Solution of Final Accounts | Grade 12 | NEB 12 | FEEN
Comprehensive Final Accounts Solution: Focus Edge Education Network (FEEN)
Below is the complete step-by-step solution for the Final Accounts problem of FEEN as of 31st Ashadh, 2081. We will break down the adjustments with detailed working notes before presenting the final financial statements.
PART 1: Detailed Working Notes & Logic (Hints & Tricks)
Before preparing the final accounts, it is crucial to process all adjustments. Here is the logic and calculation for each one.
💡 Essential Tip for Final Accounts:
Every item in the Trial Balance appears once in the final accounts. Every item in the Adjustments (additional information) must appear twice in the final accounts to complete the double-entry effect.
Working Note 1: Closing Stock
- Value: Rs. 1,80,000
- Effect 1 (Credit): Trading Account (as it represents unsold goods).
- Effect 2 (Debit): Balance Sheet (Asset side, under Current Assets).
Working Note 2: Depreciation on Fixed Assets
Logic: Depreciation is a non-cash expense that reduces the value of assets.
| Asset | Book Value (A) | Rate (B) | Calculation | Depreciation Amount (A x B) |
|---|---|---|---|---|
| Plant & Machinery | 8,00,000 | 15% | 8,00,000 * 15% | 1,20,000 |
| Land & Buildings | 12,00,000 | 5% | 12,00,000 * 5% | 60,000 |
- Effect 1 (Debit): Profit & Loss Account (Expense).
- Effect 2 (Credit): Balance Sheet (Deduct from respective Asset value).
Working Note 3: Debtors, Bad Debts, and Provision
⚡ Tricky Adjustment Alert!
Always deduct "Further Bad Debts" (from adjustments) from the Debtors balance first before calculating the percentage for the new Provision.
Step A: Calculate New Provision
- Debtors as per Trial Balance: Rs. 2,00,000
- Less: Further Bad Debts (Adjustment): Rs. 5,000
- Remaining Good Debtors: Rs. 1,95,000
- New Provision required (5% of 1,95,000): Rs. 9,750
Step B: Treatment in P&L Account
- Further Bad Debts: Rs. 5,000
- Add: New Provision: Rs. 9,750
- Total amount debited to P&L: Rs. 14,750
Step C: Treatment in Balance Sheet
- Debtors are shown as Rs. 1,95,000 less Provision of Rs. 9,750 = Rs. 1,85,250 (Outer column).
Working Note 4: Outstanding Wages
- Amount: Rs. 20,000
- Effect 1 (Debit): Add to Wages in Trading Account (Wages incurred but not paid).
- Effect 2 (Credit): Balance Sheet (Current Liability).
Working Note 5: Prepaid Office Rent
Logic: The rent paid is for 15 months, but final accounts are for 12 months. We must remove the extra 3 months paid.
- Total Rent Paid (15 months): Rs. 75,000
- Rent per month: 75,000 / 15 = Rs. 5,000
- Prepaid Rent (3 months extra): 5,000 * 3 = Rs. 15,000
- Rent Expense for the current year (12 months): 75,000 - 15,000 = Rs. 60,000
- Effect 1: P&L Account shows only Rs. 60,000.
- Effect 2: Prepaid Rent Rs. 15,000 shown in Balance Sheet as Current Asset.
Working Note 6: Outstanding Interest on Debentures
💡 Hidden Adjustment Tip:
Even if not explicitly mentioned in adjustments, interest on loan/debentures must be calculated based on the percentage given in the Trial Balance. Here, it states "outstanding for the full year".
- 12% Debentures Value: Rs. 3,00,000
- Interest Calculation: 3,00,000 * 12% = Rs. 36,000
- Effect 1 (Debit): Profit & Loss Account (Finance Cost).
- Effect 2 (Credit): Balance Sheet (Current Liability).
Working Note 7: Appropriations (Dividend & Reserve)
Logic: These are distributions of profit, not expenses to earn profit. They are dealt with in the P/L Appropriation Account after Net Profit is determined.
- Proposed Dividend: 10% of Share Capital (15,00,000) = Rs. 1,50,000.
(Debit P/L Appropriation, Show as Current Liability in BS). - Transfer to General Reserve: Rs. 30,000.
(Debit P/L Appropriation, Add to General Reserve in BS).
PART 2: Financial Statements
(a) Trading Account
For the year ended 31st Ashadh, 2081
| Particulars (Dr.) | Amount (Rs.) | Particulars (Cr.) | Amount (Rs.) |
|---|---|---|---|
| To Opening Stock | 1,50,000 | By Sales | 18,50,000 |
| To Purchases | 9,00,000 | By Closing Stock | 1,80,000 |
| To Wages and Productive Salaries (+ Outstanding: 20,000) |
2,70,000 | ||
| To Gross Profit c/d (Balancing Figure) | 7,10,000 | ||
| Total | 20,30,000 | Total | 20,30,000 |
(b) Profit & Loss Account
For the year ended 31st Ashadh, 2081
| Particulars (Dr.) | Amount (Rs.) | Particulars (Cr.) | Amount (Rs.) |
|---|---|---|---|
| To Office Rent (75,000 - 15,000 Prepaid) | 60,000 | By Gross Profit b/d | 7,10,000 |
| To Depreciation on Machinery (WN 2) | 1,20,000 | ||
| To Depreciation on Land & Building (WN 2) | 60,000 | ||
| To Further Bad Debts (WN 3) | 5,000 | ||
| To Provision for Doubtful Debts (WN 3) | 9,750 | ||
| To Interest on Debentures (Outstanding WN 6) | 36,000 | ||
| To Net Profit transferred to Appropriation A/c | 4,19,250 | ||
| Total | 7,10,000 | Total | 7,10,000 |
(c) Profit & Loss Appropriation Account
For the year ended 31st Ashadh, 2081
| Particulars (Dr.) | Amount (Rs.) | Particulars (Cr.) | Amount (Rs.) |
|---|---|---|---|
| To Transfer to General Reserve (WN 7) | 30,000 | By Net Profit b/d | 4,19,250 |
| To Proposed Dividend (10%) (WN 7) | 1,50,000 | ||
| To Balance Surplus transferred to Balance Sheet | 2,39,250 | ||
| Total | 4,19,250 | Total | 4,19,250 |
(d) Balance Sheet
As of 31st Ashadh, 2081
| Liabilities & Capital | Amount (Rs.) | Assets | Amount (Rs.) |
|---|---|---|---|
| Share Capital & Reserves | Fixed Assets | ||
| Share Capital (Rs. 100 each) | 15,00,000 | Land & Buildings (12L - 60k Dep) | 11,40,000 |
| General Reserve (50k + 30k Transfer) | 80,000 | Plant & Machinery (8L - 1.2L Dep) | 6,80,000 |
| P/L Appropriation (Surplus) | 2,39,250 | ||
| Non-Current Liabilities | Current Assets | ||
| 12% Debentures | 3,00,000 | Closing Stock (WN 1) | 1,80,000 |
| Sundry Debtors (2L - 5k Bad) Less: Provision (9,750) |
1,85,250 | ||
| Current Liabilities & Provisions | Cash and Bank Balance | 1,45,000 | |
| Sundry Creditors | 1,20,000 | Prepaid Office Rent (WN 5) | 15,000 |
| Outstanding Wages (WN 4) | 20,000 | ||
| Outstanding Debenture Interest (WN 6) | 36,000 | ||
| Proposed Dividend (WN 7) | 1,50,000 | ||
| Total Liabilities | 24,45,250 | Total Assets | 24,45,250 |
✅ Success!
The Balance Sheet totals match (Rs. 24,45,250), confirming the arithmetical accuracy of the double-entry process.
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