Following is the Trial Balance of a trader as on 31 Chaitra: Particulars Debit (Rs.) Credit (Rs.) : : : Opening Stock 1,00,000 Purchases 4,50,000 Plant 50,000 Drawing 10,000 Wages 20,000 Carriage…

Solution to the Problem

Step 1: Preparation of Trading Account

The Trading Account is prepared to determine the Gross Profit by deducting the Cost of Goods Sold (COGS) from Net Sales.

Formula: $$\text{COGS}=\text{Opening Stock}+\text{Purchases}+\text{Direct Expenses}-\text{Closing Stock}-\text{Abnormal Loss}$$

Adjustments:

1. Closing Stock (Rs. 1,60,000) is added to the Credit Side (since it is unsold stock).
2. Loss by Theft (Rs. 10,000) is an abnormal loss and is deducted from Purchases (or added to COGS).
3. Insurance Claim Received (Rs. 6,000) is a recovery and reduces the loss by theft.
4. Net Loss by Theft = Rs. 10,000 - Rs. 6,000 = Rs. 4,000 (to be deducted from Purchases).

Direct Expenses (Manufacturing Costs):

• Wages (Rs. 20,000)
• Carriage (Rs. 15,000)
• Insurance (Rs. 10,000) – Prepaid Insurance (Rs. 1,000) is deducted (since only Rs. 9,000 is an expense).

Calculation of COGS: $$\text{COGS}=1,00,000+4,50,000+20,000+15,000+9,000-1,60,000-4,000=3,30,000$$

Trading Account:

Gross Profit Calculation: $$\text{Net Sales}=6,50,000$$ $$\text{Gross Profit}=6,50,000-3,30,000=3,20,000$$

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Step 2: Preparation of Profit and Loss Account

The Profit and Loss Account is prepared to determine the Net Profit by deducting Indirect Expenses from Gross Profit.

Adjustments:

1. Prepaid Insurance (Rs. 1,000) is deducted from Insurance (already adjusted in Trading A/c).
2. Outstanding Rent (Rs. 10,000) is added to Rent (since it is an expense for the next period).
3. Commission (Rs. 15,000) is a finance expense (deducted from Gross Profit).
4. Bad Debts (Rs. 2,000) and Provision for Doubtful Debts (10% of Debtors) are financial losses.

Calculation of Net Profit: $$\text{Total Indirect Expenses}=30,000(\text{Salaries})+15,000(\text{Rent})+10,000(\text{Insurance})+15,000(\text{Commission})+2,000(\text{Bad Debts})+5,000(\text{Provision for Doubtful Debts})+10,000(\text{Outstanding Rent})=97,000$$ $$\text{Net Profit}=3,20,000-97,000=2,23,000$$

Profit and Loss Account:

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Step 3: Preparation of Balance Sheet

The Balance Sheet is prepared to show the financial position of the business as of 31 Chaitra.

Adjustments:

1. Prepaid Insurance (Rs. 1,000) is shown as a Current Asset.
2. Outstanding Rent (Rs. 10,000) is shown as a Current Liability.
3. Bad Debts (Rs. 2,000) and Provision for Doubtful Debts (Rs. 5,000) reduce Debtors.
4. Net Debtors = Rs. 70,000 - Rs. 2,000 - Rs. 5,000 = Rs. 63,000.
5. Closing Stock (Rs. 1,60,000) is shown as a Current Asset.
6. Capital is adjusted by adding Net Profit (Rs. 2,23,000).

Balance Sheet:

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Final Answer (Summary of Accounts)

i) Trading Account

ii) Profit and Loss Account

iii) Balance Sheet (As on 31 Chaitra)

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Final Answer:

• Gross Profit: Rs. 3,20,000
• Net Profit: Rs. 2,23,000
• Total Capital in Balance Sheet: Rs. 3,73,000