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NCERT Solutions for Class 12 Accountancy Chapter 1 - Accounting for Partnership: Basic Concepts

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Class 12 Accountancy Partnership Chapter 1 Solutions - FREE PDF Download

Class 12 Accountancy Partnership Chapter 1 Solutions - introduces the fundamental accounting principles in a partnership firm. A partnership is a business arrangement where two or more individuals come together to share profits, losses, and responsibilities. This chapter covers essential concepts such as the nature of partnerships, partnership deeds, capital accounts, and profit sharing ratios. Understanding these basic concepts is crucial as it forms the foundation for more advanced topics in partnership accounting. Students will learn how to maintain and manage the financial records of a partnership firm, ensuring that all partners' interests are fairly represented.

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Table of Content
1. Class 12 Accountancy Partnership Chapter 1 Solutions - FREE PDF Download
2. Glance on Class 12 Accountancy Chapter 1 Accounting for Partnership: Basic Concepts
3. Access NCERT Solutions for Class 12 Accountancy Chapter 1 - Accounting For Partnership
4. Accountancy Class 12 Chapter 1 PDF - Quick Overview of Detailed Structure of Topics 
5. Benefits of Referring to Vedantu’s Class 12 Accountancy Chapter 1 Questions and Answers
6. NCERT Solutions for Class 12 Accountancy | Chapter-wise List
7. Other NCERT Study Materials for Class 12 Accountancy
FAQs


Download the FREE PDF of NCERT Accountancy Class 12 Chapter 1 Question Answer prepared by Vedantu Master Teachers and updated according to the Class 12 Accountancy syllabus. Start with Vedantus Class 12 Accountancy Chapter 1 PDF.


Glance on Class 12 Accountancy Chapter 1 Accounting for Partnership: Basic Concepts

NCERT Solution for Class 12 Accountancy Chapter 1 PDF covers topics such as:


  • In Accounting for Partnership Firm Class 12, A partnership is a formal agreement between two or more people to run a business and share its profits or losses.

  • The agreement, called a partnership deed, outlines the rights and responsibilities of each partner.

  • Capital: The money or assets each partner contributes to the business. There are two methods for accounting for capital: fixed capital and fluctuating capital.

  • Current Account: An account that records a partner's day-to-day transactions with the business, such as withdrawals or additional investments.

  • Drawings: The money or other assets a partner withdraws from the business for personal use.

  • Profit and Loss Sharing Ratio: The predetermined percentage of profits each partner receives or the percentage of losses each partner bears. This ratio is specified in the partnership deed and can be based on factors like capital contribution, effort, or expertise.

  • Partnership accounting involves maintaining separate accounts for partners' capital, current accounts, and profit and loss sharing ratios. The basic accounting tools used are similar to those in sole proprietorship but with a focus on recording partnership-specific transactions.

  • Class 12 Accounts Chapter 1 Practical Questions Solutions is also covered in this chapter.

Access NCERT Solutions for Class 12 Accountancy Chapter 1 - Accounting For Partnership

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:

Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Profit trf to:

 

Profit and Loss

 

30000

Triphati's Current A/c

18000


 

Chauhan's Current A/c

12000


 

 

30000


30000

 

Partners Capital A/c

Particulars

Triphati

Chauhan

Particulars

Triphati

Chauhan

Balance c/d

 

60000

 

40000

Balance b/d

 

60000

 

40000

 

60000

40000

 

60000

40000

  

Partners Capital A/c

Particulars

Triphati

Chauhan


Particulars

Tripathi

Chauhan

 

Drawing

 

12000

 

8000

Partners Salary

 

12000

 

12000

Interest on Drawing

600

400

 

Interest on Capital

 

 

3000

 

 

2000

Balance c/d

20400

17600

P/L Appropriation

18000

12000


33000

26000

 

33000

26000


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:

                Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Profit trf to:

 

Profit and Loss

45000

Anubha's Capital 

30000

 

 

 

Kajal's Capital

 15000

45000

 

 

 

45000

 

45000


Partners Capital A/c

Particulars

Anubha

Kajal

Particulars

Anubha

Kajal

Drawing

8500

6500

Balance b/d

90000

60000

Interest on Drawing

 

425

 

325

Partners Salary

8400

6000

Balance c/d

123975

77175

Interest on Capital

4500

3000


 

 

P/L Appropriation

30000

15000


132900

84000

 

132900

84000


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.

Profit and Loss Adjustment A/c

Particulars

Amount

Particulars

Amount

Interest on Partner's loan Harshad

 

3000

Profit and Loss

 

180000

(100000 x 6/100 x 6/12)

 

 

 

P/L Appropriation

177000

 

 

 

180000

 

180000

 

Profit and Loss A/c

Particulars

Amount

Particulars

Amount

 

Profit trf to:

 

Profit and Loss Adjustment

177000

Harshad's Capital

88500

 

 

Sharma's Capital

88500

 

 

 

177000

 

177000


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:

Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Interest on Partner's loan Aakriti

600

Profit and Loss

43000

(20000 x 6/100 x 6/12)

 

 

 

Profit trf to:

 

 

 

Aakriti's Capital 21200

 

 

 

Bindu's Capital 21200

42400

 

 

 

43000

 

43000

 

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.

Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Interest on Capital:

 

 

Profit and Loss

 

23200

Rakhi 20000

 

 

Loss trf to:

 

Shikha 30000

50000

Rakhi's Capital 34720

 

Partner's Salary Shikha

60000

Shikha's Capital 52080

86800

 

110000

 

110000


Partners Capital A/c

 

Particulars

 

Rakhi

Shikha

 

Particulars

 

Rakhi

Shikha

Drawing

7000

 

10000

Balance b/d

200000

300000

P/L Appropriation

34720

52080

Interest on Capital

20000

30000

Balance c/d

17880

327920

Partners Salary

 

60000

 

220000

390000

 

220000

390000


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


Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Interest on Capital:

 

Profit and Loss

23200

Rakhi (23200 x 2/11)

4218

 

 

Shikha (23200 x 3/11)

6327

 

 

Partner's Salary Shikha

12655

 

 

(23200 x 6/11)

 

 

 

 

23200

 

23200

 

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


 

Partner Salary Shikha (60000)

Ratio

 

 

6

23200 x 6/11

12655

Interest on Capital:

 

 

 

Rakhi (20000)

2

23200 x 2/11

4218

Shikha (30000)

3

23200 x 3/11

6327

11

23200

 

Partners Capital A/c

Particulars

Rakhi

Shikha

Particulars

Rakhi

Shikha

Drawing

7000

10000

Balance b/d

200000

300000

Balance c/d

197218

308982

Interest on Capital

4218

6327

 

 

 

Partners Salary

 

 

12655

 

204218

318982

 

204218

318982


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:

Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Interest on Capital:

 

Profit and Loss

15000

Lokesh 3000

 

(12500 +

2500)

 

Azad 1800

4800

 

 

Partner's Salary Azad

2500

 

 

Prov. For Manager's Commission

750

 

 

(15000 x 5/100)

 

 

 

Profit trf to:

 

 

 

Lokesh's Capital 4170

 

 

 

Azad's Capital 2780

6950

 

 

 

15000

 

15000


Partners Capital A/c

Particulars

Lokesh

Azad

Particulars

Lokesh

Azad

Balance c/d

57170

37080

Balance b/d

50000

30000

 

 

 

Interest on Capital

 

3000

 

1800

 

 

 

P/L Appropriation

4170

2780




Partners Salary

 

2500


57170

37080

 

57170

37080


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:

Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Partner's Salary Maneesh

 

4800

Profit and Loss

 

40000

Partner's Commission Girish

 

3520

Interest on Drawing:

 

[(40000 - 4800) x 10/100]

 

Ramesh 2000

 

 

Interest on Capital:

 

Suresh 2500

 

1500

Maneesh 7000

 

 

 

Girish 5600

12600

 

 

Profit trf to:

 

 

 

Maneesh Current 10290

 

 

 

Girish Current 10290

20580

 

 

 

41500

 

41500


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:

Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

 

Profit trf to:

 

Profit and Loss

 

40000

Ram's Capital (20000 - 1250)

 

18750

 

 

Raj's Capital (12000 - 750)

 

11250

 

 

George' Capital (8000 + 1250 + 750)

 

10000

 

 

 

40000

 

40000

 

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:

Profit and Loss Appropriation A/c for the year 2005

Particulars

Amount

Particulars

Amount

 

Profit trf to:

 

Profit and Loss

 

40000

Amann's Capital

16000

 

 

Babita's Capital (16000 - 2000)

 

14000



Suresh's Capital (8000

+ 2000)

 

10000




40000

 

40000


Profit and Loss Appropriation A/c for the year 2006

Particulars

Amount

Particulars

Amount

Profit trf to:

 

Profit and Loss

60000

Amann's Capital

24000

 

 

Babita's Capital

 

24000

 

 

Suresh's Capital

12000

 

 

 

60000

 

60000

 

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:


Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

 

Partner's Salary:

 

Profit and Loss

150000

Simmi 12000

 

Interest on Drawing:

 

Sonu 9000

 

21000

Simmi 600

 

Interest on Capital:

 

Sonu 450

1050

Simmi 1500

 

 

 

Sonu 3000

 

4500

 

 

Profit trf to:

 

 

 

Simmi's Current

 94162

 

 

 

Sonu's Current 31388

125550

 

 

 

151050

 

151050


Partners Capital A/c

Particulars

Simmi

Sonu

Particulars

Simmi

Sonu

Balance c/d

 

30000

 

60000

Balance b/d

 

30000

 

60000

 

30000

60000

 

30000

60000

  

Partners Current A/c

Particulars

Simmi

Sonu

Particulars

Simmi

Sonu

Drawings

20000

15000

 

Balance b/d

30000

15000

Interet on Drawing

 

600

 

450

Interet on Capital

 

1500

 

3000

Balance c/d

 

117662

 

42938

P/L

Appropriatio n

 

 94162

 

31388

 

 

 

Partners Salary

 

12000

 

9000

 

138262

58388

 

137662

58388


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:


Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Interest on Capital

 

Profit and Loss

100300

Ramesh 9600

 

Interest on Drawing:

 

Suresh 7200

16800

Ramesh 2000

 

Partner's Salaries:

 

Suresh 2500

4500

Ramesh 24000

 

 

 

Suresh 36000

60000

 

 

Profit trf to:

 

 

 

Ramesh's Capital (28000 x 4/7)

16000

 

 

Suresh's Capital (28000 x 3/7)

12000

 



104800

 

104800


Partners Capital A/c

 

Particulars

Ramesh

Suresh

 

Particulars

Ramesh

Suresh

Drawings

40000

50000

Cash

80000

60000

Interest on Drawing

 

2000

 

2500

Interest on Capital

 

9600

 

7200

Balance c/d

87600

62700

Partner's Salary

24000

36000

 

 

 

P/L

Appropriati on

 

 

16000

 

 

12000

 

129600

115200

 

129600

115200

 

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.



Sukesh

Verma*

 

Rs

Rs

Capital Accounts

40,000

40,000

Current Accounts

(Cr.) 7,200

(Cr.) 2,800

Drawings

10,850

8,150


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

Ans:


Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

 

Interest on Capital:

 

Profit and Loss

9500

Sukesh 2000

 

 

 

Vanita 2000

4000

 

 

Profit trf to:

 

 

 

Sukesh's Current (5500 x 3/5)

3300

 

 

Vanita's Current (5500 x 2/5)

2200

 

 

 

9500

 

9500


Partners Capital A/c

Particulars

Sukesh

Vanita

Particulars

Sukesh

Vanita

Balance c/d

40000

40000

Balance b/d

 

40000

 

40000

 

40000

40000

 

40000

40000


Partners Current A/c

Particular s

Sukesh

Vanita

Particulars

Sukesh

Vanita

Drawings

10850

8150

Balance b/d

7200

2800

Balance c/d

1650

6050

Interest on Capital

2000

2000

 

 

 

P/L

Appropriatio n

3300

2200

 

 

 

Partners Salary

 

7200

 

12500

14200

 

12500

14200


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

Sunflower

1 Apr 06 to 30

Sep 06

250000

x 6

 

1500000

1 Oct 06 to 31

Mar 07

200000

x 6

 

1200000

 

Sum of Product

 

2700000

 

Pink Rose

1 Apr 06 to 30

Sep 06

150000 x 6

 

900000

1 Oct 06 to 31

Mar 07

200000 x 6

 

1200000

 

Sum of Product

 

2100000


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:


 

Mountain

Hill

Rock

Closing Capital

400000

300000

200000

(+) Drawings

20000

15000

10000

(-) Profit (1:1:1)

-50000

-50000

-50000

Opening Capital

370000

265000

160000


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:


Liabilities

Amount

Assets

Amount

Neelkant’s Capital

10,00,000

Sundry Assets

30,00,000

Mahadev’s Capital

10,00,000



Neelkant’s Current Account

1,00,000



Mahadev’s Current Account

1,00,000



Profit and Loss Apprpriation




(March 2017)

8,00,000




30,00,000


30,00,000


 


 


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

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.

 

May 01, 2017

Rs 12,000

July 31, 2017

Rs 6,000

September 30, 2017

Rs 9,000

November 30, 2017

Rs 12,000

January 01, 2018

Rs 8,000

March 31, 2018

Rs 7,000


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

Ans:


 

Drawing x Period

Product

1 May 06 to 31 Mar 07

12000 x 11

132000

31 Jul 06 to 31 Mar 07

6000 x 8

48000

30 Sep 06 to 31 Mar 07

9000 x 6

54000

30 Nov 06 to 31 Mar 07

12000 x 4

48000

1 Jan 07 to 31 Mar 07

8000 x 3

24000

31 Mar 07 to 31 Mar 07

7000 x 0

0

 

Sum of Product

306000


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


Profit and Loss Adjustment A/c

Particulars

Amount

Particulars

Amount

 

Interest on Capital:

 

Profit and Loss

20950

Moli 4000

 

Interest on Drawinh

 

Golu 2000

6000

Moli 780

 

Interest on Partner's loan:

 

Golu 660

1440

Golu (10000 x 6/100 x 8/12)

400

 

 

Profit trf to:

 

 

 

Moli's Capital 9594




(15990 x 3/5)




Golu's Capital 6396

 

15990



(15990 x 2/5)

 

 

 

 

22390

 

22390


Partners Capital A/c

Particulars

Moli

Golu

Particulars

Moli

Golu

 

Drawings

12000

12000

 

Balance b/d

40000

20000

Interest on Drawing

 

780

 

660

Interest on Capital

 

4000

 

2000

 

Balance c/d

40814

15736

P/L Adjustment

9594

 

6396

 

53594

28396

 

53594

28396


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:


Rakesh

Month

Rs

 

May 31, 2016

600

June 30, 2016

500

August 31, 2016

1,000


November 1, 2016

400


December 31, 2016

1,500


January 31, 2017

300


March 01, 2017

700

Rohan

At the beginning of each month

400


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

Ans:

Rakesh’s Interest on Drawings


 

Drawing x Period

Product

31 May 06 to 31 Mar 07

600 x 10

6000

30 Jun 06 to 31 Mar 07

500 x 9

4500

31 Aug 06 to 31 Mar 07

1000 x 7

7000

1 Nov 06 to 31 Mar 07

400 x 5

2000

31 Dec 06 to 31 Mar 07

1500 x 3

4500

31 Jan 07 to 31 Mar 07

300 x 2

600

1 Mar 07 to 31 Mar 07

700 x 1

700

 

Sum of Product

 

25300


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


Raj

Capital x Period

Product

1 Apr 05 to 30 Jun 05

250000 x 3

750000

1 Jul 05 to 31 Mar 06

100000 x 9

900000

 

Sum of Product

1650000


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

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


Neeraj

Capital x Period

Product

1 Apr 05 to 30

Jun 05

150000 x 3

 

450000

1 Jul 05 to 31

Mar 06

100000 x 9

 

900000

 

Sum of Product

 

1350000

 

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:


 

Rs

February 01

4,000

May 01

10,000

June 30

4,000

October 31

12,000

December 31

4,000


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


Ans:

Calculation of Interest on Harish’s Drawings:


 

Drawing x Period

Product

1 Feb 06 to 31 Dec 06

4000 x 11

44000

1 May 06 to 31 Dec 06

10000 x 8

80000

30 Jun 06 to 31 Dec 06

4000 x 6

24000

31 Oct 06 to 31 Dec 06

12000 x 2

24000

31 Dec 06 to 31 Dec 06

4000 x 0

0

Sum of Product

172000


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:


 

Ram

Shyam

Mohan

Capital on March 31

24000

18000

12000

(+) Drawings

3600

4500

2700

(-) Profit (3:2:1)

-18000

-12000

-6000

Capital on April 1, 2003

9600

10500

8700


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:


Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

 

Profit trf to:

 

Profit and Loss

 

36000

Amit's Capital 18000

 

 

 

(-) Samiksha's Guaramtee 1200

16800

 

 

(2000 x 3/5)

 

 

 

Sumit's Capital 12000

 

 

 

(-) Samiksha's Guaramtee 800

11200

 

 

(2000 x 2/5)

 

 

 

Samiksha's Capital 6000

 

 

 

(+) Def. Received from:

 

 

 

Amit 1200

 

 

 

Sumit 800

8000

 

 

 

36000

 

36000


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:


Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

Profit trf to:

 

Profit and Loss

40000

Pinki's Capital 20000

 

 

 

(-) Kaku's Guarantee 500

19500

 

 

(1000 x 1/2)

 

 

 

Deepti's Capital 16000

 

 

 

(-) Kaku's Guarantee 500

15500

 

 

(1000 x 1/2)

 

 

 

Kaku's Capital 4000

 

 

 

(+) Def. Received from:

 

 

 

Pinki 500

 

 

 

Deepti 500

5000

 

 

 

40000

 

40000


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:


Profit and Loss Appropriation A/c as on March 31. 2006

Particulars

Amount

Particulars

Amount

Profit trf to:

 

Profit and Loss

40000

Abhay's Capital

20000

 

 

Siddhartha's Capital 12000

 

 

 

(-) Guarantee to Kusum 2000

 

10000

 

 

Kusum's Capital 8000

 

 

 

(+) Def. Received from 2000

 

10000

 

 

Siddhartha

 

 

 

 

40000

 

40000

  

Profit and Loss Appropriation A/c as on March 31. 2007

Particulars

Amount

Particulars

Amount

Profit trf to:

 

Profit and Loss

60000

Abhay's Capital

30000

 

 

Siddhartha's Capital

18000

 

 

Kusum's Capital

12000

 

 

 

60000

 

60000


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:


Profit and Loss Appropriation A/c

Particulars

Amount

Particulars

Amount

 

Profit trf to:

 

Profit and Loss

 

35000

Radha's Capital 17500

 

 

 

(-) Share of Def. 900

16600

 

 

(1500 x 3/5)

 

 

 

Mary's Capital 14000

 

 

 

(-) Share of Def. 600

13400

 

 

(1500 x 2/5)

 

 

 

Fatima's Capital 3500

 

 

 

(+) Def. Received from:

 

 

 

Radha 900

 

 

 

Mary 600

5000

 

 

 

35000

 

35000


Journal

Date

Particular

L.F.

Debit

Credit

 

P/L Appropriation A/c Dr

 

 

35000

 

To Radha's Capital

A/c

 

16600

To Mary's Capital A/c

13400

To Fatima's Capital

A/c

 

5000

(Profit distributed

among partners)

 


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:


Profit and Loss Appropriation A/c as on March 31. 2006

Particulars

Amount

Particulars

Amount

 

Profit trf to:

 

Profit and Loss

 

30000

X's Capital 15000

 

 

 

(-) Share of Def. 1800

13200

 

 

(3000 x 3/5)

 

 

 

Y's Capital 10000

 

 

 

(-) Share of Def. 1200

8800

 

 

(3000 x 2/5)