Test: Introduction To Partnership Accounts - UGC NET MCQ

A Partner is an Agent of the Firm (Section 18).

A partnership is a relationship between partners who agree to share the profits of the business.

The business can be carried on by all of them or any of them acting for all. This definition suggests that a partner can be an agent of the others.

As per the question, interest on Capital should be 2500 (10% of 25000) & 1500 (10% of 15000).
So, the interest will be distributed in their capital ratio i. e 5:3 so you will get 1500 & 900.

.Interest on drawings is gain for the business. Interest on drawings is an income to the firm, and hence it is credited to the profit and loss appropriation account. On the other hand, interest on drawings is an expense to the partners, and hence it is debited to their capital accounts.

Fluctuating Capital Method
Under this method as is apparent from the name, capital of each partner goes on changing from time to time. Each partner will have his separate capital account, which will be credited by his initial investment and any additional capital introduced during the year will also be credited to his capital account.

All the adjustments, which result decrease in capital will be debited to partner’s capital, such as drawing made by each partner, interest on drawings and share of loss. On the other hand, adjustments resulting increase in capital will be credited to partner’s capital, like interest on capital, partners salary if any, partner’s share of profit etc.

Balance of each partner’s capital account will be shown in the balance sheet. Debit balance of partner’s capital account is shown on the asset side and credit balance is shown on the liability side.

Explanatory Note: It should be noted that where nothing is specifically mentioned the capital method to be adopted will be the fluctuating capital method.

Because it is not related to the admission or retirement of the partners. At the time of admission or retirement goodwill will be calculated.

As per the partnership act, if the partnership deed is silent about the things mentioned above so in that case the partners are not entitled for any salary or interest on capital , but as per the provision even if the partnership deed is silent the partner is entitled for an interest @6% on loan or any advance given by him to the firm.

There is a formula for calculating interest on drawings at the end of every month.

= amount * 12 * rate * (11/24)
= 1000 * 12 * (5/100) * (11/24)
= Rs. 275

Interest on capital will be paid to the partners if provided for in the agreement but only from profits. Interest on capital is an appropriation and not a charge against profit hence, is provided only to the extent of profits. 

As per section 37 of the Indian Partnership Act 1932, the executors would be entitled at their choice to the interest calculated from the date of death till the date of payment on the final amount due to the deceased partner at 6% p.a. The loan of the deceased partner is treated as a third party loan. 

In case of partnership type of ownership in a business, partner current account is prepared when capital is fixed. Transactions such as drawings, salary, and interest on capital and drawings are recorded. The balance of this account fluctuates every year. The balance can be both credit or debit