CBSE Class 12 Accountancy Accounting for partnership firms Fundamentals Assignment

OBJECTIVE TYPE QUESTIONS

Question. As per the Companies Act 2013, the Central Government is empowered to prescribe the maximum number of partners in a firm, but the number of partners cannot be more than ---
a.50
b.100
c.20
d.10
Answer. B

Question. A partnership Deed provides for the payment of interest on capital, but there was a loss in-stead of profits during the year 2020-21. At what rate will the interest on capital be al-lowed?
a. 6% p.a
b. 12%p.a
c. The rate specified in the partnership deed
d. No interest on capital will be allowed
Answer. D

Question. 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
Answer. B

Question. P and Q are partners in a firm. They had advanced a loan of ₹.60, 000, contributed equally to the firm on 1st August 2020.The Partnership Deed is silent regarding the rate of interest on loan. What amount of interest on loan is payable to P, if the firm closes its books of ac-count on 31st March every year.
a. ₹.1200
b. ₹.3,600
c. ₹.1,800
d. None of these
Answer. A

Question. Which of the following transactions is always recorded in the partner’s Capital account ir-respective of whether the partners’ capitals are fixed or fluctuating?
a. Additional capital introduced
b. Withdrawal of Capital by a partner
c. Interest on partner’s loan
d. Both (a) & (b)
Answer. D

Question. Nima & Hima are partners sharing profits and losses equally. On 1st April 2020, their cap-ital accounts showed balance of Rs.4, 00,000 & 1, 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 Rs.50,000 for the year ended 31st March 2021
a.Nima ₹.40,000 & Hima ₹.10,000
b.Nima ₹,000 & Hima ₹.25,000
c.Nima Nil & Hima Nil
d. None of these
Answer. C

Question. Bobby and Sanjay were partners sharing profits & losses in the ratio of 5:3. On 1st April 2020, 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 Rs.45, 000 for the year ended 31st March 2021. The interest on partners’ capitals to Bobby & Sanjay will be:
a. ₹.22,500 to both partners
b. ₹.27,000 & ₹.18,000 respectively
c ₹.28,125 & ₹.16,875 respectively
d. None of the above
Answer. B

Question. X and Y are partners in a firm having Rs.4, 00,000 & Rs.8, 00,000 respectively. The part-nership deed provides for charging interest on drawings @5% pa. X withdrew Rs.1, 00,000 for his personal use during the year 2020-21.Y withdrew Rs.1, 00,000 from his capital on 1.9,2020. The amount of interest that will be charged on partners’ drawings are
a. X-.₹.2,000 & Y-₹.4,000
b. ₹.5,000 from X &Y
c. X-₹.5,000 &Y- Nil
d. X-₹.2,500 & Y-Nil
Answer. D

Question. Goodwill of the firm on the basis of 2 years’ purchase of average profit of the last 3 years is ₹.25, 000. Find Average profit
a. ₹.50, 000,
b. ₹.37, 500
c. ₹.12, 500
d. None of these
Answer. C

Question. Interest on Capital of Partners is a
a. Charge on profit
b. Loss to the firm
c. Profit to the firm
d .None of these
Answer. B

Question. Goodwill is valued at the time of
a. Change in profit sharing Ratio
b. Admission of a partner
c. Retirement of a partner
d. All of the above
Answer. D

Question. A, B & C are partners in a firm sharing profits & losses in the ratio of 5:3:2. A guaranteed profit of ₹.20, 000 to C.Net profit for the year ending 31st March 2021, was ₹.80, 000. A’s share in the profit of the firm will be
a. ₹.36,000
b. ₹.16,000
c. ₹.38,000
d. ₹.44,000
Answer. A

Question. Which of the following will be shown on the credit side of Profit & Loss Appropriation account
a. Interest on Capital
b .Interest on Loan
c. Interest on drawings
d. Salary to partners
Answer. C

Question. X & Y are partners sharing profits and losses in the ratio of 2:1 with capitals ₹.1,00,000 and ₹.80,000 respectively. The interest on capital has been provided to them @8% instead of 10%. In the rectifying entry
a. Y will be debited by ₹.400
b. Y will be credited by ₹.400
c. Y will be debited by ₹.800
d. Y will be credited by ₹.800
Answer. B

Question. Capital employed of a firm is ₹.25, 00,000.Its average profit is ₹.3, 10,000. The normal rate of return in similar type of business is10%.What is the amount of super profit?
a. ₹.2, 50,000
b. ₹.60, 000
c. ₹.50, 000
d. None of these
Answer. B

Question. Loan has been given by wife of a partner to the firm. Now partner wants interest @ 6% per annum as per Partnership Act, 1932 while partnership deed is silent. Solve this issue.
a. Provide 6% per annum interest as partnership act says
b. Provision of interest on loan @ 6% per annum of the partnership act does not apply
c. Provide 10% interest to solve the issue
d. None of the above

Answer. B

Question. Under what circumstances, a partner can get exemption from sharing losses in a firm?
a. If he is a senior citizen
b. If he is a minor
c. If he is retiring partner
d. All of the above

Answer. B

Question. A charitable dispensary is run by 8 members. A new member wants to join them. The new member is of the opinion that partnership deed must be written while other members refused to do that. They said this is not a partnership. Give reason(s) in favour of other members.
a. There is no business
b. There is no sharing of profits
c. There is no motive of profit making
d. All of the above

Answer. D

Question. Need of profit and loss adjustment account is for
a. appropriation of profits
b. charge against profits
c. rectification of errors or omissions
d. None of the above

Answer. C

Question. Aman is a partner of Jivan firm with a fixed capital of Rs 9,00,000. He withdrew Rs 60,000 during financial year 2020-1. What will be the journal entry?
a. Drawings A/c                      Dr 60,000
                 To Aman’s Current A/c                 60,000
b. Drawings A/c                       Dr 60,000
                 To Aman’s Capital A/c                  60,000
c. Aman’s Current A/c              Dr 60,000
                  To Drawings A/c                         60,000
d. Aman’s Capital A/c               Dr 60,000
                  To Drawings A/c                         60,000

Answer. C

Question. In a firm, 10% of net profit after deducting all adjustments, including reserve is transferred to general reserve. The net profit after all adjustments but before transfer to general reserve is Rs 44,000. Calculate the amount which is to be transferred to reserve.
a. Rs 2,500
b. Rs 4,000
c. Rs 4,400
d. Rs 2,200

Answer. B

Question. Virat and Anushka are partners in a firm sharing profits and losses in 2 : 1 ratio. Their capital balance were Rs 10,00,000 and Rs 8,00,000 respectively. The firm made profits during the year amounting to Rs 3,45,000. Both partners are allowed salary of Rs 2,500 per month. Interest on capital is allowed @ 5% on capital balance.
Calculate closing balance of capital for Virat and Anushka.
a. V = Rs 12,10,000, A = Rs 9,35,000
b. V = Rs 12,35,000, A = Rs 9,10,000
c. V = Rs 13,10,000, A = Rs 9,85,000
d. None of the above

Answer. A

Question. A partner withdrew Rs 4,000 per month from 1st July, 2020, on beginning of every month. Accounts are closed at 31st March, 2021. Calculate interest on drawings while rate of interest is 10% per annum.
a. Rs 1,600
b. Rs 1,800
c. Rs 1,500
d. Rs 2,200

Answer. C

Question. In the context of debit side of profit and loss appropriation account, pick odd one out.
a. Interest on Capital
b. Partners’ Salaries
c. Interest on Drawings
d. Partner’s Commission

Answer. C

Question. Where a partner is entitled to interest on capital contributed by him, such interest will be payable
a. only out of profits
b. only out of capital
c. Both (a. and (b.
d. None of the above

Answer. A

Question. In case of partnership, the act of any partner is
a. binding on all partners
b. binding on that partner only
c. binding on all partners except that particular partner
d. None of the above

Answer. A

Question. A, B and C are partners sharing profits equally. A drew regularly Rs 4,000 in the beginning of every month for the six months ended 30th September, 2021. Calculate interest on A’s drawings @ 5% p.a.
a. Rs 200
b. Rs 1,200
c. Rs 350
d. Rs 700

Answer. C

Question. In the profit and loss appropriation account, net profit is always taken after
a. interest on partner’s loan
b. manager’s commission
c. Both (a) and (b)
d. None of the above

Answer. C

Question. 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

Answer. D

Question. If a partner withdraws equal amount at end of each quarter, then ……… are to be considered for interest on total drawings.
a. 5.5 months
b. 6 months
c. 4.5 months
d. 7.5 months

Answer. C

Question. The partnership agreement between Mahesh and Ramesh provides that
(i) profits will be shared equally.
(ii) Mahesh will be allowed a salary Rs 400 per month.
(iii) Ramesh is allowed a commission @ 10% on net profits before adjusting any remuneration.
(iv) 10% per annum interest will be charged on drawings.
(v) their annual drawings were Rs 16,000 and Rs 14,000 respectively.
Net profit before above adjustments are
Rs 40,000. Calculate profits to be distributed between partners.
a. Rs 34,200
b. Rs 32,700
c. Rs 47,300
d. Rs 29,700

Answer. B

Question. In a partnership, commission to partners will be given from
a. current year’s profit
b. reserves
c. goodwill
d. Any of them

Answer. A

Question. If partners’ capitals are fixed, drawings will be recorded in
a. partners’ capital account
b. partners’ current account
c. profit and loss appropriation account
d. None of the above

Answer. B

Question. Why a partnership firm needs partnership deed?
a. It acts as a proof in any dispute
b. It regulates rights of partners
c. It represents duties and liabilities of partners
d. All of the above

Answer. D

Question. The capital balance of a partner at the end of the year (after adjusting for his drawings Rs 3,500 and his share in the profit Rs 2,300) is Rs 12,000. Interest on capital is payable to him at 5% per annum. What will be the amount of interest on capital?
a. Rs 660
b. Rs 600
c. Rs 540
d. None of these

Answer. A

Question. With context to debit side of partners’ current account, pick the odd one out.
a. Drawings
b. Interest on Drawings
c. Salary
d. None of these

Answer. C

Question. Partners’ current account is maintained under
a. fixed capital method
b. fluctuating capital method
c. Both (a. and (b.
d. cumulative capital method

Answer. A

Question. Pinky and Chinky are partners in a firm. They share their profits in 2 : 3 ratio. The accountant of the firm, finalised the profit and loss and capital account and presented the accounts to them. Pinky disagreed with accounts because Pinky’s capital account showed negative balance. Pinky is in doubt, this cannot happen.
Give your opinion.
a. Pinky is wrong
b. Pinky is correct
c. Accountant is defaulter
d. None of the above

Answer. A

Question. Following are essential elements of a partnership firm except
a. atleast two persons
b. there is an agreement between all partners
c. equal share of profits and losses
d. partnership agreement is for some business

Answer. C

Question. 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

Answer. A

Question. Features of a partnershjip firm include
a. two or more persons are carrying common business under an agreement.
b. they are sharing profits and losses in the fixed ratio.
c. business is carried by all or any of them acting for all as an agent.
d. All of the above

Answer. D

Question. The firm of Sonu and Monu earned a profit of Rs 3,25,000 during the year ending on 31st March, 2019. They have decided to donate 10% of this profit to an NGO working for senior citizens. Pass the journal entry.
a. Profit and Loss Appropriation A/c Dr 2,92,500
To Sonu’s Capital A/c                                  1,46,250
To Monu’s Capital A/c                                  1,46,250
b. Sonu’s Capital A/c                            Dr  1,46,250
Monu’s Capital A/c                                 Dr  1,46,250
To Profit and Loss Appropriation A/c           2,92,500
c. Profit and Loss Appropriation A/c Dr 32,500
To Monu’s Capital A/c                                   16,250
To Sonu’s Capital A/c                                    16,250
d. None of the above

Answer. A

Question. No interest is to be charged on drawings from the partners in case of ……… .
a. no interest clause in deed
b. absence of deed
c. an oral agreement between partners including interest clause
d. Both (a) and (b)

Answer. D

Question. Current account of a partner has ……… .
a. debit balances
b. credit balances
c. Either (a) or (b)
d. None of the above

Answer. C

Question. Manager’s commission of ABC Ltd. (Partnership) was Rs33,000. What amount of net profit in manager’s commission was to be charged @10% before charging such commission?
a. Rs 3,30,000
b. Rs3,00,000
c. Rs 3,000
d. Rs 3,300

Answer. A

ASSERTION –REASON-BASED QUESTIONS

Question. Assertion (A): Mohit, a partner in the firm gave a loan of ₹.2,00,000 to the firm without an agreement as to the rate of interest. At the year-end, the remaining partners agreed to allow interest on the loan of @6% p.a
Reason (R): In the absence of a Partnership deed, provisions of the Partnership Act 1932 is applicable and hence interest on loan of @6% p.a can be provided
In the context of the above two statements, which of the following is correct?
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 and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. A

Question. Assertion(A):The value of Goodwill calculated on Average profit Method and Super profit Method is not the same
Reason (R): The value of Goodwill calculated on Average profit Method and Super profit Method is not the same as the basis of valuation is different
In the context of the above two statements, which of the following is correct?
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 and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. A

Question. Assertion(A): A guarantee of minimum profit may be given to a partner
Reason (R): Minimum profit must be guaranteed by the remaining partners in equal ratio In the context of the above two statements, which of the following is correct?
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 and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. C

Question. Assertion(A): Rent to partner is shown in Profit& Loss Appropriation Account
Reason (R): Rent to partner is a charge against profit
In the context of the above two statements, which of the following is correct?
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 and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. D

Question. Assertion(A): A partnership firm can have a maximum of 50 partners
Reason (R): Maximum limit of partners is prescribed in Indian Partnership Act,1932
In the context of above two statements, which of the following is correct?
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 and Reason(R) is not the correct explanation of Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
Answer. C

SHORT ANSWER TYPE QUESTIONS

Question. Gupta is a partner in a firm. He drew regularly ₹ 8,00 at the beginning of every month for the six months ending 31st March 2022. Calculate interest on drawings @15% p.a.
Answer. Interest on drawings Rs.240

Question. X and Y are partners in the firm sharing profits and losses in the ratio of 3:2 with capitals of ₹ 10,00,000 and ₹ 5,00,000 respectively. As per the partnership deed, they are to be allowed interest on capital @ 8% p.a. The net profit for the year ended 31st March 2021 before providing for interest on capital amounted to ₹ 45,000. Show the distribution of profit.
Answer. 
Interest on capital allowed to X Rs.30,000 and Y Rs.15,000
(Insufficient profit. Hence 45,000 is distributed among the partners in the ratio of 2:1)

Question. Aman, Babita, and Suresh are partners in a firm. Their profit-sharing ratio is 2:2:1. How-ever, Suresh is guaranteed a minimum amount of ₹ 10,000 as a share of profit every year. Any deficiency arising on that account shall be met by Babita. The profits for the two years ending 31st March 2020 and 2021 were ₹ 40,000 and ₹ 60,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.
Answer. For the year ending 31st March 2020
Aman :40,000*2/5 = 16,000
Babitha : 40,000*2/5 =16,000
Suresh : 40,000*1/5 = 8,000
Deficiency of Suresh Rs.2,000 will be bore by Babitha
For the year ending 31st march 2021
Aman :60,000*2/5 = 24,000
Babitha : 60,000*2/5 =24,000
Suresh : 60,000*1/5 = 12,000
Suresh share of profit is more than the guaranteed amount , no adjustment is needed.

Question. W, X, and Y were partners sharing profits and losses in the ratio of 2:2: 1. X was guaranteed a profit of ₹ 10,00,000. The firm earned a profit of ₹ 17,50,000 for the year ended 31st March 2020.
Pass Journal entries for the year ended 31st march 2020.
Answer. 
Profit and loss A/C Dr                    17,50,000
To profit and Loss Appropriation A/C                  17,50,000
profit and Loss Appropriation A/C   17,50,000
To W’s capital A/C                                            5,00,000
To X’s capital A/C                                            10,00,000
To Y’s capital A/C                                             2,50,000

LEARNING OBJECTIVES:

After studying this chapter the student will be confident to:

¶ Understand and explain the meaning of partnership
¶ Understand the characteristics of Partnership
¶ Explain the meaning and contents of partnership deed.
¶ Apply their provisions of Partnership Act, 1932 in the absence of partnership deed.
¶ Prepare partners‘ Fixed and fluctuating capital Accounts.
¶ Calculate interest on Capital and Drawings.
¶ Distribute profit among partners and prepare Profit and Loss Appropriation A/c.
¶ Make the accounting treatment of past adjustment.

SALIENT POINTS:

• Partnership deed: It is a document which contains the terms and conditions of Partnership agreement either oral or written.
• Profit and Loss Appropriation Account : After the preparation of Profit and Loss account, entries pertaining to Interest on Capital, Drawings , Salaries among the
partners are shown separately in a newly opened Profit and Loss Appropriation Account.
• Rules applicable in the absence of Partnership Deed :

a) Profit sharing ratio will be equal
b) No Interest on Capital and Drawings
c) No Remuneration or Salary to the partners.
d) Interest on Loan advanced by the partner @6%p.a.

• Fixed and Fluctuating Capital Accounts :
When the Capitals are fixed, the Current account of the partners will be maintained.

1 and 3 Mark Questions

Question. Define partnership.
Answer. When two or more persons enter into an agreement to carry on business and share its profit and losses, it is a case of partnership. The Indian partnership Act, 1932, defines Partnership as follows: "Partnership is the relation between persons and who have agreed to share the profits of a business carried on by all or any of them acting for all.

Question. What do you understand by 'partners', 'firm' and 'firms' name?
Answer. The persons who have entered in to a Partnership with one another are individually called 'Partners' and collectively 'a firm' and the name under which the business is carried is called 'the firm's name'.

Question. Write any four main features of partnership.
Answer. Essential elements or main features of Partnership :
i) Two or more persons: Partnership is an association of two or more persons.
ii) Agreement: The Partnership is established by an agreement either oral or in writing.
iii) Lawful Business: A Partnership formed for the purpose of carrying a business, it must be a legal business.
iv) Profit sharing: Profit of the firm is share by the partners in an agreed ration, if the ratio is not agreed then equally. Profit also includes loss.

Question. What is the minimum and maximum number of partners in all partnership?
Answer. There should be at least two persons to form a Partnership. The maximum number of Partners in a firm carrying an banking business should not exceed ten and in any other business should not exceed ten and in any other business it should not exceed twenty.

Question. What is the status of partnership from an accounting viewpoint?
Answer. From an accounting viewpoint, partnership is a separate business entity. From legal viewpoints, however, a Partnership, like a sole proprietorship, is not separate from the owners.

Question.What is meant by partnership deed?
Answer. Partnership deed is a written agreement containing the terms and conditions agreed by the Partners.

Question. State any four contents of a partnership deed.
Answer.i) The date of formation and the duration of the Partnership
ii) Name and address of the Partners
iii) Name of the firm.
iv) Interest on Partners capital and drawings
v) Ratio in which profit or losses shall be shared

Question. In the absence of a partnership deed, how are mutual relations of partners governed?
Answer. In the absence of Partnership deed, mutual relations are governed by the Partnership Act, 1932.

Question. Give any two reason in favour of having a partnership deed.
Answer. i) In case of any dispute or doubt, Partnership deed is the guiding document.
ii) It can specify the duties and powers of each Partner.

Question. State the provision of 'Indian partnership Act 1932‘ relating to sharing of profits in absence of any provision in the partnership deed.
Answer. In the absence of any provision in the Partnership deed, profit or losses are share by the Partners equally.

Question. Why is it important to have a partnership deed in writing?
Answer. Partnership deed is important since it is a document defining relationship of among Partners thus is assistance in settlement of disputes, if any and also avoids possible disputes: it is good evidence in the court.

Question. What do you understand by fixed capital of partners?
Answer. Partners' capital is said to be fixed when the capital of Partners remain unaltered except in the case where further capital is introduced or capital is withdrawn permanently.

Question. What do you understand by fluctuating capital of partners?
Answer. Partner‘s capital is said to be fluctuating when capital alters with every transaction in the capital account. For example, drawing, credit of interest, etc

Question. Give two circumstances in which the fixed capital of partners may change.
Answer. Two circumstances in which the fixed capital of Partners may change are :
i) When additional capital is introduced by the Partners.
ii) When a part of the capital is permanently withdrawn by the Partners.

Question. List the items that may appear on the debit side and credit side of a partner's fluctuating capital account.
Answer. On debit side: Drawing, interest on drawing, share of loss, closing credit balance of the capital.
On credit side : Opening credit balance of capital, additional capital introduced, share of profit, interest on capital, salary to a Partner, commission to a Partner.

Question. How will you show the following in case the capitals are?
i) Fixed and ii) Fluctuating
. a) Additional capital introduced
b) Drawings
c) Withdrawal of capital
d) Interest on capital and
e) Interest on loan by partners?
Answer.i) In case, capitals are fixed:
a) On credit side of capital
(b) on debit side of current A/c
(c) on debit side of capital A/c
(d) on credit side of current A/c
(e) on credit side of loan from partner's A/c

Question. If the partners capital accounts are fixed, where will you record the following items :
i) Salary to partners
ii) Drawing by a partners
iii) Interest on capital and
iv) Share of profit earned by a partner?
Answer. i) Credit side of Partner's current A/c
ii) Debit side of Partner's current A/c
iii) Credit side of Partners current A/c
iv) Credit side of Partners current A/c

Question. How would you calculate interest on drawings of equal amounts drawn on the Last day of every month?
Answer. When a partners draws a fixed amount at the beginning of each month, interest on total drawing would be on the amount withdraw for 6.5 months at the agreed rate of interest per annum. Apply the following formula.
Interest on drawing = total drawing x Rate X [6.5/ 100 X 12]

Question. How would you calculate interest on drawing of equal amounts drawn on the last day of every month?
Answer. When drawing of fixed amounts are made at regular monthly intervals on the day of every month, Interest would be charged on the amount withdrawn at the agreed rate of interest for 5.5 months. Apply the following formula. :
Interest on drawing = Total drawing x Rate X [5.5/100 X 12]

Question. How would you calculate interest on drawing of equal amount drawn in the middle of every month?
Answer. Interest on drawing = Total drawing x [Rate X 6.0/100 X 12]

Question. Ramesh, a partner in the firm has advanced a loan of a Rs. 1,00,000 to the firm and has demanded on interest @ 9% per annum. The partnership deed is silent on the matter.
How will you deal with it?
Answer. Since the Partnership deed is silent on payment of interest, the provisions of the Partnership Act, 1932 will apply. Accordingly, Ramesh is entitled to interest @ 6% p.a.

Question. The partnership deed provides that Anjali, the partner will get Rs. 10,000 per month as salary. But, the remaining partners object to it. How will this matter be resolved?
Answer. No, he is not entitled to the salary because it is not so, Provided in the Partnership deed and according to the Partnership act, 1932 if the Partnership deed does not provided for payment of salary to Partners, he will not be entitled to it.

Question. Ram, Raghav, and Raghu are partners in a firm sharing profits in the ratio of 5:3:2. As per Partnership Deed, Raghu is to get a minimum amount of ₹ 10,000 as profit. Net profit for the year is ₹ 40,000. Find the deficiency amount in the above case.
a) ₹ 750
b) ₹ 1,000
c) ₹ 1,500
d) ₹ 2,000
Answer. C

Question. A B and C are partners sharing profits equally. A drew regularly ₹ 4,000 at the beginning of every month for six months ended 30th September 2020. Calculate interest of A’s draw-ing @ 5% p.a.
a) ₹ 200
b) ₹ 1,200
c) ₹ 350
d) ₹ 700
Answer. B

Question. On 1st April 2018, a partner introduced additional capital of ₹ 50,000 to the firm but Part-nership Deed is silent. The partner demands interest on capital @ 5% p.a. How much inter-est on capital will be payable to the partner:
a) ₹ 3,000
b) Interest on capital will not be allowed
c) ₹ 2,500
d) ₹ 1,800
Answer. C

Question. MATCH THE FOLLOWING
Col. I                                              Col. II
A Interest in Drawings                 i. Credit side of partners’ capital a/c
B Commission to a Parter           ii. Credit side of P&L Appropriation a/c 
C Interest on partners loan         iii. Debit side of P&L Appropriation a/c
D Interest in partners’ capital      iv. Debit side of P&L a/c
     A   B   C   D
a) (i) (ii) (iii) (iv)
b) (i) (iv) (ii) (iii)
c) (ii) (iii) (iv) (i)
d) (iv) (iii) (ii) (i)
Answer. A

Case studies –

Read the hypothetical text and answer the following questions.
Arun, Varun, and Tarun were partners in firm sharing profits equally. On 1st April, 2020, their capitals stood at ₹ 2, 00,000, ₹ 1, 50,000 and ₹ 1, 00,000 respectively. As per the provisions of the Partnership Deed:
1) Arun was entitled to a salary of ₹ 2,500 p.m.
2) Partners were entitled to interest on capital @ 10% p.a.
The net profit for the year ended 31st March 2021, ₹ 1, 50,000 were distributed among the partners without providing for the above items.

Question. What is the amount of interest on capital Varun?
a) ₹ 20,000
b) ₹ 15,000
c) ₹ 10,000
d) ₹ 30,000
Answer. A

Question. What is the amount of distributable profit for the partners after providing salary and interest on capital to the partners?
a) ₹ 50,000 each
b) ₹ 25,000 each
c) ₹ 10,000 each
d) ₹ 15,000 each
Answer. B

Question. Arun’s Capital A/c will be credited with Rs…………….for giving the adjustment to the above omissions.
a) Rs 20,000
b) Rs15,000
c) Rs 25,000
d) Rs10,000
Answer. C

Question. Capital Account/Accounts of …………………… will be debited to give the effect of the above adjustments.
a) Varun
b) Tarun and Arun
c) Arun and Varun
d) Varun and Tarun
Answer. D

Read the hypothetical text and answer the following questions.
A B and C are partners in a firm. Their capitals are ₹ 30,000, ₹ 20,000 and ₹ 10,000 re-spectively. As per the partnership deed,
i) C is to be allowed remuneration of ₹ 3,000 p.a.
ii) Interest on capital @ 5% p.a.
iii) Profits should be distributed in the ratio of 2:2:1.
Ignoring the above terms, a net profit of ₹ 18,000 was distributed among the partners equally.

Question. How much interest on capital is to be credited to partner A?
a) ₹ 1,500
b) ₹ 1,000
c) ₹ 900
d) ₹ 800
Answer. A

Question. How much profit is to be credited to Partner B after all adjustments?
a) ₹ 2,400
b) ₹ 4,800
c) ₹ 1,000
d) ₹ 1,200
Answer. B

Question. What is the total profit to be credited to A, B, and C after all adjustments?
a) ₹ 12,000
b) ₹ 8,000
c) ₹ 9,000
d) ₹ 10,000
Answer. A

Question. What is the amount of the past adjustment entry?
a) ₹ 350
b) ₹ 450
c) ₹ 250
d) ₹ 55
Answer. B

Read the hypothetical text and answer the following questions.
X and Y started business on 1St April 2020 with a capital of ₹ 5,00,000 each. As per the partnership Deed, both X and Y are to get a monthly salary of ₹ 10,000 each, and interest on capital is ₹ 50,000 each. Interest in drawings is as follows X: ₹ 3,000 and Y: ₹ 5,000.
During the year, the firm incurred a loss of ₹ 2,00,000.

Question. What is the amount to be transferred to the Profit and Loss Appropriation Account?
a) ₹ 5,00,000
b) ₹ 2,00,000
c) ₹ 3,00,000
d) ₹ 1,50,000
Answer. B

Question. What is the total amount of salary to be credited to the Partners’ capital account?
a) ₹ 1,20,000
b) ₹ 2,40,000
c) ₹ 1,80,000
d) No salary will be given
Answer. D

Question. What amount of loss is to be transferred to the capital account of both partners?
a) ₹ 1,92,000
b) ₹ 2,00,000
c) ₹ 1,96,000
d) ₹ 1,80,000
Answer. C

Question. What is the share of loss of X?
a) ₹ 1,00,000
b) ₹ 96,000
c) ₹ 98,000
d) ₹ 90,000
Answer. D

ASSERTION –REASON BASED QUESTIONS

Question. Read the following Assertion (A) and Reason(R). Choose one of the correct alternatives given below.
Assertion (A): In a specified situation, interest on the Partners’ Capital is shown in the Profit and Loss Account.
Reason(R): Interest on capital is transferred to the debit of the Profit and Loss Account if it is specified to be a charge.
Alternatives:
(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 and Reason (R) is not the correct explanation Assertion (A).
(c)Assertion (A) is true but the Reason (R) is false
(d)Assertion (A) is false but the Reason (R) is true
Answer. B

Question. Read the following Assertion (A) and Reason(R). Choose one of the correct alternatives given below.
Assertion (A): If drawings by a partner are on the different dates and/or amounts of draw-ings is not the same interest on drawings is calculated using the product method.
Reason (R) : Interest on drawings is charged for the period it is drawn by a partner, in case the amount of drawings and/or period for which is drawn is not uniform, average method cannot be applied to determine interest on capital.
Alternatives:
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 and Reason (R) is not the correct explanation Assertion (A).
c) Assertion (A) is true but the Reason (R) is false
d) Assertion (A) is false but the Reason (R) is true
Answer. B

Question. Read the following Assertion (A) and Reason(R). Choose one of the correct alternatives given below.
Assertion (A): Adith, a partner in the firm gave a loan of ₹. 50,000 to the firm without an agreement to rate of interest. Interest on Loan by Adith is to be allowed at @6% p.a.
Reason (R): In the absence of the Partnership Deed, Provisions of the Partnership act 1932, apply. Thus interest on a loan to a Partner should be charged @6% p.a
Alternatives:
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 and Reason (R) is not the correct explanation for Assertion (A).
c) Assertion (A) is true but the Reason (R) is false
d) Assertion (A) is false but the Reason (R) is true
Answer. C

Question. Read the following Assertion (A) and Reason(R). Choose one of the correct alternatives given below.
Assertion (A): Ankur, Bhaskar and Rakesh are partners with capitals of ₹. 3, 00,000, 4, 00,000 and 5, 00,000 respectively. The partnership deed provided to allow remuneration to each partner of ₹, 50,000 p.a. and interest on capital @5% p.a. Profit for the year ended 31st March 2021 of ₹. 2, 10,000 was distributed without allowing remuneration and interest on capital. Rectifying entry for the above will be Dr. Ankur and Cr Rakesh by ₹. 5000.
Reason (R): Remuneration and Interest to Ankur, Bhaskar and Rakesh are ₹. 65000, 70,000 and 75000 respectively. Each partner was credited by ₹. 70000. As a result Ankur was ex-cess credited by 5000 and Rakesh was short credited by 5000. Thus Ankur will be debited and Rakesh will be credited by ₹. 5000.
Alternatives:
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 and Reason (R) is not the correct explanation Assertion (A).
c) Assertion (A) is true but the Reason (R) is false
d) Assertion (A) is false but the Reason (R) is true
Answer. A

Question. Read the following Assertion (A) and Reason(R). Choose one of the correct alternatives given below.
Assertion (A) Sandhya, Sudheer, and Namitha are partners sharing profits in the ratio of 3:2:1, Sandhya is guaranteed a minimum profit share of ₹. 75000 p.a after appropriations. Profit for the year after all adjustments were ₹. 1, 80,000. The profit share of Sandhya and Namitha will be Rs.90000, 30000 respectively.
Reason (R): The profit share of Sudheer is ₹. 75000 since her actual share is ₹. 60000(1, 80000*2/6). Balance profit ₹, 105000 will be distributed between Sandhya and Namitha in the ratio of 3:1. Thus Sandhya will get ₹. 78750, and Namitha ₹. 26,250.
Alternatives:
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 and Reason (R) is not the correct explanation Assertion (A).
c) Assertion (A) is true but the Reason (R) is false
d) Assertion (A) is false but the Reason (R) is true
Answer. D

SHORT ANSWER TYPE QUESTIONS

Question. The goodwill of the firm is valued at 4 years purchase of average profit of five years. The profits for the last five years were:
Year Profit
2013-14 : 2,00,000
2014-15 : (3,00,000)
2015-16 : 4,50,000 ( including an abnormal gain of ₹ 50,000)
2016-17 : 3,50,000 (after charging an abnormal loss of ₹ 90,000)
2017-18 : 2,60,000
Calculate the amount of goodwill.
Answer. Goodwill Rs.8,00,000

Question. The capital of the firm of Anuj and Benu is ₹ 10,00,000 and the market rate of interest is 15%. The annual salary of the partners is ₹ 60,000 each. The profit for the last three years were ₹ 2,80,000, ₹ 3,80,000, and ₹ 4,20,000. Goodwill of the firm is to be valued on the basis of two years’ purchases of the last three years’ average super profits. Calculate the goodwill of the firm.
Answer. Goodwill Rs.1, 80,000

Question. A firm earned profits of ₹ 80,000, ₹ 1,00,000, ₹ 1,20,000 and ₹ 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has a capital investment of ₹5,00,000. A fair rate of return on investment is 15% pa. Calculate goodwill of the firm based on three years' purchase of average super profits of last four yours.
Answer. Goodwill Rs. 1,35,000

Question. A Firm's average profits are 70,000. It includes an abnormal profit of 5,000. Capital invested in the business is 5,50,000 and the normal rate of return is 10%. Calculate goodwill at four times the super profit.
Answer. Goodwill Rs.40,000

Question. The average profit of a firm is ₹ 48,000. The total assets of the firm are ₹ 8,00,000. The value of other liabilities is ₹ 5,00,000. The average rate of return in the same business is 12%.Calculate goodwill from 22capitalization of average profits method.
Answer. Goodwill Rs.1,00,000 (capital employed = Asset-Liabilities)

LONG ANSWER TYPE QUESTIONS

Question. Ankur and Bobby were into business for providing software solutions in India. They were sharing profits and losses in the ratio of 3:2. They admitted Rohit for 1/5th share in profits. Rohit is guaranteed a minimum profit of Rs.2,00,000 for the year. Any deficiency in Rohit share is to be borne by Ankur and Bobby in the ratio 4:1. Losses for the year were RS.1,00,000. Pass necessary journal entries.
Answer. Ankur’s capital A/C Dr 48,000
Bobby’s capital A/C    Dr   32,000
Rohit’s capital A/C     Dr    20,000
To profit and Loss A/C               1,00,000
Ankur’s capital A/C     Dr   1,76,000
Bobby’s capital A/C    Dr   44,000
To Rohit’s capital A/C        2,20,000

Question. Rohit, Raman, and Raina are partners in a firm. Their capital accounts on 1st April, 2019, stood at ₹ 2,00,000, ₹ 1,20,000 and ₹ 1,60,000 respectively. Each partner withdrew ₹ 15,000 during the financial year 2019-20.
As per the provisions of their partnership deed:
(a) Interest on capital was to be allowed @5% per annum.
(b) Interest on drawings was to be charged @4% per annum.
(c) Profits and losses were to be shared in the ratio of 5:4:1.
The net profit of ₹ 72,000 for the year ended 31st March 2020, was divided equally amongst the partners without providing for the terms of the deed.
You are required to pass a single adjustment entry to rectify the error (show workings clearly).
Answer. 
Raina’s capital A/C   Dr     11,410
To Rohit’s capital A/C        10,150
To Ramana’s capital A/C   1,260

 

Accounting For Partnership Firms -Fundamentals

1. X and Y are partners in a firm. Their capitals as on April 1, 2009 were Rs.2,50,000 and Rs.1,80,000 respectively. They share profits equally. On July 1, 2009, they decided that their capitals should be Rs.2,00,000 each. The necessary adjustments in the capitals were made by withdrawing or introducing cash. According to the partnership deed, interest on capital is to be allowed @8% p.a. X is to get an annual salary of Rs.4,000 and Y is allowed a monthly salary of Rs.800. It was found that Y was regularly withdrawing his monthly salary.
The manager of the firm is entitled to a commission of 10% of the profit before any adjustment is made according to the partnership deed.
Net profit for the year ended on 31st March, 2010, before charging interest on capital and salary, was Rs.80,000. Prepare the Profit and Loss Appropriation account, Partner's Capita accounts and Current accounts. (Profit: X-12,900, Y-12,900; Current A/C: X-33,900, Y-28,500)

2. The partnership agreement of 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 profit 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 Rs.14,000 respectively.
The net profit for the year ending March 31,2002 amounted to Rs.40,000.
Prepare firm's Profit and Loss Appropriation Account.

3. A and B are partners with capitals of Rs.5,00,000 and Rs.3,00,000 respectively. The profits for the year ended 31st March, 2010 was Rs.3,46,000 before allowing interest on partner's loan. Show the distribution of profit after taking the following into consideration:
(i) Interest on A's loan of Rs.1,50,000 to the firm provided on 1st April, 2009.
(ii) Interest on capital to be allowed @ 5% p.a.
(iii)Interest on drawings @6% p.a. Drawings were A Rs.60,000 and B Rs.40,000.
(iv) B is to be allowed a commission of 2% on sales. Sales for the year were Rs.30,00,000.
(v) 10% of the divisible profits is to be kept in a Reserve Account.

4. X and Y are partners with a profit sharing ratio of 1:2 with capitals of Rs.4,00,000 and Rs.6,00,000 respectively. On 1st October, 2004, X and Y granted loans of Rs.1,00,000 and Rs.60,000 respectively to the firm. Distribute the profits/losses amongst the partners for the year ended 31st March, 2005 in each of the following cases:
Case (a) If the profit before interest for the year amounted to Rs.12,000.
Case (b) If the profit before interest for the year amounted to Rs.3,000.
Case (c) If the loss before interest for the year amounted to Rs.7,500.

5.A and B contribute Rs.5,00,000 and Rs.3,00,000 respectively by way of capital on which they agree to allow interest @6% p.a. Their respective share of profit is 3:2 and the profit for the year is Rs.40,000 before allowing interest on capitals. Prepare the necessary account to allocate interest on capitals.

6.L,M and N are partners who have omitted interest on capitals for three years ended on 31st March,2011. Their fixed capitals in three years were L-Rs.40,000, M-Rs.25,000, NRs. 15,000. Rate of interest on capital is 12%p.a. Their profit sharing ratios were 2009- 5:2:1, 2010-3:2:1, 2011- 2:1:1. Give the necessary adjusting entry.

7. The net profit of a firm for the year ended 31st March, 2011 was Rs. 30,000, which has been duly distributed amongst its three partners A, B & C in their agreed proportions of 3:1:1 respectively. It was discovered on 10th April, 2011 that the undermentioned transcations were not passed through the books of accounts of the firm for the year ended 31st March, 2011, which stood duly closed on that date:
a) Interest on capital @ 10% p.a.
b) Interest on drawings : A Rs.350 B Rs. 250 C Rs. 150
c) Commission due to A on a special transaction Rs. 3,000
d) Salary of Rs.5,000 to A and Rs.7,500 to B.
The capital accounts of the partners on 1st April, 2010 were: A Rs.25,000 B Rs.20,000 C Rs. 15,000 You are required to suggest a journal entry to be passed on 10th April, 2011 which will not affect the profit and loss account of the firm for the year ended 31st March ,2011 and at the same time will rectify the position of the partners.

8. A, B and C are the partners in a firm. After the accounts of partnership have been drawn uo and the books closed off, it is discovered that for the years ended 31st March, 2010 and 2011, interest has been allowed to the partners upon their capitals @ 6% p.a. although there is no provision for interest in the partnership deed. their fixed capitals on which interest was calculated were Rs. 1,00,000, Rs. 80,000 and Rs. 60,000 respectively.
During the last two years, they have shared the profits as follows:
2010   3:2:1
2011   5:3:2
You are required to give necessary adjusting entry on 1st April, 2011

9. K & P are partners sharing profit and losses in the ratio of 3:2. They employed C as their manager to whom they paid a salary of Rs.750 per month. C deposited Rs.20,000 on which interest was payable @ 9% p.a. At the end of 2001 (after division of the year's profits) it was decided that C should be treated as partners with effect from 1st January, 1998 with 1/6th share in profits, his deposit being considered as capital, carrying interest at 6% p.a. like capitals of other partners. The firm's profits and losses after allowing interest on capitals were as follows:
1998   Profit   Rs.59,000
1999   Profit   Rs.62,000
2000   Loss    Rs.4,000
2001   Profit   Rs.78,000
Record the necessary journal entries to give effect to the above.

10. A and B are partners with capitals of Rs.50,000 and Rs40,000 respectively, on which they are entitled to interest @ 10% p.a. They divide profits in the ratio of 2:1. They take C into partnership with 1/4th share of profits and guaranteed that his share of profits will not be less than Rs.20,000. C brought Rs.30,000 as his capital. Any excess profits received by C over his 1/4th share will be born by A & B in the ratio of 4:1. Profits at the end of the year before allowing interest on capitals amounted to Rs. 72,000. Distribute the profits.

11. A, B and C are in partnership. A & B sharing profits in the ratio of 3:1 and C receiving an annual salary of Rs.32,000plus 5%of the profits after charging his salary and commission, or 1/4th of the profit of the firm whichever is more. Any excess of the latter over the former
received by C is, under the partnership deed, to be borne by A and B in the ratio of 3:2. The profit for the year ended 31st March, 2011 came to Rs.1,68,000 after charging C's salary. Show the distribution of profits among the partners.

VALUE BASED QUESTIONS

12. A, B and C after completing their computer engineering decided to start the business of developing computer softwares. They entered into partnership for this purpose on 1st April, 2013. Identify any four values which according to you motivated them to form the partnership firm.

13. A,B, C and D are partners in a firm. A has contributed Rs.5,00,000 more towards capital on which he claims interest @ 6% p.a. B and C agreed to it but D opposed it arguing that partnership deed does not provide for it. Identify the value being ignored in this case.

14. A and B are partners. A was authorised to buy goods for the firm. A placed an order of Rs. 10,00,000 with a supplier, who offered 15% commission to A. A declined to receive commision and requested the supplier to reduce to purchase price by 15%. Supplier agreed to it. Which value has been fulfilled by A?

15. Partners decided that 5% profits, each year be given to Resident Welfare Association of the area for establishing a waste management mechanism by setting up a door to door collection system of the waste. Which value has been fulfilled by Partners?

Question. Steps involved in the distribution of profit under minimum guarantee to partner will be…………………..
i) Calculate the amount of deficiency
ii) Calculate distributable profit between/among the partners
iii) Distribute the amount of deficiency between/among the partners who have given the guarantee
iv) Calculate the actual share of profit of each partner
a) (ii) iv) i) iii)
b) (i) ii) iii) iv)
c) (iii) ii) iv) i)
d) (iv) iii) ii) i)
Answer. A

Question. If super profit is zero or negative, it means that the actual average profit is less than or equal to the normal profit
(a) True
(b) False
(c) Partially true
(d) Can’t say
Answer. B

Question. Capital employed by a partnership firm is ₹. 5, 00,000. Its average profit is ₹. 60,000. The normal rate of return for a similar type of business is 10%. The amount of super profit is.
(a) ₹ 50000
(b) ₹ 10000
(c) ₹ 6000
(d) ₹ 56000
Answer. C

Question. The average profit over the last five years was ₹. 60000. The normal yield on capital in-vested in such a business is estimated at 10% pa. Capital invested in the business is ₹. 500000. Amount of goodwill, it is based on 3 years purchase of last 5 years super profit will be
(a) 1, 00,000
(b) 1, 80,000
(c) 30000
(d) 1, 50,000.
Answer. A

Question. As per AS-26 -------------------Goodwill is recorded in the books of accounts.
(a) Purchased
(b) Self-generated
(c) Both a) and b)
(d) None of these
Answer. D

Case studies –

Read the hypothetical text and answer the following questions.
A, B, and C are partners in a firm. Their capitals are ₹ 30,000, ₹ 20,000 and ₹ 10,000 respectively. As per the partnership deed,
i) C is to be allowed remuneration of ₹ 3,000 p.a.
ii) Interest on capital @ 5% p.a.
iii) Profits should be distributed in the ratio of 2:2:1.
Ignoring the above terms, a net profit of ₹ 18,000 was distributed among the partners equally.

Question. How much interest on capital is to be credited to partner A?
a) ₹ 1,500
b) ₹ 1,000
c) ₹ 900
d) ₹ 800
Answer. B

Question. How much profit is to be credited to Partner B after all adjustments?
a) ₹ 2,400
b) ₹ 4,800
c) ₹ 1,000
d) ₹ 1,200
Answer. C

Question. What is the total profit to be credited to A, B, and C after all adjustments?
a) ₹ 12,000
b) ₹ 8,000
c) ₹ 9,000
d) ₹ 10,000
Answer. C

Question. What is the amount of the past adjustment entry?
a) ₹ 350
b) ₹ 450
c) ₹ 250
d) ₹ 55
Answer. C

Read the hypothetical text and answer the following questions.
A, B and C are partners in a firm sharing profits and losses in the ratio of 2:2:1. Their capitals (Fixed) are ₹ 1, 00,000, ₹ 80,000, and ₹ 70,000 respectively. For the year 2018-19, interest on capital was to be credited to them @ 9% p.a. instead of 12%

Question. What was the net amount that should be credited to partner B?
a) ₹ 1,500
b) ₹ 2,400
c) ₹ 1,800
d) ₹1,200
Answer. B

Question. What was the net amount that should be credited to partner C?
a) ₹ 1,800
b) ₹ 2,000
d) ₹ 2,100
d) ₹ 1,700
Answer. D

Question. What was the amount that was debited to partner B?
a) ₹ 1,500
b) ₹ 2,000
c) ₹ 3,000
d) ₹ 4,000
Answer. A

Question. What was the number of past adjustment entries?
a)₹ 400
b) ₹ 300
c) ₹ 600
d) ₹ 500
Answer. B

Question. A and B started a partnership business on 1st April 2021. They contributed ₹ 6,00,000 and ₹ 4,00,000 respectively, as their capitals. The terms of the partnership agreement are as under:
(i) Interest on capital and drawings @ 6% per annum.
(ii) B is to get a monthly salary of ₹ 2,500.
(iii) Sharing of profit or loss will be in the ratio of their capital contribution.
The profit for the year ended 31st March 2022, before making the above appropriations was ₹ 2,07,400. The drawings of A and B were ₹ 48,000 and ₹ 40.000 respectively. Interest on drawings amounted to ₹ 1,500 for A and ₹ 1,100 for B.
Prepare profit and loss appropriation accounts and partner's capital accounts
assuming that their capitals are fluctuating.
Answer. Divisible profit Rs.1,20,000.
Capital balance : A ‘s capital Rs. 6,58,500 B’s capital Rs. 4,60,900

Question. Y and Z are partners with capitals of ₹ 25,000 and ₹ 15,000 respectively on 1st April 2020. Each partner is entitled to 9% p.a. interest on his capital. Z is entitled to a salary of ₹ 6,000 p.a. together with a commission of 6% of Net Profit remaining after deducting interest on capital and salary and after charging his commission. The profits for the year ended 31st March 2021 before making any of the above-mentioned adjustments amount to ₹ 30,800. Prepare Partner's Capital Accounts:
(1) when capitals are fixed, and
(2) when capitals are fluctuating
Answer.  Divisible profit of Rs.20,000
When capitals are fixed: current a/c balance Y Rs.12,250( cr ) Z Rs. 18,550(cr)
When capitals are fluctuating: capital accounts Y Rs. 37,250 (cr) Z Rs.33,550(cr)

Question. The capital accounts of Alka and Archana showed a credit balance of Rs.4,00,000 and 3,00,000 respectively, after taking into account drawings and a net profit of RS.2,00,000. The drawings of the partners during the year 2018-19 were
a. Alka withdrew Rs.10,000 at the end of each quarter
b. Archana’s drawings were
31st May 2018 Rs.8,000
1st November 2018 Rs. 7,000
1st February 2019 Rs. 5,000
Calculate interest on partner’s capitals@10% p a and interest on partners’ drawings @ 6% p a for the year ended 31st March 2019.
Answer. Interest on capital: Alka Rs.34,000 Archana Rs.22,000
Interest on drawings: Alka 40,000*6/100*4.5/12 = 900/-
Archana 1,25,000*6/100*1/12 =625/-

Question. Lata and Mamata are partners with capitals of ₹3,00,000 and ₹ 2,00,000 respectively sharing profits as Lata 70% and Mamata 30%. During the year ended 31st March 2021, they earned a profit of ₹ 2,26,440 before allowing interest on the partner's loan. The terms of the part-nership are as follows:
(i) Interest on Capital is to be allowed @ 7% p.a.
(ii) Lata is to get a salary of ₹ 2,500 per month.
(iii) Interest on Mamata’s Loan account of 80,000 for the whole year.
(iv) Interest on drawings of partners at 8% per annum. Drawings being Lata ₹36,000 and Mamata ₹ 48,000.
(v) 1/10th of the distributable profit should be transferred to General Reserve.
Prepare the Profit and Loss Appropriation Account.
Answer. Share of profit : Lata Rs.1,00,800 Mamata Rs.43,200
( interest on drawings will be calculated for an average period of 6 months.
Transfer to general reserve will be 10% of Rs.1,60,000)

Question. P and Q were partners in the firm sharing profits in the 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. The partnership deed further provided that interest on capital will be allowed fully even if it will result in a loss to the firm. The net profit of the firm for the year ended 31st March 2018 was ₹ 1,50,000.
Pass necessary journal entries in the books of the firm allowing interest on capital and division of profit/loss among the partners.
Answer. Net loss transferred to current Account : P Rs.31,500 Q Rs.10,500

Question. The goodwill of the firm is valued at rs.1,35, 000 at three years purchase of the super profit. Determine the missing values.
Average profit = 3,60,000/3= Rs.1,20,000
Normal profit= ________*15/100 =?
Super profit = ?
Answer. Goodwill = super profit* no. of years purchase
1,35,000 = super profit*3
Then super profit =1,35,000/3= 45,000
Super profit = average profit-normal profit
45,000 = 1,20,000-normal profit
Then Normal profit =1,20,000-45,000 = 75,000
Normal profit = capital employed*rate/100
75,000 = capital employed *15/100
Then capital employed 75,000*100/15 =5,00,000

Question. The capitals of X, Y, AND Z as of 31st march 2021 amounted to Rs. 1,50,000, 5,50,000 and 11,00,000 respectively. Divisible profit amounting to Rs.3,00,000 for the year ended 31st March 2021 was distributed in the ratio of 4:1:1 after allowing interest on capital @10% p a. During the year each partner withdrew Rs. 50,000 per month at the beginning of each month. The partnership deed was silent as to profit sharing ratio and interest on drawings but provided for interest on capital @12 p.a.
Showing your workings, pass necessary adjusting entries to rectify the above error.
Answer. 
X’s capital A/C   Dr   1,10,000
To Y’s capital A/C            50,000
To Z’s capital A/C             60,000