Book 10 Account Final for 2077_new

4. Preparation It can be prepared at any It is generally prepared at the end date date after closing of ledger of accounting period. 5. Number of accounts. columns It has five columns i.e. It has four columns i.e. liabilities 6. Legal serial no, particulars, L.F., and amount in left hand side and compulsion debit and credit assets and amount in right hand 7. Types of side. account It is not legally compulsory It is necessary to prepare balance to prepare trial balance. sheet at the end of accounting period. It includes all types of It includes the balances only of account having balances. personal and real accounts. 8. Recording of It generally records the It records the value of closing stock value of opening stock. stock. 9. Documentary It is not accepted as It is accepted as documentary proof documentary proof by the proof by the court for making 10. Information court of law. decision. of profit and loss It does not provide It provides information of net information of profit or profit or net loss of the business. loss. Adjustments in final accounts Adjustments refer to those transactions which are related to current accounting period but not recorded in the books of account. Such transactions do not appear in trial balance and thus have dual effect in final accounts. Thus, to ensure the correct ascertainment of profit or loss and financial position of business, all unrecorded financial transactions and internal events should be adjusted after the preparation of trial balance while preparing final accounts. There are various adjustments to be considered while preparing final accounts. However, according to the curriculum of this grade only the following adjustments have been explained with their accounting treatment: Closing stock Closing stock refers to the value of goods remained unsold or unused remaining in the store of business at the end of accounting period. It should be valued at cost price or market price whichever is less. Closing stock is credited to trading account and shown in balance sheet as assets. Its accounting treatment can be shown as follows: Final Accounts 151

Closing stock Given in trial balance Given in adjustment Assets side of Credit side of Assets side of balance sheet Trading account balance sheet Prepaid expenses Prepaid expenses means any expenses paid in advance for next accounting period in the current accounting year. It is treated as the assets of the business. It is deducted from the concerned item in the debit side of trading or profit and loss account and shown on assets side of balance sheet. It can be shown as below: Prepaid/Advance expenses Given in trial balance Given in adjustment Assets side of Debit side of trading or profit and loss Assets side of balance sheet account (Deducted from respective balance sheet expenses head) Outstanding expenses Those expenses which are incurred during the current year but remained unpaid till the end of accounting period are called outstanding expenses. It is liability of the business. It is added to the concerned head in the debit side of trading or profit and loss account and shown on liability side of balance sheet. Its accounting treatment can be shown as follows: 152 Office Management and Accountancy

Outstanding expenses Given in Given in trial balance adjustment Liabilities side of balance sheet Debit side of trading/ Liabilities side of profit and loss account balance sheet (added with respective expenses head) Depreciation on fixed assets Depreciation is the gradual and permanent decrease in the value of fixed assets due to regular use over a period of time. It is loss for the business. It is debited to profit and loss account and deducted from the concerned fixed assets on the balance sheet as shown below: Depreciation on fixed assets Given in trial balance Given in adjustment Debit side of profit Debit side of profit Assets side of balance sheet and loss account and loss account (Deducted from related fixed assets) Final Accounts 153

Ill-6 iTshgeivfoenllotowyinogu:trial balance of Golden Enterprise as on 31st Chaitra, 2074 Particulars Debit Rs. Particulars Credit Rs. 5,86,000 Inventory at beginning .............................. 80,000 Capital ....................................................... 17,000 Purchases.................................................. 5,17,000 Purchase return.......................................... 8,12,000 Sales return............................................... Sales........................................................... 1,75,000 Productive wages...................................... 12,000 Accounts payable....................................... 13,000 Factory insurance...................................... 1,80,000 Miscellaneous income................................ 65,000 Factory expenses...................................... Loan from Himalayan bank......................... 7,100 Power and fuel........................................... 21,000 Commission received................................. 30,000 Import duty................................................. 30,000 Bills payable............................................... Administrative expenses............................ 14,000 17,05,100 Trademark................................................. 20,000 Loan to Krishna ........................................ 52,000 Cr. Accounts receivable.................................. 1,50,000 Closing stock............................................. 1,00,000 Amount Bills receivable........................................... 1,65,000 8,00,000 Cash and bank.......................................... 50,000 45,000 Interest....................................................... 45,000 Travelling expenses................................... 75,600 8,45,000 Office equipment....................................... 13,500 13,000 Depreciation.............................................. 14,000 7,100 Salaries and wages................................... 1,20,000 19,000 1,50,400 27,000 1,70,500 17,05,100 Required: a) Trading and profit and loss account b) Balance sheet Solution: a) Trading and Profit and Loss Account of Golden Enterprise Dr. For the year ending 31st Chaitra, 2074 Particulars Amount Particulars To Opening stock ................................... 80,000 By Sales................................... 8,12,000 To Purchases............................ 5,17,000 Less: Sales return........................ 12,000 Less: Purchase return................. 17,000 5,00,000 By Gross loss c/d.................................... To Productive wages.............................. 1,80,000 To Factory insurance.............................. To Factory expenses.............................. 21,000 To Power and fuel................................... 30,000 To Import duty......................................... 14,000 20,000 To Gross loss b/d ................................... To Administrative expenses.................... 8,45,000 To Interest............................................... To Travelling expenses .......................... 45,000 By Miscellaneous income ...................... To Depreciation....................................... 52,000 By Commission received........................ To Salaries and wages........................... 13,500 By Net loss c/d........................................ 14,000 19,000 27,000 1,70,500 154 Office Management and Accountancy

b) Balance Sheet of Golden Enterprise As on 31st Chaitra, 2074 Capital and liabilities Amount Assets Amount Capital................................................5,86,000 Trademark.................................................... 1,50,000 Less: Net loss.....................................1,50,400 4,35,600 Office equipment.......................................... 1,20,000 Account payable...................................... 1,75,000 Account receivable....................................... 1,65,000 Loan from Himalayan bank...................... 65,000 Closing stock................................................ 50,000 Bills payable............................................ 30,000 Bills receivable.............................................. 45,000 Cash at bank................................................ 75,600 Loan to Krishna............................................ 1,00,000 7,05,600 7,05,600 Ill-7 From the following trial balance and additional information, prepare trading and profit and loss account and balance sheet for the year ending 31st Ashad 2074: S.N. Particulars Debit Rs. Credit Rs. 1. Opening stock........................................................................... 95,000 – 2. Drawing and capital ................................................................. 15,000 3. Purchases and sales................................................................ 3,76,000 4. Return....................................................................................... 2,30,000 3,82,500 5. Sundry debtors and sundry creditors ....................................... 6,000 6. Bills receivable and bills payable ............................................ 65,000 5,000 7. Land and building .................................................................... 84,000 25,000 8. Office salary ............................................................................. 15,000 9. Wages ..................................................................................... 1,50,000 10. Carriage inward ....................................................................... 34,000 24,000 11. General reserve ....................................................................... 24,500 2,000 12. Commission ............................................................................ 6,500 13. Plant and machinery................................................................. – 3,500 14. Cash at bank............................................................................ 4,000 15. Discount allowed and received ................................................ 80,000 5,000 16. Factory heating and lighting .................................................... 12,000 17. Interest on investment ............................................................. 3,500 38,000 18. Investments ............................................................................. 8,500 19. Bank loan ................................................................................. 8,76,000 20. Advertisement .......................................................................... 50,000 Total......................................................................................... 8,000 8,76,000 Final Accounts 155

Additional information: i) Closing stock was valued at Rs.60,000 as cost price and Rs.65,000 as market price. ii) Wages outstanding Rs. 5,500 iii) Office salary is paid in advance Rs.4,000. iv) Depreciate plant and machinery by Rs.8,000 per annum. Solution: Trading and Profit and Loss Account Cr. a) For the year ended 31st Ashadh, 2074 Dr. Particulars Amount Particulars Amount To Opening stock ............................................. 95,000 By Sales..............................................3,82,500 3,76,500 To Purchases .....................................2,30,000 Less: Return........................................... 6,000 Less: Returns..........................................5,000 2,25,000 By Closing stock ............................................... 60,000 To Wages ..............................................24,500 Add: Outstanding ....................................5,500 30,000 To Carriage inward .......................................... 6,500 To Factory, heating and lighting........................ 8,500 To Gross profit c/d .......................................... 71,500 4,36,500 4,36,500 To Office salary .....................................34,000 30,000 By Gross profit b/d............................................. 71,500 Less: Prepaid...........................................4,000 4,000 By Commission received................................... 2,000 To Commission ................................................ 3,500 By Discount received ........................................ 3,500 To Discount allowed ......................................... 8,000 By Internet on investment ................................. 5,000 To Advertisements ........................................... 8,000 To Depreciation on plant and machinery.......... 28,500 To Net profit c/d ............................................... 82,000 82,000 b) Balance Sheet As on 31st Ashadh, 2074 Capital and liabilities Amount Assets Amount Capital............................................... 3,76,000 Land and building............................................ 1,50,000 Add: Net profit.......................................28,500 Plant and machinery............................. 80,000 Less: Depreciation.................................. 8,000 72,000 4,04,500 50,000 Less: Drawings.....................................15,000 3,89,500 Investments..................................................... 65,000 General reserve............................................... 24,000 Sundry debtors................................................ 84,000 Bank loan......................................................... 38,000 Bills receivable................................................. 60,000 Sundry creditors.............................................. 25,000 Closing stock................................................... 4,000 Bills payable.................................................... 15,000 Prepaid office salary........................................ 12,000 Outstanding wages.......................................... 5,500 Cash at bank................................................... 4,97,000 4,97,000 156 Office Management and Accountancy

REVIEW ILLUSTRATIONS Ill-8 pFrroepmartehea following trial balance of Muna Madan Shopping Complex, trading and profit and loss account determining gross profit or gross loss and net profit or net loss for the year ended 31st Chaitra, current year: Trial Balance As on 31st Chaitra, Current year S.N. Accounts head L.F. Debit Rs. Credit Rs. 1. Stock (As on 1st Baishakh).............................................................................. 2. Purchases and sales revenue.......................................................................... 56,500 3. Return inward and outward ............................................................................. 4. Closing stock ................................................................................................... 1,80,000 3,13,750 5. Office rent rates and taxes .............................................................................. 6. I nterest on investment...................................................................................... 4,500 2,500 7. Import duty........................................................................................................ 8. P rimary packing charges ................................................................................. 34,000 9. Bad debts ........................................................................................................ 10. Insurance ......................................................................................................... 18,500 11. Commission received ..................................................................................... 12. D iscount on purchase ...................................................................................... 8,500 13. Printing and stationary ..................................................................................... 14. Salary to staff ................................................................................................... 12,500 15. Wages to factory workers................................................................................. 16. Bonus to staff .................................................................................................. 6,550 17. Apprenticeship premium .................................................................................. 18. Clearing charges ............................................................................................. 3,000 19. Audit fees ...................................................................................................... 20. Dividend received ........................................................................................... 4,200 Total ................................................................................................................ 14,000 4,800 6,000 16,000 9,000 4,800 5,800 8,000 3,800 18, 000 3,67,350 3,67,350 Final Accounts 157

Solution: Trading and Profit and Loss Account of Cr. Dr. Muna Madan Shopping Complex For the year ended 31st Chaitra, Current year Particulars Amount Particulars Amount To Opening stock ................................. 56,500 By Sales revenue ........................3,13,750 3,09,250 To Purchases .......................... 1,80,000 Less: Return .....................................4,500 Less: Return................................. 2,500 3,09,250 To Import duty ....................................... 1,77,500 39,200 To Primary packing charges ................. 12,500 8,500 To Wage to factory workers .................. 6,550 14,000 To Clearing charge................................ 9,000 4,800 To Gross profit c/d ............................... 8,000 5,800 39,200 18,000 To Office rent, rates and taxes............... To Bad debts ........................................ 3,09,250 90,300 To Insurance.......................................... To Printing and stationery .................... 18,500 By Gross profit b/d ..................................... To Salary to staff.................................... 3,000 By Interest on investment ......................... To Bonus to staff.................................... 4,200 By Commission received............................ To Audit fees ......................................... 6,000 By Discount on purchase........................... To Net profit c/d .................................... 16,000 By Apprenticeship premium........................ 4,800 By Dividend received.................................. 3,800 34,000 90,300 Ill-9 The following trial balance is taken from the books of Kamal & Sons as on 31st December, 2017: S.N. Particulars Debit Rs. Credit Rs. 1. Kamal’s drawing and capital.............................................................. 10,000 1,95,000 2. P urchases and sales......................................................................... 7,00,000 3. R eturn................................................................................................ 3,00,000 8,000 4. Plant and machinery.......................................................................... 5,000 5. Furniture and fixtures ........................................................................ 1,40,000 6. Carriage inward................................................................................. 2,00,000 1,50,000 7. Wages and salaries........................................................................... 1,00,000 8. Rent, rates and taxes ....................................................................... 9. C ash at bank..................................................................................... 26,000 10 Telephone expenses.......................................................................... 50,000 11. Book debts ........................................................................................ 41,000 12. Sundry creditors .............................................................................. 68,000 13. Bank loan........................................................................................... 15,000 1,60,000 158 Office Management and Accountancy

14. Bad debts.......................................................................................... 5,000 15. Selling expenses .............................................................................. 1,29,000 16. Interest .............................................................................................. 16,000 17. Dividend received ............................................................................ 17,000 50,000 18. Vehicles ............................................................................................ 1,35,000 12,60,000 19. Bills payable...................................................................................... Cr. Total.................................................................................................. 12,60,000 Amount 6,95,000 Required: a) Trading and profit and loss account b) Balance sheet 6,95,000 3,27,000 Solution: a) 17,000 Trading and Profit and loss Account of 3,44,000 Kamal & Sons Dr. For the year ended 31st December, 2017 Particulars Amount Particulars To Purchases ...........................3,00,000 By Sales....................................... 7,00,000 Less: Return..................................8,000 2,92,000 Less: Return...................................... 5,000 To Carriage inward ................................ 26,000 To Wages and salaries .......................... To Gross profit c/d ................................ 50,000 3,27,000 6,95,000 To Rent rates and taxes ......................... 41,000 By Gross profit b/d...................................... To Telephone expenses.......................... 15,000 By Dividend received.................................. To Bad debts ......................................... 5,000 To Selling expenses ............................... 1,29,000 To Interest .............................................. 16,000 To Net profit c/d ..................................... 1,38,000 3,44,000 b) Balance Sheet of Amount Kamal & sons Capital and liabilities As on 31st December, 2017 Amount Assets Kamal’s capital...................................... 1,95,000 Plant and machinery.................................... 2,00,000 Less: Drawings......................................... 10,000 Furniture and fixtures................................... 1,00,000 Vehicles........................................................ 1,35,000 1,85,000 3,23,000 Cash at bank................................................ Add: Net profit........................................ 1,38,000 1,40,000 Book debts.................................................... 68,000 Sundry creditors.............................................. 1,50,000 1,60,000 Bank loan......................................................... 50,000 Bills payable.................................................... 6,63,000 6,63,000 Final Accounts 159

Ill-10 Tonhe31fsot Alloshwaidnhg, ledger balances are extracted from the books of Sakar as 2074 : Purchase ............................................... Rs.5,00,000 Sakar’s capital................................................ Rs.10,90,000 Sales ...................................................... 9,60,000 Printing and stationery.................................... 10,000 Purchase return ..................................... 10,000 Advertisement................................................. 17,000 Computer and equipment ...................... 1,70,000 Carriage outward............................................ 21,000 Land and building .................................. 7,60,000 Bad debts....................................................... 1,000 Cash at bank ......................................... 1,03,000 Travelling expenses........................................ 13,000 Sundry debtors ...................................... 1,30,000 Commission received..................................... 20,000 Sundry creditors .................................... 1,50,000 Discount allowed............................................ 5,000 Wages ................................................... 60,000 Loan from friends............................................ Salary .................................................... 30,000 Goodwill.......................................................... 1,30,000 Rent, rates and taxes ............................ 37,000 Closing stock.................................................. 1,50,000 Power expenses .................................... 32,000 Sakar’s drawing.............................................. 1,00,000 Opening stock ........................................ 85,000 Investment...................................................... Bad debt recovered ................................ 8,000 Legal charges................................................. 15,000 1,25,000 Required: a) Trading and profit and loss account 4,000 b) Balance sheet Cr. Solution: Amount a) 9,60,000 Trading and Profit and Loss Account of Sakar 9,60,000 Dr. For the year ended 31st Ashadh, 2017 2,93,000 Particulars Amount Particulars 8,000 85,000 By Sales............................................... 20,000 To Opening stock ................................ To Purchases .........................5,00,000 4,90,000 3,21,000 Less Purchases return...............10,000 60,000 To Wages ............................................. 32,000 To Power expenses ............................. 2,93,000 To Gross profit c/d .............................. 9,60,000 To Salary .............................................. 30,000 By Gross profit b/d ............................... To Rent, rates and taxes ...................... 37,000 By Bad debt recovered ....................... To Printing and stationery..................... 10,000 By Commission received...................... To Advertisement ................................ 17,000 To Carriage outward ............................ 21,000 To Bad debts ....................................... 1,000 To Travelling expenses ........................ 13,000 To Discount allowed ............................. 5,000 To Legal charges ................................. 4,000 To Net profit c/d ................................... 1,83,000 3,21,000 160 Office Management and Accountancy

b) Balance Sheet of Sakar As on 31st Ashadh, 2017 Capital and liabilities Amount Assets Amount 7,60,000 Sakar’s capital..................................10,90,000 Land and building........................................... 1,70,000 1,25,000 Less: Drawings......................................15,000 Computer and equipment .............................. 1,03,000 1,30,000 10,75,000 Investment...................................................... 1,00,000 1,50,000 Add: Net profit....................................1, 83,000 12,58,000 Cash at bank.................................................. 15,38,000 Loan from friends.............................................. 1,30,000 Sundry debtors............................................... Sundry creditors............................................... 1,50,000 Closing stock.................................................. Goodwill.......................................................... 15,38,000 Ill-11 Following are the balances extracted from the books of Sushmita Enterprises for the year ending 31st Chaitra 2074: Particulars Debit Rs. Credit Rs. Gross loss........................................................................................................................ 34,000 50,000 Goodwill........................................................................................................................... 25,000 Debtors and creditors .................................................................................................... 60,000 95,000 Insurance ....................................................................................................................... 24,000 2,80,000 Office rent ....................................................................................................................... 24,000 Communication charges ................................................................................................. 6,500 4,800 Furniture and fitting.......................................................................................................... 40,000 6,000 Bank loan......................................................................................................................... 28,600 Drawing and capital ....................................................................................................... 6,000 Salary ............................................................................................................................. 22,000 32,000 Copyright......................................................................................................................... 12,000 2,800 Interest on loan .............................................................................................................. 6,400 9,200 Cash in hand .................................................................................................................. 4,000 5,08,400 Cash at bank................................................................................................................... 14,000 Commission to salesman ............................................................................................... 4,500 Bad debts....................................................................................................................... 3,000 Bad debts recovered ..................................................................................................... Provision for bad debts ................................................................................................... 20,000 Bills receivable and bills payable..................................................................................... 30,000 Closing stock................................................................................................................... 13,000 Preliminary expenses...................................................................................................... 80,000 Plant and machinery........................................................................................................ Reserve fund................................................................................................................... 80,000 Investment....................................................................................................................... Outstanding wages.......................................................................................................... 5,08,400 Commission received...................................................................................................... Total Final Accounts 161

The following adjustments are also provided: a) Salary due to pay Rs.2,000. b) Office rent is paid in advance Rs.4,000. c) Depreciation is to be provided @ 10% on plant and machinery. Required: a) Trading and profit and loss account b) Balance sheet Solution: a) Trading and Profit and Loss Account of Sushmita Enterprises Dr. For the year ended 31st Chaitra, 2074 Cr. Particulars Amount Particulars Amount 34,000 By Bad debts recovered................................ 4,800 To Gross loss b/d ................................... 24,000 By Provision for bad debts............................. 6,000 To Insurance .......................................... By Commission received............................... 9,200 To Office rent ...............................24,000 20,000 By Net loss c/d............................................... Less: Paid in advance....................4,000 6,500 1,10,400 To Communication charges..................... 24,000 1,30,400 To Salary ........................................ 22,000 6,400 Add: Salary due................................ 2,000 4,500 Amount To Interest on loan ................................... 3,000 25,000 To Commission to salesman...................... 12,000 To Bad debts.............................................. 8,000 72,000 To Depreciation on plant and machinery (10% 1,30,400 40,000 60,000 on Rs. 80,000).................................... 30,000 80,000 b) Balance Sheet of 20,000 Sushmita Enterprises 13,000 As on 31st Chaitra, 2074 14,000 4,000 Capital and liabilities Amount Assets 4,000 Capital.............................................. 2,80,000 1,63,600 Goodwill.......................................................... 3,74,000 Less: Drawings...................................... 6,000 32,000 Copyright ....................................................... 95,000 Plant and machinery............................ 80,000 2,74,000 50,000 Less: Depreciation................................. 8,000 Less: Net loss.................................. 1, 10,400 28,600 Furniture and fittings....................................... Reserve fund.................................................. 2,800 Debtors........................................................... Bank loan ....................................................... 2,000 Closing stock.................................................. Creditors......................................................... Investment...................................................... Bills payable................................................... Bills receivable................................................ Outstanding wages......................................... Preliminary expenses..................................... Salary due...................................................... Cash at bank.................................................. Cash in hand.................................................. Advance office rent......................................... 3,74,000 162 Office Management and Accountancy

Ill-12 eTnhdeifnogllCowhaiintgraislaasttryiaelarbaalraenpcreoovfidKeadnttoipyuoruT:rading Concern for the year Debit items Amount Credit items Amount 25,700 Purchase................................................... 2,02,500 Bank overdraft........................................... 27,000 Sales return .............................................. 5,000 Sundry creditors........................................ 2,500 Wages....................................................... 48,000 Purchase return......................................... Salary........................................................ 36,000 Sales.......................................................... 3,25,000 2,95,000 Sundry debtors.......................................... 60,000 Capital....................................................... Factory rent............................................... 25,000 General reserve......................................... 20,000 Office rent, rates and taxes....................... 24,500 Loan ......................................................... 40,000 Building...................................................... 1,00,000 Commission received................................ 2,500 Bad debts ................................................. 6,000 Outstanding expenses............................... 6,800 Cash in hand............................................. 15,000 Discount on sales...................................... 4,500 7,44,500 Freight outward.......................................... 4,000 Goodwill..................................................... 25,000 Cr. Drawings.................................................... 14,000 Amount Investment................................................. 75,000 3,20,000 Business premises.................................... 80,000 68,000 General expenses..................................... 5,000 Patent........................................................ 15,000 3,88,000 7,44,500 Other information: i) The value of closing stock on Chaitra last year was Rs.68,000. ii) Factory rent is due for two months. iii) Wage is prepaid by Rs.8,000. iv) The value of building was depreciated by Rs.16,000. Required: b) Balance sheet a) Trading and profit and loss account Solution: Trading and Profit and Loss Account of a) Kantipur Trading Concern Dr. For the year ending Chaitra last year Particulars Amount Particulars To Purchases ............................2,02,500 2,00,000 By Sales ...................................... 3,25,000 Less: Purchase return ..................2,500 40,000 Less: Sales return ............................. 5,000 To Wages .....................................48,000 By Closing stock...................................... Less: Prepaid .................................8,000 To Factory rent .............................25,000 30,000 1,18,000 Add: Outstanding ...........................5,000 To Gross profit c/d................................... 3,88,000 Final Accounts 163

To Salary ................................................ 36,000 By Gross profit b/d .................................... 1,18,000 To Office rent, rates and taxes................. 24,500 By Commission received........................... 2,500 To Bad debts............................................ 6,000 To Discount on sales .............................. 4,500 1,20,500 To Freight outward ................................. 4,000 To General expenses .............................. 5,000 To Depreciation on building ................... 16,000 To Net profit c/d ...................................... 24,500 1,20,500 b) Balance Sheet of Kantipur Trading Concern As on 31st Chaitra, Last Year Capital and liabilities Amount Assets Amount 25,000 Capital.............................................2,95,000 3,05,500 Goodwill......................................................... 15,000 Less: Drawings...................................14,000 20,000 Patent ........................................................... 80,000 40,000 Business premises........................................ 2,81,000 27,000 Building........................................... 1,00,000 84,000 Add: Net profit.....................................24,500 25,700 Less: Depreciation............................. 16,000 75,000 General reserve ............................................ 6,800 Investment..................................................... 68,000 Loan ............................................................. 5,000 Closing stock................................................. 60,000 Sundry creditors............................................ Sundry debtors ............................................. 8,000 Bank overdraft............................................... Prepaid wages............................................... 15,000 Outstanding expenses................................... Cash in hand................................................. Factory rent due............................................ 4,30,000 4,30,000 Working note: Factory rent due = 25,000 x 2 = Rs. 5,000 10 Ill-13 From the following ledger balances and adjustments taken from the books of Sunflower Trading Concern, prepare a trading and profit and loss account and balance sheet as on 31st Ashadh last year: Opening stock.................................................... Rs.46,000 Land and building.......................................... Rs.1,20,000 Discount............................................................. 4,000 Cash at bank................................................. 30,000 Bank loan........................................................... 65,000 Drawings........................................................ 5,000 Rent (Cr.) ....................................................... 18,000 Capital........................................................... Plant and machinery.......................................... Return from customers.................................. 4,00,000 Trademark ........................................................ 1,50,000 Return to suppliers........................................ 4,000 Salaries.............................................................. 35,000 Wages and salaries....................................... 7,000 Prepaid insurance.............................................. 30,000 Carriage inward............................................. 8,000 Bad debts.......................................................... 6,000 Suppliers........................................................ 2,500 Customers......................................................... 7,500 Leasehold premises...................................... 60,000 Investment......................................................... 50,000 Purchases...................................................... 55,000 Sales.................................................................. 90,000 Royalty........................................................... Factory lighting.................................................. Excise duty.................................................... 1,80,000 Motive power..................................................... 3,00,000 Compensation received................................. 9,500 13,500 3,000 4,800 3,800 164 Office Management and Accountancy

Adjustments: a) Depreciate plant and machinery by 10% and land and building by 20%. b) Prepaid insurance is expired to the extent of Rs. 4,500. c) Wages unpaid Rs. 2,000. d) Value of closing stock Rs. 65,000 (market price Rs. 56,000) Solution: Trading and Profit and loss Account of Cr. a) Sunflower Trading Concern Dr. For the year ending 31st Ashadh, last year Particulars Amount Particulars Amount To Opening stock........................................... 46,000 By Sales ................................................ 3,00,000 2,96,000 To Purchases .................................. 1,80,000 1,73,000 Less: Sales return ....................................... 4,000 56,000 Less: Return ....................................... 7,000 By Closing stock................................................... To Factory lighting ........................................ 13,500 To Motive power ........................................... 4,800 To Wages and salaries ........................ 8,000 Add: Unpaid ......................................... 2,000 10,000 To Royalty...................................................... 9,500 To Excise duty............................................... 3,000 To Carriage inward........................................ 2,500 To Gross profit c/d......................................... 89,700 3,52,000 3,52,000 To Discount.................................................... 4,000 By Gross profit b/d ............................................... 89,700 To Salaries ................................................... 30,000 By Rent received.................................................. 18,000 To Insurance.................................................. 4,500 By Compensation received................................... 3,800 To Bad debts.................................................. 7,500 To Depreciation on plant and machinery ...... 15,000 To Depreciation on land and building............ 24,000 To Net profit c/d ............................................ 26,500 1,11,500 1,11,500 b) Balance Sheet of Sunflower Trading Concern As on 31st Ashadh, last year Capital and liabilities Amount Assets Amount Capital............................................... 4,00,000 4,21,500 Land and building........................... 1,20,000 96,000 Less: Drawings.......................................5,000 65,000 Less: Depreciation............................. 24,000 1,35,000 60,000 Plant and machinery....................... 1,50,000 3,95,000 2,000 Less: Depreciation............................. 15,000 35,000 Add: Net profit.......................................26,500 Trademark.................................................... 55,000 Bank loan ........................................................ Leasehold premises..................................... 90,000 Suppliers.......................................................... Investment.................................................... 56,000 Unpaid wages.................................................. Closing stock................................................ 1,500 Prepaid insurance (6,000 - 4,500)................ 50,000 Customers.................................................... 30,000 Cash at bank................................................ 5,48,500 5,48,500 Final Accounts 165

Key Terms Accrued income – income earned but not received. Adjustment entries – entries passed for the transactions not included in the trial Advance income balance. Apprentice premium Balance sheet – income received but not yet earned. Closing stock – amount collected by providing training to the learners. Direct expenses – a statement prepared to disclose the position of capital, liabilities and assets at the particular date. Direct income Final accounts – value of raw materials, semi-finished goods and finished goods remained in stock at the end of accounting period. Gross loss Gross profit – all the expenses related to purchase of materials and production of finished goods. Indirect expenses – income received by selling goods and valuing closing stock. Indirect income – accounts and statements prepared at the end of year to know Net loss the operating result and financial position of the firm. Net profit – excess amount of direct expenses over direct income. Opening stock – amount of profit obtained by deducting all the direct Outstanding expenses expenses from the total direct income i.e totals of sale and Preliminary expenses closing stock. Prepaid expenses Profit and loss account – all the expenses related to office and administration, selling and distribution and financial headings. Royalty – income received from the heads other than sales and closing Trading account stock. – excess amount of indirect expenses over indirect income. – amount of profit obtained by adding all indirect incomes to gross profit and deducting all indirect expenses. – stock of raw materials, semi finished goods and finished goods at the beginning of an accounting period. – expenses incurred/expired but not yet paid. – expenses incurred before establishment of an organization. – amount paid in advance for next period. – account prepared to determine the net profit or loss of a business firm. – amount to be paid to the landlord of mines and tea gardens for the proper use of mines and gardens. – account prepared to determine the gross profit or loss of a business firm. 166 Office Management and Accountancy

A. Very short answer questions 1. What is meant by final accounts? 2. What is trading account? 3. Why is profit and loss account prepared? 4. How is gross profit ascertained? 5. How is net profit determined? 6. When are final accounts prepared? 7. Write name of any two direct expenses. 8. Name any two direct incomes of the business firm. 9. What do you mean by indirect expenses and indirect incomes? 10. What is meant by closing stock? 11. Write any two items of indirect expenses. 12. How is closing stock valued at the business firm? 13. How is the accounting treatment of closing stock made in final account if given as adjustment? 14. What are accrued incomes? 15. What do you mean by advance incomes? 16. How do you treat the outstanding expenses and prepaid expenses in final account if they are given as adjustment? 17. Why is balance sheet prepared? 18. Mention any two items of assets to be shown in balance sheet. 19. Mention any two items of liabilities to be shown in balance sheet. 20. How is depreciation treated in final account if given in adjustment? 21. Write any two examples of intangible fixed assets. 22. Give any two examples of tangible fixed assets. 23. What do you mean by current assets? 24. How is drawing adjusted in balance sheet? 25. How is net profit or net loss treated in balance sheet? B. Short answer questions 1. What do you mean by final accounts? Mention its objectives. 2. What is trading account? Write its advantages. 3. What is profit and loss account? Write the advantages of preparing it. 4. What is balance sheet? Write the advantages of preparing balance sheet. 5. In what respects the trial balance and balance sheet are similar? Give any five points. 6. Mention the procedures of preparing trading and profit and loss account. Final Accounts 167

C. Long answer questions 1. Describe the items that are debited and credited in trading and profit and loss account. 2. Differentiate between trial balance and balance sheet. 3. What do you mean by adjustments in final account? Discuss the following adjustments to be made in final accounts with their accounting treatment: a) Closing stock b) Outstanding expenses c) Prepaid expenses d) Depreciation on fixed assets PRACTICAL PROBLEMS(PP) Trading account PP-1 From the following particulars, prepare a trading account of Mixmax Store for the year ending 31st Chaitra 2074 and determine the gross profit or gross loss: Opening stock...............................................Rs.35,000 Sales................................................Rs.1,95,000 Purchase........................................................... 1,20,000 Sales return...............................................5,000 Purchase return.................................................... 4,000 Carriage inward.....................................6,500 Import duty.......................................................... 8,500 Closing stock.........................................40,000 Coolie and cartage expenses.............................. 6,000 Store consumed..................................14,000 Factory rent ........................................................ 12,000 Royalties.................................................8,000 Coal and coke....................................................... 7,500 PP-2 Ans: Gross profit Rs. 16,500 The following ledger balances are extracted the books of Monark Manufacturing Company for the year ended 31st Decmber, 2017: Opening stock.................................. Rs.1,00,000 Sales............................................Rs.10,00,000 Purchase..................................................4,50,000 Return inward.....................................20,000 Return outward.........................................10,000 Power expenses.................................45,000 Freight inward...........................................40,000 Coal, coke and oil..............................19,000 Direct wages...........................................1,20,000 Water supply.......................................12,000 Duty and clearing charge ......................25,000 Closing stock.......................................75,000 Excise duty.................................................15,000 Factory rent........................................10,000 Factory insurance......................................15,000 Required: Trading account to determine the gross profit or gross loss Ans: Gross profit Rs.2,14,000 168 Office Management and Accountancy

PP-3 You are provided the following particulars from the books of Sushan Trading Concern on 31st December, 2017: Stock on 1st January ...................... Rs.65,000 Sales....................................................... Rs.3,20,000 Freight inward ............................... 18,000 Return inward...................................... 2,000 Purchases ........................................ Productive wages................................. 24,000 Return outward .............................. 2,45,000 Fuel and gas.......................................... 19,500 Factory heating and lighting ........ 5,000 Manufacturing expenses..................... 25,000 Stock on 31st December ................ 15,000 Coal and coke....................................... 6,500 Custom duty .................................. 48,000 Carriage on purchase.......................... 4,00 0 Store consumed ............................. 12,000 Factory insurance................................. 7,500 24,000 Required: Trading account to determine the gross profit or gross loss Ans: Gross loss Rs. 94,500 PP-4 Ascertain the gross profit or gross loss from the following particulars of Bishal Manufacturing Company for the year ended 31st Chaitra: Stock on 1st Baisakh................ Rs. 68,000 Factory, rent and insurance...... Rs. 8,000 Purchase.................................... 3,70,000 Coal and coke............................. 6,850 Carriage inward....................... 8,600 Clearing charge.......................... 4,000 Royalties.................................... 16,000 Store consumed.......................... 13,000 Sales............................................ 4,55,000 Stock on 31st Chaitra.................. 45,000 Wages......................................... 14,500 Primary packing........................ 3,500 Manufacturing expenses........ 6,500 Octroi charges............................. 4,000 Sales return............................... 8,550 Excise duty.................................. 5,000 Coolie and cartage................... 14,250 Dock charges.............................. 4,500 Power, heating & lighting...... 12,750 Foreman salary........................... 11,000 PP-5 Ans: Gross loss Rs. 79,000 Following are the ledger balances of Sangam Enterprises for the year ended 31st Ashadh, 2074: Heating and lighting............................ Rs.14,000 Sales...................................................... Rs.3,60,750 Purchases............................................... 2,80,000 Return from customer........................ 8,000 Return to supplier................................. 4,000 Stock at the end .................................. 67,000 Excise duty............................................. 8,500 Store consumed .................................. 6,000 Stock at the beginning.......................... 16,000 Wages and salaries.............................. 28,000 Freight inward....................................... 6,000 Royalties............................................... 14,000 Manufacturing expenses...................... 25,750 Factory rent.......................................... 18,000 Fuel, power and gas............................. 6,750 Other factory expenses...................... 6,500 Coolie and cartage................................ 8,250 Required: Trading account Ans: Gross loss Rs. 14,000 Final Accounts 169

Profit and loss account PP-6 From the following transactions of Ganesh Company, prepare profit and loss account for the year ended 31st Dec, 2017 to determine the net profit or net loss: Gross profit........................................ Rs.2,70,500 Carriage outward...................................... Rs.15,500 Office rent.......................................... 13,000 Advertisement........................................... 16,000 Salaries. .............................................. 20,000 Legal charges............................................. 1,800 Printing and stationery.................... 10,000 Bank charges.............................................. 1,200 Discount allowed.............................. 1,000 Commission received............................... 3,000 Telephone charges............................ 8,500 Discount received..................................... 5,000 PP-7 Ans: Net profit Rs. 1,91,500 Prepare a profit and loss account of a trading concern for the year ended Chaitra 30, 2074 to ascertain the net profit or net loss: Gross profit..................................... Rs.4,28,000 Repair and maintenance............ Rs.12,000 Rent, rates and taxes...................... 1,10,000 Audit fees..................................... 17,000 Salary............................................... 1,20,000 Rent received............................... 10,500 Carriage outward........................... 19,000 Postage and telegrams............... 7,000 Advertisement................................ 25,000 Commission allowed.................. 9,000 Discount received.......................... 6,000 Other office expenses................. 8,000 PP-8 Ans: Net profit Rs. 1,17,500 The following particulars are extracted from the books of Durga as on 31st Ashadh, 2074. You are required to prepare a profit and loss account: General expenses....................... Rs.67,000 Miscellaneous receipts..................... Rs.16,000 13,000 Gross profit................................. 5,01,000 Communication charges.................. 29,000 Establishment expenses............ 68,000 Carriage on sales............................... 31,000 Bad debts..................................... 12,000 Depreciation on assets...................... 22,000 Travelling expenses................... 80,000 Interest on investment.............. 27,000 Electricity charges ...................... PP-9 Ans: Net profit Rs. 2,22,000 Prepare a profit and loss account of Amar Company for the year ended 31st March, 2017: Gross loss........................................... Rs.1,02,000 Travelling expenses.................................. Rs.27,000 Salary.................................................. 81,000 Depreciation ............................................. 18,000 Establishment charges..................... 45,000 Electricity charges..................................... 13,500 Bad debts written off........................ 30,000 Telephone charges.................................... 11,600 Miscellaneous expenses................... 49,000 Rent, rates and taxes................................. 55,000 Carriage on sales .............................. 39,000 Legal expenses......................................... 10,000 Interest on investment..................... 25,000 Insurance premium.................................. 7,000 Ans: Net loss Rs. 4,63,100 170 Office Management and Accountancy

PP-10 yFreoamr etnhdeefdo3ll1oswt Minagrcihn,f2o0rm17a:tion, prepare a profit and loss account for the Gross loss............................... Rs.71,500 Entertainment expenses...................... Rs.8,900 Office expenses..................... 81,000 Bad debt recovered.............................. 13,000 Salaries and wages............... 73,000 Selling expenses................................... 23,700 Commission earned............. 23,000 Interest on investment......................... 40,000 Directors fees........................ 18,000 Refreshment expenses......................... 11,500 Interest on loan.................... 17,500 Salesman commission......................... 9,600 Depreciation......................... 16,000 Stationery.............................................. 15,000 Ans: Net loss Rs. 2,69,700 PP-11 Prepare a profit and loss account of Muna & Sons (Pvt.) Ltd. for the year ended 30th Chaitra from the following particulars: Gross profit............................. Rs.1,20,000 Discount allowed.............................. Rs.4,500 Salaries and wages................ 34,000 Carriage outward.............................. 6,500 Office rent and rates.............. 25,000 Bank charges...................................... 1,500 Bad debts................................. 6,000 Stationery expenses.......................... 2,500 Income from investment....... 12,000 Legal fees........................................... 1,750 Dividend received................. 18,000 Rent from tenant............................... 4,850 Ans: Net profit Rs. 73,100 PP-12 Following ledger balances taken from Tara Trade Concern are provided to you: Gross loss............................................ Rs.80,000 Export duty.................................................. Rs.4,000 Rent received...................................... 24,000 Commission (Cr.)........................................ 3,500 Interest on fixed deposit................... 6,000 General expenses........................................ 750 Repair and maintenance................... 4,000 Carriage on sales......................................... 1,500 Salesman commission....................... 8,500 Sale of scrap................................................. 1,700 Legal charges...................................... 500 Entertainment expenses............................. 600 Depreciation on furniture................. 1,250 Discount on sales........................................ 1,200 Staff salaries........................................ 20,000 Required: Profit and loss account Ans: Net loss Rs. 87,100 PP-13 Calculate the net profit or net loss from the following ledger balances of Radha & Sons for the fiscal year ended 31st Ashadh, last year: Salaries and wages...................... Rs.32,000 Sundry expense........................... Rs.750 Insurance premium.................... 6,000 Gross profit ................................. 85,000 Travelling expenses.................... 4,000 Legal charges............................... 4,000 Bad debts recovered .................. 3,200 Interest on overdraft................... 2,500 Postage and telegram................. 1,600 Loss on sale of furniture............ 1,800 Advertisement............................. 4,500 Transfer fees................................. 11,000 Freight outward.......................... 1,850 Discount on purchase................. 650 Ans: Net profit Rs. 40,850 Final Accounts 171

PP-14 The following ledger balances are extracted from the books of Himalayan Enterprises as on 31st Chaitra 2074: Particulars Debit Rs. Credit Rs. Donation and charity............................................................................................................. 12,000 - Delivery van expenses.......................................................................................................... 8,500 - Interest on loan...................................................................................................................... 6,000 - Gross profit............................................................................................................................ 75,500 Rent from tenant.................................................................................................................... - 14,000 Bad debts recovered............................................................................................................. - 2,000 Interest earned...................................................................................................................... - 7,000 Discount................................................................................................................................. - 4,300 Fine and penalties................................................................................................................. 6,400 - Commission received............................................................................................................ 1,500 7,500 Gain on sale of plant.............................................................................................................. - 6,400 Printing and stationeries........................................................................................................ - - Rent paid............................................................................................................................... 16,000 - 24,000 Required: Profit and loss account Ans: Net profit Rs. 42,300 Trading and profit & loss acouunt PP-15 The following i nformation is extracted from the books of Danphe Trading Concern for the year ended 31st December 2017 : Purchases.................................... Rs.2,70,000 Opening stock............................ Rs.50,000 7,03,000 Wages .......................................... 1,40,000 Sales............................................. 37,000 80,000 Carriage inward......................... 20,000 Office expenses........................... 14,000 12,000 Sales return................................. 3,000 Salary........................................... 13,000 Closing stock.............................. 27,000 Printing and stationery............. Selling expenses......................... 29,000 Audit fees.................................... Bad debts..................................... 5,000 Commission received................ Required: Trading and profit and loss account Ans: Gross profit Rs. 2,47,000. Net profit Rs. 83,000 PP-16 The following particulars are extracted from the books of a trader for the year ended 31st March, 2017: Sales ........................................... Rs.9,00,000 Purchases................................... Rs.3,10,000 Purchase return......................... 10,000 Advertisement........................... 13,000 Carriage outward...................... 30,000 Interest expenses....................... 10,000 Office rent.................................. 40,000 Closing stock............................. 70,000 General expenses...................... 36,000 Direct wages.............................. Salaries. ...................................... 37,000 Production expenses................ 1,70,000 Discount received..................... 17,000 Discount allowed...................... 50,000 14,000 Required: Trading and profit and loss account Ans: Gross profit Rs. 4,50,000, Net profit Rs. 2,87,000 172 Office Management and Accountancy

PP-17 The following particulars are available from the books of a trader as on Chaitra 30, 2074: Stock (1-1-2074)............................... Rs.70,000 Sales..................................... Rs.6,23,000 Productive wages............................ 1,35,000 Purchases............................. 1,90,000 Carriage on purchase .................... 60,000 Carriage on sales................ 25,000 Return inward................................. 13,000 Insurance............................. 10,000 Production expenses...................... 63,000 Bad debt.............................. 6,000 Fuel, gas and water......................... 15,000 Commission (Dr.)............... 12,000 Interest on bank loan...................... 18,000 Office expenses................... 40,000 Required: Trading and profit and loss account Ans: Gross profit Rs. 77,000, Net loss Rs. 34,000 PP-18 The following information of a trader are given to you: Wages and salaries............................... Rs.36,000 Import duty........................................ Rs.13,000 Sundry expenses................................... 10,000 Repair.................................................. 18,000 Trade expenses...................................... 4,000 Rent...................................................... 28,000 Bad debt recovered............................... 7,000 Depreciation....................................... 18,000 Interest on investment.......................... 9,000 Selling expenses................................. 23,000 Postage and telegram........................... 3,000 Travelling expenses........................... 18,000 Beginning inventory............................. 50,000 Purchase.............................................. Sales........................................................ Heating and lighting......................... 2,30,000 19,000 3,00,000 Required: Trading and profit and loss account Ans: Gross loss Rs. 48,000, Net Loss Rs. 1,54,000 PP-19 You are provided the following information of a company for the fiscal year ended 31st Ashadh, 2074: Power and fuel.................................... Rs.21,000 Stock (31-3-2074)..................................... Rs.40,000 Manufacturing wages........................ 81,000 Traveller’s commission.......................... 22,000 Export duty.......................................... 41,000 Dividend received.................................. 18,000 Cartage................................................. 10,000 Distribution expenses............................. 45,000 Depreciation of machinery................ 15,000 Commission (Cr.).................................... 9,000 Salary and wages................................ 46,000 Interest (Dr.)............................................. 13,000 Purchases............................................. Royalty................................................. 2,50,000 Sales.......................................................... 4,00,000 60,000 Miscellaneous income............................ 12,000 Required: Trading and profit and loss account Ans: Gross profit Rs. 18,000, Net loss Rs. 1,25,000 Final Accounts 173

Balance sheet PP-20 fPrroempatrheeafoblalolawnicnegsthreaentsaocftiaoncos:mpany for the year ended 31st Dec, 2017 Machinery......................................... Rs.2,50,000 Land and building................................. Rs.4,06,000 Net profit........................................... 1,40,000 General reserve...................................... 16,000 Capital .............................................. 4,60,000 Furniture and fixtures........................... 55,000 Debtors.............................................. 1,50,000 Creditors. ................................................ Loan from bank................................ 2,85,000 Closing stock.......................................... 1,32,000 Cash in hand..................................... 25,000 Cash at bank........................................... 90,000 57,000 Ans: Total Rs. 10,33,000 PP-21 3P1restpAasrheaadbha,l2a0n7c4e sheet of a company from the following particulars as on : Capital.............................................. Rs.13,90,000 Sundry creditors................................... Rs.1,95,000 Drawing........................................... 10,000 Cash in hand.......................................... 25,000 Net profit.......................................... Reserve fund ......................................... 80,000 Building............................................ 1,17,000 Cash at bank.......................................... Plant and machinery...................... 7,50,000 Computer and equipment................... 1,17,000 Sundry debtors................................ 2,50,000 Closing stock......................................... 2,25,000 2,10,000 1,95,000 Ans: Total Rs. 17,72,000 PP-22 F20ro16m: the following particulars, prepare a balance sheet as on 31st Dec, Vehicles.................................................. Rs.5,10,000 Bills payable.......................................... Rs.1,80,000 Loan from friends................................ 1,40,000 Creditors............................................... 2,00,000 Computer and equipment.................. 2,95,000 Capital .................................................. 8,70,000 Cash at bank......................................... 97,500 Net profit .............................................. 1,85,000 Debtors.................................................. 2,10,000 Closing stock........................................ 1,05,000 Bills receivable ..................................... 1,50,000 Prepaid expenses................................. 25,000 Drawings .............................................. 20,000 Investment............................................ 1,62,500 Ans: Total Rs. 15,55,000 PP-23 FCrhoamitrthae3f1o, l2l0o7w4i:ng information of a company, prepare a balance sheet as on Land and building............................ Rs.12,90,000 Accounts payable............................... Rs.2,96,000 Capital ............................................... 25,00,000 Vehicles................................................. 13,00,000 Accounts receivable ........................ 3,13,000 Furniture and fittings......................... 2,15,000 Bills receivable................................... 2,00,000 Bills payable......................................... 3,50,000 Outstanding expenses...................... 30,000 Drawing............................................... 40,000 Loan.................................................... 2,00,000 Prepaid expenses................................ 15,000 Net profit............................................ 2,18,000 Investment........................................... 2,21,000 Ans: Total Rs. 35,54,000 174 Office Management and Accountancy

Cash at bank..................................... Rs.56,850 Capital ............................................ Rs.6,00,000 Net loss............................................... 53,970 Prepaid expenses........................... 3,000 Goodwill. ........................................... Accounts receivable....................... Outstanding expenses...................... 2,00,000 Investment ..................................... 1,09,000 Drawing............................................. 15,000 Computer and equipment............ 67,000 Accounts payable ............................. 13,900 Motor car......................................... 78,000 Reserve fund...................................... 95,000 Bank overdraft............................... 67,000 2,98,280 1,03,000 Ans: Total Rs. 8,12,130 PP-25 From the following particulars of Mayur Traders, prepare a balance sheet as on 31st Ashadh, 2074: Goodwill. ............................................ Rs.1,75,000 Net loss................................................... Rs.40,000 Book debts.......................................... 2,17,000 Copy right.............................................. 2,00,000 Bank overdraft................................... 1,89,000 Loan to Udit........................................... 70,000 Business premises............................. 10,47,000 Advance income................................... 35,000 Cash in hand...................................... 21,000 Creditors................................................ 2,98,000 Closing stock..................................... 1,48,000 Furniture................................................ 1,45,000 Capital................................................ 16,40,000 Cash at bank......................................... 99,000 Ans: Total Rs. 2,1,22,000 PP-26 From the following ledger balances of Himal Company, prepare a balance sheet as on 31st March, 2017: Cash in hand............................................ Rs.50,000 Net profit............................................. Rs.1,07,300 Advance income..................................... 38,000 Loan to Dibya..................................... 95,000 Business premises................................... Accrued income................................. 27,000 Patent right.............................................. 10,37,300 Accounts payable............................... Loose tools............................................... 1,00,000 Book debts.......................................... 1,69,000 Capital...................................................... copy right............................................ 2,00,000 Closing stock........................................... 50,000 repaid rent........................................... 1,50,000 15,10,000 1,00,000 15,000 Ans: Total Rs. 18,24,300 PP-27 From the following particulars of Everest Company, prepare a balance sheet for the year ended 31st Dec, 2017: Accrued income...................................... Rs.23,000 Reserve................................................... Rs.45,000 Capital...................................................... 9,00,000 Livestock................................................ 1,10,000 Trade mark............................................... 2,00,000 Plant and machinery............................ 6,39,000 Advance rent........................................... 16,000 Outstanding salary............................... 20,000 Bank balance............................................ 1,71,000 Accounts receivable.............................. 1,82,000 Loan from NB Bank................................ 2,00,000 Unearned income................................. 7,000 Account payable..................................... 1,72,000 Net loss................................................... 3,000 Ans: Total Rs. 13,41,000 Final Accounts 175

PP-28 From the following information, prepare a balance sheet of Sujan Traders Ltd. as on 31st March, 2017: Net loss ................................................ Rs.1,27,000 Accrued income..................................... Rs.10,000 Reserve................................................. 76,000 Plant and machinery............................. 9,03,000 Loose tools........................................... 45,000 Sundry debtors....................................... 1,93,000 Long term loan.................................... Drawing.................................................. 6,000 Advance income.............................. 2,00,000 Bank overdraft........................................ 1,00,000 Capital.................................................. 26,000 Sundry creditors.................................... 1,67,000 Salary payable..................................... Closing stock.......................................... 1,98,000 8,96,000 17,000 Ans: Total Rs. 13, 49,000 Profit and loss account and balance sheet PP-29 Following information is extracted from the books of Dugad Company as on 31st Dec., 2017: Furniture.............................................. Rs.1,00,000 Sundry debtors................................... Rs.1,99,000 Plant and machinery.......................... 10,000 Salary.................................................... 2,70,000 Discount received.............................. 15,000 Gross profit.......................................... 80,000 Commission paid............................... 43,000 Reserve fund........................................ Bank balance....................................... Sundry creditors................................. 2,57,000 Closing stock...................................... 1,25,000 Office expenses.................................... 6,70,000 Advertisement..................................... 57,000 Capital................................................. 1,80,000 1,56,000 Investment.......................................... 50,000 Selling expenses................................. 25,000 63,000 Required: a) Profit and loss account b ) Balance sheet Ans: a) Net profit Rs. 34,000 b) Total Rs. 9,17,00 PP-30 You are provided the following information of Palpa Trading Company for the year ended 31st March, 2017: Drawing................................................. Rs.30,000 Capital............................................... Rs.7,30,000 Discount allowed.................................. 15,000 Accounts receivable ....................... 2,98,000 Computer and equipment................... Prepaid expenses............................. 10,000 Goodwill. ............................................... 4,06,000 Gross profit....................................... 2,01,000 Accounts payable................................. 2 ,00,000 Travelling expenses......................... 51,000 Rent and rates........................................ 2,17,000 Bank loan.......................................... 2,15,000 Interest expenses................................... Distribution expenses..................... 23,000 Printing and stationery........................ 75,000 Interest received............................... 17,000 Bank charges.......................................... 27,000 Bank balance..................................... 1,89,000 41,000 15,000 Required: a) Profit and loss account b) Balance sheet Ans: a) Net loss Rs. 29,000 b) Total Rs. 11,03,000 176 Office Management and Accountancy

PP-31 You are given the following information for the year ending Ashadh 31, 2074: Rent (Cr.)................................................ Rs.10,000 Capital................................................ Rs.7,50,000 Stationery .............................................. 12,000 Bank loan........................................... 1,00,000 Commission (Cr.).................................. 12,500 Creditors............................................ 70,000 Depreciation.......................................... 30,000 Book debts......................................... 91,000 Interest on loan...................................... 18,000 Land and building............................ 6,45,500 General reserve..................................... 40,000 Loan to Ramu.................................... 70,000 Rent......................................................... 20,000 Gross loss........................................... 89,000 Bills payable........................................... 80,000 Bills receivable................................... 95,000 Outstanding expenses.......................... 30,000 Cash in hand...................................... 22,000 Required: a) Profit and loss account b) Balance sheet Ans: a) Net loss Rs. 1,46,500 b) Total Rs. 9,23,500 PP-32 The following trial balance relates to Himal Trade Company as on 31st December, 2017: Particulars Rs. Particulars Rs. Copy right......................................................... 1,00,000 Capital.......................................................... 4,86,000 Furniture .......................................................... 95,000 Gross profit................................................... 2,88,000 Plant and machinery......................................... Creditors....................................................... 1,50,000 Office expenses................................................ 4,10,000 Bills payable................................................. Selling expenses.............................................. 53,000 Outstanding expenses.................................. 61,000 Stationery......................................................... 46,000 Loan from Himalayan Bank.......................... 22,000 Salaries............................................................. 40,000 Commission received................................... 1,00,000 Debtors............................................................. 65,000 15,000 Cash in hand ................................................... Investment........................................................ 1,47,000 20,000 1,46,000 11,22,000 11,22,000 Required: b) Balance sheet a) Profit and loss account Ans: a) Net profit Rs. 99,000 b) Total Rs. 9,18,000 PP-33 The following trial balance of a trading concern on Chaitra 31, 2074 is given to you: S.N. Particulars Debit Rs. Credit Rs. 1. Gross profit ......................................................................................... 1,02,000 2. Capital ................................................................................................ 6,00,000 11,36,000 3. Land and building................................................................................ 2,10,000 4. Computer and equipment.................................................................... 1,10,000 5. Bank balance....................................................................................... 6. Printing and stationery ....................................................................... 17,000 Final Accounts 177

7. General expenses .............................................................................. 28,000 8. Legal charges ..................................................................................... 8,000 9. Bad debts ........................................................................................... 7,000 10. Bank charges ...................................................................................... 5,000 11. Accounts receivable ........................................................................... 1,80,000 12. Accounts payable................................................................................ 1,60,000 13. Distribution expenses.......................................................................... 87,000 14. Bad debt recovered ............................................................................ 3,000 15. Closing stock ...................................................................................... 1,30,000 16. Prepaid expenses ............................................................................... 19,000 Total 14,01,000 14,01,000 Required: a) Profit and loss account b) Balance sheet Ans: a) Net loss Rs. 47,000, b) Total Rs. 12,49,000 Trading, profit and loss account and balance sheet PP-34 You are given the following trial balance of Manakamana Trading Company as on 31st Dec, 2017: Particulars Rs. Particulars Rs. 6,00,000 Opening stock................................................. 10,000 Sales............................................................. 2,00,000 Purchases ...................................................... 3,00,000 Capital.......................................................... Drawing.......................................................... Loan ............................................................ 50,000 Carriage inward.............................................. 10,000 Creditors....................................................... 60,000 Wages............................................................ 20,000 Reserve fund................................................ 25,000 Salaries........................................................... 60,000 Stationery....................................................... 50,000 9,35,000 Rent and rates................................................ 6,000 Other office expenses..................................... 55,000 Printing........................................................... 40,000 General expenses.......................................... 10,000 Furniture......................................................... 2,000 Cash............................................................... 70,000 Bank............................................................... 2,000 Debtors........................................................... 56,000 Plant and machinery....................................... 70,000 1,74,000 9,35,000 Required: a) Trading and profit and loss account b) Balance sheet Ans: A) Gross profit Rs. 2,10,000, Net profit Rs. 47,000, b) Total Rs. 3,72,000 178 Office Management and Accountancy

PP-35 You are given the following information of Trigun Traders Company for the year ending Chaitra 30, 2074: Capital................................................ Rs.4,00,000 Plant and machinery................... Rs.3,70,000 Computer and equipment............... 85,000 Drawing........................................ 10,000 Sundry debtors.................................. Wages.................................................. 1,40,000 Sundry creditors.......................... 1,56,000 Sales.................................................... 1,00,000 Purchases ..................................... 2,70,000 Bank loan........................................... 6,18,000 Opening stock.............................. Salary.................................................. 86,000 Advertisement................................... 50,000 Bank balance ................................ 61,000 Discount allowed.............................. 28,000 Rent and rates............................... 20,000 Printing and stationery.................... 14,000 Selling expenses........................... 15,000 5,000 Commission received.................. 15,000 9,000 Carriage inward........................... 26,000 Required: a) Trading and profit and loss account b) Balance sheet Ans: a) Gross profit Rs. 1,36,000, Net profit Rs. 60,000 b) Total Rs. 6,56,000 PP-36 You are given the following trial balance of a company as on 31st March, 2013: Particulars Rs. Particulars Rs. Opening stock................................................. 1,00,000 Capital.................................................... 5,20,000 Purchases ...................................................... 9,00,000 Purchase return...................................... Sales return.................................................... 20,000 Drawing.......................................................... 16,000 Bank loan ............................................... 2,00,000 Salaries........................................................... 20,000 Reserve fund.......................................... 1,00,000 Sundry expenses............................................ 80,000 Sundry creditors..................................... Interest on loan............................................... 20,000 Sales....................................................... 80,000 Carriage outward............................................ 30,000 Bills payable........................................... 15,00,000 Wages............................................................ 10,000 Factory expenses........................................... 1,20,000 70,000 Bank charges.................................................. 50,000 Depreciation................................................... 15,000 Selling expenses............................................ 16,000 Bad debts....................................................... 35,000 Insurance........................................................ 11,000 Land and building........................................... 4,000 Closing stock.................................................. 6,12,000 Sundry debtors............................................... 1,30,000 Bills receivable................................................ 1,17,000 Cash at bank.................................................. 90,000 1,14,000 24,90,000 24,90,000 Final Accounts 179

Required: a) Trading and profit and loss account b) Balance sheet Ans: a) Gross profit Rs. 3,34,000, Net profit Rs.1,13,000 b) Total Rs. 10,63,000 PP-37 You are given the following balances of Gorkha Trade Concern for the year ended Ashadh 31, 2074: Wages.................................................... Rs.2,00,000 Depreciation.................................. Rs.30,000 Capital.................................................. 5,00,000 Selling expenses............................ 6,000 Drawing............................................... 40,000 Accounts payable.......................... General expenses................................ 30,000 Distribution expenses................... 1,60,000 Building................................................ 4,00,000 Bank overdraft............................... 10,000 Goodwill. ............................................. 1,00,000 Cash at bank.................................. Closing inventory............................... 50,000 Purchases ...................................... 1,15,000 Rent....................................................... 70,000 Accounts receivable...................... 35,000 Printing................................................. 10,000 Sales................................................ Investment........................................... 60,000 Sundry income.............................. 5,00,000 Carriage inward.................................. 55,000 Import duty................................... 1,54,000 10,00,000 10,000 35,000 Required: a) Trading and profit and loss account b) Balance sheet Ans: a) Gross profit Rs. 2,10,000, Net profit Rs. 64,000 b) Total Rs. 7,99,000 PP-38 The trial balance of Bira Industry as on 31st Chaitra 2074 is given below: S.N. Particulars Debit Rs. Credit Rs. 1. Drawing and capital............................................................................................ 15,000 6,70,000 2. Wages and salaries............................................................................................ 3. Purchase and sales............................................................................................ 1,20,000 5,25,000 4. Power expenses ................................................................................................ 3,85,000 5. Return................................................................................................................. 5,000 6. G eneral reserve.................................................................................................. 51,000 27,000 7. Salesman salaries.............................................................................................. 20,000 8. Loose tools ........................................................................................................ 9. Cash in hand ..................................................................................................... 19,000 10. Stationery .......................................................................................................... 16,000 11. Loan to Ramu..................................................................................................... 21,000 12. Bad debts........................................................................................................... 17,000 13. Postage expenses.............................................................................................. 1,00,000 2,000 180 Office Management and Accountancy 1,000

14. Creditors ............................................................................................................ 1,15,000 1,04,000 23,000 15. Book debt .......................................................................................................... 80,000 8,000 25,000 16. Sundry expenses ............................................................................................... 13,000 13,64,000 17. Furniture and fixtures.......................................................................................... 18. Bad debt recovered............................................................................................ 1,66,000 19. Trade expenses ................................................................................................. 2,00,000 20. Advance income ................................................................................................ 13,64,000 21. Closing stock...................................................................................................... 22. Copy right........................................................................................................... Total.............................................................................................................. Required: a) Trading and profit and loss account b) Balance sheet Ans: a) Gross loss Rs. 46,000, Net loss Rs. 1,13,000 b) Total Rs. 6,98,000 Final accounts with adjustments PP-39 The following is a trial balance of Mega Company as on 31st Chaitra, 2074: Particulars Amount Particulars Amount 2,50,000 Opening stock............................................. 10,000 Capital.......................................................... 2,90,000 Purchase.................................................... 90,000 Sales............................................................. Wages........................................................ 25,000 Sundry creditors........................................... 25,000 Salary......................................................... 20,000 Commission received................................... 6,000 Land and building....................................... 2,00,000 Interest on investment.................................. 5,000 Rent............................................................ 30,000 Bank loan...................................................... 40,000 Insurance.................................................... 12,000 Cash at bank.............................................. 19,000 6,16,000 Sundry debtors........................................... 35,000 Discount...................................................... 5,000 Investment.................................................. 40,000 Plant and machinery................................... 1,30,000 6,16,000 Adjustments: a) Closing stock was valued at Rs. 20,000. b) Outstanding wages amounted to Rs. 4,000. c) Prepaid insurance Rs. 2,000. d) Depreciate plant and machinery by Rs. 26,000. Required: a) Trading and profit and loss account b) Balance sheet Ans: a) Gross profit Rs. 1,81,000, Net profit Rs. 1,01,000 b) Total Rs. 4,20,000 Final Accounts 181

PP-40 The following trial balance and adjustments of Arox Company on 31st December, 2017 were given to you: Particulars Amount Particulars Amount 3,50,000 Purchase..................................................... 1,00,000 Sales........................................................ 5,000 1,60,000 Sales return................................................. 10,000 Purchase return....................................... 15,000 45,000 Freight inward.............................................. 20,000 Capital..................................................... 40,000 1,000 Furniture and fixtures................................... 1,50,000 Interest on investment............................. 6,16,000 Opening inventory....................................... 5,000 Creditors.................................................. Discount....................................................... 15,000 Loan from friends..................................... Investment................................................... 1,00,000 Miscellaneous income............................. Debtors........................................................ 40,000 Salary and wages........................................ 35,000 Rent and rates............................................. 30,000 Audit fees..................................................... 10,000 Advertisement.............................................. 25,000 Cash and bank balance............................... 76,000 6,16,000 Adjustments: a) Stock in hand on 31st December 2017 was Rs. 20,000. b) Outstanding salary Rs. 5,000. c) Prepaid rent Rs. 10,000. d) Depreciate furniture by Rs. 30,000. Required: a) Trading and profit and loss account b) Balance sheet Ans: a) Gross profit Rs. 2,40,000, Net profit Rs. 1,16,000 b) Total Rs. 3,66,000  182 Office Management and Accountancy

7 GOVERNMENT Chapter ACCOUNTING Learning Objectives After studying this chapter, the readers will be able to :  define government accounting and explain its features,  differentiate between government accounting and business accounting,  introduce new accounting system and describe its objectives and features,  differentiate between central level and operating level accounting,  write the functions of the Office of the Auditor General, the Office of the Finance Comptroller General and the Treasury and Comptroller Office,  write the meaning of audit and explain the types of audit and their impatance,  describe the development of auditing in Nepal,  differentiate between internal audit and final audit. Introduction Like business organizations, government offices also perform a number of financial transactions daily. Such transactions are related to revenue and expenditures of the government. In order to keep the record of revenue and expenditures, the government practiced different accounting systems in different period of time. After the introduction of new accounting system in Nepal since 2019/20 B.S, it brought uniformity in accounting. Since then, the government also emphasized on systematic recording as well as auditing of the books of account. As a result, the Office of the Auditor General was established in 2016 B.S. Under new accounting system, the government offices have been classified into central level and operating level offices. It has the provision of internal audit and final audit for all the government offices including corporations. There are different legal bodies incorporated for maintaining effective control over budget and implementing the accounting policies of the government. The Office of the Auditor General is responsible for final audit of government offices and corporations having investment of the government. Similarly, the Office of the Treasury and Comptroller is involved in releasing the approved budget to operating level offices. Another department level office i.e the Office of Finance Comptroller General performs the functions such as internal audit, budget operation and control, funds management, amendment and reforms in accounting system, training and development of accounting staffs, financial administration etc. Thus, government accounting system has maintained effectiveness and reliability in keeping the record of revenue and expenditures. Government Accounting 183

Concept and definition Government is the responsible body of the nation. It has to perform a number of administrative and developmental activities for the people. The government also has to perform a large number of financial transactions relating to such activities. The systematic recording of every financial transaction is equally important. Thus, in order to keep a systematic recording of financial transactions taking place daily, the government follows a proper accounting system which is known as government accounting. It is the part of accounting that maintains the record of governmental revenue and expenditures. Government accounting is the systematic process of collecting, recording, classifying, summarizing, interpreting and communicating the financial transactions of the government offices. It provides the information about the collection of revenue from different heads and their utilization in various administrative and development activities. It discloses the position of the government providing the information about receipts and utilization of public fund. Following is the definition of government accounting. “Government accounting is the process of recording, analyzing, classifying, summarizing, communication and interpreting financial information about government in aggregate and in details, reflecting all transactions involving the receipts, transfer and disposition of government fund and property.” Oshisami and Dean The accounting system followed by the government offices to keep the systematic record of revenue and expenditures of the government is known as government accounting. Short Notes to Remember (SNR 7.1)  Government accounting is the process of collecting, recording classifying, summarizing, interpreting and communicating the financial transaction of the government offices.  It is followed by all the government offices including ministries, departments and other central and operating level government offices. Differences between government accounting and business accounting Besides government accounting, there is another accounting i.e. business accounting which is maintained by the business organizations. Both accounting systems are concerned with recording classifying, summarizing and interpreting the financial transactions in a systematic manner. Both the systems are based on double entry concept. However, there are some differences as given below: 184 Office Management and Accountancy

Basis of difference Government accounting Business accounting 1. Meaning It is the accounting system used by government offices It is the accounting 2. Purpose to keep the record of revenue system used by business and expenditures. organizations to keep 3. Basis the record of financial Its main purpose is to depict transactions. the position of government Its main purpose is to funds. ascertain the profit or loss and financial condition of the It is maintained on cash basis. business firm. It is maintained on cash as well as accrual basis. 4. Level of It has the provision of central It does not have any accounting 5. Budget and operating level of classification of level of accounting. accounting. It strictly follows the It does not follow the budgeting system government. of government budgeting system. 6. Information It provides information about It provides information the receipts, transfer and about operating results and disposition of public funds. financial position of business. 7. Rules and It strictly follows the financial It follows the rules and provisions rules and provisions of the 8. Responsibility government. principles of Generally 9. Forms and format Accepted Accounting 10. Audting Principles (GAAP). It is responsible towards the It is responsible towards general public. owners or shareholders of the firm. It uses the accounting forms It uses the forms and format and formats prescribed by the as per its requirement and Office of the Auditor General. prescribed by company act or other regulations. Its books of account are Its book of account are audited by the constitutional audited by the professional body i.e the Office of the auditor having licence. Auditor General. Government Accounting 185

NEW ACCOUNTING SYSTEM Concept and definition Traditionally, the different accounting systems were introduced and brought into use for recording, classifying and analysing the financial transactions of the government offices. However, such system could not maintain the systematic recording of voluminous transactions of government offices. After the dawn of democracy in 2007 B.S., the government became more responsible towards the public. It felt the necessity of systematic and scientific accounting system for proper collection and utilisation of public fund. When the previous two accounting systems i.e. Syaha Sresta Pranali and Faram Sresta Pranali became unsuitable to fulfil the requirement, another accounting system i.e. Bhuktani Sresta Pranali was introduced in 2017 B.S. But, this system also became insufficient to meet the real need of the government. Due to ineffectiveness of previous accounting systems, the government decided to study about the previous accounting system and introduce the systematic and scientific one. Thus, for the purpose of studying and providing suggestions and recommendations, the government formed a four members committee on Magh 20, 2017 B.S. After the detailed study of 288 days, the committee presented a draft to the Finance Secretary on Kartik 18, 2018 B.S. It included the suggestions and recommendations for the scientification, modernization, improvement and decentralization of accounting system in Nepal. This draft was approved by the Auditor General on Magh 20, 2018 B.S. Finally, it was approved by the then king Mahendra on Chaitra 2, 2018 B.S. After the approval, the government implemented that accounting system since the fiscal year 2019/20 B.S. which was named as new accounting system. It was called new accounting system at that time because it was quite new at the time of its introduction and implementation. It is still in practice in all the government offices of Nepal. It is considered as the most scientific, systematic, modern and progressive type of accounting system for recording, classifying and analysing the governmental revenue and expenditures. It is fully based on the double entry concept of accounting. New accounting is the present accounting system of the government of Nepal which was introduced as per the suggestions and recommendations of account committee 2017 to maintain the systematic and scientific recording of all the governmental revenues and expenditures under double entry concept. Short Notes to Remember (SNR 7.2)  New accounting system was implemented in Nepal since 2019/20 B.S in phase wise basis.  Firstly, it was implemented in the government offices of Kathmandu valley since the fiscal year 2019/20 B.S.  Secondly, it was implemented in the offices of Narayani Zone and rest of the Bagmati Zone since the fiscal year 2020/21 B.S.  Similarly, in third phase, it was implemented in the offices of Janakpur and Gandaki Zone since the fiscal year 186 Office Management and Accountancy

Objectives of new accounting system The main objectives of new accounting system are Memory Tips as follows:  To keep systematic record of financial a. To keep systematic record of financial transactions transactions  To determine the limitation of budget The main objective of present new accounting  To supply financial data and information system is to keep proper and systematic record  To provide information about public of every financial transaction performed in government offices. The financial transactions funds may be related to cash and store items. The  To facilitate the preparation of systematic recording of such transactions financial statements and reports facilitate for controlling misuse of government  To safeguard the physical properties fund and supply of financial information.  To facilitate the job of auditing  To facilitate in planning and decision making b. To determine the limitation of budget Every year the government allocates certain amount into different heads of expenditure which is called budget. According to the objective of new accounting system, each government offices need to make expenditure within limitation of budget. In order to maintain the record and reporting the same, a budget sheet is prepared in all the operating level government offices. c. To supply financial data and information In order to prepare the budget, it requires the financial data and information relating to the revenue and expenditures. Such financial data and information are supplied by various financial statements and reports prepared under new accounting system. d. To provide information about public funds The government requires to get information about the receipt and utilization of public fund. In order to allocate the funds over administrative and developmental works properly, the various information regarding the public funds are required. Thus, the new accounting system aims to supply the updated information about public funds. e. To facilitate the preparation of financial statements and reports The government needs to prepare various periodical statements and reports on regular basis. Some of the reports are prepared on monthly basis whereas others are prepared on yearly basis. The new accounting system provides the detailed information and facilitates the preparation of such financial reports and statements. Government Accounting 187

f. To safeguard the physical properties The government offices use various types of physical properties such as furniture, plant and machinery, vehicles, land and building etc in order to perform the regular jobs and provide welfare services. The new accounting system maintains the systematic recording of such public properties. It designs various forms and formats for their proper recording. It also assigns such jobs to certain staffs and makes them accountable for acquiring, utilising, safeguarding and reporting on such public properties. g. To facilitate the job of auditing Under new accounting system, all the offices of government use same forms and formats for recording the revenue and expenditures. Such forms and formats are designed and prescribed by the Office of Auditor General. This system has made the provision of compulsory auditing of all the government offices. In order to audit the books of account in simple and economical way, the new accounting system provides the required financial data and information. Thus, it facilitates the job of auditing h. To facilitate in planning and decision making The government needs to formulate different plans and policies. It also requires to make various decisions for proper implementation of such plans and policies. The government is equally responsible for making various financial decisions. The new accounting system provides reliable financial data and information to support in planning, implementing and decision making.
 Features of new accounting system The new accounting system is different from other previous accounting systems practiced in Nepal due to its notable features. Such features are explained below. a. Based on double entry concept Memory Tips The new accounting system is based on  Based on double entry concept the principle of double entry system of  Simplicity and uniformity accounting. Like in business accounting, the  Emphasis on banking transactions financial transactions of government offices  Based on budget heads are also recorded by showing double effect i.e.  Classification of government offices debit and credit. Thus, it follows the principle  Use of prescribed forms that debit must be equal to credit.  Provision of auditing  Changeability b. Simplicity and uniformity  Based on cash transactions  Transparency Before introduction of new accounting system, 188 Office Management and Accountancy

the different accounting systems were practised in government offices of Nepal. At present the new accounting system is used in all the government offices through out the country. It follows same forms, formats and procedures for recording, analysing and reporting the financial transactions. Due to this, uniformity has been maintained in accounting. On the other hand, new accounting system is very simple to understand and easy to apply in government offices. c. Emphasis on banking transactions Under new accounting system, all the financial transactions of government offices are performed through bank. It means every government offices should immediately deposit all the revenues into bank and all the payments should also be made through cheque except petty cash expenses. It helps to prevent the misuse of cash in government offices. d. Based on budget heads Under new accounting system, all the transactions are recorded according to their budget heads. The budget heads and their head numbers are mentioned on the budget. The accounting staffs are also made responsible to keep the record of expenditure only on the heads allocated like 21111 for salary, 29311 for furniture etc. Thus, the expenditures should be made within the limitation of budget approved on different budget heads. e. Classification of government offices Under new accounting system, the government offices have been classified into central level and operating level. Central level offices are responsible towards the Office of the Comptroller General under Ministry of Finance. The operating level offices are responsible towards the central level offices. Central level offices maintain central level accounting whereas operating level offices maintain operating level accounting. Generally, the ministries and departments fall under central level and the offices established under them fall under operating level. f. Use of prescribed forms Under new accounting system, the different forms are used. Such forms are designed and prescribed by the Office of the Auditor General and implemented by all the government offices. Thus, only the accounting maintained under prescribed forms is considered as legally valid. Some of the forms used under new accounting system are journal voucher (AGF No. 10), bank cash book (AGF No. 5), budget sheet (AGF No. 8) statement of expenditure (AGF No. 13), bank reconciliation statement (AGF No. 15) etc. g. Provision of auditing The act of examining the books of account to ensure proper recording and correct application of accounting rules is known as auditing. Under new accounting Government Accounting 189

system, there is the provision of internal and final audit. The internal audit is done by the Office of the Treasury and Comptroller and the final audit is done by the Office of the Auditor General. h. Changeability The new accounting system has the feature of changeability. It accepts the change in accounting as per the time, situation and necessity of the government. The required changes can be made by the Office of the Auditor General with the help of suggestions and opinions provided by the Office of the Finance Comptroller General. It helps to make the accounting system more systematic, scientific and reliable. i. Based on cash transactions The new accounting system performs the transactions only on cash basis not on accrual basis. It does not keep the record of credit transactions. It records the transactions at the time of receiving and paying cash but not at the time of receiving or providing goods or services. Due to this, the amount of advance given is also recorded by assuming expenditure until its clearance. j. Transparency Under new accounting system, there is the provision of maintaining the record of annual appropriation, budget release and budget expenditures made by the government offices in prescribed format. Every office or individual maintaining record is liable to present the accounting periodically to the concerned authority or office. The financial details of revenue and expenditures should be presented to the concerned ministry, department, commission and auditor clearly. It ensures the transparency of expenditures made through public fund. Level of government accounting The present accounting system of government of Nepal has been classified into two levels. Those are central level accounting and operating level accounting as explained below: Central level accounting The accounting system maintained by central level offices is known as central level accounting. Central level offices are those offices which receive budget from the Ministry of Finance and release it to the operating level offices. The ministries, departments and constitutional bodies fall under this category. These offices coordinate, direct and control the operating level offices through out the country. The accounting of central level offices is concerned with the recording of budget received from the Ministry of Finance and release made to operating level offices. Such offices 190 Office Management and Accountancy

need to prepare and submit the financial statements to the Ministry of Finance and Office of the Finance Comptroller. Following are some of the major documents used by central level offices:  Journal voucher  Subsidiary books  Ledger  Bank statement  Statement of advance given  Budget summary and expenditure control account Operating level accounting The accounting system maintained by the operating level offices is known as operating level accounting. Operating level offices are those offices which receive budget from the central level offices and spend on different budget heads. All the provincial,district and local level government offices fall under this category. Operating level offices are fully responsible towards the central level offices. These office should prepare and submit the periodical reports to the concerned central level offices. Following are some of the major accounting documents used by operating level offices:  Journal voucher  Bank cash book  Budget sheet  Statement of expenditure  Statement of outstanding advance  Bank reconciliation statement  Subsidiary ledger Differences between central level accounting and operating level accounting Following are the main differences between central level and operating level accounting: Basis of Central level accounting Operating level accounting difference 1. Meaning The accounting system The accounting system maintained by central level maintained by operating level 2. Function offices is called central level offices is called operating level accounting. accounting. It maintains the record of budget It receives the budget, makes received from the Ministry of expenditure and prepares the Finance and release made to record of such expenditure on operating level offices. different budget heads. Government Accounting 191

3. Purpose The main purpose is to The main purpose is to execute 4. Responsibility maintain effective control the budget within budgetary over budget. limit. 5. Number of forms The offices maintaining The offices maintaining central level accounting are operating level accounting 6. Support responsible towards the are responsible towards the Ministry of Finance. central level offices. It uses only a few number of forms. It uses a large number of forms in comparison to central level It supports the Office of accounting. the Finanace Comptroller General for preparation of It supports the Office of central accounts directly. the Finanace Comptroller General for preparation of central accounts indirectly. Office of the Auditor General Office of the Auditor General is an independent constitutional body which is responsible for making the final audit of all the government offices, constitutional bodies and other corporations. The head of this office is the auditor general who is appointed by the President on the recommendation of the constitutional council. He/ she is appointed for six years. The Office of the Auditor General is responsible for checking the books of account of all the government offices, constitutional bodies, government owned corporations and the corporations having more than 50% shares owned by the government. The Auditor General being head of this office is responsible for preparing and submitting the audited financial report to the President for its final approval after completion of every fiscal year. Office of the Auditor General is an independent constitutional body which is responsible for performing the final audit of all the government offices, constitutional organs and corporations having full or partial ownership of the government. Functions, rights and duties of the Office of the Auditor General According to the provision made in constitution of Nepal 2072, section 22, the functions, rights and duties of the Office of the Auditor General are as follows:  To perform the final audit of all government offices, constitutional organs and offices of army, police and court considering the provision of law. 192 Office Management and Accountancy

 To consult while appointing the auditor in enterprises having more than 50% share of the government.  To design and prescribe the forms and format for accounting purpose to ensure simplicity, uniformity and effectiveness in job.  To examine the books of account by the subordinates at any time for the purpose of auditing. All the government offices are liable to provide documents and information to them without stating any terms and condition for this purpose.  To be liable to audit the books of account of any government office or institution by making rules.  To prepare and submit the annual report to the government for final approval. Office of the Finance Comptroller General An office which remains as a department of the Ministry of Finance and keeps the record of all the government revenue and expenditures is known as the Office of the Finance Comptroller General. It was converted into this name from the Office of the Account General in 2032 B.S. which was established on 2008 B.S. This office prepares the central level accounts of all the revenue and expenditures by collecting the necessary financial data and information from various ministries and constitutional organs. The head of this office is called the Comptroller General. The Office of the Finance Comptroller General operates and controls the consolidated fund and financial administration of the country. It gives direction to the concerned district level Treasury and Comptroller Offices for doing internal audit of all the district level government offices. Office of the Finance Comptroller General is a department level government office established under the Ministry of Finance which maintains the central level account relating to the government revenues and expenditures. Functions, rights and duties of the Office of the Finance Comptroller General Following are the functions, rights and duties of the Office of the Finance Comptroller General as per the provision made in Financial Administration Act 2056:  Implementing various accounting forms for keeping record of financial transactions of government offices prescribed by the Office of the Auditor General.  Preparing central accounts for government revenue and expenditures.  Inspecting whether the government offices have followed the financial rules and regulations properly or not.  Preparing central account of government relating to appropriation of budget, revenue and expenditure and auditing them from the Office of the Auditor General. Government Accounting 193

 Maintaining proper record of consolidated fund, emergency fund and other government funds.  Providing direction to the concerned treasury and comptroller office for doing internal audit of all district level government offices.  Solving any misunderstanding and disputes related to financial administration and informing the concerned offices.  Keeping central level record of financial irregularities on the basis of annual statements related to irregularities submitted by ministries and constitutional bodies.  Performing other functions and duties given by the Ministry of Finance. Office of the Treasury and Comptroller The district level offices which are established under the Office of the Finance Comptroller General are known as Offices of the Treasury and Comptroller. Such offices are established in all the districts since fiscal year 2038/039 B.S. and functioning till today. These offices are responsible for releasing the amount of budget approved for district level government offices and doing internal audit of revenue, budget expenditures, tax and security deposit. Treasury and Comptroller Offices are the district level offices established under the Office of the Finance Comptroller General for providing budget release and performing internal audit of all the government offices relating to revenue and expenditures. Functions, rights and duties of the Office of the Treasury and Comptroller The main functions, rights and duties of the Office of the Treasury and Comptroller are as follows:  Releasing the initial imprest fund equal to one sixth of last year total budget expenditure on the account of government offices at the beginning of fiscal year.  Releasing budget equal to the amount of expenditure made on previous month according to the statement of expenditure.  Monitoring, supervising, advising and directing the offices of concerned district on financial issue as per prevailing rules, regulations, plans and policies of the Office of the Finance Comptroller General.  Collectingthestatementofmonthlyrevenuesfromtheconcernedoffices,preparing integrated reports of revenue and submitting to the concerned authority.  Peforming internal audit of the books of account maintained by all district level government offices.  Performing inspection whether offices have deposited surplus amount of budget in consolidated fund at the end of fiscal year or not. If not, instructing them to do so. 194 Office Management and Accountancy

 Preparing and submitting the annual financial report related to the amount of budget release to the Office of the Finance Comptroller General and concerned department at the end of fiscal year.  Informing the government offices regarding stoppage of bank account, if they have not updated the books of account, found irregularities, not presenting the financial report on time and violating the rules and regulation of financial administration.  Performing other functions as specified by the Office of the Finance Comptroller General. AUDITING Concept and definition The word ‘audit’ is derived from the latin word ‘audire’ which means to listen. In ancient period, whenever the owners of a business suspected frauds and errors in accounting records, a person was appointed to examine the records. The person who used to listen the speech about records was called auditor and the work done by such auditor was named as auditing. In earlier days, the concept of auditing was limited to the checking of arithmetical accuracy and detecting errors and frauds in the account. But at present, it not only ascertains the accuracy of the records but also measures their reliability and dependability. In simple sense, auditing refers to the act of examining the books of account by an independent person for the purpose of obtaining true and fair result of operation presented by financial statements. It is the intelligent and critical test of correctness, sufficiency and reliability of accounting data and statements. Its main objective is to detect and prevent the errors and frauds in the books of account. In case of government audit, it is the act of checking governmental financial transactions to know whether they are performed and recorded as per the provision of law or not. Following are the main definitions of auditing : “Auditing is an examination of the accounting records under taken with a view of establishing whether they correctly and completely reflect the transactions to which they purpose to relate.” L.R. Dicksee “An audit is an examination of such records to establish their reliability and the reliability of statements drawn from them.” A.W. Hanson “Auditing is a systematic examination of the books and records of business or other organization in order to ascertain or verify and to report upon the facts regarding its financial operations and the results thereof.” Montgomery Auditing is the systematic and professional act of examining, verifying and reviewing the books of accounts of an institution by an independent person to disclose the true results of operation presented by financial statements considering their accuracy, reliability and dependability. Government Accounting 195

Historical Development of auditing in Nepal The function of auditing in Nepal is found to be performed since ancient time. However, the evidence shows that historical development of audit began only since Baisakh 6, 1828 B.S. after the establishment of “Kumari Chowk Adda” by the then king Prithvi Narayan Shah. He had introduced the system of assigning the duty of examining the central account of revenue and expenditures. After the establishment of democracy in 2007 B.S., a scientific method of auditing was used in the field of maintaining the records and verifying them. The constitution of Nepal 2015 had also made the provision of the Office of the Auditor General as constitutional body for the audit of government accounting. As a result in 2016/03/15 B.S. (29 June 1959 AD), the Office of the Auditor General was established as constitutional body for the audit of government offices. Since the fiscal year 2031/ 032, some new forms were brought into use on the recommendation of the Auditor General. After the historical revolution of 2046 B.S, the constitution of Nepal 2047 had also continued the provision of the Auditor General as the constitutional body. An enactment of Auditing Act 2048 has also brought changes in the field of government audit. The Company Act 2063 has also made the compulsory provision of audit in business sector and companies. The present constitution of Nepal 2072 has also the provision of Auditor General in section 22. All these activities show that the development of auditing in Nepal is gradually being systematic and scientific. Types of audit Following are the main types of audit : Internal audit Internal audit means the examination of the books of account by an employee of the same organization. It is an independent appraisal and verification of the transactions and accounting procedures with a view to serve the management. The main purpose of internal audit is to ensure proper result from the financial transactions and to correct the errors and misuse in time. In case of government offices, the act of examining the books of account conducted by the staff of the District Treasury and Comptroller Office under Office of the Finance Comptroller General is known as internal audit. The government of Nepal has established the Treasury and Comptroller Office in all the 75 districts giving the responsibility of internal audit of government offices. The final audit is conducted only after the completion of internal audit from such offices. Following are the main objectives of internal audit:  To detect the errors and frauds and prevent them.  To verify the books of account and statements regularly. 196 Office Management and Accountancy

 To assist the management in accounting and financial matter of the organization.  To ensure the reliability in way of keeping accounting records.  To prepare basis for the final audit of books of account. Internal audit is the act of examining the books of account by an internal staff of an office with a view to ensure proper result from the financial transactions and to detect and rectify the errors on time. Final audit Final audit is the act of checking the books of account and financial statements by an independent auditor as per the provision of law. It is generally conducted after the completion of fiscal year. Final audit is done by an independent and professional auditor. In this type of audit, the related act describes about the qualifications, rights, duties and responsibilities of auditor. The auditor has to examine, verify and review all the financial documents and books of account in order, to ascertain their reliability and dependability. In Nepal, an office called the Office of the Auditor General is established as a constitutional body for the final audit of the books of account of government offices, constitutional bodies and corporations. The Office of the Auditor General and its employees have full authority to make enquiry for the accounting records for auditing purpose. In case of private organization, the audit of books of account is done from the registered auditor as per the provision of related act. Following are the main objectives of final audit:  To fulfil the legal requirement.  To examine whether the transactions are recorded as per prevailing financial rules and regulations or not.  To reflect the true and fair financial position of the firm.  To detect and prevent the errors and frauds if found committed in books of account.  To evaluate the effectiveness, efficiency, economy and authenticity of the financial transactions.  To encourage the firm to maintain public accountability and transparency. Final audit is the act of examining the books of account by an independent auditor as per the provision of law after completion of fiscal year to disclose the true financial position and ensure the correct application of accounting principles. Government Accounting 197

Differences between internal audit and final audit Following are the major differences between internal audit and final audit: Basis of difference Internal audit Final audit 1. Purpose Its main purpose is to depict Its main purpose is to the true and fair result of 2. Auditor detect and prevent errors operation and financial 3. Nature and frauds at an early position. 4. Appointment of stage of performance. It is done by the independent It is done by the professional auditor. auditor internal employee of the 5. Requirement organization. It is periodical in nature and 6. Qulification It is continuous in nature conducted at the end of fiscal and conducted throughout year. the year. The auditor is appointed by the annual general assembly The auditor is appointed or the Office of the Auditor by the management or General. Treasury and Comptroller It fulfils the legal requirement Office. of the office. It fulfils the internal requirement of the Final auditor requires management. professional qualification Internal auditor does and audit license. not require specific qualification and license. Importance and advantages of audit Auditing has become a compulsory task in both business and government offices. All types of organizations have to get their books of account audited as per the prevailing act, financial rules and provision of law. It ensures reliability in account keeping and creates confidence among the concerned parties. The importance and advantages of auditing can be explained as under: a. Detection and prevention of errors and frauds The main objective of audit is to detect and prevent the errors and frauds by examining M Tthe books of account and financial statements. emory ips It helps to prevent such errors and frauds in the  Detection and prevention of errors and days to come. It helps to make the accounting frauds  Determination of true financial position staffs more accountable in keeping the records.  Determination of tax It also facilitates in designing internal control  Basis of credibility system for detection and prevention of frauds  Help in planning and decision making and errors.  Fulfilment of legal requirement 198 Office Management and Accountancy

b. Determination of true financial position The auditor critically examines the books of account and financial statements maintained by the business and government organization. He checks, verifies and reviews all the transactions including the transactions relating to various assets and properties. Thus, it helps to ascertain the true and fair financial position of the firm. c. Determination of tax The auditor examines all the books of account of the business organizations. He calculates the taxable income of the firm on the basis of supportive documents relating to revenue and expenditures. The tax authorities also determine the amount of tax on the basis of audited income statement. Thus, it helps to determine the actual amount of tax payable to the government. d. Basis of credibility Auditing provides reliability to the books of account and financial statements maintained by the organizations. The concerned person or parties associated with the organization like shareholders, creditors, employees, government and general people believe on the statements certified by the auditor. Thus, it is considered as a basis of reliability. e. Help in planning and decision making The audited books of account and financial statements provide various data and information to the management. Such data and information are accurate, reliable and dependable for taking various decisions on financial matters. On the basis of such data and information, the management makes plan, formulates budget and takes the decision considering the future. Thus, auditing also helps in planning and decision making of the firm. f. Fulfilment of legal requirement All the business and government organizations have to present the financial reports and statements to the concerned authority. Such financial reports and statements have to be audited from professional auditor or Office of Auditor General. Thus, all types of organizations get their books of account audited from auditor and submit to the concerned authorities. Thus, it helps to fulfil the legal requirement. Classification and explanation of budget expenditure heads All the government offices should follow the heads of budget expenditure classification while preparing the vouchers and other records maintained by them. Classification of budget heads of expenditure in revised form are as follows: Government Accounting 199

Short Notes to Remember (SNR 7.3)  Under new concept of budget heads classification, they are allocated under budget expenditure head number 20000. They are categorized as base heads, main heads, heads and sub heads. Base head 21000 consists of salary and benefits. It has the main head 21100 which include the following: 21100 salary and benefits 21110 Salary and benefits paid in cash 21111 Salary: It includes the following: - Remuneration paid to staffs such as salary, additional provident fund, additional pension, grade, insurance, other rewards and incentives paid to the employees. - Wages and remuneration paid to temporary staffs of government offices and projects. - Amount paid to government employee for annual leave, sick leave, festival allowance like Dashain etc. 21112 Lo cal allowance: It includes the allowance paid for working at remote area. 21113 D earness allowance: It includes the allowances declared by the government of Nepal for the employee to bear inflation. 21114 Fi eld allowance: It includes the allowances declared by the government to the employees for field visit and field work. 21119 O ther allowance: It includes the other allowance declared by the government like: - meeting allowance - foreign allowance - festival allowance - overtime allowance - maternity allowance 21120 Salary and benefits paid other than cash 21121 U niform: It includes the expenditure of dress and uniform like clothes, shoes, boots, caps, etc. provided to government employees like postman, policemen, military, medical staffs and other government staffs. 21122 Fo od: It includes the cost of food to be paid for the supply of food materials to the government employees like police, army and other staffs. 200 Office Management and Accountancy