NCERT Solutions for Class 11 Accountancy Financial Accounting Part-2 Chapter 2

Financial Statements Class 11

Chapter 2 Financial Statements Exercise Solutions

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Short answers : Solutions of Questions on Page Number : 422

Q1 :  

Why is it necessary to record the adjusting entries in the preparation of final accounts?


Answer :

It is extremely important to record the adjusting entries in the preparation of final accounts.

1. This is done in order to assess the true net profit or net loss of the business organisation.

2. It helps us record those adjustments which were left or omitted and were not recorded in the accounts.

3. It assists us to separate all the financial transactions into a year-wise category. The financial statements include only those entries which belong to the current year. It rules out the previous and forthcoming years' entries which are the basis for accrual basis of accounting.

4. Further, it provides us the room for making various provisions which are made at the end of the year, after assessing the entire year's performance.

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Q2 :  

What is meant by closing stock? Show its treatment in final accounts.


Answer :

Closing stock implies the value of unsold goods at the end of an accounting period. The valuation of closing stock is done on the basis of its cost price or the realisable value, whichever of the two is lesser.

 

Example: If a good with the cost price of Rs 20,000 is purchased at the end of an accounting period and its realisable value is Rs 30,000, then the closing stock will be valued at Rs 20,000 not at Rs 30,000.

 

Treatment of closing stock

 

If closing stock is given in the adjustment, then there will be two postings.

 

Trading Account

Balance Sheet

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Liabilities

Amount

Assets

Amount

 

 

 

 

 

  

 

 

 

 

 

 

  

Closing Stock

 

  

 

  

 

  

  

  

 

 

If closing stock is given in the trial balance, then it needs to be shown only in the assets side of the Balance Sheet.

 

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Q3 :  

Write short notes on

(a) Outstanding expenses

(b) Prepaid expenses

(c) Income received in advance

(d) Accrued income


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Q4 :  

Give the performa of income statement and balance in vertical form.


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Q5 :  

Why is it necessary to create a provision for doubtful-debts at the time of preparation of final accounts?


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Q6 :  

What adjusting entries would you record for the following?

(a) Depreciation

(b) Discount on debtors

(c) Interest on capital

(d) Manager's commission


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Q7 :  

What do you mean by provision for discount on debtors?


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Q8 :  

Give the journal entries for the following adjustments:

(a) Outstanding salary at Rs 3,500.

(b) Rent unpaid for one month at Rs 6,000 per annum.

(c) Insurance prepaid for a quarter at Rs 16,000 per annum.

(d) Purchase of furniture costing Rs 7,000 entered in the purchases book.


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<< Previous Chapter 1 : Financial Statements - I Next Chapter 3 : Accounts from Incomplete Records >>

Long answers : Solutions of Questions on Page Number : 423

Q1 :  

What are adjusting entries? Why are they necessary for preparing the final accounts?


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Q2 :  

What is meant by provision for doubtful-debts? How are the relevant accounts prepared and what journal entries are recorded in the final accounts? How is the amount for provision for doubtful-debts calculated?


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Q3 :  

Show the treatment of prepaid expenses, depreciation and closing stock at the time of preparation of final accounts when they are given

(a) inside the Trial Balance

(b) outside the Trial Balance


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<< Previous Chapter 1 : Financial Statements - I Next Chapter 3 : Accounts from Incomplete Records >>

Numerical questions : Solutions of Questions on Page Number : 423

Q1 :  

Prepare a trading and profit and loss account for the year ending December 31, 2005. from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.

 

Account Title

Amount

Rs

Account Title

Amount

Rs

Stock

50,000

Sales

1,80,000

Wages

3,000

Purchases return

2,000

Salary

8,000

Discount received

500

Purchases

1,75,000

Provision for doubtful debts

2,500

Sales return

3,000

Capital

3,00,000

Sundry Debtors

82,000

Bills payable

22,000

Discount allowed

1,000

Commission received

4,000

Insurance

3,200

Rent

6,000

Rent Rates and Taxes

4,300

Loan

34,800

Fixtures and fittings

20,000

 

 

Trade expenses

1,500

 

 

Bad debts

2,000

 

 

Drawings

32,000

 

 

Repair and renewals

1,600

 

 

Travelling expenses

4,200

 

 

Postage

300

 

 

Telegram expenses

200

 

 

Legal fees

500

 

 

Bills receivable

50,000

 

 

Building

1,10,000

 

 

 

5,51,800

 

5,51,800

 

Adjustments

1. Commission received in advance Rs 1,000.

2. Rent receivable Rs 2,000.

3. Salary outstanding Rs 1,000 and insurance prepaid Rs 800.

4. Further bad debts Rs 1,000 and provision for doubtful debts @ 5% on debtors and discount on debtors @ 2%.

5. Closing stock Rs 32,000.

6. Depreciation on building @ 6% p.a.

 

 


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Q2 :  

Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending December 31, 2005. from the following figures taken from his trial balance :

 

Account Title

Amount

Rs

Account Title

Amount

Rs

Opening stock

35,000

Sales

2,50,000

Purchases

1,25,000

Purchase return

6,000

Return inwards

25,000

Creditors

10,000

Postage and Telegram

600

Bills payable

20,000

Salary

12,300

Discount

1,000

Wages

3,000

Provision for bad debts

4,500

Rent and Rates

1,000

Interest received

5,400

Packing and Transport

500

Capital

75,000

General expense

400

 

 

Insurance

4,000

 

 

Debtors

50,000

 

 

Cash in hand

20,000

 

 

Cash at bank

40,000

 

 

Machinery

20,000

 

 

Lighting and Heating

5,000

 

 

Discount

3,500

 

 

Bad debts

3,500

 

 

Investment

23,100

 

 

 

3,71,900

 

3,71,900

 

Adjustments

1. Depreciation charged on machinery @ 5% p.a.

2. Further bad debts Rs 1,500, discount on debtors @ 5% and make a provision on debtors @ 6%.

3. Wages prepaid Rs 1,000.

4. Interest on investment @ 5% p.a.

5. Closing stock 10,000.

 

 


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Q3 :  

The following balances has been extracted from the trial of M/s Runway Shine Ltd. Prepare a trading and profit and loss account and a balance sheet as on December 31, 2005.

Account Title

Amount

Rs

Account Title

Amount

Rs

Purchases

1,50,000

Sales

2,50,000

Opening stock

50,000

Return outwards

4,500

Return inwards

2,000

Interest received

3,500

Carriage inwards

4,500

Discount received

400

Cash in hand

77,800

Creditors

1,25,000

Cash at bank

60,800

Bill payable

6,040

Wages

2,400

Capital

1,00,000

Printing and Stationery

4,500

 

 

Discount

400

 

 

Bad debts

1,500

 

 

Insurance

2,500

 

 

Investment

32,000

 

 

Debtors

53,000

 

 

Bills receivable

20,000

 

 

Postage and Telegraph

400

 

 

Commission

200

 

 

Interest

1,000

 

 

Repair

440

 

 

Lighting Charges

500

 

 

Telephone charges

100

 

 

Carriage outward

400

 

 

Motor car

25,000

 

 

 

4,89,440

 

4,89,440

 

Adjustments

1. Further bad debts Rs 1,000. Discount on debtors Rs 500 and make a provision on debtors @ 5%.

2. Interest received on investment @ 5%.

3. Wages and interest outstanding Rs 100 and Rs 200 respectively.

4. Depreciation charged on motor car @ 5% p.a.

5. Closing Stock Rs 32,500.

 

 


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Q4 :  

The following balances have been extracted from the trial of M/s Haryana Chemical Ltd. You are required to prepare a trading and profit and loss account and balance sheet as on December 31, 2005 from the given information.

 

Account Title

Amount

Rs

Account Title

Amount

Rs

Opening stock

50,000

Sales

3,50,000

Purchases

1,25,500

Purchases return

2,500

Sales return

2,000

Creditors

25,000

Cash in hand

21,200

Rent

5,000

Cash at bank

12,000

Interest

2,000

Carriage

100

Bills payable

1,71,700

Free hold land

3,20,000

Capital

3,00,000

Patents

1,20,000

 

 

General Expenses

2,000

 

 

Sundry Debtors

32,500

 

 

Building

86,000

 

 

Machinery

34,500

 

 

Insurance

12,400

 

 

Drawings

10,000

 

 

Motor vehicle

10,500

 

 

Bad debts

2,000

 

 

Light and Water

1,200

 

 

Trade expenses

2,000

 

 

Power

3,900

 

 

Salary and Wages

5,400

 

 

Loan a 15% (01.09.2005)

3,000

 

 

 

8,56,200

 

8,56,200

 

Adjustments

1. Closing stock was valued at the end of the year Rs 40,000.

2. Salary amounting Rs 500 and trade expense Rs 300 are due.

3. Depreciation charged on building and machinery are @ 4% and @ 5% respectively.

4. Make a provision of @ 5% on sundry debtors.

 

 


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Q5 :  

From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending December 31, 2005.

 

Account Title

Amount

Rs

Account Title

Amount

Rs

Drawings

20,000

Capital

2,00,000

Sundry debtors

80,000

Return outwards

2,000

Bad debts

1,000

Bank overdraft

12,000

Trade Expenses

2,400

Provision for bad debts

4,000

Printing and Stationery

2,000

Sundry creditors

60,000

Rent Rates and Taxes

5,000

Bills payable

15,400

Freight

4,000

Sales

2,76,000

Return inwards

7,000

 

 

Opening stock

25,000

 

 

Purchases

1,80,000

 

 

Furniture and Fixture

20,000

 

 

Plant and Machinery

1,00,000

 

 

Bills receivable

14,000

 

 

Wages

10,000

 

 

Cash in hand

6,000

 

 

Discount allowed

2,000

 

 

Investments

40,000

 

 

Motor car

51,000

 

 

 

5,69,400

 

5,69,400

 

Adjustments

1. Closing stock was Rs 45,000.

2. Provision for doubtful debts is to be maintained @ 2% on debtors.

3. Depreciation charged on : furniture and fixture @ 5%, plant and Machinery @ 6% and motor car @ 10%.

4. A Machine of Rs 30,000 was purchased on July 01, 2005.

5. The manager is entitle to a commission of @ 10% of the net profit after charging such commission.

 

 


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Q6 :  

Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars.

 

Account Title

Amount

Rs

Account Title

Amount

Rs

Sundry debtors

1,00,000

Bills payable

85,550

Bad debts

3,000

Sundry creditors

25,000

Trade expenses

2,500

Provision for bad debts

1,500

Printing and Stationary

5,000

Return outwards

4,500

Rent, Rates and Taxes

3,450

Capital

2,50,000

Freight

2,250

Discount received

3,500

Sales return

6,000

Interest received

11,260

Motor car

25,000

Sales

1,00,000

Opening stock

75,550

 

 

Furniture and Fixture

15,500

 

 

Purchases

75,000

 

 

Drawings

13,560

 

 

Investments

65,500

 

 

Cash in hand

36,000

 

 

Cash in bank

53,000

 

 

 

4,81,310

 

4,81,310

 

Adjustments

1. Closing stock was valued Rs 35,000.

2. Depreciation charged on furniture and fixture @ 5%.

3. Further bad debts Rs 1,000. Make a provision for bad debts @ 5% on sundry debtors.

4. Depreciation charged on motor car @ 10%.

5. Interest on drawing @ 6%.

6. Rent, rates and taxes was outstanding Rs 200.

7. Discount on debtors 2%.

 

 


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Q7 :  

Following balances have been extracted from the trial balance of M/s Keshav Electronics Ltd. You are required to prepare the trading and profit and loss account and a balance sheet as on December 31, 2005.

 

Account Title

Amount

Rs

Account Title

Amount

Rs

Opening stock

2,26,000

Sales

6,80,000

Purchases

4,40,000

Return outwards

15,000

Drawings

75,000

Creditors

50,000

Buildings

1,00,000

Bills payable

63,700

Motor van

30,000

Interest received

20,000

Freight inwards

3,400

Capital

3,50,000

Sales return

10,000

 

 

Trade expense

3,300

 

 

Heat and Power

8,000

 

 

Salary and Wages

5,000

 

 

Legal expense

3,000

 

 

Postage and Telegram

1,000

 

 

Bad debts

6,500

 

 

Cash in hand

79,000

 

 

Cash at bank

98,000

 

 

Sundry debtors

25,000

 

 

Investments

40,000

 

 

Insurance

3,500

 

 

Machinery

22,000

 

 

 

11,78,700

 

11,78,700

 

The following additional information is available :

1. Stock on December 31, 2005 was Rs 30,000.

2. Depreciation is to be charged on building at 5% and motor van at 10%.

3. Provision for doubtful debts is to be maintained at 5% on Sundry Debtors.

4. Unexpired insurance was Rs 600.

5. The Manager is entitled to a commission @ 5% on net profit before charging such commission.

 

 


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Q8 :  

From the following balances extracted from the books of Raga Ltd. Prepare a trading and profit and loss account for the year ended December 31, 2005 and a balance sheet as on that date.

 

Account Title

Amount

Rs

Account Title

Amount

Rs

Drawings

20,000

Sales

2,20,000

Land and Buildings

12,000

Capital

1,01,110

Plant and Machinery

40,000

Discount

1,260

Carriage inwards

100

Apprentice premium

5,230

Wages

500

Bills payable

1,28,870

Salary

2,000

Purchases return

10,000

Sales return

200

 

 

Bank charges

200

 

 

Coal, Gas and Water

1,200

 

 

Purchases

1,50,000

 

 

Trade Expenses

3,800

 

 

Stock (Opening)

76,800

 

 

Cash at bank

50,000

 

 

Rates and Taxes

870

 

 

Bills receivable

24,500

 

 

Sundry debtors

54,300

 

 

Cash in hand

30,000

 

 

 

4,66,470

 

4,66,470

 

The additional information is as under:

1. Closing stock was valued at the end of the year Rs, 20,000.

2. Depreciation on plant and machinery charged at 5% and land and building at 10%.

3. Discount on debtors at 3%.

4. Make a provision at 5% on debtors for doubtful debts.

5. Salary outstanding was Rs 100 and Wages prepaid was Rs 40.

6. The manager is entitled a commission of 5% on net profit after charging such commission.

 

 


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Q9 :  

From the following balances of M/s Jyoti Exports, prepare trading and profit and loss account for the year ended March 31, 2006 and balance sheet as on this date.

 

Account Title

Debit

Amount

Rs

Account Title

Credit

Amount

Rs

Sundry debtors

9,600

Sundry creditors

2,500

Opening stock

22,800

Sales

72,670

Purchases

34,800

Purchases returns

2,430

Carriage inwards

450

Bills payable

15,600

Wages

1,770

Capital

42,000

Office rent

820

 

 

Insurance

1,440

 

 

Factory rent

390

 

 

Cleaning charges

940

 

 

Salary

1,590

 

 

Building

24,000

 

 

Plant and Machinery

3,600

 

 

Cash in hand

2,160

 

 

Gas and Water

240

 

 

Octroi

60

 

 

Furniture

20,540

 

 

Patents

10,000

 

 

 

1,35,200

 

1,35,200

 

Closing stock Rs 10,000.

1. To provision for doubtful debts is to be maintained at 5 per cent on sundry debtors.

2. Wages amounting to Rs 500 and salary amounting to Rs 350 are outstanding.

3. Factory rent prepaid Rs 100.

4. Depreciation charged on Plant and Machinery @ 5% and Building @ 10%.

5. Outstanding insurance Rs 100.

 

 


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Q10 :  

The following balances have been extracted from the books of M/s Green House for the year ended December 31, 2005, prepare trading and profit and loss account and balance sheet as on this date.

 

Account Title

Amount

Rs

Account Title

Amount

Rs

Purchases

80,000

Capital

2,10,000

Bank balance

11,000

Bills payable

6,500

Wages

34,000

Sales

2,00,000

Debtors

70,300

Creditors

50,000

Cash in hand

1,200

Return outwards

4,000

Legal expenses

4,000

 

 

Building

60,000

 

 

Machinery

120,000

 

 

Bills receivable

7,000

 

 

Office expenses

3,000

 

 

Opening stock

45,000

 

 

Gas and fuel

2,700

 

 

Freight and Carriage

3,500

 

 

Factory lighting

5,000

 

 

Office furniture

5,000

 

 

Patent right

18,800

 

 

 

4,70,500

 

4,70,500

 

adjustments :

(a) Machinery is depreciated at 10% and buildings depreciated at 6%.

(b) Interest on capital @ 4%.

(c) Outstanding wages Rs 50.

(d) Closing stock Rs 50,000.

 

 


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Q11 :  

From the following balances extracted from the book of M/s Manju Chawla on March 31, 2005. You are requested to prepare the trading and profit and loss account and a balance sheet as on this date.

 

Account Title

Amount

Rs

Amount

Rs

Opening stock

10,000

 

Purchases and Sales

40,000

80,000

Returns

200

600

Wages

6,000

 

Dock and cleaning charges

4,000

 

Lighting

500

 

Misc. Income

 

6,000

Rent

 

2,000

Capital

 

40,000

Drawings

2,000

 

Debtors and Creditors

6,000

7,000

Cash

3,000

 

Investment

6,000

 

Patent

4,000

 

Land and Machinery

43,000

 

Donations and Charity

600

 

Sales tax collected

 

1,000

Furniture

11,300

 

 

1,36,600

1,36,600

 

Closing stock was Rs 2,000.

(a) Interest on drawings @ 7% and interest on capital @ 5%.

(b) Land and Machinery is depreciated at 5%.

(c) Interest on investment @ 6%.

(d) Unexpired rent Rs 100.

(e) Charge 5% depreciation on furniture.

 

 


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Q12 :  

The following balances were extracted from the books of M/s Panchsheel Garments on December 31, 2005.

 

Account Title

Debit

Amount

Rs

Account Title

Credit

Amount

Rs

Opening stock

16,000

Sales

1,12,000

Purchases

67,600

Return outwards

3,200

Return Inwards

4,600

Discount

1,400

Carriage inwards

1,400

Bank overdraft

10,000

General expenses

2,400

Commission

1,800

Insurance

4,000

Creditors

16,000

Scooter expenses

200

Capital

50,000

Salary

8,800

 

 

Cash in hand

4,000

 

 

Scooter

8,000

 

 

Furniture

5,200

 

 

Buildings

65,000

 

 

Debtors

6,000

 

 

Wages

1,200

 

 

 

1,94,400

 

1,94,400

 

Prepare the trading and profit and loss account for the year ended December, 31 and a balance sheet as on that date.

(a) Unexpired insurance Rs 1,000.

(b) Salary due but not paid Rs 1,800.

(c) Wages outstanding Rs 200.

(d) Interest on capital 5%.

(e) Scooter is depreciated @ 5%.

(f) Furniture is depreciated Rs @ 10%.

 

 


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Q13 :  

Prepare the trading and profit and loss account and balance sheet of M/s Control Device India on December 31, 2006 from the following balance as on that date.

Account Title

Debit

Amount

Rs

Credit

Amount

Rs

Drawings and Capital

19,530

67,500

Purchase and Sales

45,000

1,12,500

Salary and Commission

25,470

1,575

Carriage

2,700

 

Plant and Machinery

27,000

 

Furniture

6,750

 

Opening stock

42,300

 

Insurance premium

2,700

 

Interest

 

7,425

Bank overdraft

 

24,660

Rent and Taxes

2,160

 

Wages

11,215

 

Returns

2,385

1,440

Carriage outwards

1,485

 

Debtors and Creditors

36,000

58,500

General expenses

6,975

 

Octroi

530

 

Investment

41,400

 

 

2,73,600

2,73,600

 

Closing stock was valued Rs 20,000.

(a) Interest on capital @ 10%.

(b) Interest on drawings @ 5%.

(c) Wages outstanding Rs 50.

(d) Outstanding salary Rs 20.

(e) Provide a depreciation @ 5% on plant and machinery.

(f) Make a 5% provision on debtors.

 

 


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Q14 :  

The following balances appeared in the trial balance of M/s Kapil Traders as on March 31, 2006

 

 

Rs

Sundry debtors

30,500

Bad debts

500

Provision for doubtful debts

2,000

 

The partners of the firm agreed to records the following adjustments in the books of the Firm: Further bad debts Rs.300. Maintain provision for bad debts 10%. Show the following adjustments in the bad debts account, provision account, debtors account, profit and loss account and balance sheet.

 

 


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Q15 :  

Prepare the bad debts account, provision for account, profit and loss account and balance sheet from the following information as on December 31, 2005

 

Rs

Debtors

80,000

Bad debts

2,000

Provision for doubtful debts

5,000

 

 


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