Chapter 2 – Accounting for Partnership Firms – Fundamentals
TS Grewal Solution 2020-21
Question 1
In the absence of Partnership Deed, what are the rules relation to :
(a) Salaries of partners,
(b) Interest on partners’ capitals
(c) Interest on partners’ loan
(d) Division of profit,
(e) Interest on partners’ drawings
(f) Interest on loan by partner(s) and
(g) Interest on loan to partners?
Answer
In the absence of Partnership Deed
(a) Salaries not allowed to Partners
(b) Interest on Partners’ capital is not allowed
(c) Interest on Partners’ loan is provided @ 6% p.a.
(d) Equally divided among partners.
(e) No interest charge on Partner’s drawings
(f) Interest on loan by partners allowed @ 6% p.a.
(g) Interest on loan to partners are not charged.
Question 2
Following differences have arisen among P, Q and R. State who is correct in each case:
(a) P used Rs.20,000 belonging to the firm and made a profit of Rs.5,000. Q and R want the amount to be given to the firm?
(b) Q used Rs.5,000 belonging to the firm and suffered a loss of Rs.1000. He wants the firm to bear the loss?
(c) P and Q want to purchase goods from A Ltd., R does not agree?
(d) Q and R want to admit C as partner, P does not agree?
(e) R had given loan of `1,00,000 to firm and demands interest @ 10% p.a. P and Q do not want to pay the interest.
Answer
(a) P will pay Rs. 20,000 + Rs. 5,000
(b) Q is liable to pay Rs. 5,000 to the firm.
(c) P and Q may buy goods from A Ltd., a partner has a right to buy and sell goods without consulting the other partners, unless a Public Notice has been given.
(d) No, C cannot be admitted as one of the partners, P, has not agreed to admit C.
(e) R will be given interest @ 6% p.a. only.
Question 3
A, B and C are partners in a firm. They do not have a Partnership Deed. At the end of the first year of the commencement of the firm, they have faced the following problems :
(a) A wants that interest on capital should be allowed to the partners but B and C do not agree.
(b) B wants that the partners should be allowed to draw salary but A and C do not agree.
(c) C wants that the loan given by him to the firm should bear interest @ 10% p.a. but A and B do not agree.
(d) A and B having contributed larger amounts of capital, desire that the profits should be divided in the ratio of their capital contribution but C does not agree.
State how you will settle these disputes if the partners approach you for purpose.
Answer
(a) As per Partnership Act, no interest on Capital will be allowed.
Reason: There is no partnership agreement among A, B and C regarding interest on capital.
(b) No salary will be allowed to any partner.
Reason: There is no partnership agreement.
(c) Interest on partner’s loan (C’s loan) will be allowed at 6% p.a.
Reason: As per Partnership Act, in the absence of partnership agreement, interest on partner’s loan is allowed at 6% p.a.
(d) Profit will be shared equally and not in the capital ratio.
Reason: There is no partnership agreement.
Question 4
Bose, Sarkar and Chatterjee are partners in a firm and do not have a Partnership Deed. Bose introduced
further capital of Rs. 5,00,000 on 1st October, 2020. Whereas Chatterjee took a loan of Rs. 50,000 from the firm
on 1st October, 2020. Disputes have arisen among them on the following issues:
(a) Bose demands interest@10% p.a. on Rs. 5,00,000 being his extra capital.
(b) Sarkar desires that his son Deep should be admitted as partner and he will give him half of his share Bose and Chatterjee do not agree.
(c)Bose and Sarkar are of the view that Chatterjee should be charged interest on loan from the firm at the lending rate of the banks, which is 12% p.a.
(d) Sarkar has withdrawn Rs. 50,000 from the firm for his personal use. Bose and Chatterjee are of the view that Sarkar should be charged interest @ 10% p.a.
You are required to give solution to each issue of dispute.
Answer
(a) Interest will not be allowed on extra capital introduced by Bose,
(b) Deep cannot be admitted as Bose and Chatterjee don't agree, no partner has right to admit any one as a partner,
(c) Interest will not be charged from Chatterjee as rate of interest was not agreed.
(d) Interest on drawings will not be charged on Sarkar’s drawings.
Question 5
Harshad and Dhiman are in partnership since 1st April, 2019. No partnership agreement was made. They contributed Rs. 4,00,000 and Rs. 1,00,000 respectively as capital. In addition, Harshad advanced an amount of Rs. 1,00,000 to the firm on 1st October, 2019. Due to long illness, Harshad could not participate in business activities from 1st August, 2019 to 30th September, 2019. Profit for the year ended 31st March, 2020 was Rs. 1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims :
(i) He should be given interest @ 10% per annum on capital and loan;
(ii) (ii) Profit should be distributed in the ratio of capital;
Dhiman Claims :
(i) Profit should be distributed equally;
(ii) (ii) He should be allowed Rs. 2,000 p.m. as remuneration for the period he managed the business in the absence of Harshad;
(iii) Interest on Capital and loan should be allowed @ 6% p.a.
You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.
Answer
Harshad Claims
(i) If there is no agreement on interest on partner’s capital, according to Indian partnership act 1932, no interest will be allowed to partners.
(ii) If there is no agreement on the matter of profit sharing, according to partnership act 1932, profit shall be distributed equally.
Dhiman Claims
(i) Dhiman claim is justified, according partnership act 1932 if there is no agreement on the matter of profit distribution, profit shall be distributed equally.
(ii) No salary will be allowed to any partner because there is no agreement on matter of remuneration.
(iii) Dhiman’s claim is not justified on the matter of interest on capital but justified on the matter of interest on loan. If there is no agreement on interest on partner’s loan, Interest shall be provided at 6% p.a.
Profit & Loss Adjustment Account | ||||||
Dr. | for the year ended 31 Mar 2020 | Cr. | ||||
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) | |||
To Interest on Harsad's Loan | 3,000 | BY Profit & Loss A/c | 1,80,000 | |||
To Profit & Loss Appropriation A/c | 1,77,000 | | | |||
| 1,80,000 | | 1,80,000 | |||
Interest on Harsad's Loan = 1,00,000 x 6/100 x 6/12 = 3,000 | ||||||
Profit & Loss Appropriation Account | ||||||
Dr. | for the year ended 31 Mar 2020 | Cr. | ||||
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) | |||
To Profit transfer to | | BY Profit & Loss Adjustment A/c | 1,77,000 | |||
Harsad's Capital A/C 88,500 | | | | |||
Dhiman's Capital A/C 88,500 | 1,77,000 | | | |||
| 1,77,000 | | 1,77,000 | |||
Question 6
A and B are partners from 1st April, 2019, without a Partnership Deed and they introduced capitals of Rs. 35,000 and Rs. 20,000 respectively. On 1st October, 2019, A advanced loan of Rs. 8,000 to the firm without any agreement as to interest. The profit and Loss Account for the year ended 31st March, 2020 shows a profit of Rs. 15,000 but the partners cannot agree on payment of interest and on the basis of division of profits.
You are required to divide the profits between them giving reasons for your method.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on A's Loan
240
BY Profit b/d (before Interest)
15,000
To Profit transfer to
A's Capital A/C 7,380
B's Capital A/C 7,380
14,760
15,000
15,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on A's Loan | 240 | BY Profit b/d (before Interest) | 15,000 |
To Profit transfer to | | | |
A's Capital A/C 7,380 | | | |
B's Capital A/C 7,380 | 14,760 | | |
| 15,000 | | 15,000 |
Working Notes
Interest on Loan = Rs. 8,000 x
Divisible Profit = 15,000 – 240 = Rs. 14760
Profit will be distributed equally, i.e. Rs. 14,760 / 2 = Rs. 7380 to both A & B.
Interest on Partner’s Loan to the Firm
Question 7
A and B are partners in a firm sharing profits in the ratio of 3 : 2. They had advanced to the firm a sum of Rs. 30,000 as a loan in their profit-sharing ratio on 1st October, 2019. The Partnership Deed is silent on interest on loans from partners. Compute interest payable by the firm to the partners, assuming the firm closes its books every year on 31st March.
Answer
Total Loan provided by Partners = Rs. 30,000
A’s Share of Loan = Rs. 30,000 x 3/5 = Rs. 18,000
B’s Share of Loan = Rs. 30,000 x 2/5 = Rs. 12,000
Interest on Loan @ 6% p.a. in the absence of Partnership Deed
A’s Interest = Rs. 18,000 x 6/100 x 6/12 = Rs. 540
B’s Interest = Rs. 12,000 x 6/100 x 6/12 = Rs. 360
Question 8
X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals Rs. 2,00,000 and Rs. 3,00,000 respectively. On 1st October, 2019, X and Y gave loans of Rs. 80,000 and Rs. 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2020 in each of the following alternative cases:
Case 1 : If the profits before interest for the year amounted to Rs. 21,000.
Case 2 : If the profits before interest for the year amounted to Rs. 3,000.
Case 3 : If the profits before interest for the year amounted to Rs. 5,000.
Case 4 : If the loss before interest for the year amounted to Rs. 1,400.
Answer
Case. 1
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on X's Loan | 2,400 | BY Profit b/d (before Interest) | 21,000 |
To Interest on Y's Loan | 1,200 | | |
To Profit transfer to | | | |
X's Capital A/C 6,960 | | | |
Y's Capital A/C 10,440 | 17,400 | | |
| 21,000 | | 21,000 |
To Interest on X's Loan = Rs. 80,000 x 6/100 x 6/12 = Rs. 2,400
To Interest on Y's Loan = Rs. 40,000 x 6/100 x 6/12 = Rs. 1,200
Case. 2
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on X's Loan | 2,400 | BY Profit b/d (before Interest) | 3,000 |
To Interest on Y's Loan | 1,200 | By Loss transfer to | |
| | X's Capital A/C 240 | |
| | Y's Capital A/C 360 | 600 |
| 3,600 | | 3,600 |
Loss is transferred because Interest on loan is a charged against profit
Case. 3
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on X's Loan | 2,400 | BY Profit b/d (before Interest) | 5,000 |
To Interest on Y's Loan | 1,200 | | |
To Profit transfer to | | | |
X's Capital A/C 560 | | | |
Y's Capital A/C 840 | 1,400 | | |
| 5,000 | | 5,000 |
Case. 4
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Loss b/d (before Interest) | 1,400 | By Loss transfer to | |
To Interest on X's Loan | 2,400 | X's Capital A/C 2,000 | |
To Interest on Y's Loan | 1,200 | Y's Capital A/C 3,000 | 5,000 |
| 5,000 | | 5,000 |
Question 9
Bat and Ball are partners sharing the profits in the ratio of 2 : 3 with capitals of Rs. 1,20,000 and Rs. 60,000 respectively. On 1st October, 2019, Bat and Ball gave loans of Rs. 2,40,000 and Rs. 1,20,000 respectively to the firm. Bat had allowed the firm to use his property for business for a monthly rent of Rs. 5,000. The loss for the year ended 31st March, 2020 before rent and interest amounted to Rs. 9,000. Show distribution of profit/loss.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Loss b/d (before Interest)
9,000
To Rent to Bat
60,000
By Loss transfer to
To Interest on Bat's Loan
7,200
Bat's Capital A/C 31,920
To Interest on Ball's Loan
3,600
Ball's Capital A/C 47,880
79,800
79,800
79,800
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Loss b/d (before Interest) | 9,000 | | |
To Rent to Bat | 60,000 | By Loss transfer to | |
To Interest on Bat's Loan | 7,200 | Bat's Capital A/C 31,920 | |
To Interest on Ball's Loan | 3,600 | Ball's Capital A/C 47,880 | 79,800 |
| 79,800 | | 79,800 |
To Interest on X's Loan = Rs. 2,40,000 x 6/100 x 6/12 = Rs. 7,200
To Interest on Y's Loan = Rs. 1,20,000 x 6/100 x 6/12 = Rs. 3,600
Question 10
Akhil and Bimal are partners sharing profits in the ratio of 3 :2. Akhil gave loan to the firm of `1,00,000 on 1st October, 2020. On the same date, the firm gave loan to Bimal of `1,00 000. They do not have an agreement as to interest.
Akhil had also given his personal property for firm’s godown at a monthly rent of `5,000.
Firm earns profit of `1,03,000 (before above adjustments) for the year ended 31st March, 2020. Show the distribution of profit for the year.
Answer
In the absence of agreement Interest on loan by partner will be provided @ 6% p.a., whereas no interest is charged from partners for loan taken.
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
By Loss transfer to | By Profit b/d | 40,000 | |
Bat's Capital A/C 24,000 | (1,00,000- 3,000 int. - 60,000 rent) | | |
Ball's Capital A/C 16,000 | 40,000 | | |
79,800 | |||
| 79,800 | | 79,800 |
Calculation of Adjusted Net Profit
Adjusted Net Profit = Net Profit – Interest – Rent = 1,00,000 – 3,000 – 60,000 = 40,000
Interest = 1,00,000 x 6/100 x 6/12 = 3,000
Question 11
Ankit Bhanu and Charu are partners in a firm sharing profits and losses equally with capital of Rs. 2,50,000 each. On 1st October, 2019, Ankit and Bhanu gave loans of Rs. 2,50,000 each to the firm whereas Charu took a loan of Rs. 1,00,000 from the firm on the same date. It was agreed among the partners that Charu will be charged Interest @ 6% p.a. Interest on loan from partners was paid on 10th April, 2020. The firm closes its books on 31st March each year.
Pass the Journal entries in the books of the firm for the year ended 31st March, 2020.
Answer
Journal Entries
Date | Particulars | Dr Amount | Cr. Amount | |
2019 | Bank A/c | Dr. | 5,00,000 | |
Oct. 1 | To Loan by Ankit A/c | | | 2,50,000 |
| To Loan by Bhanu A/c | | | 2,50,000 |
| (Loans from Partners Ankit & Bhanu) | | | |
2019 | Loan to Charu A/c | Dr. | 1,00,000 | |
Oct. 1 | To Bank A/c | | | 1,00,000 |
| (Being Loan given to Charu) | | | |
2020 | Interest on Loan by Partners A/c | Dr. | 15000 | |
Mar. 31 | To Loan by Ankit A/c | | | 7500 |
| To Loan by Bhanu A/c | | | 7500 |
| (Interested provided on loan by partners) | | | |
2020 | Charu's Capital A/c | Dr. | 3,000 | |
Mar. 31 | To Interest on Loan to Partners A/c | | | 3000 |
| (Interested charged on loan to partners) | | | |
2020 | Profit & Loss A/c | Dr. | 15000 | |
Mar. 31 | To Interest on Loan by Partners A/c | | | 15000 |
| (Interest on loan transferred to P& L A/c) | | | |
2020 | Interest on Loan to Partners A/c | Dr. | 3000 | |
Mar. 31 | To Profit & Loss A/c | | | 3000 |
| (Interest on loan transferred to P& L A/c) | | | |
Question 12
Nirmal and Pawan are partners sharing profits in the ratio of 3:2. The firm had given loan to Pawan of Rs. 5,00,000 on 1st April 2020. Interest was to be charged @ 10% p.a. The firm took loan of Rs. 2,00,000 from Nirmal
on 1st October, 2020. Before giving effect to the above, the firm incurred a loss of Rs. 10,000 for the year
ended 31st March, 2021.
Determine the amount to be transferred to Profit and Loss Appropriation Account.
Answer
Profit & Loss Adjustment Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Loss b/d (before Interest)
10,000
By Interest on Loan to Pawan
50,000
To Interest on Nirmal's Loan
6,000
To Profit transfer to
Nirmal's Capital A/C 20,400
Pawan's Capital A/C 13,600
34,000
50,000
50,000
Profit & Loss Adjustment Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Loss b/d (before Interest) | 10,000 | By Interest on Loan to Pawan | 50,000 |
To Interest on Nirmal's Loan | 6,000 | | |
To Profit transfer to | | | |
Nirmal's Capital A/C 20,400 | | | |
Pawan's Capital A/C 13,600 | 34,000 | | |
| 50,000 | | 50,000 |
Profit & Loss Appropriation Account
Question 13
A and B are partners. A's Capital is Rs. 1,00,000 and B's Capital is Rs. 60,000. Interest on capital is payable @ 6% p.a. B is entitled to a salary of Rs. 3,000 per month. Profit for the current year before interest and salary to B is Rs. 80,000.
Prepare Profit and Loss Appropriation Account.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on capital
By Profit & Loss A/c (Net profit)
80,000
A's Capital 6,000
B's Capital 3,600
9,600
To B's Salary
36,000
To Profit Transferred to
A's Capital A/c 17,200
B's Capital A/c 17,200
34,400
80,000
80,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on capital | | By Profit & Loss A/c (Net profit) | 80,000 |
A's Capital 6,000 | | | |
B's Capital 3,600 | 9,600 | | |
To B's Salary | 36,000 | | |
To Profit Transferred to | | | |
A's Capital A/c 17,200 | | | |
B's Capital A/c 17,200 | 34,400 | | |
| 80,000 | | 80,000 |
Question 14
X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1 ratio. The fixed capitals of the partners were : X `5,00,000; Y Rs. 5,00,000 and Z Rs. 2,50,000 respectively. The Partnership Deed provides that interest on capital is to be allowed @ 10% p.a. Z is to be allowed a salary of Rs. 2,000 per month. The profit of the firm for the year ended 31st March, 2020 after debiting Z's salary was Rs. 4,00,000.
Prepare Profit and Loss Appropriation Account.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
4,24,000
X's Capital 50,000
(4,00,000 + Z's Salary 24,000)
Y's Capital 50,000
Z's Capital 25,000
1,25,000
Z's Salary
24,000
To Profit Transferred to
X's Current A/c 1,10,000
Y's Capital A/c 1,10,000
Z's Capital A/c 55,000
2,75,000
4,24,000
4,24,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 4,24,000 |
X's Capital 50,000 | | (4,00,000 + Z's Salary 24,000) | |
Y's Capital 50,000 | | | |
Z's Capital 25,000 | 1,25,000 | | |
Z's Salary | 24,000 | | |
To Profit Transferred to | | | |
X's Current A/c 1,10,000 | | | |
Y's Capital A/c 1,10,000 | | | |
Z's Capital A/c 55,000 | 2,75,000 | | |
| 4,24,000 | | 4,24,000 |
Question 15
X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of Rs. 8,00,000 and Rs. 6,00,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of Rs. 60,000 which has not been withdrawn. Profit for the year ended 31st March, 2020 before interest on capital but after charging Y's salary amounted to Rs. 2,40,000.
A provision of 5% of the profit is to be made in respect commission to the manager.
Prepare Profit and Loss Appropriation Account showing the allocation profits.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
2,85,000
X's Capital 40,000
(2,40,000 + 60,000 Y's Salary
Y's Capital 30,000
70,000
- 15,000 Manager's Commission)
To Y's Salary
60,000
To Profit Transferred to
X's Capital A/c 93,000
Y's Capital A/c 62,000
1,55,000
2,85,000
2,85,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 2,85,000 |
X's Capital 40,000 | | (2,40,000 + 60,000 Y's Salary | |
Y's Capital 30,000 | 70,000 | - 15,000 Manager's Commission) | |
To Y's Salary | 60,000 | | |
To Profit Transferred to | | | |
X's Capital A/c 93,000 | | | |
Y's Capital A/c 62,000 | 1,55,000 | | |
| 2,85,000 | | 2,85,000 |
Question 16
Prem and Manoj are partne` in a firm sharing profits in the ratio of 3 : 2. The Partneship Deed provided that Prem was to be paid salary of Rs. 2,500 per month and Manoj was to get a commission of Rs. 10,000 per year. Interest on capital was to be allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. Interest on Prem's drawings was Rs. 1,250 and on Manoj's drawings was Rs. 425. Interest on Capitals of the partners were Rs. 10,000 and Rs. 7,500 respectively. The firm net profit for the year ended 1st April, 2020 was Rs. 90,575.
Prepare Profit and Loss Appropriation Account of the firm.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
90,575
Prem's Capital 10,000
By Interest on drawings
Manoj's Capital 7,500
17,500
Prem 1,250
To Prem's Salary
30,000
Manoj 425
1,675
To Manoj's Commission
10,000
To Profit Transferred to
X's Current A/c 20,850
Y's Current A/c 13,900
34,750
92,250
92,250
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 90,575 |
Prem's Capital 10,000 | | By Interest on drawings | |
Manoj's Capital 7,500 | 17,500 | Prem 1,250 | |
To Prem's Salary | 30,000 | Manoj 425 | 1,675 |
To Manoj's Commission | 10,000 | | |
To Profit Transferred to | | | |
X's Current A/c 20,850 | | | |
Y's Current A/c 13,900 | 34,750 | | |
| 92,250 | | 92,250 |
Question 17
Atul and mithun are partners sharing profit in the ratio 3 : 2.
Balances as on 1st April 2019 were as follows
capital Account (fixed) Atul Rs. 500000 and Mithun Rs. 600000
Loan Account Atul Rs. 3,00,000 (Cr.) and Mithun 2,00,000 (Dr.)
it was agreed to a allow and charge interest@ 8% p.a. Partnership deed provided to allow interest on capital @ 10% p.a. Interest on drawings was charged Rs. 5000 each profit before giving effect to above was Rs. 2,28,000 for the year ended 31st March 2020.
Prepare Profit and Loss appropriation account
Answer
Profit & Loss Adjustment Account
Dr.
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Loan to Atul A/c
24,000
By Profit & Loss A/c (Net profit)
2,28,000
To Profit & Loss Appropriation A/c
2,20,000
By Interest on Loan from Mithun A/c
160,00
2,44,000
2,44,000
Profit & Loss Adjustment Account | |||
Dr. | Cr. | ||
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Loan to Atul A/c | 24,000 | By Profit & Loss A/c (Net profit) | 2,28,000 |
To Profit & Loss Appropriation A/c | 2,20,000 | By Interest on Loan from Mithun A/c | 160,00 |
| 2,44,000 | | 2,44,000 |
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 2,20,000 |
Autul 50,000 | | By Interest on drawings | |
Mithun 60,000 | 1,10,000 | Autul 5,000 | |
To Profit Transferred to | | Mithun 5,000 | 10,000 |
Autul's Current A/c 72,000 | | | |
Mithun's Current A/c 48,000 | 1,20,000 | | |
| 2,30,000 | | 2,30,000 |
Question 18
Reema and Seema are partnes sharing profits equally. The Partneship Deed provides that both Reema and Seema will get monthly salary of Rs. 15,000 each, Interest on Capital will be allowed @ 5% p.a. and Interest on Drawings will be charged @ 10% p.a. Their capitals were Rs. 5,00,000 each and drawings during the year were Rs. 60,000 each.
The firm incurred a loss of Rs. 1,00,000 during the year ended 31st March, 2020.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2020.
Answer
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
By Profit & Loss A/c (Net Loss) | 1,00,000 | By Interest on drawings | |
| | Reema 3,000 | |
| | Seema 3,000 | 6,000 |
| | To Loss Transferred to | |
| | Reema's Capital A/c 47,000 | |
|
| Seema's Capital A/c 47,000 | 94,000 |
| 1,00,000 | | 1,00,000 |
Note:
1. Interest on drawing will be charged on average (for 6 months), as date not given and p.a. word exist.
2. Interest on capital and salary will not be allowed as there is no profit.
Question 19
Bhanu and Partab are partners sharings profits equally. Their fixed capitals as on 1st April, 2019 are Rs. 8,00,000 and Rs. 10,00,000 respectively. Their drawings during the year were Rs. 50,000 and Rs. 1,00,000 respectively. Interest on Capital is a charge and is to be allowed @ 10% p.a. and interest on drawings is to be charged @ 15% p.a. Net Profit for the year ended 31st March, 2020 was Rs. 1,20,000.
Prepare Profit and Loss Appropriation Account.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
By Profit & Loss A/c (Net Loss)
60,000
By Interest on drawings
Bhanu 3,750
Pratap 7,500
11,250
To Profit Transferred to
Bhanu's Capital A/c 24,375
Pratap's Capital A/c 24,375
48,750
60,000
60,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
By Profit & Loss A/c (Net Loss) | 60,000 | By Interest on drawings | |
| | Bhanu 3,750 | |
| | Pratap 7,500 | 11,250 |
| | To Profit Transferred to | |
| | Bhanu's Capital A/c 24,375 | |
| Pratap's Capital A/c 24,375 | 48,750 | |
| 60,000 | | 60,000 |
Note:
1. Interest on drawing will be charged on average (for 6 months), as date not given and p.a. word exist.
2. Interest on capital is a charge on profit so will be deducted from net profit.
Interest on capital = 80,000 + 1,00,000 = 1,80,000
3. Net Profit- Interest on capital = 1,20,000- 1,80,000 = - 60,000 (Net Loss)
Partner’s Capital Account : Fixed Capital
Question 20
Amar and Bimal entered into partnership on 1st April, 2019 contributing Rs. 1,50,000 and Rs. 2,50,000 respectively towards capital. The Partnership Deed provided for interest on capital @ 10% p.a. It also provided that Capital Accounts shall be maintained following Fixed Capital Accounts method. The firm earned net profit of Rs. 1,00,000 for the year ended 31st March 2020. Pass the Journal entry for interest on capital.
Answer
Journal Entries
Date | Particulars | Dr Amt. (Rs) | Cr. Amt. (Rs) | |
| Interest on Capital A/c | Dr. | 40,000 | |
| To Amar's Current A/c | | | 15,000 |
| To Bimal's Current A/c | | | 25,000 |
| (Interest on Capital allowed to Partners) | | | |
Profit and Loss Appropriation A/c | Dr. | 40,000 | | |
To Interest on Capital A/c | | 40,000 | ||
| (Interest on Capital transferred to | | | |
OR
Date | Particulars | Dr Amt. (Rs) | Cr. Amt. (Rs) | |
| Profit and Loss Appropriation A/c | Dr. | 40,000 | |
| To Amar's Current A/c | | | 15,000 |
| To Bimal's Current A/c | | | 25,000 |
| (Interest on Capital transferred to | | | |
Question 21
Kamal and Kapil are partners having fixed capitals of Rs. 5,00,000 each as on 31st March, 2019. Kamal introduced further capital of Rs. 1,00,000 on 1st October, 2019 whereas Kapil withdrew Rs. 1,00,000 on 1st October, 2019 out of capital.
Interest on capital is to be allowed @ 10% p.a.
The firm earned net profit of Rs. 6,00,000 for the year ended 31st March 2020.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.
Answer
Journal Entries
Date | Particulars | Dr Amt. (Rs) | Cr. Amt. (Rs) | |
| Interest on Capital A/c | Dr. | 1,00,000 | |
| To Kamal's Current A/c | | | 55,000 |
| To Kapil's Current A/c | | | 45,000 |
| (Interest on Capital allowed to Partners) | | | |
Profit and Loss Appropriation A/c | Dr. | 1,00,000 | | |
To Interest on Capital A/c | | 1,00,000 | ||
| (Interest on Capital transferred to | | | |
OR
Date | Particulars | Dr Amount | Cr. Amount | |
| Profit and Loss Appropriation A/c | Dr. | 1,00,000 | |
| To Kamal's Current A/c | | | 55,000 |
| To Kapil's Current A/c | | | 45,000 |
| (Interest on Capital transferred to | | | |
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 6,00,000 |
Kamal 55,000 | | | |
Kapil 45,000 | 1,00,000 | | |
To Profit Transferred to | | | |
Kamal's Current A/c 2,50,000 | | | |
Kapil 's Current A/c 2,50,000 | 5,00,000 | | |
| 6,00,000 | | 6,00,000 |
Question 22
Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2019 were Rs. 2,00,000 each whereas Current Accounts had balances of Rs. 50,000 and Rs. 25,000 respectively interest is to be allowed @ 5% p.a. on balances in Capital Accounts. The firm earned net profit of Rs. 3,00,000 for the year ended 31st March 2020.
Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.
Answer
Journal Entries
Date | Particulars | Dr Amount | Cr. Amount | |
| Profit and Loss Appropriation A/c | Dr. | 20,000 | |
| To Simran's Current A/c | | | 10,000 |
| To Reema 's Current A/c | | | 10,000 |
| (Interest on Capital transferred to | | | |
| Profit and Loss Appropriation A/c | Dr. | 2,80,000 | |
| To Simran's Current A/c | | | 1,68,000 |
| To Reema 's Current A/c | | | 1,12,000 |
| (Profit transferred to Partners Current A/c) | | | |
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 3,00,000 |
Simran 10,000 | | | |
Reema 10,000 | 20,000 | | |
To Profit Transferred to | | | |
Simran's Current A/c 1,68,000 | | | |
Reema 's Current A/c 1,12,000 | 2,80,000 | | |
| 3,00,000 | | 3,00,000 |
Partner’s Capital Account
Fluctuating Capital
Question 23
Anita and Ankita are partners sharing profits equally. Their capitals, maintained following Fluctuating Capital Accounts Method, as on 31st March, 2019 were Rs. 5,00,000 and Rs. 4,00,000 respectively. Partnership Deed provided to allow interest on capital @ 10% p.a. The firm earned net profit of Rs. 2,00,000 for the year ended 31st March, 2020.
Pass the Journal entry for interest on capital.
Answer
Journal Entries
Date | Particulars | Dr Amt. (Rs) | Cr. Amt. (Rs) | |
| Profit and Loss Appropriation A/c | Dr. | 90,000 | |
| To Anita's Capital A/c | | | 50,000 |
| To Ankita 's Capital A/c | | | 40,000 |
| (Interest on Capital transferred to | | | |
Question 24
Ashish and Aakash are partners sharing profit in the ratio of 3 : 2. Their Capital Accounts showed a credit balance of Rs. 5,00,000 and Rs. 6,00,000 respectively as on 31st March, 2020 after debit of drawings during the year of Rs. 1,50,000 and Rs. 1,00,000 respectively. Net profit for the year ended 31st March, 2020 was Rs. 5,00,000. Interest on capital is to be allowed @ 10% p.a.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.
Answer
Journal Entries
Date | Particulars | Dr Amount | Cr. Amount | |
| Profit and Loss Appropriation A/c | Dr. | 1,35,000 | |
| To Ashish's Capital A/c | | | 65,000 |
| To Akash's Capital A/c | | | 70,000 |
| (Interest on Capital transferred to | | | |
| Profit and Loss Appropriation A/c | Dr. | 3,65,000 | |
| To Ashish's Capital A/c | | | 2,19,000 |
| To Akash's Capital A/c | | | 1,46,000 |
| (Profit transferred to Partners Capital A/c) | | | |
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 5,00,000 |
Ashish 65,000 | | | |
Akash 70,000 | 1,35,000 | | |
To Profit Transferred to | | | |
Ashish's Capital A/c 2,19,000 | | | |
Akash 's Capital A/c 1,46,000 | 3,65,000 | | |
| 5,00,000 | | 5,00,000 |
Working Notes | ||
Calculation for Interest on Capital | ||
Particulars | Ashish | Akash |
Capital at the end | 5,00,000 | 6,00,000 |
Add; Drawings | 1,50,000 | 1,00,000 |
Closing Capital | 6,50,000 | 7,00,000 |
| | |
Interest on Capital @ 10% | 65,000 | 70,000 |
Question 25
Naresh and Sukesh are partners with capitals of Rs. 3,00,000 each as on 31st March, 2020. Naresh had withdrawn Rs. 50,000 against capital on 1st October, 2019 and also Rs. 1,00,000 besides the drawings against capital. Sukesh also had drawings of Rs. 1,00,000.
Interest on capital is to be allowed @ 10% p.a.
Net profit for the year was Rs. 2,00,000, which is yet to be distributed.
Pass the Journal entries for interest on capital and distribution of profit.
Answer
Journal Entries
Date | Particulars | Dr Amt.(Rs) | Cr. Amt.(Rs) | |
| Profit and Loss Appropriation A/c | Dr. | 82,500 | |
| To Naresh's Capital A/c | | | 42,500 |
| To Sukesh's Capital A/c | | | 40,000 |
| (Interest on Capital transferred to | | | |
| Profit and Loss Appropriation A/c | Dr. | 1,17,500 | |
| To Naresh's Capital A/c | | | 58,750 |
| To Sukesh's Capital A/c | | | 58,750 |
| (Profit transferred to Partners Capital A/c) | | | |
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 2,00,000 |
Naresh 42,500 | | | |
Sukesh 40,000 | 82,500 | | |
To Profit Transferred to | | | |
Naresh's Capital A/c 58,750 | | | |
Sukesh's Capital A/c 58,750 | 1,17,500 | | |
| 2,00,000 | | 2,00,000 |
Working Notes | ||
Calculation for Interest on Capital | ||
Particulars | Naresh | Sukesh |
Capital at the end | 3,00,000 | 3,00,000 |
Add; Drawings against Capital | 50,000 | - |
Add; Drawings against profit | 1,00,000 | 1,00,000 |
Opening Capital | 4,50,000 | 4,00,000 |
Interest on Capital on 4,00,000 for 1 year | 40,000 | 40,000 |
Interest on Capital on 50,000 for 6 month | 2,500 | |
Interest on Capital | 42,500 | 40,000 |
Question 26
On 1st April, 2013, Jay and Vijay entered into partnership for supplying laboratory equipments to government schools situated in remote and backward areas. They contributed capitals of Rs. 80,000 and Rs. 50,000 respectively and agreed to share the profits in the ratio of 3 : 2. The partnership Deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of Rs. 7,800. Showing your calculations cleary, prepare 'Profit and Loss Appropriation Account' of Jay and Vijay for the year ended 31st March, 2014.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
7,800
Jay 4,800
Vijay 3,000
7,800
7,800
7,800
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 7,800 |
Jay 4,800 | | | |
Vijay 3,000 | 7,800 | | |
| 7,800 | | 7,800 |
Working Notes | ||
Calculation for Interest on Capital | ||
Particulars | Jay | Vijay |
Actual Interest on capital | 7,200 | 4,500 |
Available Profit Rs. 7,800 | ||
So will be distributed in the ratio of 7,200 : 4,500, i.e. 8:5 | ||
Allowed Interest on capital | 4,800 | 3,000 |
Calculation of Interest on Partner’s Capital
Question 27
Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2020.
BALANCE SHEET | |||
as at 31st March, 2020 | |||
Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
Neelkant's Capital | 10,00,000 | Sundry Assets | 30,00,000 |
Mahadev's Capital | 10,00,000 | | |
Neelkant's Current A/c | 1,00,000 | | |
Mahadev' Current A/c | 1,00,000 | | |
Profit and Loss A/c (2019-20) | 8,00,000 | | |
| 30,00,000 | | 30,00,000 |
During the year, Mahadev's drawings were Rs. 30,000. Profits during the year ended 31st March, 2020 is Rs. 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2020.
Answer
Calculation of Interest on Capital
Neelkant’s Capital = 10,00,000 x 5/100 = 50,000
Mahadev’s Capital = 10,00,000 x 5/100 = 50,000
Note: As the firm following fixed capital method, Closing capital would be equal to opening capital.
Question 28
From the following Balance Sheet of Long and Short, calculate interest on capital @ 8% p.a. for the year ended 31st March, 2020.
BALANCE SHEET | |||
as at 31st March, 2020 | |||
Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
Long's Capital A/c | 1,20,000 | Fixed Assets | 3,00,000 |
Short's Capital A/c | 1,40,000 | Other Assets | 60,000 |
General Reserve | 1,00,000 | | |
| 3,60,000 | | 3,00,000 |
During the year, Long withdrew Rs. 40,000 and Short withdrew Rs. 50,000. Profit for the year was Rs. 1,50,000 out of which Rs. 1,00,000 was transferred to General Reserve.
Answer
Calculation for Interest on Capital
Particulars
Long
Short
Capital at the end
1,20,000
1,40,000
Add; Drawings
40,000
50,000
Less; Profit added to capital
(25,000)
(25,000)
Opening Capital
1,35,000
1,65,000
Interest on Capital @ 8%
10,800
13,200
Calculation for Interest on Capital | ||
Particulars | Long | Short |
Capital at the end | 1,20,000 | 1,40,000 |
Add; Drawings | 40,000 | 50,000 |
Less; Profit added to capital | (25,000) | (25,000) |
Opening Capital | 1,35,000 | 1,65,000 |
| | |
Interest on Capital @ 8% | 10,800 | 13,200 |
Question 29
Moli and Bholi contribute Rs. 20,000 and Rs. 10,000 respectively towards capital. They decide to allow interest on capital @ 6% p.a. Their respective share of profits is 2 : 3 and the net profit for the year is Rs. 1,500. Show distribution of profits:
(i) where there is no agreement except for interest on capitals; and
(ii) where there is an agreement that the interest on capital as a charge.
Answer
Case-1
Calculation for Interest on Capital | ||
Particulars | Moli | Bholi |
Actual Interest on captial | 1,200 | 600 |
Ratio of Interest on Capital payable | 2 | 1 |
Available Profit Rs. 1,500 | ||
So will be distributed in the ratio of 2:1 | ||
Allowed Interest on captial | 1,000 | 500 |
Case-2
Profit available for distribution : 1500
Interest on capital : 1800
Loss for the firm:300
Loss will be distributed in ratio 2:3, i.e. Moli : Rs. 120, Bholi : Rs. 180
Question 30
Amit and Bramit started business on 1st April, 2019 with capitals of Rs. 15,00,000 and Rs. 9,00,000 respectively. On 1st October, 2019, they decided that their capitals should be Rs. 12,00,000 each. The necessary adjustments in capitals were made by introducing or withdrawing by cheque. Interest on capital is allowed @ 8% p.a. Compute interest on capital for the year ended 31st March, 2020.
Answer
Calculation for Interest on Capital | ||
Particulars | Amit | Barmit |
Capital on 1st Apr 2019 | 15,00,000 | 9,00,000 |
Interest for first 6 Months @ 8% | 60,000 | 36,000 |
| | |
Capital on 1st Oct 2019 | 12,00,000 | 12,00,000 |
Interest for next 6 Months @ 8% | 48,000 | 48,000 |
| | |
Total Interest on Capital | 1,08,000 | 84,000 |
Salary or Commission to Partners
Question 31
Amar, Bhanu, and Charu are partners in a firm. Amar and Bhanu are to get annual salary of Rs. 1,20,000 p.a. each as they are fully involved in the business. Net profit for the year is Rs. 4,80,000. Determine the share of profit to be credited to each partner.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Salary to Partner
By Profit & Loss A/c (Net profit)
4,80,000
Amar 1,20,000
Bhanu 1,20,000
2,40,000
To Profit Transferred to
Amar's Capital 80,000
Bhanu's Capital 80,000
Charu's Capital 80,000
2,40,000
4,80,000
4,80,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Salary to Partner | | By Profit & Loss A/c (Net profit) | 4,80,000 |
Amar 1,20,000 | | | |
Bhanu 1,20,000 | 2,40,000 | | |
To Profit Transferred to | | | |
Amar's Capital 80,000 | | | |
Bhanu's Capital 80,000 | | | |
Charu's Capital 80,000 | 2,40,000 | | |
| 4,80,000 | | 4,80,000 |
Question 32
A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1 respectively. A is entitled to a commission of 10% on the net profit. Net profit for the year is Rs. 1,10,000.
Determine the amount of commission payable to A.
Answer
Net Profit for the year= Rs.1,10,000
Commission to A = 10% of on Net Profit
Commission to A = Rs. 1,10,000 x
Question 33
X, Y and Z are partners sharing profits and losses equally. As per Partnership Deed, Z is entitled to a commission of 10% on the net profit after charging such commission. The net profit before charging commission is Rs. 2,20,000.
Determine the amount of commission payable to Z.
Answer
Net Profit for the year= Rs.2,20,000
Commission to z = 10% of on Net Profit after charging such commission
Commission to A = Rs. 2,20,000 x
Question 34
A, B, C, and D are partners in a firm sharing profits as 4 : 3 : 2 : 1 respectively. It earned a profit of Rs. 1,80,000 for the year ended 31st March, 2020. As per the Partnership Deed, they are to charge a commission @ 20% of the profit after charging such commission which they will share as 2 : 3 : 2 : 3. You are required to show appropriation of profits among the partners.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Commission to Partner
By Profit & Loss A/c (Net profit)
1,80,000
A 6,000
B 9,000
C 6,000
D 9,000
30,000
To Profit Transferred to
A's Capital 60,000
A's Capital 45,000
A's Capital 30,000
A's Capital 15,000
1,50,000
1,80,000
1,80,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Commission to Partner | | By Profit & Loss A/c (Net profit) | 1,80,000 |
A 6,000 | | | |
B 9,000 | | | |
C 6,000 | | | |
D 9,000 | 30,000 | | |
To Profit Transferred to | | | |
A's Capital 60,000 | | | |
A's Capital 45,000 | | | |
A's Capital 30,000 | | | |
A's Capital 15,000 | 1,50,000 | | |
| 1,80,000 | | 1,80,000 |
Working Notes.
1. Commission is 20 % of after changing such commission
Total Commission | Rs. 1,80,000 x | |
Commission to A | 2/10 x Rs. 30,000 | = Rs. 6000 |
Commission to B | 3/10 x Rs. 30,000 | = Rs. 9000 |
Commission to C | 2/10 x Rs. 30,000 | = Rs. 6000 |
Commission to D | 3/10 x Rs. 30,000 | = Rs. 9000 |
2. Calculation for Share in profit
Total Divisible Profit is Rs. 1,50,000 | ||
Profit Share of A | 4/10 X Rs. 1,50,000 | = Rs. 60000 |
Profit Share of B | 3/10 X Rs. 1,50,000 | = Rs. 45000 |
Profit Share of C | 2/10 X Rs. 1,50,000 | = Rs. 30000 |
Profit Share of D | 1/10 X Rs. 1,50,000 | = Rs. 15000 |
Question 35
X and Y are partners in a firm. X is entitled to a salary of Rs. 10,000 per month and commission of 10% of the net profit after partners' salaries but before charging commission. Y is entitled to a salary of Rs. 25,000 p.a. and commission of 10% of the net profit after charging all commission and partners' salaries. Net profit before providing for partners' salaries and commission for the year ended 31st March, 2019 was Rs. 4,20,000. Show distribution of profit.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Salary to Partner
By Profit & Loss A/c (Net profit)
4,20,000
X 1,20,000
Y 25,000
1,45,000
To Commission to Partner
X 27,500
Y 22,500
50,000
To Profit Transferred to
X's Capital 1,12,500
Y's Capital 1,12,500
2,25,000
4,20,000
4,20,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Salary to Partner | | By Profit & Loss A/c (Net profit) | 4,20,000 |
X 1,20,000 | | | |
Y 25,000 | 1,45,000 | | |
To Commission to Partner | | | |
X 27,500 | | | |
Y 22,500 | 50,000 | | |
To Profit Transferred to | | | |
X's Capital 1,12,500 | | | |
Y's Capital 1,12,500 | 2,25,000 | | |
| 4,20,000 | | 4,20,000 |
Working Notes
Commission to X = (Rs. 4,20,000 – 1,45,000) x
Commission to Y = (Rs. 4,20,000 – 1,45,000 – 27,500) x
Profit will be distributed equally, i.e. Rs. 1,12,500 each.
Calculation of interest on Partner’s Drawings
Formula (Average Period Method)
Interest on drawings = Total drawings x
Average Period =
Average Period | Month | Quarter | During 6 Months |
Beginning of | 6 | 7 | 3 |
End of | 5 | 4 | 2 |
Middle of | 6 | 6 | 3 |
* In case withdrawal date is not given, interest is calculated for 6 months on average basis.
* When rate of interest is given without the word “per annum”, interest is charged for whole year.
Question 36
Ram and Mohan, two partners, drew for their personal use Rs. 1,20,000 and Rs. 80,000. Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest chargeable from each partner?
Answer
Date of drawings made by the partners is not given. Therefore, interest on drawings is calculated on average basis for a period of six months.
Interest on drawings of Ram = Rs. 1,20,000 x
Interest on drawings of Mohan = Rs. 80,000 x
Question 37
Brij and Mohan are partners in a firm. They withdrew Rs. 48,000 and Rs. 36,000 respectively during the year evenly in the middle of every month. According to the partnership agreement, interest on drawings is to be charged @ 10% p.a.
Calculate interest on drawings of the partners using the appropriate formula.
Answer
Drawings are made evenly at the middle of every month, therefore, interest on drawings is calculated for a period of six months.
Interest on drawings of Brij = Rs. 48,000 x
Interest on drawings of Mohan = Rs. 36,000 x
Question 38
Answer
Drawings are made evenly on 15th of every month, therefore, interest on drawings is calculated for a period of six months.
Total amount of drawings = Rs. 10,000 x 12 = Rs. 1,20,000
Interest on drawings = Rs. 1,20,000 x
Question 39
A and B are partners sharing profits equally. A drew regularly Rs. 4,000 in the beginning of every month for six months ended 30th September, 2019. Calculate interest on drawings @ 5% p.a. for a period of six months.
Answer
Drawings are made beginning of every month for 6 months. Average period will be 3
Total amount of drawings = Rs. 4,000 x 6 = Rs. 24,000
Interest on drawings = Rs. 24,000 x
Question 40
One of the partners in a partnership firm has withdrawn Rs. 9,000 at the end of each quarter, throughout the year. Calculate interest on drawings at the rate of 6% per annum.
Answer
Drawings are made end of each quarter. Average period will be 4
Total amount of drawings = Rs. 9,000 x 4 = Rs. 36,000
Interest on drawings = Rs. 36,000 x
Question 41
A and B are partners sharing profits equally. A drew regularly Rs. 4,000 at the end of every month for six months ended 30th September, 2019. Calculate interest on drawings @ 5% p.a. for a period of six months.
Answer
Drawings are made end of every month for 6 months. Average period will be 2
Total amount of drawings = Rs. 4,000 x 6 = Rs. 24,000
Interest on drawings = Rs. 24,000 x
Question 42
Calculate interest on drawings of Ashok @ 10% p.a. for the year ended 31st March, 2020, in each of the following alternative cases:
Case 1. If he withdrew Rs. 7,500 in the beginning of each quarter.
Case 2. If he withdrew Rs. 7,500 at the end of each quarter.
Case 3. If he withdrew Rs. 7,500 during the middle of each quarter.
Answer
Case- 1
Drawings are made beginning of each quarter. Average period will be 7
Total amount of drawings = Rs. 7,500 x 4 = Rs. 30,000
Interest on drawings = Rs. 30,000 x
Case- 2
Drawings are made end of each quarter. Average period will be 4
Total amount of drawings = Rs. 7,500 x 4 = Rs. 30,000
Interest on drawings = Rs. 30,000 x
Case- 3
Drawings are made middle of each quarter. Average period will be 6
Total amount of drawings = Rs. 7,500 x 4 = Rs. 30,000
Interest on drawings = Rs. 30,000 x
Question 43
Kanika and Gautam are partners doing a dry cleaning business in Lucknow, sharing profits in the ratio 2 : 1 with capitals Rs. 5,00,000 and Rs. 4,00,000 respectively. Kanika withdrew the following amounts during the year to pay the hostel expenses of her son:
1st April RS. 10,000
1st JuneRS. 9,000
1st NovemberRS. 14,000
1st DecemberRS. 5,000
Gautam withdrew Rs. 15,000 on the first day of April, July, October and January to pay rent for the accommodation of his family. He also paid Rs. 20,000 per month as rent for the office of partnership which was in a nearby shopping complex.
Answer
Calculation of Kanika’s interest on Drawings
A | B | C | D = B X C |
Date | Amount (Rs) | No. of Months | Product (Rs) |
1st April | 10,000 | 12 | 1,20,000 |
1st June | 9,000 | 10 | 90,000 |
1st Nov. | 14,000 | 5 | 70,000 |
1st Dec. | 5,000 | 4 | 20,000 |
Sum of Product | | | 3,00,000 |
Interest on drawings = Sum of Product x
Interest on drawings = Rs. 3,00,000 x
Calculation of Gautam’s interest on Drawings
Drawings are made beginning of each quarter. Average period will be 7
Total amount of drawings = Rs. 15,000 x 4 = Rs. 60,000
Interest on drawings = Rs. 60,000 x
Profit and Loss Appropriation Account and Partners’ Capital Accounts
Question 44
C and D are partners in a firm; C has contributed Rs. 1,00,000 and D Rs. 60,000 as capital. Interest in payable @ 6% p.a. and D is entitled to a salary of Rs. 3,000 per month. In the year ended 31st March, 2020, the profit was Rs. 80,000 before interest and salary. Divide the amount between C and D.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
80,000
C 6,000
D 3,600
9,600
To Salary to Partner D
36,000
To Profit Transferred to
C's Capital 17,200
D's Capital 17,200
34,400
80,000
80,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 80,000 |
C 6,000 | | | |
D 3,600 | 9,600 | | |
To Salary to Partner D | 36,000 | | |
To Profit Transferred to | | | |
C's Capital 17,200 | | | |
D's Capital 17,200 | 34,400 | | |
| 80,000 | | 80,000 |
Question 45
Amit and Vijay started a partnership business on 1st April, 2019. Their capital contributions were Rs. 2,00,000 and Rs. 1,50,000 respectively. The Partnership Deed provided as follows:
(a) Interest on capital be allowed @ 10% p.a.
(b) Amit to get a salary of Rs. 2,000 per month and Vijay Rs. 3,000 per month.
(c) Profits are to be shared in the ratio of 3 : 2.
Net profit for the year ended 31st March, 2020 was Rs. 2,16,000. Interest on drawings amounted to Rs. 2,200 for Amit and Rs. 2,500 for Vijay.
Prepare Profit and Loss Appropriation Account.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
2,16,000
Amit 20,000
By Interest on drawings
Vijaya 15,000
35,000
Amit 2,200
To Salary to Partner
Vijaya 2,500
4,700
Amit 24,000
Vijaya 36,000
60,000
To Profit Transferred to
Amit's Capital 75,420
Vijayas Capital 50,280
1,25,700
2,20,700
2,20,700
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 2,16,000 |
Amit 20,000 | | By Interest on drawings | |
Vijaya 15,000 | 35,000 | Amit 2,200 | |
To Salary to Partner | | Vijaya 2,500 | 4,700 |
Amit 24,000 | | | |
Vijaya 36,000 | 60,000 | | |
To Profit Transferred to | | | |
Amit's Capital 75,420 | | | |
Vijayas Capital 50,280 | 1,25,700 | | |
| 2,20,700 | | 2,20,700 |
Question 46
Show how the following will be recorded in the Capital Accounts of the Partners Sohan and Mohan when their capitals are fluctuating:
SohanMohan
Capital on 1st April, 20194,00,0003,00,000
Drawings during the year ended 31st march, 202050,00030,000
Interest on Capital5%5%
Interest on Drawings1,250750
Share of Profit for the year ended 31st march, 202060,00050,000
Partner's Salary36,000-------
Commission5,0003,000
Answer
Partners' Capital Account
Dr.
Cr.
Particulars
Sohan(Rs)
Mohan(Rs)
Particulars
Sohan(Rs)
Mohan(Rs)
To Drawings A/c
50,000
30,000
By Balance B/d
4,00,000
3,00,000
To Interest on Drawings A/c
1,250
750
By Interest on Capital A/c
20,000
15,000
By Partners' Salary A/c
36,000
-
By Partners' Commission A/c
5,000
3,000
To Balance C/d
4,69,750
3,37,250
To Profit & Loss App. A/c
60,000
50,000
5,21,000
3,68,000
5,21,000
3,68,000
Partners' Capital Account | |||||
Dr. | Cr. | ||||
Particulars | Sohan(Rs) | Mohan(Rs) | Particulars | Sohan(Rs) | Mohan(Rs) |
To Drawings A/c | 50,000 | 30,000 | By Balance B/d | 4,00,000 | 3,00,000 |
To Interest on Drawings A/c | 1,250 | 750 | By Interest on Capital A/c | 20,000 | 15,000 |
| | | By Partners' Salary A/c | 36,000 | - |
| | | By Partners' Commission A/c | 5,000 | 3,000 |
To Balance C/d | 4,69,750 | 3,37,250 | To Profit & Loss App. A/c | 60,000 | 50,000 |
| 5,21,000 | 3,68,000 | | 5,21,000 | 3,68,000 |
Note
1. While preparing partner’s capital account under fluctuating method both drawing against profit and drawing against capital will be debited.
2. In case of fixed capital, drawing against capital will be treated in capital account and drawing against profit in current account.
Question 47
A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2019, their capitals were: A Rs. 50,000 and B Rs. 30,000. During the year ended 31st March, 2020 they earned a net profit of Rs. 50,000. The terms of partnership are:
(a) Interest on capital is to allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of Rs. 500 per month.
(d) B will get commission of 5% on profits after deduction of all expenses including such commission.
Partners' drawings for the year were: A Rs. 8,000 and B Rs. 6,000. Turnover for the year was Rs. 3,00,000.
After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners' Capital Accounts.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
50,000
A 3,000
B 1,800
4,800
To Salary to Partner B
6,000
To Commission to Partner
A 6,000
B 1,581
7,581
To Profit Transferred to
Amit's Capital 23,714
Vijayas Capital 7,905
31,619
50,000
50,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 50,000 |
A 3,000 | | | |
B 1,800 | 4,800 | | |
To Salary to Partner B | 6,000 | | |
To Commission to Partner | | | |
A 6,000 | | | |
B 1,581 | 7,581 | | |
To Profit Transferred to | | | |
Amit's Capital 23,714 | | | |
Vijayas Capital 7,905 | 31,619 | | |
| 50,000 | | 50,000 |
Partners' Capital Account | |||||
Dr. | Cr. | ||||
Particulars | A (Rs) | B (Rs) | Particulars | A (Rs) | B (Rs) |
To Drawings A/c | 8,000 | 6,000 | By Balance B/d | 50,000 | 30,000 |
| | | By Interest on Capital A/c | 3,000 | 1,800 |
| | | By Partners' Salary A/c | - | 6,000 |
| | | By Partners' Commission A/c | 6,000 | 1,581 |
| | | To Profit & Loss App. A/c | 23,714 | 7,905 |
To Balance C/d | 74,714 | 41,286 | | | |
| 82,714 | 47,286 | | 82,714 | 47,286 |
Working Notes.
1. Calculation Commission
A’s Commission = 3,00,000 x
B’s Commission = 33,200 x
Question 48
Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2019 their Capitals were: Sajal – Rs. 5,00,000 and Kajal – Rs. 4,00,000.
Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts at the end of the year after considering the following items:
(a) Interest on Capital is to be allowed @ 5% p.a.
(b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being Rs. 3,00,000.
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal Rs. 1,00,000 and Kajal Rs. 80,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
Net profit for the year ended 31st March, 2020 is Rs. 7,02,600
Note: Net profit means net profit after debit of interest on loan by the partner.
Answer
Profit & Loss Adjustment Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Kajal’s Loan
18,000
By Profit & Loss A/c (Net profit)
7,02,600
To Net Profit Transferred
6,84,600
7,02,600
7,02,600
Profit & Loss Adjustment Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Kajal’s Loan | 18,000 | By Profit & Loss A/c (Net profit) | 7,02,600 |
To Net Profit Transferred | 6,84,600 | | |
| 7,02,600 | | 7,02,600 |
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 6,84,600 |
Sajal 25,000 | | By Interest on Drawings | |
Kajal 20,000 | 45,000 | Sajal 3,000 | |
To Transfer to General Reserve | 64,500 | Kajal 2,400 | 5,400 |
To Profit Transferred to | | | |
Sujal's Capital 3,87,000 | | | |
Kajal Capital 1,93,000 | 5,80,500 | | |
| 6,90,000 | | 6,90,000 |
Partners' Capital Account | |||||
Dr. | Cr. | ||||
Particulars | Sajal (Rs) | Kajal (Rs) | Particulars | Sajal (Rs) | Kajal (Rs) |
To Drawings A/c | 1,00,000 | 80,000 | By Balance B/d | 5,00,000 | 4,00,000 |
To Interest on Drawing A/c | 3,000 | 2,400 | By Interest on Capital A/c | 25,000 | 20,000 |
| | | To Profit & Loss App. A/c | 3,87,000 | 1,93,500 |
To Balance C/d | 8,09,000 | 5,31,100 | | | |
| 9,12,000 | 6,13,500 | | 9,12,000 | 6,13,500 |
Question 49
Ali the Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2019 stand as Ali Rs. 25,000 and Bahadur Rs. 20,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2020 amounted to Rs. 3,500 and Rs. 2,500 respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @ Rs. 3,000, amounted to Rs. 40,000, 10% of divisible profit is to be transferred to Reserve.
You are asked to show Partners' Current Account and Capital Accounts recording the above transactions.
Answer
Partners' Capital Account
Dr.
Cr.
Particulars
Ali (Rs)
Bahadur (Rs)
Particulars
Ali (Rs)
Bahadur (Rs)
By Balance B/d
25,000
20,000
To Balance C/d
25,000
20,000
25,000
20,000
25,000
20,000
Partners' Current Account
Dr.
Cr.
Particulars
Ali (Rs)
Bahadur (Rs)
Particulars
Ali (Rs)
Bahadur (Rs)
To Drawings A/c
3,500
2,500
By Interest on Capital A/c
1,250
1,000
To Partner's Salary
-
3,000
To Profit & Loss App. A/c
21,892
9,383
To Balance C/d
19,642
10,883
23,142
13,383
23,142
13,383
Partners' Capital Account | |||||
Dr. | Cr. | ||||
Particulars | Ali (Rs) | Bahadur (Rs) | Particulars | Ali (Rs) | Bahadur (Rs) |
| | | By Balance B/d | 25,000 | 20,000 |
To Balance C/d | 25,000 | 20,000 | | | |
| 25,000 | 20,000 | | 25,000 | 20,000 |
Partners' Current Account | |||||
Dr. | Cr. | ||||
Particulars | Ali (Rs) | Bahadur (Rs) | Particulars | Ali (Rs) | Bahadur (Rs) |
To Drawings A/c | 3,500 | 2,500 | By Interest on Capital A/c | 1,250 | 1,000 |
| | | To Partner's Salary | - | 3,000 |
| | | To Profit & Loss App. A/c | 21,892 | 9,383 |
To Balance C/d | 19,642 | 10,883 | | | |
| 23,142 | 13,383 | | 23,142 | 13,383 |
Working Notes.
Note: If question is silent about the drawings, it will be considered as drawings against profit and will be debited to Partner's Current Account.
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 40,000 |
Ali 1,250 | | | |
Bahadur 1,000 | 2,250 | | |
To Partner's Salary of B | 3,000 | | |
To Transfer to General Reserve | 3,475 | | |
To Profit Transferred to | | | |
Alis's Current A/c 21,892 | | | |
Bahadur’s Current A/c 9,383 | 31,275 | | |
| 40,000 | | 40,000 |
Question 50
A and B are partners sharing profits in the ratio of 3 : 2. with capitals of Rs. 50,000 and Rs. 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of Rs. 2,500. A provision of 5% of the profits is to be made in respect of Manager's Commission and rent of Rs 24,000 is to be accounted being payable to A. Profit for the year before manager's commission and rent to A was 39,000. Prepare an amount sharing allocation of profits.
Prepare an account showing the allocation of profits and the Partners' Capital Accounts.
Answer
Profit & Loss Adjustment Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Rent A/C
24,000
By Profit & Loss A/c (Net profit)
39,000
To Manager Commission A/c @ 5%
750
To Net Profit Transferred
14,250
39,000
39,000
Profit & Loss Adjustment Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Rent A/C | 24,000 | By Profit & Loss A/c (Net profit) | 39,000 |
To Manager Commission A/c @ 5% | 750 | | |
To Net Profit Transferred | 14,250 | | |
| 39,000 | | 39,000 |
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 14,250 |
A 3,000 | | | |
B 1,800 | 4,800 | | |
To Partner's Salary to B | 2,500 | | |
To Profit Transferred to | | | |
A's Capital A/c 4,170 | | | |
B’s Capital A/c 2,780 | 6,950 | | |
| 14,250 | | 14,250 |
Partners' Capital Account | |||||
Dr. | Cr. | ||||
Particulars | A (Rs) | B (Rs) | Particulars | A (Rs) | B (Rs) |
| | | By Balance b/d | 50,000 | 30,000 |
| | | By Interest on Capital A/c | 3,000 | 1,800 |
| | | To Partner's Salary | - | 2,500 |
| | | To Profit & Loss App. A/c | 4,170 | 2,780 |
To Balance c/d | 57,170 | 37,080 | | | |
| 57,170 | 37,080 | | 57,170 | 37,080 |
Question 51
A, B and C were partners in a firm having capitals of Rs. 50,000 ; Rs. 50,000 and Rs. 1,00,000 respectively. Their Current Account balances were A: Rs. 10,000; B: Rs. 5,000 and C: Rs. 2,000 (Dr.). According to the Partnership Deed the partners were entitled to an interest on Capital @ 10% p.a. C being the working partner was also entitled to a salary of Rs. 12,000 p.a. The profits were to be divided as:
(a) The first Rs. 20,000 in proportion to their capitals.
(b) Next Rs. 30,000 in the ratio of 5 : 3 : 2.
(c) Remaining profits to be shared equally.
The firm earned net profit of Rs. 1,72,000 before charging any of the above items.
Prepare Profit and Loss Appropriation Account and pass necessary Journal entry for the appropriation of profits.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
1,72,000
A 5,000
B 5,000
C 10,000
20,000
To Partner's Salary to C
12,000
To Profit Transferred to
A's Current A/c 50,000
B's Current A/c 44,000
C's Current A/c 46,000
1,40,000
1,72,000
1,72,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 1,72,000 |
A 5,000 | | | |
B 5,000 | | | |
C 10,000 | 20,000 | | |
To Partner's Salary to C | 12,000 | | |
To Profit Transferred to | | | |
A's Current A/c 50,000 | | | |
B's Current A/c 44,000 | | | |
C's Current A/c 46,000 | 1,40,000 | | |
| 1,72,000 | | 1,72,000 |
Journal Entries
Date | Particulars | Dr Amount | Cr. Amount | |
| Profit and Loss Appropriation A/c | Dr. | 20,000 | |
| To A's Current A/c | | 5,000 | |
| To B's Current A/c | | 5,000 | |
| To C's Current A/c | | 10,000 | |
| (Interest on Capital allowed to partners) | | | |
| Profit and Loss Appropriation A/c | Dr. | 12,000 | |
| To C's Current A/c | | 12,000 | |
| (Salary allowed to C) | | | |
| Profit and Loss Appropriation A/c | Dr. | 1,40,000 | |
| To A's Current A/c | | 50,000 | |
| To B's Current A/c | | 44,000 | |
| To C's Current A/c | | 46,000 | |
| (Profit transferred to Partners' Current A/c) | | | |
Working Notes.
Calculation of Divisible Profit
Details | A's Share | B's Share | C's Share |
First Rs. 20,000 @ 1 : 1 : 2 | 5,000 | 5,000 | 10,000 |
Next Rs. 30,000 @ 5 : 3 : 2 | 15,000 | 9,000 | 6,000 |
Remaining Rs. 90,000 equally | 30,000 | 30,000 | 30,000 |
Profit to be Transferred | 50,000 | 44,000 | 46,000 |
Question 52
A, B and C are partners sharing profits and losses in the ratio of A 1/2, B 3/10, C 1/5 after providing for interest @ 5% on their respective capitals, viz., A Rs. 50,000; B Rs. 30,000 and C Rs. 20,000 and allowing B and C a salary of Rs. 5,000 each per annum. During the year ended 31st March, 2020, A has drawn Rs. 10,000 and B and C in addition to their salaries have drawn Rs. 2,500 and Rs. 1,000 respectively. The Profit and Loss Account for the year ended 31st March, 2020 showed a net profit of Rs. 45,000
On 1st April, 2019, the balances in the current Account of the partners were A (cr.) Rs. 4,500; B (Cr.) Rs. 1,500 and C (Cr.) Rs. 1,000. Interest is not charged on Drawings and not allowd on Current Account balances. Show Partners Capital and Current Accounts as at 31st March, 2020 after division of profits in accordance with the partnership agreement.
Answer
Partners' Capital Account | ||||||||
Dr. | Cr. |
| ||||||
Particulars | A (Rs) | B (Rs) | C (Rs) | Particulars | A (Rs) | B (Rs) | C (Rs) |
|
| | | | By Balance B/d | 50,000 | 30,000 | 20,000 |
|
To Balance C/d | 50,000 | 30,000 | 80,000 | | | | |
|
| 50,000 | 30,000 | 80,000 | | 50,000 | 30,000 | 80,000 |
|
Partners' Current Account | ||||||||
Dr. | Cr. |
| ||||||
Particulars | A (Rs) | B (Rs) | C (Rs) | Particulars | A (Rs) | B (Rs) | C (Rs) |
|
To Drawings A/c | 10,000 | 7,500 | 6,000 | By Balance B/d | 4,500 | 1,500 | 1,000 |
|
| | | | By Interest on Capital A/c | 2,500 | 1,500 | 1,000 |
|
| | | | To Partner's Salary | - | 5,000 | 5,000 |
|
| | | | To Profit & Loss App. A/c | 15,000 | 9,000 | 6,000 |
|
To Balance C/d | 12,000 | 9,500 | 7,000 | | | | |
|
| 22,000 | 17,000 | 13,000 | | 22,000 | 17,000 | 13,000 |
|
Notes: Drawings for B = Rs. 5,000 + Rs. 2,500 = Rs. 7,500, C = Rs. 5,000 + Rs. 1,000 = Rs. 6,000
Working Notes:
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 45,000 |
A 2,500 | | | |
B 1,500 | | | |
C 1,000 | 5,000 | | |
To Partner's Salary | | | |
B 5,000 | | | |
C 5,000 | 10,000 | | |
To Profit Transferred to | | | |
A's Current A/c 15,000 | | | |
B's Current A/c 9,000 | | | |
C's Current A/c 6,000 | 30,000 | | |
| 45,000 | | 45,000 |
Question 53
Amit, Binita and Charu are three partners. On 1st April, 2019, their Capitals stood as: Amit Rs. 1,00,000, Binita Rs. 2,00,000 and Charu Rs. 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amit would get a salary of Rs. 10,000 per month,
(c) Binita would receive commission @ 5% of net profit after deduction of commission, and
(d) 10% of the net profit would be transferred to the General Reserve.
(e) Before the above items were taken into account, the profit for the year ended 31st March, 2020 was Rs. 5,00,000.
Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.
Answer
Partners' Capital Account
Dr.
Cr.
Particulars
Amit (Rs)
Binita (Rs)
Charu (Rs)
Particulars
Amit (Rs)
Binita (Rs)
Charu (Rs)
By Balance B/d
1,00,000
2,00,000
3,00,000
By Interest on Capital A/c
5,000
10,000
15,000
To Partner's Salary
1,20,000
-
-
To Partner's Commission
-
23,810
-
To Balance C/d
3,17,063
3,25,873
4,07,063
To Profit & Loss App. A/c
92,063
92,063
92,063
3,17,063
3,25,873
4,07,063
3,17,063
3,25,873
4,07,063
Partners' Capital Account | ||||||||
Dr. | Cr. |
| ||||||
Particulars | Amit (Rs) | Binita (Rs) | Charu (Rs) | Particulars | Amit (Rs) | Binita (Rs) | Charu (Rs) |
|
| | | | By Balance B/d | 1,00,000 | 2,00,000 | 3,00,000 |
|
| | | | By Interest on Capital A/c | 5,000 | 10,000 | 15,000 |
|
| | | | To Partner's Salary | 1,20,000 | - | - |
|
| | | | To Partner's Commission | - | 23,810 | - |
|
To Balance C/d | 3,17,063 | 3,25,873 | 4,07,063 | To Profit & Loss App. A/c | 92,063 | 92,063 | 92,063 |
|
| 3,17,063 | 3,25,873 | 4,07,063 | | 3,17,063 | 3,25,873 | 4,07,063 |
|
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 5,00,000 |
Amit 5,000 | | | |
Binita 10,000 | | | |
Charu 15,000 | 30,000 | | |
To Partner's Salary to Amit | 1,20,000 | | |
To Transferred to Genera Reserve | 50,000 | | |
To Partner's Commission to Binita | 23,810 | | |
To Profit Transferred to | | | |
Amit's Capital A/c 92,063 | | | |
Binita's Capital A/c 92,063 | | | |
Charu's Capital A/c 92,063 | 2,76,190 | | |
| 5,00,000 | | 5,00,000 |
Working Notes:
1. Calculation for Commission to Binita
Commission = 5,00,000 x
2. Calculation for amount transferred to reserve
Commission = 5,00,000 x
Question 54
Anshul and Asha are partners sharing profits and losses in the ratio of 3 : 2. Anshul being a non-working partner contributed Rs. 8,00,000 as her capital. Asha being a working partner did not contribute capital. The partnership Deed provides for interest on capital @ 5% and salary to every working partner @ Rs. 2,000 per month. Net profit (before providing for interest on capital and partner's salary) for the year ended 31st March, 2020 was Rs. 32,000.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Profit Transferred to
By Profit & Loss A/c (Net profit)
32,000
Anshul's Capital A/c 20,000
Asha's Capital A/c 12,000
32,000
32,000
32,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Profit Transferred to | | By Profit & Loss A/c (Net profit) | 32,000 |
Anshul's Capital A/c 20,000 | | | |
Asha's Capital A/c 12,000 | 32,000 | | |
| 32,000 | | 32,000 |
Notes:
Interest on Capital to Anshul is Rs. 40,000 & Partner's Salary to Amit is Rs. 24,000, which is more the than available profit. so Profit will be distributed in the ratio of 5:3, in the ratio of their appropriation.
Question 55
Kabir, Zoravar and Parul are partners sharing profits in the ratio of 5:3:2. Their capitals as on 1st April, 2019 were: Kabir - Rs. 5,20,000, Zoravar- Rs. 3,20,000 and Parul- Rs. 2,00,000.
The Partnership Deed provided as follows:
(i) Kabir and Zoravar each will get salary of Rs. 24,000 p.a.
(ii) Parul will get commission of 2% of Sales.
(iii) Interest on capital is to be allowed @ 5% p.a.
(iv) Interest on Drawings is to be charged @ 5% p.a.
(v) 10% of Divisible Profit is to be transferred to General Reserve.
Sales for the year ended 31st March, 2020 were Rs. 50,00,000. Drawings by each of the partners during theyear was Rs. 60,000. Net Profit for the year was Rs. 1,55,500.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2020.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
By Profit & Loss A/c (Net profit)
1,55,500
To Profit Transferred to
By Interest on drawings
Amit's Current A/c 40,000
Kabir 1,500
Binita's Current A/c 32,000
Zoravar 1,500
Charu's Current A/c 88,000
1,60,000
Parul 1,500
4,500
1,60,000
1,60,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
| | By Profit & Loss A/c (Net profit) | 1,55,500 |
To Profit Transferred to | | By Interest on drawings | |
Amit's Current A/c 40,000 | | Kabir 1,500 | |
Binita's Current A/c 32,000 | | Zoravar 1,500 | |
Charu's Current A/c 88,000 | 1,60,000 | Parul 1,500 | 4,500 |
| 1,60,000 | | 1,60,000 |
Working Notes:
1. Available profit is less than the amount of appropriation, so profit will be distributed on the ratio of appropriation, i.e. 5 : 4 : 11.
2. Divisible profit is not available, so amount will not be transferred to General Reserve.
Amount of Appropriation | Interest | Salary | Commission | Total |
Kabir | 26,000 | 24,000 | - | 50,000 |
Zoravar | 16,000 | 24,000 | - | 40,000 |
Parul | 10,000 | - | 1,00,000 | 1,10,000 |
Distribution of Profit ( 5 : 4 : 11) | Kabir | Zoravar | Parul |
Total profit = 1,55,500 + 4,500) = 160,000 | 40,000 | 32,000 | 88,000 |
Question 56
X and Y entered into partnership on 1st April, 2017. Their capitals as on 1st April, 2019 were Rs. 2,00,000 and Rs. 1,50,000 respectively. On 1st October, 2019, X gave Rs. 50,000 as loan to the firm. As per the provisions of the partnership Deed:
(i) 20% of Profits before charging interest on Drawings but after making appropriations to be transferred to General Reserve.
(ii) Interest on capital at 12% p.a. and Interest on Drawings @ 10% p.a.
(iii) X to get monthly salary of Rs. 5,000 and Y to get salary of Rs. 22,500 per quarter.
(iv) X is entitled to a commission of 5% on sales. Sales for the year were Rs. 3,50,000.
(v) Profit to be shared in the ratio of their capitals up to Rs. 1,75,000 and balance equally.
Profit for the year ended 31st March, 2020 before allowing or charging interest was Rs. 4,61,000. The drawings of X and Y were Rs. 1,00,000 and Rs. 1,25,000 respectively.
Pass the necessary Journal entries relating to appropriation out of profit. Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Interest on Capital
By Profit & Loss A/c (Net profit)
4,59,500
X 24,000
(Rs. 4,61,000 - Rs. 1,500)
Y 18,000
42,000
By Interest on drawings
To Partner's Salary
X 5,000
X 60,000
Y 6,250
11,250
Y 90,000
1,50,000
To Partner's Commission to X
17,500
To Transfer to General Reserve
50,000
To Profit Transferred to
X's Capital A/c 1,18,125
Y's Capital A/c 93,125
2,11,250
4,70,750
4,70,750
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 4,59,500 |
X 24,000 | | (Rs. 4,61,000 - Rs. 1,500) | |
Y 18,000 | 42,000 | By Interest on drawings | |
To Partner's Salary | | X 5,000 | |
X 60,000 | | Y 6,250 | 11,250 |
Y 90,000 | 1,50,000 | | |
To Partner's Commission to X | 17,500 | | |
To Transfer to General Reserve | 50,000 | | |
To Profit Transferred to | | | |
X's Capital A/c 1,18,125 | | | |
Y's Capital A/c 93,125 | 2,11,250 | | |
| 4,70,750 | | 4,70,750 |
Partners' Capital Account | |||||
Dr. | Cr. | ||||
Particulars | X (Rs) | Y (Rs) | Particulars | X (Rs) | Y (Rs) |
To Drawings A/c | 1,00,000 | 1,25,000 | BY Balance b/d | 2,00,000 | 1,50,000 |
To Interest on Drawings A/c | 5,000 | 6,250 | By Interest on Capital A/c | 24,000 | 18,000 |
| | | To Partner's Salary | 60,000 | 90,000 |
| | | To Partner's Commission | 17,500 | - |
To Balance C/d | 3,14,625 | 2,19,875 | To Profit & Loss App. A/c | 1,18,125 | 93,125 |
| 4,19,625 | 3,51,125 | | 4,19,625 | 3,51,125 |
Working Notes:
1. Calculation for amount transferred to General Reserve
Profit after Appropriation = 4,61,000-1,500-42,000-1,50,000-17,500 = Rs. 2,50,000
Amount Transferred = 2,50,000 x 20% = Rs. 50,000
2. Distribution of Profit
Distribution of profit | X | Y |
First Rs. 1,75,000 in Ratio 4 : 3 | 1,00,000 | 75,000 |
Rest Rs. 36,250 Equally | 18,125 | 18,125 |
Profit to be distributed | 1,18,125 | 93,125 |
Adjustment for incorrect Appropriations in the Past (Past Adjustment)
Question 57
Reya, Mona and Nisha shared profits in the ratio of 3 : 2 : 1. The profits for the last three year were Rs. 1,40,000; Rs. 84,000 and Rs. 1,06,000 respectively. These profits were by mistake shared equally for all the give necessary Journal entry for the same.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Nisha's Capital A/c | Dr. | 55,000 | |
| To Reya's Capital A/c | | 55,000 | |
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
Total profits of 3 Years = 1,40,000 + 84,000 + 1,06.000 = Rs. 3,30,000
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||||||
Particulars | Reya's Capital | Mona's Capital | Nisha's Capital | Firm | ||||
Dr. (Rs) | Cr. (Rs) | Dr. (Rs) | Cr. (Rs) | Dr. (Rs) | Cr. (Rs) | Dr. (Rs) | Cr. (Rs) | |
Profit already distributed reversed | 1,10,000 | | 1,10,000 | | 1,10,000 | | | 3,30,000 |
Profit to be distributed | | 1,65,000 | | 1,10,000 | | 55,000 | 3,30,000 | |
| 1,10,000 | 1,65,000 | 1,10,000 | 1,10,000 | 1,10,000 | 55,000 | 3,30,000 | 3,30,000 |
Net Effects | 55,000 (Cr) | NIL | 55,000 (Dr) | NIL | ||||
Question 58
P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were Rs. 2,00,000 and Rs. 3,00,000 respectively. The Partnership Deed provided for interest on capital @ 12% per annum. For the year ended 31st March, 2016, the profits of the firm were distributed without providing interest on capital.
Pass necessary adjustment entry to rectify the error.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| P's Capital A/c | Dr. | 6,000 | |
| To Q's Capital A/c | | 6,000 | |
| (Being rectifying entry passed for correct profit) | | | |
Working Notes.
Particulars | P's Capital | Q's Capital | Total |
Interest on Capital Allowed | 24,000 | 36,000 | 60,000 |
Profit wrongly distributed | 30,000 | 30,000 | 60,000 |
Net Effects | 6,000 (Dr) | 6,000 (Cr) | NIL |
Question 59
Azad and Benny are equal partners. Their capitals are Rs. 40,000 and Rs. 80,000 respectively. After the accounts for the year had been prepared, it was noticed that interest @ 5% p.a. as provided in the Partnership Deed was not credited to their Capital Accounts before distribution of profits. It is decided to pass an adjustment entry in the beginning of the next year. Record the necessary Journal entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Azad's Capital A/c | Dr. | 1,000 | |
| To Benny's Capital A/c | | 1,000 | |
| (Being rectifying entry passed for correct profit) | | | |
Working Notes.
STATEMENT SHOWING ADJUSTMENT TO BE MADE | |||
Particulars | Azad's Capital | Benny's Capital | Total |
Interest on Capital Allowed | 2,000 | 4,000 | 6,000 |
Profit wrongly distributed | (3,000) | (3,000) | (6,000) |
| (1,000) | 1,000 | 0 |
Net Effects | 1,000 (Dr) | 1,000 (Cr) | NIL |
Question 60
Ram, Mohan and Sohan sharing profits and losses equally have capitals of Rs. 1,20,000, Rs. 90,000 and Rs. 60,000 respectively. For the year ended 31st March, 2020, interest was credited to them @ 6% instead of 5%.
Give adjustment Journal entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Ram's Capital A/c | Dr. | 300 |
|
| To Sohan's Capital A/c |
| 300 | |
| (Being rectifying entry passed for correct profit) |
|
|
|
Working Notes:
Extra Interest on capital of 1 % will be debited to partners’ capital account and distributed as profit
Particulars | Ram's Capital | Mohan's Capital | Sohan's Capital | Total |
Interest wrongly credited | (7,200) | (5,400) | (3,600) | (16,200) |
Correct interest | 6,000 | 4,500 | 3,000 | 13,500 |
Extra interest will be debited | (1,200) | (900) | (600) | (2,700) |
Incorrect distribution of profit | 900 | 900 | 900 | 2700 |
Net Effects | 300 (Dr.) | NIL | 300 (Cr.) | NIL |
Question 61
Ram, Shyam and Mohan were partners in a firm sharing profits and losses in the ratio of 2 : 1 : 2. Their capitals were fixed at Rs. 3,00,000, Rs. 1,00,000, Rs. 2,00,000. For the year ended 31st March, 2020, interest on capital was credited to them @ 9% instead of 10% p.a. The profit for the year before charging interest was Rs. 2,50,000.
Show your working notes clearly and pass necessary adjustment entry.
Answer
Journal Entry
Date | Particulars | Dr Amount (Rs) | Cr. Amount (Rs) | |
| Shyam’s Capital A/c | Dr. | 200 | |
Mohan’s Capital A/c | Dr. | 400 | ||
To Ram's Capital A/c | 600 | |||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
Particulars | Ram's Capital | Shyam's Capital | Mohan's Capital | Total |
Interest wrongly credited | (27,000) | (9,000) | (18,000) | (54,000) |
Correct interest should be | 30,000 | 10,000 | 20,000 | 60,000 |
Difference in interest (Payable) | 3,000 | 1,000 | 2,000 | 6,000 |
Incorrect distribution of profit | 2400 | 1200 | 2400 | 6000 |
Net Effects | 600 (Cr.) | 200 (Dr.) | 400 (Dr.) | NIL |
Question 62
Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2020 after closing the books of account, their Capital Accounts stood at Rs. 4,80,000 and Rs. 6,00,000 respectively. On 1st May, 2019, Simrat introduced an additional capital of Rs. 1,20,000 and Bir withdrew Rs. 60,000 from his capital.On 1st October, 2019, Simrat withdrew Rs. 2,40,000 from her capital and Bir introduced Rs. 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March, 2020 amounted to Rs. 2,40,000 and the partners' drawings had been: Simrat – Rs. 1,20,000 and Bir – Rs. 60,000.
Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.
Answer
Interest on Capital
1. When Capital are Fluctuating
Capital held | Capital | Interest | ||
in Months | Simrat (Rs.) | Bir (Rs.) | Simrat (Rs.) | Bir (Rs.) |
1 | 5,76,000 | 3,24,000 | 5,76,000 x | 3,24,000 x |
5 | 6,96,000 | 2,64,000 | 6,96,000 x | 2,64,000 x |
6 | 4,56,000 | 5,64,000 | 4,56,000 x | 5,64,000 x |
Total Interest | | 33,960 | 25,140 | |
2. When Capital are Fixed
Capital held in Months | Capital | Interest | ||
Simrat (Rs.) | Bir (Rs.) | Simrat (Rs.) | Bir (Rs.) | |
1 | 6,00,000 | 3,60,000 | 6,00,000 x | 3,60,000 x |
5 | 7,20,000 | 3,00,000 | 7,20,000 x | 3,00,000 x |
6 | 4,80,000 | 6,00,000 | 4,80,000 x | 6,00,000 x |
Total Interest | | 35,400 | 27,300 | |
Working Notes
Calculation for Opening Capital
When Capital are Fluctuating | ||
Particulars | Simrat (Rs.) | Bir (Rs.) |
Capital on 31st Mar 2020 | 4,80,000 | 6,00,000 |
Add; Drawing against Capital | 2,40,000 | 60,000 |
Add; Drawings against Profit | 1,20,000 | 60,000 |
Less; Capital introduced | (1,20,000) | (3,00,000) |
Less; Profit already credited | (1,44,000) | (96,000) |
Opening Capital | 5,76,000 | 3,24,000 |
When Capital are Fixed | ||
Particulars | Simrat (Rs.) | Bir (Rs.) |
Capital on 31st Mar 2020 | 4,80,000 | 6,00,000 |
Add; Drawing against Capital | 2,40,000 | 60,000 |
Less; Capital introduced | (1,20,000) | (3,00,000) |
Opening Capital | 6,00,000 | 3,60,000 |
Question 63
Profit earned by a partnership firm for the year ended 31st March, 2020 were distributed equally between the partners – Pankaj and Anu – without allowing interest on capital. Interest due on capital was Pankaj – Rs. 3,000 and Anu – Rs. 1,000.
Pass necessary adjustment entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Pankaj's Capital A/c | Dr. | 1,000 |
|
| To Anu's Capital A/c |
| 1,000 | |
| (Being rectifying entry passed for correct profit) |
|
|
|
Working Notes
Particulars | Pankaj's Capital | Anu’s Capital | Total |
Interest on drawings charged | 3,000 | 1,000 | 4,000 |
incorrect distribution of profit | (2,000) | (2,000) | 4,000 |
Excess / Deficit profit taken | 1,000 | (1,000) | 0 |
Net Effects | 1,000 (Dr.) | 1,000 (Cr.) | NIL |
Question 64
Mita and Usha are partners in a firm sharing profits in the ratio of 2 : 3. Their Capital Accounts as on 1st April, 2015 showed balances of Rs. 1,40,000 and Rs. 1,20,000 respectively. The drawings of Mita and Usha during the year 2015-16 were Rs. 32,000 and Rs. 24,000 respectively. Both the amounts were withdrawn on 1st January 2016. It was subsequently found that the following items had been omitted while preparing the final accounts for the year ended 31st March, 2016:
(a) Interest on Capital @ 6% p.a.
(b) Interest on Drawings @ 6% p.a.
(c) Mita was entitled to a commission of Rs. 8,000 for the whole year.
Showing your working clearly, pass a rectifying entry in the books of the firm.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Usha's Capital A/c | Dr. | 6,816 |
|
| To Mita's Capital A/c |
| 6,816 | |
| (Being rectifying entry passed for correct profit) |
|
|
|
Working Notes
STATEMENT SHOWING ADJUSTMENT TO BE MADE | |||
Particulars | Mita's Capital | Usha's Capital | Total |
Interest on Capital charged @ 6% | 8,400 | 7,200 | 15,600 |
Interest on Drawings charged @ 6% | (480) | (360) | (840) |
Partner's Commission | 8,000 | - | 8,000 |
Correct Profit Payable | 15,920 | 6,840 | 22,760 |
Incorrect Credit of profit distributed | 9,104 | 13,656 | 22,760 |
Net Effects | 6,816 Cr. | 6,816 Dr. | Nil |
*Interest on drawings charged for 3 months only
Question 65
A, B and C were partners. Their fixed capitals were Rs 60,000, Rs 40,000 and Rs 20,000 respectively. Their profit-sharing ratio was 2 : 2 : 1. According to the Partnership Deed, they were entitled to interest on capital @ 5% p.a. In addition, B was also entitled to draw a salary of Rs 1,500 per month. C was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to B. The net profits for the year, Rs 80,000, were distributed in the ratio of their capitals without providing for any of the above adjustments. Showing your workings clearly, pass the necessary adjustment entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| A’s Current A/c | Dr. | 16,080 | |
To B's Current A/c | | 14,253 | ||
To C's Current A/c | 1,827 | |||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | A's Capital | B's Capital | C's Capital | Total |
Interest on Capital charged @ 5% | 3,000 | 2,000 | 1,000 | 6,000 |
Partner’s Salary | - | 18,000 | - | 18,000 |
Partner's Commission | - | - | 3,700 | 3,700 |
Correct profit Should be | 20,920 | 20,920 | 10,460 | 52,300 |
Total Profit Payable | 23,920 | 40,920 | 15,160 | 80,000 |
Incorrect Credit of profit distributed | 40,000 | 26,667 | 13,333 | 80,000 |
Net Effects | 16,080 Dr. | (14,253) Cr | (1,827) Cr | Nil |
Question 66
On 31st March, 2020, after the closing of the accounts, the Capital Accounts of P, Q and R stood in the books of the firm at Rs. 40,000; Rs. 30,000 and Rs. 20,000 respectively. Subsequently, it was noticed that interest on capital @ 5% had been omitted. Profit for the year ended 31st March, 202020 was Rs. 60,000 and the partners' drawings had been P – Rs. 10,000, Q – Rs. 7,500 and R – Rs. 4,500. Profit-sharing ratio of P, Q and R is 3 : 2 : 1.
Pass necessary adjustment entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| P’s Capital A/c | Dr. | 300 | |
To Q's Capital A/c | | 8 | ||
To R's Capital A/c | 292 | |||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
Note-1
Calculation for Opening Capital & Interest on Capital | |||
Particulars | P (Rs.) | Q (Rs.) | R (Rs.) |
Capital on 31st Mar 2021 | 40,000 | 30,000 | 20,000 |
Add; Drawings against Profit | 10,000 | 7,500 | 4,500 |
Less; Profit already credited | -30,000 | -20,000 | -10,000 |
Opening Capital | 20,000 | 17,500 | 14,500 |
| | ||
Interest on capital @ 5% | 1,000 | 875 | 725 |
Note-2
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | P (Rs.) | Q (Rs.) | R (Rs.) | Total |
Interest on Capital charged @ 5% | 1,000 | 875 | 725 | 2,600 |
Incorrect Credit of profit distributed | 1,300 | 867 | 433 | 2,600 |
Net Effects | (300) Dr | 8 (Cr) | 292(Cr) | Nil |
Question 67
Mohan, Vijay and Anil are partners, the balances of their Capital Accounts being Rs. 30,000, Rs. 25,000 and Rs. 20,000 respectively. In arriving at these amounts profit for the year ended 31st March, 2020 Rs. 24,000 had already been credited to partners in the proportion in which they shared profits. Their drawings were Rs. 5,000 (Mohan), Rs. 4,000 (Vijay) and Rs. 3,000 (Anil) during the year. Subsequently, the following omissions were noticed and it was decided to rectify the errors:
(a) Interest on capital @ 10% p.a.
(b) Interest on drawings: Mohan Rs. 250, Vijay Rs. 200 and Anil Rs. 150.
Make necessary corrections through a Journal entry and show your workings clearly.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Anil’s Capital A/c | Dr. | 550 | |
To Mohan 's Capital A/c | | 550 | ||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
Note-1
Calculation for Opening Capital & Interest on Capital | |||
Particulars | Mohan (Rs.) | Vijay (Rs.) | Anil (Rs.) |
Capital on 31st Mar 2021 | 30,000 | 25,000 | 20,000 |
Add; Drawings against Profit | 5,000 | 4,000 | 3,000 |
Less; Profit already credited | (8,000) | (8,000) | (8,000) |
Opening Capital | 27,000 | 21,000 | 15,000 |
| | ||
Interest on capital @ 10% | 2,700 | 2,100 | 1,500 |
Note-2
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | Mohan (Rs.) | Vijay (Rs.) | Anil (Rs.) | Total |
Interest on Capital charged @ 10% | 2,700 | 2,100 | 1,500 | 6,300 |
Interest on Drawings charged | (250) | (200) | (150) | (600) |
Correct Profit to be Payable | 2,450 | 1,900 | 1,350 | 5,700 |
Incorrect profit distributed | 1,900 | 1,900 | 1,900 | 5,700 |
Net Effects | 550 Cr | Nil | (550) Dr | Nil |
Question 68
Piya and Bina are partners in a firm sharing profits and losses in the ratio of 3 : 2. Following was the Balance Sheet of the firm as on 31st March, 2016:
Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
Partners' Capital A/cs | | Sundry Assets | 1,20,000 |
Piya 80,000 | | | |
Bina 40,000 | 1,20,000 | | |
| 1,20,000 | | 1,20,000 |
The profits Rs. 30,000 for the year ended 31st March, 2016 were divided between the partners without allowing interest on capital @ 12% p.a. salary to Piya @ Rs. 1,000 per month. During the year Piya withdrew Rs. 8,000 and Bina withdrew Rs. 4,000. Showing your working notes clearly, pass the necessary rectifying entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Bina’s Capital A/c | Dr. | 5,856 | |
To Piya 's Capital A/c | | 5,856 | ||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
Note-1
Calculation for Opening Capital & Interest on Capital | ||
| Piya (Rs.) | Bina (Rs.) |
Capital on 31st Mar 2021 | 80,000 | 40,000 |
Add; Drawings against Profit | 8,000 | 4,000 |
Less; Profit already credited | (18,000) | (12,000) |
Opening Capital | 70,000 | 32,000 |
| ||
Interest on capital @ 12% | 8,400 | 3,840 |
Note-2
STATEMENT SHOWING ADJUSTMENT TO BE MADE | |||
Particulars | Piya (Rs.) | Bina (Rs.) | Total |
Interest on Capital charged @ 12% | 8,400 | 3,840 | 12,240 |
Salary Payable @1,000 x 12 | 12,000 | - | 12,000 |
Net Amount Payable | 20,400 | 3,840 | 24,240 |
Incorrect profit distributed ( in old PSR 3:2) | 14,544 | 9,696 | 24,240 |
Net Effects | 5,856 Cr | (5,856) Dr | Nil |
Question 69
Naveen, Qadir and Rajesh were partners doing an electronic goods business in Uttarakhand. After the accounts of partnership were drawn up and closed, it was discovered that interest on capital has been allowed to partners @ 6% p.a. for the years ending 31st March, 2017 and 2018, although there is no provision for interest on capital in the Partnership Deed. On the other hand, Naveen and Qadir were entitled to a salary of Rs 3,500 and Rs 4,000 per quarter respectively, which has not been taken into consideration. Their fixed capitals were Rs 4,00,000, Rs 3,60,000 and Rs 2,40,000 respectively. During the last two years they had shared the profits and losses as follows:
Year Ended Ratio
31st March, 2017 3 : 2 : 1
31st March, 2018 5 : 3 : 2
Pass necessary adjusting entry for the above adjustments in the books of the firm on 1st April, 2018. Show your workings clearly.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Rajesh’s Current A/c | Dr. | 17,800 | |
To Naveen's Current A/c | | 10,000 | ||
To Qadir's Current A/c | 7,800 | |||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||||||
Particulars | Naveen (Rs.) | Qadir (Rs.) | Rajesh (Rs.) | Firm | ||||
Dr. (Rs) | Cr. (Rs) | Dr. (Rs) | Cr. (Rs) | Dr. (Rs) | Cr. (Rs) | Dr. (Rs) | Cr. (Rs) | |
Reversal of Interest on Capital 2017-18 | 24,000 | | 21,600 | | 14,400 | | | 60,000 |
Omission of Salary for 2017-18 | | 14,000 | | 16,000 | | - | 30,000 | |
Correct Profit to be credited 2017-18 | | 15,000 | | 10,000 | | 5,000 | 30,000 | |
Reversal of Interest on Capital 2018-19 | 24,000 | | 21,600 | | 14,400 | | | 60,000 |
Omission of Salary for 2018-19 | | 14,000 | | 16,000 | | - | 30,000 | |
Correct Profit to be credited 2018-19 | | 15,000 | | 9,000 | | 6,000 | 30,000 | |
| 48,000 | 58,000 | 43,200 | 51,000 | 28,800 | 11,000 | 1,20,000 | 1,20,000 |
Net Effects | 10,000 (Cr) | 7,800 (Cr) | 17,800 (Dr) | NIL | ||||
Question 70
Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3 : 2. Following information is of the firm as on 31st March 2020:
Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
Mannu's Capital 3,00,000 | | Drawings | |
Shristhi's Capital 1,00,000 | 4,00,000 | Mannu 40,000 | |
| | Shristhi 20,000 | 60,000 |
| | Other Assets | 3,40,000 |
| 4,00,000 | | 4,00,000 |
Profit for the year ended 31st March, 2020 was Rs. 50,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was inadvertently omitted. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Shristi’s Capital A/c | Dr. | 5,856 | |
To Mannu's Capital A/c | | 5,856 | ||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
STATEMENT SHOWING ADJUSTMENT TO BE MADE | |||
Particulars | Mannu (Rs) | Shrasti (Rs) | Total |
Interest on Capital charged @ 5% | 15,000 | 5,000 | 20,000 |
Interest on Drawings charged @ 6% | (1,200) | (600) | (1,800) |
Incorrect profit distributed | (10,920) | (7,280) | (18,200) |
Net Effects | 2,880 Cr | -2,880 Dr | NIL |
Question 71
Mudit, Sudhir and Uday are partners in a firm sharing profits in the ratio of 3 : 1 : 1. Their fixed capital balances are Rs. 4,00,000, Rs. 1,60,000 and Rs. 1,20,000 respectively. Net profit for the year ended 31st March, 2018 distributed amongst the partners was Rs. 1,00,000, without taking into account the following adjustments:
(a) Interest on capitals @ 2.5% p.a.;
(b) Salary to Mudit Rs. 18,000 p.a. and commission to Uday Rs. 12,000.
(c) Mudit was allowed a commission of 6% of divisible profit after charging such commission.
Pass a rectifying Journal entry in the books of the firm. Show workings clearly.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Sudhir’s Current A/c | Dr. | 6,000 | |
To Mudit's Current A/c | 1,000 | |||
To Udaya's Current A/c | 5,000 | |||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | Mudit (Rs) | Sudhir (Rs) | Udaya(Rs) | Total |
Interest on Capital charged @ 2.5% | 10,000 | 4,000 | 3,000 | 17,000 |
Salary | 18,000 | - | - | 18,000 |
Commission | 3,000 | - | 12,000 | 15,000 |
Incorrect profit distributed | (30,000) | (10,000) | (10,000) | (50,000) |
Net Effects | 1000 Cr. | -6000 Dr. | 5000 Cr. | NIL |
Calculation for Commission of Mudit
Divisible Profit for Commission = 1,00,000 – 17,000 – 18.000 – 12,000 = Rs. 53,000
Amount of commission = Rs. 53,000 x
Question 72
A, B and C are partners in a firm. Net profit of the firm for the year ended 31st March, 2020 is Rs. 30,000, which has been duly distributed among the partners, in their agreed ratio of 3 : 1 : 1. It is noticed on 10th April, 202020 that the undermentioned transactions were not passed through the books of account of the firm for the year ended 31st March, 2020.
(a) Interest on Capital @ 6% per annum, the capital of A, B and C being Rs. 50,000; Rs. 40,000 and Rs. 30,000 respectively.
(b) Interest on drawings: A Rs. 350; B Rs. 250; C Rs. 150.
(c) Partners' Salaries: A Rs. 5,000; B Rs. 7,500.
(d) Commission due to A (for some special transaction) Rs. 3,000.
You are required to pass a Journal entry, which will not affect Profit and Loss Account of the firm and rectify the position of partners inter se.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| A’s Current A/c | Dr. | 2520 | |
C’s Current A/c | Dr. | 2740 | ||
To B's Current A/c | 5260 | |||
| (Being rectifying entry passed for correct profit) | | | |
Working Notes
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | A (Rs) | B (Rs) | C (Rs) | Total |
Interest on Capital charged @ 6% | 3,000 | 2,400 | 1,800 | 7,200 |
Interest on Drawings charged | (350) | (250) | (150) | (750) |
Salaries | 5,000 | 7,500 | - | 12,500 |
Commission | 3,000 | - | - | 3,000 |
Incorrect profit distributed | (13,170) | (4,390) | (4,390) | (21,950) |
Net Effects | -2520 Dr. | 5260 Cr. | -2740 Dr. | NIL |
Question 73
On 31st March, 2018 the balance in the Capital Accounts of Abhir, Bobby and Vineet, after making adjustments for profits and drawings were Rs.8,00,000, Rs.6, 00,000 & Rs.4,00,000 respectively.
Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 10% p.a., and were to be charged interest on drawings @6% p.a. The drawings during the year were: Abhir -Rs. 20,000 drawn at the end of each month, Bobby –Rs. 50,000 drawn at the beginning of every half year and Vineet -Rs. 1,00,000 withdrawn on 31st October, 2017. The net profit for the year ended 31st March, 2018 was Rs. 1,50,000. The profit sharing ratio was 2:2:1.
Pass necessary adjusting entry for the above adjustments in the books of the firm. Also, show your working clearly
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Bobby’s Capital A/c | Dr. | 14,402 | |
To Abhir's Current A/c | 10,112 | |||
To Vineet's Current A/c | 4,290 | |||
| (Being interest on Capital and interest on drawings omitted, now rectified) | | | |
Working Notes
1. Available profit is less than the amount of interest on capital, so interest on capital will be allowed in the ratio of their appropriation.
Total Interest on Capital = 9,80,000 + 6,40,000 + 4,70,000 = 2,09,000
Total available profit = 1,50,000 + 13,600 (interest on drawings) = 1,63,600,
So, profit will be distributed in the ratio of 98 : 64 : 47.
2. Statement of Adjustment
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
|
| |||
Particulars | Abhir (Rs.) | Bobby (Rs.) | Vineet (Rs.) | Total |
Interest on Capital charged | 76,712 | 50,098 | 36,790 | 1,63,600 |
Interest on Drawings charged | (6,600) | (4,500) | (2,500) | (13,600) |
Profit distributed reversed | (60,000) | (60,000) | (30,000) | (1,50,000) |
Net Effects | 10,112 Cr. | -14,402 Dr. | 4,290 Cr. | NIL |
3. Calculation for Opening Capital and Interest on Capital
Calculation for Opening Capital | Abhir (Rs.) | Bobby (Rs.) | Vineet (Rs.) |
Capital on 31st Mar 2020 | 8,00,000 | 6,00,000 | 4,00,000 |
Add; Drawing during the year | 2,40,000 | 1,00,000 | 1,00,000 |
Less; Profit already credited | (60,000) | (60,000) | (30,000) |
Opening Capital | 9,80,000 | 6,40,000 | 4,70,000 |
Interest on Capital | 98,000 | 64,000 | 47,000 |
4. Calculation for Drawings & Interest on Drawings
Particulars | Abhir (Rs.) | Bobby (Rs.) | Vineet (Rs.) |
Drawing amount | 20,000 | 50,000 | 1,00,000 |
Interval of Drawings | End of | Beginning of | On 31st Oct |
Total Drawings | 2,40,000 | 1,00,000 | 1,00,000 |
Average period | 5.5 months | 9 months | 5 months |
Interest on Drawings | 6,600 | 4,500 | 2,500 |
Question 74
On 31st March, 2014, the balances in the Capital Accounts of Saroj, Mahinder and Umar after making adjustments for profits and drawings, etc., were Rs. 80,000, Rs. 60,000, Rs. 40,000 respectively. Subsequently, it was discovered that the interest on capital and drawings has been omitted.
(a) The profit for the year ended 31st March, 2014 was Rs. 80,000.
(b) During the year Saroj and Mahinder each withdrew a sum of Rs. 24,000 in equal instalments in the end of each month and Umar withdrew Rs. 36,000.
(c) The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be allowed @ 10% p.a.
(d) The profit-sharing ratio among partners was 4 : 3 : 1.
Showing your workings clearly, pass the necessary rectifying entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Saroj’s Capital A/c | Dr. | 2,350 | |
Mohinder’s Capital A/c | Dr. | 1,300 | ||
To Umar's Current A/c | 3,650 | |||
| (Being interest on Capital and interest on drawings omitted, now rectified) | | | |
Working Notes
1. Statement of Adjustment
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | Saroj (Rs.) | Mohinder (Rs.) | Umar (Rs.) | Total |
Interest on Capital charged | 6,400 | 5,400 | 6,600 | 18,400 |
Interest on Drawings charged | (550) | (550) | (900) | (2,000) |
Profit distributed reversed | (40,000) | (30,000) | (10,000) | (80,000) |
Correct profit distributed | 31,800 | 23,850 | 7,950 | 63,600 |
Net Effects | -2350 Dr. | -1300 Dr. | 3650 Cr. | NIL |
2. Calculation for Opening Capital and Interest on Capital
Calculation for Opening Capital | Saroj (Rs.) | Mohinder (Rs.) | Umar (Rs.) |
Capital on 31st Mar 2020 | 80,000 | 60,000 | 40,000 |
Add; Drawing during the year | 24,000 | 24,000 | 36,000 |
Less; Profit already credited | (40,000) | (30,000) | (10,000) |
Opening Capital | 64,000 | 54,000 | 66,000 |
Interest on Capital | 6,400 | 5,400 | 6,600 |
3. Calculation for Drawings & Interest on Drawings
Particulars | Saroj (Rs.) | Mohinder (Rs.) | Umar (Rs.) |
Interval of Drawings | End of | End of | one time |
Total Drawings | 24,000 | 24,000 | 36,000 |
Average period | 5.5 months | 5.5 months | 6 months |
Interest on Drawings | 550 | 550 | 900 |
Question 75
Capitals of A, B and C as on 31st March, 2019 amounted to Rs. 90,000, Rs. 3,30,000 and Rs. 6,60,000 respectively. Profit of Rs. 1,80,000 for the year ended 31st March, 2019 was distributed in the ratio of 4 : 1 : 1 after allowing interest on Capital @ 10% p.a. During the year, each partner withdrew Rs. 3,60,000. The Partnership Deed was silent as to profit-sharing ratio but provided for interest on capital @ 12%.
Pass the necessary adjustment entry showing the working clearly.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| A’s Capital A/c | Dr. | 66,000 | |
To B's Current A/c | 30,000 | |||
To C's Current A/c | 36,000 | |||
| (Being interest on Capital and interest on drawings omitted, now rectified) | | | |
Working Notes
1. Statement of Adjustment
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | A (Rs.) | B (Rs.) | C (Rs.) | Total |
Interest on Capital reversed | (30,000) | (60,000) | (90,000) | (1,80,000) |
Correct Interest on Capital | 36,000 | 72,000 | 1,08,000 | 2,16,000 |
Profit distributed reversed | (1,20,000) | (30,000) | (30,000) | (1,80,000) |
Correct profit re-distributed | 48,000 | 48,000 | 48,000 | 1,44,000 |
Net Effects | -66000 Dr. | 30000 Cr. | 36000 Cr. | NIL |
2. Calculation for Opening Capital and Interest on Capital
Calculation for Opening Capital | A (Rs.) | B (Rs.) | C (Rs.) |
Capital on 31st Mar 2020 | 90,000 | 3,30,000 | 6,60,000 |
Add; Drawing during the year | 3,60,000 | 3,60,000 | 3,60,000 |
Less; Profit already credited | (1,20,000) | (30,000) | (30,000) |
Opening Capital with Interest | 3,30,000 | 6,60,000 | 9,90,000 |
Interest on Capital | 30,000 | 60,000 | 90,000 |
Opening Capital | 3,00,000 | 6,00,000 | 9,00,000 |
Correct Interest on Capital | 36,000 | 72,000 | 1,08,000 |
Question 76
Capital Accounts of A and B stood at Rs. 4,00,000 and Rs. 3,00,000 respectively after necessary adjustments in respect of the drawings and the net profit for the year ended 31st March, 2019. It was subsequently noticed that 5% p.a. interest on capital and also drawings were not taken into account in arriving at the distributable profit. The drawings of the partners had been: A – Rs. 12,000 drawn at the end of each quarter and B – Rs. 18,000 drawn at the end of each half year.
The profit for the year as adjusted amounted to Rs. 2,00,000. The partners share profits in the ratio of 3 : 2. You are required to pass Journal entries and show adjusted Capital Accounts of the partners.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Profit and Loss Appropriation A/c | Dr. | 29,200 | |
| To A's Capital A/c | | 16,400 | |
| To B's Capital A/c | | 12,800 | |
| (Interest on Capital allowed to partners) | | | |
| A's Capital A/c | Dr. | 900 | |
| B's Capital A/c | Dr. | 450 | |
| To Profit and Loss Appropriation A/c | | 1,350 | |
| (Interest on Capital charged to partners) | | | |
| A's Capital A/c | Dr. | 16,710 | |
| B's Capital A/c | 11140 | | |
| To Profit and Loss Appropriation A/c | | 27,850 | |
| (Loss on adjustment transferred to Partners' Capital A/c) | | | |
Working Notes
1. Statement of Adjustment
Particulars | A (Rs.) | B (Rs.) | Total |
Interest on Capital Allowed | 16,400 | 12,800 | 29,200 |
Interest on Drawings Charged | (900) | (450) | (1,350) |
Loss adjusted | (16,710) | (11,140) | (27,850) |
Net Effects | -1210 Dr. | 1210 Cr. | NIL |
2. Calculation for Opening Capital and Interest on Capital
Calculation for Opening Capital | A (Rs.) | B (Rs.) |
Capital on 31st Mar 2020 | 4,00,000 | 3,00,000 |
Add; Drawing during the year | 48,000 | 36,000 |
Less; Profit already credited | (1,20,000) | (80,000) |
Opening Capital | 3,28,000 | 2,56,000 |
Correct Interest on Capital | 16,400 | 12,800 |
3. Calculation for Drawings & Interest on Drawings
Particulars | A (Rs.) | B (Rs.) |
Interval of Drawings | End of Each Quarter | End of Each ½ Year |
Total Drawings | 48,000 | 36,000 |
Average period | 4.5 months | 3 months |
Interest on Drawings | 900 | 450 |
Question 77
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 three years. Harry and Porter have agreement on this account. The profits for the last three years were:
Year | 2018 | 2019 | 2020 |
Profit (Rs.) | 2,20,000 | 2,40,000 | 2,90,000 |
Show adjustment of profits by means of a single adjustment Journal entry.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Harry’s Capital A/c | Dr. | 50,000 | |
Porter’s Capital A/c | 50,000 | |||
To Ali's Current A/c | 1,00,000 | |||
| (Being interest on Capital and interest on drawings omitted, now rectified) | | | |
Working Notes
1. Statement of Adjustment
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | Harry (Rs) | Porter (Rs) | Ali (Rs) | Total |
Profit distributed reversed for 2018 | (88,000) | (88,000) | (44,000) | (2,20,000) |
Profit distributed reversed for 2019 | (96,000) | (96,000) | (48,000) | (2,40,000) |
Profit distributed reversed for 2020 | (1,16,000) | (1,16,000) | (58,000) | (2,90,000) |
Profit re-distributed for 2018 | 73,333 | 73,333 | 73,333 | 2,19,999 |
Profit re-distributed for 2019 | 80,000 | 80,000 | 80,000 | 2,40,000 |
Profit re-distributed for 2020 | 96,667 | 96,667 | 96,667 | 2,90,001 |
Net Effects | -50,000 Dr. | -50,000 Dr. | 1,00,000 Cr. | NIL |
Guarantee of Profit to a Partner
Question 78
A and B are partners sharing profits in the ratio of 3 : 2. C was admitted for 1/6th share of profit with a minimum guaranteed amount of Rs. 10,000. At the close of the first financial year the firm earned a profit of Rs. 54,000. Find out the share of profit which A, B and C will get.
Answer
Calculation for New Profit Sharing Ratio
New profit share of A =
New profit share of B =
New profit share of C =
New Profit Sharing Ratio = 15 : 10 : 5 = 3 : 2 : 1
STATEMENT SHOWING DISTRIBUTION OF PROFIT | |||
Particulars | A (Rs.) | B (Rs.) | C (Rs.) |
Distribution of Profit (3 : 2 : 1) | 27,000 | 18,000 | 9,000 |
Guaranteed Amount | | | 10,000 |
Deficiency | | | 1,000 |
Deficiency met by (3 : 2) | (600) | (400) | |
Profit transferred to Capital A/c | 26,400 Cr. | 17,600 Cr. | 10,000 Cr. |
Question 79
A, B and C were in partnership sharing profits and losses in the ratio of 4 : 2 : 1. It was provided that C’s share in profit for a year would not be less then Rs. 75,000. The profit for the year ended 31st March, 2020 amounted to Rs. 3,15,000. You are required to show the appropriation among the partners. The profit and Loss Appropriation Account is not required.
Answer
Distribution of Profit among partners
STATEMENT SHOWING DISTRIBUTION OF PROFIT | |||
Particulars | A (Rs.) | B (Rs.) | C (Rs.) |
Distribution of Profit (4 : 2 : 1 ) | 1,80,000 | 90,000 | 45,000 |
Guaranteed Amount | | | 75,000 |
Deficiency | | | (30,000) |
Deficiency met by ( 4 : 2) | (20,000) | (10,000) | |
Profit transferred to Capital A/c | 1,60,000 Cr. | 80,000 Cr. | 75,000 Cr. |
Question 80
X, Y and Z entered into partnership on 1st October, 2019 to share profits in the ratio of 4 : 3 : 3. X, personally guaranteed that Z's share of profit after charging interest on capital @ 10% p.a. would not be less then Rs. 80,000 in any year. Capital contributions were: X – Rs. 3,00,000, Y – Rs. 2,00,000 and Z – Rs. 1,50,000.
Profit for the year ended 31st March, 2020 was Rs. 1,60,000. Prepare Profit and Loss Appropriation Account.
Answer
Distribution of Profit among partners
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 1,60,000 |
X 15,000 | | | |
Y 10,000 | | | |
Y 7,500 | 32,500 | | |
To Profit Transferred to | | | |
X's Capital A/c 51,000 | | | |
Less; Given to Z (1,750) | 49,250 | | |
Y's Capital A/c | 38,250 | | |
Z's Capital A/c 38,250 | | | |
Add; Given by X 1,750 | 40,000 | | |
1,60,000 | | 1,60,000 | |
Note : Calculation is done for 6 monthly as partnership started on 1st Oct 2019.
Question 81
A, B and C are partners in a firm. Their profit-sharing ratio is 2 : 2 : 1. C is guaranteed a minimum of Rs. 1,00,000 as share of profit every year. Any deficiency arising on that amount shall be met by B. The profits for the two years ended 31st March, 2019 and 2020 were Rs. 4,00,000 and Rs. 6,00,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2019
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Profit Transferred to
By Profit & Loss A/c (Net profit)
4,00,000
A's Capital A/c
1,60,000
B's Capital A/c 1,60,000
Less; Given to C (20,000)
1,40,000
C's Capital A/c 80,000
Add; Given by C 20,000
1,00,000
4,00,000
4,00,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2019 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Profit Transferred to | | By Profit & Loss A/c (Net profit) | 4,00,000 |
A's Capital A/c | 1,60,000 | | |
B's Capital A/c 1,60,000 | | | |
Less; Given to C (20,000) | 1,40,000 | | |
C's Capital A/c 80,000 | | | |
Add; Given by C 20,000 | 1,00,000 | | |
4,00,000 | | 4,00,000 | |
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Profit Transferred to | | By Profit & Loss A/c (Net profit) | 6,00,000 |
A's Capital A/c 2,40,000 | | | |
B's Capital A/c 2,40,000 | | | |
C's Capital A/c 1,20,000 | 6,00,000 | | |
6,00,000 | | 6,00,000 | |
Question 82
A, B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his minimum share of profit in any given year would be at least Rs. 5,000. Deficiency, if any, would be borne by A and B equally. Profit for the year ended 31st March 2020 was Rs. 40,000.
Pass necessary Journal entries in the books of the firm.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
To Profit Transferred to
By Profit & Loss A/c (Net profit)
40,000
A's Capital A/c 20,000
Less; Given to C (500)
19,500
B's Capital A/c 16,000
Less; Given to C (500)
15,500
C's Capital A/c 4,000
Add; Given by A 500
Add; Given by B 500
5,000
40,000
40,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Profit Transferred to | | By Profit & Loss A/c (Net profit) | 40,000 |
A's Capital A/c 20,000 | | | |
Less; Given to C (500) | 19,500 | | |
B's Capital A/c 16,000 | | | |
Less; Given to C (500) | 15,500 | | |
C's Capital A/c 4,000 | | | |
Add; Given by A 500 | | | |
Add; Given by B 500 | 5,000 | | |
40,000 | | 40,000 | |
Question 83
Vikas and Vivek were partners in a firm sharing profits in the ratio of 3 : 2. On 1st April, 2019, they admitted Vandana as a new partner for 1/8th share in the profits with a guaranteed profit of Rs. 1,50,000. New profit-sharing ratio between Vikas and Vivek will remain same but they decided to bear any deficiency on account of guarantee to Vandana in the ratio 3 : 2. Profit of the firm for the year ended 31st March, 2020 was Rs. 9,00,000.
Prepare Profit and Loss Appropriation Account of Vikas, Vivek and Vandana for the year ended 31st March, 2020.
Answer
Profit & Loss Appropriation Account
Dr.
for the year ended 31 Mar 2020
Cr.
Particulars
Amount (Rs)
Particulars
Amount (Rs)
To Profit Transferred to
By Profit & Loss A/c (Net profit)
9,00,000
Vikash's Capital A/c 4,72,500
Less; Given to Vandana 22,500
4,50,000
Vivek's Capital A/c 3,15,000
Less; Given to Vandana 15000
3,00,000
Vandana's Capital A/c 1,12,500
Add; Given by Vikash 22,500
Add; Given by Vivek 15,000
1,50,000
9,00,000
9,00,000
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs) | Particulars | Amount (Rs) |
To Profit Transferred to | | By Profit & Loss A/c (Net profit) | 9,00,000 |
Vikash's Capital A/c 4,72,500 | | | |
Less; Given to Vandana 22,500 | 4,50,000 | | |
Vivek's Capital A/c 3,15,000 | | | |
Less; Given to Vandana 15000 | 3,00,000 | | |
Vandana's Capital A/c 1,12,500 | | | |
Add; Given by Vikash 22,500 | | | |
Add; Given by Vivek 15,000 | 1,50,000 | | |
9,00,000 | | 9,00,000 | |
Question 84
A, B and C are partners in a firm sharing profits in the ratio of 3 : 2 : 1. They earned a profit of Rs. 30,000 during the year ended 31st March, 2020. Distribute profit among A, B and C if:
(a) C's share of profit is guaranteed to be Rs. 6,000 Minimum.
(b) Minimum profit payable to C amounting to Rs. 6,000 is guaranteed by A.
(c) Guaranteed minimum profit of Rs. 6,000 payables to C is guaranteed by B.
(d) Any deficiency after making payment of guaranteed Rs. 6,000 will be borne by A and B in the ratio of 3 : 1.
Answer
Case 1
Deficiency of C Rs. 1,000, will be borne by A & B in the ratio of 2:3
A share of profit = 15,000 – 600 = 14,400
B share of profit = 10,000 – 400 = 9,600
C share of profit = 5,000 + 600 + 400 = 6,000
Case 2
Deficiency of C Rs. 1,000, will be borne by A
A share of profit = 15,000 – 1,000 = 14,000
B share of profit = 10,000
C share of profit = 5,000 + 1,000 = 6,000
Case 3
Deficiency of C Rs. 1,000, will be borne by B
A share of profit = 15,000
B share of profit = 10,000 – 1,000 = 9,000
C share of profit = 5,000 + 1,000 = 6,000
Case 4
Deficiency of C Rs. 1,000, will be borne by A & B in the ratio of 3:1
A share of profit = 15,000 – 750 = 14,250
B share of profit = 10,000 – 250 = 9,750
C share of profit = 5,000 + 750 + 250 = 6,000
Question 85
A and B are in partnership sharing profits and losses in the ratio of 3 : 2. They admit C, their Manager, as a partner with effect from 1st April, 2020, for 1/4th share of profits.
C, while a Manager, was in receipt of a salary of Rs. 27,000 p.a. and a commission of 10% of the net profits after charging such salary and commission.
In terms of the Partnership Deed, any excess amount, which C will be entitled to receive as a partner over the amount which would have been due to him if he continued to be the manager, would have to be personally borne by A out of his share of profit. Profit for the year ended 31st March, 2020 amounted to Rs. 2,25,000. You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2020.
Answer
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Profit Transferred to | | By Profit & Loss A/c (Net profit) | 2,25,000 |
A' Capital A/c 96,750 | | | |
A' Capital A/c 72,000 | | | |
A' Capital A/c 56,250 | 2,25,000 | | |
| 2,25,000 | | 2,25,000 |
Working Notes
1. Calculation of C’s Remuneration as Manager
Salary of C = Rs 27,000
Net profit after salary = Rs 2,25,000- Rs 27,000 = Rs 1,98,000
Commission to C = 10% of after charging salary and commission
= Rs 1,98,000 x
Remuneration of C as a Manager = Salary + Commission = Rs 27,000 + Rs 18,000 = Rs 45,000
2. Calculation of Profit Shares
C’s share of profit = 2,25,000 x
Amount of C’s share to be borne by A = Rs 56,250 – Rs 45,000 = Rs 11,250
Profit available for distribution between A & B = Rs 2,25,000 – Rs 45,000 = Rs 1,80,000
Profit share of A = Rs 1,80,000 x
A’s share after adjusting deficiency of C = Rs 1,08,000 – Rs 11,250 = Rs 96,750
Profit share of B = Rs 1,80,000 x
Question 86
P, Q and R entered into partnership on 1st April, 2015 to share profits and losses in the ratio of 12 : 8 : 5. It was provided that in no case R's share in profit be less then Rs. 30,000 p.a. The profits and losses for the period ended 31st March were: 2018 Profit Rs. 1,20,000 2019 Profit Rs. 1,80,000; 2020 Loss Rs. 1,20,000.
Pass the necessary Journal entries in the books of the firm.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
2018 | P's Capital A/c | Dr. | 3,600 | |
| Q's Capital A/c | Dr. | 2,400 | |
| To R's Capital A/c | | 6,000 | |
| (Being deficiency adjusted) | | | |
2020 | P's Capital A/c | Dr. | 32,400 | |
| Q's Capital A/c | Dr. | 21,600 | |
| To R's Capital A/c | | 54,000 | |
| (Being deficiency adjusted) | | | |
Working Notes:
1. Calculation of amount of deficiency of R
R's Minimum Guaranteed Profit = Rs 30,000
· For 2018, R's actual share of profit = 1,20,000 ×
Deficiency in R's Profit = 30,000 - 24,000 = Rs 6,000
This deficiency is to be borne by P & Q in the ratio of 12:8, i.e. Rs 3,600 & Rs 2,400
· For 2019, R's actual share of profit = 1, 80, 000 ×
There is no deficiency in R's profit share in 2019
· For 2020, R's share of loss = 1, 20, 000 ×
Deficiency in R's Profit = 30,000 + 24,000 = Rs 54,000 (guaranteed profit + share of loss)
This deficiency is to be borne by P & Q in the ratio of 12:8, i.e. Rs 32,400 & Rs 21,600
Question 87
Asgar, Chaman and Dholu are partners in a firm. Their Capital Accounts stood at Rs. 6,00,000; Rs. 5,00,000 and Rs. 4,00,000 respectively on 1st April, 2019. They shared Profits and Losses in the proportion of 4 : 2 : 3. Partners are entitled to interest on capital @ 8% per annum and salary to Chaman and Dholu @ Rs. 7,000 per month and Rs. 10,000 per quarter respectively as per the provision of the Partnership Deed.
Sholu's share of profit ( excluding interest on capital but including salary) is guaranteed at a minimum of Rs. 1,10,000 p.a. Any deficiency arising on that account shall be met by Asgar. The profit for the year ended 31st March, 2020 amounted to Rs. 4,24,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2020.
Answer
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 4,24,000 |
Asgar 48,000 | | | |
Chaman 40,000 | | | |
Dholu 32,000 | 1,20,000 | | |
To Salary | | | |
Chaman 84,000 | | | |
Dholu 40,000 | 1,24,000 | | |
To Profit Transferred to | | | |
Asgar's Capital A/c 80,000 | | | |
Less; Given to Dholu 10,000 | 70,000 | | |
Chaman's Capital A/c | 40,000 | | |
Dholu's Capital A/c 60,000 | 70,000 | | |
Add; Given by Asgar 10,000 | | | |
| 4,24,000 | | 4,24,000 |
Working Notes
1. Calculation of Divisible Profit.
Divisible Profit = 4,24,000 – 1,20,000 – 84,000 – 40,000 = Rs. 1,80,000
2. Calculation for Profit Share
Profit will be divided in the ratio 4:2:3
Asgar’s Share = Rs. 1,80,000 x
Chaman’s Share= Rs. 1,80,000 x
Dholu’s Share= Rs. 1,80,000 x
Guaranteed Dholu’s Share of profit = 1,10,000 – 40,000 = 70,000 (Guarantee includs salary)
Deficiency in Dholu’s Share = Rs. 70,000 – 60,000 = 10,000 (to be borne by Asgar)
Asgar’s Share after adjustment = Rs. 80,000 – Rs. 10,000 = Rs. 70,000
Question 88
Ankur, Bhavns and Disha are partners in a firm. On 1st April, 2019, the balance in their Capital Accounts stood at Rs. 14,00,000, Rs. 6,00,000 and Rs. 4,00,000 respectively. They shared profits in the proportion of 7 : 3 : 2 respectively. Partners are entitled to interest on capital @ 6% per annum and salary to Bhavna @ Rs. 50,000 p.a. and a commission of Rs. 3,000 per month to Disha as per the provisions of the partnership Deed.
Bhavna's share of profit (excluding interest on capital) is guaranteed at not less than Rs. 1,70,000 p.a. Disha's share of profit (including interest on capital but excluding commission) is guaranteed at not less than Rs. 1,50,000 p.a. Any deficiency arising on that account shall be met by Ankur. The profit of the firm for the year ended 31st March, 2020 amounted to Rs. 9,50,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2020.
Answer
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Interest on Capital | | By Profit & Loss A/c (Net profit) | 9,50,000 |
Ankur 84,000 | | | |
Bhavna 36,000 | | | |
Disha 24,000 | 1,44,000 | | |
To Salary Bhavna | 50,000 | | |
To Commission to Disha | 36,000 | | |
To Profit Transferred to | | | |
Asgar's Capital A/c 4,20,000 | | | |
Less; Given to Bhavna 6,000 | 4,14,000 | | |
Bhavna's Capital A/c | 1,80,000 | | |
Disha's Capital A/c 1,20,000 | | | |
Add; Given by Ankur 6,000 | 1,26,000 | | |
| 9,50,000 | | 9,50,000 |
Working Notes
1. Calculation of Divisible Profit.
Divisible Profit = 9,50,000 – 1,44,000 – 50,000 – 36,000 = Rs. 7,20,000
2. Calculation for Profit Share
Profit will be divided in the ratio 7:3:2
Ankur’s Share = Rs. 7,20,000 x
Bhavna’s Share= Rs. 7,20,000 x
Disha’s Share = Rs. 7,20,000 x
Guaranteed Disha’s Share of profit = 1,50,000 – 24,000 = 1,26,000 (Guarantee includes interest on capital)
Deficiency in Disha’s Share = Rs. 1,26,000 – 1,20,000 = 6,000 (to be borne by Ankur)
Ankur’s Share after adjustment = Rs. 4,20,000 – Rs. 6,000 = Rs. 4,14,000
Question 89
Ajay, Binay and Chetan were partners sharing profits in the ratio of 3 : 3 : 2. The Partnership Deed provided for the following:
(i) Salary of Rs. 2,000 per quarter to Ajay and Binay.
(ii) Chetan was entitled to a commission of Rs. 8,000
(iii) Binay was guaranteed a rofit of Rs. 50,000 p.a.
The profit of the firm for the year ended 31st March, 2015 was Rs. 1,50,000 which was distributed among Ajay, Binay and Chetan in the ratio of 2 : 2 : 1, without taking into consideration the provisions of Partnership Deed. Pass necessary rectifying entry for the above adjustments in the books of the firm. Show your workings clearly.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Ajaya’s Capital A/c | Dr. | 6,400 | |
Binaya’s Capital A/c | Dr. | 2,000 | ||
To Chetan's Capital A/c | 8,400 | |||
| (Being salary, commission omitted, now rectified) | | | |
Working Notes
1. Statement of Adjustment
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | Ajaya (Rs) | Binaya (Rs) | Chetan (Rs.) | Total |
Salary to provided | - | 8,000 | 8,000 | 16,000 |
Commission to provided | 8,000 | - | - | 8,000 |
Profit distributed reversed | (60,000) | (60,000) | (30,000) | (1,50,000) |
Correct profit re-distributed | 45,600 | 50,000 | 30,400 | 1,26,000 |
Net Effects | -6400 Dr. | -2000 Dr. | 8400 Cr. | NIL |
2. Calculation of appropriation of profit
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2015 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Salary | | By Profit & Loss A/c (Net profit) | 1,50,000 |
Ajaya 8,000 | | | |
Binaya 8,000 | 16,000 | | |
To Commission to Chetan | 8,000 | | |
To Profit Transferred to | | | |
Ajaya's Capital A/c 47,250 | | | |
Less; Given by Binaya 1,650 | 45,600 | | |
Binaya's Capital A/c 47,250 | | | |
Add; Given by Ajaya 1,650 | | | |
Add; Given by Chetan 1,100 | 50,000 | | |
Chetan's Capital A/c 31,500 | | | |
Less; Given to Binaya 1,100 | 30,400 | | |
| 1,50,000 | | 1,50,000 |
Question 90
The partners of a firm, Alia, Bhanu and Chand distributed the profits for the year ended 31st March, 2017, Rs. 80,000 in the ratio of 3 : 3 : 2 without providing for the following adjustments:
(a) Alia and Chand were entitled to a salary of Rs. 1,500 each p.a.
(b) Bhanu was entitled for a commission of Rs. 4,000.
(c) Bhanu and Chand had guaranteed a minimum profit of Rs. 35,000 p.a. to Alia any deficiency to borne equally by Bhanu and Chand.
Pass the necessary Journal entry for the above adjustments in the books of the firm. Show workings clearly.
Answer
Journal Entry
Date | Particulars | Dr Amount | Cr. Amount | |
| Bhanu’s Capital A/c | Dr. | 21,000 | |
Chand’s Capital A/c | Dr. | 2,000 | ||
To Alia's Capital A/c | 23,000 | |||
| (Being salary, commission omitted, now rectified) | | | |
Working Notes
1. Statement of Adjustment
STATEMENT SHOWING ADJUSTMENT TO BE MADE | ||||
Particulars | Alia (Rs) | Bhanu (Rs) | Chand(Rs.) | Total |
Salary to be provided | 18,000 | - | 18,000 | 36,000 |
Commission to be provided | - | 4,000 | - | 4,000 |
Profit distributed reversed | (30,000) | (30,000) | (20,000) | (80,000) |
Correct profit re-distributed | 35,000 | 5,000 | 0 | 40,000 |
Net Effects | 23000 Cr. | -21000 Dr. | -2000 Dr. | NIL |
2. Calculation of appropriation of profit
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2017 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Salary | | By Profit & Loss A/c (Net profit) | 80,000 |
Alia 18,000 | | | |
Chand 18,000 | 36,000 | | |
To Commission to Bhanu | 4,000 | | |
To Profit Transferred to | | | |
Alia's Capital A/c 15,000 | | | |
Add; Given by Bhanu 10,000 | | | |
Add; Given by Chand 10,000 | 35,000 | | |
Bhanu's Capital A/c 15,000 | | | |
Less; Given to Alia 10,000 | 5,000 | | |
Chand's Capital A/c 10,000 | | | |
Less; Given to Alia 10,000 | 0 | | |
| 80,000 | | 80,000 |
Minimum Earning Guaranteed by a Partner
Question 91
Three Chartered Accountants A, B and C form a partnership, profits being shared in the ratio of 3 : 2 : 1 subject to the following:
(a) C's share of profit guaranteed to be not less than Rs. 15,000 p.a.
(b) B gives a guarantee to the effect that gross fee earned by him for the firm shall be equal to his average gross fee of the preceding five years when he was carrying on profession alone, which on an average works out at Rs. 25,000.
The profit for the first year of the partnership are Rs. 75,000. The gross fee earned by B for the firm is Rs. 16,000. You are required to show Profit and Loss Appropriation Account after giving effect to the above.
Answer
Profit & Loss Appropriation Account | |||
Dr. | for the year ended 31 Mar 2020 | Cr. | |
Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
To Profit Transferred to | | By Profit & Loss A/c (Net profit) | 75,000 |
A's Capital A/c 42,000 | | By B's Capital (Deficiency in revenue) | 9,000 |
Less; Given to C 600 | 41,400 | | |
B's Capital A/c 28,000 | | | |
Less; Given to C 400 | 27,600 | | |
C's Capital A/c 14,000 | | | |
Add; Given by A 600 | | | |
Add; Given by b 400 | 15,000 | | |
| 84,000 | | 84,000 |
Working Notes:
Calculation for Profit Share
Divisible profit = 75,000 + 9,000 = 84,000
Profit will be divided in the ratio 7:3:2,
A’s Share = Rs. 84,000 x
B’s Share = Rs. 84,000 x
C’s Share = Rs. 84,000 x
Guaranteed Share of profit for C= 15,000,
Deficiency in C’s Share = 1,000 (to be borne by A & B in their existing ratio)
A’s Share of profit after adjustment = Rs. 42,000 – (1,000 x
A’s Share of profit after adjustment = Rs. 28,000 – (1,000 x
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