Final Accounts Problem (Partnership)
Ashok and Sangmesh are in partnership sharing profit 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 Account for the year ended on 31st March, 2016 and Balance Sheet as on that date:
Trial Balance as on 31st March, 2016
| Particulars | Debit Amount (₹) | Credit Amount (₹) |
|---|---|---|
| Prepaid insurance | 3,200 | |
| Insurance | 8,000 | |
| R.D.D | 4,000 | |
| Discount | 3,200 | |
| Postage and telephone | 12,800 | |
| Debtors and creditors | 2,64,000 | 2,72,000 |
| Salaries | 2,24,000 | |
| Wages | 96,000 | |
| Opening stock | 1,92,000 | |
| Carriage | 4,000 | |
| Purchases and sales | 7,72,800 | 12,06,400 |
| Return inwards/outwards | 22,400 | 36,800 |
| Bank overdraft | 4,83,200 | |
| Plant and machinery | 96,000 | |
| Land and building | 7,04,000 | |
| Partners' capital accounts: Ashok | 2,08,000 | |
| Partners' capital accounts: Sangmesh | 1,92,000 | |
| Total | 24,02,400 | 24,02,400 |
Adjustments:
- Write off ₹ 8,000 for bad debts and provide R.D.D. @ 5% on debtors.
- Goods worth ₹ 16,000 were distributed as free samples.
- Closing stock on 31st March, 2016 was valued at the cost of ₹ 2,24,000 while its market price was ₹ 2,40,000.
- Salaries were outstanding ₹ 8,000.
- Depreciate Land and Building @ 5% p.a. and Plant and Machinery @ 10% p.a.
Solution
In the Books of Partnership Firm "Ashok and Sangmesh"
Trading and Profit & Loss Account for the year ended 31st March, 2016
| Dr. | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 1,92,000 | By Sales 12,06,400 | |
| To Purchases 7,72,800 | Less: Return Inwards (22,400) | 11,84,000 | |
| Less: Return Outwards (36,800) | 7,36,000 | By Goods distributed as free samples | 16,000 |
| To Wages | 96,000 | By Closing Stock (at cost) | 2,24,000 |
| To Carriage | 4,000 | ||
| To Gross Profit c/d | 3,96,000 | ||
| Total | 14,24,000 | Total | 14,24,000 |
| To Salaries 2,24,000 | By Gross Profit b/d | 3,96,000 | |
| Add: Outstanding 8,000 | 2,32,000 | ||
| To Insurance | 8,000 | ||
| To Discount | 3,200 | ||
| To Postage and Telephone | 12,800 | ||
| To Advertisement (Free Samples) | 16,000 | ||
| To Bad Debts & R.D.D (WN 1) | 16,800 | ||
| To Depreciation on: | |||
| Land & Building (WN 2) | 35,200 | ||
| Plant & Machinery (WN 2) | 9,600 | ||
| To Net Profit transferred to Capital A/c: | |||
| Ashok (2/3) 41,600 | |||
| Sangmesh (1/3) 20,800 | 62,400 | ||
| Total | 3,96,000 | Total | 3,96,000 |
Partners' Capital Account
| Particulars | Ashok (₹) | Sangmesh (₹) | Particulars | Ashok (₹) | Sangmesh (₹) |
|---|---|---|---|---|---|
| To Balance c/d | 2,49,600 | 2,12,800 | By Balance b/d | 2,08,000 | 1,92,000 |
| By Net Profit | 41,600 | 20,800 | |||
| Total | 2,49,600 | 2,12,800 | Total | 2,49,600 | 2,12,800 |
Balance Sheet as on 31st March, 2016
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital Accounts: | Land and Building 7,04,000 | ||
| Ashok | 2,49,600 | Less: Depreciation @5% (35,200) | 6,68,800 |
| Sangmesh | 2,12,800 | Plant and Machinery 96,000 | |
| Creditors | 2,72,000 | Less: Depreciation @10% (9,600) | 86,400 |
| Bank Overdraft | 4,83,200 | Sundry Debtors 2,64,000 | |
| Outstanding Salaries | 8,000 | Less: Further Bad Debts (8,000) | |
| Less: New R.D.D. @5% (12,800) | 2,43,200 | ||
| Closing Stock | 2,24,000 | ||
| Prepaid Insurance | 3,200 | ||
| Total | 12,25,600 | Total | 12,25,600 |
Working Notes
Generated code1. Calculation of R.D.D. and Bad Debts for Profit & Loss A/c
- Further Bad Debts (Adjustment) = ₹ 8,000
- Sundry Debtors (Trial Balance) = ₹ 2,64,000
- Less: Further Bad Debts = ₹ 8,000
- Remaining Debtors = ₹ 2,56,000
- New R.D.D @ 5% on ₹ 2,56,000 = ₹ 12,800
- Total for P&L A/c:
- Further Bad Debts: 8,000
- Add: New R.D.D: 12,800
- Less: Old R.D.D (Trial Balance): (4,000)
- Total Amount Debited to P&L A/c = ₹ 16,800
2. Calculation of Depreciation
- Land and Building: 5% on ₹ 7,04,000 = ₹ 35,200
- Plant and Machinery: 10% on ₹ 96,000 = ₹ 9,600
3. Closing Stock Valuation
- Cost Price = ₹ 2,24,000
- Market Price = ₹ 2,40,000
- As per accounting principles, stock is valued at cost or market price, whichever is lower.
- Therefore, Closing Stock is valued at ₹ 2,24,000.
4. Distribution of Net Profit
- Total Net Profit = ₹ 62,400
- Profit Sharing Ratio (Ashok : Sangmesh) = 2 : 1
- Ashok's Share: (62,400 * 2/3) = ₹ 41,600
- Sangmesh's Share: (62,400 * 1/3) = ₹ 20,800