7.

62 PRINCIPLES AND PRACTICE OF ACCOUNTING

UNIT 2 : FINAL ACCOUNTS OF MANUFACTURING ENTITIES

LEARNING OUTCOMES
After studying this unit, you will be able to:
w Understand the purpose of preparing Manufacturing Account.
w Learn the items to be included in the Manufacturing Account
w Draw Manufacturing accounts of Manufacturing entities

UNIT MANUFACTURING BUSINESS ENTITIES

OVERVIEW
Final Accounts

Manufacturing Trading Account Profit & Loss Balance Sheet

Account Account

2.1 INTRODUCTION
The manufacturing entities generally prepare a separate Manufacturing Account as a part of Final accounts
in addition to Trading Account, Profit and Loss Account and Balance Sheet. The objective of preparing
Manufacturing Account is to determine manufacturing costs of finished goods for assessing the cost
effectiveness of manufacturing activities. Manufacturing costs of finished goods are then transferred from
the Manufacturing Account to Trading Account.

(a) Trading account shows Gross Profit while Manufacturing Account shows cost of goods sold
which includes direct expenses.
(b) Manufacturing account deals with the raw material, and work in progress while the trading
account would deal with finished goods only.

2.2 PURPOSE
A manufacturing account serves the following functions:
(1) It shows the total cost of manufacturing the finished products and sets out in detail, with appropriate

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 PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS 7.63

classifications, the constituent elements of such cost. It is, therefore, debited with the cost of materials,
manufacturing wages and expenses incurred directly or indirectly on manufacture.
(2) It provides details of factory cost and facilitates reconciliation of financial books with cost records and
also serves as a basis of comparison of manufacturing operations from year to year.
(3) The Manufacturing Account may also be used for various other purposes. For example, if the output is
carried to the Trading Account at market prices, it discloses the profit or loss on manufacture. Similarly,
it may also be used to fix the amount of production of profit sharing bonus when such schemes are in
force.

2.3 MANUFACTURING COSTS

Manufacturing costs are classified into :
+ Raw Material Consumed .…..….
+ Direct Manufacturing Wages ………
+ Direct Manufacturing Expenses ………
+ Direct Manufacturing Cost ………
+ Indirect Manufacturing expenses or
+ Manufacturing Overhead ………
Total Manufacturing Cost _____
Raw Material consumed is arrived at after adjustment of opening and closing Inventory of raw
materials:
Raw Material Consumed = Opening inventory of Raw Materials + Purchases – Closing inventory of Raw
Materials
If there remain unfinished goods at the beginning and at the end of the accounting period, cost of such
unfinished goods (also termed as Work-In-Process) is shown in the Manufacturing Account –

Opening inventory of Work-in-Process is posted to the debit of the Manufacturing Account and closing
inventory of Work-in-Process is posted to the credit of the Manufacturing Account.

Direct Manufacturing Expenses

Direct manufacturing expenses are costs, other than material or wages, which are incurred for a specific
product or saleable service.
Examples of direct manufacturing expenses are (i) Royalties for using license or technology if based on units
produced, (ii) Hire charge of the plant and machinery used on hire, if based on units produced, etc.
When royalty or hire charges are based on units produced, these expenses directly vary with production.

? ILLUSTRATION 1
1,00,000 units were produced in a factory. Per unit material cost was `10 and per unit labour cost was `5. That
apart it was agreed to pay royalty @ ` 3 per unit to the Japanese collaborator who supplied technology.
Required
Calculate Manufacturing Cost.

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 7.64 PRINCIPLES AND PRACTICE OF ACCOUNTING

 SOLUTION
In this case Manufacturing Cost comprises of –
Raw Material consumed (1,00,000 × ` 10) ` 10,00,000
Direct Wages (1,00,000 × ` 5) ` 5,00,000
Direct Expenses (1,00,000 × ` 3) ` 3,00,000
` 18,00,000

INDIRECT MANUFACTURING EXPENSES OR OVERHEAD EXPENSES

These are also called Manufacturing overhead, Production overhead, Works overhead, etc. Overhead is
defined as total cost of indirect material, indirect wages and indirect expenses.
Overhead = Indirect Material + Indirect Wages + Indirect Expenses
Indirect material means materials which cannot be linked directly with the units produced, for example,
stores consumed for repair and maintenance work, small tools, fuel and lubricating oil, etc.
Indirect wages are those which cannot be directly linked to the units produced, for example, wages for
maintenance works, holding pay, etc.
Indirect expenses are those which cannot be directly linked to the units produced, for example, training
expenses, depreciation of plant and machinery, depreciation of factory shed, insurance premium for plant
and machinery, factory shed, etc.
Accordingly, indirect manufacturing expenses comprise indirect material, indirect wages and indirect
expenses of the manufacturing division.

BY-PRODUCTS
In most manufacturing operations, the production of the main product is accompanied by the production
of a subsidiary product which has a value on sale. For example, the production of hydrogenated vegetable
oil is accompanied by the production of oxygen gas and the production of steel yields scrap. The subsidiary
product is termed as a by-product because its production is not consciously undertaken but results out of
the production of the main product. It is usually very difficult to ascertain the cost of the product. Moreover,
its value usually forms a very small percentage of the main product.
By-product is a secondary product. This is produced from the same raw materials, which are used for
producing the main product and without incurring any additional expenses from the same production
process in which the main product is produced. Some examples of by-product are given below:

(i) Molasses is the by-product in sugar manufacturing;

(ii) Butter milk is the by-product of a dairy which produces butter and cheese, etc.

By-products generally have insignificant value as compared to the value of main product. They are
generally valued at net realizable value, if their costs cannot be separately identified. It is often treated,
as “Miscellaneous income” but the correct treatment would be to credit the sale value of the by-product to
Manufacturing Account so as to reduce to that extent, the cost of manufacture of main product.

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 PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS 7.65

2.4 DESIGN OF A MANUFACTURING ACCOUNT

There is no standardized design for the presentation of a Manufacturing Account. Given below is a format
covering various elements:
Manufacturing Account
Particulars Units Amount Particulars Units Amount
` `
To Raw Material Consumed: By By-products at net realizable value
Opening inventory …. By Closing Work-in- Process
Add: Purchases ….. By Trading A/c
Less: Closing inventory ….. …… Cost of production
To Direct Wages ……
To Direct expenses: ……
Prime cost ……
To Factory overheads:
Royalty .….
Hire charges …..
To Indirect expenses: …..
Repairs & Maintenance .….
Depreciation .…. …….
Factory cost …….
To Opening Work-in-process .……

Tutorial Note: Frequently, problems are set, in which all the ledger balances are not given. Instead, details are
given regarding the number of items in Inventories, quantity manufactured etc. the figures for Inventories,
sales etc., would therefore have to be worked out independently from the data given.
The following general rules may be observed.
(a) The Manufacturing Account should have columns showing the quantities and values. Frequently, all
the quantities are not given and the quantities applicable to one or more of the items would have to be
worked out. For example, if the question does not state the total number of items sold, the quantity can be
worked out by adding opening inventory and units manufactured and deducting closing inventory. It is,
therefore, useful to have quantity columns in the account so that it can be seen that both sides balance.
(b) The Manufacturing Account will show the quantity of raw materials in inventory at the beginning and
at the end of the year and the purchases during the year. As regards finished goods, it will only show the
quantity manufactured and, as regards work-in-progress, the opening and closing amounts.
(c) The Trading Account will show the quantities of finished goods manufactured and sold and the opening
and closing inventory. It will not show the quantity of raw materials or work-in-progress.
(d) For determining the value of closing inventory, in the absence of specific instruction to the contrary, it
must be assumed that sales have been on “first in-first out” basis, that is, the closing inventory consists as far
as possible of goods produced during the year, the opening inventory being sold out.
It may be mentioned here that nowadays no manufacturing business entity prepares manufacturing
account as part of its final set of accounts. Even the items of manufacturing account are shown either in
trading account (in case of non-corporate entities) or in Statement of profit and loss (in case of corporate
entities).

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 7.66 PRINCIPLES AND PRACTICE OF ACCOUNTING

The procedure of preparation of Trading Account, Profit and Loss Account and Balance Sheet have already
been explained in Unit 1 of this chapter. Students should refer the earlier unit for attempting the problems
based on the preparation of complete set of final accounts of a sole proprietor.

? ILLUSTRATION 2
Mr. Vimal runs a factory which produces soaps. Following details were available in respect of his manufacturing
activities for the year ended on 31.3.2020:
`
Opening Work-in-Process (10,000 units) 16,000
Closing Work-in-Process (12,000 units) 20,000
Opening inventory of Raw Materials 1,70,000
Closing inventory of Raw Materials 1,90,000
Purchases 8,20,000
Hire charges of machine @ ` 0.60 per unit manufactured
Hire charges of factory 2,20,000
Direct wages-Contracted @ ` 0.80 per unit manufactured and @ ` 0.40 per unit of
Closing W.I.P.
Repairs and Maintenance 1,80,000
Units produced – 5,00,000 units
Required
Prepare a Manufacturing Account of Mr. Vimal for the year ended 31.3.2020.

 SOLUTION
In the Books of Mr. Vimal
Manufacturing Account for the Year ended 31.3.2020
Particulars Units Amount Particulars Units Amount
` `
To Opening Work- in- 10,000 16,000 By Closing Work- in- 12,000 20,000
Process Process
To Raw Materials By Trading A/c – 5,00,000 19,00,800
Consumed: Cost of finished
Opening 1,70,000 goods transferred
inventory
Add: Purchases 8,20,000
9,90,000
Closing Inventory (1,90,000) 8,00,000
To Direct Wages
– W.N.(1) 4,04,800

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 PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS 7.67

To Direct expenses:
Hire charges
on Machinery
– W.N. (2) 3,00,000
To Indirect expenses:
Hire charges of
Factory Shed 2,20,000
Repairs Maintenance 1,80,000

19,20,800 19,20,800

Working Notes :
(1) Direct Wages – 5,00,000 units @ ` 0.80 = ` 4,00,000
12,000 units @ ` 0.40 = ` 4,800
` 4,04,800
(2) Hire charges on Machinery – 5,00,000 units @ ` 0.60 = ` 3,00,000

? ILLUSTRATION 3
On 31st March, 2020 the Trial Balance of Mr. White were as follows:
Trial Balance as on 31st March 2020

Particulars Dr. ₹ Particulars Cr. ₹

Stock on 1st April 2019
Raw Materials 21,000 Sundry Creditors 15,000
Work in Progress 9,500 Bills Payable 7,500
Finished goods 15,500 Sale of Scrap 2,500
Sundry Debtors 24,000 Commission Received 450
Carriage on Purchases 1,500 Provision for doubtful debts 1,650
Bills Receivable 15,000 Capital Account 1,00,000
Wages 13,000 Sales 1,67,200
Salaries 10,000 Bank Overdraft 8,500
Telephone, Postage etc. 1,000
Repairs to Office Furniture 350
Cash at Bank 17,000
Office Furniture 10,000
Repairs to Plant 1,100
Purchases 85,000

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7.68 PRINCIPLES AND PRACTICE OF ACCOUNTING

Plant and Machinery 70,000

Rent 6,000
Lighting 1,350
General Expenses 1,500
3,02,800 3,02,800
The following additional information is available:
Stocks on 31st March, 2020 were:
Raw Materials `16,200
Finished goods `18,100
Semi-finished goods ` 7,800
Salaries and wages unpaid for March 2020 were respectively, ` 900 and ` 2,000
Machinery is to be depreciated by 10% and office furniture by 71/2 %
Provision for doubtful debts is to be maintained @ 1% of sales
Office premises occupy 1/4 of total area.
Lighting is to be charged as to 2/3 to factory and 1/3 to office.
Prepare the Manufacturing Account Trading Account, Profit and Loss Account and the Balance Sheet relating
to 31st March 2020.

 SOLUTION
In the books of Mr. White
Manufacturing Account for the year ended 31st March 2020

Particulars ` Particulars `
Raw material consumed: By Closing Stock of Work in Progress 7,800
To Opening Stock of Raw 21,000 By Sale of Scrap 2,500
Materials
Add: Purchases 85,000 By Cost of goods Manufactured 1,19,000
Less: Closing Stock 16,200 89,800 (Transferred to Trading Account)
To Opening Stock of WIP 9,500
To Wages 13,000
Add: Outstanding Wages 2,000 15,000
To Carriage on Purchases 1,500
To Repairs to Plant 1,100
To Rent (3/4) 4,500
To Lighting (2/3) 900
To Depreciation of Plant 7,000
1,29,300 1,29,300

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 PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS 7.69

Trading Account for the year ended 31st March 2020

Particulars ` Particulars `
To Opening Stock of finished goods 15,500 By Sales 1,67,200
To Cost of goods transferred from By Closing Stock 18,100
Manufacturing A/c 1,19,000
To Gross Profit c/d 50,800
1,85,300 1,85,300
Profit and Loss Account for the year ended 31st March 2020

Particulars ₹ Particulars ₹
To Salaries 10,000 By Gross Profit b/d 50,800
Add: Outstanding 900 10,900 By Commission 450
To Telephone & Postage 1,000
To Repairs to Furniture 350
To Depreciation of furniture 750
To Rent (1/4) 1,500
To Lighting (1/3) 450
To General Expenses 1,500
To Provision for doubtful Debts:
Required (1 % of ₹ 1,67,200) 1,672
Less: Existing Provision 1,650 22
To Net Profit 34,778
51,250 51,250
Balance Sheet as on 31st March 2020

Capital and Liabilities ₹ Assets ₹

Capital Account 1,00,000 Plant & Machinery 70,000
Add: Net Profit 34,778 1,34,778 Less: Depreciation 7,000 63,000
Bank Loan 8,500 Office Furniture 10,000
Sundry Creditors 15,000 Less: Depreciation 750 9,250
Bills Payable 7,500 Closing Stock
Salary Payable 900 Raw Materials 16,200
Wages Payable 2,000 Work in Progress 7,800
Finished Goods 18,100
Sundry Debtors 24,000
Less: Provision for Bad &
Doubtful Debts 1,672 22,328
Bills Receivable 15,000
Cash at Bank 17,000
1,68,678 1,68,678
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 7.70 PRINCIPLES AND PRACTICE OF ACCOUNTING

SUMMARY
w Direct manufacturing expenses are costs, other than material or wages, which are incurred for a specific
product or saleable service.
w Indirect Manufacturing expenses these are also called Manufacturing overhead, Production overhead,
Works overhead, etc.
w Overhead is defined as total cost of indirect material, indirect wages and indirect expenses.
w Indirect material means materials which cannot be linked directly with the units produced, for example,
stores consumed for repair and maintenance work, small tools, fuel and lubricating oil, etc. In most
manufacturing operations, the production of the main product is accompanied by the production of a
subsidiary product which has a value on sale.
w By-product is a secondary product. This is produced from the same raw materials, which are used for
producing the main product and without incurring any additional expenses from the same production
process in which the main product is produced.

TEST YOUR KNOWLEDGE

True and False
State with reasons, whether the following statements are True or False:
1. By-products valued at cost or net realisable value whichever is lower.
2. The manufacturing account is prepared to ascertain the profit or loss on the goods produced.
3. If there remain unfinished goods at the beginning and at the end of the accounting period, cost of such
unfinished goods is shown in the Manufacturing Account.
4. Raw Material Consumed = Opening inventory of Raw Materials + Purchases – Closing inventory of Raw
Materials.
5. The Trading Account will show the quantities of finished goods, raw materials and work-in-progress.
6. Overhead is defined as total cost of direct material, direct wages and direct expenses.
Multiple Choice Questions
1. Under-statement of closing work in progress in the period will
(a) Understate cost of goods manufactured in that period.
(b) Overstate current assets.
(c) Understate net income in that period.
(d) None of the three.
2. Sales is equal to
(a) Cost of goods sold – Gross profit. (b) Cost of goods sold + Gross profit.
(c) Gross profit – Cost of goods sold. (d) Net profit + cost of goods sold.

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 PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS 7.71

3. Indirect Manufacturing expenses are also called

(a) Manufacturing overhead. (b) Production overhead.
(c) Works overhead. (d) All the three.
4. Sale value of the by-product is credited to
(a) Manufacturing account. (b) Capital account.
(c) Overheads account. (d) Trading account.
5. Manufacturing account shows
(a) Total cost of manufacturing the finished products.
(b) It provides details of factory cost.
(c) It facilitates reconciliation of financial books with cost records.
(d) All the three.
Theory Questions
1. Write short note on By-products.
2. Differentiate between Direct Manufacturing Expenses and Indirect Manufacturing expenses
Practical Questions
1. Mr. Pankaj runs a factory which produces motor spares of export quality. The following details were
obtained about his manufacturing expenses for the year ended on 31.3.2020.
`
W.I.P. - Opening 3,90,000
- Closing 5,07,000
Raw Materials - Purchases 12,10,000
- Opening 3,02,000
- Closing 3,10,000
- Returned 18,000
- Indirect material 16,000
Wages - direct 2,10,000
- indirect 48,000
Direct expenses - Royalty on production 1,30,000
- Repairs and maintenance 2,30,000
- Depreciation on factory shed 40,000
- Depreciation on plant & machinery 60,000
By-product at
selling price 20,000
You are required to prepare Manufacturing Account of Mr. Pankaj for the year ended on 31.3.2020.

2. Following are the Manufacturing A/c, Creditors A/c and Trading A/c provided by Ms. Shivi related to
2019-20. There are certain figures missing from these accounts.

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 7.72 PRINCIPLES AND PRACTICE OF ACCOUNTING

Raw Material A/c

Date Particulars Amount Date Particulars Amount

` `
To Opening Stock A/c 1,00,000 By Raw Material Consumed ....................

To Creditors A/c ................ By Closing Stock A/c ................

Creditors A/c

Date Particulars Amount Date Particulars Amount

` `
To Bank A/c 22,00,000 By Balance b/d 15,00,000
To Balance c/d 6,00,000

Manufacturing A/c

Particulars Amount Particulars Amount

`w `
To Raw Material Consumed ................... By Trading A/c 17,94,000
To Wages 3,50,000
To Depreciation 2,00,000
To Direct Expenses 2,44,000

Additional Information:
1) Purchase of machinery worth ` 10,00,000 has been omitted. Machinery are chargeable at a depreciation
rate of 10%.
2) Wages include the following
Paid to Factory Workers - ` 3,00,000
Paid to labour at office - ` 50,000
3) Direct Expenses include following:
w Electricity charges of ` 80,000 of which 30% pertained to office.
w Fuel Charges of ` 20,000
w Freight Inwards of ` 35,000
w Delivery charges to customers - ` 20,000.
You are required to prepare revised Manufacturing A/c, and Raw Material A/c.

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 PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS 7.73

3. The following is the trial balance of Mr. Pandit for the year ended 31st March, 2020:
Trial Balance as on 31st March 2020

Particulars Dr. ₹ Particulars Cr. ₹

Opening Stock:
Raw Materials 1,50,000 Sundry Creditors 50,000
Finished goods 75,000 Purchase Returns 5,000
Purchase of Raw Materials 5,00,000 Capital 1,00,000
Land & Building 1,00,000 Bills Payable 24,000
Loose tools 30,000 Long-Term Loan 2,00,000
Plant & Machinery 30,000 Provision for Bad Doubtful Debts 2,000
Investments 25,000 Sales 8,50,000
Cash in Hand 20,000 Bank Overdraft 23,000
Cash at Bank 5,000
Furniture & Fixtures 15,000
Bills Receivable 15,000
Sundry Debtors 40,000
Drawings 20,000
Salaries 20,000
Coal and Fuel 15,000
Factory rent & rates 20,000
General Expenses 4,000
Advertisement 5,000
Sales Return 10,000
Bad Debts 4,000
Direct Wages (Factory) 80,000
Power 30,000
Interest Paid 7,000
Discount Allowed 3,000
Carriage Inwards 15,000
Carriage Outwards 7,000
Commission Paid 5,000
Dividend Paid 4,000
12,54,000 12,54,000

Additional Information
Stock at the end of the year ₹1,00,000
A provision for doubtful depts. at 5% on Sundry Debtors
Interest on Capital at 5% p.a.

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 7.74 PRINCIPLES AND PRACTICE OF ACCOUNTING

Depreciation on building ₹ 1,000 and ₹ 3,000 on Machinery to be provided

Accrued commission ₹ 12,500
Interest has accrued on investment ₹ 15,000
Salary Outstanding ₹ 2,000
Prepaid Interest ₹ 1,500
You are required to prepare Manufacturing, Trading and Profit and Loss Account for the year ended 31st
March, 2020
ANSWERS/HINTS
True and False
1. False: By-products generally have insignificant value as compared to the value of main product.
Therefore, they are generally valued at net realizable value.
2. False: The objective of preparing Manufacturing Account is to determine manufacturing costs of
finished goods for assessing the cost effectiveness of manufacturing activities.
3. True: Manufacturing account deals with the raw material, and work in progress.
4. True: Raw Material consumed is arrived at after adjustment of opening and closing inventory of raw
materials and purchases.
5. False: The Trading Account will show the quantities of finished goods manufactured and sold and the
opening and closing inventory. It will not show the quantity of raw materials or work-in-progress.
6. False: Overhead is defined as total cost of indirect material, indirect wages and indirect expenses.
MCQs

1. (c) 2. (b) 3. (d) 4. (a) 5. (d)

Theoretical Questions
1. By-products generally have insignificant value as compared to the value of main product. They are
generally valued at net realisable value, if their costs cannot be separately identified. It is often
treated, as “Miscellaneous income” but the correct treatment would be to credit the sale value of the
by-product to Manufacturing Account so as to reduce to that extent, the cost of manufacture of main
product.
2. Direct manufacturing expenses are costs, other than material or wages, which are incurred for a
specific product or saleable service.
Indirect Manufacturing expenses are also called Manufacturing overhead, Production overhead,
Works overhead, etc. Overhead is defined as total cost of indirect material, indirect wages and indirect
expenses.
For detail, refer para 2.3

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 PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS 7.75

Practical Problems
Answer 1
In the Books of Mr. Pankaj
Manufacturing Account
for the year ended on 31.3.2020
Particulars Amount Particulars Amount
` ` `
To Opening W.I.P. 3,90,000 By Closing W-I-P 5,07,000
To Raw Material Consumed: By – products 20,000
Opening inventory 3,02,000 By Trading A/c- 17,81,000
Purchases 12,10,000 Cost of finished
15,12,000 goods transferred
Less: Return (18,000)
14,94,000
Less: Closing inventory (3,10,000) 11,84,000
To Direct Wages 2,10,000
To Direct expenses:
Royalty 1,30,000
To Manufacturing Overhead:
Indirect Material 16,000
Indirect Wages 48,000
Repairs & Maintenance 2,30,000
Depreciation on
Factory Shed 40,000
Depreciation on Plant &
Machinery 60,000 3,94,000
23,08,000 23,08,000

Answer 2
Manufacturing A/c

Particulars Amount Particulars Amount

` `
To Raw Material Consumed
(Balancing Figure) 10,00,000 By Trading A/c (W.N. 4) 18,00,000
To Wages (W.N. 2) 3,00,000
To Depreciation (W.N. 1) 3,00,000
To Direct Expenses (W.N. 3) 2,00,000
18,00,000 18,00,000

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7.76 PRINCIPLES AND PRACTICE OF ACCOUNTING

Raw Material A/c

Date Particulars Amount Date Particulars Amount

` `
To Opening Stock A/c 1,00,000 By Raw Material Consumed 10,00,000
(from Trading A/c above)
To Creditors A/c (W.N. 5) 13,00,000 By Closing Stock A/c 4,00,000
(Balancing Figure)
14,00,000 14,00,000

Working Notes:

1) Since purchase of Machinery worth ` 10,00,000 has been omitted.

So, depreciation omitted from being charged = ` 10,00,000 X 10%
= `1,00,000
Correct total depreciation expense = ` (2,00,000 + 1,00,000)
= ` 3,00,000
2) Wages worth ` 50,000 will be excluded from manufacturing account as they pertain to office and hence
will be charged P&L A/c.

3) Expenses to be excluded from direct expenses:

Office Electricity Charges ( 80,000 X 30%) 24,000

Delivery Charges to Customers 20,000
Total expenses not part of Direct Expenses 44,000
=> Revised Direct Expenses = ` (2,44,000 - 44,000)
= ` 2,00,000
Fuel charges are related to factory expenses and also freight inwards are incurred for bringing goods to
factory/ godown so they are part of direct expenses.

Revised Balance to be transferred to Trading A/c:

4)

Particulars Amount
`
Current Balance transferred 17,94,000
Add: Depreciation charges not recorded earlier 1,00,000
Less: Wages related to Office (50,000)
Less: Office Expenses (44,000)
Revised balance to be transferred 18,00,000

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 PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS 7.77

5)
Creditors A/c

Date Particulars Amount Date Particulars Amount

` `
To Bank A/c 22,00,000 By Balance b/d 15,00,000
To Balance c/d 6,00,000 By Raw Materials A/c ( Bal. 13,00,000
figure)
28,00,000 28,00,000
Answer 3
In the books of Mr. Pandit
Manufacturing Account for the year ended 31st March 2020

Particulars ₹ Particulars ₹
By Cost of Manufactured
goods transferred to Trading
To Opening Stock of Raw Materials 1,50,000 A/c 8,08,000
To Purchase 5,00,000
Less: Purchase Return 5,000 4,95,000
To Carriage Inwards 15,000
To Direct Wages 80,000
To Power 30,000
To Coal and fuel 15,000
To Factory Rent and Rates 20,000
To Depreciation on Machinery 3,000
8,08,000 8,08,000

Trading Account for the year ended 31st March 2020

Particulars ₹ Particulars ₹
To Opening Stock of finished goods 75,000 By Sales 8,50,000
To Cost of goods transferred from Less: Sales Return 10,000 8,40,000
Manufacturing A/c 8,08,000 By Closing Stock 1,00,000
To Gross Profit c/d 57,000
9,40,000 9,40,000
Profit and Loss Account for the year ended 31st March 2020

Particulars ₹ Particulars ₹
To Carriage Outward 7,000 By Gross Profit b/d 57,000
To Discount Allowed 3,000 By Accrued Commission 12,500
To Commission Paid 5,000 By Accrued Interest 15,000
To Dividend Paid 4,000
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7.78 PRINCIPLES AND PRACTICE OF ACCOUNTING

To General Expenses 4,000

To Advertisement 5,000
To Salaries 20,000
Add: Outstanding 2,000 22,000
To Interest Paid 7,000
Less: Prepaid 1,500 5,500
To Provision for Bad & Doubtful Debts 2,000
Add: Bad Debts 4,000
Less: Old Provision for Doubtful Debts 2,000 4,000
To Depreciation on
Building 1,000
To Interest on Capital @ 5% p.a. 5,000
To Net Profit c/d 19,000
87,500 87,500

Balance Sheet as on 31st March 2020

Capital and Liabilities ₹ Assets ₹

Capital 1,00,000 Plant & Machinery 30,000
Add: Net Profit 19,000 Less: Depreciation 3,000 27,000
1,19,000 Land & Building 1,00,000
Add: Interest on Capital 5,000 Less: Depreciation 1,000 99,000
1,24,000 Furniture & Fixtures 15,000
Less: Drawings 20,000 1,04,000 Investments 25,000
Bills Payable 24,000 Closing Stock 1,00,000
Sundry Creditors 50,000 Loose Tools 30,000
Salary Outstanding 2,000 Sundry Debtors 40,000
Less: Provision for Bad
Long-Term Loans 2,00,000 & Doubtful Debts 2,000 38,000
Bank Overdraft 23,000 Bills Receivable 15,000
Accrued Commission 12,500
Accrued Interest 15,000
Prepaid Interest 1,500
Cash in Hand 20,000
Cash at Bank 5,000
4,03,000 4,03,000

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