Double Entry Book Keeping Ts Grewal Vol. I 2018 for Class 12 Commerce Accountancy Chapter 1 - Accounting For Partnership Firms Fundamentals

Question 1:

In the absence of Partnership Deed, what are the rules relation to :
(a) Salaries of partners,
(b) Interest on partners’ capitals
(c) Interest on partners’ loan
(d) Division of profit, and
(e) Interest on partners’ drawings

Answer:

	Items (Points)	Provision in the Absence of Partnership Deed
(a)	Salaries of Partners	No Salary will be allowed to Partners.
(b)	Interest on Partners’ Capitals	No interest will be allowed to Partners on Capital
(c)	Interest on Partners’ Loan	6% p.a. Interest will be allowed on the amount given by partners in the form of Loans and Advances to firm.
(d)	Division of Profit	Profits will be shared equally, it is irrespective the amount of capital contributed by partners
(e)	Interest on Partners’ Drawings	No Interest will be charged on the Drawings of Partners

Question 2:

Following differences have arisen among P, Q and R. State who is correct in each case:
(a) P used ₹ 20,000 belonging to the firm and made a profit of ₹ 5,000. Q and R want the amount to be given to the firm?
(b) Q used ₹ 5,000 belonging to the firm and suffered a loss of ₹ 1000. He wants the firm to bear the loss?
(c) P and Q want to purchase goods from A Ltd., R does not agree?
(d) Q and R want to admit C as partner, P does not agree?

Answer:

(a) P is bound to pay Rs 20,000 together with profit of Rs 5,000 to the firm because this amount belongs to the firm.

Explanation: As per Principal and Agent relationship, P is principal as well as agent to the firm and to Q and R. As per this rule, any profit earned by an agent (P) by using the firm’s property is attributable to the firm.

(b) Q is liable to pay Rs 5,000 to the firm. As per the Partnership Act, 1932, every partner of a partnership firm is liable to the firm for any loss caused by his/her willful negligence.

Explanation: Here Q is solely responsible for the loss of Rs 1,000 because he used the property of the firm and also represented himself as a principal rather than an agent to the other partners and to the firm.

(c) P and Q may buy goods from A Ltd.

Explanation: As per Partnership Act, 1932, a partner has a right to buy and sell goods without consulting the other partners unless a Public Notice has been given by the partnership firm to restrict the partners to buy and sell.

(d) C will not be admitted because one of the partners P has not agreed to admit C.

Explanation: As per Partnership Act, a new partner cannot be admitted into a firm unless all the existing partners agree on the same decision. In other words, a new partner can be admitted in a partnership firm with the consent of all the existing partners.

Question 3:

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 :
(a) A wants that interest on capital should be allowed to the partners but B and C do not agree.
(b) B wants that the partners should be allowed to draw salary but A and C do not agree.
(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.
(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.
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 Capital will 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.

Question 4:

Jaspal and Rosy were partners with capital contribution of ₹ 10,00,000 and ₹ 5,00,000 respectively. They do not have a Partnership Deed. Jaspal wants that profits of the firm should be shared in their capital ratio. Rosy convinced jaspal that profits should be shared equally. Explain how Rosy would have convinced Jaspal for sharing the profit equally.

Answer:

In the absence of partnership deed, the provisions of Indian Partnership Act of 1932 applies. According to the act, if there is no agreement regarding the ratio in which profits are to be shared, then profits (or losses) are to be shared equally among all the partners. Therefore, in this situation Jaspal’s view of distribution of profits in capital ratio is not acceptable and Rosy must have convinced her stating the provisions contained in the Partnership Act, 1932.

Question 5:

Harshad and Dhiman are in partnership since 1st April, 2017. No partnership agreement was made. They contributed Rs 4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advance an amount of Rs 1,00,000 to the firm on 1st October, 2017. Due to long illness, Harshad could not participate in business activities from 1st August to 30th September, 2017. The profit for the year ended 31st March, 2018 amounted to Rs 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) Profit should be distributed equally;
(ii) He should be allowed Rs 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 Harshand and Dhiman. Also prepare Profit and Loss Appropriation Account.

Answer:

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

Profit and Loss Appropriation Account
Dr.				Cr.
Particulars	Amount (Rs)	Particulars	Amount (Rs)
Profit transferred to		Profit and Loss Adjustment A/c	1,77,000
Harshad’s Capital	88,500
Dhiman’s Capital	88,500

	1,77,000		1,77,000

Question 6:

A and B are partners from 1st 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 31st 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:

Profit and Loss Account for the year ended March 31, 2017
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on A’s Loan		240	Profit (before Interest)	15,000
Profit transferred to:
A’s Capital A/c	7,380
B’s Capital A/c	7,380	14,760
		15,000		15,000

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 = Rs 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 = Rs 14,760

Question 7:

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 = Rs 30,000

Profit sharing ratio = 3 : 2

Time Period (from October 01, 2017 to March 31, 2018) = 6 months

Interest rate = 6% p.a.

Calculation of Interest on Advances

Note: In the absence of a partnership agreement regarding rate of interest on loans and advances, interest is provided at 6% p.a.

Question 8:

A and B are partners in a firm sharing profits equally. They had advanced tot he firm a sum of ₹ 30,000 as a loan in their profit-sharing ratio on 1st October, 2017. The Partnership Deed is silent on the question of interest on the loan from partners. Compute the interest payable by the firm to the partners, assuming the firm closes its books on 31st March each year.

Answer:

Time Period (from October 01, 2017 to March 31, 2018) = 6 months

Interest rate = 6% p.a. (in the absence of partnership deed)

A and B will get Rs 450 individually as interest on loan for 6 months (from October 01, 2017 to March 31, 2018) at 6% p.a.

Question 9:

X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals ₹ 2,00,000 and ₹ 3,00,000 respectively. On 1st October, 2017, X and Y granted loans of ₹ 80,000 and ₹ 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2018 in each of the following alternative cases:
Case 1 : If the profits before interest for the year amounted to ₹ 21,000.
Case 2 : If the profits before interest for the year amounted to ₹ 3,000.
Case 3 : If the profits before interest for the year amounted to ₹ 5,000.
Case 4 : If the loss before interest for the year amounted to ₹ 1,400.

Answer:

Calculation of Interest on Loan

Case 1- If Profits before any interest for the year amounted to Rs 21,000

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on X’s Loan		2,400	Profit (before interest)	21,000
Interest on Y’s Loan		1,200
Profit transferred to
X’s Capital A/c (17,400 × 2/5)	6,960
Y’s Capital A/c (17,400 × 3/5)	10,440	17,400
		21,000		21,000

Case 2- If Profits before any interest for the year amounted to Rs 3,000

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Interest on X’s Loan	2,400	Profit (before interest)		3,000
Interest on Y’s Loan	1,200	Loss transferred to-
		X’s Capital A/c (600 × 2/5)	240
		Y’s Capital A/c (600 × (3/5)	360	600

	3,600			3,600

Case 3- If Profits before any interest for the year amounted to Rs 5,000

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on X’s Loan		2,400	Profit (before interest)	5,000
Interest on Y’s Loan		1,200
Profit transferred to:
X’s Capital A/c (1400 × 2/5)	560
Y’s Capital A/c (1400 × 3/5)	840	1,400
		5,000		5,000

Case 4- If Loss before any interest for the year amounted to Rs 1,400

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Loss (before interest)	1,400	Loss transferred to-
Interest on X’s Loan	2,400	X’s Capital A/c (5,000 × 2/5)	2,000
Interest on Y’s Loan	1,200	Y’s Capital A/c (5,000 × 3/5)	3,000	5,000

	5,000			5,000

Question 10:

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:

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Loss (before interest)	9,000
Rent (5,000 $\times$ 12)	60,000	Loss transferred to:
Interest on Bat’s loan	7,200	Bat’s Capital A/c	31,920
Interest on Ball’s loan	3,600	Ball’s Capital A/c	47,880	79,800
	79,800			79,800

Working Notes:
WN 1 Interest on Partner’s Loan

WN 2 Distribution of Loss to the Partners

Loss after Interest on Partners’ Loan = 9,000 + 60,000 + 7,200 + 3,600 = Rs 19,800
$Bat' s Share of Loss = 79, 800 \times \frac{2}{5} = Rs 31, 920 Ball' s Share of Loss = 79, 800 \times \frac{3}{5} = Rs 47, 880$

Question 11:

A and B are partners. A's Capital is ₹ 1,00,000 and B's Capital is ₹ 60,000. Interest on capital is payable @ 6% p.a. B is entitled to a salary of ₹ 3,000 per month. Profit for the current year before interest and salary to B is ₹ 80,000.
Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c (Net Profit)	80,000
A		6,000
B		3,600	9,600
Salary to B (Rs 3,000 × 12)			36,000
Profit transferred to:
A’s Capital A/c	17,200
B’s Capital A/c	17,200		34,400
			80,000		80,000

Working Notes:

WN1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Divisible Profit = 80,000 – 9,600 – 36,000 = 34,400

Question 12:

X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1 ratio. The fixed capitals of the partners were : X ₹5,00,000; Y ₹ 5,00,000 and Z ₹ 2,50,000 respectively. The Partnership Deed provides that interest on capital is to be allowed @ 10% p.a. Z is to be allowed a salary of ₹ 2,000 per month. The profit of the firm for the year ended 31st March, 2018 after debiting Z's salary was ₹ 4,00,000.
Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c (Net Profit after Z’s salary)	4,00,000
X		50,000
Y		50,000
Z		25,000	1,25000
Profit transferred to:
X’s Capital A/c	1,10,000
Y’s Capital A/c	1,10,000
Z’s Capital A/c	55,000		2,75,000
			4,00,000		4,00,000

Working Notes:

WN 1 Salary to Z has not been debited to Profit and Loss Appropriation Account. This is because Profit of Rs 4,00,000 is given after adjusting the Z’s salary.

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Profit Share of each Partner

Divisible of Profit after Interest on Capital = Rs 4,00,000 − Rs 1,25,000 = Rs 2,75,000

Profit sharing ratio = 2 : 2 : 1

Question 13:

X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 80,000 and ₹ 60,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹ 6,000 which has not been withdrawn. Profit for the year ended 31st march, 2018 before interest on capital but after chargingY's salary amounted to ₹ 24,000.
A provision of 5% of the profit is to be made in respect commission to the manager. Prepare an account showing the allocation profits.

Answer:

Profit and Loss Adjustment Account for the year ended 31st March 2018
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Manager’s Commission (30,000×5%)	1,500	Profit and Loss A/c (Net Profit after Y’s salary)	24,000
		Y’s Salary	6,000
Profit transferred to Profit and Loss
Appropriation A/c	28,500
	30,000		30,000

Profit and Loss Appropriation Account for the year ended 31st March 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Salary to Y		6,000	Profit and Loss Adjustment A/c	28,500
Interest on Capital:			(After manager’s commission)
X	4,000
Y	3,000	7,000
Profit transferred to:
X’s Capital A/c	9,300
Y’s Capital A/c	6,200	15,500
		28,500		28,500

Working Notes:

WN 1 Calculation of Manager’s Commission

Profit for making Managers’ Commission = 24,000 + 6,000 (Y’s Salary) = Rs 30,000

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Profit Share of each Partner

Profit available for distribution = 28,500 − 6,000 − 7,000 = Rs 15,500

Question 14:

Prem and Manoj are partners in a firm sharing profits in the ratio of 3 : 2. The Partnership Deed provided that Prem was to be paid salary of ₹ 2,500 per month and Manoj was to ger a commission of ₹ 10,000 per year. Interest on capital was to be allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. Interest on Prem's drawings was ₹ 1,250 and on Manoj's drawings was ₹ 425. Interest on Capitals of the partners were ₹ 10,000 and ₹ 7,500 respectively. The firm earned a profit of ₹ 90,575 for the year ended 31st March, 2018.
Prepare Profit and Loss Appropriation Account of the firm.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March 2018
Dr.					Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Salary to Prem (Rs 2,500 × 12)		30,000	Profit and Loss A/c (Net Profit)		90,575
Commission to Manoj		10,000	Interest on Drawings A/c:
Interest on Capital:			Prem	1,250
Prem	10,000		Manoj	425	1,675
Manoj	7,500	17,500
Profit transferred to:
Prem’s Current A/c	20,850
Manoj’s Current A/c	13,900	34,750
		92,250			92,250

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 90,575 + 1,675 − 30,000 − 10,000 − 17,500

= Rs 34,750

Profit sharing ratio = 3 : 2

Question 15:

Reema and Seema are partners sharing profits equally. The Partnership Deed provides that both Reema and Seema will get monthly salary of Rs 15,000 each, Interest on Capital will be allowed @ 5% p.a. and Interest on Drawings will be charged @ 10% p.a. Their capitals were Rs 5,00,000 each and drawings during the year were Rs 60,000 each.
The firm incurred a loss of Rs 1,00,000 during the year ended 31st March, 2018.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Profit and Loss A/c	1,00,000	Interest on Drawings A/c:
		Reema	3,000
		Seema	3,000	6,000
		Loss transferred to
		Reema	47,000
		Seema	47,000	94,000
	1,00,000			1,00,000

Note: Since the firm has incurred loss, no interest on capital and salary will be allowed to the partners. However, interest on drawings will be charged from each of them @ 10% p.a. on the amounts withdrawn by them for an average period of six months.

Question 16:

Bhanu and Partab are partners sharings profits eqully. Their fixed capitals as on 1st 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 31st March, 2018 was ₹ 1,20,000.
Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.						Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Interest on Capital A/c:			Profit and Loss A/c		1,20,000
Bhanu’s Current A/c	80,000		Interest on Drawings A/c:
Partap’s Current A/c	1,00,000	1,80,000	Bhanu’s Current A/c	3,750
			Partap’s Current A/c	7,500	11,250
			Loss transferred to
			Bhanu’s Current A/c	24,375
			Partap’s Current A/c	24,375	48,750

		1,80,000			1,80,000

Question 17:

Amar and Bimal entered into partnership on 1st April, 2017 contributing ₹ 1,50,000 and ₹ 2,50,000 respecitvely towards capital. The Partnership Deed provided for interest on capital @ 10% p.a. It also provided that Capital Accounts shall be maintained following Fixed Capital Accounts method. The firm earned net profit of ₹ 1,00,000 for the year ended 31st March 2018.
Pass the Journal entry for interest on capital.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

	Profit & Loss Appropriation A/c	Dr.		40,000
	To Amar’s Current A/c				15,000
	To Bimal’s Current A/c				25,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

Working Notes:

WN1: Calculation of Interest on Capital:

$\begin{array}{l} Amar's Interest on Capital = 1,50,000 \times \frac{10}{100} = Rs 15,000 \\ Bimal's Interest on Capital = 2,50,000 \times \frac{10}{100} = Rs 25,000 \end{array}$

Question 18:

Kamal and Kapil ar partners having fixed capitals of ₹ 5,00,000 each as on 31st March, 2017. Kamal introduced further captial of ₹ 1,00,000 on 1st October, 2017 whereas Kapil withdrew ₹ 1,00,000 on 1st October, 2017 out of capital.
Interest on capital is to be allowed @ 10% p.a.
The firm earned net profit of ₹ 6,00,000 for the year ended 31st March 2018.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

	Profit & Loss Appropriation A/c	Dr.		1,00,000
	To Kamal’s Current A/c				55,000
	To Kapil’s Current A/c				45,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

Profit and Loss Appropriation Account for the year ended 31 March 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital A/c:			Profit and Loss A/c	6,00,000
Kamal	55,000
Kapil	45,000	1,00,000
Profit transferred to:
Kamal’s Current A/c	2,50,000
Kapil’s Current A/c	2,50,000	5,00,000
		6,00,000		6,00,000

Working Notes:

WN1: Calculation of Interest on Capital:

$\begin{array}{l} Kamal = (\frac{5, 00, 000 \times 10 \times 6}{100 \times 12}) + (\frac{6, 00, 000 \times 10 \times 6}{100 \times 12}) = Rs 55,000 \\ Kapil = (\frac{5, 00, 000 \times 10 \times 6}{100 \times 12}) + (\frac{4, 00, 000 \times 10 \times 6}{100 \times 12}) = Rs 45,000 \end{array}$

Question 19:

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:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

	Profit & Loss Appropriation A/c	Dr.		20,000
	To Simran’s Current A/c				10,000
	To Reema’s Current A/c				10,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

	Profit & Loss Appropriation A/c			2,80,000
	To Simran’s Current A/c				1,68,000
	To Reema’s Current A/c				1,12,000
	(Profit transferred to Partners’ Current A/c)

Profit and Loss Appropriation Account for the year ended 31 March 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital A/c:			Profit and Loss A/c	3,00,000
Simran	10,000
Reema	10,000	20,000
Profit transferred to:
Simran’s Current A/c	1,68,000
Reema’s Current A/c	1,12,000	2,80,000
		3,00,000		3,00,000

Working Notes:

WN1: Calculation of Interest on Capital

$\begin{array}{l} Simran's Interest on Capital = 2,00,000 \times \frac{5}{100} = Rs 10,000 \\ Reema's Interest on Capital = 2,00,000 \times \frac{5}{100} = Rs 10,000 \end{array}$

Question 20:

Anita and Ankita are partners sharing profits equally. Their capitals, maintained following Fluctuating Capital Accounts Method, as on 31st March, 2017 were ₹ 5,00,000 and ₹ 4,00,000 respectively. Partnership Deed provided to allow interest on capital @ 10% p.a. The firm earned net profit of ₹ 2,00,000 for the year ended 31st March, 2018.
Pass the journal entry for interest on capital.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

	Profit & Loss Appropriation A/c	Dr.		90,000
	To Anita’s Capital A/c				50,000
	To Ankita’s Capital A/c				40,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

Working Notes:

WN1: Calculation of Interest on Capital

$\begin{array}{l} Anita's Interest on Capital = 5,00,000 \times \frac{10}{100} = Rs 50,000 \\ Ankita's Interest on Capital = 4,00,000 \times \frac{10}{100} = Rs 40,000 \end{array}$

Question 21:

Ashish and Aakash are partners sharing profit in the ratio of 3 : 2. Their Capital Accounts showed a credit balance of ₹ 5,00,000 and ₹ 6,00,000 respectively as on 31st March, 2018 after debit of drawings during the year of ₹ 1,50,000 and ₹ 1,00,000 respectively. Net profit for the year ended 31st March was ₹ 5,00,000. Interest on capital is to be allowed @ 10% p.a.
Pass the journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

	Profit & Loss Appropriation A/c	Dr.		1,35,000
	To Ashish’s Capital A/c				65,000
	To Aakash’s Capital A/c				70,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)
				3,65,000
	Profit & Loss Appropriation A/c				2,19,000
	To Ashish’s Capital A/c				1,46,000
	To Akash’s Capital A/c
	(Profit transferred to Partners’ Capital A/c)

Profit and Loss Appropriation Account for the year ended 31 March 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital A/c:				Profit and Loss A/c	5,00,000
Ashish		65,000
Aakash		70,000	1,35,000
Profit transferred to:
Ashish’s Capital A/c	2,19,000
Aakash’s Capital A/c	1,46,000		3,65,000
			5,00,000		5,00,000

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Ashish	Aakash
Capital at the end	5,00,000	6,00,000
Add: Drawings made	1,50,000	1,00,000
Capital at the beginning	6,50,000	7,00,000

WN2: Calculation of Interest on Capital

$\begin{array}{l} Ashish's Interest on Capital = 6,50,000 \times \frac{10}{100} = Rs 65,000 \\ Aakash's Interest on Capital = 7,00,000 \times \frac{10}{100} = Rs 70,000 \end{array}$

Question 22:

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.gbn knnk j

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

	Profit & Loss Appropriation A/c	Dr.		82,500
	To Naresh’s Capital A/c				42,500
	To Sukesh’s Capital A/c				40,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

	Profit & Loss Appropriation A/c	Dr.		1,17,500
	To Naresh’s Capital A/c				58,750
	To Sukesh’s Capital A/c				58,750
	(Profit transferred to Partners’ Capital A/c)

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Naresh	Sukesh
Capital at the end	3,00,000	3,00,000
Add: Drawings out of capital	50,000	-
Add: Drawings against profit	1,00,000	1,00,000
Capital at the beginning	4,50,000	4,00,000

WN2: Calculation of Interest on Capital

$\begin{array}{l} Naresh = \frac{4, 50, 000 \times 10 \times 6}{100 \times 12} + \frac{4, 00, 000 \times 10 \times 6}{100 \times 12} = Rs 42,500 \\ Sukesh = \frac{4, 00, 000 \times 10}{100} = Rs 40,000 \end{array}$

Question 23:

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:

Profit and Loss Appropriation Account for the year ended March 2014
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital A/c:			Profit and Loss A/c	7,800
Jay	4,800
Vijay	3,000	7,800

		7,800		7,800

Working Notes:

WN1: Calculation of Interest on Capital

WN2: Calculation of Proportionate Interest on Capital

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. Rs 7,800.

Question 24:

A, B and C are partners in a firm. A and B are to get annual salary of ₹ 1,20,000 p.a. each as they are fully involved in the business. Net profit for the year is ₹ 4,80,000. Determine the share of profit to be credited to each partner.

Answer:

Profit and Loss Appropriation Account for the year ended …
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Salary:			Profit and Loss A/c	4,80,000
A	1,20,000
B	1,20,000	2,40,000
Profit transferred to:
A’s Capital A/c	80,000
B’s Capital A/c	80,000
C’s Capital A/c	80,000	2,40,000
		4,80,000		4,80,000

Question 25:

A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1 respectively. A is entitled to a commission of 10% on the net profit. Net profit for the year is ₹ 1,10,000.
Determine the amount of commission payable to A.

Answer:

Net Profit before charging commission = Rs 1,10,000

Commission to A = 10% of on Net Profit before charging such commission

Question 26:

X, Y and Z are partners sharing profits and lossed equally. As per partnership Deed, Z is entitled to a commission of 10% on the net profit after charging such commission. The net profit before charging commission is ₹ 2,20,000.
Determine the amount of commission payable to Z.

Answer:

Net Profit before charging Commission = Rs 2,20,000

Commission to Z = 10% of on Net Profit after charging such commission

Question 27:

A, B, C, and D are partners in a firm sharing profits as 4 : 3 : 2 : 1 respectively. It earned a profit of ₹ 1,80,000 for the year ended 31st March, 2018. As per the Partnership Deed, they are to charge a commission @ 20% of the profit after charging such commission which they will share as 2 : 3 : 2 : 3. You are required to show appropriation of profits among the partners.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.				Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Partners’ Commission:				Profit and Loss A/c (Net Profit)	1,80,000
A		6,000
B		9,000
C		6,000
D		9,000	30,000
Profit transferred to:
A’s Capital A/c	60,000
B’s Capital A/c	45,000
C’s Capital A/c	30,000
D’s Capital A/c	15,000		1,50,000
			1,80,000		1,80,000

Working Notes:

WN 1 Calculation of Partners’ Commission

Partners’ Commission = 20% on Net Profit after charging such commission

This commission is to be shared by the partners in the ratio of 2 : 3 : 2 : 3

WN 2 Calculation of Profit Share of each Partner

Profit available for Distribution = 1,80,000 − 30,000 = Rs 1,50,000

Profit sharing ratio = 4 : 3 : 2 : 1

Question 28:

X and Y are partners in a firm. X is entitled to a salary of ₹ 10,000 per month and commission of 10% of the net profit after partners' salaries but before charging commission. Y is entitled to a salary of ₹ 25,000 p.a. and commission of 10% of the net profit after chaging all commission and partners' salaries. Net profit before providing for partners' salaries and commission for the year ended 31st March, 2018 was ₹ 4,20,000, show distribution of profit.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars				Amount Rs	Particulars	Amount Rs
Partners’ Salary:					Profit and Loss A/c (Net Profit)	4,20,000
X (10,000 × 12)		1,20,000
Y		25,000		1,45,000
Partners’ Commission:
X			27,500
Y			22,500	50,000
Profit transferred to:
X’s Capital A/c	1,12,500
Y’s Capital A/c	1,12,500			2,25,000
				4,20,000		4,20,000

Working Notes:

WN 1 Calculation of Commission

Commission to X = 10% of Net Profit after partners’ salaries but before charging such commission

Profit after Partners’ Salaries = 4,20,000 − 1,45,000 = Rs 2,75,000

Commission to Y = 10% of Net Profit after charging Commission and Partners’ Salaries

Profit after commission and partners’ salaries = 4,20,000 − 1,45,000 − 27,500 = Rs 2,47,500

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 4,20,000 − 1,45,000 − 50,000 = Rs 2,25,000

Profit sharing ratio = 1 : 1

Question 29:

Ram and Mohan, two partners, drew for their personal use ₹ 1,20,000 and ₹ 80,000. Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest chargeable from each partner?

Answer:

In this question, date of drawings made by the partners is not given. Therefore, interest on drawings is calculated on average basis for a period of six months.

Question 30:

B and M are partners in a firm. They withdrew ₹ 48,000 and ₹ 36,000 respectively during the year evenly in the middle of every month. According to the partnership agreement, interest on drawings is to be charged @ 10% p.a.
Calculate interest on drawings of the partners using the appropriate formula.

Answer:

Since, the drawings are made evenly at the middle of every month, therefore interest on drawings is calculated for a period of six months.

Question 31:

A and B are partners sharing profits equally. A drew regularly ₹ 4,000 in the beginning of every month for six months ended 30th September, 2018. Calculate interest on drawings @ 5% p.a. for a period of six months.

Answer:

Question 32:

A and B are partners sharing profits equally. A drew regularly ₹ 4,000 at the end of every month for six months ended 30th September, 2018. Calculate interest on drawings @ 5% p.a. for a period of six months.

Answer:

Question 33:

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:

Total Drawings = 7,500 × 4 = Rs 30,000

Interest Rate = 10% p.a.

Case (a)

When equal amount is withdrawn in the beginning of each quarter, the interest on drawings is calculated for an average period of 7.5 months

Case (b)

When equal amount is withdrawn at the end of each quarter, the interest on drawings is calculated for an average period of 4.5 months

Case (c)

When equal amount is withdrawn in the middle of each quarter, the interest on drawings is calculated for an average period of 6 months

Question 34:

Kanika and Gautam are partners doing a dry cleaning business in Lucknow, sharing profits in the ratio 2 : 1 with capitals ₹ 5,00,000 and ₹ 4,00,000 respectively. Kanika withdrew the following amounts during the year to pay the hostel expenses of her son:

1st April	₹ 10,000
1st June	₹ 9,000
1st November	₹ 14,000
1st December	₹ 5,000

Gautam withdrew ₹ 15,000 on the first day of April, July, October and January to pay rent for the accommodation of his family. He also paid ₹ 20,000 per month as rent for the office of partnership which was in a nearby shopping complex.
Calculate interest on drawings @ 6% p.a.

Answer:

Interest on Kanika’s Drawings = Rs 1,500

Interest on Gautam’s Drawings = Rs 2,250

Working Notes:

WN1: Calculation of Interest on Kanika’s Drawings

By Product Method
Date	Amount (I)	Months (II)	Product (I × II)
Apr. 01	10,000	12	1,20,000
June 01	9,000	10	90,000
Nov. 01	14,000	5	70,000
Dec. 01	5,000	4	20,000
Sum of Product			3,00,000

WN2: Calculation of Interest on Gautam’s Drawings

Gautam withdrew Rs 15,000 in the beginning of every quarter.

Question 35:

A and B are partners sharing Profit and Loss in the ratio 3 : 2 having Capital Account balances of ₹ 50,000 and ₹ 40,000 on 1st April, 2017. On 1st July, 2017, A introduced ₹ 10,000 as his additional capital whereas B introduced only ₹ 1,000. Interest on capital is allowed to partners @ 10% p.a.
Calculate interest on capital for the financial year ended 31st March, 2018.

Answer:

Calculation of Interest on A’s Capital

Date	Capital	×	Period	=	Product
April 01, 2016 to June 30, 2016	50,000	×	3	=	1,50,000
July 01, 2016 to March 31, 2017	60,000	×	9	=	5,40,000
Sum of Product					6,90,000

Calculation of Interest on B’s Capital

Date	Capital	×	Period	=	Product
April 01, 2016 to June 30, 2016	40,000	×	3	=	1,20,000
July 01, 2016 to March 31, 2017	41,000	×	9	=	3,69,000
Sum of Product					4,89,000

Question 36:

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

Particulars	Ram	Mohan
Capital at the end	24,000	18,000
Less: Profit already credited (1:1)	(8,000)	(8,000)
Add: Drawings already debited	4,000	6,000
Capital at the beginning	20,000	16,000

Question 37:

Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2018.

BALANCE SHEET as at 31st March, 2018
Liabilities	₹	Assets***	₹***
Neelkant's Capital	10,00,000	Sundry Assets	30,00,000
Mahadev's Capital	10,00,000
Neelkant's Current A/c	1,00,000
Mahadev' Current A/c	1,00,000
profit and Loss Appropriation A/c (March 2018)	8,00,000
	30,00,000		30,00,000

During the year, Mahadev's drawings were ₹ 30,000. Profits during the year ended 31st March, 2018 is ₹ 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2018.

Answer:

Interest on Capital

Neelkant’s	$10, 00, 000 \times \frac{5}{100} = 50, 000$
Mahadev’s	$10, 00, 000 \times \frac{5}{100} = 50, 000$

Note: In this question, as the balances of both Partner's Capital Account and of Partner's Current Account are mentioned, so it has been assumed that the capital of the partners is fixed.

As we know, when the capital of the partners is fixed, drawings and interest on capital does not affect the capital balances of the partners. Rather, it would affect their current account balances. Therefore, in this case, capital at the beginning (i.e. opening capital) and capital at the end (i.e. closing capital) of the year would remain same. Thus, the interest on capital is calculated on fixed capital balances (given in the Balance Sheet of the question).

Question 38:

From the following Balance Sheet of Long and Short, calculate interst on capital @ 8% p.a. for the year ended 31st March, 2018.

BALANCE SHEET as at 31st March, 2018
Liabilities	₹	Assets	₹
Long's Capital A/c	1,20,000	Fixed Assets	3,00,000
Short's Capital A/c	1,40,000	Other Assets	60,000
General Reserve	1,00,000
	3,60,000		3,60,000

During the year, Long withdrew ₹ 40,000 and Short withdrew ₹ 50,000. Profit for the year was ₹ 1,50,000 out of which ₹ 1,00,000 was transferred to General Reserve.

Answer:

Calculation of Capital at the beginning (as on April 01, 2017)

Particulars	Long	Short
Capital at the end	1,60,000	1,40,000
Less: Adjusted Profit (1,50,000 – 1,00,000) in 1:1 ratio	(25,000)	(25,000)
Add: Adjusted Drawings	-	50,000
Capital in the beginning	1,35,000	1,65,000

Question 39:

X and Y contribute ₹ 20,000 and ₹ 10,000 respectively towards capital. They decide to allow interest on capital @ 6% p.a. Their respective share of profits is 2 : 3 and the net profit for the year is ₹ 1,500. Show distribution of profits:
(i) where there is no agreement except for interest on capitals; and
(ii) where there is an agreement that the interest on capital as a charge.

Answer:

Calculation of Interest on Capital

Case (a)

Where there is no clean agreement except for interest on capitals

Profit for the year ended = Rs 1,500

Total amount of interest = Rs 1,800

Here, total amount of interest on capital is more than the profit available for distribution. Therefore, profit of Rs 1,500 is distributed between X and Y in the ratio of their interest on capital.

Particulars	X	:	Y
Interest on Capital	1,200	:	600
or, Ratio of interest on Capital	2	:	1

Case (b)

In case, there is a clear agreement that the interest on capital will be allowed even if the firm has incurred loss, then the whole amount of interest on capital is to be allowed to the partners.

Total Profit of the firm = Rs 1,500

Total amount of Interest on Capital = Rs 1,800 (i.e. Rs 1,200 + Rs 600). Therefore, loss to the firm amounts to Rs 300. This loss is to shared by X and Y in their profit sharing ratio that is 2 : 3.

Question 40:

A and B started business on 1st April, 2017 with capitals of ₹ 15,00,000 and ₹ 9,00,000 respectively. On 1st October, 2017, they decided that their capitals should be ₹ 12,00,000 each. The necessary adjustments in capitals were made by introducing or withdrawing by cheque. Interest on capital is allowed @ 8% p.a. Compute interest on capital for the year ended 31st March, 2018.

Answer:

Calculation of Interest on A’s Capital

Date	Capital	×	Period	=	Product
April 01, 2016 to Sept. 30, 2017	15,00,000	×	6	=	90,00,000
Oct. 01, 2016 to March 31, 2018	12,00,000	×	6	=	72,00,000
Sum of Product					1,62,00,000

Calculation of Interest on B’s Capital

Date	Capital	×	Period	=	Product
April 01, 2016 to Sept. 30, 2017	9,00,000	×	6	=	54,00,000
Oct. 01, 2016 to March 31, 2018	12,00,000	×	6	=	72,00,000
Sum of Product					1,26,00,000

Question 41:

X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2 . On 31st March, 2018 after closing the books of account, their Capital Accounts stood at ₹ 4,80,000 and ₹ 6,00,000 respectively. On 1st May, 2017, X introduced an additional capital of ₹ 1,20,000 and Y withdrew ₹ 60,000 form his capital.On 1st October, 2017, X withdrew ₹ 2,40,000 from his capital and Y introduced ₹ 3,00,000 . Interest on capital is allowed at 6% p.a. Subsequently, it was discovered that interest on capital @ 6% p.a. had been omitted. The profits for the year ended 31st March, 2018 amounted to ₹ 2,40,000 and the partners' drawings had been: X–₹1,20,000 and Y–₹ 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.

Answer:

Case 1: If Capitals are fixed:

Calculation of Interest on Capital

$\begin{array}{l} Interest on Capital \\ X = \frac{6, 00, 000 \times 6 \times 1}{100 \times 12} + \frac{7, 20, 000 \times 6 \times 5}{100 \times 12} + \frac{4, 80, 000 \times 6 \times 6}{100 \times 12} = Rs 35,400 \\ Y = \frac{3, 60, 000 \times 6 \times 1}{100 \times 12} + \frac{3, 00, 000 \times 6 \times 5}{100 \times 12} + \frac{6, 00, 000 \times 6 \times 6}{100 \times 12} = Rs 27,300 \end{array}$

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	X	Y
Capital at the end	4,80,000	6,00,000
Add: Drawings out of capital	2,40,000	60,000
Less: Fresh capital introduced	1,20,000	3,00,000
Capital at the beginning	6,00,000	3,60,000

Case2: If Capitals are Fluctuating:

Calculation of Interest on Capital

$\begin{array}{l} Interest on Capital \\ X = \frac{5, 76, 000 \times 6 \times 1}{100 \times 12} + \frac{6, 96, 000 \times 6 \times 5}{100 \times 12} + \frac{4, 56, 000 \times 6 \times 6}{100 \times 12} = Rs 33,960 \\ Y = \frac{3, 24, 000 \times 6 \times 1}{100 \times 12} + \frac{2, 64, 000 \times 6 \times 5}{100 \times 12} + \frac{5, 64, 000 \times 6 \times 6}{100 \times 12} = Rs 25,140 \end{array}$

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	X	Y
Capital at the end	4,80,000	6,00,000
Add: Drawings out of capital	2,40,000	60,000
Add: Drawings out of profit	1,20,000	60,000
Less: Fresh capital introduced	1,20,000	3,00,000
Less: Profit already credited	1,44,000	96,000
Capital at the beginning	5,76,000	3,24,000

Question 42:

C and D are partners in a firm; C has contributed ₹ 1,00,000 and D ₹ 60,000 as capital. Interest in payable @ 6% p.a. and D is entitled to a salary of ₹ 3,000 per month. In 2017–18, the profit was ₹ 80,000 before interest and salary. Divide the amount between C and D.

Answer:

Profit and Loss Appropriation Account for the year ended 2017-2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c (Net Profit)	80,000
C		6,000
D		3,600	9,600
Salary to D (3000 × 12)			36,000
Profit transferred to :
C’s Capital A/c	17,200
D’s Capital A/c	17,200		34,400
			80,000		80,000

Working Notes:

WN 1 Calculation of Interest on Capital

$Interest on C' s Capital = 1, 00, 000 \times \frac{6}{100} = 6, 000 Interest on D' s Capital = 60, 000 \times \frac{6}{100} = 3, 600$

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 80,000 − 9,600 − 36,000 = Rs 34,400
$Profit share of C and D each = 34, 400 \times \frac{1}{2} = 17, 200$
Total amount received by C = Interest on Capital + Profit Share = 6,000 + 17,200 = Rs 23,200

Total amount received by D = Interest on Capital + Salary + Profit Share = 3,600 + 36,000 + 17,200 = Rs 56,800

Question 43:

Amit and Vijay started a partnership business on 1st April,2017. Their capital contributions were ₹ 2,00,000 and ₹ 1,50,000 respectively. The Partnership Deed provided that:
(a) Interest on capital be allowed @ 10% p.a.
(b) Amit to get a salary of ₹ 2,000 per month and Vijay ₹ 3,000 per month.
(c) Profits are to be shared in the ratio of 3 : 2.
Profit for the year ended 31st March, 2018 befor above appropriations was ₹ 2,16,000. Interest on drawings amounted to ₹ 2,200 for Amit and ₹ 2,500 for Vijay.
Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.					Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Interest on Capital:			Profit and Loss A/c (Net Profit)		2,16,000
Amit	20,000		Interest on Drawings A/c:
Vijay	15,000	35,000	Amit	2,200
Salary to:			Vijay	2,500	4,700
Amit (2,000 × 12)	24,000
Vijay (3,000 × 12)	36,000	60,000
Profit transferred to:
Amit’s Capital A/c	75,420
Vijay’s Capital A/c	50,280	1,25,700
		2,20,700			2,20,700

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Divisible Profit = 2,16,000 + 4,700 − 35,000 − 60,000 = Rs 1, 25,700

Profit sharing ratio = 3 : 2

Question 44:

Show how the following will be recorded in the Capital Accounts of the Partners Sohan and Mohan when their capitals are fluctuating:

	Sohan(₹)	Mohan(₹)
Capital on 1st April, 2017	4,00,000	3,00,000
Drawings during 2017 –18	50,000	30,000
Interest on Capital	5%	5%
Interest on Drawings	1,250	750
Share of Profit for 2017–18	60,000	50,000
Partner's Salary	36,000	.....
Commission	5,000	3,000

Answer:

Partners’ Capital Accounts
Dr.				Cr.
Particulars	Sohan	Mohan	Particulars		Sohan	Mohan
Drawings A/c	50,000	30,000	Balance b/d		4,00,000	3,00,000
Interest on Drawings A/c	1,250	750	Interest on Capital A/c		20,000	15,000
			P&L Appropriation A/c		60,000	50,000
Balance c/d	4,69,750	3,37,250	Partners’ Salary		36,000	-
			Commission		5,000	3,000
	5,21,000	3,68,000			5,21,000	3,68,000

Working Note:

Calculation of Interest on Capital

Question 45:

Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2017 their Capitals were: Sajal–₹ 50,000 and Kajal–₹ 40,000.
Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts at the end of the year after considering the following items:
(a) Interest on Capital is to be allowed @ 5% p.a.
(b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being ₹ 30,000.
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal ₹ 10,000 and Kajal ₹ 8,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
The net profit for the year ended 31st March, 2018 ₹ 68,460.
Note: Net profit means net profit after debit of interest on loan by the partner.

Answer:

Profit and Loss Account for the year ended 31st March, 2018
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Interest on Kajal’s loan@ 6% p.a.	1,800	Profit	70,260
Profit transferred to P/L Appropriation A/c	68,460

	70,260		70,260

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.						Cr.
Particulars			Amount Rs	Particulars		Amount Rs
Interest on Capital A/c:				Profit and Loss A/c		68,460
Sajal		2,500
Kajal		2,000	4,500	Interest on Drawings A/c:
				Sajal	300
Reserve			6,450	Kajal	240	540
Profit transferred to:
Sajal’s Capital A/c	38,700
Kajal’s Capital A/c	19,350		58,050
			69,000			69,000

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Sajal	Kajal		Particulars	Sajal	Kajal
Drawings A/c	10,000	8,000		Balance b/d	50,000	40,000
Interest on Drawings A/c	300	240		Interest on Capital A/c	2,500	2,000
				P&L Appropriation A/c	38,700	19,350
Balance c/d	80,900	53,110
	91,200	61,350			91,200	61,350

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Interest on Drawings

WN 3 Calculation of Amount to be transferred to Reserve

Amount for Reserve = 10% of Divisible Profit

Divisible Profit = Profit + Interest on Drawings − Interest on Capital

= 68,460 + 540 − 4,500 = Rs 64,500

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 68,460 + 540 − 4,500 − 6,450 = Rs 58,050

Profit sharing ratio = 2 : 1

Question 46:

On 1st April, 2017, A and B entered into partnership contributing ₹ 60,000 and ₹ 45,000 respectively. They agreed to share profits and losses in the ratio of 3 : 2. B is allowed salary of ₹ 12,000 per year. Interest on capital is to be allowed @ 10% p.a. During the year, A withdrew ₹ 9,000 and B withdrew ₹ 18,000 as drawings, Interest on drawings paid by A and B were ₹ 150 and ₹ 210 respectively. Profit for the year ended 31st March, 2018 before the above adjustments was ₹ 35,000. Show distribution of profits by preparing Profit and Loss Appropriation Account of the firm. Prepare Partners' Capital Accounts also.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.						Cr.
Particulars			Amount Rs	Particulars		Amount Rs
Salary to B			12,000	Profit and Loss A/c (Net Profit)		35,000
Interest on Capital:				Interest on Drawings A/c:
A		6,000		A	150
B		4,500	10,500	B	210	360
Profit transferred to:
A’s Capital A/c	7,716
B’s Capital A/c	5,144		12,860
			35,360			35,360

Partners’ Capital Accounts
Dr.					Cr.
Particulars	A	B	Particulars	A	B
Drawings A/c	9,000	18,000	Balance b/d	60,000	45,000
Interest on Drawings A/c	150	210	Interest Capital A/c	6,000	4,500
			Salary A/c	-	12,000
Balance c/d	64,566	48,434	P&L Appropriation A/c	7,716	5,144
	73,716	66,644		73,716	66,644

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profit available for Distribution = 35,000 + 360 − 12,000 − 10,500 = Rs 12, 860

Question 47:

A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2017, their capitals were: A ₹ 50,000 and B ₹ 30,000. During the year ended 31st March, 2018 they earned a net profit of ₹ 50,000. The terms of partnership are:
(a) Interest on capital is to allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of ₹ 500 per month.
(d) B will get commission of 5% on profits after deduction of all expenses including such commission.
Partners' drawings for the year were: A ₹ 8,000 and B ₹ 6,000. Turnover for the year was ₹ 3,00,000. After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners' Capital Accounts.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital:			Profit and Loss A/c (Net Profit)	50,000
A	3,000
B	1,800	4,800
B’s Salary (500 × 12)		6,000
Partner’s Commission
A	6,000
B	1,581	7,581
Profit transferred to:
A’s Capital A/c	23,714
B’s Capital A/c	7,905	31,619
		50,000		50,000

Partners’ Capital Accounts
Dr.					Cr.
Particulars	A	B	Particulars	A	B
Drawings A/c	8,000	6,000	Balance b/d	50,000	30,000
			Interest on Capital A/c	3,000	1,800
			Commission A/c	6,000	1,581
			Salary A/c		6,000
Balance c/d	74,714	41,286	P/L Appropriation A/c	23,714	7,905
	82,714	47,286		82,714	47,286

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Commission to Partners

Commission to B = 5% on Profits after all Expense including such Commission

Profits after all expense = 50,000 − 4,800 − 6,000 − 6,000 = Rs 33,200

WN 3 Calculation of Profit Share of each Partner

Profit available for Distribution = 50,000 − 4,800 − 6,000 −7,581 = Rs 31,619

Profit sharing ratio = 3 : 1

Question 48:

A, B and C were partners in a firm having capitals of ₹ 50,000 ; ₹ 50,000 and ₹ 1,00,000 respectively. Their Current Account balances were A: ₹ 10,000; B: ₹ 5,000 and C: ₹ 2,000 (Dr.). According to the Partnership Deed the partners were entitled to an interest on Capital @ 10% p.a. C being the working partner was also entitled to a salary of ₹ 12,000 p.a. The profits were to be capitals:
(a) The first ₹ 20,000 in proportion to their capitals.
(b) Next ₹ 30,000 in the ratio of 5 : 3 : 2.
(c) Remaining profits to be shared equally.
The firm earned net profit of ₹ 1,72,000 before charging any of the above items.
Prepare Profit and Loss Appropriation Account and pass necessary Journal entry for the appropriation of profits.

Answer:

Profit and Loss Appropriation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital:			Profit and Loss A/c (Net Profit)	1,72,000
A	5,000
B	5,000
C	10,000	20,000
Salary to C		12,000
Profit transferred to:
A’s Current A/c	50,000
B’s Current A/c	44,000
C’s Current A/c	46,000	1,40,000
		1,72,000		1,72,000

Journal Entries
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs

	Interest on Capital A/c	Dr.		20,000
	To A’s Current A/c				5,000
	To B’s Current A/c				5,000
	To C’s Current A/c				10,000
	(Interest on partners’ capital allowed to partners)

	Salary A/c	Dr.		12,000
	To C’s Current A/c				12,000
	(Salary allowed to C)

	Profit and Loss Appropriation A/c	Dr.		1,40,000
	To A’s Current A/c				50,000
	To B’s Current A/c				44,000
	To C’s Current A/c				46,000
	(Profit available for distribution transferred to partners’ current accounts)

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profits available for Distribution = 1,72,000 − 20,000 − 12,000

= Rs 1,40,000

1. Distribution of first Rs 20,000 in the Capital Ratio i.e. 1:1:2

2. Distribution of Next Rs 30,000 in the ratio of 5:3:2

3. Remaining Profit available for distribution = Rs 1,40,000 − 20,000 − 30,000 = Rs 90,000

This profit of Rs 90,000 is to be shared equally by the partners.

Therefore,

Total Profit Share of A = 5,000 + 15,000 + 30,000 = Rs 50,000

Total Profit Share of B = 5,000 + 9,000 + 30,000 = Rs 44,000

Total Profit Share of C = 10,000 + 6,000 + 30,000 = Rs 46,000

Question 49:

A and B are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 50,000 and ₹ 30,000 respectively. Interest on cpital is agreed @ 6% p.a. B is to be allowed an annual salary of ₹ 2,500. During the year profit prior to interest on capital but after charging B's salary amounted to ₹ 12,500. A provision of 5% of the profits if to be made in respect of Manager's Commission.

Answer:

Profit and Loss Account for the year ended ...
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Manager’s Commission	750	Profit before B’s Salary	15,000
(5% of Rs 15,000)		(12,500+2,500)
Profit transferred to Profit and Loss Appropriation Account	14,250
	15,000		15,000

Profit and Loss Appropriation Account for the year ended ...
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital A/c:				Profit and Loss A/c	14,250
A		3,000
B		1,800	4,800
B’s Salary			2,500
Profit transferred to:
A’s Capital A/c	4,170
B’s Capital A/c	2,780		6,950
			14,250		14,250

Partners’ Capital Accounts
Dr.						Cr.
Particulars	A	B	Particulars	A	B
Balance c/d	57,170	37,080	Balance b/d	50,000	30,000
			Interest on Capital A/c	3,000	1,800
			Salary A/c		2,500
			P/L Appropriation A/c	4,170	2,780
	57,170	37,080		57,170	37,080

Working Notes:

WN 1 Calculation of Managers’ Commission

1. Managers’ Commission = 5% on Net Profit (before Salary)

Profit before Salary = Profit after Salary + Salary = 12,500 + 2500 = Rs 15,000

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Profit Share of each Partner

Profit available for distribution = 12,500 − 750 − 3,000 − 1,800 = Rs 6,950

Profit sharing ratio = 3 : 2

Question 50:

P, Q and R are in a partnership and as at 1st April, 2017 their respective capitals were: ₹ 40,000, ₹ 30,000 and ₹ 30,000. Q is entitled to a salary of ₹ 6,000 and R ₹ 4,000 p.a. payable before division of profits. Interest is allowed on capital @ 5% p.a. and is not charged on drawings. Of the divisible profits, P is entitled to 50% of the first ₹ 10,000, Q to 30% and R to 20%, rest of the profit are shared equally. Profits for the year ended 31st March, 2018, after debiting partners' salaries but before charging interest on capital was ₹ 21,000 and the partners had drawn ₹ 10,000 each on account of salaries, interest and profit.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018 showing the distribution of profit and the Capital Accounts of the partners.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit (after Salary)	21,000
P		2,000
Q		1,500
R		1,500	5,000
Profit transferred to:
P’s Capital A/c	7,000
Q’s Capital A/c	5,000
R’s Capital A/c	4,000		16,000
			21,000		21,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	P	Q	R	Particulars	P	Q	R
Drawings A/c	10,000	10,000	10,000	Balance b/d	40,000	30,000	30,000
				Salaries A/c	-	6,000	4,000
				Interest Capital A/c	2,000	1,500	1,500
Balance c/d	39,000	32,500	29,500	P/L Appropriation A/c	7,000	5,000	4,000
	49,000	32,500	29,500		49,000	42,500	39,500

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 21,000 − 5000 = Rs 16,000

a. Distribution of first Rs 10,000 (50%, 30% and 20%)

b. Distribution of Reaming Profit i.e. Rs 6,000 (16,000 − 10,000) equally

Therefore,

Question 51:

A, B and C are partners sharing profits and losses in the ratio of A 1/2, B 3/10, C 1/5 after providing for interest @ 5% on their respective capitals, viz., A ₹ 50,000; B ₹ 30,000 and C ₹ 20,000 and allowing B and C a salary of ₹ 5,000 each per annum. During the year ended 31st March, 2018, A has drawn ₹ 10,000 and B and C in addition to their salaries have drawn ₹ 2,500 and ₹ 1,000 respectively. The Profit and Loss Account for the year ended 31st March, 2018 showed a net profit of ₹ 45,000 before charging (a) interest on capital and (b) partners' salaries. On 1st April, 2017, the balances in the current Account of the partners were A (cr.) ₹ 4,500; B (Cr.) ₹ 1,500 and C (Cr.) ₹ 1,000. Interest is not charged on Drawings or Current Account balances. Show Partners' Capital and Current Accounts as at 31st March, 2018 after division of profits in accordance with the partnership agreement.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.						Cr.
Particulars				Amount Rs	Particulars	Amount Rs
Interest on Capital:					Profit and Loss A/c	45,000
A			2,500
B			1,500
C			1,000	5,000
Salary to:
B			5,000
C			5,000	10,000
Profit transferred to:
A’s Current A/c	15,000
B’s Current A/c		9,000
C’s Current A/c		6,000		30,000
				45,000		45,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
				Balance b/d	50,000	30,000	20,000
Balance c/d	50,000	30,000	20,000
	50,000	30,000	20,000		50,000	30,000	20,000

Partners’ Current Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
Drawings A/c	10,000	7,500	6,000	Balance b/d	4,500	1,500	1,000
				Interest on Capital A/c	2,500	1,500	1,000
				Salaries A/c		5,000	5,000
Balance c/d	12,000	9,500	7,000	P/L Appropriation A/c	15,000	9,000	6,000
	22,000	17,000	13,000		22,000	17,000	13,000

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profit available for Distribution = 45,000 − 15,000 = Rs 30,000

Question 52:

Ali the Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2017 stand as Ali ₹ 25,000 and Bahadur ₹ 20,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2018 amounted to ₹ 3,500 and ₹ 2,500 respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @ ₹ 3,000, amounted to ₹ 40,000, 10% of divisible profit is to be transferred to Reserve.
You are asked to show Partners' Current Account and Capital Accounts recording the above transactions.

Answer:

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Ali	Bahadur		Particulars	Ali	Bahadur
				Balance b/d	25,000	20,000
Balance c/d	25,000	20,000
	25,000	20,000			25,000	20,000

Partners’ Current Accounts
Dr.					Cr.
Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
Drawings A/c	3,500	2,500	Interest on Capital A/c	1,250	1,000
			Bahadur’s Salary A/c		3,000
Balance c/d	19,642	10,883	P/L Appropriation A/c	21,892	9,383
	23,142	13,383		23,142	13,383

Working Notes:

WN 1

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c	40,000
Ali		1,250
Bahadur		1,000	2,250
Reserve			3,475
Bahadur’s Salary			3,000
Profit transferred to:
Ali’s Capital A/c	21,892
Bahadur’s Capital A/c	9,383		31,275
			40,000		40,000

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Amount to be transferred to Reserve

$Amount transferred to Reserve = 10 % of Divisible Profits = 10 % \times (40, 000 - 2, 250 - 3, 000) = Rs 3, 475$

WN 4 Calculation of Profit Share of each Partner

Profit available for distribution = 40,000 − 2,250 − 3,000 − 3,475 = Rs 31,275

$Ali' s Profit Share = 31, 275 \times \frac{70}{100} = 21, 892 Bahadur' s Profit Share = 31, 275 \times \frac{30}{100} = 9, 383$

Question 53:

Amal, Bimal and kamal are three partners. On 1st April, 2017, their Capitals stood as: Amal ₹ 40,000, Bimal ₹ 30,000 and Kamal ₹ 25,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amal would get a salary of ₹ 250 per month,
(c) Bimal would receive commission @ 4% on net profit after deducting commission, interest on capital and salary, and
(d) After deducting all of these 10% of the profit should be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March, 2018 was ₹ 33,360. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the Partners.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c	33,360
Amal		2,000		(Net Profit)
Bimal		1,500
Kamal		1,250	4,750
Salary to Amal (250 × 12)			3,000
Commission to Bimal			985
General Reserve			2,462
Profit transferred to:
Amal’s Capital A/c	7,388
Bimal’s Capital A/c	7,388
Kamal’s Capital A/c	7,387		22,163
			33,360		33,360

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Amal	Bimal	Kamal	Particulars		Amal	Bimal	Kamal
				Balance b/d		40,000	30,000	25,000
				Interest on Capital A/c		2,000	1,500	1,250
				Salary A/c		3,000	-	-
				Commission		-	985	-
Balance c/d	52,388	39,873	33,637	P/L Appropriation A/c		7,388	7,388	7,387
	52,388	39,873	33,637			52,388	39,873	33,637

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Commission to Bimal

Commission to Bimal = 4% on Net Profits after Commission

Profit after expenses = 33,360 − 4,750 − 3,000 = Rs 25,610

WN 3 Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Profit

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 33,360 − 4,750 − 3,000− 985 − 2,462

= Rs 22,163

Question 54:

Amit, Binita and Charu are three partners. On 1st April, 2017, their Capitals stood as: Amit ₹ 1,00,000, Binita ₹ 2,00,000 and Charu ₹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amit would get a salary of ₹ 10,000 per month,
(c) Binita would receive commission @ 5% of net profit after deduction of commission, and
(d) 10% of the net profit would be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March, 2018 was ₹ 5,00,000. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c (Net Profit)	5,00,000
Amit		5,000
Binita		10,000
Charu		15,000	30,000
Salary to Amit (10,000 × 12)			1,20,000
Commission to Binita			23,810
General Reserve			50,000
Profit transferred to:
Amit’s Capital A/c	92,063
Binita’s Capital A/c	92,063
Charu’s Capital A/c	92,064		2,76,190
			33,360		33,360

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Amit	Binita	Charu	Particulars		Amit	Binita	Charu
				Balance b/d		1,00,000	2,00,000	3,00,000
				Interest on Capital A/c		5,000	10,000	15,000
				Salary A/c		1,20,000	-	-
				Commission		-	23,810	-
Balance c/d	3,17,063	3,25,873	4,07,064	P/L Appropriation A/c		92,063	92,063	92,064
	3,17,063	3,25,873	4,07,064			3,17,063	3,25,873	4,07,064

Working Notes:

WN 1 Calculation of Interest on Capital

$Interest on Amit = 1, 00, 000 \times \frac{5}{100} = 5, 000 Interest on Binita = 2, 00, 000 \times \frac{5}{100} = 10, 000 Interest on Charu = 3, 00, 000 \times \frac{5}{100} = 15, 000$

WN 2 Calculation of Commission to Binita

Commission to Binita = 5% on Net Profits after Commission

$Commission to Binita = Net Profit \times \frac{Rate}{100 + Rate} = 5, 00, 000 \times \frac{5}{105} = Rs 23, 810$

WN 3 Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Profit

$= 5, 00, 000 \times \frac{10}{100} = Rs 50, 000$

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 5,00,000 - 30,000 - 1,20,000 - 23,810 - 50,000

= Rs 2,76,190
$Profit share of Amit, Binita and Charu each = 2, 76, 190 \times \frac{1}{3} = Rs 92, 063$

Question 55:

Anita, Bimla and Cherry are three partners. On 1st April, 2017, their Capitals stood as: Anita ₹ 1,00,000, Bimla ₹ 2,00,000 and Cherry ₹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Anita would get a salary of ₹ 5,000 per month,
(c) Bimla would receive commission @ 5% of net profit after deduction of commission, and
(d) 10% of the net divisible profit would be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March, 2018 was ₹ 5,00,000. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c (Net Profit)	5,00,000
Anita		5,000
Bimla		10,000
Cherry		15,000	30,000
Salary to Anita (5,000 × 12)			60,000
Commission to Bimla			23,810
General Reserve			38,619
Profit transferred to:
Anita’s Capital A/c	1,15,857
Bimla’s Capital A/c	1,15,857
Cherry’s Capital A/c	1,15,857		3,47,571
			5,00,000		5,00,000

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Anita	Bimla	Cherry	Particulars		Anita	Bimla	Cherry
				Balance b/d		1,00,000	2,00,000	3,00,000
				Interest on Capital A/c		5,000	10,000	15,000
				Salary A/c		60,000	-	-
				Commission		-	23,810	-
Balance c/d	2,80,857	3,49,667	4,30,857	P/L Appropriation A/c		1,15,857	1,15,857	1,15,857
	2,80,857	3,49,667	4,30,857			2,80,857	3,49,667	4,30,857

Working Notes:

WN 1 Calculation of Interest on Capital

$Interest on A nita = 1, 00, 000 \times \frac{5}{100} = 5, 000 Interest on Biml a = 2, 00, 000 \times \frac{5}{100} = 10, 000 Interest on Cherry = 3, 00, 000 \times \frac{5}{100} = 15, 000$

WN 2 Calculation of Commission to Bimla

Commission to Bimla = 5% on Net Profits after Commission

$Commission to Biml a = Net Profit \times \frac{Rate}{100 + Rate} = 5, 00, 000 \times \frac{5}{105} = Rs 23, 810$

WN 3 Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Divisible Profit

$= 3, 86, 190 \times \frac{10}{100} = Rs 38, 619$
Divisible Profit = 5,00,000 - 30,000 - 23,810 - 60,000 = 3,86,190

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 5,00,000 - 30,000 - 60,000 - 23,810 - 38,619

= Rs 3,47,571
$Profit share of Anita, Bimla and Cherry each = 3, 47, 571 \times \frac{1}{3} = Rs 1, 15, 857$

Question 56:

Anshul and Asha are partners sharing profits and losses in the ratio of 3 : 2. Anshul being a non-working partner contributed ₹ 8,00,000 as her capital. Asha being a working partner did not contribute capital. The partnership Deed provides for interest on capital @ 5% and salary to every working partner @ ₹2,000 per month. Net profit before providing for interest on capital and partner's salary for the year ended 31st March, 2018 was ₹ 32,000.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.			Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Interest on Anshul’s Capital	20,000	Profit and Loss A/c		32,000
Asha’s Salary	12,000
	32,000			32,000

Working Note:

Salary to Asha = Rs 24,000

Total appropriation to be made = 40,000 + 24,000 = Rs 64,000

Profit earned during the year = 32,000

Here, profit available for distribution (i.e. Rs 32,000) is less than the sum total of Interest on Capital and Salary (i.e. Rs 64,000).

Therefore, profit will be distributed in the ratio of Interest on Capital and Salary.

Question 57:

X and Y entered into partnership on 1st April, 2017 and contributed ₹ 2,00,000 and ₹ 1,50,000 respectively as their capitals. On 1st October, 2017, X provided ₹ 50,000 as loan to the firm. As per the provisions of the partnership Deed:
(i) 20% of Profits before charging interest on Drawings but after making appropriations to be transferred to General Reserve.
(ii) Interest on capital at 12% p.a. and Interest on Drawings @ 10% p.a.
(iii) X to ger monthly salary of ₹ 5,000 and Y to get salary of ₹ 22,500 per quarter.
(iv) X is entitled to a commission of 5% on sales. Sales for the year were ₹ 3,50,000.
(v) Profit and Loss to be shared in the ratio of their capital contribution up to ₹ 1,75,000 and above ₹ 1,75,000 equally.
The profit for the year ended 31st March, 2018 before providing for any interest was ₹ 4,61,000. The drawings of X and Y were ₹ 1,00,000 and ₹ 1,25,000 respectively.
Pass the necessary Journal entries relating to appropriation our of profit and Loss Appropriation Account and the Partners' Capital Accounts.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.						Cr.
Particulars			Amount Rs	Particulars		Amount Rs
Interest on Capital A/c:				Profit and Loss A/c (4,61,000 – 1,500)		4,59,500
X		24,000		Interest on Drawings A/c:
Y		18,000	42,000	X	5,000
X’s Capital A/c (Commission) (3,50,000 $\times$ 5%)			17,500	Y	6,250	11,250
Salary:
X	60,000
Y	90,000		1,50,000
Reserve (*WN 1*)			50,000
Profit transferred to:
X’s Capital A/c	1,18,125
Y’s Capital A/c	93,125		2,11,250
			4,70,750			4,70,750

Partners’ Capital Accounts
Dr. Cr.
Particulars	X	Y	Particulars	X	Y
Drawings A/c	1,00,000	1,25,000	Balance b/d	2,00,000	1,50,000
Interest on Drawings	5,000	6,250	Interest on Capital A/c	24,000	18,000
			Salary A/c	60,000	90,000
			Commission A/c	17,500
Balance c/d	3,14,625	2,19,875	P/L Appropriation A/c	1,18,125	93,125
	4,19,625	3,51,125		4,19,625	3,51,125

Working Notes:

WN1: Calculation of Reserve

Profit before charging Interest on Drawings but after making appropriations

$\begin{array}{l} = 4, 59, 500 - 42, 000 - 17, 500 - 60, 000 - 90, 000 \\ = 2, 50, 000 \end{array}$
$Reserve = 2,50,000 \times \frac{20}{100} = Rs 50,000$

WN2: Division of Profit

Partners	Up to Rs 1,75,000	Rs 36,250 (Above Rs 1,75,000)	Total
X	1,00,000	18,125	1,18,125
Y	75,000	18,125	93,125

Question 58:

P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were ₹ 2,00,000 and ₹ 3,00,000 respectively. The Partnership Deed provided for interest on capital @ 12% per annum. For the year ended 31st March, 2016, the profits of the firm were distributed without providing interest on capital.
Pass necessary adjustment entry to rectify the error.

Answer:

Adjusting Journal Entry

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
	P’s Current A/c	Dr.		6,000
	To Q’s Current A/c				6,000
	(Interest on capital omitted, now adjusted.)

Working Notes:

Statement Showing Adjustment
Particulars	P	Q	Total
Interest on Capital @ 12%	24,000	36,000	(60,000)
*Less*: Profits wrongly distributed to the extent of interest amount	(30,000)	(30,000)	60,000
Net Effect	(6,000)	6,000	NIL

Question 59:

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:

Journal
Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
Nisha’s Capital A/c	Dr.		55,000
To Reya’s Capital A/c				55,000
(Adjustment of profit made)

Working Note:

Total Profits for Last 3 years = 1,40,000 + 84,000 + 1,06,000 = Rs 3,30,000

Statement Showing Adjustment
Particulars	Reya	Mona	Nisha	Total
Right Distribution of Profit (3 : 2 :1)	1,65,000	1,10,000	55,000	3,30,000
Wrong Distribution of Profit (1: 1 : 1)	(1,10,000)	(1,10,000)	(1,10,000)	(3,30,000)
Net Effect	55,000	NIL	(55,000)	NIL

Question 60:

Profits earned by a partnership firm for the year ended 31st March, 2017 were distributed equally between the partners – Pankaj and Anu – without allowing interest on capital. Interest due on capital was Pankaj–₹ 3,000 and Anu–₹ 1,000.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Anu’s Capital A/c	Dr.		1,000
	To Pankaj’s Capital A/c				1,000
	(Adjustment of omission of Interest on Capital)

Working Note:

Statement Showing Adjustment
Particulars	Pankaj	Anu	Total
Interest on Capital to be credited	3,000	1,000	4,000
Profit wrongly distributed equally to be debited	(2,000)	(2,000)	(4,000)
Net Effect	1,000 (Cr.)	1,000 (Dr.)	NIL

Question 61:

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 @ 5% p.a. as provided in the partnership agreement has not been credited to the Capital Accounts before distribution of profits. It is decided t make an adjustment entry in the beginning of the next year. Record the necessary journal entry.

Answer:

Interest on Capital

Azad	=	40,000 ×	$\frac{5}{100}$	= Rs 2,000
Benny	=	80,000 ×	$\frac{5}{100}$	= Rs 4,000

Adjustment of Profit

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

Adjusting Journal Entry

Date	Particular		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)

Question 62:

Ram and Mohan are equal partners. Their capitals are ₹ 4,000 and ₹ 8,000 respectively. After the accounts for the year are prepared it is discovered that interest @ 5% p.a. on capital as provided in the Partnership Deed has not been credited to the Capital Accounts before distribution of profits. It is decided to make an adjusting entry in the beginning of the next year.
Give necessary adjustment entry.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Ram’s Capital A/c	Dr.		100
	To Mohan’s Capital A/c				100
	(Interest on Capital was omitted, now adjusted)

Working Notes:

WN 1 Calculation of Interest on Capital

Particulars	Ram	Mohan	Total
Interest on Capital to be credited	200	400	600
For sharing above Loss (1:1)	(300)	(300)	(600)
Net Effect	(100)	(100)	Nil
Net Effect	(Dr.)	(Cr.)	Nil

Question 63:

Ram, Mohan and Sohan sharing profits and losses equally have capitals of ₹ 1,20,000, ₹ 90,000 and ₹ 60,000. For the year ended 31st March, 2018, interest was credited to them @ 6% instead of 5%.
Give adjustment Jounral entry.

Answer:

Journal
Particulars		L. F.	Debit Amount Rs	Credit Amount Rs
Ram’s Capital A/c	Dr.		300
To Sohan’s Capital A/c				300
(Interest on Capital was wrongly credited, now adjusted)

Working Notes:

WN 1 Calculation of Interest on Capital at 6% p.a.

WN 2 Calculation of Interest on Capital at 5% p.a.

WN 3

Statement Showing Adjustment
Particulars	Ram	Mohan	Sohan	Total
Interest on Capital wrongly credited at 6% p.a. reversed	(7,200)	(5,400)	(3,600)	(16,200)
Interest on Capital credited at 5% p.a.	6,000	4,500	3,000	13,500
Wrong Distribution	(1,200)	(900)	(600)	(2,700)
Right Distribution of Rs 2,700 (1:1:1)	900	900	900	(2,700)
Net Effect	(300)	NIL	300	NIL

Question 64:

Ram, Shyam and Mohan were partners in a firm sharing profits and losses in the ratio of 2 : 1 : 2. Their capitals were fixed at ₹ 3,00,000, ₹ 1,00,000, ₹ 2,00,000. For the year ended 31st March, 2018, interest on capital was credited to them @ 9% instead of 10% p.a. The profit for the year before charging interest was ₹ 2,50,000.
Show your working notes clearly and pass necessary adjustment entry.

Answer:

Journal
Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
Shyam’s Current A/c	Dr.		200
Mohan’s Current A/c	Dr.		400
To Ram’s Current A/c				600
(Interest on Capital adjusted)

Working Notes:

WN 1 Calculation of Interest on Capital 10% p.a.

WN 2 Calculation of Interest on Capital 9% p.a.

WN 3

Statement Showing Adjustment
Particulars	Ram	Shyam	Mohan	Total
Interest on Capital credited at 10% p.a.	30,000	10,000	20,000	60,000
Interest on Capital wrongly credited at 9% p.a. reversed	(27,000)	(9,000)	(18,000)	(54,000)
Right distribution	3,000	1,000	2,000	6,000
Wrong distribution of Rs 6,000 (2:1:2)	(2,400)	(1,200)	(2,400)	(6,000)
Net Effect	600	(200)	(400)	NIL

Question 65:

Mita and Usha are partners in a firm sharing profits in the ratio of 2 : 3. Their Capital Accounts as on 1st April, 2015 showed balances of ₹ 1,40,000 and ₹ 1,20,000 respectively. The drawings of Mita and Usha during the year 2015-16 were ₹ 32,000 and ₹ 24,000 respectively. Both the amounts were withdrawn on 1st January 2016. It was subsequently found that the following items had been omitted while preparing the final accounts for the year ended 31st March, 2016:
(a) Interest on Capital @ 6% p.a.
(b) Interest on Drawings @ 6% p.a.
(c) Mita was entitled to a commission of ₹ 8,000 for the whole year.
Showing your working clearly, pass a rectifying entry in the books of the firm.

Answer:

Journal
Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
Usha’s Capital A/c	Dr.		6,816
To Mita’sCapital A/c				6,816
(Adjustment made)

Particular	Mita	Usha	Total
Interest on Capital @ 6% p.a.	8,400	7,200	(15,600)
Interest on Drawings @ 6% p.a.	(480)	(360)	840
Commission	8,000	–	(8,000)
Right Share	15,920	6,840	(22,760)
Wrong Share	(9,104)	(13,656)	22,760
Net Effect	6,816 (Cr.)	6,816 (Dr.)	Nil

Question 66:

Mohan, Vijay and Anil are partners, the balances of their Capital Accounts being ₹ 30,000, ₹ 25,000 and ₹ 20,000 respectively. In arriving at these figures, the profits for the year ended 31st March, 2016, ₹ 24,000 had already been credited to partners in the proportion in which they shared profits. Their drawings were ₹ 5,000 (Mohan), ₹ 4,000 (Anil) during the year. Subsequently, the following omissions were noticed and it was decided to bring them into account:
(a) Interest on capital @ 10% p.a.
(b) Interest on drawings: Mohan ₹ 250, Vijay ₹ 200 and Anil ₹ 150.
Make necessary corrections through a Journal entry and show your workings clearly.

Answer:

Journal
Particulars		L. F.	Debit Amount Rs	Credit Amount Rs
Anil’s Capital A/c	Dr.		550
To Mohan’s Capital A/c				550
(Interest on capital and interest on drawings was omitted, now adjusted)

Working Notes:

WN 1 Calculation of Capital at the beginning

Particulars	Mohan	Vijay	Anil	Total
Capital at the end	30,000	25,000	20,000	75,000
Add: Drawings	5,000	4,000	3,000	12,000
Less: Profit (1:1:1)	(8,000)	(8,000)	(8,000)	(24,000)
Capital in the beginning	27,000	21,000	15,000	63,000

WN 2 Calculation of Interest on Capital

WN 3

Statement Showing Adjustment
	Mohan	Vijay	Anil	Total
Interest on Capital to be credited	2,700	2,100	1,500	6,300
Less: Interest on Drawings	(250)	(200)	(150)	(600)
Right Distribution of Rs 5,700	2,450	1,900	1,350	5,700
Wrong Distribution of Rs 5,700 (1:1:1)	(1,900)	(1,900)	(1,900)	(5,700)
Net Effect	550	Nil	(550)	NIL

WN 4 Calculation of Final Profit Share of Partners

Total Corrected Profit Available for Distribution = Profit - Interest on Capital + Interest on Drawings = 24,000 - 6,300 + 600 = Rs 18,300

Question 67:

Piya and Bina are partners in a firm sharing profits and losses in the ratio of 3 : 2. Following was the Balance Sheet of the firm as on 31st March, 2016:

Liabilities		₹	Assets	₹
Capitals:			Sundry Assets	1,20,000
Piya	80,000
Bina	40,000	1,20,000
		1,20,000		1,20,000

The profits ₹ 30,000 for the year ended 31st March, 2016 were divided between the partners without allowing interest on capital @ 12% p.a. salary to Piya @ ₹ 1,000 per month. During the year Piya withdrew ₹ 8,000 and Bina withdrew ₹ 4,000. Showing your working notes clearly, pass the necessary rectifying entry.

Answer:

Journal
Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
Bina’s Capital A/c	Dr.		5,856
To Piya’s Capital A/c				5,856
(Adjustment made)

Particular	Piya	Bina	Total
Interest on Capital @ 12% p.a.	8,400	3,840	(12,240)
Salary	12,000	–	(12,000)
Profit (30,000 – 12,240 –12,000)	3,456	2,304	5,760
Right Share	23,856	6,144	(30,000)
Wrong Share	(18,000)	(12,000)	30,000
Net Effect	5,856 (Cr.)	5,856 (Dr.)	Nil

Working Notes:

Particular	Piya	Bina
Closing Capitals	80,000	40,000
Add: Drawings	8,000	4,000
Less: Profit Share	18,000	12,000
Opening Capital	70,000	32,000

Question 68:

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 three years. Harry and Porter have agreement on this account. The profits for the last three years were:

Year	2015-16	2016-17	2017-18
Profit (₹)	2,20,000	2,40,000	2,90,000

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

Answer:

Journal (Adjusting entry)

Date	Particular		L.F	Debit Amount (₹)	Credit Amount (₹)
	Harry's Capital A/c	Dr.		50,000
	Porter's Capital A/c	Dr.		50,000
	To Ali's Capital A/c				1,00,000
	(Profit adjusted due to change in profit sharing ratio)

Distribution of Profit

Old Ratio (2:2:1) Year	Harry	Porter	Ali		Total
2015 – 16	(88,000)	(88,000)	(44,000)	=	(2,20,000)
2016 – 17	(96,000)	(96,000)	(48,000)	=	(2,40,000)
2017 – 18	(1,16,000)	(1,16,000)	(58,000)	=	(2,90,000)
Total Profit of 3 years in old ratio	(3,00,000)	(3,00,000)	(1,50,000)	=	(7,50,000)
Distribution of 3 years profit in new Ratio (1 : 1 : 1)	2,50,000	2,50,000	2,50,000	=	7,50,000
Adjusted Profit	(50,000)	(50,000)	1,00,000		NIL

Question 69:

On 31st March, 2018, after the closing of the accounts, the Capital Accounts of P, Q and R stood in the books of the firm at ₹ 40,000; ₹ 30,000 and ₹ 20,000 respectively. Subsequently, it was discovered that interest on capital @ 5% had been omitted. Profit for the year ended 31st March, 2018 amounted to ₹ 60,000 and the partners' drawings had been P–₹ 10,000, Q–₹ 7,500 and R–₹ 4,500. The profit-sharing ratio of P, Q and R is 3 : 2 : 1. Give necessary adjustment entry.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	P’s Current A/c	Dr.		300
	To Q’s Capital A/c				8
	To R’s Capital A/c				292
	(Interest on Capital was omitted, now adjusted)

Working Notes:

WN 1 Calculation of Capital at the beginning (as on April 01, 2017)

Particulars	P	Q	R
Capital as on March 31, 2017 (Closing)	40,000	30,000	20,000
Add: Drawings	10,000	7,500	4,500
Less: Profit Rs 60,000 (3:2:1)	(30,000)	(20,000)	(10,000)
Capital as on April 01, 2016 (Opening)	20,000	17,500	14,500

WN 2 Calculation of Interest on Capital

WN 3

Statement Showing Adjustment
Particulars	P	Q	R	Total
Interest on Capital (to be credited)	1,000	875	725	2,600
For sharing above Loss (3:2:1)	(1,300)	(867)	(433)	(2,600)
Net Effect	(300)	8	292	NIL

Question 70:

A, B and C were partners. Their capitals were A–₹ 30,000; B–₹ 20,000 and C–₹ 10,000 respectively. According to the Partnership Deed, they were entitled to an interest on capital @ 5% p.a. In addition, B was also entitled to draw a salary of ₹ 500 per month. C was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to B. The net profit for the year were ₹ 30,000 distributed in the ratio of capitals without providing for any of the above adjustments. The profits were to be shared in the ratio of 5 : 3 : 2.
Pass necessary adjustment entry showing the workings clearly.

Answer:

Journal
Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
A’s Current A/c	Dr.		3,675
To B’s Current A/c				2,895
To C’s Current A/c				780
(Adjustment of profit made)

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Salary to B = Rs 500 × 12 = Rs 6,000

WN 3 Calculation of Commission to C

Commission to C = 5% on profit after interest on capital but before salary

Profit after Interest on Capital but before Salary = 30,000 − 3,000 = Rs 27,000

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 30,000 − 3,000 − 6,000 − 1,350 = Rs 19,650

WN 5

Statement Showing Adjustment
Particulars	A	B	C	Total
Interest on Capital (to be credited)	1,500	1,000	500	3,000
Salary/ Commission (to be credited)	-	6,000	1,350	7,350
Profit (to be credited)	9,825	5,895	3,930	19,650
Right Distribution	11,325	12,895	5,780	30,000
Wrong Distribution of Rs 30,000 (3:2:1)	(15,000)	(10,000)	(5,000)	(30,000)
Net Effect	(3,675)	2,895	780	NIL

Question 71:

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 31st March 2018:

BALANCE SHEET as at 31^st March, 2018
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 31st March, 2018 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.

Answer:

Adjusting Journal Entry

Date	Particular		L.F	Debit Amount (₹)	Credit Amount (₹)
	Shrishti's Capital A/c	Dr.		288
	To Mannu's Capital A/c				288
	(Adjustment of profit made)

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 Rs 1,820	1,380	440	=	1,820
Less: Wrong distribution of Rs 1,820 (3 : 2)	(1,092)	(728)	=	(1,820)
Adjusted Profit	288	(288)	=	NIL

Question 72:

A, B and C are partners in a firm. Net profit of the firm for the year ended 31st march, 2018 is ₹ 30,000, which has been duly distributed among the partners, in their agreed ratio of 3 : 1 : 1 respectively. It is discovered on 10th April, 2018 that the undermentioned transactions were not passed through the books of account of the firm for the year ended 31st March, 2018.
(a) Interest on Capital @ 6% per annum, the capital of A, B and C being ₹ 50,000; ₹ 40,000 and ₹ 30,000 respectively.
(b) Interest on drawings: A ₹ 350; B ₹ 250; C ₹ 150.
(c) Partners' Salaries: A ₹ 5,000; B ₹ 7,500.
(d) Commission due to A (for some special transaction) ₹ 3,000.
You are required to pass a Journal entry, which will not affect Profit and Loss Account of the firm and rectify the position of partners inter se.

Answer:

Journal
Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
A’s Capital A/c	Dr.		2,520
C’s Capital A/c	Dr.		2,740
To B’s Capital A/c				5,260
(Adjustment made)

Particular	A	B	C	Total
Interest on Capital @ 6% p.a.	3,000	2,400	1,800	(7,200)
Interest on Drawings	(350)	(250)	(150)	750
Salary	5,000	7,500	–	(12,500)
Commission	3,000	–	–	(3,000)
Profit (30,000 – 7,200 – 12,500 – 3,000 + 750)	4,830	1,610	1,610	(8,050)
Right Share	15,480	11,260	3,260	(30,000)
Wrong Share	(18,000)	(6,000)	(6,000)	30,000
Net Effect	2,520 (Dr.)	5,260 (Cr.)	2,740 (Dr.)	Nil

Question 73:

On 31st March, 2014, the balances in the Capital Accounts of Saroj, Mahinder and Umar after making adjustments for profits and drawings, etc., were ₹ 80,000, ₹ 60,000, ₹ 40,000 respectively. Subsequently, it was discovered that the interest on capital and drawings has been omitted.
(a) The profit for the year ended 31st March, 2014 was ₹ 80,000.
(b) During the year Saroj and Mahinder each withdrew a sum of ₹ 24,000 in equal instalments in the end of each month and Umar withdrew ₹ 36,000.
(c) The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be allowed @ 10% p.a.
(d) The profit-sharing ratio among partners was 4 : 3 : 1.
Showing your workings clearly, pass the necessary rectifying entry.

Answer:

Journal
Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
Saroj’s Capital A/c	Dr.		2,350
Mahinder’s Capital A/c	Dr.		1,300
To Umar’s Capital A/c				3,650
(Adjustment made)

Working Notes:

Particular	Saroj	Mahinder	Umar
Closing Capitals	80,000	60,000	40,000
Add: Drawings	24,000	24,000	36,000
Less: Profit Share	40,000	30,000	10,000
Opening Capital	64,000	54,000	66,000

Particular	Saroj	Mahinder	Umar	Total
Interest on Capital @ 10% p.a.	6,400	5,400	6,600	(18,400)
Interest on Drawings@ 5% p.a.	(550)	(550)	(900)	2,000
Profit (80,000 – 18,400 + 2,000)	31,800	23,850	7,950	(63,600)
Right Share	37,650	28,700	13,650	(80,000)
Wrong Share	(40,000)	(30,000)	(10,000)	80,000
Net Effect	2,350 (Dr.)	1,300 (Dr.)	3,650 (Cr.)	Nil

Question 74:

The Capitals of A, B and C as on 31st March, 2018 amounted to ₹ 90,000, ₹ 3,30,000 and ₹ 6,60,000 respectively. The profits amounting ₹ 1,80,000 for the year 2017-18 were distributed in the ratio of 4 : 1 : 1 after allowing interest on Capital @ 10% p.a. During the year, each partner withdrew ₹ 3,60,000. The Partnership Deed was silent as to profit-sharing ratio but provided for interest on capital @ 12%.
Pass the necessary adjustment entry showing the working clearly.

Answer:

In the books of A, B and C Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
	A’s Capital A/c	Dr.		66,600
	To B’s Capital A/c				30,000
	To C’s Capital A/c				36,600
	(Being adjustment made for interest on capital and profits)

Statement Showing Adjustment:

Particulars	A’s Capital A/c		B’s Capital A/c		C’s Capital A/c		Firm
	Dr. ( ₹)	Cr. ( ₹)	Dr. ( ₹)	Cr. ( ₹)	Dr. ( ₹)	Cr. ( ₹)	Dr. ( ₹)	Cr. ( ₹)
Profits wrongly credited in the ratio 4:1:1(Dr.)	1,20,000		30,000		30,000			1,80,000
Interest on Capital wrongly credited @10% p.a. (Dr.)	33,000		66,000		99,000			1,98,000
Interest on Capital to be provided @12% p.a. (Cr.)		39,600		79,200		1,18,800	2,37,600
Profits to be credited in the ratio 1:1:1 (Cr.)		46,800		46,800		46,800	1,40,400
Balance to be adjusted	66,600 (Dr.)		30,000 (Cr.)		36,600 (Cr.)		NIL

Note: Since, there is no provision of interest on drawings in the partnership deed so we will not provide it.

Calculation of Opening Capital of the Partners:

Particulars	A (₹)	B(₹)	C(₹)
Closing Capital of the partners	90,000	3,30,000	6,60,000
Add: Drawings made during the year	3,60,000	3,60,000	3,60,000
Less: Profits for the year	1,20,000	30,000	30,000
Opening Capital of the partners as on 1st April, 2017	3,30,000	6,60,000	9,90,000

Note: Interest on Capital is always computed on the opening capitals.

Question 75:

The Capital Accounts of A and B stood at ₹ 4,00,000 and ₹ 3,00,000 respectively after necessary adjustments in respect of the drawings and the net profit for the year ended 31st March, 2018. It was subsequently discovered that 5% p.a. interest on capital and also drawings were not taken into account in arriving at the distributable profit. The drawings of the partners had been: A–₹ 12,000 drawn at the end of each quarter and B–₹ 18,000 drawn at the end of each half year.
The profit for the year as adjusted amounted to ₹ 2,00,000. The partners share profits in the ratio of 3 : 2. You are required to pass Journal entries and show adjusted Capital Accounts of the partners.

Answer:

Journal
Date	Particulars		L. F.	Debit Amount Rs	Credit Amount Rs
	P&L Adjustment A/c	Dr.		29,200
	To A's Capital A/c				16,400
	To B's Capital A/c				12,800
	(Interest on capital omitted, now provided)

	A's Capital A/c	Dr.		900
	B's Capital A/c	Dr.		450
	To P&L Adjustment A/c				1,350
	(Interest on drawings omitted, now charged)

	A's Capital A/c	Dr.		16,710
	B's Capital A/c	Dr.		11,140
	To P&L Adjustment A/c (29,200 - 1,350)				27,850
	(Loss on adjustment is distributed between the partner)

Partners’ Capital Accounts
Dr.				Cr.
Particulars	A	B	Particulars		A	B
B’s Capital A/c	1,210		Balance b/d		4,00,000	3,00,000
			A’s Capital A/c		-	1,210
Balance c/d	3,98,790	3,01,210
	4,00,000	3,01,210			4,00,000	3,01,210

Working Notes:

WN 1 Calculation of Capital as on April 01, 2017 (Opening Capital)

Particulars	A	B	Total
Capital as on March 31, 2017 (Closing)	4,00,000	3,00,000	7,00,000
Add: Drawings	48,000	36,000	84,000
Less: Profit (3:2)	(1,20,000)	(80,000)	(2,00,000)
Capital as on April 01, 2016 (Opening)	3,28,000	2,56,000	5,84,000

WN 2 Calculation on Interest on Capital

WN 3 Calculation of Interest on Drawings

If instead of all entries, adjustment entry is asked in the question

Journal
Date	Particulars		L. F.	Debit Amount Rs	Credit Amount Rs
	A’s Capital A/c	Dr.		1,210
	To B’s Capital A/c				1,210
	(Amount of interest on Capital and interest on drawings adjusted)

Working Notes: Statement Showing Adjustment

Statement Showing Adjustment
Particulars	A	B	Total
Interest on Capital (to be credited)	16,400	12,800	29,200
Less: Interest on Drawings	(900)	(450)	(1,350)
Right distribution of Rs 27,850	15,500	12,350	27,850
Less: Wrong Distribution of Rs 27,850 (3:2)	(16,710)	(11,140)	(27,850)
Net Effect	(1,210)	1,210	NIL

Question 76:

X and Y are partners sharing profits and losses in the ratio of 3 : 2. They employed Z as their Manager to whom they paid a salary of ₹ 7,500 per month. Z had deposited ₹ 2,00,000 on which interest was payable ₹ 9% p.a. At the end off the accounting year (i.e., 31st March, 2018) 2017-18 (after division of the year's profits), it was decided that Z should be treated as a partner with effect from 1st April, 2014 with 1/6th share of profits, his deposit being considered as capital carrying interest @ 6% p.a. like capitals of other partners. The firm's profits and losses after allowing interest on capitals were – 2014-15:
Profit ₹ 5,90,000; 2015-16: Profit ₹ 6,26,000; 2016-17: Loss ₹ 40,000 and 2017-18: Profit ₹ 7,80,000.
Record necessary Journal entries to give effect to the above.

Answer:

Journal
Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
Z’s Loan A/c	Dr.		2,00,000
To Z’s Capital A/c				2,00,000
(Z’s Loan transferred to his Capital Account)

X’s Capital A/c	Dr.		3,600
Y’s Capital A/c	Dr.		2,400
To Z’s Capital A/c				6,000
(Z's excess credit balance paid to him by X and Y in the ratio of 3:2)

Working Notes:

WN 1 Profit before Z’s Salary and Interest on Loan.

Year	Profit/ Loss	+	Salary	+	Interest on Z’s loan	=	Profit before Z’s Salary and Interest on Loan
2012-2013	5,90,000	+	90,000	+	18,000	=	6,98,000
2013-2014	6,26,000	+	90,000	+	18,000	=	7,34,000
2014-2015	(40,000)	+	90,000	+	18,000	=	68,000
2015-2016	7,80,000	+	90,000	+	18,000	=	8,88,000
Profit before Interest on Z’s Capital (for 4 years)							23,88,000

WN 2 Calculation of Interest on Capital

Interest on Z’s Capital for 4 years = 12,000 × 4 = Rs 48,000

WN 3 Calculation of Z’s Share of Profit as a Partner

Profit after Interest on Z’s Capital = Profit before Interest on Z’s Capital − Interest on Z’s Capital

= 23,88,000 − 48,000 = Rs 23,40,000

Z’s Profit Share as a Partner for 4 years

∴ Z’s Share of Interest on Capital and Profit Share as a Partner = 48,000 + 3,90,000 = Rs 4,38,000

Z’s Salary and Interest on Loan as Manager = 72,000 + 3,60,000 = Rs 4,32,000

Adjustment of Z's share of Profit

Z’s Share as a Partner Less: Z’s Share as a Manager Z will get from X and Y in their profit sharing ratio	4,38,000
	(4,32,000)
	6,000

Profit to be transferred by X and Y in favour of Z

Question 77:

A and B are partners sharing profits in the ratio of 2 : 1. They decided to admit C, their manager, as a partner form 1st April, 2017, giving him 1/5th share of profit. C, while a manager, was getting a salary of ₹ 50,000 p.a. plus a commission of 10% of the net profit after charging such salary and commission. It was also agreed that any excess amount which C receives as a partner (over his salary and commission) will be borne by A. Profit for the year ended 31st March, 2018 amounted to ₹ 6,44,000, before payment of salary and commission. Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year and March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	6,44,000
A’s Capital A/c	3,35,200
B’s Capital A/c	1,80,000
C’s Capital A/c	1,28,800	6,44,000
		6,44,000		6,44,000

Working Notes:

WN 1 Calculation of Remuneration to C as a Manager

Salary to C = Rs 50,000

Commission to C = 10% of Net Profit after Salary and Commission

Net Profit after Salary and Commission = 6,44,000 − 50,000 = Rs 5,94,000

$Commission to C = 5, 94, 000 \times \frac{10}{110} = Rs 54, 000$

C’s remuneration as Manager = Salary + Commission = 50,000 + 54,000 = Rs 1,04,000

WN 2 Calculation of Profit Share of C as a Partner

Profit = Rs 6,44,000
$C' s Profit Share = 6, 44, 000 \times \frac{1}{5} = 1, 28, 800$

Part of C’s Profit Share to be borne by A = 1,28,800 − 1,04,000 = Rs 24,800

Profit available for distribution between A and B = 6,44,000 − 1,04,000 = Rs 5,40,000
$A' s Share of Profit = 5, 40, 000 \times \frac{2}{3} = 3, 60, 000 B' s Share of Profit = 5, 40, 000 \times \frac{1}{3} = 1, 80, 000$

A’s Profit share after adjusting C’s deficiency = 3,60,000 − 24,800 = Rs 3,35,200

Question 78:

X and Y are partners in a firm sharing profits in the ratio of 3 : 2. The have a manager, Z, who gets ₹ 10,000 p.m. salary plus commission of 5% of the profit after charging his salary and commission, Now, they decide to admit Z as a partner, giving him 1/5th share in the profits of the firm. Any excess amount which Z receives as a partner (over his salary and commission) will be borne by X. The profit for the year ended 31st March, 2018 amounted to ₹ 8,40,000 after charging Z's salary. Prepare Profit and Loss Appropriation Account showing the division of profit for the year.

Answer:

Profit and Loss Appropriation Account for the year and March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	9,60,000
X’s Capital A/c	4,48,000		(before Z's salary)
Y’s Capital A/c	3,20,000
Z’s Capital A/c	1,92,000	9,60,000
		9,60,000		9,60,000

Working Notes:

WN 1 Calculation of Remuneration to Z as a Manager

Salary to Z = Rs 1,20,000

Commission to Z = 5% of Net Profit after Salary and Commission

Net Profit after Salary and Commission = 8,40,000

$Commission to Z = 8, 40, 000 \times \frac{5}{105} = Rs 40, 000$

Z’s remuneration as Manager = Salary + Commission = 1,20,000 + 40,000 = Rs 1,60,000

WN 2 Calculation of Profit Share of Z as a Partner

Profit = Rs 9,60,000
$Z' s Profit Share = 9, 60, 000 \times \frac{1}{5} = 1, 92, 000$

Part of Z’s Profit Share to be borne by X = 1,92,000 − 1,60,000 = Rs 32,000

Profit available for distribution between X and Y = 9,60,000 − 1,60,000 = Rs 8,00,000
$X' s Share of Profit = 8, 00, 000 \times \frac{3}{5} = 4, 80, 000 Y' s Share of Profit = 8, 00, 000 \times \frac{2}{5} = 3, 20, 000$

X’s Profit share after adjusting Z’s deficiency = 4,80,000 − 32,000 = Rs 4,48,000

Question 79:

A, B and C were in partnership sharing profits and losses in the ratio of 4 : 2 : 1 respectively. It was provided that C's share in profit for a year would not be less then ₹ 7,500. The profit for the year ended 31st March, 2018 amounted to ₹ 31,500. You are required to show the appropriation among the partners. The profit and Loss Appropriation Account is not required.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c (Net Profit)	31,500
A’s Capital A/c	16,000
B’s Capital A/c	8,000
C’s Capital A/c	7,500	31,500
		31,500		31,500

Working Notes:

Profit for the year = Rs 31,500

Profit sharing ratio = 4 : 2 : 1

C is given a guarantee of minimum profit of Rs 7,500

C’s Actual Profit Share (i.e. Rs 4,500) is less than his Minimum Guaranteed Profit (i.e. Rs 7,500)
∴ Deficiency in C’s Profit Share = 7,500 − 4,500 = Rs 3,000

This deficiency is to be borne by A and B in their profit sharing ratio i.e. 4 : 2

Therefore,

Final Profit Share of A = 18,000 − 2,000 = Rs 16,000

Final Profit Share of B = 9,000 − 1,000 = Rs 8,000

Final Profit Share of C = 4,500 + 3,000 = Rs 7,500

Question 80:

A and B are partners sharing profits in the ratio of 3 : 2. C was admitted for 1/6th 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:

Profit and Loss Appropriation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c (Net Profit)	54,000
A	26,400
B	17,600
C	10,000	54,000
		54,000		54,000

Working Note

C will get higher of the two:

(i) Share of Profit as per profit sharing ratio, i.e.,

(ii) Minimum guaranteed profit, i.e. Rs 10,000

Thus from net profit of Rs 54,000, minimum guaranteed profit to C of Rs 10,000 is to be adjusted first.

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

Question 81:

X, Y and Z entered into partnership on 1st October, 2017 to share profits and losses in the ratio of 4 : 3 : 3. X, personally guaranteed that Z's share of profit after charging interest on capital @ 10% p.a. would not be less then ₹ 80,000 in any year. The capital contributions were: X–₹ 3,00,000, Y–₹ 2,00,000 and Z–₹ 1,50,000.
The profit for the year ended 31st March, 2018 amounted to ₹ 1,60,000. Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount (Rs)	Particulars	Amount (Rs)
Interest on Capital:			Net Profit b/d	1,60,000
X	15,000
Y	10,000
Z	7,500	32,500

Profit transferred to:
X (51,000 – 1,750)	49,250
Y (38,250)	38,250
Z (38,250 + 1,750)	40,000	1,27,500
		1,60,000		1,60,000

Note: Since Z is admitted on 1^st October, 2017 and Profit is ascertained on March 31, 2018, therefore, interest on capital is calculated for 6 months and guaranteed amount is considered as Rs 40,000 (half of the total amount).

Question 82:

A, B and C are partners in a firm. Their profit-sharing ratio is 2 : 2 : 1. C is guaranteed a minimum amount of ₹ 10,000 as share of profit every year. Any deficiency arising on that amount shall be met by B. The profits for the two years ended 31st March, 2017 and 2018 were ₹ 40,000 and ₹ 60,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2017
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to: (*WN 1*)			Profit and Loss A/c (Net Profit)	40,000
A’s Capital A/c	16,000
B’s Capital A/c	14,000
C’s Capital A/c	10,000	40,000
		40,000		40,000

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c (Net Profit)	60,000
A’s Capital A/c	24,000
B’s Capital A/c	24,000
C’s Capital A/c	12,000	60,000
		60,000		60,000

Working Notes:

WN 1 Distribution of Profit for the year 2016-17

Profit for 2015 = Rs 40,000

Profit sharing ratio = 2 : 2 : 1

C is given a guarantee of minimum profit of Rs 10,000

Deficiency in C’s Profit Share = 10,000 − 8,000 = Rs 2,000

This deficiency is to be borne by B.

Therefore,

Final Profit Share of A = 16,000

Final Profit Share of B = 16,000 − 2,000 = Rs 14,000

Final Profit Share of C = 8,000 + 2,000 = Rs 10,000

WN 2 Distribution of Profit for the year 2017-18

Profit for 2016 = Rs 60,000

Profit sharing ratio = 2 : 2 : 1

C is given a guarantee of minimum profit of Rs 10,000

Question 83:

A, B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his minimum share of profit in any given year would be at least ₹ 5,000. Deficiency, if any, would be borne by A and B equally. The profit for the year 2017-18 amounted to ₹ 40,000.
Pass necessary Journal entries in the books of the firm.

Answer:

Profit and Loss Appropriation Account for the year ended 2015–16
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c (Net Profit)	40,000
A’s Capital A/c	19,500
B’s Capital A/c	15,500
C’s Capital A/c	5,000	40,000
		40,000		40,000

Working Notes:

Profit for the year = Rs 40,000

Profit sharing ratio = 5 : 4 : 1

C is given a guarantee of minimum profit of Rs 5,000

Deficiency in C’s share = 5,000 − 4,000 = Rs 1,000

This deficiency is to be borne by A and B equally.

Therefore,

Final Profit Share of A = 20,000 − 500 = Rs 19,500

Final Profit Share of B = 16,000 − 500 = Rs 15,500

Final Profit Share of C = 4,000 + 1,000 = Rs 5,000

Question 84:

Vikas and Vivek were partners in a firm sharing profits in the ratio of 3 : 2. On 1st April, 2017, they admitted Vandana as a new partner for 1/8th share in the profits with a guaranteed profit of ₹ 1,50,000. The new profit-sharing ratio between Vikas and Vivek will remain same but they decided to bear any deficiency on account of guarantee to Vandana in the ratio 3 : 2. The profit of the firm for the year ended 31st March, 2018 was ₹ 9,00,000. Prepare Profit and Loss Appropriation Account of Vikas, Vivek and Vandana for the year ended 31st March, 2018.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	9,00,000
Vikas’s Capital A/c	4,50,000
Vivek’s Capital A/c	3,00,000
Vandana’s Capital A/c	1,50,000	9,00,000

		9,00,000		9,00,000

Working Notes:

$Vandana' s Share in Profit = 9, 00, 000 \times \frac{1}{8} = Rs 1, 12, 500 Remaining Profit = 9, 00, 000 - 1, 12, 500 = Rs 7, 87, 500 Vikas' s Profit Share = 7, 87, 500 \times \frac{3}{5} = Rs 4, 72, 500 Vivek' s Profit' s Share = 7, 87, 500 \times \frac{2}{5} = Rs 3, 15, 000 Minimum Guaranteed Profit to Vandana = Rs 1, 50, 000 Deficiency = Rs 37, 500 (1, 50, 000 - 1, 12, 500) Deficiency to be borne by Vikas & Vivek in the ratio of 3 : 2 Amount to be borne by Vikas = 37, 500 \times \frac{3}{5} = Rs 22, 500 Amount to be borne by Vivek = 37, 500 \times \frac{2}{5} = Rs 15, 000 So, Vikas' s profit share after adjustment of deficiency = 4, 72, 500 - 22, 500 = Rs 4, 50, 000 &, Vivek' s profit share after adjustment of deficiency = 3, 15, 000 - 15, 000 = Rs 3, 00, 000$

Question 85:

Pranshu and Himanshu are partners sharing profits and losses in the ratio of 3 : 2 respectively. They admit Anshu as partner with 1/6 share in the profits of the firm. Pranshu personally guaranteed that Anshu's share of profit would not be less than ₹ 30,000 in any year. The net profit of the firm for the ear ending 31st March, 2013 was ₹ 90,000 .
Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2013
Dr.					Cr.
Particulars		Amount (Rs)	Particulars	Amount (Rs)
Profit transferred to:			Profit & Loss A/c	90,000
Pranshu’s Capital A/c	30,000
Himanshu’s Capital A/c	30,000
Anshu’s Capital A/c	30,000	90,000
		90,000		90,000

Working Notes:

WN1: Calculation of New Profit Sharing Ratio

Old ratio = 3 : 2

Let the total share of the firm be Re 1

Anshu is admitted for 1/6^th share in profits

WN2:Distribution of Profit

Question 86:

A, B and C are partners in a firm sharing profits in the ratio of 3 : 2 : 1. They earned a profit of ₹ 30,000 during 2017-18. Distribute profit among A, B and C if:
(a) C's share of profit is guaranteed to be ₹ 6,000 Minimum.
(b) Minimum profit payable to C amounting to ₹ 6,000 is guaranteed by A.
(c) Guaranteed minimum profit of ₹ 6,000 payable to C is guaranteed by B.
(d) Any deficiency after making payment of guaranteed ₹ 6,000 will be borne by A and B in the ratio of 3 : 1.

Answer:

Case (a)

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	30,000
A’s Capital A/c	14,400
B’s Capital A/c	9,600
C’s Capital A/c	6,000	30,000
		30,000		30,000

Working Notes:

Profit = Rs 30,000

Profit sharing ratio = 3 : 2 : 1

C is given a guarantee of minimum profit of Rs 6,000

Deficiency in C’s Profit Share = 6,000 − 5,000 = Rs 1,000

This deficiency is to be borne by A and B in their profit sharing ratio i.e. 3 : 2

Therefore,

Final Profit Share of A = 15,000 − 600 = Rs 14,400

Final Profit Share of B = 10,000 − 400 = Rs 9,600

Final Profit Share of C = 5,000 + 1,000 = Rs 6,000

Case (b)

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	30,000
A’s Capital A/c	14,000
B’s Capital A/c	10,000
C’s Capital A/c	6,000	30,000
		30,000		30,000

Working Notes:

Deficiency in C’s Profit Share = 6,000 − 5,000 = Rs 1,000

This deficiency is to be borne by A only.

Therefore,

Final Profit Share of A = 15,000 − 1,000 = Rs 14,000

Final Profit Share of B = 10,000

Final Profit Share of C = 5,000 + 1,000 = Rs 6,000

Case (c)

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	30,000
A’s Capital A/c	15,000
B’s Capital A/c	9,000
C’s Capital A/c	6,000	30,000
		30,000		30,000

Working Notes:

Deficiency in C’s Profit Share = 6,000 − 5,000 = Rs 1,000

This deficiency is to be borne by B only.

Therefore,

Final Profit Share of A = 15,000

Final Profit Share of B = 10,000 − 1,000 = Rs 9,000

Final Profit Share of C = 5,000 + 1,000 = Rs 6,000

Case (d)

Profit and Loss Appropriation Account for the year ended 31st March, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	30,000
A’s Capital A/c	14,250
B’s Capital A/c	9,750
C’s Capital A/c	6,000	30,000
		30,000		30,000

Working Notes:

Deficiency in C’s Profit Share = 6,000 − 5,000 = Rs 1,000

This deficiency is to be borne by A and B in the ratio of 3 : 1.

Therefore,

Final Profit Share of A = 15,000 − 750 = Rs 14,250

Final Profit Share of B = 10,000 − 250 = Rs 9,750

Final Profit Share of C = 5,000 + 1,000 = Rs 6,000

Question 87:

A and B are in partnership sharing profits and losses in the ratio of 3 : 2. They decided to admit C, their Manager, as a partner with effect from 1st April, 2017, giving him 1/4th share of profits.
C, while a Manager, was in receipt of a salary of ₹ 27,000 p.a. and a commission of 10% of the net profits after charging such salary and commission.
In terms of the Partnership Deed, and excess amount, which C will be entitled to receive as a partner over the amount which would have been due to him if he continued to be the manager, would have to be personally borne by A out of his share of profit. Profit for the year ended 31st March, 2018 amounted to ₹ 2,25,000. You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2018.

Answer:

Profit and Loss Appropriation Account for the year and March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	2,25,000
A’s Capital A/c	96,750
B’s Capital A/c	72,000
C’s Capital A/c	56,250	2,25000
		2,25000		2,25000

Working Notes:

WN 1 Calculation of Remuneration to C as a Manager

Salary to C = Rs 27,000

Commission to C = 10% of Net Profit after Salary and Commission

Net Profit after Salary and Commission = 2,25,000 − 27,000 = Rs 1,98,000

C’s remuneration as Manager = Salary + Commission = 27,000 + 18,000 = Rs 45,000

WN 2 Calculation of Profit Share of C as a Partner

Profit = Rs 2,25,000

Part of C’s Profit Share to be borne by A = 56,250 − 45,000 = Rs 11,250

Profit available for distribution between A and B = 2,25,000 − 45,000 = Rs 1,80,000

A’s Profit share after adjusting C’s deficiency = 1,08,000 − 11,250 = Rs 96,750

Question 88:

Asgar, Chaman and Dholu are partners in a firm. Their Capital Accounts stood at ₹ 6,00,000; ₹ 5,00,000 and ₹ 4,00,000 respectively on 1st April, 2017. They shared Profits and Losses in the proportion of 4 : 2 : 3. Partners are entitled to interest on capital @ 8% per annum and salary to Chaman and Dholu @ ₹ 7,000 per month and ₹ 10,000 per quarter respectively as per the provision of the Partnership Deed. Sholu's share of profit ( excluding interest on capital but including salary) is guaranteed at a minimum of ₹ 1,10,000 p.a. Any deficiency arising on that account shall be met by Asgar. The profit for the year ended 31st March, 2018 amounted to ₹ 4,24,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital to:			Profit and Loss A/c (Net Profit)	4,24,000
Asgar	48,000
Chaman	40,000
Dholu	32,000	1,20,000

Salary to Chaman (Rs 7,000 × 12)		84,000
Salary to Dholu (Rs 10,000 × 4)		40,000

Profit transferred to:
Asgar	70,000
Chaman	40,000
Dholu	70,000	1,80,000
		4,24,000		4,24,000

Working Notes:

Profit available for distribution = 4,24,000 – (1,20,000 + 84,000+ 40,000) = Rs 1,80,000
Profit sharing ratio = 4 : 2 : 3

Dholu’s Minimum Guaranteed Profit = Rs 1,10,000 (excluding interest on capital, but including salary)
Dholu’s Minimum Guaranteed Profit (excluding salary) = 1,10,000 – 40,000 = Rs 70,000
But, Dholu’s Actual Profit Share = Rs 60,000
Deficiency in Dholu’s Profit Share = 70,000 – 60,000 = 10,000
This deficiency is to be borne by Asgar alone.
Therefore,
Asgar’s New Profit Share = 80,000 – 10,000 = Rs 70,000

Question 89:

Ankur, Bhavns and Disha are partners in a firm. On 1st April, 2017, the balance in their Capital Accounts stood at ₹ 14,00,000, ₹ 6,00,000 and ₹ 4,00,000 respectively. They shared profits in the proportion of 7 : 3 : 2 respectively. Partners are entitled to interest on capital @ 6% per annum and salary to Bhavna @ ₹ 50,000 p.a. and a commission of ₹ 3,000 per month to Disha as per the provisions of the partnership Deed. Bhavna's share of profit (excluding interest on capital) is guaranteed at not less than ₹ 1,70,000 p.a. Disha's share of profit (including interest on capital but excluding commission) is guaranteed at not less than ₹ 1,50,000 p.a. Any deficiency arising on that account shall be met by Ankur. The profit of the firm for the year ended 31st March, 2018 amounted to ₹ 9,50,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital to:			Profit and Loss A/c (Net Profit)	9,50,000
Ankur	84,000
Bhavna	36,000
Disha	24,000	1,44,000

Salary to Bhavna		50,000
Commission to Disha (Rs 3,000 × 12)		36,000

Profit transferred to:
Ankur	4,14,000
Bhavna	1,80,000
Disha	1,26,000	7,20,000
		9,50,000		9,50,000

Working Notes:

Profit available for distribution = 9,50,000 – (1,44,000 + 50,000 + 36,000) = Rs 7,20,000
Profit sharing ratio = 7 : 3 : 2

Bhavna’s Minimum Guaranteed Profit = Rs 1,70,000 (excluding interest on capital)
But, Bhavna’s Actual Profit Share = Rs 1,80,000
This implies that there is no deficiency in Bhavna’s profit share as her actual profit share (i.e. Rs 1,80,000) exceeds his minimum guaranteed profit share (i.e. Rs 1,70,000).

Disha’s Minimum Guaranteed Profit = Rs 1,50,000 (including interest on capital but excluding salary)
Disha’s Minimum Guaranteed Profit (excluding interest) = 1,50,000 – 24,000 = Rs 1,26,000
But, Disha’s Actual Profit Share = 1,20,000
Deficiency in Disha’s Profit Share = 1,26,000 – 1,20,000 = 6,000
This deficiency is to be borne by Ankur alone.
Therefore,
Ankur’s New Profit Share = 4,20,000 – 6,000 = Rs 4,14,000

Question 90:

Ankur and Bobby were into the business of providing software solutions in India. They were sharing profits and losses in the ratio 3 : 2. They admitted Rohit for a 1/5 share in the firm. Rohit, an alumni or IIT, Chennai would help them to expand their business to various South African countries where he had been working earlier. Rohit is guaranteed a minimum profit of ₹ 2,00,000 for the year. Any deficiency in Rohit's share is to be borne by Ankur and Bobby in the ratio 4 : 1. Loss for the year was ₹ 10,00,000. Pass the necessary Journal entries.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	Ankur’s Capital A/c	Dr.		4,80,000
	Bobby’s Capital A/c	Dr.		3,20,000
	Rohit’s Capital A/c	Dr.		2,00,000
	To Profit and Loss A/c				10,00,000
	(Loss debited to Partners’ Capital Accounts)

	Ankur’s Capital A/c	Dr.		3,20,000
	Bobby’s Capital A/c	Dr.		80,000
	To Rohit’s Capital A/c				4,00,000
	(Deficiency borne by Ankur and Bobby in the ratio of 4:1)

Working Notes:
WN 1: Calculation of New Ratio

WN 2: Calculation of Share of Loss

WN 3: Calculation of Deficiency
Amount payable to Rohit = Guaranteed Profit Amount + Loss transferred to Rohit’s Capital A/c
Amount payable to Rohit = 2,00,000 + 2,00,000 = Rs 4,00,000
Deficiency is to be borne by Ankur and Bobby in the ratio of 4 : 1

Question 91:

Ajay, Binay and Chetan were partners sharing profits in the ratio of 3 : 3 : 2. The Partnership Deed provided for the following:
(i) Salary of ₹ 2,000 per quarter to Ajay and Binay.
(ii) Chetan was entitled to a commission of ₹ 8,000
(iii) Binay was guaranteed a rofit of ₹ 50,000 p.a.
The profit of the firm for the year ended 31st March, 2015 was ₹ 1,50,000 which was distributed among Ajay, Binay and Chetan in the ratio of 2 : 2 : 1, without taking into consideration the provisions of Partnership Deed. Pass necessary rectifying entry for the above adjustments in the books of the firm. Show your workings clearly.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

	Ajay’s Capital A/c	Dr.		6,400
	Binay’s Capital A/c	Dr.		2,000
	To Chetan’s Capital A/c				8,400
	(Adjustment entry made)

Working Notes:

WN1: Profit & Loss Appropriation A/c

Profit and Loss Appropriation Account for the year ended 31^st March, 2015
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Salary:				Profit and Loss A/c	1,50,000
Ajay		8,000
Binay		8,000	16,000
Chetan’s Capital A/c (Commission)			8,000
Profit transferred to:
Ajay’s Capital A/c (47,250 – 1,650)	45,600
Binay’s Capital A/c (47,250 + 2,750)	50,000
Chetan’s Capital A/c (31,500 – 1,100)	30,400		1,26,000
			1,50,000		1,50,000

WN2: Statement Showing Adjustment

Statement Showing Adjustment
Particulars	Ajay	Binay	Chetan	Total
Salary to be provided	8,000	8,000	-	(16,000)
Commission to be provided			8,000	(8,000)
Profit to be credited	45,600	50,000	30,400	(1,26,000)
Total	53,600	58,000	38,400	(1,50,000)
Profit already distributed	(60,000)	(60,000)	(30,000)	1,50,000
Net Effect	(6,400)	(2,000)	8,400	NIL

Question 92:

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 then ₹ 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:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

2015-16	P’s Capital A/c	Dr.		3,600
	Q’s Capital A/c	Dr.		2,400
	To R’s Capital A/c				6,000
	(Deficiency adjusted)

2017-18	P’s Capital A/c	Dr.		32,400
	Q’s Capital A/c	Dr.		21,600
	To R’s Capital A/c				54,000
	(Deficiency adjusted)

Working Notes:

WN1: Calculation of amount of deficiency of R
$\begin{array}{l} R's Minimum Guaranteed Profit = Rs 30,000 \\ For 2015-16, R's actual share of profit = 1,20,000 \times \frac{5}{25} = Rs 24,000 \\ Deficiency in R's Profit = 30,000 - 24,000 = Rs 6,000 \\ This deficiency is to be borne by P & Q in the ratio of 12:8. \\ For 2016-17, R's actual share of profit = 1, 80, 000 \times \frac{5}{25} = Rs 36,000 \\ T h i s i m p l i e s t h a t t h e r e i s n o d e f i c i e n c y i n R' s p r o f i t s h a r e a s h i s a c t u a l s h a r e e x c e e d s h i s m i n i m u m \\ g u a r a n t e e d s h a r e . \\ For 2017-18, R's share of loss = 1, 20, 000 \times \frac{5}{25} = Rs 24,000 \\ Deficiency in R's Profit = 30,000 + 24,000 = Rs 54,000 \\ This deficiency is to be borne by P & Q in the ratio of 12:8. \end{array}$

Question 93:

Three Chartered Accountants A, B and C form a partnership, profits being shared in the ratio of 3 : 2 : 1 subject to the following:
(a) C's share of profit guaranteed to be not less than ₹ 15,000 p.a.
(b) B gives a guarantee to the effect that gross fee earned by him for the firm shall be equal to his average gross fee of the preceeding five years when he was carrying on profession alone, which on an average works out at ₹ 25,000.
The profit for the first year of the partnership are ₹ 75,000. The gross fee earned by B for the firm is ₹ 16,000. You are required to show Profit and Loss Appropriation Account after giving effect to the above.

Answer:

Profit and Loss Appropriation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c (Net Profit)	75,000
A’s Capital A/c	41,400		B’s Capital A/c
B’s Capital A/c	27,600		(Deficiency in Revenue)	9,000
C’s Capital A/c	15,000	84,000
		84,000		84,000

Working Notes:

Deficiency in revenue guaranteed by B = 25,000 − 16,000 = Rs 9,000

∴Profit to be distributed among Partners = 75,000 + B’s deficiency in guaranteed interest

= 75,000 + 9,000 = Rs 84,000

Profit sharing ratio = 3 : 2 : 1

C is given a guarantee of minimum profit of Rs 15,000

Deficiency in C’s Profit Share = 15,000 − 14,000 = Rs 1,000

Therefore, Final Profit Share of A = 42,000 − 600 = Rs 41,400

Final Profit Share of B = 28,000 − 400 = Rs 27,600**

Final Profit Share of C =14,000 + 1,000 = Rs 15,000

** In the book, the final profit to B is given as Rs 18,600, however, as per the solution it should be Rs 27,600. The deficiency of Rs 9,000 that was guaranteed by B to the firm would not be deducted from his share as he is bearing it in form of profit.

Double Entry Book Keeping Ts Grewal Vol. I 2018 for Class 12 Commerce Accountancy Chapter 1 - Accounting For Partnership Firms Fundamentals

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