TS Grewal Solutions for Class 12 Accountancy Vol 1 Chapter 2:
TS Grewal Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Firms- Fundamentals is contemplated to be an important concept to be learnt thoroughly by the students. Here, we have provided
TS Grewal Accountancy solutions for class 12.
Board | CBSE |
Class | Class 12 |
Subject | Accountancy |
Chapter | Chapter 2 |
Chapter Name | Accounting for Partnership Firms- Fundamentals |
Number of questions solved | 10 |
Category | TS Grewal |
This Chapter 2 Accounting for Partnership Firms- Fundamentals explains the below-mentioned concepts:
- Partnership Deed
- Special aspects of partnership accounts
- Maintenance of capital accounts of partners
- Past Adjustments
- Final Accounts
Class 12 TS Grewal Solutions Accountancy Vol 1 Chapter 2:-
Exercise
Question 1
In the absence of Partnership Deed, what are the rules related to :
(a) Salaries of partners,
(b) Interest on partnersâ€™ capitals
(c) Interest on partnersâ€™ loan
(d) Division of profit, and
(e) Interest on partnersâ€™ drawings
Solution:
The rules are
(a) Partners will not be allowed any salary
(b) On partnerâ€™s capital, no interest will be allowed
(c) Only 6% interest in Partner’s Loan
(d) Profit distribution to be done in equal ratio
(e) In partner’s drawings, no Interest will be charged
Question 2
Following differences have arisen among P, Q and R. State who is correct in each case:
(a) P used â‚¹ 20,000 belonging to the firm and made a profit of â‚¹ 5,000. Q and R want the amount to be given to the firm?
(b) Q used â‚¹ 5,000 belonging to the firm and suffered a loss of â‚¹ 1000. He wants the firm to bear the loss?
(c) P and Q want to purchase goods from A Ltd., R does not agree?
(d) Q and R want to admit C as a partner, P does not agree?
Solution:
(a) P will pay â‚¹20,000 along with â‚¹ 5,000 profit to the company as the money belongs to the company. It is because of the relation between the principal and agent. Here, P is both the principal and the agent to Q and R and the firm. And according to the Partnership Act rules, if an agent makes a profit made by utilising the firmâ€™s assets is due to the company.
(b) Q has to pay the firm â‚¹ 5,000. The Partnership Act, 1932, all the partnership firm partnersâ€™ are liable for all the losses made by their negligence. In this scenario, Q is liable for the loss as he has utilized the companyâ€™s property and portrayed himself as a principal and not an agent to the firm and other partners.
(c) A partner can purchase and trade products without discussing with the other partners. The discussion happens only if a partner has some restriction to purchase and trade firm properties and a public notice is issued.
(d) In this scenario, C will not be included in the firm as P, has disagreed to admit C. The Act says, a new partner will not get admission to a firm if the existing partners disagree for his/her admission.
Question 3
A, B and C are partners in a firm. They do not have a Partnership Deed. At the end of the first year of the commencement of the firm, they have faced the following problems :
(a) A wants that interest on capital should be allowed to the partners but B and C do not agree.
(b) B wants that the partners should be allowed to draw a salary but A and C do not agree.
(c) C wants that the loan given by him to the firm should bear interest @ 10% p.a. but A and B do not agree.
(d) A and B having contributed larger amounts of capital, desire that the profits should be divided in the ratio of their capital contribution but C does not agree.
State how you will settle these disputes if the partners approach you for purpose.
Solution:
Disputes | Reasonable Judgements | |
(a) | A wants that interest on capital should be allowed to the partners but B and C do not agree. | The partnership Act says, no capital interest will be granted because between A, B, and C no agreement has bee signed regarding capital interest. |
(b) | B wants that the partners should be allowed to draw a salary but A and C do not agree. | No partners are liable for any salary because of no partnership agreement. |
(c) | C wants that the loan given by him to the firm should bear interest @ 10% p.a. but A and B do not agree. | Only 6% interest is allowed on a partnerâ€™s loan when there is no partnership agreement. |
(d) | A and B having contributed larger amounts of capital, desire that the profits should be divided in the ratio of their capital contribution but C does not agree. | Profits will be equally shared in the absence of a partnership agreement |
Question 4
Jaspal and Rosy were partners with a capital contribution of â‚¹ 10,00,000 and â‚¹ 5,00,000 respectively. They do not have a Partnership Deed. Jaspal wants that profits of the firm should be shared in their capital ratio. Rosy convinced Jaspal that profits should be shared equally. Explain how Rosy would have convinced Jaspal for sharing the profit equally.
Solution:
In any partnership firm when there is no partnership deed, then the rule of the Indian Partnership Act of 1932 applies. In the act, when the agreement is not signed then the profit should be distributed equally to all the partners.
In this scenario, Jaspal’s point of view does not align with the partnership Act rule and therefore, Rosy would have convinced her by explaining her the Partnership Act, 1932 provisions.
Question 5
Harshad and Dhiman have been in partnership since 1st April, 2018. No partnership agreement was made. They contributed â‚¹ 4,00,000 and â‚¹ 1,00,000 respectively as capital. In addition, Harshad advanced an amount of â‚¹ 1,00,000 to the firm on 1st October, 2018. Due to long illness, Harshad could not participate in business activities from 1st August, 2018 to 30th September, 2018. Profit for the year ended 31st March, 2019 was â‚¹ 1,80,000. The 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 the ratio of capital;
Dhiman Claims :
(i) Profit should be distributed equally;
(ii) He should be allowed â‚¹ 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.
Solution:
Harshad Declaration:
(i) According to Indian partnership act 1932, in the absence of agreement, only 6% of interest is allowed on a partnerâ€™s loan and no interest will be incurred in partnerâ€™s capital..
(ii) As per the partnership act 1932, in the absence of agreement profit will be shared equally.
Dhiman Claims:
(i) True, according to partnership act 1932, if no agreement is signed between the partners the profit will be equally distributed.
(ii) No partners are entitled to any sort of salary or remuneration when there is no agreement.
(iii) Here, if there is no agreement between the partners only 6% will be allowed to partnerâ€™s loan and no interest in a partnerâ€™s capital.
Profit Distribution:
Dr. | Profit and Loss Adjustment Account as on 31st March, 2019 | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Interest on Partnerâ€™s Loan | Profit and Loss A/c | 1,80,000 | |||
Harshad 1,00,000 Ã— (6/100) Ã— (6/12) | 3,000 | ||||
Profit and Loss Appropriation A/c | 1,77,000 | ||||
1,80,000 | 1,80,000 | ||||
Dr. | Profit and Loss Appropriation Account as on 31st March, 2019 | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Profit transferred to | Profit and Loss Adjustment A/c | 1,77,000 | |||
Harshadâ€™s Capital | 88,500 | ||||
Dhimanâ€™s Capital | 88,500 | ||||
1,77,000 | 1,77,000 | ||||
Question 6
A and B are partners from 1st April 2018, without a Partnership Deed and they introduced capitals of â‚¹ 35,000 and â‚¹ 20,000 respectively. On 1st October 2018, A advanced loan of â‚¹ 8,000 to the firm without any agreement as to interest. The profit and Loss Account for the year ended 31st March 2019 shows a profit of â‚¹ 15,000 but the partners cannot agree on payment of interest and on the basis of division of profits.
You are required to divide the profits between them giving reasons for your method.
Solution:
Profit and Loss Account as on March 31, 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Aâ€™s Loan Interest | 240 | Profit (before Interest) | 15,000 | |
Profit transferred to: | ||||
Aâ€™s Capital A/c | 7,380 | |||
Bâ€™s Capital A/c | 7,380 | 14,760 | ||
15,000 | 15,000 | |||
Working Notes 1: Loan interest Evaluation
Loan interest to be provided @ 6% p.a.
Loan Amount = â‚¹ 8,000
Time (from 1st October to 31st March) = 6 months
Aâ€™s loan interest = 8,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹ 240
Working Notes 1: Profit Share of Partner Evaluation
Equal distribution of profit
Profit after Aâ€™s loan Interest = â‚¹ 15,000 âˆ’ â‚¹ 240 = â‚¹ 14,760
Therefore, A and B profit-sharing = 14,760 X \(\frac{1}{2}\) = â‚¹7,380
Question 7
A and B are partners in a firm sharing profits in the ratio of 3: 2. They had advanced to the firm a sum of â‚¹ 30,000 as a loan in their profit-sharing ratio on 1st October, 2017. The Partnership Deed is silent on interest on loans from partners. Compute interest payable by the firm to the partners, assuming the firm closes its books every year on 31st March.
Solution:
The total advanced amount given by the partners = â‚¹ 30,000
Profit-sharing ratio = 3:2
Aâ€™s advance = 30,000 X \(\frac{3}{5}\) = â‚¹18,000
Bâ€™s advance = 30,000 X \(\frac{2}{5}\) = â‚¹12,000
Duration (from 1st October, 2017 to 31st March, 2018) = 6 months
Rate of Interest = 6% p.a.
Interest incurred on Advances Evaluation
Aâ€™s advance interest = 18,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹ 540
Bâ€™s advance interest = 12,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹ 360
Note: Because there is no partnership agreement only 6% of the interest rate is allowed on the loan.
Question 8
X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals â‚¹ 2,00,000 and â‚¹ 3,00,000 respectively. On 1st October, 2018, X and Y gave loans of â‚¹ 80,000 and â‚¹ 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2019 in each of the following alternative cases:
Case 1: If the profits before interest for the year amounted to â‚¹ 21,000.
Case 2: If the profits before interest for the year amounted to â‚¹ 3,000.
Case 3: If the profits before interest for the year amounted to â‚¹ 5,000.
Case 4: If the loss before interest for the year amounted to â‚¹ 1,400.
Solution:
Loan Interest Evaluation
Xâ€™s loan interest for six months = 80,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹ 2,400
Yâ€™s loan interest for six months = 40,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹ 1,200
Case 1- Profits without the interest = â‚¹ 21,000
Profit and Loss Account as on March 31, 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Xâ€™s Loan Interest | 2,400 | Profit (before interest) | 21,000 | |
Yâ€™s Loan Interest | 1,200 | |||
Profit transferred to | ||||
Xâ€™s Capital A/c (17,400 X \(\frac{2}{5}\) | 6,960 | |||
Yâ€™s Capital A/c (17,400 X \(\frac{3}{5}\)) | 10,440 | 17,400 | ||
21,000 | 21,000 |
Case 2 – Profits before interest â‚¹ 3,000
Profit and Loss Account as on March 31, 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Interest on Xâ€™s Loan | 2,400 | Profit (before interest) | 3,000 | |
Interest on Yâ€™s Loan | 1,200 | Loss transferred to- | ||
Xâ€™s Capital A/c (600 Ã— 2/5) | 240 | |||
Yâ€™s Capital A/c (600 Ã— (3/5) | 360 | 600 | ||
3,600 | 3,600 | |||
Case 3- Profits before interest â‚¹ 5,000
Profit and Loss Account as on March 31, 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Interest on Xâ€™s Loan | 2,400 | Profit (before interest) | 5,000 | |
Interest on Yâ€™s Loan | 1,200 | |||
Profit transferred to: | ||||
Xâ€™s Capital A/c (1400 Ã— 2/5) | 560 | |||
Yâ€™s Capital A/c (1400 Ã— 3/5) | 840 | 1,400 | ||
5,000 | 5,000 | |||
Case 4- Loss before interest â‚¹ 1,400
Profit and Loss Account as on March 31, 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Loss (before interest) | 1,400 | Loss transferred to- | ||
Interest on Xâ€™s Loan | 2,400 | Xâ€™s Capital A/c (5,000 Ã— 2/5) | 2,000 | |
Interest on Yâ€™s Loan | 1,200 | Yâ€™s Capital A/c (5,000 Ã— 3/5) | 3,000 | 5,000 |
5,000 | 5,000 | |||
Question 9
Bat and Ball are partners sharing the profits in the ratio of 2 : 3 with capitals of â‚¹ 1,20,000 and â‚¹ 60,000 respectively. On 1st October, 2018, Bat and Ball gave loans of â‚¹ 2,40,000 and â‚¹ 1,20,000 respectively to the firm. Bat had allowed the firm to use his property for business for a monthly rent of â‚¹ 5,000. The loss for the year ended 31st March, 2019 before rent and interest amounted to â‚¹ 9,000. Show distribution of profit/loss.
Solution:
Profit and Loss Account as on March 31, 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Loss (before interest) | 9,000 | |||
Rent (5,000 x 12) | 60,000 | Loss transferred to: | ||
Batâ€™s loan Interest | 7,200 | Batâ€™s Capital A/c | 31,920 | |
Ballâ€™s loan Interest | 3,600 | Ballâ€™s Capital A/c | 47,880 | 79,800 |
79,800 | 79,800 | |||
Working Notes 1: Partnerâ€™s Loan Interest
Batâ€™s Loan interest for six months = â‚¹ 2,40,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹ 7,200
Batâ€™s Loan interest for six months = â‚¹1,20,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹ 3,600
Working Notes 2: Loss distribution to partners Evaluation
Batâ€™s Loan share = 79,800 X \(\frac{2}{5}\) = â‚¹ 31,920
Ballâ€™s Loan share = 79,800 X \(\frac{3}{5}\) = â‚¹ 47,880
Question 10
A and B are partners. A’s Capital is â‚¹ 1,00,000 and B’s Capital is â‚¹ 60,000. Interest on capital is payable @ 6% p.a. B is entitled to a salary of â‚¹ 3,000 per month. Profit for the current year before interest and salary to B is â‚¹ 80,000.
Prepare Profit and Loss Appropriation Account.
Solution:
Profit and Loss Appropriation A/c | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Interest on Capital: | Profit and Loss A/c (Net Profit) | 80,000 | |||
A | 6,000 | ||||
B | 3,600 | 9,600 | |||
Salary to B (â‚¹ 3,000 Ã— 12) | 36,000 | ||||
Profit transferred to: | |||||
Aâ€™s Capital A/c | 17,200 | ||||
Bâ€™s Capital A/c | 17,200 | 34,400 | |||
80,000 | 80,000 | ||||
Working Notes 1: Capital Interest Evaluation
Aâ€™s Capital Interest = â‚¹ 1,00,000 X \(\frac{6}{100}\) = â‚¹ 6,000
Bâ€™s Capital Interest = â‚¹ 60,000 X \(\frac{6}{100}\) = â‚¹ 3,600
Working Notes 2: Partner Profit Sharing Evaluation
Divisible Profit = â‚¹ 80,000 â€“ â‚¹ 9,600 â€“ â‚¹ 36,000 = â‚¹ 34,400
A and B profit sharing = 34,4000 X \(\frac{1}{2}\) = â‚¹17,200 each
Question 11
X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1 ratio. The fixed capitals of the partners were : X â‚¹5,00,000; Y â‚¹ 5,00,000 and Z â‚¹ 2,50,000 respectively. The Partnership Deed provides that interest on capital is to be allowed @ 10% p.a. Z is to be allowed a salary of â‚¹ 2,000 per month. The profit of the firm for the year ended 31st March, 2018 after debiting Z’s salary was â‚¹ 4,00,000.
Prepare Profit and Loss Appropriation Account.
Solution:
Profit and Loss Appropriation A/c as on 31st March 2018 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Interest on Capital: | Profit and Loss A/c
(After Zâ€™s salary net Profit) |
4,00,000 | |||
X | 50,000 | ||||
Y | 50,000 | ||||
Z | 25,000 | 1,25000 | |||
Profit transferred to: | |||||
Xâ€™s Capital A/c | 1,10,000 | ||||
Yâ€™s Capital A/c | 1,10,000 | ||||
Zâ€™s Capital A/c | 55,000 | 2,75,000 | |||
4,00,000 | 4,00,000 |
Working Notes 1: Zâ€™s salary will not be debited to the Profit and Loss Appropriation A/c because â‚¹ 4,00,000 Profit is given after adjusting Zâ€™s salary.
Working Note 2: Capital Interest Evaluation
Xâ€™s Capital Interest = â‚¹5,00,000 X \(\frac{10}{100}\) = â‚¹50,000
Yâ€™s Capital Interest = â‚¹5,00,000 X \(\frac{10}{100}\) = â‚¹50,000
Zâ€™s Capital Interest = â‚¹2,50,000 X \(\frac{10}{100}\) = â‚¹25,000
Working Note 3: Partnerâ€™s profit sharing Evaluation
Profit sharing ratio = 2 : 2 : 1
Xâ€™s Profit Share = â‚¹2,75,000 X \(\frac{2}{5}\) = â‚¹ 1,10,000
Yâ€™s Profit Share = â‚¹2,75,000X \(\frac{2}{5}\) = â‚¹ 1,10,000
Zâ€™s Profit Share = â‚¹2,75,000 X \(\frac{1}{5}\) = â‚¹ 55,000
Question 12
X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of â‚¹ 8,00,000 and â‚¹ 6,00,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of â‚¹ 60,000 which has not been withdrawn. Profit for the year ended 31st March, 2019 before interest on capital but after charging Y’s salary amounted to â‚¹ 2,40,000.
A provision of 5% of the profit is to be made in respect commission to the manager. Prepare an account showing the allocation profits.
Solution:
Profit and Loss Adjustment Account as on 31st March 2019 | |||
Dr. | Cr. | ||
Particulars | â‚¹ | Particulars | â‚¹ |
Commission for Manager (3,00,000Ã—5%) | 15,000 | Profit and Loss A/c
(Net Profit after Yâ€™s salary) |
2,40,000 |
Yâ€™s Salary | 60,000 | ||
Transferred profit to Profit and Loss A/cAppropriation A/c | 2,85,000 | ||
3,00,000 | 3,00,000 |
Profit and Loss Appropriation A/c as on 31st March 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Salary to Y | 60,000 | Profit and Loss Adjustment A/c | 2,85,000 | |
Interest on Capital: | (After managerâ€™s commission) | |||
X | 40,000 | |||
Y | 30,000 | 70,000 | ||
Profit transferred to: | ||||
Xâ€™s Capital A/c | 93,000 | |||
Yâ€™s Capital A/c | 62,000 | 1,55,000 | ||
2,85,000 | 2,85,000 |
Working Notes 1: Managerâ€™s Commission Evaluation
Profit for making Managersâ€™ Commission = 2,40,000 + 60,000 (Yâ€™s Salary) = â‚¹3,00,000
Manager’s Commission=â‚¹(3,00,000 X \(\frac{5}{100}\)) = 415,000
Working Notes 2: Capital Interest Evaluation
X’s Capital Interest =( â‚¹ 8,00,000 X \(\frac{5}{100}\)) = â‚¹40,000
Y’s Capital Interest =( â‚¹ 6,00,000 X \(\frac{5}{100}\)) = â‚¹30,000
Working Notes 3: Partnerâ€™s capital share Evaluation
Distribution of profit = â‚¹ 2,85,000 âˆ’ â‚¹ 60,000 âˆ’ â‚¹ 70,000 = â‚¹1,55,000
X’s Share of Profit=â‚¹(1,55,000 X \(\frac{3}{5}\) = â‚¹ 93,000
Y’s Share of Profit=â‚¹(1,55,000 X \(\frac{2}{5}\) = â‚¹ 62,000
Question 13
Prem and Manoj are partners in a firm sharing profits in the ratio of 3 : 2. The Partnership Deed provided that Prem was to be paid a salary of â‚¹ 2,500 per month and Manoj was to get a commission of â‚¹ 10,000 per year. Interest on capital was to be allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. Interest on Prem’s drawings was â‚¹ 1,250 and on Manoj’s drawings was â‚¹ 425. Interest on Capitals of the partners were â‚¹ 10,000 and â‚¹ 7,500 respectively. The firm earned a profit of â‚¹ 90,575 for the year ended 31st March, 2018.
Prepare Profit and Loss Appropriation Account of the firm.
Solution:
Profit and Loss Appropriation Account as on 31st March 2018 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Prem Salary (â‚¹ 2,500 Ã— 12) | 30,000 | Profit and Loss A/c (Net Profit) | 90,575 | ||
Manoj Commission | 10,000 | Interest on Drawings A/c: | |||
Capital Interest: | Prem | 1,250 | |||
Prem | 10,000 | Manoj | 425 | 1,675 | |
Manoj | 7,500 | 17,500 | |||
Profit transferred to: | |||||
Premâ€™s Current A/c | 20,850 | ||||
Manojâ€™s Current A/c | 13,900 | 34,750 | |||
92,250 | 92,250 |
Working Notes 1: Capital Interest Evaluation
Premâ€™s Capital Interest = 2,00,000 X \(\frac{5}{100}\) = â‚¹ 10,000
Manojâ€™s Capital Interest = 1,50,000 X \(\frac{5}{100}\) = â‚¹ 7,500
Working Notes 2: Partner Profit Share Evaluation
Profit sharing ratio = 3 : 2
Profit sharing for Prem = 34,750 X \(\frac{3}{5}\)= â‚¹ 20,850
Profit sharing for Manoj = 34,750 X \(\frac{2}{5}\)= â‚¹ 13,900
Question 14
Reema and Seema are partners sharing profits equally. The Partnership Deed provides that both Reema and Seema will get monthly salary of Rs 15,000 each, Interest on Capital will be allowed @ 5% p.a. and Interest on Drawings will be charged @ 10% p.a. Their capitals were Rs 5,00,000 each and drawings during the year were Rs 60,000 each.
The firm incurred a loss of Rs 1,00,000 during the year ended 31st March, 2018.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018.
Solution:
Profit and Loss Appropriation A/c as on 31st March, 2018 | ||||||
Dr. | Cr. | |||||
Particulars | â‚¹ | Particulars | â‚¹ | |||
Profit and Loss A/c | 1,00,000 | Interest on Drawings A/c: | ||||
Reema | 3,000 | |||||
Seema | 3,000 | 6,000 | ||||
Loss transferred to | ||||||
Reema | 47,000 | |||||
Seema | 47,000 | 94,000 | ||||
1,00,000 | 1,00,000 | |||||
Note: There will be no capital and salary share to the partners as the company has incurred loss.
Working Notes 1: Partner Drawing Evaluation
Reemaâ€™s Share = 60,000 X 10% X \(\frac{6}{12}\) = â‚¹3,000
Seemaâ€™s Share = 60,000 X 10% X \(\frac{6}{12}\) = â‚¹3,000
Question 15
Bhanu and Partab are partners sharing profits equally. Their fixed capitals as on 1st April, 2018 are â‚¹ 8,00,000 and â‚¹ 10,00,000 respectively. Their drawings during the year were â‚¹ 50,000 and â‚¹ 1,00,000 respectively. Interest on Capital is a charge and is to be allowed @ 10% p.a. and interest on drawings is to be charged @ 15% p.a. Net Profit for the year ended 31st March, 2019 was â‚¹ 1,20,000.
Prepare Profit and Loss Appropriation Account.
Solution:
Profit and Loss Appropriation Account as on March 31, 2019 | |||||||
Dr. | Cr. | ||||||
Particulars | â‚¹ | Particulars | â‚¹ | ||||
Capital Interest A/c: | Profit and Loss A/c | 1,20,000 | |||||
Bhanuâ€™s Current A/c | 80,000 | Interest on Drawings A/c: | |||||
Partapâ€™s Current A/c | 1,00,000 | 1,80,000 | Bhanuâ€™s Current A/c | 3,750 | |||
Partapâ€™s Current A/c | 7,500 | 11,250 | |||||
Loss transferred to | |||||||
Bhanuâ€™s Current A/c | 24,375 | ||||||
Partapâ€™s Current A/c | 24,375 | 48,750 | |||||
1,80,000 | 1,80,000 | ||||||
Working Note 1: Partner Drawing Interest Evaluation
Bhanuâ€™s Drawing Interest – 50,000 X 15% X \(\frac{6}{12}\) = â‚¹3,750
Pratapâ€™s Drawing Interest – 1,00,000 X 15% X \(\frac{6}{12}\) = â‚¹7,500
Working Note 2: Partner Capital Interest Evaluation
Bhanuâ€™s Capital Interest – 50,000 X 10% â‚¹ 80,000
Pratapâ€™s Capital Interest – 1,00,000 X 10% = â‚¹ 1,00,000
Question 16
Amar and Bimal entered into partnership on 1st April, 2018 contributing â‚¹ 1,50,000 and â‚¹ 2,50,000 respectively towards capital. The Partnership Deed provided for interest on capital @ 10% p.a. It also provided that Capital Accounts shall be maintained following the Fixed Capital Accounts method. The firm earned net profit of â‚¹ 1,00,000 for the year ended 31st March 2019.
Pass the Journal entry for interest on capital.
Solution:
Journal | |||||
Date | Particulars | L.F. | Debit â‚¹ | Credit â‚¹ | |
March 31 | Profit & Loss Appropriation A/c | Dr. | 40,000 | ||
To Amarâ€™s Current A/c | 15,000 | ||||
To Bimalâ€™s Current A/c | 25,000 | ||||
(Capital interest transferred to Profit & Loss Appropriation A/c) |
Working Notes 1: Capital Interest Evaluation
Amarâ€™s Capital Interest = 1,50,000 X \(\frac{10}{100}\) = â‚¹15,000
Amarâ€™s Capital Interest = 2,50,000 X \(\frac{10}{100}\) = â‚¹25,000
Question 17
Kamal and Kapil are partners having fixed capitals of â‚¹ 5,00,000 each as on 31st March, 2018. Kamal introduced further capital of â‚¹ 1,00,000 on 1st October, 2018 whereas Kapil withdrew â‚¹ 1,00,000 on 1st October, 2018 out of capital.
Interest on capital is to be allowed @ 10% p.a.
The firm earned net profit of â‚¹ 6,00,000 for the year ended 31st March 2019.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.
Solution:
Journal | |||||
Date | Particulars | L.F. | Debit â‚¹ | Credit â‚¹ | |
March 31 | Profit & Loss Appropriation A/c | Dr. | 1,00,000 | ||
To Kamalâ€™s Current A/c | 55,000 | ||||
To Kapilâ€™s Current A/c | 45,000 | ||||
(Capital interest transferred to Profit & Loss Appropriation A/c) |
Profit and Loss Appropriation A/c as on 31st March 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Capital Interest A/c: | Profit and Loss A/c | 6,00,000 | ||
Kamal | 55,000 | |||
Kapil | 45,000 | 1,00,000 | ||
Profit transferred to: | ||||
Kamalâ€™s Current A/c | 2,50,000 | |||
Kapilâ€™s Current A/c | 2,50,000 | 5,00,000 | ||
6,00,000 | 6,00,000 | |||
Working Notes 1: Capital Interest Evaluation
Kamalâ€™s Capital Interest = \(\left ( \frac{5,00,000\, X\, 10\, X\, 6}{100\, X\, 12} \right )\) + \(\left ( \frac{6,00,000\, X\, 10\, X\, 6}{100\, X\, 12} \right )\) = â‚¹ 55,000
Kapilâ€™s Capital Interest = \(\left ( \frac{5,00,000\, X\, 10\, X\, 6}{100\, X\, 12} \right )\) + \(\left ( \frac{4,00,000\, X\, 10\, X\, 6}{100\, X\, 12} \right )\) = â‚¹ 45,000
Question 18
Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2018 were â‚¹ 2,00,000 each whereas Current Accounts had balances of â‚¹ 50,000 and â‚¹ 25,000 respectively interest is to be allowed @ 5% p.a. on balances in Capital Accounts. The firm earned net profit of â‚¹ 3,00,000 for the year ended 31st March 2019.
Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.
Solution:
Journal | |||||
Date | Particulars | L.F. | Debit â‚¹ | Credit â‚¹ | |
Profit & Loss Appropriation A/c | Dr. | 20,000 | |||
To Simranâ€™s Current A/c | 10,000 | ||||
To Reemaâ€™s Current A/c | 10,000 | ||||
(Interest on capital transferred to Profit & Loss Appropriation A/c) | |||||
Profit & Loss Appropriation A/c | 2,80,000 | ||||
To Simranâ€™s Current A/c | 1,68,000 | ||||
To Reemaâ€™s Current A/c | 1,12,000 | ||||
(Profit transferred to Partnersâ€™ Current A/c) | |||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Interest on Capital A/c: | Profit and Loss A/c | 3,00,000 | ||
Simran | 10,000 | |||
Reema | 10,000 | 20,000 | ||
Profit transferred to: | ||||
Simranâ€™s Current A/c | 1,68,000 | |||
Reemaâ€™s Current A/c | 1,12,000 | 2,80,000 | ||
3,00,000 | 3,00,000 | |||
Working Notes 1: Capital Interest Evaluation
Capitalâ€‰â€‰Interestâ€‰Simran’s =â€‰2,00,000 X \(\frac{5}{100}\) = â‚¹ 10,000
Capitalâ€‰â€‰Interestâ€‰Simran’s =â€‰2,00,000 X \(\frac{5}{100}\) = â‚¹ 10,000
Question 19
Anita and Ankita are partners sharing profits equally. Their capitals, maintained following the Fluctuating Capital Accounts Method, as on 31st March, 2018 were â‚¹ 5,00,000 and â‚¹ 4,00,000 respectively. Partnership Deed provided to allow interest on capital @ 10% p.a. The firm earned net profit of â‚¹ 2,00,000 for the year ended 31st March, 2019.
Pass the Journal entry for interest on capital.
Solution:
Journal | |||||
Date | Particulars | L.F. | Debit â‚¹ | Credit â‚¹ | |
2019 | |||||
March 31 | Profit & Loss Appropriation A/c | Dr. | 90,000 | ||
To Anitaâ€™s Capital A/c | 50,000 | ||||
To Ankitaâ€™s Capital A/c | 40,000 | ||||
(Capital Interest transferred to Profit & Loss Appropriation A/c) |
Working Notes 1: Capital Interest Evaluation
Capital Interestâ€‰Anita’sâ€‰=â€‰5,00,000 X \(\frac{10}{100}\) = â‚¹50,000
Capital Interestâ€‰Ankita’sâ€‰=â€‰4,00,000 X \(\frac{10}{100}\) = â‚¹40,000
Question 20
Ashish and Aakash are partners sharing profit in the ratio of 3 : 2. Their Capital Accounts showed a credit balance of â‚¹ 5,00,000 and â‚¹ 6,00,000 respectively as on 31st March, 2019 after debit of drawings during the year of â‚¹ 1,50,000 and â‚¹ 1,00,000 respectively. Net profit for the year ended 31st March, 2019 was â‚¹ 5,00,000. Interest on capital is to be allowed @ 10% p.a.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.
Solution:
Journal | |||||
Date | Particulars | L.F. | Debit â‚¹ | Credit â‚¹ | |
March 31 | Profit & Loss Appropriation A/c | Dr. | 1,35,000 | ||
To Ashishâ€™s Capital A/c | 65,000 | ||||
To Aakashâ€™s Capital A/c | 70,000 | ||||
(Capital Interest transferred to Profit & Loss Appropriation A/c) | |||||
3,65,000 | |||||
Profit & Loss Appropriation A/c | 2,19,000 | ||||
To Ashishâ€™s Capital A/c | 1,46,000 | ||||
To Akashâ€™s Capital A/c | |||||
(Profit transferred to Partnersâ€™ Capital A/c) | |||||
Profit and Loss Appropriation Account as on 31st March 2019 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Interest on Capital A/c: | Profit and Loss A/c | 5,00,000 | |||
Ashish | 65,000 | ||||
Aakash | 70,000 | 1,35,000 | |||
Profit transferred to: | |||||
Ashishâ€™s Capital A/c | 2,19,000 | ||||
Aakashâ€™s Capital A/c | 1,46,000 | 3,65,000 | |||
5,00,000 | 5,00,000 | ||||
Working Notes 1: Opening Capital Evaluation
Particulars | Ashish | Aakash |
Capital at the end | 5,00,000 | 6,00,000 |
Add: Drawings made | 1,50,000 | 1,00,000 |
Capital at the beginning | 6,50,000 | 7,00,000 |
Working Notes 2: Capital Interest Evaluation
Ashish’sâ€‰Capital Interestâ€‰=â€‰6,50,000 X \(\frac{10}{100}\) = â‚¹65,000
Askash’sâ€‰Capital Interestâ€‰=â€‰7,00,000 X \(\frac{10}{100}\) = â‚¹70,000
Question 21
Naresh and Sukesh are partners with capital of â‚¹ 3,00,000 each as on 31st March, 2019. Naresh had withdrawn â‚¹ 50,000 against capital on 1st October, 2018 and also â‚¹ 1,00,000 besides the drawings against capital. Sukesh also had drawings of â‚¹ 1,00,000.
Interest on capital is to be allowed @ 10% p.a.
Net profit for the year was â‚¹ 2,00,000, which is yet to be distributed.
Pass the Journal entries for interest on capital and distribution of profit.
Solution:
Journal | |||||
Date | Particulars | L.F. | Debit â‚¹ | Credit â‚¹ | |
March 31 | Profit & Loss Appropriation A/c | Dr. | 82,500 | ||
To Nareshâ€™s Capital A/c | 42,500 | ||||
To Sukeshâ€™s Capital A/c | 40,000 | ||||
(Capital interest transferred to Profit & Loss Appropriation A/c) | |||||
Profit & Loss Appropriation A/c | Dr. | 1,17,500 | |||
To Nareshâ€™s Capital A/c | 58,750 | ||||
To Sukeshâ€™s Capital A/c | 58,750 | ||||
(Profit transferred to Partnersâ€™ Capital A/c) | |||||
Working Notes 1 : Opening Capital Evaluation
Particulars | Naresh | Sukesh |
Capital at the end | 3,00,000 | 3,00,000 |
Add: Capital drawings out | 50,000 | – |
Add: Profit drawings against | 1,00,000 | 1,00,000 |
Capital at the beginning | 4,50,000 | 4,00,000 |
Working Notes 1 : Capital Interest Evaluation
Naresh = \(\frac{4,50,000Â XÂ 10Â XÂ 6}{100Â XÂ 12}\) + \(\frac{4,00,000Â XÂ 10Â XÂ 6}{100Â XÂ 12}\) = â‚¹ 42, 500
Sukesh = \(\frac{4,00,000Â XÂ 10}{100}\) + \(\frac{4,00,000Â XÂ 10Â XÂ 6}{100Â XÂ 12}\) = â‚¹ 40,000
Question 22
On 1st April, 2013, Jay and Vijay entered into partnership for supplying laboratory equipment to government schools situated in remote and backward areas. They contributed capital of â‚¹ 80,000 and â‚¹ 50,000 respectively and agreed to share the profits in the ratio of 3 : 2. The partnership Deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of â‚¹ 7,800. Showing your calculations clearly, prepare ‘Profit and Loss Appropriation Account’ of Jay and Vijay for the year ended 31st March, 2014.
Solution:
Profit and Loss Appropriation A/c as on March 2014 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Interest on Capital A/c: | Profit and Loss A/c | 7,800 | ||
Jay | 4,800 | |||
Vijay | 3,000 | 7,800 | ||
7,800 | 7,800 | |||
Working Notes 1: Capital interest Evaluation
Jayâ€™s Capital = 80,000 X \(\frac{9}{100}\) = â‚¹7,200
Vijayâ€™s Capital = 50,000 X \(\frac{9}{100}\) = â‚¹4,500
Total Interest = 7,200 + 4,500 = â‚¹ 11,700
Working Notes 2: Proportionate Interest on Capital Evaluation
Jay Proportionate Interest = \(\frac{7,200}{11,700}\) x 7,800 = â‚¹4,800
Vijay Proportionate Interest = \(\frac{4,500}{11,700}\) x 7,800 = â‚¹3,000
Question 23
Amar, Bhanu, and Charu are partners in a firm. Amar and Bhanu are to get an annual salary of â‚¹ 1,20,000 p.a. each as they are fully involved in the business. Net profit for the year is â‚¹ 4,80,000. Determine the share of profit to be credited to each partner.
Solution:
Profit and Loss Appropriation A/c | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Salary: | Profit and Loss A/c | 4,80,000 | |||
Amar | 1,20,000 | ||||
Bhanu | 1,20,000 | 2,40,000 | |||
Profit transferred to: | |||||
Amarâ€™s Capital A/c | 80,000 | ||||
Bhanuâ€™s Capital A/c | 80,000 | ||||
Charuâ€™s Capital A/c | 80,000 | 2,40,000 | |||
4,80,000 | 4,80,000 |
Question 24
A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1 respectively. A is entitled to a commission of 10% on the net profit. Net profit for the year is â‚¹ 1,10,000.
Determine the amount of commission payable to A.
Solution:
Net Profit before commission = â‚¹ 1,10,000
Commission to A = 10% of Net Profit before commission was charged
Commission to A = Net Profit X \(\frac{Rate}{100}\)
= 1,10,000 X \(\frac{10}{100}\) = â‚¹ 11,000
Question 25
X, Y and
Z are partners sharing profits and losses equally. As per Partnership Deed,
Z is entitled to a commission of 10% on the net profit after charging such commission. The net profit before charging commission is â‚¹ 2,20,000.
Determine the amount of commission payable to
Z.
Solution:
Net Profit before Commission = â‚¹ 2,20,000
Commission to Z = Net Profit 10% after charging commission
Commission to A = Net Profit X \(\frac{Rate}{100 + Rate}\)
= 2,20,000 X \(\frac{10}{100}\) = â‚¹ 20,000
Question 26
A, B, C, and D are partners in a firm sharing profits as 4 : 3 : 2 : 1 respectively. It earned a profit of â‚¹ 1,80,000 for the year ended 31st March, 2018. As per the Partnership Deed, they are to charge a commission @ 20% of the profit after charging such commission which they will share as 2 : 3 : 2 : 3. You are required to show appropriation of profits among the partners.
Solution:
Profit and Loss Appropriation A/c as on 31st March, 2018 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Partnersâ€™ Commission: | Profit and Loss A/c (Net Profit) | 1,80,000 | |||
A | 6,000 | ||||
B | 9,000 | ||||
C | 6,000 | ||||
D | 9,000 | 30,000 | |||
Profit transferred to: | |||||
Aâ€™s Capital A/c | 60,000 | ||||
Bâ€™s Capital A/c | 45,000 | ||||
Câ€™s Capital A/c | 30,000 | ||||
Dâ€™s Capital A/c | 15,000 | 1,50,000 | |||
1,80,000 | 1,80,000 | ||||
Working Notes 1 : Partnersâ€™ Commission Evaluation
Partnersâ€™ Commission = Net Profit 20% after commission charged
Partnerâ€™s Commission = Net Profit X \(\frac{Rate}{100
+ Rate}\)
=1,80,000 X \(\frac{20}{100+20}\)
=1,80,000 X \(\frac{20}{120}\) = â‚¹30,000
Partners commission in the ratio 2 : 3 : 2 : 3
Aâ€™s Commission = 30,000 X \(\frac{2}{10}\) = â‚¹ 6,000
Bâ€™s Commission = 30,000 X \(\frac{3}{10}\) = â‚¹ 9,000
Câ€™s Commission = 30,000 X \(\frac{2}{10}\) = â‚¹ 6,000
Dâ€™s Commission = 30,000 X \(\frac{3}{10}\) = â‚¹ 9,000
Working Notes 2 : Partnersâ€™ Profit Share Evaluation
Distribution of Profit = â‚¹ 1,80,000 âˆ’ â‚¹ 30,000 = â‚¹ 1,50,000
Profit sharing ratio = 4 : 3 : 2 : 1
Aâ€™s Commission = 1,50,000 X \(\frac{4}{10}\) = â‚¹ 60,000
Bâ€™s Commission = 1,50,000 X \(\frac{3}{10}\) = â‚¹ 45,000
Câ€™s Commission = 1,50,000 X \(\frac{2}{10}\) = â‚¹ 30,000
Dâ€™s Commission = 1,50,000 X \(\frac{1}{10}\) = â‚¹ 15,000
Question 27
X and
Y are partners in a firm.
X is entitled to a salary of â‚¹ 10,000 per month and commission of 10% of the net profit after partners’ salaries but before charging commission.
Y is entitled to a salary of â‚¹ 25,000 p.a. and commission of 10% of the net profit after charging all commission and partners’ salaries. Net profit before providing for partners’ salaries and commission for the year ended 31st March, 2019 was â‚¹ 4,20,000. Show distribution of profit.
Solution:
Profit and Loss Appropriation A/c as on 31st March, 2019 | ||||||
Dr. | Cr. | |||||
Particulars | â‚¹ | Particulars | â‚¹ | |||
Partnersâ€™ Salary: | Profit and Loss A/c (Net Profit) | 4,20,000 | ||||
X (10,000 Ã— 12) | 1,20,000 | |||||
Y | 25,000 | 1,45,000 | ||||
Partnersâ€™ Commission: | ||||||
X | 27,500 | |||||
Y | 22,500 | 50,000 | ||||
Profit transferred to: | ||||||
Xâ€™s Capital A/c | 1,12,500 | |||||
Yâ€™s Capital A/c | 1,12,500 | 2,25,000 | ||||
4,20,000 | 4,20,000 |
Working Note 1: Commission Evaluation
Xâ€™s Commission = Net Profit @ 10% after partnersâ€™ salaries.
Profit after Partner’s Salaries = 4,20,000 âˆ’ 1,45,000 = â‚¹ 2,75,000
X â€˜s Commission = Profit after salaries X \(\frac{10}{100}\)
= 2,75,000 X \(\frac{10}{100}\) = â‚¹27,500
Commission to Y = Net Profit @ 10% after partnersâ€™ salaries and Commission
Profit after partnersâ€™ salaries and commission = 4,20,000 âˆ’ 1,45,000 âˆ’ 27,500 = â‚¹ 2,47,500
Y â€˜s Commission = Profit after partnersâ€™ salaries and commission X \(\frac{10}{100+Rate}\)
= 2,47,500 X \(\frac{10}{110}\) = â‚¹22,500
Working Note 1: Partnerâ€™s Profit Sharing Evaluation
Profitâ€™s for distribution = 4,20,000 âˆ’ 1,45,000 âˆ’ 50,000 = â‚¹ 2,25,000
Profit sharing ratio = 1 : 1
Profit sharing of X and Y each = 2,25,000 X \(\frac{1}{2}\) = â‚¹1,12,500
Question 28
Ram and Mohan, two partners, drew for their personal use â‚¹ 1,20,000 and â‚¹ 80,000. Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest chargeable from each partner?
Solution:
Since, the drawingâ€™s date made by the partners is not mentioned, the interest drawing is evaluated on average basis for six months.
Ramâ€™s Drawing Interest = 1,20,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹3,600
Mohanâ€™s Drawing Interest = 80,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\) = â‚¹2,400
Question 29
Brij and Mohan are partners in a firm. They withdrew â‚¹ 48,000 and â‚¹ 36,000 respectively during the year evenly in the middle of every month. According to the partnership agreement, interest on drawings is to be charged @ 10% p.a.
Calculate interest on drawings of the partners using the appropriate formula.
Solution:
Every month in the middle, drawings are made even, so, drawings interest is evaluated for six months.
Brij’s Drawings Interest=â‚¹ 48,000 X \(\frac{10}{100}\) X \(\frac{6}{12}\) = â‚¹2,400
Mohan’s Drawings Interest=â‚¹ 36,000 X \(\frac{10}{100}\) X \(\frac{6}{12}\) = â‚¹1,800
Question 30
A and B are partners sharing profits equally. A drew regularly â‚¹ 4,000 in the beginning of every month for six months ended 30th September, 2019. Calculate interest on drawings @ 5% p.a. for a period of six months.
Solution:
Drawing amount = 4,000
Number of Drawing = 6
Total Drawings = 4,000 X 6 = â‚¹ 24,000
Rate of Interest = 5% p.a
Time = \(\frac{Time\, letf\, after\, 1st\, Drawing\, +\, Time\, left\, after\, last\, drawing}{2}\)
= \(\frac{6+1}{2}\)
= 3.5 months
Drawing Interest = Total Drawings X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
= 24,000 X \(\frac{5}{100}\) x \(\frac{3.5}{12}\)
=350
Question 31
One of the partners in a partnership firm has withdrawn â‚¹ 9,000 at the end of each quarter, throughout the year. Calculate interest on drawings at the rate of 6% per annum.
Solution:
Drawings Amount = â‚¹ 9,000 per quarter
Annual Drawings = â‚¹ (9,000 Ã— 4) = â‚¹ 36,000
Interest Rate on Drawings = 6% p.a.
Average Period | = | \(\frac{After\, 1st\, drawing\, the\, remaining\,\, month +\, After\, last\, drawing\, remaining\, month}{2}\) |
= | \(\frac{9+0}{2}\) = 4.5 months | |
Interest on Drawings | = | Drawing Interest = Total Drawings X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\) |
= | (36,000 X \(\frac{6}{100}\) X \(\frac{4.5}{12}\)) = â‚¹ 810 |
Question 32
A and B are partners sharing profits equally. A drew regularly â‚¹ 4,000 at the end of every month for six months ended 30th September, 2019. Calculate interest on drawings @ 5% p.a. for a period of six months.
Solution:
Drawing amount = 4,000
Number of Drawing = 6
Total Drawings = 4,000 X 6 = â‚¹ 24,000
Rate of Interest = 5% p.a
Time = \(\frac{Time\, letf\, after\, 1st\, Drawing\, +\, Time\, left\, after\, last\, drawing}{2}\)
= \(\frac{5+0}{2}\)
= 2.5 months
Drawing Interest = Total Drawings X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
= 24,000 X \(\frac{5}{100}\) x \(\frac{2.5}{12}\)
=250
Question 33
Calculate interest on drawings of Ashok @ 10% p.a. for the year ended 31st March, 2019, in each of the following alternative cases:
Case 1. If he withdrew â‚¹ 7,500 at the beginning of each quarter.
Case 2. If he withdrew â‚¹ 7,500 at the end of each quarter.
Case 3. If he withdrew â‚¹ 7,500 during the middle of each quarter.
Solution:
Drawings Total = 7,500 Ã— 4 = â‚¹ 30,000
Interest Rate = 10% p.a.
Case (1)
In the beginning of each quarter when equal amount is withdrawn, the drawing interest would be evaluated for 7.5 months as an average period.
Drawing Interest = Total Drawings X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
So, Ashokâ€™s interest on drawing = 30,000 X \(\frac{10}{100}\) X \(\frac{7.5}{12}\) = â‚¹1,875
Case (2)
At the end of each quarter when equal amount is withdrawn, the drawing interest would be evaluated for 4.5 months as an average period.
Drawing Interest = Total Drawings X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
So, Ashokâ€™s interest on drawing = 30,000 X \(\frac{10}{100}\) X \(\frac{4.5}{12}\) = â‚¹1,125
Case (3)
At the middle of each quarter when equal amount is withdrawn, the drawing interest would be evaluated for 6 months as an average period.
Drawing Interest = Total Drawings X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
So, Ashokâ€™s interest on drawing = 30,000 X \(\frac{10}{100}\) X \(\frac{6}{12}\) = â‚¹1,500
Question 34
Kanika and Gautam are partners doing a dry cleaning business in Lucknow, sharing profits in the ratio 2 : 1 with capitals â‚¹ 5,00,000 and â‚¹ 4,00,000 respectively. Kanika withdrew the following amounts during the year to pay the hostel expenses of her son:
1st April | â‚¹ 10,000 |
1st June | â‚¹ 9,000 |
1st November | â‚¹ 14,000 |
1st December | â‚¹ 5,000 |
Gautam withdrew â‚¹ 15,000 on the first day of April, July, October and January to pay rent for the accommodation of his family. He also paid â‚¹ 20,000 per month as rent for the office of partnership which was in a nearby shopping complex.
Calculate interest on drawings @ 6% p.a.
Solution:
Kanikaâ€™s Drawings interest = â‚¹ 1,500
Gautamâ€™s Drawings interest= â‚¹ 2,250
Working Notes 1: Kanikaâ€™s Drawings interest Evaluation
By Product Method | |||
Date | Amount
(I) |
Months
(II) |
Product
(I Ã— II) |
April 1 | 10,000 | 12 | 1,20,000 |
June 1 | 9,000 | 10 | 90,000 |
November 1 | 14,000 | 5 | 70,000 |
December 1 | 5,000 | 4 | 20,000 |
Product Sum | 3,00,000 |
Drawing Interest = Total product sum X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
= 3,00,000 X \(\frac{6}{100}\) X \(\frac{1}{12}\) = â‚¹1,500
Working Notes 2: Gautamâ€™s Drawings Interest Evaluation
At the beginning of the quarter, Gautam withdrew â‚¹ 15,000.
Drawing Interest = Drawings Total X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
= (15,000×4) X \(\frac{6}{100}\) X \(\frac{7.5}{12}\) = â‚¹2,250
Question 35
A and B are partners sharing Profit and Loss in the ratio 3 : 2 having Capital Account balances of â‚¹ 50,000 and â‚¹ 40,000 on 1st April, 2018. On 1st July, 2018, A introduced â‚¹ 10,000 as his additional capital whereas B introduced only â‚¹ 1,000. Interest on capital is allowed to partners @ 10% p.a.
Calculate interest on capital for the financial year ended 31st March, 2019.
Solution:
Aâ€™s Capital Interest Evaluation
Date | Capital | Ã— | Period | = | Product |
1st April, 2018 to 30th June, 2018 | 50,000 | Ã— | 3 | = | 1,50,000 |
1st July, 2018 to 31st March, 2019 | 60,000 | Ã— | 9 | = | 5,40,000 |
Product Total | 6,90,000 |
Aâ€™s Capital Interest = Total product sum X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
= 6,90,000 X \(\frac{10}{100}\) X \(\frac{1}{12}\) = â‚¹5,750
Bâ€™s Capital Interest Evaluation
Date | Capital | Ã— | Period | = | Product |
1st April, 2018 to 30th June, 2018 | 40,000 | Ã— | 3 | = | 1,20,000 |
1st July, 2018 to 31st March, 2019 | 41,000 | Ã— | 9 | = | 3,69,000 |
Product Total | 4,89,000 |
Bâ€™s Capital Interest = Total product sum X \(\frac{Rate}{100}\) X \(\frac{Time}{12}\)
= 4,89,000 X \(\frac{10}{100}\) X \(\frac{1}{12}\) = â‚¹4,075
Question 36
Ram and Mohan are partners in a business. Their capitals at the end of the year were â‚¹ 24,000 and â‚¹ 18,000 respectively. During the year, Ram’s drawings and Mohan’s drawings were â‚¹ 4,000 and â‚¹ 6,000 respectively. Profit (before charging interest on capital) during the year was â‚¹ 16,000. Calculate interest on capital @ 5% p.a. for the year ended 31st March, 2019.
Solution:
Capital Interest is evaluated on the partnerâ€™s capital opening balance.
Particulars | Ram â‚¹ | Mohan â‚¹ |
Capital at the end | 24,000 | 18,000 |
Less: Profit credited (1:1) | (8,000) | (8,000) |
Add: Debited Drawings | 4,000 | 6,000 |
Capital at the beginning | 20,000 | 16,000 |
Ramâ€™s Capital Interest = â‚¹ 20,000 X \(\frac{5}{100}\) = â‚¹ 1,000
Mohanâ€™s Capital Interest = â‚¹ 16,000 X \(\frac{5}{100}\) = â‚¹ 800
Question 37
Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2019.
Liabilities | â‚¹ | Assets | â‚¹ |
Neelkant’s Capital | 10,00,000 | Sundry Assets | 30,00,000 |
Mahadev’s Capital | 10,00,000 | ||
Neelkant’s Current A/c | 1,00,000 | ||
Mahadev’ Current A/c | 1,00,000 | ||
Profit and Loss Appropriation A/c (2018-19) | 8,00,000 | ||
30,00,000 | 30,00,000 | ||
During the year, Mahadev’s drawings were â‚¹ 30,000. Profits during the year ended 31st March, 2019 is â‚¹ 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2019.
Solution:
Neelkantâ€™s Capital Interest | 10,00,000 X \(\frac{5}{100}\) = â‚¹50,000 |
Mahadevâ€™s Capital Interest | 10,00,000 X \(\frac{5}{100}\) = = â‚¹ 50,000 |
Note: Since, both the partners capital and current accounts are mentioned, we can assume that both the partners capital is fixed. Therefore, when there is a fixed capital and drawing the capital balance does not get affected, but the current account does.
So, in this particular case the beginning and the closing capital remains the same and the capital interest is evaluated on the fixed capital balances.
Question 38
From the following Balance Sheet of Long and Short, calculate interest on capital @ 8% p.a. for the year ended 31st March, 2019.
Balance Sheet as on 31st March, 2019 | ||||
Liabilities | â‚¹ | Assets | â‚¹ | |
Long’s Capital A/c | 1,20,000 | Fixed Assets | 3,00,000 | |
Short’s Capital A/c | 1,40,000 | Other Assets | 60,000 | |
General Reserve | 1,00,000 | |||
3,60,000 | 3,60,000 |
During the year, Long withdrew â‚¹ 40,000 and Short withdrew â‚¹ 50,000. Profit for the year was â‚¹ 1,50,000 out of which â‚¹ 1,00,000 was transferred to General Reserve.
Solution:
Capital at the beginning Evaluation as on 1st, 2018
Particulars | Long
â‚¹ |
Short
â‚¹ |
Capital at the end | 1,60,000 | 1,40,000 |
Less: Profit Adjusted (1,50,000 â€“ 1,00,000) in 1:1 ratio | (25,000) | (25,000) |
Add: Drawings Adjusted | – | 50,000 |
Capital in the beginning | 1,35,000 | 1,65,000 |
Longâ€™s Capital Interest = 1,35,000 X \(\frac{8}{100}\) = â‚¹10,800
Shortâ€™s Capital Interest = 1,65,000 X \(\frac{8}{100}\) = â‚¹13,200
Question 39
Moli and Bholi contribute â‚¹ 20,000 and â‚¹ 10,000 respectively towards capital. They decide to allow interest on capital @ 6% p.a. Their respective share of profits is 2 : 3 and the net profit for the year is â‚¹ 1,500. Show distribution of profits:
(i) when there is no agreement except for interest on capitals; and
(ii) when there is an agreement that the interest on capital as a charge.
Solution:
Capital Interest Evaluation
Moli’s Capital Interest =â‚¹(20,000 Ã— \(\frac{6}{100}\)) = â‚¹ 1,200
Bholi’s Capital Interest =â‚¹(10,000 Ã— \(\frac{6}{100}\)) = â‚¹ 600
Total Capital Interest = (1,200+600) = â‚¹1,800
Case (1)
When there is no agreement except for interest on capitals
Profit at the year end= â‚¹ 1,500
Total Interest = â‚¹ 1,800
In this scenario, the total capital interest is more than the profit available for distribution. So, â‚¹ 1,500 profit will be distributed between Moli and Bholi.THe distribution will be according to their capital interest ratio.
Particulars | Moli : Bholi |
Interest on Capital | 1,200 : 600 |
or, Ratio of interest on Capital | 2 : 1 |
Moliâ€™s Capital Interest = (1,500 X \(\frac{2}{3}\)) = â‚¹1,000
Bholiâ€™s Capital Interest = (1,500 X \(\frac{1}{3}\)) = â‚¹500
Case (2)
Moli’s Capital Interest =â‚¹(20,000 Ã— \(\frac{6}{100}\)) = â‚¹ 1,200
Bholi’s Capital Interest =â‚¹(10,000 Ã— \(\frac{6}{100}\)) = â‚¹ 600
Total Interest (1,200+600) = â‚¹ 1,800
Firmâ€™s total profit = â‚¹ 1,500
So, the firm encountered the loss of â‚¹ 300 and shared between Moli and Bholi as per their profit sharing ratio of 2 : 3.
Moli Loss = (300 X \(\frac{2}{5}\)) = â‚¹ 120
Bholi Loss = (300 X \(\frac{3}{5}\)) = â‚¹ 180
Question 40
Amit and Bramit started business on 1st April, 2018 with capitals of â‚¹ 15,00,000 and â‚¹ 9,00,000 respectively. On 1st October, 2018, they decided that their capitals should be â‚¹ 12,00,000 each. The necessary adjustments in capitals were made by introducing or withdrawing by cheque. Interest on capital is allowed @ 8% p.a. Compute interest on capital for the year ended 31st March, 2019.
Solution:
Amitâ€™s Capital Interest Evaluation
Date | Capital | Ã— | Period | = | Product |
1st April, 2018 to 30th Sept, 2018 | 15,00,000 | Ã— | 6 | = | 90,00,000 |
1st Oct. 01, 2018 to 31st March, 2019 | 12,00,000 | Ã— | 6 | = | 72,00,000 |
Product Sum | 1,62,00,000 |
Amitâ€™s Capital Interest = Product Sum X \(\frac{Rate}{100}\) \(\frac{1}{12}\)
= 1,62,00,000 X \(\frac{8}{100}\) X \(\frac{1}{12}\)
= â‚¹ 1,08,000
Bramitâ€™s Capital Interest Evaluation
Date | Capital | Ã— | Period | = | Product |
1st April, 2018 to 30th Sept, 2018 | 9,00,000 | Ã— | 6 | = | 54,00,000 |
1st Oct. 01, 2018 to 31st March, 2019 | 12,00,000 | Ã— | 6 | = | 72,00,000 |
Product Sum | 1,26,00,000 |
Bramitâ€™s Capital Interest = Product Sum X \(\frac{Rate}{100}\) \(\frac{1}{12}\)
= 1,26,00,000 X \(\frac{8}{100}\) X \(\frac{1}{12}\)
= â‚¹ 84,000
Question 41
Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2019 after closing the books of account, their Capital Accounts stood at â‚¹ 4,80,000 and â‚¹ 6,00,000 respectively. On 1st May, 2018, Simrat introduced an additional capital of â‚¹ 1,20,000 and Bir withdrew â‚¹ 60,000 from his capital.On 1st October, 2018, Simrat withdrew â‚¹ 2,40,000 from her capital and Bir introduced â‚¹ 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March, 2019 amounted to â‚¹ 2,40,000 and the partners’ drawings had been: Simrat â€“ â‚¹ 1,20,000 and Bir â€“ â‚¹ 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.
Solution:
Case (1): When Capital is fixed:
Simratâ€™s Capital Interest = \(\left ( \frac{6,00,000\, X\, 6\, X\, 1}{100\,X\, 12} \right )\) + \(\left ( \frac{7,20,000\, X\, 6\, X\, 5}{100\,X\, 12} \right )\) + \(\left ( \frac{4,80,000\, X\, 6\, X\, 6}{100\,X\, 12} \right )\) = â‚¹ 35,400
Birâ€™s Capital Interest = \(\left ( \frac{3,60,000\, X\, 6\, X\, 1}{100\,X\, 12} \right )\) + \(\left ( \frac{3,00,000\, X\, 6\, X\, 5}{100\,X\, 12} \right )\) + \(\left ( \frac{6,00,000\, X\, 6\, X\, 6}{100\,X\, 12} \right )\) = â‚¹ 27,300
Working Notes: Opening Capital Evaluation
Particulars | Simrat | Bir |
Capital at the end | 4,80,000 | 6,00,000 |
Add: Drawings out of capital | 2,40,000 | 60,000 |
Less: New capital introduced | 1,20,000 | 3,00,000 |
Opening Capital | 6,00,000 | 3,60,000 |
Case 2: When capitals are fluctuating:
Simratâ€™s Capital Interest = \(\left ( \frac{5,76,000\, X\, 6\, X\, 1}{100\,X\, 12} \right )\) + \(\left ( \frac{6,96,000\, X\, 6\, X\, 5}{100\,X\, 12} \right )\) + \(\left ( \frac{4,56,000\, X\, 6\, X\, 6}{100\,X\, 12} \right )\) = â‚¹ 33,960
Birâ€™s Capital Interest = \(\left ( \frac{3,24,000\, X\, 6\, X\, 1}{100\,X\, 12} \right )\) + \(\left ( \frac{2,64,000\, X\, 6\, X\, 5}{100\,X\, 12} \right )\) + \(\left ( \frac{5,64,000\, X\, 6\, X\, 6}{100\,X\, 12} \right )\) = â‚¹ 25,140
Working Notes: Opening Capital Evaluation
Particulars | Simrat | Bir |
Capital at the end | 4,80,000 | 6,00,000 |
Add: Drawings out of capital | 2,40,000 | 60,000 |
Add: Drawings out of profit | 1,20,000 | 60,000 |
Less: New capital introduced | 1,20,000 | 3,00,000 |
Less: Profit credited | 1,44,000 | 96,000 |
Operating Capital | 5,76,000 | 3,24,000 |
Question 42
C and D are partners in a firm; C has contributed â‚¹ 1,00,000 and D â‚¹ 60,000 as capital. Interest in payable @ 6% p.a. and D is entitled to a salary of â‚¹ 3,000 per month. In the year ended 31st March, 2019, the profit was â‚¹ 80,000 before interest and salary. Divide the amount between C and D.
Solution:
Profit and Loss Appropriation A/c as on 31stMarch,2019 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Capital Interest: | Profit and Loss A/c (Net Profit) | 80,000 | |||
C | 6,000 | ||||
D | 3,600 | 9,600 | |||
D salary (3000 Ã— 12) | 36,000 | ||||
Profit transferred to : | |||||
Câ€™s Capital A/c | 17,200 | ||||
Dâ€™s Capital A/c | 17,200 | 34,400 | |||
80,000 | 80,000 | ||||
Working Notes 1: Capital Interest Evaluation
Câ€™s Capital Interest = 1,00,000 X \(\frac{6}{100}\) = â‚¹ 6,000
Dâ€™s Capital Interest = 60,000 X \(\frac{6}{100}\) = â‚¹ 3,600
Working Notes 2: Partnerâ€™s profit share Evaluation
Available profit for distribution = 80,000 âˆ’ 9,600 âˆ’ 36,000 = â‚¹ 34,400
Profit sharing between C and D = â‚¹ 34,400 X \(\frac{1}{2}\) = â‚¹ 17,200 each
So, Total amount C received = Capital Interest + Profit Share = â‚¹ 6,000 + â‚¹ 17,200 = â‚¹ 23,200
Total amount D received = Interest on Capital + Salary + Profit Share = â‚¹ 3,600 + â‚¹ 36,000 + â‚¹ 17,200 = â‚¹ 56,800
Question 43
Amit and Vijay started a partnership business on 1st April, 2018. Their capital contributions were â‚¹ 2,00,000 and â‚¹ 1,50,000 respectively. The Partnership Deed provided as follows:
(a) Interest on capital be allowed @ 10% p.a.
(b) Amit to get a salary of â‚¹ 2,000 per month and Vijay â‚¹ 3,000 per month.
(c) Profits are to be shared in the ratio of 3 : 2.
Net profit for the year ended 31st March, 2019 was â‚¹ 2,16,000. Interest on drawings amounted to â‚¹ 2,200 for Amit and â‚¹ 2,500 for Vijay.
Prepare Profit and Loss Appropriation Account.
Solution:
Profit and Loss Appropriation Account as on 31st March, 2019 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Capital Interest: | Profit and Loss A/c (Net Profit) | 2,16,000 | |||
Amit | 20,000 | Drawings Interest A/c: | |||
Vijay | 15,000 | 35,000 | Amit | 2,200 | |
Salary to: | Vijay | 2,500 | 4,700 | ||
Amit (2,000 Ã— 12) | 24,000 | ||||
Vijay (3,000 Ã— 12) | 36,000 | 60,000 | |||
Profit transferred to: | |||||
Amitâ€™s Capital A/c | 75,420 | ||||
Vijayâ€™s Capital A/c | 50,280 | 1,25,700 | |||
2,20,700 | 2,20,700 |
Working Notes 1: Capital Interest Evaluation
Amitâ€™s Capital Interest = 2,00,000 X \(\frac{10}{100}\) = â‚¹ 20,000
Vijayâ€™s Capital Interest = 1,50,000 X \(\frac{10}{100}\) = â‚¹ 15,000
Working Notes 1: Each Partnerâ€™s profit sharing evaluation
Divisible Profit = â‚¹ 2,16,000 + â‚¹ 4,700 âˆ’ â‚¹ 35,000 âˆ’ â‚¹ 60,000 = â‚¹ 1, 25,700
Profit sharing ratio = 3 : 2
Amitâ€™s Profit Share = 1,25,700 X \(\frac{3}{5}\) = â‚¹ 75,420
Vijayâ€™s Profit Share = 1,25,700 X \(\frac{2}{5}\) = â‚¹ 50,280
Question 44
Show how the following will be recorded in the Capital Accounts of the Partners Sohan and Mohan when their capitals are fluctuating:
Sohan (â‚¹) | Mohan (â‚¹) | |
Capital on 1st April, 2018 | 4,00,000 | 3,00,000 |
Drawings during the year ended 31st march, 2019 | 50,000 | 30,000 |
Interest on Capital | 5% | 5% |
Interest on Drawings | 1,250 | 750 |
Share of Profit for the year ended 31st march, 2019 | 60,000 | 50,000 |
Partner’s Salary | 36,000 | ….. |
Commission | 5,000 | 3,000 |
Solution:
Partnersâ€™ Capital Accounts | ||||||
Dr. | Cr. | |||||
Particulars | Sohan â‚¹ | Mohan â‚¹ | Particulars | Sohan â‚¹ | Mohan â‚¹ | |
Drawings A/c | 50,000 | 30,000 | Balance b/d | 4,00,000 | 3,00,000 | |
Drawings Interest A/c | 1,250 | 750 | Interest on Capital A/c | 20,000 | 15,000 | |
P&L Appropriation A/c | 60,000 | 50,000 | ||||
Balance c/d | 4,69,750 | 3,37,250 | Partnersâ€™ Salary | 36,000 | â€“ | |
Commission | 5,000 | 3,000 | ||||
5,21,000 | 3,68,000 | 5,21,000 | 3,68,000 |
Working Note: Capital Interest Evaluation
Sohanâ€™s Capital Interest = 4,00,000 X \(\frac{5}{100}\) = â‚¹ 20,000
Mohanâ€™s Capital Interest = 3,00,000 X \(\frac{5}{100}\) = â‚¹ 15,000
Question 45
Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2018 their Capitals were: Sajal â€“ â‚¹ 50,000 and Kajal â€“ â‚¹ 40,000.
Prepare Profit and Loss Appropriation Account and the Partners’ Capital Accounts at the end of the year after considering the following items:
(a) Interest on Capital is to be allowed @ 5% p.a.
(b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being â‚¹ 30,000.
(c) Interest on partners’ drawings @ 6% p.a. Drawings: Sajal â‚¹ 10,000 and Kajal â‚¹ 8,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
Net profit for the year ended 31st March, 2019 is â‚¹ 68,460.
Note: Net profit means net profit after debit of interest on loan by the partner.
Solution:
Profit and Loss A/c as on 31st March, 2019 | |||
Dr. | Cr. | ||
Particulars | â‚¹ | Particulars | â‚¹ |
Kajalâ€™s loan Interest @ 6% p.a. | 1,800 | Profit | 70,260 |
Profit transferred to P/L Appropriation A/c | 68,460 | ||
70,260 | 70,260 |
Profit and Loss Appropriation A/c as on 31st March, 2019 | ||||||
Dr. | Cr. | |||||
Particulars | â‚¹ | Particulars | â‚¹ | |||
Capital Interest A/c: | Profit and Loss A/c | 68,460 | ||||
Sajal | 2,500 | |||||
Kajal | 2,000 | 4,500 | Drawings Interest A/c: | |||
Sajal | 300 | |||||
Reserve | 6,450 | Kajal | 240 | 540 | ||
Profit transferred to: | ||||||
Sajalâ€™s Capital A/c | 38,700 | |||||
Kajalâ€™s Capital A/c | 19,350 | 58,050 | ||||
69,000 | 69,000 |
Partnersâ€™ Capital Accounts | ||||||
Dr. | Cr. | |||||
Particulars | Sajal â‚¹ | Kajal â‚¹ | Particulars | Sajal â‚¹ | Kajal â‚¹ | |
Drawings A/c | 10,000 | 8,000 | Balance b/d | 50,000 | 40,000 | |
Interest on Drawings A/c | 300 | 240 | Interest on Capital A/c | 2,500 | 2,000 | |
P&L Appropriation A/c | 38,700 | 19,350 | ||||
Balance c/d | 80,900 | 53,110 | ||||
91,200 | 61,350 | 91,200 | 61,350 |
Working Notes 1: Capital Interest Evaluation
Sajalâ€™s Capital Interest = 50,000 X \(\frac{5}{100}\) = â‚¹ 2,500
Kajalâ€™s Capital Interest = 20,000 X \(\frac{5}{100}\) = â‚¹ 2,000
Working Notes 2: Drawings Interest Evaluation
Sajalâ€™s Drawings Interest = 10,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\)= â‚¹ 300
Kajalâ€™s Drawings Interest = 20,000 X \(\frac{6}{100}\) X \(\frac{6}{12}\)= â‚¹ 240
Working Notes 3: Amount to be transferred to Reserve Evaluation
Reserve Amount = 10% of Divisible Profit
Divisible Profit = Profit + Interest on Drawings âˆ’ Interest on Capital
= 68,460 + 540 âˆ’ 4,500 = â‚¹ 64,500
So, Reserve Amount = 64,500 X \(\frac{10}{100}\) = â‚¹ 6,450
Working Notes 4: Each Partnerâ€™s Profit Sharing Evaluation
Available Profit for Distribution = 68,460 + 540 âˆ’ 4,500 âˆ’ 6,450 = â‚¹ 58,050
Profit sharing ratio = 2 : 1
Sajalâ€™s Profit Share = 58,050 X \(\frac{2}{3}\) = â‚¹ 38,700
Kajalâ€™s Profit Share = 58,050 X \(\frac{1}{3}\) = â‚¹ 19,7350
Question 46
A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2018, their capitals were: A â‚¹ 50,000 and B â‚¹ 30,000. During the year ended 31st March, 2019 they earned a net profit of â‚¹ 50,000. The terms of partnership are:
(a) Interest on capital is to allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of â‚¹ 500 per month.
(d) B will get commission of 5% on profits after deduction of all expenses including such commission.
Partners’ drawings for the year were: A â‚¹ 8,000 and B â‚¹ 6,000. Turnover for the year was â‚¹ 3,00,000.
After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners’ Capital Accounts.
Solution:
Profit and Loss Appropriation Account as on 31st March, 2019 | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Interest on Capital: | Profit and Loss A/c (Net Profit) | 50,000 | ||
A | 3,000 | |||
B | 1,800 | 4,800 | ||
Bâ€™s Salary (500 Ã— 12) | 6,000 | |||
Partnerâ€™s Commission | ||||
A | 6,000 | |||
B | 1,581 | 7,581 | ||
Profit transferred to: | ||||
Aâ€™s Capital A/c | 23,714 | |||
Bâ€™s Capital A/c | 7,905 | 31,619 | ||
50,000 | 50,000 |
Partnersâ€™ Capital A/c | |||||
Dr. | Cr. | ||||
Particulars | A â‚¹ | B â‚¹ | Particulars | A â‚¹ | B â‚¹ |
Drawings A/c | 8,000 | 6,000 | Balance b/d | 50,000 | 30,000 |
Capital Interest A/c | 3,000 | 1,800 | |||
Commission A/c | 6,000 | 1,581 | |||
Salary A/c | 6,000 | ||||
Balance c/d | 74,714 | 41,286 | P/L Appropriation A/c | 23,714 | 7,905 |
82,714 | 47,286 | 82,714 | 47,286 |
Working Notes 1: Capital Interest Evaluation
Aâ€™s Capital Interest = 50,000 X \(\frac{6}{100}\) = â‚¹ 3,000
Bâ€™s Capital Interest = 30,000 X \(\frac{6}{100}\) = â‚¹ 1,800
Working Notes 2: Partnerâ€™s Commission Evaluation
Aâ€™s Commission = 2% on turnover
= \(\frac{2}{100}\) X 3,00,000 = â‚¹6,000
Bâ€™s Commission = 5% on profit after all expenses along with commission
Profits after all expense = â‚¹ 50,000 âˆ’ â‚¹ 4,800 âˆ’ â‚¹ 6,000 âˆ’â‚¹ 6,000 = â‚¹ 33,200
So, Commission to B = Profits after all expense X \(\frac{Rate}{100+Rate}\)
= 33,200 X \(\frac{5}{105}\) = â‚¹1,581 (Approx)
Working Notes 3: Partnersâ€™ Profit Share Evaluation
Available Profit for Distribution = â‚¹ 50,000 âˆ’â‚¹ 4,800 âˆ’ â‚¹ 6,000 âˆ’ â‚¹ 7,581 = â‚¹ 31,619
Profit sharing ratio = 3 : 1
Profit Share of A = 31,619 X \(\frac{3}{4}\) = â‚¹ 23,714
Profit Share of b = 31,619 X \(\frac{1}{4}\) = â‚¹ 7,905
Question 47
A, B and C were partners in a firm having capital of â‚¹ 50,000 ; â‚¹ 50,000 and â‚¹ 1,00,000 respectively. Their Current Account balances were A: â‚¹ 10,000; B: â‚¹ 5,000 and C: â‚¹ 2,000 (Dr.). According to the Partnership Deed the partners were entitled to an interest on Capital @ 10% p.a. C being the working partner was also entitled to a salary of â‚¹ 12,000 p.a. The profits were to be divided as:
(a) The first â‚¹ 20,000 in proportion to their capitals.
(b) Next â‚¹ 30,000 in the ratio of 5 : 3 : 2.
(c) Remaining profits to be shared equally.
The firm earned net profit of â‚¹ 1,72,000 before charging any of the above items.
Prepare Profit and Loss Appropriation Account and pass necessary Journal entry for the appropriation of profits.
Solution:
Profit and Loss Appropriation A/c | ||||
Dr. | Cr. | |||
Particulars | â‚¹ | Particulars | â‚¹ | |
Interest on Capital: | Profit and Loss A/c (Net Profit) | 1,72,000 | ||
A | 5,000 | |||
B | 5,000 | |||
C | 10,000 | 20,000 | ||
Salary to C | 12,000 | |||
Profit transferred to: | ||||
Aâ€™s Current A/c | 50,000 | |||
Bâ€™s Current A/c | 44,000 | |||
Câ€™s Current A/c | 46,000 | 1,40,000 | ||
1,72,000 | 1,72,000 |
Journal Entry | |||||
Date | Particulars | L.F. | Debit â‚¹ | Credit â‚¹ | |
Capital Interest A/c | Dr. | 20,000 | |||
To Aâ€™s Current A/c | 5,000 | ||||
To Bâ€™s Current A/c | 5,000 | ||||
To Câ€™s Current A/c
(Partnersâ€™ capital interest allowed to partners) |
10,000 | ||||
Salary A/c | Dr. | 12,000 | |||
To Câ€™s Current A/c | 12,000 | ||||
(Câ€™s Salary) | |||||
Profit and Loss Appropriation A/c | Dr. | 1,40,000 | |||
To Aâ€™s Current A/c | 50,000 | ||||
To Bâ€™s Current A/c | 44,000 | ||||
To Câ€™s Current A/c | 46,000 | ||||
(Available Profit for distribution transferred to partnersâ€™ current A/c) | |||||
Working Notes 1: Capital Interest Evaluation
Aâ€™s Capital Interest = 50,000 X \(\frac{10}{100}\) = â‚¹ 5,000
Bâ€™s Capital Interest = 50,000 X \(\frac{10}{100}\) = â‚¹ 5,000
Câ€™s Capital Interest = 1,00,000 X \(\frac{10}{100}\) = â‚¹ 10,000
Working Notes 2: Partnersâ€™ Profit Share Evaluation
Available Profits for Distribution = â‚¹ 1,72,000 âˆ’ â‚¹ 20,000 âˆ’ â‚¹ 12,000
= â‚¹ 1,40,000
(a) Distribution of first â‚¹ 20,000 in 1:1:2 as the Capital Ratio.
Profit Share of A = 20,000 X \(\frac{1}{4}\)= â‚¹ 5,000
Profit Share of B = 20,000 X \(\frac{1}{4}\)= â‚¹ 5,000
Profit Share of C = 20,000 X \(\frac{2}{4}\)= â‚¹ 10,000
(b) Distribution of â‚¹ 30,000 in 5:3:2 ratio
Profit Share of A = 30,000 X \(\frac{5}{10}\)= â‚¹ 15,000
Profit Share of B = 30,000 X \(\frac{3}{10}\)= â‚¹ 9,000
Profit Share of C = 30,000 X \(\frac{2}{10}\)= â‚¹ 6,000
(c). Remaining Profit for distribution = â‚¹ 1,40,000 âˆ’ â‚¹ 20,000 âˆ’ â‚¹ 30,000 = â‚¹ 90,000
The remaining â‚¹ 90,000 profit will be shared between the partners.
A,B, and C each will receive = 90,000 X \(\frac{1}{3}\) = â‚¹ 30,000
S, the total profit share of each partnerâ€™s will be:
Aâ€™s total profit share = 5,000 + 15,000 + 30,000 = â‚¹ 50,000
Bâ€™s total profit share = 5,000 + 9,000 + 30,000 = â‚¹ 44,000
Câ€™s total profit share = 10,000 + 6,000 + 30,000 = â‚¹ 46,000
Question 48
A and B are partners sharing profits in the ratio of 3 : 2 with capitals of â‚¹ 50,000 and â‚¹ 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of â‚¹ 2,500. During the year profit prior to interest on capital but after charging B’s salary amounted to â‚¹ 12,500. A provision of 5% of the profits is to be made in respect of the Manager’s Commission.
Solution:
Profit and Loss A/c | |||
Dr. | Cr. | ||
Particulars | â‚¹ | Particulars | â‚¹ |
Managerâ€™s Commission | 750 | Profit before Bâ€™s Salary | 15,000 |
(5% of Rs 15,000) | (12,500 + 2,500) | ||
Transferred Profit t to Profit and Loss Appropriation A/c | 14,250 | ||
15,000 | 15,000 |
Profit and Loss Appropriation A/c | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Capital Interest A/c: | Profit and Loss A/c | 14,250 | |||
A | 3,000 | ||||
B | 1,800 | 4,800 | |||
Bâ€™s Salary | 2,500 | ||||
Profit transferred to: | |||||
Aâ€™s Capital A/c | 4,170 | ||||
Bâ€™s Capital A/c | 2,780 | 6,950 | |||
14,250 | 14,250 |
Partnersâ€™ Capital Accounts | ||||||
Dr. | Cr. | |||||
Particulars | A | B | Particulars | A | B | |
Balance c/d | 57,170 | 37,080 | Balance b/d | 50,000 | 30,000 | |
Interest on Capital A/c | 3,000 | 1,800 | ||||
Salary A/c | 2,500 | |||||
P/L Appropriation A/c | 4,170 | 2,780 | ||||
57,170 | 37,080 | 57,170 | 37,080 |
Working Notes 1 : Managerâ€™s Commission Evaluation
Managersâ€™ Commission = 5% on Net Profit (before Salary)
Profit before Salary = Profit after Salary + Salary = 12,500 + 2500 = â‚¹ 15,000
So, Managersâ€™ Commission = 15,000 X \(\frac{5}{100}\) = â‚¹750
Working Notes 2 : Capital Interest Evaluation
Aâ€™s Capital Interest = 50,000 X \(\frac{6}{100}\) = â‚¹ 3,000
Bâ€™s Capital Interest = 50,000 X \(\frac{6}{100}\) = â‚¹ 1,800
Working Notes 3 : Partnersâ€™ Profit Sharing Evaluation
Profit available for distribution = â‚¹ 12,500 âˆ’ â‚¹ 750 âˆ’ â‚¹ 3,000 âˆ’ â‚¹ 1,800 = â‚¹ 6,950
Profit Sharing Ratio = 3:2
Profit Share of A = 6,950 x \(\frac{3}{5}\) = â‚¹ 4,170
Profit Share of B = 6,950 x \(\frac{2}{5}\) = â‚¹ 2,750
Question 49
P, Q and R are in a partnership and as of 1st April, 2018 their respective capitals were: â‚¹ 40,000, â‚¹ 30,000 and â‚¹ 30,000. Q is entitled to a salary of â‚¹ 6,000 and R â‚¹ 4,000 p.a. payable before division of profits. Interest is allowed on capital @ 5% p.a. and is not charged on drawings. Of the divisible profits, P is entitled to 50% of the first â‚¹ 10,000, Q to 30% and R to 20%, rest of the profit are shared equally. Profits for the year ended 31st March, 2019, after debiting partners’ salaries but before charging interest on capital was â‚¹ 21,000 and the partners had drawn â‚¹ 10,000 each on account of salaries, interest and profit.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2019 showing the distribution of profit and the Capital Accounts of the partners.
Solution:
Profit and Loss Appropriation A/c as on 31st March, 2019 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Interest on Capital: | Profit (after Salary) | 21,000 | |||
P | 2,000 | ||||
Q | 1,500 | ||||
R | 1,500 | 5,000 | |||
Profit transferred to: | |||||
Pâ€™s Capital A/c | 7,000 | ||||
Qâ€™s Capital A/c | 5,000 | ||||
Râ€™s Capital A/c | 4,000 | 16,000 | |||
21,000 | 21,000 |
Partnersâ€™ Capital A/c | |||||||
Dr. | Cr. | ||||||
Particulars | P | Q | R | Particulars | P | Q | R |
Drawings A/c | 10,000 | 10,000 | 10,000 | Balance b/d | 40,000 | 30,000 | 30,000 |
Salaries A/c | – | 6,000 | 4,000 | ||||
Capital Interest A/c | 2,000 | 1,500 | 1,500 | ||||
Balance c/d | 39,000 | 32,500 | 29,500 | P/L Appropriation A/c | 7,000 | 5,000 | 4,000 |
49,000 | 32,500 | 29,500 | 49,000 | 32,500 | 29,500 |
Working Notes 1: Capital Interest Evaluation
Pâ€™s Capital Interest = 40,000 X \(\frac{5}{100}\) = â‚¹ 2,000
Qâ€™s Capital Interest = 30,000 X \(\frac{5}{100}\) = â‚¹ 1,500
Râ€™s Capital Interest = 30,000 X \(\frac{5}{100}\) = â‚¹ 1,500
Working Notes 2: Partners’ Profit Share Evaluation
Available Profit for distribution = â‚¹ 21,000 âˆ’â‚¹ 5000 = â‚¹ 16,000
a. Distribution of first â‚¹ 10,000 into P 50%, Q 30%, and R 20%
Profit Share of P = 10,000 X \(\frac{50}{100}\) = â‚¹ 5,000
Profit Share of Q = 10,000 X \(\frac{30}{100}\) = â‚¹ 3,000
Profit Share of R = 10,000 X \(\frac{20}{100}\) = â‚¹ 2,000
b. Distribution of remaining Profit â‚¹ 6,000 (16,000 âˆ’ 10,000) equally
P, Q, and R Profit Share = 6,000 X \(\frac{1}{3}\) = â‚¹2,000 each
So, the total profit share of P, Q, and R will be
Pâ€™s Total Profit Share= 5,000 + 2,000 = â‚¹ 7,000
Qâ€™s Total Profit Share= 3,000 + 2,000 = â‚¹ 5,000
Râ€™s Total Profit Share= 2,000 + 2,000 = â‚¹ 4,000
Question 50
A, B and C are partners sharing profits and losses in the ratio of A 1/2, B 3/10, C 1/5 after providing for interest @ 5% on their respective capitals, viz., A â‚¹ 50,000; B â‚¹ 30,000 and C â‚¹ 20,000 and allowing B and C a salary of â‚¹ 5,000 each per annum. During the year ended 31st March, 2019, A has drawn â‚¹ 10,000 and B and C in addition to their salaries have drawn â‚¹ 2,500 and â‚¹ 1,000 respectively. Profit and Loss Account for the year ended 31st March, 2019 showed a net profit of â‚¹ 45,000. On 1st April, 2018, the balances in the Current Accounts of the partners were A (Cr.) â‚¹ 4,500; B (Cr.) â‚¹ 1,500 and C (Cr.) â‚¹ 1,000. Interest is not charged on Drawings or Current Account balances. Show Partners’ Capital and Current Accounts as at 31st March, 2019 after division of profits in accordance with the partnership agreement.
Solution:
Profit and Loss Appropriation A/c as on 31st March, 2019 | ||||||
Dr. | Cr. | |||||
Particulars | â‚¹ | Particulars | â‚¹ | |||
Capital Interest : | Profit and Loss A/c | 45,000 | ||||
A | 2,500 | |||||
B | 1,500 | |||||
C | 1,000 | 5,000 | ||||
Salary to: | ||||||
B | 5,000 | |||||
C | 5,000 | 10,000 | ||||
Profit transferred to: | ||||||
Aâ€™s Current A/c | 15,000 | |||||
Bâ€™s Current A/c | 9,000 | |||||
Câ€™s Current A/c | 6,000 | 30,000 | ||||
45,000 | 45,000 |
Partnersâ€™ Capital Accounts | |||||||
Dr. | Cr. | ||||||
Particulars | A | B | C | Particulars | A | B | C |
Balance b/d | 50,000 | 30,000 | 20,000 | ||||
Balance c/d | 50,000 | 30,000 | 20,000 | ||||
50,000 | 30,000 | 20,000 | 50,000 | 30,000 | 20,000 |
Partnersâ€™ Current Accounts | |||||||
Dr. | Cr. | ||||||
Particulars | A | B | C | Particulars | A | B | C |
Drawings A/c | 10,000 | 7,500 | 6,000 | Balance b/d | 4,500 | 1,500 | 1,000 |
Interest on Capital A/c | 2,500 | 1,500 | 1,000 | ||||
Salaries A/c | 5,000 | 5,000 | |||||
Balance c/d | 12,000 | 9,500 | 7,000 | P/L Appropriation A/c | 15,000 | 9,000 | 6,000 |
22,000 | 17,000 | 13,000 | 22,000 | 17,000 | 13,000 |
Working Notes 1: Capital Interest Evaluation
Aâ€™s Capital Interest = 50,000 X \(\frac{5}{100}\) = â‚¹ 2,500
Bâ€™s Capital Interest = 30,000 X \(\frac{5}{100}\) = â‚¹ 1,500
Câ€™s Capital Interest = 20,000 X \(\frac{5}{100}\) = â‚¹ 1,000
Working Notes 2: Partnersâ€™ Profit Share Evaluation
Available Profit for Distribution = â‚¹ 45,000 âˆ’â‚¹ 15,000 = â‚¹ 30,000
Aâ€™s Capital Interest = 5 30,000 X \(\frac{1}{2}\) = â‚¹ 15,000
Bâ€™s Capital Interest = 30,000 X \(\frac{3}{10}\) = â‚¹ 9,000
Câ€™s Capital Interest = 30,000 X \(\frac{1}{15}\) = â‚¹ 6,000
Question 51
Ali the Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2018 stand as Ali â‚¹ 25,000 and Bahadur â‚¹ 20,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2019 amounted to â‚¹ 3,500 and â‚¹ 2,500 respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @ â‚¹ 3,000, amounted to â‚¹ 40,000, 10% of divisible profit is to be transferred to Reserve.
You are asked to show Partners’ Current Account and Capital Accounts recording the above transactions.
Solution:
Partnersâ€™ Capital Accounts | ||||||
Dr. | Cr. | |||||
Particulars | Ali | Bahadur | Particulars | Ali | Bahadur | |
Balance b/d | 25,000 | 20,000 | ||||
Balance c/d | 25,000 | 20,000 | ||||
25,000 | 20,000 | 25,000 | 20,000 |
Partnersâ€™ Current Accounts | |||||
Dr. | Cr. | ||||
Particulars | Ali | Bahadur | Particulars | Ali | Bahadur |
Drawings A/c | 3,500 | 2,500 | Interest on Capital A/c | 1,250 | 1,000 |
Bahadurâ€™s Salary A/c | 3,000 | ||||
Balance c/d | 19,642 | 10,883 | P/L Appropriation A/c | 21,892 | 9,383 |
23,142 | 13,383 | 23,142 | 13,383 |
Working Notes 1:
Profit and Loss Appropriation A/c as on 31st March, 2019 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Interest on Capital: | Profit and Loss A/c | 40,000 | |||
Ali | 1,250 | ||||
Bahadur | 1,000 | 2,250 | |||
Reserve | 3,475 | ||||
Bahadurâ€™s Salary | 3,000 | ||||
Profit transferred to: | |||||
Aliâ€™s Capital A/c | 21,892 | ||||
Bahadurâ€™s Capital A/c | 9,383 | 31,275 | |||
40,000 | 40,000 |
Working Notes 2 : Capital Interest Evaluation
Aliâ€™s Capital Interest = 25,000 X \(\frac{5}{100}\) = â‚¹ 1,250
Bahadurâ€™s Capital Interest = 20,000 X \(\frac{5}{100}\) = 1,000
Working Notes 3 : Amount to be Transferred to Reserve Evaluation
Amount transferred to Reserve =10% of Divisible Profits
=10% X (â‚¹ 40,000âˆ’ â‚¹ 2,250âˆ’ â‚¹ 3,000)= â‚¹ 3,475
Working Notes 4 : Partnersâ€™ Profit Sharing Evaluation
Profit available for distribution = â‚¹ 40,000 âˆ’ â‚¹ 2,250 âˆ’ â‚¹ 3,000 âˆ’ â‚¹ 3,475 = â‚¹ 31,275
Aliâ€™s Profit Share = 31,275 X \(\frac{70}{100}\) = â‚¹ 1,892
Bahadurâ€™s Profit Share = 31,275 X \(\frac{30}{100}\) = â‚¹ 9,383
Question 52
Amal, Bimal and Kamal are three partners. On 1st April, 2018, their Capitals stood as: Amal â‚¹ 40,000, Bimal â‚¹ 30,000 and Kamal â‚¹ 25,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amal would get a salary of â‚¹ 250 per month,
(c) Bimal would receive commission @ 4% on net profit after deducting commission, interest on capital and salary, and
(d) After deducting all of these 10% of the profit should be transferred to the General Reserve.
Before the above items were taken into account, net profit for the year ended 31st March, 2019 was â‚¹ 33,360. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the Partners.
Solution:
Profit and Loss Appropriation A/c as on 31st March, 2019 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Capital Interest: | Profit and Loss A/c | 33,360 | |||
Amal | 2,000 | (Net Profit) | |||
Bimal | 1,500 | ||||
Kamal | 1,250 | 4,750 | |||
Amal Salary(250 Ã— 12) | 3,000 | ||||
Commission to Bimal | 985 | ||||
General Reserve | 2,462 | ||||
Profit transferred to: | |||||
Amalâ€™s Capital A/c | 7,388 | ||||
Bimalâ€™s Capital A/c | 7,388 | ||||
Kamalâ€™s Capital A/c | 7,387 | 22,163 | |||
33,360 | 33,360 |
Partnersâ€™ Capital Accounts | ||||||||
Dr. | Cr. | |||||||
Particulars | Amal | Bimal | Kamal | Particulars | Amal | Bimal | Kamal | |
Balance b/d | 40,000 | 30,000 | 25,000 | |||||
Capital Interest A/c | 2,000 | 1,500 | 1,250 | |||||
Salary A/c | 3,000 | â€“ | â€“ | |||||
Commission | â€“ | 985 | â€“ | |||||
Balance c/d | 52,388 | 39,873 | 33,637 | P/L Appropriation A/c | 7,388 | 7,388 | 7,387 | |
52,388 | 39,873 | 33,637 | 52,388 | 39,873 | 33,637 |
Working Notes 1: Capital Interest Evaluation
Amalâ€™s Capital Interest = 40,000 X \(\frac{5}{100}\) = â‚¹ 2,000
Bimalâ€™s Capital Interest = 30,000 X \(\frac{5}{100}\) = â‚¹ 1,500
Kamalâ€™s Capital Interest = 25,000 X \(\frac{5}{100}\) = â‚¹ 1,250
Working Notes 2 : Bimal Commission Evaluation
Bimal Commission = 4% on Net Profits after Commission
Profit after expenses = â‚¹ 33,360 âˆ’ â‚¹ 4,750 âˆ’ â‚¹ 3,000 = â‚¹ 25,610
Bimal Commission = Profit after Expenses X \(\frac{Rate}{100 + Rate}\)
Therefore, = 25,610 X \(\frac{4}{104}\) = â‚¹ 985
Working Notes 3 : Amount to be transferred to General Reserve Evaluation
General Reserve Amount = 10% of Profit
= (33,360 – 4,750 – 3,000 – 985) x \(\frac{10}{100}\)
= 24,625 X \(\frac{10}{100}\) = â‚¹ 2,462
Working Notes 3 : Partnersâ€™ Profit Share Evaluation
Available Profit for Distribution = â‚¹ 33,360 âˆ’ â‚¹ 4,750 âˆ’ â‚¹ 3,000âˆ’ â‚¹ 985 âˆ’ â‚¹ 2,462
= â‚¹ 22,163
Profit Share for each Partnersâ€™ Amal, Bimal, and Kamal = 22,163 X \(\frac{1}{3}\) = â‚¹ 7,388
Question 53
Amit, Binita and Charu are three partners. On 1st April, 2018, their Capitals stood as: Amit â‚¹ 1,00,000, Binita â‚¹ 2,00,000 and Charu â‚¹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amit would get a salary of â‚¹ 10,000 per month,
(c) Binita would receive commission @ 5% of net profit after deduction of commission, and
(d) 10% of the net profit would be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March, 2019 was â‚¹ 5,00,000.
Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.
Solution:
Profit and Loss Appropriation A/c as on 31st March, 2019 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Interest on Capital: | Profit and Loss A/c (Net Profit) | 5,00,000 | |||
Amit | 5,000 | ||||
Binita | 10,000 | ||||
Charu | 15,000 | 30,000 | |||
Salary to Amit (10,000 Ã— 12) | 1,20,000 | ||||
Commission to Binita | 23,810 | ||||
General Reserve | 50,000 | ||||
Profit transferred to: | |||||
Amitâ€™s Capital A/c | 92,063 | ||||
Binitaâ€™s Capital A/c | 92,063 | ||||
Charuâ€™s Capital A/c | 92,064 | 2,76,190 | |||
33,360 | 33,360 |
Partnersâ€™ Capital Accounts | ||||||||
Dr. | Cr. | |||||||
Particulars | Amit | Binita | Charu | Particulars | Amit | Binita | Charu | |
Balance b/d | 1,00,000 | 2,00,000 | 3,00,000 | |||||
Interest on Capital A/c | 5,000 | 10,000 | 15,000 | |||||
Salary A/c | 1,20,000 | â€“ | â€“ | |||||
Commission | â€“ | 23,810 | â€“ | |||||
Balance c/d | 3,17,063 | 3,25,873 | 4,07,064 | P/L Appropriation A/c | 92,063 | 92,063 | 92,064 | |
3,17,063 | 3,25,873 | 4,07,064 | 3,17,063 | 3,25,873 | 4,07,064 |
Working Notes 1 : Capital Interest Evaluation
Amit Interest = 1,00,000 X \(\frac{5}{100}\) = â‚¹ 5,000
Binita Interest = 2,00,000 X \(\frac{5}{100}\) = â‚¹ 10,000
Charu Interest = 3,00,000 X \(\frac{5}{100}\) = â‚¹ 15,000
Working Notes 2 : Binita Commission Evaluation
Binita Commission = Net Profit X \(\frac{Rate}{100+Rate}\)
= 5,00,000 X \(\frac{5}{105}\) = â‚¹ 23,810
Working Notes 3 : Amount to be transferred to General Reserve Evaluation
Amount for General Reserve = 10% of Profit
= 5,00,000 X \(\frac{10}{100}\) = â‚¹ 50,000
Working Notes 4 : Partnersâ€™ Profit Share Evaluation
Available Profit for Distribution = â‚¹ 5,00,000 – â‚¹ 30,000 – â‚¹ 1,20,000 – â‚¹ 23,810 – â‚¹ 50,000
= â‚¹ 2,76,190
Profit share of each of the partners = 2,76,190 X \(\frac{1}{3}\) = â‚¹ 92, 063
Question 54
Anita, Bimla and Cherry are three partners. On 1st April, 2018, their Capitals stood as: Anita â‚¹ 1,00,000, Bimla â‚¹ 2,00,000 and Cherry â‚¹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Anita would get a salary of â‚¹ 5,000 per month,
(c) Bimla would receive commission @ 5% of net profit after deduction of commission, and
(d) 10% of the net divisible profit would be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March, 2019 was â‚¹ 5,00,000. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.
Solution:
Profit and Loss Appropriation A/c as on March 31, 2019 | |||||
Dr. | Cr. | ||||
Particulars | â‚¹ | Particulars | â‚¹ | ||
Capital Interest: | Profit and Loss A/c (Net Profit) | 5,00,000 | |||
Anita | 5,000 | ||||
Bimla | 10,000 | ||||
Cherry | 15,000 | 30,000 | |||
Anita Salary (5,000 Ã— 12) | 60,000 | ||||
Commission to Bimla | 23,810 | ||||
General Reserve | 38,619 | ||||
Profit transferred to: | |||||
Anitaâ€™s Capital A/c | 1,15,857 | ||||
Bimlaâ€™s Capital A/c | 1,15,857 | ||||
Cherryâ€™s Capital A/c | 1,15,857 | 3,47,571 | |||
5,00,000 | 5,00,000 |
Partnersâ€™ Capital Accounts | ||||||||
Dr. | Cr. | |||||||
Particulars | Anita | Bimla | Cherry | Particulars | Anita | Bimla | Cherry | |
Balance b/d | 1,00,000 | 2,00,000 | 3,00,000 | |||||
Interest on Capital A/c | 5,000 | 10,000 | 15,000 | |||||
Salary A/c | 60,000 | – | – | |||||
Commission | – | 23,810 | – | |||||
Balance c/d | 2,80,857 | 3,49,667 | 4,30,857 | P/L Appropriation A/c | 1,15,857 | 1,15,857 | 1,15,857 | |
2,80,857 | 3,49,667 | 4,30,857 | 2,80,857 | 3,49,667 | 4,30,857 |
Working Notes 1: Capital Interest Evaluation
Anitaâ€™s Interest = 1,00,000 X \(\frac{5}{100}\) = â‚¹ 5,000
Bimalâ€™s Interest = 2,00,000 X \(\frac{5}{100}\) = â‚¹ 10,000
Cherryâ€™s Interest = 3,00,000 X \(\frac{5}{100}\) = â‚¹ 15,000
Working Notes 2 : Bimal Commission Evaluation
Bimla Commission = Net Profit X \(\frac{Rate}{100+Rate}\)
= 5,00,000 X \(\frac{5}{100}\) = â‚¹ 23,810
Working Notes 3 : Amount to be transferred to General Reserve Evaluation
Amount for General Reserve = 10% of Divisible Profit
=3,86,190 X \(\frac{10}{100}\) = â‚¹ 38,619
Divisible Profit = â‚¹ 5,00,000 â€“ â‚¹ 30,000 â€“ â‚¹ 23,810 â€“ â‚¹ 60,000 = â‚¹ 3,86,190
Working Notes 4 : Partnersâ€™ Profit Share Evaluation
Profit available for Distribution = â‚¹ 5,00,000 â€“â‚¹ 30,000 â€“ â‚¹ 60,000 â€“ â‚¹ 23,810 â€“ â‚¹ 38,619
= â‚¹ 3,47,571
Profit share of each partnerâ€™s = 3,47,571 X \(\frac{1}{3}\) = â‚¹ 1,15,857
Important Topics in Accountancy: |
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