Question

From the following Trial Balance and adjustments given below of Reena and Aarti, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as on that date.

Trial Balance as on 31st March 2019

Debit Balance	Amount ₹	Credit Balance	Amount ₹
Purchases	35,500	Sales	58,200
Sundry Debtors	40,000	Sundry Creditors	25,700
Sales Returns	1,000	Purchases Returns	500
Opening Stock	18,100	R.D.D	800
Bad debts	500	Discount	50
Land and Building	25,000	Commission	250
Furniture	20,000	Capital:
Discount	1,000	Reena	50,000
Royalties	700	Aarti	30,000
Rent	1,900
Salaries	3,000
Wages	800
Insurance	1,500
Drawings:
Reena	2,000
Aarti	1,000
Cash at Bank	11,500
Cash in Hand	2,000
	1,65,500		1,65,500

Adjustments :

1. Closing Stock valued at ₹ 22,000.
2. Write off  ₹ 900 for Bad and doubtful debts and create a provision for Reserve for doubtful debts ₹ 1,000.
3. Create a provision for Discount on Debtors @ 3% and creditors @ 5%.
4. Outstanding Expenses - Wages ₹ 700 and Salaries ₹ 800.
5. Insurance is paid for 15 months, w.e.f. 1^st April 2018 
6. Depreciate Land and Building @ 5%
7. Reena & Aarti are Sharing Profits & Losses in their Capital Ratio.

Answer 1

Dr.	In the books of Reena and Aarti Trading and Profit and Loss Account for the year ended on 31st March 2019						Cr.
Particulars		Amount ₹	Amount ₹	Particulars	Amount ₹	Amount ₹
To Opening Stock			18,100	By Sales	58,200
To Purchases		35,500		Less: Sales Return	1,000	57,200
Less: Purchase Return		500	35,000	By Closing Stock		22,000
To Royalties			700
To Wages		800
Add: O/s Wages		700	1,500
To Gross Profit c/d			23,900
			79,200			79,200
To Rent			1,900	By Gross Profit b/d		23,900
To Salaries		3,000		By Commission		250
Add: O/s Salaries		800	3,800	By Discount		50
To Insurance		1,500		By R.D.C. (New)		1,285
Less: Prepaid Ins.		300	1,200
To Depreciation on Land and Buildings			1,250
To R.B.D.D. A/c
Bad debts		500
Add: New Bad debts		900
Add: New Reserve		1,000
		2,400
Less: Old Reserve		800	1,600
To Reserve for Discount on Debtors A/c
Discount		1,000
Add: New Reserve for Discount		1,143	2,143
To Net Profit (Transferred to Capital A/cs)
Reena		8,495
Aarti		5,097	13,592
			25,485			25,485

Balance Sheet as on 31st March 2019

Liabilities	Amount ₹	Amount ₹	Assets	Amount ₹	Amount ₹
Capital Account: Reena			Land and Building	25,000
Opening Balance	50,000		Less: Depreciation	1,250	23,750
Add: Net Profit	8,495		Furniture		20,000
Less: Drawings	2,000	56,495	Closing Stock		22,000
Capital Account: Aarti			Sundry Debtors	40,000
Opening Balance	30,000		Less: Bad Debts (New)	900
Add: Net Profit	5,097			39,100
Less: Drawings	1,000	34,097	Less: Provision for Doubtful Debts (New)	1,000
Sundry Creditors	25,700			38,100
Less: Provision for Discount on creditors	1,285	24,415	Less: Provision for Discount on Debtors 3%	1,143	36,957
Outstanding expenses			Prepaid Insurance Premium		300
Wages	700		Cash at Bank		11,500
Salaries	800	1,500	Cash in Hand		2,000
		1,16,507			1,16,507

 

Dr.	Partner's Capital Account				Cr.
Particulars	Reena Amount ₹	Aarti Amount ₹	Particulars	Reena Amount ₹	Aarti Amount ₹
To Drawing	2,000	1,000	By Balance b/d	50,000	30,000
			By Net profit b/d	8,495	5,097
By Balance c/d	56,495	34,097
	58,495	35,097		58,495	35,097

Working Notes:

(1) Insurance premium ₹ 1,500 is paid for 15 months i.e. prepaid insurance premium for 3 months = ₹ 300.

(2) Reserve for Discount on Debtors

= 3% on (Debtors – New Bad debts – New Reserve)

`= 3/100 xx(40,000  –  900  –  1,000)`

`= 3/100 xx(40,000 – 1,900)`

`= 3/100 xx38100`

= ₹ 1,143

(3) Reserve for Discount on Creditors = 5% on (Value of Creditors)

= `5/100xx 25,700`

= ₹ 1,285

(4) Profit and Loss ratio = Capital ratio
= 50,000: 30,000
= 5: 3.