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Question No 25 Chapter No 8
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Mittal Cycles purchased 100 cycles from hero cycles, ludhiana(Punjab) @ Rs 1,200 per cycle plus IGST @ 12%. Hero Cycles allowed 10% Trade Discount and 3% Cash Discount, if payment is made within 14 days. Mittal Cycles Received 10 Cycles damaged during transit, which it returned. Mittal Cycles settled the payment in 10 days time.
Pass Journal entries for the above transactions.
Solution of Question No 25 Chapter No 8: –
Gross Purchase Price = 100*1200
= 1,20,000/-
Trade Discount = Purchase Price * % of discount
= 1,20,000 * 10%
= 12,000/-
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Net Purchase Price = Gross Purchase Price – Discount
= 1,20,000 – 12,000
= 1,08,000/-
Amount of IGST = Net Purchase Price * % of IGST
= 1,08,000* 12%
= 12,960/-
Invoice Value = Net Purchase Price + IGST
= 1,08,000 + 12,960
= 1,20,960/-
Purchase Return = 10*1200
=12,000/-
Trade Discount = Purchase Return Price * % of discount
= 12,000 * 10%
= 1,200/-
Net Purchase Return Price = Gross Purchase Return Price – Discount
= 12,000 – 1,200
= 10800/-
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Amount of IGST on Purchase Return = Net Purchase Return Price * % of IGST
= 10,800 * 12%
= 1,296/-
Total Purchase Return Value = Net Purchase Return Price + IGST
= 10,800 + 1,296
= 12,096/-
So, Payable Amount = 120960 – 12,096
= 108,864/-
Cash Discount = Invoice Value * % of Discount
= 108,864 * 3%
= 3,266/-
Cash discount always availed at the time of payment and trade discount is availed at the time of dealing/trading/ Negotiation. So, in this question, we can avail cash discount when payment is made within a specific time limit.
In the Books of M/s Vaish Trader, Delhi
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| Date | Particulars |
L.F. | Debit | Credit | |
| Purchase A/c | Dr. | 1,08,000 | |||
| IGST Input A/c | Dr. | 12,960 | |||
| To Hero cycles, ludhiana A/c | 1,20,960 | ||||
| (Being goods purchased from M/s hero cycles, ludhiana. ) | |||||
| Hero cycles, ludhianaA/c | Dr. | 12,096 | |||
| To Purchase Return A/c | 10,800 | ||||
| To Input IGST A/c | 1,296 | ||||
| (Being goods returned to M/s Hero cycles, ludhiana. ) | |||||
| M/s Hero cycles, ludhiana A/c | Dr. | 108,864 | |||
| To Cash A/c | 1,05,598 | ||||
| To Discount Received A/c | 3,266 | ||||
| (Being payment made to M/s Hero cycles, ludhiana. and receive discount) | |||||
Explanation of All Transactions with images:-
This is not a part of the solution, So you don’t have to write it in the exam. So, why we explained if it is not needed. Because This explanation will help you to understand all transactions with logic and you don’t need to remember all the transactions but just understand and remember the logic use behind it.
Transaction No. 1
| Name of Account | Type of Account | Rule which will Applicable | What happen in the transaction | Rule applied | According to Rule It will be |
| Purchase (Goods) | Assets | Real Account | Goods received by business | Goods comes in | Debit |
| IGST Input A/c | Expenses | Nominal Account | Tax collected from buyer | All Expenses and losses | Debit |
| M/s Hero cycles, ludhiana | A/Person | Personal Account | Goods given | They are Giver | Credit |
Transaction No. 2
| Name of Account | Type of Account | Rule which will Applicable | What happen in the transaction | Rule applied | According to Rule It will be |
| Hero cycles, Ludhiana | Person | Personal Account | Goods received | He is receiver | Debit |
| Purchase Return a/c (Goods) | Assets | Real Account | Goods giving by Business | Goods Goes out | Credit |
| IGST Output A/c | Income | Nominal Account | Tax collected from buyer | All income and gains | Credit |
Transaction No. 3
| Name of Account | Type of Account | Rule which will Applicable | What happen in the transaction | Rule applied | According to Rule It will be |
| Hero cycles, ludhiana. | A/Person | Personal Account | Receiving payment | They are Receiver | Debit |
| Cash | Assets | Real Account | Payment made in cash | Cash goes out | Credit |
| Discount Received | gain | Nominal Account | Discount received | All income and gains | Credit |
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Check out T.S. Grewal +1 Book 2019 
T.S. Grewal’s Double Entry Book Keeping
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