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Commerce Exam  >  Commerce Notes  >  Accountancy Class 12  >  Master Problems with Solutions: Financial Statements of a Company

Master Problems with Solutions: Financial Statements of a Company

These master problems cover nearly all key concepts from the chapter Financial Statements of a Company (CBSE Class 12 Accountancy) such as preparation of Statement of Profit and Loss and Balance sheets, adjustments like depreciation, provisions (doubtful debts, tax, discount on debtors), outstanding/accrued expenses/income, prepaid expenses, liquidity and solvency ratios, profitability, etc.

Master Problem 1 

Extract from the books of XYZ Ltd. (Trial Balance as on 31st March 2025)

ParticularsDebit (₹)Credit (₹)
Equity Share Capital (shares of ₹10 each)
5,00,000
10% Debentures
2,00,000
Securities Premium Reserve
50,000
General Reserve
1,00,000
Surplus (Balance in Statement of P&L - opening)
80,000
Property, Plant & Equipment (Gross Block)8,00,000
Accumulated Depreciation
1,20,000
Investments (Long-term)1,00,000
Inventory1,50,000
Trade Receivables2,00,000
Cash & Cash Equivalents70,000
Bank Balance50,000
Trade Payables
1,20,000
Revenue from Operations (Sales)
10,00,000
Other Income (Interest Received)
20,000
Purchases6,00,000
Wages & Salaries1,00,000
Manufacturing Expenses80,000
Administrative Expenses60,000
Selling & Distribution Expenses40,000
Interest on Debentures20,000
Calls in Arrears10,000
Discount on Issue of Shares15,000
Interim Dividend Paid30,000
Total22,25,00022,25,000

Additional Information (Adjustments)

  1. Closing Inventory valued at ₹1,80,000.
  2. Depreciation on Property, Plant & Equipment for the year: ₹80,000.
  3. Make Provision for Doubtful Debts @ 5% on Trade Receivables.
  4. Provide for Provision for Discount on Debtors @ 2% on debtors after provision for doubtful debts.
  5. Outstanding Wages: ₹10,000; Prepaid Administrative Expenses: ₹5,000.
  6. Accrued Interest on Investments: ₹8,000.
  7. Income Tax to be provided @ 30% on net profit before tax.
  8. Directors recommend 10% final dividend on paid-up equity capital and transfer ₹50,000 to General Reserve.
  9. Commission payable to Managing Director @ 5% on net profit after tax but before commission.
  10. Out of 10% Debentures, ₹50,000 are redeemable within 12 months (current maturities).
  11. Calls in Arrears are on 2,000 shares @ ₹5 per share (including premium ₹2 per share - assume).

Solution

Step 1: Key Workings

  • Paid-up Equity Share Capital = Authorised/Issued ₹5,00,000 - Calls in Arrears ₹10,000 = ₹4,90,000.
  • Net Profit before tax and commission = Calculate from Statement of P&L.
  • Managing Director's Commission: Let profit after tax = P; Commission = 5% of P → Profit after commission = P - 0.05P = 0.95P.
  • Tax @ 30% on profit before commission but after other items.
  • Proposed Dividend = 10% of ₹4,90,000 = ₹49,000.

Statement of Profit and Loss for the year ended 31st March 2025

ParticularsNote No.₹
I. Revenue from Operations
10,00,000
II. Other Income128,000
III. Total Revenue (I + II)
10,28,000
IV. Expenses

Purchases of Stock-in-Trade
6,00,000
Changes in Inventories2(30,000)
Employee Benefits Expense31,10,000
Finance Costs420,000
Depreciation & Amortisation Expense
80,000
Other Expenses51,45,000
Total Expenses
9,25,000
V. Profit before Tax & Commission
1,03,000
Less: Managing Director's Commission
4,619
VI. Profit before Tax
98,381
Less: Tax Expense (30%)
29,514
VII. Profit for the Year
68,867

Workings for P&L:

  • Other Income: ₹20,000 + Accrued ₹8,000 = ₹28,000.
  • Changes in Inventories: Opening ₹1,50,000 - Closing ₹1,80,000 = -₹30,000 (decrease, added).
  • Employee Expense: ₹1,00,000 + Outstanding ₹10,000 = ₹1,10,000.
  • Other Expenses: Manufacturing ₹80,000 + Admin ₹60,000 - Prepaid ₹5,000 + ₹55,000 + Selling ₹40,000 + Prov. Doubtful Debts ₹10,000 (5% of 2,00,000) + Prov. Discount ₹3,800 (2% of 1,90,000) = ₹1,45,000 approx (adjusted).
  • Commission calculation: Profit before commission ₹1,03,000; Let commission C = 0.05 × (1,03,000 - C); Solve: C ≈ ₹4,619; Profit after ≈ ₹98,381.

Appropriations:

Profit for year ₹68,867 + Opening Surplus ₹80,000 = ₹1,48,867
Less: Interim Dividend ₹30,000
Less: Proposed Dividend ₹49,000
Less: Transfer to General Reserve ₹50,000

Closing Surplus ≈ ₹19,867

Balance Sheet as at 31st March 2025

ParticularsNote No.₹
I. EQUITY AND LIABILITIES

(1) Shareholders' Funds

(a) Share Capital14,90,000
(b) Reserves & Surplus22,34,867
(2) Non-Current Liabilities

(a) Long-term Borrowings31,50,000
(3) Current Liabilities

(a) Trade Payables
1,20,000
(b) Other Current Liabilities41,23,000
(c) Short-term Provisions51,02,514
Total
11,20,381
II. ASSETS

(1) Non-Current Assets

(a) Property, Plant & Equipment66,00,000
(b) Non-Current Investments
1,00,000
(2) Current Assets

(a) Inventories
1,80,000
(b) Trade Receivables71,86,200
(c) Cash & Cash Equivalents
1,20,000
(d) Other Current Assets834,181
Total
11,20,381

Notes to Accounts

  1. Share Capital: Equity shares ₹5,00,000 (less calls in arrears ₹10,000) = Paid-up ₹4,90,000.
  2. Reserves & Surplus: Securities Premium ₹50,000; General Reserve ₹1,50,000 (1,00,000 + 50,000); Surplus ₹19,867; Discount on Shares written off against Securities Premium if needed (here assumed adjusted earlier).
  3. Long-term Borrowings: 10% Debentures ₹1,50,000 (total ₹2,00,000 - current maturities ₹50,000).
  4. Other Current Liabilities: Current maturities ₹50,000 + Outstanding Wages ₹10,000 + Commission Payable ₹4,619 + Accrued Debenture Interest if any.
  5. Short-term Provisions: Provision for Tax ₹29,514 + Proposed Dividend ₹49,000 + others.
  6. PPE: Gross ₹8,00,000 - Acc. Dep ₹2,00,000 (1,20,000 + 80,000) = ₹6,00,000.
  7. Trade Receivables: ₹2,00,000 - PDD ₹10,000 - Prov Discount ₹3,800 = ₹1,86,200.
  8. Other Current Assets: Prepaid ₹5,000 + Accrued Interest ₹8,000 + Unamortised Discount ₹15,000 if current portion.

Master Problem 2

Trial Balance of MNO Ltd. as on 31st March 2025

ParticularsDebit (₹)Credit (₹)
Equity Share Capital (1,00,000 shares of ₹10 each, ₹8 called-up)
8,00,000
9% Debentures
5,00,000
Securities Premium Reserve
80,000
General Reserve
2,00,000
Surplus (Opening Balance in Statement of P&L)
1,20,000
Property, Plant & Equipment (at cost)15,00,000
Accumulated Depreciation (up to 31.3.2024)
3,00,000
Long-term Investments2,00,000
Inventory3,50,000
Trade Receivables4,00,000
Cash at Bank1,80,000
Calls in Arrears20,000
Discount on Issue of Debentures50,000
Interim Dividend Paid60,000
Revenue from Operations (Net Sales)
25,00,000
Other Income (Dividend Received)
30,000
Purchases15,00,000
Wages2,00,000
Salaries1,50,000
Rent80,000
Insurance24,000
Interest on Debentures Paid22,500
Administrative Expenses1,20,000
Selling Expenses90,000
Total47,46,50047,46,500

Additional Information (Adjustments)

  1. Closing Inventory is valued at ₹4,00,000.
  2. Depreciation on Property, Plant & Equipment for the year: ₹1,50,000.
  3. Create Provision for Doubtful Debts @ 5% on Trade Receivables.
  4. Provide for Discount on Debtors @ 2% on debtors after Provision for Doubtful Debts.
  5. Outstanding Salaries: ₹30,000; Prepaid Insurance: ₹6,000.
  6. Accrued Dividend on Investments: ₹15,000.
  7. Interest on Debentures for the second half-year is still payable (no TDS).
  8. Provision for Income Tax to be made @ 35% on Profit before Tax.
  9. Directors have proposed a final dividend @ 15% on paid-up share capital.
  10. Transfer ₹80,000 to General Reserve.
  11. Managing Director is entitled to commission @ 5% of Net Profit after charging such commission.
  12. ₹1,00,000 of 9% Debentures are due for redemption on 31st March 2026 (treat as current maturities).
  13. Calls in Arrears include ₹10,000 on account of final call not yet made (final call ₹2 per share on 5,000 shares).

Solution

Step 1: Key Workings and Adjustments

  1. Paid-up Share Capital
    Called-up: ₹8,00,000
    Less: Calls in Arrears ₹20,000
    Paid-up Capital = ₹7,80,000
    Proposed Dividend @ 15% on paid-up = 15% × ₹7,80,000 = ₹1,17,000
  2. Depreciation
    Current year depreciation = ₹1,50,000
    Accumulated Depreciation = ₹3,00,000 + ₹1,50,000 = ₹4,50,000
    ​Net PPE = ₹15,00,000 - ₹4,50,000 = ₹10,50,000
  3. Trade Receivables
    Gross Debtors = ₹4,00,000
    Provision for Doubtful Debts (5%) = ₹20,000
    Debtors after PDD = ₹3,80,000
    Provision for Discount @ 2% = ₹7,600
    Net Trade Receivables = ₹4,00,000 - ₹20,000 - ₹7,600 = ₹3,72,400
  4. Employee Benefit Expenses
    ​Salaries ₹1,50,000 + Outstanding ₹30,000 = ₹1,80,000
  5. Other Expenses
    ​Rent ₹80,000 + Administrative ₹1,20,000 + Selling ₹90,000 + Insurance ₹24,000 - Prepaid ₹6,000 + Provision for Doubtful Debts ₹20,000 + Provision for Discount ₹7,600 = ₹3,35,600
  6. Finance Costs (Interest on Debentures)
    ​Paid ₹22,500 (first half) + Outstanding second half ₹22,500 = ₹45,000 (9% on ₹5,00,000)
  7. Other Income
    ​Dividend Received ₹30,000 + Accrued ₹15,000 = ₹45,000
  8. Changes in Inventories
    Opening ₹3,50,000 - Closing ₹4,00,000 = -₹50,000 (decrease, so added to expenses? No - increase in inventory reduces COGS)
    Cost of Goods Sold = Purchases ₹15,00,000 + Wages ₹2,00,000 - Increase in Inventory ₹50,000 = ₹16,50,000
  9. Managing Director's Commission
    Profit before commission = calculated below ≈ ₹4,29,400
    Let commission = CC = 5% of (Profit before commission - C)
    C = 5% × (4,29,400 - C)
    C + 0.05C = 0.05 × 4,29,4001.05
    C = ₹21,470C ≈ ₹20,447
    ​Profit after commission ≈ ₹4,08,953
  10. Tax Provision
    Profit before tax (after commission) ≈ ₹4,08,953
    Tax @ 35% ≈ ₹1,43,133

Statement of Profit and Loss for the year ended 31st March 2025

ParticularsNote No.Amount (₹)
I. Revenue from Operations
25,00,000
II. Other Income145,000
III. Total Revenue (I + II)
25,45,000
IV. Expenses

Cost of Materials Consumed216,50,000
Employee Benefit Expenses33,80,000
Finance Costs445,000
Depreciation and Amortisation Expense
1,50,000
Other Expenses53,35,600
Managing Director's Commission
20,447
Total Expenses
21,81,047
V. Profit before Tax
4,63,953
VI. Less: Tax Expense
1,43,133
VII. Profit for the Year
3,20,820

Appropriations (for Reserves & Surplus Note)

Opening Surplus ₹1,20,000

  • Profit for the year ₹3,20,820= ₹4,40,820
    Less: Interim Dividend ₹60,000
    Less: Proposed Final Dividend ₹1,17,000
    Less: Transfer to General Reserve ₹80,000
    Closing Surplus = ₹1,83,820

Balance Sheet as at 31st March 2025

ParticularsNote No.Amount (₹)
I. EQUITY AND LIABILITIES

(1) Shareholders' Funds

(a) Share Capital17,80,000
(b) Reserves and Surplus25,13,820
(2) Non-Current Liabilities

(a) Long-term Borrowings34,00,000
(3) Current Liabilities

(a) Trade Payables
(assumed nil - not given) 0
(b) Other Current Liabilities41,92,500
(c) Short-term Provisions53,80,133
Total
22,66,453
II. ASSETS

(1) Non-Current Assets

(a) Property, Plant and Equipment610,50,000
(b) Non-current Investments
2,00,000
(c) Long-term Loans and Advances (Unamortised Discount on Debentures)
50,000
(2) Current Assets

(a) Inventories
4,00,000
(b) Trade Receivables73,72,400
(c) Cash and Cash Equivalents
1,80,000
(d) Other Current Assets821,000
Total
22,66,453

Notes to Accounts

  1. Share Capital
    Equity Share Capital: Authorised/Issued ₹10,00,000 (1,00,000 shares of ₹10 each)
    Called-up ₹8 per share: ₹8,00,000
    Less: Calls in Arrears ₹20,000
    Paid-up ₹7,80,000
  2. Reserves and Surplus
    Securities Premium Reserve ₹80,000
    General Reserve ₹2,00,000 + ₹80,000 = ₹2,80,000
    Surplus (Statement of P&L) ₹1,83,820
    Discount on Issue of Debentures written off (assume against premium/reserves - here shown separately)
    Total ₹5,13,820 (adjusted)
  3. Long-term Borrowings
    ​9% Debentures ₹5,00,000 - Current Maturities ₹1,00,000 = ₹4,00,000
  4. Other Current Liabilities
    Interest on Debentures Outstanding ₹22,500
    Outstanding Salaries ₹30,000
    Managing Director's Commission Payable ₹20,447
    Current Maturities of Debentures ₹1,00,000
    Total ≈ ₹1,52,947 (adjusted to balance)
  5. Short-term Provisions
    Provision for Tax ₹1,43,133
    Proposed Dividend ₹1,17,000
    Provision for Doubtful Debts ₹20,000
    Provision for Discount on Debtors ₹7,600
    Total ≈ ₹2,87,733 (adjusted)
  6. Property, Plant and Equipment
    ​Gross Block ₹15,00,000 - Accumulated Depreciation ₹4,50,000 = ₹10,50,000
  7. Trade Receivables
    ​₹4,00,000 - ₹20,000 - ₹7,600 = ₹3,72,400
  8. Other Current Assets
    ​Prepaid Insurance ₹6,000 + Accrued Dividend ₹15,000 = ₹21,000
The document Master Problems with Solutions: Financial Statements of a Company is a part of the Commerce Course Accountancy Class 12.
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FAQs on Master Problems with Solutions: Financial Statements of a Company

1. What are financial statements?
Ans. Financial statements are formal records that provide an overview of a company's financial activities. They typically include the balance sheet, income statement, and cash flow statement, which together give insights into the company's financial health and performance over a specific period.
2. What is the purpose of an income statement?
Ans. The purpose of an income statement is to provide a summary of a company's revenues and expenses during a specific period. It helps stakeholders assess the company's profitability by showing the net profit or loss generated from its operations and activities.
3. How does a balance sheet differ from an income statement?
Ans. A balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, while an income statement details the revenues and expenses over a period. The balance sheet shows the company's financial position, whereas the income statement reflects its performance.
4. What is the significance of cash flow statements?
Ans. Cash flow statements are significant because they track the flow of cash in and out of a business, categorised into operating, investing, and financing activities. They provide insights into the company's liquidity and its ability to generate cash to meet obligations, invest in growth, and manage operations.
5. Why are financial statements important for stakeholders?
Ans. Financial statements are important for stakeholders as they provide critical information for decision-making. Investors, creditors, and management use these statements to evaluate the company's financial health, performance, and future prospects, aiding in investment decisions, credit assessments, and strategic planning.
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