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Class 11 Exam > Class 11 Notes > NCERT Solution - Chapter 10 : Financial Statements (Part - 2)

NCERT Solution - Chapter 10 : Financial Statements (Part - 2) - Class 11 PDF Download

Q: 2. What are the different types of financial statements?

Ans. The different types of financial statements are:- Income Statement: It shows the revenue, expenses, and net income or loss of a company over a specific period.- Balance Sheet: It provides a snapshot of a company's financial position by showing its assets, liabilities, and equity at a specific point in time.- Cash Flow Statement: It records the cash inflows and outflows of a company, categorizing them into operating, investing, and financing activities.- Statement of Changes in Equity: It presents the changes in a company's equity during a specific period, including the contributions by owners and distribution of profits.

Numerical Questions :

Q 1:

Prepare a trading and profit and loss account for the year ending December 31, 2010. from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.

Account Title	Amount Rs	Account Title	Amount Rs
Stock	50,000	Sales	1,80,000
Wages	3,000	Purchases return	2,000
Salary	8,000	Discount received	500
Purchases	1,75,000	Provision for doubtful debts	2,500
Sales return	3,000	Capital	3,00,000
Sundry Debtors	82,000	Bills payable	22,000
Discount allowed	1,000	Commission received	4,000
Insurance	3,200	Rent	6,000
Rent Rates and Taxes	4,300	Loan	34,800
Fixtures and fittings	20,000
Trade expenses	1,500
Bad debts	2,000
Drawings	32,000
Repair and renewals	1,600
Travelling expenses	4,200
Postage	300
Telegram expenses	200
Legal fees	500
Bills receivable	50,000
Building	1,10,000
	5,51,800		5,51,800

Adjustments

1. Commission received in advance Rs 1,000.

2. Rent receivable Rs 2,000.

3. Salary outstanding Rs 1,000 and insurance prepaid Rs 800.

4. Further bad debts Rs 1,000 and provision for doubtful debts @ 5% on debtors and discount on debtors @ 2%.

5. Closing stock Rs 32,000.

6. Depreciation on building @ 6% p.a.

Answer :

Books of M/s. Rahul Sons. Trading Account for the year ending December 31, 2010
Dr.				Cr.
Particulars			Amount Rs	Particulars		Amount Rs
Opening Stock			50,000	Sales	1,80,000
Purchases		1,75,000		Less: Sales Returns	3,000	1,77,000
	Less: Purchase Returns	2,000	1,73,000	Closing Stock		32,000
Wages			3,000	Gross Loss		17,000

			2,26,000			2,26,000

Profit and Loss Account for the year ending December 31, 2010
Dr.							Cr.
Particulars			Amount Rs	Particulars			Amount Rs
Gross Loss			17,000	Discount Received			500
Salary		8,000		Commission Received		4,000
	Add: Outstanding Salary	1,000	9,000		Less: Advance Commission	1,000	3,000
Discount Allowed			1,000
Insurance		3,200		Rent		6,000
	Less: Insurance Prepaid	800	2,400		Add: Rent Receivable	2,000	8,000
Rent Rates and Taxes			4,300
Trade Expenses			1,500	Net Loss			43,189
Bad-Debts		2,000
	Add: Further Bad-Debts	1,000
	Add: New Provision	4,050
	Less: Old Provision	2,500	4,550
Discount on Debtors			1,539
Postage			300
Telegram Expenses			200
Depreciation on Building			6,600
Repair and Renewals			1,600
Travelling Expenses			4,200
Legal Fees			500

			54,689				54,689

Balance Sheet for the year ending December 31, 2010
Liabilities			Amount Rs	Assets			Amount Rs
Capital		3,00,000		Debtors		82,000
	Less: Net Loss	43,189			Less: Further Bad-Debts	1,000
	Less: Drawings	32,000	2,24,811		Less: New Provision	4,050
Bills Payable			22,000		Less: Discount on Debtors (on Rs 76,950)	1,539	75,411
Loan			34,800	B/R			50,000
Advance Commission			1,000	Buildings		1,10,000
Outstanding Salary			1,000		Less: 6% Depreciation	6,600	1,03,400
				Rent Receivable			2,000
				Prepaid Insurance			800
				Closing Stock			32,000
				Furniture and Fittings			20,000

			2,83,611				2,83,611

Question 2:

Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending December 31, 2010. from the following figures taken from his trial balance :

*Account Title*	*Amount* Rs	*Account Title*	*Amount* Rs
Opening stock	35,000	Sales	2,50,000
Purchases	1,25,000	Purchase return	6,000
Return inwards	25,000	Creditors	10,000
Postage and Telegram	600	Bills payable	20,000
Salary	12,300	Discount	1,000
Wages	3,000	Provision for bad debts	4,500
Rent and Rates	1,000	Interest received	5,400
Packing and Transport	500	Capital	75,000
General expense	400
Insurance	4,000
Debtors	50,000
Cash in hand	20,000
Cash at bank	40,000
Machinery	20,000
Lighting and Heating	5,000
Discount	3,500
Bad debts	3,500
Investment	23,100
	3,71,900		3,71,900

Adjustments

1. Depreciation charged on machinery @ 5% p.a.

2. Further bad debts Rs 1,500, discount on debtors @ 5% and make a provision on debtors @ 6%.

3. Wages prepaid Rs 1,000.

4. Interest on investment @ 5% p.a.

5. Closing stock 10,000.

Answer :

Trading Account for the year ending December 31, 2010
Dr.				Cr.
Particulars			Amount Rs	Particulars			Amount Rs
Opening Stock			35,000	Sales		2,50,000
Purchases		1,25,000			Less: Sales Returns	(25,000)	2,25,000
	Less: Purchase Returns	(6,000)	1,19,000	Closing Stock			10,000

Wages		3,000
	Less: Prepaid Wages	(1,000)	2,000
Gross Profit			79,000
			2,35,000				2,35,000

Profit and Loss Account for the year ending December 31, 2010
Dr.				Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Bad Debts		3,500		Gross Profit	79,000
	Add: Further Bad-debts	1,500		Interest on Accrued Investment	1,155
	Add: New Provision	2,910		Discount	1,000
	Less: Old Provision	4,500	3,410	Interest Received	5,400
Discount on Debtors			2,280
Postage and Telegram			600
Salary			12,300
Rent and Rates			1,000
Packing and Transport			500
General Expenses			400
Insurance			4,000
Discount			3,500
Depreciation on Machinery			1,000
Lighting and Heating			5,000
Net Profit			52,565

			86,555		86,555

Balance Sheet as on December 31, 2010
Liabilities			Amount Rs	Assets			Amount Rs
Creditors			10,000	Cash in Hand			20,000
Bills Payable			20,000	Cash at Bank			40,000
Capital		75,000
	Add: Net Profit	52,565	1,27,565	Debtors		50,000
					Less: Further Bad-Debts	1,500
					Less New Provision	2,910
					Less: Discount on Debtors	2,280	43,310

				Investment		23,100
					Add: Interest on Investment	1,155	24,255

				Machinery		20,000
					Less: Depreciation	1,000	19,000

				Prepaid Wages			1,000
				Closing Stock			10,000

			1,57,565

Question 3:

The following balances has been extracted from the trial of M/s Runway Shine Ltd. Prepare a trading and profit and loss account and a balance sheet as on December 31, 2010.

*Account Title*	*Amount* Rs	*Account Title*	*Amount* Rs
Purchases	1,50,000	Sales	2,50,000
Opening stock	50,000	Return outwards	4,500
Return inwards	2,000	Interest received	3,500
Carriage inwards	4,500	Discount received	400
Cash in hand	77,800	Creditors	1,25,000
Cash at bank	60,800	Bill payable	6,040
Wages	2,400	Capital	1,00,000
Printing and Stationery	4,500
Discount	400
Bad debts	1,500
Insurance	2,500
Investment	32,000
Debtors	53,000
Bills receivable	20,000
Postage and Telegraph	400
Commission	200
Interest	1,000
Repair	440
Lighting Charges	500
Telephone charges	100
Carriage outward	400
Motor car	25,000
	4,89,440		4,89,440

Adjustments

1. Further bad debts Rs 1,000. Discount on debtors Rs 500 and make a provision on debtors @ 5%.

2. Interest received on investment @ 5%.

3. Wages and interest outstanding Rs 100 and Rs 200 respectively.

4. Depreciation charged on motor car @ 5% p.a.

5. Closing Stock Rs 32,500.

Answer 3:

Trading Account
Dr.				Cr.
Particulars			Amount Rs	Particulars			Amount Rs
Opening Stock			50,000	Sales		2,50,000
Purchases		1,50,000			Less: Return Inwards	2,000	2,48,000
	Less: Return Outwards	4,500	1,45,500	Closing Stock			32,500

Carriage Inwards			4,500
Wages		2,400
	Add: Outstanding Wages	100	2,500
Gross Profit			78,000

			2,80,500				2,80,500

Profit and Loss Account
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Carriage Outward			400	Gross Profit	78,000
Printing and Stationery			4,500	Interest Received	3,500
Discount			400	Discount Received	400
Bad Debts		1,500		Interest Received on Investment	1,600
	Add: Further Bad Debts	1,000
	Add: New Provision	2,600	5,100
Discount on Debtors			500
Insurance			2,500
Postage and Telegraph			400
Commission			200
Interest		1,000
	Add: Outstanding Interest	200	1,200
Repair			440
Lighting Charges			500
Telephone Charges			100
Depreciation on Motor Car			1,250
Net Profit			66,010

			83,500		83,500

Balance Sheet
Liabilities			Amount Rs	Assets			Amount Rs
Creditors			1,25,000	Cash in Hand		77,800
					Add: Interest Received	1,600	79,400
Bills Payable			6,040	Cash at Bank			60,800
Capital		1,00,000		Investment			32,000
	Add: Net Profit	66,010	1,66,010	Debtors		53,000
					Less: Further Bad Debts	1,000
Outstanding Interest			100		Less: New Provision	2,600
Outstanding Wages			200		Less: Discount on Debtors	500	48,900

				Motor Car		25,000
					Less: Depreciation	1,250	23,750
				Bills Receivable			20,000
				Closing Stock			32,500

			2,97,350				2,97,350

Note: As per our solution the Net Profit is Rs 60,010 and total of Balance Sheet is Rs 2,97,350, whereas as per the book it is Rs 60,060 and Rs 2,97,400 respectively.

Question 4:

The following balances have been extracted from the trial of M/s Haryana Chemical Ltd. You are required to prepare a trading and profit and loss account and balance sheet as on December 31, 2010 from the given information.

*Account Title*	*Amount* Rs	*Account Title*	*Amount* Rs
Opening stock	50,000	Sales	3,50,000
Purchases	1,25,500	Purchases return	2,500
Sales return	2,000	Creditors	25,000
Cash in hand	21,200	Rent	5,000
Cash at bank	12,000	Interest	2,000
Carriage	100	Bills payable	1,71,700
Free hold land	3,20,000	Capital	3,00,000
Patents	1,20,000
General Expenses	2,000
Sundry Debtors	32,500
Building	86,000
Machinery	34,500
Insurance	12,400
Drawings	10,000
Motor vehicle	10,500
Bad debts	2,000
Light and Water	1,200
Trade expenses	2,000
Power	3,900
Salary and Wages	5,400
Loan a 15% (01.09.2010)	3,000
	8,56,200		8,56,200

Adjustments

1. Closing stock was valued at the end of the year Rs 40,000.

2. Salary amounting Rs 500 and trade expense Rs 300 are due.

3. Depreciation charged on building and machinery are @ 4% and @ 5% respectively.

4. Make a provision of @ 5% on sundry debtors.

Answer 4:

Trading Account
Dr.				Cr.
Particulars			Amount Rs	Particulars			Amount Rs
Opening Stock			50,000	Sales		3,50,000
Purchases		1,25,500			Less: Return	2,000	3,48,000
	Less: Return Outwards	2,500	1,23,000	Closing Stock			40,000

Carriage			100
Power			3,900
Gross Profit			2,11,000

			3,88,000				3,88,000

Profit and Loss Account
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
General Expenses			2,000	Gross Profit	2,11,000
Insurance			12,400	Rent	5,000
Bad Debts		2,000		Interest	2,000
	Add: Provision for Bad Debts	1,625	3,625	Accrued Interest on Loan	150
Light and Water			1,200
Trade Expenses		2,000
	Add: Outstanding Trade Expenses	300	2,300

Salary and Wages		5,400
	Add: Outstanding Salary	500	5,900
Depreciation on Building			3,440
Depreciation on Machinery			1,725
Net Profit			1,85,560

			2,18,150		2,18,150

Balance Sheet
Liabilities			Amount Rs	Assets			Amount Rs
Capital		3,00,000		Cash in Hand			21,200
	Add: Net Profit	1,85,560		Cash at Bank			12,000
	Less: Drawings	10,000	4,75,560	Freehold Land			3,20,000
Creditors			25,000	Patents			1,20,000
Bills Payable			1,71,700	Sundry Debtors		32,500
Outstanding Trade Expenses			300		Less: Provision for Bad Debts	1,625	30,875
Outstanding Salary			500
				Building		86,000
					Less: Depreciation	3,440	82,560

				Machinery		34,500
					Less: Depreciation	1,725	32,775
				Motor Vehicle			10,500
				Loan		3,000
					Add: Interest on Loan	150	3,150
				Closing Stock			40,000

			6,73,060				6,73,060

Working Note

In the question, the loan given by us bears an interest of 15% p.a. and interest is unpaid from 01-9-2010 to 31-12-2010. Thus, interest for loan is outstanding for four months and is calculated as follows:

Interest on Loan =

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1. What are financial statements and why are they important?

Ans. Financial statements are documents that provide a summary of a company's financial transactions, including its income, expenses, assets, liabilities, and equity. They are important because they allow stakeholders such as investors, creditors, and management to assess the financial performance and position of a company. Financial statements help in decision-making, evaluating profitability, assessing liquidity, and measuring the overall financial health of a business.

2. What are the different types of financial statements?

Ans. The different types of financial statements are: - Income Statement: It shows the revenue, expenses, and net income or loss of a company over a specific period. - Balance Sheet: It provides a snapshot of a company's financial position by showing its assets, liabilities, and equity at a specific point in time. - Cash Flow Statement: It records the cash inflows and outflows of a company, categorizing them into operating, investing, and financing activities. - Statement of Changes in Equity: It presents the changes in a company's equity during a specific period, including the contributions by owners and distribution of profits.

3. How can financial statements be used to assess a company's profitability?

Ans. Financial statements can be used to assess a company's profitability through various ratios and metrics. Some commonly used indicators include: - Gross Profit Margin: It measures the percentage of revenue that remains after deducting the cost of goods sold. A higher margin indicates better profitability. - Net Profit Margin: It shows the percentage of revenue that remains as net income after deducting all expenses. A higher margin indicates better profitability. - Return on Assets (ROA): It measures how efficiently a company utilizes its assets to generate profit. A higher ROA indicates better profitability. - Return on Equity (ROE): It measures the return earned on the shareholders' investment. A higher ROE indicates better profitability.

4. How do financial statements help in evaluating a company's liquidity?

Ans. Financial statements help in evaluating a company's liquidity by analyzing its ability to meet short-term obligations. Some key ratios and metrics used for this purpose include: - Current Ratio: It compares current assets to current liabilities. A ratio greater than 1 indicates good liquidity. - Quick Ratio: It measures the ability to pay off current liabilities using quick assets (cash, marketable securities, and accounts receivable). A ratio greater than 1 indicates good liquidity. - Cash Ratio: It shows the proportion of cash and cash equivalents to current liabilities. A higher ratio indicates better liquidity.

5. How can financial statements help in assessing the financial health of a business?

Ans. Financial statements help in assessing the financial health of a business by providing insights into its profitability, liquidity, solvency, and efficiency. Stakeholders can analyze various ratios and metrics derived from the financial statements to evaluate the company's performance and compare it with industry benchmarks. Additionally, financial statements can identify any potential risks or weaknesses in the business, allowing management to take corrective actions and make informed decisions for the future.

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