Financial Accounting (Special Accounting Areas) – III-munotes

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PARTNERSHIP FINAL ACCOUNTS I
Unit Structure:
1.0 Objective
1.1 Introduction
1.2 Partnership Deed
1.3 Partnership Final Account
1.4 Profit and Loss Appropriation Accounts
1.5 Guarantee of Profits to / Or by a Partner
1.6 Joint Life Policy
1.7 Check Progress
1.0 OBJECTIVE OF THE UNIT
After studying the unit the student will be able to :
 Define the meaning of Partnership Deed.
 Transfer the Trial Balance.

 Describe the Accounting Procedure and the treatment to various
adjustments in Final Account s.
 Calculate the Interest on Capital and Interest on Drawings.
 Solve the practical problems.
1.1 INTRODUCTION
A Partnership is defined by section 4 of the Indian Partnership Act 1932,
as “The relation between persons who have agreed to share profits of
business carried on by all or by any of them acting for all: Persons who
have entered into Partnership are individually called as Partners and
collectively called as a firm.
1.1.1 There are three important characteristics of Partnership
1) There should be AGREEMENT between two or more persons.
2) This agreement must be to SHARE the profits of the business. munotes.in

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Financial Accounting
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2 3) The business must be carried on by all the partners or by any one of the
partner acting for all of them.
1.2 PARTNERSHIP DEED
We have seen above that Partnership is created by an AGREEMENT. It is
not necessary to have a written agreement. However written agreement is
desirable because it can avoid dispute in future. The Deed of Partnership
is a document in writing which contains the important ter ms that the
partners have agreed among themselves. The partnership deed should be
properly drafted and stamped as required by Stamp Act.
1.2.1 Partnership deed specific: -
In case of specific Provision in the Partnership deed (which may be oral or
writte n), the appropriation (or distribution) of Profit is done accordingly.
1.2.2 Partnership deed is silent (or absence of Partnership deed): -
In this case, following provisions of section 13 of the Indian Partnership
Act, 1932 would be applicable: -
1) Intere st on capital - Not Allowed.
2) Interest on capital - Such interest is payable only if allowed by
the partnership deed. Out of profits.
3) Interest on drawings - Not Allowed.
4) Salary to Partners - Not Allowed.
5) Commission to Partners - Not Allowed.
6) Interest on Partners loan - 6% p.a. allowed.
7) Profit/ or Loss SharingRratio - Equal for all Partners (Even if Partner’s
capital may be unequal).
1.3 PARTNERSHIP FINAL ACCOUNTS
Each partner should know the financial performance of the busin ess for
the year. Each partner has unlimited liability and therefore, he should also
know the state of affairs (i.e. Assets and Liabilities) on a particular date.
The accounts of a partnership business are prepared on the basis of double
entry as well as accrual basis. The accounts consider outstanding
expenses, prepaid expenses, outstanding Income, etc. to determine profit
(or loss) during the accounting year.
The final accounts of partnership firm includes: -
1) Trading Account to disclose the Gross Pr ofit (or Gross Loss) during
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Partnership Final
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3 2) Profit and Loss Account to disclose Net Profit (or Net Loss) during the
accounting year.
3) Profit and Loss Appropriation Account to disclose the distribution of
Net Profit (or Net Loss) among partners after considering interest on
partners capital, interest on drawing, salary to partners etc. If there is
no appropriation, then the net profit from the Profit and Loss Account
is transferred to Capital.
4) Balance Sheet to disclose the Assets and Liabili ties at the end of the
accounting year.
5) Manufacturing Account may be prepared (in addition to Trading
Account) to disclose Cost of Goods produced and other elements of
cost taking figure in Manufacturing Account shows cost of production,
which should b e transferred to Trading Account.
6) Partners Capital Accounts are prepared separately and then the closing
balance is transferred to the Balance Sheet. When Partners Capital A/c,
If Partner’s Capital A/c are fixed, it is transferred to Current Account.
1.4 PROFIT AND LOSS APPROPRIATION A/C
This is a special Account prepared in case of only PARTNERSHIP firm.
It shows how the Net profit/Net Loss has been distributed (Appropriated)
amongst Partners.
Note: In case of Partnership firm any remuneration paid o r payable to
partners in the form of salary, rent. Interest on capital, commission etc. is
treated as distribution of profit and not as business expense. Therefore the
above expenses if paid or payable to partners shall not be debited to Profit
and Loss Account but shall be debited to Profit and Loss Appropriation
A/c.
Thus this A/c will be debited by:
1) Net Loss (transferred from credit side of Profit & Loss Account)
2) Salaries, Rent, Interest on Capital, Commission etc. to Partners
This A/c will be credited by
1) Net Profit (transferred from the Debit side of Profit & Loss A/c)
2) Interest on Drawing charged to Partners.
The difference in this account will show the Final Net Profit/Loss which
can distributed amongst the partners in their profit sh aring ratio.
If the Credit side is heavier -profit to be distributed
If the Debit side is heavier –Loss transferred to Partners Account
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Financial Accounting
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4 1.4.1 INTEREST ON CAPITAL OR SALARY ETC
Interest or Salary is payable only out of the Profit (i.e. on appropriation of
Profit). Therefore,
1) In case of loss, no interest or Salary is allowed.
2) In case if Profit is less than Interest, etc then such interest etc. is
limited to the extent of profit.
However, the partner may decide to waive such intimation (by specific
provision in the partnership deed) that interest, etc. is allowed even (if
there is a loss) then the amount of loss is increased and such increased
(entire) loss is shared by the partner in the profit (and loss) sharing ratio.
1.4.2 INTEREST ON DRAWINGS
The partner may be charged Interest on the Drawing. So as to make
distribution of profit more equitable, Interest on Drawing is charged on the
different amounts withdrawn on the different dates during the accounting
year. The interest on drawings is cal culated by the Product Method or the
Average Due Date Method. Usually, when a partner draws a fixed amount
monthly, then the interest on drawings is calculated as follows: -
Withdrawals Interest on total Drawings
a) Beginning of each month
(e.g. 1st January ,1st February
… 1st December

b) Middle of each month (not
given) (e.g. 15th January, 14th
February,…. 15th December)

c) End of each month (e.g. 31st
January, 28th February, 31st
December)
For 6.5 month


For 6 mont h


For 5.5 month

1.5 GUARANTEE OF PROFITS TO/ OR BY A PARTNER
According to the partnership deed, one or few partners are guaranteed a
minimum amount of profit, therefore, such partner would receive
guaranteed (minimum) profit or profit as per profit sha ring ratio which
ever is higher.
The different types of guarantee arrangements are as follows: -
1) A Partner is given an undertaking that his share in profits (including
salary, interest on capital etc) will not be below a certain amount. Such
guaran tee may be given by one partner or by all other remaining partners.
Usually, in such a case in future, when the concerned Partner’s share of munotes.in

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Partnership Final
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5 profit exceeds the minimum limits then the excess profit (above minimum
limit) is refunded (to the extent profits overdrawn in the past)
2) A partner guarantees that the profit of the firm would above a certain
figure in such case the profit is lower, then the guarantor partner’s account
is debited and profit and loss Appropriation A/c is credited.
3) A partner guar antees that, if particular partner’s share of profit exceeds
a certain amount, then he would suffer to the extent of difference (i.e. to
the extent of profit above certain amount the guarantor partner would
receive less profits).
1.6 JOINT LIFE POLICY
The object of taking life policy on the lives of the partner is to insure
against the chances or disturbance in the business due to death of any one
of the partners. The amount payable to the legal representative of the
deceased partner is paid out of the poli cy amount received from the
Insurance Company; otherwise, the assets may have to be sold, which may
result in the disturbance to or closure of the business. The firm can take
one Joint Policy on the life of all partners, or otherwise, it may take
separate policies on the life of each partner.
Accounting treatment may be one of the following three ways: -
1.6.1 Premium paid is treated as expense of the firm and debited to
Profit and Loss A/c when amount is received it is credited to Partners
Capital in the ir profit sharing ratio
1.6.2 When premium paid is treated as assets : - In this case premium
paid is debited to Joint Life Policy A/c. Joint Life Policy A/c is kept at
surrender value, on date of balance -sheet. The balance in Policy A/c in
excess of sur render value is treated as loss and transferred to P & L A/c.
When amount received on surrender of policy or maturity of policy, is
credited to Joint Life Policy A/c. Balance in Joint Life Policy being pro fit
credited to Partners Capital A/c in their pro fit sharing ratio.
1.6.3 When premium paid treated as asset and Joint life policy
reserve is maintained. In this case premium paid is debited to Joint Life
Policy A/c at the end of the year Joint Life Policy Reserve is created to the
extent of premium p aid by debiting to Profit and Loss A/c and crediting to
Joint life policy reserve a/c. Both Joint Life Policy and Joint Life Policy
Reserve A/c are brought down to surrender value by debiting Joint Life
Policy Reserve A/c crediting Joint Life Policy A/c. At the end of the year
Joint Life Policy is shown on Assets side of the Balance Sheet. Joint Life
Policy Reserve a/c is shown on the Liability side of the Balance Sheet.
On the maturity of the policy or when policy is surrendered following
entries are passed.

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Financial Accounting
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6 When Joint Life Policy premium paid
a) Joint Life Policy A/c ……Dr.
To Bank A/c
b) For transferring to Profit & Loss A/c (equal to premium paid)
Profit & Loss A/c ……Dr.
To Joint Life Policy Reserve A/c
c) For bring balance in Joint life policy to surrender value
Joint Life Policy Reserve A/c ….. Dr.
To Joint Life Policy A/c
Above entries are repeated every year, if joint life policy surrendered or
matured.
On maturity of policy/su rrender following entries are passed.
a) Bank A/c …..Dr.
To Joint Life Policy A/c

b) For excess amount received
Joint Life Policy A/c…….Dr
To Joint Life Policy Reserve A/c

c) For transferring Joint life pol icy Reserves to Partners Capital A/c
in their profit sharing ratio.
Joint Life Policy Reserve A/c…..Dr
To All Partners Capital A/c
1.7 CHECK YOUR PROGRESS:
1. Define
1. Partnership Deed
2. Profit and Loss Appropriation Account
3. Joint L ife Policy

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Partnership Final
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7 2. Fill in the Blanks
 Any salary paid or payable to a Partner is treated as
____ ______________
 If Any Commission is paid or payable to a Partner shall be debited
to --------------------
 When the Joint Life Policy Premium paid is treated as Expen ses of
the firm it is to be debited to -------------------------
 Variable expenses related to sales are to be divided in the -------------
---------------------- Ratio.
3. State whether True or False
 In case of Partnership Firm any Interest paid on Capital of a Partner
is treated as Expenses of the firm.
 In case of Loss, no Interest or Salary is allowed.
 No Interest is to be payable to a New Partner before Admission.



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8 2
PARTNERSHIP FINAL ACCOUNTS II
Unit Structure :
2.0 Objectives
2.1 Adjustment to Final Accounts
2.2 Revaluation Assets and Liabilities on Admission or Retirement of
Partner
2.3 Adjustment Relating to Reserves / Goodwill
2.4 Hidden Adjustments
2.6 Proform a of Final Accounts
2.7 Accounting Procedure
2.0 OBJECTIVES
After studying the unit the students will be able to:
 Understand the adjustments and journal entries and effets of the
adjustments to Final Accounts.
 Revaluate assets and liabilities on admissio n and retirement of the
partner.
 Understand the adjustments related to Goodwill and Reserves.
2.1 ADJUSTMENT TO FINAL ACCOUNTS
Sr.
No. Adjustment Journal
Entries Effect in
Trading or
P&L A/c or
P&L Adj. A/c Effect in
Balance Sheet
1. Outstanding or
Unpaid
expenses e.g.
Salary
Outstanding. Salary/s a/c -
Dr.
To
Outstanding
Salary A /c Add to the
expenses,
e.g. salary Show on the
Liability side
as Outstanding
Salary.
2. Outstanding
Income or
Income n ot
received or
Income
Receivable or Interest
Receivable
A/c - Dr.
To Interest
A/c Add to the
Income on
credit side, e.g.
from Interest Show on the
Assets Side as
Outstanding
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Partnership Final Accounts II
9 Income Earned
but not
received
e.g. I nterest due
but not
received.
3 Prepaid
Expenses or
Expenditure
paid in advance
or Unexpir ed
Insurance
e.g. P repaid
Insurance. Prepaid
Insurance A/c
– Dr.
To Insurance
A/c Deduct from
that
expenditure on
debit side e.g.
from
Insurance. Show on the
Assets Side as
Prepaid
Insurance.
4 Bad Debts
written off. Bad Debts A/c - Dr.
To Sundry
Debtor s A/c. Show on the
debit si de as
addition to the
bad debts
given in tri al
balance. Deduct from
the Debtors on
Assets S ide.
5 Income
Received in
Advance, e.g.
Interest for
three months
Received in
Advance. Interest
(Income) A/c
- Dr.
To Interest
Received in
Advance. Deduct from
the Income on
credit side e.g.
from Interest
Received. Show on the
Liability Side
as Interest
Received in
Advance.
6 Depreciation on
Fixed Assets .
(e.g.
depreciation on
machinery.) Depreciation
A/c - Dr.
To Machinery
A/c. Show on the
debit side as
depreciation
on m achinery. Deduct from
that assets on
the assets side
e.g. from
machinery.
7 Reserve for
Discount on
Creditors. Reserve for
Dis. On Cr.
A/c-Dr.
To Discount
Received A /c. Show on the
Credit Side. Deduct from
Creditors o n
Liability Side.
8 Provision for
Discount on
Debtors.
(Calculated at
given % on the
balance of
Debtors after
deducting Bad
Debts and Discount
Allowed A/c
- Dr.
To Provision
for discount
on Debtors
A/c Show
separately on
the Debit side.
Deduct from
the D ebtors. munotes.in

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Financial Accounting
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10 R.D.D. given in
the
adjustments.)
9 Bills
Receiva ble
Discounted is
Dishonou red. Debtors A/c -
Dr.
To Bank A/c. Debit S ide of
P & L A/c Deduct from
the Bank A/c
and Add to the
Debtors on the
Assets Side
10 Writing off
deferred
Revenue
Expenditu re
e.g. Write Off
Preliminary
Expenses. P & L A/c -
Dr.
To
Preliminary
Expenses A/c NO IMPACT Deduct from
that Account
on the Assets
Side e.g. from
Preliminary
Expenses A/c.
11 Bill Receivable
dishonored is
remained to be
adjusted.
Debtors A/c -
Dr.
To Bills
Receivable
A/c. NO IMPACT Deduct from
B/R & Add to
Debtors on the
assets side.
12 Sundry Debtors
include a
Debtor for
Dishonor Bill and half the
amount is
irrecoverable. Bad Debts A/c - Dr.
To Debtors
A/c Show on the
Debit S ide as
Bad D ebts. Deduct from
the Debtors on
the Asset Side.
13 Goods
withdrawn by
the Partner. Drawings A/c
- Dr.
To Trading
A/c Show on the
credit side of
Trading A/c. Deduct from
the Capital A/c
of the Partner
on the Liability
Side.
14 Goods
Purchased
remaine d to be
recorded
though
included in
stock. Purchases A/c
- Dr.
To Creditors
A/c Add to
Purchases on
Debit si de of
the Trading
A/c. Add to the
Creditors on
the Liability
Side.
15 Goods sold are
included in the
closing s tock as
it was not
delivered. NO EN TRY Deduct from
the Closing
Stock on the
credit side of
Trading A/c Deduct from
the Closing
Stock on the
Assets Side. munotes.in

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Partnership Final Accounts II
11
16 Sale includes
goods sent on
sale or return
basis. At Selling
Price:
Sales A/c –
Dr.
To Debtors A/c

At Cost Price:
Stock with
Customers A/c -
Dr.
To Trading A/c (a) Deduct
from sale on
credit side of
Trading A/c at
selling price to
the extent it is
not approved
by customers.

(b) Add to the
Closing Stock
at cost on
credit side of
Trading A/c. (a) Deduct
from Debtors
on Assets
Side at sales
price to the
extent it is not
approved by
customers.

(b) Add to the
Closing Stock
at cost on
Assets Side.

17 Goods
distributed as
free samples. Advertisement
A/c – Dr.
To Trading A/c (a) Show on
the credit side
of Trading A/c.
(b) And on the
debit side of
P&L A/c. as
Advertisement. NO IMPACT
18 Wages paid for
installation of
Machinery
debited to
Wages A/c. Machinery A/c
Dr.
To Wages A/c
(Rectification
Entry) Deduct from
the W ages on
the debit side
of Trading a/c. Add to the
Machinery on
the Asse ts
Side.
19 Loss of goods
by fire and
Insurance
Company
Admitted
Claim. Insurance
Claim A/c –
Dr.
Loss by Fire
A/c – Dr.
To Trading
A/c. (a) Show on
credit side of
Trading A/c
the total loss.

(b) Show on
debit side of
P&L A/c the
actual loss i.e.
Amt. of goods
lost by fire
Less Amt. Of
claim
Admitted by
the Insurance
Co. Show on the
Assets S ide
the amount of
claim
Admitted by
the Insurance
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Financial Accounting
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12
20 Legal charges
paid for
Acquisition of
property
debited to
Legal Expenses
A/c Property A/c –
Dr.
To Leg al
Charges A/c Deduct from
the le gal
expenses on
debit side of
P&L A/c Add to the
Property
acquired on
Assets S ide.
21 Interest on
Partner’s
capital. Interest on
Capital A/c –
Dr.
To Partners
Capital A/c Show on the
debit side of
P&L
Appropriation
A/c. Add to
Capital /Curre
nt A/c on the
Liability Side. 22 Salary to
Partner. P&L
Appropriation
A/c – Dr.
To Partners
Capital A/c Show on the
debit side of
P&L
Appropriation
A/c. Add to the
Capital /Curre
nt A/c of the
Partner.
23 Interest on
Partner’s
Drawing Partners Cap.
A/c – Dr.
To P & L
Appropriation
A/c Show on the
credit side of
P&L
Appropriation
A/c Deduct from
the Capital.
24 Closing Stock. (a) Stock of
Raw Material
A/c – Dr.
Work In
Progress A/c –
Dr.
To
Manufacturing
A/c

(b) Stock of
Finished Goods
A/c – Dr.
To Trading A/c (a) Stock of
Raw Material
on the credit
side of
Manufacturin
g A/c
(b) Stock of
Work In
Progress as
above.
(c) Stock of
Finished
Goods on
credit side of
the Trading
A/c. (a) On Assets
Side.





(b) On Assets
Side.



(c) On Assets
Side.
25 Commission to
Manager as %
Net Profit.
Managers
Commission
A/c – Dr.
To Outstanding
Comm. A/c Show on the
debit side of
P&L A/c. Show on the
Liability Side
as
Outstanding
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Partnership Final Accounts II
13
26 Goods received
as free sample,
and included in
Closing S tock. Trading A/c –
Dr.
To P & L A/c (a) Show on
the debit side
of Trading
A/c.
(b) Show on
the credit side
of P & L A/c. NO IMPACT

2.2 REVALUATION ASSETS AND LIABILITIES ON
ADMISSION OR RETIREMENT OF PARTNER
 Increase in value of Assets.
Fixed Assets A/c Dr.
To Revaluation A/c
 Decrease in value of fixed Assets
Revaluation A/c Dr.
To Fixed Assets A/c
 Increase in liabilities ( unrecorded)
Revaluation A/c Dr.
To Sundry Liabilities A/c
 Decrease in Liabilities
Sundry Liabilities A/c Dr.
To Revaluation A/c
1. Transferring Revaluation Profit to Old Partners in old ratio .
Revaluation A/c Dr.
To Old Partners Capit al A/c
2. Transferring Loss on Revaluation to Old Partners Capital A/c
in old ratio
Old Partners ’ Capital A/c Dr.
To Revaluation A/c

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Financial Accounting
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14 Note:
i) Revaluation A/c is also known as profit & Loss Adjustment A/c.
ii) Revaluation of As sets etc. may not be included in syllabus.
However not specially excluded also.
2.3 ADJUSTMENT RELATI NG TO RESERVES /
GOODWILL :
2.3.1 Reserves appearing in Balance Sheet. These reserve belongs to old
partner therefore should be transferred to Old P artners Capital A/c.
General Reserve A/c Dr.
To Old Partners Capital A/c
Adjustment relating Goodwill.
Full value of Goodwill is raised and Appears in Balance Sheet.
Goodwill A/c Dr.
To old Partners Capital A/c [in Old Ratio]
2.3.2 Goodwill was raised and written off
(not appearing in Balance Sheet)
Incoming Partners Capital A/c Dr.
To Old Partners Capital A/c
(Credited in Sacrificing Ratio)
(Sacrificing Ratio = Old Ratio – New Ratio)
2.3.3 After admission of New Partner
Goodwill written off
All Partners Capital A/c ….. Dr. [In new P.S.R.]
To Goodwill A/c
2.3.4 Incoming partne r bring his share of Goodwill in cash.
a) Cash A/c – Dr.
To Goodwill A/c
b) Goodwill A/c – Dr.
To Old Partners Capital A/c
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Partnership Final Accounts II
15 2.3.5 Goodwill amount paid in Cash by new partner privately
No entr y in book of Accounts.
2.4 HIDDEN ADJUSTMENTS :
Sometimes, details given in Trial Balance indicate amount of expenses or
income are to be adjusted.
Sr.
No. Trial Balance on 31.12.13 Adjustment
Particulars Debit Credit a) Bank int. for 6 months
(a) 10% Ba nk Loan
[1st July 2012]
Bank Interest 5,000 2,00,000 10% on 2,00,000
= 2,00,000 x10% x 6/12
= ` 10,000
Outstanding Interest
= ` 5,000

(b) Salaries
(11 months) 22,000 b) Per Month’s Salary
= 22,000/11 = 2,000
Provide Outstanding
` 2,000

(c) 12% Govt.
Securities
[Face Value –
` 1,00,000]
Interest on
Govt. Sec. 97,000 6,000 c) Amount of interest
= 1,00,000 X 12%
= ` 12,000
Accrued Interest
= 12,000 – 6,000
= ` 6,000 to be accounted.
Interest on Investment is
always calculated or Face
Value.

(d) Furniture
(Opening
Balance)
Sale of
Furniture
(WDV - `
25,000) 60,000 18,000 Furniture sold at loss of.
` 7,000 (25,000 – 18,000)
i) Deduct ` 25,000 from
Furniture
ii) Loss on sale of Furniture
` 7000 Debit to P&L A/c

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Financial Accounting
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16 2.6 PROFORMA OF FINAL ACC OUNTS:
2.6.1
Dr. Trading A/c for the year ended…. Cr.
Particulars Rs. Particulars Rs.
To Opening tock
To Purchases X
Less Purchase Return X
To Carriage
To Wages
To Direct Expenses
To Gross Profit C/d X

X
X
X
X
X By Sales: Cash X
Credit X
Less: Sales Return (X)
By Goods Lost by
Fire etc : (at cost)
By Closing Stock

X

X
X


XX XX

2.6.2
Dr. Profit & Loss A/c for the ended ……. Cr.
Particulars Basis Before
Admissio n After
Admission Particulars
Basis Before
Admission After
Admission

To salaries
To Insurance
To
Administrative
Exp.
To Depreciation
To Commission
To Bad Debts
To Discount
To
Advertisement
To Travelling
Exp.
To N.P. C/d.
T
T
T

T
S
S
S
S
S
X
X
X

X
X
X
X
X
X
X
X
X
X

X
X
X
X
X
X
X
By Gross
Profit
By Interest
By Rent

By Discount
By Net Loss
C/d
S
T
T

S
X
X
X

X
X
X
X
X

X
X munotes.in

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Partnership Final Accounts II
17 2.6.3
Dr. Profit & Loss Appropriation A/c the ended ……. Cr.
Particulars Before
Admission After
Admission Particulars Before
Admission After
Admission
To Partner Salaries
Old Partner T
New Partner --
To Interest on
Capital Old T
New --
To Net Profit
Before Admi. Old Ratio x
After Admi. New Ratio x
X
--

X
--

X
X
X

X
X


X By G.P.B/fd
By Interest on
Drawings
New Partner -
Old Partner T X

--
--
X
X

--
X
X

XX XX XX XX

2.6.4
BALANCE SHEET AS ON
Liabilities Rs. Rs. Assets Rs. Rs.
Partners Capital A/c
X
Y
Z
Partners Current
Accounts X
Z

Bank Loans
Sundry Creditors
Bills Payable
Outstanding Expenses
Income Received in Advance
X
X
X

X
X



X


X

X
X
X
X
X Fixed Assets
Goodwill
Other Fixed Assets
- Deprecia tion
Investment
Stock
S. Debtors
- New Bad debts

- New R.D.D.

Bills Receivable
Cash & Bank Balance
Y’s Current A/c

X
X


X
(X)
X
(x)

X

X
X
X



X

X
x
X
XX XX
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Financial Accounting
(Special Accounting
Areas) III

18 2.7 ACCOUNTING PROCEDURE
 When New Partner is admitted on 1st day of the year or on Last day of
the year, usual final A/c should be prepared i.e. division in Profit &
Loss A/c, Profit & Loss Appropriation A/c is not required.
 Similarly in case of Retirement/Death of a partner on 1st day or last
day of the year, there is no need of pre paring Profit & Loss A/c and
Profit& Loss Appropriation A/c in columnar form before retirement
and after retirement of partner.
 In both of above cases, it is usual Partnership Final A/c.
 In case of Admission on Retirement or Death of Partner in between the
year - Either prepare Final Accounts on that date to find out Profit or
Loss upto change in partnership i.e. Close the books of Accounts on
that date.
 However it may not be possible to close books of accounts on the date
of Admission or Retirement or De ath of the Partner. Partners continue
same books of accounts up to the end of the year. In such case Profit
& Loss A/c as well as Profit and Loss Appropriation A/c are prepared
in columnar form i.e. Before Change in Partnership and After Change
in Partner ship then following accounting procedure is followed.
1) Prepare Trading A/c to ascertain Gross Profit.
2) Ascertain Time Ratio i.e. number of months before admission and
after admission of partner.
3) Similarly ascertain Sales Ratio.
These ratios are required to divide various Income and Expenses as
follow:
i Income/Discount Earned/Gros s Profit credit to P & L A/c in Sales
Ratio.
ii Interest Earned divide in Time Ratio.
iii Various Fixed Expenses divide in Time Ratio e.g. Salaries,
Insurance, Rent, Interest paid, D epreciation etc.
iv Various Variable Expenses related with Sales divide in Sales Ratio
e.g. Carriage Outwards, Bad Debts written off, Advertisement,
Commission, and Depreciation on Delivery Van etc.
4) If details about expenses/income are given for dividing
expe nses/income should be considered on e.g. Plant was purchased
after admission, then Depreciation on New Plant should be debited to
II column only (i.e. After Admission] and deducted from Plant in
Balance Sheet. munotes.in

Page 19

Partnership Final Accounts II
19 5) Ascertain Net Profit/Loss separately, (say B efore Change and After
Change) and transfer it to Profit and Loss Appropriation A/c.
6) Interests on Capital if any ascertain before Admission/After Admission
of Partner. Debit it to appropriate column and credit to Partners
Capital A/c [ no interest is paya ble to new partner before
admission ] same way any Salaries to Partner, etc. account in
respective column.
7) Net Profit before admission transfer to Old Partner in old ratio, a Net
Profit after admission of partner transfer to All partner in New Ratio.
8) Transf eree balance in Partner Capital Accounts to Balance Sheet.
9) However in case of Retirement of partner same procedure should be
followed for division of expenses or income. Then Net Profit before
retirement should be ascertained and transferred to Old Partner s
Capital Accounts. If Balance in Retiring Partners Capital A/c
transferred to Loan A/c, Retiring Partners Loan A/c may carry interest.
Calculate the Interest and debit it to P & L A/c in II column (i.e. After
Retirement). Net Profit after retirement shou ld be transferred to
Continuing Partners Capital A/c in new profit sharing ratio. Same
procedure should be followed in case of death of partner. However
balance in Capital A/c of Diseased Partner should be transferred to
Executors Loan A/c and shown in t he Balance Sheet on Liability Side.
2.8 CHECK YOUR PROGRESS:
A. Fill in the Blanks
 Wages paid for installation of Machinery must be debited to ____.
 Reserves appearing in the Balance Sheet belongs to the _______.
 If the Incoming Partner is bringing his share of Goodwill in Cash the
Journal Entries will be _________.
 Variable expenses related to sales are to be divided in the _____ r atio.
 Net Profit/Loss before admission should transferred to the _______
partners in their Old Profit Sharing Ratio.
B. State whether True or False
1. Outstanding Insurance is to be shown on the Assets Side of the
Balance Sheet.
2. When New Partner is admitted on the 1st day of year, division in Profit
and Loss A/c, Profit and Loss Appropriation A/c is required.
3. No Interest is payable to a N ew Partner before Admission.
4. Net Profit after admission of partner is transferred to all partner s in
Old Profit Sharing Ratio. munotes.in

Page 20

Financial Accounting
(Special Accounting
Areas) III

20 5. If any Interest is allowed on Retiring Partners Loan A/c such amount
of Interest is to be debited it to P & L A/c in After Retir ement column.
C. Show both the effects of following adjustments and give the Journal
Entry.
1. In the Trial Balance Legal Expenses are Rs. 10,000.Legal Charges Rs.
5,000 paid are included in the Legal Expenses.
2. In the Trial Balance there are Purchases of Rs. 2, 00,000 which
included purchase of Furniture of Rs. 20,000.
3. Goods costing Rs. 10,000 are lost by fire and Insurance Company
admitted a claim of Rs. 8,000.
4. Trade Expenses accrued but not entered in the books amounted Rs.
2,500.
5. Bills Receivabl e includes a di shonored bill.



munotes.in

Page 21

21 3
PARTNERSHIP FINAL ACCOUNTS III
Unit Structure :
3.0 Objectives
3.1 Illustrations
3.0 OBJECTIVES
After studying the unit students will be able to solve the practical
problems related to Partnership Final Accounts.
3.1 ILLUSTRATIONS
Illustration no. 1 [Admission of Partner]
Trial balance as on 31st December, 2013
Particulars Rs. Dr. Rs. Cr. Gross Profit
Creditors
Bills Payable
Outstanding Expenses
Interest Received
A’s Capital
B’s Capital
C’s Capital (admitted 1st May, 2013
Salaries
Advertisement
Stock
Debtors
Rent
Bad Debts
Cash & Bank Bal.
Fixed Assets 24,000 60,000 1,25,000 1,75,000 36,000 18,000 96,000 4,00,000 3,00,000 75,000 35,000 12,000 12,000 1,00,000 2,00,000 2,00,000
934000 9,34,000 munotes.in

Page 22

Financial Accounti ng
(Special Accounting
Areas) III

22 A & B sharing ratio of 2:1 Admitte d C on 1st May, 2013 and agreed to
share P & L in a ratio of 2:1:1. Sales before C admission were 1 ,00,000
out of total for the year Rs. 5 ,00,000.
Depreciate Fixed Assets @ 10% p.a.
Provide interest on capital 6% p.a. You are required to prepare Final A/ c
of the firm.
Solution:
Profit and Loss A/c
Dr. For the year ended 31st December, 2013 Cr.
Particulars 4 mths. Rs. 8 mths. Rs. Particulars 4 mths.
Rs. 8mths.
Rs.
To Salaries
To Advertisement
To Rent
To Bad Debts
To Dep. On Fixed
Assets
To Net Pr ofit (Bal.
C/d) 8,000
12,000
12,000
3,600
13,333

15,067 16,000
48,000

14,400
26,667

1,18,933 By Gross Profit
By Interest
Received 60,000
4,000 2,40,000
8,000
64,000 2,48,000 64,000 2,48,000

Profit and Loss Appropriation A/c.
For the year ended 31st December, 2013
Dr. Cr.

Particulars

4 mths.
8 mths.
Particulars
4 mths.
8 mths. To Interest on Capital
A
B
C
To Net Prof it
transferred A & B
In 2:1 ratio.

To New profit
transferred to A,B
& C in 2:1:1 ratio.
2,000
4,000
--


9,067

4,000
8,000
8,000






98,933 By Net profit b/d 15,067 1,18,933











15,067 1,18,933 15,067 1,18,933
munotes.in

Page 23

Partnership Final Accounts II I
23 Balance sheet as on 3 1st December, 2013

Liabilities

Rs.
Rs.
Assets
Rs.
Rs.

Capital A
B
C

Creditors

Bills Payable
Outstanding
Expenses 1,61,511 2,39,756 2,32,733 6,34,000 75,000 35,000 12,000
Closing
Stock
Debtors
Fixed
Asset s
Less Dep.

Cash and
Bank Bal. 4,00,000 40,000 1,25,000 1,75,000 3,60,000 96,000 7,56,000 7,56,000
Working Note:
Partners Capital A/c
Dr. Cr.
Particulars A B C Particulars A B C





To Bal.C/d




1,61,511




2,39,756




2,32,733







By Bal. B/d

By Interest on

Capital

By Net Profit
(4 moths)

By Net Profit
(8 moths)
1,00,000



6,000

6,044


49,467
2,00,000



12,000

3,023


24,733
2,00,000



8,000

--


24,733
1,61,511 2,39,756 2,32,733 1,61,511 2,39,756 2,32,733

munotes.in

Page 24

Financial Accounti ng
(Special Accounting
Areas) III

24 Illustration -2 [Admission of Partner in between the year]
Trial Balance as on 31st December, 2013
Particulars Dr. Rs. Cr. Rs. Gross Profit
Salaries
Rent
Printing and Stationery
Bad Debts
Discount
Sales Commission
Sundry Debtors
Sundry Creditors
Bills Receivable and Bills Payable
Land and Building
Plant and Machinery
A’s Capital
B’s Capital
C’s Capital [1st July, 2013]
Advert isement
Bank Fixed Deposits 36,000 12,000 9,000 18,000 30,000 2,10,000 1,20,000 2,00,000 1,50,000 24,000 1,00,000 3,60,000 24,000 40,000 35,000 1,00,000 1,50,000 2,00,000 9,09,000 9,09,000
Adjustments: -
1) A and B sharing profit & losses in the ratio of 2:1 admitted C on 1st
July, 2013 and agreed to share in the ratio of 2:1:2.
2) As per partnership deed (old and New) partners were entitled to
interest on capital @ 6% p.a. A’s remuneration Rs. 12 ,000 p.a. and C
Rs. 20 ,000 p.a. w.e.f. 1st July 2 013
3) Depreciate land and bldg by 5%. Plant and machinery by 20% p.a.
4) Plant includes, plant worth Rs. 50 ,000 purchased on 1st July, 2013
5) Fixed Deposits carry interest at 12% p.a. from 1st Oct 2013
6) Sales up 30th June, 2013 amounted to Rs. 2 ,00,000 out of tota l sales for
the year 5 ,00,000. munotes.in

Page 25

Partnership Final Accounts II I
25 You are required to prepare P and L A/c, P and L Appropriation A/c for
the year ended 31st December, 2013 and Balance Sheet as on 31st
December, 2013.
Solution:
Profit and Loss A/c
Dr. For the year ended 31st December, 2013 Cr.
Particulars 1 Jan to
30 June 1 July to
31 Dec. Particulars 1 Jan to 30 June 1 July 31 Dec.

To Salaries
To Rent
To Printing &
Stationery
To Bad Debts
To Sales Commission
To Advertisement
To Depreciation On:
Land & Bldg
Plant & Ma chinery
To Net Profit c/d
18,000
6,000

4,500
7,200
12,000
9,600

5,000
10,000
81,300
18,000
6,000

4,500
10,800
18,000
14,400

5,000
15,000
1,41,700
By Gross Profit
(2:3 ratio)
By Discount
By Interest on
F.D.
(from 1st Oct
2001)
1,44,000

9,600
__
2,16,000

14,400
3,000
1,53,600 2,33,400 1,53,600 2,33,400
Profit & Loss Appropriation A/c
Dr. For the year ended 31st December, 2013 Cr.
Particulars 1 Jan to
30 June 1 July to
31 Dec. Particulars 1 Jan
to
30
June 1 July
31 Dec.

To Interest on Capital
A
B
C
To Partners Salary
A
C
To net profit transferred to Cap.
Upto 30th June A & B in 2:1
From 1st July A, B, C, in 2:1:2

3,000
4,500
--

6,000
--

67,800
--

3,000
4,500
6,000

6,000
10,000

--
1,12,200
By Net
Profit b/d

81,300

1,41,700
81,300 1,41,700 81300 1,41,700
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Page 26

Financial Accounti ng
(Special Accounting
Areas) III

26 Balance Sheet
As on 31st December, 2013

Liabilities
Rs.
Rs.
Assets
Rs.
Rs.

Partners Capital A/c
A
B
C

Sundry Creditors
Bills Payable

2,08,080
2,04,040
2,60,880



6,73,000

40,000
35,000

Land & Building
Less: Depreciation
Plant and Machinery
Less: Depreciation

Sundry Debtors
Bills Receivable
Bank Fixed Deposits
Add: Interest Accrued
2,00,000
10,000

1,90,000

1,25,000

2,10,000
1,20,000

1,03,000 1,50,000
25,000



1,00,000
3,000

7,48,000 7,48,000

Partners Capital A/c.
Dr. For the year ended 31st December, 2013 Cr.
A B C Particulars A B C


To Bal. carried to
Balance Sheet


2,08,080


2,04,040


2,60,880
By Bal. B/d
By Cash & bank
By Interest on
Capital
By Salaries
By Net Profit
upto 30th June
2008
from 1st July
1,00,000
--

6,000
12,000


45,200
44,880
1,50,000
--

9,000
--


22,600
22,440

2,00,000

6,000
10,000



44,080

2,08,080 2,04,040 2,60,880 2,08,080 2,04,040 2,60,880
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Page 27

Partnership Final Accounts II I
27 Illustration 3 [Admission of Partner]
Rana and Balu were partners sharing prof its and Losses in the ratio of 3:2
with effect from 1 -10-2013 kaka joins as a third partner. The new profit
sharing ratio was 2:2:1
The following is their trial balance as on 31 -3-2014
Particulars Debit
Rs. Credit
Rs.

Drawing & Capital - Rana
- Balu
- Kaka
Opening Stock (1 -4-2013)
Purchases & Sales
Wages
Furniture
General Exp.
Selling Exp.
Debtors & Creditors
Cash & Bank Balance
Amount brought by kaka (for his share of Goodwill)
15,000
10,000
5,000
30,000
9,00,000
1,40,000
2,00,000
60,000
14,000
6,26,000
3,50,000
--
3,00,000
2,00,000
1,50,000
--
14,00,000
--
--
--
--
2,50,000
--
50,000 23,50,000 23,50,000
Other Information:
(a) Stock on 31 -3-2014 was ` 1,80,000
(b) Purchases from 1 -4-2013 to 30 -9-2013 were ` 4,00,000.
(c) Sales from 1 -4-2013 to 30 -9-2013 were ` 6,00,000
(d) Wages from 1 -4-2013 to 30.09.2013 were ` 60,000.
(e) Stock on 30 -9-2013 was ` 80,000.
(f) Furniture worth ` 1,00,000 was Purchased on 1 -1-2014.
Write off depreciation on Furniture at 20% p.a.
(g) Interest on Pa rtner’s Capital is to be provided at 12% p.a. munotes.in

Page 28

Financial Accounti ng
(Special Accounting
Areas) III

28 (h) No interest is to be charged on Partner’s Drawings.
You are required to prepare: -
(i) P & L A/c and P & L Appropriation A/c with columns for
(01-4-2013 to 30 -9-2013) and (01.10.2013 to 31.03.2014).
(ii) Balance sheet as on 31 -03-2014
[M.U. Apr., 03] and
Solution:
(In the book of Rana, Balu & Kaka)
Trading and P & L Appropriation A/c.
For the year ended 31 -3-2014
Dr. Cr.

Particulars 1-4-13
to
30-9-13 1-10-13
to
31-3-14
Particulars 1-4-13
to
30-9-13 1-10-13
to
31-3-14

To Opening Stock
To Purchases
To Wages
To Gross profit
30,000
4,00,000
60,000
1,90,000
80,000
5,00,000
80,000
3,20,000
By Sales
By Closing stock
6,00,000
80,000
8,00,000
1,80,000
6,80,000 9,80,000 6,80,000 9,80,000
To General Exp. (2)
To Selling Exp. (2)
To Depre. Furniture (3)
To Net Profit c/d 30,000
6,000
10,000
1,44,000 30,000
8,000
15,000
2,67,000
By G ross Profit b/d
1,90,000
3,20,000
1,90,000 3,20,000 1,90,000 3,20,000

To Interest on Cap.12%
Rana
Balu
Kaka
To Partners Capital A/cs
Rana (3/5) (2/5) =1,59,600
Balu (2/5) (2/5) = 1,36,800
Kaka ( -) (1/5) = 45,600

18,000
12,000
--

68,400
45,600
--

18,000
12,000
9,000

91,200
91,200
45,600
By Net Profit b/d
1,44,000
2,67,000
1,44,000 2,67,000 1,44,000 2,67,000



munotes.in

Page 29

Partnership Final Accounts II I
29 Dr. Partners Capital A/c Cr.
Particulars Rana
Rs. Balu
Rs. Kaka
Rs. Particulars Rana Balu Kaka

To Drawings
To Balance
C/d (Bal. fig)
15,000
5,30,600
10,000
3,50,800
5,000
1,99,600
By Balance b/d
By Bank (1)
By Interest (1)
(d)
By Goodwill
By P & L Appr.
3,00,000
--
36,000

50,000
1,59,600
2,00,000
--
24,000

--
1,36,800
--
1,50,000
9,000

--
45,600
5,45,6 00 3,60,800 2,04,600 5,45,600 3,60,800 2,04,600

Balance Sheet as on 31 -3-2014
Liabilities Rs. Assets Rs.

Partners Capital Rana 5,30,600 Balu 3,50,800 Kaka 1,99,600 Creditors 10,81,000 2,50,000 Furniture 2,00,000 Less: Dep. 25,000
Debtors
Stock
Cash & Bank 1,75,000 6,26,000 1,80,000 3,50,000 13,31,000 13,31,000
Note : - (1) Sacrifice Ratio (Old Partners)
Profit -Share Ratio Rana Balu Kaka

(a) Old 3 : 2

i.e. 35 25
(b) New 2 : 2 : 1

i.e. 25 25 15
(c) Sacrifice = (a) – (b) 15 15 munotes.in

Page 30

Financial Accounti ng
(Special Accounting
Areas) III

30
(d) Therefore, Kaka has to pay Rana on account of Goodwill no entry is
Passed, since Interest on Capital is calculated on Rs. 1, 50,000 kaka
for 6 months
(2) Allocation of Expenses Basis
(a) General Expenses TIME
(b) Selling Expenses SALES
(3) Depreciation on Furniture
Depreciation @ 20% p.a.
Furniture A/c Rs Upto 1 -10-13 After 1-10-13 Total
Opening Bal. (1 -04-13) (Bal. fig) 1,00,000 10,000* 10,000*
20,000*
Addition 1 -1-09 1,00,000 -- 5,000**
5,000**
Closing Bal. (31 -3-14) 2,00,000 10,000* 15,000 25,000
Illustration : 4
[Admission of Partner]
The following is the Trial Balance of a firm as on 31st December, 2013.
Debit Rs. Credit Rs.
Purchases
Return Inward
Stock
Drawings:
Sonu
Kalu
Motu
Salary
Off. Exp.
Bad Debts
Carriage Inwards
Carria ge Outwards
Debtors
Bills Receivables
Bank Balance
Cash Balance
Investment
Premises
machinery 1,56,000 2,400 24,000 12,000 12,000 12,000 27,000 16,500 2,100 4,500 6,750 1,00,000 3,250 8,000 2,500
25,000
50,000
36,000 Capital A/c:
Sonu
Kalu
Motu
Sales
Return Outward
R.D.D.
Bank Loan
Creditors
Bills payable 30,000 30,000 30,000 2,94,000 2,000 8,800 20,000 76,500 8,700
5,00,000 5,00,000
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Page 31

Partnership Final Accounts II I
31 On 1st July 2013 Sonu retired and the following adjustments were agreed
upon:
a) Goodwill of Rs. 90,000/ - was brought into the books of accounts.
b) Furniture worth Rs. 20,000/ - was purchased on 31 -3-2013 but the
invoice was not recorded in the books.
c) Balance in sonu account after making all adjustments was to be
transferred to his Loan acco unt carrying interest @ 16%.
d) Closing stock was valued at Rs. 42,000/ -.
e) Depreciate Machinery by 10%, Premises by 5% and Furniture by 5%
p.a.
f) Provide interest on capital at 10% p.a. Prepare Trading and Profit and
Loss Account for the year ended 31 -12-2013 a nd a Balance sheet as on
that date.
[Modified M.U. Apr.,05]
Solution : (In the Books of Sonu, Kalu, & Motu)
Trading, P & L and P & L Appropriation. A/c
Dr. for the year ended 31st Dec. 2013 Cr.

Particulars Rs. Particulars Rs.
To Opening Stock
To Purchases 1,56,000
Less: Returns (2,000)
To Carriage Inward
To GP c/d


To Salary
To Office Expenses
To Bad Debts
To Carriage Outward
To Deprecation
Machinery 3,600
Premises 2,500
Furniture 750
To Net Profit
24,000

1,54,000
4,500
1,51,100

3,33,600 27,000
16,500
2,100
6,750



6,850
91,900 By Sales 2,94,000
Less: Returns (2,400)
By Closing Stock




By Gross Profit

2,91,600
42,000



3,33,600 1,51,100
1,51,100 1,51,100


munotes.in

Page 32

Financial Accounti ng
(Special Accounting
Areas) III

32 HY1
Rs. HY2
Rs. HY1
Rs. HY2
Rs.
To Interest on Capital
Sonu 1,500=
Kalu 3,000=
Motu 3,000=

To Interest A’s Loan -
(63,317 x 16% x 6 mths)
To Net Profit
Transfer to Capital A/cs.
A 13,817=
B 32,758=
C 32,758=
1,500
1,500
1,500





13,818
13,816
13,816
--
1,500
1,500

5066




18,942
18,942 By Net Pr ofit
(91,900 X ½)
45,950
45,950
45,950 45,950 45,950 45,950

i) Half year, HY1 = 1st Jan. 2013 to 30 June 2013.
HY2 = 1st July 13 to 31st December, 2013.
ii) It is assumed that monthly sales were uniform throughout the y ear.
Balance Sheet As on 31st Dec., 2013
Liabilities Rs. Rs. Assets Rs. Rs.
Bank Loan
Creditors
Add: Purchase of
Furniture

Bill payable

Sonu’s Loan A/c
Add: O/s Interest

Capitals:
Kalu

Motu
76,500
20,000


63,318
5,066

83,758
83,758 20,000

96,500

8,700

68,384


1,67,516 Cash
Bank
Debtors
Less: R.D.D
B/R
Closing stock
Investment
Premises
Less:
Depreciation
Machinery
Less:
Depreciation
Furniture
Less:
Depreciation

Goodwill

1,00,000
8,800



50,000

(2,500) 36,000

(3,600)
20,000

(750) 2,500
8,000

91,200
3,250
42,000
25,000


47,500


32,400


19,250

90,000
3,61,100 3,61,100



munotes.in

Page 33

Partnership Final Accounts II I
33 Capitals A/c
Dr. Cr.
Particulars Sonu Balu Kaka Particulars Sonu Balu Kaka
To Drawing
To Loan A/c 12,000
63,318
12,000
83,758 12,000
83,758 By Balance b/d

By Goodwill

By Int. on
capital
By P/L A/c
30,000

30,000

1,500

13,818 30,000

30,000

3,000

32,758 30,000

30,000

3,000

32,758
75,318 95,758 95,758 75,318 95,758 95,758

Illustration – 5 [Admission of a partner]
A and B were partners in business sharing profit and losses, A two -third
and B one -third. Interest on Fixed Capital was credited @ 5% p.a. No.
interest was charged on drawings. Accounts were made upto 31st March
of each year.
On January 1, 2014 C was admitted as partner and from that date all P and
L were to be shared, A six -tenth B three -tenth, C one -tenth. Before
ascertaining the partners shares of P and L C was to be credited with a
salary at the rate of Rs. 6000 p.a. Provisions regarding interest on capital
and drawings remained unaltered.
It was agreed that C’s total share of profits including his salary and
interest on capital, should be guaranteed by A at minimum rate of Rs.
15000 p.a. Any apportionment of profit for a particular period should be
made as to gross profit on the basis of sales and as to expenses, with the
expectation of general expenses on the basis of time.






munotes.in

Page 34

Financial Accounti ng
(Special Accounting
Areas) III

34 The Trial Balance extracted from the books on 31st March 14 was as
follows -
Particulars Dr. Cr. Capital Account: A
B
C (cash paid in Jan 1st, 2014)
Current Account: A
B
C
Delivery Va n at cost
Pro. For Dep. thereon at 31st March, 2014
Furniture and Fittings at cost
Pro. For Dep. thereon at 31st March, 2014
Sales (Nine months, to Dec 31st) Rs. 2,40,000/ -
Purchases
Stock March 31st 2013
General Exp. (9 months To Dec. 2013 Rs. 4,550)
Salaries
Heating and Lighting
Rent and Rates
Creditors
Debtors
Balance at Bank


30,000
15,000
3,000
10,000

24,000


2,22,000
48,000
10,400
24,000
2,200
9,600

20,000
19,800 48,000
24,000
8,000




4,000

3,000
3,36,000






15,000
4,38,000 4,38,000
On 31st March, 2014 the stock was valued at Rs. 47000, rates paid in
advance amounted to Rs. 600; Rs. 800 is to be provided for electricity
consumed to that date.
Included in the sundry debtors was an amount of Rs. 6000 for goods
invoiced on sale or retu rn on 1st February 2014 which were still unsold on
31st March 2014. The cost of these goods which were not included in the
stock was Rs. 3000.
Depreciation is to be provided @ 20% p.a., on the cost of the delivery van
at 2 ½ % p.a., on the cost of furnitu re and fittings.
You are required to prepare: -
(a) Trading and P and L A/c for the year ended 31st March 2014 and
(b) Balance Sheet as on that date: Ignore Taxation.


munotes.in

Page 35

Partnership Final Accounts II I
35 Solution: -
M/s A, B and C
Trading and P and L Account for the year ended
31st March 2014
Dr. Cr.
Particulars Rs.
Amt. Particulars Rs.
Amt. Rs.
Amt.
To Opening Stock
To Purchases
To Gross Profit
c/d 48,000 2,22,000 1,10,000 By Sales
By Stock in
hand:
With Customer
47,000
3,000 3,30,000 50,000 3,80,000 3,80,000
Upto Dec.
31st 2013
Rs. 1st Jan 14
31st Mar.
14
Rs. Upto Dec.
31st 2013
Rs. 1st Jan.
14
31st
Mar. 14
Rs.
To Salaries
To General Exps.
To Heating and Lighting
To Rent and Rates
To D epreciation on: -
Delivery Van
Furniture & fixtures
To Net Profit c/d 18,000
4,550
2,250

6,750

1,500
450
46,500 6,000
5,850
750

2,250

500
150
14,500 By Gross
Profit
(240:90) 80,000 30,000
80,000 30,000 80,000 30,000 To Interest on
Capital: -
A
B
C
To Salary to artners C
To Profit: -
A 2/3 6/10
B 1/3 3/10
C - 1/10 1,800 900
29,200 14,600 600 300 100 1,500
7,200 3,600 1,200 By Net
profit b/d 46,500 14,500
46,500 14,500 46,500 14,500 Note : Rs. 6000 goods with customer on approval basis have been
deducted both sales and debtors. munotes.in

Page 36

Financial Accounti ng
(Special Accounting
Areas) III

36 Balance Sheet as at 31st March, 2014
Liabilities Rs.
48,000
24,000
8,000
7,850
4,400
750 Rs. Assets Rs.

10,000

6,000




24,000

3,600 Rs. Capital Account: -
A
B
C

Current Account: -
A
B
C





Creditors
Expenses Unpaid
80,000





13,000





15,000
800 Fixed Assets:
Delivery Van cost
Less: Depreciation


Furniture and
Fixtures cost
Less: Depreciation
Current Assets:
Stock in hand with
customer
Debtor
Cash at Bank
Prepaid Rates


4,000




20,400
50,000

14,000
19,800
600 108800 108800
Partners Current Account
Dr. Cr.
Particulars A B C Particulars A B C
To Drawings
To Partner c
(to Make up
Rs. 3750 for
Mths)
To Balance
C/d
30,000

950





7,850
15,000







4,400
3,000







750
By Interest
By Salary
By Net Profit
Upto 31 -12-
2014
By Net Profit
After Jan 1st
By C/A’s A/c
2,400

29,200


7,200

1,200

14,600


3,600
100
1,500
--


1,200


950 38,800 19,400 3,750 38,800 19,400 3,750

munotes.in

Page 37

Partnership Final Accounts II I
37 Illustration – 6 [final A/c of professional firm]
Dr. Gandhi and Dr Gujar were partners (sharing P and L in 3:2 ra tio). On
1-10-2013 they admitted Dr. Jani as a partner. Dr. Jani brings Rs. 40000
as Goodwill for his 1/5th share.
The trial balance on 31 -12-2013 was as follows: -
Particulars Dr. Cr. Drawings and Capital
Dr. Gandhi
Dr. Gujar
Jani (Goodwill brought on 1-10-2013)
Client’s deposits received
Equipments and furniture
Office and administration expenses
Rent
Salaries
Cash and Bank
Fees earned
Provisions against out standings fees) 1 -1-
2013)
Outstanding Fees (on 31 -12-2013)
15,000 10,000 1,80, 000 72,000 21,000 40,000 1,02,000 60,000 60,000 40,000 40,000 10,000 3,00,000 50,000 5,00,000 5,00,000
Adjustments: -
1) Provide 10% depreciation on Equipment and Furniture.
2) The business has handled 50% more work in each of the months of the
last quarter compared with the previous months.
3) Outstanding Fees 31 -12-2013 includes Rs. 45000 for fees to be
collected for the period in the last quarter of 2013. All outstanding
fees should be provided.
4) Rent has been increased by Rs. 500 p.m. from 1 -7-2013
5) A clerk was appointed at Rs. 1000 p.m. from 1 -9-2013
Prepare Final accounts for the year ended 31st December 2013


munotes.in

Page 38

Financial Accounti ng
(Special Accounting
Areas) III

38 Solution: -
In the books of Dr. Gandhi, Dr. Gujar and Dr. Jani
Profit and Loss A/c.
For the year ended 31st December 2013
Dr. Cr.
Particulars Upto 30-9 After 1-10 Particulars Upto 30-9 After
1-10

To Office and
Administration

To Rent (Note 1)

To salaries (Note 2)

To Depreciation on
equipmen ts

And furniture

To Provision for
outstanding fees

To Partners Capital
A/c (profit) (bal.
Fig.)

Dr. Gandhi (3/5 &
12/25)

Dr. Gujar (2/5 &
8/25)

Dr. Jani 5/25

54,000


15,000

28,000 13,500









74,700

49,800
18,000


6,000

12,000 4,500


45,000






6,960

4,640
2,900
By Fees earned
(notes 3)

By Provision for
outstanding fees
(1.1.2013 Rs. 500000
Less : (31 -12-2012
Rs. 15000
(15000=60000 -
45000)

2,00000





35,000
1,00,000
2,35,000 1,00,000 2,35,000 1,00,000






munotes.in

Page 39

Partnership Final Accounts II I
39 Balance Sheet as at 31st December, 2013

Liabilities Rs. Rs. Assets Rs. Rs.
Capital
Account: -
Dr. Gandhi
Dr. Gujar
Dr. Jani
Client
Deposit
Received 1,50,660 1,00,440 2,900 2,54,000 10,000 Equipment &
Furniture
Less:
Depreciation
Cash & Bank
Outstanding
Fees
Less:
Provision 1,80,000 (18,000) 1,62,000 1,02,000 -- 60,000 (60,000) 2,64,000 2,64,000
Working Note:
Partners Capital A/c
Dr. Cr.
Particulars Gandhi Gujar Jani Particulars Gandhi Gujar Jani

To Drawings
To Goodwill
To Balance c/d
(bal. Fig.)
15000

150660
10000

100400


40000
2900
By Bal. B/d
By Goodwill
By Profit
60000
24000
81600
40000
1600 0
54440
40000

2990 165660 110440 42900 165660 110440 42990

(1) Rent 21,000
Less: Increased (500 x 6 mths 3,000
----------
Rent (without increase 18,000
======
Therefore, Rent= 18000/12 Rs. 1500 per Mth.
(a) Rent (from 1 -1-2013 to 1 -9-2008)
1-1-2008 to 30 -6-2013 (1500 x 6 mths.) 9,000
1-7-2013 to 30 -9-2013 (2000 * 3 mths.) 6,000
-----------
Total 15,000
======= munotes.in

Page 40

Financial Accounti ng
(Special Accounting
Areas) III

40 (b) Rent (from 1 -10-2013 to 31 -12-2013
(2000* 3 mths.) 6,000
======
(2) Salaries
Salaries 40,000
Less: Clerk appointed (1000 x 4 mths.) 4,000
Salaries (without appointment) 36,000
=====
Therefore, Salaries = Rs. 36000/12=Rs. 3000 per mth.

(a) Salari es (from 1 -1-2013 to 30 -9-2013)
1-1-2013 to 31 -8-2013 (3000 x 8 mths.) 24,000
1-9-2013 to 30 -9-2013 (4000 x 1 mths.) 4,000
-----------
Total 28,000
======

(b) Salaries (from 1 -10-2013 to 31 -12-2013) -----------
1-10-2013 to 31 -12-2013 (4000 x 3 mths.) 12,000
=======
(3) Fees Earned
Lets assume, average monthly work in first three quarters
be 2x per month. Therefore, average monthly work in last
Quarter = 3x per months.
Work (01 -01-2013 to 30 -9-2013) = 2x for 9 mths. = 18x
Work (01 -10-2013 to 31 -12-2013) = 3x for 3 mths. = 9x
Therefore, Work upto 30 -9-2013 and after 01 -10-2013 is in
2:1.
(4) Goodwill Adjustment
As the new profit sharing ratio is not specified, the sacrifice
by old partners (Gan dhi and Gujar) is in old profit sharing ratio
(i.e. 3:2). The entry passed is
Jani’s capital A/c……………Dr. 40,000
To Gandhi capital A/c 24,000
To Gujar Capital A/c 16,000
munotes.in

Page 41

Partnership Final Accounts II I
41 (5) New profit sharing ratio
(a) Partner Gandhi = 3/5 of (1 -1/5) = 1 2/25
(b) Partner Gujar = 2/5 of (1 -1/5) = 8/25
(c) Partner Jani = 1/5 = 5/25
Therefore, Gandhi : Gujar: Jani: 12:8:5
Illustration – 7 [Admission of A partner in between the year]
M/s Kunal & Co. having Deepak and Ram (sharing profits and losses in
2:1) decided to admit Amit, as partner from 1 -1-2014. The new profit -
sharing of the partner was Deepak: six -tenth; Ram : three -tenth; and Amit:
One-tenth.
According to the partnership deed, interest @ 10% p.a., is payable on
fixed capital: No interest was ch arged on drawings. The capital should be
prepared on 31st March each year Deepak and Ram admitted Amit on
following terms and conditions: -
(1) Amit should get salary of Rs. 9000 p.a.
(2) Amit’s share of profits (including salary and interest on capital
should be guaranteed by Deepak at a minimum of Rs. 16000 p.a.,
from the date of admission.
(3) Apportionment of expenses should be made on the basis average
sales, except from miscellaneous expenses and administrative
expenses.
(4) Goodwill of the firm was v alued at Rs. 100000 and it should be
raised in the books.
The Trial balance on 31st March, 2014 was as follows: -
Particulars Dr.
Rs. Cr.
Rs.
Current and Capital Accounts:
Deepak
Ram
Amit (Capital Brought on 14 -2-2014)
Cost and Provision for Depreciation
On Office furniture
On Delivery Vans
Purchases and Sales
Debtors and Creditors
Stock on 1 -4-2013
Miscellaneous expenses (upto 31st December Rs.
11900)
Rent, Rates and Taxes
Carriage outward
Cash & Bank
Goodwill
60000 30000 6000 20000 48000 400000 60000 90000 20000 44000 17000 11000 10000 96000 48000 16000 8000 18000 610000 20000 816000 816000 munotes.in

Page 42

Financial Accounti ng
(Special Accounting
Areas) III

42 In addition following information is to be considered: -
1) Stock on 31 -3-2014 Rs. 34000.
2) Rent, Rates and Taxes outstanding on 31 -3-2014 Rs. 4000.
3) Carriage outward paid in advance on 31 -3-2014 Rs. 2000.
4) Sales and Debtors includes goods sent on “sales or return” basis on 01 -
03-14 of Rs. 25000 (Cost Rs. 15000) On 31 -3-14.
(i) 50% of goods accepted by customers.
(ii) 10% of goods no intimation from cus tomer but period
of approval expired on 25th March 2014.
(iii) Balance goods, period of approval not expired.
5) Average monthly sales for the months of January, March, May to July,
September to December were half, compared to average monthly sales
of the remaining months.
6) On 31 -3-2014 partners decided that partners fixed capital should be in
8 (Deepak); 4 (Ram); 1 (Amit). For this purpose, Amit’s capital
should be considered as base. The shortfall in case on Ram, should be
adjusted throug h introduction of cash by Ram. However shortfall of
Deepak should be transferred to his current a/c. The necessary cash
was brought by Ram on 31 -3-2014 for which no entry was passed.
7) Provide 10% depreciation on Office furniture and on delivery vans.
Prepare Trading and Profit and Loss Account for the year ended 31st
March, 2014 and the Balance Sheet on that date.
Solution :
In the books of Kumar and Co. Trading Account
for the year ended 31st March, 2014
Dr. Cr.
Particulars AMT. Particu lars Amt.

To Opening Stock
To Purchases
To Gross Profit (bal.
Fig.)
90000
400000
150000
By Sales
Less: Sales or Return
By Closing Stock
Add: Sales or Return
at cost
610000
10000

600000

40000 34000
6000 640000 640000 munotes.in

Page 43

Partnership Final Accounts II I
43 Profit and Loss A/c
Dr. For the year ended 31st March 2014 Cr.

Particulars
Upto 31 -12 Rs. After 1 -1
Rs. Particulars Upto 31 -12 Rs. After 1 -1
Rs.
To Misc. Exp
To Rent, Rates &
Taxes
(44000 + 4000)
To Carriage
Outward
(170000 -2000)
(sales)
To Dep. On
Furniture (time)
To Dep. On
Delivery Van
(sales)
To Net Profit (bal.
Fig.)

Total Rs.

To Salary
(9000*3/12)
To Interest on
Capital:
@ 10% on 96000
@ 10% on 48000
@ 10% on 16000
for 1.5 mths.
(from 14 -2-2014)
To Partners Capital
A/c (profit)
Deepak( 2/3 and
note 4)
Ram 1/3 and
3/10)
Amit ( -) and
note 4

Total Rs. 11,900
36,000


11,000


900

2,200


48,000 8,100
12,000


4,000


300

800


14,800 By Gross Profit b/d
(sales)
















By Net Profit b/d

1,10,000 40,000















1,10,000 40,000 1,10,000 40,000

--

7,200

3,600

--

24,800

12,400

--


2,250

2,400

1,200

200

4,575

2,625

1,550

48,000

14,800
48,000 14,800 48,000 14,800






munotes.in

Page 44

Financial Accounti ng
(Special Accounting
Areas) III

44 Partners Current Accounts
Particulars Deepak Ram Amit Particulars Deepak Ram Amit
To Bal. B/d
To Deepak’s
Capital
Account (note
5).
To Bal. C/d


Total Rs. 60000



32000
6975 30000



--
19825 6000



-- By Goodwill
(2:1) [note 6]
By Salary
By Interest on
Capital
By Profit
By Bal. C/d

Total Rs. 60000


9600

29375 30000


4800

15025

2250
200

1550
2000 98975 49825 6000 98975 49825 6000
Balance Sheet
As on 31st March 2014
Liabilities AMT. AMT. Assets AMT. AMT.
Partners Capital
A/c
Deepak
Ram
Amit

Partners Current
A/c
Deepak
Ram

Creditors
Outstand ing
Rent, Rates and
Taxes
128000 64000 16000 208000
26800
20000 4000 Office Furniture
Less: Pro. For Dep.
(note 3)
Delivery Vans
Less: Pro. For Dep.
(note 3)
Debtors
Less: Sales of
Return
Cash and Bank
Add: Brought by
Ram
Goodwill
Add: Raised

Stock
Add: sales or
Return
Carriage -outward
paid in adv.
Partners Current
A/c Amit 20000 9200 10800
27000
50000 27000
100000
40000
2000 2000
48000
21000
6975 19825 60000
10000 11000 16000



10000 90000 34000
6000
258800 258800

munotes.in

Page 45

Partnership Final Accounts II I
45 Working Note: -

1) Sale or Return Goods:
(a) 50% of the goods accepted by the customer and 10% of the goods
for which no intimation is received but period of approval has
expired should be considered as a sale. These goods are already
include in sales and debtors & therefore no adjustment entry is
required for 60% of the goods.
(b) Balance 40% (i.e. 100% -50%-10%) goods, for which period of
approval is not expired cannot be considered as sale. Therefo re
(i) Cancel sales (i.e. less from sales and less from debtors) = 40%
for Rs. 25000=Rs. 10000
(ii) Include in closing stock = 40% of 15000 (cost) = Rs. 6000
(i.e., at cost and market value, whichever is less).
2) Sales ratio:
Let us assume sa les for remaining months=2x each.
Sales for specified months = x each.
Sales from 1 -4-2008 to 31 -12-2008 (9 months)
Apr May Jun July Aug Sep Oct Nov Dec Total
2x +x +x +2x +x +x +x +x +x =11x
Sales from 1 -1-2009 to 31 -3-2009 (3 months)
Jan Feb Mar Total
X +2x +x =4x
Therefore, Sales 9 months : months :11:4.
(3) Depreciation :
Method of depreciation is not specified and therefore dep. is
provided on reducing balance method.

Particulars Off.Fumit. Delivery van
Cost
Less: Pro For Dep. (1 -4-2013)
W.D.V.

Less: Depreciation @ 10%

W.D.V. on 31 -3-2014

20,000 8,000
48,000 18,000 12,000
1,200 30,000
3,000 10,800 27,000 munotes.in

Page 46

Financial Accounti ng
(Special Accounting
Areas) III

46 (4) Gurantee of Profit (by Deepak to Amit)
Gurantee (for 3 months i.e, 01 -01-2013 to 31 -03-2013)
Total amount receivable by Amit
Salary (9000 x 3/12) 2250
Add: Interest on capital (on Rs. 16000 @ 10% from
14.2.2009 200
Add: Profit [1/10 of (14800 -6050)] 875
3325
Add: Shortfall to be borne by Deepak (Bal.Fig) 675
Total amount receivable by Amit 4000

Therefore, Total profit Amit=875+675=Rs. 1550.
Profit of Deepak :
Profits [6/10 of (14800 -6050)] 5250
Less: Shortfa ll of Amit 675

Total profit of Deepak 4575

(5) Fixed capital adjustments :
Fixed capital of Amit 16000
Therefore, Fixed capital of Deepak (16000x8/1) 128000
Therefore, Fixed capital of Ram (16000x4/1) 64000
(a) Shortfall of Deepak
Shortfall of Rs. 32000 (i.e, 128000 -96000) should be
debited to Deepak’s current account.
(b) Shortfall of Ram
Shortfall of Rs. 16000(i.e., 64000 -48000) should be
brought in cash by Ram.
Therefore, cash balance increased by Rs. 160 00


munotes.in

Page 47

Partnership Final Accounts II I
47 (6) The Journal Entry to raise Goodwill is
Goodwill A/c ------- Dr.
To Deepak’s Current A/c (⅔)
To Rams Current A/c (⅓) 90000
60000
30000

Illustration : 8

Following is the Trial Balance of a firm as on 31st Dec. 2013
Debit Rs. Credit Rs.
Drawing : X
Y
Z
Furniture
Purchases
Stock
General Expenses
Salary
Rent & Rates
Debtors
Bank 15,000
7,500
1,500
10,500
1,10,000
25,000
5,200
12,000
5,900
31,000
10,900 Capita’s X
Y
Z (including Goodwill)
Sales
Creditors 24,000
12,000
5,000
1,80,000
13,500
2,34,500 2,34,500

Adjustments:
1) X and Y were partners sharing profits and losses equally.
2) Mr. Z was admitted to the partnership on 1st July, 2013.
3) On 31st December, 2013 stock was valued at Rs. 23,500.
4) Rent & Taxes paid in advance Rs. 900.
5) General Exp. Were outstanding Rs. 750.
6) Depreciate Furniture @ 10% p.a.
7) Share of Goodwill of new partner was valued at Rs. 1,000 on 1st
July, 2 013 and is yet to be adjusted munotes.in

Page 48

Financial Accounti ng
(Special Accounting
Areas) III

48 8) Interest on capital to be charged at the rate of 10% p.a.
You are required to prepare Trading, Profit and Loss Account for
the year ended on 31st December, 2013 and Balance sheet as of
that date.
[Modified, M.U. Oct., 08]
Solution :
(In the Books of X, Y, Z)
Trading and Profit and Loss A/c.
For the year ended 31st Dec., 2013
Dr. Cr.
Particulars Rs. Particulars Rs.
To Opening Stock
To Purchases
To Gross Profit c/d


To General Expenses 5,200
Add: Outstanding 750
To Salary
To Rent & Taxes 5,900
Less: Prepaid 900
To Depreciate Furniture
@ 10% p.a
To Net Profit (full year) 25,000
1,10,000
68,500 By Sales
By Closing Stock



By Gross Profit 1,80,000
23,500 2,03,500 2,03,500

5,950
12,000

5,000

1,050
44,500
68,500
68,500 68,500




munotes.in

Page 49

Partnership Final Accounts II I
49 Dr. P & L Appropriation A/c (Year 2013) Cr.
Jan-
June
Rs. July-
Dec
Rs. Jan-
June
Rs. July-
Dec
Rs.
To Interest on Capital
A/cs.
A (full year)
B (full year)
C (6 months)

To Balance Profit
A
B
C
(b)

(a)+(b)

Interest + Profit
A (11,425 + 7,950)
B (10,825 + 7,350)
C ( Nil + 6,950)

1,200
600


10,225
10,225
--

1,200
600
200

6,750
6,750
6,750 By P & L
(50% of 44,500
each)
[N.P. B/d] 22,250












22,250 22,250












22,250


20,450 20,250
22,250

=
=
=
22,25 0

19,375
18,175
6,950 44,500 44,500

Partners Capital A/c
Dr. Cr.
Particulars A
RS. B
Rs. C
Rs. Particulars A
Rs. B
Rs. C
Rs.
To Drawing
To Goodwill
To Balance C/d 15,000
--
28,875 7,500
--
23,175 1,500
1,000
9,450 By Balance b/d
By Goodwill
By P & L Appro. 24,000
500
19,375 12,000
500
18,175 5,000
--
6,950
43,875
30,675
11,950 43,875 30,675 11,950

Balance Sheet of A, B, & C
As at 31st Dec., 2013
Liabilities Rs. Assets Rs.
Capitals:
A 28,875
B 23,175
C 9,450
Outstanding Exp.
Sundry Creditors


61,500
750
13,500 Furniture 10,500
Less: Deprn. (1,050)
Prepaid Rent
Debtors
Bank
Closing Stock
9,450
900
31,00 0
10,900
23,500 75,750 75,750
munotes.in

Page 50

Financial Accounti ng
(Special Accounting
Areas) III

50 Note :
In the absence of any information / Instruction, it is assumed that
(a) Profit Sharing Ratio before and after Admission of C as a partner is
equal
(b) Interest on Drawings is to be ignored.
(c) Sales and other expenses were uniform throughout year.
ILLUSTRATIONS: 9 [Admission of partner, when stock on date of
admission given]
A, B were sharing in the ratio of 3:2 admitted C as on 1st Oct. 2013 for 1/6
share
Trial Balance as on 31st March 2014 was as under.
Particulars Dr. Rs. Cr. Rs.
Capital A/c
A
B
C (1.10.2013)
Stock (01.04.13)
Purchases (upto 30.09.13 Rs. 1,00,000]
Sales (upto 30.09.13 Rs. 250000)
Salaries
Rent
Insurance (for the year 30.06.14)
Bills Receivable
Sundry Debtors / Sundry Creditors
Plant and machinery
Wages [upto 30.13.08 Rs. 20,000]
Commission [2% on sales]
Land & Building
Cash on bank
General Reserve (1.04.13)
Bank overdraft
Office Expenses




40,000
250,000

20,000
30,000
12,000
2,00,000
1,10,000
4,00,000
50,000
6000
1,50,000
28000
--
--
54000
2,00,000
1,50,000
2,00,000


595000




40,000





1,50,000

15,000 13,50,000 13,50,000


You are given following information
1) Stock as on 30th Sept. 13 Rs. 60,000 and as on 31.03.14 Rs.
125000
2) Depreciate Land &Building @5% p.a. and Pl ant & Machinery
@20% p.a.
3) Plant includes, Plant costing Rs. 2, 00,000 purchased on 1st Jan.
2014. munotes.in

Page 51

Partnership Final Accounts II I
51 4) Salaries to Partner A -Rs.24, 000 p.a. & C Rs. 1,000 p.m.
5) Rent was increased by Rs. 2,000 p.m. from 01.10.13.
6) C’s Capital includes Rs. 40,000 broug ht in as his share in
Goodwill.
7) Fixed Capital of Partners should be Rs. 6,00,000 in their
Profit/Loss sharing ration.
Prepare final Accounts of the firm.
Solutions:
In the books of M/s A, B, C, & Co.
Trading A/c Profit & Loss A/c for the year ended 31st March 2014
Dr. Cr.
Particular 1.4.13 to
30.9.13 (6
m) I 1.10.13
to
31.3.14
II (6 m) Particulars 1.4.13
to
30.9.13
I 1.10.08
to
31.3.14
II (6 m)


To Opening stock
To Purchases
To Wages
To Gross profit
40000
1,00,000
20000
1500 00
60000
150000
30000
230000
By Sales
By closing stock
250000
60000
345000
125000 310000 470000 310000 470000 To Salaries
To Rent
To Insurance
To Commission
To Office Expenses
To Depreciation
Land &Bldg.
plant & Machinery
To Net Profit b/d 10000
12000
3000
5000
27000


3750
20000
69250 10000
18000
6000
6900
27000


3750
30000
128350 By Gross Profit
B/d 150000 230000
150000 230000 150000 230000




munotes.in

Page 52

Financial Accounti ng
(Special Accounting
Areas) III

52 Profit & Loss Appropriation A/c for the year ended 31st March 14
Dr.. Cr.
Partic ulars I II Particular I II

To Partners
Salaries A
C
To N.P. transfer
to A & B in 3:2
ratio
To N.P. transfer
to A,B,C in
3:2:1 ratio 12000 -- 57250 - 12000 6000 - 110350
By N.P. B/fd.
69,250
128350
69250 128350 69250 128350

Partner’s Capital A/c
Dr.. Cr.
Particulars A B C Particulars A B C
To Goodwill
To Partners
Current A/c
(Bal. fig.)
To Bal C/fd --

127525

300000 --

85683

200000 40000

84392

100000 By Bal. B/d
By Gen. Res.
By Salaries
By Goodwill
By N. Profit Upto
30/6/08
A, B in 3:2 from 1
Oct. to A, B, C in
3:2:1 200000
90000
24000
24000


34350

55175 150000
60000
--
16000


22960

36783 200000
--
6000
--


--

18392
427525 285683 224392 427525 285683 224392


munotes.in

Page 53

Partnership Final Accounts II I
53 Working Notes :
1) New P.S. Ra tio: C was admitted for 1/6 share
Bal. 1 - 1/6 = 616 = 5/6 to old partners
Partners in old ratio
A = 3/5 x 5/6 b= 2/5 x 5/6 C = 5/5 x 1/6
= 15 = 10 = 5
A: B: C = 3: 2: 1

Balance Sheet as on 31st March 2014
Liabilities Rs. Rs. Assets Rs. Rs.

Partners Capital
A
B
C
Partners C/A
A
B
C
Sundry creditors
Bank O.D.
Commission
Payable
300000
200000
100000

127525
85683
84392


600000



297600
40000
15000
5900 Land & Building
Dep.
Plant & Machinery
Less: Dep.
Sundry Debtors
Bills Receivable
Closing stock
Prepaid Insurance
Cash
150000
(7520)
400000
50000
142500

350000
110000
200000
125000
3000
28000 958500 958500

2) Rent Rs. 30,000 I II
Increase Rs. 2,000 p.m. from 01.01.13
2,000 x 3 -- 6000
Bal. Rent (30,000 -6,000)
= 24000 in Time Ratio 6m, 6m, 12000 12000
12000 18000

munotes.in

Page 54

Financial Accounti ng
(Special Accounting
Areas) III

54 3) Insurance Rs. 12,000 p.a. from 1st July 13 to 30th June 14. i. e.
Rs.1000 p.m.
I 01 July 13 to 30 Sept. 13 i.e 3 months = 1,000 x 3 = 3,000
II 10 Oct. 13 to 31st Mar. 14 i.e. 6 months = 1,000 x 6 = 6,000
9,000
Prepaid from 1st April to 30th June 14 3000

4) Commission on sales @ 2% Rs.
I Commission = 2,50,000 x 2% = 5,000
II Commission= 3,45,000 x 2% = 6,900
11,900
Less paid (given in Trial Balance) 6,000
Outstanding com. Payable 5,900

5) Dep. On plant machinery @ 20% p.a.
i) On new plant purchased on 1.10.13 I II
2,00,000 x 20% x 3/12 10,000
ii) Bal Plant [400000 – 200000]
200000 x 20% = 40000 in
Time Ratio 20,000 20,000
Total Depreciation 20,000 30,000

6) Closing Stock on 30/06/13 Rs. 60,000 becomes Opening Stock on
01.07.13.
Illustrati on : 10 [ retirement of partner in between the year]

X, Y & Z sharing in the ratio of 5:3:2 X retired on 1st Oct. 2013 B & C
continue business sharing equally.


munotes.in

Page 55

Partnership Final Accounts II I
55 Following Balances are as on 31st Dec. 2013
Particulars Dr. Rs. Cr. Rs. Opening Stock
Sales
Discount
Purchases
Wages
Salaries
Rent
Bad Debts
Insurance
Sundry Expenses
Capiral’s AIC’s:
X’s
Y’s
Z’s
Land & Building
Plant & Machinery
Building Under construction 40000 260000 20000 24000 10000 15000 4000 10000 200000 150000 326000 600000 9000 200000 150000 100000 1059000 1059000
Adjustments:
1) Outstanding Salary Rs. 4000 & outstanding Rent Rs. 2000 to be
provided.
2) Sales upto X’s retirement amounted Rs. 400000.
3) As per Partnership deed:
a] Provide interest on capital @ 6% p.a
b] Partners salary x’s Rs. 20000 p.a. & z’s Rs. 500 per mth.
c] X was entitled for commission of 1% on net sales.
4) Closing Stock on 31st Dec. 13 valued at Rs. 50000.
5) Depreciate Land & Building by 5% & Plant & Ma chinery 10%
p.a.
6) Balance due to Z on his retirement to be transferred to his loan a/c
carrying interest at 12% p.a.
Ascertain balance payable to Mr. A on 31 Dec. 2013. munotes.in

Page 56

Financial Accounti ng
(Special Accounting
Areas) III

56 Prepare Trading, P & L A/c for the year ended 31st Dec. 2013 &
Balance Sheet as on 31st Dec. 2013.
Trading a/c
For the year ended 31st Dec. 2013
Dr. Cr.
Particulars AMT. AMT. Particulars AMT. AMT.
To Opening Stock
To Purchases
To Wages
To Gross Profit c/d 40000
260000
20000
330000

By Sales


By Closing Stock
600000


50000


650000 650000

Profit & Loss A/C.
For the year ended 31st Dec. 2013.
Dr. Cr.
Particulars 9 mth. 3 mth. Particulars 9 mth. 3 mth.
To Salaries (24000+
O/S-4000)
To Rent (10000+ O/S
2000)
To Bad Debts
To Insurance
To Sund ry Expenses
To Depreciation on:
Building
Plant & Machinery
To Interest on Loan
(@ 12% p.a. on
Rs.284500) 3 mth.
To Net Profit c/d 21000

9000

10000
3000
7500

7500
11250
--


156750
7000

3000

5000
1000
2500

2500
3750
8535


79715 By Gross Profit o/d
(in sales ratio 2 1)
By Discount 220000

6000
110000

3000
2,26,000 1,13,000 2,26,000 1,13,000




munotes.in

Page 57

Partnership Final Accounts II I
57 Profit & Loss Appropriation A/c.
for the year ended 31st December, 2013
Dr. Cr.
Particulars 9 mth. 3 mth. Particulars 9 mth. 3 mth.

To Interest on Capital
X
Y
Z
To Partners Salary:
X
Z

To A’s Commission
To Net Profit Transferred to
A,B,C in 5:3:2 ratio
B & C equally
9000
6750
4500

15000
4500
--
2250
1500

--
1500

--


74465 By Net Profit bid 156750 79715

4000

113000
156750 79715 156750 79715

Balance Sheet
As on 31st Dec. 2013
Liabilities AMT AMT. Assets AMT. AMT.

Partners capital A/c:
Y
Z

Z’s loan :
Bal. transferred from capital
Add. O/s Interest for 3 months

O/s Rent
O/s Salary

230132
171833


401965



293035

2000
4000
Land & Bldg.
Less: Depreciation
Bldg. Under
construction

Plant & Machinery

Less: Depreciation

Closing Stock
200000
10000



150000

1500 0

190000
326000




135000

50000


284500


8535


701000 701000



munotes.in

Page 58

Financial Accounti ng
(Special Accounting
Areas) III

58 Partners Capital A/c
Dr. Cr.
Particulars X Y Z Particulars X Y Z
To X Loan a/c
(Bal
Transferred)


To Bal. B/d



284500


--

--


230132




171833 By Bal. B/d
By Interest on
Capital
By Salaries
By Commission
By Net Profit
(Upto Sep)
By Net Profit
(1 Oct to 31 Dec.) 200000
9000

15000
4000
56500

-- 15000 0
9000



33900

37232 100000
6000
6000


22600

37233
284500 230132 171833 284500 230132 171833


Working Notes: -
1] Time ratio ABC partners 1st Jan. 2013 to 31st Sep. 2013 = 9
months.
B & C partners 1st Oct. to 31st Dec. 2013 = 3 months.
Therefore time ratio = 3:1.
2] Sales ratio from 1st Jan. 2013 to 30th Sep. 2013 Rs. 400000.
Sales from 1st Oct. 2013 to 31st Dec. 2013 Rs. 200000
Therefore Sales ratio = 2:1.
3] Salaries, rent, insurance, depreciation, sundry exp., are allocated on
time basis as these are related with time.
4] Gross Profit, discount received, bad debts allocated on sales basis
as these are related with turnover.
Illustration: 11 [Death of a Partner]
The Partnership agreement of T & Z provides that
(a) Profit & losses shall be sha red equally.
(b) Interest at 5% p.a., shall be allowed on capital but no interest is to
be charged on drawings.
(c) On the death of one of the partner:
[1] The survivor shall pay out the interest of the deceased
partner & purchase his share.
[2] The value of the Goodwill shall be the profits of the
proceeding three years. munotes.in

Page 59

Partnership Final Accounts II I
59 [3] The assets are to be taken on the date of death at their
value. T died on 1st April 2014.
The stock on 31.3.13 was valued at Rs. 28740.
The following trial balance was extracted from the books as on 31st March
2014.

Particulars Dr.
Rs. Cr.
Rs.
T’s Capital
Z’s Capital
T’s Drawings
Z’s Drawings
Salaries
Rent & Rates
Purchases
Stock (1.04.13)
Traveler’s Commission & Expenses
Wages
Sales
Sales Return
Sundry Debtors
Cash at Bank
Furnitu re & Fixtures
Sundry Creditors.
General Expenses
Discount
Plant & Machinery 4500 3500 7550 2630 114700 27490 5800 16360 490 26400 5520 2000 3750 21500 40000 20000 163840 18000 350 2,42,190 2,42,190


The profits of the preceding three completed years to 30th Sep. were Rs.
15000. Rs. 20000 and Rs. 13000 respectively.
Prepare Trading & P & L A/c & Balance Sheet as at 31st March 2014 & a
statement showing the amount payable to the Executors of T


munotes.in

Page 60

Financial Accounti ng
(Special Accounting
Areas) III

60 Solution
M/s T & Z
Trading and P & L Account for the year ended 31st March 2014.
Dr. Cr.
Particulars AMT AMT. Particulars AMT. AMT.

To Opening Stock
To Purchases
To Wages
To Gross Profit c/d




To Salaries
To Rent & Rates
To General Expenses
To Traveler’s Commission &
Expenses
To Interest on Capital for 6
months
T
Z
To Net Profit transferred to
Capital A/c
T
Z













1000
500
27490
114700
16360
33540
By Sales
Less: Sales Return

By Closing Stock



By Gross Profit b/d
By Discount
163840
490

163350

28740
192090 192090


7550
2630
3750
5800


1500



12660
33540
350




6330
6330
33890 33890

Note: As Profit & Loss A/c is prepaid on date of death of partner T,
Therefore there is no need of preparing Profit & Loss A/c in two columns
i.e. Before Death and After Death of Partner

munotes.in

Page 61

Partnership Final Accounts II I
61 M/s T & Z
Balance Sheet as at 31st March, 2014

Liabilities AMT. AMT. Assets AMT. AMT.
Capital: T
Add: Interest
Profit

Less: Drawings

Capital : Z
Add: Interest
Profit

Less : Drawings

Sundry Creditors 40,000
1,000
6,330



42,830




23,330

18,000 Plant & Machinery
Furniture & Fixtures
Stock
Debtors
Bank 21,500
2,000
28,740
26,400
5,520 47,330
4,500
20,000
500
6,330 26,830
3,500
84,160 84,160 Amount payable to Executor’ s of T Rs.
Balance to his Capital A/c 42,830
His share in Goodwill 24,000
66,830

Note: -
Value of Goodwill 3 year’s profit
Total Value of Goodwill Rs. (15000+20000+13000)
Rs. 48,000
T’s share of Goodwill (1/2 x 48,000) Rs. 24,000
Because Z has to purchase the share of T The journal entry will be:
Z’s Capital A/c ------------------------- Dr. 24,000
To T’s Capital A/c 24,000 munotes.in

Page 62

Financial Accounti ng
(Special Accounting
Areas) III

62 Illustration: - 12 [Death of a Partner in between the year].
K, R & T were sharing in the ratio of 3:2:5 T died on 1st July 2013.
Business was continued & K & R were sharing equally same books of a/c
were continued and following.
Trial balance was extracted as on 31st March, 2014.
Particulars Dr.
Rs. Cr.
Rs.
Gross Profit
Salar ies
Rent
Insurance
Plant & Machinery
Land & Building
12% Investment
Interest on Investment
K’s Capital
R’s Capital
T’s Capital
Sundry Debtors/Creditors
Bills Receivable/Payable.
Cash
Stock 18000 15000 9000 260000 300000 100000 200000 75000 15000 404000 360000 6000 200000 270000 350000 150000 60000 1396000 1396000
Additional Information:
1] Provide outstanding salary Rs. 2,000
2] Rent was paid Rs. 1,000 per month for the premises acquired on 1st
Oct. 2013.
3] Depreciate Land & Building @ 5% & Plant & Machinery 10% p.a.
4] Plant includes Plant costing Rs. 1, 00,000 acquired on 1st Jan.
2014.
5] As per partnership deed:
a] Retiring partners or in case of death of partners balance
should be transferred to loan, Carrying Interest 18% p.a.
b] Good will valued Rs. 120000.
c] Provide interest on capital @ of 6% p.a. munotes.in

Page 63

Partnership Final Accounts II I
63
6] Sales were Rs. 300000 upto 1st July out of total sales for the year
Rs. 1500000, Prepare P & L A/c, P & L Appropriation A/c for the
year ended 31st March 2014 & Balance Sheet as on th at date.
Solution: -
Profit and Loss A/c
for the year ended 31st March 2014
Dr. Cr.
Particulars 3 mth. 9 mth. Particulars 3 mth. 9 mth.
To Salaries (8000+ o/s 2000)
To Rent
To insurance
To Depreciation
Land & Building
Plant
To Int. on T’s executors loan A/c
To Net Profit C/d 5000

2250
3750
4000
--
60000 15,000
6000
6750
11250
14500
59279
184221 By-Gross Profit b/d
(in sales ratio 1:4)
By income from
Investment 72000

3000 288000

9000
75000 2,97,000 75000 297000

Profit & Loss Appropriation A/C.
for the year ended 31st March 2014
Dr. Cr.
Particulars 3 mth. 9 mth. Particulars 3 mth. 9 mth.
To Interest on Capital
K’s
R’s
T’s

To Net Profit Transferred to
Capital
A,B,C in 3:2:5
A & B equally 1:1
3000
4050
5250



47700
9000
12150
--




163071 By Net Profit b/d
60000 184221
60000 184221 60000 184221





munotes.in

Page 64

Financial Accounti ng
(Special Accounting
Areas) III

64 Balance Sheet
As on 31st March 2014
Liabilities AMT. AMT. Assets AMT. AMT.
Partners Capital Bal.
K’s
R’s

Outstanding Salaries
Creditors
Bills P ayable
T’s executor
Add: Interest at 18%
p.a. for 9 mths.

343845
401276

745121

2000
150000
60000 498379


Goodwill
Land & Building
Less: Depreciation

Plant & Machinery
Less: Depreciation
Prepaid rent
12% Investment
Interest Accrued On
Investment
Sundry Debtors
Bills Receivable
Cash
stock
300000
15000 120000

285000


241500
9000
100000
6000

200000
75000
15000
404000



439100
59279
260000
18500



1455500 1455500

Partners Capital A/C.
Dr. Cr.
Particular s K R T Particulars K R T
To T’s executor
loan
A/c (bal.
Transferred)
To Bal. C/d

--

343845

--

401276

439100






By Bal B/d
By Goodwill
By Interest on
Capital
By Net Profit
(upto 30 June)
By Net Profit
(upto 31 March) 200000
36000
12000

14310

81535 270000
24000
16200

9540

81536 350000
60000
5250

23850

--
343845 401276 439100 343845 401276 439100

Note :- In case of death/Retirement of partner.
I) P & L A/c, P & L app. A/c should be closed upto date of death of
Partner, N.P. shoul d be transferred to old partner in their old ratio.
II) Balance in Retiring / deceased partner should be transferred to
Loan A/c. Interest on loan A/c required to calculate & debit to
Profit & Loss A/c. Then duly net profit should calculated and
transfer to continuing partner’s capital A/c. in their new Ratio.

munotes.in

Page 65

Partnership Final Accounts II I
65 Illustration 13 :
Jinal and Sameer were in partnership in a wholesale business sharing
profits in the proportion of 3:2. As from 1st April 2013 they admitted Jatin
into partnership giving him one -sixth of the profits. Jatin brought in Rs.
80,000 in cash of which Rs. 30,000 were considered as being in payment
for his share of goodwill and remainder as his capital.
The following Trial Balance was extracted from the books
as on 31st March, 2014
Debit Rs. Credit Rs.
Sales 2,15,725 Purchases 1,25,730 Discount Received 2,150 Discount Allowed 3,125 Reserve for doubtful debts 1,200 Sundry debtors 40,200 Sundry creditors 32,540 Stock (1st April 2013) 42,820 Carriage inward 3,250 Sundry expenses 7,840 Motor vehicles 50,000 Land and Building 80,000 Cash in hand 5,040 Telephone expenses 3,240 Postage and Stationary 2,690 Rent, rates and insurance 3,200 Bad debts 400 Investments 60,000 Capital accounts Jinal 65,000 Sameer 35,000 Cash paid by Jatin on 1st April 2013 80,000 Jinal 5,000 Samee r 4,000 Jatin 2,000 Bank overdraft 6,920 Total 4,38,535 4,38,535 munotes.in

Page 66

Financial Accounti ng
(Special Accounting
Areas) III

66 You are required to prepare the firm’s trading and Profit and Loss Account
for the year ending 31st March, 2014 and Balance Sheet as on that date
having regard to the following information :
1. Stock on 31st March 2014 was Rs. 42,250.
2. Sundry debtors include item of Rs. 1,200 due from a customer on
account of sales, who has become insolvent.
3. Depreciate Land & Building and Motor vehicles at 5% p.a. and 20%
p.a. respectively.
4. Reserve for doubtful debts is to be maintained at 5% on the sundry
debtors.
5. Goods of to the value of Rs. 800 have been destroyed by fire and the
insurance company has admitted the claim for Rs. 600 on ly.
Books of Jinal, Samir and Jatin
Trading A/c for the year ended 31 - 03 - 2014

Rs. Rs. Rs. Rs.
To opening
Stock 42,820 By Sales 2,15,725 To Purchases 1,25,730 By Goods
destroyed by
fire 800 To Carriage
inwards 3,250 To Gross P rofit 86,975 By closing
Stock 42,250 2,58,775 2,58,775






munotes.in

Page 67

Partnership Final Accounts II I
67 Profit and Loss Account
Rs. Rs. Rs. Rs.
To discount Allowed 3,125 By Gross
Profit 86,975 To old Bad Debts 400 By Discount
Received 2,150 Add : New B.D. 1,200 Add : New RDD 1,950 Less : Old RDD (1,200) 2,350 To Sundry Expenses 7,840 To Telephone Expanses 3,240 To Postage & Stationery 2,690 To Rent, rates &
Insurance 3,200 To Depreciation Land & Building 4,000 Motor Veh icle 10,000 14,000 To loss by fire 200 To Net Profit Jinal 26,240 Sameer 17,493 Jatin 8,747 52,480 89,125 89,125
Capital Account
Jinal Sameer Jatin Jinal Sameer Jatin
Rs. Rs. Rs. Rs. Rs. Rs.
To
Goodwill 30,000 By
Balance
b/d 65,000 35,000 80,000 To
Drawings 5,000 4,000 2,000 By
Goodwill 18,000 12,000 To
Balance
c/d 1,04,240 60,493 56,747 By Net
Profit 26,240 17,493 8,747 1,09,240 64,493 88,747 1,09,240 64,493 88,747 munotes.in

Page 68

Financial Accounti ng
(Special Accounting
Areas) III

68 Balance Sheet as on 31 - 03 - 2014
Liabilities Rs. Rs. Assets Rs. Rs.
Capital Land & Building 80,000 Jinal 1,04,240 Less
Depreciation 5% (4,000) 76,000 Sameer 60,493 Motor Vehicles 50,000 Jatin 56,747 2,21,480 Less Depreciation20% (10,000) 40,000 Invest ments 60,000 Closing Stock 42,250 Debtors 40,200 Trade
Creditors 32,540 Bad Debts 1,200 39,000 Bank
Overdraft 6,920 Less : RDD 1,950 37,050 Cash Balance 5,040 Insurance Claim 600 2,60,940 2,60,940
Illustration 14 :
Bhavana, Ravina and Kangana carried on a retail business in partnership,
sharing profits and losses in the ratio 2:1:2.
The following Trial Balance was extracted from the books
as on 31st March, 2014
Particulars Debit Rs. Credit Rs.
Capital A/c Bh avana 90,000 Ravina 52,000 Kangana 66,000 Plant & Machinery 1,50,000 Investments in govt. securities 50,000 Sales Returns 5,000 Sales 5,65,000 Furniture & Fittings 47,000 Motor Vehicles 60,000 munotes.in

Page 69

Partnership Final Accounts II I
69 Land & Building 1,00,000 Purchases 2,80,000 Stock as on (1st April 2013) 46,000 Salaries and Wages 62,000 Office and Trade Expenses 40,200 Rent, Rates and Insurance 15,500 Professional charges 3,500 Debtors / Creditors 51,600 87,000 Provision for Doubtful Debts 500 Balance at Bank 43,700 Drawings : Bhavana 12,000 Ravina 6,000 Kangana 19,000 Bills receivables / Bills payable 18,300 36,200 Printing & Stationery 6,900 Loan from bank 1,20,000 10,16,700 10,16,700
You are given the following additional information :
1. Stock on 31st March 2014 was valued at Rs. 66,500.
2. A debtor of Rs. 1,600 is to be written off and provision against the
remaining debtors should be made at 5%.
3. Provide for the following outstand ing expenses as on 31st March, 2014
: Printing & Stationary Rs. 2,400 Salaries and Wages Rs. 8,000.
4. Insurance prepaid as on 31st March, 2014 Rs. 2,500.
5. Depreciate Land & Building by 5%, Furniture and Fittings by 10%,
Plant & Machinery & Motor Vehicle s by 20%.
You are required to prepare :
1. The Trading and Profit and Loss A/c. for the year ended 31st March,
2014.
2. The Balance Sheet as on that date.


munotes.in

Page 70

Financial Accounti ng
(Special Accounting
Areas) III

70 In the Books of Bhavana, Ravina & Kangana
Trading A/c for the year ended 31st March, 2014
Rs. Rs. Rs. Rs.
To opening
Stock 46,000 By Sales 5,65,000 To Purchases 2,80,000 Less :
Returns 5,000 5,60,000 To Gross
Profit 3,00,500 By closing
Stock 66,500 6,26,500 6,26,500
Profit and Loss Account for the year ended 31st March, 2014
Particulars Rs. Rs. Particulars Rs. Rs.
To Old Bad Debts By Gross
Profit b/d 3,00,500 + New bad debts 1,600 + New RDD 2,500 - New RDD (500) 3,600 To Salaries 62,000 Add : o/s 8,000 70,000 To Rent, Rates,
Insurance 15,500 Less : Prepaid (2,500) 13,000 To Office &
Trade Expenses 40,200 To Professional
Charges 3,500 To Printing &
Stationary 6,900 Add : o/s 2,400 9,300 To Dep Building 5,000 Plant 30,000 Motor Vehicles 12,000 Furniture 4,700 51,700 To Net Profit Bhavana 43,680 Ravina 21,840 Kangana 43,680 1,09,200 3,00,500 3,00,500 munotes.in

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71 Partners Capital Account
Particulars Bhavana Ravina Kangana Particulars Bhavana Ravina Kangana Rs. Rs. Rs. Rs. Rs. Rs.
To Drawings 12,000 6,000 19,000 By Balance
b/d 90,000 52,000 66,000 To Balance c/d 1,21,680 67,840 90,680 By Net
Profit 43,680 21,840 43,680 1,33,680 73,840 1,09,680 1,33,680 73,840 1,09,680
Balance Sheet as on 31st March, 2014

Liabilities Rs. Rs. Assets Rs. Rs.
Capital
A/c’s Land &
Building 1,00,000 Bhavana 1,21,680 Less : Dep 5,000 95,000 Ravina 67,840 Plant &
Machinery 1,50,000 Kangana 90,680 2,80,200 Less : Dep 30,000 1,20,000 Furniture 47,000 Bank loan 1,20,000 Less : Dep 4,700 42,300 Creditors 87,000 Motor Vehicles 60,000 Bills
payable 36,200 Less : Dep 12,000 48,000 O/s
Expenses Investments 50,000 Printing &
Stationery 2,400 Debtors 51,600 Salaries &
Wages 8,000 10,400 Less : New BD 1,600 50,000 Less : New
RDD 2,500 47,500 Balance at bank 43,700 Bills Receivable 18,300 Stock 66,500 Prepaid
insurance 2,500 5,33,800 5,33,800 munotes.in

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72 Illustration 15 :
Karan and Aditya were in a partnersh ip in a retail business sharing profits
in the proportion of 3:2. As from 1st April 2013 they admitted Ashish into
partnership giving him one - fifth of the profits. Ashish brought in Rs.
32,000 in cash of which Rs. 6,000 were considered as being in paymen t
for his share of goodwill and remainder as his capital.
The following Trial Balance was extracted from the books
as on 31st March, 2014
Debit Rs. Credit Rs.
Purchases 27,160 Sales 41,265 Sales Returns 525 Purchases Returns 410 Reserve for doubtful debts 1,520 Sundry Debtors 44,020 Sundry Creditors 12,553 Bills Receivable 12,007 Bills Payable 1,195 Stock (1st April 2013) 3,972 Carriage inward 1,718 Office Salaries 980 Furniture 2,050 Postage, stationery and insurance 1,393 Rent, rates and taxes 420 Bad debts 40 Prepaid insurance 24 Outstanding wages 120 Rent accrued but not paid 90 Capital accounts (1st April 2013) Karan 21,500 Aditya 21,000 Cash paid by Ashish on 1st April 2013 32,000 Current accounts : Karan 5,500 Aditya 5,200 Ashish 6,200 Cash in hand 20,444 Total 1,31,653 1,31,653 munotes.in

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73 You are required to prepare the firm’s Trading and Profit and Loss
Account for the year ending 31st March, 2014 and Balance Sheet as on that
date having regard to the following information :
1. Stock at the end was Rs. 20,000.
2. Sundry debtors include item of Rs. 500 for goods supplied to Karan
and item of Rs. 100 due from customer on account of sales, who was
become insolvent.
3. Depreciation on furniture is to be changed at 10% per annum.
4. Reserve for doubtful debts is to be maintained at 5% on the sundry
debtors.
5. Goods to the value of Rs. 500 have been destroyed by fire and the
insurance company has admitted the claim for Rs. 200 only .
6. Bills receivable include a dishonored bill of Rs. 500.
In the Books of Karan and Aditya
Trading A/c for the year ended 31st March, 2014
Purchase Rs. Rs. Particulars Rs. Rs.
To opening
Stock 3,972 By Sales 41,265 To Purchases 27,160 Less : Returns 525 40,740 Less Returns 410 26,750 To Carriage
Inwards 1,718 By Goods lost
by fire 500 To Gross
Profit 28,800 By closing
Stock 20,000 61,240 61,240





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74 Profit and Loss Account for the year ended 31st March, 2014

Partic ulars Rs. Rs. Particulars Rs. Rs.
To Old Bad Debts 64 By Gross
Profit b/d 28,800 + New bad debts 100 + New RDD 2,196 - New RDD 1,520 840 To Salaries 980 To Postage,
stationary Insurance 1,393 To Rent 420 To dep on Furniture 205 To loss by Fire 300 To Net Profit Karan 11,838 Aditya 7,892 Ashish 4,932 24,662 28,800 28,800
Partners Current Account
Particulars Karan Aditya Ashish Particulars Karan Aditya Ashish To Balance
b/d 5,500 5,200 12,200 By Goodwill 3,600 2,400 To Goods
taken 500 By Net
Profit 11,838 7,892 4,932 To Balance
c/d 9,438 5,092 By Balance
c/d 7,268 15,438 10,292 12,200 15,438 10,292 12,200
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75 Balance Sheet as on 31st March, 2014

Liab ilities Rs. Rs. Assets Rs. Rs.
Capital
A/c’s Furniture 2,050 Karan 21,500 Less : Dep 205 1,845 Aditya 21,000 Insurance claim 200 Ashish 32,000 74,500 Sundry Debtors 44,020 Less : Karan 500 Current
Accounts Less : New bad
debts 100 Karan 9,438 Add : B R Dishounr 500 Aditya 5,092 14,530 Less new RDD 2,196 41,724 Bills Receivable 12,007 Sundry
Creditors 12,553 Less : Dishonored 500 11,507 Bills
Payable 1,195 Cash 20,444 O/s
Wages 120 Closing Stock 20,000 O/s Rent 90 Current A/c of
Aashish 7,268 1,02,988 1,02,988
Working Notes :
1. New Profit Sharing
Ratio Karan Aditya Ashish
Old Ratio 3/5 2/5 New Partner 1/5 Remaining in old 3/5 × 4/5 2/5 × 4/5 New Ratio 12/25 8/25 5/25


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Financial Accounti ng
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76 EXERCISES
Theory Questions
1. Define partnership. what are the main features of partnership?
2. Write short note on Profit & Loss Appropriation A/c of a firm.
3. Explain the adjustments in accounts when a new partner is admitted.
4. Explain division of expenses b ased on Time Ratio
5. Distinguish between Fixed Capitals and fluctuating Capitals.
6. Write short notes
a) Fixed capital accounts of the partners.
b) Interest on Drawings by the partners.
c) Salary or commission payable to partners.
d) Calculation of new profit sharing rat io on admission of partner.
7. What are rules applicable in the absence of partnership Deed.
a) Interest on Drawings
b) Profit sharing ratio.
c) Interest on partners loan
d) Salary to partner
e) Interest on capital
8. OBJECTIVE:
A) Choose the appropriate word .
i) Partnership is a legal relation ship between persons according the --------
a) Contract Act
b) Companies Act
c) The Indian partnership Act, 1932
d) Income Tax Act 1961.
ii) The profit sharing ratio among the partner may be ------------- from the
ratio to share losses.
a) Equal
b) Same
c) In the Capital ratio
d) Different
iii) The maximum number of persons permitted to form a partnership for
Banking business are ------------ partners.
a) 7 b) 15 c) 10 d) 20

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Partnership Final Accounts II I
77 iv) The partnership can not be formed to share ------------------ only.
a) profit b) losses c) profit & loss d) Non of the above.

v) The persons who have agreed to carry on the partnership business are
individually known as ---------------
a) firm b) partners c) Directors d) Creditors

vi) It is a ----------------- relationship between persons c reated through the
partnership Act, 1932.
a) Natural b) Legal c) oral d) Faithfull.

vii) The partnership agreement can be ------------ - or written.
a) Oral b) Written as well as oral c) Registered
d) un registered.

viii) In the partnership business the pa rtner’s are collectively called as ----
--------------
a) Company b) Association c) Firm d) Partners

ix) To admit a new partner with consent to --------------- partners.
a) Existing b) Majority c) Newly admitted d) One partner

x) In absence of agreement, partners share profit on loss in --------
a) capital ratio b) Equally c) Current Ac count ratio
d) Time devoted for business.

xi) --------- number of partners allowed in case of Retail business a)
maximum 10 b) maximum 20 c) minimum 50 d) minimum 10
xii) The minor partner cannot be personally liable to share -------- of
the firm
a) commission b) profits c) losses d) none of above

xiii) In absence of agreement Interest on Loan, at ---------- % p.a. is
payable by the firm
a) 12% p.a. b) Nil c) 6% d) As per Bank rate.
xiv) Partners can con tribute capital either in Cash/Bank or ------------
a) only cash b) in kind c) cash plus in kind d) by cheque
[Ans. I -c, ii-d, iii -c, iv-b, v-b, vi-b, vii -a, viii -c, ix-a, x-b, xi-c, xii -c, xiii -c, xiv - b]
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Financial Accounti ng
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78 B) Fill in the Blanks.
I. The persons who have agreed to carry on partnership business are ---
-------- known as partners and ----------- called as a ------------
II. The partnership can not be formed to do -------------- business.
III. The partners may share profit and Loss of the firm -------- ratio.
IV. It is not necessary that partners should contribute ---------- in profit
sharing ratio.
V. A ----------- partner is not personally liable to share the losses of the
firm.
VI. In the absence of a partnership agreement interest on -------- should
not be paid to partners.
VII. It is not necessary that partners should contribute -------------- in
profit sharing ratio.
VIII. Maximum numbers of partners in insurance business -------- persons.
IX. A particular partner may not share ---------- of firm at all.
X. In the ----------- of a partnershi p Deed, each partner have free access
of all partnership records, Books and Accounts.
[Ans. I) Individual ii) illegal iii) different iv) capital v) minor vi) capital vii)
capital viii) Ten ix) losses x) absence].
C) Substitute the following in a single WORD/Term.
I. Written Agreement of partners.
II. Credit balance in Trading A/c
III. A partner not taking part of in partnership business.
IV. A statement showing financial status of a business.
V. Debit balance in profit & Loss A/c
VI. Part of sundry Debtors irrecoverable .
VII. Expenses accrued but not paid
VIII. Expenses paid in advance.
IX. Any remuneration paid or payable to partner’s, then it is necessary
to prepare a special A/c.
X. A partner draws a fixed amount at the end of each month, interest is
calculated for months.
XI. Policy on th e lives of the Partner is to insure against changes of
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79 XII. A method in which Partner’s Current Accounts are opened
XIII. A partner who only lends his name to the firm.
XIV. In the absence of partnership Deed, which provisions /rates are
applicable.
[Ans. I -Partnership Deed, ii) Gross profit iii) Dormant partner, iv) Balance sheet, v)
net loss, vi) Bad debts vii) outstanding expenses. Viii) prepaid expenses ix) profit &
loss appropriation x) 5.5 month xi) joint life policy xii) fixed capital xiii) nominal
partner xiv) the Indian partnership Act 1932.
D) Match the following items in column A and column B.
I)
Column A Column B

i) Opening stock
ii) Carriage paid on plant
purchased
iii) carriage paid on goods so ld
iv) partnership Act
a) Trading A/c credit side
b) carriage outwards.
c) 1932
d) 1956
e) Trading A/c debit side
f ) plant & machinery
[Ans. I -e, ii-f, iii-b, iv- 1932]
II)
Column A Column B
i) Partnership
ii) Active Partner
iii) Outstanding Expenses
iv) Salaries & Wages
v) Goodwill
a) Liability side
b) Trading A/c
c) Unlimited Liability
d) Working partner
e) Profit & Loss A/c
f ) Intangible assets
[Ans. I -c, ii- d, iii -a, iv- e, v-f]


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Financial Accounti ng
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80 III)

Column A
Column B

i) Return Inward s
ii) Fixed Assets
iii) Reserve for Bad Debts
iv) Fluctuating Capital method
a) Land & Building
b) No need of current A/cs.
c) Sales Return
d) Sundry debtors
e) Liability side.

[Ans. I -c, ii-a, iii-d, iv-b]
IV)
Column A Column B

i) Closing s tock
ii) Trading A/c
iii) Partnership Agreement silent
iv) Partners Salaries
v) Dormant Partner

a) Gross Profit
b) Profit / Losses shares equally
c) Assets
d) Profit & loss Appropriation A/c
e) Nominal Partner
f ) Sleeping Partner
[Ans. I -e, ii-a, iii-b, iv-d, v-f]
V)
Column A Column B

i) Retirement of Partner
ii) Goodwill

iii) Partnership Agreement
iv) Interest on Capital
v) Doubtful of bad debts
a) Executor’s Loan A/c b) Profit & Loss Appropriation A/c
c) Sales Ledger Balances.
d) Retiring partners loan A/c
e) Intangible Assets.
f) Partnership Deed.
g) Tangible Assets.
[Ans. I -d, ii-e, iii -f, iv -b, v-c]
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81 9. PROBLEMS
Final Accounts
EX.1
Shraddha and Sneha carried on business sharing profits and losses in the
proportion of 1:9. The partnership agreement provided:
a) Interest be allowed at 15% p.a on capital.
b) Shraddha is entitled to get salary Rs.5000 per quarter of a year.
c) Ignore interest on drawings and current account.
Trial Balance as on 31st Dec, 2013
Particulars Dr. Particulars Cr.
Salaries to employees
Partner’s Salary
Rent
Furniture
Motor Car
(Balance on 1.1.13
Rs.1,20,000)
Depreciation at 10% p.a. upto
30.9.13

Insurance

Bad Debts
Bills Receivable
Sundry Debtors
Stock on 31st December 13
Bank Balance
Cash on Hand
Shraddha’s Current Account
Sneha’s Current Account
Interest on Capital


Total 72,000
15,000
12,000
74,000
1,11,000


15,000


10,000

3,000
30,000
25,000
2,10,000
6,500
3,500
7,200

7,800
18,000
Gross Profit for the year
Carriage Inward Payable
Bills Payable
Sundry Creditors
Interest free loan from Reema

Shraddha’s Fixed Capital
Account

Sneha’s Fixed Capital account












Total 2,17,000
3,000
20,000
35,000
145,000


20,000


1,80,000
6,20,000 6,20,000



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82 Other Information: -
A. Partner’s current accounts were as under -
Particulars Shraddha Sneha
Opening Balance
Add: Interest credited for 9 months at 12%
p.a.
Add: Salary for 9 months


Less: Withdrawals

Balance as per Trial Balance --
1800

15,000 --
16,200

--
16,800

(24,000) 16,200

(24,000)
7,200 7,800

B. Fixed Assets are depreciated at the rate of 10% p.a. Provide
balance of depreciation for the year.
C. Through oversight interest on Fixed Capital was provided at the
rate of 12% instead of 15% p.a. as per partnership agreement.
You are required to prepare: -
a) Profit and loss account and Profit and Loss Appropriation Account
for the year ended 31st December, 2013.
b) Balance Sheet as on 31st December, 2013.
Ex.2
A and B are partners sharing profits and losses in the ratio 3:2. On
1st October, 2013 they admitted C as a partner on the following
terms: -
a) The new profit ratio to be A -60%; B -30%; C -10%
b) Goodwill of the firm is to be valued at Rs. 27,000/ - on 30th
September 2013. No account for goodwill should be opened in the
books of the firms, adjustments, if any, for the same should be
carried out in the capital accounts of the partners.
c) C’s share to be guaranteed by A at the minimum rate of Rs. 36,000
p.a.
d) Apportion gross profit on the basis of sales, Expenses on the basis
of time.
e) No interest is to be credited or charged on partners capital or
current account. The trial balance of the firm as on 31st March,
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Partnership Final Accounts II I
83
Particulars Dr. Rs. Particulars Cr. Rs.
Purchases
Salaries
Debtors
Drawings
A
B

C
Balance with Bank

Electricity Deposit
Selling Expenses
Office Expenses
Delivery Van
(Purchased on 30 -6-13)
Furniture at cost
(Purchased on 1 -4-13)
Rent & Rates
Electricity office
Total Rs. 1,77,660
63,000
51,180

15,000
7,500

7,200
33,360

450
5,400
900

33,750

9,000
18,000
3,600 Creditors
Capital Accounts:
A
B
C
Sales (upto 30 -9-13 Rs.
1,20,000)
Loan from Edulji ( at 12%
p.a. taken on 31 -1-14) 15,000

30,000
30,000
6,000

3,06,000

39,000
4,26,000 4,26, 000
You are required to prepare a Balance Sheet as on 31st March,
2014 and Trading and Profit and Loss Account for the year ended on that
date after considering the following
i) Stock on 31 -3-14 was Rs. 60,000.
ii) Accrued expenses but not yet paid: Re nt Rs. 5500/ -, Selling
expenses Rs. 1750/ -, Office expenses Rs. 1500/ -
iii) Sales & Debtors include goods sent on sale or approval basis Rs.
12000 but not yet approved as on 31.3.14 These goods were
invoiced at a profit of 100% on cost price.
iv) Deprecia tion is to be provided: Delivery van @ 20% p.a., Furniture
@ 10% p.a.
Ex. No.3
Prepare Trading, Profit and Loss Account for the year ended 31st March,
2014 and the Balance Sheet as on that date from the following information
available from the books of HR & Co.

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84 a) Trial Balance as on 31st March 2014
Debit Rs. Credit Rs.
Premises
Machinery & Equipment
Bank Balance
Bills Receivable
Current A/c ‘R’
Sales Returns
Purchases
Sundry debtors
Stock in Trade
Salaries
Distribution Expenses
Sundry Expenses.
10% Bonds

Total Rs. 2,00,000
1,50,000
35,000
40,000
15,000
25,000
6,90,000
3,40,000
80,000
40,000
64,000
76,000
37,000 Capital A/c ‘H’
‘R’
Current A/c ‘H’
Sales
Commission
Bills Payable
Sundry Creditors
‘C’s A/c
1,20,000
1,00,000
20,000
11,12,000
35,000
45,000
2,85,000
75,000
17,92,000 17,92,000
b) Additional Information:
1. Stock in trade on 31st March, 2014 was Rs. 75,000
2. Outstanding salaries as on 31st March 2014 was Rs. 4,.300 and prepaid
insurance included in offic e expenses was Rs. 2,000.
3. Depreciate premises @ 5% and Machinery & Equipment @ 10%
4. Sales include Rs. 20,000 being goods sent on sale or return basis, the
cost of which was Rs. 15,000. Approval was received for 50% of the
goods sent. Sales also include Rs . 10,000 being sale proceeds of
equipment of the book value of Rs. 8,000 realized on 1 -4-2013.
5. Sundry Debtors include Rs. 20,000 on account of dishonoure of a Bill
Receivable accepted by a customer. Only 50% of the amount is likely
to be recovered. On th e balance debtors 5% provision for doubtful
debts is to be created.
6. H and R shared Profits and Losses in the ratio 2:1.
7. C was admitted as a partner on 1 -10-2014 and deposited Rs. 75,000
with the firm as his capital. ‘C’s is entitled to share 25%, of the
Profit/Losses of the firm. The net profit between the pre admission
and post -admission period is to be on time basis.


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Partnership Final Accounts II I
85 Ex. 4
Ashok and Ketan are equal partners. Their trial balance as on
31st Mar., 2014 is as follows:
Particulars Dr.Rs. Cr. Rs.
Ashok Capital
Ketan’s Capital
Opening Stock
Office Rent (Rs.2000 per month)
Purchase and Sales
Provident Fund and Provident Fund Investments
Debtors and Creditors
Discount
Furniture
Drawings : Ashok 15,000
Ketan 15,000
Returns Outward
Dead Stock
Demurrage
Freight and Duty
Advertisements
Bad Debts Reserve
Salaries and Wages
Cash and Bank
Sunil’s Loan (1 -10-2013)
Plant and Machinery
Land and Buildings
Depreciation on Plant & Machinery
Contribution t o Provident Fund
Insurance Premium (incl. Rs. 3,600 paid for the year ended
30-9-2014)
Bills Payable

43,800
23,100
1,19,400
24,000
84,000
1,800
6,000

30,000

1,500
600
3,000
10,000

25,200
12,000

83,250
2,10,000
6,750
1,800
9,000 2,16,000
66,000


2,16,000
25,000
48,000
1,200



3,000




6,000

58,800
30,000






25,200
6,95,200 6,95,200

you are required to prepare final accounts for the year ended 31st March,
2014 after taking into account the following adjustments:
(1) The closing stock was val ued at Rs. 110,000
(2) Provide Depreciation on furniture at 10% p.a.
(3) Of the Sundry Debtors Rs. 1,800 are bad and should
be written off. Also maintain a reserve for doubtful debts at 5% on
debtors.
(4) Goods of the value Rs. 6,000 had been received on 25th March,
2014 but the purchase invoice was omitted to be recorded in the
purchase book.
(5) Goods valued at Rs. 4,300, withdrawn for personal use by Ketan,
were recorded as credit sales in the sales book as Rs. 6000. munotes.in

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86 Ex.5
Ram and Bharat were in partner ship in a business sharing profits in
proportion of 2:3. As from 1st January 2014 they admitted Kran in to
partnership giving him one -fifth of the profits. Kran brought in Rs. 30,000
in cash of which Rs. 10000 were considered as being in payment for his
share of goodwill and remainder as his capital.
The following Trail Balance was extracted from the books as on
31st March 2014.
Particulars Dr. Rs. Cr. Rs.
Purchases and sales
Returns
Customer and Creditors
Bills Receivable & Bills Payables
Carriage Inwa rd
Carriage Outward
Stock (01.04.13)
Outstanding Carriage Inward
Bad debts
Salaries
Furniture
Shop Fittings
Postage and Insurance
Trade Expenses
Rent, Rates and Taxes
Loan to Vishnu (from 01 -01-2014) @ 15%
p.a.
Prepaid Insurance
Rent [from 1.10.13 to 31.0 3.14]
Cash in hand
Current A/c
Ram
Bharat
Kran
Capital A/c
Ram
Bharat
Cash paid by Kran
Computer
Loan I.C.I.C.I. Bank @ 12% p.a. 1,71,625 5,250 90,200 20,070 15,000 2,175 39,725 -- 400 9,795 5,000 15,500 3,240 2,690 4,200 56,000 240 -- 4,440 5,000 4,000 2,000 -- -- 40,000 -- 3,62,650 4,125 25,525 11,950 -- -- -- 1,200 -- -- -- -- -- -- -- -- -- 6100 -- -- -- -- 15,000 10,000 30,000 30,000 4,96,550 4,96,550
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Partnership Final Accounts II I
87 You are required to prepare the firm’s Trading and Profit an d Loss
Account for the year ending 31st March, 2014 and Balance Sheet as on that
date having regard to the following information.
1) Stock at the end was Rs. 35000.
2) Depreciation on Computer and Furniture is to be charged 10% p.a.
3) One-fifth of the Sho p fittings to be written off.
4) Goods worth Rs. 2800 have been destroyed fire and the Insurance Co.
has admitted the claim for Rs. 1,600 only.
5) Bills receivable include a dishonoured bill for Rs. 4,000/ -
6) Debtors include Rs. 3,000 for goods costing Rs . 2,000, supplied to
Bharat and item of Rs. 3,000 due from Customer on account of sales,
who has become insolvent.
7) Net Sales upto 31.12.2013 were Rs. 2, 83,520.
Hint :
[Net sale = 362650 – Sales Return 5250 – Goods taken by
Bharat Rs. 3,000.
= Rs. 3, 54,400
 Sales Ratio = 2, 83,520: 70,880
= 4:1]
Example 12 :
Siddhanth and Sankalp were in a partnership in a retail business sharing
profi ts in the proportion of 3:1. as from 1st April 2013 they admitted Ved
into partnership giving him one -fifth of the profits. Ved brought in Rs.
50,000 in cash of which Rs. 20,000 were considered as being in payment
for his share of goodwill and remainder as his capital.







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Financial Accounti ng
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88 The following Trial Balance was extracted from the books
as on 31st March, 2014
Debit Rs. Credit Rs.
Purchase and Sales 1,01,620 2,02,650 Discount allowed and received 5,250 4,120 Reserve for doubtful debts 5,200 Sundry debt ors and creditors 40,200 17,630 Bills receivable and bills payable 20,070 11,950 Stock (1st April 2013) 39,720 Carriage inward 17,180 Sundry Expenses 9,800 Motor vehicles 5,000 Land and Building 15,500 Telephone expenses 3,240 Postage and stationary 2,690 Rent, rates and insurance 4,440 Bad debts 400 Investments 76,000 Capital accounts Sankalp 35,000 Siddhanth 30,000 Cash paid by Ved on 1st April 2013 50,000 Drawings Sankalp 5,000 Siddhanth 4,000 Ved 2,000 Cash in hand 4,440 Total 3,56,550 3,56,550
You are required to prepare the firm’s trading and Profit and Loss Account
for the year ending 31st March, 2014 and Balance Sheet as on that date
having regard to the following information :
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Partnership Final Accounts II I
89 1. Stock at the end was Rs. 20,000.
2. Sundry debtors include item of Rs. 300 for goods supplied to Ved and
item of Rs. 1,000 due from customer on account of sales, who has
become insolvent.
3. Depreciation on Motor vehicles is to be changed at 20% p.a. and Land
and Building at 5% p.a.
4. Reserve for doubtful debts is to be maintained at 5% on the sundry
debtors.
5. Goods to the value of Rs. 1,000 have been destroyed by fire and the
insurance company has admitted the claim for Rs. 600 only.
6. Bills receivable include a dishonored bill of Rs. 1,100.
7. Land and Building to be depreciated by 5%.
Example 13 :
Hardik and Yatish carried on a retail business in partnership under the
name Yatrik Associates sharing profits and losses in the ratio 5:3.
Trial Balance of Yatrik Associates as on 31st March, 2014
Particulars Debit Rs. Credit Rs.
R.D.D. 1,980 Loan taken 3,20,000 Sales 9,50,000 Opening Stock 87,585 Purchase 2,99,745 Wages 27,465 Goodwill 1,20,000 Sundry Expenses 16,340 Discount allowe d 3,275 Hardik Drawings 4,200 Yatish Drawings 10,170 Debtors 87,765 Bills Receivable 23,395 Hardiks Capital 60,000 Yatish Capital 1,30,000 Creditors 76,775 munotes.in

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90 Bills Payable 32,225 Outstanding Expenses 3,475 Plant and Machinery 4,55,375 Land and Building 2,57,735 Furniture 44,730 Carriage Inwards 16,235 Carriage Outwards 18,325 Office rent 27,525 Salaries 65,565 Repairs 2,355 Bad debts 3,225 Free Sample 18,375 Prepaid Expenses 2,310 Cash in hand 9,120 Salesman Commission 23,200 Discount Received 6,345 Commission Received 13,215 Bank Balance 30,000 16,24,015 16,24,015
You are required to prepare the firm’s trading and Profit and Loss Account
for the year ending 31st March, 2014 and B alance Sheet as on that date
having regard to the following information :
1. Stock on 31st March 2014 was Rs. 1,42,250.
2. Sundry debtors include item of Rs. 2,765 due from a customer on
account of sales, who has become insolvent.
3. Depreciate Land & Bui lding and Plant and Machinery and Furniture at
5% p.a., 10% p.a. and 20% p.a. respectively.
4. Reserve for doubtful debts is to be maintained at 5% on the sundry
debtors.
5. Goods to the value of Rs. 1,845 have been destroyed by fire and the
insurance co mpany has admitted the claim for Rs. 1,000 only.

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Partnership Final Accounts II I
91 Example 14 :
Teena, Meena and Beena carried on a retail business in partnership,
sharing profits and losses in the ratio 5:3:2.
The Trial Balance of the firm as at 31st December 2013 was as follows
Parti culars Debit Rs. Credit Rs.
Capital A/c’s Teena 80,000 Meena 50,000 Beena 30,000 Current A/c’s Teena 16,000 Meena 12,000 Beena 8,000 Sales 4,65,00 0 Trade Creditors 37,000 Furniture & fittings 22,000 Freehold Premises (Purchased during the
year) 60,000 Leasehold Premises 45,000 Addition and Alterations to leasehold
premises 25,000 Purchase 2,80,000 Stock as on (1st January 2013) 42,000 Salaries and Wages 64,000 Office and Trade Expenses 45,200 Rent, Rates and Insurance 10,500 Professional charges 3,500 Debtors 20,600 Provision for Doubtful Debts 500 Balance at Bank 43,700 Drawings : Teena 17,000 Meena 11,000 Beena 9,000 Bills payable 15,200 Bills receivables 18,300 Printing & Stationary 6,900 Loan from bank 10,000 7,23,700 7,23,700 munotes.in

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92 You are given the following additional information:
1. Stock on 31st Dece mber, 2013 was valued at Rs. 46,000
2. A debtor of Rs. 600 is to be written off and provision against the
remaining debtors should be made at 5%.
3. Provide for the following outstanding expenses as on 31st December
2013 :
a) Office and Trade Expenses Rs. 2,400 Salaries and Wages Rs.
6,000.
b) Rates prepaid as on 31st December 2013 Rs. 2,500.
4. Depreciate furniture and fittings by 10%.
5. Professional charges include Rs. 2,500 fees paid in respect of the
acquisition of the leasehold premises, which are t o the capitalized.
You are required to prepare:
1. The Trading and Profit and Loss A/c. for the year ended 31st
December, 2013.
2. The Balance Sheet as on that date.
3. Partners Current Accounts.



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93 4
PIECEMEAL DISTRIBUTION
Unit Structure :
4.0 Objective
4.1 Introduction
4.2 Class ification of Liabilities
4.3 Order of Payment of Cash to Partners
4.4 Important Points
4.5 Check Your Progress
4.6 Illustrations on Piecemeal Distribution
4.7 Exercise
4.0 OBJECTIVE
After studying the unit the student will be able to:
 Classify the liabilities of the business.
 Describe the methods of allocation of cash among the partners.
 Solve the practical problems.
4.1 INTRODUCTION
In the previous chapter we have studied Dissolution of Partnership Firm.
On dissolution of the firm business of the firm i s closed, all the assets of
the firm are sold and all the liabilities of the firm are paid off. The surplus
remaining thereafter is paid to the partners against their loan account and
their capital account balances. Here we assume that all these transact ions
take place on the same day. But in practice it takes time to dispose off all
the assets. The payment of liabilities has to be done as and when the cash
is available. It has to be in a specific order. This recovery of assets in
installments and pay ment of liabilities in installments is called as
PIECEMEAL DISTRIBUTION OF CASH.
4.2 CLASSIFICATION OF LIABILITIES
1. External Liabilities
2. Internal Liabilities
3. Partner’s Capital Accounts munotes.in

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94 4.2.1 External Liabilities
These are amounts payable to outside parties. These are further classified
into
a. Preferential Liabilities:
These include amounts payable in priority to all liabilities. These are
Government dues like Income Tax, Sales Tax, Excise Duties etc.
Employees’ Dues like outstanding wages, outstanding salar ies, provident
fund dues, etc.
Dissolution expenses : These are the expenses incurred for the purpose of
successful carrying out of dissolution like payment for preparation of
dissolution deed, advertisement and brokerage for disposal of assets.
b. Other Liab ilities :
These are further classified into:
Secured liabilities : These are liabilities / loans secured against some or all
the assets of the firm. If it is secured by a charge on a specific asset then
amount realized by sell of that particular asset shal l be utilized for
payment of these liabilities. For example bank overdraft secured against
stock, mortgage loan against land and buildings. If these liabilities are not
secured against a specific asset but on all the assets in general then amount
realize d shall be first utilized to pay off these liabilities.
Unsecured Liabilities : These are liabilities incurred during the normal
course of business for which no security is given. For example sundry
creditors, bills payable, loan from spouse of partner, et c. these liabilities
are paid when all above liabilities are paid in full. If the amount available
with the firm is not sufficient to pay all these liabilities, then the amount is
paid in the ratio of their out standings.
4.2.2 Internal liabilities
Partne r’s loans: If a partner has given any loan to the firm then it will be
paid after all the above liabilities have been paid in full but before
anything is paid to partners against their capital accounts. If two or more
partners have given loans to the firm and cash available is insufficient to
pay these loans in full then the amount will be paid in the ratio of
outstanding balance of the loan.
4.2.3 Partners Capital Account
After all the above liabilities are paid the cash available is paid to partners
against their capital account by adopting any one of the following two
methods.
Excess Capital Method (Highest Relative Capital Method/Quotient
Method) Maximum Loss Method (Not in the syllabus)
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Piecemeal Distribution
95 4.2.3.1 Excess Capital Methods / Proportionate Capital Method -
This method is applied where the partners have not contributed their
capitals in the profit sharing ratio. Some partner have contributed more
capitals than other partners. Hence it is required to pay such partners
before other partners are paid. The metho d of calculating surplus capitals
is as follows –
Step No. Particulars
I Computation of Adjusted Capital:
Take capital account balances as per Balance Sheet
Add: General Reserve/Reserve funds/Profit and Loss
A/c Credit Balance in Profit Sharing R atio
Less: Profit and Loss A/c Debit Balance

II Write Profit Sharing Ratio

III Find Capital Contribution per unit of profit i.e. Step I / Step II

IV Find out the partners with lowest capital contribution per unit of
profit. Taking his capita l as base find out Proportionate Capital of
all the partners.

V Find out the Excess Capital – Step I - Step IV (Adjusted
Capital – Proportionate Capital)
If there’re more than two partners then do the same process again

VI Write Profit Sharing R atio

VII Find capital contribution per unit of profit – Step V / Step VI

VIII Find out the partners with lowest capital contribution per unit of
profit. Taking this capital as base find out proportionate capital of
all the partners.

IX Find ou t the Excess Capital – Step V -- Step VIII

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Financial Accounting
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96 4.3 ORDER OF PAYMENT OF CASH TO PARTNERS:
After cash is paid for all internal and external liabilities cash should be
paid to partners against their capital accounts as follows : (Step No. IX,
Step No. VIII, St ep No. IV)
a) Pay to the partner who is having ultimate excess. (Step No. IX)
b) Pay out the excess amount of other partners in their Profit Sharing
Ratio. (Step No. VIII)
c) After the payment of excess capital, the capitals of the partners will be
in their profit sharing ratio. (Step No. IV) All the available cash should
be paid in Profit sharing ratio.
d) If any partner is taken over any asset then it should be assumed that he
brings necessary cash in the firm. It should be added in the cash
available and then total available cash should be distributed among the
partners as above.
e) The balance left unpaid represents loss on realization. Payment more
than the dues represents profit on realization.
4.4 IMPORTANT POINTS
a) If any reserve is to be created for dissolution / realization expenses, it
should be created by setting aside cash after payment of Government
and Employees’ dues. If finally actual expenses are less than the
reserve, the excess should be distributed among the partners.
b) If there is any contingent liabili ty (like bill discounted with the bank
not yet matured) cash should be set aside after payment of all external
liabilities, but before making any payments to the partners. If the
liability arises it should be paid from the cash reserved. If the liability
does not arise, the cash kept in reserve will be distributed among the
partners when it becomes certain that the liability is not to be paid.
c) If nothing is mentioned about security of a liability the same should be
treated as unsecured.
d) In case of a secure d liability, payment should be made for such
liability only if the asset charged for that liability is realized. However
if any other asset is realized then the secured liability should be treated
at par with other unsecured liabilities and payment should be made
proportionately.
4.5 CHECK YOUR PROGRESS
1. Define the following terms:
 Preferential liabilities
 Adjusted Capital munotes.in

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Piecemeal Distribution
97  Piecemeal Distribution of Cash
 Internal Liabilities
2. Fill in the blanks:
 In Piecemeal Distribution amounts realized from asset s are
distributed in the order ___________.
 Excess capital Method is applied where the partners have not
contributed there capitals in the ____________.
 Preferential Liabilities include Government dues like ________.
 If two or more partners have given loan s to the firm and the cash is
in sufficient for full payment then the loans will be paid in
the________ ratio.
3. Calculate the Adjusted Capital from the following:
X,Y and Z are sharing profits and losses in the ratio 3:2:1.The Capital
Account is showing cr edit balances of Rs. 60,000, 20,000 and 30,000
respectively ,General Reserve is Rs. 60,000 and P&L A/c Debit Balance
Rs. 12,000.
4.6 ILLUSTRATIONS ON PIECEMEAL DISTRIBUTION
Illustration 1:
P, Q, R are partners sharing profits and losses in the ratio of 4: 2:1. they
decided to dissolve the partnership as on 31st March 2014 when their
Balance Sheet was as follows:
Balance Sheet
Liabilities Rs. Assets Rs.
Creditors
General Reserve
Bank Overdraft
Capital : P
Q
R
23,200 37,800 65,000 1,60,000 3,20,000 2,60,000 Cash in hand
Investment
Stock
Debtors
Machinery
Furniture
Building 680 60,000 2,56,600 90,800 65,200 9,800 3,82,920 8,66,000 8,66,000
All creditors have to be paid off Rs.4800/ - have to be provided for
realization expens es. Thereafter all cash received should be distributed
among the partners. The amounts were realiz ed in installments as follows munotes.in

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98 Rs.
1st
2nd
3rd
4th 60,000 32,320 4,60,000 1,83,680
The actual realization expenses were Rs.2400/ -. Prepare a statement
showing distribution of cash as per Excess Capital Method.
Solution :
(In the books of P, Q & R a Partnership Firm)
Statement of Excess Capital
P
Rs. Q
Rs. R
Rs. Total
Rs. Order Capital 1,60,0003,20,0002,60,000 Add : General Reserve 21,60010,8005,4002,65,500 A. Adjusted Capital (TotalRs.777800) 1,81,6003,30,8002,65,400 B. Profit Sharing Ratio 421 C. (A/B) = Capital Per Unit 45,4001,65,4002,65,400 D. Proportionate Capital (P’s capital as Base) (1,81,600)(90,800)(45,400)3,17,800III E. Excess Capital (A-D) NIL2,40,0002,20,000 F. Excess Capital per Profit Unit 1,20,0002,20,000 G. Proportionate Excess Capital 2,40,0001,20,0003,60,000II H. Final Excess Capital NIL1,00,0001,00,000I (E-G) Total 7,77,800 munotes.in

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99 Payment order:
(1) Pay 1st Rs.100000/ - to R.
(2) Then Rs.240000 and Rs.120000 to Q and R respectively.
(3) Then to P, Q and R in their profit sharing ratio 4:2:1.
Statement showing Piecemeal Distribution of Cash
Particulars Cash
Rs. Bank
O/D Creditors
Rs. P
Rs. Q
Rs. R
Rs. Balance 1st Realisation Realisation Exp. Prov. Paid O/D & Creditors Proportionately 68060,000(4,800)55,880(55,880)65,000





(41,180)
23,200





(14,700) 1,81,600 2,30,800 2,65,400
Balance due IInd Realisat ion Paid O/D & Creditors ----

32,320

(32,320) 23,820



(23,820) 8,500



(8,500) 1,81,60023,080 26,540 Balance due IIIrd Realization- Paid to C Final Excess -
4,60,000

(1,00,000) - - 1,81,6002,30,800


(1,00,000) 2,65,400 Balance (-) Paid to B and C (2:1) 3,60,000
(3,60,000) - - -2,30,800
(2,40,000) 1,65,400
(1,20,000) Balance IVth Realization Add : Realization Exp. Prov not required Paid to all (4:2:1) -

1,83,680

2,400 1,81,600







(1,06,330) 90,800







(53,166) 45,400






(27,964) 1,86,080



1,86,080 Balance (Loss on Realisation) =131720 - 75,270

37,634

18,816




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Financial Accounting
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100 Illustration 2: -
ABC dissolved their firm on 31st Dec 2013 when their Balance Sheet as
follows : -
Liabilities Rs. Assets Rs.
Capital
A 60000
B 48000
C 40000


Partner’s Loan:
A 20000
B 16000
Sundry Creditors



148000



36000
80000 Sundry Assets
264000
264000 264000
Partners shared Profit and Loss in the ratio 2:1:1
Assets were realized as follows.
1st = 50,000, 2nd = 98,000, 3rd = 80,000
Show Piecemeal Distribution of Cash.
Working Note – Statement showing Excess Capital
Step No. Particulars Formula A B C
I Balance b/d
60000 48000 40000
II Profit Sharing Ratio
- 2 1 1
III Unit Value
(Capital contribution /
Profit)

I  II
30000
48000
40000
IV Proportionate Capital
X II 60000 30000 30000
V Excess Cap
I - IV - 18000 10000
VI Profit Sharing Ratio
1 1
VII Unit Value
V VI - 18000
10,000
VIII Proportionate Capital
X VI 10000 10000
IX Excess Capital
V -VIII - 8000 -




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Piecemeal Distribution
101 Payment Chart
A B C
I (9)
II (8)
III (4) -
-
60000
8000
10000
30000 -
10000
30000
60000 48000 40000

Solution:
Statement showing Piecemeal Distribution of Cash
Date Particulars Cash
Total Claims Sundry
Cr. Partners Loan Partners Capital
A B A B C 01/01/09
1st Balance b/d
Cash Realised
Less : Paid to
Creditors
-
50000 (50000) 264000

(50000) 80000

(50000 ) 20000
-
16000
- 60000
-
48000
- 40000

-
2nd Balance
Cash Realised
Less : Paid to
Creditors
-
98000 (30000) 214000

(30000) 30000

(30000) 20000
- 16000
- 60000
- 48000
- 40000

- Balance
Less: Paid to
Partners Loan 68000 (36000) 184000
36000 -
- 20000 20000 16000 16000 60000 - 48000 - 40000
-

Illustration 3: -
ABC were in partnership sharing profits and losses equally. They agreed
to dissolve their partnership on 30th June 2013. When their balance sheet
was as under.
Liabilities Rs. Assets Rs.
Creditors
Capital
A 60000
B 45000
C 30000
38000



135000 Bank
Debtors
Stock
Plant & Machinery
3600
69000
75400
25000 173000 173000

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Financial Accounting
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102 The realizations were as follows : -
Debtors Plant Stock Expenses
July 30000 10000 37000 3000
Aug 20000 8500 23000 2000
Sept 10000 - 1000 -

On 30th Sept remaining debtors amounting to Rs.9000/ - were taken over
by B at 50% of book value.
Prepare statement showing Piecemeal Distribution of Cash.
Statement showing Piecemeal Distribution of Cash
Date Particulars Cash Total
claim Creditors Capital
A B C
01/07/13 Balance b/d
Less : Paid to Creditors 3600
(3600)
173000
(3600) 38000
(3600) 60000
-
45000 - 30000
-
Balance
Cash
Less : Paid to Creditors
-
74000
(34400) 169400
-
(34400) 344000
-
(34400) 60000
-
- 45000 -
-
30000
-
-
Balance
Less: Paid to A 39600
(15000) 135500
(15000) -
- 60000
(15000) 45000 - 30000
- Balance
Less : Paid to B & C 24600
(24600) 120000
(24600) -
- 45000
(12300) 45000 (12300)30000
- Aug Balance
Cash realized
Less : Paid to A & B -
49500
(5400) 95400
-
(5400) -
-
- 32700
-
(2700) 32700 -
(2700) 30000
-
- Sep Balance
Less : Paid to all partners 44100
(44100) 90000
(44100) -
- 30000
(14700) 30000 (14700)30000
(14700) Balance
Cash Realized
Add : - Debtors taken
over by B -
11000
4500 45900
-
- -
-
- 15300
-
- 15300 -
- 15000
-
- Balance
Less : - Paid to all in PSR 15500
15500 -
(15500) -
- -
(5166) -
(5167) -
(5167) Loss on Realisation
- 30400 - 10134 10133 10133



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Piecemeal Distribution
103 Working Note – Statement showing Excess Capital
Step No. Particulars Formula A B C
I Balance b/d 60000 45000 30000
II Profit Sharing Ratio 1 1 1
III Unit Value I II 60000 45000
30,000

IV Proportionate
Capital X II 30000 30000 30000
V Excess Cap I - IV 30000 15000 -
VI Profit Sharing Ratio 1 1
-
VII Unit Value VVI 30000
15000
-

VIII Proportiona te
Capital X VI 15000 15000 -
IX Excess Capital V-VIII 15000 - -

Payment Chart
A B C
I Steps : 9 II Steps : 8 III Steps : 4 15000
15000
30000
-
15000
30000 -
-
30000
Total 60000 45000 30000

Illustration 4: -
A, B, C were in business sha ring profits and losses 3:4:5 they decided to
dissolve their firm 1st July 2013. Following is the Balance Sheet as on 1st
July 2013.
Liabilities Rs. Assets Rs.
Capital
A 12000
B 8000
C 4000
Sundry Creditors
A’s Loan



24000
10000
2000 Sundry Assets
36000
36000 36000
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104 The amt realized were as follows.
15/7 5000
31/7 10000
15/8 5000
31/8 2000
6/9 6000
30/9 5000
Show a detail statement of piecemeal distribution of cash.
Statement showing P iecemeal Distribution of Cash
Date Particulars Cash Total Creditors A’s Loan A B C
1/7
15/7 Balance b/d
Cash Realised Less : Paid to
Creditors -
5000
(5000) 36000
(5000) 10000

(5000) 2000
-
-
12000
-
- 8000
-
- 4000
-
-

31/7 Balance
Cash Realised Less : Paid to
Creditors -
(10000) (5000) 31000 -
(5000) 5000
-
(5000) 2000
-
-
12000
-
- 8000
-
- 4000
-
-
Balance
Less: Paid to
A’s Loan 5000
(2000) 26000 (2000) -
- 2000
(2000)
12000
- 8000
- 4000
-
Balance
Less : Paid to
A 3000
(3000) 24000 (3000) -
- -
- 12000
(3000) 8000
- 4000
-
15/8 Balance
Cash realized Less : Paid to
A -
5000
(3000) 21000 -
(3000) -
-
- -
-
- 9000
-
(3000) 8000
-
- 4000
-
-
Balance
Less : Paid to
A & B in 3:4 2000
(2000) 18000 (2000) -
- -
- 6000
(857) 8000
(1143) 4000
-
31/8 Balance Cash RealizedLess : Paid to
A & B -
2000
(2000) 16000
(2000) 5143

(857) 6857

(1143) 4000

-
6/9 Balance Cash Realized Less : Paid to
A & B -
6000
(4400) 14000
(4400) 4286

(1886) 5714

(2514) 4000

-
Balance
Less : Paid to
all in PSR 1600
(1600) 9600
(1600) 2400
(400) 3200
(533)
4000
(667)
30/9 Balance Cash RealizedLess : Paid to
all in PSR -
5000
(5000) 8000

(5000) 2000

(1250) 2667

(1667) 3333

(2083) Balance –
Loss on
Realisation - 3000 750 1000 1250 munotes.in

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Piecemeal Distribution
105
Working Notes
1. Step Excess Capital
Step No. Particulars Formula A B C
I Opening ba l 12000 8000 4000
II Profit Sharing
Ratio 3 4 5
III Unit Value III 4000 2000 800
IV Proportionate
Capital X II 2400 3200 4000
V Excess Cap I - IV 9600 4800 -
VI Profit Sharing
Ratio 3 4
-
VII Unit Value VVI 3200 -
VIII Proportionate
Capital X VI 3600 4800 -
IX Excess Capital V-VIII 6000 - -
Payment Chart
A B C
Steps : 9
8
4 6000
3600
2400 -
4800
3200 -
-
4000
Total 12000 8000 4000

Illustration 5: -
A, B & C are partners, profit sharing ratio 1:1:2. Balance sheet as
on 31st March 2014.
Liabilities Rs. Assets Rs.
Capital
A 12000
B 9000
C 6000
A’s Loan
B’s Loan
Creditors
Govt tax 27000 3750 2500 3000 1500 Buildings
Plant & Machinery
Stock
19750 11750 6250 37750 37750 1200 munotes.in

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Financial Accounting
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106 It was mutually agreed that the realization of the asset should be
distributed at the end of each month. Month by realization of assets and
expenses wer e as follows –
Month Asset Expenses
30th April
31st May
30th June
31st July 7360
9100
7800
4780 360
850
300
280

All the assets were fully realized by 31st July 2014.
Working Note – Statement showing Excess Capital
Step No. Particulars Formula A B C
I Opening bal 12000 9000 6000
II Profit Sharing
Ratio 1 1 2
III Unit Value III 12000 9000 3000

IV Proportionate
Capital X II 3000 3000 6000
V Excess Cap I -IV 9000 6000 -
VI Profit Sharing
Ratio 1 1

VII Unit Va lue VVI 9000 6000
-

VIII Proportionate
Capital X VI 6000 6000 -
IX Excess Capital V-VIII 3000 - -

Payment Chart
A B C
Steps : 9
8
4 3000
6000
3000 -
6000
3000 -
-
6000
Total 12000 9000 6000



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Piecemeal Distribution
107 Statement showing Piecemeal Distribution of Cash
Date Particulars Cash
Available Total
Claim Govt Creditors A’s
Loan B’s
Loan Capitals
A B C
1/4
30/6 Balance b/d
Cash Realised
Less : Exp -
7360
360 37750 1500 3000 3750
2500 12000 9000 6000
Cash
Less : Paid to Govt 7000
(1500)
(1500)
(1500)
-
-
-
-
-
-
Balance Creditors
Less: Paid to G 5500
(3000) 36250
(3000)
- 3000
(3000)
3750
- 2500
- 12000 - 9000
- 6000
-
Balance
Less : Paid to A &
B loan 2500
(2500) 33250
(2500) - - 3750
(1500) 2500
(1000)
12000 - 9000
- 6000
-

31/5 Balance
Cash A/c (9100 -
300)
Less : Paid to A &
B loan -
8750
(3750) 30270

(3750) -
-
- -
-
- 2250

(2250) 1500

(1500)
12000 -
- 9000
-
- 6000
-
-
Balance
Less : Paid to A’s
Capital 5000
(3000) 27000
(3000) -
- -
- -
- -
- 12000 (3000) 9000
- 6000
-
Balance
Less : Paid to A &
B Capital 2000
(2000) 24000
(2000) -
- -
- -
- -
- 9000
(1000) 9000
(1000) 6000
-

30/6 Balance
Cash A/c (7800 -
300)
Less : Paid to A &
B -
7500
(7500) 22000
-
(7500) -
- -
- -
-
- -
-
-
8000
-
(3750) 8000
-
(3750) 6000
-
-

31/7 Balance
Cash
Less : Paid to A &
B -
4500
(2500) 14500
-
(2500)
- - 4250
(1250) 4250
(1250) -
Balance
Less : Paid to all in
PSR 2000
(2000) 12000
(2000) 3000
(500) 3000
(500) 6000
(1000) Loss on Realisation - 10000
2500 2500 5000 Balance
Less : Paid to B 32000
(8000) 148000 (8000)

-
- -
- -
- 60000
- 48000 (8000) 40000
- Balance Less : Paid to B & C24000
(20000) 140000 (20000)
-
- -
- -
- 60000
- 40000 (10000) 40000
(10000) Balance
Less : Paid to A, B
& C 4000
(4000) 120000 (4000) -
- -
- -
- 60000
(2000) 30000 (1000) 30000
(1000) Balance
Cash Realized
Less : Paid to all in
Profit Sharing Ratio -
80000
(80000) 116000
(80000) 58000

40000 29000
20000 29000

20000 Loss on realization - 36000

18000 9000 9000

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Financial Accounting
(Special Accounting
Areas) III

108 Illustration 6: -

Ajay, Vijay & Vishal were in partnership in profit sharing ration5:3:2.
Balance sheet as on 31st March 2014.

Liabilities Rs. Assets Rs.
Capital
Ajay 40000
Vijay NIL
Ajay’s Loan
Sunil’s Loan
Bank Loan
Creditors 40000 14000 16000 4000 30000 Cash
Debtors
Stock
Vishal Capital

500 44000 49500 10000 104000 104000
Realizations were –

15/04/2014 19500
31/05/2014 10000
31/07/2014 20000
31/08/2014 6000
30/09/2014 8000


Vishal brought necessary cash at the time of last realization. Show
Piecemeal Distribution of Cash.





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Piecemeal Distribution
109 Statement showing Piecemeal Distribution of Cash
Date Particulars Cash Total
Claims Creditors Bank
Loan Sunil Ajay Ajay Vijay Vishal

1/4
15/4 Balance b/d
Cash Realised 500
19500

94000 30000 4000 16000
14000 40000 - (10000)
Cash
Less : Paid to Creditors,
Bank Loan, Sunil 20000
(20000)
(20000)
(12000)
(1600)
(6400) -
- -
- -
- -
-

31/5 Balance
Cash Realized
Less: Paid to Creditors,
Bank Loan, Sunil
-
10000
(10000) 74000

(10000) 18000

(6000) 2400

(800) 9600

(3200) 14000
- 4000

- -

- (10000)

-

31/6 Balance
Cash Realized
Less: Paid to Creditors,
Bank Loan, Sunil
-
30000
(20000) 64000

(20000) 12000

(12000) 1600

(1600) 6400

(6400) 14000
- 4000

- -

- (10000)

-
Balance
Less : Paid t o Ajay Loan
Balance 10000
(10000) - 44000
(10000) 34000 -
-
- -
-
- -
-
- 14000 (10000) 4000 40000 -
40000 -
-
- (10000)
-
(10000)

31/7 Cash Realised
Less : Paid to Ajay Loan 20000
(4000) (4000) -
- -
- -
- (4000)
-

- -

Balance
Less : Paid to Aj ay Cap 16000
(16000) 30000
(16000) -
- -
- -
- -
- 40000 (16000) -
- (10000)
-

31/8 Balance
Cash Realised
Less : Paid to Ajay -
6000
(6000) 14000

(6000) -
-
- -
-
- -
- -
- 24000
(6000) -

- (10000)

-

30/9 Balance
Cash Realised
Add : Cash Received
from Vishal -
8000
10000 8000

10000 -
-
- -
-
- -
-
- -
-
- 18000 -
- -
-
- (10000)

10000
Balance
Less : Paid to Ajay 18000
(18000) 18000
(18000) -
- -
- -
- -
- 18000 (18000) -
- -
-
- - - - - - - - -

Note - Since only Ajay has Credit Balance in C apital Statement of
excess Capital can not be prorated.
Illustration 7: -
Following is the Balance Sheet of A, B & C who share P&L in the ratio
4:3:1 on 31st March 2013 on which date they dissolve their partnership.
Balance Sheet as on 31st March 2013.

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Financial Accounting
(Special Accounting
Areas) III

110 Liabilities Rs. Assets Rs.
Sundry Creditors
Bank O/D
Capital A/c
A 70000
B 30000
C 50000
26250
8750



150000 Bldg
Machinery
Stock
Debtors
50000
55000
20000
60000 185000 185000
1. Bank O/D is secured against stock.
2. The assets realized following amounts which were immediately
distributed.
May 31 – Debtors Rs.20000/ -
July 31 – Stock Rs.15000/ -
Sep 30 – Debtors Rs.25000/ -
Oct 31 – Machinery Rs.40000/ -
Dec 31 – Bldg Rs.65000/ -
No further sums could be realized. Show Piecemeal Distribution.
Working Note – Statement showing Excess Cap ital
Step No. Particulars Formula A B C
I Opening bal 70000 30000 50000
II Profit Sharing Ratio 4 3 1
III Unit Value III 17500 10,000
50000
IV Proportionate
Capital X II 40000 30000 10000
V Excess Cap I - IV 30000 - 40000
VI Profit Sharing Ratio 4 -
1
VII Unit Value VVI 7,500
-
40000

VIII Proportionate
Capital X VI 30000 - 7500
IX Excess Capital V-VIII - - 32500


munotes.in

Page 111

Piecemeal Distribution
111 Payment Chart
A B C
Steps : 9
8
4 -
30000
40000
-
-
30000 32500
7500
10000
Total 70000 30000 50000

Statement showing Piecemeal Distribution of Cash
Date Particulars Cash Total Creditors Bank O/D A B C
1/04/13
31 July Balance b/d
Cash Realised
Less : Paid to Creditors
& Bank O/D -
2000 0 (20000)185000
(20000) 26250

(15000) 8750

(5000) 70000

- 30000
- 50000

-

31 July Balance
Cash Realised
Less : Paid to Bank O/D -
15000 (3750) 165000
(3750) 11250

-
3750

(3750) 70000

- 30000
- 50000

-
Balance
Less: Paid to Creditors 1125 0 (11250)161250 (11250) 11250
(11250) NIL
-
70000
- 30000 - 50000
-

30 Sep Balance
Cash Realized
Less: Paid to Creditors -
25000 (25000)150000
(25000) -
-
- -
-
- 70000

- 30000
- 50000

(25000)
31 Oct Balance
Cash Realised
Less : Paid to Credito rs -
40000 (7500) 125000
(7500) -
- -
- 70000
- 30000 - 25000

(7500)
Balance
Less : Paid to A & C 32500 (32500)117500 (32500) -
-
- -
-
- 70000
(26000) 30000
- 17500
(6500)

31 Dec Balance
Cash Realised
Less : Paid to A & C -
65000 (5000) 85000
(5000) -
- -
- 44000

(4000) 30000

- 11000

(1000) Balance
Less : Paid to all in PSR 60000 (60000)80000
(60000) -
-
- -
-
- 40000
(30000) 30000
(22500) 10000
(7500) Loss - 20000 -
- -
- 10000 7500 2500

Illustration 8: -
A, B & C are partners sharing profits and losses equally. Their Balance
Sheet as on date of dissolution was follo ws.
munotes.in

Page 112

Financial Accounting
(Special Accounting
Areas) III

112 Liabilities Rs. Assets Rs.
Sundry Creditors
General Reserves
Due to Bank
Capital A/c
A 80000
B 160000
C 130000
11000
18000
33000



370000
Cash
Investment
Stationary
Sundry debtors
Bank
Furniture
Land & Buildi ng
140
30000
128300
45400
32600
4120
191440 432000 432000
All the sundry creditors have to be paid away. A sum of Rs.2400/ - has to
be provided for expenses of realization and subject to this all cash received
should be immediately distributed among partners the amount realized
were : -
1 32260 2 36000 3 212000 4 92600
Expenses of realization Rs.3000/ -.
Prepare statement showing Piecemeal Distribution of Cash.
Working Note – Statement showing Excess Capital
Step No. Particulars Formula A B C
I Balance b/d 86000 166000 136000
II Profit Sharing Ratio 1 1 1
III Unit Value III 86000 166000 136000
IV Proportionate Capital X II 86000 86000 86000
V Excess Cap I - IV - 80000 50000
VI Profit Sharing Ratio - 1 1
VII Unit Value VVI - 80000 50000
VIII Proportionate Capital X VI - 50000 50000
IX Excess Capital V-VIII - 30000 -

Payment Chart
A B C
Steps : 9
8
4 -
-
86000 30000
50000
86000 -
50000
86000
Total 86000 166000 136000
munotes.in

Page 113

Piecemeal Distribution
113 Statement showing Piecemeal Distribution of Cash
Date Particulars Cash Total Creditors Bank O/D A B C
1 Balance b/d
Add : Cash
Less : Distribution Exp
Less : Paid to Creditors
& Bank (1:3) 140
32260
(2400)
(30000) 432000


(30000) 11000


(7500) 33000


(22500) 86000


-
166000

- 136000


-

2 Balance
Cash Realised
Less : Paid to Creditors
& Bank O/D -
36000
(14000) 402000

(14000) 3500

(3500) 10500

(10500) 86000 166000 136000

Balance
Less: Paid to Bank 22000
(22000) 388000
(22000) NIL
- NIL
-
86000
- 166000 (22000) 136000
-

3 Balance
Cash Realised
Less: Paid to Bank -
212000 (8000) 366000

(8000) -
-
- -
-
- 86000

- 144000
(8000) 136000

-

Balance
Less: Paid to Bank &
Creditors 204000 (100000) 358000
(100000) -
- -
- 86000
- 136000 (50000) 136000
(50000)


Balance
Less : Paid to all 104000 (104000) 258000
(104000) -
- -
- 86000
(34666) 86000
(34667) 86000
(34667)

4 Balance
Cash Realised
Less : Exp -
92600
(600) 154000 -
- -
- 51334 51333 51333
Balance
Less : Pa id to all 92000
(92000) 154000
(92000) -
-
-
-
51334
(30667) 51333
(30667) 51333
(30666)
Loss on realization - 62000 - - 20666 20666 20667

Illustration 9: -
P, Q & R were in Partnership sharing Profits & Losses in the ratio of
4:5:1. Their Balance Sh eet as on 31st December 2013 is as under: -
Liabilities Rs. Assets Rs.
Capital A/c
P
Q
R
Sundry Creditors
Loans
P
Q
Reserves 75000 60000 15000 50000 30000 15000 50000 Cash in hand
Other Assets
15000 280000
295000 295000 munotes.in

Page 114

Financial Accounting
(Special Accounting
Areas) III

114 The Partnership is dissolved and the assets were realized as under: -
1st Realisation: Rs.50000/ -
2nd Realisation: Rs.100000/ -
3rd Realisation: Rs.85000/ -
On the date of the dissolution there was a contingent liability of Rs.5000/ -
against the firm which was settled at Rs.3500/ - at th e time of 2nd
realization. Realisation expenses were estimated at Rs.10000/ - but those
actually amounted to Rs.7500/ -. R took over stock worth Rs.2500/ - at the
time of 3rd realization. The firm was forced to pay Rs.3000 to sales tax
authorities as fine out of the 3rd realization for which no provision was
made prepare a statement showing distribution under Excess Capital
Method.
Working Note – Statement showing Excess Capital
Particulars P Q R
Capitals (as given) 75,000 60,000 15,000 Add Reserves 20,00 0 25,000 5,000
Actual Capitals 95,000 85,000 20,000
PSR 4 5 1
Capitals per unit of PSR 23,750 17,000 20,000
Capitals in PSR 68,000 85,000 17,000
Excess Capital 27,000 NIL 3,000
PSR 4 1
Excess Capital p.u. of PSR 6,750 3,000
Excess Capital in PSR 12,000 3,000
Extra Excess Capital 15,000 NIL

First pay Extra Excess Capital to P Rs. 15,000
Next pay Excess Capital to P and R Rs. 15,000 in the ratio 4:1
Next pay P, Q and R in PSR 4:5:1

28
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Page 115

Piecemeal Distribution
115 Statement showing Piecemeal Distribution of Cash
Date Particulars Cash Rs. Creditors Loan P Rs. Loan Q Rs. Capital
P Rs. Capital
Q Rs. Capital
R Rs.
1 Opening Balances 15,000 50,000 30,000 15,000 95,000 85,000 20,000 Add : First
Realisation 50,000 65,000 Less: Cash Kept
aside for contingent
Liab. Rs. 5,000 estimated realization exp. Rs. 10,000 15,000 50,000 Less: Paid to
creditors 50,000 50,000 NIL NIL Second Realisation 1,00,000 Add: Surplus
available from
amount Kept aside for
contingent lia b. (5000 -3500) 1,500 10,1500 Less: Paid to P & Q
loan 45,000 30,000 15,000 56,500 NIL NIL Less: Extra Excess
Cap. Paid to P 15,000 15,000 41,500 80,000 Less: Excess Cap.
To P & Q in the Ratio 4:1 15,000 12,000 3,000 26,500 68,000 17,000 Less : Paid to P,Q
& R in PSR 4:5:1 26,500 10,600 13,250 2,650 NIL 57,400 71,750 14,350 Third Realisation 85,000
Add: Surplus
available from
amount munotes.in

Page 116

Financial Accounting
(Special Accounting
Areas) III

116 kept aside for
estimat ed
realization
Expenses (10,000
-7,500) 2,500
87,500
Less: Sales Tax
fine paid 3,000
84,500
Less: Stock taken
Over by R 2,500 11,850 Less: Padi to P &
Q for stock taken over by R 22,500 10,000 12,500 -
62,000 47,400 59,250 11,850 Less: paid to P, Q
& R in PSR 4:5:1 62,000 24,800 31,000 6,200 Loss on
Realisation - 22,600 28,250 5,650


Note:
1) Keep aside cash for estimated realization expenses and contingent
liability at the beginning.
2) Excess amount of RS. 1500 kept aside for contin gent liability has been
added to the 2nd realization.
3) Excess amount of Rs. 2500 kept a side for realization expenses has
been added to the third realization.
4) Sales tax fine of Rs. 3000 has to be paid first from the third realization
being preferent ial creditor.
5) Stock taken over by R Rs. 2500 has been deducted from his capital
balance Rs. 10,000 has been paid to P & Rs. 12,500 to Q for stock
taken over by R.
PSR P Q R
Cash paid 4 5 1
250
(Proportionately in PSR) munotes.in

Page 117

Piecemeal Distribution
117 Illustration 10: -
The p artners X,Y & Z have called upon you to assist them in winding up
the affairs of their partnership on 30th June 2013. Their Balance Sheet as
on that date is given below:
Liabilities Rs. Assets Rs.
Sundry Creditors
Capital Accounts
X
Y
Z 34,000 1,34,000 90,000 63,000 Cash at Bank
Sundry Debtors
Stock in trade
Plant & Equipment
Loan – X
Loan – Y
12,000 44,000 28,000 1,98,000 24,000 15,000 3,21,000 3,21,000
1. The partners share profit and losses in the ratio of 5:3:2
2. Cash is distributed to the par tners at the end of each month
3. A summary of liquidation transactions are as follows:
July 2013
Rs. 33,000 – Collected from Debtors balance is uncollectible
Rs. 20,000 – Received from sale of entire Stock.
Rs. 2,000 – Liquidation expenses paid
Rs. 1 6,000 – Cash retained in the business at the end of month
August 2013
Rs. 3000 – Liquidation expenses paid as part payment of his capital, Z
accepted a piece of equipment for Rs. 20,000 (book value Rs. 8,000)
Rs. 5,000 – Cash retained in the business at t he end of the month
September – 2013
Rs. 1,50,000 – received on sale of remaining plant & equipment
Rs. 2,000 – liquidation expenses paid. No cash retained in the
business.
Prepare a statement showing distribution of cash by applying
proportionate capital method.

munotes.in

Page 118

Financial Accounting
(Special Accounting
Areas) III

118 Solution: – Statement of Excess Capital
X
Rs. Y
Rs. Z
Rs.
Balance 1,34,000 90,000 63,000 Less: Loans 24,000 15,000 -
1,10,000 75,000 63,000
Profit sharing Ratio 5 3 2
Taking X’s capital as the (22,000) (25,000) (31,500)
Basis (1=22,0 00) 1,10,000 66,000 44,000
9,000 19,000
Profit sharing Ration 3 2
Unit value (3000) (9500)
Taking Y’s Capital as the 9,000 6,000
basis (1= 3000)
- 13,000

Calculation of proportionate Capital after take over of equipment
X
Rs. Y
Rs. Z
Rs.
Balance on 1.9.2013 1,10,000 67,000 30,000
Profit Sharing Ratio 5 3 2
Unit value (22,000) (22,334) (15,000)
Taking Z’s capital as the basis
1 = 15,000
75,000
45,000
30,000
35,000 22,000 -

Note: If the share of partner in that realisation less than the value of asset
the asset is given to the partner concerned but it disturbs the earlier
calculation of surplus capital. Hence Surplus capital of partners is decided
again.
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Page 119

Piecemeal Distribution
119 Statement showing Distribution of Cash

Date Particulars Cash Rs. Total
Rs. Creditors
Rs. X
Rs. Y
Rs. Z
Rs.
Balances 34,000 1,34,000 90,000 63,000
Less : Loans
taken 24,000 15,000
2,82,000 34,000 1,10,000 75,000 63,000
June 2013
Cash Balance 12,000
Paid to
Creditors 12,000 12,000 12,000
2,70,000 22,000
July 2013
1st Realisation 53,000
Less: Expenses 2,000
51,000
Less: Cash
Retained 16,000
35,000
Paid to
creditors 22,000 22,000 22,000
13,000 2,48,000 -
Paid to Z 13,000 13,000 13,000
Balance due - 2,35,000 - 1,10,000 75,000 50,000
Aug 2013
Second
Realisation
July Balance
retained 16,000
Less: Expenses 3,000
13,000
Less: Cash
retained 5,000
8,000
Paid to Y 8,000 8,000 - 8,000
Equipment - 20,000 - 20,000 munotes.in

Page 120

Financial Accounting
(Special Accounting
Areas) III

120 given to Z
- 2,07,000 1,10,000 67,000 30,000
Sep 2013
Final
Realisation
August Balance retained 5,000
Sale of plant 1,50,000
1,55,000
Less: Expenses 2,000
1,53,000
Less: Paid to X & Y 57,000 57,000 35,000 22,000
96,000 1,50,000 75,000 45,000 30,000
Paid to X, Y &
Z
In 5 : 3: 2 96,000 96,000 48,000 28800 19200

54,000 27,000 16,200 10,800

Illustration No. 11
Partnership of L, M & N was dissolved on 31st October 2013 on which
date their Balance Sheet stood as under:
Liabi lities Rs. Assets Rs.
Capital A/cs: Goodwill 80,000 L 1,20,000 Buildings 52,500 M 1,30,000 Furniture 10,000 N 90,000 3,40,000 Stocks 1,52,000 Reserve 60,000 Debtors 1,35,500 Creditors 40,000 Cash 10,000

4,40,00 0

4,40,000 munotes.in

Page 121

Piecemeal Distribution
121 The partners were sharing profits & loss in the ratio of 3:2:1 respectively.
They decided to distribute the cash as and when it was received L agreed
to work as receiver on a remuneration of Rs. 5,000 and to bear all
expenses of realization when it was completed be found that he had spent
Rs. 1050 towards the expenses. Following details of realization were
available:
December 2013
January 2014
February 2014 Rs. 45,000
Rs. 1,20,000
Rs. 1,14,000

There was some stock of the book valu e of Rs. 9,000 lying unsold and it
was taken over by N at an agreed value of Rs. 5,000.
You are required to prepare the following (using excess capital method)
1. Statement of Surplus Capital
2. Statement showing monthly distribution of cash available.
Solution:
Statement showing surplus capital:
Step
No. Particulars Formula L
Rs. M
Rs. N
Rs.
Capital Balances 1,20,000 1,30,000 90,000
Add: Reserve 30,000 20,000 10,000 I Adjusted Capitals 1,50,000 1,50,000 1,00,000 II Profit sharing Ratio 3 2 1
III Unit values 50,000 75,000 1,00,000 IV Proportionate Capital
(Base L) 1,50,000 1,00,000 50,000 V Surplus Capital - 50,000 50,000 VI Profit sharing ratio 2 1
VII Unit values 25,000 50,000 VIII Proportionate Capital
(Base M) 50,000 25,000 IX Absolute surplus - 25,000 munotes.in

Page 122

Financial Accounting
(Special Accounting
Areas) III

122 Payment chart (IX, VIII, IV)
I - - 25,000
II - 50,000 25,000
III 1,50,000 1,00,000 50,000
1,50,000 1,50,000 1,00,000

Statement showing Piecemeal Distribution of Cash
Date Particulars Cash Total
Claims Creditors Capi tal Accounts (Adjusted)
L M N
1/11/13 Balance due 4,40,000 40,000 1,50,000 1,50,000 1,00,000 Cash Balance 10,000
Less: Remuneration to L (5,000)

5,000
Less: Paid to creditors (5,000) (5,000) (5,000)
- 4,35,000 35,000
Dec 13 Realisation in Dec 2013 45,000
Less: Paid to creditors (35,000) (35,000) (35,000)
10,000 4,00,000 -
Less: Paid to M (10,000) (10,000) (10,000) - 3,90,000 1,50,000 1,50,000 90,000
Jan 14 Realisation in Jan 2014 1,20,000
Less: Paid to M & N to
clear
Surplus capital 90,000 (90,000) (50,000) (40,000) 30,000 3,00,000 1,50,000 1,00,000 50,000
Less: Paid to all partners
in PSR 30,000 (30,000) (15,000) (10,000) (5,000)
- 2,70,000 1,35,000 90,000 45,000
Feb 14 Cash Realised 11,400
Less: Paid to all in PSR 11,400 1,14,000 57,000 38,000 19,000

- 1,56,000 78,000 52,000 26,000
Feb 14 Cash 6,000
Less: Paid to All in PSR (6,000) (6,000) 3,000 2,000 1,000


Loss on Realisa tion

75,000

50,000

25,000
munotes.in

Page 123

Piecemeal Distribution
123 Illustration 12 :
Avani, Binal and Cindy are partners sharing profits and losses in the ratio
of 4:2:1. They decided to dissolve the partnership as on 31st March 2013
when their Balance Sheet was as follows :
Balance Sh eet as on 31st March, 2013
Liabilities Rs. Assets Rs.
Creditors 16,820 Cash in hand 500 General Reserve 9,780 Investment 16,000 Capital : Avani 16,000 Machinery 38,740 Binal 32,000 Debtors 6,520 Cindy 26,000 Building 980 Furniture 37,860 1,00,600 1,00,600
All creditors have to be paid off. Rs. 300 has to be provided for realization
expenses.
Thereafter all cash received should be distributed among the partners.
The amounts were realized in installments as fol lows :
Rs.
1st 20,000 2nd 3,500 3rd 46,000 4th 24,000
The actual realization expenses were Rs. 500. Prepare a statement showing
piecemeal distribution of cash as per Excess Capital Method.




munotes.in

Page 124

Financial Accounting
(Special Accounting
Areas) III

124 Solution :
Statement of Excess Capital :
Sr. Particular s Avani Banal Cindy
Balance B/f 16,000 32,000 26,000 Add : General Reserve 5,600 2,800 1,400 Total 21,600 34,800 27,400 Profit Sharing Ratio 4 2 1 Unit Value 5,400 17,400 27,400 Proportionate capital taking A as base 21,600 10,800 5,400 Excess Capital -- 24,000 22,000 Profit Sharing Ratio 2 1 Unit Value 12,000 22,000 Proportionate capital taking B as base 24,000 12,000 Ultimate Surplus 10,000
Sr.
No. Particulars Cash
Available Total
claims Creditors Avani Binal Cindy
Balance B/f 500 1,00,600 16,800 21,600 34,800 27,400
Less : reserve for
Expenses 300
Balance 200
Less : paid to
Creditors 200 200 200
Balance 0 1,00,400 16,600 21,600 34,800 27,400
Add 1st Realisation 20,000
Less : paid to
Creditors 16,600 16,600 16,600
Balance 3,400 83,800 0 21,600 34,800 27,400
Less : Paid to Cindy 3,400 3,400 3,400
Balance 0 80,400 21,600 34,800 24,000
2nd realization 3,500
Less : Paid to Cindy 3,500 3,500 3,500
Balance 0 76,900 21,600 34,800 20,500
3rd realization 46,000
Less : paid to Cindy 3,100 3,100 3,100
Balance 42,900 73,800 21,600 34,800 17,400
Less paid to Binal &
Cindy 36,000 36,000 24,000 12,000
Balance 6,900 37,800 21,600 10,800 5,400
Less paid to all in
PSR 6,900 6,900 3,943 1,971 986
Balance 0 30,900 17,657 8,829 4,414
4th Realisation 24,000
Less : realization
expenses 200
Balance 23,800
Less : paid to all in
PSR 23,800 23,800 13,600 6,800 3,400
Loss on Realisation 7,100 4,057 2,029 1,014

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125 Illustration 13 :
Jam, Bread and Butter are partners sharing profits and losses in the ratio of
2 : 2 : 1. They decided to dissolve the partnership as on 31st March 2013
when their Balance Sheet was as follows :
Balance Sheet as on 31st December, 2013
Liabilities Rs. Assets Rs.
Creditors 15,000 Cash in hand 9,000 Income tax Payable 4,000 Investment 7,500 Bank loan (secured on
stock) 30,000 Machinery 17,800 Jams loan 11,000 Debtors 66,400 Capital Jam 40,000 Building 60,000 Bread 40,000 Furniture 9,300 Butter 30,000 1,70,000 1,70,000
Bank took over Stock and could realize Rs. 25,000 only. Rs. 3,000 were
paid for repairing furniture to get better price.
Thereafter al l cash received was distributed among all other liabilities and
the partners.
The amounts realized and expenses incurred were in installments as
follows.
Month Cash realized Rs. Expenses Rs.
January 2014 13,400 1,400 February 2014 17,200 2,200 March 2 014 11,500 1,500 April 2014 32,750 2,750 May 2014 36,640 1,640




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126 Solution :
Statement of Excess Capital :
Sr. Particulars Jam Bread Butter Balance B/f 40,000 40,000 30,000 Profit Sharing Ratio 2 1 1 Unit Value 20,000 40,000 30,000 Propor tionate capital taking Jam as
base 40,000 20,000 20,000 Excess Capital 20,000 10,000 Profit Sharing Ratio 1 1 Unit Value 20,000 10,000 Proportionate capital taking Butter
as base 10,000 10,000 Ultimate Surplus 10,000
Statement Showing Pi ecemeal distribution of Cash


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127

*after payment of Rs. 25,000 recovered from Stock
Illustration 14 :
Sonam, Nidhi and Pooja are partners sharing profits and losses in the ratio
of 4:2:1. They decided to dissolve the partnership as on 31st March 2013
when their Balance Sheet was as follows :
Balance Sheet as on 31st March, 2013
Liabilities Rs. Assets Rs.
Capital : Sonam 1,00,000 Land & Building 50,000 Nidhi 60,000 Machinery 1,50,000 Pooja 20,000 Debtors 45,000 10% Bank Loan
(unsecured) 40,000 Stock 34,500 Bills Payable 30,000 Cash and Bank 500 Creditors 30,000 2,80,000 2,80,000
Rs. 800 has to be provided for realization expenses.
Thereafter all cash received should be distributed among the partners. munotes.in

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128 The amounts were realized in installments as follows :
Rs.
1st 60,300 2nd 50,000 3rd 79,000 4th 27,700
The actual realization expenses were Rs. 500. Prepare a statement showing
piecemeal distribution of cash as per Excess Capital Method.
Solution :
Statement of Excess Capital :
Sr. Particulars Sonam Nidhi Pooja
Balance B/f 1,00,000 60,000 20,000 Profit Sharing Ratio 4 2 1 Unit Value 25,000 30,000 20,000 Proportionate capital taking Pooja
as base 80,000 40,000 20,000 Excess Capital 20,000 20,000 -- Profit Sharing R atio 4 2 Unit Value 5,000 10,000 Proportionate capital taking
Sonam as base 20,000 10,000 Ultimate Surplus 10,000
Particulars Cash
Available Total
claims BK
Loan B.P. Creditors Sonam Nidhi Pooja Balance B/f 500 2,80,000 40,000 30,000 30,000 1,00,000 60,000 20,000 Add : Cash
real 60,300 Less :
reserve for
Expenses 800 Balance 60,000 Less : paid
to Creditors 60,000 60,000 24,000 18,000 18,000 Balance -- 2,20,000 16,000 12,000 12,000 1,00,000 60,000 20,000 Add 2nd
Realisation 50,000 munotes.in

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129 Less : paid
to Credit,
loan, bs 40,000 40,000 16,000 12,000 12,000 Balance 10,000 1,80,000 -- -- -- 1,00,000 60,000 20,000 Less : Paid
to Nidhi 10,000 10,000 10,000 Balance -- 1,70,000 1,00,000 50,000 20,000 3rd
realization 79,000 Less : Paid
to Sonam,
Nidhi 30,000 30,000 20,000 10,000 Balance 49,000 1,40,000 80,000 40,000 20,000 Balance -- 91,000 52,000 26,000 13,000 4th
Realisation 27,700 Add :
Excess Re 300 28,000 Less : paid
to all in
PSR 28,000 28,000 16,000 8,000 4,000 Loss on
Realisation -- 63,000 36,000 18,000 9,000
4.7 EXERCISE
Q.1) A, B, and C carrying on business is partnership decided to dissolve it
on and from 30th Sept. 2013. The following was their Balance sheet on
that date:
Liabilities Rs. Assets Rs.
Capital Accounts: Sundry Assets 8,000 A 2,800 Cash & Bank 1,000 B 200 Advertisement
Suspense A/c 900 C 1,000 4,000 Profit & Loss 3,900 Loan from A 2,000

9,900

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130 As per the arra ngements with the bank, the partners were allowed to
withdraw an amount of Rs.500 only at present and the balance amount of
Rs.500 could be withdrawn only after 1st December,2009
It was decided that after kee ping aside an amount of Rs. 2,000 for
estimated realization expenses the available cash should be distributed
between the partners immediately.
The following were the realisation.
Fixed Assets
Rs. Current Assets
Rs.
31st October, 2013 1,000 1,900 25th November, 2013 2,600 2,000 20th December, 2013 ( Final) 1,000 900
Actual realisation expenses amounted to Rs. 1,100 only. Prepare the
statement showing the distribution of cash between the partners. under
excess capital method.
Q. 2 On 31st December, 2013 the Balance Sheet of the partners X, Y and Z
(sharing Profit and Losses in the ratio of 2:4:6 (respectively) is as follows:
Liabilities Rs. Assets Rs.
Capital Accounts: Sundry Assets 16,000 A 3,600 Cash 2,000 B 2,400 Advertisement
Suspense A/c 1,800 C 2,000 8,000 Profit & Loss 7,800 Loan from A 4,000

19,800

19,800
On Jan 1, 2014 the partners decide to dissolve the firm and distribute the
proceeds as and when realised.



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131 Prepare a statement showing the distribution accord ing to excess capital
Method. The realisations are as below:
Gross
Realisation Rs. Realisation
Expenses Rs. March 1, 2014 4,450 150 April 15, 2014 6,850 250 April 30, 2014 2,250 250
Q. 3 Lamb, Deer and Peacock were in partnership, their respective sh ares
being 1:2:2. The following was their Balance Sheet on 31st December,
2013. On which date they decided to dissolve the firm.
Liabilities Rs. Assets Rs.
Creditors 30,000 Cash 18,000 Income -Tax payable 8,000 Stock 80,000 Loan from bank
(Secured by ple dge of
stock 60,000 Debtors 1,20,000 Deer’s Loan 22,000 Furniture 72,000 Partner’s Capital: Motor car 50,000 Lamb 80,000 Deer 80,000 Peacock 60,000 2,20,000 3,40,000 3,40,000
1. The bank could realize on ly Rs. 50,000 on disposal of stock
2. A sum of Rs. 6,000 was spent for furniture on getting a better price.
3. Other assets were realised as follows
In January, 2014 Rs. 24,000
In February, 2014 Rs. 30,000
In March, 2014 Rs. 20,000
In April, 2014 Rs. 6 0,000
In May, 2014 Rs. 70,000 munotes.in