NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 2- Accounting for Partnership: Basic Concept

Q.1 Define Partnership Deed.
Ans
Partnership deed refers to a document which contains the terms of partnership as agreed among the partners.
Q.2 Why it is considered desirable to make the partnership agreement in writing?
Ans
The agreement becomes the basis of relationship between the partners, it is not necessary that such agreement is in written form. An oral agreement is equally valid, but in order to avoid disputes, it is preferred that the partners have a written agreement.

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

1. Capitals are fixed.
2. Capitals are fluctuating.
Ans
Capitals are fixed:
1. Permanent drawings
2. Permanent capital introduced

Capitals are fluctuating:
1. Drawings
2. Salaries or commission
3. Interest on capital

Q.4 Why is profit and loss adjustment account prepared?
Ans
Profit and loss adjustment account is prepared because before the division of net profits, it is subject to certain adjustments which are not charged and hence cannot be shown in profit and loss account so to show these an additional account is prepared known as profit and loss adjustment (or appropriation) account in which net profit/net loss and all adjustments are shown.

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

• Withdrawal of capital
• Investing fresh capital

Q.6 If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?
Ans
If a fixed amount is withdrawn on the first day of every quarter, the interest is calculated on the total money withdrawn during the year, for a period of seven and half months.

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

1. Sharing of profits and losses.
2. Interest on partner’s capital.
3, Interest on partner’s drawings.
4. Interest on partner’s loan.
5. Salary to a partner.
Ans
1. Sharing of profits and losses: Profit and losses are to be shared equally among the partners.
2. Interest on partner’s capital: No interest on capital is to be allowed to the partners.
Interest on partner’s drawings: No interest is to be charged on the drawings.
Interest on partner’s loan: Interest at the rate of 6% p.a. is to be allowed on the loans advanced by partners to the firm.Salary to a partner: A partner is not entitled to any salary.

Q.8 What is meant by partnership? Explain its chief characteristics? Explain.
Ans
Section 4 of the Indian Partnership Act, 1932 defines partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. So when two or more persons join hands to set up a business and share its profits and losses they are said to be in partnership.

Characteristics of Partnership:

1. Number of Persons: There should be at least two persons for business. The maximum number is 100.
2. Agreement: Partnership is the result of an agreement. It can be oral or in writing.
3. Lawful business: Business of the partnership should be lawful, i.e., it should not do black marketing, smuggling or hoarding.
4. Profit motive: The object should be to earn profit because it cannot be formed for service motive.
5. Profit sharing: Partners should share the profits of the business in an agreed ratio.
6. Liability of partners: The liability of the partners is unlimited. This implies that their private assets can also be used for paying off the firm’s debts.Mutual Agency:
7. Partners are both an agent and principal, i.e., parties are bound by the act of other partners and other partners are bound by the act of parties.

Q.9 Discuss the main provisions of the Indian Partnership Act 1932 that are relevant to partnership accounts if there is no partnership deed.
Ans
When the Partnership Deed is silent on a certain point the relations of partners are determined by the rules given in section 12 to 17 of the Indian Partnership Act, 1932.

Rules in the Absence of Partnership Deed:

Profit sharing ratio: Profit and losses are to be shared equally among the partners.

Interest on capital: No Interest on capital is to be allowed to the partners.

Interest on drawings: No interest is to be charged on the drawings.

Interest on loan: Interest at the rate of 6% p.a. is to be allowed on the loans advances by partners to the firm.

Remuneration to partners: No partner is entitled to any salary, remuneration or commission.

Admission of a partner: No new partner will be admitted without the mutual consent of all the existing partners.

Others: Partner has to pay to the firm any profit from any transaction of the firm or by use of property of the firm. Partners has to pay to the firm any profit earned from any business of the same nature of the firm and competing with that of the firm.

Q.10 Explain why it is considered better to make a partnership agreement in writing.
Ans
A written agreement signed by all partners is called ‘Partnership Deed’. It is a very important legal document with regard to rights, duties and obligations. It helps in solving various matters in case of disputes among partners in future. It can be oral as well as in writing. It can be changed from time to time with the consent of all the partners. It is also known as ‘Articles of Partnership’.

It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capital by each partner, ratio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan etc. Hence the document is helpful solving any future dispute.

Q.11 Illustrate how interest on drawings will be calculated under various situations.
Ans
The following rules shall be followed while calculating interest on drawings:

• Interest on drawings shall be charged from partners only when partnership deed authorises the firm to do so.
• Generally, interest on drawings is to be calculated as per the date of withdrawal made by partners. In case no specific date of withdrawal of drawings is mentioned, then it is assumed that the drawings were made on an even scale throughout the year. In such case the interest will be changed at the given rate for six months on the whole amount of drawings.
• When drawings are made by the partners in the beginning of each month on regular basis and the amount of drawings is the same, i.e., fixed interest on the whole amount of drawings will be charged for 6 ½ months.
• When drawings are made by the partners on regular basis at the end of the month and the amount of drawings is same, the interest on the whole amount of drawings will be charged for 5 ½ months.
• When fixed amount is withdrawn at the middle of the month then it calculated for 6 months.
• If fixed amount is withdrawn at the beginning, middle and end of each quarter, then interest will be calculated for 7 ½ months, 4 ½ months and 6 months respectively.
• When drawings are made at different dates (at irregular intervals) either at the beginning or at the end of the month interest on drawings as per given rate is calculated by product method, so for each withdrawal, the money withdrawn is multiplied by the period for which it remained withdrawn the product is totaled and interest for one month is calculated.

\text{Interest on Drawing = Total of Product X}\frac{\text{Rate of Interest}}{\text{100}}\text{x}\frac{\text{1}}{\text{12}}

• When rate of interest is given without the words p.a. (per annum), it implies interest is to be calculated without any reference of time.

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

Partners’ Current Accounts

Q.13 Anubha and Kajal are partners of a firm sharing profits and losses in the ratio of 2:1. Their capital, were ₹90,000 and ₹60,000. The profit during the year were ₹45,000. According to partnership deed, both partners are allowed salary, ₹700 per month to Anubha and ₹500 per month to Kajal. Interest allowed on capital @5% p.a. The drawings during the year were ₹8,500 for Anubha and ₹ 6,500 for Kajal. Interest is to be charged @5% p.a. on drawings. Prepare partners capital accounts assuming that the capital account are fluctuating.
Ans
Partners’ Capital Accounts

Q.14 Rakhi and Sihkha are partners in a firm, with capitals of ₹2,00,000 and ₹3,00,000 respectively. The profit of the firm, for the year ended 2016-17 is ₹23,200. As per the partnership agreement, they share the profit in their capital ratio, after allowing a salary of ₹5,000 per month to Shikha and interest on partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew ₹7,000 and Shikha ₹10,000 for their personal use. As Per partnership deed salary and Interest on Capital Appropriation treated as charge on Profit. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.
Ans
Profit and Loss Appropriation A/c

Partners’ Capital Accounts

Q.15 Lokesh and Azad are partners sharing profits in the ratio 3:2 with capitals of ₹50,000 and ₹30,000, respectively. Interest on capital is agreed to be paid @6% p.a. Azad is allowed a salary of ₹2,500 p.a. During 2016, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to ₹12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare Partner’s Capital Accounts and Profit and Loss Appropriation Account.
Ans
Profit and Loss Appropriation A/c

Partners’ Capital Accounts

Q.16 Ram, Raj and George are partners sharing profits in the ratio 5:3:2. According to the partnership agreement George is to get a minimum amount of ₹10,000 as his share of profits every year. The net profit for the year 2013 amounted to ₹40,000. Prepare the profit and loss appropriation account.
Ans
Profit and Loss Appropriation A/c

for the year ended…..

George’s deficiency of ₹2,000 will be borne by Ram and Raj in the ratio 5:3.

Q.17 Amann, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed an amount of ₹10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for two years ending March 31, 2016 and March 31, 2017 were ₹40,000 and ₹60,000, respectively. Prepare the profit and loss appropriation account for the two years.

Ans
Profit and Loss Appropriation A/c

for the year ended 31^st December 2016

Profit and Loss Appropriation A/c

for the year ended 31^st December 2017

Q.18 Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio of 3:1. The profit and loss account of the firm for the year ending March 31, 2017 shows a net profit of ₹1,50,000. Prepare the Profit and Loss Appropriation account and Partner’s Current Account by taking into consideration the following information:

(i) Partners capital on April 1, 2016:
Simmi ₹30,000; Sonu ₹60,000;

(ii) Current accounts balances on April 1, 2016;
Simmi ₹30,000 (Cr.); Sonu, ₹15,000 (Cr.);

(iii) Partners drawings during the year amounted to
Simmi ₹20,000; Sonu ₹15,000;

(iv) Interest on capital was allowed @5% p.a.;

(v) Interest on drawings was to be charged @6% p.a. at an average of six months.

(vi) Partners salaries: Simmi ₹12,000 and Sonu ₹9,000. –
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Partners’ Current Accounts

Q.19 Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were ₹80,000 and ₹60,000 respectively. The firm started business on April 1, 2016. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of ₹2,000 and ₹3,000 respectively.

The profits for year ended March 31, 2017 before making above appropriations was ₹1,00,300. The drawings of Ramesh and Suresh were ₹40,000 and ₹50,000, respectively. Interest on drawings amounted to ₹2,000 for Ramesh and ₹ 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and Partner’s capital accounts, assuming that then capitals are fluctuating.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Partners’ Current Accounts

Q.20 Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:

Profits would be shared by Sukesh and Vanita in the ratio of 3:2.

5% interest is to be allowed on capital.

Vanita should be paid a monthly salary of ₹600.

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

Net profit for the year, before charging interest on capital and after charging partner’s salary was ₹9,500. Prepare the profit and loss appropriation account and the partner’s current accounts.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Partners’ Current Accounts

Q.21 Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’s share in profit has been guaranteed by Amit and Sumit to be a minimum sum of ₹8,000. Profits for the year ended March 31, 2017 was ₹36,000. Divide profit among the partners by Preparing Profit and Loss Appropriation Account.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Q.22 Pinki, Deepti and Kaku are partners sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than ₹ 5,000. Deficiency if any would be borne by Pinki and Deepti equally. Profits for the year amounted to ₹ 40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.
Ans
Profit and Loss Appropriation A/c

for the year ended……………

Q.23 Abhay, Siddharth and Kusum are partners in a firm, sharing profit in the ratio of 5:3:2. Kusum is guaranteed a minimum amount of ₹10,000 as per share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2016 and 2017 are ₹40,000 and ₹60,000 respectively. Prepare Profit and Loss Appropriation account.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2016

Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Q.24 Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share of profit, in any year will not be less than ₹5,000. The profits for the year ending March 31, 2017 amounts to ₹35,000. Shortfall if any, in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2. Record necessary journal entry to show distribution of profit among partner.
Ans
Journal Entries

Q.25 X, Y and Z are in Partnership, sharing profits and losses in the ratio of 3:2:1 respectively. Z’s share in the profit is guaranteed by X and Y to be a minimum of ₹8,000. The net profit for the year ended March 31, 2017 was ₹30,000. Prepare Profit and Loss Appropriation Account, indicating the amount finally due to each partner.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Q.26 Arun, Boby and Chintu are partners in a firm sharing profit in the ratio or 2:2:1. According to the terms of the partnership agreement, Chintu has to get a minimum of ₹60,000, irrespective of the profits of the firm. Any Deficiency to Chintu on account of such guarantee shall be borne by Arun. Prepare the profit and loss appropriation account showing distribution of profits among partners in case the profits for year 2015 are

(i) ₹2,50,000; (ii) ₹3,60,000.
Ans
Case (i)

Profit and Loss Appropriation A/c
for the year ended 31^st Dec. 2015

Case (ii)
Profit and Loss Appropriation A/c
for the year ended 31^st Dec. 2015

Q.27 Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2:2:1. Ashok and Brijesh have guaranteed that Cheena share in any year shall be less than ₹20,000. The net profit for the year ended March 31, 2017 amounted to ₹70,000. Prepare Profit and Loss Appropriation Account.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Q.28 Ram, Mohan and Sohan are partners with capitals of ₹5,00,000, ₹2,50,000 and ₹2,00,000 respectively. After providing interest on capital @ 10% p.a. the profits are divisible as follows:

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

You are required to show distribution of profit by preparing profit and loss appropriation account.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

₹1,05,000 (₹2,00,000 – ₹95,000) will be divided among partners in the ratio of 3:2:1.

Q.29 Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3:2:1, subject to the following:

Sona’s share in the profits guaranteed to be not less than ₹15,000 in any year.

Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is ₹25,000). The net profit for the year ended March 31, 2017 is ₹75,000. The gross fee earned by Babita for the firm was ₹16,000.

You are required to prepare Profit and Loss Appropriation account.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Q.30 The net profit of X, Y and Z for the year ended March 31, 2016 was ₹60,000 and the same was distributed among them in their agreed ratio of 3:1:1. It was subsequently discovered that the under mentioned transactions were not recorded in the books:

1. Interest on Capital @ 5% p.a.
2. Interest on drawings amounting to X ₹700, Y ₹500 and Z ₹300.
3. Partner’s salary: X ₹1,000, Y ₹1,500 p.a.

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

Profits to be distributed = ₹60,000 – ₹12,000 + ₹1,500 – ₹2,500 = ₹47,000

Journal Entries

Q.31 The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2:2:1 have existed for some 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 for the last three years. Harry and porter have agreement on this account.

The profits for the last three years were:

Show adjustment of profits by means of a single adjustment journal entry.
Ans
Total profits of last three years = ₹22,000 + ₹24,000 + ₹29,000 = ₹75,000.

Journal Entries

Q.32 Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3:2. Following is the balance sheet of the firm as on March 31, 2017.

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

Calculation of opening capital:

Adjustment of Profits:

Journal Entries

Q.33 On March 31, 2017 the balance in the capital accounts of Eluin. Monu and Ahmed after making adjustments for profits, drawings, etc. were ₹80,000, ₹60,000 and ₹40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted.

The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin ₹20,000; Monu ₹15,000 and Ahmed ₹9,000. Interest on drawings chargeable to partners were Eluin ₹500, Monu ₹360 and Ahmed ₹200. The net profit during the year amounted to ₹1,20,000.

The profit sharing ratio was 3:2:1.

Record necessary adjustment entries.
Ans
Interest on capital is computed on opening capital.

Calculation of opening capital:

Table Showing Adjustment

Journal Entries

Q.34 Mohan, Vijay and Anil are partners the balance on their capital accounts being ₹30,000, ₹25,000 and ₹20,000 respectively. In arriving at these figures the profits for the year ended March 31, 2017 amounting to Rupees ₹24,000 had been credited to partners in the proportion in which they shared profits. During the year their drawings for Mohan, Vijay and Anil were ₹5,000, ₹4,000 and ₹3,000 respectively. Subsequently, the following omissions were noticed:

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

Record necessary corrections through journal entries.
Ans
Interest on capital is computed on opening capital.

Calculation of opening capital:

Table Showing Adjustment

Journal Entries

Q.35 Dinker, and Ravinder were partners sharing profits and losses in the ratio of 2:1. The following balances were extracted from the books of account, for the year ended December 31, 2017.

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

1. Stock on December 31, 2017 was ₹42,500.
2. A provision is to be made for bad debts at 5% on debtors.
3. Rent outstanding was ₹1,600.
4. Wages outstanding were ₹1,200.
5. Interest on capital to be allowed on capital @ 4% per annum and interest on drawings to be charged @ 6% per annum.
6. Dinker and Ravinder are entitled to a salary of ₹2,000 per annum.
7. Ravinder is entitled to a commission ₹1,500.
8. Depreciation is to be charged on building @ 4%, Plant and machinery 6% and Furniture and Fixture @ 5%.
9. Outstanding interest on loan amounted to ₹350.

Ans
Trading A/c

For the year ending 31^st December, 2017

Profit and Loss A/c

for the year ending 31^st December, 2017

Profit and Loss Appropriation A/c

for the year ended 31^st December 2017

Partners’ Capital Accounts

Balance Sheet

as on 31.12.2017

Q.36 Kajol and Sunny were partners sharing profits and losses in the ratio of 3:2. The following balances were extracted from the books of account for the year ended March 31, 2015.

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

1. Stock on March 31, 2015 was ₹37,500.
2. Bad debts ₹3,000; Provision for bad debts is to be made at 5% on debtors.
3. Rent prepaid were ₹1,200.
4. Wages outstanding were ₹2,200.
5. Interest on capital to be allowed on capital at 6% per annum and interest on drawings to be charged @ 5% per annum.
6. Kajol is entitled to a salary of ₹1,500 per annum.
7. Prepaid insurance was ₹500.Depreciation was charged on building @ 4%; Plant and machinery @ 5%; motor car @ 10% and furniture and fixture @ 5%.
8. Goods worth ₹7,000 were destroyed by fire on January 20, 2015. The Insurance Company agreed to pay ₹5,000 in full settlement of the claim.
Ans
Trading A/c

for the year ending 31^st March, 2015

Profit and Loss A/c

for the year ending 31^st March, 2015

Profit and Loss Appropriation A/c

for the year ended 31^st March 2015

Partners’ Current Accounts

Balance Sheet

as on 31.03.2015

Q.37 How will you deal with a change in profit sharing ratio among existing partners? Take imaginary figures to illustrate your answer?
Ans
Change in the profit sharing ratio among the existing partners means it is reconstitution of the firm without admission of a new partners or retirement or death of a partner. A change in the profit-sharing ratio in a partnership means, one (or more) partners acquires share of profit in the business from another partners.

Therefore the aggregate amount of gain by one (or more) partners is equal to the aggregate amount of sacrifice made by the other partners.

If share of profit of one or more partners increase then share of profit of one or more partners decreases.

For Example, Sam and Rey are partners in a firm sharing profits in the ratio of 3:2. They have decided to share profits equally in future. It means Sam sacrifices and Rey gains. The sacrifice or gain is calculated as follows:

Sacrificing/ Gaining share = Old share – New Share

\begin{array}{l}\text{Sam =}\frac{\text{3}}{\text{5}}\text{–}\frac{\text{1}}{\text{2}}\text{=}\frac{\text{6-5}}{\text{10}}\text{=}\frac{\text{1}}{\text{10}}\text{(sacrifice made)}\\ \text{Rey =}\frac{\text{2}}{\text{5}}\text{–}\frac{\text{1}}{\text{2}}\text{=}\frac{\text{4-5}}{\text{10}}\text{= (}\frac{\text{1}}{\text{10}}\text{) (Being nagative, it’s a gain)}\end{array}

It is clear from the above that Sam is forgoing (sacrificing) 1/10^th of his share of profit in favour of Rey. Rey being the gaining partner should compensate Sam, the sacrificing partner by paying goodwill, i.e., by paying an amount equal to 1/10^th of the value of goodwill.

Q.38 Harshad and Dhiman are in partnership since April 01, 2016. No partnership agreement was made. They contributed ₹4,00,000 and ₹1,00,000 respectively as capital. In addition, Harshad advanced an amount of ₹1,00,000 to the firm on October 01, 2016. Due to long illness, Harshad could not participate in business activities from August 1 to September 30, 2016. The profits for the year ended March 31, 2017 amounted to ₹1,80,000.

Dispute has arisen between Harshad and Dhiman.

Harshad Claims:
1. He should be given interest @10% per annum on capital and loan;
2. Profit should be distributed in proportion of capital;

Dhiman Claims:
1. Profits should be distributed equally;
2. He should be allowed ₹2,000 per month as remuneration for the period he managed the business. In the absence of Harshad;
3. Interest on capital and loan should be allowed @6% p.a.

You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.
Ans
In the absence of any agreement among partners, provisions of Partnership Act, 1932 will apply.

Decision on Harshad’s claim:

1. Interest on capital will not be allowed to partners.
2. Profits should be distributed equally among the partners.

Decision on Dhiman’s claim:

1. Profits should be distributed equally among the partners.
2. Salary will not be allowed to partners.
3. Interest on capital will not be allowed to partners.

Profit and Loss Appropriation A/c

\begin{array}{l}\text{Interest on loan = ₹1,00,000 x}\frac{\text{6}}{\text{100}}\text{x}\frac{\text{6}}{\text{12}}\\ \text{= ₹3,000}\end{array}

Q.39 Aakriti and Bindu entered into partnership for making garment on April 01, 2016 without any Partnership agreement. They introduced Capitals of ₹5,00,000 and ₹3,00,000 respectively on October 01, 2016. Aakriti advanced ₹20,000 by way of loan to the firm without any agreement as to interest. Profit and loss account for the year ended March 31, 2017 showed profit of ₹43,000. Partners could not agree upon the question of interest and the basis of division of profit. You are required to divide the profits between them by preparing profit and loss Appropriation Account. Also give reason in support of your answer.

Ans
Profit and Loss Appropriation A/c

\begin{array}{l}\text{Interest on loan = ₹20,000 ×}\frac{\text{6}}{\text{100}}\text{×}\frac{\text{6}}{\text{12}}\\ \text{= ₹600}\end{array}

Q.40 The partnership agreement between Maneesh and Girish provides that:
1. Profits will be shared equally;
2. Maneesh will be allowed a salary of ₹400 p.m;
3. Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;
4. 7% p.a. interest will be allowed on partner’s fixed capital;
5. 5% p.a. interest will be charged on partner’s annual drawings;
6. The fixed capitals of Maneesh and Girish are ₹1,00,000 and ₹80,000, respectively. Their annual drawings were ₹16,000 and ₹14,000 respectively. The net profit for the year ending March 31, 2015 amounted to ₹40,000;

Prepare firm’s Profit and Loss Appropriation Account.
Ans
Profit and Loss Appropriation A/c

\begin{array}{l}\text{Interest on drawings:}\\ \text{Maneesh = ₹16,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹800}\\ \text{Girish = ₹14,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹700}\\ \text{Commission of Girish = 10\% of (₹40,000- ₹4,800)}\end{array}

Q.41 Rahul, Rohit and Karan started partnership business on April 1, 2016 with capitals of ₹20,00,000, ₹18,00,000 and ₹16,00,000, respectively. The profit for the year ended March 2017 amounted to ₹1,35,000 and the partner’s drawings had been Rahul ₹50,000, Rohit ₹50,000 and Karan ₹40,000. The profits are distributed among partner’s in the ratio of 3:2:1. Calculate the interest on capital @5% p.a.
Ans

\begin{array}{l}\text{Calculation of interest on capital:}\\ \text{Rahul = 20,00,000 x}\frac{\text{5}}{\text{100}}\text{= ₹1,00,000}\\ \text{Rohit = 18,00,000 x}\frac{\text{5}}{\text{100}}\text{= ₹90,000}\\ \text{karan = 16,00,000 x}\frac{\text{5}}{\text{100}}\text{= ₹80,000}\end{array}

Q.42 Sunflower and Pink Rose started partnership business on April 01, 2016 with capitals of ₹2,50,000 and Rs. 1,50,000 respectively. On October 01, 2016 they decided that their capitals should be ₹2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest on capital is to be allowed @10% p.a. Calculate interest on capital as on March 31, 2017.
Ans

\begin{array}{l}\text{Calculation of interest on capital:}\\ \text{Sunflower = (₹2,50,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}}{\text{12}}\text{) + (₹2,00,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}}{\text{12}}\text{)}\\ \text{= (₹12,500) + (₹10,000)}\\ \text{= ₹22,500}\\ \text{Pink = (₹1,50,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}}{\text{12}}\text{) + (₹2,00,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}}{\text{12}}\text{)}\\ \text{= (₹7,500) + (₹10,000)}\\ \text{= ₹17,500}\end{array}

Q.43 On March 31, 2017 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at ₹4,00,000 and ₹3,00,000 and ₹2,00,000, respectively. Subsequently it was discovered that the interest on capital @10% p.a. had been omitted. The profit for the year amounted to ₹1,50,000 and the partner’s drawings had been Mountain ₹20,000, Hill ₹15,000 and Rock ₹10,000.
Calculate interest on capital.
Ans
Interest on capital is computed on opening capital.

Calculation of opening capital:

\begin{array}{l}\text{Calculation of interest on capital:}\\ \text{Mountain = ₹3,70,000 ×}\frac{\text{10}}{\text{100}}\text{= ₹37,000}\\ \text{Hill = ₹2,65,000 ×}\frac{\text{10}}{\text{100}}\text{= ₹26,500}\\ \text{Rock = ₹1,60,000 ×}\frac{\text{10}}{\text{100}}\text{= ₹16,000}\end{array}

Q.44 Following is the extract of the Balance Sheet of Neelkant and Mahdev as on March 31, 2017:

During the year Mahadev’s drawings were ₹30,000. Profits during 2016-2017 is ₹10,00,000.

Calculate interest on capital @ 5% p.a. for the year ending March 31, 2017.
Ans

\begin{array}{l}\text{Calculation of interest on Capital:}\\ \text{Neelkant = ₹10,00,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹50,000}\\ \text{Mahadev = ₹10,00,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹50,000}\end{array}

Q.45 Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31, 2017.

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

Calculate interest on drawings.
Ans

\begin{array}{l}\text{Interest on Rishi’s drawings:}\\ \text{= Sum of the products × rate ×}\frac{\text{1}}{\text{12}}\\ \text{=₹3,06,000 ×}\frac{\text{9}}{\text{100}}\text{×}\frac{\text{1}}{\text{12}}\\ \text{= ₹2,295}\end{array}

Q.46 The capital accounts of Moli and Golu showed balances of ₹40,000 and ₹20,000 as on April 01, 2016. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @12% p.a. Golu advanced a loan of ₹10,000 to the firm on August 01, 2016.

During the year, Moli withdrew ₹1,000 per month at the beginning of every month whereas Golu withdrew ₹1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was ₹20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

Partners’ Capital Accounts

\begin{array}{l}\text{Interest on Golu’s loan:}\\ \text{= ₹10,000 ×}\frac{\text{6}}{\text{100}}\text{×}\frac{\text{8}}{\text{12}}\\ \text{Interest on drawings:}\\ \text{= Total drawings × rate × average period × 12}\\ \text{Moli = ₹12,000 ×}\frac{\text{12}}{\text{100}}\text{×}\frac{\text{6}\frac{\text{1}}{\text{2}}}{\text{12}}\text{= ₹780}\\ \text{Golu = ₹12,000 ×}\frac{\text{12}}{\text{100}}\text{×}\frac{\text{5}\frac{\text{1}}{\text{2}}}{\text{12}}\text{= ₹660}\end{array}

Q.47 Rakesh, and Roshan are partners, sharing profits in the ratio of 3:2 with capitals of ₹40,000 and ₹30,000, respectively. They withdrew from the firm the following amounts for their personal use:

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

\begin{array}{l}\text{Interest on drawings:}\\ \text{= Sum of the products × rate ×}\frac{\text{1}}{\text{12}}\\ \text{Interest on Rakesh’s drawings:}\\ \text{= ₹25,300 ×}\frac{\text{6}}{\text{100}}\text{×}\frac{\text{1}}{\text{12}}\text{= ₹126}\text{.50}\\ \text{Interest on Rohan’s drawings:}\\ \text{= ₹4,800 ×}\frac{\text{6}}{\text{100}}\text{×}\frac{\text{6}\frac{\text{1}}{\text{2}}}{\text{12}}\text{= ₹156}\end{array}

Q.48 Himanshu withdrew ₹2,500 at the end Month of each month. The partnership deed provides for charging the interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending 31^st March, 2017.
Ans

\begin{array}{l}\text{Interest on drawings:}\\ \text{= total drawings × rate ×}\frac{\text{Average}\text{period}}{\text{12}}\\ \text{Interest on Himanshu’s drawings:}\\ \text{= ₹30,000 ×}\frac{\text{12}}{\text{100}}\text{×}\frac{\text{5}\text{.5}}{\text{12}}\text{= ₹1650}\end{array}

Q.49 Bharam is a partner in a firm. He withdrew ₹3,000 at the starting of each month for 12 months. The books of the firm close on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.
Ans

\begin{array}{l}\text{Interest on drawings:}\\ \text{= total drawings × rate ×}\frac{\text{Average}\text{period}}{\text{12}}\\ \text{Interest on Bharam’s drawings:}\\ \text{= ₹36,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}\text{.5}}{\text{12}}\text{= ₹1950}\end{array}

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

\begin{array}{l}\text{Calculation of interest on capital:}\\ \text{Raj = (₹2,50,000 ×}\frac{\text{8}}{\text{100}}\text{×}\frac{\text{3}}{\text{12}}\text{) + (₹1,00,000 ×}\frac{\text{8}}{\text{100}}\text{×}\frac{\text{9}}{\text{12}}\text{)}\\ \text{=}\text{(₹5,000) + (₹6,000)}\\ \text{= ₹11,000}\\ \text{Neeraj = (₹1,50,000 ×}\frac{\text{8}}{\text{100}}\text{×}\frac{\text{3}}{\text{12}}\text{) + (₹1,00,000 ×}\frac{\text{8}}{\text{100}}\text{×}\frac{\text{9}}{\text{12}}\text{)}\\ \text{=}\text{(₹3,000) + (₹6,000)}\\ \text{= ₹9,000}\end{array}

Q.51 Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2017 were ₹24,000 and ₹16,000, respectively.

Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.
Ans

\begin{array}{l}\text{Interest on drawings:}\\ \text{Amit = ₹24,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}}{\text{12}}\text{= ₹1,200}\\ \text{Bhola = ₹16,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}}{\text{12}}\text{== ₹800}\\ \end{array}

Q.52 Harish is a partner in a firm. He withdrew the following amounts during the year 2017:

Interest on drawings is to be charged @ 7½ % p.a.

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

\begin{array}{l}\text{Interest on drawings:}\\ \text{= Sum of the products × rate ×}\frac{\text{1}}{\text{12}}\\ \text{Interest on Harish’s drawings:}\\ \text{= ₹1,72,000 ×}\frac{\text{7}\text{.5}}{\text{100}}\text{×}\frac{\text{1}}{\text{12}}\text{= ₹1,075}\\ \end{array}

Q.53 Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are ₹2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn:

1. In the beginning of every month.
2. In the middle of every month and
3. At the end of every month.
Ans

\begin{array}{l}\text{Interest on Menon’s drawings:}\\ \text{Beginning = ₹24,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}\text{.5}}{\text{12}}\text{= ₹1,300}\\ \text{Middle = ₹24,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{6}}{\text{12}}\text{== ₹1,200}\\ \text{End = ₹24,000 ×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{5}\text{.5}}{\text{12}}\text{= ₹1,100}\end{array}

Q.54 On March 31, 2017 after the close of books of accounts the capital accounts of Ram, Shyam and Mohan showed balance of ₹24,000, ₹18,000 and ₹12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2017 amounted to ₹36,000 and the partner’s drawings had been Ram ₹3,600; Shyam ₹4,500 and Mohan ₹2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1.

Calculate interest on capital.
Ans
Interest on capital is computed on opening capital.

Calculation of opening capital:

\begin{array}{l}\text{Calculation of interest on capital:}\\ \text{Ram = ₹9,600 ×}\frac{\text{5}}{\text{100}}\text{= ₹480}\\ \text{Shyam = ₹10,500 ×}\frac{\text{5}}{\text{100}}\text{= ₹525}\\ \text{Mohan = ₹8,700 ×}\frac{\text{5}}{\text{100}}\text{= ₹435}\end{array}

Q.55 Azad and Benny are equal partners. Their capitals are ₹40,000 and ₹80,000, respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.
Ans

\begin{array}{l}\text{Calculation of interest on capital:}\\ \text{Azad = ₹40,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹2,000}\\ \text{Benny = ₹80,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹4,000}\\ \text{Total interest on capital = ₹6,000}\end{array}

Table for Adjustment:

Journal Entries

Q.56 Anju, Manju and Mamta are partners whose fixed capitals were ₹10,000, ₹8,000 and ₹6,000, respectively. As per the partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the same have not been made for the last three years. The profit sharing ratio during three years remained as follows:

Make necessary and adjustment entry at the beginning of the fourth year i.e. Jan 2015.
Ans

\begin{array}{l}\text{Calculation of interest on capital:}\\ \text{Anju = ₹10,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹500}\\ \text{Manju = ₹8,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹400}\\ \text{Mamta = ₹6,000 ×}\frac{\text{5}}{\text{100}}\text{= ₹300}\\ \text{Total interest on capital = ₹1,200}\end{array}

Table Showing Adjustment:

Journal Entries:

Q.57 Arvind and Anand are partners sharing Profits and Losses in the ratio 3:1 Balances in their Capital Account on April 1, 2019 were Arvind Rs.4,40,000 and Anand Rs.2,60,000 as per their agreement partners were entitled to interest on Capital @5% p.a. and Interest on Drawing to was to be charged @ 6% p.a. Arvind was allowed an annual Salary of Rs.35,000/ for the additional responsibilities taken up by him. Partners Drawings for the year were Arvind Rs.40,000 and Anand Rs. 28,000. Profit and Loss for the year ending March 31, 2020 Showed a net loss of Rs,32,400. Prepare Profit and Loss Appropriation Account.
Ans
Profit and Loss Appropriation A/c

for the year ended 31^st March 2017

No salary and interest on capital will be allowed in case of loss.

Interest on drawings:

Arvind = 40,000 × 6/100 × 6/12 = Rs. 1,200
Anand = 28,000 × 6/100 × 6/12 = Rs. 840