1 PARTNERSHIP FINAL . ACCOUNTS THEORY. AND ILL ISTRATIONS. OUTLINE Topic 1 Introduction 2. Partnership Accounts 2 2.1. Definitions 2.2 Personal Accounts of Partners 3 3. Payments to Partners 3.1 Provisions, in Absence of Deed 3.2 _ Interest on Capitals 3.3 _ Interest on Drawings 3.4 _ Interest on Loans 3.5. Salaries / Commission to Partners 3.6 Share in Profits or Losses 4. Partnership Final Accounts 4.1 Trading Account 4.2 Profit & Loss Account 4.3. Profit & Loss Appropriation Account 4.4. Balance Sheet 5. Adjustments 5.4 Errors 5.2 Current Expenses 5.3. Current Incomo 5.4 Provisions / Reserves 5.5 Losses/ Gains 5.6 Appropriations 5.7 Adjustments Alroady Made In Trial Balance 5.2 Hidden Adjustments In Trial Balance 6. Illustrations (Basic Final Accounts) 7. Adjustments on Admission of a Parter 7.4 Adjustments on Day of Admission Ne 7.2 Adjustments in Final Accounts:Partnership Final Accounts NERS/AGCOUNTS (FIXED CAPITAL METHOD) WORIGR Seana ws X and Y BE. partners’ Capital Account 6a Particulars XL Y [Particulars xy zie ee | ToBa xx | xx [By Balance b/d lea lance o/d By CashvBank les (Fresh capital brought) me e x Pm Dr. Partners’ Current Account cr Particulars Tx | ¥~ [Particulars ScEThy. Wie 2. zie To Balance b/d “on | «|» [By Balance b/d x | ee To Balers ne/Goods (drawings) | x] % |BY ha Commission ete. wx |x To Interest on Drawings xx | xx [By Interest on Capital m | x To Share of Loss tfd. xx | xx [By Share of Profit tid. mx | To Balance cfd xx | «x [By Balance o/d xx |x (if credit larger) (if debit larger) we fm me , Messed Pieces Pe CAPITAL; METHOD), zat Ms Xand Y¥ Dr. Partners’ Capital Account << cr. Particulars X | Y | Particulars Xela eee. ee To Balance b/d oR | «| | By Balance b/d vx To Cash or Bank (withdrawn) xx] «| By Cash or Bank (tresh capital) | x) To Goods (drawings) xx| _xx| By Salary, Commission etc xx] To Interest on Drawings xx| xx] By Interest on Capital xx] xx To Share of Loss tid. x] xx | By Share of Profit tf. xx] xx To Balance c/d xx] xx} By Balance c/d xx] xx (if credit larger) (if debit larger) xx] XK Sx | 00 PAYMENTS TO PARTNERS __ £3. PAYMENTS TO>————— ‘3/1 PROVISIONS; IN ABSENCE OF DEED. Ifno partnership deed is made or if the deed is nt about any such payment, the follow of the Partnership Act are applicable for payments to partiiers: PSU Lae RO aA atta =AKY NOE ing provisions No. | Particulars Rate as per Act 1._|_interest on capitals Nil 2._| Interest on drawings Nil 3,_| Interest on loans/advances: @ 6% per year 4._| Salary, commission etc Nil 5. _| Profits or losses To be shared equally ui ershi : Inder the Partnership Act, all the above payments are treated as an ‘appropriation’ of profi Sy Md \ee 4 Accountancy 3:28 INTERESTION CAPIT/ 3.2.1 Charge or Appropriation and Financial Management (8.¥.8.Com, Whether interest on capitals, whenever paid, isi debited to the P & L Account) or an appropri Appropriation Account), is explained below. TEU Nuts cae el Ve the nature of a charge ag, charge against the profits (to ion out of profits (to be debited vy the vat ‘No. | Particulars Treatment in Accounts 1. | Ifthe partnership deed provides Intere: n st on capitals will bo a ol that such interests a charge again | tho poise alowed rom ae gE : profs Profits or losses, and _dobited to the P & L Ale : the partnership deed provides As per the Part : artnership Act, inte for payment of interest but is silent capitals will be allowed only Out of pots whether such interest is a charge {an appropriation) and dobited to the P & L or an appropriation. Appropriation Alc. 3.2.2 Computation Interest on capitals depends upon (a) the amount of capital (b) the dates of introduetion of capital and (c) the rate of interest. How interest is calcul: Mlustration 1 : (Calculating Interest on Capitals) 1. Aand B started business on 1-1-2013 with capital of € 20,000 and 10,000 fespectively. Rate of interest on capital is 5% p.a. Calculate the interest on capitals for the year 2013, Solution: A = 20,000 x 5% = 1,000 B = 10,000 x 5% = % 500 . 2. A and B started business on 1-1-2013 with capital of ¥ 20,000 and 10,000 respectively, On 1-7-2013, it was decided that their capitals should be 15,000 each. Necessary cash was introduced or withdrawn. Rate of interest on capital is 5% p.a. Calculate the interest on capital for the year 2013. Solution : A = (20,000 x 5% x 6/12) + (15,000 x 5% x 6/12) = 500 + 375 = 875, B = (10,000 x 5% x 6/12) + (15,000 x 5% x 6/12) = 250 + 375 = % 625, SINS Med Pea UL etsy 3. Since interest on drawings is an income of the firm, it is always shown on the credit side of the P & L Appropriation Account. 3.3.2. Computation | d and withdrawal lated in different cases is shown below 1 Gain to the Firm Calculation of interest-on drawings depends upon the details available regarding () amounts of drawings (b) dates of drawings and (¢) rate of interest. How interest is computed in different ca shown below: Illustration 2 : (Calculating Interest on Drawings) : as the interest on drawings of Mr. ABC @ 10% p.a. for the year ended 31-12-2013, in each of the following cases: a. his drawings during the year were 2,40,000. b. he withdrew % 20,000 on the first day of every month, | ¢._he withdrew % 20,000 on the last day of every month, d. he withdrew % 20,000 at the middle of every month. . e. he withdrew % 20,000 every month. ne LPartnership Final Accounts 1. he withdrew % 60,000 on 31-1-2013; ¥ 40,000 on 31-3-2013; € 60,000 on 1-7-2013; ¥ 30,000 on 30-9-2013 and 50,000 on 1-11-2013. Solution : a. Interest on drawings will be calculated for an average period of 6 months (assuming that the drawings were made evenly throughout the year): Interest = & 2,40,000 x 10/100 x 6/12 = € 12,000. b. Interest on drawings will be calculated for an average amount is withdrawn at a fixed interval on the fet dey o Interest = % 2,40,000 x 10/100 x 6% + 12=% 19,000, c. Interest on drawings wil be calculated for an averago period of © aa 1/2 months (as a fixed amount is withdrawn at a fixed interval on the test oo) of every month): Interest ="€ 2,40,000 x 10/100 x 5% #12=€ 11,000, " 4. Interest on drawings will be calculated for an average period of 6 months {as the drawings were made evenly throughout the year) Interest = © 2,40,000 x 10/100 x 6/12 = € 12,000. e. Interest on drawings will be calculated for an average period of 6 months (assuming that the drawings were made evenly throughout the year): : Interest = % 2,40,000 x 10/100 x 6/12 = € 12,000. {Interest on drawings will be calculated with the holp of the product method, as shown below: period of 6 and 1/2 months (as a fixed f every month): Date drawn | Amount drawn | Months due Product = Amount x Months 31-01-2013 60,000 1 A 6,60,000 31-03-2013 40,000 9 '3,60,000 (01-07-2013 80,000 6 4,80,000 30-09-2013 30,000 3 90,000 01-11-2013 50,000 2 1,00,000 ‘Sum of Products = 16,90,000 Interest = & 16,90,000 x 10/100 x 1/12 = & 14,083. VEEN SRO a 2) ) Interest on loans given by a partner should be treated as a charge against the profits of the firm, if the Partnership deed specifically says so, Otherwise, it should be treated as an appropriation, because the Indian Partnership Act states that any amount payable to a partner (except rent) should be treated asan appropriation. ERPS ea SSAC DSS KOM aU aia} 3.5.1 Appropriation Salaries or Commission to the partners (given ifand as provided for in the Partnership Deed), is an appropriation out of profits and hence debited to the P & L Appropriation Account. 3.5,2 Calculation Commission may be paid either (a) as a percentage of net profits before charging such commission or (b) as a percentage of net profits afier charging such commission. Ilustration 3 : (Commission to Partners) Calculate the commission payable in the following cases, if the net profits of the firm before any adjustments are & 1,10,000: 1. ABC is entitled to a commission of 10% of the net profits before charging such commission; or 2. ABC is entitled to.a commission of 10% of the net profits after charging such commission. Solution : 1. Commissio 2. Commissio Net profit x Rate / 100 = 1,10,000 x 10/100 = € 11,000. Net profit x Rate / (100 + Rate) = 1,10,000 x 10 / 110 = € 10,000.6 A “eountancy and Financial Management 6s. Elli enea eked} easy After the above adjustments for intere« i are shared by the partners in ther promecommtsson ra decide that out of every 100 of firm's 5 Sharing Ratio of A, B and C n (0) 1/2::3/10: 1/5. Com, : SEM-II1) Fussion ete are made, the remaining profits or loses rms profes ati9 (PSR). Suppose, three partners, A, B and C nay ee tS: A gets & 50, B gets & 30 and C gets 20, the Profit 'Y be expressed as : (a) 5:3:2; or (b) 5/10, 3/10, 2/10 or PARTNERSHIP FINAL ACCOUNTS Partnership Final Accounts basically contain : (a) Profit and Loss Account showing the Income, Fxpenses and Net Profit of the firm for an year. The Profit and Loss A/c may be divided into [1] Trading Ale [2] Profit & Loss A/c and [3] Profit and Loss Appropriation Ae; and (6) Balance ‘Sheet showing the Capital, Liabilities and Assets of te firm asat the end of the year CG Neel Trading Account shows closing balances of all accounts relating to goods. Debit side of Trading Ale shows Opening Stock, Purchases (Less Returns) and Direct Purchase Expenses like carriage inwards. Credit side of Trading A/c shows Sales, Closing Stock, and Other Goods Ale Credit Balances (e.g samples, goods lost, goods taken by partners). The balance of Trading Account shows the Fesllt of trading (purchase and sale of goods) during the year. The gross profit or gross loss shown by the Trading A/c is carried down to the Profit & Loss A/c. CO elu eyelet es 2 Loss A/c (P& LA/e) shows closing balances ofall accounts relating to Income and Expenses, Debi Sicorthe rovi& Laine shows Expenses ike Administrative Expenses, Selling Expenses, Financial Expenses, Depreciation, and other Unusual Expenses and Losses. Credit side ofthe P & L- A/c shows Other Business Income and Gains. The balance of the P & L A/c shows the result of tsiness operations during the year. The net profit or net loss shown by the P & L-A/cis carried down to the Profit & Loss Appropriation A/c. PEW ey canoes UO OU Debit side of the Profit & Loss Appropriation A/c shows firstly, loss brought down from P & L A/c, if any. Then it shows Appropriations like Transfer to Reserves, Interest on Partners” Capital or Current Accounts, Salaries to Partners and Net Profit transferred to capital accounts. Credit side of the P & L Appropriation A/c shows Net Profit brought down from the P & L A/c and Interest on Drawings by partners. POM Left hand side of the Balance sheet shows Liabilities Due to Partners and Outsiders like Capital, Reserves, Loans, Creditors for goods, Outstanding Expenses etc. Right hand side of the Balance Sheet shows Assets ¢.g. Fixed Assets (Gross Cost Less Depreciation), Investments, Current Assets like pre-paid expenses, advances, debtors, stock, cash, bank etc. WORKSHEET. 5: PARTNERSHIP. FINAL ACCOUNTS WS X and Y Dr. Trading Account for the Year Ended.. Cr. Particulars & |e J Particulars SG bese ‘To Opening Stock xxxx | By Sales 20x To Purchases KX Less : Returns Inwards XK | 000K Less ; Retums Outwards 20x] xox] By Goods Lost or Destroyed OXPartnership Final Accounts —“—. To | Inwards/ By Goods taken by Partnor Jo impor Duties xxx | By Goods Given as fo Wages (manufacturing/ Free Samples 00m : producti) : voxxx | By Closing Stock ae fo Manufacturing Expenses XXX To Gross Profit c/d ...OR .. soxxx | By Gross Loss c/d 200K ne mR WOK ne Profit and Loss Account for the Year Ended. cr. Particulars | Particulars z eee OR [| Bherincome or Gans a Teingurmee’ Rent Boras vax] Sigonmesion Received = To Electricity’ . xxxx | By Discount Received 000K To Salaries / Salaries & Wages: xexxx | By Provision for Discount To Postage, Telephones, Fax ete. xxxx] from Creditors XXX To Printing & Stationery yoxx | By Interest on Loans Given To Fees (legaV/audit etc.) xox] __ to Outsiders HK Tr etrar, faemort (rite Excenced | ix) By lnetor [elise Selling & Distribution Expenses Investments 200K To Salesmen’s Salaries, Commission etc.| xxxx| By Profit on Sale of Fixed To Travelling XXHX, Assets, 9000 To Carriage Outwards, Freight, Duties HOOK To Warehousing Charges HX To Packing Expenses XXX, To Royalties on Sale XXXX To Advertising & Sales Promotion XXXX To Goods given as free samples OX Financial Expenses To Interest & Bank Charges OK To Bad Debts & Prov. for Bad Debts XXX To Discount Given & Provision for Discount on Debtors 2000 Depreciation To Depreciation on : - Plant & Machinery x00 = Building XK - Vehicles XXKK . - Other OOK Other Expenses or Losses To Goods Lost or Destroyed OOK (Cost Less Insurance Claim) To Loss on Sale of Fixed Assets 0K To Net Profit c/d .... OR... | 000] By Net Loss c/d ox TOOK, TOOK Dr. Profit and Loss Appropriation Account For The Year Ended. cr. Partleilars @ | Particutars = To Net Loss b/d .. OR... | 00x] By Ne To Interest on Partner's Capital 2OKX, By interest on Drain Oe To Interest on Partners’ Loan vox] =X ee To Sais, Commission Partners | ox] |“ ¥ ex fo Transfer to Reserves 2000 : Xx] v0.00 To Net Profit tfd. to Capital A/cs ..... OR. By Net Toseite t91Ce (in PSR) tn PSA) 7 i xx . ¥ = ry xx x] 700 20K 70K —— Ed eer weeFr Accountancy and Financial Management (S.¥.B.Com, : SEM-1l Balance Sheet As On . Liabilities v |e [assets ate Capital Accounts Fixed Assets ay 00x Goodwill “Y 20x} 0x] Land ed Current Accounts Plant & Machinery (Gtoss Cost) xxx se x0 Less : Depreciation (02x) ty xxx] xxx] Building (Gross Cost) mx, Reserves Less : Depreciation (xx)| General Reserve xxx| Vehicles (Gross Cost) vox] Loans From Partners Less : Depreciation 600) | 09 =x 20% Investments oe ave 20x] x] Current Assets Other Liabilities Stock Loans from Bank 20x Debtors rox} Add : Accrued Interest 20x) xx] Less : Prov. for Bad Debts (06x) Bank Overdratt xxx | Less : Prov. for Discounts (xx) ‘Sundry Creditors 20x Bills Receivable vax Less : Provision for Discount (xxx)] xxx] Loans and Advances given ox Bills Payable yx] Insurance Claim Receivable ox Outstanding Expenses xxx| Prepaid Expenses 0x Income Received in Advance xxx] Cash in Hand xx Bank Balance xe 7x 0 ‘ADJUSTMENTS The figures in the trial balance must be adjusted for the following items (given by way of notes in an examination problem). Silas There may be errors of omission e.g. sales or purchases not recorded or errors of commission e.g. goods on sale or return recorded as sales, revenue expenses wrongly recorded as assets or capital expenditure wrongly recorded as revenue expenses etc. These must be adjusted to find out the correct profits. Eyes een) The P & LA/e must show the expenses relating only to the current year requiring the adjustment for prepaid expenses. Further, the P & L A/e must show the entire expenses relating to the current year. whether paid or not requiring the adjustment for (1) outstanding expenses (2) depreciation which is a charge for use of assets during the year (3) closing stock, and (4) deferred revenue expenses written off during the yea a ered IS The P.& LA/c must show (a) the entire income relating to the current year, whether received or not requiring the adjustment for Income Due, but not received (Receivable); and (b) the income relating only to the current year requiring the adjustment for Income Received in Advance. PRT ee eva) Provision must be made for likely losses like bad debts, doubtful debts, discount payable to debtors and so on.Partnership Final Accounts ETC Sometimes, details given in the trial balance e. that rent for 2 months % 2,000 is due and m below : t be adju DSS a an ban ee Suen Dee _ Rent received for 10 months F 10,000 indicate ed in final accounts. These are explained Trial Balance As On 313-2014 Trading, Profit & Loss A/c For Year Ended 31-3-2014 Balance Sheet As On 31-3.2014 1. Rent Paid (including 100 for April 2014) Deduct ¢ 100 from Rent Show % 100 as Rent Prepaid on Assets side Paid Alo. 2. Rent Paid (Upto ‘Add ¥ 100 to Rent Paid A/c ‘Show 100 as Outstanding Rent on Liability side Feb. 2014) @ 1,100 3. Rent Received (Upto ‘Add € 200 to Rent Received A/c ‘Show & 200 as Rent Receivable on Asset side Feb. 2014) € 2,200 “4, Rent Received (incl. ¥ 200 for April 2014) Deduct % 200 from Rent Received A/c Show ¥ 200 as Advance Rent on Liability side 6. Leasehold Land % 1,00,000 (For 5 years from 1-4-2013) Write off € 20,000 on Dr. Side Deduct & 20,000 from Leasehold Land on Assets side 6. (a) Loan from XYZ % 10,000 taken on 1-4-2013) (b) Interest to XYZ @ 10% p.a.% 500 ‘Add ® 500 to Interest Paid A/c ‘Show & 500 as Interest Due on Liabilities side 7. (a) Machinery (W.D.V.): % 4,200 (b) Machinery Sold : ‘Show Profit 1,200 on Cr. side % 5,400 Deduct € 4,200 from Machinery A/c in Balance Sheet Mlustration 4 : From the following Trial Balance of Ajit and Sujit, you are required to prepare a Tra 6. ILLUSTRATIONS [BASIC FINAL ACCOUNTS] ig and Profit & Loss A/c for the year ended 31st December 2013 and a Balance Sheet as on that date : Trial Balance As On 31st December 2013 Particulars Debit & | Credit | Particulars Debit & | Credit & Capital Ales | Carriage Outwardsp > 1,400 -Ajit CE 60,000 Wages pT 24,000 = Sujit FC 40,000 }Ansurance » 1,600 Drawing A/cs Discount Received (& 200 - Ajit 2,000 |Postagep at 800 __ ~ Sujit e 1,000 {Debtors and Creditors; | 70,400] 64,200 Stock on 1-1-20130 44,000 SFurniture > 24,000 Bills Receivable * 1,800 Cash in Haridy) 9,800 Purchases and Sales “| 1,90,000 | 3,02,000 Machinery) 80,000 Return | 6,000} 2,000] Rent & Taxes 2/5 1,200 Salaries °D 10,000 Printing & Stationery (3}) 400 68,400 Adjustments = (1) The closing stock on 31st December 2013 was valued at % 56,000. (2) The outstanding expenses were : (a) Wages ¥ 2,000 and (b) Salaries = 930.Fn Accountancy and Financial Management (S.¥.it.Com, : SEM-I) (3) Goods of % 2,000 were distributed as free samples. (4) Interest on partners’ capitals was to be provided at 7% p.a. {5) Prepaid Insurance was € 100. (6) Depreciation was to be provided on furniture at 10% and on machinery at 5%. (7) A reserve for bad and doubtful debts was to be created at 5% of sundry debtors. Solution : M/S AJIT AND SUJIT br. Profit & Loss Account For The Year Ended 31-12-2013 c r. Particulars: es = Particulars = z To Opening Stock 44,000] By Sales 3,02,000 To Purchases 1,90,000 Less : Return ary Less : Return Outwards __2,000 | 1,88,000| By Goods Given ue Se eaenon To Wages 24,000 Samples [3] : Add : Outstanding [2] 2,000) 26,000] By Closing Stock [1] 4 To Gross Profit c/d 96,000 56,000 3,54,000 "354,000 To Salaries 10,000 By Gross Profit bid Boa Add : Outstanding [2] 930| 10,930] By Discount Received oe To Insurance 7,600 200 Less : Prepaid [5] 100] 1,500 To Postage 800 To Rent & Taxes 4,200 To Printing & Stationery 400 To Carriage Outwards 1,400 To Free Samples Given [3] 2,000 To Reserve for Doubtful Debts [5% of 70,400] [7] 3,520 To Depreciation : [6] Machinery [5% of 80,000] 4,000 Furniture [10% of 24,000) 2.400 6,400, To Net Profit o/d 68,050 96,200 96,200 To Interest on Capitals: [4] By Net Profit b/d 8,050 Ajit (79% of 60,000] 4,200 Suiit [7% of 40,000] 2,800] 7,000 To Net Profit transferred: Ajit 30,525 Sujit 30,525 61,050 68,050. 68,050 Balance Sheet As On 31-12-2013 Liabilities = 7 | Assets i £ Capital Account of Ajit: Machinery 80,000 Balance bid 60,000 Less : Depreciation [6] _4,000] 76,000 Add : Interest [4] 4,200 Add : Net Profit 30,525, Furniture 24,000 4,600 94,725 Less : Depreciation [6] 2.400] 211 Less : Drawings 2,000] 92,725 Capital Account of Sujit: Prepaid Insurance [5] Balance b/d 40,000 Stock [1] 70,400 Add : Interest [4] 2,800 Debtors 5 20 Add : Profit 30,525 Less : Reserve for D.D. [7] _3.520 ey 73,325, Bills Receivable 9'800 Less : Drawings 1,000} 72,325] Cash in Hand b Sundry Creditors 64,200 &Partnership Final Accounts B Outstanding Expenses: Wages Salaries Working Notes: (1) Cost of goods given as free samples is first credited to the Trading A/c and then debited to the P&L Alc (being sales promotion expenses). (2) In absence of details, partners are assumed to share profits and losses equally. (3) Figures in brackets in the Solution indicate the relevant Adjustment No. in the Problem. Mustration 5 : . A,B & C carried on business in partnership as Ready Made Cloth Dealers. The partnership agreement provided that - : : (1) The partners were to be credited at the end of each year with interest at 5% per annum on Opening Balance of Capital. (2) No interest was to be charged on drawings. (3) Profits and losses were to be shared as to A, B Sand C2. It was agreed that C’s share of profit in any year should not be less than & 10,000 and any deficiency in such share was to be borne by the other two partners in their profit sharing ratio. Trial Balance of the Partnership as on 31-12-2013 Debit ® | Credit © 36,000; “ Freehold Premises 60,000 "i Leasehold Premises Purchased during the year 45,000 as Additions and Alterations to Leasehold Premises 25,000 = Purchases 2,80,000 - Stock as at 1-1-2013 42,000) a Salaries and Wages 64,000 - Office and Trade Expenses 45,200 = Rent, Rates and Insurance 10,500, Professional Charges 3,500 - Debtors 20,600] - Balance at Central Bank Ltd. 43,700] - Partners’ Capital Account : 7 - B . 80,000 ep c * 50,000 Partners’ Current Account : oH aca a -| 16,000 “Cc co 8,000 Sales “| «48-000 Trade Creditors el efazioo0 Depreciation Reserve ae aa'o00 Reserve for Doubtful Debts i 500 Drawings other than Monthly Payment -B 5 -C : 6,92,500 ‘You are given the following additional information = (1) Stock on December 31, 201 was % 42,000. (2) Goods worth & 1,000 were destr 706 ony.Pia (4) Salaries and wages include the following monthly drawings by the partners : A: % 500; B:& 309 and; C : % 250. (5) Partners had during the year been supplied with goods worth € 600 to A and & 400 to B, (6) On December 31, 2013 rates paid in advance and office and trade expenses owing wore @ Ba and & 2,100 respectively. (7) Depreciation of shop fittings to be provided at 5% p.a. on cost. (8) Professional Charges include ¥ 2,500 fees paid in respect of the ac Accountancy and Financial Management (S.¥-B.Com, : SEM-I1) ‘quisition of leasehold premises, (9) Thecost of addition and alterations to the leasehold premises wereto be written of ove. 25 years commencing from 1-1-2013. You are requested to prepare the Trading Account and Profit and Loss Account for the year endin, 31st December, 2013 and Balance Sheet as at 31st December 2013, 0 Solution MIS A,B&C Dr. “Trading Account For the Year Ended 31-12-2013 cr. Particulars =| Particulars zr To Opening Stock 42,000) By Sales 445,000 To Purchases 2,80,000] By Goods Destroyed by Fire 4,000 To Gross Profit c/d 1,60,000] By Goods taken by Partners 1,000 By Closing Stock 35,000 4,82,000 “482,000 Profit & Loss Account For the Year Ended 31-12-2013 Particulars z= @ | Particuiars z To Salaries & Wages 64,000 By Gross Profit b/d 1,60,000 Less: Salaries to Partners__12,600 51,400 To Office & Trade Expenses. 45,200 Add: Outstanding 2,100} 47,300 To Rent, Rates & Insurance 10,500: Less: Prepaid Rates . __2'500| 8,000 ToProfessional Charges 3,500 Less: Expenses on acquisition of Leasehold Premises 2,500] 1,000 ToBad Debts 600 Add: BDR (New) 1,000 1,600 Less : BDR (Old) 500] 1,100 ‘To Depreciation on : Leasehold Premises 2,900 Shop Fitting 1,800} 4,700 To Goods Destroyed by Fire (Cost Less Insurance Claim) 300 ToNet Profit c/d 46,200 760,000, Dr. Profit & Loss Appropriation Account For the Year Ended 31-12-2013 Particulars ane % | Particulars z To Interest on Partners’ Capitals 8,000] By Net Profit b/d 46,200 To Net Profit transferred to Current A/c ~ A (28,200 x 5/8) 17,625 ~ B (28,200 x 3/8) 10,575 ~ C (minimum guaranteed) 10,000] 38,200 46,200 | 46,200Partnership Final Accounts a Balance Sheet As At 31-12-2013 Liabilities 2 ne Capital Account - its: Fixed Assets: : 80,000 Shop Fitting (at Cost ) 36,000 “6 50,000 Loss: Dop. upto current ea 000) s,60,000] _ year (14,000+1.800) eo0| 2086 SArTent Accounts: 60.000) --achold Premises oe 20.200 Es ; 4,025 Leasehold Premises 45,000 aC ators ‘Add: Addition during z 1 x 600] _ the year Econ Trade Creditors 18.500! 37500] Add: Expenses on acquisition ohold Premises Outstanding Office & Trade e00 of Least ae Sgt 11001 ess: Depreciation (1/25) _2,900] 69,600 Debtors 20,600 Less: Bad Debts __ ‘600 20,000 Less: Provision for Bad Debts_1,000| Balance at Central Bank Ltd. Insurance Claim Receivable Prepaid Rates Closing Stock Working Notes : (1) Dr. Partners’ Current Accounts Particulars a © | Particulars : is | Paae é i 4 To Drawing 6,000| 4,000] By Balance b/d 16,000] 8,000] 12,000 3,600] 3,000] By Interest on Capital] 4,000] 2,500] 1,500 To Drawing (salary) To Drawing (goods) To Balance c/d 400 By Profit & Loss A/c] 17,625] 10,575] 10,000 11,075] 16,500 21,075 | 23,500 (2) Depreciation Reserve : Shop Fittings and Leasehold premises are the two depreciable assets in the trial balance. However since the Leasehold Premises are purchased during the year, It will not have any old depreciation reserve to carry forward. So entire depreciation Reserve is for Shop Fitting, (3) Guarantee of Profits : C's 1/Sth share of profits of € 38,200 (46,200 - 8,000) comes to % 7,640. C will, however, be paid the minimum guaranteed amount of 10,000. The remaining profits of % 28,200 will be shared by A and B in their PSR, i.e. 5:3 (see Para 7.2). Mlustration 6 : R and K are partners sharing profits equally. From the following Trial Balance, prepare Trading and Profit and Loss A/c for the year ended 31st December 2013 and the Balance Sheet as at that date of M/s. RK after making the adjustments given below : 37,625 | 21,075 | 23,500 Particulars De® | Cee | Particulars Dat [One F's Capital 4,00,000 [Rent and Taxes (>) 2,000 K's Capital 4,00,000 | Motor Car (1 3,000 Land and Buildings ( 87,000 Carriage Outward f'!) 4,400 Plant and Machinery | 17,500 | Sales (( . 84,000 Goodwill 20,000 Salaries 7) 3,100 4 R's Drawings 10,000 a Bank Charges °/) "105. Ka) Drawings 12,600 Bad Debts Written off 2,100 Deposits / P 1,000 Provision for Doubtful Debts : 4,500 tock (1-1-2013) 7) 27,000 Printing and Stationery] 2,000 : Wages | 10,000 {| Debtors 4 19'80016 * Purchases 69. Cartiage Inward 71> General Expenses >) 4 600 000 Accountancy and Financial Management (S.¥.B.Com. + ,000 Creditors ¢ Bank Current Alc 795 SEM-I1y 7,500 (1) Closing stock was € 46,000. (2) It is discovered that credit sales effected on entered in the books. 2,93,000 |2 83,005 21-12-2013 to the value of & 2 ~ (3) Stock worth @ 3,000 uninsured has been destroyed by fire. : _(4y Plant and Machinery worth & included in purchases. Sy Wages include a sum of T © 4,000 on 30-6-2013. 46) The Motor Car was sold on 30 : -2013 for € 2,000, the (7) Depreciate Plant and Machinery at 10% Debts to be increased by % 2,000. (8) Rent and taxes prepaid were & 800. (9) No interest is to be allowed on partners’ capital and no interest is to be chat p.a. and Motor Car at 20% 00 have not been 1,000 purchased on 31st December 2013 has been inadvertent 500 spent at the time of installation of a new machinery valued at amount being wrongly included in the sales P.a. and Provision for Bag irged on drawings, Solution e /MIS RK Dr. Trading, Profit & Loss Account For The Year Ended 31-12-2013 Cr. Particulars Particulars z z To Opening Stock By Sales 84,000 ° To Purchase 69,000 Add : Unrecorded Less : Machinery [4] 4,000] 68,000 Sales [2] 200) To Wages 40,000, 84,200 Less : For Machinery [5] 500 | 9,500 Less : Motor Car sold [6] 2,000] 82,200 To Carriage Inward 600] By Stock Destroyed by Fire [3] 3,000 To Gross Profit c/d 26,100] By Closing Stock [1] 46,000 1,31,200 1,31,200 To General Expenses 4,000} By Gross Profit b/d * 26,100 To Rent & Taxes 2,000. Less : Prepaid [8] 800, 1,200 To Carriage Outward 1,400 To Salaries 3,100 To Bank Charges 105 To Printing & Stationery 2,000 To Loss on Sale of Motor Car 700 (WN 2) [7] To Bad Debts 2,100 Add : New Prov. [7] 2,000 4,100 Less : Old Prov. . 1,500] - 2,600 To Loss by Fire [3] 3,000 To Depreciation : (WN1) [7] Plant & Machinery 1,575 Motor Car —300 1,875 To Net Profit tfd. to Capitals R 36,120 x 1/2 - 3,060 K : 6,120 x 1/2 3,060 26,100 * 26,100 |Partnership Final Accounts 7 Balance Sheet As On 31-12-2013 Liab x itities = v__ [Assets = i= apital Account of R Goodwill 20,000 falance bid 1,00,000 Land & Buildings 87,000 Add : Profit ttd. 3,060 Plant & Machinery (b/d) 17,500 7,03,060 Add: Purchases 4] ; 4/000 Less : Dray “10.0 6 Installation Charges [5] __500 gs 0,000] 93,060 . 79,000 2 Capital Account of K Less : Depreciation [7] 1575] 17,425 Balance b/d 1,00,000 Debtors (b/d) 19,800 ‘Ade Prone 3,060 {Add : Unrecorded Sales [2] 200 : 10,000 7,03,060 x Less : Drawings ‘12.600| 90.460] Less : Prov. for Bad Debts [7] 2,000] 18,000 Sundry Creditors 7/500] Closing Stock [1] 46,000 Deposits 1,000 Bank Current A/c 795 Prepaid Rent & Taxes [8] 800 NS 1,97,020 Working Notes : 4. Depreciation on Machinery : z Balance on 31-12-2013 : 17,500 Less : Machinery purchased on 30-6-2013 4,000 Opening Balance on 1-1-2013 13,500 Depreciation @ 10% p.a. for 1 year 1,350 Depreciation on Additions (4,000 + 500) for 6 months 4,500 x 10% x 1/2 = 225 Total Depreciation 1,575 2. Loss on sale of motor car : z Balance on 1-1-2013 3,000 Less : Depreciation @ 20% p.a. tll date for 6 months 3,000 x 20% x 1/2 = 300 W. D. V. on date of sale 2,700 Sale Price 2,000 Loss 700 Ilustration 7 = Sujata, Sarita and Suman are partners, sharing profits and losses in the ratio 3 : 2 : 1. Suman is guaranteed a profit of € 16,000 p.a. as her minimum share. Any deficiency, will be borne by the other partners in their profit sharing ratio. Interest at the rate of 6% is to be allowed on partners fixed capital account. On 31st March, 2014, Trial balance was as under : Debit se Credit = Se 0 Bulking 64,000] Fixed Capital Alcs : prserate 50,000] - Sujata 80,000 Vehicles 20,000] - Sarita 60,000 Purchases “ 2,90,000| - Suman 40,000 Speke 68,000] Current Alcs : ; 0 Wages ~ _ 65,000] - Sujata Trade Expenses 28,000] ~ Sarita . ico Salaries 30,000] Sales 7 o.721000 Repairs, 28,000] Creditors \ "28,000 Commission 20) 2,500] Provision for doubtful debts 3,0 fice Expenses’ 33,200|"Commission > ¢ foog Rates & Taxes 22,900] Discount ? ( ~ eon Bank Balance 142,400 ee pare Debtors 0. ‘84,000 Suman's Current Alc 13,400 3800 =a 9738,400 24‘Accountancy and Financial Management (S.¥.B.Com. : SEM-I}) 18 ‘additional Information : ’ 00, ; (1) Glosing stock ¢ ori worth € 3,000 from stock for which no entry is made in the books. 7) Sate rae tn pats ¢ 24,000 for travelling expenses for business trips. (9) Sarita is to be Wages outstanding are ¥ 5,000 and commission received in advance & 1,000. 8 Dopreciation on machinery and building is to be provided @10% p.a. and onvehicles @15 % pa, 6) Provision for doubtful debts is to be increased to = 6,000. (7) Goods worth & 10,000 were destroyed by tire, the same were not insured From the above Trial balance and additional information given, prepare Trading and Profit & Lose ‘Alc forthe year ended 31st March, 2014 and Balance sheet as on that date. Solution : (IDOL, Oct. 04, adapteg Dr. Trading and Profit & Loss Account for the year ended 31-3-2014 cr. Particulars | Particulars ; ¥ To Opening Stock 68,000] By Sales 6,72,000 To Purchases 2,90,000] By Goods withdrawn (Sujata) 3,000 To Wages 65,000 By Goods Destroyed 10,000 Add : Outstanding 5,000] 70,000] By Closing Stock 70,000 To Gross Profit c/d 3,27,000 7,55,000 7,558,000 To Trade Expenses 25,000 By Gross Profit b/d 3,27,000 To Salaries 30,000 By Commission 4,000 To Repairs 28,000) Less: Recd. In Advance _1:000| 3,000 To Commission 2,500 | By Discount 8,400 To Office Expenses 33,200 To Rates & Taxes 22,900 To Travelling Expenses (Sarita) 24,000 To Provision of Doubtful Debts “6,000 Less : Old Provision 3,000] 3,000 To Depreciation on Building 6,400 Machinery 5,000 Vehicle 3,000| 14,400 To Loss due to goods destroyed 10,000 To Net Profit ofd 4,483,400 386,400 3,36,400 To Interest on Capitals By Net Profit b/d 7,43,400 Sujata (6% x 80,000) “4,800 Sarita (6% x 60,000) 3,600 Suman (6% x 40,000) 2.400] 10,800 To Partners Current Ac (NP) Sujata (3/6) 66,300 | Sarita (2/6) 44,200 ‘Suman (1/6) 22,100 1,32,600 | « © 8 16,000 guaranteed) | 1,43,400 743,400 Dr. Partners’ Current Accounts cr. | Particulars Sujata | Sarita | Suman | Particulars To Balance b/d - -[ 13,400] By Balance bia To Goods wid 3,000 7 -| By Travelling 2 old 84,100] 80,800] 11,100] By interest ee By Net Profit 87,100| 80,800| 24,500 ic. |Partnership Final Accounts Balance Sheet as on 31-3-2014 Liabilities Partners Capitals : : [Assets @ z + Sujata a0 Building 64,000 catia en0e Less : Depreciation @ 10% fim 57,600 - Suman ‘ Machinery 50) Partners Current Ales; 22202] 1:80.00} Less : Depreciation @ 10% _5,000] 45.000 - Sujata PA Vehicles 20,000) 000 - Sarita 100 Less : Depreciation @ 15% —3.000} | 1°40 = Suman 80,800 Bank 1,42, Creditors 11,100} 1,76,000] Debtors 84,000 Outstanding Wages 48,000 Less : Provision of 000} 78,000 Commission it 5,000 Doubtful Debts 6,000 n in Advance 1,000] Stock es 770,000 410,000 Mlustration 8 = Ram and Shyam are Partners. Their Trial Balance as on 31-12-2014 was as under + a @ | Credit i Building 74,000 Ram's Ca 90, r im’s Capital Machinen? {0000 Shyams Captal 90,000 Furniture 20,000] Sales ‘| Scr Purchases 2,98,000| Creditors \_. es stock /[) - '60,000| A.0.0. ¢-yol¢ Ann 491000 Wages (1) 65,000] Discount (_ 10, Carriage Inward [| (> 25,000 Salaries (°/) 40,000 Repairs, 18,000 Commission |!) 5,700 General Expenses |’/) 30,000 Rent and Taxes |’ . 21,000 Bank Balance 95,000 Cash Balance | 49,300 Debtors [) 84,000 . "725,000 9,25,000 Additional Information : (1) Closing Stock was ® 50,000. {2) Shyam has taken goods worth & 5,000 for his personal use for which no entry was made in the books. re % 6,000 and taxes paid in advance & 2,000. (a) Wages outstanding wer (4) Depreciation was to be p.a.on furniture. (5) wnte of 2,000 as Bad Debts and provision for doubtful debs i t0 be increased to © 8,000. {6) Goods costing € 2,500 have been stolen but no ent was passed in the books for the same. ‘count for the year ended 31 st December, 2014 and Balance provided at 10% p.a. on machinery and 5% p.a. on Building and 15% propare a Trading and Profit& Loss Act Sheet as on that date. (IDOL, April. 05, adapted) Solution : M/S RAM & SHYAM br Trading and Profit & Loss Account for the year ended 31st December, 2014 Cy ; r. Paniculars @_| Particutars To Opening Stock 60,000] By Sales = Te Purchases 2,98,000 | By Closing Stock 6,80,000 ro Wages 65,000 By Goods taken - '50,000 ‘Add : 6.000] 71,000 By Goods Stein we” 5,00 To Cartiage Inward 25,000 ok ee: 2.50020 Accountancy and Financial Management (S.Y.B.Com. SEMI To Gross Profit 2,83,500 7,37, ae : 737,505 salaries 40,000 | By Gross Profit b/d 283.505 aoe 18,000] By Discount AEF 00 To Commission 5,700 #0 To General Expenses 30,000 To Rent & Taxes 21,000 Less : Prepaid 2,000} 19,000 To Depreciation : Building 3,700 Machinery 4,000 Furniture: 3,000} 10,700 To Bad Debts 2,000 Add : New R.D.D. _5,000 7,000 Less : Old R.D.D. —3,000 4,000 To Loss by Theft 2,500 To Net Profit tid. Ram's Capital A/c 81,800 Shyam's Capital A/c 81,800 | 1,63,600 [293,500 [2.93500 Balance Sheet as on 31st December 2014 Liabilities ee Taasets: ee Capital Account : Building 74,000 - ‘Ram's Capital 90,000 Less : Depreciation 3,700} 70,309 Add : Profit 81,800 | 1,71,800] Machinery 40,000 - Shyam’s Capital 90,000 Less : Depreciation 4,000] 36,000 Less : Goods taken 5,000 Furniture 20,000 85,000 Less : Depreciation 3.000} 17,000 Add : Profit 81,800 | 1,66,800] Debtors 84,000 Creditors 52,000] Less : Bad Debts 2,000 Outstanding Wages 6,000 82,000 Less : New R.D.D. 5,000 Closing Stock Prepaid Taxes Bank Balance Cash Balance [3,96,600 Mlustration 9 : X, ¥ and Z are partners in manutacturin, 2's annual share of profit is to be the other two partners in their profit s current accounts but Fixed Capital Accounts carry as on 31st March 2014 was as follows : ig business sharing profits and losses, X 2/5, Y 2/5 a minimum of 2 20,000 haring ratio. No interest is allowed or charged on any deficiency being and Z 15. borne by partners’ interest at 6% per annum. The Firm's Trial Balance Particulars & | Panticutars: z z Freehold Premises cost 90,000] Capital A/es : Plant & Machinery (at cost) 80,000] = x 80,000 Purchases 3,80,000} -y 60,000 ‘Stock (1-4-2013) 72,000) -z 30,000 | 1,70,000 Motor Vehicles 24,000} Current Accounts (1-4-2013) Manufacturing Wages 82,000] - x 18,000 ‘Trade Expenses 6,000] -Y 6,000] 24,000 Salaries 54,000] Sales 6,78,000 Repairs 12,000] Creditors 42,000 Cash Discount 2,400 | Provision for Doubtful Debts Office Expenses 36,000] (1-4-2013) 3,400Partnership Final Accounts a Carriage Inward ee 6.200] Cash Discount ae Eeressonal on 14,000} Provision for Depreciation coee 4.000] (1-4-2013) : Pees eek 68,000] —- Plant & Machinery rio Curent Acct? (142914) 8,000] — - Motor Vehicles ee Camiage Outward taoao SET G00 000 357,600 92700 i are given the following information : . see ae ay 31st March 2014 amounted to % 64,800. 2052 & hen 24,000 for goods sent out on sale or retum charged to customers at cost plus n remained in their hands unsold on 31st March 2014. th by the partners = (3) The following amounts cluded in Xe san gg amaun's included in salaes have been drawn each mon 4) It was agreed th : Ose ate eae a charge of € 2,500 should be made to ¥ for goods supplied to him from stock ® X who acted as travellers tobe credited witn an expenses allowance of © 2,000. (6) Repairs include an item of & 7,500 for alteration to the Office which amount, itis agreed snould be capitalised. (7) Rates and Insurance paid in advance amounted to € 5,000 and Office Expenses accrued amounted to Z 1,200. inst which = 6,000 had (8) A motor vehicle costing % 9,000 had been purchased during the year agai been allowed on the sale of an old vehicle, the net Sinount only being debited to Motor Vehicle Account. The vehicle sold had cost 7,500 and had been writen down to < 2,500. Any profit or loss on sale of the vehicle is to be credited or charged in the Profit and Loss A/c. (9) Depreciation on Plant & Machinery and Motor Vehicles is to be provided at the rate of 20% per annum respectively on the cost at the end of the year. men (10) A debt of € 600 is to be written off and the provisions for doubtful debts increased to € 4,500- 40% and You are required to prepare: (a) Trading and Profit and Loss Account for the year ended 31st March 2014, (b) The Balance Sheet as on the date, and (c) The Partners’ Current Accounts. Solution : WS X, Y AND Z Dr. Trading, Profit & Loss Account For The Year Ended 31-3-2014 cr. Particulars: = Particulars To Opening Stock 72,000] By Sales 6,78,000 3,80,000] Less : On Sale or Return [2] .__24,000 | 6,54,000 To Purchases To Carriage Inwards 6,200 82,000 | By Closing Stock [1] To Manufacturing Wages To Trade Expenses (WN 5) 6,000] Add: On Sale or To Gross Profit c/d 4,95,100 Return [2] 20,000| 84,800 By Y's Current A/c (Goods taken) 2,500 a 741,300 ioeeen 54,000 By Gross Profit b/d 7,95,100 Lane: Drawings Eo 13,800] 40,200] By Cash Discount 4'200 To Repairs 12,000 By Profit on Vehicle Sold (8) 4,500] (6,000 - 2,500) 3,500 Less : Td. to Building (6] __7.500 To Cash Discount 2,400 To Office Expenses 36,000 Add : Outstanding 1,200] 37,200 To Rates & Insurance 14,000 Less : Prepaid [7] 5,000] 9,000 4,000 To Professional Chargesae 22 To Carriage Outwards To Travelling Expenses to X [5] Bad Debt [10] 600 maa 7 New Provision {10} _4,500 5,100 Less : Old Provision —3.400 To Depreciation : [9] Plant & Machinery 80,000 x 10% 8,000 Vehicle 22,500 x 20% 4,500 To Net Profit c/d 8,000 2,000 1,700 Accountancy and Financial Management (S.Y.B.Com, SEMI, 202,805 Dr. Profit And Loss Appropriation Account For The Year Ended 31-3-2074 Cr. Particulars z 2 | Particulars e To Interest on Fixed Capitals : By Net Profit b/d 81,300 X : 80,000 x 6% 4,800 ’ Y : 60,000 x 6% 3,600 Z 30,000 x 6% 1,800] 10,200 To Net Profit Transferred : Z : Guaranteed 20,000 X: 1/2 of balance 51,100 25,550 Y : 1/2 of balance 51,100 _25.550 715100 87,300 787,500 Balance Sheet As On 31-3-2014 Liabilities = @__ [Assets ¥ z= Capital Accounts : Freehold Premises 90,000 -X 80,000 Add : Capitalised [6] 7,500} 97,500 -v 60,000 Plant & Machinery (cost) 80,000 -Z 30,000 | 170,000] Less : Prov. for Depr. Z Current Accounts : (24,000 + 8,000) $2,000] 48,000 -X 44,350 Motor Vehicles (WN 3) 22,500 bie 27,850 Less : Prov. for Depr. (WN 4) 11,500] 11,000 -2 7,800} 80,000] Closing Stock [1] 64,800 Sundry Creditors 42,000 | Add : Stock on Sale or Outstanding Expenses 4,200 Return [2] 20,000] 84,800 Prepaid Expenses [7] 5,000 Sundry Debtors 68,000 Less : Bad Debts w/o [10] ___ 600 67,400 Less : Prov, for Bad Debts [10] 4,500 62,900 Less : Debtors (Sale or Return) 24,000 Bank Balance 2,93,200, Dr. Partners’ Current Accounts Particulars” x Me Particulars x Vez: ideens e 7 z eel ene To Balance b/d [10 Y77|> -| By Balance b/d 18,000] 6,000] : paw tO VIIAS 'y Balan f To Salary Aloo a LED By Travelling (drawifigs)'[3) 6,000] 4,800. Expenses [5] 2,000) | = To Goods\(drawings) {4} ', = \-]'» 2,500 By Interest 4,800] 3,600] 1,800 To Balance cid | 44,356} '27,850]'/7,800| By Profit tid. 25,550] 25,550] 20,000 Nr] 50380 | -Bec80 50,380) 35,150] 27,60031-39-2014 Partnership Final Aecounes al value of Goods on sal 2 the conn esa ean its 20.000, The guaranteed amount of € 20800 raga Soa ared by X and Y in hei profi sharing rato bok) 2, eh or Vehicle Account 7, ADJUSTMENTS ON ADMISSION OF A PARTNER COSTE The adjustments for capital brought in, reserves, goodwill etc, are made in the books on the date of | A cooDWiLt | TAA Goodwill 74.2 Accounting srner pays cash for goodwil tthe ol partners privat no entry is passed in the he new p f the frm, In oth a eastment for Goodwill in the books, a the time of admission va. depends on the following factor < Mrcther new partner beings in his share of godin cash (known as purchased goodwill will alc is merely revalued in books (known a no «oy ehether te pariners decide to maintain the Goodwill in the hoks or not. Hons toradwill is adjusted in different situations is explained below nium Methodser, ce 2 PIECEMEAL DISTRIBUTION OF CASH THEORY. AND ILLUSTRATIONS OUTLINE Topic Distribution in Stages Settlement of Liabilities 2.1 Realisation Expenses 2.2 Reserve For Unrecorded / Contingent Liabilities 2.3 Outside Liabilities 2.4 Partners’ Loans 25 Partners’ Capitals Methods Proportionate Capital Method 4.1 Meaning 4.2 Procedure Illustrations 5.1. University Examinations 5.2 Professional Examinations 1. DISTRIBUTION IN STAGES ‘When you studied Dissolution of Partnership in S.Y.J.C., it was assumed that the entire dissolutit process is completed in a day, It was assumed that the assets are realised, the liabilities are paid and the capitals are refuunded on the very day on which the partners decide to dissolve the firm. TH rarely happens in real life. In practice the dissolution of a firm is a lengthy process. The assets a realised only in stages or gradually. For example, if partners decide to dissolve a firm on 3 1st Marc the stock may be sold off in April, the debtors may be collected in May and the fixed assets ma sold by July. As and when money is received from sale of assets, ed to pay liabilities. T liabilities are also paid in stages or gradually. The money, in short, is distributed piecemeal - stages and not in a single shot. This is known as Piecemeal Distribution. 2. SETTLEMENT OF LIABILITIES a Ina piecemeal distribution, the amounts realised from assets are used to settle the Fabilitis in following order; [1] Realisation expenses [2] Reserve for Unrecorded/Contingent Liabili (3) Outside liabilities [4] Partners’ loans and [5] Partners’ capitals, Surplus, iFany, arising at the ™ stage, is distributed to all partners in their profit sharing ratio, ke: ] 122 Accountancy and Financial Management (S.¥.B.Com-: SEM-I), | STN u Sse NES After all the outside liabilities are paid off, the internal liabilities in thenext stage. Ifthe cash is insulicient, payment is made against all partners’ i.e. in the ratio of outstanding balances, PE aun : Js are paid off in the i ers’ capital ‘fier all the outside as well as internal liabilities are paid, the partners” caPF nee is insutficien, last stage. [the eash is sufficient, all the capitals ean be paid of: BUCHAN. “Tr capital balances instal eapital accounts prorata or properion"e ares inthe at all. The payment is m8 7 et in the pratt sharing ratio, payments at each | the partners” loans are paid of foans proportionately | payment must be made: are in the profit sharing ratio, there is no problem ratio of their capital balances. But ifthe capitals are no stage must be done in such a manner that: (a) the payments are in the ratio ofthe balances of eapit als at each stage and a i valisation is distributed among all the (b) the payments ensure that the ultimate.profit or loss on realisation i partners in their profit sharing ratio, Let us take an example to understand how this is done: alance sheet is as follows : Inustration 1 = - A.B, G share profs and losses inthe proportion of 8: 2: 1, The z Liabitities [asset zea i ‘Sundry Asse! : (Capa ocounts ie | \ -8 30,000 | c 20,000 | [80,000 80,000 The partnership is dissolved and the assets are realised as follows : First Realisation 17,000 Second Realisation 21,000 Third and Final Realisation 36,000 ‘Show distribution of cash at each stage : (a) in profit sharing ratio (b) in ratio of capital balances. A. Statement of Distribution (In Profit Sharing Ratio) Particulars Cash A[3] ci] z z z Capital Balance bid - ~ Balance Due an 2.888 Balance Due ee ee ee —2.500 Third Realisation asoon | iseee 13,687. Final Baaneos (alton Loss) —s8000 | 1@.000 pote (+) 7. (7.667, The final balances remaining to be paid indicate loss on reali re £74,000). Thus, inthe above cas, theres @ Realisation Lose of aes er oe noe et This loss should have been shared by the partners in their prott sherig rage om oes oe and C : 1,000). Instead, when realisations are distibuted in profit sharme voit in eee 20 ‘more money than is due to him while B and C get much less money tharrdue tomer ic B. Statement of Distribution (In Ratio of Capital Balances) ee Particulars = = Eek A] | Bi | Ce z Capital Balances bid - | 30,000 a First Realisation svomsnee |_17,000 |_ 6.375 50 coe 2f9 4.23Piecemeal Distribution of Cash : 123 Balance Due 23,625 | 23,625 | 15,750 Second Realisation 21,000 | _7 Balance Due 15.750 | 78.750 | “o\s00 Third Realisation 36,000 } 13,500 00, t veer | 208, .500 | 13.5 Final Balances (Realisation Loss) ws = (2.250 | 2280 11500 inthe above case, there is a Realisation Loss of (2,250 + 2,250 + 1,500 = 2 6,000). This loss should fave been shared by the partners in their profit sharing ratio (A : 3,000 : B : 2,000 and C : 1.000), Instead, when realisations are distributed in the ratio of capital balances (3 : 8: 2), in the end, A gets more money than due to him, while B and C get less money than due fo them. ‘Thus, in both cases, the realisation loss is not shared in the agreed profit sharing ratio. The main reason for this is that the capitals of the partners are not proportionate to their profit sharing ratio. METHODS 11 that the payments cannot be made either in the profit sharing .e difficulty is that if we pay in the profit sharing ratio, the ‘d as the payments are not in the ratio of capital balances; fit or loss on realisation will not be shared by the partners in their profit sharing ratio, The problem can be solved in two ways : (J) pay the excess capitals first til the capital balances arc in the profit sharing ratio and then pay in the profit sharing ratio (Proportionate Capital Method) or (2) adjust the profit or loss on realisation &t each stage, and then pay in ratio of capital balances (Maximum Loss Method, excluded in the syllabus). 4. PROPORTIONATE CAPITAL METHOD It is clear from the above IHlustrat ratioor in the ratio of capital balances. Th capitals will not be reduced to nil in the en and ifwe pay in the ratio of capitals, the pro! MEANING oAE This method is also known as Surplus Capital Method, Highest Relative Capital Method, Excess Capital Method or Quotient Method. Under this method, first the capitals are ‘compared to the profit Sharingratio. The excess capital (actual capital less capital proportionate tothe profit sharing ratio) is paid first. After excess capitals are paid, al capitals are in the profits sharing ratio. Then the payments ean be made in the profit sharing ratio. Thus, suppose A and B share profits and losses in snetatio of 2:1 and A’s capital is € 25,000 and B’s capital is @ 5,000. The capitals are obviously not proportionate. If B contributes © 5,000 for 1/3 share, A should contribute € 10,000 for his D3 chare. Thus A's capital is excess to the extent of € 25,000 - & 10,000 = 15,000. Under the Proportionate Capital Method, first A will be paid % 15,000 to bring down his capital to 2 10,000, Now both the capitals are in the profit sharing ratio. The subsequent payments will then be in the profit sharing ratio. Pers uS 1 Compute Adjusted Capitals 4. ‘Adjusted Capital (AC) means the amount due to each partner by way of capital adjusted for current os, reserves, funds, accumulated profits, deferred revenue expenses not written offete. account balan Particulars ens | Sees Capital A/c (Cr) as per Balance Sheet 20x Add: Current Account (Cr.) 20K Reserves/Funds (credited in PSR) eo P&L Alc (Cr, (credited in PSR) XXX XXX, Less: Current Account (Dr.) xX P&L Alc (Dr.) (debited in PSA) om Deferred Revenue Expenses (debited in PSR) 0K 200, Adjusted Capital Balances aPiecemeal Distribution of Cash 15 7, | Compute Next Excess Old proportionate capital Les: Capital of each partner by |New ‘aie capital = NEC =OPC- repeating ie D8, y proportionate capital NPG where instead of adjusted capital, the old proportionate capital as per preceding step 4 is substituted. 3. | Repeat these steps until : only one partner is left with excess capital [Final Excess Capital}. @._ | Pay the Final Excess Capital; then the Proportionate Capital in the last stages then the proportionate capital in stage before that and so on. Notes : In an examination problem take care of the following points: {. When a partner purchases or takes over an asset, assure that he pays cash to the firm; and distribute such cash to all the partners (including the purchasing partner). 2. When an amount is to be kept aside (in reserve) for realisation expenses or any unrecorded fabilty ora contingent liability (e.g. bills receivable discounted), set it aside at the earliest possible fare ive out of the cash balance in hand or the first instalment If finally the actual payment for such expenses or li tt kept aside, distribute the balance among the partners. 3. Normally a secured ase! first out of such salé procee secured creditors are entitled to be paid along will proceeds of such other assets. ILLUSTRATIONS PMU Nason Wd PU CONES | Mlustration 2 : Refer Illustration No. 1. Show distributio’ iability is less than the amount 1 is sold first before sale of other assets and secured creditors are paid dds; but if a secured asset is sold after the'sale of other assets, the h the unsecured creditors out of the sale n of cash by Proportionate Capital Method. Solution : STATEMENT OF EXCESS CAPITAL Step, Particulars Formula A B c 1. | Profit Sharing Ratio (PSR) 3 2 1 2. | Capital Balances 30,000] 30,000] 20,000 3. | Unit Capital (UC) (2) 70,000] ~ 15,000] 20,000 4. | Base Capital (BO) =7 10,000 [Lowest UC] 5. Proportionate Capital (PC) | = BC x PSR (4x1) 6. Excess Capital of B & C (2-5) 7. | Profit Sharing Ratio of B & C| 8. | New Unit Capital (6/7) 9 ayo Capital 10, | Rev eevoisahaia Gopal =} Now Base Gupta ' PSR (9 x 7) I) -|_ 10,000} 5,000 i. | Final Excess Capital of C_| (6 - 10) [Il | -[ 5,000126 Accountancy and Financial Management (S.Y.B.Com.: ORDER OF PAYMENTS A. Liabilities : Nil B. Partners’ Capitals : I. First € 5,000 to C II, Next © 15,000 to B and C in their PSR [2:1] Il, Balance to A:B:C in their PSR [3:2:1] STATEMENT OF DISTRIBUTION SEMIN) Particulars Als) | 82 | ory Amounts z = v 30,000] 30,000] 20,099 Capital Balances b/d 7 First Realisation 17,000 Less : First % 5,000 to C (1) 5.000 12,000] 30,000] 30,000 Less: Next® 12,000 toB&C (ll) 12,000 =| 8,000 -| 30,000] “22,000 Second Realisation 21,000 Less : First 8 3,000 toB&C [15,000 less 12,000) (11) 3,000 -|__2,000] 1,000 18,000] 30,000 10,000 Less : Balance to all in PSR 18,000] __9,000 3.000 =| "21,000 7,000 Third Realisation 36,000 Less : Paid to all in PSR 36,000] _18,000 6.000 Unpaid Balances -| 3,000 1,000 Note how the loss on realisation of € 6,000 gets distributed among all partners in thelr profit sharing ratio 3:2:1]. Mlustration 3 : From the following Balance Sheet of M/s Ideal Store with Profits and losses in the ratio of 5 follows : Sunil, Anil and Neel as partners 'sharing Their Balance Sheet on the date of dissolution was as Liabilities : | Assets z Partners’ Capital : Fixed Assets 80,000 - Sunil 38,800] Current Assets 60,000 = Anil 20,400] Cash in hand 9,600 - Neel - 26,000 General Reserve-— |} 19,200 Sunil's Loan 21:200 Sundry Creditors 24,000 1,49,600 (1) Realisation expenses were estimated at € 4,000 *) (2) The assets were realised as under ? First instalment % 61,280 Second instalment © 28,720 Third instalment % 20,000 (3) Actual realisation expenses were ¥ 3,000 only. Prepare a statement showing piecemeal distribution of cash by adopting Excess Capital Method. Solution : (IDOL, Oct. 04, adapted) STATEMENT OF EXCESS CAPITAL Steps] Particulars: | Fannie Sara = 7. | Profit Sharing Ratio (PSR) “ : a 2. | Capital Balances aon [esis (Psa ” | Add : General Reserve 9.600] 5.760] _ 3,840neal Distribution of Cash piec' a7 ‘Adjusted Capitals 48,400 3g, | Unit Capital (UC) en] 9,680 | pase Capital (BC) owest Unit Capital [7 4 8,720 proportionate Capital Cx PSR [4 x 4] 43,600] 26,160] 17,44 Excess Capital of : 440. Sunil & Neel [2-5] 4,800 ( 7. | Profit Sharing Ratio 5 Nil 12400 g._| New Unit Capital (67) De g, | New Base Capital = 960 49. | New Proportionate Capital | = New Base CapitalxPSR| 4,800 1 Final Excess CapitalOf Neell\= 6 - 10 Nill ORDER OF PAYMENTS : (a)Liabilities = (1) Provide for Expenses ® 4,000 (2) Pay Creditors - % 24,000 (3) Partner Sunil Loan & - 21,200 (8)Partner's Capitals : (1) Pay Neel & 10,480, (2) Next 6,720 to Sunil & Neel in 5:2 (3) Balance to all in5:3:2 STATEMENT OF DISTRIBUTION Dale] Particulars Cash | Creditors] Suni's | Sunil | Anil] Near Available oan Balances 9,600} 24,000] 21,200] 48,400 26,160] 29,840 Less : Kept aside for Realisation expenses 4,000 Less : Paid creditors 5,600 5,600 Balances -| 18,400] 21,200] 48,400] 26,160] 29,640 Ist | Realisation 61,280 Less : Paid Creditors 8,400} 18,400 Less: Paid Loan (21,200) b neh Less : Paid Neel 10,480, 10,480 Less : Paid Sunil and 6,720 4,800 1,920 Neel in 5:2 Less : Paid all in’ : 3: 2| 4,480 : 2,240 1,344 896 Balances. : - =| 41,360] 24,816 16,544 lind | Realisation 28,720 Less: Paid allin5:3:2| 28,720 7 | 14,360 8,616 5,744 Balances 4 7 -| 27,000] 16,200 10,800 Iird | Realisation 20,000 a & | Add: Excess Provision Finall “for Expenses Less : Paid allin 5:3: 2 2 -|_ 10,800] -_6,300| 4.200 Unpaid Balances a : ~|_16.500|" _9,900| 6,600 Mlustration 4 : (Loans from two Partners) 4, Uand M were in partnership, sharing profits and losses in the ratio of 1/2, 1/3,176 respectively, Their firm was dissolved as on 31st December 2013 on which date the Balance Sheet of the firm Was as under18 Accountancy and Financlal Management (S.YB.Canm: Balance Shoot As At dint Decombor, 2013, Labiiitios ¢ | Asnots 7 Capitals Cash —— ok 17,000] Debtors ae “M 1,000 of Gonoral Rosorve 6,000 Loans ot 6,000 -U “4,000 Croditors 20,000 62,000 2%, It was agrood that the realisation should be distributed in thoir duo order al the and of each fortnight The realisation and expenses were as under Particulars Debtors | Stocks | Exponses & « e 45th January 2014 7.500] 4,500[ 1,000 31st January 2014 10,500 500 500 46th February 2014 2,500] 8,500] 1,000 28th February 2014 10,500 500 400 415th March 2014 2,050, 3,050} 609 Stocks were complotely disposed off and tho remaining debtors wore to bo taken over by M atan agrood amount of & 600. Show the Statomont of distribution of cash, following Rolative Capitals Method. Solution : STATEMENT OF EXCESS CAPITAL ‘Stops Particulars Formula Gna ee U; M. 1. | Profit Sharing Ratio (PSA) 3 2 1 2. | Capital Balances 17,000 8,000) 1,000 ‘Add : General Reserve 3,000] _2,000] _1,000 (® 6,000 in PSR) 20,000 10,000 2,000 Adjusted Capitals 3. | Unit Capital (UC) [2/1] 6,667 5,000) 2,000 4. } Base Capital [BC] = [Lowest Unit Capital] % 2,000 5. | Proportionate Capital [PC] | = BC x PSR [4x 1] 6,000 4,000} __2,000 6. | Excess Capital of L&U | [2-5] 74,000]: 6,000 : (2-5) 7. | Profit Sharing Ratio of L & U} 3 2 8. | Now Unit Capital 6/7] 7.667] 3,000] 9. | Now Base Capital = [Lowor Now Unit Capital] = 3,000 40. | Now Proportionate Capital | = Now Baso Capital x PSR [9 x 7] [ll] 5 41, | Final Excoss Capital of L_| (6 - 10}! a AD ORDER OF PAYMENTS A. Liabilities = 1. Firstly, to creditors - % 20,000, 2. Noxt, to Partners for thoir Loans, pro-rata in ratio of loan balances (6:4). B. Partners’ Capltals : {i} First & 5,000 to L [Il] Next % 15,000 to L and U in their PSR [3:2] [Ill] Balance to ‘M in their PSR [3:2:1]Piecemeal Distribution of Cash 9 STATEMENT OF DISTRIBUTION A. Payment of Liabilities (Including Partners’ Loans) Date] Particulars Cash | Creditors | Loan: | Loan: U z x z = 2014] 4-1 | Balance 4,000] 20,000] 6,000] 4,000 Less : Paid to Creditors Balances Due = 15-1| Realisation (7,500 + 4,500 - 1,000) . 4,000] __4,000 a =| *46,000] ~ 6,000] ~ 4,000 11,000 Less : Paid to Creditors 41,000 ——| —— Balances Due oon 8 - 6,000} — 4,000 31-1] Realisation (10,500 + 500 - 500)........... | 10,500 Less : Paid to Creditors 5,000 0 e f 5,500 -| ~ 6,000 Balance for Partners’ Loans (Pro-rata 6 : 4) 5,500 Zs ET zi =| 2,70 15-2| Realisation (6,500 + 8,500 - 1,000) .. 16,000 i. Less : Paid for Loans = 4,500 2,700 Balance c/d for payment of 11,500 : Partners’ Capitals B. Payment of Partners’ Capital Date] Particulars cash | Lp) | Ure | Min) = & z = 2014 1-1 | Balances Due -| 20,000] 10,000] - 2,000 (Capital + Reserve) 15-2| Cash Balance b/d from A 11,500 Less : Paid to L (I) 5,000] __5,000 - - Balance 6,500] 15,000] 10,000] 2,000 Less : Paid to L & U (II) 6500) __3,900] _ 2,600 - Balances -| 11,100] 7,400) 2,000 28-2] Realisation (10,500 + 500 - 400) Less : Paid to L & U (Il) (15,000 - Balances Less : Balances paid to alll in Profit Sharing Ratio Balances Due - 15-3] Realisation (2,050 + 3,050 + 600 - 600) 5,100 Distributed to all in PSR. 5.100 Unpaid Balances a Working Notes : (1) Profit Sharing Ratio (PSR) given in fractions (1/2, 1/3 and 1/6) when converted becomes (2) Cash available at each stage is Debtors + Stocks - Expenses. (3) Debtors taken over by M at & 600 are adde cash realisation and distribution on 15-3. 850 distributed t ‘on 15-3 is made up of Debtors f 600 and balance & 250 in cash. lustratiog 6 (Provision for Expenses; Liabilities paid Pro-rata) A,B, C are partners sharing profits and losses in the ratio of. 4 : 2: 1. They decided to dissolve the Partnership as on March 31, 2014 when their Balance sheet was as follows: Balance Sheet 10,600 —8.500] _5,100} _ 3,400] ____- 2,100] 6,000] 4,000} 2,000 2,100] __1,050 700 350 4,950] — 3,300] — 1,650 Liabilities 7 | Assets [eee Creditors 11,400] Gash in Hand 140 General Reserve 18,900] Investment 30,000 Bank Overdraft 32,500] Stock : 1,28,300 Capital: A 80,000] Debtors "45.400— ‘ak Accountancy and Financial Management (S.¥.B.Com.: SEM-I}y B 1,60,000] Machinery 32,609 c 1,30,000] Furniture: 4,909 Building 1,91,489 “F320. “F325 All creditors have to be paid vf. € 2,400 have to be provided for realisation expenses, Thereatter ay cash received should be distributed among the partners. The amounts were realised as follows : tet Intalinent: 30,720 2nd Instalment 2 36,800 3rd Instalment : 7 2,12,840 4th Instalment = 92,600 Por eaceatealisation expenses were & 1,200. Prepare a statement showing distibution of cash a per Escoas Capital Method. DOL, Mar. 07, adapteg STATEMENT OF EXCESS CAPITAL ‘Step Particulars Formula A B 1. | Profit Sharing Ratio (PSA) 4 2 2. Capital Balances ‘Add : General Reserve se (in PSR) 1 Adjusted Capitals ee a 3. | Unit Capital (UC) any 22,700) _ 82,700 4. Base Capital [BC] = {Lowest Uc] = 22,700 5. | Proportionate Capital [PC] Base Capital x PSR [4x 1 go 10 8. | Excess Capital ofBac | je-5] : aoe i aa 409 i TH a 7. | Profit Sharing Ratio of B & ea ey eee |eroamen | RoRANET : New Unit Capital 67] =| 60,000] 1.10.00 New Base Capital = [Lower New UC] 2% 60,000 10. | New Proportionate Capital New BC x PSR [9 x 7) [Il] -| 1.20,000] _60,000 alts ‘al Excess Capital of C_| [6 - 10) [I] -| “50,000 ORDER OF PAYMENT A. Liabilities : 1. Provision for Expenses - % 2,400 2. Balance to, Bank and Creditors pro-rata in ratio of their balances ie. 82,500 : 14,400 or 325: 114 {in the absence of information itis assumed that Bank 0.D. is unsccured: hence itis paid along with creditors.) B, Partners’ Capitals : {W)_ First & 50,000 to c [Il] Next & 1,80,000 to B and C in ratio of 2: 1 {I Balance to/A : B : C in their profit sharing ratio of 4 : 2: STATEMENT OF DISTRIBUTION . A. Liabilities Cash [Bank OD | Greditos = z £ =| 32,500[” 11,400 Balance Due Cash Balance b/d 140 Add : First Realisation 30,720 30,860 Less’: Provision for Expenges 21400 Less : Balance to Bank/Creditors (in ratio of 325 : 114) 28.460] 1,070] _739 Balances Due 11,430] 4010Piecemeal Distribution of Cash 131 Second Realisation Een Less : Paid to Bank/Creditors * 15.440] 11.4 Balance c/d for Payment of Capital ... “21,360 —— —Ao10 B. Partners’ Capitals Cash | Ala) | Ble) | Cry z c id z Balance due 90,800] 1,65,400] 1,32,700 Cash Balance bd 21,360 Less : Paid to C (I) _21,360 - 21,360 Balances due ae 90,800] 1,65,400] 7,11,340 Third Realisation a 2,12,840 Less : Paid to C (I) (50,000 - 21,360) 28,640 - 28,640 7,84,200] 90,800] 1,65,400| ~@2,700 Less : Next to B and C (Il)in their PSR of 2:1 ...... | 1,80,000 1,20,000| _60,000 4,200 45,400| 22,700 Less : Balance to alll in PSR 4 . 4,200 4,200 ‘600 Balances due =| 88,400] 44,200] 22,100 Fourth Realisation 92,600 ‘Add : Excess Provision for Expenses [ _1200 93,800 Less : Paid to all in PSR ed 93,800| 53,600] " 26,800 13,400 Unpaid Balances -[_34,800| 17.400] 8,700 Ilustration 6 : (Withdrawal of agreed amounts) Madhuri, Tabu and Juhi carrying on business in partnership decided to dissolve it on and from 30th Ss 3s, 2013. The following was their Balance Sheet on the date: |; | ¢ Balance Sheet Liabilities = 7__| Assets = Capital Accounts Fixed Assets 40,000 - Madhuri 20,000 Current Assets 22,000 ~Tabu 5,000 Bank 13,000 ~ Juhi 10,000} 35,000 General Reserve 30,000]; ts,ov8 % 19,009 419,09 Creditors. —> 10,000 75,000 75,000 ‘As per the arrangements with the bank, the partners were entitled to withdraw % 4,000 immediately and £9,000 after tst December, 2013. Itwas decided that after keeping aside an amount of € 1,000 for estimated realisation expenses, the available funds should be distributed amongst the partners as and when realised. The following were the realisations : ’ Fixed Assets - Current Assets z z 81st October, 2013 (First) 10,000 5,000 15th November, 2013 (Second) 26,000 12,000 30th December, 2013 (Final) 10,000 12,000 ‘Actual realisation expenses amounted to Z 700. You are requested to submit a statement showing distribution of cash amongst the partners by Proportionate Capital Method. Solution : STATEMENT OF EXCESS CAPITAL ‘Stops| Particulars Formula Madhur] Tabu | Juhi z it ev 7 _| Profit Sharing Ratio (PSR) 1 1 1 2 | Capital Balances 20,000] 5,000] 10,009 Add: General Reserve (in PSR) 10,000} 10,000, 10, Adjusted Capitals 30,000 15,000] 39.998Ac 2 ountancy and Financial Management (S.Y.B.Com.: SEM-In, ' Unit Capital (UC) (any 20,000] 15/000] —aonem Base Capital (BC) (Lowest UC) = 15,000 Proportionate Capital (PC) | = BC % PSR (4x4) 15.000| 15,000) Exconn Capital of s z | Madhuri & Juhi (2-5) 15,000 Profit Sharing Ratio of Madhuri & Juhi - i | 6 | Now Unit Capital (6/7) 15,000 as 9 | Now Base Capital = 25,000 ‘Now Propottionate Capital 1 15.009 | 5,009 {Lower New Unit Capitay = Now Base Capital » PSRI (9x7) tH) 5.000 Final Excess Capital of ao Madhuri (6 - 10) (i) 10,000 | + ORDER OF PAYMENTS, A. Liabilities 1. 10 " First, Reserve for Expenses % 1,000 2. Next, Creditors % 10,000 8. Partners’ Capitals: {N) Fitst 240,000 to Madhuri UH Next ® 10,000 to Madhuri & Juni in ratio 1:1 WBalance to Madhuri, Tabu & Juhi in their PSR [1 STATEMENT OF DISTRIBUTION Particulars AA] Balance Due | Bank Balance (available) | 15-11 Realisation (26,000 + 12,000) € 20,000 | bess: Reserve for Expenses Less: Paid to creditors Balance Due 20,000 31-10 Realisation (10,000 + 5,000) : || bess :Paid to creditors 2 Balance 20,000 ||, Less: Paid to Madhuri ck |), Balance Due Less: Paid to Madhur [I] 20,000 Balance ar Less: Paid to Madhuri & Juhi [Il] =| "5.000 fea 75.000| 75,000 Less: Paid to Madhuri, Tabu & Juhi in PSR 8.667 8667 Balance Due ese A | 30-12 Realisation Bank balance (available) Add : Realisation (10,000 + 12,000) ‘Add : Unspent Expenses (1,000 - 700) z \}| Less: Paid to Madhuri, Tabu & Juhi in PSR| | 10.433 soa | | | Surplus Pald =| 4,100] “4t00] 4,106 | | filustration 7 : (Preferential creditor; Secured creditor paid partly) L, S and B were in partnership sha repels in tho ratio 1/2, 1/4, 1/4. Their Balance sheet a6 0" 31st December 2018 was as under, tho date on which they decideg to dissolve the firm.a jecemeal Distributio Piece” ution of Cash 13 Balance Sheet As On 31st December Taabilities 7 | Assets = Greditors 15,000] Cash ‘9,000 jacome Tax Payable 4,000 | Stock-in-trade 40,000 Loan from Bank 30,000 | Debtors 60,000 (Secured by pledge of stock-in-trade) Furniture 36,000 Loan from S 11,000] Motor Car 25,000 Gapital aL 40,000 8 40,000 -B 30,000] 1,10,000 770,000 7,70,000, (1) Bank could realise only ¥ 25,000 on disposal of stock-in-trade. {@) Asum of & 3,000 was spent on fumiture for getting better price, {@) Other assets were realised as follows : In January 2014 12.000, © February 2014 15,000, in March 2014 ¥ 10,000, in April 2014 © 30,000, in May 2014 % 35,000. ‘te partners distributed the cash as and when available. Using Highest relate capital method, show the distribution of cash. (Oct. 2013, adapted) Solution = STATEMENT OF EXCESS CAPITAL Step | Particulars Formula L s B 1. | Profit Sharing Ratio (PSA) 2 1 1 2. Capital Balances 40,000} 40,000 30,000 3. | Unit Capital [UC] [2/1] 20,000 40,000 30,000 4. Base Capital [BC] = [Lowest UC] = 20,000 : 5. Proportionate Capital [PC] | BC x PSR [4x 1] 40,000 20,000 20,000 6. | Excess Capital of S&B (2-5) 20,000 10,000 7. Profit Sharing Ratio of S & a 1 1 8. | New Unit Capital (67) =| 20,000] 10,000 9. | New Base Capital = [Lower New Unit Capital] 710,000 10. | New Proportionate Capital | = New Base Capital x PSR [9 x 7] [Il] 10,000) 10,00( 41, | Final Excess Capital of S_| [6 - 10] [I -1 40,000) 7 ORDER OF PAYMENTS . A a A. Liabilities : 4. Expenses on Furniture (Realisation Expenses) : € 9,000, 2. Preferential Creditors - Income Tax : € 4,000. 3. Un: Creditors (a) Creditors - = 15,000 an : . Uyissed TS Ce te en ae Th eae aye 4. Loan from Partner S - 11,000. B. Partners’ Capitals: [i] First % 10,000 to S [ll] Next % 20,000 to S and B in their PSR 1:1 [Balance to L : S : Bon their PSA 2: 121 STATEMENT OF DISTRIBUTION A. Liabilities Date] Paricuars Gash [Income Tax| Creditors [Bank Loan] Loan-S 2014| z z z z = 1-1 | Balance Due 4,000] 15,00 Cash Balance bid 9,000 poe |p ecmce |i 11000) Less : Fumiture Expenses 3.000134 Accountancy and Financial Management (S.Y.B.Com.: SEM-I1]) Balaneo 6,000 pet 4 Lose ncome-ax —4900 , Balanco Kk : Loss : Paid to Croditors & Ban ae ee et “| (18:5) = = - Fi E “| 13500] 4,500] “aioo0 12,000, isation ‘ a) gue Pal to Creditors & Bank (155) 12,000 -|__9.000] 3,000 z - “| 4800/7500) ra5 Fob. Realisation coe ne aie Less : Paid to Creditors & Ban\ —8000) __-] _4s00| 1500 9,000 - . is “11,000 Less : Paid to S (Loan) —9.000 . - : 9,000 Mar.| Realisation 10,000 2.000 Less : Paid to S (Loan) 2,000 Balance c/d for Paymént of —2.009 Partner's Capitals 8,000 . B. Partners’ Capitals Date] Particulars La=Shia Ta ‘2014| z e z 1-1 | Balance Due 40,000 Mar.| Balance Cash b/d " 49.000) 20,000 Paid to S (I) 7 8,000 > 40,000 x Apr.| Realisation ae Less {Paid tos (10,000 - 8,000). Ie = 2,000 - { 28,000 40,000 30,000 30,000 Less : Next 20,000 to S&B (uy... oe 20,000 = 10,000 10,000 - 8,000 40,000 20,000] “20,000 Less : Balance to all in PSR 5 8.000) __4,000] _“2'000| “2.909 7 = 36,000 18,000 18,000 May | Realisation 35,000 Less : Paid to all in PSR 35.000|_17,500| 8,750] 9,750 Unpaid Balances - a -|__18,500 9,250 9,250 illustration 8 : (Cash Retained; Current A/e - Drs Asset Taken Over) ape of Rich Person presented you with the following Balance Sheet drawn as at 31st March, 2013: NL Liabilities |e Tasers z Sundry Creditors 87,000 | Cash on Hand 3,000 Capital Accounts of partners : Sundry Debtors 34,000 “A 40,000 Stock-in-Trade 39,000 -B 30,000 Plant and Machinery 51,000 -C 27.000 97,000 Current Account : -B 4,000 -¢ 3,000} 7,000 [1,34,000 734,000, Partners shared profits and losses in the ratio of 4: ‘3. Due to differences among the partners ies decided to wind up the firm, realise the assets and distribute cash among the partner at the ond each month. The following realisations were made :- (May 2013 % 15,000 from debtors and % 20,000 by sale of stock. Expenses on realisation we"? (i = 500 June 2013 Balance of debtors realised € 10,000, Balance of stock fetched © 24,000.Piecemeat Distridution of Cavh 135 (ii) August 2013 Part of machinery w (w) September 2013 Part of ma discharge at an agree Partne: As sold for © 18,000, Expenses incidental to sale were & 600. chivery valued in the books at € 5.000 was taken by A in part \ vaio of € 10,000. Balance of machinery was sold for ¥ 30,000 (net). decided to keep & iminium cash Valance of € 2,000 in the first 3 months and © 1,000 trereatter Show how the amounts due to partners will be settled, All workings should form part of your answer. solution : STATEMENT OF EXCESS CAPITAL Sens] Particulars Formula A a [ic 1. | Profit Shanng Rate (PSA) 4 3 3 2. | Capital Balances 40,000} 30,000] 27,000 Less : Debit Balance of Current Accounts -| _4,000] _ 3,000 Adjusted Capitals 40,000 26,000 24,000 3. Unit Capital (UC) (21) 10,000: 8,667 8,000 4. | Base Capital 8,000 [Lowest UC] 5. | Proportionate Capital Cx PSR [4 x 1] 32,900] _24,000] _24,000 6. | Excess CaptalofA as | [2-5] 8,000] 2,000 7. | Profit Sharing Ratio 4 3 iS 8. New Unit Capital (67) 2,000) 667) = 9. New Base Capital =%667 10. | New Proportionate Capital | (9 x 7) 2.667 000 it. | Final Excess Capital of X_| [6 - 10] 5,333 - : ORDER OF PAYMENTS A. Liabilities : Sundry Creditors = 37,000 . 8. Partners’ Capitals = {l] First 75,333 to A (ll] Next % 4,667 to A: B in their PSR 4:3 [il]Balance to A, B & Cin the PSR 4:3:3 STATEMENT OF DISTRIBUTION Date] Particulars Cash | Creditors] A 780]. {4 v zw z z 31-3] Balance Due 37,000 40,000 26,000 24,000 Cash available (WN 1) Less : Paid to Creditors 1,000 - | eee 36,000] ~ 40,000] ~26,000] ~2a,000 May| Cash Available (WN 1) Less : Paid to Creditors 24,500 2 A Balances Due June) Cash Available (WN 1) Less : Paid to Creditors 1,500] 40,000] 26,000] ~ 24,000 —1.500 -| 8333) ___-} ___- 34,667| 26,000] "24,000 Less : Paid to A fi] ess Paid toh & Bind :3 il] 4.6) 2.667| _ 2.000 cee 22,500 32,000 24,000 24,000 Less : Paid to A,B, Cin 4: 4:3 22,500 9,000 6,750 6.750 Balances Due - 23,000] 17,250] 17,250 Aug. Cash Available (V/H 1) 16,400 Z 13: A 7,360! 5.520] _5.520 Sep.| Cash Available (WIN 1 41,000 2 Coon PaidtoA Becms:a:a | 41.000 _16,400] _12,300] _12,300 (WN 2) 760 570 570 ~—_| Surplus Paid —136 Working Note: (1) Cash available for Distribution {ccountancy and Financial Management (S. B.Com.: SEM-tny (2) Payment to A¥ 16,400 includes % 10,000 in machinery and & 6,400 in cash. Particulars aes-3 May | June | August |Septemba: Cash on hand /Balance 3,000 2,000 2,000 2,000 1,009 Add : Amount Realised 35,000 34,000 18,000| 40,009 Less : Expenses paid (500) -| (600) 7 Less : Cash Retained / Closing Balance (2,000) (2,000): (2,000) | (1,000) Cash available 4,000| 34,500] 34,000] 18,400[ 41,0001. MEANING AMALGAMATION 3 OF FIRMS Tr THEORY AND ILLUSTRATIONS OUTLINE No. Topic . 1, Meaning “ 2. Accounting Procedure - Realisation Method ie 2.4 Vendor (Old) Firm 8 2.2 New (Purchasing) Firm 3. Illustrations : A 3.1. Goodwill Adjusted 3.2 Goodwill / Capital Adjusted in New Firm 3.3 Sole Traders Amalgamating into a Firm 3.4 Latest Exam. Questions —S>SSS EM Amalgamation means combination or merger. In ‘amalgamation of firms’, two firms comet Mo get various advantages such as economies of large scale production, avoiding competition, increasing efficiency, expansion and so on. Firms may combine in two ways: (a) amalgamation in which a new firm is formed to take over the business of the old firm(s): or (b) absorption in whichan existing firm takes over the business of the old firm(s). For example, if the business of M/S ABC Co. istaken over by a new firm M/S XYZ. & Co,, it is called amalgamations itits business is ae over by an existing firm M/S PQR & Co,, it is called absorption. The old firm which ee (WS ABC & Co., in the above example) is known as the ‘vendor firm’: and the firm whieh over (MIS XYZ & Co, or M/S PQR & Co.) is known as the ‘purchasing firm 2, ACCOUNTING PROCEDURE - REALISATION METHOD ~2_ACCOUNTING PROCEDURE - REALISATION METHOD ___ Se\\er SPATE aE | S| The vendor (old) firm is dissolved or Procedure for dissolution itm are closed and the Realisation method. (W the vendor firms, is not preseril of Firms) is er yal accounting voxsottheok asthe jon, Therefore it ean Fallow Einar ied in S.’ . ow purchasing (new) firm starts with a An Method involving tein ¢ will be studying only the Realist own as Reval on as prescribed under the syllabus. Another Into he same sso ibed for study.) The accounting procedure (whic Summarised below nal: eaeILLUSTRATIONS 31, “GOODWILL ADJUSTED llustration 1 : (Investment Fluctuation Reserve; Ledgers of Old Firm) ‘AB&.Co. and CD & Co. amalgamated with effect from 1-4-2014. Their balance sheet as on 31-3-2014 ‘was as under : Liabilities AB & Co.|CD & Co.| Asset As Capital Land and Building 3s Capital Plant and Machinery -] 8,00,000 Cs Capital -| 2,00,000] Stock 3,00,000} 4,00,000By Accountancy and Financial Management (S.¥.B.Com,: §} 12 " vn Capital -| 3,00,060] Debtors 2,00,000) 4, eeroral lesorve 4,00,000} 2,00,000) Cash and Bank Balance | 1,20,000| 10 Erodiiors 7,50,000 |13,40,000| Investments 3,00,000) 4 uation eee pies 50,000] 60,000 12,00,000 [21,00,000 Both the firms amalgamated subject to the following terms : (1) Alltho assets and all tho liabilities of both the fitms shall be taken over by the new firm, (2) Land and Building shall be appreciated by 20%. (3) Plant and Machinery shall be depreciated by 10%. (4) Stock of AB & Co. shall be increased by % 50,000. (5) Stock of CD & Co. shall be taken at = 4,50,000. (6) Debtors of AB & Co. shall be decreased by Z 10,000. (7) Debtors of CD & Co. shall be taken at % 3,80,000, (8) Goodwill of AB & Co. shail be valued at Z 1,00,000. (8) Goodwill of CD & Co. shall be valued at ¥ 2,00,000. (10) Investment of AB & Co. shalll be taken over at % 2,80,000. (11) Investment of CD & Co. shall be taken over at 2 3,60,000. You required to prepare : : (1) Statement showing calculation of purchase consideration. (2) Realisation A/c and Partners’ Capital A/c in the books of AB & Co. (8) Realisation A/c and Partners’ Capital Alc in the books of CD & Co. (IDOL, April 03, adapted) Solution : a) Calculation of Purchase Con: Particulars - Assets taken over Land & Building (120% of 2,80,000) Plant & Machinery (90% of 8,00,000) leration AB & Co.| CD & Co. 3,36,000) : -| 7,20,000 Stock 350,000} 4,50,000 Debtors = 1,90,000] 3,80,000 Cash & Bank 1,20,000) _1,00,000 Investments ~ |. 2,80,900] 3,60,000 Goodwill 4,00,000}_2,00.000 13,76,000 |22,10,000 Less : Creditors pare. 7,50,000}13,40,000 Purchase Consideration (= Capital tfd.) 7 6,26,000| 8,70,000 (2) IN THE BOOKS OF AB & CO. Dr. Realisation Account cr. ame. Particulars @ [Particulars To Land & Building 2,80,000] By Creditors 7750000 To Stock 3,00,000) By Investment Fluctuation Reserve | _ 20:000 To Debtors * | 2,00,000] By New Firm (P. C.) 6,26,00 To Cash & Bank 1,20,000| To Investments: 3,00,000 To Capital Account Bue) +,96,000 ‘ 13,96,000CH Amalgamation of Firms — Be pr. Partners’ Capital Accounts nee! Particulars A 8 | Particulars A B z z fa z Jo New Firm 2,63,000| 3,63,000| By Balance b/d 7,00,000] 2,00,000 By General Reserve '50,000] 50,000 By Investment Fluctuation? - Reserve 15,000} 15,000 ~ By Realisation (Profit) 98,000] 98,000 2,63,000|'3,63,000, 2,063,000] 3,63,000 Note : Investment Fluctuation Reserve to the extent of € 20,000 (3,00,000 - 2,80,000) is transferred to Realisation A/c. Balance being in the nature of ‘reservé" is credited to Partners’ Capitals. @) IN THE BOOKS OF CD & CO. Dr. Realisation Account cr. Particulars & | Particutars z Jp Plant & Machinery 8,00,000| By Creditors 13,40,000 To Stock 4,00,000] By Investment Fluctuation Reserve} 40,000 To Debtors 4,00,000] By New Firm (P. C.) 8,70,000 To Cash & Bank 1,00,000| To Investments 4,00,000 To Capital A/c's : = (1/2) 75,000 =D (1/2) 75,000} 1,50,000] 22,50,000| 22,50,000 Dr. Partners’ Capital Accounts cr. Particulars c D_| Particulars CG; D z « z z To New Firm 3,85,000| 4,85,000] By Balance b/d 2,00,000/ 3,00,000 By General Reserve 1,00,000| 1,00,000 By Investment Fluctuation Reserve 10,000] 10,000 By Realisation (Profit) 75,000] 75,000 3,85,000| 4,85,000 85,000 | 4,65,000 llustration 2 : (Realisation Items, B/S of New Firm) Following is the Balance Sheet of Stst March, 2014 : Liabitties [Prem & Co] Raj & Co.| Assets Prem & Co] Raj & Co. eas = z Capital: Premises 2 -| 5,000-'0 Prem ~ 11,500]! -| Computers ip - Anil 11,500 -| Furniture. 7,000 Raj a -| 18,000} Inventory = 8,000 Shyam -| 12,000] Debtors Yoo 14,000 General Reserve - =| 3,000] Bank 4,000 Creditors 5,000] 4,000] Cash 2,000 ils Payable 5,000] _ 3,000 33,000} 40,000 33,000] 40,000 was mutually agreed to amalgamate-the business from 1st April, 2014, re f@) © Aresewe of 5% is to be. bee "ms of amalgamation were as follows Premises was valued at € 10,000 and computers at € 12,000. ) Fumiture was not taken o new firm, created on debtors.184 Accountancy and Financial Management (S.V.B.Com.: SEM. EMI (a) Goodwill was valued as : M/s. Prem & Co. at £10,000 and that of M/s. Raj & Co, at 45, (e) The new firm also assumed other Assets and Liabilities of old fir book value. Show accounts in the books of old firms and the Balance Sheet of new fitm Mis. Prem Raj aoeay ‘amalgamation, (IDOL, Oct. 2006, adans"** Solution : * Adapteg Gaiculation of Purchase Considerati ; jou 2 ion Prem & Col Raj & Co.| Prom my (8s) z z 2 ‘Assots Taken Over : ‘Computers Premises 12,090, too09} 120 x 10, oo. 6,000] 4,000 200%, Bs ibd 9,000] 8,000] 47 ank 2,000} 4.000 Cash | 4,000] 2,000 Goodwill RRR 10,000] 15,000 (A) 40,000] 53,000 Liabilities Taken Over : R.D.D. 300 700] 1,009 Bills Payable 5,000] 3,000] 8.009 Creditors sto 5,000| 4,000] 9.009 (B) 40,300[ _7,700[ 18,000 Purchase Consideration (= Capital td.) (A-B) 29,700| 45,300 75,000 BOOKS OF PREM & CO. Dr. Realisation Account cr Particulars @__| Particulars z To Assets: By Liabilities = ‘Computers Creditors * 5,000 Furniture Bills Payable 5,000 Debtors By Prem (Furniture) 2,500 Inventory By Anil (Furniture) 2.500 Bank By Prem Raj & Co. (P.C.) 29,700 Cash a: To Profit : Prem Anil oe F106 Dr. Partners Capital Account Cr ‘Particulars Prem | Anil | Particulars Prem | Anil «@ @. @ | @ To Realisation A/c 2,500] 2,500] By Balance B/d 71,500] 11:50 (Fumiture) To Prem Raj & Co. (P.C.) 14,850] 14,850 77,350) 17,350 By Realisation A/c (Profi)| 5,850] 5° 77,350) 175 Dr. Prem Raj & Co. Account Particulars @__| Particulars To Realisation Alc (P.C.) 29,700 | By Prem By Anil TS 29,700 'tmalgamation of Firms 185 BOOKS OF RAJ & CO. pr. Realisation Account cr. Particulars © Particulars We, Jo Assets: By Liabiitios : Promises 5,000] Creditors 4,000 Furniture 7,000] Bills Payable 3,000 Debtors 14,000] By Raj (Furniture) 3,500 Inventory 8,000] By Shyam (Furniture) 3,500 Bank 4,000] By Pram Raj & Co. (P.C.) 45,200 cash 2,000 To Prolit Raj 9,650 shyam 9,650 59,300, or Partners Capital Account cr. Particulars Raj | Shyam | Particulars Raj @ @ @. Jo Realisation Alc 3,500| 3,500] By Balance bid 18,000| (Fumiture) By General Reserve 1,500 Jo Prem Raj & Co. 25,650] 19,650] By Realisation A/c (Profit)| 9,650 29,150] 23,150 23,150 Dr. Prem Raj & Co. Account Particulars & | Particutars {Jo Realisation Ale (P.C.) 45,300] By Raj By Shyam 5,300 Mis. Prem Raj & Co. Balance Sheet as at 1-4-2014 (After Amalgamation) Liabitities & [Assets z= Capital: Goodwill 25,000 Prem 14,850 Premises 10,000 Anil 14,850 Computers 12,000 Raj 25,650 Inventory 17,000 Shyam 19,650 75,000 | Debtors 20,000 Creditors, 9,000 Less : R.D.D. 1,000} 19,000 Bils Payable 8,000 | Bank 6,000 Cash : 3,000 92,000 92,000 Mustration 3 wae Bas partners decided to amalgamate with M/s. C & Co. having C & D as partners on the 0 aa terms and conditions : the New firm M/s, AC & Co. to consider Goodwill of both the firms at % 12,000 each. '® New firm to take over investments at 10% depreciation; Debtors and Fumiture at book fale: Premises at % 53,000; Land at % 66,800; Machinery at % 9,000 and such cash which fi by alter discharge of partners’ loans by the respective old firms before amalgamation. © new fim also assumed other liabilities of old firms. ‘oliowing were the Balance Sheets of both the firms on the date of amalgamation :186 Accourtancy and Financial Management (S.Y.B.Com: Sexy. n Ny A&C] CaCO | Assets ASCO ORE | Tiabiitios c © ie 86) 20.000] 10.000| Cash 15.000 Greditors ‘5,000 -| Investments 1004 Bills Payablo 8,000 -| Debtors = Loans: A -| 10,000] Furniture 10,000] 4,000] Premises Reserves, 357000 -| Land | Gapital : & 22,000 -| Machinery | c =| 36,000] Goodwill i D -|_ 20,000 { 1,00,000 } “80,000 Prepare following Ledger Accounts in each case : (1) Realisation Account. (2) Partners’ Capital Account (3) New Firm Account; and also prepare the Balancs ts. © Sheet of the New Firm, Solution : IN THE BOOKS OF A & Co, . Dr. Realisation Account Es Particulars z [ Renieuiars To Sundry Assets: By Sundry Liabilities : Cash (15,000 - 8,000) 7,000 Creditors 20,000 Investment 10,000 Bills Payable 5,000) 25,090 Debtors 9,000 By AC & Co. Alc (PC,) 86,000 Furniture 12,000 Premises 30,000 Machinery 15,000 Goodwill 9,000] 92,000 ‘ToCapital accounts (Profit on realisation) : A 9,500 B —9,500] 19,000 1,11,000 4,191,000 Dr. Partners Capital Accounts > cr. Particulars A 8 _| Particulars A B To AC & Co. Alc 49,500) 36,500] By Balance bid 35,000| 22,000 By Reserves (tfd. in PSR) 5,000} 5,000 By Realisation Alc 9,500] 9,500 49,500|” 36,500 Dr. AC & Co. Account Particulars i © __| Particulars To Realisation A/c 86,000] By A’s capital Ale By B's capital A/c 86,000gmalgamation of Firms 187, IN THE BOOKS OF ¢ & CO. a Realisation Account cr. Particulars & | Particulars e Fosundry Assets: By Sundry Liabilities Gash (12,000 - 10,000) 2,000 Creditors 10,000 Investment 8,000 By AC & Go. Alc (P.C.) 88,000 Debtors 4,000 Furniture 6,000 Land 50,000] 70,000 ToCapital Alcs : (Profit on realisation) c 14,000 D 14,000] 28,000 98,000, 38,000 Dr. Partners’ Capital Accounts cr. Particulars c D__| Particulars c JoAc &Co. Ale 36,000] By Balance b/d 36,000 By Reserves (td. in PSR)| 2,000 By Realisation A/c 14,000 or. AC & Co. Account Particulars =| Particulars = To Realisation Alc 88,000] By C’s capital A/c 52,000 By D's capital A/c 36,000 88,000 88,000 : AC & CO. Balance Sheet Liabilities = @_ [Assets z Capital Accounts: Goodwill 24,000 “A 49,500 Land 66,800 “8 36,500 Premises 53,000 c 52,000 Plant & Machinery -9,000 -D 36,000] 1,74,000] Furniture 18,000 Sundry Creditors 30,000] Investments 16,200 Bills Payable 5,000] Debtors 13,000 Cash in Hand 9,000 09,000 2,089,000 Working Note : Purchase Consideration (Net Assets Method) Particulars A&Co. | C&Co. |AC & Co, é BS z z z Assets Goodwin (agreed value) 12,000] 12,000] ° 24,000 Ion Balance (after discharging partners loan ) 7,000] 2,000] —_9,000 frestment (90%) 9,000] 7,200} 16,200 Febts (book value) 9,000]: 4,000] 13,000 miture (book value) 12,000} 6,000] 18,000 °mises (agreed value) 53,000 =| 53,000188 HI ; Accountancy and: inancias Managerert STBLOM: Sey eae (agreed value) 9,000 | 4 ) (agreed value) =| 66,00] «9% 711,000 98,000 2 809 Less : Liabilities : 08,009 Creditors 20,000] 10,000] 3p, Bill Payables 5,000 = 508) 00. 88, 2 Purchase Consideration (= Capltals tfd.)__--~ ch 000] 174.099 EEE Te eeu) ININEW, FIRM te /Mlustration 4 : (GW Raised & w/o) : follows : The Balance Sheet of M/s. M & Nand M/s. R & gas on 1-12-2019 were 28 follows M& Liabilities WENGER eos ee : My Be a z zw 36,000] 47.4 Capital Land 400 uM 136,000 -| Machinery ae N 36,000| *] Furniture 30.800) «200 a 100") 36,00] Debtors ae 30,609 s “| 36,000} Stock 8 on] eae Creditors 54,000| 36.000] Cash 3,800) 10 Loan =| 39,600] Bank : 5.400 O/S Expenses 7,200] 11,400 Total |7,43,200 | 1,59,000. Total 1,33,200| 1,59,000 ith effect from 1-04-2014. Pern The wo fms decided to amalgamate ard ‘orm into M/s. MNS wit ft : and they agreed to following evaluation of assets and liabilities © Particulars M&N | R&S z z 45,000 45,000 Land ; Machinery 30,000} 32,000 Furniture 40,000] 12,000 Debtors 21,000} 30,000 ‘Stock 29,000 34,000 Creditors 52,000] 34,000 Loans =} 38,000 O/S Expenses 7,200 11,400 In addition to the above it was decided - (1) Goodwill of M& Nand R& S was valued at € 35,000 and € 20,000 respectively and it should be 08, i ay, wtten of in the.Now-Firn— (ay that to reconstructed capitals of the partners would be © 37,500 each. The di spelid be transferred to Current Account. oR al You are required to show - Ih te accounts nthe books of Us. M & N and Mls. F.& Sand {i the Opening Balance Sheet of the New Fim. (IDOL, April 07, adapted) Solution = Gineulation of Purchase Consideration (PO), a ‘Aesets taken over : (At revised values) NEES, ee Land ‘Machinery 45,000| 45,000] 20.000 Furniture 30,000] 32,000] 62,000 Debtors 40.000] 12,000] 22,0 Stock 21/000] 30,000) 51,00 29,000] 34,000 63,000 3,600 1,800 5,400 Cashy matgamation of Firms | 189 gank 7,200! 5,400] 12,600 Goodwill 35,000] 20,000] 55,000 (a) 7,80,800| 1,80,200 ess: Liabilities taken over : reditors 52,000] 34,000] 86,000 Loan =| 38,000] 38,000 o's Expenses 7,200| _11,400| 18,600 (8) 59,200] 83,400 purchase Consideration (= Capitals tf.) (A- B) 7,21,600| 96,800] 2,18,400 fess : Goodwill w/o (55,000) 1,63,400 ow Total Capital (37,500 x 4) 1,50,000 adjust in Current Accourits 13,400 IN THE BOOKS OF M&N pr. Realisation Account cr. Particulars © | Particulars = Jo Sundry Asset: By Sundry Liabilities : Land 36,000 Creditors 54,000 Machinery 25,200 O/S Expenses 7.200] 61,200 Furniture 10,800 By MNRS Firm A/c Debtors 21,600 (PC.) 1,21,600 Stock 28,800 Cash 3,600 Bank 1.200] 1,33,200 To Capital Alc : M 24,800 Ne 24,800] 49,600 7,82,800 7,82,800 Dr, Partner's Capital Account * cr. Particulars a N__| Particulars M N ToNew Firm Alc By Balance b/d 36,000 36,000 (MNRS) 60,800] 60,800] By Realisation A/c 24,800 60,800 60,800 60,800 Dr, MNRS Firm Account Particulars [oe | Panicutars ws ToRealisation Alc 1,21,600| By Capital AZo M 60,800 N 60,800 1,21,600 1,21,600 IN THE BOOKS OF R&S o Partner's Capital Account cr. ears R S__ | Particulars R $s MNRS, 48,400| 48,400] By Balance b/d 36,000] 36,000 By Realisation A/c 12,400] 12,400 48,400 | 48,400 | -48,400| 48,400[| 190 jecountancy and Financial Management (S.Y.B.Comn: SEM | Acco : MNRAS Firm Account cr, Dr. © | Paricutars = I Earicliata 36,600] By Capital Are i To Realisation A/c (PC) A 48,409 1 Ss 48,409, | 96,800 96,805 il Dr. Realisation Account Cr, || Bardeurarsio © | Panticuiars : r ti To Sundry Assets : By Sundry Liabilities = i Land 47,400 Creditors 36,000! Hi Machinery 28,800 Loan 39,600, Ht Furniture 12,600 O/S Expenses 41,400] 87,999 Wt Debtors 30,600 By MNRS A/c (P.C,) 96,809 i Stock 32,400 1 Cash 1,800 Hl Bank 5,400] 1,59,000 To Profit transferred to . i R's Capital Ale 12,400) S's Capital A/c 12,400| 24,800 i 783,800 IN THE BOOKS OF MNRS Partner's Capital Account | M. N R s M. HT To Goodwill By bid | Wo 13,750] 13,750] 13,750 Firm | 60,800 | To Current By Current | Alc (WN) | 9,550) 9,550 Alc (WN) - To Bal. cid | 37'500| 37'500 | 60,800 | 60,800 60,800 | Working Note : ty Particulars 5 Mw WN R 5 1. Capital Transterred | - Goodwill w/o 60,800] 60,800[ 48,400] aaa00 13,750] 13,750] 13,750] 13,750 47.050] 47,050| 34,650] 34,650 $7,500] 37,500] 37.500] 37.500 9,550 9,550} (2,850) (2,850) New Capital 2. | 3. Adjusted Capitals 4 5._Surplus / (Deficit) tid. to Current A/c . {; Balance Sheet (After Amalgamation) | i Liabilities & | Assets z | i Capital Land 90,000 i} M 37,500 Machinery 62,000 N 37,500 Furniture 22,000 R 37,500 Debtors 51,000 s 87,500] 1,50,000| Stock - 63,008 Current A/c: Cash 5M M 9,550 Bank 12,6 NS ~2550| 19,100] Current A/c : | loan > + 38,000] ~ R + 2,850) op i Creditors 36,000] s ‘ O/S Expenses. 18,600 3,11,700,Amalgamation of Firms 191 astration 5 : (Goodwill Revalued & w/o; Inv. Not Taken Over) Following is the Balance Sheet of M/s. LB. & M/s. M. B. as at 31st March, 2014 : Mis. L. B. Trabilities 7 | Assets 7 ‘Sundry Creditors 50,000] Cash-in-Hand 712,00 Loan from Vijaya Bank 10,000] Stock-in-Trade Ea an Capitals : i Sundry Debtors 30.000 - Alay 1,00,000] Furniture & Fixture 20,000 _ sujay ' 0,000]. Office Premises 7 2,140,000 Mis. M. B. Liabilities z ‘Sundry Creditors 60,000 Capitals : Ankur 60,000] Sundry Debtors anit 40,000| Furniture & Fixtures . '5% in National Saving Certificate 7,60,000, i They shared profits and losses in proportion to their capita they decided to amalgamate their business with effect from 1~ (1) Name of new firm shall be Vanee Trading Corporation. (2) Vijaya Bank be repaid by M/s. L. B. (a) 8% N.S.C. not to be taken over by new firm. (4) Goodwill of Mis. L. B. and M/S. M. B. are fixed at € 21,000 and & 25,000 respectively. {6) Office premises are.revalued at € 99,000. (6) Stock in Trade of Mis. L. B. be reduced by % 9,000 and that of (7) Reserve for Bad Debts be créated @ 5% on debts of both firms. (8) Total capital of firm of Vanee Trading Corporation will be & 1,80,000 and the capital of each partner will be in his P.S.R. which will be as fokows : Ajay'30%; Suiay 20%; Ankur 30%; Ankit 20%. {@) The diference, if any, should be transferred to Current Accounts. (10) Goodwill Account in new firm should be written off. You are required to close the books of M/s. L. B. and M/s. 2014 as per the following conditions. f M/s. M. B. be increased by © 5,000. M.B. to give effect to above arrangements. Also prepare Balance Sheet as on ‘1st April, 2014. Solution : (IDOL, Mar. 06 adapted) BOOKS OF MIS L. B. Or. Realisation Account cr. Particulars 7) | Particulars z ToSundry Assets: By Sundry Liabilities: Cash in hand 2,000 Creditors 50,000 {12,000 - 10,000) By Vanee Trading Corporation Alc | 1,69,500 tock 58,000 (P.C.) Debtors 30,000 Future & Fixture 20,000 pues Premises 90,000] 2,00,000 Partners’ Capital Alc : (profit) Ay (28), 13,000 viay (1/3) _6,500] 19,500 2,19,500, 2,19,500Accountancy and Financial Management (S.Y.B.Com.: SEM-11p, < Partners Capital Account Cr, Dr. 7 Ajay. ‘Sujay_| Particulars Ajay Sujay Particulars: By Balance b/d 1,00,000] 50,999 fevenesiiedng 4,13,000| 56,500] By Realisation A/c 13,000} “6.500 6 13, Cofporaton 17,13,000| 56.500 1-73,000 | “38555 Vanee Trading Corporation Account re Dr. ; @ | Particulars its = Particulars 7 tion Al 1,69,500 | By Capital A/c To Realisation A/c Sane ane ~ Sujay 56,500 1,69,500 BOOKS OF MIS M. B. Dr. Realisation Account c Particulars = & | Particulars an Baa ‘ToSundry Assets: By Sundry Liabilities: Cash in hand 16,000 Creditors 60,000 Stock 44,000 By Partners’ Capital Alo (NSC) : Debtors, 50,000 Ankur (3/5) 24,000 Furniture & Fixture 10,000 Ankit (2/5) 16,000] 49,099 5% NSC 40,000} 1,60,000 By Vanee Trading Corporation 87,500 ‘To Partners’ Capital: (Profit) (PC) : - Ankur (3/5) 16,500 ~ Ankit (2/5) 11,000] 27,500 1,87,500 Dr. Partners’ Capital Account Particulars Ankur | Ankit_| Particulars Ankit To Realisation A/c (NSC) 24,000} 16,000 By Balance b/d 60,000] 40,000 To Vanee Trading By Realisation A/c 16,500] 11,000 Corporation Ale 52,500] 35,000 76,500| 51,000 76,500] 51,000 Dr. Vanee Trading Corporation Account cr. Particulars & | J Pantcutars = z ToRealisation A/c 87,500] By Capital Ale ~Ankur 52,500) eo ~Ankit -35,000| 87,500 87,500 87.500 VANEE TRADING CORPORATION Balance Sheet As At 1-4-2014 Liabilities z z | Assets = x Capital Accounts: Furniture & Fixtures ae - Ajay 54,000 Office Premises oD - Sujay 36,000 '| Stock in Trade 98, - Ankur 54,000 Debtors 80,000) 76,000 - Ankit 36,000] 1,80,000] Less: Prov. for Bad Debts _ 4,000 0 Current Accounts : Cash in Hand ~ Ajay 45,200 Current Accounts: = Sbley. 14,300] 563600] - Ankur 15.309 25.50 Sundry Creditors 1,10,000] - Ankit 210,200 | a5 3,46,500