Notes-Class-11-Commerce-Book Keeping and Accountancy-Chapter-10-Single Entry System-Maharashtra Board

✏️ Worked Example

Given Opening Capital = ₹90,000    Closing Capital = ₹1,50,000 Additional Capital introduced = ₹10,000    Drawings during the year = ₹15,000

Particulars	Amt (₹)	Amt (₹)
Closing Capital		1,50,000
Add: Drawings	15,000
		1,65,000
Less: Additional Capital introduced during the year		10,000
Adjusted Closing Capital		1,55,000
Less: Opening Capital		90,000
Net Profit for the Year		65,000

Additional Information / Adjustments :

Eleven common adjustments must be considered while preparing the Statement of Profit or Loss to arrive at the correct (accurate) Net Profit or Net Loss:

1. Additional Capital

Cash or assets of any kind brought into the business by the proprietor during the year, over and above the original capital.

Treatment in Statement of Profit or Loss : DEDUCTED from Closing Capital

2. Drawings

Cash, goods, or assets withdrawn by the proprietor for personal/private use during the year.

Treatment in Statement of Profit or Loss : ADDED to Closing Capital

3. Depreciation of Fixed Assets

The fall in value of fixed assets (Machinery, Furniture, Building, etc.) due to use/wear and tear.

Treatment in Statement of Profit or Loss : DEDUCTED (charged against profit)

4. Bad Debts

Amount owed by a debtor that cannot be recovered.

Treatment in Statement of Profit or Loss : DEDUCTED

5. Reserve for Doubtful Debts (RDD)

A provision created on Sundry Debtors (after deducting further bad debts) to cover potential future bad debts, usually given as a percentage.

Treatment in Statement of Profit or Loss : DEDUCTED

6. Undervaluation & Overvaluation of Assets and Liabilities

Assets/Liabilities in the books may not reflect true value and must be corrected:

Treatment in Statement of Profit or Loss : See sub-cases below

Case	Effect on Capital	Adjustment in Statement of P&L
Undervaluation of Assets	Capital understated → increase asset value	ADDED
Overvaluation of Assets	Capital overstated → decrease asset value	DEDUCTED
Undervaluation of Liabilities	Capital overstated → increase liability value	DEDUCTED
Overvaluation of Liabilities	Capital understated → decrease liability value	ADDED

🔑 Formula for Over/Under-valuation (when % is given on Book Value)

Actual Value = Book Value × 100 ÷ (100 + % of Overvaluation)

Actual Value = Book Value × 100 ÷ (100 − % of Undervaluation)

Example: Stock of ₹90,000 is overvalued by 20%.

Actual Value = 90,000 × 100/120 = ₹75,000  →  Loss of ₹15,000 (deducted)

7. Interest on Loan

Interest payable on any amount borrowed by the business (Bank Loan etc.) is an expense to the business.

Treatment in Statement of Profit or Loss : DEDUCTED

8. Interest on Capital

Interest allowed to the proprietor on Opening Capital and on Additional Capital (for the period it was actually used in the business). It is an expense to the business.

Treatment in Statement of Profit or Loss : DEDUCTED

✏️ Worked Example — Interest on Capital

Opening Capital (31 Mar 2017) = ₹1,50,000; Additional Capital introduced (1 Oct 2017) = ₹40,000; Rate = 10% p.a.

Interest on Opening Capital: 10% on ₹1,50,000 for 1 year = ₹15,000

Interest on Additional Capital: 10% on ₹40,000 for 6 months = ₹2,000

Total Interest on Capital = ₹17,000

9. Interest on Drawings

Interest charged to the proprietor on amounts withdrawn during the year — this is income to the business. (If the date of drawings is not given, interest is calculated for 6 months by default.)

Treatment in Statement of Profit or Loss : ADDED

10. Outstanding / Unpaid Expenses

Expenses that are due but have not yet been paid during the year.

Treatment in Statement of Profit or Loss : DEDUCTED

11. Prepaid Expenses / Expenses Paid in Advance / Unexpired Expenses

Expenses paid in advance that relate to the next accounting year, not the current one.

Treatment in Statement of Profit or Loss : ADDED

Consolidated (Master) Format — Statement of Profit or Loss with All Adjustments

Particulars	Amt (₹)	Amt (₹)
Closing Capital at the end of the year		………
Add: Drawings during the year (Cash + Kind)	………
Less: Additional Capital	………
Adjusted Closing Capital		………
Less: Opening Capital		………
Profit before adjustments		………
Add: Incomes & Gains — Int. on Drawings, Int. on Investment, Prepaid Exp., Outstanding Income, Undervaluation of Assets, Overvaluation of Liabilities	………
Less: Expenses & Losses — Int. on Capital, Int. on Loan, Bad Debts & RDD, Depreciation, Overvaluation of Assets, Undervaluation of Liabilities, Outstanding Exp., Income received in advance	………
Net Profit / Net Loss for the year		………

🧠 Memory Aid — "ADD" vs "LESS" items

ADD to Profit: Drawings (to closing capital) • Interest on Drawings • Prepaid Expenses • Undervaluation of Assets • Overvaluation of Liabilities

DEDUCT from Profit: Additional Capital • Interest on Capital • Interest on Loan • Depreciation • Bad Debts & RDD • Overvaluation of Assets • Undervaluation of Liabilities • Outstanding Expenses

Solved Illustrations :

Illustration 1 — Simple Profit Calculation (Mr. Manoj)

Mr. Manoj keeps his books under Single Entry System and gives the following information:

• Capital as on 31.3.2017 ₹ 80,000
• Capital as on 31.3.2018 ₹ 1,00,000
• Drawings made during the year ₹ 3,000
• Additional Capital introduced during the year ₹ 8,000

Calculate Profit or Loss for the year ended 31st March, 2018.

Solution :

Given :  Capital as on 31.3.2017 = ₹80,000    Capital as on 31.3.2018 = ₹1,00,000 Drawings during the year = ₹3,000    Additional Capital introduced = ₹8,000

Particulars	Amt (₹)	Amt (₹)
Closing Capital		1,00,000
Add: Drawings during the year	3,000
		1,03,000
Less: Additional Capital during the year		8,000
Adjusted Closing Capital		95,000
Less: Opening Capital		80,000
Net Profit for the year		15,000

Illustration 2 — Statement of Affairs with Depreciation (Mr. Morya)

Mr. Morya keeps his books on Single Entry System and gives the following information:

Additional information:

1. Mr. Morya withdrew from business account ₹ 6,000 for personal use.
2. He introduced Additional Capital of ₹ 30,000
3. Depreciation is to be charged at 10% p.a. on Furniture and Machinery.

Prepare:   1) Opening and Closing Statement of Affairs

2) Statement of Profit or Loss for the year ended 31.3.2018

Solution :

This example shows how to prepare Opening & Closing Statements of Affairs in columnar form, then use the balancing capital figures in the Statement of Profit or Loss, further adjusted for depreciation and interest on loan.

Key data: Bills Payable, Sundry Creditors and Bank Loan @10% p.a. as liabilities; Machinery, Furniture, Stock, Debtors and Cash as assets, for years 2017 and 2018. Additional Capital ₹30,000 introduced; Drawings ₹6,000; Depreciation @10% p.a. on Furniture & Machinery.

Step 1: Statement of Affairs (Columnar Form)

Liabilities	31.3.2017	31.3.2018	Assets	31.3.2017	31.3.2018
Bills Payable	4,000	4,000	Machinery	60,000	60,000
Sundry Creditors	10,000	15,000	Furniture	30,000	30,000
Bank Loan @10%	4,300	4,300	Stock in Trade	20,000	35,000
Capital (Bal. fig.)	1,26,700	1,83,700	Sundry Debtors	25,000	42,000
			Cash at Bank	10,000	40,000
Total	1,45,000	2,07,000	Total	1,45,000	2,07,000

Step 2: Statement of Profit or Loss

Particulars	Amt (₹)	Amt (₹)
Capital as on 31.3.2018		1,83,700
Add: Drawings during the year	6,000
		1,89,700
Less: Additional Capital during the year		30,000
Adjusted Closing Capital		1,59,700
Less: Capital as on 31.3.2017		1,26,700
Profit before adjustments		33,000
Less: Depreciation on Machinery (10% on 60,000)	6,000
Less: Depreciation on Furniture (10% on 30,000)	3,000
Less: Interest on Bank Loan (10% on 4,300)	430	9,430
Net Profit for the year		23,570

Illustration 3 — Overvaluation of Stock (Jyoti)

Jyoti keeps her books on Single Entry System. From the following particulars, prepare Opening and Closing Statement of Affairs and Statement of Profit or Loss for the year ended 31st March 2018.

Additional Information:

1. Jyoti has withdrawn ₹ 33,500 from the business for her private use.
2. She has introduced additional Capital of ₹ 5,000 in the business on 1st Jan,2018
3. Additions to Machinery were made on 1st January, 2018
4. Depreciate Furniture and Machinery @ 10% p.a.
5. Maintain R.D.D. @ 15% on Sundry Debtors.
6. Closing Stock is overvalued by 20% in the books.

Solution :

This illustration involves multiple adjustments together: depreciation (with mid-year addition), Reserve for Doubtful Debts, and overvaluation of closing stock.

Working Note — Overvaluation of Stock by 20%

Calculation Actual Value = Book Value × 100 ÷ (100 + 20) = 90,000 × 100/120 = ₹75,000 Overvaluation = ₹90,000 − ₹75,000 = ₹15,000 (deducted as a loss)

Statement of Profit or Loss :

Particulars	Amt (₹)	Amt (₹)
Closing Capital as on 31.3.2018		3,53,000
Add: Drawings	33,500
		3,86,500
Less: Additional Capital		5,000
Adjusted Closing Capital		3,81,500
Less: Opening Capital as on 1.4.2017		2,76,500
Profit before adjustments		1,05,000
Less: Depreciation on Furniture (10% on 18,000)	1,800
Less: Depreciation on Machinery (existing + additional)	9,750
Less: R.D.D. (15% on Debtors 1,60,000)	24,000
Less: Overvaluation of Stock	15,000	50,550
Net Profit during the year		54,450

 

Illustration 4 — Interest on Capital & Drawings, Bad Debts, RDD (Rohit)

Rohit a trader keeps his books on Single Entry System. His financial position as on 1.4.2018 and 31.3.2019 were as under;

During the year he had withdrawn ₹ 100 per month for household expenses. Depreciate Building by 10 % p.a. and Furniture by 12% p.a. (Assume additions to both were made on 1st Oct. 2018) Debtors ₹ 1,000 are bad and to be written off. Create Reserve for Doubtful Debts at 5% and maintain reserve for discount on debtors at 2%. Allow interest on capital at 5% p.a. and interest on drawings at 5% p.a. Prepare Opening and Closing Statement of Affairs and Statement of Profit or

Loss for the year ended 31.3.2019.

Solution :

This is the most comprehensive type of problem — combining depreciation on assets added mid-year, bad debts, RDD, reserve for discount on debtors, and interest on both capital and drawings.

Particulars	Amt (₹)	Amt (₹)
Capital as on 31.3.2019		1,66,000
Add: Drawings (₹100 × 12 months)	1,200
		1,67,200
Less: Capital as on 1.4.2018		1,22,000
Profit before adjustments		45,200
Add: Interest on Drawings (5% on 1,200 for 6 months)	30
Less: Interest on Capital (5% on 1,22,000)	6,100
Less: Depreciation on Building (existing + additional)	5,000
Less: Depreciation on Furniture (existing + additional)	2,100
Less: Bad Debts	1,000
Less: R.D.D. (5% on 34,000)	1,700
Less: Reserve for Discount on Debtors (2% on 32,300)	646	16,516
Net Profit for the year		28,684

Note: Since the exact date of drawings was not given, interest on drawings is calculated for 6 months by default.