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Page 1
Q.1 State whether the following expenses are capital or revenue in nature:
(i) Expenses on whitewashing and painting of a building purchased to make it ready for use.
(ii) ? 10,000 spent on constructing platform for a new machine.
(iii) Repair expenses of ? 25,000 incurred for whitewashing of factory building.
(iv) Insurance premium paid as renewal premium.
(v) Purchased a new car.
The solution can be presented as follows
(i) Capital Expenditure
(ii) Capital Expenditure
(iii) Revenue Expenditure
(iv) Revenue Expenditure
(v) Capital Expenditure
Q.2 State with reasons whether the following are Capital or Revenue Expenses:
(i) Excise duty paid on purchase of new machine.
(ii) Wages paid to install a machine.
(iii) Repairs carried out on existing car.
(iv) Office block of building repainted for ? 50,000.
(v) Paid telephone bill ? 2,500.
The solution can be presented as follows
Expenditure Reason
(i) Capital Expenditure Paid for the acquisition of new asset
(ii) Capital Expenditure Paid to make the asset ready to use
(iii)Revenue Expenditure Paid for the running and maintenance of car
(iv)Revenue Expenditure Paid for the maintenance of Building
(v) Revenue Expenditure Part of normal operating cost
Page 2
Q.1 State whether the following expenses are capital or revenue in nature:
(i) Expenses on whitewashing and painting of a building purchased to make it ready for use.
(ii) ? 10,000 spent on constructing platform for a new machine.
(iii) Repair expenses of ? 25,000 incurred for whitewashing of factory building.
(iv) Insurance premium paid as renewal premium.
(v) Purchased a new car.
The solution can be presented as follows
(i) Capital Expenditure
(ii) Capital Expenditure
(iii) Revenue Expenditure
(iv) Revenue Expenditure
(v) Capital Expenditure
Q.2 State with reasons whether the following are Capital or Revenue Expenses:
(i) Excise duty paid on purchase of new machine.
(ii) Wages paid to install a machine.
(iii) Repairs carried out on existing car.
(iv) Office block of building repainted for ? 50,000.
(v) Paid telephone bill ? 2,500.
The solution can be presented as follows
Expenditure Reason
(i) Capital Expenditure Paid for the acquisition of new asset
(ii) Capital Expenditure Paid to make the asset ready to use
(iii)Revenue Expenditure Paid for the running and maintenance of car
(iv)Revenue Expenditure Paid for the maintenance of Building
(v) Revenue Expenditure Part of normal operating cost
Q.3 From the following information, determine Gross Profit for the year ended 31st March, 2019:
? ?
Opening Stock (1st April, 2018) 25,000 Goods purchased during the year 1,40,000
Freight and Packing 10,000 Closing Stock (31st March, 2019) 30,000
Sales 1,90,000 Packing Expenses on Sales 6,000
The solution can be presented as follows
Gross Profit = Sales + Closing Stock – (Opening Stock + Goods Purchased +Freight and Packing)
= 1,90,000 + 30,000 – (25,000 + 1,40,000 + 10,000)
= 2,20,000 – 1,75,000
= 45,000
N.B: The entry packing expense on sales is an indirect expense and therefore is not considered to be a part of
the Gross Profit.
Q.4 Calculate Closing Stock from the following details:
? ?
Opening Stock 20,000 Purchases 70,000
Cash Sales 60,000 Credit Sales 40,000
Rate of Gross Profit on Cost 33 1/3%
The solution can be presented as follows
Gross Profit on cost = 33 1/3 %.
Cost =1/3rd.
Gross Profit on sales = ¼ th
Also,
Sales = Cash Sales + Credit Sales = 60,000+40,000
= 1,00,000
So, Gross Profit =1,00,000 x ¼
= 25,000
Page 3
Q.1 State whether the following expenses are capital or revenue in nature:
(i) Expenses on whitewashing and painting of a building purchased to make it ready for use.
(ii) ? 10,000 spent on constructing platform for a new machine.
(iii) Repair expenses of ? 25,000 incurred for whitewashing of factory building.
(iv) Insurance premium paid as renewal premium.
(v) Purchased a new car.
The solution can be presented as follows
(i) Capital Expenditure
(ii) Capital Expenditure
(iii) Revenue Expenditure
(iv) Revenue Expenditure
(v) Capital Expenditure
Q.2 State with reasons whether the following are Capital or Revenue Expenses:
(i) Excise duty paid on purchase of new machine.
(ii) Wages paid to install a machine.
(iii) Repairs carried out on existing car.
(iv) Office block of building repainted for ? 50,000.
(v) Paid telephone bill ? 2,500.
The solution can be presented as follows
Expenditure Reason
(i) Capital Expenditure Paid for the acquisition of new asset
(ii) Capital Expenditure Paid to make the asset ready to use
(iii)Revenue Expenditure Paid for the running and maintenance of car
(iv)Revenue Expenditure Paid for the maintenance of Building
(v) Revenue Expenditure Part of normal operating cost
Q.3 From the following information, determine Gross Profit for the year ended 31st March, 2019:
? ?
Opening Stock (1st April, 2018) 25,000 Goods purchased during the year 1,40,000
Freight and Packing 10,000 Closing Stock (31st March, 2019) 30,000
Sales 1,90,000 Packing Expenses on Sales 6,000
The solution can be presented as follows
Gross Profit = Sales + Closing Stock – (Opening Stock + Goods Purchased +Freight and Packing)
= 1,90,000 + 30,000 – (25,000 + 1,40,000 + 10,000)
= 2,20,000 – 1,75,000
= 45,000
N.B: The entry packing expense on sales is an indirect expense and therefore is not considered to be a part of
the Gross Profit.
Q.4 Calculate Closing Stock from the following details:
? ?
Opening Stock 20,000 Purchases 70,000
Cash Sales 60,000 Credit Sales 40,000
Rate of Gross Profit on Cost 33 1/3%
The solution can be presented as follows
Gross Profit on cost = 33 1/3 %.
Cost =1/3rd.
Gross Profit on sales = ¼ th
Also,
Sales = Cash Sales + Credit Sales = 60,000+40,000
= 1,00,000
So, Gross Profit =1,00,000 x ¼
= 25,000
Cost of Goods Sold = Sales - Gross Profit
= 1,00,000 - 25,000
= 75,000
Cost of Goods Sold = Opening Stock + Purchases- Closing Stock
Now putting the values in this formula, we get
75,000 = 20,000 + 70,000 - Closing Stock
Closing Stock = 90,000- 75,000
= 15,000
Q.5 Prepare Trading Account from the transactions given below:
? ?
Opening Stock 23,000 Purchases Return 2,400
Purchases 29,000 Closing Stock 47,700
Sales Return 500 Carriage Inwards 100
Sales 25,400 Depreciation 2,000
Also pass the Journal entries.
The solution can be presented as follows
N.B: As Depreciation is regarded an Indirect Expense, it is not shown in trading account
Page 4
Q.1 State whether the following expenses are capital or revenue in nature:
(i) Expenses on whitewashing and painting of a building purchased to make it ready for use.
(ii) ? 10,000 spent on constructing platform for a new machine.
(iii) Repair expenses of ? 25,000 incurred for whitewashing of factory building.
(iv) Insurance premium paid as renewal premium.
(v) Purchased a new car.
The solution can be presented as follows
(i) Capital Expenditure
(ii) Capital Expenditure
(iii) Revenue Expenditure
(iv) Revenue Expenditure
(v) Capital Expenditure
Q.2 State with reasons whether the following are Capital or Revenue Expenses:
(i) Excise duty paid on purchase of new machine.
(ii) Wages paid to install a machine.
(iii) Repairs carried out on existing car.
(iv) Office block of building repainted for ? 50,000.
(v) Paid telephone bill ? 2,500.
The solution can be presented as follows
Expenditure Reason
(i) Capital Expenditure Paid for the acquisition of new asset
(ii) Capital Expenditure Paid to make the asset ready to use
(iii)Revenue Expenditure Paid for the running and maintenance of car
(iv)Revenue Expenditure Paid for the maintenance of Building
(v) Revenue Expenditure Part of normal operating cost
Q.3 From the following information, determine Gross Profit for the year ended 31st March, 2019:
? ?
Opening Stock (1st April, 2018) 25,000 Goods purchased during the year 1,40,000
Freight and Packing 10,000 Closing Stock (31st March, 2019) 30,000
Sales 1,90,000 Packing Expenses on Sales 6,000
The solution can be presented as follows
Gross Profit = Sales + Closing Stock – (Opening Stock + Goods Purchased +Freight and Packing)
= 1,90,000 + 30,000 – (25,000 + 1,40,000 + 10,000)
= 2,20,000 – 1,75,000
= 45,000
N.B: The entry packing expense on sales is an indirect expense and therefore is not considered to be a part of
the Gross Profit.
Q.4 Calculate Closing Stock from the following details:
? ?
Opening Stock 20,000 Purchases 70,000
Cash Sales 60,000 Credit Sales 40,000
Rate of Gross Profit on Cost 33 1/3%
The solution can be presented as follows
Gross Profit on cost = 33 1/3 %.
Cost =1/3rd.
Gross Profit on sales = ¼ th
Also,
Sales = Cash Sales + Credit Sales = 60,000+40,000
= 1,00,000
So, Gross Profit =1,00,000 x ¼
= 25,000
Cost of Goods Sold = Sales - Gross Profit
= 1,00,000 - 25,000
= 75,000
Cost of Goods Sold = Opening Stock + Purchases- Closing Stock
Now putting the values in this formula, we get
75,000 = 20,000 + 70,000 - Closing Stock
Closing Stock = 90,000- 75,000
= 15,000
Q.5 Prepare Trading Account from the transactions given below:
? ?
Opening Stock 23,000 Purchases Return 2,400
Purchases 29,000 Closing Stock 47,700
Sales Return 500 Carriage Inwards 100
Sales 25,400 Depreciation 2,000
Also pass the Journal entries.
The solution can be presented as follows
N.B: As Depreciation is regarded an Indirect Expense, it is not shown in trading account
Page 5
Q.1 State whether the following expenses are capital or revenue in nature:
(i) Expenses on whitewashing and painting of a building purchased to make it ready for use.
(ii) ? 10,000 spent on constructing platform for a new machine.
(iii) Repair expenses of ? 25,000 incurred for whitewashing of factory building.
(iv) Insurance premium paid as renewal premium.
(v) Purchased a new car.
The solution can be presented as follows
(i) Capital Expenditure
(ii) Capital Expenditure
(iii) Revenue Expenditure
(iv) Revenue Expenditure
(v) Capital Expenditure
Q.2 State with reasons whether the following are Capital or Revenue Expenses:
(i) Excise duty paid on purchase of new machine.
(ii) Wages paid to install a machine.
(iii) Repairs carried out on existing car.
(iv) Office block of building repainted for ? 50,000.
(v) Paid telephone bill ? 2,500.
The solution can be presented as follows
Expenditure Reason
(i) Capital Expenditure Paid for the acquisition of new asset
(ii) Capital Expenditure Paid to make the asset ready to use
(iii)Revenue Expenditure Paid for the running and maintenance of car
(iv)Revenue Expenditure Paid for the maintenance of Building
(v) Revenue Expenditure Part of normal operating cost
Q.3 From the following information, determine Gross Profit for the year ended 31st March, 2019:
? ?
Opening Stock (1st April, 2018) 25,000 Goods purchased during the year 1,40,000
Freight and Packing 10,000 Closing Stock (31st March, 2019) 30,000
Sales 1,90,000 Packing Expenses on Sales 6,000
The solution can be presented as follows
Gross Profit = Sales + Closing Stock – (Opening Stock + Goods Purchased +Freight and Packing)
= 1,90,000 + 30,000 – (25,000 + 1,40,000 + 10,000)
= 2,20,000 – 1,75,000
= 45,000
N.B: The entry packing expense on sales is an indirect expense and therefore is not considered to be a part of
the Gross Profit.
Q.4 Calculate Closing Stock from the following details:
? ?
Opening Stock 20,000 Purchases 70,000
Cash Sales 60,000 Credit Sales 40,000
Rate of Gross Profit on Cost 33 1/3%
The solution can be presented as follows
Gross Profit on cost = 33 1/3 %.
Cost =1/3rd.
Gross Profit on sales = ¼ th
Also,
Sales = Cash Sales + Credit Sales = 60,000+40,000
= 1,00,000
So, Gross Profit =1,00,000 x ¼
= 25,000
Cost of Goods Sold = Sales - Gross Profit
= 1,00,000 - 25,000
= 75,000
Cost of Goods Sold = Opening Stock + Purchases- Closing Stock
Now putting the values in this formula, we get
75,000 = 20,000 + 70,000 - Closing Stock
Closing Stock = 90,000- 75,000
= 15,000
Q.5 Prepare Trading Account from the transactions given below:
? ?
Opening Stock 23,000 Purchases Return 2,400
Purchases 29,000 Closing Stock 47,700
Sales Return 500 Carriage Inwards 100
Sales 25,400 Depreciation 2,000
Also pass the Journal entries.
The solution can be presented as follows
N.B: As Depreciation is regarded an Indirect Expense, it is not shown in trading account
Q.6 Ascertain Gross Profit from the following:
? ?
Opening Stock 2,00,000 Carriage on Sales 30,000
Closing Stock 1,80,000 Office Rent 58,000
Purchases 8,50,000 Sales 14,07,000
Carriage on Purchases 23,000
The solution can be presented as follows
Here gross profit is calculated to be 5,14,000
N.B: The entries such as the Carriage on sales and Office Rent are the Indirect Expenses, therefore, these
entries are not considered for calculating gross profit.
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FAQs on Adjustments in Preparation of Financial Statements - 1 - Accountancy Class 11 - Commerce
| 1. What are the key adjustments made during the preparation of financial statements? |  |
Ans. Key adjustments in the preparation of financial statements include accruals, deferrals, depreciation, and amortization. Accruals involve recognizing revenues and expenses when they are incurred, regardless of cash flow. Deferrals refer to postponing the recognition of revenues or expenses until a later date. Depreciation allocates the cost of tangible assets over their useful lives, while amortization does the same for intangible assets.
| 2. Why is it important to make adjustments in financial statements? | |
Ans. Making adjustments in financial statements is crucial for accurately reflecting a company’s financial position and performance. These adjustments ensure that the statements adhere to the accrual basis of accounting, providing a more realistic view of income and expenses. This accuracy is essential for stakeholders, including investors, creditors, and management, to make informed decisions.
| 3. How do accruals and deferrals differ in financial accounting? | |
Ans. Accruals and deferrals are both methods of recognizing revenues and expenses but differ in timing. Accruals involve recognizing revenues and expenses when they occur, regardless of cash transactions, whereas deferrals delay recognition until cash is received or paid. For example, accrued revenue is recognized before cash is received, while deferred revenue is recognized after cash is received but before the service is performed.
| 4. What role does depreciation play in financial statement adjustments? | |
Ans. Depreciation plays a vital role in adjusting financial statements by allocating the cost of a tangible asset over its useful life. This systematic reduction in asset value is reflected in the income statement as an expense, which affects net income. It helps provide a more accurate depiction of a company's profitability and asset value on the balance sheet.
| 5. What are the implications of failing to adjust financial statements accurately? | |
Ans. Failing to adjust financial statements accurately can lead to misrepresentation of a company’s financial health, potentially misleading stakeholders. This could result in poor decision-making, financial losses, and legal repercussions. Inaccurate financial statements can affect credit ratings and investor confidence, ultimately harming the company's reputation and market position.
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