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Final Accounts with Adjustments | Problem and Solution | P8

Arjun EP

Published on: July 5, 2020

Preparation of Final Accounts

Final accounts are also known as financial statements.

These statements are prepared to know about operating results and overall financial position to the company.

Joint Stock Company needs to prepare its final account at the end of every financial year.

Generally, final accounts of a manufacturing company involve the following statements:

(1) Manufacturing account

(2) Trading account

(3) Profit and loss account

(4) Profit and loss appropriation account

(5) Balance sheet

According to Company Act, annual financial statement should be prepared by the board of directors of a public limited company every year at least thirty (30) days prior to the holding of its annual general meeting.

In the case of private limited company, within the six months of the expiry of its financial year.

According to company act, financial statement involves the following statements:

(a) Balance sheet as at the last date of the accounting or financial year.

(b) Profit and loss account of the accounting or financial year.

Meaning of Final Accounts

Final account is prepared by every business organization at the end of accounting period.

Trading account is prepared to determine gross profit or gross loss of the company.

Profit and loss account is prepared to find out net profit or net loss of the business activities of the company.

Balance sheet is prepared to find out financial position of the organization.

Final Accounts with Adjustments

Adjustment entry	Journal entry		Effects on
Closing stock	Closing stock account	Dr	Show in credit side of trading account
	To Trading account		Show in assets side of B/S
Outstanding expenses	Related expenses account	Dr	Added with related expenses in trading/P&L A/c
	To O/s related expenses A/c		Show in liabilities side of B/S
Prepaid expenses	Prepaid expenses account	Dr	Deducted from related expenses in trading/P&L A/c
	To Related prepaid exp A/c		Show in assets side of B/S
New bad debts	Bad debts account	Dr	Show in debit side of profit and loss account
	To Debtors account		Deducted from debtors in B/S
Provision for bad debts	Provisions for bad debts account	Dr	Show in debit side of profit and loss account
	To Debtors account		Deducted from debtors in B/S
Discount on debtor	Discount on debtor account	Dr	Show in debit side of profit and loss account
	To Debtors account		Deducted from debtors in B/S
Depreciation on asset	Depreciation account	Dr	Show in debit side of profit and loss account
	To Asset (by name) A/c		Deducted from related asset in B/S
Appreciation on asset	Asset (by name) account	Dr	Show in debit credit of profit and loss account
	To Appn on Asset (by name) A/c		Add in related asset in B/S
Discount on creditor	Creditors account	Dr	Show in credit side of profit and loss account
	To Discount on creditors A/c		Deducted from creditors in B/S
Capital expenses in	Asset (by name) account	Dr	Add in related asset in B/S then deduct depreciation
Revenue expenses	To Expenses (by name) account		Deducted from related expense on trading or P&L

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 8A

TK Manufacture Company has following trial balance on 31^st December:

Particulars	Amount Dr	Particulars	Amount Cr
Purchase	9,00,000	Sales	13,00,000
Return inward	20,000	Return outward	20,000
Opening stock (inventory)	3,80,000	Capital	5,00,000
Factory expenses	55,000	Creditors	2,00,000
Land and building	2,50,000	10% Bank loan	1,00,000
Plant and machinery	2,50,000	Interest on investment	5,000
Preliminary expenses	80,000	Commission received	32,500
Debtors	1,50,000	Bank overdraft	2,50,000
Wages paid	80,000	Sundry income	60,000
Carriage on purchase	20,000	Provision for bad debts	7,500
Rent paid	15,000	General reserve	45,000
Cash	35,000	Outstanding rent	30,000
Investment	1,00,000
Bad debts	10,000
Office expenses	25,000
Insurance expenses	20,000
Salaries paid	1,00,000
Advertisement expenses	10,000
Drawings	50,000
	25,50,000		25,50,000

Additional information:

Closing stock (inventory) has cost value $450,000 but market value $480,000.

Land was increased by $50,000.

Plant and machinery was depreciated by 10%.

Outstanding wages was $10,000.

Prepaid insurance was $4,000.

Goods worth $6,500 loss by theft but insurance company accepted claim only $4,000.

Required: (1) Trading account; (2) Profit and loss account; (3) Balance sheet

[Answer: Gross profit = $311,500; Net loss = $253,000; Balance sheet = $13,48,000]

SOLUTION:

Trading Account

TK Manufacturing Company

On 31^st December 2021

Particulars		Amount	Particulars		Amount
To Opening stock		3,80,000	By Sales	13,00,000
To Purchase	900,000		Less: Return	(20,000)	12,80,000
Less: Return	(20,000)		By Closing stock		4,50,000
Less: Loss by theft	(6,500)	873,500
To Factory expenses		55,000
To Carriage on purchase		20,000
To Wages paid	80,000
Add: Outstanding	+10,000	90,000
To Gross profit c/d		311,500
		17,30,000			17,30,000

Cr 17,30,000 – Dr 14,18,500 = 311,500 GP

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Salary paid		1,00,000	By Gross profit b/d	311,500
To Rent paid		15,000	By Interest on investment	5,000
To Bad debts	10,000		By Commission	32,500
Less: PBD, old	(7,500)	2,500	By Sundry income	60,000
To Office expenses		25,000	By Appreciation on land	50,000
To Insurance	20,000
Less: Prepaid	(4,000)	16,000
To Advertisement expenses		10,000
To O/s interest on loan		10,000
To Depreciation on P&M		25,000
To Loss by theft (6,500 – 4,000)		2,500
To Net profit		2,53,000
		4,52,500		4,59,000

Cr 459,000 – Dr 206,000 = 253,000 NP

Balance Sheet

TK Manufacturing Company

As on 31^st December 20XX

Liabilities + capital +profit		Amount	Assets		Amount
Capital	500,000		Cash in hand		35,000
Add: Net profit	253,000		Cash at bank
Less: Drawings	(50,000)	7,03,000	Land and building	250,000
Creditors		2,00,000	Add: Appreciation	+50,000	3,00,000
10% Bank loan	100,000		Plant and machinery	250,000
Add: O/s interest	10,000	1,10,000	Less: Depn	(25,000)	2,25,000
Bank overdraft		2,50,000	Preliminary expenses		80,000
General reserve		45,000	Debtors		1,50,000
Outstanding:			Investment		1,00,000
Rent	30,000		Prepaid insurance		4,000
Wages	10,000	40,000	Closing stock		4,50,000
			Insurance claim		4,000
		13,48,000			13,48,000

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Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance & Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Final Accounts: Class 11	http://tiny.cc/y89jkz
Adjustment in Final Accounts	http://tiny.cc/keakkz
Capital and Revenue	http://tiny.cc/peakkz
Single Entry System	http://tiny.cc/n19jkz
Non-Trading Concern	http://tiny.cc/j09jkz
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 8B

Dharan Multi Suppliers has following Trial Balance on 31^st December

Debit balance	Amount	Credit balance	Amount
Drawing	12,500	Capital	1,30,000
Opening stock	74,800	Return to suppliers	7,500
Carriage inward	12,000	Rent outstanding	31,000
Return inward	5,500	Interest received	500
Fixed deposit	18,300	Creditors	30,000
Carriage on sales	7,000	Sales	7,20,000
Loan to friend (investment)	10,000	Provision for bad debts	7,000
Purchases	5,30,000
Debtors	60,000
Goodwill	8,500
Advertisement expenses	9,500
Bad debts	4,000
Cash	20,600
Commission paid	3,300
Wages paid	30,000
Plant and machinery	78,000
Prepaid Insurance	2,000
Salaries paid	40,000
	9,26,000		9,26,000

Additional Information:

Write-off bad debts of $2,000, provision for bad debts @ 5% and discount 2% on debtors.

Closing stocks (inventory) at the end of the year were valued at $1,60,000.

Wages included $2,000 paid for erection of plant and depreciate plant by 10%.

Discount on creditors @ 5%.

Required: (1) Trading account; (2) Profit and loss account; (3) Balance sheet

[Answer: Gross profit = $237,200; Net profit = $168,398;

Balance sheet = $345,398]

SOLUTION:

Dharan Multi Suppliers

Trading Account

As on 31^st December 20XX

Particulars		Amount	Particulars		Amount
To Opening stock		74,800	By Sales	720,000
To Purchase	530,000		Less: Return	(5,500)	714,500
Less: Return	(7,500)	522,500	By Closing stock		160,000
To Carriage on purchase		12,000
To Wages paid	30,000
Less: Plant	(2,000)	28,000
To Gross profit		237,200
		874,500			874,500

Cr 874,500 – Dr 637,300 = 237,200 GP

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Salary paid		40,000	By Gross profit	237,200
To Carriage on sales		7,000	By Interest received	500
To Advertisement expenses		9,500	By Discount on creditors	1,500
To Bad debts	4,000
Add: Bad debts, new	2,000
Add: PBD	2,900
Add: Discount	1,102
Less: PBD, old	(7,000)	3,002
To Commission paid		3,300
To Depn on machinery		8,000
To Gross profit		168,398
		239,200		239,200

Cr 239,200 – Dr 70,802 = 168,398 NP

Balance Sheet

Dharan Multi Suppliers

As on 31^st December 20XX

Liabilities + capital +profit		Amount	Assets		Amount
Capital	130,000		Cash in hand		20,600
Add: Net profit	168,398		Cash at bank		−
Less: Drawings	(12,500)	2,85,898	Fixed deposit		18,300
Outstanding rent		31,000	Loan to friend		10,000
Creditors	30,000		Debtors	60,000
Less: Discount 5%	(1,500)	28,500	Less: Bad debts	(2,000)
				58,000
			Less: PBD 5%	(2,900)
				55,100
			Less: Discount 2%	(1,102)	53,998
			Goodwill		8,500
			Plant and machinery	78,000
			Add: Wages	+2,000
				80,000
			Less: Depn 10%	(8,000)	72,000
			Prepaid insurance		2,000
			Closing stock		160,000
		345,398			345,398

#####

Problems and Answers of Final Accounts

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 8A

Following is the trial balance of EP Traders on 31^st December 2021:

Particulars	Amount Dr	Particulars	Amount Cr
Purchase	310,000	Sales (net)	300,000
Carriage	5,000	Advance commission received	20,000
Salaries paid	24,000	Creditors	85,000
Electricity expenses	4,500	Bank overdraft	80,000
Travelling expenses	8,900	Bills payable	10,000
Telephone expenses	4,300	Capital	120,000
Advertisement expenses	10,000
Advance insurance	3,300
Land	150,000
Bad debts	2,000
Sundry debtors	45,000
Bills receivable	30,000
Cash in hand	8,000
Drawings	10,000
	615,000		615,000

Additional information:

(a) Purchase includes $10,000 representing the value of furniture purchase.

(b) $12,000 commission earned during the year out of advance.

(d) Discount on debtors 2% and creditors agreed to provide discount 2%

(e) Provide 15% depreciation on furniture and appreciate land by $20,000.

(f) The stock on 31^st December was valued $1,20,000 but cost value was $126,530.

(g) Goods worth $3,000 lost by fire but insurance company did not accept any claim.

Required: Trading account, profit and loss account and balance sheet

[Answer: Gross profit = $118,000; Net profit = $89,464; Balance sheet = $380,764]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 8B

The following trial balance and adjustments of AK Trading Concern on 31 Dec 2021were given to you:

Name of ledgers	Dr Amount	Cr Amount
Drawing	12,500
Capital		1,60,000
Opening stock	74,400
Carriage inward	12,400
Return inward	5,500
Return to suppliers		7,500
Deposit with suppliers	18,300
Carriage on sales	7,000
Rent outstanding		1,000
Loan to Raju	10,000
Interest on loan		500
Creditors		30,000
Purchases	11,30,000
Sales		12,80,000
Provision for bad debts		12,000
Debtors	60,000
Goodwill	31,000
Advertisement	9,500
Bad debts	4,000
Cash	20,600
Discount allowed	3,300
Wages	7,500
Plant and machinery	78,000
Prepaid Insurance	2,000
Goodwill written off	5,000
Total	14,91,000	14,91,000