You are required to prepare the Profit and Loss Account for the year ended 30th September 2004, and the Balance Sheet as on that date. Ignore previous years figures.

The following balances have been extracted from the books of Veean Books Limited as on 30^th September 2004:

Dr. Cr.

Rs. Rs.

Cash in hand 3,800 Share Capital 90,000

Cash at Bank 12,600 9% Debentures 30,000

Bills Receivable 4,000 Sundry Creditors 29,000

Investment 1,000 Profit and Loss A/c 2,000

Security Deposit 400 Secured Loan from Bank against stock 50,000

Advances 8,500 Gross Profit 1,75,000

Debtors 75,000 Share Suspense 3,000

Land and Buildings 1,05,000 Liabilities for expenses 12,000

Furniture 4,500 Sale of Furniture 300

Motor Car 25,000 Bills Payable 3,100

Closing Stock 95,000 Miscellaneous Receipts 425

Establishment expenses 35,200

Repairs and renewals 2,600

Motor Car Expenses 4,200

Travelling and Conveyance 1,600

Printing and Stationery 900

Telephone 1,200

Debenture Interest 2,025

Commission on sales 3,200

Advertisement 3,500

Managing Director’s

remuneration 3,600

Directors fees 2,000

-------------- -------------

3,94,825 3,94,825

--------------- -------------

The following further particulars are available:-

Rs.

(1) Amount of share capital has been arrived at as follows :-

9,200 equity shares of Rs. 10 each, fully called up 92,000

Less: Calls-in arrear @Rs. 2 on 1,000 shares 2,000

------------

90,000 ------------

(2) The Profit and Loss Account balance has been arrived at after charging Rs. 5,000 on account of short provision of taxation for the earlier year.

(3) A Bank advice, for debit of Rs.710 on account of interest on loan upto 30^th September 2004, was received on 5^th October, 2004, the loan having been taken on 1^st September, 2004.

(4) The Bank statement shows a wrong credit of Rs.3,000 on 16^th September 2004, the same being detected and adjusted by the Bank on 30^th November 2004.

(5) The 1,000 shares, on which calls were in arrear, were forfeited by the Board, and Share Suspense represents the amount received on their reissue, as fully paid, by Board Resolution dated 1^st April 2004.

(6) Sale of furniture represents disposals, during the year, of a few old items of furniture having a written-down value of Rs. 400 on 30^th September 2003, against their original cost of Rs. 800.

(7) Cost of land Rs.30,000 is included in the amount of land and buildings.

(8) Sundry debtors, which are all unsecured and considered good, include Rs.10,000 due for more than six months.

(9) Advertisement charges include unissued materials of Rs. 1,500.

(10) Advances include Rs.3,000 paid for a new telephone installed during the year under the OYT Scheme, of which an amount of Rs.150 has been set off against the current year’s bills.

(11) Amounts of Rs.2,000 and Rs. 1,200, debited to purchases and wages respectively, were for making new furniture during the year.

(12) Investment represents purchase of 200 equity shares of Rs.10 each, Rs.5 per share called and paid-up.

(13) Charge depreciation on the closing written down amount of:-

Buildings @ 2.5%

Furniture @10%

Motor Car @ 20%

(14) Original costs of fixed assets were:-

Rs.

Buildings 1,00,000

Furniture 9,000

Motor Car 35,000

(15) The Managing Director is entitled to 5% of the annual net profits as his remuneration, subject to a minimum of Rs. 300 per month. The net profits, for this purpose, are to be taken without charging income-tax and his remuneration itself.

(16) Bills discounted not matured Rs.1,500.

(17) Provision for income-tax of Rs.65,000 is to be made, for the year.

(18) The following appropriations have been proposed by the Board of Directors out of the profit for the year:-

(a) Transfer of Rs. 20,000 to General Reserve.

(b) Dividend of 12% on the paid-up capital.

(19) Debentures were issued two years back, and are not secured.

You are required to prepare the Profit and Loss Account for the year ended 30^th September 2004, and the Balance Sheet as on that date. Ignore previous years figures.

Solution.

Trading A/c

Dr.			Cr.
Particulars	Amount	Particulars	Amount
To G.P.	178200	By G.P	175000
		By excess amount charged to Purchase 2000 Wages 1200	3200
	178200		178200

Profit and Loss A/c

Dr.			Cr.
Particulars	Amount	Particulars	Amount
To establishment expenses	35200	By G.P	178200
To repair and renewal	2600	By mis. recipes	425
To travelling expense	1600
To printing and stationary	900
To telephone	1200
To deb. Interest 2025 Add: Interest outstanding 675	2700
To commission on sale	3200
To Advertisement 3500 Less: unissued material 1500	2000
To interest on loan	7100
To loss on sale of furniture	100
To telephone expense	150
To depreciation on Building 1875 Furniture 730 Car 5000	7605
To manager commission 3600 Add: outstanding 1803	5403
To director fees	2000
To Net profit	102667
	178625		178625

Profit and Loss Appropriation A/c

Dr.			Cr.
Particulars	Amount	Particulars	Amount
To shorts provision for tax in previous year	5000	By balance b/d Profit 2000 Short provision for tax 5000	7000
To provision for taxation – current year	65000	By P/L A/c (current year)	102667
To transfer to reserve	20000
To proposed dividend	11040
To bal. c/d	8627
	109667		109667

Balance Sheet

Liabilities	Amount	Assets	Amount
Share capital		Fixed assets
9200 equity shares @ Rs. 10 each fully paid	92000	Furniture Opening bal. 4500 Add: Purchased 3200 Less: Sale 400 7300 Less: dep. 730	6570
Reserve and surplus		Land & Building Cost 105000 Less: dep. 1875	103125
P/L A/c	8627	Motor Car Cost 25000 Less: dep. 5000	20000
Capital reserve	1000	Investment	1000
General reserve	20000	(200 equity shares of Rs. 10 each. Rs. 5 per share called and paid)
Secured Loan		Current Assets and Loan & advance
Secured loan from bank against stock	50000	A – Current Assets
Unsecured Loan		Bank 12600 Less: int. on loan 7100	5500
9% debenture	30000	Closing stock Finished 95000 Raw material 1500	96500
Deb. Interest	675	Cash	3800
Current Liability & provision		Debtor More than 6 months 10000 Less than 6 months 65000	75000
A - Current liability		B – Loan and Advance
Manager comm. Outstanding	1803	Advance under O.Y.T scheme	8350
Creditor	29000	B/R	4000
Liability for expense	12000	Security deposit	400
Bill payable	3100	Mis. Expenditure	---
B- Provision
Provision for taxation	65000
Proposed dividend	11040
	324245		324245

Contingent liability

1. Bill discounted not matured

Working note

S. No	Particular		Amount Dr.	Amount Cr.
3.	Int. on loan A/c	Dr.	7100
	To bank A/c			7100
5.	Share capital A/c	Dr.	10000
	To call in arrear A/c			2000
	To share forfeited A/c			8000
	To bank A/c
	Share suspense	Dr.	3000
	Share forfeited	Dr.	7000
	To share capital			10000
	Share forfeited A/c	Dr.	1000
	To capital reserve A/c			1000
6.	Sale of furniture A/c	Dr.	300
	Loss on sale	Dr.	100
	To furniture A/c			400
9.	Closing stock (unissued material)	Dr.	1500
	To advertisement			1500
10.	Telephone bill	Dr.	150
	To advance			150
11	Furniture A/c	Dr.	3200
	To purchase			2000
	To wages			1200
13.	Depreciation A/c	Dr.	7605
	To building			1875
	To furniture			730
	To car			5000
15.	Manager commission *	Dr.	1803
	To manager commission outstanding			1803
18.	P/L appropriation A/c	Dr.	20000
	To general reserve A/c			20000
	P/L appropriation A/c	Dr.	11040
	To proposed dividend A/c			11040

* Calculation of manager commission

Net profit before manager’s commission =

178200 + 425 - 35200 – 2600 – 1600 – 900 – 1200 – 2700 – 3200 – 2000 – 7100 – 100 – 150 – 7605 - 2000

= 108070

Remuneration = 108070 x 5/100

= 5403

Remuneration outstanding = total remuneration – remuneration paid

= 5403 – 3600

= 1803

MS-04 Accounting and Finance for Managers

Friday, June 17, 2011