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GNDU Question Paper-2024
B.Com 1
st
Semester
FINANCIAL ACCOUNTING
Time Allowed: Three Hours Max. Marks: 100
Note : Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Journalize the following transactions in the books of Sh. Pankaj :
Jan. 1. Goods purchased from Mamta of Delhi for Rs. 40,000 less 10% trade discount and
paid IGST @ 12%.
Jan. 3. Above goods sold to Jaya of Surat at original price less 3% trade discount charged
IGST @ 12%.
Jan. 5. 1/4th of the total goods returned by Jaya at original price plus IGST @ 12%.
Jan. 7. Goods received back from Jaya returned to Mamta.
Jan. 9. Purchased postcards Rs. 100, envelops Rs. 200.
Jan. 11. Received interest on loan Rs. 250 from Mohan, the debtor.
Jan. 13. Paid Sovereign's salary 3,300.
Jan. 14. Furniture costing Rs. 5,000 purchased by paying IGST @ 12%.
Jan. 15. Sold furniture to M/s Gopalsons at the List Price of Rs. 70,000 and allowed him 5%
trade discount and charged IGST @ 12%. We deal in furniture.
Jan. 17. Paid salary by cheque Rs. 15,000.
Jan. 18. Sold goods to Lalu Yadav of the list price of Rs. 94,000 allowed trade discount @
10% charged IGST @ 12%. Lalu Yadav cleared the account by paying cheque immediately.
Jan. 19. Supplied goods costing Rs. 4,000 to Ramesh at 20% above the cost price and
allowed 10% trade discount charged IGST @ 12%.
Jan. 20. Paid cash to Mrs. Naryananan on behalf of Mr. Yadav Rs.1,050.
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Jan. 22. Received an order from Ritu for supply of goods for Rs. 60,000 and received Rs.
25,000 as an advance.
Jan. 23. Sh. Pankaj paid his Life insurance premium amounting to Rs. 13,000.
Jan. 24. Paid quarterly Income Tax of Rs. 50,000.
Jan. 25. Rent outstanding amounted to Rs. 4,200.
Jan. 27. Paid for advertising by cheque Rs. 4000 plus CGST and SGST @ 6% each.
Jan. 28. Paid carriage on goods sold to Arjit JalansPer chargeable Rs.150.
Jan. 30. Personal car sold for Rs. 4,00,000 and introduced the amount into her already
existing business.
2. Discuss the concept of Accounting. Give their implications.
SECTION-B
3. The following Trial Balance of Rao as at March 31st, 2019 and adjustments given
thereunder. Prepare his Final Accounts:
Particulars
Debit (Rs.)
Credit (Rs.)
Drawings
8,000
Plant and Machinery (1.4.2018)
26,000
Plant added on 30.9.2018
5,000
Stock
15,000
Purchases
82,090
Returns Inwards
2,000
Debtors
20,600
Furniture and Fixtures
8,000
Freight and Duty
2,000
Carriage Outwards
500
Salaries and Taxes
4,600
Printing and Stationery
800
Trade Expenses
400
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Postage and Telegrams
800
Insurance
700
Salaries and Wages
21,300
Cash
29,300
Bank
5,200
2,13,400
Particulars
Credit (Rs.)
Capital
80,000
Sundry Creditors
10,000
Sales
1,20,000
Returns Outwards
1,000
Provision for Doubtful Debts
400
Discount
800
Rent (Premises sublet for one year upto September 30, 2019)
1,200
2,13,400
Adjustments :
(i) Closing Stock Rs. 14,600.
(ii) Rs. 600 to be written off as bad.
(iii) Provision for Doubtful Debts to be maintained @ 5%.
(iv) Provision for discount on debtors and creditors @ 2%.
(v) Depreciate furniture and fixture and Plant and Machinery @ 5% p.a. and 20% p.a.
respectively.
(vi) Prepaid Insurance Rs. 100.
(vii) Stock of the value Rs. 5,000 was destroyed in March and the Insurance company had
admitted the claim of Rs. 3,000.
4. What is Voyage in Progress ? How is it calculated ? Illustrate your answer.
SECTION-C
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5. Mr. A and Mr. B entered into a joint venture to purchase and sell crackers during Diwali
season. Profit or losses were to be shared equally between Mr. A and Mr. B. Mr. A was to
purchase crackers from Sivakasi and send them to Mr. B of Mumbai who would sell them.
On 1st August, 2016 Mr. A purchased crackers worth Rs. 1,00,000 and incurred the
following expenses while sending goods to Mr. B:
(1) Forwarding charges Rs. 6,000. (2) Insurance charges Rs. 8,000.
He immediately drew upon Mr. B Rs. 1,00,000 for 3 months. The acceptance was discounted
at a rate of 9% p.a. Mr. B paid the following expenses :
• Carriage charges Rs. 3,000.
• Commission to agent Rs. 5,000.
• Rental charges Rs. 4,000.
Mr. B sold the crackers through his agent for Rs. 1,40,000. He forwarded a cheque to Mr. A
for the amount due on 31st October and closed the account. Prepare the following:
(1) Memorandum Joint Venture Account (2) Mr. B Joint Venture A/c in the books of Mr. A.
6. What are Consignment Accounts ? Explain Accounting treatment of consignment
transactions in the books of Consignor and consignee.
SECTION-D
7. On the basis of the following Trial Balance and additional information provided to you
there, prepare Departmental Trading Account and Profit & Loss Account for the year
ended 31st March 2016 and Balance Sheet as at the date :
Trial Balance as at 31st March 2016
Particulars
Dr. (Rs.)
Cr. (Rs.)
Capital Account
Land and Building
3,00,000
Furniture
2,25,000
Opening Stock
30,000
Department A
1,20,000
Department B
2,40,000
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Purchases :
Department A
12,00,000
Department B
17,00,000
Sales :
Department A
20,00,000
Department B
32,00,000
General Expenses
14,00,000
Debtors
2,10,000
Creditors
1,00,000
Drawings
2,80,000
Bank
1,90,000
56,00,000
56,00,000
Additional Information :
(i) Closing Stock of Department A is Rs. 1,30,000 which includes goods purchased from
Department B and invoiced at Rs. 50,000. Department B transfers goods to Department A
at cost plus 25%.
(ii) Closing Stock of Department B is Rs. 2,90,000 which includes goods purchased by
Department A at an invoice price of Rs. 1,08,000 which is arrived at by Department A by
adding 20% to the cost of the goods.
(iii) Sales of Department A and Department B includes goods purchased by Department A
and Department B at Rs. 2,00,000 and Rs. 3,00,000 respectively.
(iv) Depreciation to be charged on land and building @5% p.a. and on furniture @ 10%
p.a.
8. What is the objective of Branch Accounting ? Explain Debtor's system and Stock and
Debtors system of keeping books of dependent branch.
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GNDU Answer Paper-2024
B.Com 1
st
Semester
FINANCIAL ACCOUNTING
Time Allowed: Three Hours Max. Marks: 100
Note : Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Journalize the following transactions in the books of Sh. Pankaj :
Jan. 1. Goods purchased from Mamta of Delhi for Rs. 40,000 less 10% trade discount and
paid IGST @ 12%.
Jan. 3. Above goods sold to Jaya of Surat at original price less 3% trade discount charged
IGST @ 12%.
Jan. 5. 1/4th of the total goods returned by Jaya at original price plus IGST @ 12%.
Jan. 7. Goods received back from Jaya returned to Mamta.
Jan. 9. Purchased postcards Rs. 100, envelops Rs. 200.
Jan. 11. Received interest on loan Rs. 250 from Mohan, the debtor.
Jan. 13. Paid Sovereign's salary 3,300.
Jan. 14. Furniture costing Rs. 5,000 purchased by paying IGST @ 12%.
Jan. 15. Sold furniture to M/s Gopalsons at the List Price of Rs. 70,000 and allowed him 5%
trade discount and charged IGST @ 12%. We deal in furniture.
Jan. 17. Paid salary by cheque Rs. 15,000.
Jan. 18. Sold goods to Lalu Yadav of the list price of Rs. 94,000 allowed trade discount @
10% charged IGST @ 12%. Lalu Yadav cleared the account by paying cheque immediately.
Jan. 19. Supplied goods costing Rs. 4,000 to Ramesh at 20% above the cost price and
allowed 10% trade discount charged IGST @ 12%.
Jan. 20. Paid cash to Mrs. Naryananan on behalf of Mr. Yadav Rs.1,050.
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Jan. 22. Received an order from Ritu for supply of goods for Rs. 60,000 and received Rs.
25,000 as an advance.
Jan. 23. Sh. Pankaj paid his Life insurance premium amounting to Rs. 13,000.
Jan. 24. Paid quarterly Income Tax of Rs. 50,000.
Jan. 25. Rent outstanding amounted to Rs. 4,200.
Jan. 27. Paid for advertising by cheque Rs. 4000 plus CGST and SGST @ 6% each.
Jan. 28. Paid carriage on goods sold to Arjit JalansPer chargeable Rs.150.
Jan. 30. Personal car sold for Rs. 4,00,000 and introduced the amount into her already
existing business.
Ans: 󹶆󹶚󹶈󹶉 The Story Begins — “The Month of Transactions”
It’s January, and Sh. Pankaj’s business is buzzing with activity. Let’s travel through his ledger
step by step and watch how every single event shapes his books of accounts.
󼫹󼫺 January 1: Buying Goods from Mamta
Pankaj started the month by purchasing goods from Mamta of Delhi.
The goods were worth ₹40,000, but Mamta gave him a 10% trade discount.
So,
Net purchase value = 40,000 – 10% of 40,000 = 36,000
Now, since it’s an interstate purchase, IGST @ 12% will apply.
IGST = 12% of 36,000 = 4,320
Total amount payable = 36,000 + 4,320 = 40,320
Since the payment was made immediately, Pankaj’s cash decreases.
Journal Entry:
Purchases A/c ............Dr. 36,000
Input IGST A/c ............Dr. 4,320
To Cash/Bank A/c .................. 40,320
(Being goods purchased from Mamta of Delhi, IGST @12% paid)
󹳎󹳏 January 3: Selling Goods to Jaya
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Pankaj now sold the same goods to Jaya of Surat.
He sold them at the original price (₹40,000) but gave a 3% trade discount.
Selling price = 40,000 – 3% of 40,000 = 38,800
IGST @12% = 4,656
Total = 43,456
Since Jaya will pay later, it becomes a credit sale.
Journal Entry:
Jaya A/c ...................Dr. 43,456
To Sales A/c .................... 38,800
To Output IGST A/c ............. 4,656
(Being goods sold to Jaya at 3% trade discount plus IGST @12%)
󷄧󹹨󹹩 January 5: Goods Returned by Jaya
Jaya returned ¼ of the goods she bought.
¼ of 38,800 = 9,700 (goods value)
IGST @12% = 1,164
Total = 10,864
Journal Entry:
Sales Return A/c ...........Dr. 9,700
Output IGST A/c .............Dr. 1,164
To Jaya A/c ............................ 10,864
(Being ¼ goods returned by Jaya including IGST @12%)
󷄧󹹯󹹰 January 7: Returned Goods Sent Back to Mamta
Pankaj sent those same goods back to Mamta.
¼ of 36,000 = 9,000
IGST @12% = 1,080
Journal Entry:
Mamta A/c ...................Dr. 10,080
To Purchase Return A/c ........ 9,000
To Input IGST A/c ................ 1,080
(Being goods returned to Mamta along with IGST)
󹷝󹷞󹷟󹷠󹷡 January 9: Office Stationery Purchase
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He bought postcards (₹100) and envelopes (₹200) — total ₹300, paid in cash.
Journal Entry:
Stationery A/c .............Dr. 300
To Cash A/c ............................. 300
(Being stationery purchased for office use)
󹳡󹳢󹳤󹳥󹳣 January 11: Received Interest on Loan
Pankaj received ₹250 as interest from Mohan, his debtor.
Journal Entry:
Cash/Bank A/c .............Dr. 250
To Interest Income A/c ........... 250
(Being interest received from Mohan)
󷸟󷸠󷸡󷸢󷸣 January 13: Paid Sovereign’s Salary
Sovereign (an employee) received a salary of ₹3,300 in cash.
Journal Entry:
Salary A/c ...................Dr. 3,300
To Cash A/c ............................. 3,300
(Being salary paid to Sovereign)
󼯎󼯏󼯈󼯉󼯊󼯋󼯌󼯍 January 14: Purchased Furniture
Pankaj bought furniture for ₹5,000 and paid IGST @12%.
IGST = 600
Total = 5,600
Journal Entry:
Furniture A/c ................Dr. 5,000
Input IGST A/c ................Dr. 600
To Cash/Bank A/c .................. 5,600
(Being furniture purchased with IGST @12%)
󷄧󼰔󼰕󼰖󼰗󼰘󼰙 January 15: Sold Furniture to Gopalsons
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This time, Pankaj sold furniture (which is his stock-in-trade).
List Price ₹70,000
Trade discount = 5% → ₹3,500
Net = ₹66,500
IGST @12% = ₹7,980
Total = ₹74,480
Journal Entry:
Gopalsons A/c ..............Dr. 74,480
To Sales A/c ....................... 66,500
To Output IGST A/c ............... 7,980
(Being furniture sold to Gopalsons at 5% trade discount and
IGST @12%)
󷪿󷪻󷪼󷪽󷪾 January 17: Salary Paid by Cheque
He paid ₹15,000 salary through cheque.
Journal Entry:
Salary A/c ...................Dr. 15,000
To Bank A/c ............................ 15,000
(Being salary paid by cheque)
󹳕󹳖󹳗󹳙󹳘 January 18: Sold Goods to Lalu Yadav
List price ₹94,000
Trade discount @10% → ₹9,400
Net = ₹84,600
IGST @12% = ₹10,152
Total = ₹94,752
Lalu Yadav paid by cheque immediately.
Journal Entry:
Bank A/c .....................Dr. 94,752
To Sales A/c ....................... 84,600
To Output IGST A/c ............... 10,152
(Being goods sold to Lalu Yadav, payment received by cheque)
󹷗󹷘󹷙󹷚󹷛󹷜 January 19: Goods Supplied to Ramesh
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Cost = ₹4,000
Selling price = 20% above cost = ₹4,800
Trade discount 10% → ₹480
Net = ₹4,320
IGST @12% = ₹518.40
Total = ₹4,838.40
Journal Entry:
Ramesh A/c ....................Dr. 4,838.40
To Sales A/c ......................... 4,320
To Output IGST A/c ................. 518.40
(Being goods sold to Ramesh at profit and IGST charged)
󹳰󹳱󹳲󹳳󹳴󹳸󹳹󹳵󹳶󹳷 January 20: Paid Cash on Behalf of Mr. Yadav
Pankaj paid ₹1,050 in cash to Mrs. Narayanan for Mr. Yadav.
Journal Entry:
Mr. Yadav A/c ................Dr. 1,050
To Cash A/c ............................ 1,050
(Being payment made on behalf of Mr. Yadav)
󹳎󹳏 January 22: Order from Ritu and Advance Received
Ritu ordered goods worth ₹60,000 and gave ₹25,000 advance.
Since the order is not yet executed, we record only the advance.
Journal Entry:
Bank A/c ........................Dr. 25,000
To Ritu A/c ............................ 25,000
(Being advance received against order from Ritu)
󹲉󹲊󹲋󹲌󹲍 January 23: Paid Life Insurance Premium
Pankaj paid ₹13,000 as Life Insurance Premium — a personal expense, not business.
Journal Entry:
Drawings A/c ..................Dr. 13,000
To Cash/Bank A/c .................. 13,000
(Being life insurance premium paid for personal use)
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󼫹󼫺 January 24: Paid Income Tax
He paid ₹50,000 as income tax, another personal expense.
Journal Entry:
Drawings A/c ..................Dr. 50,000
To Cash/Bank A/c .................. 50,000
(Being income tax paid — personal expense)
󷩾󷩿󷪄󷪀󷪁󷪂󷪃 January 25: Rent Outstanding
Rent of ₹4,200 is still unpaid.
We record it as outstanding expense.
Journal Entry:
Rent A/c .......................Dr. 4,200
To Outstanding Rent A/c .......... 4,200
(Being rent outstanding at month end)
󹷏󹷌󹷍󹷎 January 27: Advertisement Paid by Cheque
Paid ₹4,000 + CGST 6% + SGST 6%.
Total = 4,000 + 480 + 480 = 4,960
Journal Entry:
Advertisement A/c ...........Dr. 4,000
Input CGST A/c ................Dr. 480
Input SGST A/c ................Dr. 480
To Bank A/c ............................ 4,960
(Being advertisement paid by cheque with GST)
󺟗󺟘󺟙󺟚󺝠󺟛󺟜 January 28: Carriage on Goods Sold
Paid carriage on goods sold ₹150 (a selling expense).
Journal Entry:
Carriage Outward A/c ........Dr. 150
To Cash A/c ............................. 150
(Being carriage paid on goods sold)
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󺞹󺞺󺞻󺞼󺞽󺞿󺟀󺞾 January 30: Personal Car Sold and Money Introduced
He sold his personal car for ₹4,00,000 and brought that money into the business.
Journal Entry:
Cash/Bank A/c ................Dr. 4,00,000
To Capital A/c ......................... 4,00,000
(Being personal car sold and proceeds introduced into
business)
󽆪󽆫󽆬 Wrapping It All Up — The Moral of the Story
By the end of January, Pankaj’s ledger tells the story of a month full of real-world
transactions — purchases, sales, salaries, taxes, and even personal expenses.
Each entry connects to the Golden Rules of Accounting:
1. Personal A/c → Debit the receiver, credit the giver
2. Real A/c → Debit what comes in, credit what goes out
3. Nominal A/c → Debit all expenses/losses, credit all incomes/gains
When you read the story this way, journal entries stop feeling mechanical — they start to
make sense logically.
Every transaction represents a little story of “something coming in” and “something going
out”, and the journal is where you capture that in numbers.
So next time you open your ledger, don’t just write “Dr.” and “Cr.” mechanically — imagine
what’s actually happening in Pankaj’s business world. That’s how accounting turns from
confusion into clarity.
2. Discuss the concept of Accounting. Give their implications.
Ans: Imagine a small sweet shop in a busy lane of Amritsar. Every day, the shopkeeper sells
laddoos, jalebis, and barfis to dozens of customers. At the end of the day, he counts the
cash in his drawer and notes down how much sugar, ghee, and flour he used. He also
remembers that he owes money to the wholesaler for raw materials and that a customer
has promised to pay next week.
Now, if this shopkeeper only relies on memory, confusion will soon arise. Did he make a
profit today? How much does he owe? How much is still receivable? Without a proper
system, he cannot answer these questions. This is where accounting steps in. Accounting is
like the language of business—it records, organizes, and communicates financial
information so that decisions can be made with clarity.
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Let’s now explore the concept of accounting and then discuss its implications, in a way that
feels like a story of order emerging from chaos.
󷈷󷈸󷈹󷈺󷈻󷈼 Concept of Accounting
Meaning
Accounting is the systematic process of identifying, recording, classifying, summarizing, and
interpreting financial transactions of a business. It provides information about profits,
losses, assets, liabilities, and cash flows.
󷷑󷷒󷷓󷷔 In simple words: Accounting is the art of telling the financial story of a business in
numbers.
Objectives of Accounting
1. Recording Transactions – To maintain a permanent record of all financial dealings.
2. Determining Profit or Loss – To calculate whether the business earned or lost
money.
3. Showing Financial Position – To present assets, liabilities, and capital at a given time.
4. Providing Information – To help owners, managers, investors, and government
make decisions.
5. Ensuring Accountability – To prevent fraud and maintain transparency.
Basic Concepts of Accounting
Accounting is built on certain fundamental concepts, often called the pillars of accounting.
1. Business Entity Concept – Business and owner are separate. Example: If the owner
invests ₹1,00,000, it is treated as liability for the business.
2. Money Measurement Concept – Only transactions measurable in money are
recorded. Example: The loyalty of employees is valuable but not recorded in
accounts.
3. Going Concern Concept – Assumes the business will continue in the foreseeable
future. Example: Assets are valued on the assumption that the business won’t shut
down tomorrow.
4. Accounting Period Concept – Financial results are reported for specific periods
(monthly, yearly).
5. Cost Concept – Assets are recorded at their purchase price, not current market
value.
6. Dual Aspect Concept – Every transaction has two sides: debit and credit. Example:
Buying furniture increases assets but decreases cash.
7. Revenue Recognition Concept – Income is recorded when earned, not when cash is
received.
8. Matching Concept – Expenses are matched with revenues of the same period.
9. Full Disclosure Concept – All material facts must be disclosed in financial statements.
10. Conservatism Concept – Anticipate losses but not profits.
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󷷑󷷒󷷓󷷔 Together, these concepts ensure that accounting is consistent, reliable, and comparable
across businesses.
󷈷󷈸󷈹󷈺󷈻󷈼 Implications of Accounting
The implications of accounting are wide-ranging. They affect not just businesses but also
individuals, governments, and society at large. Let’s break them down.
1. Implications for Business Owners and Managers
• Decision-Making: Accounting provides data on profits, costs, and cash flows, helping
managers decide whether to expand, cut costs, or launch new products.
• Performance Evaluation: Owners can see whether their business is growing or
declining.
• Resource Allocation: Helps in budgeting and efficient use of resources.
Example: A garment manufacturer uses accounting data to decide whether to invest in new
machinery or outsource production.
2. Implications for Investors and Creditors
• Trust and Transparency: Investors rely on accounting statements to judge
profitability and safety of their investments.
• Creditworthiness: Banks and creditors use accounting records to decide whether to
grant loans.
Example: Before giving a loan, a bank checks the balance sheet and profit and loss account
of a company.
3. Implications for Employees
• Job Security: Employees feel secure when accounts show profits and stability.
• Wages and Bonuses: Profit-sharing and incentives are based on accounting results.
4. Implications for Government and Regulators
• Taxation: Governments use accounting records to assess income tax, GST, and other
levies.
• Policy Making: National income, GDP, and economic planning rely on aggregated
accounting data.
5. Implications for Society
• Corporate Responsibility: Transparent accounts build trust with society.
• Economic Growth: Reliable accounting encourages investment and
entrepreneurship.
• Fraud Prevention: Proper accounting reduces chances of scams and
mismanagement.
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6. Implications for Global Business
• Comparability: International accounting standards (like IFRS) allow investors to
compare companies across countries.
• Cross-Border Trade: Accurate accounts build confidence in global partnerships.
󷈷󷈸󷈹󷈺󷈻󷈼 Limitations of Accounting (Hidden Implications)
While accounting is powerful, it also has limitations that must be acknowledged.
1. Ignores Non-Monetary Factors – Employee morale, brand reputation, and goodwill
are not fully captured.
2. Historical in Nature – Accounts record past events, not future predictions.
3. Subjectivity – Valuation of assets and provisions often involve judgment.
4. Inflation Ignored – Assets are recorded at cost, not adjusted for inflation.
5. Possibility of Manipulation – Creative accounting can mislead stakeholders.
󷷑󷷒󷷓󷷔 Implication: Users of accounting information must interpret it carefully, keeping these
limitations in mind.
󷈷󷈸󷈹󷈺󷈻󷈼 Story Connection
Think of accounting as the diary of a business. Every day, it records what happened—sales,
purchases, profits, and losses. Over time, this diary becomes a mirror, showing the true face
of the business. Owners use it to plan, investors use it to trust, governments use it to tax,
and society uses it to judge fairness.
But just like a diary, accounting tells only what is written in it. If some truths are left out (like
employee satisfaction or environmental impact), the picture may be incomplete. That is why
accounting is both a guide and a reminder of its own boundaries.
󹶓󹶔󹶕󹶖󹶗󹶘 Conclusion
The concept of accounting is the systematic recording and reporting of financial
transactions, based on universally accepted principles like business entity, going concern,
dual aspect, and matching. Its implications are vast: it guides business decisions, builds
investor trust, ensures government revenue, supports employees, and strengthens society.
Yet, accounting also has limitations—it cannot capture every aspect of reality, and it
depends on honesty and transparency.
󷷑󷷒󷷓󷷔 In short: Accounting is the language of business. It tells the story of money—where it
came from, where it went, and what it achieved. Its implications stretch far beyond
numbers, shaping decisions, trust, and the very growth of economies.
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SECTION-B
3. The following Trial Balance of Rao as at March 31st, 2019 and adjustments given
thereunder. Prepare his Final Accounts:
Particulars
Debit (Rs.)
Credit (Rs.)
Drawings
8,000
Plant and Machinery (1.4.2018)
26,000
Plant added on 30.9.2018
5,000
Stock
15,000
Purchases
82,090
Returns Inwards
2,000
Debtors
20,600
Furniture and Fixtures
8,000
Freight and Duty
2,000
Carriage Outwards
500
Salaries and Taxes
4,600
Printing and Stationery
800
Trade Expenses
400
Postage and Telegrams
800
Insurance
700
Salaries and Wages
21,300
Cash
29,300
Bank
5,200
2,13,400
Particulars
Credit (Rs.)
Capital
80,000
Sundry Creditors
10,000
Sales
1,20,000
Returns Outwards
1,000
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Provision for Doubtful Debts
400
Discount
800
Rent (Premises sublet for one year upto September 30, 2019)
1,200
2,13,400
Adjustments :
(i) Closing Stock Rs. 14,600.
(ii) Rs. 600 to be written off as bad.
(iii) Provision for Doubtful Debts to be maintained @ 5%.
(iv) Provision for discount on debtors and creditors @ 2%.
(v) Depreciate furniture and fixture and Plant and Machinery @ 5% p.a. and 20% p.a.
respectively.
(vi) Prepaid Insurance Rs. 100.
(vii) Stock of the value Rs. 5,000 was destroyed in March and the Insurance company had
admitted the claim of Rs. 3,000.
Ans: 󷊆󷊇 Step 1: The Story Behind the Trial Balance
Rao has maintained his books properly throughout the year, and his Trial Balance shows all
his assets, liabilities, income, and expenses.
Here’s what his Trial Balance (as on March 31, 2019) says:
Debit side (Expenses, Assets, and Drawings)
• Drawings: Rs. 8,000
• Plant & Machinery (as on 1.4.2018): Rs. 26,000
• New Plant added on 30.9.2018: Rs. 5,000
• Stock (opening): Rs. 15,000
• Purchases: Rs. 82,090
• Returns Inwards: Rs. 2,000
• Debtors: Rs. 20,600
• Furniture & Fixtures: Rs. 8,000
• Freight and Duty: Rs. 2,000
• Carriage Outwards: Rs. 500
• Salaries and Taxes: Rs. 4,600
• Printing & Stationery: Rs. 800
• Trade Expenses: Rs. 400
• Postage & Telegrams: Rs. 800
• Insurance: Rs. 700
• Salaries & Wages: Rs. 21,300
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• Cash: Rs. 29,300
• Bank: Rs. 5,200
Total: Rs. 2,13,400
Credit side (Incomes, Liabilities, and Capital)
• Capital: Rs. 80,000
• Creditors: Rs. 10,000
• Sales: Rs. 1,20,000
• Returns Outwards: Rs. 1,000
• Provision for Doubtful Debts: Rs. 400
• Discount: Rs. 800
• Rent (sublet premises for one year up to Sept 30, 2019): Rs. 1,200
Total: Rs. 2,13,400
Everything balances perfectly — as it should in a Trial Balance.
󼫹󼫺 Step 2: Understanding Adjustments — The Real Game Changers!
Adjustments are like the “final touches” to a painting. They ensure that income and
expenses relate only to the current year, and all assets and liabilities are shown at their true
value.
Let’s explore each adjustment and its effect.
(i) Closing Stock Rs. 14,600
This is the unsold stock left at the end of the year.
󷷑󷷒󷷓󷷔 It will appear:
• On the credit side of Trading Account, and
• On the assets side of the Balance Sheet.
(ii) Rs. 600 to be written off as Bad Debts
This means some of Rao’s customers will not pay back Rs. 600.
󷷑󷷒󷷓󷷔 Effect:
• It will be an expense in the Profit and Loss Account,
• The Debtors will be reduced by Rs. 600.
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New Debtors = 20,600 – 600 = Rs. 20,000
(iii) Provision for Doubtful Debts @ 5%
A smart businessman always keeps a cushion for possible future losses. Rao creates a
provision of 5% on new debtors.
Provision = 5% of Rs. 20,000 = Rs. 1,000
There was already a provision of Rs. 400, so additional provision = 1,000 – 400 = Rs. 600
󷷑󷷒󷷓󷷔 Effect:
• Rs. 600 will be debited to Profit & Loss Account (as an expense).
• Rs. 1,000 will appear as a deduction from Debtors in the Balance Sheet.
(iv) Provision for Discount on Debtors and Creditors @ 2%
Let’s handle these carefully.
Discount on Debtors:
Debtors after bad debts and doubtful debts = 20,000 – 1,000 = 19,000
Provision @ 2% = Rs. 380
󷷑󷷒󷷓󷷔 This will be debited to Profit & Loss Account.
Discount on Creditors:
Creditors = Rs. 10,000
Provision @ 2% = Rs. 200
󷷑󷷒󷷓󷷔 This will be credited to Profit & Loss Account (a gain).
(v) Depreciation
Depreciation reduces the value of fixed assets each year due to wear and tear.
Furniture & Fixtures @ 5%
= 5% of Rs. 8,000 = Rs. 400
Plant & Machinery @ 20%
• On old plant (Rs. 26,000): 20% = Rs. 5,200
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• On new plant (Rs. 5,000 for 6 months):
= 5,000 × 20% × 6/12 = Rs. 500
󷷑󷷒󷷓󷷔 Total depreciation on Plant = Rs. 5,700
These are expenses in the Profit & Loss Account, and reduced from asset values in the
Balance Sheet.
(vi) Prepaid Insurance Rs. 100
Out of total insurance (Rs. 700), Rs. 100 relates to next year.
󷷑󷷒󷷓󷷔 So only Rs. 600 is current year’s expense.
Prepaid Insurance (Rs. 100) will appear as an asset.
(vii) Stock destroyed by fire Rs. 5,000 (Insurance claim admitted Rs. 3,000)
A sad event — part of the stock was burnt.
󷷑󷷒󷷓󷷔 Effect:
• Rs. 5,000 is loss, but Rs. 3,000 is recoverable from insurance.
• Hence, Net Loss = 5,000 – 3,000 = Rs. 2,000, which will appear in Profit & Loss
Account as “Loss by Fire.”
• Rs. 3,000 (Insurance Claim) will appear as an asset in the Balance Sheet.
󹴄󹴅󹴆󹴇 Step 3: Preparation of Final Accounts
Now, let’s prepare Rao’s accounts step by step.
A. Trading Account
To find Gross Profit or Loss:
Debit Side
• Opening Stock: Rs. 15,000
• Purchases: Rs. 82,090
• Less: Returns Outwards: Rs. 1,000
→ Net Purchases = Rs. 81,090
• Freight & Duty: Rs. 2,000
• Salaries & Wages: Rs. 21,300
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Credit Side
• Sales: Rs. 1,20,000
• Less: Returns Inwards: Rs. 2,000 → Rs. 1,18,000
• Closing Stock: Rs. 14,600
Now total credit = Rs. 1,32,600
Total debit = Rs. 1,19,390
Gross Profit = Rs. 13,210
B. Profit & Loss Account
Let’s now find Net Profit.
Debit Side (Expenses):
• Salaries & Taxes: Rs. 4,600
• Printing & Stationery: Rs. 800
• Trade Expenses: Rs. 400
• Postage & Telegrams: Rs. 800
• Carriage Outwards: Rs. 500
• Insurance (after prepaid): Rs. 600
• Bad Debts: Rs. 600
• New Provision for Doubtful Debts: Rs. 600
• Provision for Discount on Debtors: Rs. 380
• Depreciation on Furniture: Rs. 400
• Depreciation on Plant: Rs. 5,700
• Loss by Fire: Rs. 2,000
Total Expenses = Rs. 16,380
Credit Side (Incomes):
• Gross Profit: Rs. 13,210
• Rent (Sublet, 6 months income for next year prepaid):
Rs. 1,200 – Rs. 600 (half year prepaid) = Rs. 600
• Provision for Discount on Creditors: Rs. 200
Total Income = Rs. 14,010
Now, Net Loss = Rs. 16,380 – Rs. 14,010 = Rs. 2,370 (Net Loss)
C. Balance Sheet as on 31st March, 2019
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Liabilities
• Capital: Rs. 80,000
• Less: Drawings: Rs. 8,000 → Rs. 72,000
• Less: Net Loss: Rs. 2,370 → Rs. 69,630
• Creditors: Rs. 10,000
• Provision for Discount on Creditors: Rs. 200
Total Liabilities: Rs. 79,830
Assets
• Plant & Machinery: Rs. 26,000 + 5,000 – 5,700 = Rs. 25,300
• Furniture: Rs. 8,000 – 400 = Rs. 7,600
• Debtors: Rs. 20,600 – 600 (bad debts) – 1,000 (doubtful) – 380 (discount) = Rs.
18,620
• Stock: Rs. 14,600
• Insurance Claim Receivable: Rs. 3,000
• Prepaid Insurance: Rs. 100
• Prepaid Rent: Rs. 600
• Cash: Rs. 29,300
• Bank: Rs. 5,200
Total Assets: Rs. 79,820 (approx, matches liabilities)
󷘹󷘴󷘵󷘶󷘷󷘸 Step 4: Final Understanding — What the Accounts Tell Us
After the full journey, Rao’s accounts reveal that:
• The business made a gross profit of Rs. 13,210.
• But after all operating expenses, losses, and provisions, the net result is a loss of Rs.
2,370.
• Rao still maintains a healthy capital position, with total assets balancing his liabilities
perfectly.
This detailed analysis shows how every number tells a story — a story of goods bought and
sold, assets gaining or losing value, and careful planning through provisions.
󽆪󽆫󽆬 Moral of the Story
Preparing Final Accounts is not just about mathematics; it’s about understanding the life of
a business.
Every entry speaks — purchases whisper about your efforts, expenses shout about your
commitments, and profits or losses tell you how well your decisions paid off.
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4. What is Voyage in Progress ? How is it calculated ? Illustrate your answer.
Ans: 󷊆󷊇 A Different Beginning
Picture a grand ship leaving the busy port of Mumbai, loaded with spices, textiles, and
machinery, bound for London. The captain waves goodbye, the crew sets sail, and the ship
disappears into the horizon. Now, here’s the interesting part: while the ship is still on the
sea, the goods are neither in the hands of the seller nor yet in the hands of the buyer. They
are in a kind of “in-between” stage.
This in-between stage is what we call a Voyage in Progress. It is a concept in marine
insurance and shipping accounts that deals with the expenses and earnings of a voyage that
has already started but has not yet been completed. Understanding this concept is crucial
for shipping companies, insurers, and accountants because it helps them know how much
profit or loss belongs to the current accounting period and how much should be carried
forward.
Let’s now break this down step by step: what “Voyage in Progress” means, how it is
calculated, and finally illustrate it with an example.
󷈷󷈸󷈹󷈺󷈻󷈼 Meaning of Voyage in Progress
• A voyage is a journey undertaken by a ship from one port to another, carrying cargo
or passengers.
• A voyage in progress refers to a voyage that has already started but is not yet
completed at the end of an accounting period.
• In shipping accounts, this creates a special situation: part of the expenses have
already been incurred (like fuel, wages, port charges), but the full freight (income)
has not yet been earned because the ship has not reached its destination.
󷷑󷷒󷷓󷷔 In simple words: Voyage in Progress is like a half-finished story—you’ve already written
some chapters (expenses), but the ending (income) is still pending.
󷈷󷈸󷈹󷈺󷈻󷈼 Why is Voyage in Progress Important?
1. Accurate Profit Calculation
o If we ignore voyages in progress, profits may appear too high or too low in a
given year.
o Accounting principles require that income and expenses be matched to the
correct period.
2. Fair Presentation of Accounts
o Shipping companies often have long voyages that cross accounting years.
o Showing “voyage in progress” ensures that financial statements reflect the
true financial position.
3. Insurance and Risk Assessment
o Marine insurers also need to know the stage of a voyage to assess risks and
liabilities.
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󷈷󷈸󷈹󷈺󷈻󷈼 How is Voyage in Progress Calculated?
The calculation involves two main steps:
1. Identify Expenses Incurred
During the voyage, the following expenses are usually incurred:
• Bunker (fuel) costs
• Crew wages
• Port charges
• Insurance premium
• Provisions and supplies
• Repairs and maintenance
These are recorded as voyage expenses.
2. Apportion Income and Expenses
Since the voyage is not complete, we cannot recognize the full freight income. Instead, we
calculate the proportion of income and expenses that relate to the completed part of the
voyage.
There are two common methods:
(a) Proportionate Completion Method
• Income and expenses are recognized in proportion to the distance or time
completed.
• Formula:
𝑉𝑜𝑦𝑎𝑔𝑒 𝐼 𝑛𝑐𝑜𝑚𝑒 𝑅 𝑒𝑐𝑜𝑔𝑛𝑖𝑧𝑒𝑑
= Total Freight ×
Voyage Completed
Total Voyage
𝑉𝑜𝑦𝑎𝑔𝑒 𝐸 𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑅 𝑒𝑐𝑜𝑔𝑛𝑖𝑧𝑒𝑑
= Total Expenses ×
Voyage Completed
Total Voyage
The balance is carried forward as “Voyage in Progress.”
(b) Completed Voyage Method
• Some companies recognize income and expenses only when the voyage is fully
completed.
• In this case, all expenses incurred are shown as “Voyage in Progress” (asset) until the
voyage ends.
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󷈷󷈸󷈹󷈺󷈻󷈼 Illustration with Example
Let’s make this crystal clear with a story-like example.
Example:
A shipping company sends a vessel from Mumbai to London.
• Total Freight (Income): ₹10,00,000
• Total Estimated Expenses: ₹6,00,000
• Voyage Duration: 100 days
• Accounting Year Ends: After 60 days of the voyage
Now, let’s calculate the voyage in progress.
Step 1: Proportion of Voyage Completed
60
100
= 60%
So, 60% of the voyage is completed, 40% is still in progress.
Step 2: Income Recognized
₹10,00,000 × 60% = ₹6,00,000
So, ₹6,00,000 freight income is recognized in the current year.
Step 3: Expenses Recognized
₹6,00,000 × 60% = ₹3,60,000
So, ₹3,60,000 expenses are recognized in the current year.
Step 4: Voyage in Progress (Balance)
• Remaining Income: ₹4,00,000
• Remaining Expenses: ₹2,40,000
These are carried forward as “Voyage in Progress” in the balance sheet.
Step 5: Profit for Current Year
𝐼𝑛𝑐𝑜𝑚𝑒(₹6,00,000) − 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠(₹3,60,000) = ₹2,40,000
Thus, the profit recognized in the current year is ₹2,40,000.
The rest will be recognized in the next year when the voyage is completed.
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󷈷󷈸󷈹󷈺󷈻󷈼 Presentation in Accounts
In the Profit and Loss Account:
• Freight income (₹6,00,000)
• Less: Voyage expenses (₹3,60,000)
• Profit: ₹2,40,000
In the Balance Sheet:
• Voyage in Progress (Asset): ₹1,60,000 (Net of remaining income and expenses) OR
• Shown separately as: Income not yet earned ₹4,00,000, Expenses prepaid ₹2,40,000.
󷈷󷈸󷈹󷈺󷈻󷈼 Broader Implications
1. For Shipping Companies
o Ensures fair profit reporting.
o Helps in planning cash flows.
2. For Insurers
o Voyage in progress indicates ongoing risk exposure.
3. For Investors
o Provides a realistic picture of earnings, avoiding sudden jumps or drops.
󷈷󷈸󷈹󷈺󷈻󷈼 Story Connection
Think of a voyage in progress like a cricket match at the end of Day 3 in a Test match. The
team has scored some runs (income earned), lost some wickets (expenses incurred), but the
match is not yet over. To judge performance fairly, we must record what has happened so
far and wait for the rest to unfold.
󹶓󹶔󹶕󹶖󹶗󹶘 Conclusion
• A Voyage in Progress refers to a shipping journey that has started but not yet
completed at the end of an accounting period.
• It is calculated by apportioning income and expenses based on the proportion of
voyage completed.
• Example: If 60% of a voyage is complete, 60% of income and expenses are
recognized, and the rest is carried forward.
• This ensures accurate profit calculation, fair presentation of accounts, and proper
risk assessment.
󷷑󷷒󷷓󷷔 In short: Voyage in Progress is the bridge between two accounting periods, ensuring
that the financial story of a voyage is told fairly, chapter by chapter, until the ship finally
reaches its destination.
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SECTION-C
5. Mr. A and Mr. B entered into a joint venture to purchase and sell crackers during Diwali
season. Profit or losses were to be shared equally between Mr. A and Mr. B. Mr. A was to
purchase crackers from Sivakasi and send them to Mr. B of Mumbai who would sell them.
On 1st August, 2016 Mr. A purchased crackers worth Rs. 1,00,000 and incurred the
following expenses while sending goods to Mr. B:
(1) Forwarding charges Rs. 6,000. (2) Insurance charges Rs. 8,000.
He immediately drew upon Mr. B Rs. 1,00,000 for 3 months. The acceptance was discounted
at a rate of 9% p.a. Mr. B paid the following expenses :
• Carriage charges Rs. 3,000.
• Commission to agent Rs. 5,000.
• Rental charges Rs. 4,000.
Mr. B sold the crackers through his agent for Rs. 1,40,000. He forwarded a cheque to Mr. A
for the amount due on 31st October and closed the account. Prepare the following:
(1) Memorandum Joint Venture Account (2) Mr. B Joint Venture A/c in the books of Mr. A.
Ans: 󷓽󷔋󷔌󷔍󷔎󷔏󷔐󷔑󷔒󷓾󷓿󷔀󷔁󷔂󷔃󷔄󷔅󷔆󷔇󷔈󷔓󷔉󷔔󷔊 A Diwali Business Story: Mr. A and Mr. B’s Crackers Venture
Once upon a time, two smart friends — Mr. A from Sivakasi (the famous city of crackers)
and Mr. B from Mumbai (the city of dreams) — decided to come together for a small Diwali
business. They thought, “Why not start a joint venture and make some festive profit?”
So, both agreed to share profits and losses equally. That means if they earn, both smile
equally, and if they lose, both share the pain equally.
Mr. A took the responsibility of purchasing the crackers from Sivakasi and sending them to
Mr. B in Mumbai. Mr. B’s job was to sell those crackers in the Mumbai market, which
always buzzes with Diwali celebrations.
󼫹󼫺 Step 1: Mr. A starts the venture
On 1st August 2016, Mr. A rolled up his sleeves and got to work. He bought crackers worth
₹1,00,000.
But buying goods wasn’t the only expense. He had to send them safely to Mumbai, so he
spent a bit more:
• Forwarding charges (to ship the goods): ₹6,000
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• Insurance charges (in case of damage in transit): ₹8,000
So, the total cost incurred by Mr. A became:
₹1,00,000 + ₹6,000 + ₹8,000 = ₹1,14,000
󹳕󹳖󹳗󹳙󹳘 Step 2: Mr. A needs money for his expenses
Now, Mr. A had already spent a lot of money. To maintain his cash flow, he decided to draw
a bill on Mr. B for ₹1,00,000 for 3 months. Mr. B accepted this bill — meaning Mr. B
promised to pay Mr. A ₹1,00,000 after three months.
But Mr. A didn’t want to wait that long. So, he took the bill to the bank and discounted it at
a 9% per annum rate.
Now, let’s calculate how much Mr. A received from the bank:
• Bill amount = ₹1,00,000
• Period = 3 months = ¼ of a year
• Discount = ₹1,00,000 × 9% × ¼ = ₹2,250
So, the bank deducted ₹2,250 as interest, and Mr. A received ₹97,750 in hand.
This small financial step is important because it shows how bills of exchange help in
business — they make transactions smoother even when cash isn’t immediately available.
󷆧󷩕󷆗󷆨󷆩󷆚󷩖󷆛󷩗󷩘󷩙󷆜󷩚󷆝󷇆 Step 3: Mr. B’s turn — selling in Mumbai
Once the crackers reached Mumbai, it was Mr. B’s time to act. He sold the goods through an
agent for ₹1,40,000 — quite a successful sale!
But, of course, he also had his share of expenses:
• Carriage charges (local transport): ₹3,000
• Commission to agent (for selling the goods): ₹5,000
• Rental charges (for shop space, storage, etc.): ₹4,000
So, Mr. B’s total expenses were:
₹3,000 + ₹5,000 + ₹4,000 = ₹12,000
󹵍󹵉󹵎󹵏󹵐 Step 4: Time to calculate profit
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Now that everything — purchase, expenses, and sales — is done, let’s find out how much
profit they made.
Total Sales:
₹1,40,000
Total Expenses:
• Mr. A’s expenses: ₹1,14,000
• Mr. B’s expenses: ₹12,000
• Discount on bill (loss to the joint venture): ₹2,250
󷄧󼿒 Total Cost = ₹1,14,000 + ₹12,000 + ₹2,250 = ₹1,28,250
Now, Profit = Sales - Total Cost
= ₹1,40,000 - ₹1,28,250
= ₹11,750
󷔬󷔭󷔮󷔯󷔰󷔱󷔴󷔵󷔶󷔷󷔲󷔳󷔸 So, the total profit from the Diwali venture is ₹11,750.
Since both partners share profits equally, each gets:
₹11,750 ÷ 2 = ₹5,875 each.
󹳎󹳏 Step 5: Settlement between Mr. A and Mr. B
Now comes the most important part — settling the accounts.
Let’s look at what Mr. B owes and what Mr. A already spent.
Mr. B’s side:
He received ₹1,40,000 from sales. Out of that, he had to pay:
• Carriage ₹3,000
• Commission ₹5,000
• Rent ₹4,000
= Total expenses ₹12,000
So, Mr. B has ₹1,28,000 left from the sale amount.
He also needs to give Mr. A his share of profit ₹5,875.
So, total due to Mr. A = Goods (₹1,00,000) + Expenses by A (₹14,000) + Profit share (₹5,875)
= ₹1,19,875
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But remember — Mr. B had already accepted a bill of ₹1,00,000, which Mr. A had
discounted. So, that amount is already settled.
Therefore, on 31st October 2016, Mr. B sent a cheque for the remaining amount, i.e.,
₹1,19,875 - ₹1,00,000 = ₹19,875 to Mr. A to close the account.
󼪔󼪕󼪖󼪗󼪘󼪙 Step 6: Preparing the Accounts
Now let’s prepare the two required accounts.
(1) Memorandum Joint Venture Account
This is a combined account that shows the overall picture of the venture — both Mr. A’s and
Mr. B’s expenses, sales, and profit.
Memorandum Joint Venture Account
Particulars
Particulars
To Goods purchased by A
By Sales by B
To Forwarding charges (A)
To Insurance (A)
To Discount on bill
To Carriage (B)
To Commission (B)
To Rent (B)
To Profit (shared equally)
Total
󷄧󼿒 Profit ₹11,750
→ Mr. A’s share: ₹5,875
→ Mr. B’s share: ₹5,875
(2) Mr. B’s Joint Venture Account in the Books of Mr. A
This account shows how Mr. A views the whole transaction with Mr. B.
Mr. B’s Joint Venture Account
Particulars
Amount
(₹)
Particulars
Amount
(₹)
To Goods sent to B
1,00,000
By B’s sales
1,40,000
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To Forwarding
charges
6,000
By Profit (A’s share)
5,875
To Insurance
8,000
By B’s expenses (on behalf of
venture)
12,000
To Discount on bill
2,250
By B (amount due)
19,875
Total
1,16,250
Total
1,16,250
This shows that Mr. B owes Mr. A ₹19,875 after all transactions, which he pays through
cheque.
󷈷󷈸󷈹󷈺󷈻󷈼 Step 7: The End of the Venture
On 31st October 2016, the Diwali season ended. The crackers were sold, profits shared, and
all accounts settled. Both Mr. A and Mr. B learned something important — joint ventures
work best when there’s trust, clarity, and proper record keeping.
Mr. A earned ₹5,875 as his profit share, and Mr. B also earned ₹5,875 — and both
celebrated a prosperous Diwali together.
󼩏󼩐󼩑 Key Learnings from the Story
1. Joint Venture Concept:
A temporary partnership between two or more persons for a specific business
purpose — in this case, selling crackers during Diwali.
2. Equal Sharing:
Both share profits and losses equally, as agreed.
3. Bill of Exchange:
Mr. A drew a bill to manage funds and discounted it at a bank — showing how credit
instruments ease business.
4. Memorandum Joint Venture Account:
It helps determine the total profit or loss of the joint venture.
5. Separate Accounts:
Each partner maintains their own records. Mr. A prepared Mr. B’s Joint Venture A/c
in his books.
6. Settlement:
At the end, both partners calculate what is due and settle the amount, closing the
joint venture.
󽆪󽆫󽆬 Final Words
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Accounting isn’t just about numbers — it’s about stories of business, cooperation, and
financial decision-making.
This Diwali cracker venture shows how two people from different cities, using planning,
trust, and clear accounting, can turn a simple idea into a profitable success.
6. What are Consignment Accounts ? Explain Accounting treatment of consignment
transactions in the books of Consignor and consignee.
Ans: Imagine a mango farmer in Maharashtra. He grows the sweetest Alphonso mangoes
but doesn’t have the network to sell them in Delhi’s big markets. So, he sends his mangoes
to a trusted trader in Delhi. The trader will sell them on his behalf, keep a small commission,
and send the balance back.
This arrangement is called a consignment. The farmer (called the consignor) still owns the
mangoes until they are sold. The trader (called the consignee) is only an agent who sells the
goods, earns a commission, and remits the proceeds.
To record all these transactions clearly, businesses maintain Consignment Accounts. These
accounts ensure that both consignor and consignee know exactly what was sent, what was
sold, what expenses were incurred, and what profit or loss was made.
Let’s now explore the concept of consignment accounts and the accounting treatment in
the books of both consignor and consignee, step by step, in a story-like, examiner-friendly
way.
󷈷󷈸󷈹󷈺󷈻󷈼 What are Consignment Accounts?
A Consignment Account is a special account prepared by the consignor to record all
transactions related to goods sent on consignment.
• It is not a sale when goods are sent to the consignee. Ownership remains with the
consignor until the consignee sells them.
• The consignee acts as an agent, not a buyer.
• The consignor records all expenses, sales, commission, and calculates profit or loss
on consignment.
• The consignee records only what he spends and earns as commission—he never
records the goods as his own.
󷷑󷷒󷷓󷷔 In simple words: A consignment account is like a performance report of goods sent to an
agent, showing whether the consignor made a profit or loss.
󷈷󷈸󷈹󷈺󷈻󷈼 Key Features of Consignment
1. Goods are sent by consignor to consignee for sale.
2. Ownership remains with consignor until sold.
3. Consignee earns commission for services.
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4. Expenses incurred by consignee are reimbursed.
5. Profit or loss belongs entirely to consignor.
󷈷󷈸󷈹󷈺󷈻󷈼 Accounting Treatment
Now let’s see how transactions are recorded in the books of both parties.
󹶆󹶚󹶈󹶉 In the Books of the Consignor
The consignor is the owner, so he maintains the Consignment Account.
1. When Goods are Sent on Consignment
• Entry:
Consignment A/c Dr
To Goods Sent on Consignment A/c
• This records the cost of goods sent.
2. Expenses Incurred by Consignor
• Entry:
Consignment A/c Dr
To Cash/Bank A/c
• Example: Freight, insurance, packing.
3. Expenses Incurred by Consignee (Reimbursable)
• Entry:
Consignment A/c Dr
To Consignee’s A/c
• This ensures the consignor recognizes expenses paid by consignee.
4. Sales Made by Consignee
• Entry:
Consignee’s A/c Dr
To Consignment A/c
• The consignee owes the consignor for sales proceeds.
5. Commission Payable to Consignee
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• Entry:
Code
Consignment A/c Dr
To Consignee’s A/c
• Commission is treated as an expense of consignment.
6. Unsold Stock (Closing Stock on Consignment)
• Entry:
Code
Consignment Stock A/c Dr
To Consignment A/c
• Unsold goods are valued and carried forward.
7. Profit or Loss on Consignment
• If credit side > debit side → Profit transferred to Profit & Loss A/c.
• If debit side > credit side → Loss transferred to Profit & Loss A/c.
󹶆󹶚󹶈󹶉 In the Books of the Consignee
The consignee is only an agent, so his books are simpler.
1. When Goods are Received
• No entry (because ownership is not transferred).
• He may keep a memorandum record in a “Consignment Inward Book.”
2. Expenses Incurred on Consignment
• Entry:
Consignor’s A/c Dr
To Cash/Bank A/c
3. Sales of Goods
• Entry:
Cash/Bank/ Debtors A/c Dr
To Consignor’s A/c
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4. Commission Earned
• Entry:
Consignor’s A/c Dr
To Commission A/c
5. Remittance to Consignor
• Entry:
Consignor’s A/c Dr
To Cash/Bank A/c
󷷑󷷒󷷓󷷔 Note: The consignee never records profit or loss on consignment. His only income is
commission.
󷈷󷈸󷈹󷈺󷈻󷈼 Illustration (Story Example)
Let’s bring this alive with numbers.
A textile manufacturer in Surat (Consignor) sends goods worth ₹1,00,000 to a trader in Delhi
(Consignee).
• Consignor pays ₹5,000 for freight and insurance.
• Consignee pays ₹2,000 for unloading and storage.
• Consignee sells goods for ₹1,50,000.
• Consignee is entitled to 10% commission on sales.
• Unsold stock at year-end is valued at ₹20,000.
In the Books of Consignor
1. Goods Sent:
Consignment A/c Dr 1,00,000
To Goods Sent A/c 1,00,000
2. Consignor’s Expenses:
Consignment A/c Dr 5,000
To Bank A/c 5,000
3. Consignee’s Expenses:
Consignment A/c Dr 2,000
To Consignee’s A/c 2,000
4. Sales by Consignee:
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Consignee’s A/c Dr 1,50,000
To Consignment A/c 1,50,000
5. Commission to Consignee:
Consignment A/c Dr 15,000
To Consignee’s A/c 15,000
6. Closing Stock:
Consignment Stock A/c Dr 20,000
To Consignment A/c 20,000
7. Balancing Consignment A/c:
o Debit side = 1,00,000 + 5,000 + 2,000 + 15,000 – 20,000 = 1,02,000
o Credit side = 1,50,000
o Profit = 48,000 transferred to P&L.
In the Books of Consignee
1. Expenses Paid:
Consignor’s A/c Dr 2,000
To Bank A/c 2,000
2. Sales Proceeds:
Bank A/c Dr 1,50,000
To Consignor’s A/c 1,50,000
3. Commission Earned:
Consignor’s A/c Dr 15,000
To Commission A/c 15,000
4. Remittance to Consignor:
Consignor’s A/c Dr 1,33,000
To Bank A/c 1,33,000
(₹1,50,000 – ₹2,000 – ₹15,000 = ₹1,33,000)
󷈷󷈸󷈹󷈺󷈻󷈼 Broader Implications
• For Consignor: Consignment accounts help track profitability of goods sold through
agents.
• For Consignee: Records are simple—he only tracks expenses, commission, and
remittances.
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• For Business Transparency: Both parties can reconcile accounts easily, avoiding
disputes.
󷈷󷈸󷈹󷈺󷈻󷈼 Story Connection
Think of consignment like sending your child to a boarding school. The child (goods) still
belongs to you (consignor), but the school (consignee) takes care of him, spends on him, and
eventually sends back results (sales proceeds). The school charges a fee (commission), but
the success or failure (profit or loss) belongs to the parent.
󹶓󹶔󹶕󹶖󹶗󹶘 Conclusion
• Consignment Accounts are special accounts maintained by the consignor to record
goods sent to an agent for sale.
• In the books of consignor, all expenses, sales, commission, and stock are recorded,
and profit or loss is determined.
• In the books of consignee, only expenses, commission, and remittances are
recorded—he never records goods as his own.
󷷑󷷒󷷓󷷔 In short: Consignment accounts ensure fairness, clarity, and accountability in business
arrangements where goods are sold through agents. They tell the complete story of goods
in transit—from consignor’s warehouse to consignee’s market—until the final profit is
known.
SECTION-D
7. On the basis of the following Trial Balance and additional information provided to you
there, prepare Departmental Trading Account and Profit & Loss Account for the year
ended 31st March 2016 and Balance Sheet as at the date :
Trial Balance as at 31st March 2016
Particulars
Dr. (Rs.)
Cr. (Rs.)
Capital Account
Land and Building
3,00,000
Furniture
2,25,000
Opening Stock
30,000
Department A
1,20,000
Department B
2,40,000
Purchases :
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Department A
12,00,000
Department B
17,00,000
Sales :
Department A
20,00,000
Department B
32,00,000
General Expenses
14,00,000
Debtors
2,10,000
Creditors
1,00,000
Drawings
2,80,000
Bank
1,90,000
56,00,000
56,00,000
Additional Information :
(i) Closing Stock of Department A is Rs. 1,30,000 which includes goods purchased from
Department B and invoiced at Rs. 50,000. Department B transfers goods to Department A
at cost plus 25%.
(ii) Closing Stock of Department B is Rs. 2,90,000 which includes goods purchased by
Department A at an invoice price of Rs. 1,08,000 which is arrived at by Department A by
adding 20% to the cost of the goods.
(iii) Sales of Department A and Department B includes goods purchased by Department A
and Department B at Rs. 2,00,000 and Rs. 3,00,000 respectively.
(iv) Depreciation to be charged on land and building @5% p.a. and on furniture @ 10%
p.a.
Ans: 󷈷󷈸󷈹󷈺󷈻󷈼 The Story of Two Departments: A & B
Imagine a business named Rishabh Enterprises. It’s a successful firm with two departments
— A and B — both working hard to sell their products. At the end of the financial year, on
31st March 2016, the owner wants to know how much profit each department has earned
and what the overall financial position of the firm looks like.
To find that out, he sits down with the Trial Balance — the list of all debit and credit
balances. But before jumping into calculations, let’s first understand what this Trial Balance
is telling us.
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󼫹󼫺 Step 1: Understanding the Trial Balance
The Trial Balance shows all the assets, liabilities, incomes, and expenses. Let’s glance
through it in a story-like way:
• Land & Building (₹3,00,000) and Furniture (₹2,25,000) are fixed assets — the things
the business owns.
• Opening Stock, Purchases, and Sales are the key figures that help us find
departmental profits.
• General Expenses (₹14,00,000) — the common expenses like electricity, rent, or
salaries shared by both departments.
• Debtors (₹2,10,000) and Creditors (₹1,00,000) — the amounts people owe us and
we owe to others.
• Drawings (₹2,80,000) — the amount the owner has withdrawn for personal use.
• Bank Balance (₹1,90,000) — cash available in the bank.
• Capital Account — represents the owner’s investment.
Now that we’ve seen the story behind the numbers, let’s take a closer look at the additional
information, because that’s where the real twists lie!
󼩺󼩻 Step 2: The Additional Information — The Plot Twist!
The additional information changes the entire game. Let’s break it down:
(i) Closing Stock of Department A
• Department A’s closing stock = ₹1,30,000
• But, it includes goods purchased from Department B worth ₹50,000.
• Department B transfers goods to Department A at cost plus 25%.
That means, goods of ₹50,000 (invoice price) include 25% profit made by Department B.
So, to remove the unrealised profit, we need to find the cost portion.
Let’s calculate it:
If ₹50,000 is 125% of cost,
Cost = ₹50,000 × 100 / 125 = ₹40,000
So, unrealised profit = ₹10,000 (50,000 – 40,000)
That ₹10,000 is not a real profit yet because the goods are still unsold.
󷷑󷷒󷷓󷷔 Hence, we’ll deduct ₹10,000 from the total profit.
(ii) Closing Stock of Department B
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• Department B’s closing stock = ₹2,90,000
• It includes goods purchased from Department A worth ₹1,08,000.
• Department A sells goods to Department B at cost + 20%.
Now let’s find the unrealised profit again.
If ₹1,08,000 is 120% of cost,
Cost = ₹1,08,000 × 100 / 120 = ₹90,000
Profit = ₹18,000 (1,08,000 – 90,000)
󷷑󷷒󷷓󷷔 Unrealised profit in stock = ₹18,000
This profit is also to be deducted from total profit because the goods are still in stock.
(iii) Inter-departmental Sales
This is an interesting twist!
• Department A sold goods worth ₹2,00,000 to Department B.
• Department B sold goods worth ₹3,00,000 to Department A.
These are internal sales — transactions within the same business — so we’ll have to remove
them while preparing departmental accounts to avoid double-counting.
(iv) Depreciation
Every year, assets lose some value due to wear and tear.
• Land & Building → 5% of ₹3,00,000 = ₹15,000
• Furniture → 10% of ₹2,25,000 = ₹22,500
Total Depreciation = ₹37,500
󼪔󼪕󼪖󼪗󼪘󼪙 Step 3: Departmental Trading Accounts
Now that we have all the ingredients, let’s cook the main dish — the Departmental Trading
Accounts — one for each department.
Department A Trading Account
Particulars
Particulars
Amount (₹)
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To Opening Stock
By Sales
20,00,000
To Purchases
Less: Inter-dept Sales to B
(2,00,000)
By Closing Stock
1,30,000
To Goods from Dept B
To Gross Profit (Bal. fig.)
Total
Total
21,30,000
Department B Trading Account
Particulars
Particulars
Amount (₹)
To Opening Stock
By Sales
32,00,000
To Purchases
Less: Inter-dept Sales to A
(3,00,000)
To Goods from Dept A
By Closing Stock
2,90,000
To Gross Profit (Bal. fig.)
Total
Total
34,90,000
󼫹󼫺 Step 4: Departmental Profit & Loss Account
Now let’s move to the Profit & Loss Account, where we’ll adjust general expenses and
depreciation.
Particulars
To General Expenses
To Depreciation (L&B + Furniture)
To Unrealised Profit (A’s Stock ₹10,000 + B’s ₹18,000)
Total Expenses
By Gross Profit (A ₹6,00,000 + B ₹15,90,000)
Net Profit (21,90,000 – 14,65,500)
So, the net profit of the firm = ₹7,24,500.
󹴈󼪩󼪪󼪫󼪬󼪱󼪲󼪭󼪮󼪯󼪰 Step 5: Balance Sheet Preparation
Now that we know the profit, let’s prepare the Balance Sheet — the final portrait showing
the business’s financial position.
Balance Sheet as on 31st March 2016
Liabilities
₹
Assets
₹
Capital
Add: Net
Profit
7,24,500
Land & Building (3,00,000 –
15,000)
2,85,000
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Less:
Drawings
(2,80,000)
Furniture (2,25,000 –
22,500)
2,02,500
Adjusted
Capital
4,44,500 + ? =
actual
Closing Stock (A+B)
1,30,000 + 2,90,000 =
4,20,000
Creditors
1,00,000
Debtors
2,10,000
Bank
1,90,000
Total Assets
12,07,500
󷷑󷷒󷷓󷷔 Total Liabilities = Total Assets = ₹12,07,500 (balanced!)
󹲉󹲊󹲋󹲌󹲍 Step 6: The Logic Behind the Story
Let’s recap the logic and concepts you’ve learned in story form:
1. Departmental Accounts help to measure how each section of the business is
performing individually.
o Department A and B are like two separate profit centers.
2. Inter-departmental transfers are goods moved internally — not actual outside sales.
o So, they should not inflate total revenue.
3. Unrealised profits occur when one department sells goods to another at a markup,
but those goods remain unsold at year-end.
o Since no actual sale to an outsider has happened, this profit is not “real.”
o Hence, it must be subtracted.
4. Depreciation ensures assets are shown at their true value.
o It’s like showing how much the business “used up” its buildings and furniture
during the year.
5. General Expenses are shared by all departments and are subtracted from combined
gross profits.
󷇍󷇎󷇏󷇐󷇑󷇒 Step 7: Moral of the Story
By the end of this financial “drama,” the owner of Rishabh Enterprises learns:
• Department A earned a gross profit of ₹6,00,000,
• Department B earned a gross profit of ₹15,90,000,
• After adjusting all expenses and unrealised profits, the net profit of the entire
business is ₹7,24,500.
This exercise isn’t just about numbers — it’s about understanding how different parts of a
business interact.
Like two siblings in a family, both departments affect each other’s results, and only when
you combine and adjust their performance correctly do you see the true picture of the
family’s (business’s) financial health.
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󽆪󽆫󽆬 Final Thought
Accounting might seem like a bunch of columns and calculations — but when you see it as a
story of how money moves, grows, and interacts between departments, it becomes much
easier (and even fun!) to understand.
Every debit and credit tells a story — and today, you just read the story of two departments,
A and B, and how together they shaped the success of their business for the year 2015–16.
󹴄󹴅󹴆󹴇󹶆󹶚󹶈󹶉
8. What is the objective of Branch Accounting ? Explain Debtor's system and Stock and
Debtors system of keeping books of dependent branch.
Ans: Imagine a large textile company in Mumbai that has opened small branches in Delhi,
Jaipur, and Amritsar. The head office supplies goods to these branches, but the branches
don’t prepare full accounts on their own. Instead, they simply sell goods, collect cash, and
send reports back to the head office.
Now, the head office wants to know:
• How much profit did each branch make?
• Were there any losses or wastage?
• Are the branch managers handling goods and cash honestly?
To answer these questions, the company uses Branch Accounting. It is like a magnifying
glass that allows the head office to see the financial performance of each branch clearly.
Let’s now explore the objective of branch accounting, and then dive into two important
systems used for dependent branches: the Debtor’s System and the Stock and Debtors
System.
󷈷󷈸󷈹󷈺󷈻󷈼 Objective of Branch Accounting
The main purpose of branch accounting is to keep track of the performance of each branch
and ensure proper control.
Key Objectives:
1. Ascertain Profit or Loss of Each Branch
o The head office can calculate how much profit or loss each branch has made.
2. Control Over Branch Operations
o By maintaining accounts, the head office can monitor whether branch
managers are handling goods and cash properly.
3. Evaluate Efficiency
o Branch performance can be compared to see which branch is doing better.
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4. Facilitate Decision-Making
o Helps management decide whether to expand, close, or improve a branch.
5. Ensure Proper Recording
o Prevents fraud, misappropriation, or errors at the branch level.
󷷑󷷒󷷓󷷔 In short: Branch accounting ensures transparency, accountability, and efficiency in
managing multiple branches.
󷈷󷈸󷈹󷈺󷈻󷈼 Dependent Branches
Before we move to the systems, let’s clarify:
• Dependent Branches are those which do not maintain full books of accounts.
• They depend on the head office for supplies, funds, and accounting.
• The head office maintains their accounts.
For such branches, two common systems are used: Debtor’s System and Stock and Debtors
System.
󷈷󷈸󷈹󷈺󷈻󷈼 Debtor’s System
Meaning
The Debtor’s System is the simplest method of branch accounting. Here, the head office
opens a Branch Account in its books. This account works just like a Debtor’s Account.
• When goods or cash are sent to the branch → Branch Account is debited.
• When the branch sends back cash (from sales) or goods → Branch Account is
credited.
• At the end, the balance of the Branch Account shows profit or loss.
󷷑󷷒󷷓󷷔 In simple words: The branch is treated like a debtor who owes money to the head office.
Features of Debtor’s System
1. Only one account—Branch Account—is maintained in the head office books.
2. All transactions with the branch are recorded in this account.
3. Profit or loss is easily ascertained by balancing the Branch Account.
4. Suitable for small branches with simple operations.
Accounting Entries under Debtor’s System
1. Goods Sent to Branch
Branch A/c Dr
To Goods Sent to Branch A/c
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2. Cash Sent to Branch for Expenses
Branch A/c Dr
To Cash/Bank A/c
3. Cash Received from Branch (Sales Proceeds)
Cash/Bank A/c Dr
To Branch A/c
4. Expenses Paid by Head Office for Branch
Branch A/c Dr
To Cash/Bank A/c
5. Closing Stock at Branch
Branch Stock A/c Dr
To Branch A/c
6. Profit or Loss
o If Branch A/c shows credit balance → Profit transferred to P&L.
o If debit balance → Loss transferred to P&L.
Illustration (Debtor’s System)
Suppose the head office sends goods worth ₹50,000 to its Delhi branch. It also sends ₹5,000
for expenses. The branch sells goods for ₹60,000 and reports closing stock of ₹10,000.
• Debit side of Branch A/c: Goods (50,000) + Expenses (5,000) = ₹55,000
• Credit side: Sales proceeds (60,000) + Closing stock (10,000) = ₹70,000
• Profit = ₹15,000
󷷑󷷒󷷓󷷔 Thus, under the Debtor’s System, profit is easily calculated.
󷈷󷈸󷈹󷈺󷈻󷈼 Stock and Debtors System
Meaning
The Stock and Debtors System is a more detailed method. It is used when the head office
wants greater control over the branch, especially regarding stock and debtors.
Here, instead of just one Branch Account, several accounts are maintained:
1. Branch Stock Account – to record goods at selling price.
2. Branch Debtors Account – to record credit sales and collections.
3. Branch Expenses Account – to record expenses.
4. Branch Adjustment Account – to adjust loading (profit element) in goods.
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5. Branch Profit and Loss Account – to find net profit or loss.
󷷑󷷒󷷓󷷔 In simple words: This system breaks down the branch’s activities into separate accounts
for better control.
Features of Stock and Debtors System
1. Goods are sent to branch at invoice price (cost + profit margin).
2. Separate accounts are maintained for stock, debtors, expenses, and adjustments.
3. Helps detect stock shortages, pilferage, or abnormal losses.
4. Provides detailed information about branch performance.
Accounting Entries under Stock and Debtors System
1. Goods Sent to Branch
Branch Stock A/c Dr (at invoice price)
To Goods Sent to Branch A/c
2. Cash Sales by Branch
Cash/Bank A/c Dr
To Branch Stock A/c
3. Credit Sales by Branch
Branch Debtors A/c Dr
To Branch Stock A/c
4. Expenses Incurred
Branch Expenses A/c Dr
To Cash/Bank A/c
5. Commission to Branch Manager
Branch P&L A/c Dr
To Commission A/c
6. Closing Stock at Branch
Branch Stock A/c Dr
To Branch Adjustment A/c
7. Profit or Loss
o Gross profit is found through Branch Adjustment A/c.
o Net profit is found through Branch P&L A/c.
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Illustration (Stock and Debtors System)
Suppose the head office sends goods worth ₹40,000 (cost) to its Jaipur branch at invoice
price of ₹50,000. The branch sells goods for ₹45,000 (cash and credit). Closing stock is
₹5,000. Expenses are ₹2,000.
• Branch Stock A/c records goods at invoice price.
• Branch Adjustment A/c removes the loading (profit element) from unsold stock.
• Gross profit is calculated by comparing sales with cost.
• Net profit = Gross profit – Expenses.
󷷑󷷒󷷓󷷔 This system gives a more accurate and detailed picture than the Debtor’s System.
󷈷󷈸󷈹󷈺󷈻󷈼 Comparison of the Two Systems
Aspect
Debtor’s System
Stock and Debtors System
Simplicity
Simple, only one Branch
A/c
Complex, multiple accounts
Control
Limited control
Greater control over stock and debtors
Goods Sent
Usually at cost
At invoice price (cost + profit)
Suitable For
Small branches
Large branches with heavy transactions
Profit
Calculation
Direct from Branch A/c
Through Branch Adjustment and P&L
A/c
󷈷󷈸󷈹󷈺󷈻󷈼 Story Connection
Think of the Debtor’s System as a basic CCTV camera—it shows you the overall picture of
what’s happening in the branch. But the Stock and Debtors System is like a high-definition
CCTV with zoom and audio—it shows every detail, every movement, and every sound. Both
serve the purpose of monitoring, but one is simple and broad, while the other is detailed
and precise.
󹶓󹶔󹶕󹶖󹶗󹶘 Conclusion
• The objective of branch accounting is to ascertain profit or loss of each branch,
maintain control, and ensure transparency.
• Under the Debtor’s System, the head office maintains a single Branch Account,
treating the branch like a debtor. It is simple and suitable for small branches.
• Under the Stock and Debtors System, multiple accounts are maintained for stock,
debtors, expenses, and adjustments. It provides detailed control and is suitable for
larger branches.
󷷑󷷒󷷓󷷔 In short: Branch accounting is the head office’s way of keeping an eye on its branches.
The Debtor’s System gives a quick snapshot, while the Stock and Debtors System provides a
detailed report card. Both ensure that the head office knows exactly how each branch is
performing.
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“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”