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 31^st 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 31^st 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

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.

Jitesh and Lailesh are in partnership sharing profits and losses in the ratio of 2:1. From the following Trial Balance and adjustments given below, 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: [15]