Question

Practice Case 1: Rachana Boutique Rachana runs a boutique in the town. She started her business on January 1, 2013 with capital of Rs. 3, 00,000 totally financed from her own savings. She hired a showroom at a monthly rent of Rs. 8,000 and paid a security deposit of Rs. 50,000; which is refundable at time of the termination of the tenancy without interest. The rent will increase by 10% every year. Rent for a month is paid in the third week of the month. She also purchased furniture of Rs. 1,50,000; the useful life of the furniture is 10 years. She paid insurance premium of Rs. 4,800 on June 1, 2014. The insurance policy covers all type of risk for two years. Initially, Rachana employed two girls for her assistance at showroom but with increase in the volume of the business she employed one more girl since October 1, 2015. All the girls are paid a monthly salary of Rs. 4,000. Salary for a month is paid in the first week of the next month. She employs professional tailors who are paid on the piece rate basis. Till March 31, 2015, Rachana did not maintain any proper record; except the recodes of receivables and payables. On this date she had to collect Rs. 85, 000 from debtors and had to pay Rs. 65,000 for dress materials and Rs. 8,500 for tailoring charges. She had a bank balance of Rs. 1, 20, 000 and cash in hand of Rs. 6, 850. She provides the following information regarding the stock on this date: Item Cost (Rs.) Estimated Net Realizable Value (Rs.) Dress Materials 25,000 28,000 Dresses 75,000 1,20,000 She started keeping proper accounting records since April 1, 2015. During the financial year 2015-20XX, she purchased dress materials of 5,60,000 and paid Rs. 5,50,000 to suppliers. Tailoring charges paid during the year are Rs. 1,82,000 and Rs. 6,700 are still payables on March 31, 20XX towards this. Dresses of Rs. 10,55,000 were sold. Amount receivable in regards to the dresses sold is Rs. 72,600 on March 31, 20XX. Other expenses paid during the year are Rs. 16,000. Rachana has withdrawn Rs. 48,000 from the Boutique's bank account for personal expenses during the year. Cash in hand on March 31, 20XX is Rs. 5,186. The following information is obtained regarding the closing stock: Prepare the Income Statement of Rachana Boutique for financial year ended on March 31, 20XX and the Balance Sheet on that date. Item Cost (Rs.) Estimated Net Realizable Value (Rs.) Dress Materials 32,000 36,000 Dresses 84,000 80,000

Answer 1

Rachna Boutique
Income Statement as at March 2016
		Rs
Sales	Rs	1,055,000
cost of goods sold	544,000
Tailoring charges	182,000
Rent	119,064
Other Expenses	16,000
Insurance	4,400
Depreciation	15,000
Salaries	120,000	1,000,464
Profit for the year		54,536

Rachna Boutique
Balance Sheet as at March 2016
	Rs	Rs
Liabilities
Rachnas capital	300,000
Add Profit for the year	54,536
Less Drawings for personal use	48,000	306,536
Accounts Payable		75,000
rent payable		10,648
salary payable		12,000
Tailoring charges payable		6,700
Total		410,884
Assets
Furniture	150,000
Less Acc Depreciation	47,850	102,150
Security deposit		50,000
Accounts Receivable		72,000
Prepaid Insurance		400
Inventory		116,000
Cash		5,186
Bank		65,148
Total		410,884

Note:

Inventory is assumed valued at the cost price

Depreciation is calculated from 1st jan 2013(assumed as date of purchase of furniture)

Prepaid insurance is assumed to have never been reversed in the previous years

There is no mention oof closing bank bal as at march 2016, hence bank bal has been arrived at