NIOS Class 12 Accountancy Chapter 18 Financial Statements - II

NIOS Class 12 Accountancy Chapter 18 Financial Statements – II Solutions English Medium As Per New Syllabus. to each chapter is provided in the list so that you can easily browse throughout different chapters NIOS Class 12 Accountancy Chapter 18 Financial Statements – II Notes and select need one. NIOS Class 12 Accountancy Chapter 18 Financial Statements – II Question Answers Download PDF. NIOS Study Material of Class 12 Accountancy Paper Code: 320.

NIOS Class 12 Accountancy Chapter 18 Financial Statements – II

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Financial Statements – II

Chapter: 18

Module – 3: Financial Statement

INTEXT QUESTIONS 18.1

Fill in the blanks with suitable word/words :

(i) Trading and Profit & Loss Account shows the _______ or ________.

Ans: Profit or loss.

(ii) Adjustments are necessary to show the correct _______ and _________ of a business concern.

Ans: Profit or loss and financial position.

(iii) Items of income and expenditure which do not pertain to the accounting period should be ________.

Ans: Excluded.

(iv) Items of income & expenditure which relate to the accounting period but are left out should be ________.

Ans: Accounted for.

Intext Questions 18.2

Fill in the blanks with suitable terms:

(i) Expenses related to the current accounting period but have not been paid are known as ________.

Ans: Outstanding expenses.

(ii) Part of expenses paid if relates to the next accounting year, it is called _______.

Ans: Prepaid expenses.

(iii) Income earned but not received till the end of the accounting year is termed as _______.

Ans: Accrued income.

(iv) Income if received before it becomes due is called ______.

Ans: Income received in advance.

Intext Questions 18.3

I. Give exact term for the following:

(i) Provision against amount due from debtors.

Ans: Provision for bad and doubtful debts.

(ii) Fall in the value of fixed assets due to wear and tear.

Ans: Depreciation.

(iii) Debts which can not be recovered.

Ans: Bad debts.

(iv) Stock of goods remaining unsold at the end of year.

Ans: Closing stock.

II. Complete the journal entries for the following adjustments

(i) Interest on capital allowed Interest on capital A/c Dr

To ……………..

Ans: To capital account.

(ii) Wages Outstanding Wages A/c

To ………..

Ans: To wages outstanding account.

(iii) Insurance Premium paid for six months in advance Unexpired Insurance A/c

To …………

Ans: To insurance premium account.

(iv) Commission received but not yet earned Commission A/c

To ………………..

Ans: To commission received in advance account.

III. State whether the following statements are True or False :

(i) Provision for discount on debtors is shown on the credit side of Profit & Loss A/c.

Ans: False.

(ii) The Amount of Provision for discount on debtors is deducted from debtors.

Ans: True.

(iii) Provision for discount on debtors is a income for a business.

Ans: False.

(iv) Provision for discount on debtors is an asset for a company.

Ans: False.

(v) If sundry debtors are of Rs. 10,000 and company creates provision for discount on debtors @ 10%. Then total provision is Rs. 1,000.

Ans: True.

IV. Fill in the blanks with appropriate words:

(i) Manager’s commission is shown in the ________ side of Profit & Loss A/c.

Ans: Debit.

(ii) Manager’s commission is shown in the ___________ of Balance Sheet.

Ans: Liability.

Intext Questions 18.4

I. State whether the following statements are True or False :

(i) Proprietor draws some goods or cash from the business is a drawing.

Ans: True.

(ii) If proprietor draws goods then it will be deducted from purchases.

Ans: True.

(iii) Drawing is an asset.

Ans: False.

(iv) Good distributed as free samples is advertisement for the business.

Ans: True.

(v) Goods distributed as free sample is shown on the debit side of trading A/c.

Ans: False.

TERMINAL EXERCISE

Answer the following questions in brief.

(a) Why are adjustments needed?

Ans: Adjustments are needed to ensure that only those incomes and expenses which relate to the current accounting period are included in the final accounts. They help in including outstanding items and excluding prepaid or irrelevant items so that the correct profit or loss is calculated and the true and fair financial position of the business is shown.

(b) Why are outstanding expenses treated as liabilities?

Ans: Outstanding expenses are treated as liabilities because they are expenses that have already been incurred during the accounting period but are not yet paid. Since the business is obliged to pay these amounts in the future, they represent a liability of the business.

(c) What is the difference between accrued income and unearned income?

Ans: Here are the Difference between Accrued Income and Unearned Income:

(i) Accrued Income: It is the income that has been earned during the accounting period but has not yet been received. It is treated as an asset.

(ii) Unearned Income: It is the income that has been received in advance but has not yet been earned. It is treated as a liability.

2. Pass necessary journal entries for following adjustments :

(i) Wages outstanding.

Ans: Wages A/c Dr.

To Outstanding Wages A/c

(Being wages outstanding for the period)

(ii) Depreciation on Furniture.

Ans: Depreciation A/c Dr.

To Furniture A/c

(Being depreciation charged on furniture)

(iii) Interest on Investment accrued but not received.

Ans: Accrued Interest A/c Dr.

To Interest on Investment A/c

(Being interest accrued but not received)

(iv) Insurance Premium paid in advance.

Ans: Prepaid Insurance A/c Dr.

To Insurance A/c

(Being insurance premium paid in advance)

3. Why reserve is created for doubtful debts?

Ans: Reserve for doubtful debts is created to provide for possible losses arising from debtors who may fail to pay their dues. It helps in showing debtors at their realizable value and ensures that profits are not overstated, thus presenting a true and fair view of financial position.

4. From the following trial balance of M/s V.B. Fertilizers prepare Trading & Profit and Loss Account for the year ending 31st December, 2013 and Balance Sheet as on that date. Also pass Journal entries for the adjustments:

Particulars	Dr. (₹)	Particulars	Cr. (₹)
Stock (1.1.2013)	13,800	Capital	65,000
Purchases	52,000	Bills payable	18,000
Wages	4,000	Sales	74,400
Return inward	2,400	Return outward	1,500
Land & Building	40,000	Discount	450
Plant & machinery	24,500	Creditors	6,500
Bills receivable	12,000	Interest	600
Debtors	5,500	Bad debts Reserve	250
Cash in hand & at Bank	8,750	Loan	8,000
Rent (office)	2,200	Commission	700
Bad Debts	400
Insurance	1,500
Freight inward	1,400
Fuel & Power	2,450
Furniture	4,500
Total	1,75,400	Total	1,75,400

Adjustments:

(i) Stock on 31.12.2013 Rs.25,000.

(ii) Write off depreciation on furniture 10% and on plant & machinery 20%.

(iii) Provide for wages outstanding Rs.650 and rent outstanding Rs. 200. Prepaid insurance amounted to Rs. 300.

(iv) Further bad debts amounted to Rs. 100. Make a provision for bad & doubtful debts @ 5% on debtors.

(v) Interest on capital to be allowed @ 6%.

Ans: M/s V.B. Fertilizers

Final Accounts for the year ended 31st December, 2013

Journal Entries for Adjustments

(Dated 31.12.2013)

Particulars	Dr. (₹)	Cr. (₹)
Closing Stock A/c Dr.	25,000
To Trading A/c		25,000
Depreciation A/c Dr.	450
To Furniture A/c		450
Depreciation A/c Dr.	4,900
To Plant & Machinery A/c		4,900
Wages A/c Dr.	650
To Outstanding Wages A/c		650
Rent A/c Dr.	200
To Outstanding Rent A/c		200
Prepaid Insurance A/c Dr.	300
To Insurance A/c		300
Bad Debts A/c Dr.	100
To Debtors A/c		100
Profit & Loss A/c Dr.	20
To Provision for Doubtful Debts A/c		20
Interest on Capital A/c Dr.	3,900
To Capital A/c		3,900

Trading Account

(For the year ended 31.12.2013)

Dr.	₹	Cr.	₹
To Opening Stock	13,800	By Sales	74,400
To Purchases	52,000	Less: Return Inward	(2,400)
Less: Return Outward	(1,500)	Net Sales	72,000
Net Purchases	50,500	By Closing Stock	25,000
To Wages (4,000+650)	4,650
To Freight Inward	1,400
To Fuel & Power	2,450
To Gross Profit c/d	24,200
Total	97,000	Total	97,000

Gross Profit = ₹24,200

Profit & Loss Account

(For the year ended 31.12.2013)

Dr.	₹	Cr.	₹
To Rent (2,200+200)	2,400	By Gross Profit	24,200
To Insurance (1,500–300)	1,200	By Discount	450
To Bad Debts (400+100)	500	By Commission	700
To Provision Increase	20	By Interest	600
To Depreciation (450+4,900)	5,350
To Interest on Capital	3,900
To Net Profit c/d	12,580
Total	25,950	Total	25,950

Net Profit = ₹12,580

Balance Sheet

(As on 31st December, 2013)

Liabilities	₹	Assets	₹
Capital	65,000	Land & Building	40,000
Add: Interest on Capital	3,900	Plant & Machinery 24,500
Add: Net Profit	12,580	Less: Depreciation	(4,900)
Adjusted Capital	81,480	19,600
Loan	8,000	Furniture 4,500
Bills Payable	18,000	Less: Depreciation	(450)
Creditors	6,500	4,050
Outstanding Wages	650	Closing Stock	25,000
Outstanding Rent	200	Bills Receivable	12,000
		Debtors 5,400
		Less: Provision	(270)
		5,130
		Prepaid Insurance	300
		Cash in Hand & Bank	8,750
Total	1,14,830	Total	1,14,830

5. On 1st April, 2013 reserve for Bad Debts shows a balance of Rs.3,200 Bad debts during the year as per ledger were ` 2,100. Debtors amounted to Rs. 7,000. After closing of the ledger, it was found that there were bad debts of Rs. 800. It was decided to create a reserve for doubtful debts on creditors @6%.

Pass necessary journal entries and show the items in Profit & Loss account and Balance Sheet.

Ans: Given:

Opening Reserve for Bad Debts = ₹3,200

Bad Debts during the year (already in ledger) = ₹2,100

Further Bad Debts (after closing ledger) = ₹800

Debtors = ₹7,000

New Provision @ 6% on Debtors

Working Notes

Total Bad Debts = 2,100 + 800 = ₹2,900

Adjust against old reserve:

Old Reserve = ₹3,200

Less: Bad Debts = ₹2,900

Balance Reserve left = ₹300

Debtors after further Bad Debts

7,000 − 800 = 6,200

New Provision required = 6% of 6,200

= 6,200 × 6% = ₹372

Increase in Reserve = 372 – 300 = ₹72

Amount to be debited to P&L = ₹72

Journal Entries

Particulars	Dr. (₹)	Cr. (₹)
Reserve for Bad Debts A/c Dr.	2,100
To Bad Debts A/c		2,100
Reserve for Bad Debts A/c Dr.	800
To Debtors A/c		800
Profit & Loss A/c Dr.	72
To Reserve for Doubtful Debts A/c		72