12th | Accounting for Partnership Firm – Fundamental | Question No. 26 To 30 | Ts Grewal Solution 2023-2024

Naresh and Sukesh are partners with capitals of  ` 3,00,000 each as on 31st March, 2023. Naresh had withdrawn  ` 50,000 against capital on 1st October, 2022 and also  ` 1,00,000 besides the drawings against capital. Sukesh also had drawings of  ` 1,00,000.
Interest on capital is to be allowed @ 10% p.a.
Net profit for the year was  ` 2,00,000, which is yet to be distributed.
Pass the Journal entries for interest on capital and distribution of profit.

Answer:

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2023
March 31	Profit & Loss Appropriation A/c	Dr.		82,500
	To Naresh’s Capital A/c				42,500
	To Sukesh’s Capital A/c				40,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)
	Profit & Loss Appropriation A/c	Dr.		1,17,500
	To Naresh’s Capital A/c				58,750
	To Sukesh’s Capital A/c				58,750
	(Profit transferred to Partners’ Capital A/c)

 

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Naresh	Sukesh
Capital at the end	3,00,000	3,00,000
Add: Drawings out of capital	50,000	-
Add: Drawings against profit	1,00,000	1,00,000
Capital at the beginning	4,50,000	4,00,000

 

WN2: Calculation of Interest on Capital

Naresh=(4,50,000×10×6/100×12)+(4,00,000×10×6/100×12)=` 42,500

Sukesh=4,00,000×10/100=` 40,000

On 1st April, 2013, Jay and Vijay entered into partnership for supplying laboratory equipments to government schools situated in remote and backward areas. They contributed capitals of  ` 80,000 and  ` 50,000 respectively and agreed to share the profits in the ratio of 3 : 2. The partnership Deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of  ` 7,800. Showing your calculations cleary, prepare 'Profit and Loss Appropriation Account' of Jay and Vijay for the year ended 31st March, 2014.

Answer:

Profit and Loss Appropriation Account for the year ended March 2014
Dr.				Cr.
Particulars		`	Particulars	`
Interest on Capital A/c:			Profit and Loss A/c	7,800
Jay' s Capital	4,800
Vijay' s Capital	3,000	7,800
		7,800		7,800

Working Notes:

WN1: Calculation of Interest on Capital

Interest on Jay' s Capital=80,000×9/100=7,200

Interest on Vijay' s Capital=50,000×9/100=4,500

Total interest = 7,200+4,500 =11,700

 

WN2: Calculation of Proportionate Interest on Capital

Jay' s proportion of interest =7,800×7,200/11,700=4,800

Vijay's proportion of interest =7,800×4,500/11,700=3,000

Note: Interest on capital is to be treated as an appropriation of profits and is to be provided to the extent of available profits i.e. ` 7,800.

 

As per Partnership Deed, interest on capital@ 10% p.a. on opening capitals had been provided to them.

Calculate opening capitals of partners given that their profit was 90,000. Show your workings clearly.

Answer:

Calculation of opening Capital

	A	B
Closing Capital Add; Drawings	1,60,000 30,000	1,40,000 30,000
Less: Profit already Credited (WN)	1,90,000 37,800	1,70,000 25,200
Less: Interest on Capital (WN)	1,52,200 13,836	1,44,800 13,164
Opening Capital	1,38,364	1,31,636

 

Working Notes:

Total Capital of A and B (1,60,000+1,40,000) Add: Drawings (30,000×2)	= =	3,00,000 60,000
Less: Profits (Including Interest on Capital)	=	3,60,000 90,000
Total opening Capital Including Interest on Capital	=	2,70,000

 

Interest on Capital @10 p.a. 2,70,000 is 27,000

Divisible Profits= 90,000 - 27,000 = 63,000

Distribution of profits

A = 63,000×3/5=37,800

B = 63,000×2/5=25,200

Individual interest on Capital

A= 1,52,200×10/110=13,836

B= 1,44,800×10/110=13,164

 

Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2023.

BALANCE SHEET as at 31st March, 2023
Liabilities	`	Assets	`
Neelkant's Capital	10,00,000	Sundry Assets	30,00,000
Mahadev's Capital	10,00,000
Neelkant's Current A/c	1,00,000
Mahadev' Current A/c	1,00,000
Profit and Loss A/c (2022-23)	8,00,000
	30,00,000		30,00,000

During the year, Mahadev's drawings were  ` 30,000. Profits during the year ended 31st March, 2023 is  ` 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2023.

Answer:

Interest on Capital

Neelkant’s	= 10,00,000×5/100=50,000
Mahadev’s	= 10,00,000×5/100=50,000

Note: In this question, as the balances of both Partner's Capital Account and of Partner's Current Account are mentioned, so it is clear that the capital of the partners is fixed.

As we know, when the capital of the partners is fixed, drawings and interest on capital does not affect the capital balances of the partners. Rather, it would affect their current account balances. Therefore, in this case, capital at the beginning (i.e. opening capital) and capital at the end (i.e. closing capital) of the year would remain same. Thus, the interest on capital is calculated on fixed capital balances (given in the Balance Sheet of the question).

 

From the following Balance Sheet of Long and Short, calculate interest on capital @ 8% p.a. for the year ended 31st March, 2023.
 

BALANCE SHEET as at 31st March, 2023
Liabilities		`	Assets	`
Long's Capital A/c		1,20,000	Fixed Assets	3,00,000
Short's Capital A/c		1,40,000	Other Assets	60,000
General Reserve		1,00,000
		3,60,000		3,60,000

During the year, Long withdrew  ` 40,000 and Short withdrew  ` 50,000. Profit for the year was  ` 1,50,000 out of which  ` 1,00,000 was transferred to General Reserve.

Answer:

Calculation of Capital at the beginning (as on April 01, 2022)

Particulars	Long ( `)	Short ( `)
Capital at the end	1,60,000	1,40,000
Less: Adjusted  Profit (1,50,000 – 1,00,000) in 1:1 ratio	(25,000)	(25,000)
Add: Adjusted Drawings	-	50,000
Capital in the beginning	1,35,000	1,65,000

 

Long’s Interest on capital= 1,35,000×8/100=10,800

Short’s Interest on capital= 1,65,000×8/100=13,200