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Page No 1.80:

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

Answer:

   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



Page No 1.81:

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?

Answer:

(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.

Page No 1.81:

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.

Answer:

 

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:

Answer:

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.

Page No 1.81:

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.

Answer:

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:

Answer:

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.

Page No 1.81:

Question 7:

  

Answer:

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:

Answer:

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:

Answer:

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:

Answer:

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.

Calculation of Interest on Advances

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:

Answer:

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:

Answer:

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:

Answer:

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
Bat's Share of Loss=79,800×25=Rs 31,920Ball's Share of Loss=79,800×35=Rs 47,880 

Page No 1.82:

Answer:

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:

Answer:

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:

Answer:

 

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:

Answer:

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

Page No 1.83:

Question 18:

  

Answer:

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:

Amar's Interest on Capital = 1,50,000×10100=Rs 15,000Bimal's Interest on Capital = 2,50,000×10100=Rs 25,000

 

Page No 1.83:

Answer:

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:

Kamal=(5,00,000×10×6100×12)+(6,00,000×10×6100×12)=Rs 55,000Kapil=(5,00,000×10×6100×12)+(4,00,000×10×6100×12)=Rs 45,000

 

Page No 1.83:

Answer:

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

Simran's Interest on Capital = 2,00,000×5100=Rs 10,000Reema's Interest on Capital = 2,00,000×5100=Rs 10,000

 

Page No 1.83:

Answer:

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

Anita's Interest on Capital = 5,00,000×10100=Rs 50,000Ankita's Interest on Capital = 4,00,000×10100=Rs 40,000

 



Page No 1.84:

Answer:

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

Ashish's Interest on Capital = 6,50,000×10100=Rs 65,000Aakash's Interest on Capital = 7,00,000×10100=Rs 70,000

 

Page No 1.84:

Answer:

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

Naresh=4,50,000×10×6100×12+4,00,000×10×6100×12=Rs 42,500Sukesh=4,00,000×10100=Rs 40,000

 

Page No 1.84:

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.

Answer:

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.

Page No 1.84:

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.

Answer:

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

 

 

 

 

 

Page No 1.84:

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.

Answer:

Net Profit before charging commission = Rs 1,10,000

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



Page No 1.85:

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.

Answer:

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:

Answer:

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

Page No 1.85:

Question 29:

  

Answer:

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

Page No 1.85:

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?

Answer:

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.

 

Page No 1.85:

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.

Answer:

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:

Answer:

Page No 1.85:

Answer:

Page No 1.85:

Answer:

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

Page No 1.85:

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.

Answer:

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:

Answer:

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:

Answer:

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:

Answer:

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:

Answer:

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:

Answer:

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:

Answer:

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:

Answer:

Case 1: If Capitals are fixed:

Calculation of Interest on Capital

Interest on CapitalX=6,00,000×6×1100×12+7,20,000×6×5100×12+4,80,000×6×6100×12=Rs 35,400Y=3,60,000×6×1100×12+3,00,000×6×5100×12+6,00,000×6×6100×12=Rs 27,300


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

­

Case2: If Capitals are Fluctuating:

Calculation of Interest on Capital

Interest on CapitalX=5,76,000×6×1100×12+6,96,000×6×5100×12+4,56,000×6×6100×12=Rs 33,960Y=3,24,000×6×1100×12+2,64,000×6×5100×12+5,64,000×6×6100×12=Rs 25,140


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:

Answer:

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

Interest on C's Capital = 1,00,000×6100=6,000Interest on D's Capital = 60,000×6100=3,600


WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 80,000 − 9,600 − 36,000 = Rs 34,400
Profit share of C and D each = 34,400×12=17,200
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:

Answer:

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:

Answer:

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:

Answer:

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:

Answer:

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:

Answer:

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

Page No 1.88:

Answer:

Profit and Loss Appropriation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on  Capital:

 

Profit and Loss A/c (Net Profit)

1,72,000

A

5,000

 

 

 

B

5,000

 

 

 

C

10,000

20,000

 

 

Salary to C

 

12,000

 

 

Profit transferred to:                    

 

 

 

A’s Current A/c

50,000

 

 

 

B’s Current A/c

44,000

 

 

 

C’s Current A/c

46,000

1,40,000

 

 

 

1,72,000

 

1,72,000

 

 

 

 


Journal Entries

Date

Particulars

 

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

 

Interest on Capital A/c

Dr.

 

20,000

 

 

  To A’s Current A/c