12th | Accounting For Partnership Firms Fundamentals | Question No.  51 To 55 | Solution 2022-2023

Ali the Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2021 stand as Ali  ` 25,000 and Bahadur  ` 20,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2022 amounted to  ` 3,500 and  ` 2,500 respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @  ` 3,000, amounted to  ` 40,000, 10% of divisible profit is to be transferred to Reserve.
You are asked to show Partners' Current Account and Capital Accounts recording the above transactions.

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
			Balance b/d	25,000	20,000
Balance c/d	25,000	20,000
	25,000	20,000		25,000	20,000

 

Partners’ Current Accounts
Dr.					Cr.
Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
Drawings A/c	3,500	2,500	Interest on Capital A/c	1,250	1,000
			Bahadur’s Salary A/c	-	3,000
Balance c/d	19,642	10,883	P/L Appropriation A/c	21,892	9,383
	23,142	13,383		23,142	13,383

Working Notes:

WN 1

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Interest on Capital:			Profit and Loss A/c	40,000
Ali	1,250
Bahadur	1,000	2,250
Reserve		3,475
Bahadur’s Salary		3,000
Profit transferred to:
Ali’s Capital A/c	21,892
Bahadur’s Capital A/c	9,383	31,275
		40,000		40,000

 

WN 2 Calculation of Interest on Capital

Interest on Ali’s capital=25,000×5/100=1,250

Interest on Bahadur’s capital=20,000×5/100=1,000

 

WN 3 Calculation of Amount to be transferred to Reserve
Amount transferred to Reserve=10% of Divisible Profits =10%×(40,000-2,250-3,000)=` 3,475

 

WN 4 Calculation of Profit Share of each Partner

Profit available for distribution = 40,000- ` 2,250- ` 3,000- ` 3,475 = ` 31,275

Ali's Profit Share=31,275×70÷100 =21,892

Bahadur's Profit Share=31,275×30÷100 =9,383

 

Kabir, Zoravar and Parul are partners sharing prohts in the ratio of 5 :3 :2.Their capitals as on 1st April, 2021 were: Kabir- `5,20,000, Zoravar-`3,20,000 and Parul - `2,00,000.

The Partnership Deed provided as follows:

(i) Kabir and Zoravar each will get salary of `24,000 p.a.

(ii) Parul will get commission of 2% of Sales.

(iii) Interest on capital is to be allowed @ 5% p.a.

(iv) Interest on Drawings is to be charged @ 5% p.a.

(v) 10% of Divisible Profit is to be transferred to General Reserve.

Sales for the year ended 31st March, 2022 were `50,00,000. Drawings by each of the partners during the year was `60,000. Net Prom for the year was `1,55,500.

Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2022.

 

Profit and loss appropriation account year ended 31st March, 2022
Particulars	`	Particulars	`
To Profit transferred Kabir  -1,60,000×5/20=40,000 Zoravar-1,60,000×4/20=32,000 Parul-1,60,000×11/20=88,000	160,000	By  Net profit By Interest on Drawings Kabir- 60,000×5/100×5/12=1,500 Zoravar-60,000×5/100×5/12=1,500 Parul-60,000×5/100×5/12=1,500	1,55,500 4,500
	1,60,000		1,60,000

 

Working note;

Profit and loss appropriation account year ended 31st March, 2022
Particulars	`	Particulars	`
To Salary Kabir  -24,000 Zoravar-24,000 To Commission Parul=50,00,000×2/100=1,00,000   To Interest on capital Kabir  -5,20,000×5/100=26,000 Zoravar-3,20,000×4/20=16,000 Parul-2,00,000×10/20=10,000	48,000   1,00,000         52,000	By  Net profit By Interest on Drawings Kabir  -60,000×5/100×5/12=1,500 Zoravar-60,000×5/100×5/12=1,500 Parul-60,000×5/100×5/12=1,500	1,55,500 4,500
	2,00,000		1,60,000

 

 Ratio of appropriation will be calculated for insufficient profit distribution given below;

Kabir  - Salary + Interest on capital

=24,000+26,000=50,000

Zoravar- Salary + Interest on capital

=24,000+16,000=40,000

Parul- Commission + Interest on capital

=1,00,000+10,000=1,10,000

Ratio of appropriation = 50,000 : 40,000 : 1,10,000=5:4:11

 

X and Y entered into partnership on 1st April, 2018. Their capitals as on 1st April, 2021 were  ` 2,00,000 and  ` 1,50,000 respectively. On 1st October, 2021, X gave  ` 50,000 as loan to the firm. As per the provisions of the partnership Deed:
(i) 20% of Profits before charging interest on Drawings but after making appropriations to be transferred to General Reserve.
(ii) Interest on capital at 12% p.a. and Interest on Drawings @ 10% p.a.
(iii) X to get monthly salary of  ` 5,000 and Y to get salary of  ` 22,500 per quarter.
(iv) X is entitled to a commission of 5% on sales. Sales for the year were  ` 3,50,000.
(v)  Profit to be shared in the ratio of their capitals up to  ` 1,75,000 and balance equally.
Profit for the year ended 31st March, 2022 before allowing or charging interest was  ` 4,61,000. The drawings of X and Y were  ` 1,00,000 and  ` 1,25,000 respectively.
Pass the necessary Journal entries relating to appropriation out of profit. Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts.

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.						Cr.
Particulars			( `)	Particulars		( `)
Interest on Capital A/c:				Profit and Loss A/c (4,61,000 – 1,500)		4,59,500
X’s Capital A/c		24,000		Interest on Drawings A/c:
Y’s Capital A/c		18,000	42,000	X’s Capital A/c	5,000
X’s Capital A/c (Commission) (3,50,000 × 5%)			17,500	Y ’s Capital A/c	6,250	11,250
Salary:
X’s Capital A/c	60,000
Y’s Capital A/c	90,000		1,50,000
Reserve (WN 1)			50,000
Profit transferred to:
X’s Capital A/c	1,18,125
Y’s Capital A/c	93,125		2,11,250
			4,70,750			4,70,750

 

Partners’ Capital Accounts
Dr.							Cr.
Particulars		X ( `)	Y ( `)	Particulars	X ( `)	Y ( `)
Drawings A/c		1,00,000	1,25,000	Balance b/d	2,00,000	1,50,000
Interest on Drawings		5,000	6,250	Interest on Capital A/c	24,000	18,000
				Salary A/c	60,000	90,000
				Commission A/c	17,500
Balance c/d		3,14,625	2,19,875	P/L Appropriation A/c	1,18,125	93,125
		4,19,625	3,51,125		4,19,625	3,51,125

Working Notes:

WN1: Calculation of Reserve 

Profit before charging Interest on Drawings but after making appropriations

= 4,59,500 -`42,000 -`17,500 -`60,000- `90,000= 2,50,000
Reserve = 2,50,000×20100=` 50,000

WN2: Division of Profit

Partners	Up to ` 1,75,000	` 36,250 (Above ` 1,75,000)	Total
X	1,00,000	18,125	1,18,125
Y	75,000	18,125	93,125

 

Reya, Mona and Nisha shared profits in the ratio of 3 : 2 : 1. The profits for the last three year were  ` 1,40,000;  ` 84,000 and  ` 1,06,000 respectively. These profits were by mistake shared equally for all the give necessary Journal entry for the same.

Journal
Particulars		L.F.	Debit `	Credit `
Nisha’s Capital A/c	Dr.		55,000
To Reya’s Capital A/c				55,000
(Adjustment of profit made)

Working Note:

Total Profits for Last 3 years = 1,40,000 + 84,000 + 1,06,000 = ` 3,30,000

Statement Showing Adjustment
Particulars	Reya	Mona	Nisha	Total
Right Distribution of Profit (3 : 2 :1)	1,65,000	1,10,000	55,000	3,30,000
Wrong Distribution of Profit (1: 1 : 1)	(1,10,000)	(1,10,000)	(1,10,000)	(3,30,000)
Net Effect	55,000	NIL	(55,000)	NIL

 

P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were  ` 2,00,000 and  ` 3,00,000 respectively. The Partnership Deed provided for interest on capital @ 12% per annum. For the year ended 31st March, 2016, the profits of the firm were distributed without providing interest on capital.
Pass necessary adjustment entry to rectify the error.

Adjusting Journal Entry

Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
	P’s Current A/c	Dr.		6,000
	To Q’s Current A/c				6,000
	(Interest on capital omitted, now adjusted.)

Working Notes:

Statement Showing Adjustment
Particulars	P	Q	Total
Interest on Capital @ 12%	24,000	36,000	(60,000)
Less: Profits wrongly distributed to the extent of interest amount	(30,000)	(30,000)	60,000
Net Effect	(6,000)	6,000	NIL