Items Decreasing ××× Items Increasing ×××
Balance c/d Balance b/d ×××
××× ×××
Stocks (RM, FG, Consumable, Etc.)
Opening stock ×× OA
+ Purchases ×× CB
××
- Closing Stock ×× CA
××
Consumption of Stock ×× IE
Income
Income Received ×× CB
+ O/s of current year ×× CA
××
- Adv. of current year ×× CL
××
- O/s of previous year
received
×× OA
××
Adv. of previous year ×× OL
Income Earned ×× IE
Expenses
Expenses paid ×× CB
+ O/s of current year ×× CL
××
- Adv. of current year ×× CA
××
- O/s of previous year paid ×× OL
××
+ Adv. of previous year ×× OA
Expenses Incurred ×× IE
Abbreviation
CB – Cash Book Item
CL – Closing Liabilities (B/S item)
CA – Closing Assets (B/S Item)
OL – Opening Liabilities (B/S item)
OA – Opening Assets (B/S item)
IE – Income Expenditure Item
Principles and Practice of Accounting 92
Problem Types
1. Basic problems
2. Preparation of Income and Expenditure A/c and Balance Sheet from Receipts and Payments A/c
3. Preparation of Receipts and Payments A/c from Income and Expenditure A/c
4. Preparation of Opening B/S and Closing B/S from Receipts and Payments A/c and Income and
Expenditure A/c
5. Preparation of Complete Ledgers
Practical Problems
Question 1: Rangakarmi, an amateur theatre organisation, charges its members an annual subscription
of ₹200 per member. It accrues for subscription owing at the end of each year and also adjusts for
subscription received in advance. The organization closes its accounts every year at 31st Dec. The
following particulars are available:
a) On 1st Jan., 2005, 20 members owed ₹4000 for the year 2004.
b) In December 2004, 5 members paid ₹1000 for the year 2005.
c) During the year 2005, the organization received cash subscription of ₹85,000. The details are:
For 2004 4,000
For 2005 79,000
For 2006 2,000
Total 85,000
d) At close of 31st December 2005, 15 members had not paid their 2005 subscriptions. Prepare the
subscriptions account.
{CMA inter J06, 6 marks}
Answer:
Subscription Account
₹ ₹
To Subscription O/S (Opening) 4,000 By Prepaid Subscription 1,000
Income & Expenditure Account 83,000 Bank a/c 85,000
Prepaid Subscription (closing) 2,000 Subscription Outstanding (closing) 3,000
89,000 89,000
Question 2: A sports club gives the following receipts and payments for the year ended march 31,
2016
Payments ₹ Payments ₹
Salaries 17,000 Magazines 2,172
Rent 7,220 Sundry Expenses 10,278
Figures of other assets and liabilities
31.12.2015 31.12.2016
₹ ₹
Salaries outstanding 710 170
Financial Statements for Not-for-Profit Organisation 93
Rent and electricity outstanding 854 973
Magazines outstanding 220 340
Pre-paid sundry expenses 417 620
Prepaid Salaries 1,000 750
Prepaid Magazines 455 350
How the above information shown in the income & expenditure account and the balance sheet.
Answer:
Details Salaries Rent Magazines Expenses
₹ ₹ ₹ ₹
Paid during the year 17,000 7,220 2,172 10,278
Add Outstanding 31.12.2016 170 973 340 ….. Liabilities
17,170 8,193 2,512 10,278
Less Prepaid 31.12.2016 750 …. 350 620 B/S Assets
16,420 8,193 2,162 9,658
Less Outstanding 31.12.2015 710 854 220 …..
15,710 7,339 1,942 9,658
Add Prepaid 31.12.2015 1,000 … 455 417
Income & Expenditure a/c 16,710 7,339 2,397 10,075
Question 3: From the following particulars prepare income and expenditure account for the year
2017-2018 of City Hospital.
Receipts ₹ Payments ₹
To Cash in hand 1,24,500 By Medicines 78,500
Subscriptions 1,75,000 Doctor’s Honorarium 70,000
Donations 65,000 Salaries to others 25,000
Interest on Investment 4,500 Investment 60,000
Fund for Charity Show 75,000 Lighting charges 5,000
Government Grant 1,00,000 Equipment 39,500
Proceeds of seminars 56,000 Charity show expenses 87,500
Expenses for seminars 49,000
Expenses for Medical camp 82,500
Cash in hand 1,03,000
6,00,000 6,00,000
Principles and Practice of Accounting 94
Additional information 1.4.2017 31.3.2018
₹ ₹
Stock of medicines 1,15,000 89,450
Subscription due 85,000 97,500
Subscriptions received in advance 7,500 -
Salaries outstanding 8,000 6,000
Government Grant for Free Medical Camp
Donation for revenue expenditures purposes
Interest on Investment 10% & Investment were made in 1st April 2017
Answer:
City Hospital Income and Expenditure A/c for the year ended 31st March 2018
Expenditure ₹ ₹ Income ₹ ₹
To Medicines: By Subscription received 1,75,000
Opening stock 1,15,000 Add: Outstanding 97,500
Add: Purchases 78,500 2,72,500
1,93,500 Less: Outstanding 85,000
Less: Closing stock 89,450 1,04,050 1,87,500
Salaries paid 25,000 Add: Advance 7,500 1,95,000
Add: Outstanding 6,000 Donations 65,000
31,000 Interest on Investment 4,500
Less: Outstanding 8,000 23,000 Add: Accrued 1,500 6,000
Lighting charges 5,000 Proceeds for seminars 56,000
Doctors Honorarium 70,000 Less: Seminars expenses 49,000 7,000
Charity excess of expenses 87,500 12,500
Less: Fund for Charity show 75,000 12,500
Surplus 58,450
2,73,000 2,73,000
Balance Sheet as on 31.03.2017
Liabilities ₹ Assets ₹
Capital Fund 3,09,000 Cash 1,24,500
O/s Salary 8,000 Stock 1,15,000
Subscription in Advance 7,500 O/s Subscription 85,000
3,24,500 3,24,500
Financial Statements for Not-for-Profit Organisation 95
Balance Sheet as on 31.03.2018
Liabilities ₹ Assets ₹
Capital Fund 3,09,000 Cash 1,03,000
Add: Surplus 58,450 3,67,450 Investment 60,000
O/s Salary 6,000 Equipment 39,500
Government Grants 17,500 Stock 89,450
O/s Subscription 97,500
Accrued interest 1,500
3,90,950 3,90,950
Prepare Income & Expenditure A/c & Closing B/S from Receipts & Payments A/c
Question 4: The following is the Receipt and Payment Account of Sodepore recreation club for the year
ended 31.12.2008:
Receipt ₹ Payment ₹
To Cash in hand 1,000 By Rent of club house 2,600
Cash at bank 12,000 Painting of club house 1,400
Members’ subscription Wages of ground maintenance 3,000
2007 200 General expenses 2,600
2008 3,600 Electricity charges 3,600
2009 400 4,200 6% Investment [purchased on 1.11.08] 20,000
Life membership subscription 4,000 Secretary’s Honorarium 1,200
Sale of ticket of annual exhibition 20,000 Annual meeting expenses 800
Sale of refreshment 24,000 Sports equipment 3,600
Interest on investment 2,600 Payment to creditors for refreshment 11,000
Sales of furniture 200 Printing & stationery 1,000
(Original cost on 1.1.07 ₹1000) Insurance 600
Cash in hand 4,000
Cash at bank 12,600
68,000 68,000
The following information are available to you:
a. On 31.12.2007 outstanding subscription for 2007 was ₹300.
b. On 31.12.2007 advance subscription for 2008 received was ₹100
c. On 31.12.2008 outstanding subscription for 2008 was ₹600
d. A life membership scheme was intruded in 2007. Under this scheme, life membership premium is
₹1000 and it was to be apportioned to income 1/10th every year over a period of 10 years. Life
membership subscriptions totaling ₹5000 was collected during 2007.
e. On 1.1.2008 6% investment was ₹40,000 and accrued interest on such date was ₹2,400.
Principles and Practice of Accounting 96
f. On 1.1.2007 furniture costing ₹16,000 were purchased and it was decided to write off depreciation
on furniture and sports equipment @ 10% on cost.
g. In 2007, a plot of land was purchased for ₹20,000 to construct club House.
h. Other assets & liabilities of club were (all figures in rupees) as follows:
Stock of
refreshment
Prepaid
insurance
Accrued
Rent
Creditors for
refreshment
31.12.2007 ₹3,800 ₹140 ₹400 ₹800
31.12.2008 ₹4,200 ₹100 ₹200 ₹1,000
{CMA inter J09, 10 marks}
Answer:
Sodepore Recreation Club Income & Expenditure A/c for the year ended 31.12.08
To ₹ By ₹
Painting of Club House 1,400 Sale of Tickets 20,000
Wages of ground maintenance 3,000 Interest 2,600
General expenses 2,600 Less Outstanding 2007 2,400
Electricity Charges 3,600 Add: Outstanding 2008 2,400
Secretary Honorarium 1,200 Subscription 4,200 2,600
Annual meeting expenses 800 Add: Outstanding 2008 600
Printing and Stationeries 1,000 Less: Outstanding 2007 200
Insurance 600 Less: Prepaid 2008 400
Less: prepaid 2018 100 Add: Prepaid 2007 100 4,300
Add: prepaid 2009 140 640 Life Membership Premium 900
Rent of Club House 2,600 Surplus on Refreshment
Add: Outstanding: 08 200 Sale of Refreshment 24,000
Less: Outstanding: 07 400 2,400 Less: Cost of sale
Depreciation Op. stock 3,800
Furniture 1,500 Add: Purchases (WN2) 11,200
Sports Equipment 360 1,860 Less: Cl. Stock 4,200 10,800 13,200
Loss on sale of Furniture (900-200) 700
Surplus 21,800
41,000 41,000
Sodepore Recreation Club Balance Sheet as on 31st December 2018
Liabilities ₹ Assets ₹
Capital Fund (WN1) 88,240 Land 20,000
Add: Surplus 21,800 1,10,040 Stock of Refreshment 4,200
Advance Subscription 400 Cash in hand 4,000
Creditors For Refreshment 1,000 Cash at bank 12,600
Financial Statements for Not-for-Profit Organisation 97
Rent accrued 200 Outstanding Subscription (2007+2008) 700
Life Member Subscriptions 7,600 Furniture 14,400
(4,000+3,600) Less: Sale (1,000-100) 900
13,500
Less: Depreciation (SLM) 1,500 12,000
Sports equipment 3,600
Less: Depreciation 360 3,240
Prepaid insurance 100
Investment (40,000+20,000) 60,000
Accrued interest 2,400
1,19,240 1,19,240
WN1
Sodepore Recreation Club Balance Sheet as on 31st December 2007
Liabilities ₹ Assets ₹
Capital Fund Land 20,000
(Balancing Figure) 88,240 Stock of Refreshment 3,800
Advance Subscription 100 Cash in hand 1,000
Creditors For Refreshment 800 Cash at bank 12,000
Rent accrued 400 Outstanding Subscription 300
Life Member Subscriptions 4,500 Furniture (Purchased 1.1.2007) 16,000
Less: Depreciation 1,600 14,400
Prepaid insurance 140
Investment 40,000
Accrued Income on Investment 2,400
94,040 94,040
WN2 Creditors for Refreshment a/c
Particulars ₹ Particulars ₹
To Cash a/c 11,000 By Balance b/d 800
Balance c/d 1,000 Purchases (B.F) 11,200
12,000 12,000
Prepare Income & Expenditure A/c | Closing B/S from opening B/S | Receipts and Payments A/c
Question 5: The Balance sheet of New City College as at 31st March 2003 was as follows:
Liabilities ₹ Assets ₹
Capital Fund 21,00,000 Land & Buildings 20,00,000
Building Construction Fund 8,00,000 Furniture 3,00,000
Principles and Practice of Accounting 98
General Fund outstanding 6,40,000 Laboratory equipment 2,50,000
O/s Salaries (teachers) 1,60,000 Library books 3,60,000
Investments 6,50,000
Accrued tuition fees 10,000
Cash and Bank 1,30,000
37,00,000 37,00,000
The receipts and payments account for the year ended 31st March 2004 was drawn as under:
Receipts ₹ Payments ₹
To Opening balance (1.4.2003) 1,30,000 By Salaries & Allowance
[teachers & staffs]
42,00,000
Govt. grants - revenue 50,00,000 Non- teaching staffs 20,00,000
Donation for building construction 2,00,000 Printing and stationery 80,000
Tuition fees and session charges 18,20,000 Laboratory expenses 60,000
Investment income 70,000 Laboratory equipment 1,20,000
Rental income - college hall 40,000 Library books 2,50,000
Office expenses 60,000
Electricity & Telephones 75,000
Audit fees 2,000
Municipal taxes 1,000
Building repairs 40,000
Purchase of furniture 80,000
Games and sports expenses 20,000
Welfare expenses 30,000
New investments 1,50,000
Closing Balance - 31.03.2004 92,000
72,60,000 72,60,000
Other Information:
1 Tuition fee outstanding as on 31.03.2004 - ₹40,000
2 Salary of teaching staff outstanding for March 2004 - ₹2,50,000
3 Books received as donations from various parties - ₹30,000 (valued)
4 Outstanding building repair expenses as on 31.03.2004 - ₹15,000
5 Applicable depreciation rates:
Land and Buildings 2%
Furniture 8%
Laboratory equipment 10%
Financial Statements for Not-for-Profit Organisation 99
Library books 20%
You are required to prepare the Income and Expenditure account for the year ended 31st March 2004
and a Balance sheet as on that date.
{CMA inter J04, 8+8=16 marks}
Answer:
In the Books of New City College
Income and Expenditure A/c for the year ended 31.03.04
Expenditure ₹ Income ₹
To Teaching staff salary 42,00,000 By Tuition fees 18,20,000
Add: O/s current year 2,50,000 Add: O/s current year 40,000
Less: O/s last year 1,60,000 42,90,000 Less: O/s last year 10,000 18,50,000
Non-teaching staff salaries 20,00,000 Govt. grants 50,00,000
Printing and stationery 80,000 Rental income 40,000
Laboratory expenses 60,000 Investment income 70,000
Office expenses 60,000 Valued book donations 30,000
Electricity and telephones 75,000
Audit fees 2,000
Municipal taxes 1,000
Building repairs 40,000
Add: Outstanding 15,000 55,000
Sports and games 20,000
Welfare expenses 30,000
Depreciation
Land and building 40,000
Furniture 30,400
Laboratory equipment’s 37,000
Library books 1,28,000 2,35,400
Surplus 81,600
69,90,000 69,90,000
Balance sheet New City College:
Liabilities ₹ ₹ Assets ₹ ₹
Capital fund 21,00,000
Building 20,00,000
Add: Surplus 81,600 21,81,600 Less: Depreciation 40,000 19,60,000
Building construction fund 8,00,000 Laboratory equipment’s 2,50,000
Add: Donation 2,00,000 10,00,000 Add: additions 1,20,000
General fund 6,40,000 Less: Depreciation 37,000 3,33,000
O/s teachers’ salary 2,50,000 Furniture 3,00,000
Outstanding 15,000 Add: Additions 80,000
Principles and Practice of Accounting 100
building repairs during the year
Less: Depreciation 30,400 3,49,600
Library books 3,60,000
Add: Additions 2,50,000
Add: Books donation 30,000
Less: Depreciation 1,28,000 5,12,000
Investment 6,50,000
Add: New investments 1,50,000 8,00,000
Cash 92,000
Accrued tuition fees 40,000
40,86,600 40,86,600
Preparation of Receipts and Payments A/c from Income and Expenditure A/c
Question 6: Income and Expenditure Account and the Balance Sheet of Nav Bharat Club are as under:
Income and Expenditure Account for the year ending 31st March, 2012
Dr Expenditure ₹ Cr Income ₹
To Upkeep of Ground 21,000 By Subscription 56,640
Printing & Stationery 2,800 Sale of old newspapers 530
Salaries 28,000 Lectures 8,000
Depreciation: Entrance Fee 2,900
Ground & Building 9,000 Misc. Incomes 1,200
Furniture 1,000
Repairs 3,500
Surplus 3,970
69,270 69,270
Balance Sheet as at 31st March, 2012
Liabilities ₹ ₹ Assets ₹ ₹
Capital Fund Ground & Building 1,43,200
Opening Balance 1,56,430 Furniture 9,000 1,52,200
Add: Entrance Fee 2,900 Sports Prize Fund:
Add: Surplus 3,970 1,63,300 Investment 43,000
Sports Prize Fund: Subscription 2,600
Opening Balance 51,000 Cash and Bank 19,400 65,000
Add: Interest received 4,500
55,500
Less: Prizes awarded 6,500 49,000
Outstanding Salary 4,200
Subscription in Advance 700
Financial Statements for Not-for-Profit Organisation 101
2,17,200 2,17,200
The following adjustments have been made in the above accounts:
(i) Upkeep of ground ₹1,500 and printing and stationery ₹510 relating to 2010-2011 were paid in 2011-
12.
(ii) One-half of entrance fee has been capitalized.
(iii) Subscription outstanding in 2010-11 was ₹3,100 and for 2011-12 ₹2,600.
(iv) Subscription received in advance in 2010-11 was ₹1,100 and in 2011-12 for 2012-13 ₹700.
(v) Outstanding salary on 31.3.2011 was ₹3,600.
Prepare Receipts and Payments Account for the year ended on 31st March, 2012.
{CMA inter D12, marks}
Answer:
Receipts and Payments Account for the year ended 31st March 2012
Dr Receipts Payments Cr
To Balance b/d (Balance figure) 5,840 By Upkeep of Ground 21,000
Subscription (*) 56,640 Add: O/S 2010-11 1,500 22,500
Less: O/S 2011-12 2,600 Printing & Stationery 2,800
Add: O/S 2010-11 3,100 Add: O/S 2010-11 510 3,310
Add: Adv 2011-12 700 Salaries 28,000
Less: Adv 2010-11 1,100 56,740 Add: O/S 31.3.11 3,600
Entrance fee (2,900+2,900) 5,800 Less: O/S 31.3.12 4,200 27,400
Lectures (fee) 8,000 Sports Prizes 6,500
Interest of prize fund Investment 4,500 Repairs 3,500
Sale of Newspapers 530 Balance c/d 19,400
Misc. incomes 1,200
82,610 82,610
Balance Sheet as at 31st March, 2011
Liabilities ₹ Assets ₹
Capital Fund 1,56,430 Building (1,43,200+9,000) 1,52,200
Sports Prize Fund: 51,000 Furniture (9,000+1,000) 10,000
Subscription in Advance 1,100 Investment 43,000
O/s ground upkeep expenses 1,500 O/s subscription 3,100
O/s printing expenses 510 Bank 5840
O/s salary 3,600
2,14,140 2,14,140
Preparation of Receipts and Payments A/c from Income and Expenditure A/c
Question 7: The following is the income and expenditure account of Rising Sun Club for the year ended
31.12.2010:
Principles and Practice of Accounting 102
Expenditure ₹ Income ₹
To Printing and stationery 3,200 By Entrance fees 3,000
Interest and bank charges 1,100 Subscription 80,200
Annual dinner expenses 18,400 Annual dinner income 15,000
General expenses 6,400 Profit on annual sports 18,300
Salaries 52,500
Audit fees 3,200
Honorarium to secretary 15,000
Depreciation on sports equipment 4,000
Surplus 12,700
1,16,500 1,16,500
The following adjustments were made to prepare the accounts:
Subscription outstanding on 1.1.10 ₹4,000
Subscription outstanding on 31.12.10 ₹6,300
Subscription received in advance on 31.12.09 ₹5,600
Subscription received in advance on 31.12.10 for 2011 ₹3,400
Salaries outstanding on 31.12.09 ₹5,200
Salaries outstanding on 31.12.10 ₹6,800
General expenses include insurance prepaid to the extent of ₹800, audit fees due for the year 2010 was
₹3,200. Audit fees paid in 2010 ₹2,800 for 2009
The club has the following assets: ₹
Football ground 1,80,000
Sports equipment on 1.1.2010 35,000
Sports equipment on 31.12.2010, such sports equipment after depreciation amounted to 37,000
The club had taken a loan of ₹30,000 from a bank a few years back which remain outstanding on
31.12.10. On 31.12.10 the cash in hand amounted to ₹20,000.
Prepare the receipts and payments account for the year ends 31.12.10 and a balance sheet as on that
date.
{CMA inter J11, 11 marks}
Answer:
Balance Sheet as on 31.12.09
Liabilities ₹ Assets ₹
Subscription advance 5,600 Subscription outstanding 4,000
Salaries outstanding 5,200 Sports equipment 35,000
Audit fees outstanding 2,800 Cash in hand 12,600
Financial Statements for Not-for-Profit Organisation 103
Bank Loan 30,000 Football ground 1,80,000
Capital fund 1,88,000
2,31,600 2,31,600
Receipts and Payments A/c for the year ended 31.12.10
Dr. Receipts ₹ Cr. Payments ₹
To Cash in Hand (B/F 12,600 By Printing & Stationary 3,200
Entrance Fees 3,000 Interest & Bank change 1,100
Subscription 80,200 Annual dinner Exp. 18,400
Add O/p Outstanding 4,000 General Expenses 6,400
Less Cl. Outstanding 6,300 Add Prepaid Insurance 800 7,200
Less Opening Advance 5,600 Salaries 52,500
Add Closing Advance 3,400 75,700 Add Opening outstanding 5,200
Annual dinner income 15,000 Less Closing Outstanding 6,800 50,900
Profit on annual sports 18,300 Audit fees 3,200
Add Op. Outstanding 2,800
Less Closing outstanding 3,200 2,800
Honorarium to Secretary 15,000
Sports Equipment (addition) 6,000
Cash in hand 20,000
1,24,600 1,24,600
Balance Sheet as on 31.12.10
Liabilities ₹ Assets ₹
Subscription advance 3,400 O/S Subscription 6,300
Outstanding Salaries 6,800 Prepaid Insurance 800
Outstanding Audit fees 3,200 Sports Equipment 37,000
Bank loan 30,000 Football Ground 1,80,000
Capital fund 1,88,000 Cash in hand 20,000
Add: Surplus 12,700 2,00,700
2,44,100 2,44,100
Sports Equipment A/c
Dr. Particulars ₹ Cr. Particulars ₹
To Balance b/d 35,000 By Depreciation 4,000
Bank (B/f) 6,000 Balance c/d 37,000
41,000 41,000
Principles and Practice of Accounting 104
Preparation of Opening & Closing B/S from Receipts & Payments A/c & Income & Expenditure A/c
Question 8: From the following information relating to Evergreen Sports Club, prepare Balance Sheet
of the Club as on 1.1.2019 and on 31.12.2019:
No. Particulars ₹
(i) Assets as on 1.1.2019
Club Ground 80,000
Sports Equipment 50,000
Furniture 10,000
(ii) Accrued Subscription as on 1.1.2019 was 2,000
(iii) Creditor for stationary as on 1.1.2019 was 1,800
(iv) Receipts and Payments Account for the year ended 31.12.2019
Dr. Receipts ₹ Cr. Payments ₹
To Balance brought down 8,000 By Salaries 14,000
Subscription received (2018) 1,800 Printing and Stationery 3,500
Subscription Received (2019) 22,000 Fire Insurance 2,200
Subscription received (2020) 600 Advertisement 3,000
Sales of old Newspaper 500 Furniture 4,000
Rent Received 5,800 Investments 21,000
Entrance Fees 18,000 Balance c/d 9,000
56,700 56,700
Income and Expenditure Account for the year ended 31.12.2019
Dr. Expenditure ₹ Cr. Income ₹
To Salaries 16,000 By Subscription 24,000
Printing & Stationery 2,000 Entrance Fees 9,000
Advertisement 3,000 Rent 6,000
Fire Insurance 2,000 Sale of old newspapers 500
Depreciation:
Equipment 7,000
Furniture 1,000
Audit fees 800
Surplus 7,700
39,500 39,500
{CMA inter D11, 10 marks}
Answer: In the books of evergreen sports club
Balance Sheet as on 1st Jan. 2019
Liabilities ₹ Assets ₹
Financial Statements for Not-for-Profit Organisation 105
Capital Fund 1,48,200 Cash 8,000
Creditor for stationery 1,800 Club Ground 80,000
Sports equipment 50,000
Furniture 10,000
Subscription outstanding 2,000
1,50,000 1,50,000
Balance Sheet as on 31st December 2019
Liabilities ₹ ₹ Assets ₹
Capital fund 1,48,200 Cash 9,000
+ Entrance fees 9,000 Club Ground 80,000
+ Surplus 7,700 1,64,900 Sports Equipment (₹50,000 – ₹7,000) 43,000
Advance Subscription 600 Furniture (₹10,000 +₹4,000 –₹1,000) 13,000
Outstanding Salary 2,000 Investment 21,000
Creditors for stationery (Nt) 300 Outstanding Subscription (200+2000) 2,200
Outstanding audit fees 800 Advance for fire insurance 200
Outstanding Rent 200
1,68,600 1,68,600
Note Creditors for Stationery
Dr. ₹ Cr. ₹
To Cash A/c 3,500 By Balance b/d 1,800
Balance c/d (balancing fig) 300 Purchases 2,000
3,800 3,800
Complete preparation from raw data
Question 9: The following information were obtained from the books of Dignity Foundation Recreation
Club as on 31-03-2019. At the end of the first year of the club you are asked to prepare Receipts and
payments Account, income and Expenditure Account for the year ended 31-03-2019 and a balance Sheet
as at 31-03-2019 on mercantile basis.
1. Donation received for building and library room ₹1,00,000
2. Other revenue income and actual receipts:
Revenue Income (₹) Actual Receipts (₹)
Entrance Frees 20,000 20,000
Subscription 17,000 16,000
Locker rent 800 800
Sundry Income 1,400 860
Refreshment account - 20,000
Principles and Practice of Accounting 106
3. Other revenue expenditure and actual payments:
Revenue Expenditure (₹) Actual Payment (₹)
Land (cost ₹10,000) - 10,000
Furniture (cost ₹1,46,000) - 1,30,000
Salaries 6,000 5,800
Maintenance of club 3,000 2,000
Rent 6,000 6,000
Refreshment account - 12,000
Donations to the extent of ₹12,500 were utilized for the purchase of library books, balance was still
unutilized. In order to keep it safe, 9% Govt. bonds of ₹80,000 were purchased on 31.03.2019 remaining
amount was put in the bank on 31.03.2019 under the term deposit. Depreciation at 10% p.a. was to be
provided for the whole year on Furniture and Library books.
{CMA inter D07, 6+6+4=16 marks}
Answer:
In the books of Dignity Foundation Recreation Club (Receipts & Payment A/c)
Receipts ₹ Payment ₹
To Balance b/d 1,08,140 By Land (cost) A/c 10,000
(Op. capital fund) Furniture (cost) A/c 1,30,000
Entrance fees A/c 20,000 Salaries A/c 5,800
Subscription A/c 16,000 Maintenance of Club. A/c 2,000
Locker Rent A/c 800 Rent A/c 6,000
Sundry income A/c 860 Refreshment A/c 12,000
Donation A/c 1,00,000 Library books A/c 12,500
Refreshment A/c 20,000 9% Govt. Bond A/c 80,000
Term Deposit A/c 7,500
2,65,800 2,65,800
Income and expenditure A/c
Expenditure ₹ Income ₹
To Salaries A/c 6,000 By Entrance fees A/c 20,000
Maintenance of club A/c 3,000 Subscription A/c 17,000
Rent A/c 6,000 Locker rent A/c 800
Depreciation of library books 1,250 Sundry income A/c 1,400
Depreciation of Furniture A/c 14,600 15,850
Excess of income over expenditure 8,350
39,200 39,200
Financial Statements for Not-for-Profit Organisation 107
Balance sheet on 31.3.2019
Liabilities ₹ ₹ Assets ₹ ₹
Capital Fund 1,08,140 Land 10,000
(+) Surplus 8,350 1,16,490 Furniture 1,46,000
Donation Fund 1,00,000 (-) depreciation @10% 14,600 1,31,400
Outstanding salary 200 Subscription receivable 1,000
Maintenance of club 1000 1,200 Accrued income 540
Creditor for furniture 16,000 Library books 12,500
Refreshment A/c (20,000-12,000) 8,000 (-) depreciation @10% 1,250 11,250
9% Govt. Bond 80,000
Term Deposit 7,500
2,41,690 2,41,690