Practical problems of Partnership firm l class 12 (2023-2024 )

 Fundamental Accounting for Partnership firm - class 12 (volume 1) 2023-2024 l part -2

Question 51:

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, 2021 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, 2022 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, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
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

Interest on Ali’s capital=25,000×5/100=1,250

Interest on Bahadur’s capital=20,000×5/100=1,000

 

WN 3 Calculation of Amount to be transferred to Reserve
Amount transferred to Reserve=10% of Divisible Profits =10%×(40,000-2,250-3,000)=` 3,475

 

WN 4 Calculation of Profit Share of each Partner

Profit available for distribution = 40,000- ` 2,250- ` 3,000- ` 3,475 = ` 31,275

Ali's Profit Share=31,275×70÷100 =21,892

Bahadur's Profit Share=31,275×30÷100 =9,383

 

Question 52;

Kabir, Zoravar and Parul are partners sharing prohts in the ratio of 5 :3 :2.Their capitals as on 1st April, 2021 were: Kabir- `5,20,000, Zoravar-`3,20,000 and Parul - `2,00,000.

The Partnership Deed provided as follows:

(i) Kabir and Zoravar each will get salary of `24,000 p.a.

(ii) Parul will get commission of 2% of Sales.

(iii) Interest on capital is to be allowed @ 5% p.a.

(iv) Interest on Drawings is to be charged @ 5% p.a.

(v) 10% of Divisible Profit is to be transferred to General Reserve.

Sales for the year ended 31st March, 2022 were `50,00,000. Drawings by each of the partners during the year was `60,000. Net Prom for the year was `1,55,500.

Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2022.

 

Answer;

Profit and loss appropriation account year ended 31st March, 2022
Particulars	`	Particulars	`
To Profit transferred Kabir  -1,60,000×5/20=40,000 Zoravar-1,60,000×4/20=32,000 Parul-1,60,000×11/20=88,000	160,000	By  Net profit By Interest on Drawings Kabir- 60,000×5/100×5/12=1,500 Zoravar-60,000×5/100×5/12=1,500 Parul-60,000×5/100×5/12=1,500	1,55,500 4,500
	1,60,000		1,60,000

 

Working note;

Profit and loss appropriation account year ended 31st March, 2022
Particulars	`	Particulars	`
To Salary Kabir  -24,000 Zoravar-24,000 To Commission Parul=50,00,000×2/100=1,00,000   To Interest on capital Kabir  -5,20,000×5/100=26,000 Zoravar-3,20,000×4/20=16,000 Parul-2,00,000×10/20=10,000	48,000   1,00,000         52,000	By  Net profit By Interest on Drawings Kabir  -60,000×5/100×5/12=1,500 Zoravar-60,000×5/100×5/12=1,500 Parul-60,000×5/100×5/12=1,500	1,55,500 4,500
	2,00,000		1,60,000

 

 Ratio of appropriation will be calculated for insufficient profit distribution given below;

Kabir  - Salary + Interest on capital

=24,000+26,000=50,000

Zoravar- Salary + Interest on capital

=24,000+16,000=40,000

Parul- Commission + Interest on capital

=1,00,000+10,000=1,10,000

Ratio of appropriation = 50,000 : 40,000 : 1,10,000=5:4:11

 

Question 53:

X and Y entered into partnership on 1st April, 2018. Their capitals as on 1st April, 2021 were  ` 2,00,000 and  ` 1,50,000 respectively. On 1st October, 2021, X gave  ` 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 get 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 to be shared in the ratio of their capitals up to  ` 1,75,000 and balance equally.
Profit for the year ended 31st March, 2022 before allowing or charging 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 out of profit. Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.						Cr.
Particulars			( `)	Particulars		( `)
Interest on Capital A/c:				Profit and Loss A/c (4,61,000 – 1,500)		4,59,500
X’s Capital A/c		24,000		Interest on Drawings A/c:
Y’s Capital A/c		18,000	42,000	X’s Capital A/c	5,000
X’s Capital A/c (Commission) (3,50,000 × 5%)			17,500	Y ’s Capital A/c	6,250	11,250
Salary:
X’s Capital A/c	60,000
Y’s Capital A/c	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

= 4,59,500 -`42,000 -`17,500 -`60,000- `90,000= 2,50,000
Reserve = 2,50,000×20100=` 50,000

WN2: Division of Profit

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

 

Question 54:

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 `	Credit `
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 = ` 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 55:

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 ( `)	Credit ( `)
	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 56:

Azad and Benny are equal partners. Their capitals are  ` 40,000 and  ` 80,000 respectively. After the accounts for the year had been prepared, it was noticed that interest @ 5% p.a. as provided in the Partnership Deed was not credited to their Capital Accounts before distribution of profits. It is decided to pass an adjustment entry in the beginning of the next year. Record the necessary Journal entry.

Answer:

Interest on Capital
 

Azad	=	40,000 ×	5100	=  ` 2,000
Benny	=	80,000 ×	5100	=  ` 4,000

Adjustment of Profit

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

Adjusting Journal Entry 

Date	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 57:

Ram, Mohan and Sohan sharing profits and losses equally have capitals of  ` 1,20,000,  ` 90,000 and  ` 60,000 respectively. For the year ended 31st March, 2022, interest was credited to them @ 6% instead of 5%.
Give adjustment Journal entry.

Answer:

Journal
Particulars		L. F.	Debit ( `)	Credit ( `)
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.

Interest on Ram’s capital=1,20,000×6/100=7,200

Interest on Mohan’s capital=90,000×6/100=5,400

Interest on Sohan’s capital=60,000×6/100=3,600

 

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

Interest on Ram’s capital=1,20,000×5/100=6,000

Interest on Mohan’s capital=90,000×5/100=4,500

Interest on Sohan’s capital=60,000×5/100=3,000

 

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 ` 2,700 (1:1:1)	900	900	900	(2,700)
Net Effect	(300)	NIL	300	NIL

 

Question 58:

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, 2022, 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
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
2022 March 31	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.

Interest on Ram’s capital=3,00,000×10/100=30,000

Interest on Shyam’s capital=1,00,000×10/100=10,000

Interest on Mohan’s capital=2,00,000×10/100=20,000

 

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

Interest on Ram’s capital=3,00,000×9/100=2,7000

Interest on Shyam’s capital=1,00,000×9/100=9,000

Interest on Mohan’s capital=2,00,000×9/100=18,000

 

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 ` 6,000 (2 : 1 : 2)	(2,400)	(1,200)	(2,400)	(6,000)
Net Effect	600	(200)	(400)	NIL

 

Question 59:

Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2022 after closing the books of account, their Capital Accounts stood at  ` 4,80,000 and  ` 6,00,000 respectively. On 1st May, 2021, Simrat introduced an additional capital of  ` 1,20,000 and Bir withdrew  ` 60,000 from his capital.On 1st October, 2021, Simrat withdrew  ` 2,40,000 from her capital and Bir introduced  ` 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March, 2022 amounted to  ` 2,40,000 and the partners' drawings had been: Simrat –  ` 1,20,000 and Bir –  ` 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

Interest on Capital Simrat=(6,00,000×6×1/100×12)+(7,20,000×6×5/100×12)+(4,80,000×6×6/100×12)=35,400

Interest on Capital Bir=(3,60,000×6×1/100×12)+(3,00,000×6×5/100×12)+(6,00,000×6×6/100×12)=27,300

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Simrat	Bir
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

Interest on Capital Simrat=(5,76,000×6×1/100×12)+(6,96,000×6×5/100×12)+(4,56,000×6×6/100×12)= 33,960

Interest on Capital Bir=(3,24,000×6×1/100×12)+(2,64,000×6×5/100×12)+(5,64,000×6×6/100×12)= 25,140

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Simrat	Bir
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 60:

Profit earned by a partnership firm for the year ended 31st March, 2022 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.
Pass necessary adjustment entry.

Answer:

Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
	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: Ram, Mohan and Sohan were partners sharing profits in the ratio of 2:1:1. Ram withdrew `3,000 every month and Mohan withdrew `4,000 every month. Interest on drawings @ 6% p.a. was charged, whereas the partnership deed was silent about interest on drawings.

Showing your working clearly, pass the necessary adjustment entry to rectify the error.

 

Answer:

Particulars	`	`
Ram’s Capital A/c   Dr, Mohan’s Capital A/c   Dr,             To Sohan’s Capital A/c (Being interest on Drawing Charged Wrongly, now Rectified)	180 630	810

 

Working notes:

WN1:

Table of Adjustments

	Ram	Mohan	Sohan
Interest on Drawing Wrongly Debited	1,080	-	1,440
Profits to be credited	1,260	630	630
Amount to adjusted	180(Dr.)	630(Dr.)	810(Cr.)

 

WN2: Interest on Drawing Wrongly Debited

Ram’s Interest on Drawing= 36,000×6/100×6/12=1,080

Sohan’s Interest on Drawing= 48,000×6/100×6/12=1,440

 

WN3: Profits to be credited (1,080+1,440=2,120)

Ram =  2,520×2/4=1,260

Mohan =2,520×1/4=630

Sohan = =2,520×1/4=630

 

Question 62:

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 ( `)	Credit ( `)
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 63;

A, B and C were partners. Their fixed capitals were `60,000, `40,000 and `20,000 respectively. Their profit sharing ratio was 2 :2 : 1. According to the Partnership Deed, they were entitled to interest on capital @ 5% pa. In addition, 8 was also entitled to draw a salary of `1,500 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 profits for the year, `80,000, were distributed in the ratio of their capitals without providing for any of the above adjustments. Showing your workings clearly, pass the necessary adjustment entry.  (CBSE 2019)

 

Answer;

 

Date	Particulars				L.F.	Dr. `		Cr. `
31 March	A’s  current      A/c          To B ’s  current      A/      To C’s  current      A/ (Being omission of salary , interest on capital , commission now profit corrected)			Dr.		16,080		14,253 1,827
						16,080		16,080
Correct Profit and loss appropriation account year ended 31 March
Particulars		`	Particulars				`
To cc B=1500×12=18,000 To Commission (C=80,000-6,000×5/100)   To Interest on capital A-60,000×5/100=3,000 B-40,000×5/100=2,000 C-20,000×5/100=1,000 To profit A-52,300×2/5=20,920 B -52,300×2/5=20,920 C -52,300×1/5=10,460		18,000   3,700         6,000       52,300	By  Net profit				80,000 4,500
		80,000					80,000

 

Statement showing Adjustments
Particulars	A		B		C		FIRM
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Interest on capital Salary omitted Commission omitted Correct Profit omitted Wrong Profit credited	40,000	3,000     20,920	26,667	2,000 18,000   20,920	13,333	1,000   3,700 10,460	6,000 18,000 3,700 52,300	80,000
Total	40,000	23,920	26,667	40,000			80,000	80,000
Net effect	16,080			14,263		1,827

 

Question 64:

On 31st March, 2022, 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 noticed that interest on capital @ 5% had been omitted. Profit for the year ended 31st March, 2022 was  ` 60,000 and the partners' drawings had been P –  ` 10,000, Q –  ` 7,500 and R –  ` 4,500.  Profit-sharing ratio of P, Q and R is 3 : 2 : 1. Give necessary adjustment entry.

Answer:

Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
2022 Mar.31	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, 2021)

Particulars	P	Q	R
Capital as on March 31, 2022 (Closing)	40,000	30,000	20,000
Add: Drawings	10,000	7,500	4,500
Less: Profit ` 60,000 (3:2:1)	(30,000)	(20,000)	(10,000)
Capital as on April 01, 2021 (Opening)	20,000	17,500	14,500

WN 2 Calculation of Interest on Capital

Interest on P’s capital=20,000×5/100=1000

Interest on Q’s capital=17,500×5/100=875
Interest on R’s capital=14,500×5/100=725
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 65:

 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 amounts profit for the year ended 31st March, 2022,  ` 24,000 had already been credited to partners in the proportion in which they shared profits. Their drawings were  ` 5,000 (Mohan),  ` 4,000 (Vijay) and  ` 3,000 (Anil) during the year. Subsequently, the following omissions were noticed and it was decided to rectify the errors:
(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
Date	Particulars		L. F.	Debit ( `)	Credit ( `)
2022 March 31	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

Interest on Mohan’s capital=27,000×10/100=2,700

Interest on Vijay’s capital=21,000×10/100=2,100

Interest on Anil’s capital=25,000×10/100=2,500

 

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 ` 5,700	2,450	1,900	1,350	5,700
Wrong Distribution of ` 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 = ` 18,300

Corrected profti of Mohan,Vijay,Anil each =18,300×1/3=6,100

Question 66:

Mudit, Sudhir and Uday are partners in a firm sharing profits in the ratio of 3 : 1 : 1. Their fixed capital balances are  ` 4,00,000,  ` 1,60,000 and  ` 1,20,000 respectively. Net profit for the year ended 31st March, 2021 distributed amongst the partners was  ` 1,00,000, without taking into account the following adjustments:
(a) Interest on capitals @ 2.5% p.a.;
(b) Salary to Mudit  ` 18,000 p.a. and commission to Uday  ` 12,000.
(c) Mudit was allowed a commission of 6% of divisible profit after charging such commission.
Pass a rectifying Journal entry in the books of the firm. Show workings clearly. (CBSE Sample paper 2019)

Answer:

In the books of Mudit, Sudhir and Uday Journal
Date	Particulars			L.F.	Debit ( `)	Credit ( `)
2021
March 31	Sudhir’s Current A/c		Dr.		6,000
	To Mudit’s Current A/c					1,000
	To Uday’s Current A/c					5,000
	(Being adjustment entry passed for rectification of errors)

Working Notes:  

Table Showing Adjustment
Particulars	Mudit’s Current A/c		Sudhir’s Current A/c		Uday’s Current A/c		Firm
	Dr. (`)	Cr. (`)	Dr. (`)	Cr. (`)	Dr. (`)	Cr. (`)	Dr. (`)	Cr. (`)
Profits wrongly Distributed (Dr.)	60,000		20,000		20,000			1,00,000
Interest on Capital to be
Provided (Cr.)		10,000		4,000		3,000	17,000
Salary to be provided (Cr.)		18,000					18,000
Commission to be provided (Cr.)		3,000				12,000	15,000
Profit correctly distributed (Cr.)		30,000		10,000		10,000	50,000
Balance to be adjusted	1,000(Cr.)		6,000(Dr.)		5,000(Cr.)		NIL

 

Divisible Profits	=	Profits before appropriation – (Interest on Capital + Salary + Uday’s Commission)
	=	` 1,00,000 – (17,000 + 18,000 + 12,000) =  ` 53,000
Mudit’s Commission	=	(Divisible Profit × Rate/ 100 + Rate)
	=	` (53,000 × 6/106) =  ` 3,000

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 (`)	Credit (`)
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;

Naveen, Qadir and Rajesh were partners doing an electronic goods business in Uttarakhand. After the accounts of partnership were drawn up and closed, it was discovered that interest on capital has been allowed to partners @ 6% p.a. for the years ending 31st March,2017 and 2018, although there is no provision for interest on capital in the Partnership Deed. On the other hand, Naveen and Qadir were entitled to a salary of `3, 500 and `4,000 per quarter respectively, which has not been taken into consideration. Their fixed capitals were `4,00,000, `3,60,000 and `2,40,000 respectively. During the last two years they had shared the profits and losses as follows:

Year Ended	Ratio
31st March,2017	3:2:1
31stMarch,2018	5:3:2

Pass necessary adjusting entry for the above adjustments in the books of the firm on 1st April, 2018. Show your workings clearly. (CBSE 2019)

 

 

Answer;

 

Date	Particulars						L.F.	Dr. `		Cr. `
31 March	Rajesh’s  current      A/c          To Naveen ’s  current      A/      To Qadir’s  current      A/ (Being omission of salary , wrong interest on capital credited , now profit corrected)					Dr.		17,800		10,000 7,800
	Total							17,800		17,800
Statement showing Adjustments
Particulars		Naveen		Qadir			Rajesh				FIRM
		Dr.	Cr.	Dr.	Cr.		Dr.		Cr.		Dr.			Cr.
1st  Year Interest on capital Salary omitted Profit adjusted 60,000-30,000(3:2:1) 2nd  Year Interest on capital Salary omitted Profit adjusted 60,000-30,000(5:3:2)		24,000         24,000	14,000   15,000       14,000 15,000	21,600             21,600	16,000 10,000       16,000 9,000		14,400           14,400		5,000		30,000 30,000       30,000 30,000			60,000         60,000
Total		48,000	58,000	43,200	51,000		28,800		11,000		1,20,000			1,20,000
Net effect			10,000		7,800		17,800

 

Question 69:

Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3 : 2. Following information is of the firm as on 31st March 2022:

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, 2022 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 omitted. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.

Answer:

Adjusting Journal Entry

Date	Particular		L.F	Debit ( `)	Credit ( `)
2022 Mar.31	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 ` 1,820	1,380	440	=	1,820
Less: Wrong distribution of ` 1,820  (3 : 2)	(1,092)	(728)	=	(1,820)
Adjusted Profit	288	(288)	=	NIL

 

Question 70;

On 31st March, 2018 the balance in the Capital Accounts of Abhir, Bobby and Vineet, after making adjustments for profits and drawings were `8,00,000, `6,00,000 and `4,00,000 respectively.

Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 10% p.a. and were to be charged interest on drawings @ 6% pa. The drawings during the year were: Abhir- `20,000 drawn at the end of each month, Bobby- `50,000 drawn at the beginning of every half year and Vineet- `1,00,000 withdrawn on 31st October, 2017.The net profit for the year ended 31st March, 2018 was `1,50,000.The profit-sharing ratio was 2 :2 : 1.

Pass necessary adjusting entry for the above adjustments in the books of the firm. Also, show your workings clearly.  (CBSE2019)

 

Answer;

 

Date	Particulars		L.F.	Dr. `	Cr. `
31 March	Bobby’s  Capital      A/c          To Naveen ’s  Capital      A/c               To Qadir’s  Capital      A/c     (Being omission of salary , wrong interest on capital credited , now profit corrected)	Dr.		24,660	17,240 7,420
	Total			24,660	24,660

 

Working note;

Calculation of opening Capital ;

Particulars	Abhir	Bobby	vineet
Closing capital Add; drawings Less; Profit	8,00,000 2,40,000 60,000	6,00,000 1,00,000 60,000	4,00,000 1,00,000 30,000
Opening capital	9,80,000	6,40,000	4,70,000

 

Calculation of opening Drawings;

Abhir= 20,000×12×6/100×5.5/12=6,600

Bobby= 50,000×2×6/100×9/12=4,500

Vineet = 1,00,000×6/100×5/12=2,500

Statement showing Adjustments
Particulars	A		B		C		FIRM
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Interest on capital omitted Interest on Drawing omitted	6,600	98,000	4,500	64,000	2,500	47,000	2,09,000	13,600
Net interest omitted Net loss of above omission	78,160	91,400	78,160	59,500	39,090	44,500	1,95,400	1,95,400
Total	78,160	91,400	74,160	49,500	37,080	44,500	1,85,400	1,85,400
Net effect		17,240	24,160			7,420

Question 71:

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 ( `)	Credit ( `)
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 72:

Capitals of kajal, Neerav and Alisha as on 31st March, 2022 amounted to  ` 90,000,  ` 3,30,000 and  ` 6,60,000 respectively. Profit of  ` 1,80,000 for the year ended 31st March, 2022 was 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 ( `)	Credit ( `)
2022 Mar.31	kajal’s Capital A/c		Dr.		66,600
	To Neerav’s Capital A/c					30,000
	To Alisha’s Capital A/c					36,600
	(Being adjustment made for interest on capital and profits)

 

Statement Showing Adjustment:

Particulars	kajal’s Capital A/c		Neerav’s Capital A/c		Alisha’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	Kajal ( `)	Neerav ( `)	Alisha ( `)
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, 2021	3,30,000	6,60,000	9,90,000

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

 

Question 73:

Mohit and Sobhit are partners sharing profits in the ratio of 3 : 2. Rohit 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 Mohit, Sobhit and Rohit will get.

Answer:

Profit and Loss Appropriation Account
Dr.	for the year ended 31st March				Cr.
Particulars			( `)	Particulars	( `)
Profit transferred to:				Profit and Loss A/c (Net Profit)	54,000
Mohit’s Capital a/c		26,400
Sobhit’s Capital a/c		17,600
Rohit’s Capital a/c		10,000	54,000
			54,000		54,000

Working Note

Rohit will get higher of the two:

(i) Share of Profit as per profit sharing ratio, i.e., 54,000×1/6==9,000

(ii) Minimum guaranteed profit, i.e. ` 10,000
Thus from net profit of ` 54,000, minimum guaranteed profit to Rohit of ` 10,000 is to be adjusted first.

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

final share:

Mohit’s share =44,000×3/5=26,400

Sobhit’s share =44,000×2/5=17,600

Rohit’s share =10,000 (minimum guarantee)

 

Question 74

A, B and C were in partnership sharing profits and losses in the ratio of 4 :2 : 1. It was provided that Cs share in profit for a year would not be less than `75,000. Profit for the year ended 31st March, 2022 amounted to  `3,15,000. You are required to show the appropriation among the partners. The Profit and Loss Appropriation Account is not required.

Minimum Earnings Guaranteed by a Partner

 

Answer;

Working notes;

Profit and loss appropriation account for year ended 31st March, 2022
Particulars	`	Particulars	`
To Profit A-    18,000-2,000   =16,000 B-    9,000-1,000   =  8,000 C-    4,500+3,000    = 7,500	31,500	By net profit	31,500
	31,500		31,500

 

Note; initial profit distributed 3000 in 4;2 or 2:1 in the absence of any information in the question No profit and loss a/c is required we can appropriate as below;

Appropriation of profit

A-    18,000-2,000   =16,000 B-    9,000-1,000     =  8,000 C-    4,500+3,000     = 7,500

31,500

 

Question 75:

X, Y and Z entered into partnership on 1st October, 2021 to share profits 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. Capital contributions were: X –  ` 3,00,000, Y –  ` 2,00,000 and Z –  ` 1,50,000.
Profit for the year ended 31st March, 2022 was  ` 1,60,000. Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Interest on Capital:			Net Profit b/d	1,60,000
X’s Capital a/c	15,000
Y’s Capital a/c	10,000
Z’s Capital a/c	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 1st October, 2021 and Profit is ascertained on March 31, 2022, therefore, interest on capital is calculated for 6 months and guaranteed amount is considered as ` 40,000 (half of the total amount).

Question 76:

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. Profit for the year ended 31st March 2022 was  ` 40,000.
Pass necessary Journal entries in the books of the firm.

Answer:

Profit and Loss Appropriation Account for the year ended 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
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 = ` 40,000

Profit sharing ratio = 5 : 4 : 1

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

A’s profit share =40,000×5/10=20,000

B’s profit share =40,000×4/10=16,000

C’s profit share =40,000×1/10=4,000

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

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

Deficiency is to be borne by A=1000×1/2=500

Deficiency is to be borne by B=1000×1/2=500

Therefore,

Final Profit Share of A = 20,000 - 500 = ` 19,500

Final Profit Share of B = 16,000 -500 = ` 15,500

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

 

Question 77:

A, B and C are partners in a firm. Their profit-sharing ratio is 2 : 2 : 1. C is guaranteed a minimum of  ` 1,00,000 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, 2021 and 2022 were ` 4,00,000 and  ` 6,00,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2021
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Profit transferred to: (WN 1)			Profit and Loss A/c (Net Profit)	4.00,000
A’s Capital A/c	1,60,000
B’s Capital A/c	1,40,000
C’s Capital A/c	1,00,000	4,00,000
		4,00,000		4,00,000

 

Profit and Loss Appropriation Account for the year ended 31st March, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
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 2020-21

Profit for 2021 = ` 4,00,000

Profit sharing ratio = 2 : 2 : 1

C is given a guarantee of minimum profit of ` 1,00,000

A’s profit share =4,00,000×2/5=1,60,000

B’s profit share =4,00,000×2/5=1,60,000

C’s profit share =4,00,000×1/5=80,000

Deficiency in C’s Profit Share = 1,00,000 - ` 80,000 = ` 20,000

This deficiency is to be borne by B.

Therefore,

Final Profit Share of A = 1,60,000

Final Profit Share of B = 1,60,000 - ` 20,000 = ` 1,40,000

Final Profit Share of C = 80,000 + 20,000 = ` 1,00,000

WN 2 Distribution of Profit for the year 2021-22

Profit for 2022 = ` 6,00,000

Profit sharing ratio = 2 : 2 : 1

C is given a guarantee of minimum profit of ` 1,00,000

A’s profit share =6,00,000×2/5=2,40,000

B’s profit share =6,00,000×2/5=2,40,000

C’s profit share =6,00,000×1/5=1,20,000

 

 

Question 78: Atul, Bipul and Charu are partners sharing profits equally. Bipul is guaranteed minimum profit of

`2,00,000 per annum. Salary is payable to Bipul of `10,000 per month. Net Profit for the year ended 31st March, 2022 is ` 6,60,000.

Prepare Profit & Loss Appropriation Account for the year.

Answer:

Profit & Loss Appropriation A/c
Particulars	`	Particulars	`
To Bipul’s Capital A/C (Salary)	1,20,000	By Profit and loss a/c	6,60,000
To Profit transferred to:		(Profit)
Atul’s Capital A/c	1,70,000
Bipul’s Capital A/c	2,00,000
Charu’s Capital A/c	1,70,000
	6,60,000,		6,60,000,

Working Notes:

Profit after Bipul’s salary = 6,60,000 -1,20,000

Divisible Profit = 5,40,000

Share of Profits mas per profit sharing ratio 1:1:1

= 5,40,000÷3= 1,80,000

Guarantee of profit = 2,00,000

Deficiency of profit =2,00,000-1,80,000= 20,000

Deficiency of profit will be adjusted by Atul and Charu in 1:1

= 20,000÷2=10,000

Adjustment Table of Profit
Partner	Atul	Bipul	Charu
Share of Profits mas per profit sharing ratio 1:1:1	1,80,000	1,80,000	1,80,000
Adjustment of Profit	(-) 10,000	(+) 20,000	(-) 10,000
Final share of profit	1,70,000	2,00,000	1,70,000

 

 

Question 79:  Parul, Prerna and Kaushal are partners sharing profits equally. Parul is guaranteed minimum annual profit of ` 2,00,000. Kaushal is to get Commission@ 5% of Net Sales and the commission is determined at `50,000.

Net Profit for the year ended 31st March, 2022 is ` 2,50,000.

Prepare Profit & Loss Appropriation Account for the year.

Answer:

Profit & Loss Appropriation A/c
Particulars	`	Particulars	`
To Kaushal’s Capital A/c	50,000	By Profit and loss a/c	2,50,000
(commission)		(Profit)
To Parul’s Capital A/c	2,00,000
(Profit transferred)
	2,50,000		2,50,000

Working Notes:

Share of each partner 2,00,000 ÷ 3 = 66,666.67

Note: Share of each partner is less than guarantee but divisible profit is equal to guarantee, hence whole divisible profit should be credited to parul’s Capital A/c

 

Question 80: Nimrat, Maira and Kabir are partners sharing profits in the ratio of 2:2:1.Nimrat is guaranteed minimum profit of ` 1,60,000 per annum. Net Profit for the year ended 31st March, 2022 is ` 1,00,000.

Prepare Profit & Loss Appropriation Account for the year.

Answer:

Profit & Loss Appropriation A/c
Particulars	`	Particulars		`
To Nimrat’s Capital A/c	1,60,000	By Profit and loss a/c		1,00,000
(Profit transferred)		(Profit)
		By Loss transferred to;
		Maira’s Capital A/c	40,000
		Kabir’s Capital A/c	20,000	60,000
	2,50,000			2,50,000

 

Note: Loss will be borne by Maira and Kabir in  2:1, Since Nimrat is guaranteed minimum share of profit of 1,60,000.

Maira = 60,000×2÷3=40,000

Kabir = 60,000×1÷3=20,000

Question 81:  Ashmit, Abbas and Karman are partners sharing profits in the ratio of 3:2:1.Abbas is guaranteed minimum profit of `1,50,000 per annum. The firm incurred loss for the year ended 31st March, 2022 of ` 30,000.

Prepare Profit & Loss Appropriation Account for the year.

Answer:

	Profit & Loss Appropriation A/c
Particulars		`	Particulars		`
To Profit and loss a/c		30,000
(Loss transferred from P&L account)
To Abbas’s Capital A/c		1,50,000	By Loss transferred to;
(Profit transferred)			Ashmit’s Capital A/c	1,35,000
			Karman’s Capital A/c	45,000	1,80,000
		1,80,000			1,80,000

 

Working notes:

Note: Loss will be borne by Ashmit and Karman in  3:1, Since Abbas is guaranteed minimum share of profit of 1,50,000.

Ashmit = 1,80,000×3÷4= 1,35,000

Karman = 1,80,000×1÷4= 45,000

 

Question 82:

P, Q and R entered into partnership on 1st April, 2018 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: 2020 Profit  ` 1,20,000 2021 Profit  ` 1,80,000; 2022 Loss  `1,20,000.
Pass the necessary Journal entries in the books of the firm.

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
2020	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)
2022	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
R's Minimum Guaranteed Profit = ` 30,000 for 2020

R's actual share of profit = 1,20,000 ×12/25=` 24,000

Deficiency in R's Profit = 30,000 - 24,000 = ` 6,000

This deficiency is to be borne by P & Q in the ratio of 12:8.For 2021, 

R's actual share of profit = 1,80,000×8/25=` 36,000

This implies that there is no deficiency in R's profit share as his actual share exceeds his minimum guaranteed share. For 2022,

 R's share of loss = 1,20,000×5/25=` 24,000

Deficiency in R's Profit = 30,000 + 24,000 = ` 54,000

This deficiency is to be borne by P & Q in the ratio of 12:8.

Question 83:

A and B are in partnership sharing profits and losses in the ratio of 3 : 2. They admit C, their Manager, as a partner with effect from 1st April, 2021, for 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, any 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, 2022 amounted to  ` 2,25,000. You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2022.

Answer:

Profit and Loss Appropriation Account for the year and March 31, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
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 = ` 27,000

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

Net Profit after Salary and Commission = 2,25,000- 27,000 = ` 1,98,000

C’s commission = 1,98,000×10/110=18,000

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

WN 2 Calculation of Profit Share of C as a Partner

Profit = ` 2,25,000

C’s profit share = 2,25,000×1/4=56,250

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

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

A’s profit share = 1,80,000×3/5=1,08,000

C’s profit share = 1,80,000×2/5=72,000

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

 

Question 84:

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, 2021. 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, 2021 amounted to  ` 4,24,000. (Delhi 2013, Modified)
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2022.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		`	Particulars	`
Interest on Capital to:			Profit and Loss A/c (Net Profit)	4,24,000
Asgar’s Capital A/c	48,000
Chaman’s Capital A/c	40,000
Dholu’s Capital A/c	32,000	1,20,000
Salary to Chaman (` 7,000 × 12)		84,000
Salary to Dholu (` 10,000 × 4)		40,000
Profit transferred to:
Asgar’s Capital A/c	70,000
Chaman’s Capital A/c	40,000
Dholu’s Capital A/c	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) = ` 1,80,000
Profit sharing ratio = 4 : 2 : 3

Asgar’s profit share = 1,80,000×4/9=80,000

Chaman’s profit share = 1,80,000×2/9=40,000

Dhalu’s profit share = 1,80,000×3/9=60,000

Dholu’s Minimum Guaranteed Profit = ` 1,10,000 (excluding interest on capital, but including salary)
Dholu’s Minimum Guaranteed Profit (excluding salary) = 1,10,000 – 40,000 = ` 70,000
But, Dholu’s Actual Profit Share = ` 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 = ` 70,000

 

Question 85:

The partners of a firm, Alia, Bhanu and Chand distributed the profits for the year ended 31st March, 2017,  ` 80,000 in the ratio of 3 : 3 : 2 without providing for the following adjustments:
(a) Alia and Chand were entitled to a salary of  ` 1,500 each p.a.
(b) Bhanu was entitled for a commission of  ` 4,000.
(c) Bhanu and Chand had guaranteed a minimum profit of  ` 35,000  p.a. to Alia any deficiency to borne equally by Bhanu and Chand.

Pass the necessary Journal entry for the above adjustments in the books of the firm. Show workings clearly. (CBSE Sample paper 2018)

Answer:

In the books of Mudit, Sudhir and Uday Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
2017
March 31	Bhanu’s Capital A/c	Dr.		21,000
	Chand’s Capital A/c	Dr.		2,000
	To Alia’s Capital A/c				23,000
	(Being adjustment entry passed for rectification of errors)

Working Notes:

Table Showing Adjustment
Particulars	Alia’s Capital A/c		Bhanu’s Capital A/c		Chand’s Capital A/c		Firm
	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)
Profits wrongly Distributed (Dr.)	30,000		30,000		20,000			80,000
Salary to be provided (Cr.)		18,000				18,000	36,000
Commission to be provided (Cr.)				4,000			4,000
Profits correctly distributed		35,000		5,000		Nil	40,000
Balance to be adjusted	23,000(Cr.)		21,000(Dr.)		2,000(Dr.)		Nil

 

Divisible Profits	=	Profits before appropriation – (Salary + Bhanu’s Commission)
	=	` [80,000 – (36,000 + 4,000)] =  ` 40,000
Alia’s Share of Profits	=	` (40,000 × 3/8) = 15,000
Deficiency in Alia’s Share of Profits	=	` (35,000 – 15,000) =  ` 20,000 (To be borne by Bhanu and Chand in 1:1)
Alia’ final share of Profits	=	` 35,000
Bhanu’s final share of Profits	=	` [(40,000 × 3/8) – 10,000] =  ` 5,000
Chand’s final share of Profits	=	` [(40,000 × 2/8) – 10,000] = Nil

Question 86:

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. (Delhi 2016 C)

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	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 31st March, 2015
Dr.						Cr.
Particulars			`	Particulars		`
Salary:				Profit and Loss A/c		1,50,000
Ajay’s Capital A/c		8,000
Binay’s Capital A/c		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 87:

Ankur, Bhavns and Disha are partners in a firm. On 1st April, 2021, 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, 2022 amounted to  ` 9,50,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2022.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		`	Particulars	`
Interest on Capital to:			Profit and Loss A/c	9,50,000
Ankur’s Capital A/c	84,000		(Net Profit)
Bhavna’s Capital A/c	36,000
Disha’s Capital A/c	24,000	1,44,000
Salary to Bhavna		50,000
Commission to Disha (` 3,000 × 12)		36,000
Profit transferred to:
Ankur’s Capital A/c	4,14,000
Bhavna’s Capital A/c	1,80,000
Disha’s Capital A/c	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) = ` 7,20,000
Profit sharing ratio = 7 : 3 : 2

Ankur’s profit share = 7,20,000×7/12=4,20,000

Bhavna’s profit share = 7,20,000×3/12=1,80,000

Disha’s profit share = 7,20,000×1/12=1,20,000

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

Disha’s Minimum Guaranteed Profit = ` 1,50,000 (including interest on capital but excluding salary)
Disha’s Minimum Guaranteed Profit (excluding interest) = 1,50,000 – 24,000 = ` 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 = ` 4,14,000

 

Question 88:

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 preceding 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		`	Particulars	`
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 = `9,000

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

= 75,000 + 9,000 = `84,000

Profit sharing ratio = 3 : 2 : 1

A’s profit share=84,000×3/6=42,000

B’s profit share=84,000×2/6=28,000

C’s profit share=84,000×1/6=14,000

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

Deficiency in C’s Profit Share = 15,000 - ` 14,000 = `1,000

Deficiency is to be borne by A= 1000×3/5=600

Deficiency is to be borne by b= 1000×2/5=400

Therefore, Final Profit Share of A = 42,000 - 600 = `41,400

Final Profit Share of B = 28,000 - 400 = `27,600*

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

* In the book, the final profit to B is given as `18,600, however, as per the solution it should be `27,600. The deficiency of  `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.