1. SINGLE ENTRY SYSTEM

2. ADMISSION OF A PARTNER

3. RETIREMENT OF A PARTNER

4. DISSOLUTION OF A FIRM

--- System of accounting under which only the required books ofwhich only the required books of accounts are maintained.

--- followed by the Sole Trading Concerns such as Textile ShopsConcerns such as Textile Shops, Provision Stores, Jewellery Sh tShops, etc.

A statement of Assets and Liabilities prepared under Single Entry Systemprepared under Single Entry System of Accounting to know:

1. The Opening Capital2 Th Cl i C it l2. The Closing Capital3. The Financial Position

The problem may be asked inh f ll i hthe following three ways:

A. In the year of FormationB. When the Opening Capital is

givengivenC. When the Opening Capital is

not givennot given

I Opening Statement of AffairsII Closing Statement of AffairsII Closing Statement of Affairs

- 3 MarksIII Statement of Profit or LossIII Statement of Profit or Loss

G/P - 2 + 3 Marks = 5 MarksIV Re ised or Final Statement ofIV Revised or Final Statement of

Affairs - 6 Marks

A. In the year of Formation: - July 2007A. In the year of Formation: July 2007It was asked as Mr. Malik started a business with Cash Rs 45 000 onbusiness with Cash Rs. 45,000 on 1.1.2006.The Assets and Liabilities of hisThe Assets and Liabilities of his business on 31.12.2006 were as:

Stock Rs 26 000 Debtors Rs 16 000Stock Rs.26,000, Debtors Rs.16,000, Bank Rs.6,000, Furniture Rs.6,000, C h R 600 C dit R 16 000Cash Rs.600, Creditors Rs.16,000, B/R Rs.4,600, Machinery Rs.20,000, L f M k R 6 000Loan from Menaka Rs.6,000

St t t f Aff i 1 1 2010LIABILITIES Rs. ASSETS Rs.

Creditors 25 000 Cash 2 000

Statement of Affairs as on 1.1.2010

Creditors 25,000 Cash 2,000B/P, Bills (Cr.) Acceptances

10,000 B/R, Bills (Dr.) 15,000

Loan 15,000 Debtors 30,000Capital 1,14,000 Stock 22,000

- Balances Furniture 15 000- Balances Furniture 15,000Machinery 30,000Buildings 50,000

1,64,000 1,64,000

The details of Assets & Liabilities are given:are given:

Particulars31.12.2010

OR 31.12.2011Particulars 1.1.2011

Rs.Rs.

Cash in office 3,400 5,200Cash in office 3,400 5,200Stock in trade 25,000 30,000Debtors 30,000 36,000, ,Creditors 25,000 34,000

Particulars 31.12.2010

OR1 1 2011

31.12.2011R1.1.2011

Rs.Rs.

Bills (Dr.) 10,000 5,000Bills (Dr.) 10,000 5,000Bills (Cr.) 15,000 10,000Bills 10,000 (Dr.) 15,000 (Cr.)s 0,000 ( ) 5,000 (C )Bills 5,000 (Cr.) 15,000 (Dr.)Bank balance 2,500 5,400, ,Bank bal (Cr.) 5,100 4,500Bank balance 4,500 (Cr.) 5,200 (Dr.), ( ) , ( )Bank balance 3,100 (Dr.) 2,200 (Cr.)

P ti l R RParticulars Rs. Rs.

Closing Capital Add: Drawings:*

xxxxxxAdd: Drawings:

a) In Cash b) In Goods

xxxxxxxxx

c) Personal/Family Expenses paid

Less: Additional Capital:

xxx xxxxxx-xxxLess: Additional Capital:

Adjusted Closing Capital Less: Opening Capital

GROSS PROFIT/LOSS

xxx-xxxxxxGROSS PROFIT/LOSS xxx

Particulars Rs. Rs.

Add: (In case of Gross Profit)Outstanding Incomes: xxx

xxxxxx

Outstanding Incomes:Prepaid Expenses:Non-cash Incomes:

xxxxxx xxx

Less:Outstanding Expense:Income Recd in Advance:

xxxxxxIncome Recd. in Advance:

Non-cash Expenses:NET PROFIT/LOSS

xxxxxx -xxx

xxx

1 Interest on Drawings1. Interest on Drawings

2 RDC2. RDC= Closing Creditors x Rate

3. Appreciationpp= Asset Value x Rate

1. Interest on Capital:

2. Depreciation

3. Bad Debts, RBD, RDD3. Bad Debts, RBD, RDD

1 I t t C it l1. Interest on Capital:On the Opening Capital for1 yearOn the Additional Capital pdepending on the informationSuppose the Capital as onSuppose the Capital as on 1.1.2010 Rs. 70,000Further Capital brought in onFurther Capital brought in on 1.5.2010 Rs. 30,000

Information:) All I t t C it l t 6% *a) Allow Interest on Capital at 6% p.a.*

b) Allow Interest on Capital (including additional) at 6% p.a.

On Opening = 70 000 x 6% = 4 200On Opening = 70,000 x 6% = 4,200On Additional

= 30,000 x 6% x 8/12 = 1,200Total Interest = 5,400,

c) Allow Interest on theOpening Capital at 6% p.a.

d) Allow Interest on the Capital ) p(excluding Additional) at 6% p.a.Suppose the Capital as onSuppose the Capital as on 1.1.2010 Rs. 70,000He brought further CapitalHe brought further Capital Rs. 30,000 during the year.

Additional Information:a) Allow Interest on Capital at 6% p aa) Allow Interest on Capital at 6% p.a.b) Allow Interest on the Opening

Capital at 6% p aCapital at 6% p.a.

On Opening = 70,000 x 6% = 4,200On Addition

= 30 000 x 6% x ?/12 = ------= 30,000 x 6% x ?/12 = ------Total Interest = 4,200

2 D i ti2. Depreciation:On the opening Asset for 1 yearOn the Additional Asset -depending on the informationp g

1.1.10 31.12.10Machinery Rs. 30,000 40,000y , ,Additional Information:

a) Depreciate Machinery by 10% p.a.a) Depreciate Machinery by 10% p.a.b) Depreciate Machinery by 10% p.a.

(Addition was made on 1 10 2010)(Addition was made on 1.10.2010)

Machinery on 31 12 2010Machinery on 31.12.2010 - Rs. 40,000

Opening Balance Rs.

30,000Addition

Rs. 10,000On Opening = 30,000 x 10 x 12

100 12= 3,000

100 12On Addition = 10,000 x 10 x 06

100 12= 500

100 12

1.1.10 31.12.10Machinery Rs. 30,000 40,000Machinery Rs. 30,000 40,000Additional Information:

a) Depreciate Machinery by 10% p aa) Depreciate Machinery by 10% p.a.b) Depreciate Opening Machinery by

10% p a10% p.a.c) Depreciate Machinery (excluding)

by 10% p aby 10% p.a.On Opening = 30,000 x 10 = 3,000

100 3,000

3. Bad Debts, RBD, RDDRBD & RDD to be calculated on the Closing Debtors

1.1.2010 31.12.10Book Debts Rs. 21,000 31,000Additional Information:

a) Debts Rs.1,000 from a debtors who is considered as an insolvent.is considered as an insolvent.

b) Create RBD at 10% and RDD @ 5% on Debtorson Debtors.

Closing Debtors Rs 31 000Closing Debtors Rs. 31,000

Bad Debts Rs. 1,000 Remaining Debts

= Rs 30 000Good Debts

R 27 000= Rs. 30,000RBD = 30,000 X 10%= 3 000

= Rs. 27,000 RDD = 27,000 X 5%

= 3,000 = 1,350

Note: Drawings, Additional Capital and every item adjusted with the Gross Profit or Loss should finally appeari th R i d Fi l St t tin the Revised or Final Statement.

Liabilities Rs Assets RsLiabilities Rs. Assets Rs.Capital:

Opening xxxAdd:

1. Additional xxx2 I t C2. Int. on Cap xxx3. Net Profit xxx

Less:1. Drawing xxx2. Int. on Drawing xxx3. Net Loss xxx XXX

I Preparation of Revaluation A/c orI Preparation of Revaluation A/c or Profit & Loss Adjustment A/c

II Transfer of ReserveII Transfer of ReserveIII Transfer of Profit and Loss A/cIV Capital brought by the New PartnerIV Capital brought by the New PartnerV Treatment of Goodwill

a) Sacrifice Ratio ora) Sacrifice Ratio orSurrender Ratio – 6 Marks

b) New Ratiob) New Ratio

1. Profit & Loss Adjustment A/c orRevaluation A/c - 3 Marks

2. Partners’ Capital A/cs - 6 Marks3. New Balance Sheet - 5 Marks3. New Balance Sheet 5 Marks

Working Notes:1 Cash or Bank A/c1. Cash or Bank A/c2. Goodwill A/c

"By" Profit

or%

ORor Loss Amount

II Transfer of Reserve

III Transfer of Profit and Loss A/cIII Transfer of Profit and Loss A/c

IV Capital brought by the New Partner

V Treatment of Goodwill

II Transfer of Reserve:R A/ DReserve A/c Dr.

To Old Partners’ Capital A/cxxx

xxx

III Transfer of Profit & Loss A/c:III Transfer of Profit & Loss A/c:

Old P t ’ C A/ D

a) Transfer of Profit & Loss A/c - DebitOld Partners’ Cap A/c Dr.

To Profit and Loss A/cxxx

xxx

Profit and Loss A/c Dr. xxx

b) Transfer of Profit & Loss A/c - Credit

To Old Partners’ Capital A/c xxx

IV Capital brought by the New Partner:IV Capital brought by the New Partner:Cash A/c Dr.

To New Partners’ Capital A/cxxx

xxxTo New Partners Capital A/c xxx

V Treatment of Goodwill:Case A: Goodwill brought & withdrawn:V Treatment of Goodwill:

Cash A/c Dr. xxx

1. Recording of Goodwill:

To Goodwill A/c xxx

2. Transfer of Goodwill: - In the Sacrifice Ratio

Goodwill A/c Dr.To Partners’ Capital A/c

xxxxxx

Partners’ Capital A/c Dr. xxx

3. Withdrawal of Goodwill:

pTo Cash A/c xxx

C BCase B: Goodwill brought & not withdrawn:

Cash A/c Dr. xxx1. Recording of Goodwill:

To Goodwill A/c xxx

2 Transfer of Goodwill: In the Sacrifice

G d ill A/ D

2. Transfer of Goodwill: - In the Sacrifice RatioGoodwill A/c Dr.

To Partners’ Capital A/c

xxxxxx

Capital A/c

Case C: Creation of Goodwill- In the Old Ratio

Goodwill A/c Dr. xxx

Case D: Creation of Goodwill and written off:

To Partners’ Capital A/c xxxCase D: Creation of Goodwill and written off:a) Creation of Goodwill: - In the Old Ratio

G d ill A/ DGoodwill A/c Dr.To Partners’ Capital A/c

xxxxxx

Goodwill A/c Dr. xxxb) Goodwill written off: In the New Ratio

To Partners’ Capital A/c xxx

I Preparation of Revaluation A/cI Preparation of Revaluation A/cII Transfer of ReserveIII Transfer of Profit & Loss A/cIII Transfer of Profit & Loss A/cIV Treatment of Goodwill

a) Gain Ratio ora) Gain Ratio or Benefit Ratio - 6 Marks

b) New Ratiob) New RatioV Settlement of Retiring Partner’s

ClaimClaim

1. Revaluation A/c or - 3 MarksProfit & Loss Adjustment A/cProfit & Loss Adjustment A/c

2. Partners’ Capital A/cs - 6 Marks3 New Balance Sheet 5 Marks3. New Balance Sheet - 5 Marks

Working Note:1. Goodwill A/c

II Transfer of Reserve:Reserve A/c Dr. xxx

To All Partners’ Capital A/c xxx

III Transfer of Profit & Loss A/c:III Transfer of Profit & Loss A/c:a) Transfer of Profit & Loss A/c - Debit

All Partners’ Capital A/c Dr.To Profit and Loss A/c

xxxxxx

b) T f f P fit & L A/ C ditProfit and Loss A/c Dr.

To All Partners’ Capital A/cxxx

xxx

b) Transfer of Profit & Loss A/c - Credit

To All Partners Capital A/c xxx

IV Treatment of Goodwill

Case A: Creation of Retiring Partner’sCase A: Creation of Retiring Partner s Share of Goodwill

G d ill A/ DGoodwill A/c Dr.To Retiring Partners’ Capital A/c

xxxxxx

Case B: Retiring Partner’s Share written off- In the Gain Ratio

Continuing Partners’ Capital A/c Dr.To Goodwill A/c

xxxxxx

Case C: Creation of Total Goodwill- In the Old RatioIn the Old Ratio

Goodwill A/c Dr.To All Partners’ Capital A/c

xxxxxxTo All Partners Capital A/c xxx

Case D: Total Goodwill written off- In the New Ratio

Continuing Partners’ Capital A/c Dr. xxxg pTo Goodwill A/c

(Total Goodwill in the New Ratio)

xxxxxx

V Settlement of Retiring Partner’s Claim:Partner s Claim:

1. Payment to Retiring1. Payment to Retiring Partner’s immediately

2. Payment to him later

3. Part payment immediately and the balance laterand the balance later

The closing down of the businessThe closing down of the business of a partnership firm. Th Di l ti diThe Dissolution proceedings are:1. Sale of Assets of the firm2 P t f E d2. Payment of Expenses and

Liabilities3. Repayment of Partner's Loan4. Settlement of Partners’ Capital

balances

Dissolution Accounts: 14 M k- 14 Marks

I Realisation A/c - 6 Marks

II Partners’ Capital A/c - 5 Marks

III Cash or Bank A/c - 3 Marks

Case 1 Goodwill is given in theCase 1 Goodwill is given in the Balance Sheet and the AdjustmentAdjustment

Case 2 Goodwill is given in theCase 2 Goodwill is given in theBalance Sheet

Case 3 Goodwill is given in the AdjustmentAdjustment

Realisation A/c: MeaningRealisation A/c: Meaningand Objectives – 2 MarksA Nominal A/c prepared on the dissolution of a firm to simplifythe works of

a) Calculation,b) Distribution and c) Recording of every profit or loss

on realisation of assets and settlement of liabilities.

1. Transfer of Recorded Assets & RBD2. Transfer of Recorded Liabilities3. Recording of Assets sold4 R di f A t t k b4. Recording of Assets taken over by a

partner5 Recording of Liabilities and5. Recording of Liabilities and

Dissolution Expenses paid6 Recording of Assets taken over by a6. Recording of Assets taken over by a

partner7. Transfer of P/L from Realisation A/c7. Transfer of P/L from Realisation A/c

I R li ti A/ 6 M kI Realisation A/c – 6 MarksRealisation A/cDr. Cr.

Particulars Rs. Particulars Rs.To Each Asset A/c 1 By RBD A/c 1To RDC A/c 2 By Each Liability A/c 2To Cash/Bank A/c

- Liabilities paid5 By Cash/Bank A/c

- Asset sold3

- Expenses paidTo Partners’ Capital A/c

- Liabilities taken over6 By Partners’ Capital A/c

- Assets taken over4

To Partners’ Capital A/c- N/P transferred

7 By Partners’ Capital A/c- N/L transferred

7

xxx xxxxxx xxx

II Partners’ Capital A/c – 5 MarksII Partners Capital A/c – 5 Marks Partners’ Capital A/cDr. Cr.

Particulars Rs. Particulars Rs.To Balance b/d

- Opening Dr. balxxx By Balance b/d

- Opening Dr. balxxx

p g p gTo Realisation A/c

- Asset taken over- Realisation Loss

xxxxxx

By Realisation A/c- Liability taken over- Realisation Profit

xxxxxx

To Profit & Loss A/c- Share of undistributed Loss

xxxxxx

By Profit & Loss A/c- Share of undistributed Profit

xxxxxxundistributed Loss xxx undistributed Profit xxx

To Cash/Bank A/c- Final Payment

xxx By Cash/Bank A/c- Dr bal. recovered

xxx

xxx xxx

III Cash or Bank A/c – 3 MarksCash or Bank A/cD CCash or Bank A/c

Particulars Rs. Particulars Rs.To Balance b/d xxx By Realisation A/c xxx

Dr. Cr.

To Balance b/d- opening Cash

balance

xxx By Realisation A/c- Liabilities paid- Expenses paid

xxx

To Realisation A/c xxx By Partners’ Loan A/c xxxTo Realisation A/c- Assets sold

xxx By Partners Loan A/c- Loan repaid

xxx

To Partners’ Capital A/cFinal Dr balance

xxx By Partners’ Capital A/cFinal Cr balance

xxx- Final Dr balance recovered

- Final Cr balance paid

xxx xxx