Double Entry Book Keeping Ts Grewal Vol i 2017 Solutions for Class 12 Commerce Accountancy Chapter 1 Accounting For Partnership Firms Fundamentals are provided here with simple step-by-step explanations. These solutions for Accounting For Partnership Firms Fundamentals are extremely popular among class 12 Commerce students for Accountancy Accounting For Partnership Firms Fundamentals Solutions come handy for quickly completing your homework and preparing for exams. All questions and answers from the Double Entry Book Keeping Ts Grewal Vol i 2017 Book of class 12 Commerce Accountancy Chapter 1 are provided here for you for free. You will also love the ad-free experience on Meritnation’s Double Entry Book Keeping Ts Grewal Vol i 2017 Solutions. All Double Entry Book Keeping Ts Grewal Vol i 2017 Solutions for class 12 Commerce Accountancy are prepared by experts and are 100% accurate.

#### Question 1:

In the absence of Partnership Deed, what are the rules relation 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

 Items (Points) Provision in the Absence of Partnership Deed (a) Salaries of Partners No Salary will be allowed to Partners. (b) Interest on Partners’ Capitals No interest will be allowed to Partners on Capital (c) Interest on Partners’ Loan 6% p.a. Interest will be allowed on the amount given by  partners in the form of Loans and Advances to firm. (d) Division of Profit Profits will be shared equally, it is irrespective the  amount of capital contributed by partners (e) Interest on Partners’ Drawings No Interest will be charged on the Drawings of Partners

#### Question 2:

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 partner, P does not agree?

(a) P is bound to pay Rs 20,000 together with profit of Rs 5,000 to the firm because this amount belongs to the firm.

Explanation: As per Principal and Agent relationship, P is principal as well as agent to the firm and to Q and R. As per this rule, any profit earned by an agent (P) by using the firm’s property is attributable to the firm.

(b) Q is liable to pay Rs 5,000 to the firm. As per the Partnership Act, 1932, every partner of a partnership firm is liable to the firm for any loss caused by his/her willful negligence.

Explanation: Here Q is solely responsible for the loss of Rs 1,000 because he used the property of the firm and also represented himself as a principal rather than an agent to the other partners and to the firm.

(c) P and Q may buy goods from A Ltd.

Explanation: As per Partnership Act, 1932, a partner has a right to buy and sell goods without consulting the other partners unless a Public Notice has been given by the partnership firm to restrict the partners to buy and sell.

(d) C will not be admitted because one of the partners P has not agreed to admit C.

Explanation: As per Partnership Act, a new partner cannot be admitted into a firm unless all the existing partners agree on the same decision. In other words, a new partner can be admitted in a partnership firm with the consent of all the existing partners.

#### Question 3:

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 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.

 Disputes Possible Judgements (a) A wants that interest on capital should be allowed to the partners but B and C do not agree. As per Partnership Act, no interest on Capital will be allowed. Reason: There is no partnership agreement among A, B and C regarding interest on capital. (b) B wants that the partners should be allowed to draw salary but A and C do not agree. No salary will be allowed to any partner. Reason: There is no partnership agreement. (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. Interest on partner’s loan (C’s loan) will be allowed at 6% p.a. Reason: As per Partnership Act, in the absence of partnership agreement, interest on partners loan is allowed at 6% p.a. (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. Profit will be shared equally and not in the capital ratio. Reason: There is no partnership agreement.

#### Page No 1.81:

 Profit and Loss Appropriation Account as on March 31, 2016 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit transferred to: Net Profit 15,050 Mahesh’s Capital A/c 7,525 (15,200$-$150) Ramesh’s Capital A/c 7,525 15,050 15,050 15,050

Working Note:

WN 1 Calculation of Interest on Mahesh’s Loan

Amount of Loan given by Mahesh = Rs 10,000

Time Period (from Jan 01 to March 31, 2016) = 3 months

WN 2: Calculation of Interest on Capital

No interest on Capital will be allowed to the partners

Note: There is no partnership deed between Mahesh and Ramesh. Therefore, as per Partnership Act:

(a) Interest on Loan will be allowed at 6% p.a.

(b) No interest on Partners’ Capital will be allowed and

(c) Profit after Interest on Mahesh’s loan will be distributed equally between Mahesh and Ramesh.

#### Question 5:

Jaspal and Rosy were partners with 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 the absence of partnership deed,  the provisions of Indian Partnership Act of 1932 applies. According to the act, if there is no agreement regarding the ratio in which profits are to be shared, then profits (or losses) are to be shared equally among all the partners. Therefore, in this situation Jaspal’s view of distribution of profits in capital ratio is not acceptable and Rosy must have convinced her stating the provisions contained in the Partnership Act, 1932.

#### Page No 1.81:

In the absence of partnership deed,  the provisions of Indian Partnership Act of 1932 applies. According to the act, if there is no agreement regarding the interest on capital contributed by the partners, then no interest on capital  is allowed to any of the partners. Therefore, in this situation Jagmohan’s view of allowing interest on capital at 6% p.a. is not acceptable and Ramesh must have convinced him stating the provisions contained in the Partnership Act, 1932.

#### Question 7:

In the absence of partnership deed,  the provisions of Indian Partnership Act of 1932 applies. According to the act, if there is no agreement regarding the interest on drawings withdrawn by the partners, then no interest on drawings is charged from any of the partners. Therefore, in this situation Jatinder’s view of charging interest on drawings  is not acceptable and Sunil must have convinced him stating the provisions contained in the Partnership Act, 1932.

#### Page No 1.81:

 Profit and Loss Appropriation Account as on March 31, 2015 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Partners’ Capital- Net Profit (27,100 - 600) 26,500 Black 1,500 White 1,000 2,500 Profit transferred to- Black’s Capital A/c 12,000 White’s Capital A/c 12,000 24,000 26,500 26,500

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Interest on White’s Loan

Notes:

1. As per Partnership Agreement, interest on capital to the partners is to be allowed at 5%.

2. There is no partnership agreement for interest on loan provided by the partner. Hence, interest on loan is allowed at 6%.

3. There is no partnership agreement for salary to the partners, therefore no salary will be provided to any of the partner.

4. Also, in the absence of a partnership agreement regarding sharing of profits and losses, profits will be shared equally by the partners.

#### Page No 1.82:

 Profit and Loss Account for the year ended March 31, 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on A’s Loan 240 Profit (before Interest) 15,000 Profit transferred to: A’s Capital A/c 7,380 B’s Capital A/c 7,380 14,760 15,000 15,000

Working Notes:

WN 1 Calculation of Interest on Loan

As per the Partnership Act, if there is no partnership agreement regarding rate of interest on loan, it is provided at 6% p.a.

Amount of Loan = Rs 8,000

Time Period (from October 01 to March 31) = 6 months

WN 2 Calculation of Profit Share of each Partner

In the absence of partnership deed, profits of a firm are distributed equally among all the partners.

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

#### Page No 1.82:

Amount advanced by the Partners = Rs 30,000

Profit sharing ratio = 3 : 2

Time Period (from October 01, 2016 to March 31, 2017) = 6 months

Interest rate = 6% p.a.

Note: In the absence of a partnership agreement regarding rate of interest on loans and advances, interest is provided at 6% p.a.

#### Page No 1.82:

Time Period (from October 01, 2016 to March 31, 2017) = 6 months

Interest rate = 6% p.a. (in the absence of partnership deed)

A and B will get Rs 450 individually as interest on loan for 6 months (from October 01, 2016 to March 31, 2017) at 6% p.a.

#### Page No 1.82:

Calculation of Interest on Loan

Case 1- If Profits before any interest for the year amounted to Rs 21,000

 Profit and Loss Account for the year ended March 31, 2016 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on X’s Loan 2,400 Profit (before interest) 21,000 Interest on Y’s Loan 1,200 Profit transferred to X’s Capital A/c (17,400 × 2/5) 6,960 Y’s Capital A/c (17,400 × 3/5) 10,440 17,400 21,000 21,000

Case 2- If Profits before any interest for the year amounted to Rs 3,000

 Profit and Loss Account for the year ended March 31, 2016 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on X’s Loan 2,400 Profit (before interest) 3,000 Interest on Y’s Loan 1,200 Loss transferred to- X’s Capital A/c (600 × 2/5) 240 Y’s Capital A/c (600 × (3/5) 360 600 3,600 3,600

Case 3- If Profits before any interest for the year amounted to Rs 5,000

 Profit and Loss Account for the year ended March 31, 2016 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on X’s Loan 2,400 Profit (before interest) 5,000 Interest on Y’s Loan 1,200 Profit transferred to: X’s Capital A/c (1400 × 2/5) 560 Y’s Capital A/c (1400 × 3/5) 840 1,400 5,000 5,000

Case 4- If Loss before any interest for the year amounted to Rs 1,400

 Profit and Loss Account for the year ended March 31, 2016 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Loss (before interest) 1,400 Loss transferred to- Interest on X’s Loan 2,400 X’s Capital A/c (5,000 × 2/5) 2,000 Interest on Y’s Loan 1,200 Y’s Capital A/c (5,000 × 3/5) 3,000 5,000 5,000 5,000

#### Page No 1.82:

 Profit and Loss Account for the year ended March 31, 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Loss (before interest) 9,000 Rent (5,000$×$12) 60,000 Loss transferred to: Interest on Bat’s loan 7,200 Bat’s Capital A/c 31,920 Interest on Ball’s loan 3,600 Ball’s Capital A/c 47,880 79,800 79,800 79,800

Working Notes:
WN 1 Interest on Partner’s Loan

WN 2 Distribution of Loss to the Partners

Loss after Interest on Partners’ Loan = 9,000 + 60,000 + 7,200 + 3,600 = Rs 19,800

#### Page No 1.82:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital: Profit and Loss A/c (Net Profit) 80,000 A 6,000 B 3,600 9,600 Salary to B (Rs 3,000×12) 36,000 Profit transferred to: A’s Capital A/c 17,200 B’s Capital A/c 17,200 34,400 80,000 80,000

Working Notes:

WN1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner
Divisible Profit = 80,000 9,600 36,000 = 34,400

#### Page No 1.82:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital: Profit and Loss A/c (Net Profit after Z’s salary) 4,00,000 X 50,000 Y 50,000 Z 25,000 1,25000 Profit transferred to: X’s Capital A/c 1,10,000 Y’s Capital A/c 1,10,000 Z’s Capital A/c 55,000 2,75,000 4,00,000 4,00,000

Working Notes:

WN 1 Salary to Z has not been debited to Profit and Loss Appropriation Account. This is because Profit of Rs 4,00,000 is given after adjusting the Z’s salary.

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Profit Share of each Partner
Divisible of Profit after Interest on Capital = Rs 4,00,000 − Rs 1,25,000 = Rs 2,75,000
Profit sharing ratio = 2 : 2 : 1

#### Page No 1.83:

 Profit and Loss Adjustment Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Manager’s Commission (30,000×5%) 1,500 Profit and Loss A/c (Net Profit after Y’s salary) 24,000 Y’s Salary 6,000 Profit transferred to Profit and Loss Appropriation A/c 28,500 30,000 30,000

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Salary to Y 6,000 Profit and Loss Adjustment A/c 28,500 Interest on Capital: (After manager’s commission) X 4,000 Y 3,000 7,000 Profit transferred to: X’s Capital A/c 9,300 Y’s Capital A/c 6,200 15,500 28,500 28,500

Working Notes:

WN 1 Calculation of Manager’s Commission

Profit for making Managers’ Commission = 24,000 + 6,000 (Y’s Salary) = Rs 30,000

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Profit Share of each Partner

Profit available for distribution = 28,500 − 6,000 − 7,000 = Rs 15,500

#### Page No 1.83:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Salary to Prem (Rs 2,500 × 12) 30,000 Profit and Loss A/c (Net Profit) 90,575 Commission to Manoj 10,000 Interest on Drawings A/c: Interest on Capital: Prem 1,250 Prem 10,000 Manoj 425 1,675 Manoj 7,500 17,500 Profit transferred to: Prem’s Current A/c 20,850 Manoj’s Current A/c 13,900 34,750 92,250 92,250

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 90,575 + 1,675 − 30,000 − 10,000 − 17,500

= Rs 34,750

Profit sharing ratio = 3 : 2

#### Question 18:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Profit & Loss Appropriation A/c Dr. 40,000 To Amar’s Current A/c 15,000 To Bimal’s Current A/c 25,000 (Interest on capital transferred to Profit & Loss Appropriation A/c)

Working Notes:

WN1: Calculation of Interest on Capital:

#### Page No 1.83:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Profit & Loss Appropriation A/c Dr. 1,00,000 To Kamal’s Current A/c 55,000 To Kapil’s Current A/c 45,000 (Interest on capital transferred to Profit & Loss Appropriation A/c)

 Profit and Loss Appropriation Account for the year ended 31, March 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital A/c: Profit and Loss A/c 6,00,000 Kamal 55,000 Kapil 45,000 1,00,000 Profit transferred to: Kamal’s Current  A/c 2,50,000 Kapil’s Current  A/c 2,50,000 5,00,000 6,00,000 6,00,000

Working Notes:

WN1: Calculation of Interest on Capital:

#### Page No 1.83:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Profit & Loss Appropriation A/c Dr. 20,000 To Simran’s Current A/c 10,000 To Reema’s Current A/c 10,000 (Interest on capital transferred to Profit & Loss Appropriation A/c) Profit & Loss Appropriation A/c 2,80,000 To Simran’s Current A/c 1,68,000 To Reema’s Current A/c 1,12,000 (Profit transferred to Partners’ Current A/c)

 Profit and Loss Appropriation Account for the year ended 31, March 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital A/c: Profit and Loss A/c 3,00,000 Simran 10,000 Reema 10,000 20,000 Profit transferred to: Simran’s Current  A/c 1,68,000 Reema’s Current  A/c 1,12,000 2,80,000 3,00,000 3,00,000

Working Notes:

WN1: Calculation of Interest on Capital

#### Page No 1.83:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Profit & Loss Appropriation A/c Dr. 90,000 To Anita’s Capital A/c 50,000 To Ankita’s Capital A/c 40,000 (Interest on capital transferred to Profit & Loss Appropriation A/c)

Working Notes:

WN1: Calculation of Interest on Capital

#### Page No 1.84:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Profit & Loss Appropriation A/c Dr. 1,35,000 To Ashish’s Capital A/c 65,000 To Aakash’s Capital A/c 70,000 (Interest on capital transferred to Profit & Loss Appropriation A/c) 3,65,000 Profit & Loss Appropriation A/c 2,19,000 To Ashish’s Capital A/c 1,46,000 To Akash’s Capital A/c (Profit transferred to Partners’ Capital A/c)

 Profit and Loss Appropriation Account for the year ended 31, March 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital A/c: Profit and Loss A/c 5,00,000 Ashish 65,000 Aakash 70,000 1,35,000 Profit transferred to: Ashish’s Capital  A/c 2,19,000 Aakash’s Capital  A/c 1,46,000 3,65,000 5,00,000 5,00,000

Working Notes:

WN1: Calculation of Opening Capital:

 Particulars Ashish Aakash Capital at the end 5,00,000 6,00,000 Add: Drawings made 1,50,000 1,00,000 Capital at the beginning 6,50,000 7,00,000

WN2: Calculation of Interest on Capital

#### Page No 1.84:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Profit & Loss Appropriation A/c Dr. 82,500 To Naresh’s Capital A/c 42,500 To Sukesh’s Capital A/c 40,000 (Interest on capital transferred to Profit & Loss Appropriation A/c) Profit & Loss Appropriation A/c Dr. 1,17,500 To Naresh’s Capital A/c 58,750 To Sukesh’s Capital A/c 58,750 (Profit transferred to Partners’ Capital A/c)

Working Notes:

WN1: Calculation of Opening Capital:

 Particulars Naresh Sukesh Capital at the end 3,00,000 3,00,000 Add: Drawings out of capital 50,000 - Add: Drawings against profit 1,00,000 1,00,000 Capital at the beginning 4,50,000 4,00,000

WN2: Calculation of Interest on Capital

#### Question 24:

On 1st April, 2013, Jay and Vijay entered into partnership for supplying laboratory equipments to government schools situated in remote and backward areas. They contributed capitals 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 cleary, prepare 'Profit and Loss Appropriation Account' of Jay and Vijay for the year ended 31st March, 2014.

 Profit and Loss Appropriation Account for the year ended March 2014 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital A/c: Profit and Loss A/c 7,800 Jay 4,800 Vijay 3,000 7,800 7,800 7,800

Working Notes:

WN1: Calculation of Interest on Capital

WN2: Calculation of Proportionate Interest on Capital

Note: Interest on capital is to be treated as an appropriation of profits and is to be provided to the extent of available profits i.e. Rs 7,800.

#### Question 25:

A, B and C are partners in a firm. A and B are to get 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.

 Profit and Loss Appropriation Account for the year ended … Dr. Cr. Particulars Amount Rs Particulars Amount Rs Salary: Profit and Loss A/c 4,80,000 A 1,20,000 B 1,20,000 2,40,000 Profit transferred to: A’s Capital A/c 80,000 B’s Capital A/c 80,000 C’s Capital A/c 80,000 2,40,000 4,80,000 4,80,000

#### Question 26:

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 charging commission = Rs 1,10,000

Commission to A = 10% of on Net Profit before charging such commission

#### Question 27:

X, Y and Z are partners sharing profits and lossed 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 charging Commission = Rs 2,20,000

Commission to Z = 10% of on Net Profit after charging such commission

#### Page No 1.85:

 Profit and Loss Appropriation Account for the year ended March 31, 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Partners’ Commission: Profit and Loss A/c (Net Profit) 1,80,000 A 6,000 B 9,000 C 6,000 D 9,000 30,000 Profit transferred to: A’s Capital A/c 60,000 B’s Capital A/c 45,000 C’s Capital A/c 30,000 D’s Capital A/c 15,000 1,50,000 1,80,000 1,80,000

Working Notes:

WN 1 Calculation of Partners’ Commission

Partners’ Commission = 20% on Net Profit after charging such commission

This commission is to be shared by the partners in the ratio of 2 : 3 : 2 : 3

WN 2 Calculation of Profit Share of each Partner

Profit available for Distribution = 1,80,000 − 30,000 = Rs 1,50,000

Profit sharing ratio = 4 : 3 : 2 : 1

#### Question 29:

 Profit and Loss Appropriation Account for the year ended March 31, 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Partners’ Salary: Profit and Loss A/c (Net Profit) 4,20,000 X (10,000 × 12) 1,20,000 Y 25,000 1,45,000 Partners’ Commission: X 27,500 Y 22,500 50,000 Profit transferred to: X’s Capital A/c 1,12,500 Y’s Capital A/c 1,12,500 2,25,000 4,20,000 4,20,000

Working Notes:

WN 1 Calculation of Commission

Commission to X = 10% of Net Profit after partners’ salaries but before charging such commission

Profit after Partners’ Salaries = 4,20,000 1,45,000 = Rs 2,75,000

Commission to Y = 10% of Net Profit after charging Commission and Partners’ Salaries

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

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 4,20,000 − 1,45,000 − 50,000 = Rs 2,25,000

Profit sharing ratio = 1 : 1

#### Question 30:

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?

In this question, date of drawings made by the partners is not given. Therefore, interest on drawings is calculated on average basis for a period of six months.

#### Question 31:

B and M 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.

Since, the drawings are made evenly at the middle of every month, therefore interest on drawings is calculated for a period of six months.

#### Page No 1.85:

Total Drawings = 7,500 × 4 = Rs 30,000

Interest Rate = 10% p.a.

Case (a)

When equal amount is withdrawn in the beginning of each quarter, the interest on drawings is calculated for an average period of 7.5 months

Case (b)

When equal amount is withdrawn at the end of each quarter, the interest on drawings is calculated for an average period of 4.5 months

Case (c)

When equal amount is withdrawn in the middle of each quarter, the interest on drawings is calculated for an average period of 6 months

#### Question 35:

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:

 1st April ₹ 10,000 1st June ₹ 9,000 1st November ₹ 14,000 1st December ₹ 5,000
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.

Interest on Kanika’s Drawings = Rs 1,500

Interest on Gautam’s Drawings = Rs 2,250

Working Notes:

WN1: Calculation of Interest on Kanika’s Drawings

 By Product Method Date Amount (I) Months (II) Product (I × II) Apr. 01 10,000 12 1,20,000 June 01 9,000 10 90,000 Nov. 01 14,000 5 70,000 Dec. 01 5,000 4 20,000 Sum of Product 3,00,000

WN2: Calculation of Interest on Gautam’s Drawings

Gautam withdrew Rs 15,000 in the beginning of every quarter.

#### Page No 1.86:

Calculation of Interest on A’s Capital

 Date Capital × Period = Product April 01, 2016 to June 30, 2016 50,000 × 3 = 1,50,000 July 01, 2016 to March 31, 2017 60,000 × 9 = 5,40,000 Sum of Product 6,90,000

Calculation of Interest on B’s Capital

 Date Capital × Period = Product April 01, 2016 to June 30, 2016 40,000 × 3 = 1,20,000 July 01, 2016 to March 31, 2017 41,000 × 9 = 3,69,000 Sum of Product 4,89,000

#### Page No 1.86:

Interest on capital is calculated on the opening balance of partner’s capital.

Calculation of Capital balance at the beginning

 Particulars Ram Mohan Capital at the end 24,000 18,000 Less: Profit already credited (1:1) (8,000) (8,000) Add: Drawings already debited 4,000 6,000 Capital at the beginning 20,000 16,000

#### Page No 1.86:

Calculation of Interest on Y’s Capital

 Particulars Amount Rs Y’s Capital balance as on March 31, 2017 40,000 Less: Profit adjusted in Y’s Capital (5,000) Add: Drawings 15,000 Capital Balance at the beginning (as on April 01, 2016) 50,000

Working Notes:
WN1: Profit adjusted in Y's Capital =

= Rs 5,000

#### Page No 1.86:

Calculation of Capital at the beginning (as on April 01, 2014)

 Particulars Long Short Capital at the end 1,60,000 1,40,000 Less: Adjusted  Profit (1,50,000 – 1,00,000) in 1:1 ratio (25,000) (25,000) Add: Adjusted Drawings - 50,000 Capital in the beginning 1,35,000 1,65,000

#### Page No 1.86:

Calculation of Interest on Capital

Case (a)

Where there is no clean agreement except for interest on capitals

Profit for the year ended = Rs 1,500

Total amount of interest = Rs 1,800

Here, total amount of interest on capital is more than the profit available for distribution. Therefore, profit of Rs 1,500 is distributed between X and Y in the ratio of their interest on capital.

 Particulars X : Y Interest on Capital 1,200 : 600 or, Ratio of interest on Capital 2 : 1

Case (b)

In case, there is a clear agreement that the interest on capital will be allowed even if the firm has incurred loss, then the whole amount of interest on capital is to be allowed to the partners.

Total Profit of the firm = Rs 1,500

Total amount of Interest on Capital = Rs 1,800 (i.e. Rs 1,200 + Rs 600). Therefore, loss to the firm amounts to Rs 300. This loss is to shared by X and Y in their profit sharing ratio that is 2 : 3.

#### Page No 1.86:

Calculation of Interest on A’s Capital

 Date Capital × Period = Product April 01, 2016 to Sept. 30, 2016 15,00,000 × 6 = 90,00,000 Oct. 01, 2016 to March 31, 2017 12,00,000 × 6 = 72,00,000 Sum of Product 1,62,00,000

Calculation of Interest on B’s Capital

 Date Capital × Period = Product April 01, 2016 to Sept. 30, 2016 9,00,000 × 6 = 54,00,000 Oct. 01, 2016 to March 31, 2017 12,00,000 × 6 = 72,00,000 Sum of Product 1,26,00,000

#### Page No 1.87:

Case 1: If Capitals are fixed:

Calculation of Interest on Capital

Working Notes:

WN1: Calculation of Opening Capital:

 Particulars X Y Capital at the end 4,80,000 6,00,000 Add: Drawings out of capital 2,40,000 60,000 Less: Fresh capital introduced 1,20,000 3,00,000 Capital at the beginning 6,00,000 3,60,000

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Case2: If Capitals are Fluctuating:

Calculation of Interest on Capital

Working Notes:

WN1: Calculation of Opening Capital:

 Particulars X Y Capital at the end 4,80,000 6,00,000 Add: Drawings out of capital 2,40,000 60,000 Add: Drawings out of profit 1,20,000 60,000 Less: Fresh capital introduced 1,20,000 3,00,000 Less: Profit already credited 1,44,000 96,000 Capital at the beginning 5,76,000 3,24,000

#### Page No 1.87:

 Profit and Loss Appropriation Account for the year ended 2015-2016 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital: Profit and Loss A/c (Net Profit) 80,000 C 6,000 D 3,600 9,600 Salary to D (3000 × 12) 36,000 Profit transferred to : C’s Capital A/c 17,200 D’s Capital A/c 17,200 34,400 80,000 80,000

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 80,000 − 9,600 − 36,000 = Rs 34,400

Total amount received by C = Interest on Capital + Profit Share = 6,000 + 17,200 = Rs 23,200

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

Note: There is some misprint in the question in the figure of salary entitled to D. In place of 300 per month, it should be 3,000 per month. To match the answer with the book, it is required to make corresponding changes.

#### Page No 1.87:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital: Profit and Loss A/c (Net Profit) 2,16,000 Amit 20,000 Interest on Drawings A/c: Vijay 15,000 35,000 Amit 2,200 Salary to: Vijay 2,500 4,700 Amit (2,000 × 12) 24,000 Vijay (3,000 × 12) 36,000 60,000 Profit transferred to: Amit’s Capital A/c 75,420 Vijay’s Capital A/c 50,280 1,25,700 2,20,700 2,20,700

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner
Divisible Profit = 2,16,000 + 4,700 − 35,000 − 60,000 = Rs 1, 25,700
Profit sharing ratio = 3 : 2

#### Page No 1.87:

 Partners’ Capital Accounts Dr. Cr. Particulars Sohan Mohan Particulars Sohan Mohan Drawings A/c 50,000 30,000 Balance b/d 4,00,000 3,00,000 Interest on Drawings A/c 1,250 750 Interest on Capital A/c 20,000 15,000 P&L Appropriation A/c 60,000 50,000 Balance c/d 4,69,750 3,37,250 Partners’ Salary 36,000 - Commission 5,000 3,000 5,21,000 3,68,000 5,21,000 3,68,000

Working Note:

Calculation of Interest on Capital

#### Page No 1.87:

 Profit and Loss Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Kajal’s loan@ 6% p.a. 1,800 Profit 70,260 Profit transferred to P/L Appropriation A/c 68,460 70,260 70,260

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital A/c: Profit and Loss A/c 68,460 Sajal 2,500 Kajal 2,000 4,500 Interest on Drawings A/c: Sajal 300 Reserve 6,450 Kajal 240 540 Profit transferred to: Sajal’s Capital A/c 38,700 Kajal’s Capital A/c 19,350 58,050 69,000 69,000

 Partners’ Capital Accounts Dr. Cr. Particulars Sajal Kajal Particulars Sajal Kajal Drawings A/c 10,000 8,000 Balance b/d 50,000 40,000 Interest on Drawings A/c 300 240 Interest on Capital A/c 2,500 2,000 P&L Appropriation A/c 38,700 19,350 Balance c/d 80,900 53,110 91,200 61,350 91,200 61,350

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Interest on Drawings

WN 3 Calculation of Amount to be transferred to Reserve

Amount for Reserve = 10% of Divisible Profit

Divisible Profit = Profit + Interest on Drawings Interest on Capital

= 68,460 + 540 4,500 = Rs 64,500

WN 4 Calculation of Profit Share of each Partner

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

Profit sharing ratio = 2 : 1

#### Page No 1.87:

 Profit and Loss Appropriation Account for the year March 31, 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Salary to B 12,000 Profit and Loss A/c (Net Profit) 35,000 Interest on Capital: Interest on Drawings A/c: A 6,000 A 150 B 4,500 10,500 B 210 360 Profit transferred to: A’s Capital A/c 7,716 B’s Capital A/c 5,144 12,860 35,360 35,360

 Partners’ Capital Accounts Dr. Cr. Particulars A B Particulars A B Drawings A/c 9,000 18,000 Balance b/d 60,000 45,000 Interest on Drawings A/c 150 210 Interest Capital A/c 6,000 4,500 Salary A/c - 12,000 Balance c/d 64,566 48,434 P&L Appropriation A/c 7,716 5,144 73,716 66,644 73,716 66,644

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profit available for Distribution = 35,000 + 360 − 12,000 − 10,500 = Rs 12, 860

#### Page No 1.88:

 Profit and Loss Appropriation Account for the year ended March 31, 2016 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on  Capital: Profit and Loss A/c (Net Profit) 50,000 A 3,000 B 1,800 4,800 B’s Salary (500 × 12) 6,000 Partner’s  Commission A 6,000 B 1,581 7,581 Profit transferred to: A’s Capital A/c 23,714 B’s Capital A/c 7,905 31,619 50,000 50,000

 Partners’ Capital Accounts Dr. Cr. Particulars A B Particulars A B Drawings A/c 8,000 6,000 Balance b/d 50,000 30,000 Interest on Capital A/c 3,000 1,800 Commission A/c 6,000 1,581 Salary A/c 6,000 Balance c/d 74,714 41,286 P/L Appropriation A/c 23,714 7,905 82,714 47,286 82,714 47,286

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Commission to Partners

Commission to B = 5% on Profits after all Expense including such Commission

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

WN 3 Calculation of Profit Share of each Partner

Profit available for Distribution = 50,000 − 4,800 − 6,000 −7,581 = Rs 31,619

Profit sharing ratio = 3 : 1