www.vedantu.com Part 01 CHAPTER 02 Accounting for Partnership: Basic Concepts Question 1 Define Partnership Deed. Answers: Partnership Deed is referred to as the agreement between two or more parties among themselves in order to build the agreements and the terms of the partnership. The agreement of the partnership which is enshrined in the partnership deed is binding upon all the parties of the partnership. Thus the document which contains of all such formal agreements for the partnership is known as Partnership Deed. It is important here to highlight that these agreements can be both written and of verbal nature, but when the cases arrive before the court than law only recognizes the formal written agreement which is in place between the partners. Question 2 Explain in 50 words as to why is it considered desirable to make the partnership agreement in writing. Answers: It is important for the partnership to be written in the formal manner because the partnership is the formal relation between two or more than two parties and hence the written terms and conditions creates the legal and the ethical binding upon the members of the partnership to function as per the agreements established in the Partnership Deed. Hence the partners are in the safe zone after having created
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Part 01
CHAPTER 02
Accounting for Partnership: Basic Concepts
Question 1
Define Partnership Deed.
Answers: Partnership Deed is referred to as the agreement
between two or more parties among themselves in order to
build the agreements and the terms of the partnership. The
agreement of the partnership which is enshrined in the
partnership deed is binding upon all the parties of the
partnership. Thus the document which contains of all such
formal agreements for the partnership is known as Partnership
Deed. It is important here to highlight that these agreements
can be both written and of verbal nature, but when the cases
arrive before the court than law only recognizes the formal
written agreement which is in place between the partners.
Question 2
Explain in 50 words as to why is it considered desirable to
make the partnership agreement in writing.
Answers: It is important for the partnership to be written in
the formal manner because the partnership is the formal
relation between two or more than two parties and hence the
written terms and conditions creates the legal and the ethical
binding upon the members of the partnership to function as
per the agreements established in the Partnership Deed.
Hence the partners are in the safe zone after having created
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the Partnership Deed in the formal written manner because
the partners can approach the court which recognizes the
written agreement in the cases of the disputes.
Question 3
List the items which may be debited or credited in capital
accounts of the partners when:
i. Capitals are fixed
ii. Capitals are fluctuating
Answer: A partner’s capital account is prepared under the
two methods: (i) Fixed capital method and (ii) Fluctuating
capital method.
(i) Under fixed capital account there will be two accounts for
each partner namely the partners’ capital account and
partner’s current account. Capital account is credited only
when fresh capital is introduced or debited when capital is
withdrawn. When there is no addition or withdrawal during a
year, capital remains as it is and only current accounts record
transactions related to drawings, interest on drawings, interest
on capital, commission, salary, profit and loss share etc.
(ii) Under Fluctuating capital account: Only one capital
account keeps changing during the year. There is no current
account prepared or maintained under this method. All the
transactions are related to the drawings, interest on drawings,
interest on capital, commission, salary, and profit and loss
share.
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Question 4
Why is Profit and Loss Adjustments Account prepared?
Explain.
Answer: The preparation of the Profit and Loss account is
made in order to create the relevant adjustments after the
preparation of the Profit and Loss account is prepared after
preparing profit and loss account and the balance sheet. They
are prepared in the subsequent accounting period if any errors
or omissions are noticed. Such errors and omissions are
adjusted through profit and loss adjustment account. Besides
errors and mistakes rectification, this account is also prepared
to distribute the profit and loss among partners. These account
acts as a substitute for profit and loss appropriation account.
Question 5
Give two circumstances under which the fixed capitals of
partners may change.
Answer: Capital is referred to as the contribution made by the
partner or the owner of the organization to the business. The
partner’s capital accounts is prepared under the following two
methods:
(i) Fixed capital method and (ii) Fluctuating capital method.
The circumstances under which the fixed capital may change
are:
1. When the additional capital is introduced in the during the
year.
2. When the withdrawals from the capital are made for the
temporary period by any partner of the firm.
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Question 6
If a fixed amount is withdrawn on the first day of every
quarter, for what period the interest on total amount
withdrawn will be calculated?
Answer: In the cases when the amount is withdrawn at the
beginning of the every quarter, the interest on the drawings is
calculated for the period of 1
72
months. The interest on
drawings is referred to as the interest charged on the drawings
made by the partner of the organization. Thus, in the instanced
case of a person withdrawing 2000 on the first day of the
quarter, at the rate of the interest of drawings at 10% the
interest on the drawings will be 1
2000 72
/12 months10
100 = 1,250
Question 7
In the absence of Partnership Deed, specify the rules relating
to the following:
i. Sharing of profits and losses.
ii. Interest on partner’s capital.
iii. Interest on Partner’s drawings.
iv. Interest on Partner’s loan.
v. Salary to partner.
Answers: The law has not made it compulsory to prepare
partnership deed for creation for mutual agreement between
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the partners in a partnership deed. In the absence of
partnership deed, the below rules apply:
(i) Sharing of profits and losses: Partners share losses and
profits equally
(ii) Interest on partners’ capital: Partners are not entitled for
any interest on capital balances.
(iii) Interest on Partner’s drawings: No interest is to be
charged on partners drawings.
(iv) Interest on partner’s loan: Interest of 6% p.a. is allowed
on any loan other than capital.
(v) Salary to partner: Partners are not entitled to any salary
or remuneration.
Question 8
What is partnership? What are its chief characteristics?
Explain.
Answers: According to Sec 4 of Partnership act 1932,
partnership is a mutual agreement between two or more
partners who decide to enter into a partnership deed or
agreement and share profit or losses as agreed upon. People
who join hands together are known as partners and the
collectively it is called a firm. The important characteristics
of partnership are:-
1. Two or more person: To enter into a partnership, there
must be at least two or more people with a common
goal. The maximum number of partners can be 20 for
businesses other than banking and for banking they
must be 10.
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2. Partnership deed: Partnership relation is an outcome of
an agreement between two or more parties. There are
certain terms and conditions that bind the partners into
relationship. The document which contains the written
agreement is called the partnership deed.
3. Business: Partnership should be formed to carry out
legal business because any type of illegality will not be
a valid business.
4. Profit and loss sharing: There is sharing of profits and
losses equally or at a ratio agreed upon by the partners.
5. Liability: There is unlimited liability under partnership.
If the partners are liable to pay to the third party, even
their personal property would not be spared.
Question 9
Discuss the main provisions of the Indian Partnership Act
932 that are relevant to partnership accounts if there is no
partnership deed.
Answer: There must be a partnership deed among the
partners before entering into a partnership. However, the law
has not made it compulsory to prepare partnership deed for
creation for mutual agreement between the partners in a
partnership. In the absence of partnership deed, the below
rules apply;
(i) Sharing of profits and losses: Partners are entitled to share
equally the profits earned by the firm and contribute equally
to the losses sustained by the firm.
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(ii) Interest on partners’ capital: Partners are not entitled for
any interest on capital balances. Sec 13, clause c provides that
the interest on capital is payable out of profits only, where
there is agreement for interest on capital payment.
(iii) Interest on Partner’s drawings: No interest is to be
charged on partners’ drawings.
(iv) Interest on partner’s loan or advances: - Interest of 6%
p.a. is allowed on any loan other than capital.
(v) Right to remuneration: Partners are not entitled to any
salary or remuneration or commission for taking part in the
conduct of the business or for services rendered.
Question 10
Explain why it is considered better to make a partnership
agreement in writing.
Answer: - Partnership relation is an outcome of an agreement
between two or more parties. There are certain terms and
conditions that bind the partners into relationship. The
document which contains the written agreement is called the
partnership deed. It is always desirable to make the
partnership agreement in writing. It is safer and more prudent
as the written agreement turns out to be helpful in case of
disputes which can be referred to in the future. It ensures
smooth functioning of the business as it helps in settling the
disputes if any. Partners might be sharing very good relations
now but there is no guarantee the relations remain the same in
the future. Hence, to keep up the good relations and give
legality to the business it is always advisable to make
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partnership agreement in writing to make the terms and
conditions clear.
Question 11
Illustrate how interest on drawings will be calculated under
various situations.
Answer: The interest on the drawing is an income for the
organization as the drawings are referred to as the amounts
which are withdrawn by the partners of the organization
from the firm for their personal use. Thus, organizations are
expected to charge the interest in the drawings which are
made by the Partners. The method of the calculation of the
interest in the drawings is dependent upon the time and the
frequency of the drawings. Following are the cases when the
interest on the drawings are calculated by the organization:
1. When the information about the amount, date and the rate
of the interest on drawing is mentioned.
2. When the information of the Date or time is not given but
the rate of interest p.a. and amount is given. In such cases the
time is considered to be 6 months.
3. When the fixed amount is withdrawn at the regular interval.
This can happen at the beginning, middle or the end of each
month. When the withdrawals are made in the beginning of
the month than the annual interest is calculated for the 6.5
months; similarly for the withdrawals made at the middle of
the month than the interest is calculated for 5.5 months and
for the withdrawals made at the mid for each month is
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calculated for 6 months. Similarly, for the withdrawals made
at the beginning of the quarter the rate of interest is calculated
for 7.5 months, the withdrawals made at the end of every
quarter the rate of interest is calculated at 4.5 months.
4. When the different amount is withdrawn by the partner at
the different points of causing withdrawals at the irregular
intervals. Thus, in such cases the drawings have to be
calculated by the Product Method as per which the interest on
the drawings is calculated by the sum of the products of the
time and the drawings for one unit of time.
Question 12
Write a note on guarantee of profit to a partner.
Answer: - On the account of the admission of the partner in
the organization, the newly admitting partner is guaranteed
the minimum amount in the cases when the share of his profits
and loss sharing ratio is less than the minimum amount. For
example, if Ram is admitted with ¼th share of the profit in
the business with a guarantee that he will get minimum 5000
as profits, then when the profit of the concern is 16000, he
will get 5000 and when the profit of the concern is 28000, he
will get 7000.
This guarantee can be given by the old partner of the
organisation to the newly admitted partner. In other
circumstance the guarantee of the minimum amount can be
given by the all the other partners of the organisation in the
ratio which is agreed and acceptable to all of them. Thus, the
new profit or the loss sharing ratios have to be agreed by all
the partners of the organisation. Thus, in both the cases the
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minimum guaranteed amount of the profit is determined and
the difference of the amount of the share of the profit under
the new terms upon the reconstitution of the partnership will
be made. The amount of the difference which is so determined
is adjusted in the form of the debit in the favour of the
incoming partner’s account.
Question 13
How will you deal with a change in profit sharing ration
among the existing partners? Take imaginary figures to
illustrate your answer.
Answers: The changes in the profit-sharing ratio of the
partners occur during the admission, retirement or the death
of the partner of the organization. Furthermore, the general
agreement between the existing partners of the organization
may also change the profit sharing ratio of the partners. This
hence results in the loss of the other partners and the gain for
the one of the partners of the organization. Thus, the gaining
partner must compensate to the partners who experience the
share in the profit and the loss sharing ratio.
The issues such as the calculation of the goodwill, Change in
profit sharing ratio among existing partners takes place only
in case of admission, retirement and death of a partner. A
general agreement among the partners may also result in
change in the PSR. It results in gain to one partner and loss to
other. Hence, the gaining partner must compensate the losing
partner. Many issues have to be looked into like goodwill,
reserves, capital adjustment, profit or loss on the revaluation
of assets or liabilities. In case of goodwill, goodwill is
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calculated and proportionate amount is given by the partner
who gains to the partner who loses. Gaining partner’s capital
account is debited (gain) and sacrificing partners’ capital
account credited (sacrifice amount). Gaining ratio and
sacrificing ratio is calculated to distribute compensation from
one to the other.
Example: X and Y share profits in the ratio of 3:1. They
decided to share profits in the ratio 5:3. The goodwill is
valued at 2, 40,000. The following adjustment entry will be
passed.
Old ratio = X is ¾ and Y is ¼
New ratio = X is 5/8 and Y is 3/8
Y gains by 3/8-1/4 = 1/8
X loses by ¾ -5/8 = 1/8
Y will pay X 1/8 of 240,000 =30,000
Journal entry will be:
Y’s capital account … Dr 30000
To X’s capital account …. 30000
Question 14
Triphati and Chauhan are partners in a firm sharing profits
and losses in the ratio of 3:2. Their capitals were Rs 60,000
and Rs 40,000 as on January 01, 2015. During the year they
earned a profit of Rs 30,000. According to the partnership
deed both the partners are entitled to Rs 1,000 per month as
Salary and 5% interest on their capital. They are also to be
charged an interest of 5% on their drawings, irrespective of
the period, which is Rs 12,000 for Tripathi, Rs 8,000 for
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Chauhan. Prepare Partner’s Accounts when, capitals are
fixed.
Answer:
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Profit trf to:
Profit and
Loss 30000
Triphati's Current
A/c 18000
Chauhan's Current
A/c 12000
30000 30000
Partners Capital A/c
Particular
s
Triphat
i
Chauha
n
Particular
s
Triphat
i
Chauha
n
Balance
c/d 60000 40000
Balance
b/d 60000 40000
60000 40000 60000 40000
Partners Capital A/c
Particular
s
Tripha
ti
Chauha
n Particulars
Tripha
ti
Chauha
n
Drawing 12000 8000
Partners
Salary 12000 12000
Interest
on
Drawing 600 400
Interest on
Capital 3000 2000
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Balance
c/d 20400 17600
P/L
Appropriati
on 18000 12000
33000 26000 33000 26000
Question 15
Anubha and Kajal are partners of a firm sharing profits and
losses in the ratio of 2:1. Their capital, were Rs 90,000 and
Rs 60,000. The profit during the year were Rs 45,000.
According to partnership deed, both partners are allowed
salary, Rs 700 per month to Anubha and Rs 500 per month
to Kajal. Interest allowed on capital @ 5% p.a. The drawings
at the end of the period were Rs 8,500 for Anubha and Rs
6,500 for Kajal. Interest is to be charged @ 5% p.a. on
drawings. Prepare partners capital accounts, assuming that
the capital account are fluctuating.
Answer:
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Profit trf to:
Profit and
Loss 45000
Anubha's Capital
30000
Kajal's Capital
15000 45000
45000 45000
Partners Capital A/c
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Particulars
Anubh
a Kajal Particulars
Anubh
a Kajal
Drawing 8500 6500 Balance b/d 90000
6000
0
Interest on
Drawing 425 325
Partners
Salary 8400 6000
Balance c/d
12397
5
7717
5
Interest on
Capital 4500 3000
P/L
Appropriatio
n 30000
1500
0
13290
0
8400
0
13290
0
8400
0
Question 16
Harshad and Dhiman are in partnership since April 01, 2016.
No Partnership agreement was made. They contributed Rs
4,00,000 and 1,00,000 respectively as capital. In addition,
Harshad advanced an amount of Rs 1,00,000 to the firm, on
October 01, 2016. Due to long illness, Harshad could not
participate in business activities from August 1, to
September 30, 2017. The profits for the year ended March
31, 2017 amounted to Rs 1,80,000. 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;
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Dhiman Claims:
(i) Profits should be distributed equally;
(ii) He should be allowed Rs 2,000 p.m. as remuneration
for the period he managed the business, in the absence of
Harshad;
(iii) Interest on Capital and loan should be allowed @ 6%
p.a.
You are required to settle the dispute between Harshad and
Dhiman. Also prepare Profit and Loss Appropriation
Account.
Answer:
Harshad’s Claim:
Decisions
(i) If there is no agreement on interest on partner’s capital
according to Indian Partnership Act 1932, no interest will be
allowed to partners.
(ii) If there is no agreement on matter of profit sharing,
according to Indian Partnership Act 1932, profit shall be
distributed equally.
Dhiman’s Claim:
Decisions
(i) Dhiman’s claim is justified, as per the Indian Partnership
Act 1932. If no agreement exists regarding profit
distribution, the profit shall be distributed equally.
(ii) No salary will be allowed to any partner because there is
no agreement on matter of remuneration.
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(iii) Dhiman’s claim is not justified on the matter of interest
on capital. However, it is justified on the basis of interest on
loan. If there is no agreement on interest on partner’s loan,
interest will be provided at 6% p.a.
Profit and Loss Adjustment A/c
Particulars Amount Particulars Amount
Interest on Partner's
loan Harshad 3000
Profit and
Loss 180000
(100000 x 6/100 x
6/12)
P/L Appropriation 177000
180000 180000
Profit and Loss A/c
Particulars Amount Particulars Amount
Profit trf to:
Profit and Loss
Adjustment 177000
Harshad's
Capital 88500
Sharma's
Capital 88500
177000 177000
Question 17
Aakriti and Bindu entered into partnership for making
garment on April 01, 2016 without any Partnership
agreement. They introduced Capitals of Rs 5,00,000 and Rs
3,00,000 respectively on October 01, 2016. Aakriti
Advanced. Rs 20,000 by way of loan to the firm without any
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agreement as to interest. Profit and Loss account for the year
ended March 2017 showed profit of Rs 43,000. Partners
could not agree upon the question of interest and the basis of
division of profit. You are required to divide the profits
between them giving reason for your solution.
Answer:
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Interest on Partner's
loan Aakriti 600
Profit and
Loss 43000
(20000 x 6/100 x 6/12)
Profit trf to:
Aakriti's Capital
21200
Bindu's Capital
21200 42400
43000 43000
Reason:
1. Interest on partner’s loan shall be allowed at 6% p.a.
because there is no partnership agreement.
2. Interest on capital shall not be allowed because there is no
agreement on interest on capital.
3. Profit shall be distributed equally because profit sharing
ratio has not been given.
Question 17
Rakhi and Shikha are partners in a firm, with capitals of Rs
2,00,000 and Rs 3,00,000 respectively. The profit of the
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firm, for the year ended 2016-17 is Rs 23,200. As per the
Partnership agreement, they share the profit in their capital
ratio, after allowing a salary of Rs 5,000 per month to
Shikha and interest on Partner’s capital at the rate of 10%
p.a. During the year Rakhi withdrew Rs 7,000 and Shikha
Rs 10,000 for their personal use. You are required to prepare
Profit and Loss Appropriation Account and Partner’s Capital
Accounts.
Answer: If interest on capital and partner’s salaries will be
provided even if firm involves in loss.
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Interest on
Capital: Profit and Loss 23200
Rakhi
20000 Loss trf to:
Shikha
30000 50000
Rakhi's Capital
34720
Partner's Salary
Shikha 60000
Shikha's Capital
52080 86800
110000 110000
Partners Capital A/c
Particulars Rakhi
Shikh
a Particulars Rakhi
Shikh
a
Drawing 7000 10000
Balance
b/d
20000
0
30000
0
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P/L
Appropriatio
n 34720 52080
Interest on
Capital 20000 30000
Balance c/d
17828
0
32792
0
Partners
Salary 60000
22000
0
39000
0
22000
0
39000
0
If interest on capital and salaries will be provided out of
profit
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Interest on Capital:
Profit and
Loss 23200
Rakhi (23200 x
2/11) 4218
Shikha (23200 x
3/11) 6327
Partner's Salary
Shikha 12655
(23200 x 6/11)
23200 23200
If profit is less than the sum of distribution items,
distribution shall be in proportion of items for distribution.
Ratio
Partner Salary Shikha
(60000) 6 23200 x 6/11 12655
Interest on Capital:
Rakhi (20000) 2 23200 x 2/11 4218
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Shikha (30000) 3 23200 x 3/11 6327
11 23200
Partners Capital A/c
Particular
s Rakhi Shikha Particulars Rakhi Shikha
Drawing 7000 10000 Balance b/d
20000
0
30000
0
Balance
c/d
19721
8
30898
2
Interest on
Capital 4218 6327
Partners
Salary 12655
20421
8
31898
2
20421
8
31898
2
Question 18
Lokesh and Azad are partners sharing profits in the ratio 3:2,
with capitals of Rs 50,000 and Rs 30,000, respectively.
Interest on capital is agreed to be paid @ 6% p.a. Azad is
allowed a salary of Rs 2,500 p.a. During 2016, the profits
prior to the calculation of interest on capital but after
charging Azad’s salary amounted to Rs 12,500. A provision
of 5% of profits is to be made in respect of manager’s
commission. Prepare accounts showing the allocation of
profits and partner’s capital accounts.
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Answer:
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Interest on Capital:
Profit and
Loss 15000
Lokesh 3000
(12500 +
2500)
Azad 1800 4800
Partner's Salary Azad 2500
Prov. For Manager's
Commission 750
(15000 x 5/100)
Profit trf to:
Lokesh's Capital
4170
Azad's Capital
2780 6950
15000 15000
Partners Capital A/c
Particular
s
Lokes
h Azad Particulars
Lokes
h Azad
Balance
c/d 57170
3708
0 Balance b/d 50000
3000
0
Interest on
Capital 3000 1800
P/L
Appropriation 4170 2780
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Partners
Salary 2500
57170
3708
0 57170
3708
0
Question 19
The partnership agreement
between Maneesh and Girish provides that:
(i) Profits will be shared equally;
(ii) Maneesh will be allowed a salary of Rs 400 p.m;
(iii) Girish who manages the sales department will be
allowed a commission equal to 10% of the net profits,
after allowing Maneesh’s salary;
(iv) 7% interest will be allowed on partner’s fixed capital;
(v) 5% interest will be charged on partner’s annual
drawings;
(vi) The fixed capitals of Maneesh and Girish are Rs
1,00,000 and Rs 80,000, respectively. Their annual
drawings were Rs 16,000 and 14,000, respectively. The
net profit for the year ending March 31, 2015 amounted
to Rs 40,000.
Prepare firm’s Profit and Loss Appropriation Account.
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Answer:
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Partner's Salary
Maneesh 4800
Profit and
Loss 40000
Partner's
Commission Girish 3520
Interest on
Drawing:
[(40000 - 4800) x
10/100]
Ramesh
2000
Interest on Capital:
Suresh
2500 1500
Maneesh
7000
Girish
5600 12600
Profit trf to:
Maneesh Current
10290
Girish Current
10290 20580
41500 41500
Question 19
Ram, Raj and George are partners sharing profits in the ratio
5 : 3 : 2. According to the partnership agreement George is
to get a minimum amount of Rs 10,000 as his share of
profits every year. The net profit for the year 2013 amounted
to Rs 40,000. Prepare the Profit and Loss Appropriation
Account.
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Answer:
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Profit trf to:
Profit and
Loss 40000
Ram's Capital (20000 -
1250) 18750
Raj's Capital (12000 -
750) 11250
George' Capital (8000 +
1250 + 750) 10000
40000 40000
Question 20
Amann, Babita and Suresh are partners in a firm. Their
profit sharing ratio is 2:2:1. Suresh is guaranteed a minimum
amount of Rs 10,000 as share of profit, every year. Any
deficiency on that account shall be met by Babita. The
profits for two years ending December 31, 2016 and
December 31, 2017 were Rs 40,000 and Rs 60,000,
respectively. Prepare the Profit and Loss Appropriation
Account for the two years.
Answer:
Profit and Loss Appropriation A/c for the year 2005
Particulars Amount Particulars Amount
Profit trf to:
Profit and
Loss 40000
Amann's Capital 16000
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Babita's Capital
(16000 - 2000) 14000
Suresh's Capital (8000
+ 2000) 10000
40000 40000
Profit and Loss Appropriation A/c for the year
2006
Particulars Amount Particulars Amount
Profit trf to:
Profit and
Loss 60000
Amann's
Capital 24000
Babita's
Capital 24000
Suresh's
Capital 12000
60000 60000
Question 21
Simmi and Sonu are partners in a firm, sharing profits and
losses in the ratio of 3:1. The profit and loss account of the
firm for the year ending March 31, 2017 shows a net profit
of Rs 1,50,000. Prepare the Profit and Loss Appropriation
Account by taking into consideration the following
information:
(i) Partners capital on April 1, 2016;
Simmi, Rs 30,000; Sonu, Rs 60,000;
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(ii) Current accounts balances on April 1, 2016;
Simmi, Rs 30,000 (cr.); Sonu, Rs 15,000 (cr.);
(iii) Partners drawings during the year amounted to
Simmi, Rs 20,000; Sonu, Rs 15,000;
(iv) Interest on capital was allowed @ 5% p.a.;
(v) Interest on drawing was to be charged @ 6% p.a. at an
average of six months;
(vi) Partners’ salaries : Simmi Rs 12,000 and Sonu Rs
9,000. Also show the partners’ current accounts.
Answer:
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Partner's Salary:
Profit and
Loss 150000
Simmi
12000
Interest on
Drawing:
Sonu
9000 21000
Simmi
600
Interest on Capital:
Sonu
450 1050
Simmi
1500
Sonu
3000 4500
Profit trf to:
Simmi's Current
94162
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Sonu's Current
31388 125550
151050 151050
Partners Capital A/c
Particulars Simmi Sonu Particulars Simmi Sonu
Balance
c/d 30000 60000
Balance
b/d 30000 60000
30000 60000 30000 60000
Partners Current A/c
Particulars Simmi Sonu Particulars Simmi Sonu
Drawings 20000
1500
0 Balance b/d 30000
1500
0
Interest on
Drawing 600 450
Interest on
Capital 1500 3000
Balance c/d
11766
2
4293
8
P/L
Appropriatio
n 94162
3138
8
Partners
Salary 12000 9000
13826
2
5838
8
13766
2
5838
8
Question 22
Ramesh and Suresh were partners in a firm sharing profits in
the ratio of their capitals contributed on commencement of
business which were Rs 80,000 and Rs 60,000 respectively.
The firm started business on April 1, 2016. According to the
partnership agreement, interest on capital and drawings are
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12% and 10% p.a., respectively. Ramesh and Suresh are to
get a monthly salary of Rs 2,000 and Rs 3,000, respectively.
The profits for year ended March 31, 2017 before making
above appropriations was Rs 1,00,300. The drawings of
Ramesh and Suresh were Rs 40,000 and Rs 50,000,
respectively. Interest on drawings amounted to Rs 2,000 for
Ramesh and Rs 2,500 for Suresh. Prepare Profit and Loss
Appropriation Account and partners’ capital accounts,
assuming that their capitals are fluctuating.
Answer:
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount
Interest on Capital
Profit and
Loss 100300
Ramesh
9600
Interest on
Drawing:
Suresh
7200 16800
Ramesh
2000
Partner's Salaries:
Suresh
2500 4500
Ramesh
24000
Suresh
36000 60000
Profit trf to:
Ramesh's Capital
(28000 x 4/7) 16000
Suresh's Capital
(28000 x 3/7) 12000
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104800 104800
Partners Capital A/c
Particulars
Rames
h
Sures
h Particulars
Rames
h
Sures
h
Drawings 40000 50000 Cash 80000 60000
Interest on
Drawing 2000 2500
Interest on
Capital 9600 7200
Balance
c/d 87600 62700
Partner's
Salary 24000 36000
P/L
Appropriati
on 16000 12000
12960
0
11520
0
12960
0
11520
0
Capital ratio = Ramesh : Suresh = 80000 : 60000 = 4 : 3
Question 23
Sukesh and Vanita were partners in a firm. Their partnership
agreement provides that:
(i) Profits would be shared by Sukesh and Vanita in the
ratio of 3:2;
(ii) 5% interest is to be allowed on capital.
(iii) Vanita should be paid a monthly salary of Rs 600.
The following balances are extracted from the books of the
firm, on March 31, 2017.
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Sukesh Verma*
Rs Rs
Capital Accounts 40,000 40,000
Current Accounts (Cr.) 7,200 (Cr.) 2,800
Drawings 10,850 8,150
Net profit for the year, before charging interest on capital
and after charging partner’s salary was Rs 9,500. Prepare the
Profit and Loss Appropriation Account and the Partner’s