Comprehensively based on:

New Education Policy & National Curriculum Framework for School Education

Accountancy XII
VOLUME-I
(Accounting for Partnership Firms)
Reference Textbook for Class XII Accountancy, CBSE

Subhash Dey
B.Com. (Hons.), M.Com. (Delhi School of Economics), M.A. (Economics),
PGDBA (Finance), B.Ed., PGD (Labour and Administrative Laws)

Shree Radhey Publications

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Preface
Dear Reader,
I humbly bow at your lotus feet and express my deep gratitude for the opportunity to serve in the field of
education. It is with great joy and humility that I present this book, which has been written under divine
guidance to support the students of CBSE Class XII studying Accountancy.
The content of this book aligns strictly with the latest CBSE syllabus and is crafted from the most recent
resources, including the NCERT textbooks.
Key Features of This Reference Book:
 Multiple Choice Questions (MCQs), including Assertion-Reasoning and Statement-Based MCQs
 Competency-Based Questions, in line with the new CBSE question paper format
 Illustrations with explanation, in line with the new CBSE question paper format
 Self-Assessment Tests at the end of each topic to evaluate progress
I firmly believe that a thorough study of this book will enable students to excel in their CBSE Accountancy Class
XII Board Examination, with the potential to score 100%. However, I remain open to feedback and suggestions
for further improvement, which will be gratefully acknowledged.
My heartfelt thanks go to my dedicated team—Sugan Sharma, Deepak Pandey, R.K.Roy, Shiv Prakash Sharma,
Shridhar, Saurabh, and Raghav—whose hard work has been instrumental in bringing this book to life.
Especially, I would like to extend my heartfelt gratitude to our Chief Editor, Vinod Sukheja and our core team
members Gaurav Handa, Rajeev Thakur, Amit Gehlot, Mukul Gupta, Moksh Kushwaha & Shubhangi Pawar for
their invaluable insights and suggestions that have significantly contributed to the innovative nature of this
book. Their dedication and expertise have not only enriched the content but have also inspired a creative
approach throughout the writing process.
I would also like to extend my heartfelt gratitude to Babita Sharma, Chitra Kumar and Surinder Agarwal for their
contributions to the proofreading process. I deeply appreciate their dedication, expertise, and commitment to
identifying and correcting errors, which has significantly enhanced the overall quality of the publication.
A special acknowledgment goes to my pillar of strength, my mother Smt. Neeta Dey, whose unwavering support
has been a constant source of motivation. I also owe my thanks to my wife Shonali Dey and my children Vrinda
and Neel Madhav for their patience and understanding as I spent long hours working on this project.
This book is dedicated to the loving memory of my father, Late Sh. Kanai Dey, whose life principles continue to
inspire me.
Finally, I dedicate this work to the divine blessings of Sri Sri Radha Shyamsundar, HDG A.C. Bhaktivedanta Swami
Prabhupad (Founder Acharya of ISKCON) and my spiritual guide HH Gopal Krishna Goswami (GBC and BBT
Trustee of ISKCON). Their mercy and guidance have made this endeavor possible, as without their blessings, I
would not have been able to undertake this task.
With respect and devotion,
Subhash Dey
Accounting for Partnership
Firms -
Basic Concepts
• Partnership: features, Partnership Deed.
• Provisions of the Indian Partnership Act 1932 in the

CBSE Syllabus: Volume I

absence of partnership deed.
• Fixed v/s fluctuating capital accounts. Preparation
of Profit and Loss Appropriation account- division of
profit among partners, guarantee of profits.
• Past adjustments (relating to interest on capital,

Accounting forandPartnership
interest on drawing, salary profit sharing ratio).
• Goodwill: meaning, nature, factors affecting and
Firms — Basic Concepts
 Partnership: features, Partnership Deed.
methods of valuation - average profit, super profit
and capitalization.
 Provisions of the Indian Partnership Act 1932 in the absence of partnership deed.
Note: Interest on partner's loan is to be treated as a
Fixed
 charge v/s
against fluctuating
profits. Goodwill: meaning,capital
factors accounts. Preparation of Profit and Loss Appropriation
account- division of profit among partners, guarantee of profits.
affecting, need for valuation, methods for calculation
(average profits, super profits and capitalization),
Past through
 adjusted adjustments (relating
partners capital/ to interest on capital, interest on drawing, salary and profit
current account.
sharing ratio).
Accounting for
 Goodwill: meaning, nature, factors affecting and methods of valuation - average profit,
Partnership firms -
super profit and capitalization.
Reconstitution
Note: Interest on partner’s loan is to be treated as a charge against profits.
• Change in the Profit Sharing Ratio among the
existing partners - sacrificing ratio, gaining ratio,
Accounting forofPartnership
accounting for revaluation assets and firms — Reconstitution
reassessment of liabilities and treatment of reserves,
Goodwill:
accumulatedmeaning,
profits and losses. factors
Preparationaffecting,
of need for valuation, methods for calculation (average
profits, super
revaluation accountprofits
and balance and
sheet.capitalization), adjusted through partners capital/ current account.

Changeof in
 • Admission the-Profit
a partner Sharing
effect of admission of a Ratio among the existing partners - sacrificing ratio, gaining
ratio, accounting for revaluation of assets and reassessment of liabilities and treatment
partner on change in the profit sharing ratio,
treatment of goodwill (as per AS 26), treatment for
of reserves, accumulated profits and losses. Preparation of revaluation account and
revaluation of assets and re- assessment of liabilities,
balance
treatment sheet.
of reserves, accumulated profits and

 Admission of a partner - effect of admission of a partner on change in the profit

losses, adjustment of capital accounts and
preparation of capital, current account and balance
sharing ratio, treatment of goodwill (as per AS 26), treatment for revaluation of assets
sheet.
and re- assessment of liabilities, treatment of reserves, accumulated profits and losses,
• Retirement and death of a partner - effect of
adjustment of capital accounts and preparation of capital, current account and balance
retirement / death of a partner on change in profit
sheet.
sharing ratio, treatment of goodwill (as per AS 26),

 Retirement and death of a partner - effect of retirement / death of a partner on change

treatment for revaluation of assets and
reassessment of liabilities, adjustment of
in profitprofits,
accumulated sharing
losses andratio,
reserves,treatment
adjustment of goodwill (as per AS 26), treatment for revaluation
ofof assets
capital accountsand reassessment
and preparation of liabilities, adjustment of accumulated profits, losses and
of capital, current
account and balance sheet. Preparation of loan
reserves, adjustment of capital accounts and preparation of capital, current account and
account of the retiring partner.
balanceof deceased
• Calculation sheet.partner's
Preparation
share of profitoftill loan account of the retiring partner.

 Calculation of deceased partner’s share of profit till the date of death. Preparation of
the date of death. Preparation of deceased partner's
capital account and his executor's account.
deceased partner’s capital account and his executor’s account.

Accounting
Accounting forfor
Partnership firms — Dissolution
Partnership firms -
Meaning of dissolution of partnership and partnership firm, types of dissolution of a firm.
Dissolution
Settlement of accounts - preparation of realization account, and other related accounts:
capital accounts of partners and cash/bank a/c (excluding piecemeal distribution, sale to a
meaning of dissolution of partnership and
partnership firm, types of dissolution of a firm.
company
Settlement of and insolvency
accounts - preparation ofof partner(s)).
realization

Note:account, and other related accounts: capital

accounts of partners and cash/bank a/c (excluding
(i)piecemeal
If thedistribution,
realized salevalue of tangible
to a company and assets is not given it should be considered as realized at
book value itself.
insolvency of partner(s)).

(ii)Note:
If the realized value of intangible assets is not given it should be considered as nil (zero
value).
(i) If the realized value of tangible assets is not given
it should be considered as realized at book value
(iii)itself.
In case, the realization expenses are borne by a partner, clear indication should be given
regarding the payment thereof.
(ii) If the realized value of intangible assets is not
given it should be considered as nil (zero value).
(iii) In case, the realization expenses are borne by a
partner, clear indication should be given regarding the
payment thereof.
Learning Outcomes

Learning Outcomes After going through these Chapters, the students

will be able to:

• state the meaning of partnership, partnership firm

After going through these Chapters, thedeed.
and partnership students will be able to:
• describe the characteristic features of partnership
• state the meaning of partnership, partnership firm and partnership deed.
and the contents of partnership deed.
• describe the characteristic features
• discussof partnership
the significance and the
of provision contents of
of Partnership
partnership deed. Act in the absence of partnership deed.
• discuss the significance of provision of Partnership
• differentiate between fixed and Actfluctuating
in thecapital,
absence of
partnership deed. outline the process and develop the understanding
and skill of preparation of Profit and Loss
• differentiate between fixed and fluctuating capital, outline the process
Appropriation Account.
and develop the understanding and skill of preparation of Profit and Loss
• develop the understanding and skill of preparation
Appropriation Account.
profit and loss appropriation account involving
• develop the understanding and skill of preparing
guarantee of profits. profit and loss appropriation
account involving guarantee of profits.
• develop the understanding and skill of making past
• develop the understanding and skill of making past adjustments.
adjustments.
• state the meaning, nature and factors affecting
• state the meaning, nature and factors affecting goodwill
goodwill
• develop the understanding and •skill of valuation of goodwill using different
develop the understanding and skill of valuation of
methods. goodwill using different methods.
• state the meaning of sacrificing •ratio,
state thegaining
meaning ratio and ratio,
of sacrificing the gaining
change in profit
ratio
sharing ratio among existing partners.
and the change in profit sharing ratio among existing
partners.
• develop the understanding of accounting treatment of revaluation assets and
• develop the understanding of accounting treatment
reassessment of liabilities and treatment of reserves and accumulated profits by
preparing revaluation account andofbalance
revaluation assets and reassessment of liabilities
sheet.
and treatment of reserves and accumulated profits
• explain the effect of change in profit sharingrevaluation
by preparing ratio on account
admission of a new
and balance sheet.partner.
• develop the understanding and •skill ofthe
explain treatment of goodwill
effect of change as per
in profit sharing AS -26,
ratio on
treatment of revaluation of assets and re-assessment
admission of a new partner. of liabilities, treatment
of reserves and accumulated profits,
• develop the adjustment
understandingof andcapital accounts
skill of treatment of and
preparation of capital, current account
goodwilland as perbalance sheet ofofthe
AS -26, treatment new firm.
revaluation of
assets and re-assessment of liabilities, treatment of
• explain the effect of retirement / death of a partner on change in profit sharing
reserves and accumulated profits, adjustment of
ratio.
capital accounts and preparation of capital, current
• develop the understanding of accounting
account andtreatment
balance sheetof of goodwill,
the new firm.revaluation of
assets and re-assessment of liabilities
• explainand adjustment
the effect of retirement of/ accumulated
death of a partnerprofits,
losses and reserves on retirementon/ change
death inofprofita partner and capital adjustment.
sharing ratio.
• develop the skill of calculation of• develop
deceased partner's share
the understanding till the
of accounting time of his
treatment
death and prepare deceased partner's and executor's account.
of goodwill, revaluation of assets and re-assessment
of liabilities and adjustment of accumulated profits,
• discuss the preparation of the capital accounts of the remaining partners and
losses and reserves on retirement / death of a
the balance sheet of the firm after retirement / death of a partner.
partner and capital adjustment.
• understand the situations under which
• develop a the
partnership firm of
skill of calculation can be dissolved.
deceased partner's
• develop the understanding of preparation
share till the time ofof realisation account
his death and prepare and other
deceased
related accounts. partner's and executor's account.
• discuss the preparation of the capital accounts of
the remaining partners and the balance sheet of the
firm after retirement / death of a partner.
• understand the situations under which a
partnership firm can be dissolved.
• develop the understanding of preparation of
realisation account and other related accounts.
Contents
Contents

CHAPTER 1

Accounting for
Partnership Firms:
Basic Concepts

CHAPTER 2

Accounting for
Partnership firms:
Reconstitution
2.1 Reconstitution of a
Partnership Firm
2.2 Change in Profit Sharing
Ratio among the Existing
Partners
2.3 Admission of a Partner
2.4 Retirement of a Partner
2.5 Death of a Partner

CHAPTER 3

Dissolution of a
Partnership Firm
Chapter 1
ACCOUNTING FOR
PARTNERSHIP FIRMS:
BASIC CONCEPTS
Accounting for Partnership Firms:
Basic Concepts
CBSE Syllabus
 Partnership: Features; Partnership Deed
 Provisions of the Indian Partnership Act, 1932 in the absence of partnership deed
 Fixed v/s fluctuating capital accounts
 Preparation of Profit and Loss Appropriation account — division of profit among partners
 Guarantee of profits
 Past adjustments (relating to interest on capital, interest on drawing, salary and profit
sharing ratio)
Note:
Interest on partner’s loan is to be treated as a charge against profits.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.3

Introduction
You have learnt about the preparation of financial statements for a sole proprietary concern. As the business expands, one
needs more capital and a larger number of people to manage the business and share its risks. In such a situation, people usually
adopt the partnership form of organisation. Accounting for partnership firms has its own peculiarities, as the partnership
firm comes into existence when two or more persons come together to establish business and share its profits. On many
issues affecting distribution of profits, there may not be any specific agreement between the partners. In such a situation the
provisions of the Indian Partnership Act 1932 apply. Similarly, calculation of interest on capital, interest on drawings and
maintenance of partners’ capital accounts have their own peculiarities. Not only that a variety of adjustments are required
on the death of a partner or when a new partner is admitted and so on. These peculiar situations need specific treatment in
accounting that need to be clarified.
The present chapter discusses some basic aspects of partnership such as distribution of profit, maintenance of capital
accounts, etc. The treatment of situations like admission of partner, retirement, death and dissolution have been taken up in
the subsequent chapters.

Partnership: Features; Partnership Deed and Provisions of Partnership Act, 1932 1.1
Meaning of Partnership
When two or more persons join hands to set up a business and share its profits and losses, they are said to be in partnership.
Definition
Section 4 of the Indian Partnership Act 1932 defines partnership as follows:
“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them
acting for all’.

 Persons who have entered into partnership with one another are individually called ‘partners’ and collectively called ‘firm’.
 The name under which the business is carried is called the ‘firm’s name’.

A partnership firm has no separate legal entity, apart from the partners constituting it.

Nature of Partnership
The essential features/characteristics of partnership are:
1. Two or More Persons
In order to form a partnership, there should be at least two persons coming together for a common goal. In other words, the
minimum number of partners in a firm can be two. There is however, a limit on their maximum number. By virtue of Section
464 of the Companies Act 2013, the Central Government is empowered to prescribe maximum number of partners in a
firm but the number of partners cannot be more than 100. The Central government has prescribed the maximum number of
partners in a firm to be 50.

The maximum number of partners in a firm can be 50.

2. Agreement
Partnership comes into existence as a result of agreement among the partners. The agreement becomes the basis of relationship
between the partners.
The partnership agreement can be either oral or written. The Partnership Act does not require that the agreement should be in
writing.

Top Tip
It is not necessary that partnership agreement is in written form. An oral agreement is equally valid. But in order to avoid
disputes, it is preferred that the partners have a written agreement.
1.4 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

The document, which contains terms of the partnership agreement is called ‘Partnership Deed’. It generally contains the
details about all the aspects affecting the relationship between the partners including the objective of business, contribution of
capital by each partner, ratio in which the profits and the losses will be shared by the partners and entitlement of partners to
interest on capital, interest on loan, etc.

Partnership Deed should be properly drafted and prepared as per the provisions of the ‘Stamp Act’ and preferably
registered with the Registrar of Firms.

Must know!
Contents/Clauses of the Partnership Deed
• Names and Addresses of the firm and its main business; • Salaries, commission, etc, if payable to any partner;
• Names and Addresses of all partners; • The rights, duties and liabilities of each partner;
• Amount of capital to be contributed by each partner; • Treatment of loss arising out of insolvency of one or more
• The accounting period of the firm; partners;
• The date of commencement of partnership; • Settlement of accounts on dissolution of the firm;
• Rules regarding operation of Bank Accounts; • Method of settlement of disputes among the partners;
• Profit and loss sharing ratio; • Rules to be followed in case of admission, retirement, death of a
• Rate of interest on capital, loan, drawings, etc; partner; and
• Mode of auditor’s appointment, if any; • Any other matter relating to the conduct of business.

The clauses of partnership deed can be altered with the consent of all the partners.
Suppose you and your friend are running a partnership business. Initially, your partnership deed states that profits
and losses will be shared equally between the two of you. However, after a few years, you both decide to modify
the deed to reflect a new profit-sharing ratio. To alter the partnership deed, you would discuss the proposed
changes with your partner and come to an agreement on the new profit-sharing ratio. Let’s say you agree that
you will now have a 60% share of the profits, while your friend will have a 40% share. To reflect this change, you
would need to amend the partnership deed by adding a clause that states the new profit-sharing ratio. Both you
and your friend would need to sign and acknowledge the amended deed to make it legally binding.

3. Business
The partnership agreement must be to carry on some lawful business. Mere co-ownership of a property does not amount to partnership.
If Rohit and Sachin jointly purchase a plot of land, they become the joint owners of the property and not
the partners. But if they are in the business of purchase and sale of land for the purpose of making profit,
they will be called partners.
4. Sharing of profits and losses
Another important element of partnership is that, the agreement between partners must be to share profits and losses of a
business. Though the definition contained in the Partnership Act describes partnership as relation between people who agree to
share the profits of a business, the sharing of loss is implied.

Top Tip
The profits and losses of the firm are distributed among the partners in an agreed ratio. However, if the partnership deed is
silent, the firm’s profits and losses are to be shared equally by all the partners.

• P, Q and R are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. During the year 2025
the firm earned a net profit of `1,00,000.
The amount of profit shared by P, Q and R will be as follows:
P: 2/5 × `1,00,000 = `40,000; Q: 2/5 × `1,00,000 = `40,000 and R: 1/5 × `1,00,000 = `20,000
• A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. During the year
2024-25 the firm incurred a loss of `84,000.
The amount of loss shared by A, B and C will be as follows:
A: 3/6 × `84,000 = `42,000; B: 2/6 × `84,000 = `28,000 and C: 1/6 × `84,000 = `14,000
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.5

According to Partnership Act 1932, “It may be agreed between the partners that one or more of them shall not be liable
for losses.”

Top Tip
If some persons join hands for the purpose of some charitable activity, it will not be termed as partnership.

5. Mutual Agency
“The business of a partnership concern may be carried on by all the partners or any of them acting for all.”
This statement has two important implications.
 First, every partner is entitled to participate in the conduct of the affairs of its business.
 Second, that there exists a relationship of mutual agency between all the partners. Each partner carrying on the business is
the principal as well as the agent for all the other partners. He can bind other partners by his acts and also is bound by the
acts of other partners with regard to business of the firm.

Top Tip
Relationship of mutual agency is so important that one can say that there would be no partnership, if the element of mutual
agency is absent.

6. Liability of Partners
 Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done
while he is a partner.
 The liability of a partner for the acts of the firm is unlimited. This implies that his private assets can also be used for paying
off the firm’s debts.

KEY TERMS
Partners Partners refers to the persons who have entered into partnership with one another to share the
profits and losses of a business carried on by all or any of them acting for all.
Firm The term ‘firm’ refers to the collective name given to the partners who are carrying on a business
under a partnership agreement. It represents the business entity formed by the partners.
Partnership Deed Wherever partnership agreement is in writing, the document, which contains terms of the agreement
is called ‘Partnership Deed’. It generally contains the details about all the aspects affecting the
relationship between the partners.
Profit Sharing Ratio The ratio in which the partners of a firm share profits and losses of the business.
Mutual Agency A principal-agent relationship between all the partners in a partnership firm is called ‘Mutual
Agency’. A partner can bind other partners by his acts and also is bound by the acts of other
partners with regard to business of the firm.
Provisions of Partnership Act Relevant for Accounting
Normally, the partnership deed covers all matters affecting relationship of partners amongst themselves. However, if there is no
express agreement on certain matters, the provisions of the Indian Partnership Act, 1932 shall apply.
Important provisions affecting partnership accounts when there is no agreement or when the deed is silent
S. No. Items Provisions of Partnership Act 1932
1. Profit Sharing If the partnership deed is silent about the profit sharing ratio, the profits and losses of the firm
Ratio are to be shared equally by partners, irrespective of their capital contribution in the firm.
2. Interest on No partner is entitled to claim any interest on the amount of capital contributed by him in the
Capital firm as a matter of right. However, interest can be allowed when it is expressly agreed to by the
partners. Thus, no interest on capital is payable if the partnership deed is silent on the issue.
1.6 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

3. Interest on No interest is to be charged on the drawings made by the partners, if there is no mention in the
Drawings Deed.
4. Interest on If any partner has advanced a loan to the firm for the purpose of business, he/she shall be entitled
Partner’s Loan to get an interest on the loan amount at the rate of 6% per annum. Interest on a partner’s loan is
a charge against the profits. It shall be paid even if the firm suffers losses during a year.
5. Remuneration No partner is entitled to get a salary or a commission for taking part in the conduct of the
for Firm’s Work business of the firm unless there is a provision for the same in the Partnership Deed.

Competency Based Question

Ajay, Binod and Chandra entered into partnership on 1st April 2024 with a capital of `3,00,000,
`2,00,000 and `1,00,000 respectively. In addition to capital, on 1 October 2024 Chandra advanced a
loan of `1,00,000 to the firm. Since they had no agreement to guide them, they faced following issues
during and at the end of the year 2024-25.
(i) Ajay wanted interest on capital to be provided @8% pa but Binod and Chandra did not agree.
(ii) Chandra wanted interest on loan `3,000 to be paid to him but Ajay and Binod do not want to
pay any interest on Chandra’s loan.
(iii) Ajay and Binod demanded to share profits in the ratio of their capital contribution, Chandra is
not in agreement with this proposal.
(iv) Binod, being a working partner, demands a lump sum payment of `40,000 as a remuneration for
which other partners are not in agreement.
You are required to suggest and help them resolve these issues.
(i) Binod and Chandra are correct. Ajay will not get any interest on his capital contribution in the firm. According to the
provisions of Partnership Act, 1932 in the absence of any agreement, no partner is entitled to claim any interest on the
amount of capital contributed by him in the firm as a right.
(ii) Chandra is correct. She will get interest on loan @ 6% p.a. According to the provisions of Partnership Act, 1932, if
any partner has advanced loan to the firm for the purpose of business, s/he shall be entitled to get an interest on the
loan amount at the rate of 6% per annum. Therefore, Interest on Chandra’s loan for 6 months (from 1 October 2024
to 31 March 2025) = `1,00,000 × 6/100 × 6/12 = `3,000.
(iii) Chandra is correct. In the absence of any agreement, the profits and losses of the firm are to be shared equally by
partners, irrespective of their capital contribution in the firm.
(iv) Ajay and Chandra are correct. Binod cannot demand any payment as a remuneration for firm’s work. According to the
provisions of Partnership Act, 1932, no partner is entitled to get a salary or other remuneration for taking part in the
conduct of the business of the firm unless there is a provision for the same in the Partnership Deed.

Must know!
Rights of a Partner under the Partnership Act, 1932
1. Right to take part in the conduct of the business.
2. Right to be consulted when decisions or changes are made.
3. Right to inspect and having a copy of the books of accounts.
4. Right to share profits with other partners in the agreed ratio.
5. Right to retire after giving a notice to that effect to all the other partners.
6. Right not to be expelled/dismissed from the firm unless conferred by a partnership agreement and exercised in good faith and for
the advantage of the partnership firm.
Duties of a Partner under the Partnership Act, 1932
1. Duty to act in good faith — The partners must act in good faith for the greater common advantage.
2. Duty to render true accounts — The partner should not hide things from other co-partners regarding the business of the company.
3. Duty to indemnify for fraud — If there is any loss in the business of the firm due to fraudulent action of a partner, he must pay
compensation for such loss to the firm.
4. Duty to be diligent — A partner must be diligent in his duties.
5. Duty to share losses — A partner must share losses with other partners in the agreed ratio.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.7

The Indian Partnership Act, 1932 specifies that subject to a contract between the partners:
1. If a partner derives any profit for himself/herself from any transaction of the firm or from the use of the
property or business connection of the firm or the firm name, s/he shall account for the profit and pay it
to the firm.
Interesting 2. If a partner carries on any business of the same nature as and competing with that of the firm, s/he
Facts shall account for and pay the firm, all profit made by him/her in that business.

Competency Based Question

Akshat, Bilal and Charu are partners dealing in the sale of sports equipment. Akshat, without the
knowledge of Bilal and Charu, is also running the business of supplying sports equipment to a few
sports clubs in which his son is a member. He is earning good profits from this business but did not
inform Bilal and Charu about this. Is Akshat correct in doing so? Explain.
No, Akshat must act in good faith with the other partners. He should not carry on any business of the same nature as and
competing with that of the firm. It is Akshat’s duty to account for and pay the firm, all profit made by him in that business.

Multiple Choice Questions (MCQs) 1.1

Q.1 Which of the following is a right of a partner?
(i) Sharing losses with other partners in the agreed ratio (ii) Inspecting and having a copy of the books of accounts
(iii) Retiring from the firm without giving a notice (iv) Taking part in the conduct of the business
(a) Only (i) and (ii) (b) Only (ii) and (iii) (c) Only (i) and (iii) (d) Only (ii) and (iv)
Q.2 In the absence of an agreement, partners are entitled to:
(i) Profit share in capital ratio (ii) Commission for making additional sale
(iii) Interest on Loans & Advances by them to the firm (iv) Salary for working extra hours
(v) Interest on Capital
(a) Only (i), (iv) and (v) (b) Only (ii) and (iii) (c) Only (iii) (d) Only (i) and (iii)
Q.3 Which of the following statements is/are correct:
(i) The liability of a partner for acts of the firm is unlimited.
(ii) Private assets of a partner can also be used for paying the debts of the firm.
(iii) Each partner is liable jointly with all other partners and also severally to the third parties for all the acts of the firm
done, while he is a partner.
(iv) The liablility of a partner is limited to the extent of his capital contribution.
(a) Only (iii) (b) (i) and (ii) (c) (i), (ii) and (iii) (d) (i), (ii), (iii) and (iv)
Q.4 Mohit and Rohit were partners in a firm with capital of ` 80,000 and `40,000 respectively. The firm earned a profit of
` 30,000 during the year Mohit’s share in the profit will be:
(a) `2,000 (b) `10,000 (c) `15,000 (d) `18,000
Q.5 The central government has prescribed the maximum number of partners in a firm to be (i)______ under the act
(ii)_____.
(a) (i) 100 (ii) The Indian Companies Act, 2013 (b) (i) 50 (ii) The Indian Partnership Act, 1932
(c) (i) 50 (ii) The Indian Companies Act, 2013 (d) (i) 100 (ii) The Indian Companies Act, 2013
Q.6 Persons who have entered into partnership with one another are individually called _________ and collectively called
_________ .
(a) Members ; Business (b) Partners ; Business (c) Partners ; Firm (d) None of these
Q.7 The document containing terms of the agreement among the partners of a firm is called _________.
(a) Memorandum of Understanding (b) Partnership Deed
(c) Memorandum of Association (d) Articles of Association
1.8 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.8 Which of the following cannot be a content of the partnership deed?

(a) Rules regarding operation of Bank Accounts (b) The rights, duties and liabilities of each partner
(c) Method of settlement of disputes among the partners (d) None of the above
Q.9 In the absence of partnership deed, the profits of a firm are divided among the partners:
(a) In the ratio of capital (b) Equally
(c) In the ratio of time devoted for the firm’s business (d) According to the managerial abilities of the partners
Q.10 In the absence of Partnership Deed, interest on loan of a partner is allowed:
(a) @ 8% per annum. (b) @ 6% per annum. (c) no interest is allowed. (d) @ 12% per annum.
Q.11 In the absence of partnership agreement, interest on drawings of a partner is charged:
(a) at 6% per annum. (b) at 9% per annum.
(c) at 12% per annum. (d) no interest is charged.
Q.12 M and N are partners having capitals of `50,000 and `1,00,000 respectively. On 1 April 2025, P was admitted with
a capital of `2,00,000. At the end of the year 2025, the firm earned a profit of `30,000. How should the profits be
distributed among partners, if there is no partnership deed?
(a) Equally (b) In the ratio of 1 : 2 : 4 (c) In the ratio of 1 : 2 : 3 (d) None of these
Q.13 Given below are two statements – Assertion (A) and Reasoning (R). Choose the correct alternative:
Assertion (A): Michael, Mike and Stephen were partners sharing profits and losses in the ratio 3 : 2 : 1. Stephen, being
a partner, wants to be exempted from sharing the losses in the firm.
Reasoning (R): According to Partnership Act 1932, “It may be agreed between the partners that one or more of them
shall not be liable for losses.”
(a) Both A and R are correct, and R is the correct explanation of A.
(b) A is correct but R is incorrect.
(c) Both A and R are correct, but R is not the correct explanation of A.
(d) A is incorrect but R is correct.
Q.14 Statement-I: Partnership is the result of an agreement between two or more persons to do business and share its profits
and losses.
Statement-II: A partnership firm has a separate legal entity, apart from the partners constituting it.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.15 Statement-I: On many issues affecting distribution of profits, there may not be any specific agreement between the
partners. In such a situation the provisions of the Indian Partnership Act 1932 apply.
Statement-II: A partnership firm has no separate legal entity, apart from the partners constituting it.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.16 Statement-I: By virtue of Section 464 of the Companies Act 2013, the Central Government is empowered to prescribe
maximum number of partners in a firm but the number of partners cannot be more than 100.
Statement-II: The Central government has prescribed the maximum number of partners in a firm to be 50.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.17 Statement-I: If some persons join hands for the purpose of some charitable activity, it will not be termed as partnership.
Statement-II: There would be no partnership, if the element of mutual agency is absent.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.18 Statement-I: The Indian Partnership Act 1932 requires that the partnership agreement be in writing.
Statement-II: The document, which contains terms of the agreement is called ‘Partnership Deed’.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.19 Statement-I: The clauses of partnership deed can be altered with the consent of all the partners.
Statement-II: The partnership deed should be properly drafted and prepared as per the provisions of the ‘Stamp Act’
and preferably registered with the Registrar of Firms.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.9

(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.20 Statement-I: If the partnership deed is silent about the profit sharing ratio, the profits and losses of the firm are to be
shared in the ratio of their capital contribution in the firm.
Statement-II: If a partner carries on any business of the same nature as and competing with that of the firm, he/she
shall account for and pay the firm, all profit made by him/her in that business.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.21 Assertion (A): Batman, a partner in a firm with four partners has advanced a loan of `50,000 to the firm for last six
months of the financial year without any agreement. He claims an interest on loan of `3,000 despite the firm being in
loss for the year.
Reason (R): In the absence of any agreement/provision in the partnership deed, provisions of Indian Partnership Act, 1932
would apply.
(a) Both A and R are correct, and R is the correct explanation of A.
(b) A is correct but R is incorrect.
(c) Both A and R are correct, but R is not the correct explanation of A.
(d) A is incorrect but R is correct.
Q.22 Assertion (A): Partnership is the relation between persons who have agreed to share the profits of the business carried
on by all or any of them acting for all.
Reason (R): If a partner carries on any business of the same nature and competing with that of the firm, he/she shall
account for and pay to the firm all profit made by him/her in that business.
(a) Both (A) and (R) are correct.
(b) Both (A) and (R) are incorrect.
(c) Both (A) and (R) are correct and (R) is the correct explanation of (A).
(d) Both (A) and (R) are correct and (R) is not the correct explanation of (A).
Q.23 Assertion (A): Co-ownership of property amounts to partnership.
Reason (R): The element of business is present in co-ownership.
(a) Both (A) and (R) are correct and (R) is correct reason for (A).
(b) Both (A) and (R) are incorrect .
(c) (A) is correct but (R) is incorrect.
(d) Both (A) and (R) are correct but (R) is not correct reason for (A).
Q.24 Assertion (A): The Partnership Deed is silent on payment of salary to partners. Amita, a partner, claimed that since she
managed the business, she should get a monthly salary of `10,000.
Reason (R): Amita is not entitled for the salary since no partner is entitled to get salary or other remuneration for
taking part in the conduct of the business of the firm unless there is a provision for the same in the partnership deed.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.25 Assertion (A): Sumit and Rahul join hands to construct a charitable hospital to help the underprivileged section of the
society. They are said to be in partnership.
Reason (R): To be in partnership, the agreement between the partners must be to share profits and losses of a business.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.26 Assertion (A): Valid partnership can be formulated even without a written agreement between the partners.
Reason (R): The partnership Act does not require that the agreement must be in writing.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
1.10 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.27 Assertion (A): Each partner carrying on the business is the principal as well as the agent for all the other partners.
Reason (R): There exists a relationship of mutual agency between all the partners–each partner can bind other partners
by his acts and also is bound by the acts of other partners with regard to business of the firm.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.28 Assertion (A): Methods of settlement of dispute among the partners can’t be part of the partnership deed.
Reason (R):The partnership Deed also contains the details regarding settlement of disputes among partners.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.29 Assertion (A): The liability of a partner for acts of the firm is also unlimited.
Reason (R): A partner’s private assets can also be used for paying off the firm’s debts.
(a) Both (A) and (R) are correct and (R) is correct reason for (A).
(b) Both (A) and (R) are correct but (R) is not correct reason for (A).
(c) Both (A) and (R) are incorrect.
(d) (A) is correct but (R) is incorrect.
Q.30 Raghav, Rahul, Sumit and Kalam are partners in a firm. They want to expand their business for which additional
capital and more managerial experts are required. For this they want to admit more members to their firm. What is the
maximum number of additional members that can be admitted by them to the firm?
(a) 2 (b) 50 (c) 20 (d) 46
Q.31 Sam, Tom and Jerry were partners sharing profits and losses equally. Sam sold a land costing `5,00,000 belonging to
the firm, without informing other partners and made a profit of `50,000 on sale of such land. Which decision should
be taken by the firm to rectify this situation?
(a) Sam needs to return only `5,00,000 to the firm.
(b) Sam is required to return `50,000 to the firm.
(c) Sam is required to pay back `50,000 only equally to Tom and Jerry.
(d) Sam needs to return `5,50,000 to the firm.
Q.32 Assertion (A): The maximum number of partners in a partnership firm is 50.
Reason (R): The maximum number of partners is prescribed by the Partnership Act, 1932.
(a) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Assertion (A) is correct, but Reason (R) is incorrect.
(d) Assertion (A) is incorrect, but Reason (R) is correct.
Q.33 X and Y are equal partners. They had advanced a loan of `40,000, contributed equally to the firm on 1st August, 2024.
The partnership deed is silent regarding the payment of interest on loan. What amount of interest on loan is payable to
X, if the firm closes its books of account on 31st March every year?
(a) Nil (b) `2,400 (c) `1,600 (d) `800
Q.34 Sarvesh, Sriniketan and Srinivas are partners sharing profits in the ratio of 5 : 3 : 2. If Sriniketan’s share of profit at the
end of the year amounted to `1,50,000, what will be Sarvesh’s share of profit?
(a) `5,00,000 (b) `1,50,000 (c) `3,00,000 (d) `2,50,000

A NSWERS
1. (d) 2. (c) 3. (c) 4. (c) 5. (c) 6. (c) 7. (b) 8. (d) 9. (b)
10. (b) 11. (d) 12. (a) 13. (a) 14. (c) 15. (a) 16. (a) 17. (a) 18. (d)
19. (a) 20. (d) 21. (d) 22. (d) 23. (b) 24. (c) 25. (d) 26. (a) 27. (b)
28. (c) 29. (a) 30. (d) 31. (d) 32. (c) 33. (d) 34. (d)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.11

Competency Based Questions 1.1

Q.1 Answer the following questions:
(a) A, B and C decided that interest on capitals would be provided to each partner @ 5% p.a. But after one year
C wants no interest on capital to be provided to any partner. Can C do so?
(b) Piyush and Yash purchase and sell land on a frequent basis for the purpose of making profits. Will they be
called ‘partners’?
(c) Roshni and Gloriya join hands to construct a charitable hospital to help the underprivileged section of the
society. Are they said to be in partnership?
(d) Mohan and Shyam are partners in a firm. State whether the claim is valid or invalid if the partnership
agreement is silent in the following matters:
(i) Mohan is an active partner. He wants a salary of `10,000 per year.
(ii) Shyam had advanced a loan to the firm. He claims interest @ 10% per annum.
Ans. (a) Yes, C can do so by altering the provisions of partnership deed, i.e., redrafting the deed, provided all the partners
unanimously agree for it.
(b) Yes, because they regularly deal in the business of purchase and sale of land and share the profits/losses of the business.
(c) No, because to be in partnership, the agreement between the partners must be to share profits and losses of a
business, and not a social service or some charitable activity.
(d) (i) Invalid (ii) Invalid
Q.2 Raju and Jai commenced business in partnership on April 1, 2024. No partnership agreement was made. They
contributed `4,00,000 and `1,00,000 respectively as capitals. In addition, Jai advanced `2,00,000 as loan to the
firm on July 1, 2024. Raju had met with an accident on October 1, 2024 and could not attend the business up to
March 31, 2025. Raju withdrew `50,000 from the business for his medical expenses. The profit for the year ending
on March 31, 2025 amounted to `1,00,000. Disputes have arisen between them on sharing the profits of the firm.
Raju Claims:
(i) He should be given interest at 10% p.a. on capital.
(ii) Profit should be distributed in the proportion of capitals.
Jai Claims:
(i) Net profit should be shared equally.
(ii) He should be allowed a remuneration of `5,000 p.m. during the period of Raju’s illness.
(iii) Interest on capital and loan should be given @ 6% p.a.
(iv) Interest on Raju’s drawings should be charged @ 12% p.a.
State the correct position on each issue as per the provisions of the Partnership Act, 1932. Also, calculate the
share of each partner in the net profit of the firm during 2024-25.
Ans. The correct position on each issue as per the provisions of the Partnership Act, 1932:
• Interest on capital: No interest on capital is payable if there is no partnership agreement. Thus, Raju’s claim that he
should be given interest at 10% p.a. on capital is invalid. Similarly, Jai’s claim that interest on capital should be given
@ 6% p.a. is also not correct.
• Remuneration for Firm’s Work: No partner is entitled to get a salary or other remuneration for taking part in the
conduct of the business of the firm if there is no partnership agreement. Thus, Jai’s claim that he should be allowed
a remuneration of `5,000 p.m. during the period of Raju’s illness is invalid.
• Interest on Drawings: No interest is to be charged on the drawings made by the partners, if there is no partnership
agreement. Thus, interest on Raju’s drawings of `50,000 during his period of illness should not be charged.
• Interest on Loan: If any partner has advanced a loan to the firm for the purpose of business, s/he shall be entitled
to get an interest on the loan amount at the rate of 6% per annum. Thus, interest on Jai’s loan for 9 months (from
1 July 2024 to 31 March 2025) = `2,00,000 × 6/100 × 9/12 = `9,000.
• Profit Sharing Ratio: If there is no partnership deed, the profits and losses of the firm are to be shared equally by
partners, irrespective of their capital contribution in the firm. Thus, profit sharing ratio between Raju and Jai = 1 : 1.
Net profit of the firm during 2024-25 = Profit (given) – Interest on Jai’s loan = `1,00,000 – `9,000 = `91,000
Raju’s share of net profit = Jai’s share = 1/2 × `91,000 = `45,500
1.12 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Interest on Capital 1.2

 When there is no partnership deed or the partnership deed is silent on the issue: No interest is allowed on partners’ capitals.
Yashoda and Kirtida are partners sharing profits and losses in the ratio of 3 : 2 and having
capitals `2,00,000 and `1,50,000 respectively. Net profit during the year 2024-25 was `50,000.
The partnership deed is silent as to the payment of interest on capital.
In this case, no interest will be paid on the partners’ capitals since the partnership deed is silent as to
the payment of interest on capital.
 When the firm incurs a loss during the year: The interest on capital is allowed only when the firm has earned profit
during the accounting year. Hence, no interest will be allowed if the firm has incurred net loss during the year.
Krishna and Balram are partners sharing profits equally and having capitals `2,00,000 and `5,00,000
respectively. Interest on capital is provided @8% p.a. and the firm incurred a net loss of `10,000
during the year 2024-25.
In this case, no interest on capital will be allowed to any partners since the firm has incurred a net loss
during the year.
 When the Partnership Deed specifically provides for interest on capital: Interest on capital can be allowed when it is
expressly agreed to by the partners. It is credited to the partners at the agreed rate with reference to the time period for
which the capital remained in business during an accounting year.
Radha and Lalita entered into partnership on 1 April 2024 with capitals of `3,00,000 and `2,00,000
respectively. They decided to share profits and losses equally and agreed that interest on capital
shall be provided to the partners @10% per annum. On 30 November 2024, they admitted their
friend Vishakha into the partnership firm for 1/4 share in the profits and losses. Vishakha brought
in `4,50,000 as capital. Net Profit of the firm during the year ending on 31.3.2025 was `1,50,000.
In this case, the interest on capitals of Radha and Lalita will be calculated @ 10% p.a. for the whole
year as their capitals remained in business during the whole accounting year 2024-25. However, Vishakha
will be entitled to get interest on capital @ 10% p.a. for 4 months only (from 30 November 2024 to
31 March 2025).
Interest on Radha’s capital = `3,00,000 × 10/100 = `30,000
Interest on Lalita’s capital = `2,00,000 × 10/100 = `20,000
Interest on Vishakha’s capital = `4,50,000 × 10/100 × 4/12 = `15,000
 When there is any addition or withdrawal of capital during the accounting period: Interest on capital is calculated
with due allowance for any addition or withdrawal of capital during the accounting period.
(i) On the opening balance of the capitals of partners, interest is calculated for the whole year.
(ii) On the additional capital brought in by any partner during the year, interest is calculated from the date of introduction
of additional capital to the last day of the financial year.
(iii) On the amount of capital withdrawn (other than usual drawings) during the year, interest for the period from the
date of withdrawal to the last day of the financial year is calculated and deducted from the total of the interest
calculated under points (i) and (ii) above.
Alternately, Interest on capital can be calculated with respect to the amounts remained invested for the relevant periods.

Difference between Partner’s Drawings and Withdrawal of capital

• When a partner takes money out of the partnership for personal use, it is called ‘Partner’s Drawings’. This is usually done
to cover personal expenses and is not considered a permanent reduction in the partner’s capital contribution.
• On the other hand, ‘Withdrawal of capital’ refers to when a partner permanently reduces his capital investment in the partnership
business by taking out a portion of his initial capital contribution.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.13

Gunjan and Pragya are partners in a firm. Their capital accounts as on April 1, 2024 showed a
balance of `2,00,000 and `3,00,000 respectively. On July 1, 2024, Gunjan introduced additional
capital of `50,000 and Pragya, `60,000. On October 1, 2024 Gunjan withdrew `30,000, and on
January 1, 2025 Pragya withdrew, `15,000 from their capitals. Interest on capital is allowed @ 8% p.a.
Calculation of interest on partners’ capitals can be calculated by different methods, as follows:
First Method:
Interest on Gunjan’s Capital:
Particulars Details Amount (`)
Interest on `2,00,000 for full year 2,00,000 × 8/100 16,000
Add: Interest on `50,000 for 9 months 50,000 × 8/100 × 9/12 3,000
Less: Interest on `30,000 for 6 months 30,000 × 8/100 × 6/12 (1,200)
Interest on Capital 17,800
Interest on Pragya’s Capital:
Particulars Details Amount (`)
Interest on `3,00,000 for full year 3,00,000 × 8/100 24,000
Add: Interest on `60,000 for 9 months 60,000 × 8/100 × 9/12 3,600
Less: Interest on `15,000 for 3 months 15,000 × 8/100 × 3/12 (300)
Interest on Capital 27,300
Second Method:
Interest on Gunjan’s Capital:
Capital (`) No. of months for which capital remained invested Interest @ 8% p.a. (`)
2,00,000 3 2,00,000 × 8/100 × 3/12 = 4,000
2,50,000 3 2,50,000 × 8/100 × 3/12 = 5,000
2,20,000 6 2,20,000 × 8/100 × 6/12 = 8,800
17,800
Interest on Pragya’s Capital:
Capital (`) No. of months for which capital remained invested Interest @ 8% p.a. (`)
3,00,000 3 3,00,000 × 8/100 × 3/12 = 6,000
3,60,000 6 3,60,000 × 8/100 × 6/12 = 14,400
3,45,000 3 3,45,000 × 8/100 × 3/12 = 6,900
27,300

Third Method: Calculation of Interest on Capital by Product Method

In the above example, Interest on Gunjan’s Capital and Pragya’s Capital can be calculated using product method.
In this method, interest on capital is calculated on the ‘product’ for an average period of one month.
Calculation of Interest on Gunjan’s Capital:
Capital (`) (i) No. of months for which capital remained invested (ii) Product (`) (i) × (ii)
2,00,000 3 6,00,000
2,50,000 3 7,50,000
2,20,000 6 13,20,000
26,70,000
Interest = `26,70,000 × 8/100 × 1/12 = `17,800
Calculation of Interest on Pragya’s Capital:
Capital (`) (i) No. of months for which capital remained invested (ii) Product (`) (i) × (ii)
3,00,000 3 9,00,000
3,60,000 6 21,60,000
3,45,000 3 10,35,000
40,95,000
Interest = `40,95,000 × 8/100 × 1/12 = `27,300
1.14 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

 When opening capitals of partners are not given: In such a situation before calculation of interest on capital, the opening
capitals will have to be worked out with the help of partners’ closing capitals by marking necessary adjustments for the
additions and withdrawal of capital, drawings, share of profit or loss, etc. if already shown in the capital accounts the partners.
Calculation of opening capital:
Details Amount (`)
Closing Capital xxx
Add: Drawings, Interest on Drawings, Withdrawal of Capital and Share of loss already distributed xxx
Less: Remuneration, Addition to Capital, Share of profit already distributed (xxx)
Opening Capital xxx

On March 31, 2025, after the close of books of accounts, the capital accounts of Ram, Shyam and
Mohan showed balance of `2,40,000, `1,80,000 and `1,20,000, respectively. It was later discovered
that interest on capital @ 10% had been omitted. The net profit for the year ending on March 31,
2025, amounted to `3,60,000 and the partner’s drawings had been Ram `36,000; Shyam `45,000
and Mohan `27,000. The profit sharing ratio of Ram, Shyam and Mohan was 3 : 2 : 1.
Since opening capitals of partners are not given, before calculation of interest on capital the opening
capitals will have to be worked out as follows:
Calculation of opening capitals:
Details Ram (`) Shyam (`) Mohan (`)
Closing Capital (on March 31, 2025) 2,40,000 1,80,000 1,20,000
Add: Drawings 36,000 45,000 27,000
Less: Share of net profit `3,60,000 already distributed in 3 : 2 : 1 (1,80,000) (1,20,000) (60,000)
Opening Capital (1 April 2024) 96,000 1,05,000 87,000
Interest on capitals @ 10% p.a. on opening capitals:
Ram `9,600; Shyam `10,500 and Mohan `8,700
 When the net profit is insufficient and less than the amount due to the partners as interest on capital: If in a year the net
profit is less than the amount due to the partners as interest on capital, the payment of interest on capital will be restricted to
the amount of profits. In that case, the profit will be effectively distributed in the ratio of interest on capital of each partner.
Shivek and Yash are partners sharing profits and losses in the ratio of 3:2. Their capital accounts
showed balances of `1,50,000 and `2,00,000 respectively on Jan 01, 2025. The partnership deed
provides for interest on capital @ 8% p.a. and the firm earned a profit of `14,000 during the year.
Interest on Shivek’s Capital = 8% of `1,50,000 = `12,000 and Interest on Yash’s Capital = 8% of
`2,00,000 = `16,000. Thus, Total Interest on Capital payable = `12,000 + `16,000 = `28,000
As the profit for the year is `14,000, which is less than the amount of interest on capital due to partners,
i.e. `28,000 interest will be paid to the extent of available profit i.e., `14,000. In other words, Shivek
and Yash will get profit in the ratio of interest on capital, 12000 : 16000 = 3 : 4, i.e. Shivek `6,000
and Yash `8,000.

Interest on capital is generally provided for in two situations:

(i) when the partners contribute unequal amounts of capitals but share profits equally, and
(ii) where the capital contribution is same but profit sharing is unequal.
Thus, if partners’ capitals are equal and their profit sharing ratio is also equal, there is no need to provide
Interesting for interest on capitals.
Example: Neel and Madhav are partners sharing profits and losses equally. Their Balance Sheet as on
Fact
31 March 2025 was as follows:
Balance Sheet as on March 31, 2025
Liabilities Amount (`) Assets Amount (`)
Neel’s Capital 10,00,000 Sundry Assets 25,00,000
Madhav’s Capital 10,00,000
Creditors 5,00,000
25,00,000 25,00,000
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.15

Net profit during the year 2024-25 was `4,00,000. Interest on capitals is provided @ 5% p.a.
In this situation, partners’ capitals are equal (i.e. `10,00,000 each) and their profit sharing ratio is also equal.
So there is no need to provide for interest on capitals. Share of profit of each partner will be `2,00,000
(i.e. 1/2 × `4,00,000).
Had interest on capital be provided, total interest payable = `50,000 + `50,000 = `1,00,000. Therefore, divisible
profit would be `3,00,000 (i.e. `4,00,000 –`1,00,000). Share of divisible profit of each partner would be `1,50,000
(i.e. 1/2 × `3,00,000). Thus, appropriations of net profit of the firm `4,00,000 would be as follows:
Neel: Interest on capital + Share of divisible profit = `50,000 + `1,50,000 = `2,00,000
Madhav: Interest on capital + Share of divisible profit = `50,000 + `1,50,000 = `2,00,000
It is quite clear that if partners’ capitals are equal and their profit sharing ratio is also equal, there is no
need to provide for interest on capitals because in such a situation appropriations of net profit of the firm
will be same if we provide for interest on capitals or not.

ILLUSTRATIONS — Interest on Capital

ILLUSTRATION 1
Anupam and Abhishek are partners sharing profits and losses in the ratio of 3 : 2. Their capital accounts showed balances of
` 1,50,000 and ` 2,00,000 respectively on April 01, 2024. Show the calculation of interest on capital for the year ending on
March 31, 2025 in each of the following alternatives:
(a) If the partnership deed is silent as to the payment of interest on capital and the profit for the year is ` 50,000;
(b) If the partnership deed provides for interest on capital @ 8% p.a. and the firm incurred a loss of ` 10,000 during the year;
(c) If the partnership deed provides for interest on capital @ 8% p.a. and the firm earned a profit of ` 50,000 during the year;
(d) If the partnership deed provides for interest on capital @ 8% p.a. and the firm earned a profit of ` 14,000 during the year.
Solution:
(a) In the absence of a specific provision in the Deed, no interest will be paid on the capital to the partners. The whole
amount of profit will however be distributed among the partners in their profit sharing ratio.
(b) As the firm has incurred losses during the accounting year, no interest on capital will be allowed to any partner. The firm’s
loss will however be shared by the partners in their profit sharing ratio their profit sharing ratio.
(c) Interest to Anupam @ 8% on ` 1,50,000 = `12,000
Interest to Abhishek @ 8% on ` 2,00,000 = `16,000
Total interest on capital = `28,000
As the profit is sufficient to pay interest at agreed rate, the whole amount of interest on capital shall be allowed and the
remaining profit amounting to ` 22,000 (` 50,000 – ` 28,000) shall be shared by the partners in their profit sharing ratio.
(d) As the profit for the year is ` 14,000, which is less than the amount of interest on capital due to partners, i.e. ` 28,000
(` 12,000 for Anupam and ` 16,000 for Abhishek), interest will be paid to the extent of available profit i.e., ` 14,000.
Anupam and Abhishek will be credited with ` 6,000 and ` 8,000, respectively. Effectively this amounts to sharing the
firm’s profit in the ratio of interest on capital, i.e., 3:4.

ILLUSTRATION 2
On 1.4.2024 Mohan and Sohan entered into partnership for doing business of dry fruits. Mohan introduced `1,00,000
as capital and Sohan introduced `50,000. The partnership deed provided for interest on capital @ 6% per annum. Since
Sohan could introduce only `50,000 it was further agreed that as and when there was a need Sohan would introduce further
capital. Sohan was also allowed to withdraw from his capital when the need for the capital was less. During the year ending
on 31.3.2025, Sohan introduced and withdrew the following amounts of capital. Calculate interest on Partners’ Capitals.
1.16 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Date Capital Introduced (`) Capital Withdrawn (`)

01.5.2024 10,000 –
30.6.2024 – 5,000
30.9.2024 97,000 –
01.2.2025 – 87,000

Solution: Interest on Mohan’s capital = 1,00,000 × 6 /100 = `6,000

Calculation of Interest on Sohan’s Capital:
Date Amount (`) Months Product (`)
1.4.2024 50,000 1 50,000
1.5.2024 60,000 2 1,20,000
30.6.2024 55,000 3 1,65,000
30.9.2025 1,52,000 4 6,08,000
1.2.2025 65,000 2 1,30,000
10,73,000
Interest = 10,73,000 × 6/100 × 1/ 12 = `5,365
Alternately, Interest on Sohan’s Capital = (50,000 × 6/100 × 1/12) + (60,000 × 6/100 × 2/12) + (55,000 × 6/100 × 3/12) +
(1,52,000 × 6/100 × 4/12) + (65,000 × 6/100 × 2/12) = `5,365

ILLUSTRATION 3
Harsh and Keshav are partners sharing profits and losses in the ratio of 3:1. Their capitals at the end of the financial year
2024-25 were `1,50,000 and `75,000. During the year 2024-25, Harsh’s drawings were `20,000 and the drawings of Keshav
were `5,000, which had been duly debited to partner’s capital accounts. Profit before charging interest on capital for the year
was `16,000. The same had also been distributed in their profit sharing ratio. Keshav had brought additional capital of
`16,000 on October 1, 2024. Interest on capital is allowed @ 12% p.a. Calculate interest on Partners’ Capitals.
Solution: Calculation of Opening Capitals:
Particulars Harsh (`) Keshav (`)
Capital at the end 1,50,000 75,000
Add: Drawings during the year 20,000 5,000
Less: Share of profit already distributed (12,000) (4,000)
Less: Additional capital – (16,000)
Capital in the beginning 1,58,000 60,000
Interest on Harsh’s Capital = 12% of 1,58,000 = `18,960
 12 6   12 6 
Interest on Keshav’s Capital =  60, 000 × ×  +  76, 000 × ×  = 3,600 + 4,560 = `8,160
 100 12   100 12 
Total interest payable to the partners = 18,960 + 8,160 = `27,120.
But profit for the year is `16,000, which is less than total interest payable.
Therefore, the payment of interest on capital will be restricted to the amount of profits.
In that case, the profit will be effectively distributed in the ratio of interest on capital of each partner, i.e. 18,960 : 8,160.
18, 960
Interest on Harsh’s Capital = ×16, 000 = `11,186
27,120
8,160
Interest on Keshav’s Capital = ×16, 000 = `4,814
27,120
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.17

ILLUSTRATION 4
Vihaan and Mann are partners sharing profits and losses in the ratio of 3 : 2. The firm maintains fluctuating capital accounts
and the balance of the same as on 31st March 2025 is ` 4,00,000 and ` 4,65,000 for Vihaan and Mann respectively.
Drawings during the year were ` 65,000 each. As per the partnership Deed, Interest on capital @ 10% p.a. on Opening
Capital has been allowed to them.
Calculate the interest on capitals of Vihaan and Mann given that the divisible profits during the year 2024-25 was ` 2,25,000.

Solution: Calculation of opening capitals:

Details Vihaan (`) Mann (`)
Closing Capital (on March 31, 2025) 4,00,000 4,65,000
Add: Drawings 65,000 65,000
Less: Share of divisible profit `2,25,000 already distributed in 3 : 2 (1,35,000) (90,000)
3,30,000 4,40,000
Less: Interest on capital 3,30,000 × 10/110 4,40,000 × 10/110
= 30,000 = 40,000
Opening Capital (1 April 2024) 3,00,000 4,00,000
Alternatively, interest on capital can be calculated using an equation mathematically:
Calculation of opening capital of Vihaan and Interest on capital: Suppose opening capital of Vihaan be `x.
Opening Capital + Interest on Capital – Drawings + Share of divisible profit = Closing Capital
x + 0.10x – 65,000 + 3/5 × 2,25,000 = 4,00,000
1.10x – 65,000 + 1,35,000 = 4,00,000 ⇒ 1.10x = 4,00,000 + 65,000 – 1,35,000
1.10x = 3,30,000 ⇒ x = 3,00,000. Thus, Vihaan’s opening capital = `3,00,000
Therefore, interest on Vihaan’s capital = `3,00,000 × 10/100 = `30,000.
Calculation of opening capital of Maan and Interest on capital: Suppose opening capital of Maan be `y.
Opening Capital + Interest on Capital – Drawings + Share of divisible profit = Closing Capital
y + 0.10y – 65,000 + 2/5 × 2,25,000 = 4,65,000
1.10y – 65,000 + 90,000 = 4,65,000 ⇒ 1.10y = 4,65,000 + 65,000 – 90,000
1.10y = 4,40,000 ⇒ y = 4,00,000. Thus, Maan’s opening capital = `4,00,000
Therefore, interest on Vihaan’s capital = `4,00,000 × 10/100 = `40,000.

ILLUSTRATION 5
A & B are partners in the ratio of 3:2. The firm maintains fluctuating capital accounts and the balance of the same as
on 31-03-2025 amounted to `1,60,000 and `1,40,000 for A and B respectively. Their drawings during the year were
`30,000 each. As per partnership deed interest on capital @10% p.a. on opening capitals had been provided to them.
Calculate opening capitals of partners given that their profits were `90,000. Show your workings clearly.

Solution: Calculation of Opening Capital

Particulars A B
Closing Capital 1,60,000 1,40,000
Add: Drawings 30,000 30,000
Less: Profits* (37,800) (25,200)
1,52,200 1,44,800
Less: Interest on Capital 13,836 13,164
(1,52,200 × 10/110) (1,44,800 × 10/110)
Opening Capital 1,38,364 1,31,636
1.18 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Details Amount (`)

Total Closing Capital (of A and B) 1,60,000 + 1,40,000 `3,00,000
Add: Total Drawings (of A and B) `60,000
Less: Profits (including interest on Capital) (`90,000)
Total Capital in the beginning of the year 2,70,000
Interest on Capital = 10% of 2,70,000 `27,000
*Divisible profits = 90,000 – 27,000 (to be distributed in 3 : 2, i.e. A `37,800; B `13,164) `63,000

Multiple Choice Questions (MCQs) 1.2

Q.1 Ridhima and Kavita were partners sharing profits and losses in the ratio of 3 : 2. Their fixed capitals were `1,50,000
and `2,00,000 respectively. The partnership deed provides for interest on capital @ 8% p.a. The net profit of the firm
for the year ending on 31st March, 2025 amounted to `21,000. The amount of interest on capital credited to the
capital accounts of Ridhima and Kavita will be:
(a) `12,000 and `16,000 respectively. (b) `10,500 and `10,500 respectively.
(c) `9,000 and `12,000 respectively. (d) `16,000 and `5,000 respectively.
Q.2 Arjun and Bhim were partners in a firm sharing profits in the ratio 3:2. On 31st March 2025 their capitals were
` 1,29,000 and ` 1,08,000 respectively, Divisible Profits for the year ending on 31st March 2025 was ` 50,000.
Interest on capital was also provided @10% p.a. in accordance with partnership deed. Determine interest on Arjun’s
Capital for the year ending on 31.03.2025.
(a) ` 9,900 (b) ` 9,000
(c) ` 12,900 (d) ` 10,400
Q.3 After doing the adjustments regarding drawings `40,000, share of profit `24,000 and the additional capital introduced
`32,000, the capital of Ashok, a partner, as on 31.03.2025 was `5,00,000. His capital as on 01.04.2024 was:
(a) `4,84,000 (b) `5,16,000
(c) `4,46,000 (d) `5,96,000
Q.4 A and B were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st April, 2024 the balances in their
capital accounts were `1,50,000 and `2,00,000 respectively. The partnership deed provided that interest on partner’s
capital will be allowed @ 10% per annum. During the year ending on 31st March, 2025, the firm incurred a loss of
`10,000. Interest on A’s capital will be:
(a) `15,000 (b) `9,000 (c) Nil (d) `6,000
Q.5 W and Q are partners with capitals of `20,00,000 and `16,00,000 respectively. The Partnership Deep provides for
interest on capital @10% p.a. If the firm earned a profit of `2,70,000 for the year ending on 31st March, 2025, then
Interest on Capital respectively credited to the Partners Capital Accounts was:
(a) `2,00,000 and `1,60,000 (b) `1,35,000 and `1,35,000
(c) No interest on capital will be allowed (d) `1,50,000 and `1,20,000
Q.6 A and B are partners in a firm sharing profit in the ratio of 3 : 2. Their Balance Sheet as on 31st March, 2025 was as follows:
Liabilities Amount (`) Assets Amount (`)
A’s Capital 30,000 Drawings: A: 4,000
B’s Capital 10,000 B: 2,000 6,000
Other Assets 34,000
40,000 40,000
Net profit of the year ending on 31-3-2025, ` 5,000 was divided without providing for interest on capital @ 10% p.a,
what will be the amout of interest of A’s Capital?
(a) `3,000 (b) Nil (c) `3,100 (d) `2,700
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.19

Q.7 A and B were partners in a firm. Their capitals at the end of the year ending on 31.3.2025 were `3,00,000 and
`1,50,000 respectively. During the year B withdrew `10,000 which was debited to his capital account. Profit for
the year ending on 31st March, 2025 was `32,000 which was credited to their capital accounts. During the year B
introduced additional capital `32,000. What was B’s capital on 1.4.2024?
(a) `1,50,000 (b) `1,60,000 (c) `1,12,000 (d) `1,52,000
Q.8 Mickey, Tom and Jerry were partners in the ratio of 5:3:2. On 31st March 2025, their books reflected a net profit
of `2,10,000. As per the terms of the partnership deed they were entitled for interest on capital which amounted to
`80,000, `60,000 and `40,000 respectively. Besides this a salary of `60,000 each was payable to Mickey and Tom.
Calculate the ratio in which the profits would be appropriated.
(a) 1:1:1 (b) 5:3:2 (c) 7:6:2 (d) 4:3:2
Q.9 Vidit and Seema were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their capitals were `1,20,000
and `2,40,000, respectively. They were entitled to interest on capital @ 10% p.a. The firm earned a profit of `18,000
during the year. The interest on Vidit’s capital will be:
(a) `12,000 (b) `10,000 (c) `7,200 (d) `6,000
Q.10 Asha and Deepti were partners in a firm sharing profits and losses in the ratio of 3 : 1. Their fixed capitals were
`3,00,000 and `2,00,000 respectively. They were entitled to interest on capital @10% p.a. The firm earned a profit of
`20,000 during the year. The amount of interest on capital credited to Deepti will be:
(a) `12,000 (b) `8,000
(c) `20,000 (d) `5,000
Q.11 Manu and Kanu were partners in a firm, sharing profits and losses in the ratio of 2 : 3. Their fixed capitals were
`10,00,000 and `5,00,000, respectively. They were entitled to an interest on capital @10% p.a. The firm earned a
profit of `60,000 during the year. The amount of interest on capital credited to Kanu will be:
(a) `20,000 (b) `40,000
(c) `36, 000 (d) `24,000
Q.12 A partnership deed provides for the payment of interest on capital but there was a loss instead of profits during the year
2024-25. At what rate will the interest on capital be allowed?
(a) 9% p.a. (b) 6% p.a.
(c) The rate specified in the partnership deed (d) No interest on capital will be allowed
Q.13 A and B are equal partners with fixed capitals `1,00,000 and `80,000 respectively. Interest on capital is paid @ 6% p.a.
During the year ending on 31 March, 2025, the firm incurred a loss of `20,000.
Given below are two statements – Assertion (A) and Reason (R). Choose the correct alternative:
Assertion (A): A claims interest on capital, whereas B does not agree.
Reason (R): Interest on capital will not be paid since the firm incurred losses during the year 2025.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.14 Read the following statements carefully and choose the correct alternative:
Statement-I: In case firm suffers a loss, no interest on capital, salary, remuneration is to be allowed to partners.
Statement-II: Interest on capital is generally provided when the partners contribute unequal amounts of capitals but
share profits equally, or where the capital contribution is same but profit sharing is unequal.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.15 Given below are two statements – Assertion (A) and Reason (R). Choose the correct alternative:
Assertion (A): No interest will be allowed during the year the firm has incurred net loss and if in a year, the profit of
the firm is less than the amount due to the partners as interest on capital, the payment of interest will be restricted to
the amount of profits.
Reason (R): The interest on capital is allowed only when the firm has earned profit during the accounting year.
(a) Both (A) and (R) are correct. (b) Both (A) and (R) are incorrect.
(c) (A) is correct, but (R) is incorrect. (d) (A) is incorrect, but (R) is correct.
1.20 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.16 Statement-I: If in a year, the profit of the firm is less than the amount due to the partners as interest on capital, the
profit will be effectively distributed in the ratio of interest on capital of each partner.
Statement-II: The partnership agreement may also provide for charging of interest on capital withdrawn out of the
firm by the partners.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.17 Under which of the following situation interest on partners’ capitals shall not be provided?
(a) If the firm has incurred net loss during the year.
(b) If partners’ capitals are equal and their profit sharing ratio is also equal.
(c) Both (a) and (b)
(d) If the net profit is less than the total amount payable to partners as interest on capitals.
Q.18 Neeru and Meetu are partners in a firm with capitals of `2,00,000 and `1,50,000 respectively. If the firm earned a
profit of `17,500 for the year ending on 31st March, 2025, then interest on capital @ 10% p.a. would be:
(a) Neeru `15,000; Meetu `20,000 (b) Neeru `8,750; Meetu `8,750
(c) Neeru `20,000; Meetu `15,000 (d) Neeru `10,000; Meetu `7,500
Q.19 Anna and Bobby were partners sharing profits and losses in the ratio of 5 : 3. On 1st April, 2024 their capital accounts
showed balances of `3,00,000 and `2,00,000 respectively. The partnership deed provided for interest on capital @10% p.a.
and the firm earned a profit of `45,000 for the year ending on 31st March, 2025. The interest on partners’ capitals will be:
(a) `30,000 and `20,000 respectively (b) `27,000 and `18,000 respectively
(c) `22,500 and `22,500 respectively (d) None of the above
Q.20 Arjun and Bhim were partners in a firm sharing profits in the ratio 3:2. On 31st March 2025 their capitals were
`1,29,000 and `1,08,000 respectively, Divisible Profits for the year ending on 31st March 2025 was `50,000. Interest
on capital was also provided @10% p.a. in accordance with partnership deed. Determine interest on Arjun’s Capital for
the year ending on. 31.03.2025.
(a) `9,900 (b) `9,000
(c) `12,900 (d) `10,400
Q.21 The capital accounts of Alka and Archana showed credit balances of ` 4,00,000 and ` 3,00,000 respectively, after
taking into account drawings and net profit of ` 2,00,000. The drawings of the partners during the year 2024-25 were:
(i) Alka withdrew ` 10,000 the end of each quarter.
(ii) Archana’s drawings were: 31st May, 2024 `8,000; 1st November, 2024 `7,000; 1st February, 2025 `5,000
Interest on partners’ capitals @ 10%p.a. for the year ending on 31st March, 2025 will be:
(a) Alka `34,000 and Archana `22,000 (b) Alka `44,000 and Archana `32,000
(c) Alka `3,40,000 and Archana `2,20,000 (d) Alka `30,000 and Archana `20,000
Q.22 On 1.4.2024, Brij and Nandan entered into partnership to construct toilets in government girls schools in the remote
areas of Uttarakhand. They contributed capitals of `10,00,000 and `15,00,000 respectively. Their profit sharing ratio
was 2 : 3 and interest allowed on capital as provided in the Partnership Deed was 12% per annum. During the year
ending on 31.3.2025, the firm earned a profit of `2,00,000.
The interest on partners’ capitals will be:
(a) Brij `80,000 and Nandan `1,20,000 (b) Brij `1,20,000 and Nandan `1,80,000
(c) Brij `1,00,000 and Nandan `1,00,000 (d) None of the above

A NSWERS
1. (c) 2. (b) 3. (a) 4. (c) 5. (d) 6. (d) 7. (c) 8. (c) 9. (d)
10. (b) 11. (a) 12. (d) 13. (b) 14. (a) 15. (a) 16. (c) 17. (c) 18. (d)
19. (b)
Hint: Total Interest on capital = Anna `30,000 + Bobby `20,000 = `50,000. But Net Profit = `45,000 which will
be effectively distributed between the partners in the ratio of their interest on capital, i.e. `27,000 : `18,000 = 3 : 2.
Interest on capitals: Anna = 3/5 × 45,000 = `27,000 and Bobby = 2/5 × 45,000 = `18,000
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.21

20. (b)
Explanation: Suppose opening capital of Arjun be `x. Part
Opening Capital + Interest on Capital + Share of divisible profit = Closing Capital Cap
x + 0.10x + 3/5 × 50,000 = 1,29,000 Add
1.10x + 30,000 = 1,29,000 ⇒ 1.10x = 99,000 ⇒ x = 90,000. Thus, Arjun’s opening capital = `90,000 Less
Therefore, interest on Arjun’s capital @10% p.a. on opening capital = `9,000. Less
21. (a) Alka`34,000 and Archana `22,000 Cap
Explanation:
Particulars Alka (`) Archana (`)
Closing Capitals 4,00,000 3,00,000
Add: Drawings 40,000 20,000
Less: Profits (1,00,000) (1,00,000)
Opening Capitals 3,40,000 2,20,000
Interest on Capital @10% p.a. 34,000 22,000
22. (a) Brij `80,000 and Nandan `1,20,000
Explanation: Interest on capital of Brij = `1,20,000 and Interest on capital of Nandan = `1,80,000
Total interest payable = `3,00,000. But Net Profit = `2,00,000 only. Proportionate profit/Interest on capital: Brij =
1,20,000/3,00,000 × 2,00,000 = `80,000 and Nandan = 1,80,000 / 3,00,000 × 2,00,000 = `1,20,000

Numerical Ques
Questions
tions (for Practice) 1.2
Q.1 Raj and Suri are partners in a firm sharing profits equally. Their capitals as on April 1, 2024 were `2,50,000 and
`1,50,000 respectively. On July 1, 2024. They decided that their capitals should be `2,00,000 each. The necessary
adjustment in the capitals were made by introducing or withdrawing cash by the partners. Interest on capital is allowed
@8% p.a. Pass the necessary Journal Entries on July 1, 2024 and compute interest on partner’s capitals for the year
ending March 31,2025.
[Ans. Raj will withdraw `50,000 from his capital and Suri will bring additional capital of `50,000. Interest on Capitals:
Raj `17,000 and Suri `15,000.]
Q.2 Priya and Kajal are partners in a firm, sharing profits and losses in the ratio of 5:3. The balance in their fixed capital
accounts, on April 1, 2024 were: Priya, `6,00,000 and Kajal, `8,00,000. The profit of the firm for the year ending on
31 March 2025 is `1,26,000. Calculate their shares of profits:
(a) when there is no agreement in respect of interest on capital, and
(b) when there is an agreement that the interest on capital will be allowed @ 12% p.a.
[Ans. (a) No interest is payable on partners’ capitals. (b) IOC: Priya `54,000 and Kajal `72,000]
Q.3 Rahul, Rohit and Karan started partnership business on April 1, 2024 with capitals of ` 20,00,000, ` 18,00,000 and
` 16,00,000, respectively. The profit for the year ending on 31 March 2025 amounted to `1,35,000 and the partner’s
drawings had been Rahul ` 50,000, Rohit ` 50,000 and Karan ` 40,000. The profits are distributed among partner’s in
the ratio of 3:2:1.
Calculate the interest on capital @ 5% p.a.
[Ans. Rahul, `50,000, Rohit, ` 45,000, Karan `40,000]
Q.4 On March 31, 2025, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed
balance of ` 24,000 ` 18,000 and ` 12,000, respectively. It was later discovered that interest on capital @ 5% had been
omitted. The profit for the year ending on March 31, 2025, amounted to ` 36,000 and the partner’s drawings had
been Ram, ` 3,600; Shyam, ` 4,500 and Mohan, ` 2,700. The profit sharing ratio of Ram, Shyam and Mohan was
3:2:1. Calculate interest on capital.
[Ans. Interest on Ram’s Capital `480; Shyam’s Capital, `525 and Mohan’s Capital, `435]
1.22 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Interest on Drawings 1.3

The partnership agreement may also provide for charging of interest on money withdrawn out of the firm by the partners for
their personal use. Charging interest on drawings discourages excessive amounts of drawings by the partners.
 If there is no express agreement among the partners about interest on drawings: No interest is charged on the drawings
if there is no express agreement among the partners about it.
 If the partnership deed provides for interest on drawings and amount, date and rate of interest on drawings are
given: In this situation, the interest is charged at an agreed rate, for the period money remained outstanding from the
partners during an accounting year.
Shreya withdrew `50,000 on 1st August, 2024 during the year 2024-25.
Interest on Shreya’s Drawings for 8 months @10% p.a. = 50,000 × 10% × 8/12 = `3,333
 When Varying Amounts are Withdrawn at Different Intervals: When the partners withdraw different amounts of
money at different time intervals, the interest is calculated using the product method. Under the product method, for
each withdrawal, the money withdrawn is multiplied by the period (usually expressed in months) for which it remained
withdrawn during the financial year. The products so calculated are totalled and interest for 1 month at the specified rate is
worked out, on the total of the products.
Sneh withdrew the following amounts from her firm, for personal use during the year ending on
March 31, 2025. The rate of interest to be charged is 7% p.a.
Date Amount Withdrawn (`)
April 1, 2024 16,000
June 30, 2024 15,000
October 31, 2024 10,000
December 31, 2024 14,000
March 1, 2025 11,000
Calculation of Interest on Drawings
Date Amount (`) Months
Product (`)
April 1, 2024 16,000 12 1,92,000
June 30, 2024 15,000 9 1,35,000
October 31, 2024 10,000 5 50,000
December 31, 2024 14,000 3 42,000
March 1, 2025 11,000 1 11,000
Total 4,30,000
Interest on drawings = Sum of Products × Rate × 1/12 = `4,30,000 × 7/100 × 1/12 = `2,508 (approx.)
 When Fixed Amount is Withdrawn Every Month throughout the year:
 If the amount is withdrawn on the first day of every month, interest on total amount of drawings during the year will
be calculated for 6½ months.
Interest on drawings = Total drawings (monthly drawings × 12) × Rate of interest /100 × 6½/12
 If the amount is withdrawn at the end of every month, it will be calculated for 5½ months.
Interest on drawings = Total drawings (monthly drawings × 12) × Rate of interest /100 ×5½/12
 If the amount is withdrawn at the middle of the month, it will be calculated for 6 months.
Interest on drawings = Total drawings (monthly drawings × 12) × Rate of interest /100 × 6/12

Top Tip
Total period in months after first drawings + Total period in months after last drawings
Average period =
2
(a) If the amount is withdrawn on the first day of every month, average period = (12 + 1)/2 = 6½ months
(b) If the amount is withdrawn at the end of every month, average period = (11 + 0)/2 = 5½ months
(c) If the amount is withdrawn at the middle of the month, average period = (11.5 + 0.5)/2 = 6 months
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.23

Aashish withdrew `10,000 per month from the firm for his personal use during the year ending on
March  31,  2025. Interest on drawings is charged @ 8% p.a.
(a) When the amount is withdrawn at the beginning of each month:
Interest on drawings = (10,000 × 12) × 8/100 × 6.5/12 = `5,200
(b) When the amount is withdrawn at the end of each month:
Interest on drawings = (10,000 × 12) × 8/100 × 5.5/12 = `4,400
(c) When the amount is withdrawn in the middle of each month:
Interest on drawings = (10,000 × 12) × 8/100 × 6/12 = `4,800
When Fixed Amount is withdrawn Quarterly throughout the year

If the
amount is withdrawn at the beginning of each quarter, the interest is calculated on the total money withdrawn
during the year, for a period of 7½ months.
Interest on drawings = Total drawings (quarterly drawings × 4) × Rate of interest /100 × 7½/12
 If the amount is withdrawn at the end of each quarter, it will be calculated for a period of 4½ months.

Interest on drawings = Total drawings (quarterly drawings × 4) × Rate of interest /100 × 4½/12
 If the amount is withdrawn at the middle of each quarter, it will be calculated for a period of 6 months.

Interest on drawings = Total drawings (quarterly drawings × 4) × Rate of interest /100 × 6/12

Top Tip
Total period in months after first drawings + Total period in months after last drawings
Average period =
2
(a) If the amount is withdrawn at the beginning of each quarter, average period = (12 + 3)/2 = 7½ months
(b) If the amount is withdrawn at the end of each quarter, average period = (9 + 0)/2 = 4½ months
(c) If the amount is withdrawn at the middle of each quarter, average period = (10.5 + 1.5)/2 = 6 months

Suppose Rishabh and Bhavesh are partners in a firm, sharing profits and losses equally. During financial year
2024-25, Bhavesh withdrew `30,000 quarterly. Interest is to be charged on drawings @ 8% per annum.
(a) If the amount is withdrawn at the beginning of each quarter:
Interest on drawings = (30,000 × 4) × 8% × 7.5/12 = `6,000

Top Tip
Average period of 7½ months is the average of 12, 9, 6 and 3, i.e. (12+9+6+3)/4 = 30/4 = 7½ months.

Second Method: Statement Showing Calculation of Interest on Drawings

Date Amount (`) Months Interest on drawings (`)
April 1, 2024 30,000 12 30,000 × 8/100 = 2,400
July 1, 2024 30,000 9 30,000 × 8/100 × 9/12 = 1,800
Oct. 1, 2024 30,000 6 30,000 × 8/100 × 6/12 = 1,200
Jan. 1, 2025 30,000 3 30,000 × 8/100 × 3/12 = 600
Total 1,20,000 = 6,000
Third Method: Instead of above cumbersome calculation, the same result can be obtained by calculating
the interest on the sum of product for a period of 1 month, as given below:
Statement Showing Calculation of Interest on Drawings
Date Amount (`) Months Interest on drawings (`)
April 1, 2024 30,000 12 3,60,000
July 1, 2024 30,000 9 2,70,000
Oct. 1, 2024 30,000 6 1,80,000
Jan. 1, 2025 30,000 3 90,000
Total 9,00,000
1.24 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Interest on drawings = 9,00,000 × 8/100 × 1/12 = `6,000

(b) If the amount is withdrawn at the end of each quarter:
Interest on drawings = (30,000 × 4) × 8% × 4.5/12 = `3,600
Alternately,
Statement Showing Calculation of Interest on Drawings
Date Amount (`) Months Product (`)
June 30, 2024 30,000 9 2,70,000
September 30, 2024 30,000 6 1,80,000
December 31, 2024 30,000 3 90,000
March 31, 2025 30,000 0 0
Total 5,40,000
Interest on drawings = 5,40,000 × 8/100 × 1/12 = `3,600

Top Tip
Average period of 4½ months is the average of 9, 6, 3 and 0 i.e. (9+6+3 + 0)/4 = 18/4 = 4½ months.

(c) If the amount is withdrawn at the middle of each quarter:

Interest on drawings = (30,000 × 4) × 8% × 6/12 = `4,800
When Fixed Amount is withdrawn half yearly

If the amount is withdrawn at the beginning of each half year, the interest is calculated on the total money withdrawn
during the year, for a period of 9 months.
Interest on drawings = Total drawings (half yearly drawings × 2) × Rate of interest/100 × 9/12
 If the amount is withdrawn at the end of each half year, it will be calculated for a period of 3 months.

Interest on drawings = Total drawings (half yearly drawings × 2) × Rate of interest/100 × 3/12
 If the amount is withdrawn at the middle of each half year, it will be calculated for a period of 6 months.

Interest on drawings = Total drawings (half yearly drawings × 2) × Rate of interest/100 × 6/12

Top Tip
Total period in months after first drawings + Total period in months after last drawings
Average period =
2
(a) If the amount is withdrawn at the beginning of each half year, average period = (12 + 6)/2 = 9 months
(b) If the amount is withdrawn at the end of each half year, average period = (6 + 0)/2 = 3 months
(c) If the amount is withdrawn at the middle of each half year, average period = (9 + 3)/2 = 6 months

Suppose Bhavya and Akshat are partners in a firm, sharing profits and losses equally. During financial year
2024-25, Bhavya withdrew `50,000 semi-annually. Interest is to be charged on drawings @10% per annum.
(a) If the amount is withdrawn at the beginning of each half year:
Interest on drawings = (50,000 × 2) × 10% × 9/12 = `7,500
(b) If the amount is withdrawn at the end of each half year:
Interest on drawings = (50,000 × 2) × 10% × 3/12 = `2,500
(c) If the amount is withdrawn at the middle of each half year:
Interest on drawings = (50,000 × 2) × 10% × 6/12 = `5,000
 When Dates of Withdrawal are not specified: When the total amount withdrawn is given but the dates of withdrawals
are not specified, it is assumed that the amount was withdrawn evenly throughout the year in the middle of every month.
For calculation of interest, the period would be taken as 6 months, which is the average period assuming, that amount is
withdrawn evenly in the middle of the month, throughout the year.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.25

Vrinda withdrew `60,000 from partnership firm during the year ending March 31, 2025 and the interest
on drawings is to be charged at the rate of 8% p.a.
Interest on drawings = `60,000 × 8% × 6/12 = `2,400.
 When a fixed amount is withdrawn for the first six months of a year:
(a) At the beginning of every month (i.e., on the first day of every month)
Average period = (12 + 7)/2 = 9.5 months
(b) At the end of every moth (i.e., on the last day of every month)
Average period = (11 + 6)/2 = 8.5 months
(c) In the middle of every month:
Average period = (11.5 + 6.5)/2 = 9 months
Govind withdrew `10,000 per month from the firm for his personal use during the first six months of the
year ending on 31 March 2025. Interest on drawings is charged @ 10% p.a.
(a) When the amount is withdrawn at the beginning of every month:
Interest on drawings = (`10,000 × 6) × 10/100 × 9.5/12 = `4,750
(b) When the amount is withdrawn at the end of every month:
Interest on drawings = (`10,000 × 6) × 10/100 × 8.5/12 = `4,250
(c) When the amount is withdrawn in the middle of every month:
Interest on drawings = (`10,000 × 6) × 10/100 × 9/12 = `4,500
 When a fixed amount is withdrawn for the last six months of a year:
(a) At the beginning of every month (i.e., on the first day of every month):
Average period = (6 + 1)/2 = 3.5 months
(b) At the end of every month (i.e., the last day of every month):
Average period = (5 + 0)/2 = 2.5 months
(c) In the middle of every month:
Average period = (5.5 + 0.5)/2 = 3 months
Radha withdraw `20,000 per month from the firm for her personal use during the last six months of the
year ending on 31 March 2025. Interest on drawings is charged @ 10% p.a.
(a) When the amount is withdrawn on the first day of every month:
Interest on drawings = ( ` 20, 000 6 ) 10 3.5 ` 3, 500
100 12
(b) When the amount is withdrawn on the last day of every month:
Interest on drawings = ( ` 20, 000 6 ) 10 2.5 ` 2, 500
100 12

(c) When the amount is withdrawn in the middle of every month:

Interest on drawings = ( ` 20, 000 6 ) 10 3 ` 3, 000
100 12

Multiple Choice Questions (MCQs) 1.3

Q.1 Abha, Manju and Rhea were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. During the year ending
on 31st March, 2025, Rhea withdrew ` 30,000 at the beginning of each half year. Interest on Shrikant’s drawings @
10% p.a. for the year ending on 31st March, 2025 will be:
(a) `6,000 (b) `4,500
(c) `3,000 (d) `1,500
1.26 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.2 Vishnu and Mishu are partners in a firm. Mishu draws a fixed amount at the end of every quarter. Interest on drawings
is charged @ 15% p.a. At the end of the year interest on Mishu’s drawings amounted to `9,000. Interest on drawings
was charged on drawings of Mishu for:
(a) 6 months (b) 7½ months (c) 4½ months (d) 4 months
Q.3 Ruchika and Harshita were partners in a firm. Ruchika had withdrawn `9,000 at the end of each quarter, throughout
the year. The interest to be charged on Ruchika’s drawings at 6% p.a. will be:
(a) `540 (b) `2,160 (c) `1,080 (d) `810
Q.4 Nikhil and Sharat were partners in a firm sharing profits and losses in the ratio of 4 : 3. Nikhil withdrew ` 6,000 on
the first day of every quarter for the year ending on 31st March, 2025 interest on drawings is to be charged @ 5% p.a.
interest on Nikhil’s drawings will be calculated for:
(a) 6 months (b) 4.5 months (c) 7.5 months (d) 3 months
Q.5 Edward and Hayward are partners. Edward draws a fixed amount at the beginning of every quarter. Interest on drawings is
charged @10% p.a. At the end of the year, interest on Edward’s drawings amounted to `7,500. Drawings of Edward were:
(a) `34,000 per quarter (b) `44,000 per quarter (c) `30,000 per quarter (d) `60,000 per quarter
Q.6 Ayan, Azan and Aqib are partners carrying on furniture business. Ayan withdrew `5,000 at the end of each month.
Azan withdrew `10,000 at end of each quarter. Aqib withdrew `40,000 at the end of each month for the last six
months. The partnership deed provides for interest on drawings @ 12% p.a. The interest on drawings charged from
Ayan, Azan and Aqib at the end of the year will be:
(a) Ayan - `3,300, Azan - ` 1,800, Aqib - `6,000 (b) Ayan - `2,400, Azan - `1,200, Aqib - `5,000
(c) Ayan - `1,400, Azan - `3,200, Aqib - `2,000 (d) Ayan - `3,200, Azan - `2,300, Aqib - `8,000
Q.7 A and B are partners. B draws a fixed amount at the end of every quarter. Interest on drawings is charged @15% p.a. At
the end of the year interest on B’s drawings amounted to `9,000. Drawings of B were:
(a) `24,000 per quarter. (b) `40,000 per quarter (c) `30,000 per quarter (d) `80,000 per quarter
Q.8 Shyam, Gopal & Arjun are partners carrying on garments business. Shyam withdrew `10,000 in the beginning of
each quarter. Gopal withdrew garments amounting to `15,000 to distribute it to flood victims, and Arjun withdrew
`20,000 from his capital account. The partnership deed provides for interest on drawings @ 10% p.a. The interest on
drawing charged from Shyam, Gopal & Arjun at the end of the year will be:
(a) Shyam- ` 4,800; Gopal- ` 1,000; Arjun- ` 2,000. (b) Shyam- `4,800; Gopal- ` 1,000; Arjun- ` 2,000.
(c) Shyam- ` 2,500; Gopal- ` 750; Arjun- Nil. (d) Shyam- ` 4,800; Gopal- Nil; Arjun- Nil.
Q.9 Green and Orange are partners. Green draws a fixed amount at the beginning of every month. Interest on drawings is
charged @8% p.a. At the end of the year interest on Green’s drawings amounts to `2,600. Monthly drawings of Green
were:
(a) ` 8,000 (b) 60,000 (c) ` 7,000 (d) ` 5,000
Q.10 Girdhar, a partner withdrew ` 5,000 in the beginning of each quarter and interest on drawings was calculated as `1,500
at the end of accounting year on 31 March 2025. What is the rate of interest on drawings charged?
(a) 6% p.a. (b) 8% p.a. (c) 10% p.a. (d) 12% p.a.
Q.11 Josh and Jeevan were partners in a firm. During the year ending on 31.03.2025 Jeevan withdrew `5,000 per month
starting from 30.06.2024. The partnership deed provided that interest on drawings will be charged @ 12% per annum.
The average number of months for which interest on Jeevan’s total drawings will be charged is:
(a) 6 months (b) 6½ months (c) 4½ months (d) 5 months
Q.12 Suchi and Ruchi were partners in a firm sharing profits and losses equally. Throughout the year Ruchi withdrew
`12,000 in the middle of each month. Interest on drawings is to be charged @ 6% p.a. as per partnership agreement.
The average period for calculation of interest on drawing swill be:
(a) 6½ months (b) 6 months (c) 5½ months (d) 1 month
Q.13 Madhu and Radha were partners in a partnership firm sharing profits and losses in the ratio of 3 : 2. Madhu withdrew
`20,000 in each quarter during the year ending on 31.03.2025. Interest on drawings was to be charged @6% p.a.
Interest on Madhu’s drawings will be:
(a) `3,000 (b) `2,400 (c) `1,800 (d) `4,800
Q.14 Hina and Neena are partners in a firm. Neena withdrew `10,000 per month at the beginning of each month during
the year ending on 31st March, 2025. Interest on drawings was to be charged @ 6% per annum. Interest on Neena’s
drawings for the year ending on 31st March, 2025 will be:
(a) `3,900 (b) `325 (c) `3,600 (d) `3,300
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.27

Q.15 Devi withdrew `12,000 at the middle of every month. Interest on drawings was to be charged @12% per annum.
Amount of interest on Devi’s drawings will be:
(a) `14,400 (b) `8,640 (c) `7,200 (d) `1,200
Q.16 Sharma and Verma were partners in a firm. The partnership deed provided that interest on partner’s drawings will be
charged @12% per annum. During the year Sharma withdrew `6,000. Interest on his drawings will be:
(a) `600 (b) `330 (c) `360 (d) `720
Q.17 A, B and C are partners, their partnership deed provides for interest on drawings at 8% per annum. B withdrew a fixed
amount in the middle of every month and his interest on drawings amounted to `4,800 at the end of the year. What
was the amount of his monthly drawings?
(a) `10,000 (b) `5,000 (c) `1,20,000 (d) `48,000
Q.18 The average period in months for charging interest on drawings for the same amount withdrawn at the beginning of
each quarter is ___________ .
(a) 7½ months (b) 6½ months (c) 5½ months (d) 4½ months
Q.19 Given below are two statements – Assertion (A) and Reason (R). Choose the correct alternative:
Assertion (A): Interest on drawings is always calculated for full year on the total drawings.
Reason (R): Interest on drawings is to be calculated with reference to the time period for which the money was
withdrawn.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.20 Read the following statements carefully and choose the correct alternative:
Statement-I: When fixed amount of money is withdrawn at the end of each quarter, by partners for their personal use,
the interest is calculated on the total money withdrawn during the year, for a period of seven and half months.
Statement-II: When the total amount withdrawn by a partner for his personal use is given but the date of withdrawal
is not specified, interest on drawings is calculate for a period of six months.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.21 If the drawings are made at regular intervals, as on the first day of each month, interest on drawings is calculated for an
average period of _____________ .
(a) 6.5 months (b) 6 months (c) 5.5 months (d) 7.5 months
Q.22 A and B are partners in a firm having capitals `5,00,000 and `10,00,000 respectively. The partnership deed provides
for charging interest on drawings @ 5% p.a. A withdrew `40,000 for his personal use during the year 2024-25. B
withdrew `2,00,000 from his capital 1.1.2024. The amount of interests that will be charged on partners’ drawings are:
(a) A `1,000; B `5,000 (b) A `2,000; B `10,000 (c) A `1,000; B Nil (d) A `2,000; B Nil
Q.23 Yash, a partner withdraws a fixed amount in the beginning of every month for the first six months of the year 2024-25.
What will be the average period for calculation on interest on drawings?
(a) 6½ months (b) 5½ months (c) 3½ months (d) 2½ months
Q.24 During the year 2024-25, a partner withdraws a fixed amount at the end of every month from April to September,
2024. What will be the average period for calculating interest on drawings?
(a) 6½ months (b) 5 ½ months (c) 2½ months (d) 8½ months
Q.25 Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement,
interest on drawings is to be charged @ 10% p. a. Their drawings during 2025 were `24,000 and `16,000, respectively.
What will be the interest on partners’ drawings based on the assumption that the amounts were withdrawn evenly,
throughout the year?
(a) Interest on Amit’s Drawings, `1,200 and Interest on Bhola’s drawings `800
(b) Interest on Amit’s Drawings, `2,400 and Interest on Bhola’s drawings `1,600
(c) Interest on Amit’s Drawings, `14,400 and Interest on Bhola’s drawings `9,600
(d) None of the above
Q.26 If a partner withdraws `10,000 at the end of each half year during 2024-25; the amount of interest that will be charged
on her drawings @ 10% p.a. is:
(a) `1,000 (b) `2,000 (c) `250 (d) `500
1.28 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.27 A partner withdrew `50,000 at the beginning of each half year during 2024-25. What interest will be charged on his
drawings @ 5% p.a.?
(a) `2,500 (b) `1,250
(c) `3,750 (d) `1,875
Q.28 Ram and Shyam are partners sharing profits/losses equally. Ram withdrew `1,000 p.m. regularly on the first day of
every month during the year 2024-25 for personal expenses. If interest on drawings is charged @ 5% p.a. What will be
the interest on the drawings of Ram?
(a) `50 (b) `27
(c) `600 (d) `325
Q.29 Verma and Kaul are partners in a firm. The partnership agreement provides that interest on drawings should be charged @ 6% p.a.
Kaul withdrew `3,000 per quarter, starting from April 01, 2024. What will be the interest on Kaul’s drawings during
the year 2024-25?
(a) `180 (b) `90
(c) `270 (d) `450
Q.30 Himanshu withdrew `2,500 at the end of each month. The Partnership deed provides for charging the interest on
drawings @ 12% p.a. What will be the interest on Himanshu’s drawings for the year ending on 31st March, 2025?
(a) `300 (b) `137.50
(c) `1,650 (d) `1,800
Q.31 Bharam is a partner in a firm. He withdraws `3,000 at the starting of each month for 12 months. The books of the
firm closes on March 31 every year. The interest on drawings @ 10% p.a. will be:
(a) `300 (b) `1,950
(c) `3,600 (d) `1,650
Q.32 Dev withdrew `10,000 on 15th day of every month. Interest on drawings was to be charged @ 12% per annum.
Interest on Dev’s drawings will be:
(a) `14,400 (b) `7,200
(c) `1,200 (d) None of these
Q.33 One of the partners in a partnership firm has withdrawn `9,000 at the end of each quarter, throughout the year. The
interest on drawings at the rate of 6% per annum will be:
(a) `540 (b) `2,160
(c) `810 (d) None of these

A NSWERS
1. (b) 2. (c) 3. (d) 4. (c) 5. (c) 6. (a) 7. (b) 8. (c) 9. (d)
10. (d) 11. (c) 12. (b) 13. (b) 14. (a) 15. (b) 16. (c) 17. (a) 18. (a)
19. (c) 20. (d) 21. (a) 22. (c) 23. (c) 24. (d) 25. (a)
26. (d) `500 27. (c) `3,750
Hint: Interest on total drawings for an average period of Hint: (50,000 × 2) × 5/100 × 9/12 = `3,750
3 months. Thus, (10,000 × 2) × (10/100 × 3/12) = `500
28. (d) `325 29. (d) `450
Hint: (1,000 × 12) × 5/100 ×6.5/12 = `325 Hint: (3,000 × 4) × 6/100 ×7.5/12 = `450
30. (c) `1,650 31. (b) `1,950
Hint: (2,500 × 12) × 12/100 ×5.5/12 = `1,650 Hint: (3,000 × 12) × 10/100 ×6.5/12 = `1,950
32. (b) `7,200 33. (c) `810
Hint: Interest on Drawings = 1,20,000 × 12/100 × 6/12 Hint: Interest on drawings = (9,000 × 4) × 6/100 ×
= `7,200 4.5/12 = `810
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.29

Numerical Ques
Questions
tions (for Practice) 1.3
Q.1 John Ibrahm, a partner in Modern Tours and Travels withdrew money during the year ending on March 31, 2025 for
his personal use. Calculate interest in drawings in each of the following alternative situations, if rate of interest is 9 per
cent per annum.
(a) If he withdrew `3,000 per month at the beginning of the month.
(b) If an amount of `3,000 per month was withdrawn by him at the end of each month.
(c) If the amounts withdrawn were :
Date Amount Withdrawn (`)
June 01, 2024 12,000
August 31, 2024 8,000
September 30, 2024 3,000
November 30, 2024 7,000
January 31, 2025 6,000
[Ans: (a) Interest on drawings = `1,755; (b) Interest on drawings = `1,485; (c) Interest on drawings = `1,755]
Q.2 Rakesh and Roshan are partners, sharing profits in the ratio of 3 : 2 with capitals of `40,000 and `30,000, respectively.
Rakesh withdrew from the firm the following amounts for his personal use:
Date Amount Withdrawn (`)
May 31, 2024 600
June 30, 2024 500
August 31, 2024 1,000
November 1, 2024 400
December 31, 2024 1,500
January 31, 2025 300
March 01, 2025 700
Rohan withdrew `400 at the beginning of each month. Interest is to be charged @ 6% p.a. Calculate interest on
drawings, assuming that book of accounts are closed on March 31 every year.
[Ans: Interest on Rakesh’s Drawings = `126.50 and Interest on Rohan’s Drawings = `156]
Q.3 Rishi is a partner in a firm. He withdrew the following amounts during the year ending on March 31, 2025.
Date Amount Withdrawn (`)
May 01, 2024 12,000
July 31, 2024 6,000
September 30, 2024 9,000
November 30, 2024 12,000
January 01, 2025 8,000
March 31, 2025 7,000
Interest on drawings is charged @ 9% p.a.
Calculate interest on drawings
[Ans: Interest on Drawing ` 2,295]
Q.4 Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are `2,000 each. Interest
on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2024-25, assuming that
money is withdrawn: (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of
every month.
[Ans: Interest on Drawings: (i) `1,300; (ii) `1,200; (iii) `1,100]
1.30 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Distribution of Profits, and Preparation of Profit and Loss Appropriation Account

and Partners’ Capital/Current Accounts
1.4
Maintenance of Capital Accounts of Partners
All transactions relating to partners of the firm are recorded in the books of the firm through their capital accounts. This
includes the amount of money brought in as capital, withdrawal of capital, share of profit, interest on capital, interest on
drawings, partners’ salary, commission to partners, etc.
There are two methods by which the capital accounts of partners can be maintained. These are:
(i) fixed capital method, and
(ii) fluctuating capital method.
The difference between the two lies in whether or not the transactions other than addition/withdrawal of capital are recorded
in the capital accounts of the partners.
1. Fixed Capital Method
Under the fixed capital method, the capitals of the partners shall remain fixed unless additional capital is introduced or a part
of the capital is withdrawn as per the agreement among the partners.
All items like share of profit or loss, interest on capital, drawings, interest on drawings, etc. are recorded in a separate account,
called Partner’s Current Account.
The partners’ capital accounts will always show a credit balance, which shall remain the same (fixed) year after year unless there
is any addition or withdrawal of capital.
The partners’ current account on the other hand, may show a debit or a credit balance.
Thus under this method, two accounts are maintained for each partner viz., capital account and current account.While the
partners’ capital accounts shall always appear on the liabilities side in the balance sheet, the partners’ current accounts’ balance
shall be shown on the liabilities side, if they have credit balance and on the assets side, if they have debit balance.
The partner’s capital account and the current account under the fixed capital method would appear as shown below:
Proforma of Partner’s Capital and Current Account under Fixed Capital Method
Dr. Partner’s Capital Account Cr.
Date Particulars ` Date Particulars `
To Bank A/c (withdrawal of capital) xxx By Balance b/d (opening balance) xxx
To Balance c/d (closing balance) xxx By Bank A/c (additional capital) xxx
xxx xxx

Dr. Partner’s Current Account Cr.

Date Particulars ` Date Particulars `
To Balance b/d xxx By Balance b/d xxx
(Dr. opening balance) (Cr. opening balance)
To Drawings A/c xxx By Interest on capital xxx
To Interest on drawings xxx By Salary xxx
To P & L Appropriation A/c By Commission xxx
(Share of loss) xxx By P & L Appropriation A/c xxx
To Balance c/d xxx (share of profit)
(Cr. closing balance) By Balance c/d xxx
(Dr. closing balance)
xxx xxx

2. Fluctuating Capital Method

Under the fluctuating capital method, only one account, i.e. capital account is maintained for each partner. All the adjustments
such as share of profit and loss, interest on capital, drawings, interest on drawings, salary or commission to partners, etc. are
recorded directly in the capital accounts of the partners. This makes the balance in the capital account to fluctuate from time to
time. That’s the reason why this method is called fluctuating capital method.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.31

Top Tip
In the absence of any instruction, the capital account should be prepared by fluctuating capital method.
The proforma of capital accounts prepared under the fluctuating capital method is given below:
Dr. Partner’s Capital Account Cr.
Date Particulars ` Date Particulars `
To Balance b/d (Dr. opening balance) xxx By Balance b/d (Cr. opening balance) xxx
To Bank A/c (withdrawal of capital) xxx By Bank (fresh capital introduced) xxx
To Drawings A/c xxx By Interest on capital xxx
To Interest on drawings xxx By Salary/Commission xxx
To Profit and Loss Appropriation A/c xxx By Profit and Loss Appropriation A/c xxx
(for share of loss) (for share of profit)
To Balance c/d xxx
xxx xxx
Distinction between Fixed and Fluctuating Capital Accounts
The main points of differences between the fixed and fluctuating capital methods can be summed up as follows:
Basis Fixed Capital Account Fluctuating Capital Account
1. Number of accounts Under this method, two separate accounts are Each partner has one account, i.e. capital
maintained for each partner viz. ‘capital account’ account, under this method.
and ‘current account’.
2. Adjustments All adjustments for drawings, salary, interest on All adjustments for drawings, salary, interest on
capital, etc. are made in the current accounts and capital, etc. are made in the capital accounts.
not in the capital accounts.
3. Fixed balance The capital account balance remains unchanged The balance of the capital account fluctuates
unless there is addition to or withdrawal of capital. from year to year.
4. Credit balance The capital accounts always show a credit balance. The capital account may sometimes show a
debit balance.
Distribution of Profit among Partners: Profit and Loss Appropriation Account
The profits and losses of the firm are distributed among the partners in an agreed ratio. However, if the partnership deed is
silent, the firm’s profits and losses are to be shared equally by all the partners.
In the case of sole proprietorship the profit or loss, as ascertained by the profit and loss account is transferred to the capital
account of the proprietor. In case of partnership, however, certain adjustments such as interest on drawings, interest on capital,
salary to partners, and commission to partners are required to be made. For this purpose, it is customary to prepare a Profit and
Loss Appropriation Account of the firm and ascertain the final figure of profit and loss to be distributed among the partners,
in their profit sharing ratio.
Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm. It shows how
the profits are appropriated or distributed among the partners.
All adjustments in respect of partner’s salary, partner’s commission, interest on capital, interest on drawings, etc. are made
through this account. It starts with the net profit/net loss as per Profit and Loss Account.
Dr. Profit and Loss Appropriation Account Cr.
Particulars ` Particulars `
1. To Profit and Loss A/c (Net Loss) xxx 1. By Profit and Loss A/c (Net Profit) xxx
3. To Interest on Capital (individually) xxx 2. By Interest on Drawings (individually) xxx
4. To Partner’s Salary (individually) xxx 7. By Loss transferred to Partners’ Capital/ xxx
5. To Partner’s Commission (individually) xxx Current A/c (individually in their profit
6. To Transfer to General Reserve xxx sharing ratio)
7. To Profits transferred to Partners’ Capital/ xxx
Current A/c (individually in their profit
sharing ratio)
xxxx xxxx
1.32 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

The journal entries for preparation of Profit and Loss Appropriation Account and making various adjustments through it are given as
follows:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
1. Transfer of the balance of Profit and Loss A/c to Profit and Loss
Appropriation A/c
(a) If Profit and Loss Account shows net profit:
Profit and Loss A/c Dr.
To Profit and Loss Appropriation A/c
If Profit and Loss Account shows net loss:
(b) Profit and Loss Appropriation A/c Dr.
To Profit and Loss A/c
2. Interest on Drawings
(a) For charging interest on drawings:
Partners’ Capital/Current A/cs (individually) Dr.
To Interest on Drawings A/c
(b) For transfer to Profit and Loss Appropriation A/c:
Interest on Drawings A/c Dr.
To Profit and Loss Appropriation A/c
3. Interest on Capital
(a) For crediting interest on capital:
Interest on Capital A/c Dr.
To Partner’s Capital/Current A/cs (individually)
(b) For transfer to Profit and Loss Appropriation A/c:
Profit and Loss Appropriation A/c Dr.
To Interest on Capital A/c
4. Partner’s Salary
(a) For crediting salary:
Partner’s Salary A/c Dr.
To Partners’ Capital/Current A/cs (individually)
(b) For transfer to Profit and Loss Appropriation A/c:
Profit and Loss Appropriation A/c Dr.
To Partner’s Salary A/c
5. Partner’s Commission
(a) For crediting commission:
Partner’s Commission A/c Dr.
To Partners’ Capital/Current A/cs (individually)
(b) For transfer to Profit and Loss Appropriation A/c:
Profit and Loss Appropriation A/c Dr.
To Partner’s Commission A/c
6. Transfer a proportion of net profit to General Reserve A/c
Profit and Loss Appropriation A/c Dr.
To General Reserve A/c
7. Share of Profit or Loss after appropriations
(a) For distribution of share of profit after appropriations in profit sharing ratio:
Profit and Loss Appropriation A/c Dr.
To Partners’ Capital/Current A/cs (individually)
(b) For distribution of share of loss after appropriations in profit sharing ratio:
Partners’ Capital/Current A/cs (individually) Dr.
To Profit and Loss Appropriation A/c
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.33

Top Tips
1. If there is Net Loss as per Profit and Loss Account, no interest on capital, salary, remuneration is to be allowed to partners.
2. The following are treated as expenses for the business, i.e. charge against profits. These are debited to Profit and Loss
Account, not Profit and Loss Appropriation Account:
• Interest on Partner's Loan
• Manager's Commission
• Payment of Rent to a Partner capital, salary, remuneration is to be allowed to partners.

Interest on Partner’s Loan

Interest on partner’s loan is a charge against profits of the firm. It has to be paid even if the firm suffers from losses during an
accounting year.
For providing interest on partner’s loan:
Interest on partner’s loan A/c Dr.
To Partner’s loan A/c
For transfer of interest on partner’s loan to profit and loss account:
Profit and loss A/c Dr.
To Interest on Partner’s Loan A/c
Interest on Loan to Partner
The firm may charge interest on a loan advanced to any partner at an agreed rate of interest. However, if the partnership
deed does not provide for charging interest on loan advanced to a partner, no interest shall be charged on such loan to
the partner.
For charging interest on loan to partner
Loan to Partner A/c Dr.
To Interest on Loan to Partner A/c
For transfer of interest on loan to partner to Profit of Loss Account
Interest on Loan to Partner A/c Dr.
To Profit and Loss A/c
Manager’s Commission
It is a charge against profits of the firm and has to be paid even if the firm incurs losses during an accounting year.
Hence, manager’s commission is debited to Profit and Loss Account.
For charging Manager’s Commission:
Profit and loss A/c Dr.
To Manager’s Commission Payable A/c
Rent to Partner
Rent to Partner (either paid or unpaid) is a charge against profits of the firm and has to be paid even if the firm incurs
losses during an accounting year.
For charging Rent to Partner:
Profit and loss A/c Dr.
To Rent to Partner A/c
For recording the payment of rent to partner/rent payable:
It is debited to Rent to Partner Account and credited to Cash/Bank Account (if it is paid) or Rent Payable Account (if it
is yet unpaid).
Rent to Partner A/c Dr.
To Cash/Bank A/c OR Rent Payable A/c
Commission to a Partner
Commission is a part of remuneration payable to a partner if there is a provision for the same in the partnership deed.
It is an appropriation of profits and is allowed only when there is net profit during the year.
Thus, commission to a partner is not allowed if the firm suffers from losses during an accounting year.
1.34 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Partner’s commission may be calculated on sales. It can also be calculated on net profit of the firm during a year.
Case I: When partner’s commission is x% of Net profit before charging such commission.
Partner’s commission = x/100 × Net profit
A and B are partners in a firm. A is to get a commission of 5% of net profit during the year which is
`1,00,000.
Therefore, A’s commission = 5/100 × `1,00,000 = `5,000
Case II: When partner’s commission is x% of Net profit after charging such commission:
Partner’s commission = x/(100 + x) × Net profit
P and Q are partners is a firm. Q is to be allowed a commission of 5% of net profit after charging such
commission. Net profit during the year 2024-25 was `2,10,000.
Q’s commission = 5/105 × `2,10,000 = `10,000

Transfer to General Reserve

In a partnership firm, a General Reserve is created to set aside a part of revenue profits for future needs (say, to invest in
future growth opportunities) or unforeseen expenses (e.g. unexpected maintenance or repairs for the firm’s premises, sudden
increases in utility costs or even legal expenses due to unforeseen law suits or disputes).
Calculation of amount transferred to general reserve in different cases:
A and B are partners sharing profits and losses equally. Their capitals on 1 April 2024 were as follows: A
`10,00,000 and B `8,00,000. Interest on capital is allowed @ 5% p.a. Net profit during the year 2024-25
was `5,00,000.
Case I: 10% of Net profit is to be transferred to general reserve.
Amount transferred to General Reserve = 10/100 × `5,00,000 = `50,000
Case II: 10% of the divisible profit (or distributable profit) is to be transferred to general reserve.
Interest on capitals @5% p.a.: A: `50,000 and B : `40,000. Total interest on partners’ capitals = `50,000 +
`40,000 = `90,000
Divisible/Distributable Profit = `5,00,000 – `90,000 = `4,10,000
Therefore, amount transferred to General Reserve = 10/100 × `4,10,000 = `41,000
Case III: 10% of the Net divisible profit (or net distributable profit) is to be transferred to general
reserve.
Amount transferred to General Reserve = 10% of the Net Divisible Profit (i.e., 10% of divisible profit after
transfer to General Reserve) = 10/110 × `4,10,000 = `37,273 (approx.)

ILLUSTRATIONS — Distribution of Profits

ILLUSTRATION 6
Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio of 3:1. The profit and loss account of the firm
for the year ending on March 31, 2025 shows a net profit of `1,50,000.
Prepare the Profit and Loss Appropriation Account and partners’ current accounts by taking into consideration the following
information:
(i) Partners’ capital on April 1, 2024: Simmi `30,000 and Sonu `60,000.
(ii) Current accounts balances on April 1, 2024: Simmi `30,000 (Cr.) and Sonu `15,000 (Cr.).
(iii) Partners’ drawings during the year: Simmi `20,000 and Sonu `15,000.
(iv) Interest on capital was allowed @ 5% p.a. and Interest on drawing was to be charged @ 6% p.a.
(v) Partners’ salaries: Simmi `12,000 and Sonu `9,000.
Also, Pass necessary journal entries to record the above in the books of Simmi and Sonu.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.35

Solution: Books of Simmi and Sonu

Dr. Profit and Loss Appropriation Account for the year ending on 31 March 2025 Cr.
Particulars Amount (`) Particulars Amount (`)
To Partner’s Salary: By Profit and Loss A/c (Net profit) 1,50,000
  Simmi’s Current A/c 12,000 By Interest on Drawings @6% p.a. for
Sonu’s Current A/c 9,000 21,000 6 months
To Interest on Capital: Simmi’s Current A/c 600
  Simmi’s Current A/c 1,500 Sonu’s Current A/c 450 1,050
  Sonu’s Current A/c 3,000 4,500
To Share of Profit transferred to:
Simmi’s Current A/c 94,163
  Sonu’s Current A/c 31,387 1,25,550
1,51,050 1,51,050
Dr. Partners’ Current Accounts Cr.
Date Particulars Simmi (`) Sonu (`) Date Particulars Simmi (`) Sonu (`)
31.3.25 To Drawings A/c 20,000 15,000 1.4.24 By Balance b/d 30,000 15,000
To Interest on 600 450 31.3.25 By Interest on capital 1,500 3,000
drawings By Salary 12,000 9,000
To Balance c/d 1,17,063 42,937 By Profit and Loss 94,163 31,387
Appropriation A/c
  (share of profit)
1,37,663 58,387 1,37,663 58,387
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Profit and Loss A/c Dr. 1,50,000
31 To Profit and Loss Appropriation A/c 1,50,000
Mar. (Being Transfer of Net Profit to the Profit and Loss Appropriation Account)
Simmi’s Current A/c Dr. 600
Sonu’s Current A/c Dr. 450
To Interest on Drawings A/c 1,050
(For Charging interest on drawings to partners’ accounts)
Interest on Drawings A/c Dr. 1,050
To Profit and Loss Appropriation A/c 1,050
(Transfer of interest on drawings to Profit and Loss Appropriation Account)
Interest on Capital A/c Dr. 4,500
To Simmi’s Current A/c 1,500
To Sonu’s Current A/c 3,000
( For Crediting interest on capital to partners’ current account)
Profit and Loss Appropriation A/c Dr. 4,500
To Interest on Capital A/c 4,500
(Transfer of interest on capital to Profit and Loss Appropriation Account)
Salary to Partner A/c Dr. 21,000
To Simmi’s Current A/c 12,000
To Sonu’s Current A/c 9,000
(For Crediting partner’s salary to partner’s current account)
Profit and Loss Appropriation A/c Dr. 21,000
To Salary to Partner A/c 21,000
(Transfer of partner’s salary to Profit and Loss Appropriation Account)
Profit and Loss Appropriation A/c Dr. 1,25,550
To Simmi’s Current A/c 94,163
To Sonu’s Current A/c 31,387
(Being Share of profit after appropriations distributed in profit sharing ratio 3:1)
1.36 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

ILLUSTRATION 7
Sonu and Rajat started a partnership firm on April 1, 2024. They contributed `8,00,000 and `6,00,000 respectively as their
capitals and decided to share profits and losses in the ratio of 3 : 2. The partnership deed provided that Sonu was to be paid
a salary of `20,000 per month and Rajat a commission of 5% on turnover. It also provided that interest on capital be allowed
@ 8% p.a. Sonu withdrew `20,000 on 1st December, 2024 and Rajat withdrew `5,000 at the end of each month. Interest
on drawings was charged @ 6% p.a. The net profit as per Profit and Loss Account for the year ending on 31st March, 2025
was `4,89,950. The turnover of the firm for the year ending on 31st March, 2025 amounted to `20,00,000.
Pass necessary journal entries for the above transactions in the book of Sonu and Rajat.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
1.4.2024 Bank A/c Dr. 14,00,000
To Sonu’s Capital A/c 8,00,000
To Rajat’s Capital A/c 6,00,000
(capital contributed by partners)
31.3.2025 Profit and Loss A/c Dr. 4,89,950
To Profit and Loss Appropriation A/c 4,89,950
(profit transferred from Profit and Loss A/c)
Partner’s Salary A/c Dr. 2,40,000
To Sonu’s Capital A/c 2,40,000
(salary credited to Sonu’s Capital A/c)
Profit and Loss Appropriation A/c Dr. 2,40,000
To Partner’s Salary A/c 2,40,000
(salary transferred to Profit and Loss Appropriation A/c)
Partner’s Commission A/c Dr. 1,00,000
To Rajat’s Capital A/c 1,00,000
(commission credited to Rajat’s Capital A/c)
Profit and Loss Appropriation A/c Dr. 1,00,000
To Partner’s Commission A/c 1,00,000
(salary transferred to Profit and Loss Appropriation A/c)
Interest on Capital A/c Dr. 1,12,000
To Sonu’s Capital A/c 64,000
To Rajat’s Capital A/c 48,000
(interest on capital credited to Partners’ Capital A/c)
Profit and Loss Appropriation A/c Dr. 1,12,000
To Interest on Capital A/c 1,12,000
(Interest on Capital transferred)
Sonu’s Capital A/c Dr. 400
Rajat’s Capital A/c Dr. 1,650
To Interest on Drawings A/c 2,050
(Interest on drawings charged)
Interest on Drawings A/c Dr. 2,050
To Profit and Loss Appropriation A/c 2,050
(Interest on drawings transferred)
Profit and Loss Appropriation A/c Dr. 40,000
To Sonu’s Capital A/c 24,000
To Rajat’s Capital A/c 16,000
(Profit credited to Partners’ Capital accounts)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.37

ILLUSTRATION 8
Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:
(i) Profits would be shared by Sukesh and Vanita in the ratio of 3:2.
(ii) 5% p.a. interest is to be allowed on capital.
(iii) Vanita should be paid a monthly salary of `600.
The following balances are extracted from the books of the firm, on March 31, 2024.
Particulars Sukesh (`) Vanita (`)
Capital Accounts 40,000 40,000
Current Accounts 7,200 (Cr.) 2,800 (Dr.)
Drawings 10,850 8,150
Net profit for the year, before charging interest on capital and after charging partner’s salary was `9,500.
Prepare the Profit and Loss Appropriation Account for the year ending on 31 March 2025 and the Partner’s Current Accounts.

Solution: Books of Sukesh and Vanita

Dr. Profit and Loss Appropriation Account for the year ending on 31 March 2025 Cr.
Particulars Amount (`) Particulars Amount (`)
To Salary- Vanita’s Current A/c (600 × 12) 7,200 By Net profit (before Vanita’s Salary) 16,700
To Interest on Capital (9,500 + 7,200)
Sukesh’s Current A/c 2,000
Vanita’s Current A/c 2,000 4,000
To Share of Profit transferred to:
Sukesh’s Current A/c 3,300
Vanita’s Current A/c 2,200 5,500
16,700 16,700

Dr. Partners’ Current Accounts Cr.

Date Particulars Sukesh (`) Vanita (`) Date Particulars Sukesh (`) Vanita (`)
31.3.25 To Balance b/d – 2,800 1.4.24 By Balance b/d 7,200 –
To Drawings A/c 10,850 8,150 31.3.25 By Salary A/c – 7,200
To Balance c/d 1,650 450 By Interest on capital 2,000 2,000
By Profit and Loss 3,300 2,200
Appropriation A/c
  (for share of profit)
12,500 11,400 12,500 11,400

ILLUSTRATION 9
L, M and N are partners in a firm sharing profits & losses in the ratio of 2 : 3 : 5. On April 1, 2024 their fixed capitals were
`2,00,000, `3,00,000 and `4,00,000 respectively. Their partnership deed provided for the following:
(i) Interest on capital @ 9% per annum. (ii) Interest on drawings @ 12% per annum.
(iii) Interest on partners’ loan @ 12% per annum.
On July 1, 2024, L 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, `18,000 and `24,000 respectively for their personal use. On January 1, 2025 the firm obtained
a loan of `1,50,000 from M. The net profit of the firm for the year ending on March 31, 2025 after charging interest on M’s
Loan was `85,000.
Prepare Profit & Loss Appropriation Account and Partners’ Fixed Capital Accounts.
1.38 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Solution: Books of L, M and N

Dr. Profit & Loss Appropriation Account for the year ending on 31st March 2025 Cr.
Liabilities Amount (`) Assets Amount (`)
To Interest on Capital @9% p.a. By Profit & Loss Account- Net Profit b/d 85,000
L’s Current Account 24,750 By Interest on Partners’ Drawings
(2,00,000 × 9/100 + 1,00,000 × 9/100 × 9/12) @12% p.a for 6 months
M’s Current Account 27,000 L’s Current Account 720
(3,00,000 × 9/100) M’s Current Account 1,080
N’s Current Account 29,250 81,000 N’s Current Account 1,440 3,240
(4,00,000 × 9/100 – 1,00,000 × 9/100 × 9/12)
To Profit transferred to:
L’s Current Account 1,448
M’s Current Account 2,172
N’s Current Account 3,620 7,240
88,240 88,240
Dr. Partners’ Capital Account Cr.
Date Particulars L (`) M (`) N (`) Date Particulars L (`) M (`) N (`)
1.7.24 To Bank A/c – – 1,00,000 1.4.24 By Balance b/d 2,00,000 3,00,000 4,00,000
31.3.25 To Balance c/d 3,00,000 3,00,000 3,00,000 1.7.24 By Bank A/c 1,00,000 – –
3,00,000 3,00,000 4,00,000 3,00,000 3,00,000 4,00,000

ILLUSTRATION 10
Arun and Arora were partners in a firm sharing profits in the ratio of 5 : 3.Their fixed capitals on 1-4-2024 were: Arun
`60,000 and Arora `80,000. They agreed to allow interest on capital @12%p.a. and to charge on drawings @15%p.a. The
profit of the firm for the year ending on 31-3-2025 before all above adjustments were `12,600. The drawings made by Arun
were `2,000 and by Arora `4,000 during the year. Prepare Profit and Loss Appropriation Account of Arun and Arora. Show
your calculations clearly. The interest on capital will be allowed even if the firm incurs loss.

Solution: Profit & Loss Appropriation Account for the year ending on 31st March 2025
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital: By Profit & Loss A/c (Net Profit) 12,600
Arun’s Current A/c 7,200 By Interest on drawings:
Arora’s Current A/c 9,600 16,800 Arun’s Current A/c 150
Arora’s Current A/c 300 450
By Net Loss transferred to:
Arun’s Current A/c 2,344
Arora’s Current A/c 1,406 3,750
16,800 16,800
Working Notes: Interest on drawings to be calculated for 6 months because time period is not given:
Arun = 2000 × 15/100 × 6/12 = `150 and Arora = 4000 × 15/100 × 6/12 = `300

Competency Based Illustrations

ILLUSTRATION 11
Neha and Harsh are partners in business. On 31 March 2025, their profit and loss account showed a debit balance.
As their accountant, which of the following entries will you make? Which will you not make? Why?
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.39

(i) Profit and Loss Appropriation A/c  Dr. (ii) Profit and Loss Appropriation A/c Dr.
  To Interest on Capital A/c   To Salary to Partner’s A/c
(iii) Partner’s Capital/Current A/c (individually) Dr.
  To Profit and Loss Appropriation A/c
Solution: As Neha and Harsh’s accountant, I will make the following entry:
Partner’s Capital/Current A/c (individually) Dr.
To Profit and Loss Appropriation A/c
This is because a debit balance in the profit and loss account indicates loss, and so the loss has to be distributed between the
two partners.
I will not make the following entries:
Profit and Loss Appropriation A/c Dr. Profit and Loss Appropriation A/c Dr.
To Interest on Capital A/c To Salary to Partner’s A/c
This is because when a partnership firm suffers a loss, no interest on capital or salary is to be allowed to partners, and so no
entries are needed.

ILLUSTRATION 12
On 1 October 2024, Reena and Raman commenced business in partnership with capitals of `3,00,000 and `1,00,000
respectively. The profit for the year ending on March 31, 2025 was ` 1,80,000, before paying rent for her personal building
to be used as godown for firm to Reena payable at `5,000 per month. Interest on capital is to be allowed at 6% p.a. The
drawings of partners were: Reena withdrew `20,000 on 1 January 2025 and Raman withdrew `2,000 at the end of every
month. The interest on drawings to be charged @ 10% p.a. Prepare Profit and Loss Appropriation account showing your
workings clearly.
Solution: Dr. Profit and Loss Appropriation Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on capital: By Profit and Loss A/c – Net Profit b/d 1,50,000
Reena’s Capital A/c 9,000 By Interest on drawings:
Raman’s Capital A/c 3,000 12,000 Reena’s Capital A/c 500
To Profit transferred to: Raman’s Capital A/c 250 750
Reena’s Capital A/c 69,375
Raman’s Capital A/c 69,375 1,38,750
1,50,750 1,50,750
Working notes: Payment of Rent to Reena is charge against profits, i.e. debited to profit and loss account.
Net profit b/d = 1,80,000 – 30,000 = `1,50,000
Interest on drawings: Reena = 20,000 × 10/100 × 3/12 = `500; Raman = 12,000 × 10/100 × 2.5/12 = `250

ILLUSTRATION 13
X and Y are partners in a firm sharing profits in the ratio of 2:1. Their fixed capitals are `5,00,000 and `3,00,000 resp.
Interest in capital is allowed @ 9% p.a. while interest on drawings is charged 12% p.a. X is allowed a salary of `4,000 p.m.
Interest on Y’s loan of `2,00,000 is to be provided @ 6% p.a. During the year ending on 31.3.2025, X’s drawings were
`60,000 and Y’s drawings were `72,000. 5% of net profit is to be transferred to general reserve. Complete the Profit and
Loss Appropriation Account of X and Y for the year ending on 31st March, 2025.
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital: By Profit & Loss A/c (Net Profit) ................
X’s Current A/c ................ By Interest on drawings:
Y’s Current A/c ................ ................ X’s Current A/c ................
To Salary: X’s Current A/c ................ Y’s Current A/c ................ ................
To General Reserve 15,000
To Profit transferred to:
X’s Current A/c ................
Y’s Current A/c ................ ................
................ ................
1.40 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Solution: Profit and Loss Appropriation A/c

Particulars Amount (`) Particulars Amount (`)
To Interest on Capital By Profit and Loss A/c - Net Profit b/d 3,00,000
X’s Current A/c 45,000 (15,000 × 100/5)
Y’s Current A/c 27,000 72,000 By Interest on Drawings
To Salary – Z’s Current A/c 48,000 X’s Current A/c 3,600
To General Reserve 15,000 Y’s Current A/c 4,320 7,920
To Profit transferred to:
X’s Current A/c 1,15,280
Y’s Current A/c 57,640 1,72,920
3,07,920 3,07,920

ILLUSTRATION 14
On 1 April 2024, Sameer and Yasmin commenced a business in partnership with their fixed capitals of `15,00,000 and
`10,00,000 respectively. They agree to share profits in the ratio of 3:2.
The books are closed on March 31, every year. Interest on capitals, salary and commission for partners are allowed even if
it involves the firm to incur a loss. Interest on capital is provided @5% p.a. and Interest on drawing is charged @ 12% p.a.
Particulars Sameer (`) Yasmin (`)
Additional capital contributed on July 1, 2024 3,00,000 2,00,000
Drawings (during 2024-25) 30,000 20,000
Salary 20,000 –
Commission 10,000 7,000
Share in loss for the year 2024-25 60,000 40,000
Calculate the amount of net profit during the year 2024-25 and prepare partners’ capital and current accounts.
Solution:
Dr. Profit and Loss Appropriation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital: 86,250 By Profit and Loss A/c – 77,750
Sameer’s Current A/c Net Profit (Bal. fig.)
(15,00,000 × 5% × 3/12 + 18,00,000 × 5% × 9/12) By Interest on Drawings (for 6 months)
Yasmin’s Current A/c 57,500 Sameer’s Current A/c 1,800
(10,00,000 × 5% × 3/12 + 12,00,000 × 5% × 9/12) Yasmin’s Current A/c 1,200 3,000
To Partner’s Salary — By Share of Loss tr. to:
Sameer’s Current A/c 20,000 Sameer’s Current A/c 60,000
To Partner’s Commission – Yasmin’s Current A/c 40,000 1,00,000
Sameer’s Current A/c 10,000
Yasmin’s Current A/c 7,000
1,80,750 1,80,750
Dr. Partner’s Capital Accounts Cr.
Date Particulars Sameer Yasmin Date Particulars Sameer Yasmin
31 To Balance c/d 18,00,000 12,00,000 1 Apr. By Bank A/c 15,00,000 10,00,000
Mar. 2024 (capital introduced)
2025 1 July By Bank A/c 3,00,000 2,00,000
2024 (additional capital)
18,00,000 12,00,000 18,00,000 12,00,000
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.41

Dr. Partner’s Current Accounts Cr.

Date Particulars Sameer Yasmin Date Particulars Sameer Yasmin
31 To Drawings A/c 30,000 20,000 31 By Interest 86,250 57,500
Mar. To Interest on 1,800 1,200 Mar. on capital A/c
2025 Drawings A/c 2025 By Salary A/c 20,000 –
To P&L App. A/c 60,000 40,000 By Commission A/c 10,000 7,000
(share of loss)
To Balance c/d 24,450 3,300
1,16,250 64,500 1,16,250 64,500

Multiple Choice Questions (MCQs) 1.4

Q.1 Rahul, Samarth and Ayaan were partners sharing profits and losses in the ratio of 5 : 4 : 3. Ayaan’s fixed Capital balance
as on March 31, 2025 was ` 2,70,000. Which of the following items would have affected this Capital balance?
(a) Profit/Loss for the year (b) Additional Capital introduced
(c) Reduction in Capital due to Capital Adjustment (d) Both B and C
Q.2 Vanya and Aanya were partners in a firm sharing profit and losses in the ratio of 3:2. Their capitals were `5,00,000
and `1,00,000 respectively. Vanya was entitled to interest on capital @ 8% p.a. and Aanya was entitled to salary
@ `5,000 per month. The net profit before any appropriation was `1,75,000. Vanya’s share in divisible profit will be:
(a) `45,000 (b) `30,000 (c) `37,500 (d) `40,000
Q.3 Omkar and Shiva were partners in a firm. Omkar was entitled to a salary of `20,000 p.a. while Shiva was entitled to a
salary of `50,000 p.a. Net profit for the year ending on 31st March, 2025 after charging salary of Omkar and Shiva was
`5,60,000. The total amount credited to Omkar’s capital account will be:
(a) `2,45,000 (b) `2,65,000 (c) `3,15,000 (d) `3,00,000
Q.4 Which one of the following items is not dealt through Profit and Loss Appropriation Account?
(a) Interest on Capital (b) Interest on Drawings (c) Rent paid to partners (d) Partner’s salary
Q.5 Mike and Ken were two partners sharing profits and losses in the ratio 4 : 3. Ken was in need of funds, so he took a
loan of `50,000 from the firm at an agreed rate of interest being 10% p.a. If Interest is charged on loan to the partner
it will be:
(a) Debited to Profit and Loss A/c (b) Credited to Profit and Loss A/c
(c) Debited to Profit and Loss Appropriation A/c (d) Credited to Profit and Loss Appropriation A/c
Q.6 Interest on Partner’s loan is credited to:
(a) Partner’s Fixed capital account. (b) Partner’s Current account.
(c) Partner’s Loan Account. (d) Partner’s Drawings Account.
Q.7 Sohan and Mohan are partners sharing profits and losses in the ratio of 2 : 3 with the capitals of `5,00,000 and
`6,00,000 respectively. On 1st January 2025, Sohan and Mohan granted loans of `20,000 and `10,000 respectively to
the firm. Determine the amount of loss to be borne by each partner for the year ending on 31st March 2025 if the loss
before interest for the year amounted to `2,500.
(a) Share of Loss Sohan – ` 1,250 Mohan – ` 1,250 (b) Share of Loss Sohan – ` 1,000 Mohan – ` 1,500
(c) Share of Loss Sohan – ` 820 Mohan – ` 1,230 (d) Share of Loss Sohan – ` 1,180 Mohan – ` 1,770
Q.8 Amit, Sumit and Kiara are partners in a firm sharing profits and losses in the ratio 2 : 2 : 1. The manager is entitled
to a commission of 15% on the net profit after charging such commission. The net profit before charging manager’s
commission is `9,20,000. The amount of commission payable to the manager will be:
(a) `1,20,000 (b) `1,38,000 (c) `48,000 (d) `55,200
Q.9 Aman and Chaman are partners in a firm. On 1st July, 2024 Aman advanced a loan of `6,00,000 to the firm. There is
no partnership deed. On 31st March, 2025, Aman was entitled to get the following amount as interest on loan:
(a) `36,000 (b) `18,000 (c) `9,000 (d) `27,000
1.42 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.10 On 1st October 2024, Amit, a partner, advanced a loan of `1,20,000 to the firm. In the absence of partnership deed,
the amount of interest on loan to be paid on 31st March, 2025 will be:
(a) `3,600 (b) `7,200 (c) `12,000 (d) `6,000
Q.11 Interest on Partner’s Loan is debited from (i)__________ and credited to (ii)__________ .
(a) (i)Partner’s Loan A/c (ii)P & L Appropriation A/c. (b) (i) P & L A/c (ii) Partner’s Capital A/c.
(c) (i) P & L Appropriation A/c (ii) Partner’s Current A/c. (d) (i) P & L A/c (ii) Partner’s Loan A/c.
Q.12 X and Y are partners in a firm. They had advanced a loan of `40,000, contributed equally to the firm on 1st August,
2024. The partnership deed is silent regarding the payment of interest on loan. What amount of interest on loan is
payable to X, if the firm closes its books of account on 31st March every year?
(a) Nil (b) `2,400 (c) `1,600 (d) `800
Q.13 Assertion (A): Interest on partner’s loan shall be paid even if there are losses in the business.
Reason (R): Interest on partner’s loan is a charge against the profits.
(a) Both(A) and (R) are true and (R) is a correct explanation of (A).
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.14 Amitabh and Babul are partners sharing profits in the ratio of 3:2, with capitals of `50,000 and `30,000 respectively.
Interest on capital is agreed @ 6% p.a. Babul is to be allowed an annual salary of `2,500 and manager’s commission
is `750. During the year 2024-25, the profits prior to the calculation of interest on capital but after charging Babul’s
salary amounted to `12,500. Amitabh’s share of distributable profit will be:
(a) `4,170 (b) `2,780 (c) `2,670 (d) `7,050
Q.15 A, B and C are partners. A’s capital is `3,00,000 and B’s capital is `1,00,000. C has not invested any amount as capital
but he alone manages the whole business. C wants `30,000 p.a. as salary, though the deed is silent. Firm earned a profit
of `1,50,000. How much will each partner receives as an appropriation of profits?
(a) A ` 60,000; B ` 60,000; C ` 30,000 (b) A ` 90,000; B ` 30,000; C ` 30,000
(c) A ` 40,000; B ` 40,000 and C ` 70,000 (d) A ` 50,000; B ` 50,000 and C ` 50,000
Q.16 Ram and Mohan were partners with fixed capitals of `3,00,000 and `2,00,000 respectively. As per their partnership deed,
interest on capital was allowed @ 10% p.a. Net profit for the year ending on 31st March, 2025 was `30,000. The amount
of interest on capital was credited to each partner’s current account for the year ending on 31st March, 2025 was:
(a) Ram `30,000 and Mohan `20,000 (b) Ram `20,000 and Mohan `10,000
(c) Ram `18,000 and Mohan `12,000 (d) Ram `30,000 and Mohan Nil
Q.17 Which of the following items will not appear in Partner’s Fixed Capital A/c?
(a) Additional capital introduced (b) Interest on capital
(c) Opening balance of capital (d) Permanent withdrawal of capital
Q.18 The difference between the fixed capital method and fluctuating capital method of maintaining partner’s capitals is
whether or not the transactions other than _________ are recorded in the Capital accounts of the partners.
(a) Additional Capital Introduced (b) Withdrawal of Capital
(c) Partner’s Loan (d) Both (a) and (b)
Q.19 R, S and T were partners sharing profits and losses in the ratio of 5:3:2. On 31st March, 2025, their books reflected
a net profit of `3,10,000. As per the terms of the partnership deed they were entitled for interest on Capital which
amounted to `90,000, `60,000 and `30,000 respectively for R, S and T. Besides this an annual salary each was payable
to R and S. The ratio in which the profits would be appropriated is:
(a) 1:1:1 (b) 5:3:2 (c) 5:4:1 (d) 4:3:2
Q.20 Vijay and Rattan are partners in a firm. The partnership agreement provides for interest on drawings @ 12% per annum.
Which of the following accounts will be debited to transfer interest on drawings to Profit and Loss Appropriation Account:
(a) Interest on Drawings Account (b) Bank Account
(c) Partners’ Current Accounts (d) Partners’ Capital Accounts
Q.21 Which of the following statement is not true for fixed capital account?
(a) The capital account balance remains unchanged unless there is addition to or withdrawal of capital.
(b) The capital accounts always show a credit balance.
(c) Each partner has only one account, i.e. capital account, under this method.
(d) All adjustments for drawings, salary, interest on capital etc. are made in the current accounts.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.43

Q.22 Which of the following is true regarding Salary to a partner when the firm maintains fluctuating capital accounts?
(a) Debit Partner’s Loan A/c and Credit P & L Appropriation A/c.
(b) Debit P & L A/c and Credit Partner’s Capital A/c.
(c) Debit P & L Appropriation A/c and Credit Partner’s Current A/c.
(d) Debit P & L Appropriation A/c and Credit Partner’s Capital A/c.
Q.23 Abhay and Baldwin are partners sharing profit in the ratio 3:1. On 31st March 2025, firm’s net profit is `1,25,000. The
partnership deed provided interest on capital to Abhay and Baldwin `15,000 & `10,000 respectively and Interest on
drawings for the year amounted to `6000 from Abhay and `4000 from Baldwin. Abhay is also entitled to commission
@10% on net divisible profits. Calculate profit to be transferred to Partners Capital A/cs.
(a) `1,00,000 (b) `1,10,000 (c) `1,07,000 (d) `90,000
Q.24 A and B are partners having fixed capitals of `2,00,000 and `1,00,000 respectively. At the end of the year 2024-25,
their current accounts showed balances: A `1,00,000 (Cr.) B `5,000 (Dr.). Where will B’s current account balance be
shown in the books of A and B?
(a) On the liabilities side of the Balance Sheet (b) On the assets side of the Balance Sheet
(c) On the debit side of Profit and Loss Appropriation A/c (d) On the credit sid of Profit and Loss Appropriation A/c
Q.25 Abha and Bharat were partners. They shared profits and losses equally. On 1 April 2024 their capital accounts showed
balances of `3,00,000 and `2,00,000 respectively. Calculate the share of divisible profit of the partners if the partnership
deed provided for interest on capital @10% p.a. and the firm earned a profit of `50,000 for the year ending on 31st
March, 2025.
(a) Abha `30,000; Bharat `20,000 (b) Abha `25,000; Bharat `25,000
(c) Abha ‘Nil’; Bharat ‘Nil’ (d) None of the above
Q.26 Fill in the blanks for the transaction ‘Interest on drawings’ `4,000. Assume that partners’ capitals are fixed.
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
(i)............................ Dr. 4,000
To (ii)..................... 4,000
(Being Interest on drawings charged)
(a) (i) Partner’s Capital (ii) Interest on Drawings A/c
(b) (i) Partner’s Current A/c (ii) Interest on Drawings A/c
(c) (i) Interest on Drawings A/c (ii) Profit and Loss Appropriation A/c
(d) (i) Partner’s Current A/c (ii) Profit and Loss Appropriation A/c
Q.27 When the partner capitals are fixed, the drawings made by a partner will be recorded in ___________.
(a) Debit side of Partner’s Capital A/c (b) Credit side of Partner’s Capital A/c
(c) Debit side of Partner’s Current A/c (d) Credit side of Partner’s Current A/c
Q.28 Two items that may appear on the Credit side of a partner’s fixed capital account are ___________.
(a) Opening Capital and Loan advanced by partner
(b) Opening Capital and Additional Capital Introduced
(c) Partner’s Loan and Additional Capital Introduced
(d) Additional Capital Introduced and Permanent withdrawal of Capital
Q.29 Which of the following item may appear on the debit side of a Partner’s Current Account?
(a) Drawings (b) Interest on drawings (c) Share of loss (d) All of these
Q.30 Which of the following transactions is always recorded in the partner’s capital account irrespective of whether the
partners capitals are fixed or fluctuating?
(a) Interest on partner’s loan (b) Additional capital introduced
(c) Permanent withdrawal of capital (d) Both (b) and (c)
Q.31 Arun, Shobha and Yuvraj were partners in a firm. On 1st April, 2024 their Fixed Capitals Stood at ` 1,00,000, `50,000
and `50,000 respectively. As per the provisions of partnership deed:
(i) Partners were entitled to an annual salary of ` 20,000 each.
(ii) Interest on Capital @ 10% p.a. was to be provided.
(iii) Profits were to be shared in the ratio 3 : 1 : 1.
Net profit for the year ending on 31st March, 2025 was ` 90,000. What will be Arun’s share of distributable profit?
(a) `54,000 (b) `10,000 (c) `6,000 (d) None of these
1.44 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.32 Assertion (A): Salary allowed to a partner is shown in Profit and Loss Appropriation A/c.
Reason (R): Salary is allowed to a partner only when there is a provision for the same in the partnership deed.
(a) (A) is correct, but (R) is incorrect. (b) Both (A) and (R) are correct.
(c) (A) is incorrect, but (R) is correct. (d) Both (A) and (R) are incorrect.
Q.33 Assertion (A): The fixed capital account balance of a partner may change due to additional Capital introduced or
capital withdrawn or both, during the year.
Reason (R): Under fixed capital method, the partner’s capital accounts balance always remains same.
(a) Both (A) and (R) are correct (b) (A) is correct, but (R) wrong.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.34 Assertion (A): Transfer to reserves is shown in P & L Appropriation A/c.
Reason (R): Reserves are charge against the profits.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.35 Assertion (A): Partner’s capital account will not show a debit balance in spite of losses year after year when Partners’
capitals are fixed.
Reason (R): Partner’s capital remains fixed unless there is addition or withdrawal of capital. Under this method, the
‘share of loss’ is debited to the partner’s current account.
(a) Both (A) and (R) are correct and (R) is the correct reason of (A).
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A).
(c) Only (R) is correct.
(d) Both (A) and (R) are wrong.
Q.36 Assertion (A): Partner’s capital account always shows a credit balance.
Reason (R): Under fluctuating capital method, partner’s capital account may sometimes show a debit balance.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.37 Statement-I: The partners’ fixed capital accounts will always show a credit balance.
Statement-II: The partners’ current account may show a debit or a credit balance.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.38 Statement-I: The partners’ current account’s balance shall be shown on the liabilities side, if they have debit balance
and on the assets side, if they have credit balance.
Statement-II: Partner’s fixed capital account may sometimes show a debit balance.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.39 Assertion A: Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm.
Reason R: It starts with the net profit/net loss as per Profit and Loss Account. All adjustments in respect of partner’s
salary, partner’s commission, interest on capital, interest on drawings, etc. are made through this account. It shows how
the profits are appropriated or distributed among the partners.
(a) Both (A) and (R) are correct and (R) is correct reason for (A).
(b) Both (A) and (R) are incorrect .
(c) (A) is correct, but (R) is incorrect.
(d) (A) is incorrect, but (R) is correct.
Q.40 Which of the following items is not dealt through Profit and Loss Appropriation Account?
(a) Interest on Partner’s Loan (b) Partner’s Salary
(c) Interest on Partner’s Capital (d) Partner’s Commission
Q.41 Pick the odd one out:
(a) Rent to partner (b) Manager’s Commission
(c) Interest on Partner’s Loan (d) Interest on Partner’s capital
Q.42 P and Q were partners sharing profit and losses in the ratio of 2:1. Their capitals were `12,00,000 and `8,00,000
respectively. They were allowed interest on capital @ 6% p.a. and interest on drawings was to be charged @ 10% p.a.
Their drawings during the year were P- `2,40,000 and Q-`1,60,000. Q’s share of net divisible profit as per Profit and
Loss Appropriation Account amounted to `1,60,000. Net Profit of the firm before any appropriation was:
(a) `4,00,000 (b) `3,80,000 (c) `5,60,000 (d) `5,80,000
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.45

Q.43 Samira and Aashna are partners in business. They have not issued any specific instructions as to the maintenance of
their capital accounts. Where should interest on drawings appear in the books of accounts?
(a) On the debit side of the capital account (b) On the credit side of the capital account
(c) On the debit side of the current account (d) On the credit side of the current account
Q.44 Following is the extract of the Balance Sheet of, Neelkanth and Mahadev as on March 31, 2025, who share profits and
losses in the ratio of 3 : 2:
Liabilities Amount (`) Assets Amount (`)
Neelkanth’s Capital 10,00,000 Sundry Assets 30,00,000
Mahadev’s Capital 10,00,000
Neelkanth’s Current Account 1,00,000
Mahadev’s Current Account 1,00,000
Profit and Loss Appropriation (March 2025) 8,00,000
30,00,000 30,00,000
During the year Mahadev’s drawings were `30,000. Profits during 2024-25 is `10,00,000. Profits were distributed without
providing interest on partners’ capitals. The interest on capitals @ 5% p.a for the year ending on March 31, 2025 will be:
(a) `20,000 and `31,500 respectively (b) `50,000 each
(c) `25,000 each (d) `27,000 and `18,000 respectively
Q.45 Reena and Raman are partners with capitals of `3,00,000 and `1,00,000 respectively. The profit (as per Profit and Loss
Account) for the year ending on March 31, 2025 was `1,20,000. Interest on capital is to be allowed at 6% p.a. Raman
was entitled to a salary of `30,000 p.a. The drawings of partners were `30,000 and 20,000. The interest on drawings to
be charged to Reena was ` 1,000 and to Raman, `500. Their share of profit after necessary appropriations are:
(a) Reena `50,625; Raman `16,875 (b) Reena `33,750; Raman `33,750
(c) Reena `33,000; Raman `33,000 (d) Reena `48,750; Raman `48,750
Q.46 Aakriti and Bindu entered into partnership for making garments on April 01, 2024 without any partnership agreement.
They introduced Capitals of `5,00,000 and `3,00,000 respectively. On October 01, 2024, Aakriti advanced `20,000 by
way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ending on March 31,
2025 showed profit of `43,000 before charging interest on Aakriti’s loan. Their share of profit for the year 2024-25 are:
(a) `21,200 each (b) `21,500 each
(c) `26,875 and `16,125 respectively (d) `26,500 and `15,900 respectively
Q.47 X and Y are partners sharing profits and losses in the ratio of 3 : 2 having fixed capitals of `1,50,000 and `2,00,000
respectively. The partnership deed provides for interest on capital @ 8% p.a. The Net Profit of the firm during 2024-25
was `21,000. In what ratio the appropriation of profit will be made?
(a) 3 : 2 (b) 1 : 1 (c) 3 : 4 (d) 4 : 3
Q.48 X and Y are partners in a firm sharing profits and losses in the ratio of 7:4. Their fixed capitals are `5,00,000 and
`3,00,000 respectively. 5% of the net profit is to be transferred to general reserve. Incomplete Profit and Loss
Appropriation Account for the year ending on 31st March, 2025 prepared by the firm is given below:
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital: By Profit & Loss A/c (Net Profit) ...............
X’s Current A/c 45,000 By Interest on drawings:
Y’s Current A/c 27,000 X’s Current A/c 3,000
To General Reserve 15,000 Y’s Current A/c 4,000
To Profit transferred to:
X’s Current A/c (i)................
Y’s Current A/c (ii)................
............... ...............
Complete the Profit and Loss Appropriation Account of X and Y for the year ending on 31st March, 2025.
(a) (i) `3,60,000 (ii) `3,60,000 (b) (i) `1,40,000 (ii) `80,000
(c) (i) `1,10,000 (ii) `1,10,000 (d) (i) `3,95,000 (ii) `2,25,000
Q.49 A and B are partners. The net divisible profit as per Profit and Loss Appropriation A/c is `2,50,000. The total interest
on partner’s drawing is `4,000. A’s salary is `4,000 per quarter and B’s salary is `40,000 per annum. The net profit/loss
earned during this year was:
(a) `3,02,000 (b) `1,98,000 (c) `3,06,000 (d) `2,50,000
1.46 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

A NSWERS
1. (d) 2. (a) 3. (d) 4. (c) 5.(b) 6. (c) 7. (d) 8. (a) 9. (d) 10. (a)
11. (d) 12. (d) 13. (a) 14. (a) 15.(d) 16. (c) 17. (b) 18. (d) 19. (b) 20. (a)
21. (c) 22. (d) 23. (a) 24. (b) 25.(c) 26. (b) 27. (c) 28. (b) 29. (d) 30. (d)
31. (c) 32. (b) 33. (b) 34. (a) 35.(a) 36. (c) 37. (a) 38. (b) 39. (a) 40. (a)
41. (d) 42. (d) 43. (a) 44. (b) 45. (b) 46. (a)
47. (c)
Hint: Interest on Capitals: X = `12,000; Y = `16,000; Total = `28,000.
But Net Profit `21,000 is insufficient to pay full amount of interest on capitals to X and Y. Therefore, appropriations will
be made in the ratio of interest on capitals, i.e. 3 : 4 (12,000 : 16,000)
48. (b)
Explanation: Profit and Loss Appropriation A/c
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital By Profit and Loss A/c - Net Profit b/d 3,00,000
X’s Current A/c 45,000 (15,000 × 100/5)
Y’s Current A/c 27,000 72,000 By Interest on Drawings
To General Reserve 15,000 X’s Current A/c 3,000
To Profit transferred to: Y’s Current A/c 4,000 7,000
X’s Current A/c 1,40,000
Y’s Current A/c 80,000
3,07,000 3,07,000
49. (a)
Hint: Net Profit during the year=Divisible profits + Salary to partners – Interest on Drawings = 2,50,000 + 16,000 +
40,000 – 4000 = `3,02,000

Numerical Ques
Questions
tions (for Practice) 1.4
Q.1 Amit, Babu and Charu set up a partnership firm on April 1, 2024. They contributed `50,000, `40,000 and `30,000,
respectively as their capitals and agreed to share profits and losses in the ratio of 3 : 2 :1.
(i) Amit is to be paid a salary of `1,000 per month and Babu, a Commission of `5,000.
(ii) Interest is to be allowed on capital at 6% p.a.
(iii) The drawings for the year were Amit `6,000, Babu `4,000 and Charu `2,000.
(iv) Interest on drawings of `270 was charged on Amit’s drawings, `180 on Babu’s drawings and `90, on Charu’s drawings.
(v) The divisible profits (net profit after appropriations of interest on capitals and drawings, partner’s salary, commission,
etc.) for the year ending on 31.3.2025 was `12,000.
Prepare the partners’ capital and current accounts in case the capitals are fixed.
[Ans: Balances of partners’ current accounts are: Amit `14,730; Babu `7,220; Charu`1,710.]
Q.2 X, Y and Z were partners in a firm sharing profits in the ratio of 4:3:3. Their fixed capitals on 1st April, 2024 were
` 9,00,000, ` 5,00,000 and ` 4,00,000 respectively. On 1st November, 2024, X gave a loan of ` 80,000 to the firm.
As per the partnership agreement : (i) The partners were entitled to an interest on capital @ 6% p.a. (ii) Interest on
partners’ drawings was to be charged @ 8% p.a. The firm earned profits of ` 2,53,000 (after interest on X’s loan)
during the year 2024-25. Partners’ drawings for the year amounted to X: ` 80,000 Y: ` 70,000 and Z : ` 50,000.
Prepare Profit and Loss Appropriation Account for the year ending on 31st March, 2025.
[Ans: Profit transferred to: X’s current A/c `61,200; Y’s current A/c `45,900 and Z’s current A/c `45,900]
Q.3 Arun, Shobha and Yuvraj were partners in a firm. On 1st April, 2024 their Fixed Capitals Stood at ` 1,00,000, `50,000
and `50,000 respectively. As per the provisions of partnership deed, partners were entitled to an annual salary of
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.47

`20,000 each. Interest on Capital @ 10% p.a. was to be provided. Profits were to be shared in the ratio 3 : 1 : 1. Net
profit for the year ending on 31st March, 2025 was ` 90,000.
Pass Journal Entries for the above in the books of the firm.
[Ans: Profit transferred to: Arun’s Current A/c `6,000; Shobha’s Current A/c `2,000 and Yuvraj’s Current A/c `2,000]
Q.4 P and Q were partners in a firm sharing profits in 3 : 1 ratio. Their respective fixed capitals were `10,00,000 and
`6,00,000. The partnership deed provided interest on capital @ 12 % p.a. even if it will result into a loss to the firm.
The net profit of the firm for the year ending on 31st March, 2025 was `1,50,000.
Pass necessary journal entries allowing interest on capital and division of profit/loss among the partners.
[Ans: Loss transferred to: P’s Current A/c `31,500; Q’s Current A/c `10,500]
Q.5 Rakhi and Shikha are partners in a firm, with capitals of `2,00,000 and `3,00,000 respectively. The profit of the firm,
for the year ending on 2024-25 is `23,200. As per the Partnership agreement, they share the profit in their capital ratio,
after allowing a salary of `5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During
the year Rakhi withdrew `7,000 and Shikha `10,000 for their personal use. As per partnership deed, salary and interest
on capitals are to be provided even if it involves the firm to incur a loss.
You are required to prepare Profit and Loss Account and Partner’s Capital Accounts.
[Ans: Loss Transferred to Rakhi’s Capital `34,720 and Shikha’s Capital `52,080; Partners’ capital account balances on
31 March 2025 are: Rakhi `1,78,280 and Shikha `3,27,920]
Q.6 Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement
of business which were `80,000 and `60,000 respectively. The firm started business on April 1, 2024. According to the
partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to
get a monthly salary of `2,000 and `3,000, respectively.
The profits for year ending on March 31, 2025 before making above appropriations was `1,00,300. The drawings of
Ramesh and Suresh were `40,000 and `50,000, respectively. Interest on drawings amounted to `2,000 for Ramesh and
`2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their
capitals are fluctuating.
[Ans: Profit transferred to Ramesh’s Capital Account `16,000 and Suresh’s Capital Account `12,000; Partners’ Capital
Account Balances on 31 March 2025 are: Ramesh `87,600 and Suresh `62,700]
Q.7 Pawan and Purna are partners in a firm sharing profits in the ratio of 3 : 2. The balance in their capital and current
accounts as on 1 April 2025 were as under:
Particulars Pawan (`) Purna (`)
Capital Accounts 30,000 20,000
Current Accounts 10,000 8,000
The partnership deed provided that Pawan is to be paid a salary @ `500 p.m. whereas Purna is to get a commission of
`4,000 for the year.
Interest on capital is to be allowed @ 6% p.a. The drawings of Pawan and Purna for the year were `3,000 and `1,000,
respectively. Interest on drawings for Pawan and Purna works out at `75 and `25, respectively. The net profit of the
firm before making these adjustments was `24,900.
Prepare the profit and Loss Appropriation Account and the partners’ capital and current accounts.
[Ans: Profit transferred to Partners’ Current Accounts: Pawan `7,200 and Purna `4,800; Partners’ Current Account
Balances on 31 March 2025: Pawan `21,925 and Purna `16,975]
Q.8 Soniya, Charu and Smita started a partnership firm on April 1, 2024. They contributed `5,00,000, `4,00,000 and
`3,00,000 respectively as their capitals and decided to share profits and losses in the ratio of 3:2:1.
The partnership provides that Soniya is to be paid a salary of `10,000 per month and Charu a commission
of `50,000. It also provides that interest on capital be allowed @ 6% p.a. and interest on drawings @ 10% p.a.
The drawings for the year were :
Soniya withdrew `5,000 p.m. at the end.
Charu withdrew `10,000 each quarter end.
Sunita withdrew `69,000 on 1 Feb., 2025.
The net amount of profit as per Profit and Loss Account for the year 2024-25 was `3,56,600.
Record necessary journal entries for the above transactions in the books of the firm.
[Ans: Share of divisible profit: Soniya `60,000; Charu `40,000 and Smita `20,000]
1.48 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.9 The capital accounts of Moli and Golu showed balances of `40,000 and `20,000 as on April 01, 2024. They shared
profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @12% p.a. Golu
advanced a loan of `10,000 to the firm on August 01, 2024. During the year, Moli withdrew `1,000 per month at the
beginning of every month whereas Golu withdrew `1,000 per month at the end of every month. Profit for the year,
before the above mentioned adjustments was `20,950. Calculate interest on drawings, show distribution of profits for
the year ending on 31 March 2025 and prepare partner’s capital accounts.
[Ans: Interest on drawings: Moli `780 and Golu `660; Share of profit: Moli `9,554 and Golu `6,396; Partners’
Capital Account Balances: `Moli 40,814 and Golu `15,736]
Q.10 Lalan and Balan were partners in a firm sharing profits in the ratio of 3 : 2. Their fixed capitals on 1.4.2024 were:
Lalan `1,00,000 and Balan `2,00,000. They agreed to allow interest on capital @12%per annum and to charge on
drawings @ 15% per annum. The firm earned a profit before all above adjustments was `30,000 for the year ending
on 31.3.2025. The drawings of Lalan and Balan during the year were `3,000 and `5,000 respectively. Showing your
calculations, clearly prepare Profit and Loss Appropriation A/c of Lalan and Balan. The interest on capital will be
allowed even if the firm incurs a loss.
[Ans: Share of Net Loss: Lalan `3,240 and Balan `2,160]
Q.11 A, B and C were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. On 1.4.2024 the balances in their
Capital and Current Accounts were as follows:
Partners Capital Accounts (`) Current Accounts (`)
A 4,00,000 Cr. 20,000 Dr.
B 5,00,000 Cr. 10,000 Dr.
C 6,00,000 Cr. 15,000 Dr.
Their partnership deed provided for the following :
(i) Interest on Capital @ 9% p.a.
(ii) Salary to A @ `50,000 per quarter.
On 1.1.2024 C had given a loan of `2,00,000 to the firm at 6% per annum interest. During the year their drawings
were A `40,000, B `75,000 and C `55,000. On 1.1.2025, A introduced further capital `2,00,000. The net profit of
the firm before allowing interest on C’s loan was `4,00,000.
Prepare Profit and Loss Appropriation Account of the firm for the year ending on 31.3.2025 and the Current Accounts
of the partners.
[Ans: Share of divisible profit: A `14,550; B `14,550 and C `19,400; Partners’ Current Account Balances on 31
March 2025: A `1,95,050 Cr.; B `25,450 Dr. and C `3,400 Cr.]
Q.12 Karam Singh and Suleman decided to start a partnership firm. They contributed capitals of `2,00,000 and `1,00,000
respectively. On 1st April, 2024, Suleman expressed his willingness to admit Inderjeet, a very creative and intelligent
person, as a partner without capital in the firm. Karam Singh agreed to this. It was decided that Karam Singh, Suleman
and Inderjeet will share profits in the ratio of 2 : 2 : 1. Interest on capital will be provided @ 6% p.a. Due to shortage of
capital, Karam Singh introduced `50,000 on 30th September, 2024 and Suleman contributed `20,000 on 1st January
2025 as additional capital. The profit of the firm for the year ending on 31st March, 2025 was `2,00,300. Prepare
profit and Loss Appropriation Account.
[Ans. Share of divisible profit: Karam Singh `72,200; Suleman `72,200 and Inderjeet `36,100]
Q.13 Ajit, Choudhary and Vishal set up a partnership firm on 1 April 2024. They contributed `50,000, `40,000 and
`30,000 respectively as their capitals and decided to share profits in the ratio of 3 : 2 : 1. The partnership deed provided
that Ajit is to be paid a salary of `1,000 p.m. and Choudhary a commission of `5,000. It also provided that interest
on capital be allowed @ 6% p.a. The drawings for the year were: Ajit `6,000, Choudhary `4,000 and Vishal `2,000.
Interest on drawings `270 on Ajit’s drawings, `180 on Choudhary’s drawings and `90 on Vishal’s drawings. The net
amount of profit as per the profit and loss account for the year ending on 2025 was `35,660
You are required to record the necessary journal entries relating to appropriation of profit.
[Ans. Share of divisible profits are `6,000;`4,000 and `2,000 respectively.]
Q.14 The partnership agreement between Maneesh and Girish provides that: (i) Profits will be shared equally. (ii) Maneesh
will be allowed a salary of `400 p.m. (iii) Girish who manages the sales department will be allowed a commission equal
to 10% of the net profits, after allowing Maneesh’s salary. (iv) 7% p.a. interest will be allowed on partner’s fixed capital.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.49

(v) 2.5% p.a. interest will be charged on partner’s annual drawings irrespective of the period of drawings. (vi) The fixed
capitals of Maneesh and Girish are `1,00,000 and `80,000, respectively. Their annual drawings were `16,000 and
14,000, respectively. The net profit for the year ending on March 31, 2025 amounted to `40,000.
Prepare firm’s Profit and Loss Appropriation Account for the year ending on March 31, 2025.
[Ans. Share of profit; Maneesh `9,915 and Girish `9,915]
Q.15 A, B and C are partners in a firm sharing profits in the ratio of 3:1:1. Their capitals as on 1.4.2024 were `4,00,000,
`1,60,000 and `1,20,000 respectively. Their partnership deed provides for: (a) Interest on capitals @2.5% p.a., (b)
Salary to A `18,000 p.a., (c) Commission to B @10% of divisible profit after charging such commission. On 1 October
2024 C had advanced `1,00,000 to the firm beyond the amount of his capital for the purpose of business. Net Profit
for the year 2024-25 from the business of the firm was `80,000 after charging interest on C’s loan. Before the accounts
were closed, it was discovered that C was carrying on a business of the same nature with that of the firm and earned a
profit of `10,000 from that business. So, he was held liable as per the provisions of the Partnership Act, 1932. Prepare
Profit and Loss Appropriation A/c for the year ending on 31 March, 2025.
[Ans: Profit transferred to: A’s Capital A/c `30,000; B’s Capital A/c `10,000 and C’s Capital A/c `10,000]

Competency Based Questions 1.4

Q.1 Yadu, Madhu and Vidu are partners sharing profits and losses in the ratio of 2:2:1. Their fixed capitals on April 01,
2024 were; Yadu `5,00,000, Madhu `4,00,000 and Vidhu `3,50,000. As per the partnership deed, partners are entitled
to interest on capital @ 5% p.a., and Yadu has to be paid a salary of `2,000 per month while Vidu would be receiving
a commission of `18,000. Net loss of the firm as per profit and loss account for the year ending on March 31, 2025
amounted to `75,000. Prepare profit and loss appropriation account for the year ending on March 31, 2025.
[Ans: Loss transferred to: Yadu’s Current A/c `30,000; Madhu’s Current A/c `30,000 and Vidu’s Current A/c `15,000]
Q.2 A and B are partners sharing profits in the ratio of 3:2, with capitals of `50,000 and `30,000 respectively. Interest
on capital is agreed @ 6% p.a. B is to be allowed a quarterly salary of `625. Manager is to be allowed commission
`5,000. A has also given a Loan on 1st October 2024 of `1,00,000 to the firm without any agreement. During the year
2024‑25, the profits earned is `22,250.
Prepare profit and loss appropriation account for the year ending on March 31, 2025. Show your workings clearly.
[Ans: Profit transferred to: A’s Capital A/c `4,170 and B’s Capital A/c `2,780]
Q.3 Aditi, Bobby and Krish were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Their capitals were
`5,00,000, `4,00,000 and `2,00,000 respectively. The partnership deed provided for the following:
(a) Interest on capital @ 10% per annum. (b)Interest on drawings @ 6% per annum.
During the year, Aditi had withdrawn `60,000 and Bobby `50,000. On 1st September, 2024, Krish had given a loan
of `40,000 to the firm.
Pass necessary journal entries in the books of the firm for the above transactions for the year ending on 31st March, 2025.
[Ans: Interest on Bobby’s capital `40,000; Interest on Aditi’s Drawings `1,800 and Interest on Krish’s Loan `1,400]
1.50 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Guarantee of Minimum Profit to a Partner 1.5

Sometimes a partner is admitted into the firm with a guarantee of certain minimum amount by way of his share of profits of
the firm. Such assurance may be given by all the old partners in a certain ratio or by any of the old partners, individually to
the new partner. The minimum guaranteed amount shall be paid to such new partner when his share of profit as per the profit
sharing ratio is less than the guaranteed amount.
Madhulika and Rakshita, who are partners in a firm decide to admit Kanishka into their firm, giving her
the guarantee of a minimum of `25,000 as her share in firm’s profits. The firm earned a profit of `1,20,000
during the year and the agreed profit sharing ratio between the partners is decided as 2:3:1.
Since the profit sharing ratio between the partners is 2:3:1, Madhulika’s share in profit comes to `40,000 (2/6
of `1,20,000); Rakshita, `60,000 (3/6 of `1,20,000) and Kanishka `20,000 (1/6 of `1,20,000).
Thus, Kanishka’s share of profit `20,000 is `5,000 short of the guaranteed amount `25,000. This deficiency
of `5,000 shall be borne by the guaranteeing partners Madhulika and Rakshita in their profit sharing ratio,
which in this case is 2:3. Madhulika’s share in the deficiency comes to `2,000 (2/5 of `5,000), and that of
Rakshita `3,000 (3/5 of `5,000).
The total profit of the firm will be distributed among the partners as follows:
Madhulika will get `38,000 (her share `40,000 minus share in deficiency `2,000)
Rakshita `57,000 (`60,000 – `3,000)
Kanishka `25,000 (`20,000 + `2,000 + `3,000).

Top Tip
In the absence of provision in the partnership deed, the deficiency arising out of guarantee of profit to a partner is borne
by the other partners in their old profit sharing ratio.

Must know!
If only one partner gives the guarantee, say in the above case, only Rakshita gives the guarantee, the whole amount of deficiency
`5,000 will be borne by her only. In that case, profit distribution will be as follows:
Madhulika `40,000; Rakshita `55,000 (`60,000 – `5,000) and Kanishka `25,000 (`20,000 + `5,000)

ILLUSTRATIONS — Guarantee of Profits

ILLUSTRATION 15
Mohit and Rohan share profits and losses in the ratio of 2:1. They admit Rahul as partner with 1/4 share in profits with a
guarantee that his share of profit shall be at least ` 50,000. The net profit of the firm for the year ending on March 31, 2025
was ` 1,60,000. Prepare Profit and Loss Appropriation Account. Note that the new profit sharing ratio after admission of
Rahul comes to 2:1:1.
Solution: Books of Mohit, Rohit and Rahul
Dr. Profit and Loss Appropriation Account (for the year ending on March 31, 2025) Cr.
Particulars Amount (`) Particulars Amount (`)
To Mohit’s capital (share of profit) 80,000 By Profit and Loss (Net profit) 1,60,000
Less: Share in deficiency 6,667 73,333
To Rohan’s capital (share of profit) 40,000
Less: Share in deficiency 3,333 36,667
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.51

To Rahul’s capital (share of profit) 40,000

Add: Deficiency received from:
Mohit 6,667
Rohan 3,333 50,000
Total 1,60,000 Total 1,60,000

Explanation
The new profit sharing ratio after admission of Rahul is 2:1:1. As per this ratio the share of partners in the profit comes to:
Mohit = `1,60,000 × 24 = `80,000; Rohan = `1,60,000 × 14 = `40,000; Rahul = `1,60,000 × 14 = `40,000
Since Rahul has been given a guarantee of minimum of `50,000 as his share of profit. The deficiency of `10,000 (`50,000 –
`40,000) shall be borne by Mohit and Rohan in the ratio in which they share profits and losses between themselves, viz. 2:1
as follows: Mohit’s share in deficiency = `6,667; Rohan’s share in deficiency = `3,333
Thus Mohit will get ` 80,000 – `6,667 = `73,333, Rohan will get `40,000–`3,333 = ` 36,667 and Rahul will get `40,000
+ `6,667 + `3,333 = `50,000 in the profit of the firm.

ILLUSTRATION 16
Gopal and Balram share profits and losses in the ratio of 2:1. They admit Neel Madhav as a partner with 1/4 share in profits
with a guarantee that his share of profit shall be at least `50,000. The net profit of the firm for the year ending on March 31,
2025 was `1,60,000.
Prepare Profit and Loss Appropriation A/c, Pass necessary journal entry/entries for distribution of profits.

Solution: New profit sharing ratio of Gopal, Balram and Neel Madhav = 2:1:1.
Dr. Profit And Loss Appropriation A/c for the year ending on 31st March, 2025 Cr.
Particulars Amount (`) Particulars Amount (`)
To Gopal’s Capital A/c By Profit and Loss A/c (Net profit) 1,60,000
(Share of profit) 80,000
Less: Share in deficiency (6,667) 73,333
To Balram’s Capital A/c
(Share of profit) 40,000
Less: Share in deficiency (3,333) 36,667
To Neel Madhav’s Capital A/c
(Share of profit) 40,000
Add: Deficiency received from:
Gopal 6,667
Balram 3,333 50,000
1,60,000 1,60,000

Explanation
Neel Madhav’s share = 1/4. The remaining profit = 1 –1/4 = 3/4, to be shared between Gopal and Balram in the ratio of 2:1.
Gopal’s new share = 3/4 × 2/3 = 2/4 and Balram’s new share = 3/4 × 1/3 = 1/4. Thus, New ratio = 2/4 : 1/4 : 1/4 or 2 : 1 :1.
The share of partners in the profit comes to: Gopal = `1,60,000 × 2/4 = `80,000; Balram = `1,60,000 × 1/4 = `40,000; Neel
Madhav = `1,60,000 × 1/4 = `40,000
Since Neel Madhav has been given a guarantee of minimum `50,000 as his share of profit, the deficiency of `10,000 (`50,000
– `40,000) shall be borne by Gopal and Balram in the ratio in which they share profits and losses between themselves, viz. 2:1.
Gopal’s share in deficiency comes to 2/3 × `10,000 = `6,667 and Balram’s share in deficiency comes to 1/3 × `10,000 = `3,333.
Thus, Gopal will get `80,000 – `6,667 = `73,333; Balram will get `40,000– `3,333 = `36,667 and Neel Madhav will get
`40,000 + `6,667 + `3,333 = `50,000 in the profit of the firm.
1.52 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Profit and Loss A/c Dr. 1,60,000
31 Mar. To Profit and Loss Appropriation A/c 1,60,000
(For transfer of net profit)
Profit and Loss Appropriation A/c Dr. 1,60,000
To Gopal’s Capital A/c (80,000 – 6,667) 73,333
To Balram’s Capital A/c (40,000 – 3,333) 36,667
To Neel Madhav’s Capital A/c (40,000 + 10,000) 50,000
(For distribution of profit)
Alternately, Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Profit and Loss A/c Dr. 1,60,000
31 Mar. To Profit and Loss Appropriation A/c 1,60,000
(For transfer of net profit)
Profit and Loss Appropriation A/c Dr. 1,60,000
To Gopal’s Capital A/c 80,000
To Balram’s Capital A/c 40,000
To Neel Madhav’s Capital A/c 40,000
(For appropriation of profits)
Gopal’s Capital A/c Dr. 6,667
Balram’s Capital A/c Dr. 3,333
To Neel Madhav’s Capital A/c 10,000
(For deficiency received by Neel Madhav from Gopal and Balram in 2 : 1)

ILLUSTRATION 17
P and Q were partners in a firm sharing profits and losses in the ratio of 2 : 1. On 01.04.2024, they admitted R as a new
partner for 1/10th share of profits with a guaranteed minimum of `50,000. P and Q continued to share profits as before
but agreed to share any deficiency on account of guarantee to R in the ratio of 3 : 2. The net profit of the firm for the year
ending on 31.03.2025 was `3,00,000.
Pass necessary journal entries in the books of P and Q for the above transactions.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Profit & Loss A/c Dr. 3,00,000
March To Profit & Loss Appropriation A/c 3,00,000
31 (Being profit transferred from Profit & Loss A/c to Profit & Loss
Appropriation A/c)
Profit & Loss Appropriation A/c Dr. 3,00,000
To P’s Capital A/c 1,80,000
To Q’s Capital A/c 90,000
To R’s Capital A/c 30,000
(Being Net profit distributed among the partners)
P’s Capital A/c Dr. 12,000
Q’s Capital A/c Dr. 8,000
To R’s Capital A/c 20,000
(Being adjustment of guaranteed amount to R)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.53

ILLUSTRATION 18
Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5 : 3 : 2. Kusum is guaranteed a minimum
amount of `10,000 as her share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for
the years ending March 31, 2024 and 2025 are `40,000 and `60,000 respectively.
Prepare Profit and Loss Appropriation Account for the years ending March 31, 2024 and 2025.
Solution:
Dr. Profit And Loss Appropriation A/c for the year ending on 31st March, 2024 Cr.
Particulars Amount (`) Particulars Amount (`)
To Partner’s capital A/c (share of profit) By Profit and Loss A/c (Net profit) 40,000
Abhay 20,000 20,000
Siddharth (12000 – 2000) 10,000
Kusum (8000 + 2000) 10,000
40,000 40,000
Dr. Profit And Loss Appropriation A/c for the year ending on 31st March, 2025 Cr.
Particulars Amount (`) Particulars Amount (`)
To Partner’s capital A/c (share of profit) By Profit and Loss A/c (Net profit) 60,000
Abhay 30,000
Siddharth 18,000
Kusum 12,000 60,000
60,000 60,000

Competency Based Illustrations

ILLUSTRATION 19
Amay, Anmol and Rohan entered into partnership on 1st July, 2024 to share profits and losses in the ratio of 3 : 2 : 1. Amay
guaranteed that Rohan’s share of profit after charging interest on capital @ 6% p.a would not be less than ` 36,000 p.a. Their
fixed capital balances are: `2,00,000, `1,00,000 and `1,00,000 respectively. Profit for the year ending on 31st March, 2025
was `1,38,000. Prepare Profit and Loss Appropriation A/c.
Solution:
Dr. Profit and Loss Appropriation Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital: By Profit and Loss A/c 1,38,000
Amay’s Current A/c 9,000
Anmol’s Current A/c 4,500
Rohan’s Current A/c 4,500
To Partners’ Current A/c:
Amay (60,000 – 7,000) 53,000
Anmol 40,000
Rohan (20,000 + 7,000) 27,000* 1,20,000
1,38,000 1,38,000

*Guarantee met for 9 months

1.54 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

ILLUSTRATION 20
Asha, Disha and Raghav were partners in a firm sharing profits in the ratio of 2 : 3 : 1. Their fixed capitals were `3,00,000,
`5,00,000 and `2,00,000 respectively.
According to the partnership agreement, Raghav was guaranteed an amount of `40,000 as his share of profits. Interest on
Capital was to be provided @10% p.a., Asha was to be allowed the monthly salary of `10,000, and manager was to be
allowed commission of `20,000. Disha had given a loan on 1 March 2025 of `1,00,000 to the firm without any agreement.
Asha was to be allowed rent of `5,000 p.m. for her personal building to be used for firm.
The net loss during the year ending on 31st March, 2025 amounted to `1,20,000.
(a) State the provisions of the Partnership Act, 1932 that will be applicable in the given case.
(b) Prepare Profit and Loss Appropriation Account of the firm for the year ending on 31st March, 2025.
Solution:
(a) Provisions of the Partnership Act, 1932 that will be applicable in the given case:
• Since the firm suffers net loss during the year 2024-25, not interest on capital and salary shall be allowed to any partner.
• However, manager’s commission, interest on partner’s loan and building rent to a partner are charge against profits of
the firm and shall have to be paid, even in case of losses.
• Interest on Disha’s loan @6% p.a. for 1 month = `1,00,000 × 6/100 × 1/12 = `500.
• Raghav will get his minimum guaranteed profit, i.e. `40,000 even in case of net loss to the firm.
(b)
Dr. Profit and Loss Appropriation Account Cr.
for the year ending on 31st March 2025
Particulars Amount (`) Particulars Amount (`)
To P&L A/c (Net loss) 2,00,500 By Loss tr. to Partners’ Capital A/cs:
To Raghav’s Capital A/c 40,000 Asha 96,200
(minimum profit) Disha 1,44,300 2,40,500
2,40,500 2,40,500

Working notes: Profit and Loss Account

Particulars Amount (`) Particulars Amount (`)
To Net Loss (given) 1,20,000 By Net Loss c/d 2,00,500
To Manager’s Commission 20,000
To Interest on Disha’s Loan 500
To Building Rent to Asha (`5,000 × 12) 60,000
2,00,500 2,00,500

ILLUSTRATION 21
Ali, Bimal and Deepak are partners in a firm. On 1st April, 2024 their capital accounts stood at `4,00,000, `3,00,000 and
`2,00,000 respectively. They shared profits and losses in the proportion of 5 : 3 : 2.
Partners are entitled to interest on capital @ 10% per annum and salary to Bimal and Deepak @ `2,000 per month and
`3,000 per quarter respectively as per the provisions of the partnership deed.
Bimal’s share of profit (excluding interest on capital but including salary) is guaranteed at a minimum of `50,000 p.a. Any
deficiency arising on that account shall be met by Deepak. The profits of the firm for the year ending on 31st March, 2025
amounted to `2,00,000.
Prepare Profit & Loss Appropriation Account.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.55

Solution:
Dr. Profit And Loss Appropriation A/c for the year ending on 31st March, 2025 Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital: Ali’s Capital A/c 40,000 By Profit and Loss A/c 2,00,000
Bimal’s Capital A/c 30,000 (Net profit)
Deepak’s Capital A/c 20,000 90,000
To Salary: Bimal’s Capital A/c 24,000
Deepak’s Capital A/c 12,000 36,000
To Profit transferred to: Ali’s Capital A/c 37,000
Bimal’s Capital A/c 22,200
Add: Deficiency 3,800 26,000
Deepak’s Capital A/c 14,800
Less: Deficiency borne (3,800) 11,000
2,00,000 2,00,000
Working Notes: Deficiency in Bimal’s share of profit = Guaranteed amount – Amount received
= `50,000 – (`24,000 + `22,200 = `50,000 – `46,200 = `3,800

ILLUSTRATION 22
Jay, Vijay and Karan were partners of an architect firm sharing profits in the ratio of capitals as on 1 April 2024, which
were: Jay `10,00,000; Vijay `10,00,000 and Karan `5,00,000. A monthly salary of `15,000 each to Jay and Vijay. Karan
was guaranteed a profit of `5,00,000 and Jay guaranteed that he will earn an annual fee of `2,00,000. Any deficiency arising
because of guarantee to Karan will be borne by Jay and Vijay in 3 : 2. During the year ending on 31st March, 2025 Jay
earned fee of `1,75,000 and the profits of the firm amounted to `15,00,000.
Prepare Profit and Loss Appropriation Account and the Capital Account of Jay, Vijay and Karan for the year ending on 31st
March, 2025.
Solution:
Dr. Profit And Loss Appropriation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Salary By Profit and Loss A/c (Net Profit) 15,00,000
Jay’s Capital A/c 1,80,000 By Jay’s Capital A/c 25,000
Vijay’s Capital A/c 1,80,000 3,60,000 (Deficiency in guaranteed fees)
To Profit transferred to: (2,00,000 – 1,75,000)
Jay’s Capital A/c 4,66,000
Less: guarantee to Karan (1,60,200) 3,05,800
Vijay’s Capital A/c 4,66,000
Less: guarantee to Karan (1,06,800) 3,59,200
Karan’s Capital A/c 2,33,000
Add: guarantee 2,67,000 5,00,000
15,25,000 15,25,000
Dr. Partners’ Capital Accounts Cr.
Particulars Jay (`) Vijay (`) Karan (`) Particulars Jay (`) Vijay (`) Karan (`)
P/L App. A/c 25,000 – – Balance b/d 10,00,000 10,00,000 5,00,000
Balance c/d 14,60,800 15,39,200 10,00,000 Salary 1,80,000 1,80,000 –
P/L App. A/c 3,05,800 3,59,200 5,00,000
14,85,800 15,39,200 10,00,000 14,85,800 15,39,200 10,00,000
1.56 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

ILLUSTRATION 23
Ankur and Bobby were partners sharing profits and losses in the ratio 3:2. They admitted Rohit for a 1/5 share in the firm.
Rohit is guaranteed a minimum profit of `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 `10,00,000. The new profit sharing ratio of Ankur, Bobby and Rohit is
12 : 8 : 5. (a) Pass the necessary journal entries. (b) Prepare Profit and Loss Appropriation Account for the year. Show your
workings clearly.
Solution:
(a) Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Profit and Loss Appropriation A/c Dr. 10,00,000
To Profit and Loss A/c 10,00,000
(Being loss transferred to profit and loss appropriation A/c)
Ankur’s Capital A/c Dr. 4,80,000
Bobby’s Capital A/c Dr. 3,20,000
Rohit’s Capital A/c Dr. 2,00,000
To Profit and Loss Appropriation A/c 10,00,000
(Being loss debited to partners’ capital accounts in 12 : 8 : 5)
Ankur’s Capital A/c Dr. 3,20,000
Bobby’s Capital A/c Dr. 80,000
To Rohit’s Capital A/c 4,00,000
(Being the deficiency borne by Ankur and Bobby in the ratio 4:1)
Working Notes: Rohit’s share of loss = 10,00,000 × 1/5 = `2,00,000. Guaranteed minimum profit of Rohit = `2,00,000
Therefore, for the entry of deficiency in Rohit’s share, `4,00,000 should be credited to Rohit’s Capital Account.
(b) Dr. Profit And Loss Appropriation A/c for the year ...... Cr.
Particulars Amount (`) Particulars Amount (`)
To Profit and Loss A/c (Net Loss) 10,00,000 By Ankur’s Capital A/c 8,00,000
To Rohit’s Capital A/c 2,00,000 By Bobby’s Capital A/c 4,00,000
(minimum guaranteed profit)
12,00,000 12,00,000
Working Notes:
Details Ankur (`) Bobby (`) Rohit (`)
Loss `10,00,000 distributed in the ratio of 12 : 8 : 5 4,80,000 Dr. 3,20,000 Dr. 2,00,000 Dr.
Deficiency borne by Ankur and Bobby in the ratio 4 : 1 3,20,000 Dr. 80,000 Dr. 4,00,000 Cr.
Net effect 8,00,000 Dr. 4,00,000 Dr. 2,00,000 Cr.

Explanation
The above working notes have been made since the ratio in which Ankur and Bobby bear the deficiency in Rohit’s profit, i.e.
4 : 1 is different from their old profit sharing ratio, i.e. 3 : 2. If they would bear the deficiency in Rohit’s profit in their old profit
sharing ratio, i.e. 3 : 2, then there was no need of the above working notes since `12,00,000 would be debited from Ankur and
Bobby’s capital accounts in the ratio of 3 : 2.

ILLUSTRATION 24
On 01.07.2024, Ravi, Kavi and Avi started a partnership firm with fixed capitals of `6,00,000, `6,00,000 and `3,00,000
respectively. They decided to share profits and losses in the ratio of their capitals. The partnership deed provided for the
following: (i)Interest on capital @ 10% p.a., Interest on drawings @ 12% p.a. (ii) A monthly salary of `10,000 to Avi. (iii)
Ravi was guaranteed a minimum profit of `50,000 p.a.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.57

On 1.10.2024 Kavi was in need of funds due to his daughter’s marriage, so he took a loan of `50,000 form the firm at an agreed
rate of interest being 10% p.a. The net profit of the firm for the year ending on 31.03.2025 was `3,05,500 before charging
interest on loan to Kavi. Interest on partners’ drawings was Ravi `4,800, Kavi `4,200 and Avi `3,000.
Prepare Profit and Loss Appropriation Account of Ravi, Kavi and Avi for the year ending on 31.03.2025.
Solution: Dr. Profit and Loss Appropriation A/c for the year ending on 31.3.2025 Cr.
Particulars Amount (`) Particulars Amount (`)
To Partners’ Current A/cs: By Profit & Loss A/c (Net Profit) (Note (i)) 3,08,000
Interest on capital (for 9 months) By Partners’ Current A /cs:
Ravi 45,000 Interest on drawings
Kavi 45,000 Ravi 4,800
Avi 22,500 1,12,500 Kavi 4,200
To Avi’s Current A/cs: Salary (10,000 × 9) 90,000 Avi 3,000 12,000
To Partners’ Current A/cs: Divisible Profit
Ravi 47,000
Kavi 47,000
Avi 23,500 1,17,500
3,20,000 3,20,000
Working notes: (i) Interest charged on loan to Kavi = `50,000 × 10/100 × 6/12 = `2,500. It will be credited to P & L A/c.
Profit and Loss Account
Particulars Amount (`) Particulars Amount (`)
To Net Profit c/d 3,08,000 By Net Profit (given) 3,05,500
By Interest on Loan to Kavi 2,500
3,08,000 3,08,000
(ii) Ravi’s guaranteed profit is `50,000 p.a. For 9 months guaranteed profit = `50,000 × 9/12 = `37,500. Thus, Guarantee is
met as he gets `47,000.

Multiple Choice Questions (MCQs) 1.5

Q.1 Anthony, a partner, was being guaranteed that his share of profits will not be less than ` 60,000 p.a. Deficiency, if any,
was to be borne by other partners Amar and Akbar equally. For the year ending on 31st March, 2025 the firm incurred
loss of ` 1,80,000. What amount will be debited to Amar’s Capital Account in total at the end of the year?
(a) ` 60,000 (b) ` 1,20,000 (c) ` 90,000 (d) ` 80,000
Q.2 Abhay, Boris and Chetan were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Boris was guaranteed a profit of
` 95,000. Any deficiency on account of this was to be borne by Abhay and Chetan equally. The firm earned a profit of
`2,00,000 for the year ending on 31st March, 2025. The amount given by Abhay to Boris as guaranteed amount will be:
(a) ` 17,500 (b) ` 35,000 (b) ` 25,000 (d) ` 10,000
Q.3 X, Y and Z were partners in a firm sharing profits in the ratio of 3:2:1. Z was guaranteed a minimum profit of `60,000.
Any deficiency arising out of this will be borne by X and Y in the ratio of 2:1. Profit for the year ending on 31.3.2025
amounted to `2,70,000. How much deficiency will be borne by X?
(a) `10,000 (b) `15,000 (c) `5,000 (d) `20,000
Q.4 Stella, Grace and Carol were partners in the firm sharing profits and losses in the ratio 3 : 2 : 1. Carol was guaranteed
a profit of `15,000 after making all adjustments. Any deficiency is to be borne by Grace. The net profit for the year
ending on 31st March 2024 was `60,000. Capital Account of Grace will be ________ by ________.
(a) Credited, `6,500. (b) Debited, `5,000. (c) Credited, `7,500. (d) Debited, `2,500.
Q.5 Annu, Banu and Chanu are partners. Chanu has been given a guarantee of minimum profit of `8,000 by the firm.
Firm suffered a loss of `5,000 during the year. Capital account of Banu will be ________ by `_________.
(a) Credited, `6,500. (b) Debited, `6,500. (c) Credited, `1,500. (d) Debited, `1,500.
Q.6 Choose the correct sequence of the following transactions in context of Division of Profits.
(i) Guarantee by Firm to Partners (ii) Guarantee by Partners to Firm
1.58 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

(iii) Transfer of Profits to Profit and Loss Appropriation Account (iv) Guarantee by Partner to Partner
(a) (i); (iii) ; (iv) ; (ii) (b) (iii); (i) ; (ii) ; (iv) (c) (iii) ; (ii) ; (i); (iv) (d) (ii); (iii); (iv); (i)
Q.7 Anu, Bindu and Siya were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Siya was guaranteed
that her share of profit will not be less than `50,000. The firm’s profit for the year ending on 31st March, 2025 was
`2,00,000. The amount of deficiency to be borne by Anu was:
(a) `10,000 (b) `2,500 (c) `75,000 (d) `5,000
Q.8 P, Q and R were partners in a firm sharing profits and losses in the ratio 2:2:1. They admitted L as a new partner for
1/5th share in the profits. L was given a guarantee that his share of profit shall be `1,00,000. Any deficiency arising
on account of guarantee to L will be borne by Q. The profit of the firm during the year ending on 31.3.2025 was
`4,00,000. The amount of deficiency borne by Q was:
(a) `80,000 (b) `20,000 (c) `1,00,000 (d) `6,667
Q.9 E, F and G are partners sharing profits in the ratio of 3:3:2. According to the partnership agreement, G is to get a
minimum amount of `80,000 as his share of profits every year and any deficiency on this account is to be personally
borne by E. The net profit for the year ending on 31st March 2025 amounted to `3,12,000. Calculate the amount of
deficiency to be borne by E?
(a) `1,000 (b) `4,000 (c) `8,000 (d) `2,000
Q.10 Mohit, Shobhit and Rohit are partners sharing profits and losses in the ratio 2:1:1. Rohit is guaranteed a profit of ` 14,000.
The firm earned a profit of ` 20,000 during the year. Calculate the amount of deficiency borne by Mohit and Shobhit.
(a) Mohit `6,000 and Shobhit `3,000 (b) Mohit `4,000 and Shobhit `2,000
(c) Mohit `2,000 and Shobhit `1,000 (d) None of these
Q.11 X, Y and Z are partners in a firm sharing profits and losses in the ratio of 6:4:1.X guaranteed a profit of `15,000 to Z.
The net profit for the year ending on 31 March, 2025 was `99,000. X’s share in the profit of the firm will be:
(a) `30,000 (b) `15,000 (c) `48,000 (d) `45,000
Q.12 Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’s share in profit has been
guaranteed by Amit and Sumit to be a minimum sum of `8,000. Profits for the year ending on March 31, 2025 was
`36,000. The share of profits of the partners will be:
(a) Amit `18,000; Sumit, `12,000; Samiksha, `6,000 (b) Amit `16,800; Sumit, `11,200; Samiksha, `8,000
(c) Amit `17,000; Sumit, `11,000; Samiksha, `8,000 (d) None of the above
Q.13 Raju, Sohan and Tina are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Tina is guaranteed a
minimum amount of ` 40,000 as share of profit every year. Any deficiency arising on that account shall be borne by
Raju. If profit of the firm for the year ending on 31st March, 2025 is `1,60,000, Raju will bear a deficiency of:
(a) ` 8,000 (b) ` 40,000 (c) ` 48,000 (d) ` 4,000
Q.14 Mahi, Ruhi and Ginni are partners in a firm sharing profits and losses in the ratio of 6 : 4 : 1. Mahi guaranteed a profit
of `50,000 to Ginni. Net profit for the year ending on 31st March, 2025 was `1,10,000. Mahi’s share in the profit of
the firm after giving guaranteed amount to Ginni will be :
(a) `20,000 (b) `60,000 (c) `40,000 (d) `10,000

A NSWERS
1. (b) 2. (a) 3. (a) 4. (b) 5. (b) 6. (c) 7. (d) 8. (b)
9. (d) 10. (a) 11. (c) 12. (b) 13. (a) 14. (a)

Numerical Ques
Questions
tions (for Practice) 1.5
Q.1 Vikas and Vivek were partners in a firm sharing profits in the ratio of 3:2. On 1.4.2024 they admitted Vandana as a
new partner for 1/8th share in the profits with a guaranteed profit of `1,50,000. The new profit sharing ratio between
Vivek and Vikas will remain the same but they decided to bear any deficiency on account of guarantee to Vandana in
the ratio 2:3. The profit of the firm for the year ending on 31.3.2025 was `9,00,000.
Prepare Profit and Loss Appropriation Account of Vikas, Vivek and Vandana for the year ending on 31.3.2025.
[Ans: Profit transferred to Partners’ Capital A/cs: Vikas `4,57,500; Vivek `2,92,500 and Vandana `1,50,000]
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.59

Q.2 Pinki, Deepati and Kaku are partner sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share
of profits in any given year would not be less than ` 5,000. Deficiency, if any, would be borne by Pinki and Deepti
equally. Profits for the year amounted to ` 40,000. Record necessary journal entries in the books of the firm showing
the distribution of profit. [Ans: Deficiency borne by Pinki and Deepti `500 each]
Q.3 Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share
of profit, in any year will not be less than ` 5,000. The profits for the year ending on March 31, 2025 amounted to
` 35,000. Shortfall if any, in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2.
Record necessary journal entry to show distribution of profit among the partner.
[Ans : Deficiency borne by Radha, ` 900 and Mary, ` 600]
Q.4 X, Y and Z are in Partnership, sharing profits and losses in the ratio of 3 : 2 : 1, respectively. Z’s share in the profit
is guaranteed by X and Y to be a minimum of ` 8,000. The net profit for the year ending on March 31, 2025 was
`30,000. Prepare Profit and Loss Appropriation Account. [Ans: Profit to X `13,200; Y `8,800; Z `8,000]
Q.5 Arun, Boby and Chintu are partners in a firm sharing profit in the ratio or 2:2:1. According to the terms of the
partnership agreement, Chintu has to get a minimum of ` 60,000, irrespective of the profits of the firm. Any Deficiency
to Chintu on Account of such guarantee shall be borne by Arun. Prepare the Profit and loss Appropriation Account
showing distribution of profits among the partners in case the profits for year 2024-25 are: (i) ` 2,50,000; (ii) 3,60,000.
[Ans: (i) Profit to Arun `90,000, Boby `1,00,000 and Chintu `60,000 (ii) Profit to Arun `1,44,000, Boby `1,44,000
and Chintu `72,000]
Q.6 Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2 : 2 : 1. Ashok and Brijesh have
guaranteed that Cheena share in any year shall not be less than `20,000. The net profit for the year ending on March
31, 2025 amounted to `70,000. Prepare Profit and Loss Appropriation Account.
[Ans: Profit to Ashok Rs.25,000, Brijesh `25,000 and Cheena `20,000]
Q.7 Kavita and Lalita are partners sharing profits in the ratio of 2:1. They decide to admit Mohan with 1/4th share in
profits with a guaranteed amount of `25,000. Both Kavita and Lalita undertake to meet the liability arising out of
guaranteed amount to Mohan in their respective profit sharing ratio. The profit sharing ratio between Kavita and Lalita
does not change. The firm earned profits of `76,000 for the year 2024-25.
Prepare Profit and Loss Appropriation Account to show the distribution of profit amongst the partners.
[Ans: Share of Profit: Kavita `34,000; Lalita `17,000 and Mohan `25,000]
Q.8 Mahesh and Dinesh share profits and losses in the ratio of 2:1. From 01 April 2025 they admit Rakesh into their firm
who is to be given a share of 1/10 of the profits with a guaranteed minimum of `25,000.
Mahesh and Dinesh continue to share profits as before but agree to bear any deficiency on account of guarantee to
Rakesh in the ratio of 3:2 respectively. The distributable profits of the firm for the year ending on 31 March 2025
amounted to `1,20,000. Pass necessary journal entries.
[Ans: Rakesh’s share of deficiency `13,000 borne by Mahesh `7,800 and Dinesh `5,200]
Q.9 Aman, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed a minimum
amount of `10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for
two years ending March 31, 2024 and March 31, 2025 were `40,000 and `60,000, respectively.
Prepare the Profit and Loss Appropriation Account for the two years.
[Ans: For 2023-24, Profits transferred to Aman’s Capital, `16,000; Babita’s Capital `14,000; Suresh’s capital `10,000
and for 2024-25, Profit transferred to Aman’s Capital `24,000, Babita’s Capital `24,000, Suresh’s capital, `12,000]
Q.10 P and Q were partners in a firm sharing profits in the ratio of 5:3. On 1-4-2024 they admitted R as a new partner
for 1/8th share in the profits with a guaranteed profit of `75,000. The new profit sharing ratio between P and Q will
remain the same but they agreed to bear any deficiency on account of guarantee to R in the ratio 3:2. The profit of the
firm for the year ending on 31-3-2025 was `4,00,000.
Prepare Profit and Loss Appropriation Account of P, Q and R for the year ending on 31-3-2025.
[Ans: Share of profit: P `2,03,750; Q `1,21,250 and R `75,000]
Q.11 Ram, Mohan and Sohan are partners with capitals of `5,00,000, `2,50,000 and 2,00,000 respectively. After providing
interest on capital @ 10% p.a. the profits are divisible as follows: Ram 1/2, Mohan 1/3 and Sohan 1/6. But Ram and
Mohan have guaranteed that Sohan’s share in the profit shall not be less than `25,000, in any year. The net profit
for the year ending on March 31, 2025 is `2,00,000, before charging interest on capital. Prepare Profit and Loss
Appropriation Account to show distribution of profit for the year 2024-25.
[Ans: Profit to Ram `48,000, Mohan `32,000 and Sohan `25,000]
1.60 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Competency Based Questions 1.5

Q.1 Maanika, Bhavi and Komal are partners sharing profits in the ratio of 6:4:1. Komal is guaranteed a minimum profit
of `2,00,000. The firm incurred a loss of `22,00,000 for the year ending on 31st March, 2025. Pass necessary journal
entry regarding deficiency borne by Maanika and Bhavi and prepare Profit and Loss Appropriation Account.
[Ans. Deficiency of Komal `4,00,000 met by Maanika and Bhavi `2,40,000 and `1,60,000 respectively; Loss
transferred to Maanika’s capital A/c `12,00,000; Bhavi’s capital A/c `8,00,000 and Komal’s Capital A/c `2,00,000]
Q.2 John and Mathew share profits and losses in the ratio of 3:2. They admit Mohanty into their firm for 1/6 share in
profits, which he acquires equally from John and Mathew. John personally guaranteed that Mohanty’s share of profit,
after charging interest on capital @ 10 per cent per annum would not be less than `30,000 in any year. The fixed capital
provided was as follows: John `2,50,000; Mathew `2,00,000; Mohanty `1,50,000. The profit for the year ending on
March 31,2025 amounted to `1,50,000 before providing interest on capital. Prepare Profit & Loss Appropriation
Account. Show your workings clearly.
[Ans. Profit transferred to Partner’s Current A/c: John `31,500; Mathew `28,500 and `Mohanty `30,000]
Q.3 Arun, Varun and Tarun were partners of a law firm sharing profits in the ratio of 5:3:2. Their partnership deed provided
the following: (i) Interest on partners’ capital @ 5% p.a. (ii) Arun guaranteed that he would earn a minimum annual
fee of ` 6,00,000 for the firm. (iii) Tarun was guaranteed a profit of ` 2,50,000 (excluding interest on capital) and any
deficiency on account of this was to be borne by Arun and Varun in the ratio of 2:3.
During the year ending on March 31, 2025, Arun earned a fee of ` 3,20,000 and net profits earned by the firm were
`8,60,000. Partner’s capital on April 01, 2024 were Arun - ` 30,00,000; Varun - ` 3,00,000 and Tarun- `2,00,000.
Prepare Profit and Loss Appropriation account and show your workings clearly.
[Ans. Profit transferred to Partner’s Capital A/c: Arun `5,38,000; Varun `3,12,000 and Tarun `2,50,000]
Q.4 A and B were partners sharing profits and losses equally. They admitted C for a 1/4 share in the firm with a guaranteed
of minimum profit of `1,00,000 p.a. Any deficiency in C’s share is to be borne by A and B in the ratio 3:2. Losses for
the year 2024-25 were `6,00,000. Prepare Profit and Loss Appropriation Account and Pass the Journal Entry regarding
deficiency borne by A and B. [Ans: Deficiency in C’s share `2,50,000 borne by A `1,50,000 and B `1,00,000]
Q.5 Akhil and Nikhil were partners in a management consultancy firm sharing profits and losses in the ratio of 3 : 2. Their
fixed capitals were `1,00,000 and `80,000 respectively. Interest on capital was agreed @6% p.a. Nikhil was to be allowed a
bi-annual salary of `4,600. During the year 2024-25, the net profit prior to the calculation of interest on capital but after
charging Nikhil’s salary amounted to `1,20,000. 5% of this profit was to be transferred to general reserve. Nikhil brought
`20,000 as additional capital on 1 Jan. 2025. Akhil gave guarantee to the effect that gross fee earned by him for the firm
shall be equal to his average gross fee of the preceding five years, when he was carrying on profession alone (which was
`25,000). The gross fee earned by Akhil for the firm during the year 2024-25 was `16,000.
Prepare Profit and Loss Appropriation Account of the firm for the year ending on 31st March, 2025.
[Ans. Profit transferred to Partners’ Current A/c: Akhil `67,140 and Nikhil `44,760]
Q.6 A, B and C were partners in a firm. On 1st April, 2024 the balance in their capital accounts stood at `8,00,000,
`6,00,000 and `4,00,000 respectively. As per the provisions of the partnership deed, partners were entitled to interest
on capital @ 5% p.a., salary to B `3,000 per month and a commission of `12,000 to C.
A’s share of profit, excluding interest on capital, was guaranteed at `25,000 p.a. B’s share of profit, including interest on
capital but excluding salary was guaranteed at `55,000 p.a. Any deficiency arising on that account was to be met by C.
The profits of the firm for the year ending on 31st March, 2025 amounted to `2,16,000.
Prepare Profit and Loss Appropriation Account for the year ending on 31st March, 2025.
[Ans. Profit transferred to: A’s Capital A/c `26,000; B’s Capital A/c `26,000 and C’s Capital A/c `26,000]
Q.7 Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3 : 2 : 1. Sona’s share in the profits,
guaranteed to be not less than `15,000 in any year. Babita gives guarantee to the effect that gross fee earned by her for
the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone
(which is `25,000). The net profit for the year ending on on March 31, 2025 is `75,000. Gross fee earned by Babita
for the firm was `16,000. Prepare Profit and Loss Appropriation Account.
[Ans. Profit transferred to: Amit’s capital A/c `41,400; Babita’s capital A/c `27,600 and Sona’s capital A/c `15,000]
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.61

Past Adjustments 1.6

Sometimes a few omissions or errors in the recording of transactions or the preparation of summary statements are found
after the final accounts have been prepared and the profits distributed among the partners. The omission may be in respect of
interest on capitals, interest on drawings, partner’s salary, partner’s commission, etc. There may also be some changes in the
provisions of partnership deed or system of accounting having impact with retrospective effect.
Such omissions and commissions need adjustments for correction of their impact. Instead of altering old accounts, necessary
adjustments can be made either: (i) through ‘Profit and Loss Adjustment Account’, or (ii) directly in the capital/current
accounts of the concerned partners.
1. Adjustments through Profit and Loss Adjustment Account
Step 1: Work out the amounts of omitted items that are to be credited to partners’ capital/current accounts such as
interest on capital, partner’s salary, partner’s commission, etc.
The following journal entry for each adjustment is recorded:
Profit and Loss Adjustment A/c Dr.
To Partner’s capital/current A/c (individually)
Step 2: Work out the amounts of omitted items which are to be debited to Partners’ Capital/Current Accounts such as
interest on drawings.
The following journal entry is recorded:
Partner’s capital/current A/c (individually) Dr.
To Profit and Loss Adjustment A/c
Step 3: Work out the balance of the Profit and Loss Adjustment Account. The credit balance of the Profit and Loss
Adjustment Account reflects the profit and the debit balance, the loss. The balance of the Profit and Loss Adjustment
Account is transferred to the partners’ capital/current accounts in their profit sharing ratio. Thus, the Profit and Loss
Adjustment Account will stand closed.
The following journal entries are recorded:
(a) If it is a credit balance (profit):
Profit and Loss Adjustment A/c Dr.
To Partner’s capital/current A/c (individually)
(b) If it is a debit balance (loss)
Partner’s capital/current A/c (individually) Dr.
To Profit and Loss Adjustment A/c
2. Adjustments made directly in the partners’ capital/current accounts
The adjustment can also be made directly in the partners’ capital/current accounts without opening a Profit and Loss
Adjustment Account. In such a situation, we shall prepare a statement to find out the net effect of omissions and commissions
and then to debit the capital/current account(s) of the partner(s) who had been credited in excess and credit the capital/
current account(s) of the partner(s) who had been debited in excess.

ILLUSTRATIONS — Past Adjustments

ILLUSTRATION 25
Rameez and Zaheer are equal partners. Their capitals as on April 01, 2024 were `50,000 and `1,00,000 respectively. After the
accounts for the financial year ending on March 31, 2025 have been prepared, it is discovered that interest at the rate of 6 % per
annum, as provided in the partnership deed has not been credited to the partners’ capital accounts before distribution of profit.
(a) Pass the necessary journal entries to rectify the above error through profit and loss adjustment account.
(b) Pass the necessary journal entry to rectify the above error by directly affecting Partners’ Capital Accounts.
1.62 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Solution:
(a) Through Profit and Loss Adjustment Account
Adjustment Entries
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Profit and Loss Adjustment A/c Dr. 9,000
31 Mar. To Rameez’s capital A/c 3,000
To Zaheer’s capital A/c 6,000
(For omission of interest on capital)
Rameez’s capital A/c Dr. 4,500
Zaheer’s capital A/c Dr. 4,500
To Profit and Loss Adjustment A/c 9,000
(Being loss on adjustment in profit sharing ratio 1 : 1)

Explanation
In this case, the interest on capital not credited to the partners’ capital accounts works out to be:
Rameez: `3000 (6/100 × `50,000); Zaheer: `6,000 (6/100 × `1,00,000)
Total interest on capitals = `3,000 + `6,000 = `9,000. Had the interest on capital been duly provided, the firm’s profit
would have been reduced by `9,000. By this omission, the whole amount of profit as per Profit and Loss Account (without
adjustment of `9,000) has been distributed among the partners in their profit sharing ratio (i.e equally), and the amounts of
interest on capital have not been credited to their capital accounts.
(b) Directly in Partners’ Capital Accounts
For direct adjustment in partners’ capital accounts first a statement to ascertain the net effect of omission on partners’
capital accounts will be worked out as follows and then the adjustment entry can be recorded.
Statement Showing Net Effect of Omission of Interest on Capital (Adjustment Table)
Details Rameez (`) Zaheer (`) Total (`)
Omission of interest on capital, now credited Cr. 3,000 6,000 9,000
Profit `9,000 excess credited, now debited in 1:1 Dr. 4,500 4,500 9,000
Net effect/Adjustment Dr. 1,500 Cr. 1,500 –
The statement shows that Rameez has got excess credit of `1,500 while Zaheer’s account has been credited less by `1,500.
In order to rectify the error Rameez’s capital account should be debited and that of Zaheer, credited with `1,500 by
passing the following adjustment entry:
Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Rameez’s Capital A/c Dr. 1,500
31 Mar. To Zaheer’s Capital A/c 1,500
(Adjustment for omission of interest on capital)

ILLUSTRATION 26
Asha and Sony are partners in a firm sharing profits equally. Their capital accounts as on 31 March 2025 showed balances
of `60,000 and `50,000 respectively. After taking into account the profits of the year 2025, which amounted to `20,000, it
was subsequently found that the following items have been left out while preparing the final accounts of the year ending on
31 March 2025: (i) The partners were entitled to interest on capitals @6% p.a. (ii) The drawings of Asha and Sony for the
year 2024-25 were `8,000 and `6,000 respectively. The interest on drawings was also to be charged @5% p.a. (iii) Asha was
entitled to a salary of `5,000 p.a. and Sony, a commission of `2,000 p.a.
(a) Pass the necessary journal entries to rectify the above error through profit and loss adjustment account.
(b) Pass the necessary journal entry to rectify the above error by directly affecting Partners’ Capital Accounts.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.63

Solution:
(a) Adjustments through Profit and Loss Adjustment Account
First, we ascertain the partners’ capital at the beginning of the year and interest on partners’ capitals.
Calculation of opening capitals and interest on capitals:
Particulars Asha (`) Sony (`)
Closing capital 60,000 50,000
Less: Share of Profit credited (`20,000 shared equally) (10,000) (10,000)
Add: Drawings 8,000 6,000
Opening capital 58,000 46,000
Interest on capital @6% p.a. 3,480 2,760
Interest on drawings @5% p.a. for an average period of 6 months:
Asha = 8,000 × 5/100 × 6/12 = `200; Sony = 6,000 × 5/100 × 6/12 = `150
Books of Asha and Sony
Adjustment Entries
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Profit and Loss Adjustment A/c Dr. 6,240
31 To Asha’s Capital A/c 3,480
March To Sony’s Capital A/c 2,760
(For omission of interest on capital)
Profit and Loss Adjustment A/c Dr. 5,000
To Asha’s Capital A/c 5,000
(For omission of salary)
Profit and Loss Adjustment A/c Dr. 2,000
To Sony’s Capital A/c 2,000
(For omission of commission)
Asha’s Capital A/c Dr. 200
Sony’s Capital A/c Dr. 150
To Profit and Loss Adjustment A/c 350
(For omission of interest on drawings)
Asha’s Capital A/c Dr. 6,445
Sony’s Capital A/c Dr. 6,445
To Profit and Loss Adjustment A/c 12,890
(For loss on adjustment in profit sharing ratio 1 : 1)

(b) Adjustments made directly in the partners’ Capital/Current Accounts

First format of adjustment table:
Adjustment Table
Details Asha (`) Sony (`) Total (`)
Omission of Interest on Capital Cr. 3,480 2,760 6,240
Omission of Salary Cr. 5,000 5,000
Omission of Commission Cr. 2,000 2,000
Total Cr. 8,480 4,760 13,240
Omission of Interest on Drawings Dr. 200 150 350
Net Omission Cr. 8,280 4,610 12,890
Profit less credited, now debited (loss on adjustment) Dr. 6,445 6,445 12,890
Net effect Cr. 1,835 Dr. 1,835 –
1.64 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

First format of Adjustment Table can be used if the profit of the year has been distributed in correct profit
sharing ratio (though there are omissions related to Interest on Capital, Interest on Drawings, etc.).
If, however, the profit is also distributed in wrong profit sharing ratio besides omissions of Interest on
Interesting Capital, Interest on Drawings, etc. then the second format given below should be used.
Fact
Second format of adjustment table:
Adjustment Table
Details Asha (`) Sony (`) Total (`)
Profit Distributed Dr. 10,000 10,000 20,000
Omission of Interest on Drawings Dr. 200 150 350
Total Dr. 10,200 10,150 20,350
Omission of Interest on Capital Cr. 3,480 2,760 6,240
Omission of Salary Cr. 5,000 5,000
Omission of Commission Cr. 2,000 2,000
Share of divisible profit Cr. 3,555 3,555 7,110
Total Cr. 12,035 8,315 20,350
Net effect Cr. 1,835 Dr. 1,835 –
The adjustment table shows that Asha has been credited less by `1,835 while Sony has got excess credit of `1,835. In
order to rectify the error, Sony’s Capital Account should be debited and that of Asha, credited with `1,835 by passing the
following adjustment entry:
Books and Asha and Sony
Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Sony’s Capital A/c Dr. 1,835
31 To Asha’s Capital A/c 1,835
March (Being adjustment for omissions of Interest on Capital, salary,
commission and Interest on Drawings)

ILLUSTRATION 27
Cheese and Slice are equal partners. Their capitals as on April 01, 2024 were `50,000 and ` 1,00,000 respectively. After the
accounts for the financial year ending on March 31, 2025 have been prepared, it is observed that interest on capital @6% per
annum and salary to Cheese @ `5,000 per annum, as provided in the partnership deed has not been credited to the partners’
capital accounts before distribution of profits. Give necessary rectifying entries using Profit & Loss adjustment account.
Solution:
Date Particulars L.F. Dr. (`) Cr. (`)
March 31, Profit & Loss Adjustment A/c Dr. 9,000
2025 To Cheese Capital A/c 3,000
To Slice Capital A/c 6,000
(Being Interest on capital omitted earlier now provided)
Profit & Loss Adjustment A/c Dr. 5,000
To Cheese Capital A/c 5,000
(Being salary omitted earlier now provided)
Cheese Capital A/c Dr. 7,000
Slice Capital A/c Dr. 7,000
To Profit & Loss Adjustment A/c 14,000
(Being Loss on Adjustment transferred to partners)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.65

ILLUSTRATION 28
Pass necessary rectifying journal entries for the omissions committed while preparing Profit and Loss Appropriation Account.
You are also required to show your workings clearly.
(a) Gupta and Sarin are partners in a firm sharing profits in the ratio of 3:2. Their fixed capitals are: Gupta `2,00,000, and
Sarin `3,00,000. After the accounts for the year are prepared it is discovered that interest on capital @10% p.a. as provided
in the partnership agreement, has not been credited to the capital accounts of partners before distribution of profits.
(b) Nusrat, Sonu and Himesh are partners sharing profits and losses in the ratio of 5:3:2. The partnership deed provides
for charging interest on drawing’s @10% p.a. The drawings of Nusrat, Sonu and Himesh during the year amounted to
`20,000, `15,000 and `10,000 respectively. After the final accounts have been prepared, it was discovered that interest
on drawings has not been taken into consideration.
Solution: (a) Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
Gupta’s Current A/c Dr. 10,000
To Sarin’s Current A/c 10,000
(Adjustment for omission of interest on capitals)
Working Notes: Adjustment Table
Details Gupta (`) Sarin (`) Total (`)
Omission of Interest on capitals, now credited Cr. 20,000 30,000 50,000
Excess Profit Credited, now debited in 3:2 Dr. 30,000 20,000 50,000
Net Effect 10,000 Dr. 10,000 Cr. –
(b) Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
Sonu’s Capital A/c Dr. 75
Himesh’s Capital A/c Dr. 50
To Nusrat’s Capital A/c 125
(Adjustment for omission of interest on drawings)
Working Notes: Adjustment Table
Particulars Nusrat (`) Sonu (`) Himesh (`) Total (`)
Omission of Interest on Drawings Dr. 1,000 750 500 2,250
Share of Profit less credited (5:3:2) Cr. 1,125 675 450 2,250
Adjustment/Net Effect Cr. 125 Dr. 75 Dr. 50

ILLUSTRATION 29
Krishna, Sandeep and Karim are partners sharing profits in the ratio of 3:2:1. Their fixed capitals are: Krishna `1,20,000,
Sandeep `90,000 and Karim `60,000. For the year 2024-25, interest was credited to them @ 6% p.a. instead of 5% p.a.
Record adjustment entry. Show your workings clearly.
Solution: Books of Krishna, Sandeep and Karim
Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Karim’s Current A/c Dr. 150
31 Mar. To Krishna’s Current A/c 150
(Adjustment for interest on capital credited @6% p.a. instead of 5% p.a.)
Working Notes: Adjustment Table
Particulars Krishna (`) Sandeep (`) Karim (`) Total (`)
Interest on Capital excess credited by 1%, now debited Dr. 1,200 900 600 2,700
Share in Profit `2,700 less credited, now credited in 3:2:1 Cr. 1,350 900 450 2,700
Adjustment/Net Effect Cr. 150 – Dr. 150 –
1.66 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

ILLUSTRATION 30
On March 31st, 2025, the balances in the capital accounts of E, M and I after making adjustments for profits and drawings
were `1,60,000, `1,20,000 and `80,000 respectively. Subsequently, it was discovered that the interest on capital and drawings
had been omitted. The profit for the year ending on 31st March, 2025 was `40,000. During the year E and M each withdrew
a total sum of `24,000 in equal installments in the beginning of each month and I withdrew a total sum of `48,000 in equal
installments at the end of each month. The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be
allowed @ 10% p.a. The profit sharing ratio among the partners was 2 : 1 : 1.
Showing your working notes clearly, pass the necessary rectifying entry.
Solution: Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
2025 E’s Capital A/c Dr. 3,850
31 Mar. To M’s Capital A/c 2,950
To I’s Capital A/c 900
(Being interest on capital and interest on drawings omitted, now adjusted)
Working Notes:
(i) Calculation of Interest on Drawings:
E and M each = 24,000 × 5/100 × 6.5/12 = `650 and I = 48,000 × 5/100 × 5.5/12 = `1,100
(ii) Calculation of Opening Capitals:
Details E (`) M (`) I (`)
Closing Capitals 1,60,000 1,20,000 80,000
Less: Profits distributed (20,000) (10,000) (10,000)
Add: Drawings 24,000 24,000 48,000
Opening Capitals 1,64,000 1,34,000 1,18,000
(iii) Adjustment Table
Particulars E (`) M (`) I (`) Total (`)
Profit already distributed Dr. 20,000 10,000 10,000 40,000
Omission of interest on drawings Dr. 650 650 1,100 2,400
Total Dr. 20,650 10,650 11,100 42,400
Omission of interest on capital Cr. 16,400 13,400 11,800 41,600
Share of profit Cr. 400 200 200 800
Total Cr. 16,800 13,600 12,000 42,400
Net Effect Dr. 3,850 Cr. 2,950 Cr. 900 –

ILLUSTRATION 31
A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. The following was the Balance Sheet of the firm
as on 31-3-2025.
Liabilities Amount (`) Assets Amount (`)
Capitals: A 60,000 Sundry Assets 80,000
B 20,000
80,000 80,000
Profits `30,000 for the year ending on 31-3-2025 were divided between the partners without allowing interest on capital @
12% p.a. and salary to A @ `1,000 per month. During the year A withdrew `10,000 and B `20,000.
Pass the necessary adjustment journal entry and show your working clearly.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.67

Solution: Adjustment Entry

Date Particulars L.F. Dr. (`) Cr. (`)
2025 B’s Capital A/c Dr. 5,280
31 Mar. To A’s Capital A/c 5,280
(Being interest on capital and salary to A not charged, now adjusted)

Working Notes:
(i) Calculation of Opening Capitals:
Details A (`) B (`)
Closing Capital 60,000 20,000
Less: Profit credited in the ratio 3:2 (18,000) (12,000)
Add: Drawings 10,000 20,000
Capital in the beginning 52,000 28,000
(ii) Adjustment Table
Details A (`) B (`) Total (`)
Amount already distributed Dr. 18,000 12,000 30,000
Interest on capital Cr. 6,240 3,360 9,600
Salary Cr. 12,000 – 12,000
Divisible profit Cr. 5,040 3,360 8,400
Total Cr. 23,280 6,720 30,000
Net Effect 5,280 (Cr.) 5,280 (Dr.) –

ILLUSTRATION 32
A, B and C were partners in a firm. On 1 April, 2023 their fixed capitals stood at `50,000; `25,000 and `25,000 respectively.
As per the provisions of the partnership deed, B was entitled for a salary of `5,000 p.a., all the partners were entitled to
interest on capital @ 5% p.a. and profits were to be shared in the ratio of capitals. The net profits for the year ending on 31
March, 2024 of `33,000 and 31 March, 2025 `45,000 were divided equally without providing for the above terms. Pass an
adjustment journal entry to rectify the above error. Show your workings clearly.
Solution: Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
2025 C’s Current A/c Dr. 9,000
31 To A’s Current A/c 8,000
Mar. To B’s Current A/c 1,000
(Being adjustment made for omissions)
Notes: Total profit of last 2 years = 33,000 + 45,000 = `78,000
Particulars A (`) B (`) C (`) Total (`)
Profit already distributed Dr. 26,000 26,000 26,000 78,000
Interest on capital @ 5% p.a. for 2 years Cr. 5,000 2,500 2,500 10,000
Salary for 2 years Cr. — 10,000 — 10,000
Profit Cr. 29,000 14,500 14,500 58,000
Total Cr. 34,000 27,000 17,000 78,000
Net effect 8,000 1,000 9,000 —
(Cr.) (Cr.) (Dr.)
1.68 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

ILLUSTRATION 33
Leela, Meera and Neha are partners and have omitted interest on capital @9% p.a. for three years ended March 31, 2025.
Their fixed capitals on which interest was to be allowed throughout were: Leela `80,000, Meera `60,000 and Neha
`1,00,000. Profit sharing ratio were: 2022-23 1 : 1 : 1; 2023-24 4 : 5 : 1; 2024-25 1 : 2 : 2. Record adjustment entry. Show
your workings clearly.

Solution: Adjustment Entry

Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
2025 Meera’s Current A/c Dr. 10,440
31 Mar. To Leela’s Current A/c 1,440
To Neha’s Current A/c 9,000
(Adjustment for omission of interest on capitals for 3 years)
Working Notes: Adjustment Table
Particulars Leela (`) Meera (`) Neha (`) Total (`)
Omission of Interest on capital @9% p.a. for 3 years Cr. 21,600 16,200 27,000 64,800
(7,200 × 3) (5,400 × 3) (9000 × 3) (21,600 × 3)
2022-23: Profit debited (1 : 1 : 1) Dr. 7,200 7,200 7,200 21,600
2023-24: Profit debited (4 : 5 : 1) Dr. 8,640 10,800 2,160 21,600
2024-25: Profit debited (1 : 2 : 2) Dr. 4,320 8,640 8,640 21,600
Total amount of profit to be debited Dr. 20,160 26,640 18,000 64,800
Net Effect/Adjustment 1,440 Cr. 10,440 Dr. 9,000 Cr. –

ILLUSTRATION 34
Mona, Nisha and Priyanka are partners in a firm. They contributed `50,000 each as capital three years ago. At that time
Priyanka agreed to look after the business as Mona and Nisha were busy. The profits for the past three years were `15,000,
`25,000 and `50,000 respectively. While going through the books of accounts Mona noticed that the profit had been
distributed in the ratio of 1 : 1 : 2. When she enquired from Priyanka about this, Priyanka answered that since she looked
after the business she should get more profit. Mona disagreed and it was decided to distribute profit equally retrospectively
for the last three years.
You are required to make necessary corrections in the books of accounts of Mona, Nisha and Priyanka by passing an
adjustment entry.

Solution: Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Priyanka’s Capital A/c Dr. 15,000
To Mona’s Capital A/c 7,500
To Nisha’s Capital A/c 7,500
(Being Capital accounts of Partners’ adjusted)
Working notes: Profits for last three years = 15,000 + 25,000 + 50,000 = 90,000
Mona Nisha Priyanka
Profit already distributed (Dr.) 22,500 22,500 45,000
To be distributed as equally (Cr.) 30,000 30,000 30,000
Net Effect Cr. 7,500 Cr. 7,500 Dr. 15,000
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.69

Competency Based Illustrations

ILLUSTRATION 35
Neena and Sara were partners in a firm with fixed capitals of ` 5,00,000 and ` 4,00,000 respectively. It was discovered that
interest on capital @ 6% p. a. was credited to the partners for the two years ending 31st March, 2024 and 31st March, 2025
whereas there was no such provision in the partnership deed. Their profit sharing ratio during the last two years was:
2023-24  4 : 5        2024-25  5 : 1
Showing your workings clearly, pass the necessary adjustment entry to rectify the error.
Solution: Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
2025 Sara’s Current A/c Dr. 9,000
March To Neena’s Current A/c 9,000
31 (Interest on Capital wrongly credited, now rectified)
Working Notes: Adjustment Table
Particulars Neena (`) Sara (`) Total (`)
Interest on capital @ 6% p.a. for 2 years Dr. 60,000 48,000 1,08,000
2023-24: Profit (less credited) now Cr. (4 : 5) Cr. 24,000 30,000 54,000
2024-25: Profit (less credited) now Cr. (5 : 1) Cr. 45,000 9,000 54,000
Total profit to be credited Cr. 69,000 39,000 1,08,000
Net Effect/Adjustment 9,000 Cr. 9,000 Dr. –

ILLUSTRATION 36
A and B are partners sharing profits and losses in the ratio of 3 : 2. Their capitals on 31st March, 2025 after all adjustments
stood at ` 1,65,500 and ` 1,27,600 respectively. Profits amounting to `50,000 for the year 2024-25 were distributed after
charging interest on drawings @ 12% p.a. During the year A withdrew ` 15,000 at the beginning of every quarter and B
withdrew ` 40,000 during the year. Partnership deed is silent on interest on drawings but provides for interest on Capital @ 5%
p.a. Interest on Capital has not been provided. Showing your workings, pass the adjustment entry to rectify the above errors.
Solution: Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
2025 A’s Capital A/c Dr. 140
31 Mar. To B’s capital A/c 140
(Omission of interest on capital, now rectified)
Working Notes: Calculation of Opening Capitals and Interest on capitals:
Particulars A (`) B (`)
Closing Capitals 1,65,500 1,27,600
Add: Drawings 60,000 40,000
Add: Interest on drawings 4,500 2,400
Less: Profits (30,000) (20,000)
Opening Capitals 2,00,000 1,50,000
Interest on Capital @ 5% p.a. 10,000 7,500
Interest on Drawings: A: 12/100 × `60,000 × 7.5/12 = `4,500; B: 12/100 × `40,000 × 6/12 = `2,400
1.70 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Adjustment Table
Particulars A (`) B (`) Total (`)
Omission of Interest on capital Cr. 10,000 7,500 17,500
Cancellation of Interest on drawings Cr. 4,500 2,400 6,900
Total amount of profit to be credited Cr. 14,500 9,900 24,400
Loss to be debited (3 : 2) Dr. 14,640 9,760 24,400
Net Effect/Adjustment 140 Dr. 140 Cr. –

ILLUSTRATION 37
Mannu and Srishti are partners in a firm sharing profit in the ratio of 3 : 2. Their Balance Sheet on 31 March 2025 was as follows:
Liabilities Amount (`) Assets Amount (`)
Mannu’s Capital 30,000 Drawings: Mannu 4,000
Srishti’s Capital 10,000 40,000 Srishti 2,000 6,000
Other Assets 34,000
40,000 40,000
Profit for the year ending on March 31, 2025 was `5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on
capital and @ 6% p.a. on drawings was inadvertently enquired. Give the adjustment entry. Show your workings clearly.
Solution: Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Srishti’s Capital A/c Dr. 288
31 Mar. To Mannu’s Capital A/c 288
(Adjustment for omission of interest on capitals and drawings)
Working Notes: (i) Calculation of Opening Capitals and Interest on Capitals:
Details Mannu (`) Srishti (`)
Closing Capital 30,000 10,000
Less: Profit distributed (3,000) (2,000)
Opening Capital 27,000 8,000
Interest on Capital @ 5% p.a. 1,350 400
(ii) Adjustment Table
Details Mannu (`) Srishti (`) Total (`)
Profit already distributed, now cancelled Dr. 3,000 2,000 5,000
Interest on Drawings @6% p.a. for 6 months Dr. 120 60 180
Total Dr. 3,120 2,060 5,180
Interest on Capitals Cr. 1,350 400 1,750
Share of Profits Cr. 2,058 1,372 3,430
Total Cr. 3,408 1,772 5,180
Adjustment/Net Effect Cr. 288 Dr. 288 –

ILLUSTRATION 38
A, B and C were partners. Their fixed capitals were `60,000, `40,000 and `20,000 respectively. Their profit sharing ratio
was 2 : 2 : 1. According to the partnership deed, they were entitled to interest on capital @ 5% p.a. In addition, B was
also entitled to draw a salary of `1,500 per month. C was entitled to a commission of 5% on the profits after charging the
interest on capital, but before charging the salary payable to B. The net profits for the year, `80,000, were distributed in the
ratio of their capitals without providing for any of the above adjustments.
Showing your workings clearly, pass the necessary adjustment entry.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.71

Solution: Adjustment Entry

Date Particulars L.F. Dr. (`) Cr. (`)
A’s Current A/c Dr. 16,080
To B’s current A/c 14,253
To C’s current A/c 1,827
(Being adjustment entry passed through current A/c of partners)
Working Notes: Adjustment Table
Particulars A (`) B (`) C (`) Total (`)
Profit already distributed in wrong ratio 3 : 2 : 1 Dr. 40,000 26,667 13,333 80,000
Omission of interest on capital Cr. 3,000 2,000 1,000 6,000
Omission of salary Cr. – 18,000 – 18,000
Omission of commission Cr. – – 3,700* 3,700
Share of profit (2 : 2 :1) Cr. 20,920 20,920 10,460 52,300
Total Cr. 23,920 40,920 15,160 80,000
Net Effect 16,080 (Dr.) 14,253 (Cr.) 1,827 (Cr.) –
*C’s commission = (80,000– 6,000) × 5% = `3,700

ILLUSTRATION 39
Naveen, Qadir and Rajesh were partners doing an electronic goods business in Uttarakhand. After the accounts of partnership
were drawn up and closed, it was discovered that interest on capital has been allowed to partners @ 6% p.a. for the years
ending 31st March, 2024 and 2025, although there is no provision for interest on capital in the partnership deed. On the
other hand, Naveen and Qadir were entitled to a salary of `3,500 and `4,000 per quarter respectively, which has not been
taken into consideration. Their fixed capitals were `4,00,000, `3,60,000 and `2,40,000 respectively.
Year ending on Profit Sharing Ratio
31st March, 2024 3:2:1
31st March, 2025 5:3:2
Pass necessary adjusting entry for the above adjustments on 1st April, 2025. Show your workings clearly.
Solution: Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Rajesh’s Current A/c Dr. 17,800
1 April To Naveen’s Current A/c 10,000
To Qadir’s Current A/c 7,800
(interest on Capital wrongly allowed)
Working notes: Adjustment Table
Particulars Naveen (`) Qadir (`) Rajesh (`) Total (`)
A. Cancellation of Interest on Capital for 2 years 48,000 43,200 28,800 1,20,000
Dr.
(24,000 × 2) (21,600 × 2) (14,400 × 2 ) (60,000 × 2)
B. Omission of Salary for 2 years, now credited Cr. 28,000 32,000 60,000
–
(14,000 × 2) (16,000 × 2) (30,000 × 2)
Difference (A – B) Dr. 20,000 11,200 28,800 60,000
(10,000 × 2) (5,600 × 2) (14,400 × 2 ) (30,000 × 2)
Profit less credited, now credited:
2023-24 (3 : 2 : 1) Cr. 15,000 10,000 5,000 30,000
2024-25 (5 : 3 : 2) Cr. 15,000 9,000 6,000 30,000
Total Cr. 30,000 19,000 11,000 60,000
Net Effect Cr. 10,000 Cr. 7,800 Dr. 17,800 –
1.72 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

ILLUSTRATION 40
Ajay, Binay and Chetan were partners sharing profits in the ratio of 3 : 3 : 2. The partnership deed provided for the following:
(i) Salary of `2,000 per quarter to Ajay and Binay. (ii) Chetan was entitled to a commission of `8,000. (iii) Chetan was
guaranteed a profit of `50,000 p.a.
The profit of the firm for the year ending on 31st March 2025 was `1,50,000 which was distributed among Ajay, Binay and
Chetan in the ratio of 2:2:1, without taking into consideration the provisions of partnership deed. Pass necessary rectifying
entry for the above adjustments in the books of the firm. Show your workings clearly.
Solution: Journal Entry
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Ajay’s Capital A/c Dr. 14,000
31 Mar. Binay’s Capital A/c Dr. 14,000
To Chetan’s Capital A/c 28,000
(Adjustment of omissions of salary, commission and guaranteed profit)
Working Notes: Adjustment Table
Particulars Ajay Binay Chetan Total (`)
Profit distributed in 2:2:1, now debited Dr. 60,000 60,000 30,000 1,50,000
Salary Cr. 8,000 8,000    – 16,000
Commission Cr. –   – 8,000 8,000
Share of profit* Cr. 38,000 38,000 50,000 1,26,000
Total Cr. 46,000 46,000 58,000 1,50,000
Net Effect 14,000 (Dr.) 14,000 (Dr.) 28,000 (Cr.) –
*Divisible profit = `1,26,000 to be distributed in 3 : 3 : 2.
Ajay’s share = `47,250; Binay’s share = `47,250 and Chetan’s share = `31,500
Deficiency in Chetan’s share of profit = 50,000 – 31,500 = `18,500, to be borne by Ajay and Binay in 3:3, i.e. equally.
Net share of divisible profit:
Ajay: 47,250 – 9,250 = `38,000
Binay: 47,250 – 9,250 = `38,000
Chetan: 31,500 + 18,500 = `50,000

Multiple Choice Questions (MCQs) 1.6

Q.1 Ikka, Dukka and Teeka were partners sharing profits and losses in the ratio of 2 : 2 : 1. Their fixed Capital balances
were ` 5,00,000; ` 4,00,000 and ` 3,00,000 respectively. For the year ending on March 31, 2025 profits of ` 84,000
were distributed without providing for Interest on Capital @ 10% p.a as per the partnership deed.
While passing an adjustment entry, which of the following is correct?
(a) Teeka will be debited by ` 4,200 (b) Teeka will be credited by ` 4,200
(c) Teeka will be credited by ` 6,000 (d) Teeka will be debited by ` 6,000
Q.2 Sangeet and Suman were partners in a firm sharing profits and losses in the ratio of 7 : 3. During the year ending on
31.3.2025 the firm earned a profit of `1,00,000. After preparation of the financial statements it was discovered that
salary to Suman @`3,000 per month had been omitted. The necessary adjustment entry for the same will be:
(a) Profit and Loss Appropriation A/c Dr. 36,000
To Suman’s Capital A/c 36,000
(b) Sangeet’s Capital A/c Dr. 36,000
To Suman’s Capital A/c 36,000
(c) Profit and Loss Adjustment A/c Dr. 36,000
To Suman’s Capital A/c 36,000
(d) Sangeet’s Capital A/c Dr. 25,200
To Suman’s Capital A/c 25,200
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.73

Q.3 Ajay and Vinod are partners in the ratio of 3:2. Their fixed Capital were `3,00,000 and `4,00,000 respectively. After the
close of accounts for the year it was observed that the Interest on Capital which was agreed to be provided at 5% pa was
erroneously provided at 10%p.a. By what amount will Ajay’s account be affected if partners decide to pass an adjustment
entry for the same?
(a) Ajay’s Current A/c will be Debited by `15,000. (b) Ajay’s Current A/c will be Credited by `6,000.
(c) Ajay’s Current A/c will be Credited by `35,000. (d) Ajay’s Current A/c will be Debited by `20,000.
Q.4 Ram, Mohan and Sohan were partners sharing profit in the ratio of 2:1:1. Interest on Ram’s drawings was charged`1,080
and on Mohan’s drawings `1,440 ; whereas the partnership deed was silent about interest on drawings. The adjustment
entry to rectify the error will be:
(a) Debit Ram’s Capital and Sohan’s Capital by `180 and `630 respectively; Credit Mohan’s Capital by `810
(b) Debit Ram’s Capital and Sohan’s Capital by `630 and `180 respectively; Credit Mohan’s Capital by `810
(c) Debit Mohan’s Capital by `810; Credit Ram’s Capital and Sohan’s Capital by `180 and `630 respectively
(d) Debit Mohan’s Capital by `810; Credit Ram’s Capital and Sohan’s Capital by `630 and `180 respectively
Q.5 M and N were partners in a firm sharing profits equally. Their fixed capitals were `1,00,000 and `50,000 respectively.
The partnership deed provided for interest on capital at the rate of 10% per annum but it was wrongly credited by 8% p.a.
The adjustment entry to rectify the error will be:
(a) Debit Q’s Capital A/c by `500 and Credit P’s Capital A/c by`500
(b) Debit Q’s Current A/c by `500 and Credit P’s Current A/c by`500
(c) Debit P’s Capital A/c by `500 and Credit Q’s Capital A/c by`500
(d) Debit P’s Current A/c by `500 and Credit Q’s Current A/c by`500

A NSWERS
1. (b) 2. (d) 3. (b)
4. (a) Debit Ram’s Capital and Sohan’s Capital by `180 and `630 respectively; Credit Mohan’s Capital by `810
Explanation: Adjustment Table
Particulars Ram (`) Mohan (`) Sohan (`) Total
Interest on drawings, wrongly debited, now credited 1,080 1,440 – 2,520
Loss to be debited (1,260) (630) (630) (2,520)
Net Effect (180) Dr. 810 Cr. (630) Dr. –
5. (b) Debit Q’s Current A/c by `500 and Credit P’s Current A/c by `500
Explanation: Adjustment Table
Particulars Ram (`) Mohan (`) Sohan (`) Total
Interest on drawings, wrongly debited, now credited 1,080 1,440 – 2,520
Loss to be debited (1,260) (630) (630) (2,520)
Net Effect (180) Dr. 810 Cr. (630) Dr. –

Numerical Ques
Questions
tions (for Practice) 1.6
Q.1 Ajay, Manish and Sachin were partners sharing profits in the ratio 5 : 3 : 2. Their Capitals were ` 6,00,000; ` 8,00,000
and `11,00,000 as on April 01, 2024. As per Partnership deed, Interest on Capitals were to be provided @ 10% p.a.
For the year ending on March 31, 2025, Profits of ` 2,00,000 were distributed without providing for Interest on
Capitals. Pass an adjustment entry and show the workings clearly.
[Ans. Debit Ajay’s Capital A/c `52,000 and Credit Manish’s Capital A/c and Sachin’s Capital A/c by `4,000 and
`48,000 respectively.]
1.74 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.2 Atul and Gita were partners in a firm sharing profits and losses in the ratio of 3:2. Their fixed capitals were `4,00,000 and
`2,00,000 respectively. After the accounts for the year were prepared, it was noticed that interest on capital @ 6% p.a., as
provided in the partnership deed, was not credited to the capital accounts of partners before distribution of profits.
Pass the necessary adjusting Journal entry. Show your workings clearly.
[Ans. Debit Gita’s Current A/c `2,400 and Credit Atul’s Current A/c `2,400]
Q.3 Anand, Ridhi and Shyam were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Their fixed capitals
were `1,00,000, `60,000 and `40,000 respectively. For the year ending on 31st March, 2025, interest on capital was
credited to their capital accounts @ 9% p.a instead of 7% p.a. Pass the necessary adjusting Journal entry.
[Ans. Debit Anand’s Current A/c `400 and Credit Ridhi’s Current A/c `400]
Q.4 Meera, Neena and Ojas were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. The partnership deed
provided for charging interest on drawings @ 10% p.a. The drawings of Meera, Neena and Ojas during the year ending
on 31st March, 2025 amounted to `60,000, `50,000 and `40,000 respectively. After the final accounts had been
prepared, it was discovered that interest on drawings had not been taken into consideration.
Pass the necessary adjustment entry.
[Ans. Debit Neena’s Capital A/c and Ojas’s Capital A/c by `250 and `500 respectively; Credit Meera’s Capital A/c by `750]
Q.5 Ram, Mohan and Sohan were partners sharing profit in the ratio of 2:1:1. Ram withdrew ` 3,000 every month and
Mohan withdrew ` 4,000 every month. Interest on drawing @ 6%p.a. was charged whereas the partnership deed was
silent about interest on drawings. Showing your working clearly, pass the necessary adjustment entry to rectify the error.
[Ans. Debit Ram’s Capital A/c and Sohan’s Capital A/c by `180 and `630 respectively; Credit Mohan’s Capital A/c by `810]
Q.6 Viraf, Virat and Vaibhav were partners with capitals of `2,30,000, `1,20,000 and `2,40,000. After distributing the
profit of `5,20,000 for the year ending on 31st March 2025 in their agreed ratio of 3 : 2 : 1 it was observed that
Interest on capital was provided at 14% p.a. instead of 10% p.a. You are required to pass adjustment entry.
[Ans. Debit Vaibhav’s Capital A/c `5,667 and Credit Viraf ’s Capital A/c and Virat’s Capital A/c by `2,600 and `3,067
respectively.]
Q.7 Kumar and Raja were partners in a firm sharing profits in 7 : 3. Their fixed capitals were: Kumar`9,00,000 and Raja
`4,00,000. Profit for the year was distributed without providing for Interest on capital @ 9% p.a., Kumar’s salary
`50,000 per year and Raja’s salary `3,000 per month. Profit for the year ending on 31.3.2025 was `2,78,000. Pass the
adjustment entry.
[Ans. Debit Kumar’s Current A/c `11,100 and Credit Raja’s Current A/c `11,100]
Q.8 On 31st March, 2025, the capitals of Raghav and Diya stood at `4,00,000 and `3,00,000 respectively, after the
necessary adjustment in respect of drawings and net profit. Subsequently, it was discovered that interest on capital @
10% p.a had been omitted. The Net Profit for the year ending on 31st March, 2025 amounted to `1,00,000. During
the year ending on 31st March, 2025, Raghav’s drawings were `2,000 drawn at the beginning of each month, while
Diya s drawings were `3,000 drawn at the beginning of each quarter. Pass the necessary adjustment entry.
[Ans. Debit Diya’s Capital A/c `5,600 and Credit Raghav’s Capital A/c `5,600]
Q.9 Ram and Shyam were partners in a firm sharing profits in the ratio of 3 : 5. Their Fixed Capitals were: Ram `5,00,000
and Shyam `9,00,000. After the accounts of the year had been closed, it was found that interest on capital at 10%per
annum as provided in the partnership agreement has not been credited to the Capital Accounts of the partners. Pass a
necessary entry to rectify the error.
[Ans. Debit Ram’s Current A/c by `2,500 and Credit Shyam’s Current A/c by `2,500]
Q.10 X, Y and Z are partners sharing profits and losses in the ratio of 3:2:1. After the final accounts have been prepared, it was
discovered that interest on drawings @ 5% p.a. had not been taken into consideration. The drawings of the Partners were:
X `15,000; Y `12,600; Z `12,000.Give the necessary adjusting journal entry.
[Ans. Debit Z’s Capital A/c `135 and Credit X’s Capital A/c and Y’s Capital A/c by `120 and `15 respectively.]
Q.11 P and Q were partners in a firm sharing profits equally. Their fixed capitals were `1,00,000 and `50,000 respectively. The
partnership deed provided for interest on capital at the rate of 10% per annum but it was wrongly credited by 8% p.a.
Pass necessary adjustment entry to rectify the error.
[Ans: Debit Q’s Current A/c by `500 and Credit P’s Current A/c by `500]
Q.12 Pass necessary rectifying journal entries for the following omissions committed while preparing Profit and Loss
Appropriation Account. You are also required to show your workings clearly.
(i) A, B and C were partners sharing profits and Losses equally. Their fixed capitals were A `4,00,000; B `5,00,000 and
C `6,00,000. The partnership deed provided that interest on partners’ capital will be allowed @10% per annum.
The same was omitted.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.75

(ii) P, Q and R were partners in a firm sharing profits and loses in the ratio of 2 : 2 : 1. Their partnership deed provided
that interest on partners’ drawings will be charged @ 18% p.a. Interest on the partners’ drawings was `1,000, `500
and 2,000 respectively. The same was omitted.
[Ans: (i) Debit A’s Current A/c by `10,000 and Credit C’s Current A/c by `10,000
(ii) Debit R’s Capital A/c by `1,300; Credit P’s Capital A/c and Q’s Capital A/c by `400 and `900]
Q.13 The firm of Harry, Porter and Larry, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for some years.
Larry wants to get equal share in the profits with Harry and Porter and he further wishes that the change in the profit
sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this
account. The profits for the last three years were: 2022-23 `22,000; 2023-24 `24,000 and 2024-25 `29,000. Pass a
single adjustment journal entry. Show your workings clearly.
[Ans. Debit Harry’s Capital A/c and Porter’s Capital A/c by `5,000 each and Credit Larry’s Capital A/c by `10,000]
Q.14 Anju, Manju and Mamta are partners whose fixed capitals were `10,000, `8,000 and `6,000, respectively. As per the
partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the same have not
been made for the last three years. The profit sharing ratio during three years are given below:
Year Profit Sharing Ratio
2022-23 4:3:5
2023-24 3:2:1
2024-25 1:1:1
Make necessary adjustment entry at the beginning of the fourth year i.e. 01 April 2025.
[Ans: Debit Mamta’s Current A/c by `200 and Credit Anju’s and Manju’s Current A/cs by `100 each]
Q.15 Mudit and Uday are partners in a firm sharing profits in the ratio 2 : 3. Their capital accounts as on April 1, 2024
showed balances of `70,000 and `60,000 respectively. The drawings of Mudit and Uday during the year 2024-25 were
`16,000 and `12,000 respectively. Both the amounts were withdrawn on 1st January 2025. It was subsequently found
that the following items had been omitted while preparing the final accounts for the year ending on 31st March 2025.
(a) Interest on capitals @ 6% p.a.; (b) Interest on drawings @ 6% p.a.;
(c) Mudit was entitled to a commission of `4,000 for the whole year.
Showing your workings clearly, pass a rectifying entry in the books of the firm.
[Ans. Debit Uday’s Capital A/c `3,408 and Credit Mudit’s Capital A/c `3,408]
Q.16 Mita and Usha are partners in a firm sharing profits in the ratio 2 : 3. Their capital accounts as on April 1, 2024
showed balances of `1,40,000 and `1,20,000 respectively.
The drawings of Mita and Usha during the year 2024-25 were `32,000 and `24,000 respectively. Both the amounts
were withdrawn on 1st January 2025. It was subsequently found that the following items had been omitted while
preparing the final accounts for the year ending on 31st March, 2025.
(a) Interest on capitals @ 6% p.a. (b) Interest on drawings @ 6% p.a.
(c) Mita was entitled to a commission of `8,000 for the whole year.
Showing your workings clearly, pass a rectifying entry in the books of the firm.
[Ans: Debit Usha’s Capital A/c by `6,816 and Credit Mita’s Capital A/c by `6,816]
Q.17 The net profit of X, Y and Z for the year ending on March 31, 2025 was `60,000 and the same was distributed among
them in their agreed ratio of 3 : 1 : 1. It was subsequently discovered that the following transactions were not recorded
in the books: (i) Interest on Capital @ 5% p.a. (ii) Interest on drawings amounting to X `700, Y `500 and Z `300. (iii)
Partner’s Salary : X `1,000 p.a., Y `1,500 p.a.
The capital accounts of partners were fixed as: X `1,00,000, Y `80,000 and Z `60,000.
Record the adjustment entry. Show your workings clearly.
[Ans: Debit X’s Current A/c by 2,500 and Credit Y’s and Z’s Current A/cs by `2,400 and `100 respectively]
Q.18. Ravi and Mohan were partners in a firm sharing profits in the ratio of 7:5. Their respective fixed capitals were Ravi
`10,00,000 and Mohan `7,00,000. The partnership deed provided for the following:
(i) Interest on Capital @ 12% p.a.
(ii) Ravi’s salary `6,000 per month and Mohan’s salary `60,000 per year.
The profit for the year ending on 31.3.2025 was `5,04,000 which was distributed equally, without providing for the
above. Pass an adjustment entry.
[Ans: Debit Mohan’s Current A/c by `38,000 and Credit Ravi’s Current A/c by `38,000]
1.76 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.19 A, B & C were partners. Their fixed capitals were `30,000; `20,000 and `10,000 respectively, According to the
partnership deed they were entitled to an interest on capital at 5% p.a. In addition B was also entitled to draw a salary
of `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 `30,000, distributed in the ratio of their
capitals without providing for any of the above adjustments. The profits were to be shared in the ratio of 2:2:1.
Pass the necessary adjustment entry showing the workings clearly.
[Ans: Debit A’s Current A/c by `5,640 and Credit B’s and C’s Current A/cs by `4,860 and `780 respectively]
Q.20 On 31st March, 2025, the balance in the capital accounts of Asha, Nisha and Disha after making adjustments for
profits and drawings were `1,50,000, `1,20,000 and `90,000 respectively. Subsequently, it was discovered that interest
on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 10% p.a.
Interest on drawings was also to be charged @ 10% p.a. The drawings during the year were : Asha `50,000, Nisha
`60,000 and Disha `30,000. The net profit for the year ending on 31st March, 2025 amounted to `1,00,000. The
profit sharing ratio was 2: 2: 1. Pass the necessary adjustment entry. Also show your workings clearly.
[Ans. Debit Nisha’s capital A/c `2,200 and Credit Asha’s capital A/c and Disha’s capital A/c by `300 and `1,900
respectively.]
Q.21 On March 31st, 2025, the balances in the capital accounts of Saroj, Mahinder and Umar after making adjustments
for profits and drawings etc. were `80,000, `60,000 and `40,000 respectively. Subsequently it was discovered that the
interest on capital and drawings has been omitted. The profit for the year ending on 31st March, 2025 was `80,000.
During the year Saroj and Mahinder each withdrew a sum of `24,000 in equal installments in the end of each month
and Umar withdrew `36,000. The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be
allowed was @10% p.a. The profit sharing ratio among partners was 4 : 3 : 1.
Showing your working clearly, pass the necessary rectifying entry.
[Ans: Debit Saroj’s and Mahinder’s Capital A/cs by `2,350 and `1,300 respectively and Credit Umar’s Capital A/c by `3,650]
Q.22 On March 31st, 2025, the balances in the capital accounts of Esha, Manav and Daman after making adjustments for
profits and drawings were `3,20,000, `2,40,000 and `1,60,000 respectively. Subsequently, it was discovered that the
interest on capital and drawings had been omitted. The profit for the year ending on 31st March, 2025 was `90,000.
During the year, Esha and Manav each withdrew a sum of `48,000 in equal instalments in the middle of every month
and Daman withdrew `60,000. The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be
allowed @ 10% p.a. The profit sharing ratio of the partners was 3 : 2 : 1.
Showing your workings clearly pass the necessary rectifying entry.
[Ans. Debit Esha’s and Manav’s Capital A/cs by `6,250 and `300 respectively and Credit Daman’s Capital A/c by `6,550]
Q.23 On March 31st, 2025, the balances in the capital accounts of Ekta, Ankit and Chahat after making adjustments for
profits and drawings were `1,50,000, `2,10,000 and `2,70,000 respectively. Subsequently it was discovered that the
interest on capital and drawings had been omitted. The profit for the year ending on 31st March, 2025 was `1,20,000.
During the year Ekta withdrew `24,000 and Ankit and Chahat each withdrew a sum of `24,000 in equal installments
in the middle of each quarter. The interest on drawings is to be charged @ 5% p.a. and interest on capital is to be
allowed @ 10% p.a. The profit sharing ratio among the partners was 1 : 2 : 3.
Showing your working notes clearly, pass the necessary rectifying entry.
[Ans. Debit Chahat’s Capital A/c by `5,400 and Credit Ekta’s Capital A/c by `5,400.]
Q.24 Puneet and Akshara were partners in a firm sharing profits and losses in the ratio of 2:3. The following was the balance
sheet of the firm as on 31st March, 2025.
Liabilities Amount (`) Assets Amount (`)
Capital: Puneet 90,000 2,00,000 Sundry Assets 2,00,000
Akashra 1,10,000
2,00,000 2,00,000
The profits `40,000 for the year ending on 31st March 2025 were divided between the partners without allowing
interest on capital @ 5% p.a. and commission to Akshara @ `1,000 per quarter. The drawings of the partners during
the year were: Puneet `2,500 per month; Akshara `10,000 per quarter. Showing your workings clearly, pass necessary
adjustment entry in the books of the firm.
[Ans. Debit Puneet’s capital A/c `1,000 and Credit Akshara’s capital A/c `1,000 respectively.]
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.77

Q.25 X and Y were partners in a firm sharing profits in 3 : 2. On 31.3.2025 their Balance Sheet was as follows :
Liabilities Amount (`) Assets Amount (`)
Capitals: X 1,30,000 Sundry Assets 2,30,000
Y 1,00,000 2,30,000
2,30,000 2,30,000
The profit of the year ending on 31.3.2025 `85,000 was divided between the partners without allowing interest on
capital at 12% per annum and a salary to X at `750 per month. During the year X withdrew `18,000 and Y `9,000.
Pass a single journal entry to rectify the error.
[Ans: Debit Y’s Capital A/c by `2,856 and Credit X’s Capital A/c by `2,856]
Q.26 Himanshu and Vikrant are partners in a firm and share profits equally. Their Balance Sheet as on March 31, 2025 is as
follows:
Liabilities Amount (`) Assets Amount (`)
Capitals: Himanshu 2,00,000 Fixed Assets 3,60,000
Vikrant 1,40,000 3,40,000 Current Assets 40,000
Creditors 60,000
4,00,000 4,00,000
During the year 2024-25, Himanshu’s Drawings were `30,000 and Vikrant’s Drawings were `40,000. During the year
2024-25 the firm earned profits of `1,00,000. While distributing profits for the year 2024-25, interest on capital @5 %
per annum and interest on drawings @ 12 % per annum were ignored.
Showing your workings clearly, pass necessary rectifying entry.
[Ans: Debit Vikrant’s Capital A/c by `1,550 and Credit Himanshu’s Capital A/c by `1,550]
Q.27 K and L were partners in a firm sharing profits in the ratio of 3 : 2. On 1.4.2025 their Balance Sheet was as follows:
Liabilities Amount (`) Assets Amount (`)
Capitals: K 80,000 Sundry Assets 1,80,000
L 1,00,000 1,80,000
1,80,000 1,80,000
The profit for the year ending on 31.3.2025, `90,000 was divided between the partners without allowing interest on
capital at 6% per annum and a salary to K at `4,000 per quarter. During the year K withdrew `20,000 and L withdrew
`27,000.
Pass a single adjustment entry to rectify the error.
[Ans. Debit L’s Capital A/c by `4,228 and Credit K’s Capital A/c by `4,228]
Q.28 Eden and Ivon were partners in a firm sharing profits and losses in the ratio of 5:4. Their capitals were `75,000 and
`90,000 respectively. After the accounts for the financial year ending on March 31, 2025 have been prepared, it is
observed that interest on capital @ 10% per annum and salary to Eden @ `9,000 per annum, as provided in the
partnership deed has not been credited to the partners’ capital accounts before distribution of profits. You are required
to give necessary rectifying entries using Profit and Loss Adjustment Account.
Q.29 Sharma and Verma were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their fixed capitals were
`14,00,000 and `10,00,000 respectively. The partnership deed provided for the following:
(i) Interest on capital @ 10% per annum.
(ii) Interest on drawings @ 12% per annum.
During the year ending on 31.03.2025, Sharma withdrew `2,00,000 and Verma withdrew `1,00,000. After preparing
the accounts for the year ending on 31.03.2025, it was realised that interest on capital was not allowed and interest on
drawings was not charged.
Showing your working notes clearly pass necessary journal entries in the books of the firm to rectify the above error.
Q.30 Jain and Gupta were partners in a firm sharing profits in 3 : 2 ratio. Their fixed capitals were Jain `1,00,000 and
Gupta `1,50,000. After the accounts of the year had been closed it was discovered that interest on capital at 10% per
annum as provided in the partnership agreement has not been credited to the capital accounts of the partners before
distribution of profits.
Pass the necessary journal entries to rectify the error.
1.78 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Competency Based Questions 1.6

Q.1 Prem, Param and Priya were partners in a firm. Their fixed capitals were Prem `2,00,000; Param `3,00,000 and Priya
`5,00,000. They were sharing profits in the ratio of their capitals. The firm was engaged in the sale of ready-to-eat food
packets at three different locations in the city, each being managed by Prem, Param and Priya. The outlet managed by
Prem was doing more business than the outlets managed by Param and Priya. Prem requested Param and Priya for a
higher share in the profits of the firm which Param and Priya accepted. It was decided that the new profit sharing ratio
will be 2 : 1 : 2 and its effect will be introduced retrospectively for the last four years. The profits of the last four years
were `2,00,000; `3,50,000; `4,75,000 and `5,25,000 respectively.
Showing your calculations clearly, pass a necessary adjustment entry to give effect to the new agreement between Prem,
Param and Priya.
[Ans. Debit Param’s and Priya’s Current A/cs by `1,55,000 each and Credit Prem’s Current A/c by `3,10,000.]
Q.2 Kavita, Meenakshi and Gauri are partners doing a paper business in Ludhiana. After the accounts of partnership have
been drawn up and closed, it was discovered that for the years ending 31st March 2024 and 2025, interest on capital
has been allowed to partners @ 6% p.a. although there is no provision for interest on capital in the partnership deed.
Their fixed capitals were 2,00,000; 1,60,000 and 1,20,000 respectively.
Year Profit Sharing Ratio
31 March 2024 3:2:1
31 March 2025 5:3:2
You are required to give necessary adjusting entry on April 1, 2020.
[Ans: Dr. Meenakshi’s and Gauri’s Current A/cs by `960 and `3,840 respectively and Cr. Kavita’s Current A/c by `4,800]
Q.3 Alok and Manish were partners sharing profits and losses in the ratio of 5:3. For the year ending on March 31, 2025 it
was observed that profits of `80,000 were distributed equally without providing for Salary of ` 5,000 p.m. to Alok and
Commission of ` 40,000 to Manish. You are required to pass necessary adjustment entry. Show working notes clearly.
[Ans. Debit Manish’s Capital A/c `8,000 and Credit Alok’s Capital A/c `8,000]
Q.4 The partners of a firm, Alia, Bhanu and Chand distributed the profits for the year ending on 31st March, 2025,
`80,000 in the ratio of 3:3:2 without providing for the following adjustments:
(a) Alia and Chand were entitled to a salary of `1,500 each p.m.
(b) Bhanu was entitled for a salary of `4,000 p.a.
Pass the necessary Journal entry for the above adjustments in the books of the firm. Show workings clearly.
[Ans. Debit Bhanu’s Capital A/c `11,000 and Credit Chand’s Capital A/c and Alia’s Capital A/c by `3,000 and `8,000
respectively]
Q.5 On March 31, 2025 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for
profits, drawing, etc; were `80,000, `60,000 and `40,000 respectively. Subsequently, it was discovered that interest
on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 5% p.a. The
drawings during the year were Eluin `20,000; Monu, `15,000 and Ahmed, `9,000. Interest on drawings chargeable to
partners were Eluin `500, Monu `360 and Ahmed `200. The net profit during the year amounted to `1,20,000. The
profit sharing ratio was 3:2:1.
Record necessary adjustment entry. Show your workings clearly.
[Ans: Debit Eluin’s Capital A/c by `570 and Credit Monu’s and Ahmed’s Capital A/cs by `10 and `560]
Q.6 Anil, Vineet and Vipul were partners in a firm manufacturing food items. They were sharing profits in the ratio of
5 : 3 : 2. Their capitals on 1st April, 2024 were `4,00,000, `5,00,000 and `9,00,000 respectively. After the floods in
Uttranchal, all partners decided to help the flood victims personally. For this Anil withdrew `30,000 from the firm on 30th
September, 2024. Vineet instead of withdrawing cash from the firm took some food items amounting to `25,000 from the
firm and distributed those to flood victims. On the other hand, Vipul withdrew `2,50,000 from his capital on 1st January,
2025 and built a shelter-home to help flood victims. The partnership deed provides for charging interest on drawings @6%
p.a. After the final accounts were prepared it was discovered that interest on drawings had not been charged.
Give the necessary adjusting entry and show the working notes clearly.
[Ans. Debit Anil’s Capital A/c by `75, Vineet’s Capital A/c by `255 and Credit Vipul’s Capital A/c by `330.]
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.79

Q.7 On March 31st, 2025, the balances in the capital accounts of Alka, Hardik and Ramneek after making adjustment for
profits and drawings etc. were `9,00,000, `5,00,000 and `3,00,000 respectively. Subsequently it was discovered that the
interest on capital and drawings has been omitted. The profit for the year ending on 31st March, 2025 was `1,80,000.
During the year Alka and Ramneek each withdrew a sum of `40,000, Hardik withdrew a total of `60,000 in equal
installments in the middle of each quarter. Interest on drawings was to be charged @ 5% p.a. and interest on capital was
to be allowed @ 10% p.a. The profit sharing ratio was 3 : 1 : 1. Pass the necessary rectifying entry with working notes.
[Ans. Debit Alka’s Capital A/c by `15,300, Ramneek’s Capital A/c by `3,100 and Credit Hardik’s Capital A/c by `18,400]
Q.8 Rajiv and Sanjeev were partners in a firm. Their partnership deed provided that the profits shall be divided as:
First `20,000 to Rajeev and the balance in the ratio of 4 : 1.
The profits for the year ending on 31st March, 2025 were `60,000 which had been distributed among the partners.
On 1-4-2024 their capitals were Rajeev `90,000 and Sanjeev `80,000. Interest on capital was to be provided @ 6% p.a.
While preparing the profit and loss appropriation interest on capital was omitted.
Pass necessary rectifying entry for the same. Show your workings clearly.
[Ans. Debit Rajiv’s Capital A/c by `2,760 and Credit Sanjeev’s Capital A/c by `2,760]

CASE STUDY Based Multiple Choice Questions (MCQs)

CASE STUDY 1: Read the following hypothetical situation and answer question no. 1 and 2.
Arjun, Nakul and Sahdev are partners running a garments business. They do not have a partnership deed. On 1st April,
2024, their capitals were ` 6,00,000, `4,00,000 and `3,00,000 respectively. During the year, they withdrew `20,000,
`15,000 and `10,000 respectively. On 1st January, 2025, Nakul gave a loan of `80,000 to the firm and is claiming interest
on loan @ 10% p.a. for the year ending on 31st March, 2025. Arjun being an active partner is demanding a salary of `6,000
per quarter. For the year ending on 31st March, 2025, the firm earned a profit of `90,000.
Q.1 Interest on Nakul’s loan will be:
(a) ` 2,400 (b) `4,000 (c) `4,800 (d) `1,200
Q.2 The amount payable to Arjun as salary is:
(a) `24,000 (b) `18,000 (c) `12,000 (d) No Salary
ANSWERS
1. (d) `1,200
Explanation: Interest on Nakul’s loan @ 6% p.a. in the absence of a partnership deed for 3 months (from 1 January
2025 to 31 March 2025) = `80,000 × 6/100 × 3/12 = `1,200.
2. (d) No salary
Explanation: Since there is no partnership deed, any partner shall not be entitled to get salary for taking part in the
conduct of the business of the firm.
CASE STUDY 2: Read the following hypothetical situation and answer question no. 3 and 4.
Amit and Mahesh were partners in a fast-food corner sharing profits and losses in ratio 3 : 2. They sold fast food items across
the counter and did home delivery too. Their initial fixed capital contribution was `1,20,000 and `80,000 respectively. At
the end of first year, their profit was ` 1,20,000 before allowing the remuneration of `3,000 per quarter to Amit and `2,000
per half year to Mahesh. Such a promising performance for first year was encouraging, therefore, they decided to expand
the area of operations. For this purpose, they needed a delivery van, a few Scooties and an additional person to support.
Six months into the accounting year they decided to admit Sundaram as a new partner and offered him 20% as a share of
profits along with monthly remuneration of ` 2,500. Sundaram was asked to introduce `1,30,000 for capital and `70,000
for premium for goodwill. Besides this, Sundaram was required to provide `1,00,000 as a loan for two years. Sundaram
readily accepted the offer. The terms of the offer were duly executed and he was admitted as a partner.
Q.3 Sundaram will be entitled to a remuneration of _______ at the end of the year.
(a) `15,000 (b) `30,000 (c) `2,500 (d) `12,000
1.80 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Q.4 While taking up the accounting procedure for this reconstitution,the accountant of the firm, Mr. Suraj Marwaha, faced
a difficulty. For the amount of loan that Sundaram has agreed to provide, he will be entitled to interest of _______ at
the end of the accounting year.
(a) Nil (b) `20,000 (c) `6,000 (d) `3,000
ANSWERS
3. (a) `15,000
Explanation: Salary is `2,500 per month for the last six months of the accounting year.
4. (d) `3,000
Explanation: Since there is no agreement related to the interest on loan provided by Sundaram, interest on Sundaram’s
loan @6% p.a. for the last six months of the accounting year = `1,00,000 × 6/100 × 6/12 = `3,000
CASE STUDY 3: Read the following hypothetical situation and answer question no. 5 and 6.
Richa, Sheena and Tapti were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. The partnership deed provided
for charging interest on drawings @ 10% p.a. The drawings of Richa, Sheena and Tapti during the year ending on 31st March,
2025 amounted to `50,000, `40,000 and `30,000 respectively. The net profit for the year ending on 31st March, 2025 was
`57,000.
Q.5 Sheena’s interest on drawings will be:
(a) `5,000 (b) `4,000 (c) `3,000 (d) `2,000
Q.6 Tapti’s share of profit will be:
(a) `11,500 (b) `34,500 (c) `10,500 (d) `23,000
ANSWERS
5. (d) 6. (c)
CASE STUDY 4: Read the following hypothetical situation and answer question no. 7 and 8.
Ana and Anne started a partnership business on 1st April, 2024. Their capital contributions were `3,00,000 and `1,00,000
respectively. Ana rented her property to carry on business for `2,500 p.m. Interest on capitals @12% p.a. Ana, to get a salary
of `4,000 p.m. Anne to get a commission of 2% of the net profit. Profits are to be shared in the ratio of 3 : 2. The profits for
the year ending on 31st March, 2025 before providing for rent was `2,00,000.
Dr. Profit and Loss Appropriation Account for the year ending on 31st March, 2025 Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on capital: Ana _______ By Profit and Loss A/c _______(2)
Anne _______
To Partner’s Salary: Ana 48,000
To Anne’s commission _____(1)
To Profit transferred to:
Ana’s Capital A/c _______
Anne’s Capital A/c _______
_______ _______

Q.7 The amount to be reflected in blank (1) will be:

(a) `3,720 (b) `3,400 (c) `2,800 (d) `2,940
Q.8 The amount to be reflected in blank (2) will be:
(a) `1,62,000 (b) `1,74,500 (c) `1,71,400 (d) `1,70,000
ANSWERS
7. (b) 8. (d)
CASE STUDY 5: Read the following hypothetical situation and answer question no. 9 and 10.
Richa and Anmol are partners sharing profits in the ratio of 3 : 2 with capitals of `2,50,000 and `1,50,000 respectively.
Interest on capital is agreed @ 6% p.a. Anmol is to be allowed an annual salary of `12,500. During the year ending on 31st
March 2025, the profits of the year prior to calculation of interest on capital but after charging Anmol’s salary amounted to
`62,000.A provision of 5% of this profit is to be made in respect of manager’s commission.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.81

Following is their Profit & Loss Appropriation Account:

Particulars Amount (`) Particulars Amount (`)
To Interest on Capital A/c By Profit & loss A/c ___(2)___
Richa – (After manager’s commission)
Anmol –
To Anmol’s Salary A/c 12,500
To Profit transferred to:
Richa’s Capital A/c ___(1)___
Anmol’s Capital A/c -----------
----------- -----------
Q.9 The amount to be reflected in blank (1) will be:
(a) `37,200 (b) `44,700 (c) `22,800 (d) `20,940
Q.10 The amount to be reflected in blank (2) will be:
(a) `62,000 (b) `74,500 (c) `71,400 (d) `70,775
ANSWERS
9. (d) 10. (c)
CASE STUDY 6: Read the following hypothetical situation and answer question no. 11 and 12.
Keshav, Krishna and Murari were in partnership sharing profits and losses in the ratio of 3 : 2 : 1. Their fixed capitals were :
`12,00,000, `10,00,000 and `8,00,000 respectively. It was agreed that interest on capital will be allowed at 10% per annum.
Partners were entitled to salaries as follows: Keshav `5,000 per month and Krishna `3,000 per quarter.
Profit of the firm for the year ending on 31st March, 2025 was `6,72,000.
Q.11 Amount credited to the Partners’ Current Accounts on account of ‘interest on capital’ and ‘salary’ was:
(a) Keshav `1,20,000, Krishna `1,00,000 and Murari `80,000
(b) Keshav `1,80,000, Krishna `1,12,000 and Murari `80,000
(c) Keshav `60,000, Krishna `12,000 and Murari `Nil
(d) Keshav `3,30,000, Krishna `2,12,000 and Murari `1,30,000
Q.12 Amount of profit transferred to Partners’ Current Accounts was:
(a) Keshav `1,00,000, Krishna `1,50,000 and Murari `50,000
(b) Keshav `50,000, Krishna `1,50,000 and Murari `1,00,000
(c) Keshav `1,50,000, Krishna `1,00,000 and Murari `50,000
(d) Keshav `1,51,500, Krishna `1,01,000 and Murari `50,500
ANSWERS
11. (b) 12. (c)
CASE STUDY 7: Read the following hypothetical situation and answer question no. 13-15.
Sudha, Naresh and Geeta were partners in a firm sharing profits in the ratio of 5:3:2. Their fixed capitals were ` 6,00,000;
` 4,00,000 and ` 2,00,000 respectively. Besides her capital Geeta had given a loan of ` 75,000 to the firm. Their partnership
deed provided for the following : (i) Interest on capital @ 9% p.a. (ii) Interest on partner’s drawings @ 12% p.a. (iii) Salary to
Sudha ` 30,000 per month and to Naresh ` 40,000 per quarter. (iv) Interest on Geeta’s loan @ 9% p.a.
During the year Sudha withdrew ` 50,000 at the end of each quarter; Naresh withdrew ` 50,000 in the beginning of each half
year; Geeta withdrew ` 70,000 at the end of each half year.
The profit of the firm for the year ending on 31-3-2025 before allowing interest on Geeta’s loan was ` 7,06,750.
Q.13 How much amount of net profit will be transferred to Profit and Loss Appropriation A/c?
(a) ` 7,06,750 (b) ` 7,02,250 (c) `7,00,000 (d) ` 7,13,000
Q.14 What will the amount of interest on drawings made by the partners?
(a) Sudha `2,250, Naresh `4,500 and Geeta `2,100 (b) Sudha `9,000, Naresh `9,000 and Geeta `4,200
(c) Sudha `4,500, Naresh `4,500 and Geeta `2,100 (d) Sudha `24,000, Naresh `12,000 and Geeta `16,800
Q.15 What will the share of divisible profit of each partner?
(a) Sudha `47,100, Naresh`28,260 and Geeta `18,840  (b) Sudha `3,61,100, Naresh `2,16,660 and Geeta `1,44,440
(c) Sudha `36,000, Naresh `21,600 and Geeta `14,400 (d) None of the above
1.82 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

ANSWERS
13. (c) `7,00,000 Explanation: Net Profit b/d = Net Profit (given) – Interest on Geeta’s Loan = `7,06,750 – `75,000 ×
9/100 = `7,06,750 – `6,750 = `7,00,000
14. (b) Sudha `9,000 , Naresh `9,000 and Geeta `4,200
Explanation: Interest on Sudha’s drawings = `2,00,000 × 12/100 × 4.5/12 = `9,000
Interest on Naresh’s drawings = `1,00,000 × 12/100 × 9/12 = `9,000
Interest on Geeta’s drawings = `1,40,000 × 12/100 × 3/12 = `4,200
15. (a) Sudha `47,100, Naresh `28,260 and Geeta `18,840 Explanation:
Dr. Profit and Loss Appropriation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital : By Profit and Loss A/c – Net Profit b/d (Note 1) 7,00,000
Sudha’s Current A/c 54,000 By Interest on Drawings: (Note 2)
Naresh’s Current A/c 36,000 Sudha’s Current A/c 9,000
Geeta’s Current A/c 18,000 1,08,000 Naresh’s Current A/c 9,000
To Partner’s Salary: Geeta’s Current A/c 4,200 22,200
Sudha’s Current A/c 3,60,000
Naresh’s Current A/c 1,60,000 5,20,000
To Profit transferred to :
Sudha’s Current A/c 47,100
Naresh’s Current A/c 28,260
Geeta’s Current A/c 18,840 94,200
7,22,200 7,22,200

Accounting Concepts, Journal and Ledger Accounts

Maintenance of Capital Accounts of Partners Distribution of Profit among Partners
Fixed Capital Method Dr. Profit and Loss Appropriation A/c Cr.

Dr. Partner’s Capital Account Cr. Particulars ` Particulars `

Date Particulars ` Date Particulars ` 1. To Profit and Loss A/c xxx 1. By Profit and Loss A/c xxx
To Bank A/c By Balance b/d (Net Loss) xxx (Net Profit) xxx
(withdrawal of capital) (opening balance) 3. To Interest on Capital xxx 2. By Interest on xxx
To Balance c/d By Bank A/c (individually) xxx Drawings (individually)
(closing balance) (additional capital) 4. To Partner’s Salary xxx 7. (b) By Loss transferred
(individually) xxx to Partners’ Capital/
xxx xxx
5. To Partner’s Commission Current A/c
Dr. Partner’s Current Account Cr.
(individually) (individually in their
Date Particulars ` Date Particulars ` 6. To Transfer to General profit sharing ratio)
To Balance b/d By Balance b/d Reserve
(Dr. opening balance) (Cr. opening balance) 7. (a) To Profits transferred
To Drawings A/c By Interest on capital to Partners’ Capital/
To Interest on drawings By Salary Current A/c
To P & L App. A/c By Commission (individually in their
(Share of loss) By P & L App. A/c profit sharing ratio)
To Balance c/d (share of profit) xxxx xxxx
(Cr. closing balance) By Balance c/d
(Dr. closing balance) Journal
xxx xxx Date Particulars L.F. Dr. (`) Cr. (`)
Fluctuating Capital Method 1. Transfer of the balance of Profit
and Loss A/c to Profit and Loss
Dr. Partner’s Capital Account Cr. Appropriation A/c
Date Particulars ` Date Particulars ` (a) If Profit and Loss Account shows net
To Balance b/d By Balance b/d (Cr. profit:
(Dr. opening balance) opening balance) Profit and Loss A/c Dr.
To Bank A/c By Bank (fresh  To Profit and Loss Appropriation A/c
(withdrawal of capital) capital introduced) (b) If Profit and Loss Account shows net
To Drawings A/c By Interest on capital loss:
Profit and Loss Appropriation A/c Dr.
To Interest on drawings By Salary/Commission
 To Profit and Loss A/c
To Profit and Loss By Profit and Loss
Appropriation A/c Appropriation 2. Interest on Drawings
(for share of loss) A/c (for share of (a) For charging interest on drawings:
Partners’ Capital/Current A/cs
To Balance c/d profit)
(individually) Dr.
xxx xxx  To Interest on Drawings A/c
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.83

(b) For transfer to Profit and Loss Calculation of Interest on Capital

Appropriation A/c:
Interest on Drawings A/c Dr. • If in a year the net profit is less than the amount due to the
 To Profit and Loss Appropriation A/c partners as interest on capital, the payment of interest on capital
3. Interest on Capital will be restricted to the amount of profits. In that case, the profit will be
(a) For crediting interest on capital: effectively distributed in the ratio of interest on capital of each partner.
Interest on Capital A/c Dr. • When opening capitals of partners are not given, in such a
 To Partner’s Capital/Current A/cs situation before calculation of interest on capital, the opening capitals
(individually) will have to be calculated using the following equation:
(b) For transfer to Profit and Loss
Appropriation A/c: Opening Capital + Addition to Capital – Withdrawal of Capital +
Profit and Loss Appropriation A/c Dr. Interest on Capital – Drawings – Interest on drawings ± Share of
 To Interest on Capital A/c profit (or loss) = Closing Capital
4. Partner’s Salary
(a) For crediting salary: Calculation of Interest on Drawings
Partner’s Salary A/c Dr. • When varying amounts are withdrawn at different intervals:
 To Partners’ Capital/Current A/cs Interest is calculated using the product method and interest for
(individually)
1 month at the specified rate is worked out, on the total of the products.
(b) For transfer to Profit and Loss
Appropriation A/c: • When fixed amount is withdrawn every month throughout the year:
Profit and Loss Appropriation A/c Dr. (i) If the amount is withdrawn on the first day of every month, interest
 To Partner’s Salary A/c on total amount of drawings will be calculated for 6½ months.
5. Partner’s Commission (ii) If at the end of every month, 5½ months.
(a) For crediting commission: (iii) If at the middle of the month, 6 months.
Partner’s Commission A/c Dr. Note: Average period for calculation of interest on drawings:
 To Partners’ Capital/Current A/cs No. of months after first drawing + No. of months after last drawing
   (individually)
2
(b) For transfer to Profit and Loss
Appropriation A/c: • When fixed amount is withdrawn quarterly throughout the year:
Profit and Loss Appropriation A/c Dr. (i) If the amount is withdrawn at the beginning of each quarter, the
 To Partner’s Commission A/c interest is calculated on total drawings, for a period of 7½ months.
6. Transfer a proportion of net profit to (ii) If at the end of each quarter, it will be calculated for a period of
General Reserve A/c 4½ months.
Profit and Loss Appropriation A/c Dr. • When fixed amount is withdrawn half yearly:
  To General Reserve A/c (i) If the amount is withdrawn at the beginning of each half year,
7. Share of Profit or Loss after interest is calculated on total drawings, for a period of 9 months.
appropriations (ii) If at the end of each half year, 3 months.
(a) For distribution of share of profit after • When dates of withdrawal are not specified:
appropriations in profit sharing ratio:
Average Period would be taken as 6 months.
Profit and Loss Appropriation A/c Dr.
 To Partners’ Capital/Current A/cs Past Adjustments
(individually)
(b) For distribution of share of loss after Omissions or errors in respect of interest on capitals, interest on drawings,
appropriations in profit sharing ratio: partner’s salary, partner’s commission, etc. need adjustments for correction
Partners’ Capital/Current A/cs of their impact.
(individually) Dr. 1. Adjustments through Profit and Loss Adjustment Account:
  To Profit and Loss Appropriation A/c Step 1: W ork out the amounts of omitted items that are to be credited
to partners’ capital accounts such as interest on capital, partner’s
Top Tips salary, partner’s commission, etc.
1. If there is Net Loss as per Profit and Loss Account, no interest on Profit and Loss Adjustment A/c Dr.
To Partner’s capital A/c (individually)
capital, salary, remuneration is to be allowed to partners.
Step 2: Work out the amounts of omitted items which are to be debited to
2. The following are treated as expenses for the business, i.e. charge
Partners’ Capital Accounts such as interest on drawings.
against profits. These are debited to Profit and Loss Account, not Partner’s capital A/c (individually) Dr.
Profit and Loss Appropriation Account: To Profit and Loss Adjustment A/c
• Interest on Partner's Loan Step 3: Work out the balance of the Profit and Loss Adjustment Account.
• Manager's Commission The credit balance of the Profit and Loss Adjustment Account reflects the
• Payment of Rent to a Partner capital, salary, remuneration is profit and the debit balance, the loss. The balance of the Profit and Loss
to be allowed to partners. Adjustment Account is transferred to the partners’ capital accounts in their
profit sharing ratio.
Interest on Partner’s Loan
1. Interest on Partner’s Loan is credited to the Partner’s Loan A/c. (a) If it is a credit balance (profit):
Interest on Partner’s Loan A/c Dr. Profit and Loss Adjustment A/c Dr.
To Partners Loan A/c To Partner’s capital A/c (individually)
2. Interest on Partner’s Loan is a charge against the profits, i.e. (b) If it is a debit balance (loss)
debited to Profit and Loss A/c. Partner’s capital A/c (individually) Dr.
Profit & Loss A/c Dr. To Profit and Loss Adjustment A/c
To Interest on Partner’s Loan A/c 2. Adjustments made directly in the partners’ capital/current accounts
If the firm has given a loan to any partner, Interest on Loan to a In such a situation, we shall prepare a statement to find out the net effect
Partner is credited to Profit and Loss A/c. of omissions and commissions and then to debit the capital account(s)
Interest on Loan to a Partner A/c Dr. of the partner(s) who had been credited in excess and credit the capital
To Profit & Loss A/c account(s) of the partner(s) who had been debited in excess.
1.84 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

1 Accounting for Partnership Firms:

Basic Concepts Self Assessment Test
Time allowed : 45 min. Maximum Marks : 20
Q.1 Assertion (A): Partner’s current accounts are opened when their capitals are fluctuating.
Reason (R): In case of Fixed capitals, all the transactions other than Capital are done through Current account of the
partner. (1)
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false
(d) A is false but R is true
Q.2 Kanha, Resham and Nisha were partners in a firm. Nisha had given a loan of `1,00,000 to the firm @ 10% p.a. The
accountant of the firm is emphasizing that interest on loan will be paid @ 6% p.a. At what rate will the interest on loan
be paid to Nisha? (1)
(a) 6% p.a. (b) 10% p.a.
(c) 8% p.a. (d) No interest on loan will be paid
Read the following hypothetical situation and answer questions no. 3 and 4:
Aditi and Saurabh were partners in a firm sharing profits and losses in the ratio of 2:1. On 1st April, 2024 their capitals were
`5,00,000 and `4,00,000 respectively. Before any appropriation, the firm earned a Net profit of `81,000 for the year ending
on 31st March, 2025. According to the partnership deed, interest on capital was to be provided @ 10% p.a.
Q.3 Interest on capital will be provided to Aditi and Saurabh in which of the following ratio? (1)
(a) 5 : 4 (b) 2 : 1 (c) 1 : 1 (d) 8 : 1
Q.4 Interest on Aditi’s capital will be: (1)
(a) `50,000 (b) `45,000 (c) `40,500 (d) `54,000
Q.5 Chaman, Burman and Aman were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Aman was
guaranteed a minimum amount of `60,000 as his share of profit every year. The net profit for the year ending 31st
March, 2025 amounted to `1,20,000.
Pass necessary journal entries in the books of the firm showing the distribution of profit amongst the partners. (3)
Q.6 Jain, Gupta and Singh were partners in a firm. Their fixed capitals were: Jain `4,00,000; Gupta `6,00,000 and Singh
`10,00,000. They were sharing profits in the ratio of their capitals. The firm was engaged in the processing and
distribution of flavoured milk. The partnership deed provided for interest on capital at 10% per annum. During the
year ending on 31st March 2025 the firm earned a profit of `1,47,000.
Showing your working notes clearly, prepare Profit and Loss Appropriation Account of the firm. (3)
Q.7 The partners of a firm Alia, Bhanu and Chand distributed the profits for the year ending on 31st March, 2025,
`80,000 in the ratio of 3:3:2 without providing for the following adjustments:
(a) Alia and Chand were entitled to a salary of `1,500 each p.m.
(b) Bhanu was entitled for a commission of `4,000.
(c) Bhanu and Chand had guaranteed a minimum profit of `35,000 p.a. to Alia, any deficiency to be borne equally by
Bhanu and Chand.
Pass the necessary Journal entry for the above adjustments in the books of the firm. Show workings clearly. (4)
Q.8 Shreya and Vivek were partners in a firm sharing profits in the ratio of 3:2. The balance in their capital and current
accounts as on 1st April, 2025 were as under:
Particulars Shreya (`) Vivek (`)
Capital accounts 3,00,000 (Cr.) 2,00,000 (Cr.)
Current accounts 1,00,000 (Cr.) 28,000 (Dr.)
The partnership deed provided that Shreya was to be paid a salary of `5,000 p.m. whereas Vivek was to get a commission
of `30,000 for the year. Interest on capital was to be allowed @ 8% p.a. whereas interest on drawings was to be charged
@ 6% p.a. The drawings of Shreya were `3,000 at the beginning of each quarter while Vivek withdrew `30,000 on 1st
September, 2024. The net profit of the firm for the year 2024-25 before making the above adjustments was `1,20,000.
Prepare Profit and Loss Appropriation Account and Partners’ Capital and Current Accounts. (6)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.85

2 Accounting for Partnership Firms:

Basic Concepts Self Assessment Test
Time allowed : 45 min. Maximum Marks : 20
Q.1 Assertion (A): Each partner is a principal as well as an agent for all the other partners.
Reason (R) : As per the definition of Partnership Act, partnership business may be carried on by all the partners or any
of them acting for all.
Choose the correct option from the following: (1)
(a) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Assertion (A) is correct, but Reason (R) is incorrect.
(d) Assertion (A) is incorrect, but Reason (R) is correct.
Q.2 A partnership firm has 45 partners. It wants to admit 7 more partners into partnership. Only more partners can be
admitted to the partnership firm according to Companies Act, 2013. (1)
(a) 1 (b) 6 (c) 5 (d) 3
Read the following hypothetical situation and answer question no. 3 and 4:
Keshav and Hitesh are partners sharing profits and losses in the ratio of 3 : 2. On 31st March, 2025 after division of profit
of `15,000, their capitals were `55,000 and `45,000 respectively. During the year Keshav’s drawings were `1,500 at the
beginning of each quarter and Hitesh withdrew `9,000 on 1st November, 2024. After the final accounts have been prepared, it
was discovered that interest on capital @ 5% p.a. and interest on drawings @ 8% p.a. have not been taken into consideration.
Q.3 Opening capital of Keshav was: (1)
(a) `35,000 (b) `39,000 (c) `43,000 (d) `52,000
Q.4 Amount of interest to be charged on Hitesh’s drawings will be: (1)
(a) `225 (b) `4,500 (c) `300 (d) `7,200
Q.5 Misha and Prisha were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st April, 2024, their
capital accounts showed balances of `50,000 and `30,000 respectively. During the year, Misha withdrew `12,900 while
Prisha withdrew `9,600. They were allowed interest on capital @ 10% p.a. Interest on drawings of `660 was charged
on Misha’s drawing and `540 on Prisha’s drawings. Prisha had advanced a loan of `20,000 to the firm on 1st August,
2024. The net profit for the year ending on 31st March, 2025 amounted to `22,600.
Prepare Profit and Loss Appropriation Account for the year ending on 31st March, 2025. (3)
Q.6 On 1.4.2024, Brij and Nandan entered into partnership to construct toilets in government girls schools in the remote
areas of Uttarakhand. They contributed capitals of `10,00,000 and `15,00,000 respectively. Their profit sharing ratio
was 2 : 3 and interest allowed on capital as provided in the Partnership Deed was 12% per annum. During the year
ending on 31.3.2025, the firm earned a profit of `2,00,000.
Prepare Profit and Loss Appropriation Account of Brij and Nandan for the year ending on 31.3.2025. Show your
workings clearly. (3)
Q.7 Sanjay, Sudhir and Shakti are partners in a firm sharing profits in the ratio of 3:1:1. Their fixed capital balances are
`4,00,000, `1,60,000 and `1,20,000 respectively. Net profit for the year ending on 31st March, 2025 distributed
amongst the partners was `1,00,000, without taking into account the following adjustments: (a) Interest on capitals @
2.5% p.a. (b)Salary to Sanjay `18,000 p.a. and commission to Shakti `12,000. (c) Sanjay was allowed a commission of
6% of divisible profit after charging such commission.
Pass a rectifying journal entry in the books of the firm. Show workings clearly. (4)
Q.8 On 31st March, 2025 the balance in the capital Accounts of Abhir, Bobby and Vineet, after making adjustments
for profits and drawings were `8,00,000, `6,00,000 and `4,00,000 respectively. Subsequently, it was discovered that
interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @10%
p.a. and were to be charged interest on drawings @ 6% p.a. The drawings during the year were : Abhir – `20,000
drawn at the end of each month, Bobby – `50,000 drawn at the beginning of every half year and Vineet – `1,00,000
withdrawn on 31st October, 2024. The net profit for the year ending on 31st March, 2025 was `1,50,000. The profit
sharing ratio was 2 : 2 : 1. Pass necessary adjusting entry for the above adjustments in the books of the firm. Also, show
year workings clearly. (6)
1.86 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

3 Accounting for Partnership Firms:

Basic Concepts Self Assessment Test
Time allowed : 45 min. Maximum Marks : 20
Q.1 Which of the following items cannot be recorded in the capital account of partners if the capital accounts of partners
are fixed? (1)
(a) Drawings (b) Withdrawal of capital
(c) Introduction of additional capital (d) Opening balance of capital
Q.2 Assertion (A) : In partnership firm, the private assets of the partners can also be used to pay off the firm’s debts.
Reason (R) : The liability of the partners for acts of the firm is limited. (1)
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is false, but Reason (R) is true.
(d) Assertion (A) is true, but Reason (R) is false.
Read the following hypothetical situation and answer question no. 3 and 4:
Abha and Babita were partners in a clay toy making firm sharing profits in the ratio of 2 : 1. On 1st April, 2025, their capital
accounts showed balances of `5,00,000 and `10,00,000 respectively. The partnership deed provides for interest on capital @
10% p.a. The firm earned a profit of `90,000 during the year.
Q.3 The amount of interest on capital allowed to Abha will be: (1)
(a) `50,000 (b) `1,00,000 (c) `60,000 (d) `30,000
Q.4 Babita’s share in profit will be: (1)
(a) `60,000 (b) `30,000 (c) Nil (d) ` 1,00,000
Q.5 E, F and G were partners in a firm sharing profits in the ratio 3 : 3 : 4. Their respective fixed capitals were E `3,00,000;
F `4,00,000 and G `5,00,000. The partnership deed provided for allowing interest on capital @ 12% p.a. even if it
results into a loss to the firm. The net profit of the firm for the year ending on 31st March, 2025 was `2,10,000.
Pass necessary journal entries for allowing interest on capital and division of profit/loss in the books of the firm. (3)
Q.6 Harshad and Dhiman are in partnership since April 01, 2024. No Partnership agreement was made. They contributed
`4,00,000 and `1,00,000 respectively as capital. In addition, Harshad advanced an amount of `1,00,000 to the firm,
on October 01, 2024. Due to long illness, Harshad could not participate in business activities from August 1, to
September 30, 2024. The profits for the year ending on March 31, 2025 amounted to `1,80,000. Dispute has arisen
between Harshad and Dhiman.
Harshad Claims:
(i) He should be given interest @ 10% per annum on capital and loan.
(ii) Profit should be distributed in proportion of capital;
Dhiman Claims:
(i) Profits should be distributed equally;
(ii) He should be allowed `2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad;
(iii) Interest on Capital and loan should be allowed @ 6% p.a.
Settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account. (3)
Q.7 P, Q and R were partners with fixed capitals of ` 40,000, `32,000 and `24,000 respectively. After distributing the
profit of `48,000 for the year ending on 31st March 2025 in their agreed ratio of 3 : 1 : 1 it was observed that:
(1) Interest on capital was provided at 10% p.a. instead of 8% p.a.
(2) Salary of `12,000 was credited to P instead of Q.
You are required to pass a single journal entry in the beginning of the next year to rectify the above omissions. (4)
Q.8 Mohan, Vijay and Anil are partners, the balance on their capital accounts being `30,000, `25,000 and `20,000
respectively. In arriving at these figures, the profits for the year ending on March 31, 2025 amounting to `24,000 had
been credited to partners in the proportion in which they shared profits.
During the year their drawings for Mohan, Vijay and Anil were `5,000, `4,000 and `3,000, respectively. Subsequently,
the following omissions were noticed:
(a) Interest on Capital, at the rate of 10% p.a., was not provided.
(b) Interest on Drawings: Mohan `250, Vijay `200, Anil `150 was not recorded in the books.
(c) Anil is to be given a minimum guaranteed profit of `8,000 (including interest on capital).
Record necessary corrections through journal entry. Show your workings clearly. (6)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.87

4 Accounting for Partnership Firms:

Basic Concepts Self Assessment Test
Time allowed : 45 min. Maximum Marks : 20
Q.1 On 1st January, 2025, Abhishek, a partner, advanced a loan of ` 3,00,000 to the firm. In the absence of a partnership
agreement, the amount of interest on the loan for the year ending 31st March, 2025 will be: (1)
(a) `18,000 (b) `4,500 (c) `9,000 (d) No interest will be provided
Q.2 Assertion (A): Under the fixed capital method, partners’ capital accounts always show a credit balance.
Reason (R): Under the fixed capital method, all items like share of profit or loss, interest on capital, drawings, interest
on drawings are recorded in a separate account called partners’ current account. (1)
(a) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is correct, but Reason (R) is incorrect.
(d) Assertion (A) is incorrect, but Reason (R) is correct.
Read the following hypothetical situation and answer question no. 3 and 4:
Vivek and Nisha were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st April, 2024, their capitals were
`8,00,000 and `4,00,000 respectively. On 1st July, 2024, Vivek introduced additional capital of `2,00,000. During the year,
Vivek’s drawings were `40,000 while drawings of Nisha were ` 80,000. As per the partnership agreement, interest on capital
is allowed @ 6% p.a., interest on drawings will be charged @ 5% p.a. The net profit for the year ending 31st March, 2025
amounted to `6,50,000.
Q.3 Interest on capital payable to Vivek will be: (1)
(a) `48,000 (b) `60,000 (c) `57,000 (d) `24,000
Q.4 The amount of interest on drawings of Nisha would be: (1)
(a) `2,000 (b) `1,000 (c) `4,000 (d) `4,800
Q.5 On 1-4-2024 Jay and Vijay, entered into partnership for supplying laboratory equipments to government schools
situated in remote and backward areas. They contributed capitals of `80,000 and `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 `7,800.
Showing your calculations clearly, prepare ‘Profit and Loss Appropriation Account’ of Jay and Vijay for the year ending
on 31-3-2025. (3)
Q.6 Mohan, Suhaan and Adit were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Their fixed capitals were:
` 2,00,000, ` 1,00,000 and ` 1,00,000 respectively. For the year ending on 31st March, 2025, interest on capital was credited
to their accounts @ 8% p.a. instead of 5% p.a. Pass necessary adjusting journal entry. Show your workings clearly. (3)
Q.7 Jatin, Keshav and Lalit were partners in a firm with fixed capitals of ` 1,20,000, ` 1,00,000 and ` 80,000 respectively.
As per the partnership deed, there was a provision for allowing interest on capitals @ 10% p.a., but entries for the same
had not been made for the last two years.
The profit sharing ratio during the last two years was as follows :
Year Jatin Keshav Lalit
2023-24 5 3 2
2024-25 1 1 1
Pass an adjustment entry at the beginning of the third year, i.e., on 1st April, 2025. (4)
Q.8 Moli, Bhola and Raj were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. Their partnership deed
provided for Interest on capital @ 5% p.a., Interest on drawing @ 12% p.a., Interest on partners’ loan @ 6% p.a.,
Moli was allowed an annual salary of `4,000; Bhola was allowed a commission of 10% of net profit as shown by Profit and
Loss Account and Raj was guaranteed a profit of `1,50,000 after making all the adjustments as provided in the partnership
agreement. Their fixed capitals were Moli : `5,00,000; Bhola : `8,00,000 and Raj : `4,00,000. On 1st April, 2024 Bhola
extended a loan of `1,00,000 to the firm. The net profit of the firm for the year ending on 31st March, 2025 before interest
on Bhola’s loan was `3,06,000. Prepare Profit and Loss Appropriation Account of Moli, Bhola and Raj for the year
ending on 31st March, 2025 and their Current Accounts assuming that Bhola withdrew `5,000 at the end of each
month, Moli withdrew `10,000 at the end of each quarter and Raj withdrew `40,000 at the end of each half year. (6)
1.88 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

5 Accounting for Partnership Firms:

Basic Concepts Self Assessment Test
Time allowed : 45 min. Maximum Marks : 20
Q.1 Assertion (A) : Partners’ current accounts under Fixed Capital Method may show a debit or a credit balance.
Reason (R) : In the ‘Fixed Capital Method’, all items like share of profit or loss, interest on capital, drawings, interest
on drawings etc. are recorded in the partners’ capital accounts. (1)
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Assertion (A) is correct, but Reason (R) is not correct.
(d) Both Assertion (A) and Reason (R) are not correct.
Q.2 Shrikant and Ajay were partners in a firm sharing profits and losses in the ratio of 5 : 3. Shrikant withdrew `10,000 in
the beginning of each quarter during the year ending 31st March, 2025. Interest on Shrikant’s drawings @ 6% p.a for
the year ending on 31st March, 2025 will be: (3)
(a) ` 2,400 (b) ` 1,200 (c) ` 1,500 (d) ` 900
Read the following hypothetical situation and answer question no. 3 and 4:
Daksh and Ekansh are partners in a firm sharing profits and losses in the ratio of 3 : 1. Their capitals were ` 1,60,000 and
` 1,00,000 respectively. As per partnership deed, they were entitled to interest on capital @ 10% p.a.. The firm earned a profit
of ` 13,000 for the year ending on 31st March, 2025.
Q.3 Daksh’s interest on capital will be: (1)
(a) ` 5,000 (b) ` 8,000 (c) ` 16,000 (d) ` 10,000
Q.4 Ekansh’s share of profit/loss will be: (1)
(a) Nil (b) ` 9,750 (Loss) (c) ` 3,250 (Loss) (d) ` 9,750 (Profit)
Q.5 A and B were partners in a firm sharing profits in the ratio of 5 : 3. Their fixed capitals on 31st March, 2024 were:
A `60,000 and B `80,000. They agreed to allow interest on capital @ 12% p.a. The profit of the firm for the year
ending on 31st March, 2025 before allowing interest on capitals was `12,600.
Prepare ‘Profit and Loss Appropriation Account’ for the year ending 31 March 2025. Show your workings clearly. (3)
Q.6 Manoj and Nitin were partners in a firm sharing profits and losses in the ratio of 2 : 1. On 31st March, 2025, the
balances in their capital accounts after making adjustments for profits and drawings were `90,000 and `80,000
respectively. The net profit for the year ending on 31st March, 2025 amounted to `30,000. During the year Manoj
withdrew ` 40,000 and Nitin withdrew ` 20,000.
Subsequently, it was noticed that Interest on Capital @ 10% p.a. was not provided to the partners. Also Interest on
Drawings to Manoj ` 3,000 and to Nitin ` 2,000 was not charged. Pass necessary adjusting journal entry. Show your
workings clearly. (3)
Q.7 A, B & C were partners in a firm having capitals of `60,000; `60,000 and `80,000 respectively. Their Current Account
balances were A : `10,000; B: `5,000 and C: `2,000 (Dr).
According to the partnership deed the partners were entitled to interest on capital @ 5% p.a. C being the working
partner was also entitled to a salary of `6,000 p.a.
The profits were to be divided as follows:
(a) The first `20,000 in proportion to their capitals.
(b) Next `30,000 in the ratio of 5 : 3 : 2.
(c) Remaining profits to be shared equally.
The firm made a profit of `l,56,000 before charging any of the above items. Prepare the Profit & Loss Appropriation
Account and pass necessary journal entry for apportionment of profit. (4)
Q.8 On 31 March, 2025 after the close of books of accounts, the capital accounts of Nusrat, Himesh and K.K. showed
balance of `24,000; `18,000 and `12,000 respectively. Their profit sharing ratio is 3 : 2 : 1. K.K. is given a minimum
guarantee of `6,000 profit by Nusrat personally.
The profit for the year `36,000 distributed in 3 : 2 : 1 without providing for the interest on capital @ 10% p.a.
Partners’ drawings during the year had been `3,600; `4,500 and `2,700 respectively.
Pass necessary adjustment entry. Show your working notes clearly. (6)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.89

1
CHAPTER
SOLUTIONS — Exercises and Self Assessment Tests
Accounting for Partnership: Basic Concepts

NUMERICAL QUESTIONS (FOR PRACTICE) 1.2 NUMERICAL QUESTIONS (FOR PRACTICE) 1.4
1. Dr. Partner’s Capital Account Cr.
1. Journal
Particulars Amit Babu Charu Particulars Amit Babu Charu
Date Particulars L.F. Dr. (`) Cr. (`)
To Balance 50,000 40,000 30,000 By Bank A/c 50,000 40,000 30,000
2024 Raj’s Capital A/c Dr. 50,000 c/d
1 July To Cash /Bank A/c 50,000 50,000 40,000 30,000 50,000 40,000 30,000
(Being capital withdrawn)
Dr. Partner’s Current Account Cr.
Cash/Bank A/c Dr. 50,000 Particulars Amit Babu Charu Particulars Amit Babu Charu
To Suri’s capital A/c 50,000
To Bank A/c 6,000 4,000 2,000 By Interest on 3,000 2,400 1,800
(For addition to capital)
(Drawings) capital A/c
Interest on Raj’s capital = (2,50,000 × 8/100 × 3/12 + 2,00,000 × 8/100 × To Interest on 270 180 90 By Partner’s 12,000 – –
drawings salary A/c
9/12 = `17,000
To Balance c/d 14,730 7,220 1,710 By Partner’s – 5,000 –
Interest on Suri’s capital = (1,50,000 × 8/100 × 3/12) + (2,00,000 × 8/100 Commission A/c
× 9/12 = `15,000 By P & L App. A/c 6,000 4,000 2,000
2. (a) No interest is payable on partners’ capitals. (share of profit)
The profit `126,000 will be shared by Priya and Kajal in 5:3. 21,000 11,400 3,800 21,000 11,400 3,800
Piya: 5/8 × 1,26,000 = `78,750; Kajal: 3/8 × 1,26,000 = `47,250 2. Dr. Profit & Loss appropriation A/c Cr.
(b) Interest on capitals @12% p.a.: Priya: `72,000; Kajal: `96,000 for the year ending on 31st March, 2025
Total interest on capital = `1,68,000.
Particulars Amt. (`) Particulars Amt. (`)
But Net profit = `1,26,000
Interest on capital will be paid to the extent of total profits available. To Interest on Capital: By Profit & Loss A/c – Net 2,53,000
X’s current A/c 54,000 Profit b/d
In this case, profit will be effectively distributed in the ratio of Y’s current A/c 30,000 By Interest on Drawings:
interest on capital, i.e. 72,000 : 96,000 = 3 : 4 Z’s current A/c 24,000 1,08,000 X’s current A/c 3,200
Interest on Capitals: To Profit transferred to: Y’s current A/c 2,800 8,000
Priya: 3/7 × 1,26,000 = `54,000 X’s current A/c 61,200 Z’s current A/c 2,000
Kajal: 4/7 × 1,26,000 = `72,000 Y’s current A/c 45,900
Z’s current A/c 45,900 1,53,000
NUMERICAL QUESTIONS (FOR PRACTICE) 1.3 2,61,000 2,61,000
1. (a) As a fixed amount of `3,000 per month is withdrawn at the 3. Journal
beginning of the month, interest on drawings will be calculated for Date Particulars L.F. Dr. (`) Cr. (`)
an average period of 6.5 months.
2025 Profit and Loss A/c Dr. 90,000
Interest on drawings = `36,000 × 9/100 × 6.5/12 To Profit and Loss Appropriation A/c
31 90,000
= `1,755
Mar. (Profit transferred from Profit and Loss A/c to
(b) As the fixed amount of `3,000 per month is withdrawn at the end Profit and Loss Appropriation A/c)
of each month, interest on drawings will be calculated for an average Partner’s Salary A/c Dr. 60,000
period of 5.5 months. To Arun’s Current A/c 20,000
Interest on drawings = `36,000 × 9/100 × 5.5/12 = `1,485 To Shobha’s Current A/c 20,000
(c) Statement showing Calculation of Interest on Drawings To Yuvraj’s Current A/c 20,000
Date Amount Period (in Product (`) (Salary credited to Partner’s Current Accounts)
withdrawn (`) months) Profit and Loss Appropriation A/c Dr. 60,000
Jun. 1, 12,000 10 1,20,000 To Partner’s Salary A/c 60,000
2024 (Partner’s Salary transferred to Profit and Loss
Aug. 31, 8,000 7 56,000 Appropriation A/c)
2024 Interest on Capital A/c Dr. 20,000
Sept. 30, 3,000 6 18,000 To Arun’s Current A/c 10,000
2024 To Shobha’s Current A/c 5,000
Nov. 30, 7,000 4 28,000 To Yuvraj’s Current A/c 5,000
2024 (Interest on Capital credited to Partner’s
Jan. 31, 6,000 2 12,000 Current Accounts)
2025 Profit and Loss Appropriation A/c Dr. 20,000
2,34,000 To Interest on Capital A/c 20,000
(Interest on Capital transferred to Profit and
Interest on drawings = 2,34,000 × 9/100 × 1/12 = `1,755 Loss Appropriation A/c)
1.90 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Profit and Loss Appropriation A/c Dr. 10,000 Dr. Partners’ Capital A/c Cr.
To Arun’s Current A/c 6,000 Particulars Rakhi Shikha Particulars Rose Lily
To Shobha’s Current A/c 2,000 To Drawings A/c 40,000 50,000 By Balance b/d 80,000 60,000
To Yuvraj’s Current A/c 2,000 To Interest on 2,000 2,500 By Salary A/c 24,000 36,000
(Divisible profit credited to Partner’s Current Drawings A/c By Interest on 9600 7,200
Accounts) To Balance c/d 87,600 62,700 capital A/c
By P/L App. A/c 16,000 12,000
4. Journal (share of profits)
Date Particulars L.F. Dr. (`) Cr. (`) 1,29,600 1,15,200 1,29,600 1,15,200
2025 Profit & Loss A/c Dr. 1,50,000 7.
31 To Profit & Loss Appropriation A/c 1,50,000 Dr. Profit and Loss Appropriation Account Cr.
Mar. (Net profit transferred to Profit & Loss
Particulars ` Particulars `
Appropriation A/c)
To Salary–Pawan’s Current A/c 6,000 By Profit and Loss A/c 24,900
Interest on Capital A/c Dr. 1,92,000 To Commission–Purna’s Current A/c 4,000 (Net profit)
To P’s Current A/c 1,20,000 To Interest on Capital: By Interest on drawings:
To Q’s Current A/c 72,000 Pawan’s Current A/c 1,800 Pawan’s Current A/c 75
(Interest on Capital Credited to Partners’ Capital Purna’s Current A/c 1,200 3,000 Purna’s Current A/c 25 100
A/c) To Share of Profit:
P & L Appropriation A/c Dr. 1,92,000 Pawan’s Current A/c 7,200
To Interest on Capital A/c 1,92,000 Purna’s Current A/c 4,800 12,000
(Interest on Capital debited to Profit & Loss 25,000 25,000
Appropriation A/c) Dr. Partner’s Capital Account Cr.
P’s Current A/c Dr. 31,500 Particulars Pawan Purna Particulars Pawan Purna
Q’s Current A/c Dr. 10,500
To Profit & Loss Appropriation A/c 42,000 To Balance c/d 30,000 20,000 By Balance b/d 30,000 20,000
(Loss on Appropriation transferred) 30,000 20,000 30,000 20,000
5. Dr. Partner’s Current Account Cr.
Dr. Profit and Loss Appropriation A/c Cr. Particulars Pawan Purna Particulars Pawan Purna
Particulars ` Particulars ` To Drawings A/c 3,000 1,000 By Balance b/d 10,000 8,000
To Partner’s Salary 60,000 By Profit and Loss A/c 23,200 To Interest on 75 25 By Salary 6,000 –
– Shikha (5000 × 12) – Net Profit Drawing By Commission – 4,000
To Interest on capital By Partner’s capital A/c To Balance c/d 21,925 16,975 By Interest on 1,800 1,200
@10% p.a. (share of loss) Capital
Rakhi 20,000 Rakhi 34,720 By P&L App. A/c 7,200 4,800
Shikha 30,000 50,000 Shikha 52,080 86,800 25,000 18,000 25,000 18,000
1,10,000 1,10,000 8. Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Dr. Partners’ Capital A/c Cr.
2024 Cash/Bank A/c Dr. 12,00,000
Particulars Rakhi Shikha Particulars Rose Lily Apr. 1 To Soniya’s Capital A/c 5,00,000
To Charu’s Capital A/c 4,00,000
To Drawings A/c 7,000 10,000 By Balance b/d 2,00,000 3,00,000 To Sunita’s Capital A/c 3,00,000
To P & L App. A/c 34,720 52,080 By Partner's Salary – 60,000 (Being capital contributed by partner’s)
(share of loss) A/c
2025 Profit and Loss A/c Dr. 3,56,600
To Balance c/d 1,78,280 3,27,920 By Interest on 20,000 30,000
Mar. To Profit and Loss App. A/c 3,56,600
capital A/c
31 (For transfer of net profit)
2,20,000 3,90,000 2,20,000 3,90,000 Soniya’s Capital A/c Dr. 2,750
6. Charu’s Capital A/c Dr. 1,500
Dr. Profit and Loss Appropriation Account Cr. Smita’s Capital A/c Dr. 1,150
To Interest on Drawings A/c 5,400
Particulars ` Particulars ` (For charging interest on drawings)
To Partner’s Salary A/c By Profit and Loss A/c 1,00,300 Interest on Drawings A/c Dr. 5,400
Ramesh (2000 × 12) 24,000 – Net Profit To Profit and Loss Appropriation A/c 5,400
(For transfer of interest on drawings)
Suresh (3000 × 12) 36,000 By Interest on Drawings
Interest on Capital A/c Dr. 72,000
To Interest on capital A/c A/c
To Soniya’s capital A/c 30,000
Ramesh 9600 Ramesh 2,000 To Charu’s capital A/c 24,000
Suresh 7200 Suresh 2500 4500 To Smita’s capital A/c 18,000
To Partners’ Capital A/c (For providing interest on capital)
(share of profit) Profit and Loss Appropriation A/c Dr. 72,000
Ramesh 16,000 28,000 To Interest on capital A/c 72,000
Suresh 12,000 (For transfer of interest on capital)
Partner’s Salary A/c Dr. 1,20,000
1,04,800 1,04,800
To Soniya’s capital A/c 1,20,000
(Salary payable to Soniya)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.91

Profit and Loss Appropriation A/c Dr. 1,20,000 11. Dr. P&L Appropriation A/c Cr.
To Partner’s Salary A/c 1,20,000 Particulars ` Particulars `
(For transfer of partner’s salary) To Interest on Capital By Profit and Loss A/c – 3,88,000
Partner’s Commission A/c Dr. 50,000 A’s current A/c * 40,500 Net Profits
To Charu’s capital A/c 50,000 B’s current A/c 45,000 (4,00,000 – 12,000)
(being Commission payable to Charu) C’s current A/c 54,000 1,39,500
Profit and Loss Appropriation A/c Dr. 50,000 To Salary – A’s current A/c 2,00,000
To Partner’s Commission A/c 50,000 To Profits transferred to:
(For transfer of partner’s salary) A’s current A/c 14,550
Profit and Loss Appropriation A/c Dr. 1,20,000 B’s current A/c 14,550
To Soniya’s capital A/c 60,000 C’s current A/c 19,400 48,500
To Charu’s capital A/c 40,000 3,88,000 3,88000
To Smita’s capital A/c 20,000
* Interest on A’s capital = 4,00,000 × 9% + 2,00,000 × 9% × 3/12
(For share of profits)
= 36,000 + 4,500 = `40,500
Notes: (i) Interest on Soniya’a drawings = (5,000 × 12) × 10/100 × 5.5/12 Dr. Partner’s Current A/c Cr.
= `2,750
Particulars A B C Particulars T N M
Interest on Charu’s drawings = (10,000 × 4) × 10/100 × 4.5/12 = `1,500
Interest on Smita’s drawings = 69,000 ×10/100 × 2/12 = `1,150 To Balance 20,000 10,000 15,000 By Interest 40,500 45,000 54,000
b/d on Capital
(ii) Distributable profit = Net profit + Interest on partners’ drawings –
To Drawings 40,000 75,000 55,000 By Salary 2,00,000 – –
Interest on partners’ capitals – Soniya’s salary – Charu’s commission = A/c By P & L 14,550 14,550 19,400
3,56,600 + 5,400 – 72,000 – 1,20,000 – 50,000 = `1,20,000 To Balance 1,95,050 – 3,400 App. A/c
9. Calculation of interest on drawings c/d By Balance – 25,450 –
Interest on Moli’s total drawings will be calculated for an average period c/d
of 6.5 months, i.e. (1,000 × 12) × 12/100 × 6.5/12 = `780 2,55,050 85,000 73,400 2,55,050 85,000 73,400
Interest on Golu’s total drawings will be calculated for an average period
12. Profit and Loss Appropriation A/c
of 5.5 months, i.e (1000 × 12) × 12/100 × 5.5/12 = `660
Interest on Golu’s loan @6% p.a. for 8 months = 10,000 × 6/100 × 8/12 Particulars (`) Particulars (`)
= `400. It is a charge against the profits. To Interest on capital A/c: By Profit and Loss A/c– 2,00,300
Net profit as per P & L A/c = 20,950 – 400 = `20,550 Karam Singh 13,500 Net profit
(2,00,000 × 6/100 × 6/12 +
Dr. Profit and Loss Appropriation A/c Cr. 2,50,000 × 6/100 × 6/12)
Particulars ` Particulars ` Suleman 6,300
To Interest on capital A/c By Profit and Loss A/c – 20,550 (1,00,000 × 6/100 × 9/12 +
Moli 4,000 Net Profit 1,20,000 × 6/100 × 3/12)
Golu 2,000 6,000 By Interest on Drawings To Partner’s capital A/c (Share
To Partner’s capital A/c Moli 780 of profit)
(share of profit) Golu 660 1,440 Karam Singh 72,200
Moli 9,554 Suleman 72,200
Golu 6,396 15,990 Inderjeet 36,100 1,80,500
2,00,300 2,00,300
21,990 21,990
Dr. Partner’s Capital A/c Cr. 13. Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Particulars Moli Golu Particulars Moli Golu
Profit and Loss A/c Dr. 35,660
To Drawings A/c 12,000 12,000 By Balance b/d 40,000 20,000 To Profit and Loss Appropriation A/c 35,660
To Interest on 780 660 By Interest on (Transfer of Profit)
Drawings A/c capital A/c 4,000 2,000 Partner’s Salary A/c Dr. 12,000
To Balance c/d 40,814 15,736 By P/L App. A/c To Ajit’s Capital A/c 12,000
(share of profit) 9,594 6,396 (Amount of Ajit’s Salary)
53,594 28,396 53,594 28,396 Profit and Loss Appropriation A/c Dr. 12,000
10. Dr. Profit & Loss Appropriation A/c Cr. To Partner’s Salary A/c 12,000
Particulars Particulars (Transfer of Ajit’s Salary to Profit and
` `
Loss Appropriation Account)
To Interest on Capital: By Profit & Loss A/c 30,000 Partner’s Commission A/c Dr. 5,000
Lalan’s Current A/c 12,000 (Net Profit) To Choudhary’s Capital A/c 5,000
Balan’s Current A/c 24,000 36,000 By Interest on drawings: (Amount of Choudhary’s Commission)
Lalan’s Current A/c 225 Profit and Loss Appropriation A/c Dr. 5,000
Balan’s Current A/c 375 600 To Partner’s Commission A/c 5,000
By Net Loss transferred: (Transfer of Chouhdary’s Commission)
Lalan’s Current A/c 3,240 Interest on Capital A/c Dr. 7,200
Balan’s Current A/c 2,160 5,400 To Ajit’s Capital A/c 3,000
36,000 36,000 To Choudhary’s Capital A/c 2,400
To Vishal’s Capital A/c 1,800
Note: Interest on drawings to be calculated for 6months because time period (Amount of interest on capital)
is not given: Profit and Loss Appropriation A/c Dr. 7,200
Lalan = 3,000 × 15/100 × 6/12 = `225 To Interest on Capital A/c 7,200
Balan = 5,000 × 15/100 × 6/12 = `375 (Transfer of Interest on Capital to Profit
and Loss Appropriation Account)
1.92 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Ajit’s Capital A/c Dr. 270 Dr. Profit and Loss Account Cr.
Choudhary’s Capital A/c Dr. 180 Particulars ` Particulars `
Vishal’s Capital A/c Dr. 90
To Interest on Drawings A/c 540 To Manager’s Commission 5,000 By Profit (given) 22,250
(Amount of interest on drawings) To Interest on A’s Loan 3,000
Interest on Drawings A/c Dr. 540 To Net Profit c/d 14,250
To Profit and Loss Appropriation A/c 540
(Transfer of interest on drawings to Profit
22,250 22,250
and Loss Appropriation Account)
Profit and Loss Appropriation A/c Dr. 12,000
NUMERICAL QUESTIONS (FOR PRACTICE) 1.5
To Ajit’s Capital A/c 6,000 1. Dr. Profit And Loss Appropriation A/c Cr.
To Choudhary’s Capital A/c 4,000
To Vishal’s Capital A/c
Particulars (`) Particulars (`)
2,000
(Amount of profit on appropriation) To Profit tr. to: Vikas’ By Profit and Loss A/c (net 9,00,000
14. Profit and Loss Appropriation Account Capital A/c 4,72,500 4,57,500 profit)
Less: Deficiency (15,000)
Particulars ` Particulars `
Vivek’s Capital A/c 2,92,500
To Maneesh’s salary A/c 4,800 By Profit and Loss A/c – Net 40,000
3,15,000
(400 × 12) profit
Less: Deficiency (22,500)
To Girish’s Commission A/c 3,520 By Interest on Drawings A/c
Vandana’s Capital A/c
[10% of (40,000 – 4,800)] Maneesh 400
To Interest on Capital A/c Girish 350 750
1,12,500 1,50,000
Maneesh 7,000 Add: Deficiency received:
Girish 5,600 12,600 from Vikas 15,000
To Share of Profit transferred to from Vivek 22,500
Partners’ Current A/cs: 9,00,000 9,00,000
Maneesh 9,915 7. New profit sharing ratio of Kavita, Lalit and Mohan = 2 : 1 : 1.
Girish 9,915 19,830
40,750 40,750
Dr. Profit And Loss Appropriation A/c Cr.
Particulars (`) Particulars (`)
15. Profit and Loss Appropriation A/c for the year 2024-25
To Kavita’s capital A/c By Profit and Loss A/c (Net 76,000
Particulars ` Particulars `
Share of profit 38,000 profit)
To Interest on Capitals tr. to: By P&L A/c (Net profit) 80,000
A’s Capital A/c 10,000 By C’s Capital A/c 10,000 Less: Share in (4,000) 34,000
B’s Capital A/c 4,000 (C will account for and pay to deficiency
C’s Capital A/c 3,000 17,000 the firm the net profit earned To Lalit’s capital A/c
To Salary – A’s Capital A/c 18,000 by him from the similar Share of profit 19,000
To Commission – B’s Capital 5,000 business, i.e. `10,000) Less: Share in (2,000) 17,000
A/c (10/110 × 55,000) deficiency
To Share of Profit transfered to: To Mohan’s capital A/c
A’s Capital A/c 30,000
B’s Capital A/c 10,000
Share of profit 19,000
C’s Capital A/c 10,000 50,000 Add: Deficiency
90,000 90,000 received from:
  Kavita 4,000
COMPETENCY BASED QUESTIONS 1.4   Lalit 2,000 25,000
1. Since the firm suffers net loss during the year, therefore no interest on 76,000 76,000
capital, salary and commission will be allowed to partners. 8. Journal
Dr. Profit and Loss Appropriation Account Cr. Date Particulars L.F. Dr. (`) Cr. (`)
Particulars ` Particulars `
2025 Profit and Loss Appropriation A/c Dr. 1,20,000
To Profit and Loss A/c 75,000 By Loss transferred to: 31 To Mahesh’s Capital A/c 72,000
(Net Loss) Yadu’s Current A/c 30,000 Dec. To Dinesh’s Capital A/c 36,000
Madhu’s Current A/c 30,000 To Rakesh’s Capital A/c 12,000
Vidu’s Current A/c 15,000 75,000 (Profit distributed in profit sharing ratio 6 : 3 : 1)
75,000 75,000
Mahesh’s Capital A/c Dr. 7,800
2. Dr. Profit and Loss Appropriation Account Cr.
Dinesh’s Capital A/c Dr. 5,200
Particulars ` Particulars ` To Rakesh’s Capital A/c 13,000
To B’s Capital A/c: 2,500 By Profit and Loss A/c – Net 14,250 (Rakesh’s share of deficiency `13,000 borne by
Salary (`625 × 4) Profit b/d (Notes) Mahesh and Dinesh in 3:2)
To Interest on capital: A’s 4,800 Working Notes:
Capital A/c 3,000 Calculation of new profit sharing ratio:
B’s Capital A/c 1,800 6,950 Rakesh’s share = 1/10.
To Profit transferred to: A’s Therefore, remaining share = 1 – 1/10 = 9/10
Capital A/c 4,170
Mahesh’s new share = 2/3 of 9/10 = 18/30;
B’s Capital A/c 2,780
Dinesh’s new share = 1/3 of 9/10 = 9/30.
14,250 14,250 Thus, New ratio of Mahesh, Dinesh and Rakesh = 18/30 : 9/30 : 1/10
Working notes: Interest on A’s Loan = `1,00,000 × 6/100 × 6/12 = `3,000                 = 18 : 9 : 3 = 6 : 3 : 1
Manager’s Commission and Interest on Partner’s Loan are charged to Profit
and Loss Account.
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.93
9. Dr. Profit and Loss Appropriation A/c (for 2023-24) Cr. Working note: Loss of the firm = `22,00,000.
Particulars (`) Particulars (`) Komal’s share of loss = 22,00,000 × 1/11
To Partner’s capital A/c By Profit and Loss A/c (Net 40,000 = `2,00,000
(share of profit) profit) 2. Dr. Profit And Loss Appropriation A/c Cr.
Aman 16,000 16,000 Particulars (`) Particulars (`)
Babita (16,000 – 2000) 14,000 To Interest on capital By Profit and Loss A/c 1,50,000
Suresh (8,000 + 2000) 10,000 John’s Current A/c 25,000 (Net profit)
40,000 40,000 Mathew’s Current A/c 20,000
Dr. Profit and Loss Appropriation A/c (for 2024-25) Cr. Mohanty’s Current A/c 15,000 60,000
To Partner’s Current A/c
Particulars (`) Particulars (`) (share of profits)
To Partner’s capital A/c 60,000 By Profit and Loss A/c (Net 60,000 John 46,500
(share of profit) profit) Less: Share of deficiency (15,000) 31,500
Aman 24,000 Mathew 28,500
Mohanty 15,000
Babita 24,000
Add: Deficiency received 15,000 30,000
Suresh 12,000
1,50,000 1,50,000
60,000 60,000 Working Notes: John’s sacrificing share = Mathew’s sacrificing share = 1/2
10. Dr. Profit & Loss Appropriation A/c Cr. of 1/6 = 1/12
Particulars (`) Particulars (`) John’s new share = old share – sacrificing share = 3/5 – 1/12 = 31/60;
To Partners’ Capital A/c: P By Profit and loss A/c (net 4,00,000 Mathew’s new share = 2/5 – 1/12 = 19/60
2,18,750 profit) New ratio of John, Mathew and Mohanty = 31/60 : 19/60 : 1/6
Less Deficiency (15,000) 2,03,750 = 31 : 19 : 10
Q 1,31,250 3. Profit and Loss Appropriation Account
Less Deficiency (10,000) 1,21,250
Particulars (`) Particulars (`)
R 50,000
Add: From P 15,000 To Interest on Capital By Profit & Loss (Net Profit) 8,60,000
From Q 10,000 75,000 Arun - 15,000 By Arun’s Capital 2,80,000
Varun - 15,000
4,00,000 4,00,000 Tarun - 10,000 40,000
11. Profit Sharing Ratio of Ram, Mohan and Sohan 1/2 : 1/3 : 1/6 – 3 : 2 : 1 Partners’ Capital Accounts:
Dr. Profit and Loss Appropriation A/c Cr. Arun 5,50,000
(-) Share in deficiency
Particulars (`) Particulars (`) 12,000 5,38,000
To Interest on capital By Profit & Loss A/c 2,00,000 Varun 3,30,000
Ram 50,000 (Net profit) (-) Share in deficiency
Mohan 25,000 (-)18,000 3,12,000
Sohan 20,000 95,000 Tarun 2,20,000
To Partners Capital A/c + deficiency received from
Ram 52,500 Arun 12,000
Less: Deficiency (4,500) 48,000 Varun 18,000 2,50,000
Mohan 35,000 1,40,000 1,40,000
Less: Deficiency (3,000) 32,000 Working Notes:
Sohan 17,500 Arun’s deficiency of annual fee = `6,00,000 – `3,20,000 = `2,80,000
Add: Deficiency received from: Tarun’s deficiency in profits = `2,50,000 – `2,20,000
Ram 4,500 `30,000 to be borne by Arun & Varun in the ratio of 2:3 i.e. `12,000 and
Mohan 3,000 25,000 `18,000 respectively.
2,00,000 2,00,000 4. Dr. Profit and Loss Appropriation Account Cr.
Particulars (`) Particulars (`)
COMPETENCY BASED QUESTIONS 1.5 To P&L A/c – Net loss 6,00,000 By A's Capital A/c 3,75,000
1. Journal
To C’s Capital A/c By B's Capital A/c
Date Particulars L.F. Dr. (`) Cr. (`) (minimum guaranteed profit) 1,00,000 3,25,000
2025 Maanika’s capital A/c Dr. 2,40,000 7,00,000 7,00,000
31 Bhavi’s Capital A/c Dr. 1,60,000
Journal
Mar. To Komal’s Capital A/c 4,00,000
(the deficiency of Komal met by Maanika and Date Particulars L.F. Dr. (`) Cr. (`)
Bhavi) A’s Capital A/c Dr. 1,50,000
Dr. Profit and Loss Appropriation A/c Cr. B’s Capital A/c Dr. 1,00,000
To C’s Capital A/c 2,50,000
Particulars (`) Particulars (`)
(Deficiency borne by A and B in 3:2)
To Net Loss (Profit and Loss 22,00,000 By Loss transferred to
A/c) Maanika’s capital A/c 12,00,000 Working Notes:
Bhavi’s capital A/c 8,00,000 A B C
Komal’s Capital A/c 2,00,000 Loss Distributed 2,25,000 Dr. 2,25,000 Dr. 1,50,000 Dr.
22,00,000 22,00,000 Effect of Guarantee 1,50,000 Dr. 1,00,000 Dr. 2,50,000 Cr.
Net Effect 3,75,000 Dr. 3,25,000 Dr. 1,00,000 Cr.
1.94 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

5. Dr. Profit and Loss Appropriation Account Cr. 2. Books of Atul and Gita
Particulars (`) Particulars (`) Journal
To Salary – Nikhil’s Current 9,200 By P&L A/c – Net Profit Date Particulars L.F. Dr. (`) Cr. (`)
A/c (given) 1,20,000 Gita’s Current A/c Dr 2,400
To General Reserve 6,000 (+) Nikhil’s Salary To Atul’s Current A/c 2,400
(5% × `1,20,000) (`4,600 × 2) 9,200 1,29,200
(Adjustment for omission of Interest on
To Interest on Capital By Akhil’s Current A/c 9,000
Akhil’s Current A/c 6,000 (`25,000 – `16,000)
Capital)
(`1,00,000 × 6/100) (Deficiency of gross fee Adjustment Table
Nikhil’s Current A/c 5,100 11,100 earned) Atul Gita
(`80,000 × 6/100 + Particulars
`20,000 × 6/100 × 3/12) Dr. (`) Cr. (`) Dr. (`) Cr. (`)
To Profit transferred to Interest on Capital to be credited 24,000 12,000
Partners’ Current A/c
Akhil 67,140 Loss to be debited in the ratio of 3:2 21,600 14,400
Nikhil 44,760 1,11,900 Net Effect 2,400 2,400
1,38,200 1,38,200
3. Journal
6.
Dr. Profit & Loss appropriation A/c for Cr. Date Particulars L.F. Dr. (`) Cr. (`)
Particulars Particulars
Anand’s Current A/c Dr. 400 400
(`) (`)
To Interest on Capital: By Profit and Loss A/c 2,16,000
To Ridhi’s Current A/c
A’s Capital A/c 40,000 (Excess Interest allowed on capital, now
B’s Capital A/c 30,000 rectified)
C’s Capital A/c 20,000 90,000 Working Notes: Table showing adjustment
To B’s Capital A/c – Salary 36,000
To C’s Capital A/c – 12,000 Partners Dr. Interest on Cr. Profits Net Effect
Commission Capital @2% (`) (`) Dr. (`) Cr. (`)
To Profit transferred to:
A’s Capital A/c 26,000 Anand 2,000 1,600 400 -
B’s Capital A/c 26,000 Ridhi 1,200 1,600 - 400
C’s Capital A/c 26,000 78,000 Shyam 800 800 - -
2,16,000 2,16,000
7. Dr. Profit and Loss Appropriation Account Cr. 4,000 4,000 400 400
Particulars (`) Particulars (`) 4. Books of Meera, Neena and Ojas
To Amit’s capital A/c 42,000 By Profit and Loss A/c 75,000 Journal
Less: Share in deficiency (600) 41,400 (Net profit) Date Particulars L.F. Dr. (`) Cr. (`)
To Babita’s capital A/c 28,000 By Babita’s Capital A/c – 9,000
2025 Neena’s Capital A/c Dr. 250
Less: Share in deficiency (400) 27,600 Deficiency in guaranteed
Mar. Ojas’s Capital A/c Dr. 500
To Sona’s capital A/c 14,000 gross fees
31 To Meera’s Capital A/c 750
Add: Deficiency received from: (25,000 – 16,000)
Amit 600 (Omission of Interest on Drawings, now rectified)
Babita 400 15,000
Working Notes: Adjustment Table
84,000 84,000
Particulars Meera Neena Ojas
Dr. Cr. Dr. Cr. Dr. Cr.
NUMERICAL QUESTIONS 1.6 (`) (`) (`) (`) (`) (`)

1. Journal Entry Interest on Drawings to be debited 3,000 2,500 2,000

Date Particulars L.F. Dr. (`) Cr. (`) Profits of ` 7,500 credited in ratio 3,750 2,250 1,500
of 5 : 3 : 2
Ajay’s Capital A/c Dr. 52,000
Net Effect 750 250 500
To Manish’s Capital A/c 4,000
To Sachin’s Capital A/c 48,000 5. Journal
(Adjustment entry passed) Date Particulars L.F. Dr. (`) Cr. (`)
Working Notes: Adjustment Table Ram’s Capital A/c Dr. 180
Particulars Ajay Manish Sachin Total Sohan’s Capital A/c Dr. 630
To Mohan’s Capital A/c 810
Omission of Interest Cr. 48,000 64,000 88,000 2,00,000 (Adjustment entry for interest on drawings
on Capital wrongly charged)
Excess Profit now Dr. 1,00,000 60,000 40,000 2,00,000 Working Notes: Adjustment Table
debited in 5:3:2. Particulars Ram (`) Mohan (`) Sohan (`) Total
Net Effect 52,000 Dr. 4,000 Cr. 48,000 Cr. – Interest on drawings, wrongly 1,080 1,440 – 2,520
debited, now credited (1,260) (630) (630) (2,520)
Loss to be debited
Net Effect (180) Dr. 810 Cr. (630) Dr. –
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.95

Interest on drawings: Ram = (3,000 × 12) × 6/100 × 6/12 = `1,080; Working Notes: Interest is to be calculated for six months only.
Mohan = (4,000 × 12) × 6/100 × 6/12 = `1,440 Partners Dr. interest on drawings in Cr. Net effect
6. Adjustment Entry 3:2:1 profits Dr. Cr.
Date Particulars L.F. Dr. (`) Cr. (`) X 375 495 – 120
Vaibhav’s Capital A/c Dr. 5,667 Y 315 330 – 15
To Viraf ’s Capital A/c 2,600 Z 300 165 135 –
To Virat’s Capital A/c 3,067 990 135 135
(interest excessive charged, now rectified) 11. Journal
Working Notes: Adjustment Table Date Particulars L.F. Dr. (`) Cr. (`)
Particulars Viraf Virat Vaibhav Total Q’s Current A/c Dr. 500
Interest on capital over- Dr. 9,200 4,800 9,600 23,600 To P’s current A/c 500
credited by 4% (Being the adjustment of less interest on capital credited)
`23,600 credited in the Cr. 11,800 7,867 3,933 23,600
Working Notes: Adjustment Table
ratio 3 : 2 : 1
Particulars P(`) Q (`) Total (`)
Net effect 2,600 Cr. 3,067 Cr. 5,667 Dr. —
Interest on Capital less credited Cr. 2,000 1,000 3,000
7. Adjustment Entry by 2%, now credited
Date Particulars L.F. Dr. (`) Cr. (`) Share in Profit `3,000 less Dr. 1,500 1,500 3,000
2025 Kumar’s Current A/c Dr. 11,100 debited, now debited equally
31 To Raja’s Current A/c 11,100 Adjustment Cr. 500 Dr. 500 —
Mar. (adjustment made which was omitted earlier) 12. (i) Journal
Working Notes: Adjustment Table Date Particulars L.F. Dr. (`) Cr. (`)
Details Kumar (`) Raja (`) Total (`) A’s Current A/c Dr. 10,000
Amount already distributed Dr. 1,94,600 83,400 2,78,000 To C’s Current A/c 10,000
Amount should have been distributed: (Being interest on capital omitted, now rectified)
(i) Interest on capital Cr. 81,000 36,000 1,17,000 Past Adjustment Table
(ii) Salary Cr. 50,000 36,000 86,000 A B C Total (`)
(iii) Divisible profit Cr. 52,500 22,500 75,000
Omission of IOC Cr. 40,000 50,000 60,000 1,50,000
Total Cr. 1,83,500 94,500 2,78,000
Total divided in PSR Dr. 50,000 50,000 50,000 1,50,000
Net Effect 11,100 Dr. 11,100 Cr. –
8. JOURNAL Net Effect 10,000 (Dr.) – 10,000 (Cr.)
Date Particulars L.F. Dr. (`) Cr. (`) (ii) Journal
Diya’s Capital A/c Dr. 5,600 Date Particulars L.F. Dr. (`) Cr. (`)
To Raghav’s Capital A/c 5,600 R’s Capital A/c Dr. 1,300
(Omission of interest on capital rectified.) To P’s Capital A/c 400
To Q’s Capital A/c 900
Working Notes: Opening Capital = Closing Capital + Drawings – Profit
(Being interest on drawings omitted, now rectified)
For Raghav, Opening Capital = 4,00,000 + 24,000 – 50,000 = `3,74,000
For Diya, Opening Capital = 3,00,000 + 12,000 – 50,000 = `2,62,000 Past Adjustment Table
Raghav Diya P Q R Total (`)
Particulars
Dr. (`) Cr. (`) Dr. (`) Cr. (`) Omission of IOD 1,000 (Dr.) 500 (Dr.) 2,000 (Dr.) 3,500
Interest on Capital 37,400 26,200 Total divided in 1,400 (Cr.) 1,400 (Cr.) 700 (Cr.) 3,500
Loss 31,800 31,800 PSR
Net Effect 5,600 5,600 Net Effect 400 (Cr.) 900 (Cr.) 1,300 (Dr.)
9. Journal
13. Adjustment Entry
Date Particulars L.F. Dr. (`) Cr. (`)
Date Particulars L.F. Dr. (`) Cr. (`)
Ram’s current A/c Dr. 2,500
2025 Harry’s Capital A/c Dr. 5,000
To Shyam’s current A/c 2,500
31 Porter’s Capital A/c Dr. 5,000
(Being IOC omitted, now adjusted)
Mar. To Larry’s Capital A/c 10,000
Working Notes: (Adjustment redistribution of profits of last 3
Partners Cr. interest on capital Dr. profits Net Effect years `75,000)
Ram 50,000 52,500 2,500 Dr. Adjustment Table
Shyam 90,000 87,500 2,500 Cr. Particulars Harry Porter Larry Total
10. Journal (`) (`) (`) (`)
Date Particulars L.F. Dr. (`) Cr. (`) Total profits of last 3 years Dr. 30,000 30,000 15,000 75,000
distributed in 2 : 2 : 1 Cr. 25,000 25,000 25,000 75,000
Z’s Capital A/c Dr. 135
Share of Profit credited equally
To X’s Capital A/c 120
To Y’s Capital A/c 15 Dr. Dr. Cr.
Adjustment/Net Effect –
(Interest on drawings omitted, now adjusted) 5,000 5,000 10,000
1.96 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

14. Adjustment Entry Working Notes: Past Adjustment Table

Date Particulars L.F. Dr. (`) Cr. (`) Particulars X (`) Y (`) Z (`) Total (`)
2025 Mamta’s Current A/c Dr. 200 Profit already distributed Dr. 36,000 12,000 12,000 60,000
31 To Anju’s Current A/c 100 Interest on Drawings Dr. 700 500 300 1,500
Mar. To Manju’s Current A/c 100 Total Dr. 36,700 12,500 12,300 61,500
(Adjustment for omission of interest on
capitals for 3 years) Interest on Capitals Cr. 5,000 4,000 3,000 12,000
Salary Cr. 1,000 1,500 — 2,500
Adjustment Table Share of Profits credited Cr. 28,200 9,400 9,400 47,000
Particulars Anju Manju Mamta Total (`) in 3:1:1
Interest on capitals Cr. 1,500 1,200 900 3,600 Total Cr. 34,200 14,900 12,400 61,500
@5% p.a. for 3 years (500 × 3) (400 × 3) (300 × 3) (1,200 × 3) Adjustment/Net Effect Dr. 2,500 Cr. 2,400 Cr.100
Profit of 2023 Dr. 400 300 500 1,200 18. Journal
distributed in 4:3:5 Date Particulars L.F. Dr. (`) Cr. (`)
Profit of 2024 Dr. 600 400 200 1,200
2025 Mohan’s current A/c Dr. 38,000
distributed in 3:2:1
31 To Ravi’s current A/c 38,000
Profit of 2025 Dr. 400 400 400 1,200 Mar. (Wrong distribution of profit and omission of
distributed in 1:1:1 interest on capital and salary, now adjusted)
Total Dr. 1,400 1,100 1,100 3,600
Adjustment/Net Effect Cr. 100 Cr. 100 Dr. 200 Working Notes: Ravi (`) Mohan (`) Total (`)

15. Adjustment Entry Amount already distributed Dr. 2,52,000 2,52,000 5,04,000

Date Particulars L.F. Dr. (`) Cr. (`) Amount should have been
distributed
2025 Uday’s Capital A/c Dr. 3,408 (i) Interest on capital Cr. 1,20,000 84,000 2,04,000
31 To Mudit’s Capital A/c 3,408 (ii) Salary Cr. 72,000 60,000 1,32,000
Mar. (Rectifying entry for omissions) (iii) Divisible profit Cr. 98,000 70,000 1,68,000
Working Notes: Adjustment Table Total Cr. 2,90,000 2,14,000 5,04,000
Details Mudit (`) Uday (`) Total (`) Net Effect 38,000 (Cr.) 38,000(Dr.)
Omission of Interest on Capital Cr. 4,200 3,600 7,800
19. Adjustment Entry
Omission of Interest on Drawings Dr. 240 180 420
Omission of Commission Cr. 4,000 – 4,000 Date Particulars L.F. Dr. (`) Cr. (`)
Net Omissions Cr. 7,960 3,420 11,380 A’ s Current Account Dr. 5,640
Total divided in Profit Sharing Dr. 4,552 6,828 11,380 To B’s Current Account 4,860
Ratio 2 : 3 To C’s Current Account 780
(Being Adjustment entry passed)
Net Effect 3,408 (Cr.) 3,408 (Dr.) –
16. Journal Working Notes: A B C Total (`)
Date Particulars L.F. Dr. (`) Cr. (`) Profit distributed (3 : 2 : 1) Dr. 15,000 10,000 5,000 30,000
Omission of interest on capital Cr. 1,500 1,000 500 3,000
2025 Usha’s Capital A/c Dr. 6,816 Omission of salary Cr. – 6,000 – 6,000
31 To Mita’s Capital A/c 6,816 Omission of commission Cr. – – 1,350 1,350
Mar. (Rectifying entry for omission of IOC, IOD Share of profit (2 : 2 :1) Cr. 7,860 7,860 3,930 19,650
and Mita’s commission) Total Cr. 9,360 14,860 5,780 30,000
Past Adjustment Table Net Effect 5,640 (Dr.) 4,860(Cr.) 780(Cr.) –
Particulars Mita Usha Total 20. Journal
Omission of IOC Cr. 8,400 7,200 15,600 Date Particulars L.F. Dr. (`) Cr. (`)
2025 Nisha’s capital A/c Dr. 2,200
Omission of Mita’s Commission Cr. 8,000 – 8,000
31 To Asha’s capital A/c 300
Interest on Drawings Dr. 480 360 840 Mar. To Disha’s capital A/c 1,900
Net Omissions Cr. 15,920 6,840 22,760 (Omission of interest on capital and
Total divided in PSR Dr. 9,104 (Dr.) 13,656 (Dr.) commission, now rectified)
22,760(Cr.) Working Notes: Calculation of Opening Capitals and Interest on capitals:
Net Effect 6,816 (Cr.) 6,816 (Dr.) — Particulars Asha (`) Nisha (`) Disha (`)
17. Adjustment Entry Closing Capitals 1,50,000 1,20,000 90,000
Date Particulars L.F. Dr. (`) Cr. (`) Add Drawings 50,000 60,000 30,000
2025 X’s Current A/c Dr. 2,500 Less Profits (40,000) (40,000) (20,000)
31 To Y’s Current A/c 2,400 Opening Capitals 1,60,000 1,40,000 1,00,000
Mar. To Z’s Current A/c 100 Interest on Capital @ 10% p.a. 16,000 14,000 10,000
(Adjustment for omission of interest on capitals Interest on Drawings: Asha: `50,000 × 10/100 × 6/12 = `2,500
and drawings and salary) Nisha: `60,000 × 10/100 × 6/12 = `3,000; Disha: `30,000 × 10/100 ×
6/12 = `1,500
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.97
Adjustment Table Ekta Ankit Chahat
Particulars Asha (`) Nisha (`) Disha (`) Total (`) Closing Capitals 1,50,000 2,10,000 2,70,000
Less: Profits (20,000) (40,000) (60,000)
A. Omission of Interest on Cr. 16,000 14,000 10,000 40,000
Add: Drawings 24,000 24,000 24,000
capital Dr. 2,500 3,000 1,500 7,000
B. Omission of Interest on Opening Capitals 1,54,000 1,94,000 2,34,000
drawings Ekta Ankit Chahat Total
Difference (A – B) Cr. 13,500 11,000 8,500 33,000 Interest on Capital Cr. 15,400 19,400 23,400 58,200
Interest on Drawing Dr. 600 600 600 1,800
Loss to be debited (2 : 2 : 1) Dr. 13,200 13,200 6,600 33,000 Net Cr. 14,800 18,800 22,800 56,400
Net Effect/Adjustment 300 Cr. 2,200 Dr. 1,900 Cr. – Profits already distributed Dr. 9,400 18,800 28,200 56,400
Net Effect 5,400 (Cr.) Nil 5,400 (Dr.) ---
21. Journal
Date Particulars L.F. Dr. (`) Cr. (`) 24. Journal
2025 Saroj’s Capital A/c Dr. 2,350 Date Particulars L.F. Dr. (`) Cr. (`)
Mar. Mahinder’s Capital A/c Dr. 1,300 2025 Puneet’s capital A/c Dr. 1,000
31 To Umar’s Capital A/c 3,650 31 To Akshara’s capital A/c 1,000
(Being interest on capital and interest on Mar. (Omission of interest on capital and
drawings omitted, now adjusted) commission, now rectified)
Working Notes: Calculation of Opening Capital: Working Notes: Calculation of Opening Capitals and Interest on capitals:
Saroj Mahinder Umar Particulars Puneet (`) Akshara (`)
Closing Capitals 80,000 60,000 40,000 Closing Capitals 90,000 1,10,000
Less: Profits (40,000) (30,000) (10,000) Add: Drawings 30,000 40,000
Add: Drawings 24,000 24,000 36,000 Less: Profits (16,000) (24,000)
Opening Capitals 64,000 54,000 66,000 Opening Capitals 1,04,000 1,26,000
Interest on Capital @ 5% p.a. 5,200 6,300
Table showing adjustment
Adjustment Table
Particulars Saroj Mahinder Umar Total
Particulars Puneet (`) Akshara (`) Total (`)
Interest on Capital Cr. 6,400 5,400 6,600 18,400 Interest on capital Cr. 5,200 6,300 11,500
Interest on Drawing Dr. 550 550 900 2,000
Net Cr. 5,850 4,850 5,700 16,400
Commission Cr. – 4,000 4,000
Profits already distributed Dr. 8,200 6,150 2,050 16,400 Total amount of profit to be Cr. 5,200 10,300 15,500
Net Effect 2,350 (Dr.) 1,300 (Dr.) 3,650 (Cr.) --- credited
Loss to be debited (2 : 3) Dr. 6,200 9,300 15,500
22. Journal
Net Effect/Adjustment 1,000 Dr. 1,000 Cr. –
Date Particulars L.F. Dr. (`) Cr. (`)
25. Journal
Mar. Esha’s Capital A/c Dr. 6,250 Date Particulars L.F. Dr. (`) Cr. (`)
31 Manav’s Capital A/c Dr. 300
2025 To Daman’s Capital A/c 6,550 2025 Y’s Capital A/c Dr. 2,856
(Being interest on capital and interest on drawings April To X’s Capital A/c 2,856
omitted, now adjusted) 1 (Being interest on capital and salary omitted,
now adjusted)
Working Notes: Calculation of Opening Capital:
Working Notes: Calculation of Opening Capital:
Esha Manav Daman
X (`) Y(`)
Closing Capitals 3,20,000 2,40,000 1,60,000
Closing Capitals 1,30,000 1,00,000
Less: Profits (45,000) (30,000) (15,000)
Less: Profits (51,000) (34,000)
Add: Drawings 48,000 48,000 60,000
Add: Drawings 18,000 9,000
Opening Capitals 3,23,000 2,58,000 2,05,000 Opening Capitals 97,000 75,000
Table showing adjustment Interest on Capital @ 12% p.a. 11,640 9,000
Particulars Esha Manav Daman Total
X Y Total
Interest on Capital Cr. 32,300 25,800 20,500 78,600 Omission of Interest on Capital Cr. 11,640 9,000 20,640
Interest on Drawing Dr. 1,200 1,200 1,500 3,900
Net Cr. 31,100 24,600 19,000 74,700 Salary to X Cr. 9,000 9,000
Profits already distributed Dr. 37,350 24,900 12,450 74,700 Net loss to firm Dr. 17,784 11,856 29,640
Net Effect 6,250 (Dr.) 300 (Dr.) 6,550 (Cr.) --- Net Effect 2,856(Cr.) 2,856(Dr.) ---
23. Journal 26. Journal
Date Particulars L.F. Dr. (`) Cr. (`) Date Particulars L.F. Dr. (`) Cr. (`)
2025 Chahat’s Capital A/c Dr. 5,400 2025 Vikrant’s Capital Account Dr. 1,550
Mar. To Ekta’s Capital A/c 5,400 31 To Himanshu’s Capital Account 1,550
31 (Being interest on capital and interest on Mar. (Adjustment of interest on Capital and interest
drawings omitted, now adjusted) on drawings for previous year)
1.98 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Working Notes: Statement of Opening Capital 30. Journal

Particulars Himanshu (`) Vikrant (`) Date Particulars L.F. Dr. (`) Cr. (`)
Closing Capital 2,00,000 1,40,000 Profit and Loss Adjustment A/c Dr. 25,000
Add: Drawings 30,000 40,000 To Jain’s Current A/c 10,000
Less: Profit already Distributed (50,000) (50,000) To Gupta’s Current A/c 15,000
Opening Capital 1,80,000 1,30,000 (For omission of interest on capital)
Statement Showing Adjustment Jain’s Current A/c Dr. 15,000
Particulars Himanshu Vikrant Total (`) Gupta’s Current A/c Dr. 10,000
Profit already distributed Dr. 50,000 50,000 1,00,000 To Profit and Loss Adjustment A/c 25,000
12% Interest on Drawings for 6 Dr. 1,800 2,400 4,200 (For loss on adjustment in 3:2)
months COMPETENCY BASED QUESTIONS 1.6
Total Dr. 51,800 52,400 1,04,200
1. Journal
5% Interest on Capital Cr. 9,000 6,500 15,500
Share of profit Cr. 44,350 44,350 88,700 Date Particulars L.F. Dr. (`) Cr. (`)
Param’scurrent A/c Dr. 1,55,000
Total Cr. 53,350 50,850 1,04,200
Priya’s Current A/c Dr. 1,55,000
Adjustment 1,550 (Cr.) 1,550 (Dr.) To Prem’s Current A/c 3,10,000
27. Journal (Change in profit sharing ratio incorporated
Date Particulars L.F. Dr. (`) Cr. (`) retrospectively)
2025 L’s Capital A/c Dr. 4,228 Working notes: Table showing adjustments
1 To K’s Capital A/c 4,228 Particulars Prem Param Priya Total
April (Being interest on capital and salary omitted) Profits already distributed Dr. 3,10,000 4,65,000 7,75,000 15,50,000
Working Notes: Calculation of Opening Capital in 2 : 3 : 5
Profits to be distributed Cr. 6,20,000 3,10,000 6,20,000 15,50,000
K (`) L (`) in 2 : 1 : 2
Closing Capitals 80,000 1,00,000 Net effect 3,10,000 Cr. 1,55,000 Dr. 1,55,000 Dr. ---
Less: Profits (54,000) (36,000)
2. Journal
Add: Drawings 20,000 27,000
Opening Capitals 46,000 91,000 Date Particulars L.F. Dr. (`) Cr. (`)
Interest on Capital @ 6% p.a. 2,760 5,460 2025 Meenakshi’s Current A/c Dr. 960
Apr. Gauri’s Current A/c Dr. 3,840
Particulars K (`) L (`) Total (`) 1 To Kavita’s Current A/c 4,800
Cancellation of profits Dr. 54,000 36,000 90,000 (Adjustment for interest on capital for the year
Omission of IOC Cr. 2,760 5,460 8,220 2023-24 and 2024-25)
Salary Cr. 16,000 – 16,000
Working Notes: Table Showing Adjustment
Divisible profit Cr. 39,468 26,312 65,780
Total Cr. 58,228 31,772 90,000 Particulars Kavita Meenakshi Gauri Total
Net Effect 4,228 (Cr.) 4,228 (Dr.) – Interest on Capital (2023-24) Dr. 12,000 9,600 7,200 28,800
28. Journal Interest on Capital (2024-25) Dr. 12,000 9,600 7,200 28,800
Total Dr. 24,000 19,200 14,400 57,600
Date Particulars L.F. Dr. (`) Cr. (`) Profit to be credited (2023-24) Cr. 14,400 9,600 4,800 28,800
Profit and Loss Adjustment A/c Dr. 16,500 Profit to be credited (2024-25) Cr. 14,400 8,640 5,760 28,800
To Eden’s Capital A/c 7,500 Total Cr. 28,800 18,240 10,560 57,600
To Ivon’s Capital A/c 9,000 Adjustment 4,800 Cr. 960 Dr. 3,840 Dr.
(Interest on capital omitted) 3. Adjustment Entry
Profit and Loss Adjustment A/c Dr. 9,000
To Eden’s Capital A/c 9,000 Date Particulars Dr. (`) Cr. (`)
(Salary omitted earlier now provided) Manish’s Capital A/c – Dr 8,000
Eden’s Capital A/c Dr. 14,167 To Alok’s Capital A/c 8,000
Ivon’s Capital A/c Dr. 11,333 (Being adjustment entry passed for wrong
To Profit and Loss Adjustment A/c 25,500 distribution of profits)
(Loss on Adjustment transferred) Working Notes:
29. Journal Particulars Alok Manish
Profits Payable (inadequate so to be given 48,000 32,000
Date Particulars L.F. Dr. (`) Cr. (`)
in ratio of 3:2)
P & L Adjustment A/c Dr. 2,40,000
Profits already paid 40,000 40,000
To Sharma’s Current A/c 1,40,000
To Verma’s Current A/c 1,00,000
8,000 8,000
(Interest on Capital tr. to P & L Adjustment A/c) (payable) (recoverable)
Sharma’s Current A/c Dr. 12,000 4. Rectifying Journal Entry
Verma’s Current A/c Dr. 6,000 Date Particulars L.F. Dr. (`) Cr. (`)
To P & L Adjustment A/c 18,000 31 Bhanu’s Capital A/c Dr 11,000
(Interest on Drawings tr. to P & L Adjustment A/c) Mar., To Chand’s Capital A/c 3,000
Sharma’s Current A/c Dr. 1,33,200 2025 To Alia’s Capital A/c 8,000
Verma’s Current A/c Dr. 88,800 (Being Salary, profit share incorrectly
To P & L Adjustment A/c 2,22,000 distributed, now adjusted)
(Loss on adjustment tr. to Partners’ Capital accounts)
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.99
Working Notes: (ii) Calculation of Opening Capitals:
Firm’s
Particulars
Alia’s Bhanu’s Chand’s Details Alka (`) Hardik (`) Ramneek (`)
Dr Cr Dr Cr Dr Cr Dr Cr Closing Capitals 9,00,000 5,00,000 3,00,000
80,000 Profits Given 30,000 30,000 20,000 Less: Profits distributed (1,08,000) (36,000) (36,000)
40,000 Salary 18,000 4,000 18,000 Add: Drawings 40,000 60,000 40,000
40,000 Profit to be 15,000 15,000 10,000
Opening Capitals 8,32,000 5,24,000 3,04,000
credited
30,000 33,000 30,000 19,000 20,000 28,000 (iii) Adjustment Table
5. Adjustment Entry Particulars Alka (`) Hardik (`) Ramneek (`) Total (`)
Profit already distributed Dr. 1,08,000 36,000 36,000 1,80,000
Date Particulars L.F. Dr. (`) Cr. (`)
Interest on Drawings Dr. 1,000 1,500 1,000 3,500
2025 Eluin’s Capital A/c Dr. 570 Total Dr. 1,09,000 37,500 37,000 1,83,500
31 To Monu’s Capital A/c 10 Interest on Capitals Cr. 83,200 52,400 30,400 1,66,000
Mar. To Ahmed’s Capital A/c 560 Share of Profits Cr. 10,500 3,500 3,500 17,500
(Adjustment for omission of interest on Total Cr. 93,700 55,900 33,900 1,83,500
capitals and drawings) Adjustment/Net Effect Dr. 15,300 Cr. 18,400 Dr. 3,100 –
Working Notes 1: Calculation of Opening Capitals 8. Journal
Particulars Eluin Monu Ahmed Date Particulars L.F. Dr. (`) Cr. (`)
Closing Capital 80,000 60,000 40,000 2025 Rajiv’s Capital A/c Dr. 2,760
Add: Drawings 20,000 15,000 9,000 31 To Sanjeev’s Capital A/c 2,760
Less: Profit already distributed (60,000) (40,000) (20,000) Mar. (Being IOC omitted, now rectified)
Opening Capital 40,000 35,000 29,000 Working Notes: Past Adjustment Table
Working Notes 2: Adjustment Table Particulars Rajiv Sanjeev Total
Particulars Eluin Monu Ahmed Total (`) Omission of Interest on Capital Cr. 5,400 4,800 10,200
Profit already distributed Dr. 60,000 40,000 20,000 1,20,000 Profits wrongly distributed Dr. 52,000 8,000 60,000
Interest on Drawings Dr. 500 360 200 1,060 Profits correctly distributed Cr. 43,840 5,960 49,800
Total Dr. 60,500 40,360 20,200 1,21,060 Net Effect 2,760 (Dr.) 2,760 (Cr.) –
Interest on Capitals Cr. 2,000 1,750 1,450 5,200
Share of Profits Cr. 57,930 38,620 19,310 1,15,860 Self Assessment Test-1
Total Cr. 59,930 40,370 20,760 1,21,060 1. (d) 2. (b) 3. (a) 4. (b)
Adjustment/Net Effect Dr. 570 Cr. 10 Cr. 560 5. Journal
6. Adjusting Entry Date Particulars L.F. Dr. (`) Cr. (`)
Date Particulars L.F. Dr. (`) Cr. (`) 2025 Profit & Loss A/c Dr 1,20,000
31 To Profit & Loss Appropriation A/c 1,20,000
2025 Anil’s capital A/c Dr. 75
Mar. (Net profit transferred)
31 Vineet’s capital A/c Dr. 255
2025 Profit & Loss Appropriation A/c Dr 1,20,000
Mar. To Vipul’s capital A/c 330 31 To Chaman’s Capital A/c 60,000
(Being adjustment entry passed for omission Mar. To Burman’s Capital A/c 40,000
of interest on drawings) To Aman’s Capital A/c 20,000
Working Notes: (Distribution of profit among partners)
(1) Interest on Partner’s drawings @ 6% p.a. for 6 months 2025 Chaman’s Capital A/c Dr 24,000
31 Burman’s Capital A/c Dr 16,000
Anil: 30,000 × 6/100 × 6/12 = `900
Mar. To Aman’s Capital A/c 40,000
Vineet: 25,000 × 6/100 × 6/12 = `750 (Deficiency of Aman, met by Chaman and Burman
(2) Vipul’s withdrawal of capital `2,50,000 is not drawings. Hence, no in the ratio of 3:2)
interest on drawings has been calculated:
6. Profit & Loss Appropriation A/c for the year 2024-25
Past Adjustment Table
Particulars ` Particulars `
Particulars Anil Vineet Vipul Total (`) To Interest on Capital: By Profit and Loss A/c 1,47,000
Interest on drawings (Dr.) 900 750 – 1,650 Jain’s Capital A/c 29,400
Profit (5 : 3 : 2) (Cr.) 825 495 330 1,650 Gupta’s Capital A/c 44,100
Net effect 75 (Dr.) 255 (Dr.) 330 (Cr.) – Singh’s Capital A/c 73,500 1,47,000
7. Adjustment Entry 1,47,000 1,47,000
Date Particulars L.F. Dr. (`) Cr. (`) Working notes: Calculation of Interest on Capital:
2025 Alka’s Capital A/c Dr. 15,300 (a) Interest on Jain’s Capital: `40,000
31 Ramneek’s Capital A/c Dr. 3,100 (b) Interest on Gupta’s Capital: `60,000
Mar. To Hardik’s Capital A/c 18,400 (c) Interest on Singh’s capital: `1,00,000
(interest on capital and interest on drawings `2,00,000
omitted, now adjusted) The available profit is `1,47,000. Since the profit is less than interest, the
Working Notes: (i) Calculation of Interest on Drawings: available profit will be distributed in the ratio of interest i.e. 40,000 : 60,000
Alka and Ramneek each = 40,000 × 5/100 × 6/12 = `1,000 and Hardik = : 1,00,000 = 2:3:5
60,000 × 5/100 × 6/12 = `1,500
1.100 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

7. Adjustment Entry 6. Profit & Loss Appropriation A/c for the year 2024-25
Date Particulars L.F. Dr. (`) Cr. (`) Particulars ` Particulars `
2025 Bhanu’s Capital A/c Dr. 21,000 To Interest on Capital: By Profit and loss A/c 2,00,000
31 Chand’s Capital A/c Dr. 2,000 Brij’s Capital A/c 80,000
Mar. To Alia’s Capital A/c 23,000 Nandan’s Capital A/c 1,20,000 2,00,000
2,00,000 2,00,000
(Salary, Commission to partners missed in
distribution of profit, guarantee to Alia, now adjusted) Working Notes: Interest on capital of Brij = `1,20,000
Interest on capital of Nandan = `1,80,000
Working Notes: Adjustment Table Total interest payable = `3,00,000. But Net Profit = `2,00,000 only.
Particulars Alia (`) Bhanu (`) Chand (`) Total (`) Proportionate profit/Interest on capital:
Profit already distributed Dr. 30,000 30,000 20,000 80,000 Brij = 1,20,000/ 3,00,000 × 2,00,000 = `80,000
Salary Cr. 18,000 – 18,000 36,000
Nandan = 1,80,000 / 3,00,000 × 2,00,000
Commission Cr. – 4,000 – 4,000
Share of Profit* Cr. 35,000 5,000 Nil 40,000
= `1,20,000
Total Cr. 53,000 9,000 18,000 80,000 7. Adjustment Entry
Adjustment/Net Effect Cr. 23,000 Dr. 21,000 Dr. 2,000 Date Particulars L.F. Dr. (`) Cr. (`)
*Divisible profits = `40,000 to be distributed in 3:3:2. Alia’s share = `15,000; 2025 Sudhir’s Current A/c Dr. 6,000
Bhanu’s share = `15,000; Chand’s share = `10,000. Deficiency is Alia’s share of profit 31 To Sanjay’s Current A/c 1,000
= `35,000 – `15,000 = `20,000, to be borne equally by Bhanu and Chand. Mar. To Shakti’s Current A/c 5,000
Net share of divisible profit: Alia: `15,000 + `20,000 = `35,000; Bhanu: (Interest on capital, salary and commission to
`15,000 – 10,000 = `5,000; Chand: `10,000 – 10,000 = nil. partners missed in distributing profits, now
8. Dr. Profit And Loss Appropriation A/c Cr. adjusted)
Particulars ` Particulars ` Working Notes: Adjustment Table
To Partners’ Current A/c By Profit and Loss A/c (Net 1,20,000 Particulars Sanjay (`) Sudhir (`) Shakti (`) Total (`)
Shreya 78,508 Profit) Profit already distributed Dr. 60,000 20,000 20,000 1,00,000
Vivek 42,992 1,21,500 By Interest on Drawings Interest on Capitals Cr. 10,000 4,000 3,000 17,000
Shreya’s Current A/c 450 Salary Cr. 18,000 – – 18,000
Commission Cr. 3,000* – 12,000 15,000
Vivek’s Current A/c 1050 1,500
Share of Profit Cr. 30,000 10,000 10,000 50,000
1,21,500 1,21,500 Total Cr. 61,000 14,000 25,000 1,00,000
Dr. Partners’ Capital A/c Cr. Adjustment/Net Effect Cr. 1,000 Dr. 6,000 Cr. 5,000 –
Particulars Shreya (`) Vivek (`) Particulars Shreya (`) Vivek (`) *Sanjay’s Commission = `53,000 × 6/106
To Balance c/d 3,00,000 2,00,000 By Balance b/d 3,00,000 2,00,000 = `3,000
3,00,000 2,00,000 3,00,000 2,00,000
8. Journal
Dr. Partner’s Current A/c Cr. Date Particulars L.F. Dr. (`) Cr. (`)
Particulars Shreya (`) Vivek (`) Particulars Shreya (`) Vivek (`) 2025 Bobby’s Capital A/c Dr. 14,402
To Balance b/d – 28,000 By Balance b/d 1,00,000 – Apr To Abhir’s Capital A/c 10,112
To Drawings 12,000 30,000 By P& L App. 78,508 42,992 1 To Vineet’s Capital A/c 4,290
To Interest on 450 1,050 A/c (Being interest on Capital and interest on drawings
drawings By Balance c/d – 16,058 omitted, now rectified)
To Balance c/d 1,66,058 – Working Notes:
1,78,508 59,050 1,78,508 59,050 (i) Interest on Abhir’s drawings = 2,40,000 × 6/100 × 5.5/12 = `6,600
Working Notes: Interest on Bobby’s drawings = 1,00,000 × 6/100 × 9/12 = `4,500
Particulars Shreya (`) Vivek (`) Interest on Vineet’s drawings = 1,00,000 × 6/100 × 5/12 = `2,500
Interest on Capital 24,000 16,000 Total `13,600
Salary 60,000 – (ii) Calculation of opening capitals and interest on capitals:
Commission – 30,000
Particulars Abhir Bobby Vineet
Amount to be paid 84,000 46,000
Capital on 31-­3-­2025 8,00,000 6,00,000 4,00,000
Total amount to be paid = 84,000 + 46,000 = `1,30,000. Since profits Less: Share of profit (60,000) (60,000) (30,000)
available (including interest on drawings) = 1,20,000 + 1,500 = `1,21,500, Add: Drawings 2,40,000 1,00,000 1,00,000
therefore, appropriations will be made to the extent of `1,21,500 only in Capital on 1-4-2024 9,80,000 6,40,000 4,70,000
the ratio of 84,000 : 46,000 = 42 : 23. Total Interest on Capital @ 10% p.a. = 98,000 + 64,000 + 47,000
Self Assessment Test-2       = ` 2,09,000
1. (b) 2. (c) 3. (d) 4. (c) Profits available = `1,50,000 + 13,600 = `1,63,600
5. Dr. Profit and Loss Appropriation Account Cr. Therefore, Interest on Capital will be given to the extent of `1,63,600 in
for the year ending on 31st March 2025 the ratio of Interest on Capitals i.e., 98:64:47. Abhir = 98/209 × 1,63,600
Particulars ` Particulars ` = `76,712; Bobby = 64/209 × 1,63,600 = `50,098; Vineet = 47/209 ×
To Interest on Capital By P&L A/c 22,600 1,63,600 = `36,790
Misha’s Capital 5,000 (Net Profit) (iii) Past Adjustment Table
Prisha’s Capital 3,000 8,000 By Interest on Drawings Particulars Abhir (`) Bobby (`) Vineet (`) Total (`)
To Profit transferred to Misha’s Capital 660 Cancellation of profits Dr. 60,000 60,000 30,000 1,50,000
Misha’s Capital 9,480 Prisha’s Capital 540 1,200 Omission of interest Dr. 6,600 4,500 2,500 13,600
Prisha’s Capital 6,320 15,800 on drawings
23,800 23,800 Total Dr. 66,600 64,500 32,500 1,63,600
Chapter-1 Accounting for Partnership Firms: Basic Concepts SUBHASH DEY (Shree Radhey Publications) 1.101

Omission of Cr. 76,712 50,098 36,790 1,63,600 Past Adjustment Table

interest on capitals Particulars Mohan Vijay Anil Total
Net Effect 10,112 (Cr.) 14,402 (Dr.) 4,290 (Cr.) – Profit already distributed Dr. 8,000 8,000 8,000 24,000
Interest on Drawings Dr. 250 200 150 600
Self Assessment Test-3 Total Dr. 8,250 8,200 8,150 24,600
1. (a) 2. (d) 3. (d) 4. (c) Interest on Capitals Cr. 2,700 2,100 1,500 6,300
5. Journal Share of Profits* Cr. 5,900 5,900 6,500 18,300
Date Particulars L.F. Dr. (`) Cr. (`) Total Cr. 8,600 8,000 8,000 24,600
2025 Interest On Capital A/c Dr. 1,44,000 Adjustment/Net Effect Cr. 350 Dr. 200 Dr. 150
31 To E’s Current A/c 36,000 *Distributable profit = `18,300. Each Partner’s Share = 1/3 of `18,300 =
Mar. To F’s Current A/c 48,000 `6,100.
To G’s Current A/c 60,000 Anil’s share of profit (including Interest on Capital) = 6,100 + 1,500 =
(Interest on Capital Credited to Partners’ Capital A/c)
7,600. Deficiency of profit = 8,000 – 7,600 = `400, to be borne by Mohan
P& L Appropriation A/c Dr. 1,44,000
To Interest on Capital A/c 1,44,000
and Vijay equally. Thus, Mohan’s share of profit = Vijay’s share of profit =
(Interest on capital transferred to P & L App. A/c) 6,100 – 200 = `5,900 and Anil’s share of profit = `6,500.
P& L Appropriation A/c Dr. 66,000
To E’s Current A/c 19,800 Self Assessment Test-4
To F’s Current A/c 19,800 1. (b) 2. (a) 3. (c) 4. (a)
To G’s Current A/c 26,400 5.
(Profit on Appropriation transferred)
Dr. Profit & Loss Appropriation A/c Cr.
6. Settlement of the dispute between Harshad and Dhiman: Particulars ` Particulars `
(i) Interest on capital will not be provided since there is no partnership To Interest on Capital: 7,800 By Profit and Loss A/c 7,800
agreement. Jay’s Capital A/c 7800 ×
(ii) Interest on Harshad’s loan will be given @ 6% p.a., i.e. `1,00,000 × 8/13 = 4800
6/100 × 6/12 = `3,000. Vijay’s Capital A/c 7800 ×
(iii) No remuneration shall be allowed to Dhiman for taking part in the 5/13 = 3000
conduct of the business of the firm. 7,800 7,800
(iv) Net profit after charging interest on Harshad’s loan `1,77,000 Working notes:
(i.e. `1,80,000 – `3,000) will be distributed equally between Calculation of Interest on Capital @9% p.a:
the partners, irrespective of the capital contribution by them, i.e. (a) Interest on Jay’s Capital: 7,200
`88,500 each. (b) Interest on Vijay’s Capital:  4,500
Dr. Profit and Loss Appropriation A/c Cr. 11,700
Particulars ` Particulars ` Available profit is `7,800. Since the profit is less than interest, the available
To Share of profits: By Profit and Loss A/c (net profit 1,77,000 profit will be distributed in the ratio of interest i.e. 7,200 : 4,500 or 8 : 5.
Harshad's Capital A/c 88,500 after Interest on Harshad's loan) 6. Journal
Dhiman's Capital A/c 88,500 (1,80,000 – 3,000)
Date Particulars L.F. Dr. (`) Cr. (`)
1,77,000 1,77,000
Adit’s Current A/c Dr. 1,000
7. To Suhaan’s Current A/c 1,000
Partners Interest on Salary Payable Salary Excess / Deficiency (Adjustment entry for Interest on Capital
Capital Paid (wrong (iii) Payable credited at a higher rate)
(2%) (i) credit) (ii) (iv)
Working Notes: Statement of Adjustment
P 800 Dr. 12,000 Dr. 1152 ---- 11,648 (Excess) Dr.
Q 640 Dr. ---- 384 12,000 11,744
Particulars Mohan Suhaan Adit
Cr. (Deficiency) Cr. (`) (`) (`)
R 480 Dr. ---- 384 ---- 96 (Excess) Dr. Interest on capital to be debited (6,000) (3,000) (3,000)
1,920 1,920 Profit to be credited now 6,000 4,000 2,000
(`12,000 in 3:2:1)
Date Particulars L.F. Dr. (`) Cr. (`)
Adjustment – 1,000 Cr. (1,000) Dr.
P’s Capital A/c Dr 11,648
7. Books of Jatin, Keshav and Lalit
R’s Capital A/c Dr 96
Journal
To Q’s Capital A/c 11,744
(Being entry passed for adjustment of interest Date Particulars L.F. Dr. (`) Cr. (`)
on capital and salary) 2025 Jatin’s Current A/c Dr. 1,000 1,000
8. Adjustment Entry April To Keshav’s Current A/c
Date Particulars L.F. Dr. (`) Cr. (`) 1 (Omission of Interest on Capital, now
2025 Vijay’s Capital A/c Dr. 200 rectified)
31 Anil’s Capital A/c Dr. 150 Working Notes: Adjustment Table
Mar. To Mohan’s Capital A/c 350 Particulars Jatin Keshav Lalit
(Adjustment for omissions) Dr. (`) Cr. (`) Dr. (`) Cr. (`) Dr. (`) Cr. (`)
Particulars Mohan Vijay Anil Interest on Capital to be
Closing Capital 30,000 25,000 20,000 credited
Add: Drawings 5,000 4,000 3,000 2023-24 12,000 10,000 8,000
Less: Profit already distributed (8,000) (8,000) (8,000) 2024-25 12,000 10,000 8,000
Opening Capital 27,000 21,000 15,000
1.102 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume I: Accounting for Partnership Firms

Profits of ` 30,000 reversed 15,000 9,000 6,000 Working Notes: Calculation of Opening Capital
in ratio of 5:3:2 for 2023- Particulars Manoj (`) Nitin (`)
24
Closing Capital 90,000 80,000
Profits of ` 30,000 reversed 10,000 10,000 10,000 Add: Drawings 40,000 20,000
in ratio of 1:1:1 for 2024- Less: Profit (`30,000 in 2:1) (20,000) (10,000)
25
Net Effect 1,000 1,000 Opening Capital 1,10,000 90,000
8. Statement of Adjustment
Dr. Profit and Loss Appropriation A/c Cr. Particulars Manoj (`) Nitin (`)
Particulars ` Particulars ` Amount to be credited 11,000 9,000
To Interest on Capital: By Profit and Loss A/c 3,00,000 Interest on Capital (3,000) (2,000)
Moli’s Current A/c 25,000 (3,06,000 – 6,000) Less: Interest on Drawings 8,000 7,000
Bhola’s Current A/c 40,000 By Interest on Drawings:
Raj’s Current A/c 20,000 85,000 Moli’s Current A/c  1,800 Amount to be debited now (10,000) (5,000)
To Salary–Moli’s Current A/c 4,000 Bhola’s Current A/c 3,300 (`15,000 in 2:1)
To Commission–Bhola’s 30,000 Raj’s Current A/c 2,400 7,500 Adjustment (2,000) Dr 2,000 Cr
Current A/c 7. Profit & Loss Appropriation A/c
To Profits transferred to:
Moli’s Current A/c 56,550 19,250 Particulars ` Particulars `
Less: guarantee (37,300) To Interest on capitals: By Net Profit 1,56,000
Bhola’s Current A/c 56,550 19,250 A's current A/c 3,000
Less: guarantee (37,300) B's current A/c 3,000
Raj’s Current A/c 75,400 C's current A/c 4,000 10,000
Add: from Moli 37,300 1,50,000 To Salary–C's current A/c 6,000
Add: from Bhola 37,300 To Profit transferred to:
3,07,500 3,07,500 A's current A/c 51,000
Dr. Partner’s Current Accounts Cr. B's current A/c 45,000
Particulars Moli Bhola Raj Particulars Moli Bhola Raj C's current A/c 44,000 1,40,000
To Drawings A/c 40,000 60,000 80,000 By Interest on 25,000 40,000 20,000 1,56,000 1,56,000
To Interest on capital A/c 4,000 – –
Drawings 1,800 3,300 2,400 By Salary A/c – 30,000 –
Journal
To Balance c/d Commission A/c Date Particulars L.F. Dr. (`) Cr. (`)
6,450 25,950 87,600 By P & L App. A/c 19,250 19,250 1,50,000
Profit & Loss Appropriation A/c Dr. 1,40,000
– share of profit
To A’s Current A/c 51,000
To B’s Current A/c 45,000
48,250 89,250 1,70,000 48,250 89,250 1,70,000 To C’s Current A/c 44,000
(Being profit appropriated)
Self Assessment Test-5 8. Adjustment Entry
1. (c) 2. (c) 3. (b) 4. (a)
5. Profit & Loss Appropriation A/c for the year ending on 31st March Date Particulars L.F. Dr. (`) Cr. (`)
2025 2025 Nusrat’s Capital A/c Dr. 960
Particulars ` Particulars ` 31 To Himesh’s Capital A/c 90
Mar. To K.K.’s Capital A/c 870
To Interest on Capital: By Profit & Loss A/c 12,600
(Being adjustment made for omissions)
Jay’s Capital A/c 5,400 (Net profit)
Vijay’s CapitalA/c 7,200 12,600 Notes:
12,600 12,600 1. Calculation of opening capitals:
Working Notes: Nusrat (`) Himesh (`) K.K. (`)
Interest on Capital: Closing capital 24,000 18,000 12,000
A = 12% of 60,000 = 7,200 + Drawings 3,600 4,500 2,700
B = 12% of 80,000 = 9,600 – Profit already distributed (18,000) (12,000) (6,000)
Total interest =16,800. But Net Profit = `12,600 only.
Opening capital 9,600 10,500 8,700
Since profits are insufficient Interest on capital will be distributed in the
ratio of 7,200 : 9,600 i.e. 3 : 4 2. Nusrat (`) Himesh (`) K.K. (`) Total (`)
A = 3/7 of `12,600 = `5,400 Profit already distributed Dr. 18,000 12,000 6,000 36,000
B = 4/7 of `12,600 = `7,200 Interest on capital Cr. 960 1,050 870 2,880
6. Journal Profit* Cr. 16,080 11,040 6,000 33,120
Date Particulars L.F. Dr. (`) Cr. (`) Total Cr. 17,040 12,090 6,870 36,000
Net effect 960 (Dr.) 90 (Cr.) 870 (Cr.) —
Manoj’s Capital A/c Dr. 2,000
Distributable profit = `33,180 (Nusrat `16,560; Himesh `11,040 and
To Nitin’s Capital A/c 2,000
K.K. `5,520). K.K.’s deficiency `480 borne by Nusrat.
(Adjustment entry for omission of Interest
on Capital and Interest on Drawings)