Arjun, Vasisht and Keshav were partners in a business sharing profits equally. Vasisht retires on 31st March 2022 when the Balance sheet stood as follows:
Balance Sheet as at 31st March 2022
|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
|
Bills payable |
3,000 |
Land and Building |
24,375 |
|
Creditors |
525 |
Furniture |
6,000 |
|
General Reserve |
11,250 |
Inventory |
1,050 |
|
Profit and loss A/c |
4,500 |
Debtors |
9,450 |
|
Capital |
|
Bills Receivable |
3,750 |
|
Arjun 11,250 |
|
Cash at Bank |
5,625 |
|
Vasisht 12,375 |
|
Advertisement Suspense |
4,650 |
|
Keshav 12,000 |
35,625 |
|
|
|
|
54,900 |
|
54,900 |
Additional information:
1. Arjun and Keshav decided to share future profits in the ratio of 3 : 2
2. Value of Land and Building appreciated by 12%
3. Value of Goodwill of the firm ₹37,500.
4. A provision for doubtful debts is maintained @ 8%
5. Inventory includes an item of ₹450 which has become obsolete
On the basis of the following information answer the question.
Profit and loss appearing at liability side of Balance sheet will be-
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) - Credited to All partner's capital A/c
Profit and loss appearing at liability side of Balance sheet will be Credited to All partner's capital A/c.
Sometimes, the Balance Sheet of a firm may show accumulated profits in the form of general reserve or credit balance of profit and balance account and/on accumulated losses in the form of profit and loss account debit balance. The retiring/deceased partner is entitled to his/her share in the accumulated profits and is also liable to share the accumulated losses, if any. These accumulated profits or losses belong to all the partners and should be transferred to the capital accounts of all partners in their old profit sharing ratio.