Students can Download 1st PUC Accountancy Chapter 10 Financial Statements – II Questions and Answers, Notes Pdf, 1st PUC Accountancy Question Bank with Answers helps you to revise the complete Karnataka State Board Syllabus and to clear all their doubts, score well in final exams.
Karnataka 1st PUC Accountancy Question Bank Chapter 10 Financial Statements – II
1st PUC Accountancy Financial Statements – II Text Book Questions and Answers
Short Questions and Answers
Question 1.
Why is it necessary to record the adjusting entries in the preparation of final accounts?
Answer:
It is extremely important to record the adjusting entries in the preparation of final accounts.
- This is done in order to assess the true net profit or net loss of the business organisation.
- It helps us record those adjustments which were left or omitted and were not recorded in the accounts.
- It assists us to separate all the financial transactions into a year-wise category. The financial statements include only those entries which belong to the current year. It rules out the previous and forthcoming years’ entries which are the basis for accrual basis of accounting.
- Further, it provides us the room for making various provisions which are made at the end of the year, after assessing the entire year’s performance.
Question 2.
What is meant by closing stock? Show its treatment in final accounts.
Answer:
Closing stock implies the value of unsold goods at the end of an accounting period. The valuation of closing stock is done on the basis of its cost price or the realisable value, whichever of the two is lesser.
Example: If a good with the cost price of Rs 20,000 is purchased at the end of an accounting period and its realisable value is Rs 30,000, then the closing stock will be valued at Rs 20,000 not at Rs 30,000.
Treatment of closing stock
If closing stock is given in the adjustment, then there will be two postings.
If closing stock is given in the trial balance, then it needs to be shown only in the assets side of the Balance Sheet.
Question 3.
Write short notes on
(a) Outstanding expenses
(b) Prepaid expenses
(c) Income received in advance
(d) Accrued income
Answer:
(a) Outstanding Expenses: These refer to those expenses which belong to and are incurred in the current accounting period but are left unpaid. In other words, we can say that the services in exchange of these payments have been realised but the payments are not made. For example, if Rs 1000 wages are outstanding, then this means that labour worth Rs 1,000 has been used but has not been paid for till the end of the year.
(b) Prepaid Expenses: These refer to those expenses for which the benefits have not been realised but the payments have already been made in advance. These are basically the advance payments for the next year, which are made in the current accounting period. Example: Prepaid insurance premium of Rs 1,000 means that the payment of Rs 1,000 is made in advance for the next accounting period.
(c) Income Received in Advance: This refers to the income received whose actual realisation of benefits will occur in the next accounting period. These are also called unearned incomes. Example: Commission of Rs 1,200 for the year 2011-12 is received in 2010-11. This commission does not belong to the current year as it is related with the work to be done in the next accounting year i.e., 2011-12.
(d) Accrued Income: This refers to those incomes which have been earned during an accounting period but have not been actually realised in the current period. These are also called earned incomes.
Question 4.
Give the performa of income statement and balance in vertical form.
Answer:
Income statement for the period ended.
Question 5.
Why is it necessary to create a provision for doubtful-debts at the time of preparation of final accounts?
Answer:
The provision for doubtful debts is created with the motive of minimising the effect of actual loss caused by the bad-debts. The actual figure of the current year’s bad-debts will be known in the next year with the realisation of debtors. At that point of time, it will be known as to how many of the debtors have become bad.
Thus, instead of waiting for the realisation of debtors, we create a provision for doubtful-debts in order to cover the expected future loss associated with the debtors becoming bad.
Question 6.
What adjusting entries would you record for the following?
(a) Depreciation
(b) Discount on debtors
(c) Interest on capital
(d) Manager’s commission
Answer:
Question 7.
What do you mean by provision, for discount on debtors?
Answer:
The discount is allowed to those debtors who are ready to pay a huge amount in one shot. It is given in order to encourage them to repay the debt. The provision for discount on debtors is created on good debtors. The amount of good debtors is calculated by deducting the amount of Bad Debts, further Bad Debts and new provision for Doubtful Debts.
The required percentage of the good debtors is calculated and the provision for discount on debtors is deducted from the Debtors’ amount in the Assets side of a Balance Sheet. As it is a loss for the business, it is shown in the Debit side of the Profit and Loss Account.
Question 8.
Give the journal entries for the following adjustments:
(a) Outstanding salary at Rs 3,500.
(b) Rent unpaid for one month at Rs 6,000 per annum.
(c) Insurance prepaid for a quarter at Rs 16,000 per annum.
(d) Purchase of furniture costing Rs 7,000 entered in the purchases book.
Answer:
Long Questions and Answers
Question 1.
What are adjusting entries? Why are they necessary for preparing the final accounts?
Answer:
Adjusting entries are the entries of those adjustments which are given outside the trial balance and which help us reflect the true financial position i.e., profit or loss of an organisation. According to the double-entry system, all the adjustments given outside the Trial Balance are posted at two places. The adjusting entries are necessary they enable us to post and take into account those items which are omitted or entered with the wrong amount and/or recorded under wrong heads.
The treatment of adjusting entries is necessary.
- It helps us assess the true financial position of an organisation based on accrual basis of accounting.
- It helps us know the actual figure of profit or loss.
- It records the omitted entries and rectifies the errors made.
- It helps in providing depreciation and making different provisions, such as Bad Debts and depreciation.
Question 2.
What is meant by provision for doubtful-debts? How are the relevant accounts prepared and what journal entries are recorded in the final accounts? How is the amount for provision for doubtful-debts calculated?
Answer:
The provision for doubtful-debts is provided after deducting the amount of bad-debts from the debtors. The provision for doubtful-debts is provided because of the rationale that the actual amount of bad-debts will only be known in the next year, when the amount of debtors will get realised. Thus, it will only then be known as to how many of the debtors have become bad. Thus, in order to bridge-up the expected future loss, we create a provision for doubtful-debts.
For the provision for doubtful-debts, we prepare debtors account and provision for doubtful debts account. For recording bad-debts, the following journal entry is passed.
The amount of provision for Doubtful Debts is calculated by debiting the amount of further Bad Debts from debtors and calculating the given percentage of provision on remaining debtors. This provision is added to the Bad Debts amount in the profit and loss account and deducted from debtors in the assets side of a Balance Sheet.
Question 3.
Show the treatment of prepaid expenses, depreciation and closing stock at the time of preparation of final accounts when they are given
(a) inside the Trial Balance
(b) outside the Trial Balance
Answer:
(i) Prepaid expenses
(a) When given inside the Trial Balance: It will be posted only in the Assets side of the Balance Sheet.
b. When given outside the Trial Balance.
(ii) Depreciation
(a) If depreciation is given inside the Trial Balance, then it can be shown in the Debit side of the Profit and Loss AJc. It means that this depreciation amount has already been deducted from the concerned assets in the Balance Sheet.
(b) If depreciation is given outside the Trial Balance, i.e. in the adjustments, then it is shown in the debit side of the Profit and Loss Account and deducted from the concerned assets in the Assets side of Balance Sheet
1st PUC Accountancy Financial Statements – II Numerical Questions and Answers
Question 1.
Prepare a trading and profit and loss account for the year ending December 31, 2014. from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.
Adjustments
1. Commission received in advance Rs 1,000.
2. Rent receivable Rs 2,000. .
3. Salary outstanding Rs 1,000 and insurance prepaid Rs 800.
4. Further bad debts Rs 1,000 and provision for doubtful debts @ 5% on debtors and discount on debtors @ 2%.
5. Closing stock Rs 32,000.
6. Depreciation on building @ 6% p.a.
Answer:
Question 2.
Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending December 31, 2014. from the following figures taken from his trial balance:
Adjustments
1. Depreciation charged on machinery @ 5% p.a.
2. Further bad debts Rs 1,500, discount on debtors @5% and make a provision on debtors @ 6%.
3. Wages prepaid Rs 1,000.
4. Interest on investment @ 5% p.a.
5. Closing stock 10,000.
Trading Account for the year ending December 31, 2014
Answer:
Question 3.
The following balances has been extracted from the trial of M/s Runway Shine Ltd. Prepare a trading and profit and loss account and a balance sheet as on December 31, 2014.
Adjustments
1. Further bad debts Rs 1,000. Discount on debtors Rs 500 and make a provision on debtors @ 5%.
2. Interest received on investment @ 5%.
3. Wages and interest outstanding Rs 100 and Rs 200 respectively.
4. Depreciation charged on motor car @ 5% p.a.
5. Closing Stock Rs 32,500.
Answer:
Note: As per our solution the Net Profit is Rs 60,010 and total of Balance Sheet is Rs 2,97,350, whereas as per the book it is Rs 60,060 and Rs 2,97,400 respectively.
Question 4.
The following balances have been extracted from the trial of M/s Haryana Chemical Ltd. You are required to prepare a trading and profit and loss account and balance sheet as on December 31, 2014 from the given information.
Adjustments
1. Closing stock was valued at the end of the year Rs 40,000.
2. Salary amounting Rs 500 and trade expense Rs 300 are due.
3. Depreciation charged on building and machinery are @ 4% and @ 5% respectively.
4. Make a provision of @ 5% on sundry debtors.
Answer:
Working Note: In the question, the loan given by us bears an interest of 15% p.a. and interest is unpaid from 01-9-2014 to 31-12-2014. Thus, interest for loan is outstanding for four months and is calculated as follows:
Interest on loan = 3000 × \(\frac{15}{100} \times \frac{4}{12}\) = Rs 150
Question 5.
From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending December 31, 2014.
Adjustments
1. Closing stock was Rs 45,000.
2. Provision for doubtful debts is to be maintained @ 2% on debtors.
3. Depreciation charged on : furniture and fixture @ 5%, plant and Machinery @ 6% and motor car @ 10%.
4. A Machine of Rs 30,000 was purchased on July 01, 2013.
5. The manager is entitle to a commission of @ 10% of the net profit after charging such commission.
Answer:
Question 6.
Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars.
Adjustments:
1. Closing stock was valued Rs 35,000.
2. Depreciation charged on furniture and fixture @ 5%.
3. Further bad debts Rs 1,000. Make a provision for bad debts @ 5% on sundry debtors.
4. Depreciation charged on motor car @ 10%.
5. Interest on drawiilg @ 6%.
6. Rent, rates and taxes was outstanding Rs 200.
7. Discount on debtors 2%.
Answer:
Question 7.
Following balances have been extracted from the trial balance of M/s Keshav Electronics Ltd. Yop are required to prepare the trading and profit and loss account and a balance sheet as on December 31, 2005.
The following additional information is available:
1. Stock on December 31, 2014 was Rs 30,000.
2. Depreciation is to be charged on building at 5% and motor van at 10%.
3. Provision for doubtful debts is to be maintained at 5% on Sundry Debtors.
4. Unexpired insurance was Rs 600.
5. The Manager is entitled to a commission @ 5% on net profit before charging such commission.
Answer:
Question 8.
From the following balances extracted from the books of Raga Lid. Prepare a trading and profit and loss account for the year ended December 31, 2014 and a balance sheet as on that date.
The additional information is as under:
1. Closing stock was valued at the end of the year Rs, 20,000.
2. Depreciation on plant and machinery charged at 5% and land and building at 10%.
3. Discount on debtors at 3%.
4. Make a provision at 5% on debtors for doubtful debts.
5. Salary outstanding was Rs 100 and Wages prepaid was Rs 40.
6. The manager is entitled a commission of 5% on net profit after charging such commission.
Answer:
Question 9.
From the following balances of M/s Jyoti Exports, prepare trading and profit and loss account for the year ended March 31, 2014 and balance sheet as on this date.
Closing stock Rs 10,000.
1. To provision for doubtful debts is to be maintained at 5 per cent on sundry debtors.
2. Wages amounting to Rs 500 and salary amounting to Rs 350 are outstanding.
3. Factory rent prepaid Rs 100.
4. Depreciation charged on Plant and Machinery @ 5% and Building @ 10%.
5. Outstanding insurance Rs 100.
Answer:
Question 10.
The following balances have been extracted from the books of M/s Green House for the year ended December 31, 2014, prepare trading and profit and loss account and balance sheet as on this date.
Answer:
Question 11.
From the following balances extracted from the book of M/s Manju Chawla on March 31, 2014. You are requested to prepare the trading and profit and loss account and a balance sheet as on this date.
Answer:
Question 12.
The following balances were extracted from the boohs of M/s Panchsheel Garments on December 31, 2014.
Prepare the trading and profit and loss account for the year ended December, 31 and a balance sheet as on that date.
(a) Unexpired insurance Rs 1,000.
(b) Salary due but not paid Rs 1,800.
(c) Wages outstanding Rs 200.
(d) Interest on capital 5%.
(e) Scooter is depreciated @ 5%.
(f) Furniture is depreciated Rs @ 10%.
Answer:
Question 13.
Prepare the trading and profit and loss account and balance sheet of M/s Control Device India on December 31, 2014 from the following balance as on that date.
Closing stock was valued Rs 20,000.
(a) Interest on capital @ 10%.
(b) Interest on drawings @ 5%.
(c) Wages outstanding Rs 50.
(d) Outstanding salary Rs 20.
(e) Provide a depreciation @ 5% on plant and machinery.
(f) Make a 5% provision on debtors.
Answer:
Question 14.
The following balances appeared in the trial balance of M/s Kapil Traders as on March 31, 2014
The partners of the firm agreed to records the following adjustments in the books of the Firm: Further bad debts Rs.300. Maintain provision for bad debts 10%. Show the following adjustments in the bad debts account, provision account, debt¬ors account, profit and loss account and balance sheet.
Answer:
Question 15.
Prepare the bad debts account, provision for account, profit and loss account and balance sheet from the following information as on December 31, 2014
Adjustments:
Bad debts Rs. 500 Provision on debtors @ 3%
Answer:
