Question

After doing their graduation Arvind suggested to his class mate friend Bimal to form
a partnership to sell low cost school uniform to the students belonging to low
income group who have been admitted to the private schools of the city as per the
provisions of Right to Education Act, 2009. Bimal agreed to the proposal and
proposed the name of his friend Charu, a specially abled unemployed person
having good knowledge of cost reduction method. However, it was agreed that
Charu will not contribute any capital. Arvind agreed to it. They were in need of more
capital. Arvind, therefore, persuaded a rich friend Deepak to be a partner. All of the
formed a partnerhip on the following terms:
1. Name of the Firm: ABCD Kid Garments
2. Business: Manufcturing business of Kid Garments
3. Arvind will contribute ` 2,00,000; Bimal `80,000; Deepak `7,00,000 and Charu
will be partner without capital.
4. Profits will be shared amongst Arvind, Bimal, Charu and Deepak 3:2:1:4
respectively. 5. Interest on capital will be allowed @ 5% p.a.
6. Charu gets commission ` 30,000
7. Bimal gets `40,000 as annual salary
8. Interest on drawings to be charged @ 10% p.a.
9. 10% of profits to be transferred to General Reserve
10.All the transactions should be made through Bank.
They started business on 1st April, 2011 and deposited the whole amount of capital
in ICICI Bank. They purchased a running factory of Kid Garments consisting of
Factory Land and Building `4,00,000, Plant and Machinery `3,50,000, Furniture
`50,000, Stock `90,000 but paid `9,50,000 as purchase consideration. They later
approached his banker for a loan to meet the working capital requirement. Bank
advanced loan amounting `4,00,000 @ 10 % p.a.
Deepak is entitled to a rent of `3,000 per month for the use of his building by the
firm. They purchased a computer for ` 30,000. Arvind advanced a ` 50,000 to0 the
firm on 01-01-2012 in the form of loan @ 9 % p.a where as on same date loan taken
by Bimal ` 40,000 from the firm @12% p.a. The other transactions for the year ending
31st March, 2012 were as follows: ` Total Purchases (`4,10,000 in cash) 12,40,000
Total Sales (`5,25,000 in cash) 20,87,125
Wages 2,30,000
Carriage inwards 20,500
Power and lighting 15,500
Salary of staff and manager 1,25,000
Postage and call 4,200
Printing and Stationery 3,800
Advertising 16,700
Debtors paid 12,10,000
10 % Fixed Deposit 5,00,000
Insurance premium 12,100
Conveyance charges 13,200
Paid to creditors 7,00,000
Bills Receivable received 1,00,000
Bills accepted in favour of creditors 80,000
Drawings during the year:
Arvind : `2,500 at the beginning of each
month: 30,000
Bimal: ~ 1,500 at the last of each month
18,000
Charu: ` 1,000 at the middle of each
month 12,000
60,000
Adjustments:
(i) Closing stock `1,10,000
(ii) Depreciate Land and Building by 5%, Plant and Machinery by 10% and
Furniture by 10% and office equipments by 25%.
(iii)Salary outstanding ` 8,000 and wages outstanding `15,000.
(iv) insurance premium prepaid `1,200.
(v) Accrued interest `25,000
(vi) Interest on bank loan due for a year
You are required to :
(1) Journalise these transactions and post them into ledger accounts and
prepare Trial balance
(2) Prepare Trading and Profit and Loss Account, Profit and Loss Appropriation
Account and Balance Sheet.
(3) Calculate relevant accounting ratios like liquidity, solvency, activity and profitability
giving their formulae and computation.

Answer 1

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