Accounting for Partnership Firms-Fundamentals (Part - 3) | Accountancy Class 12 - Commerce PDF Download
Page No 2.82:
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.
ANSWER:
Working Notes:
WN 1 Interest on Partner's Loan
WN 2 Distribution of Loss to the Partners 
Ans: The firm's loss must be adjusted for interest on loans and rent payable to Bat, and the resulting net loss is then shared in the profit-sharing ratio 2 : 3.
Calculation:
1. Period for which loans and rent apply: 1 Oct 2018 to 31 Mar 2019 = 6 months.
2. Interest on partners' loans (assuming interest is to be allowed at the rate specified in the deed; when rate is not specified, interest is usually allowed as per agreement - here the working note image contains the rate used):
Bat's loan = ₹ 2,40,000 × rate × 6/12 = ₹ 7,200 (at 6% p.a. as used in workings)
Ball's loan = ₹ 1,20,000 × rate × 6/12 = ₹ 3,600
Total interest on loans = ₹ 7,200 + ₹ 3,600 = ₹ 10,800
3. Rent allowed to Bat = ₹ 5,000 per month × 6 months = ₹ 30,000
4. Loss before interest and rent = ₹ 9,000 (given as loss)
5. Net loss after charging interest on loans and rent = Loss before interest/rent + Interest on loans + Rent
= (₹ 9,000) + ₹ 10,800 + ₹ 30,000 = (₹ 49,800) (net loss)
6. Distribution of net loss between Bat and Ball in ratio 2 : 3 (total parts = 5):
Bat's share of loss = 2/5 × ₹ 49,800 = ₹ 19,920
Ball's share of loss = 3/5 × ₹ 49,800 = ₹ 29,880
7. Accounting effect (summary):
- Interest on loans: Credited to partners (Bat ₹ 7,200; Ball ₹ 3,600) and debited to Profit & Loss Appropriation Account.
- Rent: Credited to Bat (₹ 30,000) and debited to Profit & Loss Appropriation Account.
- Net loss ₹ 49,800 is debited to partners' capital accounts in profit-sharing ratio (Bat ₹ 19,920; Ball ₹ 29,880).
Thus, after accounting for interest on loans and rent, the net loss of ₹ 49,800 is borne by Bat and Ball as ₹ 19,920 and ₹ 29,880 respectively.
Page No 2.82:
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.
ANSWER:
Working Notes:
WN1 Calculation of Interest on Capital
WN 2 Calculation of Profit Share of each Partner
Divisible Profit = 80,000 - 9,600 - 36,000 = 34,400
Ans: Prepare the Profit and Loss Appropriation Account by first charging interest on capitals and B's salary, then apportioning the remaining profit between partners.
Calculation:
1. Interest on capital:
A: ₹ 1,00,000 × 6% = ₹ 6,000
B: ₹ 60,000 × 6% = ₹ 3,600
Total interest on capital = ₹ 9,600
2. B's salary = ₹ 3,000 × 12 = ₹ 36,000
3. Divisible profit = Profit before interest and salary - Interest on capitals - B's salary
= ₹ 80,000 - ₹ 9,600 - ₹ 36,000 = ₹ 34,400
4. Profit sharing ratio: Not stated; assume equal sharing (A : B = 1 : 1) unless the deed specifies otherwise.
Each partner's share of divisible profit = ₹ 34,400 ÷ 2 = ₹ 17,200
Summary of appropriations (Profit & Loss Appropriation Account):
- Interest on capital: A ₹ 6,000; B ₹ 3,600
- B's salary: ₹ 36,000
- Share of profit: A ₹ 17,200; B ₹ 17,200
Thus, after appropriation, the net amounts credited to partners are A: ₹ 6,000 + ₹ 17,200 = ₹ 23,200; B: ₹ 3,600 + ₹ 36,000 + ₹ 17,200 = ₹ 56,800.
Page No 2.82:
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.
ANSWER:
Working Notes:
WN 1 Salary to Z has not been debited to Profit and Loss Appropriation Account. This is because Profit of Rs 4,00,000 is given after adjusting the Z's salary.
WN 2 Calculation of Interest on Capital
WN 3 Calculation of Profit Share of each Partner
Divisible of Profit after Interest on Capital = Rs 4,00,000 - Rs 1,25,000 = Rs 2,75,000
Profit sharing ratio = 2 : 2 : 1
Ans: Interest on capital must be allowed first; Z's salary has already been debited as given. The remaining profit after interest is divisible in the ratio 2 : 2 : 1.
Calculation:
1. Interest on capital @10% p.a.:
X: ₹ 5,00,000 × 10% = ₹ 50,000
Y: ₹ 5,00,000 × 10% = ₹ 50,000
Z: ₹ 2,50,000 × 10% = ₹ 25,000
Total interest on capital = ₹ 1,25,000
2. Profit of the firm after debiting Z's salary = ₹ 4,00,000 (given)
3. Divisible profit after allowing interest on capital = ₹ 4,00,000 - ₹ 1,25,000 = ₹ 2,75,000
4. Profit sharing ratio = 2 : 2 : 1 (total parts = 5)
X's share = 2/5 × ₹ 2,75,000 = ₹ 1,10,000
Y's share = 2/5 × ₹ 2,75,000 = ₹ 1,10,000
Z's share = 1/5 × ₹ 2,75,000 = ₹ 55,000
Summary of appropriations (Profit & Loss Appropriation Account):
- Interest on capital: X ₹ 50,000; Y ₹ 50,000; Z ₹ 25,000
- Profit share: X ₹ 1,10,000; Y ₹ 1,10,000; Z ₹ 55,000
- Note: Z's salary has already been accounted for in arriving at the ₹ 4,00,000 figure.
Page No 2.82:
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.
ANSWER:
Ans: Start with the profit given after charging Y's salary, make provision for manager's commission, allow interest on capitals, and then distribute the remaining profit in the ratio 3 : 2.
Calculation:
1. Profit before interest on capital but after charging Y's salary = ₹ 2,40,000 (given)
2. Manager's commission = 5% of ₹ 2,40,000 = ₹ 12,000
3. Interest on capitals @5% p.a.:
X: ₹ 8,00,000 × 5% = ₹ 40,000
Y: ₹ 6,00,000 × 5% = ₹ 30,000
Total interest on capitals = ₹ 70,000
4. Divisible profit after commission and interest = ₹ 2,40,000 - ₹ 12,000 - ₹ 70,000 = ₹ 1,58,000
5. Share of divisible profit between X and Y in 3 : 2 ratio (total parts = 5):
X's share = 3/5 × ₹ 1,58,000 = ₹ 94,800
Y's share = 2/5 × ₹ 1,58,000 = ₹ 63,200
6. Y's salary has already been charged to profit, so in the appropriation account it will be credited to Y's capital / current account.
Summary (Profit & Loss Appropriation Account):
- Manager's commission: ₹ 12,000
- Interest on capitals: X ₹ 40,000; Y ₹ 30,000
- Divisible profit distributed: X ₹ 94,800; Y ₹ 63,200
Page No 2.82:
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 salary of ₹ 2,500 per month and Manoj was to ger 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.
ANSWER:
Ans: Add interest on drawings to the profit, then allow interest on capitals, pay Prem's salary and Manoj's commission, and finally distribute the remaining profit in the ratio 3 : 2.
Calculation:
1. Profit as per Profit & Loss A/c = ₹ 90,575
2. Add: Interest on drawings (income for firm) = Prem ₹ 1,250 + Manoj ₹ 425 = ₹ 1,675
Adjusted profit = ₹ 90,575 + ₹ 1,675 = ₹ 92,250
3. Less: Interest on capitals = Prem ₹ 10,000 + Manoj ₹ 7,500 = ₹ 17,500
Balance = ₹ 92,250 - ₹ 17,500 = ₹ 74,750
4. Less: Prem's salary = ₹ 2,500 × 12 = ₹ 30,000
Balance = ₹ 74,750 - ₹ 30,000 = ₹ 44,750
5. Less: Manoj's commission = ₹ 10,000
Divisible profit = ₹ 44,750 - ₹ 10,000 = ₹ 34,750
6. Divide ₹ 34,750 between Prem and Manoj in 3 : 2 ratio (total parts = 5):
Prem's share = 3/5 × ₹ 34,750 = ₹ 20,850
Manoj's share = 2/5 × ₹ 34,750 = ₹ 13,900
Summary of appropriations:
- Interest on drawings (credited to P&L Appropriation): ₹ 1,675
- Interest on capitals: Prem ₹ 10,000; Manoj ₹ 7,500
- Prem's salary: ₹ 30,000
- Manoj's commission: ₹ 10,000
- Profit share: Prem ₹ 20,850; Manoj ₹ 13,900
Totals received by partners (for posting to their capital/current accounts):
Prem: Interest on capital ₹ 10,000 + Salary ₹ 30,000 + Share ₹ 20,850 = ₹ 60,850
Manoj: Interest on capital ₹ 7,500 + Commission ₹ 10,000 + Share ₹ 13,900 = ₹ 31,400
Page No 2.83:
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.
ANSWER:
Note: Since the firm has incurred loss, no interest on capital and salary will be allowed to the partners. However, interest on drawings will be charged from each of them @ 10% p.a. on the amounts withdrawn by them for an average period of six months.
Ans: When the firm makes a loss, partners' salaries and interest on capital are not allowed. Interest on drawings is still charged (it is income for the firm). Adjust the loss for interest on drawings and share the resulting loss equally.
Calculation:
1. Loss as per Profit & Loss A/c = (₹ 1,00,000)
2. Interest on drawings (each): ₹ 60,000 × 10% × 6/12 = ₹ 3,000
Total interest on drawings credited to firm = ₹ 3,000 + ₹ 3,000 = ₹ 6,000
3. Net loss after charging interest on drawings = (₹ 1,00,000) + ₹ 6,000 = (₹ 94,000)
4. Share of loss between Reema and Seema (equally):
Each partner's share = ₹ 94,000 ÷ 2 = ₹ 47,000
Accounting effect (brief):
- No salary or interest on capital is allowed because of loss.
- Interest on drawings ₹ 3,000 each is credited to Profit & Loss Appropriation Account.
- Net loss of ₹ 94,000 is debited equally to Reema and Seema (₹ 47,000 each).
Page No 2.83:
Question 15: Bhanu and Partab are partners sharings 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.
ANSWER:
Ans: Interest on capitals is a charge to be allowed even if it exceeds profit. Interest on drawings is income for the firm. After adjusting these items, any remaining profit or deficit is shared equally.
Calculation:
1. Net profit as per Profit & Loss A/c = ₹ 1,20,000
2. Interest on drawings (treated as income):
Bhanu: ₹ 50,000 × 15% = ₹ 7,500
Partab: ₹ 1,00,000 × 15% = ₹ 15,000
Total interest on drawings = ₹ 22,500
Adjusted profit = ₹ 1,20,000 + ₹ 22,500 = ₹ 1,42,500
3. Interest on capital @10% (to be allowed as charge):
Bhanu: ₹ 8,00,000 × 10% = ₹ 80,000
Partab: ₹ 10,00,000 × 10% = ₹ 100,000
Total interest on capitals = ₹ 1,80,000
4. After allowing interest on capitals: Net balance = ₹ 1,42,500 - ₹ 1,80,000 = (₹ 37,500) (deficit)
5. Deficit to be shared equally between Bhanu and Partab:
Each partner's share of deficit = ₹ 37,500 ÷ 2 = ₹ 18,750
Summary of appropriations:
- Interest on drawings (credited to P&L Appropriation): Bhanu ₹ 7,500; Partab ₹ 15,000
- Interest on capitals (allowed): Bhanu ₹ 80,000; Partab ₹ 100,000
- Deficit shared equally: Bhanu and Partab each bear ₹ 18,750
Net effect on partners' accounts (for posting):
Bhanu: Interest on capital ₹ 80,000 less deficit share ₹ 18,750 = Net credit ₹ 61,250 (before considering drawing interest adjustment on capital/current accounts).
Partab: Interest on capital ₹ 100,000 less deficit share ₹ 18,750 = Net credit ₹ 81,250.
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