From the following Trial Balance and Adjustments of Kumbhar and Maroti you are required to prepare Trading and Profit and Loss Account for the year ended on 31st March, 2005 and Balance Sheet as on that date. [March 2009]

Trial Balance as on 31st March, 2005
Debit Balance Rs. Credit Balance Rs.
Stock (1.4.2004)
Salary and Wages
Cash
Purchases
Sundry expenses
Wages
Bills Receivable
Travelling Expenses
Bad Debts
Factory Expenses
Commission
Investments
Debtors
Tools and Equipments
Furniture
Goodwill
Building
35000
4200
10000
225200
13600
12000
6000
2000
3000
8000
4000
20000
40000
6000
12000
21000
50000
Sales
Discount
Creditors
Bank Overdraft
Interest on Investment
Capitals:
Kumbhar
Maroti
330000
4000
20000
10000
8000

60000
40000
Total 472000 Total 472000

Adjustments

  1. Partners share Profits and Losses in the ratio of their capitals. (Kumbhar: 60,000, Maroti: 40,000 => Ratio 3:2)
  2. Closing stock is valued at Cost Price Rs. 40,000 and at Market Price Rs. 45,000. (Valued at Rs. 40,000 - lower of cost or market price)
  3. Kumbhar has withdrawn goods worth Rs. 1,200 for his own use, but no entry is made in the books.
  4. Uninsured goods worth Rs. 12,000 were lost by fire.
  5. Rs. 450 is to be written off as bad debts.
  6. Unpaid expenses:
    • Salary and Wages Rs. 800
    • Rent Rs. 1,200 (New item)
  7. Depreciate building @ 7 ½ % p.a.

Trading Account for the year ended 31st March, 2005

Particulars (Debit) Amount (Rs.) Particulars (Credit) Amount (Rs.)
To Opening Stock 35,000 By Sales 330,000
To Purchases 225,200 By Closing Stock 40,000
Less: Goods withdrawn by Kumbhar (1,200)
Less: Goods lost by fire (12,000)
To Net Purchases 212,000
To Wages 12,000
To Factory Expenses 8,000
To Gross Profit c/d 103,000
Total 370,000 Total 370,000

Profit and Loss Account for the year ended 31st March, 2005

Particulars (Debit) Amount (Rs.) Particulars (Credit) Amount (Rs.)
To Salary and Wages (4,200 + O/s 800) 5,000 By Gross Profit b/d 103,000
To Sundry Expenses 13,600 By Discount Received 4,000
To Travelling Expenses 2,000 By Interest on Investment 8,000
To Bad Debts (3,000 + New 450) 3,450
To Commission (Paid) 4,000
To Loss of Goods by Fire 12,000
To Outstanding Rent 1,200
To Depreciation on Building (50,000 @ 7.5%) 3,750
To Net Profit transferred to Capital A/cs:
Kumbhar (3/5) 42,000
Maroti (2/5) 28,000
Net Profit Total 70,000
Total 115,000 Total 115,000

Partners' Capital Accounts

Particulars (Debit) Kumbhar (Rs.) Maroti (Rs.) Particulars (Credit) Kumbhar (Rs.) Maroti (Rs.)
To Drawings (Goods) 1,200 - By Balance b/d 60,000 40,000
To Balance c/d (Closing Capital) 100,800 68,000 By Net Profit (Share) 42,000 28,000
Total 102,000 68,000 Total 102,000 68,000

Balance Sheet as on 31st March, 2005

Liabilities Amount (Rs.) Assets Amount (Rs.)
Capitals: Goodwill 21,000
Kumbhar 100,800 Building 50,000
Maroti 68,000 Less: Depreciation (7.5%) (3,750)
Total Capitals 168,800 Net Building 46,250
Creditors 20,000 Furniture 12,000
Bank Overdraft 10,000 Tools and Equipments 6,000
Outstanding Salary and Wages 800 Investments 20,000
Outstanding Rent 1,200 Debtors 40,000
Less: Further Bad Debts (450)
Net Debtors 39,550
Bills Receivable 6,000
Closing Stock 40,000
Cash 10,000
Total Liabilities 200,800 Total Assets 200,800

Quick Solution Summary

  • Gross Profit: Rs. 103,000
  • Net Profit: Rs. 70,000
  • Partners' Closing Capital Balances:
    • Kumbhar: Rs. 100,800
    • Maroti: Rs. 68,000
  • Balance Sheet Total: Rs. 200,800

Difficult Words & Meanings

Trial Balance: A statement showing the debit and credit balances of all ledger accounts on a specific date to check the arithmetical accuracy of the books.

Debit Balance: An amount recorded on the left side of an account, typically representing assets or expenses.

Credit Balance: An amount recorded on the right side of an account, typically representing liabilities, equity, or income.

Stock (Inventory): Goods held by a business for sale or for use in production. "Opening Stock" is stock at the beginning of an accounting period, "Closing Stock" is at the end.

Purchases: Goods bought by a business for resale or for use in operations.

Sundry Expenses: Miscellaneous small expenses that don't fit into specific categories.

Wages: Payments made to employees for labor, especially manual or direct labor involved in production (typically a Trading Account item).

Salary: Fixed regular payment, typically paid to administrative or office staff (typically a Profit & Loss Account item).

Bills Receivable: A formal written promise from a customer to pay a specific amount of money at a future date (an asset).

Bad Debts: Amounts owed to a business that are not expected to be collected from customers.

Factory Expenses: Costs incurred in the factory related to production (e.g., factory rent, power, lighting for factory).

Commission: A fee paid to an agent or employee for transacting a piece of business or performing a service. If it's a debit balance, it's an expense; if credit, it's income.

Investments: Assets acquired with the intention of generating income or appreciation in value.

Debtors (Accounts Receivable): Customers who owe money to the business for goods or services sold on credit.

Tools and Equipments: Assets used in the operation of the business.

Furniture: Assets like tables, chairs, desks used in the business.

Goodwill: An intangible asset representing the non-physical value of a business, such as its reputation or customer base.

Building: A fixed asset representing the physical structure owned by the business.

Sales: Revenue generated from selling goods or services.

Discount: A reduction in price. "Discount Allowed" (expense) appears as a debit, "Discount Received" (income) as a credit.

Creditors (Accounts Payable): Suppliers or other entities to whom the business owes money for goods or services purchased on credit.

Bank Overdraft: A facility allowing a bank account holder to withdraw more money than is actually in the account, up to an agreed limit (a liability).

Interest on Investment: Income earned from investments.

Capital: The owner's or partners' investment in the business.

Adjustments: Entries made at the end of an accounting period to accurately reflect revenues and expenses, and assets and liabilities for that period.

Withdrawn (Drawings): When an owner or partner takes cash or goods from the business for personal use.

Uninsured: Not covered by an insurance policy.

Written Off (Bad Debts): Recognized as uncollectible and removed from the books as an expense.

Unpaid Expenses (Accrued/Outstanding Expenses): Expenses that have been incurred during the accounting period but not yet paid.

Depreciate: To allocate the cost of a tangible asset over its useful life, reflecting its wear and tear, usage, or obsolescence.

p.a. (per annum): Yearly or annually.

Trading Account: An account prepared to determine the Gross Profit or Gross Loss of a business during an accounting period.

Gross Profit: The profit a company makes after deducting the costs directly associated with making and selling its products, or providing its services (Sales - Cost of Goods Sold).

Profit and Loss Account (P&L Account): An account prepared to determine the Net Profit or Net Loss of a business by considering all indirect revenues and expenses.

Net Profit: The actual profit after all operating and non-operating expenses are deducted from all revenues (Gross Profit - Indirect Expenses + Indirect Incomes).

Partners' Capital Account: An account maintained for each partner showing their investment, share of profits/losses, drawings, interest on capital/drawings, etc.

Balance Sheet: A financial statement that reports a company's assets, liabilities, and equity at a specific point in time, showing the financial position of the business.

c/d (carried down): An entry made to close an account for the current period, with the balance being brought down to the next period.

b/d (brought down): An opening balance in an account, brought forward from the previous period.