ACCOUNTANCY Chapter : 1 DEPRECIATION,...

ACCOUNTANCY

Chapter : 1

DEPRECIATION, PROVISION AND RESERVES

TWO MARKS QUESTIONS

1. What is Depreciation?

Ans: Depreciation is the permanent decrease in the value of a fixed asset due to its constant use or lapse

of time.

2. State any two causes of depreciation?

Ans : i) Wear and tear and

ii) Passage of time.

3. What is the straight line method of depreciation?

Ans: Under this method, a fixed percentage of the original cost is written off every year, as annual

depreciation.

4. What is the written down value method of depreciation?

Ans: Under this method, depreciation at fixed percentage is calculated every year on the reduced balance

of the asset brought forward from the previous year.

5. What is Provision?

Ans: Provision is a charge against profit to meet certain known liabilities or contingencies.

6. What is Reserve?

Ans: Reserve is an appropriation of profit retained to meet unknown liabilities or contingencies

7. State any two types of reserves?

Ans: i) Capital Reserve and

ii) Revenue reserve

FOURTEEN MARKS QUESTIONS

8. On 01.07.2011 Mr. Radhakrishna purchased second hand Machinery for ₨ 80000 and spent ₨

16,000 on reconditioning and installing it. On 01.01.2012 he purchased new Machinery worth Rs.

60,000. On 30.06.2013, the Machinery which was purchased on 01.01.2012 was sold for Rs. 48,000

and on 01.07.2013 fresh Machinery was acquired at a cost of Rs. 64,000. He writes off depreciation

at 10% on original cost method. The accounts are closed every year on 31st March. Show the

Machinery account and Depreciation account for three years ending 31.03.2014

Ans: Dr. Machinery A/c Cr.

Date Particulars Amount Date Particulars Amount

1.7.11

1.1.12

1.4.12

To Bank A/c Bought

old Machinery (80000

+ 16000)

To Bank A/c Bought

New Machinery

To Balance b/d

96,000

60,000

31.3.12

31.3.12

31.3.13

31.3.13

By Depreciation A/c Old Machinery

(96000 x 10 % x 9/12 = 7200 New

Machinery = 1500 (60,000 x 10 % x

3/12))

By Balance c/d

By Depreciation A/c Old 96,000 x 10%

= 9,600

New 60,000 x 10 % = 6,000

By Balance c/d

8,700

1,47,300

1,56,000 1,56,000

1,47,300

15,600

1,31,700

1.4.13

1.7.13

To Balance b/d

To Bank A/c (Fresh

Machinery)

1,47,000

30.6.13

30.6.13

30.6.13

31.3.14

By Depreciation A/c new

By Bank A/c (sold)

By P/L A/c (loss)

By Depreciation A/c (old – 9,600 new

4,800)

By balance c/d

1,47,000

1,500

48,000

3,000

14,400

1,28,800

1,31,700

64,000

1,95,000 1,95,000

Calculation of P/L on the sale of new Machinery

Cost 60,000

(1.1.2012) 1,500

(-)Depreciation

1.4.2012

58,500

6,000

(-)Depreciation

(60,000 x 10%)1.4.2013

52,500

(-)Depreciation

(60,000 x 10 % x 3/12)

1,500

51,000

- Selling price 48,000

Loss on sale 3,000

9. From the following details, show machinery A/c and Depreciation A/c for 3 years under

diminishing balance method, charging depreciation at 10% p.a on 31st March every year:

i) Machine ‘A’ purchased on 01.10.2010 for Rs. 50,000

ii) Machine ‘B’ purchased on 31.06.2012 for Rs. 40,000

iii) Machine ‘A’ sold on 31.03.2013 for Rs. 38,000



1.10.10

1.4.11

1.4.12

31.6.12

To Bank A/c (Machine ‘A’

purchased )

To Balance b/d

To Balance b/d To Bank A/c (Machine ‘B’ purchased)

50,000 31.3.11

31.3.11

31.3.12

31.3.12

31.3.13

31.3.13

31.3.13

31.3.13

31.3.13

By Depreciation A/c (50000 x

10% x 6/12)

By Balance c/d By Depreciation A/c (47,500 x 10 %) By Balance c/d BY Depreciation A/c (Machine ‘A’) By Bank A/c (Sold) By P/L A/c (Loss) By Depreciation A/c (Machine ‘B’) (40000 x 10% x 9/12) By Balance c/d

2,500

47,500

50,000 50,000

47,500 4,750

42,750

47,500 47,500

42,750

40,000

4,275

38,000

475

3,000

37,000

82,750 82,750

1.4.13 To Balance b/d 37,000

Calculation of P/L on the sale of part of the Machine ‘A’

Cost 50,000

(1.10.2010)

2,500

(-)Depreciation

1.4.2011

47,500

4,750

(-) Depreciation 1.4.2012

(-)Depreciationupto 30.3.2013

(42750 x 10%)

Book Value

Sold

Loss

42,750

4,275

38,475

38,000

475

Depreciation A/c : Same procedure followed as in the previous sum

10. A Lease is purchased on 01.04.2008 for a term of 5 years by payment of Rs. 1,25,000. It is proposed

to depreciate the lease by the annuity method charging 10 % interest. If annuity of Re. 1 for 5

years at 10 % is 0.263797, show the Depreciation = 1,25,000 x 0.263797 = 32974.625



1.4.08 To Bank A/c 1,25,000.000 31.3.09 By Depreciation A/c 32,974.625

31.3.09 To Interest A/c 12,500.000 31.3.09 By Balance c/d 104,525.380

1,37,500.000 1,37,500.000

1.4.09 To Balance b/d 1,04,525.380 31.3.10 By Depreciation A/c 32,974.625 31.3.10 To Interest A/c (104525.38 x 10 %) 10,452.530 31.3.10 By Balance c/d 82,003.619

1,14,977.910 1,14,977.910

1.4.10 To Balance b/d 82,003.290 31.3.11 By Depreciation A/c 32,974.625

31.3.11 To Interest A/c (82003.29 x 10 %) 8,200.329 31.3.11 By Balance c/d 57,228.994

90,203.619 90,203.619

1.4.11 To Balance b/d 57,228.994 31.3.12 By Depreciation A/c 32,974.625 31.3.12 To Interest A/c (57228.994 x 10 %) 5,722.890 31.3.12 By Balance c/d 29,977.259

62,951.884 62,951.884

1.4.12 To Balance b/d 29,977.259 31.3.13 By Depreciation A/c 32,974.595

31.3.13 To Interest A/c 2,997.336

32,974.595 32,974.595

PRACTICAL ORIENTED QUESTIONS

11. Prepare Machinery a/c for two years with imaginary figures under Original cost method.

Dr Machinery a/c Cr

1/4/2012 To bank a/c 50,000 31/3/2013 By depreciation a/c

50,000x10%

5,000

31/3/2013 By bal c/d 45,000

50,000 50,000

1/4/2013 To bal b/d 45,000 31/3/2014 By depreciation a/c 5,000

31/3/2014 By bal c/d 40,000

45,000 45,000

12. Prepare Machinery a/c for two years with imaginary figures under Written down value method.

Dr Machinery a/c Cr

1/4/2012 To bank a/c 50,000 31/3/2013 By depreciation a/c

50,000x10%

5,000

31/3/2013 By bal c/d 45,000

50,000 50,000

1/4/2013 To bal b/d 45,000 31/3/2014 By depreciation a/c

45,000x10%

4,500

31/3/2014 By bal c/d 40,500

45,000 45,000

CHAPTER 2

ACCOUNTING FOR PARTNERSHIP; FUNDAMENTALS

TWO MARKS QUESTIONS

1. Name the methods under which the capital accounts could be prepared in a partnership firm.

Ans : i) Fixed capital method.

ii) Fluctuating capital method

2. What is meant by fluctuating capital system?

Ans : Under the fluctuating capital method, the capitals of the partners fluctuate from year to year

3. What is meant by fixed capital system?

Ans : Under the fixed capital method, the capitals of the partners fixed unless if there is additional

capital or withdrawal of capital.

4. What is a profit and loss appropriation Account?

Ans : The Profit/ Loss appropriation account is the account which shows the appropriation of profits of

the firms among the partners. It records interest on partners’ capital, drawings, loans partners,

salaries or commission etc.

5. Why is a profit/ loss appropriation account prepared by partnership firms?

Ans : It is prepared to know the Net profit/ loss after adjusting special transactions like interest on

capital, partners salaries, commission etc.

FIVE MARKS QUESTIONS

6. Miss Maheshwari, a partner in a firm has withdrawn the following amounts.

on 30th

June 2013 Rs. 3000

on 31st August 2013 Rs. 2400

on 28th

February 2014 Rs. 1500

The accounts of the firm are closed on 31st March of every year. Interest is chargeable on drawings

at 8 % per annum. Calculate the interest on Miss Maheshwari’s drawings under product method.

Ans : Calculation of interest on drawings of Miss Maheshwari

= Total product x 𝑟𝑎𝑡𝑒

100 x

1

12

Calculation of Total Product

Date of Drawing Amount Months o/s (Till 31st March) Product

on 30th June 2013 Rs. 3000 9 27,000

on 31st August 2013 Rs. 2400 7 16,800

on 28th February 2014 Rs. 1500 1 1,500

45,300

Therefore Interest on drawings = 45,300 x 8

100 x

1

12 = Rs 302

7. Chirag, Pavan and Prakash were partners in a firm. Drawings made by them are as follows: Chirag

Rs 2,000 on 1st of every month. Pavan Rs. 2500 on the 15

th of every month and Prakash Rs. 1500 on

the last date of every month.

Calculate interests on partners’ drawings at 12 % p.a for the year ending 31st March 2013 under

specific period method.

Ans : Chirag Rs. 2000 on 1st of every month

Specific Period method = Total drawings x 𝑟𝑎𝑡𝑒

100 x specific x

1

12

Interest = 24000 x 12

100 x

13

2 x

1

12 = Rs. 1,560

Pavan (15th

of every month) Rs. 2,500

Specific Period method = 30,000 x 12

100 x

6

12 = Rs 1,800

Prakash (last date of every month) Rs. 1,500

Specific Period method = 18,000 x 12

100 x

11

2 x

1

12 = Rs 990

8. Prakash and Praveen commenced business in partnership with a capital of Rs. 50,000 and Rs.

40,000 respectively on 01.04.2001 agreeing to share profit and losses in ration 3:2. For the year

ending 31.03.2002 they earned a profit of Rs 18,000 before allowing for the following .

a) Interest on capital at 5 % p.a.

b) Interest on drawings, Prakash Rs. 300 and Praveen Rs. 500

c) Yearly salary of Praveen Rs. 5,000

Their drawings during the year – Prakash Rs. 8,000 and Praveen Rs. 10,000. Prepare the

Profit and Loss adjustment Account of the firm.

Ans Dr. Profit / Loss Appropriation Account / Adjustment A/c Cr.

Particulars Amount Amount Particulars Amount Amount

To Interest on Capital a/c

By P/L a/c (N / P) 18000

Prakash 2500

By Interest on Drawings a/c

Praveen 2000 4500 Prakash 300 To Praveen Salary a/c 5000 Praveen 500 800

To N/P Transferred to

Prakash 5580

Praveen(3.2) 3720 9300

18800 18800

PRACTICAL ORIENTED QUESTIONS

9. How do you treat the following in the absence of partnership deed?

Ans :

a) Interest on capital - No Interest

b) Interest on drawings - No Interest

c) Interest on Loan - 6 % p.a

d) Distribution of P/L - Equal

e) Salary to partner - No salary

10. Prepare Profit and Loss appropriation account of a firm using five imaginary figures.

Ans Dr. Profit / Loss Appropriation Account / Adjustment A/c Cr.

Particulars Amount Amount Particulars Amount Amount

To Interest on Capital a/c

By P/L a/c (N / P) By Interest on drawings a/c 50,000

Arun 1000 Arun 250

Girish 500 1,500 Girish 250

To Girish Salary a/c 2,500 Praveen 500

To Arun's Commission a/c 1,000.000

To N/P transferred to 5580

Arun 22750 9300

Girish (1.1) 22750 45,500.000

50,500 50,500

11. Prepare partners’ capital accounts under Fixed Capital system.

Dr Capital A/c Cr

Particulars A B Particulars A B

By bal b/d 50,000 60,000

To bal c/d 50,000 60,000

50,000 60,000 50,000 60,000

Dr Current A/c Cr


By salary 4,000 3,000

By commission 2,000 1,000

By Interest on capital 6,000 4,000

To interest on

drawings

2,000 1,500

To bal c/d 10,000 6,500

12,000 8,000 12,000 8,000

12. Prepare partners’ capital A/c under Fluctuating capital system with imaginary figures.

Dr Capital A/c Cr


By Bal b/d 40,000 30,000

By commission 2,000 1,000

To drawings 10,000 8,000 By Interest on capital 6,000 4,000

To interest on

drawings

2,000 1,500

To bal c/d 36,000 25,500

48,000 35,000 48,000 35,000

CHAPTER : 3

ADMISSION OF A PARTNER

TWO MARKS QUESTIONS

1. State any two reasons for admitting a partner.

Ans : i) To increase the capital and

ii) To expand the business.

2. What is Sacrifice ration?

Ans : Sacrifice ratio is the ratio sacrificed by the old partners to the new partner

3. When do you prepare a Revaluation account?

Ans : i) Admission / Retirement / Death of a partner

ii) Change in profit sharing ratio

4. How do you close a Revaluation account?

Ans: Revaluation account is closed by transferring the profit/loss on revaluation, to the old partners’

capital accounts in their old ratio.

5. What is Sacrifice ratio?

Ans : Revaluation account is closed by transferring the profit / loss on revaluation, to the old partners’

capital accounts in their old ratio.

6. What is Good Will?

Ans : Good will is the value of good name or reputation of business which attracts more customers and

helps the firm to earn more profits.

7. State any two factors which determine the goodwill of a firm

Ans: i) Profits of the firm

ii) Turnover of the firm


8. Vidya and Vinaya are partners sharing profits and losses in the ratio of 3 : 2. They admit Vijaya

into the partnership. The new sharing of profit is 4 : 3 :2. Calculate the Sacrifice ratio of Vidhya

and Vinaya

Ans: Sacrifice share = old share – new share

Share sacrificed by Vidhya=3

5 -

4

9 =

27

45 -

20

45 =

27−20

45 =

7

45

Share sacrificed by Vinaya=2

5 -

3

9 =

18

45 -

15

45 =

18−15

45 =

3

45

Therefore, Sacrifice ratio = 7 :3

9. Kamal and Rajini are partners, sharing profits and losses in the ratio of 5 :3. They admit Sharath

into the partnership. All the partners agree to share profits and losses equally. Calculate the

Sacrifice ratio of Kamal and Rajini.

Ans: Sacrifice share = old share – new share

Kamal = 5𝑥3

8𝑥3 -

1𝑥8

3𝑥8 =

15

24 -

8

24 =

7

24

Rajini= 3𝑥3

8𝑥3 -

1𝑥8

3𝑥8 =

9

24 -

8

24 =

1

24

Therefore, Sacrifice ratio = 7: 1

10. A and B are partners, sharing profits and losses in the ratio of 7 :5. They admit C into the

partnership and give him ¼ share and A and B agree to share the remaining shares equally.

Calculate the Sacrifice ratio.

Ans : Sacrifice share = old share – new share

Calculation of New Share = Agreed Share X Remaining Share

Share of C = 1

4

Remaining share = 1 - 1

4 =

3

4

A = 1

2 x

3

4 =

3

8

B = 1

2 x

3

4 =

3

8

Therefore Sacrifice ratio

A = 7

12−

3

8 =

14−9

24 =

5

24

B = 5

12−

3

8 =

10−9

24 =

1

24

Therefore S R = 5 : 1

11. Raj and Vishnu are partners sharing profits and losses in the ratio of 5 :4. They admit Ashwath

into the partnership. Raj agrees to surrender 1/3 of his share and Vishnu agrees to surrender ¼ of

his share to Ashwath. Calculate the Sacrifice ratio.

Ans :Sacrifice share = old share x surrendered share

Raj = 5

9 x

1

3 =

5

27

Vishnu = 4

9 x

1

4 =

4

36 =

1

9

Ratio = 5

27 :

1

9 =

53

27

S. R = 5 : 3

12. Ahmed and Bharath are partners sharing profits and losses in the ratio 3 : 2. They admit Charles

into the partnership for 1/5 share, which he acquires in the proportion of 2 /25 and 3 /25 from

Ahmed and Bharath. Calculate the new profit share ratio.

Ans :New Share = Old Share - Share Sacrificed

Ahmed = 3𝑥5

5𝑥5 -

2

25 =

15

25 -

2

25 =

13

25

Bharat = 2𝑥5

5𝑥5 -

3

25 =

10

25 -

3

25 =

7

25

13. Ravi and Rajan are partners sharing profits and losses in the ratio of 7:5. They admit Ramu into

the partnership for 1/8 share which he acquires in the proportion of 1/12 and 1/24 from Ravi and

Rajan. Calculate the new ratio.


Ravi = 7

12 -

1

12 =

6

12

Rajan = 5

12 -

1

24 =

10−1

24 =

9

24

Ramu = 1

8

∴ Ratio = 6

12 :

9

24 :

1

8 =

12∶ 9 ∶3

24 = 12 ∶ 9 ∶ 3

14. Dhruva and Ramesh are partners, sharing profits and losses in the ratio of 3/5 : 2/5. They admit

Papu into the partnership and offer him 1/5 share which he acquires in the ratio of ¾ : ¼ from the

old partners. Calculate the new profit sharing ratio.


Share Sacrificed = Sacrifice ratio x New partner’s share

Share sacrificed by Dhruva = 3

4 x

1

5 =

3

20 :

And by Ramesh =1

4 x

1

5 =

1

20

Therefore, New Share =

Dhruva = 3

5 -

3

20 =

12−3

20 =

9

20

Ramesh = 2

5 -

1

20 =

8−1

20 =

7

20

Papu = 1

5 x

4

4 =

4

20 so the new profit sharing ratio is 9 : 7 : 4

Therefore 9 : 7 : 4

15. Deepa and Champa are partners sharing profits and losses in the ratio of 3 : 2. They admit Roopa

into the partnership and give her 1 /4 share. Calculate the new profit sharing ratio

Ans :New Share = Old Share x Remaining Share

Remaining Share = 1 - 1

4 =

3

4

Therefore, Deepa’s new share =3

5 x

3

4 =

9

20

Champa’s new share =2

5 x

3

4 =

6

20 : Roopa’s share =

1

4 =

5

20

Therefore new profit sharing ratio = 9

20 :

6

20 :

5

20

= 9 : 6 : 5

16. Good will of a firm is valued at 2 times the average profit of the previous 4 years. The profits and

the previous for last 4 years were :

2010-11 Rs 7,000 profit

2011-12 Rs 2,000 Loss

2012-13 Rs. 11,000 profit

2013-14 Rs. 16,000 profit

Calculate the goodwill of the firm

Ans : Total Profit for four years = 7,000 – 2,000 + 11,000 + 16,000 = 32,000

Average Profit == 𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠 =

32000

4 = Rs 8000

Therefore goodwill = 8,000 x 2 = Rs 16,000

FOURTEEN MARKS QUESTION

17. Ramya and Rajesh are partners sharing profits and losses in the ratio of 3 :2. Their balance sheet

as on 31.03.2014 was as follows :

Balance Sheet as on 31.03.2014

Liabilities Amount Assets Amount

Creditors 57,000 Cash 21,500

Bills Payable 20,500 Bills Recievable 4,000 General Reserve 20,000 Debtors - 60,000

Profit and Loss A/c 5,000 Less : RBD 3,000 57,000 Capitals Stock 35,000 Ramya 60,000 Furniture 10,000 Rajesh 30,000 Buildings 40,000 Machinery 25,000

1,92,500 1,92,500

on 01.04.2014 Tamya is admitted into the partnership on the following terms:

a) She should bring Rs. 40,000 as capital for 1/4th

Share and Rs 25,000 towards goodwill

b) Depreciate Machinery and Furniture by 10 %

c) Appreciate Building by 20 %

d) Increase RBD on debtors to Rs 6,000

e) An amount of Rs. 2,000 due to a Creditor is not likely to be claimed and hence to be written off.

Prepare

i. Revaluation Account

ii. Partners’ Capital Accounts and

iii. New Balance Sheet

iv. Ans: Dr. Revaluation A/c Cr.

Particulars Amount Particulars Amount

To Machinery A/c (Depreciation 25000 x 10 %) 2,500 By Building A/c (Appreciation - 40000 x 20 %) 8,000

To Furniture A/c (Depreciation 10000 x 10 %) 1,000 By Creditors A/c (Written off) 2,000 To RBD A/c (6000-3000) 3,000

To N/ P Transferred to

Ramya - 2100

Rajesh - 1400 (3 : 2) 3,500

10,000 10,000

Dr. Partner's Capital Accounts Cr.

Particulars Ramya Rajesh Tamya Particulars Ramya Rajesh Tamya

To Balance c/d 92,100 51,400 40,000 By Balance b/d 60000 30000 - By Reserve 12000 8000 - By P / L a/c 3000 2000 - By Revaluation 2100 1400 -

a/c (Profit) - By Goodwill a/c 15000 10000 - By Cash a/c 40000

92,100 51400 40,000 92100 51400 40000

By Balance b/d 92100 51400 40000

New Balance Sheet as on 01.04.2014

Liabilities Amount Amount Assets Amount Amount


(-) Written off 2,000 55,000 Add: New Partner

Bills Payable 20,500 Capital 40,000

Goodwill 25,000 86,500

Capitals Bills Receivable 4,000

Ramya 92,100 Debtors 60,000

Rajesh 51,400 Less RBD 6,000 54,000

Tamya 40,000 1,83,500 (3000 + 3000)

Stock

Furniture 10,000

Less : Depreciation 1,000 Buildings 40,000 Add: Appreciation 8,000 Machinery 25,000 Less: Depreciation 2,500

Total 2,59,000 Total 2,59,000

18. Suresh and Satish are partners sharing profits and losses in the ration of 3:2. Their Balance Sheet

as on 31.03.2014 was as follows:



Creditors Buildings 50,000

Suresh 40,000 Plant / Machinery 20,000

Satish 30,000 70,000 Furniture 12,000

Creditors 42,000 Stock 10,000

Bills Payable 13,500 Debtors 18,500

Reserve Fund 10,000 Cash 20,000

P and L A/c 5,000

1,35,000 1,35,000

On 01.04.2014 they admit Girish into the partnership on the following terms: She should bring Rs.

40,000 as capital for 1/4th

share in future profits.

a) Depreciate plant/ machinery by 10 %

b) Bad debts written of Rs 500, further create RBD at 5 % on debtors.

c) Appreciate Buildings by 20 %

d) Outstanding Salaries Rs. 500.

e) Rent Paid in advance Rs. 600

f) Goodwill of the firm is raised at Rs. 18,000 and is to be retained in business.

Prepare:

i) Revaluation Account

ii) Partner’s Capital Account and

iii) New Balance Sheet

Ans: Dr. Revaluation Account Cr.


To Plant / Machinery A/c 2,000 By Rent paid in Advance 600 (Depreciation)

To Bad Debts 500 By Building A/c 10,000

To RBD 900 (Appreciation)

(18500-500 x 5 %)

To Outstanding salary 500

To N/P transferred to 6,700 Suresh 4,020 Satish 2,080

10,600 10,600

Dr. Partners’ Capital Accounts Cr.

Particulars Suresh Satish Girish Particulars Suresh Satish Girish

To P/L a/c 3,000 2,000 - By Balance b/d 40,000 30,000 -

By Reserve fund 6,000 4,000 -

By Revaluation 4,020 2,680 - To Balance c/d 27,820 41,880 40,000 a/c (Profit) -

By Goodwill a/c 10,800 7,200 -

By Cash a/c 40,000

60,820 43,880 40,000 60,820 43,880 40,000

By Balance b/d 57,820 41,880 40,000



Capitals Buildings 50,000 Suresh 57,820 Add Appreciation 10,000 60,000 Satish 41,880 Plant/ Machinery 20,000 Girish 40,000 1,39,700 Less : Depreciation 2,000 18,000 Creditors 42,000 Furniture 12,000 Bills Payable 13,500 Stock 10,000 Outstanding 500 Debtors 18,500 Less : Bad Debts 500 RBD 900 17,100 Cash 20,000 Add: New Partners 40,000 60,000 Capital Goodwill 18,000 Rent paid in advance 600

Total 1,95,700 Total 1,95,700

19. Sindu and Bindu are partners sharing profits and losses in the ration of 3 :2. Their Balance sheet as

on 31.03.2014 was as follows:



Creditors 52,000 Cash at Bank 15,000

Bills Payable 30,000 Stock 40,000

Reserve Fund 20,000 Debtors 40,000

Capitals Less reserves 1000 39,000

Sindu 60,000 Furniture 10,000

Bindu 40,000 Plant and Machinery 40,000

P and L A/c 8,000 Buildings 50,000 Investments 5,000

Bills receivable 11,000

2,10,000 2,10,000

on 01.04.2014 Indu is admitted into the partnership on the following terms:

a) She should bring Rs. 40,000 as capital and Rs 10,000 towards goodwill for 1/5 share in future

profits.

b) Half of the goodwill is to be withdrawn by the old partners

c) Depreciate plant and machinery and furniture at 10 % each

d) Provision for doubtful debts is to be maintained at 10% on debtors

e) Buildings are to be valued at Rs. 60,000

f) Make a provision for compensation to the workers who were injured in the accident as Rs

15,000

Prepare:

i) Revaluation Account

ii) Partners’ Capital Accounts and

iii) New Balance Sheet



To Plant/ Machinery A/c 4,000 By Building A/c 10,000

(60000 - 50000)

To Furniture A/c 1,000 By Net loss transferred to

Sindu 7800

To Provision for Bindu 5200 13,000

Doubtful Debts (40000 x 10 % = 4000 -1000) To Compensation to workers 15,000

23,000 23,000

Dr. Partners’ Capital Accounts Cr

Particulars Sindu Bindu Indu Particulars Sindu Bindu Indu

To Revaluation a/c 7800 5200 By Balance b/d 60000 40000 -

(N/L) By Reserve Fund 12,000 8000

To Bank A/c 3000 2000 By P/L a/c 4800 3200

(Goodwill withdrawn) By Bank a/c 40000

To Balance c/d 72000 48000 40000

82800 55200 40000 82800 55200 40000

By Balance b/d 72000 48000 40000




Bills Payable 30,000 Add: Capital of 40,000

Indu

Capitals:

Sindu 72,000 Goodwill 10,000

Bindu 48,000 Less: Goodwill 5,000 60,000

Indu 40,000 1,60,000 withdrawn

Stock

Outstanding 15,000 Debtors 40,000

Compensation to Less : Reserve 4,000 36,000

the workers Furniture 10,000

Less : Derpreciation 1,000 9,000

Plant and Machinery 40,000

Less: Depreciation 4,000 36,000

Buildings 50,000

Add: Increase 10,000 60,000

Investments 5,000

Bills Receivable 11,000

Total 2,57,000 Total 2,57,000

20. Guru and Shukra are partners sharing profits and losses in the ratio of 2:1. Their Balance Sheet as

on 31.03.2014 was as follows:




Bank Loan 10,400 Vehicle 30,000

B/R 20,000

Reserves 15,000 Debtors 70,000

Profit and Loss A/c 15,000 Less reserves 4,000 66,000

Capitals Stock 62,000 Guru 90,000 Furniture 20,000 Shukra 70,000 Machinery 60,000 B P 10,000

2,60,000 2,60,000

Banu is admitted into partnership on the following terms:

a) He should bring Rs 80,000 as capital for ¼ share and Rs 30,000 towards goodwill

b) Goodwill is withdrawn by the old partners

c) Machinery is depreciated at 10%

d) Furniture is written down by Rs 2,000

e) Increase R.B.D by Rs 2,400

f) An amount of Rs 4,400 due to a Creditor, is not likely to be claimed and hence to be written

off. Prepare:



iii. New Balance Sheet.



To Machinery A/c 6,000 By Creditors A/c 4,400

(Depreciation) (Written off)

To Furniture A/c 2,000 By N/L transferred to

(Written down) Guru 4,000

To R. B. D A/c 2,400 Shukra 2,000 (2:1) 6,000

10,400 10,400


Particulars Guru Shukra Banu Particulars Guru Shukra Banu

To Revaluation A/c 4,000 2,000 By Balance b/d 90,000 70,000

By Reserve fund 10,000 5,000

To Cash A/c 20,000 10,000 By P/L a/c 10,000 5,000

(Goodwill withdrawn

By Cash a/c 80,000

By Goodwill a/c 20,000 10,000

To Balance c/d 1,06,000 78,000 80,000

1,30,000 90,000 80,000 1,30,000 90,000 80,000

By Balance b/d 1,06,000 78,000 80,000




Less: Written off 4,400 45,600 (2,400 + 80,000)

10,400 Vehicle 30,000

B/R 20,000

Capitals: Debtors 63,000

Guru 1,06,000 Stock 62,000

Shukra 78,000 Furniture 18,000

Banu 80,000 2,64,000 Machinery 54,000

B/P 10,000

Total 3,30,000 Total 3,30,000

21. Hari and Hara are partners, Sharing profits and losses in the ratio 2:3. Their Balance Sheet as on

31.03.2014 was as follows:



Creditors 55,000 Cash at Bank 21,500 Bills payable 5,000 Bills receivable 4,500 Reserve Fund 16,000 Stock 35,000 Capitals Debtors 60,000 Hari 40,000 Less reserves 3,000 57,000 Hara 37,000 Buildings 30,000 Furniture 5,000

1,53,000 1,53,000

On 01.04.2014 Manikanta is admitted into the partnership on the following terms:

a) He should bring in Rs 25,000 as capital

b) Goodwill of the firm is valued at Rs. 32,000 and goodwill A/c is to be written off

c) The new profit sharing ratio is 3: 3:2

d) Depreciate stock by 10% and increase buildings by 15%

e) Provision for doubtful debts is to be reduced to Rs.1,000

f) Rs. 600 included in Creditors is not likely to be claimed and hence to be written off

g) Make a provision for damages against the firm to the extent of Rs. 1,000

Prepare:






To Stock A/C (Depreciation) 3,500 By Building A/c (Increase) 4,500

By Creditors A/c (Written off) 600

By provision for doubtful debts 2,000

To provision for damages 1,000

To N/P

Transferred to

Hari 1,040

Hara 1,560 (2:3) 2,600

7,100 7,100


Particulars Guru Shukra Banu Particulars Guru Shukra Banu

To Goodwill A/c 12,000 12,000 8,000 By Balance b/d 40,000 37,000

(Written off 3:3:2) By Reserve 6,400 9,600

By Revaluation 1,040 1,500

a/c (Profit)

To Balance c/d 48,240 55,360 17,000 By Bank a/c 25,000

By Goodwill a/c 12,800 19,200

60,240 67,360 25,000 60,240 67,360 25,000

By Balance b/d 48,240 55,360 17,000



Creditors 54,400 Cash at Bank 46,500 B/P 5,000 B/R 4,500

Capitals Stock 31,500 Hari 48,240 Debtors (60,000 – 1,000) 59,000 Hara 55,360 Furnitures 5,000

Manikanta 17,000 Buildings 34,500 Provision for damages 1,000

Total 1,81,000 Total 1,81,000

CHAPTER:4

RETIREMENT AND DEATH OF A PARTNER

TWO MARKS QUESTIONS

1. Write any two circumstances for the retirement of a partner

Ans : i) Old age of the partner

ii) Insolvency of that partner

2. What is gain ratio? Why is it required ?

Ans: The gain ration or benefit ratio is the ratio in which the remaining partners gain or acquire the

share of a retiring partner on his retirement. It is required for the purpose of writing off the

goodwill created to the extent of retiring partner’s share against the capital accounts of the

remaining partners

3. Mention any two modes of payment, on settlement to a retiring partner.

Ans: i) By cash or cheque

ii) Through bank overdraft

iii) Amount due to the retiring partner is treated as loan

4. Who is an executor?

Ans: Executors are the legal representatives of a deceased partner in a partnership firm.


5. M, N and O are partners sharing profits and losses in the ratio of 5 :3 : 2. N retires from the

business. M and O share future profits in the ratio of 5/8 and 3/8 respectively. Find out the gain

ratio of M and O.

Ans : Gain ratio – New Share – Old Share

M = 5

8 -

5

10 =

50−40

80 =

10

80

O = 3

8 -

2

10 =

30−16

80 =

14

80

i.e = 10 : 14

5:7

6. Sun, Moon and Star were partners sharing profits and losses in the ratio of 4:3:2. Moon retires

from the partnership, the new profit sharing ratio of Sun and Star is 5:3. Find out their gain ratio

Ans: Gain ratio = New ratio - old ratio

Sun =5

8 -

4

9 =

45−32

72 =

13

72

Star =3

8 -

2

9 =

27−16

72 =

11

72

i.e the gain ratio is 13 : 11

7. Sea, River and Canal are partners sharing profits and losses in the proportion of 4:3:2 respectively.

Canal retires and the remaining partners share the future profits equally. Calculate the gain ratio.

Ans: Gain ratio = New ratio - old ratio

Sea =1

2 -

4

9 =

9−8

18 =

1

18

River = 1

2 -

3

9 =

9−6

18 =

3

18

i.e the gain ratio is 1:3

8. Zaheer, Ameen and Sikandar are partners, sharing profits in the ratio of 3:2:1. Sikandar retires

and his share is gained by Zaheer and Ameen in the ratio of 1/8 and 1/24 respectively. Calculate the

new profit sharing ratio

Ans :New Ratio = old ratio + Gain ratio

Zaheer = 3

6 +

1

8 =

24+6

48 =

30

48

Ameen = 2

6 +

1

24 =

8+1

24 =

9

24

= 30

48 :

9𝑥2

24𝑥2 =

30

48 :

18

48 =

30:18

48

i.e the gain ratio = 30 : 18 = 15 : 9

9. X, Y and Z are partners, sharing profits in the ratio of 2:1:1. Y retires and his share is taken over

by X and Z in the proportion of 1/9 and 1/18. Calculate the new profit sharing ratio


X = 2

4 +

1

9 =

18+4

36 =

22

36

Z = 1

4 +

1

18 =

9+2

36 =

11

36

The new profit sharing ratio is = 22

36 :

11

36

= 22:11

= 2 : 1

10. Ramesh, Prakash, Suresh and Dinesh are partners sharing profits and losses in the ratio of 3:2:1:4.

Ramesh retires and his share is acquired by Prakash and Suresh in the ratio of 3:2. Calculate the

new profit sharing ratio of the remaining partners.


Prakash = 2

10 +

3

5 =

10+30

50 =

40

50

Suresh = 1

10 +

2

5 =

5+20

50 =

25

50

Dinesh = 4

10 +

1

5 =

20+10

50 =

30

50

The new profit sharing ratio is = 40

50 :

25

50:

30

50

= 4:2:3

11. Navab, Jayaram and Mahavir were partners sharing profits and losses in the proportion of 2 :1:1.

Their balance sheet as on 31-3-2013 was as under:


Sundry creditors 25,000 Cash 6,000

Reserve Fund 20,000 Stock 12,000

Capitals Bills Recievable 6,000

Navab 15,000 Debtors 15,000

Jayaram 10,000 Investments 15,000

Mahavir 10,000 35,000 Buildings 26,000

90,000 90,000

The partnership deed provides that, in the event of death of a partner, his executors are entitled to get the

following:

a) The capital at the date of last Balance sheet

b) His portion of reserve fund

c) His share of profit till the date of his death based on the average profits of the last three years of

profits

d) His share of Goodwill. Goodwill of the firm is twice the average profit of last 3 years profits. The

profits for the last three years were:

2010-11 Rs. 16,000; 2011-12 Rs. 16,000; 2012-13 Rs. 15,520

Mahavir died on July 1st 2013. He had also withdrawn Rs. 5,000 till his death. Prepare Mahavir’s

capital account and his executor’s account.

Ans: Dr. Mahavir’s Capital Account Cr.


To Drawings 5,000 By Balance b/d 10,000

To Mahavir’s Executor’s a/c 18,910 By Reserve (20,000 x 1/4) 5,000

(Balance) By P/L suspense a/c (Note -1) 990

By Goodwill a/c (Note -2) 7,920

23,910 23,910

P / L Suspense A/c (Note -1)

Based on average profit of last 3 years

= 15,520+16,000+16,000

3 =

47,520

3 = 15,840

Therefore 15,840 X 3/12 X 1/4 = 990

Note -2

Goodwill = Average profit x Number of purchase years

= 15,480 x 2 = 31,680

Therefore, 31,680 x 1/4 = 7,920

Dr. Mahavir’s Executor’s Account Cr.


To Balance c/d 18,910 By Mahavir’s Capital a/c 18,910

18,910 18,910

By balance b/d 18,910

12. Prabhakar, Rajashekar and Vasanth were partners, sharing profits and losses in the ratio of 5:3:2.

Their balance sheet as on 31-3-2013 was as follows:


Creditors 30,000 Cash in hand 13,000

Bills payable 18,000 Cash at bank 22,000

Capitals Stock 27,500

Prabhakar 50,000 Bills receivable 12,500

Rajashekar 30,000 Debtors 25,000

Vasanth 20,000 1,00,000 Furniture 30,000

Profit and loss Account 12,000 Equipments 30,000

1,60,000 1,60,000

Vasanth died on 30-9-2013, and his dependents were entitled to the following:

a) His capital as per the last balance sheet

b) His share in the profit and loss account

c) His share of goodwill based on two years purchase value of the average profits of last three

years. The profits were:

For 2012 Rs. 18,000 and 2011 Rs. 15,000 for 2010

d) Share of profit or loss on revaluation of assets and liabilities. The total loss on revaluation

was Rs. 6,500.

e) Vasanth was entitled to an annual commission of Rs. 7,000

Prepare Vasanth’s executor’s account

Ans: Dr. Vasanth’s executor’s account Cr.


To Revaluation a/c (Loss) 1,300 By Vasanth Capital a/c 20,000

(6,500 x 2/10) (Share) By P/L A/c 2,400

To Balance c/d 31,200 (12000 x 2/10) (Share)

By Goodwill a/c (Note -1) 6,600

By Commission 3,500

(7,0000 x 6/12)(Months)

32,500 32,500

By Balance b/d 31,200

13. Hari, Giri and Suri were partners sharing profits and losses in the ratio 5:2:1 respectively. Their

Balance sheet as on 31.03.2013 was as under:



Bills payable 9,000 Bills Receivable 12,600

Reverse fund 16,000 Debtors 30,000

Capitals: Less : Reserve 1,600 28,400

Hari 50,000 Stock 20,000

Giri 30,000 Machinery 50,000

Suri 10,000 90,000 Motor car 14,000

1,30,000 1,30,000

Suri retired. The following adjustments are to be made:

1) Stock to be appreciated by 20 %

2) Reserve for doubtful debts to be brought up to 10% on debtors

3) Machinery and Motorcar depreciated by 5% and 10 % respectively

4) Outstanding power charges to be provided for Rs. 1,100

5) Goodwill of the firm was raised for Rs. 35,000 and it has to be written off immediately after Suri’s

retirement.

Prepare:






To R D D a/c 1,400 By stock a/c 4,000

(30,000 x 10 % = 3000 - 1600) (Appreciation 20,000 x 20 %)

To Machinery a/c 2,500 By net loss transferred to 2,400

(Depreciation 50,000 x 5 %) Hari 1,500

To Motor Car a/c 1,400 Giri 600

(Depreciation 14,000 x 10 %) Suri 300

To Outstanding power charges 1,100 (5:2:1)

6,400 6,400

Dr. Partner’s capital accounts Cr.

Particulars Hari Giri Suri Particulars Hari Giri Suri

To revaluation 1,500 600 300 By Balance b/d 50,000 30,000 10,000

a/c (loss) By Reserve fund 10,000 4,000 2,000

To Goodwill a/c 25,000 10,000 By Goodwill 21,875 8,750 4,375

(written of 5:2:1)

To Suri Loan a/c 16,075

To Balance c/d 55,375 32,150

81,875 42,750 16,375 81,875 42,750 16,375

By Balance b/d 55,375 32,150

Balance Sheet of Hari and Giri as on 01.04.2014



B/P 9,000 B / R 12,600

Capitals Debtors 30,000

Hari 55,375 Less : Reserve 3,000 27,000

Giri 32,150 87,525 Stock 20,000

Suri’s Loan 16,075 Add : Appreciation 4,000 24,000

Outstanding 1,100 Machinery 50,000

Power charges Less : Depreciation 2,500 47,500

Motocar 14,000

Less : Depreciation 1,400 12,600

1,28,700 1,28,700

14. Father, Mother and Son are partners sharing profits and losses in the ratio of 2:2:1. On 31.03.2014,

their Balance sheet was as under:


Capitals Bank 15,200

Father 45,000 Furniture 8,000

Mother 35,000 Plant 36,000

Son 20,000 1,00,000 Sundry Debtors 24,000

Sundry creditors 17,000 Stock 22,000

Bills Payable 13,000 Bills Receivable 6,000

Outstanding expenses 1,200 Buildings 40,000

Profit and loss A/c 20,000

1,51,200 1,51,200

Father retires from business due to illness, and the following adjustments are to be made :

1) Goodwill of the firm is valued at Rs. 30,000. Father’s share of good will is to be created and written

off without opening the goodwill A/c.

2) Furniture and plant to be depreciated by 10% each.

3) Buildings appreciated by 20% and stock valued at Rs 24,000

4) Maintain reserve for bad debts at 5% on debtors

5) An item of Rs. 600 included in creditors, not likely to be claimed and hence should be written off.

6) Settlement made to the retiring partner through bank overdraft

Prepare: i. Revaluation Account

ii. Capital Accounts of Partners’

iii. Balance Sheet of the continuing partners



To Furniture a/c 800 By building a/c 8,000

(Depreciation) (Appreciation)

To plant a/c 3,600 By Stock a/c 2,000

To R. B. D a/c 1,200 (24,000 – 22,000)

(24,000 x 5 %) By creditors a/c 600

To N/P Transferred to (Written off)

Father 2,000 Mother 2,000 Son 1,000 5,000

10,600 10,600


Particulars Father Mother Son Particulars Father Mother Son

To Goodwill 8,000 4,000 By Balance b/d 45,000 35,000 20,000

a/c (Written off) By P / L a/c 8,000 8,000 4,000

(2:2:1) By Revaluation 2,000 2,000 1,000

To Bank a/c 67,000 a/c (Profit)

(Paid) By Goodwill a/c 12,000

To Balance c/d 37,000 21,000 (30,000 x 2/5)

(Share only)

67,000 45,000 25,000 67,000 45,000 25,000

By Balance b/d - 37,000 21,000

Balance Sheet of Mother and Son as on 01.04.2014


Capitals Bank - Mother 37,000 Furniture 8,000 - Son 21,000 58,000 Less : Depreciation 800 7,200

Plant 36,000 - Creditors 17,000 Less : Depreciation 3,600 32,400 Less : written off 600 16,400 Debtors 24,000 B / P 13,000 Less : R B D 1,200 22,800 Outstanding 1,200 Stock 22,000 Expenses Add: Increase 2,000 24,000 Bank Overdraft 51,800 Bills receivable 6,000 (67,000 – 15,200) Buildings 40,000 (Bank) Add : Appreciation 8,000 48,000

1,40,400 1,40,400

15. Vanaja, Girija and Jalaja were partners sharing profits and losses in the ratio of 3:2:1. Their

Balance sheet as on 31.03.2014 was as follows:


Creditors 32,000 Cash in hand 24,000

Bills payable 24,000 Bills recievable 22,000

General Reserve 36,000 Debtors 42,000

Capitals: Less : RBD 2,000 40,000

Vanaja 70,000 Stock 38,000

Girirja 50,000 Furniture 24,000

Jalaja 30,000 1,50,000 Machinery 40,000

Profit and loss A/c 6,000 Buildings 60,000

2,48,000 2,48,000

Girija retired due to change of residence and the following adjustments were made:

1. Goodwill of the firm was valued at Rs. 30,000 and it has to be retained in the business.

2. RBD increased by Rs. 1,600

3. Buildings to be valued at Rs. 62,000 and stock valued at Rs. 36,500

4. Depreciate Machinery by 10 % and Furniture valued at Rs. 22,700

5. An investment not recorded in the books, costing Rs 1,000 has to be taken into account

6. Girija is to be paid Rs. 20,000 immediately after her retirement and the balance transferred to

her loan account

Prepare:



iii. Balance Sheet of the continuing partners



To RBD a/c 1,600 By Building a/c 2,000

To stock a/c 1,500 (62,000 – 60,000)

(38,000 – 36,500) By Investment a/c 1,000

To Machinery a/c 4,000 (Unrecorded)

(Depreciation) By N / L transferred to 5,400

To Furniture a/c 1,300 Vanaja 2,700

(24,000 – 22,700) Girija 1,800

Jalaja 900

8,400 8,400


Particulars Vanaja Girija Jalaja Particulars Vanaja Girija Jalaja

To Revaluation 2,700 1,800 900 By Balance b/d 70,000 50,000 30,000

a/c (Loss) By Reserve 18,000 12,000 6,000

To Cash a/c - 20,000 - By P / L a/c 3,000 2,000 1,000

(Paid)

To Loan a/c - 52,200 - By Good will a/c 15,000 10,000 5,000

(Balance)

To Balance c/d 1,03,300 - 41,100

1,06,000 74,000 42,000 1,06,000 74,000 42,000

By Balance b/d 1,03,300 - 41,100

Balance Sheet of Vanaja and Jalaja


Capitals 32,000 Cash in hand 24,000 - B/ P 24,000 Less : Paid to Girija 20,000 4,000 Capitals B / R 22,000 Vanaja 1,03,300 Debtors 42,000 Jalaja 41,100 1,44,400 Less : R. B.D 3,600 38,400 Girija Loan 52,200 Stock 36,500 Furniture 22,700 Machinery 36,000 Buildings 62,000 Goodwill 30,000 Investment 1,000

2,52,600 2,52,600

16. Following is the Balance Sheet of Ramesh, Mahesh and Suresh as on 31.03.2014



Bills payable 8,000 Furniture 10,000

Bank loans 14,000 Stock 16,000

Capitals: Book debts 28,000

Ramesh 25,000 Less : RBD 1,500 26,500

Mahesh 20,000 Plant and machinery 25,000

Suresh 15,000 60,000 Buildings 35,000

Reserve fund 12,000 Profit and loss A/c 6,000

1,24,000 1,24,000

Suresh retires from the business on 31.3.2014 and the following adjustments are to be made:

1. Depreciate Machinery by 5 % and Stock by 10%

2. Building appreciated by 20% and Furniture valued at Rs. 12,000

3. RBD increased to Rs. 1,750

4. Interest on Bank loan at 10% is due for 6 months

5. Suresh’s share of goodwill created for Rs. 15,000 and written off immediately.

6. Retiring partner is to be paid Rs. 3,900 immediately and the balance transferred to his loan a/c.

Prepare: i. Revaluation Account


iii. Balance Sheet of the new firm



To Machinery a/c 1,250 By Building a/c 7,000

To Stock a/c 1,600 By Furniture a/c 2,000

To R.D. D a/c 250

(1,750 – 1,500)

To outstanding interest on 700

Bank loan (14,000 x 10 % x 6/12)

To N/P transferred to 5,200

Ramesh 1,733

Mahesh 1,733

Suresh 1,734

9,000 9,000


Particulars Vanaja Girija Jalaja Particulars Vanaja Girija Jalaja

To P / L a/c 2,000 2,000 2,000 By balance b/d 25,000 20,000 15,000

To Goodwill a/c 7,500 7,500 - By Reserve 4,000 4,000 4,000

(Written off 1:1:1) By Revaluation 1,733 1,733 1,734

To Cash a/c (Paid) - - 3,900 a/c (Profit)

To Suresh Loan 29,834 By Goodwill - - 15,000

To Balance c/d 21,233 16,233

30,733 25,733 35,734 30,733 25,733 35,734

By balance b/d 21,233 16,233 -

Balance Sheet of Ramesh and Mahesh as on 01.04.2014


Creditors 30,000 Cash 5,500 B / P 8,000 Less : Paid to Suresh 3,900 1,600 Bank Loan 14,000 Furniture 12,000 Add Interest 700 14,700 Stock 16,000 Capitals: Less : Decrease 1,600 14,400 Ramesh 21,233 Bank Debts 28,000 Mahesh 16,233 37,466 Less : R D D 1,750 26,250 Suresh Loan 29,834 Machinery a/c 25,000 Less : Depreciation 1,250 23,750, Buildings 35,000 Add : Appreciation 7,000 42,000

1,20,000 1,20,000

CHAPTER:5

DISSOLUTION OF A FIRM

TWO MARKS QUESTIONS

1. State any two circumstances under which a partnership firm is dissolved

Ans: i) In accordance with a contract between the partners.

ii) When the business of the firm becomes illegal

2. What is Realisation Account?

Ans :Realisation account is an account prepared at the time of dissolution of a firm to find the P / L on the

realization of assets and payment of Liabilities

3. State the accounting treatment for : Unrecorded assets/ liabilities

Ans :Unrecorded Asset and unrecorded Liablities It is to be considered in the realization account if such

assets and liabilities are realized or paid

4. How do you close Realisation Account on dissolution of a firm? Ans :It should be closed by transferring profit / loss to the partners’ capital accounts.

5. Give the journal entry for an asset taken over by a partner on dissolution of a firm

Ans: Realization A/c Dr.

To Partner capital account

(Being liabilities taken over by partner)

FOURTEEN MARKS QUESTIONS

6. Kavya ,Kavitha and Karishma are partners sharing profits and losses in the ratio of 3:2:1. They

agree to dissolve the firm as on 31.03.2014, on which date their balance sheet was as follows:



Creditors 60,000 Cash at bank 30,000 Bills payable 18,000 Bill receivable 24,000 Kavya’s loan 40,000 Stock 40,000 Reserve fund 36,000 Debtors 80,000 Capitals: Motor car 20,000 Ramesh 90,000 Investments 30,000 Mahesh 60,000 Furniture 26,000 Suresh 30,000 Machinery 60,000 P & L A/c 24,000

3,34,000 3,34,000

The following details are available:

Assets realized as follows:

Stock Rs. 44,000 Debtors Rs. 80,000 Machinery Rs. 66,000 and Bills Receivable Rs. 20,000

Furniture is taken over by Kavya at Rs. 30,000. Kavitha took over Investments at Rs. 40,000

and Karishma took over Motor car at Rs. 14,800

Creditors and Bills payable are paid off at 10% less each

Realization expenses Rs. 8,000

One bill of Rs. 2,000 under a discount was dishonored and had to be paid by the Firm.

Prepare i) Realization a/c b) Partner’s capital Accounts and c) Bank A/c

Ans: Dr. Realization Account Cr.


To B/ R a/c 24,000 By Creditor’s a/c 60,000

To Stock a/c 40,000 By B/P a/c 18,000

To Debtors a/c 80,000 By Bank a/c

To Motor car a/c 20,000 (Assets realised)

To Investments a/c 30,000 Stock 44,000

To furniture a/c 26,000 Debtors 80,000

To Machinery a/c 60,000 Machinery 66,000

To Bank a/c 70,200 B / R20,000 2,10,000

(Creditors & B/P paid By Kavya Capital a/c 30,000

78,000 – 7,800) (Furniture)

To Bank a/c 8,000 By Kavitha Capital a/c 40,000

(Realization expenses) (Investments)

To Bank a/c 2,000 By Karishma Capital a/c 14,800

(Payment of Bill) (Motor car)

To N/P transferred to

Kavya 6,300

Kavitha4,200

Karishma2,100 12,600

3,72,800 3,72,800


Particulars Kavya Kavitha Karishma Particulars Kavya Kavitha Karishma

To P / L a/c 12,000 8,000 4,000 By balance b/d 90,000 60,000 30,000

To Realisation a/c 30,000 40,000 14,800 By Reserve 18,000 12,000 6,000

(Assets taken over) By Revaluation 6,300 4,200 2,100

To Bank a/c 72,300 28,200 19,300 a/c (Profit)

(Balance)

1,14,300 76,200 38,100 1,14,300 76,200 38,100

Dr. Bank Account Cr


To Balance b/d 30,000 By Kavya’s Loan 40,000 To Realisation a/c 2,10,000 By Realisation a/c 80,200 (Assets Realised) (Payment of Liabilities) By Kavya’s Capital a/c 72,300 By Kavitha’s Capital a/c 28,200 By Karishma’s Capita a/c 19,300

2,40,000 2,40,000

7. Gagan and Rachith are partners sharing profits and losses equally, agreed to dissolve their

partnership on 31.3.2014. Their Balance Sheet was as follows:


Creditors 25,000 Cash at bank 10,000 Bills payable 10,000 Stock 18,000 Rachith’s Loan 10,000 Debtors 25,000 Reserve fund 5,000 Less : RBD 3,000 22,000 Capitals Bills Recievable 5,000 Gagan 40,000 Motor car 10,000 Rachith 30,000 Furniture 12,000 Machinery 16,000 Buildings 23,000 P & L a/c 4,000

1,20,000 1,20,000

The assets realized as follows:

Stock Rs. 25,000, Debtors Rs, 20,000, Bills receivable Rs. 4,000. Motor Car Rs. 10,000, Furniture

Rs. 8,000, Machinery Rs. 15,000

Creditors are taken over by Gagan at book value

Bills payable were paid by the firm at 5% discount

Realization expenses amounted to Rs. 2,000

Prepare

a) Realization a/c

b) Partner’s capital Accounts and

c) Bank A/c

Ans: Dr. Realization Account Cr.


To Stock a/c 18,000 By RBD a/c 3,000

To Debtors a/c 25,000 By Creditors a/c 25,000

To B / R a/c 5,000 By B / P a/c 10,000

To Motor car a/c 10,000 By Bank a/c

To Furniture a/c 12,000 (Assets realised)

To Machinery a/c 16,000 Stock 25,000

To Building a/c 23,000 Debtors 20,000

To Gagan capital-account 25,000 B / R 4,000

(Creditors paid) Motor car 10,000

To Bank a/c 9,500 Furniture 8,000

(B/P paid 10,000 - 500) Machinery 15,000

To Bank a/c 2,000 Building 23,000 1,05,000

(Realization expenses) By N/L Transferred to

Gagan 1,250

Rachith1,250 (1 :1) 2,500

1,45,500 1,45,500


Particulars Gagan Rachith Particulars Kavya Kavitha

To P / L a/c 2,000 2,000 By balance b/d 40,000 30,000 To Realisation a/c 1,250 1,250 By Reserve 2,500 2,500 (Loss) By Realisation a/c 25,000 To Bank a/c 64,250 29,250 (Creditors) (Balance)

67,500 32,500 67,500 32,500

Dr. Bank Account Cr


To Balance b/d 10,000 By Rachitha’s Loan 10,000 To Realisation a/c 1,05,000 By Realisation a/c 11,500 (Assets Realised) (Payment of Liabilities) By Gagan’s Capital a/c By Gagan’s Capital a/c 64,250 By Rachith’s Capital a/c 29,250

1,15,000 1,15,000

PRACTICAL ORIENTED QUESTION

8. Prepare executor’s loan a/c with imaginary figures showing the repayment in two equal annual

installments along with interest.

Dr Executor’s Loan a/c Cr


1/4/2011 By bal b/d 20,000

31/3/2012 By interest a/c (20,000x5%) 1,000

31/3/2012 To cash a/c

(10,000+1,000)

11,000

31/3/2012 To bal c/d 10,000

21,000 21.000

1/4/2012 By bal b/d 10,000

31/3/2013 By interest a/c (10,000x5%) 500

31/3/2013 To cash a/c

(10,000+500)

10,500

10,500 10,500

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