Question

A and B have been in business together for the last three years ending 31st March, 2024 at which date they agree to dissolve. Their capital at the commencement of the business was ₹ 30,000 and ₹ 20,000 respectively. Profits and Losses were shared in the ratio of 3 : 2. The results of the three years before allowing 10% p.a. interest on capital were: 31-3-2022 profit ₹ 30,000, 31-3-2023 profit ₹ 22,200 and 31-3-2024 loss ₹ 5,380. Drawings of each partner is ₹ 4,000 per year. Creditors on the date of dissolution were ₹ 16,400. The assets realised ₹ 85,000. Expenses of dissolution amounted to ₹ 780.

Prepare:

1. Profit and Loss Appropriation Account
2. Capital Accounts before and after dissolution
3. Memorandum Balance Sheet
4. Bank A/c
5. Realisation Account

Answer 1

Dr.	Profit and Loss Appropriation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Interest on Capitals A/c		5,000	By Balance b/d	46,820
A	3,000
B	2,000
To Profit transferred to Capital A/c		41,820
A	25,092
B	16,728
		46,820		46,820

 

Dr.	Partner’s Capital A/c						Cr.
Date	Particulars	A	B	Date	Particulars	A	B
2022				2021
March 31	To Drawings	4,000	4,000	April 1	By Bank A/c	30,000	20,000
March 31	To Balance c/d	44,000	28,000	2022
				March 31	By Interest on Capital A/c	3,000	2,000
				March 31	By P & L Appropriation A/c	15,000	10,000
		48,000	32,000			48,000	32,000
2023				2022
March 31	To Drawings	4,000	4,000	April 1	By Balance b/d	44,000	28,000
March 31	To Balance c/d	53,400	32,800	2023
				March 31	By Interest on Capital A/c	4,400	2,800
				March 31	By P & L Appropriation A/c	9,000	6,000
		57,400	36,800			57,400	36,800
2024				2023
March 31	To P & L Appropriation A/c	3,228	2,152	April 1	By Balance b/d	53,400	32,800
March 31	To Drawings	4,000	4,000
March 31	To Realisation A/c (Loss)	3,000	2,000
March 31	To Bank A/c	43,172	24,648
		53,400	32,800			53,400	32,800

 

Memorandum Balance sheet as on 31st march 2024.
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Capital (Before realisation loss)		72,820	Sundry Assets (Balancing figure)	89,220
A	46,172
B	26,648
Creditors		16,400
		89,220		89,220

 

Dr.	Bank A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Realisation A/c (Asset realised)	85,000	By Realisation A/c (Creditors)	16,400
		By Realisation A/c (Expenses)	780
		By A’s Capital A/c	43,172
		By B’s Capital A/c	24,648
	85,000		85,000

 

Dr.	Realisation A/c			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Sundry Assets	89,220	By Creditors A/c		16,400
To Bank A/c (Creditors paid)	16,400	By Bank A/c (Asset realised)		85,000
To Bank A/c (Expenses)	780	By Loss on Realisation t/f to Capital A/c:		5,000
		A	3,000
		B	2,000
	1,06,400			1,06,400

Working notes:

Calculation of profit and loss distribution

Year 1: 1.4.21 - 31.3.22

A = 30,000 × 10% = 3,000

B = 20,000 × 10% = 2,000

Divisible profit = 30,000 – 5,000

= 25,000

A’ share of Profit = `25,000xx3/5`

= 15,000

B’ share of Profit = `25,000xx2/5`

= 10,000

Year 2: 1.4.22 - 31.3.23

Interest on Capital:

A = 44,000 × 10% = 4,400

B = 28,000 × 10% = 2,800

Divisible profit = 22,200 – 7,200

= 15,000

A’ share of Profit = `15,000xx3/5`

= 9,000

B’ share of Profit = `15,000xx2/5`

= 6,000

Year 3: 1.4.23 - 31.3.24

As the firm has incurred a loss, no interest will be allowed on capital as partnership agreement is silent in treating as a charge/appropriation

A’s share of loss = `5,380xx3/5`

= 3,228

B’s share of loss = `5,380xx2/5`

= 2,152