4.1: Company Final Account, Exercise Problems and their solutions

In this post, we are going to solve the Exercise Problems and their solutions, of, Company Final Accounts, in a comprehensive working oriented way that will be very helpful to the students of Advanced Financial Accounting. To learn more about Company Final Accounts just go to the Financial Accounting II in Blog Post Categories or click the hyperlink above.

Company Final Account, Exercise Problems and their solutions

Problem No 1:

The account of Sara Textile Ltd. shows that company’s Gross Profit for the year is Rs. 65,000. The company’s previous year profit shows Rs. 9000 (Cr.) balance. The operating expenses for the company amounted to Rs. 21,000.

In Annual General Meeting the following decisions took place:

Rs. 6000 to be added to Reserve Fund.
Rs. 10,000 is to be appropriated for taxation.
6% Dividend for equity shareholder of Rs. 180,000.

Make Journal entries to give effect of decisions of AGM and show Profit & Loss Appropriation Account.

Solution:

Date	Particulars	L.F	Dr.	Cr.
	Profit & Loss Appropriation A/C		6000
	Reserve Fund A/C			6000
	(Amount added to Reserve Fund)

	Profit & Loss Appropriation A/C		10,000	10,000
	Provision for Taxation A/C
	(Amount appropriated for taxation)

	Profit & Loss Appropriation A/C		10,800
	Proposed Dividend A/C			10,800
	(Proposed & Final dividend amount appropriated)

Calculation of Net Profit for the Year
Gross Profit for the Year	65,000
Less Operating Expenses	(21,000)
Net Profit for the Year	44000

Profit & Loss Appropriation Account
Particulars	Amount	Particulars	Amount
Provision for Tax	10,000	Previous Year Profit & Loss	9000
Transfer to General Reserve	6000	Net Profit for the Year 2010	44000
Proposed Dividend
(180,000 x 0.06)	10,800
Balance Transferred to Balance Sheet	26,200

	53000		53000

Problem No 2:

The director of Simba Company has issued subscribed and paid up capital of Rs. 25,00,000 of Rs. 100 each. Company has decided to pay interim (half year) dividend of 15% per annum.

Give necessary Journal Entries to record above transactions.

Solution:

Date	Particulars	Dr.	Cr.
(i)	Dividend Account	187,500
	Bank Account		187,500
	(Payment of dividend made)

(ii)	If Separate Account is Opened
	Dividend Bank Account	187,500
	Bank ACcount		187,500

	Dividend Account	187,500
	Dividend Bank Account		187,500
	(Payment of dividend made)

	Profit & Loss Appropriation Account	187,500
	Interim Dividend Account		187,500
	(Amount of dividend is appropriated)

Problem No 3:

Y Company’s issued, subscribed and paid up capital consisted of 12000 shares of Rs. 10 each. The Net Profit for the year 2010 is Rs. 1,40,000.

The following information is related to Profit & Loss Appropriation Account.

Balance of Profit for previous year	34,000
Provision for Taxation Required	13,000
General Reserve for Current Year	20,000
Excess previous year provision for Tax not required further	1500
Amount transfer to Debenture Redemption Fund	6900
Interim Dividend Paid	4100
Amount for proposed dividend (Rs. 2 Per Share)	24000

Prepare Profit & Loss Appropriation Account.

Solution:

Profit & Loss Appropriation Account

Particulars	Amount	Particulars	Amount
Provision for Taxation	13000	Current year Net Profit	140,000
General Reserve	20,000	Previous year Profit	34,000
Debenture Redemption Fund	6900	Excess previous year provision for Tax not required further	1500
Interim Dividend Paid	4100
Amount for proposed dividend	24,000
Balance transferred to balance sheet	107,500
	175,500		175,500

Problem No 4:

Hamza Industries Ltd. was registered with a nominal capital of Rs. 10,00,000 divided into 100,000 shares of Rs. 10 each. Prepare Trading and Profit & Loss Account and Balance Sheet as on 31^st December 2010.

Particulars	Rs.	Particulars	Rs.
Plant & Machinery	295000	Bad Debts	2000
Auditor Remuneration	12500	Legal Charges	1000
Purchases	210000	Good will	60000
Sales	415000	Freehold Property	180000
Insurance	8000	Share Capital	400000
Sales Return	15000	6% Debentures	200000
Purchases Return	10000	Bills Receivable	57500
Salaries	34000	Debenture Interest	12000
Cash in Hand	7000	Preliminary Expenses	9000
Cash at Bank	15000	Profit & Loss A/C (Cr.)	30000
Furniture	47000
Sundry Creditors	255000
Sundry Debtors	205000
Manufacturing Wages	75000
Printing & Stationery	5000
Stock on 1-1-2010	60000

Adjustments:

Depreciate Plant & Machinery by 10% and Furniture b 5%
Write off 1/3^rd of Preliminary Expenses.
Provide a final Dividend of 5%
Transfer Rs. 8000 to General Reserve.
Make a provision for income tax to the extent of Rs. 20,000
Closing Stock on 31^st December 2010 was valued Rs. 100,000.

Solution:

Hamza Industries Ltd.
Trading Profit & Loss A/C
For the Year Ended 31st December 2010
Opening Stock	60000	Closing Stock	100000
Purchases 210000		Sales 415000
Less Returns outward (10000)	200000	Less Returns (15000)	400000
Manufacturing Wages	75000

Gross Profit c/d	165000

	500000		500000

Salaries	34000	Gross Profit b/d	165000
Auditor Remuneration	12500
Preliminary Expenses Write off (9000/3)	3000
Depreciation on Furniture
(47000 x 0.05)	2350
Depreciation on Plant & Machinery
(295000 x 0.10)	29500
Insurance	8000
Bad Debts	2000
Legal Charges	1000
Printing & Stationery	5000

Debenture Interest	12000

Net Profit Transferred to Profit & Loss Appropriation A/C	55650

	165000		165000

Profit & Loss Appropriation Account
Particulars	Amount	Particulars	Amount
Provision for Tax	20000	Previous Year Profit & Loss	30000
Transfer to General Reserve	8000	Net Profit for the Year 2010	55650
Proposed Dividend
(400,000 x 0.05)	20000
Balance Transferred to Balance Sheet	37650

	85650		85650

Hamza Industries Ltd.
Balance Sheet
As on 31st December 2010
Liabilities	Amount	Assets	Amount
Authorized Capital:	1000000	Fixed Assets:
Issued, Subscribed & Paid up Capital		Furniture Less Depreciation
(40,000 shares of Rs. 10 each)	400000	(47000 – 2350)	44650
Reserves:		Plant & Machinery Less Depreciation
Profit & Loss Appropriation A/C	37650	(295,000 – 29500)	265500
General Reserve	8000	Good will	60000
Debentures & Long Term Liabilities:		Freehold Property	180000
6% Debentures	200000	Deferred Costs:
Current Liabilities:		Preliminary Expenses 9000
Sundry Creditors	255000	Less Write Off (3000)	6000
Provision for Tax	20000	Current Assets:
Proposed Dividend	20000	Cash in Hand	7000
		Cash at Bank	15000
		Bills Receivable	57500
		Closing Stock	100000
		Sundry Debtors	205000

	940650		940650

Problem No 5:

Moon & Company Ltd. with an authorized capital of Rs. 10,00,000 divided into 100,000 shares of Rs. 10 each. On 31^st December, 2010 50,000 shares were fully called and paid up. The following are the balances taken from the ledger of the company at 31^st December, 2010.

Particulars	Rs.	Particulars	Rs.
Stock	100,000	Printing & Stationary	4800
Sales	850,000	Advertising	7600
Purchases	600,000	Postage, telephones etc.	21000
Wages	140,000	Debtors	77400
Discount Allowed	8400	Creditors	70400
Discount Received	6300	Plant & machinery	161000
Insurance upto 30^th June, 2011	13440	Furniture	34000
Salaries	37000	Cash at bank	279600
Rent	12000	General Reserve	50000
General Expenses	17900	Loan from managing Director	31400
Profit & Loss A/C (Cr.)	12440	Bad debts	6400

Adjustments:

Closing Stock Rs. 200,000
Depreciation to be charged on Plant and Machinery at the rate of 15% p.a and furniture at the rate of 10% p.a
Outstanding expenses: Wages Rs. 10400, Salaries Rs. 2400 and Rent Rs. 1200
Write off Rs. 600 as further bad debts and provide for bad and doubtful debts at 2% on debtors.
Credit Sales amounting to Rs. 1200 were left unrecorded in the books of account.
Dividend at 5% on paid up share capital to be provided.

Required:

Prepare trading & Profit & Loss account for the year ended 31^st December 2010 and also a balance sheet as at date.

Solution:

Moon & Company. Ltd.
Trading Profit & Loss A/C
For the Year Ended 31st December 2010
Opening Stock	100000	Closing Stock	200000
Purchases	600000	Sales 850000
Wages 140000		Add unrecorded 1200	851200
Add Outstanding 10400	150400

Gross Profit c/d	200800

	1051200		1051200

Discount Allowed	8400	Gross Profit b/d	200800
Insurance 13440		Discount Received	6300
Less Prepaid (6720)	6720
Salaries 37000
Add Outstanding 2400	39400
Rent 12000
Add Outstanding 1200	13200
General Expenses	17900
Depreciation on Plant & Machinery
(161000 x 0.15)	24150
Depreciation on Furniture
(34000 x 0.10)	3400
Old Bad Debts 6400
Add Write off 600
Add New Provision
(77400+1200-600)x0.02 1560
Less Old Provision (0)	8560
Printing & Stationary	4800
Advertising	7600
Postage, telephones etc.	21000


Net Profit Transferred to Profit & Loss Appropriation A/C	51970

	207100		207100

Profit & Loss Appropriation Account
Particulars	Amount	Particulars	Amount
Proposed Dividend		Previous Year Profit & Loss	12440
(500,000 x 0.05)	25000	Net Profit for the Year 2010	51970
Balance Transferred to Balance Sheet	39410



	64410		64410

Moon & Company. Ltd.
Balance Sheet
As on 31st December 2010
Liabilities	Amount	Assets	Amount
Authorized Capital:	1000000	Fixed Assets:
Issued, Subscribed & Paid up Capital		Furniture Less Depreciation
(50,000 shares of Rs. 10 each)	500000	(34000 – 3400)	30600
Reserves:		Plant & Machinery Less Depreciation
Profit & Loss Appropriation A/C	39410	(161,000 – 24150)	136850
General Reserve	50000
Debentures & Long Term Liabilities:
Nil	0	Deferred Costs:
Current Liabilities:		Nil	0
Sundry Creditors	70400
Loan from managing director	31400	Current Assets:
Proposed Dividend	25000	Cash at bank	279600
Outstanding Wages	10400	Closing Stock	200000
Outstanding Slaries	2400	Prepaid Insurance	6720
Outstanding Rent	1200	Sundry Debtors 77400
		Add Unrecorded Sales 1200
		Less Write Off (600)
		Less New Provision (1560)	76440
	730210		730210

Problem No 6:

The Trial Balance of Sindbad Manufacturing Company Ltd. as at 31^st December 2010 is given below:

Debit Balance	Rs.	Credit Balance	Rs.
Management Expenses	170,000	Gross Profit	11,07,000
Rent & Taxes	30,000	Profit & Loss Account	101,800
Director Fee	46,000	Bank Loan secured	900,000
Insurance	17,500	Unclaimed Dividend	45,000
Closing Stock	800,000	Depreciation A/C	12,25,000
Furniture & Fixture	117,000	Miscellaneous receipts	20,000
Land & Building	950,000	Outstanding Expenses	40,000
Motor Car	1045,000	Bills Payable	40,000
Plant & Machinery	700,000	Share Capital A/C	10,00,000
Sundry Debtors	580,000	Sundry Creditors	281,000
Cash in Hand	16,500	General Reserve	200,000
Cash at Bank	136,700
Repairs to Motor Car	16,000
Goodwill	100,000
Preliminary Expenses	30,000
Bills Receivable	60,000
Salaries	83,000
Prepaid Expenses	20,000
Bad Debts	13,000
General Charges	15,100
Repairs to Machinery	14,000
	49,59,800		49,59,800

Adjustments:

The depreciation written off up to 31^st December 2009 was as follows:

Land & Building Rs.300,000

Plant Rs. 230,000

Furniture Rs. 15,000

Motor Car Rs. 680,000

No Depreciation is to be provided for the year 2010.

The directors transfer Rs. 60,000 to General Reserve and provision for Taxation Rs. 150,000
The Directors proposed a dividend of 10% on equity share capital.
Credit sales of Rs. 20,000 were left unrecorded in the books of account.
The Company has authorized and issue Capital of Rs. 10,00,000

Prepare Profit & Loss Account, Profit & Loss Appropriation Account and Balance Sheet.

Solution:

Sindbad Manufacturing Co.

Profit & Loss A/C

For the Year Ended 31st December 2010

Management Expenses	170,000	Gross Profit 1107000
Rent & Taxes	30,000	Unrecorded Sales 20000	1127000
Director Fee	46,000	Miscellaneous receipts	20,000
Insurance	17,500
Repairs to Motor Car	16,000
Salaries	83,000
Bad Debts	13,000
General Charges	15,100
Repairs to Machinery	14,000

Net Profit Transferred to Profit & Loss App Ac	742,400
	1147000		1147000

Profit & Loss Appropriation Account

Particulars	Amount	Particulars	Amount
Provision for Taxation	150000	Previous Year Profit & Loss Account	101,800
General Reserve	60000	Net Profit for the Year 2010	742400
Proposed Dividend
(10,00,000 x 0.10)	100000
Balance Transferred to Balance Sheet	534200

	844200		844,200

Moon & Company. Ltd.

Balance Sheet

As on 31st December 2010

Liabilities	Amount	Assets	Amount
Authorized Capital:	1000000	Fixed Assets:
Issued, Subscribed & Paid up Capital	1000000	Furniture Less Depreciation
Reserves:		(117000 – 15000)	102000
Profit & Loss Appropriation A/C	534200	Plant & Machinery Less Depreciation
General Reserve (200,000 + 60,000)	260000	(700,000 – 230000)	470000
		Land & Building Less Depreciation
Debentures & Long Term Liabilities:		(950,000 – 300,000)	650000
Bank Loan Secured	900000	Motor Car Less Depreciation
Current Liabilities:		(1045,000 – 680,000)	365000
Sundry Creditors	281000	Goodwill	100000
Bills Payable	40,000	Deferred Costs:
Unclaimed Dividend	45000	Prilimenery Expenses	30000
Outstanding Expenses	40000
Proposed Dividend	100000	Current Assets:
Provision for Taxation	150000	Cash at Bank	136700
		Closing Stock	800000
		Cash in Hand	16500
		Sundry Debtors 580000
		Add Unrecorded Sales 20000	600000
		Prepaid Expenses	20000
		Bills Receivable	60000


	3350200		3350200

Problem No 7:

The management of Mumtaz Limited asks you to prepare Profit & Loss Account and Balance sheet with data given as on 30^th June 2010:

Debit Balance	Rs.	Credit Balance	Rs.
Investment at Cost	8000	Bank Overdraft	350
Land & Building (Original Cost Rs. 30,000)	18000	6% Debentures	20,000
Stock (30-06-2010)	12000	Share Premium	1,000
Furniture (Original Cost Rs. 3,000)	1800	Sundry Creditors	4,000
Plant & Machinery (Original Cost Rs. 50,000)	32000	Dividend Equalization Reserve	2,000
Postage & Telegram	800	Debenture Redemption Reserve	1,000
Telephone Charges	120	Interest Received	400
Advance Income Tax	1000	Gross Profit	18,500
Interest on Debentures	600	Profit & Loss A/c	2750
Rent, Rates	400	Provision for Taxation	6500
Cash in Hand	2800	Share Capital	35,000
Sundry Debtors	11000
Advertisement	1400
Director’s Remuneration	900
Discount	80
Insurance upto 31-10-2010	450
Repairs	150
	91500		91500

Adjustments:

The following data take into account:

Depreciation is to provided:
Plant & Machinery at 10% reducing balance method.
Land & Building at 5% on reducing balance method.
Furniture at 10% on straight line method.
The directors transfer Rs. 1000 to dividend equalization reserve and Debenture redemption reserve each.
The market value of investment is Rs. 7500
Equity share dividend @ 8% on share capital.

Solution:

Mumtaz Ltd.

Profit & Loss A/C

For the Year Ended 30th June 2010

Telephone Charges	120	Gross Profit	18500
Postage & Telegram	800	Interest	400
Rent & rates	400
Advertisement	1,400
Discount	80
Director’s Remuneration	900
Insurance 450
Less Prepaid (450/12)3 (150)	300
Repairs	150
Interest on Debentures 600
Add Outstanding 600	1,200
Reserve for Investment	500
Depreciation on Plant & Machinery
32000 x 0.10	3200
Depreciation on Land & Building
18000 x 0.05	900
Depreciation on Furniture
3000 x 0.10	300

Net Profit Transferred to Profit & Loss App Ac	8,650
	18900		18900

Profit & Loss Appropriation Account

Particulars	Amount	Particulars	Amount
Debentures Redemption Fund	1000	Previous Year Profit & Loss Account	2,750
Dividend Equalization Fund	1000	Net Profit for the Year 2010	8650
Proposed Dividend
(35,000 x 0.08)	2800
Balance Transferred to Balance Sheet	6600

	11400		11,400

Mumtaz Ltd.

Balance Sheet

As on 30th June 2010

Liabilities	Amount	Assets	Amount
Authorized Capital:		Fixed Assets:
Issued, Subscribed & Paid up Capital	35000	Furniture Less Acc. Depreciation
Reserves:		(3000 – 1500)	1500
Profit & Loss Appropriation A/C	6600	Plant & Machinery Less Depreciation
Dividend Equalization Reserve 2000		(50,000 – 21200)	28800
Add Transferred Amount 1000	3000	Land & Building Less Depreciation
Debenture Redemption Reserve 1000		(30,000 – 12900)	17100
Add Transferred Amount 1000	2000
Share Premium	1000

Debentures & Long Term Liabilities:		Deferred Costs:	0
6% Debentures	20000
Current Liabilities:
Sundry Creditors	4000	Current Assets:
Interest on debentures Payable	600	Sundry Debtors	11000
Bank Overdraft	350	Closing Stock	12000
Proposed Dividend	2800	Cash in Hand	2800
Provision for Taxation	6500	Investment 8000
		Less Reserve (500)	7500
		Prepaid Insurance	150
		Advance Income Tax	1000


	81850		81850

Problem No 8:

From the following Trial Balance of Kalam Manufacturing Company prepare Trading and Profit & Loss Account relating to 2010 and the Balance Sheet as at 31^st December 2010.

Particulars	Rs.	Particulars	Rs.
Stock (1-1-2010)	75,000	Preliminary Expenses	6000
Purchases	165,000	Furniture	30000
Freehold Property	216,000	Share Premium	7500
Plant & Machinery	256,500	Sundry Creditors	9750
Cash at bank	45000	Debenture Redemption Reserve	6750
Cash in hand	1200	Discount Received	2400
Fuel and Power	2250	Interim Dividend	13500
Wages & Salaries	39000	Debenture Interest Paid	9000
Insurance	6150	Issued, Subscribed & Paidup Capital	225000
Director fee	6000	General Reserve	15000
Custom duty & Clearing Charges	5250	Dividend on Investment	1000
Repairs	3600	Tax Deducted at Source	120
Sundry Debtors	58500	Bad debts	1500
Sales	360,000	Carriage outward	880
Profit & Loss A/c(Cr)	26250
Reserve for Bad Debts	1800
6% Debentures	300,000
Investment in Shares	15000

Adjustments:

The following data take into account:

Kalam Manufacturing was incorporated with an authorized capital of Rs. 450,000 divided into shares of Rs. 10 each
Wages & Salaries include Rs. 2000 paid as wages for installation of machinery.
Provide Depreciation on Plant & Machinery @ 10% & Furniture @5%.
The Directors recommended the following:
Write off Preliminary expenses.
Transfer Rs. 18000 to General reserve.
Proposed final dividend 10% on equity share capital.
Rs. 37500 is appropriated for taxation provision.
Create a reserve for doubtful debts @ 5% on debtors.
Closing stock was valued at Rs. 110,000.

Solution:

Kalam Manufacturing Company

Trading Profit & Loss A/C

For the Year Ended 31st December 2010

Opening Stock	75,000	Sales	360,000
Purchases	165,000	Closing Stock	110,000
Wages & Salaries 39000
Less Installation Charges (2000)	37,000
Fuel and Power	2250
Custom duty & Clearing Charges	5250
Gross Profit c/d	185,500

	470,000		470,000
Insurance	6150	Gross Profit b/d	185,500
Director fee	6000	Discount Received	2400
Repairs	3600	Dividend on Investment	1000
Bad Debts 1500
Add Write Off 0
Add New Provision
(58500 x 0.05) 2925
Less Old Provision (1800)	2625
Carriage outward	880
Depreciation on Plant & Machinery
(256500 + 2000) x 0.10	25,850
Depreciation on Furniture
(30,000) x 0.05	1500
Debenture Interest Paid 9000
Add Outstanding 9000	18000
Write off Preliminary Expenses	6000

Net Profit Transferred to Profit & Loss Appropriation A/C	118295

	188900		188900

Profit & Loss Appropriation Account

Particulars	Amount	Particulars	Amount
Transfer to General reserve	18000	Previous Year Profit & Loss Account	26,250
Provision for Taxation	37500	Net Profit for the Year 2010	118295
Proposed Dividend
(225,000 x 0.10)	22500
Interim Dividend	13500

Balance Transferred to Balance Sheet	53,045
	144,545		144,545

Kalam Manufacturing Company

Balance Sheet

As on 31st December 2010

Liabilities	Amount	Assets	Amount
Authorized Capital:	450,000	Fixed Assets:
Issued, Subscribed & Paid up Capital	225,000	Furniture Less Acc. Depreciation
Reserves:		(30,000 – 1500)	28,500
Profit & Loss Appropriation A/C	53,045	Plant & Machinery Less Depreciation
General Reserve 15000		(258,500 – 25850)	232650
Add Transferred Amount 18000	33000	Freehold Property	216,000
Debenture Redemption Reserve	6750
Share Premium	7500


Debentures & Long Term Liabilities:		Deferred Costs:	0
6% Debentures	300,000
Current Liabilities:
Sundry Creditors	9750	Current Assets:
Interest on debentures Payable	9000	Tax Deducted at Source	120
Proposed Dividend	22500	Closing Stock	110,000
Provision for Taxation	37500	Cash at bank	45000
		Cash in hand	1200
		Sundry Debtors 58500
		Less Write Off (0)
		Less New Provision (2925)	55575
		Investment in Shares	15000

	704,045		704,045

Problem No 9:

The following Trial Balance relates to Ringo Ring Company Ltd. As on 31^st March 2010.

Debit Balance	Rs.	Credit Balance	Rs.
Sundry Debtors	180,000	Share Capital (3000 Shares of 100 each)	300,000
Plant	81,000	Profit & Loss A/c (31-3-2009)	16,000
Furniture	12,000	Gross Profit	192,450
Closing Stock as at 31^st March 2010	153,000	General Reserve	5000
Rent & Taxes	24,000	Sundry Creditors	33,000
Salaries	47,000	Liabilities for Expenses	9550
Office Expenses	32,500	Discount	2000
Discount	3500	7% debentures (1-1-2010)	40,000
Advance Income Tax	27,000
Cash in Hand	7500
Compensation to Employees	6500
Interim Dividend	12,000
Preliminary Expenses	4000
Unexpired Payments	8000
	598,000		598,000

The following additional information is available:

Office Expenses include Rs. 4500 as audit fee and Rs. 500 as audit expenses.
Charge Depreciation on Plant & Furniture @ 10%
Outstanding Expenses:
Salaries Rs. 3,000
Interest on Debentures.
Directors desire the following:
Rs. 8000 Transfer to General Reserve
Provision for Taxation to be made up to Rs. 15000
Write off 50% of Preliminary Expenses.
Rs. 5 per share as final dividend.
The authorized capital of company consists of 5000 shares of Rs. 100 each.

Solution:

Ringo Ring Company Ltd.

Trading Profit & Loss A/C

For the Year Ended 31st March 2010

Salaries 47,000		Gross Profit	192,450
Add Outstanding 3000	50,000	Discount	2,000
Interest on Debentures
(4000 x 0.07 x 3/12)	700
Preliminary Expenses	2000
Discount	3500
Rent & Taxes	24,000
Depreciation on Plan
(81,000 x 0.10)	8,100
Depreciation on Furniture
(12,000 x 0.10)	1200
Compensation to Employees	6500
Office Expenses including Audit fee & Expenses	32,500

Net Profit Transferred to Profit & Loss Appropriation A/C	65,950
	194,450		194,450

Profit & Loss Appropriation Account

Particulars	Amount	Particulars	Amount
Transfer to General reserve	8000	Previous Year Profit & Loss Account	16,000
Provision for Taxation	15000	Net Profit for the Year 2010	65950
Proposed Dividend
(3,000 x 5)	15000
Interim Dividend	12000

Balance Transferred to Balance Sheet	31,950
	81,950		81,950

Ringo Ring Company Ltd.

Balance Sheet

As on 31st March 2010

Liabilities	Amount	Assets	Amount
Authorized Capital:	500,000	Fixed Assets:
Issued, Subscribed & Paid up Capital	300,000	Plant Less Depreciation
Reserves:		(81,000 – 8100)	72,900
Profit & Loss Appropriation A/C	31,950	Furniture Less Depreciation
General Reserve 5000		(12000 – 1200)	10800
Add Transferred Amount 8000	13000
		Deferred Costs:
Debentures & Long Term Liabilities:		Preliminary Expenses 4000
7% Debentures	40,000	Less Write Off (2000)	2000
Current Liabilities:		Current Assets:
Sundry Creditors	33000	Advance Income Tax	27,000
Interest on debentures Payable	700	Closing Stock	153,000
Proposed Dividend	15000	Unexpired Payments	8000
Provision for Taxation	15000	Cash in hand	7500
Salaries Outstanding	3000	Sundry Debtors	180,000
Liabilities for Expenses	9550

	461,200		461,200

Problem No 10:

The following is the Trial balance of Star Limited Company for the year ending December, 31^st 2010.

Particulars	Debit	Credit
Salaries & Wages	68,100
Carriage Outward	11,600
Interim Dividend	24,000
Equity Share Capital		350,000
Balance from Trading Account		176550
Technical Know how	18000
Closing Stock	283,000
Furniture	70,000
Profit & Loss A/c		74,250
Freehold Property	200,000
Share Premium Account		40,000
Cash in Hand	15,000
Debtors	115,000
9% Debentures		100,000
General Reserve		28,000
Bills Receivable	12,000
Debentures interest	4500
Creditors		50,400
Bills Payable		12,000
Transfer to General Reserve	10,000

	831,200	831,200

Adjustments:

Star Company has an authorized capital of Rs. 600,000 divided into ordinary share of Rs. 10 each. The Company has issued 35,000 shares which are fully paid.
Depreciation is to be provided @10% on furniture and property.
Credit sales of Rs. 3450 were left unrecorded.
Create Provision for bad and doubtful debts @4% on debtors.
The directors proposed the following:
Rs. 30,000 Transfer to taxation Reserve
5% proposed dividend.

Required:

Prepare Profit & Loss account and Balance sheet for the year ended 31^st December, 2010.

Solution:

Star Limited Company

Trading Profit & Loss A/C

For the Year Ended 31st December 2010

Salaries & Wages	68,100	Gross Profit 176,550
Carriage Outward	11,600	Credit Sales Unrecorded 3450	180,000
Interest on Debentures 4500
(100,000 x 0.09)=9000
Add Outstanding 9000 – 4500 4500	9000
Bad Debts 0
Add Write Off 0
Add New Provision
(115,000 + 3450) x 0.04) 4738
Less Old Provision (0)	4,738
Depreciation on Furniture
(70,000 x 0.10)	7000
Depreciation on Property
(200,000 x 0.10)	20,000

Net Profit Transferred to Profit & Loss Appropriation A/C	59,562
	180,000		180,000

Profit & Loss Appropriation Account

Particulars	Amount	Particulars	Amount
Transfer to General reserve	10000	Previous Year Profit & Loss Account	74,250
Provision for Taxation	30,000	Net Profit for the Year 2010	59,562
Proposed Dividend
(350,000 x 0.05)	17500
Interim Dividend	24000

Balance Transferred to Balance Sheet	52,312
	133,812		133,812

Star Company Ltd.

Balance Sheet

As on 31st December 2010

Liabilities	Amount	Assets	Amount
Authorized Capital:	600,000	Fixed Assets:
Issued, Subscribed & Paid up Capital	350,000	Freehold Property less Depreciation
Reserves:		(200,000 – 20000)	180,000
Profit & Loss Appropriation A/C	52,312	Furniture Less Depreciation
General Reserve 18000		(70000 – 7000)	63,000
Add Transferred Amount 10000	28,000
Share Premium	40,000	Deferred Costs:
Debentures & Long Term Liabilities:		Technical Knowhow	18000
9% Debentures	100,000
Current Liabilities:		Current Assets:
Bills Payable	12000
Interest on debentures Payable	4500	Closing Stock	283,000
Proposed Dividend	17500	Bills Receivable	12000
Provision for Taxation	30,000	Cash in hand	15000
Sundry Creditors	50,400	Sundry Debtors 115000
		Add Credit Sales Unrecorded 3450
		Less Write Off (0)
		Less New Provision (4738)	113,712


	684,712		684,712

Problem No 11:

Luqman Auto Part Company has authorized capital of Rs. 500,000 divided into 50,000 shares of Rs. 10 each, of which 20,000 shares had been issued and fully paid. The following Trial balance is extracted on 31^st December 2010.

Particulars	Debit	Credit
Stock on Jan. 1, 2010	93,210
Returns	6340	4925
Sundry Manufacturing Expenses	19620
9% Bank loan		25000
Office Salaries and Expenses	34500
Director’s Remuneration	13,230
Freehold Premises	98,000
Furniture	7500
Cash in hand	1240
Profit & loss Account		19320
Investment	24000
Debtors	52,700
Share capital		200,000
Purchases & Sales	359105	584750
Creditors		31110
Carriage	2450
Clearing Charges	12500
Interest on Bank Loan	1125
Auditor Fee	11620
Preliminary Expenses	9000
Plant & Machinery	74200
Cash at bank	9765
Advanced Income Tax Paid	35,000
	865,105	865,105

Adjustments:

On 31^st December 2010 Closing Stock valued at Rs. 64,240.
Outstanding Wages Rs. 1380 while Office Salaries Rs. 1500 are still payable.
Depreciation on Plant & Machinery is to be provided @15% and on furniture is to be 10%.
Market Value of Investment on 31-12-2010 is Rs. 25,000.
Directors Recommended the following:
Provision for Income Tax @ 30% of Net Profit
Dividend @ 15% to the shareholders on paid up share capital.
Transfer to General Reserve Rs. 10,000.

Required:

Prepare Trading & Profit & loss Account for the year ended 31^st Dec. 2010 and balance sheet as at that date.

Solution:

Luqman Auto Part Company

Trading Profit & Loss A/C

For the Year Ended 31st December 2010

Opening Stock	93,210	Closing Stock	64,240
Purchases 359105		Sales 584750
Less Returns (4925)	354180	Less Returns (6340)	578,410
Sundry Manufacturing Expenses 19620
Add Outstanding 1380	21,000
Carriage	2450
Clearing Charges	12500

Gross Profit C/d	159,310
	642,650		642,650
Office Salaries & Expenses 34500		Gross Profit b/d	159,310
Add Outstanding 1500	36000
Depreciation on Plant & Machinery
(74200 x x0.15)	11,130
Depreciation on Furniture
(7500 x 0.10)	750
Auditor Fee	11620
Interest on bank Loan 1125
Add Outstanding 1125	2250
(25000 x 0.09)=2250
Director’s Remuneration	13,230




Net Profit Transferred to Profit & Loss Appropriation A/C	84,330
	159,310		159,310

Profit & Loss Appropriation Account

Particulars	Amount	Particulars	Amount
Transfer to General reserve	10,000	Previous Year Profit & Loss Account	19,320
Provision for Taxation (84330 x 0.30)	25,299	Net Profit for the Year 2010	84,330
Proposed Dividend
(200,000 x 0.15)	30,000


Balance Transferred to Balance Sheet	38,351
	103,650		103,650

Luqman Auto Part Company

Balance Sheet

As on 31st December 2010

Liabilities	Amount	Assets	Amount
Authorized Capital:	500,000	Fixed Assets:
Issued, Subscribed & Paid up Capital	200,000	Plant & Machinery less Depreciation
Reserves:		(74200 – 11130)	63,070
Profit & Loss Appropriation A/C	38,351	Furniture Less Depreciation
General Reserve	10,000	(7500 – 750)	6,750
		Freehold Premises	98,000
		Deferred Costs:
Debentures & Long Term Liabilities:		Preliminary Expenses	9000
9% Bank Loan	25,000
Current Liabilities:		Current Assets:
Wages Payable	1380	Investment	24,000
Office Salaries Payable	1500	Closing Stock	64,240
Proposed Dividend	30000	Cash at Bank	9765
Interest Payable on Bank Loan	1,125	Cash in hand	1240
Sundry Creditors	31,110	Sundry Debtors	52,700
Provision for Taxation	25,299	Advanced Income Tax Paid	35,000

	363,765		363,765

Problem No 12:

The following is the Trial balance of Ehsan Manufacturing Limited as on 31^st December 2010.

Particulars	Debit Rs.	Credit Rs.	Particulars	Debit Rs.	Credit Rs.
Share Capital of Rs. 100 each		600,000	Income Tax for previous year not provided for	11,000
Share Premium		12,500	Advance Payment of Tax	40,000
Motor Vehicles	175,000		Stocks	196,500
Commission	2,000		Long term Loan		240,000
Establishment Charges	101,000		Investment in Marketable Securities	100,000
Interest on Investment		45,00
Depreciation	30,000
Auditor Fee	12,000
Profit & Loss A/C		15,000
General Reserve		50,000
Interest on Loan	24,000
Building	350,000
Land	100,000
Furniture	10,000
Gross Profit		422,700
Rates & Taxes	16,000
Discount	3,000	2,500
Sundry Debtors & Creditors	35,000	15,800
Cash at Bank	127,500
Interim Dividend	30,000
				13,63,000	13,63,000

The following additional information is also available:

Depreciation has been provided for as follows:

Building Rs. 7,500

Furniture Rs. Rs. 5,000

Motor vehicle Rs. 17,500

Market value of Investment as on 31-12-2010 is Rs. 96,000
Income Tax is to be provided @ 25%.
Directors have recommended a dividend of Rs. 10 per equity share as final dividend.
Interest accrued on investment Rs. 1,500.

You are required to prepare Profit & Loss A/C and Balance Sheet.

Solution:

Ehsan Manufacturing Company Limited

Profit & Loss A/C

For the Year Ended 31st December 2010

Commission	2,000	Gross Profit	422,700
Establishment Charges	101,000	Discount	2,500
Interest on Loan	24000	Interest on Investment 4500
Rates & Taxes	16,000	Add Accrued 1500	6000
Discount	3,000
Auditor Fee	12,000
Depreciation on Building	7500
Depreciation on Furniture	5,000
Depreciation on Motor Vehicle	17,500
Reduction in the Value of Investment
(100,000 – 96,000)	4000

Net Profit Transferred to Profit & Loss Appropriation A/C	239,200
	431,200		431,200

Profit & Loss Appropriation Account

Particulars	Amount	Particulars	Amount
Provision for Taxation (239200 x 0.25)	59,800	Previous Year Profit & Loss Account	15,000
Proposed Dividend		Net Profit for the Year 2010	239,200
(6,000 x 10)	60,000
Interim Dividend	30,000
Previous Year Income Tax not Provided for	11000

Balance Transferred to Balance Sheet	93,400
	254,200		254,200

Luqman Auto Part Company

Balance Sheet

As on 31st December 2010

Liabilities	Amount	Assets	Amount
Authorized Capital:	0	Fixed Assets:
Issued, Subscribed & Paid up Capital	600,000	Building	350,000
Reserves:		Land	100,000
Profit & Loss Appropriation A/C	93,400	Furniture	10,000
General Reserve	50,000	Motor Vehicle	175,000
Share Premium	12,500
		Deferred Costs:
Debentures & Long Term Liabilities:
Long term Loan	240,000
Current Liabilities:		Current Assets:
Proposed Dividend	60,000	Investment 100,000
Sundry Creditors	15,800	Less Reduction 4000	96,000
Provision for Taxation	59,800	Cash at Bank	127500
		Stocks	196500
		Sundry Debtors	35,000
		Advanced Income Tax Paid	40,000
		Accrued Interest on Investment	1500
	1,131,500		1,131,500