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Page No 2.80:
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 2.80:
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 2.81:
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 2.81:
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.
Page No 2.81:
Question 5:
Harshad and Dhiman are in partnership since 1st April, 2018. No partnership agreement was made. They contributed ₹ 4,00,000 and ₹ 1,00,000 respectively as capital. In addition, Harshad advanced an amount of ₹ 1,00,000 to the firm on 1st October, 2018. Due to long illness, Harshad could not participate in business activities from 1st August, 2018 to 30th September, 2018. Profit for the year ended 31st March, 2019 was ₹ 1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims :
(i) He should be given interest @ 10% per annum on capital and loan;
(ii) Profit should be distributed in the ratio of capital;
Dhiman Claims :
(i) Profit should be distributed equally;
(ii) He should be allowed ₹ 2,000 p.m. as remuneration for the period he managed the business in the absence of Harshad;
(iii) Interest on Capital and loan should be allowed @ 6% p.a.
You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.
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.  for the year ended 31st March, 2019 
Cr. 

Particulars

Amount
(₹) 
Particulars

Amount
(₹) 

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.  for the year ended 31st March, 2019 
Cr.


Particulars

Amount
(₹) 
Particulars

Amount
(₹) 

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


Page No 2.81:
Question 6:
A and B are partners from 1st April, 2018, without a Partnership Deed and they introduced capitals of ₹ 35,000 and ₹ 20,000 respectively. On 1st October, 2018, A advanced loan of ₹ 8,000 to the firm without any agreement as to interest. The profit and Loss Account for the year ended 31st March, 2019 shows a profit of ₹ 15,000 but the partners cannot agree on payment of interest and on the basis of division of profits.
You are required to divide the profits between them giving reasons for your method.
Answer:
Profit and Loss Account for the year ended March 31, 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 2.81:
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 profitsharing 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.
Page No 2.82:
Question 8:
X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals ₹ 2,00,000 and ₹ 3,00,000 respectively. On 1st October, 2018, X and Y gave loans of ₹ 80,000 and ₹ 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2019 in each of the following alternative cases:
Case 1 : If the profits before interest for the year amounted to ₹ 21,000.
Case 2 : If the profits before interest for the year amounted to ₹ 3,000.
Case 3 : If the profits before interest for the year amounted to ₹ 5,000.
Case 4 : If the loss before interest for the year amounted to ₹ 1,400.
Answer:
Calculation of Interest on Loan
Case 1 If Profits before any interest for the year amounted to ₹ 21,000
Profit and Loss Account for the year ended March 31, 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 ₹ 3,000
Profit and Loss Account for the year ended March 31, 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 ₹ 5,000
Profit and Loss Account for the year ended March 31, 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 ₹ 1,400
Profit and Loss Account for the year ended March 31, 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 2.82:
Question 9:
Bat and Ball are partners sharing the profits in the ratio of 2 : 3 with capitals of ₹ 1,20,000 and ₹ 60,000 respectively. On 1st October, 2018, Bat and Ball gave loans of ₹ 2,40,000 and ₹ 1,20,000 respectively to the firm. Bat had allowed the firm to use his property for business for a monthly rent of ₹ 5,000. The loss for the year ended 31st March, 2019 before rent and interest amounted to ₹ 9,000. Show distribution of profit/loss.
Answer:
Profit and Loss Account for the year ended March 31, 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 = ₹ 19,800
$\mathrm{Bat}\text{'}\mathrm{s}\mathrm{Share}\mathrm{of}\mathrm{Loss}=79,800\times \frac{2}{5}=\mathrm{Rs}31,920\phantom{\rule{0ex}{0ex}}\mathrm{Ball}\text{'}\mathrm{s}\mathrm{Share}\mathrm{of}\mathrm{Loss}=79,800\times \frac{3}{5}=\mathrm{Rs}47,880$
Page No 2.82:
Question 10:
A and B are partners. A's Capital is ₹ 1,00,000 and B's Capital is ₹ 60,000. Interest on capital is payable @ 6% p.a. B is entitled to a salary of ₹ 3,000 per month. Profit for the current year before interest and salary to B is ₹ 80,000.
Prepare Profit and Loss Appropriation Account.
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
Page No 2.82:
Question 11:
X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1 ratio. The fixed capitals of the partners were : X ₹5,00,000; Y ₹ 5,00,000 and Z ₹ 2,50,000 respectively. The Partnership Deed provides that interest on capital is to be allowed @ 10% p.a. Z is to be allowed a salary of ₹ 2,000 per month. The profit of the firm for the year ended 31st March, 2018 after debiting Z's salary was ₹ 4,00,000.
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 
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
Page No 2.82:
Question 12:
X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 8,00,000 and ₹ 6,00,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹ 60,000 which has not been withdrawn. Profit for the year ended 31st March, 2019 before interest on capital but after charging Y's salary amounted to ₹ 2,40,000.
A provision of 5% of the profit is to be made in respect commission to the manager. Prepare an account showing the allocation profits.
Answer:
Profit and Loss Adjustment Account 

Dr. 


Cr. 
Particulars 
Amount (₹) 
Particulars 
Amount (₹) 
Manager’s Commission (3,00,000×5%) 
15,000 
Profit and Loss A/c 
2,40,000 


Y’s Salary 
60,000 
Profit transferred to Profit and Loss 



Appropriation A/c 
2,85,000 



3,00,000 

3,00,000 




Profit and Loss Appropriation Account 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

Salary to Y 
60,000 
Profit and Loss Adjustment A/c 
2,85,000 

Interest on Capital: 

(After manager’s commission) 


X 
40,000 



Y 
30,000 
70,000 


Profit transferred to: 




X’s Capital A/c 
93,000 



Y’s Capital A/c 
62,000 
1,55,000 



2,85,000 

2,85,000 





Working Notes:
WN 1 Calculation of Manager’s Commission
Profit for making Managers’ Commission = 2,40,000 + 60,000 (Y’s Salary) = ₹3,00,000
$\mathrm{Manager}\text{'}\mathrm{s}\mathrm{Commission}=\u20b9\left(3,00,000\times \frac{5}{100}\right)=\u20b915,000$
WN 2 Calculation of Interest on Capital
$\mathrm{Interest}\mathrm{on}\mathrm{X}\text{'}\mathrm{s}\mathrm{Capital}\mathrm{A}/\mathrm{c}=\u20b9\left(8,00,000\times \frac{5}{100}\right)=\u20b940,000\phantom{\rule{0ex}{0ex}}\mathrm{Interest}\mathrm{on}\mathrm{Y}\text{'}\mathrm{s}\mathrm{Capital}\mathrm{A}/\mathrm{c}=\u20b9\left(6,00,000\times \frac{5}{100}\right)=\u20b930,000$
WN 3 Calculation of Profit Share of each Partner
Profit available for distribution = 2,85,000 − 60,000 − 70,000 = ₹1,55,000
$X\text{'}s\mathrm{Share}\mathrm{of}\mathrm{Profit}=\u20b9\left(1,55,000\times \frac{3}{5}\right)=\u20b993,000\phantom{\rule{0ex}{0ex}}Y\text{'}s\mathrm{Share}\mathrm{of}\mathrm{Profit}=\u20b9\left(1,55,000\times \frac{2}{5}\right)=\u20b962,000$
Page No 2.82:
Question 13:
Prem and Manoj are partners in a firm sharing profits in the ratio of 3 : 2. The Partnership Deed provided that Prem was to be paid 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 

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 2.83:
Question 14:
Reema and Seema are partners sharing profits equally. The Partnership Deed provides that both Reema and Seema will get monthly salary of Rs 15,000 each, Interest on Capital will be allowed @ 5% p.a. and Interest on Drawings will be charged @ 10% p.a. Their capitals were Rs 5,00,000 each and drawings during the year were Rs 60,000 each.
The firm incurred a loss of Rs 1,00,000 during the year ended 31st March, 2018.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018.
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.
Page No 2.83:
Question 15:
Bhanu and Partab are partners sharings profits equally. Their fixed capitals as on 1st April, 2018 are ₹ 8,00,000 and ₹ 10,00,000 respectively. Their drawings during the year were ₹ 50,000 and ₹ 1,00,000 respectively. Interest on Capital is a charge and is to be allowed @ 10% p.a. and interest on drawings is to be charged @ 15% p.a. Net Profit for the year ended 31st March, 2019 was ₹ 1,20,000.
Prepare Profit and Loss Appropriation Account.
Answer:
Profit and Loss Appropriation Account for the year ended March 31, 2019 

Dr. 

Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 

Page No 2.83:
Question 16:
Amar and Bimal entered into partnership on 1st April, 2018 contributing ₹ 1,50,000 and ₹ 2,50,000 respectively towards capital. The Partnership Deed provided for interest on capital @ 10% p.a. It also provided that Capital Accounts shall be maintained following Fixed Capital Accounts method. The firm earned net profit of ₹ 1,00,000 for the year ended 31st March 2019.
Pass the Journal entry for interest on capital.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (₹) 
Credit Amount (₹) 

2019 





March 31 
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:
$\mathrm{Amar}\text{'}\mathrm{s}\mathrm{Interest}\mathrm{on}\mathrm{Capital}=1,50,000\times \frac{10}{100}=\mathrm{Rs}15,000\phantom{\rule{0ex}{0ex}}\mathrm{Bimal}\text{'}\mathrm{s}\mathrm{Interest}\mathrm{on}\mathrm{Capital}=2,50,000\times \frac{10}{100}=\mathrm{Rs}25,000$
Page No 2.83:
Question 17:
Kamal and Kapil are partners having fixed capitals of ₹ 5,00,000 each as on 31st March, 2018. Kamal introduced further capital of ₹ 1,00,000 on 1st October, 2018 whereas Kapil withdrew ₹ 1,00,000 on 1st October, 2018 out of capital.
Interest on capital is to be allowed @ 10% p.a.
The firm earned net profit of ₹ 6,00,000 for the year ended 31st March 2019.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (₹) 
Credit Amount (₹) 

2019 





March 31 
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 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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:
$\begin{array}{l}\mathrm{Kamal}=\left(\frac{5,00,000\times 10\times 6}{100\times 12}\right)+\left(\frac{6,00,000\times 10\times 6}{100\times 12}\right)=\mathrm{Rs}55,000\\ \mathrm{Kapil}=\left(\frac{5,00,000\times 10\times 6}{100\times 12}\right)+\left(\frac{4,00,000\times 10\times 6}{100\times 12}\right)=\mathrm{Rs}45,000\end{array}$
Page No 2.83:
Question 18:
Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2018 were ₹ 2,00,000 each whereas Current Accounts had balances of ₹ 50,000 and ₹ 25,000 respectively interest is to be allowed @ 5% p.a. on balances in Capital Accounts. The firm earned net profit of ₹ 3,00,000 for the year ended 31st March 2019.
Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (₹) 
Credit Amount (₹) 








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 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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
$\begin{array}{l}\text{Simran's\hspace{0.17em}Interest\hspace{0.17em}on\hspace{0.17em}Capital\hspace{0.17em}=\hspace{0.17em}}2\text{,00,000}\times \frac{5}{100}=\text{Rs10,000}\\ \text{Reema's\hspace{0.17em}Interest\hspace{0.17em}on\hspace{0.17em}Capital\hspace{0.17em}=\hspace{0.17em}}2\text{,00,000}\times \frac{5}{100}=\text{Rs10,000}\end{array}$
Page No 2.83:
Question 19:
Anita and Ankita are partners sharing profits equally. Their capitals, maintained following Fluctuating Capital Accounts Method, as on 31st March, 2018 were ₹ 5,00,000 and ₹ 4,00,000 respectively. Partnership Deed provided to allow interest on capital @ 10% p.a. The firm earned net profit of ₹ 2,00,000 for the year ended 31st March, 2019.
Pass the Journal entry for interest on capital.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (₹) 
Credit Amount (₹) 

2019 





March 31 
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
$\begin{array}{l}\text{Anita's\hspace{0.17em}Interest\hspace{0.17em}on\hspace{0.17em}Capital\hspace{0.17em}=\hspace{0.17em}}5\text{,00,000}\times \frac{10}{100}=\text{Rs50,000}\\ \text{Ankita's\hspace{0.17em}Interest\hspace{0.17em}on\hspace{0.17em}Capital\hspace{0.17em}=\hspace{0.17em}}4\text{,00,000}\times \frac{10}{100}=\text{Rs40,000}\end{array}$
Page No 2.84:
Question 20:
Ashish and Aakash are partners sharing profit in the ratio of 3 : 2. Their Capital Accounts showed a credit balance of ₹ 5,00,000 and ₹ 6,00,000 respectively as on 31st March, 2019 after debit of drawings during the year of ₹ 1,50,000 and ₹ 1,00,000 respectively. Net profit for the year ended 31st March, 2019 was ₹ 5,00,000. Interest on capital is to be allowed @ 10% p.a.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (₹) 
Credit Amount (₹) 

2019 





March 31 
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 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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
$\begin{array}{l}\text{Ashish's\hspace{0.17em}Interest\hspace{0.17em}on\hspace{0.17em}Capital\hspace{0.17em}=\hspace{0.17em}}6\text{,50,000}\times \frac{10}{100}=\text{Rs65,000}\\ \text{Aakash's\hspace{0.17em}Interest\hspace{0.17em}on\hspace{0.17em}Capital\hspace{0.17em}=\hspace{0.17em}}7\text{,00,000}\times \frac{10}{100}=\text{Rs70,000}\end{array}$
Page No 2.84:
Question 21:
Naresh and Sukesh are partners with capitals of ₹ 3,00,000 each as on 31st March, 2019. Naresh had withdrawn ₹ 50,000 against capital on 1st October, 2018 and also ₹ 1,00,000 besides the drawings against capital. Sukesh also had drawings of ₹ 1,00,000.
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.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (₹) 
Credit Amount (₹) 

2019 





March 31 
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
$\begin{array}{l}\text{Naresh}=\frac{4,50,000\times 10\times 6}{100\times 12}+\frac{4,00,000\times 10\times 6}{100\times 12}=\text{Rs42,500}\\ \text{Sukesh}=\frac{4,00,000\times 10}{100}=\text{Rs40,000}\end{array}$
Page No 2.84:
Question 22:
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 2.84:
Question 23:
Amar, Bhanu, and Charu are partners in a firm. Amar and Bhanu 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 (₹) 
Particulars 
Amount (₹) 

Salary: 

Profit and Loss A/c 
4,80,000 

Amar 
1,20,000 




Bhanu 
1,20,000 
2,40,000 



Profit transferred to: 




Amar’s Capital A/c 
80,000 




Bhanu’s Capital A/c 
80,000 




Charu’s Capital A/c 
80,000 
2,40,000 




4,80,000 

4,80,000 





Page No 2.84:
Question 24:
A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1 respectively. A is entitled to a commission of 10% on the net profit. Net profit for the year is ₹ 1,10,000.
Determine the amount of commission payable to A.
Answer:
Net Profit before charging commission = Rs 1,10,000
Commission to A = 10% of on Net Profit before charging such commission
Page No 2.84:
Question 25:
X, Y and Z are partners sharing profits and losses equally. As per Partnership Deed, Z is entitled to a commission of 10% on the net profit after charging such commission. The net profit before charging commission is ₹ 2,20,000.
Determine the amount of commission payable to Z.
Answer:
Net Profit before charging Commission = Rs 2,20,000
Commission to Z = 10% of on Net Profit after charging such commission
Page No 2.84:
Question 26:
A, B, C, and D are partners in a firm sharing profits as 4 : 3 : 2 : 1 respectively. It earned a profit of ₹ 1,80,000 for the year ended 31st March, 2018. As per the Partnership Deed, they are to charge a commission @ 20% of the profit after charging such commission which they will share as 2 : 3 : 2 : 3. You are required to show appropriation of profits among the partners.
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
Page No 2.85:
Question 27:
X and Y are partners in a firm. X is entitled to a salary of ₹ 10,000 per month and commission of 10% of the net profit after partners' salaries but before charging commission. Y is entitled to a salary of ₹ 25,000 p.a. and commission of 10% of the net profit after charging all commission and partners' salaries. Net profit before providing for partners' salaries and commission for the year ended 31st March, 2019 was ₹ 4,20,000. Show distribution of profit.
Answer:
Profit and Loss Appropriation Account for the year ended March 31, 2019 

Dr. 
Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 = ₹ 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 = ₹ 2,47,500
WN 2 Calculation of Profit Share of each Partner
Profit available for distribution = 4,20,000 − 1,45,000 − 50,000 = ₹ 2,25,000
Profit sharing ratio = 1 : 1
Page No 2.85:
Question 28:
Ram and Mohan, two partners, drew for their personal use ₹ 1,20,000 and ₹ 80,000. Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest chargeable from each partner?
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 2.85:
Question 29:
Brij and Mohan are partners in a firm. They withdrew ₹ 48,000 and ₹ 36,000 respectively during the year evenly in the middle of every month. According to the partnership agreement, interest on drawings is to be charged @ 10% p.a.
Calculate interest on drawings of the partners using the appropriate formula.
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.
$\mathrm{Interest}\mathrm{on}\mathrm{Brij}\text{'}\mathrm{s}\mathrm{Drawings}=\u20b9\left(48,000\times \frac{10}{100}\times \frac{6}{12}\right)=\u20b92,400\phantom{\rule{0ex}{0ex}}\mathrm{Interest}\mathrm{on}\mathrm{Mohan}\text{'}\mathrm{s}\mathrm{Drawings}=\u20b9\left(36,000\times \frac{10}{100}\times \frac{6}{12}\right)=\u20b91,800$Page No 2.85:
Question 30:
A and B are partners sharing profits equally. A drew regularly ₹ 4,000 in the beginning of every month for six months ended 30th September, 2019. Calculate interest on drawings @ 5% p.a. for a period of six months.
Answer:
Page No 2.85:
Question 31:
One of the partners in a partnership firm has withdrawn ₹ 9,000 at the end of each quarter, throughout the year. Calculate interest on drawings at the rate of 6% per annum.
Answer:
Amount of Drawings = ₹ 9,000 per quarter
Annual Drawings= ₹ (9,000 × 4) = ₹ 36,000
Rate of Interest on Drawings = 6% p.a.
Average Period  =  (Months remaining after the first drawings + Months remaining after the last drawings)/2 
=  (9 + 0)/2 = 4.5 months  
Interest on Drawings  =  (Annual drawings × Rate of Drawings/100 × Average Period/12) 
=  (36,000 × 6/100 × 4.5/12) = ₹ 810 
Page No 2.85:
Question 32:
A and B are partners sharing profits equally. A drew regularly ₹ 4,000 at the end of every month for six months ended 30th September, 2019. Calculate interest on drawings @ 5% p.a. for a period of six months.
Answer:
Page No 2.85:
Question 33:
Calculate interest on drawings of Ashok @ 10% p.a. for the year ended 31st March, 2019, in each of the following alternative cases:
Case 1. If he withdrew ₹ 7,500 in the beginning of each quarter.
Case 2. If he withdrew ₹ 7,500 at the end of each quarter.
Case 3. If he withdrew ₹ 7,500 during the middle of each quarter.
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 2.85:
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.
Page No 2.86:
Question 35:
A and B are partners sharing Profit and Loss in the ratio 3 : 2 having Capital Account balances of ₹ 50,000 and ₹ 40,000 on 1st April, 2018. On 1st July, 2018, A introduced ₹ 10,000 as his additional capital whereas B introduced only ₹ 1,000. Interest on capital is allowed to partners @ 10% p.a.
Calculate interest on capital for the financial year ended 31st March, 2019.
Answer:
Calculation of Interest on A’s Capital
Date 
Capital 
× 
Period 
= 
Product 
April 01, 2018 to June 30, 2018 
50,000 
× 
3 
= 
1,50,000 
July 01, 2018 to March 31, 2019 
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, 2018 to June 30, 2018 
40,000 
× 
3 
= 
1,20,000 
July 01, 2018 to March 31, 2019 
41,000 
× 
9 
= 
3,69,000 
Sum of Product 

4,89,000 



Page No 2.86:
Question 36:
Ram and Mohan are partners in a business. Their capitals at the end of the year were ₹ 24,000 and ₹ 18,000 respectively. During the year, Ram's drawings and Mohan's drawings were ₹ 4,000 and ₹ 6,000 respectively. Profit (before charging interest on capital) during the year was ₹ 16,000. Calculate interest on capital @ 5% p.a. for the year ended 31st March, 2019.
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 2.86:
Question 37:
Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2019.
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 (201819) 
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, 2019 is ₹ 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2019.
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).
Page No 2.86:
Question 38:
From the following Balance Sheet of Long and Short, calculate interest on capital @ 8% p.a. for the year ended 31st March, 2019.
BALANCE SHEET
as at 31st March, 2019 

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, 2018)
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 2.86:
Question 39:
Moli and Bholi contribute ₹ 20,000 and ₹ 10,000 respectively towards capital. They decide to allow interest on capital @ 6% p.a. Their respective share of profits is 2 : 3 and the net profit for the year is ₹ 1,500. Show distribution of profits:
(i) 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
$\mathrm{Interest}\mathrm{on}\mathrm{Moli}\text{'}\mathrm{s}\mathrm{Capital}=\u20b9\left(20,000\times \frac{6}{100}\right)=\u20b91,200\phantom{\rule{0ex}{0ex}}\mathrm{Interest}\mathrm{on}\mathrm{Bholi}\text{'}\mathrm{s}\mathrm{Capital}=\u20b9\left(10,000\times \frac{6}{100}\right)=\u20b9600\phantom{\rule{0ex}{0ex}}\mathrm{Total}\mathrm{Amount}\mathrm{of}\mathrm{Interest}\mathrm{on}\mathrm{Capital}=\u20b9(1,200+600)=\u20b91,800$
Case (a)
Where there is no clean agreement except for interest on capitals
Profit for the year ended = ₹ 1,500
Total amount of interest = ₹ 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 Moli and Bholi in the ratio of their interest on capital.
Particulars 
Moli 
: 
Bholi 
Interest on Capital 
1,200 
: 
600 
or, Ratio of interest on Capital 
2 
: 
1 
$\mathrm{Moli}\mathrm{will}\mathrm{get}\mathrm{Interest}\mathrm{on}\mathrm{Capital}=\u20b9\left(1,500\times \frac{2}{3}\right)=\u20b91,000\phantom{\rule{0ex}{0ex}}\mathrm{Bholi}\mathrm{will}\mathrm{get}\mathrm{Interest}\mathrm{on}\mathrm{Capital}=\u20b9\left(1,500\times \frac{1}{3}\right)=\u20b9500$
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.
$\mathrm{Interest}\mathrm{on}\mathrm{Moli}\text{'}\mathrm{s}\mathrm{Capital}=\u20b9\left(20,000\times \frac{6}{100}\right)=\u20b91,200\phantom{\rule{0ex}{0ex}}\mathrm{Interest}\mathrm{on}\mathrm{Bholi}\text{'}\mathrm{s}\mathrm{Capital}=\u20b9\left(10,000\times \frac{6}{100}\right)=\u20b9600\phantom{\rule{0ex}{0ex}}\mathrm{Total}\mathrm{Amount}\mathrm{of}\mathrm{Interest}\mathrm{on}\mathrm{Capital}=\u20b9(1,200+600)=\u20b91,800$
Total Profit of the firm = ₹ 1,500
Therefore, loss to the firm amounts to ₹300. This loss is to shared by Moli and Bholi in their profit sharing ratio that is 2 : 3.
$\mathrm{Loss}\mathrm{to}\mathrm{Moli}=\u20b9\left(300\times \frac{2}{5}\right)=\u20b9120\phantom{\rule{0ex}{0ex}}\mathrm{Loss}\mathrm{to}\mathrm{Bholi}=\u20b9\left(300\times \frac{3}{5}\right)=\u20b9180$
Page No 2.86:
Question 40:
Amit and Bramit started business on 1st April, 2018 with capitals of ₹ 15,00,000 and ₹ 9,00,000 respectively. On 1st October, 2018, they decided that their capitals should be ₹ 12,00,000 each. The necessary adjustments in capitals were made by introducing or withdrawing by cheque. Interest on capital is allowed @ 8% p.a. Compute interest on capital for the year ended 31st March, 2019.
Answer:
Calculation of Interest on Amit’s Capital
Date 
Capital 
× 
Period 
= 
Product 
April 01, 2018 to Sept. 30, 2018 
15,00,000 
× 
6 
= 
90,00,000 
Oct. 01, 2018 to March 31, 2019 
12,00,000 
× 
6 
= 
72,00,000 
Sum of Product 

1,62,00,000 



Calculation of Interest on Bramit’s Capital
Date 
Capital 
× 
Period 
= 
Product 
April 01, 2018 to Sept. 30, 2018 
9,00,000 
× 
6 
= 
54,00,000 
Oct. 01, 2018 to March 31, 2019 
12,00,000 
× 
6 
= 
72,00,000 
Sum of Product 

1,26,00,000 



Page No 2.87:
Question 41:
Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2019 after closing the books of account, their Capital Accounts stood at ₹ 4,80,000 and ₹ 6,00,000 respectively. On 1st May, 2018, Simrat introduced an additional capital of ₹ 1,20,000 and Bir withdrew ₹ 60,000 from his capital.On 1st October, 2018, Simrat withdrew ₹ 2,40,000 from her capital and Bir introduced ₹ 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March, 2019 amounted to ₹ 2,40,000 and the partners' drawings had been: Simrat – ₹ 1,20,000 and Bir – ₹ 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.
Answer:
Case 1: If Capitals are fixed:
Calculation of Interest on Capital
$\begin{array}{l}\text{InterestonCapital}\\ \mathrm{Simrat}=\frac{6,00,000\times 6\times 1}{100\times 12}+\frac{7,20,000\times 6\times 5}{100\times 12}+\frac{4,80,000\times 6\times 6}{100\times 12}=\u20b9\text{35,400}\\ \mathrm{Bir}=\frac{3,60,000\times 6\times 1}{100\times 12}+\frac{3,00,000\times 6\times 5}{100\times 12}+\frac{6,00,000\times 6\times 6}{100\times 12}=\text{\u20b927,300}\end{array}$
Working Notes:
WN1: Calculation of Opening Capital:
Particulars 
Simrat 
Bir 
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
$\begin{array}{l}\text{InterestonCapital}\\ \mathrm{Simrat}=\frac{5,76,000\times 6\times 1}{100\times 12}+\frac{6,96,000\times 6\times 5}{100\times 12}+\frac{4,56,000\times 6\times 6}{100\times 12}=\text{\u20b933,960}\\ \mathrm{Bir}=\frac{3,24,000\times 6\times 1}{100\times 12}+\frac{2,64,000\times 6\times 5}{100\times 12}+\frac{5,64,000\times 6\times 6}{100\times 12}=\text{\u20b925,140}\end{array}$
Working Notes:
WN1: Calculation of Opening Capital:
Particulars 
Simrat 
Bir 
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 2.87:
Question 42:
C and D are partners in a firm; C has contributed ₹ 1,00,000 and D ₹ 60,000 as capital. Interest in payable @ 6% p.a. and D is entitled to a salary of ₹ 3,000 per month. In the year ended 31st March, 2019, the profit was ₹ 80,000 before interest and salary. Divide the amount between C and D.
Answer:
Profit and Loss Appropriation Account for the year ended 20182019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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
$\mathrm{Interest}\mathrm{on}\mathrm{C}\text{'}\mathrm{s}\mathrm{Capital}=1,00,000\times \frac{6}{100}=6,000\phantom{\rule{0ex}{0ex}}\mathrm{Interest}\mathrm{on}\mathrm{D}\text{'}\mathrm{s}\mathrm{Capital}=60,000\times \frac{6}{100}=3,600$
WN 2 Calculation of Profit Share of each Partner
Profit available for distribution = 80,000 − 9,600 − 36,000 = Rs 34,400
$\mathrm{Profit}\mathrm{share}\mathrm{of}\mathrm{C}\mathrm{and}\mathrm{D}\mathrm{each}=34,400\times \frac{1}{2}=17,200$
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
Page No 2.87:
Question 43:
Amit and Vijay started a partnership business on 1st April, 2018. Their capital contributions were ₹ 2,00,000 and ₹ 1,50,000 respectively. The Partnership Deed provided as follows:
(a) Interest on capital be allowed @ 10% p.a.
(b) Amit to get a salary of ₹ 2,000 per month and Vijay ₹ 3,000 per month.
(c) Profits are to be shared in the ratio of 3 : 2.
Net profit for the year ended 31st March, 2019 was ₹ 2,16,000. Interest on drawings amounted to ₹ 2,200 for Amit and ₹ 2,500 for Vijay.
Prepare Profit and Loss Appropriation Account.
Answer:
Profit and Loss Appropriation Account 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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
Page No 2.87:
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, 2018  4,00,000  3,00,000 
Drawings during the year ended 31st march, 2019  50,000  30,000 
Interest on Capital  5%  5% 
Interest on Drawings  1,250  750 
Share of Profit for the year ended 31st march, 2019  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
Page No 2.87:
Question 45:
Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2018 their Capitals were: Sajal – ₹ 50,000 and Kajal – ₹ 40,000.
Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts at the end of the year after considering the following items:
(a) Interest on Capital is to be allowed @ 5% p.a.
(b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being ₹ 30,000.
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal ₹ 10,000 and Kajal ₹ 8,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
Net profit for the year ended 31st March, 2019 is ₹ 68,460.
Note: Net profit means net profit after debit of interest on loan by the partner.
Answer:
Profit and Loss Account 

Dr. 


Cr. 
Particulars 
Amount (₹) 
Particulars 
Amount (₹) 
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 (₹) 
Particulars 
Amount (₹) 

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 2.88:
Question 46:
A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2018, their capitals were: A ₹ 50,000 and B ₹ 30,000. During the year ended 31st March, 2019 they earned a net profit of ₹ 50,000. The terms of partnership are:
(a) Interest on capital is to allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of ₹ 500 per month.
(d) B will get commission of 5% on profits after deduction of all expenses including such commission.
Partners' drawings for the year were: A ₹ 8,000 and B ₹ 6,000. Turnover for the year was ₹ 3,00,000.
After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners' Capital Accounts.
Answer:
Profit and Loss Appropriation Account for the year ended 31st March, 2019 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

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 2.88:
Question 47:
A, B and C were partners in a firm having capitals of ₹ 50,000 ; ₹ 50,000 and ₹ 1,00,000 respectively. Their Current Account balances were A: ₹ 10,000; B: ₹ 5,000 and C: ₹ 2,000 (Dr.). According to the Partnership Deed the partners were entitled to an interest on Capital @ 10% p.a. C being the working partner was also entitled to a salary of ₹ 12,000 p.a. The profits were to be divided as:
(a) The first ₹ 20,000 in proportion to their capitals.
(b) Next ₹ 30,000 in the ratio of 5 : 3 : 2.
(c) Remaining profits to be shared equally.
The firm earned net profit of ₹ 1,72,000 before charging any of the above items.
Prepare Profit and Loss Appropriation Account and pass necessary Journal entry for the appropriation of profits.
Answer:
Profit and Loss Appropriation Account 

Dr. 


Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

Interest on Capital: 

Profit and Loss A/c (Net Profit) 
1,72,000 

A 
5,000 



B 
5,000 



C 
10,000 
20,000 

