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CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship

Gopal Enterprises, a sole proprietorship, has a trial balance showing salaries paid of ₹1,20,000, which includes ₹10,000 for the previous year's March salary. Salary for March 2025 amounting to ₹12,000 is still unpaid. Also, the proprietor withdrew goods costing ₹5,000 for personal use, not yet recorded. What is the salary expense to be charged to the P&L, and what is the effect of the goods withdrawn on the final accounts?

Salary charged is ₹1,22,000 after removing the previous year's ₹10,000 and adding ₹12,000 outstanding. Goods taken by the proprietor are credited to purchases and shown as drawings, deducted from capital.

  1. A₹1,22,000; purchases reduced by ₹5,000 and drawings increased by ₹5,000Correct
  2. B₹1,22,000; sales increased by ₹5,000
  3. C₹1,42,000; purchases reduced by ₹5,000 and drawings increased by ₹5,000
  4. D₹1,02,000; drawings increased by ₹5,000 only

Explanation

Salary = 1,20,000 - 10,000 (previous year's) + 12,000 (outstanding) = 1,22,000. Goods withdrawn are deducted from purchases in the Trading Account and added to drawings, reducing capital. Option 1,42,000 adds both items wrongly, and the drawings-only option leaves purchases overstated.

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