2nd PUC Accountancy Question Bank Chapter 1 Accounting for Partnership: Basic Concepts

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Karnataka 2nd PUC Accountancy Question Bank Chapter 1 Accounting for Partnership: Basic Concepts

2nd PUC Accountancy Accounting for Partnership: Basic Concepts Text Book Questions and Answers

Short Questions and Answers

Question 1.
Define Partnership Deed.
Answer:
Partnership Deed is a written agreement among the partners of a partnership firm. It contains agreement on profit sharing ratio, salaries, commission of partners, interest provided on partner’s capital and drawings and interest on loan given or taken by the partners, etc. Objective of business of the firm.

Question 2.
Why is it desirable to make the partnership agreement in writing.
Answer:
Partnership agreement may be oral or written. It is not compulsory to form partnership agreement in writing under the Partnership Act, 1932. However, written partnership deed is desirable than oral agreement as it helps in avoiding disputes and misunderstandings among the partners.

Also, it helps in settling disputes among the partners, as written partnership deed can be referred to anytime. If written partnership deed is duly signed and registered under Partnership Act, then it can be used as evidence in the court of law.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 3.
List the items which may be debited or credited in the capital accounts of the partners when:
(i) Capitals are fixed
(ii) Capitals are fluctuating
(i) When Capitals are fixed
Answer:
The following items are credited in the Partner’s Capital Account when capital accounts are fixed.
(a) Opening balance of capital
(b) Additional capital introduced during an accounting year

The following items are debited in the Partner’s Capital Account when capital accounts are fixed.
(a) Part of capital with drawn
(b) Closing balance of capital

(ii) When Capitals are fluctuating:
The following items are credited in the Partner’s Capital Account when capital accounts are fluctuating.
(a) Opening balance of capital.
(b) Additional capital introduced during an accounting year
(c) Salaries to the partners
(d) Interest on capital
(e) Share of profit
(f) Commission and bonus to the partners

The following items are debited in the Partner’s Capital Account when capital accounts are fluctuating.
(a) Drawings made during the accounting period
(b) Interest on drawings.
(c) Share of loss.
(d) Closing balance of capital.

Question 4.
Why is Profit and Loss Adjustment Account prepared? Explain.
Answer:
The Profit and Loss Adjustment Account is prepared because of the following two reasons.
1. To record omitted items and rectify errors if any: After the preparation of Profit and Loss Account and Balance Sheet, if any error or omission is noticed, then these errors or omissions are adjusted by opening Profit and Loss Adjustment Account in the subsequent accounting period without altering old Profit and Loss Account.

2. To distribute profit or loss between the partners: Sometimes, besides adjusting the items and rectifying errors, this account is also used for distribution of profit (or loss) among the partners. In this situation, this account acts as a substitute for Profit and Loss Appropriation Account. The main rationale to prepare the Profit and Loss Adjustment Account is to ascertain true profit or loss.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 5.
Give two circumstances under which the fixed capitals of partners may change.
Answer:
The following are the two circumstances under which the fixed capitals of partner may change.

  1. If any additional capital is introduced by the partner during the year.
  2. If any part of capital is permanently with drawn by the partner from the firm.

Question 6.
If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?
Answer:
If a fixed amount is withdrawn on the first day of every quarter, then the interest is calculated on the amount withdrawn for a period of seven and half months.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 1

Question 7.
In the absence of partnership deed, specify the rules relating to the following:
1. Sharing of profits and losses.
2. Interest on partner’s capital.
3. Interest on Partner’s drawings.
4. Interest on Partner’sloan
5. Salary to a partner.
Answer:
1. Sharing of profits and losses: If the partnership deed is silent on sharing of profit or losses among the partners of a firm, then according to the Partnership Act of 1932, profits and lossesare to be shared equally by all the partners of thefirm.

2. Interest on partner’s capital: If the partnership deed is silent on interest on partner’s capital, then according to the Partnership Act of 1932, no interest on capital should be given to the partners of thefirm.

3. Interest on partner’s drawings: If the partnership deed is silent on interest on partner’s drawings, then according to the Partnership Act of 1932, no interest on drawing should be charged from the partners of the firm for the amount of capital withdrawn in form of drawings.

4. Interest on partner’s loan: If the partnership deed is silent on interest on partner’s loan, then according to the Partnership Act of 1932, the partners are entitled for 6% p.a. interest on the loan forwarded by them to the firm.

5. Salary to a partner: If the partnership deed is silent on salary to a partner, then according to the Partnership Act of 1932, no salary should be given to any partner.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Long Questions and Answers

Question 1.
What is partnership? What are its chief characteristics? Explain.
Answer:
According to the Section 4 of the Partnership Act, 1932, partnership is an agreement between two or more persons who have agreed to share profits or losses of a business that will be carried by all or any one of them acting for all.

Person who joined their hands to set up the business are called ‘partners’ individually and firm collectively and the name under which they carry out their business is termed as ‘firm name’.

Important Characteristics of Partnership
The following are the important characteristics of partnership.
1. Two or more persons: Partnership is an agreement between two or more person coming together for a common goal. Although as per the Partnership Act of 1932, there is no maximum limit on the number of partners in a firm, but as per the Section 11 of Company Act of 1956, the maximum number of partners should not exceed 10 for banking business and 20 for any business.

In case if the number of partners exceeds the aforesaid limit, then the partnership becomes illegal.

2. Partnership Deed: The partnership among the partners should be backed up by a partnership deed. A partnership deed is an agreement among the partners governing them in carrying out the proposed business. The deed may be oral or written.

3. Business: A partnership is formed to carry out a legal business. Partnerships in smuggling, black marketing etc. are illegal business activities and hence, the partnership is also illegal.

4. Sharing of profit: The profit or loss earned by a partnership firm must be distributed as per the partnership deed or equally among the partners (in absence of partnership deed). It is a very important feature of partnership. If a group is formed for charitable purpose, not to earn profit then this group will not be regarded as a partnership.

5. Liability: Liability of a partnership firm is unlimited and each partner is liable for firm’s liabilities whether individually and jointly with other partners to the third party. Moreover, each partner along with his/her co-partners is responsible for all the acts of the partnership firm.

6. Mutual agency: Partnership may be carried on by all or any one of them acting on behalf of all. It means all the partners of a firm are equally entitled to participate in the activities of the business or any one of them who is acting on behalf of all. Every partner acts as an agent for others and binds others by his/her act and in turn is bound by others by the iract.

Question 2.
Discuss the main provisions of the Indian Partnership Act, 1932 that are relevant to partnership accounts if there is no partnership deed.
Answer:
The following are the main provisions of the Indian partnership Act, 1932 that are relevant to the partnership accounts in absence of partnership deed.

1. Profit Sharing Ratio: If the partnership deed is silent on sharing of profit or losses among the partners of a firm, then according to the Partnership Act of 1932, profits and losses are to be shared equally by all the partners of the firm.

2. Interest on Capital: If the partnership deed is silent on interest on partner’s capital, then according to the Partnership Act of 1932, no interest on capital should be given to the partners of the firm. However, interest on capital is given only out of the profits, if mutually agreed by all the partners.

3. Interest on Drawings: If the partnership deed is silent on interest on partner’s drawings, then according to the Partnership Act of 1932, no interest on drawing should be charged from the partners of the firm for the amount of capital withdrawn in the form of drawings.

4. Interest on Partner’s Loan: If the partnership deed is silent on interest on partner’s loan, then according to the Partnership Act of 1932, the partners are entitled for 6% p.a. interest on the loan forwarded by them to the firm.

5. Salary to Partner: If the partnership deed is silent on salary to a partner, then according to the Partnership Act of 1932, no salary should be given to any partner.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 3.
Explain why it is considered better to make a partnership agreement in writing.
Answer:
A partnership deed forms the basis of a partnership firm. A partnership deed consists of all the pre-determined terms and conditions that are agreed to by all the partners while forming the partnership.

A partnership deed can both be oral or written. Although, it is not compulsory to form partnership agreement in writing under the Partnership Act of 1932, however, written partnership deed is more desirable than the oral agreements. This is because it ensures the smooth functioning of the business of the partnership firm. It helps in avoiding disputes and misunderstandings among the partners.

Also, it helps in settling t the disputes (as the case may be) among the partners, as written partnership deed can be referred to anytime. If written partnership deed is duly signed and registered under Partnership Act, then it can be used as evidence in the court of law. Moreover, any changes (if needed) in the partnership deed cannot be made without the consent of all the partners of the firm.

Therefore, it is desirable to form partnership deed in writing because of the merits associated with written documents over its oral counterparts.

Question 4.
Illustrate how interest on drawings will be calculated under various situations.
Answer:
When a partner withdraws any amount, either in cash or in any other form, from the firm for his/her personal use, then it is termed as drawings. The interest charged by the firm on the amount of drawings is termed as interest on drawings. The method of calculating interest on drawings depends on the information available for time and frequency of the drawings made by the partner. The following different situations of drawings made illustrate the calculation of interest charged on drawings.

Situation 1:
When information regarding Amount, Date and Rate of Interest on drawings are given.
If a partner withdrew Rs 10,000 on May 01 and interest on drawing is charged at 10% p.a. and the firm closes its books on December 31 every year then interest of drawings amounts to Rs 667.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 2

Situation 2:
When information regarding Amount, Rate of Interest on drawings is given
Case I: If the Amount and Rate of Interest on drawings (per annumn) is given but date is not mentioned

If the details regarding the amount of drawings and rate of interest of drawings (p.a.) is given but the date of drawings is not mentioned then interest is charged on average basis and the period of drawings is taken as 6 months.

Example: If a partner withdrew Rs 10,000 and rate of interest on drawings is 10% p.a. then . the interest of drawings amounts to Rs 500
Interest on drawings = 10,000 × \(\frac{10}{100} \times \frac{6}{12}\) = 500

Case II: If the Amount and Rate of Interest on drawings is given but the date and per annum rate of interest is not mentioned
If the date and the rate of interest are given but per annum is not specified, then annual interest is charged.
Example- If a partner withdrew Rs 20,000 and interest rate is 10% , then the interest on drawings amounts to Rs 2,000.
Interest on drawings = 20,000 × \(\frac { 10 }{ 100 }\) = Rs.2,000

Situation 3:
When a fixed amount is withdrawn at regular interval
Case I: If a fixed amount is withdrawn at the beginning of each month, then the interest is calculated for 6.5 months.

Example: If a partner withdraws Rs 1,000 in the beginning of every month and the rate of  interest is 10% p.a., then the interest on drawings amount to Rs 650.
Interest on drawings = 12,000 × \(\frac{10}{100} \times \frac{6.5}{12}\) = 650

Case II: If a fixed amount is withdrawn at the end of each month, then the interest is calculated for 5.5 months
Example: If a partner withdraws Rs 1,000 at the end of each month and rate of interest is 10% p.a., then the interest on drawings amount to Rs 550.
Interest on drawings =12,000 × \(\frac{10}{100} \times \frac{5.5}{12}\) = Rs.550

Case III: If a fixed amount is withdrawn in the middle of every month then assuming that the drawings are made onl5thof every month then interest on drawings is calculated for 6 months
Example- If a partner withdraws Rs 1,000 on 15thof every month and the rate of interest is 10%-p.a., then the interest on drawings amount to Rs 600.
Interest on drawings = 12,000 × \(\frac{10}{100} \times \frac{6}{12}\) = Rs.600

Case IV: If a fixed amount is withdrawn in the beginning of every quarter then the interest is calculated for 7.5 months
Example- If a partner withdraws Rs 3,000 in the beginning of every quarter and the rate of interest is 10% p.a. then the interest on drawings amount to Rs. 750
Interest on drawings = 12,000 × \(\frac{10}{100} \times \frac{7.5}{12}\) = Rs.750

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 5.
How will you deal with a change in the profit sharing ratio among existing partners?
Take imaginary figures to illustrate your answer?
Answer:
Usually due to the admission, retirement or death of a partner or sometimes due to the general agreement among the partners, they may decide to change the profit sharing ratio. Various adjustments that should be considered during the change in the profit sharing ratio are, goodwill, reserves and accumulated profits, profit or loss on the revaluation of assets and liabilities and adjustment of capitals, etc.

The general reserves and accumulated profits (if any) and profit (or loss) on revaluation on assets and liabilities should be credited (debited) in the Partner’s Capital Account in their old profit sharing ratio.

But if the existing partners decide to change the profit sharing ratio then some partners gain (gaining partners) at the cost of other partners (sacrificing partners). Thus, the former should compensate the latter. Therefore, the gaining Partners’ Capital Account s are debited to the extent of their gain and sacrificing Partners’ Capital Accounts are credited to extent of their sacrifice.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 3

Example:
A, B, C are partners in a firm sharing profit and loss in 3:2:1 ratio. They decide to share profit and loss equally in future. On that date, the books of the firm showsRs 1,20,000 as general reserve, profit due to revaluation of building Rs 30,000. The following adjustment entry is passed through the capital accounts without affecting the books of accounts.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 4
Hence, in this example, C gains at the cost of A, so the partner A needs to be compensated by C with the amount of Rs 25,000. The following adjustment entry is passed.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 5

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

2nd PUC Accountancy Accounting for Partnership: Basic Concepts Numerical Questions and Answers

Fixed and Fluctuating Capitals

Question 1.
Triphati and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were Rs 60,000 and Rs 40,000 as on January 01, 2015. During the year they earned a profit of Rs 30,000. According to the partnership deed both the partners are entitled to Rs 1,000 per month as Salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is Rs 12,000 for Tripathi, Rs 8,000 for Chauhan. Prepare Partner’s Accounts when, capitals are fixed,
Answer:
a) If interest on Capital and Partners’ salaries and interest on drawings is charged against profit, the solution will beas:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 6
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 7

b) If interest on Capital and Partners’ salaries and interest on drawings is distributed out of profit, the solution will beas:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 8
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 9

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 2.
Anubha and Kajal are partners of a firm sharing profits and losses in the ratio of 2:1. Their capital, were Rs 90,000 and Rs 60,000. The profit during the year were Rs 45,000. According to partnership deed, both partners are allowed salary, Rs 700 per month to Anubha and Rs 500 per month to Kajal. Interest allowed on capital @ 5% p.a. The drawings at the end of the period were Rs 8,500 for Anubha and Rs 6,500 for Kajal. Interest is to be charged @ 5% p.a. on drawings. Prepare partners capital accounts, assuming that the capital account are fluctuating.
Answer:
a) Note: If Partners’ Salaries, Interest on capital and Interest on Drawing are treated as these have already adjusted in Profit and Loss Account. The Solution will be as Profit and Loss Appropriation Account
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 10
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 11

b) Alternative
Note: If Partners’ salaries, interest on capital and interest on drawings adjusted in Profit and Loss Appropriation Account. The solution will be as.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 12

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 3.
Harshad and Dhiman are in partnership since April 01, 2014. No Partnership agreement was made. They contributed Rs 4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advanced an amount of Rs 1,00,000 to the firm, on October 01, 2014. Due to long illness, Harshad could not participate in business, activities from August 1, to September 30, 2014. The profits for the year ended March 31, 2014 amounted to Rs 1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims:
1. He should be given interest @ 10% per annum on capital and loan;
2. Profit should be distributed in proportion of capital;

Dhiman Claims:
1. Profits should be distributed equally;
2. He should be allowed Rs 2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad;
3. Interest on Capital and loan should be allowed @ 6%p.a.
You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 13

Question 4.
Aakriti and Bindu entered into partnership for making garment on April 01, 2015 without any Partnership agreement. They introduced Capitals of Rs. 5,00,000 and Rs. 3,00,000 respectively on October 01, 2015. Aakriti Advanced. Rs, 20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ended March 2016 showed profit of Rs, 43,000. Partners could not agree upon the question of interest and the basis of division of profit. You are required to divide the profits between them giving reason for your solution.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 14
Reason
a) Interest on partners loan shall be allowed at 6% p.a. because there is no partnership agreement.
b) Interest on capital shall not be allowed because there is no agreement on interest on capital.
Profit shall be distributed equally because profit sharing ratio has not been given.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 5.
Rakhi and Shikha are partners in a firm, with capitals of Rs. 2,00,000 and Rs, 3,00,000 respectively. The profit of the firm, for the year ended 2014-15 is Rs. 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs. 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew Rs. 7,000 and Shikha Rs. 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.
Answer:
If interest on capital and Partners’ salaries will be provided even if firm involves in loss.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 15
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 16

Question 6.
Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of Rs. 50,0 and 30,000, respectively. Interest on capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of Rs. 2,500 p.a. During 2013, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to Rs. 12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare accounts showing the allocation of profits and partner’s capital accounts.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 17
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 18

Question 7.
The partnership agreement between Maneesh and Girish provides that:
1. Profits will be shared equally;
2. Maneesh will be allowed a salary of Rs. 400 p.m;
3. Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;
4. 7% interest will be allowed on partner’s fixed capital;
5. 5% interest will be charged on partner’s annual drawings;
6. The fixed capitals of Maneesh and Girish are Rs. 1,00,000 and Rs. 80,000, respectively. Their annual drawings were Rs. 16,000 and 14,000, respectively. The net profit for the year ending March 31, 2015 amounted to Rs. 40,000;
Prepare firm’s Profit and Loss Appropriation Account.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 19

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 8.
Ram, Raj and George are partners sharing profits in the ratio 5:3:2. According to the partnership agreement George is to get a minimum amount of Rs. 10,000 as his share of profits every year. The net profit for the year 2013 amounted to Rs, 40,000. Prepare the Profit and Loss Appropriation Account.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 20

Question 9.
Amann, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed a minimum amount of Rs. 10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for two years ending December 31, 2015 and December 31, 2016 were Rs. 40,000 and Rs. 60,000, respectively. Prepare the Profit and Loss Appropriation Account for the two years.
Babita’s Capital Rs.14,000; Suresh’s capital Rs.10,000 and for the year 2006, Profit transferred to Amann’s Capital Rs.24,000, Babita’s Capital Rs.24,000, Suresh’s capital, Rs. 12,000
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 21
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 22

Question 10.
Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio of 3:1. The profit and loss account of the firm for the year ending March 31, 2015 shows a net profit of Rs. 1,50,000. Prepare the Profit and Loss Appropriation Account by taking into consideration the following information:
1. Partners capital on April 1, 2014; Simmi, Rs. 30,000; Sonu, Rs. 60,000;
2. Current accounts balances on April 1, 2014; Simmi, Rs. 30,000 (cr.); Sonu, Rs. 15,0 (cr.);
3. Partners drawings during the year amounted to Simmi, Rs. 20,000; Sonu, Rs. 15,000;
4. Interest on capital was allowed @ 5% p.a.;
5. Interest on drawing was to be charged @ 6% p.a. at an average of six months;
6. Partners’ salaries : Simmi Rs. 12,000 and Sonu Rs. 9,000. Also show the partners’ current accounts.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 23
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 24

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 11.
Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were Rs. 80,000 and Rs. 60,000 respectivefy. The firm started business on April 1, 2013. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of Rs. 2,000 and Rs. 3.0, respectively.

The profits for year ended March 31, 2015 before making above appropriations was Rs. 1,00,300. The drawings of Ramesh and Suresh were Rs. 40,000 and Rs. 50.000, respectively. Interest on drawings amounted to Rs. 2,000 for Ramesh and Rs. 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their capitals are fluctuating.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 25
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 26

Question 12.
Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:
1. Profits would be shared by Sukesh and Vanita in the ratio of 3:2;
2. 5% interest is to be allowed on capital;
3. Vanita should be paid a monthly salary of Rs. 600.
The following balances are extracted from the books of the firm, on December 31, 2014.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 27
Net profit for the year, before charging interest on capital and after charging partner’s salary was Rs. 9,500. Prepare the Profit and Loss Appropriation Account and the Partner’s Current Accounts.
Calculation of Interest on Capital and Interest on Drawings
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 28
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 29

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 13.
Rahul, Rohit and Karan started partnership business on April 1, 2014 with capitals of Rs. 20,00,000, Rs. 18,00,000 and Rs. 16,00,000, respectively.

The profit for the year ended March 2015 amounted to Rs. 1,35,000 and the partner’s drawings had been Rahul Rs. 50,000, Rohit Rs. 50,000 and Karan Rs. 40,000. The profits are distributed among partner’s in the ratio of 3:2:1. Calculate the interest on capital @ 5% p.a.
Answer:
Interest on Capital
Rahul = 20,00,000 × \(\frac { 5 }{ 100 }\) =RS. 1,00,000 5
Rohit = 18,00,000 × \(\frac { 5 }{ 100 }\) = Rs. 90,000
Karan = 16,00,000 × \(\frac { 5 }{ 100 }\) = Rs. 80,000

Question 14.
Sunflower and Pink Rose started partnership business on April 01, 2014 with capitals of Rs. 2,50,000 and Rs.1,50,000, respectively. On October 01, 2014, they decided that their capitals should be Rs. 2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash.
Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31, 2015.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 30
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 31

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 15.
On March 31, 2014 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at Rs. 4,00,000,Rs.3,00,000 and Rs. 2,00,000, – respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to Rs. 1,50,000 and the partner’s drawings had been Mountain: Rs. 20,000, Hill Rs. 15,000 and Rock Rs. 10,000.
Calculate interest on capital.
Answer:
Generally interest on Capital is calculated on opening balance of capital. If additional capital is not given.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 32
Interest on capital
Mountain 3,70,000 × \(\frac{10}{100}\) = Rs37,000
Hill 2,65,000 × \(\frac{10}{100}\) = Rs26,500
Rock 1,60,000 × \(\frac{10}{100}\) = Rs 16,000

Question 16.
Following is the extract of the Balance Sheet of, Neelkant and Mahdev as on March 31, 2014:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 33
During the year Mahadev’s drawings were Rs. 30,000. Profits during 2014 is Rs. 10,00,000. Calculate .interest on capital @ 5% p.a for the year ending March 31, 2014.
Answer:
Interest on Capital
Neelkant’s 10,00,000 × \(\frac{5}{100}\) = Rs. 50,000 100
Mahadev’s 10,00,000 × \(\frac{5}{100}\) = Rs.50,000

Note: In this question, as the balances of both Partner’s Capital Account and of Partner’s Current Account are mentioned, so it has been assumed that the capital of the partners is fixed.

As we know, when the capital of the partners is fixed, drawings and interest on capital does not affect the capital balances of the partners. Rather, it would affect their current account balances. Therefore, in this case, capital at the beginning (i.e. opening capital) and capital at the end (i.e. closing capital) of the year would remain same. Thus, the interest on capital is calculated on fixed capital balances (given in the Balance Sheet of the question).

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 17.
Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31, 2014.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 34
March 31, 2014 Rs. 7,000 Interest on drawings is charged @ 9% p.a. Calculate interest on drawings
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 35

Question 18.
The capital accounts of Moli and Golu showed balances of Rs.40,000 and Rs. 20,000 as on April 01, 2014. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Gold advanced a loan of Rs. 10,000 to the firm on August 01, 2014. During the year, Moli withdrew Rs. 1,000 per month at the beginning of every month whereas Golu withdrew Rs. 1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was Rs.20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 36

Question 19.
Rakesh and Roshan are partners, sharing profits in the ratio of 3:2 with capitals of Rs. 40,000 and Rs. 30,000, respectively. They withdrew from the firm the following amounts, for their personal use:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 37
Interest is to be charged @ 6% p.a. Calculate interest on drawings, assuming that book of accounts are closed on March 31, 2015, every year.
Answer:
Statement showing calculation of interest on Drawings
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 38
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 39
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 40

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 20.
Himanshu withdrew Rs. 2,500 at the end Month of each month. The Partnership deed provides for charging the interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending 31st December, 2014.
Answer:
Total Drawing of Himanshu = Rs 2,500 × 12 = Rs 30,000
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 41
= Rs.30,000 × \(\frac{12}{100}\) × \(\frac{11}{2 \times 12}\) = Rs 1,650

Question 21.
Bharam is a partner in a firm. He withdraws Rs. 3,000 at the starting of each month for 12 months. The books of the firm closes on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.
Answer:
Total Drawing of Bharam = Rs 3,000 × 12 = Rs36,000
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 42
= Rs.36,000 × \(\frac{10}{100} \times \frac{13}{2 \times 12}\)
= Rs 1,950

Question 22.
Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2015 were Rs. 2,50,0 and Rs. 1,50,000, respectively. They share profits equally. On July 01, 2015, they decided that their capitals should be Rs. 1,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash by the partners’. Interest on capital is allowed @ 8% p.a. Compute interest on capital for both the partners for the year ending on March 31, 2016.
Answer:
Interest on Capital
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 43
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 44

Question 23.
Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged 10% p.a. Their drawings during 2013 were Rs. 24,000 and Rs. 16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 45
Amit = 24,000 × \(\frac{10}{100}\) × \(\frac{6}{12}\) = Rs. 1,200
Bhola = 16,000 × \(\frac{10}{100}\) × \(\frac{6}{12}\) = Rs. 800

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 24.
Harish is a partner in a firm. He withdrew the following amounts during the year 2015 :
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 46
Interest on drawings is to be charged @ 7.5 % p.a.
Calculate the amount of interest to be charged on Harish’s drawings for the year ending December 31, 2015.
Answer:
Calculation of interest on Harish’s drawings
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 47
Interest on drawings = 1,72,000 × \(\frac{7.5}{100}\) × \(\frac{1}{12}\) = Rs. 1,075

Question 25.
Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are Rs. 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn: (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of every month.
Case (i)
Answer:
If they withdraw money in the beginning of each month
Interest of drawings = Total drawings × Rate × \(\frac{13}{2 \times 12}\)
Menon’s = 24,000 × \(\frac{10}{100} \times \frac{13}{2 \times 12}\) = Rs. 1,300
Thomas’s = 24,000 × \(\frac{10}{100} \times \frac{13}{2 \times 12}\) = Rs.1,300

Case (ii)
If they withdraw in the middle of every month
Interest on Drawings = Total drawings × \(\frac{10}{100} \times \frac{6}{12}\)
Menon’s = 24,000 × \(\frac{10}{100} \times \frac{6}{12}\) = Rs 1,200 10 6
Thomas’s = 24,000 × \(\frac{10}{100} \times \frac{6}{12}\) = Rs 1,200

Case (iii)
If they withdraw at the end of every month.
Interest on drawings = Total drawings × Rate × \(\frac{11}{2 \times 12}\)
× Menon’s = 2400 × \(\frac{10}{100} \times \frac{11}{2 \times 12}\) = Rs 1,100
Thomas’s = 24,000 × \(\frac{10}{100} \times \frac{11}{2 \times 12}\) = Rs 1,100

Question 26.
On March 31, 2015, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of Rs. 24,000 Rs. 18,000 and Rs. 12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2015, amounted to Rs. 36,000 and the partner’s drawings had been Ram, Rs. 3,600; Shyam, Rs. 4,500 and Mohan, Rs. 2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1. Calculate interest on capital.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 48
Ram’s = 9,600 × \(\frac{5}{100}\) = Rs.480
Shyam’s = 10,500 × \(\frac{5}{100}\) = Rs. 525
Mohan’s = 8,700 × \(\frac{5}{100}\) = Rs.435

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Guarantee of Profit to the Partners

Question 27.
Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’ share in profit has been guaranteed by Amit and Sumit to be a minimum sum of Rs. 8,000. Profits for the year ended March 31, 2015 was Rs. 36,000. Divide profit among the partners.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 49

Question 28.
Pinki, Deepati and Kaku are partner’s sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than Rs. 5,000. Deficiency, if any, would be borne by Pinki and Deepti equally. Profits for the year amounted to Rs. 40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 50
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 51

Question 29.
Abhay, Siddharth and Kustim are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed a minimum amount of Rs. 10,000 as per share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2015 and 2016 are Rs. 40,000 and 60,000 respectively. Prepare Profit and Loss Appropriation Account.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 52

Question 30.
Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share of profit, in any year will not be less than Rs. 5,000. The profits for the year ending March 31, 2015 amounts to Rs. 35,000. Shortfall if any, in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2, Record necessary journal entry to show distributioin of profit among partner.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 53

Question 31.
X, Y and Z are in Partnership, sharing profits and losses in the ratio of 3 : 2 : 1, respectively. Z’s share in the profit is guaranteed by X and Y to be a minimum of Rs. 8,000. The net profit for the year ended March 31, 2015 was Rs. 30,000. Prepare Profit and Loss Appropriation Account, indicating the amount finally due to each partner.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 54
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 55

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 32.
Arun, Boby and Chintu are partners in a firm sharing profit in the ratio or 2:2:1. According to the terms of the partnership agreement, Chintu has to get a minimum of Rs. 60,000, irrespective of the profits of the firm. Any Deficiency to Chintu on Account of such guarantee shall be borne by Arun. Prepare the profit and loss appropriation account showing distribution of profits among partners in case the profits for year 2015 are: (i) Rs. 2,50,000; (ii) 3,60,000.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 56

Question 33.
Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2:2:1. Ashok and Brijesh have guaranteed that Cheena share in any year shall be less than Rs. 20,000. The net profit for the year ended March 31, 2015 amounted to Rs. 70,000. Prepare Profit and Loss Appropriation Account.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 57

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 34.
Ram, Mohan and Sohan are partners with capitals of Rs. 5,00,000, Rs. 2,50,000 and 2,00,000 respectively. After providing interest on capital @ 10% p.a. the profits arfe divisible as follows:
Ram 1/2, Mohan 1/3 and Sohan 1/6. But Ram and Mohan have guaranteed that Sohan’s share in the profit shall not be less than Rs. 25,000, in any year. The net profit for the year ended March 31, 2015 is Rs. 2,00,000, before charging interest on capital.
You are required to show distribution of profit.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 58
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 59

Question 35.
Amit, Babita and Sona forhi a partnership firm, sharing profits in the ratio of 3 : 2 : 1, subject to the following :
(i) Sona’s share in the profits, guaranteed to be not less than Rs. 15,000 in any year.
(ii) Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is Rs. 25,000). The net profit for the year ended March 31, 2015 is Rs. 75,000. The gross fee earned by Babita for the firm was Rs. 16,000. You are required to show Profit and Loss Appropriation Account (after giving effect to the alone).
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 60

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 36.
The net profit of X, Y and Z for the year ended March 31, 2015 was Rs. 60,000 and the same was distributed among them in their agreed ratio of 3 : 1 : 1. It was subsequently discovered that the under mentioned transactions were not recorded in the books :
(i) Interest on Capital @ 5% p.a.
(ii) Interest on drawings amounting to X Rs. 700, Y Rs. 500 and Z Rs. 300.
(iii) Partner’s Salary : X Rs. 1000, Y Rs. 1500 p.a.
The capital accounts of partners were fixed as : X Rs. 1,00,000, Y Rs. 80,000 and Z Rs. 60,000. Record the adjustment entry.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 61

Question 37.
The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this account.
The profits for the last three years were:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 62
Show adjustment of profits by means of a single adjustment journal entry.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 63

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 38.
Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3 : 2. Following is the balance sheet of the firm as on March 31, 2015.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 64
Profit for the year ended March 31, 2015 was Rs. 5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was inadvertently enquired. Adjust interest on drawings on an average basis for 6 raonths. Give the adjustment entry.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 65
2nd PUC Accountancy Question Bank

Question 39.
On March 31, 2015 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for profits, drawing, etc; were Rs. 80,000, Rs. 60,000 and Rs. 40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted.
The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin Rs. 20,000; Monu, Rs. 15,000 and Ahmed, Rs. 9,000. Interest on drawings chargeable to partners were Eluin Rs, 500, Monu Rs. 360 and Ahmed Rs. 200. The net profit during the year amounted to Rs. 1,20,000.
The profit sharing ratio was 3:2:1. Record necessary adjustment entries.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 67
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 68

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 40.
Azad and Benny are equal partners. Their capitals are Rs. 40,000 and Rs. 80,000, respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.
Answer:
Interest on Capital
Azad = 40,000 × \(\frac{5}{100}\) = Rs 2,000
Benny = 80,000 × \(\frac{5}{100}\) = Rs 4,000
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 69

Question 41.
Kavita and Pradeep are partners, sharing profits in the ratio of 3 : 2. They employed Chandan as their manager, to whom they paid a salary of Rs. 750 p.m. Chandan deposited Rs. 20,000 on which interest is payable @ 9% p.a. At the end of 2001 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan. 1, 1998 with l/6th share in profits. His deposit being considered as capital carrying interest @ 6% p.a. like capital of other partners. Firm’s profits after allowing interest on capital were as follows:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 70
Record the necessary journal entries to give effect to the above.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 71
Chandan received as Manager = Interest on Loan + Salary = 7,200 + 36,000 = Rs 43,200
Total Profit of 4 years before interest on Chandan’s Loan and Salary = 2,38,200
Interest on Chandan’s Capital for 4 years ={20,000 * (6/100) = 1,200}
= 1,200 × 4 = Rs 4,800
Profit after interest on all partners Capital
= Total Profit of four years before interest on Chandan’s loan and Salary – Interest on Chandan’s Capital for four years
= 2,38,200 – 4,800
= Rs 2,33,400
Wrong Distribution – Distribution of 4 years
Profit when Chandan as a Manager
Kavita {1,95,000 × (3/5)} = 1,17,000
Pradeep {1,95,000 × (2/5)} = 78,000
Chandan received as manager = Interest on Loan + Salary
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 72
Right Distribution – Division of Profit when Chandan as Partner
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 73
Kavita’s Share of Profit {(2,33,400 – 38,900) × (3/5)} = 1,16,700
Pradeep’s share of Profit {(2,33,400 – 38,900) × (2/5)} = 77,800
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 74
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 75

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 42.
Mohan, Vijay and Anil are partners, the balance on their capital accounts being Rs. 30,000, Rs. 25,000 and Rs. 20,000 respectively. In arriving at these figures, the profits for the year ended March 31, 2015 amounting to Rupees 24,000 had been credited to partners in the proportion in which they shared profits. During the tear their drawings for Mohan, Vijay and Anil were Rs. 5,000, Rs. 4,000 and Rs. 3,000, respectively. Subsequently, the following omissions were noticed:
(a) Interest on Capital, at the rate of 10% p.a„ was not charged.
(b) Interest on Drawings: Mohan Rs. 250, Vijay Rs. 200, Anil Rs. 150 was not recorded in the books.
Record necessary corrections through journal entries.
Answer:
Interest on Capital shall be calculated on opening capital.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 76
Interest on Capital
Mohan = 27,000 × \(\frac{10}{100}\) = Rs 2.700
Vijay = 21,000 × \(\frac{10}{100}\) = Rs 2,100
Anil = 15,000 × \(\frac{10}{100}\) = Rs 1,500
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 77

Question 43.
Anju, Manju and Mamta are partners whose fixed capitals were Rs. 10,000, Rs. 8,000 and Rs. 6,000, respectively. As per the partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the same have not been made for the last three years. The profit sharing ratio during there years remained as follows:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 78
Make necessary and adjustment entry at the beginning of the fourth year i.e. Jan. 2015.
Answer:
Interest on Capital
Anuj = 10,000 × \(\frac{5}{100}\) = Rs. 500
Manju = 8,000 × \(\frac{5}{100}\) = Rs. 400
Mamta = 6,000 × \(\frac{5}{100}\) = Rs. 30
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 79
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 80

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 44.
Dinker and Ravinder were partners sharing profits and losses in the ratio of 2:1. The following balances were extracted from the books of account, for the year ended December 31, 2015.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 81
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 82
Prepare final accounts for the year ended December 31,2015, with following adjustment:
(a) Stock on December 31,2015, was Rs. 42,500.
(b) A Provision is to be made for bad debts at 5% on debtors.
(c) Rent outstanding was Rs.1,600.
(d) Wages outstanding were Rs.1,200.
(e) Interest on capital to be allowed on capital @ 4% per annum and interest on drawings to be charged @ 6% per annum.
(f) Dinker and Ravinder are entitled to a Salary of Rs.2,000 per annum
(g) Ravinder is entitled to a commission Rs.1,500.
(h) Depreciation is to be charged on Building @ 4%, Plant and Machinery, 6%, and furniture and fixture, 5%.
(i) Outstanding interest on’loan amounted to Rs. 350.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 83
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 84
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 85
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 86

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 45.
Kajol and Sunny were partners sharing profits and losses in the ratio of 3:2. The following Balances were extracted from the books of account for the year ended March 31, 2015.
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 87
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 88
Prepare final accounts for the year ended March 31,2015, with following adjustments:
(a) Stock on March 31,2015 was Rs.37,500.
(b) Bad debts Rs.3,000; Provision for bad debts is to be made at 5% on debtors.
(c) Rent Prepaid were Rs.1,200.
(d) Wages outstanding were Rs.2,200.
(e) Interest on capital to be allowed on capital at 6% per annum and interest on drawings to be charged @ 5% per annum.
(f) Kajol is entitled to a Salary’ of Rs. 1,500 per annum.
(g) Prepaid insurance was Rs. 500.
(h) Depreciation was charged on Building, @ 4%; Plant and Machinery, @ 5%; Motor car, @ 10% and furniture and fixture, @ 5%.
(i) Goods worth Rs.7,000 were destroyed by fire on January 20, 2015. The Insurance company agreed to pay Rs.5,000 in full settlement of the claim.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 89
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 90
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 91

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

2nd PUC Accountancy Accounting for Partnership: Basic Concepts Additional Questions and Answers

Question 1.
What is partnership?
Answer:
Partnership is an association of two or more persons who agree to carry on the business combining their financial resources and managerial skill to share the profits of such business in the agreed proportion.

Question 2.
Mention any two features of partnership.
Answer:
(a) Agreement
(b) Lawful business
(c) Sharing of profits
(d) Mutual agency

Question 3.
Define partnership deed.
Answer:
Partnership deed is a written agreement containing the rules and regulations of the partnership which is signed by all the partners and is duly stamped according to the stamp act.

Question 4.
State any four contents of partnership deed
Answer:
(a) Name of the firm
(b) The names and addresses of all the partners.
(c) The nature of the partnership business
(d) The profit sharing ratio of partners
(e) Rights, duties and liabilities of partners.
(f) Salary, commission or any other remuneration payable to the partner.
(g) The amount of drawings to be made by each partner.

Question 5.
Name the methods under which the capital accounts could he prepared in a partnership firm.
Answer:
(a) Fixed capital method
(b) Fluctuating capital method.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 6.
What is meant by fluctuating capital system?
Answer:
Under this method, the capital of partners changed from year to year, because all the adjustment like interest on capital, drawings, share of profit or loss etc, are made to the capital accounts of the respective partners.

Question 7.
What is meant by fixed capital system?
Answer:
It is a system of maintaining partner’s accounts under which the capital balances remain fixed year after year, and adjustments such as salary, interest on capital etc., are recorded in current A/c.

Question 8.
What is profit and loss appropriation account?
Answer:
It is an account prepared by the partners in order to allocate profit or loss among the partners. In this account the profit or loss will be ascertained after taken into accounts the partner adjustments like interest on capitals and drawing, salary or commission to a partner.

Question 9.
Why is profit and loss appropriation account prepared by partnership firms?
Answer:
The partner’s salary, commission, interest on capitals etc, are not expenses or charged against profit, but are appropriation of profits. So profit and loss appropriation account prepared to post the above adjustments.

Question 10.
Give the difference between fixed capital and fluctuating capital method.
Answer:

Fixed capital method Fluctuating capital method.
(a) The capital of a partner does not change from year to year (a) The capital of a partner changes form year to year
(b) A current account is opened in the name of each partner to which all the adjustments have to be made (b) No current is opened because all the

adjustments are to be made with the capital account only

(c) The original capital introduced by a partner can be known in future year (c) The original capital introduced by a partner cannot be known in future years without referring to the old records.

Question 11.
Give two circumstances under which the fixed capitals of partners may change.
Answer:

  1. When partner introduce additional capital to the firm.
  2. When the partners decided to rearrange the capitals according new profit sharing ratio when new partner is admitted.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 12.
Where does a partner’s current account balance appear in the balance sheet?
Answer:
Partner’s current account debit balance will be appeared in the balance sheet assets side and credit balance will be shown in the balance in the balance sheet liability side.

Five Marks Questions and Answers

Question 1.
What are the important points to be considered in the absence of a partnership deed?
Answer:

  • All the partners are entitled to share the profits of the business equally.
  • No partner is entitled for interest on capital and no partner is charged interest on drawings.
  • No partner is entitled for salary.
  • Interest on loan from partner is to be allowed at 6% p.a.
  • All partners have got right to take part’ in the management of the business.
  • Books of accounts should be kept at the principal place of the business.

Question 2.
State any five contents in the partnership deed.
Answer:

  1. Name of the firm.
  2. The names and addresses of all the partners.
  3. The nature of the partnership business.
  4. The amount of capital to be contributed by each partner.
  5. The amount of drawings to be made by each partner.
  6. The rate of interest on capital and drawings, if any.
  7. Loan from partners and the rate of interest there on.
  8. The profit sharing ratio of partners.
  9. Salary, commission or any other remuneration payable to the partners.
  10. Rights, duties and liabilities of partners.

Question 3.
Give the difference between fixed capital method and fluctuating capital method.
Answer:

Fixed capital method Fluctuating capital method.
(a) The capital of a partner does not change from year to year (a) The capital of a partner changes form year to year
(b) A current account is opened in the name of each partner to which all the adjustments have to be made (b) No current is opened because all the adjustments are to be made with the capital account only
(c) The original capital introduced by a partner can be known in future year (c) The original capital introduced by a partner cannot be known in future years without referring to the old records.
(d) There will be two accounts in the name of each partner. Capital account and current account appearing in the balance sheet of the firm. (d) There will be only one account in the name of
each partner.
Capital account, appearing in the balance sheet of the firm.
(e) The capital accounts always show a credit balance. (e) The capital accounts may show debit or credit balance
(f) All adjustments like drawings, salary interest on capital etc… are made in the current accounts. (f) All adjustments like drawings, salary interest on capital , etc, are made in the capital accounts.

2nd PUC Accountancy Accounting for Partnership: Basic Concepts Practical orientated Question and Answers

Question 1.
How do you treat the following in the absence of partnership deed?
(a) Interest on capital.
(b) Interest on drawings
(c) Interest on Loan.
(d) Distribution of profits or loss.
(e) Salary to partner
Answer:
In the absence of partnership deed, the following items are treated as follows:
(a) Partners are not entitled to any interest on their Capitals.
(b) Interest on Drawings is not charged on partners drawings.
(c) Interest on Loan is provided at 6% p.a
(d) Profit or losses are shared equally among the partners.
(e) Salary, commission or any other remuneration is not provided to partners for extra work done by the partners for the firm.

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 2.
Prepare profit and loss appropriation account of a firm using five imaginary figures. Profit and appropriation a/c.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 92

Question 3.
Prepare capital accounts of two partners under fluctuating capital system with five imaginary figures.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 93

2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts

Question 4.
Prepare current of two partners under fixed account system with imaginary figures.
Answer:
2nd PUC Accountancy Question Bank Chapter 1 Accounting For Partnership Basic Concepts 94