Read the following information carefully and answer the next five questions.
G, K and B were partners running a partnership for last 10 years, sharing profit and loss in the ratio of 5:3:2. Post Covid, their firm was affected badly and started incurring losses. On 31st March,2023 they all decided to dissolve the firm due to continuous losses. Their capital balances were ₹4,00,000, ₹3,00,000 and ₹2,00,000 respectively. Firm had liabilities ₹80,000, cash balance ₹40,000, other sundry assets ₹8,50,000 and P&L A/c constituted the rest. Assets realised at 80% and liabilities were paid in full. There was unrecorded liability of ₹50,000 which was settled at ₹40,000. Realisation expenses amounted to ₹30,000 being paid by G on behalf of the firm.
Determine the amount of Profit & Loss Account.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹90,000 Dr.
The P&L Account is the balancing figure of the firm’s balance sheet before dissolution. Total liabilities and capital must equal total assets.
Liabilities side:
Capitals = ₹4,00,000 + ₹3,00,000 + ₹2,00,000 = ₹9,00,000
Liabilities = ₹80,000
Total = ₹9,80,000
Assets side (without the P&L balance):
Cash = ₹40,000
Sundry assets = ₹8,50,000
Total = ₹8,90,000
Shortfall on the assets side = ₹9,80,000 − ₹8,90,000 = ₹90,000
The figure that fills the gap sits on the assets side, so it is a debit balance: an accumulated loss, as the firm had been incurring losses.