Company Final Acounts Practical Problems and Solutions

We have prepared Company Final Accounts Practical Problems and Solution paper for the ease of students to understand the concept of Final Accounts more clearly.

Problem No. 1

For the year ended 31st December 2019 the profit of Krebs Ltd. before changing depreciation on fixed assets and Managerial commission amounted to $300,000. Depreciation for the year amounted to $60,000 and a commission of 10% of the profits (before charging such commission) was payable to the Manager.

The paid-up capital of the Company consisted of $1,000,000 divided into 5,000 6% preference shares of $100 each and 50,000 Equity shares of $10 each. Interim Dividend @ 50 cents per share was paid during the year. There was credit balance of $35,000 in the Profit and Loss Account brought from the previous year. The following appropriations were proposed by the Board of Directors and subsequently passed at the Annual General Meeting of the Company.

  1. To pay the year’s dividend on preference shares.
  2. To pay a final dividend on Equity share at 50 cents per share to make a total dividend of $1 per share for the year.
  3. To provide for taxation @ 50% on the net profit.
  4. To transfer $25,000 to the General Reserve.
  5. To carry forward the balance.

Required: You are required to show the Profit and Loss Appropriation Account.

Solution:

Company-Final-Accounts-Ptractical-problems-and-solutions

Problem No. 2

The following is the Profit and Loss Account of X Ltd. for the year ended 31st December 2019, before providing for the following :

1. Director’s commission of 1% on Net Profit.
2. Managcrial commission of 10% on Net Profit.

Company-Final-Accounts-Questions-Answers

Note: Dcprcciatron allowance for income tax purposes amount to $25,000.

Redraft the Profit and Loss Account after providing for the amount of managerial commission on Net Profit due in accordance With the Provisions of the Companies Act and show the computation of such amount of commission.

Solution

Solution-Problem-No.2

Problem No. 3

A limited company has an authorised capital of $1,000,000 divided into 60,000 equity shares of $10 each and 4,000, 10% preference shares of $100 each out of which 50,000 equity share and 3,000 preference share were issued and fully paid up. The profit for the year 2019 being the first year of operation amounted to $1,80,000 after income tax. The directors decided to declare a dividend of 22% on the equity share capital after.

  1. statutory minimum requirement transfer to general reserve
  2. provision of dividend on preference shares.

Reuired: Prepare profit and loss appropriation account and show liabilities side of the balance sheet,

Solution

Profit and Loss Appropriation Account for the Year Ended 31.12.2019

profit-and-loss-appropriation-account-problem-no-3

Since the dividend to be declared is more than 20% of the paid up capital, 10% of the net profit is to be transferred to reserve.

Balance Sheet as on 31.12.2019

Balance-Sheet-Company-Final-Account

Problem No. 4

A company was registered with a nominal capital of $500,000 divided into shares of $10 each of which 20,000 shares had been issued and fully paid.

The following is the trial balance extracted on December 31, 2019.

trial-balance-of-problem-4

Required:

You are required to prepare trading and profit and loss account for the year ended December 31, 2019, and a balance sheet as on that date after taking into consideration the following adjustments:

  1. Write off one-third preliminary expenses
  2. Depreciation: On plant and machinery at 20%; on office furniture at 10%
  3. Manufacturing wages $945 and office salaries $600 had accrued due
  4. Provide for interest on bank loan for 6 months
  5. The stock was valued at $62,240 and loose tools at $5,000
  6. Reserve $4,250 on debtors for doubtful debts
  7. Reserve further $1,560 for discounts on debtors
  8. The directors recommended dividend at 5% for the year ending December 31, 2019, after providing for taxes amounting to $11,500.

Solution

Company-final-accounts-solved-problems

balance-sheet-problem-4

Problem No. 5

Following is the trial balance of Progressive Agencies Ltd., as on March 31, 2019. Prepare trading and profit and loss account as well as profit and loss appropriation account for the year ended on March 31, 2019, and a balance sheet on that date.

profit-and-loss-account-company-final-account-problem-no.5

Value of Stock on March 31, 2019, was $91,500, Depreciation is to be provided at 100% p.a. on plant and machinery, and at 20% p.a. on furniture. Outstanding liabilities are: Wages—$5,200, salaries-$1,200, rent-$600. Insurance premium includes a sum of $800 being the charge for the quarter ended on June 30, 2019, No dividend payment is proposed and provisions for taxation are not considered necessary.

Solution

Progressive-agencies-final-accounts

Balance Sheet as at 31.3.2019

Progressive-agencies-final-accounts-balance-sheet

Problem No. 6

From the following balances extracted from the books of Bharat Steel Ltd., you are required to prepare company final accounts, i.e. in the statutory forms, profit and loss account for the year ended March 31, 2019, and the balance sheet as on that date.

Balance-extracted-problem-6

You are given the following additional information:

  1. Profit was calculated after charging $72,000 paid to the managing director as minimum remuneration. He is to be given a remuneration @ 5% of the net profit before tax, subject to the above minimum.
  2. Preference shares were redeemed on October 1, 2018, at a premium of 20% but no entries recorded in the books for giving effect thereto, except for the payment standing to the debit for preference share redemption account.
  3. Income tax demanded for the year ended September 30, 2018, of $400,000 has not been provided in full, as an appeal is pending.
  4. Market value of the investments is $710,000.
  5. Income tax for the year is to be provided @ 55% on the year is book profits.

Solution

Problem-6-P&L-account

Note: The net profit shown in the problem is $1,684,000; to this $72,000 paid as remuneration to the managing director has been added.

Problem-6-BS-account

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