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.
Particulars
To Balance c/d
Cr.
X (Rs.)
xx
Y (Rs.)
Particulars
xx By Balance b/d
By Cash/Bank
X (Rs.)
Y (Rs.)
xx
xx
xx
xx
xx
xx
(Fresh Capital
brought)
xx
xx
Partners Current Account
Dr.
Particulars
Cr.
X (Rs.)
Y (Rs.)
Particulars
X (Rs.)
Y (Rs.)
To Bala e /d ……
OR
xx
xx By Balance b/d
xx
xx
To Cash/Bank /
Goods (drawings)
xx
xx By Salary,
Commission etc.
xx
xx
To Interests on
drawings
xx
xx By Interest on
Capital
xx
xx
To Share of Loss tfd.
xx
xx By Share of Profit
tfd.
xx
xx
To Balance c/d
(If Credit Larger)
xx
xx By Balance c/d
(If debit larger)
xx
xx
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 ……
OR
xx
xx By Balance b/d
xx
xx
To Cash/Bank
(Withdrawn)
xx
xx By Cash or Bank
xx
xx
To Goods (drawings)
xx
xx By Salary,
Commission etc.
xx
xx
To Interest on
Drawings
xx
xx By Interest on
Capital
xx
xx
To Share of Loss tfd.
xx
xx By Share of Profit
tfd.
xx
xx
To Balance c/d
(If Credit Larger)
xx
xx By Balance c/d
(If debit larger)
xx
xx
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
Interest On capitals
2)
No.
Particulars
Treatment in Accounts
1.
If the Partnership deed provides that
such interest is a charge against
profits.
Interest On capitals will be charge against
the profits. i.e. allowed whether there are
profits and losses , and debited to the
P & L a/c.
2.
If the Partnership deed provides for
payment of Interest but is silent
whether such interest is a charge or
an appropriation.
As per the Partnership Act, interest on
capitals will be allowed only out of Profits
(an appropriation) and debited to the
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.
To Opening Stock
Rs.
Particulars
xxxx By Sales
To Purchases
Xxx
Less: Return Outward
xxx
Less: Returns
Inward
Rs.
Rs.
xxx
xxx
Xxxx
xxxx By Goods Lost or
Destroyed
Xxxx
To Carriage Inward/
Import Duties
xxxx By Goods taken by
Partner
Xxxx
To Wages
(Manufacturing/
productive)
Xxxx By Goods given as
Free Samples
Xxxx
To Manufacturing
Expenses
xxxx By Closing Stock
Xxxx
To Gross Profit /d … O‘
xxxx By Gross Loss c/d
Xxxx
xxxx
xxxx
Profit & Loss Account For the year ended…………………..
Particulars
To Gross Loss b/d
….O‘…………
Administrative Expenses
Rs.
Particulars
xxxx By Gross Profit b/d
Rs.
xxxx
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
from Creditors
xxxx
To Postage , Telegram, Fax
etc
xxxx By Interest on loan given
to outsiders
xxxx
To fees( Legal / audit etc)
xxxx By Income (Dividend )on
Investment
xxxx
To sundry/ general/ Trade
expenses
xxxx By Profit on Sale of Fixed
Asset
xxxx
Continue……………
Particulars
Rs.
Particulars
Rs.
Selling & Distribution
Expenses
To Sales e s Salaries,
Commission , etc.
xxxx
To Travelling
xxxx
To Carriage Outward,
Freight , Duties
xxxx
To Warehousing Charges
xxxx
To Packing expenses
xxxx
To Royalties on Sale
xxxx
To Advertising & Sale
Promotion
xxxx
To Goods given as free
samples
xxxx
Continue……………
Particulars
Rs.
Particulars
Rs.
Financial Expenses
To Interest & bank charges
xxxx
To Bad debts & prov. For
Bad debts
xxxx
To Discount given &
Provision for Discount on
Debtors
xxxx
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
( Cost Less Insurance Claim)
xxxx
To Loss on sale of Fixed
assets
xxxx
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
To I terest o Part er s
Capital
xxxx By Interest on Drawings
To I terest o Part er s
Loan
xxxx -X
xxx
To salaries, Commission to
Partners
xxxx -Y
xxx
To Transfer to Reserve
xxxx By Net Loss tfd. To
Capital a/cs (In PSR)
To net Profit tfd. To capital
a/ s……O‘…… IN PS‘
xxxx -X
xxx
-Y
xxx
-X
xxx
-Y
xxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
Continue……………
Balance sheet as on…………….
Particulars
Rs.
Rs.
Capital accounts
Particulars
Rs.
Rs.
Fixed Assets
-X
xxx
-Y
xxx
Goodwill
xxxx Land
Current Accounts
-X
xxx
-Y
xxx
xxxx
xxxx
Plant & Machinery
xxx
Less: Depreciation
(xxx)
xxxx Building (Gross cost)
Reserves
Less: Depreciation
General Reserve
Vehicles (Gross cost)
Loans from Partners
Less: Depreciation
-X
xxx
-Y
xxx
xxxx
xxx
(xxx)
xxxx
xxx
(xxx)
Investment
xxxx
xxxx
xxxx
Continue……………
Particulars
Rs.
Rs.
Other Liabilities
Particulars
Rs.
Rs.
Current Assets
Loans from Bank
xxx
Add: Accrued Interest
xxx
Bank Overdraft
Stock
xxxx Debtors
xxxx Less: prov. For bad
debts
Sundry Creditors
xxx
Less: Provision for
Discount
xxx
Less: Prov. For
Discounts
xxxx
xxx
(xxx)
(xxx)
xxxx
xxxx Bills Receivable
xxxx
Bills Payable
xxxx Loans and Advances
given
xxxx
Outstanding Expenses
xxxx Insurance claim
Receivable
xxxx
Income received in
Advances
xxxx Prepaid Expenses
xxxx
Xxxx
Cash in Hand
xxxx
Bank Balance
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
Sales
a) Deduct Sales value from
Debtors
b) Add Cost to Closing Stock
b) Add Cost to closing stock
4. Revenue Expenses Treated Add to Expenses a/c
as capital expenses
Deduct from Assets a/c
5. Capital Expenses treated
as Revenue Expenses
Deduct from Expenses a/c
Add to Asset a/c
6. Prepaid Expenses
Deduct from Expenses a/c
Show on Asset side
7. Outstanding Expenses
Add to Expenses a/c
Show on Liability side
B. Current Expenses
Adjustment
Profit & Loss A/c
Balance Sheet
8. Depreciation
Show on Debit side
Deduct from gross Cost of
each asset
9. Closing Stock
Shown on Credit side
Show on Asset Side
10. Deferred Revenue
Expenditure written off
Show Amt written off on
Debit side
Show on Remaining Balance
on Asset side
11. Income due not received
Add to Income a/c
Show on Asset side
12. Income Received in
Advance
Deduct from Income a/c
Show on Liability Side
C. Current Income
D. Provision / Reserve
13. Reserve for Doubtful
Debts
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
Debtors
Discount
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
15. Reserve for Discount on
Creditors
Discount
Add: New Reserve
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
Deduct New Reserve from
Sundry Creditors
Adjustment
Profit & Loss A/c
Balance Sheet
E. Losses / Gains
16. Goods Given away as
Samples
a) Show Cost on Cr. Of
Trading a/c
b) Show cost on Dr. of P & L
a/c
---
17. Goods Entirely Lost on
Assets side
a) Show Cost on Cr. Of
Trading a/c
b) Show cost on Dr. of P & L
a/c
---
18. Goods Lost; Insurance
Claim Due
a) Show full Cost on Cr. Of
Show Insurance Claim due
on Asset side
Trading A/c
b) Show Loss (Cost less
Claim ) on Dr. of P & L a/c
19.Goods taken by partner
Show Cost on Cr. Of Trading
a/c
De it to Part er s Capital/
Current a/c
20. Profit on Sale of Asset
Show Profit on Cr. Of P & L
a/c
Deduct W.D.V from Asset a/c
21. Loss on sale of Asset
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
Appropriation a/c
Balance Sheet
1. Transfer to Reserve
Show on Dr. of P & L Appr.
A/c
Show on Liability Side
2. Interest to Partners
Show on Dr. of P & L Appr.
A/c
Credit Capital / Current a/c
3. Salary etc. to Partners
Show on Dr. of P & L Appr.
A/c
Credit Capital / Current a/c
4. Interest on Drawings
Show on Cr. of P & L Appr.
A/c
Debit Capital / Current a/c
5. Net Profit Distributed
Show on Dr. of P & L Appr.
A/c
Credit Capital / Current a/c
6. Net Loss Transferred
Show on Cr. of P & L Appr.
A/c
Debit Capital / Current a/c
Adjustment already in T.B.
Adjustment
P & L a/c
Balance Sheet
1. Prepaid Expenses a/c in
T.B.
--
Show on Asset side
2. Outstanding expense a/c
in T.B.
--
Show on Liability side
3. Income received in
advance a/c in T.B.
--
Show on Liability side
4. Income due not received
a/c in T.B.
--
Show on Asset side
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
a/c in T.B.
--
Deduct from Asset a/c
Hidden Adjustments in T.B.
Trial Balance As On
31-3-2014
Trading , Profit & Loss a/c
For the year ended
31-3-2014
Balance Sheet As On
31-3-2014
Deduct Rs. 100 from Rent
Paid a/c
Show Rs.100 as Rent
prepaid on Asset side
2. Rent Paid (upto Feb.2014 )
Rs.1,100
Add Rs. 100 to rent Paid a/c
Show Rs. 100 as Outstanding
Rent
3. Rent Received (upto
Feb.2014) , Rs.2,200
Add Rs.200 to Rent Received
a/c
Show Rs.200 as Rent
Receivable on Asset side
Deduct Rs.200 from rent
Received a/c
Show Rs.200 as Advance
Rent on Liability side
Write off Rs. 20,000 on Dr.
side
Deduct Rs.20,000 from
Leasehold Land on Asset
side
1. Rent Paid (including
Rs.100 for April 2014)
4. Rent Received (Including
Rs.200 for April 2014)
5. Leasehold Land:
Rs.1,00,000 (For 5 years
from 1-4-2013)
Trial Balance As On
31-3-2014
Trading , Profit & Loss a/c
For the year ended
31-3-2014
Balance Sheet As On
31-3-2014
6. a) Loan from XYZ
Rs.10,000 taken on 1-42013
b) Interest to XYZ @ 10%
p.a. Rs.500
Add Rs.500 to Interest Paid
a/c
Show Rs.500 as Interest due
on Liability side
Show Profit Rs. 1,200 on
Cr.side
Deduct Rs.4,200 from
Machinery a/c in balance
Sheet
7. a) Machinery (W.D.V.) :
Rs. 4,200
b)Machinery Sold:
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
To Goodwill a/c
Amount brought in as share of
goodwill
When the Goodwill is transferred to the Old Partners
2)
Good ill a/ …………………..Dr
To Sa rifi i g Part ers apital /
Current a/c
Share of Goodwill in Ratio of
sacrifice
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
To Goodwill a/c
Goodwill Paid
When the Goodwill is transferred to the Old Partners
2)
Good ill a/ ……………………………………..Dr
Ne Part er s apital/ urre t a/ ………Dr
To Sa rifi i g Part ers apital /
Current a/c
Goodwill Paid
Balance Goodwill Unpaid
Full Goodwill in ratio of Sacrifice
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
a/ …Dr
To Cash a/c
Amt withdrawn
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
To Old Part ers Capital a/
Surplus on Revaluation in Old PSR
When the Goodwill a/c is written off
2)
All Part ers Capital a/ ………….Dr
To Goodwill a/c
In new PSR
Value of Goodwill w/o
Note:
1. Value of Goodwill
The value of he goodwill to be considered in different cases is shown belowa) 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 passed1)
Ne Part er s apital/ urre t a/ ………Dr
To Sa rifi i g Part ers apital /
Current a/c
His Share of goodwill in sacrificing
ratio
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.

1)
Written off existing Goodwill a/c
Old Partner Capital/Current a/c ….Dr
To Goodwill a/c
Goodwill w/o in Old PSR Existing
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 belowa) 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.

Step
Hidden Goodwill
Particulars
Rs.
A.
Net Worth o the asis of e part er s apital.
Ne Part er's apital
/ Ne Part er s PS‘
xxxx
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
3.
Divide expenses between these 2 periods
4.
Divide Net Profit (NP) between these 2 periods
How is it to be done
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)
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
Purchases
Sales (up to Sept. 30 , 2013 Rs. 3,60,00)
75,000
2,77,000
--
Direct wages
40,000
Overheads & Trading expenses (excluding depreciation)
47,200
Fixed assets at Cost
60,000
Depreciation of Fixed Assets January 1,2013
Debtors
20,000
38,000
Provision for Doubtful debts
1,400
Creditors
Bank account
4,84,350
27,400
60,750
1)
2)
3)
4)
Other Information given to you is as follows:
Stock was valued as on December 31,2013 at Rs.69,100
Trade expenses accrued but not entered in the books
amounted Rs.1,200
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.
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
To Opening Stock
By Sales
To Purchases
Less: goods on Sale
or return
To Direct wages
By Closing Stock
To gross Profit c/d
Add: goods on sale
or return
5,51,450
Rs.
Rs.
4,84,350
6,000 4,78,350
69,100
4,000
73,100
5,51,450
Profit & Loss Account For the year ended 31-12-2013
Particulars
Jan-Sept
(Rs.)
To Overhead &
Trading expenses
(47,200 + 1,200)
36,300
Oct- Dec
(Rs.)
Particulars
12,100 By Gross profit b/d
(In Ratio of Sales)
To Depreciation
6,000
2,000
To Provision for
Doubtful debts
(5000 – 1400)
2,700
900
To Net Profit c/d
75,000
24,450
1,20,000
39,450
Jan-Sept
(Rs.)
Oct- Dec
(Rs.)
1,20,000
39,450
1,20,000
39,450
Profit & Loss Appropriation Account For the year ended 31-12-2013
Particulars
To Salary to D
(6000/12 x 3)
Jan-Sept
(Rs.)
----
Oct- Dec
(Rs.)
Particulars
1,500 By Net Profit b/d
Jan-Sept
(Rs.)
Oct- Dec
(Rs.)
75,000
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
x2
200
D: 5% on 18,000/12
x2
150
Continue……………
24,450
Particulars
Jan-Sept
(Rs.)
Oct- Dec
(Rs.)
Particulars
Jan-Sept
(Rs.)
Oct- Dec
(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.)
Capital Accounts:
A
81,425
B
37,812
C
25,775
D
19,038
Sundry Creditors
Trade expense
outstanding
Assets
(Rs.)
Fixed Asset (Gross
Cost)
60,000
Less: Depreciation
up to 31-12-2013
20,000
(Rs.)
40,000
Less: Depreciation
for 2013
1,64,050 Stock
8,000
32,000
69,100
27,600 Add: Goods on sale
or return
4,000
1,200
Continue……………
73,100
Liabilities
(Rs.)
(Rs.)
Assets
Debtors
Less: Goods on sale
or return
(Rs.)
(Rs.)
38,000
6,000
32,000
Less: Provision for
Bad debts
Bank Account
1,92,850
5,000
27,000
60,750
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
rs
B
C
D
To
Drawings
40,000
25,000
2,000
To Bal c/d
81,425
37,812
25,775
Particula A
rs
2,400 By Bal b/d
62,812
27,775
D
32,000
24,000
18,000
3,000
1,600
200
150
---
---
---
1,500
By Profit
up to 30/9
47,700
23,850
---
---
By Profit
after 1/10
10,725
5,362
3,575
1,788
19,038 By
Interest
21,438
C
60,000
By Salary
1,21,425
B
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
Cash
29700 Creditors
Debtors
93000 Sales
Rent & Rates
17700 Capital:-
Salary
36000 D
72000
Sundry Expenses
15600 E
36000
Stock
75000 F (including Goodwill)
12000
Purchases
Sundry Asset
330000
31500
Credit
Rs
40500
540000
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
Capital A
30,000
Debtors
30,000
B
20,000
Creditors
C
10,000
Purchases
35,000
Amt
31,000
Drawings A
3,000
Wages
3,500
B
2,000
Carriage Inwards
1,500
C
1,000
Sales
70,000
Continue……………
Particular
Amt
Building
Amt
Particulars
Amt
20,000
Office &
Administrative
Expenses
10,000
Machinery
10,000
Selling &
Distribution Exp.
5,000
Furniture
5,000
Cash
8,000
Stock
3,000
Bank
8,000
Advance
16,000
Amt
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
To All Partners Capital a/c
Full/ Surplus Value
(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
Capitala/ …………………………Dr
To Goodwill a/c
In New PSR
B.) If only retiring Partners share in G/W is Raised
1)
Good ill a/ …………………………Dr
To Retiring Partners Capital a/c
Retiring partners share in
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
a/ …………………………Dr
To Goodwill a/c
In Ratio of gain
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
a/ …………………………Dr
To Retiring Partners Capital a/c
In ratio of gain
His share in full/ surplus value of
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
3.
Divide expenses between these 2 periods
4.
Divide Net Profit (NP) between these 2 periods
How is it to be done
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)
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
Add: Current a/c (Cr.) Bal
xxxx
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
Total Amt payable to retiring partner
xxxx
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:
Date
31-3-2014
Joint Life Policy a/c
Particulars
To Part ers
Capital a/c
(X – 40,000 ; Y –
Rs.40,000 ; Z –
20,000)
Rs.
1,00,000
1,00,000
Date
Particulars
31-3-2014 By bank a/c
(Policy money
received)
Rs.
1,00,000
1,00,000
• Case 2:
Date
Joint Life Policy a/c
Particulars
Rs.
Date
Particulars
Rs.
1-1-11
To bank a/c premium
5000
31-12-11
By P & L a/c
5,000
1-1-12
To bank a/c premium
5000
31-12-12
By P & L a/c
4,000
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 premium
5,000
31-12-13
By balance c/d
2,500
6,000
6,000
Cont………..
Date
Particulars
Rs.
Date
Particulars
31-3-14
By bank a/c
(Policy money
received)
1-1-14
To balance b/d
2,500
1-1-14
To bank a/c premium
5,000
31-3-14
To Part er s apital
a/c( X- 37,000 , Y –
37,000 , Z -18,500)
92,500
1,00,000
Rs.
1,00,000
1,00,000
Balance Sheet as on 31-12-2011
Liabilities
Rs.
Assets
Joint Life policy
Rs.
Nil
Balance Sheet as on 31-12-2012
Liabilities
Rs.
Assets
Joint Life policy
Rs.
1,000
Balance Sheet as on 31-12-2013
Liabilities
Rs.
Assets
Joint Life policy
Rs.
2,500
• Case 3:
Date
Joint Life Policy a/c
Particulars
Rs.
Date
Particulars
Rs.
1-1-11
To bank a/c premium
5000
31-12-11
By Joint life
policy fund a/c
5,000
1-1-12
To bank a/c premium
5000
31-12-12
By Joint life
policy fund a/c
4,000
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
policy fund a/c
3,500
1-1-13
To bank a/c premium
5,000
31-12-13
By balance c/d
2,500
6,000
6,000
Cont………..
Date
Particulars
Rs.
Date
Particulars
31-3-14
By bank a/c
(Policy money
received)
1-1-14
To balance b/d
2,500
1-1-14
To bank a/c premium
5,000
31-3-14
To Joint life policy
fund a/c
92,500
1,00,000
Rs.
1,00,000
1,00,000
•
Date
Joint Life Policy Fund a/c
Particulars
Rs.
Date
Particulars
Rs.
31-12-11
To Joint life policy
a/c
5000
31-12-11
By P & L
Appropriation
a/c
5,000
31-12-12
To Joint life policy
a/c
4000
31-12-12
By P & L
Appropriation
a/c
5,000
31-12-12
To balance c/d
1000
5,000
31-12-13
To Joint life policy
a/c
3,500
31-12-13
To balance c/d
2,500
5,000
1-1-13
By balance b/d
1,000
31-12-13
By P & L
Appropriation
a/c
5,000
6,000
6,000
Cont………..
Date
31-3-14
Particulars
To Part er s Capital
a/c (X – 38,000 , Y38,000 , Z -19,000)
Rs.
95,000
95,000
Date
Particulars
Rs.
1-1-14
By Balance b/d
2,500
31-3-14
By joint life
policy a/c
92,500
95,000
Balance Sheet as on 31-12-2011
Liabilities
Joint Life policy fund
Rs.
Nil
Assets
Joint Life policy
Rs.
Nil
Balance Sheet as on 31-12-2012
Liabilities
Joint Life policy fund
Rs.
1,000
Assets
Joint Life policy
Rs.
1,000
Balance Sheet as on 31-12-2013
Liabilities
Joint Life policy fund
Rs.
2,500
Assets
Joint Life policy
Rs.
2,500

Payment of Deceased Partner’s dues.
Particulars
Amt
Amt
Capital a/c(Cr.) , bal b/d
Add: Current a/c (Cr.) Bal
xxxx
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
Total Amt payable
xxxx
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
--
40,600
11,000
---
Gross profit
Salaries
Particulars
Amt
Amt
Rates & taxes
8,000
Other Overheads
4,000
Commission Received
Fixed Assets
Furniture
Cash & Bank
---
4,400
15,000
5,000
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
(Rs.)
Jan- Mar
(Rs.)
Particulars
To Salaries
8,250
2,750 By Gross Profit b/d
To Rates & taxes
6,000
2,000 By Commission
To Other Overheads
3,000
1,000
To Interest On Loan
to A s E e utors
--
1,200
16,500
4,300
33,750
11,250
To Net Profit
Apr-Dec
(Rs.)
Jan- Mar
(Rs.)
30,450
10,150
3,300
1,100
33,750
11,250
Profit & Loss Appropriation Account For the year ended 31-12-2014
Particulars
Apr-Dec
(Rs.)
Jan- Mar
(Rs.)
Particulars
Apr-Dec
(Rs.)
Jan- Mar
(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
C 13800X 1/4
Apr-Dec
(Rs.)
JanMar(Rs.)
Particulars
Jan-Sept
(Rs.)
Oct- Dec
(Rs.)
3450
To capital Post
B 3975 X 1/2
1987
C 3975 X 1/2
1988
______1
6500_
_______
11250
______
16500_
_______1
1250
Balance Sheet As at 31-12-2013
Liabilities
(Rs.)
Capital Accounts:
(Rs.)
Assets
(Rs.)
Goodwill
37500
Fixed Asset
15000
B
8737
V
20438
29175 Furniture
A s E e utor
Add Interest accured
40000
1200
Cash & bank
41200 Less paid to A s
executor
_______
70375
(Rs.)
5000
55000
42125
12875
_______
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
capital
1725
300
1000
To Balance c/d
-
8737
20438
By profit
6900
5437
5438
_____9
2125
_____1
1737
______2
6438
_____
92125
_____
11737
_____
_2643
8