NCERT Solutions for Class 12 Commerce Accountancy Chapter 2 Accounting For Partnership : Basic Concepts are provided here with simple step-by-step explanations. These solutions for Accounting For Partnership : Basic Concepts are extremely popular among Class 12 Commerce students for Accountancy Accounting For Partnership : Basic Concepts Solutions come handy for quickly completing your homework and preparing for exams. All questions and answers from the NCERT Book of Class 12 Commerce Accountancy Chapter 2 are provided here for you for free. You will also love the ad-free experience on Meritnation’s NCERT Solutions. All NCERT Solutions for class Class 12 Commerce Accountancy are prepared by experts and are 100% accurate.

#### Question 1:

Define Partnership Deed.

#### Answer:

Partnership Deed is a written agreement among the partners of a partnership firm. It includes agreement on profit sharing ratio, salaries, commission of partners, interest provided on partner's capital and drawings and interest on loan given or taken by the partners, etc. Generally following details are included in a partnership deed.

1. Objective of business of the firm

2. Name and address of the firm

3. Name and address of all partners

4. Profit and loss sharing ratio

5. Contribution to capital by each partner

6. Rights, types of roles and duties of partners

7. Duration of partnership

8. Rate of interest on capital, drawings and loans

9. Salaries, commission, if payable to partners.

10. Rules regarding admission, retirement, death and dissolution of the firm, etc.

#### Question 2:

Why it is considered desirable to make the partnership agreement in writing.

#### Answer:

Partnership agreement may be oral or written. It is not compulsory to form partnership agreement in writing under the Partnership Act, 1932. However, written partnership deed is desirable than oral agreement as it helps in avoiding disputes and misunderstandings among the partners. Also, it helps in settling disputes (as the case may be) among the partners, as written partnership deed can be referred to anytime. If written partnership deed is duly signed and registered under Partnership Act, then it can be used as evidence in the court of law.

#### Question 3:

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

(i) Capitals are fixed

(ii) Capitals are fluctuating

#### Answer:

(i)When Capitals are fixed

The following items are credited in the Partner's Capital Account when capital accounts are fixed.

(a) Opening balance of capital

(b) Additional capital introduced during an accounting year

The following items are debited in the Partner's Capital Account when capital accounts are fixed.

(a) Part of capital withdrawn

(b) Closing balance of capital

(ii) When Capitals are fluctuating

The following items are credited in the Partner's Capital Account when capital accounts are fluctuating.

(a) Opening balance of capital.

(b) Additional capital introduced during an accounting year

(c) Salaries to the partners

(d) Interest on capital

(e) Share of profit

(f) Commission and bonus to the partners

The following items are debited in the Partner's Capital Account when capital accounts are fluctuating.

(a) Drawings made during the accounting period

(b) Interest on drawings.

(c) Share of loss.

(d) Closing balance of capital.

#### Question 4:

Why is Profit and Loss Adjustment Account prepared? Explain.

#### Answer:

The Profit and Loss Adjustment Account is prepared because of the following two reasons.

1. To record omitted items and rectify errors if any- After the preparation of Profit and Loss Account and Balance Sheet, if any error or omission is noticed, then these errors or omissions are adjusted by opening Profit and Loss Adjustment Account in the subsequent accounting period without altering old Profit and Loss Account.

2. To distribute profit or loss between the partners- Sometimes, besides adjusting the items and rectifying errors, this account is also used for distribution of profit (or loss) among the partners. In this situation, this account acts as a substitute for Profit and Loss Appropriation Account. The main rationale to prepare the Profit and Loss Adjustment Account is to ascertain true profit or loss.

#### Question 5:

Give two circumstances under which the fixed capitals of partners may change.

#### Answer:

The following are the two circumstances under which the fixed capitals of partner may change.

(i) If any additional capital is introduced by the partner during the year.

(ii) If any part of capital is permanently withdrawn by the partner from the firm.

#### Question 6:

If a fixed amount is withdrawn on the first day of every quarter, for what period

the interest on total amount withdrawn will be calculated?

#### Answer:

If a fixed amount is withdrawn on the first day of every quarter, then the interest is calculated on the amount withdrawn for a period of seven and half () months.

Example:

If a partner withdraws Rs 5,000 in the beginning of each quarter and the interest is charged @ 10% on the drawings, then interest on drawings is calculated as:

Total drawings made by the partner during the whole year are Rs 20,000, i.e. Rs 5000× 4.

Interest on drawings

#### Question 7:

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

(i) Sharing of profits and losses.

(ii) Interest on partner’s capital.

(iii) Interest on Partner’s drawings.

(iv) Interest on Partner’s loan

(v) Salary to a partner.

#### Answer:

(i) Sharing of profits and losses: If the partnership deed is silent on sharing of profit or losses among the partners of a firm, then according to the Partnership Act of 1932, profits and losses are to be shared equally by all the partners of the firm.

(ii) Interest on partner’s capital: If the partnership deed is silent on interest on partner’s capital, then according to the Partnership Act of 1932, no interest on capital should be given to the partners of the firm.

(iii) Interest on partner’s drawings: If the partnership deed is silent on interest on partner’s drawings, then according to the Partnership Act of 1932, no interest on drawing should be charged from the partners of the firm for the amount of capital withdrawn in form of drawings.

(iv) Interest on partner’s loan: If the partnership deed is silent on interest on partner’s loan, then according to the Partnership Act of 1932, the partners are entitled for 6% p.a. interest on the loan forwarded by them to the firm.

(v) Salary to a partner: If the partnership deed is silent on salary to a partner, then according to the Partnership Act of 1932, no salary should be given to any partner.

#### Question 1:

What is partnership? What are its chief characteristics? Explain.

#### Answer:

According to the Section 4 of the Partnership Act, 1932, partnership is an agreement between two or more persons who have agreed to share profits or losses of a business that will be carried by all or any one of them acting for all.

Person who joined their hands to set up the business are called ‘partners’ individually and ‘firm’ collectively and the name under which they carry out their business is termed as ‘firm name’.

Important Characteristics of Partnership

The following are the important characteristics of partnership.

1.Two or more persons: Partnership is an agreement between two or more persons coming together for a common goal. There should be at least two persons to form a partnership. Although as per the Partnership Act of 1932, there is no maximum limit on the number of partners in a partnership firm, but as per the Rule (10) of the Companies (Miscellaneous) Rules Act 2014, the maximum number of partners permissible is 50. Therefore, in case the number of partners exceeds the aforesaid limit, then the concerned partnership is considered to be illegal. In this regards it must be noted that Section 464 of Companies Act 2013, the maximum number of partners permissible is one humdred. However, it must be noted that the maximum number of partners is not limited in case an association or partnership is formed by professionals such as chartered accountants, lawyers, company secretaries, etc. These professionals are governed by their the special laws as formed by their respective professional institutions. Prior to the enforcement of Companies Act of 2013, the earlier act of 1956, imposed restrictions on the maximum number of partners to 10 in case of banking business and 20 in case of any other kind of business. However, with effect from April 01, 2014, Companies Act of 1956 has been replaced by Companies Act of 2013.

2.Partnership Deed: The partnership among the partners should be backed up by a partnership deed. A partnership deed is an agreement among the partners governing them in carrying out the proposed business. The deed may be oral or written.

3.Business: A partnership is formed to carry out a legal business. Partnerships in smuggling, black marketing etc. are illegal business activities and hence, the partnership is also illegal.

4. Sharing of profit: The profit or loss earned by a partnership firm must be distributed as per the partnership deed or equally among the partners (in absence of partnership deed). It is a very important feature of partnership. If a group is formed for charitable purpose, not to earn profit then this group will not be regarded as a partnership.

5.Liability: Liability of a partnership firm is unlimited and each partner is liable for firm’s liabilities whether individually and jointly with other partners to the third party. Moreover, each partner along with his/her co-partners is responsible for all the acts of the partnership firm.

6. Mutual agency: Partnership may be carried on by all or any one of them acting on behalf of all. It means all the partners of a firm are equally entitled to participate in the activities of the business or any one of them who is acting on behalf of all. Every partner acts as an agent for others and binds others by his/her act and in turn is bound by others by their act.

Note: In case of any question regarding the permissible limit on the maximum number of partners in a partnership firm, the students shall take the limit as 50.

#### Question 2:

Discuss the main provisions of the Indian Partnership Act, 1932 that are relevant to partnership accounts if there is no partnership deed.

#### Answer:

The following are the main provisions of the Indian partnership Act, 1932 that are relevant to the partnership accounts in absence of partnership deed.

1.Profit Sharing Ratio: If the partnership deed is silent on sharing of profit or losses among the partners of a firm, then according to the Partnership Act of 1932, profits and losses are to be shared equally by all the partners of the firm.

2.Interest on Capital: If the partnership deed is silent on interest on partner’s capital, then according to the Partnership Act of 1932, no interest on capital should be given to the partners of the firm. However, interest on capital is given only out of the profits, if mutually agreed by all the partners.

3.Interest on Drawings: If the partnership deed is silent on interest on partner’s drawings, then according to the Partnership Act of 1932, no interest on drawing should be charged from the partners of the firm for the amount of capital withdrawn in the form of drawings.

4.Interest on Partner’s Loan: If the partnership deed is silent on interest on partner’s loan, then according to the Partnership Act of 1932, the partners are entitled for 6% p.a. interest on the loan forwarded by them to the firm.

5.Salary to Partner: If the partnership deed is silent on salary to a partner, then according to the Partnership Act of 1932, no salary should be given to any partner.

#### Question 3:

Explain why it is considered better to make a partnership agreement in writing.

#### Answer:

A partnership deed forms the basis of a partnership firm. A partnership deed consists of all the pre-determined terms and conditions that are agreed to by all the partners while forming the partnership. Generally the following details are included in a partnership deed.

1. Objective of business of the firm

2. Name and address of the firm

3. Name and address of all partners

4. Profit and loss sharing ratio

5. Contribution to capital by each partner

6. Rights, types of roles and duties of partners

7. Duration of partnership

8. Rate of interest on capital, drawings and loans

9. Salaries, commission, if payable to partners.

10. Rules regarding admission, retiring, death and dissolution of the firm, etc. It ensures the

A partnership deed can both be oral or written. Although, it is not compulsory to form partnership agreement in writing under the Partnership Act of 1932, however, written partnership deed is more desirable than the oral agreements. This is because it ensures the smooth functioning of the business of the partnership firm. It helps in avoiding disputes and misunderstandings among the partners. Also, it helps in settling t the disputes (as the case may be) among the partners, as written partnership deed can be referred to anytime. If written partnership deed is duly signed and registered under Partnership Act, then it can be used as evidence in the court of law. Moreover, any changes (if needed) in the partnership deed cannot be made without the consent of all the partners of the firm. Therefore, it is desirable to form partnership deed in writing because of the merits associated with written documents over its oral counterparts.

#### Question 4:

Illustrate how interest on drawings will be calculated under various situations.

#### Answer:

When a partner withdraws any amount, either in cash or in any other form, from the firm for his/her personal use, then it is termed as drawings. The interest charged by the firm on the amount of drawings is termed as interest on drawings. The method of calculating interest on drawings depends on the information available for time and frequency of the drawings made by the partner. The following different situations of drawings made illustrate the calculation of interest charged on drawings.

Situation 1: When information regarding Amount, Date and Rate of Interest on drawings are given.

If a partner withdrew Rs 10,000 on May 01 and interest on drawing is charged at 10% p.a. and the firm closes its books on December 31 every year then interest of drawings amounts to Rs 667.

Situation 2: When information regarding Amount, Rate of Interest on drawings is given

Case I: If the Amount and Rate of Interest on drawings (per annumn) is given but date is not mentioned

If the details regarding the amount of drawings and rate of interest of drawings (p.a.) is given but the date of drawings is not mentioned then interest is charged on average basis and the period of drawings is taken as 6 months.

Example- If a partner withdrew Rs 10,000 and rate of interest on drawings is 10% p.a. then the interest of drawings amounts to Rs 500

Case II: If the Amount and Rate of Interest on drawings is given but the date and per annumn rate of interest is not mentioned

If the date and the rate of interest are given but per annum is not specified, then annual interest is charged.

Example- If a partner withdrew Rs 20,000 and interest rate is 10% , then the interest on drawings amounts to Rs 2,000.

Situation 3: When a fixed amount is withdrawn at regular interval

Case I: If a fixed amount is withdrawn at the beginning of each month, then the interest is calculated for 6.5 months.

Example- If a partner withdraws Rs 1,000 in the beginning of every month and the rate of interest is 10% p.a., then the interest on drawings amount to Rs 650.

Interest on drawings

Case II: If a fixed amount is withdrawn at the end of each month, then the interest is calculated for 5.5 months

Example- If a partner withdraws Rs 1,000 at the end of each month and rate of interest is 10% p.a., then the interest on drawings amount to Rs 550.

Case III: If a fixed amount is withdrawn in the middle of every month then assuming that the drawings are made on15th of every month then interest on drawings is calculated for 6 months

Example- If a partner withdraws Rs 1,000 on 15th of every month and the rate of interest is 10% p.a., then the interest on drawings amount to Rs 600.

Case IV: If a fixed amount is withdrawn in the beginning of every quarter then the interest is calculated for 7.5 months

Example- If a partner withdraws Rs 3,000 in the beginning of every quarter and the rate of interest is 10% p.a. then the interest on drawings amount to Rs 750

Case V: If a fixed amount is withdrawn at the end of every quarter, then the interest is calculated for 4.5 months

Example- If a partner withdraws Rs 3,000 at the end of every quarter and the rate of interest is 10% p.a., then the interest on drawings amounts to Rs 450.

Situation 4:

When different amount is at different intervals

If different amount is withdrawn by a partner at different points of time then the interest is calculated by Product Method. The period of drawings is calculated from the date of withdrawal to the last date of the accounting year.

Example- A partner withdraws Rs 5,000 on Feb 01, Rs 3000 on May 01, Rs 5,000 on Sep. 30 and Rs 1000 on Dec. 31 and the rate of interest on drawings is 10% p.a. The firm closes its book on December 31.

Calculation of Interest on Drawings by Product Method

 Interest on Drawings Date Amount Rs Outstanding Period Product Feb. 01 5,000 11 5,000 ´ 11 = 55,000 May. 01 3,000 8 3,000 ´ 8 = 24,000 Sep. 30 5,000 3 5,000 ´ 3 = 15,000 Dec. 31 1,000 0 1,000 ´ 0 = 0 94,000

#### Question 5:

How will you deal with a change in the profit sharing ratio among existing partners?

Take imaginary figures to illustrate your answer?

#### Answer:

Usually due to the admission, retirement or death of a partner or sometimes due to the general agreement among the partners, they may decide to change the profit sharing ratio. Various adjustments that should be considered during the change in the profit sharing ratio are , goodwill, reserves and accumulated profits, profit or loss on the revaluation of assets and liabilities and adjustment of capitals, etc. The general reserves and accumulated profits (if any) and profit (or loss) on revaluation on assets and liabilities should be credited (debited) in the Partner's Capital Account in their old profit sharing ratio.

But if the existing partners decide to change the profit sharing ratio then some partners gain (gaining partners) at the cost of other partners (sacrificing partners). Thus, the former should compensate the latter. Therefore, the gaining Partners’ Capital Account s are debited to the extent of their gain and sacrificing Partners' Capital Accounts are credited to extent of their sacrifice. The following Journal entry is passed.

 Gaining Partner's Capital A/c Dr. To Sacrificing Partner's Capital A/c (Adjustment entry passed)

Example:

A, B, C are partners in a firm sharing profit and loss in 3:2:1 ratio. They decide to share profit and loss equally in future. On that date, the books of the firm shows Rs 1,20,000 as general reserve, profit due to revaluation of building Rs 30,000. The following adjustment entry is passed through the capital accounts without affecting the books of accounts.

 Particulars A B C Share of profit as per 3:2:1 60,000 40,000 20,000 Profit on revaluation of building 15,000 10,000 5,000 75,000 50,000 25,000 Share of profit as per 1:1:1 50,000 50,000 5,000 Difference (Gain or Loss) 25,000 - 25,000 (Loss) (Gain)

Hence, in this example, C gains at the cost of A, so the partner A needs to be compensated by C with the amount of Rs 25,000. The following adjustment entry is passed.

Adjustment entry:

 C's Capital A/c Dr. 25,000 To A's Capital A/c 25,000 ( Adjustment entry passed)

#### Question 1:

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

#### Answer:

a) If interest on Capital and Partners’ salaries and interest on drawings is charged against profit, the solution will be as:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit transferred to Profit and Loss 30,000 Triphati’s Current Account 18,000 Chauhan’s Current Account 12,000 30,000 30,000

 Partners’ Capital Account Dr. Cr. Particulars Tripathi Chauhan Particulars Tripathi Chauhan Balance b/d 60,000 40,000 Balance c/d 60,000 40,000 60,000 40,000 60,000 40,000

 Partners’ Current Account Dr. Cr. Particulars Tripathi Chauhan Particulars Tripathi Chauhan Drawings 12,000 8,000 Interest on Capital 3,000 2,000 Interest on Drawings 600 400 Partners’ Salaries 12,000 12,000 Balance c/d 20,400 17,600 Profit & Loss Appropriation 18,000 12,000 33,000 26,000 33,000 26,000

b) ) If interest on Capital and Partners’ salaries and interest on drawings is distributed out of  profit, the solution will be as:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Partners’ Salary Profit and Loss (Profit) 30,000 Tripathi 1,000 × 12 = 12,000 Interest on Drawings Chauhan 1,000 × 12 = 12,000 24,000 Tripathi 600 Chauhan 400 1,000 Interest on Capital Tripathi 3,000 Chauhan 2,000 5,000 Profit Transferred to Tripathi’s Current 1,200 Chauhan’s Current 800 2,000 31,000 31,000

 Partners’ Capital Account Dr. Cr. Particulars Tripathi Chauhan Particulars Tripathi Chauhan Balance b/d 60,000 40,000 Balance c/d 60,000 40,000 60,000 40,000 60,000 40,000

 Partners’ Current Account Dr. Cr. Particulars Tripathi Chauhan Particulars Tripathi Chauhan Drawings 12,000 8,000 Partners’ Salaries 12,000 12,000 Interest on Drawings 600 400 Interest on Capital 3,000 2,000 Balance c/d 3,600 6,400 Profit and Loss Appropriation 1,200 800 16,200 14,800 16,200 14,800

As the question is silent about the treatment of Interest on Capitals, Salary, Interest on Drawings, so we have prepared the solution by following two methods, namely:

1. Charge against Profits
2. Out of Profits

This was done deliberately so as to make students aware-off the two above mentioned methods and also to match the answer with that of given in the NCERT. The appropriate answer to the question following Out of Profit Method should be as:

Tripathi's Current A/c balance Rs 3,600 and

Chauhan's Current A/c balance Rs 6,400.

In case no information regarding the treatment of above items is mentioned in the question, then we usually follow the Out of Profits Method.

#### Question 2:

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

#### Answer:

a)

Note: If Partners’ Salaries, Interest on capital and Interest on Drawing are treated as these have already adjusted in Profit and Loss Account. The Solution will be as

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit Transferred to Current  A/c Profit and Loss 45,000 Anubha’s Capital 30,000 Kajal’s Capital 15,000 45,000 45,000 45,000

 Partners’ Capital Account Dr. Cr. Particulars Anubha Kajal Particulars Anubha Kajal Drawings 8,500 6,500 Balance b/d 90,000 60,000 Interest on Drawings 425 325 Partners’ Salaries 8,400 6,000 Interest on Capital 4,500 3,000 Balance c/d 1,23,975 77,175 Profit and Loss Appropriation 30,000 15,000 1,32,900 84,000 1,32,900 84,000

b) Alternative

Note: If Partners’ salaries, interest on capital and interest on drawings adjusted in Profit and Loss Appropriation Account. The solution will be as.

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Partners’ Salaries: Profit and Loss Account 45,000 Anubha 8,400 Interest on Drawings Kajal 6,000 14,400 Anubha 425 Kajal 325 750 Interest on Capital: Anubha 4,500 Kajal 3,000 7,500 Profit transferred to Anubha’s Capital 15,900 Kajal’s Capital 7,950 23,850 45,750 45,750

 Partners’ Capital Account Dr. Cr. Particulars Anubha Kajal Particulars Anubha Kajal Drawings 8,500 6,500 Balance b/d 90,000 60,000 Interest on Drawings 425 325 Partners’ Salaries 8,400 6,000 Interest on Capital 4,500 3,000 Balance c/d 1,09,875 70,125 Profit and Loss Appropriation 15,900 7,950 1,18,800 76,950 1,18,800 76,950

#### Question 3:

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

Harshad Claims:

(i)    He should be given interest @ 10% per annum on capital and loan;

(ii)   Profit should be distributed in proportion of capital;

Dhiman Claims:

(i)    Profits should be distributed equally;

(ii)   He should be allowed Rs 2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad;

(iii)  Interest on Capital and loan should be allowed @ 6% p.a.

You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.

#### Answer:

DISTRIBUTION OF PROFITS

Harshad Claims:

Decisions

(i) If there is no agreement on interest on partner’s capital, according to Indian partnership act 1932, no interest will be allowed to partners.

(ii) If there is no agreement on the matter of profit sharing, according to partnership act 1932, profit shall be distributed equally.

Dhiman Claims:

Decisions

(i) Dhiman claim is justified, according partnership act 1932 if there is no agreement on the matter of profit distribution, profit shall be distributed equally.

(ii) No salary will be allowed to any partner because there is no agreement on matter of remuneration.

(iii) Dhiman’s claim is not justified on the matter of interest on capital but justified on the matter of interest on loan. If there is no agreement on interest on partner’s loan, Interest shall be provided at 6% p.a.

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

 Profit and Loss Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit transferred to Profit and Loss Adjustment 1,77,000 Harshad’s Capital 88,500 Sharma’s Capital 88,500 1,77,000 1,77,000

#### Question 4:

Aakriti and Bindu entered into partnership for making garment on April 01, 2016 without any Partnership agreement. They introduced Capitals of Rs 5,00,000 and Rs 3,00,000 respectively on October 01, 2016. Aakriti Advanced. Rs 20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ended March 2017 showed profit of Rs 43,000. Partners could not agree upon the question of interest and the basis of division of profit. You are required to divide the profits between them giving reason for your solution.

#### Answer:

 Profit and Loss Adjustment Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Partner’s Loan Profit and Loss 43,000 Aakriti 20,000 × (6/100) × (6/12) 600 Profit transferred to Aakriti’s Capital 21,200 Bindu’s Capital 21,200 42,400 43,000 43,000

Reason

a) Interest on partners loan shall be allowed at 6% p.a. because there is no partnership agreement.

b) Interest on capital shall not be allowed because there is no agreement on interest on capital.

c) Profit shall be distributed equally because profit sharing ratio has not been given.

#### Question 5:

Rakhi and Shikha are partners in a firm, with capitals of Rs 2,00,000 and Rs 3,00,000 respectively. The profit of the firm, for the year ended 2016-17 is Rs 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew Rs 7,000 and Shikha Rs 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.

#### Answer:

If interest on capital and Partners’ salaries will be provided even if firm involves in loss.

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Partner’s Salaries Profit and Loss 23,200 Shikha 60,000 Loss transferred to Rakhi Capital 34,720 Interest on Capital Shikha’s Capital 52,080 86,800 Rakhi 20,000 Shikha 30,000 50,000 1,10,000 1,10,000

 Partners’ Capital Account Dr. Cr. Particulars Rakhi Shikha Particulars Rakhi Shikha Drawings 7,000 10,000 Balance b/d 2,00,000 3,00,000 Profit & Loss Appropriation 34,720 52,080 Partner’s Salaries 60,000 Balance c/d 1,78,280 3,27,920 Interest on Capital 20,000 30,000 2,20,000 3,90,000 2,20,000 3,90,000

If interest on capital and salaries will be provided out of profit

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Partner’s Salaries Profit and Loss 23,200 Shikha  {23,200 × (6/11)} 12,655 Interest on Capital Rakhi {23,200 × (2/11)} 4,218 Shikha {23,200 × (3/11)} 6,327 23,200 23,200

If profit is less than the sum of distributable items, distribution shall be in proportion of items for distribution.

 Partners Salaries Ratio Shikhar (Rs 60,000) 6 23,200 × (6/11) 12,655 Interest on Capital Rakhi (Rs 20,000) 2 23,200 × (2/11) 4,218 Shikhar (Rs 30,000) 3 23,200 × (3/11) 6,327 11 23,200

 Partners’ Capital Account Dr. Cr. Particulars Rakhi Shikha Particulars Rakhi Shikha Drawings 7,000 10,000 Balance b/d 2,00,000 3,00,000 Partner’s Salaries 12,655 Balance c/d 1,97,218 3,08,972 Interest on Capital 4,218 6,327 2,04,218 3,18,972 2,04,218 3,18,972

#### Question 6:

Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of Rs 50,000 and Rs 30,000, respectively. Interest on capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of Rs 2,500 p.a. During 2016, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to Rs 12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare accounts showing the allocation of profits and partner’s capital accounts.

#### Answer:

 Profit and Loss Adjustment Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital By Profit and Loss (12,500 + 2,500) 15,000 Lokesh 3,000 Azad 1,800 4,800 Partner’s Salaries Azad 2,500 Provision for Manager’s Commission 15,000 × (5/100) 750 Profit transferred to Lokesh Capital 4,170 Azad Capital 2,780 6,950 15,000 15,000

 Partners’ Capital Account Dr. Cr. Particulars Lokesh Azad Particulars Lokesh Azad Balance b/d 50,000 30,000 Interest on Capital 3,000 1,800 Balance c/d 57,170 37,080 Partner’s Salaries 2,500 Profit and Appropriation 4,170 2,780 57,170 37,080 57,170 37,080

#### Question 7:

The partnership agreement between Maneesh and Girish provides that:

(i)    Profits will be shared equally;

(ii)   Maneesh will be allowed a salary of Rs 400 p.m;

(iii)  Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;

(iv)  7% interest will be allowed on partner’s fixed capital;

(v)   5% interest will be charged on partner’s annual drawings;

(vi)  The fixed capitals of Maneesh and Girish are Rs 1,00,000 and Rs 80,000, respectively. Their annual drawings were Rs 16,000 and 14,000, respectively. The net profit for the year ending March 31, 2015 amounted to Rs 40,000;

Prepare firm’s Profit and Loss Appropriation Account.

#### Answer:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Partner’s Salary Profit and Loss 40,000 Maneesh 4,800 Interest on Drawings Maneesh 800 Partner’s commission Girish 700 1,500 Girish {(40,000 – 4,800) × (10/100)} 3,520 Interest on Capital Mannesh 7,000 Girish 5,600 12,600 Profit transferred to Maneesh’s Current 10,290 Girish’s Current 10,290 20,580 41,500 41,500

#### Question 8:

Ram, Raj and George are partners sharing profits in the ratio 5 : 3 : 2. According to the partnership agreement George is to get a minimum amount of Rs 10,000 as his share of profits every year. The net profit for the year 2013 amounted to Rs 40,000. Prepare the Profit and Loss Appropriation Account.

#### Answer:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit transferred to Profit and Loss 40,000 Ram’s Capital (20,000 – 1,250) 18,750 Raj’s Capital (12,000 – 750) 11,250 George’s Capital (8,000 + 1,250 + 750) 10,000 40,000 40,000

#### Question 9:

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

#### Answer:

 Profit and Loss Appropriation Account for the year ended ${\mathbf{31}}^{\mathbf{st}}$ March 2016 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit transferred to Profit and Loss 40,000 Amann’s Capital  16,000 16,000 Babita’s Capital (16,000 – 2,000) 14,000 Suresh’s Capital (8,000 + 2,000) 10,000 40,000 40,000

 Profit and Loss Appropriation Account for the year ended ${\mathbf{31}}^{\mathbf{st}}$ March 2017 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit transferred to Profit and Loss 60,000 Amann’s Capital 24,000 Babita’s Capital 24,000 Suresh’s Capital 12,000 60,000 60,000

#### Question 10:

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

(i)    Partners capital on April 1, 2016;

Simmi, Rs 30,000; Sonu, Rs 60,000;

(ii)   Current accounts balances on April 1, 2016;

Simmi, Rs 30,000 (cr.); Sonu, Rs 15,000 (cr.);

(iii)  Partners drawings during the year amounted to

Simmi, Rs 20,000; Sonu, Rs 15,000;

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

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

(vi)  Partners’ salaries : Simmi Rs 12,000 and Sonu Rs 9,000. Also show the partners’ current accounts.

#### Answer:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital Profit and Loss Account 1,50,000 Simmi 1,500 Interest on Drawings Sonu 3,000 4,500 Simmi 600 Sonu 450 1,050 Partners’ Salaries Simmi 12,000 Sonu 9,000 21,000 Profit transferred to Simmi’s Current 94,162 Sonu’s Current 31,388 1,25,550 1,51,050 1,51,050

 Partners’ Capital Account Dr. Cr. Particulars Simmi Sonu Particulars Simmi Sonu Balance b/d 30,000 60,000 Balance c/d 30,000 60,000 30,000 60,000 30,000 60,000

 Partners’ Current Account Dr. Cr. Particulars Simmi Sonu Particulars Simmi Sonu Drawings 20,000 15,000 Balance b/d 30,000 15,000 Interest on Drawings 600 450 Interest on Capital 1,500 3,000 Partners’ Salaries 12,000 9,000 Balance c/d 1,17,662 43,388 Profit and Loss Appropriation 94,162 31,388 1,37,662 58,388 1,37,662 58,388

#### Question 11:

Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were Rs 80,000 and Rs 60,000 respectively. The firm started business on April 1, 2016. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of Rs 2,000 and Rs 3,000, respectively.
The profits for year ended March 31, 2017 before making above appropriations was Rs 1,00,300. The drawings of Ramesh and Suresh were Rs 40,000 and Rs 50,000, respectively. Interest on drawings amounted to Rs 2,000 for Ramesh and Rs 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their capitals are fluctuating.

#### Answer:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital Profit and Loss 1,00,300 Ramesh 9,600 Interest on Drawings Suresh 7,200 16,800 Ramesh 2,000 Suresh 2,500 4,500 Partners’ Salaries Ramesh 24,000 Suresh 36,000 60,000 Profit Transferred to Ramesh’s Capital {28,000 × (4/7)} 16,000 Suresh’s Capital {28,000 × (3/7)} 12,000 1,04,800 1,04,800

 Partners’ Capital Account Dr. Cr. Particulars Ramesh Suresh Particulars Ramesh Suresh Drawings 40,000 50,000 Cash 80,000 60,000 Interest on Drawings 2,000 2,500 Interest on Capital 9,600 7,200 Balance c/d 87,600 62,700 Partners’ Salaries 24,000 36,000 Profit & Loss Appropriation 16,000 12,000 1,29,600 1,15,200 1,29,600 1,15,200

 Capital Ratio = Ramesh : Suresh 80,000 : 60,000 4 : 3

#### Question 12:

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

(i)    Profits would be shared by Sukesh and Vanita in the ratio of 3:2;

(ii)   5% interest is to be allowed on capital;

(iii)  Vanita should be paid a monthly salary of Rs 600.

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

 Sukesh Verma* Rs Rs Capital Accounts 40,000 40,000 Current Accounts (Cr.)   7,200 (Cr.)   2,800 Drawings 10,850 8,150

Net profit for the year, before charging interest on capital and after charging partner’s salary was Rs 9,500. Prepare the Profit and Loss Appropriation Account and the Partner’s Current Accounts.

#### Answer:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital Profit and Loss 9,500 Sukesh 2,000 Vanita 2,000 4,000 Profit transferred to Sukesh’s Current {5,500 × (3/5)} 3,300 Vanita’s Current {28,000 × (2/5)} 2,200 9,500 9,500

 Partner’s Capital Account Dr. Cr. Particulars Sukesh Vanita Particulars Sukesh Vanita Balance b/d 40,000 40,000 Balance c/d 40,000 40,000 40,000 40,000 40,000 40,000

 Partner’s Current Account Dr. Cr. Particulars Sukesh Vanita Particulars Sukesh Vanita Drawings 10,850 8,150 Balance b/d 7,200 2,800 Partner’s Salaries 7,200 Profit and Loss Appropriation 3,300 2,200 Balance c/d 1,650 6,050 Interest on capital 2,000 2,000 12,500 14,200 12,500 14,200

#### Question 13:

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

#### Answer:

Interest on Capital

Rahul = 20,00,000 × = Rs 1,00,000

Rohit = 18,00,000 × = Rs 90,000

Karan = 16,00,000 × = Rs 80,000

#### Question 14:

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

#### Answer:

Product Method

Sunflower

 01 April 2016 to 30 September 2016 2,50,000 × 6 = 15,00,000 01 October 2016 to 31 March 2017 2,00,000 × 6 = 12,00,000 Sum of Product 27,00,000

Pink Rose

 01 April 2016 to 30 September 2016 1,50,000 × 6 = 9,00,000 01 October 2016 to 31 March 2017 2,00,000 × 6 = 12,00,000 Sum of Product 21,00,000

 Interest on Capital = Sum of Product × Rate × 1 100 12

 Interest on Sunflower's Capital = 27,00,000 × 10 × 1 Rs 22,500 100 12

 Interest on Pink Rose's Capital = 21,00,000 × 10 × 1 Rs 17,500 100 12

Alternative Method:

Simple Interest Method

Sunflower

 April 01, 2016 to September 30, 2016 2,50,000 × 10 × 6 = Rs 12,500 100 12 October 01,  2016 to March 31, 2017 2,00,000 × 10 × 6 = Rs 10,000 100 12 Interest on Sunflower’s Capital Rs 22,500

Pink Rose

 April 01, 2016 to September 30, 2016 1,50,000 × 10 × 6 = Rs   7,500 100 12 October 01,  2016 to March 31, 2017 2,00,000 × 10 × 6 = Rs 10,000 100 12 Interest on Pink Rose’s Capital Rs 17,500

#### Question 15:

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

#### Answer:

Generally interest on Capital is calculated on opening balance of capital. If additional capital is not given.

 Mountain Hill Rock Closing Capital 4,00,000 3,00,000 2,00,000 Add: Drawings 20,000 15,000 10,000 Less: Profit (1:1:1) (50,000) (50,000) (50,000) Opening Capital 3,70,000 2,65,000 1,60,000

Interest on Capital

 Mountain 3,70,000 ×= Rs 37,000 Hill 2,65,000 × = Rs 26,500 Rock 1,60,000 × = Rs 16,000

#### Question 16:

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

 Balance Sheet as at March 31, 2017 Amount Amount Liabilities Rs Assets Rs Neelkant’s Capital 10,00,000 Sundry Assets 30,00,000 Mahadev’s Capital 10,00,000 Neelkant’s Current Account 1,00,000 Mahadev’s Current Account 1,00,000 Profit and Loss Apprpriation (March 2017) 8,00,000 30,00,000 30,00,000

During the year Mahadev’s drawings were Rs 30,000. Profits during 2017 is Rs 10,00,000. Calculate interest on capital @ 5% p.a for the year ending March 31, 2017.

#### Answer:

Interest on Capital

 Neelkant’s 10,00,000 ×= Rs 50,000 Mahadev’s 10,00,000 × = Rs 50,000

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

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

#### Question 17:

Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31, 2018.

 May 01, 2017 Rs 12,000 July 31, 2017 Rs   6,000 September 30, 2017 Rs   9,000 November 30, 2017 Rs 12,000 January 01, 2018 Rs   8,000 March 31, 2018 Rs   7,000

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

#### Answer:

Product Method

 Drawings × Period Product 01 May, 2017 to 31 March 2018 12,000 × 11 = 1,32,000 31 July, 2017 to 31 March 2018 6,000 × 8 = 48,000 30 September, 2017 to 31 March 2018 9,000 × 6 = 54,000 30 Nov. 2017 to 31 March 2018 12,000 × 4 = 48,000 01 Jan. 2018 to 31 March 2018 8,000 × 3 = 24,000 31 March 2018 to 31 March 2018 7,000 × 0 = 0 Sum of Product 3,06,000

Here the formula will be

Interest on Drawings = Product ×

= 3,06,000 ×

= Rs 2,295

#### Question 18:

The capital accounts of Moli and Golu showed balances of Rs 40,000 and Rs 20,000 as on April 01, 2016. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of Rs 10,000 to the firm on August 01, 2016. During the year, Moli withdrew Rs 1,000 per month at the beginning of every month whereas Golu withdrew Rs 1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was Rs 20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.

#### Answer:

Interest on Moli’s Drawing = Total Drawings ×

=

= Rs 780

Interest on Golu’s Drawings = Total Drawing ×

=

= Rs 660

 Profit and Loss Adjustment Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Interest on Capital Profit and Loss Account 20,950 Moli 4,000 Interest on Drawings Golu 2,000 6,000 Moli 780 Golu 660 1,440 Interest on Partner’s Loan Golu’s {10,000 × (6/100) × (8/12)} 400 Profit transferred to Moli’s Capital {15,990 × (3/5)} 9,594 Golu’s Capital {15,990 × (2/5)} 6,396 15,990 22,390 22,390

 Partners’ Capital Account Dr. Cr. Particulars Moli Golu Particulars Moli Golu Drawings 12,000 12,000 Balance b/d 40,000 20,000 Interest on Drawing 780 660 Interest on Capital 4,000 2,000 Balance c/d 40,814 15,736 Profit and Loss Adjustment 9,544 6,396 53,594 28,396 53,594 28,396

#### Question 19:

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

 Rakesh Month Rs May 31, 2016 600 June 30, 2016 500 August 31, 2016 1,000 November 1, 2016 400 December 31, 2016 1,500 January 31, 2017 300 March 01, 2017 700 Rohan At the beginning of each month 400

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

#### Answer:

Rakesh’s Interest on Drawings

 Drawings × Period Product 31 May 2016 to 31 March 2017 600 × 10 = 6,000 30 June 2016 to 31 March 2017 500 ×   9 = 4,500 31 August 2016 to 31 March 2017 1,000 ×   7 = 7,000 1 November 2016 to 31 March 2017 400 ×   5 = 2,000 31 December 2016 to 31 March 2017 1,500 ×   3 = 4,500 31 January 2017 to 31 March 2017 300 ×   2 = 6,00 01 March 2017 to 31 March 2017 700 ×   1 = 700 Sum of Product 25,300

Interest = Sum of Product ×

=

= Rs 126.5

Interest on Rohan’s Capital

= Total Drawing ×

= Rs 156

#### Question 20:

Himanshu withdrews Rs 2,500 at the end Month of each month. The Partnership deed provides for charging the interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending 31st December, 2017.

#### Answer:

Total Drawing of Himanshu = Rs 2,500 × 12 = Rs 30,000

Interest on Drawing = Total Drawings ×

= Rs 1,650

#### Question 21:

Bharam is a partner in a firm. He withdraws Rs 3,000 at the starting of each month for 12 months. The books of the firm closes on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.

#### Answer:

Total Drawing of Bharam = Rs 3,000 ×12 = Rs 36,000

Interest on Drawing = Total Drawings ×

= Rs 1,950

#### Question 22:

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

#### Answer:

Interest on Capital

Raj

 Capital × Period Product 1 April 2017 to 30 June 2017 2,50,000 × 3 = 7,50,000 1 July 2017 to 31 March 2018 1,00,000 × 9 = 9,00,000 Sum of Product 16,50,000

Interest = Sum of Product ×

= 16,50,000 ×

= Rs 11,000

Neeraj

 Capital × Period Product 1 April 2017 to 30 June 2017 1,50,000 × 3 = 4,50,000 1 July 2017 to 31 March 2018 1,00,000 × 9 = 9,00,000 Sum of Product 13,50,000

Interest = 13,50,000 × = Rs 9,000

#### Question 23:

Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2017 were Rs 24,000 and Rs 16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.

#### Answer:

Interest on Drawings = Drawings ×

Amit = 24,000 × = Rs 1,200

Bhola = 16,000 × = Rs 800

#### Question 24:

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

 Rs February 01 4,000 May 01 10,000 June 30 4,000 October 31 12,000 December 31 4,000

Interest on drawings is to be charged @ 7.5 % p.a.

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

#### Answer:

Calculation of interest on Harish’s drawings

 Drawings × Period Product 01 Feb. 17 to 31 Dec. 17 4,000 × 11 = 44,000 01 May 17 to 31 Dec. 17 10,000 ×   8 = 80,000 30 June 17 to 31 Dec. 17 4,000 ×   6 = 24,000 31 Oct. 17 to 31 Dec. 17 12,000×   2 = 24,000 31 Dec. 17 to 31 Dec. 17 4,000 ×   0 = 0 Sum of Product 1,72,000

Interest on drawings = 1,72,000 × = Rs 1,075

#### Question 25:

Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are Rs 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn: (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of every month.

#### Answer:

Case (i)

If they withdraw money in the beginning of each month

Interest of drawings = Total drawings × Rate ×

Menon’s = 24,000 × = Rs 1,300

Thomas’s = 24,000 × = Rs 1,300

Case (ii)

If they withdraw in the middle of every month

Interest on Drawings = Total drawings ×

Menon’s = 24,000 × = Rs 1,200

Thomas’s = 24,000 × = Rs 1,200

Case (iii)

If they withdraw at the end of every month.

Interest on drawings = Total drawings ×

Menon’s = 24,000 × = Rs 1,100

Thomas’s = 24,000 × = Rs 1,100

#### Question 26:

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

#### Answer:

 Ram Shyam Mohan Capital on March 31 24,000 18,000 12,000 Add: Drawings 3,600 4,500 2,700 Less: Profit (3:2:1) (18,000) (12,000) (6,000) Capital April 01, 2012 9,600 10,500 8,700

Here, Interest on Capital = Opening Capital ×

Ram’s = = Rs 480

Shyam’s = = Rs 525

Mohan’s = 8,700 × = Rs 435

#### Question 27:

Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’ share in profit has been guaranteed by Amit and Sumit to be a minimum sum of Rs 8,000. Profits for the year ended March 31, 2017 was Rs 36,000. Divide profit among the partners.

#### Answer:

Guarantee of Profit to the partners

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit transferred to Profit and Loss 36,000 Amit’s Capital 18,000 Less: Gurantee to Samiksha  {2,000 × (3/5)} (1,200) 16,800 Sumit’s Capital 12,000 Less: Gurantee to Samiksha  {2,000 × (2/5)} (800) 11,200 Samiksha Capital 6,000 Add: Amit’s Guarantee 1,200 Add: Sumit’s Guarantee 800 8,000 36,000 36,000

#### Question 28:

Pinki, Deepati and Kaku are partner’s sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than Rs 5,000. Deficiency, if any, would be borne by Pinki and Deepti equally. Profits for the year amounted to Rs 40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.

#### Answer:

 Profit and Loss Appropriation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit transferred to Profit & Loss 40,000 Pinki’s Capital 20,000 Less: Gurantee to Kaku  {1,000 × (1/2)} (500) 19,500 Deepti’s Capital 16,000 Less: Guarantee to Kaku  {1,000 × (1/2)} (500) 15,500 Kaku’s Capital 4,000 Add: Deficiency received from Pinki 500 Deepti 500 5,000 40,000 40,000

#### Question 29:

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