Solutions-Class-11-Commerce-Book Keeping and Accountancy-Chapter-9-Final Accounts of a Proprietary Concern-Maharashtra Board

A Trading Account is an account that provides an overall preview of all trading activities and is prepared to ascertain the Gross Profit or Gross Loss for a given period of time.

The Profit and Loss Account is the main account of Final Accounts that gives the final working results of a business and is maintained to determine the Net Profit or Net Loss.

A Balance Sheet is prepared as a statement to show the financial position of a business concern by listing its assets and liabilities at a given period of time.

Final Accounts are financial statements consisting of the Trading Account, Profit and Loss Account, and Balance Sheet that validate and explain a business's working results and financial status for a specific period.

Net Profit is the balancing figure of the Profit and Loss Account when the credit side (incomes) is greater than the debit side (expenses).

Gross Profit is the credit balance or balancing figure of the Trading Account, representing the excess of the credit side over the debit side.

Accrued Income (or Outstanding Income) refers to the income which has been earned but not yet received during the current accounting year.

Outstanding Expenses are those expenses which have been incurred but not yet paid during the accounting year.

Depreciation refers to the gradual and continuous decrease or reduction in the value of fixed assets.

Prepaid Expenses (or Unexpired Expenses) are expenses that have been paid in advance for the current year.

(1) Expenses paid before it is due: Prepaid Expenses (or Unexpired Expenses).

(2) Income due but not yet received: Accrued Income (or Outstanding Income).

(3) Carriage paid on sale of goods: Carriage Outward.

(4) Statement of Assets & Liabilities: Balance Sheet.

(5) Account prepared to know Net Profit or Net Loss: Profit and Loss Account.

(6) Value of goods remaining unsold at the end of the year: Closing Stock.

(7) The provision made to compensate the loss on account of likely debts: Reserve for Doubtful Debts (or R.D.D.).

(8) The accounts prepared at the end of the accounting year to know the profit or loss and financial position of business: Final Accounts.

(9) An amount spent on promoting sale of goods: Advertisement.

(10) An additional information provided below the Trial Balance: Adjustments.

(b) Capital

(b) Profit & Loss

(d) Balance Sheet

(b) Liability

(b) Profit & Loss

(a) Gross Loss

(a) Trading

(a) Net Profit

(b) less

(b) Six

This statement is : False

Reason: According to the "Two Effects" table in the sources, adjustments typically have two effects—one as a debit and one as a credit—to ensure the final accounts remain balanced. For example, Closing Stock is credited to the Trading Account and shown on the Assets side of the Balance Sheet.

This statement is : True

Reason: Items appearing in the Trial Balance represent completed transactions already recorded in the ledger; therefore, they are posted only once to either the Trading Account, Profit & Loss Account, or the Balance Sheet. In contrast, adjustments provided outside the Trial Balance require two effects.

This statement is : False

Reason: Income due but not received (also known as Accrued Income or Outstanding Income) is an Asset. The sources state that it represents income earned during the year that is still receivable, and it is recorded on the Assets side of the Balance Sheet.

This statement is : True

Reason: Goodwill is an intangible fixed asset representing the reputation of a business. While it cannot be seen or touched, it is shown on the Asset side of the Balance Sheet because it has real value, unlike fictitious assets which are merely unamortized losses or expenses.

This statement is : True

Reason: The sources define Net Profit as the result when the credit side of the Profit and Loss Account (representing indirect incomes and gains) is greater than the debit side (representing indirect expenses and losses).

(1) Gross Profit is transferred to Profit and Loss account.

(2) Debit Balance of Trading Account indicates Gross Loss.

(3) Income Receivable appears on Assets side of Balance Sheet.

(4) Interest on Bank Loan is debited to Profit and Loss A/c.

(5) Profit and Loss account is prepared to find out final working results of the business.

(6) All indirect / operating expenses are transferred to Profit and Loss account.

(7) Interest of proprietor's drawing is credited to Profit and Loss account.

(8) An excess of debit over credit in the Profit & Loss A/c represents the Net Loss.

(9) All direct expenses are transferred to Trading account.

(10) Balance Sheet is a statement of assets & liabilities.

Plant and Machinery

Reason: Rent, Salary, and Insurance are indirect expenses debited to the Profit and Loss Account. Plant and Machinery is a fixed Asset shown in the Balance Sheet.

Debtors

Reason: Purchases, Closing stock, and Factory Rent are all items that appear in the Trading Account. Debtors is an asset that appears only in the Balance Sheet.

Debtors

Reason: Capital, Bills Payable, and Outstanding wages are all Liabilities shown on the liability side of the Balance Sheet. Debtors is an Asset shown on the asset side.

Factory Rent

Reason: Advertisement, Travelling Expenses, and Insurance are indirect expenses debited to the Profit and Loss Account. Factory Rent is a direct expense debited to the Trading Account.

Reserve for Doubtful Debts

Reason: Cash in Hand, Debtors, and Outstanding Income are all Assets shown on the asset side of the Balance Sheet. Reserve for Doubtful Debts (R.D.D.) is a provision created to compensate for potential losses.

Agree

Reason: A provision for doubtful debts (R.D.D.) is an anticipated loss and is created by debiting the Profit and Loss Account. The specimen Profit and Loss Account also confirms that "New RDD" is added on the debit side.

Disagree

Reason: A Balance Sheet is a statement and not an account. It does not have debit or credit sides; instead, it consists of a "Liability side" (left) and an "Asset side" (right).

Disagree

Reason: Only direct expenses (such as wages, freight, and factory rent) are debited to the Trading Account. All indirect expenses (such as salaries, office rent, and insurance) are debited to the Profit and Loss Account.

Disagree

Reason: Bank Overdraft is a liability to an external financier (the bank) and is listed alongside other external liabilities like Sundry Creditors and Bills Payable on the liability side of the Balance Sheet. Internal liability generally refers to the Capital owed by the business to the owner.

Disagree

Reason: Based on the fundamental accounting equation, Capital is the excess of assets over liabilities (Assets - Liabilities = Capital). A business where liabilities exceed assets would be in a deficit position rather than having positive capital.

Corrected Statement: Balancing figure of Trading Account is Gross Profit or Gross Loss.

Reason: Net Profit or Net Loss is the balancing figure of the Profit and Loss Account, while the Trading Account determines the gross results.

Corrected Statement: All direct expenses are debited to Trading Account.

Reason: Direct expenses (like wages and freight) are debited to the Trading Account, whereas indirect expenses are debited to the Profit and Loss Account.

Corrected Statement: When the credit side of Profit and Loss account is greater than debit side, it is called Net Profit.

Reason: A credit balance in the Profit and Loss Account indicates that total indirect incomes exceed total indirect expenses, resulting in a profit.

Corrected Statement:

Profit & Loss A/c............ Dr

To Capital A/c

(Being Net Profit transferred to Capital A/c).

Reason: To transfer Net Profit, the Profit and Loss Account must be debited and the Capital Account must be credited to increase the owner's capital.

Corrected Statement:

Sales A/c ............... Dr

To Trading A/c

(Being Sales transferred to Trading A/c).

Reason: Sales is a credit balance; therefore, to transfer and close the account at the end of the year, Sales Account is debited and Trading Account is credited.

Capital = Total Assets - Total Liabilities:

Total Assets: Building (20,000) + Furniture (15,000) + Debtors (30,000) + Investments (10,000) + Cash at Bank (5,000) + Plant and Machinery (20,000) = ₹ 1,00,000.

Total Liabilities: Bills Payable (18,000) + Creditors (20,700) + Outstanding Wages (1,250) = ₹ 39,950.

Capital: ₹ 1,00,000 - ₹ 39,950 = ₹ 60,050.

Depreciation is calculated on the total cost of the asset for the period it was used during the accounting year:

Total Cost of Machinery: Purchase Price (35,500) + Installation Charges (4,500) = ₹ 40,000.

Period of Usage: From 1st July 2018 to 31st March 2019 = 9 months.

Calculation: ₹ 40,000 × \(\frac{7}{100}×\frac{9}{12}\)  = ₹ 2,100.

Interest is charged from the date the loan was borrowed until the end of the financial year:

Loan Amount: ₹ 3,50,000.

Period: From 1st Oct 2018 to 31st March 2019 = 6 months.

Interest (I) =  = ₹ 3,50,000 × \(\frac{12}{100}×\frac{6}{12}\) = ₹ 21,000.

This requires determining the portion of the annual premium that applies to the current year (ending 31st March):

Annual Premium: ₹ 8,000 paid on 1st Dec 2018.

Current Year Portion: From 1st Dec 2018 to 31st March 2019 = 4 months.

Calculation: ₹ 8,000 × \(\frac{4}{12}\)  = ₹ 2,666.67 (The remaining ₹ 5,333.33 for 8 months would be treated as Prepaid Insurance).

Gross Profit is the excess of the credit side of the Trading Account over its debit side:

Total Credit Side: Sales (30,000) + Closing Stock (18,000) = ₹ 48,000.

Total Debit Side: Opening Stock (5,000) + Net Purchases (15,500 - 500 = 15,000) + Carriage Inward (1,200) = ₹ 21,200.

Gross Profit: ₹ 48,000 - ₹ 21,200 = ₹ 26,800.