1 Accounting for Partnership Firms — Fundamentals Q. 1. Xand ¥are partners sharing profits in the ratio of 2 : balance was extracted from their books on 31st March, 2019 : 1. The undermentioned trial Particulars Dr. Balances | Cr. Balances z x X's Capital 3,20,000 Y's Capital 2,40,000 X's Drawings 40,000 P's Drawings 32,000 Stock (Ist April, 2016) 45,200 Purchases and Sales 8,68,000| —12,45,000 Debtors and Creditors 152,000} 48,000 Buildings 6,00,000 Cash in hand 5,900 Bank Overdraft 27,500 Salaries to Staff 74,700 Rent 26,400 Advertising Expenditure 5,000 Travelling Expenses 31,300 18,80,500 You are required to prepare the Profit and Loss Account and Profit and Loss Appropriation Account for the year ended 31st March, 2019 and a Balance Sheet as on that date. The following adjustments are to be made : (i) The value of stock on March 31, 2019 was %64,000. (ii) Charge depreciation on Buildings at 10%. (iii) Provide for outstanding rent 82,400. (iv) Partners are entitled to interest on Capital @ 5% and X is entitled to a salary of %48,000 pa. SOLUTION: 1. PROFIT & LOSS ACCOUNT OF THE FIRM Dr. for the year ended 31st March, 2019 Cr. Particulars z Particulars z To Opening Stock 45,200 | By Sales 12,45,000 To Purchases 8,68,000 | By Closing Stock 64,000To Gross Profit o/d To Salaries to Staff To Rent 26,400 Add : Outstanding 0 To Advertising Expenditure To Travelling Expenses To Depreciation on Buildings To Net Profit transferred to Profit & Loss Appropriation A/c 3,95,800 74,700 | By Gross Profit b/d 28,800 5,000 31,300 60,000 1,96,000 3,95,800 PROFIT & LOSS APPROPRIATION ACCOUNT Dr. Jor the year ended 31st March, 2019 Cr. Particulars z Particulars z To X’s Salary A/c 48,000 | By Profit & Loss A/c To Interest on Capital : (Net Profit) 1,96,000 x 16,000 ¥ 12,000} 28,000 To Profit transferred to %s Capital A/e 80,000 Ys Capital A/c 40,000 BALANCE SHEET OF THE FIRM as at 31st March, 2019 Liabilities z Assets z Bank Overdraft 27,500 | Cash in Hand 5,900 Outstanding Rent 2,400 | Debtors 1,52,000 Creditors 48,000 | Closing Stock 64,000 Xs Capital 3,20,000 Buildings 6,00,000 Less : Drawings 40,000 Less : Depreciation 60,000 | 5,40,000 2,80,000 Add : Interest on Capital 16,000 Add : Salary 48,000 Add : Net Profit 80,000 | 4,24,000 Ys Capital 2,40,000 Less : Drawings 32,000 2,08,000 Add : Interest on Capital 12,000 Add : Net Profit 40,000Q. 2. Girish and Satish are partners in a firm. Their Capitals on April 1, 2018 were 5,60,000 and %4,75,000 respectively. On August 1, 2018 they decided that their Capitals should be %5,00,000 each. The necessary adjustment in the Capitals were made by introducing or withdrawing cash. Interest on Capital is allowed at 6% p.a. You are required to compute interest on Capital for the year ending March 31, 2019. SOLUTION : 2. Calculation of Interest on Capitals : z Girish; On %5,60,000 for 4 months = $,60,000 x 3 xe = 11,200 on £5,00,000 for 8 months -$,00,000 x 365 = 20,000 31200 Satish = On €4,75,000 for months ~4,75,000 x =8> = 9,500 On £5,00,000 for 8 months ~ $,00,000 x = x & = 20000 39,500 Q. 3..X, Yand Z are partners in a firm. Their Capitals as on April 1, 2016 were %5,00,000; €4,00,000 and %3,00,000 respectively. On July 1, 2016 they introduced further Capitals of €1,00,000; 780,000 and %50,000 respectively. On February 1, 2017 ¥ withdrew £15,000 from his Capital. Interest is to be allowed @ 8% p.a. on the Capitals. Compute interest on Capitals for the year ending March 31, 2017. SOLUTION : Calculation of Interest on Capitals : z X : On %5,00,000 for 3 months (ie., from April 1, 2016 to 30th June, 2016) & 3. _ 5,00,000 x Joo “12 = 10,000 On %6,00,000 for 9 months (ie, from Ist July, 2016 to 31st March, 2017) 89 _ 6,00,000 x 799 * 2 = 36,000 $6000 Y= On %4,00,000 for 3 months z (ie., from April 1, 2016 to 30th June, 2016) 8 3 4,00,000 x 100 * 12 = 8,000 On %4,80,000 for 7 months (e,, from Ist July, 2016 to 31st January, 2017) 8 7 4,80,000 x 799 * 79 = 22,400 On 24,65,000 for 2 months (ie, from Ist February, 2017 to 31st March, 2017) 8 2 4,65,000 x 700 x = 6,200 36,600 kiLd . SOLUTIONS TO PRACTICAL QUESTIONS Z : On %3,00,000 for 3 months z (ie, from April 1, 2016 to 30th June, 2016) 8 3 283. = 6,000 3,00,000 x 100“ 72 On %3,50,000 for 9 months (ie, from Ist July, 2016 to 31st March, 2017) eBay Ot 3,50,000 x 795 * 75 Q. 4. On March 31, 2016 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at %4,00,000; %3,00,000 and %2,00,000 respectively. Subsequently, it was discovered that the interest on capital @ 10% pa. had been omitted. The profit for the year amounted to %1,50,000 and the partner’s drawings had been Mountain : %20,000; Hill 715,000 and Rock 10,000. Calculate interest on capital. SOLUTION : 4, Since interest on capitals is always calculated on capitals in the beginning and the same have not been given, it is necessary to calculate the capitals in the beginning : Statement showing the calculation of capitals in the beginning Particulars Mountain Hill Rock z z z= Capitals at the end ie. on March 31, 2016 4,00,000] 3,00,000| 2,00,000 Add : Drawings (which were previously deducted) 20,000] 15,000} 10,000 4,20,000| 3,15,000| 2,10,000 Less : Share of Profit (which has already been added) %1,50,000 credited in the profit sharing ratio ie. equally 50,000] 50,000) 50,000 Capitals in the beginning i.e. on April 1, 2015 3,70,000| 2,65,000| 1,60,000 Interest on Capital @ 10% z Mountain: 10% on %3,70,000 = 37,000 Hill: 10% on %2,65,000 = 26,500 Rock : 10% on 21,60,000 = 16,000 Fluctuating Capitals Q.5(A). On Ist April, 2018 4 and B commenced business with Capitals of £6,00,000 and %2,00,000 respectively. On 31st March, 2019 the trading profit (before taking into account the provisions of deed) was 2,40,000. Interest on capitals is to be allowed at 6% p.a. B was entitled to a salary of 260,000 p.a. The drawings of the partners A and B were %60,000 and %40,000 respectively. The interest on Drawings for 4 being 2,000 and B 1,000. Assuming that A and B are equal partners, prepare the Profit & Loss Appropriation A/c and Partner's Capital Accounts as at 31st March, 2019,SOLUTION :5| w. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended 31st March, 2019 Cr. Particulars z Particulars zg To Interest on Capitals : By Profit & Loss A/c A 6,00,000 x 6% 36,000 — being profit 2,40,000 B 2,00,000x 6% 12,000 | 48,000] By Interest on Drawings : To Salary to B ~~~ | 60,000) 4 2,000 To Profit transferred to : B 1,000 | 3,000 A’sCapital Alc 67,500 B’sCapital Ake 67,500 Dr. PARTNERS’ CAPITAL ACCOUNTS Cr. Particulars A B Particulars A B 313.2019 z = [14.2018 z z To Drawings 60,000] 40,000 | By Bank 6,00,000 | 2,00,000 To Interest on Drawings 2,000| —1,000|31.3.2019 To Balance cid 6,41,500] 2,98,500 | By Interest on Capitals | 36,000] 12,000 By Salary — | 60,000 By Profit & Loss Appropriation ic | 67,500| 67,500 703,500 | 3,39,500 7,013,500 | 3,39,500 Note : Capitals will be treated fluctuating in the absence of information. Q. 5 (B). Anubha and Kajal entered into partnership sharing profits and losses in the ratio of 2 : 1. Their capitals were %90,000 and 60,000. The profit during the year were %45,000. According to partnership deed, both partners are allowed salary, 700 per month to Anubha and 2500 per month to Kajal. Interest is allowed on capital @ 5% p.a. The drawings at the end of the period were %8,500 for Anubha and 76,500 for Kajal. Interest is to be charged @ 5% p.a. on drawings. Prepare partners capital accounts, assuming that the capital accounts are fluctuating. SOLUTION : 5 (B). PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended Cr. Particulars z Particulars t To Salary : By Profit & Loss A/e ‘Anubha (700 x 12) 8,400| (Profit for the year) 45,000 Kajal (@500 x 12) 6,000 | By Interest on Drawings : To Interest on Capital : . 56 ron 150 Anubba : 8,500 x95 % 75 213 Kajal 3,000 | 7,500] a6 500x-S-6 a 26,500 x — x 163 To Profit transferred to : ue *F00 "12 Anubha’s Capital A/c (2/3 of 23,476) 15,651 Kajal’s Capital A/c (1B 0f 23,476) 7,825 AIR ay EE 3) 3 aa1.6 SOLUTIONS TO PRACTICAL QUESTIONS} Dr. PARTNER'S CAPITAL ACCOUNTS Ch Particulars Anubha | Kajal Particulars Anubha | Kajal zg z z zg To Drawings 8,500} 6,500} By Bank 90,000} 60,000 To Interest on Drawings 213 163 | By Salary . 8,400] 6,000 To Balance c/d 1,09,838| 70,162 | By Interest on Capital 4,500| 3,000 By P & L Appropriation Alc (Share of Profit) 7,825 1,18,551] 76,825 76,825 Q. 6.4 and B started a partnership business on Ist April , 2018. They contributed %6,00,000 and %4,00,000 respectively, as their capitals. The terms of the partnership agreement are as under : (i) Interest on capital and drawings @ 6% per annum. (ii) Bis to get a monthly salary of 2,500. (ii) Sharing of profit or loss will be in the ratio of their capital contribution. The profit for the year ended 31st March, 2019, before making above appropriations was %2,07,400. The drawings of A and B were 48,000 and %40,000 respectively. Interest on drawings amounted to 71,500 for A and 1,100 for B. Prepare profit and loss appropriation account and partners’ capital accounts assuming that their capitals are fluctuating. SOLUTION : 6, PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. Jor the year ended 31st March, 2019 Cr. Particulars z Particulars z To Salary to B (2,500 x 12) 30,000 | By Profit & Loss A/c To Interest on Capital : (Net Profit as per A 36,000 Profit & Loss A/c) 2,07,400 B 24,000 | 60,000 | By Interest on Drawings : To Profit transferred to : 4 1,500 A’s Capital A/c 3/5 72,000 B 1,100 2,600 B's Capital A/e 2/5 48,000 1,20,000 2,10,000 Dr. PARTNER'S CAPITAL ACCOUNTS cr. Particulars 4 B Particulars 4 B 313.2019 z = [ia20i8 z z To Drawings 48,000) 40,000 By Bank 6,00,000 | 4,00,000 To Interest on Drawings | 1,500| _1,100/31.3,2019 To Balance o/d 6,58,500] 4,60,900 | By Salary 30,000 By Interest on Capital | 36,000} 24,000 By Profit & Loss Appropriation A/c (Share of Profit)a 7. Xand Y are Partners with capitals of €1,00,000 and %80,000 respectively on Ist April, 2016 and their Profit sharing ratio is 2 : 1. Interest on capital is agreed @ 12% p.a. ¥ llowed an annual salary of %6,000. The profit for the year ended 31st March, 2017 amounted to 750,000, Manager is entitled to a commission of 10% of the profits. Prepare Profit and Loss Appropriation Account and Capital Accounts, SOLUTION : 7, PROFIT AND LOSS ACCOUNT Dr. Sor the year ended 31st March, 2017 Cr. Particulars z Particulars z To Manager's Commission By Profit for the year 50,000 10% of 750,000 5,000 To Net Profit transferred to Profit & Loss Appropriation A/c} 45,000 50,000 PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. Jor the year ended 31st March, 2017 Cr Particulars z Particulars z To Interest on Capitals : By Profit & Loss A/c 45,000 Xx 12,000 ¥ 9,600 21,600 To Salary to Y 6,000 To Profit transferred to : Xs Capital A/c 11,600 F's Capital A/c 5,800 Dr. PARTNER’S CAPITAL ACCOUNTS Cr. Particulars x Y Particulars x Y 313.2017 | ¢ = /142016 z z To Balance o/d 1,23,600| 1,01,400 | By Balance b/d 1,00,000| 80,000 31.3.2017 By Interest on Capital | 12,000} 9,600 By Salary —1| 6,000 By P & L Appropriation Ale 11,600} 5,800 Q. 8. Asha and Lata are partners sharing profits in the ratio of 1 : 2. Asha is entitled to a salary of %2,00,000 p.a. and a commission of 8% of net Profit before charging any commission. Lata is entitled to a commission of 8% of net profit after charging her commission. Net Profit for the year ended 31st March, 2018 amounted to €5,40,000, Prepare Profit & Loss Appropriation Account.SOLUTION : 8. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. ‘for the year ended 31st March, 2018 Cr Particulars = Particulars z To Asha’s Salary 2,00,000 | By Profit & Loss A/c To Asha’s Commission (Net Profit) 5,40,000 8 (5,40,000 x 79) 43,200 To Lata’s Commission 8 (5,40,000% 795) 40,000 To Profit transferred to : Asha’s Capital A/c 85,600 Lata’s Capital Ale 1,71,200 | 2,56,800 5,40,000 Q. 9. A and B are partners in a firm sharing profits or losses in the ratio of 2:3 with capitals of %4,00,000 and %8,00,000 respectively on Ist April, 2016. Each partner is entitled to 10% p.a. interest on his capital. B is entitled a commission of 10% on net profit remaining after deducting interest on capital but before charging any commission. A is entitled a commission of 8% of net profit remaining after deducting interest on capital and after charging all commissions. The profit for the year ended 31st March, 2017 prior to calculation of interest on capital was %6,00,000. Prepare Profit and Loss Appropriation Account. SOLUTION : 9. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended 31st March, 2017 Cr. Particulars Lz Particulars z To Interest on Capital By Profit & Loss Ale 4 40,000 — being profit 6,00,000 B 80,000 | 1,20,000 To Commission (See Note 1) A 32,000 B 48,000 80,000 To Profit transferred to : A’sCapital Ale 1,60,000 B’sCapital A/c 240,000 | 4,00,000 6,00,00 Note 1. : Calculation of Partner’s Commission : Profit : %6,00,000 — %1,20,000 = %4,80,000 B's Commission (before charging such commission) = %4,80,000 x 2 = 348,000 A’s Commission (after charging such commission) = A’s Commission will be calculated after charging B’s Commission and his own Commission : Hence, 4’s Commission = (4,80,000 ~ 48,000) x # = 832,000Fixed Capitals Q. 10. Yand Z are parmers with capitals of 225,000 and 21 5,000 respectively on Ist April, 2016. Each Partner is entitled to 9% p.a. interest on his capital. Z is entitled to a salary of % 6,000 p.a. together with a commission of 6% of Net Profit remaining after deducting interest on capitals and salary and after charging his commission. The profits for the year ended 31st March, 2017 before making any of the above mentioned adjustments amount to 30,800. Prepare Partner’s Capital Accounts : (i) when capitals are fixed, and (ii) when capitals are fluctuating. SOLUTION : 10, PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended 31st March, 2017 cr. Particulars z Particulars z To Interest on Capitals : By Profit and Loss A/c 30,800 Yy 2,250 Zz 1,350 3,600 To Salary (Z) 6,000 To Commission (Z) (See Note 1) 1,200 To Profits : Y's Current/Capital A/e 10,000 Zs Current/Capital A/e 10,000 | 20,000 30,800 Note (1) Caleulation of Z’s Commission : Profit ; £30,800 — 3,600 - 26,000 = %21,200 21,200 oa 21,200. (@) When Capitals are fixed : Dr. CAPITAL ACCOUNTS G Particulars Y |Z Particulars y[z 313.2017 ® |] & [142016 w]e To Balance e/d 25,000 15,000] By Balance b/d 25,000 15,000 25,000 | 15,000 25,000 Dr. CURRENT ACCOUNTS cr Particulars y |Z Particulars y |Z 313.2017 v | & (3132017 7 |? To Balance o/d 12,250 | 18,550 | By Interest on Capitals [2,250 | 1,350 By Salary — | 6,000 By Commission — | 1,200 By Profit & Loss Appropriation A/ca os 2e2-------.-..--.... SOLUTIONS TO PRACTICAL QUESTIONS (di) When Capitals are fluctuating : Dr. CAPITAL ACCOUNTS Cr. Particulars ¥ Zz Particulars Y Zz 31.3.2017 = | & |ia2016 2 | 8 To Balance c/d 37,250 | 33,550 | By Balance b/d 25,000] 15,000 313.2017 By Interest on Capitals 2,250| 1,350 By Salary — | 6000 By Commission — | 1,200 By Profit and Loss Appropriation A/c 10,000 | 10,000 37,250 Q 11 (A). (Fixed Capital), Z, Mand N are partners in a firm sharing profits & losses in the ratio of 2:3: 5. On April 1, 2016 their fixed capitals were %2,00,000, %3,00,000 and %4,00,000 respectively. Their partnership deed provided for the following (8) Interest on capital @ 9% per annum. (i) Interest on Drawings @ 12% per annum, (iti) Interest on partner's loan @ 12% per annum. On July 1, 2016, Z brought €1,00,000 as additional capital and N withdrew %1,00,000 from his capital. During the year L, M and N withdrew %12,000, 718,000 and 724,000 respectively for their personal use. On January 1, 2017 the firm obtained a Loan of %1,50,000 from M. The Net profit of the firm for the year ended March 31, 2017 after charging interest on M’s Loan was €85,000. Prepare Profit & Loss Appropriation Account and Partner’s Capital Accounts, (CBSE. Sample Paper, 2018) SOLUTION : 11 (A). PROFIT & LOSS APPROPRIATION ACCOUNT Dr. ‘for the year ended on March 31, 2017 Cr Particulars z Particulars z To Interest on Capital : By Profit & Loss — Net Profit bid] 85,000 L’s Current Alc 24,750 By Interest on Partners’ M's Current Ale 27,000 Drawings” NsCurrent Alc 29,250) 81,000| 1’ Current A/c r20 To Profit transferred to : M's Current Ale 1,080 L's Current Ale 1,448 N's Current Ale 1,440! 3,240 M's Current Ale 2172 N’s Current Ale 3,620] 7,240 ma aACCOUNTING FOR PARTNERSHIP FIRMS — FUNDAMENTALS Dr. PARTNERS’ CAPITAL ACCOUNTS Date Particul) EL M | N | Date |Particul Lb mM] ON ars ars 2016 z z z | 2016 z z z July 1 |To Apr. 1 |By Bal. Bank bid |2,00,000|3,00,000| 4,00,000 Alc 1,00,000| July 1 [By 2017 Bank Mar. 31|To Bal. ‘Alc |1,00,000 eld Working Notes : z (1) Interest on Capital toL: On2,00,000for3 months = = = 4,500 ‘On 3,00,000 for 9 months * 20,250 24,750 Interest on Capital to: ©n4,00,000for3 months = 9,000 0n3,00,000 for 9 months = = ~—-20,250 29,250 (2) Interest on Drawings will be calculated for an average period of six months. @Q) Since Capitals are fixed, drawings will not be recorded in Capital Accounts Q.11(B). A and B are partners in a firm. Their capitals as on Ist April, 2016 were 22,10,000 and %90,000 respectively. They share profits in the ratio of 2: 1. On Ist Augus 2016, they decided that their capitals should be readjusted according to their profit sharin. ratio. The necessary adjustments in the capitals were made by withdrawing or introducing cash. Interest on capital is allowed at 12% p.a. Compute interest on capitals for the year ending on 31st March, 2017. SOLUTION : 11 (B) Total capital of A and B = 2,10,000 + 90,000 = %3,00,000 Therefore, —4’s adjusted capital should be 3,00,000 3 = 2,00,000 B's adjusted capil shouldbe 3,00,000 x= 10,000 On Ist August 4 will withdraw 710,000 whereas B will bring in cash amounting to €10,000, Interest on Capitals : A B From Ist April, 2016 60 3it uy, 2016 z z - 4 . =22,10,000x+ 12 * 100 = 8,400 + 12 _ = %90,000 x55 * 799 = 3,600 From Ist August, 2016 to 31st March, 2017 812 _ = %2,00,000 x 75 x 00 = 16,000 8 12 . = 31,00,000 x 75x 799 = 8,0001.12 SOL and %80,000 respectively on Ist April, 2015. Their Current Account balances were A : 820,000; B : %10,000 and C : 75,000 (Dr.). According to the partnership deed the partners were entitled to interest on capital @ 10% p.a. B being the working partner was also entitled to a salary of €6,000 per quarter. The profits were to be divided as follows (a) The first 60,000 in proportion to their capitals. (b) Next &1,00,000 in the ratio of 4:3 : 1. (6) Remaining profits to be shared equally. The firm made a profit of %2,80,000 for the year ended 31st March, 2016 before charging any of the above items. Prepare the Profit & Loss Appropriation Account and pass necessary journal entry for apportionment of profits. SOLUTION : 12. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended 31st March, 2016 Cr. Particulars z Particulars z To Interest on Capital (at 10% p.a) By Profit & Loss A/e A’s Current A/c : (Net Profit as perP &L A/c) | 2,80,000 ‘on %2,00,000 20,000 B’s Current A/c : on %2,00,000 — 20,000 C’s Current A/c on® 80,000 8,000 | 48,000 To Salary (B’s Current A/c) (%6,000 x 4) 24,000 To Profit transferred to : A’s Current A/e 91,000 B’s Current A/e 78,500 C’s Current A/c 38,500 JOURNAL ENTRY (For Appropriation of Profit) Date Particulars LF. | Dr. ®) | Cr.(®) 31.3.2016 Profit & Loss Appropriation A/e Dr. 2,08,000 To 4’s Curent A/c 91,000 To B’s Current A/c 78,500 To C’s Current Ale 38,500 (Profit transferred to current accounts) Working Note : Profit after interest on capital and Salary : %2,80,000 — £48,000 - 24,000 = %2,08,000 ; ; A(®) C(®) First %60,000 in Capital Ratio ie, 5 : 5:2 25,000 10,000 Next 21,00,000 in 4:3: 1 50,000 12,500 Remaining %48,000 equally 16,000 16,000 91,000 38,5001.13 @ 13. A, Band C are partners with Fixed Capitals of %1,00, 000; 22, 2,00, 000 and %3,00,000 respectively. Their partnership deed provides that : (a) A is to be allowed a monthly salary of 2600 and B is to be allowed a monthly salary of 7400. (b) C will be allowed a commission of 5% of the net profit after allowing salaries of Aand B. (c) Interest is to be allowed on Capitals @ 6%. (d) Interest will be charged on partner's annual drawings at 4%. (e) The annual drawings were: B 10,000 and C 15,000 The net profit for the year ending 31st March, 2016 amounted to %1,72,000, Prepare Profit and Loss Appropriation Account. SOLUTION : 13. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. ‘for the year ended 31st March, 2016 Cr. Particulars z Particulars z To Salary By Profit & Loss A/c A’s Current A/c : (Profit for the year) 1,72,000 600 x 12 = 7,200 By Interest on Drawings B’s Current A/c (4% on annual drawings) 400 x 12 = 4,800 | 12,000) —B°s Current A/c 400 To Commission to C C’s Current A/c 600 1,000 (5% on 1,60,000) 8,000 To Interest on Capital : A’s Current A/c 6,000 B’s Current Ale 12,000 C’s Current A/c 18,000 | 36,000 To Profit transferred to : A’s Current A/c 39,000 B’s Current A/c 39,000 C’s Current A/c 39,000 | 1,17,000 1,73,000 1,73,000 Note : Since 4% interest is to be charged on annual drawings, it will be charged for full year instead of six months. Q. 14. 4, B and C entered into partnership on Ist April 2016 with capitals of %10,00,000, %8,00,000 and €5,00,000 respectively. On Ist July 2016, B advanced 2,00,000 and on Ist December 2016 C advanced %1,00,000 by way of loans to the firm. The Profit and Loss Account for the year ended 31.3.2017 disclosed a profit of %7,70,000 but the partners could not agree upon the rate of interest on loans and the profit sharing ratio, Prepare partner’s Capital A/cs and Loan A/cs. SOLUTION : 14. Dr. PARTNER’S CAPITAL ACCOUNTS: o. Date |Particulars| A B C | Date |Particulars 4 B c 2017 z z z 2016 z ¢ z Mar. 31|To Bal- April | |By Bank1.14 SOLUTIONS TO PRACTICAL QUESTIONS ance ‘Ale | 10,00,000| 8,00,000| 5,00,000 eld | 12,53,000 | 10,53,000| 7,53,000 | 2017 Mar.31|By P&L Appr. Ale |_2,53,000] 2,53,000| 2,53,000 12,53,000 | 10,53,000 | 7,53,000 12,53,000 | 10,53,000 | 7,53,000 Dr. B’s LOAN ACCOUNT Cr. Date Particulars z Date Particulars z 2017 2016 March 31 | To Balance c/d 2,09,000} July 1 | By Bank A/c 2,00,000 2017 March 31 | By Interest on Loan A/c Dr. C’s LOAN ACCOUNT Cr. Date Particulars z Date Particulars z 2017 2016 March 31 | To Balance c/d 1,02,000} Dec. 1 | By Bank A/c 2017 March 31 | By Interest on Loan A/c Working Notes : (1) In the absence of agreement, Interest on Loan is to be paid @6% p.a. and profits will be shared equally. (2) Interest on B’s Loan =2,00,000 x2. i xe = 29,000 Interest on C’s Loan = 1,00,000 x in 7 = 82,000 Total 11,000 (3) Net Profit after interest on Loan = %7,70,000 — 11,000 = %7,59,000 (4) Each partner's share of profit = %7,59,000 +3 = &2,53,000 Q 15. Lata and Mamta are partners with capitals of €3,00,000 and 22,00,000 respectively sharing profits as Lata 70% and Mamta 30%. During the year ended 31st March 2016 they eamed a profit of %2,26,440 before allowing interest on partner’s loan. The terms of partnership are as follows: (A) Interest on Capital is to be allowed @ 7% p.a. (ii) Lata to get a salary of 22,500 per month. (iii) Interest on Mamta’s Loan account of %80,000 for the whole year. (i) Interest on drawings of partners at 8% per annum. Drawings being Lata %36,000 and Mamta 48,000. (v) 1/L0th of the distributable profit should be transferred to General Reserve. Show the distribution of profits.ACCOUNTING FOR PARTNERSHIP FIRMS — FUNDAMENTALS 1.15 SOLUTION : 15. PROFIT AND LOSS ACCOUNT Dr. for the year ended 31st March, 2016 Cr. Particulars z Particulars z To Interest on Mamta’s Loan 4,800 | By Profit before interest 2,26,440, To Profit transferred to Profit & Loss Appropriation A/c 221,640 2,26,440 2,26,440 PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended 31st March, 2016 Cr. Particulars z Particulars z To Interest on Capital : By Profit & Loss Ae — Lata 21,000 Net Profit 2,21,640 Mamta 14,000 | 35,000 | By Interest on Drawings To Salary (Lata) 30,000} Lata 1,440 To General Reserve A/c 16,000] Mamta 1,920 | 3,360 To Profit transferred to : Lata’s Capital Ale 1,00,800 Mamta’s Capital A/c _ 43,200 Notes: (1) Interest on Mamta’s Loan has been calculated at 6% p.a. (2) Interest on Drawings has been calculated for an average period of 6 months. @) Distributable Profit = Total of Credit side 2,25,000 (J Total of Debit side (35,000 + 30,000) 65,000 7,60,000 General Reserve is 10% of 1,60,000 = 16,000 Q. 16. 4, B and C are partners sharing the profits and losses in the ratio of 2:3 : 5. On Ist July, 2018, 4 and B granted loans of €2,00,000 and %1,00,000 respectively to the firm. Show the distribution of profits/losses for the year ended 31st March, 2019, in the following cases : Case (a) If the profits before interest for the year amounted to %7,500. (6) If the loss before interest for the year amounted to 77,500. SOLUTION : 16. Case (2) PROFIT AND LOSS ACCOUNT Dr. or the year ending on 31st March, 2019 Gr Particulars z Particulars z To Interest on Loan : By Profit before interest 7,500 4 9,000 By Net Loss transferred to : B 4,500 | 13,500] 4's Capital A/e 1,200 Bs Capital A/e 1,800 C’s Capital Ale 3,000 | 6,000 3 31.16 SOLUTIONS TO PRACTICAL QUESTIONS: Case (6) PROFIT AND LOSS ACCOUNT Dr. for the year ending on 31st March, 2019 or Particulars z Particulars z To Loss before interest 7,500 | By Net Loss transferred to: To Interest on Loan : A°s Capital Ale 4,200 4 9,000 B's Capital Alc 6,300 B 4500 | 13,500] C’sCapital Ale ‘10,500 31,000 Notes (i) Interest on ’s Loan = %2,00,000 x we x - = 29,000 = b,o _ Interest on B's Loan = %1,00,000x=6 x2 = 24,500 Q.17. 4, Band Care partners in a firm sharing profits and losses equally. On Ist April, 2018 their fixed capitals were 78,00,000, %6,00,000 and 6,00,000 respectively. On Ist October 2018, 4 advanced %1,00,000 to the firm whereas C took a loan of €1,50,000 from the firm on the same date. It was agreed among the partners that C will pay interest @ 10% pa Profit for the year ended 31st March, 2019 amounted to 4,20,000 before allowing or charging interest on loans. Pass journal entries for interest on loans and prepare Current Accounts of the partners. SOLUTION : 17. JOURNAL OF 4, B AND C Date Particulars LF. | Dr. @) | Cr. @) 2019 March 31 | Interest on 4’s Loan A/c Dr. 3,000 To 4’s Loan A/c 3,000 (Interest allowed on 4’s Loan for six month) March 31 | Profit & Loss A/c Dr. 3,000 To Interest on 4’s Loan A/c 3,000 (Cransfer of interest on 4’s Loan to P & L Ale) March 31 | C’s Current A/c Dr. 7,500 To Interest on C’s Loan A/c 7,500 (Interest charged on Loan to C for six months) March 31 | Interest on C’s Loan Alc Dr. 7,500 To Profit & Loss A/c 7,500 (Transfer of Interest on Loan to C to P & L A/c) Dr. PARTNER'S CURRENT ACCOUNTS Cr. Par. Date Neaad A B Cc Date ees A B Cc 2019 z z z= | 2019 z z z Mar.31 |To Int. Mar. 31 |By jon C's, P&L Loan Appro- Ale 7,500| PriationMar.31 |To Bal Ae | 1,41,500| 1,41,500| 1,41,500 eld | 1,41,500) 1,41,500) 134,000 1,41,500} 1,41,500] 1,41,500| 1,41,500) 1,41,500} 1.41,500 Working Note: Divisible Profits : 4,20,000 — 3,000 + 7,500 = 4,24,500. It will be divided equally among all partners. Q. 18. Radha and Rukmani are partners in a firm with fixed capitals of %2,00,000 and %3,00,000 respectively, They share profits in the ratio of 1 : 2. Both partners are entitled to interest on capitals @ 8% per annum. In addition, Rukmani is entitled to a salary of %20,000 per month. Business is being carried from the property owned by Radha ona yearly rent of %1,20,000. Net Profit for the year ended 31st March 2018 before providing for rent was %5,50,000. You are required to draw Profit & Loss Appropriation Account for the year ended 31st March, 2018 SOLUTION : 18. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. Jor the year ended 31st March, 2018 Cr. Particulars zg Particulars zg To Interest on Capitals : By Profit & Loss A/c (Net Profit) Radha 24,000 (5,50,000 — %1,20,000)* 4,30,000 Rukmani 16,000 | 40,000 To Salary to Rukmani 2,40,000 To Profit transferred to : Radha’s Current A/e 50,000 Rukmani’s Current Ale 1,00,000 4,30,000 * Rent paid to a partner is charge against profits. It will be debited to P & L A/c instead of P & L Appropriation A/c. Q. 19. P and Q are partners sharing profits and losses in the ratio of 60 : 40. On Ist April, 2014, their capitals were : P — %5,00,000 and © — %3,00,000. During the year ended 31st March, 2015, they earned a net profit of %7,60,000. The terms of partnership are: (i) Interest on the capital is to be charged @ 8% p.a. (ii) P will get commisson @ 3% on turnover. (iii) Q will get a salary of 25,000 per month. (iv) Q will get commission of 5% on profits after deduction of interest, salary and commission (including his own commission), (») Ps entitled to a rent of €20,000 per month for the use of his premises by the firm. Partner’s drawings for the year were : P— %40,000 and Q — %30,000. Tumover for the year was %20,00,000. After considering the above factors, you are required to prepare the Profit and loss Appropriation Account and the Capital Accounts of the Partners.SOLUTIONS SOLUTION : 19. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended 31st March, 2015 Cr. Particulars zg Particulars z To Interest on Capitals : By Profit & Loss A/c P 40,000 — Net Profit (27,60,000 Q 24,000 | 64,000} —Rent %2,40,000) 5,20,000 To Q’s Salary 60,000 | ToCommission: P 60,000 Q — 16,000 | 76,000 To Profit transferred to : P'sCapital Ae ——_—1,92,000 Q’sCapital A/c 1,28,000 | 3,20,000 5,20,000 Dr. PARTNER'S CAPITAL ACCOUNTS Date | Particulars |__P Q | Date | Particulars | P Q 2015 z z 2014 ; 2 z Mar.31 {To Drawings | 40,000} 30,000] Apr-1 |By Bal. b/d | 5,00,000) 3,00,000 Mar.31|ToBal.c/d | 7,52,000] 4,98,000] 2015 Mar. 31 |By Interest on Capital 40,000} 24,000 Mar. 31 |By Salary 60,000 Mar. 31 |By Commi- ssion 60,000] 16,000 Mar. 31 |By P & L App. Alc (Profit)| 1,92,000| 1,28,000 Working Notes : (1) Net Profit transferred from P & L A/c to P & L App. Ale = 7,60,000 — Rent %2,40,000 = 25,20,000 (2) Net Profit after deducting interest on capitals, salary and P's commission : 5,20,000 — %64,000 - 760,000 - 260,000 = 3,36,000 Q's Commission = 3,36,000 x a = 16,000 (3) Rent will be credited to Rent Payable Account. Q. 20. A and B are partners sharing profits and loss in the ratio of their capitals which were %6,00,000 and %4,00,000 respectively on Ist April 2018. The partnership deed provides that: (i Both partners will get monthly salary of €20,000 each; (ii) Interest on capital will be allowed @ 8% p.a.; (iii) A will get a quarterly rent of €24,000 for the use of his property by the firm. On Ist July, 2018 4 and B granted loans of €1,00,000 and %50,000 respectively to the firm. During the year ended 31st March 2019, the firm incurred a loss of 217,250 before any adjustment is made as per partnership deed.Prepare an account showing the distribution of profit/loss. SOLUTION : 20. PROFIT AND Loss APPROPRIATION ACCOUNT Dr. for the year ended 31st March, 2019 cr. Particulars z Particulars zg ToP &L Ade (Net Loss) 17,250]| By Net Loss transferred to : To Rent (824,000 x4) 96,000) 4’s Capital Ale (3/5) 72,000 To Interest on Loan : Bs Capital Alc (2/5) 48,000 | 1,20,000 A 4,500 B 2250 1,20,000 Working Notes : (0 Intereston Loan: 4: 1,00,000x6 x2 = 4,500 B: 50,000 & x 2 = 32,250 (ii) Rent and Interest on Loan are charge against profits, They will be allowed even in case of loss. (Gi) Since the firm has incurred loss, salary to partners and interest on capitals will not be allowed. (iv) Profit & Loss Appropriation A/c will not be prepared since there is no profit to be appropriated. Q.21. A and B are partners in a firm sharing profits in the ratio of 1 :2. Their capitals on Ist April 2018 were %4,00,000 and %6,00,000 respectively. As per partnership deed, A is to get a monthly salary of 15,000 and interest on capitals is to be provided @ 10% p.a. and charged on drawings @ 12% p.a. During the year A withdrew €30,000 and B withdrew 50,000. The firm incurred a loss of 760,000 during the year ended 31st March, 2019 before above adjustments. You are required to prepare an account showing the distribution of profit/loss. SOLUTION : 21. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. ‘for the year ended 31st March, 2019 Cr. Particulars z Particulars z To Profit & Loss A/c (Net Loss) | 60,000] By Interest on Drawings - 4 1,800 B 3,000 | 4,800 By Loss transferred to : A’s Capital Ale (1/3) 18,400 B’s Capital Ale (2/3) 36,800 | 55,200 60.906Working Notes : (0, nterest on Drawings: A: 30,000% 12 x & = t1,300 12. 6 B: 30,000x12 x & = 23,000 In the absence of actual date of drawings, interest will be calculated for an average period of 6 months. (ii) Although Profit & Loss Appropriation A/c is not prepared in case of loss, it has been Prepared because interest on drawings is to be credited to this account. Q. 22. Xand ¥ are partners in a firm sharing profits and losses in the ratio of 3 : 2 with Capitals of €10,00,000 and %5,00,000 respectively. As per the partnership deed, they are to be allowed interest on capital @ 8% p.a. The net profit for the year ended 31st March, 2016 before providing for interest on capital amounted to % 45,000. Show the distribution of profit. SOLUTION : 22. PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. or the year ending on 31st March, 2016 Gr Particulars z Particulars [% To Interest on Capital : By Profit & Loss A/e (Net Profit) | 45,000 X2/3 of 45,000 30,000 ¥ 1/3 of 45,000 15,000 | 45,000 45,000 45,000 Working Note : z Interest on Xs Capital = 8% on %10,00,000 80,000 Interest on ¥'s Capital = 8% on & 5,00,000 40,000 000 Since available profit is only £45,000 which is less than appropriations of @1,20,000, profit will be distributed in the ratio of appropriations as follows : Interest on Capital 80,000 : 40,000 or 2 1 Q. 23. Pooja and Archna are partners in a firm sharing profits and losses in the ratio of 2 : 1. Their capital accounts as on Ist April, 2017 stand at 270,000 and %30,000 respectively. The partners are allowed interest on capital @ 10% p.a. The drawings of the partners during the year ended 31st March, 2018 amounted to 24,800 and €3,600 respectively. Interest is charged on drawings at the rate of 10% pa. Pooja has given a loan to firm as on Ist November, 2017 of 820,000. ‘The profit of the firm for the year ended 31st March, 2018 before above adjustments was %80,000. 10% of this profit is to be kept in a Reserve Account, Current A/c balances on Ist April, 2017 were Pooja 75,000 (Cr.); Archna 223,000 (Dr). Prepare Profit and Loss Appropriation Account and Partners’ Current Accounts. SOLUTION : 23, PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended 31st March, 2018 Cr. Particulars z Particulars z To Transfer to Reserves 8,000 | By Profit and Loss A/c 80,000To Interest on Capitals Less : Interest on Puja’s Pooja’s Current Ac 7,000 Loan (20,000 x 6/100 Archna’s Current Ale 3,000 | 10,000 x 5/12) 500 | 79,500 To Profit transferred to By Interest on drawings Pooja’s Current Ale 41,280 Pooja’s Current A/c 240 Archna’s Current A/c 20,640 | 61,920] Archna’s Current A/c 180 420 79,920 Dr. CURRENT ACCOUNTS Cr. Particulars Pooja _| Archna Particulars Pooja | Archna 1.42017 z = [1.42017 z z To Balance b/d - 23,000 | By Balance b/d 5,000 —- 313.2018 31.3.2018 To Drawings 4,800| 3,600 | By Interest on Capital 7,000} 3,000 To Interest on Drawings) 240| ‘180 | By Profit and Loss To Balance c/d Appropriation Ave | 41,280] 20,640 By Balance c/d —| 3140 Note : Interest on Loan is not recorded in the Current Account. Interest on Drawings Q.24(A). Mr. Ashok Gupta is a partner in a firm. He withdrew the following amounts during the year ended 31st March, 2018 :— z April 30 8,000 June 30 6,000 September 30 5,000 December 31 12,000 January 31 10,000 Calculate interest on drawings @ 9% p.a. for the year ended on 31st March, 2018. SOLUTION : 24 (A). SIMPLE METHOD Date Amount Period Interest @ 9% z (Months upto March 31) z April 30 8,000 ll 660 June 30 6,000 9 405 September 30 5,000 6 225 December 31 12,000 3 270 January 31 10,000 2 150 41,000 1,710 jw PRODUCT METHOD Date Amount Period Products (Months upto March 31) April 30 8,000 anf 88,000 June 30 6,000 9 54,000 September 30 5,000 6 30,0001.22 SOLUTIONS TO PRACTICAL QUESTIONS December 31. 12,000 3 36,000 January 31 10,000 2 20,000 41,000 2,28,000 s 1 Interest = = gas terest = Total of Products x —— aX + 2,28,000 x 100 * 72 @1,710 Q. 24 (B). 4 isa partner in a firm. During the year ended 31st March, 2018, 4’s drawings were z Ist June 1,000 Ist August 750 Ist October 1,250 Ist December 500 Ist February 500 Interest on drawings is charged @ 10% per annum, Calculate interest on drawings of A for the year ended 31st March, 2018. SOLUTION : 24 (B). (i) SIMPLE METHOD Date Amount Period Interest @ 10% z (Months upto March 31) s Ist June 1,000 10 83 Ist. August 750 8 50 Ist October 1,250 6 63 Ist December 500 4 17 Ist February 500 2 8 4,000 221 (3) PRODUCT METHOD Date Amount Period Products z (Months upto March 31) Ist June 1,000 10 10,000 Ist August 750 8 6,000 Ist October 1,250 6 7,500 Ist December 500 4 2,000 Ist February 500 2 1,000 4,000 26,500 1 1 Interest = Total of Products x ——— 100 x = 26, 500% Oh = 221 Q. 25 (A). Gopal is a partner in a firm. He withdrew 1,000 p.m. regularly on the first day of every month during the year ended 31st March, 2018 for personal expenses. If interest on drawings is charged @ 15% p.a. calculate the interest on the drawings of Gopal. SOLUTION : 25 (A). Gopal withdrew @1,000 p.m. regularly on the first day of every month during the year ended 31st March, 2018 for personal expenses. His interest on drawings will be calculated as follows : 15 65 _ 12, ,000 x55 x 2D 8975ACCOUNTING FOR PARTNERSHIP FIRMS — FUNDAMENTALS 1.23 Q.25(B). X, Yand Zare partners in a firm. You are informed that (i) Xdraws 34,000 from the firm at the beginning of every month, (ii) Y draws %4,000 from the firm at the end of every month, and (iii) Z draws %4,000 from the firm in the middle of every month. Interest on drawings is to be charged @ 9% p.a. Calculate interest on partner's drawings. SOLUTION : 25 (B), (i) The interest on drawings of X who draws at the beginning of every month is : $5 _ 48,000 x ax Fy 7 22340 (ii) The interest on cravings 7 ¥ who draws at the end of every month is 48,000x79, x Be 31,980 (iii) The interest on drawings of Z who draws in the middle of every month is 9 6 48,000 x Too * 12 = F2,160 Q. 26. Calculate the interest on drawings of Mr. Aditya @ 8% p.a. for the year ended 31st March, 2016, in each of the following alternative cases : Case (i) If he withdrew %5,000 in the beginning of each quarter. (ii) If he withdrew 6,000 at the end of each quarter. (iii) If he withdrew 710,000 during the middle of each quarter. SOLUTION : 26. Case (() Total Drawings forthe year = %5,000 x 4 = 20,000 Average Period = 12 months +3 months =7.5 months ee Interest on Drawings = %20,000% 785x725 = x1,000 Case (i) Total Drawings for the year = 6,000 x4 = #24,000 Average Period = Fmonts +O perth = 4.5 months — 8 45 i Interest on Drawings = €24,000%785 x45 = e720 Case (iff) Total Drawings for the year = €10,000 x 4 = £40,000 ‘Average Period = — = 6 months fo Interest on Drawings = 740,000 x —— tx = 71,600 Q. 27. Calculate the interest on drawings of Sh. Ganesh @ 9% p.a. for the year ended 31st March, 2016, in each of the following alternative cases : Case (#) If he withdrew 74,000 p.m. in the beginning of every month; (i If he withdrew €5,000 p.m. at the end of every month.; (iii) If he withdrew %6,000 p.m; (iv) If he withdrew %72,000 during the year; (0) If he withdrew as follows : z 30th April, 2015 10,000 Ist July, 2015 15,0001,24 SOLUTIONS TO PRACTICAL QUESTIONS [st Oct, 2015 18,000 30th Nov., 2015 12,000 31st March, 2016 20,000 (vi) If he withdrew 712,000 in the beginning of each quarter; (vii) If he withdrew 718,000 at the end of each quarter; (viii) If he withdrew 218,000 during the middle of each quarter. SOLUTION : 27. 112 months +L months = 62 months Case (i) Average Period = a : ns 965 Interest on Drawings = €48,000x-755 x $3 22,340 Case (ii) Average Period = = = 5}, months oS e Interest on Drawings = 60,000 x +9. x3 = 22,475 Case (iif) Assuming that the drawings were made in the middle of every month : 11.5 months + 0.5 month Average Period = 11S montis £09 month = 6 months Interest on Drawings = €72,000 x a x 4 = 33,240 Case(iv) As the date of drawing is not given, interest will be caleulated for an average period of 6 months. ines = yb = Interest on Drawings = €72,000 x55 X75 = 23,240 Case(v) Date Amount of Drawings | Period (Months upto Products z ist March, 2007) z 30th Apal, 2015 70,000 mT 1,10,000 Ist July, 2015 15,000 9 1,35,000 Ist Oct, 2015 18,000 6 1,08,000 30th Nov., 2015 12,000 4 48,000 3st March, 2016 20,000 0 _ 401,000 ines 9 Interest on Drawings = %4,01,000% —2, Case (vi) Average Period = “months +3 mons = 7 months Total Drawings for the year = €12,000 x 4 = 848,000 Interest on Drawings = %48,000 x ms 5 = 22,700 Case(vii) Average Period = Omen month = 4h months Total Drawings for the year = %18,000 x 4 = 872,000 Interest on Drawings = 772,000 x 2 8 ; = 22,430 100 *ACCOUNTING FOR PARTNERSHIP FIRMS — FUNDAMENTALS, 1.25 Case (viii) Average Period = 6 months Total Drawings for the year = 218,000 x 4 = 272,000 ings = 9 6 = Interest on Drawings = %72,000 x +55 75 23,240 Q. 28(A). Gupta is a partner in a firm, He drew regularly €800 at the beginning of every month for the six months ending 31st March, 2018. Calculate interest on drawings at 15% pa. SOLUTION : 28 (A). Gupta withdraws %800 at the beginning of every month for the six months ending 3st March, 2018. Hence, his drawings for the period of six months would be : Total drawings = 6 x 7800 = 74,800. Time left after first drawing + Time left after last drawing 2 $15.5 months. 15 3.5 _ 4,800 x 799 X45 = 210 Q. 28 (B), Gupta is a partner in a firm. He drew regularly %800 at the end of every month for the six months ending 31st March, 2018. Calculate interest on drawings at 15% pa. SOLUTION : 28 (B). Gupta withdraws £800 at the end of every month for the six months ending 31st March, 2018. Total drawings = 6 x $800 = &4,800 Time left after first drawing + Time left after last drawing 2 = 252-25 mons 4,800% qin x25 = €150 Q. 28 (C). A, B and C are partners in a firm. For six months ending 31st March, 2018 A drew regularly 715,000 in the beginning of every month, B drew regularly %20,000 at the end of every month and C drew regularly %25,000 in the middle of every month, Calculate interest on drawings @ 10% p.a. for six months ending 31st March, 2018. SOLUTION : 28 (C): Total Drawings of A =715,000x6 =% 90,000 Total Drawings of B = %20,000x6 = €1,20,000 Total Drawings of C_ = %25,000x6 = 21,50,000 A B c AY Period |°S+=35months — |S*°-2.5 months 55405 3 months Interest on to 35 10, 25 03 Drawings | €20000%7%5 x25 |e1,20.000%10 x25 | e1,so.000% 20 x3 = 2,65 = 22,500 = 8,150Q. 29 (A). 4, B and C started business on Ist July, 2015. Calculate interest on drawings of Mr. A @ 9% p.a. for nine months ending 31st March, 2016, if he withdrew 210,000 p.m. in the beginning of every month. SOLUTION : 29 (A). Total Drawings = €10,000 x 9 months = 90,000 Average Period = months + 1 month = 5 months - 9S = Interest on Drawings = 90,000 x 59% 7 33,375 Q.29 (B). A, Band C started business on Ist July 2015. Calculate interest on drawings ofMr. B @ 9% pa. for nine months ending 31st March, 2016, if e withdrew €10,000 p.m. at the end of every month. SOLUTION : 29 (B). Total Drawings = €10,000 x 9 months = 290,000 Average Period = Smonths-+0 month = 4 months fina 4 = Interest on Drawings = €90,000 95 x5 22,700 Q.29(C). A, Band C started business on Ist July, 2015. Calculate interest on drawings of Mr. C @9% p.a. for nine months ending 31st March, 2016, if he withdrew 710,000 p.m. SOLUTION : 29 (C). Total Drawings = €10,000 x 9 months = £90,000 Average Period = £5. months +0.5 month = 45 months Interest on Drawings = £90,000x-2 x43 = 83,038 DEE EE 00 12 ay Q. 30, Calculate interest on A’s drawings : (i) If he has withdrawn %60,000 on Ist October, 2015 and rate of interest on drawings is 8% per annum. (ii) Ifhe has withdrawn %60,000 on 1st October, 2015 and rate of interest on drawings is 8%. Books are closed on 31st March, 2016. SOLUTION : 30. Case (i) Interest on Drawings = %60,000 x i x & 32,400 Case (ii) Since rate of interest is 8% and not 8% p.a. interest will be calculated for 12 months : Interest on Drawings = 60,000 x iz Q.31. Current Account’s Balances as on Ist April, 2017 were as : Amit : 75,000 (Cr.), Namit : 2,000 (Cr.) and Ruchi : 71,000 (Dr.). Profit sharing ratio was 3 : 2: 1. Amit gets a monthly salary of €1,500. = 4,800Amit draws %2,000 on the first day of each month and Namit draws %2,000 on the last date of each month while Ruchi draws %6,000 at the end of each quarter. Interest on drawings is to be charged @ 12% p.a. Profits for the year ended 31st March, 2018 before adjustments of interest on drawings and of salary were %74,040. Show Current Accounts. SOLUTION : 31. PROFT Dr. iT AND LOSS APPROPRIATION ACCOUNT Jor the year ended 31st March, 2018 Cr Particulars z Particulars z To Salary to Amit 18,000 | By Profit & Loss A/c 74,040 To Profits transferred to : By Interest on Drawings Amit’s Current A/c 30,000 Amit 1,560 | Nami’s Current A/c 20,000 Namit 1,320 Ruchi’s Current Ave 10,000 | 60,000 Ruchi 1,080 78,000 Dr. CURRENT ACCOUNTS Date | Particulars| Amit | Namit | Ruchi | Date | Particulars | Amit | Namit | Ruchi 2017 z | 2 | = [207 7] ele April 1|To Balance April 1 /By Balance | bid - — | 1,000 bid 5,000] 2,000 — 2018 2018 March |To Dra- March |By Salary | 18,000, —| — 31 | wings | 24,000] 24,000] 24,000] 31 To Interest By P&L on Dra- Appro- wings") | 1,560] 1,320} 1,080] priation Ale | 30,000] 20,000] 10,000 To Balance By Balance cid | 27,440) — | — od — | 3,320] 16,080 53,000| 25,320| 26,080 (1) Calculation of Interest on Drawings : Amit withdraws on the first day of each month 1265 _ 24,000 x 7 x 9 = 21,560 Namit withdraws on the last date of each month 12.35 . 24,000 x75 x35 = 21,320 Ruchi withdraws at the end of each quarter : Average Period = 2 months £0 month — 4 5 months Interest on Drawings = 24,000x 12 y 45 _ 21.080 . 100 12 * Q. 32. P, Q and R were partners and the balance of their capital accounts on Ist April 2015 were %8,00,000 (Credit); 5,00,000 (Credit) and 20,000 (Debit) respectively. As per the terms of partnership agreement interest on capitals i to be allowed @ 10% p.a, and is to be charged on drawings @ 12% p.a. Partners withdrew as follows : (i) P withdrew %10,000 p.m. at the end of each month;SOLUTIONS TO PRACTICAL QUESTIONS ) Q withdrew 21,20,000 out of capital on Ist January 2016; (iii) R withdrew 71,20,000 during the year. The profit for the year ended 31st March, 2016 amounted to €4,30,000. You are required to prepare journal entries and partner’s capital accounts. SOLUTION : 32. JOURNAL Date Particulars LF. | Dr.) | Cr(®) 2016 Jan.1 | Q’s Capital A/e Dr. 1,20,000 To Bank A/c 1,20,000 (Withdrawal by Q out of Capital) March 31 | Profit and Loss A/e Dr. 4,30,000 To Profit and Loss Appropriation A/c 4,30,000 (The transfer of profit to Profit and Loss Appropriation A/c) March 31 | Interest on Capital A/c Dr. 1,27,000 To P’s Capital A/c 80,000 To Q’s Capital A/c 47,000 (Interest on partner’s capitals) Profit and Loss Appropriation A/c Dr. 1,27,000 To Interest on Capital A/c 1,27,000 (Transfer of interest on Capital to Profit and Loss App. A/c) March 31 | P’s Capital A/c Dr. 6,600 R’s Capital A/c Dr. 7,200 To Interest on Drawings A/c 13,800 (Interest on partner’s drawings) Interest on Drawings A/c Dr. 13,800 To Profit and Loss Appropriation A/c 13,800 (Transfer of interest on drawings to Profit and Loss App. A/c) March 31 | Profit and Loss Appropriation A/c Dr. 3,16,800 To P’s Capital A/c 1,05,600 To Q’s Capital A/c 1,05,600 To R’s Capital A/c 1,05,600 (Transfer of profit to capital accounts) Dr. PARTNER’S CAPITAL ACCOUNTS Cr. Date [Particulars] P 0 R | Date [Particulars] P Q R 2015 z z £ 2015 z z z Apr. | |To Bal. Apr. | |By Bal. bid 20,000 b/d | 8,00,000) 5,00,000) 2016 2016 Jan.1 |To Bank Mar. 31|By Int. Ale 1,20,000 lon Capi-Mar. 31/To Dra- tal A/c 80,000} 47,000 wings ‘Mar. 31|By P&L Ale | 1,20,000) 1,20,000) |App. A/c| 1,05,600} 1,05,600) 1,05,600 Mar. 31)To Int. Mar.31|By Bal. on old 41,600 Drawin- gsAlc} 6,600] —| 7,200 Mar. 31|To Bal c/d | 8,59,000} 5,32,600| 9,85,600} 00 9,85,600} 6,52,600| 1,47,200 Working Notes : (1) Interest on Q’s Capital z . 9 On %5,00,000 for 9 months: —5,00,000 x >> i xy 37,500 xh On %3,80,000 for 3 months: 3,80,000x > ax rr = 2) Interest on drawings : P'sDrawings: 710,000 12= 21,20,000 «x35 et) y A ‘ 4 = R’s Drawings 21,20,000% 12 x4 Note: Inthe absence of actual dates of drawings as interest thereon has been. calculated for the average period i.e. 6 months. (3) Divisible Profit = %4,30,000 — Interest on Capital %1,27,000 + Interest ‘on Drawings 713,800 = 73,16,800 Each Partner’s share = %3,16,800 +3 = 21,05,600 Q. 33. Active, Blunt and Circle started a business on Ist April, 2017 with capitals of %4,50,000, %6,00,000 and €3,50,000 respectively. According to partnership agreement : (i) Profit eamed in any year will be distributed as under : Upto €2,70,000 — equally Excess over %2,70,000 — one-half to Active, one-sixth to Blunt and one-third to Circle. (if) Provide interest on capital and drawing @6% p.a. (iif) Circle is entitled to get a monthly salary of 74,000 and Blunt is entitled to get a monthly salary of 6,000. In addition to above, Circle and Blunt are entitled to get a commission of 5% each on net profit after taking into consideration salary, interest and all commissions. Drawings of the partners during the year were : — Active withdrew regularly £5,000 at the beginning of every month. — Blunt withdrew regularly %7,000 at the end of every month. — Circle withdrew %80,000 during the year.1:30 ‘O PRACTICAL QUESTIONS The profit of the firm for the year ending 31st March, 2018 before charging all of the above adjustments was %5,93,120. Distribute the profit among the partners and prepare partners’ Current A/cs. SOLUTION : 33. Books of Active, Blunt and Circle Profit & loss Appropriation A/c Dr. for the year ended 31st March, 2018 Cr. Particulars z Particulars g To Interest on Capital ; By Profit & Loss A/c Active 27,000 (Net Profit for the year) 5,93,120 Blunt 36,000 By Interest on Drawings : Giele 21,000] $4,000) ive 60,000 x -% x ©5.= 1,950 100 * 12 To Salary 6 55 _ Blunt 72,000 Blunt 84,000 x 755 x45, =2310 Circle 48,000 | 1,20,000| 6 6 To Commission (Note 1) Circle 80,000 x To9 x 77 = 2400 | 6,660 Blunt 17,990 Circle 17,990 | 35,980 To Profit Transferred to : (Note 2) Active’s Current A/c 1,34,900 Blunt's Current A/c 1,04,967 Circle’s Current A/c 1,19,933 | 3,59,800 5,99,780 Dr. PARTNERS CURRENT ACCOUNTS Cr. Particulars | Active | Blunt | Circle | Particulars | Active | Blunt | Circle To Drawings | 60,000| 84,000] 80,000|By Int. on To Int. on Dra- Capital 27,000} 36,000| 21,000 wings 1,950} 2,310] 2,400|By Salary 72,000} 48,000 To Bal. o/d 99,950] 1,44,647| 1,24,523| By Commission 17,990] 17,990 By P & L App. Ale 134,900] 1,04,967| 1,19,933 1,61,900]2,30,957]2,06,923 1,61,900|2,30,957| 206,923 Working Note : (1) Balance of Profit : €5,93,120 + 6,660 — 84,000 — 1,20,000 = €3,95,780 Commission to Blunt and Circle is 5% to each partner after charging such commission, Hence, the commission will be iw to each partner. Commission to Blunt =3,95,780x = = 217,990 Commission to Circle =3,95,780x > = 217,990 110