Double Entry Book Keeping Ts Grewal Vol I 2018 for Class 12 Commerce Accountancy Chapter 1 - Accounting For Partnership Firms Fundamentals

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

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.

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.

Question 4:

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.

Question 5:

Harshad and Dhiman are in partnership since 1st April, 2017. No partnership agreement was made. They contributed Rs 4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advance an amount of Rs 1,00,000 to the firm on 1st October, 2017. Due to long illness, Harshad could not participate in business activities from 1st August to 30th September, 2017. The profit for the year ended 31st March, 2018 amounted to Rs 1,80,000. 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 proportion of capital;
Dhiman Claims :
(i) Profit should be distributed equally;
(ii) He should be allowed Rs 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 Harshand and Dhiman. Also prepare Profit and Loss Appropriation Account.

Answer:

DISTRIBUTION OF PROFITS

Harshad Claims:

Decisions
(i) If there is no agreement on interest on partner’s capital, according to Indian partnership act 1932, no interest will be allowed to partners.
(ii) If there is no agreement on the matter of profit sharing, according to partnership act 1932, profit shall be distributed equally.

Dhiman Claims:

Decisions
(i) Dhiman claim is justified, according partnership act 1932 if there is no agreement on the matter of profit distribution, profit shall be distributed equally.
(ii) No salary will be allowed to any partner because there is no agreement on matter of remuneration.
(iii) Dhiman’s claim is not justified on the matter of interest on capital but justified on the matter of interest on loan. If there is no agreement on interest on partner’s loan, Interest shall be provided at 6% p.a.

Profit and Loss Adjustment Account
Dr.				Cr.
Particulars	Amount (Rs)	Particulars	Amount (Rs)
Interest on Partner’s Loan		Profit and Loss A/c	1,80,000
Harshad 1,00,000 × (6/100) × (6/12)	3,000
Profit and Loss Appropriation A/c	1,77,000
	1,80,000		1,80,000

Profit and Loss Appropriation Account
Dr.				Cr.
Particulars	Amount (Rs)	Particulars	Amount (Rs)
Profit transferred to		Profit and Loss Adjustment A/c	1,77,000
Harshad’s Capital	88,500
Dhiman’s Capital	88,500

	1,77,000		1,77,000

Question 6:

A and B are partners from 1st April, 2017, without a Partnership Deed and they introduced capitals of ₹ 35,000 and ₹ 20,000 respectively. On 1st October, 2017, A advances a loan of ₹ 8,000 to the firm without any agreement as to interest. The profit and Loss Account for the year ended 31st March, 2018 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.

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

Question 7:

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.

Answer:

Amount advanced by the Partners = Rs 30,000

Profit sharing ratio = 3 : 2

Time Period (from October 01, 2017 to March 31, 2018) = 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.

Question 8:

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

Answer:

Time Period (from October 01, 2017 to March 31, 2018) = 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, 2017 to March 31, 2018) at 6% p.a.

Question 9:

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, 2017, X and Y granted loans of ₹ 80,000 and ₹ 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2018 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.

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, 2018
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, 2018
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, 2018
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, 2018
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

Question 10:

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, 2017, Bat and Ball granted lonas 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, 2018 before rent and interest amounted to ₹ 9,000. Show distribution of profit/loss.

Answer:

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Loss (before interest)	9,000
Rent (5,000 $\times$ 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
$Bat' s Share of Loss = 79, 800 \times \frac{2}{5} = Rs 31, 920 Ball' s Share of Loss = 79, 800 \times \frac{3}{5} = Rs 47, 880$

Question 11:

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.

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

Question 12:

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.
Prepare Profit and Loss Appropriation Account.

Answer:

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

Question 13:

X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 80,000 and ₹ 60,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹ 6,000 which has not been withdrawn. Profit for the year ended 31st march, 2018 before interest on capital but after chargingY's salary amounted to ₹ 24,000.
A provision of 5% of the profit is to be made in respect commission to the manager. Prepare an account showing the allocation profits.

Answer:

Profit and Loss Adjustment Account for the year ended 31st March 2018
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 for the year ended 31st March 2018
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

Question 14:

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 salary of ₹ 2,500 per month and Manoj was to ger 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.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March 2018
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 15:

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.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Profit and Loss A/c	1,00,000	Interest on Drawings A/c:
		Reema	3,000
		Seema	3,000	6,000
		Loss transferred to
		Reema	47,000
		Seema	47,000	94,000
	1,00,000			1,00,000

Note: Since the firm has incurred loss, no interest on capital and salary will be allowed to the partners. However, interest on drawings will be charged from each of them @ 10% p.a. on the amounts withdrawn by them for an average period of six months.

Question 16:

Bhanu and Partab are partners sharings profits eqully. Their fixed capitals as on 1st April, 2017 are ₹ 8,00,000 and ₹ 10,00,000 respectively. Their drawings 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. Profit for the year ended 31st March, 2018 was ₹ 1,20,000.
Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.						Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Interest on Capital A/c:			Profit and Loss A/c		1,20,000
Bhanu’s Current A/c	80,000		Interest on Drawings A/c:
Partap’s Current A/c	1,00,000	1,80,000	Bhanu’s Current A/c	3,750
			Partap’s Current A/c	7,500	11,250
			Loss transferred to
			Bhanu’s Current A/c	24,375
			Partap’s Current A/c	24,375	48,750

		1,80,000			1,80,000

Question 17:

Amar and Bimal entered into partnership on 1st April, 2017 contributing ₹ 1,50,000 and ₹ 2,50,000 respecitvely towards capital. The Partnership Deed provided for interest on capital @ 10% p.a. It also provided that Capital Accounts shall be maintained following Fixed Capital Accounts method. The firm earned net profit of ₹ 1,00,000 for the year ended 31st March 2018.
Pass the Journal entry for interest on capital.

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:

$\begin{array}{l} Amar's Interest on Capital = 1,50,000 \times \frac{10}{100} = Rs 15,000 \\ Bimal's Interest on Capital = 2,50,000 \times \frac{10}{100} = Rs 25,000 \end{array}$

Question 18:

Kamal and Kapil ar partners having fixed capitals of ₹ 5,00,000 each as on 31st March, 2017. Kamal introduced further captial of ₹ 1,00,000 on 1st October, 2017 whereas Kapil withdrew ₹ 1,00,000 on 1st October, 2017 out of 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 2018.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

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 2018
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:

$\begin{array}{l} Kamal = (\frac{5, 00, 000 \times 10 \times 6}{100 \times 12}) + (\frac{6, 00, 000 \times 10 \times 6}{100 \times 12}) = Rs 55,000 \\ Kapil = (\frac{5, 00, 000 \times 10 \times 6}{100 \times 12}) + (\frac{4, 00, 000 \times 10 \times 6}{100 \times 12}) = Rs 45,000 \end{array}$

Question 19:

Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2017 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 2018.
Pass the journal entries for interest on capital and distibution of profit. Also prepare Profit and Loss Appropriation Account for the year.

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 2018
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

$\begin{array}{l} Simran's Interest on Capital = 2,00,000 \times \frac{5}{100} = Rs 10,000 \\ Reema's Interest on Capital = 2,00,000 \times \frac{5}{100} = Rs 10,000 \end{array}$

Question 20:

Anita and Ankita are partners sharing profits equally. Their capitals, maintained following Fluctuating Capital Accounts Method, as on 31st March, 2017 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, 2018.
Pass the journal entry for interest on capital.

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

$\begin{array}{l} Anita's Interest on Capital = 5,00,000 \times \frac{10}{100} = Rs 50,000 \\ Ankita's Interest on Capital = 4,00,000 \times \frac{10}{100} = Rs 40,000 \end{array}$

Question 21:

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, 2018 after debit of drawings during the year of ₹ 1,50,000 and ₹ 1,00,000 respectively. Net profit for the year ended 31st March was ₹ 5,00,000. Interest on capital is to be allowed @ 10% p.a.
Pass the journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

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 2018
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

$\begin{array}{l} Ashish's Interest on Capital = 6,50,000 \times \frac{10}{100} = Rs 65,000 \\ Aakash's Interest on Capital = 7,00,000 \times \frac{10}{100} = Rs 70,000 \end{array}$

Question 22:

Naresh and Sukesh are partners with capitals of ₹ 3,00,000 each as on 31st March, 2018. Naresh had withdrawn ₹ 50,000 against capital on 1st October, 2017 and also ₹ 1,00,000 besides the drawings against capital. Sukesh also had drawings of ₹ 1,00,000.
Interest on capital is to be allowed @ 10% p.a.
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.gbn knnk j

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

$\begin{array}{l} Naresh = \frac{4, 50, 000 \times 10 \times 6}{100 \times 12} + \frac{4, 00, 000 \times 10 \times 6}{100 \times 12} = Rs 42,500 \\ Sukesh = \frac{4, 00, 000 \times 10}{100} = Rs 40,000 \end{array}$

Question 23:

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.

Question 24:

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

Question 25:

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

Question 26:

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

Question 27:

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.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
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 28:

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 chaging all commission and partners' salaries. Net profit before providing for partners' salaries and commission for the year ended 31st March, 2018 was ₹ 4,20,000, show distribution of profit.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
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 29:

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.

Question 30:

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.

Question 31:

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, 2018. Calculate interest on drawings @ 5% p.a. for a period of six months.

Answer:

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, 2018. Calculate interest on drawings @ 5% p.a. for a period of six months.

Answer:

Question 33:

Calculate interest on drawings of Mr. Ashok @ 10% p.a. for the year ended 31st March, 2018, in each of the following alternative cases:
Case 1. If he withdrew ₹ 7,500 in the beginning of each quarte.
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.

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

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:

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.

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, 2017. On 1st July, 2017, 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, 2018.

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

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, 2018.

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

Question 37:

Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2018.

BALANCE SHEET as at 31st March, 2018
Liabilities	₹	Assets***	₹***
Neelkant's Capital	10,00,000	Sundry Assets	30,00,000
Mahadev's Capital	10,00,000
Neelkant's Current A/c	1,00,000
Mahadev' Current A/c	1,00,000
profit and Loss Appropriation A/c (March 2018)	8,00,000
	30,00,000		30,00,000

During the year, Mahadev's drawings were ₹ 30,000. Profits during the year ended 31st March, 2018 is ₹ 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2018.

Answer:

Interest on Capital

Neelkant’s	$10, 00, 000 \times \frac{5}{100} = 50, 000$
Mahadev’s	$10, 00, 000 \times \frac{5}{100} = 50, 000$

Note: In this question, as the balances of both Partner's Capital Account and of Partner's Current Account are mentioned, so it has been assumed that the capital of the partners is fixed.

As we know, when the capital of the partners is fixed, drawings and interest on capital does not affect the capital balances of the partners. Rather, it would affect their current account balances. Therefore, in this case, capital at the beginning (i.e. opening capital) and capital at the end (i.e. closing capital) of the year would remain same. Thus, the interest on capital is calculated on fixed capital balances (given in the Balance Sheet of the question).

Question 38:

From the following Balance Sheet of Long and Short, calculate interst on capital @ 8% p.a. for the year ended 31st March, 2018.

BALANCE SHEET as at 31st March, 2018
Liabilities	₹	Assets	₹
Long's Capital A/c	1,20,000	Fixed Assets	3,00,000
Short's Capital A/c	1,40,000	Other Assets	60,000
General Reserve	1,00,000
	3,60,000		3,60,000

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.

Answer:

Calculation of Capital at the beginning (as on April 01, 2017)

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

Question 39:

X and Y 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) where there is no agreement except for interest on capitals; and
(ii) where there is an agreement that the interest on capital as a charge.

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.

Question 40:

A and B started business on 1st April, 2017 with capitals of ₹ 15,00,000 and ₹ 9,00,000 respectively. On 1st October, 2017, 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, 2018.

Answer:

Calculation of Interest on A’s Capital

Date	Capital	×	Period	=	Product
April 01, 2016 to Sept. 30, 2017	15,00,000	×	6	=	90,00,000
Oct. 01, 2016 to March 31, 2018	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, 2017	9,00,000	×	6	=	54,00,000
Oct. 01, 2016 to March 31, 2018	12,00,000	×	6	=	72,00,000
Sum of Product					1,26,00,000

Question 41:

X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2 . On 31st March, 2018 after closing the books of account, their Capital Accounts stood at ₹ 4,80,000 and ₹ 6,00,000 respectively. On 1st May, 2017, X introduced an additional capital of ₹ 1,20,000 and Y withdrew ₹ 60,000 form his capital.On 1st October, 2017, X withdrew ₹ 2,40,000 from his capital and Y introduced ₹ 3,00,000 . Interest on capital is allowed at 6% p.a. Subsequently, it was discovered that interest on capital @ 6% p.a. had been omitted. The profits for the year ended 31st March, 2018 amounted to ₹ 2,40,000 and the partners' drawings had been: X–₹1,20,000 and Y–₹ 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.

Answer:

Case 1: If Capitals are fixed:

Calculation of Interest on Capital

$\begin{array}{l} Interest on Capital \\ X = \frac{6, 00, 000 \times 6 \times 1}{100 \times 12} + \frac{7, 20, 000 \times 6 \times 5}{100 \times 12} + \frac{4, 80, 000 \times 6 \times 6}{100 \times 12} = Rs 35,400 \\ Y = \frac{3, 60, 000 \times 6 \times 1}{100 \times 12} + \frac{3, 00, 000 \times 6 \times 5}{100 \times 12} + \frac{6, 00, 000 \times 6 \times 6}{100 \times 12} = Rs 27,300 \end{array}$

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

$\begin{array}{l} Interest on Capital \\ X = \frac{5, 76, 000 \times 6 \times 1}{100 \times 12} + \frac{6, 96, 000 \times 6 \times 5}{100 \times 12} + \frac{4, 56, 000 \times 6 \times 6}{100 \times 12} = Rs 33,960 \\ Y = \frac{3, 24, 000 \times 6 \times 1}{100 \times 12} + \frac{2, 64, 000 \times 6 \times 5}{100 \times 12} + \frac{5, 64, 000 \times 6 \times 6}{100 \times 12} = Rs 25,140 \end{array}$

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

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 2017–18, the profit was ₹ 80,000 before interest and salary. Divide the amount between C and D.

Answer:

Profit and Loss Appropriation Account for the year ended 2017-2018
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

$Interest on C' s Capital = 1, 00, 000 \times \frac{6}{100} = 6, 000 Interest on D' s Capital = 60, 000 \times \frac{6}{100} = 3, 600$

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 80,000 − 9,600 − 36,000 = Rs 34,400
$Profit share of C and D each = 34, 400 \times \frac{1}{2} = 17, 200$
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

Question 43:

Amit and Vijay started a partnership business on 1st April,2017. Their capital contributions were ₹ 2,00,000 and ₹ 1,50,000 respectively. The Partnership Deed provided that:
(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.
Profit for the year ended 31st March, 2018 befor above appropriations was ₹ 2,16,000. Interest on drawings amounted to ₹ 2,200 for Amit and ₹ 2,500 for Vijay.
Prepare Profit and Loss Appropriation Account.

Answer:

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

Question 44:

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

	Sohan(₹)	Mohan(₹)
Capital on 1st April, 2017	4,00,000	3,00,000
Drawings during 2017 –18	50,000	30,000
Interest on Capital	5%	5%
Interest on Drawings	1,250	750
Share of Profit for 2017–18	60,000	50,000
Partner's Salary	36,000	.....
Commission	5,000	3,000

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

Question 45:

Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2017 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.
The net profit for the year ended 31st March, 2018 ₹ 68,460.
Note: Net profit means net profit after debit of interest on loan by the partner.

Answer:

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

Question 46:

On 1st April, 2017, A and B entered into partnership contributing ₹ 60,000 and ₹ 45,000 respectively. They agreed to share profits and losses in the ratio of 3 : 2. B is allowed salary of ₹ 12,000 per year. Interest on capital is to be allowed @ 10% p.a. During the year, A withdrew ₹ 9,000 and B withdrew ₹ 18,000 as drawings, Interest on drawings paid by A and B were ₹ 150 and ₹ 210 respectively. Profit for the year ended 31st March, 2018 before the above adjustments was ₹ 35,000. Show distribution of profits by preparing Profit and Loss Appropriation Account of the firm. Prepare Partners' Capital Accounts also.

Answer:

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

Question 47:

A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2017, their capitals were: A ₹ 50,000 and B ₹ 30,000. During the year ended 31st March, 2018 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.

Answer:

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

Double Entry Book Keeping Ts Grewal Vol I 2018 for Class 12 Commerce Accountancy Chapter 1 - Accounting For Partnership Firms Fundamentals

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