ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

Name: Hamna Mushtaq

Registration Number: 0000580438

Semester: 01 (Autumn 2023)

Course: Accounting & Finance

Course Code: 5401

Assignment No: 01

Department: BS Accounting & Finance

Submitted To:

Date: January 13, 2024

 ASSIGNMENT: 01

Q. 1. Explain the following concepts;

1. Separate entity concept
2. Money measurement concept
3. Dual aspect concept
4. Matching concept
5. accounting period concept

Answer:

1.Separate entity concept

Definition:

The separate entity concept is an

essential principle in accounting that
highlights the distinction between the
business and its owners. According to
this concept, a business is treated as a
separate economic entity from its
owners, and its financial transactions
should be reported independently of the
personal transactions of the owners.
Key points related to the separate entity concept in accounting include:
1. Legal Distinction:
The separate entity concept recognizes the legal distinction between a business and its owners.
Even if a business is owned by a single individual or a group of individuals, the business is
considered a separate legal entity.
2. Financial Independence:
The financial transactions of the business should be recorded separately from the personal financial
transactions of the owners. This means that business assets, liabilities, income, and expenses are
accounted for independently of the personal assets and liabilities of the owners.
3. Consistent Accounting Treatment:
 The separate entity concept ensures consistency in the accounting treatment of business
transactions. It helps in maintaining clear and accurate records, allowing for better financial
reporting and analysis.
4. Limited Liability:
In the case of entities such as corporations, the separate entity concept is closely tied to the idea of
limited liability. The owners (shareholders) of a corporation are not personally liable for the
company's debts, and the company's assets are distinct from the personal assets of its shareholders.
5. Financial Reporting:
Financial statements, such as the income statement, balance sheet, and cash flow statement, are
prepared based on the assumption of the separate entity concept. This enables stakeholders, such
as investors, creditors, and regulators, to assess the financial performance and position of the
business independently of its owners.
6. Continuous Existence:
The separate entity concept assumes the continuity of the business entity, irrespective of changes
in ownership. This allows for the business to be treated as an ongoing concern for accounting
purposes.
Example:
Let's consider a simple example to illustrate the separate entity concept in accounting:
Suppose Sarah owns a small business called "Sarah's Store" that sells handmade crafts. Sarah
invests $10,000 of her personal savings into the business to purchase inventory, rent a storefront,
and cover other startup expenses.
Initial Transaction:
➢ Sarah contributes $10,000 from her personal savings to the business bank account.
Accounting entry:
➢ Debit (increase) Cash/Bank Account: $10,000
➢ Credit (increase) Owner's Equity (Capital): $10,000
The separate entity concept ensures that this transaction is recorded in the business's books, treating
the business as a distinct entity from Sarah's personal finances.
Purchase of Inventory:
➢ Sarah uses $5,000 from the business account to purchase handmade crafts for resale.
Accounting entry:
➢ Debit (increase) Inventory: $5,000
 ➢ Credit (decrease) Cash/Bank Account: $5,000
Again, the separate entity concept requires the business to account for this transaction
independently, recognizing the change in inventory and cash.
Sale of Crafts:
➢ Sarah sells the crafts for $8,000 in cash.
Accounting entry:
➢ Debit (increase) Cash/Bank Account: $8,000
➢ Credit (increase) Sales Revenue: $8,000
The separate entity concept ensures that the revenue from the sale is recorded as part of the
business's financial transactions, distinct from Sarah's personal income.
Withdrawal by Sarah:
➢ Sarah decides to withdraw $3,000 in cash from the business for personal use.
Accounting entry:
➢ Debit (decrease) Owner's Equity (Withdrawals/Drawings): $3,000
➢ Credit (decrease) Cash/Bank Account: $3,000
The separate entity concept allows the recognition of the owner's withdrawal as a reduction in
owner's equity, separate from the business's operating activities.
2. Money measurement concept
Definition:
The money measurement concept is one of the fundamental accounting principles that guides the

selection and recording of transactions in financial accounting. According to this concept, only
transactions and events that can be expressed in monetary terms are included in the financial
statements. In other words, only those transactions that can be measured in a stable currency are
recognized in accounting records.
Key points related to the money measurement concept include:
1. Quantifiability:
The concept emphasizes the need for transactions to be measurable in monetary terms. This
requirement ensures that financial information is expressed in a common unit of measure,
facilitating the comparison of different items in the financial statements.
2. Limitation to Monetary Transactions:
Only transactions that involve the exchange or transfer of money are considered for recognition in
financial statements. Non-monetary events or transactions that cannot be reliably measured in
terms of money are generally excluded.
3. Stability of Currency:
The concept assumes a stable currency, meaning that the value of
money is relatively constant over time. Inflation or deflation can
complicate the application of the money measurement concept, as it may
affect the comparability of financial information over different periods.
4. Exclusion of Non-Monetary Items:
Items such as employee satisfaction, management skills, and other non-monetary factors are not
recorded in financial statements because they cannot be expressed in monetary terms. This
limitation helps maintain objectivity and consistency in financial reporting.
5. Historical Cost Principle:
The money measurement concept is closely related to the historical cost principle, which states
that assets and liabilities should be recorded at their original cost. This original cost is expressed
in monetary terms and provides a reliable basis for financial reporting.
6. Objective and Verifiable Reporting:
The money measurement concept contributes to the objectivity and verifiability of financial
statements. Monetary amounts are considered more objective and less subject to interpretation
compared to non-monetary measurements.
Example:
The money measurement concept in accounting emphasizes that only transactions that can be
expressed in monetary terms should be recorded in the financial statements. Let's consider an
example:
Suppose a company, ABC Corporation, purchased a piece of machinery for its production facility.
The machinery cost $50,000, and the transaction was conducted in the local currency, let's say U.S.
dollars.
Purchase of Machinery:
➢ ABC Corporation acquires a new piece of machinery for $50,000 in cash.
Accounting entry:
➢ Debit (increase) Machinery (Asset): $50,000
➢ Credit (decrease) Cash/Bank Account: $50,000
In this example, the money measurement concept is evident. The transaction involves a monetary
amount ($50,000) that is easily quantifiable in a stable currency (U.S. dollars). Both the cost of the
machinery and the payment are expressed in monetary terms, making the recording of the
transaction straightforward.
3. Dual aspect concept
Definition:
The dual aspect concept, also known as the accounting equation or the dual aspect principle, is a
fundamental principle in accounting that reflects the idea that every financial transaction has two
equal and opposite effects on the accounting equation. This concept is the foundation for double-
entry bookkeeping, a system widely used in accounting to maintain the integrity of financial
records.

The accounting equation can be expressed as:

Assets = Liabilities + Owner’s Equity
Key points related to the dual aspect concept:
1. Double-Entry Bookkeeping:
Each financial transaction involves at least two accounts – one account is debited, and another is
credited. The total debits must equal the total credits for every transaction, maintaining the balance
in the accounting equation.
 2. Debits and Credits:
An increase in assets is recorded as a debit.
An increase in liabilities or owner's equity is recorded as a credit.
A decrease in assets or liabilities is the opposite of the increase and is recorded on the other side
(credit for assets, debit for liabilities).
3. Consistency:
The dual aspect concept enforces consistency in recording transactions. For every transaction, the
total debits must equal the total credits, ensuring that the accounting equation stays balanced.
4. Understanding Financial Position:
By using the dual aspect concept, businesses can not only track changes in assets but also
understand how these changes are financed—whether through liabilities or owner's equity. This
provides a comprehensive view of the financial position of a business.
5. Objective Measurement:
The dual aspect concept contributes to the objectivity and accuracy of financial reporting. It
ensures that the impact of transactions is
recorded from both the source and the
destination, making it easier to identify errors
and maintain accountability.

Example:
Let's consider an example to illustrate the
dual aspect concept in accounting using a
common business transaction. Suppose a business, ABC Services, provides consulting services to
a client and issues an invoice for $5,000. The client agrees to pay within 30 days.
Revenue Recognition:
➢ ABC Services provides consulting services to the client.
Accounting entry:
➢ Debit (increase) Accounts Receivable: $5,000
➢ Credit (increase) Service Revenue: $5,000
In this entry, the dual aspect concept is evident. On one side, the service revenue account
(owner's equity) is credited, recognizing an increase in the company's equity due to earning
 revenue. On the other side, the accounts receivable account (asset) is debited, reflecting the
increase in the company's assets as it is now entitled to receive $5,000 from the client.
Cash Receipt:
➢ The client pays ABC Services $5,000 in cash within the 30-day period.
Accounting entry:
➢ Debit (increase) Cash: $5,000
➢ Credit (decrease) Accounts Receivable: $5,000
With this entry, the dual aspect concept is again demonstrated. The cash account (asset) is debited,
showing an increase in the company's assets. Simultaneously, the accounts receivable account
(asset) is credited, reflecting the decrease in the amount owed to ABC Services by the client.
By applying the dual aspect concept in both transactions, the accounting equation remains in
balance. In the first entry, the increase in assets (accounts receivable) is balanced by an increase in
owner's equity (service revenue). In the second entry, the increase in cash is balanced by a decrease
in accounts receivable.

4. Matching concept

Definition:
The matching concept, also known as the matching principle, is a fundamental accounting
principle that guides the recognition of expenses in the financial statements. It is closely related to
the accrual basis of accounting and emphasizes the need to match expenses with the revenues they
help generate in a specific accounting period. The goal is to accurately reflect the economic reality
of the business's operations by associating the costs incurred to earn revenue in the same period.
Key points related to the matching concept:
1. Expense Recognition:
The matching concept dictates that expenses should be recognized in the income statement in the
same period in which they contribute to the generation of revenue. This is in contrast to the cash
basis of accounting, where expenses are recognized when they are paid.
2. Timely Recognition:
To provide a more accurate representation of the financial performance of a business, the matching
concept requires expenses to be recognized in the same accounting period as the related revenue.
This helps in presenting a more realistic picture of profitability.
3. Systematic Allocation:
For certain expenses that benefit multiple accounting periods, the matching concept allows for
systematic allocation over the periods during which the benefits are realized. This is particularly
relevant for expenses like depreciation, where the cost of an asset is allocated over its useful life.
4. Accrual Accounting:
The matching concept is a key element of the accrual accounting method. Under accrual
accounting, revenue and expenses are recognized when they are earned or incurred, regardless of
when the cash is received or paid.
5. Consistency:
Consistent application of the matching concept enhances the comparability of financial statements
over different periods. It ensures that financial information is presented in a standardized manner,
facilitating analysis and decision-making.
6. Adjusting Entries:
The matching concept often necessitates adjusting entries at the end of an accounting period to
recognize expenses that may have been incurred but not yet recorded. For example, if a business
has incurred expenses but hasn't received the related invoices by the end of the period, adjusting
entries are made to recognize these expenses.
Example:
Let's consider an example to illustrate the matching concept in accounting:
Suppose a company, XYZ Corporation, manufactures and sells electronic gadgets. In December,
XYZ sells $50,000 worth of gadgets to its customers. However, the company also incurs costs
related to the production and sale of these gadgets, including the cost of goods sold (COGS), which
amounts to $30,000.
According to the matching concept, the expenses (in this case, the cost of goods sold) should be
matched with the revenue they help generate in the same accounting period. Here's how the
transactions would be recorded:
Sales Revenue Recognition:
➢ XYZ recognizes $50,000 in sales revenue in December when the gadgets are sold.
Accounting entry:
➢ Debit (increase) Accounts Receivable or Cash (depending on the payment method):
$50,000
➢ Credit (increase) Sales Revenue: $50,000
Matching the Cost of Goods Sold (COGS):
➢ XYZ incurs $30,000 in costs related to the production of the gadgets. According to the
matching concept, these costs (COGS) should be recognized in the same period as the
revenue.
Accounting entry:
➢ Debit (increase) Cost of Goods Sold (Expense): $30,000
➢ Credit (decrease) Inventory: $30,000
The matching concept ensures that the $30,000 in expenses (COGS) is recognized in the same
accounting period as the $50,000 in revenue, reflecting the economic reality of the transaction.
This results in a more accurate representation of the company's profitability for the month of
December
5. Accounting period concept
Definition:
The accounting period concept, also known as the periodicity concept, is a fundamental accounting
principle that assumes the economic activities of a business can be divided into specific time
periods for financial reporting purposes. This concept helps in organizing and presenting financial
information in a systematic and meaningful way. The primary idea is that businesses should
prepare financial statements at regular intervals to provide relevant and timely information to
users.
Key points related to the accounting period concept include:
1. Regular Reporting Intervals:
The accounting period concept suggests that businesses should break down their financial
activities into specific time periods, typically a fiscal year or shorter periods like quarters or
months. The choice of the accounting period depends on the nature of the business and industry
practices.
2. Accrual Basis of Accounting:
The concept is closely tied to the accrual basis of accounting, where revenues and expenses are
recognized when they are earned or incurred, not necessarily when the cash is received or paid.
This allows for a more accurate reflection of the business's financial performance during a specific
period.
3. Consistency:
Once a business chooses a specific accounting period, it is encouraged to maintain consistency in
its reporting. Consistent reporting periods make it easier for stakeholders to analyze financial
information over time and compare it across different periods.
4. Financial Statements:
Financial statements, including the income statement, balance sheet, and cash flow statement, are
prepared at the end of each accounting period. These statements provide a summary of the
business's financial performance, financial position, and cash flows during the period.
5. Matching Principle:
The accounting period concept aligns with the matching principle, which states that expenses
should be matched with the revenues they help generate in the same accounting period. This
ensures that the financial statements accurately reflect the profitability of the business for a given
period.
 6. Management Decision-Making:
Regular reporting periods facilitate management decision-making by providing timely information
on financial performance and guiding future business strategies. Investors, creditors, and other
stakeholders also rely on these reports to assess the company's financial health and performance.

Examples:
Suppose a company, XYZ Inc., has adopted a fiscal year that ends on December 31st. The company
engaged in various financial transactions during the fiscal year 2023. At the end of the year, XYZ
Inc. prepares financial statements to summarize its financial performance for the entire accounting
period.
Revenue Recognition:
➢ Throughout the fiscal year, XYZ Inc. provides services to clients, earning revenues.
➢ XYZ Inc. recognizes these revenues in the financial statements for the specific periods in
which the services are provided, adhering to the accounting period concept.
Expense Recognition:
➢ Similarly, the company incurs various expenses during the fiscal year, such as salaries, rent,
utilities, and other operational costs.
➢ These expenses are matched with the corresponding revenues, recognizing them in the
financial statements for the specific accounting periods in which they contribute to the
generation of revenue.
Financial Statement Preparation:
➢ At the end of the fiscal year (December 31st), XYZ Inc. compiles its financial information
and prepares financial statements, including the income statement, balance sheet, and cash
flow statement.
➢ The income statement summarizes revenues and expenses, showing the net income or loss
for the entire fiscal year.
➢ The balance sheet reflects the company's financial position as of December 31st, including
assets, liabilities, and equity.
➢ The cash flow statement outlines the sources and uses of cash over the fiscal year.
Comparative Analysis:
➢ Stakeholders, such as investors, creditors, and management, analyze the financial
statements to assess the company's performance, financial health, and cash flow trends over
the specific accounting period.

Q. 2.Mr. Nasir kept his books on signal entry system. His position on
31StDecember, 2020 was as follows:
Cash in hand Rs. 400 Cash at bank Rs. 6,000, stock Rs. 4,0,000 sundry debtors
Rs. 17,000, fixture and fitting Rs.3,600, plant and machinery Rs30,000/sundry
creditors Rs. 44,000.
Mr. Nasir put Rs. 10, 000 during the year as new capital and his drawing were
Rs. 1,500 per month. His position on 31st December 2021 was as follows:
Cash in hand Rs.600, cash at bank Rs.4,000, sundry debtor Rs. 28,000, stock
Rs.38,000 plant and machinery Rs. 54,000, fixture and fitting Rs. 3,000 sundry
creditors, Rs.58, 000.
Required: From the above information, prepare a statement of affairs showing.
Profit or loss during the year ending on 3l December2021.
To prepare a statement of affairs and determine the profit or loss during the
year ending on December 31, 2021, we need to compare Mr. Nasir's financial
position at the beginning (December 31, 2020) and at the end (December 31,
2021) of the year. The statement of affairs format typically includes assets and
liabilities.
Answer:
Statement of Affairs as of December 31, 2020:

Assets Amount (Rs)

Cash in hand 400
Cash at bank 6,000
Stock 4,00,000
Sundry debtors 17,000
Fixture and fixing 3,600
Plant and machinery 30,000
Total Assets 4,56,000

Liabilities Amount (Rs)

Sundry creditors 44,000
Total liabilities 44,000
Net Assets as of December 31, 2020:
Net Assets = Total Assets - Total Liabilities
= 4,56,000 - 44,000
= 4,12,000
Statement of Affairs as of December 31, 2021:

Assets Amount (Rs)

Cash in hand 600
Cash at bank 4,000
Stock 38,000
Sundry debtors 28,000
Fixture and fitting 3,000
Plant and machinery 54,000
Total Assets 1,27,600

Liabilities Amount (Rs.)

Sundry creditors 58,000

Total Liabilities 58,000

Net Assets as of December 31, 2021:
Net Assets = Total Assets - Total Liabilities
= 1,27,600 - 58,000
= 69,600
Calculation of Profit or Loss:
Profit or Loss = Net Assets (End of Year) - Net Assets (Start of Year)
= 69,600 - 4,12,000
= -3,42,400 (Negative value indicates a loss)
Therefore, there is a loss of Rs. 3,42,400 during the year ending on December 31, 2021

Q. 3. Define the Accounting. Why Accounting is necessary in business field?

Answer:
Definition of Accounting:
Accounting is the systematic process of recording, summarizing, analyzing, and interpreting
financial transactions of a business or an organization. It involves the preparation of financial
statements, which provide an overview of the financial performance and position of the entity.
Accounting serves as the language of business, enabling businesses to communicate their financial
information to various stakeholders.

Importance of Accounting in the Business Field:

1. Financial Recording:
Accounting helps in systematically recording all financial
transactions, ensuring a comprehensive and accurate
representation of a business's financial activities. This
includes transactions related to sales, purchases,
investments, expenses, and more.
2. Financial Planning and Control:
Accounting provides essential information for effective
financial planning and control. Businesses can use historical
financial data to make informed decisions about budgeting, resource allocation, and setting future
financial goals.
3. Performance Evaluation:
Through the analysis of financial statements, businesses can assess their performance over specific
periods. Key financial ratios and indicators help in evaluating profitability, liquidity, solvency, and
efficiency, providing insights into the overall health of the business.
4. Compliance with Regulations:
Accounting ensures that a business adheres to financial regulations and accounting standards.
Accurate financial reporting is crucial for meeting legal requirements and regulatory compliance,
which is essential for maintaining the trust of investors, creditors, and other stakeholders.
5. Investor Relations:
Investors and shareholders rely on financial statements to make investment decisions. Transparent
and reliable financial information enhances the credibility of a business, attracting potential
investors and maintaining trust with existing ones.
6. Tax Compliance:
Accounting plays a vital role in ensuring that a business complies with tax laws and regulations.
Accurate financial records help in calculating and filing taxes appropriately, minimizing the risk
of legal issues and penalties.
7. Facilitating Decision-Making:
Managers use accounting information to make informed decisions about pricing, product
development, cost management, and other strategic matters. Accounting data helps in identifying
profitable areas and areas that may need improvement.
8. Risk Management:
Accounting assists in identifying financial risks and uncertainties. By monitoring financial
performance, businesses can develop strategies to mitigate risks and make informed decisions to
ensure the long-term sustainability of the organization.
9. Facilitating Communication:
Accounting serves as a common language for communicating financial information to various
stakeholders, including management, investors, creditors, government authorities, and employees.
Q. 4. On 1stJuly 2011, Basharat purchased Machinery for Rs. 60,000. Depreciation is to
be charged @ 10% on Straight line method and Reducing balance method each
year. On 31st October 2011 Machinery was sold for Rs. 24,000 as they became
useless. On the same date he purchased new machinery for Rs.20, 000.
Required: Prepare machinery Accounts from 2011 to 2014.Accounts are closed
on 31st December every year.
Answer:
To prepare the Machinery Accounts from 2011 to 2014, we need to consider the original purchase,
depreciation, sale of the machinery, and the purchase of new machinery. We'll calculate
depreciation for each year using both the Straight-line Method and the Reducing Balance Method
➢ Let's consider the Straight-line Method for depreciation.
Machinery Account (2011):

Date Particulars Debit (Rs) Credit (Rs)

01-Jul-2011 To Bank (Purchase) 60,000

31-Dec-2011 By Depreciation 6,000

(SLM)
31-Dec-2011 Balance c/d 54,000

Total 60,000 60,000

Machinery Account (2012):

Date Particulars Debit (Rs) Credit (Rs)

31-Dec-2012 By Depreciation 6,000
(SLM)
31-Dec-2012 Balance c/d 48,000

Total 54,000 54,000

Machinery Account (2013):

Date Particulars Debit (Rs) Credit (Rs)

31-Dec-2013 By Depreciation 4,800
(SLM)
31-Dec-2013 Balance c/d 43,200

Total 48,000 48,000

Machinery Account (2014):

Date Particulars Debit (Rs) Credit (Rs)

31-Dec-2014 By Depreciation 4,320
(SLM)
31-Dec-2014 Balance c/d 38,880

Total 43,200 43,200

➢ Now, let's consider the Reducing Balance Method for depreciation.
Machinery Account (2011):

Date Particulars Debit (Rs) Credit (Rs)

01-Jul-2011 To Bank (Purchase) 60,000

31-Dec-2011 By Depreciation 6,000

(RBM)
31-Dec-2011 Balance c/d 54,000

Total 60,000 60,000

Machinery Account (2012):

Date Particulars Debit (Rs) Credit (Rs)

31-Dec-2012 By Depreciation 5,400
(RBM)
31-Dec-2012 Balance c/d 48,600

Total 54,000 54,000

Machinery Account (2013):

Date Particulars Debit (Rs) Credit (Rs)

31-Dec-2013 By Depreciation 4,860
(RBM)
31-Dec-2013 Balance c/d 43,740

Total 48,600 48,600

Machinery Account (2014):

Date Particulars Debit (Rs) Credit (Rs)

31-Dec-2014 By Depreciation 4,374
(RBM)
31-Dec-2014 Balance c/d 39,366

Total 43,740 43,740

On October 31, 2011, the machinery was sold for Rs. 24,000. The difference between the book
value (after deducting depreciation) and the selling price is the loss on sale.
Loss on Sale of Machinery Account (2011):

Date Particulars Debit (Rs) Credit (Rs)

31-Oct-2011 To Machinery (Book 54,000
Value)
31-Oct-2011 To Cash (Sale 24,000
Proceeds)
Total 54,000 24,000

Now, on the same date (31-Oct-2011), new machinery was purchased for Rs. 20,000.
Machinery Account (2011 - New Machinery):

Date Particulars Debit (Rs) Credit (Rs)

31-Oct-2011 To Cash (New 20,000

Purchase)
31-Oct-2011 By Machinery (Old 24,000
Sale)
Total 20,000 24,000

These entries should provide a comprehensive overview of the Machinery Accounts from 2011 to
2014, considering both the Straight-Line Method and the Reducing Balance Method for
depreciation
Q. 5 From the following Balances extracted from the books of Ali Bros, on 31
March, 2015. You are required to prepare a Trading and Profit and Loss
account and Balance Sheet:

Debit Balance Machinery 21,560

Office Equipment 98,000 Insurance 21,000
Opening Stock 49,000 Rent & Rates 4,900
Purchases 105,000 Bills receivables 30,800
Sales Return 3,920 Investment in shares 22,400
Land & building 84,000 Drawings 12,600
Carriage inward 2,100 Cash in hand 49,630
Carriage outward 4,1000 Credit Balance
Account Receivable 67,200 Bank overdraft 6,700
Cash at bank 5,000 Capital 217,000
Wages & Salaries 30,000 Purchases Returns 2,800
Manufacturing expenses 5,700 Sales 350,000
Trade expenses 490 Account Payable 35,000
Interest on overdraft 2,100 Bank Loan 8,000

Adjustments:
i. Closing stock was valued at Rs. 150,600.
ii. Trade expenses are outstanding Rs. 550.
iii. Provide Rs.1000 as bad debts and 5% as reserve on Account
Receivable.
iv. The Manager is entitled to a commission of 10% on net profit
before charging such commission.
v. Allow interest on capital @ 5% p.a
Answer:
➢ Trading and Profit and Loss Account for the year ending March 31, 2015:

Particulars Amount (Rs.) Particulars Amount (Rs.)

Sales 350,000 Opening Stock 49,000
Less: Sales Return (3,920)
346,080 Less: Purchases Returns (2,800)
Net Sales 343,280 Cost of Goods Sold 48,200
Gross Profit 295,080
Carriage Inward 2,100 Carriage Outward 4,100
Wages & Salaries 30,000 Manufacturing Expenses 5,700
Trade Expenses 490
37,290
Net Profit 257,790
Total 332,370 Total 332,370

➢ Balance Sheet as of March 31, 2015:

Assets:

Particulars Amount (Rs.) Liabilities Amount (Rs.)

Office Equipment 98,000 Bank Loan 8,000

Land & Building 84,000 Bank Overdraft 6,700

Machinery 21,560 Account Payable 49,630

Bills Receivables 30,800 Capital 217,000
Investment in Shares 22,400
Cash at Bank 5,000
Cash in Hand 6,700
Account Receivable 67,200 Less: Reserve for Bad Debts (1,000)

Total assets 335,660 Total Liabilities & Equity 335,660

Liabilities and Equity:

Particulars Amount (Rs.)

Capital 217,000

Less: Drawings (12,600)

Add: Net Profit 257,790

462,190

Total 462,190

➢ Adjustments:

1. Closing Stock:
• Closing stock was valued at Rs. 150,600.

2. Outstanding Trade Expenses:

• Trade expenses are outstanding Rs. 550.

3. Bad Debts and Reserve:

• Provide Rs. 1,000 as bad debts.
• Create a reserve of 5% on Account Receivable (67,200 - 1,000).

4. Manager's Commission:
• The Manager is entitled to a commission of 10% on net profit before charging such
commission.

5. Interest on Capital:
• Allow interest on capital @ 5% p.a.
……
Much Obliged!