CBSE Class 12 Accountancy Accounting For Partnership Firms Important Questions Set 01

Advanced Study Material for Class 12 Accountancy: Part 1 Chapter 01 Accounting for Partnership : Basic Concepts

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Practice Class 12 Accountancy Resources: Part 1 Chapter 01 Accounting for Partnership : Basic Concepts

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Very Short Answer Questions (1 Mark)

Question 1. State whether the following statement is True or False: In the absence of an agreement, profits and losses are distributed among the partners equally.
Answer:
True

Teacher's Note:
1. The Indian Partnership Act, 1932 applies when there is no deed: equal sharing of profits and losses.

 

Question 2. State whether the following statement is True or False: A partner who has invested more capital in the firm is entitled to get interest on the excess amount of capital.
Answer:
False

Teacher's Note:
1. Without a provision in the deed, no interest on capital is allowed, whatever the amount invested.

 

Question 3. State whether the following statement is True or False: If all the partners agree, a minor may be admitted for the benefit of partnership.
Answer:
True

Teacher's Note:
1. A minor can be admitted only to the benefits of partnership, not to its liabilities.

 

Question 4. State whether the following statement is True or False: Current Accounts are maintained in case of fixed capital account system.
Answer:
True

Teacher's Note:
1. Under fluctuating capitals all items go to the Capital Account and no Current Account is needed.

 

Question 5. State whether the following statement is True or False: Interest on partner's drawings is to be given @10% p.a. if the partnership deed is silent about the rate of interest.
Answer:
False

Teacher's Note:
1. When the deed is silent, no interest on drawings is charged at all.

 

Question 6. Fill in the blank: Maximum number of partners in a partnership business is ________.
Answer:
50

Teacher's Note:
1. This limit is prescribed under the Companies Act, 2013 and its Rules.

 

Question 7. Fill in the blank: Salary or Commission to a partner is an ________ of profit.
Answer:
appropriation

Teacher's Note:
1. Salary or commission to a partner is allowed only out of profit, through the P&L Appropriation Account.

 

Question 8. Fill in the blank: ________ Account is an extension of Profit and Loss Account.
Answer:
Profit and Loss Appropriation

Teacher's Note:
1. The net profit from the P&L Account is carried to the Appropriation Account for distribution.

 

Question 9. Fill in the blank: Under ________ system, the balance of capital changes with every transaction of the partner with the firm.
Answer:
Fluctuating capital account

Teacher's Note:
1. Under fluctuating capitals only one account per partner is kept, so every item changes the balance.

 

Question 10. Fill in the blank: When a partner withdraws a fixed sum in the middle of each month for 12 months, interest on total drawings will be equal to interest of ________ months at an agreed rate per annum.
Answer:
6

Teacher's Note:
1. Middle of each month: (11.5 + 0.5)/2 = 6 months.

 

Question 11. Distinguish between 'Fixed Capital Account' and 'Fluctuating Capital Account' on the basis of credit balance. [CBSE (AI) 2017, 2019]
Answer:
Fixed capital accounts always show a credit balance while fluctuating capital accounts may show a credit or debit balance.

Teacher's Note:
1. Under fixed capitals the debit balance, if any, appears in the Current Account, never in the Capital Account.

 

Question 12. P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were ₹2,00,000 and ₹3,00,000 respectively. The partnership deed provided for interest on capital @12% per annum. For the year ended 31st March, 2016, the profits of the firm were distributed without providing interest on capital.
Pass necessary adjustment entry to rectify the error. [CBSE (AI) 2017]
Answer:
Books of the firm
DateParticularsL.F.Dr. (₹)Cr. (₹)
2016
April 1		P's Current A/c ...Dr.
    To Q's Current A/c
(Being the adjustment of interest on capital omitted in previous year)		6,000

6,000

Working Note: Interest on capital: P = 24,000, Q = 36,000 (total 60,000). This 60,000 was distributed equally (30,000 each) as profit. Net effect: P (24,000 − 30,000) = 6,000 Dr.; Q (36,000 − 30,000) = 6,000 Cr.

Teacher's Note:
1. In a past adjustment, only the net effect is passed through Current Accounts as capitals are fixed.

 

Question 13. State two situations in which interest on partners' capital is generally provided. [CBSE (F) 2017, 2019]
Answer:
Interest on capital is generally provided when:
(i) Partnership deed provides for interest on capital.
(ii) All the partners mutually consent for providing interest on capital.

Teacher's Note:
1. If the deed is silent, the Act does not allow interest on capital.

 

Question 14. What is the maximum number of partners that a partnership firm can have? Name the Act that provides for the maximum number of partners in a partnership firm. [CBSE Delhi 2016]
Answer:
(a) Maximum number of partners: 50
(b) The Companies Act, 2013.

Teacher's Note:
1. The Partnership Act itself does not fix the maximum; it comes from the Companies Act, 2013 and Rules.

 

Short Answer Questions (2 Marks)

Question 15. A and B were partners in a firm sharing profits in the ratio of 5 : 3. Their fixed capitals on 31st March, 2017 were : A ₹60,000 and B ₹80,000. They agreed to allow interest on capital @ 12% p.a. The profit of the firm for the year ended 31st March, 2018 before allowing interest on capitals was ₹12,600.
Pass necessary journal entries for the above transactions in books of A and B. Also show your working notes clearly. [CBSE 2019]
Answer:
Journal
DateParticularsL.F.Dr. (₹)Cr. (₹)
2018
March 31		Interest on Capital A/c ...Dr.
    To A's Current A/c
    To B's Current A/c
(Being interest on capital credited to Partners' Current A/cs)		12,600


5,400
7,200
P&L Appropriation A/c ...Dr.
    To Interest on Capital A/c
(Being interest on capital transferred to P&L Appropriation A/c)		12,600

12,600

Working Notes:
Interest on Capitals: A = 12% of ₹60,000 = ₹7,200, B = 12% of ₹80,000 = ₹9,600, Total interest = ₹16,800
Since profits are insufficient, Interest on capital will be credited in the ratio of 7,200 : 9,600 i.e. 3 : 4 so, A = 3/7 of ₹12,600 = ₹5,400, B = 4/7 of ₹12,600 = ₹7,200

Teacher's Note:
1. Interest on capital is an appropriation, so the whole profit of ₹12,600 is used up and nothing is left to share in 5 : 3.

 

Short Answer Questions (3 Marks)

Question 16. Arun and Arora were partners in a firm sharing profits in the ratio of 5:3. Their fixed capitals on 1-4-2016 were: Arun ₹60,000 and Arora ₹80,000. They agreed to allow interest on capital @ 12% p.a. and to charge on drawings @ 15% p.a. The profit of the firm for the year ended 31-3-2017 before all above adjustments was ₹12,600. The drawings made by Arun were ₹2,000 and by Arora ₹4,000 during the year. Prepare Profit and Loss Appropriation Account of Arun and Arora. Show your calculations clearly. The interest on capital will be allowed even if the firm incurs loss. [CBSE (Delhi) 2012]
Answer:
Profit and Loss Appropriation Account
for the year ended 31st March, 2017
Dr.Cr.
Particulars₹Particulars₹
To Interest on Capital A/c:
Arun 7,200
Arora 9,600		16,800By Profit and Loss A/c (Net profit)12,600
By Interest on Drawings:
Arun 150
Arora 300		450
By Loss transferred to Partners' Current A/cs:
Arun 2,344
Arora 1,406		3,750
16,80016,800

Working Notes:
1. Interest on Capital: Arun — ₹60,000 × \( \frac{12}{100} \) = ₹7,200, Arora — ₹80,000 × \( \frac{12}{100} \) = ₹9,600
2. Interest on Drawings: Arun — ₹2,000 × \( \frac{15 \times 6}{100 \times 12} \) = ₹150, Arora — ₹4,000 × \( \frac{15 \times 6}{100 \times 12} \) = ₹300.
3. Loss = 16,800 − 12,600 − 450 = ₹3,750, shared 5 : 3: Arun ₹2,344, Arora ₹1,406.

Teacher's Note:
1. When dates of drawings are not given, interest is charged for an average of 6 months.
2. Because the deed says interest on capital is allowed even in a loss, it is treated like a charge and the resulting loss is shared in the profit ratio.

 

Question 17. A and B entered into partnership on 1st April, 2016 without any partnership deed. They introduced capitals of ₹5,00,000 and ₹3,00,000 respectively. On 31st October, 2016, A advanced ₹2,00,000 by way of loan to the firm without any agreement as to interest.
The Profit and Loss Account for the year ended 31.3.2017 showed a profit of ₹4,30,000, but the partners could not agree upon the amount of interest on loan to be charged and the basis of division of profits. Pass a journal entry for the distribution of the profit between the partners and prepare the Capital Accounts of both the partners and Loan Account of 'A'. [CBSE (AI) 2011]
Answer:
Profit and Loss Appropriation Account
for the year ended 31st March, 2017
Dr.Cr.
Particulars₹Particulars₹
To A's Capital A/c 2,12,500
To B's Capital A/c 2,12,500		4,25,000By Net Profit after interest on loan (₹4,30,000 − ₹5,000)4,25,000
4,25,0004,25,000

Partners' Capital Accounts
Dr.Cr.
DateParticularsA (₹)B (₹)DateParticularsA (₹)B (₹)
31-3-17To Balance c/d7,12,5005,12,5001-4-16By Bank A/c5,00,0003,00,000
31-3-17By Profit & Loss Appropriation A/c2,12,5002,12,500
7,12,5005,12,5007,12,5005,12,500

Journal Entry
DateParticularsL.F.Dr. (₹)Cr. (₹)
31-3-17Profit & Loss Appropriation A/c ...Dr.
    To A's Capital A/c
    To B's Capital A/c
(Being profit distributed between the partners)		4,25,000


2,12,500
2,12,500

A's Loan Account
Dr.Cr.
DateParticulars₹DateParticulars₹
31-3-17To Balance c/d2,05,00031-10-16By Bank A/c2,00,000
31-03-17By Interest on Loan A/c5,000
2,05,0002,05,000

Working Note: Interest on A's loan = 2,00,000 × 6/100 × 5/12 = ₹5,000 (31st October, 2016 to 31st March, 2017).

Teacher's Note:
1. Without a deed, interest on a partner's loan is 6% p.a. and is charged before dividing the remaining profit equally.

 

Question 18. A, B and C were partners in a firm having capitals of ₹60,000; ₹60,000 and ₹80,000 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 interest on capital @ 5% p.a. C being the working partner was also entitled to a salary of ₹6,000 p.a. The profits were to be divided as follows:
(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 made a profit of ₹1,56,000 before charging any of the above items.
Prepare the Profit and Loss Appropriation Account and pass necessary journal entry for apportionment of profit. [CBSE Delhi 2009]
Answer:
Profit and Loss Appropriation Account
Dr.Cr.
Particulars₹Particulars₹
To Interest on Capital:
A 3,000
B 3,000
C 4,000		10,000By Profit and Loss A/c (Net Profit)1,56,000
To Salary to C6,000
To Profit transferred to Current A/cs:
A (6,000 + 15,000 + 30,000) 51,000
B (6,000 + 9,000 + 30,000) 45,000
C (8,000 + 6,000 + 30,000) 44,000		1,40,000
1,56,0001,56,000

Journal Entry
DateParticularsL.F.Dr. (₹)Cr. (₹)
Profit and Loss Appropriation A/c ...Dr.
    To A's Current A/c
    To B's Current A/c
    To C's Current A/c
(Being profit distributed among the partners)		1,40,000



51,000
45,000
44,000

Teacher's Note:
1. Interest on capital is calculated on capitals only; opening Current Account balances do not earn interest unless the deed says so.

 

Question 19. P and Q were partners in a firm sharing profits in the ratio of 5 : 3. On 1st April, 2014 they admitted R as a new partner for 1/8th share in the profits with a guaranteed profit of ₹75,000. The new profit sharing ratio between P and Q will remain the same but they agreed to bear any deficiency on account of guarantee to R in the ratio 3 : 2. The profit of the firm for the year ended 31st March, 2015 was ₹4,00,000.
Prepare Profit and Loss Appropriation Account of P, Q and R for the year ended 31st March, 2015. [CBSE Delhi 2016]
Answer:
Profit and Loss Appropriation Account of P, Q and R
for the year ended 31st March, 2015
Dr.Cr.
Particulars₹Particulars₹
To Partners' Capital A/c (transfer of profit)By Profit and Loss A/c (net profit)4,00,000
P 2,18,750
Less: Deficiency 15,000		2,03,750
Q 1,31,250
Less: Deficiency 10,000		1,21,250
R 50,000
Add: from P 15,000
from Q 10,000		75,000
4,00,0004,00,000

Working Note: Calculation of New Profit-sharing ratio:
R's share = \( \frac{1}{8} \). Let total share = 1, Remaining share = \( 1 - \frac{1}{8} = \frac{7}{8} \)
P's share = \( \frac{7}{8} \times \frac{5}{8} = \frac{35}{64} \); Q's share = \( \frac{7}{8} \times \frac{3}{8} = \frac{21}{64} \)
New ratio of P, Q and R = 35 : 21 : 8
R's share = 4,00,000 × 8/64 = ₹50,000; deficiency = 75,000 − 50,000 = ₹25,000, borne by P ₹15,000 and Q ₹10,000 (3 : 2).

Teacher's Note:
1. The deficiency is borne in the agreed ratio (3 : 2), not in the new profit sharing ratio.

 

Question 20. A, B and C were partners. Their capitals were ₹30,000, ₹20,000 and ₹10,000 respectively. According to the partnership deed, they were entitled to an interest on capital @ 5% p.a. In addition, B was also entitled to draw a salary of ₹500 per month. C was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to B. The net profits for the year were ₹30,000, distributed in the ratio of their capitals without providing for any of the above adjustments. The profits were to be shared in the ratio of 2:2:1. Pass the necessary adjustment entry showing the workings clearly. [CBSE Delhi 2010]
Answer:
Statement Showing Adjustment
ParticularsABCFirm
Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)
Profit wrongly credited in capital ratio (I)15,00010,0005,00030,000
Appropriations to be made (II)
(i) Interest on capital1,5001,0005003,000
(ii) Salary to B6,0006,000
(iii) Commission to C1,3501,350
(iv) Divisible profit in 2:2:17,8607,8603,93019,650
Net effect (I – II)5,640 Dr.4,860 Cr.780 Cr.Nil

Adjustment Entry:
DateParticularsL.F.Dr. (₹)Cr. (₹)
A's Capital A/c ...Dr.
    To B's Capital A/c
    To C's Capital A/c
(Being adjustment entry passed)		5,640


4,860
780

Working Note: Commission to C = 5% of (30,000 − 3,000) = ₹1,350; Divisible profit = 30,000 − 3,000 − 6,000 − 1,350 = ₹19,650.

Teacher's Note:
1. Check: the net effect of the firm column is Nil, because the total profit does not change, only its distribution.

 

Question 21. Rakesh and Roshan are partners sharing profits in the ratio of 3:2 with capitals of ₹40,000 and ₹30,000 respectively. They withdraw from the firm the following amounts for personal use.
PartnerDateAmount (₹)
Rakesh31st May, 2017600
30th June, 2017500
31st August, 20171,000
1st November, 2017400
31st December, 20171,500
31st January, 2018300
1st March, 2018700
RoshanAt the beginning of each month400
Interest is to be charged @ 6% per annum. Calculate interest on drawing, assuming that books of accounts are closed on 31st March every year.
Answer:
Calculation of Interest on Rakesh's Drawings
Date of DrawingsAmt. withdrawn (₹)Period (No. of Months up to 31st March, 2018)Product (₹)
31st May, 2017600106,000
30th June, 201750094,500
31st August, 20171,00077,000
1st November, 201740052,000
31st December, 20171,50034,500
31st January, 20183002600
1st March, 20187001700
Total of Products25,300

Interest on Rakesh's Drawings (By Product Method) = Total of Product × \( \frac{Rate}{100} \times \frac{1}{12} = 25{,}300 \times \frac{6}{100} \times \frac{1}{12} \) = ₹126.50
Interest on Roshan's Drawings (By Average Period Method) = Total Drawings × \( \frac{Rate}{100} \times \frac{6.5}{12} = 4{,}800 \times \frac{6}{100} \times \frac{6.5}{12} \) = ₹156

Teacher's Note:
1. For drawings at the beginning of each month the average period is 6.5 months; count months up to the closing date for the product method.

 

Question 22. Kavita, Meenakshi and Gauri are partners doing a paper business in Ludhiana. After the accounts of partnership have been drawn up and closed, it was discovered that for the years ending 31st March, 2013 and 2014, Interest on capital has been allowed to partners @ 6% p.a. although there is no provision for interest on capital has been allowed by partnership deed. Their fixed capitals were ₹2,00,000; ₹1,60,000 and ₹1,20,000 respectively. During the last two years, they had shared the profits as under:
YearRatio
31st March, 20133:2:1
31st March, 20145:3:2
You are required to give necessary adjusting entry on 1st April, 2014. [CBSE Sample Question Paper 2017]
Answer:
ParticularsKavitaMeenakshiGauriFirm
Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)
Wrong Appropriation:
Interest on Capital (2012-13)12,0009,6007,20028,800
Interest on Capital (2013-14)12,0009,6007,20028,800
Total (A)24,00019,20014,40057,600
Correct Appropriation:
Profit to be credited (2012-13)14,4009,6004,80028,800
Profit to be credited (2013-14)14,4008,6405,76028,800
Total (B)28,80018,24010,56057,600
Net Effect (A – B)4,800 (Cr.)960 (Dr.)3,840 (Dr.)Nil

Journal
DateParticularsL.F.Dr. (₹)Cr. (₹)
2014
April 1		Meenakshi's Current A/c ...Dr.
Gauri's Current A/c ...Dr.
    To Kavita's Current A/c
(Being adjustment for interest on capital for the years 2012-13 and 2013-14)		960
3,840


4,800

Teacher's Note:
1. Wrongly allowed interest is reversed and the same amount is redistributed as profit in each year's own ratio.

 

Question 23. Complete the following accounts of a partnership firm:Profit and Loss Appropriation Account
for the year ended 31st March, 2019
Dr.Cr.
Particulars₹Particulars₹
To General Reserve15,000By Net Profit1,50,000
To Salary:
Gambhir 24,000
Nihaal 18,000		42,000By Interest on Drawings:
Gambhir 2,700
Nihaal 2,475		5,175
To Interest on Capital:
Gambhir ……
Nihaal ……		……
To Profit transferred to Current A/cs:
Gambhir 17,505
Nihaal 11,670		29,175
1,55,1751,55,175
Partners' Capital Accounts
Dr.Cr.
ParticularsGambhir (₹)Nihaal (₹)ParticularsGambhir (₹)Nihaal (₹)
To Cash A/c—10,000By Balance b/d3,00,0002,50,000
To Balance c/d…………By Cash A/c60,000—
3,60,0002,50,0003,60,0002,50,000
Partners' Current Accounts
Dr.Cr.
ParticularsGambhir (₹)Nihaal (₹)ParticularsGambhir (₹)Nihaal (₹)
To Drawings40,00040,000By Salary24,00018,000
To Interest on Drawings…………By Interest on Capital39,60029,400
To Balance c/d…………By P & L App. A/c…………
81,10559,07081,10559,070

Answer:
Profit and Loss Appropriation Account
for the year ended 31st March, 2019
Dr.Cr.
Particulars₹Particulars₹
To General Reserve15,000By Net Profit1,50,000
To Salary:
Gambhir 24,000
Nihaal 18,000		42,000By Interest on Drawings:
Gambhir 2,700
Nihaal 2,475		5,175
To Interest on Capital:
Gambhir 39,600
Nihaal 29,400		69,000
To Profit transferred to Current A/cs:
Gambhir 17,505
Nihaal 11,670		29,175
1,55,1751,55,175

Partners' Capital Accounts
Dr.Cr.
ParticularsGambhir (₹)Nihaal (₹)ParticularsGambhir (₹)Nihaal (₹)
To Cash A/c—10,000By Balance b/d3,00,0002,50,000
To Balance c/d3,60,0002,40,000By Cash A/c60,000—
3,60,0002,50,0003,60,0002,50,000

Partners' Current Accounts
Dr.Cr.
ParticularsGambhir (₹)Nihaal (₹)ParticularsGambhir (₹)Nihaal (₹)
To Drawings40,00040,000By Salary24,00018,000
To Interest on Drawings2,7002,475By Interest on Capital39,60029,400
To Balance c/d38,40516,595By P & L App. A/c17,50511,670
81,10559,07081,10559,070

Working Note: Interest on capital is taken from the Current Accounts (Gambhir ₹39,600, Nihaal ₹29,400 = ₹69,000); Total of debit side = 15,000 + 42,000 + 69,000 + 29,175 = ₹1,55,175. Interest on drawings and share of profit are taken from the Appropriation Account, and the balancing figures are the closing balances.

Teacher's Note:
1. Start with the account that has the most known figures and carry each figure to its double-entry account.

 

Question 24. Following are the Profit and Loss Appropriation Account and Partners' Capital Accounts of Amar, Akbar and Anthony sharing profits and losses in ratio of 2:1:1. You are required to complete the missing entries and figures:Profit and Loss Appropriation Account
for the year ended 31st March, 2019
Dr.Cr.
Particulars₹Particulars₹
To Interest on Capitals:
Amar 1,000
Akbar 800
Anthony 200		2,000By …………
To …………
To Akbar's Commission A/c (13,200 × 10/110)1,200
To Partners' Capital A/cs (Share in profit):
Amar ……
Akbar ……
Anthony ……		……
17,20017,200
Partners' Capital Accounts
Dr.Cr.
ParticularsAmar (₹)Akbar (₹)Anthony (₹)ParticularsAmar (₹)Akbar (₹)Anthony (₹)
To Drawings A/c6,0005,0004,000By Balance b/d20,00016,0004,000
To Balance c/d………………By Interest on Capital A/c………………
By Salary A/c——2,000
By Commission A/c—……—
By P & L Appr. A/c6,0003,0003,000
27,00021,0009,20027,00021,0009,200

Answer:
Profit and Loss Appropriation Account
for the year ended 31st March, 2019
Dr.Cr.
Particulars₹Particulars₹
To Interest on Capitals:
Amar 1,000
Akbar 800
Anthony 200		2,000By Profit & Loss A/c17,200
To Anthony's Salary A/c2,000
To Akbar's Commission A/c (13,200 × 10/110)1,200
To Partners' Capital A/cs (Share in profit):
Amar 6,000
Akbar 3,000
Anthony 3,000		12,000
17,20017,200

Partners' Capital Accounts
Dr.Cr.
ParticularsAmar (₹)Akbar (₹)Anthony (₹)ParticularsAmar (₹)Akbar (₹)Anthony (₹)
To Drawings A/c6,0005,0004,000By Balance b/d20,00016,0004,000
To Balance c/d21,00016,0005,200By Interest on Capital A/c1,000800200
By Salary A/c——2,000
By Commission A/c—1,200—
By P & L Appr. A/c6,0003,0003,000
27,00021,0009,20027,00021,0009,200

Working Note: Profit = 17,200 (from the Capital Accounts the shares of profit are 6,000 + 3,000 + 3,000 = 12,000); Debit side: 2,000 + 2,000 + 1,200 + 12,000 = ₹17,200. Akbar's commission = 13,200 × 10/110 = ₹1,200.

Teacher's Note:
1. A salary of ₹2,000 credited to Anthony's Capital Account must appear on the debit side of the Appropriation Account as Anthony's Salary.

 

Long Answer Questions (5 Marks)

Question 25. Ahmad, Bheem and Daniel are partners in a firm. On 1st April, 2011 the balance in their capital accounts stood at ₹8,00,000, ₹6,00,000 and ₹4,00,000 respectively. They shared profits in the proportion of 5:3:2 respectively. Partners are entitled to interest on capital @5% per annum and salary to Bheem @ ₹3,000 per month and a commission of ₹12,000 to Daniel as per the provisions of the partnership deed.
Ahmad's share of profit, excluding interest on capital, is guaranteed at not less than ₹25,000 p.a. Bheem's share of profit, including interest on capital but excluding salary, is guaranteed at not less than ₹55,000 p.a. Any deficiency arising on that account shall be met by Daniel. The profit of the firm for the year ended 31st March, 2012 amounted to ₹2,16,000. Prepare 'Profit and Loss Appropriation Account' for the year ended 31st March, 2012. [HOTS] [CBSE (AI) 2013]
Answer:
Profit and Loss Appropriation Account
for the year ended 31st March, 2012
Dr.Cr.
Particulars₹Particulars₹
To Interest on Capital
Ahmad 40,000
Bheem 30,000
Daniel 20,000		90,000By Profit & Loss A/c (Net Profit)2,16,000
To Salary (to Bheem)36,000
To Commission (to Daniel)12,000
To Net Profit transferred to:
Ahmad's Capital A/c
₹78,000 × 5/10		39,000
Bheem's Capital A/c
₹78,000 × 3/10 23,400
Add: Transferred from Daniel 1,600		25,000
Daniel's Capital A/c
₹78,000 × 2/10 15,600
Less: Transferred to Bheem 1,600		14,000
2,16,0002,16,000

Working Notes:
(i) Ahmad's Share of Profit is ₹39,000 which is more than guaranteed profit.
Bheem's Share of Profit = ₹78,000 × \( \frac{3}{10} \) = ₹23,400.
Bheem's Share of Profit + Interest on Capital = ₹23,400 + ₹30,000 = ₹53,400; Guaranteed Amount = ₹55,000
(ii) Deficiency to be borne by Daniel = ₹55,000 − ₹53,400 = ₹1,600.

Teacher's Note:
1. Read the guarantee carefully: here Bheem's guarantee includes interest on capital, so compare 55,000 with share of profit plus interest on capital.

 

Question 26. A and B are partners sharing profits in the ratio of 3 : 2 with capitals of ₹50,000 and ₹30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of ₹2,500. During the year ended 31st March, 2019 the profits of the year prior to calculation of interest on capital but after charging B's salary amounted to ₹12,500. A provision of 5% of the profits is to be made in respect of manager's commission.
Prepare an account showing the allocation of profits and partners' capital accounts.
Answer:
Profit and Loss Account
Dr.Cr.
Particulars₹Particulars₹
To Manager's Commission (15,000 × 5/100)750By Profit b/d (12,500 + 2,500)15,000
To Profit and Loss Appropriation A/c14,250
15,00015,000

Profit and Loss Appropriation Account
Dr.Cr.
Particulars₹Particulars₹
To Interest on Capital:
A (50,000 × 6/100) 3,000
B (30,000 × 6/100) 1,800		4,800By Profit and Loss A/c14,250
To B's Salary A/c2,500
To Profits transferred to:
A's Capital A/c 4,170
B's Capital A/c 2,780		6,950
14,25014,250

Partners' Capital Accounts
Dr.Cr.
ParticularsA (₹)B (₹)ParticularsA (₹)B (₹)
To Balance c/d57,17037,080By Balance b/d50,00030,000
By Interest on Capital3,0001,800
By Partner's Salary—2,500
By Profit and Loss Appr. A/c4,1702,780
57,17037,08057,17037,080

Teacher's Note:
1. Manager's commission is a charge, so it is deducted in the Profit and Loss Account before appropriations; B's salary is added back first because it is an appropriation.

 

Question 27. Shreya and Vivek were partners in a firm sharing profits in the ratio 3 : 2. The balances in their capital and current accounts as on 1st April, 2017 were as under :
ParticularsShreya (₹)Vivek (₹)
Capital accounts3,00,0002,00,000
Current accounts1,00,000 (Cr.)28,000 (Dr.)
The partnership deed provided that Shreya was to be paid a salary of ₹5,000 p.m. whereas Vivek was to get a commission of ₹30,000 for the year.
Interest on capital was to be allowed @ 8% p.a. whereas interest on drawings was to be charged @ 6% p.a. The drawings of Shreya were ₹3,000 at the beginning of each quarter while Vivek withdrew ₹30,000 on 1st September, 2017. The net profit of the firm for the year before making the above adjustments was ₹1,20,000.
Prepare Profit and Loss Appropriation Account and Partners' Capital and Current Accounts. [CBSE 2019]
Answer:
Profit and Loss Appropriation Account
for the year ending 31st March, 2018
Dr.Cr.
Particulars₹Particulars₹
To Partners' Current A/cs:
Shreya 78,508
Vivek 42,992		1,21,500By Profit and Loss A/c (Net Profit)1,20,000
By Interest on Drawings:
Shreya 450
Vivek 1,050		1,500
1,21,5001,21,500

Partners' Capital Accounts
Dr.Cr.
ParticularsShreya (₹)Vivek (₹)ParticularsShreya (₹)Vivek (₹)
To Balance c/d3,00,0002,00,000By Balance b/d3,00,0002,00,000
3,00,0002,00,0003,00,0002,00,000

Partners' Current Accounts
Dr.Cr.
ParticularsShreya (₹)Vivek (₹)ParticularsShreya (₹)Vivek (₹)
To Balance b/d…28,000By Balance b/d1,00,000—
To Drawings12,00030,000By P & L Appropriation A/c78,50842,992
To Interest on Drawings4501,050By Balance c/d—16,058
To Balance c/d1,66,058—
1,78,50859,0501,78,50859,050

Working Notes:
ParticularsShreya (₹)Vivek (₹)
Interest on Capital24,00016,000
Salary60,000—
Commission—30,000
Amount to be paid84,00046,000

Total amount to be paid = ₹1,30,000.
Since profits available are less than appropriations, i.e., ₹1,20,000 + ₹1,500 = ₹1,21,500, appropriations will be made to the extent of ₹1,21,500 only in the ratio of 42 : 23 (84,000 : 46,000)
Shreya's share = 42/65 × ₹1,21,500 = ₹78,508; Vivek's share = 23/65 × ₹1,21,500 = ₹42,992
Interest on Drawings: Shreya = 12,000 × 6/100 × 7.5/12 = ₹450; Vivek = 30,000 × 6/100 × 7/12 = ₹1,050

Teacher's Note:
1. When profit is less than the total appropriations, the available profit is divided in the ratio of the appropriations and nothing is left to share in 3 : 2.

 

Question 28. On 31st March, 2014 the balances in the Capital Accounts of Eleen, Monu and Ahmad after making adjustments for profits and drawings were ₹1,60,000, ₹1,20,000 and ₹80,000 respectively. Subsequently, it was discovered that the interest on capital and drawings had been omitted.
(i) The profit for the year ended 31st March, 2014 was ₹40,000.
(ii) During the year, Eleen and Monu each withdrew a total sum of ₹24,000 in equal instalments in the beginning of each month and Ahmad withdrew a total sum of ₹48,000 in equal instalments at the end of each month.
(iii) The interest on drawings was to be charged @5% p.a. and interest on capital was to be allowed @ 10% p.a.
(iv) The profit-sharing ratio among the partners was 2:1:1.
Showing your working notes clearly, pass the necessary rectifying entry. [CBSE Delhi 2015]
Answer:
Rectifying Entry
DateParticularsL.F.Dr. (₹)Cr. (₹)
2014
Mar. 31		Eleen's Capital A/c ...Dr.
    To Monu's Capital A/c
    To Ahmad's Capital A/c
(Being the rectifying entry to correct the amounts of profits transferred to Capital Account)		3,850


2,950
900

Working Notes:
1. Calculation of Opening Capitals and Interest on Capitals:
ParticularsEleen (₹)Monu (₹)Ahmad (₹)
A. Closing Capitals1,60,0001,20,00080,000
B. Add: Drawings already Debited24,00024,00048,000
1,84,0001,44,0001,28,000
C. Less: Profit already Credited20,00010,00010,000
D. Opening Capitals1,64,0001,34,0001,18,000
E. Interest on Capitals₹1,64,000 × 10/100 = ₹16,400₹1,34,000 × 10/100 = ₹13,400₹1,18,000 × 10/100 = ₹11,800

2. Interest on Drawings:
Eleen = ₹24,000 × \( \frac{5}{100} \times \frac{6.5}{12} \) = ₹650; Monu = ₹24,000 × \( \frac{5}{100} \times \frac{6.5}{12} \) = ₹650; Ahmad = ₹48,000 × \( \frac{5}{100} \times \frac{5.5}{12} \) = ₹1,100
Total Interest on Drawings = ₹2,400
3. Statement Showing Adjustment
ParticularsEleenMonuAhmadFirm
Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)Dr. (₹)Cr. (₹)
Profits wrongly credited (A)20,00010,00010,00040,000
Appropriations to be made: (B)
(i) Interest on capital (Cr.)16,40013,40011,80041,600
(ii) Interest on Drawings (Dr.)6506501,1002,400
(iii) Divisible profit on 2:1:1400200200800
Net effect (A – B)3,850 Dr.2,950 Cr.900 Cr.NIL

Teacher's Note:
1. To find opening capital: closing capital + drawings − profit credited. Interest on capital is always on opening capital.

 

Question 29. R, S and T were partners in a firm sharing profits in the ratio of 5:3:2 with capitals of ₹50,000, ₹24,000 and ₹26,000 respectively. Partners were entitled to 6% per annum interest on their capitals. R and S guaranteed T that his share of profits in any year would not be less than ₹10,000 excluding interest. During the year the firm had earned a profit of ₹48,000 before charging the interest on capital. R and S had also withdrawn ₹5,000 and ₹7,400 respectively. Prepare the Profit and Loss Appropriation Account. [CBSE (AI) 2007]
Answer:
Profit and Loss Appropriation Account
Dr.Cr.
Particulars₹Particulars₹
To R's Capital A/c (interest on capital)3,000By Profit and Loss A/c (net profit)48,000
To S's Capital A/c (interest on capital)1,440
To T's Capital A/c (interest on capital)1,560
To Profit transferred to Capital A/cs:
R 21,000
Less: Contribution to T 1,000		20,000
S 12,600
Less: Contribution to T 600		12,000
T 8,400
Add: Contribution by R and S 1,600		10,000
48,00048,000

Working Note:
Deficiency in T's share = 10,000 − 8,400 = ₹1,600
Contribution to T by R = 1,600 × \( \frac{5}{8} \) = ₹1,000; Contribution to T by S = 1,600 × \( \frac{3}{8} \) = ₹600.

Teacher's Note:
1. Drawings are not relevant here because no interest on drawings is to be charged; the guarantee deficiency is borne by R and S in their own ratio 5 : 3.

 

Question 30. A, B and C were partners in a firm having capitals of ₹80,000; ₹80,000; and ₹40,000 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 @5% p.a. C, being the working partner was also entitled to a salary of ₹6,000 p.a. The profits were to be divided as follows:
(a) The First ₹20,000 in proportion to their capitals.
(b) Next ₹30,000 in the ratio 5:3:2.
(c) Remaining profits to be shared equally.
The firm made a profit of ₹1,56,000 before charging any of the above items. Prepare Profit and Loss Appropriation Account and pass the necessary Journal Entry for the apportionment of profit. [CBSE (AI) 2009]
Answer:
Ans. Share in profit: A ₹53,000, B ₹47,000, C ₹40,000
Working: Interest on capital 4,000 + 4,000 + 2,000 = ₹10,000; Salary to C ₹6,000; Divisible profit ₹1,40,000: first 20,000 in 2 : 2 : 1 (8,000; 8,000; 4,000), next 30,000 in 5 : 3 : 2 (15,000; 9,000; 6,000), balance 90,000 equally (30,000 each).

Teacher's Note:
1. Split the divisible profit slab by slab and add each partner's slabs at the end.

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