Chapter 1: Introduction to Partnership and Partnership Final Accounts
Practise Problem | Q: 10 | Page no. 61
Kshipra and Manisha are Partners sharing Profit and Loss in their Capital Ratio. You are required to prepare Trading Account and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as on that date.
Trial Balance as on 31st March 2019
Debit Balance | Amount ₹ | Credit Balance | Amount ₹ |
---|---|---|---|
Sundry Debtors | 28,000 | Sales | 1,20,000 |
Purchases | 55,000 | Rent | 1,800 |
Furniture | 38,500 | Sundry Creditors | 38,500 |
Plant & Machinery | 60,000 | Purchase Return | 1,000 |
Wages | 800 | Discount | 500 |
Salaries | 3,500 | Bills Payable | 9,000 |
Discount | 800 | Capital A/c : | |
Bills Receivable | 14,400 | Kshipra | 90,000 |
Carriage Outward | 1,000 | Manisha | 30,000 |
Postage | 500 | Current A/c : | |
Sales Return | 500 | Kshipra | 5,000 |
Cash in Hand | 4,000 | Manisha | 3,000 |
Cash at Bank | 47,000 | ||
Insurance | 2,000 | ||
Opening Stock | 17,800 | ||
Trade Expenses | 1,500 | ||
Warehouse Rent | 2,500 | ||
Advertisement | 1,000 | ||
Building | 20,000 | ||
Total | 2,98,800 | Total | 2,98,800 |
Adjustments :
- Stock on 31st March 2019 was at ₹37,000.
- Sales include the sale of machinery of ₹2,000, which is sold on 1st April 2018.
- Depreciation on fixed assets @ 5%.
- Each Partner is entitled to get Commission at 1% of Gross Profit and Interest on Capital 5% p.a.
- Outstanding Expenses Wages ₹200 & Salaries ₹500.
- Create provision for doubtful debts @ 3% on Sundry Debtors.
Solution
In the books of Kshipra and Manisha
Trading and Profit and Loss Account for the year ended on 31st March 2019.
Particulars | Amount ₹ | Amount ₹ | Particulars | Amount ₹ | Amount ₹ | |
---|---|---|---|---|---|---|
To Opening Stock | 17,800 | By Sales | 1,20,000 | |||
To Purchase | 55,000 | Less: Machinery Sold | ||||
Less: Purchase Return | 1,000 | 54,000 | Wrongly Recorded as Sales | 2,000 | ||
To Wages | 800 | 1,18,000 | ||||
Add: O/s Wages | 200 | 1,000 | Less: Sales Return | 500 | 1,17,500 | |
To Gross Profit c/d | 81,700 | By Closing Stock | 37,000 | |||
Total | 1,54,500 | Total | 1,54,500 | |||
To Salaries | 3,500 | By Gross Profit b/d | 81,700 | |||
Add: O/s Salaries | 500 | 4,000 | By Rent | 1,800 | ||
To Discount | 800 | By Discount | 500 | |||
To Carriage Outward | 1,000 | |||||
To Postage | 500 | |||||
To Insurance | 2,000 | |||||
To Trade Expenses | 1,500 | |||||
To Warehouse Rent | 2,500 | |||||
To Advertisement | 1,000 | |||||
To Provision for Doubtful Debts (New) | 840 | |||||
To Depreciation on: | ||||||
Furniture | 1,925 | |||||
Plant & Machinery | 2,900 | |||||
Building | 1,000 | 5,825 | ||||
To Interest on Capital: | ||||||
Kshipra | 4,500 | |||||
Manisha | 1,500 | 6,000 | ||||
To Commission to Partners: | ||||||
Kshipra | 817 | |||||
Manisha | 817 | 1,634 | ||||
To Net Profit (Transferred to Current A/c) | ||||||
Kshipra | 42,301 | |||||
Manisha | 14,100 | 56,401 | ||||
Total | 84,000 | Total | 84,000 |
Partners’ Current Accounts
Particulars | Kshipra ₹ | Manisha ₹ | Particulars | Kshipra ₹ | Manisha ₹ |
---|---|---|---|---|---|
To Balance c/d | 52,618 | 19,417 | By Balance b/d | 5,000 | 3,000 |
By Commission | 817 | 817 | |||
By Interest on Capital | 4,500 | 1,500 | |||
By Net Profit | 42,301 | 14,100 | |||
Total | 52,618 | 19,417 | Total | 52,618 | 19,417 |
By Balance b/d | 52,618 | 19,417 |
Balance Sheet as on 31st March 2019
Liabilities | Amount ₹ | Amount ₹ | Assets | Amount ₹ | Amount ₹ |
---|---|---|---|---|---|
Capital Accounts: | Furniture | 38,500 | |||
Kshipra | 90,000 | Less: Depreciation @ 5% | 1,925 | 36,575 | |
Manisha | 30,000 | 1,20,000 | Plant & Machinery | 60,000 | |
Current Accounts: | Less: Sold on 1/4/18 | 2,000 | |||
Kshipra | 52,618 | 58,000 | |||
Manisha | 19,417 | 72,035 | Less: Depreciation @ 5% | 2,900 | 55,100 |
Sundry Creditors | 38,500 | Building | 20,000 | ||
Bills Payable | 9,000 | Less: Depreciation @ 5% | 1,000 | 19,000 | |
Outstanding Expenses: | Closing Stock | 37,000 | |||
Wages | 200 | Sundry Debtors | 28,000 | ||
Salaries | 500 | 700 | Less: Provision for D.D. @ 3% | 840 | 27,160 |
Bills Receivable | 14,400 | ||||
Cash in Hand | 4,000 | ||||
Cash at Bank | 47,000 | ||||
Total | 2,40,235 | Total | 2,40,235 |
Working Notes :
- Depreciation on fixed assets means depreciation on Furniture, Plant & Machinery and Building.
- Sales include the sale of Machinery of ₹2,000 is subtracted from sales and from Plant & Machinery.
On balance amount of Plant & Machinery ₹58,000, calculate 5 % depreciation i.e. 60,000 - 2,000 = ₹58,000 x 5% = ₹2,900
- Here on gross profit calculate 1 % commission for partners and record it to Profit and Loss A/c and in Current A/cs.
Commission payable to each partner = 1% of Gross Profit = (1/100) x 81700 = ₹817.
Chapter 1: Introduction to Partnership and Partnership Final Accounts
Select the most appropriate alternative from the following & rewrite the sentence. |
Write the word/phrase/term, which can substitute the following sentence. |
State whether the following statement is True or False with reasons. |
Find an odd one. |
Complete the Sentence. |
Answer in one sentence only |
Do you agree/disagree with the following statement |
Practical Problems. |
Practise Problem | Q 1 | Page 54 Click here for solution |
Practise Problem | Q 2 | Page 55 Click here for solution |
Practise Problem | Q 3 | Page 56 Click here for solution |
Practise Problem | Q 4 | Page 57 Click here for solution |
Practise Problem | Q: 5 | Page no. 58 Click here for solution |
Practise Problem | Q: 6 | Page no. 59 Click here for solution |
Practise Problem | Q: 7 | Page no. 59 Click Here for Solution |
Practise Problem | Q: 8 | Page no. 60 Click Here for Solution |
Practise Problem | Q: 9 | Page no. 61 Click Here for Solution |
Practise Problem | Q: 10 | Page no. 61 Click Here for Solution |
Difficult Words & Their Meanings
- Partnership Final Accounts: Financial statements (Trading Account, Profit & Loss Account, Balance Sheet) prepared by a partnership firm at the end of an accounting year to show its financial performance and position.
- Trial Balance: A list of all debit and credit balances from ledger accounts, used to check the arithmetical accuracy of bookkeeping before preparing final accounts.
- Trading Account: An account prepared to find out the gross profit or gross loss from the main trading activities (buying and selling goods) during an accounting period.
- Profit and Loss Account (P&L A/c): An account prepared after the Trading Account to determine the net profit or net loss of the business for an accounting period by considering all operating and non-operating incomes and expenses.
- Balance Sheet: A statement that shows the financial position of a business (assets, liabilities, and capital) on a specific date.
- Adjustments: Entries made at the end of an accounting period to record incomes and expenses that belong to that period but haven't been recorded, or to account for items like depreciation and provisions. This ensures the financial statements show a true and fair view.
- Capital Ratio: The ratio based on the amount of capital contributed by each partner. Profits and losses may be shared in this ratio if agreed.
- Sundry Debtors: Customers who owe money to the business for goods or services bought on credit. (Considered an Asset)
- Sundry Creditors: Suppliers to whom the business owes money for goods or services purchased on credit. (Considered a Liability)
- Bills Receivable: A formal written promise (like a bill of exchange or promissory note) received from a debtor to pay a specified sum of money at a future date; an asset for the business.
- Bills Payable: A formal written promise made by the business to pay a specified sum of money to a creditor at a future date; a liability for the business.
- Purchases: Cost of goods bought by the business for resale.
- Purchase Return (or Returns Outward): Goods returned by the business to its suppliers.
- Sales: Revenue generated from selling goods or services.
- Sales Return (or Returns Inward): Goods returned to the business by its customers.
- Carriage Outward: Transportation costs incurred for delivering goods sold to customers; treated as a selling and distribution expense.
- Opening Stock: The value of goods available for sale at the beginning of an accounting period.
- Closing Stock: The value of unsold goods remaining at the end of an accounting period.
- Wages: Payments made to workers, especially for manual labor, directly related to production or services.
- Salaries: Fixed regular payments made to employees for their services, usually administrative or managerial staff.
- Trade Expenses: General expenses related to the main business operations, often small miscellaneous operational costs. If not specified, sometimes taken to Profit & Loss A/c.
- Depreciation: The systematic reduction in the monetary value of a fixed asset over its useful life due to wear and tear, usage, or obsolescence.
- Fixed Assets: Long-term tangible properties or equipment that a firm owns and uses in its operations to generate income (e.g., building, machinery, furniture). Not intended for resale.
- Gross Profit: The profit a company makes after deducting the direct costs associated with making and selling its products, or providing its services (Calculated in Trading Account: Sales - Cost of Goods Sold).
- Net Profit: The actual profit of the business after all operating and non-operating expenses and taxes are deducted from the gross profit and other incomes (Calculated in Profit & Loss Account).
- Interest on Capital: An amount paid or credited to partners for the capital they have invested in the firm, usually calculated at an agreed percentage per annum. It's an appropriation of profit.
- Commission (to Partners): A payment made to partners for services rendered, often based on a percentage of sales or profits. It's an appropriation of profit.
- Outstanding Expenses (O/s Expenses): Expenses that have been incurred (become due) during an accounting period but not yet paid by the end of that period (e.g., O/s Wages, O/s Salaries).
- Provision for Doubtful Debts (PDD or RBDD - Reserve for Bad and Doubtful Debts): An estimated amount set aside from profits to cover potential losses from debtors who may not pay their dues. It's created on Sundry Debtors.
- Capital Account: An account maintained for each partner showing their investment (capital) in the business. It can be fixed or fluctuating.
- Current Account (Partnership): When capital accounts are fixed, a separate account is maintained for each partner to record transactions other than initial or additional capital, such as drawings, interest on capital, salary, commission, and share of profit/loss.
- Liabilities: Financial obligations or amounts owed by the business to outsiders (e.g., loans, sundry creditors, bills payable).
- Assets: Resources owned by the business that have monetary value and are expected to provide future economic benefits (e.g., cash, machinery, sundry debtors, building).
- p.a.: Abbreviation for "per annum," meaning "per year."
- O/s: Abbreviation for "Outstanding" (e.g., O/s Wages - wages due but not yet paid).
- c/d: Abbreviation for "carried down," used to transfer a balance from one part of an account to the next, or to the next accounting period.
- b/d: Abbreviation for "brought down," used to bring forward a balance from a previous part of an account or from a previous accounting period.