Accounts of Partnership Firms –Fundamentals Text Book Solutions

Students, here are the answers for the book back exercises in Chapter 3 Accounts of Partnership Firms –Fundamentals. If you have any doubts, please reach out to us in the comments section.

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Important Formulas, Accounts Formats and Notes for Chapter 3

I Multiple choice questions

Choose the correct answer:

1. In the absence of a partnership deed, profits of the firm will be shared by the partners in
(a) Equal ratio	(b) Capital ratio
(c) Both (a) and (b)	(d) None of these
2. In the absence of an agreement among the partners, interest on capital is
(a) Not allowed	(b) Allowed at bank rate
(c) Allowed @ 5% per annum	(d) Allowed @ 6% per annum
3. As per the Indian Partnership Act, 1932, the rate of interest allowed on loans advanced by partners is
(a) 8% per annum	(b) 12% per annum
(c) 5% per annum	(d) 6% per annum
4. Which of the following is shown in Profit and loss appropriation account?
(a) Office expenses	(b) Salary of staff
(c) Partners’ salary	(d) Interest on bank loan
5. When fixed capital method is adopted by a partnership firm, which of the following items will appear in capital account?
(a) Additional capital introduced	(b) Interest on capital
(c) Interest on drawings	(d) Share of profit
6. When a partner withdraws regularly a fixed sum of money at the middle of every month, period for which interest is to be calculated on the drawings on an average is
(a) 5.5 months	(b) 6 months
(c) 12 months	(d) 6.5 months
7. Which of the following is the incorrect pair?
(a) Interest on drawings – Debited to capital account	(b) Interest on capital – Credited to capital account
(c) Interest on loan – Debited to capital account	(d) Share of profit – Credited to capital account
8. In the absence of an agreement, partners are entitled to
(a) Salary	(b) Commission
(c) Interest on loan	(d) Interest on capital
9. Pick the odd one out
(a) Partners share profits and losses equally	(b) Interest on partners’ capital is allowed at 7% per annum
(c) No salary or remuneration is allowed to partners	(d) Interest on loan from partners is allowed at 6% per annum.
10. Profit after interest on drawings, interest on capital and remuneration is ` 10,500. Geetha, a partner, is entitled to receive commission @ 5% on profits after charging such commission. Find out commission.
(a) Rs. 50	(b) Rs. 150
(c) Rs. 550	(d) Rs. 500

Take the MCQ Quiz on Chapter 3

II Very short answer questions

1. Define partnership.

Answer: According to Section 4 of the Indian Partnership Act, 1932, partnership is defined as, “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”.

2. What is a partnership deed?

Answer: Partnership deed is a document in writing that contains the terms of the agreement among the partners. It is not compulsory for a partnership to have a partnership deed as per the Indian Partnership Act, 1932. But, it is desirable to have a partnership deed as it serves as an evidence of the terms of the agreement among the partners.

3. What is meant by fixed capital method?

Answer: Fixed capital method is a system by which capital accounts of partners of a firm may be maintained. In this method, the capital of the partners is not altered and it remains fixed.

Two accounts are maintained for each partner namely (a) Capital account and (b) Current account. The transactions relating to initial capital introduced, additional capital introduced and capital permanently withdrawn are entered in the capital account. All other transactions are recorded in the current account.

4. What is the journal entry to be passed for providing interest on capital to a partner?

Answer:

Date	Particulars	LF	Debit	Credit
	Interest on capital A/c Dr.		xxx
	To Partner’s capital / current A/c			xxx
	(For providing interest on capital)

	Profit and loss appropriation A/c Dr.		xxx
	To Interest on capital A/c			xxx
	(For closing interest on capital account)

5. Why is Profit and loss appropriation account prepared?

Answer: The profit and loss appropriation account is an extension of profit and loss account prepared for the purpose of adjusting the transactions relating to amounts due to and amounts due from partners.

III Short answer questions

1. State the features of partnership.

Answer: Following are the essential features of partnership:

1. Partnership is an association of two or more persons. The maximum number of partners is limited to 50.

2. There should be an agreement among the persons to share the profit or loss of the business. The agreement may be oral or written or implied.

3. The agreement must be to carry on a business and to share the profits of the business.

4. The business may be carried on by all the partners or any of them acting for all.

2. State any six contents of a partnership deed.

Answer: Generally, partnership deed contains the following:

1. Name of the firm and nature and place of business

2. Date of commencement and duration of business

3. Names and addresses of all partners

4. Capital contributed by each partner

5. Profit sharing ratio

6. Amount of drawings allowed to each partner

3. State the differences between fixed capital method and fluctuating capital method.

Answer:

Feature	Fixed capital method	Fluctuating capital method
1. Number of accounts	Two accounts are maintained for each partner, that is, capital account and current account.	Only one account, that is, capital account is maintained for each partner.
2. Change in capital	The amount of capital normally remains unchanged except when additional capital is introduced or capital is withdrawn permanently.	The amount of capital changes from period to period.
3. Closing balance	Capital account always shows a credit balance. But, current account may show either debit or credit balance.	Capital account generally shows credit balance. It may also show a debit balance.
4. Adjustments	All adjustments relating to interest on capital, interest on drawings, salary or commission, share of profit or loss are done in current account.	All adjustments relating to interest on capital, interest on drawings, salary or commission, share of profit or loss are done in the capital account.

4. Write a brief note on the applications of the provisions of the Indian Partnership Act, 1932 in the absence of partnership deed.

Answer: If there is no partnership deed or when there is no express statement in the partnership deed, then the following provisions of the Act will apply:

(i) Remuneration to partners

No salary or remuneration is allowed to any partner. [Section 13(a)]

(ii) Profit sharing ratio

Profits and losses are to be shared by the partners equally. [Section 13(b)]

(iii) Interest on capital

No interest is allowed on the capital. Where a partner is entitled to interest on capital contributed as per partnership deed, such interest on capital will be payable only out of profits. [Section 13(c)]

(iv) Interest on loans advanced by partners to the firm

Interest on loan is to be allowed at the rate of 6 per cent per annum. [Section 13(d)]

(v) Interest on drawings

No interest is charged on the drawings of the partners.

5. Jayaraman is a partner who withdrew Rs.10,000 regularly in the middle of every month. Interest is charged on the drawings at 6% per annum. Calculate interest on drawings for the year ended 31st December, 2018.

Answer: Interest on capital = Amount of capital x Rate of interest per annum x Period of interest

$=10,000\times \dfrac{6}{100}\times \dfrac{6}{12}= Rs.300$

IV Exercises

1. Akash, Bala, Chandru and Daniel are partners in a firm. There is no partnership deed. How will you deal with the following?

(i) Akash has contributed maximum capital. He demands interest on capital at 10% per annum.

(ii) Bala has withdrawn Rs.3,000 per month. Other partners ask Bala to pay interest on drawings @ 8% per annum to the firm. But, Bala did not agree to it.

(iii) Akash demands the profit to be shared in the capital ratio. But, others do not agree.

(iv) Daniel demands salary at the rate of Rs.10,000 per month as he spends full time for the business.

(v) Loan advanced by Chandru to the firm is Rs.50,000. He demands interest on loan @ 12% per annum.

Answer:

(i) No interest on capital is payable to any partner.

(ii) No interest is chargeable on drawings made by the partner.

(iii) Profits should be distributed equally.

(iv) No remuneration is payable to any partner.

(v) Interest on the loan is payable at 6% per annum.

2. From the following information, prepare capital accounts of partners Rooban and Deri, when their capitals are fixed.

Particulars	Rooban (Rs)	Deri (Rs)
Capital on 1st April, 2018	70,000	50,000
Current account on 1st April, 2018 (Cr.)	25,000	15,000
Additional capital introduced	18,000	16,000
Drawings during 2018 – 2019	10,000	6,000
Interest on drawings	500	300
Share of profit for 2018 – 2019	35,000	25,800
Interest on capital	3,500	2,500
Salary	Nil	18,000
Commission	12,000	Nil

Answer:

		Fixed Capital Account
Particulars	Rooban	Deri	Particulars	Rooban	Deri
To balance c/d	88.000	66,000	By balance b/d	70,000	50,000
			By cash/bank	18,000	16,000
Total	88.000	66,000	Total	88.000	66,000
			By balance b/d	88.000	66,000

		Current Account
Particulars	Rooban	Deri	Particulars	Rooban	Deri
To drawing	10,000	6,000	By balance b/d	25,000	15,000
To interest on drawing	500	300	By share of profit	35,000	25,800
To balance c/d	65,000	55,000	By interest on capital	3500	2500
			By salary		18,000
			By commission	12,000
Total	75,500	61,300	Total	75,500	61,300
			By balance b/d	65,000	55,000

3. Arun and Selvam are partners who maintain their capital accounts under fixed capital method. From the following particulars, prepare capital accounts of partners.

Particulars	Arun (Rs.)	Selvam (Rs.)
Capital on 1st January, 2018	2,20,000	1,50,000
Current account on 1st January, 2018	4,250(Dr.)	10,000(Cr.)
Additional capital introduced during the year	Nil	70,000
Withdrew for personal use	10,000	20,000
Interest on drawings	750	600
Share of profit for 2018	22,000	15,000
Interest on capital	1,100	750
Commission	6,900	Nil
Salary	Nil	6,850

		Capital Account
Particulars	Arun	Selvam	Particulars	Arun	Selvam
To balance c/d	2,20,000	2,20,000	By balance c/d	2,20,000	1,50,000
			By bank		70,000
Total	2,20,000	2,20,000	Total	2,20,000	2,20,000
			By balance c/d	2,20,000	2,20,000

		Current Account
Particulars	Arun	Selvam	Particulars	Arun	Selvam
To balance c/d	4250		By balance b/d		10,000
To drawing	10,000	20,000	By share of profit	22,000	15,000
To interest on drawings	750	600	By interest on capital	1100	750
To balance c/d	15,000	12,000	By salary		6850
			By commission	6900
Total	30,000	32,600	Total	30,000	32,600
			By balance b/d	15,000	12,000

4. From the following information, prepare capital accounts of partners Padmini and Padma, when their capitals are fluctuating.

Particulars	Padmini (Rs.)	Padma (Rs.)
Capital on 1st January 2018 (Cr. balance)	5,00,000	4,00,000
Drawings during 2018	70,000	40,000
Interest on drawings	2,000	1,000
Share of profit for 2018	52,000	40,000
Interest on capital	30,000	24,000
Salary	45,000	Nil
Commission	Nil	21,000

		Capital Account
Particulars	Padmini	Padma	Particulars	Padmini	Padma
To drawing	70,000	40,000	By balance b/d	500,000	400,000
To interest on drawings	2000	1000	By share of profit	52,000	40,000
To balance c/d	5,55,000	4,44,000	By interest on capital	30,000	24,000
			By salary	45,000
			By commission		21,000
Total	627,000	485,000	Total	627,000	485,000
			By balance b/d	5,55,000	4,44,000

5. Mannan and Ramesh share profits and losses in the ratio of 3:2 and their capital on 1st April, 2018 was Mannan Rs.1,50,000 and Ramesh Rs.1,00,000 respectively and their current accounts show a credit balance of Rs.25,000 and Rs.20,000 respectively. Calculate interest on capital at 6% p.a. for the year ending 31st March, 2019 and show the journal entries.

Answer: Interest on capital = Amount of capital x Rate of interest per annum x Period of interest

$Mannan: =150,000\times \dfrac{6}{100}= Rs.9000\\$
$Ramesh : =100,000\times \dfrac{6}{100}= Rs.6000$

Date	Particulars	Debit	Credit
2019	Interest on capital A/c Dr.	15,000
31st March	To Mannan's capital a/c		9000
	To Ramesh's capital a/c		6000
	(For providing interest on capital)
31st March	Profit and loss appropriation A/c Dr.	15,000
	To Interest on capital A/c		15,000
	(For closing interest on capital account)

6. Prakash and Supria were partners who share profits and losses in the ratio of 5:3. Balance in their capital account on 1st April, 2018 was Prakash Rs.3,00,000 and Supria Rs.2,00,000. On 1st July, 2018 Prakash introduced additional capital of Rs.60,000. Supria introduced additional capital of Rs.30,000 during the year. Calculate interest on capital at 6% p.a. for the year ending 31st March, 2019 and show the journal entries.

$Prakash: =300,000\times \dfrac{6}{100}= Rs.18,000\\$
$=60,000\times \dfrac{6}{100}\times \dfrac{9}{12}= Rs.2700 \\$
$Supriya: =200,000\times \dfrac{6}{100}= Rs.12,000\\$
$=30,000\times \dfrac{6}{100}\times \dfrac{6}{12}= Rs.900 \\$

Date	Particulars	Debit	Credit
2019	Interest on capital A/c Dr.	33.600
31st March	To Prakash capital a/c		20,700
	To Supriya capital a/c		12,900
	(For providing interest on capital)
31st March	Profit and loss appropriation A/c Dr.	33.600
	To Interest on capital A/c		33.600
	(For closing interest on capital account)

7. The capital account of Begum and Fatima on 1st January, 2018 showed a balance of Rs.50,000 and Rs.40,000 respectively. On 1st October, 2018, Begum introduced an additional capital of Rs.10,000 and on 1st May, 2018 Fatima introduced an additional capital of Rs.9,000. Calculate interest on capital at 4% p.a. for the year ending 31st December, 2018.

$Begum: =50,000\times \dfrac{4}{100}= Rs.2,000\\$
$=10,000\times \dfrac{4}{100}\times \dfrac{3}{12}= Rs.100 \\$

$Fatima: =40,000\times \dfrac{4}{100}= Rs.1600\\$
$=9,000\times \dfrac{4}{100}\times \dfrac{8}{12}= Rs.240$

Begum :Total Interest on capital =Rs.2100
Fatima: Total Interest on capital =Rs.1840

8. From the following balance sheets of Subha and Sudha who share profits and losses in 2:3, calculate interest on capital at 5% p.a. for the year ending 31st December, 2018.

	Balance sheet as on 31st December, 2018
Liabilities	Rs.	Rs.	Assets	Rs.
Capital accounts:			Fixed assets	70,000
Subha	40,000		Current assets	50,000
Sudha	60,000	1,00,000
Current liabilities		20,000
Total		1,20,000	Total	1,20,000

Anwser:

Calculation of Opening Capital
Particulars	Sudha	Subha
Capital as on 31-12-18	40,000	60,000
Add: Drawings	8,000	10,000
Less: Profit	48,000	70,000
	12,000	18,000
Capital as on 01-01-18	36,000	52,000

$Subha: =36,000\times \dfrac{5}{100}= Rs.1,800\\$
$Sudha: =52,000\times \dfrac{5}{100}= Rs.2600$

9. From the following balance sheets of Rajan and Devan who share profits and losses 2:1, calculate interest on capital at 6% p.a. for the year ending 31st December, 2018.

	Balance sheet as on 31st December, 2018
Liabilities	Rs.	Rs.	Assets	Rs.
Capital accounts:			Sundry assets	2,20,000
Rajan	100,000
Devan	80,000	1,80,000
Current liabilities		40,000
Total		2,20,000	Total	2,20,000

Answer:

Calculation of Opening Capital
Particulars	Rajan	Devan
Capital as on 31-12-18	100,000	80,000
Add: Drawings	20,000	10,000
	120,000	90,000
Less: Additional capital	40,000	30,000
	80,000	60,000
Less: Profit	20,000	10,000
Capital as on 01-01-18	60,000	50,000

$Rajan: =60,000\times \dfrac{6}{100}= Rs.3600\\$
$=40,000\times \dfrac{6}{100}\times \dfrac{9}{12}= Rs.1800\\$

Rajan: Total Interest on capital =Rs.5400

$Devan: =50,000\times \dfrac{6}{100}= Rs.3000$
$=30,000\times \dfrac{6}{100}\times \dfrac{4}{12}= Rs.600$

Devan: Total Interest on capital =Rs.3600

10. Ahamad and Basheer contribute Rs. 60,000 and Rs. 40,000 respectively as capital. Their respective share of profit is 2:1 and the profit before interest on capital for the year is Rs. 5,000. Compute the amount of interest on capital in each of the following situations:

(i) if the partnership deed is silent as to the interest on capital

(ii) if interest on capital @ 4% is allowed as per the partnership deed

(iii) if the partnership deed allows interest on capital @ 6% per annum.

Answer: Interest on capital @4%

$Ahamed: =60,000\times \dfrac{4}{100}= Rs.2400\\$
$Basheer =40,000\times \dfrac{4}{100}= Rs.1600$

Interest on capital @6%

$Ahamed: =60,000\times \dfrac{6}{100}= Rs.3600\\$
$Basheer =40,000\times \dfrac{6}{100}= Rs.2400$

(i) If the partnership deed is silent as to the interest on capital – No Interest on capital is allowed.

(ii) if interest on capital @ 4% is allowed as per the partnership deed – There is sufficient profit. Therefore, interest on capital will be allowed to Ahamad. ₹ 2,400; Basheer. ₹ 1,600

(iii) if the partnership deed allows interest on capital @ 6% per annum – Since the profit is insufficient, interest on capital will not be provided. The profit of ₹ 5,000 will be distributed to the partners in their capital ratio of 3:2.

11. Mani is a partner, who withdrew Rs. 30,000 on 1st September, 2018. Interest on drawings is charged at 6% per annum. Calculate interest on drawings on 31st December, 2018 and show the journal entries by assuming that fluctuating capital method is followed.

Answer: Interest on drawings= Amount withdrawn x Rate of interest per annum x Period of interest

$=30,000\times \dfrac{6}{100}\times \dfrac{4}{12}= Rs.600\\$

Date	Particulars	Debit	Credit
2018	Mani capital A/c Dr.	600
31st December	To interest on drawings a/c		600
	(Interest on drawings charged)

31st March	Interest on drawings a/c Dr.	600
	To Profit and Loss Appropriation A/c		600
	(For closing interest on drawings account)

12. Santhosh is a partner in a partnership firm. As per the partnership deed, interest on drawings is charged at 6% per annum. During the year ended 31st December, 2018 he withdrew as follows:

Date	Rs.
February 1	2,000
May 1	10,000
July 1	4,000
October 1	6,000

Calculate the amount of interest on drawings.

Answer: Interest on drawings= Amount withdrawn x Rate of interest per annum x Period of interest

Date of Withdrawal	Rs.
February 1	$2,000\times \dfrac{6}{100}\times \dfrac{11}{12}= Rs.110\\$
May 1	$10,000\times \dfrac{6}{100}\times \dfrac{8}{12}= Rs.400\\$
July 1	$4,000\times \dfrac{6}{100}\times \dfrac{6}{12}= Rs.120\\$
October 1	$6,000\times \dfrac{6}{100}\times \dfrac{3}{12}= Rs.90\\$

Total interest on drawings = Rs. 110+ Rs.400 + Rs.120 + Rs. 90 = Rs.720

13. Kumar is a partner in a partnership firm. As per the partnership deed, interest on drawings is charged at 6% per annum. During the year ended 31st December, 2018 he withdrew as follows:

Date	Rs.
March 1	4,000
June 1	4,000
September 1	4,000
December 1	4,000

Calculate the amount of interest on drawings.

Answer: Interest on drawings= Amount withdrawn x Rate of interest per annum x Period of interest.

Date of Withdrawal	Rs.
March 1	$4,000\times \dfrac{6}{100}\times \dfrac{10}{12}= Rs.200\\$
June 1	$4,000\times \dfrac{6}{100}\times \dfrac{7}{12}= Rs.140\\$
September 1	$4,000\times \dfrac{6}{100}\times \dfrac{4}{12}= Rs.80\\$
December 1	$4,000\times \dfrac{1}{100}\times \dfrac{3}{12}= Rs.20\\$

Total interest on drawings = Rs. 200+ Rs.140+ Rs.80 + Rs. 20 = Rs.440.

14. Mathew is a partner who withdrew Rs. 20,000 during the year 2018. Interest on drawings is charged at 10% per annum. Calculate interest on drawings on 31st December 2018.

Answer: Interest on drawings= Amount withdrawn x Rate of interest per annum x Period of interest

$=20,000\times \dfrac{10}{100}\times \dfrac{6}{12}= Rs.1000$

15. Santhosh is a partner in a partnership firm. As per the partnership deed, interest on drawings is charged at 6% per annum. During the year ended 31st December, 2018 he withdrew as follows:

Date	Rs.
February 1	2,000
May 1	10,000
July 1	4,000
October 1	6,000

Calculate the amount of interest on drawings by using product method.

Answer:

Date	Amt Withdrawn	Period	Product (BXC)
1-2-2018	2000	11	22,000
1-5-2018	10,000	8	80,000
1-7-2018	4,000	6	24,000
1-10-2018	6,000	3	18,000
Total			144,000

$Interest \: on \: drawings = \: 144000 \times \dfrac{6}{100} \times \dfrac{1}{12}=Rs.720\\$

16. Kavitha is a partner in a firm. She withdraws Rs. 2,500 p.m. regularly. Interest on drawings is charged @ 4% p.a. Calculate the interest on drawings using average period, if she draws

(i) at the beginning of every month

(ii) in the middle of every month

(iii) at the end of every month

Answer: Interest on drawings =

$Amt\: withdrawn\:\times\:Rate\: of\:interest\:\times\:\dfrac{Average \: period}{12}\\$

(i) at the beginning of every month:

$=2500\times 12\times \dfrac{4}{100}\times \dfrac{13}{24}= Rs.650$

(ii) in the middle of every month

$=2500\times 12\times \dfrac{4}{100}\times \dfrac{6}{12}= Rs.600$

(iii) at the end of every month

$=2500\times 12\times \dfrac{4}{100}\times \dfrac{11}{24}= Rs.550$

17. Kevin and Francis are partners. Kevin draws Rs. 5,000 at the end of each quarter. Interest on drawings is chargeable at 6% p.a. Calculate interest on drawings for the year ending 31st March 2019 using average period.

Answer: Interest on drawings for Kevin:

Amount = Rs.5000 for every quarter= 5000 x 4=20,000

$Average \: period =\dfrac{9+0}{2}=\dfrac{9}{2}\\$

$=20000\times \dfrac{6}{100}\times \dfrac{9}{24}= Rs.450$

18. Ram and Shyam were partners. Ram withdrew Rs. 18,000 at the beginning of each half year. Interest on drawings is chargeable @ 10% p.a. Calculate interest on the drawings for the year ending 31st December 2018 using average period.

Answer: Interest on drawings for Ram:

Amount = Rs. 18,000 at beginning of every half year = 18,000 x 2=36,000

$Average \: period =\dfrac{12+6}{2}=\dfrac{18}{2}=9 \: months\\$

$=36000\times \dfrac{10}{100}\times \dfrac{9}{12}= Rs.2700$

19. Janani, Kamali and Lakshmi are partners in a firm sharing profits and losses equally. As per the terms of the partnership deed, Kamali is allowed a monthly salary of Rs. 10,000 and Lakshmi is allowed a commission of Rs. 40,000 per annum for their contribution to the business of the firm. You are required to pass the necessary journal entry. Assume that their capitals are fluctuating.

Answer:

Particulars	Debit	Credit
Kamali's Salary a/c	120,000
To Kamali Capital a/c		120,000
(Kamali's salary transferred to capital a/c)
Lakshmi's commission a/c	40,000
To Lakshmi Capital a/c		40,000
(Lakshmi's commission transferred to capital a/c)
P&L Appropriation a/c	160,000
To Kamali's Salary a/c		120,000
To Lakshmi's commission a/c		40,000
(salary and commission transferred to P&L Appropriation a/c)

20. Sibi and Manoj are partners in a firm. Sibi is to get a commission of 20% of net profit before charging any commission. Manoj is to get a commission of 20% on net profit aftercharging all commission. Net profit for the year ended 31st December 2018 before charging any commission was Rs. 60,000. Find the commission of Sibi and Manoj. Also show the distribution of profit.

Answer: Sibi’s commission: Net profit before charging such commission x Profit percentage

$60,000\times \dfrac{20}{100}= Rs.12,000$

Manoj’s commission:

$= Net\:profit\:after\:charging\:such\:commission\:\times \left (\dfrac{Rate}{1+Rate} \right) \\$

$= 48,000\times \dfrac{20}{120}= Rs.8,000$

Distribution of profit
Net profit		60,000
Less Sibi's commission	12,000
Less Manoj's commission	8,000	20,000
		40,000

$Sibi's\:share\:of\:profit\:=40,000\times \dfrac{1}{2}= Rs.20,000 \\$
$Manoj's\:share\:of\:profit\:= 40,000\times \dfrac{1}{2}= Rs.20,000$

21. Anand and Narayanan are partners in a firm sharing profits and losses in the ratio of 5:3. On 1st January 2018, their capitals were Rs. 50,000 and Rs. 30,000 respectively. The partnership deed specifies the following:

(a) Interest on capital is to be allowed at 6% per annum.

(b) Interest on drawings charged to Anand and Narayanan are Rs. 1,000 and Rs. 800 respectively.

Give necessary journal entries and prepare profit and loss appropriation account as on 31st December 2018. Assume that the capitals are fluctuating.

Date	Particulars	Debit	Credit
31-12-2018	Interest on capital a/c Dr	4800
	To Anand's capital a/c		3000
	To Narayanan's capital a/c		1800
	(interest on capital provided)
31-12-2018	Anand's capital a/c Dr.	1000
	Narayanan's capital a/c Dr.	800
	To interest on drawings		1800
31-12-2018	P&L Appropriation a/c Dr	4800
	To interest on capital a/c		4800
	(interest on capital closed)
31-12-2018	Interest on drawings a/c Dr.	1800
	To P&L Appropriation a/c		1800
	(interest on drawings closed)
31-12-2018	P&L Appropriation a/c Dr	32,000
	To Anand's capital a/c		20,000
	To Narayanan's capital a/c		12,000
	(share of profit distributed)

	P&L Appropriation a/c
Particulars		Rs.	Particulars		Rs.
To interest on capital			By net profit b/d		35,000
Anand	3000		By interest on drawings
Narayanan	1800	4800	Anand	1000
To profit transferred to capital a/c			Narayanan	800	1800
Anand	20,000
Narayanan	12,000	32,000
Total		36,800	Total		36,800

22. Dinesh and Sugumar entered into a partnership agreement on 1st January 2018, Dinesh contributing Rs. 1,50,000 and Sugumar Rs. 1,20,000 as capital. The agreement provided that:

(a) Profits and losses to be shared in the ratio 2:1 as between Dinesh and Sugumar.

(b) Partners to be entitled to interest on capital @ 4% p.a.

(d) Dinesh to receive a salary of Rs. 60,000 for the year, and

(e) Sugumar to receive a commission of Rs. 80,000

During the year ended on 31st December 2018, the firm made a profit of Rs. 2,20,000 before adjustment of interest, salary and commission.

Prepare the Profit and loss appropriation account.

Answer:

P & L Appropriation a/c
Particulars	Rs.	Rs.	Particulars		Rs.
To interest on capital a/c			By net profit b/d		2,20,000
Dinesh	6000		By interest on drawing
Sugumar	4800	10,800	Dinesh	3600
To salary a/c - Dinesh		60,000	Sugumar	2200	5800
To commission a/c - Sugumar		80,000
To profit transferred to capital a/c
Dinesh	50,000
Sugumar	25,000	75,000
Total		2,25,800	Total		2,25,800

Calculation of interest on capital:

$Dinesh: 150,000\times \dfrac{4}{100}=Rs.6000\\$
$Sugumar:120,000\times \dfrac{4}{100}=Rs.4800$

23. Antony and Ranjith started a business on 1st April 2018 with capitals of Rs. 4,00,000 and Rs. 3,00,000 respectively. According to the Partnership Deed, Antony is to get salary of Rs. 90,000 per annum, Ranjith is to get 25% commission on profit after allowing salary to Antony and interest on capital @ 5% p.a. but after charging such commission. Profit-sharing ratio between the two partners is 1:1. During the year, the firm earned a profit of Rs. 3,65,000. Prepare profit and loss appropriation account. The firm closes its accounts on 31st March every year.

Answer:

P & L Appropriation a/c
Particulars	Rs.	Rs.	Particulars	Rs.
To interest on capital a/c			By net profit b/d	365,000
Antony	20,000
Ranjith	15,000	35,000
To salary a/c - Antony		90,000
To commission a/c - Ranjith		48,000
To profit transferred to capital a/c
Antony	96,000
Ranjith	96,000	192,000
Total		365,000	Total	365,000

Calculation of profit before charging such commission:

Net profit		365,000
Less:
Interest on capital
Antony	20,000
Ranjith	15,000	35,000
Salary		90,000
Profit before commission		240,000

$Commission = N.Profit\: before \: commission\: \times rate\\$
$240,000\times \dfrac{25}{125}=Rs.48,000\\$

If you have any doubts in this exercise, please let us know in the comments section.

Accounts of Partnership Firms –Fundamentals – 12th Text Book Solutions

I Multiple choice questions

II Very short answer questions

III Short answer questions

IV Exercises

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