From the following Trial Balance of M/S Mitesh and Mangesh, year ended 31st March 2019, and Balance Sheet as on that date.

Balbharati solutions for Book-keeping and Accountancy 12th Standard Hsc Maharashtra State Board

Chapter 1 Introduction to Partnership and Partnership Final Accounts Practise Problem [Pages 54 - 61]

Practise Problem | Q 2 | Page 55

2. From the following Trial Balance of M/S Mitesh and Mangesh, you are required to prepare Trading 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
Stock as on (1/4/2018) 25,000 Sundry Creditors 38,000
Building 48,500 Sales 1,75,000
Carriage 1,780 Capital :
Factory Insurance 2,700 Mitesh 1,50,000
Postage 1,600 Mangesh 50,000
Bills Receivable 13,700 Outstanding Salaries 2,000
Sundry Debtors 52,200 Bills Payable 18,000
Return Inward 1,600 Return outword 1,800
Purchases 68,900
Audit fees 1,800 Current A/c :
Loose tools 32,000 Mitesh 3,000
Manufacturing Expenses 1,820 Mangesh 2,000
Electricity Charges 2,600
General Expenses 3,400
Export duty 1,000
Cash in hand 75,000
Bank Balance 29,000
Conveyance 4,100
Furniture 64,000
Salaries 2,000
Rent, Rate & Taxes 3,700
Drawings :
Mitesh 1,200
Mangesh 2,200
Total 4,39,800 Total 4,39,800

Adjustments :

1) Mitesh and Mangesh are sharing Profit and losses in the ratio 3:1.

2) Partners are entitled to get Commission @ 1% each on Gross Profit.

3) The closing stock is valued at 23,700.

4) Outstanding Expenses - Audit fees 400; carriage 600.

5) The building is valued at 46,500.

6) Furniture is depreciated by 5%.

7) Provide Interest on Partner's capital at 2.5% pa.

8) Goods of 900 were taken by Mangesh for his personal use.

9) Write off 1,000 as Bad Debts and maintain R.D.D at 3% on Sundry Debtors.

SOLUTION

In the books of M/s. Mitesh and Mangesh
Trading and Profit and Loss Account for the year ended on 31st March 2019

Dr. Amount Amount Cr. Amount Amount
Particulars Inner Outer Particulars Inner Outer
To Opening Stock 25,000 By Sales 1,75,000
To Purchases 68,900 Less: Sales Return (Return Inward) 1,600 1,73,400
Less: Purchase Return (Return Outward) 1,800 67,100 By Closing Stock 23,700
To Carriage 1,780 By Goods Withdrawn for personal use (Mangesh) 900
Add: Outstanding Carriage 600 2,380
To Factory Insurance 2,700
To Manufacturing Expenses 1,820
To Gross Profit c/d 99,000
Total 1,98,000 Total 1,98,000
To Salaries 2,000 By Gross Profit b/d 99,000
To Rent, Rate & Taxes 3,700
To Postage 1,600
To Audit Fees 1,800
Add: Outstanding Audit Fees 400 2,200
To Electricity Charges 2,600
To General Expenses 3,400
To Export Duty 1,000
To Conveyance 4,100
To Depreciation on:
Building 2,000
Furniture 3,200 5,200
To Bad Debts & R.D.D.:
Bad Debts (New) 1,000
Add: New R.D.D. 1,536 2,536
To Interest on Capital:
Mitesh 3,750
Mangesh 1,250 5,000
To Commission to Partners:
Mitesh 990
Mangesh 990 1,980
To Net Profit (Transferred to Partners’ Current A/cs)
Mitesh (3/4) 47,763
Mangesh (1/4) 15,921 63,684
Total 99,000 Total 99,000

Partners’ Current Accounts

Particulars (Dr.) Mitesh Mangesh Particulars (Cr.) Mitesh Mangesh
To Drawings 1,200 2,200 By Balance b/d 3,000 2,000
To Goods Withdrawn (Drawings) - 900 By Commission (from P&L A/c) 990 990
To Balance c/d 54,303 17,061 By Interest on Capital (from P&L A/c) 3,750 1,250
By Net Profit (from P&L A/c) 47,763 15,921
Total 55,503 20,161 Total 55,503 20,161
By Balance b/d 54,303 17,061

Balance Sheet as on 31st March 2019

Liabilities Inner Outer Assets Inner Outer
Capital Accounts: Building 48,500
Mitesh 1,50,000 Less: Revaluation Loss (Depreciation) 2,000 46,500
Mangesh 50,000 2,00,000 Furniture 64,000
Current Accounts: Less: Depreciation (5%) 3,200 60,800
Mitesh 54,303 Sundry Debtors 52,200
Mangesh 17,061 71,364 Less: Bad Debts (New) 1,000
Sundry Creditors 38,000 51,200
Bills Payable 18,000 Less: R.D.D. (New @3%) 1,536 49,664
Outstanding Expenses: Loose Tools 32,000
Outstanding Salaries 2,000 Bills Receivable 13,700
Outstanding Audit fees 400 Cash in Hand 75,000
Outstanding Carriage 600 3,000 Bank Balance 29,000
Closing Stock 23,700
Total 3,30,364 Total 3,30,364

Working Notes:

(1) Current Account Balances: In this problem, Current Account balances are given. So, the total amount of fixed capital is directly shown on the Liabilities side of the Balance Sheet. Effects of adjustments related to the commission to partners, interest on capital, goods withdrawn by Mangesh are given in the Current Account. Closing balances of Current Account are shown separately on the Liability side of the Balance Sheet.

(2) Building Valuation: Building is valued at 46,500 whereas the opening balance of the Building given is 48,500. Therefore, the difference of the amount of 2,000 (48,500 - 46,500) is treated as Depreciation (or loss on revaluation) charged on Building.

(3) Returns:
Return Inward Sales Return (deducted from Sales).
Return Outward Purchase Return (deducted from Purchases).

(4) Commission payable to partners:
Mitesh: 1% on Gross Profit = (1/100) x 99,000 = 990/-
Mangesh: 1% on Gross Profit = (1/100) x 99,000 = 990/-

Difficult Words & Their Meanings:

  • Partnership: A business structure where two or more individuals agree to share in the profits or losses of a business.
  • Final Accounts: The set of financial statements prepared at the end of an accounting year to show a business's financial performance and position. It mainly includes the Trading Account, Profit and Loss Account, and Balance Sheet.
  • Trial Balance: A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal. It's a check for arithmetical accuracy of ledger posting.
  • Trading Account: A financial statement that shows the gross profit or gross loss of a business over a specific period. It focuses on the results of buying and selling goods or services.
  • Profit and Loss Account (P&L A/c): A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, usually a fiscal year. It shows the net profit or net loss.
  • Balance Sheet: A snapshot of a company's financial health at a particular point in time, showing what it owns (assets) and what it owes (liabilities), as well as the owners' stake (equity).
  • Debit Balance: When the total of debit entries in an account is greater than the total of credit entries. Typically represents assets or expenses.
  • Credit Balance: When the total of credit entries in an account is greater than the total of debit entries. Typically represents liabilities, income, or capital.
  • Stock (as on 1/4/2018): This refers to the Opening Stock, which is the value of goods available for sale at the beginning of the accounting period.
  • Sundry Creditors: Individuals or businesses to whom your business owes money for goods or services supplied on credit.
  • Carriage: Cost of transporting goods. "Carriage Inward" (usually in Trading A/c) is for goods purchased, "Carriage Outward" (usually in P&L A/c) is for goods sold.
  • Factory Insurance: Insurance premium paid to cover risks related to the factory operations, building, or machinery. (Direct expense - Trading A/c)
  • Postage: Expenses incurred for mail services, like stamps and courier charges. (Indirect expense - P&L A/c)
  • Bills Receivable: A formal written promise (like a promissory note) from a customer to pay a specific amount of money on a future date; it's an asset for the business.
  • Sundry Debtors: Individuals or businesses who owe money to your business for goods or services sold to them on credit. (Asset)
  • Return Inward (Sales Return): Goods sold that are returned by customers to the business. (Deducted from Sales in Trading A/c)
  • Purchases: The total amount of goods bought by the business for the purpose of resale or for use in manufacturing. (Trading A/c)
  • Audit Fees: Payment made to an auditor for checking and verifying the accuracy of the business's financial records. (Indirect expense - P&L A/c)
  • Loose tools: Small, inexpensive tools used in the business (e.g., hammers, screwdrivers) that are not considered major fixed assets. (Asset, sometimes revalued at year-end)
  • Manufacturing Expenses: Costs directly incurred in the process of converting raw materials into finished goods in a factory. (Direct expense - Trading A/c)
  • Electricity Charges: Cost incurred for the consumption of electricity. If specified for factory, it's direct; otherwise, it can be indirect (P&L A/c). In this problem, it's shown in P&L.
  • General Expenses: Miscellaneous day-to-day operational expenses that don't fit into specific categories. (Indirect expense - P&L A/c)
  • Export Duty: A tax imposed by the government on goods being shipped out of the country. (Indirect expense - P&L A/c)
  • Conveyance: Expenses related to local travel for business purposes, like taxi fares or bus tickets. (Indirect expense - P&L A/c)
  • Drawings: Withdrawal of cash or goods by the owner(s) or partner(s) from the business for their personal use. (Reduces capital or shown in Current A/c)
  • Outstanding Expenses: Expenses that have been incurred (the benefit received) during the current accounting period but have not yet been paid for by the end of that period. (Added to respective expense and shown as a Liability)
  • Depreciation: The systematic reduction in the recorded cost of a fixed asset until the value of the asset becomes zero or negligible, due to wear and tear, usage, or obsolescence. (Expense in P&L A/c, reduces asset value in Balance Sheet)
  • Partner's Capital: The total amount of money or other assets invested into the partnership by each partner. (Liability for the firm)
  • Bad Debts: Amounts owed to a business by its debtors that are considered uncollectible and are written off as an expense. (Expense in P&L A/c, deducted from Debtors)
  • R.D.D. (Reserve for Doubtful Debts): An estimated amount set aside from profits to cover potential future bad debts. Also known as Provision for Doubtful Debts. (Charged to P&L A/c, deducted from Debtors in Balance Sheet)
  • Gross Profit: The profit a company makes after deducting the direct costs associated with making and selling its products, or providing its services (Revenue - Cost of Goods Sold). Calculated in Trading Account.
  • Net Profit: The profit remaining after all operating expenses, interest, and taxes have been deducted from the company's total revenues (Gross Profit - Indirect Expenses & Losses + Indirect Incomes & Gains). Calculated in P&L Account.
  • Partner's Current Account: A separate account maintained for each partner to record transactions like interest on capital, drawings, salary, share of profit/loss, etc., keeping the capital account undisturbed (in case of Fixed Capital Method). (Balance can be debit or credit, shown in Balance Sheet accordingly)
  • Liabilities: A company's legal financial debts or obligations that arise during the course of business operations. Shown on the left side of the Balance Sheet.
  • Assets: Resources with economic value that an individual, corporation, or country owns or controls with the expectation that they will provide future benefit. Shown on the right side of the Balance Sheet.
  • Closing Stock: The value of goods that a business has on hand at the end of an accounting period. (Shown on Credit side of Trading A/c and as an Asset in Balance Sheet)