Preparation of Final Accounts of Sole ProprietorsQ-5 | Final Accounts of Sole ProprietorsQuestion 5120 of 40
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The Profit and Loss account of Ram showed a net profit of ₹ 5,75,000 after considering the closing stock of ₹ 2,55,000 on 31st March 2022. Subsequently the following information was obtained from scrutiny of the books: (i) Purchases for the year included 10,500 paid for electrical fittings of the shop. (ii) Ram gave goods worth of ₹ 25,000 as free samples for which no entry was made. (iii) Invoices for goods amounting to 1,85,000 have been entered on 29th March, 2022 but were not included in the stock. (iv) Sales amounting to ₹ 2,05,000 were dispatched on 27th March but were included in sales of April, 2022. (v) Goods costing ₹ 55,000 were sent on sale or return basis in March 2022 at a margin of profit of 331/3% on cost. Approval was given in April 2022 but these were considered as sales in March, 2022. Calculate the value of stock on 31st March, 2022 and the adjusted net profit for the year ended 2022. [June 2023, 5 Marks]

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Detailed Solution & Explanation

In the books of Ram Profit & loss Adjustment A/ c Particulars Amount Particulars Amount To Advertisement (Samples) To Sales [55000 + 18333] (Goods sent on Approval) To Adjusted Net Profit after corrections 25,000 73,333 9,57,167 By Net Profit before corrections By Electric Fittings By Samples By Purchases of March not included in Stock By Sales not included in Sales of March By Stock (Goods sent on approval not included in stock) 5,75,000 10,500 25,000 1,85,000 2,05,000 55,000 10,55,500 10,55,500 Working Note: Calculation of value of inventory on 31 March, 2022 Stock on 31 March, 2022 2,55,000 Add: Purchase of March, 2022 not included in the stock 1,85,000 Add: Goods lying with customers on Approval basis 55,000 Total 4,95,000

About This Chapter: Final Accounts

Paper

Paper 1: Accounting

Weightage

25-30%

Key Topics

Sole Proprietor, NPO, Manufacturing

This chapter covers Sole Proprietor, NPO, Manufacturing and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 25-30% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Profit and Loss Account

The second part of the final accounts that records all indirect incomes and indirect expenses to determine the Net Profit or Net Loss for the accounting period. It starts with Gross Profit from the Trading Account.

Net Profit

The final profit of a business after deducting all indirect operating expenses, non-operating expenses, and taxes from Gross Profit. It represents the actual earnings available to the owners.

Related Comparison Tables

Revenue Expenditure vs Capital Expenditure: AccountsTrading Account vs P&L Account: Final Accounts ExplainedSLM vs WDV Depreciation: CA Foundation Accounts

More Questions from Preparation of Final Accounts of Sole Proprietors

Mr. A accepts two bills of exchange on June 1, 2024 for ₹ 1,50,000 and 60,000 drawn on him by Mr. B. The bill of exchange for ₹ 1,50,000 is for two months while the bill of exchange for 60,000 is for three months. Mr. B got the first bill discounted with the bank for ₹ 1,49,000 on June 3, 2024. On August 2, 2024 Mr. A requested Mr. B. to cancel both the bills and drew a new bill on him with the combined amount of both the bills along with interest @ 12% per annum for a period of two months. Before the due date of the renewed bill on September 3, 2024, Mr. A becomes insolvent and only 40 paise in a rupee could be recovered from his estate. You are required to give the journal entries in the books of Mr. B. [Jan. 2025, 5 Marks]

Discuss the limitations which must be kept in mind while evaluating the Financial Statements. [Nov. 2018, 4 Marks]

Trading account

Profit and loss account

Balance sheet

Manufacturing A/c

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