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

## Financial Statements Class 11

### 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?

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.

Q2 :

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

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.

Q3 :

Write short notes on

(a) Outstanding expenses

(b) Prepaid expenses

(d) Accrued income

Q4 :

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

Q5 :

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

Q6 :

What adjusting entries would you record for the following?

(a) Depreciation

(b) Discount on debtors

(c) Interest on capital

(d) Manager's commission

Q7 :

What do you mean by provision for discount on debtors?

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.

### Long answers : Solutions of Questions on Page Number : 423

Q1 :

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

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?

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

### 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

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.

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

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.

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

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.

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

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.

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

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.

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

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%.

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.

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.

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.

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

(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.

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.

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%.

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.

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.

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