Commerce Exam > Commerce Notes > Accountancy Class 11 > Financial Statements Of Sole Proprietorship - (Part - 1)
Financial Statements Of Sole Proprietorship - (Part - 1) | Accountancy Class 11 - Commerce PDF Download
Page No 18.62:
Question 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.
ANSWER:
(1) Capital Expenditure: Paid to make an asset ready to use
(2) Capital Expenditure: Paid to make an asset ready to us
(3) Revenue Expenditure: Made for the maintenance of asset
(4) Revenue Expenditure: Part of normal operating cost
(5) Capital Expenditure: Used in business for a number of years
Page No 18.62:
Question 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.
ANSWER:
(1) Capital Expenditure: Paid for the acquisition of new asset
(2) Capital Expenditure: Paid to make the asset ready to use
(3) Revenue Expenditure: Paid for the running and maintenance of car
(4) Revenue Expenditure: Paid for the maintenance of Building
(5) Revenue Expenditure: Part of normal operating cost
Page No 18.62:
Question 3: From the following information, determine Gross Profit for the year ended 31st March, 2019:
ANSWER:
Gross Profit
= Sales + Closing Stock – (Opening Stock + Freight and Packing + Goods Purchased)
=1,90,000 + 30,000 – (25,000 + 10,000 + 1,40,000)
=2,20,000 – 1,75,000 = ₹45,000
Alternatively,
Note: Packing Expenses (Rs 6,000) on Sales is an Indirect Expense, therefore it is not considered to compute the amount of Gross Profit
Page No 18.62:
Question 4: Calculate Closing Stock from the following details:
ANSWER:
Page No 18.62:
Question 5: Prepare Trading Account from the transactions givne below:
Also pass the Journal entries.
ANSWER:
Note: Depreciation is an Indirect Expense, therefore it is not shown in the Trading Account.
The document Financial Statements Of Sole Proprietorship - (Part - 1) | Accountancy Class 11 - Commerce is a part of the Commerce Course Accountancy Class 11.
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FAQs on Financial Statements Of Sole Proprietorship - (Part - 1) - Accountancy Class 11 - Commerce
| 1. What are financial statements of a sole proprietorship? |  |
Ans. Financial statements of a sole proprietorship are formal records that present the financial activities and performance of a business owned and operated by a single individual. These statements include the income statement, balance sheet, and cash flow statement, which provide a comprehensive overview of the business's financial health.
| 2. Why are financial statements important for a sole proprietorship? | |
Ans. Financial statements are crucial for a sole proprietorship as they help in assessing the profitability, liquidity, and overall financial position of the business. They provide valuable insights into the revenue, expenses, assets, and liabilities, enabling the owner to make informed decisions, attract investors, obtain loans, and comply with legal requirements.
| 3. How often should financial statements be prepared for a sole proprietorship? | |
Ans. The frequency of preparing financial statements for a sole proprietorship depends on various factors such as the size of the business, industry standards, and legal requirements. Generally, small sole proprietorships prepare financial statements annually, while larger businesses may produce them quarterly or semi-annually. However, it is advisable to consult with an accountant or financial advisor to determine the appropriate frequency.
| 4. What information is included in an income statement for a sole proprietorship? | |
Ans. An income statement for a sole proprietorship includes information about the revenues, expenses, and net income of the business over a specific period. It provides a breakdown of the sales, cost of goods sold, operating expenses, and other income or expenses. The net income or loss is calculated by subtracting the total expenses from the total revenue, indicating the profitability of the business.
| 5. How can a sole proprietorship use financial statements to evaluate its performance? | |
Ans. Financial statements allow a sole proprietorship to evaluate its performance by analyzing various financial ratios and indicators. For example, the gross profit margin helps assess the profitability of the business, while the current ratio indicates its liquidity. By comparing these ratios with industry benchmarks or previous periods, the owner can identify strengths, weaknesses, and areas for improvement within the business.
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