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Solved by Iftikhar Ali, M.Sc Economics, MCOM Finance Lecturer Statistics, Finance and Accounting
Table of Contents
Principles of Accounting, Solved Paper 2023 Annual, ICOM II, FBISE, MCQS, Short Questions, Extensive Questions
MCQS
Q 1: Fill the relevant bubble against each question according to curriculum.
| 1 | In the absence of an agreement, interest on drawing is to be charged by the firm at the rate of: | ||
| A) | 2% p.a | B) | 4% p.a |
| C) | 5% p.a | D) | None of these |
| 2 | Mr. A drew cash Rs. 1000 from business for 3 months, the amount of interest on drawing @6% p.a will be: | ||
| A) | 5 | B) | 10 |
| C) | 15 | D) | 25 |
| 3 | The amount of goodwill brought in cash by a new Partner will be credited to the old partner’s account in: | ||
| A) | Gaining Ratio | B) | New Ratio |
| C) | Sacrifice Ratio | D) | Old Ratio |
| 4 | Profit on revaluation should be credited to: | ||
| A) | Revaluation account | B) | Liabilities account |
| C) | Assets account | D) | Old Partner’s Capital account |
| 5 | The format sketch of statement of affair is similar to: | ||
| A) | Trial balance | B) | Profit & Loss account |
| C) | Balance Sheet | D) | Income & Expenditure account |
| 6 | Net worth is equal to: | ||
| A) | Assets – Liabilities | B) | Liabilities – Assets |
| C) | Liabilities + Assets | D) | Capital + Assets |
| 7 | The opening & Closing balances of debtors can be calculated by preparing the: | ||
| A) | Sales account | B) | Debtors account |
| C) | Creditors account | D) | Bills receivable account |
| 8 | Single entry system contains: | ||
| A) | A day book | B) | A cash book |
| C) | Individual customers | D) | Incomplete records |
| 9 | Non-profit making organizations: | ||
| A) | Buy goods | B) | Sell goods |
| C) | Manufacture goods | D) | Work for social welfare |
| 10 | The amount paid to persons who are invited to deliver lectures in a club is known as: | ||
| A) | Salary | B) | Wages |
| C) | Honorarium | D) | Income |
| 11 | Receipt and payment account is a: | ||
| A) | Nominal account | B) | Personal account |
| C) | Real account | D) | Impersonal account |
| 12 | Consignee is: | ||
| A) | Principal | B) | Agent |
| C) | Payee | D) | Drawer |
| 13 | The liability of a member in a company is generally: | ||
| A) | Limited | B) | Contingent |
| C) | Current | D) | Unlimited |
| 14 | Company does not receive the applications for all shares issued in: | ||
| A) | Under subscription | B) | Over subscription |
| C) | Normal subscription | D) | Abnormal subscription |
| 15 | How many legal basic documents of a public company are there? | ||
| A) | 2 | B) | 3 |
| C) | 4 | D) | 5 |
| 16 | Premium on issue of shares is a: | ||
| A) | Business Loss | B) | Revenue Profit |
| C) | Capital Profit | D) | Revenue Loss |
| 17 | Current account of the partners should be opened when the capitals are: | ||
| A) | Fluctuating | B) | Fixed |
| C) | Variable | D) | Semi Variable |
| 18 | On the admission of a new partner, if goodwill brought in cash, it should be debited to: | ||
| A) | Cash account | B) | Goodwill account |
| C) | New Partner’s account | D) | Old Partner’s Capital account |
| 19 | On retirement of a partner, the share of retiring partner is taken by: | ||
| A) | New Partner | B) | Remaining Partners |
| C) | Government | D) | Legal representative |
| 20 | According to the decision of Garner Vs. Murray rule, the loss of insolvent partner is to be shared by solvent partner in the: | ||
| A) | Capital ratio | B) | Old Partner sharing ratio |
| C) | New Profit Sharing Ratio | D) | Gaining Ration |
SECTION — B (Marks 30)
Q 2: Attempt any TEN parts. The answer to each part should not exceed 3 to 4 lines.
(i) What is provision?
Answer:
Provision
Provision is the amount that is take a side from the profit to meet the future expense or obligation where exact amount of that expense or obligation is unknown.
(ii) Briefly explain the double entry system.
Answer:
Double Entry Book-keeping
It is an Accounting method of recording transactions in which at-least two accounts are used in Debit and Credit aspects. In double entry book-keeping, debit side must be equals to credit side. It is most accurate system of accounting and superior to single entry system.
(iii) What is meant by non-profit making concern?
Answer:
NON Profit Making Concerns
Nonprofit making concerns withnon-profit making Organizations. The organizations which do not do business with the motive of profit earning but to serve the society through welfare such as hospitals, NGO’s, Libraries, Clubs etc.
(iv) Describe special subscription briefly.
Answer:
Special Subscription
A special subscription is the additional sum that is collected from members for specific objectives. A special subscription is transferred to a designated fund such as a building fund, or any other fund for what is collected for.
(v) What is a consignment?
Answer:
Consignment
Consignment is a way of selling goods in which goods are handed over to other party and authorize him to sell on commission. There are two parties involved in consignment consigner and consignee. Consigner is owner or principal who dispatches the goods and consignee is an agent to whom the goods are dispatched.
(vi) Explain proforma invoice briefly.
Answer:
Proforma Invoice
Performa Invoice is a document which is sent by consignor to consignee containing detail of goods sent for sale, its quality, quantity and price. It is a substitute of invoice.
(vii) Describe ‘preliminary expenses’ briefly.
Answer:
Preliminary Expenses
Expenses those are incurred before incorporation at the initial stage of formation of a company. These are considered as deferred revenue expenses and placed on the asset side of the balance sheet under head of deferred cost or other assets. Examples for preliminary expenses are logo charges, consultation charges, stamp duties etc.
(viii) What is ‘memorandum of association’?
Answer:
Memorandum of Association
Memorandum of Association is a legal document of the company that includes the name and address of the company, names of shareholders and their distribution of shares. It is the document of consent that they want to form the company under the Companies Ordinance of that Country.
(ix) Briefly explain the Realization Account.
Answer:
Realization Account
When the firm is dissolved, all the assets are sold and liabilities are paid off. To record this activity a nominal account is prepared that is called realization account.
(x) Describe the term ‘amortization’ briefly.
Answer:
Amortization
Amortization is cost of intangible asset over a period of time besides this it is used to repayment of loan over a period of time. Examples of intangible assets are patents, trademark, copyrights etc.
(xi) What is meant by the term ‘depreciation’?
Answer:
Depreciation
Depreciation is wear and tear value of physical tangible asset over a period of time. Tangible assets mean assets have physical existence such as machinery, vehicle etc. There are different methods of depreciation but most common methods are straight line or original cost method and diminishing or declining balance method.
(xii) What is meant by revaluation account?
Answer:
Revaluation Account
Revaluation account is prepared to calculate net profit or loss on revaluation of assets and liabilities, including those items that are not put into books. A revaluation account is created when a new partner is admitted, as well as when a partner passes away or retires.
Section — C Part I Marks 50
Note: Attempt any one question.
Q.3: The following was the balance sheet of A and B who were sharing profits 2/3 and 1/3 on 31st Dec. 2022.
Q.3: The following was the balance sheet of A and B who were sharing profits 2/3 and 1/3 on 31st Dec. 2022.
| Assets | Rs. | Liabilities | Rs. |
| Buildings | 25,000 | Capital account: | |
| Machinery | 17,500 | A | 15,000 |
| Stock | 10,000 | B | 10,000 |
| Debtors | 4850 | Creditors | 32950 |
| Cash | 600 | ||
| 57,950 | 57,950 |
Pass necessary Journal entries, prepare revaluation account, capital accounts and the new balance sheet.
They agreed to admit C into partnership on the following terms:
- C was to bring Rs. 7500 as his capital and Rs. 3000 as goodwill for ¼ share in the firm
- That the values of the stock and plant and machinery were to be reduced by 5%
- Rs. 375 provision for doubtful debts created.
- The building account was to be appreciated by 10%
Solution:
| Date | Details | Dr. Rs. | Cr. Rs. |
| Revaluation A/c | 1750 | ||
| Plant & Machinery A/c | 875 | ||
| Stock A/c | 500 | ||
| Reserve for doubtful debt A/c | 375 | ||
| (Assets depreciation and provision created W:2) | |||
| Building A/c | 2500 | ||
| Revaluation A/c | 2500 | ||
| (Value of Land & Building appreciated W:2) | |||
| Revaluation A/c | 750 | ||
| A’s Capital A/c | 500 | ||
| B’s Capital A/c | 250 | ||
| (Net increase of revaluation transferred to partner’s capital accounts W:3) | |||
| Cash A/c | 10,500 | ||
| C’s Capital A/c | 7500 | ||
| Goodwill A/c | 3000 | ||
| (C introduced capital and goodwill in the business) | |||
| Goodwill A/c | 3000 | ||
| A’s Capital A/c | 2000 | ||
| B’s Capital A/c | 1000 | ||
| (Goodwill transferred to old partners with sacrifice ratio W:1) |
A’s Capital A/c
| Date | Detail | Rs. | Date | Detail | Rs. |
| Balance c/d | 17500 | Balance b/d | 15,000 | ||
| Revaluation A/c | 500 | ||||
| Goodwill A/c | 2000 | ||||
| 17500 | 17500 |
B’s Capital A/c
| Date | Detail | Rs. | Date | Detail | Rs. |
| Balance c/d | 11250 | Balance b/d | 10,000 | ||
| Revaluation A/c | 250 | ||||
| Goodwill A/c | 1000 | ||||
| 11250 | 11250 |
C’s Capital A/c
| Date | Detail | Rs. | Date | Detail | Rs. |
| Balance c/d | 7500 | Cash A/c | 7500 | ||
| 7500 | 7500 |
Cash A/c
| Date | Detail | Rs. | Date | Detail | Rs. |
| Balance b/d | 600 | Balance c/d | 11,100 | ||
| C’s Capital A/c | 7500 | ||||
| Goodwill A/c | 3,000 | ||||
| 11,100 | 11,100 |
Updated Balance Sheet of A, B & C
| Assets | Rs. | Liabilities | Rs. |
| Buildings (25,000 + 2500) | 27,500 | Capital account: | |
| Machinery (17,500 – 875) | 16,625 | A | 17,500 |
| Stock (10,000 – 500) | 9500 | B | 11,250 |
| C | 7,500 | ||
| Debtors 4850 | 4475 | Creditors | 32950 |
| Less Provision (375) | |||
| Cash | 11,100 | ||
| 69,200 | 69,200 |
W 1: Calculation Share of Goodwill of A & B
![\[ \mathbf{A}^{\mathbf{'}}\mathbf{s\ Share\ of\ Goodwill = 3000 \times}\frac{\mathbf{2}}{\mathbf{3}}\mathbf{= 2000}\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-ede2c8a11a66b9e6185f36ea50912f67_l3.png "Rendered by QuickLaTeX.com")
![\[ \mathbf{B}^{\mathbf{'}}\mathbf{s\ Share\ of\ Goodwill = 3000 \times}\frac{\mathbf{1}}{\mathbf{3}}\mathbf{= 1000}\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-248cb9295e6894da411735f63b1485cf_l3.png "Rendered by QuickLaTeX.com")
W 2: Revaluation Calculation
Machinery = 17,500 x 0.05 = 875
Stock = 10,000 x 0.05 = 500
Building = 25,000 x 0.10 = 2500
W 3: Net Revaluation increase share of old partners
2500 – 1750 = 750
![\[ \mathbf{A}^{\mathbf{'}}\mathbf{s\ Share = 750\ \times}\frac{\mathbf{2}}{\mathbf{3}}\mathbf{= 500}\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-94e6cd789723564e495e4498d6524391_l3.png "Rendered by QuickLaTeX.com")
![\[ \mathbf{B}^{\mathbf{'}}\mathbf{s\ Share = 750\ \times}\frac{\mathbf{1}}{\mathbf{3}}\mathbf{= 250}\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-77cea9a56447f04fcb5f3f60dda2cb68_l3.png "Rendered by QuickLaTeX.com")
Q.4: On 1st January, 2022 A and B entered into partnership contributing Rs. 200,000 and Rs. 150,000 respectively and sharing profits in the ratio of 3:2. B is to be allowed a salary Rs.5000 per year. Interest on capital is to be allowed at 10%, 5% interest charged on the drawing during the year…..
Q.4: On 1st January, 2022 A and B entered into partnership contributing Rs. 200,000 and Rs. 150,000 respectively and sharing profits in the ratio of 3:2. B is to be allowed a salary Rs.5000 per year. Interest on capital is to be allowed at 10%, 5% interest charged on the drawing during the year. A withdrew Rs.
6000 and B Rs. 1000, profit before making any adjustments was Rs. 48000.
Show how the profit is to be distributed? Also show the capital accounts:
(a) If they are fixed (b) If they are fluctuating
Solution:
Profit & Loss Appropriation Account
| Particulars | Rs. | Particulars | Rs. |
| B’s Salary | 5,000 | Balance b/d | 48,000 |
| Interest on Capital: | Interest on Drawings: | ||
| A: (200,000 x 0.10) | 20,000 | A: 6000 x 0.05 | 300 |
| B: (150,000 x 0.10) | 15,000 | B: 1000 x 0.05 | 50 |
| Profit transferred to : | |||
| A’s Profit W:1 | 5010 | ||
| B’s Profit W:1 | 3340 | ||
| 48350 | 48350 |
Working 1: Calculations of Profit of A & B
![\[ \mathbf{A}^{\mathbf{'}}\mathbf{s\ Profit = 8350\ \times}\frac{\mathbf{3}}{\mathbf{5}}\mathbf{= 5010}\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-28693a8e859121bf52ebd0f559400f56_l3.png "Rendered by QuickLaTeX.com")
![\[ \mathbf{B}^{\mathbf{'}}\mathbf{s\ Profit = 8350\ \times}\frac{\mathbf{2}}{\mathbf{5}}\mathbf{= 3340}\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-00ab337f83ce8c302ca56b4ffb166c00_l3.png "Rendered by QuickLaTeX.com")
(a) When Capitals are Fixed
A’s Capital Account
| Particulars | Rs. | Particulars | Rs. |
| Balance c/d | 200,000 | Balance b/d | 200,000 |
| 200,000 | 200,000 |
A’s Current Account
| Particulars | Rs. | Particulars | Rs. |
| Cash Drawings | 6000 | P&L Appr. A/C: | |
| Interest on Drawings | 300 | Net profit | 5010 |
| Balance c/d | 18710 | Interest on Capital | 20000 |
| 25010 | 25010 |
B’s Capital Account
| Particulars | Rs. | Particulars | Rs. |
| Balance c/d | 150,000 | Balance b/d | 150,000 |
| 150,000 | 150,000 |
B’s Current Account
| Particulars | Rs. | Particulars | Rs. |
| Cash Drawings | 1000 | P&L Appr. A/C: | |
| Interest on Drawings | 50 | Net Profit | 3340 |
| Balance c/d | 22290 | Interest on Capital | 15000 |
| Salary | 5000 | ||
| 23340 | 23340 |
(b) When Capitals are Fluctuating
A’s Capital Account
| Particulars | Rs. | Particulars | Rs. |
| Cash Drawings | 6000 | Cash A/c | 200,000 |
| Interest on Drawings | 300 | P&L Appr. A/C: | |
| Balance c/d | 218710 | Net profit | 5010 |
| Interest on Capital | 20,000 | ||
| 225,010 | 225,010 |
B’s Capital Account
| Particulars | Rs. | Particulars | Rs. |
| Cash Drawings | 1000 | Balance b/d | 150,000 |
| Interest on Drawings | 50 | P&L Appr. A/C: | |
| Balance c/d | 172,290 | Net Profit | 3340 |
| Interest on Capital | 15000 | ||
| Salary | 5000 | ||
| 173,340 | 173,340 |
Part II Marks (10 x 3 = 30)
Note: Attempt any THREE questions.
Q.5: Ahmed Bilal of Rawalpindi, consigned 100 cases of candles to Abdulah which cost him Rs. 50 per case. He incurred the expenses Rs. 450. Some of the cases were damaged in transit and Abdullah took delivery of 90 cases only…..
Q.5: Ahmed Bilal of Rawalpindi, consigned 100 cases of candles to Abdulah which cost him Rs. 50 per case. He incurred the expenses Rs. 450. Some of the cases were damaged in transit and Abdullah took delivery of 90 cases only. Abdullah spent Rs. 350 as expenses and 5% commission on sales. Abdullah sold 80 cases at Rs. 60 per case. Consignor received 300 form railway as damages. Show the necessary ledger accounts in the book of Ahmed Bilal.
Solution:
Consignment to Abdullah A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| Goods Sent on Consignment | 5000 | Abdullah’s A/C (Sales) | 4800 | ||
| Cash A/C (Consignor’s Expenses) | 450 | Stock on Consignment A/c W:2 | 545 | ||
| Abdullah’s A/C (Consignee’s Expenses) | 350 | Profit & Loss (Abnormal Loss W:1) | 245 | ||
| Abdullah’s A/C (Consignee’s Commission) (4800 x 0.05) | 240 | Cash A/c (Insurance) | 300 | ||
| P&L A/C (Loss) | 150 | ||||
| 6040 | 6040 |
Abdullah A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| Consignment to Abdullah A/c | 4800 | Consignment to Abdullah A/c (Expenses) | 350 | ||
| Consignment to Abdullah A/c (Commission) | 240 | ||||
| Bank (Balancing Figure) | 4210 | ||||
| 4800 | 4800 |
Goods Sent on Consignment A/c
| Date | Particulars | Amount | Date | Particulars | Amount |
| Trading A/c | 5000 | Consignment to Abdullah A/c | 5000 | ||
| 5000 | 5000 |
| W:1 Calculation of Abnormal Loss | |
| Cost of lost Candles 10 x 50 | 500 |
| Proportionate Expenses of Consignor: | |
| 450 x (10/100) | 45 |
| Abnormal Loss | 545 |
| Less Insurance Claim | (300) |
| Total Abnormal Loss | 245 |
| W:2 Calculation of Stock | |
| Cost of Unsold Candles 10 x 50 | 500 |
| Proportionate Expenses of Consignor: | |
| 450 x (10/100) | 45 |
| Total Stock | 545 |
Q.6: For the following receipts and payments accounts of SISC club during the year 2021. Receipts and payment account for the year ended on 31, Dec. 2021…..
Q.6: For the following receipts and payments accounts of SISC club during the year 2021. Receipts and payment account for the year ended on 31, Dec. 2021
| Receipts | Rs. | Payments | Rs. |
| Subscription | 5200 | Salaries | 1400 |
| Donation | 300 | Rent | 1300 |
| Admission Fee | 100 | Printing | 100 |
| Sale of Old News papers | 60 | Postage | 80 |
| Newspapers | 70 | ||
| Furniture | 1000 | ||
| Cash | 1710 | ||
| 5660 | 5660 |
Subscription includes Rs. 250 collected in advance for the year 2022. A sum of Rs. 400 is due by members on account of subscription on 31 Dec. 2021. The following expenses are outstanding on 31 Dec. 2021. Salaries Rs. 300 and Rent Rs. 200.
Solution:
SISC Club
Income & Expenditure Account
For the Year Ended 31st Dec 2021
| Expenditure | Rs. | Income | Rs. |
| Salaries 1400 | Subscription 5200 | ||
| Add Outstanding 300 | 1700 | Less Advance (250) | |
| Rent 1300 | Add Outstanding 400 | 5350 | |
| Add Outstanding 200 | 1500 | Donation | 300 |
| Printing | 100 | Admission Fee | 100 |
| Postage | 80 | Sale of Old News papers | 60 |
| Newspapers | 70 | ||
| Excess of Income Over Expenditure | 2360 | ||
| 5810 | 5810 | ||
SISC Club
Balance Sheet
For the Year Ended 31st Dec 2021
| Assets | Rs. | Liabilities | Rs. |
| Furniture | 1000 | Capital Fund 0 | |
| Cash | 1710 | Add Surplus 2360 | 2360 |
| Subscription Outstanding | 400 | Salaries Outstanding | 300 |
| Rent Outstanding | 200 | ||
| Subscription Advance | 250 | ||
| 3110 | 3110 | ||
Q.7: A and Co. purchased machinery for 160000 on 1st July 2013. The books are closed on 31st Dec. every year. On 30th June 2016, it was sold for Rs. 70000 and new machinery was purchased for Rs. 180,000 on the same date……
Q.7: A and Co. purchased machinery for 160000 on 1st July 2013. The books are closed on 31st Dec. every year. On 30th June 2016, it was sold for Rs. 70000 and new machinery was purchased for Rs. 180,000 on the same date. Depreciation is charged at the rate of 15% p.a. on original cost method.
Prepare the machinery account up to 2016 in the books of company.
Solution:
Machinery Account
| Date | Detail | Rs. | Date | Detail | Rs. |
| 1st Jul, 2013 | Cash A/C | 160,000 | 31st Dec, 2013 | Depreciation A/C W:2 | 12,000 |
| 31st Dec, 2013 | Balance c/d | 148,000 | |||
| 160,000 | 160,000 | ||||
| 1st Jan 2014 | Balance b/d | 148,000 | 31st Dec, 2014 | Depreciation A/C W:2 | 24,000 |
| 31st Dec, 2014 | Balance c/d | 124,000 | |||
| 148,000 | 148,000 | ||||
| 1st Jan 2015 | Balance b/d | 124,000 | 31st Dec, 2015 | Depreciation A/C W:2 | 24,000 |
| 31st Dec, 2015 | Balance c/d | 100,000 | |||
| 124,000 | 124,000 | ||||
| 1st Jan 2016 | Balance b/d | 100,000 | 30th Jun, 2016 | Depreciation A/C W:2 | 12,000 |
| 30th Jun 2016 | Cash A/C | 180,000 | 30th Jun, 2016 | Cash A/C | 70,000 |
| 30th Jun, 2016 | P&L A/C (Loss) W:1 | 18,000 | |||
| 31st Dec, 2016 | Depreciation A/C W:2 | 13,500 | |||
| 31st Dec, 2016 | Balance c/d | 166,500 | |||
| 280,000 | 280,000 |
W:1 Calculation of Profit or Loss
| Cost | 160,000 |
| Less Depreciation for 2013 | (12,000) |
| Less Depreciation for 2014 | (24,000) |
| Less Depreciation for 2015 | (24,000) |
| Less Depreciation for 2016 | (12,000) |
| Book Value at the time of Sale | 88,000 |
| Selling Price Realized | (70,000) |
| Loss | 18,000 |
W:2 Depreciation Calculation
![\[ Depreciation\ for\ 2013\ = \ 160,000 \times \frac{15}{100} \times \frac{6}{12} = 12000\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-475f021dd9d3d8b26f021ca3873fd5f4_l3.png "Rendered by QuickLaTeX.com")
![\[ Depreciation\ for\ 2014\ = \ 160,000 \times \frac{15}{100} = 24000\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-1f15c29a9cec710af7d94ee356e33c54_l3.png "Rendered by QuickLaTeX.com")
![\[ Depreciation\ for\ 2015\ = \ 160,000 \times \frac{15}{100} = 24000\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-1ebe913ee556d9a3254d8b64e7307eb3_l3.png "Rendered by QuickLaTeX.com")
![\[ Depreciation\ for\ 2016\ = \ 160,000 \times \frac{15}{100} \times \frac{6}{12} = 12000\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-6365e7f16a5bdebef762cb356dee3fd8_l3.png "Rendered by QuickLaTeX.com")
![\[ Depreciation\ for\ 2016\ = \ 180,000 \times \frac{15}{100} \times \frac{6}{12} = 13500\ \]](https://bcfeducation.com/wp-content/ql-cache/quicklatex.com-9dd9a101b0bb64899826c7b845817165_l3.png "Rendered by QuickLaTeX.com")
Q. 8 Mr. Saleem commenced business on 1st Jan, 2021, with a capital of Rs. 50000. He purchased furniture for Rs. 12000. On 1st April, he borrowed Rs. 30,000 from his friend @ 10% p.a. and introduced further capital of his own amounting the Rs. 19000. He had withdrawn Rs. 1800 at the end of each month for personal use…..
Q. 8 Mr. Saleem commenced business on 1st Jan, 2021, with a capital of Rs. 50000. He purchased furniture for Rs. 12000. On 1st April, he borrowed Rs. 30,000 from his friend @ 10% p.a. and introduced further capital of his own amounting the Rs. 19000. He had withdrawn Rs. 1800 at the end of each month for personal use. On 31st Dec. 2021 his position was as follows. Cash Rs. 1200, Bank Rs. 15600, sundry debtors Rs. 28800, stock Rs. 40800, B/R Rs. 9600, sundry creditors Rs. 3000, rent due Rs. 900.
Ascertain the profit or loss made by him after consideration the following adjustments.
- Depreciate furniture @ 10% p.a.
- Interest on capital @ 10%.
- Write off Rs. 2800 from sundry debtors.
Solution:
Mr. Saleem
Statement of Affairs
As at 31-12-2021
| Assets | Rs. | Liabilities | Rs. |
| Cash in Hand | 1200 | Sundry Creditors | 3000 |
| Cash at Bank | 15600 | Rent Outstanding | 900 |
| Sundry Debtors 28800 | Loan from Friend | 30,000 | |
| Less Write off (2800) | 26000 | ||
| Stock | 40800 | Interest on Loan outstanding: | |
| Bills Receivable | 9600 | 30,000 x 0.10 x 9/12 | 2250 |
| Furniture 12000 | |||
| Less Depreciation: | Capital (Balancing Figure) | 67,850 | |
| 12000x 0.10 (1200) | 10,800 | ||
| 104,000 | 104,000 |
Mr. Saleem
Statement of Profit & Loss
Year Ending 31-12-2021
| Capital 31st Dec 2021 | 67,850 |
| Add Drawings (1800 x 12) | 21,600 |
| Less Additional Capital | (19,000) |
| Adjusted Capital | 70,450 |
| Less Opening Capital 1st January 2021 | (50,000) |
| Less Interest on Capital: | |
| 50,000 x 0.10 | (5000) |
| 19000 x 0.10 x 9/12 | (1425) |
| Profit for the year | 14025 |
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