CBSE Class 12 Accountancy Accounting for partnership firms Fundamentals Assignment

OBJECTIVE TYPE QUESTIONS

Question. As per the Companies Act 2013, the Central Government is empowered to prescribe the maximum number of partners in a firm, but the number of partners cannot be more than ---
a.50
b.100
c.20
d.10
Answer. B

Question. A partnership Deed provides for the payment of interest on capital, but there was a loss in-stead of profits during the year 2020-21. At what rate will the interest on capital be al-lowed?
a. 6% p.a
b. 12%p.a
c. The rate specified in the partnership deed
d. No interest on capital will be allowed
Answer. D

Question. In the absence of Partnership deed, the profits of a firm are divided among the partners
a. In the ratio of capital
b. Equally
c. In the ratio of time devoted for the firm’s business
d. According to the managerial abilities of the partners
Answer. B

Question. P and Q are partners in a firm. They had advanced a loan of ₹.60, 000, contributed equally to the firm on 1st August 2020.The Partnership Deed is silent regarding the rate of interest on loan. What amount of interest on loan is payable to P, if the firm closes its books of ac-count on 31st March every year.
a. ₹.1200
b. ₹.3,600
c. ₹.1,800
d. None of these
Answer. A

Question. Which of the following transactions is always recorded in the partner’s Capital account ir-respective of whether the partners’ capitals are fixed or fluctuating?
a. Additional capital introduced
b. Withdrawal of Capital by a partner
c. Interest on partner’s loan
d. Both (a) & (b)
Answer. D

Question. Nima & Hima are partners sharing profits and losses equally. On 1st April 2020, their cap-ital accounts showed balance of Rs.4, 00,000 & 1, 00,000 respectively. Calculate the share of divisible profit of the partners if the partnership deed provided for interest on capital @ 10% p.a. and the firm earned a profit of Rs.50,000 for the year ended 31st March 2021
a.Nima ₹.40,000 & Hima ₹.10,000
b.Nima ₹,000 & Hima ₹.25,000
c.Nima Nil & Hima Nil
d. None of these
Answer. C

Question. Bobby and Sanjay were partners sharing profits & losses in the ratio of 5:3. On 1st April 2020, their capital accounts showed balances of ₹.3, 00,000 and ₹.2, 00,000 respectively. The Partnership Deed provided for interest on capital @10% p.a and the firm earned a profit of Rs.45, 000 for the year ended 31st March 2021. The interest on partners’ capitals to Bobby & Sanjay will be:
a. ₹.22,500 to both partners
b. ₹.27,000 & ₹.18,000 respectively
c ₹.28,125 & ₹.16,875 respectively
d. None of the above
Answer. B

Question. X and Y are partners in a firm having Rs.4, 00,000 & Rs.8, 00,000 respectively. The part-nership deed provides for charging interest on drawings @5% pa. X withdrew Rs.1, 00,000 for his personal use during the year 2020-21.Y withdrew Rs.1, 00,000 from his capital on 1.9,2020. The amount of interest that will be charged on partners’ drawings are
a. X-.₹.2,000 & Y-₹.4,000
b. ₹.5,000 from X &Y
c. X-₹.5,000 &Y- Nil
d. X-₹.2,500 & Y-Nil
Answer. D

Question. Goodwill of the firm on the basis of 2 years’ purchase of average profit of the last 3 years is ₹.25, 000. Find Average profit
a. ₹.50, 000,
b. ₹.37, 500
c. ₹.12, 500
d. None of these
Answer. C

Question. Interest on Capital of Partners is a
a. Charge on profit
b. Loss to the firm
c. Profit to the firm
d .None of these
Answer. B

Question. Goodwill is valued at the time of
a. Change in profit sharing Ratio
b. Admission of a partner
c. Retirement of a partner
d. All of the above
Answer. D

Question. A, B & C are partners in a firm sharing profits & losses in the ratio of 5:3:2. A guaranteed profit of ₹.20, 000 to C.Net profit for the year ending 31st March 2021, was ₹.80, 000. A’s share in the profit of the firm will be
a. ₹.36,000
b. ₹.16,000
c. ₹.38,000
d. ₹.44,000
Answer. A

Question. Which of the following will be shown on the credit side of Profit & Loss Appropriation account
a. Interest on Capital
b .Interest on Loan
c. Interest on drawings
d. Salary to partners
Answer. C

Question. X & Y are partners sharing profits and losses in the ratio of 2:1 with capitals ₹.1,00,000 and ₹.80,000 respectively. The interest on capital has been provided to them @8% instead of 10%. In the rectifying entry
a. Y will be debited by ₹.400
b. Y will be credited by ₹.400
c. Y will be debited by ₹.800
d. Y will be credited by ₹.800
Answer. B

Question. Capital employed of a firm is ₹.25, 00,000.Its average profit is ₹.3, 10,000. The normal rate of return in similar type of business is10%.What is the amount of super profit?
a. ₹.2, 50,000
b. ₹.60, 000
c. ₹.50, 000
d. None of these
Answer. B

ASSERTION –REASON-BASED QUESTIONS

Question. Assertion (A): Mohit, a partner in the firm gave a loan of ₹.2,00,000 to the firm without an agreement as to the rate of interest. At the year-end, the remaining partners agreed to allow interest on the loan of @6% p.a
Reason (R): In the absence of a Partnership deed, provisions of the Partnership Act 1932 is applicable and hence interest on loan of @6% p.a can be provided
In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. A

Question. Assertion(A):The value of Goodwill calculated on Average profit Method and Super profit Method is not the same
Reason (R): The value of Goodwill calculated on Average profit Method and Super profit Method is not the same as the basis of valuation is different
In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. A

Question. Assertion(A): A guarantee of minimum profit may be given to a partner
Reason (R): Minimum profit must be guaranteed by the remaining partners in equal ratio In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. C

Question. Assertion(A): Rent to partner is shown in Profit& Loss Appropriation Account
Reason (R): Rent to partner is a charge against profit
In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. D

Question. Assertion(A): A partnership firm can have a maximum of 50 partners
Reason (R): Maximum limit of partners is prescribed in Indian Partnership Act,1932
In the context of above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. C

SHORT ANSWER TYPE QUESTIONS

Question. Gupta is a partner in a firm. He drew regularly ₹ 8,00 at the beginning of every month for the six months ending 31st March 2022. Calculate interest on drawings @15% p.a.
Answer. Interest on drawings Rs.240

Question. X and Y are partners in the firm sharing profits and losses in the ratio of 3:2 with capitals of ₹ 10,00,000 and ₹ 5,00,000 respectively. As per the partnership deed, they are to be allowed interest on capital @ 8% p.a. The net profit for the year ended 31st March 2021 before providing for interest on capital amounted to ₹ 45,000. Show the distribution of profit.
Answer. 
Interest on capital allowed to X Rs.30,000 and Y Rs.15,000
(Insufficient profit. Hence 45,000 is distributed among the partners in the ratio of 2:1)

Question. Aman, Babita, and Suresh are partners in a firm. Their profit-sharing ratio is 2:2:1. How-ever, Suresh is guaranteed a minimum amount of ₹ 10,000 as a share of profit every year. Any deficiency arising on that account shall be met by Babita. The profits for the two years ending 31st March 2020 and 2021 were ₹ 40,000 and ₹ 60,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.
Answer. For the year ending 31st March 2020
Aman :40,000*2/5 = 16,000
Babitha : 40,000*2/5 =16,000
Suresh : 40,000*1/5 = 8,000
Deficiency of Suresh Rs.2,000 will be bore by Babitha
For the year ending 31st march 2021
Aman :60,000*2/5 = 24,000
Babitha : 60,000*2/5 =24,000
Suresh : 60,000*1/5 = 12,000
Suresh share of profit is more than the guaranteed amount , no adjustment is needed.

Question. W, X, and Y were partners sharing profits and losses in the ratio of 2:2: 1. X was guaranteed a profit of ₹ 10,00,000. The firm earned a profit of ₹ 17,50,000 for the year ended 31st March 2020.
Pass Journal entries for the year ended 31st march 2020.
Answer. 
Profit and loss A/C Dr                    17,50,000
To profit and Loss Appropriation A/C                  17,50,000
profit and Loss Appropriation A/C   17,50,000
To W’s capital A/C                                            5,00,000
To X’s capital A/C                                            10,00,000
To Y’s capital A/C                                             2,50,000

LEARNING OBJECTIVES:

After studying this chapter the student will be confident to:

¶ Understand and explain the meaning of partnership
¶ Understand the characteristics of Partnership
¶ Explain the meaning and contents of partnership deed.
¶ Apply their provisions of Partnership Act, 1932 in the absence of partnership deed.
¶ Prepare partners‘ Fixed and fluctuating capital Accounts.
¶ Calculate interest on Capital and Drawings.
¶ Distribute profit among partners and prepare Profit and Loss Appropriation A/c.
¶ Make the accounting treatment of past adjustment.

SALIENT POINTS:

• Partnership deed: It is a document which contains the terms and conditions of Partnership agreement either oral or written.
• Profit and Loss Appropriation Account : After the preparation of Profit and Loss account, entries pertaining to Interest on Capital, Drawings , Salaries among the
partners are shown separately in a newly opened Profit and Loss Appropriation Account.
• Rules applicable in the absence of Partnership Deed :

a) Profit sharing ratio will be equal
b) No Interest on Capital and Drawings
c) No Remuneration or Salary to the partners.
d) Interest on Loan advanced by the partner @6%p.a.

• Fixed and Fluctuating Capital Accounts :
When the Capitals are fixed, the Current account of the partners will be maintained.

1 and 3 Mark Questions

Question. Define partnership.
Answer. When two or more persons enter into an agreement to carry on business and share its profit and losses, it is a case of partnership. The Indian partnership Act, 1932, defines Partnership as follows: "Partnership is the relation between persons and who have agreed to share the profits of a business carried on by all or any of them acting for all.

Question. What do you understand by 'partners', 'firm' and 'firms' name?
Answer. The persons who have entered in to a Partnership with one another are individually called 'Partners' and collectively 'a firm' and the name under which the business is carried is called 'the firm's name'.

Question. Write any four main features of partnership.
Answer. Essential elements or main features of Partnership :
i) Two or more persons: Partnership is an association of two or more persons.
ii) Agreement: The Partnership is established by an agreement either oral or in writing.
iii) Lawful Business: A Partnership formed for the purpose of carrying a business, it must be a legal business.
iv) Profit sharing: Profit of the firm is share by the partners in an agreed ration, if the ratio is not agreed then equally. Profit also includes loss.

Question. What is the minimum and maximum number of partners in all partnership?
Answer. There should be at least two persons to form a Partnership. The maximum number of Partners in a firm carrying an banking business should not exceed ten and in any other business should not exceed ten and in any other business it should not exceed twenty.

Question. What is the status of partnership from an accounting viewpoint?
Answer. From an accounting viewpoint, partnership is a separate business entity. From legal viewpoints, however, a Partnership, like a sole proprietorship, is not separate from the owners.

Question.What is meant by partnership deed?
Answer. Partnership deed is a written agreement containing the terms and conditions agreed by the Partners.

Question. State any four contents of a partnership deed.
Answer.i) The date of formation and the duration of the Partnership
ii) Name and address of the Partners
iii) Name of the firm.
iv) Interest on Partners capital and drawings
v) Ratio in which profit or losses shall be shared

Question. In the absence of a partnership deed, how are mutual relations of partners governed?
Answer. In the absence of Partnership deed, mutual relations are governed by the Partnership Act, 1932.

Question. Give any two reason in favour of having a partnership deed.
Answer. i) In case of any dispute or doubt, Partnership deed is the guiding document.
ii) It can specify the duties and powers of each Partner.

Question. State the provision of 'Indian partnership Act 1932‘ relating to sharing of profits in absence of any provision in the partnership deed.
Answer. In the absence of any provision in the Partnership deed, profit or losses are share by the Partners equally.

Question. Why is it important to have a partnership deed in writing?
Answer. Partnership deed is important since it is a document defining relationship of among Partners thus is assistance in settlement of disputes, if any and also avoids possible disputes: it is good evidence in the court.

Question. What do you understand by fixed capital of partners?
Answer. Partners' capital is said to be fixed when the capital of Partners remain unaltered except in the case where further capital is introduced or capital is withdrawn permanently.

Question. What do you understand by fluctuating capital of partners?
Answer. Partner‘s capital is said to be fluctuating when capital alters with every transaction in the capital account. For example, drawing, credit of interest, etc

Question. Give two circumstances in which the fixed capital of partners may change.
Answer. Two circumstances in which the fixed capital of Partners may change are :
i) When additional capital is introduced by the Partners.
ii) When a part of the capital is permanently withdrawn by the Partners.

Question. List the items that may appear on the debit side and credit side of a partner's fluctuating capital account.
Answer. On debit side: Drawing, interest on drawing, share of loss, closing credit balance of the capital.
On credit side : Opening credit balance of capital, additional capital introduced, share of profit, interest on capital, salary to a Partner, commission to a Partner.

Question. How will you show the following in case the capitals are?
i) Fixed and ii) Fluctuating
. a) Additional capital introduced
b) Drawings
c) Withdrawal of capital
d) Interest on capital and
e) Interest on loan by partners?
Answer.i) In case, capitals are fixed:
a) On credit side of capital
(b) on debit side of current A/c
(c) on debit side of capital A/c
(d) on credit side of current A/c
(e) on credit side of loan from partner's A/c

Question. If the partners capital accounts are fixed, where will you record the following items :
i) Salary to partners
ii) Drawing by a partners
iii) Interest on capital and
iv) Share of profit earned by a partner?
Answer. i) Credit side of Partner's current A/c
ii) Debit side of Partner's current A/c
iii) Credit side of Partners current A/c
iv) Credit side of Partners current A/c

Question. How would you calculate interest on drawings of equal amounts drawn on the Last day of every month?
Answer. When a partners draws a fixed amount at the beginning of each month, interest on total drawing would be on the amount withdraw for 6.5 months at the agreed rate of interest per annum. Apply the following formula.
Interest on drawing = total drawing x Rate X [6.5/ 100 X 12]

Question. How would you calculate interest on drawing of equal amounts drawn on the last day of every month?
Answer. When drawing of fixed amounts are made at regular monthly intervals on the day of every month, Interest would be charged on the amount withdrawn at the agreed rate of interest for 5.5 months. Apply the following formula. :
Interest on drawing = Total drawing x Rate X [5.5/100 X 12]

Question. How would you calculate interest on drawing of equal amount drawn in the middle of every month?
Answer. Interest on drawing = Total drawing x [Rate X 6.0/100 X 12]

Question. Ramesh, a partner in the firm has advanced a loan of a Rs. 1,00,000 to the firm and has demanded on interest @ 9% per annum. The partnership deed is silent on the matter.
How will you deal with it?
Answer. Since the Partnership deed is silent on payment of interest, the provisions of the Partnership Act, 1932 will apply. Accordingly, Ramesh is entitled to interest @ 6% p.a.

Question. The partnership deed provides that Anjali, the partner will get Rs. 10,000 per month as salary. But, the remaining partners object to it. How will this matter be resolved?
Answer. No, he is not entitled to the salary because it is not so, Provided in the Partnership deed and according to the Partnership act, 1932 if the Partnership deed does not provided for payment of salary to Partners, he will not be entitled to it.

Please refer to attached file for CBSE Class 12 Accountancy Accounting for partnership firms Fundamentals Assignment