Principles of Financial Accounting (B.Com) 1st Sem Previous year Solved Question Paper 2022

Practice Mode:
14.

Mohan and Sohan started a partnership business on 1st April, 2020. They contributed Rs. 30,000 and Rs. 20,000 respectively. Profits are to be shared in the ratio of their capitals, initially, contributed.Business continues for two years. Following was the result :

Year ending March 31, 2021 Rs. 30,000 (profit) (Before charging interest on Capital)
Year ending March 31, 2022 Rs. 22,000 (profit) (Before charging interest on Capital)
They decided to dissolve the partnership on March 31, 2022. Partners drawings were Rs. 4,000 each p.a. Creditors were Rs. 16,400 on the date of dissolution. Assets of the firm realised Rs. 75,000 at an expense of Rs, 550. Partners capital to carry interest @10% p.a. Prepare necessary accounts to close the books of the partnership business.

Explanation

To close the books of the partnership business, we’ll go through the necessary steps and prepare the required accounts:

Step 1: Prepare the Profit and Loss Appropriation Account for the years 2020-2021 and 2021-2022
Year ending March 31, 2021:
- Profit = Rs. 30,000
- Interest on Mohan’s capital (10% of Rs. 30,000) = Rs. 3,000
- Interest on Sohan’s capital (10% of Rs. 20,000) = Rs. 2,000
Year ending March 31, 2022:
- Profit = Rs. 22,000
- Interest on Mohan’s capital (10% of Rs. 30,000) = Rs. 3,000
- Interest on Sohan’s capital (10% of Rs. 20,000) = Rs. 2,000
Now, prepare the Profit and Loss Appropriation Account:
Profit and Loss Appropriation Account
| Particulars | 2020-2021 (Rs.) | 2021-2022 (Rs.) |
|---------------------|------------------|------------------|
| Profit (Before Interest) | 30,000 | 22,000 |
| Interest on Mohan’s Capital | 3,000 | 3,000 |
| Interest on Sohan’s Capital | 2,000 | 2,000 |
| Balance (Transferred to Capital Accounts) | 25,000 | 17,000 |
| Total | 30,000 | 22,000 |

Step 2: Prepare Mohan and Sohan’s Capital Accounts
Mohan’s Capital Account:
Opening Balance (April 1, 2020) = Rs. 30,000
Add: Share of Profit (2020-2021) = Rs. 25,000
Add: Share of Profit (2021-2022) = Rs. 17,000
Less: Drawings (2 years at Rs. 4,000 each) = Rs. 8,000
Less: Interest on Capital (2020-2021) = Rs. 3,000
Less: Interest on Capital (2021-2022) = Rs. 3,000
Balance (Transferred to Bank Account) = Rs. 58,000
Sohan’s Capital Account:
Opening Balance (April 1, 2020) = Rs. 20,000
Add: Share of Profit (2020-2021) = Rs. 0 (Since his share of profit for this year is zero)
Add: Share of Profit (2021-2022) = Rs. 17,000
Less: Drawings (2 years at Rs. 4,000 each) = Rs. 8,000
Less: Interest on Capital (2020-2021) = Rs. 2,000
Less: Interest on Capital (2021-2022) = Rs. 2,000
Balance (Transferred to Bank Account) = Rs. 25,000

Step 3: Prepare the Realization Account
Assets realized Rs. 75,000 at an expense of Rs. 550.
Realization Account:
| Particulars | Amount (Rs.) |
|---------------------------|--------------|
| Realization Expenses | 550 |
| Cash (Realization Amount) | 74,450 |

Step 4: Prepare the Cash Account
Cash Account:
| Particulars | Amount (Rs.) |
|---------------------------|--------------|
| Realization Amount | 74,450 |
| Balance (Transferred to Capital Accounts) | 58,000 (Mohan) and 25,000 (Sohan)|

Step 5: Prepare the Creditors Account
Creditors Account:
| Particulars | Amount (Rs.) |
|---------------------------|--------------|
| Creditors (as of dissolution) | 16,400 |
| Cash (Payment to Creditors) | 16,400 |

Step 6: Prepare the Balance Sheet as of March 31, 2022

Liabilities:
1. Mohan’s Capital (as per his Capital Account) = Rs. 58,000
2. Sohan’s Capital (as per his Capital Account) = Rs. 25,000
3. Creditors (as per the Creditors Account) = Rs. 0 (Paid off)

Assets:
1. Cash (as per Cash Account) = Rs. 83,000 (Total in Cash Account)
2. Realization Amount (as per Realization Account) = Rs. 74,450

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