Raghu-Steel-Pipes-Accoutancy-Projects.pdf

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Comprehensive Project - Raghu Steel Pipes

Project Problem

Raghu Prasad Yadav, 24 years, was a resident of Rampur Village in Bihar. He belonged to a

middle class family and did his B.Com (Hons.) from Bihar University, Patna. He wanted to be a

successful businessman but was unable to decide the line of business which would best suit him.

One day, while talking to his friend, he got convinced about starting the business and started a

steel pipes and angles business at a backward area of Bihar on 1st April, 2005. He invested cash

of 70,000 in the business and opened a current a/c with the bank for 20,000. He took a loan

of 2,00,000 for five years from ICICI Bank @ 10% p.a. against security of his property. He

purchased iron rods from Ram & Co. worth 50,000 on credit, machinery 40,000, furniture

10,000 and small piece of land for 1,00,000 on the same date. Raghu withdrew goods worth

4,000 for domestic use. He hired a worker on April 1 itself and agreed to pay him wages of

5,000 p.m. On April 12, Raghu returned goods worth 2,000 to Ram and Co. being defective.

On May 30, Raghu sold steel pipes to Gupta & Co. worth 55,000 on credit. On June 30, he sold

steel angle worth 1,00,000 to Kumar & Co. who settled his payment as 25% in cash, 15%

through a cheque and drew a bill for balance for three months. However on July 4, Gupta & Co.

discovered some defects in the pipes and returned the same worth 10,000.

Raghu paid office and administrative expenses of 2,000 and selling and distribution expenses of

5,000 on July 6 and advertisement expenses of 10,000 on August 3. On September 4, he

purchased iron rods worth 25,000 from Khanna and Co. who drew a bill for 6 months on Raghu

which he duly accepted. Due to a theft on October 9, goods worth 10,000 were lost for which

insurance company paid a claim of 5,000. On October 17, Raghu paid Ram and Co. 30,000.

On December 16, he received 10,000 from Gupta and Co. On January 22, Raghu contributed


8,000 to the Prime Minister’s Relief Fund. A part of the machinery broke down on February 12,

the expenses incurred for its repairs were 2,000.

Raghu sold steel rods worth 60,000 to Sharma and Co. on March 2 and received 20,000 in

cash and the balance was payable after 3 months. He sold steel rods to Rakesh and Co. worth

65,000 for cash on March 4. Sharma become insolvent on March 15 and Raghu received 50 Paisa

in a rupee from his estate. On March 20, he purchased iron rods worth 83,000 from Shyam &

Co.

Other transactions during the year were:

Wages paid 55,000 and outstanding amount 5,000

Electricity Bills Paid 7,000

Heating and Lighting Expenses 5,500.

Telephone Charges 3,000

Carriage and Freight 1,000

Miscellaneous Expenses 500

On 31st March 2006, Closing stock was 60,000; depreciation on furniture and machinery is to

be provided @ 10% p. a.; Interest on capital to be provided @ 5% p.a. and Interest on drawings to

be charged @ 2% p.a.

From the above information,

(a) Pass journal entries, post the entries in the ledger and prepare a Trial Balance

(b) From the prepared Trial Balance, prepare Trading and Profit & Loss A/c for the year and a

Balance Sheet as at 31st March, 2006 and analyze the profitability and the financial

position of the business.


Project Solution

Journal

Date Particulars Debit

Amount

Credit

Amount

2005

April 1

Cash A/c Dr.

To Capital A/c

(Being started business with cash)

70,000

70,000

April 1 Bank A/c Dr.

To Cash A/c

(Being cash deposited into bank)

20,000

20,000

April 1 Cash A/c Dr.

To Loan from ICICI Bank A/c

(Being loan taken from ICICI Bank)

2,00,000

2,00,000

April 1 Purchases A/c Dr.

To Ram & Co.

(Being goods purchased from Ram & Co.)

50,000

50,000

April 1 Machinery A/c Dr.

Furniture A/c Dr.

Land A/c Dr.

To Cash A/c

(Being fixed assets purchased)

40,000

10,000

1,00,000

1,50,000

April 1 Drawings A/c Dr.

To Purchases A/c

(Being goods withdrawn for personal use)

4,000

4,000

April 12 Ram & Co. Dr.

To Purchases Return A/c

2,000

2,000


(Being goods returned to Ram & Co.)

May 30 Gupta & Co. Dr.

To Sales A/c

(Being goods sold to Gupta & Co.)

55,000

55,000

June 30 Kumar & Co. Dr.

To Sales A/c

(Being goods sold to Kumar & Co.)

1,00,000

1,00,000

June 30 Cash A/c Dr.

Bank A/c Dr.

Bill Receivable A/c Dr.

To Kumar & Co.

(Being account settled by Kumar & Co. by cash,

cheque and B/R)

25,000

15,000

60,000

1,00,000

July 04 Sales Return A/c Dr.

To Gupta & Co.

(Being goods returned by Gupta & Co.)

10,000

10,000

July 06 Office & Administration Expenses A/c Dr.

Selling & Distribution Expenses A/c Dr.

To Cash A/c

(Being expenses paid)

2,000

5,000

7,000

August 3 Advertisement Expenses A/c Dr.

To Cash A/c

(Being advertisement expenses paid)

10,000

10,000

Sept. 04 Purchases A/c Dr.

To Khanna & Co.

(Being goods purchased from Khanna & Co.)

25,000

25,000

Sept. 04 Khanna & Co. Dr.

To Bills Payable A/c

(Being bill accepted, drawn by Khanna & Co.)

25,000

25,000

Oct. 03 Cash A/c Dr. 60,000


To Bills Receivable A/c

(Being bills receivable met on maturity

60,000

Oct. 09 Loss by theft A/c Dr.

The Purchases A/c

(Being goods lost by theft)

10,000

10,000

Oct. 09 Insurance Co. Dr.

To Loss by theft A/c

(Being insurance Co. admitted claim of 5,000

against loss by theft)

5,000

5,000

Oct. 09 Cash A/c Dr.

To Insurance Co.

(Being claim received from insurance & Co.)

5,000

5,000

Oct.17 Ram & Co. Dr.

To Cash A/c

(Being cash paid to Ram & Co.)

30,000

30,000

Dec. 16 Cash A/c Dr.

To Gupta & Co.

(Being cash received from Gupta & Co.)

10,000

10,000

Jan. 22 Charity A/c Dr.

To Cash A/c

(Being charity give to prime minister’s relief fund)

8,000

8,000

Feb. 12 Repair Expenses A/c Dr.

To Cash A/c

(Being repair expenses of machinery paid)

2,000

2,000

March 02 Sharma & Co. Dr.

To Sales A/c

(Being goods sold to Sharma & Co.)

80,000

80,000

March 02 Cash A/c Dr.

To Sharma & Co.

(Being cash received from Sharma & Co.)

40,000

40,000



To Sales A/c

(Being goods sold for cash)

65,000

65,000

March 07 Bills Payable A/c Dr.

To Cash A/c

(Being amount paid against bills payable on

maturity)

25,000

25,000


Bad Debts A/c Dr.

To Sharma & Co.

(Being 50 paisa in a rupee received from Sharma &

Co)

20,000

20,000

40,000

March 20 Purchases A/c Dr.

To Shyam & Co.

(Being goods purchased from shyam & Co.)

83,000

83,000

March 31 Wages A/c Dr.

Electricity Expenses A/c Dr.

Heating & Lighting Expenses A/c Dr.

Telephone Charges A/c Dr.

Carriage & Freight A/c Dr.

Miscellaneous Expenses A/c Dr.

To Cash A/c

55,000

7,000

5,500

3,000

1,000

500

72,000

March 31 Depreciation A/c Dr.

To Furniture A/c

To Machinery A/c

(Being depreciation provided on furniture and

machinery)

5,000

1,000

4,000

March 31 Interest on Capital A/c Dr.

To Capital A/c

(Interest on capital provided @ 5% p.a.)

3,500

3,500


March 31 Capital A/c Dr.

To Interest on Drawings A/c

(Being interest on drawings charged @ 2% p.a.)

80

80

March 31 Interest on Loan A/c Dr.

To Loan from ICICI Bank A/c

(Being interest on loan unpaid)

20,000

20,000

March 31 Capital A/c Dr.

To Drawing A/c

(Being amount of drawings charged to capital A/c)

4,000

4,000

March 31 Wages A/c Dr.

To Outstanding Wages A/c

(Being advance wages paid adjusted )

10,000

10,000


Ledger

Cash Account

Date Particulars Amt Date Particulars Amt

2005 2005

Apr. 1 To Capital A/c 70,000 April 1 By Bank A/c 20,000

Apr. 1 To Loan form ICICI

Bank A/c

2,00,000

April 1 By Machinery A/c 40,000

June 30 To Kumar & Co. 25,000 April 1 By Furniture A/c 10,000

Oct. 3 To Bills Receivable

A/c

60,000 April 1 By Land A/c 1,00,000

Oct. 9 To Insurance Co. 5,000 July 6 By Office & Administration Exp. 2,000

Dec. 16 To Gupta & Co. 10,000 July 6 By Selling & Distribution Exp. 5,000

Mar. 2 To Sharma & Co. 40,000 Aug.3 By Advertisement Exp. A/c 10,000

Mar. 4 To Sales A/c 65,000 Oct.17 By Ram & Co. 30,000

Mar. 15 To Sharma & Co. 20,000 2006

Jan. 22

By Charity A/c

8,000

Feb. 12 By Repair Exp. A/c 2,000

Mar. 7 By Bills Payable A/c 25,000

Mar. 31 By Wages A/c 55,000

Mar. 31 By Electricity Exp. A/c 7,000

Mar.31 By Heating & Lighting Exp. A/c 5,500

Mar. 31 By Telephone Charges A/c 3,000

Mar. 31 By Carriage & Freight A/c 1,000

Mar. 31 By Miscellaneous Exp. A/c 500

Mar. 31 By Balance c/d 1,71,000

4,95,000

4,95,000

2006

Apr.1

To Balance b/d

1,71,000


Bank Account


2005

Apr. 1

To Cash A/c

20,000

2006

Mar. 31

By Balance c/d

35,000

June 30 To Kumar & Co. 15,000

35,000 35,000

2006

Apr. 1

To Balance b/d

35,000

Capital Account


2006

Mar. 31

To Drawing A/c

4,000

2005

April 1

By Cash A/c

70,000

Mar. 31

To Interest on

Drawing A/c

80

2006

Mar. 31

By Interest on Capital A/c

3,500

Mar. 31 To Balance c/d 1,20,000 Mar. 31 By P& L A/c (profit) 50,580

1,24,080

1,24,080

2006

April 1

By Balance c/d

1,25,000

Loan From ICICI Bank A/c


2005

Mar. 31

To Balance c/d

2,20,000

2005

Apr. 1

By Cash A/c

2,00,000

2006

Mar. 31

By interest on Loan A/c

20,000

2,20,000

2,20,000

2006

April 1

By Balance b/d

2,20,000


Purchases Account


2005

Apr. 1

To Ram & Co.

50,000

2005

Apr. 1

By Drawing A/c

4,000

Sept. 4 To Khanna & Co. 25,000 Oct. 9 By Loss by theft A/c 10,000

Mar. 15 To Shyam & Co. 83,000 2006

Mar. 31

By Trading A/c

1,44,000

1,58,000

1,58,000

Ram & Co.


2005

Apr. 12

To Purchases

Return A/c

2,000

2005

Apr. 1

By Purchases A/c

50,000

Oct. 17 To Cash A/c 30,000

2006

Mar. 31

To Balance c/d 18,000

20,000

20,000

2006

Apr. 1

By Balance b/d

18,000

Machinery Account


2005

April 1

To Cash A/c

40,000

2006

Mar. 31

By Depreciation A/c

4,000

Mar. 31 By Balance c/d 36,000

40,000

40,000

2006

April 1

To Balance b/d

36,000


Furniture Account


2005

April 1

To Cash A/c

10,000

2006

Mar. 31

By Depreciation A/c

1,000

Mar. 31 By Balance c/d 9,000

10,000

10,000

2006

April 1

To Balance b/d

9,000

Land Account


2005

April 1

To Cash A/c

1,00,000

2006

Mar. 31

By Balance c/d

1,00,000

1,00,000

1,00,000

2006

April 1

To Balance b/d

1,00,000

Drawings Account


2005

April 1

To Purchases A/c

4,000

2006

Mar. 31

By Capital A/c

4,000

4,000

4,000

Purchases Return Account


2006

Mar. 31

To Trading A/c

2,000

2005

April 12

By Ram & Co.

2,000

2,000

2,000


Gupta & Co.


2005

May 30

To Sales A/c

55,000

2005

July 4

By Sales Return A/c

10,000

Dec. 16 By Cash A/c 10,000

2006

Mar. 31

By Balance c/d

35,000

55,000

55,000

2006

April 1

To Balance b/d

35,000

Sales Account


2006

Mar. 31

To Trading A/c 3,00,000 2005

May 30

By Gupta & Co. 55,000

June 30 By Kumar & Co. 1,00,000

2006

Mar. 2

By Sharma & Co. 80,000

Mar. 4 By Cash A/c 65,000

3,00,000

3,00,000

Kumar & Co.


2005

June 30

To Sales A/c

1,00,000

2005

June 30

By Cash A/c

25,000

June 30 By Bank A/c 15,000

June 30 By Bills Receivable A/c 60,000

50,000

50,000


Bills Receivable Account

Date Particulars Amount

Date Particulars Amt

2005

June 30

To Kumar & Co.

60,000

2005

Oct. 3

By Cash A/c

60,000

60,000

60,000

Sales Return Account



2005

July 4

To Gupta & Co.

10,000

2006

Mar. 31

By trading A/c

10,000

10,000

10,000

Office & Administrative Expenses Account



2005

July 6

To Cash A/c

2,000

2006

Mar. 31

By P& L A/c

2,000

2,000

2,000

Selling & Distribution Expenses Account


2005

July 6

To Cash A/c

5,000

2006

Mar. 31

By P& L A/c

5,000

5,000

5,000


Advertisement Expenses Account


2005

Aug. 3

To Cash A/c

10,000

2006

Mar. 31

By P& L A/c

10,000

10,000

10,000

Khanna & Co.


2005

Sept.4

To Bills Payable

A/c

25,000

2005

Sept. 4

By Purchases A/c

25,000

25,000

25,000

Bills Payable Account


2006

March 7

To Cash A/c

25,000

2005

Sept. 4

By Khanna & Co.

25,000

25,000

25,000

Loss by Theft Account


2005

Oct. 9

To Purchases A/c

10,000

2005

Oct. 9

By Insurance Co. A/c

5,000

2006

Mar. 31

By P& L A/c

5,000

10,000

10,000


Insurance Co.


2005

Oct. 9

To Loss By theft

A/c

5,000

2005

Oct. 9

By Cash A/c

5,000

5,000

5,000

Wages Outstanding Account

Date Particulars Amt Date Particulars Amount

2006

Jan. 15

To Balance c/d

5,000

2006

Mar. 31

By Wages A/c

5,000

5,000

5,000

2006

April 1

By Balance b/d

5,000

Charity Account


2006

Jan 22

To Cash A/c

8,000

2006

Mar. 31

By P& L A/c

8,000

8,000

8,000

Repair Expenses Account


2006

Feb. 12

To Cash A/c

2,000

2006

Mar. 31

By P& L A/c

2,000

2,000

2,000


Sharma & Co.


2006

March 2

To Sales A/c

60,000

2006

March 2

By Cash A/c

20,000

March 15 By Cash A/c 20,000

March 15 By Bad Debts A/c 20,000

60,000

60,000

Bad Debts Account


2006

Mar. 15

To Sharma & Co.

20,000

2006

March 31

By P& L A/c

20,000

20,000

20,000

Shyam & Co.


2006

Mar. 31

To Balance c/d

83,000

2006

Mar. 20

By Purchases A/c

83,000

83,000

83,000

Wages Account


2006

Mar. 31

Mar. 31

To Cash

To Wages

Outstanding A/c

55,000

5,000

2006

Mar. 20

By Trading A/c

60,000

60,000

60,000


Electricity Expenses Account


2006

Mar. 31

To Cash A/c 7,000 2006

Mar. 31

By P& L A/c 7,000

7,000

7,000

Heating & Lighting Expenses Account


2006

Mar. 31

To Cash A/c

5,500

2006

Mar. 31

By Trading A/c

5,500

5,500

5,500

Telephone Charges Account


2006

Mar. 31

To Cash A/c

3,000

2006

Mar. 31

By P& L A/c

3,000

3,000

3,000

Carriage & Freight Account


2006

Mar. 31

To Cash A/c

1,000

2006

Mar. 31

By Trading A/c

1,000

1,000

1,000

Miscellaneous Expenses Account


2006

Mar. 31

To Cash A/c

500

2006

Mar. 31

By P& L A/c

500

500

500


Depreciation Account


2006

Mar. 31

To Furniture A/c

1,000

2006

Mar. 31

By P& L A/c

5,000

Mar. 31 To Machinery

A/c

4,000

5,000

5,000

Interest on Capital Account

Date Particulars Amount Date Particulars Amount

2006

Mar. 31

To Capital A/c

3,500

2006

March 31

By P& L A/c

3,500

3,500

3,500

Interest on Drawing Account


2006

Mar. 31

To P& L A/c

80

2006

March 31

By Capital A/c

80

80

80

Interest on Loan Account


2006

Mar. 31

To Loan from

ICICI Bank A/c

20,000

2006

March 31

By P& L A/c

20,000

20,000

20,000


Trial Balance

as on 31st March 2006

Particulars Amt Particulars Amt

Cash A/c 1,71,000 Capital A/c 69,420

Bank A/c 35,000 Loan from ICICI Bank A/c 2,20,000

Purchases A/c 1,44,000 Ram & Co. 18,000

Machinery A/c (Less Depreciation) 36,000 Purchases Return A/c 2,000

Furniture A/c (Less Depreciation) 9,000 Sales A/c 3,00,000

Land A/c 1,00,000 Shyam & Co. 83,000

Gupta & Co 35,000 Interest on Drawings A/c 80

Sales Return A/c 10,000 Wages Outstanding A/c 5,000

Office & Administrative A/c 2,000

Selling & Distribution A/c 5,000

Advertisement Exp. A/c 10,000

Loss by theft A/c 5,000

Charity A/c 8,000

Repair Expense A/c 2,000

Bad Debts A/c 20,000

Wages A/c 60,000

Electricity Exp. A/c 7,000

Heating & Lighting Exp. A/c 5,500

Telephone Charges A/c 3,000

Carriage & Freight A/c 1,000

Miscellaneous Exp. A/c 500

Depreciation A/c 5,000

Interest on Capital A/c 3,500

Interest on Loan A/c 20,000

6,97,500 6,97,500


Trading and Profit & Loss Account

For the year ended 31st March 2006

To Purchases A/c 1,44,000 By Sales A/c 3,00,000

Less Purchases Return 2,000 1,42,000 Less Sales Return 10,000 2,90,000

To Wages A/c 60,000 By Closing stock A/c 60,000

To heating & lighting A/c 5,500

To carriage & freight A/c 1,000

To Gross Profit c/d 1,41,500

3,50,000 3,50,000

To office & administrative Exp. A/c 2,000 By Gross Profit b/d 1,41,500

To selling & distribution Exp. A/c 5,000 By interest on drawing 80

To advertisement Exp. A/c 10,000

To loss by theft A/c 5,000

To charity A/c 8,000

To repair Exp. A/c 2,000

To Bad Debts A/c 20,000

To electricity Exp. A/c 7,000

To telephone Charges 3,000

To Miscellaneous Exp. A/c 500

To Depreciation A/c 5,000

To interest on Loan A/c 20,000

To interest on Capital A/c 3,500

To Net Profit Transferred of Capital

A/c

50,580

1,41,580 1,41,580


Balance Sheet

As on 31st March 2006

Liabilities Assets

Capital 69,420 Land 1,00,000

Add Net Profit 50,580 1,20,000 Machinery (less Depreciation) 36,000

Loan from ICICI Bank 2,20,000 Furniture ( less Depreciation) 9,000

Creditors: Stock 60,000

Ram & Co. 18,000 Debtors:

Shyam & Co. 83,000 Gupta & Co. 35,000

Wages Outstanding 5,000 Cash at Bank 35,000

Cash in Hand 1,71,000

4,46,000 4,46,000


Accounting Ratios

1. Profitability Ratios

(i) Gross Profit Ratio =Gross Profit

Net Sales× 100

=1,41,500

2,90,000× 100

= 48.79%

(ii) Net Profit Ratio =Net Profit

Net Sales× 100

=50,580

2,90,000× 100

= 17.44%

2. Turnover Ratios

(i) Fixed Assets Turnover Ratio =Net Sales

Fixed Assets

=2,90,000

1,45,000

= 2 Times

(ii) Working Capital Turnover Ratio =Net Sales

Working capital

=2,90,000

1,95,000


= 1.02 Times

(iii) Total Assets to Turnover Ratio =Net Sales

Total Assets

=2,90,000

4,46,000

=.65 Times

3. Liquidity Ratios

(i) Current Ratio =Current Assets

Current Liabilities

=3,01,000

1,06,000

= 2.83 ∶ 1

(ii) Liquid Ratios =Liquid Assets

Current Liabities

=2,41,000

1,06,000

= 2.27 : 1

Comments

(i) As current ratio and liquid ratios are 2.83 : 1 and 2.27 : 1 respectively. It shows strong

short-term financial position of Raghu.

(ii) Gross profit margin on sales is 48.79% and Net profit margin on sales is 17.44%, which

shows the good profitability in terms of sales.

(iii) In terms of turnover ratios, It seems that the amount of sales is to be improved so that it

improves the fixed assets turnover, working capital turnover and total assets turnover.

Raghu-Steel-Pipes-Accoutancy-Projects.pdf

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