Partnership Final Accounts
A complete solved problem for Jitesh and Lailesh
The Problem
Jitesh and Lailesh are in partnership sharing profits and losses in the ratio of 2:1. From the following Trial Balance and adjustments, you are required to prepare Trading and Profit and Loss A/c for the year ended 31st March, 2013 and the Balance Sheet as on that date.
Trial Balance as on 31st March, 2013
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Prepaid Insurance | 800 | |
| Insurance | 2,000 | |
| R.B.D.D. | 1,000 | |
| Discount | 800 | |
| Postage and Telephone | 3,200 | |
| Salaries | 56,000 | |
| Debtors and Creditors | 66,000 | 68,000 |
| Wages | 24,000 | |
| Opening Stock | 48,000 | |
| Carriage | 1,000 | |
| Purchases and Sales | 1,93,200 | 3,01,600 |
| Return Inwards and Outwards | 5,600 | 9,200 |
| Bank Overdraft | 1,20,800 | |
| Plant & Machinery | 24,000 | |
| Land & Building | 1,76,000 | |
| Capital: Jitesh | 52,000 | |
| Capital: Lailesh | 48,000 | |
| Total | 6,00,600 | 6,00,600 |
Adjustments
- Write off ₹ 2,000 for bad debts and provide R.B.D.D. 5% on debtors.
- Goods worth ₹ 4,000 were distributed as free samples.
- Closing stock on 31.03.2013 was valued at the cost ₹ 56,000 while its market price was ₹ 60,000.
- Salaries were outstanding ₹ 2,000.
- Depreciate Land and Building @ 5% p.a. and Plant & Machinery @ 10% p.a.
Solution: In the Books of Jitesh and Lailesh
Trading A/c for the year ended 31st March, 2013
| Dr. | Cr. | ||||
|---|---|---|---|---|---|
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| To Opening Stock | 48,000 | By Sales | 3,01,600 | ||
| To Purchases | 1,93,200 | Less: Returns Inward | (5,600) | 2,96,000 | |
| Less: Returns Outward | (9,200) | 1,84,000 | By Goods as Free Samples | 4,000 | |
| To Wages | 24,000 | By Closing Stock | 56,000 | ||
| To Carriage | 1,000 | ||||
| To Gross Profit c/d | 99,000 | ||||
| Total | 3,56,000 | Total | 3,56,000 | ||
Profit & Loss A/c for the year ended 31st March, 2013
| Dr. | Cr. | ||||
|---|---|---|---|---|---|
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| To Salaries | 56,000 | By Gross Profit b/d | 99,000 | ||
| Add: Outstanding | 2,000 | 58,000 | |||
| To Insurance | 2,000 | ||||
| To Discount | 800 | ||||
| To Postage & Telephones | 3,200 | ||||
| To Depreciation on: | |||||
| Plant & Machinery | 2,400 | ||||
| Land & Building | 8,800 | 11,200 | |||
| To Advertisement (Free Samples) | 4,000 | ||||
| To Bad Debts (New) | 2,000 | ||||
| Add: New R.B.D.D. | 3,200 | ||||
| Less: Old R.B.D.D. | (1,000) | 4,200 | |||
| To Net Profit (Transfer to Capital) | 15,600 | ||||
| Total | 99,000 | Total | 99,000 | ||
Partners' Capital A/c
| Dr. | Cr. | ||||
|---|---|---|---|---|---|
| Particulars | Jitesh (₹) | Lailesh (₹) | Particulars | Jitesh (₹) | Lailesh (₹) |
| To Balance c/d | 62,400 | 53,200 | By Balance b/d | 52,000 | 48,000 |
| By P&L A/c (Net Profit) | 10,400 | 5,200 | |||
| Total | 62,400 | 53,200 | Total | 62,400 | 53,200 |
Balance Sheet as on 31st March, 2013
| Liabilities | Assets | ||||
|---|---|---|---|---|---|
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| Capital Accounts: | Land & Building | 1,76,000 | |||
| Jitesh | 62,400 | Less: Depreciation (5%) | (8,800) | 1,67,200 | |
| Lailesh | 53,200 | 1,15,600 | Plant & Machinery | 24,000 | |
| Bank Overdraft | 1,20,800 | Less: Depreciation (10%) | (2,400) | 21,600 | |
| Sundry Creditors | 68,000 | Sundry Debtors | 66,000 | ||
| Outstanding Salaries | 2,000 | Less: Bad Debts (New) | (2,000) | ||
| 64,000 | |||||
| Less: R.B.D.D (5%) | (3,200) | 60,800 | |||
| Closing Stock | 56,000 | ||||
| Prepaid Insurance | 800 | ||||
| Total | 3,06,400 | Total | 3,06,400 | ||
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Working Notes for Students
- Prepaid Insurance: As ₹800 is given in the trial balance, it's an asset. It will only be shown on the Asset side of the Balance Sheet.
- Closing Stock Valuation: As per the principle of conservatism, stock is valued at cost (₹56,000) or market price (₹60,000), whichever is lower. Hence, ₹56,000 is used.
- Goods as Free Samples: Goods costing ₹4,000 used for advertisement are treated in two ways: (1) Credited to the Trading A/c (as goods going out) and (2) Debited to the Profit & Loss A/c as an Advertisement expense.
- Outstanding Salaries: This is a liability. It's added to the Salaries expense in the P&L A/c and also shown on the Liabilities side of the Balance Sheet.
- Calculation for R.B.D.D: First, deduct the new Bad Debts from Debtors. Then, calculate the new R.B.D.D. on the remaining amount.
Net Debtors = ₹66,000 - ₹2,000 (New Bad Debts) = ₹64,000.
New R.B.D.D. = 5% of ₹64,000 = ₹3,200. - Division of Net Profit (Ratio 2:1): Total Net Profit is ₹15,600.
Jitesh's Share = (₹15,600 * 2/3) = ₹10,400.
Lailesh's Share = (₹15,600 * 1/3) = ₹5,200.