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Published on: 19/08/2019
Final Accounts with Adjustments
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1.
Following are balances from the trial balance of Mukesh Traders on 31st march, 2016:
| Particulars | (Rs) | Particulars | (Rs) |
|---|---|---|---|
| Wages | 1,20,000 | Land and Building | 10,00,000 |
| Sales | 3,75,000 | Interest on investments | 7,400 |
| Freight on Purchase | 650 | Cash-in-hand | 26,400 |
| Salaries | 7,500 | Investments | 6,00,000 |
| Drawings | 6,100 | Capital Account | 13,47,000 |
| Repair to Machinery | 1,800 | Bills Payable | 4,500 |
| Duty on Import of Goods | 4,100 | Plant and Machinery | 1,82,000 |
| Customer's A/c | 16,200 | X's Loan (Cr.) | 18,600 |
| Postage | 1,600 | Discount Received | 500 |
| Opening Stock | 6,700 | Discount Allowed | 1,500 |
| Carriage Inward | 1,000 | Bank Overdraft | 3,40,000 |
| Insurance | 2,800 | Loan (Cr.) | 11,000 |
| Trade Expenses | 1,450 | Supplier's A/c | 40,000 |
| Purchases | 1,57,200 | Bills Receivable | 7,000 |
Prepare Trading and Profit & Loss Account for the year ended 31st March, 2016 and Balance Sheet as at that date after taking into account the following adjustments :
(i) Closing Stock was valued at Rs 20,000.
(ii) Insurance was prepaid Rs 1,000.
(iii) Write off Rs 2,000 as Bad debt.
(iv) Depreciation to be provided on Land and Building @ 5% p.a. and on Plant and Machinery @ 10% p.a.
(v) Create provision for doubtful debts @ 5% on debtors.
(vi) Wages include Rs 4,800 for installation of a new machinery.
2.
Show the treatment of following information in the Profit & Loss Account and Balance Sheet as on March 31,2014.
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Capital | - | 50,000 |
| Carriage and Cartage unpaid | - | 100 |
| Interest accrued | 400 | - |
| Rent received in advance | - | 700 |
| Outstanding salaries | - | 300 |
| Depreciation | 700 | - |
| Interest on Capital | 800 | - |
| Interest on Drawings | - | 400 |
3.
From the following Trial Balance of Rohit Sharma, prepare Trading and Profit & Loss Account for the year ending 31st March 2016 and a Balance Sheet on the same date after making necessary adjustments :
| Name of Account | L.F. | Debit Amount (Rs.) |
Credit Amount (Rs.) |
|---|---|---|---|
| Stock on 01 April, 2015 | 12,000 | ----- | |
| Capital | ----- | 62,000 | |
| Purchases | 40,000 | ----- | |
| Discount Received | ----- | 400 | |
| Sales | ----- | 86,000 | |
| Sales Returns | 6,000 | ----- | |
| Building | 50,000 | ----- | |
| Debtors | 16,000 | ----- | |
| Salaries | 2,400 | ----- | |
| Office Expenses | 1,200 | ----- | |
| Wages | 10,000 | ----- | |
| Purchases Returns | ----- | 4,000 | |
| Interest | ----- | 800 | |
| Travelling Expenses | 400 | ----- | |
| Fire Insurance | 800 | ----- | |
| Machinery | 20,000 | ----- | |
| Carriage Inward | 700 | ----- | |
| Commission | 500 | ----- | |
| Cash-in-hand | 2,500 | ----- | |
| Rent and Taxes | 1,800 | ----- | |
| Creditors | ----- | 10,800 | |
| 1,64,000 | 1,64,000 |
Adjustments :
1. Closing stock was Rs. 16,000.
2. Wages Rs.2,000 and salaries Rs.1,200 are outstanding.
3. Rent for two months at the rate of Rs.500 per month is outstanding.
4. Depreciation Building by 5% and Machinery by 10%.
5. Prepaid insurance Rs. 200.
4.
Manjeet purchases a machine costing Rs 90,000 and pays Rs 2,000 as freight and cartage. He is to depreciate the machinery @ 10%. What will be the amount of depreciation to be shown in Profit & Loss Account?
5.
What is meant by provision for discount on debtors?
6.
What is meant by provision for doubtful debts?
7.
How will you treat the adjustment of interest on drawings?
8.
How will you treat prepaid expenses if it appears as balance in Trial Balance?
9.
How will you treat outstanding expenses if they appear as balance in the Trial Balance?
10.
How will you treat closing stock if it appears as a balance in the Trial Balance?
11.
What is meant by closing stock?
12.
What are adjusting entries?
13.
What are closing entries?
14.
What is meant by provision for discount on debtors?
15.
What is goods sent for approval? How will you treat it in final account?
16.
How will you calculate commission payable to manager on profits?
17.
What is outstanding expenses ? What is its adjusting entries ?
18.
How will you show closing stock in final accounts?
19.
Why is it necessary to pass adjusting entries in final accounts?
20.
If the insurance premium paid Rs 1,000 pre-paid insurance Rs 300. The amount of insurance premium shown in profit and loss account will be :
Rs 1,300
Rs 1,000
Rs 300
Rs 700
21.
If the opening capital is Rs 50,000 as on April 01.2014 and additional capital introduced Rs 10,000 on January 01.2015. Interest charge on capital 10% p.a. The amount of interest on capital shown in profit and loss account as on March 31.2015 will be :
Rs 5,250
Rs 6,000
Rs 4,000
Rs 3,000
22.
If the rent received in advance Rs 2,000. The adjustment entry will be :
Debit profit and loss account and Credit rent account
Debit rent account Credit rent received in advance account
Debit rent received in advance account and Credit rent account
None of these.
23.
If the rent of one month is still to be paid the adjustment entry will be
Debit outstanding rent account and Credit rent account
Debit profit and loss account and Credit rent account
Debit rent account and Credit profit and loss account
Debit rent account and Credit outstanding rent account.
24.
Rahul's trial balance provide you the following information:
Debtors Rs 8,000
Bad debts Rs 2,000
Provision for doubtful debts Rs 4,000
It is desired to maintain a provision for bad debts of Rs 1,000
State the amount to be debited/credited in profit and loss account:
Rs 5,000 (Debit)
Rs 3,000 (Debit)
Rs 1,000 (Credit)
None of these.
1.
| particulars | Amount | Particulars | Amount |
|---|---|---|---|
| To Opening Stock | 6,700 | By Sales | 3,75,000 |
| To Purchases | 1,57,200 | By Stock | 20,000 |
| To Carriage Inward | 1,000 | ||
| To Wages (1,20,000 - 4,800 | 1,15,200 | ||
| To Freight | 650 | ||
| To Import Duty | 4,100 | ||
| To Gross Profit c/d | 1,10,150 | ||
| 3,95,000 | 3,95,000 |
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| To Salaries | 7,500 | By Gross Profit b/d | 1,10,150 |
| To Repair | 1,800 | By Int. on Investment | 7,400 |
| To Postage | 1,600 | By Discount Received | 500 |
| To Insurance (2,800-1,000) | 1,800 | ||
| To Trade Exp. | 1,450 | ||
| To Discount Allowed | 1,500 | ||
| To Bad Debts | 2,000 | ||
| To Bad Debts Provision | 710 | ||
| To Dep. on Land & Building | 50,000 | ||
| To Dep. on Plant & Machinery | 18,680 | ||
| To Net Profit | 31,010 | ||
| 1,18,050 | 1,18,050 |
| Liabilities | Amount | Assets | Amount | |
|---|---|---|---|---|
| Capital | 13,47,000 | Customers Account# | 13,490 | |
| Add: Profit | 31,010 | Land & Building less Depreciation | 9,50,000 | |
| 13,78,010 | Investment | 6,00,000 | ||
| Less: Drawings | 6,100 | 13,71,910 | Cash | 26,400 |
| Bills Payable | 4,500 | Plant & Machinery* | 1,68,120 | |
| X's Loan | 18,600 | B/R | 7,000 | |
| Bank Overdraft | 3,40,000 | Stock | 20,000 | |
| Loan | 11,000 | Prepaid Insurance | 1,000 | |
| Suppliers | 40,000 | |||
| 17,86,010 | 17,86,010 | |||
2.
| Particulars | Amount (Rs) | Particulars | Amount (Rs) |
|---|---|---|---|
| To Depreciation | 700 | By Interest on Drawings | 400 |
| To interest on Capital | 800 |
| Liabilities | Amount(Rs) | Assets | Amount(Rs) |
|---|---|---|---|
| Capital | 50,000 | Interest Accrued | 400 |
| Carriage and Cartage Unpaid | 100 | ||
| Rent received in Advance | 700 | ||
| Outstanding Salaries | 300 |
3.
Dr. Trading and Profit & Loss Account for the year ending on 31st March, 2016 Cr.
| Particulars | Amount (Rs.) | Particulars | Amount(Rs.) | ||
|---|---|---|---|---|---|
| To Opening Stock | 12,000 | By Sales | 86,000 | ||
| To Purchases | 40,000 | Less: Sales Returns | 6,000 | 80,000 | |
| Less: Purchases Returns | 4,000 | 36,000 | By Closing Stock | 16,000 | |
| To Wages | 10,000 | ||||
| Add: Out. Wages | 2,000 | 12,000 | |||
| To Carriage Inward | 700 | ||||
| To Gross Profit c/d | 35,300 | ||||
| 96,000 | 96,000 | ||||
| To Salaries | 2,400 | By Gross Profit bid | 35,300 | ||
| Add: Outstanding Salaries | 1,200 | 3,600 | By Discount Received | 400 | |
| To Rent and Taxes | 1,800 | By Interest | 800 | ||
| Add: Outstanding Rent | 1,000 | 2,800 | |||
| To Dep. on Building | 2,500 | ||||
| To Dep. on Machinery | 2,000 | ||||
| To Insurance | 800 | ||||
| Less: Prepaid Insurance | 200 | 600 | |||
| To Office Expenses | 1,200 | ||||
| To Travelling Expenses | 400 | ||||
| To Commission | 400 | ||||
| To Net Profit | 23,000 | ||||
| 36,500 | 36,500 | ||||
Balance Sheet as at March 31, 2016
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) | ||
|---|---|---|---|---|---|
| Outstanding Salary | 1,200 | Closing Stock | 16,000 | ||
| Outstanding Wages | 2,000 | Building | 50,000 | ||
| Outstanding Rent | 1,000 | Less: Depreciation 5% | 2,500 | 47,500 | |
| Creditors | 10,800 | Machinery | 20,000 | ||
| Capital | 62,000 | Less: Depreciation 5% | 2,000 | 18,000 | |
| Add: Net Profit | 23,000 | 85,000 | Prepaid Insurance | 200 | |
| Debtors | 16,000 | ||||
| Cash-in-hand | 2,300 | ||||
| 1,00,000 | 1,00,000 | ||||
4.
( )
Rs 9,200 (10%of Rs 90,000 + Rs 2,000).
5.
( )
Provision for discount on debtors means a provision for the discount allowed to debtors if they make the payment before the date of maturity of their debts.
6.
( )
Provision for doubtful debts means a provision for the amount that a business enterprise may not be able to realise in future.
7.
( )
Interest on drawings will be shown in the credit side of Profit & Loss Account and liabilities side of the Balance Sheet by way of deduction from capital.
8.
( )
Prepaid expenses are shown on the Assets side of Balance Sheet.
9.
( )
Outstanding expenses are shown on the Liabilities side of Balance Sheet
10.
( )
Closing stock is shown on the Assets side of the Balance Sheet.
11.
( )
Closing stock means unsold goods or unused raw materials left at the end of accounting year.
12.
( )
Adjusting entries are the entries passed to correct the values of accounts shown in the Trial Balance.
13.
( )
Closing entries are the entries which are made at the end of each accounting period for the purpose of preparing Profit & Loss Account.
14.
It is a normal practice in the business to allow cash discount to those debtors from whom the payment is received promptly or within a fixed period. Discount thus, allowed will be an expenses of the business and is therefore, debited to the Profit & Loss Account. Since there will be certain debtors who will make early payment in the next accounting year and will be allowed such discount, a provision for such discount is created in the current year itself. The process of creating a provision for discount is the same as for the provision for doubtful debts. The following entry will be passed for this purpose:
Profit & Loss A/c Dr.
To Provision for Discount on Debtors A/c
Treatment in Final Accounts : Such provision is shown on the debit side of the Profit & Loss account and is also deducted from Sundry Debtors on the Assets. side of the Balance Sheet.
If should be noted that, discount willbe allowed only to those debtors who will make prompt payment. As such, the provision for discount is calculated on good debtors left after deducting further bad debts given in adjustments and the provision for doubtful debts required to be made at the end of year.
15.
Goods may be sold to the customers on sale or return basis. In this case, if goods are approved by him, he will keep them, otherwise he will return the same within a time period. Such goods are normally recorded as actual sale of goods. When such goods are returned by the customer, the sale is cancelled.
Goods sold on approval basis, but not confirmed are adjusted in final account as follows:
(i) Sales amount is deducted from sales in Trading A/c and from debtors in the Balance Sheet.
(ii) Cost of such goods is added to closing stock shown on the credit side of the Trading A/c and the assets side of Balance Sheet.
16.
A manager may be entitled to a commission on profits. It is usually given as a fixed percentage on the net profits earned by the firm. In this case, first of all, net profit before commission is calculated. Then, commission payable is calculated as follows:
(i) When commission is payable on net profit before charging such commission:
Commission = Net Profits Before Commission\(\times\)Rate/ 100
(ii) When commission is payable on net profit after charging such commission:
Commission = Net Profits Before Commission \(\times\) \(\frac { Rate }{ 100+Rate } \)
17.
Expenses due but not paid are called unpaid or outstanding expenses. Expenses have become due means the benefit has been derived and therefore, all such expenses must be brought into books of accounts. Following adjustment entry should be passed for adjustment of outstanding expenses: Expenses A/c Dr.
To Outstanding Expenses A/c
(Being outstanding expenses recorded)
18.
Closing stock is shown in final accounts as follows:
(i) On the credit side of the Trading A/c
(ii) On the assets side of Balance Sheet
19.
Several accounting principles are relevant for preparation of final accounts. On the basis of accounting period assumption, the final accounts are prepared every year. When we prepare Trading and Profit & Loss A/c, the matching principle is to be kept in mind. According to this principle, the incomes of a given period should be matched with expenses of the same period. The matching of revenue with expenses is based on accrual system of accounting. Due to this reason, several adjustments are made in final accounts. For example, a firm closes its accounts on 31st March and salaries for the month of March have not yet been paid. Adjustment should be made for outstanding salaries to calculate true and fair profits. For this purpose, journal entries are passed, which are called adjustment entries.
20.
(d)
Rs 700
21.
(a)
Rs 5,250
22.
(b)
Debit rent account Credit rent received in advance account
23.
(d)
Debit rent account and Credit outstanding rent account.
24.
(c)
Rs 1,000 (Credit)
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