Are you looking for problems and solutions of final accounts of the companies? You are at the right place! In this article we have compiled top five accounting problems on final accounts of the companies with its relevant solutions.
- Calculating the Remuneration Paid to the Directors
- Preparation of Profit and Loss Account of a Company
- Preparation of Balance Sheet as Required by Part I, Schedule VI of the Companies Act
- Preparation of Balance Sheet of a Company as Required under Part IB of Schedule VI of the Companies Act, 1956
- Preparation of Final Accounts of a Company
Problems on Final Accounts of the Companies
1. Calculating the Remuneration Paid to the Directors:
The Board of Directors of Sen & Co. Ltd. consists of two whole-time Directors and three part-time Directors. The whole-time Directors are entitled to a monthly salary of Rs. 3,000 each. In addition, they are to get 8% commission and the part-time Directors 1% commission on the profits of the company.
The Profit and Loss Account of the company for the year ended 31.12.1999 was as follows:
You are asked to compute the remuneration to be paid to the Directors with your comments, if any.
So, the Directors are entitled to have overall maximum remuneration to the extent of Rs. 3,51,450 as per Sec. 198 of the Companies Act. Since they have taken Rs. 3,59,550, therefore excess amount Rs. 8,100 (Rs. 3,59,550 – Rs. 3,51,450) must be refunded to the company u/s 309 (5A). At the same time, they should have taken previous permission from the Central Government for this purpose.
2. Preparation of Profit and Loss Account of a Company:
The following balance appeared in the books of Regent Company Ltd. as on 31st December 1999:
From the above balance and the following information, prepare the Company’s Profit and Loss Account for the year ended 31st Dec. 1999:
(1) Stock on 31st Dec. 1999 Rs. 73,200.
(2) Outstanding Expenses: Manufacturing Expenses Rs. 45,000 and Salaries and Wages Rs. 3,000.
(3) Interest accrued on Securities Rs. 200.
(4) General Charges prepaid Rs. 1,660.
(5) Provide depreciation on:
Building @ 2% p.a., Plant and Machinery @ 10% p.a., Furniture @ 10% p.a. and Motor Vehicles @ 20% p.a.
(6) The Directors proposed a dividend @ 20%.
(7) The taxation provision shown in the Trial Balance is after payment of taxes for assessment up to 31st Dec. 1999.
(8) The only liability for taxes is in respect of profit for 1999 for which a provision of 60% on net profit is considered.
3. Preparation of Balance Sheet as Required by Part I, Schedule VI of the Companies Act:
From the following particulars furnished by Pioneer Ltd. prepare the Balance Sheet as at 31st March 1998, as required by Part I, Schedule VI of the Companies Act.
Give note at the foot of the Balance Sheet as may be found necessary:
The following additional information is also provided:
(1) Miscellaneous expenses included Rs. 5,000 Audit Fees and Rs. 700 for out of pocket expenses paid to the auditors.
(2) 2,000 Equity shares are issued for consideration other than cash.
(3) Debtors of Rs. 52,000 are due for more than 6 months.
(4) The cost of assets:
(5) The balance of Rs. 1,50,000 in the loan account with State Financial Corporation is inclusive of Rs. 7,500 for interest accrued but not due. The loan is secured by hypothecation of the Plant and Machinery.
(6) Balance at Bank includes Rs. 2,000 with Perfect Bank Ltd. which is not a Schedule Bank.
(7) Bills Receivable for Rs. 2,75,000 maturing on 30th June 1998 have been discounted.
(8) The company had a contract for the erection Of machinery at Rs. 1,50,000 which is still incomplete.
4. Preparation of Balance Sheet of a Company as Required under Part IB of Schedule VI of the Companies Act, 1956:
Prepare a Balance Sheet in vertical form as at 31st December 2000 from the following information of ABC Limited as required under Part IB of Schedule VI of the Companies Act, 1956:
(1) Share Capital consists of:
(a) 3,000 Equity Shares of Rs. 100 each, fully paid-up.
(b) 10,000,10% Redeemable Preference Shares of Rs. 100 each, fully paid-up.
(2) Term loans secured.
(3) Depreciation on assets Rs. 5,00,000.
(4) Schedules need not be given. However, groupings should form part of the answer.
5. Preparation of Final Accounts of a Company:
ET Limited are in the midst of finalising their accounts for the year ended 30th September 1999. A Profit and Loss Account has been prepared in draft.
The account balances, as rounded-off to the nearest thousands, are listed below:
The authorised capital is 3,50,000 Equity Shares of Rs. 100 each. The loan from the State Government is secured by a charge on the land, cash-credits by hypothecation of stocks and book debts and the other secured loans on the building and plant and machinery.
The following adjustments are yet to be made:
(i) Investment Allowance Reserve to be created Rs. 5,400 (‘000);
(ii) Provision to be made for Income-tax in Rs. 4,400 (‘000);
(iii) Provision to be made for Managing Director’s Commission at 1% of the net profits;
(iv) Proposed dividends at 10%.
Depreciation as per Section 350 of the Companies Act, in Rs. is Rs. 10,424 (‘000).
You are required to:
(a) Show the computation of commission to the Managing Directors, and
(b) Prepare the Balance Sheet of the company, based on all the above.
... Managing Director’s commission will be @ 1% on Rs. 16,585 = Rs. 166.
Before preparing the Balance Sheet, we are to prepare a Profit and Loss Account in order to find out the net profit as under: