A Second Worked Set, With Adjustments
Chapter Forty-Seven
Syllabus topic 7, 9, 10, "Concepts of Revenue & Capital: Income and Expenditure."; "Preparation of Farm Trading and Profit & Loss Account."; "Preparation of Balance Sheet."
Pages 104 to 106 of 110
Why a second worked set
Because the first had three adjustments and none of them was peculiar to a farm. This one has five, and three of the five are the entries a trader never makes: produce eaten at home, produce paid away as wages, and fodder grown on the farm and fed to its own animals.
Five is also the ceiling MU's own sibling paper sets for a practical problem, so the set below is the size of the question that can actually be asked.
The problem
The following is the trial balance of Nandini Farm, a proprietary concern of Smt. A. K. Bhosale, as at 31 March 2027.
| Particulars | Dr Rs. | Cr Rs. |
|---|---|---|
| Capital | 12,17,000 | |
| Drawings | 84,000 | |
| Land, at cost | 7,20,000 | |
| Deadstock, at cost | 3,60,000 | |
| Accumulated depreciation on deadstock | 1,08,000 | |
| Livestock, at 1 April 2026 | 4,20,000 | |
| Opening stock of produce | 68,000 | |
| Opening stock of stores | 34,000 | |
| Purchases of seed, manure and pesticide | 1,42,000 | |
| Wages, field labour | 2,46,000 | |
| Salaries | 96,000 | |
| Irrigation | 52,000 | |
| Cattle feed purchased | 64,000 | |
| Land revenue and cess | 7,200 | |
| Repairs | 18,000 | |
| Insurance | 24,000 | |
| Interest | 21,000 | |
| Transport and market expenses | 29,000 | |
| Sundry expenses | 16,800 | |
| Sale of crops | 7,40,000 | |
| Sale of milk | 1,86,000 | |
| Sundry debtors | 56,000 | |
| Sundry creditors | 64,000 | |
| Bank loan | 2,40,000 | |
| Cash and bank | 97,000 | |
| Total | 25,55,000 | 25,55,000 |
Adjustments:
(1) Closing stock of produce Rs. 82,000 and of stores Rs. 29,000.
(2) Livestock is valued at Rs. 4,64,000 on 31 March 2027.
(3) Wages outstanding Rs. 18,000. Insurance prepaid Rs. 6,000.
(4) Depreciation on deadstock at 10 per cent on cost.
(5) None of the following has been recorded: produce consumed by the proprietor's household Rs. 36,000; produce given to labour in place of wages Rs. 14,000; fodder grown on the farm and fed to the livestock Rs. 22,000.
Adjustment 5, before anything else
Each of the three is a credit to the crop that grew the produce and a debit to whatever consumed it.
| Credit | Debit | |
|---|---|---|
| Produce consumed by the household, Rs. 36,000 | Trading account | Drawings, in the balance sheet |
| Produce given as wages, Rs. 14,000 | Trading account | Wages, in the trading account |
| Fodder fed to the livestock, Rs. 22,000 | Trading account | Cost of the livestock, in the trading account |
Two of them appear on both sides of the same account. The produce given as wages is credited as production and debited as a wage; the fodder is credited as production and debited as a feeding cost. On a combined trading account they cancel, and the gross profit is unchanged by them.
That is not a reason to leave them out. Leave them out and every enterprise figure is wrong: the crop that grew the fodder is denied its production, the dairy is fed for nothing, and the wage bill understates what labour actually cost. The entries exist so that the enterprise-wise analysis is honest, and a question that asks for them is asking whether the candidate knows why.
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