Final Accounts: Problem and Solution with Adjustments | P12

Published on: September 26, 2020

Problem and Solution of Final Accounts with Adjustments

Every business firm prepares final accounts at the end of accounting year; here are the final accounts problem and solution with adjustments.

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

PROBLEM: 12

The authorized capital of SRK Company Ltd is $10,00,000 divided into 8,000 equity shares of $100 each and 2,000; 7% preference shares of $100.

The following is the trial balance of the company for the year ended 31^th March 2020:

Particulars	Amount	Particulars	Amount
Stock 1^st April	1,30,000	Sales	8,50,000
Purchase	6,50,000	Paid up share capital @ $100	5,00,000
Fuel, power	5,000	7% Preference shares @ $100	2,00,000
Land and building	5,00,000	Creditors	1,60,000
Salaries	60,000	Assets replacement fund	20,000
Machinery	1,00,000	Retained earnings account	20,000
Debtors	80,000	6% debenture	1,00,000
Cash at bank	7,500	Provision for bad debts	5,000
Preliminary expenses	37,500	Share premium	20,000
Wages	20,000
Carriage outward	5,000
Investment in 8% Government bond	2,00,000
Rent	10,000
Bad debts	3,000
Phone and internet expenses	12,000
Advance insurance	10,000
Goodwill	20,000
Interest on debenture	5,000
Calls in arrears	20,000

	18,75,000		18,75,000

Additional information:

· Stock on 31 March was $150,000

· Provide depreciation on machinery by 10% but increase land by $50,000.

· Bad debts $2,000 and provision for doubtful debts 5% and discount 2% on sundry debtors.

· Creditors allowed 5% discount.

· Outstanding salary was $2,000 but prepaid wages $3,000.

· Goods lost by fire $15,000 and Insurance Company accepted a claim 50% only.

· Insurance expired by $8,000.

· Goodwill written off by 50%

· The directors decided to pay 10% dividend on paid up capital.

· Transfer $10,000 to assets replacement fund out of profit.

· Managing directors is entitled commission of 3% on net profit before charging.

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

(3) Profit and loss appropriation account; (4) Balance sheet

[Answer: Gross profit = $213,000; Net profit = $146,584;

Surplus = $94,584; Balance sheet = $11,46,118

*M’s commission (292,000 – 140,882) = 151,118 x 3% = $4,534

SOLUTION:

Trading Account

SRK Company Ltd

For the year ending 31^st March 2020

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Salary	60,000		By Gross profit	2,13,000
Add: Outstanding	+2,000	62,000	By Appreciation on land	50,000
To Depreciation on machinery		10,000	By Accrued interest on investment	16,000
To Bad debts	3,000		By Provision for bad debts	5,000
Add: New bad debts	2,000		By Discount on creditors	8,000
Add: RBD	3,900
Add: Discount	+1,482	10,382
To Loss by fire (15,000 @50%)		7,500
To Carriage outward		5,000
To Rent		10,000
To Phone and internet exp.		12,000
To Debenture interest	5,000
Add: Outstanding	+1,000	6,000
To Goodwill written off		10,000
To Advance insurance expired		8,000
To O/s manager’s salary		4,534
To Net profit		1,46,584
		292,000		292,000

Profit and Loss Appropriation (Retained Earnings) Account

Particulars	Amount	Particulars .	Amount
To Assets replacement fund	10,000	By Balance b/d	20,000
To Proposed dividend Eq. shares	48,000	By Net profit	1,46,584
To Proposed dividend of Pref. shares	14,000
To Balance c/d (Surplus)	94,584
	1,66,584		1,66,584

Balance Sheet

SRK Company Ltd

Year ending 31^st March 2020

Capital & Liabilities		Amount	Assets		Amount
Authorized share capital:			Goodwill	20,000
8,000 Equity shares @ $100		800,000	Less: Written off 50%	(10,000)	10,000
2,000; 7% Pref. shares @ $100		200,000
Issued and paid capital:			Fixed assets:
5,000 Eq. shares @ $100	500,000		Land and building	500,000
Less: Calls in arrear	(20,000)	480,000	Add: Appreciation	+50,000	550,000
2,000; 7% Pref. shares @ $100		200,000
Share premium		20,000	Plant and machinery	100,000
Reserve, fund and surplus:			Less: Depn 10%	(10,000)	90,000
Asset replacement fund	20,000		Investment:
Add: New fund	+10,000	30,000	Investment in 6% bond	200,000
Retained earnings (surplus)		94,584	Add: Interest	+16,000	216,000
Secured and unsecured loan:			Current assets:
10% Debenture		100,000	Debtors	80,000
			Less: Bad debts	(2,000)
Current liabilities:				78,000
O/s interest on debenture		1,000	Less: BBD 5%	(3,900)
Creditors	160,000			74,100
Less: Discount 5%	(8,000)	152,000	Less: Discount 2%	(1,482)	72,618
Outstanding salary		2,000	Cash and bank		7,500
Outstanding manager’s comm		4,534	Closing stock		150,000
Provisions:			Insurance claim		7,500
Proposed dividend on E. Shares		48,000
Proposed dividend on P. Shares		14,000	Loans and advance:
			Advance insurance	10,000
			Less: Expired	(8,000)	2,000
			Prepaid wages		3,000
			Miscellaneous expenditure:
			Preliminary expenses		37,500
		11,46,118			9,46,118

#####

Click on link for YouTube videos
Share (Accounting for Share)	http://tiny.cc/889jkz
Share in Nepali	http://tiny.cc/k99jkz
Debentures	http://tiny.cc/yeakkz
Final Account: Class 12	http://tiny.cc/e89jkz
Final Account in Nepali	http://tiny.cc/w89jkz
Work Sheet	http://tiny.cc/579jkz
Ratio Analysis (Accounting Ratio)	http://tiny.cc/4fakkz
Fund Flow Statement	http://tiny.cc/wiakkz
Cash Flow Statement	http://tiny.cc/8gakkz
Theory Accounting Xii	http://tiny.cc/nfakkz
Theory: Cost Accounting	http://tiny.cc/tfakkz
Cost Accounting	http://tiny.cc/p29jkz
LIFO−FIFO	http://tiny.cc/dgakkz
Cost Sheet, Unit Costing	http://tiny.cc/w49jkz
Cost Reconciliation Statement	http://tiny.cc/829jkz

#####

PROBLEM AND ANSWERS OF FINAL ACCOUNTS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

Problem: 12A

The trial balance of EP Corporation Ltd is given below for 31^st December 2019: