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Fundamental Accounting for Partnership firm - class 12 (volume 1) 2023-2024 l part -1
Page No 2.81:
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 loan by partner,
(d) Division of profit,
(e) Interest on partners’ drawings
(f) Interest on loan to partners?
Answer:
Page No 2.81:
Question 2:
Mahesh, Ramesh and Suresh 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) Mahesh wants that interest on capital should be allowed to the partners but Ramesh and Suresh do not agree.
(b) Ramesh wants that the partners should be allowed to draw salary but Mahesh and Suresh do not agree.
(c) Suresh wants that the loan given by him to the firm should bear interest @ 10% p.a. but Mahesh and Ramesh do not agree.
(d) Mahesh and Ramesh having contributed larger amounts of capital, desire that the profits should be divided in the ratio of their capital contribution but Suresh does not agree.
State how you will settle these disputes if the partners approach you for purpose.
Answer:
Page No 2.81:
Question 3:
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?
(e) R had given loan of `1,00,000 to firm and demands interest @ 10% p.a. P and Q do not want to pay the interest.
Answer:
(a) P is bound to pay ` 20,000 together with profit of ` 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 ` 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 ` 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.
(e) P,Q and R are not correct
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.
Page No 2.81:
Question 4: Bose, Sarkar and Chatterjee are partners in a firm and do not have a Partnership Deed. Bose introduced
further capital of `5,00,000 on 1st October, 2021. Whereas Chatterjee took a loan of ` 50,000 from the firm
on 1st October, 2021. Disputes have arisen among them on the following issues:
(a) Bose demands interest 10% p.a. on ` 5,00,000 being his extra capital.
(b) Sarkar desires that his son Deep should be admitted as partner and he will give him half of his share
Bose and Chatterjee do not agree.
(c) Bose and Sarkar are of the view that Chatterjee should be charged interest on loan from the firm at
the lending rate of the banks, which is 12% p.a.
(d) Sarkar has withdrawn `50,000 from the firm for his personal use. Bose and Chatterjee are of the view
that Sarkar should be charged interest @ 10% p.a.
You are required to give solution to each issue of dispute.
Answer:
In the absence of Partnership Deed, the provisions of Indian Partnership Act, 1932 will apply as follows;
(a) Interest will not be allowed on extra capital introduced by Bose,
(b) Deep cannot be admitted as Bose and Chatterjee don't agree, no partner has right to admit any one as a partner,
(c) Interest will not be charged from Chatterjee as rate of interest was not agreed.
(d) Interest on drawings will not be charged on Sarkar’s drawings.
Page No 2.82:
Question 5:
A and B are partners from 1st April, 2021, without a Partnership Deed and they introduced capitals of `35,000 and `20,000 respectively. On 1st October, 2021, A advanced loan of `8,000 to the firm without any agreement as to interest. The profit and Loss Account for the year ended 31st March, 2022 shows a profit of ` 15,000 but the partners cannot agree on payment of interest and on the basis of division of profits.
You are required to divide the profits between them giving reasons for your method.
Answer:
Working Notes:
WN 1 Calculation of Interest on Loan
As per the Partnership Act, if there is no partnership agreement regarding rate of interest on loan, it is provided at 6% p.a.
Amount of Loan = ` 8,000
Time Period (from October 01 to March 31) = 6 months
Interest on A' s loan=8,000×6/100×6/12=240
WN 2 Calculation of Profit Share of each Partner
In the absence of partnership deed, profits of a firm are distributed equally among all the partners.
Profit after Interest on A’s loan = 15,000- ` 240 = ` 14,760
Profit of A and B=14,760×1/2=7380
Question 6:
Harshad and Dhiman are in partnership since 1st April, 2021. 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 1st October, 2021. Due to long illness, Harshad could not participate in business activities from 1st August, 2021 to 30th September, 2021. Profit for the year ended 31st March, 2022 was ` 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 the ratio of capital;
Dhiman Claims :
(i) Profit should be distributed equally;
(ii) He should be allowed ` 2,000 p.m. as remuneration for the period he managed the business in the absence of Harshad;
(iii) Interest on Capital and loan should be allowed @ 6% p.a.
You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.
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.
Question 7:
Sita and Geeta 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, 2021. The Partnership Deed is silent on interest on loans from partners. Compute interest payable by the firm to the partners, assuming the firm closes its books every year on 31st March.
Answer:
Amount advanced by the Partners = ` 30,000
Profit sharing ratio = 3 : 2
Advanced by Sita =30,000×3/5=18,000
Advanced by Geeta =30,000×2/5=12,000
Time Period (from October 01, 2021 to March 31, 2022) = 6 months
Interest rate = 6% p.a.
Calculation of Interest on Advances
Interest on Sita' s advance=18,000×6/100×6/12=540
Interest on Geeta' s advance=12,000×6/100×6/12=360
Note: In the absence of a partnership agreement regarding rate of interest on loans and advances, interest is provided at 6% p.a.
Question 8:
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, 2021, X and Y gave loans of ` 80,000 and ` 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2022 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
Interst on X’s advance = 80,000×6/100×6/12=2400
Interst on Y's advance = 40,000×6/100×6/12=1200
Case 1- If Profits before any interest for the year amounted to ` 21,000
Case 2- If Profits before any interest for the year amounted to ` 3,000
Case 3- If Profits before any interest for the year amounted to ` 5,000
Case 4- If Loss before any interest for the year amounted to ` 1,400
Question 9:
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, 2021, Bat and Ball gave loans 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, 2022 before rent and interest amounted to ` 9,000. Show distribution of profit/loss.
Answer:
Working Notes:
WN 1 Interest on Partner’s Loan
Interest on Bat' s loan=2,40,000×6/100×6/12=7,200
Interest on Ball' s loan=1,20,000×6/100×6/12=3,600
WN 2 Distribution of Loss to the Partners
Loss after Interest on Partners’ Loan = 9,000 + 60,000 + 7,200 + 3,600 = ` 19,800
Bat's Share of Loss=79,800×2/5=` 31,920
Ball's Share of Loss=79,800×3/5=` 47,880
Question 10;
Akhil and Bimal are partners sharing profits in the ratio of 3 :2. Akhil gave loan to the firm of `1,00,000 on 1st October, 2021. On the same date, the firm gave loan to Bimal of `1,00 000. They do not have an agreement as to interest.
Akhil had also given his personal property for firm’s godown at a monthly rent of `5,000.
Firm earns profit of `1,03,000 (before above adjustments) for the year ended 31st March, 2022. Show the distribution of profit for the year.
Answer;
Question 11;
Nirmal and Pawan are partners sharing profits in the ratio of 3 :2. The firm had given loan to Pawan of `5,00,000 on 1st April, 2021. Interest was to be charged @ 10% p.a. The firm took loan of `2,00,000 from Nirmal on 1st October, 2021. Before giving effect to the above, the firm incurred a loss of `10,000 for the year ended 31st March, 2022.
Determine the amount to be transferred to Profit and Loss Appropriation Account.
Answer;
Question 12;
Ankit, Bhanu and Charu are partners in a firm sharing profits and losses equally with capital of `2,50,000 each. On 1st October, 2021, Ankit and Bhanu gave loans of `2,50,000 each to the firm whereas Charu took a loan of `1,00,000 from the firm on the same date. It was agreed among the partners that Charu will be charged Interest @ 6% pa. Interest on loan from partners was paid on 10th April, 2022.The firm closes its books on 31st March each year.
Pass the Journal entries in the books of the firm for the year ended 31st March, 2022.
Answer;
Question 13:
Vinod and Mohan are partners. Vinod 's Capital is ` 1,00,000 and Mohan 's Capital is ` 60,000. Interest on capital is payable @ 6% p.a. Mohan is entitled to a salary of ` 3,000 per month. Profit for the current year before interest and salary to Mohan is ` 80,000.
Prepare Profit and Loss Appropriation Account.
Answer:
Working Notes:
WN1 Calculation of Interest on Capital
Interest on Vinod’s loan=1,00,000×6/100×6/12=6,000
Interest on Mohan's loan=60,000×6/100×6/12=3,600
WN 2 Calculation of Profit Share of each Partner
Divisible Profit = 80,000 – 9,600 – 36,000 = 34,400
Profit share of Vinod and Mohan =34,400×1/2=17,200
Question 14:
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, 2022 after debiting Z's salary was ` 4,00,000.
Prepare Profit and Loss Appropriation Account.
Answer:
Working Notes:
WN 1 Salary to Z has not been debited to Profit and Loss Appropriation Account. This is because Profit of ` 4,00,000 is given after adjusting the Z’s salary.
WN 2 Calculation of Interest on Capital
Interest on X^' s Capital=5,00,000×10/100=50,000
Interest on Y's Capital=5,00,000×10/100=50,000
Interest on Z' s Capital=2,50,000×10/100=25,000
WN 3 Calculation of Profit Share of each Partner
Divisible of Profit after Interest on Capital = ` 4,00,000- ` 1,25,000 = ` 2,75,000
Profit sharing ratio = 2 : 2 : 1
Profit share of X' s =5,00,000×2/5=1,10,000
Profit share of Y' s =5,00,000×2/5=1,10,000
Profit share of Z' s=5,00,000×1/5=55,000
Question 15:
X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of ` 8,00,000 and ` 6,00,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ` 60,000 which has not been withdrawn. Profit for the year ended 31st March, 2022 before interest on capital but after charging Y's salary amounted to ` 2,40,000.
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:
Working Notes:
WN 1 Calculation of Manager’s Commission
Profit for making Managers’ Commission = 2,40,000 + 60,000 (Y’s Salary) = `3,00,000
Manager's Commission=₹3,00,000×5/100=₹15,000
WN 2 Calculation of Interest on Capital
Interest on X's Capital A/c=₹8,00,000×5/100= ₹40,000 Interest on Y's Capital A/c=₹6,00,000×5/100=₹30,000
WN 3 Calculation of Profit Share of each Partner
Profit available for distribution = 2,85,000 - ` 60,000 - ` 70,000 = `1,55,000
X's Share of Profit=₹1,55,000×3/5=₹93,000
Y's Share of Profit=₹1,55,000×2/5=₹62,000
Question 16;
Atul and Mithun are partners sharing profits in the ratio of 3: 2
Balances as on 1st April 2021 were as follows:
Capital Accounts (fixed): Atul- `5,00,000 and Mithun- `6,00,000
Loan Accounts: Atul - `3,00,000 (Cr.) and Mithun - `2,00,000 (Dr.)
It was agreed to allow and charge interest @ 8% p.a. Partnership Deed provided to allow interest on capital @ 10% p.a. Interest on Drawings was charged `5,000 each.
Profit before giving effect to above was `2,28,000 for the year ended 31st March, 2022.
Prepare Profit and Loss Appropriation Account.
Answer;
Working Notes:
WN1 Profit After allowed and charged Atul and Mithul Respectively
2,28,000 -24,000 +16,000 = 2,20,000
WN2 interest allowed on loan given by Atul
Interest on loan =3,00,000×8/100 = 24,000
WN3 interest Charged on loan given to Mithul
Interest on loan=2,00,000×8/100=16,000
WN4 Calculation of Interest on Capital
Interest on Atul’s loan=5,00,000×10/100=50,000
Interest on Mithul's loan=6,00,000×10/100=60,000
WN5 Calculation of Profit Share of each Partner
Profit Share of Atul =1,20,000×3/5=72,000
Profit Share of Mithul =1,20,000×2/5=48,000
Question 17:
Reema and Seema are partners sharing profits equally. The Partnership Deed provides that both Reema and Seema will get monthly salary of ` 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 ` 5,00,000 each and drawings during the year were ` 60,000 each.
The firm incurred a loss of ` 1,00,000 during the year ended 31st March, 2022.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2022.
Answer:
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 18:
Bhanu and Partab are partners sharing profits equally. Their fixed capitals as on 1st April, 2021 are ` 8,00,000 and ` 10,00,000 respectively. Their drawings during 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. Net Profit for the year ended 31st March, 2022 was ` 1,20,000.
Prepare Profit and Loss Appropriation Account.
Answer:
Question 19:
Amit and Sumit entered into partnership on 1st April, 2021 contributing `1,50,000 and ` 2,50,000 respectively 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 2022.
Pass the Journal entry for interest on capital.
Answer:
Working Notes:
WN1: Calculation of Interest on Capital:
Amit's Interest on Capital=1,50,000×10/100=` 15,000
Sumit's Interest on Capital=2,50,000×10/100=` 25,000
Question 20:
Kamal and Kapil are partners having fixed capitals of ` 5,00,000 each as on 31st March, 2021. Kamal introduced further capital of ` 1,00,000 on 1st October, 2021 whereas Kapil withdrew ` 1,00,000 on 1st October, 2021 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 2022.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.
Answer:
Working Notes:
WN1: Calculation of Interest on Capital:
Kamal = (5,00,000×10×6÷100×12) + (6,00,000×10×6÷100×12) = `. 55,000
Kapil=(5,00,000×10×6÷100×12) + (4,00,000×10×6÷100×12) = `. 45,000
Question 21:
Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2021 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 2022.
Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.
Answer:
Working Notes:
WN1: Calculation of Interest on Capital
Simran's Interest on Capital = 2,00,000×5÷100=` 10,000
Reema's Interest on Capital = 2,00,000×5÷100=` 10,000
Question 22:
Anita and Ankita are partners sharing profits equally. Their capitals, maintained following Fluctuating Capital Accounts Method, as on 31st March, 2021 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, 2022.
Pass the Journal entry for interest on capital.
Answer:
Working Notes:
WN1: Calculation of Interest on Capital
Anita's Interest on Capital = 5,00,000×10÷100=` 50,000
Ankita's Interest on Capital = 4,00,000×10÷100=` 40,000
Question 23:
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, 2022 after debit of drawings during the year of ` 1,50,000 and ` 1,00,000 respectively. Net profit for the year ended 31st March, 2022 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:
Working Notes:
WN1: Calculation of Opening Capital:
WN2: Calculation of Interest on Capital
Ashish's Interest on Capital = 6,50,000×10/100=` 65,000
Aakash's Interest on Capital = 7,00,000×10/100=` 70,000
Question 24:
Naresh and Sukesh are partners with capitals of ` 3,00,000 each as on 31st March, 2022. Naresh had withdrawn ` 50,000 against capital on 1st October, 2021 and also ` 1,00,000 besides the drawings against capital. Sukesh also had drawings of ` 1,00,000.
Interest on capital is to be allowed @ 10% p.a.
Net profit for the year was ` 2,00,000, which is yet to be distributed.
Pass the Journal entries for interest on capital and distribution of profit.
Answer:
Working Notes:
WN1: Calculation of Opening Capital:
WN2: Calculation of Interest on Capital
Naresh=(4,50,000×10×6/100×12)+(4,00,000×10×6/100×12)=` 42,500
Sukesh=4,00,000×10/100=` 40,000
Question 25:
On 1st April, 2013, Jay and Vijay entered into partnership for supplying laboratory equipments to government schools situated in remote and backward areas. They contributed capitals of ` 80,000 and ` 50,000 respectively and agreed to share the profits in the ratio of 3 : 2. The partnership Deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of ` 7,800. Showing your calculations cleary, prepare 'Profit and Loss Appropriation Account' of Jay and Vijay for the year ended 31st March, 2014.
Answer:
Working Notes:
WN1: Calculation of Interest on Capital
Interest on Jay' s Capital=80,000×9/100=7,200
Interest on Vijay' s Capital=50,000×9/100=4,500
Total interest = 7,200+4,500 =11,700
WN2: Calculation of Proportionate Interest on Capital
Jay' s proportion of interest =7,800×7,200/11,700=4,800
Vijay's proportion of interest =7,800×4,500/11,700=3,000
Note: Interest on capital is to be treated as an appropriation of profits and is to be provided to the extent of available profits i.e. ` 7,800.
Question 26: A and B are partners in the ratio of 3:2. The firm maintains Fluctuating Capital Accounts and the balance of the same as on 31st March, 2020 amounted to R 1,60,000 and 1,40,000 for A and B respectively. Their drawings during the year were 30,000 each.
As per Partnership Deed, interest on capital@ 10% p.a. on opening capitals had been provided to them.
Calculate opening capitals of partners given that their profit was 90,000. Show your workings clearly.
Answer:
Calculation of opening Capital
Working Notes:
Interest on Capital @10 p.a. 2,70,000 is 27,000
Divisible Profits= 90,000 - 27,000 = 63,000
Distribution of profits
A = 63,000×3/5=37,800
B = 63,000×2/5=25,200
Individual interest on Capital
A= 1,52,200×10/110=13,836
B= 1,44,800×10/110=13,164
Question 27:
Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2022.
During the year, Mahadev's drawings were ` 30,000. Profits during the year ended 31st March, 2022 is ` 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2022.
Answer:
Interest on Capital
Note: In this question, as the balances of both Partner's Capital Account and of Partner's Current Account are mentioned, so it is clear 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 28:
From the following Balance Sheet of Long and Short, calculate interest on capital @ 8% p.a. for the year ended 31st March, 2022.
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, 2021)
Long’s Interest on capital= 1,35,000×8/100=10,800
Short’s Interest on capital= 1,65,000×8/100=13,200
Question 29:
Amit and Bramit started business on 1st April, 2021 with capitals of ` 15,00,000 and ` 9,00,000 respectively. On 1st October, 2021, 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, 2022.
Answer:
Calculation of Interest on Amit’s Capital
Interest on Capital = sum of product×Rate of drawing/100×1/ 12
Interest on Capital =1,62,00,000×8/100×1/12 =1,08,000
Calculation of Interest on Bramit’s Capital
Interest on Capital = sum of product×Rate of drawing/100×1/ 12
Interest on Capital =1,26,00,000×8/100×1/12 =84,000
Question 30:
Moli and Bholi 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
Interest on Moli's Capital= 20,000×6/100=1,200
Interest on Bholi's Capital=10,000×6/100=600
Total Amount of Interest on Capital=1,200+600=1,800
Case (a)
Where there is no clean agreement except for interest on capitals
Profit for the year ended = ` 1,500
Total amount of interest = ` 1,800
Here, total amount of interest on capital is more than the profit available for distribution. Therefore, profit of ` 1,500 is distributed between Moli and Bholi in the ratio of their interest on capital.
Moli will get Interest on Capital=1,500×2/3=1,000
Bholi will get Interest on Capital=1,500×1/3=500
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.
Interest on Moli's Capital=20,000×6/100=1,200
Interest on Bholi's Capital=10,000×6/100=600
Total Amount of Interest on Capital =(1,200+600)=1,800
Total Profit of the firm = ` 1,500
Therefore, loss to the firm amounts to `300. This loss is to be shared by Moli and Bholi in their profit sharing ratio that is 2 : 3.
Loss to Moli=300×2/5= 120
Loss to Bholi=300×3/5=180
Question 31:
Shiv, Mohan and Gopal are partners sharing profits and losses in the ratio of 2 : 2 : 1 respectively. Shiv 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 Shiv.
Answer:
Net Profit before charging commission = ` 1,10,000
Commission to Shiv = 10% of on Net Profit before charging such commission
Partner' s Commission = (Net profit×rate of commission)/100
Shiv ' s Commission =(1,10,000×10)/100=11,000
Question 32:
Abha, Bobby and Vineet are partners sharing profits and losses equally. As per Partnership Deed, Vineet 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 Vineet.
Answer:
Net Profit before charging Commission = ` 2,20,000
Commission to Vineet = 10% of on Net Profit after charging such commission
Partner' s Commission = (Net profit×Rate of commission)/(100+Rate of commission)
Vineet's Commission =(2,20,000×10)/(100+10)=20,000
Question 33:
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, 2022. 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:
Working Notes:
WN 1 Calculation of Partners’ Commission
Partners’ Commission = 20% on Net Profit after charging such commission
Partners' Commission = (Net profit×Rate of commission)/(100+Rate of commission)
Partners' Commission = (1,80,000×20)/(100+20)=30,000
This commission is to be shared by the partners in the ratio of 2 : 3 : 2 : 3
A' s Commission =(30,000×2)/10=6,000
B' s Commission =(30,000×3)/10=9,000
C' s Commission =(30,000×2)/10=6,000
D's Commission =(30,000×3)/10=9,000
WN 2 Calculation of Profit Share of each Partner
Profit available for Distribution = 1,80,000 ` 30,000 = ` 1,50,000
Profit sharing ratio = 4 : 3 : 2 : 1
A' s Profit share=(1,50,000×4)/10=60,000
B' s Profit share=(1,50,000×3)/10=45,000
C' s Profit share=(1,50,000×2)/10=30,000
D's Profit share=(1,50,000×1)/10=15,000
Question 34:
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 charging all commission and partners' salaries. Net profit before providing for partners' salaries and commission for the year ended 31st March, 2022 was ` 4,20,000. Show distribution of profit.
Answer:
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 = ` 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 = ` 2,47,500
WN 2 Calculation of Profit Share of each Partner
Profit available for distribution = 4,20,000- ` 1,45,000 -` 50,000 = `2,25,000
Profit sharing ratio = 1 : 1
Profit share of each X and Y = 2,25,000× 1/2
Question 35:
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.
Interest on Ram’s Drawings = 1,20,000× 6/ 100×6/12=3,600
Interest on Mohan’s Drawings = 80,000× 6/ 100×6/12=2,400
Question 36:
Brij and Mohan 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.
Interest on Brij's Drawings= `. 48,000×10/100×6/12= `. 2,400
Interest on Mohan's Drawings= `. 36,000×10/100×6/12= `. 1,800
Question 37;
Dev withdrew `10 000 on 15th day of every month Interest on drawings was to be charged @ 12% per annum. Calculate interest oh Dev's Drawings. (CBSC 2019)
Answer;
Interest on Dev’s Drawings=10,000×12=1,20,000×12/100×6/12=7,200
Note ; Interest on drawing will be calculated for 6 month as average ,because same amount withdrawn in the middle of every month during the year
Question 38:
One of the partners in a partnership firm has withdrawn `9,000 at the end of each quarter, throughout the year. Calculate interest on drawings at the rate of 6% per annum.
Answer:
Amount of Drawings = ` 9,000 per quarter
Annual Drawings= ` (9,000 × 4) = ` 36,000
Rate of Interest on Drawings = 6% p.a.
Question 39:
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, 2021. Calculate interest on drawings @ 5% p.a. for a period of six months.
Answer:
Amount of drawing= 4000
No. of drawings= 6
Total amount of drawing=24,000
Average month = time left after first drawing + time left after last drawing ÷2
= 6+1÷2=3.5
Interest on drawing= total drawing × Rate of drawing/100×Average month / 12
=24,000×5/100×3.5/12=350
Question 40:
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, 2021. Calculate interest on drawings @ 5% p.a. for a period of six months.
Answer:
Average month = time lift after first drawing + time lift after last drawing ÷2
= 5+0÷2 = 2.5
Interest on drawing= total drawing × Rate of drawing/100×Average month / 12
=24,000×5/100×2.5/12 = 250
Question 41:
Calculate interest on drawings of Ashok @ 10% p.a. for the year ended 31st March, 2022, in each of the following alternative cases:
Case 1. If he withdrew ` 7,500 in the beginning of each quarter.
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 = ` 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
Interest on drawing= total drawing×Rate of drawing/100×Average month / 12
Interest on Ashok’s drawing =30,000×10/100×7.5/12 =1,875
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
Interest on drawing= total drawing×Rate of drawing/100×Average month / 12
Interest on Ashok’s drawing =30,000×10/100×4.5/12 =1,125
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
Interest on drawing= total drawing×Rate of drawing/100×Average month / 12
Interest on Ashok’s drawing =30,000×10/100×6/12 =1,500
Question 42: The capital accounts of Tisha and Divya showed credit balances of 10,00,000 and 7,50,000 respectively after taking into account drawings and net profit of `5,00,000. The drawings of the partners during
the year 2021-22 were:
(i) Tisha withdrew 25,000 at the end of each quarter.
(ii) Divya's drawings were:
Calculate interest on partners' capitals@ 10% p.a. and interest on partners' drawings@ 6% p.a. for the year ended 31st March, 2022.
Answer:
Calculation of Interest on Drawings
Tisha’s Total Drawings= 25,000×4=1,00,000
Tisha’s Interest on Drawings= 1,00,000×3/100×4.5/12=2,250
Divya’s Interest on Drawings
Divya’s Interest on Drawings = 3,12,500×6/10×1/12=1,563
Calculation of Interest on Capital
Calculation of opening Capital
Tisha’s Interest on Capital = 8,50,000×10/100=85,000
Divya’s Interest on Capital = 5,50,000×10/100=55,000
Question 43: Calculate the amount of Manan's monthly drawings for the year ended 31st March, 2022, in the following alternative cases when Partnership Deed allows interest on drawings @ 10% p.a.:
(i) If interest on drawings is 1,950 and he withdrew a fixed amount in the beginning of each month.
(ii) If interest on drawings is F 2,400 and he withdrew a fixed amount in the middle of each month.
(iii) If interest on drawings is 2,750 and he withdrew a fixed amount at the end of each month.
Answer:
(i) If interest on drawings is 1,950 and he withdrew a fixed amount in the beginning of each month.
Interest on drawings @ 10% p.a.
Average month 6.5
Annual amount of drawings = (1,950×12×100) ÷ (6.5×10) = 36,000
Monthly amount of drawings = 36,000 ÷ 12 = 3000
(ii) If interest on drawings is F 2,400 and he withdrew a fixed amount in the middle of each month.
Interest on drawings @ 10% p.a.
Average month 6
Annual amount of drawings = (2,400 ×12×100) ÷ (6.5×10) =48,000
Monthly amount of drawings = 48,000 ÷ 12 = 4,000
(iii) If interest on drawings is 2,750 and he withdrew a fixed amount at the end of each month.
Interest on drawings @ 10% p.a.
Average month 5.5
Annual amount of drawings = (2,750 ×12×100) ÷ (5.5×10) =60,000
Monthly amount of drawings = 60,000 ÷ 12 = 5,000
Question 44: Calculate the amount of Shiv's quarterly drawings for the year ended 31st March, 2022, in the following alternative cases when Partnership Deed allows interest on drawings @ 12% p.a.:
(i) If interest on drawings is F 1,500 and he withdrew a fixed amount in the beginning of each quarter.
(ii) If interest on drawings is 1,200 and he withdrew a fixed amount in the middle of each quarter.
(iii) If interest on drawings is 900 and he withdrew a fixed amount at the end of each quarter.
Answer:
(i) If interest on drawings is ` 1,500 and he withdrew a fixed amount in the beginning of each quarter.
Interest on drawings @ 12% p.a.
Average month 7.5
Annual amount of drawings = (1,500 ×12×100) ÷ (7.5×12) =20,000
Quarterly amount of drawings = 20,000 ÷ 4 = 5,000
(ii) If interest on drawings is 1,200 and he withdrew a fixed amount in the middle of each quarter.
Interest on drawings @ 12% p.a.
Average month 6
Annual amount of drawings = (1,200 ×12×100) ÷ (6×12) =20,000
Quarterly amount of drawings = 20,000 ÷ 4 = 5,000
(iii) If interest on drawings is 900 and he withdrew a fixed amount at the end of each quarter.
Interest on drawings @ 12% p.a.
Average month 4.5
Annual amount of drawings = (900 ×12×100) ÷ (4.5×12) =20,000
Quarterly amount of drawings = 20,000 ÷ 4 = 5,000
Question 45:
Amit and Vijay started a partnership business on 1st April, 2021. Their capital contributions were ` 2,00,000 and ` 1,50,000 respectively. The Partnership Deed provided as follows:
(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.
Net profit for the year ended 31st March, 2022 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:
Working Notes:
WN 1 Calculation of Interest on Capital
Interest on Amit’s Capital=2,00,000×10/100=20,000
Interest on Vijay’s Capital=1,50,000×10/100=15,000
WN 2 Calculation of Profit Share of each Partner
Divisible Profit = 2,16,000 + 4,700 - ` 35,000 - ` 60,000 = ` 1, 25,700
Profit sharing ratio = 3 : 2
Amit’s profit share=1,25,700×3/5=75,420
Vijay’s profit share=1,25,700×2/5=50,280
Question 46:
A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2021, their capitals were: A ` 50,000 and B ` 30,000. During the year ended 31st March, 2022 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:
Working Notes:
WN 1 Calculation of Interest on Capital
Interest on A’s capital=50,000×6/100=3000
Interest on B’s capital=30,000×6/100=1,800
WN 2 Calculation of Commission to Partners
A’s commission = 2% on turnover
=3,00,000×2/100=6,000
Commission to B = 5% on Profits after all Expense including such Commission
Profits after all expense = 50,000 -` 4,800 -` 6,000 -` 6,000 = ` 33,200
B’s commission= Profit after all expenses×Rate of commission/100+Rate
33.200×5/105=1,581 (approx.)
WN 3 Calculation of Profit Share of each Partner
Profit available for Distribution = 50,000 -` 4,800- ` 6,000 -`7,581 = ` 31,619
Profit sharing ratio = 3 : 1
A’s profit share= 31,619×3/4=23,716
B’s profit share= 31,619×1/4=7,905
Question 47:
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 divided as:
(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:
Working Notes:
WN 1 Calculation of Interest on Capital
Interest on A’s capital=50,000×10/100=5,000
Interest on B’s capital=50,000×10/100=5,000
Interest on C’s capital=1,00,000×10/100=10,000
WN 2 Calculation of Profit Share of each Partner
Profits available for Distribution = 1,72,000 -` 20,000- ` 12,000 = ` 1,40,000
1. Distribution of first ` 20,000 in the Capital Ratio i.e. 1:1:2
A’s profit share=20,000×1/4=5,000
B’s profit share=20,000×1/4=5,000
C’s profit share=20,000×2/4=10,000
2. Distribution of Next ` 30,000 in the ratio of 5:3:2
A’s profit share=30,000×5/10=15,000
B’s profit share=30,000×3/10=9,000
C’s profit share=30,000×2/10=6,000
3. Remaining Profit available for distribution = ` 1,40,000 -` 20,000 -` 30,000 = ` 90,000
This profit of ` 90,000 is to be shared equally by the partners.
Profir Share of A,B,C each =90,000 ×1/3=30,000
Therefore,
Total Profit Share of A = 5,000 + 15,000 + 30,000 = ` 50,000
Total Profit Share of B = 5,000 + 9,000 + 30,000 = ` 44,000
Total Profit Share of C = 10,000 + 6,000 + 30,000 = ` 46,000
Question 48:
Amit, Binita and Charu are three partners. On 1st April, 2021, 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, 2022 was ` 5,00,000.
Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.
Answer:
Working Notes:
WN 1 Calculation of Interest on Capital
Interest on Amit=1,00,000×5÷100=5,000
Interest on Binita=2,00,000×5÷100=10,000
Interest on Charu=3,00,000×5÷100=15,000
WN 2 Calculation of Commission to Binita
Commission to Binita = 5% on Net Profits after Commission
Commission to Binita=Net Profit ×Rate100+Rate=5,00,000×5÷105=` 23,810
WN 3 Calculation of Amount to be transferred to General Reserve
Amount for General Reserve = 10% of Profit
=5,00,000×10÷100=` 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
= ` 2,76,190
Profit share of Amit, Binita and Charu each = 2,76,190×1÷ 3= ` 92,063
Question 49: Yadu, Vidu and Radhu were partners in a firm sharing profits in the ratio of 4:3:3. Their fixed capitals
1st April, 2018 were ` 9,00,000, `5,00,000 and ` 4,00,000 respectively. On 1st November, 2018, Yadu gave a loan of `80,000 to the firm, as per the partnership agreement.
(i) The partners were entitled to an interest on capital @ 6% p.a.
(ii)Interest on partners' drawings was to be charged@ 8% p.a.
The firm earned profit of `2,53,000 (after interest on Yadu's Loan) during the year 2018-19. Partners
drawings for the year amounted to:
Yadu- `80,000, Vidu- `70,000 and Radhu- `50,000.
Prepare Profit and Loss Appropriation Account for the year ending 31st March, 2019.
Answer:
Working notes:
WN1 Calculation of Interest on Capital
Yadu =9,00,000×6/100=54,000
Vidu=5,00,000×6/100=30,000
Radhu =4,00,000×6/100=24,000
WN2 Calculation of Interest on Drawings
Yadu =80,000×8/100×6/12=3,200
Vidu=70,000×8/100×6/12=2,800
Radhu =50,000×8/100×6/12=2,000
WN3 Distribution of profit (4:3:3)
Yadu =1,53,000×4/10=61,200
Vidu =1,53,000×3/10=45,900
Radhu =1,53,000×3/10=45,900
Question 50:
Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2021 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.
Net profit for the year ended 31st March, 2022 is ` 68,460.
Note: Net profit means net profit after debit of interest on loan by the partner.
Answer:
Working Notes:
WN 1 Calculation of Interest on Capital
Interest on Sajal’s capital=50,000×5/100=2,500
Interest on Kajal’s capital=20,000×5/100=2,000
WN 2 Calculation of Interest on Drawings
Interest on Sajal’s Drawing=10,000×6/100×6/12=300
Interest on Kajal’s Drawing=8,000×6/100×6/12=240
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 = ` 64,500
Amount of reserve =64,500×10/100=6,450
WN 4 Calculation of Profit Share of each Partner
Profit available for Distribution = 68,460 + 540 – (` 4,500+ ` 6,450) = ` 58,050
Profit sharing ratio = 2 : 1
Sajal’s profit share = 58,050×2/3=38700
kajal’s profit share = 58,050×1/3=19350