Question

PRACTICAL PROBLEMS

A and B are in Partnership. Their Capitals on 1^st April 2010 were Rs 30,000 each. The assets and liabilities as on 31^st March 2011 were as follows. Cash in hand Rs 2,400, Cash at Bank Rs 16,000 Bill Receivable Rs 4,000, Debtors Rs 28,600 Stock Rs 26,000. Machinery Rs 14,000, furniture Rs 8,000, Bills Payable Rs 3,000 Sundry creditors Rs 6,000 Outstanding salary Rs 800.

Additional Information:

1) Provide Rs 600 as Bad Debts and 5% R.D.D.

2) Depreciate furniture @ 5% p.a. and Machinery @ 10% p.a.

3) Stock is found undervalued by Rs 2,000.

4) Sundry creditors are found overvalued by Rs 1,000.

5) Prepaid Insurance Rs 2,000.

6) Additional capital introduced by partners Rs 4,000 each.

7) Drawings of ‘A’ Rs 3,000 and ‘B’ Rs 2,000 calculate the profit for the year ended 31^st March 2011.

Answer 1

Statement of Affairs as on March 31,2011
Liabilities	Amount (Rs)	Assets	Amount (Rs)
Bills Payable	3,000	Cash in Hand	2,400
Outstanding Salary	800	Cash at Bank	16,000
Sundry Creditors	6,000	Bills Receivable	4,000
Capital (Balancing Figure)	89,200	Debtors	28,600
		Stock	26,000
		Machinery	14,000
		Furniture	8,000
	99,000		99,000

Statement of Profit or Loss for the year ended March 31,2011
Particulars	Amount (Rs)
Capital at the end of the year		89,200
Add: Drawings made during the year
A	3,000
B	2,000	5,000
Less: Additional capital introduced during the year
A	4,000
B	4,000	(8,000)
Adjusted capital at the end of the year		86,200
Less: Capital in the beginning of the year
A	30,000
B	30,000	(60,000)
		26,200
Add: Undervalued Stock		2,000
Prepaid Insurance		2,000
Overvalued Creditors		1,000
Less: Bad-Debts		(600)
Reserve for Doubtful Debts (28,000 × 5%)		(1,400)
Depreciation on Machinery		(1,400)
Depreciation on Furniture		(400)
Profit for the year		27,400

Note: In this question too, there seems to be the same problem as we have faced in the last question. The Net Profit as given in the textbook amounts to Rs 31,400, while, as per the solution above, it should be Rs 27,400.