Exercise No.1 Mr.

Sukhdev and his brother started a trading business in food grains under
the name Sukhdev Trading Private Limited. Face Value of the shares was decided at
Rs.10 per equity share and both contributed Rs.10,00,000 each towards equity capital.

Company purchased a shop of Rs.11,00,000 with full payment . A ware house is taken on
rental basis where company has paid rent of Rs.1,20,000. During the year company has
purchased food grain of Rs.23,00,000 ( out of which , company has not yet paid
Rs.3,00,000 ). Company has paid further following expenses

Employee cost Rs.60,000, Transportation expenses Rs.90,000, washing and cleaning

Rs.8,000, packing charges Rs.30,000, Electricity charges Rs.3,000, Telephone expenses
Rs.8,000.

Company has achieved sales of Rs.30,00,000 ( out of which company has not yet
received Rs.7,00,000).

Depreciation is to be charged @ 5% on shop. Corporate tax paid @30%.

Prepare 1. Profit & Loss Account and Balance sheet of the company. 2.Explain Revenue
Expenses and Capital Expenses involved in this example.

Exercise No.2 – Mr.Sanjeev has started a restaurant business by forming a private

company. He himself and his wife are two Equity shareholders and Board members. In
the first year there is response more than expected by Mr.Sanjeev. Since he do not have
any accounting back ground he has recorded all the transactions in a note book. He has
provided following summary of the transactions of the business and request you to
prepare Profit & Loss Account and Balance sheet of his company for the first year ended
on 31st March, 2019.

1. Deposited Rs.10,00,000 in Companies bank account against issue of 1,00,000

equity shares of Rs.10 each
2. Rent of Rs.1,20,000 is paid for the rent of the building
3. Company has purchased furniture of Rs.2,00,000 and Other equipments such as
grinder, mixer, refrigerator of Rs.5,00,000 with immediate payment.
4. Company has also purchased couple of Computers of Rs.80,000 and a software of
Rs.20,000 by paying through cheque.
5. During the year company has incurred following expenses
Purchase of food and beverages Rs.7,50,000 ( amount not yet paid to suppliers is
Rs.1,50,000), Employee Cost Rs.1,60,000, Gas, Electricity and water charges
Rs.75,000, Cleaning and washing Rs.15,000, Newspapers and magazines
Rs.7,500, advertisement Rs.10,000.
6. Company has achieved Sales of Rs.14,00,000 during the year where as per the
policy of the company no credits are given to customers.
7. Depreciation is charged @ 20% on furniture and other equipments and computers.
Software is amortized Rs.5,000.
8. Company has made investment in shares of Infosys Limited of Rs.2,50,000 and
Rs.1,00,000 in SBI Mutual Fund.
9. On 31st March, dividend is paid at 10% to the Equity Shareholders.
Exercise 3 Mr.Rajnath Thakur a Bachelor in Science and MBA in Marketing, started a
small manufacturing unit near Pune by forming a private company in April, 2018. He and
his six friends subscribed for 10,000 equity shares each of a nominal value of Rs.10/- per
share. totaling 70,000 equity shares of Rs.10 each. In the first Board meeting after
formation of the company , Mr.Rajnath informed other Board members that he has paid
Rs.40,000 for formation of the company. Accordingly Company paid formation expenses
of Rs.40,000 to Mr.Rajnath as reimbursement.

It was also decided along with Equity Capital, Company should approach any bank for
loan. On the basis of the suggestion of one of the Board member, Company approached
IDBI bank and a loan of Rs. 7,00,000 at 14% interest is taken for the business.

Company purchased a plot of Rs.3,00,000 and has constructed a small factory building by
spending Rs.4,00,000. It was decided to use rental building for office which will be
located in the central place of the city. After lot of enquiries and market survey company
purchased and installed machinery of Rs.3,00,000 and Furniture of Rs.1,00,000 with
immediate payment.

In the Board meeting held in March, 2019, Mr.Rajnath informed the other members about
the revenue expenses for the year as Purchase of Material Rs.11,50,000, Employee
Benefit Expenses Rs.1,00,000, Repairs & Maintenance Rs.22,000, Power & Fuel
Rs.60,000, Rent for office building Rs.1,20,000, Other operating expenses Rs.4,60,000,
Interest on bank loan for the first year Rs.98,000. He further informed the members that
all expenses are paid in full except Rs.1,50,000 for purchase of material and salary of
Rs.10,000 for the month of March.

He showed happiness on the achievement of Sales of Rs.25,00,000 where all the money
received from customers except one customer to whom goods of Rs.75,000 were sold in
March, 2019. On the basis of the useful life of the fixed assets of the company,
depreciation @5% is charged on building and on Machinery and Furniture @10%.

Information received from store department is that material lying in stores at the end of
the year is Rs.60,000. Finance Department informed that apart from interest on loan,
company has repaid the loan to the extent of Rs.40,000. Tax Department has informed
that corporate tax @30% is paid.

Mr.Rajnath has requested you to prepare Profit & Loss Account for the year ended on
31st March, 2019 and Balance sheet as on 31st March, 2019.

Exercise – 4 Mr.Anand after completing his MBA, started his own trading business in
furniture along with his friends under the name Anand Plywoods Private Limited. Initial
capital raised by the company was Rs.12,00,000 by issuing 1,20,000 equity shares of
Rs.10 each. Mr.Anand started working as CFO of the Company.

Management decided to go on lower scale initially and it was decided to construct a shed
which can be used as store room which can protect the furniture and also to use as office
of the company. Accordingly Company purchased a plot of Rs.4,75,000 and constructed
a store room cum shed of Rs.1,25,000.
In the Board meeting held in may, 2018 , Mr.Anand explained to other board members
that considering existing market demands company can end up with surplus cash in may
and suggested company can invest in Stock market and he suggested that company
should invest in shares of Eicher Motors Limited. Accordingly company invested
Rs.2,00,000 in shares of Eicher Motors Limited .

During the year company purchased furniture items of Rs. 15,50,000 and paid to
suppliers in full , Other expenses incurred and paid during the year were Wages &
Salaries Rs.1,43,000, Electricity – Rs.7,500, Advertisement Rs.35,000 and delivery
expenses Rs.24,500,

Company achieved Sale for the year of Rs.17,50,000 where on 31st March, 2019 amount
of Rs.50,000 was not yet received from customers.

In the Board meeting held on 15th Jauary,2019 , Mr.Anand informed the members that
market price of Eicher Motors Limited on BSE is at pick level and it is better to sale the
shares held. Accordingly company sold the investment made in shares of Eicher Motors
Limited for Rs.3,50,00.

In March, 2019 Mr.Anand explained to the members about the performance of the
company and inform them that stock verification at the end of the year has shown
furniture stock remaining in stores of Rs.25,000 and depreciation @20% is charged on
shed .Corporate tax paid is 30%.

He put before the Board draft Profit & Loss account and Balance sheet showing profit for
the first year of business.

Prepare Profit & Loss Account and Balance sheet.

Exercise – 5 Manisha Food Products Limited started its manufacturing unit in April,
2018. Company has issued 80,000 Equity shares of Rs.10 each and 10% , 2,000
Preference share of Rs.100 each. In the month of June company approached Axix Bank
for a Term loan of Rs.5,00,000 . Loan was sanctioned at 13% interest . In the first year
company has paid interest for 6 months and has paid the installment towards principal
amount of Rs.50,000.

During the year Company purchased a plot of Rs.2,00,000 and has constructed building
for its factory and office costing Rs.8,00,000. Company has purchased machinery of
Rs.6,00,000. out of which company has paid only Rs.2,00,000 and remaining amount is
payable in next two years. Furniture of Rs.1,00,000 and Vehicles of Rs.2,00,000 were
also purchased with immediate payment.

Management has decided to charge depreciation on all fixed assets at 10% on straight line
method. Company had to keep interest free deposit with Electricity Board Rs.2,00,000 .

During first year Company achieved Sales of Rs.34,00,000 out of which Rs.4,00,000 is
not yet received from the customers. Following are expenses incurred during the year

Material purchased Rs.17,00,000 ( amount of Rs.1,50,000 not yet paid to the supplier),
Employee cost Rs.5,50,000, power & fuel Rs.1,20,000, Repairs & maintenance
Rs.80,000, office expenses Rs.1,55,000, Selling expenses Rs.75,000, Audit fees Rs.5,000
and advertisement Rs.35,000. all expenses are paid in full except salary of Rs.50,000 to
employees. Provide for tax @ 30%. Raw material lying in stores at the end of the year is
Rs.1,75,000.

Prepare Profit & Loss Account and Balance sheet of the company for the year 18-19.

Exercise -6 – Sun Flower Oils Private Limited started its business on 1 st April, 2017
with Equity capital of Rs.12,00,000 . Formation expenses paid were Rs.20,000 charged to
Profit & Loss Account. Company purchased a plot of Rs.2,00,000 and constructed a
factory by spending Rs.4,00,000. Machines of Rs.3,00,000 were purchased and installed.
During the year, company approached IDBI Bank for a secured loan of Rs.7,00,000
which was duly sanctioned by the bank. For the first year company paid interest
Rs.70,000 @10 % on the loan amount and Rs.50,000 towards principal.

During the year company purchased raw material of Rs.4,60,000 ( amount not yet paid
Rs.60,000), other expenses were fully paid – Wages and salaries Rs.1,00,000, Factory
expenses of Rs.30,000, Office Expenses Rs.22,000 and selling expenses of Rs.48,000.
During the year company achieved Sales of Rs.9,50,000 where Company has not yet
received Rs.1,20,000 from the customers .Raw material Stock lying in stores at the end of
the year was of Rs.40,000

In the second year 2018-19, Company achieved Sales of Rs.10,50,000 ( amount not yet
received from customers Rs.1,50,00 ) with material purchased for Rs.5,10,000 ( amount
not yet paid to Suppliers Rs.80,000), Other expenses fully paid were Wages and salaries
Rs.1,20,000, Factory expenses Rs.45,000, Office expenses Rs.25,000 and selling
expenses of Rs.70,000. Material lying in stores at the end of the year was of Rs.55,000
Management decided to charge depreciation on fixed assets @10% on cost every year
and tax paid at @ 30%. Assume that last years Trade Receivables received in this year
and last years Trade Payables of last year are paid in this year.

Prepare Profit & Loss Account and Balance sheet of the company for two years i.e for
2017-18 and 2018-19