(a) On 1st April 2018 Subha started her business with a capital of ₹ 1,20,000. She did not maintain proper books of accounts. Following particulars are obtained from her books as on 31.3.2019.
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| Bank overdraft | 50,000 | Stock-in-trade | 1,60,000 |
| Debtors | 1,80,000 | Creditors | 90,000 |
| Bills receivable | 70,000 | Bills payable | 2,40,000 |
| Computer | 30,000 | Cash in hand | 60,000 |
| Machinery | 3,00,000 |
During the year she withdrew ₹ 30,000 for her personal use. She introduced further capital of ₹ 40,000 during the year. Calculate her profit or loss.
OR
(b) Rajan and Selva are partners sharing profits and losses in the ratio of 3 : 1. Their Balance Sheet as on 31st March 2017 is as under.
| Liabilities | ₹ | ₹ | Assets | ₹ |
|---|---|---|---|---|
| Capital accounts : | Building | 25,000 | ||
| Rajan | 30,000 | Furniture | 1,000 | |
| Selva | 16,000 | 46,000 | Stock | 20,000 |
| General Reserve | 4,000 | Debtors | 16,000 | |
| Creditors | 37,500 | Bills Receivable | 3,000 | |
| Cash at Bank | 12,500 | |||
| Profit and Loss account (Loss) | 10,000 | |||
| 87,500 | 87,500 |
On 1.4.2017, they admit Ganesan as a new partner on the following arrangements.
- Ganesan brings ₹ 10,000 as capital for 1/5 share of profit.
- Stock and furniture is to be reduced by 10%, a reserve of 5% on debtors for doubtful debts is to be created.
- Appreciate buildings by 20%. Prepare Revaluation account, Partner's capital account and the Balance Sheet of the firm after admission of the new partner.
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Start your 14-day free trial to unlock the full solution →(a) Closing capital ₹4,20,000 → profit ₹2,90,000 by capital comparison. (b) Revaluation profit ₹2,100; new capitals Rajan ₹27,075 / Selva ₹15,025 / Ganesan ₹10,000; new Balance Sheet total ₹89,600.
(a) Profit by the capital-comparison (net-worth) method
With no proper books, we first build a Statement of Affairs on 31.3.2019 to find the closing capital, then compare it with the opening capital.
Statement of Affairs as on 31.3.2019
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Bank overdraft | 50,000 | Stock-in-trade | 1,60,000 |
| Creditors | 90,000 | Debtors | 1,80,000 |
| Bills payable | 2,40,000 | Bills receivable | 70,000 |
| Capital (balancing figure) | 4,20,000 | Computer | 30,000 |
| Machinery | 3,00,000 | ||
| Cash in hand | 60,000 | ||
| Total | 8,00,000 | Total | 8,00,000 |
Closing capital = Total assets ₹8,00,000 − Total liabilities ₹3,80,000 = ₹4,20,000.
Statement of Profit or Loss
| Particulars | ₹ |
|---|---|
| Closing capital (31.3.2019) | 4,20,000 |
| Add: Drawings during the year | 30,000 |
| 4,50,000 | |
| Less: Additional capital introduced | 40,000 |
| Adjusted capital | 4,10,000 |
| Less: Opening capital (1.4.2018) | 1,20,000 |
| Profit for the year | 2,90,000 |
(b) Admission of Ganesan
Revaluation Account
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Stock (10% of 20,000) | 2,000 | By Building (20% of 25,000) | 5,000 |
| To Furniture (10% of 1,000) | 100 | ||
| To Provision for doubtful debts (5% of 16,000) | 800 | ||
| To Profit transferred to: | |||
| Rajan (3/4) | 1,575 | ||
| Selva (1/4) | 525 | ||
| Total | 5,000 | Total | 5,000 |
Revaluation profit = 5,000 − (2,000 + 100 + 800) = ₹2,100, shared 3:1.
General Reserve ₹4,000 and the debit balance of Profit & Loss A/c (loss) ₹10,000 are also shared in the old ratio 3:1 (Rajan ₹3,000 / ₹7,500; Selva ₹1,000 / ₹2,500). No goodwill is raised as none is mentioned.
Partners' Capital Accounts
| Particulars | Rajan (₹) | Selva (₹) | Ganesan (₹) | Particulars | Rajan (₹) | Selva (₹) | Ganesan (₹) |
|---|---|---|---|---|---|---|---|
| To P&L A/c (loss) | 7,500 | 2,500 | — | By Balance b/d | 30,000 | 16,000 | — |
| To Balance c/d | 27,075 | 15,025 | 10,000 | By General Reserve | 3,000 | 1,000 | — |
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