Financial Statements -II Adjustments - Test Papers

 CBSE Test Paper 01

Ch-10 Financial Statements-II Adjustments

  1. On which side of the balance sheet are prepaid expenses shown?

  2. Following information is given in trial balance

    Bad debtRs 3,000
    Provision for bad debtsRs 3,500
    DebtorsRs 40,000

    Additional information
    It is desired to make a provision for doubtful debts @ of 10% on debtors. The amount debited to profit and loss account is.

  3. Is provision for discount on debtors made before making provision for doubtful debts?

  4. While Preparing final accounts, what treatment is made of prepaid expenses?

  5. Extract of Trial Balance
    as on 31st March, 2013

    Name of AccountsDebit Balance(Rs)Credit Balance(Rs)
    Wages Paid66,000 
    Salary Paid16,500 

    Additional Information
    Wages Rs 6,000 and salary Rs 1,500 are outstanding.
    Pass an adjusting entry and show how will this appear in final accounts.

  6. Why is it necessary to record the adjusting entries in the preparation of final accounts?

  7. Extract of Trial Balance
    as on 31st March, 2013

    Name of AccountsDebit Balance(Rs)Credit Balance(Rs)
    Bad Debts1,600 
    Provision for doubtful Debts(1st April, 2012) 5,000

    Additional Information
    Create a provision for doubtful debts @ 5% on debtors.

    Pass necessary adjustment entries and show how will it appear in the financial statements of company.

  8. From the following balances obtained from the accounts of Mr. Ranjeet, Prepare the Trading and Profit & Loss Account:

    Stock on April 01, 20128,000Bad debts1,200
    Purchases for the year22,000Rent1,200
    Sales for the year42,000Discount (Dr.)600
    Wages2,500Commission paid1,100
    Salaries & Wages3,500Sales Expenses600

    Closing stock on March 31, 2013, is Rs. 4,500.

  9. From the following balances, prepare the final accounts of M/s Mangal & Sons for the year ended 31st March 2018 :

    Opening Stock12,500
    Returns in1,300
    Returns out500
    Rent and Taxes1,300

    Closing Stock on 31-3-2018 Rs.15,000

  10. Suresh started buisness on 1st April, 2013 with a capital of Rs 30,000. The following trial balance was drawn up from his books at the end of the year.

    Name of AccountsAmt(Rs)Name of AccountsAmt(Rs)
    Plant and fixtures8,000Sales1,60,000
    Carriage inward2,000Bills payable9,000
    Return inward4,000  
    Trade Charges600  
    Bills Receivable5,000  
    Cash at bank16,000  
    Cash in hand3,000  
     2,21,000 2,21,000

    The value of stock as at 31st March, 2014 was Rs 26,000. You are required to prepare his trading and profit and loss account for the year ended 31st March, 2014 and a balance sheet as on the date after taking the following facts into account.

    1. Interest on capital is to be provided at 6% per annum.
    2. An additional capital of Rs 10,000 was introduced by Suresh on 1st October, 2013.
    3. Plant and fixtures are to be depreciated by 10% per annum.
    4. Salaries outstanding on 31st March, 2014 amounted to Rs 500.
    5. Accrued interest on investment amounted to Rs 750.
    6. Rs 500 are bad debts and provision for doubtful debts is to be created at 5% on the balance of debtors.

CBSE Test Paper 01
Ch-10 Financial Statements-II Adjustments


  1. Prepaid expenses are shown on Assets side of balance sheet.

  2. Statement showing showing provision for doubtful debts 

    Particulars Amount 
    Bad Debts3,000
    (+) New Provision @ 10 %4,000
    (-) Old Provision(3,500)
  3. No, it is made after the provision for doubtful debts 

  4. Prepaid Expenses are deducted in Profit and Loss account and shown as Assets in Balance Sheet. When prepaid expenses are given in trial balance, it is to be debited in P&L A/c only.

  5. Adjustment Entries

    Dr   Cr
    DateParticulars  DebitCredit 
    31/03/2013(i) Wages A/cDr6,000 
     To Outstanding Wages A/c
    (Being wages due)
     (ii) Salary A/cDr1,500 
     To Oustanding Salary A/c
    (Being salary due)

    Effects on Final Account
    Trading Account

    Dr     Cr
    DateParticulars Amt(Rs)DateParticularsAmt(Rs)
    31/03/2013To Wages A/c66,000 31/03/2013  
     (+)Outstanding Wages6,00072,000   

    Profit and Loss A/c

    Dr     Cr
    DateParticulars Amt(Rs)DateParticularsAmt(Rs)
    31/03/2013To Salary A/c16,500    
     (+)Outstanding Salary1,50018,000   

    Balance Sheet

    Outstanding Wages6,000  
    Outstanding salary1,500  
  6. Before financial statements are prepared, additional journal entries, called adjusting entries, are made to ensure that the company's financial records adhere to the revenue recognition and matching principles. Adjusting entries are necessary because a single transaction may affect revenues or expenses in more than one accounting period and also because all transactions have not necessarily been documented during the period.

    The following are the objectives of making adjustments ;

    • To show the assets and liabilities at their actual value.
    • to overcome the limitations of trial balance
    • Providing for depreciation and reserves to arrive at net profit. the purpose is to make provision for wear and tear of fixed asset and reserves for unforeseen losses which might accrue.
    • to account for all incomes pertaining to current year. The purpose is to adjust the accrued and unaccrued incomes.
    • to account for all expenses pertaining to current year. the purpose is to adjust the outstanding and prepaid expenses so that p/l a/c show actual position.
  7. The following entries will be passed for recording the provision for doubtful debts :


    DateParticulars LFDr.(₹)Cr.(₹)
    Mar 31Provision for Doubtful Debts A/cDr. 1,600 
            To Bad Debts A/c
    (Being bad debts transferred to old provision)
    Mar 31Profit and Loss A/cDr. 4,600 
           To Provision for Doubtful Debts A/c
    (Being creation of provision at 5% on debtors)

    The Provision for doubtful debts will be recorded in financial statements in the following manner:

     Extract of Profit and Loss Account
    for the year ended 31st March, 2013

    Dr   Cr
    Particulars Amt(₹)ParticularsAmt(₹)
    To Provision for Doubtful Debts A/c :    
    Bad Debts1,600   
    Add : New Provision on Rs 1,60,000 @ 5%8,000   
    Less : Old Provision(5,000)4,600  

    Balance Sheet
    as at 31st March, 2013

    LiabilitiesAmt(₹) Assets Amt(₹) 
      Less :New Provision
    (@5% on ₹1,60,000)
  8. Trading account

    To Opening stock8,000by Sales42,000
    To Purchases22,000by Closing stock4,500
    To Wages2,500  
    To gross profit c/d14000  
     46,500 46,500

    Profit and loss A/c 

    To Salaries and Wages3,500By gross profit b/d14,000
    To Rent1,200  
    To Advertisement1,000  
    To Commission1,100  
    To Discount600  
    To Bad debts1,200  
    To Sales Expenses600  
    To Repairs600  
    To Net Profit (transferred to capital)4,200  
     14,000 14,000
    (for the year ended 31st 
    March, 2018)

    Particulars Rs.Particulars Rs.
    To Opening Stock 12,500By Sales70,000 
    To Purchases 37,500 Less : Sale Return1,30068,700
    Less : Purchase Return50037,000By Closing Stock 15,000
    To Carriage 1,450   
    To Gross Profit 32,750   
      83,700  83,700
    To Insurance Premium 200By Gross Profit 32,750
    To Salaries 3,850   
    To Interest Paid 900   
    To Printing 250   
    To Rent 1,300   
    To Commission 750   
    To Net Profit 25,500   
      32,750  32,750


    (AS AT 31-03-2018)

    Liabilities Rs.AssetsRs.
    Capital7,100 Bank5,250
    Add : Net Profit25,50032,600Bills Receivables2,000
    Bills Payables 3,150Debtors32,500
    Creditors 20,000Stock15,000
      55,750 55,750
  10. Trading and Profit and loss Account
    for the year ended 31st March, 2014

    Dr    Cr
    Particulars Amt(Rs)Particulars Amt(Rs)
    To Purchases 1,16,000By Sales1,60,000 
    To Wages 8,000Less : Returns Inward(4,000)1,56,000
    To Carriage Inward 2,000By Closing Stock 26,000
    To Gross Profit transferred to Profit & Loss A/c 56,000   
      1,82,000  1,82,000
    To Salaries10,000 By Gross Profit transferred from trading A/c 56,000
    Add : Outstanding Salaries50010,500By Accrued Interest on Investment 750
    To Printing 800   
    To Advertisement 1,200   
    To Trade Charges 600   
    To Rent 1,400   
    To Interest on Capital(W.N)(1,200 + 900) 2,100   
    To Depreciation on plant & fixtures 800   
    To Bad Debts500    
    Add : New Provision1,2251,725   
    To Net Profit Transferred to Capital A/c 37,125   
      56,750  56,750

    Balance Sheet
    as at 31st March,2014

    Liabilities Amt(Rs)Assets Amt(Rs)
    Bills Payable 9,000Cash in hand 3,000
    Creditors 12,000Cash at bank 16,000
    Salaries Outstanding 500Bills Receivable 5,000
    Capital(30,000 + 10,000)40,000 Debtors25,000 
    Add :Interest on Capital2,100 Less : Bad Debts( 500)  
             Profit transferred from Profit & Loss A/c37,125  24,500 
     79,225 Less :Provision for Bad Debts(5% on ₹ 24,500)( 1,225) 23,375
    (-)Drawings( 4,500) 74,725Closing Stock 26,000
       (+)Accrued Interest75015,750
       Plants and fixtures8,000 
       (-)Depreciation( 800) 7,200
      96,225  96,225

    Note :

    Calculation of Interest on Capital:

    On ₹ 30,000 @ 6% p.a. for 6 months ( from April to September) = ₹900 

    On ₹40,000 @ 6% p.a. for 6 months ( from October to March ) = ₹1,200 

    Total interest = 1200+900=₹2100