TS Grewal solution class 12 chapter number 1 financial statement of non profit organisation

 Class 12th - TS Grewal Solution 2023-2024

Page No 1.59:

Question No.1: From the following particulars relating to Shyamji Charitable Society, prepare a Receipts and Payments Account for the year ending 31st March, 2019

Particulars	`
Cash in hand as on 1st April, 2018	16,000
Cash at bank as on 1st April, 2018	28,000
Subscriptions (including 11,000 for 2017-18)	60,000
Donations for Building	2,90,000
Miscellaneous Expenses	98,000
Locker Rent	32,000
Entrance Fees	41,000

 

Answer:

Receipts and Payments Account
Dr.                                        for the year ending 31st March, 2019			Cr.
Receipts	`	Payments	`
To Cash in hand	16,000	By Miscellaneous Expenses	98,000
To Cash at bank	28,000	By Cash and Bank balance C/d	3,69,000
To Subscriptions	60,000
To Locker Rent	32,000
To Entrance Fees	41,000
To Donations for Building	2,90,000
	4,67,000		4,67,000

 

Page No 1.59:

Question No.2:

Bengal Cricket Club was inaugurated on 1st April, 2020. It had the following Receipts and Payments during the year ended 31st March, 2021:
Receipts: Entrance Fees  ` 10,000; Subscriptions  ` 60,000; Donations  ` 10,000.
Payments: Rent  ` 15,000; Postages  ` 1,000; Newspaper and Magazines  ` 8,000; Investments  ` 30,000; Stationery  ` 4,000; Entertainment Expenses  ` 3,000; Miscellaneous Expenses  ` 2,000.
Show the Receipts and Payments Account for the year ended 31st March, 2021.

Answer:

In the books of Bengal Cricket Club
Dr.	Receipts and Payments A/c for the year ended 31st March, 2021				Cr.
Receipts		Amount ( `)	Payments	Amount ( `)
To Entrance Fees		10,000	By Rent	15,000
To Subscriptions		60,000	By Postages	1,000
To Donations		10,000	By Newspaper and Magazines	8,000
			By Investments	30,000
			By Stationery	4,000
			By Entertainment Expenses	3,000
			By Miscellaneous Expenses	2,000
			By balance c/d (as on 31st Mar, 2021)	17,000
		80,000		80,000

 

Page No 1.59:

Question No.3:

From the information given below, prepare Receipts and Payments Account of Railway Club for the year ended 31st march, 2021:

	( `)		( `)
Cash in Hand on 1st April, 2020	4,390	Salaries	21,500
Subscription	37,600	Honorarium to Secretary	2,500
Donations	8,000	Interest Received on Investments	2,950
Entrance Fees	4,300	Printing and Stationery	350
Rent Received for Club Halls	5,250	Petty Cash Expenses	900
Electricity Charges	3,440	Insurance Premium Paid	310
Taxes paid	490

Answer:

In the books of Railway Club
Dr.	Receipts and Payments A/c for the year ended 31st March, 2021				Cr.
Receipts		Amount ( `)	Payments	Amount ( `)
To balance b/d		4,390	By Electricity Charges	3,440
To Subscriptions		37,600	By Taxes Paid	490
To Donations		8,000	By Salaries	21,500
To Entrance Fees		4,300	By Honorarium to Secretary	2,500
To Rent Received for Club Halls		5,250	By Printing and Stationery By Petty Cash Expenses	350               900
To Interest Received on Investments		2,950	By Insurance Premium Paid	310
			By balance c/d	33,000
		62,490		62,490

 

Page No 1.59:

Question No.4:

The following information were obtained from the books of Delhi Club as on 31st March, 2021 at the end of the fi `t year of the Club, prepare Receipts and Payment Account for the year ending 31st March, 2021:

Receipts	( `)	Payments	( `)
Donation for Building and Library Room	2,00,000	Purchase of Land	10,000
Entrance Fees	17,000	Purchase of Furniture	1,30,000
Subscription	19,000	Salaries	4,800
Locker Rent	1,660	Maintenance of Play Grounds	1,000
Refreshment Receipts	16,000	Rent	8,000
Government Grant	25,000	Refreshment Payments	8,000
		Library Books	25,000
		Purchase of 90% Government Bonds	1,60,000
		Term Deposit with Bank	15,000

Answer:

In the books of Delhi Club
Dr.	Receipts and Payments A/c for the year ended 31st March, 2021				Cr.
Receipts		Amount ( `)	Payments	Amount ( `)
To Donation for Building and Library Room		2,00,000	By Purchase of Land	10,000
To Entrance Fees		17,000	By Purchase of Furniture	1,30,000
To Subscription		19,000	By Salaries	4,800
To Locker Rent		1,660	By Maintenance of Play Grounds	1,000
To Refreshment Receipts		16,000	By Rent	8,000
To Government Grant		25,000	By Refreshment Payments	8,000
To balance c/d		83,140	By Library Books	25,000
			By Purchase of 9% Government Bonds	1,60,000
			By Term Deposit with Bank	15,000
		3,61,800		3,61,800

 

Page No 1.60:

Question No.5:

From the following information, prepare Receipts and Payments Account of Long-town Sports Club for the year ending 31st March, 2021:

Particulars	(`)	Particulars	(`)
Opening Balance:		Charity Given	10,000
Cash in Hand	50,000	Match Expenses	30,000
Cash at bank	60,000	Salaries	63,600
Subscription Received:		Honorarium	4,000
2019-20	4,000	12% Investment Purchased	60,000
2020-21	1,40,000	Entrance Fees	4,000
2021-22	8,000	Interest on 12% Investments	6,000
Furniture Purchased	70,000	Closing Balance:
General Donations	20,000	Cash in Hand	24,000
Donations for Tournament	40,000	Cash at Bank	?

Answer:

In the books of Longtown Sports Club
Dr.	Receipts and Payments A/c for the year ended 31st March, 2021				Cr.
Receipts		Amount ( `)	Payments	Amount ( `)
To Opening Balance:			By Charity Given	10,000
Cash in Hand		50,000	By Match Expenses	30,000
Cash at Bank		60,000	By Salaries	63,600
To Subscriptions Received:			By Honorarium	4,000
2018-19		4,000	By 12% Investment Purchased	60,000
2019-20		1,40,000	By Furniture Purchased	70,000
2020-21		8,000	By Closing Balance
To Entrance Fees		4,000	Cash in Hand	24,000
To General Donations		20,000	Cash at Bank (WN1) (Bal. Fig.)	70,400
To Donations for Tournament		40,000
To Interest on 12% Investments		6,000
		3,32,000		3,32,000

Working Notes:

Calculation of closing balance of Cash:

Total Receipts =  ` 3,32,000
Total Payments =  ` 2,37,600
Cash in Hand =  ` 24,000

Cash at Bank	=	Total Receipts – (Total Payments + Closing Balance of Cash)
	=	` [3,32,000 – 2,61,600] =  ` 70,400

Page No 1.60:

Question No.6:

Following is the summary of cash transactions of Good Health Club for the year ending 31st March,2018

 

Particulars	`
Opening Balance: Cash  Bank Subscriptions Received: 2016-2017 2017-2018 2018-2019 Donations for Gym Admission Fees Life Membership Fee Wages and Salaries Locker Rent Invested in 9% Debentures of X YZ Ltd. Health Journals Stationery Insurance Premium Courier Charges Municipal Taxes Machinery Purchased Sale of Old Newspapers Interest on Bank Balance Cash in Hand	70,000 3,00,000   1 40,000 3,75,000 20,000 1 ,64,000 14,000 45,000 55,000 1 1,000 2,40,000 5,000 1 2,500 6,760 800 9,570 38,000 300 1 ,740  43,000

From the above summary prepare a Receipts and Payments Account of Good Health Club for the year ending 31st March, 2018.      

(CBSE 2019)

Answer

In the books of Good Health Club Receipts and Account of Good Health Club for the year ending 31st March, 2018
Receipts	`	Receipts	`
To Balance B/d Cash  Bank To Subscriptions Received: 2016-2017 2017-2018 2018-2019 To  Donations for Gym To  Admission Fees To  Life Membership Fee To  Locker Rent To  Sale of news paper To Interest on Bank Balance	70,000 3,00,000   40,000 3,75,000 20,000 1 ,64,000 14,000 45,000 11,000 300 1,740	By Wages and Salaries By 9% Debentures By Health Journals By Stationery By Insurance Premium By Courier Charges By Municipal Taxes By Machinery Purchased By Balance c/d Cash Bank  (Balancing figure)	55,000 2,40,000 5,000 12,500 6,750 800 9,570 38,000   43,000 6,30,410
	10,41,040		10,41,040

 

Page No 1.60:

Question No.7:

 

State how will be the prizes awarded of ` 5,000 shown while preparing the final accounts of a club for the year ending on 31st March, 2021.

Answers;

Explanation;

prizes awarded of ` 5,000 will be shown in the expenditure side of the income and expenditure account.

 

Income and expenditure account
Expenditure		`	Income	`
To prizes awarded		5,000

 

 

Page No 1.61:

Question No. 8: How are the following items presented in financial statements of a Not-for-Profit organisation?

(a) Tournament Fund 80,000;

(b) Tournament Expenses 14,000.                                                      (CBSE Sample Paper 2019)

 

Answer;

 

Extract of Balance sheet
Liabilities		`	Assets	`
Tournament fund                                 Add; Receipt from tournament Less ; tournament expenses	80,000 ………… 14,000	66,000

 

Page No 1.61:

Question No.9:

How are the following items shown in the accounts of a Not-for-Profit Organisation?

                                                              

	`
Tournament Fund	50,000
Tournament Expenses	15,000
Receipts from Tournament	20,000

Answer:

Balance Sheet
Liabilities		Amount ( `)	Assets	Amount ( `)
Tournament Found	50,000
Add: Tournament Receipts	20,000
Less: Tournament Expenses	(15,000)	55,000

 

Page No 1.61:

Question No.10:

How are the following dealt with in the accounts of a Not-for-Profit Organisation ?

Case I	Dr. ( `)	Cr. ( `)	Case II	Dr. ( `)	Cr. ( `)
Prize Fund Prizes Paid Match Expenses	12,000 15,000	50,000	Match Fund Match Expenses Investments of Match Fund Interest  on Match Fund Investments Prizes awarded	35,000 60,000 19,000	1,00,000 3,000

 

Answer:

Case 1

Balance Sheet
Liabilities		Amount ( `)	Assets	Amount ( `)
Prize Fund	50,000
Less: Prize Paid	(12,000)	38,000

Note: Match Expenses of ` 15,000 are not deductible from the Prize Fund. This is because the Prize Fund is maintained only to meet the expenses relating to the Prize. However, the match expenses (i.e.  ` 15,000) will be debited to the Income and Expenditure Account as there is no specific fund is maintained to meet such expenses.

 Case 2

Balance Sheet
Liabilities		Amount ( `)	Assets	Amount ( `)
Match Fund	1,00,000		Match Fund Investments	60,000
Less: Match Expenses	(35,000)
Add: Interest on Match Fund Investments	3,000	68,000

Note: Prizes paid worth  ` 19,000 are not deductible from the Match fund because the Match Fund. This is because Match Fund is maintained only to meet the expenses relating to the Match. However, the prizes paid (i.e.  ` 19,000) will be debited to the Income and Expenditure Account as there is no specific fund is maintained for distributing the prizes. Also, the interest on Match Fund Investments is added to the Match Fund because it is an income related to this particular fund

Page No 1.61:

Question No.11:

How the following items for the year ended 31st March, 2019 will be presented in the financial statements of Aisko Club?

 

Particulars	Dr. `	Cr. `
Tournament Fund Tournament Fund Investments Income from Tournament Fund Investments Tournament Expenses	1,50,000     12,000	1,50,000   18,000

 

Additional Information:

Interest Accrued on Tournament Fund Investments ` 6,000.

 

Answer;

 

Extract of Balance sheet
Liabilities		`	Assets	`
Tournament fund                                 Add; Income from tournament fund investment Accrued in interest on Investment fund investment Less ; tournament expenses	1,50,000 18,000   6,000     12,000	1,62,000	tournament fund investment Accrued in interest on Investment fund investment	1,50,000 6,000

 

 

Page No 1.62:

Question No.12: How will the following items be presented in the Income and Expenditure Account' of a club for the year ending 31st March, 2019 and the Balance Sheet as on that date?

Particulars	`
Tournament Fund on 1st April, 2018	3,00,000
10% Tournament Fund Investments on 1st April, 2018	3,00,000
Interest received on Tournament Fund Investments	30,000
Sale of Tournament Tickets	75,000
Tournament Prizes Awarded	60,000

(CBSE 2020)

Answer:

Balance Sheet
Liabilities		`	Assets	`
Tournament Fund Add: Interest on Tournament Fund Investment Add: Sale of Tournament Tickets Less: Tournament Prizes Awarded	3,00,000 30,000   75,000 60,000	3,45,000	10% Tournament Fund Investments	3,00,00

 

Page No 1.62:

Question No.13:

How are the following dealt with while preparing the final accounts of a club?          

TRIAL BALANCE as at 31st March, 2021
Particulars	Dr. ( `)	Cr. ( `)
Match Fund	......	80,000
Match Fund Investments	72,000	....
Match Fund Bank Balance	3,500	....
Interest on Match Fund Investments	.....	2,880
Match Expenses	5,500	....

Answer:

Balance Sheet
as at 31st March, 2021
Liabilities		Amount ( `)	Assets	Amount ( `)
Match Fund	80,000		Match Fund Investment	72,000
Add: Interest on Match Fund Investment	2,880		Match Fund Bank Balance	3,500
Less: Match Expenses	(5,500)	77,380

 

Page No 1.62:

Question No.14:

From the following information of a club show the amounts of match expenses and match fund in the appropriate Financial Statements of the club for the year ended on 31st March, 2021:

Particulars	`
Match expenses paid during the year ended 31st March, 2021	1,02,000
Match Fund as on 31st March, 2020	24,000
Donation for Match Fund (Received during the year ended 31st March, 2021)	40,000
Proceeds from the sale of match tickets (Received during the year ended 31st March, 2021)	15,000

Answer:

Balance Sheet
as at 31st March, 2021
Liabilities		Amount ( `)	Assets	Amount ( `)
Match Fund	24,000
Add: Donation for Match Fund	40,000
Add: Proceed from Sale of Tickets	15,000
Less: Match Expenses (Note)	(79,000)	NIL

 

Income and Expenditure Account
Dr.	for the year ended 31st March, 2021				Cr.
Expenditure		Amount ( `)	Income	Amount ( `)
Match Expenses (Note)		23,000

Note: The total Match expenses amounts to  ` 1,02,000 whereas the total amount available in the Match Fund is only  ` 79,000 (i.e.  ` 24,000 +  ` 40,000 + ` 15,000). This implies that expenses of ` 79,000 is met through the Fund while the remaining expenses of  ` 23,000 (i.e.  ` 1,02,000 –  ` 79,000) are debited to the Income and Expenditure Account.

 

Page No 1.62:

Question No.15:

Show how are the following items dealt with while preparing the final accounts for the year ended 31st March, 2021 of a Not-for-profit Organisation:
Case I
Expenditure on construction of Pavilion is  ` 6,00,000. The construction work is in progress and has not yet completed. Capital Fund as at 31st March, 2020 is  ` 20,00,000.
Case II
Expenditure on construction of Pavilion is  ` 6,00,000. The construction work is in progress and has not yet completed. Pavilion Fund as at 31st March, 2020 is  ` 10,00,000 and Capital Fund as at 31st March, 2020 is  ` 20,00,000.
Case III
Expenditure on construction of Pavilion is  ` 6,00,000. The construction work is in progress and has not yet completed. Pavilion Fund as at 31st March, 2020 is  ` 10,00,000, and Capital Fund as at 31st March, 2020 is  ` 20,00,000. Donation Received for Pavilion on 1st January, 2021 is ` 5,00,000.

Answer:

Case 1

Balance Sheet as on March 31, 2021
Liabilities	Amount ( `)	Assets	Amount ( `)
Capital Fund	20,00,000	Pavilion Work-in-Progress	6,00,000

 

Case 2

Balance Sheet as on March 31, 2021
Liabilities		Amount ( `)	Assets	Amount ( `)
Pavilion Fund	10,00,000		Pavilion Work-in-Progress	6,00,000
Less: Expenditure on Construction of Pavilion	(6,00,000)	4,00,000
Capital Fund	20,00,000
Add: Pavilion Work-in-Progress	6,00,000	26,00,000

 

Case 3

Balance Sheet as on March 31, 2021
Liabilities		Amount ( `)	Assets	Amount ( `)
Pavilion Fund	10,00,000
Add: Donation	5,00,000		Pavilion Work-in-Progress	6,00,000
Less: Expenditure on Construction of Pavilion	(6,00,000)	9,00,000
Capital Fund	20,00,000
Add: Pavilion Work-in-Progress	6,00,000	26,00,000

Page No 2.84:

Question 16;

Atul and Mithun are partners sharing profits m the ratio of 3: 2

Balances as on 1st April 2020 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, 2021.

Prepare Profit and Loss Appropriation Account.

 

Answer; Answer:

	Profit and Loss Appropriation Account
Dr.							Cr.
Particulars			Amount `	Particulars			Amount `
Interest on Capital:				Profit and Loss A/c (Net Profit)			2,20,000
Atul’s Current A/c		50,000		Interest on Capital:
Mithul’s Current A/c		60,000	1,10,000	Atul’s Current A/c		5,000
				Mithul’s Current A/c		5,000
Profit transferred to:
Atul’s Current A/c		72,000
Mithul’s Current A/c		48,000	1,20,000
			2,30,000				2,30,000

 

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

Interst on Atul’s loan=5,00,000×10/100=50,000

Interst 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

 

Page No 2.84:

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 net loss of ` 1,00,000 during the year ended 31st March, 2021.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2021.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2021
Dr.						Cr.
Particulars		Amount `	Particulars		Amount `
Profit and Loss A/c (Loss)		1,00,000	Interest on Drawings A/c:
			Reema’s Capital A/c	3,000
			Seema’s Capital A/c	3,000	6,000
			Loss transferred to
			Reema’s Capital A/c	47,000
			Seema’s Capital A/c	47,000	94,000
		1,00,000			1,00,000

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

 

Page No 2.84:

Question 18:

Bhanu and Partab are partners sharing profits equally. Their fixed capitals as on 1st April, 2020 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. Profit for the year ended 31st March, 2021 before giving effect to the above was  `1,20,000.
Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2021
Dr.								Cr.
Particulars			Amount ( `)	Particulars			Amount ( `)
Interest on Capital A/c:				Profit and Loss A/c			1,20,000
Bhanu’s Current A/c		80,000		Interest on Drawings A/c:
Partap’s Current A/c		1,00,000	1,80,000	Bhanu’s Current A/c	3,750
				Partap’s Current A/c		7,500	11,250
				Loss transferred to
				Bhanu’s Current A/c		24,375
				Partap’s Current A/c		24,375	48,750
			1,80,000				1,80,000

 

Page No 2.85:

Question 19:

Amit and Sumit entered into partnership on 1st April, 2020 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 2021.
Pass the Journal entry for interest on capital.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
2020
March 31	Profit & Loss Appropriation A/c	Dr.		40,000
	To Amit’s Current A/c				15,000
	To Sumit’s Current A/c				25,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

 

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

 

Page No 2.85:

Question 20:

Kamal and Kapil are partners having fixed capitals of  ` 5,00,000 each as on 31st March, 2020. Kamal introduced further capital of  ` 1,00,000 on 1st October, 2020 whereas Kapil withdrew  ` 1,00,000 on 1st October, 2020 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 2021.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
2020
March 31	Profit & Loss Appropriation A/c	Dr.		1,00,000
	To Kamal’s Current A/c				55,000
	To Kapil’s Current A/c				45,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

 

Profit and Loss Appropriation Account for the year ended 31 March 2020
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
Interest on Capital A/c:			Profit and Loss A/c	6,00,000
Kamal’s Current A/c	55,000
Kapil’s Current A/c	45,000	1,00,000
Profit transferred to:
Kamal’s Current  A/c	2,50,000
Kapil’s Current  A/c	2,50,000	5,00,000
		6,00,000		6,00,000

 

Working Notes:

WN1: Calculation of Interest on Capital:

Kamal = (5,00,000×10×6÷100×12) + (6,00,000×10×6÷100×12) = `. 55,000

Kapil=(5,00,000×10×6÷100×1) + (4,00,000×10×6÷100×12) = `. 45,000
 

 

Page No 2.85:

Question 21:

Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2020 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. The firm earned net profit of  `3,00,000 for the year ended 31st March 2021.
Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
	Profit & Loss Appropriation A/c	Dr.		20,000
	To Simran’s Current A/c				10,000
	To Reema’s Current A/c				10,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)
	Profit & Loss Appropriation A/c			2,80,000
	To Simran’s Current A/c				1,68,000
	To Reema’s Current A/c				1,12,000
	(Profit transferred to Partners’ Current A/c)

 

Profit and Loss Appropriation Account for the year ended 31 March 2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
Interest on Capital A/c:			Profit and Loss A/c	3,00,000
Simran’s Current A/c	10,000
Reema’s Current A/c	10,000	20,000
Profit transferred to:
Simran’s Current  A/c	1,68,000
Reema’s Current  A/c	1,12,000	2,80,000
		3,00,000		3,00,000

 

Working Notes:

WN1: Calculation of Interest on Capital
Simran's Interest on Capital = 2,00,000×5÷100=` 10,000

Reema's Interest on Capital = 2,00,000×5÷100=` 10,000

 

Page No 2.85:

Question 22:

Anita and Ankita are partners sharing profits equally. Their capitals, maintained following Fluctuating Capital Accounts Method, as on 31st March, 2020 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, 2021.
Pass the Journal entry for interest on capital.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
2021
March 31	Profit & Loss Appropriation A/c	Dr.		90,000
	To Anita’s Capital A/c				50,000
	To Ankita’s Capital A/c				40,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

 

Working Notes:

WN1: Calculation of Interest on Capital

Anita's Interest on Capital = 5,00,000×10÷100=` 50,000

Ankita's Interest on Capital = 4,00,000×10÷100=` 40,000

 

Page No 2.85:

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, 2021 after debit of drawings during the year of  ` 1,50,000 and  ` 1,00,000 respectively. Net profit for the year ended 31st March, 2021 was  ` 5,00,000.

Interest on capital is to be allowed @ 10% p.a.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
2021
March 31	Profit & Loss Appropriation A/c	Dr.		1,35,000
	To Ashish’s Capital A/c				65,000
	To Aakash’s Capital A/c				70,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)
				3,65,000
	Profit & Loss Appropriation A/c				2,19,000
	To Ashish’s Capital A/c				1,46,000
	To Akash’s Capital A/c
	(Profit transferred to Partners’ Capital A/c)

 

Profit and Loss Appropriation Account for the year ended 31 March 2021
Dr.					Cr.
Particulars			Amount ( `)	Particulars	Amount ( `)
Interest on Capital A/c:				Profit and Loss A/c	5,00,000
Ashish’s Capital  A/c		65,000
Aakash’s Capital  A/c		70,000	1,35,000
Profit transferred to:
Ashish’s Capital  A/c	2,19,000
Aakash’s Capital  A/c	1,46,000		3,65,000
			5,00,000		5,00,000

 

Working Notes:

WN1: Calculation of Opening Capital:

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

 

WN2: Calculation of Interest on Capital

Ashish's Interest on Capital = 6,50,000×10/100=` 65,000

Aakash's Interest on Capital = 7,00,000×10/100=` 70,000

 

Page No 2.86:

Question 24:

Naresh and Sukesh are partners with capitals of  ` 3,00,000 each as on 31st March, 2021. Naresh had withdrawn  ` 50,000 against capital on 1st October, 2020 and also  ` 1,00,000 besides the drawings against profit. 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:

Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
2021
March 31	Profit & Loss Appropriation A/c	Dr.		82,500
	To Naresh’s Capital A/c				42,500
	To Sukesh’s Capital A/c				40,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)
	Profit & Loss Appropriation A/c	Dr.		1,17,500
	To Naresh’s Capital A/c				58,750
	To Sukesh’s Capital A/c				58,750
	(Profit transferred to Partners’ Capital A/c)

 

Working Notes:

 

WN1: Calculation of Opening Capital:

 

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

 

WN2: Calculation of Interest on Capital
Naresh=(4,50,000×10/100×6/12)+(4,00,000×10/100×6/12)=` 42,500

Sukesh=4,00,000×10/100=` 40,000
 

Page No 2.86:

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 clearly, prepare 'Profit and Loss Appropriation Account' of Jay and Vijay for the year ended 31st March, 2014.

Answer:

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

 

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 (Which is more than the profit)

 

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.

Page No 2.86:

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

	A	B
Closing Capital Add; Drawings	1,60,000 30,000	1,40,000 30,000
Less: Profit already Credited (WN)	1,90,000 37,800	1,70,000 25,200
Less: Interest on Capital (WN)	1,52,200 13,836	1,44,800 13,164
Opening Capital	1,38,364	1,31,636

 

Working Notes:

Total Capital of A and B (1,60,000+1,40,000) Add: Drawings (30,000×2)	= =	3,00,000 60,000
Less: Profits (Including Interest on Capital)	=	3,60,000 90,000
Total opening Capital Including Interest on Capital	=	2,70,000

 

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

 

Page No 2.86:

Question 27:

Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2021.

BALANCE SHEET as at 31st March, 2021
Liabilities	`	Assets	`
Neelkant's Capital	10,00,000	Sundry Assets	30,00,000
Mahadev's Capital	10,00,000
Neelkant's Current A/c	1,00,000
Mahadev' Current A/c	1,00,000
Profit and Loss Appropriation A/c (2020-21)	8,00,000
	30,00,000		30,00,000

During the year, Mahadev's drawings were  ` 30,000. Profits during the year ended 31st March, 2021 is  ` 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2021.

Answer:

Interest on Capital

Neelkant’s	= 10,00,000×5/100=50,000
Mahadev’s	= 10,00,000×5/100=50,000

Note: In this question, as the balances of both Partner's Capital Account and of Partner's Current Account are mentioned, so it 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).

 

Page No 2.87:

Question 28:

From the following Balance Sheet of Long and Short, calculate interest on capital @ 8% p.a. for the year ended 31st March, 2021. 

BALANCE SHEET as at 31st March, 2021
Liabilities		`	Assets	`
Long's Capital A/c		1,20,000	Fixed Assets	3,00,000
Short's Capital A/c		1,40,000	Other Assets	60,000
General Reserve		1,00,000
		3,60,000		3,60,000

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

Answer:

Calculation of Capital at the beginning (as on April 01, 2020)

 

Particulars	Long ( `)	Short ( `)
Capital at the end	1,20,000	1,40,000
Less: Adjusted  Profit (1,50,000 – 1,00,000) in 1:1 ratio	(25,000)	(25,000)
Add: Adjusted Drawings	40,000	50,000
Capital in the beginning	1,35,000	1,65,000

 

Long’s Interest on capital= 1,35,000×8/100=10,800

Short’s Interest on capital= 1,65,000×8/100=13,200

 

Page No 2.87:

Question 29:

Amit and Bramit started business on 1st April, 2020 with capitals of  ` 15,00,000 and  ` 9,00,000 respectively. On 1st October, 2020, 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, 2021.

Answer:

 

Calculation of Interest on Amit’s Capital

 

Date	Capital	×	Period	=	Product
April 01, 2020 to Sept. 30, 2020	15,00,000	×	6	=	90,00,000
Oct. 01, 2020 to March 31, 2021	12,00,000	×	6	=	72,00,000
Sum of Product					1,62,00,000

 

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

 

Date	Capital	×	Period	=	Product
April 01, 2020 to Sept. 30, 2020	9,00,000	×	6	=	54,00,000
Oct. 01, 2020 to March 31, 2021	12,00,000	×	6	=	72,00,000
Sum of Product					1,26,00,000

 

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

 

Page No 2.87:

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 clear 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.

Particulars	Moli	:	Bholi
Interest on Capital	1,200	:	600
or, Ratio of interest on Capital	2	:	1

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=10,000×6100=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(`1,500-`1,800). This loss is to 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

Page No 2.87:

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

 

Page No 2.87:

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

 

Page No 2.87:

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, 2021. As per the Partnership Deed, they are to charge a commission @ 20% of the profit after charging such commission which they will share as 2 : 3 : 2 : 3. You are required to show appropriation of profits among the partners.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2021
Dr.					Cr.
Particulars			Amount `		Particulars		Amount `
Partners’ Commission:					Profit and Loss A/c (Net Profit)		1,80,000
A’s Capital A/c	6,000
B’s Capital A/c	9,000
C’s Capital A/c	6,000
D’s Capital A/c	9,000	30,000
Profit transferred to:
A’s Capital A/c	60,000
B’s Capital A/c	45,000
C’s Capital A/c	30,000
D’s Capital A/c	15,000	1,50,000
			1,80,000				1,80,000

 

Working Notes:

 

WN 1 Calculation of Partners’ Commission

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

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

 

Page No 2.87:

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, 2020 was ` 4,20,000. Show distribution of profit.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2020
Dr.				Cr.
Particulars			Amount ( `)	Particulars	Amount ( `)
Partners’ Salary:				Profit and Loss A/c (Net Profit)	4,20,000
X’s Capital A/c (10,000×12)	1,20,000
Y’s Capital A/c	25,000		1,45,000
Partners’ Commission:
X’s Capital A/c		27,500
Y’s Capital A/c		22,500	50,000
Profit transferred to:
X’s Capital A/c	1,12,500
Y’s Capital A/c	1,12,500		2,25,000
			4,20,000		4,20,000

Working Notes:

WN 1 Calculation of Commission

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

Profit after Partners’ Salaries = 4,20,000- `1,45,000 =  ` 2,75,000

Commission to X	= Profit after Partners’ Salaries × Rate of commission / 100
	= 2,75,000 ×  10 /100= 27,500

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

Commission to Y	= Profit after commission and partners’ salaries × Rate of commission / 100+Rate
	= 2,47,500 ×  10 /100+10= 22,500

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× ½ = `1,12,500

 

Page No 2.88:

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

Page No 2.88:

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

 

Page No 2.88:

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

 

Page No 2.88:

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.

Average Period	=	(Months left after the first drawings + Months left after the last drawings)/2
	=	(9 + 0)/2 = 4.5 months
Interest on Drawings	=	(Annual drawings × Rate of Drawings/100 × Average Period/12)
	=	(36,000 × 6/100 × 4.5/12) =  ` 810

Page No 2.88:

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, 2020. 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 lift after first drawing by 30th September, 2020 + time lift after last drawing by 30th September, 2020 ÷2

                            = 6+1÷2=3.5

Interest on drawing= total drawing×Rate of drawing/100×Average month / 12

                                 =34,000×5/100×3.5/12=250

 

Page No 2.88:

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, 2020. Calculate interest on drawings @ 5% p.a. for a period of six months.

Answer:

Total Drawings= 4,000×6=24,000

Average month = Time left after first drawing + Time left 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

 

Page No 2.88:

Question 41:

Calculate interest on drawings of Ashok @ 10% p.a. for the year ended 31st March, 2021, 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

 

Page No 2.88:

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 2020-21 were:

(i) Tisha withdrew `25,000 at the end of each quarter.

(ii) Divya's drawings were:

31st May, 2020	`20,000
1st November, 2020	`17,500
1st February, 2021	`12,500

Calculate interest on partners' capitals@ 10% p.a. and interest on partners' drawings@ 6% p.a. for the year ended 31st March, 2021.

 

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

Date of Drawings	Drawings	Time left after Drawing	Product
31-5-2020	20,000	10	2,00,000
1-11-2020	17,500	5	87,500
1-2-2021	12,500	2	25,000
			3,12,500

 

Divya’s Interest on Drawings = 3,12,500×6/100×1/12=1,563

 

Calculation of Interest on Capital

 

Calculation of opening Capital

	Tisha	Divya
Closing Capital Add; Drawings	10,00,000 1,00,000	7,50,000 50,000
Less: Profit	11,00,000 2,50,000	8,00,000 2,50,000
Opening Capital	8,50,000	5,50,000

 

Tisha’s Interest on Capital = 8,50,000×10/100=85,000

Divya’s Interest on Capital = 5,50,000×10/100=55,000

 

Page No 2.89:

Question 43:

Amit and Vijay started a partnership business on 1st April, 2020. 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, 2021 was `2,16,000. Interest on drawings amounted to `2,200 for Amit and `2,500 for Vijay.
Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2021
Dr.					Cr.
Particulars		Amount ( `)	Particulars		Amount ( `)
Interest on Capital:			Profit and Loss A/c (Net Profit)		2,16,000
Amit’s Capital A/c	20,000		Interest on Drawings A/c:
Vijay’s Capital A/c	15,000	35,000	Amit’s Capital A/c	2,200
Salary to:			Vijay’s Capital A/c	2,500	4,700
Amit (2,000 × 12)	24,000
Vijay (3,000 × 12)	36,000	60,000
Profit transferred to:
Amit’s Capital A/c	75,420
Vijay’s Capital A/c	50,280	1,25,700
		2,20,700			2,20,700

Working Notes:

WN 1 Calculation of Interest on Capital

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

 

Page No 2.89:

Question 44:

Prepare Capital Accounts of the Partners Ajay and Sanjay from the following information, If their capitals are fluctuating: 

	Ajay ( `)	Sanjay ( `)
Capital on 1st April, 2020	4,00,000	3,00,000
Drawings during the year ended 31st march, 2021	50,000	30,000
Interest on Capital	5% p.a.	5% p.a.
Interest on Drawings	1,250	750
Share of Profit for the year ended 31st march, 2021	60,000	50,000
Partner's Salary	36,000	.....
Commission	5,000	3,000

Answer:

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

 

Working Note:

 

Calculation of Interest on Capital

Interest on Ajay’s capital = 4,00,000×5/100=20,000

Interest on Sanjay’s capital = 3,00,000×5/100=15,000

 

Page No 2.89:

Question 45:

A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2020, their capitals were: A `50,000 and B `30,000. During the year ended 31st March, 2021 they earned a net profit of `50,000. The terms of partnership are:
(a) Interest on capital is to allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of `500 per month.
(d) B will get commission of 5% on profits after deduction of all expenses including such commission.
Partners' drawings for the year were: A `8,000 and B `6,000. Turnover for the year was `3,00,000.
After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners' Capital Accounts.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
Interest on  Capital:			Profit and Loss A/c (Net Profit)	50,000
A’s Capital A/c	3,000
B’s Capital A/c	1,800	4,800
B’s Salary (500 × 12)		6,000
Partner’s  Commission
A’s Capital A/c	6,000
B’s Capital A/c	1,581	7,581
Profit transferred to:
A’s Capital A/c	23,714
B’s Capital A/c	7,905	31,619
		50,000		50,000

 

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

Working Notes:

WN 1 Calculation of Interest on Capital

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

Page No 2.89:

Question 46:

Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2020 their Capitals were: Sajal – `5,00,000 and Kajal – `4,00,000.
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  ` 3,00,000.
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal  ` 1,00,000 and Kajal  ` 80,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
Profit, before a effecting to the above, for year ended 31st,2021 is 7,02,600.

Answer:

Profit and Loss Account for the year ended 31st March, 2021
Dr.			Cr.
Particulars	Amount ( `)	Particulars	Amount ( `)
Interest on Kajal’s loan@ 6% p.a.	18,000	Profit	7,02,600
Profit transferred to P/L Appropriation A/c	6,84,600
	70,260		70,260

 

Profit and Loss Appropriation Account for the year ended 31st  March,  2021
Dr.					Cr.
Particulars		Amount ( `)	Particulars		Amount ( `)
Interest on Capital A/c:			Profit and Loss A/c		6,84,600
Sajal’s Capital A/c	25,000
Kajal’s Capital A/c	20,000	45,000	Interest on Drawings A/c:
			Sajal’s Capital A/c	3,000
Reserve		64,500	Kajal’s Capital A/c	2,400	5,400
Profit transferred to:
Sajal’s Capital A/c	3,87,000
Kajal’s Capital A/c	1,93,500	5,80,500
		6,90,000			6,90,000

 

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Sajal ( `)	Kajal ( `)		Particulars	Sajal ( `)	Kajal ( `)
Drawings A/c	1,00,000	8,000		Balance b/d	5,00,000	4,00,000
Interest on Drawings A/c	3,000	2,400		Interest on Capital A/c	25,000	20,000
				P&L Appropriation A/c	3,87,000	1,93,500
Balance c/d	8,09,000	5,31,100
	9,12,000	6,13,500			9,12,000	6,13,500

Working Notes:

WN 1 Calculation of Interest on Capital

Interest on Sajal’s capital=5,00,000×5/100=25,000

Interest on Kajal’s capital=2,00,000×5/100=20,000

 

WN 2 Calculation of Interest on Drawings

Interest on Sajal’s Drawing=1,00,000×6/100×6/12=3,000

Interest on Kajal’s Drawing=80,000××6/100×6/12=2,400

 

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

= 6,84,600 + 5,400 - 45,000 = ` 6,45,000

Amount of reserve =6,45,000×10/100=64,500

 

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 6,84,600 + 5,400- ` 45,000- ` 64,500 = ` 5,80,500

Profit sharing ratio = 2 : 1

Sajal’s profit share = 5,80,500×2/3=3,87,000

kajal’s profit share = 5,80,500×1/3=1,93,500

 

Page No 2.89:

Question 47:

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, 2020 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, 2020 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, 2020
Dr.					Cr.
Particulars			Amount ( `)	Particulars	Amount ( `)
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

 

Page No 2.90:

Question 48:

A, B and C were partners in a firm having capitals of  ` 50,000 ;  ` 50,000 and  ` 1,00,000 respectively. Their Current Account balances were A:  ` 10,000; B:  ` 5,000 and C:  ` 2,000 (Dr.). According to the Partnership Deed the partners were entitled to an interest on Capital @ 10% p.a. C being the working partner was also entitled to a salary of  ` 12,000 p.a. The profits were to be  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:

Profit and Loss Appropriation Account
Dr.							Cr.
Particulars			Amount ( `)	Particulars			Amount ( `)
Interest on  Capital:				Profit and Loss A/c (Net Profit)			1,72,000
A’s Current A/c		5,000
B’s Current A/c		5,000
C’s Current A/c		10,000	20,000
Salary to C			12,000
Profit transferred to:
A’s Current A/c		50,000
B’s Current A/c		44,000
C’s Current A/c		46,000	1,40,000
			1,72,000				1,72,000
Journal Entries
Date	Particulars					L.F.	Debit Amount ( `)	Credit Amount ( `)
	Interest on Capital A/c				Dr.		20,000
	To A’s Current A/c							5,000
	To B’s Current A/c							5,000
	To C’s Current A/c							10,000
	(Interest on partners’ capital allowed to partners)
	Salary A/c				Dr.		12,000
	To C’s Current A/c							12,000
	(Salary allowed to C)
	Profit and Loss Appropriation A/c				Dr.		1,40,000
	To A’s Current A/c							50,000
	To B’s Current A/c							44,000
	To C’s Current A/c							46,000
	(Profit available for distribution transferred to partners’ current accounts)

 

Working Notes:

 

WN 1 Calculation of Interest on Capital

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

 

Page No 2.90:

Question 49:

A, B and C are partners sharing profits and losses in the ratio of A 1/2, B 3/10, C 1/5 after providing for interest @ 5% on their respective capitals, viz., A  ` 50,000; B  ` 30,000 and C  ` 20,000 and allowing B and C a salary of  ` 5,000 each per annum. During the year ended 31st March, 2021, A has drawn ` 10,000 and B and C in addition to their salaries have drawn ` 2,500 and ` 1,000 respectively. Profit and Loss Account for the year ended 31st March, 2020 showed a net profit of ` 45,000. On 1st April, 2020, the balances in the Current Accounts of the partners were A (Cr.) `4,500; B (Cr.)  ` 1,500 and C (Cr.)  ` 1,000. Interest is not charged on Drawings or Current Account balances. Show Partners' Capital and Current Accounts as at 31st March, 2021 after division of profits in accordance with the partnership agreement.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2021
Dr.						Cr.
Particulars				Amount ( `)	Particulars	Amount ( `)
Interest on Capital:					Profit and Loss A/c	45,000
A’s Current A/c			2,500
B’s Current A/c			1,500
C’s Current A/c			1,000	5,000
Salary to:
B’s Current A/c			5,000
C’s Current A/c			5,000	10,000
Profit transferred to:
A’s Current A/c	15,000
B’s Current A/c		9,000
C’s Current A/c		6,000		30,000
				45,000		45,000

 

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

 

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

Working Notes:

WN 1 Calculation of Interest on Capital

Interest on A’s capital=50,000×5/100=2,500

Interest on B’s capital=30,000×5/100=1,500

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

 

WN 2 Calculation of Profit Share of each Partner

Profit available for Distribution = 45,000 -` 15,000 = ` 30,000

    A’s profit share=30,000×1/2=15,000

    B’s profit share=30,000×3/10=9,000

    C’s profit share=30,000×1/5=6,000

 

Page No 2.90:

Question 50:

Amit, Binita and Charu are three partners. On 1st April, 2020, 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, 2021 was `5,00,000.
Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2021
Dr.					Cr.
Particulars			Amount ( `)	Particulars	Amount ( `)
Interest on Capital:				Profit and Loss A/c (Net Profit)	5,00,000
Amit’s Capital A/c	5,000
Binita’s Capital A/c	10,000
Charu’s Capital A/c	15,000		30,000
Salary to Amit (10,000 × 12)			1,20,000
Commission to Binita			23,810
General Reserve			50,000
Profit transferred to:
Amit’s Capital A/c		92,063
Binita’s Capital A/c		92,063
Charu’s Capital A/c		92,064	2,76,190
			33,360		33,360

 

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

Working Notes:

WN 1 Calculation of Interest on Capital

Interest on Amit=1,00,000×5/100=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 ×Rate/100+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 = 2,76,190×13= ` 92,063

Page No 2.90:

Question 51: 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:

	Profit and Loss Appropriation Account
Dr.							Cr.
Particulars			Amount `	Particulars			Amount `
Interest on Capital:				Profit and Loss A/c (Net Profit)			2,53,000
Yadu’s Current A/c Vidu’s Current A/c		54,000 30,000		Interest on Capital:
Radhu’s Current A/c		24,000	1,08,000	Yadu’s Current A/c Vidu’s Current A/c		3.200 2,800
				Radhu’s Current A/c		2,000	8,000
Profit transferred to:
Yadu’s Current A/c Vidu’s Current A/c		61,200 45,900
Radhu’s Current A/c		45,900	1,53,000
			2,61,000				2,61,000

 

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

 

Page No 2.91:

Question 52;

Kabir, Zoravar and Parul are partners sharing prohts in the ratio of 5 :3 :2.Their capitals as on 1st April, 2020 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, 2021 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, 2021.

 

Answer;

Profit and loss appropriation account year ended 31 March
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- 60,000×5/100×6/12=1,500 Zoravar-60,000×5/100×6/12=1,500 Parul-60,000×5/100×6/12=1,500	1,55,500 4,500
	1,60,000		1,60,000

 

Working note;

Items to be allowed	Kabir	Zoravar	Parul
Interest on Capital@5%	26,000	16,000	10,000
Salary	24,000	24,000	-
Commission	-	-	1,00,000
Each partner getting in total	50,000	40,000	1,10,000

 

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

 

Page No 2.91:

Question 53:

X and Y entered into partnership on 1st April, 2018. Their capitals as on 1st April, 2020 were `2,00,000 and  `1,50,000 respectively. On 1st October, 2020, 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, 2021 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, 2021
Dr.						Cr.
Particulars			Amount ( `)	Particulars		Amount ( `)
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 × 20/100 = ` 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

 

Page No 2.91:

Question 54: Ram and Shyam are partners in a firm sharing profits in the ratio of 3:2. On 1st April, 2020, their fixed capitals were `3,00,000 and `2,50,000 respectively. On 1st October, they decided that their total capital (Fixed) should be `6,00,000 in their profit-sharing ratio. Accordingly, they introduced extra capital or withdrew excess capital. The Partnership Deed provided for the following:

(i) Interest on capital @ 12% p.a.

(ii) Interest on Drawings @ 18% p.a.

(iii) A monthly salary of `2,000 to Ram and a quarterly salary of `4,500 to Shyam.

The drawings of Ram and Shyam were as follows:

Particulars	Ram `	Shyam `
On 31th September, 2020 On 31st December, 2020	20,000 20,000	15,000 25,000

During the year ended 31st March, 2021, the firm earned a net profit of `1,50,000. 10% of this profit was

to be transferred to General Reserve.

You are required to prepare:

(i) Profit and Loss Appropriation Account;

(Ii) Partners' Capital Accounts, and Partners' Current Accounts.

Answer:

 

	Profit and Loss Appropriation Account
Dr.							Cr.
Particulars			Amount `	Particulars			Amount `
General Reserve A/c WN1			15,000	Profit and Loss A/c (Net Profit)			1,50,000
Interest on Current: WN2				Interest on Capital: WN3
Ram’s Current A/c Shyam’s Current A/c		39,600 29,400	69,000	Ram’s Current A/c		2,700
Salary A/c				Shyam’s Current A/c		2,475	5,175
Ram’s Current A/c Shyam’s Current A/c			24,000 18,000
Ram’s Current A/c Shyam’s Current A/c		17,505 11,670	29,175
			1,55,175				1,55,175

 

Partners’ Capital A/c
Particulars	Ram `	Shyam `	Particulars	Ram `	Shyam `
To Bank A/c To Balance C/d	- 3,60,00	10,000 2,40,000	By Balance B/d By Bank A/c	3,00,000 60,000	2,50,000 -
	3,60,000	2,50,000		3,60,000	2,50,000
Partners’ Current A/c
Particulars	Ram `	Shyam `	Particulars	Ram `	Shyam `
To Drawings A/c To Interest on Drawing A/c To Balance C/d	40,000 2,700 38,405	40,000 2,475 16,595	By Interest on Capital A/c By Salary A/c By P&L Appropriation A/c	39,600 24,000 17,505	29,400 18,000 11,670
	81,105	59,070		81,105	59,070

Working Notes:

WN1

Amount of General Reserve = 1,50,000×10/100=15,000

 

WN2 Calculation of Interest on Capital

 

Ram’s Interest on Capital for first 6 Month	3,00,000×12/100×6/12	18,000
for Second 6 Month	3,60,000×12/100×6/12	21,600
		39,600
Shyam’s Interest on Capital for first 6 Month	2,50,000×12/100×6/12	15,000
for Second 6 Month	2,40,000×12/100×6/12	14,400
		29,400

 

WN3 Calculation of Interest on Drawings

Ram’s Interest on Drawings

Date of Drawings	Drawings	Time left after Drawing	Product
31-9-2020	20,000	6	1,20,000
31-12-2021	20,000	3	60,000
			1,80,000

 

Ram’s Interest on Drawings=1,80,000×18/100×1/12=2,700

 

Shyam’s Interest on Drawings

Date of Drawings	Drawings	Time left after Drawing	Product
31-9-2020	15,000	6	90,000
31-12-2021	25,000	3	75,000
			1,65,000

 

Shyam’s Interest on Drawings =1,65,000×18/100×1/12=2,475

 

WN4 Distribution of profits

Ram = 29,175×3/5=17,505

Shyam = 29,175×2/5=11,670

 

Page No 2.92:

Question 55:

Reya, Mona and Nisha shared profits in the ratio of 3 : 2 : 1. The profits for the last three year were  ` 1,40,000;  ` 84,000 and  ` 1,06,000 respectively. These profits were by mistake shared equally for all the give necessary Journal entry for the same.

Answer:

Journal
Particulars		L.F.	Debit Amount `	Credit Amount `
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

Page No 2.92:

Question 56:

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.

(Outside Delhi 2017)

Answer:

Adjusting Journal Entry

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

Working Notes:

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

 

Page No 2.92:

Question 57:

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 ×	5/100	=  `2,000
Benny	=	80,000 ×	5/100	=  `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)

 

Page No 2.92:

Question 58:

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, 2021, interest was credited to them @ 6% instead of 5%.
Give adjustment Journal entry.

Answer:

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

 

Page No 2.92:

Question 59:

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, 2021, 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 Amount ( `)	Credit Amount ( `)
2020 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

 

Page No 2.92:

Question 60:

Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2021 after closing the books of account, their Capital Accounts stood at  ` 4,80,000 and  ` 6,00,000 respectively. On 1st May, 2020, Simrat introduced an additional capital of  ` 1,20,000 and Bir withdrew  ` 60,000 from his capital. On 1st October, 2020, 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, 2021 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

 

Page No 2.93:

Question 61:

Profit earned by a partnership firm for the year ended 31st March, 2021 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 Amount ( `)	Credit Amount ( `)
	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

 

Page No 2.93:

Question 62: 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	Total
Interest on Drawing Wrongly Debited	1,080	-	1,440	2,520
Profits to be credited	1,260	630	630	2,520
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=2,520)

Ram =  2,520×2/4=1,260

Mohan =2,520×1/4=630

Sohan = =2,520×1/4=630

 

Page No 2.93:

Question 63:

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

Answer:

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

 

Page No 2.93:

Question 64;

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, B 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
Working note;  Correct Profit and loss appropriation account year ended 31 March
Particulars		`	Particulars			`
To C’s Salary 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
		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	40,920	13,333	15,160	80,000	80,000
Net effect	16,080			14,253		1,827	Nil

 

Page No 2.93:

Question 65:

On 31st March, 2021, 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, 2021 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.

Pass necessary adjustment entry.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
2020 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, 2019)

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

WN 2 Calculation of Interest on Capital

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
	Dr.	Cr.	Cr.

Page No 2.93

Question 66:

 Mohan, Vijay and Anil are partners, the balances of their Capital Accounts being ` 30,000, ` 25,000 and ` 20,000 respectively. In arriving at these amounts profit for the year ended 31st March, 2021, ` 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 Amount ( `)	Credit Amount ( `)
2020 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=15,000×10/100=1,500

 

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

 

Page No 2.94

Question 67:

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, 2018 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 Amount ( `)	Credit Amount ( `)
2019
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

Page No 2.94

Question 68:

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.

(Delhi 2017C)

Answer:

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

 

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

 

Working Notes:

 

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

 

Page No 2.94

Question 69;

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/c      To Qadir’s  current      A/c (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

 

Page No 2.94

Question 70:

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 2021:

Liabilities		`	Assets		`
Mannu’s Capital	3,00,000		Drawings:
Shristhi’s Capital	1,00,000	4,00,000	Mannu	40,000
			Shristhi	20,000	60,000
			Other Assets		3,40,000
		4,00,000			4,00,000

Profit for the year ended 31st March, 2021 was  ` 50,000 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 Amount ( `)	Credit Amount ( `)
2021 Mar.31	Shrishti's Capital A/c	Dr.		2,880
	To Mannu's Capital A/c				2,880
	(Adjustment of profit made)

Adjustment of Profit

	Mannu’s	Shrishti		Total
Interest on Capital	15,000	5,000	=	20,000
Less: Interest on Drawings	(1,200)	(600)	=	(1800)
Right distribution of ` 18,200	13,800	4,400	=	18,200
Less: Wrong distribution of ` 18,200 (3 : 2)	(10,920)	(7,280)	=	(18,200)
Adjusted Profit	2,880	(2,880)	=	NIL

Page No 2.95

Question 71;

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.  (CBSE 2019)

 

Answer;

 

Date	Particulars		L.F.	Dr. `	Cr. `
31 March	Bobby’s  Capital      A/c          To Abhir’s  Capital      A/c               To Vineet’s  Capital      A/c     (Being omission of salary , wrong interest on capital credited , now profit corrected)		Dr.	14,402	10,112 4,290
	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
Interest on Capital @10p.a.	98,000	64,000	47,000

Total Interest on Capital= 98,000+64,000+47,000=2,09,000

 

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

Total interest on Drawing=13,600

 

Total profit after Interest on drawing=1,50,000+13,600=1,63,600

Interest on Drawing is `1,63,600 which is less than 2,09,000

therefore, Interest on capital can be given up to the extent of Profit In the ratio of Interest on Capital

Ratio of Interest on capital is 98,000:64,000:4,7000=98:64:47

Abhir= 1,63,600×98/209 = 76,712

Bobby= 1,63,600×64/209 = 50,098

Vineet = 1,63,600×47/209 = 36,790

Statement Adjustment
Particulars	Abhir	Bobby	Vineet
Interest on capital omitted Interest on Drawing omitted	76,712 6,600	50,098 4,500	36,790 2,500
Net amount to be Credited Net loss of above omission	70,112 60,000	45,598 60,000	34,290 30,000
Net effect	10,112	14,402	4,290
	Cr,	Dr,	Cr.

 

Page No 2.95

Question 72:

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.

(Delhi 2015)

Answer:

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

Working Notes:
 

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

 

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

 

Page No 2.95

Question 73:

Capitals of kajal, Neerav and Alisha as on 31st March, 2021 amounted to ` 90,000,  ` 3,30,000 and  ` 6,60,000 respectively. Profit of `1,80,000 for the year ended 31st March, 2021 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 kajal, Neerav and Alisha Journal
Date	Particulars			L.F.	Debit Amount ( `)	Credit Amount ( `)
2020 Mar.31	Kajal’s Capital A/c		Dr.		66,000
	To Neerav’s Capital A/c					30,000
	To Alisha’s Capital A/c					36,000
	(Being adjustment made for interest on capital and profits)

 

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 ( `)
Opening Capital	x	y	z
Interest on Capital @10%=10/100=0.1	0.1x	0.1y	0.1z
Add: Profit	1,20,000	30,000	30,000
Less: Drawings	3,60,000	3,60,000	3,60,000
Closing Capital	90,000	3,30,000	6,60,000

 

Calculation of Opening Capital

Kajal	=	x+0.1x+1,20,000-3,60,000=90,000
x	=	90,000+3,60,000-1,20,000/1.1
x	=	3,00,000
Neerav	=	y+0.1y+30,000-3,60,000=3,30,000
y	=	3,30,000+3,60,000-30,000/1.1
y	=	6,00,000
Alisha	=	z+0.1z+30,000-3,60,000=6,60,000
z	=	6,60,000+3,60,000-30,000/1.1
z	=	9,00,000

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

 

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.)	30,000		60,000		90,000			1,80,000
Interest on Capital to be provided @12% p.a. (Cr.)		36,000		72,000		1,08,000	2,16,000
Profits to be credited in the ratio 1:1:1 (Cr.)		48,000		48,000		48,000	1,44,000
	1,50,000	84,000	90,000	1,20,000	1,20,000	1,56,000	3,60,000	3,60,000
Balance to be adjusted	66,000 (Dr.)		30,000 (Cr.)		36,000 (Cr.)		NIL

 

Page No 2.95

Question 74:

Capital Accounts of A and B stood at  ` 4,00,000 and  ` 3,00,000 respectively after necessary adjustments in respect of the drawings and the net profit for the year ended 31st March, 2021. It was subsequently noticed that 5% p.a. interest on capital and also drawings were not taken into account in arriving at the distributable profit. The drawings of the partners had been: A –  ` 12,000 drawn at the end of each quarter and B –  ` 18,000 drawn at the end of each half year.

The profit for the year as adjusted amounted to  ` 2,00,000. The partners share profits in the ratio of 3 : 2. You are required to pass Journal entries and show adjusted Capital Accounts of the partners.

Answer:

Journal
Date	Particulars		L. F.	Debit Amount ( `)	Credit Amount ( `)
2020	P&L Adjustment A/c	Dr.		29,200
Mar.31	To A's Capital A/c				16,400
	To B's Capital A/c				12,800
	(Interest on capital omitted, now provided)
	A's Capital A/c	Dr.		900
	B's Capital A/c	Dr.		450
	To P&L Adjustment A/c				1,350
	(Interest on drawings omitted, now charged)
	A's Capital A/c	Dr.		16,710
	B's Capital A/c	Dr.		11,140
	To P&L Adjustment A/c (29,200 – 1,350)				27,850
	(Loss on adjustment is distributed between the partner)

 

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

Working Notes:

WN 1 Calculation of Capital as on April 01, 2019 (Opening Capital)

Particulars	A	B	Total
Capital as on March 31, 2020 (Closing)	4,00,000	3,00,000	7,00,000
Add: Drawings	48,000	36,000	84,000
Less: Profit (3:2)	(1,20,000)	(80,000)	(2,00,000)
Capital as on April 01, 2019 (Opening)	3,28,000	2,56,000	5,84,000

WN 2 Calculation on Interest on Capital
Interest on A’s capital=3,28,000×5/100=16,400

Interest on B’s capital=2,56,000×5/100=12,800

WN 3 Calculation of Interest on Drawings
Interest on A’s Drawing =48,000×5/100×4.5/12=900

Interest on B’s Drawing =36,000×5/100×3/12=450

 

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

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

Working Notes: Statement Showing Adjustment

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

 

Page No 2.96

Question 75:

The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit-sharing ratio should come into effect retrospectively were for the three years. Harry and Porter have agreement on this account. The profits for the last three years were:

Year	2019	2020	2021
Profit ( `)	2,20,000	2,40,000	2,90,000

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

Answer:

Journal (Adjusting entry)

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

 

Distribution of Profit
 

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

Page No 2.96

Question 76:

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			Amount ( `)	Particulars	Amount ( `)
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)

 

Page No 2.96

Question 77

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, 2021 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;

 

Profit and loss appropriation account for year ended 31 March
Particulars	`	Particulars	`
To Profit A-     1,80,000-20,000   =1,60,000 B-     90,000-10,000     =  80,000 C-     45,000+30,000    =75,000	3,15,000	By net profit	3,15,000
	3,15,000		3,15,000

 

Note; initial profit distributed 30,000 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-    1,80,000-20,000   =1,60,000 B-    90,000-10,000     =  80,000 C-    45,000+30,000     = 75,000

3,15,000

 

Page No 2.96

Question 78:

X, Y and Z entered into partnership on 1st October, 2020 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, 2021 was  ` 1,60,000. Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
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, 2019 and Profit is ascertained on March 31, 2021, therefore, interest on capital is calculated for 6 months and guaranteed amount is considered as ` 40,000 (half of the total amount).

 

Page No 2.96

Question 79:

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 2021 was `40,000.
Pass necessary Journal entries in the books of the firm.

Answer:

Profit and Loss Appropriation Account for the year ended 2020–21
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
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

 

Page No 2.96

Question 80:

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, 2020 and 2021 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, 2020
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
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, 2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
Profit transferred to:			Profit and Loss A/c (Net Profit)	6,00,000
A’s Capital A/c	2,40,000
B’s Capital A/c	2,40,000
C’s Capital A/c	1,20,000	6,00,000
		6,00,000		6,00,000

Working Notes:

WN 1 Distribution of Profit for the year 2019-20

Profit for 2020 = ` 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 2020-21

Profit for 2021 = ` 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

Page No 2.96

Question 81:

A, B and C are partners in a firm sharing profits in the ratio of 3 : 2 : 1. They earned a profit of  ` 30,000 during the year ended 31st March, 2021.  Distribute profit among A, B and C if:
(a) C's share of profit is guaranteed to be  ` 6,000 Minimum.
(b) Minimum profit payable to C amounting to  ` 6,000 is guaranteed by A.
(c) Guaranteed minimum profit of  ` 6,000 payable to C is guaranteed by B.
(d) Any deficiency after making payment of guaranteed  ` 6,000 will be borne by A and B in the ratio of 3 : 1.

Answer:

Case (a)

Profit and Loss Appropriation Account for the year ended 31st March, 2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
Profit transferred to:			Profit and Loss A/c	30,000
A’s Capital A/c	14,400
B’s Capital A/c	9,600
C’s Capital A/c	6,000	30,000
		30,000		30,000

Working Notes:

 

Profit = ` 30,000

Profit sharing ratio = 3 : 2 : 1

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

A’s profit share= 30,000×3/6=15,000

B’s profit share= 30,000×2/6=10,000

C’s profit share= 30,000×1/6=5,000

Deficiency in C’s Profit Share = 6,000- ` 5,000 = ` 1,000

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

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 = 15,000 -` 600 = ` 14,400

Final Profit Share of B = 10,000 -` 400 = ` 9,600

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

Case (b)

Profit and Loss Appropriation Account for the year ended 31st  March,  2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
Profit transferred to:			Profit and Loss A/c	30,000
A’s Capital A/c	14,000
B’s Capital A/c	10,000
C’s Capital A/c	6,000	30,000
		30,000		30,000

Working Notes:

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

This deficiency is to be borne by A only.

Therefore,

Final Profit Share of A = 15,000- ` 1,000 = ` 14,000

Final Profit Share of B = 10,000

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

Case (c)

Profit and Loss Appropriation Account for the year ended 31st  March,  2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
Profit transferred to:			Profit and Loss A/c	30,000
A’s Capital A/c	15,000
B’s Capital A/c	9,000
C’s Capital A/c	6,000	30,000
		30,000		30,000

Working Notes:

Deficiency in C’s Profit Share = 6,000-` 5,000 = ` 1,000

This deficiency is to be borne by B only.

Therefore,

Final Profit Share of A = 15,000

Final Profit Share of B = 10,000 - ` 1,000 = ` 9,000

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

Case (d)

Profit and Loss Appropriation Account for the year ended 31st  March,  2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
Profit transferred to:			Profit and Loss A/c	30,000
A’s Capital A/c	14,250
B’s Capital A/c	9,750
C’s Capital A/c	6,000	30,000
		30,000		30,000

Working Notes:

Deficiency in C’s Profit Share = 6,000 - ` 5,000 = ` 1,000

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

Deficiency is to be borne by A= 1000×3/5=750

Deficiency is to be borne by B= 1000×1/5=250

Therefore,

Final Profit Share of A = 15,000 - 750 = ` 14,250

Final Profit Share of B = 10,000 - 250 = ` 9,750

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

 

Page No 2.97

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: 2019 Profit `1,20,000; 2020 Profit `1,80,000; 2021 Loss `1,20,000.
Pass the necessary Journal entries in the books of the firm.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (`)	Credit Amount (`)
2019	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)
2021	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 2018-19, 

R's actual share of profit = 1,20,000 ×5/25=` 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 2018-19, 

This deficiency is to be borne by P=6,000×12/20=3,600

This deficiency is to be borne by Q=6,000×8/20=2,400

 

WN2: R's actual share of profit = 1,80,000×5/25=` 36,000

This implies that there is no deficiency in R's profit share as his actual share exceeds his minimum

guaranteed share. For 2020-21,

 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.

Page No 2.97

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, 2020, 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, 2021 amounted to  ` 2,25,000.

You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2021.

Answer:

Profit and Loss Appropriation Account for the year and March 31, 2021
Dr.				Cr.
Particulars		Amount ( `)	Particulars	Amount ( `)
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

 

Page No 2.97

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, 2020. 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.

Dholu'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.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2021.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2021
Dr.				Cr.
Particulars		Amount `	Particulars	Amount `
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

 

Page No 2.97

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.

Answer:

In the books of Mudit, Sudhir and Uday Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
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

Page No 2.97

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 Amount (`)	Credit Amount (`)
	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			Amount `	Particulars		Amount `
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

 

Page No 2.98

Question 87:

Ankur, Bhavns and Disha are partners in a firm. On 1st April, 2020, 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, 2021 amounted to  ` 9,50,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2021.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2021
Dr.				Cr.
Particulars		Amount `	Particulars	Amount `
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 = 7,20,000×2/12=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

 

Page No 2.98:

Question 88:

Three Chartered Accountants Abhijit, Baljit and Charanjit form a partnership, profits being shared in the ratio of 3 : 2 : 1 subject to the following:
(a) Charanjit's share of profit guaranteed to be not less than  ` 15,000 p.a.
(b) Baljit 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 Baljit for the firm is `16,000. You are required to show Profit and Loss Appropriation Account after giving effect to the above.

Answer:

Profit and Loss Appropriation Account
Dr.				Cr.
Particulars		Amount `	Particulars	Amount `
Profit transferred to:			Profit and Loss A/c (Net Profit)	75,000
Abhijit’s Capital A/c	41,400		B’s Capital A/c
Baljit’s Capital A/c	18,600		(Deficiency in Revenue)	9,000
Charanjit’s Capital A/c	15,000	84,000
		84,000		84,000

Working Notes:

Deficiency in revenue guaranteed by Baljit = 25,000 - ` 16,000 = `9,000

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

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

Profit sharing ratio = 3 : 2 : 1

Abhijit’s profit share=84,000×3/6=42,000

Baljit’s profit share=84,000×2/6=28,000

Charanjit’s profit share=84,000×1/6=14,000

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

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

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

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

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

Final Profit Share of Baljit = 28,000 - 400 = `27,600-9,000=18,600

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