📕 Final Accounts – Practical Problem with Solution

From the following particulars taken out from the books of Durga Enterprises. You are required to prepare Trading and Profit & Loss Account and Balance Sheet as at December 31^st, 2019.

final accounts questions

Adjustments:

(a) Closing stock Rs, 35,000.

(b) Provision for doubtful debts at 5% of sundry debtors.

(c) Depreciation furniture and machinery by 10%.

(d) Commission of Rs. 3,600 has been earned but not received till the closing of accounts.

Solution:

1. Trading Account of Durga Enterprises

for the year ended 31 December 2019

Particulars	Rs.	Particulars	Rs.
To Opening Stock	11,400	By Sales	2,92,000
To Purchases	1,45,000	Less: Sales Return	2,600
To Wages	23,600	Net Sales	2,89,400
To Carriage Inward	2,040	By Closing Stock	35,000
To Transportation In	6,430
To Gross Profit c/d	1,35,930
Total	3,24,400	Total	3,24,400

Gross Profit = Rs. 1,35,930

Profit & Loss Account of Durga Enterprises

for the year ended 31st December, 2019

Dr. Particulars	Rs.	Cr. Particulars	Rs.
To Salaries	8,420	By Gross Profit b/d	1,35,930
To Motor Car Expenses	3,600	By Commission Income	3,600
To Carriage Outward	1,630
To General Expenses	2,680
To Rent & Taxes	3,600
To Insurance Expenses	600
To Depreciation on Furniture	350
To Depreciation on Machinery	2,400
To Provision for Doubtful Debts	2,600
To Net Profit transferred to Capital A/c	1,13,650
Total	1,39,530	Total	1,39,530

Verification of Net Profit

Gross Profit = Rs. 1,35,930
Add: Commission Income = Rs. 3,600
Total Income = Rs. 1,39,530

Total Expenses:

8,420 + 3,600 + 1,630 + 2,680 + 3,600 + 600 + 350 + 2,400 + 2,600
= Rs. 25,880

Therefore,

Net Profit = Rs. 1,39,530 − Rs. 25,880 = Rs. 1,13,650 ✅

3. Balance Sheet of Durga Enterprises

as at 31 December 2019

Liabilities	Rs.	Assets	Rs.
Sundry Creditors / Account Payable	22,000	Furniture	3,500
Capital	20,000	Less: Depreciation 10%	(350)
Add: Net Profit	1,13,650	Furniture (Net)	3,150
	1,33,650	Machinery	24,000
Less: Drawings	(8,000)	Less: Depreciation 10%	(2,400)
Closing Capital	1,25,650	Machinery (Net)	21,600
		Motor Car	22,000
		Equipment	2,508
		Closing Stock	35,000
		Sundry Debtors	52,000
		Less: Provision @ 5%	(2,600)
		Debtors (Net)	49,400
		Cash in Hand	2,392
		Cash at Bank	6,200
		Prepaid Insurance	1,800
		Commission Receivable	3,600
Total	1,47,650	Total	1,47,650

✅ Balance Sheet agrees at Rs. 1,47,650.

4. Explanation of Adjustments

(a) Closing Stock — Rs. 35,000

Closing stock is:

credited to Trading Account, because it reduces cost of goods sold.
shown as a current asset in the Balance Sheet.

Thus, Rs. 35,000 appears on both sides.

(b) Provision for Doubtful Debts @ 5%

Sundry Debtors = Rs. 52,000

Provision = 5% × 52,000

= Rs. 2,600

This is:

debited to Profit & Loss Account as an expense.
deducted from Sundry Debtors in the Balance Sheet.

Therefore:

Debtors = 52,000 − 2,600 = Rs. 49,400

(c) Depreciation on Furniture and Machinery

Furniture:

10% × Rs. 3,500 = Rs. 350

Net Furniture = 3,500 − 350 = Rs. 3,150

Machinery:

10% × Rs. 24,000 = Rs. 2,400

Net Machinery = 24,000 − 2,400 = Rs. 21,600

The depreciation amounts are charged to the Profit & Loss Account and deducted from the respective assets in the Balance Sheet.

(d) Commission Earned but Not Received — Rs. 3,600

The commission has already been earned, so it is income of the current year even though cash has not yet been received.

Therefore:

Rs. 3,600 is credited to Profit & Loss Account.
Rs. 3,600 is shown as Commission Receivable (Current Asset) in the Balance Sheet.

(e) Insurance Premium

Premium paid on 1 October 2019 = Rs. 2,400.

It covers 12 months from October 2019 to September 2020.

Expense relating to 2019 = October, November and December = 3 months.

2, 400 \times \frac{3}{12} = 𝑅 𝑠 .600

Therefore:

Insurance expense = Rs. 600
Prepaid insurance = Rs. 2,400 − Rs. 600 = Rs. 1,800

The Rs. 1,800 prepaid amount is shown as a current asset.

📕Final Accounts of Durga Enterprises for 2019

📕 Final Accounts – Practical Problem with Solution