Balance Sheet of X and Y

As on 31st March 2014

Liabilities | Amount | Assets | Amount
----------------|-----------------------|---------------|----------------
Creditors | 20,000 | Cash | 40,000
Loan | 30,000 | Debtors | 50,000
X's Capital | 60,000 | Stock | 30,000
Y's Capital | 50,000 | Land | 70,000
| Building | 80,000
| | _______
| | 2,70,000
| | _______

Adjustment for Accumulated Profits and Losses

Accumulated profits and losses refer to the amount of profits or losses that are carried forward to the next financial year. In the case of X and Y, the accumulated profits and losses are not given in the balance sheet. Therefore, an adjustment needs to be made to account for the same.

Steps to be followed for adjustment:

1. Calculate the total profits or losses of the partnership firm from the beginning of the partnership till 31st March 2014.
2. Determine the share of profits or losses of X and Y in the partnership firm based on their profit-sharing ratio of 3:2.
3. Add or subtract the share of profits or losses of X and Y to their respective capital accounts in the balance sheet.
4. The adjusted capital balance of X and Y will now reflect the accumulated profits or losses of the partnership firm.

Conclusion

Adjustment for accumulated profits and losses is necessary to correctly reflect the financial position of the partnership firm. This adjustment helps in determining the actual amount of profits or losses that are carried forward to the next financial year and ensures that the capital accounts of partners are adjusted accordingly.

X and Y are partners in 3:1. Following is their balance sheet:
Balance Sheet (31.3.2022)
Liabilities
Rs.
Assets
Rs.
Capitals:
Land & Buildings
2,00,000
X : 1,80,000
Furniture
80,000
Y : 1,00,000
2,80,000
Stock
50,000
Reserve
60,000
Debtors
80,000
Workmen Comp. Reserve
40,000
Cash at Bank
20,000
S. Creditors
50,000
4,30,000
4,30,000
They decided to admit Z as a partner for 1/4th share, which he acquires entirely from X.
Following adjustments were also made:
a) Make a provision equal to 5% on debtors for doubtful debts.
b) Claim against workmen compensation was determined at rupees 32,000.
c) Land and building were appreciated by 25%.
d) Z brought rupees 1,20,000 as his capital and rupees 40,000 as his share of
goodwill in cash.e) It was also decided to re-adjust the capitals of old partners on the basis of new
ratio by taking Z's capital as base.
Necessary adjustments were made by introducing withdrawing cash.
Prepare Revaluation account and Partners’ capital account.