Owner’s capital refers to the sum of the business resources owned by the business owners. It is calculated through the subtraction of assets from liabilities. When a business pays all its debts, the amount remaining belongs to the business owner and it is the one that is referred to as Owners Capital or Owners Equity.

Formulas of closing capital:

Closing capital =

Opening capital + profit OR

Opening capital + profit + additional capital – drawings – interest on drawings

Where interest on drawings is charged it is usually calculated at fixed rate percent from the date of each drawing to the date the accounts are closed. If the dates on which the amounts are drawn are not given, interest is calculated on the whole amount on the assumption that the money was drawn evenly throughout the year. The amount of interest is debited to partners drawings accounts and is credited to the interest on drawings amount. At the close of the accounting period the interest on drawings accounts is closed by transfer to the profit and loss account.

It may, however, be noted that if the withdrawals are of uniform amount and are made at regular intervals, then interest on drawings can be calculated on the total of the amount drawn, for the average of the periods applicable to first and last installment. Therefore, if drawings are made at the beginning of each month, interest should be calculated on the whole amount for 6 and half months.

So interest on drawings will be = 5% of (2000 × 12) × 6.5/12 = Rs. 650

Closing capital = 3,00,000 + 20,000 + 50,000 – 24,000 – 650 = Rs. 3,45,350

Expenses which have been incurred but not been paid for till the end of the accounting year are known as Accrued expenses or outstanding expenses.

Here Rent has been paid for 11 months from April to February 2010 amounting Rs. 55,000.

So total rent for 11 months = 55,000

Thus total rent for 1 month = 55,000/11 = Rs. 5,000

And the outstanding rent for march 2010 will be Rs. 5,000

Gross profit is a company’s revenue minus its cost of goods sold. Gross profit is a company’s residual profit after selling a product or service and deducting the cost associated with its production and sale.

Cost of goods sold is the direct costs attributable to the production or purchase of the goods sold by a company. It excludes indirect expenses such as distribution costs and sales force cost.

Cost of goods sold = opening inventory + purchases – closing inventory

Thus purchases = cost of goods sold + closing inventory – opening inventory = 1,00,000 + 10,000 – 5,000 = Rs. 1,05,000

Journal Entry for the given case should be to debit salary (expense) and to credit purchases (goods).

Gross profit is a company’s revenue minus its cost of goods sold. Gross profit is a company’s residual profit after selling a product or service and deducting the cost associated with its production and sale.

Cost of goods sold is the direct costs attributable to the production or purchase of the goods sold by a company. It excludes indirect expenses such as distribution costs and sales force cost.

Cost of goods sold = opening inventory + purchases less purchase return + direct expenses – closing inventory = 5,570 + 13,816 – 390 + 1,650 – 8,880 = 11,766

And gross profit = sales less sales return – cost of goods sold = 15,248 – 524 - 11,766 = Rs. 2,958

Fixed installment or straight line method depreciates cost evenly throughout the useful life of the fixed asset.

Straight line depreciation is calculated as follows:

Depreciation per annum = (Cost – Residual Value) / Useful Life

Where:

Cost includes the initial and any subsequent capital expenditure.

Residual Value is the estimated scrap value at the end of the useful life of the asset. As the residual value is expected to be recovered at the end of an asset’s useful life, there is no need to charge the portion of cost equaling the residual value.

Useful Life is the estimated time period an asset is expected to be used from the time it is available for use to the time of its disposal or termination of use.

Here Cost of the asset = Rs. 25,000

Salvage value = Rs. 5,000

Depreciation/year = (25,000 – 5,000)/10 = Rs. 2000

Depreciation rate = (2,000/25,000) × 100 = 8%

Credit sales = Rs. 1,30,000 + 5,000 – 10,000

= Rs. 1,25,000

Cash sales = Rs. 50,000

Total = Rs. 1,75,000

For bringing prepaid rent in the faks at the beginning of year, prepaid rent should be debited by corresponding credit to Suspense A/c.

the concept of conservatism was not followed in given case. As per conservatism, valuation should be done at lower of cost or market value.

The statement sent by agent to consignee is called Account Sales.