Illustration 1.

Following is the extract of Trial Balance as on 31st March, 2022:

Particulars Dr. (`) Cr. (`)

Debtors (including Rajesh for Dishonoured Bill of ` 6,000) 3,05,000 ...

Bad Debts 15,000 ...

Additional Information:
Half of the amount of Rajesh’s bill is irrecoverable as he has become insolvent. Official receiver
has declared a dividend of 50 paise in a rupee. Create provision for doubtful debts @ 10% on
other debtors.

Show the relevant extract from the Profit & Loss Account and the Balance Sheet.

Solution: PROFIT & LOSS ACCOUNT

Dr. for the year ended 31st March, 2022 Cr.

Particulars ` Particulars `

To Bad Debts 15,000

Add: Further Bad Debts 3,000
(1/2 of Rajesh’s Bill)
Provision for Doubtful Debts 29,900 47,900

BALANCE SHEET
as at 31st March, 2022

Liabilities ` Assets `

Sundry Debtors 3,05,000

Less: Further Bad Debts 3,000
3,02,000
Provision for Doubtful Debts 29,900 2,72,100

Working Note:
Provision for Doubtful Debts is to be created on doubtful debts only. Thus, out of total debtors of ` 3,05,000,
two items will be deducted:.
1. Bad Debts of ` 3,000 as 1/2 amount of Rajesh’s bill is irrecoverable, and
2. Good Debtors of ` 3,000 as remaining half of Rajesh’s bill is surely recoverable.
So, Provision for Doubtful Debts = (` 3,05,000 – ` 3,000 – ` 3,000) × 10/100 = ` 29,900.

1
Illustration 2.
From the following Trial Balance, prepare Trading and Profit & Loss Account for the year ended
31st March, 2022 and Balance Sheet as at that date:
Debit Balances ` Credit Balances ` 

Salaries 12,320 Sales 66,420

Bills Receivable 4,280 Capital 50,000
Investments 40,000 Provision for Doubtful Debts 2,500
Furniture 12,000 10% Loan (1st October, 2021) 10,000
Opening Stock 4,500 Discount Received 400
Purchases 30,000 Sundry Creditors 9,300
Sundry Debtors 20,000 Bills Payable 3,000
Interest on Loan 400 Outstanding Salaries 500
Insurance Premium 900 Bad Debts Recovered 2,200
Wages 4,600 Interest on Investments 2,000
Rent 1,520 Commission 7,000
Bad Debts 1,200 Output CGST 10,000
Carriage Outwards 600 Output SGST 10,000
Cash at Bank 12,000 Output IGST 8,000
Depreciation on Furniture 2,500
Accrued Commission 1,000
Advertisement 7,500
Input CGST 8,000
Input SGST 8,000
Input IGST 10,000

1,81,320 1,81,320

Adjustments:
(i) Closing Stock is ` 6,000.

(ii) Goods costing ` 1,000 were distributed as samples while goods costing ` 500 were taken
by the proprietor for personal use.

(iii) Manager’s commission @ 10% p.a. is provided on net profit after charging such commission.

(iv) Closing Stock included goods costing ` 1,000 which were sold and recorded as sales but
not delivered to the customer.

(v) Maintain Provision for Doubtful Debts @ 5%.

2
Solution: TRADING AND PROFIT & LOSS ACCOUNT
Dr. for the year ended 31st March, 2022 Cr.

Particulars ` Particulars ` 

To Opening Stock 4,500 By Sales 66,420

To Purchases 30,000 By Closing Stock 6,000
Less: Goods distributed as Samples 1,000 Less: Cost of Goods Sold
29,000 but not delivered 1,000 5,000
Less:  Drawings of Goods 500 28,500
To Wages 4,600
To Gross Profit c/d 33,820
(Transferred to Profit & Loss A/c)
71,420 71,420
To Salaries 12,320 By Gross Profit b/d 33,820
To Interest on Loan 400 By Old Provision for Doubtful Debts 2,500
Add: Outstanding Interest on Loan 100 500 Less: Bad Debts 1,200
To Insurance Premium 900 1,300
To Rent 1,520 Less: New Provision
To Carriage Outwards 600 for Doubtful Debts 1,000 300
To Depreciation on Furniture 2,500 By Discount Received 400
To Advertisement 7,500 By Bad Debts Recovered 2,200
To Sales Promotion Expenses 1,000 By Interest on Investments 2,000
To Manager’s Commission Payable 1,716 By Commission 7,000
To Net Profit transferred to Capital A/c 17,164
45,720 45,720

BALANCE SHEET
as at 31st March, 2022
Liabilities ` Assets ` 

Capital 50,000 Furniture 12,000

Add: Net Profit 17,164 Bills Receivable 4,280
67,164 Investments 40,000
Less: Drawings 500 66,664 Sundry Debtors 20,000
10% Loan 10,000 Less: Provision for Doubtful Debts 1,000 19,000
Outstanding Interest on Loan 100 Accrued Commission 1,000
Sundry Creditors 9,300 Closing Stock 5,000
Bills Payable 3,000 Cash at Bank 12,000
Outstanding Salaries 500
Manager’s Commission Payable 1,716
Output SGST 2,000
93,280 93,280

3
Journal entries for Adjustment:
Date Particulars L.F. Dr. (`) Cr. (`)

(ii) (a) Sales Promotion Expenses A/c ...Dr. 1,000

To Purchases A/c 1,000
(Being the goods distributed as samples)

(b) Drawings A/c ...Dr. 500

To Purchases A/c 500
(Being the goods taken by proprietor)

Working Notes:
1. Calculation of Manager’s Commission:
Net Profit before Manager’s Commission
= (` 33,820 + ` 300 + ` 400 + ` 2,200 + ` 2,000 + ` 7,000)
– (` 12,320 + ` 500 + ` 900 + ` 1,520 + ` 600 + ` 2,500 + ` 7,500 + ` 1,180) = ` 18,700
Manager’s Commission = ` 18,700 × 10/110 = ` 1,700.

2. Set-off of GST:
(i) Settlement of IGST, CGST and SGST: Total Input IGST is of ` 10,000. First, it will be completely set-off against
Output IGST of ` 8,000 and remaining ` 2,000 will be used to set-off Output CGST.

(ii) Output CGST = ` 10,000 – Input IGST (i) ` 2,000 – ` 8,000 Input CGST = Nil.

(iii) Output SGST ` 10,000 – Input SGST ` 8,000 = ` 2,000 Output SGST, shown on the liabilities side of the
Balance Sheet.

Illustration 3.

From the following Ledger balances of Charan, prepare Trading and Profit & Loss Account
for the year ended 31st March, 2022 and Balance Sheet as on that date after adjustments:
Particulars
` Particulars `

Trade Expenses 800 Purchases 82,000

Freight and Duty 2,000 Opening Stock 15,000
Carriage Outwards 500 Plant and Machinery 25,000
Sundry Debtors 20,600 Drawings 6,000
Furniture and Fixtures 5,000 Capital 85,000
Returns Inward 2,000 Provision for Doubtful Debts 800
Printing and Stationery 400 Rent for Premises Sublet 1,600
Rent 4,600 Insurance 700
Sundry Creditors 10,000 Salaries and Wages 21,300
Sales 1,20,000 Cash in Hand 6,200
Returns Outward 1,000 Cash at Bank 20,500
Postage and Telegrams 800 Input IGST 5,000

4
Adjustments:
(i) Stock on 31st March, 2022 was ` 14,000.
(ii) Write off ` 600 as bad debts.
(iii) Provision for Doubtful Debts is to be maintained @ 5%.
(iv) Machinery for ` 5,000, included in Plant and Machinery, was purchased on 1st October, 2021.
(v) Provide depreciation on furniture and fixtures at 5% p.a. and on plant and machinery at
20% p.a.
(vi) Insurance prepaid was ` 100.
(vii) A fire occurred in the godown on 25th March, 2022 and stock costing ` 5,000 was destroyed.
It was insured and the insurance company admitted full claim.

Solution: TRADING AND PROFIT & LOSS ACCOUNT OF CHARAN

Dr. for the year ended 31st March, 2022 Cr.
Particulars
` Particulars `

To Opening Stock 15,000 By Sales 1,20,000

To Purchases 82,000 Less: Returns Inward 2,000 1,18,000
Less: Returns Outward 1,000 81,000 By Loss of Stock by Fire A/c 5,000
To Freight and Duty 2,000 By Closing Stock 14,000
To Gross Profit c/d 39,000
(Transferred to Profit & Loss A/c)
1,37,000 1,37,000
To Trade Expenses 800 By Gross Profit b/d 39,000
To Carriage Outwards 500 By Rent for Premises 1,600
To Depreciation on: Furniture and Fixtures 250
Plant and Machinery* 4,500
To Printing and Stationery 400
To Rent 4,600
To Insurance 700
Less: Prepaid 100 600
To Salaries and Wages 21,300
To Postage and Telegrams 800
To Provision for Doubtful Debts (Closing):
Bad Debts 600
Add: New Provision 1,000
[(` 20,600 – ` 600) × 5%]
1,600
Less: Provision for Doubtful
Debts (Opening) 800 800
To Net Profit transferred to Capital A/c 6,050
40,600 40,600

*Depreciation on Plant and Machinery: `

Old [` 20,000 × 20/100] 4,000
New [` 5,000 × 20/100 × 6/12] 500
Total 4,500

5
 BALANCE SHEET OF CHARAN as at 31st March, 2022
Liabilities ` Assets `
Current Liabilities Current Assets
Sundry Creditors 10,000 Cash in Hand 6,200
Capital Cash at Bank 20,500
Opening Balance 85,000 Sundry Debtors 20,600
Add: Net Profit 6,050 Less: Further Bad Debts 600
91,050 20,000
Less: Drawings 6,000 85,050 Less: Provision for Doubtful Debts 1,000 19,000
Closing Stock 14,000
Insurance Claim 5,000
Prepaid Insurance 100
Input IGST 5,000
Fixed Assets
Furniture and Fixtures 5,000
Less: Depreciation 250 4,750
Plant and Machinery 25,000
Less: Depreciation 4,500 20,500
95,050 95,050

Illustration 4.
Trial Balance of M/s Taj & Co. as on 31st March, 2022 was as follows:
Particulars Dr. Balance Particulars Cr. Balance
` `
Purchases 1,62,505 Sales 2,52,400
Sundry Debtors 50,200 Provision for Doubtful Debts 5,200
Opening Stock 26,725 Sundry Creditors 30,526
Wages 23,137 Bills Payable 3,950
Salaries 5,575 Outstanding Wages 4,000
Furniture 7,250 Outstanding General Expenses 700
Postage 4,226 Capital 10,000
Power and Fuel 1,350 Output CGST 2,000
General Expenses 5,831 Output SGST 2,000
Bad Debts 525
Loan to Suraj @ 10% p.a. (1st December, 2021) 3,000
Cash at Bank 10,000
Drawings 4,452
Input CGST 3,000
Input SGST 3,000
3,10,776 3,10,776

Prepare Trading and Profit & Loss Account for the year ended 31st March, 2022 and Balance
Sheet after considering the following information:
(i) Depreciation on Furniture @ 10% to be charged.
(ii) Sundry Debtors include an item of ` 500 due from a customer who has become insolvent.
(iii) Provision for Doubtful Debts @ 5% on Sundry Debtors is to be maintained.
(iv) Goods costing ` 1,500 were destroyed by fire and insurance company admitted a
claim for ` 1,000.
(v) Stock on 31st March, 2022 was ` 12,550.
6
Solution: TRADING AND PROFIT & LOSS ACCOUNT
Dr. for the year ended 31st March, 2022 Cr.
Particulars
` Particulars `

To Opening Stock 26,725 By Sales 2,52,400

To Purchases 1,62,505 By Goods Lost by Fire A/c 1,500
To Wages 23,137 By Closing Stock 12,550
To Power and Fuel 1,350
To Gross Profit c/d 52,733
(Transferred to Profit & Loss A/c)
2,66,450 2,66,450
To Depreciation on Furniture 725 By Gross Profit b/d 52,733
To Goods Lost by Fire (` 1,500 – ` 1,000) 500 By Provision for Doubtful Debts:
To Salaries 5,575 Existing 5,200
To Postage 4,226 Less: Bad Debts ` (525 + 500) 1,025
To General Expenses 5,831 4,175
To Net Profit transferred to Capital A/c 37,666 Less: Provision for Doubtful Debts
(5% on ` 49,700) 2,485 1,690
By Interest on Loan (` 3,000 × 10/100 × 4/12) 100
54,523 54,523

BALANCE SHEET as at 31st March, 2022

Liabilities ` Assets `

Capital Fixed Assets

Opening Balance 10,000 Furniture 7,250
Less: Drawings 4,452 Less: Depreciation 725 6,525
5,548 Current Assets
Add: Net Profit 37,666 43,214 Cash 10,000
Current Liabilities Insurance Claim 1,000
Outstanding Wages 4,000 Closing Stock 12,550
Outstanding General Expenses 700 Sundry Debtors 50,200
Sundry Creditors 30,526 Less: Further Bad Debts 500
Bills Payable 3,950 49,700
Less: Provision for Doubtful Debts
  (` 49,700 × 5/100) 2,485 47,215
Loan 3,000
Add: Interest on Loan 100 3,100
Input CGST (Note 3) 1,000
Input SGST (Note 4) 1,000
82,390 82,390

Notes:
1. ‘Outstanding Wages’ and ‘Outstanding General Expenses’ appear on the credit side of the Trial Balance. It
means that these outstanding amounts have already been adjusted to Wages Account and General Expenses
Account. As double entries in respect of these adjustments are complete, these Outstanding Expenses
Accounts will be shown as liabilities in the Balance Sheet.
2. Claim for goods lost by fire is ` 1,500. Insurance company admitted claim of ` 1,000, leading to loss of ` 500.
3. Input CGST – Output CGST = ` 3,000 – ` 2,000 = ` 1,000.
4. Input SGST – Output SGST = ` 3,000 – ` 2,000 = ` 1,000.
7
Illustration 5.
Trial Balance of Gopal Das as at 31st March, 2022 was as follows:
Heads of Accounts Dr. (`) Cr. (`)
Purchases ........................................................................................................... 8,12,525 ...
Sales ........................................................................................................... ... 12,62,000
Provision for Doubtful Debts ........................................................................................................... ... 26,000
Sundry Debtors ........................................................................................................... 2,51,000 ...
Sundry Creditors ........................................................................................................... ... 1,52,630
Bills Payable ........................................................................................................... ... 20,250
Opening Stock ........................................................................................................... 1,33,625 ...
Wages ........................................................................................................... 1,15,685 ...
Salaries ........................................................................................................... 27,875 ...
Furniture ........................................................................................................... 36,250 ...
Postage ........................................................................................................... 21,130 ...
Power and Fuel ........................................................................................................... 6,750 ...
General Expenses ........................................................................................................... 29,155 ...
Bad Debts ........................................................................................................... 2,625 ...
Loan to Ram @ 10% p. a. (1st December, 2021)................................................................................................... 15,000 ...
Cash in Hand and at Bank ........................................................................................................... 50,000 ...
General Expenses Outstanding ........................................................................................................... ... 3,500
Drawings A/c ........................................................................................................... 22,260 ...
Capital A/c ........................................................................................................... ... 50,000
Outstanding Wages ........................................................................................................... ... 10,000
Input CGST ........................................................................................................... 5,000 ...
Input SGST ........................................................................................................... 5,000 ...
Input IGST ........................................................................................................... 8,000 ...
Output CGST ........................................................................................................... ... 4,000
Output SGST ........................................................................................................... ... 4,000
Output IGST ........................................................................................................... ... 9,500
Total 15,41,880 15,41,880

Prepare Trading and Profit & Loss Account for the year ended 31st March, 2022 and Balance
Sheet as at that date after taking into consideration the following information:
(i) Stock on 31st March, 2022 at cost was ` 65,000 against net realisable value (market value)
of ` 62,750.
(ii) Depreciation on furniture is to be charged @ 10%.
(iii) Sundry Debtors include an item of ` 2,500 due from a customer who has become insolvent.
(iv) The remaining debtors are not considered to be doubtful of recovery.
(v) Goods costing ` 7,500 were destroyed by fire and insurance company admitted a claim
for ` 7,000.
(vi) Received goods from Rahul & Co. of ` 6,000 on 27th March, 2022 but the invoice of
purchase was omitted to be recorded in the Purchases Book.
8
Solution: TRADING AND PROFIT & LOSS ACCOUNT OF GOPAL DAS
Dr. for the year ended 31st March, 2022 Cr.
Particulars
` Particulars `
To Opening Stock 1,33,625 By Sales 12,62,000
To Purchases 8,12,525 By Loss of Stock by Fire 7,500
Add: Omitted Purchases (WN 1) 6,000 8,18,525 By Closing Stock 62,750
To Wages 1,15,685
To Power and Fuel 6,750
To Gross Profit c/d 2,57,665
(Transferred to Profit & Loss A/c)
13,32,250 13,32,250
To Loss of Stock by Fire (` 7,500 – ` 7,000) 500 By Gross Profit b/d 2,57,665
To Salaries 27,875 By Provision for Doubtful Debts (WN 2):
To Postage 21,130 Existing Provision 26,000
To General Expenses 29,155 Less: Bad Debts 2,625
To Depreciation on Furniture 3,625 Further Bad Debts 2,500 5,125 20,875
To Net Profit transferred to Capital A/c 1,96,755 By Accrued Interest on Loan 500
2,79,040 2,79,040

BALANCE SHEET OF GOPAL DAS as at 31st March, 2022

Liabilities
` Assets `
Current Liabilities Current Assets
Creditors 1,52,630 Insurance Claim 7,000
Add: Omitted Purchases 6,000 1,58,630 Cash in Hand and at Bank 50,000
Bills Payable 20,250 Closing Stock 62,750
Outstanding Wages 10,000 Debtors 2,51,000
General Expenses Outstanding 3,500 Less: Further Bad Debts 2,500 2,48,500
Capital Loan to Ram 15,000
Opening Balance 50,000 Add: Accrued Interest on Loan 500 15,500
Add: Net Profit for the Year 1,96,755 Input SGST (WN 4) 500
2,46,755 Fixed Assets
Less: Drawings 22,260 2,24,495 Furniture 36,250
Less: Depreciation 3,625 32,625
4,16,875 4,16,875

Working Notes:
1. Following entry will be passed to record omitted purchases: ` `
Purchases A/c ...Dr. 6,000
To Supplier (Creditor) 6,000
2. Since the remaining debtors are not doubtful of recovery, balance in Provision for Doubtful Debts is written
back (credited) to Profit & Loss Account.
3. Entries passed for Loss of Goods by Fire: ` `
(i) Loss of Goods by Fire A/c ...Dr 7,500
To Trading A/c 7,500
(ii) Insurance Co. ...Dr. 7,000
Profit & Loss A/c ...Dr. 500
To Loss of Goods by Fire A/c 7,500

9
 4. Set-off of GST:
(i) Total Input IGST = ` 8,000.
(ii) Output IGST = ` 9,500 – ` 8,000 (Total Input IGST) – ` 1,000 (Input CGST) – ` 500 (Input SGST) = Nil.
(iii) Input CGST = ` 5,000 – Output CGST ` 4,000 – Output IGST ` 1,000 = Nil.
(iv) Input SGST = ` 5,000 – Output SGST ` 4,000 – Output IGST ` 500 = ` 500.
5. Stock is valued at cost or net realisable value (market value), whichever is less.
Illustration 6.
From the following Trial Balance and additional information, prepare Trading and
Profit & Loss Account for the year ended 31st March, 2022 and a Balance Sheet as on that date:
Particulars Dr. (`) Cr. (`)
Closing Stock........................................................................................................................................................................... 40,000 ...
Cost of Goods Sold................................................................................................................................................................ 6,60,000 ...
Sales............................................................................................................................................................................................ ... 7,20,000
Miscellaneous Expenses...................................................................................................................................................... 17,200 ...
Selling and Distribution Expenses................................................................................................................................... 36,075 ...
Rent............................................................................................................................................................................................. 12,000 ...
Income Tax Paid ..................................................................................................................................................................... 1,000 ...
Interest (Paid)........................................................................................................................................................................... 3,750 ...
Interest (Received)................................................................................................................................................................. ... 4,500
Discount..................................................................................................................................................................................... 2,000 ...
Discount Received................................................................................................................................................................. ... 1,000
Bad Debts ................................................................................................................................................................................. 3,000 ...
Investments.............................................................................................................................................................................. 50,000 ...
Loan from Bank....................................................................................................................................................................... ... 50,000
Bills Receivable........................................................................................................................................................................ 62,000 ...
Bills Payable.............................................................................................................................................................................. ... 55,600
Debtors...................................................................................................................................................................................... 2,10,000 ...
Creditors.................................................................................................................................................................................... ... 97,300
Provision for Doubtful Debts............................................................................................................................................. ... 10,000
Provision for Discount on Debtors................................................................................................................................... ... 2,400
Drawings................................................................................................................................................................................... 12,775 ...
Capital........................................................................................................................................................................................ ... 3,08,000
Machinery................................................................................................................................................................................. 50,000 ...
Building...................................................................................................................................................................................... 60,000 ...
Furniture.................................................................................................................................................................................... 30,000 ...
Outstanding Office Expenses............................................................................................................................................ ... 4,200
Prepaid Expenses................................................................................................................................................................... 1,200 ...
Input CGST................................................................................................................................................................................ 1,000 ...
Input SGST................................................................................................................................................................................ 1,000 ...
Total 12,53,000 12,53,000

Additional Information:
(i) Write-off ` 6,000 as bad debts.
(ii) Additional discount of ` 4,000 given to debtors and additional discount of ` 2,000 received
from creditors.
10
 (iii) Maintain a provision for discount on debtors @ 2% and also maintain provision for
doubtful debts @ 10% on debtors.

(iv) A machine costing ` 20,000 was purchased on 1st July, 2021 and accounted in the books of
account. However, wages of ` 1,000 for its installation have been debited to Miscellaneous
Expenses Account.

(v) Depreciate furniture @ 10% p.a., machinery @ 10% p.a., and building @ 5% p.a.

(vi) Goods costing ` 5,000 were taken by proprietor for personal use.

(vii) A fire broke out on 1st April, 2022 destroying goods costing ` 25,000.

Solution: TRADING AND PROFIT & LOSS ACCOUNT

Dr. for the year ended 31st March, 2022 Cr.
Particulars
` Particulars `

To Cost of Goods Sold (WN 2) 6,55,000 By Sales 7,20,000

To Gross Profit c/d
65,000
(Transferred to Profit & Loss A/c)
7,20,000 7,20,000
To Rent 12,000 By Gross Profit b/d 65,000
To Selling and Distribution Expenses 36,075 By Interest 4,500
To Interest 3,750 By Discount Received 1,000
To Miscellaneous Expenses 17,200 Add: Further Discount 2,000 3,000
Less: Installation of Machinery 1,000 16,200 By Net Loss transferred to Capital A/c 32,300
To Bad Debts
3,000
Add: Further Bad Debts 6,000
Provision for Doubtful
Debts (New) 20,000
29,000
Less: Provision for Doubtful
Debts (Old) 10,000 19,000
To Discount Allowed 2,000
Add: Further Discount 4,000
Provision for Discount (New) 3,600
9,600
Less: Provision for Discount (Old) 2,400 7,200
To Depreciation on: Machinery (WN 3) 4,575
Furniture 3,000
Building 3,000 10,575
1,04,800 1,04,800

11
 BALANCE SHEET
as at 31st March, 2022
Liabilities
` Assets `

Current Liabilities Current Assets

Creditors 97,300 Debtors 2,10,000
Less: Further Discount 2,000 95,300 Less: Further Bad Debts 6,000
Bills Payable 55,600 2,04,000
Outstanding Office Expenses 4,200 Less: Further Discount 4,000
Loan from Bank 50,000 2,00,000
Capital
Less: Provision for Doubtful Debts 20,000
Opening Balance 3,08,000 1,80,000
Less: Net Loss 32,300 Less: Provision for Discount on Debtors 3,600 1,76,400
Drawings (WN 4) 17,775 Bills Receivable 62,000
Income Tax 1,000 51,075 2,56,925 Closing Stock 40,000
Prepaid Expenses 1,200
Investments 50,000
Input CGST 1,000
Input SGST 1,000
Fixed Assets
Machinery 50,000
Add: Installation of Machinery 1,000
51,000
Less: Depreciation (WN 3) 4,575 46,425
Furniture 30,000
Less: Depreciation 3,000 27,000
Building 60,000
Less: Depreciation 3,000 57,000
4,62,025 4,62,025

Working Notes:
1. An event occurring after the date of Balance Sheet (i.e., fire broke out on 1st April, 2022) does not affect the
Balance Sheet prepared as at 31st March, 2022.
2. Cost of Goods Sold = ` 6,60,000 – ` 5,000 (Drawings in Goods) = ` 6,55,000.

 10   9 10 
3. Depreciation on: Machinery =  ` 30,000   +  ` 21,000    = ` 3,000 + ` 1,575 = ` 4,575;
 100 12 100 

10
Furniture = ` 30,000  = ` 3,000 .
100
4. Total Drawings of Proprietor = ` 12,775 (in cash) + ` 5,000 (in Goods) = ` 17,775.

12
Advanced Level Question
Illustration 7.
On 31st March, 2022 the following Trial Balance was extracted from the books of Mohan:
Particulars Debit Credit
Balances Balances
` `
Capital ............................................................................................................................................. ... 3,00,000
Drawings ............................................................................................................................................. 50,000 ...
Debtors ............................................................................................................................................. 2,00,000 ...
Creditors ............................................................................................................................................. ... 1,00,000
Loan ............................................................................................................................................. ... 95,000
Interest on Loan ............................................................................................................................................. 3,000 ...
Cash ............................................................................................................................................. 20,000 ...
Provision for Doubtful Debts..................................................................................................................................... ... 7,000
Stock on 1st April, 2021 ............................................................................................................................................. 68,000 ...
Motor Vehicles ............................................................................................................................................. 1,00,000 ...
Bank ............................................................................................................................................. 35,000 ...
Land and Building ............................................................................................................................................. 1,20,000 ...
Bad Debts ............................................................................................................................................. 5,000 ...
Purchases ............................................................................................................................................. 6,60,000 ...
Sales ............................................................................................................................................. ... 11,00,000
Purchases Return ............................................................................................................................................. ... 15,000
Sales Return ............................................................................................................................................. 80,000 ...
Carriage Outwards ............................................................................................................................................. 25,000 ...
Carriage Inwards ............................................................................................................................................. 30,000 ...
Salaries ............................................................................................................................................. 90,000 ...
Rent and Insurance ............................................................................................................................................. 30,000 ...
Advertising ............................................................................................................................................. 35,000 ...
Discount Received ............................................................................................................................................. ... 5,000
General Expenses ............................................................................................................................................. 34,000 ...
Bills Receivable ............................................................................................................................................. 60,000 ...
Bills Payable ............................................................................................................................................. ... 20,000
Rent Received ............................................................................................................................................. ... 3,000
Total   16,45,000 16,45,000

Prepare Trading and Profit & Loss Account for the year ended 31st March, 2022 and Balance
Sheet as at that date after taking into account the following:
(a) Stock as at 31st March, 2022 was valued at ` 70,000.
(b) All debtors are considered good.
(c) Depreciate Motor Vehicles by 20%.
(d) Bank intimation of customer’s cheque of ` 10,000 being dishonoured is not recorded in
the books.
13
 (e) Travelling expenses of ` 5,000 paid to sales person was wrongly debited to his Personal
Account and was included in debtors.
(f) Amount of ` 6,000 received from Ronit was credited to his account and was included in
creditors. This amount was written off as bad debt in earlier years.
(g) Drawings included an amount of ` 2,000 being amount drawn in cash. It was used by
Mohan for purchase of stationery used in business.

Solution: TRADING AND PROFIT & LOSS ACCOUNT

Dr. for the year ended 31st March, 2022 Cr.
Particulars
` Particulars `

To Opening Stock 68,000 By Sales 11,00,000

To Purchases 6,60,000 Less: Sales Return 80,000 10,20,000
Less: Purchases Return 15,000 6,45,000 By Closing Stock 70,000
To Carriage Inwards 30,000
To Gross Profit c/d 3,47,000
10,90,000 10,90,000
To General Expenses 34,000 By Gross Profit b/d 3,47,000
To Advertising 35,000 By Rent Received 3,000
To Rent and Insurance 30,000 By Discount Received 5,000
To Salaries 90,000 By Bad Debts Recovered 6,000
To Carriage Outwards 25,000 By Provision for Doubtful Debts (Written Back) 2,000
To Interest on Loan 3,000 (` 7,000 – ` 5,000)
To Stationery 2,000
To Travelling Expenses 5,000
To Depreciation on Motor Vehicles 20,000
To Net Profit transferred to Capital A/c 1,19,000
3,63,000 3,63,000

BALANCE SHEET
as at 31st March, 2022
Liabilities
` Assets `

Capital 3,00,000 Debtors 2,00,000

Less: Drawings (` 50,000 – ` 2,000) 48,000 Less: Travelling Expenses
2,52,000 to Sales Person 5,000
Net Profit 1,19,000 3,71,000 1,95,000
Loan 95,000 Add: Cheque Dishonoured 10,000 2,05,000
Creditors 1,00,000 Bank (` 35,000 – ` 10,000) 25,000
Less: Amount of Bad Debts Recovered 6,000 94,000 Cash 20,000
Bills Payable 20,000 Motor Vehicles 1,00,000
Less: Depreciation 20,000 80,000
Land and Building 1,20,000
Bills Receivables 60,000
Closing Stock 70,000
5,80,000 5,80,000

14
Illustration 8 (With GST).
Following Trial Balance as at 31st March, 2022 is drawn from books of Dalip Kumar, a trader:
Particulars Dr. (`) Cr. (`)

Cash in Hand ................................................................................................................................................. 80,000 ...

Cash at Bank ................................................................................................................................................. 1,20,000 ...
Wages ................................................................................................................................................. 2,00,000 ...
Sales ................................................................................................................................................. ... 50,00,000
Machinery ................................................................................................................................................. 21,20,000 ...
Bills Receivable ................................................................................................................................................. 4,00,000 ...
Opening Stock ................................................................................................................................................. 8,40,000 ...
Creditors ................................................................................................................................................. ... 4,00,000
Purchases ................................................................................................................................................. 33,00,000 ...
Sales Return ................................................................................................................................................. 60,000 ...
Salaries ................................................................................................................................................. 3,20,000 ...
Debtors ................................................................................................................................................. 8,60,000 ...
Insurance ................................................................................................................................................. 2,20,000 ...
Bad Debts ................................................................................................................................................. 60,000 ...
Freight on Purchases ................................................................................................................................................. 48,000 ...
Capital ................................................................................................................................................. ... 32,00,000
Commission ................................................................................................................................................. ... 38,000
Input CGST ................................................................................................................................................. 5,000 ...
Input SGST ................................................................................................................................................. 5,000 ...
Total 86,38,000 86,38,000

Considering the following adjustments, prepare Trading and Profit & Loss Account for the
year ended 31st March, 2022 and a Balance Sheet as at that date. Also, pass Journal entries for
the adjustments:
1. Closing Stock ` 9,00,000.
2. Outstanding Salaries ` 32,000 and Outstanding Wages ` 20,000.
3. Prepaid Insurance ` 9,000 and Accrued Commission ` 12,000.
4. Charge Depreciation on Machinery @ 10% p.a.
Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2022
March 31 Closing Stock A/c ...Dr. 9,00,000
To Trading A/c 9,00,000
(Being the Closing Stock recorded)
March 31 Salaries A/c ...Dr. 32,000
Wages A/c ...Dr. 20,000
To Outstanding Expenses A/c 52,000
(Being the adjustments for Outstanding Salaries and Wages)
March 31 Prepaid Insurance Premium A/c ...Dr. 9,000
To Insurance Premium A/c 9,000
(Being the adjustment for Prepaid Insurance Premium) (Note 1)
March 31 Accrued Commission A/c ...Dr. 12,000
To Commission A/c 12,000
(Being the adjustment for Accrued Commission) (Note 2)
March 31 Depreciation A/c ...Dr. 2,12,000
To Machinery A/c 2,12,000
(Being the depreciation charged on Machinery)

15
 TRADING AND PROFIT & LOSS ACCOUNT OF DALIP KUMAR
Dr. for the year ended 31st March, 2022 Cr.
Particulars ` Particulars ` 

To Opening Stock 8,40,000 By Sales 50,00,000

To Purchases 33,00,000 Less: Sales Return 60,000 49,40,000
To Freight on Purchases 48,000 By Closing Stock 9,00,000
To Wages 2,00,000
Add: Outstanding 20,000 2,20,000
To Gross Profit c/d 14,32,000
(Transferred to Profit & Loss A/c)
58,40,000 58,40,000

To Salaries 3,20,000 By Gross Profit b/d 14,32,000

Add: Outstanding 32,000 3,52,000 By Commission 38,000
To Taxes and Insurance 2,20,000 Add: Accrued 12,000 50,000
Less: Prepaid Insurance 9,000 2,11,000
To Bad Debts 60,000
To Depreciation on Machinery 2,12,000
(` 21,20,000 × 10/100)
To Net Profit transferred to Capital A/c 6,47,000
14,82,000 14,82,000

BALANCE SHEET OF DALIP KUMAR

as at 31st March, 2022
Liabilities ` Assets ` 

Current Liabilities Current Assets

Sundry Creditors 4,00,000 Cash in Hand 80,000
Outstanding Expenses: Cash at Bank 1,20,000
Outstanding Salaries 32,000 Bills Receivable 4,00,000
Outstanding Wages 20,000 52,000 Debtors 8,60,000
Capital Input CGST 5,000
Opening Balance 32,00,000 Input SGST 5,000
Add: Net Profit 6,47,000 38,47,000 Prepaid Insurance 9,000
Accrued Commission 12,000
Closing Stock 9,00,000
Fixed Assets
Machinery 21,20,000
Less: Depreciation 2,12,000 19,08,000
42,99,000 42,99,000

16