DK Goel Solutions Chapter 2 Accounting for Partnership Firms Fundamentals

Read below DK Goel Solutions Class 12 Chapter 2 Accounting for Partnership Firms Fundamentals. These solutions have been designed based on the latest Class 12 DK Goel Accountancy book used by commerce stream students issued for the current year and the questions given in each chapter.

This chapter explains the basic concepts of accounting for partnership firms students will be able to understand what a partnership firm is, the basic fundamentals, understanding about partners, how the partnership firm is formed, basics about profit-sharing, and various other important topics.

This is a very basic chapter and in future chapters, students will be able to understand advanced accounting concepts for partnership firms.

The chapter contains a lot of questions which can be very helpful for Class 12 commerce students of Accountancy and will also help build strong concepts which will be really helpful in your career.

DK Goel Solutions Class 12 Chapter 2 solutions are free and will help you to prepare for Class 12 Accountancy. Just scroll down and read through the answers provided below

Accounting for Partnership Firms Fundamentals DK Goel Class 12 Accountancy Solutions

Students can refer below for solutions for all questions given in your DK Goel Accountancy Textbook for Class 12 in Chapter 2

Short Answer Questions for DK Goel Solutions Class 12 Chapter 2

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

Solution 1
1.) Profit/Losses Sharing:- Profit/Losses are paid the partners equally.
2.) Return on Financial:- Capital interest is not paid partners.
3.) Interest on drawings:- Interest on drawings partners who are not paid.
4.) Debt Interest:- Interest at a rate of 6% p.a. It is be given the company on a partner’s loan. Such interest is be paid and in the case of damages the company.

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

Solution 2
In the absence of the Partnership Deed, following are the terms of the Partnership Act:
1.) If both the partners consent, for the good of the couple, a minor can be admitted.
2.) Either with the consent of all current partners or in compliance with an explicit agreement between the partners, an individual can be admitted as a partner.
3.) Firm enrolment is voluntary and not obligatory.
4.) A partner may withdraw from the business either with the permission of all the other partners or in compliance with an explicit agreement between the partners.

Question 3. Name any six items which are shown in ‘Profit and Loss Appropriation Account’.
Solution 3
1.) Profit transferred Capital account
2.) Partners Salaries
3.) Partners Commission
4.) Partners Interest on Capital
5.) Interest on Partners Drawings
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

DK Goel Solutions Class 12 Chapter 2 Accounting for Partnership Firms Fundamentals as per latest DK Goel Book

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 a partner; (d) Profit sharing ratio; and (e) Interest on Partner’s drawings.

Solution 5
(a) Salaries of Partners:- No partner shall be entitled any payment or commission for involvement in the conduct of the business of the company.
(b) Interest in the capital of the partner:- No interest in the capital of the partner is permissible.
(c) Return on a loan:- Interest at 6% p.a. It is be given the company on a partner’s loan. Such interest is be paid and in the case of damages the company.
(d) Benefit-sharing ratio:- Profit and expenses, irrespective of their financial contribution, are be divided equally.
(e) Interest in drawings of the partner:- No interest shall be levied on drawings.

Question 6. If the Partner’s Capital Accounts are fixed, where will you record the following items:-
(a) Drawings made a partner.
(b) Salary payable a partner.
(c) Fresh capital introduced a partner.
(d) Share of Profit.
(e) Interest on Drawings.

Solution 6

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 things that appear while the money is fluctuating on the debit side of the partner’s capital account:—
(1) Drawings
(2) Interest on Drawings
(3) Share of loss
(4) Loss on revolution
(5) Any assets taken 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 things that can occur as the funds fluctuate on the credit side of a partner’s capital account:—
(1) Opening credit balance of Capital
(2) Additional Capital introduced
(3) Share of profit
(4) Interest on capital
(5) Salary 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 terms of the 1932 Partnership Act referred above would apply:—
(1) Gains and losses are be equally divided.
(2) Interest in capital shall not be tolerated.
(3) No interest shall be paid in respect of sketches.
(4) No partner shall be entitled any commission salary for taking part in the conduct of the business of the company.
(5) A partner shall be entitled interest on the loan issued him the company at a rate of 6 per cent per annum.
(6) Each partner can take part in business actions.

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

Solution 10
Calculation of Interest on Drawings of equal amounts drawn on the first day of every month:-
Interest on Drawings = Total Amount of Drawings × (Rate of Interest)/100 × 6.5/12

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

Solution 11
Calculation of Interest on Drawings of equal amounts drawn on the last day of every month:-
Interest on Drawings = Total Amount of Drawings × (Rate of Interest)/100 × 5.5/12

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

Solution 12
Calculation of Interest on Drawings of equal amounts drawn in the middle of every month:-
Interest on Drawings = Total Amount of Drawings × (Rate of Interest)/100 × 6/12

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. 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) The profit would be equally divided.
(ii) B is not going get a Salary.

Question 14. A and B are partners in a firm. State giving reasons whether their claims are valid if partnership deed is silent in the following matters:-
(i) B had advanced a loan the firm. He claims interest rate at the usual interest rate charged 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 be shared equally.
Solution 14 (i) B will be awarded interest on his loan @ 6% p.a.
(ii) In the absence of any provision the contrary, benefit shall be divided equally, regardless of the capital of the latter.

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 the business. He wants a salary of Rs. 2,000 per month for the extra time spent him.
(c) X wants introduce his son Rajesh inthe business. Y objects it.
(d) X has given a loan of Rs. 20,000 the firm. He wants interest on it @ 8% p.a.
Solution 15 (a) Interest on capital will not be allowed.
(b) X shall not be entitled any salary.
(c) X’s son, if Y objects it, cannot be accepted as a partner.
(d) X shall be eligible 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 the firm and made a profit of Rs. 75,000 in speculation. B and C want that A should return Rs. 1,75,000 the firm, while A wants return 1,00,000 only.
(b) A used Rs. 50,000 belonging the firm and suffered a loss of 20,000 in speculation. He wants return only 30,000.
(c) A and B want admit Mohan as a new partner, but C does not agree.
(d) A and B want purchase goods from Raghubir for the firm but does not agree.
Solution 16 (a) A Return Rs. 1,75,000
(b) A 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 31st March, 2021:

Particular	Dr. Balance	Cr. Balance
X’s Capital		3,20,000
Y’s Capital		2,40,000
X’s Drawings	40,000
Y’s Drawings	32,000
Stock (1^st April, 2016)	45,200
Purchases and Sales	8,68,000	12,45,000
Debtors and Creditors	1,52,000	48,000
Buildings	6,00,000
Cash in hand	5,900
Bank Overdraft		27,500
Salaries Staff	74,700
Rent	26,400
Advertising Expenditure	5,000
Travelling Expenses	31,300
	18,80,500	18,80,500

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

Balance Sheet
for the year ended 31st March, 2021

Points for Students:-
As per accounting viewpoint, partnership firms are treated as a separate business entity distinct from its partners. However, as per legal viewpoint, a partnership firm is not a separate legal entity. In other words, it has no existence separate from its partners. It means that in case of bankruptcy of the partnership firm, private estates of the partners would be liable to meet the firm’s debts.

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 introducing or withdrawing cash. Interest on Capital is allowed at 6% p.a. You are required 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 Girish = Rs. 11,200 + Rs. 20,000
Total Interest on Capital paid 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 Satish = Rs. 9,500 + Rs. 20,000
Total Interest on Capital paid Satish = Rs. 29,500
Points for Students:-
The Limited Liability Partnerships (LLPs) in India came into existence with the enactment of ‘Limited Liability Partnership Act, 2008’ which lay down the law for the formation and regulation of Limited Liability Partnerships.

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 X = Rs. 10,000 + Rs. 36,000
Total Interest on Capital paid 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 Y = Rs. 8,000 + Rs. 22,400 + Rs. 6,200
Total Interest on Capital paid 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 Y = Rs. 6,000 + Rs. 21,000
Total Interest on Capital paid Y = Rs. 27,000

Points for Students:-
A LLP is a body corporate formed and incorporated under this Act. It is legal entity separate from of its partners. A LLP shall have perpetual succession. Any change in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP.

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 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 1st 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 1st 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 1st 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

Points for Students:-
Profit and loss appropriation account prepared just after the Profit and Loss Account. Hence, it is an extension of Profit and Loss Account. It is prepared only by partnership firms. It is a nominal account. It shows how the net profit for the accounting period is appropriated among the partners. Entries in this account are made giving effect to the Partnership Deed and the Indian Partnership Act, 1932.

Question 5.
(A)
On 1st April, 2018 A and B commenced business with Capital of Rs. 6,00,000 and Rs. 2,00,000 respectively. On 31st March, 2019 the trading profit (before taking inaccount the provisions of deed) was Rs. 2,40,000. Interest on capital is be allowed at 6% p.a. B was entitled 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 31st 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

(A). Points for Students:-
Interest on partner’s capital is to be allowed only when it is expressly agreed to among the partners. If interest on capital is to be allowed as per agreement, it should be calculated with respect to the time, rate of interest and the amount of capital.

Question 5. (B)
Anubha and Kajal entered inpartnership 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 partnership deed, both partners are allowed salary, Rs. 700 per month Anubha and Rs. 500 per month 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 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
2. Profit distribution between partners:-
Anubha’s Profit = Rs. 23,476 × 2/3 = Rs. 15,651
Kajal’s Profit = Rs. 23,476 × 1/3 = Rs. 7,825
3. Calculation of Interest on Capital:-
Anubha = Rs. 90,000 × 5% = Rs. 4,500
Kajal = Rs. 60,000 × 5% = Rs. 3,000
4. Calculation of Interest on Drawings:-
Anubha = Rs. 8,500 × 5/100 × 6/12 = Rs. 213
Kajal = Rs. 6,500 × 5/100 × 6/12 = Rs. 163

(B).Points for Students:-
Interest on drawings is to be charged from the partners, if the same is specifically provided in the partnership deed. If it is to be charged, it should be calculated from the date of the withdrawal of the amount.

Question 6. A and B started a partnership business on 1st 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 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 31st 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 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

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
1. Calculation of Interest on Capital:-
A = Rs. 6,00,000 × 6% = Rs. 36,000
B = Rs. 4,00,000 × 6% = Rs. 24,000

Points for Students:-
Interest on drawings is to be charged from the partners, if the same is specifically provided in the partnership deed. If it is to be charged, it should be calculated from the date of the withdrawal of the amount. In the absence of the date of withdrawal, interest should be charged for six months on the whole of the amount because it will be assumed that the drawings were made evenly throughout the year.

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, 2021 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:-

Calculation of Manager’s Commission = Rs. 50,000 × 10% = Rs. 5,000
Calculation of Interest on Capital:-
X = Rs. 1,00,000 × 12% = Rs. 12,000
Y = Rs. 80,000 × 12% = Rs. 9,600
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

Points for Students:-
Under this system the original capitals invested by the partner remain constant, unless additional capital is introduced or drawings are made against capital by an agreement. In other words, capitals of the partners are not allowed to change during the life-time of business except in extraordinary circumstances. When fixed capital method is adopted, all entries relating to drawings against profits, interest allowed on capitals, interest charged on drawings, salary to partner, share of profit or loss etc. are made in a newly-opened account for each partner. The account is called Current Account or Drawings Account.

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

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

Working Note:-

Calculation of Commission:-
Asha’s Commission = Rs. 5,40,000 × 8/100 = Rs. 43,200
Lata’s Commission = Rs. 5,40,000 × 8/108 = Rs. 40,000

Profit distribution between partners:-
Asha’s Profit = Rs. 2,56,600 × 1/3 = Rs. 85,600
Lata’s Profit = Rs. 2,56,600 × 2/3 = Rs. 1,71,200

Points for Students:-
When the capitals need not be fixed, the balances of capital accounts go on changing from time to time. The reason is that no separate Current Accounts are maintained, but all the entries relating to drawings, interest on capitals, interest on drawings, salary to partner, share of profit or loss etc., are recorded in the capital account itself.

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 1st April, 2020. Each partner is entitled 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 31st March, 2021 prior 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

Points for Students:-
If a partner has given loan to the firm, he is entitled to receive interest on such loan at an agreed rate of interest. However, if there is no agreement as to the rate of interest, he is entitled to receive interest on loan @ 6% per annum. Interest on partner’s loan is a charge against the profit and hence, such interest is allowed whether there are profits or not.

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 31^st March, 2021

Working Note:–
1. Calculation of Commission:-
Y’s Commission = Rs. 21,200 × 6/106 = Rs. 1,200
Z’s Commission = Rs. 21,200 × 6/106 = Rs. 1,200
2. Profit distribution between partners:-
Y’s Profit = Rs. 20,000 × 1/2 = Rs. 10,000
Z’s Profit = Rs. 20,000 × 1/2 = Rs. 10, 000

Points for Students:-
Rent paid to a partner is also treated as interest on partner’s loan, rent paid to a partner is also treated as a charge against profit and not an appropriation out of profit and hence it should be debited to Profit and Loss account and not to Profit and Loss Appropriation Account and Credited to partner’s Current Account in case of fixed capital system or to Partner’s Capital Account when Capitals are fluctuating.

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

Working Note:-

1. Calculation of Interest on capital:-
Interest on Capital L:-
Rs. 2,00,000 for 3 months = Rs. 2,00,000 × 9/100 × 3/12 = Rs. 4,500
Rs. 3,00,000 for 9 months = Rs. 3,00,000 × 9/100 × 3/12 = Rs. 20,250

Interest on Capital N:-
Rs. 4,00,000 for 3 months = Rs. 4,00,000 × 9/100 × 3/12 = Rs. 9,000
Rs. 3,00,000 for 9 months = Rs. 3,00,000 × 9/100 × 3/12 = Rs. 20,250

(A).Points for Students:-
The accounts of the partnership firm have been closed after the financial year, it is discovered that there have been some errors or omissions in the accounts. In such cases, instead of altering the old accounts, the signed balance sheet and adjustment entry for such errors or omissions is made at the beginning of the next year. Usually the following types of adjustments are made:
(1) When Interest on Capital or Drawings may have been omitted.
(2) When Profits and Losses have been distributed among the partners in a wrong proportion.
(3) When profit sharing ratio has been altered with effect from some past date.
(4) When salary or commission payable to person has been omitted.

Question 11.
(B)
A and B are partners in a firm. Their capitals as on 1st April, 2016 were Rs. 2,10,000 and Rs. 90,000 respectively. They share profits in the ratio of 2:1. On 1st August, 2016, they decided that their capitals should be readjusted according their profit sharing ratio. The necessary adjustments in the capitals were made 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 1st August, 2016 A withdraw Rs. 10,000 and B will introduce additional capital of Rs. 10,000.

Calculation of Interest on Capital:-
A’s Interest on Capital:-
1st April, 2016 31st July, 2016 = Rs. 2,10,000 × 12/100 × 4/12 = Rs. 8,400
1st Aug., 2016 31st Mar., 2017 = Rs. 2,00,000 × 12/100 × 8/12 = Rs. 16,000
Total interest on capital = Rs. 8,400 + Rs. 16,000 = Rs. 24,400

B’s Interest on Capital:-
1st April, 2016 31st July, 2016 = Rs. 90,000 × 12/100 × 4/12 = Rs. 3,600
1st Aug., 2016 31st Mar., 2017 = Rs. 1,00,000 × 12/100 × 8/12 = Rs. 8,000
Total interest on capital = Rs. 3,600 + Rs. 8,000 = Rs. 11,600

(B).Points for Students:-
Interest on partner’s capital is to be allowed only when it is expressly agreed to among the partners. If interest on capital is to be allowed as per agreement, it should be calculated with respect to the time, rate of interest and the amount of capital.
Interest on drawings is to be charged from the partners, if the same is specifically provided in the partnership deed. If it is to be charged, it should be calculated from the date of the withdrawal of the amount. In the absence of the date of withdrawal, interest should be charged for six months on the whole of the amount because it will be assumed that the drawings were made evenly throughout the year.

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 1^st 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 31^st 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 31st 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

Points for Students:-
The Limited Liability Partnerships in India came into existence with the enactment of ‘Limited Liability Partnership Act, 2008’ which lay down the law for the formation and regulation of Limited Liability Partnerships.

Question 14. A, B and C entered into partnership on 1st April 2020 with capital of Rs. 10,00,000, Rs. 8,00,000 and Rs. 5,00,000 respectively. On 1st July 2020, B advanced Rs. 2,00,000 and on 1st 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
Solution 14

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

Working Note:-
(i) Interest on A’s Loan = Rs. 2,00,000 x 6/100 x 9/12 = Rs. 9,000
(ii) Interest on B’s Loan = Rs. 1,00,000 x 6/100 x 9/12 = Rs. 4,000

Points for Students:-
Interest on partner’s capital is to be allowed only when it is expressly agreed to among the partners. If interest on capital is to be allowed as per agreement, it should be calculated with respect to the time, rate of interest and the amount of capital.

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 interest on capitals @ 8% p.a. In addition, Rukmani is entitled a salary of Rs. 20,000 per month. Business is being carried from the property owned Radha on a yearly rent of Rs. 1,20,000. Net Profit for the year ended 31st March 2018 before providing for rent was Rs. 5,50,000.
You are required draw Profit & Loss Appropriation Account for the year ended 31st 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 Capital account = Rs. 4,30,000 – (Rs. 2,40,000 + Rs. 40,000)
Profit of transferred 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 × 2/3 = 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
Q = 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 Q are partners sharing profit and losses in the ratio of 60 : 40. On 1st April, 2014, their capital were: P – Rs. 5,00,000 and Q – Rs. 3,00,000. During the year ended 31st March, 2015, they earned a net profit of Rs. 7,60,000. The terms of partnership are:
(i) Interest on the capital is be charged @ 8% p.a.
(ii) P will get commission @ 3% on turnover.
(iii) Q will get a salary of Rs. 5,000 per month.
(iv) Q will be commission of 5% on profit after deduction of interest, salary and commission (including his own commission).
(v) P is entitled a rent of Rs. 20,000 per month for the use of his premises 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 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 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 1st 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 the firm.
On 1st July, 2018 A and B granted loans of Rs. 1,00,000 and Rs. 50,000 respectively the firm. During the year ended 31st March 2019, the firm incurred a loss of Rs. 17,250 before any adjustment is made as per partnership deed.
Solution 21

Working Note:-
Calculation of Interest in Loan:-
A = 1,00,000 × 6/100 × 9/12 = Rs. 4,500
B = 50,000 × 6/100 × 9/12 = Rs. 2,250

Question 22. A and B are partners in a firm sharing profit in the ratio of 1:2. Their capitals on 1st April 2018 were Rs. 4,00,000 and Rs. 6,00,000 respectively. As per partnership deed, A is get a monthly salary of Rs. 15,000 and interest on capitals is 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 31st March, 2019 before above adjustments. You are required prepare an account showing the distribution of profit/loss.
Solution 22

Working Note:-
Calculation of Interest in Drawings:-
A = 30,000 × 12/100 × 6/12 = Rs. 1,800
B = 50,000 × 12/100 × 6/12 = Rs. 3,000

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 31st 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

Working Note:-
Calculation of Interest on Capital:-
A = 10,00,000 × 8/100 = Rs. 80,000
B = 5,00,000 × 8/100 = Rs. 40,000
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 1st 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 be paid salary of Rs. 22,500 per quarter, whereas Vibhuti was get a commission of 15% on net profit before charging such commission.
Interest on capital was be allowed @ 6% p.a. whereas interest on drawings was be charged @ 10% p.a. The drawings of Akruti were Rs. 40,000 drawn on 1st July 2019 and Vibhuti withdrew Rs. 30,000 on 1st Dec., 2019. The net profit of the firm for the year before making the above adjustments was Rs. 1,00,000.
Solution 24

Working Note:-

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 31st March, 2018:-
Rs.
30 April 8,000
30 June 6,000
30 September 5,000
31 December 1 2,000
31 January 10,000
Calculate interest on drawings @ 9% p.a. for the year ended on 31st March, 2018.
Solution 25
(A)

Working Note:-
Calculation of Interest:-
Interest = Total of Products x 9/100 x 1/12
Interest = 2,28,000 x 9/100 x 1/12 = Rs. 1,710

A). Points for Students:-
Under simple method, interest on drawing is calculated separately on each amount of drawing, from the date of drawing till the close of the accounting period. Interest on each amount of drawing is calculated with the help of the following formula:

Question 25.
(B)
A is a partner in a firm. During the year ended 31st 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 31st March, 2018.
Solution 25
(B)

Working Note:-
Calculation of Interest:-
Interest = Total of Products x 10/100 x 1/12
Interest = 26,500 x 10/100 x 1/12 = Rs. 221

B). Points for Students:-
Under product method, first of all the products are computed by multiplying the each set of drawings from its duration. Thereafter, the different products are added and the interest is calculated on the total of products so arrived at for one month. The advantage of this system is that separate calculations are not required each time. Following formula is used for the calculation of interest under this method:-

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 31st 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:-
Interest on Drawings = Rs.12,000 × 15/100 × 6.5/12
Interest on Drawings = Rs. 975

(A). Points for Students:-
As per accounting viewpoint, partnership firms are treated as a separate business entity distinct from its partners. However, as per legal viewpoint, a partnership firm is not a separate legal entity. In other words, it has no existence separate from its partners. It means that in case of bankruptcy of the partnership firm, private estates of the partners would be liable to meet the firm’s debts.

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 be charged @ 9% p.a. Calculate interest on partner’s drawings.
Solution 26 (B)
(i) Calculation of Interest on Drawings:-
Interest on Drawings = Rs.48,000 × 9/100 × 6.5/12
Interest on Drawings = Rs. 2,340
(ii) Calculation of Interest on Drawings:-
Interest on Drawings = Rs.48,000 × 9/100 × 5.5/12
Interest on Drawings = Rs. 1,980
(iii) Calculation of Interest on Drawings:-
Interest on Drawings = Rs.48,000 × 9/100 × 6/12
Interest on Drawings = Rs. 2,160

(B). Points for Students:-
Average period should be used only when:
(a) All amount of drawings are equal
(b) The time gap between drawings is equal.

Question 27. Calculate the interest on drawings of Mr. Aditya @ 8% p.a. for the year ended 31st 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 Case (i)
Total Drawings for the year = Rs. 5,000 × 4 = Rs. 20,000
Period = 12 months + 3 months = 15 months
Average Period = (15 months)/2 = 7.5 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 20,000 × 8/100 × 7.5/12
Interest on Drawings = Rs. 1,000

Case (ii)
Total Drawings for the year = Rs. 6,000 × 4 = Rs. 24,000
Period = 12 months
Average Period = (9 months)/2 = 4.5 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 24,000 × 8/100 × 4.5/12
Interest on Drawings = Rs. 720

Case (iii)
Total Drawings for the year = Rs. 10,000 × 4 = Rs. 40,000
Period = 10.5 months + 1.5 months = 12 months
Average Period = (12 months)/2 = 6 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 40,000 × 8/100 × 6/12
Interest on Drawings = Rs. 1,600

Points for Students:-
When a partner makes monthly drawings, the Interest may be calculated as follows:-
1. When drawings are made in the beginning of every month.
2. When drawings are made at the end of every month.
3. When drawings are made in the middle or at any time during the month.
4. When drawings of equal amount are made in the beginning of each quarter.
5. When drawings of equal amount are made at the end of each quarter.
6. When drawings of equal amount are made in the during the middle of each quarter.
7. When drawings of equal amount are made only during a period of 6 months.
8. When drawings of equal amount are made during 9 months.

Question 28.

Calculate the interest on drawings of Sh. Ganesh @ 9% p.a. for the year ended 31st 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 Case (i)
Period = 12 months + 1 months = 13 months
Average Period = (13 months)/2 = 6.5 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 48,000 × 9/100 × 6.5/12
Interest on Drawings = Rs. 2,340

Case (ii)
Period = 11 months
Average Period = (11 months)/2 = 5.5 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 60,000 × 9/100 × 5.5/12
Interest on Drawings = Rs. 2,475

Case (iii) Assuming that the drawings were made in the middle of every month:-
Period = 11.5 months + 0.5 months = 12 months
Average Period = (12 months)/2 = 6 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 72,000 × 9/100 × 6/12
Interest on Drawings = Rs. 3,240

Case (iv) Calculated for an average period of 6 months:
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 72,000 × 9/100 × 6/12
Interest on Drawings = Rs. 3,240

Case (v)

Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 4,01,000 × 9/100 × 1/12
Interest on Drawings = Rs. 3,008

Case (vi)
Period = 12 months + 3 months = 15 months
Average Period = (15 months)/2 = 7.5 months
Total Drawings for the year = 12,000 × 4 = Rs. 48,000
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 48,000 × 9/100 × 7.5/12
Interest on Drawings = Rs. 2,700

Case (vii)
Period = 9 months
Average Period = (9 months)/2 = 4.5 months
Total Drawings for the year = 18,000 × 4 = Rs. 72,000
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 72,000 × 9/100 × 4.5/12
Interest on Drawings = Rs. 2,430

Case (viii)
Period = 10.5 months + 1.5 months = 12 months
Average Period = (12 months)/2 = 6 months
Total Drawings for the year = 18,000 × 4 = Rs. 72,000
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 72,000 × 9/100 × 6/12
Interest on Drawings = Rs. 3,240

Points for Students:-
Drawings against profits means drawings made out of profit earned by the firm during the year. Durings against capital means drawings made in excess of profit. Such drawings do not reduce the capital of the firm. Such drawings reduce the capital of the firm. It is not considered while calculating interest in capital. It is deducted from capital while calculating interest on capital.

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 31st 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
Average Period = (7 months)/2 = 3.5 months
Total Drawings for the year = 800 × 4 = Rs. 4,800
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 4,800 × 15/100 × 3.5/12
Interest on Drawings = Rs. 210

Working Note:-
Average Period = (Time left after first drawing + Time left after last drawing)/2
Average Period = (6 months + 1 months)/2
Average Period = (7 months)/2
Average Period = 3.5 months

Points for Students:-
Under product method, first of all the products are computed by multiplying the each set of drawings from its duration. Thereafter, the different products are added and the interest is calculated on the total of products so arrived at for one month. The advantage of this system is that separate calculations are not required each time. Following formula is used for the calculation of interest under this method:-

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 31st 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

Points for Students:-
Average period should be used only when:
(c) All amount of drawings are equal
(d) The time gap between drawings is equal.

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

(C). Points for Students:-
Interest on drawings is to be charged from the partners, if the same is specifically provided in the partnership deed. If it is to be charged, it should be calculated from the date of the withdrawal of the amount. In the absence of the date of withdrawal, interest should be charged for six months on the whole of the amount because it will be assumed that the drawings were made evenly throughout the year.

Question 30. (A) A, B and C started business on 1^st July, 2020. 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
Average Period = (9 months+1 month)/2
Average Period = 10/2
Average Period = 5 months
Interest on drawings = Rs. 90,000 × 9/100 × 5/12 = Rs. 3,375

Question 30. (B) A, B and C started business on 1^st July, 2020. 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
Average Period = (8 months+0 month)/2
Average Period = 8/2
Average Period = 4 months
Interest on drawings = Rs. 90,000 × 9/100 × 4/12 = Rs. 2,700

Question 30. (C)A, B and C started business on 1^st July, 2020. 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
Average Period = (8.5 months+0.5 month)/2
Average Period = 9/2
Average Period = 4.5 months
Interest on drawings = Rs. 90,000 × 9/100 × 4.5/12 = Rs. 3,038

Points for Students:-
When a partner makes monthly drawings, the Interest may be calculated as follows:-
Drawings are made in the beginning of every month.
Drawings are made at the end of every month.
Drawings are made in the middle or at any time during the month.
Drawings of equal amount are made in the beginning of each quarter.
Drawings of equal amount are made at the end of each quarter.
Drawings of equal amount are made in the during the middle of each quarter.
Drawings of equal amount are made only during a period of 6 months.
Drawings of equal amount are made during 9 months.

Question 31. Calculate interest on A’s drawings:
(i) If he has withdrawn Rs. 60,000 on 1st October, 2020 and rate of interest on drawings is 8% p.a.
(ii) If he has withdrawn Rs. 6,000 on 1st October, 2020 and rate of interest on drawings is 8%.
Books are closed on 31st 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 1st 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 be charged @ 12% p.a. Profits for the year ended 31st March, 2018 before adjustments of interest on drawings and of salary were Rs. 74,040. Show Current Accounts.
Solution 32

Working Note:-
Calculation of Interest on Drawings:-
(i) Amit withdraw on the beginning of each month:-
Interest on Drawings = 24,000 × 12/100 × 6.5/12
Interest on Drawings = Rs. 1,560

(ii) Namit withdraw on the end of each month:-
Interest on Drawings = 24,000 × 12/100 × 5.5/12
Interest on Drawings = Rs. 1,320

(iii) Ruchi withdraw at the end of each quarter:-
Average Period = (9 months + 0 months)/2
Average Period = 4.5 months
Interest on Drawings = 24,000 × 12/100 × 4.5/12
Interest on Drawings = Rs. 1,080

Points for Students:-
Original capitals invested by the partner remain constant, unless additional capital is introduced or drawings are made against capital by an agreement. In other words, capitals of the partners are not allowed to change during the life-time of business except in extraordinary circumstances. When a fixed capital method is adopted, all entries relating to drawings against profits, interest allowed on capitals, interest charged on drawings, salary to partner, share of profit or loss etc. are made in a newly-opened account for each partner. The account is called Current Account or Drawings Account.

Question 33. P, Q and R were partners and the balance of their capital accounts on 1st 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) Q withdrew Rs. 1,20,000 out of capital on 1st January 2021;
(iii) R withdrew Rs. 1,20,000 during the year.
The profit for the year ended 31st March, 2021 amounted to Rs. 4,30,000. You are required to prepare journal entries and partner’s capital accounts.
Solution 33

Working Note:-
1.) Calculation of Interest on Capital:-
Interest on Q’s Capital
Rs. 5,00,000 for 9 months = Rs. 5,00,000 × 10/100 × 9/12 = Rs. 37,500
Rs. 3,80,000 for 3 months = Rs. 3,80,000 × 10/100 × 3/12 = Rs. 9,500

2.) Calculation of Interest on Drawings:-
P’s Drawings = Rs. 10,000 × 12 = 1,20,000
Interest on P’s Drawings = 1,20,000 × 12/100 × 5.5/12 = Rs. 6,600
Interest on R’s Drawings = 1,20,000 × 12/100 × 6/12 = Rs. 7,200

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 31st March, 2021 are as follows:
A’s Drawings on

30-06-2020	20,000
31-07-2020	10,000
01-10-2020	10,000
01-03-2021	16,000

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

A’s Interest on Drawings = Total Products × 1/12 × (Rate of Interest)/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 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
Case (i)

Working Note:-
In case of loss we cannot pay Interest on capital.
Profit and Loss Appropriation (Distribution of Loss):-
X’s Share = 6,000 × 2/3 = 4,000
Y’s Share = 6,000 × 1/3 = 2,000
Case (iii)

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

Case (iv)

Working Note:-
The profit is Rs. 3,000 whereas Interest on capital is Rs. 4,800. So the expenses divided intheir expenses ratio which is 3,000 : 1,800 or 5 : 3
Calculation of Interest on Capital:-
X’s Interest on Capital = 3,000 × 5/8 = 1,875
Y’s Interest on Capital = 3,000 × 3/8 = 1,125

Case (v)

Question 36. A and B contribute Rs. 4,00,000 and Rs. 3,00,000 respectively as their capitals. They decide 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
Case (i)

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 intheir expenses ratio which is 32,000 : 24,000 or 4 : 3
A’s Interest on Capital = Rs. 42,000 × 4/7 = Rs. 24,000
B’s Interest on Capital = Rs. 42,000 × 3/7 = Rs. 18,000

Case (ii)

Points for Students:-
Below are the adjustment are made:
1. When Interest on capitals or drawings may have been omitted.
2. When Profits and Losses have been distributed among the partners in a wrong proportion.
3. When profit sharing ratio has been altered with effect from some part date.
4. When salary or commission payable to a person has been omitted.

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 ina loss the firm. The net profit of the firm for the year ended 31st 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

Q38. 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 31st 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 intheir 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 be treated as a charge against profits. Prepare relevant account 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
Case (i)

Working Note:-
Profit and Loss Appropriation:-
Kavita’s Share = 30,000 × 2/3 = 20,000
Leela’s Share = 30,000 × 1/3 = 10,000

Case (ii)

Points for Students:-
As per accounting viewpoint, partnership firm is treated as a separate business entity distinct from its partners. However, as per legal viewpoint, a partnership firm is not a separate legal entity. In other words, it has no existence separate from its partners. It means that in case of bankruptcy of the partnership firm, private estates of the partners would be liable to meet the firm’s debts.

Question 40. Lalan and Balan were partners in a firm sharing in the ratio of 3:2. Their fixed capitals on 1st April, 2017 were: Lalan Rs. 1,00,000 and Balan Rs. 2,00,000. They agreed allow interest on capital @ 12% per annum and change on drawings @ 15% per annum. The firm earned a profit, before all above adjustments of Rs. 30,000 for the year ended 31st 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

Working Note:-
Calculation of Drawings:
Lalan’s Interest on Drawings = Rs. 3,000 × 15/100 × 6/12 = Rs. 225
Balan’s Interest on Drawings = Rs. 5,000 × 15/100 × 6/12 = Rs. 375

Question 41. On 1st 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 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 Rs. 60,000 at the end of seven months.
During the year ended 31st 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 each partner.
Solution 41
Calculation of Capital:-
X’s Capital

Rs. 90,000 for 6 months	Rs. 5,40,000
Rs. 60,000 for 6 months	Rs. 3,60,000

Total Capital of X = Rs. 9,00,000
Y’s Capital

Rs. 75,000 for 4 months	Rs. 3,00,000
Rs. 90,000 for 4 months	Rs. 3,60,000
Rs. 60,000 for 4 months	Rs. 2,40,000

Total Capital of Y = Rs. 9,00,000
Y’s Capital

Rs. 75,000 for 7 months	Rs. 5,25,000
Rs. 1,35,000 for 4 months	Rs. 6,75,000

Total Capital of Y = Rs. 12,00,000
Calculation of Capital Ratio:-
9,00,000 : 9,00,000 : 12,00,000
9 : 9 : 12
3 : 3 : 4

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 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 pass necessary adjusting entry at the beginning of the next year. You are required give the necessary journal entry.
Solution 42

Working Note:-
Calculation of Interest on Capital:-
A’s Interest on Capital = Rs. 8,00,000 × 8% = Rs. 64,000
B’s Interest on Capital = Rs. 4,00,000 × 8% = Rs. 32,000
C’s Interest on Capital = Rs. 3,00,000 × 8% = Rs. 24,000

Interest on capita is a expense for the firm but this is omitted recorded on the debit side of Profit and loss appropriation a/c of the previous year. Hence, this is loss of Rs. 1,20,000 will be shared the partners in their profit sharing ratio 2:1:1.
A = Rs. 1,20,000 × 2/4 = Rs. 60,000
B = Rs. 1,20,000 × 1/4 = Rs. 30,000
C = Rs. 1,20,000 × 1/4 = Rs. 30,000

Question 43. A, B, C and D are partners sharing profits in 2:2:1:1. They distributed the profit for the year ending 31st March, 2020, Rs. 9,00,000 without providing for the following:
(i) Salary A @ 15,000 per month.
(ii) Salary B and D @ Rs. 30,000 per quarter each partner.
Solution 43

Working Note:-
Calculation of Profit:-
A = Rs. 9,00,000 × 2/6 = Rs. 3,00,000
B = Rs. 9,00,000 × 2/6 = Rs. 3,00,000
C = Rs. 9,00,000 × 1/6 = Rs. 1,50,000
D = Rs. 9,00,000 × 1/6 = Rs. 1,50,000
A’s Salary = Rs. 15,000 × 12 = 1,80,000
B’s Salary = Rs. 30,000 × 4 = 1,20,000
D’s Salary = Rs. 30,000 × 4 = 1,20,000
Remaining Profit = Rs. 9,00,000 – Rs. 1,80,000 – Rs. 1,20,00 – Rs. 1,20,000
Remaining Profit = Rs. 4,80,000

Calculation of Profit after the adjustment of Salary:-
A = Rs. 4,80,000 × 2/6 = Rs. 1,60,000
B = Rs. 4,80,000 × 2/6 = Rs. 1,60,000
C = Rs. 4,80,000 × 1/6 = Rs. 80,000
D = Rs. 4,80,000 × 1/6 = Rs. 80,000

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 31st 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

Working Note:-
Calculation of Interest on Capital:-
A = Rs. 4,00,000 × 8% × 2 = Rs. 64,000
B = Rs. 6,00,000 × 8% × 2 = Rs. 96,000
C = Rs. 8,00,000 × 8% × 2 = Rs. 1,28,000
Total Expenses = Rs. 64,000 + Rs. 96,000 + Rs. 1,28,000 = Rs. 2,88,000
Interest on capital is the expense for the firm. Hence we should divide it in the given ratio.
A = Rs. 2,88,000 × 1/6 = Rs. 48,000
B = Rs. 2,88,000 × 2/6 = Rs. 96,000
C = Rs. 2,88,000 × 3/6 = Rs. 1,44,000

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 inconsideration. The interest on drawings of partners amounted A Rs. 8,000, B Rs. 6,000 and C Rs. 4,000. Given the necessary adjusting journal entry.
Solution 45

Working Note:-
Calculation of Interest on Capital:-

Distribution of Profit:-
A’s Profit = Rs. 18,000 × 5/9 = Rs. 10,000
B’s Profit = Rs. 18,000 × 3/9 = Rs. 6,000
C’s Profit = Rs. 18,000 × 1/9 = Rs. 2,000

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 inconsideration. 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

Working Note:-
Calculation of Interest on Drawings:-
A = Rs. 20,000 × 6% × 6/12 = Rs. 600
B = Rs. 24,000 × 6% × 6/12 = Rs. 720
C = Rs. 32,000 × 6% × 6/12 = Rs. 960
D = Rs. 44,000 × 6% × 6/12 = Rs. 1320

Question 47. A and B were partners sharing profits in 2:1 ratio. During the year ended 31st 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 1st April, 2021.
Solution 47

Working Note:-
A’s Drawings = Rs. 50,000 × 12 = Rs. 6,00,000
Interest on Drawings:-
Rs. 6,00,000 × 12/100 × 6.5/12 = Rs. 39,000

Question 48. Anil, Sunil and Sanjay have omitted interest on capitals for two years ended on 31st March, 2021. 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 1st April, 2017 were Rs. 50,000, Rs. 30,000 and Rs. 20,000 respectively. At the end of the year ending 31st March, 2018 it was founds out that interest on capitals @ 12% p.a. salaries P, Rs, 500 per month and R Rs. 1,000 per month were not adjusted from the profits. Show adjusting entry be made in the next year for above adjustments.
Solution 49

Question 50.(A) On 1st 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 31st 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 10th 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)

Points for Students:-
The accounts of the partnership firm have been closed after the financial year, it is discovered that there have been some errors or omissions in the accounts. In such cases, instead of altering the old accounts and the signed balance sheet and adjustment entry for such errors or omissions is made at the beginning of the next year. Usually the following types of adjustments are made:
(1) When Interest on Capital or Drawings may have been omitted.
(2) When Profits and Losses have been distributed among the partners in a wrong proportion.
(3) When profit sharing ratio has been altered with effect from some past date.
(4) When salary or commission payable to person has been omitted.

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 31st 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 Suresh and salary Rs. 2,000 per month Ramesh. The profit earned 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

Points for Students:-
The Limited Liability Partnerships (LLPs) in India came into existence with the enactment of ‘Limited Liability Partnership Act, 2008’ which lay down the law for the formation and regulation of Limited Liability Partnerships.

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 1st April, 2017. Accounting the partnership deed they were entitled an interest on capital @ 5% p.a. In additional A was also entitled draw a salary of Rs. 5,000 per month. C was entitled a commission of 5% on the profits after charging the interest on capital; but before charging the salary payable A. The net profits for the year ended 31st 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 be shared in the ratio 2:3:5. Pass the necessary adjustment entry showing the working clearly.
Solution 54

Points for Students:-
When the partnership agreement is silent about the interest on capital:- No interest will be allowed on capital.

Question 55. The partners of a firm distributed the profits for the year ended 31st 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 31st Mach, 2019 were Rs. 1,50,000 which had been distributed among the partners. On 1st 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 be provided @ 8% p.a. which was omitted 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 31st March, 2018 interest on capital was credited 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 31st March, 2018 interest on capital was credited 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 31st 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 put through adjusting entry as on 1st April, 2017, if the profits were shared as follows in 2016, 2:2:1 and in 2017, 3:4:3.
Solution 59

Points for Students:-
Sometimes a partner is guaranteed that he shall get a certain minimum amount of profit of the firm. Such a guarantee may be given either by firstly any one of the partners, or second by all other partners in a particular ratio. When the profits of the firm are not adequate then the ‘excess’ paid to the guaranteed partner should be charged to the partner who has given guarantee.

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 this. The profits for the last three year were Rs. 60,000, Rs. 47,000 and Rs. 55,000. Record the adjustment means of a journal entry.
Solution 60

Points for Students:-
When profit sharing ratio differs from capital ratio, the partners who contribute capital in excess of what is required as per profit sharing ratio need to be compensated. Interest in capital compensates those partners who have contributed relatively more amount of capital.

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, 31st 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 31st 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)

(A).Points for Students:-
When the capitals need not be fixed, the balances of capital accounts go on changing from time to time. The reason is that no separate Current Accounts are maintained, but all the entries relating to drawings, interest on capitals, interest on drawings, salary to partner, share of profit or loss etc., are recorded in the capital account itself.

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 rectify the accounts.
Solution 61 (B)

(B). Points for Students:-
Profit and loss appropriation account prepared just after the Profit and Loss Account. Hence, it is an extension of Profit and Loss Account. It is prepared only by partnership firms. It is a nominal account. It shows how the net profit for the accounting period is appropriated among the partners. Entries in this account are made giving effect to the Partnership Deed and the Indian Partnership Act, 1932.

Question 61. (C) A and B are partners in a business sharing profits and losses in the ratio of 3:2. Their capitals on 31st 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
Case (i)

Case (ii)

Case (iii)

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:
1st May, 2020 Rs. 6,000
1st October, 2020 Rs. 5,000
31st Dec. 2020 Rs. 4,000
31st March, 2021 Rs. 5,000
Calculate interest on partner’s capitals @ 8% p.a. and interest on partner’s drawings @ 10% p.a. for the year ended 31st 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

Question 63. On 31st 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 31st March, 2021 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

Calculation of Interest on Drawings:-
Esha and Manav each withdrew a sum of Rs. 48,000 in middle of the every month.
= Rs. 48,000 × 5/100 × 6/12 = Rs. 1,200
Daman’s Interest on Drawings = Rs. 60,000 × 5/100 × 6/12 = Rs. 1,500

Points for Students:-
When the partnership agreement provides for interest on capital but is silent in treating interest as a charge or appropriation. Interest on capital will be allowed only when there is a profit. In case of loss no interest will be allowed on capital.

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.

Liabilities	Amount	Assets	Amount
Capitals: A	6,00,000	Sundry Assets	10,00,000
B	4,00,000
	10,00,000		10,00,000

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 31st 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 31st March, 2021:

Liabilities	Amount	Assets	Amount
A’s Capitals	1,00,000	Fixed Assets	1,40,000
B’s Capitals	80,000	Current Assets	60,000
P & L Appro. A/c	40,000	Drawings – B	20,000
	2,20,000		2,20,000

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 31st March, 2019. It was subsequently ascertained that interest on capital @ 10% p.a. was not taken inaccount 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 Rs. 1,80,000 and partners shared profits and losses in the ratio of 2:2:1. You are required pass the necessary journal entries 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 31st 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 31st March, 2020

Working Note:-
Calculation of Share of Profit in 2015:-
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 2016:-
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 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)

Working Note:-
Calculation of Interest on capital:-
X’s Interest on capital = Rs. 4,00,000 × 8% = Rs. 32,000
Y’s Interest on capital = Rs. 3,00,000 × 8% = Rs. 24,000
Z’s Interest on capital = Rs. 2,00,000 × 8% = Rs. 16,000

Calculation of Share of Profit in 2015:-
X’s Share of Profit = Rs. 1,80,000 × 3/6 = Rs. 90,000 – Rs. 20,000 = Rs. 70,000
Y’s Share of Profit = Rs. 1,80,000 × 2/6 = Rs. 60,000
Z’s Share of Profit = Rs. 1,80,000 × 1/6 = Rs. 30,000 + Rs. 20,000 = Rs. 50,000

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 31st 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 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 1/8th 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 bear any deficiency on account of guarantee 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

Working Note:-
Calculation Profit Distribution:-
Vandana’s Share of Profit = Rs. 9,00,000 × 1/8 = Rs. 1,12,500
Profit for Vivek and Vikas = Rs. 9,00,000 – Rs. 1,12,500 = Rs. 7,87,500
Vikas’s Share of Profit = Rs. 7,87,500 × 3/5 = Rs. 4,72,500
Vivek’s Share of Profit = Rs. 7,87,500 × 2/5 = Rs. 3,15,000
Vandana’s deficiency = Rs. 1,50,000 – Rs. 1,12,500 = Rs. 37,500. Deficiency will be contributed 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 1st 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 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 31st March, 2018, before allowing of charging any interest amounted 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

Working Note:-
Calculation of Interest on Drawings:-
A’s Interest on Drawings = Rs. 60,000 × 5.5/12 × 10/100 = Rs. 2,750
B’s Interest on Drawings = Rs. 60,000 × 4.5/12 × 10/100 = Rs. 2,250
C’s Interest on Drawings = Rs. 60,000 × 6/12 × 10/100 = Rs. 3,000

Calculation of Profit:-
Net Profit = 4,32,000 + 8,000 – Rs. 80,000 = Rs. 3,60,000
A’s Share of Profit = Rs. 3,60,000 × 3/6 = Rs. 1,80,000 – Rs. 40,000 = Rs. 1,20,000
B’s Share of Profit = Rs. 3,60,000 × 2/6 = Rs. 1,20,000
C’s Share of Profit = Rs. 3,60,000 × 1/6 = Rs. 60,000 + Rs. 40,000 = Rs. 1,00,000
C’s deficiency = Rs. 1,00,000 – Rs. 60,000 = Rs. 40,000. Deficiency will be contributed A.

Question 73. A, B and C were in partnership sharing profits in the ratio of 1:2:3. Their fixed capitals on 1st 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 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 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 31st 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

Working Note:-
Calculation of Interest on Drawings:-
A’s Interest on Drawings = Rs. 60,000 × 10/100 × 6.5/12 = Rs. 3,250
B’s Interest on Drawings = Rs. 60,000 × 10/100 × 5.5/12 = Rs. 2,750
C’s Interest on Drawings = Rs. 60,000 × 10/100 × 7.5/12 = Rs. 6,000

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 be shared in the ratio of 4:3:1 but excess claimed Rakesh over his normal share has been guaranteed 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 ^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 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 A and C in the ratio of 4:2.
A’s Share B = Rs. 1,80,000 × 4/6 = Rs. 1,20,000
A’s Share 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 inpartnership as from 1-4-2018 giving him 1/8th share of the profit.
The agreement provided that any excess over his former remuneration which Sajoo becomes entitled will be paid out of Ajoo’s share of profits.
The profits for the year ended 31st March, 2019 amounted Rs. 57,000. Divide this between the partners.
Solution 77

Working Note:-
Calculation of Profit:

Profit before Sajoo’s Salary and Commission	Rs. 57,000
Less: Salary	Rs. 2,400
	Rs. 54,600
Less: Commission Sajoo × Rs. 54,600	Rs. 2,600
Final Profit for distribution between Ajoo & Bajoo	Rs. 52,000

Sajoo’s Share of Profit = Rs. 57,000 × 1/8 = Rs. 7,125
Excess received Sajoo as a partner = Rs. 7,125 – Rs. 5,000 = Rs. 2,125

Calculation of Profit Distribution:
Ajoo’s Share of Profit = Rs. 52,000 × 4/5 = Rs. 41,600
Less: Excess of Sajoo will paid Ajoo = Rs. 41,600 – Rs. 2,125 = Rs. 39,475
Bajoo’s Share of Profit = Rs. 52,000 × 1/5 = Rs. 10,400

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 1/6th of the profit of the firm whichever is more. Any excess of the latter over the former received R is, under the partnership deed, be borne P and Q in the ratio of 3:2. The profit for the year ending 31st March, 2019 came Rs. 3,85,000 after charging R’s salary. Divide the profits among partners.
Solution 78

Working Note:-
Calculation of Profit:

R’s Share of Profit = Rs. 4,05,000 × 1/6 = Rs. 67,500
Excess received R as a partner = Rs. 67,500 – Rs. 55,000 = Rs. 12,500
Excess amount will be deducted from P = Rs. 12,500 × 3/5 = Rs. 7,500
Excess amount will be deducted from Q = Rs. 12,500 × 2/5 = Rs. 5,000

Calculation of Profit Distribution:
P’s Share of Profit = Rs. 3,50,000 × 4/7 = Rs. 2,00,000
Less: Excess of R will paid P = Rs. 2,00,000 – Rs. 7,500 = Rs. 1,92,500
Q’s Share of Profit = Rs. 3,50,000 × 3/7 = Rs. 1,50,000
Less: Excess of R will paid P = Rs. 1,50,000 – Rs. 5,000 = Rs. 1,45,000

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 be allowed interest on their capitals @ 10% per annum.
(b) They are be charged interest on drawings @ 4% per annum.
(c) Asif is entitled a salary of 2,000 per month.
(d) Ravi is entitled a commission of 5% of the correct net profit of the firm before charging such commission.
(e) Asif is entitled a rent of Rs. 3,000 per month for the use of his premises 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 prepare a Profit and Loss Appropriation Account for the year ended 31st March, 2017.
Solution 79

Working Note:-
Net Profit = Rs. 4,00,000 – Rs. 36,000 = Rs. 3,64,000
Calculation of Interest on Drawings:-
Asif’s Interest on Drawings = Rs. 60,000 × 4/100 × 6.5/12 = Rs. 1,300
Ravi’s Interest on Drawings = Rs. 60,000 × 4/100 × 6.5/12 = Rs. 1,300
Calculation of Commission = Rs. 3,64,000 × 5% = Rs. 18,200

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 the firm. The clauses of their partnership deed provided for :
(a) Interest on capital be allowed at the rate of 10% per annum.
(b) Interest on drawings be charged at the rate of 12% per annum.
(c) Profits be shared them in the ratio of 3 : 2.
(d) 10% of the correct net profit be transferred 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 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

Working Note:-
1.) Calculation of Interest on Drawings:-
Drawings are made at the beginning of each quarter, interest will be charged for 7.5 months
= 24,000 × 12/100 × 7.5/12 = Rs. 1,800
2.) Interest on Loan will be allowed @ 6% = Rs. 1,50,000 × 6/100 × 3/12 = Rs. 2,250

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 31st March, 2021

Working Note:-
Calculation of Profit Distribution:-
D’s Profit Share = Rs. 38,900 × 5/20 = Rs. 9,725
E’s Profit Share = Rs. 38,900 × 7/20 = Rs. 13,615
F’s Profit Share = Rs. 38,900 × 8/20 = Rs. 15,560

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

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

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 31st 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 the partnership deed the partners were entitled interest on capital @ 6% p.a. A being the working partner was also entitled a salary of Rs. 5,000 per month. The profits were 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 be shared equally.
The firm made a profit of Rs. 2,70,000 for the year ended 31st 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

Working Note:-
Profit after interest on capital and Salary:-
Rs. 2,70,000 – Rs. 24,000 – Rs. 60,000 = Rs. 1,86,000

Particulars	A	B	C
First Rs. 40,000 in Capital ratio 2:3:5	8,000	12,000	20,000
Next Rs. 80,000 in Capital ratio 1:1:2	20,000	20,000	40,000
Remaining Rs. 66,000 1:1:1	22,000	22,000	22,000
	50,000	54,000	82,000

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

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 be allowed a salary of Rs. 6,000 per month. For the year ended 31st March,2018 the profits prior calculation of interest on capital but after charging Tulsi’s salary amounted Rs. 2,28,000. Manager is 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 get a commission of 10% of net profit before charging any commission. B is 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 × 10/110 = 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 the deed, interest on capitals is be allowed at 8% p.a. but no interest is be allowed or charged on current account balances and drawings. A is entitled 3/5 and B 2/5 of the profit. The manager of the firm is entitled a commission of 10% of the profit before any adjustment is made according 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

Working Note:-
Calculation of Net Profit = Rs. 40,000 – Rs. 4,000 = Rs. 36,000
Calculation of Interest on Capital:-
From 01-Apr.-2017 30-June-2017
A’s Interest on Capital = Rs. 1,00,000 × 8/100 × 3/12 = Rs. 2,000
B’s Interest on Capital = Rs. 40,000 × 8/100 × 3/12 = Rs. 800
From 01-July-2017 31-Mar.- 2017
A’s Interest on Capital = Rs. 80,000 × 8/100 × 9/12 = Rs. 4,800
B’s Interest on Capital = Rs. 50,000 × 8/100 × 9/12 = Rs. 3,000

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 be paid salary @ Rs. 500 p.m. whereas B is get commission of Rs. 4,000 for the year.
Interest on capital is 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
Case (a)
Drawings during the year were Rs. 60,000 = Rs. 60,000 × 8/100 × 6/12 = Rs. 2,400
Case (b)
If he withdrew Rs. 5,000 p.m. in the beginning of every month = Rs. 60,000 × 8/100 × 6.5/12 = Rs. 2,600
Case (c)
If he withdrew 5,000 p.m. at the end of every month = Rs. 60,000 × 8/100 × 5.5/12 = Rs. 2,200
Case (d)
If he withdrew 35,000 p.m. during the year = Rs. 60,000 × 8/100 × 6/12 = Rs. 2,400
Case (e)

Interest on Drawings = Total of Products × rate of interest × 1/12
Interest on Drawings = 3,21,000 × 8/100 × 1/12
Interest on Drawings = Rs. 2,140

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
Average Period = (12 months + 3 months)/2 = 15/2 = 7.5 months
Interest on Drawings = Rs. 40,000 × 9/100 × 7.5/12 = Rs. 2,250

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
Average Period = (9 months + 0 months)/2 = 9/2 = 4.5 months
Interest on Drawings = Rs. 40,000 × 9/100 × 4.5/12 = Rs. 1,350

Points for Students:-
Expenses paid to a partner is also treated as interest on partner’s loan, rent paid to a partner is also treated as a charge against profit and not an appropriation out of profit and hence it should be debited to Profit and Loss account and not to Profit and Loss Appropriation Account and Credited to partner’s Current Account in case of fixed capital system or to Partner’s Capital Account when Capitals are fluctuating.

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
Average Period = (10.5 months + 1.5 months)/2 = 12/2 = 6 months
Interest on Drawings = Rs. 40,000 × 9/100 × 7.5/12 = Rs. 1,800

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
Average Period = (6 months + 1 months)/2 = 7/2 = 3.5 months
Interest on Drawings = Rs. 24,000 × 9/100 × 3.5/12 = Rs. 630

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
Average Period = (5 months + 0 months)/2 = 5/2 = 2.5 months
Interest on Drawings = Rs. 24,000 × 9/100 × 2.5/12 = Rs. 450

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
Average Period = (5.5 months + 0.5 months)/2 = 6/2 = 3 months
Interest on Drawings = Rs. 24,000 × 9/100 × 3/12 = Rs. 540

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 interest @ 6% p.a. They share profits in the ratio of 5:3:2. A is entitled 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 31st 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

Working Note:-
Calculation of Interest on Drawings:-
A’s Interest on Drawings:-

Interest on Drawings = Rs. 28,000 × 6/100 × 1/12 = Rs. 140
B’s Interest on Drawings:-

Interest on Drawings = Rs. 33,000 × 6/100 × 1/12 = Rs. 165
C’s Interest on Drawings:-

Interest on Drawings = Rs. 18,000 × 6/100 × 1/12 = Rs. 90

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 the treatment of interest as a charge or appropriation

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

Working Note:-
Calculation of Interest on Drawings:-
Arun = Rs. 2,000 × 15/100 × 6/12 = Rs. 150
Arora = Rs. 4,000 × 15/100 × 6/12 = Rs. 300

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

Question 102 (new). Neena and Sara were partners in a firm with fixed capital of Rs. 5,00,000 and Rs. 4,00,000 respectively. It was discovered that interest on capital @ 6% p.a. was credited to the partners for the two years ending 31st March, 2018 and 31st March, 2019 whereas there was no such provision in the partnership deed. Their profit sharing ratio during the last two years was:
2017-18 4:5
2018-19 5:1
Showing your working clearly, pass the necessary adjustment entry to rectify the error.
Solution 102 (new)

Question 102. A, B and C are partners. Their fixed capitals as on 31st March, 2021 were A Rs. 2,00,000, B Rs. 3,00,000 and C Rs. 4,00,000. Profits for the year 2021 amounting to Rs. 1,80,000 were distributed. Give the necessary adjusting entry in each of the following alternative cases:
Case (a) Interest on capital was credited @ 8% p.a. though there was no such provision in the partnership deed.
Case (b) Interest on capital was not credited @ 8% p.a. though there was such provision in the partnership deed.
Case (c) Interest on capital was credited @ 8% p.a. instead of 10% p.a.
Case (d) Interest on capital was credited @ 10% p.a. instead of 8% p.a.
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
Interest on Opening Capital:-
A’s Interest on Capital = Rs. 5,60,000 × 12/100 = Rs. 67,200
B’s Interest on Capital = Rs. 4,00,000 × 12/100 = Rs. 48,000

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 give effect the new agreement between Prem, Param and Priya.
Solution 105

Working Note:-
Profit = 2,00,000 + Rs. 3,50,000 + Rs. 3,50,000 + Rs. 4,75,000 + Rs. 5,25,000 = Rs. 15,50,000

What do you mean by “Partnership’?

A partnership agreement is a signed contract between two individuals issued during the starting of a profitable business. The partnership agreement defines that both the owners of the company are equally responsible for the profits or losses of the firm. Even if an individual retires or exits from the partnership, he/she will hold the complete liability of the existing debts. This document basically covers all the rights and responsibilities of the partners in a business.

Write some importance of the Partnership Agreement?

A partnership agreement is a key component of preventing any loophole in a business. It helps the firms to overcome any sort of confusion or sudden modifications in terms of partnership within the firm. Here are some other prominent reasons why a partnership agreement is important –
● It defines the role and responsibilities of the partners within a firm.
● It prevents any liability or tax issues between the partners.
● It helps in handling any circumstance or lifestyle changes of any partner

Write the features of a partnership?

Here are the salient features of partnership –
Two or More Persons – There must be at least two persons to draft a partnership contract. The partnership Act, 1932 does not pass a hard and fast rule about the maximum limit of the partners. However, the 1956 Company Act states that any partnership comprising 20 partners in any business is illegal, provided it is not a joint-stock company.
Agreement – A partnership is officially defined by an agreement between two persons of a company, entering into a contract. The contact may be written or oral.
Lawful Business – Under the partnership agreement, the partners can take up any legal activities. Any illegal activity is not entertained by the authorities.

What is a Partnership Deed?

A partnership deed can be termed as a partnership record that casts a light on the rights and responsibilities of all the partners within a business. It possesses a touch of law and is framed to help the partners understand and run the business more smoothly.

When is a partnership deed created?

A partnership deed is crafted as an outcome of an agreement between the partners of a firm.
The agreement may be oral or written as there is no mandatory rule that it needs to be in writing.
It constitutes all the attributes of a firm, defining the partnership, the firm’s aim of trade, the contribution of capital by each partner, and much more.

Write the most important contents of a partnership deed ?

Here are the important contents for a general partnership deed –
Name of the firm, Name, and details of each partner, Firm’s existence duration, Profit sharing ratio, Salary to be paid to each partner, etc.

Also refer to TS Grewal Solutions for Class 12

DK Goel Solutions

DK Goel Solutions Chapter 2 Accounting for Partnership Firms Fundamentals

Accounting for Partnership Firms Fundamentals DK Goel Class 12 Accountancy Solutions

Short Answer Questions for DK Goel Solutions Class 12 Chapter 2

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