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Accountancy 3 Marks Question

Accounting for Partnership Firms – Basic Concepts · CBSE STD 12 Commerce (CBSE - English Medium). 100 questions.

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Question 13 Marks
On 1.4.2013, Brij and Nandan entered into partnership to construct toilets in government girls schools in the remote areas of Uttarakhand. They contributed capitals of ₹ 10,00,000 and ₹ 15,00,000 respectively. Their profit sharing ratio was 2 : 3 and interest allowed on capital as provided in the Partnership Deed was 12% per annum. During the year ended 31.3.2014, the firm earned a profit of ₹ 2,00,000.
Prepare Profit and Loss Appropriation Account of Brij and Nandan for the year ended 31.3.2014.
Answer

Working Notes:
Interest on capital of Brij = ₹ 1,20,000
Interest on capital of Nandan = ₹ 1,80,000
Proportionate profit = 1,20,000/3,00,000 x 2,00,000 = ₹ 80,000
= 1,80,000/3,00,000 x 2,00,000 = ₹ 1,20,000.
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Question 23 Marks
On 1-4-2013 Jay and Vijay, entered into partnership for supplying laboratory equipments to government schools situated in remote and backward areas. They contributed capitals of ₹ 80,000 and ₹ 50,000 respectively and agreed to share the profits in the ratio of 3 : 2. The partnership deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of ₹ 7,800.
Showing your calculations clearly, prepare ‘Profit and Loss Appropriation Account’ of Jay and Vijay for the year ended 31-3-2014.
Answer

Working notes:
Calculation of Interest on Capital:
  ₹
a) Interest on Jay’s Capital: 7200
b) Interest on Vijay’s Capital: 4500
Total: 11700.
The available profit is ₹ 7,800 since the profit is less than interest, the available profit will be distributed in the ratio of interest i.e. 7,200:4,500 or 8 : 5.
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Question 33 Marks
Mona, Nisha and Priyanka are partners in a firm. They contributed ₹ 50,000 each as capital three years ago. At that time Priyanka agreed to look after the business as Mona and Nisha were busy. The profits for the past three years were ₹ 15,000, ₹ 25,000 and ₹ 50,000 respectively. While going through the books of accounts Mona noticed that the profit had been distributed in the ratio of 1 : 1 : 2. When she enquired from Priyanka about this, Priyanka answered that since she looked after the business she should get more profit. Mona disagreed and it was decided to distribute profit equally retrospectively for the last three years.
  1. You are required to make necessary corrections in the books of accounts of Mona, Nisha and Priyanka by passing an adjustment entry.
  2. Identify the value which was not practised by Priyanka while distributing profits.
Answer
  1.  

  1. The value which was not practised by Priyanka:
  • Honesty.
  • Loyalty.
  • Truthfulness..
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Question 53 Marks
Kumar and Raja were partners in a firm sharing profits in the ratio of 7 : 3. Their fixed capitals were Kumar ₹ 9,00,000 and Raja ₹ 4,00,000. The partnership deed provided 'for the following but the profit for the year was distributed without providing for:
  1. Interest on capital@ 9% per annum.
  2. Kumar's salary ₹ 50,000 per year and Raja's salary ₹ 3,000 per month.
The profit for the year ended 31.3.2018 was ₹ 2,78,000.
Pass the adjustment entry.
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Question 63 Marks
Ram and Mohan are partners in a business. Their capitals at the end of the year were ₹ 24,000 and ₹ 18,000 respectively. During the year, Ram's drawings and Mohan's drawings were ₹ 4,000 and ₹ 6,000 respectively. Profit (Before charging interest on capital) during the year was ₹ 16,000. Calculate interest on capital @ 5% p.a. for the year ended 31st March, 2018.
Answer
Interest on capital is calculated on the opening balance of partner’s capital.
Calculation of Capital balance at the beginning:

Interest on Ram's Capital $=20,000\times\frac{5}{100}=₹\ 1,000$
Interest on Mohan's Capital $=16,000\times\frac{5}{100}=₹\ 800$
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Question 73 Marks
On March 31, 2016 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.
Answer
Since interest on capitals is always calculated on capitals in the beginning and the same have not been given, it is necessary to calculate the capitals in the beginning:
Statement showing the calculation of capitals in the beginning:
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Question 83 Marks
Bhanu and Partab are partners sharings profits eqully. Their fixed capitals as on $1^{\text {st }}$ April, $2017$ are ₹ $8,00,000$ and $₹$ $10,00,000$ respectively. Their drawings the year were ₹ $50,000$ and $₹ 1,00,000$ respectively. Interest on Capital is a charge and is to be allowed $@ 10\%$ p.a. and interest on drawings is to be charged @ $15 \%$ p.a. Profit for the year ended $31^{\text {st }}$ March, $2018$ was ₹ $1,20,000$.
Prepare Profit and Loss Appropriation Account.
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Question 93 Marks
Gupta and Sarin are partners in a firm sharing profits in the ratio of 3 : 2. Their fixed capitals are: Gupta 2,00,000, and Sarin 3,00,000. After the accounts for the year are prepared it is discovered that interest on capital @10% p.a. as provided in the partnership agreement, has not been credited in the capital accounts of partners before distribution of profits. Record adjustment entry to rectify the error.
Answer


Note: Negative is always debit.
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Question 103 Marks
X and Y were sharing profits in the ratio of 2 : 1. On 1st April, 2014 they admitted Z for $\frac{1}{4}\text{th}$ share in the profits. Z is guaranteed a minimum profit of ₹ 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 31st March, 2015 amounted to ₹ 20,000. Record necessary entries.
  1. First of all, loss of ₹ 1,20,000 will be debited to X, Y and Z. in their new profit sharing ratio of 2 : 1 : 1.
  2. Thereafter, Z's deficiency of ₹ 1,30,000 will be borne by X and Y in 3 : 2.
Answer

Working Notes:
  1. Z’s share of Loss $=₹\ 1,20,000 \times\frac{1}{4}=₹\ 30,000$
Remaining Loss $=₹\ 1,20,000 -30,000​​=₹\ 90,000$
X’s share of Loss $=₹\ 90,000 \times\frac{2}{3}=₹\ 60,000$
Y’s share of Loss $=₹\ 90,000 \times\frac{1}{3}=₹\ 30,000$
  1. Z is guaranteed minimum profit of ₹ 1,00,000 whereas share of loss debited to his capital account is ₹ 30,000. Hence he will be credited by ₹ 1,30,000 borne by X and Y in 3 : 2.
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Question 113 Marks
Bat and Ball are partners sharing the profits in the ratio of 2 : 3 with capitals of ₹ 1,20,000 and ₹ 60,000 respectively. On 1st October, 2017, Bat and Ball granted lonas of ₹ 2,40,000 and ₹ 1,20,000 respectively to the firm. Bat had allowed the firm to use his property for business for a monthly rent of ₹ 5,000. The loss for the year ended 31st March, 2018 before rent and interest amounted to ₹ 9,000. Show distribution of profit/ loss.
Answer

Working Notes:
WN1: Interest on Partner’s Loan
Interest on Bat's Loan for 6 months $=2,40,000\times\frac{6}{100}\times\frac{6}{12}=₹\ 7,200$
Interest on Ball's Loan for 6 months $=1,20,000\times\frac{6}{100}\times\frac{6}{12}=₹\ 3,600$
WN2: Distribution of Loss to the Partners
Loss after Interest on Partners’ Loan = 9,000 + 60,000 + 7,200 + 3,600 = ₹ 19,800
Bat's Share of Loss = 79,800 × 25 = ₹ 31,920
Ball's Share of Loss = 79,800 × 35 = ₹ 47,880
Bat's Share of Loss = 79,800 × 25 = ₹ 31,920
Ball's Share of Loss = 79,800 × 35 = ₹ 47,880
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Question 123 Marks
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.
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Question 133 Marks
X and Y are in partnership sharing profits and losses in the ratio of 2 : 1. They decied to admit Z, their manager as a partner giving him $\frac{1}{5}\text{th}$ share of profit. Z while a manager, was receiving a salary of ₹ 25,000 per annum plus a commission of 10% of the net profits after charging such salary and commission.
It was also agreed that any excess amount which Z receives as a partner (over his salary and commission) will be borne by X Profit for the year amounted to ₹ 3,22,000, before payment of salary and commission. Prepare a Profit & Loss Appropriation Account.
Answer

 
₹
Profit before Z’s Salary and Commission
3,22,000
Less: Salary
25,000
 
2,97,000
Less: Z’s Commission $\frac{10}{110}$ of 2,97,00
27,000
 
2,70,000
Thus Z as a manager will receive:
₹
Salary ₹ 25,000 + Commission ₹ 27,000
52,000
Z as a partner will receive: $3,22,000\times\frac{1}{5}$
64,400
 
$\overline{12,400}$
Excess received by Z as a partner This excess amount of ₹ 12,400 will be deducted from A’s share.
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Question 143 Marks
Discuss the main provisions of the Indian Partnership Act, 1932 that are relevant to partnership accounts if there is no Partnership Deed.
Answer
The main provisions of the Indian Partnership Act, 1932, if there is no Partnership Deed given below:
  1. Profits or losses are shared equally by the partners.
  2. lnterest on capital is neither allowed on capital nor paid to the partners.
  3. lnterest on drawings is not charged from partners.
  4. lnterest on loan is paid @ 6% p.a. Interest on partner's loan is charge against profit. It means interest is payable even if there is a loss.
  5. Salary, commission etc., is not paid or allowed to any partner.
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Question 153 Marks
P and Q were partners in a firm sharing profits in 7 : 3 ratio. Their fixed capitals were P ₹ 5,00,000 and Q ₹ 8,00,000. For the year ended 31st March, 2018, interest 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.
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Question 163 Marks
A, B and C are partners in a firm. They do not have a Partnership Deed. At the end of the first year of the commencement of the firm, they have faced the following problems:
  1. A wants that interest on capital should be allowed to the partners but B and C do not agree.
  2. B wants that the partners should be allowed to draw salary but A and C do not agree.
  3. C wants that the loan given by him to the firm should bear interest @ 10% p.a. but A and B do not agree.
  4. A and B having contributed larger amounts of capital, desire that the profits should be divided in the ratio of their capital contribution but C does not agree.
State how you will settle these disputes if the partners approach you for purpose.
Answer
 
Disputes
Possible Judgements
a.
A wants that interest on capital should be allowed to the partners but B and C do not agree.
As per Partnership Act, no interest on Capitalwill be allowed.
Reason: There is no partnership agreement among A, B and C regarding interest on capital.
b.
B wants that the partners should be allowed to draw salary but A and C do not agree.
No salary will be allowed to any partner.
Reason: There is no partnership agreement.
c.
C wants that the loan given by him to the firm should bear interest @ 10% p.a. but A and B do not agree.
Interest on partner’s loan (C’s loan) will be allowed at 6% p.a.
Reason: As per Partnership Act, in the absence of partnership agreement, interest on partners loan is allowed at 6% p.a.
d.
A and B having contributed larger amounts of capital, desire that the profits should be divided in the ratio of their capital contribution but C does not agree.
Profit will be shared equally and not in the capital ratio.
Reason: There is no partnership agreement.
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Question 173 Marks
Reya, Mona and Nisha shared profits in the ratio of 3 : 2 : 1. The profits for the last three year were ₹ 1,40,000; ₹ 84,000 and ₹ 1,06,000 respectively. These profits were by mistake shared equally for all the give necessary Journal entry for the same.
Answer

Working Note:
Total Profits for Last 3 years = 1,40,000 + 84,000 + 1,06,000 = ₹ 3,30,000
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Question 183 Marks
Krishna, Sandeep and Karim are partners sharing profits in the ratio of 3 : 2 : 1. Their fixed capitals are: Krishan ₹ 1,20,000, Sandeep 90,000 and Karim ₹ 60,000. For the year 2014-15, interest was credited to them @ 6% p.a. instead of 5% p.a. Record adjustment entry.
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Question 193 Marks
A and B are partners in a business sharing profits and losses in the ratio of 3 : 2. Their capitals on 31st March, 2018, after the adjustment of net profits and drawings amounted to ₹ 2,00,000 and ₹ 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 ₹ 75,000 and the partners had withdrawn ₹ 24,000 each. Instead of altering the signed balance sheet, it was decidedto 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.
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Question 203 Marks
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.
Answer

Here, Interest on Capital $=\text{Opening Capital}\times\frac{\text{Rate}}{100}$
Ram’s $=9,600\times\frac{5}{100}=₹\ 480$
Shyam’s $=10,500\times\frac{5}{100}=₹\ 525$
Mohan’s $=8,700\times\frac{5}{100}=₹\ 435$
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Question 213 Marks
Naresh and Sukesh are partners with capitals of ₹ 3,00,000 each as on 31st March, 2018. Naresh had withdrawn ₹ 50,000 against capital on 1st October, 2017 and also ₹ 1,00,000 besides the drawings against capital. Sukesh also had drawings of ₹ 1,00,000.
Interest on capital is to be allowed @ 10% p.a.
Net profit for the year was ₹ 2,00,000, which is yet to be distributed.
Pass the journal entries for interest on capital and distribution of profit.
Answer

Working Notes:
WN1: Calculation of Opening Capital:
WN2: Calculation of Interest on Capital:
Naresh $=\frac{4,50,000\times10\times6}{100\times12}+\frac{4,00,000\times10\times6}{100\times12}=₹\ 42,500$
Sukesh $=\frac{4,00,000\times10}{100}=₹\ 40,000$
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Question 223 Marks
Calculate interest on drawings of Mr. Ashok @ 10% p.a. for the year ended 31st March, 2018, in each of the following alternative cases:
Case 1: If he withdrew ₹ 7,500 in the beginning of each quarte.
Case 2: If he withdrew ₹ 7,500 at the end of each quarter.
Case 3: If he withdrew ₹ 7,500 during the middle of each quarter.
Answer
Case 1: When equal amount is withdrwan in the beginning of quarter, the interest on drawings is calculated for an average period 7.5 months.
Interest on Drawing $=\text{Total Drawing}\times\frac{\text{Rate}}{100}\times\frac{7.5}{12}$
$\therefore$ interest on Ashok's Drawings $=30,000\times\frac{10}{100}\times\frac{7.5}{12}$
$=₹\ 1,875$
Case 2: When equal amount is withdrawn at the end of each quarter, the interest on draw is calculated for an average period of 4.5 months.
Interest on Drawings $=\text{Total Drawings}\times\frac{\text{Rate}}{100}\times\frac{4.5}{12}$
$\therefore$ Interest on Ashok's Drawings $=30,000\times\frac{10}{100}\times\frac{4.5}{12}$
$=₹\ 1,125$
Case 3: When equal amount is withdrawn in the middle of each quarter, the interest on drawings is calculated for an average period of 6 months.
Interest on Drawing $=\text{Total Drawings}\times\frac{\text{Rate}}{100}\times\frac{6}{12}$
Interest on Ashok's Drawings $=30,000\times\frac{10}{100}\times\frac{6}{12}$
$=₹\ 1,500$
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Question 233 Marks
On 1st April, 2013, Jay and Vijay entered into partnership for supplying laboratory equipments to government schools situated in remote and backward areas. They contributed capitals of ₹ 80,000 and ₹ 50,000 respectively and agreed to share the profits in the ratio of 3 : 2. The partnership Deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of ₹ 7,800. Showing your calculations cleary, prepare 'Profit and Loss Appropriation Account' of Jay and Vijay for the year ended 31st March, 2014.
Answer

Working Notes:
WN1: Calculation of Interest on Capital
On Jay's Capital $=80,000\times\frac{9}{100}=₹\ 7,200$
On Vijay's Capital $=50,000\times\frac{9}{100}=₹\ 4,500$
Total Interest $=7,200+4,500=₹\ 11,700$
WN2: Calculation of Proportionate Interest on Capital
Proportionate Interest on Jay $=\frac{7,200}{11,700}\times7,800=₹\ 4,800$
Proportionate Interest on Vijay $=\frac{4,500}{11,700}\times7,800=₹\ 3,000$
Note: Interest on capital is to be treated as an appropriation of profits and is to be provided to the extent of available profits i.e. ₹ 7,800.
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Question 243 Marks
A and B are partners in a firm sharing profits in the ratio of 3 : 2. They had advanced to the firm a sum of ₹ 30,000 as a loan in their profit sharing ratio on 1st October, 2017. The Partnership Deed is silent on interest on loans from partners. Compute interest payable by the firm to the partners, assuming the firm closes its books every year on 31st March.
Answer
Amount advanced by the Partners = ₹ 30,000
Profit sharing ratio = 3 : 2
Advance provided by $\text{A}=30,000\times\frac{3}{5}=₹\ 18,000$
Advance provided by $\text{B}=30,000\times\frac{2}{5}=₹\ 12,000$
Time Period (from October 01, 2017 to March 31, 2018) = 6 months
Interest rate = 6% p.a.
Calculation of Interest on Advances
Interest on Advances given by $\text{A}=18,000\times\frac{6}{100}\times\frac{6}{12}=₹\ 540$
Interest on Advances given by $\text{B}=12,000\times\frac{6}{100}\times\frac{6}{12}=₹\ 360$
Note: In the absence of a partnership agreement regarding rate of interest on loans and advances, interest is provided at 6% p.a.
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Question 253 Marks
A, B and C are partners ina firm sharing profits and losses in the ratio of 4 : 3 : 3. Their fixed capitals were ₹ 1,00,000, ₹ 2,00,000 and ₹ 3,00,000. respectively For the year ended 31st March, 2018 Interest on capital was credited to them @ 10% instead of 9% p.a. Pass the necessary adjusting journal entry.
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Question 263 Marks
Prem, Param and Priya were partners in a firm, Their fixed capitals were Prem ₹ 2,00,000 Param ₹ 3,00,000 and Priya ₹ 5,00,000. They were sharing profits in the ratio of their capitals. The firm was engaged in the sale of ready-to-eat food packets. at three different locations in the city, each being managed by Prem, Param and Priya The outlet managed by Prem was doing more business than the outlets managed by Param and Priya. Prem requested Param and Priya for a higher share in the profits of the firm which Param and Priya accepted. 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 ₹ 2,00,000; ₹ 3,50,000; ₹ 4,75,000 and ₹ 5,25,000 respectively.
Answer

Working Notes: Total Profit = 2,00,000 + 3,50,000 + 4,75,000 + 5,25,000 = ₹ 15,50,000
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Question 273 Marks
X and Y are partners sharing the profits and losses in the ratio of 2 : 1 with capitals of ₹ 50,000 and ₹ 30,000 respectively. Show the distribution of profits in each of the following alternative cases:
If the partnership deed provides for Interest on Capital @ 6% p.a and the losses for the year are ₹ 6,000.
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Question 283 Marks
A and B are partners sharing profits in the ratio of 3 : 2. C was admitted for $\frac{1}{6}\text{th}$ share of profit with a minimum guaranteed amount of ₹ 10,000. At the close of the first financial year the firm earned a profit of ₹ 54,000. Find out the share of profit which A, B and C will get.
Answer

Working Note:
C will get higher of the two:
  1. Share of Profit as per profit sharing ratio, i.e.,
$\frac{1}{6}\times54,000=9,000$
  1. Minimum guaranteed profit, i.e. ₹ 10,000
Thus, from net profit of ₹ 54,000, minimum guaranteed profit to C of ₹ 10,000 is to be adjusted first.

And the balance profit of ₹ 44,000 (54,000 - 10,000) is to be shared by A and B in the ratio 3 : 2

So Final Profit Share of

$\text{A}=\frac{3}{5}\times44,000=26,400$

$\text{B}=\frac{2}{5}\times44,000=17,600$

$\text{C}=10,000$ (minimum guaranteed profit)
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Question 293 Marks
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?
Answer
If a fixed amount is withdrawn on the first day of every quarter, then the interest is calculated on the amount withdrawn for a period of seven and half $\Big(7\frac{1}{2}\Big)$ months.Example:
If a partner withdraws ₹ 5,000 in the beginning of each quarter and the interest is charged @ 10% on the drawings, then interest on drawings is calculated as:
Total drawings made by the partner during the whole year are ₹ 20,000, i.e. ₹ 5000 × 4.
Interest on drawings $=20,000\times\frac{10}{100}\times\frac{7\frac{1}{2}}{12}=1,250$
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Question 303 Marks
Ram and Mohan are partners in a firm. They admitte Rakhi as a partner without capital for $\frac{1}{3}\text{rd}$ share in the profit of the firm. She is blind by birth but having good management qualities. The new partnership agreement provides for the following:
  1. 10% of the trading profit will bedonated to Prime Minister's Relief Fund.
  2. 5% of the trading profit will be donated to the National Blind Relief Fund.
  3. Products will be sold at a discount of 15% on Maximum Retail Price to the people living below poverty line.
  4. New retail shops will be opened in the Naxal affected areas of the country.
  5. New jobs of sales persons will be reserved Scheduled Castes and Scheduled Tribes.
Answer
Following values were considered by Ram, Mohan and Rakhi while preparing the new Partnership Deed:
  • Sensitivity towards differently abled people.
  • Development of naxal affected areas by providing entrepreneurial opportunities.
  • Upliftment of girls belonging to Scheduled Castes and Scheduled Tribes by providing employment.
  • Fulfilment of social responsibility.
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Question 313 Marks
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.

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.
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Question 323 Marks
$A$ and $B$ are partners from $1^{\text {st }}$ April, $2017$, without a Partnership Deed and they introduced capitals of $₹ 35,000$ and $₹$ $20,000$ respectively. On 1st October, $2017$, A advances a loan of ₹ $8,000$ to the firm without any agreement as to interest. The profit and Loss Account for the year ended $31^{\text {st }}$ March, $2018$ shows a profit of ₹ $15,000$ but the partners cannot agree on payment of interest and on the basis of division of profits.
You are required to divide the profits between them giving reasons for your method.
Answer

Working Notes:
WN 1: Calculation of Interest on Loan.
As per the Partnership Act, if there is no partnership agreement regarding rate of interest on loan, it is provided at 6% p.a.
Amount of Loan$ = ₹ 8,000$
Time Period (From October 01 to March $31) = 6$ months.
WN 2: Calculation of Profit Share of each Partner.
In the absence of partnership deed, profits of a firm are distributed equally among all the partners.
Profit after Interest on A’s loan$ = 15,000 - 240 = ₹ 14,760$
$\therefore$ Profit Share of a and B each $=14,760\times\frac{1}{2}=₹\ 7,380$
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Question 333 Marks
A and B are partners in a business. Their capitals at the end of the year were ₹ 40,000 and ₹ 60,000 respectively. During theyear ending 31st March, 2016, A's drawings and B's drawings were ₹ 1,20,000 and ₹ 1,40,000 respectively. Profits (before charging interest on capital) during the year were ₹ 4,00,000. Calculate interest on capital @ 12% p.a. for the year ending 31st March, 2016.
Answer

Interest on Capitals:
$\text{A} =₹\ 5,60,000 \times\frac{12}{100} = ₹\ 67,200$
$\text{B} =₹\ 4,00,000 \times\frac{12}{100} = ₹\ 48,000$
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Question 343 Marks
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.
Answer

Note: If the partner guaranteed, does not get assured amount as profit, then the deficit is to be given by the remaining partners as question says, if no information is given, the contribution will be in profit sharing ratio.
Working Note:
George's share
= 40,000 × 2/10
= 8,000
 
guaranteed profit
= 10,000
 
Deficiency
= 2,000
Ram's Contribution 5/8 × 2,000 = 1,250
Raj's Contribution 3/8 × 2,000 = 750
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Question 353 Marks
A, B and C were partners in a firm. On 1-4-2015 their capitals stood at ₹ 5,00,000 ₹ 2,50,00 and ₹ 2,50,000 respectively. As per the provisions of the partnership deed:
  1. Cwas entitled for a salary of ₹ 9,900 p.m.
  2. Partners were entitled to interest on capital at % p.a.
  3. Profits were to be shared in the ratios pf capitals.
The net profit for the year ended 31.3.2016 of ₹ 3,30,000 was divided equally without providing for the above terms.
Passanadjustmententry.torectify the above error.
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Question 363 Marks
X and Y are partners sharing the profits and losses in the ratio of 2 : 1 with capitals of ₹ 50,000 and ₹ 30,000 respectively. Show the distribution of profits in each of the following alternative cases:
If the partnership deed provides for Interest on Capital @ 6% p.a. and the profits for the year are ₹ 9,000.
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Question 373 Marks
P, Q and R entered into partnership on 1st April, 2015 to share profits and losses in the ratio of 12 : 8 : 5. It was provided that in no case R's share in profit be less than ₹ 30,000 p.a. The profits and losses for the period ended 31st March were: 2015-16 Profit ₹ 1,20,000 2016-17 Profit ₹ 1,80,000; 2017-18 Loss ₹ 1,20,000.
Pass the necessary Journal entries in the books of the firm.
Answer
Working Notes:
WN1: Calculation of amount of deficiency of R
R's Minimum Guaranteed Profit = ₹ 30,000
For 2015-16, R's actual share of profit $=1,20,000\times\frac{5}{25}=₹\ 24,000$
DeficiencyinR'sProfit = 30,000 - 24,000 = ₹ 6,000
This deficiency is to be borne by P & Q in the ratio of 12 : 8.
For 2016-17, R's actual share of profit $=1,80,000\times\frac{5}{25}=₹\ 36,000$
This implies that there is no deficiency in R's profit share as his actual share exceeds his minimum guaranteed share.
For 2017-18, R's actual share of loss $=1,20,000\times\frac{5}{25}=₹\ 24,000$
Deficiency in R's Profit = 30,000 + 24,000 = ₹ 54,000
This deficiency is to be borne by P & Q in the ratio of 12 : 8.
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Question 383 Marks
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:
  1. In the beginning of every month,
  2. In the middle of every month, and
  3. At the end of every month.
Answer
Case I: If they withdraw money in the beginning of each month.
Interest of drawings $=\text{Total drawings }\times\text{Rate}\times\frac{13}{2\times12}$
Menon's $=24,000\times\frac{10}{100}\times\frac{13}{2\times12}=₹\ 1,300$
Thomas's $=24,000\times\frac{10}{100}\times\frac{13}{2\times12}=₹\ 1,300$
Case II:If they withdraw in the middle of every month.
Interest on Drawings $=\text{Total drawings }\times\frac{10}{100}\times\frac{6}{12}$
Menon's $=24,000\times\frac{10}{100}\times\frac{6}{12}=₹\ 1,200$
Thomas's $=24,000\times\frac{10}{100}\times\frac{6}{12}=₹\ 1,200$
Case III:
If they withdraw at the end of every month.
Interest on drawings $=\text{Total drawings }\times\frac{\text{Rate}}{100}\times\frac{11}{2\times12}$
Menon's $=24,000\times\frac{10}{100}\times\frac{11}{2\times12}=₹\ 1,100$
Thomas's $=24,000\times\frac{10}{100}\times\frac{11}{2\times12}=₹\ 1,100$
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Question 393 Marks
A and B were in partnership. They do not have any partnership deed A presented the following Profit and Loss Appropriation Account:
Should B accept it In case you don't advise him to accept it then, redraw it.
Answer

*If interest @ 15% is ₹ 3,000
interest @ 6% will be × 6 = ₹ 1,200
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Question 403 Marks
Calculate the interest ondrawings of Mr. Aditya @ 8% p.a. for the year ended 31st March, 20.16, in each of the foilowing alternative cases:Case:
  1. If he withdrew 5,000 in the beginning of each quarter.
  2. If he withdrew 6,000 at the end of each quarter.
  3. If he withdrew 6,000 during the middle of each quarter.
Answer
Case (i):
  1. Total Drawings for the year $=₹\ 5,000\times4=₹\ 20,000$
Average Period = (12 months + 3 months) ÷ 2 = 7.5 months
Interest on Drawings $=20,000\times\frac{8}{100}\times\frac{7.5}{12}=1,000$
Case (ii):
  1. Total Drawings for the year $=₹\ 6,000\times4=₹\ 24,000$
​​​​​​​Average Period = (9 months + 0 month) ÷ 2 = 4.5 months
Interest on Drawings $=24,000\times\frac{8}{100}\times\frac{4.5}{12}= ₹\ 700$
Case (iii):
  1. Total Drawings for the year $=10,000\times4=₹\ 40,000$
​​​​​​​Average Period = (10.5 months + 1.5 months) ÷ 2 = 6 months
Interest on Drawings $=24,000\times\frac{8}{100}\times\frac{6}{12}= ₹\ 1,600$
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Question 413 Marks
X and Y are partners sharing the profits and losses in the ratio of 2 : 1 with capitals of ₹ 50,000 and ₹ 30,000 respectively. Show the distribution of profits in each of the following alternative cases:
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 ₹ 3,000.
Answer

*Since Interest on Capital is to be allowed even if firm incurs loss, it is debited to P&L A/c and not to P&L Appropriation A/c.
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Question 423 Marks
calculate interest on A's drawings:
  1. If he has withdrew ₹ 60,000 on 1st october 2015 and rate of interest drawing is 8% per annum.
  2. If he has withdrew ₹ 60,000 on 1st october 2015 and rate of interest drawing is 8%.
Answer
Case (i) Interest on Drawings $= ₹\ 60,000\times\frac{8}{100}\times\frac{6}{12}= ₹\ 2,400$
Case (ii) Since rate of interest is 8% and not 8% p.a. interest will be calculated for 12 months:
Interest on Drawings $₹\ 60,000 \times\frac{8}{100} = ₹\ 4,800$
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Question 433 Marks
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 ₹ 2,500 per month and Munna was to get a commission of ₹ 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 ₹ 1,250 and on Munna's drawings ₹ 425. Capital of the partners were ₹ 2,00,000 and ₹ 1,50,000. respectively, and were fixed. The firm earned a profit of ₹ 90,575 for the year ended 31-3-2016.
Prepare Profit and Loss Appropriation Account of the firm,
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Question 443 Marks
Girish and Satish are partners in a firm. Their Capitals on April 1, 2016 were ₹ 5,60,000 and ₹ 4,75,000 respectively. On August 1, 2016 they decided that their Capitals should be ₹ 5,00,000 each. The necessary adjustment in the Capitals were made by introducing or with drawing cash. Interest on Capital is allowed at 6% p.a. You are required to compute interest on Capital for the year ending March 31, 2017.
Answer
missing Ans
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Question 453 Marks
Sachin, Kapil and Rashmi have been sharing profits inthe ratio of 3 : 2 : 1 respectively, Rashmi wants thatsheshould share profits equally along with Sachin and Kapil and she· further wants that change inprofit sharing ratio should be applicable respectively for the last three years. Other partners have no objection to this. The profits for the last three· years were ₹ 60,000, ₹ 47,000 and ₹ 55,000 Record the adjustment by means of ajoutnal entry.
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Question 463 Marks
Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2017 were ₹ 2,00,000 each whereas Current Accounts had balances of ₹ 50,000 and ₹ 25,000 respectively interest is to be allowed @ 5% p.a. on balances in Capital Accounts. The firm earned net profit of ₹ 3,00,000 for the year ended 31st March 2018.
Pass the journal entries for interest on capital and distibution of profit. Also prepare Profit and Loss Appropriation Account for the year.
Answer


Working Notes:
WN1: Calculation of Interest on Capital.
Simran's Interest on Capital $=2,00,000\times\frac{5}{100}=₹\ 10,000$
Reema's Interest on Capital $=2,00,000\times\frac{5}{100}=₹\ 10,000$
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Question 473 Marks
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.
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Question 483 Marks
Assuming the capitals are fixed in Question give the necessary adjusting journal entry.
Mohan, Vijay and Anil are partners their capitals being ₹ 30,000, ₹ 25,000 and ₹ 20,000 respectively, In arriving at these figures, the profits for the year ended, 31st March, 2018 ₹ 24,000 has already been credited to the partners in the proportion in which they share profits. Their drawings were ₹ 5,000 (Mohan) ₹ 4,000 (Vijay) and ₹ 3,000 (Anil) for the year ending 31st March 2018. Subsequently the following omissions were noticed and it was decided to bring them into Account.
  1. Interest on Capital at 10% p.a.
  2. Interest on Drawings Mohan ₹ 250, Vijay ₹ 200 and Anil ₹ 150.
Answer

   
₹
₹
Anil's Current A/c
 Dr.
450
 
To Mohan's Current A/c
  
 
450
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Question 493 Marks
A, B and Care partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his share of profits in any year will not be less than ₹ 20,000. The profit for the year ending 31st March 2016 amounts ₹ 1,40,000. Amount of shortfall in the. profits given to C will be borne by A and· B in the ratio of 3 : 2. Pass necessary journal entry regarding deficiency borne by A and B.
Answer
Profit of ₹ 1,40,000 divided in the ratio of 5 : 4 : 1 A's Share $:1,40,000\times\frac{5}{10} = ₹\ 70,000$ B's Share $:1,40,000\times\frac{4}{10} = ₹\ 56,000$ C’s Share $:1,40,000\times\frac{1}{10} = ₹\ 14,000$ C’s share in profits amounts to ₹ 14,000 whereas the minimum guaranteed amount is ₹ 20,000. Hence, the deficiency of ₹ 6,000 will be borne by A and B in the ratio of 3 : 2. The adjustment entry will be.
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Question 503 Marks
Why is Profit and Loss Adjustment Account prepared? Explain.
Answer
The Profit and Loss Adjustment Account is prepared because of the following two reasons:
  1. To record omitted items and rectify errors if any: After the preparation of Profit and Loss Account and Balance Sheet, if any error or omission is noticed, then these errors or omissions are adjusted by opening Profit and Loss Adjustment Account in the subsequent accounting period without altering old Profit and Loss Account.
  2. To distribute profit or loss between the partners: Sometimes, besides adjusting the items and rectifying errors, this account is also used for distribution of profit (or loss) among the partners. In this situation, this account acts as a substitute for Profit and Loss Appropriation Account. The main rationale to prepare the Profit and Loss Adjustment Account is to ascertain true profit or loss.
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