Nana and Nani are Partners in Partnership Firm sharing Profits and Losses equally. You are required to give effects of Adjustments in Profit & Loss A/c and Balance Sheet with the help of the following information. Trial Balance as on 31st March 2019 Debit Balance Amount ₹ Credit Balance Amount ₹ Insurance 15,000 Capital A/c Land and building 50,000 Nana 50,000 (Addition of 20,000 w.e.f 1st July 2018) Nani 50,000 Salaries 5,000 10% Bank loan taken on 1st Oct. 2018 30,000 Export Duty 2,500 Interest 1,500 Interest 1,000 Bills Payable 8,000 Furniture 40,000 Debtors 26,000 1,39,500 1,39,500 Adjustments : 1) Gross profit amounted to ₹ 34,500. 2) Insurance Paid for 15 months w.e.f. 1. 4. 2018. 3) Depreciate Land and Building at 10% p.a. and Furniture at 5% p.a. 4) Write off ₹ 1,000 for Bad Debts and maintain R.D.D at 5% on Sundry Debtors. 5) Closing Stock is valued at ₹ 34,500.

Dr. In the books of Nana and Nani Profit and Loss Account for the year ended on 31st March 2019 Cr. Particulars Amt ₹ Amt ₹ Particulars Amt ₹ Amt ₹ To Insurance 15,000 By Gross Profit b/d 34,500 Less: Prepaid Insurance 3,000 12,000 By Interest 1,500 To Depreciation: Land & Building 4,500 Furniture 2,000 6,500 To Salaries 5,000 To Export Duty 2,500 To Interest 1,000 To O/s Interest on Bank Loan 1,500 To R.B.D.D A/c - New Bad debts 1,000 Add: New Reserve 1,250 2,250 To Net Profit (Transferred to Capital A/c) Nana 2,625 Nani 2,625 5,250 36,000 36,000 Balance Sheet as on 31st March 2019 Liabilities Amt ₹ Amt ₹ Assets Amt ₹ Amt ₹ Capital Account: Nana 50,000 Land and Building 30,000 Opening Balance 2,625 52,625 Add: Purchased on 1/07/18 20,000 Capital Account: Nani 50,000 Opening Balance 50,000 Less: Depreciation 4,500 45,500 Add: Net Profit 2,625 52,625 Furniture 40,000 10% Bank Loan 30,000 Less: Depreciation 2,000 38,000 Add: O/s Interest on Bank Loan 1,500 31,500 Debtors 26,000 Bills Payable 8,000 Less: Bad Debts (New) 1,000 25,000 Less: R.D.D. (New) @ 5% 1,250 23,750 Closing Stock 34,500 Prepaid Insurance 3,000 1,44,750 1,44,750 Working Notes: (1) Here, the Profit and Loss Account and Balance Sheet are to be prepared. Therefore, the Trading Account is not prepared. Gross profit (given) is recorded on the Credit side of the Profit and Loss Account. (2) Land and Building: Land and Building 30,000 (Opening Balance)Depre. = `30,000 xx 10/100` = Rs. 3,000. 20,000 (Add on 1/7/2018)Depre. = `20,000 xx 10/100 xx 9/12` = Rs. 1500. Total Depreciation = 3000 + 1500 = ₹ 4,500 (3) Interest on 10 % bank loan is calculated for 6 months. (From 1/10/2018 to 31/3/2019) I = `"PRN"/100` = `30,000 × 10/100 × 6 /12` = ₹ 1,500. (4) Prepaid insurance = `3/15 xx "Insurance Amount"` = `3/15 xx 15,000` = ₹ 3,000 (5) RDD = 5% on (Debtors – New Bad debts) = `5/100` × (26,000 – 1,000) = `5/100` × 25,000 = ₹ 1,250.

Nana and Nani are Partners in Partnership Firm sharing Profits and Losses equally. You are required to give effects of Adjustments in Profit and Loss A/c and

Question

Nana and Nani are Partners in Partnership Firm sharing Profits and Losses equally. You are required to give effects of Adjustments in Profit & Loss A/c and Balance Sheet with the help of the following information.

Trial Balance as on 31st March 2019

Debit Balance	Amount ₹	Credit Balance	Amount ₹
Insurance	15,000	Capital A/c
Land and building	50,000	Nana	50,000
(Addition of 20,000 w.e.f 1^st July 2018)		Nani	50,000
Salaries	5,000	10% Bank loan taken on 1^st Oct. 2018	30,000
Export Duty	2,500	Interest	1,500
Interest	1,000	Bills Payable	8,000
Furniture	40,000
Debtors	26,000
	1,39,500		1,39,500

Adjustments :

1) Gross profit amounted to ₹ 34,500.

2) Insurance Paid for 15 months w.e.f. 1. 4. 2018.

3) Depreciate Land and Building at 10% p.a. and Furniture at 5% p.a.

4) Write off ₹ 1,000 for Bad Debts and maintain R.D.D at 5% on Sundry Debtors.

5) Closing Stock is valued at ₹ 34,500.

Ledger

Solution

Dr.	In the books of Nana and Nani Profit and Loss Account for the year ended on 31^st March 2019						Cr.
Particulars		Amt ₹	Amt ₹	Particulars	Amt ₹	Amt ₹
To Insurance		15,000		By Gross Profit b/d		34,500
Less: Prepaid Insurance		3,000	12,000	By Interest		1,500
To Depreciation:
Land & Building		4,500
Furniture		2,000	6,500
To Salaries			5,000
To Export Duty			2,500
To Interest			1,000
To O/s Interest on Bank Loan			1,500
To R.B.D.D A/c		-
New Bad debts		1,000
Add: New Reserve		1,250	2,250
To Net Profit (Transferred to Capital A/c)
Nana		2,625
Nani		2,625	5,250

			36,000			36,000

Balance Sheet as on 31st March 2019
Liabilities	Amt ₹	Amt ₹	Assets	Amt ₹	Amt ₹
Capital Account: Nana	50,000		Land and Building	30,000
Opening Balance	2,625	52,625	Add: Purchased on 1/07/18	20,000
Capital Account: Nani				50,000
Opening Balance	50,000		Less: Depreciation	4,500	45,500
Add: Net Profit	2,625	52,625	Furniture	40,000
10% Bank Loan	30,000		Less: Depreciation	2,000	38,000
Add: O/s Interest on Bank Loan	1,500	31,500	Debtors	26,000
Bills Payable		8,000	Less: Bad Debts (New)	1,000
				25,000
			Less: R.D.D. (New) @ 5%	1,250	23,750
			Closing Stock		34,500
			Prepaid Insurance		3,000

		1,44,750			1,44,750

Working Notes:

(1) Here, the Profit and Loss Account and Balance Sheet are to be prepared. Therefore, the Trading Account is not prepared. Gross profit (given) is recorded on the Credit side of the Profit and Loss Account.

(2) Land and Building:

Land and Building
30,000 (Opening Balance) Depre. = `30,000 xx 10/100` = Rs. 3,000.	20,000 (Add on 1/7/2018) Depre. = `20,000 xx 10/100 xx 9/12` = Rs. 1500.

Total Depreciation = 3000 + 1500 = ₹ 4,500

(3) Interest on 10 % bank loan is calculated for 6 months. (From 1/10/2018 to 31/3/2019)

I = `"PRN"/100`
= `30,000 × 10/100 × 6 /12`
= ₹ 1,500.

(4) Prepaid insurance = `3/15 xx "Insurance Amount"`
= `3/15 xx 15,000`
= ₹ 3,000

(5) RDD = 5% on (Debtors – New Bad debts)
= `5/100` × (26,000 – 1,000)
= `5/100` × 25,000
= ₹ 1,250.

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Partnership Final Accounts

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Chapter 1: Introduction to Partnership and Partnership Final Accounts - Exercise 1.2 (Practical Problems) [Page 60]

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