DK Goel Solutions Class 12 Accountancy Chapter 2 Accounting for Partnership Firms Fundamentals

Short Answer Questions

Question 1.  Mention any four provisions of the partnership Act, in the absence of Partnership Deed.

Solution 1.

1.) Sharing of Profit/Losses:- Profit/Losses are shared equally by the partners.

2.) Interest on Capital:- Interest on capital is not paid to partners.

3.) Interest on Drawings:- Interest on drawings in not charged from partners.

4.) Interest on Loan:- Interest at the rate of 6% p.a. is to be allowed on a partner’s loan to the firm. Such interest shall be paid even if there are losses to the firm.

Question 2.    State four important points which must be incorporated in a Partnership Deed.

Solution 2.

Below are the provisions of the partnership Act, in the absence of Partnership Deed:-

1.) If all the partners agree, a minor may be admitted for the benefit of partnership.

2.) A person may be admitted as a partner either with the consent of all the existing partners or in accordance with an express agreement among the partners.

3.) Registration of the firm is optional and not compulsory.

4.) A partner may retire from the firm either with the consent of all the other partners or in accordance with an express agreement among the partners.

Question 3.   Name any six items which are shown in ‘Profit and Loss Appropriation Account’.

Solution 3.

1.) Salaries of Partners

2.) Commission of Partners

3.) Interest on Partners Capital

4.) Interest on Partners Drawings

5.) Profit transferred to Capital account

6.) Net Profit transferred from P&L account

Question 4.   Mention difference between the following:-

(a) Fixed Capitals and Fluctuating Capitals.

(b) Partner’s Capital Accounts and Current Accounts.

Solution 4.

 (a) Fixed Capitals and Fluctuating Capitals

(b) Partner’s Capital Accounts and Current Accounts

Question 5.   In the absence of Partnership Deed what are the rules relating to:-

(a) Salaries of Partners;

(b) Interest on Partner’s capitals;

(c) Interest on Loan given by a partner;

(d) Profit sharing ratio; and

(e) Interest on Partner’s drawings.

Solution 5.

(a) Salaries of Partners:- No partner is entitled to any salary or commission for taking part in running the firm’s business.

(b) Interest on Partner’s Capital:- No interest on Capital shall be allowed to the partners.

(c) Interest on Loan:- Interest at the rate of 6% p.a. is to be allowed on a partner’s loan to the firm. Such interest shall be paid even if there are losses to the firm.

(d) Profit sharing ratio:- Profit and losses are to be shared equally irrespective of their capital contribution.

(e) Interest on Partner’s drawings:- No interest is to be charged on drawings.

Question 6.   If the Partner’s Capital Accounts are fixed, where will you record the following items:-

(a) Drawings made by a partner.

(b) Salary payable to a partner.

(c) Fresh capital introduced by a partner.

(d) Share of Profit.

(e) Interest on Drawings.

Solution 6.

(a) Debit of Current A/c

(b) Credit of Current A/c

(c) Credit of Capital A/c

(d) Credit of Current A/c

(e) Debit to Current A/c

Question 7.   Mention the items that may appear on the debit side of the Capital Account of partner when the capitals are fluctuating.

Solution 7.    Below are the items appears on the debit side of the Capital Account of partner when the capitals are fluctuating:-

(1) Drawings

(2) Interest on Drawings

(3) Share of loss

(4) Loss on revolution

(5) Any assets taken by partner

(6) Closing Cr. Balance of the Capital

Question 8.  Mention the items that may appear on the credit side of the Capital Account of a partner when the capitals are fluctuating.

Solution 8.   Below are the items that may appear on the credit side of the Capital Account of a partner when the capitals are fluctuating:-

(1) Opening credit balance of Capital

(2) Additional Capital introduced

(3) Share of profit

(4) Interest on capital

(5) Salary to a partner

Question 9.   In the absence of a partnership deed, how are mutual relations of partners governed?

Solution 9.   In the absence of a partnership deed, the under mentioned provisions of the Partnership Act, 1932 will be applicable:-

(1) Profit and losses are to be shared equally.

(2) No interest is to be allowed on capitals.

(3) No interest is to be charged on drawings.

(4) No partner is entitled to any salary of commission for taking part in running the firm’s business.

(5) A partner is entitled to interest at the rate of 6% per annum on the loan given by him to the firm.

(6) Each partner can participate in the conduct of business.

Question 10.   How would you calculate interest on drawings of equal amounts drawn on the first day of every month?

Solution 10.    When drawings of equal amounts are made on the first day of every month, interest would be calculated on the total amount of drawings for 6 ¹/₂ months. Thus,

Question 11.   How would you calculate interest on drawings of equal amounts drawn on the last day of every month?

Solution 11.    When drawings of equal amounts are made on the last day of every month, interest would be calculated on the total amount of drawings for 5 ¹/₂  months. Thus, 

Question 12.    How would you calculate interest on drawings of equal amounts drawn in the middle of every month?

Solution 12.     When drawings of equal amounts are made in the middle of every month, interest would be calculated on the total amount of drawings for 6 months. Thus,

Question 13 (new). Ajay, Binod and Chandra entered into partnership on 1^st April 2019 with capitals Rs. 3,00,000, Rs. 2,00,000 and Rs. 1,00,000 respectively. In addition to capital, Chandra has advanced a loan of Rs. 1,00,000. Since they has no agreement to guide them, they faced following issues during and at the end of the year:

1. Ajay wanted interest on capital to be provided @ 8% p.a. but Binod and Chandra did not agree.

2. Chandra wanted that interest on loan be paid to him @ 10% p.a. but Ajay and Binod wanted to pay @ 5% p.a.

3. Ajay and Binod demanded to share profit in the ratio of their capital contribution, Chandra is not in agreement with this proposal.

4. Binod, being working partner, demands a lump sum payment of Rs. 40,000 as remuneration for which other partners are not in agreement.

Solution 13 (new). In the absence of partnership deed, the provision of partnership act 1932 will apply according to which:

1. No interest is payable on capitals.

2. Interest on loan by partner will be paid @ 6% p.a.

3. Profit will be shared equally.

4. No salary is payable to any partner.

Question 13.   A and B are partners but they do not have any partnership agreement. How will they solve the following disputes between them?

(i) A wants that profits should be shared in the capital ratio.

(ii) B wants that he should be paid salary for devoting more time for the business of the firm.

Solution 13.

(i) Profit will be shared equally.

(ii) B will not get the salary.

Question 14.   A and B are partners in a firm. State by giving reasons whether their claims are valid if partnership deed is silent in the following matters:-

(i) B had advanced a loan to the firm. He claims interest rate at the usual interest rate charged by banks. The rate of interest is 13% p.a.

(ii) A has contributed Rs. 1,00,000 and B Rs. 50,000 as capital. B wants profit to be shared equally.

Solution 14.

(i) B will be given interest on his loan @ 6% p.a.

(ii) In the absence of any agreement of the contrary, profit will be shared equally, irrespective of their capitals.

Question 15.   X and Y are partners in a firm. They do not have any partnership deed. What should be done in the following cases:-

(a) X has invested Rs. 1,00,000 and Y only Rs. 50,000 as capital. X wants interest on capital @ 12% p.a.

(b) X spends twine the time that Y devotes to the business. He wants a salary of Rs. 2,000 per month for the extra time spent by him.

(c) X wants to introduce his son Rajesh into the business. Y objects it.

(d) X has given a loan of Rs. 20,000 to the firm. He wants interest on it @ 8% p.a.

Solution 15.

(a) No interest on capital will be allowed.

(b) X is not entitled to any salary

(c) X’s son cannot be admitted as a partner, if Y objects it.

(d) X is entitled to claim interest on his loan @ 6% p.a.

Question 16.     The following differences have arisen among A, B and C. Give your decision regarding the same :-

(a) A used Rs. 1,00,000 belonging to the firm and made a profit of Rs. 75,000 in speculation. B and C want that A should return Rs. 1,75,000 to the firm, while A wants to return 1,00,000 only.

(b) A used Rs. 50,000 belonging to the firm and suffered a loss of 20,000 in speculation. He wants to return only 30,000.

(c) A and B want to admit Mohan as a new partner, but C does not agree.

(d) A and B want to purchase goods from Raghubir for the firm but does not agree.

Solution 16.

(a) A must return Rs. 1,75,000

(b) A must return Rs. 50,000;

(c) Mohan cannot be admitted

(d) Goods may be purchased from Raghubir.

Numerical Questions:-

Question 1.  X and Y are partners sharing profit in the ratio of 2:1.The under mentioned trial balance was extracted from their books on 31^st March, 2021:

You are required to prepare the Profit and Loss Account and Profit and Loss Appropriation Account for the year ended 31^st March, 2019 and a Balance Sheet as on that date. The following adjustments are to be made:

(i) The value of stock on March 31, 2019 was Rs. 64,000.

(ii) Change depreciation on Building at 10%.

(iii) Provide for outstanding rent Rs. 2,400.

(iv) Partners are entitled to interest on capital @ 5% and X is entitled to a salary of Rs. 48,000 p.a.

Solution 1.

Trading and Profit and loss account
for the year ended 31st March, 2021

Question 2.    Girish and Satish are partners in a firm. Their Capitals on April 1, 2018 were Rs. 5,60,000 and Rs. 4,75,000 respectively. On August 1, 2018 they decided that their capitals should be Rs. 5,00,000 each. The necessary adjustment in the capital were made by introducing or withdrawing cash. Interest on Capital is allowed at 6% p.a. You are required to compute interest on capital for the year ending March 31, 2019.

Solution 2.

Calculation of Interest on Capital For Girish:-

Capital for 4 months =  Rs. 5,60,000

Rate of interest = 6%

Interest on Capital = Rs. 5,60,000 × 6% × ⁴/₁₂

Interest on Capital = Rs. 11,200

Capital for 8 months =  Rs. 5,00,000

Rate of interest = 6%

Interest on Capital = Rs. 5,00,000 × 6% × ⁸/₁₂

Interest on Capital = Rs. 20,000

Total Interest on Capital paid to Girish = Rs. 11,200 + Rs. 20,000

Total Interest on Capital paid to Girish = Rs. 31,200

Calculation of Interest on Capital For Satish:-

Capital for 4 months =  Rs. 4,75,000

Rate of interest = 6%

Interest on Capital = Rs. 4,75,000 × 6% × ⁴/₁₂

Interest on Capital = Rs. 9,500

Capital for 8 months =  Rs. 5,00,000

Rate of interest = 6%

Interest on Capital = Rs. 5,00,000 × 6% ×  ⁸/₁₂

Interest on Capital = Rs. 20,000

Total Interest on Capital paid to Satish = Rs. 9,500 + Rs. 20,000

Total Interest on Capital paid to Satish = Rs. 29,500

Question 3.     X, Y and Z are partners in a firm. Their Capitals as on April 1, 2020 were Rs. 5,00,000; Rs. 4,00,000 and Rs. 3,00,000 respectively. On July 1, 2020 they introduced further Capitals of Rs. 1,00,000; Rs. 80,000 and Rs. 50,000 respectively. On February 1, 2021 Y withdrew Rs. 15,000 from his Capital. Interest is to be allowed @ 8% p.a. on the Capitals. Compute interest on Capital for the year ending March 31, 2021.

Solution 3          

Calculation of Interest on Capital For X:-

Capital for 3 months =  Rs. 5,00,000

Rate of interest = 8%

Interest on Capital = Rs. 5,00,000 × 8% × ³/₁₂

Interest on Capital = Rs. 10,000

Capital for 9 months =  Rs. 6,00,000

Rate of interest = 8%

Interest on Capital = Rs. 6,00,000 × 8% × ⁹/₁₂

Interest on Capital = Rs. 36,000

Total Interest on Capital paid to X = Rs. 10,000 + Rs. 36,000

Total Interest on Capital paid to X = Rs. 46,000

Calculation of Interest on Capital For Y:-

Capital for 3 months =  Rs. 4,00,000

Rate of interest = 8%

Interest on Capital = Rs. 4,00,000 × 8% ×  ³/₁₂

Interest on Capital = Rs. 8,000

Capital for 7 months =  Rs. 4,80,000

Rate of interest = 8%

Interest on Capital = Rs. 4,80,000 × 8% × ⁷/₁₂

Interest on Capital = Rs. 22,400

Capital for 2 months =  Rs. 4,65,000

Rate of interest = 8%

Interest on Capital = Rs. 4,65,000 × 8% × ²/₁₂

Interest on Capital = Rs. 6,200

Total Interest on Capital paid to Y = Rs. 8,000 + Rs. 22,400 + Rs. 6,200

Total Interest on Capital paid to Y = Rs. 36,600

Calculation of Interest on Capital For Z:-

Capital for 3 months =  Rs. 3,00,000

Rate of interest = 8%

Interest on Capital = Rs. 4,00,000 × 8% ×  ³/₁₂

Interest on Capital = Rs. 6,000

Capital for 9 months =  Rs. 3,50,000

Rate of interest = 8%

Interest on Capital = Rs. 4,80,000 × 8% ×  ⁹/₁₂

Interest on Capital = Rs. 21,000

Total Interest on Capital paid to Y = Rs. 6,000 + Rs. 21,000

Total Interest on Capital paid to Y = Rs. 27,000

Question 4.        On March 31, 2016 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at Rs. 4,00,000; Rs. 3,00,000 and Rs. 2,00,000 respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to Rs. 1,50,000 and the partner’s drawings had been Mountain: Rs. 20,000; Hill Rs. 15,000 and Rock Rs. 10,000.

Calculate interest on capital.

Solution 4           Calculation of Capital in the beginning of the year:-

Mountain:-

Capital at the end of the year on March 31, 2016 = Rs. 4,00,000

Add:- Drawings = Rs. 20,000

Less:- Share of Profit = Rs. 50,000

Capital in the beginning on 1^st April, 2015 = Rs. 4,00,000 + Rs. 20,000 – Rs. 50,000 = Rs. 3,70,000

Calculation of Interest on Capital:-

Calculation of Interest on Capital = Rs. 3,70,000 × 10%

Calculation of Interest on Capital = Rs. 37,000

Hill:-

Capital at the end of the year on March 31, 2016 = Rs. 3,00,000

Add:- Drawings = Rs. 15,000

Less:- Share of Profit = Rs. 50,000

Capital in the beginning on 1^st April, 2015 = Rs. 3,00,000 + Rs. 15,000 – Rs. 50,000 = Rs. 2,65,000

Calculation of Interest on Capital:-

Calculation of Interest on Capital = Rs. 2,65,000 × 10%

Calculation of Interest on Capital = Rs. 26,500

Rock:-

Capital at the end of the year on March 31, 2016 = Rs. 2,00,000

Add:- Drawings = Rs. 10,000

Less:- Share of Profit = Rs. 50,000

Capital in the beginning on 1^st April, 2015 = Rs. 2,00,000 + Rs. 10,000 – Rs. 50,000 = Rs. 1,60,000

Calculation of Interest on Capital:-

Calculation of Interest on Capital = Rs. 1,60,000 × 10%

Calculation of Interest on Capital = Rs. 16,000

Question 5. (A)       On 1^st April, 2018 A and B commenced business with Capital of Rs. 6,00,000 and Rs. 2,00,000 respectively. On 31^st March, 2019 the trading profit (before taking into account the provisions of deed) was Rs. 2,40,000. Interest on capital is to be allowed at 6% p.a. B was entitled to a salary of Rs. 60,000 p.a. The drawings of the partners A and B were Rs. 60,000 and Rs. 40,000 respectively. The interest on Drawings for A being Rs. 2,000 and B Rs. 1,000. Assuming that A and B are equal partners, prepare the Profit and Loss Appropriation a/c and Partner’s Capital Accounts as at 31^st March, 2019.

Solution 5. (A)

Working Note:-

Profit will be distributed in equal ratio = 1 : 1

A’s Profit = Rs. 1,35,000 × ¹/₂ = Rs. 67,500

B’s Profit = Rs. 1,35,000 ×¹/₂  = Rs. 67,500

Question 5. (B)     Anubha and Kajal entered into partnership sharing profit and losses in the ratio of 2:1. Their capitals were Rs. 90,000 and Rs. 60,000. The profits during the year were Rs. 45,000. According to partnership deed, both partners are allowed salary, Rs. 700 per month to Anubha and Rs. 500 per month to Kajal. Interest is allowed on capital @ 5% p.a. The drawings at the end of the period were Rs. 8,500 for Anubha and Rs. 6,500 for Kajal. Interest is to be charged @ 5% p.a. on drawings. Prepare partner’s capital accounts, assuming that the capital accounts are fluctuating. 

Solution 5 (B).

Working Note:-

1. Salary of Anubha = Rs. 700 × 12 = 8,400

Salary of Kajal = Rs. 500 × 12 = 6,000  

Question 6.        A and B started a partnership business on 1^st April, 2018. They contributed Rs. 6,00,000 and Rs. 4,00,000 respectively, as their capitals. The terms of the partnership agreement are as under:

(i) Interest on Capital and Drawings @ 6% per annum.

(ii) B is to get a monthly salary of Rs. 2,500.

(iii) Sharing of Profit or loss will be in the ratio of their capital contribution.

The profit for the year ended 31^st March, 2019 before making above appropriations was Rs. 2,07,400. The drawings of A and B were Rs. 48,000 and Rs. 40,000 respectively. Interest on drawings amounted to Rs. 1,500 for A and Rs. 1,100 for B.

Prepare profit and loss appropriation account and partner’s capital accounts assuming that their capitals are fluctuating.

Solution 6. 

PROFIT AND LOSS ACCOUNT

for the year ended 31st March, 2021

Working Note:-

1. B’s Salary = Rs. 2,500 × 12 = 30,000

2. Profit distribution between partners:-

Anubha’s Profit = Rs. 1,20,000 × ³/₅  = Rs. 72,000

Kajal’s Profit = Rs. 1,20,000 × ²/₅ = Rs. 48,000

3. Calculation of Interest on Capital:-

A = Rs. 6,00,000 × 6% = Rs. 36,000

B = Rs. 4,00,000 × 6% = Rs. 24,000

Question 7.      X and Y are partners with capitals of Rs. 1,00,000 and Rs. 80,000 respectively on 1^st April, 2020 and their profit sharing ratio is 2:1. Interest on capital is agreed @ 12% p.a. Y is to be allowed an annual salary of Rs. 6,000. The profit for the year ended 31^st March, 2017 amounted to Rs. 50,000. Manager is entitled to a commission of 10% of the profits.

Solution 7.

 PROFIT AND LOSS ACCOUNT
for the year ended 31^st March, 2021

Working Note:-

1. Calculation of Manager’s Commission = Rs. 50,000 × 10% = Rs. 5,000

2. Calculation of Interest on Capital:-

X = Rs. 1,00,000 × 12% = Rs. 12,000

Y = Rs. 80,000 × 12% = Rs. 9,600

3. Profit distribution between partners:-

X’s Profit = Rs. 17,400 × ²/₃  = Rs. 11,600

Y’s Profit = Rs. 17,400 × ¹/₃  = Rs. 5,800

Question 8.      Asha and Lata are partners sharing profits in the ratio of 1:2. Asha is entitled to a salary of Rs. 2,00,000 p.a. and a commission of 8% of net profit before charging any commission. Lata is entitled to a commission of 8% of net profit after charging her commission. Net Profit for the year ended 31^st March, 2021 amounted to Rs. 5,40,000. Prepare Profit and loss Appropriation Account.

Solution 8. 

                                                     PROFIT AND LOSS APPROPRIATION ACCOUNT
                                                                 for the year ended 31st March, 2021

Question 9.     A and B are partners in a firm sharing profits or losses in the ratio of 2:3 with capital of Rs. 4,00,000 and Rs. 8,00,000 respectively on 1^st April, 2020. Each partner is entitled to 10% p.a. interest on his capital. B is entitled a commission of 10% on net profit remaining after deducting interest on capital but before charging any commission. A is entitled a commission of 8% on net profit remaining after deducting interest on capital and after charging all commission. The profit for the year ended 31^st March, 2021 prior to calculation of interest on capital was Rs. 6,00,000. Prepare Profit and Loss Appropriation Account.

Solution 9.

PROFIT AND LOSS APPROPRIATION ACCOUNT
for the year ended 31^st March, 2020

Working Note:-

Calculation of Partner’s Commission:-

Profit after charging Interest on capital = Rs. 6,00,000 – Rs. 1,20,000 = Rs. 4,80,000

B’s Commission = Rs. 4,80,000 × ¹⁰/₁₀₀ = Rs. 48,000

Profit after charging Interest on capital and B’s Commission = Rs. 6,00,000 – Rs. 1,20,000 – Rs. 48,000

Profit after charging Interest on capital and B’s Commission = Rs. 4,32,000

A’s Commission (after charging B’s commission own commission) = Rs. 4,32,000 × ⁸/₁₀₈ = Rs. 32,000

Question 10.      Y and Z are partners with capital of Rs. 25,000 and Rs. 15,000 respectively on 1^st April, 2020. Each partner is entitled to 9% p.a. interest on his capital. Z is entitled to a salary of Rs. 6,000 p.a. together with a commission of 6% of Net Profit remaining after deducting interest on capital and salary and after charging his commission. The profit for the year ended 31^st March, 2021 before making any of the above mentioned adjustments amount to Rs. 30,800. Prepare Partner’s Capital Accounts:

(i) when capitals are fixed,
(ii) when capital are fluctuating.

Solution 10.

                                                    PROFIT AND LOSS APPROPRIATION ACCOUNT
                                                            for the year ended 31st March, 2021

Question 11.      L, M and N are partners in a firm sharing profit and losses in the ratio of 2:3:5. On April 1, 2016 their fixed capitals were Rs. 2,00,000, Rs. 3,00,000 and Rs. 4,00,000 respectively. Their partnership deed provided for the following:

(i) Interest on capital @ 9% per annum.

(ii) Interest on Drawings @ 12% per annum.

(iii) Interest on partner’s loan @ 12% per annum.

On July 1, 2016, L brought Rs. 1,00,000 as additional capital and N withdrew Rs. 1,00,000 from his capital. During the year L, M and N withdrew Rs. 12,000 , Rs. 18,000 and Rs. 24,000 respectively for their personal use. On January 1, 2017 the firm obtained a Loan of Rs. 1,50,000 from M. The Net Profit of the firm for the year ended March 31, 2017 after charging interest on M’s Loan was Rs. 85,000. Prepare profit and loss Appropriation Account and Partner’s Capital Accounts.

Solution 11.

Question 11. (B)     A and B are partners in a firm. Their capitals as on 1^st April, 2016 were Rs. 2,10,000 and Rs. 90,000 respectively. They share profits in the ratio of 2:1. On 1^st August, 2016, they decided that their capitals should be readjusted according to their profit sharing ratio. The necessary adjustments in the capitals were made by withdrawing or introducing cash. Interest on capital is allowed at 12% p.a. Compute interest on capitals for the year ending on 31sy March, 2017.

Solution 11.   (B)          Calculation of Adjustment of Capital:-

Total capital of the firm = Rs. 2,10,000 + Rs. 90,000 = Rs. 3,00,000

Profit sharing ratio = 2:1

A’s Capital will be = Rs. 3,00,000 × ²/₃ = Rs. 2,00,000

B’s Capital will be = Rs. 3,00,000 × ¹/₃ = Rs. 1,00,000

Hence, on 1^st August, 2016 A withdraw Rs. 10,000 and B will introduce additional capital of Rs. 10,000.

Question 12.      A, B and C were partners in a firm having capitals of Rs. 2,00,000; Rs. 2,00,000 and Rs. 80,000 respectively on 1st April, 2020. Their Current Account balances were A: Rs. 20,000; B: Rs. 10,000 and C: Rs. 5,000 (Dr.). According to the partnership deed the partners were entitled to interest on capital @ 10% p.a. B being the working partner was also entitled to a salary of Rs. 6,000 per quarter. The profit were to be divided as follows: 
(a) The first Rs. 60,000 in proportion to their capitals.
(b) Next Rs, 1,00,000 in the ratio of 4:3:1.
(c) Remaining profit to be shared equally.
The firm made a profit of Rs. 2,80,000 for the year ended 31st March, 2021 before charging any of the above items. Prepare the Profit & Loss appropriation account and pass necessary journal entry for appropriation of profit.

Solution 12.

PROFIT AND LOSS APPROPRIATION ACCOUNT
for the year ended 31^st March, 2021

Working Note:-

1. Calculation of Interest on Capital:-

A = Rs. 2,00,000 × 10% = Rs. 20,000

B = Rs. 2,00,000 × 10% = Rs. 20,000

C = Rs. 80,000 × 10% = Rs. 8,000

2. Calculation of Profit and Loss:-

Capital Ratio = 2,00,000 : 2,00,000 : 80,000

Capital Ratio = 5 : 5 : 2

Profit = 2,80,000 – 48,000 – Rs. 24,000

Profit = 2,08,000

Question 13.     A, B and C are partners with Fixed Capital of Rs. 1,00,000; Rs. 2,00,000 and Rs. 3,00,000 respectively. Their partnership deed provides that:

(a) A is to be allowed a monthly salary of Rs. 600 and B is to be allowed a monthly salary of Rs. 400.

(b) C will be allowed a commission of 5% of the net profit after allowing salaries of A and B.

(c) Interest is to be allowed on Capital @ 6%.

(d) Interest will be charged on partner’s annual drawings at 4%.

(e) The annual drawings were: B Rs. 10,000 and C Rs. 15,000.

The net profit for the year ending 31^st March, 2021 amounted to Rs. 1,72,000. Prepare Profit and Loss Appropriation Account.

Solution 13.

PROFIT AND LOSS APPROPRIATION ACCOUNT
for the year ended 31st March, 2021

Question 14.      A, B and C entered into partnership on 1^st April 2020 with capital of Rs. 10,00,000, Rs. 8,00,000 and Rs. 5,00,000 respectively. On 1^st July 2020, B advanced Rs. 2,00,000 and on 1^st December 2020 C advanced Rs. 1,00,000 by way of loans to the firm. 
The Profit and Loss Account for the year ended 31.03.2021 disclosed a profit of Rs. 7,70,000 but the partners could not agree upon the rate of interest on loans and the profit sharing ratio. Prepare partner’s Capital account and Loan’s accounts.

Question 15.  Lata and Mamta are partners with capitals of Rs. 3,00,000 and Rs. 2,00,000 respectively sharing profit as Lata 70% and Mamta 30%. During the year ended 31st March 2021 they earned a profit of Rs. 2,26,440 before allowing interest on partner’s loan. The terms of partnership are as follows: 
(i) Interest on Capital is to allowed @ 7% p.a. 
(ii) Lata to get a salary of Rs. 2,500 per month.
(iii) Interest on Mamta’s Loan account of Rs. 80,000 for the whole year.
(iv) Interest on Drawings of partners at 8% per annum. Drawings being Lata Rs. 36,000 and Mamta Rs. 48,000.
(v) 1/10th of the distributable profit should be transferred to General Reserve.
Show the distribution of profits.

Solution 15.

PROFIT AND LOSS ACCOUNT
for the year ended 31st March, 2021

Working Notes:-
(1) Interest on Mamta’s Loan has been calculated at 6% p.a.
(2) Interest on Drawings has been calculated for an average period of 6 months.
(3) Distributable Profit = Total of Credit side – Debit Side
Total Credit Side = Rs. 2,25,000
Total of Debit side (Rs. 35,000 + Rs. 30,000) = Rs. 65,000
Rs. 2,25,000 – Rs. 65,000 = Rs. 1,60,000
General Reserve is 10% of Rs. 1,60,000 = Rs. 16,000

Question 16.      A, B and C are partners sharing the profit and losses in the ratio of 2:3:5. On 1^st July, 2018, A and B granted loans of Rs. 2,00,000 and Rs. 1,00,000 respectively to the firm. Show the distribution of profit/losses for the year ended 31^st March, 2019, in the following cases:
Case (a) If the profits before interest for the year amounted to Rs. 7,500.
Case (b) If the loss before interest for the year amounted to Rs. 7,500.

Solution 16.        Case (a)

Question 17.      A and B are partners sharing profit in the ratio of 3:2. Interest on Capital is allowed at 10% p.a. and charged on drawings at the same rate. Fill up the missing figure in the following accounts:

Solution 17.

Question 18.      Radha and Rukmani are partners in a firm with fixed capitals of 2,00,000 and Rs. 3,00,000 respectively.

They share profit in the ratio of 1:2. Both partners are entitled to interest on capitals @ 8% p.a. In addition, Rukmani is entitled to a salary of Rs. 20,000 per month. Business is being carried from the property owned by Radha on a yearly rent of Rs. 1,20,000. Net Profit for the year ended 31^st March 2018 before providing for rent was Rs. 5,50,000.

You are required to draw Profit & Loss Appropriation Account for the year ended 31^st March, 2018.

Solution 18.

Working Note:-

1. Calculation of Net Profit = 5,50,000 – Rs. 1,20,000 = Rs. 4,30,000

2. Calculation of Interest on Capital:-

Radha  = Rs. 2,00,000 × 8% = Rs. 16,000

Rukmani = Rs. 3,00,000 × 8% = Rs. 24,000

3. Calculation of Profit and Loss:-

Profit of transferred to Capital account = Rs. 4,30,000 – (Rs. 2,40,000 + Rs. 40,000)

Profit of transferred to Capital account = Rs. 1,50,000

Radha’s Profit = Rs. 1,50,000 × ¹/₃  = Rs. 50,000
Rukmani’s Profit = Rs. 1,50,000 × ¹/₃ = Rs. 1,00,000

Question 19.   P and Q are partners sharing profit and losses in the ratio of 60:40. On 1stApril, 2020 their capitals were: P- Rs. 5,00,000 and Q – Rs. 3,00,000. During the year ended 31st March, 2021, they earned a net profit of Rs. 7,60,000. The terms of partnership are: 
(i) Interest on the capital is to be charged @ 8% p.a. 
(ii) P will get commission @ 3% on turnover. 
(iii) Q will get salary of Rs. 5,000 per month. 
(iv) Q will get commission of 5% on profit after deducting of interest, salary and commission (including his own commission).
(v) P is entitled to a rent of Rs. 20,000 per month for the use of his premises by the firm.
Partner’s drawings for the year were: P – Rs. 40,000 and Q – Rs. 30,000. Turnover for the year was Rs. 20,00,000. After considering the above factors, you are required to prepare the Profit and Loss Appropriation Account and the Capital Accounts of the Partners.

Solution 19.

PROFIT AND LOSS APPOPRIATION ACCOUNT
for the year ending on 31st March, 2021

Working Note:-

1. Calculation of Net Profit = 7,60,000 – Rs. 2,40,000 = Rs. 5,20,000

2. Calculation of Interest on Capital:-

P = Rs. 5,00,000 × 8% = Rs. 40,000

Question  = Rs. 3,00,000 × 8% = Rs. 24,000

3. Net Profit after deducting Expenses:-

Rs. 5,20,000 – (Rs. 64,000 + Rs. 60,000 + Rs. 60,000) = Rs. 3,36,000   

Q’s Commission = 3,36,000 × ⁵/₁₀₅  = Rs. 16,000

4. Calculation of Profit and Loss:-

P’s Profit = Rs. 3,20,000 ×⁶⁰/₁₀₀  = Rs. 1,92,000 

Q’s Profit = Rs. 3,20,000 × ⁴⁰/₁₀₀  = Rs. 1,28,000

Question 20.      P and Question  are partners sharing profit and losses in the ratio of 60 : 40. On 1^st April, 2014, their capital were: P – Rs. 5,00,000 and Question  – Rs. 3,00,000. During the year ended 31^st March, 2015, they earned a net profit of Rs. 7,60,000. The terms of partnership are:

(i) Interest on the capital is to be charged @ 8% p.a.

(ii) P will get commission @ 3% on turnover.

(iii) Question  will get a salary of Rs. 5,000 per month.

(iv) Question  will be commission of 5% on profit after deduction of interest, salary and commission (including his own commission).

(v) P is entitled to a rent of Rs. 20,000 per month for the use of his premises by the firm.

Partner’s drawings for the year were: P – Rs. 40,000 and Question  – Rs. 30,000. Turnover for the year was Rs. 20,00,000. After considering the above factors, you are required to prepare the profit and loss appropriation account and the capital accounts of the partners.    

Solution 20.

Working Note:-

(1) Net Profit transferred from P & L A/c to P & L App. A/c

Net Profit in P&L App. A/c = Net Profit in P&L A/c – Expenses (Rent)

Net Profit in P&L App. A/c = Rs. 7,60,000 – Rs. 2,40,000

Net Profit in P&L App. A/c = Rs. 5,20,000

(2) Net Profit after deducting interest on capitals, salary and P’s commission:

Rs. 5,20,000 – Rs. 64,000 – Rs. 60,000 – Rs. 60,000 = Rs. 3,36,000

Q's Commission = 3,36,000 x ⁵/₁₀₅ = 16,000

Question 21.      A and B are partners sharing profit and loss in the ratio of their capitals which were Rs. 6,00,000 and Rs. 4,00,000 respectively on 1^st April 2018. The partnership deed provides that:

(i) Both partners will get monthly salary of Rs. 20,000 each;

(ii) Interest on capital will be allowed @ 8% p.a.;

(iii) A will get a quarterly rent of Rs. 24,000 for the use of his property by the firm.

On 1^st July, 2018 A and B granted loans of Rs. 1,00,000 and Rs. 50,000 respectively to the firm. During the year ended 31^st March 2019, the firm incurred a loss of Rs. 17,250 before any adjustment is made as per partnership deed.

Solution 21.

Question 22.      A and B are partners in a firm sharing profit in the ratio of 1:2. Their capitals on 1^st April 2018 were Rs. 4,00,000 and Rs. 6,00,000 respectively. As per partnership deed, A is to get a monthly salary of Rs. 15,000 and interest on capitals is to be provided @ 10% p.a. and charged on drawings @ 12% p.a. During the year A withdrew Rs. 30,000 and B withdrew Rs. 50,000.

The Firm incurred a loss of Rs. 60,000 during the year ended 31^st March, 2019 before above adjustments. You are required to prepare an account showing the distribution of profit/loss.

Solution 22.

Question 23.   X and Y are partners in a firm sharing profit and losses in the ratio of 3:2 with capitals of Rs. 10,00,000 and Rs. 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 31^st March, 2021 before providing for interest on capital amounted to Rs. 45,000. Show the distribution of profit.

Solution 23.

PROFIT AND LOSS APPROPRIATION ACCOUNT
for the year ended 31st March, 2021

Total profit needed = Rs. 80,000 + Rs. 40,000 = Rs. 1,20,000
Available profit = Rs. 45,000 which is less than appropriations Rs. 1,20,000. Profit will be distributed in the ratio of appropriations in interest on capital 80,000 : 40,000 = 2 : 1.

A’s share = 45,000 × 2/3 = 30,000
B’s share = 45,000 × 1/3 = 15,000

Question 24.      Akruti and Vibhuti were partners in a firm sharing profit in the ratio 2:1. The balances in their capital accounts on 1^st April, 2019 were as under:

                                                                        Akruti (Rs.)                                                 Vibhuti (Rs.)

Capital Accounts                                       3,00,000                                                       2,00,000

Current Accounts                                     60,000 (Dr.)                                                 12,000 (Cr.)

 The partnership deed provided that Akruti was to be paid salary of Rs. 22,500 per quarter, whereas Vibhuti was to get a commission of 15% on net profit before charging such commission.

Interest on capital was to be allowed @ 6% p.a. whereas interest on drawings was to be charged @ 10% p.a. The drawings of Akruti were Rs. 40,000 drawn on 1^st July 2019 and Vibhuti withdrew Rs. 30,000 on 1^st Dec., 2019. The net profit of the firm for the year before making the above adjustments was Rs. 1,00,000.

Solution 24.

New Ratio = 1,08,000 : 27,000

New Ratio = 108 : 27

New Ratio = 4 : 1

Profit and Loss Appropriation:-

Akruti’s Share = 1,04,000 × ⁴/₅ = 83,200 

Vibhuti’s Share = 1,04,000 × ¹/₅  = 20,800

Question 25. (A)    Mr. Ashok Gupta is a partner in a firm. He withdrew the following amounts during the year ended 31^st March, 2018:-

                                           Rs.

 30 April                           8,000

 30 June                           6,000

 30 September                 5,000

 31 December                  12,000

 31 January                     10,000

Calculate interest on drawings @ 9% p.a. for the year ended on 31^st March, 2018.

Solution 25  (A).       

Question 25. (B)      A is a partner in a firm. During the year ended 31^st March, 2018, A’s drawings were:

 1 June                 1,000

 1 August                 750

 1 October           1,250

 1 December          500

 1 February            500

Interest on drawings is charged @ 10% per annum. Calculate interest on drawings of A for year ended 31^st March, 2018.

Solution 25 (B).

Question 26.  (A)    Gopal is a partner in a firm. He withdrew Rs. 1,000 p.m. regularly on the first day of every month during the year ended 31^st March, 2018 for personal expenses. If interest on drawings is charged @ 15% p.a. calculate the interest on the drawings of Gopal.

Solution 26.  (A)          Gopal withdrew Rs. 1,000 p.m. regularly on the first day of every month during the year ended 31st March, 2014 for personal expenses. His interest on drawings will be calculated as follows:

Calculation of Interest on Drawings:-

Question 26. (B)     X, Y and Z are partners in a firm. You are informed that

(i) X draws Rs. 4,000 from the firm at the beginning of every month, (ii) Y draws Rs. 4,000 from the firma the end of every month, and (iii) Z draws Rs. 4,000 from the firm in the middle of every month. Interest on drawings is to be charged @ 9% p.a. Calculate interest on partner’s drawings.

Solution 26 (B)

Question 27.      Calculate the interest on drawings of Mr. Aditya @ 8% p.a. for the year ended 31^st March, 2021, in each of the following alternative cases:

Case (i) If he withdrew Rs. 5,000 in the beginning of each quarter.

Case (ii) If he withdrew Rs. 6,000 at the end of the each quarter.

Case (iii) If he withdrew Rs. 10,000 during the middle of each quarter.

Solution 27         

Question 28.      Calculate the interest on drawings of Sh. Ganesh @ 9% p.a. for the year ended 31^st March, 2021 in each of the following alternative cases:

Case (i) If he withdrew Rs. 4,000 p.m. in the beginning of every month;

Case (ii) If he withdrew Rs. 5,000 p.m. at the end of every month;

Case (iii) If he withdrew Rs. 6,000 p.m.;

Case (iv) If he withdrew Rs. 72,000 during the year;

Case (v) If he withdrew as follows:

                                        Rs.

 30^th April, 2020         10,000

 1^st July, 2020             15,000

 1^st Oct, 2020               18,000

 30^th Nov., 2020          12,000

 31^st March, 2021       20,000

Case (vi) If he withdrew Rs. 12,000 in the beginning of each quarter;

Case (vii) If he withdrew Rs. 18,000 at the end of each quarter;

Case (viii) If he withdrew Rs. 18,000 during the middle of each quarter.

Solution 28.        

Question 29. (A)      Gupta is a partner in a firm. He drew regularly Rs. 800 at the beginning of every month for the six months ending 31^st March, 2018. Calculate interest on drawings at 15% p.a.

Solution 29   (A)      Gupta drew Rs. 800 at the beginning of every month for the six months ending 30th September, 2018. Hence, his drawings for the period of six months would be:

Period = 6 months + 1 months = 7 months

Question 29.(B)    Gupta is a partner in a firm. He drew regularly Rs. 800 at the end of every month for the six months ending 31^st March, 2018. Calculate interest on drawings at 15% p.a.

Solution 29  (B)     Gupta withdraws Rs. 800 at the end of every month for the six months ending 30th September, 2013.

Total drawings = 6 x Rs. 800 = Rs. 4,800

(Time left after first drawing + Time left after last drawing)/2

= (5 + 0)/2 = 2.5 months.

Rs. 4,800 x 15/100 x 2.5/12 = Rs. 150

Question 29.  (C)   A, B and C are partners in a firm. For six months ending 31^st March, 2018:

A drew regularly Rs. 15,000 in the beginning of every month. B drew regularly Rs. 20,000 at the end of every month and C drew regularly Rs. 25,000 in the middle of every month. Calculate interest on drawings @ 10% p.a. for six months ending 31^st March, 2018

Solution 29  (C)       

 Total Drawings of A    = Rs. 15,000 x 6  = Rs. 90,000

Total Drawings of B    = Rs. 20,000 x 6  = Rs. 1,20,000

Total Drawings of C    = Rs. 25,000 x 6  = Rs. 1,50,000

Question 30.  (A)       A, B and C started business on 1^st July, 2015. Calculate interest on drawings of Mr. A @ 9% p.a. for nine months ending 31^st March, 2021, if he withdrew Rs. 10,000 p.m. in the beginning of every month.

Solution 30    (A)          Total Drawings = 9 × Rs. 10,000 = Rs. 90,000

Question 30. (B)       A, B and C started business on 1^st July, 2015. Calculate interest on drawings of Mr. B @ 9% p.a. for nine months ending 31^st March, 2021, if he withdrew Rs. 10,000 p.m. at the end of every month.

Solution 30   (B)          Total Drawings = 9 × Rs. 10,000 = Rs. 90,000

Question 30. (C)       A, B and C started business on 1^st July, 2015. Calculate interest on drawings of Mr. C @ 9% p.a. for nine months ending 31^st March, 2021, if he withdrew Rs. 10,000 p.m.

Solution 30   (C)          Total Drawings = 9 × Rs. 10,000 = Rs. 90,000

Question 31.      Calculate interest on A’s drawings:

(i) If he has withdrawn Rs. 60,000 on 1^st October, 2020 and rate of interest on drawings is 8% p.a.

(ii) If he has withdrawn Rs. 6,000 on 1^st October, 2020 and rate of interest on drawings is 8%.

Books are closed on 31^st March, 2021

Solution 31. Case (i) Interest on Drawings = Rs. 60,000 × 8/100 × 6/12
Interest on Drawings = Rs. 2,400

Case (ii)
Calculation for 12 months Interest on Drawings:
Interest on Drawings = Rs. 60,000 × 8/100
Interest on Drawings = Rs. 4,800

Question 32.      Current Account’s Balance as on 1^st April, 2017 were as: Amit: Rs. 5,000 (Cr.), Namit: Rs. 2,000 (Cr.) and Ruchi: Rs. 1,000 (Dr.). Profit sharing ratio was 3:2:1. Amit gets a monthly salary of Rs. 1,500.

Amit draws Rs. 2,000 on the first day of each month and Namit draws Rs. 2,000 on the last date of each month while Ruchi draws Rs. 6,000 at the end of quarter. Interest on drawings is to be charged @ 12% p.a. Profits for the year ended 31^st March, 2018 before adjustments of interest on drawings and of salary were Rs. 74,040. Show Current Accounts.

Solution 32.

Question 33.      P, Q  and R were partners and the balance of their capital accounts on 1^st April, 2020 were Rs. 8,00,000 (Cr.); Rs. 5,00,000 (Cr.) and Rs. 20,000 (Dr.) respectively. As per the terms of partnership agreement interest on capitals is to be allowed @ 10% p.a. and is to be charged on drawings @ 12% p.a.

Partners withdrew as follows:

(i) P withdrew Rs. 10,000 p.m. at the end of each month;

(ii) Question  withdrew Rs. 1,20,000 out of capital on 1^st January 2016;

(iii) R withdrew Rs. 1,20,000 during the year.

The profit for the year ended 31^st March, 2016 amounted to Rs. 4,30,000. You are required to prepare journal entries and partner’s capital accounts.

Solution 33.

Question 34.    A and  B are partners sharing profit and losses equally with capitals of Rs. 3,00,000 and Rs. 2,00,000 respectively. Their drawings during the year ending on 31^st March, 2021 are as follows: 
A’s Drawings on 

B drew Rs. 6,000 at the end of each month. The deed provides interest on capitals and drawings at 10% p.a. Calculate interest on capitals and drawing

Solution 34. Calculation of Interest on capitals:-
A = Rs. 3,00,000 × 10/(100 ) = Rs. 30,000
B = Rs. 2,00,000 × 10/(100 ) = Rs. 20,000

A’s Interest on Drawings = Total Products × 1/12 × (Rate of Interets )/100
A’s Interest on Drawings = Rs. 3,36,000 × 1/12 × (10 )/100
A’s Interest on Drawings = Rs. 2,800

B’s Interest Drawings:-
Total Drawings = Rs. 6,000 × 12 = Rs. 72,000
B’s Interest on Drawings = Rs. 72,000 × 10/100 × (5.5 )/12
B’s Interest on Drawings = Rs. 3,300

Question 35.      X and Y are partners sharing the profits and losses in the ratio 2:1 with capitals of Rs. 50,000 and Rs. 30,000 respectively. Show the distribution of profits in each of the following alternative cases:

(i) If the partnership deed is silent as to the Interest on Capital and the profits for the year are Rs. 9,000.

(ii) If the partnership deed provides for Interest on Capital @ 6% p.a. and the losses for the year are Rs. 6,000.

(iii) If the partnership deed provides for Interest on Capital @ 6% p.a. and the profits for the year are Rs. 9,000.

(iv) If the partnership deed provides for Interest on Capital @ 6% p.a. and the profits for the year are Rs. 3,000.

(v) If the partnership deed provides for Interest on Capital @ 6% p.a. even if it involves the firm in loss and the profits for the year are Rs. 3,000.     

Solution 35.

Working Note:-

Calculation of Interest on Capital:-

X’s Interest on Capital = 50,000 × 6% = 3,000

Y’s Interest on Capital = 30,000 × 6% = 1,800

Profit and Loss Appropriation (Distribution of Profit):-

X’s Share = 4,200 × ²/₃ = 2,800 

Y’s Share = 4,200 × ¹/₃ = 1,400

Question 36.   A and B contribute Rs. 4,00,000 and Rs. 3,00,000 respectively as their capitals. They decide to allow interest on capital @ 8% p.a. Their respective share of profit is 3:2 and the profit for the year is Rs. 42,000 before allowing for interest on capitals. Show the distribution of profits (i) Where there is no agreement except for interest on capitals and (ii) Where there is a clear agreement that the interest on capitals will be allowed even if it involves the firm in loses.

Solution 36.

Working Note:-

Calculation of Interest on Capital:-

A’s Interest on Capital = 4,00,000 × 8% = 32,000 

B’s Interest on Capital = 3,00,000 × 8% = 24,000

The profit is Rs. 42,000 whereas Interest on capital is Rs. 56,000. So the expenses divided into their expenses ratio which is 32,000 : 24,000 or 4 : 3

Question 37.      P and Q  were partners in a firm sharing profits in 3:1 ratio. Their respective fixed capitals were Rs. 10,00,000 and Rs. 6,00,000. The partnership deed provided interest on capital @ 12% p.a. The Partnership deed further provided that interest on capital will be allowed fully even if it will result into a loss to the firm. The net profit of the firm for the year ended 31^st March, 2018 was Rs. 1,50,000.

Pass necessary journal entries in the books of the firm allowing interest on capital and division of profit/loss among the partners.

Solution 37.

Working Note:-

Calculation of Interest on Capital:-

P’s Interest on Capital = 10,00,000 × 12% = 1,20,000 

Q’s Interest on Capital = 6,00,000 × 12% = 72,000

Profit and Loss Appropriation (Distribution of Loss):-

P’s Share = 42,000 × ³/₄ = 31,500 

Q’s Share = 42,000 × ¹/₄  = 10,500

Question 38.      On 1-4-2013 Brij and Nandan entered into partnership to construct toilets in government girls school in the remote areas of Uttarakhand. They contributed capitals of Rs. 10,00,000 and Rs. 15,00,000 respectively. Their profit ratio was 2:3 and interest allowed on capital as provided in the Partnership Deed was 12% per annum. During the year ended 31.03.2021, the firm earned a profit of Rs. 2,00,000.

Prepare Profit and Loss Appropriation Account of Brij and Nandan for the year ended 31. 03.2021.  

Solution 38.

PROFIT AND LOSS APPROPRIATION ACCOUNT
For the year ended 31^st March, 2021

 Working Note:-

Calculation of Interest on Capital:-

A’s Interest on Capital = 10,00,000 × 12% = 1,20,000 

B’s Interest on Capital = 15,00,000 × 12% = 1,80,000

The profit is Rs. 2,00,000 whereas Interest on capital is Rs. 3,00,000. So the expenses divided into their expenses ratio which is 1,20,000 : 1,80,000 or 2 : 3

A’s Interest on Capital = Rs. 2,00,000 × ²/₅  = Rs. 80,000 

B’s Interest on Capital = Rs. 2,00,000 × ³/₅ = Rs. 1,20,000

Question 39.      Kavita and Leela are partners with capitals of Rs. 6,00,000 and Rs. 4,00,000 and sharing profits & losses in the ratio of 2:1. Their partnership deed provides that interest on capitals shall be provided @ 8% p.a. and it is to be treated as a charge against profits. Prepare relevant account to allocate the profit in the following alternative cases:

(i) If profit for the year is        Rs. 1,10,000

(ii) If profit for the year is       Rs. 35,000

(iii) If loss for the year is          Rs. 10,000

Solution 39.

Question 40.   Lalan and Balan were partners in a firm sharing in the ratio of 3:2. Their fixed capitals on 1^st April, 2017 were: Lalan Rs. 1,00,000 and Balan Rs. 2,00,000. They agreed to allow interest on capital @ 12% per annum and to change on drawings @ 15% per annum. The firm earned a profit, before all above adjustments of Rs. 30,000 for the year ended 31^st March, 2018. The drawings of Lalan and Balan during the year were Rs. 3,000 and Rs. 5,000 respectively. Showing you calculations clearly, prepare Profit and Loss Appropriation Account of Lalan and Balan. The interest on capital will be allowed even if the firm incurs a loss.    

Solution 40.

Question 41.    On 1^st April, 2018 X, Y and Z started a business in partnership. X contributes Rs. 90,000 at first but withdraws Rs. 30,000 at the end of six months. Y introduces Rs. 75,000 at first and Increses it to Rs. 90,000 at the end of four months, but withdraws Rs. 30,000 at the end of eight months. Z bring in Rs. 75,000 at first but increases it by Rs. 60,000 at the end of seven months.

During the year ended 31^st March, 2019, they make a net profit of Rs. 42,000. Show how the partners should divide this amount on the basis of effective capital employed by each partner.

Solution 41.

Question 42.   After the accounts of the partnership have been drawn up and the books closed off, it is discovered that interest on capitals @ 8% p.a. as provided in the partnership agreement has been omitted to be recorded. Their capital accounts at the beginning of the year stood as follows: A Rs. 8,00,000; B Rs. 4,00,000; C Rs. 3,00,000. Their profit sharing ratio was 2 : 1 : 1. Instead of altering the Balance Sheet it is decided to pass necessary adjusting entry at the beginning of the next year. You are required to give the necessary journal entry.

Solution 42.

Question 43.      A, B, C and D are partners sharing profits in 2:2:1:1. They distributed the profit for the year ending 31^st March, 2020, Rs. 9,00,000 without providing for the following:

(i) Salary to A @ 15,000 per month.

(ii) Salary to B and D @ Rs. 30,000 per quarter to each partner.

Solution 43.

Question 44.   A, B and C are partners sharing profits and losses in the ratio of 1:2:3. They have omitted interest on capital @ 8% p.a. for two years ended 31^st March, 2016. Their fixed capitals were Rs. 4,00,000, Rs. 6,00,000 and Rs. 8,00,000 respectively. Pass the necessary adjusting entry.

Solution 44.

Question 45.   A, B and C are partners sharing profits and losses in the ratio of 5:3:1. After the final accounts have been prepared, it was discovered, it was discovered that interest on drawings had not been taken into consideration. The interest on drawings of partners amounted to A Rs. 8,000, B Rs. 6,000 and C Rs. 4,000. Given the necessary adjusting journal entry.

Solution 45.

Question 46.   A, B and C are partners sharing profits and losses in 2:2:3:3 respectively. After the accounts of the year had been closed, it was found that interest on drawings @ 6% per annum has not been taken into consideration. The drawings of the partners were: A Rs. 20,000; B Rs. 24,000; C Rs. 32,000 and D Rs. 44,000. Give the necessary adjusting entry.

Solution 46.

Question 47.   A and B were partners sharing profits in 2:1 ratio. During the year ended 31^st March, 2021, A’s drawings were Rs. 50,000 per month drawn in the beginning of every month and B’s drawings were Rs. 25,000 per month drawn at the end of every month. After the preparation of final accounts. It was discovered that interest on A’s drawings @ 12% p.a. was not taken into consideration. Given the necessary adjusting entry on 1^st April, 2021. 

Solution 47.

Question 48.   Anil, Sunil and Sanjay have omitted interest on capitals for two years ended on 31^st March, 2016. Their fixed capitals in two years were Anil Rs. 8,00,000, Sunil Rs. 7,00,000 and Sanjay Rs. 3,00,000. Rate of interest on capitals is 10% p.a. Their profit sharing ratios were in first year 4:3:2 and in second year 3:2:1. Give necessary adjusting entry at the beginning of next year.

Solution 48.

Question 49.   P, Q  and R are partner sharing profits in the ratio of 2:1:1. Their capitals as on 1^st April, 2017 were Rs. 50,000, Rs. 30,000 and Rs. 20,000 respectively. At the end of the year ending 31^st March, 2018 it was founds out that interest on capitals @ 12% p.a. salaries to P, Rs, 500 per month and R Rs. 1,000 per month were not adjusted from the profits. Show adjusting entry to be made in the next year for above adjustments.

Solution 49.

Question 50. (A)      On 1^st April, 2020 the capitals of A and B were Rs. 4,00,000 and Rs. 2,00,000 respectively. They divided profits in their capital ratio. Profit for the year ended 31^st March, 2021 were Rs. 3,00,000 which have been duly distributed among the partners, but the following transactions were not passed through the books:-

(a) Interest on Capitals @ 12% p.a.,

(b) Interest on Drawings A Rs. 12,000; B Rs. 10,000.

(c) Commission due to B Rs. 20,000 on special transaction.

(d) A is to be paid a salary of Rs. 50,000.

You are required to pass a journal entry on 10^th April, 2016 which will not affect the Profit and Loss A/c of the firm and at the same time will rectify the errors. 

Solution 50 (A).

Question 50.  (B)   Kumar and Raja were partners in a firm sharing profits in the ratio of 7:3. Their fixed capitals were: Kumar Rs. 9,00,000 and Raja Rs. 4,00,000. The partnership deed provided for the following but the profit for the year was distributed without providing for:

(i) Interest on capital @ 9% per annum.

(ii) Kumar’s salary Rs. 50,000 per year and Raja’s salary Rs. 3,000 per month.

The profit for year ended 31.03.2018 was Rs. 2,78,000. Pass the adjustment entry. 

Solution 50 (B).

Question 51.    A, B and C are partners sharing profits in the ratio of 2:2:1. Their fixed capitals were Rs. 4,00,000, Rs. 2,50,000 and Rs. 1,00,000 respectively. Net profit for the year ending 31^st March, 2021 amounted to Rs. 2,20,000 which was distributed without providing for the following:

(i) Salary to B Rs. 5,000 p.m. and to C Rs. 10,000 per quarter.

(ii) Interest on capital @ 6% p.a.

(iii) Commission to Manager @ 10% after charging such commission.

Pass necessary rectifying entry. 

Solution 51.

Question 52.      Suresh and Ramesh were partners in a firm sharing profits in the ratio of 3:2. Their fixed capital were: Suresh Rs. 9,00,000 and Ramesh Rs. 6,00,000. The partnership deed provided fort the following:

(i) Interest on capital @ 5% per annum.

(ii) Rs. 60,000 per annum salary to Suresh and salary Rs. 2,000 per month to Ramesh. The profit earned by the firm for the year ended 31-3-2018 was Rs. 2,34,000.

The profits were divided equally without providing for the above. Pass adjustment entry.

Solution 52.

Question 53.     A, B and C were partners in a firm. On 1-4-2020 their capitals stood at Rs. 5,00,000, Rs. 2,50,000 and Rs. 2,50,000 respectively. As per the provisions of the partnership deed:

(a) C was entitled for a salary of Rs. 10,000 p.m.

(b) Partners were entitled to interest on capital at 5% p.a.

(c) Profits were to be shared in the ratios of capitals.

The net profit for the year ended 31.3.2021 of Rs. 3,30,000 was divided equally without providing for the above terms. Pass an adjustment entry to rectify the above error. 

Solution 53.

Question 54.   A, B and C were partners in a firm. Their capitals were A Rs. 1,00,000, B Rs. 2,00,000 and C Rs. 3,00,000 respectively on 1^st April, 2017. Accounting to the partnership deed they were entitled to an interest on capital @ 5% p.a. In additional A was also entitled to draw a salary of Rs. 5,000 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 A. The net profits for the year ended 31^st March, 2018 were Rs. 3,60,000 distributed in the ratio of their capitals without providing for any of the above adjustments. The profits were to be shared in the ratio 2:3:5. Pass the necessary adjustment entry showing the working clearly.   

Solution 54.

Question 55.      The partners of a firm distributed the profits for the year ended 31^st March, 2021, Rs. 1,50,000 in the ratio of 2:2:1 without providing for the following adjustments: 

(i) A and B were entitled to a salary of Rs. 1,500 per quarter. 

(ii) C was entitled to a commission of Rs. 18,000. 

(iii) A and C had guaranteed a minimum profit of Rs. 50,000 p.a. to B. 

(iv) Profits were to be shared in the ratio of 3:3:2.

Pass necessary journal entry for the above adjustments in the books of the firm.   

Solution 55.

Question 56.      A, B and C were partners in a firm. Their partnership deed provided that the profits shall be divided as follows:

First Rs. 60,000 in the ratio of 3:2:1.

Remaining profits will be shared equally.

The profits for the year ended 31^st Mach, 2019 were Rs. 1,50,000 which had been distributed among the partners. On 1^st April, 2018 their Capitals were A Rs. 4,00,000, B Rs. 3,00,000 and C Rs. 2,00,000. Interest on capital was to be provided @ 8% p.a. which was omitted to be provided before distribution of profits. Pass necessary rectifying entry for the same.

Solution 56.

Question 57.   X, Y and Z are partners in a firm sharing profits and losses in the ratio 5:3:2. Their capitals (Fixed) are Rs. 2,00,000; Rs. 1,50,000; Rs. 1,25,000 respectively. For the year ended 31^st March, 2018 interest on capital was credited to them @ 8% instead of 10%. Give adjusting journal entry.

Solution 57.

Question 58.   A, B and C are partners in a firm sharing profits and losses in the ratio of 4:3:3. Their fixed capitals were Rs. 1,00,000, Rs. 2,00,000 and Rs. 3,00,000 respectively. For the year ended 31^st March, 2018 interest on capital was credited to them @ 10% instead of 9% p.a. Pass the necessary adjusting journal entry.  

Solution 58.

Question 59.      After the accounts of a partnership have been drawn up and the books closed off, it is discovered that for the year ended 31^st March, 2020 and 2021 interest has been credited to the partners upon their capitals at 5% per annum although, no provision for interest is made in the partnership agreement.

The amount involved are:

                                                      Interest Credited

Year                                               A             B             C

                                                      Rs.          Rs.          Rs.

2016                                             4,200     2,400     1,320

2017                                             4,320     2,520     1,320

You are required to put through adjusting entry as on 1^st April, 2021, if the profits were shared as follows in 2020, 2:2:1 and in 2017, 3:4:3.

Solution 59.

Question 60.   Sachin, Kapil and Rashmi have been sharing profits in the ratio 3:2:1 respectively. Rashmi wants that she should share profits equally along with Sachin and Kapil and she further wants that change in profit sharing ratio should be applicable respectively for the last three years. Other partners have no objection to this. The profits for the last three year were Rs. 60,000, Rs. 47,000 and Rs. 55,000. Record the adjustment by means of a journal entry.

Solution 60.

Question 61. (A)          Mohan, Vijay and Anil are partners, their capitals being Rs. 30,000, Rs. 25,000 and Rs. 20,000 respectively. In arriving at these figures, the profits for the year ended, 31^st March, 2021 Rs. 24,000 has already been credited to the partners in the proportion in which they share profits. Their drawings were Rs. 5,000 (Mohan); Rs. 4,000 (Vijay) and Rs. 3,000 (Anil) for the year ending 31^st March, 2021. Subsequently the following omissions were noticed and it was decided to bring them into Account.

(i) Interest on Capital at 10% p.a.

(ii) Interest on Drawings Mohan Rs. 250, Vijay Rs. 200 and Anil Rs. 150.  

Solution 61 (A).

Question 61. (B)     The capitals of A, B and C stood at Rs. 20,000, Rs. 15,000 and Rs. 10,000 respectively after the necessary adjustment in respect of drawings and net profits. Subsequently, it was discovered that interest on capital at 10% p.a. and interest on drawings Rs. 130, Rs. 90 and Rs. 50 respectively have been ignored. Profit of the year already adjusted was Rs. 10,000. Drawings of the partners were Rs. 1,000, Rs. 800 and Rs. 500 respectively. They share profits and losses in the ratio of 2:1:1. Give necessary journal entry to rectify the accounts. 

Solution 61 (B).

Question 61. (C)    A and B are partners in a business sharing profits and losses in the ratio of 3:2. Their capitals on 31^st March, 2021, after the adjustment of net profits and drawings amounted to Rs. 2,00,000 and Rs. 1,50,000 respectively. Later on, it was discovered that interest on capital at 8% per annum, as provided for in the partnership deed, had not been credited to the partner’s capital accounts before the distribution of profits. The year’s net profit amounted to Rs. 75,000 and the partners had withdrawn Rs. 24,000 each. Instead of altering the signed balance sheet, it was decided to make an adjustment entry at the beginning of the new year crediting or decided to make an adjustment entry at the beginning of the new year crediting or debiting the Partner’s decided to make an adjustment entry at the beginning of the new year crediting or debiting the Partner’s Accounts. Give the necessary journal entry as also a statement of details arriving at the amount of adjusting entry. 

Solution 61 (C).

Question 62.   Assuming the capitals are fixed in Question 61 (A), (B) and (C), give the necessary adjusting journal entry.

Solution 62.

Question 63 (new). The capital accounts of A, B and C showed credit balance of Rs. 5,00,000, Rs. 3,00,000 and Rs. 2,00,000 respectively, after taking into account drawings and net profit of Rs. 3,00,000. They shared profits in the ratio of 2:1:1. The drawings of the partners during the year 2020-21 were: 

(i) A withdrew Rs. 10,000 at the beginning of each half year. 

(ii) B withdrew Rs. 10,000 at the end of each half year. 

(iii) C’s Drawings were: 

Calculate interest on partner’s capitals @ 8% p.a. and interest on partner’s drawings @ 10% p.a. for the year ended 31^st March, 2021.

Solution 63 (new). Calculation of Partner’s Capital:-
A’s Interest on Capital = 3,70,000 × 8/100 = Rs. 29,600
B’s Interest on Capital = 2,45,000 × 8/100 = Rs. 19,600
C’s Interest on Capital = 1,45,000 × 8/100 = Rs. 11,600

Calculation of Opening Capital:-

Question 63.      On 31^st March, 2021, the balances in the capital accounts of Esha, Manav and Daman after making adjustments for profits and drawings were Rs. 3,20,000, Rs. 2,40,000 and Rs. 1,60,000 respectively. Subsequently, it was discovered that the interest on capital and drawings had been omitted.

• The profit for the year ended on 31^st March, 2014 was Rs. 90,000.
• During the year, Esha and Manav each withdrew a sum of Rs. 48,000 in equal instalments in the middle of every month and Daman withdrew Rs. 60,000.
• The interest on drawings was to be charged @ 5% per annum and interest on capital was to be allowed @ 10% per annum.
• The profit-sharing ratio of the partners was 3:2:1.

Showing your workings clearly, pass the necessary rectifying entry.

Solution 63.

Working Note:-

Calculation of Interest on Capital:-

Esha’s Interest on Capital = Rs. 3,23,000 × 10% = 32,300

Manav’s Interest on Capital = Rs. 2,58,000 × 10% = 25,800

Daman’s Interest on Capital = Rs. 2,05,000 × 10% = 20,500

Total Interest on Capital = Rs. 32,300 + Rs. 25,800 + Rs. 20,500 = Rs. 78,600

Question 64.      A and B are partners in firm sharing profits and losses in the ratio of 2:1 The following was the Balance Sheet of the firm as at 31.3.2021.

The profits Rs. 4,50,000 for the year ended 31.3.2021 were divided between the partners without allowing interest on capital @ 9% p.a. and without charging interest on drawings @ 12% p.a. During the year A withdrew Rs. 10,00,000 and B Rs. 50,000.

Pass the necessary adjustment journal entry and show your working clearly.

Solution 64.

Question 65.      A and B are partners in a firm sharing profits and losses in the ratio of 2:3. The following was the Balance Sheet of the firm as at 31.3.2021.

Profits Rs. 2,00,000 for the year ended 31.3.2021 were divided between the partners without allowing interest on capital @ 6% p.a., interest on drawings @10% p.a. and salary to B @ Rs. 5,000 per month. During the year A withdrew Rs. 40,000 and B withdrew Rs. 20,000.
Showing your working notes clearly, pass the necessary rectifying entry.    

Solution 65.

Question 66.      A and B are partners sharing profits and losses in the ratio of 3:1. Following is the Balance Sheet of the firm as at 31^st March, 2021.

Profit for the year ended 31^st March, 2021 Rs. 24,000 was divided between the partners in their profit sharing ratio, but interest on capital at 5% p.a. and on drawings at 6% p.a. was inadvertently ignored. Give the necessary adjustment entry for the adjustment of interest. Interest on drawings may be calculated on an average basis for 6 months.   

Solution 66.

Question 67.      From the following Balance Sheet of A and B, calculate interest on capital at 5% p.a. for the year ending 31^st March, 2021:

Profit during the year ended 31^st March, 2021 was Rs. 70,000. A and B share profits in the ratio of 2:1. Drawings during the year ended 31^st March, 2021 were A Rs. 16,000 and B Rs. 20,000.

Solution 67.

Calculation Interest on capital:-

A’s Interest on Capital = Rs. 96,000 × 5% = Rs. 4,800

B’s Interest on Capital = Rs. 70,000 × 5% = Rs. 3,500

Question 68.      The Capital Accounts of P, Q  and R stood at Rs. 2,00,000; Rs. 1,50,000 and Rs. 1,00,000 respectively after the necessary adjustments in respect of drawings and net profit for the year ended 31^st March, 2019. It was subsequently ascertained that interest on capital @ 10% p.a. was not taken into account while arriving at the divisible profits for the year.

Drawings during the year 2018-2019 had been: P Rs. 5,000 per month; Q  Rs. 15,000 quarterly and R Rs. 30,000.

The net profit for the year amounted to Rs. 1,80,000 and partners shared profits and losses in the ratio of 2:2:1. You are required to pass the necessary journal entries to rectify the lapse in accounting.  

Solution 68.

Calculation of Interest on Capital:-

P’s Interest on Capital = Rs. 1,88,000 × 10% = Rs. 18,800

Q ’s Interest on Capital = Rs. 1,38,000 × 10% = Rs. 13,800

R’s Interest on Capital = Rs. 94,000 × 10% = Rs. 9,400

Question 69. (A)     A, B and C are partners in a firm. Their profit sharing ratio is 3:2:1. However, C is guaranteed a minimum amount of Rs. 10,000 as share of profits every year. Any deficiency arising on that account shall be met by A. The profits for the two years ending 31^st March, 2020 and 2021 were Rs. 30,000 and Rs. 90,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.

Solution 69  (A).

Profit & Loss Appropriation Account
For the year ending 31^st March, 2020

Profit & Loss Appropriation Account
For the year ending 31^st March, 2021

Working Note:-
Calculation of Share of Profit in 2020-:-
A’s Share of Profit = Rs. 30,000 × 3/6 = Rs. 15,000
B’s Share of Profit = Rs. 30,000 × 2/6 = Rs. 10,000
C’s Share of Profit = Rs. 30,000 × 1/6 = Rs. 5,000

Calculation of Share of Profit in 2021:-
A’s Share of Profit = Rs. 90,000 × 3/6 = Rs. 45,000
B’s Share of Profit = Rs. 90,000 × 2/6 = Rs. 30,000
C’s Share of Profit = Rs. 90,000 × 1/6 = Rs. 15,000

Question 69. (B)    X, Y and Z are partners with capitals of Rs. 4,00,000; Rs. 3,00,000 and Rs. 2,00,000 respectively. They charge 8% p.a. interest on their capitals and divide the profits in the ratio of 3:2:1. X has guaranteed that Z’s share shall not amount to less than Rs. 50,000 in any one year.

Their Drawings during the year were Rs. 50,000; Rs. 40,000 and Rs. 35,000 respectively. Net profits for the year before providing interest on capitals was Rs. 2,52,000. Prepare P & L Appropriation A/c and Capital Accounts.

Solution 69(B).

Question 70.   S, T, W and X are partners sharing profits in the ratio of 4:3:2:1. X is given a guarantee that his share of profits in any given year would be Rs. 80,000. Deficiency if any, would be borne by other partners equally. The profits for the year ended 31^st March, 2021 amounted to Rs. 6,50,000. Pass necessary entries in the books of the firm.

Solution 70.

Working Note:-

Calculation Profit Distribution:-
S’s Share of Profit = Rs. 6,50,000 × 4/10 = Rs. 2,60,000
T’s Share of Profit = Rs. 6,50,000 × 3/10 = Rs. 1,95,000
W’s Share of Profit = Rs. 6,50,000 × 2/10 = Rs. 1,30,000
X’s Share of Profit = Rs. 6,50,000 × 1/10 = Rs. 65,000

Share of X’s Profit in Total profit is Rs. 65,000 whereas the minimum guarantee amount is Rs. 80,000. Hence, the deficiency of Rs. 15,000 will be cover by S, T, W equally.

S’s Share of Profit = Rs. 2,60,000 – Rs. 5,000 = Rs. 2,55,000
T’s Share of Profit = Rs. 1,95,000 – Rs. 5,000 = Rs. 1,90,000
W’s Share of Profit = Rs. 1,30,000 – Rs. 5,000 = Rs. 1,25,000
X’s Share of Profit = Rs. 65,000 + Rs. 5,000 + Rs. 5,000 + Rs. 5,000 = Rs. 80,000

Question 71.   Vikas and Vivek were partners in a firm sharing profits in the ratio of 3:2. On 1-4-2014 they admit Vandana as a new partner for 1/8^th share in the profits with a guaranteed profit of RS. 1,50,000. The new profit sharing ratio between Vikas and Vivek will remain the same but they decided to bear any deficiency on account of guarantee to Vandana in the ratio 2:3. The profit of the firm for the year ended 31-3-2015 was Rs. 9,00,000. Prepare Profit and Loss Appropriation Account of Vikas, Vivek and Vandana for the ended 31-3-2015.

Solution 71.

Vandana’s deficiency = Rs. 1,50,000 – Rs. 1,12,500 = Rs. 37,500. Deficiency will be contributed by Vikas and Vivek in the ratio 2:3.

Vikas’s Contribution = Rs. 4,72,500 – Rs. 15,000 = Rs. 4,57,500

Vivek’s Contribution = Rs. 3,15,000 – Rs. 22,500 = 2,92,500

Question 72.      A, B and C were partners sharing profits and losses in the ratio of 3:2:1. Their capitals on 1^st April, 2017 were:

A Rs. 5,00,000; B Rs. 3,00,000 and C Rs. 2,00,000.

A had personally guaranteed that in any year C’s share of profit after allowing interest on capital to all partners @ 8% p.a. and charging interest on drawings @ 10% p.a. will be less than Rs. 1,00,000.

The net profit for the year ended 31^st March, 2018, before allowing of charging any interest amounted to Rs. 4,32,000.

A has withdrawn Rs. 5,000 at the end of every month.

B has withdrawn Rs. 15,000 at the end of every quarter.

C has withdrawn Rs. 60,000 during the year.

Prepare Profit and Loss Appropriation Account for the year 2017-18.

Solution 72.

Question 73.      A, B and C were in partnership sharing profits in the ratio of 1:2:3. Their fixed capitals on 1^st April, 2018 were: A Rs. 3,00,000; B Rs. 4,50,000 and C Rs. 10,00,000. Their partnership deed provided for the following:

(i) A providing his personal office to the firm for business use charging yearly rent of Rs. 1,50,000.

(ii) Interest on capital @ 8% p.a. and interest on drawings @ 10% p.a.

(iii) A was allowed salary @ Rs. 10,000 per month.

(iv) B was allowed a commission of 10% of net profit as shown by Profit & Loss Account, after charging such commission.

(v) C was guaranteed a profit of Rs. 3,00,000 after making all the adjustments.

The net profit of the firm for the year ended 31^st March, 2019 was Rs. 10,30,000 before making above adjustments.

You are informed that A has withdrawn Rs. 5,000 at the beginning of each month, B has withdrawn Rs. 5,000 at the end of each month and C has withdrawn Rs, 24,000 at the beginning of each quarter.

Prepare Profit and Loss Appropriation Account and Partner’s Current Accounts.

Solution 73.

Question 74.   Ram, Mohan and Sohan were partners. They admit Rakesh as a partner and guaranteed that his share of profit shall not be less than Rs. 70,000. Profits are to be shared in the ratio of 4:3:1 but excess claimed by Rakesh over his normal share has been guaranteed by Ram and Mohan in the ratio of 2:1. If  total profits were Rs. 4,00,000, prepare a statement showing distribution.

Solution 74.

Question 75.  X and Y were sharing profits in the ratio of 2:1. On 1^st April, 2020 they admitted Z for 1/4^th share in the profits. Z is guaranteed a minimum profit of Rs. 1,00,000 for the year. Any deficiency in Z’s share is to be borne by X and Y in the ratio of 3:2. Losses for the year ending 31^st March, 2021 amounted to Rs. 1,20,000. Record necessary entries.

Solution 75.        

Working Note:-
Z’s Share of Loss = Rs. 1,20,000 × 1/4 = Rs. 30,000

Remaining Profit = Rs. 1,20,000 – Rs. 30,000 = Rs. 90,000

X’s Share of Loss = Rs. 90,000 × 2/5 = Rs. 60,000

Y’s Share of Loss = Rs. 90,000 × 3/5 = Rs. 30,000
Z’s guaranteed minimum profit of Rs. 1,00,000. Total loss of Z = Rs. 1,00,000 + Rs. 30,000 = Rs. 1,30,000. Which is distributed by X and Y in the ratio of 3:2.

Question 76.      A, B and C are partners sharing profits in the ratio of 4:3:2. It was provided that B’s share of profit will not be less than Rs. 1,50,000 per annum. The losses for the year ended 31^st March, 2021 were Rs. 85,000, before allowing interest on Loan of Rs. 1,00,000 taken from A on 1^st June, 2020.

You are required to show necessary account for division of loss and pass necessary journal entries. 

Solution 76.

Profit & Loss Account
For the year ending 31^st March, 2021

Working Note:-
A’s Share of Loss = Rs. 90,000 × 4/9 = Rs. 40,000
B’s Share of Loss = Rs. 90,000 × 3/9 = Rs. 30,000
C’s Share of Loss = Rs. 90,000 × 2/9 = Rs. 20,000

B’s guaranteed minimum profit of Rs. 1,50,000. Total loss of Z = Rs. 1,50,000 + Rs. 30,000 = Rs. 1,80,000. Which is paid by A and C in the ratio of 4:2.
A’s Share to B = Rs. 1,80,000 × 4/6 = Rs. 1,20,000
A’s Share to B = Rs. 1,80,000 × 2/6 = Rs. 60,000

Question 77 (new). Sonu and Rajat Started a partnership firm on April 1,2017.They contributed Rs.8,00,000 and Rs.6,00,000 respectively as their capitals and decided to share profits an losses in the ratio of 3:2.
The partnership deed provided that Sonu was to be paid a salary of Rs. 20,000 per month and Rajat a commission of 5% on turnover. It also provided that interest on capital be allowed @8% p.a. Sonu withdrew Rs. 20,000 on 1st December, 2017 and Rajat withdrew Rs. 5,000 at the end of each month. Interest on drawings was charged @ 6% p.a. The net profit as per Profit and Loss Account for the year ended 31st March, 2018 was Rs. 4,89,950. The turnover of the firm for the year ended 31st March, 2018 amounted to Rs. 20,00,000. Pass necessary journal entries for the above transactions in the books of Sonu and Rajat.

Solution 77 (new). 

Working Note:
1. Calculation of interest on drawings:-
Drawings of Sonu = Rs. 20,000
Interest on Sonu’s drawings = Rs. 20,000 × 6/100 × 4/12
Interest on Sonu’s drawings = Rs. 400

Drawings of Rajat = 12 × Rs. 5,000 = Rs. 60,000
Interest on Rajat’s drawings = Rs. 60,000 × 6/100 × 5.5/12
Interest on Rajat’s drawings = Rs. 1,650

Question 77.     Ajoo and Bajoo were in partnership sharing profits and losses in the proportion of 4/5 and 1/5 respectively. In appreciation of the services of their employee Sajoo who was in receipt of salary of Rs. 2,400 p.a. and a commission of 5% on the net profits after charging such salary and commission, they took him into partnership as from 1-4-2018 giving him 1/8^th share of the profit.

The agreement provided that any excess over his former remuneration to which Sajoo becomes entitled will be paid out of Ajoo’s share of profits.

The profits for the year ended 31^st March, 2019 amounted to Rs. 57,000. Divide this between the partners.

Solution 77.

Question 78.   P, Q and R are in partnership. P and Q  sharing profits in the ratio of 4:3 and R receiving a salary of Rs. 20,000 p.a. plus a commission of 10% of the profits after charging his salary and commission, or ^th of the profit of the firm whichever is more. Any excess of the latter over the former received by R is, under the partnership deed, to be borne by P and Question  in the ratio of 3:2. The profit for the year ending 31^st March, 2019 came to Rs. 3,85,000 after charging R’s salary. Divide the profits among partners.

Solution 78.

Question 79.      Asif and Ravi are partners in a firm sharing profits and losses in the ratio of 3:2. Their fixed capitals as on 1st April, 2016, were Rs. 6,00,000 and Rs. 4,00,000 respectively.

Their partnership deed provided for the following:

(a) Partners are to be allowed interest on their capitals @ 10% per annum.

(b) They are to be charged interest on drawings @ 4% per annum.

(c) Asif is entitled to a salary of 2,000 per month.

(d) Ravi is entitled to a commission of 5% of the correct net profit of the firm before charging such commission.

(e) Asif is entitled to a rent of Rs. 3,000 per month for the use of his premises by the firm.

The net profit of the firm for the year ended 31st March, 2017, before providing for any of the above clauses was 4,00,000.

Both partners withdrew 35,000 at the beginning of every month for the entire year.

You are required to prepare a Profit and Loss Appropriation Account for the year ended 31^st March, 2017.

Solution 79.

Question 80.      Shankar and Manu are partners in a firm. On 1st April, 2014, their fixed capital accounts showed a balance of Rs. 2,00,000 and Rs. 4,00,000 respectively.

On this date, their current account balances were Rs. 50,000 and Rs. 1,00,000 respectively.

On 1st January, 2015, Shankar introduced additional capital of Rs. 2,00,000 while or Manu gave a loan of Rs. 1,50,000 to the firm. The clauses of their partnership deed provided for :

(a) Interest on capital to be allowed at the rate of 10% per annum.

(b) Interest on drawings to be charged at the rate of 12% per annum.

(c) Profits to be shared by them in the ratio of 3 : 2.

(d) 10% of the correct net profit to be transferred to General Reserve.

During the financial year 2014-15, both partners withdrew Rs. 6,000 each at the beginning of every quarter.

The net profit of the firm, before any interest, for the financial year 2014-15 was Rs. 5,00,000.

You are required to prepare for the year 2014-15 :

(i) Profit and Loss Appropriation Account.

(ii) Partners' Fixed Capital Accounts.

(iii) Partners' Current Accounts.

(iv) Partner's Loan Account.

Solution 80.

Question 81.      D, E and F were partners in a firm sharing profits in the ratio of 5:7: 8. Their fixed capitals on 1st April, 2020 were D Rs. 5,00,000, E Rs. 7,00,000 and F Rs. 8,00,000. Their partnership Deed provided for the following:

(i) Interest on capital @10% p.a.

(ii) Salary of 10,000 per month to F.

(iii) Interest on drawing @12% p.a.

D withdrew Rs. 40,000 on 30th April, 2020; E withdrew Rs. 50,000 on 30th June 2020 and F withdrew Rs. 30,000 on 31st March, 2021.

During the year ended 31st March, 2021 the firm earned a profit of Rs. 3,50,000.

Prepare the Profit and Loss Appropriation Account for the year ended 31st March, 2021

Solution 81.

Profit & Loss Appropriation Account
For the year ending 31^st March, 2021

Question 82.      Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio 3:1. The profit and loss account of the firm for the year ending March 31, 2021 shows a net profit of Rs. 1,50,000. Prepare the Profit and Loss Appropriation Account by taking into consideration the following information:
(i) Partners capital on April 1, 2020:
Simmi 30,000; Sonu 60,000.
(ii) Current accounts balances on April 1, 2020:
Simmi 30,000 (Cr.); Sonu 15,000 (Cr.).
(iii) Partners drawings during the year amounted to:
Simmi 20,000; Sonu 15,000.
(iv) Interest on capital was allowed @ 5% p.a.
(v) Interest on drawing was to be charged @ 6% p.a. at an average of six months.
(vi) Partner's salaries: Simmi Rs. 12,000 and Sonu Rs. 9,000. Also show the partner’s current accounts.

Solution 82. 

Question 83.      Pappu and Munna are partners in a firm sharing profits in the ratio of 3:2. The partnership deed provided that Pappu was to be paid salary of Rs. 2,500 per month and Munna was to get a commission of Rs. 10,000 per year. Interest on capital was to be allowed @ 5% per annum and interest on drawings was to be charged @ 6% per annum. Interest on Pappu's drawings was Rs. 1,250 and on Munna's drawings Rs. 425. Capital of the partners were Rs. 2,00,000 and Rs. 1,50,000 respectively, and were fixed. The firm earned a profit of Rs. 90,575 for the year ended 31-3-2021.

Prepare Profit and Loss Appropriation Account of the firm.

Solution 83.

Profit & Loss Appropriation Account
For the year ending 31^st March, 2021

Question 84.      A, B and C were partners in a firm having capitals of Rs. 1,00,000; Rs. 1,00,000 and Rs. 2,00,000 respectively. According to the partnership deed the partners were entitled to interest on capital @ 6% p.a. A being the working partner was also entitled to a salary of Rs. 5,000 per month. The profits were to be divided as follows:

(a) The first Rs. 40,000 in the ratio of 2:3:5.

(b) Next Rs. 80,000 in the proportion of their capitals.

(c) Remaining profits to be shared equally.

The firm made a profit of Rs. 2,70,000 for the year ended 31^st March, 2018 before charging any of the above items. Prepare the Profit & Loss Appropriation Account and pass necessary journal entry for apportionment of profits.

Solution 84.

Question 85.  X, Y and Z are in the partnership and on 1st April, 2020, their respective capitals were Rs. 2,00,000; Rs. 1,20,000 and Rs. 1,00,000. Y is entitled to a salary of Rs. 25,000 and Z Rs. 20,000 per annum, payable before division of profits. Interest is allowed on capital at 5% per annum but is not charged on drawings. Of the net divisible profits on the first Rs. 1,00,000; X is entitled to 40 per cent; Y to 35 per cent and Z to 25 per cent, over that amount profits are shared equally. The profit for the year ended 31st March, 2021, after debiting partnership salaries, but before charging interest on capitals, was Rs. 1,81,000 and the partners had drawn Rs. 8,000 each. Prepare partner's capital account for the year.

Solution 85.

Profit & Loss Appropriation Account
  For the year ending 31^st March, 2021

Question 86.   Tulsi and Kabir are partners sharing profits in proportion of 3 : 2 with capitals of Rs. 8,00,000 and Rs. 6,00,000 respectively. Interest on capitals is agreed at 6% p.a. Tulsi is to be allowed a salary of Rs. 6,000 per month. For the year ended 31st March,2018 the profits prior to calculation of interest on capital but after charging Tulsi’s salary amounted to Rs. 2,28,000. Manager is to be allowed a commission of 10% of the profits. Prepare an account showing the allocation of Profits.

Solution 86.

Question 87.   A and B are partners in a firm. A is to get a commission of 10% of net profit before charging any commission. B is to get a commission of 10% on net profit after charging all commissions. Net profit before charging any commission was Rs. 55,000. Find out the commission of A and B.

Solution 87         Calculation of Commission:-

Before charging such commission

A’s Commission = Rs. 55,000 × ¹⁰/₁₀₀ = Rs. 5,500

After charging A’s commission and his commission

Rs. 55,000 – Rs. 5,500 = Rs. 49,500

B’s Commission = Rs. 49,500 × ¹⁰/₁₀₀ = Rs. 4,500

Question 88.      On 1st April, 2017 the balances of A and B were as follows:-

                          Capital Account               Current Account

                          Rs.                                         Rs.

A                       1,00,000                               (Cr.) 8,420

B                        40,000                                  (Dr.) 3,200

On 1st July, 2017, A withdrew Rs. 20,000 from his capital and B introduced Rs. 10,000 as further capital on the same date. According to the deed, interest on capitals is to be allowed at 8% p.a. but no interest is to be allowed or charged on current account balances and drawings. A is entitled to  and B  of the profit. The manager of the firm is entitled to a commission of 10% of the profit before any adjustment is made according to the deed. For the year ended 31st March, 2018, the profit was Rs. 40,000 and the drawings of A and B were Rs. 12,000 and Rs. 10,000 respectively. Prepare the P & L Appropriation A/c, Capital Accounts and Current Accounts.

Solution 88.

Question 89.      A and B are partners in a firm sharing profits and losses in the ratio of 3: 2. The balance in their capital and current accounts as on 1-4-2017 were as under :

                                          A                                   B

                                          Rs.                                Rs.

Capital Account          40,000                         20,000

Current Account         16,000                         12,000

The partnership deed provided that A is to be paid salary @ Rs. 500 p.m. whereas B is to get commission of Rs. 4,000 for the year.

Interest on capital is to be allowed @ 6% p.a. The drawings of A and B for the year were Rs. 5,000 and Rs. 2,000, respectively. Interest on drawings for A and B works out at Rs. 225 and Rs. 75 respectively. The net profit of the firm for the year ended 31st March, 2018 before making these adjustments was 35,700.

Prepare the Profit and Loss Appropriation Account and the Partners Capital and Current Accounts.

Solution 89.

Question 90.      Calculate the interest on Drawings of Tarun @ 8% p.a. for the year ended 31st March, 2018 in each of the following alternative cases :

Case (a) if his drawings during the year were Rs. 60,000;

Case (b) if he withdrew Rs. 5,000 p.m. in the beginning of every month;

Case (c) if he withdrew Rs. 5,000 p.m. at the end of every month;

Case (d) if he withdrew Rs. 5,000 p.m. during the year;

Case (e) if he withdrew the following amounts as under;

2017 June, 1: Rs. 10,000; August 31: Rs. 12,000; November 1: Rs. 16.000; December 31: Rs. 13,000; February 1, 2018; Rs. 9,000.

Solution 90.

Question 91.   Calculate the interest on Drawings of Anuradha @ 9% p.a. for the year ended 31st March 2018, if she withdrew Rs. 10,000 in the beginning of each quarter.

Solution 91         Total Drawings = Drawing Amount × Number of quarter in a year

Total Drawings = Rs. 10,000 × 4

Total Drawings = Rs. 40,000

Question 92.   Calculate the interest on Drawings of Bipasa @ 9% p.a. for the year ended 31st March 2018, if she withdrew Rs. 10,000 at the end of each quarter.

Solution 92.         Total Drawings = Drawing Amount × Number of quarter in a year

Total Drawings = Rs. 10,000 × 4

Total Drawings = Rs. 40,000

Question 93.   Calculate the interest on Drawings of Charulata @ 9% p.a. for the year ended 31st March, 2018, if she withdrew Rs. 10,000 each quarter.

Solution 93         Total Drawings = Drawing Amount × Number of quarter in a year

Total Drawings = Rs. 10,000 × 4

Total Drawings = Rs. 40,000

Question 94.   Calculate the interest on Drawings of Divya @ 9% p.a. if she withdrew Rs. 4,000 p.m. on the first day of every month for six months ending 31st March, 2021.

Solution 94         Total Drawings = Drawing Amount × Number of month

Total Drawings = Rs. 4,000 × 6

Total Drawings = Rs. 24,000

Question 95.   Calculate the interest on Drawings of Esha @ 9% p.a., if she withdrew Rs. 4,000 p.m. on the last day of every month for six months ending 31st March, 2021.

Solution 95         Total Drawings = Drawing Amount × Number of months

Total Drawings = Rs. 4,000 × 6

Total Drawings = Rs. 24,000

Question 96.   Calculate the interest on Drawings of Garima @ 9% p.a., if she withdrew Rs. 4,000 p.m. for six months ending 31st March, 2021.

Solution 96         Total Drawings = Drawing Amount × Number of months

Total Drawings = Rs. 4,000 × 6

Total Drawings = Rs. 24,000

Question 97.      A, B and C have Capitals of Rs. 60,000, Rs. 30,000 and Rs. 20,000 respective 1st April, 2017, on which they are entitled to interest @ 6% p.a. They share profits in the ratio of 5:3:2. A is entitled to receive a salary of Rs. 500 per month. Drawings during the year were as follows :

                                       A                      B                      C

1^st June, 2017           2,000               2,000              2,000

1^st Oct. 2017              1,000               1,500              1,000

1^st Dec. 2017             500                  1,000                500

The rate of interest on Drawings is 6% p.a. Profit for the year ended 31^st March, 2018 was Rs. 24,605 before charging salary, interest on Capital and Drawings. Assuming that the Capital are (a) Fixed, (b) Floating, show the Partner’s Capital Accounts Current Account and Profit and Loss Appropriation Account.

Solution 97.

Question 98.   X, Y and Z contribute Rs. 3,00,000, Rs. 2,00,000 and Rs. 1,00,000 respectively by way of capital on which they agree to allow interest at 12% p.a. They share profits and losses in the ratio of 5:3:2. Profit for the year ended 31^st March, 2021 is Rs. 60,000 before allowing interest on capital. Prepare a Profit & Loss Appropriation Account if (i) partnership deed is silent as to the treatment of interest as a charge or appropriation, and (ii) partnership deed provides for interest even if it involves the firm in loss. 

Solution 98. Case (i)

If Partnership deed is silent as to the treatment of interest as a charge or appropriation

Profit & Loss Appropriation Account
For the year ending 31^st March, 2021

Working Note:-
Calculation of Interest on Capital:-
X’s Interest on Capital = Rs. 60,000 × 3/6 = Rs. 30,000
Y’s Interest on Capital = Rs. 60,000 × 2/6 = Rs. 20,000
Z’s Interest on Capital = Rs. 60,000 × 1/6 = Rs. 10,000

Case (ii)
Partnership deed provides for interest even if it involves the firm in loss.

Profit & Loss Appropriation Account
For the year ending 31^st March, 2021

Question 99.   Arun and Arora were partners in a firm sharing profits in the ratio of 5: 3. Their fixed capitals on 1.4.2020 were: Arun Rs. 60,000 and Arora Rs. 80,000. They agreed allow interest on capital @ 12% per annum and to charge on drawings @15% per annum. The profit of the firm for the year ended 31.3.2021 before all above adjustments were Rs. 12,600. The drawings made by Arun were Rs. 2,000 and by Arora Rs. 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 a loss.

Solution 99.

Profit & Loss Account
For the year ending 31^st March, 2021

Question 100.  Raja, Roopa and Mala sharing profits and losses equally have fixed capitals of Rs. 12,00,000, Rs. 9,00,000 and Rs. 6,00,000 respectively. For the year ended 31st March, 2021, interest was credited to them @ 6% instead of 5% p.a. Give adjusting entry.

Solution 100.

Question 101. P and Q were partners in a firm sharing profits in 7:3 ratio. Their fixed capitals were P Rs. 5,00,000 and Q Rs. 8,00,000. For the year ended 31st March, 2021, on capital was credited @ 12% instead of 10%. Show the necessary adjusting entry for the rectification of the error. Also show the working notes clearly.

Solution 101.

Solution 102.

Question 103.    E, F and G were partners in a firm sharing profits in the ratio of 3:2:1. After division of the profits for the year ended 31-3-2021 their capitals were: E Rs. 2,95,000; F Rs. 3,30,000; and G Rs. 3,35,000. During the year they withdrew Rs. 40,000 each. The profit of the year was Rs. 1,80,000. The partnership deed provided that in on capital will be allowed @ 12% p.a. While preparing the final accounts, interest partner's capital was not allowed.

You are required to calculate the capital of E, F and G as on 1-4-2020 and pass the necessary adjustment entry for providing interest on capital. Show your workings clearly.

Solution 103.

Question 104.  A and B are partners in a business. Their capitals at the end of the year were Rs. 6,40,000 and Rs. 4,60,000 respectively. During the year ending 31st March, 2021, A's drawings and B's drawings were Rs. 1,20,000 and Rs. 1,40,000 respectively. Profits (before charging interest on capital) during the year were Rs. 4,00,000. Calculate interest on capital @ 12% p.a. for the year ending 31st March, 2021.

Solution 104.

Question 105.    Prem, Param and Priya were partners in a firm. Their fixed capitals Prem Rs. 2,00,000; Param Rs. 3,00,000 and Priya Rs. 5,00,000. They were sharing profits in the ratio of their capitals. It was decided that the new profit sharing ratio will be 2:1:2 and its effect will be introduced retrospectively for the last four years. The profits of the last four years were Rs. 2,00,000; Rs. 3,50,000; Rs. 4,75,000 and Rs. 5,25,000 respectively. Showing your calculation clearly, pass a necessary adjustment entry to give effect to the new agreement between Prem, Param and Priya.

Solution 105.