BK Chapter 2 PDF

CHAPTER 2: PARTNERSHIP FINAL ACCOUNTS
Sr. No. Particulars Page No.

1. Theory 2 - 12
2. Section I :
From the Textbook - Solved Problems 2 - 27
3. Section II :
From the Textbook - Practical Problems 2 - 35
4. Section III :
Solved Additional Problems 2 - 54
5. Section IV :
Homework Problems 2 - 65
6. Section V :
Revision Problems 2 - 70
7. Section VI :
Objective type questions 2 - 75
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S.Y.J.C. Book-keeping and Accountancy
Partnership Final Accounts

Partnership final accounts are prepared in a similar way as sole proprietorship accounts. They include Trading A/c, Profit &
Loss A/c and the Balance Sheet.
Final accounts are prepared for the following purpose:-
i. To find out the gross profit or loss for the period
ii. To find out the net profit or loss for the period
iii. To know the financial position of the business as on a particular date
iv. To prepare various statements to plan for the future
v. To know how much are the debtors and creditors of the firm
vi. To know the sources of funds (liabilities) and the application of funds (assets)
vii. To calculate various ratios for analysis
viii. To provide audited financial statements and other documents to the bank for obtaining loans
ix. To value goodwill of the firm in cases of admission, retirement or death of a partner and on dissolution of the firm
x. To find the tax payable and make advance tax payments.
Preparation of Final Accounts

Final accounts of a partnership firm are similar to that of a sole trader. Only difference is that the profit is distributed among
the partners whereas in a sole proprietorship it is added to the proprietor’s capital. First a trial balance is to be prepared from
all the debit and credit balances of all the ledger accounts. From this, trading and profit & loss accounts are generated. Finally,
a balance sheet is prepared to reflect the position as at period end. A trading account shows the gross profit or loss whereas
a profit & loss account reflects the net position.
I. Manufacturing Account
It is prepared only for manufacturing concerns. It shows the cost of production.
II. Trading Account
Trading account is prepared in a trading concern and is a part of the profit & loss account. It records all transactions
related to goods and direct expenses. If the credit side is greater than the debit side, the gross profit thus arrived at is
transferred to the credit side of profit & loss account. On the other hand, if the debit side is greater than the gross loss
is transferred to the debit side of the profit & loss account.
a. Debit side of Trading Account
• Opening stock
• Purchases after deducting amounts for goods destroyed by fire, goods withdrawn by partners, goods
distributed as free samples, etc.
• Direct expenses meaning those expenses directly related to production or purchases of goods such as wages,
freight inwards, factory rent, octroi, import duty, customs duty, manufacturing expenses such as electricity
of factory, etc.
b. Credit side of Trading Account
• Sales of goods
• Closing stock
• Goods destroyed by fire, goods withdrawn by partners, goods distributed as free samples, etc. may alternately
be shown here instead of as a deduction from purchases.
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Partnership Final Account
Journal entries for Trading Account

1. Transferring items on the debit side such as opening stock, purchases, etc.
Since all these accounts show a debit balance in the trial balance and are all direct expenses, we need to debit the
Trading A/c.
Trading A/c Dr. xxx
To Opening Stock A/c xxx
To Purchases A/c xxx
To Direct expenses A/c xxx
To Sales returns A/c xxx
(Being transfer of opening stock, purchases, direct expenses and sales returns to trading A/c)
2. Transferring items on the credit side such as sales, purchase returns and closing stock.
Since all the above items are credit balances in the trial balance, we need to transfer them to the credit side of the Trading
A/c. Hence, we credit the Trading A/c and debit all these accounts thereby closing these accounts and transferring the
balances to the Trading A/c.
Sales A/c Dr. xxx
Purchase Returns A/c Dr. xxx
Closing Stock A/c Dr. xxx
To Trading A/c xxx
(Being transfer of sales, purchase returns and closing stock to the Trading A/c)
3. Transfer of Gross Profit
Trading A/c Dr. xxx
To Profit & Loss A/c xxx
(Being transfer of gross profit to the profit & loss A/c)
4. Transfer of Gross Loss
Profit & Loss A/c Dr. xxx
To Trading A/c xxx
(Being transfer of gross loss to the profit & loss A/c)
Format of Trading Account is shown as below:
Name of the firm
Dr. Trading Account for the year ended 31st March… Cr.
Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)
To Opening Stock xxx By Sales xxx
To Purchase xxx Less: Sales Return (Return Inward) xxx xxx
Less: Purchase Return (Return Outward) xxx xxx By Goods Destroyed by fire/theft xxx
To Wages xxx By Goods withdrawn for personal use xxx
(i.e. Drawing)
To Wages and salaries xxx By Goods distributed as free sample xxx
To Freight xxx By Closing Stock xxx
To Carriage inward xxx By Gross Loss transferred to Profit and xxx
Loss A/c
To Octroi xxx
To Import Duty xxx
To Customs Duty xxx
To Works Manager Salary xxx
To Power, Fuel and Oil xxx
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Dr. Trading Account for the year ended 31st March… Cr.
To Coal, Gas, Water xxx
To Royalty xxx
To Factory Rent xxx
To Factory Insurance xxx
To Motive Power xxx
To Heating and Lighting xxx
To Trade Expenses xxx
To Gross Profit transferred to Profit and xxx
Loss A/c
xxx xxx
Explanation of Trading A/c items:-
1. Opening Stock
Opening stock is nothing but the closing stock of the previous year/period. The closing stock of the previous year is
brought forward as this year’s opening stock and is shown on the debit side as the first item.
2. Purchases
Purchases are goods bought by the business with the intention to sell them and earn a profit. These are goods that
the firm usually deals in and does not include purchases of capital assets. They may be made in cash or on credit and
are shown on the debit side. Purchase returns are goods returned for reasons such as defects, etc. and are shown as a
deduction from the purchases figure.
3. Wages
Wages are payments made to workers. Wages paid for production related activities are direct expenses to be debited to
the trading A/c. Wages which are in the nature of indirect expenses are to be debited to the profit & loss A/c.
4. Freight/Carriage Inward
Freight/Carriage inward refers to expenses incurred to bring the goods into the firm’s factory or godown. These are
direct expenses and hence debited to Trading A/c.
5. Octroi and Customs Duty
These are taxes paid to bring the goods within the municipal/country limits. Octroi is charged by the local municipality
whereas customs duty is paid when goods are imported from abroad.
6. Royalty
Royalty refers to amounts paid as charges for using some asset/technology such as mining rights, patents, special
machinery, formulae, etc.
7. Trade expenses
These are expenses incurred for trading purposes. When trade expenses are given along with office /sundry / general
expenses, then trade expenses are debited to trading A/c. If only trade expenses are given in the trial balance then they
are transferred to the debit side of the profit & loss A/c.
8. Sales
Sale of goods may be in cash or on credit. They are reflected on the credit side of the Trading A/c. The amount of sales
returns are shown as a deduction from the amount of sales.
9. Closing Stock
The stock in hand at the end of the year is known as the closing stock and is shown on the credit side of the trading A/c
as the last item. It also appears on the Asset side of the Balance Sheet.
III. Profit & Loss A/c
Profit & Loss A/c is also a nominal account like a Trading A/c and is an extension thereof. It reflects the net profit or loss
that the business has earned for the period. If the total of the credit side is greater than that of the debit side then the
net profit is transferred to the credit side of partners’ accounts in the profit sharing ratio. On the other hand, if the debit
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side total is greater than the credit side total, then the net loss is transferred to the debit side of partners’ accounts in
the profit sharing ratio. When fixed capital method is followed, the net profit/loss is transferred to the current accounts
of partners and when fluctuating capital method is followed then the net profit/loss is transferred to the capital accounts
of the partners.
a. Debit side of Profit & Loss A/c
• Brought forward gross loss from Trading A/c
• All indirect expenses of the current period, which are due whether paid or payable
b. Credit side of Profit & Loss A/c
• Brought forward gross profit from Trading A/c
• All indirect incomes of the current period whether received or receivable
Journal entries for Profit & Loss Account

1. Transfer of indirect expenses to profit & loss A/c
Since all these accounts show a debit balance in the trial balance we need to debit the Profit & Loss A/c while closing
these accounts and transferring the individual balances of every indirect expense account.
To Indirect expenses A/c xxx
(Being transfer of all indirect expenses to profit & loss A/c)
2. Transfer of revenue/income to profit & loss A/c
Since revenue/income accounts have a credit balance, we need to transfer these onto the credit side of the profit & loss
A/c as we close invidually close them.
Income A/c Dr. xxx
(Being transfer of all incomes and revenue to profit & loss A/c)
3. Transfer of Net Profit
To Partners Capital/Current A/c xxx
(Being transfer of net profit to the partner’s capital/current accounts)
4. Transfer of Net Loss
Partners Capital/Current A/c Dr. xxx
(Being transfer of net loss to the partner’s capital/current accounts)
Format of Profit & Loss Ac/ from the book.
Name of the firm
Dr. Profit and Loss Account for the year ended 31st March….. Cr.
To Gross loss b/d (Transferred from xxx By Gross Profit b/d (Transferred from xxx
Trading A/c) Trading A/c)
To Salaries xxx By Interest received xxx
To Salaries and Wages xxx By Discount Received xxx
To Unproductive Wages xxx By Commission received xxx
To Office expenses xxx By Dividend received xxx
To Sundry expenses xxx By Rent received xxx
To Printing Stationary xxx By other Receipt xxx
To Postage and Telegram xxx By Profit on sale of Asset xxx
To Telephone charges xxx By Interest on Investments xxx
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Dr. Profit and Loss Account for the year ended 31st March….. Cr.
To Legal charges xxx By Old R.D.D xxx
To Electricity charges xxx Less: New Bad debts xxx
To Audit Fees xxx Less: Old Bad Debts xxx
To Bank charges xxx Less: New R.D.D. xxx xxx
To Interest paid xxx By Interest on Drawings xxx
To Warehouse rent xxx By Net Loss transferred to partner’s
capital/current accounts
X xxx
Y xxx xxx
To Rent, Rates and Taxes to Insurance xxx
To Trade expenses xxx
To Travelling expenses xxx
To Discount allowed xxx
To Advertisement xxx
To Export duty xxx
To Carriage outward xxx
To Packing charges xxx
To Conveyance xxx
To Bad debts xxx
Add: New Bad Debts xxx
Add: New R.D.D. xxx
xxx
Less: Old R.D.D. xxx xxx
To Provident Fund contribution xxx
To Repairs and renewals xxx
To Interest on Capital xxx
To Salary to partners xxx
To Commission to partners xxx
To Interest on partners loan xxx
To Net Profit transferred to Partner’s
Capital/current accounts
X xxx
Y xxx xxx
xxx xxx
Explanation of Profit & Loss A/c items:-
1. Salaries and wages
Salaries and wages are amounts paid to staff. Salaries are paid to office staff whereas wages are paid to factory staff. If
Salaries & Wages appears in the trial balance, treat it as an indirect expense and debit it to Profit & Loss A/c. If Wages &
Salaries appears in the trial balance, treat it as a direct expense and debit it to the Trading A/c.
2. Insurance
Insurance premium paid or payable is an indirect expense and is incurred to provide for anticipated losses of goods,
assets, factory, etc. It is debited to Profit & Loss A/c.
3. Bad debts
Bad debts are amounts owed by debtors but which can now not be recovered. Since, they are an expense, they are
debited to the Profit & Loss A/c.
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4. Reserve for Doubtful Debts

Provision made for doubtful debts is called reserve for doubtful debts. If it is shown in the trial balance, then it is shown
on the credit side of Profit & Loss A/c. If it appears in the adjustments, then it is debited to Profit & Loss A/c and also
shown as a deduction from Debtors in the balance sheet.
5. Discount allowed
Since it is an expense, it is debited to the Profit & Loss A/c.
6. Discount received
Since it is an income, it is credited to the Profit & Loss A/c.
7. Commission paid
Commission is paid to salesmen to increase sales and develop the business. Since it is an expense, it is debited to the
Profit & Loss A/c.
8. Commission received
Sometimes, the firm may receive commission for the sales it makes on behalf of its principal. In such cases, the income
is credited to the Profit & Loss A/c.
9. Dividend received
A firm may receive dividends on the investments it has made and the income is credited to the Profit & Loss A/c.
10. Depreciation
Depreciation is the provisions made for the wear and tear of assets and the passage of time. It is debited to the Profit &
Loss A/c.
11. Rent paid
The firm may pay rent for the space it occupies such as a rented factory, or rented office building. It is debited to the
Profit & Loss A/c.
12. Rent received
Sometimes, the firm may let out its premises to others for consideration. The same being income, is credited to the
Profit & Loss A/c.
IV. Balance Sheet
Unlike the three earlier accounts, a balance sheet is not an account. It is a statement which shows the financial position
of the firm as on a particular date. It comprises of sources of funds or the liabilities, which also includes the credit
balances of partners’ capital/current accounts. The other half of the statement is made up of application of funds or
in other words, the assets, which may sometimes include the debit balances of partners’ capital/current accounts. The
Partnership Act, 1932 does not specify any particular format unlike the Companies Act, 2013. Nevertheless, we should
try to follow one particular rule – arrange the items based on their liquidity. Either start with the most liquid i.e. Cash or
begin with the most illiquid i.e. Fixed assets.
Here we have arranged the items starting with the most illiquid.
Balance Sheet of M/s…
As on 31st March ....
Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs.
Partner’s Capital A/c Goodwill xxx
X xxx
Y xxx xxx
Partner’s Current A/c
X xxx
Y xxx xxx Patents xxx
Reserve Funds xxx Copyrights xxx
Bank Loan xxx Trademarks xxx
Partner’s Loan xxx Land & Building xxx
Other loans xxx Freehold Property xxx
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Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs.
Sundry Creditors xxx Leasehold Property xxx
Bills Payable xxx Plant & Machinery xxx
Bank Overdraft xxx Furniture & Fixtures xxx
Outstanding expenses xxx Vehicles xxx
Income received in advance xxx Investments xxx
Interest accrued on investments xxx
Loans and advances xxx
Sundry Debtors xxx
Bills receivable xxx
Closing Stock xxx
Loose Tools xxx
Stationary xxx
Prepaid Expenses xxx
Income receivable xxx
Bank xxx
Cash at hand xxx
Partner’s Current A/c (debit balance) xxx
xxx xxx
Contingent Liability xxx
Explanation of Balance Sheet items:-
1. Fixed Assets
Fixed assets are assets used for production purposes or for running the business. They are not bought for resale.
a. Tangible Assets
These are assets which have a physical existence and can be seen.
E.g.: Machinery, buildings, Vehicles, etc.
b. Intangible Assets
These are assets which cannot be seen with our eyes and have no physical presence.
E.g.: Goodwill, Copyrights, Patents, etc.
2. Current Assets
These are assets which are held for a short period of time and change form. Cash is converted into goods purchased.
Stock of goods is converted to debtors when credit sales are made. Debtors are converted to cash again when they pay
off. They are short-lived and hence are not fixed.
E.g.: Cash, Bank, Debtors, Stock, etc.
3. Fictitious Assets
These are not real assets. These are intangible but have no resale value.
E.g.: Preliminary expenses, Accumulated losses, Discount on issue of securities, etc.
4. Liabilities
a. Fixed liabilities
These are long term liabilities and are usually available during the life of the business.
E.g.: Capital, Long-term loans, etc.
b. Current liabilities
These are short term liabilities and are usually on the books for less than a year.
E.g.: Bills payable, sundry creditors, bank overdraft, etc.
c. Contingent liabilities
These are not part of the balance sheet. These are not current liabilities but may become liabilities on the happening
or not happening of a future uncertain event. They are shown as a note to the balance sheet.
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Final Accounts Adjustments

We prepare final accounts based on information provided by the trial balance. But sometimes, there is additional information
that is given along with the trial balance for which no entries have been passed. We need to consider the effects of such
adjustments when we are preparing our final accounts based on the double entry system. Every adjustment outside of a trial
balance has at least 2 effects. If all the effects necessary for an adjustment are not given, then the final accounts will not tally.
Also, some adjustments are hidden or are silent such as Wages (10 months) or 12% Bank Loan. In such cases it is important
that effects for these are also given when preparing the final accounts.
1) Closing Stock
Closing stock pertains to the stock of goods on hand at the end of the year. As per Accounting Standard-2, closing stock
is valued at cost or market price, whichever is less. If closing stock is given in the trial balance, there is only one effect –
Asset side of Balance sheet. If closing stock is given as an adjustment then there are two effects
a. Balance sheet – Asset side
b. Trading Account – Credit side
The Journal entry for the same is as follows –
Closing Stock A/c Dr. xxx
To Trading A/c xxx
Since closing stock is an asset, it is reflected on the asset side of the balance sheet. Also, since closing stock are goods
unsold, the cost needs to be carried forward to the next period so that the profit of the current year is not disturbed.
Hence, we need to credit the Trading A/c. This closing stock becomes the opening stock of the next year.
2) Outstanding expenses
These are expenses of the current year but which have not been paid. Since these pertain to the current year a provision
needs to be made in the accounts of the current year.
a. Trading/Profit & Loss A/c – Debit Side (If an expense of the same name exists in the trial balance, then this
outstanding portion needs to be added to that expense in the trading/profit & loss account.)
b. Balance Sheet – Liability side
Particular Expense A/c Dr. xxx
To Outstanding expense a/c xxx
Any expense payable becomes a liability. Hence, we need to show it on the liability side of the balance sheet. Also, since the
expense is of the current year, we need to debit the trading/profit & loss account to arrive at the correct profit or loss.
3) Prepaid expenses
Conversely, there are certain expenses which are paid in advance but actually pertain to the next year.
a. Balance Sheet – Assets side
b. Trading/Profit & Loss A/c – Debit side (deduct from the particular expense head)
Prepaid expense A/c Dr. xxx
To Particular Expense A/c xxx
Since these are in the nature of assets, we show them on the asset side of the balance sheet. Also, since the expense is
not of this year, we reduce the same from the particular expense in the trading/profit & loss account.
4) Income received in advance
Similar to prepaid expenses, there is income received in advance. This is income that pertains to the next year but has
been already received this year.
a. Profit & Loss A/c – Credit side (deduct from the particular income)
b. Balance Sheet – Liability side
Particular Income A/c Dr. xxx
To Income received in advance A/c xxx
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Using the earlier logic of prepaid expenses, since this income is received in advance, it does not belong to the current
year and hence needs to be deducted from the particular income. Also, since it’s an amount received in advance, it
becomes a liability for the firm.
5) Income receivable
Income receivable refers to the income due but not yet received. It is an income of the current year.
a. Profit & Loss A/c – Credit side (add to the particular income)
b. Balance sheet – Asset side
Income receivable A/c Dr. xxx
To Particular Income A/c xxx
Any outstanding income yet to be received is an asset of the firm. Hence it appears on the asset side of the balance
sheet. Also, since it is an income of the current year, it is added to the particular income on the credit side of the profit
and loss account.
6) Bad debts
A bad debt is the amount that debtors owe the firm but is now irrecoverable. It is in the nature of a loss and if it is shown
in the trial balance then they appear on the debit side of the Profit & Loss A/c.
a. Profit & Loss A/c – Debit side (add to the already given bad debts)
b. Balance sheet – Asset side (deduct from sundry debtors)
Bad debts A/c Dr. xxx
To Sundry Debtors A/c xxx
Bad debts are debts which are irrecoverable and hence need to be written off. To write them off, we deduct them from
the sundry debtors. Also, since bad debts are in nature a loss, they get debited to the profit and loss account.
7) Reserve for Doubtful Debts/ Provision for Doubtful Debts/ RDD
Firms make provisions for expected losses based on their prior experience. Provision for bad debts or doubtful debts
is made to cover for possible losses from debtors going bad. If RDD already exists in the trial balance, then the same is
credited to the profit & loss account since this is the old RDD and needs to be reversed. The effects for RDD appearing
as an adjustment are as follows -
a. Profit & Loss A/c – Debit side (add to old bad debts)
b. Balance Sheet – Asset Side (Deduct from Sundry Debtors)
Reserve for Doubtful Debts A/c Dr. xxx
The Reserve for Doubtful Debts is created out of the current year’s profits and hence the same needs to be debited to
the profit & loss account. Also, since they effectively reduce the amount of debtors that the firm expects to realize, we
show them as a deduction from sundry debtors in the balance sheet.
Dr. Profit & Loss Account for the year ended ..... Cr.
To Bad Debts xxx By Old RDD xxx
Add: New Bad Debts xxx Less: Old Bad Debts xxx
Add: New RDD xxx Less: New Bad Debts xxx
Less: Old RDD xxx Less: New RDD xxx xxx
xxx xxx
xxx xxx
Note: If Old RDD is more than the total of the old bad debts, new bad debts and the new RDD, then it is shown on the credit
side of the profit & loss account so as to avoid a negative figure on the debit side of the profit and loss account.
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8) Reserve for Discount on Debtors

Firms allow discounts to their customers and for this purpose create a reserve fund to finance the future discounts to
debtors.
a. Balance Sheet – Asset side (deduct from sundry debtors)
b. Profit & Loss A/c – Debit side (add to discount allowed if already given in trial balance, else debit profit and loss
account separately)
Reserve for Discount on Debtors A/c Dr. xxx
The logic is similar to creation of RDD. Since, the reserve is created for a possible expense; we need to debit the profit
and loss account. Also, since it effectively reduces the amount of debtors, we deduct it from the sundry debtors amount
in the balance sheet.
9) Reserve for Discount on Creditors
Firms also create reserves for discounts they expect from creditors.
a. Balance sheet – Liability side (deduct from sundry creditors)
b. Profit & Loss A/c – Credit side (add to discount received if already exists in trial balance, else credit separately)
Sundry Creditors A/c Dr. xxx
To Reserve for Discount on Creditors A/c xxx
Since this is an income for the firm, we need to credit the profit and loss account. Simultaneously, it also reduces the
amount payable to the creditors and hence is deducted from sundry creditors.
10) Depreciation
Depreciation is charged on assets to account for the decrease in value due to wear and tear, passage of time, etc.
a. Profit & Loss A/c – Debit side
b. Balance Sheet – Asset side (deduct from particular fixed assets on which depreciation is charged)
Depreciation A/c Dr. xxx
To Fixed Asset A/c xxx
To Depreciation A/c xxx
Depreciation being an expense we debit the profit and loss account. We also deduct the same from the asset as it
signifies a reduction in its value. To give effect to this, we pass two separate entries. The first one reduces the value of
the asset whereas the second one debits the profit and loss account.
11) Interest
I. Interest on Partner’s Capital
b. Partner’s Capital/Current A/c – Credit side
Interest on Capital A/c Dr. xxx
To Partner’s Capital /Current A/c xxx
To Interest on Capital A/c xxx
Interest on capital is an expense of the firm and hence needs to be debited to the profit and loss account. On the other
hand, it increases the amount owed by the firm to the partners and hence needs to be credited to the partners’ capital/
current account.
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II. Interest on Partner’s Drawings

a. Profit & Loss A/c – Credit side
b. Partner’s Capital/Current A/c – Debit side
Partner’s Capital/Current A/c Dr. xxx
To Interest on Drawings A/c xxx
Interest on Drawings A/c Dr. xxx
Interest on drawings is an income of the firm and hence needs to be credited to the profit and loss account. On the other
hand, it decreases the amount owed by the firm to the partners and hence needs to be debited to the partners’ capital/
current account.
III. Interest on loans taken
b. Balance Sheet – Liability side (Add to Loan A/c)
Interest on loan A/c Dr. xxx
To Loan A/c xxx
Interest on loans is an expense of the firm and hence needs to be debited to the profit and loss account. Also, since it
increases the amount of loan that needs to be repaid, we need to add it to the loans on the liability side of the balance
sheet.
IV. Interest on Investment
a. Balance Sheet – Asset side
b. Profit & Loss A/c – Credit side
Interest on Investment A/c Dr. xxx
Interest on investments that the firm has made is an income and hence will be credited to the profit and loss account.
V. Interest on loans given
Interest on Loan A/c Dr. xxx
Interest on loans given by the firm is an income and hence will be credited to the profit and loss account.
12) Goods destroyed
I. Insured goods destroyed by fire/accident and insurance company admits full claim and claim amount is receivable.
b. Trading A/c – Credit side (or deduct from Purchases A/c on the debit side of the Trading A/c)
Insurance claim A/c Dr. xxx
To Trading A/c xxx
Since the insurance company has admitted the claim in full, there is no loss to the firm due to the fire/accident. Hence,
we credit the trading account to remove the value of goods destroyed so that it does not affect the calculation of correct
profit/loss for the year. Since, the claim is still receivable, we show it on the asset side of the balance sheet.
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II. Insured goods destroyed by fire / accident and insurance company admits partial claim.
a. Trading A/c – Credit side – Total value of goods destroyed
b. Profit & Loss A/c – Debit side – Actual loss amount
c. Balance Sheet – Asset side – Claim amount
Insurance claim A/c Dr. xxx
Goods lost by fire/accident A/c Dr. xxx
To Trading A/c or Purchases A/c xxx
To Goods lost by fire/accident A/c xxx
In this case, since only a partial claim has been accepted by the insurance company, the firm suffers a loss to the extent
of the claim not admitted. The gross value of goods is credited to the trading account or purchases account to remove
the value of goods from the current year’s calculations. The amount of claim is a receivable and hence is shown as an
asset in the balance sheet. The part of the claim that has not been admitted is a loss and hence needs to be debited to
the profit and loss account.
III. Uninsured goods lost by fire/accident
a. Trading A/c – Credit side (or deduct from Purchases A/c on the debit side of the Trading A/c)
b. Profit & Loss A/c – Debit side
This is a total loss to the firm and hence the value of goods is removed from the trading account or is reduced from the
value of purchases so as to arrive at a correct gross profit/loss. The profit and loss account is then debited to record the
loss sustained.
13) Goods lost due to theft
Goods stolen or lost due to theft are a loss to the firm. The same logic applies as in loss of uninsured goods. The value of
goods is removed from the trading account or is reduced from the value of purchases so as to arrive at a correct gross
profit/loss. The profit and loss account is then debited to record the loss sustained.
14) Goods distributed as free samples
Advertisement A/c Dr. xxx
To Advertisement A/c xxx
Goods distributed as free samples are in the nature of advertisement expenses for the firm. The value of goods is
removed from the trading account or is reduced from the value of purchases as the goods are taken out from the firm.
The profit and loss account is then debited to record the expenditure on advertisement.
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15) Goods withdrawn by a Partner

b. Partners’ Capital/Current A/c – Debit side
Drawings A/c Dr. xxx
Partner’s Capital / Current A/c Dr. xxx
To Drawings A/c xxx
Goods withdrawn go out from the firm and hence need to be credited to the trading/purchase account. Also, since
goods withdrawn are essentially in the nature of drawings, they are debited to the partners’ capital/current accounts.
16) Unrecorded purchases
Unrecorded purchases are goods purchased but not recorded in the books of accounts although they are included in the
stock.
a. Trading A/c – Debit side (add to purchases)
b. Balance Sheet – Liability side (add to creditors)
Purchases A/c Dr. xxx
To Creditors A/c xxx
Since we have not recorded the purchase before, but the same has already been included in the closing stock, we need
to pass an entry to record the purchases. We debit the purchase account and credit the creditors.
17) Unrecorded Sales
Sales made to customers on credit but not recorded in the sales book are known as unrecorded sales.
a. Trading A/c – Credit side (add to sales)
b. Balance Sheet – Asset side (add to debtors)
Debtors A/c Dr. xxx
To Sales A/c xxx
Since we have not recorded the sale we need to pass an entry to record the sale. We credit the sales account and debit
the debtors.
18) Capital expenditure wrongly recorded as revenue expenditure and vice versa
Sometimes, capital expenses such as expenses incurred on installation of an asset are wrongly included as revenue
expenditure. They are expended in the profit and loss account instead of getting capitalized.
a. Balance Sheet – Asset side (add to the particular asset)
b. Trading/Profit & Loss A/c – Debit side (deduct from the particular expense)
Asset A/c Dr. xxx
To Expense A/c xxx
Alternatively, revenue expenditure gets recorded as capital expenditure and this wrongly increases profit.
a. Balance Sheet – Asset side (reduce from the particular asset)
b. Trading/Profit & Loss A/c – Debit side (add to the particular expense)
Expense A/c Dr. xxx
To Asset A/c xxx
2 - 24
19) Capital receipts included in revenue receipts and vice versa

Cash receipts in the nature of revenue receipts such as rent received, interest received are sometimes wrongly capitalized
and shown as capital receipt like sale of asset.
a. Balance Sheet – Asset side (add to the asset like machinery, etc.)
Asset A/c Dr. xxx
To Revenue Income A/c xxx
Also, sometimes capital receipts such as proceeds from sale of asset, etc. are credited to profit and loss account as
revenue income.
a. Balance Sheet – Asset side (deduct from the asset like machinery, etc.)
b. Trading A/c – Credit side (deduct from sales or such other income)
Sales A/c Dr. xxx
To Asset A/c xxx
20) Bills Receivable dishonoured
When the drawee does not pay the amount of the bill, the bill is said to be dishonoured.
a. Balance Sheet – Asset side (deduct from bills receivable)
b. Balance Sheet – Asset side (add to debtors)
Debtors A/c Dr. xxx
To Bills Receivable A/c xxx
Since the bills receivable have been dishonoured, the drawee again becomes a debtor. Hence, we need to debit debtors
account and credit the bills receivable account.
21) Bills Payable dishonoured
When the amount of bills payable is not paid by due date to the creditors, the bill is said to be dishonored.
a. Balance Sheet – Liability side (deduct from bills payable)
b. Balance Sheet – Liability side (add to creditors)
Bills Payable A/c Dr. xxx
To Creditors A/c xxx
Since the bills payable have been dishonoured, the drawer of the bills payable again becomes a creditor. Hence, we need
to credit creditors account and debit the bills payable account.
22) Deferred expenses
Expenses paid in one year but whose benefit is availed of in more than one year are called deferred expenses. The
expenses are spread over the number of years the benefits are expected. A proportionate amount is charged to the
profit and loss account every year.
a. Profit & Loss A/c – Debit side (proportionate amount for the year)
b. Balance Sheet – Asset side (proportionate amount for the year)
To Deferred Expenses A/c xxx
Since the expenses incurred give benefits over more than one year, they represent assets of the firm. Every year a part of
this fictitious asset is expensed out by crediting the deferred expense account and debiting the profit and loss account.
2 - 25
23) Commission to partner as a percentage of sales/profit

Partners sometimes are allowed a percentage of the sales they make or the profit they achieve as commission.
b. Partners’ Capital/Current A/c – Credit side
To Partners’ Capital/Current A/c xxx
Commission paid is an expense for the firm. After calculating the commission by applying the percentage given to the
sales/profit figure, we need to the debit the profit and loss account. Also, since the commission payable to the partner
increases the amount due to partners, we need to credit the partners’ capital/current account.
Summary of Adjustments:
Adjustments 1st Effect 2nd Effect
1. Closing Stock Balance Sheet Asset Side Trading A/c Credit side
2. Outstanding Expenses Add to that particular expenses on the Balance Sheet
debit side of Trading/Profit and Loss Liability Side
A/c
3. Prepaid Expenses Balance Sheet Asset side Deduct from that particular expenses
on the debit side of Trading/profit and
loss A/c
4. Income received in advance (Pre- Deduct from that particular income on Balance Sheet
received Income) the credit side of Profit and Loss A/c Liability Side
5. Income receivable (Outstanding Balance Sheet Asset Side Add on that particular Income on the
Income) credit side pf profit and loss A/c
6. Bad Debts (Additional or New Bad Show to the Debit side of profit and Deduct from Sundry debtors in Balance
debts) loss A/c (Add to old Bad Debts) Sheet Asset Side
7. Provision for Doubtful Debts (ReserveShow to the debit side of profit and loss Deduct from Sundry Debtors in Balance
for Doubtful Debts, New R.D.D.) A/c (Add to old bad debts) Sheet Asset Side
8. a. Reserve For Discount on Show to the debit Side of Profit and Deduct from Sundry Debtors Balance
Debtors loss A/c (Add to discount received) Sheet Asset Side
b. Reserve for Discount on Deduct from sundry creditors in Show to the credit side of profit and
Creditors Balance Sheet Liability Side loss A/c (Add to discount received)
9. Depreciation Show on the debit side of the profit Deduct from that particular asset in
and loss A/c Balance Sheet Asset side
10. a. Interest on Capital Show to the debit side of profit and loss Partner’s capital/ current A/c/ credit
A/c side or add to capitals
b. Interest on Drawing Show to the debit side of partner’s Show to the credit side of profit and
capital/current A/c or Less from capital loss A/c
c. Interest on loan taken Show to the debit side of profit and loss Add to loan taken in the Balance Sheet
A/c liability side
11. Interest on Investment and loan given Balance sheet asset side Show to the credit side of profit and
loss A/c
12. a. Insured Goods destroyed by i. Balance sheet asset side (claim Trading A/c – credit side (gross amount)
Fire/accident amount)
ii. Profit and loss A/c (loss amount)
b. Uninsured Goods destroyed by Profit and loss A/c debit side Show to the credit side of Trading A/c
Fire/ accident
Goods Stolen Profit and Loss A/c debit side Show to the credit side of Trading A/c
13. Goods distributed as free samples Profit and loss A/c debit side (Add in Show to the credit side of trading A/c
advertisements)
2 - 26
Adjustments 1st Effect 2nd Effect

14. Goods withdrawn by Partners for Partners capital/ current A/c debit side Show to the credit side of trading A/c
personal use or Deduct from purchase A/c
15. a. Unrecorded Purchases Add to purchase on the debit side of Add to creditors on the Liability Side of
Trading A/c Balance Sheet
b. Unrecorded Sales Add to debtors on the asset side of the Add to Sales on the credit side of
Balance Sheet Trading A/c
16. a. Capital Expenditure included in Add to that particular asset in Balance Deduct from that particular revenue
revenue expenditure Sheet Asset side expenses on the debit side of Trading
or profit and loss A/c
b. Revenue expenditure included Add to that particular revenue Deducted from that particular Asset in
in capital expenditure expenditure Balance Sheet
17. Bills Receivable Dishonoured Add the amt of bill dishonored to Deduct the Amount of bill dishonored
sundry debtors in the Balance Sheet from Bills Receivable
asset side
18. Bills Payable Dishonoured Deduct the amt of bill dishonored from Add the Amount of bill dishonored to
Bills payable sundry creditors in the Balance Sheet
liability side
19. Deferred expenses of Advertisement Advertisement related to current year Remaining Amount of advertisement
paid for 5 years debited to profit and loss A/c is shown on asset side of the Balance
Sheet as Prepaid Advertisement
20. Revenue receipts included in capital Add to furniture on the asset side of Add to Sales on the credit side of
receipts e.g. sales of goods included the Balance Sheet Trading A/c
in sale of furniture
21. Commission to partners as Show to the debit side of profit and loss A/c Show to the credit side of Partner’s
percentage of gross profit/sales capital /currents A/c or add to partner’s
capital A/c
Section I : From the Textbook - Solved Problems:-

1. From the following Trial Balance of M/s. Ganesh and Kartik, you are required to prepare Trading and Profit & Loss
Account for the year ended 31st March, 2011 and Balance sheet as on that date after taking into account the additional
information.
Trial Balance as on 31st March, 2011
Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)
Opening stock 18,000 Capital A/c - Ganesh 50,000
Purchases 24,000 Kartik 30,000
Wages 2,400 Sundry Creditors 10,000
Carriage Inward 1,200 Bills Payable 7,800
Cash in hand 3,800 Rent received 2,200
Insurance 1,200 Sales 52,500
Postage and Telegram 700
Sundry Debtors 21,000
Land and Building 40,000
Furniture 28,000
Travelling expenses 1,300
Discount allowed 900
Bad debts 2,000
Bills Receivable 8,000
1,52,500 1,52,500
2 - 27
Additional Information:
1. Closing stock on 31st March, 2011 was valued at Rs 20,000.
2. Outstanding wages was Rs 1,000.
3. Depreciate Furniture by 10%.
4. Insurance paid in advance Rs 300.
2. From the following Trial Balance and adjustments given below, your are required to prepare Trading and Profit and Loss
Account for the year ended 31st March, 2010 and Balance Sheet on as that date of M/s Sonal and Minal.
Opening stock 18,000 Capital A/c- Sonal 35,000
Minal 35,000
Cash in hand 2,400 Sales 47,200
Discount allowed 900 Sundry Creditors 29,000
Salaries 1,300 Bills Payable 7,000
Land and Building 50,000 Bank loan 20,000
Furniture 18,000 Discount received 1,500
Plant and Machinery 22,000 Purchases Return 2,200
Interest paid 850
Bad debts 650
Printing and Stationary 1,200
Purchases 32,000
Wages 2,800
Sales Return 1,800
1,76,900 1,76,900
Adjustments:
1. The stock on hand on 31st March, 2010 was valued at Rs. 29,000.
2. Outstanding salary was Rs. 700.
3. Wages paid in advance to workers Rs. 1,200 .
4. Depreciate Land Building at 5 %p.a. and Plant and Machinery at 10% p.a.
5. Write off Rs. 1,000 for further Bad debts.
3. Following is the trial balance of M/s. Ram and Gopal as on 31st March, 2009.
Sundry Debtors 28,000 Ram’s Capital A/c 50,000
Postage and Telegram 1,000 Gopal’s Capital A/c 40,000
Machinery 30,000 Bills payable 4,000
Opening stock 32,000 Sundry Creditors 15,000
Furniture 25,000 Sales 1,18,700
Purchases 76,500 Bank Loan 15,000
Wages 12,000 Outstanding wages 3,000
Salaries 7,000
Carriage Inward 1,000
Carriage Outward 2,000
Rent paid 1,500
Bad debts 1,700
Cash in hand 8,000
Motor Car 20,000
2,45,700 2,45,700
2 - 28
Profit sharing ratio of Ram and Gopal is 3:2. Prepare Trading and Profit and Loss Account for the year ended 31st March,
2009 and Balance Sheet as on that date after taking into consideration the following adjustments.
1. The closing stock is valued at cost price Rs. 45,000 while its market price is Rs. 50,000.
2. Outstanding expenses were salaries Rs. 800, Rent Rs. 500.
3. Provide Depreciation on Machinery at 15% and Furniture at 10% p.a.
4. Goods costing Rs. 3,000 distributed as free sample.
5. Interest on Bank loan is payable Rs. 1,500.
4. Raja and Rani are partners of ‘Maharaja Traders’. They decided to share profits and losses in the ratio of 3:2. From the
following Trial Balance and additional information, you are required to prepare Trading and Profit Loss Account for the
year ended 31st March, 2013 and Balance Sheet as on that date.
Purchases 90,500 Sales 1,20,300
Sundry Debtors 34,000 Creditors 45,500
Bills Receivable 35,000 Bills Payable 32,000
Opening stock 34,600 Capital A/c - Raja 1,50,000
Rani 1,00,000
Land and Building 1,20,000 Raja’s loan A/c 11,000
Work’s Manager Salary 4,700 Commission received 2,500
Motive Power 5,500
Plant and Machinery 80,000
Audit fees 3,400
Salaries and Wages 14,500
Trade expenses 2,100
General expenses 1,800
Wages and Salaries 20,700
Loose tools 10,000
Prepaid rent 4,500
4,61,300 4,61,300
a. Stock on hand on 31st March, 2013 was cost Rs. 42,000 and its market price was Rs. 45,000.
b. Audit fees paid in advance of Rs. 1,500.
c. Motive power includes Rs. 3,000 paid for deposit of power meter.
d. Goods worth Rs. 2,500 taken by Raja for his personal use are not entered in the books of account.
e. Bills payable dishonoured of Rs. 2,500.
f. Depreciate plant and machinery at 5% p.a. and loose tools at 10% p.a.
g. Commission includes, pre-received amount of Rs. 1,000.
5. From the following Trial Balance of M/s Sharma and Varma, you are required to prepare a Trading and Profit and Loss
Account for the year ended 31st March, 2013 and Balance Sheet as on that date after taking into consideration the
additional information given below. Partners share profits and losses in their capital ratio.
Stock on 1st April, 2012 28,000 Capital A/c - Sharma 90,000
Varma 60,000
Purchases 1,75,000 Sundry Creditors 30,000
Salaries 17,500 Rent received 3,500
Unproductive wages 1,800 Bank overdraft 24,500
Carriage 1,200 Sales 2,26,750
2 - 29

Royalties 2,500
Freight 1,400
Sundry debtors 40,000
Furniture 20,000
Leasehold property 95,000
Investment 35,000
Advertisement (for 3 years) 4,275
Bad debts 1,425
Discount allowed 800
Cash in hand 7,000
4,34,750 4,34,750
1. Stock on hand on 31st March, 2013 was at cost Rs. 38,000.
2. Provide R.D.D at 5% on Sundry Debtors and Reserve for discount on debtors at 3%.
3. Goods worth Rs. 5,000 destroyed by fire and Insurance company admitted a claim of Rs. 4,300.
4. Rent of Rs. 800 is still receivable from the tenant.
5. Depreciate Furniture at 12% p.a.
6. Rane and Chavan are partners sharing profits and losses in the ratio of 7:6. From the following Trial Balance and additional
information prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet as on
that date.
Opening stock 44,000 Reserve for doubtful debts 2,100
Bills Receivable 28,000 Sundry creditors 55,400
Wages and Salaries 12,000 Sales 2,00,000
Sundry Debtors 52,000 General Reserve 28,000
Purchases 1,30,000 Outstanding salaries 2,700
Building 80,000 Capital A/c- Rane 80,000
Discount 1,400 Chavan 60,000
Audit fees 4,000
Bad debts 3,500
Cash at Bank 11,500
Motor Car 45,000
Ret for 9 months 4,500
4,28,200 4,28,200
Adjustments:
a. Closing stock is valued at Rs. 42,000.
b. Bills Receivables included dishonor bill of Rs. 4,000
c. Goods worth Rs. 2,100 were taken by Rane for his personal use was not entered in the books of account.
d. Goods worth 4,000 were sold on 27th March, 2012, but no entry was made in the books of account.
e. Write off 2,000 for bad debts and maintain R.D.D at 5% on Sundry debtors.
f. Travelling expenses includes, personal travelling expenses of Mr. Chavan of Rs. 800.
g. Depreciate Building at 7% p.a.
2 - 30
7. M/s. Vijay Raj Traders is a Partnership firm in which Vijay and Raj are partner sharing profits and losses in the ratio of
8:7. From the following Trial Balance prepare Trading and Profit Loss Account for the year ended 31st March, 2013 and
Balance sheet as on that date.
Debit Balances Amt. (Rs.) Credit Balance Amt. (Rs.)
Current A/c-Raj 1,500 Capital A/c - Vijay 72,000
Purchases 1,42,000 Raj 63,000
Sundry Debtors 80,000 Current A/c - Vijay 2,490
Bills Receivables 12,000 Sales 2,13,000
Commission 3,000 Sundry Creditors 47,500
Opening stock 27,000 Bills Payable 19,500
Cash in hand 3,500 Commission 2,500
10% Government bonds (Purchased on 1.1.2013) 20,000
Rent and Taxes 2,390
Building 70,000
Furniture 15,000
Salaries 21,000
Wages 8,000
Insurance 3,600
Motor Car 10,000
Bad debts 1,000
4,19,990 4,19,990
Adjustments:
1) Stock on hand on 31st March, 2013 was valued at Rs. 35,000.
2) Vijay is allowed a salary of Rs. 3,500 and Raj is entitled to get commission at 2% on sales.
3) Interest on partners capital@ 5% is to be provided.
4) Depreciate Furniture at 15% and Building at 10% p.a.
5) Rs. 2,000 due from customer is not recoverable.
6) Insurance is paid for the year ended on 30th June, 2013.
7) Prepaid commission is Rs. 1,000 and pre-received commission is Rs. 700.
8. Tambe and Pitale are partners sharing profits and lossess equally. From the following Trial Balance and adjustments,
prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet as on that date.
Land and Building 75,000 Capital A/c - Tambe 70,000
Machinery (Addition on 1st July, 2011 Rs. 55,000 Pitale 50,000
10,000)
Opening stock 23,000 Sales 85,000
Wages 5,750 Sundry Creditors 44,250
Cash at Bank 3,500 10% Bank loan
(Taken on 1st October 2011) 20,000
Sundry Debtors 32,800 Sundry Income 1,500
Purchases 63,000 Pre-received rent 2,500
Carriage 1,250 Provident fund 30,000
Rent, Rates and Taxes 2,400
Furniture and fixture 26,600
Salaries 3,500
Office expenses 2,450
Drawing A/c - Tambe 5,000
Pitale 4,000
3,03,250 3,03,250
2 - 31
Adjustments:
1) Closing stock is valued at Rs. 20,000.
2) Goods worth Rs. 2,000 were purchased on 31st March, 2013 and included in closing stock but not recorded in the
books of account.
3) Goods worth Rs. 2,500 were sold, but not recorded in the books of account.
4) Outstanding office expenses were Rs. 1,700.
5) Depreciate Machinery at 10% p.a.
6) Write off Rs. 1,500 for Bad debts.
9. Sachin and Nilesh are partners sharing profits and losses equally. From the following Trial Balance and adjustments. You
are required to prepare a Trading and Profit and Loss Account for the year ended 31st March, 2010 and Balance sheet
as on that date.
Drawings: Sachin 5,000 Capital A/c - Sachin 70,000
Nilesh 4,000 Nilesh 60,000
Sundry Debtors 45,000 Current A/c - Sachin 4,750
Nilesh 3,800
Cash at Bank 22,800 Sundry Creditors 52,500
Land and Building 75,000 Bank overdraft 17,250
Opening stock 38,200 Sales 2,07,650
Import duty 6,400
Audit fees 3,750
Wages 4,150
Brokerage 2,400
Motor Van 40,000
Machinery 32,000
12% Debentures 25,000
Factory Rent 2,250
Salaries 7,500
Purchases 1,02,500
4,15,950 4,15,950
Adjustments:
2) Outstanding expenses were: salary Rs. 1,500, audit fees Rs. 1,250.
3) Interest on partner’s capital at 5% p.a. is allowed while interest on drawings is charged at 4% p.a.
4) Depreciate Machinery at 12.5% and Motor Van 8% p.a.
5) Sachin is entitled to get salary at Rs. 400 per month and Nilesh is to get 4% commission on Gross profit.
6) Sales includes, sale of machinery of Rs. 2,000 which is sold on 1st April, 2009.
7) Debentures purchased on 1st October, 2009.
2 - 32
10. Ramdeo and Mahadeo are partners sharing profits and losses in the ratio of 2:1. From the following Trial Balance and
adjustments, prepare Trading and Profit and Loss Account for the year ended 31st March, 2011 and Balance Sheet as on
31st March, 2011.
Opening Stock 20,250 Sales 1,47,500
Furniture and fixtures 15,000 Sundry Creditors 33,500
Cash in hand 1,802 Dividend received 4,000
Bad debts 1,250 Provident fund 17,500
Salaries and wages 9,750 Interest on P.F. Investment 1,250
Purchases 87,500 Capital A/c - Ramdeo 80,000
Sundry Debtors 41,500 Mahadeo 40,000
Carriage inward 1,748
Goodwill 30,000
Provident fund contribution 1,250
Advertisement (for 3 years)
w.e.f. 1st October, 2010 4,800
Provident fund investment 19,000
Shares in B Ltd. 13,000
3,23,750 3,23,750
Adjustments:
2) Rs. 2,000 paid during the year as Building repairs wrongly debited to Building account.
3) Depreciate Land and Building at 10% p.a.
4) Maintain R.D.D. at 5% on Sundry Debtors.
5) Reserve for discount on Debtors and Creditors are to be made at 3% and 4% respectively.
6) Uninsured goods worth Rs. 2,000 were destroyed by fire.
11. From the following Trial Balance of M/s. Pravin and Ramesh, you are required to prepare Trading and Profit and Loss
Account for the year ended 31st March, 2013 and Balance Sheet as on that date.
Plant and Machinery 1,40,000 Capital A/c - Pravin 2,00,000
Ramesh 1,50,000
Goodwill 40,000 Sales 3,30,000
Furniture 80,000 Sundry Creditors 1,05,000
Coal, Gas and Water 4,300 12% Bank loan (Taken on 1st October, 2012) 40,000
Land and Building 1,20,000
Purchases 2,32,000
Postage and Telegrams 2,200
Export duty 15,500
Rent and Taxes 7,200
Cash in hand 18,000
Freight 6,200
Prepaid rent 3,600
2 - 33

Insurance 4,200
Opening stock 39,000
Discount 5,800
8,25,000 8,25,000
Adjustments:
1) Closing stock in hand was valued at Rs. 61,000.
2) Goods distributed as free samples were Rs. 3,000.
3) Postal stamps in hand on 31st March, 2013 were Rs. 700.
4) Provides 5% interest on capitals.
5) Prepaid insurance Rs. 900.
6) Provide Reserve for doubtful debts at 5% on Sundry Debtors.
7) Wages paid for installation of machinery were included in Wages A/c Rs 5,000. Depreciate Machinery at 5%
12. Mr. Ajit and Mr. Sujit are partners of the firm sharing profits and losses in the ratio of 3:2. Their Trial Balance as on 31st
March, 2012 was given below. Prepare Trading and Profit and Loss Account for the year ended 31st March, 2012 and
Balance Sheet as on that date.
Particulars Debit Amt. (Rs.) Credit Amt. (Rs.)
Capital A/c - Ajit 50,000
Sujit 40,000
Purchases and Sales 62,750 1,22,000
Sundry Debtors and Creditors 24,000 47,000
Interest 2,900 2,000
Opening stock 21,500 -
Wages 8,500 -
Land and Building 75,000 -
Loose tools 15,000 -
Power, Fuel and Oil 2,750 -
Export duty 1,200 -
Salaries 10,800 -
Electricity charges 1,400 -
Investments 24,000 -
Reserve fund - 8,000
Ajit’s loan A/c - 10,000
Bank overdraft - 11,000
Patents 32,000 -
Administration expenses 4,300 -
Cash in hand 2,000 -
Heating and lighting 1,900 -
2,90,000 2,90,000
Adjustments:
1) Stock on hand on 31.3.2012 was valued at Rs. 17,000.
2) 1/8th of the patents are to be written off.
3) Goods of Rs. 7,000 destroyed by fire and insurance company admitted a claim of Rs. 6,100.
4) Rs. 1,000 received on account is commission wrongly included in Ajay’s loan account.
5) Provide 8% Depreciation on Land and building and 5% on Loose Tools.
6) Outstanding expenses were: Salaries Rs. 1,200 Electricity charges Rs. 1,800.
7) Our customer, Mr. Rakesh failed to pay his due of Rs. 1,000.
2 - 34
13. Dhanesh and Ganesh are partners sharing profits and losses in their capital ratio. 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, 2011 and Balance Sheet as on that date.
Stock on 1st April, 2010 88,000 Sales 6,40,000
Return inward 20,000 Bills Payable 72,000
Carriage 8,000 Capital A/cs - Dhanesh 1,92,000
Motive power 12,000 Ganesh 1,28,000
Wages 1,12,000
Sundry Debtors 1,44,000
Salaries 76,000
Insurance 4,800
Postage 7,200
Commission 10,000
Plant and Machinery 1,20,000
Furniture 32,000
Advertisement 16,000
Office Rent (Paid for 10 months) 20,000
Buildings 48,000
Cash in hand 6,000
Bill Receivable 48,000
11,12,000 11,12,000
Adjustments:
1) Closing stock was valued at market price of at Rs. 1,76,000 which is 10% above the cost.
2) Depreciate Plant and Machinery and Building at 20% and 10% respectively.
3) Goods withdrawn by Dhanesh of Rs. 20,000 during the year were not recorded in the books of accounts.
4) Bad debts were Rs. 4,000 and provide for R.D.D. at 5% on Sundry Debtors.
5) Goods worth Rs. 12,000 were purchased and included in closing stock, but not recorded in the books of accounts.
6) Dishonoured Bill Payable of 8,000 was wrongly included in Bills Receivable, however balances of Debtors and
Creditors were taken correctly.
Section II : From the Textbook - Practical Problems :-

1. From the following Trial Balance of M/s. Ajay and Vijay, you are required to prepared Trading and Profit and Loss Account
for the year ended 31st March, 2009 and Balance Sheet as on that date.
Capital A/c’s - Ajay 60,000
Vijay 35,000
Purchases and Sales 46,700 85,000
Bills Receivable and payable 5,000 6,000
Commission 4,600 1,800
Wages 9,900
Investment 13,500
Postage and Telegrams 3,600
Insurance 1,200
2 - 35

Furniture 18,000
Cash in hand 2,500
Carriage 3,200
Bad debts 400
Prepaid Rent 7,000
Salaries 10,500
2,12,800 2,12,800
Adjustments:
1) The closing stock is valued at Rs. 31,000.
2) Outstanding expenses were wages Rs. 1,400, salaries Rs. 800.
3) Depreciate Plant and Machinery by 10%.
4) Insurance at Rs. 500 is paid in advance.
5) Provide for further bad debts of Rs. 1,500.
6) Commission due but not received Rs. 1,200.
Solution 1:
In the books of M/s Ajay and Vijay
Dr. Trading & Profit and Loss A/c for the year ended 31st March, 2009 Cr.
To Opening Stock 18,000 By Sales 85,000
To Purchases 46,700
To Wages 9,900
Add : O/s wages 1,400 11,300
To Carriage 3,200 By Closing Stock 31,000
To Gross Profit c/d 36,800
1,16,000 1,16,000
To Salaries 10,500 By Gross Profit b/d 36,800
Add : O/s salaries 800 11,300 By Commission 1,800
To Commission 4,600 Add: Commission due but not received 1,200 3,000
To Postage & Telegram 3,600
To Insurance 1,200
Less: Advance 500 700
To Bad debts 400
Add: New Bad debts 1,500 1,900
To Depreciation
Plant & Machinery 4,070
To Net Profit c/d
Ajay 6,815
Vijay 6,815 13,630
39,800 39,800
2 - 36
Balance Sheet as on 31st March, 2009

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)
Capital Accounts Plant & Machinery 40,700
Ajay 60,000 Less: Depreciation 4,070 36,630
Add: Net Profit 6,815 66,815 Furniture 18,000
Vijay 35,000 Investments 13,500
Add: Net Profit 6,815 41,815 Prepaid Rent 7,000
Prepaid Insurance 500
Sundry Creditors 25,000 Commission Receivable 1,200
Bills Payable 6,000 Bills Receivable 5,000
Outstanding Expenses Closing Stock 31,000
Wages 1,400 Sundry Debtors 28,000
Salaries 8,00 2,200 Less: New Bad Debts 1,500 26,500
Cash Balance 2,500
1,41,830 1,41,830
Working Notes:
1) Depreciation = 10% x Rs. 40,070 = Rs. 4,070
2) Distribution of Net Profit
Ajay = Rs. 13,630 x ½ = Rs. 6,815
Vijay = Rs. 13,630 x ½ = Rs. 6,815
2. Sanjay and Sudhir are partners sharing profit and losses in the ratio 3:2. The Trial Balance of the firm on 31st March, 2010
was as follows:
Opening stock 20,000 Capital A/cs - Sanjay 40,000
Sudhir 30,000
Purchases 30,000 Sales 70,000
Debtors 12,000 Sundry Creditors 21,000
Wages 5,000 Bills payable 20,000
Salaries 10,000 Discount 5,000
Land and Building 30,000 Outstanding Rent 1,500
Furniture 16,000
Advertisement (for 2 years) 6,000
Insurance 2,000
Drawings - Sanjay 2,000
Sudhir 3,000
Cash in hand 5,500
Rent 10,000
Power and fuel 3,000
1,87,500 1,87,500
Adjustments:
1) Stock on hand on 31st March, 2010 was at Rs. 35,000.
2) Write off Rs. 2,000, for further Bad debts and maintain R.D.D. at 5% on debtors.
3) Depreciate Land and Building at 5% and Machinery at 10%.
4) Outstanding expenses were wages Rs. 2,000 and salary Rs. 1,000.
5) Credit purchases amounted to Rs. 4,000 were not recorded in the books of account.
6) Provide interest on Partners Capital at 5% p.a.
2 - 37
From the above Trial Balance and adjustments prepare Trading and Profit and Loss Account for the year ended 31st
Solution 2:
To Purchases 30,000
Add: Unrecorded purchases 4,000 34,000
To Wages 5,000
Add: Outstanding wages 2,000 7,000
To Power & Fuel 3,000 By Closing Stock 35,000
1,05,000 1,05,000

To Commission By Gross Profit b/d 41,000
To Salaries 10,000 By Discount 5,000
Add: Outstanding salaries 1,000 11,000
To Advertisement 3,000
To Insurance 2,000
To Rent 10,000
To Bad debts 2,000
To New RDD 500
To Interest on Capital
Sanjay 2,000
Sudhir 1,500 3,500
To Depreciation
Land & Building 1,500 4,000
To Net Profit c/d
Sanjay 6,000
Sudhir 4,000 12,000
46,000 46,000
Balance sheet as on 31st March, 2012
Capital Accounts Land & Building 30,000
Sanjay 40,000 Less: 5% Depreciation 1,500 28,500
Less: Drawings 2,000
Add: Interest on Capital 2,000 Plant & Machinery 25,000
Add: Net Profit 6,000 46,000 Less: 10% Depreciation 2,500 22,500
Sudhir 30,000 Furniture 16,000
Add: Interest on Capital 1,500
Add: Net Profit 4,000 32,500 Closing Stock 35,000
Sundry Creditors 21,000 Sundry Debtors 12,000
Add: Unrecorded purchases 4,000 25,000 Less: New bad debts 2,000
Less: New RDD 500 9,500
Bills Payable 20,000 Bills Receivable 8,000
Outstanding wages 2,000 Prepaid Advertisement 6,000
Outstanding salaries 1,000 Less: Expensed for 1 year 3,000 3,000
Outstanding rent 1,500
Cash in hand 5,500
128,000 128,000
2 - 38
3. Rohan and Roshan are partners in ‘Shan Traders’ sharing profits and losses in the ratio of 2:1. From the following Trial
Balance and adjustments prepare Trading and Profit and Loss Account for the year ended 31st March, 2011 and Balance
Sheet as on that date.
Opening stock 32,000 Sales 1,93,500
Purchases 64,000 Sundry Creditors 15,000
Plant and Machinery 30,000 Unpaid wages 1,500
Furniture 18,500 Return outward 2,500
Capital A/c - Rohan 90,000
Carriage 1,500 Roshan 50,000
Conveyance 4,000
Return Inward 3,500
Cash in hand 14,750
Bad debts 1,750
Patents 25,000
3,52,500 3,52,500
Adjustments:
1) Closing stock: Cost price Rs. 25,000 and market price Rs. 30,000.
2) An amount of Rs. 3,500 spent for repairs to Building is debited to Building account.
3) Depreciate Plant and Machinery and Building at 5% p.a.
4) Goods of Rs. 750 taken by Roshan for this personal use.
5) Included in wages advances given to workers Rs. 3,000.
6) Provide Rs. 1,500 for bad and doubtful debts on Debtors.
Solution 3:
In the books of M/s Rohan and Roshan
To Opening Stock 32,000 By Sales 1,93,500
To Purchases 64,000 Less : Return inward 3,500 1,90,000
Less: Return outward 2,500 61,500 By Goods taken by Roshan for 750
personal use
To Carriage 1,500
To Wages & Salaries 35,000
Less: Advance 3,000 32,000 By Closing Stock 25,000
2,15,750 2,15,750
To Depreciation By Gross Profit b/d 88,750
To Rent, Rates and taxes 2,000
2 - 39
To Repairs 3,500
To New RDD 1,500
To Conveyance 4,000
To Bad debts 1,750
To Net Profit c/d
Rohan 47,000
Roshan 23,500 70,500
88,750 88,750
Capital Accounts Land & Building 83,500
Rohan 90,000 Less: Repairs wrongly debited 3,500
Less: Drawings - Less: Depreciation 4,000 76,000
Add: Net Profit 47,000 1,37,000
Roshan 50,000 Less: Depreciation 1,500 28,500
Less: Goods taken for personal use 750 Patents 25,000
Less: New RDD 1,500 30,500
Closing Stock 25,000
Sundry Creditors 15,000 Bills Receivable 5,000
Unpaid wages 1,500 Advance to workers 3,000
Cash in hand 14,750
2,26,250 2,26,250
Working Notes:
1) Repairs wrongly debited to building
Since revenue expenditure has been wrongly capitalised we need to reverse the entry. Hence,
Repairs A/c Dr. 3,500
To Land & Building A/c 3,500
Repairs need to be debited to the profit and loss account.
2) Depreciation on
Plant and Machinery = Rs. 30,000 x 5% = Rs. 1,500
Land & Building (after deducting wrongly debited repairs)
Rs. (83,500 – 3,500) x 5% = Rs. 4,000
3) Closing stock is valued at cost and market price, whichever is less. In this case, it is at cost.
4) Distribution of Profit & Loss
Rohan – Rs. 70,500 x 2/3 = Rs. 47,000
Roshan – Rs. 70,500 x 1/3 = Rs. 23,500
2 - 40
4. Given below is the Trial Balance of M/s Roma and Mona partnership firm. Prepare Trading and Profit and Loss Account
for the year ended 31st March, 2012 and Balance Sheet as on that date.
Stock on 1st April, 2011 52,000 Provident fund 50,000
Sundry Debtors 84,000 Interest on P.F. Investment 2,800
Bad debts 3,000 Sundry Creditors 84,000
Premises 78,000 Rent Received 9,600
Salaries 28,000 Reserve for Doubtful Debts 2,000
Motor Vehicle 50,000 Discount received 3,600
Purchases 1,76,000 Sales 3,20,000
Provident Fund Investment 50,000 Capital A/c - Roma 50,000
Provident Fund contribution 5,500 Mona 50,000
Wages 22,000
Rent (for 10 months) 16,000
Office Expenses 5,000
Discount allowed 2,500
5,72,000 5,72,000
Adjustments:
1) Stock on 31st March, 2012 was valued at Rs. 80,000.
2) Goods of Rs 6,000 were sold and dispatched on 27th March, 2012, but no entry was made in the books of accounts.
3) Write off Bad debts of Rs. 4,000 and provide for R.D.D. at 5% on sundry debtors.
4) Provide reserve for discount on debtors at 2% and on creditors at 3%.
5) Outstanding wages Rs. 4,000 and outstanding salaries Rs 3,066.
6) Depreciate Motor Vehicle at 5% p.a.
Solution 4:
In the books of M/s Roma and Mona
To Purchases 1,76,000 Add: Unrecorded Sales 6,000 326,000
To Wages 22,000 By Closing Stock 80,000
To Gross Profit c/d 1,52,000
4,06,000 4,06,000
To Salary 28,000 By Gross Profit b/d 1,52,000
Add: Outstanding Salary 3,066 31,066 By Rent received 9,600
To Old Bad debts 3,000 By Discount received 3,600
Add: New RDD 4,300 By Reserve for discount on creditors 2,520
Less: Old RDD 2,000 9,300
To Reserve for discount on debtors 1,634
To Depreciation 2,500
To Provident Fund contribution 5,500
To Rent 16,000
Add: Outstanding rent for 2 months 3,200 19,200
To Office expenses 5,000
To discount allowed 2,500
2 - 41
To Net Profit c/d
Roma 45,510
Mona 45,510 91,020
1,67,720 1,67,720
Capital Accounts Premises 78,000
Roma 50,000 Motor Vehicle 50,000
Add: Net Profit 45,510 95,510 Less: Depreciation 2,500 47,500
Mona 50,000
Add: Net Profit 45,510 95,510 Provident Fund Investment 50,000
Provident Fund 50,000 Sundry Debtors 84,000
Interest on PF Investment 2,800 Add: Unrecorded Sales 6,000
Sundry Creditors 84,000 Less: New Bad debts 4,000
Less: Reserve for discount on
creditors 2,520 81,480 Less: New RDD 4,300
Outstanding Expenses - Wages 4,000 Less: Reserve for discount on debtors 1,634 80,066
Salary 3,066 Closing Stock 80,000

Rent 3,200
3,35,566 3,35,566
Working Notes:
1) Calculation of new RDD and RFDD
New RDD = 5% of ( Debtors + Unrecorded sales – New bad debts written off)
= 5% x (84000 + 6000 – 4000)
= 5% x (86000)
= 4300
Reserve for discount on debtors is calculated after calculating new RDD and deducting it from the net debtors.
= (86000 – 4300) x 2%
= 1634
2) Reserve for discount on creditors
= 3% of 84000
= 2520
3) Depreciation on Motor vehicle
= 5% of 50000
= 2500
4) Unpaid rent
Since rent amount is given to be for 10 months, there is a hidden adjustment. We need to compute rent for
remaining 2 months and give the effects.
Rent for 2 months = 16000 / 10 x 2 = 3200
2 - 42
5. From the following Trial Balance of M/s. Kale and Gore, you are required to prepare Trading and Profit and Loss Account
for the year ended 31st March, 2013 and Balance Sheet on that date. They share profits and losses in their capital ratio.
Debit Balances Amt. (Rs.) Credit Balances Amt (Rs)
Opening stock 28,000 Capital A/c- Kale 80,000
Gore 40,000
Trade Expenses 2,400 Sales 2,12,000
Royalties 6,200 Reserve for Doubtful Debts 1,800
Wages and Salaries 14,800 Bills payable 36,000
Advertisement 8,200
Salaries 11,000
Freehold Property 36,000
Office Rent 4,000
Motor Van 63,000
Cash in hand 10,000
Bad debts 1,000
4,23,800 4,23,800
Adjustments:
1) Closing stock was valued at cost Rs. 76,000 while its market price was Rs. 80,000.
2) Uninsured goods worth Rs. 10,000 were stolen.
3) Goods worth Rs. 10,000 were sold and delivered on 31st March, 2013, but no entry is passed sales book.
4) Depreciate Plant and Machinery at 10% and Motor van at 15% p.a.
5) Bills Receivable includes a dishonoured bill of Rs. 4,000.
6) Create a reserve for doubtful debts at 5% on Debtors.
Solution 5:
In the books of M/s Kale and Gore
To Purchases 1,16,400 Add: Unrecorded sales 10,000 2,22,000
To Trade expenses 2,400 By Uninsured goods
To Wages and salaries 14,800 Stolen 10,000
To Royalties 6,200 By Closing Stock 76,000
3,08,000 3,08,000
To Salaries 11,000 By Gross Profit b/d 1,40,200
To Depreciation
Motor Van 9,450 13,850
To Office Rent 4,000
2 - 43
To Bad debts 1,000
Add: New RDD 3,700
Less: Old RDD 1,800 2,900
To General expenses 2,800
To Uninsured goods stolen 10,000
To Net Profit c/d
Kale 58,300
Gore 29,150 87,450
1,40,200 1,40,200
Capital Accounts Plant & Machinery 44,000
Kale 80,000 Less: Depreciation 4,400 39,600
Add: Net Profit 58,300 1,38,300 Freehold Property 36,000
Gore 40,000 Motor Van 63,000
Add: Net Profit 29,150 69,150 Less: Depreciation 9,450 53,550
Sundry Creditors 54,000 Bills Receivable 16,000
Bills Payable 36,000 Less: Dishonoured 4,000 12,000
Add: Unrecorded Sales 10,000
Add: Bill receivable dishonoured 4,000
Less: New RDD 3,700 70,300
Cash in hand 10,000
2,97,450 2,97,450
Working Notes:
1) Depreciation
Plant & Machinery – 10% x 44000 = 4400
Motor Van – 15% x 63000 = 9450
2) Reserve for Doubtful debts
Net Debtors = Debtors + Unrecorded sales + BR dishonoured
= 74000
New RDD = 5% x 74000 = 3700
3) Distribution of Profits
Profit is distributed in the ratio of the outstanding capitals. Since the capitals stand in the ratio of 80000:40000,
profit sharing ratio is 2:1.
Kale = 87450 x 2/3 = 58300
Gore = 87450 x 1/3 = 29150.
6. Given below is the Trial Balance of M/s. Seeta and Geeta as on 31st March, 2010. You are required to prepare Trading
and Profit and Loss Account for the year ended 31st March, 2010 and Balance Sheet on that date.
2 - 44

Debit Balance Amt. (Rs.) Credit Balance Amt. (Rs.)
Current A/c - Geeta 4,000 Capital A/c - Seeta 1,20,000
Opening stock 88,000 Geeta 1,20,000
Purchases 1,76,000 Current A/c - Seeta 5,000
Wages 23,500 Sundry Creditors 1,03,000
Salaries 15,000 Bank overdraft 60,000
Office expenses 8,000 Sales 3,08,000
Bank charges 2,600
Legal charges 3,000
Machinery 90,000
Interest 3,600
Export duty 3,800
Bad debts 4,000
Travelling Expenses 3,200
Electricity charges 2,300
Furniture 37,000
8% Debentures
(Purchased on 1.10.2009) 40,000
7,16,000 7,16,000
Adjustments:
2) Goods costing Rs. 16,000 destroyed by fire and Insurance company admitted a claim of Rs. 13,000.
3) Provide for outstanding expenses: Salaries Rs. 3,000, Wages Rs. 2,400.
4) Depreciate Machinery at 10% p.a. Land and Building at 5% p.a.
5) Create Reserve for Bad and doubtful debts at 5% on Sundry Debtors.
6) Legal charges paid in advance paid in advance Rs. 1,200.
7) Provide interest on capital at 8%.
Solution 6:
In the books of M/s. Seeta and Geeta
To Purchases 1,76,000
Less: Goods destroyed 16,000 1,60,000
To Wages 23,500
Add: Outstanding wages 2,400 25,900 By Closing Stock 80,000
3,88,000 3,88,000
To Salaries 15,000 By Gross Profit b/d 1,14,100
To Office expenses 8,000 By Interest on 8% Debentures 1,600
To Bank charges 2,600
To Legal charges 3,000
Less: Paid in advance 1,200 1,800
To Depreciation
Machinery 9,000
To Interest 3,600
2 - 45
To Bad debts 4,000
To New RDD 4,100
To Travelling expenses 3,200
To Electricity charges 2,300
To Loss by fire 3,000
To Export duty 3,800
Seeta 9,600
Geeta 9,600 19,200
To Net Profit c/d
Seeta 13,300
Geeta 13,300 26,600
1,15,700 1,15,700
Capital Accounts Machinery 90,000
Seeta 1,20,000 Less: Depreciation 9,000 81,000
Geeta 1,20,000 2,40,000 Land & Building 1,30,000
Current Account Less: Depreciation 6,500 1,23,500
Seeta 5,000 Furniture 37,000
Add: Interest On Capital 9,600 8% Debentures 40,000
Add: Net Profit 13,300 27,900 Add: Interest receivable 1,600 41,600
Geeta (4,000) Sundry Debtors 82,000
Add: Net Profit 13,300 Less: New RDD 4,100 77,900
Add: Interest On Capital 9,600 18,900 Closing Stock 80,000
Sundry Creditors 1,03,000 Insurance Claim receivable 13,000
Bank Overdraft 60,000 Prepaid legal charges 1,200
Outstanding wages 2,400
Outstanding salary 3,000
4,55,200 4,55,200
Working Notes:
1) Loss by fire
Since only partial claim has been admitted by the insurance company, the balance Rs. 3,000 is treated as loss while
Rs. 13,000 is treated as a receivable.
2) Depreciation
Machinery = 10% x 90000 = 9000
Land & Building = 5% x 130000 = 6500
3) New RDD = 5% x 82000 = 4100
4) Interest on Capital
Seeta = 8% x 120000 = 9600
Geeta = 8% x 120000 = 9600
5) Interest on debentures = 8% x 40000 x 6 /12 (for 6 months from 1.10.2009 till 31.3.2010)
= 1600
6) Distribution of Profit
Since no ratio is mentioned, we divide the profit equally.
Seeta = 26600 x ½ = 13300
Geeta = 26600 x ½ = 13300
7. Madhuri and Minakshi are in a partnership sharing profits and losses in the ratio 3:2. 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, 2012 and Balance Sheet on that date.
2 - 46

Building 4,00,000 Capital A/cs - Madhuri 3,00,000
Minakshi 2,00,000
Plant and Machinery 1,20,000 Sales 8,10,000
Purchases 6,50,000 Sundry Creditors 1,00,000
Carriage 7,000 Outstanding salaries 4,200
8% Bank loan
Opening stock 90,000 (Taken on 1.10.2011) 1,00,000
Wages 35,000
Sundry debtors 1,50,000
Salaries 28,000
Postage and Telegram 4,000
Insurance 5,000
Bad debts 3,000
Rent 4,000
Discount 3,200
Drawings A/c - Madhuri 10,000
Minakshi 5,000
15,14,200 15,14,200
Adjustments:
1) Stock on hand on 31st March, 2010 was valued at Rs. 1,10,000.
2) Depreciate Plant and Machinery at 10% p.a. and Building at 5% p.a.
3) Prepaid insurance Rs. 1,500.
4) Create R.D.D at 5% on Sundry Debtors.
5) Partners are allowed interest at 5% p.a. on their capitals.
6) Salaries include Rs. 2,500 as advance to workers.
Solution 7:
In the books of M/s. Madhuri and Minakshi
To Carriage 7,000
To Wages 35,000 By Closing Stock 1,10,000
9,20,000 9,20,000
To Depreciation By Gross Profit b/d 138,000
Building 20,000
Plant & Machinery 12,000 32,000
To Bad debts 3,000
To New RDD 7,500
To Salaries 28,000
Less : Advance 2,500 25,500
To Interest on Bank Loan 4,000
To Insurance 5,000
Less: Prepaid insurance 1,500 3,500
2 - 47
To Rent 4,000
To Discount 3,200
To Interest on capital
Madhuri 15,000
Minakshi 10,000 25,000
To Net Profit c/d
Madhuri 15,780
Minakshi 10,520 26,300
1,38,000 1,38,000
Capital Accounts Building 4,00,000
Madhuri 3,00,000 Less: Depreciation 20,000 3,80,000
Less: Drawings 10,000 Plant and Machinery 1,20,000
Add: Interest on capital 15,000 Less: Depreciation 12,000 1,08,000
Add: Net Profit 15,780 3,20,780 Advance salary 2,500
Minakshi 2,00,000 Sundry Debtors 1,50,000
Less: Drawings 5,000 Less: New RDD 7,500 1,42,500
Add: Interest on capital 10,000 Prepaid Insurance 1,500
Add: Net Profit 10,520 2,15,520
8% Bank Loan 1,00,000 Closing Stock 1,10,000
Add: Interest accrued 4,000 1,04,000
Sundry Creditors 1,00,000
Outstanding salaries 4,200
7,44,500 7,44,500
Working Notes:
1) Depreciation
Building = 5% x 400000 = 20000
Plant & Machinery = 10% x 120000 = 12000
2) RDD = 150000 x 5% = 7500
Madhuri = 300000 x 5% = 15000
Minakshi = 200000 x 5% = 10000
4) Interest on loan = 100000 x 8% x 6/12 (for 6 months from 1.10.2011 till 31.3.2012)
= 4000
5) Distribution of net profit Madhuri = 26300 x 3/5 = 15780
Minakshi = 26300 x 2/5 = 10250
8. From the following Trial Balance of M/s. Mahesh and Umesh, you are required to prepare Trading and Profit and Loss
Account for the year ended 31st March, 2013 and Balance Sheet as on that date. Profit sharing ratio of Mahesh and
Umesh was 3/5th and 2/5th respectively.
2 - 48

Investments 56,000 Capital A/c - Mahesh 1,62,000
Umesh 1,08,000
Current A/c - Mahesh 16,200
Carriage 7,000 Umesh 10,800
Loose tools 17,000 Sundry Creditors 99,000
Building 1,50,000 Sales 4,20,000
Salary 13,000 Bank overdraft 56,400
Audit fees 8,500
Wages 7,500
Purchases 1,97,000
Motive Power 15,000
Bad debts 6,400
Debtors 96,000
Cash at Bank 52,000
Machinery 72,000
Motor Van 88,000
8,72,400 8,72,400
Adjustments:
2) Interest on partner’s capital at 5% p.a. was allowed.
3) Goods worth Rs. 2,000 and Rs. 1,500 withdrawn by Mahesh and Umesh respectively for their personal use.
4) Mahesh is entitled to get salary of Rs. 6,500 and Umesh is to be given 2% commission on sales.
5) Rs. 2,500 due from customer is not recoverable.
6) Depreciate Motor Van at 8% p.a. and Building at 7% p.a.
Solution 8:
In the books of M/s. Mahesh and Umesh
To Purchases 1,97,000 By Goods withdrawn for personal use
To Carriage 7,000 Mahesh 2,000
To Wages 7,500 Umesh 1,500 3,500
To Motive power 15,000 By Closing Stock 76,000
4,99,500 4,99,500
To Interest on Capital By Gross Profit b/d 190,000
Mahesh 8,100
Umesh 5,400 13,500
To Depreciation
Building 10,500
Motor Van 7,040 17,540
2 - 49
To Salary 13,000
To Audit fees 8,500
To Bad debts 6,400
Add: Amount irrecoverable 2,500 8,900
To Printing and stationary 4,000
To Salary to Mahesh 6,500
To Commission to Umesh 8,400
To Net Profit c/d
Mahesh 65,796
Umesh 43,864 1,09,660
1,90,000 1,90,000
Amt. (Rs.) Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)
Mahesh 1,62,000 Less: Depreciation 10,500 139,500
Umesh 1,08,000 2,70,000 Motor Van 88,000
Current Accounts Less: Depreciation 7,040 80,960
Mahesh 16,200 Machinery 72,000
Less: Goods withdrawn 2,000
Add: Salary 6,500
Add: Interest on capital 8,100
Add: Net Profit 65,796 94,596 Investments 56,000
Umesh 10,800 Debtors 96,000
Less: Goods withdrawn 1,500 Less: Amount irrecoverable 2,500 93,500
Add: Commission 8,400 Closing Stock 76,000
Add: Interest on capital 5,400 Loose tools 17,000
Add: Net Profit 43,864 66,964 Cash at bank 52,000
Sundry Creditors 99,000
Bank Overdraft 56,400
5,86,960 5,86,960
Working Notes
1) Interest on partners’ capital
Mahesh = 5% x 162000 = 8100
Umesh = 5% x 108000 = 5400
Commission on Sales = 2% x 420000 = 8400
2) Depreciation
Motor Van = 8% x 88000 = 7040
Building = 7% x 150000 = 10500
3) Distribution of net profit
Mahesh = 109660 x 3/5 = 65796
Umesh = 109660 x 2/5 = 43864
9. Mohini and Rohini are in partnership firm sharing profits and losses equally. 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
2 - 50

Partner’s Capital A/c - Mohini 1,20,000
Rohini 90,000
Purchases and Sales 2,20,000 4,30,000
Bills Receivable and Bills Payable 55,000 50,000
Discount 4,000 3,500
Manufacturing Expenses 9,000
Factory Insurance 5,000
Factory Building 1,30,000
Advertisement (for 2 years w.e.f. 1st January, 2010) 10,000
Warehouse Rent 6,000
Import duty 11,500
Cash in hand 5,000
10% Government Bond (purchased on 1st July, 2009) 60,000
7,28,500 7,28,500
Adjustments:
1) Closing stock was valued at market price Rs. 92,000 which is 15% above its cost price.
2) Goods costing Rs. 3,000 purchased and received on 31st March, 2010 were not recorded in purchase book.
3) Depreciate Machinery at 10% p.a.
4) Outstanding wages were Rs. 2,500.
5) Goods of Rs. 2,000 were taken by Mohini for personal use but no entry was made in the books of account.
6) Maintain R.D.D. at 5% on Sundry Debtors.
Solution 9:
In the books of M/s. Mohini and Rohini
By Goods withdrawn by Mohini for
To Purchases 2,20,000 personal use 2,000
Add: Unrecorded purchases 3,000 2,23,000
To Wages & salaries 23,000
To Manufacturing expenses 9,000 By Closing Stock 80,000
To Factory insurance 5,000
To Import duty 11,500
5,10,000 5,10,000
To RDD 2,250 By Gross Profit b/d 2,13,000
To Discount given 4,000 By Discount received 3,500
To Depreciation 7,500 By Interest on 10% bond 4,500
2 - 51
Less : Prepaid 8,750 1,250
To Salaries and wages 45,000
To Warehouse rent 6,000
To Net Profit c/d
Mohini 77,500
Rohini 77,500 1,55,000
2,21,000 2,21,000
Capital Accounts Factory building 1,30,000
Mohini 1,20,000 Plant & Machinery 75,000
Less: Goods withdrawn for personal
use 2,000 Less: Depreciation 7,500 67,500
Add: Net Profit 77,500 1,95,500
Rohini 90,000 10% Government Bond 60,000
Add: Net Profit 77,500 1,67,500 Add: Accrued interest 4,500 64,500
Add: Unrecorded Purchases 3,000 38,000 Sundry Debtors 45,000
Bills payable 50,000 Less: RDD 2,250 42,750
Outstanding wages 2,500 Bills receivable 55,000
Prepaid advertisement 8,750
Cash in hand 5,000
4,53,500 4,53,500
Working Notes:
1) Closing Stock
Since market price is 15% above cost price, we value stock at cost price which is calculated as
Cost = Market Price x 100 = Rs. 80000
115
2) Depreciation = Rs. 70000 x 10% = Rs. 7000
3) RDD = 5% x Debtors
= Rs. 45000
= Rs. 2250
4) Interest accrued on Government Bond = 10% x Rs. 60000 x 9/12 = Rs. 4500
5) Deferred Advertisement
Since advertisement has been paid for 2 years but only 1 quarter is in current year, expenditure of 7 quarters is
deferred
Deferred expenditure = Rs. 10000 x 7/8 = Rs. 8750
Mohini = Rs. 155000 x ½ = Rs. 77500
Rohini = Rs. 155000 x ½ = Rs. 77500
10. From the following Trial Balance of M/s. Sanjay and Vijay, you are required to prepare Trading and Profit and Loss
Account for the year ended 31st March, 2013 and Balance Sheet as on that date after taking into consideration the
adjustments given below.
2 - 52

Salaries and wages 12,000 Sales 1,10,000
Postage and Telegram 1,750 Sundry Creditors 72,700
Opening stock 23,500 Bills Payable 40,000
10% Bank loan
Plant and Machinery 70,000 (Taken on 1st October, 2012) 60,000
Advertisement 5,000 Outstanding Audit fees 5,900
Capital A/c - Sanjay 45,000
Import duty 2,100 Vijay 45,000
Bad debts 1,000
Purchases 98,500
Carriage outward 1,800
Wages 14,000
Printing and stationary 4,600
Cash in hand 1,850
Leasehold Premises 80,000
3,78,600 3,78,600
Adjustments:
1) Closing stock was valued at Rs. 30,000.
2) Postage stamps of Rs. 250 and stationary of Rs. 400 are unused.
3) Goods of Rs. 2,500 distributed as free samples.
4) Leasehold property is to be run for 10 years w.e.f. 1st October, 2012.
5) Depreciate Plant and Machinery at 10% p.a.
6) Mr. Rajan, our customer become insolvent and could not pay his debts of Rs. 1,500.
Solution 10:
In the books of M/s. Sanjay and Vijay
To Purchases 98,500 By Goods distributed as free samples 2,500
To Import duty 2,100
To Wages and stationary 14,000 By Closing Stock 30,000
1,42,500 1,42,500
To Salaries and wages 12,000 By Gross Profit b/d 4,400
To Postage and telegram 1,750
Less: Unused postage 250 1,500
Add: Free samples 2,500 7,500
To Bad debts 1,000
Add: Insolvent debtor 1,500 2,500
To Carriage outward 1,800
To Printing and stationary 4,600 By Net Loss c/d
Less : Unused stationary 400 4,200 Sanjay 19,550
2 - 53
To Depreciation 7,000 Vijay 19,550 39,100
To Leasehold property written off 4,000
To Accrued interest 3,000
43,500 43,500
Capital Accounts Leasehold premises 80,000
Sanjay 45,000 Less: Write off 4,000 76,000
Less: Net Loss 19,550 25,450 Plant & Machinery 70,000
Vijay 45,000 Less: Depreciation 7,000 63,000
Less: Net Loss 19,550 25,450 Sundry debtors 45,800
Less: Insolvent debtor 1,500 44,300
10% Bank loan 60,000 Bills receivable 16,700
Add: Accrued interest 3,000 63,000 Unused Stationary 400
Sundry Creditors 72,700 Unused Postage stamps 250
Bills payable 40,000 Closing Stock 30,000
Outstanding audit fees 5,900 Cash in hand 1,850
2,32,500 2,32,500
Working Notes
1) Leasehold property is to be used for 10 year w.e.f. 1.10.2012. Hence, we need to write off the same over 10 years.
Every year 1/10th of the amount needs to be charged to the profit and loss account, but since the period begins
from 1.10.2012, in the current year only half of the annual amount will be expensed.
Write off = Rs. 80000 x 1/10 x ½ = Rs. 4000
2) Depreciation on Plant & Machinery = Rs. 70000 x 10% = Rs. 7000
3) Interest accrued on bank loan = Rs. 60000 x 10% x 6/12 = Rs. 3000
4) Since Mr. Rajan has become insolvent, his debt has turned bad and hence needs to be written off.
5) Distribution of Net Loss
Since no profit sharing ratio has been mentioned, we divide losses equally.
Sanjay = Rs. 39100 x ½ = Rs. 19550
Vijay = Rs. 39100 x ½ = Rs. 19550
Section III – Solved Additional Problems

1. A and B are running a partnership firm. From the given Trial balance you are required to prepare a Trading and Profit &
Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after taking into consideration the
additional information provided.
Particulars Debit Amt. Rs. Credit Amt. Rs
Partner’s Capital
A 1,20,000
B 1,50,000
Purchases 1,54,879
Sales 2,15,487
Opening Stock 21,548
2 - 54

Return Inwards 2,000
Return Outwards 2,500
Machinery 48,700
Vehicle 25,400
Reserve for Bad Debts 5,487
Cash in Hand 12,219
10% Investment (purchased 1.10.2011) 1,00,000
Salaries & Wages 54,280
Manufacturing expenses 65,987
Audit fees 15,479
Bank Overdraft 21,540
5,30,492 5,30,492
Adjustments
2) Goods costing Rs. 3,456 were stolen.
3) Depreciate Machinery at 10% and Vehicle at 7.5%
4) Wages of Rs. 3,456 were outstanding.
5) Maintain RDD at 10% of Debtors.
Solution 1:
In the books of M/s. A and B
To Purchases 1,54,879 Less: Return inwards 2,000 213,487
Less: Returns outwards 2,500
Less: Goods stolen 3,456 148,923
To Manufacturing expenses 65,987
By Closing Stock 34,090
2,47,577 247,577
To Goods stolen 3,456 By Gross Profit b/d 11,119
To Salaries and wages 54,280 By Old RDD 5,487
Add: Outstanding wages 3,456 57,736 Less: New RDD 3,000 2,487
To Audit fees 15,479 By Accrued Interest 5,000
To Depreciation
Machinery 4,870 By Net Loss c/d
Vehicle 1,905 6,775 A 32,420
B 32,420 64,840
83,446 83,446
2 - 55

A 1,20,000 Less : Depreciation 4,870 43,830
Less : Net Loss 32,420 87,580 Vehicle 25,400
Less : Depreciation 1,905 23,495
B 1,50,000 10% Investment 1,00,000
Less : Net Loss 32,420 1,17,580 Add : Accrued Interest 5,000 1,05,000
Sundry Creditors 15,478 Sundry Debtors 30,000
Bank Overdraft 21,540 Less : New RDD 3,000 27,000
Outstanding wages 3,456
Cash in hand 12,219
2,45,634 2,45,634
Working Notes:
1) Depreciation
Machinery = Rs. 48,700 x 10% = Rs. 4,870
Vehicle = Rs. 25,400 x 7.5% = Rs. 1,905
2) Reserve for bad debts = Rs. 30,000 x 10% = Rs. 3,000
Since Old RDD is more than New RDD, we need to credit the difference to the profit and loss account.
Since, no profit sharing ratio has been mentioned, we assume an equal ratio.
A = Rs. 64,840 x 1/2 = Rs. 32,420
B = Rs. 64,840 x 1/2 = Rs. 32,420
2. Ramesh and Suresh are running a partnership firm and share profits and losses in the ratio of 3:2. From the given Trial
balance you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance
Sheet as on that date, after taking into consideration the additional information provided.
Purchases & Sales 1,24,500 2,54,800
Capital – Ramesh 25,000
Capital – Suresh 30,000
Creditors & Debtors 14,570 54,200
Machinery 72,000
Plant 50,000
RDD 2,500
Bad Debts 5,400
Cash 840
Bank overdraft 26,400
Salaries 45,025
Wages 25,060
Postage & Telegram 1,250
12% Bank loan 1,25,000
Discount Received 6,300
Insurance 7,500
5,24,200 5,24,200
2 - 56
Adjustments
2) Ramesh withdrew goods worth Rs. 10,050 for personal use.
3) Machinery is depreciated at 10% whereas plant at 5%
4) Insurance was for 2 years starting from 1.10.2012.
5) Partners decided to maintain RDD at 4% of Debtors.
Solution 2:
In the books of M/s Ramesh and Suresh
Less: Goods withdrawn for personal
use 10,050 1,14,450
To Wages 25,060
To Carriage inward 3,245 By Closing Stock 78,450
3,33,250 3,33,250
To Bad Debts 5,400 By Gross Profit b/d 1,48,925
Less: Old RDD 2,500 By Discount received 6,300
Add: New RDD 583 3,483
To Depreciation
Machinery 7,200
Plant 2,500 9,700
To Salaries 45,025
To Accrued Interest 15,000
To Insurance 7,500
Less: Prepaid insurance 5,625 1,875
To Net Profit c/d
Ramesh 46,591
Suresh 31,061 77,652
1,55,225 1,55,225
Ramesh 25,000 Less: Depreciation 7,200 64,800
Less: Goods withdrawn for personal use 10,050 Plant 50,000
Add: Net Profit 46,591 61,541 Less : Depreciation 2,500 47,500
Suresh 30,000 Sundry Debtors 14,570
Add: Net Profit 31,061 61,061 Less: New RDD 583 13,987
12% Bank loan 1,25,000 Prepaid Insurance 5,625
Add: Accrued Interest 15,000 140,000 Closing Stock 78,450
Sundry Creditors 54,200 Cash 840
3,43,202 3,43,202
2 - 57
Working Notes:
1) Depreciation
Machinery = Rs. 72000 x 10% = Rs. 7200
Plant = Rs. 50000 x 5% = Rs. 2500
2) Reserve for bad debts = Rs. 14570 x 4% = Rs. 583
3) Prepaid Insurance
Since Insurance is for 2 years and only 6 months are covered in this year, we need to calculate the expense for the
year.
Insurance expense = Rs. 7500 x 1/4 = Rs. 1875
Prepaid insurance = Rs. 7500 - Rs. 1875 = Rs. 5625
4) Accrued interest on bank loan = Rs. 125000 x 12% = Rs. 15000
Ramesh = Rs. 77652 x 3/5 = Rs. 46591
Suresh = Rs. 77652 x 2/5 = Rs. 31061
3. Ram and Shyam share profits and losses in the ratio 1:2 of a partnership firm. From the given Trial balance you are
required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2012 and a Balance Sheet as on that
date, after taking into consideration the additional information provided.
Postage 500
Machinery 30,000
Furniture 8,000
Purchases 57,000
Wages 11,000
Salaries 17,000
Rent Paid 7,000
Bad debts 1,000
Cash in hand 3,000
Motor Car 26,000
Capital A/c
Ram 25,000
Shyam 25,000
Bills Payable 3,000
Creditors 9,000
Sales 1,50,000
Bank loan 8,000
Outstanding wages 500
2,20,500 2,20,500
Adjustments:
1) Closing stock had a cost of Rs. 45,000 whereas the market price was Rs. 60,000.
2) Outstanding expenses - Salaries Rs. 1,500, Wages Rs. 2,000, Rent 1,200.
3) Repairs to Machinery of Rs. 2,000 were wrongly debited to Purchases.
4) Depreciation on Machinery and Furniture at 10% each.
5) Interest on bank loan payable was Rs. 1,800.
2 - 58
Solution 3:
In the books of M/s. Ram and Shyam
To Purchases 57,000
Less: Repairs wrongly debited 2,000 55,000
To Wages 11,000
Add: Outstanding wages 2,000 13,000 By Closing Stock 45,000
195,000 195,000
To Repairs to Machinery 2,000 By Gross Profit b/d 112,000
To Postage 500
To Salaries 17,000
To Rent 7,000
Add: Outstanding rent 1,200 8,200
To bad debts 1,000
To Outstanding interest on bank loan 1,800
To Depreciation
Machinery 3,000
Furniture 800 3,800
To Net Profit c/d
Ram 25,400
Shyam 50,800 76,200
112,000 112,000
Ram 25,000 Less: Depreciation 3000 27,000
Less: Depreciation 800 7,200
Shyam 25,000 Motor Car 26,000
Add: Net Profit 50,800 75,800 Sundry Debtors 45,000
Bank loan 8,000 Closing Stock 45,000
Add: Outstanding interest 1,800 9,800 Cash in hand 3,000
Creditors 9,000
Bills payable 3,000
Outstanding wages 500
Add: Additional Outstanding wages 2,000 2,500
Outstanding salaries 1,500
Outstanding rent 1,200
1,53,200 1,53,200
Working Notes:
1) Stock is valued at cost or market price whichever is less. Hence, we value closing stock at Rs. 45000.
2) Repairs were wrongly debited to Purchases. We need to pass an entry to reverse the effects. Hence, debit Repairs
A/c and deduct the same from Purchases.
3) Depreciation
Machinery = Rs. 30,000 x 10% = Rs. 3,000
Furniture = Rs. 8,000 x 10% = Rs. 800
2 - 59
Ram= Rs. 76,200 x 1/3 = Rs. 25,400
Shyam= Rs. 76,200 x 2/3 = Rs. 50,800
4. Amar and Akbar are running a partnership firm and share profits and losses in the ratio of 3:7. From the given Trial
Particulars Debit Amt. Rs. Credit Amt. Rs.
Purchases 2,90,000
Building 5,48,000
Discount 3,600
Audit Fees 24,600
Office Expenses 65,000
Cash at bank 29,870
Motor Car 1,20,000
Trade Expenses 45,600
Rent for 10 months 20,000
Reserve for doubtful debts 3,000
Sales 6,80,000
General Reserve 2,00,000
Capital: Amar 2,13,660
Akbar 1,00,000
14,56,660 14,56,660
Adjustments:
1) Closing stock is valued at Rs. 1,54,000.
2) Bills receivable included dishonoured bill of Rs. 8,000.
3) Goods worth Rs. 2500 were taken by Amar for personal use.
4) Depreciate Motor Car at 20%
5) Maintain RDD at 5% of debtors.
Solution 4:
In the books of M/s. Amar and Akbar
Less: Goods withdrawn for personal use 2,500 2,87,500
To Wages and salaries 64,000
To Trade expenses 45,600 By Closing Stock 1,54,000
8,34,000 8,34,000
To Discount 3,600 By Gross Profit b/d 3,49,900
To Audit fees 24,600
2 - 60
To Depreciation on Motor Car 24,000
To Rent 20,000
Add : Outstanding rent 4,000 24,000
To New RDD 4,800
Less : Old RDD 3,000 1,800
To Net Profit c/d
Amar 48,393
Akbar 1,12,917 1,61,310
3,49,900 3,49,900
Amar 2,13,660 Motor Car 1,20,000
Less: Goods withdrawn for personal use 2,500 Less: Depreciation 24,000 96,000
Add : Net Profit 48,393 259,553
Akbar 1,00,000 Add: Bill dishonoured 8,000
Add : Net Profit 1,12,917 2,12,917 Less: New RDD 4,800 91,200
General Reserve 200,000 Bills receivable 25,400
Less: Dishonoured 8,000 17,400
Sundry Creditors 260,000 Closing Stock 154,000
Outstanding Rent 4,000 Cash at bank 29,870
9,36,470 9,36,470
Working Notes:
1) Bills receivable dishonoured has to be added back to debtors and reduced from bills receivable.
2) Depreciation= Rs. 1,20,000 x 20% = Rs. 24,000
3) New RDD
New amount of debtors= Rs. 88,000 + 8,000 = Rs. 96,000
New RDD= Rs. 96,000 x 5% = Rs. 4,800
Amar= Rs. 1,61,310 x 3/10 = Rs. 48,393
Akbar = Rs. 1,61,310 x 7/10 = Rs. 1,12,917
5. Vijay and Lakshmi run a partnership firm and share profits and losses in the ratio of their capitals. From the given Trial
Capital A/c
Vijay 5,00,000
Lakshmi 5,00,000
Current A/c
Vijay 50,000
Lakshmi 40,000
2 - 61

Purchases & Sales 5,00,000 15,00,000
Debtors and Creditors 2,50,000 1,25,000
Bills Receivable and Payable 1,25,000 2,20,000
Cash in hand 25,000
10% Government Bonds (purchased 1.10.12) 5,00,000
Salaries and Wages 2,00,000
Building 10,00,000
Furniture 2,00,000
Bad debts 30,000
Drawings – Vijay 25,000
Carriage inward 25,000
Rent Received 1,25,000
30,45,000 30,45,000
Adjustments:
1) Goods worth Rs. 15,000 were lost by fire. Insurance company admitted claim of Rs. 12,000.
2) Interest on partner’s capital is 7.5% p.a.
3) Interest on drawings at 6% p.a.
4) Depreciation is charged at 10% on all fixed assets
5) Maintain RDD at 6% on debtors
6) Closing stock was valued at cost of Rs. 1,23,000
Solution 5:
In the books of M/s. Vijay and Lakhmi
Less: Loss by fire 15,000 4,85,000
To Carriage inward 25,000
By Closing Stock 1,23,000
16,23,000 16,23,000
To Loss by Fire 15,000 By Gross Profit b/d 10,53,000
Less: Insurance claim 12,000 3,000 By Commission 25,000
To commission 5,000 By Rent received 1,25,000
To Office expenses 60,000 By Interest on drawings
To Salaries & Wages 2,00,000 Vijay 750
To Bad Debts 30,000 Lakshmi – 750
To New RDD 15,000 By Interest accrued on bonds 25,000
Vijay 37,500
Lakshmi 37,500 75,000
To Depreciation
Building 1,00,000
Furniture 20,000 1,20,000
2 - 62
To Net Profit c/d
Vijay 3,60,375
Lakshmi 3,60,375 7,20,750
12,28,750 12,28,750
Vijay 5,00,000 Less: Depreciation 1,00,000 9,00,000
Lakshmi 5,00,000 10,00,000 Furniture 2,00,000
Less: Depreciation 20,000 1,80,000
Current Accounts
Vijay 50,000 10% Government Bonds 5,00,000
Add: Interest on Capital 37,500 Add: Accrued Interest 25,000 5,25,000
Less: Interest on Drawings 750 Bills Receivable 1,25,000
Add: Net Profit 3,60,375 4,22,125 Sundry Debtors 2,50,000
Lakshmi (40,000) Less: New RDD 15,000 2,35,000
Add: Interest on Capital 37,500 Insurance Claim receivable 12,000
Less: Interest on Drawings - Closing Stock 1,23,000
Add: Net Profit 3,60,375 3,57,875 Cash in hand 25,000
Bills Payable 2,20,000
21,25,000 21,25,000
Working Notes:
1) Interest on Partner’s Capital
Vijay= Rs. 5,00,000 x 7.5% = Rs. 37,500
Lakshmi = Rs. 5,00,000 x 7.5% = Rs. 37,500
2) Interest on Partner’s Drawings
Vijay= Rs. 25,000 x 6% x 6/12 = Rs. 750
Since, no dates have been given for drawings, we take an average of 6 months and hence calculate the interest for
6 months.
3) Depreciation
Building= Rs. 10,00,000 x 10% = Rs. 1,00,000
Furniture= Rs. 2,00,000 x 10% = Rs. 20,000
4) New RDD = Rs. 25,000 x 6% = Rs. 15,000
5) Interest accrued on bonds = Rs. 5,00,000 x 10% x 6/12 = Rs. 25,000
Profits are distributed in the ratio of their capitals, i.e. equally.
Vijay = Rs. 7,20,750 x 1/2 = Rs. 3,60,375
Lakshmi = Rs. 7,20,750 x 1/2 = Rs. 3,60,375
2 - 63
6. Tom and Riddle share profits and losses in the ratio of 5:2 of their partnership firm. From the given Trial balance you are
Land & Building 2,51,110
Machinery 16,540
Wages 1,25,643
Bank 3,26,548
Purchases 5,46,872
Import duty 56,324
Rent, rates and taxes 65,987
Salaries 1,26,340
Drawings A/c
Tom 65,423
Riddle 56,432
Capital A/c
Tom 3,00,000
Riddle 3,00,000
Sales 10,00,000
Creditors 2,30,000
Rent received in Advance 9,922
18,39,922 18,39,922
Adjustments:
2) Goods worth Rs. 5,670 purchased on 25.03.2013, included in closing stock but not recorded in purchase book.
3) Depreciate Fixed Assets at 10%
4) Salaries of Rs. 12,500 are outstanding.
5) Write off bad debts of Rs. 3,500.
Solution:
In the books of M/s. Tom and Riddle
Add: unrecorded purchases 5,670 5,52,542
To Wages 1,25,643
To Import duty 56,324 By Closing Stock 99,999
10,99,999 10,99,999
To Depreciation By Gross Profit b/d 3,00,250
Land & Building 25,111
Machinery 1,654 26,765
To Bad debts 3,500
To Rent, rates and taxes 65,987
To Salaries 1,26,340
2 - 64
Add: Outstanding 12,500 1,38,840

To Net Profit c/d
Tom 37,970
Riddle 15,188 53,158
3,00,250 3,00,250
Capital Accounts Land & Building 2,51,110
Tom 300,000 Less: Depreciation 25,111 2,25,999
Less: Drawings 65,423 Machinery 16,540
Add: Net Profit 37,970 2,72,547 Less: Depreciation 1,654 14,886
Riddle 3,00,000
Add: Net Profit 15,188 2,58,756
Sundry Creditors 2,30,000 Sundry Debtors 1,25,463
Add: Unrecorded purchases 5,670 2,35,670 Less: Bad debts 3,500 1,21,963
Outstanding salaries 12,500 Closing Stock 99,999
Rent received in Advance 9,922 Bank 3,26,548
7,89,395 7,89,395
Working Notes:
1) Depreciation
Land & Building = Rs. 251,110 x 10% = Rs. 25,111
Machinery = Rs. 16,540 x 10% = Rs. 1654
Tom = Rs. 53,158 x 5/7 = Rs. 37,970
Riddle = Rs. 53,158 x 2/7 = Rs. 15,188
Section IV : Homework Problems

1. X and Y share profits and losses in the ratio of 1:1 of their partnership firm. From the given Trial balance you are required
to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2011 and a Balance Sheet as on that date, after
taking into consideration the additional information provided.
Capital Accounts
X 1,60,000
Y 1,60,000
Sales 84,900
Purchases 1,03,000
Debtors 16,000
Creditors 26,000
Fixed Assets 3,00,000
Cash 3,000
Bad debts 300
Trading expenses 6,000
2 - 65

10% Bank loan 45,000
Rent received 4,500
Freight 1,900
Postage and telegram 540
Coal, Gas and water 7,860
Commission paid 9,000
Insurance 10,000
4,80,400 4,80,400
Adjustments:
1) Insurance is paid for 2 years.
2) Sales worth Rs. 5,000 were left unrecorded in the sales book.
3) Debtors worth Rs. 6,000 went bad.
4) Maintain RDD at 5% of debtors.
5) Depreciate fixed assets at 10%
6) Closing stock was valued at cost of Rs. 27,000
Answer:
• Gross Loss = 19,660,
• Net Loss = 76,250,
• Balance Sheet = 3,19,250
2. Sachin and Ramesh share profits and losses in the ratio of 1:2 of their partnership firm. From the given Trial balance you
are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2012 and a Balance Sheet as on
that date, after taking into consideration the additional information provided.
Audit Fees 21,000
Machinery 500,000
Furniture 60,000
Debtors 75,000
Creditors 50,000
Salaries 137,000
Outstanding Salaries 31,000
Purchases 630,000
Sales 12,54,000
Import Duty 3,000
Rent 29,500
Drawings
Sachin 50,000
Ramesh 60,000
Capital A/c
Sachin 2,00,000
Ramesh 2,00,000
Current A/c
Sachin 15,500
Ramesh 30,000
17,35,000 17,35,000
2 - 66
Adjustments:
1) Closing stock is valued at Rs. 23,000
2) Depreciation on Machinery is charged at 10%
3) Goods worth Rs. 23,000 were lost in fire; insurance claim admitted of Rs. 21,000
4) Create reserve for discount on debtors at 5% and on creditors at 7.5%
5) Office expenses outstanding of Rs. 2,000
6) Interest on drawings is charged at 6%
Answer:
• Gross Profit = 6,03,000
• Net Profit = 3,29,800
• Balance Sheet = 6,50,250
3. Amy and Rash share profits and losses equally in their partnership firm. From the given Trial balance you are required to
prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2010 and a Balance Sheet as on that date, after
Wages 63,000
Salaries 1,63,000
Rent, rates and taxes 33,000
Purchases 3,41,300
Sales 7,30,000
Purchase returns 3,000
Sales returns 3,300
Sundry income 23,300
10% Bank loan 43,300
Provident Fund 63,000
Provident Fund Investment 63,000
Bad debts 4,300
RDD 8,300
Cash at bank 1,03,000
Furniture 13,300
Debtors 73,000
Creditors 33,300
Capital A/c – Amy 33,000
Rash 33,000
9,76,500 9,76,500
Adjustments:
1) Closing Stock was valued at Rs. 33,300
2) Depreciate land and building and furniture at 10%
3) Goods worth Rs. 3,300 were distributed as free samples
4) Goods worth Rs. 13,000 were taken by Amy for personal use
5) Maintain RDD at 3% of debtors after writing off bad debts worth Rs. 5,300
Answer:
• Gross Profit: 3,51,700
• Net Profit: 1,57,409
• Balance Sheet: 3,60,639
2 - 67
4. Ram and Rahim share profits and losses in the ratio of 1:1 of their partnership firm. From the given Trial balance you are
Furniture and Fixtures 1,20,000
Building 10,00,000
Cash at hand 52,000
10% Investments 1,00,000
Capital A/c – Ram 5,00,000
Rahim 5,00,000
Sales 10,00,000
Purchases 4,00,000
Salaries 40,000
Rent 30,000
Insurance 12,000
Bad debts 5,000
Factory expenses 60,000
Commission received 10,000
Rent received 20,000
Bills receivable 1,31,000
21,20,000 21,20,000
Adjustments:
1) Depreciate fixed assets at 10%
2) Closing stock cost Rs. 75,000 but market value was Rs. 1,50,000
3) Ram was to be paid salary of Rs. 60,000 p.a.
4) Rahim was eligible to commission of 1% on total sales
5) Write off bad debts of Rs. 3,400
6) Outstanding salary Rs. 12,000, Rent Rs. 3,000 and prepaid insurance Rs. 6,000.
Answer:
5. Ahad and Marc share profits and losses in the ratio of 1:3. From the given Trial balance you are required to prepare a
Trading and Profit & Loss A/c for the year ended 31st March, 2012 and a Balance Sheet as on that date, after taking into
consideration the additional information provided.
Sales & Purchases 5,60,000 1010,000
Capital A/c – Ahad 300,000
Marc 300,000
Creditors & Debtors 45,600 65,400
Machinery 1,54,000
Plant 23,000
RDD 8,000
2 - 68

Bad Debts 6,400
Cash 8,700
Salaries 56,000
Wages 23,000
Postage & Telegram 2,500
12% Bank loan 2,30,000
Discount Received 16,000
Insurance 20,000
19,59,400 19,59,400
Adjustments:
1) Closing Stock is valued at Rs. 60,000
2) Depreciation on Land and Building and Machinery is charged at 10%
3) Salaries were outstanding to the tune of Rs. 10,000
4) Goods of Rs. 5,600 used for current repairs to Plant were wrongly debited to purchases
5) Goods worth Rs. 6,000 were stolen
Answer:
6. Rohit and Mohit share profits and losses in the ratio of 2:1 of their partnership firm. From the given Trial balance you are
Purchases & Sales 3,50,000 4,66,000
Loose Tools 20,000
Plant & Machinery 2,00,000
Debtors & Creditors 1,00,000 2,00,000
Audit Fees 10,000
Motive Power 25,000
Work’s managers salary 15,000
Prepaid rent 5,000
Bills Receivable and Payable 30,000 60,000
Capital A/c – Rohit 2,50,000
Mohit 1,50,000
Rohit’s Loan A/c 50,000
Commission received 5,000
Bad debts 6,000
11,81,000 11,81,000
2 - 69
Adjustments:
1) Stock was valued at Rs. 75,000
2) Wages paid in advance Rs. 7,500
3) Goods worth Rs. 10,000 taken by Mohit for personal use
4) Bills payable dishonoured worth Rs. 5,500
5) Depreciate Plant and Machinery at 10% and Loose tools at 5%
Answer:
• Gross Profit: 38,500
• Net Loss: 1,33,500
Section V : Revision Problems:

1. Asha and Lata share profits and losses in the ratio of their opening capitals. From the given Trial balance you are required
to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after
Capital Accounts
Asha 2,50,000
Lata 2,50,000
Current Accounts
Asha 10,000
Lata 64,000
Furniture 60,000
Import Duty 2,000
Wages & Salaries 23,000
Salaries & Wages 32,000
Carriage inwards 2,600
Carriage Outwards 6,200
Discount 12,450 12,540
Purchases and Sales 4,52,600 11,87,610
Rent 5,600 6,500
Bills receivable 54,000
12% Investment (purchases 1.10.12) 68,000
Provident Fund 86,000
Provident Fund Investment 86,000
Provident Fund contribution 6,000
10% Bank Loan 56,000
Factory rent 32,000
Sundry Debtors and Creditors 4,60,000 1,20,000
Bank Overdraft 3,64,000
Bad Debts 33,000
Reserve for Doubtful Debts 10,000
Brokerage 6,500
24,15,350 24,15,350
2 - 70
Adjustments:
1) Write off bad debts of Rs. 7,500 and maintain RDD at 5% of Debtors.
2) Provide for Reserve for discount on Debtors & Creditors at 5%
3) Depreciation at 10% on all fixed Assets.
4) Goods worth Rs. 10,500 were lost due to fire, insurance claim admitted of Rs. 10000.
5) Asha took goods of Rs. 8,700 for personal use.
6) Goods worth Rs. 12,000 were left to be recorded in the purchases book although they were purchases on 24.03.12.
7) Outstanding Salaries of Rs. 16,000 whereas wages of Rs. 12,300 were paid in advance.
8) Interest on Capital at 6% and on drawings at 7%
9) Bills receivable of Rs. 6,300 was dishonoured.
10) Closing stock is valued at Rs. 1,50,000 at cost and Rs. 1,67,000 at market price.
Solution 1:
In the books of M/s. Asha and Lata
Less: Goods lost due to fire 10,500
Less: Goods taken for personal use 8,700
Add : Unrecorded purchases 12,000 4,45,400
To import duty 2,000
To Wages & Salaries 23,000
Less: Paid in advance 12,300 10,700
To Carriage inwards 2,600 By Closing Stock 1,50,000
To Factory Rent 32,000
13,37,610 13,37,610
To Goods lost by fire 10,500 By Gross Profit b/d 8,04,910
Less: Insurance claim admitted 10,000 500 By Discount 12,540
To Depreciation By Rent 6,500
Land & Building 1,00,000 By Commission 8,700
Furniture 6,000 1,06,000 By Interest accrued 4,080
By Reserve for Discount on
To Salaries and Wages 32,000 creditors 6,600
Add: Outstanding 16,000 48,000 By Interest on Drawings
To Discount 12,450 Asha 609
To Rent 5,600 Lata – 609
To Commission 7,800
To Provident Fund contribution 6,000
To Interest accrued on bank loan 5,600
To Bad Debts 33,000
Add: New bad debts 7,500
Less: Old RDD 10,000
Add: New RDD 22,940 53,440
To Rent, rates and taxes 15,600
To Brokerage 6,500
To Reserve for discount on debtors 21,793
2 - 71
Asha 15,000
Lata 15,000 30,000
To carriage outwards 6,200
To Net Profit c/d
Asha 2,59,228
Lata 2,59,228 5,18,456
8,43,939 8,43,939
Balance sheet as on 31st March, 2013
Capital Accounts Land & Building 10,00,000
Asha 2,50,000 Less: Depreciation 1,00,000 9,00,000
Lata 2,50,000 5,00,000 Furniture 60,000
Current Accounts Less: Depreciation 6,000 54,000
Asha (10,000)
Less: Goods taken for personal use 8,700 Provident Fund investment 86,000
Add: Interest on Capital 15,000 12% Investment 68,000
Less: Interest on drawings 609 Add: Accrued Interest 4,080 72,080
Add: Net Profits 2,59,228 2,54,919 Sundry Debtors 4,60,000
Add: Bill dishonoured 6,300
Lata 64,000 Less: New bad debts 7,500
Add: Interest on Capital 15,000 Less: New RDD 22,940
Less: Interest on drawings - debtors 21,793 4,14,067
Add: Net Profits 2,59,228 3,38,228 Bill receivable 54,000
Less: Dishonoured 6,300 47,700
Provident Fund 86,000 Insurance Claim receivable 10,000
10% Bank Loan 56,000 Prepaid Wages 12,300
Add: Accrued Interest 5,600 61,600 Closing Stock 15,0,000
Add: Unrecorded purchases 12,000
creditors 6,600 1,25,400
Bank Overdraft 3,64,000
Outstanding Salaries 16,000
17,46,147 17,46,147
Working Notes:
1) Reserve for Doubtful Debts
Net debtors after adjustments = Rs. 4,60,000 + Rs. 6,300 – Rs. 7,500 = Rs. 4,58,800
New RDD = Rs. 4,58,800 x 5% = 22,940
2) Reserve for Discount on Debtors (RFDD)
Net debtors after deducting new RDD = Rs. 4,58,800 – Rs. 22,940 = Rs. 4,35,860
RFDD = Rs. 4,35,860 x 5% = 21793
3) Reserve for Discount on Creditors (RFDC)
Net Creditors after adjustments = Rs. 1,20,000 + Rs. 12,000 = Rs. 1,32,000
RFDC = Rs. 1,32,000 x 5% = Rs. 6,600
2 - 72
4) Depreciation
Land & Building = Rs. 10,00,000 x 10% = Rs. 1,00,000
Furniture = Rs. 60,000 x 10% = Rs. 6,000
Asha = Rs. 2,50,000 x 6% = Rs. 15,000
Lata = Rs. 2,50,000 x 6% = Rs. 15,000
6) Interest on Drawings
Asha = Rs. 8,700 * 7% = Rs. 609
7) Interest accrued on Investments = Rs. 68,000 x 12% x 6/12 = Rs. 4,080
8) Interest accrued on bank loan = Rs. 56,000 x 10% = Rs. 5,600
Asha = Rs. 5,18,456 x ½ = Rs. 2,59,228
Lata = Rs. 5,18,456 x ½ = Rs. 2,59,228
2. Ram and Lakhan share profits and losses in the ratio of 2:3. From the given Trial balance you are required to prepare a
Trading and Profit & Loss A/c for the year ended 31st March, 2013 and a Balance Sheet as on that date, after taking into
consideration the additional information provided.
Buildings 2,25,000
Plant & Machinery 3,15,000
Sales & Purchases 6,42,000 10,64,200
Debtors & Creditors 3,00,000 2,97,800
Bills Receivable and Payable 1,20,000 2,10,000
Returns Inwards 6,500
Returns Outwards 5,600
Insurance (2 years w.e.f. 1.10.2012) 40,000
Rent (for 1 year till 30.6.12) 60,000
Cash in hand 45,100
Salaries 98,000
Bad Debts 6,700
8% Government Bonds 1,98,700
General Reserve 1,00,000
Advertisement expenses 25,000
Loss due to theft 2,790
Capital A/c – Ram 3,00,000
Lakhan 3,00,000
22,83,000 22,83,000
Adjustments:
1) Advertisement was to be deferred over 5 years.
2) Closing stock was valued at Rs. 1,90,000.
3) Goods worth Rs. 12,500 were distributed as free samples.
4) Sale of scrap of Rs. 2,300 was included in Sales.
5) Depreciate fixed assets at 7.5%
6) Debtors worth Rs. 15,600 went bad.
2 - 73
Solution 2:
In the books of M/s. Ram and Lakhan
To Purchases 6,42,000 Less: Sale of Scrap 2,300
Less: Goods distributed as free
samples 12,500 Less: Returns inwards 6,500 10,55,400
Less: Returns outwards 5,600 6,23,900
To Trade expenses 52,000 By Closing Stock 1,90,000
12,45,400 12,45,400
To Goods distributed as free
samples 12,500 By Gross Profit b/d 4,71,000
To Insurance 40,000 By Sale of scrap 2,300
Less: Prepaid 30,000 10,000 By Commission 5,400
To Rent 60,000 By Interest on bonds 15,896
Less: Prepaid rent 15,000 45,000
To Commission 15,700
To Salaries 98,000
To Bad debts 6,700
Add: New bad debts 15,600 22,300
Less: Deferred expenditure 20,000 5,000
To Loss due to theft 2,790
To Depreciation
Buildings 16,875
Plant & Machinery 23,625 40,500
To Net Profit c/d
Ram 84,318
Lakhan 1,26,478 2,10,796
4,94,596 4,94,596
Balance sheet as on 31, 2013
Capital Accounts Buildings 2,25,000
Ram 3,00,000 Less: Depreciation 16,875 2,08,125
Add: Net Profit 84,318 3,84,318 Plant & Machinery 3,15,000
Less: Depreciation 23,625 2,91,375
Lakhan 3,00,000
Add: Net Profit 1,26,478 4,26,478 8% Government Bonds 1,98,700
Add : Accrued interest 15,896 2,14,596
General Reserve 1,00,000 Prepaid Insurance 30,000
Deferred Advertisement 20,000
Prepaid rent 15,000
Sundry Creditors 2,97,800 Less : New Bad debts 15,600 2,84,400
Bills payable 2,10,000 Bills receivable 1,20,000
Closing Stock 1,90,000
Cash in hand 45,100
14,18,596 14,18,596
2 - 74
Working Notes:
1) Deferred Advertisement
Since advertisement is to be deferred over 5 years, we charge only 1/5th to this year’s profit and loss account being
the proportionate amount for 1 year.
Hence, deferred advertisement = Rs. 25,000 x 4/5 = Rs. 20,000
2) Depreciation
Buildings = Rs. 2,25,000 x 7.5% = Rs. 16,875
Plant & machinery = Rs. 3,15,000 x 7.5% = Rs. 23,625
3) Prepaid Insurance
Insurance has been paid for 2 years of which only 6 months are in the current year. Therefore, Insurance is prepaid
for 18 months of the total 24 months
Hence, Prepaid Insurance = Rs. 40,000 x 18/24 = Rs. Rs. 30,000
4) Prepaid Rent
Rent has been paid for 1 year but only 9 months are in the current year. Therefore, Rent is prepaid for 3 months of
the total 12 months
Hence, Prepaid Rent = Rs. 60,000 x 3/12 = Rs. Rs. 15,000
Ram = Rs. 2,10,796 x 2/5 = 84,318
Lakhan = Rs. 2,10,796 x 3/5 = Rs. 1,26,478
Section VI : Objective type questions:

(A) Answer one sentence only.
1. What is Balance Sheet?
Ans. Balance sheet is a statement which shows financial position of all assets and liabilities of the business on a particular date.
2. State the meaning of debit balance of Trading Account?
Ans. Debit balance of trading account indicates gross loss of the business for a particular year.
3. When is partner’s current account opened?
Ans. partner’s capital account is opened if partners adopt fixed capital method.
4. To which account Gross Profit transferred?
Ans. Gross profit is transferred to the credit side of profit & loss account.
5. What is closing stock?
Ans. Stock of goods in hand at the end of the accounting year is called as closing stock.
6. What is Final Accounts?
Ans. Final accounts are accounts which are prepared at the end of the financial year by the partnership firm, consisting of
trading a/c, profit & loss a/c and balance sheet
7. How is closing stock valued?
Ans. Closing stock is valued at cost price or market price whichever is less.
8. What do you mean by direct expenses?
Ans. Expenses which are directly related to production of goods and purchases of goods are called as direct expenses.
9. What do you mean by indirect expenses?
Ans. Expenses which are not directly related to production of goods and purchases of goods are called as indirect expenses.
10. What do you mean by accrued income?
Ans. Income which is due for current accounting year but not yet received is known as outstanding income.
11. What is Trial balance?
Ans. A list of debit and credit balances of all ledger accounts is called as Trial balance.
12. What is bad debts?
Ans. The amount which is irrecoverable from debtor is called as bad debts.
2 - 75
13. In the absence of partnership deed, what is profit sharing ratio of the partners?
Ans. In the absence of partnership deed, profit and losses are shared equally by the partners.
14. What do you mean by carriage inward?
Ans. Transport expenses incurred to carry the goods purchased by the firm are called as carriage inward.
15. What do you mean by freight?
Ans. Expenses which are paid to railways or airways for carrying goods are called as freight.
16. What are tangible assets?
Ans. Tangible assets are those which are of permanent nature and can be seen by our eyes.
17. What are intangible assets?
Ans. Intangible assets are those which can not be seen by our eyes but have realisable value.
18. What are contingent liabilities?
Ans. A liability which may or may not occur in future, depending on happening of certain events is called as contingent liabilities.
19. What do you mean by Pre- received incomes?
Ans. Income which is not related to the current accounting year but related to the future period is known as pre-received incomes.
20. What are fictitious assets?
Ans. Fictitious assets are those which are intangible in nature and do not have realisable value.
21. What are outstanding expenses?
Ans. Expenses which are due but not paid in the current accounting year is known as outstanding expenses
(B) Write a word or a term or a phrase which can substitute each of the following statements.
1. A statement showing financial position of the business on a particular date. Balance Sheet
2. The amount which is not recoverable from debtors. Bad debts
3. Stock in hand at the end of the accounting year. Closing stock
4. The transport expenses incurred to carry the goods purchased by the firm. Carriage inward
5. Income which is received before its due date. Pre-received income
6. The debit balance of Trading Account. Gross Loss
7. The credit balance of Trading Account. Gross Profit
8. A provision which is created on sundry debtors. Reserve for Doubtful Debts
9. The amount withdrawn by the partners from the business for their personal use. Drawings
10. The accounts which are prepared at the end of each financial year. Final Accounts
11. Expenses which are paid before due. Prepaid expenses
12. The statement showing list of all ledger balances. Trial Balance
13. The credit balance of Profit and Loss Account. Net profit
14. Expenses which are due but not paid at the end of the year. Outstanding expenses
15. Assets which are held in the business for a long period. Fixed assets
16. Goods returned to suppliers Purchase returns
17. An amount paid for the permission to use patents & copyrights Royalty
18. An account to which net loss is transferred in a partnership firm. Partners capital a/c
19. Concession given by firm to customer. Discount allowed
20. Concession given by suppliers to firm Discount received
21. Example of fictitious asset. Preliminary expenses
22. An account prepared by producer to find cost of production. Manufacturing a/c
23. Expenses which are paid off in one year but benefit is availed for number of years Deferred expenses
24. Assets which are not real assets of the business. Fictitious assets
2 - 76
(C) Fill in the blanks with appropriate alternative given in the brackets.
1. The gross profit is transferred to __________ account. profit and loss
(a) trading (b) profit and loss
(c) capital (d) current
2. Wages paid for installation of machinery should be debited to __________ account. Machinery
(a) machinery (b) wages
(c) trading (d) profit and loss
3. All indirect expenses are debited to ___________ account. profit and loss
(a) trading (b) capital
(c) profit and loss (d) current
4. A statement showing finacial position of the business is called as __________. balance sheet
(a) Balance sheet (b) trial balalnce
(c) capital (d) trading a/c
5. To find out net profit or net loss of the business ___________ account is prepared. profit and loss
(a) trading (b) capital
(c) current (d) profit and loss
6. A _____________ is an intangible asset. Goodwill
(a) goodwill (b) stock
(c) building (d) cash
7. Trading account is prepared on the basis of ____________ expenses. Direct
(a) indirect (b) direct
(c) revenue (d) other
8. The interest on drawings is transferred to __________ side of the profit and loss account. Credit
(a) debit (b) credit
(c) asset (d) liability
9. Final accounts are prepared on the basis of __________ and adjustments. trial balance
(a) trial balance (b) capital a/c
(c) trading A/c (d) profit & loss A/c
10. ____________ is the list of all ledger balances. Trial balance
(a) balance sheet (b) trial balance
(c) trading A/c (d) profit & loss A/c
11. Return outward are deducted from _____________. Purchases
(a) purchases (b) sales
(c) capital (d) debtors
12. The withdrawals of partner from the business for their personal use is called as _________. Drawings
(a) capital (b) profit
(c) drawings (d) cash
13. Income received in advance is shown on the ___________. Liability
(a) debit (b) credit
(c) asset (d) liability
14. Prepaid expenses are shown on the _________ side of the Balance sheet. Assets
(a) assets (b) l iability
(c) debit (d) credit
15. Profit & Loss Account is _____________ account Nominal
(a) Real (b) nominal
(c) income (d) Personal
2 - 77
16. _____________ is a financial statement Balance Sheet

(a) Income (b) Trading a/c
(c) balance sheet (d) Profit & loss a/c
17. A provision made for debts irrecoverable from the debtors is called _____________. reserve for doubtful debts
(a) bad debts (b) reserve for discount on debtors
(c) reserve for doubtful debts (d) additional new bad debts
18. _____________ is notional loss of the business. depreciation
(a) uninsured goods (b) goods destroyed by fire
(c) depreciation (d) loss from sale of asset
19. _____________ a/c prepared by producers to find cost of production. Manufacturing a/c
(a) Manufacturing (b) Trading
(c) Purchase (d) Profit & loss
20. Wages & salaries are debited to _____________ account Trading a/c
(a) Profit & loss (b) trading a/c
(c) expense a/c (d) salary a/c
21. _____________ a/c & _____________ a/c are recorded to balance sheet Real, Personal
(a) profit & loss (b) nominal, personal
(c) real, nominal (d) real, personal
22. _____________ are intangible assets and do not have realisable value. Profit & loss (dr bal)
(a) Good will (b) profit & loss (dr bal)
(c) Trade-mark (d) Copy right.
(D) State whether the following statements are TRUE/FALSE
1. All direct expenses are debited to Trading account. True
2. The Balance Sheet is a nominal account. False
3. Discount allowed to debtors is called as bad debts. False
4. Profit and loss account is a nominal account True
5. The interest on drawings is an income of the firm. True
6. The interest on capital is an income of the firm. False
7. Trading account is a nominal account. True
8. Prepaid expenses are shown on the asset side of the Balance sheet. True
9. Closing stock is always valued at market price. False
10. Outstanding expenses are shown on the liability side of the Balance sheet. True
11. Partners must share profits and losses equally. False
12. Trial Balance is the base of Final account. True
13. Debit balance of Trading account shows gross profit. False
14. Credit balance of profit and loss account shows net profit of the business. True
15. Return inward is deducted from purchases. False
16. Unproductive wages are debited to trading a/c. False
17. Royalty is debited to profit & loss a/c. False
18. Wages & salaries is treated as indirect expense. False
19. Balance sheet is not an account. True
20. Fictitious assets are intangible assets. True
21. Current assets are also called as floating assets. True
22. Income received, but not earned is an asset. False
23. Outstanding wages is a nominal a/c. False
24. Final accounts are prepared end of the accounting year. True
2 - 78

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CHAPTER 2: PARTNERSHIP FINAL ACCOUNTS

Sr. No. Particulars Page No.

Partnership Final Accounts

Preparation of Final Accounts

Journal entries for Trading Account

Journal entries for Profit & Loss Account

4. Reserve for Doubtful Debts

Final Accounts Adjustments

8) Reserve for Discount on Debtors

II. Interest on Partner’s Drawings

15) Goods withdrawn by a Partner

19) Capital receipts included in revenue receipts and vice versa

23) Commission to partner as a percentage of sales/profit

Adjustments 1st Effect 2nd Effect

Section I : From the Textbook - Solved Problems:-

Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)

Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)

Section II : From the Textbook - Practical Problems :-

Particulars Debit Amt. (Rs.) Credit Amt. (Rs.)

Balance Sheet as on 31st March, 2009

Trial Balance as on 31st March, 2010

Trial Balance as on 31st March, 2012

Trial Balance as on 31st March, 2013

Trial Balance as on 31st March, 2010

Trial Balance as on 31st March, 2013

Section III – Solved Additional Problems

Particulars Debit Amt. Rs. Credit Amt. Rs

Balance Sheet as on 31st March, 2013

Particulars Debit Amt. Rs. Credit Amt. Rs.

Section IV : Homework Problems

Particulars Debit Amt. Rs. Credit Amt. Rs.

Particulars Debit Amt. Rs. Credit Amt. Rs.

Section V : Revision Problems:

Section VI : Objective type questions:

16. _____________ is a financial statement Balance Sheet

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