🏆 Challenge Zone · Chapter 1 · ⏱ 25 min

Accounting Challenge: discounts, capital and the missing stock

Each challenge solved = +25 XP. Solve without a hint = +10 bonus XP. Solve all four to earn the chapter’s Topper badge.

🎯 What you will master here:

Work backwards from cash received to the list price through two discounts
Build closing capital from profit, gain, loss, drawings and extra capital
Find closing stock when goods are sold, withdrawn and lost
Spot tricky classifications of goods, expenses, assets and liabilities

You now know the basic words of accounting. Toppers are the ones who can use those words together in a tricky situation. These four challenges mix discounts, profit, gain, loss, drawings and stock. Take your time; if you get stuck, open the hint, then try again before looking at the solution. Every rupee here is exact, so check your arithmetic!

🌍 Where is this used in real life?

Every company listed on the stock exchange must publish audited financial statements every year, and anyone can download these annual reports from the company's website. Chartered Accountants (CAs) audit these statements so that investors and lenders can trust them; that is the reliability you studied. When a shopkeeper applies for a business loan, the bank asks for his financial statements and income-tax returns to judge whether he can repay. GST-registered traders file regular returns showing their sales and purchases, which the tax department uses to check the tax due. Most businesses today keep their books in software such as Tally, Busy or Zoho Books, but the software only speeds up recording; someone still has to identify which events to record, and that someone needs exactly the concepts in this chapter. Forensic accountants follow money trails in books and bank records to detect frauds.

🪄 Accounting magic

Here is a neat mirror: one business's debtor is another business's creditor. When Kapoor Paper Mart sells notebooks on credit to Gupta Stationery, Gupta Stationery becomes a debtor in Kapoor's books (an asset), and at the same moment Kapoor Paper Mart becomes a creditor in Gupta's books (a liability), for exactly the same amount. The discount follows the mirror too: the cash discount Kapoor allows is a loss for Kapoor, while the same amount is discount received, an income, for Gupta. Every transaction has two sides. This is the seed of Pacioli's idea, "if you make one creditor, you must make some debtor", which will grow into the whole double entry system in Chapter 3.

⭐ Challenge 1 (Level: Tough)

Mehta Mobile Store buys accessories with a list price of ₹50,000 from a wholesaler on credit at 20% trade discount. The wholesaler allows 2.5% cash discount on any amount paid within 15 days. Mehta pays half of the amount due within 15 days and the other half after a month. How much cash in total did Mehta actually pay?

First find the invoice amount after trade discount. Cash discount applies only to the half that was paid early.

Invoice amount = 50,000 − 20% of 50,000 = 50,000 − 10,000 = ₹40,000.
First half ₹20,000 paid within 15 days: cash discount = 2.5% of 20,000 = ₹500, so paid 19,500.
Second half ₹20,000 paid late: no discount, paid 20,000.
Total cash paid = 19,500 + 20,000 = ₹39,500.

⭐⭐ Challenge 2 (Level: Tougher)

On 1 April 2026 Sharma Traders had capital of ₹2,00,000. During 2026-27: revenue ₹3,60,000; expenses ₹2,95,000; gain on sale of an old scooter ₹4,000; goods lost in a fire ₹9,000; the owner brought additional capital of ₹30,000 and withdrew ₹24,000 for personal use. Find the capital on 31 March 2027.

Net result for the year = revenue − expenses + gain − loss. Profit and extra capital increase capital; drawings decrease it.

Net profit = 3,60,000 − 2,95,000 + 4,000 − 9,000 = ₹60,000.
Closing capital = opening capital + additional capital + net profit − drawings
= 2,00,000 + 30,000 + 60,000 − 24,000 = ₹2,66,000.

⭐⭐ Challenge 3 (Level: Tougher)

Kapoor Paper Mart gives a retailer 10% trade discount on the list price and a further 2% cash discount for prompt payment. A retailer paid promptly and the cash actually received by Kapoor was ₹35,280. What was the list price of the goods?

Work backwards. Cash received is 98% of the invoice amount; the invoice amount is 90% of the list price.

Cash received = 98% of invoice amount, so invoice amount = 35,280 ÷ 0.98 = ₹36,000.
Invoice amount = 90% of list price, so list price = 36,000 ÷ 0.90 = ₹40,000.
Check: 40,000 − 4,000 = 36,000; 36,000 − 720 = 35,280 ✔.
List price = ₹40,000.

⭐⭐⭐ Challenge 4 (Level: Topper)

Gupta Stationery had opening stock of ₹30,000 on 1 April 2026. During the year it bought goods for ₹1,20,000 in cash and ₹80,000 on credit. The owner took goods costing ₹5,000 for his children's use. Goods costing ₹7,000 were destroyed by fire. Total sales for the year were ₹2,40,000, and all goods were sold at cost plus 25%. Find the closing stock (at cost) on 31 March 2027.

Sales are at cost + 25% of cost, so cost of goods sold = sales ÷ 1.25. Goods taken by the owner (drawings) and goods lost in fire also left the shop but were not sold.

Goods available = opening stock + purchases = 30,000 + 1,20,000 + 80,000 = ₹2,30,000.
Goods that left without sale: drawings 5,000 + fire 7,000 = ₹12,000.
Cost of goods sold = 2,40,000 ÷ 1.25 = ₹1,92,000.
Closing stock = 2,30,000 − 12,000 − 1,92,000 = ₹26,000.

🧠 Think fast

A Chartered Accountant's office buys printer paper and files for ₹5,000 for its own use. In its books this is:

Purchases, because stationery is goods
A fixed asset, because it is bought for use
An expense, because it is used up quickly and the office does not trade in stationery
Drawings

Stationery is goods only for a business that deals in stationery. For a CA's office it is bought for use and its benefit is used up within the year, so it is an expense (revenue expenditure), not purchases and not an asset.

Which of the following is NOT an asset of Mehta Mobile Store?

Goodwill of the shop
Amount due from a customer who bought a phone on credit
Loose tools used for phone repairs
Amount due to the phone distributor for goods bought on credit

Goodwill is an intangible asset, a customer who owes money is a debtor (asset), and loose tools are a current asset. The amount due to the distributor is a creditor, which is a liability.

📌 What toppers remember

Cash discount is calculated on the invoice amount after trade discount, and only on the part paid within the discount period.
To work backwards through discounts, divide by (1 − rate) in reverse order.
Closing capital = opening capital + additional capital + net profit − drawings; net profit includes gains and deducts losses.
Closing stock = opening stock + purchases − goods withdrawn or lost − cost of goods sold.
One business's debtor is another's creditor: every transaction has two sides.