Question

Sun and Moon are partners in a firm sharing profit and losses in the ratio of 3:2. They kept their books under single entry system. On 1^st April 2010 the following statement of affairs was extracted from their Books.

Statement of Affairs as on 1st April 2010
Liabilities	Amount (Rs)	Assets	Amount (Rs)
Capitals:		Plant and Machinery	15,000
Sun	12,500	Stock	10,000
Moon	10,000	Debtors	17,500
Creditors	15,000	Cash in Hand	7,500
Bills Payable	12,500
	50,000		50,000

On 31^st March 2011 theirs assets and liabilities were as follows. Plant and Machinery Rs 44,000 stock Rs 32,000 cash in hand Rs 12,000 creditors Rs 8,000 Debtors Rs 20,000 Bills payable Rs 15,000 Drawings during the year Sun Rs 5,000 and Moon Rs 3,000.

Prepare: Closing statement of affairs and statement of profit or Loss for the year ended 31^st March 2011 after considering the following adjustments.
1) Plant is found overvalued by 10% and stock is found undervalued by 20%.
2) R.D.D. is to be created at 10% on Debtors.
3) Interest on Capital is to be allowed at 10% p.a. and 10% p.a. on Drawings

Answer 1

Statement of Affairs

as on March 31,2011

Liabilities	Amount (Rs)	Assets	Amount (Rs)
Bills Payable	15,000	Cash in Hand	12,000
Creditors	8,000	Stock	32,000
Capital (Balancing Figure)	85,000	Plant and Machinery	44,000
		Debtors	20,000
	108,000		108,000

Statement of Profit or Loss

for the year ended March 31,2011

Particulars	Amount  (Rs.)	Amount  (Rs.)
Capital at the end of the year		85,000
Add: Drawings made during the year                                           Sun                                                Moon	5,000 3,000	8,000
Adjusted capital at the end of the year		93000
Less: Capital in the beginning of the year                                           Sun                                                Moon	( 12,500) (10,000)	(22,500)
		70,500
Add: Interest on Drawings                                                         Sun                                                Moon	250      150	400
Stock (32,000 × 20%)		6,400
Less: Reserve for Doubtful Debts (20,000 × 10%)		(2,000)
Interest on Capital                     Sun                                                 Moon	(1,250) (1,000)	(2,250)
Plant (44,000 × 10%)		(4,400)
Profit or Loss for the year		68,650

Note: There is a mismatch in the Net Profit as given in the textbook (which is Rs 70,650) and that of as per the above solution (which is Rs 68,650).