TYBCOM, SEM-VI, FAA-V

MODULE 4 : ACCOUNTING FOR LIMITED LIABILITY

PARTNERSHIP
MEANING:

It is a World Wide form of commercial Organisation. It combines the Benefit of Firm as well as a Joint Stock
Company.

Features of LLP:

1. No. of persons: Min 2, Maximum- Unlimited

2. Deed: An agreement containing Terms & Conditions.
3. Capital Contribution: Capital can be contributed by way of cheque or cash on Tangible or Intangible
Assets.
4. Name: It must be unique and should contained the word LLP.
5. Management: Management is looked after by designated partners for a period of 5 years. Minimum 2
partners are required.
6.
Government.
7. Digital Signature: This must be applied within 6 months.
8. Liability: Limited

Objective:

To learn and understand the procedure of converting sole trading concern or firm into limited liability
partnership a/c to the provisions of LLP Act 2008.

Accounting: Accounting is divided into 2 parts.

Closing the books of Vendor Opening the books of LLP

Realisation Method Purchase Method

(Journal Entries + Ledg[er) (Journal Entries + Balance sheet)

I. Closing the books of Vendor Firm

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1. All Assets are transferred to realization A/c (Book value)
Realisation A/c Dr.
To All Assets

(Note: 1-Cash & Bank will be transferred to realization Ac only when it is taken over.

2-If any other Asset are not T/O, should not be transferred to realization.)

2. All Liabilities transferred to Realisation A/c (Book Value)

All Liabilities A/c Dr.
To Realisation A/C

(Note : If any liability is not T/O should not be transferred to Realisation A/c.)

3. Reserves & Surplus transfer to Capital A/c

Reserves & Surplus A/c DR.
To Capital A/c
4. Fictitious Assets transferred to Realisation A/c
Capital A/c DR.
To Fictitious Assets
5. Assets not T/O or sold by vendor
Cash A/c DR.
To Assets
6. Liabilities not T/O or paid by Vendor
Liabilities A/c DR.
To Cash / Bank
7. Realisation Expenses paid by vendor
Realisation A/c DR.
To Cash A/c
8. PC amount Due
LLP A/C DR.
To Realisation A/C.
9. PC received
Cash A/c DR.
To LLP A/C
10. Settlement
Capital A/C DR.
To Cash A/C

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11. Closing of Realisation A/c (Transfer to realization Balance)

If Profit- Realisation A/c DR.
To Capital A/C
If Loss- Capital A/C DR.
To Realisation A/C
12. Interest on PC received
LLP A/C DR.
To Realisation A/C
13. Interest on Partners Loan
Realisation A/C DR
To Loan From Partners

Ledger Accounts to be prepared

i. Realization A/c
ii. Capital A/c
iii. Limited liability Partnership A/c
iv. Cash A/c
v. Assets not T/O
vi. Liabilities not T/O

II. Opening Books of LLP

1. Business Purchase
Business Purchase A/c DR.
To Vendor Firm
2. Receiving Assets & Liabilities T/O (Agreed value)
Intangible Assets A/C DR.
Tangible Assets A/c DR.
Investment A/C DR.
Current Assets A/c DR.
Goodwill A/c DR. (Balancing Fig.)
To Loan A/c
To Current Liability
To Business Purchase A/c
To Capital Reserve A/c (Balancing)

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3. Consideration paid
Vendor Firm A/c DR.
To Cash/Bank
4. Capital Contribution
Cash A/c DR.

Purchase Consideration:
Amount paid by LLP to vendor firm is known as

Methods:
i. Lumpsum Method (PC amount will be given in question)
ii. Net Asset Method
Assets Taken Over (Agreed value) XX
Less: Liabilities Taken Over (Agreed value) (XX)
Purchase Consideration XX

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Format:
Statement of Assets & Liabilities of ________ as at _________

Particulars
Contribution & Liability
1. Partner's Fund
a. Contribution received X
b. Reserves & surplus X

2. Liability
a. Secured Loan X
b. Unsecured Loan X
c. Short term Borrowing X
d. Creditors/Trade Payables X
Advance from Customers
e. Other liabilities
f. Provisions X
i. for taxation X
ii. For contingencies X
iii. For insurance X
iv. Other Provisions (if any) X

Total X

Assets
a. Gross Fixed Assets X
Less: Depreciation & Amortisation (X)
Net Fixed Assets X
b. Investments X
c. Loans & Advances X
d. Inventories X
e. Debtors/ Trade Receivables X
f. Cash & Cash Equivalents X
g. Other Assets X

Total X

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Statement of Income & Expenditure of __________

For the period from __________ to __________

Particulars
Income
Gross Turnover X
Less: Excise Duty (X)
Net Turnover X
Domestic Turnover
i. Sale of goods manufactured X
ii. Sale of Goods Traded X
iii. Sale or Supply of Services X
Export Turnover
i. Sale of goods manufactures X
ii. Sale of Goods Traded X
iii. Sale or Supply of Services X
Other Income (to specify) X
Increase/ (Decrease) in stocks [including for
raw X
materials, work in progress & finished Goods]
Total Income X
Expenses
Raw material consumed X
Purchases made for resale X
Consumption for Stores & Spare Parts X
Power & Fuel X
Personal Expenses X
Administrative Expenses X
Payment to Auditors X
Selling Expenses X
Insurance Expenses X
Depreciation & Amortisation X
Interest X
Other Expenses X
Net Profit or Loss before Taxes X
Provision for Tax X
Profit after Tax X
Profit Transferred to partners Account X
Profit Transferred to Reserves & Surplus X

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Questions:

Q1. Following is the Balance sheet of Prem & Company as at 31st March 2019.
Liability Assets
Capital Computers 10,000
Prem 11,500 Furniture 5,000
Anil 11,500 Inventory 9,000
Creditors 5,000 Debtors 6,000
Bills Payable 5,000 Bank 2,000
Cash 1,000
Total 33,000 Total 33,000
Prem & Co. was converted to Prem LLP on that date. Terms of conversion were as follows:
1.
2. Furniture was not taken over by LLP.
3. A reserve of 5% is to be created on Debtors.
4.
5. The LLP also assumed that other assets & Liabilities of Old Firm at Book value. Show
necessary ledger Accounts in the Books of Old Firm.

Q2. AB & Co. Converted into a AB LLP with effect from 1-4-2019. The Balance sheet as on 31-3-
2019 was as under.
Liability Assets
A's Capital 1,00,000 Land & Building 2,80,000
B's Capital 2,00,000 Stock 3,00,000
General reserve 1,00,000 Debtors 2,00,000
Creditors 7,50,000 Cash & Bank Balance 1,20,000
Investments Fluctuation reserve 50,000 Investment 3,00,000

Total 12,00,000 Total 12,00,000

The conversion was subject to Following terms:

1. All the Assets and all the liabilities of the firm shall be taken over by the LLP.
2. Land & Building shall be appreciated by 20%.
3.
4.
5.
6.
You are require to prepare:
i. Statement showing Calculation of Purchase Consideration.
ii. Realizations A/c & Partners A/c in the books of AB&Co.

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Q3. Rudra & Kunal are partners sharing Profits & Losses in the ratio of 3:2. They decided to
convert their Business into a LLP, RK LLP on 31-3-2019, when the balance sheet stood as follows.
Liabilities Assets
capital Account Land & Building 80,000
Rudra 70,000 Plant & Machinery 60,000
Kunal 50,000 Furniture 21,000
Reserve Fund 30,000 Patents 18,000
Loan Creditors 80,000 Stock 24,000
Sundry Creditors 33,000 Bills receivable 16,000
Sundry Debtors 28,000
Cash at Bank 16,000

Total 2,63,000 Total 2,63,000

In order to arrive at the purchase consideration the following terms are agreed upon by the LLP:
a. The LLP will take over the loan creditors but will not take over sundry creditors.
b.

realized in Cash.
c. The value of the firm was valued at 2 years purchase of Average Profit of the last 3 years.

follows:
2012- 2013- 2014-
You are required to show the necessary accounts in the books of the firm assuming that all
the transactions have been duly completed& surplus cash if any was distributed equally and
the balance was adjusted by the capitals in the new LLP.

Q4. Ranjit, Manjit & Paramjit are equal partners of M/s Hindal & Co. The Balance sheet of the firm
as on 31-3-2019 was as follows:
Liabilities Assets
Capital A/c Fixed Assets
ranjit 50,000 Land 50,000
Manjit 1,00,000 Building 70,000
Paramjit (Dr. Balance) -30,000 plant & Machinery 2,00,000
Loan from Bank 5,00,000 Current Assets
Creditors 1,00,000 Stock 3,00,000
Debtors 1,00,000

Total 7,20,000 Total 7,20,000

On the date, it is decided to convert the partnership into Hindal LLP on the following Terms:
1.
2.
3.
4. A provision of 10% of Book Value to be made for absolete stock.
5. A provision for Doubtful Debts be made at 10% of Debtors.
6. A discount of 6% would be earned on creditors when paid out.
7.

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Show the necessary Ledger Accounts to close the Books of Hindal & Co. and show the
opening Balance sheet of the new LLP. All partners are solvent and have sufficient cash
resources as may be necessary to settle the respective accounts.

Q5. Veeru & Naru are carrying on Business in name of Veena & Co. sharing profits & Losses in the
ration of 3:2. On 31-3-2019 their Balance sheet was:

Liabilities Assets
Naru Account 88,000 Property 72,000
Veeru Account 60,000 Stock 40,000
General Reserve 24,000 Debtors 48,000
Loan- Naru 16,000 Machinery 60,000
Bank O/D 32,000 Advance 8,000
Creditors 20,000 Cash/Bank 12,000

Total 2,40,000 Total 2,40,000

On same date Veena LLP was incorporated to take over the running the business of Veena & Co. on
the following terms.
1. Goodwill of the firm is to be valued at 2 years purchase of average profit of past five years.

2. ther assets &

Liability except Loan of Naru- are taken over at book value.
Show necessary journal entries in the books of both the parties to the above agreement and
draw the statement of Assets & Liability.

Q6. On 31st March 2018 Fairplay

take over the business carried on at that date by the partnership of P,G and B.
Liability P G B Total
Capital A/cs:
Balance as on 31-3-2017 35,940 26,480 21,000
Add: Interest on Capital A/cs 720 540 450
Share of Profit for the year 6,126 6,126 4,084
42,786 33,146 25,534
Less: Drawings 8,926 8,726 4,064
33,860 24,420 21,470 79,750
Creditors 35,600
1,15,350

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Assets Cost Depreciation Total

Fixed Assets
Freehold Land & Building 26,000 26,000
Plant & Machinery 42,000 -22,000 20,000
Motor Vehicles 19,700 4,700 15,000
87,700 26,700 61,000
Current Assets:
Stocks 22,400
Debtors 12,200
Balance at Bank 19,750
1,15,350

You are also given the following information:

Q7. Following is the Trial Balance of Sona and Mona. They share Profit and losses in the
proportion of 3 : 2. From the following balances and adjustments, prepare Trading & Profit and
Loss A/c for the year ending 31st March, 2010 and the Balance Sheet on that date.
Trial Balance
Particulars Dr. Rs. Cr. Rs.
Stock on 1-4-2009 45,000
Purchases and Sales 1,12,500 1,87,500
Drawings:
Sona 16,500
Mona 15,000
Returns 3,600 1,500
Wages:
Productive 5,250
Unproductive 900
Salaries 9,300
Rent, Rates, Insurance 5,100
Bad Debts 600
Discounts 1,950 1,500
Machinery 22,500
Building 54,300
Sundry Debtors & Creditors 76,500 45,000
Cash 1,500
Capital:
Sona 52,000
Mona 67,500
Bank Overdraft 15,000
3,70,500 3,70,500
Adjustments:
1. On 31st March, 2010 the stock was valued at Rs. 28,000.
2. Outstanding productive wages Rs. 300.
3. Rent, rates and Insurance includes Rs. 800 paid for one year ending on 30th June, 2010.
4. Provide for doubtful debts on debtors at 5%.
5. Depreciate Building by 5% and Machinery by 10%.
6. Goods worth Rs. 1,250 were distributed as free samples for which no record has been made
in the books.

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Q8. From the following Trial balance of Jagan & Magan You are required to prepare a trading and
Profit and Loss Account for the year ended 31st March, 2010 andd the Balance Sheet as on that date,
after taking into the consideration the additional information:
Trial Balance as on 31st March, 2010
Particulars Dr. Rs. Cr. Rs.
Opening Stock 17,500
Salaries and Wages 4,600
Cash in Hand 5,000
Purchases and Sales 1,12,600 1,65,000
Office Expenses 4,300
Productive Wages 7,000
Bills Receivable 4,000
Legal Expenses 1,500
Bad Debts 500
3,000
Commission 1,500 2,400
Investments 10,000
Debtors & Creditors 20,000 10,000
Bank Overdraft 5,000
Patents 4,000
Loose Tools 3,000
Furniture 6,000
Goodwill 6,500
Interest on investments 3,600
Land & Building 25,000
Capital Accounts:
Jagan - 30,000
Magan - 20,000
2,36,000 2,36,000

Adjustments:
1. Partnership share profits and Losses in their capital ratio.
2. The Closing Stock Cost Rs. 20,000 Market Value Rs. 22,500.
3. Jagan has withdrawn goods worth Rs. 600 for his personal use.
4. Uninsured goods worth Rs. 5,000 were destroyed by fire.
5. Rs. 225 written off as bad debts from debtors.
6. Outstanding salaries and wages Rs. 400.
7. Depreciation on Land & Building at 7½%.

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Q9. From the following trial balance of Mohan & Sohan, you are required to prepare a Trading &
Profit & Loss Account for the year ended 31st March, 2010 and the Balance Sheet as on that date
after taking into consideration in additional information:

Particulars Dr. Rs. Cr. Rs.

2,00,000
1,80,000
Drawings 14,450
10,000
Stock (1-4-2009) 2,20,000
Bills receivable 30,000
Purchases 2,80,000
Sales 4,00,000
Bills Payable 40,000
Return Outward 4,500
Return Inward 5,000
Plant & Machinery 1,00,000
Goodwill 25,000
Patents 20,000
Sundry Debtors 1,25,000
Sundry Creditors 1,38,000
Cash in Hand 2,550
Cash in Bank 75,000
Salaries 11,000
Wages 17,000
Office Expenses 9,500
Insurance 3,000
Advertisement 5,000
General Expenses 6,500
Factory Rent 3,500
Total 9,62,500 9,62,500

Adjustments:
1. Depreciate Plant & Machinery by 5% and patents by 15%.
2. Provide for reserve for bad and doubtful debts @ 5% on sundry debtors
3. Prepaid Insurance Rs. 600.
4. Provide for outstanding expenses: Salary Rs. 2,000, Wages Rs. 1,000, Advertisement Rs. 700.
5. Stock on 31st March 2010 was valued at Rs. 1,20,000.
6. Goods costing Rs. 6,000 were destroyed by fire and the Insurance Company has admitted a
claim for Rs. 3,800.
Partners share profit and losses equally.

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Q10. Ramesh and Mahesh are partners sharing profits and losses 2 : 1. Following is the Trial
Balance as on 31-3-2010.

Particulars Dr. Rs. Cr. Rs.

Land & Building 55,000
Machinery 40,000
Salary & Wages 21,000
Cash at Bank 40,000
Cash in Hand 1,100
Motor Vans 20,000
Office Expenses 1,000
1,16,000
62,000
Carriage 5,000
Purchases 2,20,000
Return Outward 5,500
Sales 2,80,000
Return Inward 2,000
Bad Debts 1,000
Debtors 32,800
Creditors 20,000
Rent 1,100
Bills Payable 35,000
Travelling Expenses 7,000
Stock (1-4-2009) 30,000
Insurance 1,500
Discount 8,000
Advertisement 12,000
Furniture 20,000
5,18,500 5,18,500

Adjustments:
1. On 31-3-2010 the cost price of closing stock was Rs. 41,000 and its market price was Rs.
42,000.
2. Goods worth Rs. 5,000 taken over by Ramesh for personal use were not entered in the books
of accounts.
3. Goods worth Rs. 5,000 were destroyed by fire and Insurance Co. agreed to pay Rs. 4,000 in
full settlement of the claim.
4. Outstanding Expenses: Rent Rs. 100 and Salary Rs. 500.
5. Provide Depreciation 10% on Machinery and 5% on furniture.
6. Provide Rs. 800 for Reserve for doubtful debts on debtors.

You are required to prepare Trading & profit & Loss Account for the year ending 31-3-2010 and
the Balance Sheet as on that date after considering the above adjustments.

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Q11. Kanta & Shanta are partners sharing profits and losses equally. From the following Trial
Balance and adjustments you are required to prepare a Trading A/c, Profit & Loss A/c for the year
ended on 31st March, 2010 and the Balance Sheet as on that date:

Trial Balance as on 31-3-2010

Debit Balance Rs. Credit Balance Rs.
Carriage 2,000 Capitals:
Kanta 60,000
Shanta 40,000
Opening Stock 30,760 Commission 4,000
Salary 4,000 Interest 4,200
Wages 1,000 Sales 92,000
Discount 500 Purchase Return 3,800
Interest 750 Sundry Creditors 27,400
Motive Power 4,500 Outstanding Salary 400
Motor Van 28,000
Bad Debts 1,920
Building 34,000
Debtors 20,000
Cash at Bank 16,120
Machinery 10,000
Investments 12,000
Purchases 60,250
Drawings:
Kanta 2,800
Shanta 3,200
2,31,800 2,31,800

Adjustments:
1. Outstanding Wages Rs. 400.
2. Provide depreciation at 10% p.a. on Building and Motor Van.
3. Accrued Interest on Investment Rs. 360.
4. Provide 5% R.B.D.D. on Debtors.
5. Stock at 31st March, 2010 was Market Value Rs. 40,000; Cost Price Rs. 50,000.

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Q12.Rani and Rita are partners sharing profits and losses equally. Following is their Trial Balance
as on 31st March, 2010:Trial Balance as on 31st March, 2010

Particulars Dr. Rs. Cr. Rs.

Buildings 27,500
Machinery 20,000
Salary and Wages 10,500
Cash at Bank 20,000
Cash in Hand 550
Motor Cycle 10,000
Office Expenses 500
58,000
31,000
Carriage Outward 2,500
Purchase 1,10,000
Return Outwards 2,750
Sales 1,40,000
Return Inward 1,000
Bad Debts 500
Debtors 16,400
Creditors 27,500
Rent 550
Printing and Stationery 750
Travelling Expenses 2,750
Stock (1-4-2009) 15,000
Insurance 750
Discount 4,000
Advertisement (For 3 years) 6,000
Furniture 10,000
2,59,250 2,59,250
Adjustments:
1. The closing stock on 31st March, 2010 was valued at cost of Rs. 20,500. While its market
price is Rs. 22,500.
2. Goods worth Rs. 2,500 were destroyed by fire and insurance company agreed to pay Rs.
2,000 in full settlement of the claim.
3. Unpaid Expenses Rent Rs. 50 and Salary Rs. 250.
4. Provide depreciation at 10% on Machinery and 5% on furniture.
5. Goods worth Rs. 4,000 were sold on 27th March, 2010 but no entry was made in the books.
You are required to prepare Trading & Profit & loss Account for the year ended 31st March, 2010
and the Balance Sheet as on the date after considering the above adjustments.

DEPT. OF ACCOUNTANCY, TCSC 55