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TS Grewal Class 11 Accountancy Chapter 15 Partnership Firms Accounting Solutions

TS Grewal Class 11 Accountancy Chapter 15 Partnership Firms Accounting Solutions

Class 11 Accountancy TS Grewal Solutions Chapter 15 - Adjustments in Preparation of Financial Statements

In the previous chapter of TS Grewal Class 11 Solutions, you get to know about the importance of financial statements and how to find a sole proprietor company's financial statement. In class 11 TS Grewal Solutions for Chapter 15 Accountancy, we will be providing different methods that can help you prepare a more precise financial statement quickly and what things you need to keep in mind when you are preparing it. TS Grewal 2024-25 Double Entry Book Keeping Solutions for Class 11 Commerce Accountancy are accurate and prepared by professionals.

How are Class 11 TS Grewal Solution Adjustments in Preparation of Financial Statements are Important?

Accountancy is an important topic for every student in Class 11 because it covers the fundamentals of accounting. Studying this subject in depth can help you gain a better understanding of the subject's concepts. A financial statement is a formal record that shows all the company's financial activity or a firm. These plans can quickly provide you with a roadmap for the future investment that your business needs in the coming years.

The book value of a company's assets and liabilities must be determined in order to determine its financial condition, profit or loss within a certain accounting period. An introductory financial statement starts from keeping day to day entries such as bookkeeping. Once the month is over, you can pull and organize the data from these records to get your financial statements altogether.

On the other hand, if you are someone who manages the loan department in a bank. Your customer's financial statement can show if they can pay you the loan amount back or not.

As a company preparing a financial statement is quite important as the report needs to be sent to external stakeholders for each quarter. As a result, a business or company has to prepare their report according to the government's general accounting principles.

Things to keep in Mind while preparing Financial Statements

There are four basic financial statements which you need to prepare for a company. All of them are studied in detail in Class 11 accountancy TS Grewal solutions solution Chapter 15 PDF.

In addition to this, every financial statement that you come across will show you a different story about the business. Each financial report contains a different combination of information that offers unique insights into a business.

When you are preparing a financial statement, you must know it will reflect on real-life events that happened in your company. Being a profit or a loss, every single figure represents an event that has taken place in a company in that fiscal year. The word "financial statement" refers to a set of three major components. These are:

Income statements
Statement of Financial Position
The balance sheet and income statement include schedules and notes.

You need to make lots of adjustments in preparation of financial statements class 11 accountancy TS Grewal solutions. You will also be introduced to lots of business and financial jargon, which makes reporting a bit hard to grasp in the first go. Thus, it is better to take your time with them before putting them in your report.

Keep footnotes handy at all times; many things go behind the scenes of financial reporting, which might be challenging to convey in numbers alone.

Objectives of creating a Financial Statement

According to the financial statements Accountancy section, the main objectives for creating a financial statement are:

To offer a fair and accurate picture of the company's financial performance, including profits and losses at the conclusion of the financial quarter.
To offer a true and fair picture of the business's financial situation, including assets and liabilities, after over.

Some Important Formulae

Given below are some important formulae which are related to financial statements in Accountancy.

Gross Profit = Net Sales- Cost of Goods Sold (COGS)
Net Sales = Total Sales- Sales Return
Cost of Goods Sold (COGS) = Opening Stock + Net Purchases + Direct Expenses – Closing Stock
Net Purchases = Total Purchases- Purchases Return
Operating Profit = Net sales- Operating Cost
Operating Profit = Gross Profit- (office and administration expenses + selling and distribution expenses)
Net Profit = Operating Profit + Non operating income – Non operating expenses

Note: EBIT stands for Earnings Before Interest and Taxes (Earnings before interest and taxes)

Income Statements

The income statements are prepared by a business or an organisation to discover the correct and most accurate gross profits and losses, as well as the net profits and losses during an accounting period. The income statements are further broken down into two components or accounts:

Trading Account: The trading account reflects the business's gross profits or losses over the course of a fiscal year.
Profit and Loss Account (P/L Account): The P/L Account reflects the business's net profits or losses over a given period.

The total amount of money brought in from product or service sales is listed at the top of the income statement. Gross revenues or sales are common terms for this top line. It's called "gross" since it hasn't yet been adjusted for expenses. So the number is “gross” or unrefined. At the bottom, the income tax is deducted and it gives us the: net profit or net losses. (Net profit is also known as net earnings or net income.) This shows how much money the company made or lost during the accounting period, as well as if they made a profit.

Balance Sheet

The balance sheet is a summary of assets and liabilities prepared at the end of the fiscal year. This depicts the company's or organization's financial situation. All assets are listed on the right side of the balance sheet, while all liabilities are listed on the left. The following points should be remembered at all times

The order of the liquidity in the balance sheets are in which the assets are arranged. This means that the most liquid asset, such as cash in hand, is displayed first, followed by the least liquid assets, such as goodwill.
Liabilities are arranged in the order of the timings. This means that liabilities that must be paid immediately or first, such as creditors, are presented first, while liabilities that must be paid later, such as long-term loans, are shown last.

The following formula summarized what a balance sheet shows:

ASSETS = LIABILITIES + SHAREHOLDERS' EQUITY

A company’s assets have to be equal, or “balance,” the sum of liabilities and shareholders’ equity.

Cash Flow Statement

After preparing both balance and income sheets, organisations also prepare a cash flow statement where the movement of cash is recorded. The cash flow statement is then divided into three categories:

Cash Flow from operating activities
Cash Flow from investing activities
Cash Flows from financing activities

The company's balance sheet information and statement of income are used and reordered in the cash flow statement.

Read the Footnotes

In financial accountancy, it is extremely important to read the footnotes. Some of the points highlighted in this part are mentioned below:

Significant accounting policies and practices – The accounting policies are required to be disclosed by the company as it is most important to understand their financial conditions and results. These situations frequently necessitate management's most difficult, subjective, or complex decisions.
Income taxes - The footnotes outline the company's current and deferred income taxes in great detail. The data is organised by level – federal, state, municipal, and/or foreign – and the major factors that influence the company's effective tax rate are described.
Pension plans and other retirement programs – The company’s pension and retirement plans along with any post-employment benefit programs are given in the footnotes. It contains specific information about the assets and costs of these programs and indicates whether and by how much the plans are over-or under-funded.
Stock options – The footnotes also contain information about stock options granted to officers and employees, including the method of accounting for stock-based compensation and the effect of the method on reported results.

Important Adjustments at a Glance

The financial accountancy statement gives you the theatrical parts of the statement (income and position statements) of a business or an organisation. But combining both the theory and numerical part of the chapters helps in an easier understanding of what's required as they go hand in hand.

So there you go; these were some of the important things you need to know about TS Grewal solutions Class 11 accountancy Chapter 15. For more information, you can download the Class 11 accountancy TS Grewal solutions solution chapter 15 PDF from the website and access it anytime you want. Even though both the chapters are lengthy, notes help us in memorizing the important parts.

FAQs on TS Grewal Class 11 Accountancy Chapter 15 Partnership Firms Accounting Solutions

1. How do you solve the practical problems for Adjustments in Preparation of Financial Statements from TS Grewal Class 11, Chapter 15?

To solve the practical problems from this chapter, you should follow a systematic approach. First, carefully read the entire question, including the Trial Balance and all the adjustments given below it. Next, it's helpful to mark the items in the Trial Balance that are affected by adjustments. Then, prepare the Trading Account, Profit & Loss Account, and the Balance Sheet, ensuring that every adjustment has a dual effect on these statements as per the accounting rules for the 2025-26 session.

2. What are the key steps to prepare a Trading and Profit & Loss Account with adjustments for a sole proprietorship?

The correct method for preparing the Trading and Profit & Loss Account with adjustments involves the following steps:

Start with the Trading Account to calculate the Gross Profit or Gross Loss. Post all direct expenses (like purchases, wages, carriage inwards) on the debit side and direct incomes (like sales and closing stock) on the credit side.
Transfer the Gross Profit/Loss to the Profit & Loss Account.
Debit all indirect expenses (like salaries, rent, printing) and credit all indirect incomes (like commission received, interest received).
Incorporate the effects of all adjustments. For example, add outstanding expenses to the respective expense and deduct prepaid expenses.
The final balancing figure will be the Net Profit or Net Loss, which is then transferred to the Capital Account in the Balance Sheet.

3. How is the adjustment for 'Closing Stock' treated in the financial statements as per the TS Grewal solutions?

The adjustment for Closing Stock, when given outside the Trial Balance, has a two-fold effect. First, it is shown on the credit side of the Trading Account to correctly calculate the cost of goods sold and Gross Profit. Second, it is shown on the asset side of the Balance Sheet as a current asset. It is valued at cost or net realisable value (market value), whichever is lower, based on the principle of conservatism.

4. Why is it essential to pass adjustment entries before preparing the final accounts? What is the impact of ignoring an 'outstanding expense'?

Passing adjustment entries is crucial to ensure that the financial statements reflect a true and fair view of the business's profitability and financial position. This is based on the accrual concept and the matching principle of accounting, which state that all expenses and incomes related to the current accounting period must be recorded, regardless of whether cash has been paid or received. If an 'outstanding expense' (an expense incurred but not yet paid) is ignored, the expenses for the period will be understated, leading to an overstated Net Profit and an understated liability in the Balance Sheet.

5. How does the accounting treatment of 'Provision for Doubtful Debts' differ from 'Provision for Discount on Debtors'?

While both are provisions created against debtors, their calculation and treatment differ. Provision for Doubtful Debts is created to cover potential losses from debtors who may not pay. It is calculated on the total amount of sundry debtors after deducting any further bad debts. In contrast, the Provision for Discount on Debtors is an anticipated loss due to discounts allowed to customers for prompt payment. Crucially, it is calculated only on 'good' debtors, which is the amount remaining after deducting both further bad debts and the provision for doubtful debts.

6. What is the correct step-by-step method for calculating Manager's Commission on net profit 'before' and 'after' charging such commission?

The correct method depends on the terms specified in the problem:

Commission on Net Profit Before Charging Commission: Here, you first calculate the net profit without considering the commission. The formula is:
Commission = (Net Profit before Commission) x (Rate of Commission / 100)
Commission on Net Profit After Charging Commission: Here, the commission is calculated on the profit that remains after the commission itself has been deducted. The formula is:
Commission = (Net Profit before Commission) x (Rate of Commission / (100 + Rate of Commission))

In both cases, the calculated commission is debited to the Profit & Loss Account and shown as a current liability in the Balance Sheet.

7. What is the principle of 'marshalling' of assets and liabilities in a Balance Sheet, and how is it applied in the TS Grewal solutions?

Marshalling refers to the arrangement of assets and liabilities in a specific order in the Balance Sheet. This is done to improve readability and analysis. There are two primary methods:

In order of liquidity: Assets that can be converted into cash most quickly (e.g., Cash in Hand) are listed first. Similarly, liabilities that need to be paid earliest are listed first.
In order of permanence: The order is reversed. Long-term assets (e.g., Land & Building) and long-term liabilities (e.g., Capital) are listed first.

TS Grewal solutions typically follow the order of permanence for companies and the order of liquidity for sole proprietorship firms, aligning with common industry practices.

8. What happens if an adjustment item like 'Interest on Capital' is given inside the Trial Balance versus outside as an adjustment? How does its treatment change?

The location of an item determines its treatment. If an item is inside the Trial Balance, its dual aspect entry is already complete, and it will appear only once in the final accounts. For example, 'Interest on Capital' inside the Trial Balance would be shown only on the debit side of the Profit & Loss Account. However, if 'Interest on Capital' is given outside the Trial Balance as an adjustment, it has a dual effect: it is debited to the Profit & Loss Account as an expense for the business, and it is also added to the Capital account on the liability side of the Balance Sheet.