Question 1.
In the absence of Partnership Deed, what are the rules relating to:
a. Salaries of partners,
b. Interest on partner’s capitals,
c. Interest on partner’s loan,
d. Division of profit, and
e. Interest on partners’ drawings?
Solution:
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 given to the firm?
b. Q used Rs.5,000 belonging to the firm and suffered a loss of Rs.1,000. 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?
Solution:
a. P is bound to pay Rs.20,000 along with profit of Rs.5,000 to the firm because this amount belongs to the firm. Explanation: According to the principal and agent relationship, P is principal as well as agent to the firm and to Q and R. As per the rule, any profit earned by an agent (P) by using the firm’s property is attributable to the firm.
b. Q is liable to pay Rs.5,000 to the firm. According to the Partnership Act, every partner of a partnership firm is liable to the firm for any loss caused by his/her wilful negligence.
Explanation: Here, Q is solely responsible for the loss of Rs.1,000 because he used the property of the firm and also represented himself as a principal rather than an agent to the other partners and to the firm.
c. P and Q may buy goods from A Ltd.
Explanation: According to the Partnership Act, a partner has a right to buy and sell goods without consulting the other partners unless a Public Notice has been given by the partnership firm to restrict the partners to buy and sell.
d. C will not be admitted because one of the partners, P, has not agreed to admit C. Explanation: According to the Partnership Act, a new partner cannot be admitted into a firm unless all the existing partners agree on the same decision. In other words, a new partner can be admitted in a partnership firm with the consent of all the existing partners.
[sociallocker]
Question 3.
A, B C are partners in a firm. They have no partnership agreement for their guidance. At the end of the first 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 the purpose.
Solution:
Question 4.
M and N are partners in a firm. M has given a loan of Rs.8,000 to the firm on 1st July, 2016. The Partnership Deed is silent upon the question of provision of interest on partner’s loan. Compute the amount of interest payable on the loan advanced by M to the firm, assuming the books are closed on 31st March each year.
Solution:
Question 5.
A and B are partners in a firm sharing profits equally. They had advanced to the firm a sum of Rs.30,000 as a loan in their profit-sharing ratio on 1st October, 2015. The Partnership Deed is silent on the question of interest on the loan from partners. Compute the interest payable by the firm to the partners, assuming the firm closes its books on 31st March each year.
Solution:
Question 6.
Mahesh and Ramesh are partners with capitals of Rs.50,000 and Rs.60,000 respectively. On 1st January, 2016, Mahesh gives a loan of Rs.10,000 and Ramesh introduced Rs.20,000 as additional capital. Profit for the year ended 31st March, 2016 was Rs.15,200. There is no Partnership Deed. Both Mahesh and Ramesh expect interest @ 10% p.a. on the loan and additional capital advanced by them.
Show how the profits would be divided? Give reasons.
Solution:
Question 7.
Black and White are partners with capitals of Rs.30,000 and Rs.20,000 respectively. Profits for the year ended 31st March, 2015 amounted to Rs.27,100. It is agreed that 5% interest on capital as such shall be allowed. There is no agreement regarding sharing of profits or partnership salary. Black is a whole-time partner whereas White does not attend business regularly. Black claims Rs.600 salary per month and 60% of balance profits. White advanced Rs.10,000 as loan and he now claims 10% interest. State how you will settle the accounts.
Solution:
Question 8.
Jaspal and Rosy were partners with capital contribution ofRs.10,00,000 and Rs.5,00,000 respectively. They do not have a Partnership Deed. Jaspal wants that profits of the firm should be shared in their capital ratio. Rosy convinced Jaspal that profits should be shared equally. Explain how Rosy would have convinced Jaspal for sharing the profit equally.
Solution:
In the absence of a partnership deed, the provisions of the Indian Partnership Act, 1932, apply. According to the Act, if there is no agreement regarding the ratio in which profits are to be shared, then profits (or losses) are to be shared equally among all the partners. Therefore, in this situation, Jaspal’s view of distribution of profits in the capital ratio is not acceptable, and Rosy must have convinced her stating the provisions contained in the Partnership Act, 1932.
Question 9.
Jagmohan and Ramesh were partners with capital contribution of Rs.10,00,000 and Rs.5,00,000 respectively. They do not have a Partnership Deed. Jagmohan wants that the firm should allow interest on capital @ 6% p.a. Ramesh convinced Jagmohan that interest cannot be allowed on capital to which Jagmohan agreed after discussion. What argument must have been put forward by Ramesh that convinced Jagmohan?
Solution:
In the absence of a partnership deed, the provisions of the Indian Partnership Act, 1932, apply. According to the Act, if there is no agreement regarding the interest on capital contributed by the partners, then no interest on capital is allowed to any of the partners. Therefore, in this situation, Jagmohan’s view of allowing interest on capital at 6% p.a. is not acceptable, and Ramesh must have convinced him stating the provisions contained in the Partnership Act, 1932.
Question 10.
Sunil and Jatinder were partners in a firm. Their drawings during the year were Rs.1,00,000 and Rs.75,000 respectively. They do not have a Partnership Deed. Jatinder wanted that the firm should charge interest drawings @ 6% p.a. Sunil convinced Jatinder that interest cannot be charged on drawings to which Jatind agreed after discussion. What argument must have been put forward by Sunil that convinced Jatind
Solution:
In the absence of a partnership deed, the provisions of the Indian Partnership Act, 1932, apply. According to the Act, if there is no agreement regarding the interest on drawings withdrawn by the partners, then no interest on drawings is charged from any of the partners. Therefore, in this situation, Jatinder’s view of charging interest on drawings is not acceptable, and Sunil must have convinced him stating the provisions contained in the Partnership Act, 1932.
Question 11.
Manpreet and Jaspreet were partners sharing profits and losses in the ratio of 3:2. They decided the from 1st April, 2015 they will share profits and losses equally. On that date, the Balance Sheet of the firm had credit balance of Rs.1,00,000 in General Reserve. Jaspreet was of the opinion that it should be credits to the Capital Accounts equally. Manpreet was of the opinion that it should be credited to the Capital Accounts in their old profit-sharing ratio. Jaspreet agreed to the views of Manpreet. Explain what arguments must have been put forward by Manpreet to which Jaspreet agreed.
Solution:
At the time of change in the profit-sharing ratio, on one hand, some partners gain, while on the other hand, some partners sacrifice. Therefore, to avoid putting any partner to an undue advantage or disadvantage, any balance available in the form of accumulated profits and losses is transferred to the Partners’ Capital Accounts in their old profit-sharing ratio. So, the balance of Rs.1,00,000 (General Reserve) will be credited to the capital accounts of Manpreet and Jaspreet in the ratio of 3:2. Manpreet must have stated the above accounting practice to Jaspreet to convince her.
Question 12.
Ayub and Anita were partners sharing profits and losses in the ratio of 3:2. They decided that from 1st April, 2015 they will share profits and losses equally. On that date, Revaluation Account was prepared. It was noticed that an unrecorded asset (Computer Printer) valued at Rs.5,000 existed. Ayub was of opinion that it should be credited to the Revaluation Account. Anita was of the opinion that it should be credited to the Capital Accounts in equal proportion. Anita agreed to the views of Ayub. Explain what arguments must have been put forward by Ayub to which Anita agreed.
Solution:
At the time of change in the profit-sharing ratio, any asset found unrecorded is credited to the Revaluation Account and the net result of the Revaluation Account (revaluation profit or revaluation loss) is debited/credited to the Partners’ Capital Accounts in their old profit-sharing ratio. Ayub must have stated the above accounting practice to Anita to convince her.
Question 13.
Abhay and Anirudh were partners sharing profits and losses in the ratio of 2:1. They decided that 1st April, 2015 they will share profits and losses equally. On that date, Revaluation Account was prepa It was noticed that an unrecorded liability towards Leave Encashment of Rs.15,000 existed. Abhay was the opinion that it should be debited to the Revaluation Account. Anirudh was of the opinion that it should not be brought into books but should be accounted when it is paid. Abhay explained to Ani the need for it being accounted now and what effect it will have when it is accounted at the time payment. Anirudh agreed to his view point. Explain what arguments must have been put forward by Abhay to which Anirudh agreed.
Solution:
At the time of change in the profit-sharing ratio, any liability found unrecorded is debited to the Revaluation Account and the net result of the Revaluation Account (revaluation profit or revaluation loss) is debited/credited to the Partners’ Capital Accounts in their old profit-sharing ratio. In this manner, the partners are not put to any undue advantage or disadvantage. Also, according to the prudence concept, all probable losses should be anticipated. Abay must have stated the above accounting practice (rationale to account now) to Anirudh to convince him.
Question 14.
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.
Solution:
Question 15.
X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1 ratio. The fixed capitals of the partners were Rs. 5,00,000; Y Rs.5,00,000 and Z Rs.2,50,000. The Partnership Deed provides that interest on capital should be allowed @ 10% p.a. and that Z should be allowed a salary of Rs.2,000 per month. The profits of the firm form the year ended 31st March, 2015 after debiting Z’s salary were Rs.4,00,000.
Prepare Profit and Loss Appropriation Account.
Solution:
Question 16.
On 1st April, 2013, Jay and Vijay entered into partnership for supplying laboratory equipments’ 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 clearly, prepare ‘Profit and Loss Appropriation Account’ of Jay and Vijay for the year ended 31st March, 2014.
Solution:
Question 17.
Amit and Vijay started a partnership business on 1st April, 2015. Their capital contributions we Rs.2,00,000 and Rs.1,50,000 respectively. The Partnership Deed provided inter alia that:
a. Interest on capital @ 10% pa.
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.
Profit for the year ended 31st March, 2016 before making above appropriations 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.
Solution:
Question 18.
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: 5,000 and C: 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 made a 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.
Solution:
Question 19.
X and Y are partners sharing profits in proportion of 3 : 2 with capitals of Rs.80,000 and Rs.60,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of Rs.6,000 which has not been withdrawn. Profit for the year ended 31st March, 2016 prior to calculation of interest on capital but after charging Y’s salary amounted to Rs.24,000.
A provision of 5% of the profit is to be made in respect of commission to the Manager. Prepare an account showing the allocation of profits.
Solution:
Question 20.
D, E and F were partners in a firm sharing profits in the ratio of 5:7:8. Their fixed capitals were D Rs.5,00,000; E Rs.7,00,000 and F Rs.8,00,000. Their Partnership Deed provided for the following:
i. Interest on capital @ 10% p.a.
ii. Salary of Rs.10,000 per month of F.
iii. Interest on drawing @ 12% p.a.
D withdrew Rs.40,000 on 31st January, 2009; E withdrew Rs.50,000 on 31st March, 2009 and F withdrew Rs.30,000 on 31st December, 2009.
During the year ended 31st December, 2009 the firm earned a profit of Rs. 3,50,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st December, 2009.
Solution:
Question 21.
Prem and Manoj are partners in a firm sharing profits in the ratio of 3:2. The Partnership Deed provided that Prem was to be paid salary of Rs.2,500 per month and Manoj was to get a commission of Rs.10,000 per year. Interest on capital was to be allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. Interest on Prem’s drawings was Rs.1,250 and on Manoj’s drawings was Rs.425. Capitals of the partners were Rs.2,00,000 and Rs.1,50,000 respectively, and were fixed. The firm earned a profit of Rs.90,575 for the year ended 31st March, 2016.
Prepare Profit and Loss Appropriation Account of the firm.
Solution:
Question 22.
Ram and mohan, two partners, drew for private use Rs.1,20,000 and Rs.80,000. Interest is chargeable @6% p.a. on the drawings. What is the total interest?
Solution:
Question 23.
B and M are partners in a firm. They withdrew Rs.48,000 and Rs.36,000 respectively during the year evenly at 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.
Solution:
Question 24.
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, 2013. Calculate interest on drawings @ 5% p.a.
Solution:
Question 25.
A and B are partners sharing profits equally. A drew regularly Rs.4,000 at the end of every month for months ended 30th September, 2013. Calculate interest on drawings @ 5% pa.
Solution:
Question 26.
Calculate interest on drawings of Mr. Ashok @ 10% p.a. for the year ended 31st March, 2014, 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.
Solution:
Question 27.
Solution:
Question 28.
A and B are partners sharing Profit and Loss in the ratio of 3:2 having Capital Account balances of Rs.50,000 and Rs.40,000 on 1st April, 2015. On 1st July, 2015, A introduced Rs.10,000 as his additional capital whereas B introduced only Rs.1,000. If the interest on capital is allowed to partners @ 10% p.a.
Calculate interest on capital if the financial year closes on 31st March.
Solution:
Question 29.
X and Y contribute Rs.20,000 and Rs.10,000 respectively. They decide to allow interest on capital @ 6%p a. Their respective share of profits is 2:3 and the business profit (before interest) 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 a clear agreement that the interest on capitals will be allowed even if it involves the firm in loss.
Solution:
Question 30.
A and B started business on 1st April, 2015 with capitals of Rs.15,00,000 and Rs. 9,00,000 respectively. On 1st October, 2015, 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 on 31st March, 2016.
Solution:
Question 31.
Ram and Mohan are partners in a business. Their capitals at the end of the year were Rs.24,000 and Rs.18,000 respectively. During the year 2015-16, Ram’s drawings and Mohan’s drawings were Rs.4,000 and Rs.6,000 respectively. Profit (before charging interest on capital) during the year was Rs.16,000. Calculate interest on capital @ 5% pa. for the year ended 31st March, 2016.
Solution:
Question 32.
Solution:
Question 33.
Solution:
Question 34.
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 before charging such commission. The net profit before charging commission is Rs.1, 10,000.
Find out commission payable to A.
Solution:
Question 35.
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.
Find out commission payable to Z.
Solution:
Question 36.
X and Y are partners in a firm. X is entitled to a salary of Rs.10,000 per month together with a commission of 10% of the net profit after partners’ salaries but before charging any commission. Y is entitled to a salary of Rs.25,000 p.a. together with a commission of 10% of the net profit after charging all commission and partners’ salaries. The net profit before providing for partners’ salaries and commission for the year ended 31st March, 2016 was Rs.4, 20,000.
Show distribution of profit.
Solution:
Question 37.
A, B, C and D are partners in a firm sharing profits as 4:3:2:1 respectively. They earned a profit Rs.1,80,000 for the year ended 31st March, 2016. As per the Partnership Deed, they are to charge 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.
Solution:
Question 38.
A and B are partners in a firm sharing profits in the ratio of 3: 2. They had advanced to the firm a sum Rs.30,000 as a loan in their profit-sharing ratio on 1st October, 2015. The Partnership Deed is silent on the question of interest on loans from partners. Compute interest payable by the firm to the partner assuming the firm closes its books on 31st March.
Solution:
Question 39.
X and Y are partners sharing profits and losses in the ratio of 2: 3 with capitals of Rs.2, 00,000 and Rs.3, 00,000 respectively. On 1st October, 2015, X and Y granted loans of Rs.80,000 and Rs.40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2016 in each of the following alternative cases:
Case 1. If the profits before any interest for the year amounted to Rs.21,000.
Case 2. If the profits before any interest for the year amounted to Rs.3,000.
Case 3. If the profits before any interest for the year amounted to Rs.5,000.
Solution:
Question 40.
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, 2015, Bat and Ball granted loans of Rs.2, 40,000 and Rs.1, 20,000 respectively the firm. The losses for the year ended 31st March, 2016 before any interest amounted to Rs.9,000. Show distribution of profit/loss.
Solution:
Question 41.
A and B are partners from 1st April, 2015, without any partnership agreement and they introduce capitals of Rs.35,000 and Rs.20,000 respectively. On 1st October, 2015, A advances Rs.8,000 by way of loan the firm without any agreement as to interest. The Profit and Loss Account for the year end 31st March, 2016 discloses a profit Rs.15,000 but the partners cannot agree upon the question interest or upon the basis of division of profits.
You are required to divide the profits between them giving reasons for your method.
Solution:
Question 42.
C and D are partners in a firm; C has contributed Rs.10,000 as capital and D Rs.6,000. Interest is pay @ 6% p.a. and D is entitled to a salary of Rs.300 per month. In 2015-16, the profits were 8,000 before interest and salary. Divide the amount between C and D.
Solution:
Question 43.
Solution:
Question 44.
Solution:
Question 45.
Sajal and Kajal are partners sharing profits and losses in the ratio of 2: 1. On 1st April, 2015 their Capitals were: Sajal – Rs.50,000 and Kajal – Rs. 40,000.
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 30,000.
c. Interest on partners’ drawing @ 6% p.a. Drawings: Sajal 10,000 and Kajal 8,000.
d. 10% of the divisible profits is to be transferred to Reserve.
They earned profit of `70,260 for the year ended 31st March, 2016.
Solution:
Question 46.
On 1st April, 2015, A and B entered into partnership contributing Rs.60,000 and Rs.45,000 respectively. They agreed to share profits and losses in the ratio of 3: 2. B is allowed a salary of Rs.12,000 per year. Interest on capital is to be allowed @ 10% p.a. During the year, A withdrew Rs.9,000 and Rs.18,000 as drawings. The interest on drawings paid by A and B was Rs.150 and Rs.210 respectively. Profit as at 31st March, 2016 before the above mentioned adjustment was 35,000. Show distribution of profits by preparing Profit and Loss Appropriation Account of the firm. Prepare Partners’ Capital Accounts also.
Solution:
Question 47.
Amal and Bimal are partners of a firm sharing profits in the ratio of 4: 1 respectively. On 1st April, 2015, their Capitals stood at: Amal Rs.50,000 and Bimal Rs.40,000. The firm earned a Net Profit of Rs.1,75,000 in the year ended 31st March, 2016. Draw Profit and Loss Appropriation Account for the year ended 31st March, 2015 after considering the following adjustments:
Interest on Capital @ 5% p.a.; Interest @ 6% p.a. on Bimal’s Loan (to the firm) of Rs.50,000; Interest Partners’ drawings being: Amal Rs.15,000 and Bimal Rs.10,000.
Solution:
Question 48.
Ali and Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%.The respective capitals as at 1st April, 2015 stand as Ali Rs.25,000 and Bahadur Rs.20,000. The partners allowed 5% p.a. by way of interest on capitals. The drawings of the partners during the year ended 31 March, 2016 amounted to Rs.3,500 and Rs.2,500 respectively.
The profit during the year, before charging interest on capital and annual salary of Bahadur @ 3,000 amounted to Rs.40,000, 10% of this profit is to be kept in Reserve.
You are asked to show Partners’ Current Accounts and Capital Accounts recording the above transaction.
Solution:
Question 49.
P, Q and R are in a partnership and as at 1st April, 2015 their respective capitals were: Rs.40,000, Rs.30,000, and Rs.30,000. Q is entitled to a salary of Rs.6,000 and R Rs.4,000 p.a. payable before division of profits. Interest allowed on capital @ 5% p.a. and is not charged on drawings. Of the net divisible profits, P is entitled to of the first 50% Rs.10,000, Q to 30% and R to 20%, rest of the profits are shared equally. The profits for the ended 31st March, 2016, after debiting partners’ salaries but before charging interests on capital were Rs.21,000 and the partners had drawn Rs.10,000 each on account of salaries, interest and profit.
Prepare Profit and loss Appropriation Account showing the distribution of profit and the Capital Accounts of the Partners
Solution:
Question 50.
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 Ca salary of Rs.5,000 each per annum. During the year ended 31st March, 2015, A has drawn Rs.10,000an 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, 2015 showed a net profit of Rs.45,000 before charging (a) interest on capital and (b) partners’ salaries. On 1st April, 2014, the balances in the Current Accounts of the partners were A (Credit) `4,500; B (Credit) Rs.1,500 and C (Credit) Rs.1,000. Interest is not charged on Drawings Current Account balances. Show Partners’ Capital and Current Accounts as at 31st March, 2015 after division of profits in accordance with the partnership agreement.
Solution:
Question 51.
A and B are partners sharing profits and losses in the ratio of 3: 1. On 1st April, 2015, their capitals were A Rs.50,000 and B Rs.30,000. During the year ended 31st March, 2016 they earned a net profit of Rs.50,000.The terms of partnership are:
a. Interest on capital is to be charged @ 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 Rs.6,000. Turnover for the year wasRs. 3, 00,000.
After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners’ Capital Accounts.
Solution:
Question 52.
Amal, Bimal and Kamal are three partners. On 1st April, 2015, their Capitals stood as: Amal Rs.40,000, Bimal Rs.30,000 and KamalRs.25,000. It was decided that:
a. they would receive interest on Capital @ 5% p.a.,
b. Amal would get a salary of 250 per month,
c. Bimel would receive commission kJ, 4% on the net profit after deduction of the commission from it interest on capital and salary and
d. After deducting all of these 10% of the profits should be transferred to the General Reserve.
Before the above items were taken Into account, the profits for the year ended 31st March, 2016 were Rs.33,360 Prepare Profit and Loss Appropriation Account and the Capital Accounts of the Partners.
Solution:
Question 53.
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 agreed to work for the firm. The Partnership Deed provides for interest on capital @ 5% and salary to every working partner Rs Rs.2,000 per month. The net profit before providing for interest on capital and partner’s salary for the year ended 31st March, 2016 was Rs.32,000. Show distribution of profits.
[Hint : Since, both interest on capital and salary to partner are appropriations and the available profits are less than the amount of appropriations to be made, the available profits have been distributed In the ratio of appropriations to be made. Rs.40.000 (interest on capital) 24,000 (salary) or 10:6.]
Solution:
Question 54.
Sita and Geeta were partners in a firm. On 1st April, 2011 they admitted Neha as a partner for 1/3 share in the profits of the firm. She is differently abled. The new Partnership Deed provides for the following:
a. 5% of the trading profit will be donated to Red Cross Society.
b. 10% of the trading profit will be donated to the Prime Ministers Relief Fund.
c. Products will be sold to people below poverty line at a discount of 15 % on maximum retail price
d. New retail shops will be opened in the backward areas of the country
e. New recruitment of salespersons will be reserved for the girls belongings to Scheduled Castes and Scheduled Tribes, The trading profit of the firm fur the year ended 31.3.2012 was Rs.12,00,000.
Identify any four values that were kept in mind by Sita, Geeta and Neha while preparing new Partnership Deed. Also, prepare Profit and Loss Appropriation Account of the firm for the year ended 31.3.2012.
Solution:
Question 55.
Reya, Mona and Nisha shared profits in the ratio of 3: 2: 1. The profits for the last three years were 1.40, 000: Rs.84,000 and Rs.1.06.000 respectively. These profits were by mistake shared equally for all the three years. It is now decided to correct the error. Give necessary Journal entry for the same.
Solution:
Question 56.
Profits earned by a partnership firm for the year ended 31st March, 2016 were distributed equally between the partners – Pankaj and Anu – without allowing interest on capital (Rs.3,000 due to Pankaj and Rs.1,000 due to Anu). Pass necessary adjustment entry/entries.
Solution:
Question 57.
Ram and Mohan are equal partners. Their capitals are Rs.4,000 and Rs.8.000 respectively. After the accounts for the year are prepared it is discovered that interest @ 5% p.a. as provided in the partnership agreement has not been credited to the Capital Accounts before distribution of profits. It Is decided to make an adjusting entry in the beginning of the next year. Give necessary adjustment entry
Solution:
Question 58.
The Capital Accounts of A and B stood at Rs.4, 00,000 and Rs.3, 00,000 respectively after necessary adjustments in respect of the drawings and the net profits for the year ended 31st March, 2016. It subsequently ascertained that 5% p.a. interest on capital and drawings was not taken into account in arriving at the net profit. The drawings of the partners had been: A Rs.12,000 drawn at the end of quarter and B – Rs.18,000 drawn at the end of each half year.
The profits 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.
Solution:
Question 59.
P, Q and R were partners in a firm sharing profits in the ratio of 1: 2:2. After division of the profits for year ended 31st March, 2015, their capitals were: P Rs.1, 50,000; Q Rs.1, 80,000 and R Rs.2,10,000. During the year, they withdrew Rs.20,000 each. The profit for the year was Rs.60,000. The Partnership Deed provides that the interest on capital will be allowed @ 10% p.a. While preparing final accounts, interest partners’ capital was not allowed.
You are required to calculate capital of P, Q and R as at 1st April, 2014 and pass necessary adjustment entry for providing interest on capital. Show your working clearly.
Solution:
Question 60.
Mohan, Vijay and Anil are partners, the balances of their Capital Accounts being Rs.30,000, Rs.25,000 and Rs.20,000 respectively. In arriving at these figures, the profits for the year ended 31st March, 2016, Rs.24000 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 follow omissions were noticed and it was decided to bring them into account:
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.
Solution:
Question 61.
Ram, Mohan and Sohan sharing profits and losses equally have capitals of Rs.1,20,000, Rs.90,000, Rs.60,000. For the year 2009, interest was credited to them @ 6% instead of 5%.
Give adjustment Journal entry.
Solution:
Question 62.
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 2009, interest on capital was credited to them @ 9% instead of 10% p.a. The profit for the year before charging interest Rs.2, 50,000.
Show your working notes clearly and pass necessary adjustment entry.
Solution:
Question 63.
A, B and C were partners in a firm. On 1st April, 2015 their capitals stood at Rs.50,000, `25,000 and Rs.25,000 respectively. As per the provisions of the Partnership Deed:
a. C was entitled for a salary of Rs.1,500 per month.
b. Partners were entitled to interest on capital @ 5% p.a.
c. Profits were to be shared in the ratio of capitals.
The net profit for the year 2015-16 of Rs.45,000 was divided equally without providing for the above terms.
Pass an adjustment entry to rectify the above error.
Solution:
Question 64.
Solution:
Question 65.
On 31st March, 2016, after the closing of the accounts, the Capital Accounts of P, Q and R stood in the books of the firm at Rs.40,000; Rs.30,000 and Rs.20,000 respectively. Subsequently, it was discovered that interest on capital @ 5% had been omitted. Profit for the year ended 31st March, 2016 amounted to Rs.60,000 and the partners’ drawings had been P- Rs.10,000, Q – Rs.7,500 and R- Rs.4,500. The profit-sharing ratio of P, Q and R is 3: 2: 1. Give necessary adjustment entries
Solution:
Question 66.
A, B and C were partners. Their capitals were A- Rs.30,000; B – Rs.20,000 and C – Rs.10,000 respectively. According to the Partnership Deed, they were entitled to an interest on capital @ 5% p.a. In addition B was also entitled to draw a salary of Rs.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 were Rs.30,000 distributed in the ratio of capitals without providing for any of the above adjustments. The profits were to be shared in the ratio of 5: 3: 2.
Pass necessary adjustment entry showing the workings clearly.
Solution:
Question 67.
A, B and C are partners in a firm. Net profit of the firm for the year ended 31st March, 2016 is Rs.30,000, which has been duly distributed among the partners, in their agreed ratio of 3: 1: 1 respectively. It is discovered on 10th April, 2016 that the under mentioned transactions were not passed through the books of accounts of the firm for the year ended 31st March, 2016.
a. Interest on Capital @ 6% per annum, the capital of A, B and C being Rs.50.000; `40,000 and Rs.30,000 respectively.
b. Interest on drawings: A Rs.350: BRs.250; CRs.150.
c. Partnership Salaries: A Rs.5,000; BRs.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 rectify the position of partners interest.
Solution:
Question 68.
On 31st March, 2014, the balances in the Capital Accounts of Saroj, Mahinder and Umar after mail adjustments for profits and drawings, etc, were Rs.80,000, Rs.60,000 and 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 installments 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.
Solution:
Question 69.
On 31st March, 2014, the balances in the Capital Accounts of Ekta, Ankit and Chahat after making adjustments for profits and drawings were Rs.1,50,000, `2,10,000 and Rs.2,70,000 respectively Subsequently, it was discovered that the interest on capital and drawings had been omitted.
a. The profit for the year ended 31st March, 2014 was Rs.1,20,000.
b. During the year Ekta withdrew Rs.24,000 and Ankit and Chahat each withdrew a sum of Rs.24,000 equal installments In the middle of each quarter.
c. The interest on drawings was to be charged As @ 5% p.a. and interest on capital was to be allwed @10% p.a.
d. The profit-sharing ratio among the partners was 1:2:3.
Showing your working notes clearly, pass the necessary rectifying entry.
Solution:
Question 70.
Anil. Vineet and Vipul were partners in a firm manufacturing food Items. They were sharing profits In ratio of 5:3: 2. Their capitals on 1st April, 2012 were Rs.4,00,000; Rs.5,00,000 and Rs.9,00,000 respectively. After the floods in Uttaranchal, all partners decided to help the flood victims personally.
For this Anil withdrew Rs.30,000 from the firm on 30th September, 2012. Vineet instead of withdrawing cash from the firm took some food items amounting to Rs.25,000 from the firm and distributed those to flood victims. On the other hand. Vipul withdrew Rs.2,50,000 from his capital on 1st January. 2013 and built a shelter-home to help flood victims.
The Partnership Deed provides for charging interest on drawings @ 6% pa. After the final accounts were prepared it was discovered that interest on drawings had not been charged. Give necessary adjustor entry and show working notes clearly. Also, state any two values that the partners wanted to communicate to the society.
Note : No Interest is charged on Vipul drawings as it is a withdrawal from capital
Values :
1. Help toward needy flood victims
2. Medical Aid in flood affected areas
Solution:
Question 71.
X and Y are partners sharing profits and losses in the ratio of 3: 2. They employed Z as their Manager to whom they paid a salary of Rs.7,500 per month. Z had deposited Rs.2, 00,000 on which interest was payable @ 9% p.a. At the end of the accounting year (i.e., 31st March, 2016) 2015-16 (after division of the year’s profits), it was decided that Z should be treated as a partner with effect from 1st April, 2012 with 1/6th share of profits, his deposit being considered as capital carrying interest @ 6% p.a. like capitals of other partners. The firm’s profits and losses after allowing interest on capitals were – 2012-13: Profit Rs.5, 90,000; 2013-14: Profit Rs.6, 26,000; 2014-15: Loss Rs.40,000 and 2015-16: Profit. `7, 80,000.
Record necessary Journal entries to give effect to the above.
Note: Interest on capital is to be allowed as a charge.
[Hint: Amount paid to Z as a Manager for 4 years = Rs.3,60,000 (Salary) + Rs.72,000 (Interest) = Rs.4,32,000 As a Partner Z will get = Rs.3,90,000 (Share of Profit) + Rs.48,000 (Interest on Capital) = Rs.4,38,000]
Solution:
Question 72.
A B and C were in partnership sharing profits and losses in the ratio of 4: 2: 1 respectively. It was provided that in no case C’s share in profits should be less than Rs.7,500. The profits for the year 2014-15 amounted to Rs.31,500. You are required to show the appropriation among the partners. The Profit and Loss Appropriation Account is not required.
Solution:
Question 73.
A, Band C are partners in a firm. Their profit-sharing ratio is 2: 2: 1. However, C is guaranteed a minimum amount of Rs.10,000 as share of profits every year. Any deficiency arising on that amount shall be met by B. The profits for the two years ended 31st March, 2015 and 2016 were Rs.40,000 and Rs.60,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.
Solution:
Question 74.
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.
Solution:
Question 75.
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 profits in any given year would be Rs.5,000. Deficiency, if any, would be borne by A and B equally. The profits for the year 2015-16 amounted to Rs.40,000.
Pass necessary Journal entries in the books of the firm.
Solution:
Question 76.
Pranshu and Himanshu are partners sharing profits and losses in the ratio of 3:2 respectively. They admit Anshu as partner with 1/6 share in the profits of the firm. Pranshu personally guaranteed that Anshu’s share of profit would not be less than Rs.30,000 in any year. The net profit of the firm for the year ending 31st March, 2013 was Rs.90,000.
Prepare Profit and Loss Appropriation Account
Solution:
Question 77.
A, B and C entered into partnership on 1st April, 2009 to share profits and losses in the ratio of 5:3:2. A guaranteed that C’s share of profits, after charging Interest on capital @5% pa., would not be less than Rs.15,000 in any year.
The capitals were provided as follows: A- Rs.1, 60,000: B-2 Rs.1,00,000 and C-2 Rs.80,000.
The profits for the year ended 31st March, 2015 amounted to Rs.79,500 before providing for interest capital. Show Profit and Loss Appropriation Account
Solution:
Question 78.
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 2015-16. Distribute profit among A, 8 and C if:
a. C’s share of profit is guaranteed to be Rs.26,000 minimum.
b. Minimum profit payable to C amounting to Rs.26,000 is guaranteed by A.
c. Guaranteed minimum profit of Rs.6,000 payable 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.
Solution:
Question 79.
Three Chartered Accountants A B and C form a partnership, profits being divisible In the ratio of 3:2:1 Subject to the following:
a. C’s share of profits 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 proceeding five years when he was carrying on profession alone, which an average works out at Rs.25,000.
The profits 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.
Solution:
Question 80.
X Y and Z entered into partnership on 1st October, 2015 to share profits and losses in the ratio of 4:3:3 X however, personally guaranteed that Z’s share of profit after charging interest on capital @10% p.a. would not be less than Rs.80,000 in any year. The capital contributions were: X-3 Rs.3, 00,000, Y- Rs.2, 00,000 and Z- Rs.150,000.
The profit for the year ended 31st March. 2016 amounted to Rs.1.60.000. Prepare Profit and Appropriation Account.
Note: Guaranteed amount for half-year = 80,000 × ½ = Rs.40,000 Guaranteed amount should be calculated on proportionate basis from the date of admission Guaranteed partner to the dosing date of accounting year.
Solution:
Question 81.
A and B are in partnership sharing profits and losses in the ratio of 3:2. They decided to admit C, their Manager, as a partner with effect horn 1st April. 2015, giving ¼th 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 profits. Profits for the year ended 31st March. 2016 amounted to Rs.2,25.000.
You are required to show Profit and Loss Appropriation Account for the year ended 31st March, 2016
Solution:
Question 82.
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, 2015. 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.
Dholu’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 profits for the year ended 31st March, 2016 amounted to Rs.4,24,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2016.
[Hint : Deficiency of Rs.10,000 in Dholu’s share is recovered from Asgar]
Solution:
Question 83.
Ankur, Bhavna and Disha are partners in a firm. On 1st April, 2015, 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 @50,000 p.a. and a commission of Rs.3,000 per month to Disha as per the provisions of the Partnership Deed. 8havna’s share of profit (excluding Interest on capital) is guaranteed at not less than Rs.1,70,000 p.a. Dishar’s share of profit (including Interest on capital but excluding salary) is guaranteed at not less than Rs.1,50,000 p.a. Any deficiency arising on that account shall be met by Ankur. The profits of the firm for the year ended 31st March, 2016 amounted to Rs.9,50,000.
Prepare ‘Profit and Loss Appropriation Account’ for the year ended 31st March. 2016
Solution:
[/sociallocker]
Question 84.
Ankur and Bobby were into the business of providing software solutions in India. They were sharing profits and losses in the ratio 3: 2. They admitted Rohit for a 1/5 share in the firm. Rohit, an alumni of IIT, Chennai would help them to expand their business to various South African countries where he had been working earlier. Rohit is guaranteed a minimum profit of Rs.2.00.000 for the year. Any deficiency in Rohit’s share Is to be borne by Ankur and Bobby in the ratio 4: 1. Losses for the year were Rs.10, 00.000.
Pass the necessary Journal entries.
Solution:
