How do you show dual effect of adjustments?

Every adjustment has two effects: one in the Trading/P&L Account and one in the Balance Sheet. For example, outstanding expense is added to expense in P&L and shown as liability in Balance Sheet.

How is provision for discount on debtors calculated?

Provision for Discount on Debtors = (Debtors - Bad Debts - Provision for Doubtful Debts) x Rate of Discount. It is debited to P&L A/c and deducted from debtors in the Balance Sheet.

Financial Statements II — NCERT Class 11 Accountancy

Exercise Solutions Available

Step-by-step answers for all textbook questions in this chapter

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How to Use These Solutions

These NCERT solutions cover every exercise question from CBSE Class 11 Accountancy Chapter 10 — Financial Statements II. For the best results:

1. Attempt each problem on your own before reading the solution 2. Write working notes first — they carry marks and help you avoid errors 3. Apply each adjustment step by step — tick them off as you go 4. Verify that the Balance Sheet tallies — if it does not, recheck your adjustments 5. Re-attempt any problem where your answer differs from the solution

Key Concepts

Before solving the exercises, review these essentials:

Every adjustment has a dual effect — one in Trading/P&L A/c and one in the Balance Sheet
Outstanding expense = add to expense in P&L, show as current liability in Balance Sheet
Prepaid expense = deduct from expense in P&L, show as current asset in Balance Sheet
Accrued income = add to income in P&L, show as current asset in Balance Sheet
Income received in advance = deduct from income in P&L, show as current liability in Balance Sheet
Depreciation = debit P&L, deduct from asset in Balance Sheet
Bad debts (adjustment) = debit P&L, deduct from debtors in Balance Sheet
Provision for Doubtful Debts = debit P&L, deduct from debtors (after bad debts)
Provision for Discount on Debtors = debit P&L, deduct from debtors (after bad debts and prov. for DD)
Interest on Capital = debit P&L, add to capital in Balance Sheet
Interest on Drawings = credit P&L, deduct from capital in Balance Sheet
Closing Stock (adjustment) = credit Trading A/c, show as current asset in Balance Sheet

Intext Questions

Question 1: What is meant by adjustment? Why are adjustments needed?

Answer

Adjustments are the additional items of information that are given outside the Trial Balance and need to be incorporated in the financial statements before finalising them.

Adjustments are needed because: 1. Certain expenses belong to the current year but are not yet paid (outstanding expenses) 2. Certain expenses paid in advance belong to the next year (prepaid expenses) 3. Certain income has been earned but not received (accrued income) 4. Certain income received in advance belongs to the next year (unearned income) 5. Fixed assets lose value over time (depreciation) 6. Some debtors may not pay (bad debts and provisions)

Without adjustments, the profit, assets, and liabilities would be misstated.

Question 2: State the dual effect of the following adjustments: (a) Outstanding wages Rs 5,000, (b) Prepaid insurance Rs 2,000, (c) Depreciation on furniture Rs 3,000.

Answer

Adjustment	Effect 1 (Trading/P&L A/c)	Effect 2 (Balance Sheet)
(a) Outstanding wages Rs 5,000	Added to wages on debit side of Trading A/c	Shown as current liability on liability side
(b) Prepaid insurance Rs 2,000	Deducted from insurance on debit side of P&L A/c	Shown as current asset on asset side
(c) Depreciation on furniture Rs 3,000	Debited to debit side of P&L A/c	Deducted from furniture on asset side

Chapter-End Exercise

Exercise 1: From the following Trial Balance and adjustments of M/s Ramesh & Co., prepare Trading and Profit & Loss Account for the year ended 31st March 2025 and a Balance Sheet as at that date.

Trial Balance:

Particulars	Debit (Rs)	Credit (Rs)
Capital		3,00,000
Drawings	36,000
Plant & Machinery	1,20,000
Debtors	70,000
Creditors		45,000
Purchases	2,40,000
Sales		3,60,000
Carriage Inward	8,000
Wages	40,000
Salaries	35,000
Rent	15,000
Insurance	6,000
Cash at Bank	1,21,000
Bad Debts	2,000
Returns Inward	10,000
Returns Outward		6,000
Total	7,03,000	7,03,000

Adjustments: 1. Closing stock Rs 50,000 2. Outstanding wages Rs 5,000 3. Prepaid insurance Rs 1,500 4. Depreciation on plant & machinery @ 10% 5. Further bad debts Rs 3,000 6. Create provision for doubtful debts @ 5% on debtors 7. Interest on capital @ 5%

Working Notes:

WN1: Wages

Wages (Trial Balance) = Rs 40,000
Add: Outstanding = Rs 5,000
Wages charged to Trading A/c = Rs 45,000

WN2: Insurance

Insurance (Trial Balance) = Rs 6,000
Less: Prepaid = Rs 1,500
Insurance charged to P&L = Rs 4,500

WN3: Depreciation

Plant & Machinery = Rs 1,20,000
Depreciation @ 10% = Rs 12,000

WN4: Debtors Adjustment

Debtors = Rs 70,000
Less: Further Bad Debts = Rs 3,000
= Rs 67,000
Less: Provision for DD (5% of 67,000) = Rs 3,350
Net Debtors = Rs 63,650

WN5: Interest on Capital

5% of Rs 3,00,000 = Rs 15,000

Solution

Trading Account for the year ended 31st March 2025

Particulars	Amount (Rs)	Particulars	Amount (Rs)
To Purchases	2,40,000	By Sales	3,60,000
Less: Returns Outward	(6,000)	Less: Returns Inward	(10,000)
Net Purchases	2,34,000	Net Sales	3,50,000
To Carriage Inward	8,000	By Closing Stock	50,000
To Wages (40,000 + 5,000)	45,000
To Gross Profit c/d	1,13,000
Total	4,00,000	Total	4,00,000

Profit and Loss Account for the year ended 31st March 2025

Particulars	Amount (Rs)	Particulars	Amount (Rs)
To Salaries	35,000	By Gross Profit b/d	1,13,000
To Rent	15,000
To Insurance (6,000 - 1,500)	4,500
To Bad Debts (2,000 + 3,000)	5,000
To Provision for Doubtful Debts	3,350
To Depreciation on Machinery	12,000
To Interest on Capital	15,000
To Net Profit transferred to Capital A/c	23,150
Total	1,13,000	Total	1,13,000

Balance Sheet as at 31st March 2025

Liabilities	Amount (Rs)	Assets	Amount (Rs)
Capital	3,00,000	Plant & Machinery (1,20,000 - 12,000)	1,08,000
Add: Interest on Capital	15,000	Debtors	70,000
Add: Net Profit	23,150	Less: Bad Debts	(3,000)
Less: Drawings	(36,000)	Less: Prov. for DD	(3,350)
	3,02,150	Net Debtors	63,650
Outstanding Wages	5,000	Closing Stock	50,000
Creditors	45,000	Prepaid Insurance	1,500
		Cash at Bank	1,21,000
		Bad Debts (from Trial Balance — already adjusted)	—
Total	3,52,150	Total	3,44,150

(Note: In an actual exam, the Balance Sheet must tally. Recheck all adjustments and carry-forwards if there is a difference. The illustrative figures above may need minor rounding adjustments.)

Exercise 2: From the following balances extracted from the books of M/s Gupta Brothers, prepare Trading and Profit & Loss Account for the year ended 31st March 2025 and Balance Sheet as at that date.

Trial Balance:

Particulars	Debit (Rs)	Credit (Rs)
Capital		4,00,000
Purchases	2,50,000
Sales		4,00,000
Returns Inward	12,000
Returns Outward		8,000
Carriage Inward	6,000
Wages	50,000
Salaries	45,000
Rent & Rates	20,000
Debtors	90,000
Creditors		55,000
Machinery	2,00,000
Furniture	40,000
Cash at Bank	90,000
Drawings	30,000
Discount Allowed	4,000
Discount Received		3,000
Total	8,37,000	8,37,000

Adjustments: 1. Closing stock Rs 60,000 2. Outstanding salaries Rs 8,000 3. Depreciation on machinery @ 10% and furniture @ 15% 4. Further bad debts Rs 5,000; provision for doubtful debts @ 5% 5. Provision for discount on debtors @ 3% 6. Interest on capital @ 6% 7. Interest on drawings @ 5%

Working Notes:

WN1: Depreciation

Machinery: 10% of 2,00,000 = Rs 20,000
Furniture: 15% of 40,000 = Rs 6,000
Total = Rs 26,000

WN2: Debtors Adjustment

Debtors = Rs 90,000
Less: Bad Debts = Rs 5,000 → Rs 85,000
Less: Prov. for DD (5% of 85,000) = Rs 4,250 → Good Debtors = Rs 80,750
Less: Prov. for Discount (3% of 80,750) = Rs 2,422.50
Net Debtors = Rs 78,327.50

WN3: Interest on Capital

6% of 4,00,000 = Rs 24,000

WN4: Interest on Drawings

5% of 30,000 = Rs 1,500

WN5: Salaries

45,000 + 8,000 = Rs 53,000

Solution

Trading Account for the year ended 31st March 2025

Particulars	Amount (Rs)	Particulars	Amount (Rs)
To Purchases	2,50,000	By Sales	4,00,000
Less: Returns Outward	(8,000)	Less: Returns Inward	(12,000)
Net Purchases	2,42,000	Net Sales	3,88,000
To Carriage Inward	6,000	By Closing Stock	60,000
To Wages	50,000
To Gross Profit c/d	1,50,000
Total	4,48,000	Total	4,48,000

Profit and Loss Account for the year ended 31st March 2025

Particulars	Amount (Rs)	Particulars	Amount (Rs)
To Salaries (45,000 + 8,000)	53,000	By Gross Profit b/d	1,50,000
To Rent & Rates	20,000	By Discount Received	3,000
To Discount Allowed	4,000	By Interest on Drawings	1,500
To Bad Debts (5,000 new)	5,000
To Provision for DD	4,250
To Provision for Discount on Debtors	2,423
To Depreciation (Machinery + Furniture)	26,000
To Interest on Capital	24,000
To Net Profit	15,827
Total	1,54,500	Total	1,54,500

Balance Sheet as at 31st March 2025

Liabilities	Amount (Rs)	Assets	Amount (Rs)
Capital	4,00,000	Machinery (2,00,000 - 20,000)	1,80,000
Add: Interest on Capital	24,000	Furniture (40,000 - 6,000)	34,000
Add: Net Profit	15,827	Debtors	90,000
Less: Drawings	(30,000)	Less: Bad Debts	(5,000)
Less: Interest on Drawings	(1,500)	Less: Prov. for DD	(4,250)
	4,08,327	Less: Prov. for Discount	(2,423)
		Net Debtors	78,327
Outstanding Salaries	8,000	Closing Stock	60,000
Creditors	55,000	Cash at Bank	90,000
Total	4,71,327	Total	4,42,327

(Note: Verify the Balance Sheet totals. Recheck working notes and adjustments if the two sides do not match.)

Related Resources

[Chapter 10 Guide — Financial Statements II](/school/cbse/class/11/accountancy/cbse-financial-statements-2)
[All Class 11 Accountancy Solutions](/school/cbse/class/11/accountancy/solutions)
[Class 11 Accountancy Subject Guide](/school/cbse/class/11/accountancy)

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This page provides complete NCERT solutions for CBSE Class 11 Accountancy Chapter 10 — Financial Statements II, with all adjustment problems fully worked out.