12th Accountancy Textbook PDF

www.tntextbooks.in GOVERNMENT OF TAMILNADU HIGHER SECONDARY SECOND YEAR ACCOUNTANCY A publication under Free Textbook Programme of Government of Tamil Nadu...

www.tntextbooks.in GOVERNMENT OF TAMILNADU HIGHER SECONDARY SECOND YEAR ACCOUNTANCY A publication under Free Textbook Programme of Government of Tamil Nadu Department of School Education Untouchability is Inhuman and a Crime 12th-Accountancy-Front-Pages.indd 1 12/11/2021 11:50:38 PM  www.tntextbooks.in Government of Tamil Nadu First Edition - 2019 Revised Edition - 2020, 2022 Reprint - 2021, 2023, 2024 (Published under New Syllabus) NOT FOR SALE Content Creation The wise possess all State Council of Educational Research and Training © SCERT 2019 Printing & Publishing Tamil NaduTextbook and Educational Services Corporation www.textbooksonline.tn.nic.in II 12th-Accountancy-Front-Pages.indd 2 14/12/2023 15:07:23  www.tntextbooks.in CONTENTS ACCOUNTANCY S. No. Chapter Title Page No. Month Unit 1 Accounts from incomplete records 01 June Unit 2 Accounts of not–for–profit organisation 39 July Accounts of partnership Unit 3 81 firms–fundamentals Unit 4 G oodwill in partnership accounts 119 August Unit 5 Admission of a partner 137 Unit 6 Retirement and death of a partner 183 Sepetember Unit 7 Company accounts 225 October Unit 8 Financial Statement Analysis 263 November Unit 9 Ratio Analysis 293 Computerised Accounting Unit 10 327 December system-Tally E-Book Assessment III 12th-Accountancy-Front-Pages.indd 3 12/11/2021 11:50:38 PM  www.tntextbooks.in Dear Students! This Accountancy textbook is the source of knowledge to provide you with the basic understanding of Accountancy and to make use of your analytical ability to make you an excellent person in applying the accounting principles to real business situations through various activities given in the textbook. The book contains 10 units, within which the subdivisions and various student activities are given in an organised way to make learning easy, systematic and a pleasure. The method of using this book effectively to learn the concepts and methods contained in it and explanation of the important items included in the text book are given below to have a better learning experience. Units are the broad divisions of the book which contain several subdivisions in each of them so that the students can have understanding of the specific substance in various parts UNITS of Accountancy education. Each unit gives the specialised knowledge on the content discussed. The units are to be learnt in the order given in the book to have continuity of learning and proper understanding of the subject matter. SUBDIVISIONS HOW TO USE THE BOOK LEARNING OBJECTIVES POINTS TO RECALL KEY TERMS IV 12th-Accountancy-Front-Pages.indd 4 12/11/2021 11:50:38 PM  www.tntextbooks.in STUDENT ACTIVITY POINTS TO REMEMBER SELF-EXAMINATION QUESTIONS TO EXPLORE FURTHER GLOSSARY We wish you a meaningful and successful learning. Team of Authors. V 12th-Accountancy-Front-Pages.indd 5 12/11/2021 11:50:39 PM  www.tntextbooks.in SCOPE OF ACCOUNTANCY EDUCATION “Accountancy” as a field of knowledge is all pervasive in nature. It offers enormous opportunities for higher education and employment both in India and abroad. The scope after higher secondary programme in Accountancy is given below: EDUCATIONAL OPPORTUNITIES Any of the following Degree Any of the following Any of the following Any of the following Any of the research Programmes can be pursued professional courses/ programmes in India or professional courses/ programme after a by the students both on programmes abroad after a formal degree programmes after formal post graduation regular mode and distance programme anywhere in a formal degree education mode colleges, Universities programme B.Com–Bachelor of CA–Chartered M.Com– I ndian Administrative M.Phil– Master of Commerce (General) Accountancy Master of Commerce Service (IAS) Philosophy B.Com–(Hons.) CMA–Cost and M.Com– I ndian Police Service Ph.D– Doctor of B.Com–(Accounting & Management (Accounting and Finance) (IPS) Philosophy Finance) Accountancy M.Com–(Corporate I ndian Foreign B.Com–(Corporate CS–Company Secretaryship) Service (IFS) Secretaryship) Secretaryship M.Com– (Computer I ndian Revenue B.Com–(Computer BL–Bachelor of Law Applications) Service (IRS) Applications) – Five year Integrated M.Com– (International I ndian Audit and Programme Business and Banking) Account Service B.Com–(International Business) CIMA (Chartered M.Com– (Co operative (IA&AS) Institute of Management) B.Ed., (Bachelor of B.Com–(Bank Management) Management M.B.A–Master of Business Education) and B.B.A–(Bachelor of Business Accountants followed by Administration) Administration ACCA (Association M .Ed., (Master B.B.M–(Bachelor of Bank of Chartered Certified M.B.A–(Finance) of Education) Management) Accountants (UK)) M.B.A–(Marketing) Programmes B.Com–(Co-operation) CPA (Certified Public M.B.A–(Human Resource PG Diploma M.Com–(Master of Accountant (USA)) Management) programme Commerce–Five year CFP–Certified M.B.A–(Advertisement and Integrated programme) Financial Salesmanship) Planner(USA) M.B.A–(Hospital Management) MHRM (Master of Human Resource Management) MLM (Master of Labour Management) EMPLOYMENT OPPORTUNITIES Accounts assistant Accountant Audit assistant Cost analyst Investment consultant Financial advisor Tax practitioner Chartered Accountant Company Secretary Cost and Management Accountant Teaching State and Central Government jobs VI 12th-Accountancy-Front-Pages.indd 6 12/11/2021 11:50:39 PM  www.tntextbooks.in Details of some of the professional courses in India Southern India Regional Office Professional course Name of the institute Chapters in Tamil Nadu address Chartered Accountancy The Institute of Chartered ICAI Bhawan, Coimbatore Accountants of India 122, Mahatma Gandhi Road Erode Post box No.3314 Madurai www.icai.org Nungambakkam, Salem Chennai - 600034 Tiruchirapalli Tirunelveli Tirupur Tuticorin Kanchipuram Kumbakonam Sivakasi Company Secretaryship The Institute of company 9,Wheat Crofts Road, Coimbatore secretaries of India Nungambakkam, Madurai www.icsi.edu Chennai-600034 Salem Cost and Management The Institute of Cost Accountants Southern India Regional Council, Coimbatore Accountancy of India CMA Bhawan Erode 4,Montieth Lane, Madurai www.icma.in Egmore Mettur-Salem Chennai - 600008 Nellai-Pearl Neyveli Ranipet-Vellore Tiruchirapalli SCOPE ABROAD Accountancy students have a wide range of scope abroad. 1. Higher studies 2. Employment opportunities as Teachers Accountants Auditors Financial consultants Export and Import consultants Tax advisors Project consultants. VII 12th-Accountancy-Front-Pages.indd 7 12/11/2021 11:50:39 PM  www.tntextbooks.in VIII 12th-Accountancy-Front-Pages.indd 8 12/11/2021 11:50:39 PM  www.tntextbooks.in UNIT ACCOUNTS FROM 1 INCOMPLETE RECORDS Contents Points to recall The following points are to be recalled 1.1 Introduction before learning accounts from 1.2 Meaning of incomplete records incomplete records: 1.3 Features of incomplete records 1.4 Limitations of incomplete records Double entry system and its   principles 1.5 Differences between double entry system and incomplete records  Types of accounts and rules of 1.6 Accounts from incomplete records accounting 1.7 Ascertaining profit or loss from  Final accounts incomplete records through  Treatment of adjustments such as statement of affairs bad debts, provision for bad and 1.8 Preparation of final accounts from doubtful debts, depreciation, etc., incomplete records in final accounts under double entry system. Learning objectives Key terms to know To enable the students to  Incomplete records  Statement of affairs  Understand the features and limitations of incomplete records  Total debtors account  Total creditors account  Prepare statement of affairs and calculate profit or loss from incomplete records  Prepare final accounts from incomplete records 1 12th-Accountancy-Unit-01.indd 1 12/9/2021 10:47:57 PM  www.tntextbooks.in 1.1 Introduction Student activity 1.1 Visit nearby petty shops. Observe for an hour. Do they record sale immediately after it takes place? Find out from the seller about how does he / she keep a track of the sales, expenses and profit. Maintenance of accounting records as per double entry system is compulsory for certain organisations. For example, in India, companies must maintain accounting records under double entry system as per Section 128(1) of the Indian Companies Act, 2013. Such organisations must maintain accounts only under double entry system. Other organisations may or may not strictly follow the double entry system. Organisations in which double entry system is not strictly followed, accounting records may be maintained as per the requirements and desires of the proprietors and accountants. As the accounting records are not prepared in its entirety as under double entry system, these records are called incomplete records. 1.2 Meaning of incomplete records When accounting records are not strictly maintained according to double entry system, these records are called incomplete accounting records. Generally, cash account and the personal accounts of customers and creditors are maintained fully and other accounts are maintained based on necessity. Under this, some transactions are recorded fully, that is, for some transactions both the debit and credit aspects are entered. For example, both the aspects are entered for cash received from customers and cash paid to creditors. Some transactions are partially recorded, that is, only one aspect is entered. For example, expenses paid may be entered only in cash account. Some transactions are not recorded at all, that is, both the debit and credit aspects are not entered. For example, depreciation on fixed assets. Hence, these are usually called incomplete records. It is an incomplete and unscientific way of book keeping. It was called single entry system of book keeping. 1.3 Features of incomplete records Following are the features of incomplete records: (i) N  ature: It is an unscientific and unsystematic way of recording transactions. Accounting principles and accounting standards are not followed properly. Type of accounts maintained: In general, only cash and personal accounts are (ii)  maintained fully. Real accounts and nominal accounts are not maintained properly. Some transactions are completely omitted. Lack of uniformity: There is no uniformity in recording the transactions among (iii)  different organisations. Different organisations record their transactions according to their needs and conveniences. 2 12th-Accountancy-Unit-01.indd 2 12/9/2021 10:47:57 PM  www.tntextbooks.in Financial statements may not represent true and fair view: Due to the incomplete (iv)  information and inaccurate records of accounts, the profit or loss calculated from these records cannot be relied upon. It may not represent true profitability. Assets and liabilities may not represent a true and fair view of financial position. (v)  uitability: Only the business concerns which have no legal obligation to maintain S books of accounts under double entry system may maintain incomplete records. Hence, it may be maintained by small sized sole traders and partnership firms. Mixing up of personal and business transactions: Generally, personal transactions (vi)  of the owners are mixed up with the business transactions. For example, purchase of goods for own use may be mixed up along with business purchases. 1.4 Limitations of incomplete records Following are the limitations of incomplete records: (i)  ack of proper maintenance of records: It is an unscientific and unsystematic way of L maintaining records. Real and nominal accounts are not maintained properly. Difficulty in preparing trial balance: As accounts are not maintained for all items, (ii)  the accounting records are incomplete. Hence, it is difficult to prepare trial balance to check the arithmetical accuracy of the accounts. Difficulty in ascertaining true profitability of the business: Profit is found out based (iii)  on available information and estimates. Hence, it is difficult to ascertain true profit as the trading and profit and loss account cannot be prepared with accuracy. Difficulty in ascertaining financial position: In general, only the estimated values (iv)  of assets and liabilities are available from incomplete records. Hence, it is difficult to ascertain true and fair view of state of affairs or financial position as on a particular date. Errors and frauds cannot be detected easily: As only partial records are available, it (v)  may not be possible to have internal checks in maintaining accounts to detect errors and frauds. Unacceptable to government and other authorities: As accounts maintained are (vi)  incomplete, these may not comply with the legal requirements. Hence, government, tax authorities and other legal authorities do not accept accounts prepared from incomplete records. 3 12th-Accountancy-Unit-01.indd 3 12/9/2021 10:47:58 PM  www.tntextbooks.in 1.5 Differences between double entry system and incomplete records Basis of distinction Double entry system Incomplete records Debit and credit aspects of all the transactions Both debit and credit are not recorded completely. For some 1. Recording of aspects of all the transactions both aspects are entered, some transactions transactions are recorded. transactions are partially recorded and some transactions are omitted to be entered. Personal, real and nominal In general, only personal and cash accounts 2. Type of accounts accounts are maintained are maintained fully. Real and nominal maintained fully. accounts are not maintained fully. Trial balance can be It is difficult to prepare the trial balance to prepared to check the 3. Preparation of check arithmetic accuracy of entries made arithmetical accuracy of trial balance in the books of accounts as the accounts are the entries made in the incomplete. books of accounts. Trading and profit and loss Trading and profit and loss account cannot 4. Determination of account can be prepared to be prepared with accuracy as complete true profit or loss find out the true profit or information is not available and hence profit loss. or loss found out may not be accurate. Balance sheet cannot be prepared with Balance sheet can be 5. Determination of accuracy and true financial position cannot be prepared to know the true financial position ascertained, as the assets and liabilities are just financial position. estimates and incomplete. It is suitable for all types of It may be suitable for small sized sole traders and 6. Suitability organisations. partnership firms. It is reliable since it is a scientific system of 7. Reliability accounting and is based It is not reliable since it is unscientific. on certain accounting principles. Accounting records are acceptable to all users Accounting records may not be acceptable to 8. Acceptability including tax authorities all users. and financial institutions. 4 12th-Accountancy-Unit-01.indd 4 12/9/2021 10:47:58 PM  www.tntextbooks.in 1.6 Accounts from incomplete records Ascertainment of profit or loss and financial position is essential also for organisations which maintain incomplete records. Based on available information in the incomplete records and from memory, profit or loss may be calculated. The difference between the capital at the end and the capital at the beginning may be considered as the profit as the profit is adjusted in capital in such entities. Also, with the available data, the missing figures can be found out and then the final accounts may be prepared. 1.7 A  scertaining profit or loss from incomplete records through statement of affairs Under this method, by comparing the capital (net worth) at the beginning and at the end of a specified period profit or loss is found out. Any increase in capital (net worth) is taken as profit while a decrease in capital is regarded as loss. Capital at the beginning and at the end can be found out by preparing statement of affairs in the beginning and at the end of an accounting year respectively. A statement of affairs is a statement showing the balances of assets and liabilities on a particular date. This method of ascertaining profit is also called as statement of affairs method or networth method or capital comparison method. 1.7.1 Calculation of profit or loss through statement of affairs The difference between the closing capital and the opening capital is taken as profit or loss of the business. Due adjustments are to be made for any withdrawal of capital from the business and for the additional capital introduced in the business. Take the closing capital as the base. Drawings made during the year should be added with the closing capital. This is because drawings would have reduced the closing capital. Additional capital introduced during the year should be subtracted. This is because the additional capital introduced would have increased the closing capital. This will give the adjusted closing capital. Adjusted closing capital = Closing capital + Drawings – Additional capital By comparing adjusted closing capital with the opening capital the profit or loss can be ascertained. If the difference is a positive figure it is profit and if it is negative it is loss. Closing Capital + Drawings – Additional Capital – Opening Capital = Profit/ Loss Tutorial note Opening capital + Additional capital + Profit/ – Loss – Drawings = Closing capital Profit/Loss = Closing capital + Drawings – Additional capital – Opening capital 5 12th-Accountancy-Unit-01.indd 5 12/9/2021 10:47:58 PM  www.tntextbooks.in 1.7.2 S  teps to be followed to find out the profit or loss by preparing statement of affairs Following are the steps to be followed to find out the profit or loss when a statement of affairs is prepared: 1. Ascertain the opening capital by preparing a statement of affairs at the beginning of the year by taking the opening balances of assets and liabilities. 2. Ascertain the closing capital by preparing a statement of affairs at the end of the accounting period after making all adjustments such as depreciation, bad debts, outstanding and prepaid expenses, outstanding income, interest on capital, interest on drawings, etc. 3. Add the amount of drawings (both in cash and/in kind) to the closing capital. 4. Deduct the amount of additional capital introduced, to get adjusted closing capital. 5. Ascertain profit or loss by subtracting opening capital from the adjusted closing capital. (a) If adjusted closing capital is more than the opening capital, it denotes profit (b) If adjusted closing capital is lesser than the opening capital, it denotes loss Following format is used to find out the profit or loss: Statement of profit or loss for the year ended ……. Particulars ` Capital at the end of the year xxx Add: Drawings during the year xxx xxx Less: Additional capital introduced during the year xxx Adjusted closing capital xxx Less: Opening Capital xxx Profit or loss for the year xxx Illustration 1 From the following particulars ascertain profit or loss: ` Capital at the beginning of the year (1st April, 2016) 2,00,000 Capital at the end of the year (31st March, 2017) 3,50,000 Additional capital introduced during the year 70,000 Drawings during the year 40,000 6 12th-Accountancy-Unit-01.indd 6 12/9/2021 10:47:58 PM  www.tntextbooks.in Solution Statement of profit or loss for the year ended 31st March, 2017 Particulars ` Closing capital (as on 31.3.2017) 3,50,000 Add: Drawings during the year 40,000 3,90,000 Less: Additional capital introduced during the year 70,000 Adjusted closing capital 3,20,000 Less: Opening capital (as on 1.4.2016) 2,00,000 Profit made during the year 1,20,000 Illustration 2 From the following particulars ascertain profit or loss: ` Capital as on 1st April 2018 1,60,000 Capital as on 31st March, 2019 1,50,000 Additional capital introduced during the year 25,000 Drawings made during the year 30,000 Solution Statement of profit or loss for the year ended 31st March, 2019 Particulars ` Closing capital (as on 31.3.2019) 1,50,000 Add: Drawings during the year 30,000 1,80,000 Less: Additional capital introduced during the year 25,000 Adjusted closing capital 1,55,000 Less: Opening capital (as on 1.4.2018) 1,60,000 Loss incurred during the year (-) 5,000 Illustration 3 From the following details, calculate the missing figure. ` Closing capital as on 31.3.2019 1,90,000 Additional capital introduced during the year 50,000 Drawings during the year 30,000 Opening capital on 1.4.2018 ? Loss for the year ending 31.3.2019 40,000 7 12th-Accountancy-Unit-01.indd 7 12/9/2021 10:47:58 PM  www.tntextbooks.in Solution Statement of profit or loss for the year ended 31st March, 2019 Particulars ` Closing capital (as on 31.3.2019) 1,90,000 Add: Drawings during the year 30,000 2,20,000 Less: Additional capital introduced during the year 50,000 Adjusted closing capital 1,70,000 Less: Opening capital (as on 1.4.2018) (balancing figure) 2,10,000 Loss for the year ending 31.3.2019 (-) 40,000 Illustration 4 From the following details, calculate the capital as on 31st December 2018: ` Capital as on 1st January, 2018 27,500 Goods taken for the personal use of the proprietor 5,000 Additional capital introduced during the year 2,500 Profit for the year 10,000 Solution Statement of profit or loss for the year ended 31st December, 2018 Particulars ` Closing capital (as on 31.12.2018) (balancing figure) 35,000 Add: Drawings during the year (goods taken for personal use) 5,000 40,000 Less: Additional capital introduced during the year 2,500 Adjusted closing capital 37,500 Less: Opening capital (as on 1.1.2018) 27,500 Profit made during the year 10,000 Illustration 5 From the following details, calculate the missing figure: ` Capital as on 1st April, 2017 2,50,000 Capital as on 31st March, 2018 2,75,000 Additional capital introduced during the year 30,000 Profit for the year 15,000 Drawings during the year ? 8 12th-Accountancy-Unit-01.indd 8 12/9/2021 10:47:58 PM  www.tntextbooks.in Solution Statement of profit or loss for the year ended 31st March, 2018 Particulars ` Closing capital (as on 31.3.2018) 2,75,000 Add: Drawings during the year (balancing figure) 20,000 2,95,000 Less: Additional capital introduced during the year 30,000 Adjusted closing capital 2,65,000 Less: Opening capital (as on 1.4.2017) 2,50,000 Profit made during the year 15,000 Drawings made during the year ` 20,000 can also be found out by preparing the capital account. Dr. Capital Account  Cr. Date Particulars J.F. ` Date Particulars J.F. ` 2018 2017 Mar. 31 To Drawings A/c 20,000 Apr. 1 By Balance b/d 2,50,000 (balancing figure) By Cash A/c 30,000 31 To Balance c/d 2,75,000 2018 Mar. 31 By Profit 15,000 2,95,000 2,95,000 1.7.3 Statement of affairs A statement of affairs is a statement showing the balances of assets and liabilities on a particular date. The balances of assets are shown on the right side and the balances of liabilities on the left side. It is prepared from incomplete records to find out the capital of a business unit on a particular date. This statement resembles a balance sheet. The difference between the total of assets and total of liabilities is taken as capital. Capital = Assets – Liabilities Although the statement of affairs is a list of assets and liabilities, it is not called balance sheet because the values of all assets and liabilities shown in the statement of affairs are not fully based on the ledger balances. Some items are taken from accounts maintained, some items from relevant documents and some balances are mere estimates based on memory. 9 12th-Accountancy-Unit-01.indd 9 12/9/2021 10:47:58 PM  www.tntextbooks.in 1.7.4 Format of statement of affairs In the books of -------- Statement of affairs as on -------- Liabilities ` Assets ` Sundry creditors xxx Cash in hand xxx Bills payable xxx Cash at bank xxx Outstanding expenses xxx Sundry debtors xxx Bank overdraft xxx Bills receivable xxx Capital (Balancing figure) xxx Stock–in–trade xxx Prepaid expenses xxx Fixed assets xxx xxx xxx Illustration 6 Following are the balances of Shanthi as on 31st December 2018. Particulars ` Particulars ` Bills receivable 6,000 Sundry creditors 25,000 Bills payable 4,000 Stock 45,000 Machinery 60,000 Debtors 70,000 Furniture 10,000 Cash 4,000 Prepare a statement of affairs as on 31st December 2018 and calculate capital as at that date. Solution In the books of Shanthi Statement of affairs as on 31st December, 2018 Liabilities ` Assets ` Sundry creditors 25,000 Cash 4,000 Bills payable 4,000 Stock 45,000 Capital (balancing figure) 1,66,000 Debtors 70,000 Bills receivable 6,000 Machinery 60,000 Furniture 10,000 1,95,000 1,95,000 10 12th-Accountancy-Unit-01.indd 10 12/9/2021 10:47:58 PM  www.tntextbooks.in 1.7.5 Differences between Statement of affairs and Balance sheet Basis of distinction Statement of affairs Balance sheet Statement of affairs is generally Balance sheet is prepared to 1. Objective prepared to find out the capital of the ascertain the financial position of business. the business. Statement of affairs is prepared when Balance sheet is prepared when 2. Accounting double entry system is not strictly accounts are maintained under system followed. double entry system. It is not fully based on ledger balances. Whereever possible ledger balances are 3. Basis of It is prepared exclusively on the taken. Some items are taken from some preparation basis of ledger balances. source documents and some items are mere estimates. It is not reliable as it is based on It is reliable as it is prepared under 4. Reliability incomplete records. double entry system. Since both the aspects of all It is difficult to trace the items omitted 5. Missing items transactions are duly recorded, as complete records are not maintained. items omitted can be traced easily. Illustration 7 On 1st April 2017, Ganesh started his business with a capital of ` 75,000. He did not maintain proper book of accounts. Following particulars are available from his books as on 31.03.2018. Particulars ` Particulars ` Cash 5,000 Debtors 16,000 Stock of goods 18,000 Creditors 9,000 Bills receivable 7,000 Cash at bank 24,000 Furniture 3,000 Bills payable 6,000 Land and buildings 30,000 During the year he withdrew ` 15,000 for his personal use. He introduced further capital of ` 20,000 during the year. Calculate his profit or loss. Solution Statement of affairs of Ganesh as on 31st March, 2018 Liabilities ` Assets ` Creditors 9,000 Cash 5,000 Bills payable 6,000 Cash at bank 24,000 Capital (balancing figure) 88,000 Stock of goods 18,000 Debtors 16,000 Bills receivable 7,000 Land and buildings 30,000 Furniture 3,000 1,03,000 1,03,000 11 12th-Accountancy-Unit-01.indd 11 12/9/2021 10:47:58 PM  www.tntextbooks.in Tutorial note For finding out the closing capital, Statement of affairs as on 31st March, 2018 is prepared. Statement of profit or loss for the year ending 31st March, 2018 Particulars ` Closing capital as on 31.03.2018 88,000 Add: Drawings during the year 15,000 1,03,000 Less: Additional capital introduced during the year 20,000 Adjusted closing capital 83,000 Less: Opening capital as on 01.04.2017 75,000 Profit made during the year ending 31.03.2018 8,000 Illustration 8 David does not keep proper books of accounts. Following details are given from his records. 1.4.2018 31.3.2019 Particulars ` ` Cash 43,000 29,000 Stock of goods 1,20,000 1,30,000 Sundry debtors 84,000 1,10,000 Sundry creditors 1,05,000 1,02,000 Loan 25,000 20,000 Business premises 2,50,000 2,50,000 Furniture 33,000 45,000 During the year he introduced further capital of ` 45,000 and withdrew ` 2,500 per month from the business for his personal use. Prepare statement of profit or loss with the above information. Solution In the books of David Calculation of opening capital Statement of affairs as on 1st April, 2018 Liabilities ` Assets ` Sundry creditors 1,05,000 Cash 43,000 Loan 25,000 Stock of goods 1,20,000 Capital (balancing figure) 4,00,000 Sundry debtors 84,000 Business premises 2,50,000 Furniture 33,000 5,30,000 5,30,000 12 12th-Accountancy-Unit-01.indd 12 12/9/2021 10:47:58 PM  www.tntextbooks.in Calculation of closing capital Statement of affairs as on 31st March, 2019 Liabilities ` Assets ` Sundry creditors 1,02,000 Cash 29,000 Loan 20,000 Stock of goods 1,30,000 Sundry debtors 1,10,000 Capital (balancing figure) 4,42,000 Business premises 2,50,000 Furniture 45,000 5,64,000 5,64,000 Statement of profit or loss for the year ending 31st March, 2019 Particulars ` Closing capital as on 31.3.2019 4,42,000 Add: Drawings during the year (2,500 x 12) 30,000 4,72,000 Less: Additional capital introduced during the year 45,000 Adjusted closing capital 4,27,000 Less: Opening capital as on 1.4.2018 4,00,000 Profit made during the year ending 31.3.2019 27,000 Student activity 1.2 Think: An additional capital of ` 45,000 has been introduced during the year. Observe the details given in the question. Think of any two reasons for the need for additional capital. Illustration 9 Ahmed does not keep proper books of accounts. Find the profit or loss made by him for the year ending 31st March, 2018. 1.4.2017 31.3.2018 Particulars ` ` Bank balance 14,000 (Cr.) 18,000 (Dr.) Cash in hand 800 1,500 Stock 12,000 16,000 Debtors 34,000 30,000 Plant 80,000 80,000 Furniture 40,000 40,000 Creditors 60,000 72,000 Ahmed had withdrawn ` 40,000 for his personal use. He had introduced ` 16,000 as capital for expansion of his business. A provision of 5% on debtors is to be made. Plant is to be depreciated at 10%. 13 12th-Accountancy-Unit-01.indd 13 12/9/2021 10:47:58 PM  www.tntextbooks.in Solution In the books of Ahmed Calculation of opening capital Statement of affairs as on 31st March, 2017 Liabilities ` Assets ` Bank overdraft 14,000 Cash in hand 800 Creditors 60,000 Stock 12,000 Capital (balancing figure) 92,800 Debtors 34,000 Plant 80,000 Furniture 40,000 1,66,800 1,66,800 Calculation of closing capital Statement of affairs as on 31st March, 2018 Liabilities ` Assets ` ` Creditors 72,000 Bank balance 18,000 Capital (balancing figure) 1,04,000 Cash in hand 1,500 Stock 16,000 Debtors 30,000 Less: Provision for doubtful debts @ 5% 1,500 28,500 Plant 80,000 Less: Depreciation 8,000 72,000 Furniture 40,000 1,76,000 1,76,000 Statement of profit or loss for the year ending 31st March, 2018 Particulars ` Closing capital as on 31.3.2018 1,04,000 Add: Drawings during the year 40,000 1,44,000 Less: Additional capital introduced during the year 16,000 Adjusted closing capital 1,28,000 Less: Opening capital as on 31.3.2017 92,800 Profit for the year ending 31.3.2018 35,200 14 12th-Accountancy-Unit-01.indd 14 12/9/2021 10:47:58 PM  www.tntextbooks.in 1.8 Preparation of final accounts from incomplete records When books of accounts are incomplete, information regarding revenues, expenses assets and liabilities is not known fully. Hence, it becomes difficult to prepare trading and profit and loss account and balance sheet. But with the available data, the missing figures can be found out and then the final accounts can be prepared. 1.8.1 Steps to be followed to prepare final accounts from incomplete records Following are the steps to be followed to prepare final accounts from incomplete records: 1. Opening statement of affairs is to be prepared, to ascertain the opening capital. 2. Missing figures must be found out with the available data. This can be done by preparing memorandum accounts or by making necessary adjustments to the existing figures. For example, (a) It may become necessary to prepare a cash book to find out the missing items such as cash purchases, cash sales, etc. (b) By preparing total debtors account and total creditors account, credit sales and credit purchases can be ascertained respectively. (c) Bills receivable account and bills payable account are to be prepared to find out the balances of bills receivable received and bills payable accepted respectively. 3. The final step is to prepare trading and profit and loss account and balance sheet. Formats of important accounts, that is, total debtors account, bills receivable account, total creditors account and bills payable account are given below: (i) Format of total debtors account Dr. Total debtors account  Cr. Particulars ` Particulars ` To Balance b/d xxx By Cash A/c (received) xxx (opening balance) By Bank A/c (cheques received) xxx To Sales A/c (credit sales) xxx By Discount allowed A/c xxx To Bank A/c (cheque dishonoured) xxx By Sales returns A/c xxx To Bills receivable A/c xxx By Bad debts A/c xxx (bills dishonoured) By Bills receivable A/c xxx (bills received) By Balance c/d xxx (closing balance) xxx xxx 15 12th-Accountancy-Unit-01.indd 15 12/9/2021 10:47:59 PM  www.tntextbooks.in Illustration 10 Find out credit sales from the following information: ` Debtors on 1st January 2018 40,000 Cash received from debtors 1,00,000 Discount allowed 5,000 Sales returns 2,000 Debtors on 31st December 2018 60,000 Solution Dr. Total debtors account Cr. Particulars ` Particulars ` To Balance b/d 40,000 By Cash A/c (received) 1,00,000 To Sales A/c (credit) 1,27,000 By Discount allowed A/c 5,000 (balancing figure) By Sales returns A/c 2,000 By Balance c/d 60,000 1,67,000 1,67,000 Illustration 11 From the following details find out total sales made during the year. ` Debtors on 1st April 2018 50,000 Cash received from debtors during the year 1,50,000 Returns inward 15,000 Bad debts 5,000 Debtors on 31st March 2019 70,000 Cash Sales 1,40,000 Dr. Total debtors account Cr. Particulars ` Particulars ` To Balance b/d 50,000 By Cash A/c 1,50,000 To Sales A/c (credit) 1,90,000 By Returns inward A/c 15,000 (balancing figure) By Bad debts A/c 5,000 By Balance c/d 70,000 2,40,000 2,40,000 16 12th-Accountancy-Unit-01.indd 16 12/9/2021 10:47:59 PM  www.tntextbooks.in Total Sales = Cash Sales + Credit Sales = ` 1,40,000 + ` 1,90,000 = ` 3,30,000 (ii) Format of bills receivable account Dr. Bills receivable account Cr. Particulars ` Particulars ` To Balance b/d xxx By Cash / Bank A/c xxx (opening balance) (Bills receivable honoured) To Sundry debtors A/c xxx By Sundry debtors A/c xxx (Bills receivable received (Bills receivable dishonoured) during the year) By Balance c/d xxx (closing balance) xxx xxx Illustration 12 From the following particulars, prepare bills receivable account and compute the bills received from the debtors. Particulars ` Opening bills receivable 20,000 Closing bills receivable 30,000 Cash received for bills receivable 60,000 Bills receivable dishonoured 5,000 Solution Dr. Bills receivable account Cr. Particulars ` Particulars ` To Balance b/d 20,000 By Cash A/c 60,000 To Debtors A/c 75,000 By Debtors A/c 5,000 (Bills received during the year (Bills receivable dishonoured) – balancing figure) By Balance c/d 30,000 95,000 95,000 17 12th-Accountancy-Unit-01.indd 17 12/9/2021 10:47:59 PM  www.tntextbooks.in Illustration 13 From the following particulars, calculate total sales. Particulars ` Debtors on 1st April 2017 1,50,000 Bills receivable on 1st April 2017 40,000 Cash received from debtors 3,90,000 Cash received for bills receivable 90,000 Bills receivable dishonoured 10,000 Sales return 40,000 Bills receivable on 31st March, 2018 30,000 Sundry debtors on 31st March, 2018 1,30,000 Cash sales 2,00,000 Solution Dr. Bills receivable account Cr. Particulars ` Particulars ` To Balance b/d 40,000 By Cash A/c 90,000 To Debtors A/c* 90,000 By Debtors A/c 10,000 (Bills received during the year – (Bills receivable dishonoured) balancing figure) By Balance c/d 30,000 1,30,000 1,30,000 Dr. Total debtors account Cr. Particulars ` Particulars ` To Balance b/d 1,50,000 By Cash A/c 3,90,000 To Bills receivable A/c (dishonoured) 10,000 By Sales returns A/c 40,000 To Sales A/c (credit) 4,90,000 By Bills receivable A/c* 90,000 (balancing figure) (bills received) By Balance c/d 1,30,000 6,50,000 6,50,000 Total Sales = Cash Sales + Credit Sales = ` 2,00,000 + ` 4,90,000 = ` 6,90,000. 18 12th-Accountancy-Unit-01.indd 18 12/9/2021 10:47:59 PM  www.tntextbooks.in (iii) Format of total creditors account Dr. Total creditors account Cr. Particulars ` Particulars ` To Cash A/c (paid) xxx By Balance b/d xxx To Bank A/c (cheques paid) xxx (opening balance) To Bills payable A/c By Purchases A/c xxx (bills accepted) xxx (credit purchases) To Discount received A/c xxx By Bank A/c xxx To Purchase returns A/c xxx (cheques dishonoured) To Balance c/d xxx By Bills payable A/c xxx (closing balance) (dishonoured ) xxx xxx Illustration 14 From the following details, calculate credit purchases. Particulars ` Creditors on 1st April, 2018 50,000 Returns outward 6,000 Cash paid to creditors 1,60,000 Creditors on 31st March, 2019 70,000 Solution Dr. Total creditors account Cr. Particulars ` Particulars ` To Cash A/c (paid) 1,60,000 By Balance b/d 50,000 To Returns outward A/c 6,000 By Purchases A/c (Credit) 1,86,000 To Balance c/d 70,000 (balancing figure) 2,36,000 2,36,000 19 12th-Accountancy-Unit-01.indd 19 12/9/2021 10:47:59 PM  www.tntextbooks.in (iv) Format of bills payable account Dr. Bills payable account Cr. Particulars ` Particulars ` To Cash / Bank A/c xxx By Balance b/d xxx (bills payable paid) (opening balance) To Sundry creditors A/c xxx By Sundry creditors A/c xxx (bills payable dishonoured) (bills accepted) To Balance c/d xxx (closing balance) xxx xxx Illustration 15 From the following particulars calculate total purchases. Particulars ` Sundry creditors on 1st April, 2017 75,000 Bills payable on 1st April, 2017 60,000 Paid cash to creditors 3,70,000 Paid for bills payable 1,00,000 Purchases returns 15,000 Cash purchases 3,20,000 Creditors on 31st March, 2018 50,000 Bills payable on 31st March, 2018 80,000 Solution Dr. Bills payable account Cr. Particulars ` Particulars ` To Cash A/c (bills paid) 1,00,000 By Balance b/d 60,000 To Balance c/d 80,000 By Sundry creditors A/c (Bills accepted - balancing figure) 1,20,000 1,80,000 1,80,000 20 12th-Accountancy-Unit-01.indd 20 12/9/2021 10:47:59 PM  www.tntextbooks.in Dr. Total creditors account Cr. Particulars ` Particulars ` To Cash A/c (paid) 3,70,000 By Balance b/d 75,000 To Purchases return A/c 15,000 By Purchases A/c (credit) 4,80,000 To Bills payable A/c 1,20,000 (balancing figure) (bills accepted) To Balance c/d 50,000 5,55,000 5,55,000 Total purchases = Cash purchases + Credit purchases = ` 3,20,000 + ` 4,80,000 = ` 8,00,000 Illustration 16 From the following details you are required to calculate credit sales and credit purchases by preparing total debtors account, total creditors account, bills receivable account and bills payable account. Opening Closing Particulars ` ` Debtors 60,000 55,000 Bills receivable 5,000 1,000 Creditors 25,000 28,000 Bills payable 2,000 3,000 Other information: Cash received from debtors 1,30,000 Discount allowed to customers 5,500 Cash paid to creditors 70,000 Discount allowed by suppliers 3,500 Payments against bill payable 7,000 Cash received for bills receivable 14,000 Bills receivable dishonoured 1,200 Bad debts 3,500 21 12th-Accountancy-Unit-01.indd 21 12/9/2021 10:47:59 PM  www.tntextbooks.in Solution Dr. Bills receivable account Cr. Particulars ` Particulars ` To Balance b/d 5,000 By Cash A/c 14,000 To Debtors A/c 11,200 By Debtors A/c 1,200 (Bills received - (bills receivable dishonoured) balancing figure ) By Balance c/d 1,000 16,200 16,200 Dr. Total debtors account Cr. Particulars ` Particulars ` To Balance b/d 60,000 By Cash A/c (received) 1,30,000 To Bills receivable A/c (dishonoured) 1,200 By Discount allowed A/c 5,500 To Sales A/c (credit) 1,44,000 By Bad debts A/c 3,500 (balancing figure) By Bills receivable A/c 11,200 (bills received) By Balance c/d 55,000 2,05,200 2,05,200 Dr. Bills payable account Cr. Particulars ` Particulars ` To Cash A/c (bills paid) 7,000 By Balance b/d 2,000 To Balance c/d 3,000 By Sundry creditors A/c (bills accepted – balancing figure) 8,000 10,000 10,000 22 12th-Accountancy-Unit-01.indd 22 12/9/2021 10:47:59 PM  www.tntextbooks.in Dr. Total creditors account Cr. Particulars ` Particulars ` To Cash A/c (paid ) 70,000 By Balance b/d 25,000 To Discount received A/c 3,500 By Purchases A/c (credit) 84,500 To Bills payable A/c (bills accepted) 8,000 (balancing figure) To balance c/d 28,000 1,09,500 1,09,500 Illustration 17 From the following details of Abdul who maintains incomplete records, prepare Trading and Profit and Loss account for the year ended 31st March, 2018 and a Balance Sheet as on the date. 1.4.2017 31.3.2018 Particulars ` ` Stock 1,00,000 50,000 Sundry debtors 2,50,000 3,50,000 Cash 25,000 40,000 Furniture 10,000 10,000 Sundry creditors 1,50,000 1,75,000 Other details: ` ` Drawings 40,000 Cash received from debtors 5,35,000 Discount received 20,000 Sundry expenses 30,000 Discount allowed 25,000 Capital as on 1.4.2017 2,35,000 Cash paid to creditors 4,50,000 Solution Dr. Total debtors account Cr. Particulars ` Particulars ` To Balance b/d 2,50,000 By Cash A/c (received) 5,35,000 To Sales A/c (credit) (balancing figure) 6,60,000 By Discount allowed A/c 25,000 By Balance c/d 3,50,000 9,10,000 9,10,000 23 12th-Accountancy-Unit-01.indd 23 12/9/2021 10:47:59 PM  www.tntextbooks.in Dr. Total creditors account Cr. Particulars ` Particulars ` To Cash A/c (paid) 4,50,000 By Balance b/d 1,50,000 To Discount received A/c 20,000 By Purchases A/c (credit) 4,95,000 To Balance c/d 1,75,000 (balancing figure) 6,45,000 6,45,000 In the books of Abdul Dr. Trading and Profit and loss account for the year ended 31st March, 2018 Cr. Particulars ` Particulars ` To Opening stock 1,00,000 By Sales 6,60,000 To Purchases 4,95,000 By Closing stock 50,000 To Gross profit c/d 1,15,000 7,10,000 7,10,000 To Discount allowed 25,000 By Gross profit b/d 1,15,000 To Sundry expenses 30,000 By Discount received 20,000 To Net profit (transferred to capital account) 80,000 1,35,000 1,35,000 Balance Sheet as on 31st March, 2018 Liabilities ` ` Assets ` Sundry creditors 1,75,000 Cash 40,000 Capital