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CA Foundation · Accounting · Final Accounts of Sole Proprietors

Anil Enterprises computed a net profit of Rs 1,50,000 before the following were considered. (i) Closing stock was taken at its cost of Rs 80,000. This includes items costing Rs 10,000 whose net realisable value is Rs 7,000, and other items costing Rs 5,000 whose net realisable value is Rs 9,000. (ii) Rent of Rs 6,000 for March is outstanding and unrecorded. (iii) Insurance premium of Rs 2,000 relating to the next year was fully charged as expense. What is the corrected net profit?

Corrected net profit is Rs 1,43,000. Stock is written down by Rs 3,000 to the lower of cost and net realisable value, and the unrealised gain is ignored. Outstanding rent reduces profit by Rs 6,000, while prepaid insurance adds back Rs 2,000. So 1,50,000 - 3,000 - 6,000 + 2,000 equals Rs 1,43,000.

  1. ARs 1,43,000Correct
  2. BRs 1,39,000
  3. CRs 1,46,000
  4. DRs 1,47,000

Explanation

Stock is valued at the lower of cost and NRV item-wise. Writing down the first group reduces stock by Rs 3,000, and the gain on the second group is not recognised. Outstanding rent reduces profit by Rs 6,000. Prepaid insurance of Rs 2,000 increases profit. Corrected profit = 1,50,000 - 3,000 - 6,000 + 2,000 = Rs 1,43,000. Rs 1,39,000 wrongly deducts the prepaid insurance.

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