Statement of activities

The question gives no figures, so the statements below use illustrative figures to show the required format and classification.

(a) Multi-step Income Statement

XYZ Company Income Statement for the year ended 31st Ashadh 2082

(b) Statement of Financial Position

XYZ Company Statement of Financial Position as at 31st Ashadh 2082

Key points: gross profit, operating profit and net profit are shown as separate stages; operating and non-operating items are kept apart; assets and liabilities are grouped as current and non-current; capital is adjusted for net profit and drawings; total assets equal total equity and liabilities.

The trial balance and adjustments are not printed with this question, so the standard NEB-style data below is used to show the full method.

Trial Balance of ABC Trading Company as on 31 Ashadh, 2081

Adjustments:

1. Closing inventory Rs 1,80,000.
2. Depreciate machinery @ 10% p.a. and furniture @ 5% p.a.
3. Salaries outstanding Rs 10,000.
4. Insurance prepaid Rs 4,000.
5. Interest on bank loan @ 10% p.a. is outstanding for one year.

Working Notes

• Depreciation on machinery = 10% of 4,00,000 = Rs 40,000
• Depreciation on furniture = 5% of 1,00,000 = Rs 5,000
• Insurance expense = 24,000 − 4,000 = Rs 20,000
• Salaries = 1,20,000 + 10,000 = Rs 1,30,000
• Interest on bank loan = 10% of 2,00,000 = Rs 20,000

(a) Multi-step Income Statement

ABC Trading Company Multi-step Income Statement For the year ended 31 Ashadh, 2081

(b) Statement of Financial Position

ABC Trading Company Statement of Financial Position As on 31 Ashadh, 2081

Conclusion: The company earned a net profit of Rs 3,29,000 during the year, and its total assets of Rs 10,09,000 equal the total equity and liabilities, so the statement of financial position is balanced.

Working note: Proposed dividend

$10\% \text{ of Rs. } 16,00,000 = Rs. 1,60,000$

(a) Profit & Loss Appropriation Account

For the year ended 31st December

(b) Balance Sheet

As at 31st December

a) Profit & Loss Appropriation Account
For the year ended 31st December

b) Balance Sheet
As at 31st December

Working Note:
Opening retained earnings Rs. 37,000 + current year net profit Rs. 80,000 = Rs. 1,17,000.
Less: proposed dividend Rs. 80,000 and transfer to general reserve Rs. 20,000 = Rs. 1,00,000.
Closing surplus = Rs. 17,000.

(a) Profit and Loss Account

Dr.

Working note:
Depreciation on equipment = 10% of Rs. 8,80,000 = Rs. 88,000.

(b) Profit and Loss Appropriation Account

Dr.

Net profit for the year = Rs. 1,64,000
Closing balance of P&L Appropriation A/c = Rs. 1,56,000

Step 1: Adjustments

• Depreciation on fixed assets $= 15\% \times 2{,}00{,}000 =$ Rs 30,000 (Dr. Depreciation, Cr. Fixed assets)
• Proposed dividend $= 10\% \times 2{,}00{,}000$ (capital) $=$ Rs 20,000 (Dr. Profit & Loss Appropriation, Cr. Proposed dividend). It is an appropriation of profit, not an expense, so it is shown in the appropriation columns and not in the income statement.

Step 2: 12-column worksheet (all figures in Rs)

Checks

• Income statement: expenses Rs 2,55,000 $=$ 8,000 + 10,000 + 20,000 + 5,000 + 1,20,000 + 62,000 + 30,000; incomes Rs 2,95,000 $=$ 10,000 + 2,85,000. Net profit $= 2{,}95{,}000 - 2{,}55{,}000 =$ Rs 40,000.
• Appropriation: net profit 40,000 $-$ proposed dividend 20,000 $=$ retained earnings Rs 20,000.
• Balance sheet: assets $= 1{,}70{,}000 + 2{,}00{,}000 =$ Rs 3,70,000; liabilities and equity $= 60{,}000 + 70{,}000 + 2{,}00{,}000 + 20{,}000 + 20{,}000 =$ Rs 3,70,000. Both sides agree.

Working notes

• Depreciation on furniture $= 10\% \times 2{,}00{,}000 =$ Rs 20,000.
• Prepaid insurance Rs 18,000 $-$ expired Rs 6,000 $=$ Rs 12,000 (still prepaid).
• Interest on debenture (Rs 15,000) and interest income (Rs 5,000) are taken as given in the trial balance. Wages are a direct cost, so they go into cost of goods sold.
• Tax provision $= 20\% \times$ profit before tax.

Multi-step Income Statement for the year ended 30th Ashar 2082

Statement of Financial Position as on 30th Ashar 2082

(a) Statement of Profit or Loss as per NFRS

Meaning: Under NFRS (NAS 1 – Presentation of Financial Statements), the Statement of Profit or Loss is the statement that shows the revenue, expenses, profit or loss and other comprehensive income of an entity for an accounting period. It is prepared on the accrual basis and follows the function of expense (or cost of sales) method.

Proforma:

Statement of Profit or Loss For the year ended 31st Ashadh, 20XX

Points to remember:

• Revenue is shown net of returns, trade discount and VAT.
• Expenses are classified as distribution, administrative and finance costs.
• Income tax is deducted after profit before tax to arrive at profit for the period.
• Other comprehensive income is added to give total comprehensive income.
• Comparative figures of the previous year must be shown in a separate column.

(b) Statement of Financial Position as per NFRS

Meaning: The Statement of Financial Position (Balance Sheet) is a statement showing the assets, liabilities and equity of an entity as at a particular date, prepared on the basis of the accrual concept and the going concern assumption.

Proforma:

Statement of Financial Position As at 31st Ashadh, 20XX

Points to remember:

• Total assets must equal total equity and liabilities — this proves the accounting equation: Assets = Equity + Liabilities.
• Assets and liabilities are classified into current and non-current on the basis of the operating cycle (normally 12 months).
• Contingent assets are not recognised; contingent liabilities are only disclosed in the notes.
• Assets and liabilities must not be offset against each other.
• Notes to accounts form an integral part of the financial statements, and previous year's figures are shown for comparison.

a) Trading Account

b) Profit and Loss Account

Working note:

Net profit before tax = Gross profit + Discount received − Total expenses
= Rs. 3,00,000 + Rs. 10,000 − Rs. 2,00,000
= Rs. 1,10,000

Income tax provision = 25% of Rs. 1,10,000 = Rs. 27,500

Net profit after tax = Rs. 1,10,000 − Rs. 27,500 = Rs. 82,500

Working notes

• The trial balance has two returns balances: "Return" Dr. Rs 15,000 is sales return and Cr. Rs 28,000 is purchase return. The Rs 10,000 debit balance in the Sales account is also treated as sales return. Sales return $= 15{,}000 + 10{,}000 =$ Rs 25,000; purchase return $=$ Rs 28,000.
• Salary paid Rs 20,000 is for 10 months, so Rs 2,000 a month; outstanding for 2 months $=$ Rs 4,000.
• Depreciation on machinery $= 10\% \times 2{,}00{,}000 =$ Rs 20,000.
• Provision for bad debts $= 5\% \times 80{,}000 =$ Rs 4,000.
• Interest (Dr. Rs 12,000) and interest on investment (Cr. Rs 7,000) are taken as given in the trial balance. Discount (Cr. Rs 80,000) is discount received.

(a) Statement of Profit or Loss (NFRS) for the year ended 31st Asar 2081

No tax rate is given, so no income tax is charged.

(b) Statement of Financial Position (NFRS) as on 31st Asar 2081

Adjustments

• (i) Depreciation on machinery $= 10\% \times 1{,}45{,}000 =$ Rs 14,500 (Dr. Depreciation, Cr. Machinery).
• (ii) Accrued commission Rs 2,000 (Dr. Accrued commission, an asset; Cr. Commission).

Worksheet (all figures in Rs)

Checks

• Net profit $= 1{,}42{,}000 - 1{,}19{,}500 =$ Rs 22,500.
• Balance sheet: assets $= 1{,}30{,}500 + 22{,}500 + 17{,}500 + 2{,}000 =$ Rs 1,72,500; liabilities and capital $= 30{,}000 + 20{,}000 + 1{,}00{,}000 + 22{,}500 =$ Rs 1,72,500. Both sides agree.

Working notes

• Prepaid house rent: Rs 12,000 $-$ Rs 9,000 expired $=$ Rs 3,000 still prepaid.
• Salary expense $= 35{,}000 + 10{,}000 =$ Rs 45,000.
• Depreciation on machinery $= 10\% \times 5{,}00{,}000 =$ Rs 50,000.
• Interest on bank loan is taken as Rs 24,000, as given in the trial balance.
• Cost of goods sold $= 50{,}000 + 1{,}50{,}000 + 10{,}000 - 40{,}000 =$ Rs 1,70,000.

(a) Statement of Profit or Loss (NFRS) for the year ended 31st Ashadh

(b) Statement of Financial Position (NFRS) as at 31st Ashadh

Working notes

• Depreciation $= 15\% \times 4{,}00{,}000 =$ Rs 60,000.
• Proposed dividend $= 10\% \times 6{,}00{,}000 =$ Rs 60,000.
• The existing Profit & Loss balance of Rs 1,68,000 is the balance brought forward from earlier years and goes to the appropriation account.

(a) Profit and Loss Account for the year ended .......

(b) Profit and Loss Appropriation Account for the year ended .......

a. Statement of Profit or Loss for the year ended 31st Ashar
(Based on NFRS)

b. Statement of Financial Position as at 31st Ashar
(Based on NFRS)

Workings:

• Depreciation on plant and equipment:
  $10\% \times 3,00,000 = \text{Rs. } 30,000$

• Insurance expired:
  $\text{Rs. } 12,000$

• Provision for tax:
  $30\% \times 1,60,000 = \text{Rs. } 48,000$

• Cost of goods sold:
  $20,000 + 3,20,000 - 32,000 = \text{Rs. } 3,08,000$

A trading account is prepared to determine the gross profit or gross loss of a business for an accounting period. It matches net sales against the cost of goods sold (opening stock + purchases + direct expenses − closing stock), and its result is then carried to the profit and loss account.

Adjustments

• (i) Depreciation on equipment $= 10\% \times 2{,}90{,}000 =$ Rs 29,000 (Dr. Depreciation, Cr. Accumulated depreciation).
• (ii) Salary payable Rs 12,000 (Dr. Salary, Cr. Salary payable).

Worksheet (all figures in Rs)

Checks

• Net profit $= 2{,}80{,}000 - 2{,}51{,}000 =$ Rs 29,000.
• Balance sheet: debit side (equipment, bank, debtors) $=$ Rs 3,70,000; credit side $= 29{,}000 + 12{,}000 + 2{,}00{,}000 + 40{,}000 + 60{,}000 + 29{,}000$ (net profit) $=$ Rs 3,70,000. Both sides agree.

Working notes

• Depreciation on machinery $= 10\% \times 6{,}00{,}000 =$ Rs 60,000.
• Purchase return Rs 40,000 is deducted from purchases, not from sales.
• Provision for bad debt Rs 3,000 is deducted from debtors; bad debt Rs 14,000 is an expense.
• Provision for tax Rs 10,000 is already in the trial balance and no tax rate is given, so no further tax is charged; it is shown as a current liability.
• Proposed dividend $= 10\% \times 4{,}00{,}000 =$ Rs 40,000.

(a) Statement of Profit or Loss (NFRS) for the year ended 30th Ashar 2082

(b) Statement of Financial Position (NFRS) as on 30th Ashar 2082

Retained earnings

1. Financial statements are prepared mainly on historical cost, so they do not show the current market value of assets or the effect of inflation.
2. They show only items measurable in money, so they ignore non-monetary factors such as staff skill, management quality and goodwill built up internally. They are also influenced by personal judgement in choosing methods (for example depreciation and stock valuation).

Depreciation is an expense of the year, so it is debited. It reduces the value of the asset, so Furniture (or Accumulated Depreciation) is credited.

Closing stock is valued at the lower of cost and market price, so Rs 70,000 (cost) is used.

(a) Trading Account of Pashupati Co. Ltd. for the year ended 31 March 2021

(b) Profit and Loss Account for the year ended 31 March 2021

Expenses total Rs 1,15,000 against income of Rs 75,000 (Rs 70,000 + Rs 5,000), so there is a loss of Rs 40,000 before tax. Adding the provision for taxation of Rs 7,000 as given, the net loss after tax is Rs 47,000.

Working notes

• Depreciation = $15\% \times 2{,}00{,}000 =$ Rs 30,000.
• Proposed dividend = $12\% \times 2{,}00{,}000 =$ Rs 24,000.
• No closing stock is given, so it is taken as nil.

12-column worksheet (amounts in Rs)

Gross profit: sales Rs 12,00,000 − (Rs 1,00,000 + Rs 9,00,000 + Rs 50,000) = Rs 1,50,000.

Net profit for the year before dividend = Rs 1,50,000 − (Rs 40,000 + Rs 24,000 + Rs 30,000) = Rs 56,000. After the proposed dividend of Rs 24,000, Rs 32,000 is carried to the balance sheet columns, so retained earnings become Rs 20,000 + Rs 32,000 = Rs 52,000.

Working notes

• Wages are Rs 40,000 + Rs 5,000 outstanding = Rs 45,000. Carriage Rs 5,000 is treated as carriage inwards (cost of purchase).
• Prepaid insurance Rs 15,000 less Rs 10,000 expired leaves Rs 5,000 still prepaid; Rs 10,000 is charged as insurance expense.
• Goodwill of Rs 40,000 stays as an intangible asset.

Income statement for the year (Statement of Profit or Loss)

Classified balance sheet (Statement of Financial Position) as at year end

Net profit calculation

Expenses charged to the Profit and Loss Account: Salaries 42,000 + Carriage outwards 5,000 + Selling expenses 18,000 + Administrative expenses 25,000 + Interest 12,000 + Rent 36,000 + Insurance expired 6,000 = Rs 1,44,000.

$\text{Net profit} = 4{,}20{,}000 - 1{,}44{,}000 = \text{Rs }2{,}76{,}000$

Profit and Loss Account For the year ended 31st Ashad

Note: Only the expired part (Rs 6,000) of the insurance is an expense; the unexpired Rs 2,000 remains a prepaid asset.

Profit and Loss Appropriation Account For the year ended 31st Ashad

Net profit for the year is Rs 2,76,000 and the closing balance of the Appropriation Account is Rs 3,36,000.