Study the Operational Efficiency of Neelam Detergent Soap (With GST)

OBJECTIVES OF THE PROJECT

The main objectives of my project are that I will be able:
� To judge the performance of the firm.
� To judge the overall profitability position.
� To check the financial soundness.
� To judge the effectiveness with which the fixed assets have been used.
� To identify Investing and Financing activities and prepare Cash Flow Statement.
SOURCE MATERIAL Project Statement:
‘Neelam Detergent Soap’
On January 1, 2021 National Small Industries Corporation (NSIC) organised a Camp for those who wanted to
start a small business. The NSIC displayed 1500 small business projects which could be started with an
investment of
` 2,00,000. The NSIC also promised to buy the entire production of the first year. It promised to supply the
required machinery at a very subsidised rates. It also had a scheme to give loans upto 50% of the working
capital requirement.
A large number of people visited the camp. There were project demonstrations by the NSIC advisers and
experts. Neelam was very impressed by the demonstration of the small business project on Detergent Powder.
The project was economically viable. She was convinced that she will definitely succeed in carrying out the
project. She entered into an agreement with the NSIC who agreed to supply the necessary plant for ` 60,000
(GST @ 18%) on turnkey basis. She had sufficient open space at her residence in a village. She got the
machine fixed, and the down payment of
` 20,800 was made. The balance was to be paid equally over a period of five years. She went through the
literature provided by the NSIC to know the addresses of the suppliers of the raw materials. She placed
necessary orders for the raw material and arranged for workers who will operate the machine and do other
necessary production work. She set up a small workable office and decided to do all office work herself. All
supplies were on a credit for two weeks.
She formally inaugurated the production on April 1, 2021. She invited all the villagers on the very first day.
Neelam Detergent powder was very reasonably priced. The price was very much lower than other brands in
the market. She visited ten other villages around her village. She told the people there, as to how her
detergent powder is better and cheaper than others. Her product was really good and was accepted by all
those who used it. Within two months she could sell whatever she produced every week.

Her initial investment was ` 80,000 out of which she paid the first instalment (down payment) of plant on April 1, 2021.
She opened a Bank Account with ` 49,200 on the same date. She had an old scooter worth ` 20,000 which she decided to
use in her business. She also purchased furniture for ` 12,000 (GST @ 12%). Thus, her total investment was ` 1,00,000.
The payments to suppliers were made on the 15th and the 30th of each month. The salaries and wages were paid only on
the 7th of each month. The Sales were mostly for Cash. The Cash Sale was deposited in the Bank the next day. The sale
to local customers was on credit for one week. All the customers were honest and paid the amount as and when due.
The following expenses were incurred and revenue realised during the year ended March 31, 2022.

1. Raw material purchased on credit (GST @ 12%) 12,00,000

2. Cash paid to the (suppliers) 11,24,000
creditors
3. Cash Sales (GST @ 18%) 5,00,000
4. Credit Sales (GST @ 18%) 16,00,000
5. Cash received from customers 15,25,000
6. Wages paid for eleven months 2,31,000
7. Office expenses 19,000
8. Power bills paid 25,000
9. Packing expenses (GST @ 12%) 10,000
10. Drawings 2,52,000
Other balances as on March 31, 2022 were as follow :
(`)
(i) Closing Stock 25,000
(ii) Plant 60,000
(iii) Furniture 12,000
(iv) Debtors 75,000
(v) Scooter 20,000
Depreciation was charged @ 10% p.a on both plant and furniture and @ 20% on Scooter. Wages are outstanding for one
month.
Required :
(i) Neelam wants to judge her performance.
(ii) Calculate necessary ratios to find out her overall profitability and production efficiency.
(iii) Evaluate her liquidity position at the end of the year.
(iv) Identify her main financing and investing activities.
(v) Prepare Cash Flow Statement
(vi) Can she get a loan from a bank?

Debit Credit
Date Particulars L.F.
Amount Amount
2021 (`) (`)
April 1 Plant Account Dr. 60,000
Input SGST Account Dr. 5,400
Input CGST Account Dr. 5,400
To Vendor (NSIC) 70,800
(Being plant purchased on instalment basis with GST @ 18%
April 1 Scooter A/c Dr. 20,000
Cash A/c Dr. 80,000
To Capital A/c 1,00,000
(Being the amount introduced as capital both in cash and in the form
of scooter.)
April 1 Vendor (NSIC) Dr. 20,800
To Cash A/c 20,800
(Being the down payment made to the NSIC)

April 1 Bank A/c Dr. 49,200

To Cash A/c 49,200
(Being the bank account opened)

During Furniture A/c Dr. 12,000

the year Input SGST A/c Dr. 720
Input CGST A/c Dr. 720
To Bank A/c 13,440
(Being furniture purchased @ 12% GST)

During Bank A/c Dr. 5,90,000

the year To Sales A/c 5,00,000
To Output SGST A/c 45,000
To Output CGST A/c 45,000
(Being cash sales during the year @ 18% GST)

Debtors Dr. 18,88,000

During
To Sales A/c 16,00,000
the year
To Output SGST A/c 1,44,000
To Output CGST A/c 1,44,000
(Being credit sales during the year, @ 18%)

Bank A/c Dr. 18,13,000

During 18,13,000
To Debtors
the year
(Being cash received from debtors)

12,00,000
 During 72,000
Purchase A/c Dr.
the year 72,000
Input SGST A/c Dr.
13,44,000
Input CGST A/c Dr.
To Creditors
(Being raw material purchased during the year on credit @ 12% GST)
During Creditors A/c Dr. 10,24,000
the year To Bank A/c 10,24,000
(Being payment made to creditors)

During Wages A/c Dr. 2,31,000

the year To Bank A/c 2,31,000
(Being wages paid for 11 months)

During Office Expenses A/c Dr. 19,000

the year To Bank A/c 19,000
(Being office expenses paid)

During Power Expenses A/c Dr. 25,000

the year To Bank A/c 25,000
(Being power expenses paid)

During Packing Expenses A/c Dr. 10,000

the year Input SGST A/c Dr. 600
Input CGST A/c Dr. 600
To Bank A/c 11,200
(Being packing expenses incurred during the year @ 12% GST)

During Drawing A/c Dr. 2,52,000

the year To Bank A/c 2,52,000
(Being the amount drawn for personal use)

2022 (`) (`)

March 31 Output SGST A/c Dr. 78,720
Output CGST A/c Dr. 78,720
To Input SGST A/c 78,720
To Input CGST A/c 78,720
(Being transfer of Input Tax Credit out of Output GST)
2022 (`) (`)
March 31 Output SGST A/c Dr. 1,10,280
Output CGST A/c Dr. 1,10,280
To Bank A/c 2,20,560
(Being output GST paid to Government Account)

LEDGER
Dr. CAPITAL ACCOUNT Cr.

Date Particulars Amount Date Particulars Amount

2022 (`) 2021 (`)
Mar. 31 To Balance c/d 1,00,000 April 1 By Cash A/c 80,000
April 1 By Scooter A/c 20,000

1,00,000 1,00,000
2022
April 1 By Balance b/d 1,00,000

Dr. CASH ACCOUNT Cr.

Date Particulars Amount Date Particulars Amount
2021 (`) 2021 (`)
April 1 To Capital A/c 80,000 April 1 By Bank A/c 49,200
April 1 By Vendor (NSIC) 20,800
2022
Mar. 31 By Balance c/d 10,000
80,000 80,000
2022
April 1 To Balance b/d 10,000

BANK ACCOUNT Cr.

Date Particulars F Amount Date Particulars F Amount
2021 (`) 2021 (`)
April 1 To Cash A/c 49,200 April 1 By Furniture A/c 12,000
To Sales A/c 5,00,000 April 1 By Input SGST A/c 720
To Output SGST A/c 45,000 April 1 By Input CGST A/c 720
To Output CGST A/c 45,000 By Creditors 11,24,000
To Debtors 18,13,000 During By Wages A/c 2,31,000
the year By Office Expenses A/c 19,000
By Power Expenses A/c 25,000
By Drawings A/c 2,52,000
By Packing Expenses A/c 10,000
By Input SGST A/c 600
By Input CGST A/c 600
2022
Mar 31 By Output SGST A/c 1,10,280
By Output CGST A/c 1,10,280
By Balance c/d 5,56,000
To
Balance
b/d 24,52,200 24,52,200
5,56,000

Dr. PLANT ACCOUNT Cr.

Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
April 1 To Vendor (NSIC) 60,000 Mar. 31 By Balance c/d 60,000
60,000 60,000
2022 To Balance b/d 60,000
April 1

Dr. VENDOR (NSIC) Cr.

Date Particulars Amount Date Particulars Amount
2021 (`) 2021 (`)
April 1 By Plant A/c 60,000
20,800 By Input S GST A/c 5,400
By Input C GST A/c 5,400
2022
Mar. 31 To Balance c/d 50,000
70,800 70,800
 2022
April 1 By Balance b/d 50,000

FURNITURE ACCOUNT Cr.

Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
April 1 To Bank A/c 12,000 Mar. 31 By Balance c/d 12,000
12,000 12,000
2022
April 1 To Balance b/d 12,000

Dr. SALES ACCOUNT

Cr.
Date Particulars Amount Date Particulars Amount
(`) 2021 (`)
2022 During By Bank A/c 5,00,000
Mar. 31 To Trading A/c (Transfer) 21,00,000 the year By Debtors A/c 16,00,000
21,00,000 21,00,000

Dr. DEBTORS ACCOUNT

Cr.
Date Particulars Amount Date Particulars Amount
2021 (`) 2021 (`)
To Sales A/c 16,00,000
During
To Output S GST A/c 1,44,000 By Bank A/c 18,13,000
the year
To Output S GST A/c 1,44,000
2022
Mar. 31 By Balance c/d 75,000
18,88,000 18,88,000
2022
April 1 To Balance b/d 75,000

Dr. WAGES ACCOUNT

Cr.
Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
During To Bank A/c 2,31,000 Mar. 31 By Trading A/c (Transfer) 2,31,000
the year 2,31,000 2,31,000

Dr. SCOOTER ACCOUNT

Cr.
Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
April 1 To Capital A/c 20,000 Mar. 31 By Balance c/d 20,000
20,000 20,000
2022 To Balance b/d 20,000
April 1

Dr. PURCHASES ACCOUNT

Cr.
Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
During To Creditors A/c 12,00,000 Mar. 31 By Trading A/c (Transfer) 12,00,000
the year 12,00,000 12,00,000
CREDITORS ACCOUNT Cr.
Date Particulars Amount Date Particulars Amount
(`) 2021 (`)
2021
By Purchase A/c 12,00,000
During During
To Bank A/c 11,24,000 By Input S GST A/c 72,000
the year the year
By Input C GST A/c 72,000
2022
Mar. 31 To Balance c/d 2,20,000
13,44,000 13,44,000
2022
April 1 By Balance b/d 2,20,000

Dr. OFFICE EXPENSES ACCOUNT

Cr.
Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
During To Bank A/c 19,000 Mar. 31 By Profit & Loss A/c (Transfer) 19,000
the year 19,000 19,000

Dr. POWER EXPENSES

Cr.
Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
During To Bank A/c 25,000 Mar. 31 By Profit & Loss A/c (Transfer) 25,000
the year 25,000 25,000

Dr. DRAWINGS ACCOUNT

Cr.
Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
During To Bank A/c 2,52,000 Mar. 31 By Balance c/d 2,52,000
the year 2,52,000 2,52,000
2022
April 1 To Balance b/d 2,52,000

Dr. PACKING EXPENSES ACCOUNT

Cr.
Date Particulars Amount Date Particulars Amount
2021 (`) 2022 (`)
During To Bank A/c 10,000 Mar. 31 By Profit & Loss A/c (Transfer) 10,000
the year 10,000 10,000

Dr. INPUT CGST ACCOUNT

Cr.
Date Particulars JF Amount (`) Date Particulars JF Amount (`)
To Vendor (Plant) 5,400
2021
To Creditors (Purchases) 72,000 2022
During
the year To Bank A/c (Furniture) 720 Mar. 31 By Output CGST A/c
To Bank A/c (Packing Expenses) 600 (Transfer) 78,720
78,720 78,720

INPUT SGST ACCOUNT Cr.

 Amount
Date Particulars JF Amount (`) Date Particulars JF
(`)
To Vendor (Plant) 5,400
To Creditors (Purchases) 72,000
2022 By Output SGST A/c (Transfer)
To Bank A/c (Furniture) 720
To Bank A/c (Packing Expenses) 600 78,720
78,720 78720

Dr. OUTPUT CGST ACCOUNT

Cr.
Date Particulars JF Amount (`) Date Particulars JF Amount (`)
To Input CGST A/c (Transfer) By Debtors (Sales) 1,44,000
2022 During
78,720 By Bank A/c(Sales) 45,000
March 31 the Year
To Bank A/c 1,10,280
1,89,000 1,89,000 1,89,000

Dr. OUTPUT SGST ACCOUNT

Cr.
Date Particulars JF Amount (`) Date Particulars JF Amount (`)
To Input SGST A/c (Transfer) 78,720 By Debtors (Sales) 1,44,000
2022 During
1,10,280 By Bank A/c (Sales) 45,000
March 31 the year
To Bank A/c
1,89,000 1,89,000

TRIAL BALANCE
As on March 31, 2022
Amount Amount
Ledger Accounts Particulars Ledger Accounts
(Dr.) (Cr.)
(`) (`)
Cash A/c 10,000 Capital A/c 1,00,000
Bank A/c 5,56,000 Vendor (NSIC) 50,000
Plant A/c 60,000 Sales A/c 21,00,000
Furniture A/c 12,000 Creditors A/c 2,20,000
Debtors A/c 75,000
Wages A/c 2,31,000
Scooter A/c 20,000
Purchases A/c 12,00,000
Office Expenses A/c 19,000
Power Expenses A/c 25,000
Drawing A/c 2,52,000
Packing Expenses A/c 10,000
24,70,000 24,70,000

Adjustments Required (See Project Statement) :

1. Unsold stock is ` 25,000
2. Depreciation at the rate of 10% on Plant and Furniture and at the rate of 20% on Scooter.
3. Wages are outstanding for one month.
Adjustment Entries :
JOURNAL
Debit Credit
Date Particulars L.F.
Amount Amount
2022 (`) (`)
Mar. 31
Stock A/c 37,000 37,000
To Trading A/c Dr.
(Being the amount of closing stock and stock distributed as free samples)
Mar. 31 Depreciation A/c Dr. 11,200
To Plant A/c (@ 10%) 6,000
To Furniture A/c (@ 10%) 1,200
To Scooter A/c (@ 20%) 4,000
(Being the amount depreciation charged)
Mar. 31 Wages A/c Dr. 21,000
To Wages Outstanding A/c 21,000
(Being the amount due for one month)
Note : The wages paid ` 2,31,000 are for eleven months.
Therefore, wages for one month are 2,31,000  11 = `
21,000

TRADING ACCOUNT
Dr. For the Year Ended March 31, 2022
Cr.
Particulars Amount Particulars Amount
(`) (`)
To Purchase A/c 12,00,000 By Sales A/c 21,00,000
To Wages A/c 2,31,000 By Closing stock 25,000
Add : Outstanding 21,000 2,52,000
To Power Expenses A/c 25,000
To Gross Profit 6,48,000
21,25,000 21,25,000

PROFIT & LOSS ACCOUNT

Dr.For the Year Ended March 31, 2022 Cr.
Particulars Amount Particulars Amount
(`) (`)
To Office Expenses A/c 19,000 By Gross Profit 6,48,000
To Packing Expenses A/c 10,000
To Depreciation A/c
Plant 6,000
Furniture 1,200
Scooter 4,000 11,200
To Net Profit 6,07,800
6,48,000 6,48,000

BALANCE SHEET
As At 31st March, 2022
Liabilities Amount Assets Amount
(`) (`)
Capital Account 1,00,000 Plant A/c 60,000
(+) Net Profit 6,07,800 (–) Depreciation (6,000) 54,000
7,07,800 Furniture A/c 12,000
(–) Drawings (2,52,000) 4,55,800 (–) Depreciation (1,200) 10,800
Vendor (NSIC) 50,000 Scooter A/c 20,000
Wages Outstanding 21,000 (–) Depreciation (4,000) 16,000
Creditors 2,20,000 Debtors 75,000
Closing Stock 25,000
Cash 10,000
Bank 5,56,000
7,46,800 7,46,800