3 Marks Question

Question 13 Marks

Ajay started business with capital of ₹ $5,00,000$ on $1^{\text {St }}$ April, 2022. He introduced additional capital of ₹ $3,00,000$ on $1^{\text {st }}$ October, 2022. He charged interest on capital @ $10 \%$ p.a. Calculate the amount of interest on capital and show it in the final accounts.

Answer

In the Books Ajay Profit and Loss Account for the year ended 31 ${ }^{\text {st }}$ March
Particulars	Amount (₹ )	Particulars	Amount (₹)
To Interest on Capital (50,000+15,000)	65,000

Balance Sheet
Liabilities		Amount (₹)	Assets	Amount (₹)
Capital	8,00,000
Add: Interest on Capital	65,000	8,65,000

Working Note:-
Calculation of Interest on Capital:-
₹5,00,000 $\times \frac{10}{100}$ = ₹50,000
₹ 3,00,000$\times \frac{10}{100} \times \frac{6}{12}$= ₹15,000
Total Interest on Capital = ₹50,000+₹15,000
Total Interest on Capital = ₹65,000

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Question 23 Marks

State by giving reasons whether the following items of expenditure are Capital or Revenue:
i. Expenditure incurred for raising loans.
ii. Expenditure of registration of a trade mark.
iii. Carriage paid on goods purchased.
iv. Commission paid on net profit of the company to manager.
v. Travelling expenses of a director for trip abroad for purchasing capital goods.
vi. Damages on account of contract.
vii. Compensation paid to a retrenched employee.

Answer

i. Capital expenditure, reason its benefit exhaust more than a accounting period.
ii. Capital expenditure, reason expense related to registration is added to cost of trade mark.
iii. Revenue expenditure, reason its a normal course of business activity.
iv. Revenue expenditure, reason Its a operating expense.
v. Capital expenditure, reason it's included in the cost of capital goods.
vi. Revenue expenditure, reason it's a normal course of business expense.
vii. Revenue expenditure, reason it's a operating expense.

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Question 33 Marks

The following Expenses relate to a motor lorry, purchased by a limited company for its business:
i. Bought an old lorry for ₹ 1,20,000 in an auction and paid ₹ 1,500 as freight and cartage.
ii. Its overhauling charges amounted to ₹ 30,000.
iii. Other Accessories were purchased for ₹ 18,000.
iv. Lorry was badly damaged in an accident and its repair cost was ₹ 42,600.
v. Compensation was paid to the person involved in accident ₹ 14,500.
vi. Lorry was sold for ₹ 1,25,000.
vii. Driver's Salary, Petrol Expenses etc. were ₹ 34,720.
Pass the necessary Journal Entries of the above and Prepare a Lorry A/c.

Answer

Journal Entry
Date	Particulars		L.F	Amount (Dr.)	Amount (Cr.)
	Lorry A/c	Dr.		1,21,500
	To Bank				1,21,500
	(Lorry Purchased)
	Lorry A/c	Dr.		30,000
	To Bank				30,000
	(overhauling charged to Lorry)
	Lorry A/c	Dr.		18,000
	To Bank				18,000
	(Related to Lorry)
	Repair A/c	Dr.		42,600
	To Bank				42,600
	(due to accident)
	Compensation A/c	Dr.		14,500
	To Bank				14,500
	(Compensation paid to person)
	Bank A/c	Dr.		1,25,000
	To Lorry				1,25,000
	(Lorry sold)
	Expense A/c	Dr		34,720
	To Bank				34,720
	(expense paid related Driver etc.)

Lorry A/c
Particulars	Amount (₹ )	Particulars	Amount (₹)
To Bank	1,21,500
To Bank	30,000
To Bank	18,000	By Bank	1,25,000
		By Loss on sale of Lorry	44,500
	1,69,500		1,69,500

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