NCERT Solution (Part - 2) - Accounting for Partnership : Basic Concepts Commerce Notes | EduRev

Accountancy Class 12

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Commerce : NCERT Solution (Part - 2) - Accounting for Partnership : Basic Concepts Commerce Notes | EduRev

The document NCERT Solution (Part - 2) - Accounting for Partnership : Basic Concepts Commerce Notes | EduRev is a part of the Commerce Course Accountancy Class 12.
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Q5:

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. The following Journal entry is passed.

Gaining Partner's Capital A/cDr.
To Sacrificing Partner's Capital A/c
(Adjustment entry passed)

 

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 shows Rs 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.

ParticularsABC
Share of profit as per 3:2:1600004000020000
Profit on revaluation of building15000100005000





750005000025000
Share of profit as per 1:1:150000500005000




Difference (Gain or Loss)25000-25000

(Loss)
(Gain)

  

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.

Adjustment entry:





C's Capital A/cDr.25000
To A's Capital A/c

25000
( Adjustment entry passed)



Numerical Questions : Page No 102:

Q 1:

Harshad and Dhiman are in partnership since April 01, 2013. 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, 2013. Due to long illness, Harshad could not participate in business activities from August 1, to September 30, 2013. The profits for the year ended March 31, 2013 amounted to Rs 1,80,000. 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 proportion of capital;

Dhiman Claims:

(i)    Profits should be distributed equally;

(ii)   He should be allowed Rs 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.

 

Answer :

DISTRIBUTION OF PROFITS

Harshad Claims:

Decisions

(i) If there is no agreement on interest on partner’s capital, according to Indian partnership act 1932, no interest will be allowed to partners.

(ii) If there is no agreement on the matter of profit sharing, according to partnership act 1932, profit shall be distributed equally.

Dhiman Claims:

Decisions

(i) Dhiman claim is justified, according partnership act 1932 if there is no agreement on the matter of profit distribution, profit shall be distributed equally.

(ii) No salary will be allowed to any partner because there is no agreement on matter of remuneration.

(iii) Dhiman’s claim is not justified on the matter of interest on capital but justified on the matter of interest on loan. If there is no agreement on interest on partner’s loan, Interest shall be provided at 6% p.a. 

Profit and Loss Adjustment Account
Dr.

Cr.
ParticularsAmount RsParticularsAmount Rs.
Interest on Partner’s Loan
Profit and Loss180000
Harshad 1,00,000 × (6/100) × (6/12)3000

Profit and Loss Appropriation177000


180000
180000

 

Profit and Loss Account
Dr.


Cr.
ParticularsAmount RsParticularsAmount Rs
Profit transferred to
Profit and Loss Adjustment177000
Harshad’s Capital88500


Sharma’s Capital88500








177000

177000

 

Q 2:

Aakriti and Bindu entered into partnership for making garment on April 01, 2013 without any Partnership agreement. They introduced Capitals of Rs 5,00,000 and Rs 3,00,000 respectively on October 01, 2013. 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 2014 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 : 

Profit and Loss Adjustment Account
Dr.
Cr.
Particulars

AmountParticularsAmount Rs
Interest on Partner’s Loan


Profit and Loss43000
Aakriti 20,000 × (6/100) × (6/12)
600


Profit transferred to





Aakriti’s Capital21200




Bindu’s Capital21200
42400





43000

43000

 

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.

c) Profit shall be distributed equally because profit sharing ratio has not been given.

 

Q3:

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 2013-14 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.

 

Profit and Loss Appropriation Account

Dr.

 Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Partner’s Salaries

 

 

Profit and Loss

 

23,200

Shikha

 

60,000

Loss transferred to

 

 

 

 

 

 

Rakhi Capital

34,720

 

Interest on Capital

 

 

Shikha’s Capital

52,080

86,800

Rakhi

20,000

 

 

Shikha

30,000

50,000

 

 

 

1,10,000

 

1,10,000

 

 

 

 

  

Partners’ Capital Account

Dr.

 Cr.

Particulars

Rakhi

Shikha

Particulars

Rakhi

Shikha

Drawings

7,000

10,000

Balance b/d

2,00,000

3,00,000

Profit & Loss Appropriation

34,720

52,080

Partner’s Salaries

 

60,000

Balance c/d

1,78,280

3,27,920

Interest on Capital

20,000

30,000

 

 

 

 

 

 

 

2,20,000

3,90,000

 

2,20,000

3,90,000

 

 

 

 

 

 

 

If interest on capital and salaries will be provided out of profit

Profit and Loss Appropriation Account

Dr.

 

 

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Partner’s Salaries

 

 

Profit and Loss

23,200

Shikha  {23,200 × (6/11)}

 

12,655

 

 

Interest on Capital

 

 

 

 

Rakhi {23,200 × (2/11)}

4,218

 

 

Shikha {23,200 × (3/11)}

6,327

 

 

 

 

23,200

 

23,200

 

 

 

 

If profit is less than the sum of distributable items, distribution shall be in proportion of items for distribution.

Partners Salaries

Ratio

 

 

Shikhar (Rs 60,000)

6

23,200 × (6/11)

12,655

Interest on Capital

 

 

 

Rakhi (Rs 20,000)

2

23,200 × (2/11)

4,218

Shikhar (Rs 30,000)

3

23,200 × (3/11)

6,327

 

11

 

23,200

 

Partners’ Capital Account

Dr.

 

 

 

 

Cr.

Particulars

Rakhi

Shikha

Particulars

Rakhi

Shikha

Drawings

7,000

10,000

Balance b/d

2,00,000

3,00,000

 

 

 

Partner’s Salaries

 

12,655

Balance c/d

1,97,218

3,08,972

Interest on Capital

4,218

6,327

 

 

 

 

 

 

 

2,04,218

3,18,972

 

2,04,218

3,18,972

 

Question 4:

Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of Rs 50,000 and Rs 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 :

Profit and Loss Adjustment Account

Dr.

 

 

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital

 

 

By Profit and Loss (12,500 + 2,500)

15,000

Lokesh

3,000

 

 

 

 

Azad

1,800

4,800

 

 

 

 

 

 

 

 

 

Partner’s Salaries

 

 

 

 

 

Azad

 

2,500

 

 

 

 

 

 

 

 

 

 

Provision for

Manager’s Commission 15,000 × (5/100)

750

 

 

 

Profit transferred to

 

 

 

 

Lokesh Capital

4,170

 

 

 

 

Azad Capital

2,780

6,950

 

 

 

 

 

15,000

 

 

15,000

 

 

 

 

 

 

 

Partners’ Capital Account

Dr.

 

 

 

 

Cr.

Particulars

Lokesh

Azad

Particulars

Lokesh

Azad

 

 

 

Balance b/d

50,000

30,000

 

 

 

Interest on Capital

3,000

1,800

Balance c/d

57,170

37,080

Partner’s Salaries

 

2,500

 

 

 

Profit and Appropriation

4,170

2,780

 

57,170

37,080

 

57,170

37,080

 

Q5:

The partnership agreement between Maneesh and Girish provides that: 

(i)    Profits will be shared equally;

(ii)   Maneesh will be allowed a salary of Rs 400 p.m;

(iii)  Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;

(iv)  7% interest will be allowed on partner’s fixed capital;

(v)   5% interest will be charged on partner’s annual drawings;

(vi)  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, 2013 amounted to Rs 40,000;

Prepare firm’s Profit and Loss Appropriation Account.

Answer :

Profit and Loss Appropriation Account

Dr.

 

 

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Partner’s Salary

 

 

Profit and Loss

40,000

Maneesh

 

4,800

Interest on Drawings

 

 

 

 

 

Maneesh

800

 

Partner’s commission

 

 

Girish

700

1,500

Girish {(40,000 – 4,800) × (10/100)}

3,520

 

 

 

Interest on Capital

 

 

 

 

Mannesh

7,000

 

 

 

 

Girish

5,600

12,600

 

 

 

 

 

 

 

 

Profit transferred to

 

 

 

 

Maneesh’s Current

10,290

 

 

 

 

Girish’s Current

10,290

20,580

 

 

 

 

41,500

 

 

41,500

 

Q 6:

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 :

Profit and Loss Appropriation Account
Dr.Cr.
ParticularsAmount RsParticularsAmount Rs
Profit transferred to
Profit and Loss40000
Ram’s Capital (20,000 – 1,250)18750

Raj’s Capital (12,000 – 750)11250





George’s Capital (8,000 + 1,250 + 750)10000


40000
40000


Q7:

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, 2012 and December 31, 2013 were Rs 40,000 and Rs 60,000, respectively. Prepare the Profit and Loss Appropriation Account for the two years.

Answer : 

Profit and Loss Appropriation Account for the year 2012

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Profit transferred to

 

Profit and Loss

40,000

Amann’s Capital  16,000

16,000

 

 

Babita’s Capital (16,000 – 2,000)

14,000

 

 

Suresh’s Capital (8,000 + 2,000)

10,000

 

 

 

 

 

 

 

40,000

 

40,000

 

 

 

 

 

Profit and Loss Appropriation Account for the year 2013

Dr.

 Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Profit transferred to

 

Profit and Loss

60,000

Amann’s Capital 

24,000

 

 

Babita’s Capital

24,000

 

 

Suresh’s Capital

12,000

 

 

 

 

 

 

 

60,000

 

60,000

 

Question 8:

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, 2013 shows a net profit of Rs 1,50,000. Prepare the Profit and Loss Appropriation Account by taking into consideration the following information:

 

(i)    Partners capital on April 1, 2012;

        Simmi, Rs 30,000; Sonu, Rs 60,000;

(ii)   Current accounts balances on April 1, 2012;

        Simmi, Rs 30,000 (cr.); Sonu, Rs 15,000 (cr.);

(iii)  Partners drawings during the year amounted to

        Simmi, Rs 20,000; Sonu, Rs 15,000;

(iv)  Interest on capital was allowed @ 5% p.a.;

(v)   Interest on drawing was to be charged @ 6% p.a. at an average of six months;

(vi)  Partners’ salaries : Simmi Rs 12,000 and Sonu Rs 9,000. Also show the partners’ current accounts.

 Answer :

Profit and Loss Appropriation Account
Dr.
Cr.
ParticularsAmount RsParticularsAmount Rs
Interest on Capital


Profit and Loss Account150000
Simmi
1500
Interest on Drawings
Sonu
30004500Simmi
600




Sonu
4501050
Partners’ Salaries






Simmi
12000




Sonu
900021000











Profit transferred to






Simmi’s Current
94162




Sonu’s Current
31388125550














151050


151050



Profit and Loss Appropriation Account

Dr.

 

 

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital

 

 

Profit and Loss Account

1,50,000

Simmi

1,500

 

Interest on Drawings

 

Sonu

3,000

4,500

Simmi

600

 

 

 

 

Sonu

450

1,050

Partners’ Salaries

 

 

 

 

 

Simmi

12,000

 

 

 

 

Sonu

9,000

21,000

 

 

 

 

 

 

 

 

 

Profit transferred to

 

 

 

 

Simmi’s Current

94,162

 

 

 

 

Sonu’s Current

31,388

1,25,550

 

 

 

 

 

 

 

 

 

 

 

1,51,050

 

 

1,51,050

 

 

 

 

 

 

 

Partners’ Capital Account

Dr.

 

 

 

 

Cr.

Particulars

Simmi

Sonu

Particulars

Simmi

Sonu

 

 

 

Balance b/d

30,000

60,000

Balance c/d

30,000

60,000

 

 

 

 

 

 

 

 

 

 

30,000

60,000

 

30,000

60,000

 

 

 

 

 

 

 

Partners’ Current Account

Dr.

 

 

 

 

Cr.

Particulars

Simmi

Sonu

Particulars

Simmi

Sonu

Drawings

20,000

15,000

Balance b/d

30,000

15,000

Interest on Drawings

600

450

Interest on Capital

1,500

3,000

 

 

 

Partners’ Salaries

12,000

9,000

Balance c/d

1,17,662

43,388

Profit and Loss Appropriation

94,162

31,388

 

1,37,662

58,388

 

1,37,662

58,388

 

 

 

 

 

 

Note: As per solution the amount transferred to Simmi's Current Account is Rs 94,162 and Sonu's Current Account is Rs 31,388, however, the answer provided in book is profit transferred to Simmi's Account is Rs 92,587 and Sonu's Account is Rs 30,863.


Numerical Questions : Page No 104:

Question 9:

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 respectively. 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 3,000, respectively.
 The profits for year ended March 31, 2013* 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.

 *This date should be March 31, 2014

Answer :

Profit and Loss Appropriation Account

Dr.

 

 

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital 

 

 

Profit and Loss

 

1,00,300

Ramesh

9,600

 

Interest on Drawings

 

 

Suresh

7,200

16,800

Ramesh

2,000

 

 

 

 

 

Suresh

2,500

4,500

Partners’ Salaries

 

 

 

 

Ramesh

24,000

 

 

 

 

Suresh

36,000

60,000

 

 

 

 

 

 

 

 

 

Profit Transferred to

 

 

 

 

 

Ramesh’s Capital {28,000 × (4/7)}

16,000

 

 

 

Suresh’s Capital {28,000 × (3/7)}

12,000

 

 

 

 

 

1,04,800

 

 

1,04,800

 

 

 

 

 

 

 

Partners’ Capital Account

Dr.

 

 

 

 

Cr.

Particulars

Ramesh

Suresh

Particulars

Ramesh

Suresh

Drawings

40,000

50,000

Cash

80,000

60,000

Interest on Drawings

2,000

2,500

Interest on Capital

9,600

7,200

Balance c/d

87,600

62,700

Partners’ Salaries

24,000

36,000

 

 

 

Profit & Loss Appropriation

16,000

12,000

 

1,29,600

1,15,200

 

1,29,600

1,15,200

 

 

 

 

 

 

                                               

Capital Ratio

=

Ramesh

:

Suresh

 

 

80,000

:

60,000

 

 

4

:

3

 

Question 10:

Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:

(i)    Profits would be shared by Sukesh and Vanita in the ratio of 3:2;

(ii)   5% interest is to be allowed on capital;

(iii)  Vanita should be paid a monthly salary of Rs 600.

The following balances are extracted from the books of the firm, on December 31, 2013.

 

Sukesh

Verma*

 

Rs

Rs

Capital Accounts

40,000

40,000

Current Accounts

(Cr.)   7,200

(Cr.)   2,800

Drawings

10,850

8,150

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.

*As per the question, it should be Vanita instead of Verma

Answer : 

Profit and Loss Appropriation Account

Dr.

 

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital 

 

 

Profit and Loss

9,500

Sukesh

2,000

 

 

 

Vanita

2,000

4,000

 

 

 

 

 

 

 

 

 

 

Profit transferred to

 

 

 

 

Sukesh’s Current {5,500 × (3/5)}

3,300

 

 

Vanita’s Current {28,000 × (2/5)}

2,200

 

 

 

 

9,500

 

9,500

 

 

 

 

 

 

 

 

 

 

 

 

  

Partner’s Capital Account

Dr.

 

 

 

 

Cr.

Particulars

Sukesh

Vanita

Particulars

Sukesh

Vanita

 

 

 

Balance b/d

40,000

40,000

Balance c/d

40,000

40,000

 

 

 

 

40,000

40,000

 

40,000

40,000

 

 

 

 

 

 

 

Partner’s Current Account

Dr.

 

 

 

 

Cr.

Particulars

Sukesh

Vanita

Particulars

Sukesh

Vanita

Drawings

10,850

8,150

Balance b/d

7,200

2,800

 

 

 

Partner’s Salaries

 

7,200

 

 

 

Profit and Loss Appropriation

3,300

2,200

Balance c/d

1,650

6,050

Interest on capital

2,000

2,000

 

12,500

14,200

 

12,500

14,200

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