Explanation:

This question is related to the concept of partnership accounting, where two or more persons join hands to run a business and share the profits and losses in a predetermined ratio. In this case, A and B are partners and share profits in the ratio of 3:2, respectively.

Balance Sheet:

A balance sheet is a financial statement that shows the assets, liabilities, and equity of a business at a particular point in time. It is prepared at the end of the accounting period, usually a year. The balance sheet of A and B on December 31, 2014, is as follows:

Liabilities:

• Capital A - Rs. 1,80,000


• Capital B - Rs. 1,20,000


• Total - Rs. 3,00,000

Assets:

• Cash - Rs. 60,000


• Debtors - Rs. 1,20,000


• Stock - Rs. 80,000


• Land & Building - Rs. 1,40,000


• Machinery - Rs. 20,000


• Total - Rs. 3,00,000

Interpretation of Balance Sheet:

The balance sheet of A and B on December 31, 2014, shows that the total liabilities and assets of the firm are equal, i.e., Rs. 3,00,000. The liabilities side of the balance sheet shows the capital balance of partners, where A's capital is Rs. 1,80,000 and B's capital is Rs. 1,20,000. The assets side of the balance sheet shows the various assets of the firm, including cash, debtors, stock, land & building, and machinery.

Conclusion:

In conclusion, the balance sheet is an important financial statement that reflects the financial position of a firm at a particular point in time. It helps the stakeholders to know the assets and liabilities of the firm and the capital balance of partners. The balance sheet of A and B on December 31, 2014, shows that the total liabilities and assets of the firm are equal, which is a good sign for the firm's financial stability.