PARTNERSHIP FINAL ACCOUNTS - · PDF file · 2014-09-10PARTNERSHIP FINAL ACCOUNTS . Definition 9 Partnership is defined under the Indian Partnership Act, ... 9 Since Interest on Drawing

PARTNERSHIP FINAL ACCOUNTS

Definition

Partnership is defined under the Indian Partnership Act,

9 the A t as the relatio et ee the perso s ho ha e agreed to share the Profits of a business carried on by all or

any of them acting for all.

The persons forming the Partnership are called individually

Part ers and Collectively a fir . The written agreement among all partners is known as the

Part ership deed .

Partners Accounts (Fixed Capital Method)

M/s X & Y

Partners Capital Account

Dr. Cr.

Particulars X (Rs.) Y (Rs.) Particulars X (Rs.) Y (Rs.)

To Balance c/d xx xx By Balance b/d xx xx

By Cash/Bank xx xx

(Fresh Capital

brought)

xx xx xx xx

Partners Current Account

Dr. Cr.


To Bala e /d …… OR

xx xx By Balance b/d xx xx

To Cash/Bank /

Goods (drawings)

xx xx By Salary,

Commission etc.

xx xx

To Interests on

drawings

xx xx By Interest on

Capital

xx xx

To Share of Loss tfd. xx xx By Share of Profit

tfd.

xx xx

To Balance c/d

(If Credit Larger)

xx xx By Balance c/d

(If debit larger)

xx xx

xx xx xx xx

Partners Accounts (Fluctuating Capital Method)

M/s X & Y

Partners Capital Account


To Bala e /d …… OR

xx xx By Balance b/d xx xx

To Cash/Bank

(Withdrawn)

xx xx By Cash or Bank xx xx

To Goods (drawings) xx xx By Salary,

Commission etc.

xx xx

To Interest on

Drawings

xx xx By Interest on

Capital

xx xx

To Share of Loss tfd. xx xx By Share of Profit

tfd.

xx xx

To Balance c/d

(If Credit Larger)

xx xx By Balance c/d

(If debit larger)

xx xx

xx xx xx xx

Payments to Partners

1) Payments to Partners as per Act

No. Particulars Rate as per Act

1 Interest On Capitals Nil

2 Interest On Drawings Nil

3 Interest On Loans/Advances @ 6% per year

4 Salary , Commission etc. Nil

5 Profits or Losses To be Shared equally

2) Interest On capitals

No. Particulars Treatment in Accounts

1. If the Partnership deed provides that

such interest is a charge against

profits.

Interest On capitals will be charge against

the profits. i.e. allowed whether there are

profits and losses , and debited to the

P & L a/c.

2. If the Partnership deed provides for

payment of Interest but is silent

whether such interest is a charge or

an appropriation.

As per the Partnership Act, interest on

capitals will be allowed only out of Profits

(an appropriation) and debited to the

P & L Appropriation a/c.

3) Interest On Drawings

Since Interest on Drawing is an Income of the firm , it is

always shown on the credit side of the P & L Appropriation.

If date is not given then Interest on drawings is taken for 6

months.

Partnership Final Accounts

M/s X & Y

Trading Account For the year Ended………………….

Particulars Rs. Rs. Particulars Rs. Rs.

To Opening Stock xxxx By Sales xxx

To Purchases Xxx Less: Returns

Inward

xxx Xxxx

Less: Return Outward xxx xxxx By Goods Lost or

Destroyed

Xxxx

To Carriage Inward/

Import Duties

xxxx By Goods taken by

Partner

Xxxx

To Wages

(Manufacturing/

productive)

Xxxx By Goods given as

Free Samples

Xxxx

To Manufacturing

Expenses

xxxx By Closing Stock Xxxx

To Gross Profit /d … O‘ xxxx By Gross Loss c/d Xxxx

xxxx xxxx

Profit & Loss Account For the year ended…………………..

Particulars Rs. Particulars Rs.

To Gross Loss b/d

….O‘…………

xxxx By Gross Profit b/d xxxx

Administrative Expenses Other Incomes or Gain

To Insurance , Rent , Repair xxxx By Commission received xxxx

To Electricity xxxx By Discount Received xxxx

To salaries & Wages xxxx By Provision for Discount

from Creditors

xxxx

To Postage , Telegram, Fax

etc

xxxx By Interest on loan given

to outsiders

xxxx

To fees( Legal / audit etc) xxxx By Income (Dividend )on

Investment

xxxx

To sundry/ general/ Trade

expenses

xxxx By Profit on Sale of Fixed

Asset

xxxx

Continue……………


Selling & Distribution

Expenses

To Sales e s Salaries, Commission , etc.

xxxx

To Travelling xxxx

To Carriage Outward,

Freight , Duties

xxxx

To Warehousing Charges xxxx

To Packing expenses xxxx

To Royalties on Sale xxxx

To Advertising & Sale

Promotion

xxxx

To Goods given as free

samples

xxxx



Financial Expenses

To Interest & bank charges xxxx

To Bad debts & prov. For

Bad debts

xxxx

To Discount given &

Provision for Discount on

Debtors

xxxx

Depreciation

To Depreciation on: xxxx

- Plant & Machinery xxxx

- Building xxxx

- Vehicles xxxx

- Other xxxx



Other Expenses & Losses

To Goods Lost or Destroyed

( Cost Less Insurance Claim)

xxxx

To Loss on sale of Fixed

assets

xxxx

To Net Profit /d……….O‘….. xxxx BY Net Loss c/d xxxx

xxxx xxxx

Profit & Loss Appropriation Account For the year ended……….. Particulars Rs. Particulars Rs.

To Net Loss /d….O‘……… xxxx By Net Profit b/d xxxx

To I terest o Part er s Capital

xxxx By Interest on Drawings

To I terest o Part er s Loan

xxxx -X xxx

To salaries, Commission to

Partners

xxxx -Y xxx xxxx

To Transfer to Reserve xxxx By Net Loss tfd. To

Capital a/cs (In PSR)

To net Profit tfd. To capital

a/ s……O‘…… IN PS‘

xxxx -X xxx

-X xxx -Y xxx xxxx

-Y xxx xxxx

xxxx xxxx


Balance sheet as on……………. Particulars Rs. Rs. Particulars Rs. Rs.

Capital accounts Fixed Assets

-X xxx Goodwill xxxx

-Y xxx xxxx Land xxxx

Current Accounts Plant & Machinery xxx

-X xxx Less: Depreciation (xxx) xxxx

-Y xxx xxxx Building (Gross cost) xxx

Reserves Less: Depreciation (xxx) xxxx

General Reserve Vehicles (Gross cost) xxx

Loans from Partners Less: Depreciation (xxx) xxxx

-X xxx Investment xxxx

-Y xxx xxxx



Other Liabilities Current Assets

Loans from Bank xxx Stock xxxx

Add: Accrued Interest xxx xxxx Debtors xxx

Bank Overdraft xxxx Less: prov. For bad

debts

(xxx)

Sundry Creditors xxx Less: Prov. For

Discounts

(xxx)

xxxx

Less: Provision for

Discount

xxx xxxx Bills Receivable xxxx

Bills Payable xxxx

Loans and Advances

given

xxxx

Outstanding Expenses xxxx

Insurance claim

Receivable

xxxx

Income received in

Advances

xxxx

Prepaid Expenses xxxx

Cash in Hand xxxx

Bank Balance Xxxx

Xxxx xxxx

Adjustment in Final Account

Adjustment Profit & Loss A/c Balance Sheet

A. Errors

1. Sales Not Recorded Add to Sales as per T.B. Add to Debtors as per T.B.

2. Purchases Not Recorded Add to Purchases as per T.B. Add to Creditors as per T.B.

3. Goods on Sale or Return a) Deduct Sale Value from

Sales

a) Deduct Sales value from

Debtors

b) Add Cost to Closing Stock b) Add Cost to closing stock

4. Revenue Expenses Treated

as capital expenses

Add to Expenses a/c Deduct from Assets a/c

5. Capital Expenses treated

as Revenue Expenses

Deduct from Expenses a/c Add to Asset a/c

B. Current Expenses

6. Prepaid Expenses Deduct from Expenses a/c Show on Asset side

7. Outstanding Expenses Add to Expenses a/c Show on Liability side


8. Depreciation Show on Debit side Deduct from gross Cost of

each asset

9. Closing Stock Shown on Credit side Show on Asset Side

10. Deferred Revenue

Expenditure written off

Show Amt written off on

Debit side

Show on Remaining Balance

on Asset side

C. Current Income

11. Income due not received Add to Income a/c Show on Asset side

12. Income Received in

Advance

Deduct from Income a/c Show on Liability Side

D. Provision / Reserve

13. Reserve for Doubtful

Debts

Bad debts

Add: New Reserve

Less : Old Reserve

Final Figure

Note :1 If Final Figure (+)

show on Debits side P &L a/c

If Final Figure (-) Show on

Credit side P & L a/c

Deduct New Reserve from

Sundry Debtors


14. Reserve for Discount on

Debtors

Discount

Add: new Reserve

Less: Old Reserve

Final Figure


show on Debits side P &L a/c


Credit side P & L a/c


Sundry Debtors

15. Reserve for Discount on

Creditors

Discount

Add: New Reserve

Less: Old Reserve

Final Figure


show on Credit side P &L a/c


Debit side P & L a/c


Sundry Creditors


E. Losses / Gains

16. Goods Given away as

Samples

a) Show Cost on Cr. Of

Trading a/c

b) Show cost on Dr. of P & L

a/c

---

17. Goods Entirely Lost on

Assets side

a) Show Cost on Cr. Of

Trading a/c

b) Show cost on Dr. of P & L

a/c

---

18. Goods Lost; Insurance

Claim Due

a) Show full Cost on Cr. Of

Trading A/c

b) Show Loss (Cost less

Claim ) on Dr. of P & L a/c

Show Insurance Claim due

on Asset side

19.Goods taken by partner Show Cost on Cr. Of Trading

a/c

De it to Part er s Capital/ Current a/c

20. Profit on Sale of Asset Show Profit on Cr. Of P & L

a/c

Deduct W.D.V from Asset a/c

21. Loss on sale of Asset Show Loss on Dr. of P & L a/c Deduct W.D.V from Asset a/c

Adjusting Appropriation in Final accounts

Adjustments Profit & Loss

Appropriation a/c

Balance Sheet

1. Transfer to Reserve Show on Dr. of P & L Appr.

A/c

Show on Liability Side

2. Interest to Partners Show on Dr. of P & L Appr.

A/c

Credit Capital / Current a/c

3. Salary etc. to Partners Show on Dr. of P & L Appr.

A/c


4. Interest on Drawings Show on Cr. of P & L Appr.

A/c

Debit Capital / Current a/c

5. Net Profit Distributed Show on Dr. of P & L Appr.

A/c


6. Net Loss Transferred Show on Cr. of P & L Appr.

A/c

Debit Capital / Current a/c

Adjustment already in T.B.

Adjustment P & L a/c Balance Sheet

1. Prepaid Expenses a/c in

T.B.

-- Show on Asset side

2. Outstanding expense a/c

in T.B.

-- Show on Liability side

3. Income received in

advance a/c in T.B.

-- Show on Liability side

4. Income due not received

a/c in T.B.

-- Show on Asset side

5. Depreciation a/c in T.B. Show on Debit side --

6. Closing stock a/c in T.B. -- Show on Asset side

7. Provision for Depreciation

a/c in T.B.

-- Deduct from Asset a/c

Hidden Adjustments in T.B.

Trial Balance As On

31-3-2014

Trading , Profit & Loss a/c

For the year ended

31-3-2014

Balance Sheet As On

31-3-2014

1. Rent Paid (including

Rs.100 for April 2014)

Deduct Rs. 100 from Rent

Paid a/c

Show Rs.100 as Rent

prepaid on Asset side

2. Rent Paid (upto Feb.2014 )

Rs.1,100

Add Rs. 100 to rent Paid a/c Show Rs. 100 as Outstanding

Rent

3. Rent Received (upto

Feb.2014) , Rs.2,200

Add Rs.200 to Rent Received

a/c

Show Rs.200 as Rent

Receivable on Asset side

4. Rent Received (Including

Rs.200 for April 2014)

Deduct Rs.200 from rent

Received a/c

Show Rs.200 as Advance

Rent on Liability side

5. Leasehold Land:

Rs.1,00,000 (For 5 years

from 1-4-2013)

Write off Rs. 20,000 on Dr.

side

Deduct Rs.20,000 from

Leasehold Land on Asset

side

Trial Balance As On

31-3-2014

Trading , Profit & Loss a/c

For the year ended

31-3-2014

Balance Sheet As On

31-3-2014

6. a) Loan from XYZ

Rs.10,000 taken on 1-4-

2013

b) Interest to XYZ @ 10%

p.a. Rs.500

Add Rs.500 to Interest Paid

a/c

Show Rs.500 as Interest due

on Liability side

7. a) Machinery (W.D.V.) :

Rs. 4,200

b)Machinery Sold:

Rs.5,400

Show Profit Rs. 1,200 on

Cr.side

Deduct Rs.4,200 from

Machinery a/c in balance

Sheet

Adjustments On Admission of a Partner

When the new partner brings his share of Goodwill in Cash

1) Cash a/ …………………………Dr

To Goodwill a/c

Amount brought in as share of

goodwill

When the Goodwill is transferred to the Old Partners

2) Good ill a/ …………………..Dr

To Sa rifi i g Part ers apital / Current a/c

Share of Goodwill in Ratio of

sacrifice

Note:

1) Goodwill brought in Cash is like a sale of an unrecorded asset.

2) Goodwill is credited only to the sacrificing partners . In case any existing partner

has gained , Goodwill is not credited to him.

3) Since the Goodwill a/c closing balance is Nil , it will not appear in the Balance

Sheet .

4) If the Cash towards Goodwill is to be retained in Business , only the above two

entries are passed – no further entries need to be passed

Full Goodwill Brought in Cash and Retained

Only Part goodwill brought in cash & Retained

When the new partner brings his share of Goodwill in Cash

1) Cash a/ …………………………Dr

To Goodwill a/c

Goodwill Paid

When the Goodwill is transferred to the Old Partners

2) Good ill a/ ……………………………………..Dr

Ne Part er s apital/ urre t a/ ………Dr


Goodwill Paid

Balance Goodwill Unpaid

Full Goodwill in ratio of Sacrifice

Note:

1)Goodwill a/c will be credited for the amt of Goodwill brought in by the new partner.

2)At the ti e of re ordi g the tra sfer e tr e part er s apital a/ ill e de ited with his unpaid share of Goodwill in addition to debiting Goodwill a/c with the amt of

Goodwill paid by him. Thus, his capital will be reduced to that extent. When fixed

capital method is followed , then the current a/c of the new partner will be debited for

the unpaid amt of Goodwill.

Note:

3) Goodwill a/c closing balance is Nil. Hence Goodwill a/c will not appear in the

Balance sheet of the reconstituted firm.

4) If the Cash towards Goodwill is to be retained in Business , only the above two

entries are passed – no further entries need to be passed.

Goodwill withdrawn by Old partners

3) Sa rifi i g Part ers apital / Curre t a/ …Dr

To Cash a/c

Amt withdrawn

Note:

The Goodwill may be withdrawn either fully or partly.

Revaluation Method

When the new Goodwill a/c is revalued

1) Good ill a/ ………………….Dr

To Old Part ers Capital a/

Surplus on Revaluation in Old PSR

When the Goodwill a/c is written off

2) All Part ers Capital a/ ………….Dr

To Goodwill a/c

In new PSR

Value of Goodwill w/o

Note:

1. Value of Goodwill

The value of he goodwill to be considered in different cases is shown below-

a) Surplus on revaluation: The above entries are to be passed if there is surplus on

revaluation i.e. the new value of goodwill is more than the recovered value. The

amount debited to Goodwill a/c will be the difference between the recorded value

already appearing in the books and the new value of goodwill on revaluation.

b) No change on revaluation : If there is no change on revaluation , i.e. the new value

of goodwill is the same as the recorded value, no entry is to be passed in the

books.

Note:

c) Deficit on revaluation: If there is deficit on revaluation , i.e., the new value of

goodwill is less than the recorded value, the entry 1) shown above is to be passed

i the opposite a er , i.e. the Old Part ers Capital a/ are to e de ited a d the goodwill a/c is to be credited , so that the excess goodwill is written off.

Alternative Entry

Instead of the above two entries , when Goodwill a/c is not raised at all, only the

following one entry may be passed-

1) Ne Part er s apital/ urre t a/ ………Dr


His Share of goodwill in sacrificing

ratio

Note:

Compulsory written off as per AS-10

According to Accounting standard 10, issued by the Institute of Chartered Accountants

of India , Goodwill account being an Intangible asset should not appear in the books

i.e. it should be compulsorily written off and should not appear in the Balance sheet.

Written off existing Goodwill a/c

1) Old Partner Capital/Current a/c ….Dr

To Goodwill a/c

Goodwill w/o in Old PSR Existing

value (Note 2)

Note:

1) Compulsory written off as per AS-10

According to Accounting standard 10, issued by the Institute of Chartered Accountants

of India , Goodwill account being an Intangible asset should not appear in the books

i.e. it should be compulsorily written off.

2) Value of Goodwill

The value of the goodwill , to be considered for computing the share of the new

partner in it , is decided as shown below-

a) When no goodwill a/c appears in the books , it is his share in the Full value of

Goodwill.

b) When goodwill a/c appears in the books , and the partners decided not to

maintain it, it is his share in the present value of Goodwill.

c) When goodwill a/c appears in the books , and the partners decided to maintain it,

it is his share in the Unrecorded value of Goodwill.

Hidden Goodwill

Step Particulars Rs.

A. Net Worth o the asis of e part er s apital. Ne Part er's apital / Ne Part er s PS‘

xxxx

B. Actual Net worth after admission of new partner

xxxx

C Value of Goodwill (A – B)

xxxx

Note:

Net Worth = Asset Less Outside Liabilities Or, , capitals + Accumulated Profits and reserves.

Division of profits when a partner is admitted during year

Step What is to be done How is it to be done

1. Divide a/c year in 2 periods a. Period upto admission

b. Period after admission

2. Divide income between these 2 periods a. Specifically arising in a

particulars period

b. As per details available

c. On basis of time

d. On the basis of sales


3. Divide expenses between these 2 periods a. Specifically arising in a

particulars period


c. On basis of time(Fixed

exp)

d. On the basis of

sales(Other exp)

4. Divide Net Profit (NP) between these 2 periods a. NP upto admission

among old partner in Old

PSR

b. NP after admission

among all partner in New

PSR.

Problem With Solution for Admission of partner

1) A & B carried on a retail business in partnership sharing

profit & Loss A 2/3 & B 1/3 . Interest was allowed on

Part ers fi ed apitals at the rate of % p.a. No I terest as charged on drawings. On October 1 ,2013 , C & D were

admitted as partners and as from that date profits & losses

were shared : A 6/12, B 3/12 , C 2/12 & D 1/12. In Addition to

his share of the profit D was to be created with a salary at Rs.

6,000 p.a. The arrangements as to interest are to continue.

A trial balance extracted from the books as on December

31,2013 was as follows :

Particulars Dr (Rs.) Cr (Rs.)

Part er s Dra i g & Capital Fi ed a/

-A 40,000 60,000

-B 25,000 32,000

-C (Capital paid on Oct.31 , 2013) 2,000 24,000

-D (Capital paid on Oct.31 , 2013) 2,400 18,000

Stock – January 1, 2013 75,000

Purchases 2,77,000

Sales (up to Sept. 30 , 2013 Rs. 3,60,00) -- 4,84,350

Direct wages 40,000

Overheads & Trading expenses (excluding depreciation) 47,200

Fixed assets at Cost 60,000

Depreciation of Fixed Assets January 1,2013 20,000

Debtors 38,000

Provision for Doubtful debts 1,400

Creditors 27,400

Bank account 60,750

Other Information given to you is as follows:

1) Stock was valued as on December 31,2013 at Rs.69,100

2) Trade expenses accrued but not entered in the books

amounted Rs.1,200

3) Unsold goods costing Rs.4,000 which were on sale or return

had been invoiced on December 5, 2013 at Rs.6000 which

amount was included in sales and debtors.

4) Rs.8,000 is to be provided for depreciation for the year on

fixed assets.

5) The provision for Doubtful debts is to be increased to Rs.

5,000.

6) Allocate the Gross profit to the period before and after

admission in ratio of the respective sales

7)Expenses are to be allocated in the ratio of the no. of months.

Prepare the Trading & Profit & Loss A/c for the year ending on

31-12-013 and the Balance Sheet as at that date.

Solution:

M/s A , B ,C and D

Trading a/c for the year ended 31-12-2013


To Opening Stock By Sales 4,84,350

To Purchases Less: goods on Sale

or return

6,000 4,78,350

To Direct wages By Closing Stock 69,100

To gross Profit c/d Add: goods on sale

or return

4,000 73,100

5,51,450 5,51,450

Profit & Loss Account For the year ended 31-12-2013

Particulars Jan-Sept

(Rs.)

Oct- Dec

(Rs.)


(Rs.)

Oct- Dec

(Rs.)

To Overhead &

Trading expenses

(47,200 + 1,200)

36,300 12,100 By Gross profit b/d

(In Ratio of Sales)

1,20,000 39,450

To Depreciation 6,000 2,000

To Provision for

Doubtful debts

(5000 – 1400)

2,700 900

To Net Profit c/d 75,000 24,450

1,20,000 39,450 1,20,000 39,450

Profit & Loss Appropriation Account For the year ended 31-12-2013


(Rs.)

Oct- Dec

(Rs.)


(Rs.)

Oct- Dec

(Rs.)

To Salary to D

(6000/12 x 3)

---- 1,500 By Net Profit b/d 75,000 24,450

To Interest on

Capitals:

A: 5% on 60,000 2,250 750

B: 5% on 32,000 1,200 400

C: 5% on 24,000/12

x2

200

D: 5% on 18,000/12

x2

150



(Rs.)

Oct- Dec

(Rs.)


(Rs.)

Oct- Dec

(Rs.)

To Net Profit

transferred to Capital:

1. Profit up to 30-9 :

71,550

(75,000 – 2250 -1200)

A : 2/3 x 71,550 = 47,700

B: 1/3 X 71,550 = 23,850

2. Profit after 1-10 :

21,450

A: 6/12 x 21,450 = 10,725

B: 3/12 x 21,450 = 5,362

C: 2/12 x 21,450 = 3,575

D: 1/12 x 21,450 = 1,788

75,000 24,450 75,000 24,450

Balance Sheet As at 31-12-2013

Liabilities (Rs.) (Rs.) Assets (Rs.) (Rs.)

Capital Accounts: Fixed Asset (Gross

Cost)

60,000

A 81,425 Less: Depreciation

up to 31-12-2013

20,000

B 37,812 40,000

C 25,775 Less: Depreciation

for 2013

8,000 32,000

D 19,038 1,64,050 Stock 69,100

Sundry Creditors 27,600 Add: Goods on sale

or return

4,000 73,100

Trade expense

outstanding

1,200



Debtors 38,000

Less: Goods on sale

or return

6,000

32,000

Less: Provision for

Bad debts

5,000 27,000

Bank Account 60,750

1,92,850 1,92,850

Working Note:

1) The GP dividend in ratio of sales as follows:

a) 1,59,450 x 3,60,000 = 1,20,000

4,78,350

b) 1,59,450 – 1,20,000 = 39,450

2) The selling price (Rs.6,000) of goods on sale or return is

deducted from both sales and debtors.

3) The cost of goods on sales or return (Rs.4,000) is added to the

value of closing stock.

4) Partners Capital a/c

Particula

rs

A B C D Particula

rs

A B C D

To

Drawings

40,000 25,000 2,000 2,400 By Bal b/d 60,000 32,000 24,000 18,000

To Bal c/d 81,425 37,812 25,775 19,038 By

Interest

3,000 1,600 200 150

By Salary --- --- --- 1,500

By Profit

up to 30/9

47,700 23,850 --- ---

By Profit

after 1/10

10,725 5,362 3,575 1,788

1,21,425 62,812 27,775 21,438 1,21,425 62,812 27,775 21,438

5) Gross Profit is divided in ratio of sales up to and after the

admission as specifically mentioned.

6) Expenses are divided in ratio of number of months before and

after admission as specifically mentioned.

7) NP up to date of admission is distributed only to the old

partners in their old PSR. NP after admission is distributed to

all partners in their new PSR.

Problems for Assignment.

1) The following is the Trial Balance of Firm as on 31st December

2013.

Debit Rs Credit Rs

Cash 29700 Creditors 40500

Debtors 93000 Sales 540000

Rent & Rates 17700 Capital:-

Salary 36000 D 72000

Sundry Expenses 15600 E 36000

Stock 75000 F (including Goodwill) 12000

Purchases 330000

Sundry Asset 31500

Debit Rs Credit Rs

Drawings:-

D 45000

E 22500

F 4500

7,00,500 7,00,500

Adjustments:

1) D and E were partners sharing profits and losses equally.

2) Mr.F was admitted to the partnership on 1st July ,2013.

3) On 31st December ,2013 stock was valued at Rs.70,500.

4) Rent and rates paid in advance Rs.700.

5) Sundry expenses were outstanding Rs.400.

6) Depreciate Sundry Assets by 20% p.a.

7) Goodwill of the firm was valued at Rs.6,000 on 1st July ,2013

and not to appear in the Balance Sheet.

8) Interest on capital to be charged at the rate of 10% p.a.

You are required to prepare Trading , Profit & Loss a/c for the

year ended on 31st December ,2013 and Balance Sheet as on

the date.

2) A & B were partners sharing profit and losses in two third (A)

and One third (B) . Interest on Fixed capital was credited at

the rate of 5% p.a. No Interest was charged on drawings. On

1-1-2014 C was admitted as a partner ,and the new profit

sharing was A six-tenths, B three –tenths and C one-tenth. C

was to be credited with a salary at the rate of Rs.6,000 p.a. It

as agreed A that C s total share of profit i ludi g his salary and Interest on Capital should be

5) Gross Profit is divided in ratio of sales up to and after the

admission as specifically Mentioned

6) Expenses are divided in Ratio of number of months before

and after admission as specifically Mentioned.

7) NP up to date of admission is distributed only to the old

partners in their old PSR.NP after admission is distributed to

all partners in their new PSR.

3) Following is the Trail Balance of Partnership of A,B and C as on

31st December 2013.

Particular Amt Amt Particulars Amt Amt

Capital A 30,000 Debtors 30,000

B 20,000 Creditors 31,000

C 10,000 Purchases 35,000

Drawings A 3,000 Wages 3,500

B 2,000 Carriage Inwards 1,500

C 1,000 Sales 70,000


Particular Amt Amt Particulars Amt Amt

Building 20,000 Office &

Administrative

Expenses

10,000

Machinery 10,000 Selling &

Distribution Exp.

5,000

Furniture 5,000 Cash 8,000

Stock 3,000 Bank 8,000

Advance 16,000

Additional Information:--

1) On 31st July ,2013 C was admitted who brought Rs 10,000 as

his Capital for which the entry is passed he later on brought

Rs 2,400 for goodwill for which the entry is to be Passed.

2) A & B were sharing Profit and Losses as 3:2 after C admission

they shared Profit and Loss as 2:1:1.

3) The sales ratio for the first 6 months and second 6 months

has been 3:2. selling expenses are in direct proportion to

sales.

4) Out of Administrative expense Rs 1,000 belonged to second

half of the year only balance of the administrative expense to

be divided equally.

Closing stock Rs 3,000 on 30/6/2013 Rs 2,500 on 31/12/2013.

Depreciate building @5% p.a. Machinery@ 10% p.a.

Interest on Capital to be allowed on 10% p.a.

You are required to prepare Trading , Profit & Loss a/c for the year ended on 31st December ,2013 and Balance Sheet as on the date. Also Prepare partners Capital account showing the

final Balance

Adjustments On Retirementof a Partner

A.) If Goodwill is raised to its full Value

1) Good ill a/ …………………………Dr

To All Partners Capital a/c

Full/ Surplus Value

(in old PSR)

Note:

1) If Goodwill does not appear in the Books its Full value is considered . If Goodwill

already appeared in the Books its surplus value (the new value of G/W- Recorded

value) is considered.

If Goodwill is written off.

1) Continuing Partners

Capitala/ …………………………Dr

To Goodwill a/c

In New PSR

Adjustment of Goodwill on day of Retirement.

B.) If only retiring Partners share in G/W is Raised

1) Good ill a/ …………………………Dr

To Retiring Partners Capital a/c

Retiring partners share in

full/surplus valve.

Note:

1) If Goodwill does not appear in the Books Retiring partners share in its Full value is

considered . If Goodwill already appeared in the Books , His share in its surplus

value (the new value of G/W- Recorded value) is considered.

If Goodwill is written off.

1) Continuing Partners Capital

a/ …………………………Dr

To Goodwill a/c

In Ratio of gain

Alternati ely, if only the retiring partner s share of good ill is adjusted in Continuing partner s capital , ithout raising good ill a/c.

1) Continuing Partners Capital

a/ …………………………Dr

To Retiring Partners Capital a/c

In ratio of gain

His share in full/ surplus value of

goodwill

Note: If the continuing partners cash privately to the retiring partner against his

share in goodwill , no entry is passed in the books of the firm.

2) The value of goodwill to be considered in different cases is shown below—

A) Full Value or Surplus: - If Goodwill does not appear in the Books its Full value is

considered . If Goodwill already appeared in the Books its surplus value (the new

value of G/W- Recorded value) is considered.

B) No Change:- If the new value of goodwill is same as the recorded value, no entry is

passed in the books.

C) Deficit :- If there is deficit . i.e. the new value of goodwill is less than the recorded

value, the above entries are to be passed in the opposite manner.

Division of profits when a partner is Retires during year


1. Divide a/c year in 2 periods a. Period upto retirement

b. Period after retirement

2. Divide income between these 2 periods a. Specifically arising in a

particulars period


c. On basis of time

d. On the basis of sales


3. Divide expenses between these 2 periods a. Specifically arising in a

particulars period


c. On basis of time(Fixed

exp)

d. On the basis of

sales(Other exp)

4. Divide Net Profit (NP) between these 2 periods a. NP up to retirement

among old partner in Old

PSR

b. NP after retirement

among Continuing

partner in New PSR.

Computing Retiring Partner’s dues.

Particulars Amt Amt

Capital a/c(Cr.) , bal b/d xxxx

Add: Current a/c (Cr.) Bal Xxx

Share in Reserve Xxx

Interest on Capital till date of retirement Xxx

Salary till date of Retirement Xxx

Share in profits till date of retirement Xxx

Loan a/c bal b/d Xxx

Interest on loan a/c till it is repaid xxx xxxx

Particulars Amt Amt

Less: Current a/c (Dr.) Bal Xxx

Drawings a/c Xxx

Interest on Drawings xxx xxxx

Total Amt payable to retiring partner xxxx

Death Of a Partner

Death is a Compulsory Retirement:-

When a partner retires he leaves the firm voluntarily. When

Partner dies , he ceases to be a partner compulsorily.

The Partner who dies is known a the deceased partner and

the other partner who remain in the firm are known as the

continuing or surviving partner.

Accounting Adjustments:-

When a partner dies the following adjustments are made in the

accounts.

There is change in the profit sharing ratio of the continuing

partner.

The undistributed profits , reserves or losses are divided

among all partners.

Goodwill may be valued and adjusted.

The assets and liabilities are revalued.

The de eased part er s share i the profit of the fir till his death is calculated and credited to him.

the total amount due to the deceased partner is calculated.

This amount is payable. To the legal heirs, successors or

executors of the will of the deceased partner.

Share in Profits till death

1) Death at Year end: If a partner dies on the last day of

accounting year, he will get his share of the profits earned

during the year. Thus if a partner dies on 31st december2004

which is the last day of the firms accounting year, he will get

his share of profit earn during the year 2004 at the end of

the year (i.e. total profit x his profit sharing ratio)

2) Dies During the Year: However it is more likely that the

partner may die on any other day during the year. Thus in the

above example if the partner dies on 31st march, 2004. he has

right to share the profit earned only during the period

1/1/2004 to 31/3/2004. How the share of the deceased

partner in the profit up to death is calculated in such cases is

shown in the following example.

ENTRY

1) On Date of Death:

Profit & Loss A/ ……… Dr

To De eased Part er s apital a/

2) At Year End:

Profit & Loss Appropriatio a/ ………..Dr

To Profit & Loss Suspense a/c

Joint Life Policy

• Joint life policy is an insurance policy taken on the life of the

partners of the firm. The policy amount is paid by the

Insurance Company on the death of a partner.\

i. The amt received from the Insurance Company against the

Joint Life Policy (i.e. the assured amount ), is to be credited

to All the Part er s Capital a/ i ludi g the de eased partner in their Profit sharing ratio; and

ii. The total amt payable to the deceased partner is paid to his

legal successor e.g. his wife or son or executor etc.

iii. Treatment of Joint life Policy is explained in the following

illustration.

E.g. For Joint life Policy

X, Y and Z are partners sharing profits and losses in the ratio

2:2:1. On 1st January 2011, they took out a Joint Life policy of

Rs.1,00,000 . Annual premium of Rs.5,000 was payable on 1st

January each year. Last premium was paid on 1st January ,

2014. Y died on 1st March 2014 and Policy money was

received on 31st March 2014. The surrender value of policy as

on 31st December each year were as follows : 2011 – Nil ;

2012 –Rs. 1000 ; 2013 –Rs.2,500.

Show necessary a/c and balance sheet as on 31st December ,

each year , assuming in each case that:

1) The premium is charged to P & L a/c every year.

2) The premium is debited to Joint Life policy a/c and the

Balance of the year of the Joint life policy a/c is adjusted

every year to surender value; or

3) The premium is debited to Joint Life policy a/c and a sum

equal to premium is debited to P & L appropriation a/c and

credited to Joint Life Policy Fund.

Case 1: Joint Life Policy a/c

Date Particulars Rs. Date Particulars Rs.

31-3-2014 To Part ers Capital a/c

(X – 40,000 ; Y –

Rs.40,000 ; Z –

20,000)

1,00,000 31-3-2014

By bank a/c

(Policy money

received)

1,00,000

1,00,000 1,00,000

• Case 2: Joint Life Policy a/c


1-1-11 To bank a/c -

premium

5000 31-12-11 By P & L a/c 5,000


premium

5000 31-12-12 By P & L a/c

4,000

31-12-12 By balance c/d 1,000

1-1-13 To balance b/d 1,000 31-12-13 By P & L a/c 3,500


premium

5,000 31-12-13 By balance c/d 2,500

5,000 5,000

6,000 6,000

Cont………..


1-1-14 To balance b/d 2,500 31-3-14 By bank a/c

(Policy money

received)

1,00,000


premium

5,000

31-3-14 To Part er s apital a/c( X- 37,000 , Y –

37,000 , Z -18,500)

92,500

1,00,000 1,00,000

Balance Sheet as on 31-12-2011

Liabilities Rs. Assets Rs.

Joint Life policy Nil



Joint Life policy 1,000



Joint Life policy 2,500

• Case 3: Joint Life Policy a/c



premium

5000 31-12-11 By Joint life

policy fund a/c

5,000


premium

5000 31-12-12 By Joint life

policy fund a/c

4,000

31-12-12 By balance c/d 1,000

1-1-13 To balance b/d 1,000 31-12-13 By Joint life

policy fund a/c

3,500


premium

5,000 31-12-13 By balance c/d 2,500

5,000 5,000

6,000 6,000

Cont………..


1-1-14 To balance b/d 2,500 31-3-14 By bank a/c

(Policy money

received)

1,00,000


premium

5,000

31-3-14 To Joint life policy

fund a/c

92,500

1,00,000 1,00,000

• Joint Life Policy Fund a/c



a/c

5000 31-12-11 By P & L

Appropriation

a/c

5,000


a/c

4000 31-12-12 By P & L

Appropriation

a/c

5,000

31-12-12 To balance c/d 1000

1-1-13 By balance b/d 1,000


a/c

3,500 31-12-13 By P & L

Appropriation

a/c

5,000

31-12-13 To balance c/d 2,500

5,000 5,000

6,000 6,000

Cont………..


31-3-14 To Part er s Capital a/c (X – 38,000 , Y-

38,000 , Z -19,000)

95,000 1-1-14 By Balance b/d 2,500

31-3-14 By joint life

policy a/c

92,500

95,000 95,000



Joint Life policy fund Nil Joint Life policy Nil



Joint Life policy fund 1,000 Joint Life policy 1,000



Joint Life policy fund 2,500 Joint Life policy 2,500

Payment of Deceased Partner’s dues. Particulars Amt Amt

Capital a/c(Cr.) , bal b/d xxxx

Add: Current a/c (Cr.) Bal Xxx

Interest on Capital till date of death Xxx

Share in past profits and reserves Xxx

Share in profits on revaluation Xxx

Share in Goodwill Xxx

Salary till death Xxx

Interest on Capital till death xxx

Share in profit till date of death xxx

share in profit till date of death xxx

Loan a/ c bal b/d xxx

Interest on Loan a/c till it is repaid Xxx xxxx

xxxxxx

Particulars Amt Amt

Less: Current a/c (Dr.) Bal Xxx

Drawings a/c Xxx

Interest on Drawings xxx

Share in past losses xxx

Share in loss on revaluation xxx xxxx

Total Amt payable xxxx

Entries

1) Transfer current a/c (Cr.)

De eased part er s urre t a/ …………..Dr

To De eased Part er s Capital a/

2) Entire Amt paid:

De eased part er s apital a/ ……Dr

To Cash or Bank a/c

3) Amt transferred to Loan of legal heirs:

De eased part er s apital a/ ……Dr

To Loan of legal heirs a/c

4) Loan or Installments paid

Loa of legal heirs a/ …….. ……Dr

To Cash or Bank a/c

5) Interest on Loan a/c paid

I terest o Loa a/ ………..Dr

To cash or Bank a/c

6) Interest due on Loan a/c

I terest o Loa a/ …….Dr

To Loan of legal heirs a/c

Problem with Solution for Death of a Partner

1) The following figures were extracted from the Account Books

of Vimal & Co. , a Partnership firm having partners , Mr. A ,

Mr.B and Mr. V (Sharing profits & Losses in 2:1:1 ) as on 31st

March 2014.

Trial Balance As on 31-3-2014

Particulars Amt Amt

Mr. A s Dra i g & apital 10,000 46,000

Mr. B s Dra i g & apital 3,000 6000

Mr. V s Dra i g & apital 6,000 20,000

Gross profit -- 40,600

Salaries 11,000 ---

Particulars Amt Amt

Rates & taxes 8,000

Other Overheads 4,000

Commission Received --- 4,400

Fixed Assets 15,000

Furniture 5,000

Cash & Bank 55,000

1,17,000 1,17,000

The Partnership provides that : 1) Interest @ 5% p.a. (on the opening balance) is to be allowed on capitals ,

but no interest is to be charged on drawings. 2) The deceased partner shall be entitled to his share of Goodwill of the firm

calculated at two and half years purchase of the average profits of the preceding three years. The Profits of the preceding three years ended on 31-3-2011 , 31-3-2012, 31-3-2013 respectively were Rs.30,000, rs.25,000,Rs. 35,000

Mr. A died on 1-1- . It as agreed that A s E e utors should be paid such an amount. So as to leave balance of Rs.40,000 ,

which should be paid @ 12% p.a. Interest after one year.

A ou t as paid to A s e e utor ut o e tr as passed i the books.

Prepare the P & L A/c and Balance Sheet after considering

above mentioned partnership deed conditions.

Profit & Loss Account For the year ended 31-12-2014

Particulars Apr-Dec

(Rs.)

Jan- Mar

(Rs.)

Particulars Apr-Dec

(Rs.)

Jan- Mar

(Rs.)

To Salaries 8,250 2,750 By Gross Profit b/d 30,450 10,150

To Rates & taxes 6,000 2,000 By Commission 3,300 1,100

To Other Overheads 3,000 1,000

To Interest On Loan

to A s E e utors

-- 1,200

To Net Profit 16,500 4,300

33,750 11,250 33,750 11,250

Profit & Loss Appropriation Account For the year ended 31-12-2014

Particulars Apr-Dec

(Rs.)

Jan- Mar

(Rs.)

Particulars Apr-Dec

(Rs.)

Jan- Mar

(Rs.)

To Interest on Capital:

A( 46,000 X5% X 9/12

1725

B 225 75

V 750 250

To capital Pre

A 13800 X 1/2 6900

B 13800 X 1/4 3450


Particulars Apr-Dec

(Rs.)

Jan-

Mar(Rs.)


(Rs.)

Oct- Dec

(Rs.)

C 13800X 1/4 3450

To capital Post

B 3975 X 1/2 1987

C 3975 X 1/2 1988

______1

6500_

_______

11250

______

16500_

_______1

1250

Balance Sheet As at 31-12-2013


Capital Accounts: Goodwill 37500

B 8737 Fixed Asset 15000

V 20438 29175 Furniture 5000

A s E e utor Add Interest accured

40000

1200

41200

Cash & bank

Less paid to A s executor

55000

42125

12875

_______

70375

_______

70375


Particulars A B V Particulars A B V

To Drawing 10000 3000 6000 By balance b/d 46000 6000 20000

To A s E e utor

40000 - - By goodwill 37500 - -

To Bank 42125 - By interest on

capital

1725 300 1000

To Balance c/d - 8737 20438 By profit 6900 5437 5438

_____9

2125

_____1

1737

______2

6438

_____

92125

_____

11737

_____

_2643

8

Partners capital A/c

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PARTNERSHIP FINAL ACCOUNTS - · PDF file · 2014-09-10PARTNERSHIP FINAL ACCOUNTS . Definition 9 Partnership is defined under the Indian Partnership Act, ... 9 Since Interest on Drawing