accounting for partnership firms fundamentals class 12 ncert solutions
class 12 accountancy accounting for partnership firms fundamentals solutions
Nature of Partnership – When two or more persons join hands to set up a business and share its profits and losses, they are said to be in partnership. Section 4 of the Indian Partnership Act 1932 defines partnership as the ‘relation between person who have agreed to share the profits of a business carried on by all or any of them acting for all’.
Person who have entered into partnership with one another are individually called ‘partners’ and collectively called ‘firm’. The name under which the business is carried is called the ‘firm’s name’. A partnership firm has no separate legal entity, apart from the partners constituting it. Thus, the essential features of partnership are:
- Two or More Persons: In order to form partnership, there should be at least two persons coming together for a common goal. In other words, the minimum number of partners in a firm can be two.
- Agreement: Partnership is the result of an agreement between two or more persons to do business and share its profits and losses. The agreement becomes the basis of relationship between the partners.
- Business: The agreement should be to carry on some business. Mere co-ownership of a property does not amount to partnership. For example, if Rohit and Sachin jointly purchase a plot of land, they become the joint owners of the property and not the partners. But if they are in the business of purchase and sale of land for the purpose of making profit, they will be called partners.
- Mutual Agency: The business of a partnership concern may be carried on by all the partners or any of them acting for all.
- Sharing of profit: Another important element of partnership is that, the agreement between partners must be to share profits and losses of a business. Though the definition contained in the Partnership Act describes partnership as relation between people who agree to share the profits of a business, the sharing of loss is implied.
Partnership Deed – Partnership comes into existence as a result of agreement among the partners. The agreement can be either oral or written. The Partnership Act does not require that the agreement must be in writing. But wherever it is in writing, the document, which contains terms of the agreement is called ‘Partnership Deed’.
Provision Relevant for Accounting – The important provisions affecting partnership accounts are as follows:
- Profit sharing ratio: If the partnership deed is silent about the profit sharing ratio, the profits and losses of the firm are to be shared equally by partners, irrespective of their capital contribution in the firm.
- Interest on Capital: No partner is entitled to claim any interest on the amount of capital contributed by him in the firm as a matter of right. However, interest can be allowed when it is expressly agreed to by the partners. Thus, no interest on capital is payable if the partnership deed is silent on the issue. Further the interest is payable only out of the profits of the business and not if the firm incurs losses during the period.
- Interest on Drawings: No interest is to be charged on the drawings made by the partners, if there is no mention in the Deed.
- Interest on Advances: If any partner has advanced some money to the firm beyond the amount of his capital for the purpose of business, he shall be entitled to get an interest on the amount at the amount at the rate of 6 per cent per annum.
- Remuneration for firm’s work: No partner is entitled to get salary or other remuneration for taking part in the conduct of the business of the firm unless there is a provision for the same in the Partnership Deed.
accounting for partnership firms fundamentals class 12 ncert solutions
Special Aspects of Partnership Accounts – Accounting treatment for partnership firm is similar to that of a sole proprietorship business with the exception of the following aspects:
- Maintenance of Partners’ Capital Accounts;
- Distribution of Profit and Loss among the partners;
- Adjustments for Wrong Appropriation of Profits in the Past;
- Reconstitution of the Partnership Firm; and
- Dissolution of Partnership Firm.
Maintenance of Capital Accounts of Partners – All transactions relation to partners of the firm are recorded in the books of the firm through their capital accounts. This includes the amount of money brought in as capital, withdrawal of capital, share of profit, interest on capital, interest on drawings, partner’s salary, commission to partners, etc.
There are two methods by which the capital accounts of partners can be maintained. These are: (i) fixed capital method, and (ii) fluctuating capital method.
- Fixed Capital Method: Under the fixed capital method, the capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement among the partners.
- Fluctuating Capital Method: Under the fluctuating capital method, only one account, i.e. capital account is maintained for each partner. All the adjustments such as share of profit and loss, interest on capital, drawings, interest on drawings, salary or commission to partners, etc. are recorded directly in the capital accounts of the partners.
Distribution of Profit among Partners – The profits and losses of the firm are distributed among the partners in an agreed ratio. However, if the partnership deed is silent, the firm’s profits and losses are to be shared equally by all the partners.
Profit and Loss Appropriation Account – Profit and Loss Appropriation Account is merely an extension of the Profit and Loss account of the firm. It shows how the profits are appropriated or distributed among the partners. All adjustments in respect of partner’s commission, interest on capital, interest on drawings, etc. are made through this account. It starts with the net profit/net loss as per Profit and Loss Account is transferred to this account.
Calculation of Interest on Capital – No interest is allowed on partner’s capitals unless it is expressly agreed among the partners. When the Deed specifically provides for it, interest on capital is credited to the partners at the agreed rate with reference to the time period for which the capital remained in business during a financial year.
Interest on Drawings – The partnership agreement may also provide for charging of interest on money withdrawn out of the firm by the partners for their personal use. As stated earlier, no interest is charged on the drawings if there is no express agreement among the partners about it.
Guarantee of Profit to a Partners – Sometimes a partners is admitted into the firm with a guarantee of certain minimum amount by way of his share of profits of the firm. Such assurance may be given by all the old partners in a certain ratio or by any of any of the old partners, individually to the new partners. The minimum guaranteed amount shall be paid to such new partner when his share of profit as per the profit sharing ratio is less than the guaranteed amount.
Past Adjustments – Sometimes a few omissions or errors in the recording of transactions or the preparation of summary statements are found after the final accounts have been prepared and the profits distributed among the partners. The omission may be in respect of interest on capitals, interest on drawings, interest on partners’ loan, partner’s salary, partners’ commission or outstanding expenses.
Questions for Practice
Short Answer Questions
- Define Partnership Deed.
Ans. The document containing the terms of partnership agreement is called the Partnership Deed.
2. Why it is considered desirable to make the partnership agreement in writing.
Ans. It is desirable to have the partnership agreement in writing because it avoids disputes and misunderstandings among the partners and helps in the smooth conduct of the partnership business.
3. List the times which may be debited or credited in capital accounts of the partners when:
- Capital are fixed.
- Capital are fluctuating.
Ans.
- Capital are fixed – Capital account
Credited with:
- Additional capital introduced.
Debited with:
- Permanent withdrawal of capital.
(all other items are recorded in current Accounts.)
2. Capital are fluctuating – Capital Account
Credited with:
- Opening capital
- Additional capital introduced
- Interest on capital
- Salary/Commission to partner
- Share of Profit
Debited with:
- Drawings
- Interest on drawings
- Share of loss
4. Why is Profit and Loss Adjustment Account prepared? Explain.
Ans. Profit and Loss Adjustment Account is prepared to adjust accumulated profits, losses and reserves among the partners in their old profit-sharing ratio at the time of change in profit-sharing ratio.
5. Give two circumstances under which the fixed capitals of partners may change.
Ans. The fixed capitals of partners may change when:
- Additional capital is introduced by a partners.
- A part of capital is permanently withdrawn by a partner.
6. If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?
Ans. When a fixed amount is withdrawn on the first day of every quarter, interest on the total amount withdrawn is calculated for 7.5 months (average period).
7. In the absence of Partnership deed, specify the rules relating to the following:
- Sharing of profits and losses.
- Interest on partner’s capital.
- Interest on Partner’s drawings.
- Interest on Partners’ loan
- Salary to a partner.
Ans.
- Profit and losses are shared equally by the partners.
- No interest on capital is allowed.
- Non interest on drawings is charged.
- Interest at 6% per annum is allowed on partner’s loan.
- No partner is entitled to received salary or commission.
Long Answer Questions
- What is partnership? What are its chief characteristics? Explain.
Ans. According to Section 4 of the Indian Partnership Act, 1932, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
Characteristics –
1. Two or More Persons – There must be at least two persons to form a partnership.
2. Agreement – Partnership comes into existence through an agreement among the partners.
3. Lawful Business – The agreement should be to carry on some lawful business.
4. Sharing of Profit – The partners agree to share the profits of the business.
5. Mutual Agency – The business may be carried on by all or any of them acting for all. Thus, every partner is an agent as well as a principal.
2. Discuss the main provisions of the Indian Partnership Act 1932 that are relevant to partnership accounts if there is no partnership deed.
Ans. In the absence of a Partnership Deed:
1. Profits and losses are shared equally among the partners.
2. No interest on capital is allowed.
3. No interest on drawings is charged.
4. No salary, commission or remuneration is allowed to any partner.
5. Interest on partner’s loan is allowed at 6% per annum.
These provisions are applicable unless otherwise agreed by the partners.
3. Explain why it is considered on drawings will be calculated under various situations.
Ans. It is considered better to make a partnership agreement in writing because:
- It avoids disputes and misunderstandings among the partners.
- It clearly states the terms and conditions of partnership.
- It helps in the smooth conduct of the business.
- It serves as evidence in case of disputes among the partners.
The written agreement containing all the terms and conditions of partnership is known as the Partnership Deed.
4. Illustrate how interest on drawings will be calculated under various situations.
Ans.
Interest on drawings depends upon the amount withdrawn, the rate of interest and the period for which the amount remains withdrawn.
(i) When drawings are made at the beginning of every month
Average Period = 6.5 months
Interest on Drawings
= Total Drawings × Rate/100 × 6.5/12
(ii) When drawings are made at the end of every month
Average Period = 5.5 months
Interest on Drawings
= Total Drawings × Rate/100 × 5.5/12
(iii) When drawings are made in the middle of every month
Average Period = 6 months
Interest on Drawings
= Total Drawings × Rate/100 × 6/12
(iv) When drawings are made on the first day of every quarter
Average Period = 7.5 months
Interest on Drawings
= Total Drawings × Rate/100 × 7.5/12
(v) When drawings are made at the end of every quarter
Average Period = 4.5 months
Interest on Drawings
= Total Drawings × Rate/100 × 4.5/12
5. How will you deal with a change in profit sharing ratio among existing partners? The imaginary figures to illustrate your answer?
Ans. When the existing partners decide to change their profit-sharing ratio, certain adjustments become necessary. These include:
1. Adjustment of goodwill.
2. Revaluation of assets and reassessment of liabilities.
3. Distribution of accumulated profits, reserves and gains.
4. Adjustment of accumulated losses and fictitious assets.
5. Adjustment of partners’ capitals, if required.
Numerical Questions
- Triphati & Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were Rs.60,000 and Rs.40,000 as on April 01, 2019. During the year they earned a profit of Rs.30,000. According to the partnership deed both the partners are entitled to Rs.1,000 per month as salary and 5% p.a. interest on their capital. They are also to be charged an interest of 5% p.a. on their drawings, irrespective of the period, which is Rs.12,000 for Tripathi, Rs.8,000 for Chauhan. Prepare Partner’s capital/current accounts when, capitals are fixed.
Solution:-
Dr. Partner’s Current A/c Cr.
Working Notes:-
Dr. Profit & Loss appropriation A/c for the year ended 31sMarch Cr.
6. Anubha and Kajal are partners of a firm sharing profits and losses in the ratio of 2:1. Their capital, were Rs.90,000 and Rs.60,000. The profit during the year were Rs.45,000. According to partnership deed, both partners are allowed salary, Rs.700 per month to Anubha and Rs.500 per month to Kajal. Interest allowed on capital @ 5% p.a. The drawings during the year were Rs.8,500 for Anubha and Rs.6,500 for Kajal. Interest to be charged @ 5% p.a. on drawings. Prepare partners capital accounts, assuming that the capital account are fluctuating.
Solution:-
Dr. Partners’ Capital A/c Cr.
Working Notes:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
7. Harshad and Dhiman are in partnership since April 01, 2019. No partnership agreement was made. They contributed Rs.4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advanced an amount of Rs.1,00,000 to the firm, on October 01, 2019. Due to long illness, Harshad could not participate in business activities from August 1, to September 30, 2016. The profits for the year ended March 31, 2020 amounted to Rs.1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims:
- He should be given interest @ 10% per annum on capital and loan;
- Profit should be distributed in proportion of capital;
Dhiman Claims:
- Profits should be distributed equally;
- He should be allowedRs.2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad;
- Interest on Capital and loan should be allowed @ 6% p.a.
You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
8. Aakriti and Bindu entered into partnership for making garment on April 01, 2019 without any Partnership agreement. They introduced Capitals of Rs.5,00,000 and Rs.3,00,000 respectively on October 01, 2019. Aakriti Advanced. Rs.20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ended March 31, 2020 showed profit of Rs.43,000. Partners could not agree upon the question of interest and the basis of division of profit. You are required to divide the profits between them by preparing Profit and Loss Appropriation Account. Also give reasons in Support of your answer.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
9. Rakhi and Shikha are partners in a firm, with capitals of Rs.2,00,000 and Rs.3,00,000 respectively. The profit of the firm, for the year ended 2016-17 is Rs.23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs.5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew Rs.7,000 and Shikha Rs.10,000 for their personal use. AS per partnership deed, salary and interest on capital appropriation treated as charge on profit. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
10. Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of Rs.50,000 and 30,000, respectively. Interest on capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of Rs.2,500 p.a. During 2016, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to Rs.12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare partner’s capital accounts and profit and loss Appropriation Account.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
11. The partnership agreement between Maneesh and Girish provides that:
- Profits will be shared equally;
- Maneesh will be allowed a salary of Rs.400 p.m.;
- Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;
- 7% p.a. interest will be allowed on partner’s fixed capital;
- 5% p.a. interest will be charged on partner’s annual drawings;
- The fixed capitals of Maneesh and Girish are Rs.1,00,000 and Rs.80,000, respectively. Their annual drawings were Rs.16,000 and 14,000, respectively. The net profit for the year ending March 31, 2019 amounted to Rs.40,000;
Prepare firm’s Profit and Loss Appropriation Accounts.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
12. Ram, Raj and George are partners sharing profits in the ratio 5:3:2. According to the partnership agreement George is to get a minimum amount of Rs.10,000 as his share of profits every year. The net profit for the year 2013 amounted to Rs.40,000. Prepare the Profit and Loss Appropriation Account.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
13. Aman, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed an amount of Rs.10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for two years ending March 31, 2019 and March 31, 2020 were Rs.40,000 and Rs.60,000, respectively. Prepare the Profit and Loss Appropriation Account for the two years.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
14. Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio of 3:1. The profit and loss account of the firm for the year ending March 31, 2020 show a net profit of Rs.1,50,050. Prepare the Profit and Loss Appropriation Account and partners current account by taking into consideration the following information:
- Partners capital on April 1, 2019;
Simmi, Rs.30,000; Sonu, Rs.60,000’
2. Current accounts balances on April 1, 2019;
Simmi, Rs.30,000 (cr.); Sonu, Rs.15,000 (cr.);
3. Partners drawings during the year amounted to ;
Simmi, Rs.20,000; Sonu, Rs.15,000;
4. Interest on capital was allowed @ 5% p.a.;
5. Interest on drawing was to be charged @ 6% p.a. at an average of six months;
6. Partners’ salaries : Simmi Rs.12,000 and Sonu Rs.9,000.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
15. Arvind and Anand are partners sharing profits and losses in the ratio 8:3:1 Balance in their capital accounts on April 01, 2019 were, Arvind- Rs.4,40,000 and Anand Rs.2,60,000. As per their agreement, partners were entitled to interest on capital @ 5% p.a., and interest on drawings was to be charged @ 6% p.a. Arvind was allowed an annual salary of Rs.35,000/- for the additional responsibilities taken up by him. Partners drawings for the year were, I Arvind Rs.40,000 and Anand Rs.28,000. Profit and Loss account of the firm for the year ending March 31, 2020 showed a Net Loss of Rs.32,400. Prepare profit and loss appropriation account.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
16. Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were Rs.80,000 and Rs.60,000 respectively. The firm started business on April 1, 2019. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of Rs.2,000 and Rs.3,000 respectivelly.
The profits for year ended March 31, 2017 before making above appropriations was Rs.1,00,300. The drawings of Ramesh and Suresh were Rs.40,000 and Rs.50,000, respectively. Interest on drawings amounted to Rs.2,000 for Ramesh and Rs.2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their capitals are fluctuating.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
17. Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:
- Profits would be shared by Sukesh and Vanita in the ratio of 3:2;
- 5% interest is to be allowed on capital;
- Vanita should be paid a monthly salary of Rs.600,
The following balances are extracted from the books of the firm, on March 31, 2017.
Net profit for the year, before charging interest on capital and after charging Sukesh’s salary was Rs.9,500. Prepare the Profit and loss Appropriation Account and the Partner’s Current Accounts.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
18. Rahul, Rohit and Karan started partnership business on April 1, 2019 with capitals of Rs.20,00,000, Rs.18,00,000 and Rs.16,00,000, respectively. The profit for the year ended March 2020 amounted to Rs.1,35,000 and the partner’s drawings had been Rahul Rs.50,000, Rohit Rs.50,000 and Karan Rs.40,000. The profits are distributed among partner’s in the ratio 3:2:1. Calculate the interest on capital @ 5% p.a.
Solution:-
Calculation of Interest on Capital of Rahul’s Capital
= 20,00,000 x 5%
= Rs.1,00,000
Calculation of Interest on Capital of Rohit’s Capital
= 18,00,000 x 5%
= Rs.90,000
Calculation of Interest on Capital of Rohit’s Capital
= 16,00,000 x 5%
= Rs.80,000
19. Sunflower and Pink started partnership business on April 01, 2019 with capitals of Rs.2,50,000 and Rs.1,50,000, respectively. On October 01, 2019, they decided that their capitals should be Rs.2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31, 2020.
Solution:-
Calculation of Interest on Capital of Sunflower
April to September 2,50,000 x 10% x 6/12 = Rs.12,500
Oct. to March 2,00,000 x 10% x 6/12 = Rs.10,000
Interest on Sunflower’s Capital = Rs.22,500
Calculation of Interest on Capital of Pink Rose
April to September 1,50,000 x 10% x 6/12 = Rs.7,500
Oct. to March 2,00,000 x 10% x 6/12 = Rs.10,000
Interest on Pink Rose’s Capital = Rs.17,500
20. On March 31, 2017 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at Rs.4,00,000, Rs.3,00,000 and Rs.2,00,000, respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to Rs.1,50,000 and the partners’ drawings had been Mountain: Rs.20,000, Hill Calculate interest on capital.
Solution:-
Calculation of Interest on Capital of Mountain
Opening Capital of Mountain = Opening Capital +Drawings – Profit
= Rs.4,00,000 + 20,000 – 1,50,000 x 1/3
= Rs.3,70,000
Interest on Mountain’s Capital = 3,70,000 x 10%
= Rs.37,000
Calculation of Interest on Capital of Hill
Opening Capital of Hill = Op. Capital + Drawings – Profit
= Rs.3,00,000 + 15,000 – 1,50,000 x 1/3
= Rs.2,65,000
Interest on Hills Capital = 2,65,000 x 10%
= Rs.26,500
Calculation of Interest on Capital of Rock
Opening capital of Rock = Op. Capital + Drawings – Profit
= Rs.2,00,000 + 10,000 – 1,50,000 x 1/3
= Rs.1,60,000
Interest on Rock’s Capital = 1,60,000 x 10%
= Rs.16,000
21. Following is the extract of the Balance Sheet of, Neelkant an Mahedev as on March 31, 2020;
Balance Sheet as at March 31, 2020
During the year Mahadev’s drawings were Rs.30,000. Profits during 2019-20 is Rs.10,00,000. Calculate interest on capital @ 5% p.a. for the year ending March 31, 2020.
Solution:-
Calculation of Interest on Capital of Neelkant
10,00,000 x 5% = Rs.50,000
Calculation of Interest on Capital of Mahadev
10,00,000 x 5% = Rs.50,000
Note:- Capital are fixed, thus no change in capital during the year
22. Rishi is a partners in a firm. He withdrew the following amounted during the year ended March 31, 2020.
Interest on drawings is charged @ 9% p.a.
Calculate interest on drawings.
Solution:-
Calculation of Interest on Rishi’s Drawings
Interest on Rishi’s Drawings = 3,06,000 x 9% x 1/12
= Rs.2,295
23. The capital accounts of Moli and Golu showed balances of Rs.40,000 and rs.20,000 as on April 01, 2019. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of Rs.10,000 to the firm on August 01, 2019.
During the year, Moli withdraw Rs.1,000 per month at the beginning of every month whereas Golu withdrew Rs.1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was Rs.20,950. Calculate interest on drawings show distribution of profits and prepare partners’ capital accounts.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
Working Notes:-
Calculation of Moli’s Interest on Drawings
1,000 x 12 x 12% x 6.5/12 = Rs.780
Calculation of Golu’s Interest on Drawings
1,000 x 12 x 12% x 5.5/12 = Rs.660
24. Rakesh and Roshan are partners, sharing profits in the ratio of 3:2 with capitals of Rs.40,000 and Rs.30,000, respectively. They withdrew from the firm the following amounts, for their personal use:
Interest on drawings is to be charged @ 6% p.a. Calculate interest on drawings, assuming that book of accounts are closed on March 31, 2020, every year.
Solution:-
Calculation of Interest on Rishi’s Drawings
Interset on Rakesh’s Drawings = 25,300 x 6% x 1/12
= 126.5
Calculation of Interest on Roshan’s Drawings
400 x 12 x6% x 6.5/12 = 156
25. Himanshu withdrew Rs.2,500 at the end of each month. The Partnership deed provides for charging interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending March 31, 2017.
Solution:-
Calculation of Interest on Himanshu’s Drawings
= 2500 x 12 x 12/100 x 5.5/12
= 25 x 12 x 5.5
= 1650
Note:- Calculation of Average Months = 11+0 / 2
= 5.5 Months
26. Bharam is a partner in a firm. He withdraws Rs.3,000 at the starting of each month for 12 months. The books of the firm are closed on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.
Solution:-
Calculation of Interest on Bharam’s Drawings
= 3,000 x 12 x 10/100 x 6.5 /12
= 30 x 10 x 6.5
= Rs.1950
Note:- Calculation of Average Months = 12 + 1/2
= 6.5 Months
27. Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2019 were Rs.2,50,000 and Rs.1,50,000, respectively. They share profits equally. On July 01, 2019, they decided that their capitals should be Rs.1,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash by the partners’. Interest on capital is allowed @ 8% p.a. Compute interest on capital for both the partners for the year ending on March 31, 2020.
Solution:-
Calculation of Interest on Raj’s Capital
Date
1/4/2019 – 30/6/2019 2,50,000 x 8% 3/12 = Rs.5,000
1/7/2019 – 31/3/2020 1,00,000 x 8% x 9/12 = Rs.6,000
= Rs.11,000
Calculation of Interest on Neeraj’s Captial
Date
1/4/2019 – 30/6/2019 1,50,000 x 8% 3/12 = Rs.3,000
1/7/2019 – 31/3/2020 1,00,000 x 8% x 9/12 = Rs.6,000
= Rs.9,000
28. Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2019 were Rs.24,000a and Rs.16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.
Solution:-
Calculation of Interest on Amit’s Drawings
24,000 x 10/100 x 6/12 = Rs.1200
Calculation of Interest on Bhola’s Drawings
16,000 x 10/100 x 6/12 = Rs.800
29. Harish is a partner in a firm. He withdrew the following amounts during the year 2019:
Solution:-
Calculation of Interest on Rishi’s Drawings
Interest on Harish Drawings = 2,20,000 x 7.5% x 1/12
= Rs.1,375
30. Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are Rs.2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn:
- In the beginning of every month,
- In the middle of every month, and
- At the end of every month.
Solution:-
Case – 1
Calculation of Interest on Drawings
- In the Beginning of Every Months
Menon’s Interest on Drawings
= 2,000 x 12 x 10% x 6.5/12
= 1300
Thomos Interest on Drawings
= 2,000 x 12 x 10% x 6.5/12
= 1300
Note:- Average Months = 13+1 / 2
= 6.5
Case – 2
Calculation of Interest on Drawings
- In the Middle of Every Months
Menon’s Interest on Drawings
= 2,000 x 12 x 10% x 6/12
= 1200
Thomos Interest on Drawings
= 2,000 x 12 x10% x 6/12
= 1200
Note:- Average Months = 11.5 +.5/2
= 6 Months
Cash – 3
Calculation of Interest on Drawings
- In the end of Every Months
Menon’s Interest on Drawings
= 2,000 x 12 x 10% x 5.5/12
= 1100
Thomas Interest on Drawings
= 2,000 x 12 x 10% x 5.5/12
= 1100
Note:- Average months = 11 + 0 / 2
= 5.5 months
31. On March 31, 2017, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of Rs.24,000, Rs.18,000 and Rs.12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2017, amounted to Rs.36,000 and the partner’s drawings had been Ram, Rs.3,600; Shyam, Rs.4,500 and Mohan, Rs.2,700. The profit sharing ratio of Ram, Shyam Mohan was 3:2:1. Calculate interest on capital.
Solution:-
Calculation of Interest on Ram’s Capital
Ram’s opening capital = Closing capital + Drawing – profit
= 24,000 + 3,600 – 36,000 x 3/6
= 24,000 + 3,600 – 18,000
= Rs.9,600
Ram’s Interest on capital = 9,600 x 5%
= 480
Calculation of Interest on Shaym’s Capital
Shyam’s opening capital = Closing capital + Drawing – profit
= 18,000 + 4,500 – 36,000 x 2/6
= 18,000 + 4,500 – 12,000
= 10,500
Shyam’s Interest on capital = 10,500 x 5%
= 525
Calculation of Interest on Mohan’s Capital
Mohan’ opening capital = Closing capital + Drawing – Profit
= 12,000 + 2,700 – 36,000 x 1/6
= 12,000 + 2,700 – 6,000
= 8,700
Mohan’s Interest on capital = 8,700 x 5%
= 435
32. Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’ share in profit has been guaranteed by Amit and Sumit to be a minimum sum of Rs.8,000. Profits for the year ended March 31, 2017 was Rs.36,000. Divide profit among the partners by preparing profit and loss appropriation account.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
33. Pinki, Deepti and Kaku are partner’s sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than Rs.5,000. Deficiency, if any, would be borne by Pinki and Deepti equally. Profits for the year amounted to Rs.40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
Working Notes
Kaku’s Share in Profit = 40,000 x 1/10
= 4,000
Gaurantea to kaku = 5,000
Deficiency = 5,000 – 4,000
= 1,000
Deficiency is born by pinky & Deepti in 1:1
Pinky will bear = 1000 x 1/2
= 500
Deepti will bear = 1,000 x 1/2
=500
34. Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed Rs.10,000 as her share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2016 and 2017 are Rs.40,000 and 60,000 respectively. Prepare Profit and loss Appropriation Account.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
35. Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share of profit, in any year will not be less that Rs.5,000. The profits for the year ending March 31, 2020 amounted to Rs.35,000. Shortfall if any, in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2. Record necessary journal entry to show distribution of profit among the partner.
Solution:-
Journal
Working Notes:-
Distribution of Profit among partner’s in 5:4:1.
Radha’s Share = 35,000 x 5/10 = 17,500
Mary’s Share = 35,000 x 4/10 = 14,000
Fatima’s Share = 35,000 x 1/10 = 3500
Minimum Gaurantea of Fatima = 5,000
Short Fall in Fatima’s share = 5,000 – 3500
= 1500
Short fall will be borne by Radha & Marry in 3:2.
Radha will bear = 1500 x 3/5
= 900
Marry will bear = 1500 x 2/5
= 600
Actual Distribution of profit among partner’s After Adjustment
Rakha’s share = 17500 – 900
= 16,600
Marry’s share = 14,000 – 600
= 13,400
Fatima’s share = 3,500 + 1500
= 5,000
36. X, Y and Z are in Partnership, sharing profits and losses in the ratio of 3:2:1, respectively. Z’s share in the profit is guaranteed by X and Y to be a minimum of Rs.8,000. The net profit for the year ended March 31, 2020 was Rs.30,000. Prepare Profit and Loss Appropriation Account.
Solution:-
Journal
Working Note:-
Distribution of Profit among Partner’s in 3:2:1
X’s share = 30,000 x 3/6 = 15,000
Y’s Share = 30,000 x 2/6 = 10,000
Z’s Share = 30,000 x 1/6 = 5,000
Minimum Gaurantee of Z = 8,000
Short Fall in Z’s Share = 8,000 – 5,000
= 3,000
Short Fall will be borne by X and Y in their Profit sharing Ratio 3:2
X will bear = 3,000 x 3/5 = 1800
Y will bear = 3,000 x 2/5 = 1200
Actual Distribution of Profit among partner’s After Adjustment
X’s Share = 15,000 – 1800
= 13,200
Y’s Share = 10,000 – 1200
= 8,800
Z’s Share = 5,000 + 1800 + 1200
= 8,000
37. Arun, Boby and chintu are partners in a firm sharing profit in the ratio or 2:2:1. According to the terms of the partnership agreement, chintu has to get a minimum of Rs.60,000, irrespective of the profits of the firm. Any Deficiency to Chintu on Account of such guarantee shall be borne by Arun. Prepare the Profit and loss Appropriation Account showing distribution of profit among the partners in case the profits for year 2015 are:
- Rs.2,50,000;
- Rs.3,60,000.
Solution:-
Case – 1
Journal
Working Notes:
Distribution of profit among Partner’s in 2:2:1
Arun’s Share = 2,50,000 x 2/5 = 1,00,000
Bobby’s Share = 2,50,000 x 2/5 = 1,00,000
Chintu’s Share = 2,50,000 x 1/5 = 50,000
Minimum Gaurantea of Chintu = 60,000
Short Fall in chintu’s Share = 60,000 – 50,000
= 10,000
Short Fall will be borne by Arun
Actual Distribution of profit among partner’s After Adjustment
Arun’s Share = 1,00,000 – 10,000 = 90,000
Bobby’s Share = 1,00,000 – 0 = 1,00,000
Chintu’s Share = 50,000 + 10,000 = 60,000
Case – 2
Journal
Working Notes:-
Distribution of Profit among Partners’ in 2:2:1
Arun’s Share = 3,60,000 x 2/5 = 1,44,000
Bobby’s Share = 3,60,000 x 2/5 = 1,44,000
Chintu’s Share = 3,60,000 x 1/5 = 72,000
Chintu’s receives More than his Minimum guarantee Rs.60,000. Arun & Bobby will not contribute.
38. Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2:2:1. Ashok and Brijesh have guaranteed that Cheena share in any year shall be Rs.20,000. The net profit for the year ended March 31, 2017 amounted to Rs.70,000. Prepare profit and loss Appropriation Account.
Solution:-
Journal
Working Notes:-
Distribution of Profit among Partner’s in 2:2:1
Ashok’s Share = 70,000 x 2/5 = 28,000
Brijesh’s Share = 70,000 x 2/5 = 28,000
Cheena’s Share = 70,000 x 1/5 = 14,000
Minimum Gaurantee of cheena = 20,000 – 14,000
= 6,000
Short Fall will be borne by Ashok & Brijesh in 2:2 = 1:1
Ashok will bear = 6,000 x 1/2 = 3,000
Brijesh will bear = 6,000 x 1/2 = 3,000
Actual Distribution of Profit among partner’s After Adjustment
Ashok’s share = 28,000 – 3,000 = 25,000
Brijesh’s share = 28,000 – 3,000 = 25,000
Cheena’s share = 14,000 + 6,000 = 20,000
39. Ram, Mohan and Sohan are partners with capitals of Rs.5,00,000, Rs.2,50,000 and 2,00,000 respectively. After providing interest on capital @ 10% p.a. the profits are divisible as follows:
Ram 1/2, Mohan 1/3 and Sohan 1/6. Ram and Mohan have guaranteed that Sohan’s share in the profit shall not be less that Rs.25,000, in any year. The net profit for the year ended March 31, 2017 is Rs.2,00,000, before charging interest on capital.
You are required to show distribution of profit by preparing P & L appropriation account.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
Working Notes:-
Calculation of Partner’s Share in Divisible Profit
Divisible profit = net profit – Interest on Partner’s Capital
= 2,00,000 – 95,000 = 1,05,000
Distribution of Divisible Profit among Partner’s in 1/2, 1/3, 1/6 = 3:2:1.
Ram’s Share = 1,05,000 x 1/2 = 52,500
Mohan’s Share = 1,05,000 x 1/3 = 35,000
Sohan’s Share = 1,05,000 x 1/6 = 17,500
Sohan’s Minimum Guaranteed share = 20,000
Short Fall in Shan’s share = 25,000 – 17,500 = 7,500
Short Fall will be borne by Ram & Mohan in their profit sharing Ratio 3:2
Ram will bear = 7,500 x 3/5 = 4,500
Mohan will bear = 7,500 x 2/5 = 3,000
Actual Distribution of profit among partner’s After Adjustment
Ram’s Share = 52,500 – 4,500 = 48,000
Mohan’s share = 35,000 – 3,000 = 32,000
Sohan’s share = 17,500 + 7,500 = 25,000
40. Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3:2:1, subject to the following:
- Sona’s share in the profit, guaranteed to be not less than Rs.15,000 in any year.
- Babita gave guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is Rs.25,000). The net profit for the year ended March 31, 2017 is Rs.75,000. The gross fee earned by Babita for the firm was Rs.16,000.
You are required to prepare Profit and Loss Appropriation Account.
Solution:-
Dr. Profit & Loss App. A/c for the year ending 31st March Cr.
Partner’s Share’s After All Adjustment:
Amit’s Share = Rs.41,400
Babita’s Share = Rs.27,600 – 9,000 = 18,600
Sona’s Share = Rs.15,000
Working Notes:-
Deficiency in revenue Gauranteed by Babita
= Rs.25,000 – Rs.16,000
= Rs.9,000
Profit to be distributed among partners
= 75,000 + 9,000
= Rs.84,000
Calculation of Partner’s Share in profit
Amit’s Share in profit = 84,000 x 3/6
= 42,000
Babita’s share in Profit = 84,000 x 2/6
= 28,000
Sona’s share in profit = 84,000 x 1/6
= 14,000
Sona’s Gauranteed profit = Rs.15,000
Deficiency in Sona’s profit = Rs.15,000 – Rs.14,000
= Rs.1,000
Deficiency of Sona’s is born by Amit & Babita in 3:2.
Amit will bear = 1,000 x 3/5
= Rs.600
Babita will bear = 1,000 x 2/5
= Rs.400
Calculation of Partner’s share in profit after adjustment
Amit = Rs.42,000 – Rs.600
= Rs.41,400
Babita = Rs.28,000 – Rs.400 – 9,000
= 18,600
Sona = Rs.14,000 + 600 + 400
= 15,000
41. The net profit of X, Y and Z for the year ended March 31, 2020 was Rs.60,000 and the same was distributed among them in their agreed ratio of 3:1:1. It was subsequently discovered that the under mentioned transactions were not recorded in the books:
- Interest on Capital @ 5% p.a.
- Interest on drawings amounting to X Rs.700, Y Rs.500 and Z Rs.300.
- Partner’s Salary : X Rs.1,000, Y Rs.15,000 p.a.
The capital accounts of partners were fixed as : X Rs.1,00,000, Y Rs.80,000 and Z Rs.60,000. Record the adjustment entry.
Solution:-
Journal
42. The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2:2:1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this account.
The profit for the last three years were:
Show adjustment of profits by means of a single adjustment journal entry.
Solution:-
Journal
43. Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3:2. Following is the balance sheet of the firm as on March 31, 2017.
Balance Sheet as at March 31, 2017
Profit for the year ended March 31, 2017 was Rs.5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was omitted. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.
Solution:-
Journal
Working Notes:-
Calculation of opening capital of Partner’s
Mannu’s opening Capital = Closing Capital + Drawings – Profit
= Rs.30,000 – 5,000 x 3/5
= Rs.27,000
Shrishti’s opening capital = closing capital + Drawing – profit
= 10,000 – 5,000 x 2/5
= Rs.8,000
Calculation of Interest on partner’s Capital
Mannu’s Interest on Capital = 27,000 x 5%
= Rs.1350
Shrishti’s Interest on capital = 8,000 x 5%
= Rs.400
Calculation of Interest on Partner’s Drawings
Mannu’s Interest on Drawings = 4,000 x 6% x 6 / 12
= Rs.120
Shrishti’s Interest on Drawings = 2,000 x 6% x 6/12
= Rs.60
44. On March 31, 2017 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for profits, drawing, etc.; were Rs.80,000, Rs.60,000 and Rs.40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted.
The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin Rs.20,000; Monu, Rs.15,000 and Ahmed, Rs.9,000. Interest on drawings chargeable to partners were Eluin Rs.500, Monu Rs.360 and Ahmed Rs.200. The net profit during the year amounted to Rs.1,20,000. The profit sharing ratio was 3:2:1. Record necessary adjustment entry.
Solution:-
Journal
Working Notes:-
Calculation of opening capital of partner’s
Eluin opening Capital = Closing Capital + Drawings – Profit
= 80,000 + 20,000 – 1,20,000 x 3/6
= Rs.40,000
Monu opening Capital = Closing Capital + Drawings – Profit
= 60,000 + 15,000 – 1,20,000 x 2/6
= 35,000
Ahmed opening Capital = Closing Capital + Drawings – profit
= 40,000 + 9,000 – 1,20,000 x 1/6
= 29,000
Calculation of Interest on Partner’s Capital
Eluin’s Interest on Capital = 40,000 x 5%
= 2,000
Monu’s Interest on Capital = 35,000 x 5%
= 1750
Ahmed’s Interest on Capital = 29,000 x 5%
= 1450
45. Azad and Benny are equal partners. Their fixed capitals are Rs.40,000 and Rs.80,000, respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.
Solution:-
Journal
Working Notes:-
Calculation of Interest on Partner’s Capital
Azad’s Interest on Capital = 40,000 x 5%
= 2,000
Benny’s Interest on Capital = 80,000 x5%
= 4,000
46. Mohan, Vijay and Anil are partners, the balance in 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 March 31, 2017 amounting to Rupees 24,000 had been credited to partners in the proportion in which they shared profits. During the year the drawings of Mohan, Vijay and Anil were Rs.5,000, Rs.4,000 and Rs.3,000, respectively. Subsequently, the following omissions were noticed:
- Interest on Capital, at the rate of 10% p.a., was not charged.
- Interest on Drawings : Mohan Rs.250, Vijay Rs.200, Anil Rs.150 was not recorded in the books.
Record necessary corrections through journal entries.
Solution:-
Journal
Working Notes:
Calculation of opening capital of partner’s
Mohan’s opening Capital = closing capital + Drawings – Profit
= 30,000 + 5,000 – 8,000
= 27,000
Vijay’s opening Capital = Closing Capital + Drawings – profit
= 20,000 + 3,000 – 8,000
= 15,000
Calculation of Interest on Partner’s Capital
Interest on Mohan’s Capital = 27,000 x 10/100
= 2,700
Interest on Vijay’s capital = 21,000 x 10/100
= 2100
Interest on Anil’s Capital = 15,000 x 10/100
= 1,500
47. Anju, Manju and Mamta are partners whose fixed capitals were Rs.10,000, Rs.8,000 and Rs.6,000, respectively. As per the partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the same have not been made for the last three years. The profit sharing ratio during there years remained as follows:
Make necessary an adjustment entry at the beginning of the fourth year i.e. April 2019.
Solution:-
Journal
Working Notes:
Calculation of Interest on Capital
Anju’s Interest on Capital = 10,000 x 5%
= 500
Manju’s Interest on capital = 8,000 x 5%
= 400
Mamta’s Interest on Capital = 6,000 x 5%
= 300
ncert solutions of accounting for partnership basic concepts
class 12 accounting for partnership : basic concepts numerical solutions
NCERT
