Class 12 Commerce Accountancy - Accounting For Partnership: Basic Concepts

A firm Maintains a Capital Account and a Current Account for each partner. What is the term used when this method of maintaining Capital Accounts is followed?

The term used when this method of maintaining capital accounts is followed is the 'Fixed Capital account' method. In this method two separate accounts are prepared. The Partner's Capital account shows the same balance from year to year unless additional amount is introduced or withdrawn. The Partner's Current account shows all items relating to the partners; like interest on capital and drawings, share of profit etc.

Interest on capital is credited to Partner's Current Account. Name the method of maintaining Capital Account.

If interest is credited to the Partner's Current account then the method followed is 'Fixed Capital' method. Under this method all transactions relating to the partners are entered in a separate account known as the Partner's Current account. The partner's capitals remain fixed throughout the course of the firm.

If interest on capital, salary to the partner and share of profit are credited while interest on drawings, drawings and share of loss are debited to the Partners' Capital Accounts, what is the method followed to maintain the Capital Accounts?

If the interest on capital, salary to partner, and share of profit are credited while interest on drawings and share of loss is debited to the Partner's Capital account then the method followed for maintaining the capital accounts is the 'Fluctuating Capital' method. Under this method, all entries relating to the partners are made in the partner's capital itself and the capital of the partners keeps on changing from time to time.

Under which Capital Account Method, Current Accounts of partners are maintained?

Under the 'Fixed Capital' method, current accounts of partners are maintained. All transactions relating to the partners, which include interest on capital and drawings, salary, share of profit or loss etc., are entered in the Partner's Current account. The partner's capital account balance remains fixed whereas the current account fluctuates from time to time.

What is meant by 'Fixed Capital' of a Partner?

Fixed Capital of a partner remains constant throughout the course of business unless some additional capital is introduced or some amount of the capital is withdrawn by the mutual agreement of the partners. Two separate accounts are prepared under this method: 1. Partner's Capital a/c and 2. Partner's current account. The partner's capital account shows a fixed balance and all entries relating to the partner are entered in the partner's current account.

State the provisions of Partnership Act, 1932, in the absence of a Partnership Deed regarding (i) Interest on Partner's Drawings, and (ii) Interest on Advances other than capital.

In the absence of a Partnership Deed,

(i) Interest on Partner's drawings is not allowed.

(ii) If the partner advances any loan towards the firm, he is entitled to an interest of 6 percent even if the firm is incurring losses.

$X$ and $Y$ are partners sharing profits in the ratio of $3 : 2$ with capitals of $Rs. 80,000$ and $Rs. 60,000$ respectively. Interest on capital is agreed @ 5% p.a. $Y$ is to be allowed an annual salary of $Rs. 6,000$ which has not been withdrawn. Profit for the year ended 31st March, 2018 before interest on capital but after charging Y's salary amounted to $Rs. 24,000$ .
A provision of 5% of the profit is to be made in respect of commission to the Manager. Prepare an account showing the allocation of profits.

(i) Profit and Loss Adjustment a/c
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Manager's Commission (30,000 x 5%)	1,500	By Profit and loss a/c 24,000 (after Y's salary) + By Y's salary 6,000	30,000
To Profit transferred to Profit and loss appropriation a/c	28,500
	30,000		30,000

(ii) Profit and Loss Appropriation a/c

( for the year ended 31st March, 2018)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Salary to Y	6,000	By Profit and Loss Adjustment a/c	28,500
To Interest on Capital: - X's Capital a/c - Y's Capital a/c	4,000 3,000
To Profit transferred to: - X's Capital a/c - Y's Capital a/c	9,300 6,200
	28,500		28,500

B and M are partners in a firm. They withdrew Rs. 48,000 and Rs. 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.

Calculation of interest on drawings:

B's interest= 48000 * 10/100 * 6/12

= 2400

M's interest= 36000 * 10/100 * 6/12

= 1800

Note: Drawings are made evenly in the middle of every month, hence it is calculated for a period of 6 months.

Give two circumstances in which the Fixed Capitals of partners may change.

Two circumstances in which the Fixed Capitals of the partners may change are:

1. If the partners bring in some additional capital during the course of the business of the firm.

2. If the partners withdraw some amount of their capitals through an agreement among themselves.

List the item that may appear on the debit side of a Partner's Fixed Capital Account.

An item that may appear on the debit side of the Partner's Fixed capital account is withdrawal of the capital which is carried out by a mutual agreement between the partners.

State one difference between Fixed Capital Account and Fluctuating Capital Account of partners.

Fixed Capital account	Fluctuating capital account
1. The balance of the Partner's Capital account remains the same throughout and all entries relating to the partners are made in the partner's current account.	1. The balance of the Partner's Capital account fluctuates all the time since all entries relating to the partners are made in the partner's capital account itself.

Mention the items that may appear on the debit side of the Capital Account of a partner when the capitals are fluctuating.

Items that may appear on the debit side of the Capital Account when the capitals are fluctuating:

Interest on drawings;
Drawings of the partners;
Share of loss of each partner;
Withdrawal of capital by the partners;
Closing Balance of the Partner's Capital account.

Under which Capital Account Method, Current Accounts of partners are not maintained?

Under the 'Fluctuating capital' account method, current accounts of the partners are not maintained. Under this method, only one account is opened, i.e the Partner's Capital account. All entries relating to the partners, like interest on capital and drawings, share of profit etc are made in this account. Hence, the capitals of the partners keep on changing over the years.

List any four items appearing on the Profit and Loss Appropriation Account.

Four items appearing on the Profit and Loss Appropriation account are:

Interest on Drawings on the credit side;
Interest on Partner's Capital on the debit side;
Partner's salary on the debit side;
Partner's commission on the debit side.

Mention the items that may appear on the credit side of the Capital Account, when the partners capital are fixed.

Items that may appear on the credit side of the Capital Account when the partner's capitals are fixed are:

1. The opening balance of the partner's capital that appears on the Balance Sheet of the previous year.

2. Any additional capital brought in by the partners.

Calculate interest on drawings of Rakesh @ $10\%$ p.a. for the year ended 31st March, 2018 in each of the following alternative cases:
CaseIf his drawings during the year were $Rs. 30,000$ .
CaseIf he withdraws $Rs. 2,500$ per month during the year.

Case 1. Assuming that drawings were made evenly throughout the year, interest on drawings has been calculated for an average period of 6 months.
Interest on Drawings

$= Rs. 30,000 \times \dfrac{10}{100} \times \dfrac{6}{12} = Rs.1,500$ .

Case 2. Total Drawings

$= Rs. 2,500 \times 12 = Rs. 30,000$
Interest on Drawings

$= Rs. 30,000 \times \dfrac{10}{100}\times \dfrac{6}{12} =Rs. 1,500$ .

A and B are partners sharing profits equally. A drew regularly Rs. 4,000 at the end of every month for six months ended 30th September,Calculate interest on drawings @ 5% p.a. for a period of six months.

Calculation of interest on drawings:

Number of drawings= 6

Amount of each drawing= 4000

Total drawings= 6*4000

= 24000

Number of months= [Time left after 1st drawing + Time left after last drawing]/2

= [5+0]/2

= 2.5 Months

Hence,

Interest on drawings= 24000 * 5/100 * 2.5/12

= 250

Explain the concept of mutual agency in partnership firm.

A mutual agency is a legal relationship between partners in a partnership where each partner has authorization powers and the ability to enter the partnership into business contracts. In other words, each partner in the partnership is an agent in the business and the authority to make business decisions that commit or bind the partnership, as a whole, to a business agreement with a third party or entity.

The mutual agency only exists for partners acting within the scope of normal business operations and dealings. For example, a retailer apparel partner with an agency would not be able to contact the other partners into a deal to purchase a piece of investment real estate because this would be outside the normal operations of the business.

One of the retail partners can, on the other hand, purchase goods from a vendor and require the partnership to pay for the goods. This transaction is within the normal course of operations of the business.

Name the partnership firm which is formed to carry on a special task or project.

A partnership is an association of two or more person who agrees to jointly pursue a business activity. They pool their managerial and financial resources for the purpose. The partnership is formed to carry on a special task is known as a specific partnership.

Specific partnership- It is a contractual agreement that joins together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share the profit and loss of the enterprise. A Specific partnership is defined as an association of two or more persons formed to carry out a single business enterprise for profit in which they combine their property, money, efforts, skill, and knowledge to carry out the special task as well as the project for the specific time period.

Calculate interest on A's drawings @ $10\%$ if he withdraw Rs. $2,50,000$ during the year.

Interest on drawings

$= Rs. 2,50,000\times \dfrac{10}{100} = Rs. 25,000$

Explain any five merits and five demerits of partnership.

Merits of partnership firm

1. Easy to start and dissolve

A partnership firm can be set up easily and quickly. There are not many legal formalities and expenditures are involved in the establishment of a partnership. Similarly, a partnership firm can be closed down very easily and quickly.

2. Higher capital

Many partners invest capital and there is higher flexibility in the capital because new partners can be agreed to be associated and investing can be increased

3.Higher innovation

Many partners use their own ideas and innovation capacity. So there is the unlimited managerial ability

4.Reduction of workload

Partners mustn’t work more to earn more profit. Higher profit generation is important. So, there is no dull and monotonous work. In case of monotony, health problems to any partner then other partners can help and reduce absenteeism.

5.Better decision

There is specialization in decision-making. So there can be fewer chances of taking wrong decisions.

Demerits of a partnership firm:-

1. No Business secrets

The partner can keep the secrets to himself but these secrets can be known to competitors or others when there is conflict among the partners

2. Uncertain existence

The death of any partner can sometimes cause the death of the entire firm. Dishonesty, conflict, and lack of resources also can collapse the firm

3. No Personal contact

A partner can’t be in a position to maintain intimate contact with his customers and employees. He cannot be able to enter to the requirements of each and every customer. Then there is no close personal touch which decreases the competitive strength of the business.

4. Unlimited liability

The proprietor is liable for all the debts of the business. In case the assets are insufficient to meet the debts, the personal property of the proprietor can be attached.

5. Conflicts

The partners in partnership firms get affected by the death, insolvency, or incapacity of any one partner. Even a partner can demand the dissolution of the firm any time he desires so.

Define partnership.

A partnership is a form of business where two or more people share ownership, as well as the responsibility for managing the company and the income or losses the business generates. That income is paid to partners, who then claim it on their personal tax returns – the business is not taxed separately, as corporations are, on its profits or losses.

There are three types of partnerships:

General partnership
Limited partnership
Joint venture

A and B are partners sharing profits equally. A drew regularly Rs. 4,000 in the beginning of every month for six months ended 30th September,Calculate interest on drawings @ 5% p.a. for a period of six month

Calculation of interest on drawings:

Number of drawings = 6

Amount of each drawing= 4000

Total drawings= 6*4000

= 24000

Number of months= [Time left after 1st drawing + Time left after last drawing]/2

= [6+1]/2

= 3.5 months

Hence,

Interest on drawings= 24000 * 5/100 * 3.5/12

= 350

The business assets of an organisation amount to Rs.50,000 but the debts that remain unpaid are 80,What course of action can the creditors take if :
(a) The organisation is a sole proprietorship firm?
(b) The organisation is a partnership firm with Anthony and Akbar as partners? Which of the two, partners can the creditors approach for repayment of debt? Explain giving reasons.

(a) They can claim over the personal property of sole proprietor as his liability is unlimited.
(b) Creditors can approach both Anthony and Akbar and they are liable to pay back in their profit sharing ratio but in case one of the partners becomes insolvent then the creditor can 'claim from only one partner also.

In which form of organisation is a trade agreement made by one owner binding on the others? Give reasons to support your answer.

In partnership form of organization, a trade agreement made by one owner is binding on the others. The Indian Partnership Act, 1932 defines partnership as "the relation between persons who have agreed to share the profit of the business carried on by all or anyone of them acting for all." The definition of partnership highlights the fact that it is a business carried on by all or anyone of the partners acting for all. One partner is an agent of other partners as he/she represents them and thereby binds them through his/her acts. He/She is a principal as he/she too can be bound by the acts of other partners. Hence, every partner is both an agent and a principal. This is the reason why a trade agreement made by one owner is binding on the others. Further, the partners are jointly responsible for the payment of debts and they contribute in proportion to their share in business and as such are liable to that extent. The partners share amongst themselves the responsibility of decision making and control of day-to-day activities.

Is registration of partnership firm compulsory?

Under Section 58 of the Indian partnership Act, 1932, a firm may be registered at any time (not merely at the time of its formation but subsequently also ) by filing an application with the Registrar of Firms of the area in which any place of business of the firm is situated or proposed to be situated.

The Registration of a partnership firm is not compulsory under Part vii of the Indian Partnership Act, 1932, though it is usually done as registration brings many advantages to the firm. It is optional for partners to set the firm registered and there are no penalties for non-registration.

Are partners by estoppel held liable for the debts of the firm?

Partnership by estoppel means that a person who is not technically a partner can be held liable as a general partner and would be liable for any debts and damages owed to a third party.

Generally, a partner by estoppel is created when someone is:

Taking an active role by participating in the management of the company, or
Permitting the company to use his/her name to do business.

Hence, partners by estoppel will be held liable for the debts of the firm, in which the firm has raised by using their names.

What values are involved in:
(a) Cooperative organisation.
(b) Partnership.

(A) Cooperative Principles

The cooperative principles are guidelines by which cooperatives put their values into practice.

1. Voluntary and Open Membership-Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political, or religious discrimination.

2. Democratic Member Control-Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives, members have equal voting rights (one member, one vote) and cooperatives at other levels are also organized in a democratic manner.

3. Member Economic Participation-Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative, and supporting other activities approved by the membership.

4. Autonomy and Independence-Cooperatives are autonomous, self-help organisations controlled by their members. If they enter into agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

5. Education, Training, and Information-Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of co-operation.

6. Cooperation among Cooperatives-Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures.

7. Concern for Community-Cooperatives works for the sustainable development of their communities through policies approved by their members.

(B)Partnership Principles

1. Leadership-Partnerships imply a shared leadership among respected individuals who are recognized and empowered by their own organizations to build consensus and resolve conflicts. However, one organization will generally take the lead in managing the process. Partners must have trust in each others’ ability to lead effectively and honestly.

2. Common Understanding-Partners need to understand each other’s organizational framework, culture, values, and approach. Partners also need a clear understanding of individual members’ roles, responsibilities, and what the partnership’s division of labor will be.

3. Purpose-Partnerships must be guided by a shared vision and purpose that builds trust and recognizes the value and contribution of all members. Each partner must understand and accept the importance of the agreed-upon goals. This leads to improved coordination of policies, programs, and service delivery. Shared and transparent decision-making processes are also essential as partners work towards their common purpose.

4. Culture and Values-Shared “can-do” values, mutual understanding, and an acceptance of differences (e.g., norms, ways of working) are essential to successful partnerships. Partners need to discuss their organizational cultures to identify how to work with their strengths and weaknesses. When partners respect each other’s contributions and regard each other as equals, they can gain active involvement from organization representatives who will play a valued role in the partnership.

5. Learning and Development-A healthy partnership promotes an atmosphere of learning. This may involve monitoring and evaluation aimed at improving members’ performance. An open mindset and the desire to invest in partners’ skills and knowledge will create opportunities to shape each other’s work and learn together. In this environment, members can reflect honestly on both successes and failures.

6. Communication-If a partnership is going to succeed, there must be effective communication at all levels within the partnership and inside each partner organization. In addition, strong feedback loops should be outlined from the beginning of the relationship so that all stakeholders receive timely information.

7. Performance Management-The appropriate partnership structure, management practices, and resources must be in place to achieve the intended purpose of the partnership. Members must demonstrate both accountabilities for their actions and ownership for delivering on the objectives and targets for which they are responsible.

Distinguish between 'Fixed Capital Account' and 'Fluctuating Capital Account' on the basis of credit balance.

Basis	Fixed Capital Method	Fluctuating Capital Method
Credit Balance	Under this method, Partners' Capital Account always reveals a credit balance.	Under this method, Partners Capital Account may either show a credit balance or a debit balance.

X, Y and Z are partners. The partnership agreement is silent. State whether the firm is dissolved in each of the following alternative cases:
Case (a): If X, Y, Z are declared as insolvent,
Case (b): If X and Y are declared as insolvent,
Case(c): If only X is declared as insolvent.

Solution:
Cases (a) and (b)
Section to which the given problem relates: Section 41.
Decision and Reason: Cases (a) and (b) Yes, The firm is compulsorily dissolved because Section 41 specifically provides for the same. The firm does not exist at all because there must be at least two persons to constitute a firm.
Case (c): Section to which the given problem relates: Section 42.
Decision and Reason:
If the partnership agreement is silent, a firm is dissolved by the adjudication of a partner as an insolvent.

X, Y and Z are partners. On 01/01/1997, Z applies for insolvency. On 01/02/1997, He endorses a Bill of Exchange in favour of W. On 01/03/He is declared insolvent. Does W acquire a good title to the Bill?

Solution: Section to which the given problem relates: Section 34.
Decision: Yes.
Reason: Z was a partner when the Bill was endorsed. He ceased to be a partner on the date on which order of adjudication is made, i.e. 01/03/1997.

X, Y and Z are partners. Z gives notice of retirement to, the other partners but does not give public notice of it. W gives credit to the firm without having notice of the change. Can W sue Z if (a) Z is an active partner, (b) Z is a dormant partner (sleeping partner)?

Solution: Section to which the given problem relates: Section 32(3).
Decision and Reason:
Part (a) A retiring partner is liable for firm's acts done after his retirement if no public notice is given.
Part(b) A retiring partner is not liable to any third party who deals With the firm without knowing that he was a partner.

X, Y and Z are partners and there is no provision in the partnership agreement for duration of the partnership. State whether the firm is dissolved in each of the following alternative case:
Case (a) If X gives a notice in writing to Y of his intention to dissolve the firm on 31.03.99.
Case(b):If X gives a notice in writing to Y on 31.03.99 and to Z on 02.04.The notice contained X's intention to dissolve the firm. But the date of dissolution was not mentioned in the notice.
Case (C): If in case (b), it was mentioned in the notice that the firm will be dissolved from 1st May 1999.

Solution:
Decision and Reason:
Case (a): The firm-is not dissolved since notice was not given to Z. It should be given to all partners.
Case (b) The firm is dissolved of 02.04.99 because the communication of notice to all other partners completes on 02.04.99. If the date of dissolution is not mentioned in the notice, the firm Is dissolved from the date of the communication of the notice.
Case (c): The firm is dissolved from the date mentioned in the notice as the date of dissolution, i.e. 01.05.99.

X, Y and Z are partners. The majority of the partners decide t dissolve the firm. Discuss the legal position.in?each of the following alternative cases
Case (a): The partnership agreement is silent.
Case (b) The partnership agreement provides for dissolution by. Mutual. Agreement only.
Case(c): The partnership agreement provides for dissolution. By any. Majority of the partner

Solution: Section to which the given problem relates: Section 40
Decision and Reason:
Case (a): The firm cannot be dissolved by majority of partners If partnership agreement is silent, the firm can be dissolved with the consent of all the partners.
Case (b): The firm cannot be dissolved by majority of partners because the partnership agreement provided for dissolution by mutual agreement, i.e. with the consent of all the partners.
Case (c): The firm can be dissolved by majority of partners because the partnership agreement provides for the same.

Answer briefly the following question:
Give the adjusting entry and closing entry for interest on loan taken by a partner from the firm, when the firm follows the Fluctuating Capital Method.

Adjusting entry:

Partner's Capital A/C Dr.

To Interest on Loan to Partner A/C

Closing entry:

Interest on Loan to Partner A/C Dr.

To Profit and Loss A/C.

The capital accounts of Amar and Harsh stood at $Rs. 20,000$ and $Rs. 30,000$ respectively after the necessary adjustments in respect of drawings and net profit for the year ended 31 $^{st}$ March,It was subsequently ascertained that interest on capital @ $12\%$ per annum was not taken into account while arriving at the divisible profits for the year
During the year 2016-17, Amar had withdrawn $Rs. 2,000$ and Harsh's drawings were $Rs. 1,000$ .
The net profit for the year amounted to $Rs. 15,000$
The partners shared profits and losses in the ratio of $3:2$
You are required to pass the necessary journal entries to rectify the error in accounting.

Opening capital is calculated using the formula given below:

$Opening\quad capital=\quad Closing\quad capital+Drawings-Profit$

Using the above equation

Amar's opening capital = Rs20,000+2000-9000 = Rs13,000

Harsh's opening capital =Rs30,000+1000-6000 = Rs25,000

Past Adjustment Table

Particular	Amar	Harsh	Firm
Interest on capital Wrong profit taken back in 3:2 Right profit given in 3:2 Balance	1,560 (Cr.) 9,000 (Dr.) 6,264 (Cr.) 1,176 (Dr.)	3,000 (Cr.) 6,000 (Dr.) 4,176 (Cr.) 1,176 (Cr.)	4,560 ( Dr.) 15,000 ( Cr.) 10,440 (Dr.) Nil

Journal entry for rectification

Amar's capital a/c Dr. Rs1,176

To Harsh's capital a/c Rs1,176

Asif and Ravi are partners in a firm, sharing profits and losses in the ratio of $3:2$ . Their fixed capitals as on 1 $^{st}$ April, 2016, were $Rs. 6,00,000$ and $Rs. 4,00,000$ respectively.
Their partnership deed provides for the following:
(a) Partners are to be allowed interest on their capital @ $10\%$ per annum.
(b) They are to be changed interest on drawings @ $4\%$ per annum
(c) Asif is entitled to a salary of $Rs. 2,000$ per month.
(d) Ravi is entitled to a commission of $5\%$ of the correct net profit of the firm before charging such commission.
(e) Asif is entitled to a rent of $Rs. 3,000$ per month for the use of his premises by the firm.
The net profit of the firm for the year ended 31 $^{st}$ March, 2017, before providing for any of the above clauses was $Rs. 4,00,000$
Both partners withdrew $Rs. 5,000$ at the beginning of every month for the entire year.
You are required to prepare a Profit and Loss Appropriation Account for the year ended 31 $^{st}$ March, 2017.

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Answer the question.
What is Profit and Loss Appropriation Account?

In case of sole proprietorship, there is only one owner and net profit is transferred to the capital account. But in case of partnership, there are a number of owners(partners) who have various claims on profits viz salaries, interest on capital, interest on loan, commission, etc. To facilitate the distribution of net profit, Profit and Loss Appropriation A/c is prepared.

What is the maximum number of partners that a partnership firm can have? Name the Act that provides for the maximum number of partners in a partnership firm.

Partnership is governed by Indian Partnership Act,1932. Its the relation between persons who have agreed to share profits of a business carried on by them.

The partnership Act does not lay down any maximum number of partners. But according to section 464,Rule 10 of Companies miscellaneous Rules,2014, maximum number of partners is 100. According to section 11 of the Companies Act, 1956 a partnership for a banking business must not have more than 10 partners and for other business it must not exceed 20.

X and Y contribute Rs 20,000 and Rs.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 Rs.1,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.

Calculation of interest on capital.

Interest on X capital

$20,000 \times \dfrac{6}{100} = Rs \, 1200$

Interest on Y's capital

$10,000 \times \dfrac{6}{100} = Rs \, 600$

Total interest

$(1200 + 600) = Rs 1800$

Total profits available =

$Rs. 1500$

As total interest on capital is more than total profits, so profits of Rs

$1500$ to be distributed between X & Y as per their interest on capital ratio.

$X : Y$

Interest on capital =

$1200 : 600$ or

$2 : 1$

$\therefore$ X share =

$1500 \times \dfrac{2}{3} = Rs \, 1000$

Y share =

$1500 \times \dfrac{1}{3} = Rs \, 500$
Part (ii)
When interest on capital is charge, complete interest on capital will be charged.
Total interest = Rs. 1800
Total Profit = Rs. 1500
There is loss of Rs. 300. This loss of Rs. 300 will be distributed between X and Y in 2:3 ratio.
X share of loss = 300*2/5 = Rs. 120
Y share of loss = 300*3/5 = Rs. 180.

Why is Profit and Loss Appropriation Account prepared?

While preparing the final accounts of a partnership firm it is preferable to ascertain the net profit of the firm before any personal adjustments of the partners are adjusted. This will show separate results for the business activities and facilitate comparisons year after year.

All adjustments like partner's salary, commission, bonus, interest on capital, loans, drawings, and sharing of profits are passes through a separate account called Profit & Loss Appropriation Account.

Thus, the profit and loss Appropriation account are prepared to show how net profit is distributed among the partners.

Is Interest on Loan by partner debited to Profit and Loss Appropriation Account?

The profit and loss appropriation account is opened to show the distribution of net profit among the partners. It is an extension of the profit and loss accounts.

Profit and loss appropriation account is debited with items that are the appropriation of profits. An appropriation of profit is the distribution of net profit. Interest on a loan by a partner is not an appropriation of profit. So,it is debited to profit and loss account.

List the items that are credited to Profit and Loss Appropriation Account.

Profit and loss Appropriation account is prepared to show the distribution of net profit among the partners. It is only an extension of profit and loss account.

The profit and loss appropriation account is credited with items which are appropriation of profits. Such items are:-

1.Net profit from Profit and loss account.

2.Interest on Drawings.

A group of 40 people want to form a partnership firm. They want your advice regarding the maximum number of persons that can be there in a partnership firm and name of the Act under whose provision it is given.

The maximum number of partners that a partnership firm can form is 50. The limit has been given as per the Rule (10) of Companies (Miscellaneous) Rules Act, 2014.

Pratibha, partner of a firm, has advanced loan to the firm of $Rs. 1,00,000$ . The firm does not have a Partnership Deed. Will Pratibha get interest on the loan? If yes, at which rate and why?

A partner apart from capital contribution can advance some amount in excess of the capital, this excess is termed as a loan to the firm. A partner is eligible for interest on loan @ 6% p.a. Even if there is no partnership deed or no provision in the partnership deed, still interest on the loan is payable to the partner. Such interest on the loan is payable even if there is a loss.

So, Pratibha is entitled to 1,00,000*6% = 6,000 as interest on loan.

State the two methods of maintaining Capital Accounts of partners.

There are two methods of maintaining capital Accounts.

1. Fixed Capital Method:- In this method, two accounts of each partner are maintained i.e Capital and Current Account. Balance in Capital Account remains the same except when new capital is introduced or withdrawn. All adjustments like profit, loss, interest on capital, drawings, salary, commission, etc are made through current account. The capital account will always have a credit balance while current account may have a debit and credit balance.

2. Fluctuating Capital Method:- In this method, only one account is maintained i.e Capital Account. The balance in capital account changes every year because of all adjustments like profits/losses, drawings, interest, salary, etc. Fluctuating capital account may sometimes show a debit balance.

M/s. RSA maintains Partners' Capital Accounts under Fixed Capital Accounts Method. Accountant of the firm has credited their salary and interest on capital to their Capital Accounts. Do you agree with the treatment? Give reasons for your answer.

For maintaining the capital accounts of the partner two methods are prescribed:- Fixed Capital Method and Fluctuating Capital Method. Under Fixed Capital Method there are two separate accounts i.e Capital account and Current account. The capital account remains fixed year to year except when there is an introduction of new capital or withdrawal. In fluctuating Capital method, only one account is maintained that is capital account and every adjustment is made through this account.

M/s. RSA maintains partners' Capital Accounts under Fixed Capital Accounts Method. As a result of which he has to make every adjustment through the current account only without affecting the capital account. So, the treatment by the accountant to credit their salary and interest on capital to capital accounts is wrong.

Is there any restriction on maximum number of partners? If yes, name the Act under which it is prescribed.

There is no maximum number of partners prescribed in the Indian Partnership Act, 1932 but according to Section 464 of the Companies Act, 2013 read with Rule 10 of Companies (Miscellaneous) Rules 2014, maximum number of partners are 50.

Neha, a partner, owns a building in which the firm carries its business. The firm pays her $Rs. 10,000$ as rent of the building. To which account rent will be debited?

When a partner advances some amount more than the capital invested it is termed as loan by partner. But when some fixed assets are given by partners to the firm for carrying on the business, then its not termed as loan. Neha, a partner owns a building and firm carries on its business in her premises. In turn,the firm pays her rent.This rent is an expense for the firm. So, rent will be debited to Profit and Loss Account of the partnership firm.

State the provisions of Indian Partnership Act regarding the payment of remuneration to a partner for the services rendered.

According to Indian Partnership Act, 1932, no remuneration shall be paid to any partner in the absence of any partnership deed.

Remuneration shall be paid at an agreed rate, if relevant provisions regarding the same has been provided in the partnership deed.

How will you calculate interest on the drawings of equal amount made on the last day of every month of a calendar year?

Drawings can be made by any partner on various time and amounts. If drawings are made by a partner of equal amounts on the last day of every month, then interest on his total drawings for a period will be equal to interest on his total drawings for a period of 5.5 months

For Example:- If Rs 5000 is drawn by X at the end of each month (interest on drawings= 10%p.a)

Interest on drawings = 5,000 * 5 1/2 * 10%

= 5,000*5.5/12*10/100

= 229.17

If a fixed amount is withdrawn on 15th day of every month of a calendar year, for what period will the interest on total amount withdrawn be calculated?

Drawings can be made by partners at the beginning, middle, or end of each month.

If a partner withdraws a fixed amount in the middle of each month, interest will be calculated on his total drawings for a period of 6 months.

Here, as the drawings are made at regular intervals as on the 15th day of each month, then Interest will be calculated for 6 months.

For Example:- If Rs. 3000 is withdrawn in the middle of every month (interest on drawings @10%)

Total drawing = 3000X12 = 36000

Interest of drawing = Total DrawingX10/100X6/12

Interest on Drawing = 1800.

When the partners' capitals are fixed, where will the drawings made by a partner be recorded?

In case of Fixed Capital method, two accounts are opened for recording the transactions.

1. Capital Account which records the introduction of capital. It remains fixed year after year otherwise than where there is an introduction of new capital and withdrawal of capital.

2. Current Account which records all other adjustments like salary, commission, interest on capital,drawings etc.

So, when the partner's capital are fixed,drawings made by a partner will be recorded in the current account debit side.

To which account salary and commission to partners and interest on capital be debited? Why?

Profit and loss Appropriation account is prepared to show the distribution of net profit among the partners. It is only an extension of profit and loss account.

The profit and loss appropriation account is debited with items which are appropriation of profits.

So, salary and commission to partners and interest on capital being an appropriation of profit is debited to profit and loss appropriation account.

How is interest on drawings calculated, if the drawings are made at regular intervals, as on the 15th day of each month?

Drawings can be made by partners in the beginning,middle or end of each month.

If a partner withdraws fixed amount in the middle of each month,interest will be calculated on his total drawings for a period of 6 months.

Here,as the drawings are made at regular intervals as on 15th day of each month,then Interest will be calculated for 6 months.

For Example:- If Rs. 3000 withdrawn in the middle of every month (interest on drawings @10%)

Interest on drawings= 3000*10%*6/12

= 150

Under what circumstances Average Method of calculating interest on drawings is applied?

Interest on drawings can be calculated by two methods:-

1.Simple Average Method, and

2.Product Method.

Average Method of calculating interest on drawings can be used under these circumstances:-

1. When fixed amounts are drawn at equal intervals let say monthly/quarterly/annually.

2. When fixed amounts are withdrawn in the beginning of the month.

3. When fixed amounts are drawn at the end of the month

4. When fixed amounts are drawn in the middle of the month.

Name the method of calculating Interest on Drawings of the partner if different amounts are withdrawn on different dates.

When different amounts are withdrawn on different dates, then PRODUCT METHOD of calculating interest on drawings is used.

Under this method, the amount of each drawing is multiplied by its time duration. After that, all the products are added together and interest is calculated on the total of products for a month.

Interest on Drawings = Total products*rate of interest*1/12

Why is it that the Capital Account of a partner does not show a 'Debit Balance' in spite of regular and consistent losses year after year?

Capital Account shows a credit balance only under fixed capital account method.As all other adjustments are made through current account. Capital account only records the introduction of capital and it remains fixed year after year except when there is introduction of additional capital and withdrawal of capital.

But under fluctuating capital method,all adjustments are made through capital account of the partners.So, in this case it may have a debit or credit balance.

If the partners' capitals are fixed, where will you record interest charged on drawings?

If the partners' capital are fixed, then there are two accounts that need to be opened for recording the transactions. One is Capital Account and other is Current Account.

Capital Account records the introduction of capital and if there is any introduction of new capital and withdrawal of capital. It remains fixed year after year. Current account records all other adjustments.

So, interest on drawings will be recorded in the current account.

If A draws $Rs. 15,000$ every month at the end of the month, what will be the Interest $@ 5\% p.a.$ ?

If drawings are made by a partner in fixed amount at the end of every month,then interest on his total drawings for a period of 5 1/2 months shall be calculated.

A draws Rs 15,000 every month at the end of the month. So,interest @ 5%p.a will be calculated in the following way:-

Interest on A's Drawings= 15,000* 12 * 5%*5 1/2

= 180000 *5/100*5.5/12

= 4125

$A$ and $B$ are partners in a firm sharing profits equally. They had advanced to the firm equally a total sum of Rs. 30,000 as a loan in their profit-sharing ratio on 1st October,The Partnership Deed is silent on the question of interest on the loan from partners. Compute the interest payable by the firm to the partners, assuming the firm closes its books on 31st March each year.

Each partner's loan = Rs.30,000/2 = Rs.15,000.

Interest on each partner's loan

$= Rs. 15,000 \times \dfrac{6}{100} \times \dfrac{6}{12} = Rs. 450$

$X$ and $Y$ are partners sharing profits and losses in the ratio of $2 :3$ with capitals of $Rs. 2,00,000$ and $Rs. 3,00,000$ respectively. On 1st October, 2017, $X$ and $Y$ granted loans of $Rs. 80,000$ and $Rs. 40,000$ respectively to the firm. Show distribution of profits/losses for the ended 31st March, 2018 in each of the following alternative cases:
CaseIf the profits before interest for the year amounted to Rs. 21,
CaseIf the profits before interest for the year amounted to t Rs. 3,000.
CaseIf the profits before interest for the year amounted to Rs. 5,00,
CaseIf the loss before interest for the year amounted to Rs. 1,400.

Assuming that there is existence of partnership deed among the partners.

Interest on capital and loan @ 6%p.a is to be paid. But as there is no enough profits,interest on capital cannot be provided for.

Case 1.

Net profit = 21,000

less:Interest on loan

X= 80,000*6%*1/2 = 2400

Y = 40,000*6%*1/2=1200 3,600

Share of profits 17,400

X = 6,960

Y= 10,440

Case 2.

Net profit = 3,000

Less:- interest on loan =( 3,600)

Loss =(600)

Interest on loan is to be provided even if there is loss.

Case 3.

Net profit = 5000

Less: Interest on loan = 3,600

Remaining profit = 1,400

Share of profit

X = 560

Y = 840

Case 4.

Net Loss = 1,400

Less:Interest on Loan = (3,600)

Loss = (5,000)

In profit & loss A/c loss transfer to partners capital A/c

X= 2000

Y= 3000

Following differences have arisen among $P, Q$ and $R$ . State who is correct in following case:
$P$ and $Q$ want to purchase goods from A Ltd., $R$ does not agree?

Partnership is relation between 2 or more persons sharing profits of the business carried on by them. It is based on a mutual relationship and understanding.

For every decision regarding the partnership business, every partner need to give his/her consent to that effect. If any of the partner disagrees, then it cannot be enforced.

So, without the consent of R, P and Q cannot purchase goods from A Ltd.

Following differences have arisen among $P, Q$ and $R$ . State who is correct in following case:
$Q$ and $R$ want to admit $C$ as partner, $P$ does not agree?

Partnership is relation between two or more persons sharing profits of the business carried on by them. It is based on a mutual relationship and understanding.

For every decision regarding the partnership business, every partner needs to give his/her consent to that effect. If any of the partner disagrees, then it cannot be enforced.

So, Q and R cannot admit C as a partner without the consent of P.

Distinguish between Fixed and Fluctuating Capitals.

Fixed Capitals	Fluctuating Capital
Two accounts are maintained i.e Capital and Current Accounts	Only one account is maintained i.e Capital Account.
Balance in capital account remains same except when fresh capital is introduced or withdrawal of capital.	Balance in capital account changes every year because of adjustments like salary,commission,interest on drawings etc.
All adjustments like interest on capital,drawings,salary,commission etc are made through current account.	All adjustments are made through capital account.
Capital account will always have a credit balance while current account may have a debit or credit balance.	fluctuating capital account may have a debit balance.

State the two situations in which interest on Partners' Capital is generally provided.

Interest on capital is provided in these two situations:-

When there is a provision in the partnership deed for providing the interest on capital. If the partnership deed is silent or does not exist, then interest on capital contribution cannot be allowed.
Interest on capital can only be provided for when there are profits. In case of loss, no interest on capital can be allowed even if partnership deed contains such provision.

State any four features of a Partnership.

Features of a Partnership are as follows:

1. Two or more persons: To form a partnership, there must be a minimum of two persons. The maximum number of persons in a partnership is 10 for a banking firm and 20 for any other business.

2. Agreement between the partners: A Partnership is created by an agreement between the partners. It is neither created by the operation of law nor by status. The agreement may be written or oral. It forms the basis of the economic relationship between the partners.

3. Sharing of Profits: The agreement should be such so as to earn and share profits of the business. Charity is not a type of partnership. The profit sharing ratio is determined by the partners by a mutual agreement between them. In the absence of such agreement, the profits are shared equally among them.

4. Common Goal: The common goal of all partners is to carry out a legal business. A joint ownership of property cannot be termed as a partnership. The firm's business can be carried out by all the partners or by any one of them acting for all. Partnership is based on the mutual agency relationship; i.e, the partner acts as the agent as well as the principal of the firm.

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

Even if there is no partnership deed, the following provisions shall still apply:

Partners share profits and losses equally even if they contribute capital in different amounts.
Every partner has right to participate in the conduct of the business and to access the books, accounts and other documents.
Partners are not entitled to interest on capital and to draw any salary for the work done.
Partners are allowed to receive interest on any loan advanced by them @ 6%p.a.
No interest is to be charged on drawings.

$A$ and $B$ are partners from 1st April, 2017, without a Partnership Deed and they introduced capitals of $Rs. 35,000$ and $Rs. 20,000$ respectively. On 1st October, 2017, $A$ advances a loan of $Rs. 8,000$ to the firm without any agreement as to interest. The Profit and Loss Account for the year ended 31st March, 2018 shows a profit of $Rs.15,000$ but the partners cannot agree on payment of interest and on the basis of division of profits.
You are required to divide the profits between them giving reasons for your method.

As there is no partnership deed, some provisions of the Indian Partnership Act, 1932 shall apply. Partners are not entitled to any interest on the capital contributed by them and cannot withdraw any salary for the work done by them for the business. They are eligible for interest on any loan advanced by them to the firm @ 6%p.a.

Profits should be shared equally irrespective of the amount of capital contributed.

Hence, the distribution of profits should be carried out in the following ways:-

Net profit as per profit& loss Account = Rs.15,000

Less: interest on A's loan = Rs.8,000*6%*6/12 = (Rs.240)

profits remaining = Rs.14,760

Share of profits

A = Rs.7,380

B= Rs.7,380

Bat and Ball are partners sharing the profits in the ratio of $2 : 3$ with capitals of $Rs. 1,20,000$ and $Rs. 60,000$ respectively. On 1st October, 2017, Bat and Ball granted loans of $Rs. 2,40,000$ and $Rs. 1,20,000$ respectively to the firm. Bat had allowed the firm to use his property for business for a monthly rent of $Rs. 5,000$ . The loss for the year ended 31st March, 2018 before rent and interest amounted to $Rs. 9,000$ . Show distribution of profit/loss.

Profit and Loss Appropriation account

(for the year ended 31st March, 2018)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Loss b/d (before interest)	9000	By loss transferred to: - Bat's Capital a/c - Balls' Capital a/c	7920 11880
To interest on Bat's loan	7200
To interest on Balls' loan	3600
	19800		19800

Working Note:

1. Interest on Bat's loan for 6 months= Rs.2,40,000 * 6/100 * 6/12 = Rs.7,200

2. Interest on Ball's loan for 6 months= Rs.1,20,000 * 6/100 * 6/12= Rs.3,600

Prem and Manoj are partners in a firm sharing profits in the ratio of $3: 2$ . The Partnership Deed provided that Prem was to be paid salary of $Rs. 2,500$ per month and Manoj was to get a commission of $Rs. 10,000$ per year. Interest on capital was to be allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. Interest on Prem's drawings was $Rs.1,250$ and on Manoj's drawings was $Rs. 425$ . Interest on Capitals of the partners were $Rs. 10,000$ and $Rs. 7,500$ respectively. The firm earned a profit of $Rs. 90,575$ for the year ended 31st March,
Prepare Profit and Loss Appropriation Account of the firm.

Profit and Loss Appropriation a/c

(for the year ended 31st March,2018)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Salary to Prem (2500 * 12)	30000	By Profit and Loss a/c	90575
To Interest on Capital: - Prem - Manoj	10000 7500	By Interest on Drawings: - Prem - Manoj	1250 425
To Commission to Manoj	10000
To Profit transferred to: - Prem's Capital a/c - Manoj's Capital a/c	20850 13900
	92250		92250

Ashish and Aakash are partners sharing profit in the ratio of $3 : 2$ . Their Capital Accounts showed a credit balance of $Rs. 5,00,000$ and $Rs. 6,00,000$ respectively as on 31st March, 2018 after debit of drawings during the year of $Rs. 1,50,000$ and $Rs. 1,00,000$ respectively. Net profit for the year ended 31st March was $Rs. 5,00000$ . 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.

Profit and Loss Appropriation Account

Interest on capital Ashish = 65000 Aakash = 70,000	135000	Net Profit	5,00,000
Share of profits Ashish = 219000 Aakash = 146000	365000
Total	5,00,000	Total	5,00,000

Journal Entry for Interest on Capital

Profit and Loss Appropriation Account Dr. 135000

To Ashish Capital A/c 65000

To Aakash Capital A/c 70000

(Being Interest on capital credited to partner's capital account)

Working Note:-

Calculation of opening capital:-

Ashish opening capital = Closing capital + Drawing = 500000+150000=650000

Aakash opening capital = Closing capital + Drawing = 600000+100000=700000

So, IOC = Ashish = 650000*10/100 =65000

IOC = Aakash = 700000*10/100 = 70000

Naresh and Sukesh are partners with capitals of $Rs. 3,00,000$ each as on 31st March,Naresh had withdrawn $Rs.50,000$ against capital on 1st October, 2017 and also $Rs. 1,00,000$ besides the drawings against capital. Sukesh also had drawings of $Rs. 1,00,000$ .
Interest on capital is to be allowed @ 10% p.a.
Net profit for the year was $Rs.2,00,000$ , which is yet to be distributed.
Pass the Journal entries for interest on capital and distribution of profit.

Journal entries for Interest on Capital

Profit and Loss Appropriation A/c Dr. 82500

To Naresh Capital A/c 42,500

To Sukesh Capital A/c 40,000

(Being interest on capital paid on partner's capital)

Assuming that there is no provision regarding interest on drawings.

Profit and Loss Appropriation A/c Dr 1,17,500

To Naresh Capital A/c 58,750

To Sukesh Capital A/c 58,750

(Being distribution of remaining profit equally)

Working Note:-

Calculation of Interest On capital

Naresh : 4,50,000*10/100*6/12 = 22500

400000*10/100*6/12 = 20000

Total IOC of Naresh capital = 42500

Sukesh : 400000*10/100 = 40000

Calculation of opening capital

Naresh Opening Capital = Capital at the end + Out of capital drawing + Against profit drawing.

Naresh Opening Capital = 300000+50000+100000

Naresh Closing Capital = 4,50,000

Sukesh Opening Capital = Capital at the end + Against profit drawing

Sukesh Opening Capital = 300000+100000

Sukesh Opening Capital = 400000

X and Y are partners in a firm. X is entitled to a salary of Rs. 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 Rs. 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, 2018 was Rs. 4,20,Show, distribution of profit.

PROFIT AND LOSS APPROPRIATION A/C

(for the year ended 31st March, 2018)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Partner's Salary a/c - X (10000*12) - Y	120000 25000	By Net Profit a/c	420000
To Partner's Commission a/c - X - Y	27500 22500
To Profit transferred to: - X's Capital a/c - Y's Capital a/c	112500 112500
	420000		420000

Working Note:

Calculation of partner's commission:

Commission to X= Profit after partner's salary but before charging such commission

Profit after salary= 420000-145000

= 275000

X's commission= 275000* 10/100

= 27500

Commission to Y= Profit after partner's salary and commission

Profit after salary and commission= 420000-145000-27500

= 247500

Y's commission= 247500 * 10/110

= 22500

Amar and Bimal entered into partnership on 1st April, 2017 contributing $Rs. 1,50,000$ and $Rs. 2,50,000$ 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 $Rs. 1,00,000$ for the year ended 31st Match,
Pass the Journal entry for interest on capital.

As capital accounts of the partners are maintained by following Fixed Capital Account method, the interest on capital should be credited to partners current account.

The journal entry for interest on capital is:-

Profit and Loss Appropriation Account Dr. 40,000

To Amar's Current A/c 15,000

To Bimal's Current A/c 25,000

(Being interest on capital paid to partners)

$A$ and $B$ are partners. A's Capital is $Rs. 1,00,000$ and B's Capital is $Rs. 60,000$ . Interest on capital is payable @ 6% p.a. $B$ is entitled to a salary of $Rs. 3,000$ per month. Profit for the current year before interest and salary to B is $Rs. 80,000$ .
Prepare Profit and Loss Appropriation Account.

Profit and Loss Appropriation a/c

( for the year ended......)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Interest on capital - A - B	6000 3600	By Profit a/c (before interest and salary)	80000
To Salary to B (3000*12)	36000
To Profit transferred to: - A's Capital a/c - B's Capital a/c	17200 17200
	80000		80000

X and Y shared profit and losses in the ratio of $3:2$ . With effect from 1st April, 2018 they agreed to share profits equally. The goodwill of the firm was valued at Rs. $60,000$ . The necessary single adjustment entry will be :

New profit sharing ratio is 1/2:1/2.

Share of Goodwill as per old ratio

X = Rs.60000 *3 = Rs.36000

Y = Rs.60000 *2 = Rs.24000

As per new ratio, Share of Goodwill will be Rs.30000 to X and Rs.30000 to Y. Hence an adjustment entry need to be passed for adjustment of Goodwill for Rs.6000.

X A/c Dr. 6000

To Y A/c 6000

(Being different of goodwill as per old ratio and new ratio is adjusted)

Simran and Reema are partners sharing profits in the ratio of $3 : 2$ . Their capitals as on 31st March, 2017 were $Rs. 2,00,000$ each whereas Current Accounts had balances of $Rs. 50,000$ and $Rs. 25,000$ respectively. Interest is to be allowed @ 5% p.a. on balances in Capital Accounts. The firm earned net profit of $Rs. 3,00,000$ for the year ended 31st March, 2018.
Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.

1. Dr. Profit and Loss Appropriation A/c by

$Rs. 20,000$
Cr. Simran's Current A/c by

$Rs. 10,000$ and Reema's Current A/c by

$Rs.10,000$ ;
2. Dr. Profit and Loss Appropriation A/c by

$Rs. 2,80,000$ ;
Cr. Simran's Current A/c by

$Rs. 1,68,000$ and Reema's Current A/c by

$Rs. 1,12,000$ .

Working Notes:

1. Interest on Capital

$= \dfrac{5}{100}\times Rs. 200000 = Rs. 10000$ each.

2. Available profit for distribution

$Rs. 300000 - Rs. 20000 = Rs. 280000$

3. Profit distribution among partners :

Simran

$= \dfrac{3}{5}\times Rs. 280000 = Rs. 168000$

Reema

$= \dfrac{2}{5}\times Rs. 280000 = Rs. 112000$

$X, Y$ and $Z$ are sharing profit and losses in the ratio of $5:3:2$ . They decide to share future profits and losses in the ratio of $2:3:5$ with effect from $1st$ April, $2018$ . They also decided to record the effect of the following accumulated profits, losses and reserves without affecting their book values by passing a single entry.
Book value (Rs.)
General Reserve $6,000$
Profit and Loss A/c (Credit) $2,40,000$
Advertisement Suspense A/c $12,000$

Z's Capital a/c..............Dr. 70200

To X's Capital a/c 70200

(Being adjustment entry passed)

Working notes:

1. Amount to be distributed = general reserve + P and L a/c - advertisement suspense

= 6000 +240000 -12000 = 234000

2. Calculation of sacrifice and gain

X: 2/10-5/10 = (3/10) sacrifice

Z: 5/10 - 2/10 = 3/10 gain

X and Y are partners sharing profits in the ratio of 2:On 31st March, 2018 their Balance Sheet showed General Reserve of Rs. 60,It was decided that in future they will share profits and losses in the ratio of 3:Pass necessary Journal entry in each of the following alternative cases:-
(i) If General Reserve is not be shown in the new Balance Sheet.
(ii) If General Reserve is to be shown in the new Balance Sheet.

Journal entry in case 1:

General Reserve a/c Dr. 60,000

To X's capital a/c 40,000

To Y's capital a/c 20,000

(Being, Adjustment in balance sheet in old ratio)

Journal entry in case 2:

Y's capital a/c Dr. 4,000

To X's capital a/c 4,000.

(Being, Adjustment in balance sheet in gaining and sacrificing ratio)

Calculation of gaining and sacrifice ratio.

Old ratio - New ratio

X = 2/3 - 3/5 = 1/5 (sacrifice)

Y = 1/3 - 2/5 = -1/5 (Gain)

Calculate interest on drawings of Mr. Ashok @ 10% p.a. for the year ended 31st March, 2018, in each of the following alternative cases:
CaseIf he withdrew Rs. 7,500 in the beginning of each quarter.
CaseIf he withdrew Rs. 7,500 at the end of each quarter.
CaseIf he withdrew Rs. 7,500 during the middle of each quarter.

Total drawings= 7500 * 4

=30000

Rate= 10%

Case 1: If he withdrew 7500 in the beginning of each quarter-

Note: When equal amount of drawings is withdrawn at the beginning of each quarter, interest is calculated for a period of 7.5 months.

Hence,

Interest on drawings= 30000 * 10/100 * 7.5/12

= 1875

Case 2: If he withdrew 7500 at the end of each quarter-

Note: When equal amount of drawings is withdrawn at the end of each quarter, interest is calculated for a period of 4.5 months.

Hence,

Interest on drawings= 30000 * 10/100 * 4.5/12

= 1125

Case 3: If he withdrew 7500 during the middle of each quarter-

Note: When equal amount of drawings is withdrawn during the middle of each quarter, interest is calculated for a period of 6 months.

Hence,

Interest on drawings= 30000 * 6/12 * 10/100

= 1500

Kanika and Gautam are partners doing a dry cleaning business in Lucknow, sharing profits in the ratio 2 : 1 with capitals Rs. 5,00,000 and Rs. 4,00,000 respectively. Kanika withdrew the following amounts during the year to pay the hostel expenses of her son:
1st April Rs. 10,000
1st June Rs. 9,000
1st November Rs. 14,000
1st December Rs. 5,000
Gautam withdrew Rs. 15,000 on the first day of April, July; October and January to pay rent for the accommodation of his family. He also paid Rs. 20,000 per month as rent for the office of partnership which was in a nearby shopping complex.
Calculate interest on drawings @ 6% p.a.

1. Calculation of interest on Kanika's drawings:

(a) Date of withdrawal- 1st April

Amount withdrawn= 10000

Number of months= 12

Total amount of drawings= 10000*12

= 120000

(b) Date of withdrawal- 1st June

Amount withdrawn= 9000

Number of months= 10

Total amount of drawings= 9000*10

= 90000

Amount withdrawn= 14000

Number of months= 5

Total amount of drawings= 14000*5

= 70000

(d) Date of withdrawal- 1st December

Amount withdrawn= 5000

Number of months= 4

Total amount of drawings= 5000*4

= 20000

Hence, Total amount of drawings= 120000+90000+70000+20000

= 300000

Interest on drawings= 300000* 6/100* 1/12

= 1500

2. Calculation of interest on Gautam's drawings:

Gautam withdrew 15000 at the beginning of every quarter, interest on drawings will be calculated for a period of 7.5 months.

Interest on drawings= [15000*4] * 7.5/12 * 6/100

= 2250

Ram and Mohan are partners in a business. Their capitals at the end of the year were Rs. 24,000 and Rs. 18,000 respectively. During the year, Ram's drawings and Mohan's drawings were Rs. 4,000 and Rs. 6,000 respectively. Profit (before charging interest on capital) during the year was Rs. 16,Calculate interest on capital @ 5% p.a. for the year ended 31st March, 2018.

Calculation of Capital balance in the beginning:

Particulars	Ram	Mohan
Capitals at the end of the year	24000	18000
Less: Profit already credited	(8000)	(8000)
Add: Drawings already debited	4000	6000
Capital at the beginning of the year	20000	16000

Note: Interest on capital is always calculated on the opening balance of the partner's capital.

Ram's interest on capital= 20000 * 5/100

= 1000

Mohan's interest on capital= 16000 * 5/100

= 800

A and B are partners sharing Profit and Loss in the ratio of 3 : 2 having Capital Account balances of Rs. 50,000 and Rs. 40,000 on 1st April,On 1st July, 2017, A introduced Rs. 10,000 as his additional capital whereas B introduced only Rs. 1,Interest on capital is allowed to partners @ 10% p.a.
Calculate interest on capital for the financial year ended 31st March, 2018.

Calculation of Interest on Capital

A= Interest on 50,000@10% = 5,000

Interest on 10,000@10% for

9 months i.e 10000 * 10% * (9/12) = 750

Total Interest on A's Capital = 5750

B= Interest on 40,000@10% = 4000

Interest on 1000@10%for

9 months = 75

Total Interest on capital = 4075

A partnership firm earned net profit during the last three years ended $31^{st}$ March, as follows:
2016 - Rs. $17,000$ 2017 - Rs. $20,000$ 2018 - Rs. $23,000$ . The capital investment in the firm throughout the above mentioned period has been Rs. $80,000$ . Having regard to the risk involved, $15%$ is considered to be a fair return on the capital. Calculate value of goodwill on the basis of two years purchase of average super profit earned during the above mentioned three years.

Step 1: Calculation of Normal Profit:

Normal profit= Capital employed * [ Normal rate of return/100]

= 80000* [15/100]

= 12000

Step 2: Calculation of Average Profit:

Average Profit= [ 17000+20000+23000]/3

= 20000

Step 3: Calculation of Super Profit:

Super Profit= Average Profit- Normal Profit

= 20000-12000

= 8000

Step 4: Calculation of Goodwill:

Goodwill= 8000* 2

= 16000

Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2018.
Liabilities Rs. Assets Rs.
Neelkant's Capital
Mahadev's Capital
Neelkan't Curent A/c
Mahadev's Current A/c
Profit and Loss Appropriation A/c (March 2018) 10,00,000
10,00,000
1,00,000
1,00,000
8,00,000
Sundry Assets

30,00,000

30,00,000 30,00,000
During the year Mahadev's drawings were Rs. 30,Profits during the year ended 31st march 2018 is Rs. 10,00,Calculate interest on capital @ 5% p.a. for the ending 31st march 2018.

Assuming that Mahadev's drawings are from his capital.

Calculation of Interest on Capital

Neelkant:- Interest on 10,00,000*5% = 50,000

Mahadev's:- Interest on( 10,00,000-30,000)

= 9,70,000*5%

= 48,500

Ram and Mohan, two partners, drew for their personal use Rs. 1,20,000 and Rs. 80,Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest chargeable from each partner?

Calculation of interest on drawings:

Ram's interest= 120000 * 6/12 * 6/100

= 3600

Mohan's interest= 80000 * 6/12 * 6/100

= 2400

Note: Since no date has been specified, interest on drawings is calculated on an average basis of six months.

A and B started business on 1st April, 2017 with capitals of Rs. 15,00,000 and Rs. 9,00,000 respectively. On 1st October, 2017, they decided that their capitals should be Rs. 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, 2018.

1. Calculation of interest on A's capital:

Time before changing the capital= 6 months

Capital= 1500000

Total capital= 1500000*6

= 9000000

Time after changing the capital= 6 months

Capital= 1200000

Total Capital= 1200000*6

= 7200000

Hence, Total capital of A= 9000000+7200000

= 16200000

Interest on capital= 16200000 * 8/100 * 1/12

= 108000

2. Calculation of interest on B's Capital:

Time before changing the capital= 6 months

Capital= 900000

Total capital= 900000*6

= 5400000

Time after changing the capital= 6 months

Capital= 1200000

Total Capital= 1200000*6

= 7200000

Hence, Total capital of B= 5400000+7200000

= 12600000

Interest on capital= 12600000 * 8/100 * 1/12

= 84000

Sajal and Kajal are partners, sharing profits and losses in the ratio of 2 :On 1 st April, 2017 their Capitals were: Sajal Rs. 50,000 and Kajal Rs. 40,
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 Rs. 30,
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal Rs. 10,000 and Kajal Rs. 8,
(d) 10% of the divisible profit is to be transferred to reserve. The net profit for the year ended 31st March 2018 Rs. 68,460.

PROFIT AND LOSS APPROPRIATION A/C

(for the year ended 31st March, 2018)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Interest on capital a/c - Sajal - Kajal	2500 2000	By Profit and loss a/c	68460
To Reserve a/c (68460+300+240-2500-2000) *10/100	6450	By interest on drawings a/c - Sajal - Kajal	300 240
To Profit transferred to: - Sajal's Capital a/c - Kajal's Capital a/c	38700 19350
	69000		69000

Note: interest on loan has already been deducted before to give the net profit.

PARTNER'S CAPITAL A/C
Dr. Cr.

Particulars	Sajal	Kajal	Particulars	Sajal	Kajal
To Drawings a/c	10000	8000	By Balance b/d	50000	40000
To interest on drawings a/c	300	240	By interest on capital a/c	2500	2000
To Balance c/d	80900	53110	By Profit and loss appropriation a/c	38700	19350
	91200	61350		91200	61350

Amal, Bimal and Kamal are three partners. On 1st April 2017, their Capitals stood as: Amal Rs. 40,000, Bimal Rs. 30,000 and Kamal Rs. 25,It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amal would get a salary of Rs. 250 per month,
(c) Bimal would receive commission @ 4% on net profit after deducting commission, interest on capital and salary, and
(d) After deducting all of these, 10% of the profit should be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March 2018 was Rs. 33,Prepare Profit and Loss Appropriation Account and the Capital Accounts of the Partners.

PROFIT AND LOSS APPROPRIATION ACCOUNT

Particulars	Amount	Particulars	Amount
To interest on Capital Amal- 400005%=2000 Bimal=300005%=1500 Kamal=25000*5%=1250	4750	By net profit	33360
To salary to Amal 250*12	3000
To commission (Notes)	985
To general reserve (Notes)	2462
To profit T/f to Amal's capital A/c = 7388 Bimal's capital A/c = 7387 Kamal's capital A/c= 7388	22163
Total	33360	Total	33360

Notes:- Calculation of commission to Bimal=33360-4750-3000 = 25610

= 25610*4/104 = 985.

Transfer to general reserve = 33360-4750-3000-985 = 24625*10%=2462

PARTNERS CAPITAL ACCOUNT

Particulars	Amal	Bimal	Kamal	Particulars	Amal	Bimal	Kamal
				By bal b/d	40000	30000	25000
				By interest on capital	2000	1500	1250
				By salary	3000
				By commission		985
				By P/L Appropriation A/c	7388	7387	7388
To bal c/d	52388	39872	33638
Total	52388	39872	33638		52388	39872	33638

Ali and Bahadur are partners in a firm, sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April 2017 stand as Ali Rs. 25,000 and Bahadur Rs. 20,The partners are allowed interest on capitals @ 5% p.a. Drawing's of the partners during the year ended 31st March 2018 amounted to Rs. 3,500 and Rs. 2,500 respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @ Rs. 3,000, amounted to Rs. 40,000, 10% of divisible profit is to be transferred to reserve.
You are asked to show partners' Current Accounts and Capital Accounts recording the above transactions.

PROFIT AND LOSS APPROPRIATION ACCOUNT

Particulars	Amount	Particulars	Amount
To Interest on Capital Ali- 250005%=1250 Bahadur=200005%= 1000	2250	By net profit	40000
To Bahadur's salary	3000
To reserve	3475
To profit transferred to Ali's Capital A/c 21892 Bahadur's Capital A/c 9383	31275
Total	40000	Total	40000

PARTNER'S CAPITAL ACCOUNT

Particulars	ALI	BAHADUR	Particulars	ALI	BAHADUR
To bal c/d	25000	20000	By bal b/d	25000	20000
Total	25000	20000	Total	25000	20000

PARTNER'S CURRENT ACCOUNT

Particulars	ALI	BAHADUR	Particulars	ALI	BAHADUR
To Drawings	3500	2500	By interest on capital	1250	1000
			By salary		3000
			By P/L Appropriation A/c	21892	9383
By bal c/d	19642	10883
Total	22775	13225	Total	22775	13225

Working Notes: Calculation of amount to be transferred to reserve
10% of divisible profit
10% of (40,000-2250-3000) = 3475

$X$ and $Y$ are partners in a firm sharing profits and losses in the ratio of 3 : 2.
On 31st March 2018 after closing the books of account, their Capital Accounts stood at Rs. 4,80,000 and Rs. 6,00,000 respectively.
On 1st May 2017, $X$ introduced an additional capital of Rs. 1,20,000 and Y withdrew Rs. 60,000 from his capital. On 1st October 2017, X withdrew Rs. 2,40,000 from his capital and Y introduced Rs. 3,00,Interest on capital is allowed at 6% p.a. Subsequently, it was discovered that interest on capital @ 6% p.a. had been omitted. The profits for the year ended 31st March 2018 amounted to Rs. 2,40,000 and the partners drawings had been: X- R. 1,20,000 and Y - Rs. 60,Compute the interest on capital if the capitals are
(a) fixed, and (b) fluctuating.

1. When Capitals Are Fixed

Calculation of Opening Capital

X Y

Closing capital 4,80,000 6,00,000

Add:withdrawal 2,40,000 60,000

Less: Add capital (1,20,000) (3,00,000)

Opening capital 6,00,000 3,60,000

Calculation of Interest on capital

X Y

Interest on capital 36,000 21,600

Add: Int on add capital 6600 9000

(1,20,000*6%*11/12) (3,00,000*6%*6/12)

Less:Interest on capital ( 7200) (3300)

(2,40,000*6%*6/12) (60,000*6%*11/12)

Total 35,400 27,300

2. When Capitals Are Fluctuating

Calculation of Opening capital

X Y

Closing capital 4,80,000 6,00,000

Add;withdrawal of capital 2,40,000 60,000

Drawings 1,20,000 60,000

Less: Add capital (1,20,000) (3,00,000)

Share of profit (1,44,000) (96,000)

Opening capital 5,76,000 3,24,000

Calculation of Interest on Capital

X Y

Interest on opening capital 34560 19440

Add;Interest on add capital 6600 9000

(1,20,000*6%*11/12) (3,00,000*6%*6/12)

Less: Interest on capital withdrawn (7200) (3300)

Total 33,960 25140

C and D are partners in a firm; C has contributed Rs. 1,00,000 and D Rs. 60,000 as capital. Interest is payable @ 6% p.a. and D is entitled to a salary of 3,000 per month. In 2017-18, the profit was Rs. 80,000 before interest and salary. Divide the amount between C and D.

Profit and Loss Appropriation a/c

(for the year ended 31st March, 2018)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Salary to D (3000*12)	36000	By profit and loss a/c	80000
To interest on capital: - C - D	6000 3600
To Profit transferred to: - C's Capital a/c - D's Capital a/c	17200 17200
	80000		80000

A and B are partners sharing profits in the ratio of 3 :with capitals of Rs. 50,000 and Rs. 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of Rs. 2,During the year profit prior to interest on capital but after charging B's salary amounted to Rs. 12,A provision of 5% of the profits is to be made in respect of Manager's Commission. Prepare an account showing the allocation of profits and the Partners' Capital Accounts.

Profit And Loss Account

Particulars	Amount	Particulars	Amount
To Manager’s commission (15000*5/100)	750	By profit before B's Salary (12500+2500)	15000
To Net profit T/f to P/L Appropriation Account	14250
Total	15000	Total	15000

Profit And Loss Appropriation Account

Particulars	Amount	Particulars	Amount
To Interest on capital A = 500006% = 3000 B=300006% = 1800	4800	By net profit	14250
B's Salary	2500
To profit t/f to A's Capital A/c = 4170 B's Capital A/c = 2780	6950
Total	14250	Total	14250

Partners capital account

Particulars	A	B	Particulars	A	B
			By bal b/d	50000	30000
			By Int on capital	3000	1800
			salary		2500
To bal c/d	57170	37080	By P/L Appro. A/c	4170	2780
Total	57170	37080	Total	57170	37080

A, B and C were partners in a firm having capitals of Rs. 50,000; Rs. 50,000 and Rs.1,00,000 respectively. Their Current Account balances were. A: Rs. 10,000; B: Rs. 5,000 and C: Rs. 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 Rs.12,000 p.a. The profits were to be divided as:
(a) The first Rs. 20,000 in proportion to their capitals.
(b) Next Rs. 30,000 in the ratio of 5 :3 :
(c) Remaining profits to be shared equally.
The firm earned net profit of Rs.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.

PROFIT AND LOSS APPROPRIATION A/C

(for the year ended 31st March, 2018)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Salary to C	12000	By Net Profit a/c	172000
To Interest on Capital a/c - A - B - C	5000 5000 10000
To Profit transferred to: - A's Current a/c - B's Current a/c - C's Current a/c	50000 44000 46000
	172000		172000

JOURNAL

1. Interest on Capital a/c..... Dr. 20000

To A's Current a/c 5000

To B's Current a/c 5000

To C's Current a/c 10000

(Being interest on capital transferred to the partner's current accounts)

2. Salary a/c.... Dr. 12000

To C's Current a/c 12000

(Being salary provided to C)

3. Profit and Loss Appropriation a/c.... Dr. 140000

To A's Current a/c 50000

To B's Current a/c 44000

To C's Current a/c 46000

(Being profit distributed among the partners)

Working Note:

Distribution of Profit:

Profit available for distribution= 172000-12000-20000

= 140000

A's share= [20000*1/4] + [30000*5/10] + [90000*1/3]

= 5000+15000+30000

= 50000

B's share= [20000*1/4] + [30000*3/10] + [90000*1/3]

= 5000+9000+30000

= 44000

C's share= [20000*2/4] + [30000*2/10] + [90000*1/3]

= 10000+6000+30000

= 46000

Show how the following will be recorded in the Capital Accounts of the Partners Sohan and Mohan when their capitals are fluctuating:
Sohan (Rs.) Mohan (Rs.)
Capitals on 1st April 2017 4,00,000 3,00,000
Drawings during 2017-18 50,000 30,000
Interest on Capital 5% 5%
Interest on Drawings 1,250 750
Share of Profit for 2017-18 60,000 50,000
Partner's Salary 36,000 ....
Commission 5,000 3,000

PARTNER'S CAPITAL A/C
Dr. Cr.

Particulars	Sohan	Mohan	Particulars	Sohan	Mohan
To Drawings a/c	50000	30000	By Balance b/d	400000	300000
To interest on drawings a/c	1250	750	By interest on capital a/c	20000	15000
To Balance c/d	469750	337250	By Salary a/c	36000	Nil
			By Commission a/c	5000	3000
			By profit and loss appropriation a/c	60000	50000
	521000	368000		521000	368000

A and B are partners, sharing profits and losses In the ratio of 3 :On 1st April 2017; their capitals were: A Rs. 50,000 and B Rs. 30,During the year ended 31st March 2018 they earned a net profit of Rs. 50,The terms of partnership are:
(a) Interest on capital is to be allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of Rs. 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 Rs. 8,000 and B Rs. 6,Turnover for the year was Rs. 3,00,
After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners' Capital Accounts.

PROFIT AND LOSS APPROPRIATION ACCOUNT

Particulars	Amount	Particulars	Amount
To Int on capital A=500006% = 3000 B=30,0006% = 1800	4800	By net profit	50000
To Commission A=300000*2%	6000
To Salary B=500*12	6000
To Commission B(notes)	1581
To profits t/f to A's Capital A/c= 23714 B's Capital A/c=7905	31619
Total	50000	Total	50000

PARTNERS CAPITAL ACCOUNT

Particulars	A	B	Particulars	A	B
To drawings	8000	6000	By bal b/d	50000	30000
			By Int on capital	3000	1800
			By commission	6000	1581
To bal c/d	74714	41286	By P/L app A/c	23714	7905
			By salary		6000
Total	82714	47286	Total	82714	47286

Notes:- Commission to B= 5% of profits after all expenses including such commission

= 50,000-4800-6000-6000

= 33,200*5/105 = 1581.

Profits earned by a partnership firm for the year ended 31st March, 2017 were distributed equal between the partners Pankaj and Anu without allowing interest on capital. Interest due on capital was - Pankaj: 3,000 and Anu: 1,Pass necessary adjustment entry.

Anu A/c debit 1000

To Pankaj A/c credit 1000

(Being, Rectification of omission of interest on capital)

Working note:- Pankaj Anu

Interest due on capital 3000 1000

Profit wrongly distributed (2000) (2000)

due to omission of interest 1000 Cr 1000 Dr

on capital

Ram and Mohan are equal partners, Their capitals are 40,000 and 78,000 respectively. After the account for the year are prepared, it is discovered that interest @ 5% p.a. on capital as provided in the Partnership Deed has not been credited to Capital Accounts before distribution of profits. If it is decided to make an adjusting entry in the beginning of the next year. Give necessary adjustment entry.

Partners	Profits to be written back	Interest on capital to be provided	Adjustments
Ram	- 2950	2000	-950
Mohan	-2950	3900	+950

As interest on capital is calculated on the opening balance of capital and no information regarding profit credited is given,its not possible to ascertain the opening capital. Hence, we will assume that the capitals of the partners are fixed.

Due to omission of interest on capital, excess profits has been distributed to the partners which needs to be withdrawn.

Interest on capital = (40000*5% + 78000*5%)

= 2000 + 3900 = 5900.

This 5900 has been distributed as profits among partners.

So, adjustment entry is as follows:-

Ram's Capital A/c Dr. 950

To Mohan's capital A/c 950

(Being adjustment entry passed)

Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3 :Following is the balance sheet of the firm as on 31st March 2018:
Mannu's capital:- 30,000 Mannu;s drawings:- 4000
Shristhi's capital:- 10,000 Shristhi's drawings:- 2000
(a) Profit for the year ended 31st March 2018 was Rs. 5,000 which was divided in the agreed ratio,
(b) Interest @ 5% p.a. on capital and @ 6% pa. on drawings was inadvertently enquired.
(c) Adjust interest on drawings on an average basis for 6 months.
Give the adjustment entry. Notes;- Drawings already adjusted in the capital.

Calculation of Opening Capital

Mannu Shristhi

Closing capital 30000 10000

Add:-Drawings are debited nil nil

Less:-profit (3000) (2000)

Opening Capital 27000 8000

Interest on capital@5% 1350 400

Interest on drawings@6% 4000*6%*6/12 2000 *6%*6/12

=120 = 60

Journal entry is:-

Shristhi's capital A/c Dr. 288

To Mannu's capital A/c 288

(Being adjustment entry passed)

Table showing Adjustments to be made

Particulars	Mannu's Capital	Shristhi's capital
Interest on capital	1350	400
Less:- Interest on Drawings	120	60
Profit to be distributed (5000-1350-400+60+120) =3430	2058	1372
Total	3288	1712
Less:wrong credit of interest	(3000)	(2000)
Net effect	288	(288)

Reya, Mona and Nisha shared profits in the ratio of 3 : 2 :The profits for the last three years was 1,40,000; 84,000 and 1,06,000 respectively. These profits were by mistake shared equally for all three years. It is now decided to correct the error. Give necessary Journal entry for the same.

Nisha capital a/c debit 55000

To Reya's capital a/c credit 55000

(Being, Adjustment of profit made)

Total profits for last 3 years. = 1,40,000+84,000,1,06,000 =3,30,000

Reya Mona Nisha Total

Right Distribution of Profit (3:2:1) = 1,65,000 1,10,000 55,000 =3,30,000

Less: Wrong Distribution of Profit (1,10,000) (1,10,000) (1,10,000) =330000

Net Effect 55000 NIL (55,000) NIL

The firm of Harry, Potter 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 Potter and he further wishes that the change in the profit-sharing ratio should come into effect retrospectively were for the three years. Harry and Potter have agreement on this account. The profits for the last three years were: Year 2015-16, 2016-17 & 2017-18 Profit Rs. 2,20,000 2,40,000 2,90,000. Show adjustment of profits by means of a single adjustment Journal entry.

Harry Potter Ali

Profit in old profit sharing ratio :- 300000 300000 150000

Profit in equal profit sharing ratio :- 250000 250000 250000

Difference :- 50000 Dr 50000 Dr 100000 Cr

Journal :-

Harry A/c debit 50000

Potter a/c debit 50000

To Ali a/c credit 100000

(Being, Adjustment for profit shared retrospective from last 3 years due to changes in profit sharing ratio)

Total profit of last 3 years = 220000+240000+290000 = 750000

Old profit sharing :- 2:2:1

Harry :- 750000 * 2/5 = 300000

Potter :- 750000 * 2/5 = 300000

Ali :- 750000 * 1/5 = 150000

New profit sharing is in equal ratio, but from retrospective effect :-

Harry :- 750000 * 1/3 = 250000

Potter :- 750000 * 1/3 = 250000

Ali :- 750000 * 1/3 = 250000

Ram, Mohan and Sohan sharing profits and losses equally have capitals of 70,000, 90,000 and 60,For the year ended 31st March 2018, interest was credited to them @ 6% instead of 5%. Give adjustment Journal entry.

In the given question, excess interest of 1% has been charged to partner's capital account. We have to reverse that excess interest.

Due to excessive interest, profit has been distributed less to the partners equally.

Interest on Capital to be reversed

Ram = 70,000*1% = 700

Mohan= 90,000*1%= 900

Sohan = 60,000*1% = 600

Total = 2200

Profit to be distributed to partners is 2200 equally

Ram = 733

Mohan = 733

Sohan = 733

Partners Profits to be added back Interest Adjustment

to be written back

Ram + 733 -700 +33

Mohan +733 - 900 -166

Sohan +733 - 600 +133

So, Adjustment Entry to be passes is:-

Mohan's Capital A/c Dr 166

To Ram's Capital A/c 33

To Sohan's Capital A/c 133

Piya and Bina are partners in a firm sharing profits and losses in the ratio of 3 :Following was the Balance Sheet of the firm as on 31st March 2016: Capitals of Piya and Bina are 30,000 and 20,000.
The profit was Rs. 30,000 for the year ended 31st March 2016 were divided between the partners without allowing interest on capital @ 12%. p.a. and salary to.Piya @ Rs. 1,000 per month., During the year Piya withdrew 8,000 and Bina withdrewShowing your working notes clearly, pass the necessary rectifying entry.

Calculation of Opening Capital

Piya Bina

Closing Capital 30,000 20,000

Add:-drawings 8000 4000

Less:profits (18000) (12000)

Opening capital 20,000 12,000

Interest on capital@12% 2400 1440

Profits to be allocated=30,000-2400-1440-12000=14160

TABLE SHOWING ADJUSTMENTS TO BE MADE

Particulars	Piya	Bina
Interest on capital	2400	1440
salary	12000
Right distribution of profit	8496	5664
Total	22896	7104
Less: wrong distribution of profit	(18000)	(12000)
Net adjustment	4896	(4896)

Adjustment entry will be :

Piya's Capital A/c Dr. 4896

To Bina's Capital A/c 4896

The Capitals of. A, B and C as on 31st March 2018 amounted to 90,000, 3,30,000 and 6,60,000 respectively. The profits amounting to $Rs.$ 1,80,000 for the year 2017-18 were distributed in the ratio of 4 :1 :1 after allowing Interest on Capital @ 10% p.a. During the year, each partner withdrew the amount of $Rs.$ 3,60,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.

Calculation of Opening Capital

A B C

Closing Capital 90000 330000 660000

Add:drawings 360000 360000 360000

Less:-Profits (120000) (30000) (30000)

Opening capital 3,30,000 6,60,000 9,90,000

Interest on capital@2% 6600 13200 19800

Journal entry is:-

A's Capital A/c Dr. 66,600

To B's capital A/c 30,000

To C's capital A/c 36,600

(Being adjustment entry passed)

Table Showing Adjustments to be made

Particulars	A	B	C
Interest on capital	6600	13200	19800
Add;-profits to be distributed	46,800	46,800	46,800
Less:-profit wrongly debited	(120000)	(30000)	(30000)
Net effect	( 66,600)	30,000	36,600

Ram, Shyam and Mohan were partners in a firm, sharing profits and losses in the ratio of 2 : 1 :The capitals were fixed at Rs. 3,00,000, 1, 00,000, and 2,00,For the year ended 31st March 2018, interest on capital was credited to them @ 9% instead of 10% p.a. The profit for the year before charging interest was Rs. 2,50,Show your working notes clearly and pass necessary adjustment entry.

Shyam's Current A/c Dr 200

Mohan's Current A/c Dr 400

To Ram's Current A/c 600

(Being Interest on Capital adjusted)

Working Notes :-

Interest on capital to be credited @10%= 30000 10000 20000

Interest on capital wrongly credited @9% = 27000 9000 18000

= 3000 1000 2000

Wrong distribution of undercharged = 2400 1200 2400

interest as profit in profit sharing ratio

Adjustment to be made = 600 -200 -400

On 31st March 2018, after the closing of the accounts, the capital Accounts of P, Q and R stood in the books of the firm at Rs.40,000, Rs. 30,000 and Rs. 20,000 respectively. Subsequently, it was discovered that interest on capital @ 5% had been omitted. Profit for the year ended 31st March 2018 amounted to Rs. 60,000 and the partners drawings had been P- Rs. 10,000, Q- Rs. 7,500 and R - Rs. 4,The profit-sharing ratio of P, Q and R is 3 : 2 :Give necessary adjustment entry.

Calculation of capital at the beginning

P Q R

Capital at the end 40000 30000 20000

Add;- drawings 10000 7500 4500

Less;profits (30000) (20000) (10000)

Capital at the beginning 20000 17500 14500

Interest on capital @ 5% 1000 875 725

The following adjustment entry needs to be passed:-

P's capital A/c Dr 300

Q's capital A/c Cr. 8

R's capital A/c Cr 292

( Being, Adjustment entry passed)

Table showing Adjustments to be made

Partners	Profits to be written back	Interest to be adjusted	Adjustments
P	1300	1000	-300
Q	867	875	8
R	433	725	292

A, B and C are partners sharing profits in the ratio of 5 :4:C is given a guarantee that his minimum share of profit in any given year would be at least Rs. 5,Deficiency, if any, would be borne by A and B equally. The profit for the year 2017-18 amounted to Rs. 40,Pass necessary Journal entries in the books of the firm.

Share of profit

A- 40,000*5/10= 20,000

B-40,000*4/10=16,000

C-40,000*1/10=4000

C's share is less by 1000. So, the deficiency will be borne by A and B equally.

Journal entry for the same will be :

Profit and loss a/c debit 40000

To A capital a/c credit 20000

To B capital a/c credit 16000

To C capital a/c credit 4000

(Being profit apportioned between partner's)

A's capital A/c Dr. 500

B's capital A/c Dr. 500

To C's capital A/c 1000

(Being deficiency contributed)

$X, Y$ and $Z$ are partners in a firm sharing profits in $3:3:2$ ratio. They decide to share profits equally w.e.f. April $1, 2018$ On that date, the Profit and Loss Account shows the credit balance of Rs. $60,000$ They decide that Profit and Loss Account will remain as it is. You are required to fill up the following Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
2018
April
1 ? ....Dr
To ?
To ?
(Being adjustment made for credit balance of Profit and Loss Account due to change in profit-sharing ratio) ?
?
?

Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
2018 April 1	Z's Capital A/c ....Dr. 5000 To X's Capital A/c 2500 To Y's Capital A/c 2500 (Being adjustment made for credit balance of Profit and Loss Account due to change in profit-sharing ratio)		?	? ?

Workings:
X and Y: 1/3 - 3/8 = (1/24) sacrificing ratio
Z: 1/3 - 2/8 = 2/24 gaining ratio

A and B are partners, sharing profits in the ratio of 3 :C was admitted for 1/6th share of profit With minimum guaranteed amount of Rs. 10,At the close of the first financial year, the firm earned a profit of Rs. 7,54,Find out the share of profit which A, B and C will get.

Calculation of New Share of profit

Let Total Share be 1.

Share of incoming partner-1/6

Remaining share- 1-1/6=5/6

A's new ratio = 5/6*3/5= 15/30

B's new ratio = 5/6*2/5= 10/30

C's new ratio= = 5/30

New ratio = 3:2:1

Calculation of share of profit

A's share= 7,54,000*3/6 =3,77,000

B's share=7,54,000*2/6= 2,51,333

C's share=7,54,000*1/6= 125667

X and Y are partners in a firm sharing profits in the ratio of 3 :2.They have a manager, Z, who gets Rs.10,0000 salary plus commission of 5% of the profit after charging his salary and commission. Now, they decided to admit Z as a partner, giving him 1/5th share in the profits of the firm. Any excess amount which Z received as a partner (over his salary and commission) will be borne by X. The profit for the year ended 31st Ma 2018 amounted to Rs. 8,40,000 after charging Z's salary. Prepare Profit and Loss Appropriation Account showing the division of profit for the year.

Profit & Loss Appropriation a/c

Particulars (Dr.)	Amount	Particulars (Cr.)	Amount
To profit on appropriation X's capital a/c 4,48,000 Y's capital a/c 320,000 Z's capital a/c 50,000	9,60,000	By P&L a/c 8,40,000 + Z's salary +100,000 + Commission	960000

The Capital Accounts of A and B stood at Rs. 4,00,000 and Rs. 3,00,000 respectively after necessary adjustments in respect of the drawings and the net profit for the year ended 31st March,It was subsequently discovered 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-Rs. 12,000 drawn at the end of each quarter and B- Rs. 18,000 drawn at the end of each half year. The profit for the year as adjusted amounted to Rs. 2,00,The partners share profits in the ratio of 3 :You are required to pass Journal entries and show adjusted Capital Accounts of the partners.

Opening capital of partners= Closing capital+Drawings-Profit

A's Opening capital

$=Rs4,00,000+Rs36,000-Rs1,20,000\quad =Rs3,16,000$

B's Opening capital

$=Rs3,00,000+Rs36,000-Rs80,000\quad =Rs2,56,000$

Past adjustment table

Particulars	A	B	Firm
Interest on capital Wrongly distributed profit taken back Profit distributed rightly Balance	15,800(Cr.) 1,20,000(Dr.) 1,02,840(Cr.) 1,360(Dr.)	12,800(Cr.) 80,000(Dr.) 68,560(Cr.) 1,360(Cr.)	28,600(Dr.) 2,00,000(Cr.) 1,74,100(Dr.) Nil

Adjusted Partner's Capital a/c

Particulars(Dr.)	A	B	Particulars(Cr.)	A	B
To drawings a/c To balance c/d	36,000 3,98,640	36,000 3,01,360	By capital a/c By interest on capital a/c By p/l adjustment a/c	3,16,000 15,800 1,02,840	2,56,000 12,800 68,560

A, B and C were in partnership sharing profits and losses In the ratio of 4 : 2 : 1 respectively. It was provided that C's share in profit for a year would not be less than Rs. 7,The profit for the year ended 31st March 2018 amounted to Rs. 31,500; You are required to show the appropriation among the partners The Profit and Loss Appropriation Account is not required.

Calculation of share of profit

Particulars	A	B	C
Share of Profit	18000 (31500 *4)/7	9000 (31500*2)/7	4500 (31500*1)/7
Less: Deficiency	2000 (3000 * 2)/3	1000 (3000*1)/3	Nil
Add: Share from partners	Nil	Nil	3000
Total	16000	8000	7500

Note :

C's guaranteed profit was Rs. 7500, as per profit sharing ration C is getting Rs. 4500. Therefore, remaining Rs. 3000 is given to C by A and B in their profit sharing ratio i.e. 4:2

A, B, and C are partners in a firm. Their profit sharing ratio is 2 : 2 :C is guaranteed a minimum amount of Rs. 10,000 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 MarchAnd 2018 were Rs. 40,000 and Rs. 60,000 respectively. Prepare Profit and Loss Appropriation Account for the years.

PROFIT AND LOSS APPROPRIATION ACCOUNT FOR THE YEAR 2017

Particulars	Amount	Particulars	Amount
To Profit transferred to- A's capital A/c- 16000 B's capital A/c-16,000 Less:deficiency-(2000) C's capital A/c-8000 Add:share 2000	40,000	By net profit	40,000
Total	40,000	Total	40,000

PROFIT AND LOSS APPROPRIATION ACCOUNT FOR THE YEAR 2018

Particulars	Amount	Particulars	Amount
To profit transferred to- A's capital A/c-24,000 B's capital A/c-24,000 C's capital A/c-12,000	60,000	By net profit	60,000
Total	60,000	Total	60,000

Does the loan from an outsider have priority over the loan from a partner as to repayment?

According to Section 48 of the Indian Partnership Act, 1932

The following order has to be followed for the discharge of liabilities:-

1. Payment of loans provided by third parties.

2. Payment of loans and advances provided by the partners.

3. Payment of capital of partners.

4. The residue will be divided among the partners in the profit-sharing ratio.

According to the above rules, a loan from an outsider is given priority over the loan from a partner.

Pranshu and Himanshu are partners, sharing profits and losses in the ratio of 3 :2 respectively. They admit Arishu as partner with 1/6th share in the profits of the firm. Pranshu personally guaranteed that Anshu's share of Profit would not be less than Rs. 30,000 in any year. The net profit of the firm for the year ending 31st March 2013 was Rs. 90,Prepare Profit and Loss Appropriation Account

Calculation of New Profit Ratio

Let total share= 1

Share of profit of incoming partner= 1/6

Remaining share= 1-1/6 =5/6

Pranshu's new share= 5/6*3/5= 15/30

Himanshu's new share=5/6*2/5= 10/30

Anshu's share= 5/30

New profit sharing ratio= 15:10:5

= 3:2:1

The deficiency of 15,000 will be compensated by Pranshu.
PROFIT AND LOSS APPROPRIATION ACCOUNT FOR THE YEAR 2018

Particulars	Amount	Particulars	Amount
To Profit transferred to- Pranshu's capital A/c - 45,000 Less:deficiency -(15000) Himanshu's capital A/c -30,000 Anshu's capital A/c - 15,000 Add: Guaranteed profit 15,000	90,000	By Net profit	90,000
Total	90,000	Total	90,000

A and B are partners sharing profits in the ratio of 2 :They decided to admit C, their manager, as a partner from 1st April, 2017, giving him 1/5th share of profit. C, while a manager, was getting a salary of Rs. 50,000 p.a. plus a commission of 10% of the net profit after charging such salary and commission. It also agreed that any excess amount which C receives as a partner (over his salary and commission), be borne by A. Profit for the year ended 31st March, 2018 amounted to Rs. 6,44,000, before payment of salary and commission. Prepare Profit and Loss Appropriation Account.

Profit & Loss Appropriation a/c

Particulars(Dr.),	Amount	Particulars(Cr.)	Amount
To Profit on appropriation A's capital a/c 3,43,467 +C's capital +74,800= 4,18,267 B's capital a/c 1,71,733 C's capital a/c 54,000	6,44,000	By P&L a/c	6,44,000

Calculate interest on drawings of Mr. Siddhant @ $10\%$ p.a. for the year ended 31st March, 2018 in each of the following alternative cases:
CaseIf he withdrew $Rs. 6,000$ in the beginning of each quarter.
CaseIf he withdrew $Rs. 6,000$ at the end of each quarter:
CaseIf he withdrew $Rs. 9,000$ in the middle of each quarter.

Total Drawings in Cases 1 and 2

$=Rs. 6,000 \times 4 = Rs. 24,000$ ;
Total Drawings in Case 3

$= Rs. 9,000 \times 4 = Rs. 36,000$ .

	Case 1	Case 2	Case 3
Average Period	$=\dfrac{(12+3)Months}{2}=7.5\, Months$	$=\dfrac{(9+0)Months}{2} = 4.5\, Months$	$=\dfrac{(10.5+1.5)Months}{2} = 4.5\, Months$
Interest on Drawings	$=Rs. 24,000\times \dfrac{7.5}{12}\times \dfrac{10}{100}$ $= Rs. 1,500$	$=Rs. 24,000\times \dfrac{4.5}{12}\times \dfrac{10}{100}$ $= Rs. 900$	$=Rs. 36,000\times \dfrac{6}{12}\times \dfrac{10}{100}$ $= Rs. 1,800$

$A, B$ and $C$ started a firm on 1st October, 2017 sharing profits equally. $A$ drew regularly $Rs. 4,000$ in the beginning of every month for the six months ended 31st March, $B$ drew regularly $Rs. 4,000$ at the end of every month for the six months ended 31st March, $C$ drew regularly $Rs. 4,000$ in the middle of every month for the six months ended 31st March, 2018.
Calculate interest on drawings @ $5\%$ p.a. for the period ending 31st March, 2018.

Calculation of Interest on Drawings

A= Average period= 6+1/2 =3.5 months

Interest on Drawings = 24,000*5%*3.5/12 = 350

B= Average Period= (5+0)/2 = 2.5 months

Interest on Drawings= 24,000*5%*2.5/12 = 250

C= Average period = (5.5+0.5)/2 = 3 months

Interest on drawings= 24000*5%*3/12= 300

Notes: Calculation of Average period

Average Period= Months left after first drawings+months left after last drawing/2

Arun and Arora were partners in a firm sharing profits in the ratio of $5 : 3$ . Their fixed capitals on 1st April, 2010 were: Arun $Rs. 60,000$ and Arora $Rs. 80,000$ . They agreed to allow interest on capital @ 12% p. a. and to charge on drawings @ 15% p.a. The profit of the firm for the year ended 31st March, 2011 before all above adjustments was $Rs. 12,600$ . The drawings made by Arun were $Rs. 2,000$ and by Arora $Rs. 4,000$ during the year.' Prepare Profit and Loss Appropriation Account of Arun and Arora. Show your calculations clearly. The interest on capital will be allowed even if the firm incurs a loss.

Calculation of Interest on Drawings

Arun Arora

Amount of Drawings 2000 4000

Interest @15%on average of 6 months 150 300

Calculation of Interest on Capitals

Arun Arora

Opening Capital 60,000 80,000

Interest on capital @`12% 7200 9600

Total interest = 16,800

Particulars	Amount	Particulars	Amount
To net loss (12,600-16800)	4200	By interest on drawings A/c Arun's current A/c 150 Arora's current A/c 300	450
		By net loss transferred to:- Arun's current A/c 2344 Arora's current A/c 1406	3750
Total	4200	Total	4200

On 31st March, 2018, Capital Accounts of $E, M$ and $A$ after making adjustments for profits, drawings, etc., were as $E - Rs. 8,00,000; \, M- Rs. 6,00,000$ and $A- Rs. 4,00,000$ . Subsequently, it was found that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ $5\%$ p.a. Drawings during the year were: $E- Rs. 2,00,000; \, M- Rs. 1,50,000$ and $A- Rs. 90,000$ . Interest on drawings chargeable to the partners were: $E-Rs. 5,000; \, M- Rs. 3,600$ and $A- Rs. 2,000$ . The net profit during the year amounted to $Rs. 12,00,000$ . The profit-sharing ratio of the partners was $3 : 2 :1$ .
Pass necessary adjustment entry for rectifying the above errors of omission. Show your workings.

Journal entry to be passed:-

E's capital A/c Dr. 5700

To M's capital A/c 100

To A's capital A/c 5600

(Being Adjustment entry passed)

Calculation of Opening Capital

E M A

Closing Capital 8,00,000 6,00,000 4,00,000

Add:-Drawings 2,00,000 1,50,000 90,000

Less:Profits Credited (6,00,000) (4,00,000) (2,00,000)

Opening Capital 4,00,000 3,50,000 2,90,000

Interest on Capital@5% 20,000 17,500 14,500

Table showing Adjustments to be Made

Particulars	E	M	A
Interest on capital	20,000	17,500	14,500
Interest on drawings	(5000)	(3600)	(2000)
Profit to be credited	5,79,300	3,86,200	1,93,100
Profit wrongly credited	(6,00,000)	(4,00,000)	(2,00,000)
Net Adjustment	(5700)	100	5600

(Calculation of Interest on Drawings by Simple Method and Product Method). In a partnership, partners are charged interest on drawings @ $15\%$ p.a. During the year ended 31st March, 2018, a partner drew as follows:
Date 1st May, 2017 1st August 2017 30th September, 2017 31st January, 2018 31st March, 2018
Amount (Rs.) 2,000 5,000 2,000 6,000 2,000
What is the interest chargeble from the partner?

PRODUCT METHOD

Dates	Amount(A)	No.of months up to 31st march.2108(B)	Product C= A*B
1/5/17	2000	11	22,000
1/8/17	5000	8	40,000
30/9/17	2000	6	12,000
31/1/18	6000	2	12,000
31/3/18	2000	0	0
Total	17000		86,000

Interest on Drawings= 86,000*15%*1/12 =1075

Simple Method

Date	Amount	No.of months up to 31st march,2018	Interest@15%
1/5/17	2000	11	275 (200015%11/12)
1/8/17	5000	8	500 (500015%8/12)
30/9/17	2000	6	150 (200015%6/12)
31/1/18	6000	2	150 (600015%2/12)
31/3/18	2000	0	0
Total			1075

A partner draws $Rs.$ 1,000 per month. Under the Partnership Deed, interest on drawings is to be charged @ $15\%$ p.a. Calculate interest that should be charged to the partner if the drawings are made:
(i) in the beginning of the month,
(ii) in the middle of the month, or
(iii) at the end of the month.

Interest in the three situations will be:
(i) Total Drawings in the year

$= Rs. 12,000$ , Rate of Interest

$= 15\%$ p.a.
Interest on Drawings

$=\dfrac{Rs. 12,000 \times 15 }{100}\times \dfrac{6\frac{1}{2}}{12} = Rs. 975$ .

Average Period

$=\dfrac{\text{Months left after first Drawing + Months left after lait Drawing}}{2} =$
*Average Period

$= \dfrac{\text{12 Months+1 Months}}{2}= 6\frac{1}{2}$ Months.

(ii) Total Drawings in the year

$= 12,000$ , Rate of Interest

$= 15\%$ p.a.
* Interest on Drawings

$= \dfrac{12,000 \times 15}{100} \times \dfrac{6*}{12}=Rs. 900$ .

*Average Period

$= \dfrac{11\frac{1}{2} Months + \frac{1}{2} Month}{2} = 6$ Months.

(iii) Total Drawing in the year

$=Rs. 12,000$ , Rate of Interest

$=15\%$ p.a
Interest on Drawing

$=\dfrac{Rs. 12,000\times 15}{100}=\dfrac{5\frac{1}{2}*}{12} = Rs. 825$ .

*Average Preriod

$=\dfrac{\text{11 Month + 0 Month}}{2} = 5\frac{1}{2}$ Months

$X, Y$ and $Z$ are partners. They have omitted interest on capital @ $10\%$ p.a. for three years ended 31st March, Their fixed capitals on which interest was to be calculated throughout were: $X- Rs. 10,000; \, Y- Rs. 8,000$ and $Z -Rs. 7,000$ . Their profit-sharing ratios were: $2016-1 : 2 : 2; \, 2017-5 : 3 : 2; \, 2018- 4 : 5 :1$ . The firm earned profit of $Rs.2,500$ in each year. Pass necessary adjustment Journal entry.

Adjusting Journal Entry is as follows:-

Y's current A/c Dr. 600

To X's current A/c 250

To Z's current A/c 350

(Being Adjustment entry passed)

Table Showing Net Adjustments to be Made

Year	X	Y	Z
Table 1	3000	2400	2100
Table 2	(2750)	(3000)	(1750)
Net Effect	250	(600)	350

Table 1- Amount to be credited as interest on capital

Particulars	X	Y	Z
For the year 2016	1000	800	700
For the year 2017	1000	800	700
For the year 2018	1000	800	700
Total	3000	2400	2100

Table 2- Amount Wrongly credited as profits

Particulars	X	Y	Z
Amount wrongly credited as profits
for the year 2016	500	1000	1000
for the year 2017	1250	750	500
for the year 2018	1000	1250	250
Total	2750	3000	1750

(Rent Payable to a Partner). $A$ and $B$ are partners sharing profits equally. Business is being carried from the property owned by $A$ on a yearly rent of $Rs. 24,000$ . $A$ is to get salary of $Rs. 1,20,000$ p.a. and $B$ is to get commission @5% of net sales, which during the year was $Rs. 30,00,000$ . Net profit for the year ended 31st March, 2018 before providing for rent was $Rs. 5,00,000$ .
You are required to draw Profit and Loss Appropriation Account for the year ended 31stMarch, 2018.

PROFIT AND LOSS APPROPRIATION ACCOUNT FOR THE YEAR 2018

Particulars	Amount	Particulars	Amount
To A's salary	1,20,000	By Net profit (5,00,000-24,000)	4,76,000
To B's commission	1,50,000
To profit transferred to- A's capital A/c- 1,03,000 B's capital A/c - 1,03,000	2,06,000
Total	4,76,000	Total	4,76,000

$X, Y$ and $Z$ are partners in a firm sharing profits and losses in the ratio of $5 : 3 : 2$ . Their fixed capitals were $Rs. 3,00,000;\, Rs. 2,00,000$ and $Rs. 1,00,000$ respectively. For the year ended 31st March, 2018, interest on capital was credited to them @ $10\%$ p.a. instead of $8\%$ p.a.
Showing your working notes clearly, pass necessary adjustment Journal entry.

Particulars	X	Y	X
Interest on capital to be credited@8%	24000	16000	8000
Add: Profit to be distributed	6000	3600	2400
Less : Interest @ 10%	(30000)	(20000)	(10000)
Net effect	Nil	(400)	400

Interest has been charged at a higher rate by 2%.So,profit needs to be increased by 2%.

Adjustment Entry is:-

Y's current A/c Dr. 400

To Z's current A/c 400

(Being adjustment entry passed)

(Commission to Partners and Distribution of Profit). $X$ and $Y$ are partners in a firm. $X$ is to get a commission of $10\%$ of net profit before charging any commission. $Y$ is to get a commission of $10\%$ on net profit after charging all commissions. Net profit for the year ended 31st March, 2018, before charging any commission was $Rs. 55,000$ .
Find the commission of $X$ and $Y$ . Also, show the distribution of profit.

Profit and loss Appropriation Account

Particulars	Amount	Particulars	Amount
To X's commission A/c (55,000*10%)	5500	By net profit	55,000
To Y's commission (55,000-5500)*10/110	4500
To profit transferred to- X- 22,500 Y-22,500	45000
Total	55,000	Total	55,000

Name the following:
A person who lends his name and goodwill for the benefits of a partnership film.
A person who contributes capital but does not take part in the business of the firm.
A document containing terms and conditions of partnership.
A partnership set up for a specific project
A person who contributes capital, participates in the business but whose identity is not disclosed to outsiders.

1. Nominal Partner- A person who neither has ownership rights or active involvement in the firm’s affairs, but has a strong interest in the success of the partnership firm. Often a well known, well connected individual whose association lends credibility and recognition to the firm is suited to the role of a nominal partner. This individual is also known as a limited or ostensible partner, is paid a fee for his service.

2. Sleeping Partner- A dormant partner; one whose name does not appear in the firm, and who takes no active part in the business, but who has an interest in the concern, and shares the profits, and thereby becomes a partner, either absolutely, or as respects third persons.

3. Partnership Deed- Partnership is an agreement between persons to carry on a business. The agreement entered into between partners may be either oral or written. But, it is always desirable to have a written agreement so as to avoid misunderstandings and unnecessary litigations in the future. When the agreement is in written form, it is called ‘Partnership Deed.’ It must be duly signed by the partners, stamped, and registered. Any alteration in the partnership deed can be made with the mutual consent of all the partners.

Although it is left to the choice of the partners of the firm to decide themselves as to what should be mentioned in their partnership deed, yet a partnership deed generally contains the following:

1. Name of the firm.

2. Nature of the business.

3. Names of partners.

4. Place of the business.

5. Amount of capital to be contributed by each partner.

6. Profit sharing ratio between the partners.

7. Loans and advances from the partners and the rate of interest thereon

8. Drawings allowed to the partners and the rate of interest thereon.

9. Amount of salary and commission, if any, payable to the partners.

10. Duties, powers and obligations of partners.

11. Maintenance of accounts and arrangement for their audit.

12. Mode of valuation of goodwill in the event of admission, retirement, and death of a partner.

13. Settlement of accounts in the case of dissolution of the firm.

14. Arbitration in case of disputes among the partners.

4. Particular Partnership- The term that is given for a joint partnership that is formed for the purpose to conduct one transaction.

5. Secret Partner- A secret partner, unlike a silent partner, has a say in the business' operations, but the public is not aware that the secret partner is involved in the business. Her name is not associated with the business in any way. A secret partner may have a tarnished reputation from a previous business failure and doesn't want that reputation to taint the new business, or she simply may prefer to operate anonymously.

The partner of a partnership entered into a contract with an outsider favouring him personally, ignoring the interest of partnership firm. What value is ignored?

The partner of a partnership entered into a contract with an outsider favoring him personally, ignoring the interest of partnership firm. By doing this he ignored the following values of partnership :

1. Value of honesty and integrity - By entering into a contract where he was favored personally, he lost his integrity and did not be honest to his firm and his partners. He had his personal interest in mind rather than the firm's interest.
2. Breach of mutual trust - He broke the trust of his partners by getting favors.
3. Not giving full disclosure- He did not provide the whole information regarding the contract to his partners and thereby ignoring the value of partnership.

$A, B, C$ and $D$ are partners sharing profits and losses in the ratio of $4 : 3 : 3 : 2$ and their respective capitals on 31st March, 2018 were $Rs. 30,000;\, Rs. 45,000;\, Rs. 60,000$ and $Rs. 45,000$ . After closing and finalising the accounts, it was found that interest on capital @ $6\%$ p.a. was omitted. Instead of altering the signed accounts it was decided to pass a single adjustment entry on 1st April, 2018 crediting or debiting the respective Partners' Capital/Current Accounts.

Journal Entry:-

A's current A/c ...........................Dr 1800

To C's current A/c 900

To D's current A/c 900

(Being the interest on capital omitted in the account now adjusted)

Since the question is silent regarding the profit credited, the given capital is assumed to be the opening capital. The amount of profit credited in excess is due to the omission of interest on capital. So, profit to reversed is the amount of interest on capital i.e 10,800.

Calculation of interest on capital to be credited

A= 30,000*6%=1800

B= 45,000*6%=2700

C=60,000*6%=3600

D=45,000*6%=2700

Total = 10800

TABLE SHOWING ADJUSTMENTS TO BE MADE

Particulars	A	B	C	D
Profits to be debited(4:3:3:2)	3600	2700	2700	1800
Interest to be credited	1800	2700	3600	2700
Adjustment	(1800)	Nil	900	900

Suresh, Sahil and Sumit are partners sharing profits in the ratio of $5 : 3: 2$ . During the year ended 31st March, 2018, the firm earned profit of $Rs. 3,50,000$ . Prepare Profit and Loss Appropriation Account giving effect to the following:
(i) Each of the partner is to get remuneration of $Rs. 60,000$ p.a.
(ii) Interest on Capital is to be allowed @ $10\%$ p.a. Capitals of Suresh, Sahil and Sumit as on 1st April, 2017 were - $Rs. 5,00,000; \, Rs.5,00,000$ and $Rs. 7,50,000$ respectively.
(iii) Interest on Drawings charged was: Suresh- $Rs.10,000$ ; Sahil - $Rs. 20,000$ ; and Sumit - Rs. $25,000$ .
(iv) Sumit is guaranteed minimum profit of $Rs. 1,50,000$ after above appropriations.

After the guaranteed profit to Sumit,the remaining profit shall be distributed to Suresh and Sahli will be distributed in the ratio of 5:3.

PROFIT AND LOSS APPROPRIATION ACCOUNT

Particulars	Amount	Particulars	Amount
To Remuneration (60000*3)	1,80,000	By Net Profit	3,50,000
To Interest on Capital Suresh- 5,00,00010% Sahli- 5,00,00010% Sumit- 7,50,000*10%	1,75,000	By Interest on Drawings Suresh-10,000 Sahli-20,000 Sumit-25,000	55,000
To Sumit's capital (Guaranteed Profit)	1,50,000	By Loss transferred to Suresh-62,500 Sahli- 37,500	1,00,000
Total	5,05,000	Total	5,05,000

If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.

Registration of partnerships is not mandatory in India. However, it is highly recommended for the partners to obtain this registration in order to provide legality to their business structure.

The partners can sue the partners and the third parties. The partners can sue the partnership. There are various other advantages as well like:-

1) Ease of formation and closure

2) More Resources

3) Risk sharing etc.

Which feature of partnership binds all the partners to the agreement signed by one partner?

Mutual agency

In a partnership, the partners are agents for the partnership. As such, one partner may legally bind the partnership to a contract or agreement that appears to be in line with the partnership's operations. As most partnerships create unlimited liability for its partners, it is important to know something about potential partners before beginning a partnership. Although partners may limit a partner's ability to enter into contracts on the company's behalf, this limit only applies if the third party entering into the contract is aware of the limitation. It is the partners' responsibility to notify third parties that a particular partner is limited in his or her ability to enter into contracts.

$A, B$ and $C$ are partners having capitals of $Rs.10,00,000; \, Rs. 8,00,000$ and $Rs.6,00,000$ respectively in a firm and sharing profits and losses equally. $C$ is guaranteed a mininimum profit of $Rs. 1,00,000$ as share of profit every year. The firm incurred a loss of $Rs. 3,00,000$ for the year ended 31st March,You are required to show the necessary accounts for division of loss and giving effect to minimum guaranteed profit to $C$ .

PARTNERS CAPITAL ACCOUNT

Particulars	A	B	C	Particulars	A	B	C
To profit and loss A/c	1,00,000	1,00,000	100000	By bal b/d	10,00,000	8,00,000	6,00,000
To C's capital	100000	100000		By A' capital			100000
To bal c/d	8,00,000	6,00,000	7,00,000	By B's capital			100000

Total	10,00,000	8,00,000	7,00,000	Total	10,00,000	8,00,000	7,00,000

Year C's guaranteed profit Actual share Deficiency

2018 1,00,000 (1,00,000) 2,00,000

C is guaranteed of profit of Rs 1,00,000 P.A. Loss incurred by the firm is Rs 300000. Out of which Rs. 1,00,000 is debited to C's capital A/c. Therefore, C's capital A/c is to be credited by the amount of deficiency Rs. 200000 (Rs. 100000 share of loss debited plus Rs 100000 guaranteed profit) which is shared equally by A and B.

$A, B$ and $C$ are partners in a firm sharing profits and losses in the ratio of $2 : 2 : 1$ . Their capitals (fixed) are $Rs.1,00,000;\, Rs. 80,000$ and $Rs. 70,000$ respectively. For the year 2017-18; it credited interest on capital @ $9\%$ p.a. instead of $12\%$ . Give the adjustment Journal entry.

Rectifying Entry is:-

B's current A/c Dr. 600

To C's current A/c 600

(Being adjustment entry passed)

Interest is charged @9% instead of 12%. So, the differential interest @3% is to be charged and the amount of interest is the profit to be reversed.

Table showing adjustments to be made

Particulars	A	B	C
Amount of interest @ 3%	3000	2400	2100
Profit amount to be debited	( 3000)	(3000)	(1500)
Net Effect	Nil	(600)	600

Explain the procedure for registration of a partnership firm?

A. Choose a partnership name. The partners are free to choose any name as they desire for their partnership firm subject to the following rules:

1. The names must not be too identical or similar to the name of another existing firm doing similar business, so as to avoid confusion. The reason for this rule being that the reputation or goodwill of a firm may be injured, if a new firm could adopt an allied name.

2. The name must not contain words like Crown, Emperor, Empress, Empire or words expressing or implying the sanction, approval, or patronage of the Government, except when the State Government signifies its consent (in writing) to the use of such words as part of the firm name.

B. Create a partnership deed. The document in which the respective rights and obligations of the members of a partnership are written is called the Partnership Deed. A partnership deed agreement may be written or oral. However, practically an oral agreement does not have any value for tax purposes and therefore the partnership agreement should be written. The following are the essential characteristics of a partnership deed:

Name and address of the firm as well as all the partners
Nature of business to be carried on

Date of commencement of business

Duration of partnership (whether for a fixed period/project)
Capital contribution by each partner
The profit-sharing ratio among the partners

The above are the minimum essentials that are required in all partnership deeds.

C. Consider whether additional clauses are needed. The partners may also mention any additional clauses.

D. Do the partnership deed in the appropriate form. The deed so created by the partners should be on a stamp paper in accordance with the Indian Stamp Act. Each partner should have a copy of the partnership deed. A Copy of the Partnership Deed should also be filed with the Registrar of Firms in case the firm is being registered.

E. Register. The procedure for registration of a partnership firm in India is fairly simple. An application and the prescribed fees are required to be submitted to the Registrar of Firms of the State in which the firm is situated. The following documents are also required to be submitted along with the application:

1. Application for Registration of Partnership in Form No. 1

2. A duly filled specimen of Affidavit

3. Certified True Copy of the Partnership Deed

4. Ownership proof of the principal place of business or rental/lease agreement thereof.

F. Sign the application. The application or statement must be signed by all the partners, or by their agents especially authorised on this behalf.

$X$ and $Y$ are partners in a firm sharing profits in the ratio of $4 : 1$ . They decide to admit $Z$ , their manager, as a partner with effect from 1st April, 2017 for $\dfrac{1}{8}th$ share in profits. $Z$ , as a manager, was getting salary of $Rs. 8,000$ per month and commission of $5\%$ of the net profits after charging such salary and commission.
As per the terms of the Partnership Deed, any excess amount which $Z$ shall be entitled to receive as a partner over the amount which have been due to hint as a manager, would be borne by $X$ out of his share of profit.
Profit for the year ended 31st March, 2018, amounted to $Rs. 13,56,000$ before salary and commission. Prepare the Profit and Loss Appropriation Account for the period ending 31st March, 2018.

Notes: Profit = 13,56,000

Less:-Amount Due to Z as Manager :

Salary(8000*12) = 96,000

Commission[5/105(1356000-96000) = 60000 (1,56,000)

Net Divisible Profit =12,00,000

X's share= 12,00,000*4/5= 9,60,000

Y's share = 12,00,000*1/5= 2,40,000

When Z admitted as a partner,not entitled to salary and commission. He is now entitled to 1/8th share of profits.

1/8th share of profits= 13,56,000*1/8 = 1,69,500

Deficiency= 1,69,500-1,56,000= 13,500

As deficiency will be borne by X, so X' share of profit= 9,60,000-13,500= 9,46,500

PROFIT AND LOSS APPROPRIATION ACCOUNT

Particulars	Amount	Particulars	Amount
To Profit Transferred to X's capital A/c-9,46,500 Y's capital A/c-2,40,000 Z's capital A/c-1,69,500	13,56,000	By Profit and Loss A/c	13,56,000
Total	13,56,000	Total	13,56,000

When the partners current accounts are prepared in partnership firm ?

Partners current account is prepared when you have a Fixed Capital system. In this system, the initial contribution as outlined by the partnership deed or the admission deed is kept in the Capital Account. Any permanent addition or deletion of Capital is also given effect to in the Capital Account.

Current Account is used to give effect to profits and losses, drawings, remuneration and interest amounts payable to partners etc.

Shiva and Shankar are partners are partners in a firm. Shiva's drawing for the year $2016-17$ are given as under.
$Rs.5,000\,on\,01-05-2016$
$Rs.7,000\,on\,31-08-2016$
$Rs.3,000\,on\,31-12-2016$
$Rs.4,000\,on\,01-02-2017$
Calculate interest on drawing at $12\%$ p.a for the year ending $31-03-2017$ under product method.

5000* 11 = 55000

7000 * 6 = 42000

3000 * 3 = 9000

4000 * 2 = 8000

Total Product = 55000 + 42000 + 9000 + 8000

= 114000

Calculation of interest on drawing = 114000 * 12 / 100 * 1 / 12

11400

How do you treat the followings in the absence of partnership deed ?
a) Interest on Capital.
b) Interest on Drawings.
c) Interest on Partner's Loan
d) Distribution of profits losses
e) Salary to partners.

Absence of Partnership Deed

(a) Salaries of Partners No Salary will be allowed to Partners.

(b) Interest on Partners’ Capitals No interest will be allowed to Partners on Capital

(c) Interest on Partners’ Loan 6% p.a. Interest will be allowed on the amount given by partners in the form of Loans and Advances to firm.

(d) Division of Profit Profits will be shared equally, it is irrespective the
amount of capital contributed by partners

(e) Interest on Partners’ Drawings No Interest will be charged on the Drawings of Partners

Radha and Rani are partners in a firm. Radha's drawings for the year 2015-16 are given under:
Rs. 5,000 on 01-04-2015
Rs. 8,000 on 30-06-2015
Rs. 3,000 on 01-12-2015
Rs. 2,000 on 31-03-2016
Calculate interest on Radha's drawings at $10\%$ p.a. for the year ending 31-03-2016 under product method.

Under Total Product Method :-

5000 * 12 = 60000

8000 * 9 = 72000

3000 * 3 = 9000

2000 * 1 = 2000

Total = 60000 + 72000 + 9000 + 2000

= 143000

Interest on drawing = total product x rate x 1/12

= 143000 x 10/100 x 1/12

= 1191.66

Akul, Bakul and Chandan were partners in a firm sharing profits in the ratio of $2:2:1$ on $31^{st}$ March, 2018 their Balance Sheet was as follows:
Balance Sheet of Akul, Bakul and Chandan as on 31-2-2018
Liblities Amount
(Rs.) Assets Amount
(Rs.)
Sundry Creditors
Employees Provident Fund
General reserve
Capital:
Akul $1,60,000$
Bakul $1,20,000$
Chandan $\underline{ \,\,\,\,\,92,000}$
$45,000$
$13,000$
$20,000$

$3,72,000$
Cash at Bank
Debtors $60,000$
Less: Provision for doubtful debts $\underline{2,000}$
Stock
Furniture
Plant and Machinary
$42,000$

$58,000$
$80,000$
$90,000$
$1,80,000$

$\overline{\underline{4,50,000}}$ $\overline{\underline{4,50,000}}$
Bakul retired on the above date and it was agreed that :
(i) Plant and Machinery was undervalued by 10%.
(ii) Provision for doubtful debts was to be increased to 15% on debtors.
(iii) Furniture was to be decreased to Rs. 87,000.
(iv) Goodwill of the firm was valued at Rs. 3,00,000 and Bakul's share was to be adjusted through the capital accounts of Akul and Chandan.
(v) Capital of the new firm was to be in the new !profit sharing ratio of the continuing partners.
Prepare Revaluation account, Partners' Capital accounts and the Balance Sheet of the reconstituted firm.

Dr. Revaluation A/c Cr.
Particulars	Amount (Rs.)	Amount (Rs.)	Particulars	Amount (Rs.)
To Provision for Doubtful debts		7,000	By Plant & Machinery A/c	20,000
To Furniture A/c		3,000
To Profit transferred to partner’s capital A/c:
Akul	4,000
Bakul	4,000
Chandan	2,000	10,000
		20,000		20,000

Dr. Partner’s Capital Accounts Cr.
Particulars	L.F.	Akul (Rs.)	Bakul (Rs.)	Chandan (Rs.)	Particulars	L.F.	Akul (Rs.)	Bakul (Rs.)	Chandan (Rs.)
To Bakul’s Capital A/c		80,000		40,000	By Balance b/d		1,60,000	1,20,000	92,000
To Cash A/c				8,000	By General Reserve A/c		8,000	8,000	4,000
To Bakul’s Loan A/c			2,52,000		By Akul’s Capital A/c			80,000
					By Chandan’s Capital A/c			40,000
					By Revaluation A/c		4,000	4,000	2,000
To Balance c/d		1,00,000		50,000	By Cash A/c		8,000
		1,80,000	2,52,000	98,000			1,80,000	2,52,000	98,000

Balance Sheet
As on 31^st March 2018
Liabilities	Amount (Rs.)	Amount (Rs.)	Assets	Amount (Rs.)	Amount (Rs.)
Sundry Creditors		45,000	Cash at Bank		42,000
Employees Provident Fund		13,000	Debtors	60,000
Bakul’s Loan		2,52,000	Less: Provision	9,000	51,000
Partner’s Capital Accounts:			Stock		80,000
Akul	1,00,000		Furniture		87,000
Chandan	50,000	1,50,000	Plant & Furniture		2,00,000
		4,60,000			4,60,000

Working Notes:

1. Computation of amount of goodwill to be credited to Bakul’s Capital

Revalued goodwill of the firm = Rs. 3,00,000

Bakul’s share in goodwill = 3,00,000 * 2/5 = Rs. 1,20,000

Bakul’s share to be compensated by Akul = 1,20,000 * 2/3 = Rs. 80,000

Bakul’s share to be compensated by Chandan = 1,20,000 * 1/3 = Rs. 40,000

2. Computation of new capital of remaining partners after Bakul’s Retirement

Adjusted capital of Akul = 92,000

Adjusted capital of Chandan = 58,000

Total adjusted capital of partners = 92,000 +58,000 = 1,50,000

New capital share of Akul = 1,50,000 * 2/3 = Rs. 1,00,000

New capital share of Chandan = 1,50,000 * 1/3 = Rs. 50,000

Yashas and Abhi are partners in a firm, sharing profits and losses in the ratio of $2:1$ . Yashas withdrew the following amounts during the year $2017-18$ are given as under :
Rs.4,000 on 1.5.2017
Rs.10,000 on 30.9.2017
Rs.6,000 on 30.11.2017
Rs.12,000 on 1.1.2018
Interest on drawings is to be charged at 8% p.a.
Calculate the amount of interest to be charged on Yashas drawings for the year ending 31.3.2018.

Interest on drawing = Total product x rate x 1/12

= 164000 x 8/100 x 1/12

= 1093.33

Total Product = 4000 * 11 Months = 44000

10000 * 6 Months = 60000

6000 * 4 Months = 24000

12000 * 3 Months = 36000

Total = 44000+60000+24000+36000

= 164000

A, B, C are partners sharing profits in the ratio of $3:2:1$ . Their Balance Sheet as at 31st March, 2018 stood as:

Liabilities 'Rs. Assets Rs.
Capital Accounts Building $10,00,000$
A $8,00,000$ Furniture $2,40,000$
B $4,20,000$ Office equipments $2,80,000$
C $4,00,000$ $16,20,000$ Stock $2,50,000$
Sundry Creditors $3,70,000$ Sundry debtors $3,00,000$
General Reserves $3,60,000$ Less: Provision for Doubtful debts $30,000$ $2,70,000$
Joint Life Policy $1,60,000$
Cash at Bank $1,50,000$
$23,50,000$ $23,50,000$
BB retired on 1st April, 2018 subject to the following conditions:
(i) Office Equipments revalued at Rs. $3,27,000$
(ii) Building revalued at Rs. $15,00,000$ . Furniture is written down by Rs. $40,000$ and Stock is reduced to Rs. $2,00,000$
(iii) Provision for Doubtful Debts is to be created @ $5$ % on Debtors
(iv) Joint Life Policy will appear in the Balance Sheet at surrender value after B's retirement. The surrender value is Rs. $1,50,000$
(v) Goodwill was to be valued at 3 years purchase of average 4 years profit which were:
Year Rs
2014 $90,000$
2015 $1,40,000$
2016 $1,20,000$
2017 $1,30,000$
(vi) Amount due to B is to be transferred to his loan Account
Prepare the Revaluation Account, Partners' Capital Accounts and the Balance Sheet immediately after B's retirement.

Revaluation Account:

	Rs.		Rs.
To Furniture A/c	$40,000$	By Office Equipment A/c	$47,000$
To Stock A/c	$50,000$	By building A/c	$5,00,000$
To Joint life policy	$10,000$	By provision for doubtful debts	$15,000$
To Partner's Capital A/cs
A $2,31,000$
B $1,54,000$
C. $77,000$	$4,62,000$
	$5,62,000$		$5,62,000$

Partners' Capital Accounts

	A Rs.	B Rs.	C Rs.		A Rs.	B Rs.	C Rs.
To B's capital A/c	$90,000$		$30,000$	By Balance b/x	$80,000$	$4,20,000$	$4,00,000$
To B's loan A/c		$8,14,000$		By General Reserve	$1,80,000$	$1,20,000$	$60,000$
To Balance c/d	$11,21,000$		$5,07,000$	By revaluation reserve	$2,31,00$	$1,54,000$	$77,000$
				By A's Capital A/c		$90,000$
				By C's capital A/c		$30,00$

$12,11,000$

$8,14,000$

$5,37,000$

$12,11,000$

$8,14,000$

$5,37,000$

Balance Sheet as on 1.4.2018 (After B's retirement)

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Capital Accounts			Building		$15,00,000$
A	$11,21,000$		Furniture		$2,00,000$
C	$5,07,000$	$16,28,000$	Office equipment		$3,27,000$
B's loan account		$8,14,000$	Stock		$2,00,000$
			Sundry Debtors	$3,00,000$
Sundry creditors		$3,70,000$	Less: Provision for doubtful debts	$(15,000)$	$2,85,000$
			JLP		$1,50,000$
			Cash at bank		$1,50,000$
		$28,12,000$			$28,12,000$

Working Notes:
Calculation of goodwill
(1) Average of last 4 year's profit

$=(90,000+1,40,000+1,20,000+1,30,000)/4$

$=Rs. 1,20,000$
(2) Goodwill at three years' purchase

$Rs. 1,20,000\times 3=Rs. 3,60,000$
Goodwill adjustment

	Share of goodwill (old ratio)	Share of goodwill (New ratio)	Adjustment
A	$1,80,000$	$2,70,000$	$90,000$ (Dr.)
B	$1,20,000$	-	$1,20,000$ (Cr.)
C	$60,000$	$90,000$	$30,000$ (Dr.)

A new partner acquires two main rights in the partnership firm which he joins. State one of these rights.

A share in the profits of the firms is one of the rights acquired by a partner when he joins a firm.

Prepare current account of partners under fixed capital system with five imaginary figures.

Under fixed capital system two types of Accounts are prepared :-

1.Current Capital Account

2.Fixed Capital Account

1458570_1690714_ans_5ed7ed5834354685bf3969110e6d16b4.PNG

Write two partners capital accounts under fluctuating capital system with 5 imaginary figures.

Under Fluctuating Capital Account Method, only one capital Account is maintained.

1458571_1690689_ans_4836d2baa3274d30bc6c84da90674799.PNG

Ritesh and Hitesh are childhood friends. Ritesh is a consultant whereas Hitesh is an architect. They contributed equal amounts and purchased a building for Rs. $2$ crores. After a year, they sold it for Rs. $3$ crores and shared the profits equally. Are they doing the business in partnership? Give reason in support of your answer.

No, they are not doing business.

Business is supposed to continue for long time according to going concern concept. in case of ritesh and hitesh they come together for a specific purpose so they are part of joint venture which dissolve after purpose is served.

Mita and Usha are partners in a firm, sharing profits in the ratio of 2 :Their Capital Accounts as on 1st April 2015 showed balances of Rs. 1,40,000 and Rs. 1,20,000 respectively. The drawings of Mita and Usha during the year 2015-16 were Rs. 32,000 and 24,000 respectively. Both the amounts were withdrawn on 1st JanuaryIt 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 Rs. 8,000 for the whole year.
Showing your working clearly, pass a rectifying entry in the books of the firm.

Particular	Mita	Usha	Total
Interest on Capital wrongly credited at 6% p.a.	8400	7200	15600
Interest on drawing	(480)	(360)	(840)
Commission To Mita	8000		8000
Wrong distribution (2:3)	9104	13656	22760
Right distribution	(15920)	(6840)	(22760)

Net Effect (6816) 6816 NIL

Calculation of interest on capital 6% p.a.

Interest o Mita's capital = 140000 * 6/100 = 8,400

Interest on Usha's capital = 120000 * 6/100 = 7200

Interest on drawing (1st Jan 2016)

Interest on Mita's Drawing = 32000 * 6% * 3/12 = 480

Interest on Usha's Drawing = 24000 * 6% * 3/12 = 360

Journal

Usha's capital a/c debit 6816

To Mita's capital a/c 6816

(Being Interest on capital adjusted)

Ankur and Bobby were, into the business of providing software solutions in India. They were sharing profits and losses in the ratio of 3 :They admitted Rohit for 1/5 share in the firm. Rohit, an alumni of Chennai would help them, to expand their business to various South African countries where he been working earlier. Rohit is guaranteed a minimum profit of 2,00,000 for the year. In case of any deficiency, Rohit's share is to be borne by Ankur and Bobby in the ratio 4 :Loss for the year was Rs. 10,00,Pass the necessary Journal entries.

Calculation of new profit sharing ratio

Let total share be = 1

Share of incoming partner = 1/5

Remaining share= 1-1/5 = 4/5

Ankur's share= 4/5*3/5 = 12/25

Bobby' s share=4/5*2/5 = 8/25

Rohit's share = 5/25

New ratio = 12:8:5

Loss to the firm = 10,00,000

Ankur = 1000000 * 12/25 = 480000

Bobby = 1000000* 8/25 = 320000

Rohit = 1000000 * 5/25 = 200000

Guaranteed minimum profit to rohit = 200000

So amount payable by ankur and bobby = 200000 for loss and 200000 for profit in 4:1 ratio.

Ankur = 400000 * 4/5 = 320000

Bobby = 400000 * 1/5 = 80000

Journal entry :-

Ankur a/c debit 480000

Bobby a/c debit 320000

Rohit a/c debit 200000

To Profit and loss appropriation

(Being loss apportioned)

Ankur a/c debit 320000

Bobby a/c debit 80000

To rohit a/c credit 400000

(Being , minimum profit guarantee)

$A, B$ and $C$ were partners in a firm sharing profits in the ratio of $3:2:1$ . Their Balance Sheet as on $31st$ March, $2015$ was as follows :
Liabilities Rs. Assets Rs.
Creditors 50,000 Land 50,000
Bills Payable 20,000 Building 50,000
General Reserve 30,000 Plant 1,00,000
Capital A/cs:
$A$ 1,00,000
$B$ 50,000
$C$ 25,000

1,75,000 Stock 40,000
Debtors 30,000
Bank 5,000
2,75,000 2,75,000
From $1st$ April, $2015, A,B$ and $C$ to share profits equally. For this it was agreed that :
(i) Goodwill of the firm will be valued at Rs. $1,50,000$
(ii) Land will be revalued at Rs. $80,000$ and building be depreciated by $6\%$
(iii) Creditors of Rs. $6,000$ were not likely to be claimed and hence should be written off.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.

Revaluation A/c

Particulars (Dr.)	Amount	Particulars (Cr.)	Amount
To Building a/c To profit on revaluation A's capital a/c 16,500 B's capital a/c 11,000 C's capital a/c 5,500	3,000 33,000	By Land a/c By creditors a/c	30,000 6,000

Partners' Capital a/c

Particulars (Dr.)	A	B	C	Particulars (Cr.)	A	B	C
To A's capital a/c To balance c/d	1,56,500	71,000	25,000 10,500	By balance b/d By General reserve a/c By Revaluation a/c By C's capital a/c	1,00,000 15,000 16,500 25,000	50,000 10,000 11,000	25,000 5,000 5,500

Balance Sheet of A, B & C

Liabilities	Amount	Assets	Amount
Capital A 1,56,500 B 71,000 C 10,500 Creditors Bills Payable	2,38,000 44,000 20,000 302000	Land Building Plant Stock Debtors Bank	80,000 47,000 1,00,000 40,000 30,000 5,000 302000

Mohan, Vijay and Anil are partners, the balances of their Capital Accounts being Rs. 30,000, Rs. 25,000 and Rs. 20,000 respectively. In arriving at these figures, the profits for the year ended 31st March 2016, Rs. 24,000 had already been credited to partners in the proportion in which they shared profits. Their drawings were Rs. 5,000 (Mohan), Rs. 4,000 (Vijay) and Rs. 3,000 (Anil) during the year. Subsequently, the following omissions were noticed, and it was decided to bring them into account: (a) Interest on capital @ 10% pa. (b) interest on drawings: Mohan Rs. 250, Vijay, Rs. 200 and Anil Rs. Make necessary corrections through a Journal entry and show your workings clearly.

Calculation of capital at the beginning

Mohan Vijay Anil

Capital at the end 30000 25000 20000

Add Drawings 5000 4000 3000

Less:profits (8000) (8000) (8000)

Capital at the beginning 27000 21000 15000

Interest on capital@10% 2700 2100 1500

Adjustment entry is as follows:-

Anil's Capital A/c Dr. 550

To Mohan's Capital A/c 550

(Being adjustment entry passed)

Table showing adjustments to be made

Interest on capital	2700	2100	1500
Less:Interest on drawings	(250)	(200)	(150)
Right distribution	2450	1900	1350
Less:wrong distribution of profits	(1900)	(1900)	(1900)
Adjustments	550	nil	(550)

X and Y entered into partnership On 1st April, 2017 X and Y contributed Rs. 2,00,000 and Rs. 1,50,000 respectively as their capitals. On 1st October, 2017, X provided Rs. 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% pa. and Interest on Drawings @ 10% p.a.
(iii) X get Monthly salary of Rs. 5,000 and Y to get salary of Rs. 22,500 per quarter.
(iv) X is entitled to a commission of 5% on sales. Sales for the year was Rs. 3,50,000.
(v) Profit and Loss to be shared in the ratio of their capital contribirtion up to Rs. 1,75,000 and above Rs. 1,75,000 equally.
The profit for the year ended 31st March, 2018, before 'Providing for any interest was Rs. 4,61,The drawings of X and Y were Rs. 1,00,000 and Rs. 1,25,000 respectively. Pass the necessary Journal entries relating to appropriation out of profits. Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts.

Partners Capital A/c

Dr X Y X Y

To drawings	100000	125000	By Balance b/d	200000	150000
To interest on drawings	5000	6250	By Interest on capital	24000	18000
			By Salary	60000	90000
			By Commission	17500	Nil
			By profits	118125	93125
To balance c/d	314625	219875

Profit distribution up to 1,75,000 in the ratio of 4:3 i.e. capital ratio and above equally distributed.

Profit And Loss Appropriation Account
Notes :

To interest on Capital X= 2,00,00012% = 24,000 Y= 1,50,00012% = 18,000	42000	By net profit (461000 - 1500)	4,59,500
X's salary = 5,00012 = 60,000 Y's salary = 22,5004 = 90,000	150000	By interest on drawings X=1,00,00010% 1/2 = 10,000 * 1/2 Y = 1,25,00010% 1/2 = 12,500 *1/2	5000 6250
X's Commission (3,50,000*5%)	17,500
To General reserve (Notes)	50,000
Share of profits Up to 1,75,000 X = 1,00,000 Y=75,000 Remaining 48,700 X= 18,125 Y=18,125	118125 93125
Total	4,70,750	Total	4,70,750

Notes :

General Reserve transfer = 20% of Profits before charging Interest on Drawings but after making appropriations

Profit for the year Rs. 459500

Less : Interest on capital (42000)

Less : X's commission (17500)

Less : Salary of X & Y (150000)

Profit available for transfer of general reserve 250000

Profit transfer to general reserve = 20% of Rs. 250000 = Rs. 50000.

From the following prepare an account current, as sent by Avinash to Bhuvanesh on 31st March, 2018 by means of products method charging interest @ $5$ % per annum:
Date Particulars Amount (Rs.)
2018 January 1 Balance due from Bhuvanesh $1,800$
January 10 Sold goods to Bhuvanesh $1,500$
January 15 Bhuvanesh returned goods $650$
February 12 Bhuvanesh paid by cheque $1,000$
February 20 Bhuvanesh accepted a bill drawn by Avinash for one month $1,500$
March 11 Sold goods to Bhuvanesh $720$
March 14 Received cash from Bhuvanesh $800$

Bhuvanesh in Account Current with Avinash for the period ending on 31st March 2018

Date	Particulars	Amount	Days	Products	Date	Particulars	Amount	Days	Products
2018		Rs.			2018		Rs.
Jan. 1	To Balance b/d	$1,800$	${90}^{\ast}$	$1,62000$	Jan 15	By Sales Returns	$650$	$75$	$48,750$
Jan. 10	To Sales A/c	$1,500$	$80$	$1,20,000$	Feb. 12	By Bank A/c	$1,000$	$47$	$47,000$
March, 11	To sales A/c	$720$	$20$	$14,400$	Feb. 20	By B/R A/c (due date: March 23)	$1,500$	$8$	$12,000$
March 31	To interest A/c	$24$			March 14	By Cash A/c	$800$	$17$	$13,600$
					March 31	By balance of products			$1,75,050$
						By Balance c/d	$94$
		$4,044$		$2,96,400$			$4,044$		$2,96,400$

$^{\ast}$ Calculation of interest
Interest

$=(1,75,050\times 5$ %

$)/365=Rs. 24$

$^{\ast}$ Opening day considered in calculation of no. of days.

From the following particulars prepare an account current, as sent by Mr. AB to Mr. XY as on $31^{st}$ October, $2018$ by means of product method charging interest $@ 5\%$ p.a.
Date Particulars (Rs.)
$1^{st}$ July Balance due from XY $1,500$
$20^{th}$ August Sold goods to XY $2,500$
$28^{th}$ August Goods returned by XY $400$
$25^{th}$ September XY paid by cheque $1,600$
$20^{th}$ October Received cash form XY $1,000$

XY in Account Current with AB as on

$31^{st}$ Oct,

$2018$

		(Rs.)	Days	Product (Rs.)			(Rs.)	Days	Product( Rs.)
$01.07.18$	To Bal. b/d	$1,500$	$123$	$1,84,500$	$28.08.18$	By Sales Returns	$400$	$64$	$25,600$
$20.8.18$	To Sales	$2,500$	$72$	$1,80,000$	$25.09.18$	By Bank	$1,600$	$36$	$57,600$
$31.10.18$	To Interest	$37$			$20.10.18$	By Cash	$1,000$	$11$	$11,000$
					$20.10.18$	By Balance of Products			$2,70,300$
					$31.10.18$	By Bal. c/d	$1,037$
		$4,037$		$3,64,500$			$4,037$		$3,64,500$

Note:
Interest

$=$ Rs.

$2,70,300\times \dfrac{5}{100}\times \dfrac{1}{365}=$ Rs.

$37$ (approx.)

General Reserve	$6,000$
Profit and Loss A/c (Credit)	$2,40,000$
Advertisement Suspense A/c	$12,000$

Liabilities	Rs.	Assets	Rs.
Neelkant's Capital Mahadev's Capital Neelkan't Curent A/c Mahadev's Current A/c Profit and Loss Appropriation A/c (March 2018)	10,00,000 10,00,000 1,00,000 1,00,000 8,00,000	Sundry Assets	30,00,000
	30,00,000		30,00,000

	Sohan (Rs.)	Mohan (Rs.)
Capitals on 1st April 2017	4,00,000	3,00,000
Drawings during 2017-18	50,000	30,000
Interest on Capital	5%	5%
Interest on Drawings	1,250	750
Share of Profit for 2017-18	60,000	50,000
Partner's Salary	36,000	....
Commission	5,000	3,000

Date	1st May, 2017	1st August 2017	30th September, 2017	31st January, 2018	31st March, 2018
Amount (Rs.)	2,000	5,000	2,000	6,000	2,000

Liblities	Amount (Rs.)	Assets	Amount (Rs.)
Sundry Creditors Employees Provident Fund General reserve Capital: Akul $1,60,000$ Bakul $1,20,000$ Chandan $\underline{ \,\,\,\,\,92,000}$	$45,000$ $13,000$ $20,000$ $3,72,000$	Cash at Bank Debtors $60,000$ Less: Provision for doubtful debts $\underline{2,000}$ Stock Furniture Plant and Machinary	$42,000$ $58,000$ $80,000$ $90,000$ $1,80,000$
	$\overline{\underline{4,50,000}}$		$\overline{\underline{4,50,000}}$

Liabilities		'Rs.	Assets		Rs.
Capital Accounts			Building		$10,00,000$
A	$8,00,000$		Furniture		$2,40,000$
B	$4,20,000$		Office equipments		$2,80,000$
C	$4,00,000$	$16,20,000$	Stock		$2,50,000$
Sundry Creditors		$3,70,000$	Sundry debtors	$3,00,000$
General Reserves		$3,60,000$	Less: Provision for Doubtful debts	$30,000$	$2,70,000$
			Joint Life Policy		$1,60,000$
			Cash at Bank		$1,50,000$
		$23,50,000$			$23,50,000$

Year	Rs
2014	$90,000$
2015	$1,40,000$
2016	$1,20,000$
2017	$1,30,000$

Liabilities	Rs.	Assets	Rs.
Creditors	50,000	Land	50,000
Bills Payable	20,000	Building	50,000
General Reserve	30,000	Plant	1,00,000
Capital A/cs: $A$ 1,00,000 $B$ 50,000 $C$ 25,000	1,75,000	Stock	40,000
		Debtors	30,000
		Bank	5,000
	2,75,000		2,75,000

Accounting For Partnership: Basic Concepts - Class 12 Commerce Accountancy - Extra Questions

A firm Maintains a Capital Account and a Current Account for each partner. What is the term used when this method of maintaining Capital Accounts is followed?

Interest on capital is credited to Partner's Current Account. Name the method of maintaining Capital Account.

If interest on capital, salary to the partner and share of profit are credited while interest on drawings, drawings and share of loss are debited to the Partners' Capital Accounts, what is the method followed to maintain the Capital Accounts?

Under which Capital Account Method, Current Accounts of partners are maintained?

What is meant by 'Fixed Capital' of a Partner?

State the provisions of Partnership Act, 1932, in the absence of a Partnership Deed regarding (i) Interest on Partner's Drawings, and (ii) Interest on Advances other than capital.

Give two circumstances in which the Fixed Capitals of partners may change.

List the item that may appear on the debit side of a Partner's Fixed Capital Account.

State one difference between Fixed Capital Account and Fluctuating Capital Account of partners.

Mention the items that may appear on the debit side of the Capital Account of a partner when the capitals are fluctuating.

Under which Capital Account Method, Current Accounts of partners are not maintained?

List any four items appearing on the Profit and Loss Appropriation Account.

Mention the items that may appear on the credit side of the Capital Account, when the partners capital are fixed.

Calculate interest on drawings of Rakesh @ 10%10\% p.a. for the year ended 31st March, 2018 in each of the following alternative cases:CaseIf his drawings during the year were Rs.30,000Rs. 30,000. CaseIf he withdraws Rs.2,500Rs. 2,500 per month during the year.

A and B are partners sharing profits equally. A drew regularly Rs. 4,000 at the end of every month for six months ended 30th September,Calculate interest on drawings @ 5% p.a. for a period of six months.

Explain the concept of mutual agency in partnership firm.

Name the partnership firm which is formed to carry on a special task or project.

Calculate interest on A's drawings @ 10%10\% if he withdraw Rs. 2,50,0002,50,000 during the year.

Explain any five merits and five demerits of partnership.

Define partnership.

A and B are partners sharing profits equally. A drew regularly Rs. 4,000 in the beginning of every month for six months ended 30th September,Calculate interest on drawings @ 5% p.a. for a period of six month

In which form of organisation is a trade agreement made by one owner binding on the others? Give reasons to support your answer.

Is registration of partnership firm compulsory?

Are partners by estoppel held liable for the debts of the firm?

What values are involved in: (a) Cooperative organisation. (b) Partnership.

Distinguish between 'Fixed Capital Account' and 'Fluctuating Capital Account' on the basis of credit balance.

X, Y and Z are partners. The partnership agreement is silent. State whether the firm is dissolved in each of the following alternative cases:Case (a): If X, Y, Z are declared as insolvent,Case (b): If X and Y are declared as insolvent,Case(c): If only X is declared as insolvent.

X, Y and Z are partners. On 01/01/1997, Z applies for insolvency. On 01/02/1997, He endorses a Bill of Exchange in favour of W. On 01/03/He is declared insolvent. Does W acquire a good title to the Bill?

X, Y and Z are partners. Z gives notice of retirement to, the other partners but does not give public notice of it. W gives credit to the firm without having notice of the change. Can W sue Z if (a) Z is an active partner, (b) Z is a dormant partner (sleeping partner)?

Answer briefly the following question:Give the adjusting entry and closing entry for interest on loan taken by a partner from the firm, when the firm follows the Fluctuating Capital Method.

Answer the question.What is Profit and Loss Appropriation Account?

What is the maximum number of partners that a partnership firm can have? Name the Act that provides for the maximum number of partners in a partnership firm.

Why is Profit and Loss Appropriation Account prepared?

Is Interest on Loan by partner debited to Profit and Loss Appropriation Account?

List the items that are credited to Profit and Loss Appropriation Account.

A group of 40 people want to form a partnership firm. They want your advice regarding the maximum number of persons that can be there in a partnership firm and name of the Act under whose provision it is given.

Pratibha, partner of a firm, has advanced loan to the firm of Rs.1,00,000Rs. 1,00,000. The firm does not have a Partnership Deed. Will Pratibha get interest on the loan? If yes, at which rate and why?

State the two methods of maintaining Capital Accounts of partners.

M/s. RSA maintains Partners' Capital Accounts under Fixed Capital Accounts Method. Accountant of the firm has credited their salary and interest on capital to their Capital Accounts. Do you agree with the treatment? Give reasons for your answer.

Is there any restriction on maximum number of partners? If yes, name the Act under which it is prescribed.

Neha, a partner, owns a building in which the firm carries its business. The firm pays her Rs.10,000Rs. 10,000 as rent of the building. To which account rent will be debited?

State the provisions of Indian Partnership Act regarding the payment of remuneration to a partner for the services rendered.

How will you calculate interest on the drawings of equal amount made on the last day of every month of a calendar year?

If a fixed amount is withdrawn on 15th day of every month of a calendar year, for what period will the interest on total amount withdrawn be calculated?

When the partners' capitals are fixed, where will the drawings made by a partner be recorded?

To which account salary and commission to partners and interest on capital be debited? Why?

How is interest on drawings calculated, if the drawings are made at regular intervals, as on the 15th day of each month?

Under what circumstances Average Method of calculating interest on drawings is applied?

Name the method of calculating Interest on Drawings of the partner if different amounts are withdrawn on different dates.

Why is it that the Capital Account of a partner does not show a 'Debit Balance' in spite of regular and consistent losses year after year?

If the partners' capitals are fixed, where will you record interest charged on drawings?

If A draws Rs.15,000Rs. 15,000 every month at the end of the month, what will be the Interest @ 5\% p.a.@ 5\% p.a.?

Following differences have arisen among P, QP, Q and RR. State who is correct in following case: PP and QQ want to purchase goods from A Ltd., RR does not agree?

Following differences have arisen among P, QP, Q and RR. State who is correct in following case: QQ and RR want to admit CC as partner, PP does not agree?

Distinguish between Fixed and Fluctuating Capitals.

State the two situations in which interest on Partners' Capital is generally provided.

State any four features of a Partnership.

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

X and Y shared profit and losses in the ratio of 3:23:2 . With effect from 1st April, 2018 they agreed to share profits equally. The goodwill of the firm was valued at Rs. 60,000 60,000 . The necessary single adjustment entry will be :

Ram and Mohan, two partners, drew for their personal use Rs. 1,20,000 and Rs. 80,Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest chargeable from each partner?

C and D are partners in a firm; C has contributed Rs. 1,00,000 and D Rs. 60,000 as capital. Interest is payable @ 6% p.a. and D is entitled to a salary of 3,000 per month. In 2017-18, the profit was Rs. 80,000 before interest and salary. Divide the amount between C and D.

Profits earned by a partnership firm for the year ended 31st March, 2017 were distributed equal between the partners Pankaj and Anu without allowing interest on capital. Interest due on capital was - Pankaj: 3,000 and Anu: 1,Pass necessary adjustment entry.

Reya, Mona and Nisha shared profits in the ratio of 3 : 2 :The profits for the last three years was 1,40,000; 84,000 and 1,06,000 respectively. These profits were by mistake shared equally for all three years. It is now decided to correct the error. Give necessary Journal entry for the same.

Ram, Mohan and Sohan sharing profits and losses equally have capitals of 70,000, 90,000 and 60,For the year ended 31st March 2018, interest was credited to them @ 6% instead of 5%. Give adjustment Journal entry.

A and B are partners, sharing profits in the ratio of 3 :C was admitted for 1/6th share of profit With minimum guaranteed amount of Rs. 10,At the close of the first financial year, the firm earned a profit of Rs. 7,54,Find out the share of profit which A, B and C will get.

Does the loan from an outsider have priority over the loan from a partner as to repayment?

The partner of a partnership entered into a contract with an outsider favouring him personally, ignoring the interest of partnership firm. What value is ignored?

If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.

Which feature of partnership binds all the partners to the agreement signed by one partner?

Explain the procedure for registration of a partnership firm?

When the partners current accounts are prepared in partnership firm ?

How do you treat the followings in the absence of partnership deed ?a) Interest on Capital.b) Interest on Drawings.c) Interest on Partner's Loand) Distribution of profits lossese) Salary to partners.

Radha and Rani are partners in a firm. Radha's drawings for the year 2015-16 are given under:Rs. 5,000 on 01-04-2015Rs. 8,000 on 30-06-2015Rs. 3,000 on 01-12-2015Rs. 2,000 on 31-03-2016Calculate interest on Radha's drawings at 10\%10\% p.a. for the year ending 31-03-2016 under product method.

A new partner acquires two main rights in the partnership firm which he joins. State one of these rights.

Prepare current account of partners under fixed capital system with five imaginary figures.

Write two partners capital accounts under fluctuating capital system with 5 imaginary figures.

Calculate interest on drawings of Rakesh @ $10\%$ p.a. for the year ended 31st March, 2018 in each of the following alternative cases:
CaseIf his drawings during the year were $Rs. 30,000$ .
CaseIf he withdraws $Rs. 2,500$ per month during the year.

Calculate interest on A's drawings @ $10\%$ if he withdraw Rs. $2,50,000$ during the year.

What values are involved in:
(a) Cooperative organisation.
(b) Partnership.

X, Y and Z are partners. The partnership agreement is silent. State whether the firm is dissolved in each of the following alternative cases:
Case (a): If X, Y, Z are declared as insolvent,
Case (b): If X and Y are declared as insolvent,
Case(c): If only X is declared as insolvent.

Answer briefly the following question:
Give the adjusting entry and closing entry for interest on loan taken by a partner from the firm, when the firm follows the Fluctuating Capital Method.

Answer the question.
What is Profit and Loss Appropriation Account?

Pratibha, partner of a firm, has advanced loan to the firm of $Rs. 1,00,000$ . The firm does not have a Partnership Deed. Will Pratibha get interest on the loan? If yes, at which rate and why?

Neha, a partner, owns a building in which the firm carries its business. The firm pays her $Rs. 10,000$ as rent of the building. To which account rent will be debited?

If A draws $Rs. 15,000$ every month at the end of the month, what will be the Interest $@ 5\% p.a.$ ?

Following differences have arisen among $P, Q$ and $R$ . State who is correct in following case:
$P$ and $Q$ want to purchase goods from A Ltd., $R$ does not agree?

Following differences have arisen among $P, Q$ and $R$ . State who is correct in following case:
$Q$ and $R$ want to admit $C$ as partner, $P$ does not agree?

X and Y shared profit and losses in the ratio of $3:2$ . With effect from 1st April, 2018 they agreed to share profits equally. The goodwill of the firm was valued at Rs. $60,000$ . The necessary single adjustment entry will be :

How do you treat the followings in the absence of partnership deed ?
a) Interest on Capital.
b) Interest on Drawings.
c) Interest on Partner's Loan
d) Distribution of profits losses
e) Salary to partners.

Radha and Rani are partners in a firm. Radha's drawings for the year 2015-16 are given under:
Rs. 5,000 on 01-04-2015
Rs. 8,000 on 30-06-2015
Rs. 3,000 on 01-12-2015
Rs. 2,000 on 31-03-2016
Calculate interest on Radha's drawings at $10\%$ p.a. for the year ending 31-03-2016 under product method.