, (b) Income tax of Sangeetha paid ` (c) Provide interest on capital @ % (d) Provide managerial remuneration @ % of net profit before charging such commission. ( Answer : Gross profit ` , ; Manager’s commission ` ; Net profit ` , ; Balance sheet total ` , ) James is a trader who sells washing machines on credit. But, he does not remember the due date to collect the money from his debtors. Some of his customers do not pay on time.
His cash inflow is becoming worse. As a result, he could not pay his telephone bill and rent at the end of the accounting period. Hence, he showed only the amount paid as expense. He has many washing machines unsold at the year end.
He is worried about the performance of his business. So, he is planning to appoint a manager to take care of his business. The new manager insists James to apply the accounting principle of prudence and matching and also to allow cash discount. Now, discuss on the following points: • Why does James sell on credit?
• Are there any ways to encourage his debtors to make the payment on time? • What might happen if the debtors do not pay? • In what ways prudence and matching principles can be applied for the business of James? • What will be the impact on income statement and the balance sheet, if the outstanding expenses are not adjusted?
• On what basis the unsold washing machines should be valued? • What can be done to motivate the new manager to retain him in the business of James? To explore further ‘Profit does not necessarily mean cash inflow’ – Do you agree? Reference .
M C Shukla, T S Grewal and S C Gupta, Advanced Accounts, th ed., , S.Chand Publishing, New Delhi. . R L Gupta and V K Gupta, Financial Accounting, th ed., , Sultan Chand and Sons, New Delhi. .
S P Jain and K L Narang, Advanced Accountancy Vol – I, , Kalyani Publishers, New Delhi. . Dalston L