# Practical Problem 03

Practical Problem | Q 3 | Page 56

From the following Trial Balance and adjustments given below of Reena and Aarti, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as on that date.

Trial Balance as on 31st March 2019

 Trial Balance Particular ₹ Particular ₹ Purchases 35,500 Sales 58,200 Sundry Debtors 40,000 Sundry Creditors 25,700 Sales Returns 1,000 Purchases Return 500 Opening Stock 18,100 R.D.D 800 Bad debts 500 Discount 50 Land & Building 25,000 Commission 250 Furniture 20,000 Capital : Discount 1,000 Reena 50,000 Royalties 700 Aarti 30,000 Rent 1,900 Salaries 3,000 Wages 800 Insurance 1,500 Drawings : Reena 2,000 Aarti 1,000 Cash at Bank 11,500 Cash in Hand 2,000 1,65,500 1,65,500
 Adjustments : 1) Closing Stock valued at ₹ 22,000. 2) Write off ` 900 for Bad & doubtful debts and create a provision for Reserve for Doubtful debts ₹ 1,000. 3) Create a provision for Discount on Debtors @ 3% and creditors @ 5%. 4) Outstanding Expenses – Wages ₹ 700 and Salaries ₹ 800. 5) Insurance is paid for 15 months, w.e.f. 1st April 2018 6) Depreciate Land and Building @ 5% 7) Reena & Aarti are Sharing Profits & Losses in their Capital Ratio

#### Solution:

In the books of Reena and Aarti

 Dr                                                                      Trading and Profit and loss accounts for the year ended 31st March,2019 .                                                Cr Particular ₹ ₹ Particular ₹ ₹ To Opening Stock 18,100 By sales 58,200 To Purchase 35,500 Less: Sales Return -1,000 57,200 Less: Return -500 35,000 To Royalty 700 To Wages 800 By Closing Stock 22,000 Add: O/s Wages 700 1500 To Gross Profit C/d 23,900 79,200 79,200 To Bad Debts 500 By Gross Profit b/d 23,900 Add: New Bad Debts 900 By Discount 50 Add: New RDD 1,000 By Commission 250 2,400 BY Discount on Creditor 1285 Less: Old RDD -800 1,600 To RFDD 1,143 To Discount 1,000 To Rent 1,900 To Salaries 3,000 Add: O/S Salaries 800 3,800 To Insurance 1,500 Less: Pre Paid Insurance -300 1,200 To Dep on Land & Building 1250 To Net Profit C/d REENA CAPITAL A/C 8,495 ARTI CAPITAL A/C 5097 13592 25,485 25,485
 Dr                                                                                                                     Partners Capital A/c                                                                                                                               Cr Particular Reena Aarti Particular Reena Aarti To Drawing 2,000 1,000 By Bal B/d 50,000 30,000 BY Net Profit 8495 5097 To bal C/d 56,495 34,097 58495 35097 58495 35097
 Balance Sheet as on 31st March,2019 . Liabilities ₹ ₹ Asset ₹ ₹ Capital A/c Land & Building 25,000 Reena 56,495 Less: Depreciation @ 5% -1250 23,750 AARTI 34,097 90,592 Furniture 20,000 Sundry Creditor 25,700 Sundry Debtor 40,000 Less: [email protected]% -1285 24,415 Less: Bad Debts -900 O/S Wages 700 39,100 O/S SALARIES 800 Less: RDD -1000 38,100 Less: RFDD @ 3% -1143 36,957 Cash at Bank 11,500 Cash in Hand 2,000 Closing Stock 22,000 Prepaid Insurance 300 1,16,507 1,16,507

Working Notes:

(1) Insurance premium ₹ 1,500 is paid for 15 months i.e. prepaid insurance premium for 3 months = ₹ 300.

(2) Reserve for Discount on Debtors = 3% on (Debtors – New Bad debts – New Reserve)

= 3% x (40000 – 900 – 1000)

= 3% x (40000 – 1900) = 3% x 38100

= ₹ 1143

(3) Reserve for Discount on Creditors = 5% on (Value of Creditors) = 5% x 25700 = ₹ 1285.

(4) Profit and Loss ratio = Capital ratio = 50,000: 30,000 = 5: 3.