1, PROFIT DETERMINATION BY IN' ACCountrs FROM INCOMPLETE REWns= ACCOUNTS FROM. INCOMPLETE RECORDS ‘We have now learned much about the double—entry system of record keeping both from the broad -Point of view. and the narrow technical point of view as the means of providing a’ continuous record of business transactions. It has been shown that double entry does not mean,.as is sometimes assumed, the recording of same thing twice. Double-entry is not double accounting but is rather a system of complete accounting as compared to Single-Entry accounting which, for the most part, is incomple accounting. In double-entry accounting the two sides of every transaction are recorded. In Single-Entry accounting some transactions may not be recorded at all while in others only one side of the transaction is recorded. This system of book-keeping is generally followed by small business concerns whose owners keep either no record of transactions at all, or incomplete records. Single-Entry book-keeping system may vary from a mere listing of events in a form called a day book to the use of special journals and ledgers. Typically, however, this system consists of the following book-keeping records: (a) a day book or general journal, (b) a cash book, and (c) ledger accounts for individual customers and creditors. No other accounts and records are maint.ined with the result that expenses, reveneus and some assets accounts balances are not available. Thus it is not possible to arrive at'a trial balance, and the financial statements are not easy to prepare. Many small business concerns are being run successfully by relatively untrained people. One does not need higher education to succeed in business ~ a tough character and a capacity for hard work are more important. Establishing the right business in the right place is even more vital. How does the self made man, who conducts his entire affairs without written records or incomplete records, face up to the problem of discovering the profitability of his business? Years ago he would not have bothered; he would judge it by the gradual increase in his assets which he possessed. Today the _ revenue collecting authorities of whatever country he lives it will require an annual assessment of his profit or income, so that they can decide the government's share of that income. PROFIT DETERMINATION UNDER SINGLE-ENTRY SYSTEM: (1) Profit determination by Increased Net-worth method. (2) Profit determination by conversion method. (CREASED NET-WORTH METHOD: ot keep written records can see, as the years go by, a gradual increase in in Pakistan began forty seven years ago with two aircraft, and llions, Where did this increased wealth come from? It was The businessman who does not keep assets of his business. An airline operating has a capital (Net worth) of Rs. 100 billa ___ he year by We prone avin of he te pl who Ra setae ov Tu cme bth cy mate hed cee non 2 set Soe roe ath Bt tying now thes rei Stes doo ps cn ere be esac wan ers a Be Ne worth of sais, Let we example given belO™. " tea Ter se8 oa buss on Ist Janu, 2008 a her He as va, aed ihn tine dr oqupeits woth RS 49000, and bebe ck valet acne ros rent ttn 3s es. 2005 be as wo vans, valued RE, 36500 and a 120, lw eqparts worth Rs 85000 ad sock aed a Rs, 30000 He has Re, 23500 inthe ta ace of 82000 He oes Mr Nis Rs, 2200 for goods spe inh lat nant ten tng eye Gea wif owlepng money oR, TOD pr werk and Ba dR SO0Dpe fx penal expenses. During te yer his fier him a legoy o Rs. 20000 which he poe ks bso How do we cle ne profs of te busines? led it. He aig First of all we have to find out the net worth (capital) ofthe business both a the Beginning ofthe year and atthe ead of the year to see whether there has been an increase in the net worth To do this we need to prepare a Statement of Affairs for each of the days mentioned, Statem 9f Airs is a sort of Balance ‘Sheet having assets on left side and liabilities and net worth on the right side. Given below is the statement ‘of Affirs a the beginning of the year: . ASHRAF TRADERS Statement of Affairs as at Ist Jan. 2005 Assets Rs. Liabilities & Capital Rs, Stock 80,000 | Liabilities NIL 48000 | Capital atthe start: 308,000 Motor Vehicle 180,000 (Balancing figure) 308000 308000 ec Le} From the above Statement of AMfurs itis clear that on Ist Jan. 2005 the net worth (capital) ofthe business to Ashraf Trader was Rs. 308000, ‘The second Statement of Affairs as on 31st Dec., 2005 is as follows: socoUNTS FROM INCOMPLETE RECORDS yes ‘ASHRAF TRADERS, Statement of Affales st Dec, 2005 ‘Assets 1 Lisbiies & Capital Re ‘Cash in hand 20000 | Creditors 32000 ‘cash at Bank 235000 | Capital atthe end 1083000 stock 300000 | (Being figure) Equipment 85000 Motor Vehicles 485000 mare ere ee CALCULATION OF PROFIT UNDER THIS METHOD: Soe ee ee Speer ee wo sacesnea te ag ulencfasbage nay Mra eae toe jae ee eo ee sou tg teen en ind yee ipa 1) of Rs. 200,000 explains some of the increase in the capita romps Sekt Sea = Rs.785000 If Mr, Ashraf had not withdrawn this ‘business, so thatthe increase in net worth ‘Tne ©- -AScOUNTING rotor te year = Troe increase in Capital—Legacy = = 1305000 - 200,000 = Rs. 1105000. ‘This isthe profit eared by Ashraf Traders on which he should pay tax. ‘ADJUSTMENTS WITH THE INCREASED NET-WORTH METHOD: Just asin all other Final Accounts there may be some which must be considered oft under this system Before preparing the two statements of affairs we would ques the valuations he is placing on his assets. For instante, ifthe motor vehicle was valued at the same value as at the beginning, we would point out that it must have deprecia stoud be take fat account directly, by reducing the vale ofthe relevant ast onthe tenant ati, Ths parcuuly affects the ase, Motor Vehicle, since it willbe necesiry t ensure tard ropitinotnluing depreciation ke knows to be acouited for, We would also point out te hin an, be soald ake into account some amount of depreciation on Motor Vehicle duc to its usage, 1a summary, profit under his system can be ascertained in the following way: Adjusted Capital = Capital as per while finding out the tion the proprietor oq atthe end of the year ted. The adjustments (at the end) statement of +” Drawings & Fresh capital affairs atthe Interest on — introduced end drawings Now adjusted capital atthe end should be compared with the capital atthe beginning ofthe year. tn case former exceeds the latter the difference is profit otherwise it is loss. Copia he Adjusted capa SFE ros (atthe end) — Seeman Toss . Na ‘The above mentioned method can be expressed in vertical form shown as under: STATEMENT OF PROFIT OR LOSS for the year ending Capital or Net-worth as atthe end... Add: Drawings made during the year... Loss: Additional Capital introduced during the year ..... Adjusted capital at the end ..... : ‘Less: Capital at the beginning of the year. Profit made during the year ROM INCOMPLETE RECORDS Sgmanowne ‘phe following statements of affairs have been a ran snus 1305 08 6 Dee 28, ree cage pe eM a ‘try bast + who KEP Ms books on sale STATEMENT OF arPams, a9at stan, 2005” | a a TEI ina2005 ‘Assets ae Liabilities & Capital = 1? cash 127780 | creditors 08 pebtors 877950 | Capita at he start 1 stock 1260000 | Batncing ig) oN wistures 235000 — 2500500 Ld STATEMENT OF AFFAIRS as at 31st Dec, 2005 Assets Rs Liabites& Capit Be Cash in hand 160000 | Creditors 9050 Cash at Bank «425000 | Wages due 1480 Debtors 1150000 | Capital atthe end 03500 Stock 1400000 | Balancing Fi) Fixtures 220000 3355000 385000 | Sse 4 to is private bank bank account Fhroog has transferred Rs. 60000 a month from bi ere ee account by way of drawings, and has taken Rs. 1250 of tock oF Calculate Mr. Ashraf's profit for the year.Solution: S08 MR. ASHRAF Statement of Profit & Loss slogle ent entry tls for the year Ending 31st Dee, 2008 ary 8 ee tt December 2005 is Ra, = rr a nor Capital at the end of 2005 3003500, mney into business, Investments of Re, 6000 at 2 red to dh boule toyor . a PFEPare a statement of prof or oss, Adjusted capital atthe end 3076000 nae ‘ STATEMENT! Less: Capita atthe beginning ofthe year 2235000 for the year ended 3a Decor 208 Profit made during the year ‘841000 a oe Capital as on 31st December 2005 eal DISADVANTAGES OF SINGLE ENTRY SYSTEM: i ‘Add: drawings made during the year weno J. Ris uot possible obtain surfs information regarding the results of business operations, Because, ne under single eay system, nominal account relating to losses, expenses, guns and incomes have not Less: additional capital introduced during the year oe bem maintuinod Inthe absence of these accounts necessary classified information required for (Sele of Rs. 6000 investment 22% premium) 5. 6000 in premium 6120 Preparing profit and loss account isnot availabe, Hence profit and lss account cannot be prepared - Information relating to assets and liabilities cannot be reliable because respective accounts have not ‘bon maintained. Ths even balance sheet cant be prepared. Consequently tre financial poston of the busines cant be ascertained. Became both the aspects of each transaction have not be recorded therefore even tial balance cant ‘be camcte and ts aritmeticl accuracy ofthe books cant be checked, Completeness ofthe system under double entry provides certain checks which are missing inthe ‘ingle eany. Conmiting of fais ds easier and detection difficult Due to the lack of detailed and classified information the owner is bound to experience difficulties in snutons like:- ‘When business is desired to be sold-in ascertaining its valu: ‘When goodwill is desired to be sold-in ascertain its value; When income-tax authorities have assessed at higher income — in convincing the authorities rng the reliability of is income determination; ‘When stock has been destoyed by fre cc. in fling claim with insurance company; ‘When it is desired to arrange loans for financing the business — in convincing the creditor regarding ofitabilty and liquidity of hs business Adjusted capital as on 31st December 2008 Less: Capital on 1st January 2005 37600 Profit made during the year ILLUSTRATION NO. 3 Mr. Nasir kept his books on single entry system. His potion on 3ist December, 2004 was as follows: Cash in Hand Rs. 400, cash in bank Rs. 6000, stock Rs. 40000, sundry debtors Rs. 17000, ‘ixture and fitting Rs. 3600, plant and machinery Rs 30,000, sundry creditors Rs. 44000, ‘Mr. Nasir put Rs, 10000 during the year as new capital and his drawings were @ Rs. 1500 per month, “is position on 3ist December 2005 was a folloms:- ors stock Rs, 38000, plant Cash in hand Rs. 600, cash in bank Rs, 4000, sundry debtors Rs 2800, ‘nd machinery Rs. $4000, fixtures and fitings Rs, 300, sundry creditors Rs, 58000. From the above information, prepare a statement of affairs showing profit or los during the Year ending on 3ist December 2005.cos AcOUNTS ROM COMME Ronny A i aR NastR ILLUSTRATION No. 4 sr STATEMENT OF AFFAIRS , _as om 31st December, 2004 M. Kashif Keeps his books ‘under Single Entry syste follows: fem. Hs positon on = foi Poston on 31st March, 2006 was as ata Cashin aod Aa “000 ws.2800 nk Ha. 2500; Ders R140; tsk codon 5 oF food supplied Rs 19700; Outstanding Wages Rs 2000, 40000 | (Being the excess of assets 5 ee 8 troduced Rs, 10,000 as further capital inthe busines and ee rovent | fee seannian 00 ‘ut of which he spent Rs, S000 onthe purchase ofa machine for Fixtures and fiings eae Plant and machinery eon 7000 97000 MR. NASIR eran NATE ans prepare the necessary statements showing the profit or TA OF AFFAIR ‘Mare 2005 ater taking nto account the following adjustments; ‘sets Liabilities & Capital Re Furniture and Machine @ 10 % pa, canned Sundry editors ‘8000 provide 5 % for doubtful debts, Cosh at bank CCapital on 31.12.2005 st shi for personal use Rs 1500, Sundry debtors (Being the excess of assets Es se es ean (©) _ Provide interest on capital @ 10 % pia heel set Sings Solution: M. KASHI Plant nd machinery STATEMENT OF AFFAIRS 127600 127600 on 3st March, 2004 : Bs. Liabilities & Capital Re Profit & Loss Statement: Rs. = - Capital as on 31st December 2008, 69600 Cashin hand ot | Grd wm. ‘Add drawings made during the year 18000 (Cash at Bank 25900 | Outsanding Wages amo eno = 18400 | Capital Balancing Fig.) s9200 ‘Less additional capital introduced during the year i ring they 10,000 Sock 23600 ‘Adjusted capital on 31st December 2005 71600 re 5000 ‘Less Capital on 31st December ‘uiture ata Pi ibe 2008 53000 soo00 79900 Profit made during the year 24600score {sc cOUNTS FROM INCOMPLETE ReconDs M. KASHIF Es MKS ‘STATEMENT OF AFFAIRS sn KASEI -ATEMENT OF PRO} ‘Axon 31st March, 2005 For the Yere ro PROFIT OR Loss vs Re. Liabilities & Capital Re edi 36 Mare, 2008 (Cash in hand 2100 | Creditors 25200 cashat Bank 27500 | Capital (Bal. Fig) 68150 oe 31500 ‘Debtors feed Less: Bad debs aoa 73000 Less: Provision for B.D. isa} 21850 ‘Purniture 00 Less Depreciation 10% con Rs. 5000 $00 eos. 100 50 ssa} 5450 1 Date of purchase of faint is ot meatond 4 depreciation oa thi famine (Rs, 100) is charged (ive) forty, ae eee Machinery 5000 ILLUSTRATION NO. 5 ‘Less: 10% depreciation e the ases and labs of Mr, Ahsan tthe end and beginning ofthe year 1 4750 for 7 year 250 ‘As at 31st Dec. 2005 ‘As at Jan. 1,2008 : Rs. Re mi Land & buildings 23400 3e000 Ba Plant & machinery apo aaee| Furniture & fixtures hana] aaa Stock in trade bao a Sundry debtors pes Essa Sundry creditors a ‘Loan from bank 50,000 Other outstanding abilities 40,000 i Cash at bank 16000statement of profit and loss for the year ended Dec. 3 repares perfor MR. AHSAN STATEMENT OF AFFAIRS ‘son Ist January 2005, = a Tad wd baling 000 | Sundry creo Plot and machiey 4000 Fre sd fe 000 43000 sek 15000 Sundry debios 140000 | ov a ox 18000 59000 00 MR. ARSAN 7 Tanda bling ass Depreiion Plan an machinery Les Sale of pat .000 ‘Ad Purchases 131500 Less Depreciation Forniire and ire Add Purchases 28 depreciation Bsn eee tok in trade suo undry debtors ssso00 a 16000 [ses | [L230 nccOUNTS FROM INCOMPLETE ne Sundry debtors Stock Furniture STATEMENT OF PROFIT OR, st ‘ccount. It is adjusted for ‘The net profit is distributedne Smt mt i Semen eo proceds his salares which Re was ‘wtndrawn Rs 3,750 in cash and had also taken for his pers a po pes hire 2440 rom rat aaniaveae saint shoving he rot of them 0 he ered welas the balance sheet of the frm as on that dats, use goods worth Rs, Solition: “oul assets on 3st December 2005 Liable on 31st December, 2005 Copia ofA and B on 31st December, 2005 STATEMENT OF PROFIT a Combined capitals of A and B on 31st December, 2005, 50,50 ‘Ada Dravings A cash 9,900 Goods 1,200 ‘sales proceeds of goodsretsined 2.700 13800 DrovingsB cash 3.750 Goods 50 400 1.300 4 653850 ‘eat aon o capital ‘A~ Salaries of employees 4.950 ‘B—Expenses of fim 2.400 1350 ‘Adjusted capital ofA and B on 31st December 2005 1,500 Less Capita ofA and B inthe beginning sao [Net profit for the year “2.009 vsacotpre 2 x9000 = 600 ; 3 Bis share of profit: 9,000 =. 3,000 ~ 51 ____ BalaNeramayoyags-7--————8 a wie pees Cand «3 |Ravastenisae | cat $30] sminewtentenpee | ak Sundry debtors ™ - se 25,500 | Capita accounts oo 33000 | a'scapitaton 1.12005. 34,500 4200 | Add additions 4950 ‘Add Net profit 6.000 45,480 Less Drawings 1aa00 | 31650 Biscapitalon 1.12008 18,000 ‘Add aditons 2.400 Add Net profit 3.000 23,400 : Less Drawings “4800 | 18500 73950 73950 CONVERSION METHOD: (except debtors, creditors, cash and bank which are already inthe relevant #) must be debited or credited tothe elevant account in the ledger. ary books have been maintained then posting to the personal accounts mst have ‘lready been done. Now the periodical totals should be posted to the appropriate impersonal For example, total of purchases book and retums inwards book be’ debited to the purchases account ‘and returns inwards account respectively. Similarly total of sales book and returns outwards book should be ‘redited'to the sale and returns outwards account respectively. From cash book posting to the personalee oral Soma ve ne. Now doe pening a tiie ad el ase) expendi hats ash purchases) sales ( ‘e) individual income heads (interest, commission, dividend ete). Thi sa, wages, sre i as to find out i any amount has been posted directly therein rain ce ok pts at ch waco ad at oa a a a ce ante re any ae ‘ofthe books maintained by preparing a tial balance, intel ve ste ined hea ana of er a pce eles shouldbe underaken. {o)_ Asis ose of elo edger wl provide theif bythe debiors in the begining (opening balance), receivable dishonoured (if any), cash i csi pent oa ena, som ote ety of le ‘transactions being complete prepare tral balance. 4. Maeno apes forcing ad pp epee ec ot a ene tp rear dopreston on edn NOW Wo sesfug nde nan beds cn peared eal CALCULATION OF MSSNG FIGURES! 1 OPENING STOCK: The eof pene sek io ge nb ei by applying ss ot pret 1 sits Pout oa ning se pe inating ene oss rotons Y spas ato fon pi wb aig epi sk po CREDIT SALES AND CREDIT PURCHASES: ‘cn nerdy ping ial sun nd eon acum exe pti of ie counts Datance poet xx. | Cah Sales (credit) ele : xx fom ‘Returns (inwards) Discount adds Allowances Balance od —| ror RS’ ACCOUNT = cos o- 0% | Balance ba Discount, ken . Ds = | Paci (ei) Returns (outwards) i Allowances Balance ef 3. DEBTORS AND CREDITORS: es ‘tereit sales and credit purchases ae ‘an similarly be found out by preparing total rABLE: given then opening or closing balances of debtors of ‘creditors ‘debtors and total creditors accounts.” . receivable sccepted by the customers during the ; ng the ya a | benno in) iy rater Se tors aeouns an poet b eqused ocean he ne ills payable account, eee BILLS RECEIVABLE. ACCOUNT xxx | Cash a wee x | S. debtors (B/R dishonored) xx Balance e/a Xxxae Sema ar aust amet ‘5. Memorandum tding account should be prepared in these -* fansactions is not dependable. Trading account in equation form ins aig lig wu ing revise he ES 4 of goods sold, Any one calalate gross profit by applying rat inserted inthe memorandum trading account, now any one missing figures can be ascertained by balancing this account. Bs 6. __ EXPENSES AND REVENUES: Prepare each expense/revenue account concerned with the help of opening and closing balances and cash paymentfeash receipts. Adjust for outstanding or accrued in the beginning and as atthe end. 7. BALANCE SHEET ITEMS: Balancing of an account provide us the mechanism by which we fone account Similarly statement of afuirs when tolled is capable lowing facts supplied by A who Kees his Doks on the'single entry, you are “total purchases’. a sone iewie eae es 25,800 pening balance losing balance Cosine Crettrs-bils payable scepted |_| during the year 15300 a TOTAL CREDITORS ACCOUNT cash mass —— Returns outwards alancing ‘Closing balance ‘Balancing figure) 40,300 4630 aoe Rs, 25,800 Credit Purchases i ‘Total purchases am ILLUSTRATION NO. 8 25,000 3500 + 35400 100,000 7000 5,000 70,000Analysis of the other transactions na sifi’s RECEIVABLE ACCOUNT « Re Rs, 525,000 Cash ‘toed ‘| Opening balance % unde debtors bil eeivble Debtors (Bills receivable : { feet ‘dishonoured) 5.600 «| received during he year oe Es ian : me pO] "TOTAL DEBTORS ACCOUNT ed Rs. a 2,87,00 Opening balance 39,000 2 3 pil reeivable-shonoured 5000 sw Credit sles a (balancing gu) Bilis receivable eae } ing: ‘) +3,96,000 _ Closing balance aan 740,000 “0% = 70.000 ® Rs, 4,66,000 NOTE: ILLUSTRATION NO. 9. Jami does not maintain proper books of account, it date, Debtors Stock Furniture Creditors Ra: 3000 being the sale proceeds of anol typewriter ld of willbe deducted fromthe total cash ceived to ascerain the Figute of wg and profit and loss account forthe year ended 3is 31.12.2005 12,500 6,600 750 2,250 ‘Cash collected from debtors Bs. (Cash paid to ereators ate Salares nae Rent - Otic expenses tin) Drawings baal ‘Adaitional capital introduced pa Cash sates eat Cash purchases ae Discount received = Discount alowed ea Returns inwards aa Returns outwards _ Bad debts ‘ve $e has Rs. 2500s cash balance at the beginning ofthe yar. ~ Solution: WORKINGS: Dr. DEBTORS ACCOUNT Rs. Rs Balance bd 9,000 | ca ay Credit sales 234,650 | Returns inwards (Gatancng figure) Discount alowed Bad deb Balance eff ua BS [ra ‘TOTAL CREDITORS ACCOUNT Rs. cash 22,000 Balance bid Diseount received 350 Credit purchases Retums outwards 400 | (Patancing igure) Balance eld 2250 25000in tin ts i a BALANCE SHEET } ‘on 31st December 2004 i es ‘sets Bs Linbiies i | 12,500] ot 2:50 | Creditors Sian i B aoa 9,0 } Capital (balancing figure) 13,900 | as 4900 Fomine 500 : ; i | = t6s00 1 Tas CASH ACCOUNT i Rs. Rs. Buea 2,500 | Creditors 22,000 rs call 30,400 | salaries (cio 20 oil 1,000 | Rent, 150 j wads 750 | Offs expenee wo] sss Drawings 1,500 i ‘Add esh capil 000 Purchases 2.500 | AGdNe pot 4950 — o| ina aol . Las Dawns 1300 18390 34,650 34,650 i Se Lmao — ——= @ TRADING AND PROFIT AND LOSS ACCOUNT | forthe year ended 31st December, 2005 Z Rs. Re pening stock 4900 | Sats: rchases ash 730 ‘ ‘every acountng year. From such records you ae able te ash 2500 Cretit 34.650 ! it 22.000 35,400 2008: Re ; 24,500 ese Returns inwards, 500 |. 34,900 | nas ss Retums outwards —400 | 24100 | Closing stock 6,600 | petee os Profit 12500 ! ia a 741,500 20380 | — BePosen made nthe yar ended 3112208: [New plant purchased Drawings G00] ates Salaries Taterest paid Telephone Rent [Net profit transferred fo capital ght and power ‘Sundry expenses ‘Sundry creditors (Purchases ledger accounts) a0 * ‘Assets ASSETS AND LIABILITIES ‘Bank —{ 8 Sundry debtors 20 as af 31.12.2004 Senet 15,600 Sundry creditors 2825 Plant oe i anes an ‘Additions ae 18940 Bank 05 Less Depreciation ato Stock 6250 19,840, rial 7,500 WORKING NOTES: From the above data prepare the profit and loss account for the year ended 31.12.2005 and te. (1) Caleulation of Credit Purchases Dalance sett as on that date. ‘TOTAL CREDITORS ACCOUNT oi Bs. Re aoe oa ‘Cash account 7,625'| Balance b/d 2525 MOHAMMAD SHAFIQ Balance if 2400 | Credit purchases 7300 "TRADING AND PROFIT AND LOSS ACCOUNT 4 (Galancing figure) for the year ended 31.12.2005 10025 TOS bod @) Calculation of Credit Sales Opening Stock 6,250 | Sales: ‘TOTAL DEBTORS ACCOUNT Purchases 17,500 | Cash car Bs. Light and Power 475 | Credit mae . 3750 | Cash account S Choting tock Credit sain anya | Balance eft ages 6,300 | Closing sto (Galarcng toms) Gross Profit 6,725 23,150 27,250 ReCalculation of Depreciation on plant Balance bd (Cash account a a of capital on Ist January 2 21 ite debtors totalled Ra. 9.500 and of creditors Rs. 6400. No se durng ake Dut I was sated that « grow profits unlore seen during the year. TOTAL CREDITORS ACCOUNT Rs. YTAL DEBTORS ACCOUNT Bs me ILLUSTRATION NO. 11 9,000 | Cash 33,000 ‘The Books of Mr. Sarwar on Ist January 2005 disclosed the following position, 35,500 | Balance oid 9.500 44,500 4500 Farsitare bs500| Lissa} seeriene ‘casi poox Stock Rs. rs (Cash at bank $00 | Drawings 6,000 35,000 | sataies 3.000 i Payments to creditors: 22,000 Daring the year 2005, the books were very imperfectly kept but an analy Ree i mer Misc. expenses 400, Receipts from customers Balance cd 2,600 ‘Drawings for personal expenses 35,500 35,500 Payment of salaries | ment Payment for ret ‘radlog and prot and lows account forthe year and balance sheet ki 53 FeMR. SARWAR “TRADING AND PROFIT AND LOSS ACCOUNT for the year ended December 31,2008 0010 Frode oaavebect » B “Re ee 4,000 | Sales (credit) si 20,900 | Closing stock pat (balancing figure) (40 % on sles) 14,200 ¥ - 39,100 ilies 3,000 | Gross profit = 1,500 Mise. expenses “00 Net profit transferred to capital ciint. 9,300 : 14,200 erat . MR. SARWAR, BALANCE SHEET as on 31st December 2005 Assets Rs. Liabilities Cash at bank 2,600 | Creditors Suridry debtors 9,500 | Capital Stock 3,600 | Add Net Profit Furniture 2,000 Less Drawings 17,700Ans: —_———$_—$ssrouitine. PROBLEMS keeps his books by the single entry method. His position on 31 st December 2004 Rs, 50,000; and ‘The following balances appear In A's books which are kept on th 31st Dee. 2004 Capital Creditors Furniture Stock Debtors Bank account ‘A has been regularly transferring Rs. 600 a month from hi Private banking account by i en pro ‘You are required to calculate A's profit for 2008, (Profit Re. 6.700) Ansar commenced business on 1.7.2004.with 30.6.2005, he during the year ended 10 per cent Ascertain the profit or lass made by [Net Loss Rs. 6.250) ‘ n 2005, with a capital of Rs. $0,000. He April, 2005, he borrowed Rs. 30,000 and Introduced a further eapital of his own a Rs. 1800 at the end of exch month for famaly loes not keep double entry records. His business Balance Sheet at 1st January, follows: BALANCE SHEET Assets Rs. Liabilities Rs. 500 Creditors 4,000 6000 Capital 12,000 5,000 3300 1200 16,000 16,000 sash at bank Rs, §,000; stock Rs. 6,000; debtors Re, 4,600; furniture Rs, 1,500 and creditors Rs 6,000, Irew during the year Rs. 9,000 out of which he spent Rs, 6000 om the cost of purchasing a motor car forthe business.Accourring _AccOUNTS OM MCOMPLETE RECORDS 533 ‘9, The folowing balances are obtained from the books of Mr. Irfan as on 31st December, 2005 and 3ist December, 2004, ‘Prepare necessary Fatements to determine the net profits for the year at st December 2005 after making the following adjustments, Deprecate furniture and motor car at the rate of 10 per cent, write ‘and provide S per cent for doubtful debts. ‘Ans: [Net Profit Rs. 7,430 Total Balance Sheet 22,430) And a balance sheet ay ae Saher © ont weg ‘hs beokd property From the foleing i re aS nove pve ar eartne easel afihare he hee ot 12.2004 (Cashin and 900 Debtors ae Creditors 31200 cr 33400 Bills receivable 30500 Bank overdraft 40800 Motor van 4200 _Perntare 3400 Drawings Rs. 4800; Depreciate furniture at 10 %, Write off Rs, 800 on mot he accounts ere malatalned on Cash Basle, usiness in partnership keep thelr books by single entry. On Ist Liabilities & Capital ins: [Net Profit forthe year Rs. 1240]‘ACCOUNTING "The following was the state of affairs on 31st December, 200% and Rs 400 ch a ak Re. 581, debtors Re £6,280, Stet t0 creators e247, bls payae Ne g938, ‘The partners have drawn Rs, 4,800 each and were entitled to interest {COUNTS FROM INCOMPLETE RECORDS, 12, -» Barkat keeps his books om sin Liabilities were as follows: Capital Rs. 72,000; Sundry Creditors ils receivable Re, ile entry principle. On Ist January, 2005 bis assets and Rs. 18,50; Sundry Debors Rs. 2200; Mat on capital a 6 percent hiner Rs, aiveularevtogarae =e 34,000; Furniture Rs, 5,000; Stock Rs. 14,000, annum No interest was payable on drawings. It was agreed to depreciate peg set | 2 ie . Panchinery at 10 per cent and furniture at 6 per cent, me | ‘The following is the cash book in respect of 2004 a | Receipts Rs. Payments Re Draw up 4 xtatement of profit and los fr the year ended 31st Deenbet 2005, and ako g aes! 15500 Creditors 4 statement of affairs as on that date. 22900 Received from debtors 40,000 Wages 6,000 Amst [Ne Prot befor litres on Capt Rs, 18602; Net Profit ofterInerest on Capt Re. 9794 on 12,000 Expenses ~ 12000 1 Kama whe ui Soe ye en, sabe rr th Ine‘ | Drawings ‘tee “Authorities showing his income tobe a follows: 1 Balance cfd 500 Rs, | = i 67,500 67500 Year ending December 31st, 2000 14,700 mas ‘Year ending December 31st, 2001 14,800 (On 31st December 2005 the sundry creditors were Rs. 20,000; sundry debtors Rs. 28,000, ‘Year ending December ist, 2002 15,740 ‘Machinery Rs. 34,000; Furniture Rs. 5,000 and stock Rs. 18,000, ending December 31st, 2003 Prepare Trading and Profit and Loss Account for the year ended 31st December 2005 and. eee ede ae Balance Sheet after providing for deprecation on Machinery at 10 % and Furniture at 18 % ‘Year ending December 31st, 2004 24,280 | Year ending December 31st, 2005 ‘The Income-tax officer is not satisfied as to the accu Interest on Capital at 5 % and 5 % on Debtors for doubtful debts, 18,520 | Ans: [Net Profit Rs. 11350; BIS Rs. 101950) tracy of the accounts submitted. You are 13. Mr. Tipu Keeps his books under Single Entry System, The positon of his business as on tst ict wait ning ern es he ae See ee tees mtr eh ma ‘with the following information: | Sundry creditors, Rs. 17,000; Freehold premises, Rs, 50,000; stock, Rs. 25000; Sundry @) Business lables and assets at 31st December, 1999 were; Debtors, Rs. 2,900; Cash | Debtors, Rs 20,000; Furniture, Rs 2,000. An abitract of Cash Book is appended below: a bank and in hand Rs, 18,940; stock Rs. 10,840 (at selling price which i 25 % aber, ‘ost creditors Rs, 14,640. | Receipts Rs. Paymests Rs. © Kamal owed his brother, Rs. 8,000 on 31st December, 1999. On 15th February, 2002 Sundry Debtors 15,000, Overdraft (1.1.2005) 10, be repald thls amount and on Ist January, 2005 he lent his brother Rs. 6.000. | Chee 80,000 Expenses, (© Kamal owns s house which he purchased in 1995; for Rs. 40,000 and 1 ear which be Drawings ROSTERS LA ro mn me 5 Cashin hand 2,000 (©) T3208 60 wee sterol, ! Cah an ‘pee (©) Kamal estimates that his living expenses have been: 2000, Rs, 6,000; 2001, Rs. 8,000; | ses 15900; 2003, 2004 and 200S Rs. 14.000 per annum erctusie ori area | stolen. 95,000 (On 33st December, 2005 the business Liabilt Debtors, Rs. 11,840; Cash in hand ang ‘The following additional information is available: a selling price which shows a gross prof | % From the information submited ; _ ‘oll Closing stock, Rs. 30,000; Closing Debtors, Rs. 25,000; closing creditors, for repare a statement showing whether or not the income red by Kamal ls corm tt PFEPATE & statement showing whether oF not th addins were made during the year to Premises and Furnitare esau deprecated at 10% and 15% respect. Abad debs reserve of2} sto Ant: (Profit actully earned but not revealed to Iicome Tax Authorities Rs, 30638)Accounring sd Low Account forthe year ended 3st December, 2005 ae counts FROM INCOMPLETE RECORDS 337 7" - as SUMMARY _F CASH TRANSACTIONS FOR 7004 ‘ans: [Net Profit Ri. 4078: BUS Rs 113075] Receipts Re. Payments Re 1a ee Me ky Sh EA ads Ju pepe Pt nd, pening ane 2258 Payment cer is ‘Account for the year ended 30th September, 2005 to a Balance Sheet as on that aaa case fa pn aig bok rhe yee, ou ving: ‘am tee Poa Rs, Expenses 6000 Receipts from Debtors 78,000 Bank overdraft on 6000, Mespeny Perl 12,500 (st July 5280 Received fromCash Sales 45,000 Closing Balance 1.300 525 7,000. 4000 243000 80 and discounts 24275 to be writ 46.00 rene ee on 0th Sept. 200 anne with ca a Ane ae 2382) abe eon 16 ced business on Ist January 2005 with a capital of R. 70,000. He 30th Sept. 2008, 2s fon 1st April 2008 for cash Re. 15000. On Ist July he purchased 126,000, 1.26,000 books by single@itry, you are asked to prepare Loss Account for the year ending 31st December, 2005 and a 2004 was Rs. 1,10,000, stock Rs. 28,500. Debtors after providing depreciation on furniture and premises @ 10% Bis Seermiae Rs. 4.000, Business Premises Rs.48,000 and Creditors Rs, 26000, on ‘30th September, 2005 his stock was Rs. 32,660, Debtors Rs, 92,000, Furniture Rs. 4,000 Premis balance sheet as 0 Rs. 100,000 Bs. 25,000 ‘From the above figures, prepare final eee on business premises Rs. 3,500 for fens. (Net Pie 8 8.1794 ho ‘Sadaqat supplies you the following information: na Ast January 31st December ok goods worth Rs, 4000 from business and paid Rs. 1500 to his son, but omitted to 2004 2004 anton st Deer, 2005 hc Debtors wee Ho. 29 200 Rs, Bs. fe was Rs. 20,000, Sundry debtors * 10,080 10,650 Ane Stock saa 1 plschinery 14,500 © | : Fursiture —_ Sundry Creditors 4,000 7250B Mukhtar's capital on Ist October 2004 was Rs, 7 ‘eat. Provide a reserve of Rs. 3,000 for bad debts at S per cent. Besides his salary Manager i eligible for 5 per cent, commission on net profit such commission, (Net Profit Rs. 30848; B/S Rs. 112890)20. ane following, par March 5. cn oy BALANCE SHEET AS ON 313.2004 Rs. ’ 10,000 Cash epi 20,000 Bank ar 50,000. Bills recelvable cone Debtors ‘ Stock Furniture Plant 80,000 CASH TRANSACTIONS DURING THE YEAR: Rs. Balance: eee py 2500 “Wages SR 5,000 Creditors any 17,500. Bills paid Receipts from debtors 40,000 . Sundry expenses Bills receivable 37,500 Rent, rates and taxes Balance Cash Bank ~ 1,02,500 Additional Informations: Rs. Debtors on 31.3.2005 ... 20,000 Creditors on 31.3.2005 ..:.. 12,500 Bills receivable on 31.3.2005 15,000 Bills payable on 31.3.2005 25.000 Bill receivable in hand dishonored. 2500 Bill payable dishonored 1000 Bill receivable endorsed .. Bill receivable endorsed dishonored , a Discount allowed .. Discount received .. a Closing Stock .... : is wok [Profit: 22500, B/S Rs. 104,000}. Trading and Profit & Loss Account for the year Rs, 2,500 5,000 10,000 12,500 10,000 5,000 35,000 80,000 6,000 ~~ 10,000 17,500 30,000 15,000 10,000 1,500 12,500 1,02,500