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NCERT Questions

Question-1

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


accounts?
Solution:
The purpose is to make a continuous assessment of the final affairs of the
firm. It is necessary that all expenses and incomes for the year for which
accounts are being prepared be taken.
Comment

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Question-2

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


Solution:
All goods purchased or produced during the accounting year are not
completely sold out by the end of the year. The goods remaining unsold
constitute the Closing Stock. In order to ascertain the gross profit or
gross loss, closing stock has to be brought into the Final Account. Closing
stock is valued at cost or market price whichever is lower and then
incorporated in the accounts by passing the following adjustment entry:
Closing Stock A/c Dr.
To Trading A/c
Comment

Question-3

State the meaning of:


(a) Outstanding expenses

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(b) Prepaid expenses

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(c) Income received in advance

(d) Accrued income


Solution:
(a) Outstanding expenses
Expenses which have been incurred during the year and whose benefit has
been derived during the year, but not paid for yet are called outstanding
expenses.
(b) Prepaid expenses
In some cases, the benefit of the amount already spent will be available in
the next accounting year also. Such a part of the expense is called a
prepaid expense.
(c) Income received in advance
Sometimes an amount is received during a year in respect of an income that

relates partially to the next year. The income which has been received during
the current accounting year but relates to the next accounting year is called
Unearned Income or Income Received in Advance.
(d) Accrued income
accrued incomes are those incomes which have been earned during the
accounting period but have not been received till the end of the accounting
period. Such incomes are called Outstanding incomes or
Incomes earned but not yet received.
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Question-4

Why is it necessary to create a provision for doubtful debts at the time of


preparation of final accounts?
Solution:
We make provisions for expected losses but we do not take credit for
expected profit. A firm, therefore, make provision at the ned of the
accounting year for likely bad debts in the next year. This is for the simple
reason that out of the credit sales made during the particular year, some
debts are likely to become bad in the next year due to non payments.

The correct accounting is to make provision for such likely bad debts every

NCERT Questions

year.

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Question-5

What adjusting entries would you record for the following :


(a) Depreciation
(b) Discount on debtors
(c) Interest on capital
(d) Managers commission
Solution:
(a) Depreciation
When provision for depreciation account is not maintained:
Depreciation A/c Dr.
To Asset A/c
Profit and Loss A/c Dr.
To Depreciation
(b) Discount on debtors
Accounting Treatment
For Discount Allowed:

Discount Allowed A/c Dr.


To Debtors
(Being discount allowed on debtors)
(c) Interest on capital
Interest on Capital A/c Dr.
To Capital A/c
Profit and Loss A/c Dr
To Interest on Capital A/c
(d) Managers commission
Profit and Loss A/c Dr.
To Commission Payable or Outstanding commission A/c
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NCERT Questions

Question-6

What is meant by provision for discount on debtors?


Solution:

Debtors outstanding at the end of the year make payment in the next
year and they may be entitled to cash discount if they make the payment
by the due date. Because, the debt has arisen during the year, the
discount is to be taken as expense for the year. Thus, a provision for
discount on debtors is made.
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Question-7

Give the journal entries for the following adjustments :


(a) Outstanding salary 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.
Solution:
(a) Outstanding salary Rs. 3,500.
Salary a/c Dr. 3,500
To Salary outstanding a/c 3,500
(Salary amounting to Rs. 3,500 outstanding accounted for)
(b) Rent unpaid for one month at Rs. 6,000 per annum.
Accrued rent a/c Dr. 6,000
To Rent a/c 6,000
(Rent unpaid due accounted for)
(c) Insurance prepaid for a quarter at Rs. 16,000 per annum.
Prepaid insurance a/c Dr. 16,000
To Insurance 16,000

(Prepaid insurance for one quarter accounted for)

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


book.
Furniture a/c Dr. 7,000

To purchases 7,000
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Question-8

What are adjusting entries? Why are they necessary for preparing final
accounts?
Solution:
As we know, basic accounting records are on the basis of Going
Concern Assumption. But the Final Accounts are prepared every year
on the basis of Accounting Period Assumption, Revenue

Recognition Assumption and Matching Principle besides


others. The purpose is to make a continuous assessment of the final
affairs of the firm. It is necessary that all expenses and incomes for
the year for which accounts are being prepared be taken. It, therefore,
necessitates that: Expenditure whether paid or note be included
Income whether received or not be included
Expenditure relating to the succeeding years be excluded and
Income relating to the succeeding years be also excluded.

Let us understand with the help of examples.


Suppose, a firm closes its books on 31st March and rent for the
month of March has not yet been paid. This amount has to be paid in
any case because the expense has been incurred. Therefore, it would
be proper to include the rent for this month along with other
expenses for the year.
Take another example. Insurance premium has been paid for twelve
months beginning 1st October. It is apparent that insurance
protection will be available for six months this year and six months
next year. Half the premium, therefore, should be treated as the next
years expense.

In a firm there are a number of transactions related to expenses and

NCERT Questions

incomes, which have to be adjusted. If such items are not adjusted or


brought into the current years books of account, the Final
Accounts will not reveal a true and fair picture of the results. All such

items which need to be brought into books of accounts at the time of


preparing Final Accounts are called adjustments. Journal
entries are passed to effect the required adjustments. These entries
are known as Adjusting Entries.
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Question-9

What is meant by provision for doubtful debts? How are the relevant
accounts prepared and what journal entries are recorded in final
accounts? How is the amount for provision for doubtful debts
calculated?
Solution:
We know that in accounting we follow the Convention of
Conservatism while recording business transactions. This means

that we make provisions for expected losses but we do not take credit
for expected profit. A firm, therefore, make provision at the ned of the
accounting year for likely bad debts in the next year. This is for the
simple reason that out of the credit sales made during the particular
year, some debts are likely to become bad in the next year due to non
payments. The correct accounting is to make provision for such
likely bad debts every year. The entry for creating a provision is:
Profit and loss A/c Dr.
To Provision for Doubtful Debts
The debit to the Profit and Loss Account will reduce the years
profit suitably for the possible loss and the amount will be carried
forward to the next year. Next year, when bad debts actually occur
and are written off, the Bad Debts accounts will be debited to the
Provision for Bad Debts Account; the amount of the bad debts will
not be debited to the Profit and Loss Account since a debit was
already given for it last year. It should be noted that the
customers account or sundry debtors account is not affected by

creation of the Provision for Doubtful Debts. When the debit is

NCERT Questions

doubtful of recovery, the personal account of the debtor will not be


credited as the recovery is still possible. The provision for doubtful
debts accounts is deducted from the amount of book debts in the
Balance Sheet but the two accounts are separate.
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Question-10

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
Stock

Wages
Salary

Purchases

Sales return

Sundry Debtors

Discount allowed
Insurance

Rent Rates and Taxes


Fixtures and fittings
Trade expenses
Bad debts
Drawings

Repair and renewals

Amount
Rs.

50,000

3,000
8,000

1,75,000

3,000

82,000

1,000
3,200
4,300

20,000

1,500
2,000

32,000

1,600

Account Title
Sales

Purchases return

Discount received

Provision for bad debts


Capital

Bills payable

Commission received
Rent

Loan

Amount
Rs.

1,80,000
2,000

500

2,500

3,00,000
22,000

4,000
6,000

35,000

Travelling expenses
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4,200

Telegram expenses

200

Postage

Legal fees

Bills receivable
Building

Adjustments

300
500

50,000

1,10,000

5,51,800

5,51,800

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 bad debts @ 5% on
debtors and discount on debtors @ 2%.
5. Closing stock Rs. 32,000.
6. Depreciation on building @ 6% p.a.
Solution:
Trading and profit and Loss Account for the year ended December
Dr.

31, 2005

Expenses / Losses

Opening Stock

Wages

Purchases 1,75,000
Less
Purchase return 2,000

Amount
(Rs.)

50,000

3,000
1,73,000
2,26,000

Revenues / Gain
Sales 1,80,000
Less
Sales return 3,000
Closing Stock
Gross loss

Cr.

Amount
(Rs.)
1,77,000
32,000
17,000

2,26,000

Gross Loss b/d


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17,000

Less
Adv recd
1,000

Salary 8,000
Add
Outstanding sal 1,000

9,000

Repairs and renewals

1,600

Trade expenses

1,500

Travelling expenses
Postage

Telegram expenses
Legal fees

4,200

4,550

Rent, rate and taxes

4,300

Depreciation

6,600

Discount allowed

Net loss

500

43,189

500

Add
new provision 4,050
(5% on 81,000) 7,050
Less

Discount on debtors

Discount received

8,000

200

2,400

Provision for
bad debts 2,500

Rent received
6,000
Add
Accrued rent
2,000

3,000

300

Insurance 3,200
Less: Prepaid 800
Bad debts 2,000
Add
Provision 1,000
3,000

Commission recd
4,000

1,539

1,000

54,689

Balance sheet as on 31 March, 2005

54,689

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Liabilities
Capital
3,00,000

Less
Net Loss
43,189

Amount (Rs)

2,24,811

2,56,811
Less Drawings
32,000

Bills Payable

22,000

Loan

35,000

O/s Salary

1,000

Assets

Sundry Debtors
82,000

Less bad debts


1,000
81,000
Less prov.
4,050
For doubt debts
76,950
Less
Prov for discount
1,539

75,411

Fixtures and
fittings

20,000

Building

1,03,400

Bills receivable
1,10,000
Less depcn
6,600
Closing Stock

2,82,811

Amount (Rs)

Rent accrued

Comment

50,000

32,000
2,000

2,82,811

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Question-11

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
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Purchases

Return inwards
Postage and
Telegram
Salary

Wages
Rent and Rates
Packing and
Transport

General expense
Insurance

35,000

Sales

25,000

Creditors

1,25,000

600

12,300
3,000
1,000
500

Cash at bank

40,000

Lighting and
Heating
Discount

Bad debts

Discount

10,000
20,000

1,000

Provision for bad


debts

4,500

Capital

75,000

Interest received

5,400

4,000

50,000

Machinery

Bills payable

6,000

400

Debtors

Cash in hand

Purchase return

2,50,000

20,000
20,000
5,000
3,500
3,500

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.

Solution:
Trading and profit and Loss Account for the year ended December
31, 2005
Dr.

Cr.

Expenses / Losses
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Amount
(Rs.)

Revenues / Gain

Purchases
1,25,000
Less P/R
6,000

1,19,000

Closing Stock

Gross profit

79,000

Postage and telegram

600

Gross profit b/d

Packing and transport

500

Interest on
investment

Opening stock

Wages
3,000
Less prepaid wages
1,000

Salary

35,000

2,35,000

12,300

400

Discount

3,500

Bad debts 3,500


Add

1,000

Further bad debts 1,500


5,000
Add new prov
5%on 48,500 2,425

7,425
Less
Prov for bad debts 4,500

2,925

Insurance

4,000

Rent and rates

2,25,000
10,000

2,000

General expense
Depreciation

Sales 2,50,000
Less S/R 25,000

Amount
(Rs.)

1,000

2,35,000

Discount

Interest received

79,000
1,000

1,155

5,400

Lighting and heating


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Discount on debtors
Net Profit

5,000
2,765

52,565

86,555

86,555

Balance sheet as on 31 March, 2005


Liabilities
Capital 75,000
Add
Net profit 52,565

Creditors

Bills payable

Amount
(Rs)
1,27,565

10,000
20,000

Assets
Debtors 50,000
Less
Bad debts 1,500
48,500
Less
Prov for bad debts
2,425
46,075
Less
Prov for discount
On debtors 2,765

43,310

Cash at bank

40,000

Cash in hand

20,000

Machinery 20,000
Less
Depcn 1,000

19,000

Investment 23,100
Add
Interest on invt

24,255

Closing Stock

10,000

1,155

1,57,565

Comment

Amount
(Rs)

Prepaid wages

1,000

1,57,565

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NCERT Questions

Question-12

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
Purchases

Opening stock

Return inwards

Carriage inwards
Cash in hand

Cash at bank
Wages

Printing and Stationery


Discount

Amount
Rs.

1,50,000
50,000
2,000
4,500

77,800
60,800
2,400
4,500
400

Bad debts

1,500

Investment

32,000

Bills receivable

20,000

Insurance
Debtors

Postage and Telegraph


Commission
Interest
Repair

Lighting Charges

Telephone charges

2,500

53,000
400
200

1,000
440
500
100

Account Title

Amount

Sales

2,50,000

Return outwards

Interest received

Discount received
Creditors

Bill payable
Capital

Rs.

4,500
3,500
400

1,25,000

6,040

1,00,000

Carriage outward
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400
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.

Solution:
Trading and profit and Loss Account for the year ended December
31, 2005
Dr.

Expenses / Losses

Amount

Revenues / Gain

Opening stock

50,000

Sales 2,50,000
Less
S/R 2,000

(Rs.)

Purchases 1,50,000

1,45,500

Carriage inwards

4,500

Lighting charges

500

Less P/R 4,500

Wages 2,400
Add O/s wages 100

Amount
(Rs.)

2,48,000
32,500

2,500

Gross profit

77,500

Printing and stationary

4,500

Discount

Closing Stock

Cr.

2,80,500

400

2,80,500
Gross profit b/d

Interest received

77,500
3,500

Bad debts 1,500


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Add further bad debts
1,000
2,500
Add:
New prov 2,600

Interest received on
investment
5,100

Insurance

2,500

Commission

200

Postage and telegraph


Interest 1,000
Add: O/s interest 200

400

440

Discount on debtors

500

Depreciation on Motor
car
Telephone charges
Net profit

Discount received

400
1,250
100

66,010

83,000

Balance sheet as on 31 March, 2005


Liabilities
Capital 1,00,000
Add
Net profit 66,110

400

1,200

Repair

Carriage outward

1,600

Amount
(Rs)

1,66,010

Assets
Debtors 53,000
Less:
Further bad debts
1,000

83,000

Amount
(Rs)

52,000
Less:
Prov for debt 2,600
49,400
Less
Discount on
Debtors 500

48,900

Creditors
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Bills Payable
O/s wages

O/s interest

1,25,000

Cash in hand

77,800

100

Bills receivable

20,000

6,040
200

Cash at Bank

Motor Car 25,000


Less: depcn 1,250

Investment 32,000
Add:
Interest on invt 1,600
2,97,350

Closing Stock

Comment

60,800
23,750

33,600
32,500

2,97,350

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Question-13

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
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Purchases
Sales return
Cash in hand
Cash at bank
Carriage
Free hold land
Patents
General Expenses
Sundry Debtors
Building
Machinery
Insurance
Drawings
Motor vehicle
Bad debts
Light and Water
Trade expenses
Power
Salary and Wages

50,000
1,25,500
2,000
21,200
12,000
100

3,20,000
1,20,000
2,000
32,500
86,000
34,500

Sales
Purchases return
Creditors
Rent
Interest

Bills payable
Capital

12,400
10,000
10,500
2,000
1,200
2,000
3,900
5,400
3,000

8,56,200

3,50,000

2,500
25,000
5,000
2,000

1,71,700
3,00,000

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.
Solution:
Trading and profit and Loss Account for the year ended December
31, 2005
Dr.

Expenses / Losses

Amount
(Rs.)

Revenues / Gain

Cr.

Amount
(Rs.)

Opening Stock
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50,000

Purchases 1,25,500
Less P/R
2,500
Carriage

3,48,000

Closing stock

40,000

Less: S/R
2,000

1,23,000
100

Power

3,900

Gross profit

2,11,000
3,48,000

General expenses
Insurance

Bad debts 2,000


Add: prov @ 5% 1,525

Salary and wages


5,400
Add:
O/S salary 500
Light and water

Trade expenses 2,000


Add; O/s trade exp 300
Depreciation
Building 3,440
Machinery 1,725
Gross profit

Sales
3,50,000

2,000

12,400

3,48,000
Gross profit b/d

2,11,000

Interest

2,000

Rent

5,000

3,525

5,900
1,200

2,300

5,165

1,85,510
2,18,000

Balance sheet as on 31 March, 2005

2,18,000

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Liabilities
Capital 3,00,000

Amount
(Rs)

Add: Net profit 1,85,510


4,85,510
Less: drawings 10,000

4,75,510

Bills Payable

1,71,700

Creditors

O/S Salary

O/S Trade expenses

25,000
500
300

Assets

Amount
(Rs)

Cash in hand

21,200

Cash at Bank

12,000

Patents

1,20,000

Free hold land

3,20,000

Sundry Debtors
32,500
Less provision
1,525

30,975

Building 86,000
Less depcn 3,440

Machinery 34,500
Less: depcn
1,725
Motor vehicle
Loan

10,500

40,000

6,73,010

Question-14

32,775

3,000

Closing Stock

Comment

82,560

6,73,010
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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
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Drawings

Sundry debtors
Bad debts

Trade Expenses

Amount
Rs.

20,000
80,000
1,000
2,400

Printing and
Stationery

2,000

Feright

Account Title
Capital

Return outwards
Bank overdraft

60,000
15,400

Return inwards

4,000
7,000

Sales

1,80,000

Plant and
Machinery

1,00,000

Cash in hand

Discount allowed
Investments

2,76,000

25,000

Purchases

Wages

12,000

Sundry creditors
Bills payable

Bills receivable

2,000
4,000

5,000

Furniture and
Fixture

2,00,000

Provision for
bad debts

Rent Rates and


Taxes

Opening stock

Amount
Rs.

20,000

14,000
10,000
6,000
2,000

40,000

51,000

5,69,400

5,69,400

Adjustments
1. Closing stock was Rs.45,000.
2. Provision for bad debts is to be maintained @ 2% on debtors.
3. Depreciation charged on : furniture and fixture @ 5%, plant and

Machinery @ 6% and motor car @ 10%.

NCERT Questions

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.

Solution:
Trading and profit and Loss Account for the year ended December
31, 2005
Dr.

Expenses / Losses

Amount
(Rs.)

Revenues / Gain

Purchases 1,80,000
Less: P/R
2,000

1,78,000

Closing Stock

Gross profit

1,01,000

Opening Stock

Wages

Bad Debts 1,000


Add:
Prov for debt 1,600

25,000

Sales 2,76,000
Less: S/R
7,000

Cr.

Amount
(Rs.)

2,69,000
45,000

10,000

3,14,000

2,600

Trade expenses

2,400

Printing and
Stationary

2,000

Freight

4,000

Rent, rate and taxes

5,000

Discount allowed

2,000

3,14,000
Gross profit b/d

1,01,000

Provision for bad


debts

4,000

Depreciation
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Furniture and fixture
1,000
Plant and machinery
6,000
Motor car 5,100
Gross Profit

12,100

74,900

Balance sheet as on 31 March, 2005


Liabilities
Capital
2,00,000
Add
Net profit
74,900

Amount
(Rs)

Assets

Amount
(Rs)

2,54,900

Sundry Debtors 80,000


Less: prov for
Discount on
Debtors 1,600

Bank overdraft

12,000

Bills receivable

14,000

Bills Payable

15,400

Furniture and fixture


20,000
Less: depcn

19,000

2,74,900
Less: drawings
20,000
Sundry creditors

60,000

Cash in hand

1,000

Plant and machinery


1,00,000
Less: depcn
6,000

78,400

6,000

94,000

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Motor car 51,000


Less: depcn 5,100

45,900

Closing Stock

45,000

Investments

40,000

3,42,300

3,42,300

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Question-15

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

Trade expenses

2,500

Provision for
bad debts

1,500

2,50,000

Bad debts

Rs.

3,000

Sundry creditors

25,000

Printing and
Stationary

5,000
3,450

Capital

Freight

2,250

Discount

3,500

Sales return

6,000

Interest

11,260

Rent, Rates and


Taxes

Motor car

Opening stock

25,000
75,550

Return outwards

Rs.

received
received
Sales

4,500

1,00,000

Furniture and
NCERT Questions
Fixture

15,500

Purchases

75,000

Investments

65,500

Drawings

Cash in hand

Adjustments

13,560
36,000
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%.

Solution:
Trading and profit and Loss Account for the year ended
December 31, 2005
Dr.

Expenses / Losses

Amount

Revenues / Gain

Opening stock

75,550

Sales 1,00,000
Less: S/R 6,000

Purchases 75,000
Less: P/R 4,500

(Rs.)

70,500

1,46,050

Cr.

Amount
(Rs.)

94,000

Closing Stock

35,000

Gross loss

17,050

1,46,050

Gross loss b/d


NCERT Questions

17,050

Trade expenses
Printing and
Stationary

Rent, rates and taxes


3,450
Add: O/S rent, rate
and taxes 200
Freight

Bad debts 3,000


Add: further bad debt
1,000
4,000
Add: prov for bad
debts 4,950
Discount on debtors

Depreciation
Furniture and fixture
775
Motor Car 2,500

2,500

Provision for bad


debts

1,500

Interest received

11,260

Discount received

3,500

3,650

Interest on
drawings

814

2,250

Net Loss

27,482

5,000

8,950

1,881
3,275

44,556

44,556

Balance sheet as on 31 March, 2005


Liabilities
Capital 2,50,000
Less:
Net Loss 27,482

2,22,518
Less drawings 13,560
2,08,958
Less:
Interest on
drawings

814

Amount
(Rs)

2,08,144

Assets
Cash in hand

Amount
(Rs)

36,000

Sundry Creditors
NCERT Questions
Bills payable

O/S rent, rate and


taxes

25,000
85,550

200

Cash at bank

Debtors
1,00,000
Less:

further bad debt


1,000
99,000
Less: new
provision
4,950
94,050
Less:
discount on
debtors
1,881
Furniture and
Fixture
15,500
Less: depcn
775
Motor Car
25,000
Less: depcn
2,500
Investments

3,18,894

Comment

Question-16

Closing Stock

53,000

92,169

14,725

22,500

65,500

35,000

3,18,894

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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.

NCERT Questions
Account Title
Opening stock
Purchases
Drawings

Buildings

Motor van
Freight inwards
Sales return

Trade expense

Heat and Power

Salary and Wages


Legal expense
Postage and
Telegram
Bad debts

Amount
Rs.

2,26,000
4,40,000
75,000

1,00,000
30,000
3,400

10,000

15,000

Creditors

50,000

Interest
received

20,000

Bills payable

Capital

63,700

3,50,000

5,000
3,000
1,000
6,500

Sundry debtors

25,000

Insurance

Return
outwards

6,80,000

8,000

79,000

Investments

Sales

Amount
Rs.

3,300

Cash in hand

Cash at bank

Account Title

98,000
40,000
3,500

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

NCERT Questions

Sundry Debtors.
4. Unexpired insurance was Rs. 600.

5. The Manager is entitled to a commissiion @ 5% on net profit


before charging such commission.

Solution:
Trading and profit and Loss Account for the year ended
December 31, 2005
Dr.

Expenses / Losses

Amount
(Rs.)

Revenues / Gain

Purchases 4,40,000
Less: P/R 15,000

4,25,000

Closing Stock

Heat and power

8,000

Opening Stock

2,26,000

Freight inwards

3,400

Gross profit

37,600

7,00,000

Trade expense

3,300

Legal expense

3,000

Salary and wages


Postage and
telegram

Insurance 3,500
Less:
Unexpired insurance

5,000
1,000

2,900

600

Depreciation

Building 5,000
Motor van 3,000

Sales 6,80,000
Less: S/R 10,000

8,000

Cr.

Amount
(Rs.)

6,70,000
30,000

7,00,000
Gross profit b/d

Interest received

37,600

20,000

Bad debts 6,500


NCERT Questions
Add:
Prov for doubtful
debts 1,250
Net profit

7,750

26,650

57,600

57,600

Balance sheet as on 31 March, 2005


Liabilities
Capital 3,50,000
Add
Net profit 26,650
3,76,650
Less drawings
75,000
Sundry Creditors
Bills Payable

Amount
(Rs)

Assets

Amount
(Rs)

Cash in hand

79,000

Cash at bank

98,000

3,01,650

50,000
63,700

Building 1,00,000
Less: depcn 5,000
Motor van 30,000
Less: depcn 3,000

Debtors 25,000
Less
Prov for bad debts
1,250

27,000
23,750

Investment

40,000

Unexpired

600

Machinery
insurance
4,15,350

95,000

Closing Stock

22,000

30,000

4,15,350

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NCERT Questions

Question-17

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
Drawings

Land and Buildings

Plant and Machinery


Carriage inwards
Wages
Salary

Sales return

Bank charges

Coal, Gas and Water


purchases

Trade Expenses

Amount
Rs.

20,000

Sales

40,000

Discount

12,000
100
500

2,000

200

Purchases
return

1,260
5,230

1,28,870
10,000

3,800

870

Sundry debtors

Bills payable

1,01,110

1,50,000

Rates and Taxes

Cash in hand

Apprentice
premium

2,20,000

1,200

76,800

Bills receivable

Capital

Amount
Rs.

200

Stock (Opening)
Cash at bank

Account Title

50,000

24,500
30,000

54,300

466470

The additional information is as under :

466570

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

NCERT Questions

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 bad 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.

Solution:
Trading and profit and Loss Account for the year ended
December 31, 2005
Dr.

Expenses / Losses

Opening Stock
Purchases 1,50,000
Less: P/R 10,000

Amount
(Rs.)

Revenues / Gain

1,40,000

Closing Stock

76,800

Carriage inwards

100

Wages 500
Less: prepaid 40

460

Coal, Gas and water

Sales 2,20,000
Less: S/R
200

21,240

Salary 2,000
Add: O/S 100

2,100

Gross profit

Trade expenses

200

3,800

Discount

Rate and taxes

Amount
(Rs.)

2,19,800
20,000

1,200

Gross profit

Bank charges

Cr.

2,39,800

870

2,39,800

Apprentice premium

21,240

1,260
5,230

Depreciation
NCERT Questions
Plant and
machinery 2,000
Land and
building 1,200

3,200

Discount on debtors

1,548

Net Profit

13,297

Provision for bad


debts

2,715

27,730

27,730

Balance sheet as on 31 March, 2005


Liabilities
Capital 1,01,110
Add: Net profit

Amount
(Rs)

13,297
1,14,407
Less: drawings
20,000

94,407

O/S salary

100

Bills Payable

1,28,870

Assets

Amount
(Rs)

Cash in hand

30,000

Cash at Bank

50,000

Plant and
machinery 40,000
Less: depcn 2,000

38,000

Land and
building 12,000
Less: depcn 1,200

Bills receivable

Sundry Debtors
54,300
Less: prov 2,715
51,585
Less discount
1,548

10,800

24,500

50,037

Prepaid wages

NCERT Questions
2,23,377

Closing Stock

Comment

40

20,000

2,23,377

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Question-18

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

Sundry debtors
Opening stock
Purchases

Carriage inwards

Debit
Amount
Rs.

9,600

22,800
34,800
450

Wages

1,770

Insurance

1,440

Office rent
Factory rent

Cleaning charges
Salary

Building

Plant and

Machinery

Cash in hand

Gas and Water

820
390
940

1,590

24,000
3,600
2,160

240

Account Title

Sundry creditors

Credit
Amount
Rs.

2,500

Sales

72,670

Bills payable

15,600

Purchases returns
Capital

2,430

42,000

Octroi
NCERT Questions

Furniture
Patents

60

20,540
10,000

135200

135200

Closing stock Rs.10,000.


1. To provision for bad 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.

Solution:
Dr.

Trading and profit and Loss Account for the year ended
December 31, 2005

Expenses / Losses
Opening stock

Purchases 34,800
Less: P/R 2,430
Carriage inwards
Wages 1,770
Add: O/S 500
Octroi

Factory rent 390


Less: prepaid 100
Cleaning charges
Gas and water

Amount
(Rs.)
22,800
32,370
450

2,270
60

290
940
240

Revenues / Gain
Sales

Closing Stock

Cr.

Amount
(Rs.)
72,670

10,000

Gross profit
NCERT Questions

23,250
82,670

Office rent

Insurance 1,440
Add: O/S 100
Salary 1,590
Add: O/S 350

820

82,670
Gross profit b/d

23,250

1,540
1,940

Bad debts

Depreciation
Plant and Machinery
180
Building 2,400
Net Profit

480

2,580

15,890

23,250

23,250

Balance sheet as on 31 March, 2005


Liabilities

Amount
(Rs)

Assets

Amount
(Rs)

Capital 42,000
Add: Net profit
15,890

57,890

Cash in hand

2,160

Bills payable

15,600

9,120

Sundry creditors

2,500

Sundry Debtors
9,600
Less: prov for
debtors 480

Plant & Machinery


3,600
Less: depcn 180

3,420

O/S Wages 500


Salary 350
Insurance 100

950

Building 24,000
Less: depcn 2,400

21,600

Furniture

20,540

NCERT Questions

Patents

10,000

Closing Stock

10,000

Prepaid factory rent


76,940

Comment

100

76,940
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Question-19

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
NCERT Questions
Bank balance
Wages
Debtors
Cash in hand
Legal expenses
Building
Machinery
Bills receivable
Office expenses
Opening stock
Gas and fuel
Freight and
Carriage
Factory lighting

Office furniture
Patent right

80,000
11,000

Capital

4,000

Return

34,000
70,300
1,200
60,000
120,000
7,000
3,000
45,000
2,700

Bills payable
Sales
Creditors

2,10,000
6,500
2,00,000
50,000
4,000

outwards

3,500
5,000
________
5,000
18,800
________
4,70,500

_______

Adjustments
(a) Machinery is depreciated at 10% and buildings

4,70,500

depreciated at 6%.
(b) Interest on capital @ 4%.
(c) Outstanding wages Rs. 50.
(d) Closing stock Rs.50,000.

Solution:
Trading and profit and Loss Account for the year ended
December 31, 2005

Dr.
NCERT Questions

Expenses / Losses

Opening Stock

Purchases 80,000
Less: P/R 4,000

Amount
(Rs.)

Revenues / Gain

76,000

Closing Stock

45,000

Wages 34,000
Add: O/S wages 50

34,050

Gas and fuel

2,700

Factory Lighting

5,000

Freight and Carriage


Gross profit

Depreciation
Machinery 12,000
Buildings 3,600

15,600

Net profit

2,00,000
50,000

83,750
4,000

Interest on capital

Amount
(Rs.)

3,500

Legal expenses

Office expenses

Sales

Cr.

3,000

Gross profit b/d

83,750

8,400

52,750

83,750

83,750

Balance sheet as on 31 March, 2005


Liabilities

Amount
(Rs)

Assets

Amount
(Rs)

Capital 2,10,000
NCERT Questions
Add:
Interest on capital
8,400

Cash in hand

1,200

Cash at Bank

11,000

2,71,150

2,18,400

Add: net profit


52,750
Bills Payable
Creditors

Outstanding wages

6,500

50,000

50

Building 60,000
Less: depcn
3,600
Machinery
1,20,000
Less: depcn
12,000

1,08,000

Bills receivable

7,000

Patent right

18,800

Office furniture
Debtors
3,27,700

56,400

Closing Stock

Comment

5,000

70,300

50,000

3,27,700

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Question-20

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

Amount

NCERT Questions

Opening stock

Purchases and Sales


Returns
Wages

Dock and cleaning charges


Lighting

Misc. Income

Rs.

10,000
40,000
200

6,000
500

2,000

Cash

3,000

Investment
Patent

Land and Machinery

Donations and Charity

Sales tax collected


Furniture

600

6,000
2,000

Drawings

Debtors and Creditors

80,000

4,000

Rent

Capital

Rs.

6,000

40,000
7,000

6,000
4,000

43,000
600

11,300

136600

1,000

136600

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.
Solution:
Dr.

Trading and profit and Loss Account for the year ended
December 31, 2005
Cr.

Expenses / Losses
NCERT Questions
Opening Stock
Purchases 40,000
Less: P/R 600
Wages

Dock and cleaning


charges
Lighting

Gross profit

Amount
(Rs.)
10,000

39,400

Revenues / Gain
Sales 80,000
Less: S/R 200
Closing Stock

79,800
2,000

6,000
4,000
500

21,900
81,800

81,800

Donation and charity

600

Gross profit b/d

Land and machinery


2,150
Furniture
565

2,715

income

Depreciation

Amount
(Rs.)

Interest on capital

2,000

Net Profit

25,985

31,300

Miscellaneous

Rent 2,000
Less: unexpired
rent
100

21,900
6,000

1,900

Interest on drawing

140

Sales tax collected

1,000

Interest on
investment

360

31,300

Balance sheet as on 31 March, 2005


Liabilities

Amount
(Rs)

Assets

Amount
(Rs)

Capital 40,000
NCERT Questions
Less: int on
capital 2,000
38,000

Less drawings

Cash

3,000

Debtors

6,000

Patent

4,000

Furniture
11,300

10,735

Unexpired rent

100

35,860

2,000

36,000
Less:
int on drawings
140
Creditors
Sales tax
collected

7,000
1,000

Investment
6,000
Add: int on invt
360
Land and
machinery
43,000
Less: depcn
2,150

Less: depcn
565

Closing stock

Comment

Question-21

6,360

40,850

2,000

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The following balances were extracted from the books of M/s


Panchsheel Garments on December 31, 2005.

NCERT Questions
Account Title
Opening stock
Purchases

Return Inwards
Carriage
inwards

Debit
Amount
Rs.

16,000
67,600
4,600
1,400

Account Title
Sales

Return outwards
Discount

Bank overdraft

General
expenses

2,400

Commission

Insurance
Scooter
expenses

4,000
200

Creditors

Salary

8,800

Scooter

8,000

Cash in hand
Furniture

Buildings
Debtors
Wages

Capital

Credit
Amount
Rs.

1,12,000
3,200
1,400

10,000
1,800
16,000
50,000

4,000
5,200

65,000
6,000
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. 1800.
(c) Wages outstanding Rs. 200.
(d) Interest on capital 5%.
(e) Scooter is depreciated @ 5%.
(f) Furniture is depreciated Rs.@ 10%.

Solution:
Trading and profit and Loss Account for the year ended

NCERT Questions
Dr.

Expenses / Losses
Opening stock

December 31, 2005


Amount
(Rs.)
16,000

Purchases 67,600
Less: P/R 3,200

64,400

Wages
1,200
Add: O/S wages
200

1,400

Carriage inwards

1,400

Gross profit

39,200

General expenses

2,400

Insurance
4,000
Less: unexpired
1,000

Scooter expenses
Salary
8,800
Add: salary due
1,800

Depreciation
Scooter
400
Furniture
520

Interest on capital
Net profit

Revenues / Gain
Sales 1,12,000
Less: S/R 4,600
Closing stock

1,22,400

3,000

200
10,600

920

2,500

22,780

Cr.

Amount
(Rs.)
1,07,400
15,000

1,22,400
Gross profit b/d

39,200

Commission

1,800

Discount

1,400

42,400

NCERT Questions

42,400

Balance sheet as on 31 March, 2005


Liabilities
Capital 50,000
Add: int on capital
2,500
52,500
Add: Net profit
22,780

Amount
(Rs)

10,000

Creditors

16,000

O/S wages

200
1,800

1,03,280

Comment

Question-22

Amount
(Rs)

Cash in hand

4,000

Sccoter 8,000
Less: depcn
400

7,600

Buildings

65,000

Unexpired
insurance

1,000

75,280

Bank overdraft

O/S salary

Assets

Furniture 5,200
Less: depcn
520

4,680

Debtors

6,000

Closing Stock

15,000

1,03,280

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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.

NCERT Questions

Account Title

Debit
Amount
Rs.

Drawings and Capital

19,530

Salary and Commission

25,470

Purchase and Sales


Carriage

45,000
2,700

Plant and Machinery

27,000

Opening stock

42,300

Furniture

Insurnace premium
Interest

Bank overdraft

Rent and Taxes


Wages

Returns

Carriage outwards

Debtors and Creditors

General expenses
Investment

Closing stock was valued Rs. 20,000.


(a) Interest on capital @ 10%.
(b) Interest on drawings @ 5%.
(c) Wages outstanding Rs.50.

Credit
Amount
Rs.

67,500

1,12,500
1,575

6,750
2,700

2,160

11,215

7,425

24,660

2,385

1,440

36,000

58,500

1,485
6,975

530
41,400

273600

273600

(d) Outstanding salary Rs.20.


(e) Provide a depreciation @ 5% on plant and machinery.
f) Make a 5% provision on debtors.
Solution:

Trading and profit and Loss Account for the year ended

NCERT Questions
Dr.

December 31, 2005

Expenses / Losses

Amount

Revenues / Gain

Opening Stock

42,300

Sales 1,12,500
Less: S/R 2,385

(Rs.)

Purchases 45,000
Less: P/R 1,440

43,560

Wages 11,215
Add: O/S 50

11,265

Carriage

Octroi

Gross profit

Salary and
Commission 25,470
Ad; O/S
20

Closing Stock

Cr.

Amount
(Rs.)

1,10,115
20,000

2,700

530

29,760

1,30,115

1,30,115

25,490

Gross profit b/d

29,760

Insurance premium

2,700

Interest on

977

Rent and taxes

2,160

Interest

Interest on capital

6,750

Provision on
debtors

1,800

Carriage outwards

Depreciation

General expenses

1,485

1,350

6,975

48,710

drawing

Salary and
Commission
Net Loss

7,425
1,575
8,973

48,710

NCERT Questions

Balance sheet as on 31 March, 2005

Liabilities
Capital 67,500
Add: int on Capital
6,750
74,250
Less: drawings
19,530
54,720
Less: int on
Drawings
977
53,743
Less: Net Loss
8,973
Bank Overdraft

Creditors

O/S wages
O/S Salary

Amount
(Rs)

Assets
Debtors 36,000
Less:
Provision for
bad debts 1,800

Amount
(Rs)

34,200

44,770

24,660

58,500
50

20

Plant and
Machinery 27,000

25,560

Furniture

6,750

Closing stock

20,000

Less: depcn 1,350


Investment

1,28,000

41,400

1,28,000

Comment

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Question-23

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The following balances appeared in the trial balance of M/s


Kapil Traders as on March 31, 2006.
Rs.

Sundry
debtors

NCERT Questions

Bad debts

30,500

Provision
for bad
debts

500

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.
Solution:
Dr.

Date

Bad Debts Account

Particulars

J.F

Amount
(Rs)

Date

Particulars

March
31,
2006

Bad debts

Further
bad debts

300

March
31,
2006

Provision
for bad
debts @

3,020

March
31,
2006

Dr.

Particulars

March

Balance
b/d

J.F

Date

Particulars

30,500

March

Bad debts

31,
2006

(Rs)

10%

Amount
(Rs)

Amount
500

Provision for Bad Debts Account

Date

31,
2006

J.F

Cr.

J.F

Cr.

Amount
(Rs)
500

March
Provision
NCERT Questions
31,
for bad
2006
debts

2,000

March
31,

Further
bad debts

300

March

Provision

3,020

2006
31,
2006

for bad
debts @
10%

Profit and Loss Account for the year ended March 31, 2006

Dr.

Expenses / Losses
Bad debts 500
Add: further bad
debts 300
800

Amount
(Rs.)

3,820

Add: prov doe bad


debts3,020
3,820

Revenues / Gain

Cr.

Amount
(Rs.)

Provision for bad


debts

2,000

Balance c/d

1,820

3,820

Balance sheet as on 31 March, 2005


Liabilities

Amount
(Rs)

Assets
Debtors 30,500
Less:
further
bad debts 300
30,200
Less:
prov for bad
debts
3,020

Comment

Amount
(Rs)

27,180

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NCERT Questions

Question-24

Prepare the bad debts account, provision for account, profit


and loss account and balance sheet from the following
information as on December 31, 2005.
Debtors

Bad debts
Provision
for bad
debts

Rs.

80,000
2,000
5,000

Adjustments :
Bad debts Rs.500 Provision on debtors @ 3%.

Solution:
Profit and Loss Account for the year ended March 31, 2006
Dr.

Expenses / Losses

Bad debts 2,000


Add: further bad
debts 500

2,500
Add: prov doe bad
debts 2,385
Balance c/d

Amount
(Rs.)

4,885

Revenues / Gain
Provision for bad
debts

115

5,000

Balance sheet as on 31 March, 2005


Liabilities

Amount
(Rs)

Assets

Cr.

Amount
(Rs.)
5,000

5,000

Amount
(Rs)

Debtors 80,000
Less:

NCERT Questions

further
bad debts 500
79,500
Less:

prov for bad


debts 2,385

77,115

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