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NIOS Class 12 Accountancy Chapter 17 Financial Statements – I
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Financial Statements – I
Chapter: 17
| Module – 3: Financial Statement |
INTEXT QUESTIONS 17.1
Write the name of the Account Trading Account, Profit and Loss Account and the side debit or credit against the items given below.
(i) Closing stocks ________,________.
Ans: Trading A/c, Credit.
(ii) Carriage outward _________, _________.
Ans: Profit & Loss A/c, Debit.
(iii) Interest on Investment _________,_________.
Ans: Profit & Loss A/c, Credit.
(iv) Custom duty _______, _________.
Ans: Trading A/c, Debit.
(v) Fuel and Power _________,________.
Ans: Trading A/c, Debit.
(vi) Sales ________, _____________.
Ans: Trading A/c, Credit.
(vii) Salaries _________, __________.
Ans: Profit & Loss A/c, Debit.
(viii) Rent from tenant ___________, __________.
Ans: Profit & Loss A/c, Credit.
INTEXT QUESTIONS 17.2
I. Arrange the following assets in (i) Liquidity order (ii) Permanency order.
(i) Closing stock.
(ii) Furniture.
(iii) Cash in hand.
(iv) Investments.
(v) Bills Receivable.
(vi) Goodwill.
(vii) Building.
(viii) Debtors.
Ans:
| S. No. | Liquidity Order | Permanency Order |
| 1. | Cash in hand | Goodwill |
| 2. | Bills Receivable | Furniture |
| 3. | Sundry Debtors | Building |
| 4. | Closing stock | Investments |
| 5. | Investments | Closing stock |
| 6. | Furniture | Sundry Debtors |
| 7. | Building | Bills Receivable |
| 8. | Goodwill | Cash in hand |
II. Arrange the following items of liabilities in (i) Liquidity order and (ii) Permanency order
(i) Bills payable.
(ii) Sundry creditors.
(iii) Loan on mortgage.
(iv) Outstanding expenses.
(v) Capital.
Ans:
| S. No. | Liquidity Order | Permanency Order |
| 1. | Outstanding expenses | Capital |
| 2. | Bills Payable | Loan on Mortgage |
| 3. | Sundry Creditors | Sundry Creditors |
| 4. | Loan on Mortgage | Bills Payable |
| 5. | Capital | Outstanding expenses |
INTEXT QUESTIONS 17.3
I. Write the type of assets against the items given.
(i) Goodwill.
Ans: Intangible asset.
(ii) Bills receivable.
Ans: Current asset.
(iii) Preliminary expenses.
Ans: Fictitious asset.
(iv) Mines.
Ans: Wasting asset.
(v) Furniture.
Ans: Fixed asset.
II. Write the type of liabilities against the items given.
(i) Loan on mortgage.
Ans: Long term liability.
(ii) Creditors.
Ans: Current liability.
(iii) Outstanding expenses.
Ans: Current liability.
(iv) Capital.
Ans: Owner fund.
INTEXT QUESTIONS 17.4
Fill in the blanks with appropriate word/words.
(i) The amount by which credit side of Trading Account exceeds the debit side is known as _________.
Ans: Gross profit.
(ii) The amount by which debit side exceeds the credit side of Profit and Loss
Account is shown as _________.
Ans: Net loss.
(iii) The totals of the two sides of the Balance Sheet should always be _________.
Ans: Equal.
(iv) Bank loan is shown on the _________ side of the Balance Sheet.
Ans: Liabilities.
| TERMINAL EXERCISE |
1. State the steps for preparing Trading Account.
Ans: The preparation of the Trading Account involves steps on both the debit and credit sides, followed by the calculation of profit or loss.
A. Debit Side:
(i) Post the amount of opening stock not applicable for a new firm.
(ii) Post the amount of purchases cash or credit or both, deducting purchases returns or returns outward from this amount.
(iii) Post the direct expenses such as carriage inward, wages and power.
B. Credit Side:
(i) Post sales cash or credit or both, deducting sales return or returns inward to arrive at the net sales figure.
(ii) Post the closing stock.
C. Ascertaining Gross Profit or Gross Loss:
(i) Close the Trading Account by calculating the difference between the totals of the two sides.
(ii) If the credit side exceeds the debit side, the difference is written as Gross Profit on the debit side of the Trading Account.
(iii) If the debit side exceeds the credit side, the difference amount is termed as Gross Loss and is shown on the credit side of the Trading Accounts.
2. Explain the term Balance Sheet. Also explain the objectives of preparing a Balance Sheet.
Ans: A Balance Sheet is a statement not an account that shows the financial position of a business organization on a particular date, usually the last date of the accounting period. It is a systematic presentation of the assets owned by the business and the liabilities owed by it on that specific date. The totals of the Asset side listing fixed and current assets and the Liabilities side listing capital, long term and short term liabilities must always be equal.
Objectives of Preparing a Balance Sheet:
(i) To measure the true financial position of a business entity at a particular point of time.
(ii) To provide a systematic presentation of what the business unit owns assets and what it owes liabilities.
(iii) To show the financial position of the concern at a glance.
(iv) To help external parties such as creditors and financiers decide whether or not to deal with the concern.
3. List assets in liquidity order and permanency order in a Balance Sheet.
Ans: The arrangement of assets and liabilities is known as marshalling.
A. Liquidity Order: Assets are written in the order of their liquidity, meaning convertibility into cash, starting with the highest liquidity.
Order most liquid first:
(i) Cash in hand.
(ii) Cash at bank.
(iii) Prepaid expenses.
(iv) Investments short term or marketable securities.
(v) Bills receivable.
(vi) Sundry debtors.
(vii) Closing stock.
(viii) Investments.
(ix) Furniture.
(x) Plant and machinery.
(xi) Land and building.
(xii) Goodwill.
B. Permanency Order: Assets that are meant to be used permanently fixed assets are presented first, and the most liquid assets are written last.
Order most permanent first:
(i) Goodwill.
(ii) Land and building.
(iii) Plant and machinery.
(iv) Furniture.
(v) Investments.
(vi) Closing stock.
(vii) Sundry debtors.
(viii) Bills receivable.
(ix) Investments short term.
(x) Prepaid expenses.
(xi) Cash at bank.
(xii) Cash in hand.
4. Explain the following types of assets with two examples each.
Ans: (a) Intangible Assets: These are assets which can neither be seen nor touched and have no volume.
Examples: Patents, trademark, goodwill.
(b) Fictitious Assets: These are not real assets; they are items of expenses and losses that have not been written off in full.
Examples: Preliminary expenses, underwriting commission.
(c) Fixed Assets: These assets are purchased on a permanent basis for long term use to help the business earn revenue. They are not meant for sale in the ordinary course of business.
Examples: Building, machinery, motor vehicle.
(d) Current Assets: These assets are acquired either for resale or for converting them into cash. They are normally realized within a period of one year.
Examples: Cash in hand, cash at bank, bills receivable, debtors, stock.
5. What are owners funds?
Ans: Owners funds represent the amount owing to the proprietor or proprietors.
In accordance with the business entity concept, this amount is treated as a liability of the business.
Owners funds primarily consist of the original capital contribution, but they also include undistributed profits and reserves.
Any amount of drawings made by the proprietor is deducted from the owners funds.
6. From the following information extracted from the books of P. Mukherjee, prepare Trading Account for the year ending 31st March, 2014.
| Particulars | ₹ | Particulars | ₹ |
| Opening stock | 6,500 | Cash | 4,500 |
| Purchases | 45,000 | Office expenses | 3,200 |
| Sales | 72,000 | Office Rent | 6,800 |
| Return Inward | 1,500 | ||
| Return Outward | 500 | ||
| Carriage on Purchases | 1200 | ||
| Wages | 4,800 | ||
| Fuel & Power | 3200 |
Closing stock on 31st March, 2014 was ₹ 8,600
Ans: Trading Account of P. Mukherjee for the year ending 31st March, 2014
| Dr. | ₹ | Cr. | ₹ |
| Opening Stock | 6,500 | Sales | 72,000 |
| Purchases | 45,000 | Less: Return Inward | (1,500) |
| Less: Return Outward | (500) | Net Sales | 70,500 |
| Net Purchases | 44,500 | Closing Stock | 8,600 |
| Carriage on Purchases | 1,200 | ||
| Wages | 4,800 | ||
| Fuel & Power | 3,200 | ||
| Gross Profit (c/d) | 10,300 | ||
| Total | 70,500 | Total | 70,500 |
7. From the following information Rashmi prepared a Profit & Loss Account for the year ending 31st March, 2014.
| Particulars | ₹ | Particulars | ₹ |
| Gross Profit | 64,800 | Discount Received | 600 |
| Bad debts | 1,500 | Commission Received | 2,100 |
| Depreciation | 2,500 | Freight outward | 1,600 |
| Office rent | 4,800 | Prepaid Insurance | 600 |
| Insurance | 3,200 | Salary | 6,400 |
| Telephone charges | 1,700 | Stationery | 700 |
| Interest on loan | 2,400 | Furniture | 6,000 |
| Building | 50,000 |
Closing stock as on 31st March, 2014 ₹ 20,000
Ans: Profit & Loss Account of Rashmi for the year ending 31st March, 2014
| Dr. | ₹ | Cr. | ₹ |
| Bad Debts | 1,500 | Gross Profit | 64,800 |
| Depreciation | 2,500 | Discount Received | 600 |
| Freight Outward | 1,600 | Commission Received | 2,100 |
| Office Rent | 4,800 | ||
| Insurance = 3,200 Prepaid Insurance = – 600 | 2,600 | ||
| Salary | 6,400 | ||
| Telephone Charges | 1,700 | ||
| Stationery | 700 | ||
| Interest on Loan | 2,400 | ||
| Net Profit (Transferred to Capital A/c) | 43,300 | ||
| Total | 67,500 | Total | 67,500 |
Important Notes:
Furniture (₹6,000) and Building (₹50,000) are assets, so they do not appear in the Profit & Loss Account.
Prepaid Insurance (₹600) is deducted from Insurance while preparing final accounts (already adjusted here).
Closing Stock (₹20,000) is shown in the Balance Sheet, not in the Profit & Loss Account.
Net Profit is transferred to the Capital Account.
8. From the following Trial Balance of M/s Krishna Murthi Garments as on 31st March, 2014, you are required to prepare Trading Account, Profit and Loss A/c for the year ended 31st March, 2014 and a Balance sheet as on that date.
Trial Balance of M/s Krishna Murthi Garments
as at 31st March, 2014
| Particulars | Dr. Balances ₹ | Cr. Balances ₹ |
| Cash in hand | 2,000 | — |
| Bank overdraft | — | 35,000 |
| Stock (1.4.2013) | 32,000 | — |
| Purchases | 80,000 | — |
| Freight inward | 4,000 | — |
| Custom duty | 5,500 | — |
| Power | 6,500 | — |
| Machines | 40,000 | — |
| Furniture | 20,000 | — |
| Sales | — | 1,65,000 |
| Bills Payable | — | 18,000 |
| Sundry Debtors | 28,000 | — |
| Sundry Creditors | — | 22,000 |
| Salaries | 6,500 | — |
| Salesmen’s commission | 7,800 | — |
| Rent of Godown | 7,200 | — |
| Insurance | 2,400 | — |
| Land & Building | 75,000 | — |
| Carriage on sales | 3,600 | — |
| Advertisement | 4,500 | — |
| Capital | — | 1,00,000 |
| Drawings | 15,000 | — |
| Total | 3,40,000 | 3,40,000 |
Closing stock as on 31st March, 2014: ₹38,000
Ans:
Trading Account
(For the year ended 31st March, 2014)
| Particulars | ₹ | Particulars | ₹ |
| To Opening Stock | 32,000 | By Sales | 1,65,000 |
| To Purchases | 80,000 | By Closing Stock | 38,000 |
| To Freight Inward | 4,000 | ||
| To Custom Duty | 5,500 | ||
| To Power | 6,500 | ||
| To Gross Profit (c/d) | 75,000 | ||
| Total | 2,03,000 | Total | 2,03,000 |
Gross Profit = ₹75,000
Profit & Loss Account
(For the year ended 31st March, 2014)
| Particulars | ₹ | Particulars | ₹ |
| To Salaries | 6,500 | By Gross Profit | 75,000 |
| To Salesmen’s Commission | 7,800 | ||
| To Rent of Godown | 7,200 | ||
| To Insurance | 2,400 | ||
| To Carriage on Sales | 3,600 | ||
| To Advertisement | 4,500 | ||
| To Net Profit (c/d) | 43,000 | ||
| Total | 75,000 | Total | 75,000 |
Net Profit = ₹43,000
Balance Sheet
(As on 31st March, 2014)
| Liabilities | ₹ | Assets | ₹ |
| Capital | 1,00,000 | Land & Building | 75,000 |
| Add: Net Profit | 43,000 | Machines | 40,000 |
| 1,43,000 | Furniture | 20,000 | |
| Less: Drawings | (15,000) | Closing Stock | 38,000 |
| Adjusted Capital | 1,28,000 | Sundry Debtors | 28,000 |
| Bank Overdraft | 35,000 | Cash in Hand | 2,000 |
| Bills Payable | 18,000 | ||
| Sundry Creditors | 22,000 | ||
| Total | 2,03,000 | Total | 2,03,000 |
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