12th | Accounting For Partnership Firms Fundamentals | Question No. 5 to 10 | Ts Grewal Solution 2022-2023

Harshad and Dhiman are in partnership since 1st April, 2021. No partnership agreement was made. They contributed  ` 4,00,000 and  ` 1,00,000 respectively as capital. In addition, Harshad advanced an amount of  ` 1,00,000 to the firm on 1st October, 2021. Due to long illness, Harshad could not participate in business activities from 1st August, 2021 to 30th September, 2021.  Profit for the year ended 31st March, 2022 was  ` 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 the ratio of capital;
Dhiman Claims :
(i) Profit should be distributed equally;
(ii) He should be allowed  ` 2,000 p.m. as remuneration for the period he managed the business in the absence of Harshad;
(iii) Interest on Capital and loan should be allowed @ 6% p.a.
You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.

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 Account
Dr.	for the year ended 31st March, 2022				Cr.
Particulars		(`)	Particulars	(`)
Interest on Partner’s Loan			Profit and Loss A/c	1,80,000
Harshad 1,00,000 × (6/100) × (6/12)		3,000
Profit and Loss Appropriation A/c		1,77,000
		1,80,000		1,80,000

 

Profit and Loss Appropriation Account
Dr.	for the year ended 31st March, 2022				Cr.
Particulars		(`)	Particulars	(`)
Profit transferred to			Profit and Loss A/c	1,77,000
Harshad’s Capital		88,500
Dhiman’s Capital		88,500
		1,77,000		1,77,000

Sita and Geeta are partners in a firm sharing profits in the ratio of 3 : 2. They had advanced to the firm a sum of  ` 30,000 as a loan in their profit-sharing ratio on 1st October, 2021. The Partnership Deed is silent on interest on loans from partners. Compute interest payable by the firm to the partners, assuming the firm closes its books every year on 31st March.

Amount advanced by the Partners = ` 30,000

Profit sharing ratio = 3 : 2

Advanced by Sita =30,000×3/5=18,000

Advanced by Geeta =30,000×2/5=12,000

Time Period (from October 01, 2021 to March 31, 2022) = 6 months

Interest rate = 6% p.a.

Calculation of Interest on Advances

Interest on Sita' s advance=18,000×6/100×6/12=540

Interest on Geeta' s advance=12,000×6/100×6/12=360

Note: In the absence of a partnership agreement regarding rate of interest on loans and advances, interest is provided at 6% p.a.

 

X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals  ` 2,00,000 and  ` 3,00,000 respectively. On 1st October, 2021, X and Y gave loans of   ` 80,000 and  ` 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2022 in each of the following alternative cases:
Case 1 : If the profits before interest for the year amounted to  ` 21,000.
Case 2 : If the profits before interest for the year amounted to  ` 3,000.
Case 3 : If the profits before interest for the year amounted to  ` 5,000.
Case 4 : If the loss before interest for the year amounted to  ` 1,400.

Calculation of Interest on Loan

 

Interst on X’s advance = 80,000×6/100×6/12=2400

Interst on Y's advance = 40,000×6/100×6/12=1200

 

Case 1- If Profits before any interest for the year amounted to  ` 21,000

Profit and Loss Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Interest on X’s Loan		2,400	Profit	21,000
Interest on Y’s Loan		1,200	(before  interest)
Profit transferred to
(Profit transferred to P&L appropriation a/c)
		17,400
		21,000		21,000

 

Profit and Loss appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
			Profit	17,400
			(before  interest)
Profit transferred to
X’s Capital A/c (17,400 × 2/5)	6,960
Y’s Capital A/c (17,400 × 3/5)	10,440	17,400
		21,000		21,000

 

Case 2- If Profits before any interest for the year amounted to  ` 3,000

Profit and Loss Account for the year ended March 31, 2022
Dr.				Cr.
Particulars	( `)	Particulars		( `)
Interest on X’s Loan	2,400	Profit (before interest)		3,000
Interest on Y’s Loan	1,200	Loss transferred to-
		X’s Capital A/c (600 × 2/5)	240
		Y’s Capital A/c (600 × (3/5)	360	600
	3,600			3,600

 

Profit and Loss appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars	( `)	Particulars		( `)
To P&L a/c	600
\(Net loss transferred P&L Appropriation a/c)		Loss transferred to-
		X’s Capital A/c (600 × 2/5)	240
		Y’s Capital A/c (600 × (3/5)	360	600
	3,600			3,600

 

 

Case 3- If Profits before any interest for the year amounted to  ` 5,000

Profit and Loss Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Interest on X’s Loan		2,400	Profit (before interest)	5,000
Interest on Y’s Loan		1,200
Profit transferred to:
X’s Capital A/c (1400 × 2/5)	560
Y’s Capital A/c (1400 × 3/5)	840	1,400
		5,000		5,000

 

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Interest on X’s Loan		2,400	Profit (before interest)	5,000
Interest on Y’s Loan		1,200
Profit transferred to:
X’s Capital A/c (1400 × 2/5)	560
Y’s Capital A/c (1400 × 3/5)	840	1,400
		5,000		5,000

 

 

Case 4- If Loss before any interest for the year amounted to  ` 1,400

Profit and Loss Account for the year ended March 31, 2022
Dr.				Cr.
Particulars	( `)	Particulars		( `)
Loss (before interest)	1,400	By  P&L Appropriation A/c		5,000
Interest on X’s Loan	2,400	(Loss transferred to Profit and Loss A/c)
Interest on Y’s Loan	1,200
	5,000			5,000

 

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars	( `)	Particulars		( `)
To P&L Appropriation A/c	5,000	Loss transferred to-
\(Net loss transferred from P&L a/c)		X’s Capital A/c (5,000 × 2/5)	2,000
		Y’s Capital A/c (5,000 × 3/5)	3,000	5,000
	5,000			5,000

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, 2021, 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, 2022 before rent and interest amounted to  ` 9,000. Show distribution of profit/loss.

Profit and Loss Account for the year ended March 31, 2022
Dr.				Cr.
Particulars	( `)	Particulars		( `)
Loss (before Rent and interest)	9,000
Rent (5,000×12)	60,000	By  P&L Appropriation A/c
Interest on Bat’s loan	7,200	(Loss transferred to Profit and Loss A/c)
Interest on Ball’s loan	3,600			79,800
	79,800			79,800

 

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars	( `)	Particulars		( `)
To P&L A/c	79,800
(Net loss transferred from P&L a/c)	60,000	Loss transferred to:
	7,200	Bat’s Capital A/c	31,920
	3,600	Ball’s Capital A/c	47,880	79,800
	79,800			79,800

Working Notes:
WN 1 Interest on Partner’s Loan 

Interest on Bat' s loan=2,40,000×6/100×6/12=7,200

Interest on Ball' s loan=1,20,000×6/100×6/12=3,600

 

WN 2 Distribution of Loss to the Partners 

Loss after Interest on Partners’ Loan = 9,000 + 60,000 + 7,200 + 3,600 = ` 19,800
Bat's Share of Loss=79,800×2/5=` 31,920 

Ball's Share of Loss=79,800×3/5=` 47,880

 

Akhil and Bimal are partners sharing profits in the ratio of 3 :2. Akhil gave loan to the firm of `1,00,000 on 1st October, 2021. On the same date, the firm gave loan to Bimal of  `1,00 000. They do not have an agreement as to interest.

Akhil had also given his personal property for firm’s  godown at a monthly rent of `5,000.

Firm earns profit of `1,03,000 (before above adjustments) for the year ended 31st March, 2022. Show the distribution of profit for the year.

 

Profit and loss account year ended 31 March, 2022
Particulars	`	Particulars	`
To interest on loan (Akhil) 1,00,000×6/100×6/12 To Rent (Akhil) 5,000×12 To Balance C/d	3,000     60,000 40,000	By net profit b/d	1,03,000
	1,03,000		1,03,000

 

Profit and loss appropriation account year ended 31 March, 2022
Particulars	`	Particulars	`
To Profit transferred Akhil’s Capital -40,000×3/5 Bimal’s Capital -40,000×2/5	24,000 16,000	By  Balance b/d	40,000
	40,000		40,000