case study on partnership class 12

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Case Study Based Questions on Partnership - Accountancy as Per CBSE Questions And Answers | Case Study Accountancy Class 12

 case study accountancy class 12, partnership.

Explanation: Given in the Case Study  "Their initial fixed capital contribution was ₹1,20,000 and ₹80,000 respectively."

When Fixed Capital is Given Remuneration will be transferred to Partners Current Account.

Question 2:

Upon the admission of Sundaram the sacrifice for providing his share of profits would be done:

(a) by Amit only.

(b) by Mahesh only.

(c) by Amit and Mahesh equally.

(d) by Amit and Mahesh in the ratio of 3:2.

Answer: (D)   by Amit and Mahesh in the ratio of 3:2.

Explanation: In the Case Study only new Partners Profit Share is given and Sacrifice made by the old partners is not given.

In this case, it is assumed that the new partner has acquired his share from old partners in their old profit sharing ratio.

Question 3 :

Sundaram will be entitled to a remuneration of _____________at the end of the year.

Answer: ₹ 15000

Explanation: Given in the Case Study "............. Sundaram as a new partner and offered him 20% as a share of profits along with monthly remuneration of ₹ 2,500."

2500 X 12 = 15000

Question 4 :

While taking up the accounting procedure for this reconstitution the accountant of the firm Mr.  Suraj Marwaha faced a difficulty. Solve it be answering the following:

For the amount of loan that Sundaram has agreed to provide, he is entitled to interest thereon at  the rate of ____________.

Answer: 6% p.a.

Explanation: In the Case Study the Rate of Interest for Loan is not mentioned.

and According to the Indian Partnership Act 1932, in the absence of information about  Interest on Loan, it will be given @ 6% p.a.

Case Study 2 (Not for Profit Organisation)

Case Study 3 (Coming Soon)

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Case Study Questions for Class 12 Accountancy with Answers

Students should practice Case Study Questions for Class 12 Accountancy with Answers before appearing in Class 12 Accountancy Board exams. We have provided below the class 12 Accountancy Case Study questions based on each chapter in your NCERT Book for Class 12 Accountancy. These chapter-wise questions have been prepared by teachers based on the latest examination pattern and syllabus issued by CBSE, NCERT KVS. The following Case Study questions and answers will be really useful to understand the type of questions that can be asked in exams

Class 12 Accountancy Case Study Questions and Answers

Practicing by going through the past year and Case Study questions for CBSE Class 12 Accountancy is very important to prepare for the Grade 12 Accountancy exams. We have provided below the best collection of questions which can come in your exams.

Chapter Wise Important Questions for Class 12 Accountancy with Answers

It is important for students to go through Important Case Study Questions for Class 12 Accountancy with Answers regularly while studying various chapters. This will help students to test their understanding of various topics and also make sure that they have understood all topics properly. Our teachers have done a detailed analysis of all chapters in your NCERT Book for Class 12 Accountancy. They have identified all the important questions which they expect can come in the examinations.

Students should read the chapters and notes provided by us properly. Then they should refer to the chapter-wise questions given by us. We have covered all important and difficult topics and have provided answers to all Case Study questions. We have provided step-by-step solutions so that you are able to understand the concepts explained behind the questions.

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Class 12th Accountancy - Accounting for Partnership - Basic Concepts Case Study Questions and Answers 2022 - 2023

By QB365 on 08 Sep, 2022

QB365 provides a detailed and simple solution for every Possible Case Study Questions in Class 12 Accountancy Subject - Accounting for Partnership - Basic Concepts, CBSE. It will help Students to get more practice questions, Students can Practice these question papers in addition to score best marks.

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Accounting for partnership - basic concepts case study questions with answer key.

12th Standard CBSE

Final Semester - June 2015

Accountancy

Case Study 

Read the following hypothetical text and answer the given questions: Amit and Mahesh were partners in a fast-food corner sharing profits and losses in ratio 3:2. They sold fast food items across the counter and did home delivery too. Their initial fixed capital contribution was Rs.1,20,000 and Rs.80,000 respectively. At the end of first year their profit was Rs. 1,20,000 before allowing the remuneration of Rs..3,000 per quarter to Amit and Rs..2,000 per half year to Mahesh. Such a promising performance for first year was encouraging, therefore, they decided to expand the area of operations. For this purpose, they needed a delivery van, a few Scotties and an additional person to support. Six months into the accounting year they decided to admit Sundaram as a new partner and offered him 20% as a share of profits along with monthly remuneration of Rs. 2,500. Sundaram was asked to introduce Rs.1,30,000 for capital and Rs..70,000 for premium for goodwill. Besides this Sundaram was required to provide Rs.1,00,000 as loan for two years. Sundaram readily accepted the offer. The terms of the offer were duly executed and he was admitted as a partner 1.Remuneration will be transferred to _______________ of Amit and Mahesh at the end of the accounting period.

2.Upon the admission of Sundaram the sacrifice for providing his share of profits would be done

3.Sundaram will be entitled to a remuneration of _____________at the end of the year. 4.While taking up the accounting procedure for this reconstitution the accountant of the firm Mr. Suraj Marwaha faced a difficulty. Solve it be answering the following: For the amount of loan that Sundaram has agreed to provide, he is entitled to interest thereon at the rate of ____________.

*****************************************

Accounting for partnership - basic concepts case study questions with answer key answer keys.

1. (c) Current Account 2 2. (d) By Amit and Mahesh in the ratio of 3: 2 3 Rs.15,000 4. 6% p.a.

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Important Questions Class 12 Accountancy Chapter 4 Admission of A Partner

Cbse class 12 accountancy chapter 4 important questions – free pdf download.

Free PDF download of Important Questions for CBSE Class 12 Accountancy Chapter 4 Admission of A Partner prepared by expert Accountancy teachers from latest edition of CBSE(NCERT) books, On CoolGyan.Org to score more marks in CBSE board examination. You can also Download  Accountancy Revision Notes Class 12  to help you to revise complete Syllabus and score more marks in your examinations.

CBSE Class 12 Accountancy Important Questions Chapter 4 Admission of A Partner

4 :  (When new partner acquire his share form old partners as a fraction of their share). A and B are partners in a firm sharing profit and losses in the ratio of 5:3. A Surrenders 1/5th of his share, whereas B surrenders 1/3 of his share in favour of C, a new partner. Calculate the new profit sharing ratio. Solution : (i) Calculation of sacrifice share A sacrifices 1/5 of his share i.e. 1/5 of 5/8 = 1/8 B sacrifices 1/3th of his share i.e. 1/3 of 3/8 = 3/24 or 1/8 (ii) Calculation of New profit sharing Ratio New share = Old share – sacrifice share A’s new share = 5/8 – 1/8 = 4/8 B’s new share = 5/8 – 1/8 = 2/8 C’s new share = 1/8 + 1/8 = 2/8 New ratio among A, B and C = 4/8 : 2/8 : 2/8 = 4 : 2 : 2/8 = 2:1:1 Case (v) When new partner does not acquire his/her share from all partners.

7 : (All partners sacrifice) :  A and B partners sharing profits and losses in the ratio of 3:2. They admit C into partnership for 1/4 share in profits. C’s brings Rs. 3,00,000 as capital and Rs. 1,00,000 as goodwill. New profit sharing ratio of the partners shall be 3:3:2. Pass necessary Journal entries. Journal

8. (Sacrificing ratio is to be calculate) :  A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. C is admitted as a new partner. A Surrenders 1/5 of his share and B 2/5 of his share in favour of C. For purpose of C’s admission, goodwill of the is valued at Rs. 75,000 and C brings his share of goodwill in cash which is retained in the firm’s books. Journalise the above transactions. Journal

9 : (Existing goodwill to be written off) :  A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit c into partnership for 1/5 share. C brings Rs. 30,000 as capital and Rs. 10,000 as goodwill. At the time o admission of C, goodwill appears in the balance sheet of A and B at Rs. 3,000. New Profit sharing ratio of partners shall be 5:3:2. Pass necessary entries. Journal

10 : (premium brought in kind) :  Anubhav and Babita are partners in a firm sharing profits and losses in the ratio of 3:2. On April 1, 2015 they admit Deepak as a new partner for 3/13 share in the profits. Deepak contributed the following assets towards his capital and for his share of goodwill. Land Rs. 90,000, Machinery Rs. 70,000 stock Rs. 60,000 and debtors Rs. 40,000. On the date of admission of Deepak, the goodwill of the firm was valued at Rs. 5,20,000, which is not appear in the books. Record necessaries journal entries in the books of the firm. Show your calculation clearly. Journal

Note :  Here Sacrificing Ratio = Old Ratio i.e., 3 : 2 Case (iii) Amount of goodwill which was brought in by new partner, is withdrawn by old partner : In this case one additional journal entry may be passed : Old Partners’ Capital A/c  Dr. To Bank/Cash A/c (Cash withdrawn by old partners) Case (iv) when the new partner is unable to bring his share of goodwill in cash. Sometimes the new partner does not bring his share of goodwill in cash. Then his share of goodwill is calculated and adusted by the following Journal entry. New Parnters’ Capital   Dr. To old partners Capital A/cs (in the sacrificing ratio)

11 :  Neeta and Sumita are partners sharing profits and losses in the ratios of 2:1. They admit Geeta as a partner for 1/4th share. Geeta pays Rs. 50,000 as capital but does not bring any amount for goodwill. The goodwill of the new firm is valued at Rs. 36,000. Give Journal entries. Solution : Journal

Working Note : (1)  As nothing is given about sacrifice etc. except the old ratio and the new partners share of profit. Sacrificing Ratio = Old Ration = 2 : 1 (2)  Goodwill of the firm = Rs. 36,000 Geeta’s share of profit = 1/4 Geeta’s share of Goodwill = Rs. 36,000 = 1/4 Rs. 9,000 Case (v) Partly goodwill brought in by new partner :

12: (Partly premium brought in cash) :  Sheetal and Raman share profits equally. They admit Chiku into partnership. Chiku pays only Rs. 1,000 for premium out of his share of premium of Rs. 1,800 for ¼ share of profit. Goodwill Account appears in the books at Rs. 6,000. All partners have decided that goodwill should not appear in the books of the new fir, Journalise. Journal

Case (vi) Gain made by an old partner :

13: (Sacrifice/Gain made by an old partner) :  Ashok and Ravi were partners in a firm sharing profits and losses in the ratio of 7:3. They admitted Chander as a new partner. The new profit ratio between Ashok, Ravi and Chander will be 2:2:1. Chander brought Rs. 24,000 for his share of goodwill. Pass necessary journal entries for the treatment of goodwill. Solution: Journal

14 :  A and B are partners with capitals of Rs. 26,000 and Rs. 22,000 respectively. They admit C as partner with 1/4th share in the profits of the firm. C’s brings Rs 26, 000 as his share of capital. Give journal entry to record goodwill on C’s admission. Journal

15 :  Following is the Balance Sheet of Shashi and Ashu shari profit as 3 : 2.

On admission of Tanya for 1/6 th share in the profit it was decided that : (i) Provision for doubtful debts to be increased by Rs. 1,500. (ii) Value of land and building to be increased to Rs. 21,000. (iii) Value of stock to be increased by Rs. 2,500. (iv) The liability of workmen’s compensation fund was determined to be Rs. 12,000. (v) Tanya brought in as her share of goodwill Rs. 10,000 in cash. (vi) Tanya was to bring further cash of Rs. 15,000 for her capital. Prepare Revaluation A/c, Capital A/cs and the Balance Sheet of the new firm Solution :   Revaluation Account

Partners’ Capital Account

Balance Sheet of the New Firm

16 :  A, B and C are partners sharing profits and the ratio of 2:3:5. On 31st March 2015, their Balance Sheet was as follows.

They admit D int partnership on the following terms : (i)   Furniture and Machinery to be depreciated by 15% (ii)  Stock is revaluated at Rs. 48,000. (iii) Goodwill to be valued at Rs. 24,000 (iv) Outstanding rent amount Rs. 1,800. (v)  Prepaid salaries Rs. 800. (vi) D to being Rs. 32,000 towards his capital for 1/6 th share. Prepare Revaluation Account, Partners Capital Accounts and Balance Sheet of the new firm. Solution :

Partners’ Capital Account Dr.    Cr.

17 :  A, B and C are partners sharing profits and losses in the ratio of 5:3:2. On 31st, March 2015 their Balance sheet was as follows :

They decided to admit D into the partnership on the following terms : (i)   Machinery is to be depreciated by 15%. (ii)  Stock is to be revalued at Rs. 48,000. (iii) Outstanding rent is Rs. 1,900. (iv) D is to bring Rs. 6,000 as goodwill and sufficient capital for a 2/5th share in the capitals of firm. Prepare Revaluation A/c, Partner’s Capital A/cs, Cash A/c and Balance Sheet of the new firm. Solution : Revaluation Account Dr.    Cr.

18 :  Following is the Balance Sheet of A, B and C sharing profits and losses in the ratio of 6:5:3 respectively.

They agreed to be take D into partnership giving 1/8th share in profits on the following terms: (a)  Furniture to be depreciated by Rs. 1,840 and Stock by 10% (b)  A provision of Rs. 2,640 to be made for an outstanding bill for repairs. (c)   That land and building be brought up to Rs. 1,19,700. (d)  That the goodwill is valued at Rs. 28,140. (e)  That D should bring in Rs. 35,400 as his capital and for his share of goodwill. (f)   After making the above adjustments the capital of old partners be adjusted in proportion to D’s Capital by bringing in cash or excess to be paid off. Prepare Revaluation Account, Capital Account of Partners and Balance Sheet of new firm. Solution : Revaluation Account

19 :  A and B are parents in a firm sharing profits and losses in the ratio of 3:2. Their balance sheet was as follows on 1st January, 2015 :

Capital Account

Partner’s Current Account

Balance Sheet (after C/s admission) As on 1st Jan, 2015

Note :  (1)  Calculation of new profit sharing ratio Share given to C = 1/4; Balance of Profit = 1 – 1/4 = 3/4 Adjustment of capital on basis of old partners’ calculation of proportionate capital of New Partners’.

20 :  Sahaj & Nimish are partners in a firm. They share profits & losses in ratio of 2:1 . Since both of them are specially abled sometimes they find it difficult to run a business so admitted Gauri a common friend decided to help them ‘Therefore, they admitted her into partnership for 1/3 share. She brought her share of goodwill in cash & proportionate capital. At the time her admission Balance Sheet of Sahaj & Nimish was as under.

It was decided to : (a)  Reduce the value of stock by Rs. 5,000 (b)  Depreciate furniture by 10% and appreciate machinery by 5%. (c)   Rs. 3,000 of the debtors proved bad. A provision of 5% was to be created on Sundry Debtors for doubtful debts. (d)  Goodwill of the firm was valued at Rs. 45,000 Prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet of reconstituted firm. Identify the values conveyed. Solution : Revaluation Account

Partner’s capital Account

Balance Sheet of New Firm

Values conveyed :  Friendship, Sympathy.

21 :  Anthony and Boni were partners in a firm sharing profit in ratio o 5 : 3. There Balance sheet as on 31-3-2015 was as follows:

On 01.04.2015, they admitted Heena into partnership for 1/4th share in full profits of the firm. Assets and liabilities were revealed. Goodwill of the firm valued at Rs. 80,000. Fill in the missing information/figure in the following ledger accounts and B ance Sheet. Revaluation Account

Partner’s Capital Account

Balance Sheet As at 01.04.2015

Solution : Revaluation Account

Revaluation Account

NCERT Solutions for Class 6, 7, 8, 9, 10, 11 and 12

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership : Basic Concepts

September 29, 2019 by Sastry CBSE

TEST YOUR UNDERSTANDING – I

1. Mohan and Shyam are partners in a firm. State whether the claim is valid if the partnership agreement is silent in the following matters: (i) Mohan is an active partner. He wants a salary of Rs. 10,000 per year;

Answer Invalid I In the absence of partnership agreement, no interest on capital, interest on drawings, salary, commission is to be allowed to partners.

(ii) Shyam had advanced a loan to the firm. He claims interest @ 10% per annum; Answer Invalid Interest on partners loan to be allowed @ 6% pa,

(iii) Mohan has contributed Rs. 20,000 and Shyam Rs. 50,000 as capital. Mohan wants equal share in profits. Answer Valid Profit and losses are to be shared equally.

(iv) Shyam wants interest on capital to be credited @ 6% per annum. Answer Invalid No interest on capital is to be allowed to partners. 2. State whether the following statements are true or false: (i) Valid partnership can be formulated even without a written agreement between the partners; Answer True

(ii) Each partner carrying on the business is the principal as well as the agent for all the other partners; Answer True

(iii) Maximum number of partners in a banking firm can be 20; Answer True

(iv) Methods of settlement of dispute among the partners can’t be part of the partnership deed; Answer False

(v) If the deed is silent, interest at the rate of 6% p.a. would be charged on the drawings made by the partner; Answer False

(vi) Interest on partner’s loan is to be given @ 12% p.a. if the deed is silent about the rate. Answer False

DO IT YOURSELF

TEST YOUR UNDERSTANDING – II

1 . Raju and Jai commenced business in partnership on April 1, 2006. No partnership agreement was made whether oral or written. They contributed Rs. 4,00,000 and Rs. 1,00,000 respectively as capitals. In addtion, Raju advanced Rs. 2,00,000 as loan to the firm on October 1, 2006. Raju met with an accident on July 1, 2006 and could not attend the business up to september 30, 2006. The profit for the year ended March 31, 2007 amounted to Rs, 50,600. Disputes have arisen between them on sharing the profits of the firm. Raju Claims: (i) He should be given interest at 10% p.a. on capital and so also on loan. (ii) Profit should he distributed in the proportion of capitals. Jai Claims: (i) Net profit should be shared equally. (ii) He should be allowed remuneration of Rs, 1,000 p.a. during the period of Raju’s illness. (iii) Interest on capital and loan should be given @ 6% p.a.

State the correct position on each issue as per the provisions of the partnership Act. 1932.

Answer Raju’s Claims (i) He cannot claim interest on capital and he is entitled only for 6A interest on loan. (ii) In absence ot any agreement profits are distributed equally Jai’s Claims (i) It will be accepted. (ii) He is not entitled for any remuneration. (iii) No interest on capital is allowed whereas 6% interest for loan should be given.

TEST YOUR UNDERSTANDING -III

1 .Rani and Suman are in partnership with capitals of Rs, 80,000 and Rs. 60,000, respectively. During the year 2006-2007, Rani withdrew Rs. 10,000 from her capital and Suman Rs. 15,000. Profits before charging interest on capital was Rs. 50,000. Ravi and Suman shared profits in the ratio of 3:2. Calculate the amounts of interest on their capitals @ 12% p.a. for the year ended March 31, 2007.

1 . Govind is a partner in a firm. He withdrew the following amounts during the year 2006-07: DATE                                (Rs.) April 30, 2006                6,000 June 30, 2006                4,000 Sept. 30, 2006                8,000 Dec. 31, 2006                 3,000 Jan. 31, 2007                 5,000 he interest on drawings is to be charged @ 6% p.a. The books are closed on March 31, every year.

3 . Leela, Meera and Neha are partners and have omitted interest on capital @9% p.a. for three years ended March 31, 2007. Their fixed capitals on which interest was to be allowed throughout were: Leela Rs. 80,000, Meera Rs. 60,000 and Neha Rs. 1,00,000. Their profit sharing ratio during the last three years were:

SHORT ANSWER TYPE QUESTIONS

Question 1. Define Partnership Deed. Answer A partnership deed is a agreement among the partners which contains ai! the terms of the Partnership. It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capita! by each partner, -atio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan etc.

Question 2. Why it is considered desirable to make the partnership agreement in writing? Answer As .per Partnership Act 1932 it is not necessary that a partnership agreement must be in writing but still it is always suggested that it should be in written form Because today there are very good relationship among the partners but n future if there may be any dispute regarding any issue, a written partnership agreement will help in avoiding disputes and misunderstandings among the partners.

Question 3 . List the items which may be debited or credited in capital accounts of the partners when (i) Capitals are fixed (ii) Capitals are fluctuating

Question 4 . Why is Profit and Loss Adjustment Account prepared? Explain. Answer Profit and loss adjustment account is prepared to record those transaction or omissions and errors which were left while preparing the final accounts and they are found after the final accounts have been prepared and the profits distributed among the partners. The omission may be in respect of interest on capital, interest on drawings, interest on partners’ loan, partner’s salary, partner’s commission or outstanding expenses. There may also be some changes in the provisions of partnership deed or system of accountings having impact with retrospective effect. All these acts of omission and commission need adjustments for correction of their impact. These omission errors and corrections can be recorded in partners’ capital account directly but still it seems convenient to prepare the profit and loss adjustment account. Question 5. Give two circumstances under which the fixed capitals of partners may change. Answer Under the fixed capital method the capital of partners may change in the following two circumstances (i) First, when fresh capital is introduced by the partner with the consent of other partners. (ii) Second, when a part of capital is withdrawn by the partner with the consent of other partners.

Question 6 . If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated? Answer When fixed amount of money is withdrawn quarterly, it can be withdrawn either at the beginning or at the end of each quarter, if the amount is withdrawn at the end of each quarter, the interest is calculated on the total money withdrawn during the period of seven and half months .

Question 7 . In the absence of partnership deed, specify the rules relating to the following (i) Sharing of profits and losses (ii) Interest on partner’s capital (iii) Interest on partner’s drawings (iv) Interest on partner’s loan (v) Salary to a partner Answer :(i)Sharing of Profit and Losses In the absence of partnership deed profit sharing ratio among the pad maw will be equal. (ii) Interest on Partner’s Capital In the absence of paonemnio oeeu interest on partners capital will not be given. (iii) Interest on Partner’s Drawings In the absence of partnership deed no interest will be charged on partners drawings . (iv) Interest on Partners Loan In the absence of partnership deed if partner gives any loan to the firm he/she will be entitled to get fixed percentage of interest @6% of annum. (v) Salary of Partner In the absence of the patnership deed a partner will be entitled for getting any salary for his work even if the other are non working.

Long Answer Type Questions

Question 1. What is partnership? What are its chief characteristics? Explain. Answer According to the Section 4 of the Partnership Act, 1932 Partnership is an agreement between two or more persons who have agreed to share profits or losses of a business that will be carried by all or any one of them acting for all. Person who joined their hands to set up the business are called ‘partners individually and ‘firm’ collectively and the name under which they carry out their business is termed as ‘firm name’. The following are the important characteristics of partnership (i) Two or More Persons In order to form partnership, there should be at least two person coming together for a common goal In other words, the minimum number of partners in a firm can be two. There is however, a limit on their maximum number, if a firm is engaged in the banking business, it can have a maximum of ten partners while in case of any other business, the maximum number of partners can be twenty. (ii) Partnership Deed A partnership deed is an agreement among the partners which contains all the terms of the partnership. It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capital by each partner, ratio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan, etc. (iii) Business One of the important characteristics of a partnership is that it is formed to carry out a legal business. Partnership in case of illegal business is not valid. (iv) Sharing of Profit In case of a partnership the partners are suppose to share profit or loss on an agreed ratio or as per the provisions of the Partnership Act, 1932, as per which they will share profit equally. (v) Liability In the case of a partnership liability of partners are unlimited. If there is any obligation against the third party the partner will have to pay it out of his personal property.

Question 2 . Discuss the main provisions of the Indian Partnership Act, 1932 that are relevant to partnership accounts if there is no partnership deed. Answer It is always suggested that there must be a partnership deed among the partners before getting into any partnership venture. But sometimes a partnership is started without signing any such document. In this case the rules of partnership will be applicable as per the provisions of the Indian Partnership Act, 1932. The following are the provisions that are relevant to the partnership accounts in absence of partnership deed. (i) Profit Sharing Ratio When a partnership deed is not made or even if it is made and silent on sharing of profit or losses among the partners of a firm, then according to the Partnership Act 1932, profits and losses are to be shared equally among all the partner of the firm. (ii) Interest on Capital When there is absence of partnership deed or the partnership deed is silent on the issue related to interest on partner’s capital, then according to the Partnership Act 1932, no interest on partners’ capital will be provided. However, if they mutually agree on this issue than they are free to give interest on capital out of the profit of the firm. (iii)Interest on Drawings   there is no partnership Peed the issue ‘elated h die interest on drawing will be handled according to the provisions Partnership Act. 1932 According sc which no Interest on drawing will be charge loan the orders on withdraw in the form of drawings. (iv) Interest on Partner’s Loan When there is no partnership deed among the partners or the partnership deed is silent on interest on partner’s loan then according to the Partnership Act, 1932. the partners are entitled for 6% pa interest on the loan forwarded by them to the firm (v) Salary to Partner When partnership deed is not there or it is silent on the issue related to salary to a partner, then as per the rules of the partnership Act. 1932. no partner will be entitled to any salary.

Question 3 . Explain why it is considered better to make a partnership agreement in writing. Answer As per Partnership Act. 1932, it is not necessary that a partnership agreement must be in writing but still it is always suggested that it should be in written form. Because today there are very good relationship among the partners but in future there may be any dispute regarding any Issue a written partnership agreement will help in avoiding dusputes and misunderstandings among the partners. In this way a written partnership deed is more desirable than the ora agreements. A written partnership agreement ensures the smooth functioning of the business of the partnership firm It aiso helps in settling the disputes among the partners. Moreover a duly signed and registered partnership deed can be used as evidence in the court of law. Therefore, it s desirable to form partnership deed in writing because of the moots associated with written documents over its oral counterparts.

Question 4 . Illustrate how interest on drawings will be calculated under various situations. Answer When a partner withdraws any amount, either in cash or in any other form, from the firm for his/her personal use, then it is termed as drawings. The interest charged by the firm on the amount of drawings is termed as interest on drawings. The method of calculating interest on drawings depends on the information available for time and frequency of the drawings made by the partner. The following different situations of drawings made illustrate the calculation of interest charged on drawings. Situation I When ail the information regarding amount, date and rate of interest on drawings is given When a partner withdrew Rs 10,000 on July 01 and interest on drawings is charged at 12% pa and the firm closed its books on December 31 every year then interest on drawings amount to Rs 600.

Numerical Type Problems

1. Triphati and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were Rs.60,000 and Rs.40,000 as on January 01, 2005. During the year they earned a profit of Rs. 30,000. According to the partnership deed both the partners are entitled to Rs. 1,000 per month as Salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is Rs. 12,000 for Tripathi, Rs. 8,000 for Chauhan. Prepare Partner’s Accounts when, capitals are fixed.

Answer Decisions according to partnership Act,1932, if there is no agreement . Decission on Harshads Claim (i) Interest on partners capital will not be allowed to partners (ii) Profits shall be distributed equally among all the partners Decission on Dhimans Claim (i) Profits should be distributed equally among all the partners, fii) No salary shall be allowed to any partner if there is no agreement regarding remuneration. (iii) Interest shall be allowed on partner’s Loan @ 6% pa whereas no interest is allowed on capital.

14.Sunflower and Pink Rose started partnership business on April 01, 2006 with capitals of Rs. 2,50,000 and Rs.1,50,000, respectively. On October 01, 2006, they decided that their capitals should be Rs. 2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31, 2007.

15. On March 31, 2006 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at Rs. 4,00,000,Rs.3,00,000 and Rs. 2,00,000, respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to Rs. 1,50,000 and the partner’s drawings had been Mountain: Rs. 20,000, Hill Rs. 15,000 and Rock Rs. 10,000. Calculate interest on capital.

17.Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31, 2007. May 01, 2006 Rs. 12,000 July 31, 2006 Rs. 6,000 September 30, 2006 Rs. 9,000 November 30, 2006 Rs. 12,000 January 01, 2007 Rs. 8,000 March 31, 2007 Rs. 7,000 Interest on drawings is charged @ 9% p.a. Calculate interest on drawings

18. The capital accounts of Moli and Golu showed balances of Rs.40,000 and Rs. 20,000 as on April 01, 2006. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of Rs. 10,000 to the firm on August 01, 2006. During the year, Moli withdrew Rs. 1,000 per month at the beginning of every month whereas Golu withdrew Rs. 1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was Rs.20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.

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DK Goel Solutions

• DK Goel Solutions Class 12

DK Goel Solutions Chapter 2 Accounting for Partnership Firms Fundamentals

Read below DK Goel Solutions Class 12 Chapter 2 Accounting for Partnership Firms Fundamentals . These solutions have been designed based on the latest Class 12 DK Goel Accountancy book used by commerce stream students issued for the current year and the questions given in each chapter.

This chapter explains the basic concepts of accounting for partnership firms students will be able to understand what a partnership firm is, the basic fundamentals, understanding about partners, how the partnership firm is formed, basics about profit-sharing, and various other important topics.

This is a very basic chapter and in future chapters, students will be able to understand advanced accounting concepts for partnership firms.

The chapter contains a lot of questions which can be very helpful for Class 12 commerce students of Accountancy and will also help build strong concepts which will be really helpful in your career.

DK Goel Solutions Class 12 Chapter 2 solutions are free and will help you to prepare for Class 12 Accountancy . Just scroll down and read through the answers provided below

Accounting for Partnership Firms Fundamentals DK Goel Class 12 Accountancy Solutions

Students can refer below for solutions for all questions given in your DK Goel Accountancy Textbook for Class 12 in Chapter 2

Short Answer Questions for DK Goel Solutions Class 12 Chapter 2

Question 1.

Solution 1 1.) Profit/Losses Sharing:- Profit/Losses are paid the partners equally. 2.) Return on Financial:- Capital interest is not paid partners. 3.) Interest on drawings:- Interest on drawings partners who are not paid. 4.) Debt Interest:- Interest at a rate of 6% p.a. It is be given the company on a partner’s loan. Such interest is be paid and in the case of damages the company.

Question 2.

Solution 2 In the absence of the Partnership Deed, following are the terms of the Partnership Act: 1.) If both the partners consent, for the good of the couple, a minor can be admitted. 2.) Either with the consent of all current partners or in compliance with an explicit agreement between the partners, an individual can be admitted as a partner. 3.) Firm enrolment is voluntary and not obligatory. 4.) A partner may withdraw from the business either with the permission of all the other partners or in compliance with an explicit agreement between the partners.

Question 3.

Solution 3 1.) Profit transferred Capital account 2.) Partners Salaries 3.) Partners Commission 4.) Partners Interest on Capital 5.) Interest on Partners Drawings 6.) Net Profit transferred from P&L account

Question 4.

Solution 4 (a) Fixed Capitals and Fluctuating Capitals

Question 5.

Solution 5 (a) Salaries of Partners:- No partner shall be entitled any payment or commission for involvement in the conduct of the business of the company. (b) Interest in the capital of the partner:- No interest in the capital of the partner is permissible. (c) Return on a loan:- Interest at 6% p.a. It is be given the company on a partner’s loan. Such interest is be paid and in the case of damages the company. (d) Benefit-sharing ratio:- Profit and expenses, irrespective of their financial contribution, are be divided equally. (e) Interest in drawings of the partner:- No interest shall be levied on drawings.

Question 6.

Question 7.

Solution 7 Below are the things that appear while the money is fluctuating on the debit side of the partner’s capital account:— (1) Drawings (2) Interest on Drawings (3) Share of loss (4) Loss on revolution (5) Any assets taken partner (6) Closing Cr. Balance of the Capital

Question 8.

Solution 8 Below are the things that can occur as the funds fluctuate on the credit side of a partner’s capital account:— (1) Opening credit balance of Capital (2) Additional Capital introduced (3) Share of profit (4) Interest on capital (5) Salary a partner

Question 9.

Solution 9 In the absence of a partnership deed, the terms of the 1932 Partnership Act referred above would apply:— (1) Gains and losses are be equally divided. (2) Interest in capital shall not be tolerated. (3) No interest shall be paid in respect of sketches. (4) No partner shall be entitled any commission salary for taking part in the conduct of the business of the company. (5) A partner shall be entitled interest on the loan issued him the company at a rate of 6 per cent per annum. (6) Each partner can take part in business actions.

Question 10.

Solution 10 Calculation of Interest on Drawings of equal amounts drawn on the first day of every month:- Interest on Drawings = Total Amount of Drawings × (Rate of Interest)/100 × 6.5/12

Question 11.

Solution 11 Calculation of Interest on Drawings of equal amounts drawn on the last day of every month:- Interest on Drawings = Total Amount of Drawings × (Rate of Interest)/100 × 5.5/12

Question 12.

Solution 12 Calculation of Interest on Drawings of equal amounts drawn in the middle of every month:- Interest on Drawings = Total Amount of Drawings × (Rate of Interest)/100 × 6/12

Question 13 (new).

Solution 13 . In the absence of partnership deed, the provision of partnership act 1932 will apply according to which: 1. No interest is payable on capitals. 2. Interest on loan by partner will be paid @ 6% p.a. 3. Profit will be shared equally. 4. No salary is payable to any partner.

Question 13.

Solution 13 (i) The profit would be equally divided. (ii) B is not going get a Salary.

Question 14.

Solution 14 (i) B will be awarded interest on his loan @ 6% p.a. (ii) In the absence of any provision the contrary, benefit shall be divided equally, regardless of the capital of the latter.

Question 15.

Solution 15 (a) Interest on capital will not be allowed. (b) X shall not be entitled any salary. (c) X’s son, if Y objects it, cannot be accepted as a partner. (d) X shall be eligible claim interest on his loan @ 6% p.a.

Question 16.

Solution 16 (a) A Return Rs. 1,75,000 (b) A Return Rs. 50,000; (c) Mohan cannot be admitted (d) Goods may be purchased from Raghubir.

Numerical Questions:-

Solution 1                                                              Trading and Profit and loss account                                                               for the year ended 31st March, 2021

                                                                          Balance Sheet                                                        for the year ended 31st March, 2021

Points for Students:- As per accounting viewpoint, partnership firms are treated as a separate business entity distinct from its partners. However, as per legal viewpoint, a partnership firm is not a separate legal entity. In other words, it has no existence separate from its partners. It means that in case of bankruptcy of the partnership firm, private estates of the partners would be liable to meet the firm’s debts.

Solution 2 Calculation of Interest on Capital For Girish:- Capital for 4 months = Rs. 5,60,000 Rate of interest = 6% Interest on Capital = Rs. 5,60,000 × 6% × 4/12 Interest on Capital = Rs. 11,200 Capital for 8 months = Rs. 5,00,000 Rate of interest = 6% Interest on Capital = Rs. 5,00,000 × 6% × 8/12 Interest on Capital = Rs. 20,000 Total Interest on Capital paid Girish = Rs. 11,200 + Rs. 20,000 Total Interest on Capital paid Girish = Rs. 31,200

Calculation of Interest on Capital For Satish:- Capital for 4 months = Rs. 4,75,000 Rate of interest = 6% Interest on Capital = Rs. 4,75,000 × 6% × 4/12 Interest on Capital = Rs. 9,500 Capital for 8 months = Rs. 5,00,000 Rate of interest = 6% Interest on Capital = Rs. 5,00,000 × 6% × 8/12 Interest on Capital = Rs. 20,000 Total Interest on Capital paid Satish = Rs. 9,500 + Rs. 20,000 Total Interest on Capital paid Satish = Rs. 29,500 Points for Students:- The Limited Liability Partnerships (LLPs) in India came into existence with the enactment of ‘Limited Liability Partnership Act, 2008’ which lay down the law for the formation and regulation of Limited Liability Partnerships.

Solution 3 Calculation of Interest on Capital For X:- Capital for 3 months = Rs. 5,00,000 Rate of interest = 8% Interest on Capital = Rs. 5,00,000 × 8% × 3/12 Interest on Capital = Rs. 10,000

Capital for 9 months = Rs. 6,00,000 Rate of interest = 8% Interest on Capital = Rs. 6,00,000 × 8% × 9/12 Interest on Capital = Rs. 36,000 Total Interest on Capital paid X = Rs. 10,000 + Rs. 36,000 Total Interest on Capital paid X = Rs. 46,000

Calculation of Interest on Capital For Y:- Capital for 3 months = Rs. 4,00,000 Rate of interest = 8% Interest on Capital = Rs. 4,00,000 × 8% × 3/12 Interest on Capital = Rs. 8,000

Capital for 7 months = Rs. 4,80,000 Rate of interest = 8% Interest on Capital = Rs. 4,80,000 × 8% × 7/12 Interest on Capital = Rs. 22,400

Capital for 2 months = Rs. 4,65,000 Rate of interest = 8% Interest on Capital = Rs. 4,65,000 × 8% × 2/12 Interest on Capital = Rs. 6,200

Total Interest on Capital paid Y = Rs. 8,000 + Rs. 22,400 + Rs. 6,200 Total Interest on Capital paid Y = Rs. 36,600

Calculation of Interest on Capital For Z:- Capital for 3 months = Rs. 3,00,000 Rate of interest = 8% Interest on Capital = Rs. 4,00,000 × 8% × 3/12 Interest on Capital = Rs. 6,000 Capital for 9 months = Rs. 3,50,000 Rate of interest = 8% Interest on Capital = Rs. 4,80,000 × 8% × 9/12 Interest on Capital = Rs. 21,000 Total Interest on Capital paid Y = Rs. 6,000 + Rs. 21,000 Total Interest on Capital paid Y = Rs. 27,000

Points for Students:- A LLP is a body corporate formed and incorporated under this Act. It is legal entity separate from of its partners. A LLP shall have perpetual succession. Any change in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP.

Solution 4 Calculation of Capital in the beginning of the year:- Mountain:- Capital at the end of the year on March 31, 2016 = Rs. 4,00,000 Add:- Drawings = Rs. 20,000 Less:- Share of Profit = Rs. 50,000 Capital in the beginning on 1st April, 2015 = Rs. 4,00,000 + Rs. 20,000 – Rs. 50,000 = Rs. 3,70,000

Calculation of Interest on Capital:- Calculation of Interest on Capital = Rs. 3,70,000 × 10% Calculation of Interest on Capital = Rs. 37,000

Hill:- Capital at the end of the year on March 31, 2016 = Rs. 3,00,000 Add:- Drawings = Rs. 15,000 Less:- Share of Profit = Rs. 50,000 Capital in the beginning on 1st April, 2015 = Rs. 3,00,000 + Rs. 15,000 – Rs. 50,000 = Rs. 2,65,000

Calculation of Interest on Capital:- Calculation of Interest on Capital = Rs. 2,65,000 × 10% Calculation of Interest on Capital = Rs. 26,500

Rock:- Capital at the end of the year on March 31, 2016 = Rs. 2,00,000 Add:- Drawings = Rs. 10,000 Less:- Share of Profit = Rs. 50,000 Capital in the beginning on 1st April, 2015 = Rs. 2,00,000 + Rs. 10,000 – Rs. 50,000 = Rs. 1,60,000

Calculation of Interest on Capital:- Calculation of Interest on Capital = Rs. 1,60,000 × 10% Calculation of Interest on Capital = Rs. 16,000

Points for Students:- Profit and loss appropriation account prepared just after the Profit and Loss Account. Hence, it is an extension of Profit and Loss Account. It is prepared only by partnership firms. It is a nominal account. It shows how the net profit for the accounting period is appropriated among the partners. Entries in this account are made giving effect to the Partnership Deed and the Indian Partnership Act, 1932.

Question 5.(A)

Solution 5 (A)

Working Note:- Profit will be distributed in equal ratio = 1 : 1 A’s Profit = Rs. 1,35,000 ×1/2 = Rs. 67,500

B’s Profit = Rs. 1,35,000 ×1/2 = Rs. 67,500

(A). Points for Students:- Interest on partner’s capital is to be allowed only when it is expressly agreed to among the partners. If interest on capital is to be allowed as per agreement, it should be calculated with respect to the time, rate of interest and the amount of capital.

Question 5. (B) Solution 5 (B)

Working Note:- 1. Salary of Anubha = Rs. 700 × 12 = 8,400 Salary of Kajal = Rs. 500 × 12 = 6,000 2. Profit distribution between partners:- Anubha’s Profit = Rs. 23,476 × 2/3 = Rs. 15,651 Kajal’s Profit = Rs. 23,476 × 1/3 = Rs. 7,825 3. Calculation of Interest on Capital:- Anubha = Rs. 90,000 × 5% = Rs. 4,500 Kajal = Rs. 60,000 × 5% = Rs. 3,000 4. Calculation of Interest on Drawings:- Anubha = Rs. 8,500 × 5/100 × 6/12 = Rs. 213 Kajal = Rs. 6,500 × 5/100 × 6/12 = Rs. 163

(B).Points for Students:- Interest on drawings is to be charged from the partners, if the same is specifically provided in the partnership deed. If it is to be charged, it should be calculated from the date of the withdrawal of the amount.

Working Note:- 1. B’s Salary = Rs. 2,500 × 12 = 30,000 2. Profit distribution between partners:- Anubha’s Profit = Rs. 1,20,000 × 3/5 = Rs. 72,000 Kajal’s Profit = Rs. 1,20,000 × 2/5 = Rs. 48,000 1. Calculation of Interest on Capital:- A = Rs. 6,00,000 × 6% = Rs. 36,000 B = Rs. 4,00,000 × 6% = Rs. 24,000

Points for Students:- Interest on drawings is to be charged from the partners, if the same is specifically provided in the partnership deed. If it is to be charged, it should be calculated from the date of the withdrawal of the amount. In the absence of the date of withdrawal, interest should be charged for six months on the whole of the amount because it will be assumed that the drawings were made evenly throughout the year.

Solution 7 .                                              PROFIT AND LOSS ACCOUNT                                                             for the year ended 31 st  March, 2021

Working Note:-

• Calculation of Manager’s Commission = Rs. 50,000 × 10% = Rs. 5,000
• Calculation of Interest on Capital:- X = Rs. 1,00,000 × 12% = Rs. 12,000 Y = Rs. 80,000 × 12% = Rs. 9,600
• Profit distribution between partners:- X’s Profit = Rs. 17,400 × 2/3 = Rs. 11,600 Y’s Profit = Rs. 17,400 × 1/3 = Rs. 5,800

Points for Students:- Under this system the original capitals invested by the partner remain constant, unless additional capital is introduced or drawings are made against capital by an agreement. In other words, capitals of the partners are not allowed to change during the life-time of business except in extraordinary circumstances. When fixed capital method is adopted, all entries relating to drawings against profits, interest allowed on capitals, interest charged on drawings, salary to partner, share of profit or loss etc. are made in a newly-opened account for each partner. The account is called Current Account or Drawings Account.

                                              PROFIT AND LOSS APPROPRIATION ACCOUNT                                                         for the year ended 31 st  March, 2021

• Calculation of Commission:- Asha’s Commission = Rs. 5,40,000 × 8/100 = Rs. 43,200 Lata’s Commission = Rs. 5,40,000 × 8/108 = Rs. 40,000
• Profit distribution between partners:- Asha’s Profit = Rs. 2,56,600 × 1/3 = Rs. 85,600 Lata’s Profit = Rs. 2,56,600 × 2/3 = Rs. 1,71,200

Points for Students:- When the capitals need not be fixed, the balances of capital accounts go on changing from time to time. The reason is that no separate Current Accounts are maintained, but all the entries relating to drawings, interest on capitals, interest on drawings, salary to partner, share of profit or loss etc., are recorded in the capital account itself.

                                                  PROFIT AND LOSS APPROPRIATION ACCOUNT                                                         for the year ended 31 st  March, 2020

Working Note:- Calculation of Partner’s Commission:- Profit after charging Interest on capital = Rs. 6,00,000 – Rs. 1,20,000 = Rs. 4,80,000 B’s Commission = Rs. 4,80,000 × 10/100 = Rs. 48,000 Profit after charging Interest on capital and B’s Commission = Rs. 6,00,000 – Rs. 1,20,000 – Rs. 48,000 Profit after charging Interest on capital and B’s Commission = Rs. 4,32,000 A’s Commission (after charging B’s commission own commission) = Rs. 4,32,000 × 8/108 = Rs. 32,000

Points for Students:- If a partner has given loan to the firm, he is entitled to receive interest on such loan at an agreed rate of interest. However, if there is no agreement as to the rate of interest, he is entitled to receive interest on loan @ 6% per annum. Interest on partner’s loan is a charge against the profit and hence, such interest is allowed whether there are profits or not.

Solution 10

                                            PROFIT AND LOSS APPROPRIATION ACCOUNT                                                      for the year ended 31 st  March, 2021

Working Note: – 1. Calculation of Commission:- Y’s Commission = Rs. 21,200 × 6/106 = Rs. 1,200 Z’s Commission = Rs. 21,200 × 6/106 = Rs. 1,200 2. Profit distribution between partners:- Y’s Profit = Rs. 20,000 × 1/2 = Rs. 10,000 Z’s Profit = Rs. 20,000 × 1/2 = Rs. 10, 000

Points for Students:- Rent paid to a partner is also treated as interest on partner’s loan, rent paid to a partner is also treated as a charge against profit and not an appropriation out of profit and hence it should be debited to Profit and Loss account and not to Profit and Loss Appropriation Account and Credited to partner’s Current Account in case of fixed capital system or to Partner’s Capital Account when Capitals are fluctuating.

Solution 11

• 1. Calculation of Interest on capital:- Interest on Capital L:- Rs. 2,00,000 for 3 months = Rs. 2,00,000 × 9/100 × 3/12 = Rs. 4,500 Rs. 3,00,000 for 9 months = Rs. 3,00,000 × 9/100 × 3/12 = Rs. 20,250

Interest on Capital N:- Rs. 4,00,000 for 3 months = Rs. 4,00,000 × 9/100 × 3/12 = Rs. 9,000 Rs. 3,00,000 for 9 months = Rs. 3,00,000 × 9/100 × 3/12 = Rs. 20,250

(A).Points for Students:- The accounts of the partnership firm have been closed after the financial year, it is discovered that there have been some errors or omissions in the accounts. In such cases, instead of altering the old accounts, the signed balance sheet and adjustment entry for such errors or omissions is made at the beginning of the next year. Usually the following types of adjustments are made: (1) When Interest on Capital or Drawings may have been omitted. (2) When Profits and Losses have been distributed among the partners in a wrong proportion. (3) When profit sharing ratio has been altered with effect from some past date. (4) When salary or commission payable to person has been omitted.

Question 11. (B)

Solution 11 (B) Calculation of Adjustment of Capital:- Total capital of the firm = Rs. 2,10,000 + Rs. 90,000 = Rs. 3,00,000 Profit sharing ratio = 2:1 A’s Capital will be = Rs. 3,00,000 × 2/3 = Rs. 2,00,000 B’s Capital will be = Rs. 3,00,000 × 1/3 = Rs. 1,00,000 Hence, on 1st August, 2016 A withdraw Rs. 10,000 and B will introduce additional capital of Rs. 10,000.

Calculation of Interest on Capital:- A’s Interest on Capital:- 1st April, 2016 31st July, 2016 = Rs. 2,10,000 × 12/100 × 4/12 = Rs. 8,400 1st Aug., 2016 31st Mar., 2017 = Rs. 2,00,000 × 12/100 × 8/12 = Rs. 16,000 Total interest on capital = Rs. 8,400 + Rs. 16,000 = Rs. 24,400

B’s Interest on Capital:- 1st April, 2016 31st July, 2016 = Rs. 90,000 × 12/100 × 4/12 = Rs. 3,600 1st Aug., 2016 31st Mar., 2017 = Rs. 1,00,000 × 12/100 × 8/12 = Rs. 8,000 Total interest on capital = Rs. 3,600 + Rs. 8,000 = Rs. 11,600

(B).Points for Students:- Interest on partner’s capital is to be allowed only when it is expressly agreed to among the partners. If interest on capital is to be allowed as per agreement, it should be calculated with respect to the time, rate of interest and the amount of capital. Interest on drawings is to be charged from the partners, if the same is specifically provided in the partnership deed. If it is to be charged, it should be calculated from the date of the withdrawal of the amount. In the absence of the date of withdrawal, interest should be charged for six months on the whole of the amount because it will be assumed that the drawings were made evenly throughout the year.

Solution 12

                                        PROFIT AND LOSS APPROPRIATION ACCOUNT                                                 for the year ended 31 st  March, 2021

Working Note:- 1. Calculation of Interest on Capital:- A = Rs. 2,00,000 × 10% = Rs. 20,000 B = Rs. 2,00,000 × 10% = Rs. 20,000 C = Rs. 80,000 × 10% = Rs. 8,000 2. Calculation of Profit and Loss:- Capital Ratio = 2,00,000 : 2,00,000 : 80,000 Capital Ratio = 5 : 5 : 2 Profit = 2,80,000 – 48,000 – Rs. 24,000 Profit = 2,08,000

Solution 13

                                  PROFIT AND LOSS APPROPRIATION ACCOUNT                                            for the year ended 31st March, 2021

Points for Students:- The Limited Liability Partnerships in India came into existence with the enactment of ‘Limited Liability Partnership Act, 2008’ which lay down the law for the formation and regulation of Limited Liability Partnerships.

Solution 14

Solution 15

                                                       PROFIT AND LOSS ACCOUNT                                                   for the year ended 31st March, 2021

Working Notes:- (1) Interest on Mamta’s Loan has been calculated at 6% p.a. (2) Interest on Drawings has been calculated for an average period of 6 months. (3) Distributable Profit = Total of Credit side – Debit Side Total Credit Side = Rs. 2,25,000 Total of Debit side (Rs. 35,000 + Rs. 30,000) = Rs. 65,000 Rs. 2,25,000 – Rs. 65,000 = Rs. 1,60,000 General Reserve is 10% of Rs. 1,60,000 = Rs. 16,000

Solution 16 Case (a)

Working Note:- (i) Interest on A’s Loan = Rs. 2,00,000 x 6/100 x 9/12 = Rs. 9,000 (ii) Interest on B’s Loan = Rs. 1,00,000 x 6/100 x 9/12 = Rs. 4,000

Points for Students:- Interest on partner’s capital is to be allowed only when it is expressly agreed to among the partners. If interest on capital is to be allowed as per agreement, it should be calculated with respect to the time, rate of interest and the amount of capital.

Question 17.

Solution 17

Question 18.

Solution 18

Working Note:- 1. Calculation of Net Profit = 5,50,000 – Rs. 1,20,000 = Rs. 4,30,000 2. Calculation of Interest on Capital:- Radha = Rs. 2,00,000 × 8% = Rs. 16,000 Rukmani = Rs. 3,00,000 × 8% = Rs. 24,000 3. Calculation of Profit and Loss:- Profit of transferred Capital account = Rs. 4,30,000 – (Rs. 2,40,000 + Rs. 40,000) Profit of transferred Capital account = Rs. 1,50,000 Radha’s Profit = Rs. 1,50,000 × 1/3 = Rs. 50,000 Rukmani’s Profit = Rs. 1,50,000 × 2/3 = Rs. 1,00,000

Question 19.

Solution 19

                                PROFIT AND LOSS APPOPRIATION ACCOUNT                                       for the year ending on 31st March, 2021

Working Note:- 1. Calculation of Net Profit = 7,60,000 – Rs. 2,40,000 = Rs. 5,20,000 2. Calculation of Interest on Capital:- P = Rs. 5,00,000 × 8% = Rs. 40,000 Q = Rs. 3,00,000 × 8% = Rs. 24,000 3. Net Profit after deducting Expenses:- Rs. 5,20,000 – (Rs. 64,000 + Rs. 60,000 + Rs. 60,000) = Rs. 3,36,000 Q’s Commission = 3,36,000 × 5/105 = Rs. 16,000 4. Calculation of Profit and Loss:- P’s Profit = Rs. 3,20,000 × 60/100 = Rs. 1,92,000 Q’s Profit = Rs. 3,20,000 × 40/100 = Rs. 1,28,000

Question 20.

Solution 20

Working Note:- (1) Net Profit transferred from P & L A/c P & L App. A/c Net Profit in P&L App. A/c = Net Profit in P&L A/c – Expenses (Rent) Net Profit in P&L App. A/c = Rs. 7,60,000 – Rs. 2,40,000 Net Profit in P&L App. A/c = Rs. 5,20,000 (2) Net Profit after deducting interest on capitals, salary and P’s commission: Rs. 5,20,000 – Rs. 64,000 – Rs. 60,000 – Rs. 60,000 = Rs. 3,36,000 Q’s Commission = 3,36,000 x 5/105 = 16,000

Question 21.

Solution 21

Working Note:- Calculation of Interest in Loan:- A = 1,00,000 × 6/100 × 9/12 = Rs. 4,500 B = 50,000 × 6/100 × 9/12 = Rs. 2,250

Question 22.

Solution 22

Working Note:- Calculation of Interest in Drawings:- A = 30,000 × 12/100 × 6/12 = Rs. 1,800 B = 50,000 × 12/100 × 6/12 = Rs. 3,000

Question 23.

Solution 23

                                      PROFIT AND LOSS APPROPRIATION ACCOUNT                                                 for the year ended 31st March, 2021

Working Note:- Calculation of Interest on Capital:- A = 10,00,000 × 8/100 = Rs. 80,000 B = 5,00,000 × 8/100 = Rs. 40,000 Total profit needed = Rs. 80,000 + Rs. 40,000 = Rs. 1,20,000 Available profit = Rs. 45,000 which is less than appropriations Rs. 1,20,000. Profit will be distributed in the ratio of appropriations in interest on capital 80,000 : 40,000 = 2 : 1. A’s share = 45,000 × 2/3 = 30,000 B’s share = 45,000 × 1/3 = 15,000

Question 24.

Solution 24

New Ratio = 1,08,000 : 27,000 New Ratio = 108 : 27 New Ratio = 4 : 1 Profit and Loss Appropriation:- Akruti’s Share = 1,04,000 × 4/5 = 83,200 Vibhuti’s Share = 1,04,000 × 1/5 = 20,800

Points for Students:- Rent paid to a partner is also treated as interest on partner’s loan, rent paid to a partner is also treated as a charge against profit and not an appropriation out of profit and hence it should be debited to Profit and Loss account and not to Profit and Loss Appropriation Account and Credited to partner’s Current Account in case of fixed capital system or to Partner’s Capital Account when Capitals are fluctuating

Question 25. (A)

Solution 25 (A)

Working Note:- Calculation of Interest:- Interest = Total of Products x 9/100 x 1/12 Interest = 2,28,000 x 9/100 x 1/12 = Rs. 1,710

A). Points for Students:- Under simple method, interest on drawing is calculated separately on each amount of drawing, from the date of drawing till the close of the accounting period. Interest on each amount of drawing is calculated with the help of the following formula:

Question 25. (B)

Solution 25 (B)

Working Note:- Calculation of Interest:- Interest = Total of Products x 10/100 x 1/12 Interest = 26,500 x 10/100 x 1/12 = Rs. 221

B). Points for Students:- Under product method, first of all the products are computed by multiplying the each set of drawings from its duration. Thereafter, the different products are added and the interest is calculated on the total of products so arrived at for one month. The advantage of this system is that separate calculations are not required each time. Following formula is used for the calculation of interest under this method:-

Question 26. (A)

Solution 26 (A) Gopal withdrew Rs. 1,000 p.m. regularly on the first day of every month during the year ended 31st March, 2014 for personal expenses. His interest on drawings will be calculated as follows: Calculation of Interest on Drawings:- Interest on Drawings = Rs.12,000 × 15/100 × 6.5/12 Interest on Drawings = Rs. 975

(A). Points for Students:- As per accounting viewpoint, partnership firms are treated as a separate business entity distinct from its partners. However, as per legal viewpoint, a partnership firm is not a separate legal entity. In other words, it has no existence separate from its partners. It means that in case of bankruptcy of the partnership firm, private estates of the partners would be liable to meet the firm’s debts.

Question 26.(B)

Solution 26 (B) (i) Calculation of Interest on Drawings:- Interest on Drawings = Rs.48,000 × 9/100 × 6.5/12 Interest on Drawings = Rs. 2,340 (ii) Calculation of Interest on Drawings:- Interest on Drawings = Rs.48,000 × 9/100 × 5.5/12 Interest on Drawings = Rs. 1,980 (iii) Calculation of Interest on Drawings:- Interest on Drawings = Rs.48,000 × 9/100 × 6/12 Interest on Drawings = Rs. 2,160

(B). Points for Students:- Average period should be used only when: (a) All amount of drawings are equal (b) The time gap between drawings is equal.

Question 27.

Solution 27 Case (i) Total Drawings for the year = Rs. 5,000 × 4 = Rs. 20,000 Period = 12 months + 3 months = 15 months Average Period = (15 months)/2 = 7.5 months Calculation of Interest on Drawings:- Interest on Drawings = Rs. 20,000 × 8/100 × 7.5/12 Interest on Drawings = Rs. 1,000

Case (ii) Total Drawings for the year = Rs. 6,000 × 4 = Rs. 24,000 Period = 12 months Average Period = (9 months)/2 = 4.5 months Calculation of Interest on Drawings:- Interest on Drawings = Rs. 24,000 × 8/100 × 4.5/12 Interest on Drawings = Rs. 720

Case (iii) Total Drawings for the year = Rs. 10,000 × 4 = Rs. 40,000 Period = 10.5 months + 1.5 months = 12 months Average Period = (12 months)/2 = 6 months Calculation of Interest on Drawings:- Interest on Drawings = Rs. 40,000 × 8/100 × 6/12 Interest on Drawings = Rs. 1,600

Points for Students:- When a partner makes monthly drawings, the Interest may be calculated as follows:- 1. When drawings are made in the beginning of every month. 2. When drawings are made at the end of every month. 3. When drawings are made in the middle or at any time during the month. 4. When drawings of equal amount are made in the beginning of each quarter. 5. When drawings of equal amount are made at the end of each quarter. 6. When drawings of equal amount are made in the during the middle of each quarter. 7. When drawings of equal amount are made only during a period of 6 months. 8. When drawings of equal amount are made during 9 months.

Question 28.

Solution 28 Case (i) Period = 12 months + 1 months = 13 months Average Period = (13 months)/2 = 6.5 months Calculation of Interest on Drawings:- Interest on Drawings = Rs. 48,000 × 9/100 × 6.5/12 Interest on Drawings = Rs. 2,340

Case (ii) Period = 11 months Average Period = (11 months)/2 = 5.5 months Calculation of Interest on Drawings:- Interest on Drawings = Rs. 60,000 × 9/100 × 5.5/12 Interest on Drawings = Rs. 2,475

Case (iii) Assuming that the drawings were made in the middle of every month:- Period = 11.5 months + 0.5 months = 12 months Average Period = (12 months)/2 = 6 months Calculation of Interest on Drawings:- Interest on Drawings = Rs. 72,000 × 9/100 × 6/12 Interest on Drawings = Rs. 3,240

Case (iv) Calculated for an average period of 6 months: Calculation of Interest on Drawings:- Interest on Drawings = Rs. 72,000 × 9/100 × 6/12 Interest on Drawings = Rs. 3,240

Calculation of Interest on Drawings:- Interest on Drawings = Rs. 4,01,000 × 9/100 × 1/12 Interest on Drawings = Rs. 3,008

Case (vi) Period = 12 months + 3 months = 15 months Average Period = (15 months)/2 = 7.5 months Total Drawings for the year = 12,000 × 4 = Rs. 48,000 Calculation of Interest on Drawings:- Interest on Drawings = Rs. 48,000 × 9/100 × 7.5/12 Interest on Drawings = Rs. 2,700

Case (vii) Period = 9 months Average Period = (9 months)/2 = 4.5 months Total Drawings for the year = 18,000 × 4 = Rs. 72,000 Calculation of Interest on Drawings:- Interest on Drawings = Rs. 72,000 × 9/100 × 4.5/12 Interest on Drawings = Rs. 2,430

Case (viii) Period = 10.5 months + 1.5 months = 12 months Average Period = (12 months)/2 = 6 months Total Drawings for the year = 18,000 × 4 = Rs. 72,000 Calculation of Interest on Drawings:- Interest on Drawings = Rs. 72,000 × 9/100 × 6/12 Interest on Drawings = Rs. 3,240

Points for Students:- Drawings against profits means drawings made out of profit earned by the firm during the year. Durings against capital means drawings made in excess of profit. Such drawings do not reduce the capital of the firm. Such drawings reduce the capital of the firm. It is not considered while calculating interest in capital. It is deducted from capital while calculating interest on capital.

Question 29.(A)

Solution 29 (A) Gupta drew Rs. 800 at the beginning of every month for the six months ending 30th September, 2018. Hence, his drawings for the period of six months would be: Period = 6 months + 1 months = 7 months Average Period = (7 months)/2 = 3.5 months Total Drawings for the year = 800 × 4 = Rs. 4,800 Calculation of Interest on Drawings:- Interest on Drawings = Rs. 4,800 × 15/100 × 3.5/12 Interest on Drawings = Rs. 210

Working Note:- Average Period = (Time left after first drawing + Time left after last drawing)/2 Average Period = (6 months + 1 months)/2 Average Period = (7 months)/2 Average Period = 3.5 months

Points for Students:- Under product method, first of all the products are computed by multiplying the each set of drawings from its duration. Thereafter, the different products are added and the interest is calculated on the total of products so arrived at for one month. The advantage of this system is that separate calculations are not required each time. Following formula is used for the calculation of interest under this method:-

Question 29. (B)

Solution 29 (B) Gupta withdraws Rs. 800 at the end of every month for the six months ending 30th September, 2013. Total drawings = 6 x Rs. 800 = Rs. 4,800 (Time left after first drawing + Time left after last drawing)/2 = (5 + 0)/2 = 2.5 months. Rs. 4,800 x 15/100 x 2.5/12 = Rs. 150

Points for Students:- Average period should be used only when: (c) All amount of drawings are equal (d) The time gap between drawings is equal.

Question 29. (C)

Solution 29 (C) Total Drawings of A = Rs. 15,000 x 6 = Rs. 90,000 Total Drawings of B = Rs. 20,000 x 6 = Rs. 1,20,000 Total Drawings of C = Rs. 25,000 x 6 = Rs. 1,50,000

(C). Points for Students:- Interest on drawings is to be charged from the partners, if the same is specifically provided in the partnership deed. If it is to be charged, it should be calculated from the date of the withdrawal of the amount. In the absence of the date of withdrawal, interest should be charged for six months on the whole of the amount because it will be assumed that the drawings were made evenly throughout the year.

Question 30. (A)

Solution 30 (A) Total Drawings = 9 × Rs. 10,000 = Rs. 90,000 Average Period = (9 months+1 month)/2 Average Period = 10/2 Average Period = 5 months Interest on drawings = Rs. 90,000 × 9/100 × 5/12 = Rs. 3,375

Question 30. (B)

Solution 30 (B) Total Drawings = 9 × Rs. 10,000 = Rs. 90,000 Average Period = (8 months+0 month)/2 Average Period = 8/2 Average Period = 4 months Interest on drawings = Rs. 90,000 × 9/100 × 4/12 = Rs. 2,700

Question 30. (C)

Solution 30 (C) Total Drawings = 9 × Rs. 10,000 = Rs. 90,000 Average Period = (8.5 months+0.5 month)/2 Average Period = 9/2 Average Period = 4.5 months Interest on drawings = Rs. 90,000 × 9/100 × 4.5/12 = Rs. 3,038

Points for Students:- When a partner makes monthly drawings, the Interest may be calculated as follows:- Drawings are made in the beginning of every month. Drawings are made at the end of every month. Drawings are made in the middle or at any time during the month. Drawings of equal amount are made in the beginning of each quarter. Drawings of equal amount are made at the end of each quarter. Drawings of equal amount are made in the during the middle of each quarter. Drawings of equal amount are made only during a period of 6 months. Drawings of equal amount are made during 9 months.

Question 31.

Solution 31 Case (i) Interest on Drawings = Rs. 60,000 × 8/100 × 6/12 Interest on Drawings = Rs. 2,400

Case (ii) Calculation for 12 months Interest on Drawings: Interest on Drawings = Rs. 60,000 × 8/100 Interest on Drawings = Rs. 4,800

Question 32.

Solution 32

Working Note:- Calculation of Interest on Drawings:- (i) Amit withdraw on the beginning of each month:- Interest on Drawings = 24,000 × 12/100 × 6.5/12 Interest on Drawings = Rs. 1,560

(ii) Namit withdraw on the end of each month:- Interest on Drawings = 24,000 × 12/100 × 5.5/12 Interest on Drawings = Rs. 1,320

(iii) Ruchi withdraw at the end of each quarter:- Average Period = (9 months + 0 months)/2 Average Period = 4.5 months Interest on Drawings = 24,000 × 12/100 × 4.5/12 Interest on Drawings = Rs. 1,080

Points for Students:- Original capitals invested by the partner remain constant, unless additional capital is introduced or drawings are made against capital by an agreement. In other words, capitals of the partners are not allowed to change during the life-time of business except in extraordinary circumstances. When a fixed capital method is adopted, all entries relating to drawings against profits, interest allowed on capitals, interest charged on drawings, salary to partner, share of profit or loss etc. are made in a newly-opened account for each partner. The account is called Current Account or Drawings Account.

Question 33.

Solution 33

Working Note:- 1.) Calculation of Interest on Capital:- Interest on Q’s Capital Rs. 5,00,000 for 9 months = Rs. 5,00,000 × 10/100 × 9/12 = Rs. 37,500 Rs. 3,80,000 for 3 months = Rs. 3,80,000 × 10/100 × 3/12 = Rs. 9,500

2.) Calculation of Interest on Drawings:- P’s Drawings = Rs. 10,000 × 12 = 1,20,000 Interest on P’s Drawings = 1,20,000 × 12/100 × 5.5/12 = Rs. 6,600 Interest on R’s Drawings = 1,20,000 × 12/100 × 6/12 = Rs. 7,200

Question 34.

Solution 34 Calculation of Interest on capitals:- A = Rs. 3,00,000 × 10/(100 ) = Rs. 30,000B = Rs. 2,00,000 × 10/(100 ) = Rs. 20,000 Calculation of Interest on Drawings:-

A’s Interest on Drawings = Total Products × 1/12 × (Rate of Interest)/100 A’s Interest on Drawings = Rs. 3,36,000 × 1/12 × (10 )/100 A’s Interest on Drawings = Rs. 2,800

B’s Interest Drawings:- Total Drawings = Rs. 6,000 × 12 = Rs. 72,000 B’s Interest on Drawings = Rs. 72,000 × 10/100 × (5.5 )/12 B’s Interest on Drawings = Rs. 3,300

Question 35.

Solution 35 Case (i)

Working Note:- In case of loss we cannot pay Interest on capital. Profit and Loss Appropriation (Distribution of Loss):- X’s Share = 6,000 × 2/3 = 4,000 Y’s Share = 6,000 × 1/3 = 2,000 Case (iii)

Working Note:- Calculation of Interest on Capital:- X’s Interest on Capital = 50,000 × 6% = 3,000 Y’s Interest on Capital = 30,000 × 6% = 1,800

Profit and Loss Appropriation (Distribution of Profit):- X’s Share = 4,200 × 2/3 = 2,800 Y’s Share = 4,200 × 1/3 = 1,400

Working Note:- The profit is Rs. 3,000 whereas Interest on capital is Rs. 4,800. So the expenses divided intheir expenses ratio which is 3,000 : 1,800 or 5 : 3 Calculation of Interest on Capital:- X’s Interest on Capital = 3,000 × 5/8 = 1,875 Y’s Interest on Capital = 3,000 × 3/8 = 1,125

Question 36.

Solution 36 Case (i)

Working Note:- Calculation of Interest on Capital:- A’s Interest on Capital = 4,00,000 × 8% = 32,000 B’s Interest on Capital = 3,00,000 × 8% = 24,000 The profit is Rs. 42,000 whereas Interest on capital is Rs. 56,000. So the expenses divided intheir expenses ratio which is 32,000 : 24,000 or 4 : 3 A’s Interest on Capital = Rs. 42,000 × 4/7 = Rs. 24,000 B’s Interest on Capital = Rs. 42,000 × 3/7 = Rs. 18,000

Points for Students:- Below are the adjustment are made: 1. When Interest on capitals or drawings may have been omitted. 2. When Profits and Losses have been distributed among the partners in a wrong proportion. 3. When profit sharing ratio has been altered with effect from some part date. 4. When salary or commission payable to a person has been omitted.

Question 37.

Solution 37

Working Note:- Calculation of Interest on Capital:- P’s Interest on Capital = 10,00,000 × 12% = 1,20,000 Q’s Interest on Capital = 6,00,000 × 12% = 72,000 Profit and Loss Appropriation (Distribution of Loss):- P’s Share = 42,000 × 3/4 = 31,500 Q’s Share = 42,000 × 1/4 = 10,500

Points for Students:- The accounts of the partnership firm have been closed after the financial year, it is discovered that there have been some errors or omissions in the accounts. In such cases, instead of altering the old accounts, the signed balance sheet and adjustment entry for such errors or omissions is made at the beginning of the next year.

Question 38.

Solution 38

                                              PROFIT AND LOSS APPROPRIATION ACCOUNT                                                      For the year ended 31st March, 2021

Working Note:- Calculation of Interest on Capital:- A’s Interest on Capital = 10,00,000 × 12% = 1,20,000 B’s Interest on Capital = 15,00,000 × 12% = 1,80,000 The profit is Rs. 2,00,000 whereas Interest on capital is Rs. 3,00,000. So the expenses divided intheir expenses ratio which is 1,20,000 : 1,80,000 or 2 : 3 A’s Interest on Capital = Rs. 2,00,000 × 2/5 = Rs. 80,000 B’s Interest on Capital = Rs. 2,00,000 × 3/5 = Rs. 1,20,000

Question 39.

Solution 39 Case (i)

Working Note:- Profit and Loss Appropriation:- Kavita’s Share = 30,000 × 2/3 = 20,000 Leela’s Share = 30,000 × 1/3 = 10,000

Points for Students:- As per accounting viewpoint, partnership firm is treated as a separate business entity distinct from its partners. However, as per legal viewpoint, a partnership firm is not a separate legal entity. In other words, it has no existence separate from its partners. It means that in case of bankruptcy of the partnership firm, private estates of the partners would be liable to meet the firm’s debts.

Question 40.

Solution 40

Working Note:- Calculation of Drawings: Lalan’s Interest on Drawings = Rs. 3,000 × 15/100 × 6/12 = Rs. 225 Balan’s Interest on Drawings = Rs. 5,000 × 15/100 × 6/12 = Rs. 375

Question 41.

Solution 41 Calculation of Capital:- X’s Capital

Total Capital of X = Rs. 9,00,000 Y’s Capital

Total Capital of Y = Rs. 9,00,000 Y’s Capital

Total Capital of Y = Rs. 12,00,000 Calculation of Capital Ratio:- 9,00,000 : 9,00,000 : 12,00,000 9 : 9 : 12 3 : 3 : 4

Question 42.

Solution 42

Working Note:- Calculation of Interest on Capital:- A’s Interest on Capital = Rs. 8,00,000 × 8% = Rs. 64,000 B’s Interest on Capital = Rs. 4,00,000 × 8% = Rs. 32,000 C’s Interest on Capital = Rs. 3,00,000 × 8% = Rs. 24,000

Interest on capita is a expense for the firm but this is omitted recorded on the debit side of Profit and loss appropriation a/c of the previous year. Hence, this is loss of Rs. 1,20,000 will be shared the partners in their profit sharing ratio 2:1:1. A = Rs. 1,20,000 × 2/4 = Rs. 60,000 B = Rs. 1,20,000 × 1/4 = Rs. 30,000 C = Rs. 1,20,000 × 1/4 = Rs. 30,000

Question 43.

Solution 43

Working Note:- Calculation of Profit:- A = Rs. 9,00,000 × 2/6 = Rs. 3,00,000 B = Rs. 9,00,000 × 2/6 = Rs. 3,00,000 C = Rs. 9,00,000 × 1/6 = Rs. 1,50,000 D = Rs. 9,00,000 × 1/6 = Rs. 1,50,000 A’s Salary = Rs. 15,000 × 12 = 1,80,000 B’s Salary = Rs. 30,000 × 4 = 1,20,000 D’s Salary = Rs. 30,000 × 4 = 1,20,000 Remaining Profit = Rs. 9,00,000 – Rs. 1,80,000 – Rs. 1,20,00 – Rs. 1,20,000 Remaining Profit = Rs. 4,80,000

Calculation of Profit after the adjustment of Salary:- A = Rs. 4,80,000 × 2/6 = Rs. 1,60,000 B = Rs. 4,80,000 × 2/6 = Rs. 1,60,000 C = Rs. 4,80,000 × 1/6 = Rs. 80,000 D = Rs. 4,80,000 × 1/6 = Rs. 80,000

Question 44.

Solution 44

Working Note:- Calculation of Interest on Capital:- A = Rs. 4,00,000 × 8% × 2 = Rs. 64,000 B = Rs. 6,00,000 × 8% × 2 = Rs. 96,000 C = Rs. 8,00,000 × 8% × 2 = Rs. 1,28,000 Total Expenses = Rs. 64,000 + Rs. 96,000 + Rs. 1,28,000 = Rs. 2,88,000 Interest on capital is the expense for the firm. Hence we should divide it in the given ratio. A = Rs. 2,88,000 × 1/6 = Rs. 48,000 B = Rs. 2,88,000 × 2/6 = Rs. 96,000 C = Rs. 2,88,000 × 3/6 = Rs. 1,44,000

Question 45.

Solution 45

Working Note:- Calculation of Interest on Capital:-

Distribution of Profit:- A’s Profit = Rs. 18,000 × 5/9 = Rs. 10,000 B’s Profit = Rs. 18,000 × 3/9 = Rs. 6,000 C’s Profit = Rs. 18,000 × 1/9 = Rs. 2,000

Question 46.

Solution 46

Working Note:- Calculation of Interest on Drawings:- A = Rs. 20,000 × 6% × 6/12 = Rs. 600 B = Rs. 24,000 × 6% × 6/12 = Rs. 720 C = Rs. 32,000 × 6% × 6/12 = Rs. 960 D = Rs. 44,000 × 6% × 6/12 = Rs. 1320

Question 47.

Solution 47

Working Note:- A’s Drawings = Rs. 50,000 × 12 = Rs. 6,00,000 Interest on Drawings:- Rs. 6,00,000 × 12/100 × 6.5/12 = Rs. 39,000

Question 48.

Solution 48

Question 49.

Solution 49

Question 50.(A)

Solution 50 (A)

Question 50. (B)

Solution 50 (B)

Points for Students:- The accounts of the partnership firm have been closed after the financial year, it is discovered that there have been some errors or omissions in the accounts. In such cases, instead of altering the old accounts and the signed balance sheet and adjustment entry for such errors or omissions is made at the beginning of the next year. Usually the following types of adjustments are made: (1) When Interest on Capital or Drawings may have been omitted. (2) When Profits and Losses have been distributed among the partners in a wrong proportion. (3) When profit sharing ratio has been altered with effect from some past date. (4) When salary or commission payable to person has been omitted.

Question 51.

Solution 51

Question 52.

Solution 52

Question 53.

Solution 53

Points for Students:- The Limited Liability Partnerships (LLPs) in India came into existence with the enactment of ‘Limited Liability Partnership Act, 2008’ which lay down the law for the formation and regulation of Limited Liability Partnerships.

Question 54.

Solution 54

Points for Students:- When the partnership agreement is silent about the interest on capital:- No interest will be allowed on capital.

Question 55.

Solution 55

Question 56.

Solution 56

Question 57.

Solution 57

Question 58.

Solution 58

Question 59.

Solution 59

Points for Students:- Sometimes a partner is guaranteed that he shall get a certain minimum amount of profit of the firm. Such a guarantee may be given either by firstly any one of the partners, or second by all other partners in a particular ratio. When the profits of the firm are not adequate then the ‘excess’ paid to the guaranteed partner should be charged to the partner who has given guarantee.

Question 60.

Solution 60

Points for Students:- When profit sharing ratio differs from capital ratio, the partners who contribute capital in excess of what is required as per profit sharing ratio need to be compensated. Interest in capital compensates those partners who have contributed relatively more amount of capital.

Question 61.(A)

Solution 61 (A)

(A).Points for Students:- When the capitals need not be fixed, the balances of capital accounts go on changing from time to time. The reason is that no separate Current Accounts are maintained, but all the entries relating to drawings, interest on capitals, interest on drawings, salary to partner, share of profit or loss etc., are recorded in the capital account itself.

Question 61. (B)

Solution 61 (B)

(B). Points for Students:- Profit and loss appropriation account prepared just after the Profit and Loss Account. Hence, it is an extension of Profit and Loss Account. It is prepared only by partnership firms. It is a nominal account. It shows how the net profit for the accounting period is appropriated among the partners. Entries in this account are made giving effect to the Partnership Deed and the Indian Partnership Act, 1932.

Question 61. (C)

Solution 61 (C)

Question 62.

Solution 62 Case (i)

Question 63 (new).

Solution 63 (new). Calculation of Partner’s Capital:- A’s Interest on Capital = 3,70,000 × 8/100 = Rs. 29,600 B’s Interest on Capital = 2,45,000 × 8/100 = Rs. 19,600 C’s Interest on Capital = 1,45,000 × 8/100 = Rs. 11,600

Question 63.

Solution 63

Working Note:- Calculation of Interest on Capital:- Esha’s Interest on Capital = Rs. 3,23,000 × 10% = 32,300 Manav’s Interest on Capital = Rs. 2,58,000 × 10% = 25,800 Daman’s Interest on Capital = Rs. 2,05,000 × 10% = 20,500 Total Interest on Capital = Rs. 32,300 + Rs. 25,800 + Rs. 20,500 = Rs. 78,600

Calculation of Interest on Drawings:- Esha and Manav each withdrew a sum of Rs. 48,000 in middle of the every month. = Rs. 48,000 × 5/100 × 6/12 = Rs. 1,200 Daman’s Interest on Drawings = Rs. 60,000 × 5/100 × 6/12 = Rs. 1,500

Points for Students:- When the partnership agreement provides for interest on capital but is silent in treating interest as a charge or appropriation. Interest on capital will be allowed only when there is a profit. In case of loss no interest will be allowed on capital.

Question 64.

Solution 64

Question 65.

Solution 65

Question 66.

Solution 66

Question 67.

Solution 67

Calculation Interest on capital:- A’s Interest on Capital = Rs. 96,000 × 5% = Rs. 4,800 B’s Interest on Capital = Rs. 70,000 × 5% = Rs. 3,500

Question 68.

Solution 68

Calculation of Interest on Capital:- P’s Interest on Capital = Rs. 1,88,000 × 10% = Rs. 18,800 Q’s Interest on Capital = Rs. 1,38,000 × 10% = Rs. 13,800 R’s Interest on Capital = Rs. 94,000 × 10% = Rs. 9,400

Question 69. (A)

Solution 69 (A)

                                                                  Profit & Loss Appropriation Account                                                                   For the year ending 31st March, 2020

Working Note:- Calculation of Share of Profit in 2015:- A’s Share of Profit = Rs. 30,000 × 3/6 = Rs. 15,000 B’s Share of Profit = Rs. 30,000 × 2/6 = Rs. 10,000 C’s Share of Profit = Rs. 30,000 × 1/6 = Rs. 5,000 Calculation of Share of Profit in 2016:- A’s Share of Profit = Rs. 90,000 × 3/6 = Rs. 45,000 B’s Share of Profit = Rs. 90,000 × 2/6 = Rs. 30,000 C’s Share of Profit = Rs. 90,000 × 1/6 = Rs. 15,000

Question 69.(B)

Solution 69 (B)

Working Note:- Calculation of Interest on capital:- X’s Interest on capital = Rs. 4,00,000 × 8% = Rs. 32,000 Y’s Interest on capital = Rs. 3,00,000 × 8% = Rs. 24,000 Z’s Interest on capital = Rs. 2,00,000 × 8% = Rs. 16,000

Calculation of Share of Profit in 2015:- X’s Share of Profit = Rs. 1,80,000 × 3/6 = Rs. 90,000 – Rs. 20,000 = Rs. 70,000 Y’s Share of Profit = Rs. 1,80,000 × 2/6 = Rs. 60,000 Z’s Share of Profit = Rs. 1,80,000 × 1/6 = Rs. 30,000 + Rs. 20,000 = Rs. 50,000

Question 70.

Solution 70

Working Note:- Calculation Profit Distribution:- S’s Share of Profit = Rs. 6,50,000 × 4/10 = Rs. 2,60,000 T’s Share of Profit = Rs. 6,50,000 × 3/10 = Rs. 1,95,000 W’s Share of Profit = Rs. 6,50,000 × 2/10 = Rs. 1,30,000 X’s Share of Profit = Rs. 6,50,000 × 1/10 = Rs. 65,000

Share of X’s Profit in Total profit is Rs. 65,000 whereas the minimum guarantee amount is Rs. 80,000. Hence, the deficiency of Rs. 15,000 will be cover S, T, W equally.

S’s Share of Profit = Rs. 2,60,000 – Rs. 5,000 = Rs. 2,55,000 T’s Share of Profit = Rs. 1,95,000 – Rs. 5,000 = Rs. 1,90,000 W’s Share of Profit = Rs. 1,30,000 – Rs. 5,000 = Rs. 1,25,000 X’s Share of Profit = Rs. 65,000 + Rs. 5,000 + Rs. 5,000 + Rs. 5,000 = Rs. 80,000

Question 71.

Solution 71

Working Note:- Calculation Profit Distribution:- Vandana’s Share of Profit = Rs. 9,00,000 × 1/8 = Rs. 1,12,500 Profit for Vivek and Vikas = Rs. 9,00,000 – Rs. 1,12,500 = Rs. 7,87,500 Vikas’s Share of Profit = Rs. 7,87,500 × 3/5 = Rs. 4,72,500 Vivek’s Share of Profit = Rs. 7,87,500 × 2/5 = Rs. 3,15,000 Vandana’s deficiency = Rs. 1,50,000 – Rs. 1,12,500 = Rs. 37,500. Deficiency will be contributed Vikas and Vivek in the ratio 2:3. Vikas’s Contribution = Rs. 4,72,500 – Rs. 15,000 = Rs. 4,57,500 Vivek’s Contribution = Rs. 3,15,000 – Rs. 22,500 = 2,92,500

Question 72.

Solution 72

Working Note:- Calculation of Interest on Drawings:- A’s Interest on Drawings = Rs. 60,000 × 5.5/12 × 10/100 = Rs. 2,750 B’s Interest on Drawings = Rs. 60,000 × 4.5/12 × 10/100 = Rs. 2,250 C’s Interest on Drawings = Rs. 60,000 × 6/12 × 10/100 = Rs. 3,000

Calculation of Profit:- Net Profit = 4,32,000 + 8,000 – Rs. 80,000 = Rs. 3,60,000 A’s Share of Profit = Rs. 3,60,000 × 3/6 = Rs. 1,80,000 – Rs. 40,000 = Rs. 1,20,000 B’s Share of Profit = Rs. 3,60,000 × 2/6 = Rs. 1,20,000 C’s Share of Profit = Rs. 3,60,000 × 1/6 = Rs. 60,000 + Rs. 40,000 = Rs. 1,00,000 C’s deficiency = Rs. 1,00,000 – Rs. 60,000 = Rs. 40,000. Deficiency will be contributed A.

Question 73.

Solution 73

Working Note:- Calculation of Interest on Drawings:- A’s Interest on Drawings = Rs. 60,000 × 10/100 × 6.5/12 = Rs. 3,250 B’s Interest on Drawings = Rs. 60,000 × 10/100 × 5.5/12 = Rs. 2,750 C’s Interest on Drawings = Rs. 60,000 × 10/100 × 7.5/12 = Rs. 6,000

Question 74.

Solution 74

Question 75.

Solution 75

Working Note:- Z’s Share of Loss = Rs. 1,20,000 × 1/4 = Rs. 30,000 Remaining Profit = Rs. 1,20,000 – Rs. 30,000 = Rs. 90,000 X’s Share of Loss = Rs. 90,000 × 2/5 = Rs. 60,000 Y’s Share of Loss = Rs. 90,000 × 3/5 = Rs. 30,000 Z’s guaranteed minimum profit of Rs. 1,00,000. Total loss of Z = Rs. 1,00,000 + Rs. 30,000 = Rs. 1,30,000. Which is distributed X and Y in the ratio of 3:2.

Question 76.

Solution 76

                                                    Profit & Loss Account                                           For the year ending 31 st  March, 2021

Working Note:- A’s Share of Loss = Rs. 90,000 × 4/9 = Rs. 40,000 B’s Share of Loss = Rs. 90,000 × 3/9 = Rs. 30,000 C’s Share of Loss = Rs. 90,000 × 2/9 = Rs. 20,000 B’s guaranteed minimum profit of Rs. 1,50,000. Total loss of Z = Rs. 1,50,000 + Rs. 30,000 = Rs. 1,80,000. Which is paid A and C in the ratio of 4:2. A’s Share B = Rs. 1,80,000 × 4/6 = Rs. 1,20,000 A’s Share B = Rs. 1,80,000 × 2/6 = Rs. 60,000

Question 77 (new).

Solution 77 (new). 

Working Note: 1. Calculation of interest on drawings:- Drawings of Sonu = Rs. 20,000 Interest on Sonu’s drawings = Rs. 20,000 × 6/100 × 4/12 Interest on Sonu’s drawings = Rs. 400

Drawings of Rajat = 12 × Rs. 5,000 = Rs. 60,000 Interest on Rajat’s drawings = Rs. 60,000 × 6/100 × 5.5/12 Interest on Rajat’s drawings = Rs. 1,650

Question 77.

Solution 77

Working Note:- Calculation of Profit:

Sajoo’s Share of Profit = Rs. 57,000 × 1/8 = Rs. 7,125 Excess received Sajoo as a partner = Rs. 7,125 – Rs. 5,000 = Rs. 2,125

Calculation of Profit Distribution: Ajoo’s Share of Profit = Rs. 52,000 × 4/5 = Rs. 41,600 Less: Excess of Sajoo will paid Ajoo = Rs. 41,600 – Rs. 2,125 = Rs. 39,475 Bajoo’s Share of Profit = Rs. 52,000 × 1/5 = Rs. 10,400

Question 78.

Solution 78

R’s Share of Profit = Rs. 4,05,000 × 1/6 = Rs. 67,500 Excess received R as a partner = Rs. 67,500 – Rs. 55,000 = Rs. 12,500 Excess amount will be deducted from P = Rs. 12,500 × 3/5 = Rs. 7,500 Excess amount will be deducted from Q = Rs. 12,500 × 2/5 = Rs. 5,000

Calculation of Profit Distribution: P’s Share of Profit = Rs. 3,50,000 × 4/7 = Rs. 2,00,000 Less: Excess of R will paid P = Rs. 2,00,000 – Rs. 7,500 = Rs. 1,92,500 Q’s Share of Profit = Rs. 3,50,000 × 3/7 = Rs. 1,50,000 Less: Excess of R will paid P = Rs. 1,50,000 – Rs. 5,000 = Rs. 1,45,000

Question 79.

Solution 79

Working Note:- Net Profit = Rs. 4,00,000 – Rs. 36,000 = Rs. 3,64,000 Calculation of Interest on Drawings:- Asif’s Interest on Drawings = Rs. 60,000 × 4/100 × 6.5/12 = Rs. 1,300 Ravi’s Interest on Drawings = Rs. 60,000 × 4/100 × 6.5/12 = Rs. 1,300 Calculation of Commission = Rs. 3,64,000 × 5% = Rs. 18,200

Question 80.

Solution 80

Working Note:- 1.) Calculation of Interest on Drawings:- Drawings are made at the beginning of each quarter, interest will be charged for 7.5 months = 24,000 × 12/100 × 7.5/12 = Rs. 1,800 2.) Interest on Loan will be allowed @ 6% = Rs. 1,50,000 × 6/100 × 3/12 = Rs. 2,250

Question 81.

Solution 81

                                                 Profit & Loss Appropriation Account                                                  For the year ending 31st March, 2021

Working Note:- Calculation of Profit Distribution:- D’s Profit Share = Rs. 38,900 × 5/20 = Rs. 9,725 E’s Profit Share = Rs. 38,900 × 7/20 = Rs. 13,615 F’s Profit Share = Rs. 38,900 × 8/20 = Rs. 15,560

Question 82.

Solution 82

                                                    Profit & Loss Appropriation Account                                                    For the year ending 31st March, 2021

Question 83.

Solution 83

                                        Profit & Loss Appropriation Account                                        For the year ending 31st March, 2021

Question 84.

Solution 84

Working Note:- Profit after interest on capital and Salary:- Rs. 2,70,000 – Rs. 24,000 – Rs. 60,000 = Rs. 1,86,000

Question 85.

Solution 85

Question 86.

Solution 86

Question 87.

Solution 87 Calculation of Commission:- Before charging such commission A’s Commission = Rs. 55,000 × 10/100 = Rs. 5,500 After charging A’s commission and his commission Rs. 55,000 – Rs. 5,500 = Rs. 49,500 B’s Commission = Rs. 49,500 × 10/110 = Rs. 4,500

Question 88.

Solution 88

Working Note:- Calculation of Net Profit = Rs. 40,000 – Rs. 4,000 = Rs. 36,000 Calculation of Interest on Capital:- From 01-Apr.-2017 30-June-2017 A’s Interest on Capital = Rs. 1,00,000 × 8/100 × 3/12 = Rs. 2,000 B’s Interest on Capital = Rs. 40,000 × 8/100 × 3/12 = Rs. 800 From 01-July-2017 31-Mar.- 2017 A’s Interest on Capital = Rs. 80,000 × 8/100 × 9/12 = Rs. 4,800 B’s Interest on Capital = Rs. 50,000 × 8/100 × 9/12 = Rs. 3,000

Question 89.

Solution 89

Question 90.

Solution 90 Case (a) Drawings during the year were Rs. 60,000 = Rs. 60,000 × 8/100 × 6/12 = Rs. 2,400 Case (b) If he withdrew Rs. 5,000 p.m. in the beginning of every month = Rs. 60,000 × 8/100 × 6.5/12 = Rs. 2,600 Case (c) If he withdrew 5,000 p.m. at the end of every month = Rs. 60,000 × 8/100 × 5.5/12 = Rs. 2,200 Case (d) If he withdrew 35,000 p.m. during the year = Rs. 60,000 × 8/100 × 6/12 = Rs. 2,400 Case (e)

Interest on Drawings = Total of Products × rate of interest × 1/12 Interest on Drawings = 3,21,000 × 8/100 × 1/12 Interest on Drawings = Rs. 2,140

Question 91.

Solution 91 Total Drawings = Drawing Amount × Number of quarter in a year Total Drawings = Rs. 10,000 × 4 Total Drawings = Rs. 40,000 Average Period = (12 months + 3 months)/2 = 15/2 = 7.5 months Interest on Drawings = Rs. 40,000 × 9/100 × 7.5/12 = Rs. 2,250

Question 92.

Solution 92 Total Drawings = Drawing Amount × Number of quarter in a year Total Drawings = Rs. 10,000 × 4 Total Drawings = Rs. 40,000 Average Period = (9 months + 0 months)/2 = 9/2 = 4.5 months Interest on Drawings = Rs. 40,000 × 9/100 × 4.5/12 = Rs. 1,350

Points for Students:- Expenses paid to a partner is also treated as interest on partner’s loan, rent paid to a partner is also treated as a charge against profit and not an appropriation out of profit and hence it should be debited to Profit and Loss account and not to Profit and Loss Appropriation Account and Credited to partner’s Current Account in case of fixed capital system or to Partner’s Capital Account when Capitals are fluctuating.

Question 93.

Solution 93 Total Drawings = Drawing Amount × Number of quarter in a year Total Drawings = Rs. 10,000 × 4 Total Drawings = Rs. 40,000 Average Period = (10.5 months + 1.5 months)/2 = 12/2 = 6 months Interest on Drawings = Rs. 40,000 × 9/100 × 7.5/12 = Rs. 1,800

Question 94.

Solution 94 Total Drawings = Drawing Amount × Number of month Total Drawings = Rs. 4,000 × 6 Total Drawings = Rs. 24,000 Average Period = (6 months + 1 months)/2 = 7/2 = 3.5 months Interest on Drawings = Rs. 24,000 × 9/100 × 3.5/12 = Rs. 630

Question 95.

Solution 95 Total Drawings = Drawing Amount × Number of months Total Drawings = Rs. 4,000 × 6 Total Drawings = Rs. 24,000 Average Period = (5 months + 0 months)/2 = 5/2 = 2.5 months Interest on Drawings = Rs. 24,000 × 9/100 × 2.5/12 = Rs. 450

Question 96.

Solution 96 Total Drawings = Drawing Amount × Number of months Total Drawings = Rs. 4,000 × 6 Total Drawings = Rs. 24,000 Average Period = (5.5 months + 0.5 months)/2 = 6/2 = 3 months Interest on Drawings = Rs. 24,000 × 9/100 × 3/12 = Rs. 540

Question 97.

The rate of interest on Drawings is 6% p.a. Profit for the year ended 31st March, 2018 was Rs. 24,605 before charging salary, interest on Capital and Drawings. Assuming that the Capital are (a) Fixed, (b) Floating, show the Partner’s Capital Accounts Current Account and Profit and Loss Appropriation Account. Solution 97

Working Note:- Calculation of Interest on Drawings:- A’s Interest on Drawings:-

Interest on Drawings = Rs. 28,000 × 6/100 × 1/12 = Rs. 140 B’s Interest on Drawings:-

Interest on Drawings = Rs. 33,000 × 6/100 × 1/12 = Rs. 165 C’s Interest on Drawings:-

Interest on Drawings = Rs. 18,000 × 6/100 × 1/12 = Rs. 90

Question 98.

Solution 98 Case (i) If Partnership deed is silent as the treatment of interest as a charge or appropriation

                                                             Profit & Loss Appropriation Account                                                              For the year ending 31st March, 2021

Working Note:- Calculation of Interest on Capital:- X’s Interest on Capital = Rs. 60,000 × 3/6 = Rs. 30,000 Y’s Interest on Capital = Rs. 60,000 × 2/6 = Rs. 20,000 Z’s Interest on Capital = Rs. 60,000 × 1/6 = Rs. 10,000

Case (ii) Partnership deed provides for interest even if it involves the firm in loss.

                                                        Profit & Loss Appropriation Account                                                         For the year ending 31st March, 2021

Question 99.

Solution 99

                                                        Profit & Loss Account                                             For the year ending 31st March, 2021

Working Note:- Calculation of Interest on Drawings:- Arun = Rs. 2,000 × 15/100 × 6/12 = Rs. 150 Arora = Rs. 4,000 × 15/100 × 6/12 = Rs. 300

Question 100.

Solution 100

Question 101.

Solution 101

Question 102 (new).

Solution 102 (new)

Question 102.

Solution 102

Question 103.

Solution 103

Question 104.

Solution 104 Interest on Opening Capital:- A’s Interest on Capital = Rs. 5,60,000 × 12/100 = Rs. 67,200 B’s Interest on Capital = Rs. 4,00,000 × 12/100 = Rs. 48,000

Question 105.

Solution 105

Working Note:- Profit = 2,00,000 + Rs. 3,50,000 + Rs. 3,50,000 + Rs. 4,75,000 + Rs. 5,25,000 = Rs. 15,50,000

A partnership agreement is a signed contract between two individuals issued during the starting of a profitable business. The partnership agreement defines that both the owners of the company are equally responsible for the profits or losses of the firm. Even if an individual retires or exits from the partnership, he/she will hold the complete liability of the existing debts. This document basically covers all the rights and responsibilities of the partners in a business.

A partnership agreement is a key component of preventing any loophole in a business. It helps the firms to overcome any sort of confusion or sudden modifications in terms of partnership within the firm. Here are some other prominent reasons why a partnership agreement is important – ● It defines the role and responsibilities of the partners within a firm. ● It prevents any liability or tax issues between the partners. ● It helps in handling any circumstance or lifestyle changes of any partner

Here are the salient features of partnership – Two or More Persons – There must be at least two persons to draft a partnership contract. The partnership Act, 1932 does not pass a hard and fast rule about the maximum limit of the partners. However, the 1956 Company Act states that any partnership comprising 20 partners in any business is illegal, provided it is not a joint-stock company. Agreement – A partnership is officially defined by an agreement between two persons of a company, entering into a contract. The contact may be written or oral. Lawful Business – Under the partnership agreement, the partners can take up any legal activities. Any illegal activity is not entertained by the authorities.

A partnership deed can be termed as a partnership record that casts a light on the rights and responsibilities of all the partners within a business. It possesses a touch of law and is framed to help the partners understand and run the business more smoothly.

A partnership deed is crafted as an outcome of an agreement between the partners of a firm. The agreement may be oral or written as there is no mandatory rule that it needs to be in writing. It constitutes all the attributes of a firm, defining the partnership, the firm’s aim of trade, the contribution of capital by each partner, and much more.

Here are the important contents for a general partnership deed – Name of the firm, Name, and details of each partner, Firm’s existence duration, Profit sharing ratio, Salary to be paid to each partner, etc.

Also refer to TS Grewal Solutions for Class 12

• TS Grewal Solutions
• TS Grewal Solutions for Class 12 Accountancy
• Chapter 2- Accounting for Partnership Firms- Fundamentals

TS Grewal Solutions for Class 12 Accountancy Chapter 2- Accounting for Partnership Firms- Fundamentals

Ts grewal solutions class 12 accountancy vol 1 chapter 2:.

TS Grewal Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Firms- Fundamentals is considered to be an important concept to be learnt thoroughly by the students. Here, we have provided TS Grewal Accountancy solutions for Class 12.

This Chapter 2 Accounting for Partnership Firms- Fundamentals explains the below-mentioned concepts:

• Partnership Deed
• Special aspects of partnership accounts
• Maintenance of capital accounts of partners
• Past Adjustments
• Final Accounts

Class 12 TS Grewal Solutions Accountancy Vol 1 Chapter 2:-

In the absence of Partnership Deed, what are the rules related to :

(a) Salaries of partners,

(b) Interest on partners’ capitals

(c) Interest on partners’ loan

(d) Division of profit, and

(e) Interest on partners’ drawings

The rules are

(a) Partners will not be allowed any salary

(b) On partner’s capital, no interest will be allowed

(c) Only 6% interest in Partner’s Loan

(d) Profit distribution to be done in equal ratio

(e) In partner’s drawings, no Interest will be charged

Following differences have arisen among P, Q and R. State who is correct in each case:

(a) P used ₹ 20,000 belonging to the firm and made a profit of ₹ 5,000. Q and R want the amount to be given to the firm?

(b) Q used ₹ 5,000 belonging to the firm and suffered a loss of ₹ 1000. He wants the firm to bear the loss?

(c) P and Q want to purchase goods from A Ltd., R does not agree?

(d) Q and R want to admit C as a partner, P does not agree?

(a) P will pay ₹20,000 along with ₹ 5,000 profit to the company as the money belongs to the company. It is because of the relation between the principal and agent. Here, P is both the principal and the agent to Q and R and the firm. According to the Partnership Act rules, if an agent makes a profit made by utilising the firm’s assets is due to the company.

(b) Q has to pay the firm ₹ 5,000. The Partnership Act, 1932, all the partnership firm partners’ are liable for all the losses made by their negligence. In this scenario, Q is liable for the loss as he has utilized the company’s property and portrayed himself as a principal and not an agent to the firm and other partners.

(c) A partner can purchase and trade products without discussing with the other partners. The discussion happens only if a partner has some restriction to purchase and trade firm properties and a public notice is issued.

(d) In this scenario, C will not be included in the firm as P, has disagreed to admit C. The Act says, a new partner will not get admission to a firm if the existing partners disagree for his/her admission.

A, B and C are partners in a firm. They do not have a Partnership Deed. At the end of the first year of the commencement of the firm, they have faced the following problems :

(a) A wants that interest on capital should be allowed to the partners but B and C do not agree.

(b) B wants that the partners should be allowed to draw a salary but A and C do not agree.

(c) C wants that the loan given by him to the firm should bear interest @ 10% p.a. but A and B do not agree.

(d) A and B having contributed larger amounts of capital, desire that the profits should be divided in the ratio of their capital contribution but C does not agree.

State how you will settle these disputes if the partners approach you for purpose.

Jaspal and Rosy were partners with a capital contribution of ₹ 10,00,000 and ₹ 5,00,000, respectively. They do not have a Partnership Deed. Jaspal wants that profits of the firm should be shared in their capital ratio. Rosy convinced Jaspal that profits should be shared equally. Explain how Rosy would have convinced Jaspal for sharing the profit equally.

In any partnership firm when there is no partnership deed, then the rule of the Indian Partnership Act of 1932 applies. In the act, when the agreement is not signed then the profit should be distributed equally to all the partners.

In this scenario, Jaspal’s point of view does not align with the partnership Act rule and therefore, Rosy would have convinced her by explaining her the Partnership Act, 1932 provisions.

Harshad and Dhiman have been in partnership since 1st April, 2018. No partnership agreement was made. They contributed ₹ 4,00,000 and ₹ 1,00,000 respectively as capital. In addition, Harshad advanced an amount of ₹ 1,00,000 to the firm on 1st October, 2018. Due to long illness, Harshad could not participate in business activities from 1st August, 2018 to 30th September, 2018. Profit for the year ended 31st March, 2019 was ₹ 1,80,000. The dispute has arisen between Harshad and Dhiman.

Harshad Claims :

(i) He should be given interest @ 10% per annum on capital and loan;

(ii) Profit should be distributed in the ratio of capital;

Dhiman Claims :

(i) Profit should be distributed equally;

(ii) He should be allowed ₹ 2,000 p.m. as remuneration for the period he managed the business in the absence of Harshad;

(iii) Interest on Capital and loan should be allowed @ 6% p.a.

You are required to settle the dispute between Harshad and Dhiman. Also, prepare Profit and Loss Appropriation Account.

Harshad Declaration:

(i) According to Indian partnership act 1932, in the absence of agreement, only 6% of interest is allowed on a partner’s loan and no interest will be incurred in partner’s capital..

(ii) As per the partnership act 1932, in the absence of agreement profit will be shared equally.

Dhiman Claims:

(i) True, according to partnership act 1932, if no agreement is signed between the partners the profit will be equally distributed.

(ii) No partners are entitled to any sort of salary or remuneration when there is no agreement.

(iii) Here, if there is no agreement between the partners only 6% will be allowed to partner’s loan and no interest in a partner’s capital.

Profit Distribution:

A and B are partners from 1st April 2018, without a Partnership Deed and they introduced capitals of ₹ 35,000 and ₹ 20,000 respectively. On 1st October 2018, A advanced loan of ₹ 8,000 to the firm without any agreement as to interest. The profit and Loss Account for the year ended 31st March 2019 shows a profit of ₹ 15,000 but the partners cannot agree on payment of interest and on the basis of division of profits.

You are required to divide the profits between them giving reasons for your method.

Working Notes 1: Loan interest Evaluation

Loan interest to be provided @ 6% p.a.

Loan Amount = ₹ 8,000

Time (from 1st October to 31st March) = 6 months

A’s loan interest = 8,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 240

Working Notes 1: Profit Share of Partner Evaluation

Equal distribution of profit

Profit after A’s loan Interest = ₹ 15,000 − ₹ 240 = ₹ 14,760

Therefore, A and B profit-sharing = 14,760 X \(\begin{array}{l}\frac{1}{2}\end{array} \) = ₹7,380

A and B are partners in a firm sharing profits in the ratio of 3: 2. They had advanced to the firm a sum of ₹ 30,000 as a loan in their profit-sharing ratio on 1st October, 2017. The Partnership Deed is silent on interest on loans from partners. Compute interest payable by the firm to the partners, assuming the firm closes its books every year on 31st March.

The total advanced amount given by the partners = ₹ 30,000

Profit-sharing ratio = 3:2

A’s advance = 30,000 X \(\begin{array}{l}\frac{3}{5}\end{array} \) = ₹18,000

B’s advance = 30,000 X \(\begin{array}{l}\frac{2}{5}\end{array} \) = ₹12,000

Duration (from 1st October, 2017 to 31st March, 2018) = 6 months

Rate of Interest = 6% p.a.

Interest incurred on Advances Evaluation

A’s advance interest = 18,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 540

B’s advance interest = 12,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 360

Note: Because there is no partnership agreement only 6% of the interest rate is allowed on the loan.

X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals ₹ 2,00,000 and ₹ 3,00,000, respectively. On 1st October, 2018, X and Y gave loans of ₹ 80,000 and ₹ 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2019 in each of the following alternative cases:

Case 1: If the profits before interest for the year amounted to ₹ 21,000.

Case 2: If the profits before interest for the year amounted to ₹ 3,000.

Case 3: If the profits before interest for the year amounted to ₹ 5,000.

Case 4: If the loss before interest for the year amounted to ₹ 1,400.

Loan Interest Evaluation

X’s loan interest for six months = 80,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 2,400

Y’s loan interest for six months = 40,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 1,200

Case 1- Profits without the interest = ₹ 21,000

Case 2 – Profits before interest ₹ 3,000

Case 3- Profits before interest ₹ 5,000

Case 4- Loss before interest ₹ 1,400

Bat and Ball are partners sharing the profits in the ratio of 2 : 3 with capitals of ₹ 1,20,000 and ₹ 60,000 respectively. On 1st October, 2018, Bat and Ball gave loans of ₹ 2,40,000 and ₹ 1,20,000 respectively to the firm. Bat had allowed the firm to use his property for business for a monthly rent of ₹ 5,000. The loss for the year ended 31st March, 2019 before rent and interest amounted to ₹ 9,000. Show distribution of profit/loss.

Working Notes 1: Partner’s Loan Interest

Bat’s Loan interest for six months = ₹ 2,40,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 7,200

Bat’s Loan interest for six months = ₹1,20,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 3,600

Working Notes 2: Loss distribution to partners Evaluation

Bat’s Loan share = 79,800 X \(\begin{array}{l}\frac{2}{5}\end{array} \) = ₹ 31,920

Ball’s Loan share = 79,800 X \(\begin{array}{l}\frac{3}{5}\end{array} \) = ₹ 47,880

Question 10

A and B are partners. A’s Capital is ₹ 1,00,000 and B’s Capital is ₹ 60,000. Interest on capital is payable @ 6% p.a. B is entitled to a salary of ₹ 3,000 per month. Profit for the current year before interest and salary to B is ₹ 80,000.

Prepare Profit and Loss Appropriation Account.

Working Notes 1: Capital Interest Evaluation

A’s Capital Interest = ₹ 1,00,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) = ₹ 6,000

B’s Capital Interest = ₹ 60,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) = ₹ 3,600

Working Notes 2: Partner Profit Sharing Evaluation

Divisible Profit = ₹ 80,000 – ₹ 9,600 – ₹ 36,000 = ₹ 34,400

A and B profit sharing = 34,4000 X \(\begin{array}{l}\frac{1}{2}\end{array} \) = ₹17,200 each

Question 11

X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1 ratio. The fixed capitals of the partners were : X ₹5,00,000; Y ₹ 5,00,000 and Z ₹ 2,50,000 respectively. The Partnership Deed provides that interest on capital is to be allowed @ 10% p.a. Z is to be allowed a salary of ₹ 2,000 per month. The profit of the firm for the year ended 31st March, 2018 after debiting Z’s salary was ₹ 4,00,000.

Working Notes 1: Z’s salary will not be debited to the Profit and Loss Appropriation A/c because ₹ 4,00,000 Profit is given after adjusting Z’s salary.

Working Note 2: Capital Interest Evaluation

X’s Capital Interest = ₹5,00,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹50,000

Y’s Capital Interest = ₹5,00,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹50,000

Z’s Capital Interest = ₹2,50,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹25,000

Working Note 3: Partner’s profit sharing Evaluation

Profit sharing ratio = 2 : 2 : 1

X’s Profit Share = ₹2,75,000 X \(\begin{array}{l}\frac{2}{5}\end{array} \) = ₹ 1,10,000

Y’s Profit Share = ₹2,75,000X \(\begin{array}{l}\frac{2}{5}\end{array} \) = ₹ 1,10,000

Z’s Profit Share = ₹2,75,000 X \(\begin{array}{l}\frac{1}{5}\end{array} \) = ₹ 55,000

Question 12

X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 8,00,000 and ₹ 6,00,000, respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹ 60,000 which has not been withdrawn. Profit for the year ended 31st March, 2019 before interest on capital but after charging Y’s salary amounted to ₹ 2,40,000.

A provision of 5% of the profit is to be made in respect commission to the manager. Prepare an account showing the allocation profits.

Working Notes 1: Manager’s Commission Evaluation

Profit for making Managers’ Commission = 2,40,000 + 60,000 (Y’s Salary) = ₹3,00,000

Manager’s Commission=₹(3,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) ) = 415,000

Working Notes 2: Capital Interest Evaluation

X’s Capital Interest =( ₹ 8,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) ) = ₹40,000

Y’s Capital Interest =( ₹ 6,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) ) = ₹30,000

Working Notes 3: Partner’s capital share Evaluation

Distribution of profit = ₹ 2,85,000 − ₹ 60,000 − ₹ 70,000 = ₹1,55,000

X’s Share of Profit=₹(1,55,000 X \(\begin{array}{l}\frac{3}{5}\end{array} \) = ₹ 93,000

Y’s Share of Profit=₹(1,55,000 X \(\begin{array}{l}\frac{2}{5}\end{array} \) = ₹ 62,000

Question 13

Prem and Manoj are partners in a firm sharing profits in the ratio of 3 : 2. The Partnership Deed provided that Prem was to be paid a salary of ₹ 2,500 per month and Manoj was to get a commission of ₹ 10,000 per year. Interest on capital was to be allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. Interest on Prem’s drawings was ₹ 1,250 and on Manoj’s drawings was ₹ 425. Interest on Capitals of the partners were ₹ 10,000 and ₹ 7,500 respectively. The firm earned a profit of ₹ 90,575 for the year ended 31st March, 2018.

Prepare Profit and Loss Appropriation Account of the firm.

Prem’s Capital Interest = 2,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 10,000

Manoj’s Capital Interest = 1,50,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 7,500

Working Notes 2 : Partner Profit Share Evaluation

Profit sharing ratio = 3 : 2

Profit sharing for Prem = 34,750 X \(\begin{array}{l}\frac{3}{5}\end{array} \) = ₹ 20,850

Profit sharing for Manoj = 34,750 X \(\begin{array}{l}\frac{2}{5}\end{array} \) = ₹ 13,900

Question 14

Reema and Seema are partners sharing profits equally. The Partnership Deed provides that both Reema and Seema will get monthly salary of Rs 15,000 each, Interest on Capital will be allowed @ 5% p.a. and Interest on Drawings will be charged @ 10% p.a. Their capitals were Rs 5,00,000 each and drawings during the year were Rs 60,000 each.

The firm incurred a loss of Rs 1,00,000 during the year ended 31st March, 2018.

Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018.

Note: There will be no capital and salary share to the partners as the company has incurred loss.

Working Notes 1: Partner Drawing Evaluation

Reema’s Share = 60,000 X 10% X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹3,000

Seema’s Share = 60,000 X 10% X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹3,000

Question 15

Bhanu and Partab are partners sharing profits equally. Their fixed capitals as on 1st April, 2018 are ₹ 8,00,000 and ₹ 10,00,000 respectively. Their drawings during the year were ₹ 50,000 and ₹ 1,00,000 respectively. Interest on Capital is a charge and is to be allowed @ 10% p.a. and interest on drawings is to be charged @ 15% p.a. Net Profit for the year ended 31st March, 2019 was ₹ 1,20,000.

Working Note 1: Partner Drawing Interest Evaluation

Bhanu’s Drawing Interest – 50,000 X 15% X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹3,750

Pratap’s Drawing Interest – 1,00,000 X 15% X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹7,500

Working Note 2: Partner Capital Interest Evaluation

Bhanu’s Capital Interest – 50,000 X 10% ₹ 80,000

Pratap’s Capital Interest – 1,00,000 X 10% = ₹ 1,00,000

Question 16

Amar and Bimal entered into partnership on 1st April, 2018 contributing ₹ 1,50,000 and ₹ 2,50,000, respectively towards capital. The Partnership Deed provided for interest on capital @ 10% p.a. It also provided that Capital Accounts shall be maintained following the Fixed Capital Accounts method. The firm earned net profit of ₹ 1,00,000 for the year ended 31st March 2019.

Pass the Journal entry for interest on capital.

Amar’s Capital Interest = 1,50,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹15,000

Amar’s Capital Interest = 2,50,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹25,000

Question 17

Kamal and Kapil are partners having fixed capitals of ₹ 5,00,000 each as on 31st March, 2018. Kamal introduced further capital of ₹ 1,00,000 on 1st October, 2018 whereas Kapil withdrew ₹ 1,00,000 on 1st October, 2018 out of the capital.

Interest on capital is to be allowed @ 10% p.a.

The firm earned net profit of ₹ 6,00,000 for the year ended 31st March 2019.

Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

Kamal’s Capital Interest = \(\begin{array}{l}\left ( \frac{5,00,000\, X\, 10\, X\, 6}{100\, X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{6,00,000\, X\, 10\, X\, 6}{100\, X\, 12} \right )\end{array} \) = ₹ 55,000

Kapil’s Capital Interest = \(\begin{array}{l}\left ( \frac{5,00,000\, X\, 10\, X\, 6}{100\, X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{4,00,000\, X\, 10\, X\, 6}{100\, X\, 12} \right )\end{array} \) = ₹ 45,000

Question 18

Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2018 were ₹ 2,00,000 each whereas Current Accounts had balances of ₹ 50,000 and ₹ 25,000 respectively interest is to be allowed @ 5% p.a. on balances in Capital Accounts. The firm earned net profit of ₹ 3,00,000 for the year ended 31st March 2019.

Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.

Capital  Interest Simran’s = 2,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 10,000

Question 19

Anita and Ankita are partners sharing profits equally. Their capitals, maintained following the Fluctuating Capital Accounts Method, as on 31st March, 2018 were ₹ 5,00,000 and ₹ 4,00,000 respectively. Partnership Deed provided to allow interest on capital @ 10% p.a. The firm earned net profit of ₹ 2,00,000 for the year ended 31st March, 2019.

Capital Interest Anita’s = 5,00,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹50,000

Capital Interest Ankita’s = 4,00,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹40,000

Question 20

Ashish and Aakash are partners sharing profit in the ratio of 3 : 2. Their Capital Accounts showed a credit balance of ₹ 5,00,000 and ₹ 6,00,000 respectively as on 31st March, 2019 after debit of drawings during the year of ₹ 1,50,000 and ₹ 1,00,000 respectively. Net profit for the year ended 31st March, 2019 was ₹ 5,00,000. Interest on capital is to be allowed @ 10% p.a.

Working Notes 1: Opening Capital Evaluation

Ashish’s Capital Interest = 6,50,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹65,000

Askash’s Capital Interest = 7,00,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹70,000

Question 21

Naresh and Sukesh are partners with capital of ₹ 3,00,000 each as on 31st March, 2019. Naresh had withdrawn ₹ 50,000 against capital on 1st October, 2018 and also ₹ 1,00,000 besides the drawings against capital. Sukesh also had drawings of ₹ 1,00,000.

Net profit for the year was ₹ 2,00,000, which is yet to be distributed.

Pass the Journal entries for interest on capital and distribution of profit.

Working Notes 1 : Opening Capital Evaluation

Working Notes 1 : Capital Interest Evaluation

Naresh = \(\begin{array}{l}\frac{4,50,000  X  10  X  6}{100  X  12}\end{array} \) + \(\begin{array}{l}\frac{4,00,000  X  10  X  6}{100  X  12}\end{array} \) = ₹ 42, 500

Sukesh = \(\begin{array}{l}\frac{4,00,000  X  10}{100}\end{array} \) + \(\begin{array}{l}\frac{4,00,000  X  10  X  6}{100  X  12}\end{array} \) = ₹ 40,000

Question 22

On 1st April, 2013, Jay and Vijay entered into partnership for supplying laboratory equipment to government schools situated in remote and backward areas. They contributed capital of ₹ 80,000 and ₹ 50,000, respectively and agreed to share the profits in the ratio of 3 : 2. The partnership Deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of ₹ 7,800. Showing your calculations clearly, prepare ‘Profit and Loss Appropriation Account’ of Jay and Vijay for the year ended 31st March, 2014.

Working Notes 1: Capital interest Evaluation

Jay’s Capital = 80,000 X \(\begin{array}{l}\frac{9}{100}\end{array} \) = ₹7,200

Vijay’s Capital = 50,000 X \(\begin{array}{l}\frac{9}{100}\end{array} \) = ₹4,500

Total Interest = 7,200 + 4,500 = ₹ 11,700

Working Notes 2: Proportionate Interest on Capital Evaluation

Jay Proportionate Interest = \(\begin{array}{l}\frac{7,200}{11,700}\end{array} \) x 7,800 = ₹4,800

Vijay Proportionate Interest = \(\begin{array}{l}\frac{4,500}{11,700}\end{array} \) x 7,800 = ₹3,000

Question 23

Amar, Bhanu, and Charu are partners in a firm. Amar and Bhanu are to get an annual salary of ₹ 1,20,000 p.a. each as they are fully involved in the business. Net profit for the year is ₹ 4,80,000. Determine the share of profit to be credited to each partner.

Question 24

A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1 respectively. A is entitled to a commission of 10% on the net profit. Net profit for the year is ₹ 1,10,000.

Determine the amount of commission payable to A.

Net Profit before commission = ₹ 1,10,000

Commission to A = 10% of Net Profit before commission was charged

= 1,10,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 11,000

Question 25

X, Y and Z are partners sharing profits and losses equally. As per Partnership Deed, Z is entitled to a commission of 10% on the net profit after charging such commission. The net profit before charging commission is ₹ 2,20,000.

Determine the amount of commission payable to Z .

Net Profit before Commission = ₹ 2,20,000

Commission to Z = Net Profit 10% after charging commission

= 2,20,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 20,000

Question 26

A, B, C, and D are partners in a firm sharing profits as 4 : 3 : 2 : 1 respectively. It earned a profit of ₹ 1,80,000 for the year ended 31st March, 2018. As per the Partnership Deed, they are to charge a commission @ 20% of the profit after charging such commission which they will share as 2 : 3 : 2 : 3. You are required to show appropriation of profits among the partners.

Working Notes 1 : Partners’ Commission Evaluation

Partners’ Commission = Net Profit 20% after commission charged

Partner’s Commission = Net Profit X \(\begin{array}{l}\frac{Rate}{100

=1,80,000 X \(\begin{array}{l}\frac{20}{120}\end{array} \) = ₹30,000

Partners commission in the ratio 2 : 3 : 2 : 3

A’s Commission = 30,000 X \(\begin{array}{l}\frac{2}{10}\end{array} \) = ₹ 6,000

B’s Commission = 30,000 X \(\begin{array}{l}\frac{3}{10}\end{array} \) = ₹ 9,000

C’s Commission = 30,000 X \(\begin{array}{l}\frac{2}{10}\end{array} \) = ₹ 6,000

D’s Commission = 30,000 X \(\begin{array}{l}\frac{3}{10}\end{array} \) = ₹ 9,000

Working Notes 2 : Partners’ Profit Share Evaluation

Distribution of Profit = ₹ 1,80,000 − ₹ 30,000 = ₹ 1,50,000

Profit sharing ratio = 4 : 3 : 2 : 1

A’s Commission = 1,50,000 X \(\begin{array}{l}\frac{4}{10}\end{array} \) = ₹ 60,000

B’s Commission = 1,50,000 X \(\begin{array}{l}\frac{3}{10}\end{array} \) = ₹ 45,000

C’s Commission = 1,50,000 X \(\begin{array}{l}\frac{2}{10}\end{array} \) = ₹ 30,000

D’s Commission = 1,50,000 X \(\begin{array}{l}\frac{1}{10}\end{array} \) = ₹ 15,000

Question 27

X and Y are partners in a firm. X is entitled to a salary of ₹ 10,000 per month and commission of 10% of the net profit after partners’ salaries but before charging commission. Y is entitled to a salary of ₹ 25,000 p.a. and commission of 10% of the net profit after charging all commission and partners’ salaries. Net profit before providing for partners’ salaries and commission for the year ended 31st March, 2019 was ₹ 4,20,000. Show distribution of profit.

Working Note 1 : Commission Evaluation

X’s Commission = Net Profit @ 10% after partners’ salaries.

Profit after Partner’s Salaries = 4,20,000 − 1,45,000 = ₹ 2,75,000

= 2,75,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹27,500

Commission to Y = Net Profit @ 10% after partners’ salaries and Commission

Profit after partners’ salaries and commission = 4,20,000 − 1,45,000 − 27,500 = ₹ 2,47,500

= 2,47,500 X \(\begin{array}{l}\frac{10}{110}\end{array} \) = ₹22,500

Working Note 1 : Partner’s Profit Sharing Evaluation

Profit’s for distribution = 4,20,000 − 1,45,000 − 50,000 = ₹ 2,25,000

Profit sharing ratio = 1 : 1

Profit sharing of X and Y each = 2,25,000 X \(\begin{array}{l}\frac{1}{2}\end{array} \) = ₹1,12,500

Question 28

Ram and Mohan, two partners, drew for their personal use ₹ 1,20,000 and ₹ 80,000. Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest chargeable from each partner?

Since, the drawing’s date made by the partners is not mentioned, the interest drawing is evaluated on average basis for six months.

Ram’s Drawing Interest = 1,20,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹3,600

Mohan’s Drawing Interest = 80,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹2,400

Question 29

Brij and Mohan are partners in a firm. They withdrew ₹ 48,000 and ₹ 36,000 respectively during the year evenly in the middle of every month. According to the partnership agreement, interest on drawings is to be charged @ 10% p.a.

Calculate interest on drawings of the partners using the appropriate formula.

Every month in the middle, drawings are made even, so, drawings interest is evaluated for six months.

Brij’s Drawings Interest=₹ 48,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹2,400

Mohan’s Drawings Interest=₹ 36,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹1,800

Question 30

A and B are partners sharing profits equally. A drew regularly ₹ 4,000 in the beginning of every month for six months ended 30th September, 2019. Calculate interest on drawings @ 5% p.a. for a period of six months.

Drawing amount = 4,000

Number of Drawing = 6

Total Drawings = 4,000 X 6 = ₹ 24,000

Rate of Interest = 5% p.a

= 3.5 months

Question 31

One of the partners in a partnership firm has withdrawn ₹ 9,000 at the end of each quarter, throughout the year. Calculate interest on drawings at the rate of 6% per annum.

Drawings Amount = ₹ 9,000 per quarter

Annual Drawings = ₹ (9,000 × 4) = ₹ 36,000

Interest Rate on Drawings = 6% p.a.

Question 32

A and B are partners sharing profits equally. A drew regularly ₹ 4,000 at the end of every month for six months ended 30th September, 2019. Calculate interest on drawings @ 5% p.a. for a period of six months.

= 2.5 months

Question 33

Calculate interest on drawings of Ashok @ 10% p.a. for the year ended 31st March, 2019, in each of the following alternative cases:

Case 1. If he withdrew ₹ 7,500 at the beginning of each quarter.

Case 2. If he withdrew ₹ 7,500 at the end of each quarter.

Case 3. If he withdrew ₹ 7,500 during the middle of each quarter.

Drawings Total = 7,500 × 4 = ₹ 30,000

Interest Rate = 10% p.a.

In the beginning of each quarter when equal amount is withdrawn, the drawing interest would be evaluated for 7.5 months as an average period.

So, Ashok’s interest on drawing = 30,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) X \(\begin{array}{l}\frac{7.5}{12}\end{array} \) = ₹1,875

At the end of each quarter when equal amount is withdrawn, the drawing interest would be evaluated for 4.5 months as an average period.

So, Ashok’s interest on drawing = 30,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) X \(\begin{array}{l}\frac{4.5}{12}\end{array} \) = ₹1,125

At the middle of each quarter when equal amount is withdrawn, the drawing interest would be evaluated for 6 months as an average period.

So, Ashok’s interest on drawing = 30,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹1,500

Question 34

Kanika and Gautam are partners doing a dry cleaning business in Lucknow, sharing profits in the ratio 2 : 1 with capitals ₹ 5,00,000 and ₹ 4,00,000 respectively. Kanika withdrew the following amounts during the year to pay the hostel expenses of her son:

Gautam withdrew ₹ 15,000 on the first day of April, July, October and January to pay rent for the accommodation of his family. He also paid ₹ 20,000 per month as rent for the office of partnership which was in a nearby shopping complex.

Calculate interest on drawings @ 6% p.a.

Kanika’s Drawings interest = ₹ 1,500

Gautam’s Drawings interest= ₹ 2,250

Working Notes 1: Kanika’s Drawings interest Evaluation

= 3,00,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{1}{12}\end{array} \) = ₹1,500

Working Notes 2: Gautam’s Drawings Interest Evaluation

At the beginning of the quarter, Gautam withdrew ₹ 15,000.

= (15,000×4) X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{7.5}{12}\end{array} \) = ₹2,250

Question 35

A and B are partners sharing Profit and Loss in the ratio 3 : 2 having Capital Account balances of ₹ 50,000 and ₹ 40,000 on 1st April, 2018. On 1st July, 2018, A introduced ₹ 10,000 as his additional capital whereas B introduced only ₹ 1,000. Interest on capital is allowed to partners @ 10% p.a.

Calculate interest on capital for the financial year ended 31st March, 2019.

A’s Capital Interest Evaluation

= 6,90,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) X \(\begin{array}{l}\frac{1}{12}\end{array} \) = ₹5,750

B’s Capital Interest Evaluation

= 4,89,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) X \(\begin{array}{l}\frac{1}{12}\end{array} \) = ₹4,075

Question 36

Ram and Mohan are partners in a business. Their capitals at the end of the year were ₹ 24,000 and ₹ 18,000 respectively. During the year, Ram’s drawings and Mohan’s drawings were ₹ 4,000 and ₹ 6,000 respectively. Profit (before charging interest on capital) during the year was ₹ 16,000. Calculate interest on capital @ 5% p.a. for the year ended 31st March, 2019.

Capital Interest is evaluated on the partner’s capital opening balance.

Ram’s Capital Interest = ₹ 20,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 1,000

Mohan’s Capital Interest = ₹ 16,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 800

Question 37

Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2019.

During the year, Mahadev’s drawings were ₹ 30,000. Profits during the year ended 31st March, 2019 is ₹ 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2019.

Note : Since, both the partners capital and current accounts are mentioned, we can assume that both the partners capital is fixed. Therefore, when there is a fixed capital and drawing the capital balance does not get affected, but the current account does.

So, in this particular case the beginning and the closing capital remains the same and the capital interest is evaluated on the fixed capital balances.

Question 38

From the following Balance Sheet of Long and Short, calculate interest on capital @ 8% p.a. for the year ended 31st March, 2019.

During the year, Long withdrew ₹ 40,000 and Short withdrew ₹ 50,000. Profit for the year was ₹ 1,50,000 out of which ₹ 1,00,000 was transferred to General Reserve.

Capital at the beginning Evaluation as on 1st, 2018

Long’s Capital Interest = 1,35,000 X \(\begin{array}{l}\frac{8}{100}\end{array} \) = ₹10,800

Short’s Capital Interest = 1,65,000 X \(\begin{array}{l}\frac{8}{100}\end{array} \) = ₹13,200

Question 39

Moli and Bholi contribute ₹ 20,000 and ₹ 10,000 respectively towards capital. They decide to allow interest on capital @ 6% p.a. Their respective share of profits is 2 : 3 and the net profit for the year is ₹ 1,500. Show distribution of profits:

(i) when there is no agreement except for interest on capitals; and

(ii) when there is an agreement that the interest on capital as a charge.

Capital Interest Evaluation

Moli’s Capital Interest =₹(20,000 × \(\begin{array}{l}\frac{6}{100}\end{array} \) ) = ₹ 1,200

Bholi’s Capital Interest =₹(10,000 × \(\begin{array}{l}\frac{6}{100}\end{array} \) ) = ₹ 600

Total Capital Interest = (1,200+600) = ₹1,800

When there is no agreement except for interest on capitals

Profit at the year end= ₹ 1,500

Total Interest = ₹ 1,800

In this scenario, the total capital interest is more than the profit available for distribution. So, ₹ 1,500 profit will be distributed between Moli and Bholi.THe distribution will be according to their capital interest ratio.

Moli’s Capital Interest = (1,500 X \(\begin{array}{l}\frac{2}{3}\end{array} \) ) = ₹1,000

Bholi’s Capital Interest = (1,500 X \(\begin{array}{l}\frac{1}{3}\end{array} \) ) = ₹500

Total Interest (1,200+600) = ₹ 1,800

Firm’s total profit = ₹ 1,500

So, the firm encountered the loss of ₹ 300 and shared between Moli and Bholi as per their profit sharing ratio of 2 : 3.

Moli Loss = (300 X \(\begin{array}{l}\frac{2}{5}\end{array} \) ) = ₹ 120

Bholi Loss = (300 X \(\begin{array}{l}\frac{3}{5}\end{array} \) ) = ₹ 180

Question 40

Amit and Bramit started business on 1st April, 2018 with capitals of ₹ 15,00,000 and ₹ 9,00,000 respectively. On 1st October, 2018, they decided that their capitals should be ₹ 12,00,000 each. The necessary adjustments in capitals were made by introducing or withdrawing by cheque. Interest on capital is allowed @ 8% p.a. Compute interest on capital for the year ended 31st March, 2019.

Amit’s Capital Interest Evaluation

= ₹ 1,08,000

Bramit’s Capital Interest Evaluation

Question 41

Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2019 after closing the books of account, their Capital Accounts stood at ₹ 4,80,000 and ₹ 6,00,000 respectively. On 1st May, 2018, Simrat introduced an additional capital of ₹ 1,20,000 and Bir withdrew ₹ 60,000 from his capital.On 1st October, 2018, Simrat withdrew ₹ 2,40,000 from her capital and Bir introduced ₹ 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March, 2019 amounted to ₹ 2,40,000 and the partners’ drawings had been: Simrat – ₹ 1,20,000 and Bir – ₹ 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.

Case (1): When Capital is fixed:

Simrat’s Capital Interest = \(\begin{array}{l}\left ( \frac{6,00,000\, X\, 6\, X\, 1}{100\,X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{7,20,000\, X\, 6\, X\, 5}{100\,X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{4,80,000\, X\, 6\, X\, 6}{100\,X\, 12} \right )\end{array} \) = ₹ 35,400

Bir’s Capital Interest = \(\begin{array}{l}\left ( \frac{3,60,000\, X\, 6\, X\, 1}{100\,X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{3,00,000\, X\, 6\, X\, 5}{100\,X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{6,00,000\, X\, 6\, X\, 6}{100\,X\, 12} \right )\end{array} \) = ₹ 27,300

Working Notes: Opening Capital Evaluation

Case 2: When capitals are fluctuating:

Simrat’s Capital Interest = \(\begin{array}{l}\left ( \frac{5,76,000\, X\, 6\, X\, 1}{100\,X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{6,96,000\, X\, 6\, X\, 5}{100\,X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{4,56,000\, X\, 6\, X\, 6}{100\,X\, 12} \right )\end{array} \) = ₹ 33,960

Bir’s Capital Interest = \(\begin{array}{l}\left ( \frac{3,24,000\, X\, 6\, X\, 1}{100\,X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{2,64,000\, X\, 6\, X\, 5}{100\,X\, 12} \right )\end{array} \) + \(\begin{array}{l}\left ( \frac{5,64,000\, X\, 6\, X\, 6}{100\,X\, 12} \right )\end{array} \) = ₹ 25,140

Question 42

C and D are partners in a firm; C has contributed ₹ 1,00,000 and D ₹ 60,000 as capital. Interest in payable @ 6% p.a. and D is entitled to a salary of ₹ 3,000 per month. In the year ended 31st March, 2019, the profit was ₹ 80,000 before interest and salary. Divide the amount between C and D.

C’s Capital Interest = 1,00,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) = ₹ 6,000

D’s Capital Interest = 60,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) = ₹ 3,600

Working Notes 2: Partner’s profit share Evaluation

Available profit for distribution = 80,000 − 9,600 − 36,000 = ₹ 34,400

Profit sharing between C and D = ₹ 34,400 X \(\begin{array}{l}\frac{1}{2}\end{array} \) = ₹ 17,200 each

So, Total amount C received = Capital Interest + Profit Share = ₹ 6,000 + ₹ 17,200 = ₹ 23,200

Total amount D received = Interest on Capital + Salary + Profit Share = ₹ 3,600 + ₹ 36,000 + ₹ 17,200 = ₹ 56,800

Question 43

Amit and Vijay started a partnership business on 1st April, 2018. Their capital contributions were ₹ 2,00,000 and ₹ 1,50,000 respectively. The Partnership Deed provided as follows:

(a) Interest on capital be allowed @ 10% p.a.

(b) Amit to get a salary of ₹ 2,000 per month and Vijay ₹ 3,000 per month.

(c) Profits are to be shared in the ratio of 3 : 2.

Net profit for the year ended 31st March, 2019 was ₹ 2,16,000. Interest on drawings amounted to ₹ 2,200 for Amit and ₹ 2,500 for Vijay.

Amit’s Capital Interest = 2,00,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 20,000

Vijay’s Capital Interest = 1,50,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 15,000

Working Notes 1: Each Partner’s profit sharing evaluation

Divisible Profit = ₹ 2,16,000 + ₹ 4,700 − ₹ 35,000 − ₹ 60,000 = ₹ 1, 25,700

Amit’s Profit Share = 1,25,700 X \(\begin{array}{l}\frac{3}{5}\end{array} \) = ₹ 75,420

Vijay’s Profit Share = 1,25,700 X \(\begin{array}{l}\frac{2}{5}\end{array} \) = ₹ 50,280

Question 44

Show how the following will be recorded in the Capital Accounts of the Partners Sohan and Mohan when their capitals are fluctuating:

Working Note : Capital Interest Evaluation

Sohan’s Capital Interest = 4,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 20,000

Mohan’s Capital Interest = 3,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 15,000

Question 45

Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2018 their Capitals were: Sajal – ₹ 50,000 and Kajal – ₹ 40,000.

Prepare Profit and Loss Appropriation Account and the Partners’ Capital Accounts at the end of the year after considering the following items:

(a) Interest on Capital is to be allowed @ 5% p.a.

(b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being ₹ 30,000.

(c) Interest on partners’ drawings @ 6% p.a. Drawings: Sajal ₹ 10,000 and Kajal ₹ 8,000.

(d) 10% of the divisible profit is to be transferred to Reserve.

Net profit for the year ended 31st March, 2019 is ₹ 68,460.

Note: Net profit means net profit after debit of interest on loan by the partner.

Sajal’s Capital Interest = 50,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 2,500

Kajal’s Capital Interest = 20,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 2,000

Working Notes 2: Drawings Interest Evaluation

Sajal’s Drawings Interest = 10,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 300

Kajal’s Drawings Interest = 20,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{6}{12}\end{array} \) = ₹ 240

Working Notes 3: Amount to be transferred to Reserve Evaluation

Reserve Amount = 10% of Divisible Profit

Divisible Profit = Profit + Interest on Drawings − Interest on Capital

= 68,460 + 540 − 4,500 = ₹ 64,500

So, Reserve Amount = 64,500 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 6,450

Working Notes 4: Each Partner’s Profit Sharing Evaluation

Available Profit for Distribution = 68,460 + 540 − 4,500 − 6,450 = ₹ 58,050

Profit sharing ratio = 2 : 1

Sajal’s Profit Share = 58,050 X \(\begin{array}{l}\frac{2}{3}\end{array} \) = ₹ 38,700

Kajal’s Profit Share = 58,050 X \(\begin{array}{l}\frac{1}{3}\end{array} \) = ₹ 19,7350

Question 46

A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2018, their capitals were: A ₹ 50,000 and B ₹ 30,000. During the year ended 31st March, 2019 they earned a net profit of ₹ 50,000. The terms of partnership are:

(a) Interest on capital is to allowed @ 6% p.a.

(b) A will get a commission @ 2% on turnover.

(c) B will get a salary of ₹ 500 per month.

(d) B will get commission of 5% on profits after deduction of all expenses including such commission.

Partners’ drawings for the year were: A ₹ 8,000 and B ₹ 6,000. Turnover for the year was ₹ 3,00,000.

After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners’ Capital Accounts.

A’s Capital Interest = 50,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) = ₹ 3,000

B’s Capital Interest = 30,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) = ₹ 1,800

Working Notes 2: Partner’s Commission Evaluation

A’s Commission = 2% on turnover

= \(\begin{array}{l}\frac{2}{100}\end{array} \) X 3,00,000 = ₹6,000

B’s Commission = 5% on profit after all expenses along with commission

Profits after all expense = ₹ 50,000 − ₹ 4,800 − ₹ 6,000 −₹ 6,000 = ₹ 33,200

= 33,200 X \(\begin{array}{l}\frac{5}{105}\end{array} \) = ₹1,581 (Approx)

Working Notes 3: Partners’ Profit Share Evaluation

Available Profit for Distribution = ₹ 50,000 −₹ 4,800 − ₹ 6,000 − ₹ 7,581 = ₹ 31,619

Profit sharing ratio = 3 : 1

Profit Share of A = 31,619 X \(\begin{array}{l}\frac{3}{4}\end{array} \) = ₹ 23,714

Profit Share of b = 31,619 X \(\begin{array}{l}\frac{1}{4}\end{array} \) = ₹ 7,905

Question 47

A, B and C were partners in a firm having capital of ₹ 50,000 ; ₹ 50,000 and ₹ 1,00,000 respectively. Their Current Account balances were A: ₹ 10,000; B: ₹ 5,000 and C: ₹ 2,000 (Dr.). According to the Partnership Deed the partners were entitled to an interest on Capital @ 10% p.a. C being the working partner was also entitled to a salary of ₹ 12,000 p.a. The profits were to be divided as:

(a) The first ₹ 20,000 in proportion to their capitals.

(b) Next ₹ 30,000 in the ratio of 5 : 3 : 2.

(c) Remaining profits to be shared equally.

The firm earned net profit of ₹ 1,72,000 before charging any of the above items.

Prepare Profit and Loss Appropriation Account and pass necessary Journal entry for the appropriation of profits.

A’s Capital Interest = 50,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 5,000

B’s Capital Interest = 50,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 5,000

C’s Capital Interest = 1,00,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 10,000

Working Notes 2: Partners’ Profit Share Evaluation

Available Profits for Distribution = ₹ 1,72,000 − ₹ 20,000 − ₹ 12,000

= ₹ 1,40,000

(a) Distribution of first ₹ 20,000 in 1:1:2 as the Capital Ratio.

Profit Share of A = 20,000 X \(\begin{array}{l}\frac{1}{4}\end{array} \) = ₹ 5,000

Profit Share of B = 20,000 X \(\begin{array}{l}\frac{1}{4}\end{array} \) = ₹ 5,000

Profit Share of C = 20,000 X \(\begin{array}{l}\frac{2}{4}\end{array} \) = ₹ 10,000

(b) Distribution of ₹ 30,000 in 5:3:2 ratio

Profit Share of A = 30,000 X \(\begin{array}{l}\frac{5}{10}\end{array} \) = ₹ 15,000

Profit Share of B = 30,000 X \(\begin{array}{l}\frac{3}{10}\end{array} \) = ₹ 9,000

Profit Share of C = 30,000 X \(\begin{array}{l}\frac{2}{10}\end{array} \) = ₹ 6,000

(c). Remaining Profit for distribution = ₹ 1,40,000 − ₹ 20,000 − ₹ 30,000 = ₹ 90,000

The remaining ₹ 90,000 profit will be shared between the partners.

A,B, and C each will receive = 90,000 X \(\begin{array}{l}\frac{1}{3}\end{array} \) = ₹ 30,000

S, the total profit share of each partner’s will be:

A’s total profit share = 5,000 + 15,000 + 30,000 = ₹ 50,000

B’s total profit share = 5,000 + 9,000 + 30,000 = ₹ 44,000

C’s total profit share = 10,000 + 6,000 + 30,000 = ₹ 46,000

Question 48

A and B are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 50,000 and ₹ 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of ₹ 2,500. During the year profit prior to interest on capital but after charging B’s salary amounted to ₹ 12,500. A provision of 5% of the profits is to be made in respect of the Manager’s Commission.

Working Notes 1 : Manager’s Commission Evaluation

Managers’ Commission = 5% on Net Profit (before Salary)

Profit before Salary = Profit after Salary + Salary = 12,500 + 2500 = ₹ 15,000

So, Managers’ Commission = 15,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹750

Working Notes 2 : Capital Interest Evaluation

B’s Capital Interest = 50,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) = ₹ 1,800

Working Notes 3 : Partners’ Profit Sharing Evaluation

Profit available for distribution = ₹ 12,500 − ₹ 750 − ₹ 3,000 − ₹ 1,800 = ₹ 6,950

Profit Sharing Ratio = 3:2

Profit Share of A = 6,950 x \(\begin{array}{l}\frac{3}{5}\end{array} \) = ₹ 4,170

Profit Share of B = 6,950 x \(\begin{array}{l}\frac{2}{5}\end{array} \) = ₹ 2,750

Question 49

P, Q and R are in a partnership and as of 1st April, 2018 their respective capitals were: ₹ 40,000, ₹ 30,000 and ₹ 30,000. Q is entitled to a salary of ₹ 6,000 and R ₹ 4,000 p.a. payable before division of profits. Interest is allowed on capital @ 5% p.a. and is not charged on drawings. Of the divisible profits, P is entitled to 50% of the first ₹ 10,000, Q to 30% and R to 20%, rest of the profit are shared equally. Profits for the year ended 31st March, 2019, after debiting partners’ salaries but before charging interest on capital was ₹ 21,000 and the partners had drawn ₹ 10,000 each on account of salaries, interest and profit.

Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2019 showing the distribution of profit and the Capital Accounts of the partners.

P’s Capital Interest = 40,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 2,000

Q’s Capital Interest = 30,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 1,500

R’s Capital Interest = 30,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 1,500

Working Notes 2: Partners’ Profit Share Evaluation

Available Profit for distribution = ₹ 21,000 −₹ 5000 = ₹ 16,000

a. Distribution of first ₹ 10,000 into P 50%, Q 30%, and R 20%

Profit Share of P = 10,000 X \(\begin{array}{l}\frac{50}{100}\end{array} \) = ₹ 5,000

Profit Share of Q = 10,000 X \(\begin{array}{l}\frac{30}{100}\end{array} \) = ₹ 3,000

Profit Share of R = 10,000 X \(\begin{array}{l}\frac{20}{100}\end{array} \) = ₹ 2,000

b. Distribution of remaining Profit ₹ 6,000 (16,000 − 10,000) equally

P, Q, and R Profit Share = 6,000 X \(\begin{array}{l}\frac{1}{3}\end{array} \) = ₹2,000 each

So, the total profit share of P, Q, and R will be

P’s Total Profit Share= 5,000 + 2,000 = ₹ 7,000

Q’s Total Profit Share= 3,000 + 2,000 = ₹ 5,000

R’s Total Profit Share= 2,000 + 2,000 = ₹ 4,000

Question 50

A, B and C are partners sharing profits and losses in the ratio of A 1/2, B 3/10, C 1/5 after providing for interest @ 5% on their respective capitals, viz., A ₹ 50,000; B ₹ 30,000 and C ₹ 20,000 and allowing B and C a salary of ₹ 5,000 each per annum. During the year ended 31st March, 2019, A has drawn ₹ 10,000 and B and C in addition to their salaries have drawn ₹ 2,500 and ₹ 1,000 respectively. Profit and Loss Account for the year ended 31st March, 2019 showed a net profit of ₹ 45,000. On 1st April, 2018, the balances in the Current Accounts of the partners were A (Cr.) ₹ 4,500; B (Cr.) ₹ 1,500 and C (Cr.) ₹ 1,000. Interest is not charged on Drawings or Current Account balances. Show Partners’ Capital and Current Accounts as at 31st March, 2019 after division of profits in accordance with the partnership agreement.

A’s Capital Interest = 50,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 2,500

B’s Capital Interest = 30,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 1,500

C’s Capital Interest = 20,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 1,000

Available Profit for Distribution = ₹ 45,000 −₹ 15,000 = ₹ 30,000

A’s Capital Interest = 5 30,000 X \(\begin{array}{l}\frac{1}{2}\end{array} \) = ₹ 15,000

B’s Capital Interest = 30,000 X \(\begin{array}{l}\frac{3}{10}\end{array} \) = ₹ 9,000

C’s Capital Interest = 30,000 X \(\begin{array}{l}\frac{1}{15}\end{array} \) = ₹ 6,000

Question 51

Ali the Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2018 stand as Ali ₹ 25,000 and Bahadur ₹ 20,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2019 amounted to ₹ 3,500 and ₹ 2,500, respectively.

Profit for the year, before charging interest on capital and annual salary of Bahadur @ ₹ 3,000, amounted to ₹ 40,000, 10% of divisible profit is to be transferred to Reserve.

You are asked to show Partners’ Current Account and Capital Accounts recording the above transactions.

Working Notes 1:

Ali’s Capital Interest = 25,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 1,250

Bahadur’s Capital Interest = 20,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = 1,000

Working Notes 3 : Amount to be Transferred to Reserve Evaluation

Amount transferred to Reserve =10% of Divisible Profits

=10% X (₹ 40,000− ₹ 2,250− ₹ 3,000)= ₹ 3,475

Working Notes 4 : Partners’ Profit Sharing Evaluation

Profit available for distribution = ₹ 40,000 − ₹ 2,250 − ₹ 3,000 − ₹ 3,475 = ₹ 31,275

Ali’s Profit Share = 31,275 X \(\begin{array}{l}\frac{70}{100}\end{array} \) = ₹ 1,892

Bahadur’s Profit Share = 31,275 X \(\begin{array}{l}\frac{30}{100}\end{array} \) = ₹ 9,383

Question 52

Amal, Bimal and Kamal are three partners. On 1st April, 2018, their Capitals stood as: Amal ₹ 40,000, Bimal ₹ 30,000 and Kamal ₹ 25,000. It was decided that:

(a) they would receive interest on Capital @ 5% p.a.,

(b) Amal would get a salary of ₹ 250 per month,

(c) Bimal would receive commission @ 4% on net profit after deducting commission, interest on capital and salary, and

(d) After deducting all of these 10% of the profit should be transferred to the General Reserve.

Before the above items were taken into account, net profit for the year ended 31st March, 2019 was ₹ 33,360. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the Partners.

Amal’s Capital Interest = 40,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 2,000

Bimal’s Capital Interest = 30,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 1,500

Kamal’s Capital Interest = 25,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 1,250

Working Notes 2 : Bimal Commission Evaluation

Bimal Commission = 4% on Net Profits after Commission

Profit after expenses = ₹ 33,360 − ₹ 4,750 − ₹ 3,000 = ₹ 25,610

Therefore, = 25,610 X \(\begin{array}{l}\frac{4}{104}\end{array} \) = ₹ 985

Working Notes 3 : Amount to be transferred to General Reserve Evaluation

General Reserve Amount = 10% of Profit

= 24,625 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 2,462

Working Notes 3 : Partners’ Profit Share Evaluation

Available Profit for Distribution = ₹ 33,360 − ₹ 4,750 − ₹ 3,000− ₹ 985 − ₹ 2,462

Profit Share for each Partners’ Amal, Bimal, and Kamal = 22,163 X \(\begin{array}{l}\frac{1}{3}\end{array} \) = ₹ 7,388

Question 53

Amit, Binita and Charu are three partners. On 1st April, 2018, their Capitals stood as: Amit ₹ 1,00,000, Binita ₹ 2,00,000 and Charu ₹ 3,00,000. It was decided that:

(b) Amit would get a salary of ₹ 10,000 per month,

(c) Binita would receive commission @ 5% of net profit after deduction of commission, and

(d) 10% of the net profit would be transferred to the General Reserve.

Before the above items were taken into account, the profit for the year ended 31st March, 2019 was ₹ 5,00,000.

Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.

Amit Interest = 1,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 5,000

Binita Interest = 2,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 10,000

Charu Interest = 3,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 15,000

Working Notes 2 : Binita Commission Evaluation

= 5,00,000 X \(\begin{array}{l}\frac{5}{105}\end{array} \) = ₹ 23,810

Amount for General Reserve = 10% of Profit

= 5,00,000 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 50,000

Working Notes 4 : P artners’ Profit Share Evaluation

Available Profit for Distribution = ₹ 5,00,000 – ₹ 30,000 – ₹ 1,20,000 – ₹ 23,810 – ₹ 50,000

= ₹ 2,76,190

Profit share of each of the partners = 2,76,190 X \(\begin{array}{l}\frac{1}{3}\end{array} \) = ₹ 92, 063

Question 54

Anita, Bimla and Cherry are three partners. On 1st April, 2018, their Capitals stood as: Anita ₹ 1,00,000, Bimla ₹ 2,00,000 and Cherry ₹ 3,00,000. It was decided that:

(b) Anita would get a salary of ₹ 5,000 per month,

(c) Bimla would receive commission @ 5% of net profit after deduction of commission, and

(d) 10% of the net divisible profit would be transferred to the General Reserve.

Before the above items were taken into account, the profit for the year ended 31st March, 2019 was ₹ 5,00,000. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.

Anita’s Interest = 1,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 5,000

Bimal’s Interest = 2,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 10,000

Cherry’s Interest = 3,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 15,000

= 5,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹ 23,810

Amount for General Reserve = 10% of Divisible Profit

=3,86,190 X \(\begin{array}{l}\frac{10}{100}\end{array} \) = ₹ 38,619

Divisible Profit = ₹ 5,00,000 – ₹ 30,000 – ₹ 23,810 – ₹ 60,000 = ₹ 3,86,190

Working Notes 4 : Partners’ Profit Share Evaluation

Profit available for Distribution = ₹ 5,00,000 –₹ 30,000 – ₹ 60,000 – ₹ 23,810 – ₹ 38,619

= ₹ 3,47,571

Profit share of each partner’s = 3,47,571 X \(\begin{array}{l}\frac{1}{3}\end{array} \) = ₹ 1,15,857

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Accounting for Partnership: Basic Concepts Class 12 Notes: CBSE Accountancy Chapter 1

Accounting for Partnership Basic Concepts Class 12 Notes - FREE PDF Download

Accounting for Partnership: Basic Concepts Class 12 Notes for CBSE Accountancy Chapter 1 is the best option for revising the chapter for your exams. Vedantu’s Class 12 Notes for Accountancy concisely summarises the chapter, emphasising key concepts and important points. We prioritise essential exam-focused information and frequently asked questions in a format that promotes better retention. The Partnership Fundamentals Class 12 Notes PDF covers the distribution of profits and losses, capital accounts, and adjustments for interest on capital, drawings, and partner's salaries.

Vedantu provides a FREE PDF download option, making these resources easily accessible for flexible study schedules and thorough exam preparation. Download Vedantu’s comprehensive notes of Accountancy Class 12 Chapter 1 aligned with the Class 12 Accountancy Syllabus and ensure you are well-prepared for your exams.

Access Revision Notes for Class 12 Chapter 1 Accounting for Partnership: Basic Concepts

A partnership is a formal agreement between two or more people to run a business and share its profits or losses.

The agreement, called a partnership deed, outlines the rights and responsibilities of each partner.

Capital : The money or assets each partner contributes to the business. There are two accounting methods: fixed capital and fluctuating capital.

Current Account : An account that records a partner's day-to-day transactions with the business, such as withdrawals or additional investments.

Drawings : The money or other assets a partner withdraws from the business for personal use.

Profit and Loss Sharing Ratio : The predetermined percentage of profits each partner receives or the percentage of losses each partner bears. This ratio is specified in the partnership deed and can be based on factors like capital contribution, effort, or expertise.

Partnership accounting involves maintaining separate accounts for partners' capital, current accounts, and profit and loss sharing ratios. The basic accounting tools used are similar to those in sole proprietorship but with a focus on recording partnership-specific transactions.

1. What is Partnership?

Relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all is the definition of a partnership.

2. Nature of Partnership

A partnership requires the participation of two or more people.

A contract establishes it.

The agreement should be for the parties to engage in mutual agency and a lawful business partnership of profit and loss sharing.

Every partner bears equal responsibility for all decisions, gains, and losses.

3. Which law governs Partnerships in India?

The Indian Partnership Act of 1932 is used in India to examine the unique characteristics of partnership firms and to regulate partnership practices within the nation.

4. What is a Partnership Deed?

A partnership deed is a legal document containing the partnership terms. Although written communication is not required, it is recommended. Only once each partner has signed the deed can a partnership officially exist.

5. Contents of Partnership Deed

Names, addresses, and primary commercial activities of the company

Each partner's name and address

The amount of money that each partner will contribute

The firm's accounting period

The day the partnership was formed

Regulations governing the use of bank accounts

Ratio of profit and loss sharing

Interest rate on capital, loans, drawings, etc. Appointment method of the auditor, if any

Payable to any partner: commissions, salaries, and so forth

Each partner's obligations, liabilities, and rights

Handling of losses resulting from one or more partners' insolvency

Accounts settled upon the firm's collapse

Technique for resolving disagreements between couples

Guidelines to be adhered to if a partner is admitted, retires, or passes away

Everything else that has to do with how business is conducted. Generally, the partnership deed addresses every issue influencing the partners' relationship with one another. However, the Indian Partnership Act of 1932's rules will apply if there isn't an express agreement on a few specific issues.

6. Important Provisions of the Partnership Act

All partners will earn equal profits regardless of how their capital is distributed within the company if the partnership agreement is silent on the profit-sharing ratio.

If the partnership deed is silent on the matter, no interest on capital is due.

If the Deed makes no mention of it, then no interest is to be paid on the drawings that the partners drew.

If a partner advances a loan to the company for business purposes, that partner will be entitled to interest on the loan balance at the rate of six per cent annually.

Unless the Partnership Deed specifically provides otherwise, no partner may receive compensation of any kind for participating in the management of the company's affairs.

Any benefit that a partner receives from a business transaction, from using the company's assets, from a commercial relationship, or from using the company name must be reported to the business and paid in full.

If a partner runs a business that is similar to or competitive with the firm's, they must report to the firm all profits they make from that venture.

7. Special Aspects of Partnership Accounts

Upkeep of Partners' Capital Accounts: There are two ways to keep up the partners' capital accounts. The methods of Fixed Capital and Fluctuating Capital.

Sharing of Gains and Losses Among Partners

Corrections for Inaccurate Profit Appropriation in the Past

Reorganization of the Partnership Enterprise

Dissolution of the Partnership

8. What is a Fixed Capital Method?

With the fixed capital technique, the partners' capital stays the same unless further capital is added or subtracted following the partnership agreement. Until new capital is added or some of the capital is removed following the partners' agreement, the partners' capitals shall remain set. They are consistently shown on the liabilities side of the balance sheet.

9. What is the Partner’s Current Account?

The Partner's Current Account is the one that keeps track of everything, including interest on capital, drawings, interest on drawings, and a portion of profit or loss. Both the debit and credit balances are displayed. If there is a credit balance on partners' current account, it will be displayed on the liabilities side; if there is a debit balance, it will be displayed on the assets side.

10. What is the Fluctuating Capital Method?

There is just one account kept, the capital account, under the fluctuating capital technique. All adjustments, including profit and loss sharing, interest on capital, interest on withdrawals, commissions or salary to partners, are directly recorded in the partners' capital accounts. As a result, the capital account's balance occasionally changes.

11. Differences between Fixed and Fluctuating Capital Method

12. What is a Profit and Loss Appropriation Account?

An extension of the company's profit and loss account is the profit and loss appropriation account. It displays how the partners appropriate or divide the profits. This account is used to make all changes related to the partner's pay, commission, interest on capital, interest on draws, etc. The net profit or net loss according to the profit and loss account is where it all begins.

13. Guarantee of Profit to a Partner

A partner may occasionally be admitted to the company with his share of the earnings guaranteed, up to a minimum sum. This guarantee might be provided to the new partner by any one of the existing partners individually or by all of the existing partners in a specific ratio. When a new partner's share of profit, as determined by the profit sharing ratio, is less than the guaranteed amount, the minimum guaranteed amount will be given to him.

5 Important Topics of Class 12 Chapter 1 You Shouldn’t Miss!

Importance of Revision Notes

Revision Notes for Accounting for Partnership Basic Concepts Class 12 Notes provides a concise chapter summary, making it easier to review important concepts quickly.

Revision notes highlight the key points and important information frequently asked in exams.

These notes save time during last-minute revisions by quickly summarising the entire chapter.

The structured format of the notes ensures that all relevant topics are covered systematically, aiding in comprehensive preparation.

Including practical examples and solved problems helps in understanding the application of theoretical concepts.

These notes are tailored to focus on the exam perspective, ensuring that students are well-prepared for the questions they might encounter.

With downloadable PDFs available, students can easily access these notes anytime, facilitating flexible study schedules.

Tips For Learning the Class 12 Accountancy Chapter 1 Accounting for Partnership: Basic Concepts

Start by thoroughly understanding the basic concepts of partnership, including the nature and features of a partnership firm.

Familiarise yourself with key terms such as partnership deed, profit-sharing ratio, capital accounts, and types of partners.

Solve various problems and exercises from your textbook and reference books to strengthen your understanding and application skills.

Understand the significance of the partnership deed and its clauses as it governs the relationship between partners.

Create summary charts or tables for quick revision of concepts, formulas, and journal entries.

Go through previous years' question papers to understand the types of questions asked and the marking scheme.

Use online resources provided by Vedantu such as educational videos, interactive quizzes, and practice tests to reinforce your learning.

Partnership Fundamentals Class 12 Notes PDF provides a fundamental understanding of the principles and procedures involved in partnership accounting. Class 12 Accounts Chapter 1 Notes PDF covers essential topics such as the partnership deed, profit and loss appropriation account, capital accounts of partners, valuation of goodwill, and revaluation of assets and liabilities. Mastering these concepts is crucial for managing and recording the financial activities of a partnership firm accurately. 

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