Chapter 1: Introduction to Partnership and Partnership Final Accounts
Practise Problem | Q: 8 | Page no. 60
Nana and Nani are Partners in Partnership Firm sharing Profits and Losses equally. You are required to give effects of Adjustments in Profit & Loss A/c and Balance Sheet with the help of the following information.
Trial Balance as on 31st March 2019
| Debit Balance | Amount ₹ | Credit Balance | Amount ₹ |
|---|---|---|---|
| Insurance | 15,000 | Capital A/c | |
| Land and building | 50,000 | Nana | 50,000 |
| (Addition of 20,000 w.e.f 1st July 2018) | Nani | 50,000 | |
| Salaries | 5,000 | 10% Bank loan taken on 1st Oct. 2018 | 30,000 |
| Export Duty | 2,500 | Interest | 1,500 |
| Interest | 1,000 | Bills Payable | 8,000 |
| Furniture | 40,000 | ||
| Debtors | 26,000 | ||
| Total | 1,39,500 | Total | 1,39,500 |
Adjustments:
- Gross profit amounted to ₹ 34,500.
- Insurance Paid for 15 months w.e.f. 1.4.2018.
- Depreciate Land and Building at 10% p.a. and Furniture at 5% p.a.
- Write off ₹ 1,000 for Bad Debts and maintain R.D.D at 5% on Sundry Debtors.
- Closing Stock is valued at ₹ 34,500.
Solution:
In the books of Nana and Nani
Profit and Loss Account for the year ended on 31st March 2019
| Particulars (Dr.) | Amount ₹ | Amount ₹ | Particulars (Cr.) | Amount ₹ | Amount ₹ |
|---|---|---|---|---|---|
| To Insurance | 15,000 | By Gross Profit b/d | 34,500 | ||
| Less: Prepaid Insurance | 3,000 | 12,000 | By Interest | 1,500 | |
| To Depreciation: | |||||
| Land & Building | 4,500 | ||||
| Furniture | 2,000 | 6,500 | |||
| To Salaries | 5,000 | ||||
| To Export Duty | 2,500 | ||||
| To Interest (from Trial Balance) | 1,000 | ||||
| To Outstanding Interest on Bank Loan | 1,500 | ||||
| To R.B.D.D A/c: | |||||
| New Bad debts | 1,000 | ||||
| Add: New Reserve (R.D.D.) | 1,250 | 2,250 | |||
| To Net Profit (Transferred to Capital A/c): | |||||
| Nana | 2,625 | ||||
| Nani | 2,625 | 5,250 | |||
| Total | 36,000 | Total | 36,000 |
Balance Sheet as on 31st March 2019
| Liabilities | Amount ₹ | Amount ₹ | Assets | Amount ₹ | Amount ₹ |
|---|---|---|---|---|---|
| Capital Accounts: | Land and Building | 30,000 | |||
| Nana | Add: Purchased on 1/07/18 | 20,000 | |||
| Opening Balance | 50,000 | 50,000 | |||
| Add: Net Profit | 2,625 | 52,625 | Less: Depreciation | 4,500 | 45,500 |
| Nani | Furniture | 40,000 | |||
| Opening Balance | 50,000 | Less: Depreciation | 2,000 | 38,000 | |
| Add: Net Profit | 2,625 | 52,625 | Debtors | 26,000 | |
| 10% Bank Loan | 30,000 | Less: Bad Debts (New) | 1,000 | ||
| Outstanding Interest on Bank Loan | 1,500 | 25,000 | |||
| Bills Payable | 8,000 | Less: R.D.D. (New) @ 5% | 1,250 | 23,750 | |
| Closing Stock | 34,500 | ||||
| Prepaid Insurance | 3,000 | ||||
| Total Liabilities | 1,44,750 | Total Assets | 1,44,750 |
Working Notes:
- Here, Profit and Loss Account and Balance Sheet are to be prepared. Therefore, the Trading Account is not prepared. Gross profit (given) is recorded on the Credit side of Profit and Loss Account.
-
Land and Building Depreciation:
Opening Balance = ₹ 30,000 Addition on 1st July 2018 = ₹ 20,000 Depreciation on Opening Balance = 30,000 x 10% = ₹ 3,000 Depreciation on Addition = 20,000 x 10% x 9/12 months = ₹ 1,500 Total Depreciation on Land & Building = ₹ 3,000 + ₹ 1,500 = ₹ 4,500
- Interest on 10% Bank Loan: Calculated for 6 months (From 1/10/2018 to 31/3/2019).
Interest = (Principal x Rate x Number of years/months) / 100
= ₹ 30,000 x 10% x (6/12)
= ₹ 1,500.
(This entire amount is treated as outstanding as per the solution's approach, in addition to any interest already in Trial Balance if it's for a different purpose.) - Prepaid Insurance: Insurance was paid for 15 months, but the accounting period is 12 months. So, 3 months' insurance is prepaid.
Prepaid Insurance = (3/15) x Total Insurance Amount
= (3/15) x ₹ 15,000 = ₹ 3,000 - Reserve for Doubtful Debts (R.D.D.):
Debtors = ₹ 26,000
Less: New Bad Debts = ₹ 1,000
Net Debtors for R.D.D. calculation = ₹ 25,000
New R.D.D. = 5% on ₹ 25,000 = (5/100) x ₹ 25,000 = ₹ 1,250.
Balbharati Solutions for Book-keeping and Accountancy 12th Standard HSC Maharashtra State Board
Chapter 1: Introduction to Partnership and Partnership Final Accounts - Quick Links
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Book-keeping and Accountancy 12th Standard
HSC Maharashtra State Board. Latest Syllabus.
Chapter 1: Introduction to Partnership and Partnership Final Accounts
Chapter 2: Accounts of ‘Not for Profit’ Concerns
Chapter 3: Reconstitution of Partnership (Admission of Partner)
Chapter 4: Reconstitution of Partnership (Retirement of Partner)
Chapter 5: Reconstitution of Partnership (Death of Partner)
Chapter 6: Dissolution of Partnership Firm
Chapter 8: Company Accounts - Issue of Shares
Chapter 9: Analysis of Financial Statements
Chapter 10: Computer In Accounting
ACCOUNTS BOARD PAPERS
HSC Accounts March 2020 Board Paper With Solution
MARCH 2014 : View | PDF Download
OCTOBER 2014 View | PDF Download
MARCH 2015 View | PDF Download
JULY 2015 View | PDF Download
MARCH 2016 View | PDF Download
JULY 2016 View | PDF Download
JULY 2017 View | PDF Download
MARCH 2017 View | PDF Download
MARCH 2018 View | PDF Download
JULY 2018 View | PDF Download
MARCH 2019 View | PDF Download
MARCH 2020 View | PDF Download
ACCOUNTANCY PAPER PATTERN : New 2020, Old View | PDF Download
PROFORMA OF TRADING ACCOUNT: View | PDF Download
PROFORMA OF PROFIT & LOSS ACCOUNT: View | PDF Download
PROFORMA OF BALANCE SHEET: View | PDF Download
FINAL ACCOUNT ADJUSTMENTS: View | PDF Download
SINGLE ENTRY : View : PDF Download
FINAL ACCOUNT : View | PDF Download
BILL OF EXCHANGE : View | PDF Download
FORMAT OF BILL : View | PDF Download
ADMISSION OF A PARTNER : View | PDF Download
RETIREMENT OF PARTNER : View | PDF Download
DEATH OF PARTNER : View | PDF Download
ACCOUNTING FOR SHARES : View | PDF Download
DISSOLUTION OF PARTNERSHIP FIRM : View | PDF Download
VALUATION OF GOODWILL WITH SOLUTION : View | PDF Download
FORMAT OF FINAL ACCOUNT : View | PDF Download
INTRODUCTION TO PARTNERSHIP : View | PDF Download
IMPORTANT PRACTICE PAPER FOR BOARD EXAM 2020
Difficult Words & Accounting Terms Explained
- Partnership: A business owned and run by two or more individuals (partners) who share profits or losses.
- Final Accounts: Financial statements prepared at the end of an accounting period to show the financial performance (Profit & Loss Account) and financial position (Balance Sheet) of a business.
- Trial Balance: A list of all debit and credit balances from ledger accounts, used to check the arithmetical accuracy of bookkeeping.
- Debit Balance: An amount on the left side of an account; typically represents assets or expenses.
- Credit Balance: An amount on the right side of an account; typically represents liabilities, income, or capital.
- Capital Account: An account representing the owner's or partners' investment in the business.
- Assets: Resources owned by the business that have future economic value (e.g., Land and Building, Furniture, Debtors).
- Liabilities: Obligations or debts owed by the business to outsiders (e.g., Bank Loan, Bills Payable).
- Adjustments: Changes made to account balances at the end of an accounting period to reflect accruals, prepayments, depreciation, etc., ensuring accurate financial reporting.
- Gross Profit: The profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services (Sales - Cost of Goods Sold).
- Prepaid Expenses: Expenses paid in advance for benefits yet to be received (e.g., Prepaid Insurance). It's an asset.
- Depreciation: The systematic reduction in the recorded cost of a fixed asset (like buildings or furniture) over its useful life due to wear and tear or obsolescence.
- Bad Debts: Amounts owed to a business by debtors that are considered uncollectible.
- R.D.D. (Reserve for Doubtful Debts): A provision made for potential bad debts that might arise from debtors in the future. Also known as Provision for Doubtful Debts.
- Sundry Debtors: Customers who owe money to the business for goods or services sold on credit.
- Closing Stock: The value of goods remaining unsold at the end of an accounting period.
- Profit & Loss A/c (Account): A financial statement that summarizes revenues, costs, and expenses incurred during a specific period, showing the net profit or net loss.
- Balance Sheet: A financial statement that reports a company's assets, liabilities, and equity at a specific point in time, providing a snapshot of its financial position.
- Export Duty: A tax levied on goods when they are exported out of a country.
- Bills Payable: A written promise to pay a specific amount of money to a creditor at a future date; a short-term liability.
- Outstanding Expenses: Expenses that have been incurred during an accounting period but have not yet been paid (e.g., Outstanding Interest on Loan). It's a liability.
- w.e.f.: Abbreviation for "with effect from," indicating the date from which something starts.
- p.a.: Abbreviation for "per annum," meaning per year.
