1. Define Partnership Deed.

Ans: Partnership Deed is referred to as the agreement between two or more parties among themselves in order to build the agreements and the terms of the partnership. The agreement of the partnership which is enshrined in the partnership deed is binding upon all the parties of the partnership. Thus the document which contains all such formal agreements for the partnership is known as Partnership Deed. It is important here to highlight that these agreements can be both written and of verbal nature, but when the cases arrive before the court the law only recognizes the formal written agreement which is in place between the partners.

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

Ans: The partnership needs to be written formally because the partnership is the formal relation between two or more two parties and hence the written terms and conditions create the legal and ethical binding upon the members of the partnership to function as per the agreements established in the Partnership Deed. Hence the partners are in the safe zone after having created the Partnership Deed in a formal written manner because the partners can approach the court which recognizes the written agreement in cases of disputes.

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

i.Capitals are fixed

ii. Capitals are fluctuating

Ans: A partner’s capital account is prepared under two methods: 

(i) Fixed capital method and 

(ii) Fluctuating capital method.

(i)Under fixed capital account there will be two accounts for each partner namely the partners’ capital account and the partner’s current account. The capital account is credited only when fresh capital is introduced or debited when capital is withdrawn. When there is no addition or withdrawal during a year, capital remains as it is and only current accounts record transactions related to drawings, interest on drawings, interest on capital, commission, salary, profit and loss share etc.

(ii)Under Fluctuating capital account: Only one capital account keeps changing during the year. There is no current account prepared or maintained under this method. All the transactions are related to the drawings, interest on drawings, interest on capital, commission, salary, and profit and loss share.

4. Why is the Profit and Loss Adjustments Account prepared? Explain.

Ans: The preparation of the Profit and Loss account is made to create the relevant adjustments after the preparation of the Profit and Loss account is prepared after preparing profit and loss account and the balance sheet. They are prepared in the subsequent accounting period if any errors or omissions are noticed. Such errors and omissions are adjusted through a profit and loss adjustment account. Besides errors and mistakes rectification, this account is also prepared to distribute the profit and loss among partners. These account acts as a substitute for profit and loss appropriation account.

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

Ans: Capital is referred to as the contribution made by the partner or the owner of the organization to the business. The partner’s capital accounts is prepared under the following two methods:

(i)Fixed capital method and 

(ii) Fluctuating capital method. 

The circumstances under which the fixed capital may change are:

1. When the additional capital is introduced during the year.

2. When the withdrawals from the capital are made for a temporary period by any partner of the firm.

6. If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on the total amount withdrawn will be calculated?

Ans: In the cases when the amount is withdrawn at the beginning of every quarter, the interest on the drawings is calculated for the period of 7 ½ months. The interest on drawings is referred to as the interest charged on the drawings made by the partner of the organization. Thus, in the instanced case of a person withdrawing 2000 on the first day of the quarter, at the rate of the interest of drawings at 10% the interest on the drawings will be 1,250

7. In the absence of a Partnership Deed, specify the rules relating to the following:

i. Sharing of profits and losses.

ii. Interest in partner’s capital.

iii. Interest in Partner’s drawings.

iv. Interest on Partner’s loan.

v . Salary to partner.

Ans: The law has not made it compulsory to prepare a partnership deed for the creation of a mutual agreement between the partners in a partnership deed. In the absence of a partnership deed, the below rules apply:

(i)Sharing of profits and losses: Partners share losses and profits equally

(ii)Interest on partners’ capital: Partners are not entitled to any interest on capital balances.

(iii)Interest on Partner’s drawings: No interest is to be charged on partners' drawings.

(iv)Interest on partner’s loan: Interest of 6% p.a. is allowed on any loan other than capital.

(v)Salary to partner: Partners are not entitled to any salary or remuneration.

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

Ans: According to Sec 4 of the Partnership Act 1932, partnership is a mutual agreement between two or more partners who decide to enter into a partnership deed or agreement and share profit or losses as agreed upon. People who join hands together are known as partners and collectively it is called a firm. The important characteristics of partnership are:-

• Two or more people: To enter into a partnership, there must be at least two or more people with a common goal. The maximum number of partners can be 20 for businesses other than banking and banking they must be 10.

•  Partnership deed: A partnership relation is an outcome of an agreement between two or more parties. Certain terms and conditions bind the partners into a relationship. The document which contains the written agreement is called the partnership deed.

• Business: A partnership should be formed to carry out legal business because any type of illegality will not be a valid business.

• Profit and loss sharing: There is sharing of profits and losses equally or at a ratio agreed upon by the partners.

• Liability: There is unlimited liability under the partnership. If the partners are liable to pay to the third party, even their personal property would not be spared.

9. Discuss the main provisions of the Indian Partnership Act 932 that are relevant to partnership accounts if there is no partnership deed.

Ans: There must be a partnership deed among the partners before entering into a partnership. However, the law has not made it compulsory to prepare a partnership deed for the creation of mutual agreement between the partners in a partnership. In the absence of a partnership deed, the below rules apply.

(i) Sharing of profits and losses: Partners are entitled to share equally the profits earned by the firm and contribute equally to the losses sustained by the firm.

(ii) Interest on partners’ capital: Partners are not entitled to any interest on capital balances. Sec 13, clause c provides that the interest on capital is payable out of profits only, where there is agreement for interest on capital payment.

(iii) Interest on Partner’s drawings: No interest is to be charged on partners’ drawings.

(iv) Interest on partner’s loan or advances: - Interest of 6%

p.a. is allowed on any loan other than capital.

(v) Right to remuneration: Partners are not entitled to any salary or remuneration or commission for taking part in the conduct of the business or for services rendered.

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

Ans: - Partnership relation is an outcome of an agreement between two or more parties. Certain terms and conditions bind the partners into a relationship. The document which contains the written agreement is called the partnership deed. It is always desirable to make the partnership agreement in writing. It is safer and more prudent as the written agreement turns out to be helpful in case of disputes which can be referred to in the future. It ensures the smooth functioning of the business as it helps in settling the disputes if any. Partners might be sharing very good relations now but there is no guarantee the relations remain the same in the future. Hence, to keep up the good relations and give legality to the business it is always advisable to make partnership agreements in writing to make the terms and conditions clear.

11. Illustrate how interest in drawings will be calculated under various situations.

Ans: The interest on the drawing is an income for the organization as the drawings are referred to as the amounts which are withdrawn by the partners of the organization from the firm for their personal use. Thus, organizations are expected to charge the interest in the drawings which are made by the Partners. The method of calculation of the interest in the drawings is dependent upon the time and the frequency of the drawings. Following are the cases when the interest on the drawings is calculated by the organization:

• When the information about the amount, date and the rate of the interest on the drawing is mentioned.

• When the information of the Date or time is not given but the rate of interest p.a. and the amount is given. In such cases, the time is considered to be 6 months.

• When the fixed amount is withdrawn at regular intervals. This can happen at the beginning, middle or the end of each month. When the withdrawals are made at the beginning of the month then the annual interest is calculated for 6.5 months. similarly, for the withdrawals made in the middle of the month, the interest is calculated for 5.5 months and the withdrawals made in the mid of each month are calculated for 6 months. Similarly, for the withdrawals made at the beginning of the quarter, the rate of interest is calculated for 7.5 months, for the withdrawals made at the end of every quarter the rate of interest is calculated at 4.5 months.

• When the different amount is withdrawn by the partner at different points of causes withdrawals at irregular intervals. Thus, in such cases, the drawings have to be calculated by the Product Method as per which the interest on the drawings is calculated by the sum of the products of the time and the drawings for one unit of time.

12. How will you deal with a change in the profit sharing ratio among the existing partners? Take imaginary figures to illustrate your answer.

Ans: The changes in the profit-sharing ratio of the partners occur during the admission, retirement or death of the partner of the organization. Furthermore, the general agreement between the existing partners of the organization may also change the profit-sharing ratio of the partners. This hence results in the loss of the other partners and the gain for one of the partners of the organization. Thus, the gaining partner must compensate the partners who experience the share in the profit and the loss sharing ratio.

The issues such as the calculation of the goodwill and change in profit sharing ratio among existing partners take place only in case of admission, retirement and death of a partner. A general agreement among the partners may also result in a change in the PSR. It results in gain to one partner and loss to another. Hence, the gaining partner must compensate the losing partner. Many issues have to be looked into like goodwill, reserves, capital adjustment, profit or loss on the revaluation of assets or liabilities. In the case of goodwill, goodwill is calculated and a proportionate amount is given by the partner who gains to the partner who loses. The gaining partner’s capital account is debited (gain) and the sacrificing partner’s capital account is credited (sacrifice amount). The gaining ratio and sacrificing ratio are calculated to distribute compensation from one to the other.

Example: X and Y share profits in the ratio of 3:1. They decided to share profits in the ratio of 5:3. The goodwill is valued at 2, 40,000. The following adjustment entry will be passed.

Old ratio = X is ¾ and Y is ¼ 

New ratio = X is 5/8 and Y is 3/8 

Y gains by 3/8-1/4 = 1/8

X loses by ¾ -5/8 = 1/8

Y will pay X 1/8 of 240,000 =30,000 

Journal entry will be:

Y’s capital account … Dr 30000

To X’s capital account …. 30000

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

Ans:

14. Anubha and Kajal are partners of a firm sharing profits and losses in the ratio of 2:1. Their capital, was Rs 90,000 and Rs 60,000. The profit during the year was Rs 45,000.

According to the partnership deed, both partners are allowed a salary, of Rs 700 per month to Anubha and Rs 500 per month to Kajal. Interest allowed on capital @ 5% p.a. The drawings at the end of the period were Rs 8,500 for Anubha and Rs 6,500 for Kajal. Interest is to be charged @ 5% p.a. on drawings. Prepare the partner's capital accounts, assuming that the capital account is fluctuating.

Ans:

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

Harshad Claims:

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

(ii) Profit should be distributed in proportion to capital.

Dhiman Claims:

(i) Profits should be distributed equally;

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

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

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

Ans: 

Harshad’s Claim:

Decisions

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

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

Dhiman’s Claim:

Decisions

(i)Dhiman’s claim is justified, as per the Indian Partnership Act of 1932. If no agreement exists regarding profit distribution, the profit shall be distributed equally.

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

(iii) Dhiman’s claim is not justified on the matter of interest in capital. However, it is justified based on the interest on the loan. If there is no agreement on interest on the partner’s loan, interest will be provided at 6% p.a.

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

Ans:

Reason:

1. Interest on the partner’s loan shall be allowed at 6% p.a. because there is   no partnership agreement.

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

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

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

Ans: If interest on capital and partner’s salaries will be provided even if firm involves in loss.

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

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

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

Ans:

19. The partnership agreement between Maneesh and Girish provides that:

 (i) Profits will be shared equally;

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

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

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

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

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

Prepare firm’s Profit and Loss Appropriation Account. 

Ans:

20. 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.

Ans:

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

Ans:

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

(i)Partners capital on April 1, 2016; Simmi, Rs 30,000; Sonu, Rs 60,000;

(ii)Current accounts balances on April 1, 2016; Simmi, Rs 30,000 (cr.); Sonu, Rs 15,000 (cr.);

(iii)Partners drawings during the year amounted to Simmi, Rs 20,000; Sonu, Rs 15,000;

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

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

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

Answer:

23. Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were Rs 80,000 and Rs 60,000 respectively. The firm started business on April 1, 2016. According to the partnership agreement, interest on capital and drawings are12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of Rs 2,000 and Rs 3,000, respectively. The profits for year ended March 31, 2017 before making above appropriations was Rs 1,00,300. The drawings of Ramesh and Suresh were Rs 40,000 and Rs 50,000, respectively. Interest on drawings amounted to Rs 2,000 for Ramesh and Rs 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their capitals are fluctuating.

Ans:

Capital ratio = Ramesh : Suresh = 80000 : 60000 = 4 : 3

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

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

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

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

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

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

Ans:

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

Ans: Interest on Capital

Rahul = 2000000 x 5/100 = 100000 

Rohit = 1800000 x 5/100 = 90000

Karan = 1600000 x 5/100 = 80000

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

Ans: Product Method

Interest on Capital = Sum of Product x Rate/100 x 1/12 

Sunflower = 2700000 x 10/100 x 1/12 = 22500

Pink Rose = 2100000 x 10/100 x 1/12 = 17500

27. On March 31, 2017 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at Rs 4,00,000, Rs 3,00,000 and Rs 2,00,000, respectively.

Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to Rs 1,50,000 and the partner’s drawings had been Mountain: Rs 20,000, Hill Rs 15,000 and Rock Rs 10,000. Calculate interest on capital.

Ans:

Interest on Capital

Mountain = 370000 x 10/100 = 37000 

Hill = 265000 x 10/100 = 26500 

Rock = 160000 x 10/100 = 16000

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

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

Ans: 

Interest on Capital Neelkanth = 1000000 x 5/100 = 50000

Mahadev = 1000000 x 5/100 = 50000

Note: In this question as partner’s capital balances are given in balance sheet, so it has been assumed that their capital is fixed.

As when capital is fixed, drawing and interest on capital does not affect their balance. Therefore, opening capital and closing capital are same.

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

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

Ans:

Here the formula will be,

Interest on Drawing = Product x Rate/100 x 1/12 = 306000 x 9/100 x 1/12 = 2295

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

Ans:

Interest on Moli’s Drawing = Total Drawing x Rate/100 x 13/(2 x 12) = 12000 x 12/100 x 13/(2 x 12) = 780

Interest on Golu’s Drawing = Total Drawing x Rate/100 x 11/(2 x 12) = 12000 x 12/100 x 11/(2 x 12) = 660

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

Ans:

Rakesh’s Interest on Drawings

Interest = Sum of Product x Rate/100 x 1/12

= 25300 x 6/100 x 1/12 = 126.5

Interest on Rohan’s Capital = Total drawing x Rate/100 x 13/(2 x 12)

= 4800 x 6/100 x 13/(2 x 12) = 156

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

Ans: Total Drawing on Himanshu = 2500 x 12 = 30000 Interest on Drawing = Total Drawing x Rate/100 x 11/(2 x 12) = 30000 x 12/100 x 11/(2 x 12) = 1650

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

Ans: Total Drawing on Bharam = 3000 x 12 = 36000 

Interest on Drawing = Total Drawing x Rate/100 x 13/(2 x 12) = 36000 x 10/100 x 13/(2 x 12) = 1950

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

Ans: Interest on Capital

Interest = Sum of product x Rate/100 x 1/12

                = 1650000 x 8/100 x 1/12 = 11000

Interest = 1350000 x 8/100 x 1/12 = 9000

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

Ans: 

Interest on Drawing = Drawing x Rate/100 x 6/12

Amit = 24000 x 10/100 x 6/12 = 1200

Bhola = 16000 x 10/100 x 6/12 = 800

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

Interest on drawings is to be charged @ 7.5 % p.a. Calculate the amount of interest to be charged on Harish’s drawings for the year ending December 31, 2017.

Ans:

Calculation of Interest on Harish’s Drawings:

Interest on Drawing = 172000 x 7.5/100 x 1/12 = 1075

36. Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are Rs 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn: 

(i) in the beginning of every month,

(ii) in the middle of every month, and

(iii) at the end of every month.

Ans:

(i) If they withdraw money in the beginning of each month Interest on drawing = Total Drawing x Rate x 13/(2 x 12) Menon = 24000 x 10/100 x 13/(2 x 12) = 1300

Thomas = 24000 x 10/100 x 13/(2 x 12) = 1300

(ii) If they withdraw in the middle of every month Interest on drawing = Total Drawing x Rate x 6/12 Menon = 24000 x 10/100 x 6/12 = 1200

Thomas = 24000 x 10/100 x 6/12 = 1200

(iii) If they withdraw at the end of every month

Interest on drawing = Total Drawing x Rate x 11/(2 x 12) 

Menon = 24000 x 10/100 x 11/(2 x 12) = 1100

Thomas = 24000 x 10/100 x 11/(2 x 12) = 1100

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

Ans:

Here, Interest on capital = Opening Capital x Rate/100 

Ram = 9600 x 5/100 = 480

Shyam = 10500 x 5/100 = 525 

Mohan = 8700 x 5/100 = 435

38. 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.

Ans:

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

Ans:

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

Ans:

41. 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 than Rs 5,000. The profits for the year ending March 31, 2017 amounts 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 partner.

 Ans:

42. 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, 2017 was Rs 30,000. Prepare Profit and Loss Appropriation Account, indicating the amount finally due to each partner.

Ans: