TS Grewal Solutions Class 12 Accountancy Vol 1 Chapter 2:
TS Grewal Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Firms Fundamentals is considered 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  54 
Category  TS Grewal 
This Chapter 2 Accounting for Partnership Firms Fundamentals explains the belowmentioned 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 partners’ capitals
(c) Interest on partners’ loan
(d) Division of profit, and
(e) Interest on partners’ drawings
Solution:
The rules are
(a) Partners will not be allowed any salary
(b) On partner’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 ₹ 20,000 belonging to the firm and made a profit of ₹ 5,000. Q and R want the amount to be given to the firm?
(b) Q used ₹ 5,000 belonging to the firm and suffered a loss of ₹ 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 ₹20,000 along with ₹ 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. According to the Partnership Act rules, if an agent makes a profit made by utilising the firm’s assets is due to the company.
(b) Q has to pay the firm ₹ 5,000. The Partnership Act, 1932, all the partnership firm partners’ are liable for all the losses made by their negligence. In this scenario, Q is liable for the loss as he has utilized the company’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 partner’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 ₹ 10,00,000 and ₹ 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 ₹ 4,00,000 and ₹ 1,00,000 respectively as capital. In addition, Harshad advanced an amount of ₹ 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 ₹ 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 ₹ 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 partner’s loan and no interest will be incurred in partner’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 partner’s loan and no interest in a partner’s capital.
Profit Distribution:
Dr.  Profit and Loss Adjustment Account as on 31st March, 2019  Cr.  
Particulars  ₹  Particulars  ₹  
Interest on Partner’s Loan  Profit and Loss A/c  1,80,000  
Harshad 1,00,000 × (6/100) × (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  ₹  Particulars  ₹  
Profit transferred to  Profit and Loss Adjustment A/c  1,77,000  
Harshad’s Capital  88,500  
Dhiman’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 ₹ 35,000 and ₹ 20,000 respectively. On 1st October 2018, A advanced loan of ₹ 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 ₹ 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  ₹  Particulars  ₹  
A’s Loan Interest  240  Profit (before Interest)  15,000  
Profit transferred to:  
A’s Capital A/c  7,380  
B’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 = ₹ 8,000
Time (from 1st October to 31st March) = 6 months
A’s loan interest = 8,000 X
Working Notes 1: Profit Share of Partner Evaluation
Equal distribution of profit
Profit after A’s loan Interest = ₹ 15,000 − ₹ 240 = ₹ 14,760
Therefore, A and B profitsharing = 14,760 X
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 ₹ 30,000 as a loan in their profitsharing 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 = ₹ 30,000
Profitsharing ratio = 3:2
A’s advance = 30,000 X
B’s advance = 30,000 X
Duration (from 1st October, 2017 to 31st March, 2018) = 6 months
Rate of Interest = 6% p.a.
Interest incurred on Advances Evaluation
A’s advance interest = 18,000 X
B’s advance interest = 12,000 X
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 ₹ 2,00,000 and ₹ 3,00,000, respectively. On 1st October, 2018, X and Y gave loans of ₹ 80,000 and ₹ 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 ₹ 21,000.
Case 2: If the profits before interest for the year amounted to ₹ 3,000.
Case 3: If the profits before interest for the year amounted to ₹ 5,000.
Case 4: If the loss before interest for the year amounted to ₹ 1,400.
Solution:
Loan Interest Evaluation
X’s loan interest for six months = 80,000 X
Y’s loan interest for six months = 40,000 X
Case 1 Profits without the interest = ₹ 21,000
Profit and Loss Account as on March 31, 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
X’s Loan Interest  2,400  Profit (before interest)  21,000  
Y’s Loan Interest  1,200  
Profit transferred to  
X’s Capital A/c (17,400 X \(\begin{array}{l}\frac{2}{5}\end{array} \) 
6,960  
Y’s Capital A/c (17,400 X \(\begin{array}{l}\frac{3}{5}\end{array} \) ) 
10,440  17,400  
21,000  21,000 
Case 2 – Profits before interest ₹ 3,000
Profit and Loss Account as on March 31, 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Interest on X’s Loan  2,400  Profit (before interest)  3,000  
Interest on Y’s Loan  1,200  Loss transferred to  
X’s Capital A/c (600 × 2/5)  240  
Y’s Capital A/c (600 × (3/5)  360  600  
3,600  3,600  
Case 3 Profits before interest ₹ 5,000
Profit and Loss Account as on March 31, 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Interest on X’s Loan  2,400  Profit (before interest)  5,000  
Interest on Y’s Loan  1,200  
Profit transferred to:  
X’s Capital A/c (1400 × 2/5)  560  
Y’s Capital A/c (1400 × 3/5)  840  1,400  
5,000  5,000  
Case 4 Loss before interest ₹ 1,400
Profit and Loss Account as on March 31, 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Loss (before interest)  1,400  Loss transferred to  
Interest on X’s Loan  2,400  X’s Capital A/c (5,000 × 2/5)  2,000  
Interest on Y’s Loan  1,200  Y’s Capital A/c (5,000 × 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 ₹ 1,20,000 and ₹ 60,000 respectively. On 1st October, 2018, Bat and Ball gave loans of ₹ 2,40,000 and ₹ 1,20,000 respectively to the firm. Bat had allowed the firm to use his property for business for a monthly rent of ₹ 5,000. The loss for the year ended 31st March, 2019 before rent and interest amounted to ₹ 9,000. Show distribution of profit/loss.
Solution:
Profit and Loss Account as on March 31, 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Loss (before interest)  9,000  
Rent (5,000 x 12)  60,000  Loss transferred to:  
Bat’s loan Interest  7,200  Bat’s Capital A/c  31,920  
Ball’s loan Interest  3,600  Ball’s Capital A/c  47,880  79,800 
79,800  79,800  
Working Notes 1: Partner’s Loan Interest
Bat’s Loan interest for six months = ₹ 2,40,000 X
Bat’s Loan interest for six months = ₹1,20,000 X
Working Notes 2: Loss distribution to partners Evaluation
Bat’s Loan share = 79,800 X
Ball’s Loan share = 79,800 X
Question 10
A and B are partners. A’s Capital is ₹ 1,00,000 and B’s Capital is ₹ 60,000. Interest on capital is payable @ 6% p.a. B is entitled to a salary of ₹ 3,000 per month. Profit for the current year before interest and salary to B is ₹ 80,000.
Prepare Profit and Loss Appropriation Account.
Solution:
Profit and Loss Appropriation A/c  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Interest on Capital:  Profit and Loss A/c (Net Profit)  80,000  
A  6,000  
B  3,600  9,600  
Salary to B (₹ 3,000 × 12)  36,000  
Profit transferred to:  
A’s Capital A/c  17,200  
B’s Capital A/c  17,200  34,400  
80,000  80,000  
Working Notes 1: Capital Interest Evaluation
A’s Capital Interest = ₹ 1,00,000 X
B’s Capital Interest = ₹ 60,000 X
Working Notes 2: Partner Profit Sharing Evaluation
Divisible Profit = ₹ 80,000 – ₹ 9,600 – ₹ 36,000 = ₹ 34,400
A and B profit sharing = 34,4000 X
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 ₹5,00,000; Y ₹ 5,00,000 and Z ₹ 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 ₹ 2,000 per month. The profit of the firm for the year ended 31st March, 2018 after debiting Z’s salary was ₹ 4,00,000.
Prepare Profit and Loss Appropriation Account.
Solution:
Profit and Loss Appropriation A/c as on 31st March 2018  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Interest on Capital:  Profit and Loss A/c
(After Z’s salary net Profit) 
4,00,000  
X  50,000  
Y  50,000  
Z  25,000  1,25000  
Profit transferred to:  
X’s Capital A/c  1,10,000  
Y’s Capital A/c  1,10,000  
Z’s Capital A/c  55,000  2,75,000  
4,00,000  4,00,000 
Working Notes 1: Z’s salary will not be debited to the Profit and Loss Appropriation A/c because ₹ 4,00,000 Profit is given after adjusting Z’s salary.
Working Note 2: Capital Interest Evaluation
X’s Capital Interest = ₹5,00,000 X
Y’s Capital Interest = ₹5,00,000 X
Z’s Capital Interest = ₹2,50,000 X
Working Note 3: Partner’s profit sharing Evaluation
Profit sharing ratio = 2 : 2 : 1
X’s Profit Share = ₹2,75,000 X
Y’s Profit Share = ₹2,75,000X
Z’s Profit Share = ₹2,75,000 X
Question 12
X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 8,00,000 and ₹ 6,00,000, respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹ 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 ₹ 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  ₹  Particulars  ₹ 
Commission for Manager (3,00,000×5%)  15,000  Profit and Loss A/c
(Net Profit after Y’s salary) 
2,40,000 
Y’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  ₹  Particulars  ₹  
Salary to Y  60,000  Profit and Loss Adjustment A/c  2,85,000  
Interest on Capital:  (After manager’s commission)  
X  40,000  
Y  30,000  70,000  
Profit transferred to:  
X’s Capital A/c  93,000  
Y’s Capital A/c  62,000  1,55,000  
2,85,000  2,85,000 
Working Notes 1: Manager’s Commission Evaluation
Profit for making Managers’ Commission = 2,40,000 + 60,000 (Y’s Salary) = ₹3,00,000
Manager’s Commission=₹(3,00,000 X
Working Notes 2: Capital Interest Evaluation
X’s Capital Interest =( ₹ 8,00,000 X
Y’s Capital Interest =( ₹ 6,00,000 X
Working Notes 3: Partner’s capital share Evaluation
Distribution of profit = ₹ 2,85,000 − ₹ 60,000 − ₹ 70,000 = ₹1,55,000
X’s Share of Profit=₹(1,55,000 X
Y’s Share of Profit=₹(1,55,000 X
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 ₹ 2,500 per month and Manoj was to get a commission of ₹ 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 ₹ 1,250 and on Manoj’s drawings was ₹ 425. Interest on Capitals of the partners were ₹ 10,000 and ₹ 7,500 respectively. The firm earned a profit of ₹ 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  ₹  Particulars  ₹  
Prem Salary (₹ 2,500 × 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:  
Prem’s Current A/c  20,850  
Manoj’s Current A/c  13,900  34,750  
92,250  92,250 
Working Notes 1: Capital Interest Evaluation
Prem’s Capital Interest = 2,00,000 X
Manoj’s Capital Interest = 1,50,000 X
Working Notes 2: Partner Profit Share Evaluation
Profit sharing ratio = 3 : 2
Profit sharing for Prem = 34,750 X
Profit sharing for Manoj = 34,750 X
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  ₹  Particulars  ₹  
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
Reema’s Share = 60,000 X 10% X
Seema’s Share = 60,000 X 10% X
Question 15
Bhanu and Partab are partners sharing profits equally. Their fixed capitals as on 1st April, 2018 are ₹ 8,00,000 and ₹ 10,00,000 respectively. Their drawings during the year were ₹ 50,000 and ₹ 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 ₹ 1,20,000.
Prepare Profit and Loss Appropriation Account.
Solution:
Profit and Loss Appropriation Account as on March 31, 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Capital Interest A/c:  Profit and Loss A/c  1,20,000  
Bhanu’s Current A/c  80,000  Interest on Drawings A/c:  
Partap’s Current A/c  1,00,000  1,80,000  Bhanu’s Current A/c  3,750  
Partap’s Current A/c  7,500  11,250  
Loss transferred to  
Bhanu’s Current A/c  24,375  
Partap’s Current A/c  24,375  48,750  
1,80,000  1,80,000  
Working Note 1: Partner Drawing Interest Evaluation
Bhanu’s Drawing Interest – 50,000 X 15% X
Pratap’s Drawing Interest – 1,00,000 X 15% X
Working Note 2: Partner Capital Interest Evaluation
Bhanu’s Capital Interest – 50,000 X 10% ₹ 80,000
Pratap’s Capital Interest – 1,00,000 X 10% = ₹ 1,00,000
Question 16
Amar and Bimal entered into partnership on 1st April, 2018 contributing ₹ 1,50,000 and ₹ 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 ₹ 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 ₹  Credit ₹  
March 31  Profit & Loss Appropriation A/c  Dr.  40,000  
To Amar’s Current A/c  15,000  
To Bimal’s Current A/c  25,000  
(Capital interest transferred to Profit & Loss Appropriation A/c) 
Working Notes 1: Capital Interest Evaluation
Amar’s Capital Interest = 1,50,000 X
Amar’s Capital Interest = 2,50,000 X
Question 17
Kamal and Kapil are partners having fixed capitals of ₹ 5,00,000 each as on 31st March, 2018. Kamal introduced further capital of ₹ 1,00,000 on 1st October, 2018 whereas Kapil withdrew ₹ 1,00,000 on 1st October, 2018 out of the capital.
Interest on capital is to be allowed @ 10% p.a.
The firm earned net profit of ₹ 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 ₹  Credit ₹  
March 31  Profit & Loss Appropriation A/c  Dr.  1,00,000  
To Kamal’s Current A/c  55,000  
To Kapil’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  ₹  Particulars  ₹  
Capital Interest A/c:  Profit and Loss A/c  6,00,000  
Kamal  55,000  
Kapil  45,000  1,00,000  
Profit transferred to:  
Kamal’s Current A/c  2,50,000  
Kapil’s Current A/c  2,50,000  5,00,000  
6,00,000  6,00,000  
Working Notes 1: Capital Interest Evaluation
Kamal’s Capital Interest =
Kapil’s Capital Interest =
Question 18
Simran and Reema are partners sharing profits in the ratio of 3 : 2. Their capitals as on 31st March, 2018 were ₹ 2,00,000 each whereas Current Accounts had balances of ₹ 50,000 and ₹ 25,000 respectively interest is to be allowed @ 5% p.a. on balances in Capital Accounts. The firm earned net profit of ₹ 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 ₹  Credit ₹  
Profit & Loss Appropriation A/c  Dr.  20,000  
To Simran’s Current A/c  10,000  
To Reema’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 Simran’s Current A/c  1,68,000  
To Reema’s Current A/c  1,12,000  
(Profit transferred to Partners’ Current A/c)  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Interest on Capital A/c:  Profit and Loss A/c  3,00,000  
Simran  10,000  
Reema  10,000  20,000  
Profit transferred to:  
Simran’s Current A/c  1,68,000  
Reema’s Current A/c  1,12,000  2,80,000  
3,00,000  3,00,000  
Working Notes 1: Capital Interest Evaluation
Capital Interest Simran’s = 2,00,000 X
Capital Interest Simran’s = 2,00,000 X
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 ₹ 5,00,000 and ₹ 4,00,000 respectively. Partnership Deed provided to allow interest on capital @ 10% p.a. The firm earned net profit of ₹ 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 ₹  Credit ₹  
2019  
March 31  Profit & Loss Appropriation A/c  Dr.  90,000  
To Anita’s Capital A/c  50,000  
To Ankita’s Capital A/c  40,000  
(Capital Interest transferred to Profit & Loss Appropriation A/c) 
Working Notes 1: Capital Interest Evaluation
Capital Interest Anita’s = 5,00,000 X
Capital Interest Ankita’s = 4,00,000 X
Question 20
Ashish and Aakash are partners sharing profit in the ratio of 3 : 2. Their Capital Accounts showed a credit balance of ₹ 5,00,000 and ₹ 6,00,000 respectively as on 31st March, 2019 after debit of drawings during the year of ₹ 1,50,000 and ₹ 1,00,000 respectively. Net profit for the year ended 31st March, 2019 was ₹ 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 ₹  Credit ₹  
March 31  Profit & Loss Appropriation A/c  Dr.  1,35,000  
To Ashish’s Capital A/c  65,000  
To Aakash’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 Ashish’s Capital A/c  1,46,000  
To Akash’s Capital A/c  
(Profit transferred to Partners’ Capital A/c)  
Profit and Loss Appropriation Account as on 31st March 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
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:  
Ashish’s Capital A/c  2,19,000  
Aakash’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’s Capital Interest = 6,50,000 X
Askash’s Capital Interest = 7,00,000 X
Question 21
Naresh and Sukesh are partners with capital of ₹ 3,00,000 each as on 31st March, 2019. Naresh had withdrawn ₹ 50,000 against capital on 1st October, 2018 and also ₹ 1,00,000 besides the drawings against capital. Sukesh also had drawings of ₹ 1,00,000.
Interest on capital is to be allowed @ 10% p.a.
Net profit for the year was ₹ 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 ₹  Credit ₹  
March 31  Profit & Loss Appropriation A/c  Dr.  82,500  
To Naresh’s Capital A/c  42,500  
To Sukesh’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 Naresh’s Capital A/c  58,750  
To Sukesh’s Capital A/c  58,750  
(Profit transferred to Partners’ 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 =
Sukesh =
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 ₹ 80,000 and ₹ 50,000, respectively and agreed to share the profits in the ratio of 3 : 2. The partnership Deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of ₹ 7,800. Showing your calculations clearly, prepare ‘Profit and Loss Appropriation Account’ of Jay and Vijay for the year ended 31st March, 2014.
Solution:
Profit and Loss Appropriation A/c as on March 2014  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
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
Jay’s Capital = 80,000 X
Vijay’s Capital = 50,000 X
Total Interest = 7,200 + 4,500 = ₹ 11,700
Working Notes 2: Proportionate Interest on Capital Evaluation
Jay Proportionate Interest =
Vijay Proportionate Interest =
Question 23
Amar, Bhanu, and Charu are partners in a firm. Amar and Bhanu are to get an annual salary of ₹ 1,20,000 p.a. each as they are fully involved in the business. Net profit for the year is ₹ 4,80,000. Determine the share of profit to be credited to each partner.
Solution:
Profit and Loss Appropriation A/c  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Salary:  Profit and Loss A/c  4,80,000  
Amar  1,20,000  
Bhanu  1,20,000  2,40,000  
Profit transferred to:  
Amar’s Capital A/c  80,000  
Bhanu’s Capital A/c  80,000  
Charu’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 ₹ 1,10,000.
Determine the amount of commission payable to A.
Solution:
Net Profit before commission = ₹ 1,10,000
Commission to A = 10% of Net Profit before commission was charged
Commission to A = Net Profit X
= 1,10,000 X
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 ₹ 2,20,000.
Determine the amount of commission payable to
Z.
Solution:
Net Profit before Commission = ₹ 2,20,000
Commission to Z = Net Profit 10% after charging commission
Commission to A = Net Profit X
= 2,20,000 X
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 ₹ 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  ₹  Particulars  ₹  
Partners’ 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:  
A’s Capital A/c  60,000  
B’s Capital A/c  45,000  
C’s Capital A/c  30,000  
D’s Capital A/c  15,000  1,50,000  
1,80,000  1,80,000  
Working Notes 1 : Partners’ Commission Evaluation
Partners’ Commission = Net Profit 20% after commission charged
Partner’s Commission = Net Profit X
+ Rate}\end{array} \)
=1,80,000 X
=1,80,000 X
Partners commission in the ratio 2 : 3 : 2 : 3
A’s Commission = 30,000 X
B’s Commission = 30,000 X
C’s Commission = 30,000 X
D’s Commission = 30,000 X
Working Notes 2 : Partners’ Profit Share Evaluation
Distribution of Profit = ₹ 1,80,000 − ₹ 30,000 = ₹ 1,50,000
Profit sharing ratio = 4 : 3 : 2 : 1
A’s Commission = 1,50,000 X
B’s Commission = 1,50,000 X
C’s Commission = 1,50,000 X
D’s Commission = 1,50,000 X
Question 27
X and
Y are partners in a firm.
X is entitled to a salary of ₹ 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 ₹ 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 ₹ 4,20,000. Show distribution of profit.
Solution:
Profit and Loss Appropriation A/c as on 31st March, 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
Partners’ Salary:  Profit and Loss A/c (Net Profit)  4,20,000  
X (10,000 × 12)  1,20,000  
Y  25,000  1,45,000  
Partners’ Commission:  
X  27,500  
Y  22,500  50,000  
Profit transferred to:  
X’s Capital A/c  1,12,500  
Y’s Capital A/c  1,12,500  2,25,000  
4,20,000  4,20,000 
Working Note 1: Commission Evaluation
X’s Commission = Net Profit @ 10% after partners’ salaries.
Profit after Partner’s Salaries = 4,20,000 − 1,45,000 = ₹ 2,75,000
X ‘s Commission = Profit after salaries X
= 2,75,000 X
Commission to Y = Net Profit @ 10% after partners’ salaries and Commission
Profit after partners’ salaries and commission = 4,20,000 − 1,45,000 − 27,500 = ₹ 2,47,500
Y ‘s Commission = Profit after partners’ salaries and commission X
= 2,47,500 X
Working Note 1: Partner’s Profit Sharing Evaluation
Profit’s for distribution = 4,20,000 − 1,45,000 − 50,000 = ₹ 2,25,000
Profit sharing ratio = 1 : 1
Profit sharing of X and Y each = 2,25,000 X
Question 28
Ram and Mohan, two partners, drew for their personal use ₹ 1,20,000 and ₹ 80,000. Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest chargeable from each partner?
Solution:
Since, the drawing’s date made by the partners is not mentioned, the interest drawing is evaluated on average basis for six months.
Ram’s Drawing Interest = 1,20,000 X
Mohan’s Drawing Interest = 80,000 X
Question 29
Brij and Mohan are partners in a firm. They withdrew ₹ 48,000 and ₹ 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=₹ 48,000 X
Mohan’s Drawings Interest=₹ 36,000 X
Question 30
A and B are partners sharing profits equally. A drew regularly ₹ 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 = ₹ 24,000
Rate of Interest = 5% p.a
Time =
=
= 3.5 months
Drawing Interest = Total Drawings X
= 24,000 X
=350
Question 31
One of the partners in a partnership firm has withdrawn ₹ 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 = ₹ 9,000 per quarter
Annual Drawings = ₹ (9,000 × 4) = ₹ 36,000
Interest Rate on Drawings = 6% p.a.
Average Period  =  \(\begin{array}{l}\frac{After\, 1st\, drawing\, the\, remaining\,\, month +\, After\, last\, drawing\, remaining\, month}{2}\end{array} \) 
=  \(\begin{array}{l}\frac{9+0}{2}\end{array} \) = 4.5 months 

Interest on Drawings  =  Drawing Interest = Total Drawings X \(\begin{array}{l}\frac{Rate}{100}\end{array} \) X \(\begin{array}{l}\frac{Time}{12}\end{array} \) 
=  (36,000 X \(\begin{array}{l}\frac{6}{100}\end{array} \) X \(\begin{array}{l}\frac{4.5}{12}\end{array} \) ) = ₹ 810 
Question 32
A and B are partners sharing profits equally. A drew regularly ₹ 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 = ₹ 24,000
Rate of Interest = 5% p.a
Time =
=
= 2.5 months
Drawing Interest = Total Drawings X
= 24,000 X
=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 ₹ 7,500 at the beginning of each quarter.
Case 2. If he withdrew ₹ 7,500 at the end of each quarter.
Case 3. If he withdrew ₹ 7,500 during the middle of each quarter.
Solution:
Drawings Total = 7,500 × 4 = ₹ 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
So, Ashok’s interest on drawing = 30,000 X
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
So, Ashok’s interest on drawing = 30,000 X
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
So, Ashok’s interest on drawing = 30,000 X
Question 34
Kanika and Gautam are partners doing a dry cleaning business in Lucknow, sharing profits in the ratio 2 : 1 with capitals ₹ 5,00,000 and ₹ 4,00,000 respectively. Kanika withdrew the following amounts during the year to pay the hostel expenses of her son:
1st April  ₹ 10,000 
1st June  ₹ 9,000 
1st November  ₹ 14,000 
1st December  ₹ 5,000 
Gautam withdrew ₹ 15,000 on the first day of April, July, October and January to pay rent for the accommodation of his family. He also paid ₹ 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:
Kanika’s Drawings interest = ₹ 1,500
Gautam’s Drawings interest= ₹ 2,250
Working Notes 1: Kanika’s Drawings interest Evaluation
By Product Method  
Date  Amount
(I) 
Months
(II) 
Product
(I × 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
= 3,00,000 X
Working Notes 2: Gautam’s Drawings Interest Evaluation
At the beginning of the quarter, Gautam withdrew ₹ 15,000.
Drawing Interest = Drawings Total X
= (15,000×4) X
Question 35
A and B are partners sharing Profit and Loss in the ratio 3 : 2 having Capital Account balances of ₹ 50,000 and ₹ 40,000 on 1st April, 2018. On 1st July, 2018, A introduced ₹ 10,000 as his additional capital whereas B introduced only ₹ 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:
A’s Capital Interest Evaluation
Date  Capital  ×  Period  =  Product 
1st April, 2018 to 30th June, 2018  50,000  ×  3  =  1,50,000 
1st July, 2018 to 31st March, 2019  60,000  ×  9  =  5,40,000 
Product Total  6,90,000 
A’s Capital Interest = Total product sum X
= 6,90,000 X
B’s Capital Interest Evaluation
Date  Capital  ×  Period  =  Product 
1st April, 2018 to 30th June, 2018  40,000  ×  3  =  1,20,000 
1st July, 2018 to 31st March, 2019  41,000  ×  9  =  3,69,000 
Product Total  4,89,000 
B’s Capital Interest = Total product sum X
= 4,89,000 X
Question 36
Ram and Mohan are partners in a business. Their capitals at the end of the year were ₹ 24,000 and ₹ 18,000 respectively. During the year, Ram’s drawings and Mohan’s drawings were ₹ 4,000 and ₹ 6,000 respectively. Profit (before charging interest on capital) during the year was ₹ 16,000. Calculate interest on capital @ 5% p.a. for the year ended 31st March, 2019.
Solution:
Capital Interest is evaluated on the partner’s capital opening balance.
Particulars  Ram ₹  Mohan ₹ 
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 
Ram’s Capital Interest = ₹ 20,000 X
Mohan’s Capital Interest = ₹ 16,000 X
Question 37
Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2019.
Liabilities  ₹  Assets  ₹ 
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 (201819)  8,00,000  
30,00,000  30,00,000  
During the year, Mahadev’s drawings were ₹ 30,000. Profits during the year ended 31st March, 2019 is ₹ 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2019.
Solution:
Neelkant’s Capital Interest  10,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = ₹50,000 
Mahadev’s Capital Interest  10,00,000 X \(\begin{array}{l}\frac{5}{100}\end{array} \) = = ₹ 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  ₹  Assets  ₹  
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 ₹ 40,000 and Short withdrew ₹ 50,000. Profit for the year was ₹ 1,50,000 out of which ₹ 1,00,000 was transferred to General Reserve.
Solution:
Capital at the beginning Evaluation as on 1st, 2018
Particulars  Long
₹ 
Short
₹ 
Capital at the end  1,60,000  1,40,000 
Less: Profit Adjusted (1,50,000 – 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 
Long’s Capital Interest = 1,35,000 X
Short’s Capital Interest = 1,65,000 X
Question 39
Moli and Bholi contribute ₹ 20,000 and ₹ 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 ₹ 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 =₹(20,000 ×
Bholi’s Capital Interest =₹(10,000 ×
Total Capital Interest = (1,200+600) = ₹1,800
Case (1)
When there is no agreement except for interest on capitals
Profit at the year end= ₹ 1,500
Total Interest = ₹ 1,800
In this scenario, the total capital interest is more than the profit available for distribution. So, ₹ 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 
Moli’s Capital Interest = (1,500 X
Bholi’s Capital Interest = (1,500 X
Case (2)
Moli’s Capital Interest =₹(20,000 ×
Bholi’s Capital Interest =₹(10,000 ×
Total Interest (1,200+600) = ₹ 1,800
Firm’s total profit = ₹ 1,500
So, the firm encountered the loss of ₹ 300 and shared between Moli and Bholi as per their profit sharing ratio of 2 : 3.
Moli Loss = (300 X
Bholi Loss = (300 X
Question 40
Amit and Bramit started business on 1st April, 2018 with capitals of ₹ 15,00,000 and ₹ 9,00,000 respectively. On 1st October, 2018, they decided that their capitals should be ₹ 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:
Amit’s Capital Interest Evaluation
Date  Capital  ×  Period  =  Product 
1st April, 2018 to 30th Sept, 2018  15,00,000  ×  6  =  90,00,000 
1st Oct. 01, 2018 to 31st March, 2019  12,00,000  ×  6  =  72,00,000 
Product Sum  1,62,00,000 
Amit’s Capital Interest = Product Sum X
= 1,62,00,000 X
= ₹ 1,08,000
Bramit’s Capital Interest Evaluation
Date  Capital  ×  Period  =  Product 
1st April, 2018 to 30th Sept, 2018  9,00,000  ×  6  =  54,00,000 
1st Oct. 01, 2018 to 31st March, 2019  12,00,000  ×  6  =  72,00,000 
Product Sum  1,26,00,000 
Bramit’s Capital Interest = Product Sum X
= 1,26,00,000 X
= ₹ 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 ₹ 4,80,000 and ₹ 6,00,000 respectively. On 1st May, 2018, Simrat introduced an additional capital of ₹ 1,20,000 and Bir withdrew ₹ 60,000 from his capital.On 1st October, 2018, Simrat withdrew ₹ 2,40,000 from her capital and Bir introduced ₹ 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 ₹ 2,40,000 and the partners’ drawings had been: Simrat – ₹ 1,20,000 and Bir – ₹ 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.
Solution:
Case (1): When Capital is fixed:
Simrat’s Capital Interest =
Bir’s Capital Interest =
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:
Simrat’s Capital Interest =
Bir’s Capital Interest =
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 ₹ 1,00,000 and D ₹ 60,000 as capital. Interest in payable @ 6% p.a. and D is entitled to a salary of ₹ 3,000 per month. In the year ended 31st March, 2019, the profit was ₹ 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  ₹  Particulars  ₹  
Capital Interest:  Profit and Loss A/c (Net Profit)  80,000  
C  6,000  
D  3,600  9,600  
D salary (3000 × 12)  36,000  
Profit transferred to :  
C’s Capital A/c  17,200  
D’s Capital A/c  17,200  34,400  
80,000  80,000  
Working Notes 1: Capital Interest Evaluation
C’s Capital Interest = 1,00,000 X
D’s Capital Interest = 60,000 X
Working Notes 2: Partner’s profit share Evaluation
Available profit for distribution = 80,000 − 9,600 − 36,000 = ₹ 34,400
Profit sharing between C and D = ₹ 34,400 X
So, Total amount C received = Capital Interest + Profit Share = ₹ 6,000 + ₹ 17,200 = ₹ 23,200
Total amount D received = Interest on Capital + Salary + Profit Share = ₹ 3,600 + ₹ 36,000 + ₹ 17,200 = ₹ 56,800
Question 43
Amit and Vijay started a partnership business on 1st April, 2018. Their capital contributions were ₹ 2,00,000 and ₹ 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 ₹ 2,000 per month and Vijay ₹ 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 ₹ 2,16,000. Interest on drawings amounted to ₹ 2,200 for Amit and ₹ 2,500 for Vijay.
Prepare Profit and Loss Appropriation Account.
Solution:
Profit and Loss Appropriation Account as on 31st March, 2019  
Dr.  Cr.  
Particulars  ₹  Particulars  ₹  
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 × 12)  24,000  
Vijay (3,000 × 12)  36,000  60,000  
Profit transferred to:  
Amit’s Capital A/c  75,420  
Vijay’s Capital A/c  50,280  1,25,700  
2,20,700  2,20,700 
Working Notes 1: Capital Interest Evaluation
Amit’s Capital Interest = 2,00,000 X
Vijay’s Capital Interest = 1,50,000 X
Working Notes 1: Each Partner’s profit sharing evaluation
Divisible Profit = ₹ 2,16,000 + ₹ 4,700 − ₹ 35,000 − ₹ 60,000 = ₹ 1, 25,700
Profit sharing ratio = 3 : 2
Amit’s Profit Share = 1,25,700 X
Vijay’s Profit Share = 1,25,700 X
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 (₹)  Mohan (₹)  
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:
Partners’ Capital Accounts  
Dr.  Cr.  
Particulars  Sohan ₹  Mohan ₹  Particulars  Sohan ₹  Mohan ₹  
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  Partners’ Salary  36,000  –  
Commission  5,000  3,000  
5,21,000  3,68,000  5,21,000  3,68,000 
Working Note: Capital Interest Evaluation
Sohan’s Capital Interest = 4,00,000 X
Mohan’s Capital Interest = 3,00,000 X
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 – ₹ 50,000 and Kajal – ₹ 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 ₹ 30,000.
(c) Interest on partners’ drawings @ 6% p.a. Drawings: Sajal ₹ 10,000 and Kajal ₹ 8,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
Net profit for the year ended 31st March, 2019 is ₹ 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  ₹  Particulars  ₹ 
Kajal’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  ₹  Particulars  ₹  
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:  
Sajal’s Capital A/c  38,700  
Kajal’s Capital A/c  19,350  58,050  
69,000  69,000 
Partners’ Capital Accounts  
Dr.  Cr.  
Particulars  Sajal ₹  Kajal ₹  Particulars  Sajal ₹  Kajal ₹  
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
Sajal’s Capital Interest = 50,000 X
Kajal’s Capital Interest = 20,000 X
Working Notes 2: Drawings Interest Evaluation
Sajal’s Drawings Interest = 10,000 X
Kajal’s Drawings Interest = 20,000 X
Working Notes 3: Amount to be transferred to Reserve Evaluation
Reserve Amount = 10% of Divisible Profit
Divisible Profit = Profit + Interest on Drawings − Interest on Capital
= 68,460 + 540 − 4,500 = ₹ 64,500
So, Reserve Amount = 64,500 X
Working Notes 4: Each Partner’s Profit Sharing Evaluation
Available Profit for Distribution = 68,460 + 540 − 4,500 − 6,450 = ₹ 58,050
Profit sharing ratio = 2 : 1
Sajal’s Profit Share = 58,050 X
Kajal’s Profit Share = 58,050 X
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 ₹ 50,000 and B ₹ 30,000. During the year ended 31st March, 2019 they earned a net profit of ₹ 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 ₹ 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 ₹ 8,000 and B ₹ 6,000. Turnover for the year was ₹ 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  ₹  Particulars  ₹  
Interest on Capital:  Profit and Loss A/c (Net Profit)  50,000  
A  3,000  
B  1,800  4,800  
B’s Salary (500 × 12)  6,000  
Partner’s Commission  
A  6,000  
B  1,581  7,581  
Profit transferred to:  
A’s Capital A/c  23,714  
B’s Capital A/c  7,905  31,619  
50,000  50,000 
Partners’ Capital A/c  
Dr.  Cr.  
Particulars  A ₹  B ₹  Particulars  A ₹  B ₹ 
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
A’s Capital Interest = 50,000 X
B’s Capital Interest = 30,000 X
Working Notes 2: Partner’s Commission Evaluation
A’s Commission = 2% on turnover
=
B’s Commission = 5% on profit after all expenses along with commission
Profits after all expense = ₹ 50,000 − ₹ 4,800 − ₹ 6,000 −₹ 6,000 = ₹ 33,200
So, Commission to B = Profits after all expense X
= 33,200 X
Working Notes 3: Partners’ Profit Share Evaluation
Available Profit for Distribution = ₹ 50,000 −₹ 4,800 − ₹ 6,000 − ₹ 7,581 = ₹ 31,619
Profit sharing ratio = 3 : 1
Profit Share of A = 31,619 X
Profit Share of b = 31,619 X
Question 47
A, B and C were partners in a firm having capital of ₹ 50,000 ; ₹ 50,000 and ₹ 1,00,000 respectively. Their Current Account balances were A: ₹ 10,000; B: ₹ 5,000 and C: ₹ 2,000 (Dr.). According to the Partnership Deed the partners were entitled to an interest on Capital @ 10% p.a. C being the working partner was also entitled to a salary of ₹ 12,000 p.a. The profits were to be divided as:
(a) The first ₹ 20,000 in proportion to their capitals.
(b) Next ₹ 30,000 in the ratio of 5 : 3 : 2.
(c) Remaining profits to be shared equally.
The firm earned net profit of ₹ 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  ₹  Particulars  ₹  
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:  
A’s Current A/c  50,000  
B’s Current A/c  44,000  
C’s Current A/c  46,000  1,40,000  
1,72,000  1,72,000 
Journal Entry  
Date  Particulars  L.F.  Debit ₹  Credit ₹  
Capital Interest A/c  Dr.  20,000  
To A’s Current A/c  5,000  
To B’s Current A/c  5,000  
To C’s Current A/c
(Partners’ capital interest allowed to partners) 
10,000  
Salary A/c  Dr.  12,000  
To C’s Current A/c  12,000  
(C’s Salary)  
Profit and Loss Appropriation A/c  Dr.  1,40,000  
To A’s Current A/c  50,000  
To B’s Current A/c  44,000  
To C’s Current A/c  46,000  
(Available Profit for distribution transferred to partners’ current A/c)  
Working Notes 1: Capital Interest Evaluation
A’s Capital Interest = 50,000 X
B’s Capital Interest = 50,000 X
C’s Capital Interest = 1,00,000 X
Working Notes 2: Partners’ Profit Share Evaluation
Available Profits for Distribution = ₹ 1,72,000 − ₹ 20,000 − ₹ 12,000
= ₹ 1,40,000
(a) Distribution of first ₹ 20,000 in 1:1:2 as the Capital Ratio.
Profit Share of A = 20,000 X
Profit Share of B = 20,000 X
Profit Share of C = 20,000 X
(b) Distribution of ₹ 30,000 in 5:3:2 ratio
Profit Share of A = 30,000 X
Profit Share of B = 30,000 X
Profit Share of C = 30,000 X
(c). Remaining Profit for distribution = ₹ 1,40,000 − ₹ 20,000 − ₹ 30,000 = ₹ 90,000
The remaining ₹ 90,000 profit will be shared between the partners.
A,B, and C each will receive = 90,000 X
S, the total profit share of each partner’s will be:
A’s total profit share = 5,000 + 15,000 + 30,000 = ₹ 50,000
B’s total profit share = 5,000 + 9,000 + 30,000 = ₹ 44,000
C’s total profit share = 10,000 + 6,000 + 30,000 = ₹ 46,000
Question 48
A and B are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 50,000 and ₹ 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of ₹ 2,500. During the year profit prior to interest on capital but after charging B’s salary amounted to ₹ 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  ₹  Particulars  ₹ 
Manager’s Commission  750  Profit before B’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  ₹  Particulars  ₹  
Capital Interest A/c:  Profit and Loss A/c  14,250  
A  3,000  
B  1,800  4,800  
B’s Salary  2,500  
Profit transferred to:  
A’s Capital A/c  4,170  
B’s Capital A/c  2,780  6,950  
14,250  14,250 
Partners’ 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 : Manager’s Commission Evaluation
Managers’ Commission = 5% on Net Profit (before Salary)
Profit before Salary = Profit after Salary + Salary = 12,500 + 2500 = ₹ 15,000
So, Managers’ Commission = 15,000 X
Working Notes 2 : Capital Interest Evaluation
A’s Capital Interest = 50,000 X
B’s Capital Interest = 50,000 X
Working Notes 3 : Partners’ Profit Sharing Evaluation
Profit available for distribution = ₹ 12,500 − ₹ 750 − ₹ 3,000 − ₹ 1,800 = ₹ 6,950
Profit Sharing Ratio = 3:2
Profit Share of A = 6,950 x
Profit Share of B = 6,950 x
Question 49
P, Q and R are in a partnership and as of 1st April, 2018 their respective capitals were: ₹ 40,000, ₹ 30,000 and ₹ 30,000. Q is entitled to a salary of ₹ 6,000 and R ₹ 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 ₹ 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 ₹ 21,000 and the partners had drawn ₹ 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  ₹  Particulars  ₹  
Interest on Capital:  Profit (after Salary)  21,000  
P  2,000  
Q  1,500  
R  1,500  5,000  
Profit transferred to:  
P’s Capital A/c  7,000  
Q’s Capital A/c  5,000  
R’s Capital A/c  4,000  16,000  
21,000  21,000 
Partners’ 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
P’s Capital Interest = 40,000 X
Q’s Capital Interest = 30,000 X
R’s Capital Interest = 30,000 X
Working Notes 2: Partners’ Profit Share Evaluation
Available Profit for distribution = ₹ 21,000 −₹ 5000 = ₹ 16,000
a. Distribution of first ₹ 10,000 into P 50%, Q 30%, and R 20%
Profit Share of P = 10,000 X
Profit Share of Q = 10,000 X
Profit Share of R = 10,000 X
b. Distribution of remaining Profit ₹ 6,000 (16,000 − 10,000) equally
P, Q, and R Profit Share = 6,000 X
So, the total profit share of P, Q, and R will be
P’s Total Profit Share= 5,000 + 2,000 = ₹ 7,000
Q’s Total Profit Share= 3,000 + 2,000 = ₹ 5,000
R’s Total Profit Share= 2,000 + 2,000 = ₹ 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 ₹ 50,000; B ₹ 30,000 and C ₹ 20,000 and allowing B and C a salary of ₹ 5,000 each per annum. During the year ended 31st March, 2019, A has drawn ₹ 10,000 and B and C in addition to their salaries have drawn ₹ 2,500 and ₹ 1,000 respectively. Profit and Loss Account for the year ended 31st March, 2019 showed a net profit of ₹ 45,000. On 1st April, 2018, the balances in the Current Accounts of the partners were A (Cr.) ₹ 4,500; B (Cr.) ₹ 1,500 and C (Cr.) ₹ 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  ₹  Particulars  ₹  
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:  
A’s Current A/c  15,000  
B’s Current A/c  9,000  
C’s Current A/c  6,000  30,000  
45,000  45,000 
Partners’ 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 
Partners’ 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
A’s Capital Interest = 50,000 X
B’s Capital Interest = 30,000 X
C’s Capital Interest = 20,000 X
Working Notes 2: Partners’ Profit Share Evaluation
Available Profit for Distribution = ₹ 45,000 −₹ 15,000 = ₹ 30,000
A’s Capital Interest = 5 30,000 X
B’s Capital Interest = 30,000 X
C’s Capital Interest = 30,000 X
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 ₹ 25,000 and Bahadur ₹ 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 ₹ 3,500 and ₹ 2,500, respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @ ₹ 3,000, amounted to ₹ 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:
Partners’ 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 
Partners’ 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 
Bahadur’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  ₹  Particulars  ₹  
Interest on Capital:  Profit and Loss A/c  40,000  
Ali  1,250  
Bahadur  1,000  2,250  
Reserve  3,475  
Bahadur’s Salary  3,000  
Profit transferred to:  
Ali’s Capital A/c  21,892  
Bahadur’s Capital A/c  9,383  31,275  
40,000  40,000 
Working Notes 2 : Capital Interest Evaluation
Ali’s Capital Interest = 25,000 X
Bahadur’s Capital Interest = 20,000 X
Working Notes 3 : Amount to be Transferred to Reserve Evaluation
Amount transferred to Reserve =10% of Divisible Profits
=10% X (₹ 40,000− ₹ 2,250− ₹ 3,000)= ₹ 3,475
Working Notes 4 : Partners’ Profit Sharing Evaluation
Profit available for distribution = ₹ 40,000 − ₹ 2,250 − ₹ 3,000 − ₹ 3,475 = ₹ 31,275
Ali’s Profit Share = 31,275 X
Bahadur’s Profit Share = 31,275 X
Question 52
Amal, Bimal and Kamal are three partners. On 1st April, 2018, their Capitals stood as: Amal ₹ 40,000, Bimal ₹ 30,000 and Kamal ₹ 25,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amal would get a salary of ₹ 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 ₹ 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  ₹  Particulars  ₹  
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 × 12)  3,000  
Commission to Bimal  985  
General Reserve  2,462  
Profit transferred to:  
Amal’s Capital A/c  7,388  
Bimal’s Capital A/c  7,388  
Kamal’s Capital A/c  7,387  22,163  
33,360  33,360 
Partners’ 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  –  –  
Commission  –  985  –  
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
Amal’s Capital Interest = 40,000 X
Bimal’s Capital Interest = 30,000 X
Kamal’s Capital Interest = 25,000 X
Working Notes 2 : Bimal Commission Evaluation
Bimal Commission = 4% on Net Profits after Commission
Profit after expenses = ₹ 33,360 − ₹ 4,750 − ₹ 3,000 = ₹ 25,610
Bimal Commission = Profit after Expenses X
Therefore, = 25,610 X
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
= 24,625 X
Working Notes 3 : Partners’ Profit Share Evaluation
Available Profit for Distribution = ₹ 33,360 − ₹ 4,750 − ₹ 3,000− ₹ 985 − ₹ 2,462
= ₹ 22,163
Profit Share for each Partners’ Amal, Bimal, and Kamal = 22,163 X
Question 53
Amit, Binita and Charu are three partners. On 1st April, 2018, their Capitals stood as: Amit ₹ 1,00,000, Binita ₹ 2,00,000 and Charu ₹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amit would get a salary of ₹ 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 ₹ 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  ₹  Particulars  ₹  
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 × 12)  1,20,000  
Commission to Binita  23,810  
General Reserve  50,000  
Profit transferred to:  
Amit’s Capital A/c  92,063  
Binita’s Capital A/c  92,063  
Charu’s Capital A/c  92,064  2,76,190  
33,360  33,360 
Partners’ 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  –  –  
Commission  –  23,810  –  
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
Binita Interest = 2,00,000 X
Charu Interest = 3,00,000 X
Working Notes 2 : Binita Commission Evaluation
Binita Commission = Net Profit X
= 5,00,000 X
Working Notes 3 : Amount to be transferred to General Reserve Evaluation
Amount for General Reserve = 10% of Profit
= 5,00,000 X
Working Notes 4 : Partners’ Profit Share Evaluation
Available Profit for Distribution = ₹ 5,00,000 – ₹ 30,000 – ₹ 1,20,000 – ₹ 23,810 – ₹ 50,000
= ₹ 2,76,190
Profit share of each of the partners = 2,76,190 X
Question 54
Anita, Bimla and Cherry are three partners. On 1st April, 2018, their Capitals stood as: Anita ₹ 1,00,000, Bimla ₹ 2,00,000 and Cherry ₹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Anita would get a salary of ₹ 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 ₹ 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  ₹  Particulars  ₹  
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 × 12)  60,000  
Commission to Bimla  23,810  
General Reserve  38,619  
Profit transferred to:  
Anita’s Capital A/c  1,15,857  
Bimla’s Capital A/c  1,15,857  
Cherry’s Capital A/c  1,15,857  3,47,571  
5,00,000  5,00,000 
Partners’ 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
Anita’s Interest = 1,00,000 X
Bimal’s Interest = 2,00,000 X
Cherry’s Interest = 3,00,000 X
Working Notes 2 : Bimal Commission Evaluation
Bimla Commission = Net Profit X
= 5,00,000 X
Working Notes 3 : Amount to be transferred to General Reserve Evaluation
Amount for General Reserve = 10% of Divisible Profit
=3,86,190 X
Divisible Profit = ₹ 5,00,000 – ₹ 30,000 – ₹ 23,810 – ₹ 60,000 = ₹ 3,86,190
Working Notes 4 : Partners’ Profit Share Evaluation
Profit available for Distribution = ₹ 5,00,000 –₹ 30,000 – ₹ 60,000 – ₹ 23,810 – ₹ 38,619
= ₹ 3,47,571
Profit share of each partner’s = 3,47,571 X
Important Topics in Accountancy: 
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