class 12 Accountancy Chapter 2 – Accounting For Partnership Firms – Basic Concepts

Access the solution for class 12 Accountancy Chapter 2 – Accounting For Partnership Firms – Basic Concepts

Short Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 2

1. Define Partnership Deed.

A partnership deed also referred to as a partnership agreement, is a document of importance that contains the details of all the rights and responsibilities of the concerned parties involved in a business. It helps in preventing any kind of disputes or disagreements that can arise between partners over their role on the business and the associated benefits from the partnership in the firm.

2. Why it is considered desirable to make the partnership agreement in writing.

According to the Partnership Act, 1932, having a Partnership deed in writing is not mandatory. However, it is a safe option to have it in writing as it helps avoid any kind of disputes that may arise between partners of a firm in future. It also helps resolution of any kind of disputes as a written partnership that is signed by all the partners is suitable for use as an evidence in the court of law.

3. List the items which may be debited or credited in the capital accounts of the partners when:

(i) Capitals are fixed

(ii) Capitals are fluctuating

(i) These items get credited:

1. Opening capital balance

2. Additional capital or Fresh capital that is added to the business.

These items get debited:

1. Part of capital that is withdrawn.

2. Closing capital balance

(ii)These items get debited

1. Opening capital balance

2. Fresh capital added in the accounting period

3. Salaries paid to partners

4. Profit share

5. Interest received on capital

These items get debited:

1. Withdrawals done during the accounting year.

2. Interest accumulated on withdrawals (drawing)

3. Closing capital balance

4. Loss on shares

4. Why is Profit and Loss Adjustment Account prepared? Explain.

It is prepared for the following reasons:

1. For recording transactions, errors or omissions which may be left while preparing the final accounts.

2. To act as a account for distributing profit and loss between partners

3. To accommodate for changes in partnership deed.

5. Give two circumstances under which the fixed capitals of partners may change.

Following circumstances lead to change in fixed capital of partners

1. Introducing fresh capital in the firm by a partner with consent from other partners.

2. When a portion of capital is withdrawn with consent of partners.

6. If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?

When there is withdrawal of money on first day of each quarter. Then the corresponding interest is calculated for a period of seven and half months on the total amount that is withdrawn.

7. In the absence of partnership deed, specify the rules relating to the following:

(i) Sharing of profits and losses.

(ii) Interest on partner’s capital.

(iii) Interest on Partner’s drawings.

(iv) Interest on Partner’s loan

(v) Salary to a partner.

1. Sharing of profits and losses: If a partnership deed is absent, then the profit sharing ratio should be equal among all partners, as per Partnership Act, 1932.

2. Interest on Partner’s capital: If partnership deed is absent, then as per Partnership Act, 1932, the partners are not entitled to interest earned on capital.

3. Interest on Partner’s drawings: If partnership deed is absent, then as per Partnership Act, 1932, in event of drawing money it shall be charged to the partners

4. Interest on Partner’s loan: If partnership deed is absent then the partner is eligible for a 6% interest on loan to the firm

5. Salary to a partner: In case of absence of partnership deed, the partners are not eligible for any salary, any salary whatsoever if paid will be as appropriation of profit (in case there is profit)

Long Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 2

1. What is partnership? What are its chief characteristics? Explain.

According to Section 4 of the Partnership Act, 1932 a partnership is defined as “an agreement between two or more persons who have mutually agreed to share profits or losses that will be carried by all or any one of them acting for all”. The individuals who setup the business jointly are called as partners and all the partners collectively are known as firm.

Following are the important characteristics of a partnership firm:

1. Number of partners: The minimum number of persons to form a partnership is 2 and the maximum is 50 as per Companies Rules Act, 2014. Any more than the specified limit makes partnership illegal.

2. Partnership Deed: A partnership deed is necessary document that contains all the terms of the partnership and the details about contribution of each partner towards the firm. It should be in written format as it helps in resolving disputes between partners and acts a evidence in d

3. Business: One of the important characteristics of business is that it is formed in order to do legal business. So any kind of business that is deemed illegal makes the partnership illegal

4. Profit/Loss Sharing: Partners are supposed to take profit and loss as per the ratio that was agreed at the time of partnership.

5. Liability: Firm has unlimited liability and the partners of the firm need to pay from the personal asset if the firm is unable to pay to any concerned third party

6. Mutual Agency: The firm is an agency and all the partners are its agents. Every partner is an agent and binds other partners by his/her act while at the same time is bound by other partners actions.

2. Discuss the main provisions of the Indian Partnership Act, 1932 that are relevant to partnership accounts if there is no partnership deed.

As per the Indian Partnership Act, 1932. Here are the following provisions that stays relevant when a partnership deed is not present:

1. Sharing of profits and losses: If a partnership deed is absent, then the profit sharing ratio should be equal among all partners, as per Partnership Act, 1932.

2. Interest on Partner’s capital: If partnership deed is absent, then as per Partnership Act, 1932, the partners are not entitled to interest earned on capital.

3. Interest on Partner’s drawings: If partnership deed is absent, then as per Partnership Act, 1932, no interest shall be charged to the partners in event of drawing money.

4. Interest on Partner’s loan: If partnership deed is absent then the partner is eligible for a 6% interest on loan to the firm.

5. Salary to a partner: In case of absence of partnership deed, the partners are not eligible for any salary, any salary whatsoever if paid will be as appropriation of profit (in case there is profit).

3. Explain why it is considered better to make a partnership agreement in writing.

According to the Partnership Act, 1932, it is not mandatory to have Partnership deed in writing. However, it is a safe option to have it in writing as there are chances that the partners may have conflicts in the future that gives rise to dispute among the partners regarding the operations of the firm. A partnership deed that is documented helps in proper functioning of the firm and assists in avoiding any kind of disputes that may arise between partners of a firm in future. It also helps resolution of any kind of disputes as, a written partnership that is signed by all the partners is suitable for use as an evidence in the court of law.

4. Illustrate how interest on drawings will be calculated under various situations.

A partner whenever withdraws from the firm, any amount which can be in the form of cash or other forms solely for personal use is called drawings. Interest on drawings is referred to the amount that is charged by firm as interest on the total amount taken as drawings. Interest calculation is dependent on the time and the frequency in which drawing is made. Here are some situations that can be shown where calculation is done for interest charged on drawings.

5. How will you deal with a change in the profit sharing ratio among existing partners? Take imaginary figures to illustrate your answer?

There is change in profit sharing only when there is addition of a new partner, retirement or death of partner or due to mutually agreed decision among the partners. Some of the factors that need to be taken into account while changing the profit sharing ratio are: goodwill, accumulated profits and reserves, liabilities and adjustment of capitals and profit or loss on the revaluation of the assets, etc.

General reserve is essentially the accumulated profits and profit or loss that is obtained on the revaluation of assets and liabilities, adjustments in capital etc.

If one or more partners decide that it is the right time for changing profit sharing ratio, then the gaining partner shall gain and the other will lose, therefore the gainer should compensate the latter. This results in debiting gaining partner capital account and crediting the sacrificing partners’ capital account.

Gaining Partner’s Capital A/c Dr.

To Sacrificing Partner’s Capital A/c

(Adjustment entry passed)

Example:

Ram, Shyam, and Mohan are partners in a firm sharing profit and loss in 3:2:1 ratio. They decide to share profit and loss equally in future. On that date, the books of the firm shows ₹ 90,000 as general reserve, profit due to revaluation of plant and machinery ₹ 30,000. The following adjustment entry is passed through the capital accounts without affecting the books of accounts.

 

Particulars Ram Shyam Mohan
Share of profit as per 3:2:1 45,000 30,000 15,000
Profit on revaluation of plant and machinery 15,000 10,000 5,000
       
  60,000 40,000 20,000
Share of profit as per 1:1:1 50,000 50,000 5,000
       
Difference (Gain or Loss) 25,000 25,000
  (Loss)   (Gain)
       

 

Here Mohan gains while Ram loses, so Ram needs to be compensated by Mohan with an amount of ₹ 25,000. The following adjustment entry is passed.

Adjustment entry:

       
Mohan’s Capital A/c Dr. 25,000  
To Ram’s Capital A/c     25,000
( Adjustment entry passed)      
         
         

Numerical Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 2

1. Tripathi and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were ₹ 60,000 and ₹ 40,000 as on January 01, 2015. During the year they earned a profit of ₹ 30,000. According to the partnership deed both the partners are entitled to ₹ 1,000 per month as Salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is ₹ 12,000 for Tripathi, ₹ 8,000 for Chauhan. Prepare Partner’s Accounts when, capitals are fixed.

a) If interest on Capital and Partners’ salaries and interest on drawings is charged against profit, the solution will be as:

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to     Profit and Loss   30,000
Tripathi’s Current Account   18,000      
Chauhan’s Current Account   12,000      
    30,000     30,000
           

 

Partners’ Capital Account
Dr.         Cr.
Particulars Tripathi Chauhan Particulars Tripathi Chauhan
      Balance b/d 60,000 40,000
           
Balance c/d 60,000 40,000      
  60,000 40,000   60,000 40,000
           

 

Partners’ Current Account
Dr.         Cr.
Particulars Tripathi Chauhan Particulars Tripathi Chauhan
Drawings 12,000 8,000 Interest on Capital 3,000 2,000
Interest on Drawings 600 400 Partners’ Salaries 12,000 12,000
Balance c/d 20,400 17,600 Profit & Loss Appropriation 18,000 12,000
  33,000 26,000   33,000 26,000
           

 

b) ) If interest on Capital and Partners’ salaries and interest on drawings is distributed out of  profit, the solution will be as:

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Partners’ Salary     Profit and Loss (Profit)   30,000
Tripathi 1,000 × 12 = 12,000   Interest on Drawings    
Chauhan 1,000 × 12 = 12,000 24,000 Tripathi 600  
      Chauhan 400 1,000
Interest on Capital          
Tripathi 3,000        
Chauhan 2,000 5,000      
           
Profit Transferred to          
Tripathi’s Current 1,200        
Chauhan’s Current 800 2,000      
           
    31,000     31,000
           

 

Partners’ Capital Account
Dr.         Cr.
Particulars Tripathi Chauhan Particulars Tripathi Chauhan
      Balance b/d 60,000 40,000
Balance c/d 60,000 40,000      
           
  60,000 40,000   60,000 40,000
           

 

Partners’ Current Account
Dr.         Cr.
Particulars Tripathi Chauhan Particulars Tripathi Chauhan
Drawings 12,000 8,000 Partners’ Salaries 12,000 12,000
Interest on Drawings 600 400 Interest on Capital 3,000 2,000
Balance c/d 3,600 6,400 Profit and Loss Appropriation 1,200 800
  16,200 14,800   16,200 14,800
           

 

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

 

a) Note: If Partners’ Salaries, Interest on capital and Interest on Drawing are treated as these have already adjusted in Profit and Loss Account. The Solution will be as

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit Transferred to Current  A/c     Profit and Loss   45,000
Anubha’s Capital 30,000        
Kajal’s Capital 15,000 45,000      
           
    45,000     45,000
           

 

Partners’ Capital Account
Dr.         Cr.
Particulars Anubha Kajal Particulars Anubha Kajal
Drawings 8,500 6,500 Balance b/d 90,000 60,000
Interest on Drawings 425 325 Partners’ Salaries 8,400 6,000
      Interest on Capital 4,500 3,000
Balance c/d 1,23,975 77,175 Profit and Loss Appropriation 30,000 15,000
  1,32,900 84,000   1,32,900 84,000
           

 

b) Alternative Note: If Partners’ salaries, interest on capital and interest on drawings adjusted in Profit and Loss Appropriation Account. The solution will be as.

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Partners’ Salaries:     Profit and Loss Account   45,000
Anubha 8,400   Interest on Drawings    
Kajal 6,000 14,400 Anubha 425  
      Kajal 325 750
Interest on Capital:          
Anubha 4,500        
Kajal 3,000 7,500      
           
Profit transferred to          
Anubha’s Capital 15,900        
Kajal’s Capital 7,950 23,850      
           
    45,750     45,750
           

 

Partners’ Capital Account
Dr.         Cr.
Particulars Anubha Kajal Particulars Anubha Kajal
Drawings 8,500 6,500 Balance b/d 90,000 60,000
Interest on Drawings 425 325 Partners’ Salaries 8,400 6,000
      Interest on Capital 4,500 3,000
Balance c/d 1,09,875 70,125 Profit and Loss Appropriation 15,900 7,950
  1,18,800 76,950   1,18,800 76,950
           

 

 

3. Harshad and Dhiman are in partnership since April 01, 2016. No Partnership agreement was made. They contributed ₹ 4, 00,000 and 1, 00,000 respectively as capital. In addition, Harshad advanced an amount of ₹ 1, 00,000 to the firm, on October 01, 2016. Due to long illness, Harshad could not participate in business activities from August 1, to September 30, 2017. The profits for the year ended March 31, 2017 amounted to ₹ 1, 80,000. Dispute has arisen between Harshad and Dhiman.

 

Harshad Claims:

(i)    He should be given interest @ 10% per annum on capital and loan;

(ii)   Profit should be distributed in proportion of capital;

 

Dhiman Claims:

(i)    Profits should be distributed equally;

(ii)   He should be allowed ₹ 2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad;

(iii)  Interest on Capital and loan should be allowed @ 6% p.a.

 

You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.

 

The solution for this question is as follows:

 

DISTRIBUTION OF PROFITS

 

Harshad Claims:

Decisions

(i) If there is no agreement on interest on partner’s capital, according to Indian partnership act 1932, no interest will be allowed to partners.

(ii) If there is no agreement on the matter of profit sharing, according to partnership act 1932, profit shall be distributed equally.

 

Dhiman Claims:

Decisions

(i) Dhiman claim is justified, according partnership act 1932 if there is no agreement on the matter of profit distribution, profit shall be distributed equally.

(ii) No salary will be allowed to any partner because there is no agreement on matter of remuneration.

(iii) Dhiman’s claim is not justified on the matter of interest on capital but justified on the matter of interest on loan. If there is no agreement on interest on partner’s loan, Interest shall be provided at 6% p.a.

 

Profit and Loss Adjustment Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Interest on Partner’s Loan     Profit and Loss   1,80,000
Harshad 1,00,000 × (6/100) × (6/12) 3,000      
Profit and Loss Appropriation 1,77,000      
    1,80,000     1,80,000
           

 

Profit and Loss Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to     Profit and Loss Adjustment   1,77,000
Harshad’s Capital 88,500      
Sharma’s Capital 88,500      
         
    1,77,000     1,77,000
           

 

4. Aakriti and Bindu entered into partnership for making garment on April 01, 2016 without any Partnership agreement. They introduced Capitals of ₹ 5, 00,000 and ₹ 3, 00,000 respectively on October 01, 2016. Aakriti Advanced. ₹ 20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ended March 2017 showed profit of ₹ 43,000. Partners could not agree upon the question of interest and the basis of division of profit. You are required to divide the profits between them giving reason for your solution.

The solution for this question is as follows:

Profit and Loss Adjustment Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Interest on Partner’s Loan     Profit and Loss   43,000
Aakriti 20,000 × (6/100) × (6/12) 600      
Profit transferred to          
Aakriti’s Capital 21,200        
Bindu’s Capital 21,200 42,400        
  43,000   43,000
       
               

 

Reason

a) Interest on partner’s loan shall be allowed at 6% p.a. because there is no partnership agreement.

b) Interest on capital shall not be allowed because there is no agreement on interest on capital.

c) Profit shall be distributed equally because profit sharing ratio has not been given.

 

 

5. Rakhi and Shikha are partners in a firm, with capitals of ₹ 2, 00,000 and ₹ 3, 00,000 respectively. The profit of the firm, for the year ended 2016-17 is ₹ 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of ₹ 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew ₹ 7,000 and Shikha ₹ 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.

If interest on capital and Partners’ salaries will be provided even if firm involves in loss.

The solution for this question is as follows:

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Partner’s Salaries     Profit and Loss   23,200
Shikha   60,000 Loss transferred to    
        Rakhi Capital 34,720  
Interest on Capital     Shikha’s Capital 52,080 86,800
Rakhi 20,000        
Shikha 30,000 50,000        
  1,10,000   1,10,000
       
                   

  

Partners’ Capital Account
Dr.         Cr.
Particulars Rakhi Shikha Particulars Rakhi Shikha
Drawings 7,000 10,000 Balance b/d 2,00,000 3,00,000
Profit & Loss Appropriation 34,720 52,080 Partner’s Salaries   60,000
Balance c/d 1,78,280 3,27,920 Interest on Capital 20,000 30,000
           
  2,20,000 3,90,000   2,20,000 3,90,000
           

 

If interest on capital and salaries will be provided out of profit

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Partner’s Salaries     Profit and Loss 23,200
Shikha  {23,200 × (6/11)}   12,655    
Interest on Capital        
Rakhi {23,200 × (2/11)} 4,218    
Shikha {23,200 × (3/11)} 6,327        
  23,200   23,200
       
               

 If profit is less than the sum of distributable items, distribution shall be in proportion of items for distribution.

 

Partners Salaries Ratio    
Shikhar (₹ 60,000) 6 23,200 × (6/11) 12,655
Interest on Capital      
Rakhi (₹ 20,000) 2 23,200 × (2/11) 4,218
Shikhar (₹ 30,000) 3 23,200 × (3/11) 6,327
  11   23,200

 

Partners’ Capital Account
Dr.         Cr.
Particulars Rakhi Shikha Particulars Rakhi Shikha
Drawings 7,000 10,000 Balance b/d 2,00,000 3,00,000
      Partner’s Salaries   12,655
Balance c/d 1,97,218 3,08,972 Interest on Capital 4,218 6,327
           
  2,04,218 3,18,972   2,04,218 3,18,972
           

 

 

6. Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of ₹ 50,000 and ₹ 30,000, respectively. Interest on capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of ₹ 2,500 p.a. During 2016, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to ₹ 12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare accounts showing the allocation of profits and partner’s capital accounts.

The solution for this question is as follows:

 

Profit and Loss Adjustment Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Interest on Capital     By Profit and Loss (12,500 + 2,500) 15,000
Lokesh 3,000        
Azad 1,800 4,800      
           
Partner’s Salaries          
Azad   2,500      
             
Provision for

Manager’s Commission 15,000 × (5/100)

750      
Profit transferred to        
Lokesh Capital 4,170        
Azad Capital 2,780 6,950      
    15,000     15,000
           
             

 

Partners’ Capital Account
Dr.         Cr.
Particulars Lokesh Azad Particulars Lokesh Azad
      Balance b/d 50,000 30,000
      Interest on Capital 3,000 1,800
Balance c/d 57,170 37,080 Partner’s Salaries   2,500
      Profit and Appropriation 4,170 2,780
  57,170 37,080   57,170 37,080
           

 

7. The partnership agreement between Maneesh and Girish provides that:

 

(i)    Profits will be shared equally;

(ii)   Maneesh will be allowed a salary of ₹ 400/month;

(iii)  Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;

(iv)  7% interest will be allowed on partner’s fixed capital;

(v)   5% interest will be charged on partner’s annual drawings;

(vi)  The fixed capitals of Maneesh and Girish are ₹ 1, 00,000 and ₹ 80,000, respectively. Their annual drawings were ₹ 16,000 and 14,000, respectively. The net profit for the year ending March 31, 2015 amounted to ₹ 40,000;

 Prepare firm’s Profit and Loss Appropriation Account.

The solution for this question is as follows:

 

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Partner’s Salary     Profit and Loss 40,000
Maneesh   4,800 Interest on Drawings  
        Maneesh 800  
Partner’s commission     Girish 700 1,500
Girish {(40,000 – 4,800) × (10/100)} 3,520      
Interest on Capital        
Mannesh 7,000        
Girish 5,600 12,600      
         
Profit transferred to        
Maneesh’s Current 10,290        
Girish’s Current 10,290 20,580      
  41,500     41,500
         
               

 

8. Ram, Raj and George are partners sharing profits in the ratio 5: 3: 2. According to the partnership agreement George is to get a minimum amount of ₹ 10,000 as his share of profits every year. The net profit for the year 2013 amounted to ₹ 40,000. Prepare the Profit and Loss Appropriation Account.

The solution for this question is as follows:

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to   Profit and Loss 40,000
Ram’s Capital (20,000 – 1,250) 18,750    
Raj’s Capital (12,000 – 750) 11,250    
       
George’s Capital (8,000 + 1,250 + 750) 10,000    
  40,000   40,000
       

 

 

9. Amann, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed a minimum amount of ₹ 10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for two years ending March 31, 2016 and March 31, 2017 were ₹ 40,000 and ₹ 60,000, respectively. Prepare the Profit and Loss Appropriation Account for the two years.

The solution for this question is as follows:

Profit and Loss Appropriation Account for the year ended 31st31st March 2016
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to   Profit and Loss 40,000
Amann’s Capital  16,000 16,000    
Babita’s Capital (16,000 – 2,000) 14,000    
Suresh’s Capital (8,000 + 2,000) 10,000    
       
  40,000   40,000
       

 

Profit and Loss Appropriation Account for the year ended 31st March 2017
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to   Profit and Loss 60,000
Amann’s Capital 24,000    
Babita’s Capital 24,000    
Suresh’s Capital 12,000    
       
  60,000   60,000
       

10. Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio of 3:1. The profit and loss account of the firm for the year ending March 31, 2017 shows a net profit of ₹ 1, 50,000. Prepare the Profit and Loss Appropriation Account by taking into consideration the following information:

 

(i)    Partners capital on April 1, 2016;

        Simmi, ₹ 30,000; Sonu, ₹ 60,000;

(ii)   Current accounts balances on April 1, 2016;

        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)  Partners’ salaries: Simmi ₹ 12,000 and Sonu ₹ 9,000. Also show the partners’ current accounts.

The solution for this question is as follows:

 

 

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Interest on Capital     Profit and Loss Account 1,50,000
Simmi 1,500   Interest on Drawings  
Sonu 3,000 4,500 Simmi 600  
      Sonu 450 1,050
Partners’ Salaries          
Simmi 12,000        
Sonu 9,000 21,000      
           
Profit transferred to        
Simmi’s Current 94,162        
Sonu’s Current 31,388 1,25,550      
           
    1,51,050     1,51,050
           
               

 

Partners’ Capital Account
Dr.         Cr.
Particulars Simmi Sonu Particulars Simmi Sonu
      Balance b/d 30,000 60,000
Balance c/d 30,000 60,000      
           
  30,000 60,000   30,000 60,000
           

 

Partners’ Current Account
Dr.         Cr.
Particulars Simmi Sonu Particulars Simmi Sonu
Drawings 20,000 15,000 Balance b/d 30,000 15,000
Interest on Drawings 600 450 Interest on Capital 1,500 3,000
      Partners’ Salaries 12,000 9,000
Balance c/d 1,17,662 43,388 Profit and Loss Appropriation 94,162 31,388
  1,37,662 58,388   1,37,662 58,388
           

11. Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were ₹ 80,000 and ₹ 60,000 respectively. The firm started business on April 1, 2016. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of ₹ 2,000 and ₹ 3,000, respectively.
The profits for year ended March 31, 2017 before making above appropriations was ₹ 1, 00,300. The drawings of Ramesh and Suresh were ₹ 40,000 and ₹ 50,000, respectively. Interest on drawings amounted to ₹ 2,000 for Ramesh and ₹ 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their capitals are fluctuating.

The solution for this question is as follows:

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Interest on Capital     Profit and Loss   1,00,300
Ramesh 9,600   Interest on Drawings    
Suresh 7,200 16,800 Ramesh 2,000  
        Suresh 2,500 4,500
Partners’ Salaries        
Ramesh 24,000        
Suresh 36,000 60,000      
           
Profit Transferred to          
Ramesh’s Capital {28,000 × (4/7)} 16,000      
Suresh’s Capital {28,000 × (3/7)} 12,000      
    1,04,800     1,04,800
           
               
               

 

Partners’ Capital Account
Dr.         Cr.
Particulars Ramesh Suresh Particulars Ramesh Suresh
Drawings 40,000 50,000 Cash 80,000 60,000
Interest on Drawings 2,000 2,500 Interest on Capital 9,600 7,200
Balance c/d 87,600 62,700 Partners’ Salaries 24,000 36,000
      Profit & Loss Appropriation 16,000 12,000
  1,29,600 1,15,200   1,29,600 1,15,200
           

 

 

Capital Ratio = Ramesh : Suresh
    80,000 : 60,000
    4 : 3

 

12. Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:

 

(i)    Profits would be shared by Sukesh and Vanita in the ratio of 3:2;

(ii)   5% interest is to be allowed on capital;

(iii)  Vanita should be paid a monthly salary of ₹ 600.

The following balances are extracted from the books of the firm, on March 31, 2017.

 

  Sukesh Verma*
 
Capital Accounts 40,000 40,000
Current Accounts (Cr.)   7,200 (Cr.)   2,800
Drawings 10,850 8,150

 

Net profit for the year, before charging interest on capital and after charging partner’s salary was ₹ 9,500. Prepare the Profit and Loss Appropriation Account and the Partner’s Current Accounts.

The solution for this question is as follows:

 

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Interest on Capital     Profit and Loss   9,500
Sukesh 2,000        
Vanita 2,000 4,000        
               
Profit transferred to          
Sukesh’s Current {5,500 × (3/5)} 3,300      
Vanita’s Current {28,000 × (2/5)} 2,200      
    9,500     9,500
           
               

 

Partner’s Capital Account
Dr.         Cr.
Particulars Sukesh Vanita Particulars Sukesh Vanita
      Balance b/d 40,000 40,000
Balance c/d 40,000 40,000      
  40,000 40,000   40,000 40,000
           

 

Partner’s Current Account
Dr.         Cr.
Particulars Sukesh Vanita Particulars Sukesh Vanita
Drawings 10,850 8,150 Balance b/d 7,200 2,800
      Partner’s Salaries   7,200
      Profit and Loss Appropriation 3,300 2,200
Balance c/d 1,650 6,050 Interest on capital 2,000 2,000
  12,500 14,200   12,500 14,200
           

 

 

13. Rahul, Rohit and Karan started partnership business on April 1, 2016 with capitals of ₹ 20, 00,000, ₹ 18, 00,000 and ₹ 16, 00,000, respectively. The profit for the year ended March 2017 amounted to ₹ 1, 35,000 and the partner’s drawings had been Rahul ₹ 50,000, Rohit ₹ 50,000 and Karan ₹ 40,000. The profits are distributed among partners in the ratio of 3:2:1. Calculate the interest on capital @ 5% p.a.

14. Sunflower and Pink Rose started partnership business on April 01, 2016 with capitals of ₹ 2, 50,000 and ₹ 1, 50,000, respectively. On October 01, 2016, they decided that their capitals should be ₹ 2, 00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31, 2017.

The solution for this question is as follows:

Product Method

 

Sunflower

 

01 April 2016 to 30 September 2016 2,50,000 × 6 = 15,00,000
01 October 2016 to 31 March 2017 2,00,000 × 6 = 12,00,000
  Sum of Product 27,00,000

 

Pink Rose

 

01 April 2016 to 30 September 2016 1,50,000 × 6 = 9,00,000
01 October 2016 to 31 March 2017 2,00,000 × 6 = 12,00,000
  Sum of Product 21,00,000

 

Alternative Method:

 

Simple Interest Method

 

Sunflower

April 01, 2016 to September 30, 2016 2,50,000 × 10 × 6 =  

₹ 12,500

 

100 12
 

October 01,  2016 to March 31, 2017

2,00,000 × 10 × 6 =  

₹ 10,000

 

100 12
  Interest on Sunflower’s Capital ₹ 22,500

 

Pink Rose

April 01, 2016 to September 30, 2016 1,50,000 × 10 × 6 =  

₹   7,500

 

100 12
 

October 01,  2016 to March 31, 2017

2,00,000 × 10 × 6 =  

₹ 10,000

 

100 12
  Interest on Pink Rose’s Capital ₹ 17,500

 

15. On March 31, 2017 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at ₹ 4, 00,000, ₹ 3, 00,000 and ₹ 2, 00,000, respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to ₹ 1, 50,000 and the partner’s drawings had been Mountain: ₹ 20,000, Hill ₹ 15,000 and Rock ₹ 10,000. Calculate interest on capital.

The solution for this question is as follows:

Generally interest on Capital is calculated on opening balance of capital. If additional capital is not given.

  Mountain Hill Rock
Closing Capital 4,00,000 3,00,000 2,00,000
Add: Drawings 20,000 15,000 10,000
Less: Profit (1:1:1) (50,000) (50,000) (50,000)
Opening Capital 3,70,000 2,65,000 1,60,000

 

 

Interest on Capital

Mountain 3,70,000 ×10 / 100= ₹ 37,000
Hill 2,65,000 × 10 / 100= ₹ 26,500
Rock 1,60,000 × 10 / 100= ₹ 16,000

 

16. Following is the extract of the Balance Sheet of, Neelkant and Mahdev as on March 31, 2017:

 

Balance Sheet as at March 31, 2017

 

  Amount   Amount
Liabilities Assets
Neelkant’s Capital 10,00,000 Sundry Assets 30,00,000
Mahadev’s Capital 10,00,000    
Neelkant’s Current Account 1,00,000    
Mahadev’s Current Account 1,00,000    
Profit and Loss Apprpriation      
(March 2017) 8,00,000    
  30,00,000   30,00,000
       

During the year Mahadev’s drawings were ₹ 30,000. Profits during 2017 is ₹ 10, 00,000. Calculate interest on capital @ 5% p.a for the year ending March 31, 2017.

 

Interest on Capital

Neelkant’s 10,00,000 × 5 / 100= ₹ 50,000
Mahadev’s 10,00,000 × 5 / 100= ₹ 50,000

 

 

17. Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31, 2018.

 

May 01, 2017 ₹ 12,000
July 31, 2017 ₹   6,000
September 30, 2017 ₹   9,000
November 30, 2017  ₹ 12,000
January 01, 2018 ₹   8,000
March 31, 2018 ₹   7,000

 

Interest on drawings is charged @ 9% p.a. Calculate interest on drawings.

Interest is calculated as follows:

Product Method

  Drawings × Period Product
01 May, 2017 to 31 March 2018 12,000 × 11 = 1,32,000
31 July, 2017 to 31 March 2018 6,000 × 8 = 48,000
30 September, 2017 to 31 March 2018 9,000 × 6 = 54,000
30 Nov. 2017 to 31 March 2018 12,000 × 4 = 48,000
01 Jan. 2018 to 31 March 2018 8,000 × 3 = 24,000
31 March 2018 to 31 March 2018 7,000 × 0 = 0
  Sum of Product 3,06,000

18. The capital accounts of Moli and Golu showed balances of ₹ 40,000 and ₹ 20,000 as on April 01, 2016. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of ₹ 10,000 to the firm on August 01, 2016. During the year, Moli withdrew ₹ 1,000 per month at the beginning of every month whereas Golu withdrew ₹ 1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was ₹ 20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.

The solution for this question is as follows:

Profit and Loss Adjustment Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Interest on Capital     Profit and Loss Account   20,950
Moli 4,000   Interest on Drawings    
Golu 2,000 6,000 Moli 780  
      Golu 660 1,440
Interest on Partner’s Loan          
Golu’s {10,000 × (6/100) × (8/12)} 400      
           
Profit transferred to        
Moli’s Capital {15,990 × (3/5)} 9,594        
Golu’s Capital {15,990 × (2/5)} 6,396 15,990      
           
    22,390     22,390
           
                 

 

Partners’ Capital Account
Dr.         Cr.
Particulars Moli Golu Particulars Moli Golu
Drawings 12,000 12,000 Balance b/d 40,000 20,000
Interest on Drawing 780 660 Interest on Capital 4,000 2,000
Balance c/d 40,814 15,736 Profit and Loss Adjustment 9,544 6,396
           
           
  53,594 28,396   53,594 28,396
           

 

 

19. Rakesh and Roshan are partners, sharing profits in the ratio of 3:2 with capitals of ₹ 40,000 and ₹ 30,000, respectively. They withdrew from the firm the following amounts, for their personal use:

 

Rakesh Month
  May 31, 2016 600
  June 30, 2016  500
  August 31, 2016 1,000
  November 1, 2016 400
  December 31, 2016 1,500
  January 31, 2017  300
  March 01, 2017  700
Rohan At the beginning of each month  400

 

Interest is to be charged @ 6% p.a. Calculate interest on drawings, assuming that book of accounts are closed on March 31, 2017, every year.

The solution for this question is as follows:

 

Rakesh’s Interest on Drawings

  Drawings × Period Product
31 May 2016 to 31 March 2017 600 × 10 = 6,000
30 June 2016 to 31 March 2017 500 ×   9 = 4,500
31 August 2016 to 31 March 2017 1,000 ×   7 = 7,000
1 November 2016 to 31 March 2017 400 ×   5 = 2,000
31 December 2016 to 31 March 2017 1,500 ×   3 = 4,500
31 January 2017 to 31 March 2017 300 ×   2 = 6,00
01 March 2017 to 31 March 2017 700 ×   1 = 700
  Sum of Product 25,300

 

 

20. Himanshu withdrew ₹ 2,500 at the end Month of each month. The Partnership deed provides for charging the interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending 31st December, 2017.

The solution for this question is as follows:

21. Bharam is a partner in a firm. He withdraws ₹ 3,000 at the starting of each month for 12 months. The books of the firm closes on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.

The solution for this question is as follows:

22. Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2017 were ₹ 2, 50,000 and ₹ 1, 50,000, respectively. They share profits equally. On July 01, 2017, they decided that their capitals should be ₹ 1, 00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash by the partners’. Interest on capital is allowed @ 8% p.a. Compute interest on capital for both the partners for the year ending on March 31, 2018.

The solution for this question is as follows:

Interest on Capital

Raj

  Capital × Period Product
1 April 2017 to 30 June 2017 2,50,000 × 3 = 7,50,000
1 July 2017 to 31 March 2018 1,00,000 × 9 = 9,00,000
  Sum of Product 16,50,000

 

 

Neeraj

 

  Capital × Period Product
1 April 2017 to 30 June 2017 1,50,000 × 3 = 4,50,000
1 July 2017 to 31 March 2018 1,00,000 × 9 = 9,00,000
  Sum of Product 13,50,000

 

 

23. Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2017 were ₹ 24,000 and ₹ 16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.

The solution for this question is as follows:

24. Harish is a partner in a firm. He withdrew the following amounts during the year 2017:

 

 
February 01 4,000
May 01 10,000
June 30 4,000
October 31 12,000
December 31  4,000

 

Interest on drawings is to be charged @ 7.5 % p.a.

Calculate the amount of interest to be charged on Harish’s drawings for the year ending December 31, 2017.

The solution for this question is as follows:

 

Calculation of interest on Harish’s drawings

  Drawings × Period Product
01 Feb. 17 to 31 Dec. 17 4,000 × 11 = 44,000
01 May 17 to 31 Dec. 17 10,000 ×   8 = 80,000
30 June 17 to 31 Dec. 17 4,000 ×   6 = 24,000
31 Oct. 17 to 31 Dec. 17 12,000×   2 = 24,000
31 Dec. 17 to 31 Dec. 17 4,000 ×   0 = 0
  Sum of Product 1,72,000

 

 

25. Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are ₹ 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn: (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of every month.

The solution for this question is as follows:

26. On March 31, 2017, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of ₹ 24,000 ₹ 18,000 and ₹ 12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2017, amounted to ₹ 36,000 and the partner’s drawings had been Ram, ₹ 3,600; Shyam, ₹ 4,500 and Mohan, ₹ 2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1. Calculate interest on capital.

The solution for this question is as follows:

  Ram Shyam Mohan
Capital on March 31 24,000 18,000 12,000
Add: Drawings 3,600 4,500 2,700
Less: Profit (3:2:1) (18,000) (12,000) (6,000)
Capital April 01, 2012 9,600 10,500 8,700

 

27. Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’ share in profit has been guaranteed by Amit and Sumit to be a minimum sum of ₹ 8,000. Profits for the year ended March 31, 2017 was ₹ 36,000. Divide profit among the partners.

The solution for this question is as follows:

Guarantee of Profit to the partners

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to     Profit and Loss 36,000
Amit’s Capital 18,000      
Less: Gurantee to Samiksha

{2,000 × (3/5)}

(1,200) 16,800    
         
Sumit’s Capital 12,000      
Less: Gurantee to Samiksha

{2,000 × (2/5)}

(800) 11,200    
         
Samiksha Capital 6,000      
Add: Amit’s Guarantee 1,200      
Add: Sumit’s Guarantee 800 8,000    
           
  36,000   36,000
       
               

 

28. Pinki, Deepati and Kaku are partner’s sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than ₹ 5,000. Deficiency, if any, would be borne by Pinki and Deepti equally. Profits for the year amounted to ₹ 40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.

The solution for this question is as follows:

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to     Profit & Loss   40,000
Pinki’s Capital 20,000        
Less: Gurantee to Kaku

{1,000 × (1/2)}

(500) 19,500        
             
Deepti’s Capital 16,000        
Less: Guarantee to Kaku

{1,000 × (1/2)}

(500) 15,500      
           
Kaku’s Capital 4,000        
Add: Deficiency received from          
Pinki 500        
Deepti 500 5,000      
             
    40,000     40,000
           

 

 

29. Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed a minimum amount of ₹ 10,000 as per share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2016 and 2017 are ₹ 40,000 and 60,000 respectively. Prepare Profit and Loss Appropriation Account.

The solution for this question is as follows:

 

Profit and Loss Appropriation Account as on March 31, 2016
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to     Profit and Loss   40,000
Abhay’s Capital   20,000      
             
Siddharth’s Capital 12,000        
Less: Guarantee to Kusum’s (2,000) 10,000      
           
Kusum’s Capital 8,000        
Add: Deficiency received from Siddharth 2,000 10,000      
             
             
           
    40,000     40,000
           
                       
                         

 

Profit and Loss Appropriation Account as on March 31, 2017
Dr.       Cr.
Particulars Amount

Particulars Amount

Profit transferred to   Profit and Loss 60,000
Abhay’s Capital 30,000    
Siddharth’s Capital 18,000    
Kusum’s Capital 12,000    
       
  60,000   60,000
       
           

 

30. Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share of profit, in any year will not be less than ₹ 5,000. The profits for the year ending March 31, 2017 amounts to ₹ 35,000. Shortfall if any, in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2. Record necessary journal entry to show distribution of profit among partner.

The solution for this question is as follows:

Profit and Loss Appropriation Account  
Dr.         Cr.  
Particulars Amount

Particulars Amount

Profit transferred to     Profit and Loss   35,000
Radha’s Capital 17,500        
Less: Fatima’s Deficiency {1,500 × (3/5)} (900) 16,600        
             
Mary’s Capital 14,000        
Less: Fatima’s Deficiency {1,500 × (2/5)} (600) 13,400      
           
Fatima’s Capital 3,500        
Add: Deficiency born by          
Radha 900        
Mary 600 5,000      
             
    35,000     35,000
           
                       

 

Journal

 

Date Particulars L.F. Debit

Amount

Credit

Amount

           
  Profit and Loss Appropriation A/c Dr.   35,000  
  To Radha’s Capital A/c       16,600
  To Mary’s Capital A/c       13,400
  To Fatima’s Capital A/c       5,000
  (Profit distributed among Partners)        
           

 

Alternative Method

Journal

 

Date Particulars L.F. Debit

Amount

Credit

Amount

  Profit and Loss Appropriation A/c Dr.   35,000  
  To Radha’s Capital A/c       17,500
  To Mary’s Capital A/c       14,000
  To Fatima’s Capital A/c       3,500
  (Profit distributed among Partners)        
           
  Radha’s Capital A/c Dr.   900  
  Mary’s Capital A/c Dr.   600  
  To Fatima’s Capital A/c       1,500
  (Deficiency of Fatima’s Share taken from Radha and

Mary)

     
           

 

 31. X, Y and Z are in Partnership, sharing profits and losses in the ratio of 3: 2: 1, respectively. Z’s share in the profit is guaranteed by X and Y to be a minimum of ₹ 8,000. The net profit for the year ended March 31, 2017 was ₹ 30,000. Prepare Profit and Loss Appropriation Account, indicating the amount finally due to each partner.

The solution for this question is as follows:

Profit and Loss Appropriation Account as on March 31, 2017  
Dr.         Cr.  
Particulars Amount

Particulars Amount

Profit transferred to     Profit and Loss   30,000
X’s Capital 15,000        
Less: Z’s Deficiency {3,000 × (3/5)} (1,800) 13,200        
             
Y’s Capital 10,000        
Less: Z’s Deficiency {3,000 × (2/5)} (1,200) 8,800      
           
Z’s Capital 5,000        
Add: Share of Deficiency born by          
Radha 1,800        
Mary 1,200 8,000      
             
    30,000     30,000
           
                       

 

 

32. Arun, Boby and Chintu are partners in a firm sharing profit in the ratio or 2:2:1. According to the terms of the partnership agreement, Chintu has to get a minimum of ₹ 60,000, irrespective of the profits of the firm. Any Deficiency to Chintu on Account of such guarantee shall be borne by Arun. Prepare the profit and loss appropriation account showing distribution of profits among partners in case the profits for year 2015 are: (i) ₹ 2,50,000; (ii) 3,60,000.

The solution for this question is as follows:

 

(i)

 

Profit and Loss Appropriation Account as on March 31, 2015
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to     Profit and Loss   2,50,000
Arun’s Capital 1,00,000        
Less: Chintu’s share of deficiency (10,000) 90,000        
             
Bobby’s Capital   1,00,000      
           
Chintu’s Capital 50,000        
Add: Deficiency received from Arun 10,000 60,000      
             
    2,50,000     2,50,000
           
                         
                         

 

(ii)

 

Profit and Loss Appropriation Account as on March 31, 2015
Dr.     Cr.
Particulars Amount

Particulars Amount

Profit transferred to   Profit and Loss 3,60,000
Arun’s Capital {3,60,000 × (2/5)} 1,44,000    
Bobby’s Capital {3,60,000 × (2/5)} 1,44,000    
Chintu’s Capital {3,60,000 × (1/5)} 72,000    
    3,60,000   3,60,000
         
             
             

 

 

33. Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2: 2: 1. Ashok and Brijesh have guaranteed that Cheena share in any year shall be less than ₹ 20,000. The net profit for the year ended March 31, 2017 amounted to ₹ 70,000. Prepare Profit and Loss Appropriation Account.

The solution for this question is as follows:

 

Profit and Loss Appropriation Account as on March 31, 2017
Dr.         Cr.
Particulars Amount

Particulars Amount

Profit transferred to     Profit and Loss 70,000
Ashok’s Capital 28,000      
Less: Cheena’s share of deficiency {6,000 × (1/2)} (3,000) 25,000    
         
Brijesh’s Capital 28,000      
Less: Cheena’s share of deficiency {6,000 × (1/2)} (3,000) 25,000    
         
Cheena’s Capital 14,000      
Add: Deficiency received from        
Ashok 3,000      
Brijesh 3,000 20,000    
       
  70,000   70,000
       
                       
                         

 

 

34. Ram, Mohan and Sohan are partners with capitals of ₹ 5, 00,000, ₹ 2, 50,000 and 2, 00,000 respectively. After providing interest on capital @ 10% p.a. the profits are divisible as follows:

Ram 1/2, Mohan 1/3 Sohan 1/6. But Ram and Mohan have guaranteed that Sohan’s share in the profit shall not be less than ₹ 25,000, in any year. The net profit for the year ended March 31, 2017 is ₹ 2, 00,000, before charging interest on capital. You are required to show distribution of profit.

The solution for this question is as follows:

 

Profit and Loss Appropriation A/c as on 31 March 2017  
Dr.       Cr.  
Particulars   Amount

Particulars Amount

Interest on Capital     Profit and Loss 2,00,000
Ram 50,000      
Mohan 25,000      
Sohan 20,000 95,000    
         
Profit Transferred to        
Ram’s Capital 52,500      
Less: Share of deficiency {7,500 × (3/5)} (4,500) 48,000    
         
Mohan’s Capital 35,000      
Less: Share of deficiency {7,500 × (2/5)} (3,000) 32,000    
         
Sohan’s Capital 17,500      
Add: Deficiency received from        
Ram 4,500      
Mohan 3,000 25,000    
           
    2,00,000   2,00,000
         
               

 

 

35. Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3 : 2 : 1, subject to the following :

(i) Sona’s share in the profits, guaranteed to be not less than ₹ 15,000 in any year.
(ii) Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is ₹ 25,000). The net profit for the year ended March 31, 2017 is ₹ 75,000. The gross fee earned by Babita for the firm was ₹ 16,000.

You are required to show Profit and Loss Appropriation Account (after giving effect to the alone).

The solution for this question is as follows:

 

 

Profit and Loss Appropriation Account as on March 31, 2017  
Dr.       Cr.  
Particulars   Amount

Particulars Amount

 
Profit Transferred to     Profit and Loss 75,000  
Amit’s Capital {84,000 × (3/6)} 42,000   Babita’s Capital 9,000  
Less: Sona’s share of deficiency {1,000 × (3/5)} (600) 41,400 (Deficiency  of Fees 25,000 – 16,000)    
           
Babita’s Capital {84,000 × (2/6)} 28,000        
Less: Sona’s share of deficiency {1,000 × (2/5)} (400) 27,600      
           
Sona’s Capital {84,000 × (1/6)} 14,000        
Add: Deficiency received from          
Amit 600        
Babita 400 15,000      
             
    84,000   84,000  
           
               

 

 

36. The net profit of X, Y and Z for the year ended March 31, 2016 was ₹ 60,000 and the same was distributed among them in their agreed ratio of 3: 1: 1. It was subsequently discovered that the under mentioned transactions were not recorded in the books:

(i) Interest on Capital @ 5% p.a.
(ii) Interest on drawings amounting to X ₹ 700, Y ₹ 500 and Z ₹ 300.
(iii) Partner’s Salary : X ₹ 1000, Y ₹ 1500 p.a.

The capital accounts of partners were fixed as: X ₹ 1, 00,000, Y ₹ 80,000 and Z ₹ 60,000. Record the adjustment entry.

The solution for this question is as follows:

Past Adjustment

  X Y Z   Total
Interest on Capital 5,000 4,000 3,000 = 12,000
Less: Interest on Drawings (700) (500) (300) = (1,500)
Add: Partner’s Salaries 1,000 1,500 NIL = 2,500
Right distribution of ₹ 13,000 5,300 5,000 2,700 = 13,000
Less: Wrong distribution of ₹ 13,000 (3:1:1) (7,800) (2,600) (2,600) = (13,000)
  (2,500) Dr. 2,400 Cr 100 Cr = NIL

 

Explanation:

Capital have credit balance if it deducted will be debited and if it is added it will be credited.

Here X wrongly taken excess ₹ 2,500 hence ₹ 2,500 will be deducted from X capital Account on the other hand Y and Z taken less amount as they should have been taken, hence capital account of Y and Z will be added.

 

Date Particulars   L.F Debit Amount ₹ Credit Amount ₹
  X’s Capital A/c Dr.   2,500  
    To Y’s Capital A/c       2,400
    To Z’s Capital A/c       100
  (Profit adjusted among partners)        
           

 

 

37. The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2: 2: 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this account. The profits for the last three years were:

 

 
2014-15 22,000
2015-16 24,000
2016-17 29,000

 

Show adjustment of profits by means of a single adjustment journal entry.

The solution for this question is as follows:

 

Distribution of Profit

 

Old Ratio (2:2:1) Harry Porter Ali   Total
Year          
2014 – 15 (8,800) (8,800) (4,400) = (22,000)
2015 – 16 (9,600) (9,600) (4,800) = (24,000)
2016 – 17 (11,600) (11,600) (5,800) = (29,000)
        =  
Total Profit of 3 years in old ratio (30,000) (30,000) (15,000) = (75,000)
Distribution of 3 years profit in new Ratio (1:1:1) 25,000 25,000 25,000 = 75,000
Adjusted Profit (5,000) (5,000) 10,000   NIL

 

Journal (Adjusting entry)

 

Date  

Particulars

 

L.F Debit Amount ₹ Credit Amount ₹
           
  Harry’s Capital A/c Dr.   5,000  
  Porter’s Capital A/c Dr.   5,000  
  To Ali’s Capital A/c       10,000
  (Profit adjusted due to change in profit sharing ratio)      
         

 

 

38. Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3: 2. Following is the balance sheet of the firm as on March 31, 2017.

    Amount     Amount
Liabilities Assets
Mannu’s Capital 30,000   Drawings :    
Shristhi’s Capital 10,000 40,000 Mannu 4,000  
      Shristhi 2,000 6,000
      Other Assets 34,000
    40,000     40,000
           

 

Profit for the year ended March 31, 2017 was ₹ 5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was inadvertently enquired. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.

The solution for this question is as follows:

 

Adjustment of Profit

 

  Mannu’s Shrishti   Total
Interest on Capital 1,500 500 = 2,000
Less: Interest on Drawings (120) (60) = (180)
Right distribution of ₹ 1,820 1,380 440 = 1,820
Less: Wrong distribution of ₹ 1,820 (3 : 2) (1,092) (728) = (1,820)
Adjusted Profit 288 (288) = NIL

 

Adjusting Journal Entry

 

Date  

Particulars

 

L.F Debit Amount 

Credit Amount 

  Shrishti’s Capital A/c Dr.   288  
  To Mannu’s Capital A/c       288
  (Adjustment of profit made)        
           

 

39. On March 31, 2017 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for profits, drawing, etc; were ₹ 80,000, ₹ 60,000 and ₹ 40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin ₹ 20,000; Monu, ₹ 15,000 and Ahmed, ₹ 9,000. Interest on drawings chargeable to partners were Eluin ₹ 500, Monu ₹ 360 and Ahmed ₹ 200. The net profit during the year amounted to ₹ 1, 20,000. The profit sharing ratio was 3: 2: 1. Pass necessary adjustment entries.

The solution for this question is as follows:

In this question interest on capital shall be calculated on opening capital

 

  Eluin Monu Ahmed
Capital  on 31 Mar. 2017 (Closing Capital) 80,000 60,000 40,000
Add: Drawings 20,000 15,000 9,000
Less: Profit ₹ 120,000 (3:2:1) (60,000) (40,000) (20,000)
Capital on April 01, 2016 (Opening Capital) 40,000 35,000 29,000

 

Adjustment of Profit

 

  Eluin Monu Ahmed   Total
Interest on Capital (on Opening Capital) 2,000 1,750 1,450 = 5,200
Less: Interest on Drawings (500) (360) (200) = (1,060)
Right distribution of ₹ 4,140 1,500 1,390 1,250 = 4,140
Less: Wrong distribution of ₹ 4,140 (in the ratio 3:2:1) (2,070) (1,380) (690) = (4,140)
  (570) 10 560 = NIL

 

Adjusting Journal Entry

 

Date  

Particulars

 

L.F. Debit Amount

Credit Amount ₹
           
  Eluin’s Capital A/c Dr.   570  
  To Monu’s Capital A/c       10
  To Ahmed’s Capital A/c       560
  (Adjustment of Profit made)        
           

 

40. Azad and Benny are equal partners. Their capitals are ₹ 40,000 and ₹ 80,000, respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.

 

The solution for this question is as follows:

Adjustment of Profit

  Azad Benny Total
Interest on Capital 2,000 4,000 = 6,000
Less: Wrong distribution of Profit ₹ 6,000 (1: 1) (3,000) (3,000) = (6,000)
Adjusted Profit (1,000) (1,000) = NIL

  

Adjusting Journal Entry

 

Date  

Particulars

 

L.F Debit Amount

Credit Amount

           
  Azad’s Current  A/c Dr.   1,000  
  To Benny’s Current A/c       1,000
  (Adjustment of profit made)        
           

 

 

 

41. Kavita and Pradeep are partners, sharing profits in the ratio of 3: 2. They employed Chandan as their manager, to whom they paid a salary of ₹ 750 p.m. Chandan deposited ₹ 20,000 on which interest is payable @ 9% p.a. At the end of 2017 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan. 1, 2014 with 1/6 th share in profits. His deposit being considered as capital carrying interest @ 6% p.a. like capital of other partners. Firm’s profits after allowing interest on capital were as follows:

 

   
2014 Profit 59,000
2015 Profit 62,000
2016 Loss (4,000)
2017 Profit 78,000

 

Record the necessary journal entries to give effect to the above.

The solution for this question is as follows:

 

      Interest on

Loan

+ Salary = Total
2014 59,000 + 1,800 + 9,000 = 69,800
2015 62,000 + 1,800 + 9,000 = 72,800
2016 (4,000) + 1,800 + 9,000 = 6,800
2017 78,000 + 1,800 + 9,000 = 88,800
  1,95,000 + 7,200 + 36,000 = 2,38,200

 

 

Chandan received as Manager = Interest on Loan + Salary = 7,200 + 36,000 = ₹ 43,200

 

Total Profit of 4 years before interest on Chandan’s Loan and Salary = 2, 38,200

Interest on Chandan’s Capital for 4 years = {20,000 × (6/100) = 1,200}

= 1,200 × 4 = ₹ 4,800

 

Profit after interest on all partners’ Capital

= Total Profit of four years before interest on Chandan’s loan and Salary – Interest on Chandan’s Capital for four years

= 2, 38,200 – 4,800

= ₹ 2, 33,400

 

Wrong Distribution – Distribution of 4 years

 

Profit when Chandan as a Manager

  Kavita {1,95,000 × (3/5)} = 1,17,000
  Pradeep {1,95,000 × (2/5)} = 78,000
Chandan received as manager = Interest on Loan + Salary
  = 7,200 + 36,000 = 43,200
      2,38,200
         

 

Right Distribution – Division of Profit when Chandan as Partner

 

Chandan Share of Profit {2,33,400 × (1/6)} 38,900
Interest on Capital 4,800
  43,700

 

Kavita’s Share of Profit {(2,33,400 – 38,900) ×(3/5)} = 1,16,700
Pradeep’s share of Profit {(2,33,400 – 38,900) × (2/5)} = 77,800

 

 

Adjustment of Profit

  Kavita   Pradeep   Chandan = Total
Distribution of profit when Chandan as partner 1,16,700   77,800   43,700 = 2,38,200
Less: Distribution of profit when Chandan as manager (1,17,000)   (78,000)   (43,200) = (2,38,200)
Right distribution of ₹ 4,140 (300)   (200)   (500) = NIL

 

 

Date  

Particulars

 

L.F. Debit Amount ₹ Credit Amount ₹
  Kavita’s Capital A/c Dr.   300  
  Pradeep’s Capital A/c Dr.   200  
  To Chandan’s Capital A/c       500
  (Adjustment of profit made)        
           

 

 

42. Mohan, Vijay and Anil are partners, the balance on their capital accounts being ₹ 30,000, ₹ 25,000 and ₹ 20,000 respectively. In arriving at these figures, the profits for the year ended March 31, 2017 amounting to Rupees 24,000 had been credited to partners in the proportion in which they shared profits. During the tear their drawings for Mohan, Vijay and Anil were ₹ 5,000, ₹ 4,000 and ₹ 3,000, respectively. Subsequently, the following omissions were noticed:

(a) Interest on Capital, at the rate of 10% p.a., was not charged.
(b) Interest on Drawings: Mohan ₹ 250, Vijay ₹ 200, Anil ₹ 150 was not recorded in the books.

Record necessary corrections through journal entries.

 

Interest on Capital shall be calculated on opening capital.

The solution for this question is as follows:

 

  Mohan Vijay Anil
Closing Capital 30,000 25,000 20,000
Add: Drawings 5,000 4,000 3,000
Less: Profit (1:1:1) (8,000) (8,000) (8,000)
Opening Capital 27,000 21,000 15,000

 

Interest on Capital

 

Mohan = 27,000 × 10  = ₹ 2,700
100

 

Vijay = 21,000 × 10  = ₹ 2,100
100

 

Anil = 15,000 × 10  = ₹ 1,500
100

 

Adjustment of Profit

 

  Mohan Vijay Anil   Total
Interest on Capital (on Opening Capital) 2,700 2,100 1,500   6,300
Interest on Drawings (250) (200) (150)   (600)
  2,450 1,900 1,350   5,700
Wrong distribution (1,900) (1,900) (1,900) = (5,700)
  550 NIL (550)    

 

Adjusting Journal Entry

 

Date  

Particulars

 

L.F Debit Amount

Credit Amount

           
  Anil’s Capital A/c Dr.   550  
  To Vijay’s Capital A/c       550
  (Adjustment of profit made)        
           

 

 

 

43. Anju, Manju and Mamta are partners whose fixed capitals were ₹ 10,000, ₹ 8,000 and ₹ 6,000, respectively. As per the partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the same have not been made for the last three years. The profit sharing ratio during there years remained as follows:

 

Year Anju Manju Mamta
2014 4 3 5
2015 3 2 1
2016 1 1 1

 

Make necessary and adjustment entry at the beginning of the fourth year i.e. Jan. 2017.

 

The solution for this question is as follows:

Interest on Capital

    Anuj = 10,000 × 5  = ₹ 500
100

 

Manju = 8,000 × 5  = ₹ 400
100

 

Mamta = 6,000 × 5  = ₹ 30
100

Adjustment of profit

Year 2014

  Anuj   Manju   Mamta = Total
Interest on Capital 500   400   300   1,200
Wrong distribution of ₹ 1,200 (4:3:5) (400)   (300)   (500) = (1,200)
  100   100   (200)   NIL

 

Year 2015

  Anuj   Manju   Mamta = Total
Interest on Capital 500   400   300   1,200
Wrong distribution of ₹ 1,200 (3:2:1) (600)   (400)   (200) = (1,200)
  (100)   NIL   100   NIL

Year 2016

  Anuj   Manju   Mamta = Total
Interest on Capital 500   400   300   1,200
Wrong distribution of ₹ 1,200 (1:1:1) (400)   (400)   (400) = (1,200)
  100   NIL   (100)   NIL

Final Adjustment

  Anuj   Manju   Mamta
2014 100   100   (200)
2015 (100)   NIL   100
2016 100   NIL   (100)
  100   100   (200)

Adjusting Journal Entry

Date  

Particulars

 

L.F Debit Amount

Credit Amount

Jan. 2017          
  Mamta’s Capital A/c Dr.   200  
  To Anuj’s Capital A/c       100
  To Manju Capital A/c       100
  (Adjustment of profit made)        
           

 

44. Dinker and Ravinder were partners sharing profits and losses in the ratio of 2:1. The following balances were extracted from the books of account, for the year ended December 31, 2017.

 

Account Name Debit

Amount

Credit

Amount

Capital    
Dinker   2,35,000
Ravinder   1,63,000
Drawings    
Dinker  6,000  
Ravinder  5,000  
Opening Stock 35,100  
Purchases and Sales 2,85,000 3,75,800
Carriage inward 2,200  
Returns 3,000 2,200
Stationery 1,200  
Wages 12,500  
Bills receivables and Bills payables 45,000 32,000
Discount 900 400
Salaries 12,000  
Rent and Taxes 18,000  
Insurance premium 2,400  
Postage 300  
Sundry expenses 1,100  
Commission   3,200
Debtors and creditors 95,000 40,000
Building 1,20,000  
Plant and machinery 80,000  
Investments 1,00,000  
Furniture and Fixture 26,000  
Bad Debts  2,000  
Bad debts provision    4,600
Loan   35,000
Legal Expenses 200  
Audit fee 1,800  
Cash in Hand 13,500  
Cash at Bank 23,000  
  8,91,200 8,91,200
     

 

Prepare final accounts for the year ended December 31, 2017, with following adjustment:

 

(a)  Stock on December 31, 2017, was ₹ 42,500.

(b)  A Provision is to be made for bad debts at 5% on debtors

(c)  Rent outstanding was ₹ 1,600.

(d) Wages outstanding were ₹ 1,200.

(e)  Interest on capital to be allowed on capital @ 4% per annum and interest on drawings to be charged @ 6% per annum.

(f)  Dinker and Ravinder are entitled to a Salary of ₹ 2,000 per annum

(g)  Ravinder is entitled to a commission ₹ 1,500.

(h)  Depreciation is to be charged on Building @ 4%, Plant and Machinery, 6%, and furniture and fixture, 5%.

(i)   Outstanding interest on loan amounted to ₹ 350.

 

 

The solution for this question is as follows:

Financial Statement as on December 31, 2017

Trading Account

 
Dr.         Cr.  
Particulars Amount

Particulars Amount

 
Opening Stock   35,100 Sales 3,75,800    
Purchases   2,85,000   Less: Sales Return (3,000) 3,72,800  
Less: Purchases Return (2,200) 2,82,800      
        Closing Stock 42,500  
Carriage Inwards   2,200          
Wages 12,500          
Add: Outstanding 1,200 13,700        
               
Gross Profit   81,500        
             
    4,15,300     4,15,300  
             
                       

 

Profit and Loss Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Stationery   1,200 Gross Profit   81,500
Discount Allowed   900 Discount Received   400
Salaries   12,000 Commission   3,200
Rent & Taxes 18,000        
Add: Outstanding 1,600 19,600        
             
Insurance Premium   2,400        
Postage   300        
Sundry Expenses   1,100        
Depreciation on          
Building   4,800      
Plant and Machinery     4,800      
Fixtures and Fittings   1,300      
             
Provision for Bad Debts 4750        
Add: Bad Debt 2,000        
    6,750        
Less: (Old) Provision for Bad Debt (4,600) 2,150      
           
Legal Expenses   200      
Audit Fee   1,800      
Outstanding Interest on Loan 350      
Profit and Loss Appropriation   32,200      
           
    85,100     85,100
           
           
                   

 

Profit and Loss Appropriation Account
Dr.         Cr.
Particulars Amount

Particulars Amount

Interest on Capital     Net Profit   32,200
Dinker 9,400   Interest on Drawings  
Ravinder 6,520 15,920 Dinker 180  
      Ravinder 150 330
Partner’s Salaries          
Dinker 2,000        
Ravinder 2,000 4,000      
             
Commission (Ravinder)   1,500      
Profit transferred to          
Dinker’s Capital 7,407        
Ravinder’s Capital 3,703 11,110      
           
    32,530     32,530
           
               

 

Partners’ Capital Account
Dr.         Cr.
Particulars Dinker Ravinder Particulars Dinker Ravinder
Drawings 6,000 5,000 Balance b/d 2,35,000 1,63,000
Interest on Drawings 180 150 Interest on Capital 9,400 6,520
Balance c/d 2,47,627 1,71,573 Partner’s Salaries 2,000 2,000
      Profit & Loss Appropriation 7,407 3,703
      Commission   1,500
  2,53,807 1,75,223   2,53,807 1,75,223
           
             

 

Balance Sheet
Liabilities Amount 

Assets Amount 

Bills Payable 32,000 Bills Receivables 45,000
Creditors 40,000 Debtors 95,000  
Loan 35,000   Less: 5% Provision for Bad Debts (4,750) 90,250
Add: Outstanding Interest 350 35,350    
    Building 1,20,000  
Rent Outstanding 1,600 Less: 4% Depreciation (4,800) 1,15,200
Wages outstanding 1,200    
Capital:   Plant and Machinery 80,000  
Dinker 2,47,627   Less: 6% Depreciation (4,800) 75,200
Ravinder 1,71,573 4,19,200    
    Investments 1,00,000
    Furniture and Fixtures 26,000  
    Less: 5% Depreciation (1,300) 24,700
      Cash in Hand 13,500
    Cash at Bank 23,000
    Closing Stock 42,500
  5,29,350   5,29,350
       
               

 

45. Kajol and Sunny were partners sharing profits and losses in the ratio of 3:2. The following Balances were extracted from the books of account for the year ended March 31, 2015.

 

Account Name Debit Amount ₹ Credit Amount ₹
Capital    
Kajol   1,15,000
Sunny   91,000
Current accounts [on 1-04-2005*]    
Kajol   4,500
Sunny 3,200  
Drawings    
Kajol 6,000  
Sunny 3,000  
Opening stock 22,700  
Purchases and Sales 1,65,000 2,35,800
Freight inward 1,200  
Returns  2,000 3,200
Printing and Stationery  900  
Wages  5,500  
Bills receivables and Bills payables 25,000 21,000
Discount  400  800
Salaries 6,000  
Rent 7,200  
Insurance premium 2,000  
Traveling expenses 700  
Sundry expenses  1,100  
Commission   1,600
Debtors and Creditors 74,000 78,000
Building 85,000  
Plant and Machinery 70,000  
Motor car 60,000  
Furniture and Fixtures 15,000  
Bad debts 1,500  
Provision for doubtful debts   2,200
Loan   25,000
Legal expenses 300  
Audit fee 900  
Cash in hand 7,500  
Cash at bank  12,000  
  5,78,100 5,78,100
     

 

Prepare final accounts for the year ended March 31, 2015, with following adjustments:

(a)   Stock on March 31, 2015 was ₹37, 500.

(b)   Bad debts ₹3, 000; Provision for bad debts is to be made at 5% on debtors

(c)   Rent Prepaid were ₹1, 200.

(d)   Wages outstanding were ₹ 2,200.

(e)   Interest on capital to be allowed on capital at 6% per annum and interest on drawings to be charged @ 5% per annum.

(f)    Kajol is entitled to a Salary of ₹ 1,500 per annum.

(g)   Prepaid insurance was ₹ 500.

(h)   Depreciation was charged on Building, @ 4%; Plant and Machinery, @ 5%; Motor car, @ 10% and furniture and fixture, @ 5%.

(i)    Goods worth ₹ 7,000 were destroyed by fire on January 20, 2015. The Insurance company agreed to pay ₹ 5,000 in full settlement of the claim.


*As per the question, this year should be 01-04-2014

The solution for this question is as follows:

 

 

Financial Statement as on March 31, 2015

Trading Account

 
Dr.         Cr.  
Particulars Amount

Particulars Amount

 
Opening Stock   22,700 Sales 2,35,800    
Purchases   1,65,000   Less: Sales Return (2,000) 2,33,800  
Less: Purchases Return (3,200)        
Less: Goods Lost by Fire (7,000) 1,54,800 Closing Stock 37,500  
               
Freight Inward   1,200        
Wages 5,500          
Add: Outstanding 2,200 7,700        
               
Gross Profit   84,900        
             
    2,71,300     2,71,300  
             
                     

 

 

 

Profit and Loss Account  
Dr.         Cr.  
Particulars Amount

Particulars Amount

 
Printing and Stationery   900 Gross Profit   84,900  
Discount Allowed   400 Discount Received   800  
Salaries   6,000 Commission   1,600  
Rent 7,200   Insurance Co. (Claim)   5,000  
Less: Prepaid (1,200) 6,000          
               
Insurance Premium 2,000            
Less: Prepaid (500) 1,500          
Travelling Expenses   700          
Sundry Expenses   1,100          
               
Bad Debt 1,500          
Add: Further Bad debt 3,000          
Add: Provision for Bad Debts 3,550          
    8,050          
Less: Provision for Bad Debt (Old) (2,200) 5,850        
             
Legal Expenses   300        
Audit Fee   900        
Goods Lost by Fire   7,000        
Depreciation on            
Building   3,400        
Plant and Machinery   3,500        
Motor Car   6,000        
Furniture and Fixture   750        
Net Profit 48,000        
             
    92,300     92,300  
             
                   

 

Profit and Loss Appropriation Account  
Dr.         Cr.  
Particulars Amount

Particulars Amount

 
Interest on Capital     Net profit   48,000  
Kajol 6,900        
Sunny 5,460 12,360 Interest on Drawings    
      Kajol 300    
Partner’s Salaries     Sunny 150 450  
Kajol   1,500        
               
Profit & Loss – Gross Profit            
Kajol’s Current 20,754          
Sunny’s Current 13,836 34,590        
             
    48,450     48,450  
             
                 

 

Partners’ Capital Account
Dr.         Cr.
Particulars Kajol Sunny Particulars Kajol Sunny
      Balance b/d 1,15,000 91,000
Balance c/d 1,15,000 91,000      
           
  1,15,000 91,000   1,15,000 90,000
           

 

Partners’ Current Account
Dr.         Cr.
Particulars Kajol Sunny Particulars Kajol Sunny
Balance b/d   3,200 Balance b/d 4,500  
Drawings 6,000 3,000 Interest on Capital 6,900 5,460
Interest on Drawings 300 150 Partner’s Salaries 1,500  
Balance c/d 27,354 12,946 Profit and Loss Appropriation 20,754 13,836
           
  33,654 19,296   33,654 19,296
           

 

Balance Sheet as on March 31, 2015

 

 
Liabilities Amount

Assets Amount

Bills Payable 21,000 Bills Receivable 25,000
Creditors 78,000 Debtors 74,000  
Loan 25,000 Less: Further Bad debt (3,000)  
Wages Outstanding 2,200 71,000  
Capital:   Less: 5% Provision for Bad Debt (3,550) 67,450
Kajol 1,15,000      
Sunny 91,000 2,06,000 Building 85,000  
    Less: 5% Depreciation (3,400) 81,600
Current:      
Kajol 27,354   Plant and Machinery 70,000  
Sunn 12,946 40,300  Less: 5% Depreciation (3,500) 66,500
         
    Motor Car 60,000  
    Less: 10% Depreciation (6,000) 54,000
       
    Furniture & Fixture 15,000  
    Less: 5% Depreciation (750) 14,250
    Cash in Hand 7,500
    Cash at Bank 12,000
    Closing Stock 37,500
    Prepaid Rent 1,200
    Prepaid Insurance 500
    Insurance Co. (Claim) 5,000
  3,72,500   3,72,500
       
                 

Concepts covered in this chapter –

  • Nature of partnership
  • Partnership Deed
  • Special aspects of partnership accounts
  • Maintenance of capital accounts of partners
  • Past Adjustments
  • Final Accounts

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