FINAL ACCOUNTS OF PARTNERSHIP FIRMS

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					                   FINAL ACCOUNTS OF PARTNERSHIP FIRMS
Meaning:-
According to Indian partnership act of 1932 the “partnership” is “the relation between
two or more persons who have agreed to share the profits of a business carried on by all
or any of them acting for all”.
Features: - The following are the features of a partnership
1. There must be a two or more persons to form a partnership. (Maximum ten for
    financial twenty for non financial activity)
2. There must be an agreement entered in to by all the partners.
3. There must be a business or profession.
4. The firm must be carried by all or any of them acting for all.
5. There must be an agreement for sharing profits or losses of a business.
6. The liability of the partners is unlimited.
7. For the purpose of law, partners and the firm are not separate entities.
8. The partnership firms are governed by the Indian partnership act of 1932.
Partnership deed
   Partnership deed is an agreement of all the partners which contains the terms of
partnership. The partnership act does not make it mandatory for a firm to have a
partnership deed in writing; it is always advisable to have in writing for avoiding the
future confusion.
  A partnership deed generally includes the following:
  (a) The name of the firm
  (b) The names and address of the partners
  (c) The nature of business or profession
  (d) The place in which the business is operated
  (e) The date of commencement of partnership
  (f) Amount of capital to be contributed by each partner
  (g) The conduct and powers of the partners
  (h) Restrictions on working of each partner
  (i) Ratio in which profits and losses are to be shared
  (j) Interest on partners‟ capital and drawings
  (k) Interest on loans given or taken by partners from the firm
  (l) Remuneration to partners
  (m) Methods of valuation of goodwill and their treatment
  (n) Mode of settlement of accounts in case of retirement/death of a partner or
    dissolution of a firm
  (o) Procedures to be followed in the event of disputes
 Provisions applicable in the absence of partnership agreement
 When a partnership firm does not have a partnership deed, the following provisions will
   be applicable (as per sec.13 of the I P A, 1932)
 (a) No remuneration must be paid to any partner for taking an active part.
 (b) The profit and losses must be shared by the partners equally
 (c) No interest must be charged on the drawings made by the partners
 (d) No interest must be allowed on capital contributed by the partners
 (e) 6% p.a. interest must be paid to partners loan/advances by partners to the firm
 (f) No person can be admitted into partner ship without consent of all existing partners.
 (g) The books of the firm must be kept in the place of business and every partner has a
     right to inspect of them.
 Accounting procedure in a partnership firm
   Accounting procedure in the partnership firm is very similar to the proprietary
 concern however in the partnership there are two or more owners, accounting for the
 capital accounts of partners and for appropriation of profit/loss, the partners capital
 accounts and P/L appropriation a/c is prepared additionally.
Methods of maintaining partner’s capital a/c
   There are two methods for maintaining the capital accounts in the partnership firm they
        are: -          1. Fluctuating capital system         2.fixed capital system.
1. Fluctuating capital system: - under this system all the transaction between partner
and the firm will be recorded in capital account of partners. The capital accounts are
maintained under this system, the balance in the capital account of the partner keeps
fluctuating. Hence the system is called fluctuating capital system.

            The transaction between partners and the firm may includes
    (a) introduction of capital    (b) introduction of additional capital
    (c) drawings by partners      (d) interest on capital (e) interest on drawings
    (f) interest on loan (g) remuneration to partners (h) share of profit or losses
                                 Partner’s capital account
                                Amount                                      Amount
To Bank a/c(drawings)           *****      By Balance b/d                   *****
To Interest on drawings a/c     *****      By Bank a/c(capital)             *****
To P/L appropriation a/c        *****      By Interest on capital           *****
                                           By Salary/commission a/c         *****
To Balance c/d                  *****      By P/L appropriation a/c         *****
                                *****                                       *****
Fixed capital system: - under this system two accounts are opened in the name of each
    partner, they are; (a) capital account        (b) current account
(a) Capital account: - it is an account of purely partner capital, it consisting capital a/c
    opening balance and introduction of additional capital. All other transactions relating
    to partner are entered in partner‟s current a/c. in this system partners capital is fixed
    (does not varies) hence it is called fixed capital system.
                                  Partner’s capital account
                                 Amount                                      Amount
                                             By Balance b/d                   *****
To Balance c/d                    *****      By Bank a/c(capital)             *****
                                  *****                                       *****
(b) Current account:- it is an account which contains all of the transactions relating to a
partner except capital introduced such as interest on capital, drawings and loans,
remuneration of partners, share of a profit or loss, etc.
                                  Partner’s current account
                                 Amount                                      Amount
To Balance b/d                    *****      By Balance b/d                   *****
To Bank a/c(drawings)             *****       By Interest on capital          *****
To Interest on drawings           *****      By Salary/commission             *****
a/c                               *****      a/c                              *****
To P/L appropriation a/c          *****      By P/L appropriation a/c         *****
To Balance c/d                    *****      By balance c/d                   *****
Final account of partnership firm
Final account of partnership firm consists of: 1) trading & P/L account
                                                2) P/L appropriation account
                                                3) Balance sheet.
1) Trading & P/L account: - trading account is prepared to ascertain the gross profit or
    gross loss earned/incurred by the firm. Profit and loss account is prepared to ascertain
    the net profit or net loss earned/incurred by the firm.
2) P/L appropriation account: - it is an account which is prepared by the firm, addition
    to P/L account. This account records the transactions between firm and partners, and
    appropriates profits accordingly. (Interest on capital, int on drawings, interest on
    partner‟s loan, partners remuneration, appropriation of profit/loss.)
3) Balance sheet: - balance sheet is a statement which is prepared to know the financial
    position of the business on any particular date.


                                 MANAGER COMISSION
    Manager commission is a commission which is payable by the firm to the manager for
his service. It is an expense it must be debited to P/L account and shown on the liability
side of the balance sheet.
    Calculation of manager commission: -
a) When the commission can be calculated on net profit before charging such
commission.
     Commission = (total of credit in P/L a/c) – (total of debit in P/L a/c) X rate/100
b) When the commission can be calculated on net profit after charging such commission.
Commission = (total of credit in P/L a/c) – (total of debit in P/L a/c) X rate/100+rate
               SALE OF PARTNERSHIP TO A LIMITED COMPANY

Meaning: - sale of a partnership firm to a company for sum consideration or a
partnership firm may convert itself into a joint stock company are the same for
accounting purposes. The firm which is being sold to the company is called the vendor
firm and the company which is purchasing the firm is called purchasing company.

Objectives of conversion of affirm into Joint Stock Company.
The main objectives or merits of conversion of a firm into a limited company are: -
1. To get the advantage of limited liability 2. To increase the capital and managerial skill
3. To increase the scale of operation. 4. To enjoy the other benefits of limited company.
Purchase consideration: - the consideration or price payable by the purchasing company
for taking over (business) assets and liabilities of the vendor firm is called purchase
consideration.

Methods of calculating purchase consideration
The purchase consideration may be calculated under any of the following methods
                 1. Lumsum method. 2. Net asset method. 3. Net payment method.
 1. Lumsum method: - under this method a fixed amount is paid by the purchasing
company for the assets and liabilities taken over from the vendor firm.
 2. Net asset method: - under this method purchase consideration is calculated as follows
      Total assets taken over at agreed value by the purchasing company          XXXX
      Total liabilities taken over at agreed value by the purchasing company XXXX
                                                       Purchase consideration XXXX
3. Net payment method: - under this method, actual payment made by the company
against each liability would be specified. I.e. net payment of cash, shares, and debentures
made by the purchasing company to vendor firm.
Form of discharging the purchase consideration: -the purchase consideration may be
discharged by the purchasing company in any of the following ways
  a) Completely in cash        b) Completely in shares      c) Completely in debentures
  d) Partly in cash & partly in shares           e) partly in cash & partly in debentures
  f) Partly in shares & partly in debentures g) combination of cash& shares& debentures
Realization account: - realization a/c is prepared to realize the assets and liabilities of
the firm. The main object of preparation of this account is to find out the profit or loss on
realization of assets and liabilities of the firm. This account is debited with all assets at
book value and credited with all liabilities at book value (except partner‟s capital and
loan). If the purchasing company does not taken over some assets, then they are sold
away in the market or it may be taken over by the partners through realization a/c in the
same way, if the purchasing company does not taken over some liabilities, they are paid
off or taken over by the partners through realization a/c.
Final claim ratio: - it is the ratio finally claimed by the partners. The shares and
debentures received from purchasing company as purchase consideration are divided
amongst the partners according to final claim ratio. (It is used for the purpose of
distributing the shares and debenture which is received from the purchasing company as
purchase consideration)
Journal entries and ledger account in the books of vendor firm: -
Journal entries: -
1. For transfer of assets. ------------------------------Realization a/c Dr
                                                                To Assets a/c
2. For transfer of liabilities. --------------------------Liabilities a/c Dr
                                                                To Realization a/c
3. For purchase consideration due. -----------------Purchasing company a/c Dr
                                                                To Realization a/c
4. For sale of assets. ------------------------------------Cash a/c Dr
                                                                To Realization a/c
5. For assets taken over by the partner. ------------Partner capital a/c Dr
                                                                To Realization a/c
6. For payment of liabilities. --------------------------Realization a/c Dr
                                                                To Cash a/c
7. For liabilities taken over by the partner. -------Realization a/c Dr
                                                                To Partner capital a/c
8. For realization expenses. --------------------------Realization a/c Dr
                                                                To Cash a/c
 9. For distribution of realization profit. ----------Realization a/c Dr
                                                               To Partners capital (current) a/c
10. For distribution of realization loss. ------------Partners capital (current) a/c Dr
                                                               To Realization a/c
11. For receipt of purchase consideration. -------Shares / Debentures / Cash a/c Dr
                                                                To purchasing company a/c
12. For transfer of undistributed reserve --------Reserve / p/l a/c Dr
                  And P/L a/c.                                 To Partners capital a/c
13. For payment of partners loan account. ------Partners loan a/c Dr
                                                                 To Cash a/c
14. For distribution of shares, ------Partners capital a/c Dr
     Debentures and cash                      To shares / debenture in purchasing company
                                              To cash a/c

Ledger accounts: -
            1. Realization account
            2. Purchasing company a/c
            3. Shares in purchasing company a/c
            4. Debentures in purchasing company a/c
            5. Partners capital a/c
            6. Partners loan a/c
            7. cash/bank a/c
                               HIREPURCHASE SYSTEM
        Hire purchase is a method of selling goods. In a hire purchase transaction the
goods are let out on hire by a creditor to the hire purchase customer (hirer). The buyer is
required to pay an agreed amount in periodical installments during a given period. The
ownership of the property remains with creditor and passes on to hirer on the payment of
last installment.
        The goods are sold on credit, for which payment is made by the buyer in
installments over a period of time; it is called hire purchase system. In other wards in the
H P system the seller of goods delivers the goods to the buyer without transferring the
ownership of goods. The payment for the goods will be made by the buyer in
installments. If the buyer pays all installments, the ownership of the goods will be
transferred, on payment of the last installment. However, if the buyer does not pay for
any installment, the goods will be repossessed by the seller and the money paid on earlier
installments will be treated as hire charges for using the goods.
Features: the following are the characteristic features of hire purchase system
    1. Hire purchase is an agreement between hire vendor and hire purchaser.
    2. The buyer takes possession of goods immediately and agrees to pay the total hire
        purchase price in installments.
    3. The agreement provides for parting the passion of goods, with an option to
        purchase or hire the goods by buyer.
    4. if the hire purchaser pays all installments, the ownership of the goods will be
        transferred on payment of last installment.(purchase)
    5. if the hire purchaser stops paying the installments, the hire vendor repossess the
        goods, each earlier installments paid will be treated as hire charges.(hiring)
    6. In case of transaction resulting in purchase, each installment paid will be inclusive
        of cash price installment and interest of cash price balance.
     Difference between sale and hire purchase
                   sale                                      Hire purchase
01    It is governed by sale of goods act   01      It is governed by the hire purchase act
02    The ownership of goods is 02                  The ownership of goods is transferred to
      transferred to the buyer immediately.         the buyer on payment of all the
                                                    installments.
03    The buyer makes the payment in           03   The payment is made in installments.
      lumsum.
04    The buyer pays only for the price of     04   The hire purchaser pays for the price of
      goods.                                        goods and also some amount of interest.
05    On non payment of consideration the      05   On non payment of any installment, the
      seller cannot take back the goods, but        seller can re-possess the goods.
      can only take legal action on buyer.
06    Once a sale has taken place cannot be    06   Can terminate the contract.
      terminate the contract.
07    When buyer becomes insolvent the         07   When hire purchaser becomes insolvent
      seller has to under take the risk of          the seller can re-possess the goods.
      loss.
08    A sale is subject to levy of sales tax   08   Sales tax will be levied at the time of
      at the time of contract of sale.              transfer of ownership.
Important terms and provisions
1. Hire purchaser: A hire purchaser is a person who possesses the goods under hire
purchase agreement for use within an option to either purchase it or return after use.
2. Hire vendor: a hire vendor is a person who sells the goods under hire purchase
agreement.
3. Cash price: it is the price of goods which is sold under „contract of sale‟
4. Hire purchase price: it is the price at which the goods are sold under „hire purchase
system‟ it includes cash price of the goods and interest.
5. Installment money: it is the part of the hire purchase price paid by hire purchaser, in
periodic intervals.
6. Deposit: it refers any sum payable by the hirer under the hire purchase agreement by
way of initial payment or credited or to be credited to him under the agreement on
account of any deposit.
7. Net cash price: it refers to the difference between cash price of the goods and deposit
(cash price-down payment=net cash price).
8. Net hire purchase price: it is the net amount after deducting the delivery charges,
registration charges, insurance charges from hire purchase price.
9. Hire charges: it is an amount refers to the difference between hire purchase price and
cash price (H P- C P= H C) it also referred to as interest.
10. Statutory hire charges: it is a hire charges according to the hire purchase act of,
1972.
11. Hire purchase agreement: it is an agreement between hire purchaser and hire
vendor according to section 2(c) of the hire purchase act, 1972 for purchasing of goods
according to agreement.
12. Rebate: it is an amount which is claimed by the hire purchaser from the hire vendor
in case if he decides to remit the balance of the purchase price (future installments) in
lumsum without continuing the hire purchasing agreement.
    The rebate is calculated as follows
        Rebate = 2/3 X hire charges X (no. of installments due/total no. of installments)
Termination of hire purchase agreement
    The hirer can terminate the agreement at any time by giving the 14 days notice to the
    owner. However what ever the amount is already paid by the hirer is considered as a
    hire charges.
Difference between agreement to sell and hire purchase agreement
    The transfer of property is to take place at a feature date subject some condition is
    called agreement to sell. Howe ever the hire purchase agreement is differ from
    agreement to sell the following are the differences
             Agreement to sell                           Hire purchase agreement
01 It is regulated by sale of goods act, 1930   01   It is regulated by hire purchase act,1972
02 The possession of goods cannot takes         02   The possession of goods is transferred
   place immediately                                 immediately.
03 In this case the buyer can sell or pledge    03   The hire purchaser cannot sell or pledge
   the goods.                                        the goods.
04 The buyer can take the advantage of          04   The hirer cannot so claim the benefit of
   implied conditions and warranties under           implied and warranties un less it become
   the act.                                          a sale.
05 It is the step to the contract of sale.      05   It becomes a sale only after the payment
                                                     is made in full.
Accounting treatment in the books of hire purchaser
There are three methods to maintain the accounts in the books of hire purchaser they are.
A. Outright property method: under this method the asset is recorded at full cash price.
B. Asset accrual method: under this method the asset is recorded at the cash price
actually paid (asset accrued is recorded)
C. Interest suspense method: under this method the total interest is first debited to
interest suspense account at the beginning subsequently the interest due at the end of the
period is credited to interest suspense account.

                JOURNAL ENTRIES IN THE BOOKS OF HIRE-PURCHASER
Sl.           Circumstances   Outright property Asset accrual Interest suspense
No.
       At the time of asset purchased.
01     When the asset is purchased          Asset a/c Dr           No entry               Asset a/c Dr
                                             To hire vendor a/c                           Interest suspense a/c Dr
                                                                                           To vendor a/c
02     When the down payment is             Hire vendor a/c Dr     Asset a/c Dr           Vendors a/c Dr
       made                                  To bank a/c            To bank a/c            To bank a/c
       At the end of every year.
03     When the installment interest        Interest a/c Dr        Asset a/c Dr           Interest a/c Dr
       becomes due                          To hire vendor a/c     Interest a/c Dr         To interest suspense a/c
                                                                    To hire vendor a/c
04     When the installment is paid         Hire vendor a/c Dr     Hire vendor a/c Dr     Vendors a/c Dr
                                            To bank a/c            To bank a/c             To bank a/c
05     When the depreciation is             Depreciation a/c Dr    Depreciation a/c Dr    Depreciation a/c Dr
       charged                               To asset a/c           To asset a/c           To asset a/c
06     When the depreciation and            Profit / loss a/c Dr   Profit / loss a/c Dr   Profit / loss a/c Dr
       interest is transferred to p/l a/c    To interest a/c        To interest a/c        To interest a/c
                                             To depreciation a/c    To depreciation a/c    To depreciation a/c



                 JOURNAL ENTRIES IN THE BOOKS OF HIRE-VENDOR
Sl.        Circumstances   Outright property Asset accrual Interest suspense
No.
       At the time of asset purchased.
01     When the asset is sold          Hire-purchaser a/c Dr       No entry               Purchaser a/c Dr
                                       To sales a/c                                        To sales a/c
                                                                                           To interest suspense a/c
02     When the down payment is         Bank a/c Dr                Asset a/c Dr           Bank a/c Dr
       received                         To hire-purchaser a/c       To bank a/c            To purchaser a/c
       At the end of every year.
03     When       the   installment    Hire-purchaser a/c Dr       Asset a/c Dr           interest suspense a/c Dr
       interest becomes due             To Interest a/c            Interest a/c Dr         To Interest a/c
                                                                    To hire vendor a/c
04     When the installment is          Bank a/c Dr                Hire vendor a/c Dr      Bank a/c Dr
       received                         To hire-purchaser a/c      To bank a/c             To purchaser a/c
05     When the interest is            Interest a/c Dr             Profit / loss a/c Dr   Interest a/c Dr
       transferred to p/l a/c           To Profit / loss a/c        To interest a/c        To Profit / loss a/c
                                                                    To depreciation a/c


Ascertainment of interest: -
     1. When rate of interest is given: -
                                Cash price less down payment add interest less installment
     2. When rate of interest is not given: -
                Ascertain total amount of interest (total amount- cash price) and then
   ascertain the interest installment with the help of ratio of amount due at the beginning
   of each year.
   Amount due at the beginning of 1st year = total amount- down payment
   Amount due at the beginning of 2nd year = first year due – 1st installment
   Amount due at the beginning of 3rd year = second year due – 2nd installment


Ascertainment of total cash price: -      1. Without the help of annuity table
                                           2. with the help of annuity table
1. without the help of annuity table: - Total cash price = cash price installment + down
payment
Cash price installment is calculated by deducting the interest installment from the
installment amount starting with last installment. The interest installment is calculated
with the help of following formula:
        Interest= total amount due at the time of installment X rate of interest
                                                                  100+rate of interest

2. with the help of annuity table: - under this method the cash price is ascertained with
the help of annuity value.
                  Cash price installment = installment X annuity value
                  Total cash price = cash price installment + down payment

Preparation of ledger accounts: -
In the books of hire-purchaser: -
                          1. Asset a/c
                          2. Hire-vendor a/c
                          3. Bank a/c
                          4. Interest a/c
                          5. Depreciation a/c
                          6. Profit and loss a/c
In the books of hire-vendor: -
                          1. hire-purchaser
                          2. Bank a/c
                          3. Interest a/c
                          4. Profit and loss a/c
                         INSTALLMENT PURCHASE SYSTEM
   Meaning: installment payment system is a system where the buyer is given the
   ownership as well as the possession of the goods at the time of signing the contract.
   The buyer has the facility to pay the price in installments.
   Features:
   1. Under this system, there will be an outright sale of goods.
   2. The possession as well as ownership is transferred to the buyer at the time of
      signing the contract agreement.
   3. The buyer can make the payment in installments.
   4. In case of default in payment the seller cannot repossess the goods, but he can sue
      the buyer for the recovery of unpaid amount.
   5. The buyer cannot option of returning the goods and terminate the contract.

Difference between hire purchase system and installment purchase system
         Hire-purchase system                  Installment purchase system
0 It is a hiring contract            01 It is a contract of sale
1
0 The ownership is transferred only 02 The ownership is transferred by seller to
2 after payment of all installments.    buyer, immediately on signing the contract.
0 The position of buyer is like 03 The position of buyer is not a bailee.
3 bailee
0 The risk of loss or damaged 04 The risk of loss or damaged goods must
4 goods must bear by the seller.        bear by the buyer.
0 The default of payment of any 05 The default of payment of any installment
5 installment by the buyer, the         by the buyer, the seller cannot re-possess
    seller can re-possess the goods.    the goods.
0 The buyer can exercise the option 06 The buyer cannot exercise the option of
6 of return the goods.                  return the goods.
0 The buyer cannot dispose the 07 The buyer has the right to dispose the
7 goods until the payment of all        goods, if all installments are not yet paid.
    installments.

Preparation of ledger accounts: -
In the books of purchaser: -
                          1. Asset a/c
                          2. Vendor a/c
                          3. Interest suspense a/c
                          4. Interest a/c
                          5. Depreciation a/c
In the books of vendor: -
                          1. Purchaser
                          2. Bank a/c
                          3. Interest a/c
                          4. Profit and loss a/c
                                 ROYALTY ACCOUNTS
      Royalty is an amount payable for utilizing the benefit of certain rights vested with
  some other person. For example a landlord possesses right over the mine in his land,
  the author of book possesses right over his book. When the rights are leased the owner
  receives a consideration for the same which is called royalty.
  Royalty: royalty is a periodical sum based on the out put payable by the lessee to the
  lessor for having utilized the rights of the lessor. The person who makes the payment
  to the owner of asset is known as lessee and the owner of the asset is known as lessor.
  Minimum rent or dead rent: minimum rent or dead rent is a minimum amount
  payable by the lessee to the lessor according to agreement irrespective of the volume
  of output. It is payable only when the royalty is less then minimum rent.
  Short workings: the excess of minimum rent over actual royalty is called short
  working. This excess is called short working for lessee and it is called short working
  suspense for the lessor.
  Recoupment or recovery of short workings: Recoupment of short working
  refers to recovering the short working of any year, from surplus royalty of the
  succeeding years. the Recoupment may be permitted over a stipulated period of time
  (fixed Recoupment) or over a specified period following the year of short working
  (floating Recoupment) or within the life time of the lease(Recoupment within life
  time of the lease).
Accounting entries in the books of lessee
                           Without minimum rent account
Sl.   Circumstances           Royalties are less then the Royalties are more then the
No.                           minimum rent                minimum rent
01    For Royalty payable     Royalties a/c           Dr      Royalties a/c            Dr
                              Short working a/c       Dr              To Short working a/c
                                         To Land lord a/c             To Land lord a/c
02 For        payment     of                       Land lord a/c Dr
      royalty                                          To Bank a/c
03 For transfer of royalty                      Profit and loss a/c   Dr
                                                     To Royalty a/c
In case short working is not completely recovered (non-recovery of short working)
04 For transfer of short- Profit and loss a/c             Dr
      working                          To Short working a/c

                            With minimum rent account
Sl.   Circumstances           Royalties are less then the Royalties are more then the
No.                           minimum rent                minimum rent
01    For minimum rent Minimum rent a/c     Dr                  No entry
      payable                 To land lord a/c
02    For Royalty payable              Royalties a/c            Dr
                                      Short working a/c         Dr
                                         To minimum rent a/c
03    For     payment      of             Land lord a/c     Dr
      royalty                                  To Bank a/c
04    For transfer of royalty            Profit and loss a/c Dr
                                             To Royalty a/c
In case short working is not completely recovered (non-recovery of short working)
05 For transfer of short- Profit and loss a/c         Dr
      working                        To Short working a/c

Accounting entries in the books of lessor

Sl.    Circumstances                Royalties are    less   then    the Royalties are more then the
No.                                 minimum rent                        minimum rent
01     For        Royalty  Lessee‟s a/c Dr                     Lessee‟s a/c Dr
       receivable            To Short working suspense a/c Short working suspense a/c Dr
                             To Royalties receivable a/c           To Royalties receivable a/c
02 For receipt of                                 Bank a/c          Dr
      royalty                                        To Lessee‟s a/c
03 For transfer of                             Royalty receivable a/c Dr
      royalty                                    To Profit and loss a/c
In case short working is not completely recovered (non-recovery of short working)
04 For transfer of short-                    Short working suspense a/c     Dr
      working                                      To Profit and loss a/c


Table analysis
                                    Short working   Short working     Short working   Amount paid
                Minimum


                          Royalty
       Output




                                                      recovered       not-recovered    to landlord
Year




                  rent




01      02      03          04            05              06                07             08
                                       (3-4=5)         (4-3=6)           (5-6=7)        (4+5=8)
                                                                                           or
                                                                                        (4-6=8)
                            FIRE INSURANCE CLAIMS

Ascertainment of “actual amount of loss”: - the actual amount of loss can be
ascertained by using the following format;

Stock on the date of fire                                  xxxx
Less: goods saved or salvaged or scrap                      xxxx
                                                           xxxx
Add: expenses incurred for extinguishing fire, if any xxxx
                           Actual amount of loss           xxxx
Ascertainment of “claim amount”:
   The claim amount is calculated only on the basis of actual amount of loss and extent of
insurance on the value of goods.
a) When the stock is properly insured or over insured:
                                  The amount of claim will be the     same as amount of loss.
 b) When the stock is underinsured:
    i) If the entire stock is destroyed: the policy amount would be the amount of claim
    ii) If only a portion of goods are destroyed: the claim amount can be calculated by
using the following formula of average clause.
    Claim amount= stock on the date of fire X actual loss of stock
                                                   Stock on the date of fire
Average clause: it is the clause in the insurance agreement for the purpose of
ascertaining the actual claim amount when the stock is not properly insured.

                          TREATMENT OF TRIAL BALANCE ITEMS
 Sl.                 Trial balance           Status            Treatment / effect
no.                Item            Appears (account)  Account/statement            Side
01     Opening stock                 Dr.      Real        Trading a/c              Dr.
02     Purchases                     Dr.      Real        Trading a/c              Dr.
03     Purchase returns              Cr.      Real     To be deducted from purchases
04     Direct expenses               Dr.    Nominal       Trading a/c              Dr.
05     Sales                         Cr.      Real        Trading a/c              Cr.
06     Sales returns                 Dr.      Real       To be deducted from sales
07     Other expenses                Dr.    Nominal     Profit / loss a/c          Dr.
08     Incomes                       Cr.    Nominal     Profit / loss a/c           Cr.
09     Salary and any other          Dr.    Nominal  Profit / loss appro a/c       Dr.
       remuneration to partners
10     Interest on capital           Dr.    Nominal  Profit / loss appro a/c       Dr.
11     Interest on drawings          Cr.    Nominal  Profit / loss appro a/c       Cr.
12     Capital                       Cr.    Personal    Balance sheet          Liabilities
13     Liabilities                   Cr.    Personal    Balance sheet          Liabilities
14     O/S expenses                  Cr.    Personal    Balance sheet          Liabilities
15     Incomes received              Cr.    Personal    Balance sheet          Liabilities
       in advance
16     Assets                        Dr.      Real      Balance sheet             Assets
17     Drawings                      Dr.    Personal    Balance sheet             Assets
18     O/S incomes                   Dr.    Personal    Balance sheet             Assets
19     Prepaid expenses              Dr.    Personal    Balance sheet             Assets
                      TREATMENT OF ADJUSTMENT ITEMS
Sl.             Adjustment item                   Treatment
No.
01    Closing stock                          1. credited to trading a/c
                                             2. shown on assets side of the balance sheet
02    Depreciation                           1. deducted from the respective asset under asset side
                                             of the B/S
                                             2. debited to profit and loss a/c
03    Out standing expenses                  1. added to the respective item on the debit side of
                                             the trading a/c or profit and loss a/c
                                             2. shown on the liability side of the balance sheet
04    Prepaid expenses                       1. deducted from the respective item on the debit side
                                             of the either trading a/c or profit and loss a/c
                                             2. shown on the assets side of the balance sheet
05    Out standing incomes                   1. added to the respective item on the credit side of
                                             the profit and loss a/c
                                             2. shown on the assets side of the balance sheet
06    Incomes received in advance            1. deducted from the respective item on the credit
                                             side of the profit and loss a/c
                                             2. shown on the liability side of the balance sheet
07    Bad debts                              1. deducted from the sundry debtors on the assets
                                             side of the balance sheet
                                             2. debited to the profit and loss a/c
08    Provision for doubt full debts         1. debited to the profit and loss a/c
09    Provision for discount on debtors      2. deducted from the sundry debtors on the assets
                                             side of the balance sheet
10    Provision for discount on creditors    1. credited to the profit and loss a/c
                                             2. deducted from the sundry creditors on the
                                             liabilities side of the balance sheet
11    Interest on capital                    1. debited to the profit / loss appropriation a/c
                                             2. credited to partner capital a/c or current a/c
12    Interest on drawings                   1. credited to the profit / loss appropriation a/c
                                             2. debited to partner capital a/c or current a/c
13    Salary, commission, etc. to partners   1. debited to the profit / loss appropriation a/c
                                             2. credited to partner capital a/c or current a/c
14    Goods withdrawn by partners            1. deducted from purchases on the debit side of the
                                             trading a/c
                                             2. debited to partners capital a/c or current a/c
15    Goods damaged
16    Writing off of preliminary expenses    1. deducted from the preliminary expenses on the
                                             assets side of the balance sheet
                                             2. debited to profit and loss a/c

				
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