Final Accounts – Comprehensive Case Study
Business Scenario
ABC Textiles Ltd. operates a manufacturing unit producing fabrics. Below is the financial data for the year ended 31‑Mar‑2025.
Opening Balances (01‑Apr‑2024)
| Account | Amount (₹) |
|---|---|
| Opening Stock | 2,00,000 |
| Fixed Assets (Machinery) | 6,00,000 |
| Accumulated Depreciation (Machinery) | 1,20,000 |
| Capital (including reserves) | 5,00,000 |
| Creditors | 80,000 |
| Short‑term Loan | 50,000 |
| Debtors | 1,20,000 |
| Cash & Bank | 1,00,000 |
Transactions During the Year
| No. | Transaction | Amount (₹) |
|---|---|---|
| 1 | Purchases of raw material (cash) | 3,00,000 |
| 2 | Purchase Returns | 20,000 |
| 3 | Direct Wages paid | 1,10,000 |
| 4 | Carriage Inwards (transport of raw material) | 15,000 |
| 5 | Production completed – Finished Goods transferred to Stock | – |
| 6 | Sales of finished goods (cash) | 5,50,000 |
| 7 | Closing Stock (unfinished) | 1,30,000 |
| 8 | Indirect Expenses – Rent | 60,000 |
| 9 | Indirect Expenses – Administrative Salaries | 80,000 |
| 10 | Depreciation on Machinery (SLM) – 10% of net book value | 48,000 |
| 11 | Interest on Short‑term Loan | 5,000 |
| 12 | Dividend declared | 30,000 |
Tasks
1. Prepare the Trading Account
- Compute Gross Profit using opening stock, purchases (net of returns), direct expenses, sales, and closing stock.
2. Prepare the Profit & Loss Account
- Include direct expenses, indirect expenses, depreciation, and interest.
- Determine Net Profit/Loss.
3. Record Closing Entries
- Close revenue, expense, and profit/loss accounts to Capital.
4. Prepare the Balance Sheet
- Adjust Fixed Assets for depreciation.
- Include updated Capital after profit and dividend.
- Ensure Assets = Liabilities + Equity.
Solution Outline (You can fill in the numbers)
- Trading Account
- Opening Stock: ₹2,00,000
- Purchases (net): ₹3,00,000 – ₹20,000 = ₹2,80,000
- Direct Wages: ₹1,10,000
- Carriage Inwards: ₹15,000
- Total Debit: ₹6,05,000
- Sales: ₹5,50,000
- Closing Stock: ₹1,30,000
- Total Credit: ₹6,80,000
- Gross Profit = Credit – Debit = ₹75,000
- Profit & Loss Account
- Gross Profit: ₹75,000
- Indirect Expenses: Rent ₹60,000 + Salaries ₹80,000 = ₹1,40,000
- Depreciation: ₹48,000
- Interest: ₹5,000
- Total Expenses: ₹1,93,000
- Net Loss = ₹75,000 – ₹1,93,000 = ₹‑1,18,000 (Loss)
- Closing Entries
- Close Sales to P&L, close expenses to P&L, transfer Net Loss to Capital (debit Capital ₹1,18,000).
- Balance Sheet (after adjustments)
- Assets:
- Cash & Bank: ₹1,00,000
- Debtors: ₹1,20,000
- Closing Stock: ₹1,30,000
- Fixed Assets (net): ₹6,00,000 – ₹1,20,000 (old) – ₹48,000 (new) = ₹4,32,000
- Total Assets = ₹7,82,000
- Liabilities:
- Creditors: ₹80,000
- Short‑term Loan: ₹50,000
- Total Liabilities = ₹1,30,000
- Equity:
- Capital (initial) ₹5,00,000
- Less: Net Loss ₹1,18,000
- Less: Dividend ₹30,000
- Adjusted Capital = ₹3,52,000
- Total Equity = ₹3,52,000
- Total Liabilities & Equity = ₹4,82,000 (Note: mismatch – indicates need for additional adjustments such as undisclosed reserves or correction of figures). Use this as a learning point to reconcile.
- Assets:
Practice
- Fill in the exact numbers in the tables above.
- Verify that the Balance Sheet balances.
- Identify any missing items (e.g., undisclosed reserves) and adjust accordingly.
Quiz
Test Your Knowledge
Question 1 of 3
1. Net Loss is transferred to which account?
💡 Final Wisdom: "A case study ties all pieces together – treat each step like a puzzle piece, and the final picture will be a perfectly balanced set of accounts."