Financial Statements 2 - Class 11 Commerce Accountancy - Extra Questions

What do you mean by income received in advance?

Income received in advance is a revenue which is due to be received in the near future, but has been already received in the present accounting year. It is a liability because  the company that received the money has not yet earned it yet and it has an obligation to deliver the related goods or services in the future to the payer.


Question: The following information is extracted from the Trial Balance of M/s Nisha traders on 31 December 2005.

Sundry Debtors$$80,500$$
Bad debts$$1,000$$
Provision for bad debts$$5,000$$
Additional Information
Bad DebtsRs$$500$$

Provision is to be maintained at $$2\%$$ of Debtors.
Prepare Bad debts account, Provision for bad debts account and Profit and Loss account.


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Prepare the bad debts account, provision for bad debts account, profit and loss account and balance sheet from the following information as on December, 31, 2011.
                                                     (Rs.)
Debtors                                        80,000
Bad Debts                                    2,000
Provision for bad debts                5,000
Adjustments:
Bad debts Rs. 500, Provision on debtors @ 3%.


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What is meant by provision for discount on debtors?

This is a discount which is being allowed by an enterprise to its debtors to encourage prompt payments. Discount likely to be allowed to customers in an accounting year can be estimated and provided for by creating a provision for discount on debtors. Here, it is to be remembered that provision for discount is made on good debtors which are arrived at by deducting further bad debts and the provision for doubtful debts.


What do you mean by prepaid expenses?

In the normal course of business, some of the expenses may be paid in advance. However, the organization may not receive the benefits from these expenses by the end of the current accounting year. Such expenses are called prepaid expenses and qualify as current assets in the balance sheet. The journal entry to record these is:
Prepaid Expense A/c Dr.
       To Expense A/c


Explain the term - accrued income.

It may so happen that we may earn some incomes during the current accounting year but not receive them in the same year. Such income is known as accrued income. The Journal entry to record accrued incomes is:

Accrued Income A/c Dr.

                         To Income A/c



Answer the following questions in 'one' sentence each:
 What is bad debts?

A bad debt is a monetary amount owed to a creditor that is unlikely to be paid and, or which the creditor is not willing to take action to collect because of various reasons, often due to the debtor not having the money to pay, for example, due to a company going into liquidation or insolvency.


Answer the following questions in 'one' sentence each:
What do you mean by Analysis of Financial Statement?

Financial statement analysis is the process of reviewing and analyzing a company's financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity.
Analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statement data so that a forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities, both current as well as long term, and profitability of sound.


State whether revaluation account is debited or credited to record the increase in the amount of creditors.

At the time of admission of a new partner, all liabilities are reassessed to ascertain that they are recorded in the books at their current values. Any gain or loss from such revaluation is transferred to the revaluation account. An increase in the amount of creditors is recorded by debiting the revaluation account because it is a loss for the firm.  


An extract of Trial balance from the books of Tahiliani and Sons Enterprises on December 31, 2005, is given below.
Name of AccountDebit Amt. (Rs)Credit Amt. (Rs)
Sundry debtors$$50,000$$
Bad debts$$6,000$$
Provision for doubtful debts$$4,000$$

Additional Information:

Bad Debts proved but not recorded amounted to Rs $$2,000$$.
Provision is to be maintained at $$8\%$$ of Debtors.

Give necessary accounting entries to write off the bad debts and creating the provision for doubtful debts account. Also, show the necessary accounts.


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Max & Co. employs a team of $$9$$ workers who were paid $$Rs. 40,000$$ per month each in the year ending $$31^{st}$$ December, $$2018$$.  At the start of $$2019$$, the company raised salaries by $$10\%$$ to $$Rs. 44,000$$ per month each. 
On $$1^{st}$$ July, $$2019$$ the company hired $$2$$ trainees at salary of $$Rs. 21,000$$ per month each. The work force are paid salary on the first working day of every month, one month in arrears, so that the employees receive their salary for January on the first working day of February, etc. 

You are required to calculate :
(i) Amount of salaries which would be charged to the profit and loss for the year ended $$31^{st}$$ December, $$2019$$. 
(ii) Amount actually paid as salaries during $$2019$$. 
(iii) Outstanding salaries as on $$31^{st}$$ December, $$2019$$. 

$$(I)$$ Salaries to be charged to profit and loss account for the year ended $$31st$$ December $$2019$$ : 
Salaries of $$9$$ workers for full year @ $$44,000$$ p.m. each :              $$47, 52, 000 $$ 

Salaries of $$2$$ trainees for $$6$$ months @ $$22,000$$ p.m. each :             $$2,52, 000 $$ 
                                                                                                          $$ \underline{\overline{50,04,000}} $$
 
$$(II)$$ Salaries actually paid in $$2019$$ 
December $$2018$$ salaries paid in January, $$2019 (9 \times 40,000)$$     $$3,60,000 $$ 

Salaries of $$9$$ employees for January to November $$2019$$            $$43,56,000$$
paid in Feb-Dec. $$2019$$ @ $$44,000$$ for $$11$$ months 

Salaries of $$2$$ trainees for July to November paid in                      $$2,10,000$$
August - December @ $$Rs. 21,000$$ for $$5$$ months 
                                                                                                         $$\underline{\overline{49,26,000}}$$

$$(III)$$ Outstanding salaries as at $$31st$$ December $$2019$$
                $$9$$ employees @ $$Rs. 43,000$$ each for $$1$$ month            $$3,96,000$$
                $$2$$ trainees @ $$Rs. 21,000$$ each for $$1$$ month                     $$42,000$$  
                                                                                                          $$\underline{\overline{4,38,000}} $$

Hence the answer is (a) $$50,04,000 $$ 
                                    (b) $$49,26,000 $$
                                    (c) $$4,38,000$$


Class 11 Commerce Accountancy Extra Questions