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Introduction to Partnership and
1 Partnership Final Accounts
Content
1.1 Meaning and Definition of Partnership
1.2 The Indian Partnership act 1932.
1.3 Methods of Capital Account
Competency Statements
o The students will be able to:

 Understand meaning of Partnership
 Know the important features of Partnership
 Understand the meaning of "The Indian Partnership Act, 1932."
 Know the importance of Partnership Deed.
 Understand the provisions applicable in absence of Partnership Deed.
 Know how to maintain Capital Accounts of Partner.
Introduction :
The sole proprietorship has its limitations such as limited capital, limited managerial ability,
unlimited liability, no stability, absence of specialization etc. Hence when a business is to be set up
on a scale which needs more capital and involves more risk, two or more persons come together to
run it. They agree to share the capital, the management, the risk & profits of business, such mutual
relationship based on an agreement amongst these persons is termed as "Partnership". The persons
who have entered into the partnership are individually known as "Partners" and collectively as a
"Firm".
1.1 Meaning and Definition of Partnership :
Partnership is an organization where there is an
association of two or more persons coming together
to carry on a business with a view to share Profit or
Losses of a firm.
Definition :
Indian Partnership Act 1932 Section 4 defines
the partnership as, "It is the relation between persons
who have agreed to share the profits of a business carried on by all or anyone of them acting for all."
According to Prof. Handy, "Partnership is the relation existing between persons competent to
make contract, who agree to carry on a lawful business in common with a view to earn private gain.
1
Features of Partnership Firm
Dissolution
Principal
& Agent Agreement
Joint
Ownership Principal
& Features of
Management & Agent
Partnership
Firm
Lawful
Registration
Business
Sharing
Unlimited
of Profits &
Liabilities
Losses
1) Agreement :- Partnership is a result of agreement between partners. It could be written or oral.

A written agreement is preferred so that it can be used as a proof in the court of law & such
written agreement is known as “Partnership Deed.”
2) Number of Partners :- Minimum two partners are needed to start partnership firm and the
maximum number of partners are fifty according to companies Act 2013 (Amended in 2014)
3) Lawful business :- Business undertaken by partnership should be lawful. It cannot undertake
business which is not allowed by state. The definition of Partnership also does not permit any
illegal business.
4) Sharing of Profit and losses :- The purpose of partnership is to earn maximum profits. Partners
have to share profits & losses according to the ratio given in the agreement. If the agreement is
silent about the ratio then profit and loss sharing will be equal.
5) Unlimited Liability :- The liability of partners is unlimited joint and several that is, partners
are liable till the last rupee in their pocket. If assets of business is not sufficient to pay liabilities,
then personal property of partners can be used. If anyone of the partner is declared in solvent
then his liability will be borne by the solvent partner.
6) Registrations :- Registration of partnership firm is compulsory only in the state of Maharashtra
with effect from 1st April 2005. According to Indian Partnership Act, 1932, registration of
partnership firm is optional it means a firm may or may not be registered. Registration of firm
merely certifies its existence and it is a process of entering the name of Partnership Firm in the
register of Registrar.
7) Joint Ownership & Management :- Each partner is joint owner of the property of the firm,
so no partner can use property for personal use. All partners have equal rights in managing the
firm. So all partners are jointly responsible for the management of firm.
8) Principal and Agent :- Each partner works in two fold capacities i.e. principal and Agent. A
partner acts as a principal of the firm with outsiders and with other partners he acts as an agent.
2
9) Dissolution :- A partnership firm can be dissolved through agreement between the partner. If a
partner wants to close the firm he can dissolve the firm by giving fourteen days notice. The firm
can also be dissolved if a partner dies or retires, becomes insolvent or insane.
PARTNERSHIP DEED
The document containing the Partnership Deed
partnership agreement among partners is
called Partnership Deed. It contains the terms
and conditions which are agreed upon by all the
partners. An agreement may be written or oral
but when it's written, it's called a deed.
The Partnership Act doesn't make it
compulsory to have a written agreement.
However, in case of dispute among the
partners, it is always in the best course to have
a written agreement duly signed (by all the
respective partners) and registered under the
Act. Partnership Deed contains the rules and
regulation framed for the internal Management
of the firm. It is also an Article of Partnership.
Contents of the Partnership Deed
1) Name and address of the firm and its main
business.
2) Name and address of all partners and
duration of the partnership.
3) Capital contribution of all the partners
4) Ratio in which profits (and losses) are to
be shared.
5) Rights, duties and liabilities of the partners.
6) Provisions related to admission, retirement,
death etc. of a partner.
7) Rate of interest on capital, loan, drawings
etc.
8) Salaries, commission, etc. if payable to any partners.
9) Settlement of accounts on dissolution of the firm.
10) Method of settlement of disputes among the partners.
11) Any other matter relating to the conduct of business.
Importance of Partnership Deed
Partnership deed is a very important document because it is the written agreement which
contains all the terms and conditions of the partnership business. It forms the basis of mutual
relationship among the partner. Moreover, partnership deed regulates the rights, duties and liabilities
of all the partners as well as of firm. So by having partnership deed partners disputes in future may
be avoided.
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Hence it is always in favour, to have a written agreement i.e. partnership deed duly signed by
all the partners and registered under the Indian Partnership Act 1932.
1.2 Provision of the Indian Partnership act 1932:
At the time of formation of partnership firm, a document is prepared called as partnership deed
and all terms and conditions are mentioned into the deed, but if the partnership deed is silent about
any point then this issue is solved as per the provisions in Partnership Act 1932 section no 12 and 17
are made applicable to determine the following issues.
1) Distribution of profit : If the partnership deed is silent about the profit sharing ratio,
then the profit and losses are distributed among the partners is equal ratio.
2) Interest on drawings : As per the provision of Indian Partnership Act 1932, if the date of
drawing is not given then average of six month's interest is charged on drawings.
3) Interest on partner's loan : If the partner provides additional amount to the business as
loan, but rate of interest on loan is not given then 6% p.a. interest is allowed.
4) Interest on capital : If the partnership deed is silent about interest on capital then interest
is not allowed.
5) Salary or commission to Partners : As per the provision made in the Indian Partnership
Act 1932 no salary, commission, allowance or any remuneration is to be given to any of
the partners for any extra work done for the firm, However, if any provision is made in
partnership deed, then partners are entitled to get commission or salary as per the agree-
ment.
6) Admission of a new partner : As per the provisions of the Indian Partnership Act 1932,
no outside person can be admitted into the firm as a partner without the consent of other
partners.
1.3 Methods of Capital Accounts
Amount in cash or kind brought in by the partner to manage business activities is termed as
Capital. Partners maintain and operate some methods of the Capital Accounts. The two methods of
Capital Accounts are discussed below.
Methods of
Capital Account
Fixed Capital Fluctuating Capital

Method Method

Capital Account Current Account Capital Account
4
Fixed Capital Method:
In this method amount of capital of a partner remains the same at the end of that financial year.
There is no addition or subtraction from capital during the year. When this method is adopted partner's
open a new account in name of partner's Current Account and all the related to capital adjustments
are solved through Partner's Current Account. For example, Drawings. Interest on Drawings, Interest
on Capital, Partner's Salary, Commission, Brokerage, Share of Profit and Losses are recorded in to
Current Account.
Proforma of Fixed Capital Method
Partner's Capital Account
Dr. Cr.
Particulars X Y Particulars X Y
Amount Amount Amount Amount
(`) (`) (`) (`)
To Balance c/d XXX XXX By Balance b/d XXX XXX
By Cash/Bank A/c XXX XXX
[Additional capital]
By Assets A/c XXX XXX
[Capital in kind]
Total XXX XXX XXX XXX

By Balance b/d XXX XXX
Journal Entries
1) When additional capital is introduced by a partners
Cash / Bank A/c ..................... Dr.
To Partners Capital A/c
(Being additional capital introduced into the business)
2)When capital amount is brought in by a Partner in form of Assets
Assets A/c .................. Dr.
To Partners Capital A/c
(Being additional capital brought in kind)
Partner's Current Accounts:
When fixed capital method is adopted by the partnership firm, a new separate account is
opened i.e. 'Partner's Current Account'. In this account all adjustments related to capital are recorded.
Partner's Current Account may show debit or credit balance.
1) Drawings made by the partner in the current accounting year
2) Goods or any assets taken over by the partner.
3) Interest on partners capital allowed by the firm.
4) Interest on partners drawings charged by the firm.
5) Salary, Commission etc. payable to the partner.
6) Distribution of Profit or Loss of the firm.
5
Partner's Current Account:
Dr. Cr.
Particulars X Y Particulars X Y
(`) (`) (`) ( `)
To Balance b/d (Dr. Bal) XXX XXX By Balance b/d (Cr. Bal) XXX XXX
To Drawing A/c XXX XXX By Interest on Capital A/c XXX XXX
To Interest on Drawing XXX XXX By Salaries A/c XXX XXX
To Profit and Loss A/c XXX XXX By Commission A/c XXX XXX
(Share in loss) By Profit and Loss A/c XXX XXX
To Balance c/d XXX XXX (Share in Net profit)
By Balance c/d XXX XXX
XXX XXX XXX XXX
To Balance b/d XXX XXX By Balance b/d XXX XXX
1) Interest allowed on partner's capital
a) Interest on Capital A/c.............................................................Dr. XXX
To Partners Capital A/c/ Current Account XXX
(Being interest due on capital)
b) Profit and Loss A/C.................................................................Dr XXX
To interest on Capital A/C XXX
(Being interest on Capital transferred to profit and loss account)
2)Salary or Commission allowed to partners
a) Salary or Commission in Partner A/c......................................Dr. XXX
To Partners Current A/c / Capital Account ..................... XXX
(Being Salary or Commission due for payment)
b) Profit and Loss A/C.................................................................Dr XXX
To Salaries/ Commission A/C.......................................... ./ZXXX
(Being Salary/ Commission transferred to Profit and Loss A/C)
3)Cash or Goods taken over by the partners for their personal use.
a) Drawing A/c.............................................................................Dr. XXX
To Cash or Goods A/C XXX
(Being cash or goods withdrawn for personal use)
b) Partners Current A/c / Capital A/c...........................................Dr XXX
To Drawing A/c XXX
(Being balance on account transferred to current A/c)
4)Interest charged on drawing of the partners
a) Partners Current A/c / Capital A/c...........................................Dr. XXX
To Interest on Drawing account XXX
(Being interest charged on Drawing)
b) Interest on Drawings A/C........................................................ Dr XXX
To Profit and Loss A/C XXX
(Being interest on Drawings transferred to profit and loss account)
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5)Transfer of Net Profit
Profit and loss A/c ...........................................................................Dr. XXX
To Partners Current A/c / Capital A/c XXX
(Being profit transferred to Partner's Current / Capital Account)
6)Distribution of Net loss :
Partners Current A/c / Capital A/c...................................................Dr. XXX
To Profit and Loss A/c XXX
(Being loss adjusted to Partners Current / Capital Account)
Effects in Profit and Loss Account
Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
(`) (`) (`) ( `)
To Interest on Capital XXX By Interest on Drawings XXX
To Salary to Partner XXX
To Commission to Partner XXX
XXX XXX
Fluctuating capital method :
In this method, amount of capital balance changes every year. It is called as fluctuating capital
method. In this method the partner's current account is not opened. Hence all adjustments are solved
through Capital Account. Following are the general adjustment related to capital.
1) Initial or Opening Balance of capital
2) Additional Capital brought in by the partners in Cash or in kind.
3) Salary / Commission payable to partner
4) Interest payable on capital balance to partner
5) Drawings made during the year and interest payable on drawings by the partner
6) Withdrawal of part of the capital by the partner
7) Division and transfer of net disposable profit or net adjustable loss of the firm.
Proforma of Fluctuating Capital Method.
Partners Capital Account
Dr. Cr.
Particulars X X Particulars X X
(`) (`) (`) ( `)
To Balance b/d (Dr. Bal) XXX XXX By Balance b/d (Cr.Bal) XXX XXX
To Drawing A/c XXX XXX By Cash A/c XXX XXX
To Interest on Drawing XXX XXX [Addition made]
To Profit and Loss A/c XXX XXX By Interest on capital A/c XXX XXX
(Share in loss) By Salaries A/c XXX XXX
To Balance c/d XXX XXX By Profit and Loss XXX XXX
(Net Profit)
XXX XXX XXX XXX
By Balance b/d XXX XXX
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Examples
1) Anand and Bharat are partners sharing profits and losses in the ratio 2 : 3. On 1.4.2019 the
capital balance are Anand ` 60,000 and Bharat ` 30,000 their drawings are ` 12,000 and
` 10,000 respectively. As per the agreement partners are allowed 10% interest on capital and
interest on Drawings is to be charged at 12% p.a. Anand gets salary of ` 2,500 per month and
Bharat is entitled to get commission @ 3% on net sales which is ` 5,00,000. The firm's profit is
` 60,000. Prepare partners capital account for the year ended 31st March 2019 under :
1) Fixed Capital Method 2) Fluctuating Capital Method
Solution : 1) Fixed Capital Method
Dr. Partner's Capital A/cs Cr.

Particulars Anand Bharat Particulars Anand Bharat
(`) (`) (`) (`)
To Balance c/d 60,000 30,000 By Balance b/d 60,000 30,000
60,000 30,000 60,000 30,000

By Balance b/d 60,000 30,000
Dr. Partner's Current A/cs Cr.
(`) (`) (`) (`)
To Drawing A/c 12,000 10,000 By Interest on capital A/c 6,000 3,000
To Interest in Drawing 720 600 By Salaries A/c 30,000 -
To Balance c/d 47,280 43,400 By Commission A/c - 15,000
By Profit and Loss A/c 24,000 36,000
60,000 54,000 60,000 54,000
2) Fluctuating Capital Method

(`) (`) (`) (`)
To Drawing A/c 12,000 10,000 By Balance b/d 60,000 30,000
To Interest in Drawing A/c 720 600 By Interest on capital A/c 6,000 3,000
To Balance c/d 1,07,280 73,400 By Salaries A/c 30,000 -
By Commission A/c - 15,000
1,20,000 84,000 1,20,000 84,000

1)
Interest on Capital
Anand 60,000 × 10 = ` 6,000
100
10
Bharat 30,000 × 100 = ` 3,000
8
2) Interest on Drawings
12 6
Anand 12,000 × 100 × 12 = ` 720

12 6
Bharat 10,000 × 100 × 12 = ` 600

(Interest on Drawing always to be taken for 6 months In case date on Drawings in not mentioned)
3) Anand = 2500 x 12 = ` 30,000
3
4) Commission to Anand = 5,00,000 × = `15,000
100
5) Distribution of Profit ` 60,000 2:3
2
Anand = 60,000 × = ` 24,000
5
3
Bharat = 60,000 × = ` 36,000
5
2) Karan and Kiran are partners in M/s Mehta Enterprises. They have started business of ready
made garments on 1st April 2019 on which date they contribute ` 5,00,000 each as their initial
capitals. Karan has withdrawn ` 20,000 and Kiran has withdrawn ` 15,000 for their personal
use. Interest on capital is allowed @ 12% and interest on drawing is charged @ 3% p.a. Karan
is entitled to get salary, ` 1800 per month, Kiran is allowed to get commission @ 5% on net
sales. During the year net sales is ` 2,50,000 and net profit earned during the year is ` 60,000.
Prepare partners capital accounts under i) Fixed capital Method ii) Fluctuating Capital Method
Solution :
In the books of M/s Mehta Enterprises
1) Fixed Capital Method
Particulars Karan Kiran Particulars Karan Kiran
(`) (`) (`) (`)
To Balance c/d 5,00,000 5,00,000 By Cash/Bank A/c 5,00,000 5,00,000
5,00,000 5,00,000 5,00,000 5,00,000

Dr. Partner's Current Accounts Cr.
(`) (`) (`)
To Drawing A/c 20,000 15,000 By Interest on Capital A/c 60,000 60,000
To Interest on Drawing 300 225 By Salaries A/c 21,600 -
1,11,600 1,02,500 1,11,600 1,02,500
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2) Fluctuating Capital Method
Dr. Partner's Capital Accounts Cr.
(`) (`) (`) (`)
To Drawing A/c 20,000 15,000 By Cash/Bank A/c 5,00,000 5,00,000
To Interest on Drawing 300 225 By Interest on capital A/c 60,000 60,000
By Salaries A/c 21,600 -
To Balance c/d 5,91,300 5,87,275 By Commission A/c - 12,500
6,11,600 6,02,500 6,11,600 6,02,500

By Balance b/d 5,91,300 5,87,275
1) Interest on capital is calculated as follows :
Karan : On Opening balance i.e. ` 5,00,000 for 1 year
12
12% p.a. interest = ` 5,00,000 ×1years = ` 60,000
100
Kiran : On Opening balance i.e. ` 5,00,000 for 1 year
12
12% p.a. interest = 5,00,000 ×1years × = ` 60,000
100
2) Interest on Drawing is charged @3%
2 3
Karan : 20,000% × × = ` 300
12 100

2 3
Kiran : 15,000 × × = ` 225
12 100
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3) Commission paid to Karan = 2,50,000 × = ` 12,500
100
4) Profit of ` 60,000 is distributed equally between Karan and Kiran
1
Karan = 60,000 × 2 = ` 30,000

1
Kiran = 60,000 × 2 = ` 30,000
3) Mr. Amey and Mr. Ashish are partners in a partnership firm titled as M/s. Anand Enterprises
sharing profit and losses in the ratio 3 : 2 respectively. On 1st April 2018 their capital balance
were: Mr. Amey ` 1,00,000 and Mr. Ashish ` 50,000. Their drawing during the year were :
Mr. Amey : ` 20,000 and Mr. Ashish ` 25,000. As per partnership deed 10% p.a. interest is
allowed on capital and 12% p.a. interest is charged on drawing Mr. Amey gets salary ` 3000
p.m. and Mr. Ashish is entitled to get commission @ 5% on net sales which is ` 4,00,000. The
divisible profit is ` 90,000. Prepare partners capital Accounts for the year ending 31st March
2019 under
1) Fixed capital method 2) Fluctuating Capital Method.
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In the books of M/s. Anand Enterprises
1) Under Fixed Capital Method

Particulars
Amey Ashish Particulars Amey Ashish
Amt. (`) Amt. (`) Amt. (`) Amt. (`)
To Balance c/d 1,00,000 50,000 By Balance b/d 1,00,000 50,000
1,00,000 50,000 1,00,000 50,000
Dr. Partner's Current Accounts Cr.
Particulars Amey Ravi Particulars Amey Ashish
Amt. (`) Amt. (`) Amt. (`) Amt. (`)
To Drawing A/c 20,000 25,000 By Interest on Capital A/c 10,000 5,000
To Interest on Drawing A/c 1,200 1,500 By Salaries A/c 36,000 -
1,00,000 61,000 1,00,000 61,000

By Balance b/d 78,800 34,500
2) Under Fluctuating Capital Method
Particulars Amey Ashish Particulars Amey Ashish
Amt. (`) Amt. (`) Amt. (`) Amt. (`)
To Drawing A/c 20,000 25,000 By Cash/Bank A/c 1,00,000 50,000
To Interest on Drawing A/c 1,200 1,500 By Interest on capital A/c 10,000 5,000
By Salaries A/c 36,000 --------
To Balance c/d 1,78,800 84,500 By Commission A/c -------- 20,000
2,00,000 1,11,000 2,00,000 1,11,000
By Balance b/d 1,78,800 84,500
1) Interest on capital :
10
Mr. Amey = 1,00,000 ×1 Year × 100 = ` 10,000
10
Mr. Ashish = 50000 ×1 Year × 100 = ` 5,000
2) Interest on Drawings :
Interest on Drawing is calculated for the average. Period of 6 months as date of drawing is not
given.
6 12
Mr. Amey = 20,000 × 12 × 100 = ` 1200

6 12
Mr. Ashish = 25,000 × 12 × 100 = ` 1500
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3) Distribution of profit
3
Mr. Amey = 5 × 90,000 = ` 54,000
2
Mr. Ashish = 5 × 90,000 = ` 36,000
4) Sun and Moon were partners with capital of ` 10,00,000 and ` 5,00,000 respectively. They
agree to share profits in the ratio 3 : 2. Show how the following transactions will be recorded
in the capital accounts of the partners in both the cases when i) Capitals are fluctuatin and
ii) Capitals are fixed. They also introduced additional capital of ` 2,25,000 and ` 1,50,000
Particulars Sun Moon

(`) (`)
Interest on Capital 5% 5%
Drawing A/c (during 2016) 22,500 15,000
Interest on Drawings 1,350 900
Salaries 15,000 -
Commission 7,500 5,250
Share in Loss for the year 2016 45,000 30,000
Solution :
i) Fluctuating Capital method
Particulars Sun Moon Particulars Sun Moon
(`) (`) (`) (`)
To Drawing A/c 22,500 15,000 By Balance b/d 10,00,000 5,00,000
To Interest on Drawing 1350 900 By Cash/Bank A/c 2,25,000 1,50,000
To Profit & Loss A/c 45,000 30,000 By Interest on Capital A/c 55,625 28,750
(Loss) By Salaries A/c 15,000 -
To Balance c/d 12,34,275 6,38,100 By Commission A/c 7,500 5,250
13,03,125 6,84,050 13,03,125 6,84,050
ii) Fixed Capital method

(`) (`) (`) (`)
To Balance c/d 12,25,000 6,50,000 By Balance b/d 10,00,000 5,00,000
By Bank 2,25,000 1,50,000
(Additional Capital)
12,25,000 6,50,000 12,25,000 6,50,000
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Partner's Current Accounts
Dr. C r.
(`) (`) (`) (`)
To Drawing 22,500 15,000 By Interest on capital 55,625 28,750
To Interest on Drawing 1350 900 By Partner's Salaries A/c 15,000 -
To Profit & Loss A/c 45,000 30,000 By Commission A/c 7,500 5,250
To Balance c/d 9,275 - By Balance b/d - 11,900
78,125 45,900 78,125 45,900
Calculation of Interest on Capitals
Sun: 5% on ` 10,00,000 for one year will be
10,00,000 × 5
= 100 = ` 50,000

5% of ` 2,25,000 for 6 months will be
2,25,000 × 5 × 6
= 100 × 12 = ` 5,625

Total will be 50,000 + 5,625 = 55,625
Moon: 5% on 5,00,000 for one year will be
5,00,000 × 5
100 = ` 25,000

5% of ` 1,50,000 for 6 months will be
1,50,000 × 5 × 6
= 100 × 12 = ` 3,750

Total will be 25,000 + 3,750 = ` 28,750
Note :
1. Current Account balance may appear in either side i.e. Debit or Credit side
2. In the absence of any instruction the Capital Account should be prepared by Fluctuating
capital methods
3. Interest on loan of partners is treated as liability so it is credited to partners current ac-
count. But when there is no current account and partners are maintaining Fluctuating
capital method than interest on loan of partner is credited to Pratners Capital A/c
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Partnership Final Accounts
Contents -
2.1 Introduction and necessity of preparation of Final Accounts. 2.2 Preparation of Trading Account,
Profit and Loss Account and Balance Sheet with following adjustments.
a) Closing Stock
b) Outstanding expenses
c) Prepaid expenses
d) Income received in advance
e) Income receivable
f) Bad debts
g) Provision for doubtful debts
h) Reserve for discount on Debtors and Creditors
i) Depreciation
j) Interest on capital, drawings and loan.
k) Interest on Investments and loans given
1) Goods destroyed by fire/accident (Insured & Uninsured)
m) Goods stolen
n) Goods distributed as free samples
o) Goods withdrawn by partners
p) Unrecorded purchases and sales
q) Capital expenditure included in revenue expenses and vice versa
r) Bills Receivable dishonoured
s) Bills Payable dishonoured
t) Deferred expenses
u) Capital receipts included in revenue receipts and vice versa
v) Commission to working partners on the basis of Gross Profit, Net Profit/Sales etc.
Competency Statements -
The students will be able to :
• Understand the meaning of Final Accounts.
• Know the need and importance of Final Accounts.
• Know the effects of adjustments in Final Accounts.
• Know the meaning of Trading Account, Profit and Loss Account and Balance Sheet.
• Know how to find out financial results of the business.
2.1 Introduction :
As per the sole proprietary concern we will also prepare the Final Account of partnership firm,
the income statement and position statement. Final Account is the last stage of accounting procedure.
Generally following steps are followed in the accounting.
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Various Steps in Accounting :
Preparation of Journal/Subsidiary Books.
Preparation of Ledger.
Preparation of Trial Balance considering adjustments.
Preparation of Final Accounts which consist of

a) Trading A/c b) Profit and Loss A/c c) Balance Sheet
As per Income Tax Act, 1961 financial year starts on 1st April and ends on 31st March every
year.
Necessity of Preparation of Final Accounts :
Final account is prepared for the following various purposes.
1. To find out the Gross Profit or Gross Loss incurred during the year.
2. To find out the Net Profit or Net Loss of the business.
3. To know the financial position of the business at the end of every year.
4. To find out the amount of debtors and creditors.
5. To prepare various accounts for future planning.
6. To find the sources and application of fund.
7. To find out the value of goodwill for the purpose of reconstruction of firm.
8. To calculate various taxes of firm like income tax, etc.
2.2 Preparation of Partnership Final Accounts:
Trial Balance and adjustments are important in preparation of Final Account. The list of debit
and credit balances of all ledger account is called as "Trial Balance". The Final Account is prepared
at the end of every financial year.
Trading Account shows the Gross Profit or Gross Loss and Profit and Loss Account shows the
Net Profit or Net Loss of the firm. The Balance Sheet shows the financial position of the business in
the form of assets and liabilities at the end of year.
Trading Account :
Trading Account is a Nominal Account. Trading Account is opened in the trading organization
for the purpose to find out the Gross Profit or Gross Loss incurred during the year. In the debit side
of this account all direct expenses are recorded and in the credit side of account all direct incomes of
the firm's are recorded. If the trading account's credit side is more than debit side then account shows
the Gross Profit and vice versa. The Gross Profit or Loss is transferred to Profit and Loss Account.
J. R. Batliboi :
“The Trading Account indicates the results of buying and selling of goods while preparing this
account, the general establishment charges are ignored and only the transactions related to goods
are included.”
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Trading Account for the year ended...
Dr. Cr.
Particulars Amt. (`) Amt. (`) Particulars Amt. (`) Amt. (`)
To Opening Stock xxx By Sales xxx
To Purchases xxx Less : Return Inward xxx xxx
Less : Return Outward xxx xxx
To Carriage Inward xxx By Goods lost by fire xxx
To Freight xxx By Goods lost by theft xxx
To Dock Charges xxx By Goods distributed
To Custom Duty xxx as free samples xxx
To Wages Productive xxx By Goods lost in Accident xxx
Manufacturing Wages xxx By Goods withdrawn by
To Wages & Salaries xxx Partners xxx
To Import Duty xxx By Closing Stock xxx
To Coal/Coke/Gas/ By Gross Loss c/d xxx
Motive Power/Oil/
Water /Grease xxx
To Royalty on
Purchase/Production xxx
To Primary Packing
Charges xxx
To Factory Lighting &
Heating xxx
To Factory Rent & Rates xxx
To Factory Insurance xxx
To Works Manager's Salary xxx
To Gross Profit c/d xxx
xxx xxx
In the case of combined term of wages and salaries following treatment should be given :
a) When the item Wages and Salaries is given in which Wages are appearing first, it should be
transferred to Trading A/c debit side.
b) When the item Salaries and Wages is given in which Salaries appear first, it should be transferred
to Profit and Loss A/c – Debit side.
Profit and Loss Account :
Profit and Loss Account is the type of Nominal Account. Profit and Loss account is a main
account of income statement. It is prepared to ascertain the Net Profit earned or Net Loss suffered by
a business concern during the accounting year. All indirect expenses are to be recorded to the debit
side where as all indirect incomes are to be recorded to the credit side of this account. The credit
balance on this account shows Net Profit which is to be transferred to Capital Accounts credit side
or added in capital. The debit balance of this account shows, Net Loss which is to be transferred to
Capital Account debit side or deducted from Capital.
16
R.N. Carter, "A Profit and Loss Account is an Account into which all gains and losses
are considered in order to ascertain the excess of gain over the losses or vice versa.”
Pro-forma of Profit and Loss Account for year ended
Dr. Cr.
Particulars Amt. Amt. Particulars Amt. Amt.
` ` ` `
To Salaries xxx By Gross Profit b/d xxx
To Salaries & Wages xxx By Commission Received xxx
To Rent & Rates xxx By Discount Received/ Earned xxx
To Insurance xxx By Interest Received xxx
To Electricity/Lighting xxx By Dividend Received xxx
To Telephone, Postage xxx By Rent Received xxx
To Printing & Stationery xxx By Sundry/Miscellaneous Receipts xxx
To Travelling Expenses of Salesman xxx By Profit on Sale of Asset xxx
To Depreciation on Assets xxx By Net Loss transferred xxx
To Loading Charges xxx to Partners' Capital A/c /
To Audit Fees xxx Current A/c
To Entertainmen Exp. xxx
To Repairs / Renewals / Maintenance xxx
To Interest on Loan xxx
To Sundry/Miscellaneous Expenses xxx
To Conveyance xxx
To Loss by Fire xxx
To Loss by Theft xxx
To Loss in Accident xxx
To Goods distributed as free sample xxx
To Commission Allowed/ Given xxx
To Discount allowed xxx
To Allowances xxx
To Advertisement xxx
To Carriage Outward xxx
To Sale Charges xxx
To Bad Debts xxx
To Export Duty xxx
To Taxes xxx
To General Expenses xxx
To Trade Expenses xxx
To Legal Charges xxx
To Professional Charges xxx
To Bank Charges xxx
To Solicitor's Fees xxx
To Secondary Packing Charges xxx
To Loss on sale of Fixed Assets xxx
To Net Profit transferred to xxx
Partners' Capital A/c/ Current A/c xxx
xxx xxx
17
Balance Sheet :
Balance Sheet is a statement showing financial position of the firm on a particular day. All
liabilities are recorded to its left hand side where as all Assets are recorded to its right hand side. The
Balance Sheet is not an account but a statement showing the financial position of a firms, as on a
given date in the form of Assets and liabilities.
A. Palmer defines Balance Sheet as :
"The Balance Sheet is, a statement on a particular date showing on one side the traders property
and possessions and on the other side the liabilities".
Proforma of Balance Sheet is given below
Balance Sheet as on .......
Liabilities Amt. ` Amt. ` Assets Amt. ` Amt. `
Capital Accounts : Goodwill xxx
A xxx Land and Building xxx
B xxx Less : Depreciation xxx xxx
C xxx xxx Plant & Machinery xxx
Partners Current A/c Less : Depreciation xxx xxx
(Credit Balance) xxx xxx Furniture & Fixtures xxx
General Reserve xxx Less : Depreciation xxx xxx
Profit & Loss A/c xxx Equipment xxx
Loan on Mortgage xxx Less : Depreciation xxx xxx
Bank Loan xxx Delivery/Motor Van xxx
Loan from Partners xxx Less : Depreciation xxx xxx
Bills Payable xxx Leasehold / Freehold xxx
Bank Overdraft xxx Premises
Sundry Creditors xxx Less : Depreciation xxx xxx
Add/Less : Any other Patents xxx
adjustment Less : Depreciation xxx xxx
Less : Provision for xxx xxx Loose Tools xxx
Discount on Creditors Less : Depreciation xxx xxx
Outstanding Expenses xxx Investments xxx
Income received in xxx Stores & Spare Parts xxx
Advance xxx Less : Depreciation xxx xxx
Provision for Taxes xxx Prepaid Expenses xxx
Outstanding Incomes xxx
Loans and Advances xxx
Closing Stock xxx
Sundry Debtors xxx
+ Any adjustments
Less : Bad Debts(New) xxx
Less : Provision for Discount xxx xxx
on Debtors
Insurance Claim Receivable xxx
Bills Receivable xxx
Cash in Hand xxx
Cash at Bank xxx
Partners Current A/c
(Debit Balance) xxx
Total xxx Total xxx
18
Notes :
1) Every item in the Trial Balance must be shown only one time and in just one part of the
Final Accounts, excluding silent/ hidden adjustments.
2) Every adjustment must have two effects in Final Accounts i.e. debit and credit.
3) We have already studied this topic in XI standard as “Final Account of Proprietary
Concern.” Most of the theory part, explanation of journal entries, and effects of journal
entries are similar. To avoid repetition common explanation is not given in the XII stan-
dard. But explanation and Journal Entries of new adjustments are given. For common
references / explanation teachers and students can refer textbook of standard XI. First
topic in this book i.e Introduction to Partnership is also correlated with Partnership Final
Account. Students can refer topic no.1.
Adjustments :
Adjustment 1st Effect 2nd Effect
1. Closing Stock Balance Sheet Asset side Trading A/c credit side
2. Outstanding Expenses Add to the particular Balance Sheet Liability
Expenses on the debit side of Side
Trading/Profit and Loss A/c
3. Prepaid Expenses Deduct from the particular Balance Sheet Asset Side
expenses on the debit side of
Trading/Profit and Loss A/c
4. Income received in advance Deduct from the particular Balance Sheet Liability
(Pre-received Income) income on the credit side of Side
Profit and Loss A/c
5. Income receivable Add to the particular income Balance Sheet Asset Side
on the credit side of Profit and
Loss A/c
6. Bad debts (Additional or Show to the debit side of Profit Deduct from Sundry
New Bad debts) and Loss A/c (add to old bad Debtors in Balance Sheet
debts if any) Asset Side
7. Provision for Doubtful Show to the debit side of Deduct from Sundry
Debts (Reserve for Doubtful Profit and Loss A/c Debtors in Balance Sheet
debts, new R.D.D.) Asset Side
8. Reserve for discount on Show to the debit side of Deduct from Sundry
Debtors Profit and Loss A/c (Add to Debtors
discount allowed) Balance Sheet Asset Side
9. Depreciation Show on the debit side of the Less from the particular
Profit and Loss A/c asset in Balance Sheet
Asset Side
10. i) Interest on capital Show to the Debit Side of Profit Partners Capital/Current
and Loss A/c A/c Credit Side or add to
Capitals/ Current Account
19
ii) Interest on Drawings Show to the Debit Side of Show to the Credit Side of
partners Capital/Current A/c Profit and Loss A/c
or less from Capital/ Current
Account
iii) Interest on loan taken Show to the Debit Side of Add to loan taken in the
Profit and Loss A/c Balance Sheet Liability
Side
11. Interest on investment Show to the Credit Side of Balance Sheet Asset Side
and on loan given Profit and Loss A/c
12. i) Insured goods destroyed Trading A/c Credit Side (gross 1. Balance Sheet Asset
by fire/accident amount) Side (Claim amount)
2. Profit and Loss A/c Debit
side (Amount of Loss)
ii) Uninsured goods Profit and Loss A/c Debit Side Show to the Credit Side of
destroyed by fire/ Trading A/c
accident
13. Goods stolen Profit and Loss A/c Debit Side Show to the Credit Side of
Trading A/c
14. Goods distributed as free Profit and Loss A/c Debit Side Show to the Credit Side of
samples (Add in Advertisement if any) Trading A/c
15. Goods withdrawn by Show to the Credit Side of Partners Capital/Current
Partners for personal use Trading A/c or deduct from A/c Debit Side
Purchases A/c
16. i) Unrecorded Purchases Add to Purchases on the Debit Add to Creditors on the
Side of Trading A/c Liability Side of Balance
Sheet
ii) Unrecorded Sales Add to Debtors on the Asset Add to Sales on the credit
Side of the Balance Sheet Side of Trading A/c
17. i) Capital Expenditure Deduct from that particular Add to that particular asset
included in Revenue Revenue Expenses on the Debit in Balance Sheet Asset Side
Expenditure Side of Trading or Profit and
Loss A/c
ii) Revenue Expenditure Add to that particular Revenue Deducted from that
included in Capital Expenditure particular Asset in Balance
Expenditure Sheet
18. Bills Receivable dishonored Add the amount of bill Deduct the amount of bill
dishonored to Sundry Debtors dishonored from Bills
in the Balance Sheet Asset Side Receivable.
19. Bills Payable Dishonored Add the amount of bill Deduct the amount of bill
dishonored to Sundry Creditors dishonored from Bills
in the Balance Sheet Payable
20. Deferred Expenses of Advertisement Expenses Remaining amount of
Advertisement paid for 5 related to current year debited Advertisement is shown
years to Profit and Loss A/c on asset side of the
Balance Sheet as prepaid
Advertisement
20
21. Revenue Receipts included Add to sales on the credit side Add to Furniture on the
in Capital Receipts e.g. sale of Trading A/c. Asset Side of the Balance
of goods included in sale of Sheet
Furniture
22. Commission to partners Show to the Debit Side of Show to the Credit Side of
as percentage of Gross Profit and Loss A/c Partners Capital/Current
Profit/sales. A/c or Add to Partners
Capital A/c.
Hidden Adjustment Given in Trial Balance
Sr. Adjustment Given in Trading and Profit and Balance Sheet
No. Trial Balance Loss A/c
1. Salaries/Rent Paid Add the amount of Salaries/ Show separately the amount
(For 10 months) Rent for 2 months to Salaries/ of Salaries/Rent for 2 months
Rent respectively on the Liabilities Side of the
Balance Sheet
2. Insurance premium paid Deduct the proportionate Show separately the amount
for 1 year ending 30th amount of Insurance Premium of prepaid insurance on the
June, 2019 (Accounting for 3 months from insurance Assets Side of the Balance
year ends on 31st March on the Debit Side of Profit Sheet
2019) and Loss A/c
3. Advertisement expenses Show 1/4th amount of Show the remaining i.e. 3/4th
(for 4 years) Advertisement expenses on of Advertisement expenses
the Debit Side of Profit and (not written off) on the Assets
Loss A/c Side of the Balance Sheet
4. Rent received Add the proportionate amount Show the same amount on the
(for 11 months) of Rent for one month to Rent Assets Side of the Balance
received on Credit Side of Sheet
Profit and Loss A/c
5. 10% Loan (Borrowed on Show the amount of Interest Add the amount of Interest
1st Jan. 2018)(Accounting Payable on Loan for 3 months Payable on Loan on the
year ends on 31st March on the Debit Side of the Profit Liability Side of the Balance
2018) and Loss A/c Sheet
6. 16% Investment Show the amount of Interest Add the amount of Interest
(Purchased on 1st Jan. Receivable on Investment for Receivable on Investment on
2019) (Accounting year 3 months on the Credit Side the Assets Side of the Balance
ends on 31st March 2019) of the Profit and Loss A/c Sheet
7. 10% Government Bonds Show the amount of Interest Add the amount of Interest
Receivable on the Credit Side Receivable to Government
of Profit and Loss Account Bonds on the Assets Side of
the Balance Sheet or show
seperately in Balance sheet
Asset Side.
21
Important Points :
1) Each item from Trial Balance will be included only once in the Final Accounts i.e. either in
Trading or in Profit & Loss A/c or in Balance Sheet or in working section.
2) Each adjustment has two effects for the similar amount.
3) Debit balances of Trial Balance will appear on the debit side of Trading Account or Profit &
Loss A/c or on the asset side of the Balance Sheet.
4) Credit balances of Trial Balance will appear on the credit side of Trading Account or Profit &
Loss A/c or Capital Account or on the Liabilities Side of the Balance Sheet.
5) If Salaries and Wages are given as separate items, Wages are shown on the debit side of Trading
Account while salaries are shown on the debit side of Profit and Loss A/c. If the item is “Wages
and Salaries”, it is shown on the debit side of Trading A/c and if the items is “Salaries &
Wages”, it is shown on the debit side of Profit & Loss A/c.
6) If the Trial Balance contains only “Trade Expenses”, the item will be shown on the debit side
of Profit & Loss A/c. If the Trial Balance contains “Trade Expenses” and also other items like
“Sundry Expenses” or “Office Expenses” or “General Expenses” or “Miscellaneous Expenses”,
the item “Trade Expenses” is shown on the debit side of Trading A/c while the other items of
expenses are shown on the debit side of Profit &Loss A/c.
7) The adjustment for Bad Debts and Provision for Bad and Doubtful Debts should be effected
after other adjustments for Debtors are given effect to. Such adjustments can be unrecorded
sales, drawings included in Debtors, drawings treated as sales, etc.
8) Reserve for Discount on Debtors should be given effect after the adjustments for Bad Debts and
Provision for Bad and Doubtful Debts.
9) Reserve for Discount on Creditors should be given effect after making all the other adjustments
concerning Creditors.
10) Hidden / Self-explanatory adjustments are to be given effect even if there is no special instruction
in the problem in this respect.
11) Closing Stock should be taken at “Cost or Market Price, whichever is less."
12) If a manager or a partner is allowed commission at a certain percentage on Net Profit, such
commission should be calculated in the following manner depending upon how the commission
is quoted :
a) If it is on Net Profit before charging such commission :
Rate of Commission × Net Profit
Commission Amount =
100
b) If it is on Net Profit after charging such commission :
Rate of Commission × Net Profit
Commission Amount =
100+ Rate of Commission
13) When the date of drawings are not given Interest on drawings should be calculated on average
basis or for six months
Drawings × Rate × 6
100 12
14) If a partner introduces capital in the middle of the accounting year, then interest on capital
should be calculated on proportionate time period only. (This complication is not expected at
your Std. XII level).
22
Treatment of some important Items appearing in Trial Balance only :
i) Any outstanding expenses Liability Side of Balance Sheet

ii) Any Prepaid Expenses Asset Side of Balance Sheet
iii) Any outstanding income Asset Side of Balance Sheet
iv) Income Received in Advance Liability Side of Balance Sheet
v) Depreciation Debit Side of Profit & Loss A/c
vi) Loss on Sale of any Asset Debit Side of Profit & Loss A/c
vii) Goods withdrawn by partner Debit Side of Capital/Current A/c
viii) General Reserve / Reserve Fund Liability Side of Balance Sheet
ix) Deposit from Public Liability Side of Balance Sheet
x) Goods distributed as free samples Debit side of Profit & Loss A/C
xi) Suspense Account:
a) If it is on Debit Side Show the same figure on Asset Side
b) If it is on Credit Side Show the same figure on Liability Side
xii) Bank for Collection of Bills Asset Side of Balance Sheet
Steps for solving problem :

1) Prepare the necessary accounts, including the working notes.
2) Place some mark on Trial Balance items for external as well as internal adjustments.
3) Go through Trial Balance items and give only one accounting effect sequentially.
4) Go through Adjustments and give two accounting effects.
5) Close Ledgers in the working notes, except capital.
6) Find Gross Profit, Net Profit and transfer it to individual capital accounts.
7) Find the closing balance in capital and transfer it to Balance Sheet.
8) Tally the Balance Sheet.
23
Illustrations
1. Daya and Kshama are Partners sharing Profits and Losses in the ratio of 1:1 from the
following Trial Balance and additional information prepare Trading and Profit and Loss
account for the year ended 31st March 2019 and Balance Sheet as on that date.
Trial Balance as on 31st March, 2019
Debit Balance Amt. ` Credit Balance Amt. `
Stock (1/4/2018) 65,000 General Reserve 14,500
Bills Receivable 28,000 Capital:
Wages and salaries 9,000 Daya 1,60,000
Sundry Debtors 1,32,500 Kshama 1,20,000
Bad debts 1,000 Creditors 98,000
Purchases 1,48,000 R.D.D. 1,800
Motor car 68,000 Sales 2,85,500
Machinery 1,14,800 Outstanding Wages 700
Audit Fees 1,200 Purchases Returns 4,000
Sales Return 2,000 Discount 1800
Discount 2,300
Building 75,000
Cash at Bank 12,000
10% Investment 20,000
Advertisement(Paid for 9 months) 4,500
Royalties 3,000
6,86.300 6,86.300
Adjustment and Additional Information :
(1) Closing Stock ` 40,000.
(2) Depreciate Building and Machinery @ 5% and 3% respectively.
(3) Bills Receivable included dishonoured bill of ` 3000.
(4) Goods worth ` 1000 taken by Daya for personal use was not entered in the books of accounts.
(5) Write off ` 1800 as Bad debts and maintain R.D.D. at 5% on Sundry Debtors.
(6) Goods of ` 6000 were sold but no entry was made in the books of accounts.
24
IN THE BOOKS OF DAYA AND KSHAMA
Trading, Profit and Loss Account for the year Ended 31st March 2019
Dr. Cr.
Particulars Amt Amt Particulars Amt Amt
` ` ` `
To Opening Stock 65,000 By Sales 2,85,500
To Purchases 1,48,000 Add :Unrecorded Sales 6,000
Less - Purchases Return 4,000 1,44,000 2,91,500
To Royalties 3,000 Less : Sales Return 2,000 2,89,500
To wages and Salaries 9,000 By Goods take over by 1,000
Daya for Personal Use
To Gross Profit c/d 1,09,500 By Closing Stock 40,000
3,30,500 3,30,500
To Advertisement 4,500
Add : o/s for 3 months 1,500 6,000 By Gross Profit b/d 1,09,500
To Audit fees 1,200 By Interest Accrued on 2,000
To Depreciation on : Investment
Building 3,750 By Discount 1,800
Machinery 3,444 7,194
To Bad debts (old) 1,000
Add : New Bad Debts 1,800
Add : New R.D.D. 6,985
9,785
Less : R.D.D.(old) 1,800 7,985
To Discount 2,300
To Net Profit
(Transferred to Capital A/c's)
Daya 44,311
Kshama 44,310 88,621
1,13,300 1,13,300
25
Balance Sheet as on 31st March, 2019
Liabilities Amt. Amt. Assets Amt. Amt.
` ` ` `
Capital : Daya 1,60,000 Building 75,000
Add : Net Profit 44,311 Less : Depreciation 5% 3,750 71,250
Less: (Goods taken over by 1,000 2,03,311 Machinery 1,14,800
Daya for personal use) Less : Depreciation 3% 3,444 1,11,356
Capital Kshama 1,20,000 Bills Receivable 28,000
Add : Net Profit 44,310 1,64,310 Less : Bills Receivable 3,000 25,000
General Reserve 14,500 Dishonoured
O/s Advertisement Exp. 1,500 Motor Car 68,000
(3 months) Cash at Bank 12,000
Creditors 98,000 Closing Stock 40,000
Outstanding Wages 700 Sundry Debtors 1,32,500
Add : Bills Receivable 3,000
Dishonoured
1,35,500
Add : Unrecorded Sales 6,000
1,41,500
Less : Bad debts (New) 1,800
1,39,700
Less : R.D.D. 5% (New) 6,985 1,32,715
10% Investment 20,000
Add : Interest Accrued 2,000 22,000
4,82,321 4,82,321
Working Notes :
(1) Adjustment No. 3, 5 and 6 are co-related with sundry Debtors. So, while calculating R.D.D.
5% on sundry Debtors, Amount of dishonour of Bills ` 3,000) and goods sold but not recorded
(` 6000) will be added into the sundry Debtors, then new Bad Debts will be deducted and then
Less R.D.D (New) 5% 6985 after 5% R.D.D should be calculated.
1st effect Sundry Debtors 1,32,500
Add : Bills dishonoured 3,000
Add : Unrecorded sales 6,000

1,41,500
Less Bad debts (New) 1,800

1,39,700
Less R.D.D (New) 5% 6,985

` 1,32,715 (Shown on Assets side of Balance Sheet)
26
`
2nd Effect To Bad debts (Old) 1,000
Add Bad debts (New) 1,800
Add New R.D.D 6,985

9,785
Less R.D.D. (Old) 1,800

` 7,985 - (Shown on Debit side of Profit and
Loss A/C)
2. From the following Trial Balance and Adjustments given below you are required to prepare
Trading and Profit and Loss Account for the year ended 31st March, 2019 and Balance
Sheet as on that date in the books of Shilpa and Katrina.
Particulars Debit ` Particulars Credit `
Land and Building 37,800 Capital
Furniture 17,250 Shilpa 45,000
Sundry Debtors 40,000 Katrina 45,000
Stock (1/4/2018) 65,000 Bills payable 17,500
Bad Debts 400 Bank Over draft 10,000
Printing and Stationary 4,000 Purchases Return 1,480
Wages 3,000 Sundry Creditors 22,000
Salaries 5,000 Bank Loan 15,000
Carriage Inward 4,000 Interest received 1,500
Sales Return 2,000 R.D.D 1,000
Drawings : Sales 1,20,000
Shilpa 2,000
Katrina 3,000
Discount 2,030
Advance Given to Shaharukh 10,000
Cash in hand 20,000
Cash at Bank 8,000
Interest 1,000
Commision 2,000
Royalties 2,000
Purchases 50,000
2,78,480 2,78,480
Adjustments
(1) The Stock in Hand was valued at ` 58,000 on 31st March, 2019.
(2) Outstanding Expenses : Royalties ` 1,500 and Wages ` 800.
27
(3) Salaries paid in advance to staff ` 2,000.
(4) Create a provision for Bad Debts ` 1,000 and Reserve for Doubtful Debts 3% on Sundry
Debtors.
(5) Depreciate Land and Building by 5% and Furniture by 10%.
IN THE BOOKS OF SHILPA AND KATRINA

Trading and Profit and Loss Account for the year ended 31st March 2019
Dr. Cr.
` ` ` `
To Purchase 50,000 Less : Sales Return 2,000 1,18,000
Less : Purchases Return 1,480 48,520 By Closing Stock 58,000
To Wages 3,000
Add : O/s Wages 800 3,800
To Royalties 2,000
Add : O/s Royalties 1,500 3,500
To Carriage Inward 4,000
To Gross Profit c/d 51,180
1,76,000 1,76,000
To Salaries 5,000 By Gross Profit b/d 51,180

Less : Advance Salary 2,000 3,000 By Interest Received 1,500
To Bad debts (Old) 400
Add : Bad Debts (New) 1,000
Add : R.D.D. (New) 1,170
2,570
Less - R.D.D. (Old) 1,000 1,570
To Depreciation :
Land and Building 1,890
Furniture 1,725 3,615
To Printing And Stationary 4,000
To Discount 2,030
To Interest 1,000
To Commission 2,000
To Net Profit
(Transfered to Capital A/c)
Shilpa 17,732
Katrina 17,733 35,465
52,680 52,680
28
Liabilities Amount Amount Assets Amount Amount
` ` ` `
Capital : Land and Building 37,800
Shilpa 45,000 Less : 5%Depreciation 1,890 35,910
Add : Net Profit 17,732 Furniture 17,250
62,732 Less :10% Depreciation 1,725 15,525
Less : Drawings 2,000 60,732 Sundry Debtors 40,000
Katrina 45,000 Less : Bad debts 1,000
Add : Net Profit 17,733 39,000
62,733 Less : R.D.D. 3% 1,170 37,830
Less : Drawings 3,000 59,733 Cash in Hand 20,000
Bills Payable 17,500 Cash at Bank 8,000
Outstanding Expenses : Closing Stock 58,000
Wages 800 Advance Salary 2,000
Royalties 1500 2,300 Advance to Shaharukh 10,000
Bank Overdraft 10,000
Sundry Creditors 22,000
Bank Loan 15,000
1,87,265 1,87,265
3. Rucha and Juili are partners sharing Profits and Losses in their Capital Ratio. From the
following Trial Balance and adjustments you are required to prepare Final Accounts.
Purchases 48,000 Capital A/c
Trade Expenses 3,000 Rucha 80,000
Salaries 4,500 Juili 40,000
Wages and Salaries 2,800 Sundry Creditors 22,000
Advertisement (2 Years) 4,000 Sales 1,48,000
Sales Returns 8,000 R.D.D. 1,200
Freehold Property 23,000 Bills Payable 12,000
Office Rent 5,000 Purchases Return 6,000
Motor Van 40,000
Stock (1/4/2018) 89,500
General Expenses 2,500
Sundry Debtors 62,000
Coal, Gas, Fuel 1,000
Carriage Inward 800
Carriage Outward 1,300
Plant and Machinery 13,800
3,09,200 3,09,200
29
Adjustments :
(1) Closing Stock is valued at ` 88,000 (Cost Price) and ` 90,000 (Market Price)
(2) Rucha and Juili withdrawn Goods from business ` 3000 and ` 2000 respectively for their
personal use.
(3) Depreciate Motor Van by 5% and Plant and Machinery by 7%.
(4) Reserve for Doubtful Debts on Debtors @ 5% is to be created.
(5) Outstanding Wages ` 800.
(6) Goods of ` 6000 were purchased on credit and credit sales of ` 6000 but no entry was found in
the Books of Account.
IN THE BOOKS OF RUCHA AND JUILI
Dr. Cr.
` ` ` `
To Purchases 48,000 Add : Unrecorded 6,000
Add : Unrecorded 6,000 Sales
Purchases 1,54,000
54,000 Less : Sales Return 8,000 1,46,000
Less : Purchases Return 6,000 48,000 By Closing Stock 88,000
To Wages and Salaries 2,800 By Goods withdrawn
Add : Outstanding Wages 800 3,600 by Partners :
To Trade Expenses 3,000 Rucha 3,000
To Coal, Gas Fuel 1,000 Juili 2,000 5,000
To Carriage Inward 800
2,39,000 2,39,000

To Depreciation
Motor Van 2,000
Plant and Machinery 966 2,966
To R.D.D. (New) 3,400
Less : R.D.D. (Old) 1,200 2,200
Less : Prepaid Advt. 2,000 2,000
To Office Rent 5,000
To General Expenses 2,500
To Carriage Outword 1,300
To Net Profit (Transferred
to Capital A/c's)
Rucha 48,423
Juili 24,211 72,634
93,100 93,100
30
` ` ` `
Capitals : Motor Van 40,000
Rucha 1,25,423 Less : Depreciation 5% 2,000 38,000
Juili 62,211 1,87,634 Plant and Machinery 13,800
Outstanding Wages 800 Less : Depreciation 7% 966 12,834
Sundry Creditors 22,000 Debtors 62,000
Add : Unrecorded 6,000 28,000 Add: Unrecorded Sales 6,000
Purchases 68,000
Bills Payable 12,000 Less : R.D.D. 5% 3,400 64,500
Closing Stock 88,000
Prepaid Advertisement 2,000
Freehold Property 23,000
2,28,434 2,28,434
Dr. Partners Capital Account Cr.
Particulars Rucha Juili Particulars Rucha Juili
` ` ` `
To Drawings 3,000 2,000 By Balance b/d 80,000 40,000
To Balance c/d 1,25,423 62,211 By Profit and Loss A/c 48,423 24,211
1,28,423 64,211 1,28,423 64,211
By Balance b/d 1,25,423 62,211
Working Notes :
(2) Advertisement Expenses are paid for 2 Years , so expenses of one year ` 2000 are prepaid.
Prepaid Expenses (Advertisement) is treated as an Asset. The amount of prepaid should be
deducted from total amount of Advertisement in Profit and Loss Account.
31
4. From the following Trial Balance of Mr. Piyush and Mr. Arun. You are required to prepare
Trading and Profit and Loss Account and Balance Sheet as on the date:
Stock (1/4/2018) 30,800 Capital Account
Purchases 80,000 Piyush 80,000
Salaries 5,000 Arun 80,000
Wages 7,500 Sundry Creditors 20500
Carriage 3,000 Interest received on Fixed Deposit 1000
Royalties 2,500 Bank Overdraft 10,000
Freight 700 Sales 1,20,000
Printing and Stationery 1,050
Furniture 20,200
Lease hold property 25,000
Investment 15,000
Travelling Expenses 3,450
Advertisement (For 3 years) 30,000
Bad Debts 500
Discount Allowed 1,800
Cash in Hand 7,000
Cash at Bank 20,000
Fixed Deposits 15,000
3,11,500 3,11,500
Adjustments :
(1) Stock on hand on 31st March, 2019 was Cost Price ` 40,000 and Market price ` 35,000.
(2) Interest on Fixed Deposit ` 1200 is still receivable.
(3) Provide R.D.D. at 2.5% on Sundry Debtors.
(4) Depreciate Furniture by 5%.
(5) Goods of ` 8000 destroyed by fire and insurance company admited a claim of ` 6000 only.
32
IN THE BOOKS OF MR. PIYUSH AND MR. ARUN.
Trading and Profit and Loss Account for the year Ended 31st March 2019
Dr. Cr.
` ` ` `
To Purchases 80,000 By Goods destroyed by Fire 8000
To Wages 7,500
To Carriage 3,000 By Closing Stock 35,000
To Royalties 2,500
To Freight 700
1,63,000 1,63,000
To Discount 1,800 By Gross Profit b/d 38,500

To Salaries 5,000 By Interest on Fixed Deposit 1,000
To Printing and Stationery 1,050
To Bad Debts 500 Add : Interest Receivable 1,200 2200
Add : R.D.D. (New) 1,075 1,575
To Loss by Fire 2,000
To Depreciation on 1,010
Furniture
To Travelling Expenses 3,450
Less : Prepaid Advt. 20,000 10,000
To Net Profit
(Transfered to Capital A/c's)
Piyush 7,408
Arun 7,407 14,815
40,700 40,700
33
Liabilities Amount ` Amount ` Assets Amount ` Amount `
Capital Account: Leasehold Property 25,000
Piyush 80,000 Investment 15,000
Add : Net profit 7,408 87,408 Fixed Deposit 15,000
Arun 80,000 Add : Interest Receivable 1,200 16,200
Add : Net Profit 7407 87,407 Furniture 20,200
Sundry Creditors 20,500 Less : Depreciation 5% 1010 19,190
Bank Overdraft 10,000 Sundry Debtors 43,000
Less : R.D.D. 2.5% 1075 41,925
Insurance Claim 6,000
Prepaid Advertisement 20,000
Cash in Hand 7,000
Cash at Bank 20,000
2,05,315 2,05,315
5. M/s Sudarshan Traders is a Partnership Firm in which, Ram and Krushna are partners
sharing Profits and Losses in the ratio 1:1. From the following Trial Balance prepare Final
Account for the year 2018-19:
Particulars Debit ` Credit `
Opening Stock 36,000
Capital A/C :
Ram 1,60,000
Krushna 80,000
Current A/C :
Ram 8,000
Krushna 4,000
Purchases 1,00,000
Sales 2,08,000
Sundry Debtors 1,73,500
Bills Receivable 47,000
Bills Payable 21,000
Commission 2,800
Wages 1,760
Salaries 3,000
Furniture 25,000
Plant and Machinary 63,000
R.D.D. 1,000
Investment 10,500
Loans and Advances Given 35,240
Insurance 2,500
Bad debts 500
12% Govt. Bonds (Purchased on 1.1.2019) 15,000
5,19,800 5,19,800
34
Adjustments :
(1) Stock on hand on 31 March 2019 was valued at ` 38000.
(2) Ram is allowed a Salary of ` 6000 and Krushna is allowed Commission at 3% on net sales.
(3) Interest on Partner's Capital is to be provided @ 5% p.a.
(4) Provide depreciation on Plant and Machinery 5%.
(5) ` 3000 from our customer is not recoverable.
(6) Prepaid Insurance ` 500.
Dr. Cr.
` ` ` `
To Purchases 1,00,000 By Closing Stock 38000
To Wages 1760
To Gross Profit c/d 1,08,240
2,46,000 2,46,000
To Commission 2,800 By Gross Profit b/d 1,08,240

To Salaries 3,000 By Interest on Govt 450
To Insurance 2,500 Bonds Receivable
Less : Prepaid 500 2,000
To Ram's Salary 6,000
To Commission to Krushna 6,240
To Depreciation on :
Plant and Machinery 3,150
To Bad debts (Old) 500
To Bad Debts (New) 3,000
3,500
Less : R.D.D. (Old) 1,000 2,500
To Interest on Capital
(Pratners Current A/C)
Ram 8,000
Krushna 4,000 12,000
Net Profit (Transfered
Partners to Current Account)
Ram 35,500
Krushna 35,500 71,000
1,08,690 1,08,690
35
` ` ` `
Capital : Sundry Debtors 1,73,500
Ram 1,60,000 Less-Bad debts 3,000 1,70,500
Krushna 80,000 2,40,000 Bills Receivable 47,000
Current A/c : Plant and Machinery 63,000
Ram 57,500 Less : Depreciation 3,150 59,850
Krushna 41,740 99,240 Furniture 25,000
Creditors 41,800 Investment 10,500
Bills Payable 21,000 Loan and Advances 35,240
Prepaid Insurance 500
12% Govt. Bonds 15,000
Add : Interest Receivable 450 15,450
4,02,040 4,02,040
Dr. Partners Current Account Cr.
Particulars Ram Krushna Particulars Ram Krushna
Amt. ` Amt. ` Amt. ` Amt. `
To Balance b/d 4,000 By Balance b/d 8,000 -
-
By Profit and Loss A/c 6,000
(Ram's Salary)
By Profit and Loss A/c - 6,240
(Commision)
To Balance c/d 57,500 41,740 By Profit and Loss A/c 8,000 4,000
(Interest on capital)
57,500 45,740 57,500 45,740
By Balance b/d 57,500 41,740
Working Notes :
(1) In this problem Current Account is given. So total Amount of fixed capital of Ram (`1,60,000)
and Krishna (` 80,000) = ` 2,40,000 should be directly shown on the liability side of Balance
Sheet. Effect of adjustment related with capital. i.e. 5% interest on capital, 3% commission on
net sales, partners should be reflected on current account which is separately prepared. Closing
Balances of Current Account of partners will be shown on liability side of Balance sheet.
(2) Amount of Debtor ( 3000) which is not recoverable is to be treated as Bad debts (New) and it
should be deducted from debtors on Assets side of Balance Sheet.
(3) 12% Govt. Bonds - are purchased on 1.1.2019, So Interest receivable is only for 3 months (i.e.
1.1.2019 To 31.3.2019) @ 12% p.a. on 15000. Which is treated as income.
15,000 12 3
100 × × 12 = ` 1,800
100
` 1,800 is for 12 months, we have to consider Interest for 3 months only.

36
1,800 3
100 × 12 = ` 450
Interest on Govt Bonds @ 12% for 3 months is ` 450
6. From the following Trial Balance of Shreyas and Mrunal and adjustments you are required
to prepare Trading and Profit and Loss Account for the year ended 31st March, 2019 and
Balance Sheet as on that date:
Trial Balance as on 31st March, 2019 Particulars
Capital Accounts :
Shreyas 35,000
Mrunal 20,000
Purchases 37,800
Sales 66,700
Bills Payable 6,500
Commission 2,400
Salaries 6,000
Insurance (9 months) 9,000
Prepaid Rent 3,000
Postage 1,700
Freehold Premises 17,300
Furniture 20,000
Bad debts 500
Cash in Hand 4,500
Cash at Bank 16,000
Carriage Inward 800
Carriage Outward 1,700
Stock (1/4/2018) 22,500
Returns 1,200 1800
Wages 3,100
Outstanding Wages 1600
Total 1,80,500 1,80,500
Adjustments :
(1) Closing Stock ` 30.000
(2) Outstanding Expenses - Salary ` 1200 and Commission ` 400.
(3) Depreciate Furniture @ 10%
(4) Provide for further Bad debts ` 1200.
(5) Goods of ` 5000 destroyed by fire and insurance company admited a claim of ` 2000 only.
(6) Shreyas and Mrunal are sharing profits and losses in the ratio 2:1
37
THE BOOKS OF SHREYAS AND MRUNAL.
Dr. Cr.
` ` ` `
To Opening Stock 22,500 By Sales 66,700
To Purchases 37,800 Less : Returns 1200 65,500
Less : Returns 1,800 36,000 By Goods destroyed 5,000
To Carriage Inward 800 by Fire
To Wages 3,100
To Gross Profit c/d 38,100 By Closing Stock 30,000
1,00,500 1,00,500
To Insurance 9,000
Add : Outstanding 3,000 12,000 By Gross Profit b/d 38,100
(3 months)
To Salaries 6,000
Add : Outstanding 1,200 7,200
To Commission 2,400
Add : Outstanding 400 2,800
To Depreciation on Furniture 2,000
To Bad debts 500
Add : Bad Debts (New) 1,200 1,700
To Loss by fire 3,000
To Postage 1,700
To Carriage Outward 1,700
To Net Profit (Transferred to
Capital Accounts)
Shreyas 4,000
Mrunal 2,000 6,000
38,100 38,100
38
` ` ` `
Capital Account : Furniture 20,000
Shreyas 35,000 Less : Depreciation10% 2,000 18,000
Add : Net Profit 4,000 39,000 Sundry Debtors 25,000
Mrunal 20,000 Less : Bad debts 1,200 23,800
Add : Net Profit 2,000 22,000 Bills Receivable 8000
Sundry Creditors 48,900 Freehold Premises 17,300
Bills Payable 6,500 Cash in Hand 4500
Outstanding Expenses Cash at Bank 16,000
Salaries 1,200 Closing Stock 30,000
Commission 400 1,600 Insurance Claim 2,000
Outstanding Insurance 3,000 Prepaid Rent 3,000
Outstanding Wages 1,600
1,22,600 1,22,600
7. Sapre and Atre are partners sharing Profits and Losses equally. From the following Trial
Balance and Adjustments, prepare Trading and Profit and Loss Account for the year ended
31st March, 2019 and Balance Sheet as on that date.
Debit Balance Amount Credit Balance Amount
` `
Sundry Debtors 40,000 Sales 85,000
Purchases 65,000 Sundry Creditors 23,000
Returns 800 Sundry Income 2,000
Opening Stock 18,000 Capital :
Land and Building 10,000 Sapre 35,000
Carriage 1,200 Atre 35,000
Rent, Rates & Taxes 1,000 Provident Fund 10,000
Drawings : Returns 1,500
Sapre 3,000 Commission Pre Received 800
Atre 2,000 R.D.D 400
Salaries 3,200
Bad debts 1,000
Machinery 25,000
(Additions on 1st Oct, 2018,
` 10,000)
Advertisement 4,000
Provident Fund Investment 18,500
1,92,700 1,92,700
39
Adjustments :
1) Closing Stock is valued at ` 23,000.
2) Depreciate Land and Building @ 5% and Machinery @10%.
3) Create Provision for Bad and Doubtful Debts at 5% on Sundry debtors and write off ` 1000 for
Bad-debts.
4) Goods worth ` 3000 were sold, but no entry was found in the books of account.
5) Outstanding carriage ` 500.
6) Goods worth ` 8000 were purchased on 31st March, 2019 and included in the closing stock but
not recorded in the Books of Account.
IN THE BOOKS OF SAPRE & ATRE
TRADING AND PROFIT & LOSS ACCOUNT
For the year ended 31st March, 2019
Dr. Cr.
Particulars Amt ` Amt ` Particulars Amt ` Amt `
To Purchases 65,000 Add : Unrecorded 3,000
Add : Unrecorded 8,000 Sales
Purchases 88,000
73,000 Less : Returns 800 87,200
Less : Returns 1,500 71,500
To Carriage 1,200 By Closing Stock 23,000
Add : Outstanding 500 1,700
1,10,200 1,10,200

To Rent, Rates & Taxes 1,000
To Depreciation By Sundry Income 2,000
Land & Building 500
Plant & Machinery 2,000 2,500
To Bad debts (Old) 1,000
Add : Bad-debts(New) 1,000
Add : New R.D.D. 2,100
4,100
Less - R.D.D (Old) 400 3,700
To Net Profit Transferred
to Capital Accounts :
Sapre 3,300
Atre 3,300 6,600
21,000 21,000
40
BALANCE SHEET
As on 31st March, 2019
` ` ` `
Capital : Sapre 35,000 Land & Building 10,000
Add : Net Profit 3,300 Less : Depreciation5% 500 9,500
38,300 Plant & Machinery 25,000
Less : Drawings 3,000 35,300 Less:Depreciation10% 2,000 23,000
Capital : Atre 35,000 Sundry Debtors 40,000
Add : Net Profit 3,300 Add : Unrecorded 3,000
38,300 Sales 43,000
Less : Drawings 2,000 36,300 Less : Bad debts (Now) 1,000
Providend Fund 10,000 Less : R.D.D. 5% 42,000
Outstanding Expenses : 2,100 39,900
Carriage 500 Closing Stock 23,000
Creditors 23,000 Providend Fund 18,500
Add : Unrecorded 8,000 31,000 Investment
Purchases
Commission Received in
advance 800
1,13,900 1,13,900
Working Notes :
1) While calculating Depreciation on Machinery, we have to consider the date of purchase of
additional Machine, which is purchased on 1st Oct 2018. (Additional Machine Purchased
`10,000) So -
25,000
15,000 10,000
On ` 15,000, Dep. @ 10% for On 10,000, Dep. @ 10% for
12 months 6 months only

1,500 500
10 1 1 6
15,000 × = ` 1,500 × 100 × = ` 500
100 1,000 12
So Depreciation is 1,500 + 500 = ` 2,000
41
2) Goods worth ` 3,000 is unrecorded sales. It will be added in to the Sundry Debtors and in to
Sales also and after that Bad Debts (New) will be deducted and on that amount of Debtors 5%
R.D.D. will be calculated.
1st effect 2nd effect
Debtors 40,000 (i) Trading (ii) Profit & Loss -
A/c
Add : Unrecorded 3,000 A/c Credit Side To Bad debts 1,000
Sales 43,000 By Sales 85,000 Add : Bad Debts 1,000
Less : Bad-debts(New) 1,000 +Unrecorded Sales 3,000
42,000 88,000 Add : New R.D.D. 2,100
Less : R.D.D 5%(New) 2,100 Less : Returns 800 4.100
Less : R.D.D. (Old) 400
39,900 87,200 3,700

3) Unrecorded Purchases of ` 8,000, This will affects on Purchases and Creditors also - As it is
unrecorded, So ` 8,000 will be added in to the Purchases (65,000 + 8,000) and also added into
the Creditors (23,000 + 8,000)
42
8. Nene and Kane are Partners, sharing Profits and Losses in the ratio 6:4. From the following
Trial Balance and adjustments given below, Prepare, Trading and Profit and Loss Account
for the year ending and Balance Sheet as on that date.
Particulars Debit Credit
Amount ` Amount `
Capital :
Nene 15,00,000
Kane 10,00,000
Sundry Debtors 4,50,000
Sundry Creditors 3,00,000
Rent (10 months) 10,000
Stock (1/4/2018) 5,35,500
Premises 8,50,000
Salaries 50,000
Discount 800 950
Motor Vehicle 3,70,000
Sales 8,40,500
Purchases 6,40,500
Wages 10,000
Office Expenses 20,000
Bank Overdraft 1,50,000
Returns 5,500 3,500
Providend Fund Investment 8,00,000
Cash in Hand 40,000
Providend Fund Contribution 1,00,000
Providend Fund 2,80,000
Cash at Bank 2,00,000
Interest on P.F. Investment 42,000
Drawings :
Nene 20,000
Kane 15,000
Bad-debts 3,350
R.D.D. 3,700
Total 41,20,650 41,20,650
Adjustments :
1) Closing Stock ` 3,60,000.
2) Outstanding Wages ` 3,000 and Salaries ` 2000.
3) Depreciate Motor Vehicle @ 5% p.a.
4) Write of Bad-debts of ` 5,000 and provide for R.D.D at 5% Sundry Debtors.
5) Kane withdrew Goods of ` 6,000 for his personal use.
43
IN THE BOOKS OF NENE AND KANE
TRADING AND PROFIT AND LOSS ACCOUNT
Dr Cr
` ` ` `
To Opening Stock 5,35,500 By Sales 8,40,500
To Purchases 6,40,500 Less : Returns 5,500 8,35,000
Less - Returns 3,500 6,37,000 By Goods 6,000
To Wages 10,000 Withdraw by
Add : Outstanding Wages 3,000 13,000 Kane for Personal
To Gross Profit c/d 15,500 Use
By Closing Stock 3,60,000
12,01,000 12,01,000

Add : Outstanding 2,000 52,000 By Discount 950
To Depreciation on 18,500 By Net Loss
Motor Vehicle (Transferred to Capital A/c)
To Bad debts (Old) 3,350 Nene 1,28,250
Add : Bad-debts(New) 5,000 Kane 85,500 2,13,750
Add :New R.D.D. 22,250
30,600
Less : R.D.D. (Old) 3,700 26,900
To Rent 10,000
Add : Outstanding Rent 2,000 12,000
To Discount 800
To Office Expenses 20,000
To Providend Fund
Contribution 1,00,000
2,30,200 2,30,200
44
BALANCE SHEET as on 31st March, 2019
Liabilities Amt. ` Amt. ` Assets Amt. ` Amt. `
Capital : Nene 15,00,000 Motor Vehicle 3,70,000
Less : Net Loss 1,28,750 Less : Depreciation5% 18,500 3,51,500
13,71,750 Sundry Debtors 4,50,000
Less : Drawings 20,000 13,51,750 Less : Bad-debts 5,000
Capital : Kane 10,00,000 4,45,000
Less - Net Loss 85,500 Less - R.D.D 5% 22,250 4,22,750
9,14,500 Premises 8,50,000
Less : Drawings 21,000 8,93,500 Providend Fund
(15,000 + 6,000) Investment 8,00,000
Sundry Creditors 3,00,000 Cash in Hand 40,000
Outstanding Expenses Cash at Bank 2,00,000
Wages 3,000 Closing Stock 3,60,000
Salaries 2,000
Rent 2,000 7,000
Bank Overdraft 1,50,000
Providend Fund 2,80,000
Add : Interest on
Providend Fund 42,000 3,22,000
Investment
30,24,250 30,24,250
9. Kranti & Sumangala are Partners sharing Profits and Losses in their Capital ratio. From
the Trial Balance given below and Adjustments, you are required to prepare Trading and
Profit and Loss Account for the year ended 31st March, 2019 and Balance Sheet as on that
date.
Debit Balance Amount ` Credit Balance Amount `
Stock (1/4/2018) 32,500 Capital :
Purchases 40,000 Kranti 1,20,000
Sundry Debtors 1,00,000 Sumangala 40,000
Bills Receivable 8,500 Sales 60,000
Wages 3,000 Sundry Creditors 30,000
Investment 32,000 Bills Payable 15,000
Postage 2,700 Commission 325
Insurance 7,500 Purchases Returns 1,000
Plant & Machinery 15,000
Salaries 4,850
Prepaid Rent 2,000
Bad-debts 500
Furniture 12,500
Cash in Hand 3,775
Sales Return 1,500
2,66,325 2,66,325
45
Adjustments :
1) Closing Stock is valued at Cost Price ` 28,000 and Market Price ` 32,000.
2) Insurance is paid up to 30th June 2019.
3) Outstanding Expenses - Wages ` 800, Salaries ` 700.
4) Book value of Plant and Machinery is reduced to ` 13,000.
5) Depreciate Furniture by 5% p.a.
6) Provide further Bad debts of ` 800.
7) Goods of ` 3,000 distributed as a free sample.
IN THE BOOKS OF KRANTI AND SUMANGALA
Dr. Cr.
` ` ` `
To Purchases 40,000 Less : Sales Return 1,500 58,500
Less : Purchases Returns 1,000 39,000 By Closing Stock 28,000
To Wages 3,000 By Goods Distributed 3,000
Add : Outstanding 800 3,800 as Free sample
89,500 89,500
To Postage 2,700 By Gross Profit b/d 14,200

To Insurance 7,500 By Commission 325
Less : Prepaid Insurance 1,875 5,625
To Salaries 4,850 By Net Loss
Add : Outstanding Salary 700 5,550 (Transferred to Capital A/c's)
To Depreciation on : Kranti 4,706
Plant & Machinery 2,000 Sumangala 1,569 6,275
Furniture 625 2,625
To Bad-debts (Old) 500
Add : Bad debts (New) 800 1,300
(Goods distributed)
20,800 20,800
46
BALANCE SHEET
` ` ` `
Capital : Kranti 1,20,000 Plant & Machinery 15,000
Less : Net Loss 4,706 1,15,294 Less : Depreciation 2,000 13,000
Capital : Sumangala 40,000 Furniture 12,500
Less : Net Loss 1,569 38,431 Less : Depreciation5% 625 11,875
Outstanding Expenses Sundry Debtors 1,00,000
Wages 800 Less : Bad Debts 800 99,200
Salaries 700 1,500 Bills Receivable 8,500
Sundry Creditors 30,000 Investment 32,000
Bills Payable 15,000 Cash in Hand 3,775
Prepaid Insurance 1,875
Prepaid Rent 2,000
2,00,225 2,00,225
47
10. From the following Trial Balance of Riddhi and Siddhi, you are required to prepare Trad-
ing and Profit and loss Account for the year ended 31st March 2019 and Balance Sheet as
on that date after considering the additional information given below.
Particulars Debit (`) Credit (`)
Stock (1/4/2018) 48,000
Capital - Riddhi 50,000
Siddhi 30,000
Purchases 22,500
Wages 800
Carriage Inward 1,000
Cash in hand 2,850
Insurance 1,200
Carriage outward 900
Land and Building 42,500
Furniture 38,700
Sales 47,000
Purchase Return 500
Sales Return 400
Rent 1800
Bad-debts 300
R.D.D 350
Discount 700 1000
Travelling Expenses 250
Advertisements 4,150
1,96,250 1,96,250
Adjustments :
1) Closing stock ` 48,700.
2) Outstanding Expenses - Wages ` 700 and Travelling Expenses ` 200.
3) Depreciate Land and Building by 10% and Furniture by 5%.
4) Insurance paid in advance ` 300.
5) Goods of ` 3000 destroyed by fire and Insurance company rejected the claim fully.
48
IN THE BOOKS OF RIDDHI AND SIDDHI
Dr. Cr.
` ` ` `
To Purchases 22,500 Less : Sales Return 400 46,600
Less : Purchases Return 500 22,000 By Closing Stock 48,700
To Wages 800 By Good destroyed 3,000
Add : Outstanding Wages 700 1,500 by fire
To Carriage Inward 1,000
98,300 98,300
To Insurance 1,200 By Gross Profit b/d 25,800

Less : Prepaid 300 900 By Rent 1,800
To Depreciation on : By R.D.D (Old) 350
Land & Building 4,250 Less : Bad-debts(New) 300 50
Furniture 1,935 6,185 By Discount 1,000
To Travelling Expenses 250
Add : Outstanding 200 450
To Loss by fire 3,000
To Carriage Outward 900
To Discount 700
To Net Profit Transferred
to Capital A/c
Riddhi 6,183
Siddhi 6,182 12,365
28,650 28,650
49
BALANCE SHEET
` ` ` `
Capital Land & Building 42,500
Riddhi 50,000 Less : Depreciation10% 4,250 38,250
Add : Net Profit 6,183 56,183 Furniture 38,700
Capital Less : Depreciation 5% 1,935 36,765
Siddhi 30,000 Prepaid Insurance 300
Add : Net Profit 6,182 36,182 Cash in hand 2,850
Sundry Creditors 27,600 Sundry Debtors 32,000
Outstanding Expenses Closing Stock 48,700
Wages 700
Travelling 200 900
Bill Payable 20,000
1,58,865 1,58,865
HHHHHHHHHHHHH EXERCISE - 1 HHHHHHHHHHHHH

Q.I Objective Questions :
A Select the most appropriate alternatives from the following & rewrite the sentences :
1) When there is no partnership agreement between partners, the division of Profits take
place in ..................... ratio.
a) Equal b) capital ratio
c) initial contribution d) experience and tenrue of partners.
2) To find out Net Profit or Net Loss of the business ..................... account is prepared.
a) Trading b) Capital
c) Current d) Profit & Loss
3) A ..................... is an Intangible Asset.
a) Goodwill b) Stock
c) Cash d) Furniture
4) In the absence of an agreement, interest on loan advanced by the partner to the firm is
allowed at the rate of .....................
a) 5% b) 6% c) 10% d) 9%
5) Liability of partners in a partnership business is ..................... .
a) Limited b) Unlimited
c) Limited and Unlimited d) None of the above
50
6) The Indian Partnership act is in force since .....................
a) 1932 b) 1881
c) 1956 d) 1984
7)
Maximum number of Partners in a firm are ..................... according to Companies Act
2013.
a) 10 b) 25
c) 20 d) 50
B Write the word/phrase/term, which can substitute each of the following sentences.
1) Persons who form the partnership firm.
2) Amount of cash or goods withdrawn by partners from the business from time to time.
3) An association of two or more persons according to Indian partnership Act 1932.
4) Act under which partnership firms are regulated.
5) Process of entering the name of partnership firm in the register of Registrar.
6) Partnership agreement in written form.
7) Under this method capital balances of partners remains constant.
8) Proportion in which partners share profits.
9) Such capital method in which only capital account is maintained for each partner.
10) The account to which all adjustment are made when capital is fixed.
11) Expenses which are paid before they are due.
12) The accounts that are prepared at the end of each accounting year.
13) An asset which can be converted into cash easily.
14) Order in which fixed assets are recorded first in Balance sheet.
15) The account in which selling expenses of business are recorded.
16) Debit balance of Trading Account.
17) Credit balance of profit & loss account.
C State whether the following statements are True of False with reasons :
1) Partnership firm is a Non Trading Concern.
2) Profit and Loss Account is a Real Account.
3) Carriage Inward is carriage on purchases.
4) Adjustments are recorded in Partners Current Account in Fixed Capital Method.
5) Prepaid expenses are treated as liabilities.
6) If Partnership Deed is silent partners share profits and losses in proportion to their capital.
7) Balance sheet is an Account.
8) Wages paid for installation of Machinery is a Revenue expenditure.
9) Income received in advance is a liability.
10) R.D.D is created on creditors.
11) Depreciation is not calculated on Current Assets.
12) Goodwill is an intangible asset.
51
13) Indirect expenses are debited to Trading Account.
14) Bank Loan is a current liability.
15) Net profit is debit balance of Profit & Loss Account.
D Find odd one
1. Wages, Salary, Royalty, Import Duty. .
2. Postage, Stationery Advertising, Purchases.
3. Capital, Bills Receivable, Reseve Fund, Bank overdraft
4. Building, Machinery, Furniture, Bills payable.
5. Discount received, Dividend received, Interest received, Depreciation.
E Complete the Sentences
1) Partners share profit & losses in .................... ratio in the absense of partnership deed.
2) Registration of Partnership is .................... in India.
3) Partnership business must be ....................
4) Liabilities of Partners in Partnership firm is ....................
5) The balance of Drawings Account of a partner is transferred to his .................... account
under the Fixed Capital Method.
6) The interest on capital of a partner is debited to .................... account.
7) Partners are .................... liable for the debts of the firm.
8) Partnership Deed is an .................... of Partnership.
9) The withdrawal by partner for personal use from the firm is .................... to his account.
10) Commission payable to partner is .................... to the firm.
11) When partners adopt Fixed Capital Method then they have to operate .........................
Account.
12) If partners Current Account shows .................... balance it is shown to the liability side of
Balance sheet.
13) The expenses paid for trading purpose are known as .................... expenses.
14) Cash receipts which are recurring in nature are called as .................... Receipts.
15) Return outward are deducted from ....................
16) Expenses which are paid before due date are called as ....................
17) Assets which are held in the business for a long period are called ....................
18) Trading Account is prepared on the basis of .................... expenses.
19) When commission is allowed to any partner, it is .................... of the business.
20) When goods are distributed as free samples, it is treated as .................... of the business.
F Answer in one sentence only :
1) What is fluctuating capital?
2) Why is Partnership Deed necessary?
3) If the Partnership Deed is silent, in which ratio the partners will share the profit or loss?
4) What is the Fixed Capital Method?
5) How many partners are required to form a Partnership Firm?
6) What is Partnership Deed?
52
7) What are the objectives of the Partnership firm?
8) What rate of interest is allowed on partner's loan in the absence of an agreement?
9) What is the minimum number of Partners in a Partnership firm according to Indian Part-
neship Act, 1932.
10) What is liability of a partner?
11) In the absence of Partnership Deed what is the rate of interest on loan advanced by partner
to the firm is allowed?
12) What do you mean by pre-received income?
13) What is the effect of the adjustment of provision for discount on debtors in the final
accounts of partnership?
14) When is partners Current Account opened ?
15) As per which principle of accounting closing stock is valued at cost price or at market
price which ever is less?
16) What is the provision of Indian Partnership Act with regard to Interest on capital ?
17) Why is Balance Sheet prepared?
18) Why wages paid for installation of Machinery are not shown in Trading Account?
19) What do you mean by indirect incomes?
20) Why partners capital is treated as long term liability of business?
G Do you agree/disagree with the following statements.
1) When Partnership Deed is silent, Partners share profits of the firm according to capital
ratio.
2) Current account always shows a debit balance.
3) It is compulsory to have a partnership agreement in writing.
4) Partnership Firm is a trading concern.
5) An interest on capital is an expenditure for the partnership firm.
6) Partnership is an association of two or more persons.
7) Partners are entitled to get Salary or Commission.
8) The balance of Capital Account remains constant under Fixed Capital Method.
9) The Indian Partnership Act, came into existence in the year 1945.
10) Profit and Loss Account reflects the true Financial position.
11) Amount borrowed by partner from his business will be debited to Current Account.
12) Sold but undispatched goods must be part of valuation of closing stock.
13) Carriage Inward is a selling and distribution overhead
14) Gross profit is an operation profit
15) All financial expenditures are debited to profit and loss account.
16) Free distribution of goods is debited to trading account.
H Calculate the following:
1. Undervaluation of Closing Stock by 10%. Closing Stock was ` 30,000 find out the value
of Closing Stock
2. Calculate 12.5% P. A.depreciation on Furniture -
a) on ` 220,000 for 1 year
b) on ` 10,000 for 6 months
53
3. Insurance Premium is paid for the year ending 1st September 2019 Amounted to ` 1,500.
Calculate prepaid insurance assuming that the year ending is 31st March 2019.
4. Find out Gross profit / Gross Loss Purchases ` 30,000, Sales ` 15,000, Carriage Inward `
2,400, Opening Stock ` 10,000, Purchase Returns `1,000, Closing Stock ` 36,000.
5. Borrowed Loan from Bank of Maharashtra ` 2,00,000 on 1st October 2019 at rate of 15%
p.a. Calculate Interest on Bank Loan for the year 2019-20 assuming that the financial
year ends on 31st March, every year.
Practical Problems
1. Amitbhai and Narendrabhai are in Partnership Sharing Profits and Losses equally. From
the following Trial Balance and Adjustments given below, you are required to prepare
Sheet as on that date.
Plant & Machinery 2,80,000 Capital A/c :
Factory Building 75,000 Amitbhai 3,50,000
Sundry Debtors 28,700 Narendrabhai 3,00,000
Purchases 85,500 Sales 1,80,000
Bad Debts 500 Bills Payable 8,500
Sales Return 2,200 Discount 1,200
10% Govt. Bond 40,000 Creditors 38,500
(Purchased on 1st Oct, 2018) R.D.D. 2,700
Import Duty 1,800 Bank Loan 15,000
Legal Charges 2,000 Purchases Return 2,000
Motive Power 12,000
Warehouse Rent 1,800
Cash in Hand 20,000
Cash at Bank 70,000
Advertisement 10,000
(for 2 years, w.e.f 1st Jan 2019)
Salaries 3,800
Rent 1,500
Drawings :
Amitbhai 2,400
Narendrabhai 3,200
Furniture 1,95,800
Free hold Property 41,000
8,97,900 8,97,900
54
Adjustments :
1) Stock on hand on 31st March 2019 was valued at ` 43,000.
2) Uninsured Goods worth ` 8,000 were stolen.
3) Create R.D.D at 2% on Sundry debtors.
4) Mr. Patil, our customer become insolvent and could not pay his debts of ` 500.
5) Outstanding Expenses - Rent ` 800 and Salaries ` 300
6) Depreciate Factory Building by ` 2,500 and Furniture by ` 1,800
(Ans : G.P. ` 1,31,500, N.P. ` 1,12,086 Balance Sheet Total ` 8,19,586)
2 From the following Trial Balance of M/S Mitesh and Mangesh, you are required to prepare
Stock as on (1/4/2018) 25,000 Sundry Creditors 38,000
Building 48,500 Sales 1,75,000
Carriage 1,780 Capital :
Factory Insurance 2,700 Mitesh 1,50,000
Postage 1,600 Mangesh 50,000
Bills Receivable 13,700 Outstanding Salaries 2,000
Sundry Debtors 52,200 Bills Payable 18,000
Return Inward 1,600 Return outword 1,800
Purchases 68,900
Audit fees 1,800 Current A/c :
Loose tools 32,000 Mitesh 3,000
Manufacturing Expenses 1,820 Mangesh 2,000
Electricity Charges 2,600
General Expenses 3,400
Export duty 1,000
Cash in hand 75,000
Bank Balance 29,000
Conveyance 4,100
Furniture 64,000
Salaries 2,000
Rent, Rate & Taxes 3,700
Drawings :
Mitesh 1,200
Mangesh 2,200
4,39,800 4,39,800
55
Adjustments :
1) Mitesh and Mangesh are sharing Profit and losses in the ratio 3:1.
2) Partners are entitled to get Commission @ 1% each on Gross Profit.
3) The closing stock is valued at ` 23,700.
4) Outstanding Expenses - Audit fees ` 400; carriage ` 600.
5) Building is valued at ` 46,500.
6) Furniture is depreciated by 5%.
7) Provide Interest on Partner's capital at 2.5% pa.
8) Goods of ` 900 were taken by Mangesh for his personal use.
9) Write off ` 1,000 as Bad Debts and maintain R.D.D at 3% on Sundry Debtors.
(Ans : G.P. ` 99,000, N.P. ` 63,684 Balance Sheet Total ` 3,30,364)
3. From the following Trial Balance and adjustments given below of Reena and Aarti, you are
required to prepare Trading and Profit and Loss Account for the year ended 31st March,
2019 and Balance Sheet as on that date.
Purchases 35,500 Sales 58,200
Sundry Debtors 40,000 Sundry Creditors 25,700
Sales Returns 1,000 Purchases Returns 500
Opening Stock 18,100 R.D.D 800
Bad debts 500 Discount 50
Land & Building 25,000 Commission 250
Furniture 20,000 Capital :
Discount 1,000 Reena 50,000
Royalties 700 Aarti 30,000
Rent 1,900
Salaries 3,000
Wages 800
Insurance 1,500
Drawings :
Reena 2,000
Aarti 1,000
Cash at Bank 11,500
Cash in Hand 2,000
1,65,500 1,65,500
Adjustments :
1) Closing Stock valued at ` 22,000.
2) Write off ` 900 for Bad & doubtful debts and create a provision for Reserve for doubtful debts
` 1,000.
3) Create a provision for Discount on Debtors @ 3% and creditors @ 5%.
4) Outstanding Expenses - Wages ` 700 and Salaries ` 800.
5) Insurance is paid for 15 months, w.e.f. 1st April 2018
56
6) Depreciate Land and Building @ 5%
7) Reena & Aarti are Sharing Profits & Losses in their Capital Ratio.
4. From the following Trial Balance of M/S Meera and Madhav. Prepare Trading and Profit
and Loss Account for the year ended 31st March, 2019 and Balance Sheet as on that date.
Stock (1/4/2018) 25,000 Bank overdraft 5,000
Debtors 80,500 Bills Payable 12,500
Bills Receivable 10,000 Creditors 68,000
Purchases 2,08,500 Sales 3,25,000
Returns 1,000 Outstanding Rent 2,000
Carriage Inward 3,000 Unpaid Wages 1,500
Carriage Outwards 4,500 Capital :
Motor Vehicle 55,000 Meera 75,000
General Expenses 1,800 Madhav 75,000
Export Duty 900 Purchase Return 1000
Advertisement 4,800
(For 3 years from 1/10/2018)
Printing & Stationary 1,200
Drawings :
Meera 3,500
Madhav 2,000
Leasehold Premises 1,10,000
Cash at Bank 45,000
Furniture 8,300
5,65,000 5,65,000
Adjustments :
2) Provide Provision for Doubtful Debts ` 2,000.
3) Create reserve for Discount on Debtors @ 3%.
4) Valued of Leasehold Premises on 31st March 2019 ` 1,00,000.
5) Out standing Expenses Printing & Stationary ` 500.
57
5. Sucheta & Gayatri are Partners sharing Profit and Losses in the ratio 3:2. From the
following Trial Balance and additional information you are required to prepare Trading
and Profit and Loss Account for the year year ended 31st March 2019 and Balance Sheet as
on that date.
Purchases & Sales 65,000 1,85,500
Works Manager's Salary 2,300
Capital - Sucheta 75,000
- Gayatri 40,000
Debtors & Creditors 47,500 35,000
Wages & Salaries 4,000
Discount 400
Motive Power 1,350
Custom duty 1,500
Interest 1,300
Unproductive Wages 3,000
Audit fees 2,500
Rent 1,800
Conveyance 2,000
Goodwill 25,000
Copyrights 20,000
Building 88,000
Partner (Sucheta's) Loan 6,150
Investments 40,000
Cash at Bank 26,000
3,70,650 3,70,650
Adjustments :
1) Stock on 31st March 2019 was valued at ` 19,700.
2) Goods costing ` 3,000 distributed as free sample.
3) Motive Power includes ` 500 paid for deposit of Power Meter.
4) Depreciate Building @ 5%.
5) Write of ` 2,000 for Bad debts and maintain R.D.D at 3% on Debtors.
6) Bills Receivable included dishonoured of Bill of ` 4,000.
(Ans : G.P. ` 1,15,850, N.P. ` 96,996 Balance Sheet Total ` 2,80,815)
58
6. Archana and Prerana are partners, sharing Profits and Losses in the ratio 2:1 with the
help of following Trial Balance and Adjustments given below. You are required to prepare
Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance
Stock (1/4/2018) 8,560 Capital :
Patents 2,000 Archana 40,000
Sundry Debtors 18,500 Prerana 20,000
Stock of Stationary 3,000 Other Loans 3,000
Trade Mark 2,000 Reserve fund 1,000
Bills Receivable 6,300 Sundry Creditors 17,500
Electricity charges 1,450 Bills Payable 5,000
Wages 950 Purchase Return 1,000
Heating & Lighting 1,000 R.D.D 500
Trade Expenses 850 Sales 30,200
Sales Return 400 Interest 310
Land & Building 22,000
Furniture 13,000
Cash at Bank 5,000
Investments 7,500
Drawings :
Archana 1,200
Prerana 900
Baddebts 200
Purchases 23,700
1,18,510 1,18,510
Adjustments :
1) Stock on 31st March 2019 is valued at Cost Price ` 12,000 and Markct Price ` 17,000.
2) Our customer Mr. Shekhar failed to pay his dues of ` 800.
3) 1/8th of Patents are to be written off.
4) A part of Furniture ` 5,000 is purchased on 1st Oct 2018.
5) Depreciation on Land & Building 10% and on Furniture 5%.
6) Outstanding Expenses Wages ` 300 and Electricity Charges ` 200.
7) Allow Interest on Capital 3%.
(Ans : G.P. ` 8,290, N.P. ` 825 Balance Sheet Total ` 87,525)
7. Satish and Pramod are Partners. Prepare Trading Account and Profit and Loss Account
for the year 31st March, 2019. You have to find out Gross Profit and Net Profit only.
59
Stock (1/4/218) 8,700 Sales 68,000
Purchases 18,300 Dividend 2,000
Wages 1,000 Purchases Return 500
Insurance 800 Sundry Creditors 13,000
Unproductive Wages 1,400 10% Bank Loan 8,000
Warehouse Rent 600 (w.e.f. 1/7/2018)
Carriage Outward 1,200 Other Receipts 1,000
Sales Return 600
Export Duty 1,400
Customs Duty 800
Investments 15,700
Factory Rent 1,600
Postage & Telegram 400
92,500 92,500
Adjustments :
1) The Closing Stock is valued at ` 15,400.
2) Outstanding Wages ` 500.
3) Create provision for Bad debts ` 800 and maintain R.D.D 3% on Sundry Debtors.
4) Goods of ` 1,800 distributed as a free sample.
5) Goods of ` 2,000 were sold and delivered on 31st March 2019 but no entry is passed in the
Books of Account.
(Ans : G.P. ` 56,200, N.P. ` 48,964 )
8. Nana and Nani are Partners in Partnership Firm sharing Profits and Losses equally. You
are required to give effects of Adjustments in Profit & Loss A/c and Balance Sheet with the
help of following information.
Insurance 15,000 Capital A/c
Land and building 50,000 Nana 50,000
(Addition of ` 20,000 Nani 50,000
w.e.f 1st July 2018) 10`% Bank loan taken on 1st Oct. 2018 30,000
Salaries 5,000 Interest 1,500
Export Duty 2,500 Bills Payable 8,000
Interest 1,000
Furniture 40,000
Debtors 26,000
1,39,500 1,39,500
60
Adjustments :
1) Gross profit amounted to ` 34,500.
2) Insurance Paid for 15 months w.e.f. 1.4.2018.
3) Depreciate Land and Building at 10% p.a. and Furniture at 5% p.a.
4) Write off ` 1,000 for Bad Debts and maintain R.D.D at 5% on Sundry Debtors.
(Ans : N.P. ` 5,250 Balance Sheet Total ` 1,44,750)
9. Sun and Moon are Partners in Partnership Firm sharing Profits and Losses equally. You
are required to give effects of Adjustments with the help of following information.
Land & Building 40,000 Capital A/C
Furniture 18,000 Sun 33,500
Machinery 40,000 Moon 33,500
(Purchased on 1/7/18) Current A/c : Sun 6,000
Goodwill 2,000 Sundry Creditors 25,000
Wages 2,000 Bank Overdraft 10,000
Current A/c : Moon 4,000 Reserve Fund 5,000
8% Debentures 8,000 Providend Fund 5,000
(Purchased on 1/10/18)
Providend Fund Investment 3,500
Stock of Postal stamps 500
1,18,000 1,18,000
Adjustments :
1) Partners are entitled to get salary ` 6,000 p.a. in addition to their profit & loss sharing.
2) Depreciation on Land & Building, Furniture & Machinery @ 10%, 5% and 3% respectively.
3) Interest on Capital 5% p.a.
4) Closing Stock ` 60,743.
5) Wages included ` 1,000 as advance given to workers.
6) Interest due but not paid ` 800.
7) Total Net Profit amounted to ` 38,113.
You are required to prepare Balance Sheet and Partners Current A/c only.
(Ans : Balance Sheet Total ` 1,68,263, Current A/c Balance Sun ` 32,731, Moon ` 22,732)
10. Kshipra and Manisha are Partners sharing Profit and Losses in their Capital Ratio. You
are required to prepare Trading Account and Profit and Loss Account for the year ended
31st March, 2019 and Balance Sheet as on that date.
61
Sundry Debtors 28,000 Sales 1,20,000
Purchases 55,000 Rent 1,800
Furniture 38,500 Sundry Creditors 38,500
Plant & Machinery 60,000 Purchase Return 1,000
Wages 800 Discount 500
Salaries 3,500 Bills Payable 9,000
Discount 800 Capital A/c :
Bills Receivable 14,400 Kshipra 90,000
Carriage Outward 1,000 Manisha 30,000
Postage 500 Current A/c :
Sales Return 500 Kshipra 5,000
Cash in Hand 4,000 Manisha 3,000
Cash at Bank 47,000
Insurance 2,000
Trade Expenses 1,500
Ware house Rent 2,500
Advertisement 1,000
Building 20,000
2,98,800 2,98,800
Adjustments :
1) Stock on 31st March 2019 was at ` 37,000.
2) Sales includes, sale of machinery of ` 2,000, which is sold on 1st April 2018.
3) Depreciation on fixed assets @ 5%.
4) Each Partners is entitled to get Commission at 1% of Gross Profit and Interest on Capital 5%
p.a.
5) Outstanding Expenses Wages ` 200 & Salaries ` 500.
6) Create provision for doubtful debts @ 3% on Sundry Debtors.
Activity :
1. Visit a Partnership firm and study the management of the firm and write a report on it.
2. Write a report on procedure of Registration of Partnership firm under Indian Partnership
Act, 1932.
3. Visit Chartered Accountants office and understand the process of finalisation of Partnership
Accounts and filing of Income Tax Return
bbb
62

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Introduction to Partnership and

1 Partnership Final Accounts

o The students will be able to:

1) Agreement :- Partnership is a result of agreement between partners. It could be written or oral.

Fixed Capital Fluctuating Capital

Total XXX XXX XXX XXX

Solution : 1) Fixed Capital Method

Dr. Partner's Capital A/cs Cr.

60,000 30,000 60,000 30,000

2) Fluctuating Capital Method

1,20,000 84,000 1,20,000 84,000

5,00,000 5,00,000 5,00,000 5,00,000

1,11,600 1,02,500 1,11,600 1,02,500

6,11,600 6,02,500 6,11,600 6,02,500

Dr. Partner's Capital Accounts Cr.

1,00,000 61,000 1,00,000 61,000

Particulars Sun Moon

13,03,125 6,84,050 13,03,125 6,84,050

ii) Fixed Capital method

Preparation of Trial Balance considering adjustments.

Preparation of Final Accounts which consist of

i) Any outstanding expenses Liability Side of Balance Sheet

Steps for solving problem :

IN THE BOOKS OF SHILPA AND KATRINA

To Salaries 5,000 By Gross Profit b/d 51,180

To Salaries 4,500 By Gross Profit b/d 93,100

To Discount 1,800 By Gross Profit b/d 38,500

To Commission 2,800 By Gross Profit b/d 1,08,240

To Salaries 3,200 By Gross Profit b/d 19,000

39,900 87,200 3,700

To Salaries 50,000 By Gross Profit b/d 15,500

To Postage 2,700 By Gross Profit b/d 14,200

To Insurance 1,200 By Gross Profit b/d 25,800

HHHHHHHHHHHHH EXERCISE - 1 HHHHHHHHHHHHH

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