Surendar Pal

Surendar pal graduated from a technical school and he started materializing the plans for a
small business of producing tissue paper. With the increase in the number of hotels,
restaurants and food bazaars, he saw a great demand for the product. Surendar started his
business on 1st January, 2010 with a capital of Rs.2000000. He also borrowed Rs.100000
from his friends at the interest rate of 12% p.a on the same day.
Surendar purchased buildings worth Rs.800000, furniture for Rs.300000 and equipment for
Rs.550000. The useful life of the equipment was 10 years. He also had made investments
worth Rs.500000 at the interest rate of 15% p.a on 1 st July, 2010. Surendar had made
purchases and sales both for cash as well as for credit. The following is the summary of
balances of various accounts for the transactions that took place during the year.
Trial Balance as on December 31, 2010
Particulars
Capital
Drawings
12% loan
Investments
Buildings
Equipment
Furniture and Fittings
Purchases
Purchase Returns
Sales
Sales Returns
Salaries
Wages
Postage and General Expenses
Interest on loan
Stationery
Cash in hand
Cash at Bank
Bad Debts by Mr.Kamal
Accounts Receivables
Accounts Payables
Carriage inwards
Carriage Outwards
Insurance Premium
Office Expenses
Rent
Advertisement Expenses

Expenses/Assets

Incomes/Liabilities
2000000

2000
100000
500000
800000
550000
300000
1100000
5000
1300000
3000
11000
10000
4000
11000
3000
10000
20000
1000
200000
150000
2000
1000
2000
5000
10000
10000
3555000

3555000

Mr. Surendar knew that income statement is prepared to find the net income or net loss
resulting from the business transactions during an accounting period. He was aware about
accrual basis of accounting and according to the matching concept; all the expenses incurred
during the year should be matched with the incomes or revenues during the same accounting
year whether they are actually realized or not. If an expense is incurred, whether it is paid or
not, it is considered as an expense during the year. Finally, a balance sheet is a statement
which shows what a business owns and what a business owes as on a particular date.
Before proceeding to the preparation of Financial Statements, Surendar has received some
more additional information.
1. The closing stock of goods lying in the stockroom was physically checked and valued for
Rs.15000 as per the market price which is lower than the cost price.
2. In addition to Mr. Kamal whose debt had been written off, Surendar found that Mr.
Bhaskar also would not be able to pay his debt worth Rs.1000. He felt that it would be
right to write off this account also. Moreover, Surendar has also decided to make a
provision for doubtful debts to the extent of 5% of sundry debtors to cover the probable
bad debts.
3. As a policy, Surendar decided to depreciate the equipment on the straight line method,
buildings and furniture on the written down value method @ 2% p.a. and 20% p.a.
respectively.
4. He also noticed that the insurance premium of Rs.2000 was paid on equipment for one
year period from April 1, 2010 to March 31, 2011.
5. The salaries for the month of December, 2010 for Rs.1000 were not paid.
6. The interest on loan was not yet paid for the month of December 2010.
7. The interest on investments was received half-yearly and accrued on December 31 2010.
8. The benefit of advertisement expense was expected to be for two years and hence it was
decided that half of the advertisement expense would be written off in the current year
and the remaining half would be carried forward to the next year.
After considering the above given information, prepare income statement for the year ended
31- 12-2010 and the balance sheet as on 31-12-2010 on the basis of generally accepted
accounting principles.