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FA2


Unit - 1


PARTNERSHIP FINAL ACCOUNTS BASED ON ADJUSTMENT OF ADMISSION/DEATH OF A PARTNER DURING THE YEAR


We have already studied in (SYJC)12th Std how the partnership Final Accounts are prepared by considering the adjustments of closing stock, outstanding/prepaid expenses/incomes, depreciation, interest on capital to partners, interest on drawings from partners, salary to partners, adjustment of reserves, goodwill; on admission/retirement/death of a partner. This was when a partner is admitted/retires at the end of accounting year. In this unit, we will study how to prepare Final Accounts when a partner is admitted/retires during the accounting year.


According to Section 31 of Indian Partnership Act 1932 "A Partner can be admitted only consent of all the Existing Partners."

Adjustments required when a New Partner is admitted

  1. Calculation of New Profit Sharing Ratio / Sacrificing Ratio.
  2. Valuation and Treatment of Goodwill.
  3. Revaluation of Assets and Liabilities.
  4. Adjustment of accumulated Profits, Reserve and Losses.
  5. Necessary Adjustment of Capital Accounts of Partners.

 

Change in Profit Sharing Ratio

A New Partner acquires his share from the Old Partner in any of the following Manners:

-          In their Old Profit Sharing Ratio
-          In a Particular Ratio or Surrendered Ratio
-          In a Particular fraction from some of the partner

 

Accounting Treatment of Goodwill

  1. When Goodwill (Premium) is paid by the New Partner Privately

No Entry

2.                  When Goodwill brought in Cash by the New Partner

(i) Cash/Bank A/c   ...Dr.

To Premium for Goodwill A/c

(ii) Premium for Goodwill A/c ... Dr.

To Sacrificing Partners' Capital A/c (In Sacrificing Ratio)

To Sacrificing Partners' Current A/c s (When Capital is Fixed)

3.                  Goodwill Withdrawn by the Sacrificing (Old) Partners

Sacrificing  Partners' Capital A/c s ...Dr.

To Cash/Bank A/c

4.                  Goodwill not brought in Cash

New  Partner's Capital or Current A/c ... Dr.

To Sacrificing Partners' Capital or current A/c [Sacrificing Ratio]

5.                  Goodwill brought in Kind

Assets  A/c ...   Dr.

To Premium for Goodwill A/c

Hidden or inferred goodwill

Sometimes the value of goodwill is not given at the time of admission of a new partner. In such a situation, goodwill is calculated on the basis of net worth of the business. Hidden goodwill is the excess of desired total capital of the firm over the actual combined capital of all partners’.

 

For Example

Capital of L and M are Rs.  2,00,000 and Rs.  1,50,000 respectively. They admit N as a Partner for  1/5 share with Rs. 1,00,000 as his Capital.

On the basis of N’s Capital, total Capital of the Firm should be Rs. 5,00,000 (1,00,000 × 5/1). But the actual Capital of the Firm is Rs. 4,50,000 (2,00,000 +1,50,000 +1,00,000). Hence, Hidden Goodwill:

= Rs. 5,00,000 - Rs. 4,50,000

= Rs. 50,000

Revaluation of Assets and Reassessment of Liabilities

Accounting Entries

(i)                 For increase in the value of Assets

Assets A/c (Individually)  Dr.

To Revaluation (or P & L Adjustment) A/C

(ii)               For a decrease in the value of Assets

Revaluation A/c   Dr.

To Assets A/c (Individually)

(iii)            For an increase in the amount of Liabilities

Revaluation A/c   Dr.

To Liabilities A/c (Individually)

(iv)             For a decrease in the amount of Liabilities

Liability A/c (Individually)  Dr.

To Revaluation A/c

(v)               For an accounting unrecorded Assets

Assets A/c (Individually)  Dr.

To Revaluation A/c

(vi)             For accounting unrecorded Liabilities

Revaluation A/c   Dr.

To Liability A/c (Individually)

Revaluation Account

 

Particulars

Rs.

Particulars

Rs.

To Decrease in value of assets

.....

To increase in value of liabilities

.....

By Increase in value of assets

.....

By Decrease in value of liabilities

.....

To Unrecorded liabilities

.....

By Unrecorded assets

.....

To Profit transfer to the old Partner's

.....

By Loss transfer to the old Partner's

.....

Capital A/c s (in the old ratio)

.....

Capital A/c s (in the old ratio)

.....

 

Reserves and accumulated (undistributed) Profits/Losses

Accounting Entries

(i)                 For transfer of Reserves and Accumulated Profits:

Profit and Loss ...   Dr.

Reserve Fund A/c or General Reserve Dr.

Workmen Compensation Reserve  Dr. [Excess of Reserve over Actual

Liabilities]

Investment Fluctuation Reserve A/c ...Dr. [Excess of Reserve over the

Difference between Book Value and market Value]

To Old Partners' Capital A/c s [In old Ratio]

(Being the reserve and profit transferred to old partners in their old ratio)

(ii)               For transfer of Reserves and Accumulated Losses:

Old Partners' Capital A/c s  Dr.

To Profit and Loss A/c [In old Ratio]

To Deferred Revenue Expenditure A/c (Like Advertisement Expenditure)

(Being the accumulated losses transferred to old partners in their old ratio

 

Adjustment of Partners' Capital

Case 1. Calculation of New Partner's Capital on the basis of Old Partners

Step 1. Calculate the adjustment closing capitals of old Partners (after all adjustments have been made)

Step 2. Calculate the total closing Capital of New Firm as under:

Total capital of New Firm = Combined adjusted Closing Capitals of Old Partners  X Reciprocal of remaining share of profit of old partners.

Step 3. Calculate the proportionate Capital of New Partner as under:

New Partner's Capital =Total capital of new firm x New partner's proportion of share  of  profit.

Case 2. Adjustment of Old Partners’ Capital on the basis of New Partner's Capital

Step 1. Calculate total capital of new firm on the basis of new partner's capital i.e. new partner's capital X Reciprocal of proportion of share profit of new partner.

Step 2. Calculate the new capital of old partners by dividing the total capital in their new  profit sharing ratio.

Step 3. Calculate the adjusted closing capitals of old partners (i.e. after all adjustments have been made)

Step 4. Calculate the surplus /deficiency in each of the old partner's capital account by comparing the new capital with their adjusted old capital which is adjusted through cash or transferred to their Current A/c

 

Adjustment of Surplus/Deficiency through Cash:

(a)               If Capital of Old Partners falls short (Deficit), bring in cash:

Cash/Bank A/c  Dr.

To Partners' Capital A/c s

(b)               If capital of old partner has a surplus, withdraw cash:

Partners' Capital A/cs Dr.

To Cash/Bank A/c

Adjustment of Surplus/Deficiency through Partner's Current Account:

(a)               If the existing capital is more than his required capital (surplus)

Partner's Capital A/c  Dr.

To Partner's Current A/c

(b)               If the existing capital is less than his required capital (deficit)

Partner's Current A/c Dr.

To Partner's Capital A/c

If Current Account shows a Credit Balance, it is taken to the Liabilities side of the Balance    Sheet. However, if Current Account shows a Debit Balance, it is placed on the Assets side of the Balance Sheet.


 

Meaning

Retirement of a Partner means living the firm by a partner. A Partner may retire from the  firm in the following conditions-

I.                   If  there is an agreement about the retirement.

II.                If all the partners consent to his retirement.

III.            If the partnership is at will, by giving a notice in writing to all the other partners in

Advance.

Adjustment for Retirement of a Partner

(a)               Finding out the New Profit-Sharing Ratio and Gain Ratio.

(b)              Treatment of Goodwill.

(c)               Revaluation of Assets and Reassessment of Liabilities.

(d)              Treatment related to Unrecorded Assets and Liabilities.

(e)               Adjustments in respect to Accumulated Profits and Losses.

(f)                 Ascertain of Share of Profits or Losses up to the date of Retirement/Death.

(g)              Adjustment of Capital if required.

(h)               Settlement of Capital, if required.

(i)                 Change in Profit- Sharing Ratio
New Profit-Sharing Ratio

The New Profit-sharing Ratio on Retirement of a Partner is the Ratio in which the continuing or remaining Partners decide to share the future Profits and Losses.

New Share of a Partner = Old Share + Acquired Share

Case 1. When one Partner Retires and the New Profit -Sharing Ratio among the Remaining Partners is not given.

Case 2. When Remaining Partners Purchase the Share of the Retiring Partner in a Specific Ratio.

Gaining Ratio
Ratio  in which they Continue Partner acquires the Retiring of Deceased Partners' Share. Calculation of Gaining Ratio under different situations is given below:

(i)                 When No Agreement Exists

In this case gain to the continuing partners is in the old profit-sharing ratio.

(ii)              When the New Profit-sharing Ratio is given

In this case, the gaining ratio is calculated by deducting the old ratio from the new ratio.

Gaining Ratio=New Ratio - Old Ratio

 

Accounting Treatment of Goodwill

When a Partner Retires (or Dies) his Share of Profit is acquired by the Remaining Partners. The following Entry is recorded for this purpose:

Remaining Partner's A/cs .... Dr.  [Gaining Ratio]

To Retiring Partners' Capital  [Retiring Partner's Share of Goodwill]

All Partners' Capital/Current A/c’s Dr.  [Old Ratio]

To Goodwill (or Premium) A/c

Revaluation of Assets and Reassessment of Liabilities
(Same as admission)

Adjustment for Reserves and Undistributed profits/Losses

For Distribution of Accumulated Profits:

General Reserve A/c  Dr.

Reserve Fund A/c  Dr.

Profit and Loss A/c  Dr.

To All Partners' Capital A/c s

For Distribution of Accumulated Losses;

All Partner's Capital A/c Dr.

To Profit and Loss A/c

Accounting treatment of joint life policy;

 

Case 1. When there is no Joint Life Policy is present in the Balance Sheet but Joint Life Policy will paper in the Balance Sheet after Retirement.

Joint Life Policy A/c .... Dr.  (Surrender Value of J.L.P)

To All Partner’s Capital A/c’s (Old Ratio)

Case 2. When there is no Joint Life Policy in the present Balance Sheet and Joint Life Policy will not be shown in the Balance Sheet after Retirement.

In this situation adjustment is carried out through Partners' Capital Accounts by passing the following entry:

Continuing Partner’s Capital A/c’s ....Dr.  (Gaining Ratio)

To Retiring Partner's Capital A/c (Share of Surrender Value)

 

Case 3. When there is Joint Life Policy in the Balance Sheet: In this case, Joint Life Policy is treated as an asset. Any Revaluation of Joint Life Policy is carried out through Revaluation Account.

Calculation of amount due to the Retiring Partner

(i)                 Capital on the date of the last Balance Sheet.

(ii)               Interest or salary, if any, payable to him.

(iii)            Share of profit or losses till the date of retirement. (i) If the amount is paid in Cash or by Cheque;

(iv)             Share in the profits or losses on revaluation of assets and reassessment of liabilities.

(v)               Share in the goodwill of the firm.

(vi)             Share in the general reserve or profits and losses account appearing in the Balance Sheet.

 

Settlement of the Account Due to the Retiring Partner

(i) If the amount is not paid in cash;

Retiring Partner's Capital A/c Dr.

To Cash/Bank A/c

(ii) If the amount is not paid in cash;

Retiring Partner's Capital A/c Dr.

To Retiring Partner's Loan A/c

Construction of Retiring Partner's Loan Account

(i)                 For Interest due;

Interest on Loan A/c   Dr.

To Retiring Partner's Loan A/c

(ii)               For payment of Instalment with Interest:

Retiring Partner's Loan A/c   Dr.

To Cash /Bank A/c

Adjustment of partners’ capital in new profit sharing ratio

Adjustment of Partner's Capital in New Profit Sharing Ratio

(i)                 If Capital of Remaining Partner falls short, bring in Cash:

Cash/Bank A/c  Dr.

To Remaining Partner's Capital A/c

(ii)              If capital of remaining partner has a surplus, withdraw Cash:

Remaining Partner's Capital A/c Dr.

To Cash/Bank A/c

(iii)           If the deficit in their capital account is adjusted by transferring to their current accounts:

Remaining Partner's Current A/c Dr.

To Remaining Partner's Capital A/c

(iv)            If the surplus in their capital accounts is adjusted by transferring to their Current Capital Account

Remaining Partner's Capital A/c Dr.

To Remaining Partner's Current A/c

Note: If no information is given then any surplus or deficiency should be adjusted  in  cash and not by transferring it to partner's current account.


The Accounting Procedures on the Death of a Partner are very similar to the Retirement of a Partner.

From Accounting Point of view the following point are Important;

(i)                 Calculation of New Ratio and Gaining Ratio.

(ii)               Treatment of Goodwill.

(iii)            Revaluation of Assets and Reassessment of Liabilities.

(iv)             Distribution of Accumulated Profits and Losses.

(v)               Treatment of Joint Life Policy: Insurance amount is distributed among all partners including deceased partner in their old ratio.

(vi)             Interest on capital, share of profit to the deceased partner till the date of death, drawings, interest on drawings, is credited or debited to the deceased partner's account.

(vii)           Preparation of deceased partner's capital account and its settlement

Having given effect to the above 6 points, the balance in the Deceased Partner's Capital Account is transferred to his Executor's Account and may be paid in cash or transferred to his Loan Account.

Note: The Executors of the Deceased Partner are entitled to the following:

  1. Balance of Capital and Current Account of the Deceased Partner
  2. Share of Accumulated Profit/Loss
  3. Share of Revaluation Profit/Loss
  4. Share of Goodwill of the Firm
  5. Share of Goodwill of the Firm
  6. Share of Joint Life Policy taken by the Firm

Date of death is important factor while calculating the balance of deceased Partner.

Date is considered     Date is not considered

To calculate Share of Profit    To calculate Share of Goodwill

To calculate Interest on Capital   To calculate Share of General Reserves

To calculate Interest on Drawings   To calculate Share of Joint Life Policy

To calculate Interest on Deceased   To calculate Share of Profit and Loss A/c

Partner’s loan A/c     (given in Balance Sheet)


If a partner is admitted or retired or dies during the year i.e in between the accounting year, following additional points to be remembered:

  1. Trading/Profit & Loss A/c will have two amount columns i.e before and after such change.
  2. Expenses related to time will be distributed in time ratio (ex: salary, depreciation etc) and expenses related to sales will be distributed in sales ratio(ex: advertising, bad debts, carriage outwards etc).
  3. Profit & Loss Appropriation A/c will also have two amount columns i.e before and after such change. Accordingly; Interest on drawings/capital, salary to partner, net profit/loss shall also be distributed in two columns.
  4. Balance Sheet will be prepared normally as usual.

 


Q. 1: From the following Trial Balance of Ajit and Sujit, you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st December 2003 and a Balance Sheet as on that date:

Trial Balance Sheet as on 31st December 2003

Particulars

Debit

Rs.

Credit Rs.

Particulars

Debit

Rs.

Credit

Rs.

Capital A/c:

Ajit

Sujit

Drawing A/c

Ajit

Sujit

Stock on 1-1-2003

Bills Receivable

Purchases and Sales

Return

Salaries

 

2,000

1,000

44,000

1,800

1,90,000

 

6,000

10,000

 

60,000

40,000

 

3,02,000

 

2,000

Carriage Outward

Wages

Insurance

Discount Received

Postage

(Debtors and Creditors)

Furniture

Cash in Hand

Machinery

Rent & Taxes

(Printing & Stationery)

 

1,400

24,000

1,600

 

800

 

70,400

 

24,000

9,800

80,000

1,200

 

400

4,68,400

 

200

 

64,200

 

4,68,400

Adjustments:

  1. The closing stock on 31st December 2003 was valued at Rs. 56,000.
  2. The outstanding expenses were: (a) Wages Rs. 2,000 and (b) Salaries Rs. 930.
  3. Goods of Rs. 2,000 were distributed as free samples.
  4. Interest on partner’s capital was to be provided at 7% p.a.
  5. Prepaid Insurance was Rs. 100.
  6. Depreciation was to be provided on furniture at 10% and on machinery at 5%.
  7. A reserve for bad and doubtful debts was to be created at 5% of sundry debtors.

 

Solution:

In the books of Ajit & Sujit

Trading, Profit & Loss A/c for the year ended 31st Dec, 2003

Particulars

Amount (Rs)

Amount (Rs)

Particulars

Amount (Rs)

Amount (Rs)

To Opening stock

 

44,000

By Sales

Less : Return Inwards

3,02,000

6,000

 

2,96,000

To Purchase

Less : Return Outwards

1,90,000

(2,000)

 

1,88,000

By Goods Given as Samples (3)

 

2,000

To Wages

    Add : Outstanding (2)

24,000

2,000

 

26,000

By Closing Stock (1)

 

56,000

To Gross Profit c/d

 

96,000

 

 

 

 

 

 

 

 

 

Total

 

3,54,000

Total

 

3,54,000

 

 

 

 

 

 

To Salaries

10,000

 

By Gross Profit b/d

 

96,000

Add : Outstanding (2)

930

10,930

By discount Received

 

200

To Insurance

Less : Prepaid (5)

1,600

(100)

 

1,500

 

 

 

To Postage

 

800

 

 

 

To Rent & Taxes

 

1,200

 

 

 

To Printing & stationery

 

400

 

 

 

To Carriage Outwards

 

1,400

 

 

 

To free Samples Given (3)

 

2,000

 

 

 

To Reserve for Doubtful Debt (5% of 70,400) (7)

 

3,520

 

 

 

To Depreciation : (6)

Machinery (5% of 80,000)

Furniture (10% of  24,000)

 

4,000

2,400

6,400

 

 

 

To Net Profit c/d

 

68,050

 

 

 

 

 

 

 

 

 

Total

 

96,200

Total

 

96,200

 

 

 

 

 

 

To Interest on Capitals : (4)

     Ajit (7% of 60,000)

    Sujit (7% of 40,000)

 

4,200

2,800

 

7,000

By Net Profit b/d

 

68,050

To Net profit transferred:

    Ajit

    Sujit

 

30,525

30,525

 

61,050

 

 

 

 

 

 

 

 

 

Total

 

68,050

Total

 

68,050

 

Balance Sheet as on 31st Dec, 2003

Liabilities

Amount (Rs)

Amount (Rs)

Assets

Amount (Rs)

Amount (Rs)

Capital Account of Ajit:

 

 

Machinery

80,000

 

Balance b/d

60,000

 

Less : Depreciation (6)

(4,000)

76,000

Add : Interest (4)

4,200

 

Furniture

24,000

 

Add : Net Profit

30,525

 

Less : Depreciation (6)

(2,400)

21,600

 

94,725

 

 

 

 

Less : Drawings

(2,000)

92,725

 

 

 

 

 

 

 

 

 

Capital Account of Sujit:

 

 

Prepaid Insurance (5)

 

 

Balance b/d

40,000

 

Stock (1)

 

 

Add : Interest (4)

2,800

 

Debtors

70,400

 

Add : Profit

30,525

 

Less : Reserve for D.D (7)

(3,520)

66,880

 

73,325

 

Bills Receivable

 

1,800

Less : Drawings

(1,000)

72,325

Cash in Hand

 

9,800

Sundry Creditors

 

64,200

 

 

 

Outstanding Expenses : (2)

 

 

 

 

 

Wages

2,000

 

 

 

 

Salaries

930

2,930

 

 

 

 

 

 

 

 

 

Total

 

2,32,180

Total

 

2,32,180

Notes:

  1. In absence of information, partner’s share is assumed to be equal.
  2. Numbers written in brackets are effect of adjustment numbers.

 

Q. 2: A, B and C carried on business in partnership as Ready Made Cloth Dealers. The partnership agreement provided that –

  1. The partners were to be credited at the end of each year with interest at 5% per annum on Opening Balance of Capital.
  2. No Interest was to be charged on drawings.
  3. Profits and Losses were to be shared as to A5, B 3 and C2. It was agreed that C’s Share of profit in any should not be less than Rs. 10,000 and any deficiency in such share was to be borne by the other two partners in their profit sharing ratio.

 

Trial Balance of the Partnership as on 31stDecember 2003

Account

Debit Rs.

Credit Rs.

Shop Fittings (at cost)

Freehold Premises

Leasehold Premises Purchased During the year

Additions and Alterations to Leasehold Premises

Purchases

Stock as at 1-1-2003

Salaries and wages

Office and Trade Expenses

Rent, Rates and Insurance

Professional Charges

Debtors

Balance at Central Bank Ltd.

Partners Capital Account:

A

B

C

Partners Current Account:

A

B

C

Sales

Trade Creditors

Depreciation Reserve

Reserve for Doubtful Debts

Drawings Other Than Monthly Payments:

A

B

C

 

36,000

60,000

45,000

25,000

2,80,000

42,000

64,000

45,200

10,500

3,500

20,600

43,700

 

-

-

-

 

-

-

-

-

-

-

-

 

7,000

6,000

4,000

6,92,500

-

-

-

-

-

-

-

-

-

-

-

-

 

80,000

50,000

30,000

 

16,000

8,000

12,000

4,45,000

37,000

14,000

500

 

-

-

-

6,92,500

You are given the following additional information:

  1. Stock on December 31, 2003 was valued at the market value of Rs. 35,000 but if valued at cost it was Rs. 42,000.
  2. Goods worth Rs. 1,000 were destroyed by fire and the Insurance Company has admitted claim for Rs. 700 only.
  3. A debt of Rs. 600 is to be written off and provision for doubtful debts is to be at 5%.
  4. Salaries and wages include the following monthly drawings by the partners: A: Rs. 500; B: Rs. 300 and C: Rs. 250.
  5. Partners had during the year been supplied with goods worth Rs. 600 to A and Rs. 400 to B
  6. On December 31, 2003 rates paid in advance and office and trade expenses owing were Rs. 2,500 and Rs. 2,100 respectively.
  7. Depreciation of shop fittings to be provided at 5% p.a. On cost.
  8. Professional Charges include Rs. 2,500 fees paid in respect of the acquisition of leasehold premises.
  9. The cost of addition and alterations to the leasehold premises were to be written off over 25 years commencing from 1-1-2003.

You are requested to prepare the Trading Account and Profit & Loss Account for the year ending. 31st December, 2001 and Balance Sheet as at 31st December 2003.

 

Solution:

In the books of A,B & C

Profit & Loss A/c for the year ended 31 Dec, 2003

Particulars

Amount (Rs)

Amount (Rs)

Particulars

Amount (Rs)

Amount (Rs)

To Salaries & Wages

Less : Salaries to Partners 

64,000

(12,600)

51,400

By Gross Profit b/d

 

1,60,000

To Office/ Trade Expenses

Add: Outstanding

45, 200

2,100

47,300

 

 

 

To Rent, Rates & Insurance

Less : Prepaid Rates

10,500

(2,500)

 

 

 

 

To Professional Charges

 Less: Expenses on acquisition of Leasehold Premises

3,500

 

(2,500)

1,000

 

 

 

To Bad Debts

 Add: RDD (New)

600

1,000

 

 

 

 

 

1,600

 

 

 

 

 Less : RDD (Old)

(500)

1,100

 

 

 

To Depreciation on : Leasehold Premises

Shop Fitting

2,900

1,800

4,700

 

 

 

To Goods Destroyed by Fire (Cost Less Insurance claim)

 

300

 

 

 

To Net Profit c/d

 

46, 200

 

 

 

Total

 

1,60,000

Total

 

1,60,000

Profit & Loss Appropriation A/c

Particulars

Amount (Rs)

Amount (Rs)

Particulars

Amount (Rs)

Amount (Rs)

To Interest on Partner’s Capitals

 

8,000

By Net Profit b/d

 

46,200

To Net Profit transferred to Current A/c

-          A (28,200 x 5/8)

-          B (28,200 x 3/8)

-          C (minimum guaranteed)

17,625

10,575

 

10,000

38,200

 

 

 

Total

 

46,200

Total

 

46,200

 

Balance Sheet as on 31 Dec, 2003

Liabilities

Amount (Rs)

Amount (Rs)

Assets

Amount (Rs)

Amount (Rs)

Capital Accounts:

-          A

-          B

-          C

80,000

50,000

30,000

1,60,000

Fixed Assets:

Shop fitting (at Cost)

 

Less: Dep. Upto Current year (14,000 + 1,800)

36,000

15,800

20,200

Current Accounts:

-          A

-          B

-          C

24,025

11,075

16,500

51,600

Freehold Premises

 

60,000

Trade Creditors

 

37,000

Leasehold Premises

Add: Addition during the Year

Add: Expenses on acquisition of Leasehold Premises

45,000

 

25,000

 

2,500

72,500

 

Outstanding office & Trade Expenses

 

2,100

Less: Depreciation (1/25)

(2,900)

69,600

 

 

 

Debtors

Less Bad Debts

20,600

(600)

 

 

 

 

 

20,000

 

 

 

 

Less : Provision for bad debts

(1,000)

19,000

 

 

 

Balance at Central bank Ltd.

 

43,700

 

 

 

Insurance Claim Receivable

 

700

 

 

 

Prepaid Rates

 

2,500

 

 

 

Closing stock

 

35,000

 

 

 

 

 

 

Total

 

2,50,700

Total

 

2,50,700

 

Partner’s Current Accounts

Particulars

A

(Rs)

B

(Rs)

C

(Rs)

Particulars

A

(Rs)

B

(Rs)

C

(Rs)

To Drawing

7,000

6,000

4,000

By Balance b/d

16,000

8,000

12,000

To Drawing (salary)

6,000

3,600

3,000

By Interest on capital

4,000

2,500

1,500

To Drawing (goods)

600

400

 

By Profit & Loss A/c

17,625

10,575

10,000

To Balance c/d

24,025

11,075

16,500

 

 

 

 

Total

37,625

21,075

23,500

Total

37,625

21,075

23,500

 

Q.3. A and B were partners sharing profits and losses in the ratio of 3:2. With effect from 1-10-2002, C joins as a third partner. The new profit sharing ratio was 2:2:1.

The following is their trial balance as on 31st March, 2003:

Particulars

Dr. Rs.

Cr. Rs.

A’s Drawings and Capital

B’s Drawings and Capital

C’s Drawings and Capital

Opening Stock (1-4-2002)

Purchases and Sales

Wages 

Furniture

General Expenses

Selling Expenses

Debtors and Creditors

Cash and Bank Balance

Amount brought by C (for his share of Goodwill)

15,000

10,000

5,000

30,000

9,00,000

1,40,000

2,00,000

60,000

14,000

6,26,000

3,50,000

-

23,50,000

3,00,000

2,00,000

1,50,000

-

14,00,000

-

-

-

-

2,50,000

-

50,000

23,50,000

 

Other Information:

  1. Stock on 31-3-2003 was Rs. 1,80,000.
  2. Purchases from 1-4-2002 to 30-9-2002 were Rs. 4,00,000.
  3. Sales from 1-4-2002 to 30-9-2002 were Rs. 6,00,000.
  4. Wages from 1-4-2002 to 30-9-2002 were Rs. 60,000.
  5. Stock on 30-9-2002 was Rs. 80,000.
  6. Furniture worth Rs. 1, 00,000 was purchased 1-1-2003. Write off depreciation on furniture at 20% p.a.
  7. Interest on partner’s capital is to be provided at 12% p.a.
  8. No Interest is to be charged on partners drawings.

 

You are required to prepare:

  1. Trading A/c containing the columns for: 1-4-2002 to 30-9-2002 and 1-10-2002 to 31-3-2003.
  2. Profit & Loss A/c containing the columns for: 1-4-2002 to 30-9-2002 and 1-10-2002 to 31-3-2003.
  3. Balance sheet as on 31st March, 2003.

 

Solution:

M/s A, B, C

Trading, Profit & Loss A/c for the year ended 31st March, 2003

Particulars

Apr-Sep (Rs)

Oct-Mar (Rs)

Particulars

Apr-Sep (Rs)

Oct-Mar (Rs)

To Opening Stock

30,000

80,000

By Sales

6,00,000

8,00,000

To Purchases

4,00,000

5,00,000

 

 

 

To Wages

60,000

80,000

By Closing Stock

80,000

1,80,000

 

 

 

 

 

 

To Gross Profit c/d

1,90,000

3,20,000

 

 

 

 

 

 

 

 

 

Total

6,80,000

9,80,000

Total

6,80,000

9,80,000

 

 

 

 

 

 

To General Expenses (WN2)

30,000

30,000

By Gross Profit b/d

1,90,000

3,20,000

To Selling Expenses (WN2)

6,000

8,000

 

 

 

To Depreciation on Furniture (WN 3)

10,000

15,000

 

 

 

 

 

 

 

 

 

To Net Profit c/d

1,44,000

2,67,000

 

 

 

 

 

 

 

 

 

Total

1,90,000

3,20,000

Total

1,90,000

3,20,000

 

 

 

 

 

 

To Interest on Capital

 

 

By Net Profit b/d

1,44,000

2,67,000

A(3 L x 12% x 1/2)

18,000

18,000

 

 

 

B(2 L x 12% x 1/2)

12,000

12,000

 

 

 

C(1.5 L x 12% x 1/2)

-

9,000

 

 

 

 

 

 

 

 

 

To Net Profit trfd to Partner’s capital

 

 

 

 

 

A (3/5) (2/5)

68,400

91,200

 

 

 

B (2/5) (2/5)

45,600

91,200

 

 

 

C (  -  ) (1/5)

-

45,600

 

 

 

 

 

 

 

 

 

Total

1,44,000

2,67,000

Total

1,44,000

2,67,000

 

Partner’s Capital A/c

Particulars

A

B

C

Particulars

A

B

C

To Drawings

15,000

10,000

5,000

By Balance b/d

3,00,000

2,00,000

-

To Balance c/d

5,30,600

3,50,800

1,99,600

By Bank

-

-

1,50,000

 

 

 

 

By Interest

36,000

24,000

9,000

 

 

 

 

By Goodwill (WN1)

50,000

-

-

 

 

 

 

By Net Profit

1,59,600

1,36,800

45,600

Total

5,45,600

3,60,800

2,04,600

Total

5,45,600

3,60,800

2,04,600

 

Balance Sheet as on 31st March, 2003

Liabilities

Amount (Rs)

Amount (Rs)

Assets

Amount (Rs)

Amount (Rs)

Partner’s capitals

 

 

Furniture

2,00,000

 

A

5,30,600

 

Less: Depreciation

(25,000)

1,75,000

B

3,50,800

 

Debtors

 

6,26,000

C

1,99,600

10,81,000

Stock

 

1,80,000

 

 

 

Cash & Bank

 

3,50,000

Creditors

 

2,50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

13,31,000

Total

 

13,31,000

Working Notes:

  1. Sacrifice by partners

SR = OR – NR

A = (3/5) - (2/5) = 1/5

B = (2/5) - (2/5) = NIL

2.       General Expenses: Time Basis & Selling Expenses: Sales Basis.

3.       Depreciation on Furniture

Particulars

Total

Before Admission

After Admission

Opening (1,00,000 x 20%)

20,000

10,000

10,000

Purchases (1,00,000 x 20% x 3/12)

5,000

-

5,000

Total

25,000

10,000

15,000

 

Q.4. X and Y shared profits and losses equally. Their Trial Balance as on 31st December 2003 was as under:

Particulars

Rs.

Rs.

Capital : X

                Y

Current : X

                 Y

Fixed Assets

Debtors

Bank

Stock (Opening)

Purchases

Wages

Office & Administrative Expenses

Selling & Distribution Expenses

Creditors

Sales

Advances

 

7,500

7,500

75,000

25,000

25,000

12,500

62,500

6,250

12,500

10,000

 

31,250

2,75,000

75,000

75,000

 

12,500

1,12,500

 

2,75,000

Additional Information:

  1. Z retired on 30th June 2003. His capital was paid off but the amounts due to him for (i) Profit of the year (ii) Share of Goodwill Rs. 10,000 (iii) Interest on his capital Rs. 1,250 were to be paid.
  2. X, Y and Z were sharing profits and Losses 2:2:1.
  3. Closing Stock was Rs. 6,250 on 30-6-2003 and Rs. 7,500 on 31-12-2003
  4. Item   Up to 30-6-2003  after 1-7-2003     Purchase                            37,500                                          25,000                                                                                    Wages                                          3,750                                          2,500                                                                                    Sales                                          75,000                                          37,500                                                                     

Other expenses were to be equally distributed between the two periods.

5.      Depreciate Fixed Assets by 10% p.a.

6.      Allow interest at 10% p.a. On capital.

Show the Final Accounts.

Solution:

M/s X & Y

Trading, Profit & Loss A/c for the year ended 31st Dec, 2003

Particulars

Jan-June (Rs)

Jul-Dec (Rs)

Particulars

Jan-June (Rs)

Jul-Dec (Rs)

To Opening Stock

12,500

6,250

By Sales

75,000

37,500

To Purchases

37,500

25,000

 

 

 

To Wages

3,750

2,500

By Closing Stock

6,250

7,500

 

 

 

 

 

 

To Gross Profit c/d

27,500

11,250

 

 

 

 

 

 

 

 

 

Total

81,250

45,000

Total

81,250

45,000

 

 

 

By Gross Profit b/d

27,500

11,250

To Office & Admin Expenses

6,250

6,250

By Net Loss c/d

-

3,750

To Selling Expenses

5,000

5,000

 

 

 

To Depreciation on Fixed assets(75,000 x 10% = 7,500)

3,750

3,750

 

 

 

 

 

 

 

 

 

To Net Profit c/d

12,500

-

 

 

 

 

 

 

 

 

 

Total

27,500

15,000

Total

27,500

15,000

 

 

 

 

 

 

To Net Loss b/d

-

3,750

By Net Profit b/d

12,500

-

To Interest on Capital

 

 

 

 

 

X(75,000 x 10%)

3,750

3,750

 

 

 

Y(75,000 x 10%)

3,750

3,750

By Net Loss after 1-7

 

 

Z(given)

1,250

-

X (11,250 x 1/2)

 

5,625

 

 

 

Y (11,250 x 1/2)

 

5,625

To Net Profit (upto 30-6)

 

 

 

 

 

X (3,750 x 2/5)

1,500

 

 

 

 

Y (3,750 x 2/5)

1,500

 

 

 

 

Z  (3,750 x 1/5)

750

 

 

 

 

 

 

 

 

 

 

Total

12,500

11,250

 

12,500

11,250

 

Balance Sheet as on 31st Dec, 2003

Liabilities

Amount (Rs)

Amount (Rs)

Assets

Amount (Rs)

Amount (Rs)

Partner’s capitals

 

 

Fixed Assets

75,000

 

X

75,000

 

Less: Depreciation

(7,500)

67,500

Y

75,000

1,50,000

Debtors

 

25,000

 

 

 

Stock

 

7,500

Due to Z

 

12,000

Bank

 

25,000

Creditors

 

12,500

Advances

 

31,250

 

 

 

Current Account:

 

 

 

 

 

X

 

9,125

 

 

 

Y

 

9,125

 

 

 

 

 

 

Total

 

1,74,500

Total

 

1,74,500

 

Partner’s Current A/c

Particulars

X

Y

Z

Particulars

X

Y

Z

To Balance b/d

7,500

7,500

-

By Interest

7,500

7,500

1,250

To Goodwill W/off

5,000

5,000

-

By Net Profit (upto 30-6)

1,500

1,500

750

To Net Loss ( after 1-7)

5,625

5,625

-

By Goodwill

 

 

10,000

To Due to Z A/c

 

 

12,000

By Balance c/d

9,125

9,125

-

 

 

 

 

 

 

 

 

Total

18,125

18,125

12,000

Total

18,125

18,125

12,000

Notes:

  1. Expenses are divided in the ratio of Time (6:6) i.e (1:1).
  2. Profit/Loss upto the date of retirement is distributed in old ratio & Profit/Loss after the date of retirement is distributed in new ratio.
  3. Share of goodwill is distributed in gain ratio between remaining partners

 


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