Chapter financial-statements-ii: Financial Statements - II Application Questions | accountancy Class 11 CBSE

Chapter financial-statements-ii: Financial Statements - II Application Questions | accountancy Class 11 CBSE | ByteNotes.in

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 1

Applied Concept

Ankit's Trial Balance shows salary paid Rs 25,000. It is found that Rs 5,000 was paid in advance to an employee. With reference to prepaid expenses, explain how this affects the Profit and Loss Account and Balance Sheet.

Since Rs 5,000 was paid in advance, only Rs 20,000 (Rs 25,000 – Rs 5,000) is the actual salary expense for the current year; the adjusting entry is: Prepaid Salary A/c Dr. 5,000 / To Salary A/c 5,000.
In the Profit and Loss Account, salary is shown at Rs 20,000 (after deducting prepaid Rs 5,000), which increases the net profit by Rs 5,000 compared to what it would have been without this adjustment.
Prepaid Salary of Rs 5,000 appears on the assets side of the Balance Sheet as a current asset, representing the benefit to be received in the next accounting period.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 2

Applied Concept

A business paid Rs 1,200 as insurance premium on July 1, 2016. The accounting year ends on March 31, 2017. Calculate the prepaid insurance and state its treatment in the final accounts.

The insurance premium of Rs 1,200 covers 12 months from July 2016 to June 2017; of this, 3 months (April to June 2017) relate to the next year, so prepaid insurance = Rs 1,200 x 3/12 = Rs 300.
Only Rs 900 (Rs 1,200 – Rs 300) is charged to the Profit and Loss Account as the insurance expense for 2016-17, reflecting only the current year's portion.
Prepaid Insurance of Rs 300 is shown as a current asset on the assets side of the Balance Sheet as on March 31, 2017.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 3

Applied Concept

With reference to Ankit's books, commission received in the Trial Balance is Rs 5,000 and accrued commission is Rs 1,500. How should accrued commission be treated in the final accounts?

Total commission earned = Rs 5,000 (received) + Rs 1,500 (accrued) = Rs 6,500; the adjusting entry is: Accrued Commission A/c Dr. 1,500 / To Commission A/c 1,500.
In the Profit and Loss Account, commission received is shown as Rs 6,500 on the credit side (Rs 5,000 + Rs 1,500), increasing net profit by Rs 1,500 due to the accrual.
Accrued Commission of Rs 1,500 is shown on the assets side of the Balance Sheet as a current asset, representing the amount due but not yet received.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 4

Applied Concept

Ankit sublet part of his building at Rs 1,000 per month. On March 31, 2017, he received rent for April, May, and June in advance. How should this be treated in the final accounts?

Rent received in advance = Rs 1,000 x 3 = Rs 3,000 for April, May, and June 2017; this does not belong to the current year so the entry is: Rent Received A/c Dr. 3,000 / To Rent Received in Advance A/c 3,000.
In the Profit and Loss Account, Rs 3,000 is deducted from rent received so that no income from next year is credited to the current year's profit.
Rent Received in Advance of Rs 3,000 is shown on the liabilities side of the Balance Sheet as a current liability, since the business owes the service for future months.

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Application Question

Easy difficulty • Concept in a practical situation

Easy

Question 5

Applied Concept

A firm's Trial Balance shows furniture at Rs 15,000. Depreciation is to be charged at 10% per annum. Calculate depreciation and show its treatment in the final accounts.

Depreciation on furniture = Rs 15,000 x 10/100 = Rs 1,500; the adjusting entry is: Depreciation A/c Dr. 1,500 / To Furniture A/c 1,500.
Rs 1,500 is debited to the Profit and Loss Account on the debit side as an expense, reducing the net profit for the year.
In the Balance Sheet, furniture is shown at its net book value: Rs 15,000 (cost) – Rs 1,500 (depreciation) = Rs 13,500 on the assets side.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 6

Applied Concept

A Trial Balance shows debtors at Rs 15,500 and bad debts at Rs 4,500. Additional information: further bad debts Rs 2,500 and provision for doubtful debts @ 5% on debtors. Show the treatment in the final accounts.

Further bad debts entry: Bad Debts A/c Dr. 2,500 / To Debtors A/c 2,500; total bad debts = Rs 7,000 (Rs 4,500 + Rs 2,500) is debited to the Profit and Loss Account.
Good debtors = Rs 15,500 – Rs 2,500 = Rs 13,000; provision for doubtful debts = Rs 13,000 x 5/100 = Rs 650, debited to Profit and Loss Account.
In the Balance Sheet: Debtors Rs 15,500 – Further bad debts Rs 2,500 – Provision Rs 650 = Rs 12,350 shown as the net realizable value of debtors.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 7

Applied Concept

A firm's debtors (after deducting further bad debts) are Rs 13,000 and provision for doubtful debts is Rs 650. Calculate the provision for discount on debtors at 2% and show its treatment.

Good debtors for discount provision = Rs 13,000 (debtors) – Rs 650 (provision for doubtful debts) = Rs 12,350; provision for discount = Rs 12,350 x 2/100 = Rs 247 (approximately Rs 247).
The entry is: Profit and Loss A/c Dr. 247 / To Provision for Discount on Debtors A/c 247; this is debited to the Profit and Loss Account as an expense.
In the Balance Sheet, debtors are further reduced: Rs 13,000 – Rs 650 (provision for doubtful debts) – Rs 247 (discount provision) = Rs 12,103, showing the expected realizable value.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 8

Applied Concept

Ankit's net profit before manager's commission is Rs 20,623 and his manager is entitled to 10% commission on profit before charging such commission. Calculate the commission and pass the journal entry.

Commission = Rs 20,623 x 10/100 = Rs 2,062.30 (rounded to Rs 2,062); this is the amount payable to the manager based on profit before deducting the commission.
Journal entry: Profit and Loss A/c Dr. 2,062 / To Manager's Commission Outstanding A/c 2,062; this records the expense and the liability.
In the Profit and Loss Account, Rs 2,062 is shown as an expense on the debit side; in the Balance Sheet, Manager's Commission Outstanding of Rs 2,062 is shown on the liabilities side.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 9

Applied Concept

Net profit before manager's commission is Rs 1,10,000 and commission is payable at 10% on profit after charging such commission. Calculate the commission.

Using the formula: Commission = Net Profit x Rate / (100 + Rate) = Rs 1,10,000 x 10 / (100 + 10) = Rs 1,10,000 x 10/110 = Rs 10,000.
Verification: Net profit after deducting commission = Rs 1,10,000 – Rs 10,000 = Rs 1,00,000; and 10% of Rs 1,00,000 = Rs 10,000, confirming the calculation.
The commission of Rs 10,000 is debited to the Profit and Loss Account and shown as an outstanding liability in the Balance Sheet until paid.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 10

Applied Concept

Ankit's opening capital is Rs 12,000 and interest on capital is to be allowed at 5% per annum. Show the effect of this adjustment on the Profit and Loss Account and Balance Sheet.

Interest on capital = Rs 12,000 x 5/100 = Rs 600; journal entry: Interest on Capital A/c Dr. 600 / To Capital A/c 600.
In the Profit and Loss Account, Rs 600 is debited as an expense, reducing net profit transferred to capital by Rs 600.
In the Balance Sheet, Rs 600 is added to capital — while profit added to capital decreases by Rs 600 due to the expense, the Rs 600 directly added to capital neutralizes this effect, keeping capital the same.

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Chapter financial-statements-ii: Financial Statements - II | Application Questions

Ankit's Trial Balance shows salary paid Rs 25,000. It is found that Rs 5,000 was paid in advance to an employee. With reference to prepaid expenses, explain how this affects the Profit and Loss Account and Balance Sheet.

A business paid Rs 1,200 as insurance premium on July 1, 2016. The accounting year ends on March 31, 2017. Calculate the prepaid insurance and state its treatment in the final accounts.

With reference to Ankit's books, commission received in the Trial Balance is Rs 5,000 and accrued commission is Rs 1,500. How should accrued commission be treated in the final accounts?

Ankit sublet part of his building at Rs 1,000 per month. On March 31, 2017, he received rent for April, May, and June in advance. How should this be treated in the final accounts?

A firm's Trial Balance shows furniture at Rs 15,000. Depreciation is to be charged at 10% per annum. Calculate depreciation and show its treatment in the final accounts.

A Trial Balance shows debtors at Rs 15,500 and bad debts at Rs 4,500. Additional information: further bad debts Rs 2,500 and provision for doubtful debts @ 5% on debtors. Show the treatment in the final accounts.

A firm's debtors (after deducting further bad debts) are Rs 13,000 and provision for doubtful debts is Rs 650. Calculate the provision for discount on debtors at 2% and show its treatment.

Ankit's net profit before manager's commission is Rs 20,623 and his manager is entitled to 10% commission on profit before charging such commission. Calculate the commission and pass the journal entry.

Net profit before manager's commission is Rs 1,10,000 and commission is payable at 10% on profit after charging such commission. Calculate the commission.

Ankit's opening capital is Rs 12,000 and interest on capital is to be allowed at 5% per annum. Show the effect of this adjustment on the Profit and Loss Account and Balance Sheet.

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