Question

M, N and O were equal partners on 31st March, 2023. Their Balance Sheet was as follows 31st March, 2023.

Balance Sheet as on 31st March, 2023
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Accounts :		Land and Building	4,80,000
M	6,00,000	Furniture	3,60,000
N	2,40,000	Debtors	3,60,000
O	2,40,000	Stock	1,20,000
Sundry Creditors	1,08,000	Cash	1,20,000
Bills Payable	72,000
Bank Loan	1,80,000
	14,40,000		14,40,000

M died on 30th June, 2023 and the following adjustments were agreed as:

(1) Furniture was to be adjusted to its market price of ₹ 4,08,000.

(2) Land and Building was to be depreciated by 10%.

(3) Provide R.D.D. @ 5% on Debtors.

(4) The profit up to the date of death of M is to be calculated on the basis of last years profit which was ₹ 2, 16,000.

Prepare Profit and Loss Adjustment A/c, Partners' Capital Accounts A/c and Balance Sheet of the continuing firm.

Answer 1

Dr.	In the books of the Partnership Firm Profit and Loss Adjustment Account			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Land and Building A/c	48,000	By Furniture A/c		48,000
To R.D.D. A/c	18,000	By Partners’ Capital A/c (Loss)
		M	6,000	18,000
		N	6,000
		O	6,000
	66,000			66,000

 

Dr.	Partner's Capital Accounts						Cr.
Particulars	M (₹)	N (₹)	O (₹)	Particulars	M (₹)	N (₹)	O (₹)
To Profit and Loss Adjustment A/c – Loss	6,000	6,000	6,000	By Balance b/d	6,00,000	2,40,000	2,40,000
To M’s Executor’s Loan A/c	6,12,000	-	-	By Profit and Loss Suspense A/c	18,000	-	-
To Balance c/d	-	2,34,000	2,34,000
	6,18,000	2,40,000	2,40,000		6,18,000	2,40,000	2,40,000

 

Balance Sheet as on 1st July, 2023
Liabilities	Amount (₹)	Amount (₹)	Asset	Amount (₹)	Amount (₹)
Capital Accounts:			Land and Building	4,80,000	4,32,000
N	2,34,000	4,68,000	Less: Dept. (10%)	48,000
O	2,34,000		Furniture	3,60,000	4,08,000
M’s Executor’s Loan A/c		6,12,000	Add: Appreciation	48,000
Sundry Creditors		1,08,000	Debtors	3,60,000	3,42,000
Bills Payable		72,000	Less : R.D.D. (5%)	18,000
Bank Loan		1,80,000	Stock		1,20,000
			Cash		1,20,000
			Profit and Loss Suspense A/c		18,000
		14,40,000			14,40,000

Working Note:

Profit of the firm of last year was ₹ 2,16,000.

Proportionate profit up to the date of death for M is as follows

`= 2,16,000 xx 3/12 xx 1/3 = ₹ 18,000`

(Period) (P & L ratio) Profit and Loss Suspense A/c