ACCOUNTANCY XI

Financial Statements – 2

Concepts covered in this chapter –

  • Need for Adjustments
  • Closing Stock
  • Outstanding Expenses
  • Prepaid Expenses
  • Accrued Income
  • Income Received in Advance
  • Depreciation
  • Bad Debts
  • Provision for Bad and Doubtful Debts
  • Provision for Discount on Debtors
  • Manager’s Commission
  • Interest on Capital

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

Recording adjusting entries in preparing final accounts is necessary because of the following reasons:

  1. It helps in assessing whether the final accounts reflect true profit or loss, also it shows true financial position of a business.
  2. It ensures accounts comply with the accrual basis of accounting.
  3. It makes sure that all financial transaction belong to current fiscal year. No transaction of past or future are taken into account.
  4. It provides the scope for introducing different provisions which can be made at year end, only after assessing whole year’s performance.

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

Cost of goods that remains unsold in the inventory after completion of the accounting period is referred to as the closing stock. The closing stock value is determined by comparing the realisable value and cost price. The lesser among two values is considered as the value of closing stock.

In final accounts the closing stock is adjusted by:

1) Crediting the closing stock to trading and profit and loss account.

2) Placing it on the asset part of the balance sheet.

Following entries need to be passed for adjustment

Closing Stock A/c Dr.

To Trading A/c

3. State the meaning of:

(a) Outstanding expenses

(b) Prepaid expenses

(c) Income received in advance

(d) Accrued income

(a) Outstanding Expenses: Such expenses are incurred in the present accounting period but are not paid. As expense is generated during accounting period it makes perfect sense to charge it against revenue earned to arrive at true profit or loss. These are liabilities and need to be paid.

(b) Prepaid Expenses: Those type of expenses in which the associated benefit has not been materialized, but the payment is already done in advance are known as prepaid expenses.

(c) Income received in advance: The income is received in the present accounting period and the benefits will be realised in the upcoming accounting period, such income is called income received in advance.

(d) Accrued Income: Income that is earned in the accounting period, but yet to be received by end of accounting period is known as accrued income. It is due to be received in the future accounting periods. It is shown on asset side of balance sheet.

4. Give the proforma of income statement and balance in vertical form.

Income statement for the period ended ….
Particulars Amount Amount
Sales
Less: Sales returns (Return inwards)
Total Sales Revenue
Cost of goods
Purchases
Less: Purchase returns (Return outwards)
Carriage on purchases
Wages
Add: Outstanding wages
Less: Prepaid wages
Fuel and power
Factory rent
Installation or erection of machines
Octroi
Less: Closing stock
Gross Profit/Gross Loss (whichever is applicable)
Operating Expenses/Losses
Selling Expenses/Losses
……………………
…………………… ……………………
…………………… ……………………
…………………… ……………………
…………………… ……………………
…………………… ……………………
…………………… ……………………
…………………… ……………………
Total Selling expenses
General & Administrative expenses/losses
……………………
…………………… ……………………
…………………… ……………………
…………………… ……………………
……………………
…………………… ……………………
…………………… ……………………
…………………… ……………………
Total General & Administrative Expenses
Total Operating Expenses/Losses
Balance sheet
Particulars Amount Amount
Current Assets
……………………
……………………
……………………
……………………
……………………
……………………
……………………
……………………
Prepaid expenses
Total current assets
Current Liabilities
……………………
……………………
……………………
……………………
……………………
……………………
……………………
Total current Liabilities
Non-Current Assets
……………………
……………………
……………………
……………………
……………………
……………………
……………………
Total non-current assets
Non-Current Liabilities
……………………
……………………
……………………
……………………
……………………
……………………
……………………
……………………
Total non-current Liabilities
Capital

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

In an ideal scenario, it is expected that debtors will be paying all the amount owed by them to the business, in reality it doesn’t happen as some debtors might default on paying. It can be the full amount or a part of the sum borrowed. It is uncertain as to how much will that debt actually becomes bad debt. A business has to make a reasonable estimate for such an event. This estimate is called as provision for bad debts. It is created by debiting P & L account.

Profit and Loss A/c Dr

To Provision for doubtful debts A/c

6. What adjusting entries would you record for the following?

(a) Depreciation

(b) Discount on debtors

(c) Interest on capital

(d) Manager’s commission

(a) Depreciation

Dr.       Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Depreciation  Assets
Less: Depreciation

(b) Discount on debtors

Dr.       Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Discount on Debtors  Debtors
Less: Discount on Debtors

(c) Interest on capital

Dr.       Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Interest on Capital  Capital
Add: Interest on Capital

(d) Manager’s commission

Two types of manager commission can be seen.

Case 1: When commission is applied on the profit before commission being charged.

Dr.       Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
Manager’s Commission  Outstanding Manager’s
 Commission

Case 2: When commission is applied on the profit after charging the commission.

Dr.       Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
 Outstanding Manager’s
 Commission
Manager’s Commission

7. What is meant by provision for discount on debtors?

A business allows discounts to debtors for encouraging them to clear the debts. The amount of discount that a debtor will receive is estimated and accounted for by creating a provision for discount on debtors. It is only for those debtors who repay on time. The journal entry for such event can be written as:

Profit and Loss A/c

Dr.

To Provision for Discount on Debtors A/c

Discount to debtors is an expense and hence it is shown in expense side of P & L account and deducted from assets side in the balance sheet.

8. Give the journal entries for the following adjustments:

(a) Outstanding salary at ₹ 3,500.

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

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

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

S. No. Particulars L.F. Debit Credit
a) Salaries A/c Dr. 3,500
To Outstanding Salaries A/c 3,500
(Salaries outstanding for Rs 3,500)
b) Rent A/c Dr. 500
To Outstanding Rent A/c 500
c) Prepaid Insurance A/c Dr. 4,000
To Insurance A/c 4,000
(Insurance premium paid in advance for 3 months i.e. ₹ 4000)
d) Furniture A/c Dr. 7,000
To Purchases A/c 7,000
(Correction entry for Wrong debit of Furniture to Purchases Account)
(Rent unpaid for one month = 6000/12 = ₹ 500)

Long Questions

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

In accrual base of accounting, profit and loss for a year is not dependent only in revenues in cash or expenses paid in cash during the year. Some part of the receipts and expenses that occurred in a year might be belonging to previous/future accounting period. There can be some expenses which are yet to be brought to books of account. Adjusting these items will provide a true and fair view of business.

Recording adjusting entries in preparing final accounts is necessary because of the following reasons:

1. It helps in assessing whether the final accounts reflect true profit or loss also it shows true financial position of the business.

2. It ensures accounts comply with the accrual basis of accounting.

3. It makes sure that all financial transaction belong to current fiscal year. No transaction of past or future are taken into account.

4. It provides the scope for introducing various provisions which can be made at year end, only after assessing whole year’s performance.

2. 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?

In an ideal scenario, it is expected that debtors will be paying all the amount owed by them to the business, in reality it doesn’t happen as some debtors might default on paying. It can be the full amount or a part of the sum borrowed. It is uncertain as to how much will that debt actually becomes bad debt. A business has to make a reasonable estimate for such an event. This estimate is called as provision for bad debts. It is created by debiting P & L account.

Profit and Loss A/c Dr

To Provision for doubtful debts A/c

Provision for doubtful debts is shown as deduction from debtors on asset side of balance sheet. It presents a true and fair view of business. Provision for doubtful debts created at the end of the accounting period is carried forward to the next accounting period.

Adjustment entries for the provision for doubtful debts

Profit and Loss Account

Expenses/Losses Amount Revenues/Gains Amount
Provision for doubtful debts
Bad debts
Further bad debts
New provision
Less: Old Provision

Balance Sheet

Liabilities Amount Assets Amount
Sundry debtors
Less: Further bad debts
Less: Provision for doubtful debts

3. Show the treatment of prepaid expenses, depreciation and closing stock at the time of preparation of final accounts when:

(a) When given inside the Trial Balance?

(b) When given outside the Trial Balance?

(i) Prepaid expenses

(a) When given inside the Trial Balance: It will be added in the asset side of the Balance Sheet only.

Balance Sheet
Assets   Amount
Prepaid Expenses

(b) When given outside the Trial Balance:  It will be posted in the P & L account as well as Balance Sheet

Dr.       Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
 Concerned Expenses  Prepaid Expenses
Less: Prepaid Expenses
Balance Sheet
Assets   Amount
Prepaid Expenses

(ii) Depreciation

In trial balance depreciation is shown in P & L account as it is an expense. When present in trial balance it means deduction has taken from concerned asset, when depreciation is shown outside trial balance, then it needs to be recorded both in P & L account as well as balance sheet.

1) Inside Trial Balance

Profit and Loss Account
Dr.       Cr.
Particulars Amount Particulars Amount
 Depreciation

2) Outside Trial Balance

Dr.       Cr.
Particulars Amount Particulars Amount Liabilities Amount Assets Amount
 Depreciation on Concerned Assets  Concerned Assets
Less: Depreciation

(iii) Closing stock

(a) Closing stock is valued based on the least among cost price or realisble value. If present in Trial Balance, posted only in Assets side of Balance Sheet.

Balance Sheet
Liabilities Amount Assets Amount
Closing Stock

(b) When closing stock is given outside trial balance, it gets posted in two places i.e. P & L account and Balance Sheet

Dr.       Cr.
Particulars Amount Gains/Revenue Amount Liabilities Amount Assets Amount
 Closing Stock
Closing Stock

Numerical Question

1. Prepare a trading and profit and loss account for the year ending December 31, 2017 from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.

Account Title Amount Account Title Amount
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 ₹ 1,000.

2. Rent receivable ₹ 2,000.

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

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

5. Closing stock ₹ 32,000.

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

The solution is given below:

Books of M/s. Rahul Sons.Trading Account for the year ending December 31, 2017
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 50,000 Sales 1,80,000
Purchases 1,75,000 Less: Sales Returns 3,000 1,77,000
Less: Purchase Returns 2,000 1,73,000 Closing Stock 32,000
Wages 3,000 Gross Loss 17,000
2,26,000 2,26,000
Profit and Loss Account for the year ending December 31, 2017
Dr. Cr.
Particulars Amount Particulars Amount
Gross Loss 17,000 Discount Received 500
Salary 8,000 Commission Received 4,000
Add: Outstanding Salary 1,000 9,000 Less: Advance Commission 1,000 3,000
Discount Allowed 1,000
Insurance 3,200 Rent 6,000
Less: Insurance Prepaid 800 2,400 Add: Rent Receivable 2,000 8,000
Rent Rates and Taxes 4,300
Trade Expenses 1,500 Net Loss 43,189
Bad-Debts 2,000
Add: Further Bad-Debts 1,000
Add: New Provision 4,050
Less: Old Provision 2,500 4,550
Discount on Debtors 1,539
Postage 300
Telegram Expenses 200
Depreciation on Building 6,600
Repair and Renewals 1,600
Travelling Expenses 4,200
Legal Fees 500
54,689 54,689
Balance Sheet for the year ending December 31, 2017
Liabilities Amount Assets Amount
Capital 3,00,000 Debtors 82,000
Less: Net Loss 43,189 Less: Further Bad-Debts 1,000
Less: Drawings 32,000 2,24,811 Less: New Provision 4,050
Bills Payable 22,000 Less: Discount on Debtors (on ₹ 76,950) 1,539 75,411
Loan 34,800 B/R 50,000
Advance Commission 1,000 Buildings 1,10,000
Outstanding Salary 1,000 Less: 6% Depreciation 6,600 1,03,400
Rent Receivable 2,000
Prepaid Insurance 800
Closing Stock 32,000
Furniture and Fittings 20,000
2,83,611 2,83,611

2. Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending March 31, 2017 from the following figures taken from his trial balance:

Account Title Amount Account Title Amount
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 ₹ 1,500, discount on debtors @ 5% and make a provision on debtors @ 6%.

3. Wages prepaid ₹ 1,000.

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

5. Closing stock 10,000.

The solution is given below:
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 35,000 Sales 2,50,000
Purchases 1,25,000 Less: Sales Returns (25,000) 2,25,000
Less: Purchase Returns (6,000) 1,19,000 Closing Stock 10,000
Wages 3,000
Less: Prepaid Wages (1,000) 2,000
Gross Profit 79,000
2,35,000 2,35,000
Profit and Loss Account for the year ending March 31, 2017
Dr. Cr.
Particulars Amount Particulars Amount
Bad Debts 3,500 Gross Profit 79,000
Add: Further Bad-debts 1,500 Interest on Accrued Investment 1,155
Add: New Provision 2,910 Discount 1,000
Less: Old Provision 4,500 3,410 Interest Received 5,400
Discount on Debtors 2,280
Postage and Telegram 600
Salary 12,300
Rent and Rates 1,000
Packing and Transport 500
General Expenses 400
Insurance 4,000
Discount 3,500
Depreciation on Machinery 1,000
Lighting and Heating 5,000
Net Profit 52,565
86,555 86,555
Balance Sheetas on March 31, 2017
Liabilities Amount Assets Amount
Creditors 10,000 Cash in Hand 20,000
Bills Payable 20,000 Cash at Bank 40,000
Capital 75,000
Add: Net Profit 52,565 1,27,565 Debtors 50,000
Less: Further Bad-Debts 1,500
Less New Provision 2,910
Less: Discount on Debtors 2,280 43,310
Investment 23,100
Add: Interest on Investment 1,155 24,255
Machinery 20,000
Less: Depreciation 1,000 19,000
Prepaid Wages 1,000
Closing Stock 10,000
1,57,565 1,57,565

3. 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 March 31, 2017.

Account Title Amount Account Title Amount
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 ₹ 1,000. Discount on debtors ₹ 500 and make a provision on debtors @ 5%.

2. Interest received on investment @ 5%.

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

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

5. Closing Stock ₹ 32,500.

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 50,000 Sales 2,50,000
Purchases 1,50,000 Less: Return Inwards 2,000 2,48,000
Less: Return Outwards 4,500 1,45,500 Closing Stock 32,500
Carriage Inwards 4,500
Wages 2,400
Add: Outstanding Wages 100 2,500
Gross Profit 78,000
2,80,500 2,80,500
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Carriage Outward 400 Gross Profit 78,000
Printing and Stationery 4,500 Interest Received 3,500
Discount 400 Discount Received 400
Bad Debts 1,500 Interest Received on Investment 1,600
Add: Further Bad Debts 1,000
Add: New Provision 2,600 5,100
Discount on Debtors 500
Insurance 2,500
Postage and Telegraph 400
Commission 200
Interest 1,000
Add: Outstanding Interest 200 1,200
Repair 440
Lighting Charges 500
Telephone Charges 100
Depreciation on Motor Car 1,250
Net Profit 66,010
83,500 83,500
Balance Sheet
Liabilities Amount Assets Amount
Creditors 1,25,000 Cash in Hand 77,800
Add: Interest Received 1,600 79,400
Bills Payable 6,040 Cash at Bank 60,800
Capital 1,00,000 Investment 32,000
Add: Net Profit 66,010 1,66,010 Debtors 53,000
Less: Further Bad Debts 1,000
Outstanding Interest 100 Less: New Provision 2,600
Outstanding Wages 200 Less: Discount on Debtors 500 48,900
Motor Car 25,000
Less: Depreciation 1,250 23,750
Bills Receivable 20,000
Closing Stock 32,500
2,97,350 2,97,350

4. 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 March 31, 2017 from the given information.

Account Title Amount Account Title Amount
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% (01.09.2017) 3,000    
  8,56,200   8,56,200

Adjustments

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

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

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

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

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 50,000 Sales 3,50,000
Purchases 1,25,500 Less: Return 2,000 3,48,000
Less: Return Outwards 2,500 1,23,000 Closing Stock 40,000
Carriage 100
Power 3,900
Gross Profit 2,11,000
3,88,000 3,88,000
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
General Expenses 2,000 Gross Profit 2,11,000
Insurance 12,400 Rent 5,000
Bad Debts 2,000 Interest 2,000
Add: Provision for Bad Debts 1,625 3,625 Accrued Interest on Loan 150
Light and Water 1,200
Trade Expenses 2,000
Add: Outstanding Trade Expenses 300 2,300
Salary and Wages 5,400
Add: Outstanding Salary 500 5,900
Depreciation on Building 3,440
Depreciation on Machinery 1,725
Net Profit 1,85,560
2,18,150 2,18,150
Balance Sheet
Liabilities Amount Assets Amount
Capital 3,00,000 Cash in Hand 21,200
Add: Net Profit 1,85,560 Cash at Bank 12,000
Less: Drawings 10,000 4,75,560 Freehold Land 3,20,000
Creditors 25,000 Patents 1,20,000
Bills Payable 1,71,700 Sundry Debtors 32,500
Outstanding Trade Expenses 300 Less: Provision for Bad Debts 1,625 30,875
Outstanding Salary 500
Building 86,000
Less: Depreciation 3,440 82,560
Machinery 34,500
Less: Depreciation 1,725 32,775
Motor Vehicle 10,500
Loan 3,000
Add: Interest on Loan 150 3,150
Closing Stock 40,000
6,73,060 6,73,060

Working Note

The loan given bears an interest of 15% p.a. and interest is unpaid from 01-9-2017 to 31-12-2017. Thus, interest for loan is outstanding for four months. It is calculated as follows:

Interest on loan = 3000 × 15 × 4 = ₹ 150
100 12

5. From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending March 31, 2017.

Account Title Amount Account Title Amount
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 ₹ 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 ₹ 30,000 was purchased on October 01, 2016.

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

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 25,000 Sales 2,76,000
Purchases 1,80,000 Less: Return Inwards 7,000 2,69,000
Less: Return Outwards 2,000 1,78,000 Closing Stock 45,000
Wages 10,000
Freight 4,000
  Gross Profit 97,000
3,14,000 3,14,000
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Trade Expenses 2,400 Gross Profit 97,000
Printing and Stationery 2,000 Old Provision for Bad Debts 4,000
Rent Rates and Taxes 5,000 Less: Bad Debts 1,000
Discount Allowed 2,000 Less: New Provision 1,600 1,400
Depreciation on Motor Car 5,100
Depreciation on Furniture and Fixtures 1,000
*Depreciation on P & M of ₹ 70,000 4,200
**Depreciation on P & M of ₹ 30,000 900
Net Profit Before Manager’s Commission 75,800
1,02,400 1,02,400
Manager’s Commission 6,891
Net Profit After Commission 68,909 Balance b/d 75,800
75,800 75,800
Balance Sheet
Liabilities Amount Assets Amount
Capital 2,00,000 Cash in Hand 6,000
Add: Net Profit 68,909 Sundry Debtors 80,000
Less: Drawings 20,000 2,48,909 Less: New Provision 1,600 78,400
O/S Manager’s Commission 6,891 Furniture and Fixtures 20,000
Bank Overdraft 12,000 Less: Depreciation 1,000 19,000
Creditors 60,000
Bills Payable 15,400 Plant and Machinery 1,00,000
Less: Depreciation 1* 4,200
Less: Depreciation 2** 900 94,900
Bills Receivable 14,000
Investments 40,000
Motor Car 51000
Less: Depreciation 5100 45,900
Closing Stock 45,000
3,43,200 3,43,200

Working Notes

1. Manager’s Commission

= Net Profit before commission × 10
110
= 75,800 × 10
110
= ₹ 6,891

2. Out of the machinery of ₹ 1, 00,000, ₹ 30,000 worth of machinery was purchased on 01/October/2016. Therefore, the depreciation on this machinery will be for 6 months at 6% p.a.

*Depreciation on machinery (30,000) = 30,000 × 6 × 6 = ₹ 900
12 100
**The rest of the machinery of ₹ 70,000 will bear depreciation at 6% p.a.
Depreciation on machinery (70,000) = 70,000 × 6 = ₹ 900
12

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

Account Title Amount Account Title Amount
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 ₹ 35,000.

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

3. Further bad debts ₹ 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 ₹ 200.

7. Discount on debtors 2%.

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 75,550 Sales 1,00,000
Purchases 75,000 Less: Sales Inwards 6,000 94,000
Less: Return Outwards 4,500 70,500 Closing Stock 35,000
Freight      2,250
Gross Loss 19,300
1,48,300 1,48,300
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Gross Loss 19,300 Discount 3,500
Bad Debts 3,000 Interest Received 11,260
Add: Further Bad-Debts 1,000 Interest on Drawings 814
Add: New Provision 4,950 Net Loss 27,482
Less: Old Provision 1,500 7,450
Discount on Debtors 1,881
Trade Expenses 2,500
Printing and Stationery 5,000
Rent, Rates and Taxes 3,450
Add: O/S Rent, Rates and Taxes 200 3,650
Depreciation on Furniture 775
Depreciation on Motor Car 2,500
43,056 43,056
Balance Sheet
Liabilities Amount Assets Amount
Bills Payable 85,550 Sundry Debtors 100,000
Sundry Creditors 25,000 Less: Further Debts 1,000
Capital 2,50,000 Less: New Provision 4,950
Less: Net Loss 27,482 Less: Discount on Debtors 1,881 92,169
Less: Drawings 13,560
Less: Interest on Drawings 814 Motor Car 25,000
2,08,144 Less: Depreciation 2,500 22,500
Outstanding Rent, Rates and Taxes 200 Furniture and Fixtures 15,500
Less: Depreciation 775 14,725
Investments 65,500
Cash in Hand 36,000
Cash in Bank 53,000
Closing Stock 35,000
3,18,894 3,18,894

.

7. 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 March 31, 2017.

Account Title Amount Account Title Amount
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, 2017 was ₹ 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 ₹ 600.

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

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 2,26,000 Sales 6,80,000
Purchases 4,40,000 Less: Sales Return 10,000 6,70,000
Less: Returns Outwards 15,000 4,25,000 Closing Stock 30,000
Freight Inwards 3,400
Heat and Power 8,000
Gross Profit 37,600
7,00,000 7,00,000
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Trade Expenses 3,300 Gross Profit 37,600
Salary and Wages 5,000 Interest Received 20,000
Legal Expenses 3,000
Postage and Telegram 1,000
Bad Debts 6,500
Add: New Provision 1,250 7,750
Depreciation on Building 5,000
Depreciation on Motor Van 3,000
Insurance 3,500
Less: Unexpired Insurance 600 2,900
Net Profit 26,650
57,600 57,600
Manager’s Commission Payable 1,269 Balance b/d 26,650
Net Profit after Commission 25,381
26,650 26,650
Balance Sheet
Liabilities Amount Assets Amount
Capital 3,50,000 Cash in Hand 79,000
Add: Net Profit 25,381 Cash at Bank 98,000
Less: Drawings 75,000 3,00,381 Buildings 1,00,000
Creditors 50,000 Less: Depreciation 5,000 95,000
Bills Payable 63,700
Manager’s Commission Payable 1,269 Motor Van 30,000
Less: Depreciation 3,000 27,000
Sundry Debtors 25,000
Less: New Provision 1,250 23,750
Investments 40,000
Machinery 22,000
Unexpired Insurance 600
Closing Stock 30,000
4,15,350 4,15,350

8. From the following balances extracted from the books of Raga Ltd. Prepare a trading and profit and loss account for the year ended March 31, 20117 and a balance sheet as on that date.

Account Title Amount Account Title Amount
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 ₹, 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 ₹ 100 and Wages prepaid was ₹ 40.

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

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 76,800 Sales 2,20,000
Purchases 1,50,000 Less: Sales Return 200 2,19,800
Less: Purchases Return 10,000 1,40,000 Closing Stock 20,000
Carriage Inwards 100
Wages 500
Less: Prepaid 40 460
Coal, Gas and Water 1,200
Gross Profit 21,240
2,39,800 2,39,800
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Salary 2,000 Gross Profit 21,240
Add: Outstanding Salary 100 2,100 Discount 1,260
Bank Charges 200 Apprentice Premium 5,230
Trade Expenses 3,800
Rates and Taxes 870
Depreciation on Plant and Machinery 2,000
Depreciation on Land and Building 1,200
Provision for Doubtful Debts 2,715
Discount on Debtors 1,548
Net Profit 13,297
27,730 27,730
Manager’s Commission 633 Balance b/d 13,297
Net Profit after Commission 12,664
13,297  13,297
Balance Sheet
Liabilities Amount Assets Amount
Capital 1,01,110 Cash at Bank 50,000
Add: Net Profit 12,664 Land and Building 12,000
Less: Drawings 20,000 93,774 Less: Depreciation 1,200 10,800
Plant and Machinery 40,000
Bills Payable 1,28,870 Less: Depreciation 2,000 38,000
Outstanding Salary 100 Bills Receivable 24,500
Outstanding Manager’s Commission 633 Sundry Debtors 54,300
Less: New Provision 2,715
Less: Discount on Debtors 1,548 50,037
Cash in Hand 30,000
Closing Stock 20,000
Prepaid Wages 40
2,23,377 2,23,377

9. From the following balances of M/s Jyoti Exports, prepare trading and profit and loss account for the year ended March 31, 2017 and balance sheet as on this date.

Account Title DebitAmount

Account Title CreditAmount

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 ₹ 10,000.

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

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

3. Factory rent prepaid ₹ 100.

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

5. Outstanding insurance ₹ 100.

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 22,800 Sales 72,670
Purchases 34,800 Closing Stock 10,000
Less: Purchases Return 2,430 32,370
Carriage Inwards 450
Wages 1,770
Add: Outstanding Wages 500 2,270
Factory Rent 390
Less: Prepaid Rent 100 290
Gas and Water 240
Octroi 60
Cleaning Charges 940
Gross Profit 23,250
82,670 82,670

 

Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Office Rent 820 Gross Profit  23,250
Insurance 1,440
Add: Outstanding Insurance 100 1,540
Depreciation on Plant and Machinery 180
Salary 1,590
Add: Outstanding Salary 350 1,940
Provision for Doubtful Debts 480
Depreciation on Building 2,400
Net Profit 15,890
23,250 23,250
Balance Sheet
Liabilities Amount Assets Amount
Capital 42,000 Sundry Debtors 9,600
Add: Net Profit 15,890 57,890 Less: New Provision 480 9,120
Sundry Creditors 2,500 Building 24,000
Bills Payable 15,600 Less: Depreciation 2,400 21,600
Outstanding Salary 350 Plant and Machinery 3,600
Outstanding Wages 500 Less: Depreciation 180 3,420
Outstanding Insurance 100 Cash in Hand 2,160
Furniture 20,540
Patents 10,000
Closing Stock 10,000
Prepaid Factory Rent 100
76,940 76,940

 

10. The following balances have been extracted from the books of M/s Green House for the year ended March 31, 2017, prepare trading and profit and loss account and balance sheet as on this date.

Account Title Amount Account Title Amount
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 ₹ 50.

(d) Closing stock ₹ 50,000.

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 45,000 Sales 2,00,000
Purchases 80,000 Closing Stock 50,000
Less: Return Outwards 4,000 76,000
Wages 34,000
Add: Wages Outstanding 50 34,050
Gas and Fuel 2,700
Freight and Carriage 3,500
Factory Lighting 5,000
Gross Profit 83,750
2,50,000 2,50,000
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
To Legal Expenses 4,000 By Gross Profit 83,750
To Office Expenses 3,000
To Depreciation on Machine 12,000
To Depreciation on Building 3,600
To  Interest on Capital 8,400
To Net Profit* 52,750
83,750 83,750
Balance Sheet
Liabilities Amount Assets Amount
Capital 2,10,000 Bank Balance 11,000
Add: Interest on Capital 8,400 Debtors 70,300
Add: Net profit 52,750 2,71,150 Cash in Hand 1,200
Building 60,000
Bills Payable 6,500 Less: Depreciation 3,600 56,400
Creditors 50,000 Machinery 1,20,000
Outstanding Wages 50 Less: Depreciation 12,000 1,08,000
Bills Receivable 7,000
Patent Right 18,800
Office Furniture 5,000
Closing Stock 50,000
3,27,700 3,27,700

11. From the following balances extracted from the book of M/s Manju Chawla on March 31, 2017. You are requested to prepare the trading and profit and loss account and a balance sheet as on this date.

Account Title Amount Amount
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 ₹ 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 ₹ 100.

(e) Charge 5% depreciation on furniture.

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 10,000 Sales 80,000
Purchases 40,000 Less: Sales Return 200 79,800
Less: Purchases Return 600 39,400 Closing Stock 2,000
Wages 6,000
Dock and Cleaning Charges 4,000
Gross Profit 22,400
81,800 81,800
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Lighting 500 Gross Profit 22,400
Donations and Charity 600 Miscellaneous Income 6,000
Interest on Capital 2,000 Rent 2,000
Depreciation on Furniture 565 Less: Unearned Rent 100 1,900
Depreciation on Land and Machinery 2,150 Interest on Drawings 140
Net Profit 24,985 Interest on Investment 360
30,800 30,800
Balance Sheet
Liabilities Amount Assets Amount
Capital 40,000 Debtors 6,000
Add: Interest on Capital 2,000 Cash 3,000
Add: Net Profit 24,985 Investment 6,000
Less: Drawings 2,000 Add: Interest on Investment 360 6,360
Less: Interest on Drawings 140 64,845 Patent 4,000
Creditors 7,000 Land and Machinery 43,000
Sales Tax Collected 1,000 Less: Depreciation 2,150 40,850
Unearned Rent 100
Furniture 11,300
Less: Depreciation 565 10,735
Closing Stock 2,000
72,945 72,945

12. The following balances were extracted from the books of M/s Panchsheel Garments on March 31, 2017.

Account Title DebitAmount

Account Title CreditAmount

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 March 31, 2017 and a balance sheet as on that date.

(a) Unexpired insurance ₹ 1,000.

(b) Salary due but not paid ₹ 1,800.

(c) Wages outstanding ₹ 200.

(d) Interest on capital 5%.

(e) Scooter is depreciated @ 5%.

(f) Furniture is depreciated ₹ @ 10%.

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 16,000 Sales 1,12,000
Purchases 67,600 Less: Return Inwards 4,600 1,07,400
Less: Return Outwards 3,200 64,400 Closing Stock 15,000
Carriage Inwards 1,400
Wages 1,200
Add: Outstanding Wages 200 1,400
Gross Profit 39,200
1,22,400 1,22,400
Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
General Expenses 2,400 Gross Profit 39,200
Insurance 4,000 Discount 1,400
Less: Unexpired Insurance 1,000 3,000 Commission 1,800
Scooter Expenses 200
Salary 8,800
Add: Outstanding Salary 1,800 10,600
Interest on Capital 2,500
Depreciation on Scooter 400
Depreciation on Furniture 520
Net Profit 22,780
 42,400  42,400
Balance Sheet
Liabilities Amount Assets Amount
Capital 50,000 Cash in Hand 4,000
Add: Interest on Capital 2,500 Scooter 8,000
Add: Net Profit 22,780 75,280 Less: Depreciation 400 7,600
Bank Overdraft 10,000 Furniture 5,200
Creditors 16,000 Less: Depreciation 520 4,680
Outstanding Salary 1,800 Buildings 65,000
Outstanding Wages 200 Debtors 6,000
Unexpired Insurance 1,000
Closing Stock 15,000
1,03,280 1,03,280

13. Prepare the trading and profit and loss account and balance sheet of M/s Control Device India on March 31, 2017 from the following balance as on that date.

Account Title DebitAmount

CreditAmount

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 ₹ 20,000.

(a) Interest on capital @ 10%.

(b) Interest on drawings @ 5%.

(c) Wages outstanding ₹ 50.

(d) Outstanding salary ₹ 20.

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

(f) Make a 5% provision on debtors.

The solution is given below:

Trading Account
Dr. Cr.
Particulars Amount Particulars Amount
Opening Stock 42,300 Sales 1,12,500
Purchases 45,000 Less: Sales Return 2,385 1,10,115
Less: Purchases Return 1,440 43,560 Closing Stock 20,000
Carriage 2,700
Wages 11,215
Add: Outstanding Wages 50 11,265
Octroi 530
Gross Profit 29,760
1,30,115 1,30,115
Balance Sheet
Liabilities Amount Assets Amount
Capital 67,500 Plant and Machinery 27,000
Add: Interest on Capital 6,750 Less: Depreciation 1,350 25,650
Less: Net Loss 8,973 Furniture 6,750
Less: Drawings 19,530 Debtors 36,000
Less: Interest on Drawings 977 44,770 Less: New Provision 1,800 34,200
Bank Overdraft 24,660 Investment 41,400
Creditors 58,500 Closing Stock 20,000
Outstanding Wages 50
Salary Outstanding 20
1,28,000 1,28,000

14. The following balances appeared in the trial balance of M/s Kapil Traders as on March 31, 2017

 

 
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 ₹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.

The solution is given below:

Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Bad Debts 500
Add: Further Bad Debts 300
Add: New Provision 3,020
Less: Old Provision 2,000 1,820
Balance Sheet
Liabilities Amount Assets Amount
Debtors 30,500
Less: Further Bad Debts 300
Less: New Provision 3,020 27,180
Debtors Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2017 2017
March 31 Balance b/d 30,500 March 31 Further Bad Debts 300
March 31 Provision for Doubtful Debts 3,020
March 31 Balance c/d 27,180
30,500 30,500
Bad Debts Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2017 2017
March 31 Balance b/d 500 March 31 Provision for Doubtful Debts 800
(As per the Trial Balance)
March 31 Sundry Debtors 300
800 800
Provision for Doubtful Debts Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2017 2016
March 31 Bad Debt 800 April 01 Balance b/d (Old Provision) 2,000
April 01 Profit and Loss 1,820
(Balancing figure)
March 31 Balance b/d 3,020
(New Provision)
3,820 3,820

15. Prepare the bad debts account, provision for account, profit and loss account and balance sheet from the following information as on March 31, 2017

 
Debtors 80,000
Bad debts 2,000
Provision for doubtful debts 5,000

 Adjustments: 

Bad Debts ₹ 500 Provision on Debtors @ 3%.

The solution is given below:

Profit and Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
Bad Debts 2,000 Old Provision for Doubtful Debts 5,000
Add: Further Bad Debts 500
Add: New Provision for Bad Debts 2,385 4,885
Balancing figure 115
5,000 5,000
Balance Sheet
Liabilities Amount Assets Amount
Debtors 80,000
Less: Further Bad Debts 500
Less: New Provision on Debtors 2,385 77,115
77,115
Bad Debts Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2017 2017
Dec.31 Balance b/d 2,000 Dec.31 Provision for Doubtful Debts 2,500
(as per the Trial Balance)
Dec.31 Sundry Debtors 500
2,500 2,500
Provision for Doubtful Debts Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2017 2017
Dec.31 Bad Debts 2,500 Jan.01 Balance b/d (Old Provision) 5,000
Dec.31 Balance b/d 2,385
(New Provision)
Dec.31 Profit and Loss 115*
(Balancing Figure)
5,000 5,000

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