Maharashtra Board Class 12 Commerce BK Chapter 1 Introduction to Partnership and Partnership Final Accounts Solutions

Objective Questions

Select the Most Appropriate Alternatives From the Following and Rewrite the Sentences:

 

Question 1. When there is no partnership agreement between partners, the division of profits takes place in ____________ ratio.
(a) equal
(b) capital ratio
(c) initial contribution
(d) experience and tenure of partners
Answer: (a) equal
In simple words: If partners do not make a written agreement on how to share their profits, the law says they must share everything completely equally.

🎯 Exam Tip: Remember that in the absence of a partnership deed, profits and losses are always shared equally, regardless of how much capital each partner contributed.

 

Question 2. To find out Net Profit or Net Loss of the business ____________ Account is prepared.
(a) Trading
(b) Capital
(c) Current
(d) Profit & Loss
Answer: (d) Profit & Loss
In simple words: The Profit and Loss account calculates the final net profit or loss by subtracting all indirect expenses from the gross profit.

🎯 Exam Tip: Do not confuse Trading Account (which finds Gross Profit/Loss) with Profit & Loss Account (which finds Net Profit/Loss).

 

Question 3. A ____________ is an Intangible Asset.
(a) Goodwill
(b) Stock
(c) Cash
(d) Furniture
Answer: (a) Goodwill
In simple words: An intangible asset is something valuable that you cannot touch or see, like a business's good reputation (goodwill).

🎯 Exam Tip: Goodwill, patents, and trademarks are classic examples of intangible assets often tested in exams.

 

Question 4. In the absence of an agreement, interest on a loan advanced by the partner to the firm is allowed at the rate of ____________
(a) 5%
(b) 6%
(c) 10%
(d) 9%
Answer: (b) 6%
In simple words: If a partner lends extra money to the business without a written agreement, the business must pay them back with 6% interest per year.

🎯 Exam Tip: This is a highly tested rule under the Indian Partnership Act, 1932. Always remember the default rate is exactly 6% per annum.

 

Question 5. Liability of partners in a partnership business is ____________
(a) limited
(b) unlimited
(c) limited and unlimited
(d) None of the options
Answer: (b) unlimited
In simple words: If the business runs into heavy debt, the partners are personally responsible for paying it back, even if they have to sell their personal belongings.

🎯 Exam Tip: Remember that "unlimited liability" is a key feature of partnership firms, unlike joint-stock companies where liability is limited.

 

Question 6. The Indian Partnership Act is in force since ____________
(a) 1932
(b) 1881
(c) 1956
(d) 1984
Answer: (a) 1932
In simple words: The main law that guides and controls partnership businesses in India was created in the year 1932.

🎯 Exam Tip: Memorize the year 1932 as it is frequently asked in multiple-choice questions regarding partnership laws.

 

Question 7. Maximum number of Partners in a firm are ____________ according to Companies Act, 2013.
(a) 10
(b) 25
(c) 20
(d) 50
Answer: (d) 50
In simple words: According to the law, a single partnership business cannot have more than 50 partners working together.

🎯 Exam Tip: Be careful not to confuse the old limit (which was 10 or 20) with the new limit of 50 set by the Companies Act, 2013.

 

B. Write the Word/Phrase/Term, Which Can Substitute Each of the Following Statements.

 

Question 1. Persons who form the partnership firm.
Answer: Partners. Individually, these persons are called partners, and collectively they are known as a firm.
In simple words: The individual people who come together to start and run a partnership business are called partners.

🎯 Exam Tip: Always write the exact term "Partners" clearly, as one-word answers require precise terminology to score full marks.

Question 1. Persons who have entered into an agreement of partnership are individually called...
Answer: Partners. They share the profits and losses of the business as agreed.
In simple words: People who join together to run a business are called partners.

🎯 Exam Tip: Remember that individually they are called 'partners' and collectively they are called a 'firm'.

 

Question 2. Amount of cash or goods withdrawn by partners from the business from time to time.
Answer: Drawings. This represents the personal use of business assets by the owners.
In simple words: When owners take money or goods from their own business for personal use, it is called drawings.

🎯 Exam Tip: Drawings are always deducted from the partner's capital or current account in the balance sheet.

 

Question 3. An association of two or more persons according to Indian Partnership Act 1932.
Answer: Partnership firm. This business structure allows individuals to pool resources and share risks.
In simple words: A partnership firm is a group of two or more people who run a business together under legal rules.

🎯 Exam Tip: Clearly distinguish between 'Partners' (individuals) and 'Partnership Firm' (the collective association).

 

Question 4. Act under which partnership firms are regulated.
Answer: Indian Partnership Act. This legislation was established in the year 1932 to govern partnership businesses in India.
In simple words: This is the official law book that tells partners how they must run their business legally.

🎯 Exam Tip: Always mention the year 1932 along with the Indian Partnership Act to secure full marks.

 

Question 5. Process of entering the name of the partnership firm in the register of the Registrar.
Answer: Registration. This formal process provides legal status and protection to the business entity.
In simple words: Registration means officially signing up your business name with the government records.

🎯 Exam Tip: Note that registration is compulsory in the state of Maharashtra but optional in many other states.

 

Question 6. Partnership agreement in written form.
Answer: Partnership Deed. This document serves as a legal blueprint to prevent future disputes among partners.
In simple words: A partnership deed is a written agreement that lists all the rules and terms agreed upon by the partners.

🎯 Exam Tip: Mentioning that a partnership deed is a written agreement helps highlight its legal validity in court.

 

Question 7. Under this method capital, balances of partners remain constant.
Answer: Fixed Capital Method. Under this system, a separate Current Account is opened to record all routine adjustments like drawings and interest.
In simple words: In this method, the main money invested by partners stays the same, and daily changes are recorded in a different account.

🎯 Exam Tip: Remember that under the Fixed Capital Method, two accounts are maintained for each partner: Capital Account and Current Account.

 

Question 8. Proportion in which partners share profit.
Answer: Profit-Sharing Ratio. This ratio is usually agreed upon by the partners and written in the partnership deed to avoid future disputes.
In simple words: It is the pre-decided percentage or ratio in which business partners divide the profits or losses they make.

🎯 Exam Tip: Always check the partnership deed for this ratio; if it is not mentioned in the problem, profits must be shared equally among partners.

 

Question 9. Such a capital method in which only Capital Account is maintained for each partner.
Answer: Fluctuating Capital Method. Under this method, the balance in the capital account changes continuously as all adjustments are recorded directly in it.
In simple words: It is a way of keeping accounts where all transactions like interest, salary, and profits are put into one single capital account, making its balance change constantly.

🎯 Exam Tip: Remember that in this method, no separate current account is opened for the partners.

 

Question 10. The account to which all adjustments are made when capital is fixed.
Answer: Current Account. This account is opened separately for each partner to record routine transactions like drawings, interest, and share of profit.
In simple words: When partners decide to keep their main capital amount unchanged, they use a separate temporary account called a current account for daily business transactions.

🎯 Exam Tip: Clearly distinguish between Capital Account and Current Account when the Fixed Capital Method is specified in the problem.

 

Question 11. Expenses that are paid before they are due.
Answer: Prepaid expenses. These are shown on the assets side of the Balance Sheet because their benefit will be received in the future.
In simple words: These are payments made in advance for services or goods that you will actually use or receive later.

🎯 Exam Tip: Always deduct prepaid expenses from the respective expense in the Profit and Loss Account and show them under Assets in the Balance Sheet.

 

Question 12. The accounts are prepared at the end of each accounting year.
Answer: Final Accounts. They consist of the Trading Account, Profit and Loss Account, and the Balance Sheet to show the financial position of the business.
In simple words: These are the ultimate financial reports prepared at the end of the year to see how much profit the business made and what it owns.

🎯 Exam Tip: Practice the standard adjustments like closing stock, outstanding expenses, and depreciation as they are almost always tested.

 

Question 13. An asset that can be converted into cash easily.
Answer: Current Assets or Liquid Assets. These assets are highly liquid and are expected to be converted into cash within one year.
In simple words: These are things owned by a business, like cash or stock, that can be quickly turned into money without losing value.

🎯 Exam Tip: Cash in hand, cash at bank, and bills receivable are classic examples of highly liquid assets.

 

Question 14. Order in which fixed assets are recorded first in the Balance Sheet.
Answer: Order of liquidation. In this presentation, assets that are easiest to convert into cash are listed first, followed by less liquid assets.
In simple words: It is a way of listing assets in the balance sheet starting with the ones that can be sold for cash the fastest.

🎯 Exam Tip: Understand the difference between the order of liquidity (easiest to convert first) and the order of permanence (most permanent assets first).

 

Question 15. The account in which selling expenses of the business are recorded.
Answer: Profit and Loss Account. This account is used to determine the net profit or net loss of a business for an accounting period.
In simple words: Selling expenses are indirect costs, so they are written in the Profit and Loss Account instead of the Trading Account.

🎯 Exam Tip: Remember that all indirect expenses, like selling and distribution expenses, always go to the Profit and Loss Account.

 

Question 16. Debit balance of Trading Account.
Answer: Gross loss. This occurs when the total of the debit side of the Trading Account exceeds the total of the credit side.
In simple words: If the cost of goods and direct expenses is more than the sales revenue, it results in a gross loss.

🎯 Exam Tip: A debit balance in any trading or manufacturing account represents a loss, whereas a credit balance represents a profit.

 

Question 17. The credit balance of Profit and Loss Account.
Answer: Net profit. This balance is eventually transferred to the capital accounts of the partners.
In simple words: When the total indirect income is more than the total indirect expenses, the business makes a net profit.

🎯 Exam Tip: Always transfer the net profit to the Capital Account on the liabilities side of the Balance Sheet.

C. State Whether the Following Statements are True or False with Reasons:

 

Question 1. A partnership firm is a Non-Trading concern.
Answer: This statement is False. The main aim of a partnership firm is to earn maximum profit. The partnership is a trading concern. It undertakes either manufacturing or distributive activities with the sole aim of earning profit and distribute that profit among the partners in a specific ratio. It is never formed for charitable purposes.
In simple words: A partnership is formed to do business and make a profit, which makes it a trading concern, not a non-trading one.

🎯 Exam Tip: When explaining why a partnership is a trading concern, always highlight its primary objective of earning and distributing profit.

 

Question 2. A profit and Loss Account is a Real Account.
Answer: This statement is False. Account of expenses, losses, gains, and incomes is called a Nominal account. The profit and Loss Account contains all indirect expenses and indirect incomes of the firm. Therefore, a Profit and Loss Account is a Nominal Account and not a real account.
In simple words: Real accounts deal with assets and properties, while nominal accounts deal with expenses and incomes. Since the Profit and Loss Account records expenses and incomes, it is a nominal account.

🎯 Exam Tip: Clearly distinguish between Real, Personal, and Nominal accounts to easily justify these types of questions.

 

Question 3. Carriage inward is carriage on purchase.
Answer: This statement is True. Carriage inward refers to the transportation charges paid on bringing the purchased goods into the business premises. These expenses are directly related to purchases and are debited to the Trading Account.
In simple words: Carriage inward is the transport cost paid when we buy goods and bring them to our shop or factory.

🎯 Exam Tip: Remember that carriage inward is a direct expense debited to the Trading Account, while carriage outward is an indirect expense debited to the Profit and Loss Account.

Question 4. Adjustments are recorded in Partners Current Account in Fixed Capital Method.
Answer: This statement is True. In Fixed Capital Method, as the name suggests capital balances (opening and closing) generally remain fixed. Under this method, adjustments are not to be recorded in Capital Account. All adjustments are recorded in a separate account called Partners’ Current Accounts. This helps in maintaining the original capital contributed by the partners intact.
In simple words: Under the fixed capital method, the main capital account stays unchanged, so all regular adjustments like interest or drawings are made in a separate current account.

🎯 Exam Tip: Remember that under the Fixed Capital Method, two accounts are opened: Partners' Capital Account and Partners' Current Account.

 

Question 5. Prepaid expenses are treated as liabilities.
Answer: This statement is False. Prepaid expenses are expenses that are paid before they are due. Therefore, they are considered an asset of the business organization. Since the benefit of this payment will be received in the future, it represents a future economic benefit.
In simple words: Prepaid expenses are not liabilities because you have already paid for them in advance, meaning you will receive the service or benefit in the future without paying again.

🎯 Exam Tip: Always classify prepaid expenses under the 'Assets' side of the Balance Sheet as they represent future benefits.

 

Question 6. If the partnership deed is silent, partners share profits and losses in proportion to their capital.
Answer: This statement is False. As per the provisions made under the Indian Partnership Act 1932, when a partnership deed is silent about profit and loss sharing ratio, partners are supposed to share profits and losses in equal proportion, and not in their capital ratio. This rule ensures fair treatment among all partners regardless of their initial capital contribution.
In simple words: If partners do not agree on a specific profit-sharing ratio in writing, the law says they must share all profits and losses equally, no matter who put in more money.

🎯 Exam Tip: Be careful with wordings in exams; if the deed is silent, the ratio is always equal (1:1), not based on capital.

 

Question 7. Balance Sheet is an Account.
Answer: This statement is False. A Balance Sheet is a statement of the financial position of a business showing assets, liabilities, and capital at a specific date, rather than a ledger account. It does not have debit and credit sides like a traditional account.
In simple words: A Balance Sheet is a statement that shows what a business owns and owes at a single point in time, not a ledger account where transactions are debited and credited.

🎯 Exam Tip: Clearly distinguish between a 'Statement' (like the Balance Sheet) and an 'Account' (like the Trading or Profit & Loss Account) in your answers.

 

Question 8. Wages paid for the installation of machinery is a Revenue expenditure.
Answer: This statement is False. Wages paid for the installation of machinery is a capital expenditure and therefore it is added to the cost of machinery. This capitalization of installation expenses is a standard accounting practice. It is generally, paid once in a life of an asset. It is a long-term and capital expenditure.
In simple words: Money spent to set up a new machine is a one-time cost that helps the machine work for many years. Therefore, it is treated as a capital expense, not a regular daily expense.

🎯 Exam Tip: Remember that any expense incurred to bring a fixed asset into its working condition (like installation or transport) is always treated as capital expenditure.

 

Question 9. Income received in advance is a liability.
Answer: This statement is True. When Income in respect to next year, it received in the current year, it is known as income received in advance. This creates an obligation for the business to provide services or goods in the future. So, in next year firm will not be able to receive that amount and therefore it is considered as a liability for the current year.
In simple words: If someone pays you early for work you haven't done yet, you owe them that work. Since you have an obligation to fulfill, that advance money is treated as a liability until the work is completed.

🎯 Exam Tip: Clearly state that advance income is a liability because the business has an obligation to perform services in the future for which it has already been paid.

 

Question 10. R.D.D. is created on Creditors.
Answer: This statement is False. R.D.D. stands for Reserve for Doubtful Debts. It is created on the value of debtors to account for potential non-payments. Such provision is made against profit and loss accounts. In the future, if the loss is incurred on account of bad debts, such an amount is used to run the business.
In simple words: We create a reserve for doubtful debts because we are worried some of our customers (debtors) might not pay us back. We do not create this for creditors, whom we owe money to.

🎯 Exam Tip: Always associate R.D.D. with Debtors (assets) and not Creditors (liabilities), as it represents a provision for potential losses from customers who may default.

 

Question 11. Depreciation is not calculated on Current Assets.
Answer: This statement is True. Current Assets mean liquid assets having no fixed tenure therefore depreciation cannot be calculated on it. These assets are meant to be converted into cash within a single operating cycle. Depreciation is calculated and charged on fixed assets for their use, wear and tear, etc.
In simple words: Depreciation is the loss in value of long-lasting things like buildings or machinery over time. Short-term things like cash or stock change daily, so we don't depreciate them.

🎯 Exam Tip: Be sure to mention that depreciation is strictly meant for fixed assets due to wear and tear, while current assets are short-term and highly liquid.

Question 12. Goodwill is an intangible asset.
Answer: This statement is True. Goodwill is a reputation of business computed in terms of money. Reputation can be experienced but can’t be seen or felt. Therefore, Goodwill is an intangible asset. It represents the brand value and customer loyalty that a business builds over time.
In simple words: Goodwill is the good reputation of a business. Even though you cannot touch or see reputation, it has real money value, which makes it an intangible asset.

🎯 Exam Tip: Always remember that assets you cannot see or touch, like goodwill, patents, and trademarks, are classified as intangible assets.

 

Question 13. Indirect expenses are debited to Trading Account.
Answer: This statement is False. Indirect expenses mean expenses that are not directly related to the production of goods and services. Therefore, indirect expenses cannot be debited to Trading Account. All indirect expenses are debited to the Profit and Loss Account. These expenses include administrative, selling, and distribution costs.
In simple words: Expenses related to running the office and selling goods are indirect expenses. They go into the Profit and Loss Account, not the Trading Account.

🎯 Exam Tip: Remember the rule: Direct expenses (like factory wages) go to the Trading Account, while indirect expenses (like office salaries) go to the Profit and Loss Account.

 

Question 14. A bank loan is a current liability.
Answer: This statement is False. A loan usually taken for the period of more than 1 year say 5 years from the bank is called Bank Loan. It is a long term loan. It is not repaid within 1 year but paid in installments over a number of years. It might be paid in lumpsum at the expiry of the term. This makes it a non-current or long-term liability on the balance sheet.
In simple words: A bank loan is usually paid back over several years, so it is a long-term liability. Current liabilities are those that must be paid back within one single year.

🎯 Exam Tip: Distinguish clearly between current liabilities (payable within 12 months) and long-term liabilities (payable after 12 months) to avoid classification errors.

 

Question 15. Net profit is the debit balance of Profit and Loss Account.
Answer: This statement is False. In a Profit and Loss Account, when the credit side total i.e. a total of incomes is more than the debit side total, i.e. expenses it is known as a credit balance. When incomes exceed expenses there is profit. Therefore credit balance of the Profit and Loss Account indicates net profit. Conversely, a debit balance would indicate a net loss for the business.
In simple words: Net profit happens when your earnings (credit side) are more than your expenses (debit side). This results in a credit balance, not a debit balance.

🎯 Exam Tip: Remember that in nominal accounts, credit represents incomes/gains and debit represents expenses/losses; hence, a net profit is always a credit balance.

 

D. Find an Odd One

 

Question 1. Wages, Salary, Royalty, Import Duty
Answer: Salary. Wages, Royalty, and Import Duty are direct expenses debited to the Trading Account, whereas Salary is an indirect expense debited to the Profit and Loss Account. This distinction is crucial for preparing accurate final accounts.
In simple words: Salary is the odd one out because it is an indirect office expense. All the other options are direct expenses related to manufacturing or purchasing goods.

🎯 Exam Tip: To find the odd one out in accounting lists, group the items by whether they belong to the Trading Account (direct) or the Profit and Loss Account (indirect).

Question 1. [Find the odd man out]
Answer: Salary
In simple words: Salary is the odd one out in this group.

🎯 Exam Tip: Identify the category of each item (asset, liability, income, or expense) to easily find the odd one out.

 

Question 2. Postage, Stationery, Advertising, Purchases
Answer: Purchases
In simple words: Purchases is a direct expense recorded in the Trading Account, while the others are indirect expenses recorded in the Profit and Loss Account.

🎯 Exam Tip: Remember that direct expenses related to goods go to the Trading Account, while indirect office expenses go to the Profit and Loss Account.

 

Question 3. Capital, Bills Receivable, Reserve fund, Bank overdraft
Answer: Bills Receivable
In simple words: Bills Receivable is an asset, whereas Capital, Reserve fund, and Bank overdraft are all liabilities.

🎯 Exam Tip: Classify items clearly into Assets and Liabilities to quickly solve classification-based questions.

 

Question 4. Building, Machinery, Furniture, Bills Payable
Answer: Bill Payable
In simple words: Bills Payable is a liability, while Building, Machinery, and Furniture are all fixed assets.

🎯 Exam Tip: Always double-check whether an item represents something the business owns (Asset) or owes (Liability).

 

Question 5. Discount received, Dividend received, Interest received, Depreciation
Answer: Depreciation
In simple words: Depreciation is an expense or loss, while the other three items are incomes received by the business.

🎯 Exam Tip: Look for keywords like "received" which indicate income, making it easy to distinguish them from expenses like depreciation.

 

E. Complete the Sentences.

 

Question 1. Partners share profits & losses in ____________ ratio in the absence of partnership deed.
Answer: equal
In simple words: If there is no written agreement (deed) between partners, the law requires them to share all profits and losses equally.

🎯 Exam Tip: Memorize the provisions of the Indian Partnership Act, 1932 regarding the absence of a partnership deed, as this is a highly tested topic.

 

Question 2. Registration of partnership is ____________ in India.
Answer: optional
In simple words: In India, registering a partnership is optional, meaning it is not legally mandatory nationwide.

🎯 Exam Tip: Be careful with state-specific rules; while registration is optional across India under the central act, it is compulsory in the state of Maharashtra.

 

Question 3. Partnership business must be ____________
Answer: lawful. A partnership cannot be formed for illegal activities or purposes.
In simple words: A partnership must always do legal business. It cannot be formed to do anything against the law.

🎯 Exam Tip: Remember that any agreement to carry out illegal activities is void and cannot be legally called a partnership.

 

Question 4. Liabilities of partners in partnership firm is ____________
Answer: unlimited. This means that partners are personally liable for the debts of the business if the firm's assets are insufficient.
In simple words: If the business owes money and cannot pay, the partners have to pay from their own pockets, even selling their personal property.

🎯 Exam Tip: "Unlimited liability" is a key feature of traditional partnerships; make sure to spell "unlimited" correctly.

 

Question 5. The balance of the Drawings Account of a partner is transferred to his ____________ account under the Fixed Capital Method.
Answer: Current. Under the fixed capital method, the capital account balance remains unchanged, so all adjustments like drawings are made in the current account.
In simple words: When capital is kept fixed, we use a separate "Current Account" to record everyday transactions like drawings and interest.

🎯 Exam Tip: Always distinguish between Fixed Capital Method (uses Capital and Current accounts) and Fluctuating Capital Method (uses only Capital account).

 

Question 6. The interest on capital of a partner is debited to ____________ account.
Answer: Profit and Loss. This interest is an expense for the partnership firm and is therefore debited to the Profit and Loss Appropriation account.
In simple words: Interest paid to partners on their capital is a business expense, so it is written on the debit side of the Profit and Loss account.

🎯 Exam Tip: Remember that interest on capital is an appropriation of profit and is debited to the Profit and Loss Appropriation Account.

 

Question 7. Partners are ____________ liable for the debts of the firm.
Answer: joint & several. This means creditors can sue all partners together or any single partner individually for the full amount of the debt.
In simple words: All partners are responsible together, but any single partner can also be held fully responsible for the entire debt of the business.

🎯 Exam Tip: Use the exact phrase "joint and several" (or "joint & several") to secure full marks when describing partner liability.

 

Question 8. Partnership Deed is an ____________ of Partnership.
Answer: Article. It serves as the document containing the rules, regulations, and terms of agreement governing the internal management of the partnership.
In simple words: A partnership deed is like a rulebook or constitution that lists all the terms and conditions agreed upon by the partners.

🎯 Exam Tip: The partnership deed is also referred to as the "Articles of Partnership". Keep this term in mind.

 

Question 9. The withdrawal by the partner for personal use from the firm is ____________ to his account.
Answer: debited. Any personal drawings reduce the partner's equity or balance in the firm, which is recorded as a debit entry.
In simple words: When a partner takes money out of the business for personal use, it is recorded on the debit side of their account because it reduces their share.

🎯 Exam Tip: Remember the basic rule: drawings decrease capital/current account balances, so they are always debited.

 

Question 10. Commission payable to partner is ____________ to the firm.
Answer: liability/outstanding expense. This represents an amount that the firm owes to the partner at the end of the accounting period.
In simple words: When a firm owes commission to a partner but has not paid it yet, it is treated as a liability because it is money the business still needs to pay out.

🎯 Exam Tip: Remember that any unpaid expense at the end of the financial year is treated as a liability in the balance sheet.

 

Question 11. When partners adopt Fixed Capital Method then they have to operate ____________ Account.
Answer: Partner’s Current. This account is used to record all routine adjustments like interest, salary, and drawings.
In simple words: Under the fixed capital method, the main capital account stays unchanged, so all daily transactions and adjustments are recorded in a separate current account.

🎯 Exam Tip: Clearly distinguish between Fixed Capital and Fluctuating Capital methods, as current accounts are only opened under the fixed method.

 

Question 12. If the partners Current Account shows ____________ balance it is shown to the Liability side of the Balance Sheet.
Answer: credit. A credit balance indicates that the firm owes this amount to the partner.
In simple words: If the partner's current account has a credit balance, it means the partner has a positive claim on the business, which is shown as a liability for the firm.

🎯 Exam Tip: Always check whether the current account balance is debit or credit; debit balances go to the assets side, while credit balances go to the liabilities side.

 

Question 13. The expenses paid for trading purpose are known as ____________ expenses.
Answer: trade. These are general operating expenses incurred in the course of buying and selling goods.
In simple words: Trade expenses are the regular costs a business pays to run its daily trading and sales activities.

🎯 Exam Tip: If "Trade Expenses" are given along with "Sundry Expenses" or "Office Expenses", pay close attention to where they are posted in the final accounts.

 

Question 14. Cash receipts which are recurring in nature are called as ____________ Receipts.
Answer: Revenue. These receipts arise from the regular core operations of the business, such as sales.
In simple words: Revenue receipts are the regular, day-to-day cash inflows that a business gets from selling its goods or services.

🎯 Exam Tip: Do not confuse revenue receipts with capital receipts; revenue receipts are recurring and go to the Trading or Profit and Loss Account.

 

Question 15. Return outward are deducted from ____________
Answer: purchase. This deduction helps in calculating the net purchases made by the business during the year.
In simple words: Return outward means goods that were bought but sent back to the supplier, so we subtract them from our total purchases.

🎯 Exam Tip: Always deduct return outward (purchase returns) from purchases on the debit side of the Trading Account to show the correct net purchase figure.

 

Question 16. Expenses which are paid before due date are called as ____________
Answer: Prepaid Expenses. These are treated as current assets because the benefit of the payment will be received in the future.
In simple words: Prepaid expenses are bills paid in advance before they are actually due, which means the business has already paid for future benefits.

🎯 Exam Tip: Remember to deduct prepaid expenses from the respective expense in the Profit and Loss Account and show them on the Assets side of the Balance Sheet.

Question 17. Assets which are held in the business for a long period are called ____________
Answer: Fixed Assets. These assets are not intended for resale and are crucial for generating long-term revenue.
In simple words: Fixed assets are things like buildings or machinery that a business keeps and uses for a long time to help it run.

🎯 Exam Tip: Remember that fixed assets are held for long-term use, unlike current assets which are meant to be converted to cash quickly.

 

Question 18. Trading Account is prepared on the basis of ____________ expenses.
Answer: direct. These expenses are directly linked to the manufacturing or purchasing of goods.
In simple words: A trading account only looks at direct costs, which are the expenses directly spent on making or buying the products.

🎯 Exam Tip: Always associate direct expenses with the Trading Account and indirect expenses with the Profit and Loss Account.

 

Question 19. When commission is allowed to any partner, it is ____________ of the business.
Answer: expenditure. This payment reduces the overall net profit available for distribution among all partners.
In simple words: When a business pays a commission to a partner, it is counted as an expense or spending for the business.

🎯 Exam Tip: Treat partner commission as an appropriation of profit or business expenditure depending on the partnership agreement terms.

 

Question 20. When goods are distributed as free samples, it is treated as ____________ of the business.
Answer: advertisement expense. This strategy helps in promoting the product to potential customers to boost future sales.
In simple words: Giving away free samples is a way of advertising, so the cost of those goods is written down as an advertising expense.

🎯 Exam Tip: Remember to debit the Advertisement Account and credit the Trading/Goods Account when free samples are distributed.

 

F. Answer in One Sentence Only:

 

Question 1. What is Fluctuating Capital?
Answer: When capital balances of the partners go on changing every year due to transactions of partners with the firm, it is known as Fluctuating Capital. Under this method, no separate current account is maintained for the partners.
In simple words: Fluctuating capital means the money balance in a partner's account changes every year because of regular business transactions like profits, drawings, or interest.

🎯 Exam Tip: Clearly state that under the fluctuating capital method, all adjustments are made directly in the Capital Account itself.

 

Question 2. Why is Partnership Deed necessary?
Answer: Partnership Deed is necessary to prevent disputes or misunderstandings among the partners in the future. It serves as a written legal document that clearly defines the rights, duties, and profit-sharing ratios of all partners.
In simple words: A partnership deed is a written agreement that helps partners avoid fights or confusion later on by setting clear rules from the start.

🎯 Exam Tip: Highlight that a written deed is highly recommended to resolve any future legal conflicts smoothly, even though registration is optional in some regions.

Question 3. If the Partnership Deed is silent, in which ratio, the partners will share the profit or loss?
Answer: If the Partnership Deed is silent, partners will share profits and losses in equal ratio. This rule ensures fair treatment among all partners regardless of their individual capital contributions.
In simple words: If there is no written agreement about sharing profits, everyone gets an equal share. This keeps things simple and fair for all partners.

🎯 Exam Tip: Remember that equality is the default rule under the Indian Partnership Act, 1932, when the deed is silent. Always mention "equal ratio" in your answer.

 

Question 4. What is the Fixed Capital Method?
Answer: Fixed Capital Method is one in which capital balances of the partners remain the same at the end of every financial year unless any amount of additional capital is introduced or part of the capital is withdrawn by the partner from the business. Under this method, a separate Current Account is opened to record all other routine transactions like interest, drawings, and salary.
In simple words: In this method, the main money invested by partners stays unchanged in their capital accounts. All daily transactions like profits or drawings are recorded in a separate current account.

🎯 Exam Tip: Clearly state that capital remains unchanged unless extra capital is brought in or permanently withdrawn, and mention the creation of a Current Account to score full marks.

 

Question 5. How many partners are required to form a partnership firm?
Answer: Minimum two persons are required to form a partnership firm. This requirement ensures that there is a mutual agreement between at least two distinct legal entities to carry out the business.
In simple words: You need at least two people to start a partnership. A single person cannot form a partnership by themselves.

🎯 Exam Tip: Always write "minimum two persons" clearly. You can also mention that the maximum limit is 50 partners for extra impact.

 

Question 6. What is Partnership Deed?
Answer: A partnership deed is a written agreement duly stamped and signed document containing the terms and conditions of the partnership. It serves as a legal guide to prevent and resolve any future disputes among the partners.
In simple words: A partnership deed is a written legal document signed by all partners that lists all the rules, rights, and duties of the business.

🎯 Exam Tip: Key terms to include are "written agreement", "stamped and signed", and "terms and conditions" to secure full marks.

 

Question 7. What are the objectives of the Partnership Firm?
Answer: To earn a maximum profit is the main objective of the partnership firm. In addition to earning profits, firms also aim to provide quality goods and services to their customers.
In simple words: The main goal of a partnership business is to make as much profit as possible. They do this by working together and sharing the workload.

🎯 Exam Tip: State "earning maximum profit" as the primary objective, as commercial businesses always aim for financial gain.

 

Question 8. What rate of interest is allowed on a partner’s loan in the absence of an agreement?
Answer: 6 % is the rate of interest to be allowed on a partner’s loan in the absence of an agreement. This interest is treated as a charge against profits, meaning it must be paid even if the firm incurs a loss.
In simple words: If a partner lends extra money to the business and there is no agreement, the business must pay them 6% interest per year on that loan.

🎯 Exam Tip: Memorize the exact figure of "6% per annum" as this is a highly expected question in objective and practical exams.

Question. What is the minimum number of partners required in a partnership firm according to the Indian Partnership Act 1932?
Answer: Minimum two persons are required a number of partners in a partnership firm according to Indian Partnership Act 1932. This legal requirement ensures that a mutual agreement can exist between at least two distinct entities.
In simple words: To start a partnership business, you need at least two people.

🎯 Exam Tip: Remember that a single person cannot form a partnership; the minimum limit is always two.

 

Question 10. What is the liability of a partner?
Answer: The liability of a partner (except minor partner) is unlimited. This means that if the business assets are not enough to pay off debts, the partners' personal properties can be used.
In simple words: If the business owes money and cannot pay, the partners have to pay from their own pockets, even selling their personal belongings if needed.

🎯 Exam Tip: Always highlight the exception of a 'minor partner' when writing about unlimited liability to score full marks.

 

Question 11. In the absence of Partnership Deed, what is the rate of interest on a loan advanced by the partner to the firm is allowed?
Answer: In the absence of Partnership Deed, 6% is the rate of interest on a loan advanced by the partner to the firm. This rule is strictly followed as per the provisions of the Indian Partnership Act, 1932.
In simple words: If there is no written agreement, a partner who lends extra money to the business is entitled to get 6% interest per year on that loan.

🎯 Exam Tip: Do not confuse interest on loan (6%) with interest on capital (which is not allowed at all in the absence of a deed).

 

Question 12. What do you mean by pre-received income?
Answer: Income that is received by the partnership firm before it is due is called pre-received income. It is treated as a liability in the balance sheet because the service or goods for it are yet to be delivered.
In simple words: Pre-received income is money you get in advance for work you haven't done yet.

🎯 Exam Tip: Remember that pre-received income is always shown on the Liabilities side of the Balance Sheet.

 

Question 13. What is the effect of the adjustment of provision for discount on debtors in the final accounts of partnership?
Answer: The effects of the adjustment of provision for discount on debtors in the final accounts of partnership are as follows: Debit Profit and Loss A/c and deduct the amount of provision for discount on debtors from the number of debtors. This ensures that the debtors are valued at their net realizable value in the balance sheet.
In simple words: To show a discount provision, you write it as an expense on the debit side of the Profit and Loss account and subtract it from the debtors' total on the Balance Sheet.

🎯 Exam Tip: Always calculate the provision for discount on debtors after deducting any new bad debts and new provision for doubtful debts from the total debtors.

 

Question 14. When are the Partners Current Account is opened?
Answer: Partners' Current Account is opened when the Fixed Capital Method is adopted by the partnership firm. Under this method, capital accounts remain unaltered unless additional capital is introduced or withdrawn permanently.
In simple words: A Partners' Current Account is opened when partners decide to keep their main capital amount fixed and record daily transactions like drawings and interest in a separate account.

🎯 Exam Tip: Clearly state 'Fixed Capital Method' as the key condition for opening a current account.

 

Question 15. As per which principle of accounting, closing stock is valued at cost price or at market price whichever is less?
Answer: As per the Conservatism principle of accounting, the closing stock is valued at cost price or at market price whichever is less. This principle ensures that future losses are anticipated but profits are not.
In simple words: This rule says we should always play it safe and choose the lower value for our unsold goods so we do not overestimate our profits.

🎯 Exam Tip: Remember the term "Conservatism" (also known as Prudence) as it is a fundamental accounting concept frequently tested in exams.

 

Question 16. What is the provision of the Indian Partnership Act with regard to Interest on Capital?
Answer: As per the provision of the Indian Partnership Act, Interest in Capital is not to be allowed. This rule applies unless there is a specific agreement to the contrary among the partners.
In simple words: Partners do not get any interest on the money they invest in the business unless they have specifically agreed to it beforehand.

🎯 Exam Tip: Clearly state "not to be allowed" to secure full marks when writing about partnership provisions regarding interest on capital.

 

Question 17. Why is the Balance Sheet prepared?
Answer: The Balance Sheet is prepared to know the financial position of the business in the form of its assets and liabilities on a particular date. It serves as a financial snapshot of what the business owns and owes.
In simple words: A balance sheet is like a financial report card that shows exactly what a business owns (assets) and what it owes (liabilities) at a specific point in time.

🎯 Exam Tip: Always include the phrase "on a particular date" because a balance sheet shows the financial position at a specific moment, not for a whole year.

 

Question 18. Why wages paid for the installation of machinery are not shown in Trading Account?
Answer: Wages paid for the installation of machinery is a capital expenditure and it is not to be recorded in Trading Account. Instead, this amount is added directly to the cost of the machinery in the Balance Sheet.
In simple words: Money spent to set up a new machine is treated as part of the machine's cost, not as a regular daily expense, so it goes on the balance sheet instead of the trading account.

🎯 Exam Tip: Clearly distinguish between capital expenditure and revenue expenditure to explain why installation costs are capitalized.

 

Question 19. What do you mean by indirect incomes?
Answer: All incomes other than direct incomes are called indirect incomes. [e.g. Interest received on investments, Incomes like discount, commission, dividend, rent, etc. received]. These are secondary sources of revenue that do not come from the main trading activities of the business.
In simple words: Indirect incomes are extra earnings that a business gets from side activities, like earning interest on bank savings or receiving rent, rather than from selling its main products.

🎯 Exam Tip: Provide at least two clear examples, such as interest received or commission received, to support your definition of indirect incomes.

 

Question 20. Why partners capital is treated as a long-term liability of business?
Answer: Partner’s Capital is not refunded during the existence of the partnership firm unless the partner is retired or expired. This capital remains invested in the business to support its ongoing operations over many years.
In simple words: The money contributed by partners stays in the business for a very long time and is only returned if a partner leaves or passes away. Therefore, the business treats it as a long-term debt.

🎯 Exam Tip: Remember that any liability not payable within a short period (usually one year) is classified as a long-term liability.

G. Do You Agree/Disagree With The Following Statements:

 

Question 1. When Partnership Deed is silent, partners share profits of the firm according to capital ratio.
Answer: Disagree. According to the Indian Partnership Act, 1932, when the deed is silent, profits and losses must be shared equally among all partners.
In simple words: If there is no written agreement about how to share profits, the law says all partners must share them equally, not based on how much money they put in.

🎯 Exam Tip: Always cite the Indian Partnership Act, 1932, to support your answer when discussing silent partnership deeds.

 

Question 2. The current Account always shows a debit balance.
Answer: Disagree. A partner's current account can show either a debit or a credit balance depending on drawings and profit shares. This balance fluctuates based on the transactions recorded during the financial year.
In simple words: A current account can have a positive (credit) or negative (debit) balance depending on whether the partner has withdrawn more or less than their share of profits.

🎯 Exam Tip: Clearly state that a current account can show both debit and credit balances to secure full marks.

 

Question 3. It is compulsory to have a partnership agreement in writing.
Answer: Disagree. A partnership agreement can be oral or written, though a written agreement is highly recommended to avoid future disputes.
In simple words: Partners can agree to work together just by talking, but having it in writing is safer to prevent arguments later.

🎯 Exam Tip: Mention that while a written agreement (Partnership Deed) is optional under Indian law, it is legally preferred for clarity.

 

Question 4. Partnership Firm is a trading concern.
Answer: Agree. A partnership firm is established to carry on a lawful business with the primary motive of earning profits through trading or services.
In simple words: A partnership is formed to buy, sell, or trade goods and services to make a profit.

🎯 Exam Tip: Highlight the profit-making motive of a partnership to define it as a trading concern.

 

Question 5. Interest in the capital is an expenditure for the partnership firm.
Answer: Agree. Interest on capital is an expense for the business because it is paid by the firm to the partners on their invested capital.
In simple words: Since the firm pays interest to the partners for using their money, it is treated as an expense for the business.

🎯 Exam Tip: Remember that from the business entity's perspective, any payment made to partners like interest or salary is an expense.

 

Question 6. A partnership is an association of two or more persons.
Answer: Agree. By definition, a partnership requires at least two people to come together to manage and run a business.
In simple words: A single person cannot form a partnership; you need at least two people to agree to run a business together.

🎯 Exam Tip: State the minimum limit of two partners and the maximum limit of fifty partners under the Companies Act to show complete knowledge.

 

Question 7. Partners are entitled to get a Salary or Commission.
Answer: Disagree. Partners are only entitled to a salary or commission if it is specifically agreed upon and mentioned in the partnership deed.
In simple words: Partners do not automatically get a salary or commission unless they have written it down in their official agreement.

🎯 Exam Tip: Remember that in the absence of a partnership deed, no partner is entitled to any salary or commission.

 

Question 8. The balance of the Capital Account remains constant under Fixed Capital Method.
Answer: Agree. Under the fixed capital method, the capital account balance remains unchanged unless additional capital is introduced or capital is permanently withdrawn.
In simple words: In this method, the main capital amount stays the same, and all daily adjustments like profits or drawings are recorded in a separate current account.

🎯 Exam Tip: Clearly distinguish between Fixed Capital Method and Fluctuating Capital Method to avoid confusion in objective questions.

 

Question 9. The Indian Partnership Act came into existence in the year 1945.
Answer: Disagree. The Indian Partnership Act actually came into existence in the year 1932.
In simple words: The law that governs partnership businesses in India was passed in 1932, not 1945.

🎯 Exam Tip: Memorize the exact year of the Indian Partnership Act (1932) as it is a very common question in exams.

 

Question 10. Profit and Loss Account reflects the true financial position.
Answer: Disagree. The Profit and Loss Account shows the net profit or loss of the business, whereas the Balance Sheet reflects the true financial position.
In simple words: The Profit and Loss Account only tells us how much profit or loss was made, while the Balance Sheet shows the actual financial health by listing assets and liabilities.

🎯 Exam Tip: Do not confuse financial performance (Profit and Loss Account) with financial position (Balance Sheet).

 

Question 11. The amount borrowed by a partner from his business will be debited to the Current Account.
Answer: Agree. Any drawings or personal borrowings made by a partner are debited to their Current Account under the fixed capital system.
In simple words: When a partner takes money out of the business for personal use, it is recorded on the debit side of their current account because it reduces their claim on the business.

🎯 Exam Tip: Remember that drawings and interest on drawings are always debited to the partner's Current or Capital Account.

 

Question 12. Sold but undispatched goods must be part of the valuation of closing stock.
Answer: Disagree. Goods that are already sold no longer belong to the business, even if they have not been dispatched yet, and therefore should not be included in the closing stock.
In simple words: Once goods are sold, ownership transfers to the buyer, so we cannot count them as our own unsold stock.

🎯 Exam Tip: Only goods owned by the business at the end of the financial year should be included in the closing stock valuation.

 

Question 13. Carriage inward is a selling and distribution overhead.
Answer: Disagree. Carriage inward is a direct expense related to the purchase of goods and is debited to the Trading Account, not the Profit and Loss Account as a selling overhead.
In simple words: Carriage inward is the transport cost paid to bring raw materials into the factory, so it is a direct production cost rather than a selling expense.

🎯 Exam Tip: Always classify carriage inward as a direct expense (Trading Account) and carriage outward as an indirect selling expense (Profit and Loss Account).

 

Question 14. Gross profit is an operating profit.
Answer: Disagree. Gross profit is the difference between sales revenue and the direct cost of goods sold, whereas operating profit is calculated after deducting operating expenses from gross profit.
In simple words: Gross profit is just the basic profit from selling goods before other business expenses like rent and salaries are subtracted. Operating profit is what is left after paying those daily running costs.

🎯 Exam Tip: Remember the sequence: Sales -> Gross Profit -> Operating Profit -> Net Profit. Knowing this hierarchy helps you easily answer agree/disagree questions on profitability.

 

Question 15. All financial expenditures are debited to the Profit and Loss Account.
Answer: Agree. Financial expenditures, such as interest on loans and bank charges, represent indirect expenses and are therefore debited to the Profit and Loss Account to determine net profit.
In simple words: Any money spent on financial activities, like paying interest on a loan, is an indirect expense and goes into the Profit and Loss Account.

🎯 Exam Tip: Always distinguish between direct expenses (debited to Trading Account) and indirect/financial expenses (debited to Profit and Loss Account) to avoid classification errors.

 

Question 16. Free distribution of goods is debited to Trading Account.
Answer: Disagree. Free distribution of goods is treated as an advertisement expense, which is an indirect expense, and therefore it is debited to the Profit and Loss Account while being credited to the Trading Account.
In simple words: Giving away free goods is a way of advertising, so this cost is written on the debit side of the Profit and Loss Account, not the Trading Account.

🎯 Exam Tip: Remember that free distribution of goods has a double effect: it reduces stock (credited to Trading Account) and acts as an advertisement expense (debited to Profit and Loss Account).

H. Calculate the Following:

 

Question 1. Undervaluation of closing stock by 10%, closing stock was Rs. 30,000. Find out the value of the closing stock.
Answer:
Undervaluation of closing stock is 10%.
Formula:
\( \text{Revised Value} = \frac{\text{Book Value}}{100 - \% \text{ of Undervaluation}} \times 100 \)
\( \implies \text{Revised Value} = \frac{30,000}{100 - 10} \times 100 \)
\( \implies \text{Revised Value} = \frac{30,000}{90} \times 100 \)
\( \implies \text{Revised Value} = \text{Rs. } 33,333 \)
Therefore, the actual value of the closing stock is Rs. 33,333. This adjustment ensures that the financial statements reflect the true and fair value of the assets.
In simple words: Since the stock was recorded at 10% less than its real value, we use a formula to scale it back up to its full 100% value, which is Rs. 33,333.

🎯 Exam Tip: When stock is undervalued, use the formula with \( (100 - \text{percentage}) \) in the denominator. If it is overvalued, use \( (100 + \text{percentage}) \) instead.

 

Question 2. Calculate 12.5% P.A. depreciation on Furniture:
(a) on Rs. 220,000 for 1 year
(b) on Rs. 10,000 for 6 months
Answer:
Formula: \( \text{Depreciation} = \text{Amount of Asset} \times \text{Period} \times \text{Rate of Depreciation} \)

(a) Depreciation on Rs. 220,000 for 1 year:
\( \text{Depreciation} = 220,000 \times 1 \times \frac{12.5}{100} \)
\( \implies \text{Depreciation} = \text{Rs. } 27,500 \)
Therefore, the depreciation on furniture for 1 year is Rs. 27,500.

(b) Depreciation on Rs. 10,000 for 6 months:
\( \text{Depreciation} = 10,000 \times \frac{6}{12} \times \frac{12.5}{100} \)
\( \implies \text{Depreciation} = 10,000 \times 0.5 \times 0.125 \)
\( \implies \text{Depreciation} = \text{Rs. } 625 \)
Therefore, the depreciation on furniture for 6 months is Rs. 625. Calculating depreciation accurately helps in representing the true wear and tear of the asset over time.
In simple words: To find the depreciation, we multiply the value of the furniture by the percentage rate and the time period. For a full year, it is Rs. 27,500, and for half a year (6 months), it is Rs. 625.

🎯 Exam Tip: Always pay close attention to the time period (months/years) given in the question, as calculating depreciation for a full year instead of 6 months is a very common mistake.

 

Question 3. The insurance premium is paid for the year ending on 1st September 2019 amounted to Rs. 1500. Calculate prepaid insurance assuming that the year-end is 31st March 2019.
Answer:
From 31st March to 1st September, there is a 5-month prepaid period for which we need to find the prepaid insurance amount. This prepaid portion represents an expense paid in advance for the next financial year.
An insurance premium paid for 12 months = Rs. 1500
\( \therefore \) For 5 months period, prepaid insurance = \( 1500 \times \frac{5}{12} = \text{Rs. } 625 \)
Thus, the prepaid insurance premium amount is Rs. 625.
In simple words: Since the insurance was paid for a full year up to September but our financial year ends in March, we have paid 5 months of insurance in advance. We calculate this advance amount by taking 5/12 of the total Rs. 1500 paid.

🎯 Exam Tip: Always count the months from the closing date of the financial year (31st March) to the expiry date of the policy (1st September) to find the prepaid period accurately.

 

Question 4. Find out Gross Profit/Gross Loss: Purchases Rs. 30,000, Sales Rs. 15,000, Carriage inward Rs. 2400, Opening stock Rs. 10,000, Purchase return Rs. 1000, Closing stock Rs. 36,000.
Answer:
To find the Gross Profit or Gross Loss, we prepare a partial Trading Account as follows:

Dr.                                          Trading Account (Partial)			Cr.
Particulars	Amount (Rs.)	Amount (Rs.)	Particulars	Amount (Rs.)	Amount (Rs.)
To Opening Stock		10,000	By Sales		15,000
To Purchases	30,000		By Closing Stock		36,000
Less: Purchase Return	1,000	29,000
To Carriage Inward		2,400
To Gross Profit (c/d)		9,600
Total		51,000	Total		51,000

Thus, the Gross Profit is Rs. 9,600.
In simple words: To find the gross profit, we add up all our sales and remaining stock (Rs. 51,000) and subtract our starting stock, net purchases, and direct expenses (Rs. 41,400). The leftover amount of Rs. 9,600 is our profit.

🎯 Exam Tip: Remember to deduct Purchase Returns from Purchases in the inner column before writing the net amount in the outer column of the Trading Account.

 

Question 5. A borrowed loan from Bank of Maharashtra Rs. 2,00,000 on 1st October 2019 @15 % p.a. Calculate interest on a bank loan for the year 2019 – 20 assuming that the financial year ends on 31st March, every year.
Answer:
From 1st October to 31st March, a 6-month period of interest on the loan needs to be calculated. This represents the outstanding interest expense accrued during the current financial year.
Formula for Interest (I) = \( \frac{\text{P} \times \text{R} \times \text{N}}{100} \)
Where:
P (Principal) = Rs. 2,00,000
R (Rate of Interest) = 15% p.a.
N (Period) = 6 months = \( \frac{6}{12} \) year
Calculation:
\( \text{Interest (I)} = \frac{2,00,000 \times 15 \times 6}{100 \times 12} \)
\( \implies \text{Interest (I)} = \text{Rs. } 15,000 \)
Thus, the interest on the bank loan for the year 2019–20 is Rs. 15,000.
In simple words: Since the loan was taken on 1st October and the year ends on 31st March, we only owe interest for 6 months. We calculate this by taking the annual interest of 15% on Rs. 2,00,000 and dividing it by half.

🎯 Exam Tip: Always check the date of borrowing to calculate the exact number of months for which interest is due, rather than calculating it for the whole year.

1,17,976Total1,36,326Total1,36,326

Balance Sheet as of 31st March 2019

 

Question. Prepare the Trading and Profit and Loss Account and Balance Sheet with the following adjustments:
(i) Mr. Patil, our customer becomes insolvent and could not pay his debts of Rs. 500.
(ii) Outstanding Expenses – Rent Rs. 800 and salaries Rs. 300.
(iii) Depreciate Factory Building by Rs. 2,500 and Furniture by Rs. 1,800.
Answer:
In the books of Amitbhai and Narendrabhai
Trading and Profit and Loss Account for the year ended on 31st March, 2019

Liabilities	Amount ₹	Amount ₹	Assets	Amount ₹	Amount ₹
Capital Accounts:			Plant & Machinery		2,80,000
Amitbhai	3,50,000		Factory Building		75,000
Add: Net Profit	58,988		Furniture		1,95,800
Less: Drawings	(2,400)	4,06,588	Freehold Property		41,000

Dr.			Cr.
Particulars	Amount (Rs.)	Amount (Rs.)	Particulars	Amount (Rs.)	Amount (Rs.)
To Purchases	85,500		By Sales	1,80,000
Less : Purchase Return	2,000	83,500	Less : Sales Return	2,200	1,77,800
To Import Duty		1,800	By Closing Stock		43,000
To Motive Power		12,000	By Goods Stolen Away		8,000
To Depreciation - Factory Building		2,500
To Gross Profit c/d		1,29,000
Total		2,28,800	Total		2,28,800
To Warehouse Rent		1,800	By Gross Profit b/d		1,29,000
To R.B.D.D. A/C			By Discount		1,200
Bad debts	500		By O/s Interest on Govt. Bonds		2,000
Add : New Bad debts	500		By R.B.D.D. A/c (Excess Reserve) (2,700 - 1,564)		1,136
Add : New Reserve	564
Total	1,564
Less : Old Reserve	2,700
To Legal Charges		2,000
To Advertisement Expenses	10,000
Less : Prepaid Adv. Exp.	8,750	1,250
To Salaries	3,800
Add : O/s Salaries	300	4,100
To Rent	1,500
Add : O/s Rent	800	2,300
To Depreciation on Furniture		1,800
To Loss due to Theft		8,000
To Net Profit Transferred to Capital A/c
Amitbhai	56,043
Narendrabhai	56,043	1,12,086
Total		1,33,336	Total		1,33,336

Balance Sheet as of 31st March 2019

Liabilities	Amount (Rs.)	Amount (Rs.)	Assets	Amount (Rs.)	Amount (Rs.)
Capital Account : Amitbhai			Plant & Machinery		2,80,000
Opening Balance	3,50,000		Factory Building	75,000
Add : Net Profit	56,043		Less : Depreciation	2,500	72,500
Less : Drawings	2,400	4,03,643	Closing Stock		43,000
Capital Account : Narendrabhai			Sundry Debtors	28,700
Opening Balance	3,00,000		Less : B.D. (New)	500
Add : Net Profit	56,043		Subtotal	28,200
Less : Drawings	3,200	3,52,843	Less : R.D.D. (New)	564	27,636

In simple words: This solution demonstrates how to adjust the final accounts for bad debts, outstanding expenses, and depreciation, and then present them in the Trading, Profit & Loss Account, and Balance Sheet.

🎯 Exam Tip: Always calculate depreciation and bad debts adjustments first, as they directly affect both the Profit & Loss Account and the Balance Sheet asset values.

Balance Sheet Extract and Working Notes

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Bills Payable	8,500	10% Govt. Bond	40,000
Creditors	38,500	O/s Interest on Govt. Bond	2,000
Bank Loan	15,000	Cash in Hand	20,000
Outstanding expenses:   Rent: Rs. 800   Salaries: Rs. 300	1,100	Cash at Bank	70,000
		Prepaid Advertisement Expense	8,750
		Furniture   Less: Depreciation	1,95,800 (1,800) 1,94,000
		Bills Receivable	20,700
		Freehold property	41,000
Total	8,19,586	Total	8,19,586

Notes:

• 1. Import duty, Motive power, and Depreciation on Factory building are recorded in the Trading A/c.
• 2. 10% Govt. Bond is an investment. It was purchased on 1 - 10 - 2018.
  \( \therefore \) Interest is calculated for six months.
  Interest on Govt. Bond = \( \frac{40,000}{1} \times \frac{6}{12} \times \frac{10}{100} = \text{Rs. } 2,000 \)
• 3. Adv. exp. paid for 2 years from 01 - 01 - 2019. Upto 31 - 3 - 2019, 3 months adv. exp. is written off to Profit and Loss A/c. It is calculated as below:
  \( = 10,000 \times \frac{3}{24} = \text{Rs. } 1,250 \)
  \( \therefore \) Prepaid adv. exp. = \( 10,000 - 1,250 = \text{Rs. } 8,750 \)

 

Question 2. From the following Trial Balance of M/s Mitesh and Mangesh, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as of that date.
Answer: To prepare the Trading and Profit and Loss Account and the Balance Sheet, we must systematically post each item from the Trial Balance to its respective account. Adjustments such as closing stock, outstanding expenses, depreciation, and provision for doubtful debts must be adjusted with a double-entry effect before finalizing the net profit and balancing the sheet. This systematic approach ensures that the financial statements reflect a true and fair view of the partnership's financial position.
In simple words: To solve this, we put trading items like sales and purchases in the Trading Account, everyday business expenses in the Profit and Loss Account, and assets and liabilities in the Balance Sheet.

🎯 Exam Tip: Always tick the items in the Trial Balance that have adjustments before starting the postings so you do not miss giving them a double effect.

 

Question. Trial Balance as of 31st March 2019

Debit Balance	Amount Rs.	Credit Balance	Amount Rs.
Stock as on (1/4/2018)	25,000	Sundry Creditors	38,000
Building	48,500	Sales	1,75,000
Carriage	1,780	Capital:
Factory Insurance	2,700	Mitesh	1,50,000
Postage	1,600	Mangesh	50,000
Bills Receivable	13,700	Outstanding Salaries	2,000
Sundry Debtors	52,200	Bills Payable	18,000
Return Inward	1,600	Return outward	1,800
Purchases	68,900
Audit fees	1,800	Current A/c:
Loose tools	32,000	Mitesh	3,000
Manufacturing Expenses	1,820	Mangesh	2,000
Electricity Charges	2,600
General Expenses	3,400
Export duty	1,000
Cash in hand	75,000
Bank Balance	29,000
Conveyance	4,100
Furniture	64,000
Salaries	2,000
Rent, Rate & Taxes	3,700
Drawings:
Mitesh	1,200
Mangesh	2,200
Total	4,39,800	Total	4,39,800

Adjustments:
1. Mitesh and Mangesh are sharing profit and losses in the ratio 3 : 1.
2. Partners are entitled to get commission @ 1% each on gross profit.
3. The closing stock is valued at Rs. 23,700.
4. Outstanding Expenses - Audit fees Rs. 400; Carriage Rs. 600.
5. Building is valued at Rs. 46,500.
6. Furniture is depreciated by 5%.
7. Provide interest on partner's capital at 2.5% p.a.
8. Goods of Rs. 900 were taken by Mangesh for his personal use.
9. Write off Rs. 1,000 as Bad debts and maintain R.D.D. at 3 % on Sundry Debtors.
Answer: In the books of M/s Mitesh and Mangesh, we will prepare the Trading Account, Profit and Loss Account, and the Balance Sheet.
In simple words: This problem asks us to prepare the final accounts for the partnership of Mitesh and Mangesh using the given trial balance and adjustments.

🎯 Exam Tip: Always mark the items in the Trial Balance that have adjustments (like Building, Furniture, Debtors, Carriage, Audit Fees) so you don't miss recording their inner-column calculations.

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  Question. Prepare the Trading and Profit and Loss Account for the year ended 31st March, 2019.
  Answer: The final accounts show the trading results and net profitability of the business, with the net profit being transferred to the partners' current accounts.

  Particulars	Amount (Rs.)	Amount (Rs.)	Particulars	Amount (Rs.)	Amount (Rs.)
  To Opening Stock		25,000	By Sales   Question. Prepare the Partners' Current Accounts and Balance Sheet as of 31st March 2019. Answer: Partners' Current Accounts Dr. Cr. Particulars Mitesh (Rs.) Mangesh (Rs.) Particulars Mitesh (Rs.) Mangesh (Rs.) To Drawings 1,200 2,200 By Balance b/d 3,000 2,000 To Additional Drawings (Goods) — 900 By Profit and Loss A/c (Commission) 990 990 To Balance c/d 54,303 17,061 By Profit and Loss A/c (Interest on Capital) 3,750 1,250 By Profit and Loss A/c 47,763 15,921 Total 55,503 20,161 Total 55,503 20,161 By Balance b/d 54,303 17,061 Balance Sheet as of 31st March 2019 Liabilities Amount (Rs.) Amount (Rs.) Assets Amount (Rs.) Amount (Rs.) Capital Accounts: Building 48,500     Mitesh 1,50,000     Less: Depreciation 2,000 46,500     Mangesh 50,000 2,00,000 Bills Receivable 13,700 Current Accounts: Sundry Debtors 52,200     Mitesh 54,303     Less: B.D. (New) 1,000     Mangesh 17,061 71,364      51,200 Sundry Creditors 38,000     Less: R.D.D. (New) 1,536 49,664 Bills Payable 18,000 Loose Tools 32,000 Outstanding expenses: Cash in Hand 75,000     Salaries 2,000 Bank Balance 29,000     Audit fees 400 Furniture 64,000     Carriage 600 3,000     Less: Depreciation 3,200 60,800 Closing Stock 23,700 Total 3,30,364 Total 3,30,364 Working Notes: 1. In this problem, Current Account balances are given. So, the total amount of fixed capital is directly shown in the Liabilities side of the Balance Sheet. Effects of adjustments related to commission to partners, interest on capital, and goods withdrawn by Mangesh are given in the Current Account. Closing balances of the Current Account are shown separately on the Liability side of the Balance Sheet. 2. Building is valued at Rs. 46,500 whereas the opening balance of Building given is Rs. 48,500. Therefore, a difference of the amount of Rs. 2,000 (48,500 – 46,500) is nothing but Depreciation charged on Building. 3. Return Inward \( \implies \) Sales Return Return Outward \( \implies \) Purchase Return In simple words: When partners use the Fixed Capital Method, their main capital stays untouched in the Balance Sheet, and all daily adjustments like drawings, interest, and profits are recorded in a separate Current Account. 🎯 Exam Tip: Always remember to route all adjustments through the Partners' Current Account instead of the Capital Account when a fixed capital system is specified in the problem. Provision for Discount @ 5%	25,700 (1,285)	24,415	Sundry Debtors Less: Bad Debts Less: New R.D.D. Less: Provision for Discount @ 3%	40,000 (900) (1,000) (1,143)	36,957
  Outstanding Expenses: Wages Salaries	700 800	1,500	Closing Stock		22,000
  			Prepaid Insurance		300
  			Cash at Bank		11,500
  			Cash in Hand		2,000
  Total		1,16,507	Answer: This statement represents the final trading results for the partners Reena and Aarti. Dr. 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 Building 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 In simple words: This account helps a business calculate its gross profit from core trading activities and its net profit after accounting for all other operating expenses and incomes. 🎯 Exam Tip: Always double-check that the totals of both the Debit and Credit sides match perfectly to ensure mathematical accuracy. Question 3. Prepare the Balance Sheet and Working Notes for Reena and Aarti. Answer: Liabilities Amount (Rs.) Amount (Rs.) Assets Amount (Rs.) Amount (Rs.) Capital Account : Reena Opening Balance Add : Net Profit Less : Drawings 50,000 8,495 2,000 56,495 Land and Building Less : Depreciation 25,000 1,250 23,750 Capital Account : Aarti Opening Balance Add : Net Profit Less : Drawings 30,000 5,097 1,000 34,097 Furniture 20,000 Sundry Creditors Less : Provision for Discount on creditors 25,700 1,285 24,415 Closing Stock 22,000 Outstanding expenses Wages Salaries 700 800 1,500 Sundry Debtors Less : Bad Debts (New) Less : Provision for Doubtful Debts (New) Less : Provision for Discount on Debtors 3% 40,000 900 39,100 1,000 38,100 1,143 36,957 Prepaid Insurance Premium 300 Cash at Bank 11,500 Cash in Hand 2,000 Total 1,16,507 Total 1,16,507 Working Notes: 1. Insurance premium Rs. 1,500 is paid for 15 months, i.e. prepaid insurance premium for 3 months = Rs. 300. 2. Reserve for Discount on Debtors = 3% on (Debtors - New Bad debts - New Reserve) \( = \frac{3}{100} \times (40,000 - 900 - 1,000) \) \( \implies = \frac{3}{100} \times (40,000 - 1,900) \) \( \implies = \frac{3}{100} \times 38,100 \) \( \implies = \text{Rs. } 1,143 \) 3. Reserve for Discount on Creditors = 5% on (Value of Creditors) \( = \frac{5}{100} \times 25,700 \) \( \implies = \text{Rs. } 1,285 \) 4. Profit and Loss ratio = Capital ratio = 50,000 : 30,000 = 5 : 3 In simple words: This balance sheet shows the final financial position of Reena and Aarti's business, including adjustments for depreciation, prepaid insurance, and discounts on debtors and creditors. 🎯 Exam Tip: Always calculate adjustments like bad debts and reserves in the correct order: first deduct new bad debts, then calculate the new reserve for doubtful debts, and finally calculate the discount on debtors on the remaining balance.   Question 4. From the following Trial Balance of M/s Meera and Madhav. Prepare Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as on that date. Trial Balance as of 31st March, 2019   Question 1. From the following Trial Balance and Adjustments, prepare Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as on that date in the books of M/s Meera and Madhav. Debit Balance Amount Rs. Credit Balance Amount Rs. Stock (1/4/2018) 25,000 Bank overdraft 5,000 Debtors 80,500 Bills Payable 12,500 Bills Receivable 10,000 Creditors 68,000 Purchases 2,08,500 Sales 3,25,000 Returns 1,000 Outstanding Rent 2,000 Carriage Inward 3,000 Unpaid Wages 1,500 Carriage Outwards 4,500 Capital: Motor Vehicle 55,000   Meera 75,000 General Expenses 1,800   Madhav 75,000 Export Duty 900 Purchase Return 1,000 Advertisement (For 3 years from 1/10/2018) 4,800 Printing & Stationary 1,200 Drawings:   Meera 3,500   Madhav 2,000 Leasehold Premises 1,10,000 Cash at Bank 45,000 Furniture 8,300 Total 5,65,000 Total 5,65,000 Adjustments: 1. Closing stock is valued at Rs. 32,000. 2. Provide provision for doubtful debts Rs. 2,000. 3. Create a reserve for a discount on debtors @ 3%. 4. Value of leasehold premises on 31st March 2019 Rs. 1,00,000. 5. Outstanding Expenses: Printing & stationery Rs. 500. Answer: In the books of M/s Meera and Madhav Trading and Profit and Loss Account for the year ended 31st March 2019 Dr. Debit Particulars Amount Rs. Amount Rs. Cr. Credit Particulars Amount Rs. Amount Rs. To Opening Stock 25,000 By Sales 3,25,000 To Purchases 2,08,500 Less: Sales Return (Returns) (1,000) 3,24,000 Less: Purchase Return (1,000) 2,07,500 By Closing Stock 32,000 To Carriage Inward 3,000 To Gross Profit c/d 1,20,500 Total 3,56,000 Total 3,56,000 To Carriage Outwards 4,500 By Gross Profit b/d 1,20,500 To General Expenses 1,800 To Export Duty 900 To Advertisement 4,800 Less: Prepaid (for 2.5 years) (4,000) 800 To Printing & Stationery 1,200 Add: Outstanding 500 1,700 To Provision for Doubtful Debts (New RDD) 2,000 To Provision for Discount on Debtors 2,355 To Leasehold Premises written off 10,000 To Net Profit c/d (transferred to Capital A/c)   Meera (1/2) 48,223   Madhav (1/2) 48,222 96,445 Total 1,20,500 Total 1,20,500 Balance Sheet as on 31st March 2019 Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs. Capital Accounts: Leasehold Premises 1,10,000   Meera 75,000 Less: Written off (10,000) 1,00,000   Add: Net Profit 48,223 Motor Vehicle 55,000   Less: Drawings (3,500) 1,19,723 Furniture 8,300   Madhav 75,000 Sundry Debtors 80,500   Add: Net Profit 48,222 Less: Provision for Doubtful Debts (2,000)   Less: Drawings (2,000) 1,21,222 78,500 Bank overdraft 5,000 Less: 3% Discount on Debtors (2,355) 76,145 Bills Payable 12,500 Bills Receivable 10,000 Creditors 68,000 Cash at Bank 45,000 Outstanding Rent 2,000 Closing Stock 32,000 Unpaid Wages 1,500 Prepaid Advertisement 4,000 Outstanding Printing & Stationery 500 Total 3,30,445 Total 3,30,445 Working Notes: 1. Advertisement: Advertisement expenditure of Rs. 4,800 is for 3 years starting from 1/10/2018. For the current financial year (from 1/10/2018 to 31/3/2019 = 6 months), the advertisement expense is Rs. 800 \( (4,800 \times \frac{1}{3} \times \frac{6}{12}) \). The remaining Rs. 4,000 is treated as prepaid advertisement and shown on the Assets side of the Balance Sheet. 2. Reserve for Discount on Debtors: It is calculated on the remaining debtors after deducting the provision for doubtful debts: Rs. 80,500 - Rs. 2,000 = Rs. 78,500. Discount @ 3% on Rs. 78,500 = Rs. 2,355. 3. Leasehold Premises: The leasehold premises are valued at Rs. 1,00,000 on 31st March 2019, which means the difference of Rs. 10,000 (Rs. 1,10,000 - Rs. 1,00,000) is written off as depreciation/amortization for the year. This systematic adjustment ensures that the financial statements present a true and fair view of the partnership's financial health. In simple words: To solve this problem, we first adjust the trial balance figures using the given adjustments like closing stock, outstanding expenses, and provisions. Then, we prepare the Trading Account to find the Gross Profit, the Profit and Loss Account to find the Net Profit, and finally the Balance Sheet to show the final financial position of Meera and Madhav. 🎯 Exam Tip: Always calculate adjustments like RDD and discount on debtors in the correct sequence: first deduct new bad debts/RDD, and then calculate the discount on the remaining balance of debtors to avoid calculation errors. Trading and Profit and Loss Account for the Year Ended 31st March, 2019 Dr. Cr. Particulars Amount (₹) Amount (₹) Particulars Amount (₹) Amount (₹) To Opening Stock 25,000 By Sales 3,25,000 To Purchase 2,08,500 Less : Sales Return 1,000 3,24,000 Less : Purchase Return 1,000 2,07,500 By Closing Stock 32,000 To Carriage Inward 3,000 To Gross Profit c/d 1,20,500 Total 3,56,000 Total 3,56,000 To Carriage Outward 4,500 By Gross Profit b/d 1,20,500 To General Expenses 1,800 To Export Duty 900 To Advertisement 4,800 Less : Prepaid Advt. 4,000 800 To Printing & Stationery 1,200 Add : O/s Printing & Stationery 500 1,700 To Written off Leasehold Premises 10,000 To Provision for Doubtful debts (New) 2,000 To R.D.D. (New) 2,355 To Net Profit (Transferred to Capital A/c) Meera 48,223 Madhav 48,222 96,445 Total 1,20,500 Total 1,20,500 Balance Sheet as of 31st March 2019 Liabilities Amount (₹) Amount (₹) Assets Amount (₹) Amount (₹) Capital Account : Meera Motor Vehicle 55,000 Opening Balance 75,000 Prepaid Advt. Expense 4,000 Add : Net Profit 48,223 Leasehold Premises 1,10,000 Less : Drawings 3,500 1,19,723 Less : Written off 10,000 1,00,000 Closing Stock 32,000 Capital Account : Madhav Debtors 80,500 Opening Balance 75,000 Less : Provision for Doubtful Debts 2,000 78,500 Add : Net Profit 48,222 Less : R.D.D. (New) 2,355 76,145 Less : Drawings 2,000 1,21,222 Bills Receivable 10,000 Bank Overdraft 5,000 Cash at Bank 45,000 Bills Payable 12,500 Furniture 8,300 Creditors 68,000 O/s Rent 2,000 Unpaid Wages 1,500 O/s Stationery & Printing 500 Total 3,30,445 Total 3,30,445 Working Notes:   Question 1. Advertisement expenses written off to Profit and Loss account during the year 2018-19 for six months i.e. from 1/10/18 to 31/03/19. Answer: The calculation for advertisement expenses to be written off is as follows: \( \text{Advertisement expenses W/off} = \text{Advertisement bill paid} \times \frac{1}{3} \times \frac{6}{12} \) \( = 4,800 \times \frac{1}{3} \times \frac{6}{12} \) \( = \text{Rs. } 800 \) \( \text{Prepaid advertisement} = 4,800 - 800 = \text{Rs. } 4,000 \). This prepaid amount will be shown on the assets side of the Balance Sheet. In simple words: Out of the total advertisement bill of Rs. 4,800, only one-third is considered for this year, and we calculate it for 6 months, which gives Rs. 800. The remaining Rs. 4,000 is paid in advance for future years. 🎯 Exam Tip: Always calculate prepaid expenses carefully by checking the exact number of months for which the payment has been made in advance.   Question 2. Reserve for Discount on Debtors = 3% (Balance in debtors) Answer: The reserve for discount on debtors is calculated on the remaining balance of debtors after deducting bad debts: \( \text{Reserve for Discount on Debtors} = \frac{3}{100} \times (80,500 - 2,000) \) \( = \frac{3}{100} \times 78,500 \) \( = \text{Rs. } 2,355 \). This reserve is debited to the Profit and Loss Account and deducted from debtors in the Balance Sheet. In simple words: To find the discount reserve, we first subtract any bad debts (Rs. 2,000) from the total debtors (Rs. 80,500) and then calculate 3% of the remaining amount. 🎯 Exam Tip: Remember to deduct new bad debts and new provision for doubtful debts from debtors before calculating the reserve for discount on debtors.   Question 3. Difference between the opening balance (Rs. 1,10,000) and the closing balance (Rs. 1,00,000) for leasehold premises is to be considered as written off on leasehold premises. Answer: The difference between the opening balance and the closing balance of leasehold premises represents the amount written off during the year: \( \text{Amount written off} = \text{Opening Balance} - \text{Closing Balance} \) \( = \text{Rs. } 1,10,000 - \text{Rs. } 1,00,000 \) \( = \text{Rs. } 10,000 \). This written-off amount is debited to the Profit and Loss Account as depreciation/amortization. In simple words: The value of the leasehold property went down by Rs. 10,000 over the year, which is treated as an expense and written off. 🎯 Exam Tip: Any reduction in the value of leasehold premises over time is treated as depreciation or write-off and must be shown on the debit side of the Profit and Loss Account.   Question 5. Sucheta & Gayatri are partners sharing Profit and Losses in the ratio 3 : 2. From the following Trial Balance and additional information, you are required to prepare Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as of that date. Trial Balance as of 31st March 2019 Answer: To prepare the Trading and Profit and Loss Account and the Balance Sheet, we must transfer all trial balance items to their respective accounts and adjust them using the given adjustments. The net profit or loss obtained will be distributed between Sucheta and Gayatri in their profit-sharing ratio of 3:2. In simple words: We use the trial balance figures to make the final accounts, sharing any final profit or loss between the partners in a 3:2 ratio. 🎯 Exam Tip: Always post the trial balance items first, then apply adjustments with double-entry effects to ensure the Balance Sheet tallies perfectly.   Question 1. From the following Trial Balance and Adjustments, prepare Trading and Profit and Loss Account and Balance Sheet. Particulars Debit Rs. Credit Rs. Purchases & Sales 65,000 1,85,500 Works Manager's Salary 2,300 Capital - Sucheta 75,000 - Gayatri 40,000 Opening Stock 18,700 Debtors & Creditors 47,500 35,000 Wages & Salaries 4,000 Bills Receivable 22,000 Bills Payable 27,300 Discount 400 Motive Power 1,350 Custom duty 1,500 Interest 1,300 Unproductive Wages 3,000 Audit fees 2,500 Rent 1,800 Conveyance 2,000 Goodwill 25,000 Copyrights 20,000 Building 88,000 Partner (Sucheta's) Loan 6,150 Investments 40,000 Cash at Bank 26,000 Total 3,70,650 3,70,650 Adjustments: 1. Stock on 31st March 2019 was valued at Rs. 19,700. 2. Goods costing Rs. 3,000 distributed as a free sample. 3. Motive power includes Rs. 500 paid for deposit of Power Meter. 4. Depreciate building @ 5 %. 5. Write off Rs. 2,000 for bad debts and maintain R.D.D. at 3% on debtors. 6. Bills receivable included dishonored of Bill of Rs. 4,000. Answer: In the books of Sucheta and Gayatri The final accounts are prepared to ascertain the net profit or loss and the financial position of the partnership firm. In simple words: This problem asks us to use the trial balance and adjustments to prepare the final financial statements for Sucheta and Gayatri's business. 🎯 Exam Tip: Always mark the items in the Trial Balance that have adjustments (like Building, Motive Power, Debtors, and Bills Receivable) before starting the solution to avoid missing any adjustment effects. Trading and Profit and Loss Account for the Year Ended on 31st March, 2019 Dr. Cr. Particulars Amount (₹) Amount (₹) Particulars Amount (₹) Amount (₹) To Opening Stock 18,700 By Sales 1,85,500 To Purchase 65,000 By Goods Distributed as Free Sample 3,000 To Works Manager's Salary 2,300 By Closing Stock 19,700 To Wages & Salaries 4,000 To Motive Power 1,350 Less : Deposit for Power Meter 500 850 To Custom Duty 1,500 To Gross Profit c/d 1,15,850 2,08,200 2,08,200 To Unproductive Wages 3,000 By Gross Profit b/d 1,15,850 To Audit Fees 2,500 By Discount 400 To Rent 1,800 By Interest 1,300 To Conveyance 2,000 To O/s Interest on Sucheta's Loan 369 To Advertisement Expenses (Goods distributed as samples) 3,000 To Depreciation on Building 4,400 To R.B.D.D A/c Bad debts (New) 2,000 Add : New Reserve 1,485 3,485 To Net Profit (Transferred to Capital A/cs) Sucheta Gayatri 58,198 38,798 96,996 1,17,550 1,17,550 Balance Sheet as of 31st March, 2019 Question 5 (Continued). Answer: Liabilities Amount (Rs.) Amount (Rs.) Assets Amount (Rs.) Amount (Rs.) Capital Account : Sucheta Opening Balance Add : Net Profit 75,000 58,198 1,33,198 Deposit Power Meter Building Less : Depreciation 88,000 4,400 500 83,600 Capital Account : Gayatri Opening Balance Add : Net Profit 40,000 38,798 78,798 Debtors Add : Dishonoured Bill Less : Bad Debts (New) Less : R.D.D. (New) @ 3% 47,500 4,000 51,500 2,000 49,500 1,485 48,015 Sucheta's Loan Add : O/s Int. on Loan 6,150 369 6,519 Bills Receivable Less : Dishonoured Bill 22,000 4,000 18,000 Creditors 35,000 Goodwill 25,000 Bills Payable 27,300 Copy Rights 20,000 Investments 40,000 Closing Stock 19,700 Cash at Bank 26,000 Total 2,80,815 Total 2,80,815 Working Notes: 1. Rate of interest on the partner’s loan is not mentioned, therefore interest on the loan is calculated at 6% p.a. \( \therefore \text{Interest on Sucheta's Loan} = 6,150 \times 1 \times \frac{6}{100} = \text{Rs. } 369 \) 2. Add dishonored bill amount to debtors amount and then calculate B.D. and R.D.D. 3. Subtract dishonored bill amount from bills receivable amount. In simple words: This balance sheet shows the final financial position of the partners, including adjustments for outstanding interest on loan, depreciation on building, bad debts, and dishonoured bills. 🎯 Exam Tip: Always remember that if the interest rate on a partner's loan is not specified, it must be calculated at 6% p.a. as per the Indian Partnership Act, 1932.   Question 6. Archana and Prerana are partners, sharing Profits and Losses in the ratio 2 : 1 with the help of the following Trial Balance and Adjustments given below. You are required to prepare a Trading and Profit and Loss Account for the year ended 31st March 2019 and a Balance Sheet as of that date. Trial Balance as of 31st March, 2019   Question 1. From the following Trial Balance and Adjustments, prepare the final accounts: Debit Balance Amount Rs. Credit Balance Amount Rs. Stock (1/4/2018) 8,560 Capital: Patents 2,000 Archana 40,000 Sundry Debtors 18,500 Prerana 20,000 Stock of Stationary 3,000 Other Loans 3,000 Trade Mark 2,000 Reserve fund 1,000 Bills Receivable 6,300 Sundry Creditors 17,500 Electricity charges 1,450 Bills Payable 5,000 Wages 950 Purchase Return 1,000 Heating & Lighting 1,000 R.D.D 500 Trade Expenses 850 Sales 30,200 Sales Return 400 Interest 310 Land & Building 22,000 Furniture 13,000 Cash at Bank 5,000 Investments 7,500 Drawings: Archana 1,200 Prerana 900 Baddebts 200 Purchases 23,700 Total 1,18,510 Total 1,18,510 Adjustments: 1. Stock on 31st March 2019 is valued at Cost Price Rs. 12,000 and Market Price Rs. 17,000. 2. Our customer Mr. Shekhar failed to pay his dues of Rs. 800. 3. 1/8th of Patents are to be written off. 4. A part of Furniture Rs. 5,000 is purchased on 1st Oct. 2018. 5. Depreciation on Land & Building 10% and on Furniture 5%. 6. Outstanding Expenses Wages Rs. 300 and Electricity Charges Rs. 200. 7. Allow Interest on Capital 3%. Answer: In the books of Archana and Prema. This is the starting point for preparing the final accounts, including the Trading Account, Profit and Loss Account, and the Balance Sheet. In simple words: This problem asks us to prepare the final financial statements for the partnership of Archana and Prema. We will use the trial balance figures and adjust them for items like outstanding expenses, depreciation, and unpaid debts to find the true profit and financial position. 🎯 Exam Tip: Always read the adjustments carefully and mark the corresponding items in the Trial Balance first so you do not miss any hidden adjustments while posting. Trading and Profit and Loss Account for the Year Ended 31st March, 2019 Dr. Particulars Amount (₹) Amount (₹) Cr. Particulars Amount (₹) Amount (₹) To Opening Stock 8,560 By Sales 30,200 To Purchases 23,700 Less : Sales Return 400 29,800 Less : Purchase Return 1,000 22,700 By Closing Stock 12,000 To Wages 950 Add : O/s Wages 300 1,250 To Heating & Lighting 1,000 To Gross Profit c/d 8,290 41,800 41,800 To Electricity Charges 1,450 By Gross Profit b/d 8,290 Add : O/s Ele. Ch. 200 1,650 By Interest 310 To Trade Expenses 850 To R.B.D.D A/c Bad debts 200 Add : New Bad debts 800 Less : Old Reserve 1,000 500 To Written off Patents 500 250 To Depreciation Furniture 525 Land and Building 2,200 2,725 To Interest on Capital Archana 1,200 Prerna 600 1,800 To Net Profit (Transferred to Capital A/c) Archana 550 Prerna 275 825 8,600 8,600 Balance Sheet as of 31st March 2019 🎯 Exam Tip: Always ensure that outstanding expenses (O/s) are added to their respective expenses in the Profit and Loss Account and also shown on the Liabilities side of the Balance Sheet to score full marks. Balance Sheet Liabilities Amount (Rs.) Amount (Rs.) Assets Amount (Rs.) Amount (Rs.) Capital Account: Archana Patents 2,000     Opening Balance 40,000     Less: Written off 250 1,750     Add: Int. on Capital 1,200 Furniture 13,000     Add: Net Profit 550     Less: Depreciation (400 + 125) 525 12,475 41,750 Land and Building 22,000     Less: Drawings 1,200 40,550     Less: Depreciation 2,200 19,800 Capital Accounts: Prerna Stock of Stationery 3,000     Opening Balance 20,000 Closing Stock 12,000     Add: Int. on Capital 600 Sundry Debtors 18,500     Add: Net Profit 275     Less: Bad Debts (New) 800 17,700 20,875 Trade Mark 2,000     Less: Drawings 900 19,975 Bills Receivable 6,300 Other Loans 3,000 Cash at Bank 5,000 Reserve Fund 1,000 Investments 7,500 Sundry Creditors 17,500 Bills Payable 5,000 Outstanding Expenses:     Wages 300     Electricity Charges 200 500 Total 87,525 Total 87,525 Working Notes: 1. Stationery stock is an asset. 2. Depreciation of furniture: Total Furniture Value: Rs. 13,000 On Rs. 8,000 (Opening Balance) for full year: \( 8,000 \times \frac{5}{100} = \text{Rs. } 400 \) On Rs. 5,000 (Purchased on 01/10/18) for six months: \( 5,000 \times \frac{6}{12} \times \frac{5}{100} = \text{Rs. } 125 \) \( \therefore \) Total Depreciation = \( 400 + 125 = \text{Rs. } 525 \) 3. \( \frac{1}{8} \) patents to be written off = \( 2,000 \times \frac{1}{8} = \text{Rs. } 250 \). 4. As no other expenses are given, Trade Expense is recorded in Profit and Loss Account.   Question 7. Satish and Pramod are partners. Prepare Trading Account and Profit and Loss Account for the year 31st March 2019. You have to find out Gross Profit and Net Profit only. Trial Balance as of 31st March 2019 🎯 Exam Tip: When asked to find only Gross Profit and Net Profit, focus on accurately transferring items to the Trading Account and Profit & Loss Account without preparing the Balance Sheet to save time.   Question 1. From the following Trial Balance and Adjustments, prepare Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance Sheet as on that date in the books of Satish and Pramod: Trial Balance as on 31st March 2019 Debit Balance Amount Rs. Credit Balance Amount Rs. Stock (1/4/218) 8,700 Sales 68,000 Purchases 18,300 Dividend 2,000 Wages 1,000 Purchases Return 500 Insurance 800 Sundry Creditors 13,000 Unproductive Wages 1,400 10% Bank Loan (w.e.f. 1/7/2018) 8,000 Warehouse Rent 600 Other Receipts 1,000 Carriage Outward 1,200 Sales Return 600 Export Duty 1,400 Customs Duty 800 Sundry Debtors 40,000 Investments 15,700 Factory Rent 1,600 Postage & Telegram 400 Total 92,500 Total 92,500 Adjustments: 1. The Closing stock is valued at Rs. 15,400. 2. Outstanding wages Rs. 500. 3. Create provision for Bad debts Rs. 800 and maintain R.D.D. 3 % on Sundry Debtors. 4. Goods of Rs. 1,800 distributed as a free sample. 5. Goods of Rs. 2,000 were sold and delivered on 31st March 2019 but no entry is passed in the Books of Account. Answer: In the books of Satish and Pramod Trading and Profit and Loss Account for the year ended 31st March 2019 Debit Amount Rs. Amount Rs. Credit Amount Rs. Amount Rs. To Opening Stock 8,700 By Sales 68,000 To Purchases 18,300 Add: Unrecorded Sales 2,000 Less: Purchases Return (500) 17,800 70,000 To Wages 1,000 Less: Sales Return (600) 69,400 Add: Outstanding Wages 500 1,500 By Goods distributed as Free Sample 1,800 To Customs Duty 800 By Closing Stock 15,400 To Factory Rent 1,600 To Gross Profit c/d 56,200 Total 86,600 Total 86,600 To Insurance 800 By Gross Profit b/d 56,200 To Unproductive Wages 1,400 By Dividend 2,000 To Warehouse Rent 600 By Other Receipts 1,000 To Carriage Outward 1,200 To Export Duty 1,400 To Postage & Telegram 400 To Advertisement (Free Samples) 1,800 To Interest on Bank Loan (Outstanding) 600 To Bad Debts (New) 800 Add: New R.D.D. (3%) 1,236 2,036 To Net Profit (transferred to Capital) - Satish (1/2) 24,482 - Pramod (1/2) 24,482 48,964 Total 59,200 Total 59,200 Balance Sheet as on 31st March 2019 Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs. Capital Accounts: Investments 15,700 Satish (Net Profit) 24,482 Sundry Debtors 40,000 Pramod (Net Profit) 24,482 48,964 Add: Unrecorded Sales 2,000 10% Bank Loan 8,000 42,000 Add: Outstanding Interest 600 8,600 Less: Bad Debts (New) (800) Sundry Creditors 13,000 41,200 Outstanding Wages 500 Less: R.D.D. (3%) (1,236) 39,964 Closing Stock 15,400 Total 71,064 Total 71,064 Working Notes: 1. Interest on Bank Loan: Interest is calculated on Rs. 8,000 @ 10% p.a. for 9 months (from 1/7/2018 to 31/3/2019): \( \text{Interest} = 8,000 \times \frac{10}{100} \times \frac{9}{12} = \text{Rs. } 600 \). This outstanding interest is added to the Bank Loan on the Liabilities side and debited to the Profit and Loss Account. 2. Calculation of R.D.D. on Debtors: Sundry Debtors = Rs. 40,000 Add: Unrecorded Sales = Rs. 2,000 Total = Rs. 42,000 Less: Provision for Bad Debts = Rs. 800 Balance = Rs. 41,200 R.D.D. @ 3% on Rs. 41,200 = Rs. 1,236. 3. Goods distributed as free sample: This is treated as Advertisement expense in the Profit and Loss Account and credited to the Trading Account. In simple words: We prepare the Trading and Profit & Loss Account to find the net profit of Rs. 48,964, which is shared equally between Satish and Pramod, and then we prepare the Balance Sheet which tallies at Rs. 71,064. 🎯 Exam Tip: Always remember to add unrecorded sales to both Sales and Sundry Debtors before calculating the new Bad Debts and R.D.D. percentage.   Question. Prepare the Trading and Profit and Loss Account for the year ended on 31st March, 2019. Answer: Dr. Particulars Amount (Rs.) Amount (Rs.) Cr. Particulars Amount (Rs.) Amount (Rs.) To Opening Stock 8,700 By Sales 68,000 To Purchases 18,300 Less : Sales Return 600 Less : Purchase Return 500 17,800 67,400 To Wages 1,000 Add : Unrecorded Sales 2,000 69,400 Add : O/s Wages 500 1,500 By Closing Stock 15,400 To Custom Duty 800 By Goods Distributed as Free Samples 1,800 To Factory Rent 1,600 To Gross Profit c/d 56,200 86,600 86,600 To Advertisement Expenses 1,800 By Gross Profit b/d 56,200 To Insurance 800 By Dividend 2,000 To Unproductive Wages 1,400 By Other Receipts 1,000 To Carriage Outward 1,200 To Warehouse Rent 600 To Export Duty 1,400 To Postage & Telegram 400 To O/s Interest on Bank Loan 600 To R.B.D.D A/c Bad debts — Add : New Bad debts 800 Add : New Reserve 1,236 2,036 To Net Profit (Transferred to Capital A/cs) Satish 24,482 Pramod 24,482 48,964 59,200 59,200 Working Notes: 1. Here only gross profit and net profit is to find out. Therefore, the Balance Sheet is not prepared. 2. Interest on a 10% bank loan is calculated for 9 months (From 1/7/2018 to 31/3/2019): \( I = \frac{\text{PRN}}{100} = 8,000 \times \frac{10}{100} \times \frac{9}{12} = \text{Rs. } 600 \) 3. Goods distributed as free samples is an advertisement expense for business. 4. Calculation of Sundry Debtors: Sundry Debtors = Rs. 40,000 Add: Unrecorded Sales = Rs. 2,000 Less: Provision for Bad Debts = Rs. 800 Total = Rs. 41,200 Less: R.D.D. (New) (3% of 41,200 = 1,236) = Rs. 39,964 In simple words: This statement calculates the business's trading profit (gross profit) and overall profit (net profit) after adjusting for expenses like unpaid wages, bad debts, and depreciation. 🎯 Exam Tip: Always calculate interest on bank loans based on the exact number of months from the date of the loan to the end of the financial year. Double-check your calculations for R.D.D. after adjusting for unrecorded sales and bad debts.   Question 8. Nana and Nani are partners in a 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 of 31st March 2019 Debit Balance Amount Rs. Credit Balance Amount Rs. Insurance 15,000 Capital A/c: Nana 50,000 Land and building (Addition of Rs. 20,000 w.e.f 1st July 2018) 50,000 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 Total 1,39,500 Total 1,39,500 Adjustments: 1. Gross profit amounted to Rs. 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 Rs. 1,000 for Bad debts and maintain R.D.D. at 5 % on Sundry debtors. 5. Closing stock is valued at Rs. 34,500. Answer: In the books of Nana and Nani This preparation helps in determining the true financial position and net profit of the partnership firm. In simple words: This problem asks us to adjust the trial balance figures for outstanding items, depreciation, and bad debts to find the final profit and prepare the balance sheet. 🎯 Exam Tip: Always calculate depreciation on land and building carefully by separating the opening balance and the new additions based on their respective dates of purchase.   Question. Prepare the Profit and Loss Account and Balance Sheet for the year ended 31st March, 2019 based on the given adjustments. Answer: Profit and Loss Account for the year ended 31st March, 2019 Dr. Cr. Particulars Amount (Rs.) Amount (Rs.) Particulars Amount (Rs.) Amount (Rs.) 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 Total 36,000 Total 36,000 Balance Sheet as of 31st March 2019 Liabilities Amount (Rs.) Amount (Rs.) Assets Amount (Rs.) Amount (Rs.) Capital Account: Nana Land and Building 30,000     Opening Balance 50,000     Add: Purchased on 1/07/18 20,000     Add: Net Profit 2,625 52,625     Total 50,000 Capital Account: Nani     Less: Depreciation 4,500 45,500     Opening Balance 50,000 Furniture 40,000     Add: Net Profit 2,625 52,625     Less: Depreciation 2,000 38,000 10% Bank Loan 30,000 Debtors 26,000     Add: O/s Interest on Bank Loan 1,500 31,500     Less: Bad Debts (New) 1,000 Bills Payable 8,000     Total 25,000     Less: R.D.D. (New) @ 5% 1,250 23,750 Closing Stock 34,500 Prepaid Insurance 3,000 Total 1,44,750 Total 1,44,750 Working Notes: 1. Here, the Profit and Loss Account and Balance Sheet are to be prepared. Therefore, Trading Account is not prepared. Gross profit (given) is recorded on the Credit side of the Profit and Loss Account. The net profit is distributed equally between Nana and Nani as no specific profit-sharing ratio is mentioned. 2. Land and Building Depreciation Calculation: Opening Balance: Rs. 30,000 Depreciation: \( 30,000 \times \frac{10}{100} = \text{Rs. } 3,000 \) Addition (Purchased on 1/7/2018): Rs. 20,000 Depreciation (for 9 months from July to March): \( 20,000 \times \frac{10}{100} \times \frac{9}{12} = \text{Rs. } 1,500 \) Total Depreciation on Land and Building: \( 3,000 + 1,500 = \text{Rs. } 4,500 \) In simple words: We calculated the net profit by subtracting all expenses from the gross profit and interest income. Then, we prepared the Balance Sheet to show the final values of assets and liabilities after adjusting for depreciation and outstanding items. 🎯 Exam Tip: Always calculate depreciation on additions to assets based on the exact number of months they were used during the financial year to secure full marks. Working Notes (Continued): Total Depreciation = Rs. 4,500 3. Interest on 10% bank loan is calculated for 6 months (From 1/10/2018 to 31/3/2019): \( I = \frac{\text{PRN}}{100} \) \( = 30,000 \times \frac{10}{100} \times \frac{6}{12} \) \( = \text{Rs. } 1,500 \) 4. Prepaid insurance = \( \frac{3}{15} \times (\text{Insurance Amount}) \) \( = \frac{3}{15} \times 15,000 \) \( = \text{Rs. } 3,000 \) 5. RDD = 5% on (Debtors \( - \) New Bad debts) \( = \frac{5}{100} \times (26,000 - 1,000) \) \( = \frac{5}{100} \times 25,000 \) \( = \text{Rs. } 1,250 \)   Question 9. Sun and Moon are partners in a Partnership Firm sharing Profits and Losses equally. You are required to give effects of Adjustments with the help of the following information: Trial Balance as of 31st March 2019 Debit Balance Amount Rs. Credit Balance Amount Rs. Land & Building 40,000 Capital A/c: Furniture 18,000     Sun 33,500 Machinery (Purchased on 1/7/18) 40,000     Moon 33,500 Goodwill 2,000 Current A/c: Sun 6,000 Wages 2,000 Sundry Creditors 25,000 Current A/c: Moon 4,000 Bank Overdraft 10,000 8% Debentures (Purchased on 1/10/18) 8,000 Reserve Fund 5,000 Provident Fund Investment 3,500 Provident Fund 5,000 Stock of Postal stamps 500 Total 1,18,000 Total 1,18,000 Adjustments: 1. Partners are entitled to get a salary of Rs. 6,000 p.a. in addition to their profit & loss sharing. 2. Depreciation on Land & Building, Furniture and Machinery @ 10%, 5% and 3% respectively. Answer: The double-entry effects of the adjustments are as follows: 1. Partners' Salary: • First Effect: Debit the Profit & Loss A/c (or Profit & Loss Appropriation A/c) with Rs. 12,000 (Rs. 6,000 for Sun and Rs. 6,000 for Moon) to record the salary expense of the firm. • Second Effect: Credit the respective Partners' Current Accounts with Rs. 6,000 each to increase their claim. 2. Depreciation on Fixed Assets: • Land & Building: 10% of Rs. 40,000 = Rs. 4,000. • Furniture: 5% of Rs. 18,000 = Rs. 900. • Machinery: 3% of Rs. 40,000 for 9 months (from 1/7/2018 to 31/3/2019) = \( 40,000 \times \frac{3}{100} \times \frac{9}{12} = \text{Rs. } 900 \). • First Effect: Debit the Profit & Loss A/c with the individual depreciation amounts (Land & Building: Rs. 4,000, Furniture: Rs. 900, Machinery: Rs. 900; Total Depreciation = Rs. 5,800). • Second Effect: Deduct these respective depreciation amounts from the assets on the Assets side of the Balance Sheet. In simple words: Adjustments are recorded twice: once to show the expense in the Profit & Loss Account, and once to update the value of assets or liabilities in the Balance Sheet or Partners' Accounts. 🎯 Exam Tip: Always calculate depreciation on machinery carefully by checking the date of purchase; since it was bought on 1/7/2018, depreciation is only charged for 9 months.   Question 1. Prepare the Balance Sheet and Partners Current A/c from the following adjustments: 3. Interest on Capital 5% p.a. 4. Closing stock Rs. 60,743. 5. Wages included Rs. 1,000 as advance is given to workers. 6. Interest due but not paid Rs. 800. 7. Total net profit amounted to Rs. 38,113. Answer: In the books of Sun and Moon Partner's Current Account Dr. Cr. Particulars Sun (Rs.) Moon (Rs.) Particulars Sun (Rs.) Moon (Rs.) To Balance b/d — 4,000 By Balance b/d 6,000 — By Profit and Loss A/c (Share in Net Profit) 19,056 19,057 By Profit and Loss A/c (Partners Salary) 6,000 6,000 By Profit and Loss A/c (Interest on Capital) 1,675 1,675 To Balance c/d 32,731 22,732 Total 32,731 26,732 Total 32,731 26,732 By Balance b/d 32,731 22,732 Balance Sheet as of 31st March 2019 Liabilities Amount (Rs.) Amount (Rs.) Assets Amount (Rs.) Amount (Rs.) Capital Accounts: Sun Moon 33,500 33,500 67,000 Land & Building Less : Depreciation 40,000 4,000 36,000 Current A/cs: Sun Moon 32,731 22,732 55,463 Furniture Less : Depreciation 18,000 900 17,100 Sundry Creditors 25,000 Machinery Less : Depreciation 40,000 900 39,100 Bank Overdraft 10,000 Goodwill 2,000 Reserve Fund 5,000 8 % Debentures Add : O/s Interest 8,000 320 8,320 Provident Fund 5,000 Provident Fund Investments 3,500 O/s Interest 800 Stock & Postal Stamps 500 Closing Stock 60,743 Advance to Workers 1,000 Total 1,68,263 Total 1,68,263 Working Notes: 1. Depreciation on machinery is calculated for 9 months (i.e. from 1/7/18 to 31/3/19) Depreciation = \( 40,000 \times \frac{3}{100} \times \frac{9}{12} = \text{Rs. } 900 \) In simple words: This solution shows how to distribute the net profit and interest on capital to the partners' current accounts, and how to present the final assets and liabilities in the Balance Sheet after adjusting for depreciation and outstanding expenses. 🎯 Exam Tip: Always calculate depreciation carefully based on the number of months the asset was used during the financial year to avoid calculation errors. Working Notes: 2. Interest on 8% debentures, calculated for 6 months (i.e., from 1/10/18 to 31/3/19): \( I = \frac{\text{PRN}}{100} \) \( = 8,000 \times \frac{8}{100} \times \frac{6}{12} \) \( = \text{Rs. } 320 \) 3. Advance given to workers (by firm) Rs. 1,000 is an asset for the firm, so, it is shown on the Assets side. 4. Interest due but not paid is a liability for the firm, so, it is shown on the Liabilities side.   Question 10. Kshipra and Manisha are partners sharing Profit and Losses in their Capital ratio. You are required to prepare Trading Account and Profit and Loss Account for the year ended 31st March 2019 and a Balance Sheet as of that date. Trial Balance as of 31st March 2019 Debit Balance Amount Rs. Credit Balance Amount Rs. Sundry Debtors 28,000 Sales 1,20,000 Purchases 55,000 Rent 1,800 Furniture 38,500 Sundry Creditors 38,500 Plant & Machinery 60,000 Purchase Return 1,000 Wages 800 Discount 500 Salaries 3,500 Bills Payable 9,000 Discount 800 Capital A/c : Bills Receivable 14,400     Kshipra 90,000 Carriage Outward 1,000     Manisha 30,000 Postage 500 Current A/c : Sales Return 500     Kshipra 5,000 Cash in Hand 4,000     Manisha 3,000 Cash at Bank 47,000 Insurance 2,000 Opening Stock 17,800 Trade Expenses 1,500 Ware house Rent 2,500 Advertisement 1,000 Building 20,000 Total 2,98,800 Total 2,98,800 Adjustments:   Question 1. Prepare the Trading and Profit and Loss Account for the year ended 31st March, 2019 based on the following adjustments: 1. Stock on 31st March 2019 was at Rs. 37,000. 2. Sales include the sale of machinery of Rs. 2,000, which is sold on 1st April 2018. 3. Depreciation on fixed assets @ 5% 4. Each partner is entitled to get a commission at 1% of Gross profit and interest on Capital 5% p.a. 5. Outstanding Expenses wages Rs. 200 & Salaries Rs. 500. 6. Create provision for Doubtful debts @ 3% on Sundry debtors. Answer: In the books of Kshipra and Manisha Trading and Profit and Loss Account for the year ended 31st March, 2019 Dr. Cr. Particulars Amount (Rs.) Amount (Rs.) Particulars Amount (Rs.) Amount (Rs.) To Opening Stock 17,800 By Sales 1,20,000 To Purchase 55,000 Less: Machinery Sold Wrongly Recorded as Sales 2,000 Less: Purchase Return 1,000 54,000 Less: Sales Return 500 1,17,500 To Wages 800 By Closing Stock 37,000 Add: O/s Wages 200 1,000 To Gross Profit c/d 81,700 1,54,500 1,54,500 To Salaries 3,500 By Gross Profit b/d 81,700 Add: O/s Salaries 500 4,000 By Rent 1,800 To Discount 800 By Discount 500 To Carriage Outward 1,000 To Postage 500 To Insurance 2,000 To Trade Expenses 1,500 To Warehouse Rent 2,500 To Advertisement 1,000 To Provision for Doubtful Debts (New) 840 To Depreciation: Furniture 1,925 Plant & Machinery 2,900 Building 1,000 5,825 To Interest on Capital: Kshipra 4,500 Manisha 1,500 6,000 To Commission: Kshipra 817 Manisha 817 1,634 To Net Profit (Transferred to Capital A/c): Kshipra 42,301 Manisha 14,100 56,401 84,000 84,000 The final net profit is distributed between Kshipra and Manisha in their profit-sharing ratio. In simple words: This is a Trading and Profit and Loss Account that helps us find the gross profit and net profit of the business. We adjust the expenses and incomes for the year to get the true profit, which is then shared between the partners. 🎯 Exam Tip: Always double-check that outstanding expenses are added to their respective items in the Profit and Loss account and also shown as a liability in the Balance Sheet. Partners' Current Accounts Dr. Cr. Particulars Kshipra (Rs.) Manisha (Rs.) Particulars Kshipra (Rs.) Manisha (Rs.) To Balance c/d 52,618 19,417 By Balance b/d 5,000 3,000 By Profit and Loss A/c (Commission) 817 817 By Profit and Loss A/c (Interest on Capital) 4,500 1,500 By Profit and Loss A/c (Share in Profit) 42,301 14,100 Total 52,618 19,417 Total 52,618 19,417 By Balance b/d 52,618 19,417   Balance Sheet as of 31st March 2019 Liabilities Amount (Rs.) Amount (Rs.) Assets Amount (Rs.) Amount (Rs.) Capital Accounts:   Kshipra   Manisha 90,000 30,000 1,20,000 Furniture   Less: Depreciation 38,500 1,925 36,575 Current A/cs:   Kshipra   Manisha 52,618 19,417 72,035 Plant & Machinery   Less: Sold on 1/4/18   Less: Depreciation 60,000 2,000 58,000 2,900 55,100 Sundry Creditors 38,500 Building   Less: Depreciation 20,000 1,000 19,000 Bills Payable 9,000 Closing Stock 37,000 Outstanding expenses   Wages   Salaries 200 500 700 Sundry Debtors   Less: Provision for Doubtful Debts 28,000 840 27,160 Bills Receivable 14,440 Cash in Hand 4,000 Cash at Bank 47,000 Total 2,40,235 Total 2,40,235   Working Notes 1. Depreciation on Fixed Assets: This refers to the systematic reduction in the book value of fixed assets over time, calculated here specifically on Furniture, Plant & Machinery, and Building. 2. Plant & Machinery Adjustment: Sales includes the sale of Machinery of Rs. 2,000, which must be subtracted from both total sales and Plant & Machinery. On the remaining balance of Plant & Machinery of Rs. 58,000, we calculate a \( 5\% \) depreciation: \( 60,000 - 2,000 = \text{Rs. } 58,000 \) \( \implies \text{Depreciation} = 58,000 \times 5\% = \text{Rs. } 2,900 \) 3. Partners' Commission: A \( 1\% \) commission is calculated on the Gross Profit for the partners. This is recorded in the Profit and Loss Account and credited to the Partners' Current Accounts. \( \text{Commission payable to each partner} = \frac{1}{100} \times \text{Gross Profit} = \frac{1}{100} \times 81,700 = \text{Rs. } 817 \) 🎯 Exam Tip: Always present clear, step-by-step working notes for depreciation and commission calculations. Examiners look for these specific calculations to award partial marks even if your final Balance Sheet does not tally.   Question. Calculate the Gross Profit. Answer: \( \text{Gross profit} = \frac{1}{100} \times 81,700 \) \( \implies \text{Gross profit} = \text{Rs. } 817 \) In simple words: To find the gross profit, we calculate 1 part out of 100 from the total value of Rs. 81,700, which gives us Rs. 817. 🎯 Exam Tip: Always show the step-by-step cancellation of zeroes when dividing by 100 to ensure your calculation is accurate and easy for the examiner to follow. 12th Secretarial Practice Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 11 Exercise Financial Market Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 10 Exercise Dividend and Interest Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 9 Exercise Depository System Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 8 Exercise Correspondence with Depositors Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 7 Exercise Correspondence with Debentureholders Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 6 Exercise Correspondence with Members Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 5 Exercise Deposits Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 4 Exercise Issue of Debentures Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 3 Exercise Issue of Shares Practical Problems Solutions Maharashtra Board 12th Secretarial Practice Chapter 2 Exercise Sources of Corporate Finance Practical Problems Solutions Maharashtra Board More Book Keeping and Accountancy Study Material › Free study material for Book Keeping and Accountancy Maharashtra Board Class 12 Book Keeping and Accountancy Solutions | Chapter Wise Free Maharashtra Board Class 12 Book Keeping and Accountancy Textbook PDF - All Chapters MSBSHSE Solutions Class 12 Book Keeping and Accountancy Chapter 1 Introduction to Partnership and Partnership Final Accounts Students can now access the MSBSHSE Solutions for Chapter 1 Introduction to Partnership and Partnership Final Accounts prepared by teachers on our website. These solutions cover all questions in exercise in your Class 12 Book Keeping and Accountancy textbook. Each answer is updated based on the current academic session as per the latest MSBSHSE syllabus. Detailed Explanations for Chapter 1 Introduction to Partnership and Partnership Final Accounts Our expert teachers have provided step-by-step explanations for all the difficult questions in the Class 12 Book Keeping and Accountancy chapter. Along with the final answers, we have also explained the concept behind it to help you build stronger understanding of each topic. This will be really helpful for Class 12 students who want to understand both theoretical and practical questions. By studying these MSBSHSE Questions and Answers your basic concepts will improve a lot. Benefits of using Book Keeping and Accountancy Class 12 Solved Papers Using our Book Keeping and Accountancy solutions regularly students will be able to improve their logical thinking and problem-solving speed. 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