PARTNERSHIP FINAL ACCOUNTS

Definition

 Partnership is defined under the Indian Partnership Act,

9 the A t as the relatio et ee the perso s ho ha e
agreed to share the Profits of a business carried on by all or
any of them acting for all.
 The persons forming the Partnership are called individually
Part ers and Collectively a fir .
 The written agreement among all partners is known as the
Part ership deed .
 Partners Accounts
(Fixed Capital Method)
M/s X & Y
Partners Capital Account
Dr. Cr.
Particulars X (Rs.) Y (Rs.) Particulars X (Rs.) Y (Rs.)
To Balance c/d xx xx By Balance b/d xx xx
By Cash/Bank xx xx
(Fresh Capital
brought)

xx xx xx xx
 Partners Current Account
Dr. Cr.
Particulars X (Rs.) Y (Rs.) Particulars X (Rs.) Y (Rs.)
To Bala e /d …… xx xx By Balance b/d xx xx
OR

To Cash/Bank / xx xx By Salary, xx xx
Goods (drawings) Commission etc.

To Interests on xx xx By Interest on xx xx
drawings Capital

To Share of Loss tfd. xx xx By Share of Profit xx xx

tfd.

To Balance c/d xx xx By Balance c/d xx xx

(If Credit Larger) (If debit larger)

xx xx xx xx
 Partners Accounts
(Fluctuating Capital Method)
M/s X & Y
Partners Capital Account
Particulars X (Rs.) Y (Rs.) Particulars X (Rs.) Y (Rs.)
To Bala e /d …… xx xx By Balance b/d xx xx
OR
To Cash/Bank xx xx By Cash or Bank xx xx
(Withdrawn)
To Goods (drawings) xx xx By Salary, xx xx
Commission etc.
To Interest on xx xx By Interest on xx xx
Drawings Capital
To Share of Loss tfd. xx xx By Share of Profit xx xx
tfd.
To Balance c/d xx xx By Balance c/d xx xx
(If Credit Larger) (If debit larger)
xx xx xx xx
 Payments to Partners
1) Payments to Partners as per Act

No. Particulars Rate as per Act

1 Interest On Capitals Nil
2 Interest On Drawings Nil
3 Interest On Loans/Advances @ 6% per year
4 Salary , Commission etc. Nil
5 Profits or Losses To be Shared equally
2) Interest On capitals

No. Particulars Treatment in Accounts

1. If the Partnership deed provides that Interest On capitals will be charge against
such interest is a charge against the profits. i.e. allowed whether there are
profits. profits and losses , and debited to the
P & L a/c.

2. If the Partnership deed provides for As per the Partnership Act, interest on
payment of Interest but is silent capitals will be allowed only out of Profits
whether such interest is a charge or (an appropriation) and debited to the
an appropriation. P & L Appropriation a/c.
3) Interest On Drawings
 Since Interest on Drawing is an Income of the firm , it is
always shown on the credit side of the P & L Appropriation.
 If date is not given then Interest on drawings is taken for 6
months.
 Partnership Final Accounts
M/s X & Y
Trading Account For the year Ended………………….

Particulars Rs. Rs. Particulars Rs. Rs.

To Opening Stock xxxx By Sales xxx
To Purchases Xxx Less: Returns xxx Xxxx
Inward
Less: Return Outward xxx xxxx By Goods Lost or Xxxx
Destroyed
To Carriage Inward/ xxxx By Goods taken by Xxxx
Import Duties Partner
To Wages Xxxx By Goods given as Xxxx
(Manufacturing/ Free Samples
productive)
To Manufacturing xxxx By Closing Stock Xxxx
Expenses
To Gross Profit /d … O‘ xxxx By Gross Loss c/d Xxxx
xxxx xxxx
 Profit & Loss Account For the year ended…………………..

Particulars Rs. Particulars Rs.

To Gross Loss b/d xxxx By Gross Profit b/d xxxx
….O‘…………
Administrative Expenses Other Incomes or Gain
To Insurance , Rent , Repair xxxx By Commission received xxxx
To Electricity xxxx By Discount Received xxxx
To salaries & Wages xxxx By Provision for Discount xxxx
from Creditors
To Postage , Telegram, Fax xxxx By Interest on loan given xxxx
etc to outsiders
To fees( Legal / audit etc) xxxx By Income (Dividend )on xxxx
Investment
To sundry/ general/ Trade xxxx By Profit on Sale of Fixed xxxx
expenses Asset

Continue……………
 Particulars Rs. Particulars Rs.

Selling & Distribution

Expenses
To Sales e s Salaries, xxxx
Commission , etc.
To Travelling xxxx
To Carriage Outward, xxxx
Freight , Duties
To Warehousing Charges xxxx
To Packing expenses xxxx
To Royalties on Sale xxxx
To Advertising & Sale xxxx
Promotion
To Goods given as free xxxx
samples

Continue……………
 Particulars Rs. Particulars Rs.
Financial Expenses
To Interest & bank charges xxxx
To Bad debts & prov. For xxxx
Bad debts
To Discount given & xxxx
Provision for Discount on
Debtors
Depreciation
To Depreciation on: xxxx
- Plant & Machinery xxxx
- Building xxxx
- Vehicles xxxx
- Other xxxx

Continue……………
 Particulars Rs. Particulars Rs.
Other Expenses & Losses
To Goods Lost or Destroyed xxxx
( Cost Less Insurance Claim)
To Loss on sale of Fixed xxxx
assets
To Net Profit /d……….O‘….. xxxx BY Net Loss c/d xxxx
xxxx xxxx
 Profit & Loss Appropriation Account For the year ended………..
Particulars Rs. Particulars Rs.
To Net Loss /d….O‘……… xxxx By Net Profit b/d xxxx
To I terest o Part er s xxxx By Interest on Drawings
Capital
To I terest o Part er s xxxx -X xxx
Loan
To salaries, Commission to xxxx -Y xxx xxxx
Partners
To Transfer to Reserve xxxx By Net Loss tfd. To
Capital a/cs (In PSR)
To net Profit tfd. To capital xxxx -X xxx
a/ s……O‘…… IN PS‘
-X xxx -Y xxx xxxx
-Y xxx xxxx
xxxx xxxx
Continue……………
 Balance sheet as on…………….
Particulars Rs. Rs. Particulars Rs. Rs.
Capital accounts Fixed Assets
-X xxx Goodwill xxxx
-Y xxx xxxx Land xxxx
Current Accounts Plant & Machinery xxx
-X xxx Less: Depreciation (xxx) xxxx
-Y xxx xxxx Building (Gross cost) xxx
Reserves Less: Depreciation (xxx) xxxx
General Reserve Vehicles (Gross cost) xxx
Loans from Partners Less: Depreciation (xxx) xxxx
-X xxx Investment xxxx
-Y xxx xxxx

Continue……………
 Particulars Rs. Rs. Particulars Rs. Rs.
Other Liabilities Current Assets
Loans from Bank xxx Stock xxxx
Add: Accrued Interest xxx xxxx Debtors xxx
Bank Overdraft xxxx Less: prov. For bad (xxx)
debts
Sundry Creditors xxx Less: Prov. For (xxx) xxxx
Discounts
Less: Provision for xxx xxxx Bills Receivable xxxx
Discount
Bills Payable xxxx Loans and Advances xxxx
given
Outstanding Expenses xxxx Insurance claim xxxx
Receivable
Income received in xxxx Prepaid Expenses xxxx
Advances
Cash in Hand xxxx
Bank Balance Xxxx
Xxxx xxxx
 Adjustment in Final Account
Adjustment Profit & Loss A/c Balance Sheet
A. Errors
1. Sales Not Recorded Add to Sales as per T.B. Add to Debtors as per T.B.
2. Purchases Not Recorded Add to Purchases as per T.B. Add to Creditors as per T.B.
3. Goods on Sale or Return a) Deduct Sale Value from a) Deduct Sales value from
Sales Debtors
b) Add Cost to Closing Stock b) Add Cost to closing stock
4. Revenue Expenses Treated Add to Expenses a/c Deduct from Assets a/c
as capital expenses
5. Capital Expenses treated Deduct from Expenses a/c Add to Asset a/c
as Revenue Expenses
B. Current Expenses
6. Prepaid Expenses Deduct from Expenses a/c Show on Asset side
7. Outstanding Expenses Add to Expenses a/c Show on Liability side
 Adjustment
8. Depreciation
9. Closing Stock
10. Deferred Revenue
Expenditure written off
C. Current Income
11. Income due not received
12. Income Received in
Advance
D. Provision / Reserve
13. Reserve for Doubtful
Debts
Profit & Loss A/c Balance Sheet
Show on Debit side Deduct from gross Cost of
each asset
Shown on Credit side Show on Asset Side
Show Amt written off on Show on Remaining Balance
Debit side on Asset side
Add to Income a/c Show on Asset side
Deduct from Income a/c Show on Liability Side
Bad debts Deduct New Reserve from
Add: New Reserve Sundry Debtors
Less : Old Reserve
Final Figure
Note :1 If Final Figure (+)
show on Debits side P &L a/c
If Final Figure (-) Show on
Credit side P & L a/c
 Adjustment Profit & Loss A/c Balance Sheet
14. Reserve for Discount on Discount Deduct New Reserve from
Debtors Add: new Reserve Sundry Debtors
Less: Old Reserve
Final Figure
Note :1 If Final Figure (+)
show on Debits side P &L a/c
If Final Figure (-) Show on
Credit side P & L a/c
15. Reserve for Discount on Discount Deduct New Reserve from
Creditors Add: New Reserve Sundry Creditors
Less: Old Reserve
Final Figure
Note :1 If Final Figure (+)
show on Credit side P &L a/c
If Final Figure (-) Show on
Debit side P & L a/c
 Adjustment
E. Losses / Gains
16. Goods Given away as
Samples
17. Goods Entirely Lost on
Assets side
18. Goods Lost; Insurance
Claim Due
19.Goods taken by partner
20. Profit on Sale of Asset
21. Loss on sale of Asset
Profit & Loss A/c Balance Sheet
a) Show Cost on Cr. Of ---
Trading a/c
b) Show cost on Dr. of P & L
a/c
a) Show Cost on Cr. Of ---
Trading a/c
b) Show cost on Dr. of P & L
a/c
a) Show full Cost on Cr. Of Show Insurance Claim due
Trading A/c on Asset side
b) Show Loss (Cost less
Claim ) on Dr. of P & L a/c
Show Cost on Cr. Of Trading De it to Part er s Capital/
a/c Current a/c
Show Profit on Cr. Of P & L Deduct W.D.V from Asset a/c
a/c
Show Loss on Dr. of P & L a/c Deduct W.D.V from Asset a/c
 Adjusting Appropriation in Final accounts
Adjustments Profit & Loss Balance Sheet
Appropriation a/c
1. Transfer to Reserve Show on Dr. of P & L Appr. Show on Liability Side
A/c
2. Interest to Partners Show on Dr. of P & L Appr. Credit Capital / Current a/c
A/c
3. Salary etc. to Partners Show on Dr. of P & L Appr. Credit Capital / Current a/c
A/c
4. Interest on Drawings Show on Cr. of P & L Appr. Debit Capital / Current a/c
A/c

5. Net Profit Distributed Show on Dr. of P & L Appr. Credit Capital / Current a/c
A/c
6. Net Loss Transferred Show on Cr. of P & L Appr. Debit Capital / Current a/c
A/c
 Adjustment already in T.B.

Adjustment P & L a/c Balance Sheet

1. Prepaid Expenses a/c in -- Show on Asset side
T.B.
2. Outstanding expense a/c -- Show on Liability side
in T.B.
3. Income received in -- Show on Liability side
advance a/c in T.B.
4. Income due not received -- Show on Asset side
a/c in T.B.
5. Depreciation a/c in T.B. Show on Debit side --
6. Closing stock a/c in T.B. -- Show on Asset side
7. Provision for Depreciation -- Deduct from Asset a/c
a/c in T.B.
 Hidden Adjustments in T.B.
Trial Balance As On
31-3-2014
1. Rent Paid (including
Rs.100 for April 2014)
2. Rent Paid (upto Feb.2014 )
Rs.1,100
3. Rent Received (upto
Feb.2014) , Rs.2,200
4. Rent Received (Including
Rs.200 for April 2014)
5. Leasehold Land:
Rs.1,00,000 (For 5 years
from 1-4-2013)
Trading , Profit & Loss a/c
For the year ended
31-3-2014
Deduct Rs. 100 from Rent
Paid a/c
Add Rs. 100 to rent Paid a/c
Add Rs.200 to Rent Received
a/c
Deduct Rs.200 from rent
Received a/c
Write off Rs. 20,000 on Dr.
side
Balance Sheet As On
31-3-2014
Show Rs.100 as Rent
prepaid on Asset side
Show Rs. 100 as Outstanding
Rent
Show Rs.200 as Rent
Receivable on Asset side
Show Rs.200 as Advance
Rent on Liability side
Deduct Rs.20,000 from
Leasehold Land on Asset
side
 Trial Balance As On Trading , Profit & Loss a/c Balance Sheet As On
31-3-2014 For the year ended 31-3-2014
31-3-2014
6. a) Loan from XYZ Add Rs.500 to Interest Paid Show Rs.500 as Interest due
Rs.10,000 taken on 1-4- a/c on Liability side
2013
b) Interest to XYZ @ 10%
p.a. Rs.500
7. a) Machinery (W.D.V.) : Show Profit Rs. 1,200 on Deduct Rs.4,200 from
Rs. 4,200 Cr.side Machinery a/c in balance
b)Machinery Sold: Sheet
Rs.5,400
 Adjustments On Admission of a Partner
 Full Goodwill Brought in Cash and Retained
When the new partner brings his share of Goodwill in Cash
1) Cash a/ …………………………Dr Amount brought in as share of
To Goodwill a/c goodwill
When the Goodwill is transferred to the Old Partners
2) Good ill a/ …………………..Dr Share of Goodwill in Ratio of
To Sa rifi i g Part ers apital / sacrifice
Current a/c
Note:
1) Goodwill brought in Cash is like a sale of an unrecorded asset.
2) Goodwill is credited only to the sacrificing partners . In case any existing partner
has gained , Goodwill is not credited to him.
3) Since the Goodwill a/c closing balance is Nil , it will not appear in the Balance
Sheet .
4) If the Cash towards Goodwill is to be retained in Business , only the above two
entries are passed – no further entries need to be passed
  Only Part goodwill brought in cash & Retained
When the new partner brings his share of Goodwill in Cash
1) Cash a/ …………………………Dr Goodwill Paid
To Goodwill a/c
When the Goodwill is transferred to the Old Partners
2) Good ill a/ ……………………………………..Dr Goodwill Paid
Ne Part er s apital/ urre t a/ ………Dr Balance Goodwill Unpaid
To Sa rifi i g Part ers apital / Full Goodwill in ratio of Sacrifice
Current a/c
Note:
1)Goodwill a/c will be credited for the amt of Goodwill brought in by the new partner.
2)At the ti e of re ordi g the tra sfer e tr e part er s apital a/ ill e de ited
with his unpaid share of Goodwill in addition to debiting Goodwill a/c with the amt of
Goodwill paid by him. Thus, his capital will be reduced to that extent. When fixed
capital method is followed , then the current a/c of the new partner will be debited for
the unpaid amt of Goodwill.
Note:
3) Goodwill a/c closing balance is Nil. Hence Goodwill a/c will not appear in the
Balance sheet of the reconstituted firm.
4) If the Cash towards Goodwill is to be retained in Business , only the above two
entries are passed – no further entries need to be passed.
  Goodwill withdrawn by Old partners
3) Sa rifi i g Part ers apital / Curre t Amt withdrawn
a/ …Dr
To Cash a/c
Note:
The Goodwill may be withdrawn either fully or partly.
  Revaluation Method
When the new Goodwill a/c is revalued
1) Good ill a/ ………………….Dr Surplus on Revaluation in Old PSR
To Old Part ers Capital a/
When the Goodwill a/c is written off
2) All Part ers Capital a/ ………….Dr In new PSR
To Goodwill a/c Value of Goodwill w/o
Note:
1. Value of Goodwill
The value of he goodwill to be considered in different cases is shown below-
a) Surplus on revaluation: The above entries are to be passed if there is surplus on
revaluation i.e. the new value of goodwill is more than the recovered value. The
amount debited to Goodwill a/c will be the difference between the recorded value
already appearing in the books and the new value of goodwill on revaluation.
b) No change on revaluation : If there is no change on revaluation , i.e. the new value
of goodwill is the same as the recorded value, no entry is to be passed in the
books.
Note:
c) Deficit on revaluation: If there is deficit on revaluation , i.e., the new value of
goodwill is less than the recorded value, the entry 1) shown above is to be passed
i the opposite a er , i.e. the Old Part ers Capital a/ are to e de ited a d
the goodwill a/c is to be credited , so that the excess goodwill is written off.
  Alternative Entry
Instead of the above two entries , when Goodwill a/c is not raised at all, only the
following one entry may be passed-
1) Ne Part er s apital/ urre t a/ ………Dr His Share of goodwill in sacrificing
To Sa rifi i g Part ers apital / ratio
Current a/c
Note:
Compulsory written off as per AS-10
According to Accounting standard 10, issued by the Institute of Chartered Accountants
of India , Goodwill account being an Intangible asset should not appear in the books
i.e. it should be compulsorily written off and should not appear in the Balance sheet.
  Written off existing Goodwill a/c
1) Old Partner Capital/Current a/c ….Dr Goodwill w/o in Old PSR Existing
To Goodwill a/c value (Note 2)
Note:
1) Compulsory written off as per AS-10
According to Accounting standard 10, issued by the Institute of Chartered Accountants
of India , Goodwill account being an Intangible asset should not appear in the books
i.e. it should be compulsorily written off.
2) Value of Goodwill
The value of the goodwill , to be considered for computing the share of the new
partner in it , is decided as shown below-
a) When no goodwill a/c appears in the books , it is his share in the Full value of
Goodwill.
b) When goodwill a/c appears in the books , and the partners decided not to
maintain it, it is his share in the present value of Goodwill.
c) When goodwill a/c appears in the books , and the partners decided to maintain it,
it is his share in the Unrecorded value of Goodwill.
  Hidden Goodwill

Step Particulars Rs.

A. Net Worth o the asis of e part er s apital. xxxx
Ne Part er's apital / Ne Part er s PS‘

B. Actual Net worth after admission of new partner xxxx

C Value of Goodwill (A – B) xxxx

Note:
Net Worth = Asset Less Outside Liabilities Or, , capitals + Accumulated Profits and reserves.
  Division of profits when a partner is admitted
during year

Step What is to be done How is it to be done

1. Divide a/c year in 2 periods a. Period upto admission
b. Period after admission
2. Divide income between these 2 periods a. Specifically arising in a
particulars period
b. As per details available
c. On basis of time
d. On the basis of sales
 Step What is to be done How is it to be done
3. Divide expenses between these 2 periods a. Specifically arising in a
particulars period
b. As per details available
c. On basis of time(Fixed
exp)
d. On the basis of
sales(Other exp)
4. Divide Net Profit (NP) between these 2 periods a. NP upto admission
among old partner in Old
PSR
b. NP after admission
among all partner in New
PSR.
 Problem With Solution for Admission of partner

1) A & B carried on a retail business in partnership sharing

profit & Loss A 2/3 & B 1/3 . Interest was allowed on
Part ers fi ed apitals at the rate of % p.a. No I terest as
charged on drawings. On October 1 ,2013 , C & D were
admitted as partners and as from that date profits & losses
were shared : A 6/12, B 3/12 , C 2/12 & D 1/12. In Addition to
his share of the profit D was to be created with a salary at Rs.
6,000 p.a. The arrangements as to interest are to continue.
A trial balance extracted from the books as on December
31,2013 was as follows :
 Particulars Dr (Rs.) Cr (Rs.)
Part er s Dra i g & Capital Fi ed a/
-A 40,000 60,000
-B 25,000 32,000
-C (Capital paid on Oct.31 , 2013) 2,000 24,000
-D (Capital paid on Oct.31 , 2013) 2,400 18,000
Stock – January 1, 2013 75,000
Purchases 2,77,000
Sales (up to Sept. 30 , 2013 Rs. 3,60,00) -- 4,84,350
Direct wages 40,000
Overheads & Trading expenses (excluding depreciation) 47,200
Fixed assets at Cost 60,000
Depreciation of Fixed Assets January 1,2013 20,000
Debtors 38,000
Provision for Doubtful debts 1,400
Creditors 27,400
Bank account 60,750
 Other Information given to you is as follows:
1) Stock was valued as on December 31,2013 at Rs.69,100
2) Trade expenses accrued but not entered in the books
amounted Rs.1,200
3) Unsold goods costing Rs.4,000 which were on sale or return
had been invoiced on December 5, 2013 at Rs.6000 which
amount was included in sales and debtors.
4) Rs.8,000 is to be provided for depreciation for the year on
fixed assets.
5) The provision for Doubtful debts is to be increased to Rs.
5,000.
6) Allocate the Gross profit to the period before and after
admission in ratio of the respective sales
7)Expenses are to be allocated in the ratio of the no. of months.
Prepare the Trading & Profit & Loss A/c for the year ending on
31-12-013 and the Balance Sheet as at that date.
 Solution:
M/s A , B ,C and D
Trading a/c for the year ended 31-12-2013
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening Stock By Sales 4,84,350
To Purchases Less: goods on Sale 6,000 4,78,350
or return
To Direct wages By Closing Stock 69,100
To gross Profit c/d Add: goods on sale 4,000 73,100
or return
5,51,450 5,51,450
 Profit & Loss Account For the year ended 31-12-2013

Particulars Jan-Sept Oct- Dec Particulars Jan-Sept Oct- Dec

(Rs.) (Rs.) (Rs.) (Rs.)
To Overhead & 36,300 12,100 By Gross profit b/d 1,20,000 39,450
Trading expenses (In Ratio of Sales)
(47,200 + 1,200)
To Depreciation 6,000 2,000
To Provision for 2,700 900
Doubtful debts
(5000 – 1400)
To Net Profit c/d 75,000 24,450

1,20,000 39,450 1,20,000 39,450

Profit & Loss Appropriation Account For the year ended 31-12-2013

Particulars Jan-Sept Oct- Dec Particulars Jan-Sept Oct- Dec

(Rs.) (Rs.) (Rs.) (Rs.)
To Salary to D ---- 1,500 By Net Profit b/d 75,000 24,450
(6000/12 x 3)
To Interest on
Capitals:
A: 5% on 60,000 2,250 750
B: 5% on 32,000 1,200 400
C: 5% on 24,000/12 200
x2
D: 5% on 18,000/12 150
x2

Continue……………
 Particulars Jan-Sept Oct- Dec Particulars Jan-Sept Oct- Dec
(Rs.) (Rs.) (Rs.) (Rs.)
To Net Profit
transferred to Capital:
1. Profit up to 30-9 :
71,550
(75,000 – 2250 -1200)
A : 2/3 x 71,550 = 47,700
B: 1/3 X 71,550 = 23,850
2. Profit after 1-10 :
21,450
A: 6/12 x 21,450 = 10,725
B: 3/12 x 21,450 = 5,362
C: 2/12 x 21,450 = 3,575
D: 1/12 x 21,450 = 1,788
75,000 24,450 75,000 24,450
 Balance Sheet As at 31-12-2013
Liabilities (Rs.) (Rs.) Assets (Rs.) (Rs.)
Capital Accounts: Fixed Asset (Gross 60,000
Cost)
A 81,425 Less: Depreciation 20,000
up to 31-12-2013
B 37,812 40,000
C 25,775 Less: Depreciation 8,000 32,000
for 2013
D 19,038 1,64,050 Stock 69,100
Sundry Creditors 27,600 Add: Goods on sale 4,000 73,100
or return
Trade expense 1,200
outstanding

Continue……………
Liabilities (Rs.) (Rs.) Assets (Rs.) (Rs.)
Debtors 38,000
Less: Goods on sale 6,000
or return
32,000
Less: Provision for 5,000 27,000
Bad debts
Bank Account 60,750
1,92,850 1,92,850
Working Note:
1) The GP dividend in ratio of sales as follows:
a) 1,59,450 x 3,60,000 = 1,20,000
4,78,350
b) 1,59,450 – 1,20,000 = 39,450
2) The selling price (Rs.6,000) of goods on sale or return is
deducted from both sales and debtors.
3) The cost of goods on sales or return (Rs.4,000) is added to the
value of closing stock.
 4) Partners Capital a/c
Particula A B C D Particula A B C D
rs rs
To 40,000 25,000 2,000 2,400 By Bal b/d 60,000 32,000 24,000 18,000
Drawings
To Bal c/d 81,425 37,812 25,775 19,038 By 3,000 1,600 200 150
Interest
By Salary --- --- --- 1,500
By Profit 47,700 23,850 --- ---
up to 30/9
By Profit 10,725 5,362 3,575 1,788
after 1/10

1,21,425 62,812 27,775 21,438 1,21,425 62,812 27,775 21,438

5) Gross Profit is divided in ratio of sales up to and after the
admission as specifically mentioned.
6) Expenses are divided in ratio of number of months before and
after admission as specifically mentioned.
7) NP up to date of admission is distributed only to the old
partners in their old PSR. NP after admission is distributed to
all partners in their new PSR.
 Problems for Assignment.

1) The following is the Trial Balance of Firm as on 31st December

2013.
Debit Rs Credit Rs
Cash 29700 Creditors 40500
Debtors 93000 Sales 540000
Rent & Rates 17700 Capital:-
Salary 36000 D 72000
Sundry Expenses 15600 E 36000
Stock 75000 F (including Goodwill) 12000
Purchases 330000
Sundry Asset 31500
 Debit Rs Credit Rs
Drawings:-
D 45000
E 22500
F 4500
7,00,500 7,00,500
Adjustments:
1) D and E were partners sharing profits and losses equally.
2) Mr.F was admitted to the partnership on 1st July ,2013.
3) On 31st December ,2013 stock was valued at Rs.70,500.
4) Rent and rates paid in advance Rs.700.
5) Sundry expenses were outstanding Rs.400.
6) Depreciate Sundry Assets by 20% p.a.
7) Goodwill of the firm was valued at Rs.6,000 on 1st July ,2013
and not to appear in the Balance Sheet.
8) Interest on capital to be charged at the rate of 10% p.a.
You are required to prepare Trading , Profit & Loss a/c for the
year ended on 31st December ,2013 and Balance Sheet as on
the date.
2) A & B were partners sharing profit and losses in two third (A)
and One third (B) . Interest on Fixed capital was credited at
the rate of 5% p.a. No Interest was charged on drawings. On
1-1-2014 C was admitted as a partner ,and the new profit
sharing was A six-tenths, B three –tenths and C one-tenth. C
was to be credited with a salary at the rate of Rs.6,000 p.a. It
as agreed A that C s total share of profit i ludi g his
salary and Interest on Capital should be
5) Gross Profit is divided in ratio of sales up to and after the
admission as specifically Mentioned
6) Expenses are divided in Ratio of number of months before
and after admission as specifically Mentioned.
7) NP up to date of admission is distributed only to the old
partners in their old PSR.NP after admission is distributed to
all partners in their new PSR.
 3) Following is the Trail Balance of Partnership of A,B and C as on
31st December 2013.
Particular Amt Amt Particulars Amt Amt

Capital A 30,000 Debtors 30,000

B 20,000 Creditors 31,000
C 10,000 Purchases 35,000
Drawings A 3,000 Wages 3,500
B 2,000 Carriage Inwards 1,500
C 1,000 Sales 70,000

Continue……………
Particular Amt Amt Particulars Amt Amt

Building 20,000 Office & 10,000

Administrative
Expenses
Machinery 10,000 Selling & 5,000
Distribution Exp.
Furniture 5,000 Cash 8,000
Stock 3,000 Bank 8,000
Advance 16,000
Additional Information:--
1) On 31st July ,2013 C was admitted who brought Rs 10,000 as
his Capital for which the entry is passed he later on brought
Rs 2,400 for goodwill for which the entry is to be Passed.
2) A & B were sharing Profit and Losses as 3:2 after C admission
they shared Profit and Loss as 2:1:1.
3) The sales ratio for the first 6 months and second 6 months
has been 3:2. selling expenses are in direct proportion to
sales.
4) Out of Administrative expense Rs 1,000 belonged to second
half of the year only balance of the administrative expense to
be divided equally.
 Closing stock Rs 3,000 on 30/6/2013 Rs 2,500 on 31/12/2013.
Depreciate building @5% p.a. Machinery@ 10% p.a.
Interest on Capital to be allowed on 10% p.a.

You are required to prepare Trading , Profit & Loss a/c for the year ended on 31st December
,2013 and Balance Sheet as on the date. Also Prepare partners Capital account showing the
final Balance
 Adjustments On Retirementof a Partner
Adjustment of Goodwill on day of Retirement.

A.) If Goodwill is raised to its full Value

1) Good ill a/ …………………………Dr Full/ Surplus Value
To All Partners Capital a/c (in old PSR)

Note:
1) If Goodwill does not appear in the Books its Full value is considered . If Goodwill
already appeared in the Books its surplus value (the new value of G/W- Recorded
value) is considered.

If Goodwill is written off.

1) Continuing Partners In New PSR
Capitala/ …………………………Dr
To Goodwill a/c
B.) If only retiring Partners share in G/W is Raised
1) Good ill a/ …………………………Dr Retiring partners share in
To Retiring Partners Capital a/c full/surplus valve.

Note:
1) If Goodwill does not appear in the Books Retiring partners share in its Full value is
considered . If Goodwill already appeared in the Books , His share in its surplus
value (the new value of G/W- Recorded value) is considered.

If Goodwill is written off.

1) Continuing Partners Capital In Ratio of gain
a/ …………………………Dr
To Goodwill a/c
Alternati ely, if only the retiring partner s share of good ill is adjusted in
Continuing partner s capital , ithout raising good ill a/c.
1) Continuing Partners Capital In ratio of gain
a/ …………………………Dr His share in full/ surplus value of
To Retiring Partners Capital a/c goodwill

Note: If the continuing partners cash privately to the retiring partner against his
share in goodwill , no entry is passed in the books of the firm.
2) The value of goodwill to be considered in different cases is shown below—
A) Full Value or Surplus: - If Goodwill does not appear in the Books its Full value is
considered . If Goodwill already appeared in the Books its surplus value (the new
value of G/W- Recorded value) is considered.
B) No Change:- If the new value of goodwill is same as the recorded value, no entry is
passed in the books.
C) Deficit :- If there is deficit . i.e. the new value of goodwill is less than the recorded
value, the above entries are to be passed in the opposite manner.
  Division of profits when a partner is Retires
during year

Step What is to be done How is it to be done

1. Divide a/c year in 2 periods a. Period upto retirement
b. Period after retirement
2. Divide income between these 2 periods a. Specifically arising in a
particulars period
b. As per details available
c. On basis of time
d. On the basis of sales
 Step What is to be done How is it to be done
3. Divide expenses between these 2 periods a. Specifically arising in a
particulars period
b. As per details available
c. On basis of time(Fixed
exp)
d. On the basis of
sales(Other exp)
4. Divide Net Profit (NP) between these 2 periods a. NP up to retirement
among old partner in Old
PSR
b. NP after retirement
among Continuing
partner in New PSR.
  Computing Retiring Partner’s dues.

Particulars Amt Amt

Capital a/c(Cr.) , bal b/d xxxx
Add: Current a/c (Cr.) Bal Xxx
Share in Reserve Xxx
Interest on Capital till date of retirement Xxx
Salary till date of Retirement Xxx
Share in profits till date of retirement Xxx
Loan a/c bal b/d Xxx
Interest on loan a/c till it is repaid xxx xxxx
 Particulars Amt Amt
Less: Current a/c (Dr.) Bal Xxx
Drawings a/c Xxx
Interest on Drawings xxx xxxx

Total Amt payable to retiring partner xxxx

 Death Of a Partner

 Death is a Compulsory Retirement:-

 When a partner retires he leaves the firm voluntarily. When
Partner dies , he ceases to be a partner compulsorily.
 The Partner who dies is known a the deceased partner and
the other partner who remain in the firm are known as the
continuing or surviving partner.
 Accounting Adjustments:-
When a partner dies the following adjustments are made in the
accounts.
 There is change in the profit sharing ratio of the continuing
partner.
 The undistributed profits , reserves or losses are divided
among all partners.
 Goodwill may be valued and adjusted.
 The assets and liabilities are revalued.
 The de eased part er s share i the profit of the fir till his
death is calculated and credited to him.
 the total amount due to the deceased partner is calculated.
This amount is payable. To the legal heirs, successors or
executors of the will of the deceased partner.
 Share in Profits till death

1) Death at Year end: If a partner dies on the last day of

accounting year, he will get his share of the profits earned
during the year. Thus if a partner dies on 31st december2004
which is the last day of the firms accounting year, he will get
his share of profit earn during the year 2004 at the end of
the year (i.e. total profit x his profit sharing ratio)
2) Dies During the Year: However it is more likely that the
partner may die on any other day during the year. Thus in the
above example if the partner dies on 31st march, 2004. he has
right to share the profit earned only during the period
1/1/2004 to 31/3/2004. How the share of the deceased
partner in the profit up to death is calculated in such cases is
shown in the following example.
 ENTRY

1) On Date of Death:
Profit & Loss A/ ……… Dr
To De eased Part er s apital a/

2) At Year End:
Profit & Loss Appropriatio a/ ………..Dr
To Profit & Loss Suspense a/c
 Joint Life Policy

• Joint life policy is an insurance policy taken on the life of the

partners of the firm. The policy amount is paid by the
Insurance Company on the death of a partner.\
i. The amt received from the Insurance Company against the
Joint Life Policy (i.e. the assured amount ), is to be credited
to All the Part er s Capital a/ i ludi g the de eased
partner in their Profit sharing ratio; and
ii. The total amt payable to the deceased partner is paid to his
legal successor e.g. his wife or son or executor etc.
iii. Treatment of Joint life Policy is explained in the following
illustration.
E.g. For Joint life Policy
X, Y and Z are partners sharing profits and losses in the ratio
2:2:1. On 1st January 2011, they took out a Joint Life policy of
Rs.1,00,000 . Annual premium of Rs.5,000 was payable on 1st
January each year. Last premium was paid on 1st January ,
2014. Y died on 1st March 2014 and Policy money was
received on 31st March 2014. The surrender value of policy as
on 31st December each year were as follows : 2011 – Nil ;
2012 –Rs. 1000 ; 2013 –Rs.2,500.
Show necessary a/c and balance sheet as on 31st December ,
each year , assuming in each case that:
1) The premium is charged to P & L a/c every year.
2) The premium is debited to Joint Life policy a/c and the
Balance of the year of the Joint life policy a/c is adjusted
every year to surender value; or
3) The premium is debited to Joint Life policy a/c and a sum
equal to premium is debited to P & L appropriation a/c and
credited to Joint Life Policy Fund.
 Case 1: Joint Life Policy a/c
Date Particulars Rs. Date Particulars Rs.
31-3-2014 To Part ers 1,00,000 31-3-2014 By bank a/c 1,00,000
Capital a/c (Policy money
(X – 40,000 ; Y – received)
Rs.40,000 ; Z –
20,000)
1,00,000 1,00,000
 • Case 2: Joint Life Policy a/c
Date Particulars Rs. Date Particulars Rs.
1-1-11 To bank a/c - 5000 31-12-11 By P & L a/c 5,000
premium
1-1-12 To bank a/c - 5000 31-12-12 By P & L a/c 4,000
premium
31-12-12 By balance c/d 1,000
5,000 5,000
1-1-13 To balance b/d 1,000 31-12-13 By P & L a/c 3,500
1-1-13 To bank a/c - 5,000 31-12-13 By balance c/d 2,500
premium
6,000 6,000

Cont………..
 Date Particulars Rs. Date Particulars Rs.
1-1-14 To balance b/d 2,500 31-3-14 By bank a/c 1,00,000
(Policy money
received)
1-1-14 To bank a/c - 5,000
premium
31-3-14 To Part er s apital 92,500
a/c( X- 37,000 , Y –
37,000 , Z -18,500)
1,00,000 1,00,000
 Balance Sheet as on 31-12-2011

Liabilities Rs. Assets Rs.

Joint Life policy Nil

Balance Sheet as on 31-12-2012

Liabilities Rs. Assets Rs.

Joint Life policy 1,000

Balance Sheet as on 31-12-2013

Liabilities Rs. Assets Rs.

Joint Life policy 2,500
 • Case 3: Joint Life Policy a/c
Date Particulars Rs. Date Particulars Rs.
1-1-11 To bank a/c - 5000 31-12-11 By Joint life 5,000
premium policy fund a/c
1-1-12 To bank a/c - 5000 31-12-12 By Joint life 4,000
premium policy fund a/c
31-12-12 By balance c/d 1,000
5,000 5,000
1-1-13 To balance b/d 1,000 31-12-13 By Joint life 3,500
policy fund a/c
1-1-13 To bank a/c - 5,000 31-12-13 By balance c/d 2,500
premium 6,000 6,000

Cont………..
 Date Particulars Rs. Date Particulars Rs.
1-1-14 To balance b/d 2,500 31-3-14 By bank a/c 1,00,000
(Policy money
received)
1-1-14 To bank a/c - 5,000
premium
31-3-14 To Joint life policy 92,500
fund a/c
1,00,000 1,00,000
 • Joint Life Policy Fund a/c
Date Particulars Rs. Date Particulars Rs.
31-12-11 To Joint life policy 5000 31-12-11 By P & L 5,000
a/c Appropriation
a/c
31-12-12 To Joint life policy 4000 31-12-12 By P & L 5,000
a/c Appropriation
a/c
31-12-12 To balance c/d 1000
5,000 5,000
1-1-13 By balance b/d 1,000
31-12-13 To Joint life policy 3,500 31-12-13 By P & L 5,000
a/c Appropriation
a/c
31-12-13 To balance c/d 2,500
6,000 6,000

Cont………..
 Date Particulars Rs. Date Particulars Rs.
31-3-14 To Part er s Capital 95,000 1-1-14 By Balance b/d 2,500
a/c (X – 38,000 , Y-
38,000 , Z -19,000)
31-3-14 By joint life 92,500
policy a/c
95,000 95,000
 Balance Sheet as on 31-12-2011

Liabilities Rs. Assets Rs.

Joint Life policy fund Nil Joint Life policy Nil

Balance Sheet as on 31-12-2012

Liabilities Rs. Assets Rs.

Joint Life policy fund 1,000 Joint Life policy 1,000

Balance Sheet as on 31-12-2013

Liabilities Rs. Assets Rs.

Joint Life policy fund 2,500 Joint Life policy 2,500
  Payment of Deceased Partner’s dues.
Particulars Amt Amt
Capital a/c(Cr.) , bal b/d xxxx
Add: Current a/c (Cr.) Bal Xxx
Interest on Capital till date of death Xxx
Share in past profits and reserves Xxx
Share in profits on revaluation Xxx
Share in Goodwill Xxx
Salary till death Xxx
Interest on Capital till death xxx
Share in profit till date of death xxx
share in profit till date of death xxx
Loan a/ c bal b/d xxx
Interest on Loan a/c till it is repaid Xxx xxxx
xxxxxx
 Particulars Amt Amt
Less: Current a/c (Dr.) Bal Xxx
Drawings a/c Xxx
Interest on Drawings xxx
Share in past losses xxx
Share in loss on revaluation xxx xxxx

Total Amt payable xxxx

 Entries

1) Transfer current a/c (Cr.)

De eased part er s urre t a/ …………..Dr
To De eased Part er s Capital a/
2) Entire Amt paid:
De eased part er s apital a/ ……Dr
To Cash or Bank a/c
3) Amt transferred to Loan of legal heirs:
De eased part er s apital a/ ……Dr
To Loan of legal heirs a/c
4) Loan or Installments paid
Loa of legal heirs a/ …….. ……Dr
To Cash or Bank a/c
5) Interest on Loan a/c paid
I terest o Loa a/ ………..Dr
To cash or Bank a/c
6) Interest due on Loan a/c
I terest o Loa a/ …….Dr
To Loan of legal heirs a/c
 Problem with Solution for Death of a Partner

1) The following figures were extracted from the Account Books

of Vimal & Co. , a Partnership firm having partners , Mr. A ,
Mr.B and Mr. V (Sharing profits & Losses in 2:1:1 ) as on 31st
March 2014.
Trial Balance As on 31-3-2014
Particulars Amt Amt
Mr. A s Dra i g & apital 10,000 46,000
Mr. B s Dra i g & apital 3,000 6000
Mr. V s Dra i g & apital 6,000 20,000
Gross profit -- 40,600
Salaries 11,000 ---
 Particulars Amt Amt
Rates & taxes 8,000
Other Overheads 4,000
Commission Received --- 4,400
Fixed Assets 15,000
Furniture 5,000
Cash & Bank 55,000
1,17,000 1,17,000

The Partnership provides that :

1) Interest @ 5% p.a. (on the opening balance) is to be allowed on capitals ,
but no interest is to be charged on drawings.
2) The deceased partner shall be entitled to his share of Goodwill of the firm
calculated at two and half years purchase of the average profits of the
preceding three years. The Profits of the preceding three years ended on
31-3-2011 , 31-3-2012, 31-3-2013 respectively were Rs.30,000,
rs.25,000,Rs. 35,000
Mr. A died on 1-1- . It as agreed that A s E e utors should
be paid such an amount. So as to leave balance of Rs.40,000 ,
which should be paid @ 12% p.a. Interest after one year.
A ou t as paid to A s e e utor ut o e tr as passed i
the books.
Prepare the P & L A/c and Balance Sheet after considering
above mentioned partnership deed conditions.
 Profit & Loss Account For the year ended 31-12-2014

Particulars Apr-Dec Jan- Mar Particulars Apr-Dec Jan- Mar

(Rs.) (Rs.) (Rs.) (Rs.)
To Salaries 8,250 2,750 By Gross Profit b/d 30,450 10,150
To Rates & taxes 6,000 2,000 By Commission 3,300 1,100
To Other Overheads 3,000 1,000
To Interest On Loan -- 1,200
to A s E e utors
To Net Profit 16,500 4,300
33,750 11,250 33,750 11,250
Profit & Loss Appropriation Account For the year ended 31-12-2014

Particulars Apr-Dec Jan- Mar Particulars Apr-Dec Jan- Mar

(Rs.) (Rs.) (Rs.) (Rs.)

To Interest on Capital:
A( 46,000 X5% X 9/12
1725

B 225 75
V 750 250
To capital Pre
A 13800 X 1/2 6900
B 13800 X 1/4 3450

Continue……………
 Particulars Apr-Dec Jan- Particulars Jan-Sept Oct- Dec
(Rs.) Mar(Rs.) (Rs.) (Rs.)

C 13800X 1/4 3450

To capital Post
B 3975 X 1/2 1987
C 3975 X 1/2 1988
______1 _______ ______ _______1
6500_ 11250 16500_ 1250
 Balance Sheet As at 31-12-2013
Liabilities (Rs.) (Rs.) Assets (Rs.) (Rs.)
Capital Accounts: Goodwill 37500
B 8737 Fixed Asset 15000

V 20438 29175 Furniture 5000

A s E e utor 40000 Cash & bank 55000
Add Interest accured 1200 41200 Less paid to A s 42125 12875
executor
_______ _______
70375 70375

Continue……………
 Partners capital A/c

Particulars A B V Particulars A B V

To Drawing 10000 3000 6000 By balance b/d 46000 6000 20000

To A s E e utor 40000 - - By goodwill 37500 - -

To Bank 42125 - By interest on 1725 300 1000

capital
To Balance c/d - 8737 20438 By profit 6900 5437 5438

_____9 _____1 ______2 _____ _____ _____

2125 1737 6438 92125 11737 _2643
8