12th | Accounting for Partnership Firm – Fundamental | Question No. 56 To 60 | Ts Grewal Solution 2023-2024

Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2022 their Capitals were: Sajal –  ` 50,000 and Kajal –  ` 40,000.
Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts at the end 31^st March, 2023 from the following information:
(a) Interest on Capital is to be allowed @ 5% p.a.
(b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being  ` 30,000.
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal ` 10,000 and Kajal ` 8,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
Net profit for the year ended 31st March, 2023 is  ` 68,460.
Note: Net profit means net profit after debit of interest on loan by the partner.

Answer:

Profit and Loss Account for the year ended 31st March, 2023
Dr.			Cr.
Particulars	( `)	Particulars	( `)
Interest on Kajal’s loan@ 6% p.a.	1,800	Profit	70,260
Profit transferred to P/L Appropriation A/c	68,460
	70,260		70,260

 

Profit and Loss Appropriation Account for the year ended 31st  March,  2023
Dr.					Cr.
Particulars		( `)	Particulars		( `)
Interest on Capital A/c:			Profit and Loss A/c		68,460
Sajal’s Capital A/c	2,500
Kajal’s Capital A/c	2,000	4,500	Interest on Drawings A/c:
			Sajal’s Capital A/c	300
Reserve		6,450	Kajal’s Capital A/c	240	540
Profit transferred to:
Sajal’s Capital A/c	38,700
Kajal’s Capital A/c	19,350	58,050
		69,000			69,000

 

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Sajal ( `)	Kajal ( `)		Particulars	Sajal ( `)	Kajal ( `)
Drawings A/c	10,000	8,000		Balance b/d	50,000	40,000
Interest on Drawings A/c	300	240		Interest on Capital A/c	2,500	2,000
				P&L Appropriation A/c	38,700	19,350
Balance c/d	80,900	53,110
	91,200	61,350			91,200	61,350

Working Notes:

WN 1Calculation of Interest on Capital

Interest on Sajal’s capital=50,000×5/100=2,500

Interest on Kajal’s capital=20,000×5/100=2,000

 

WN 2Calculation of Interest on Drawings

Interest on Sajal’s Drawing=10,000×6/100×6/12=300

Interest on Kajal’s Drawing=8,000×6/100×6/12=240

 

WN 3Calculation of Amount to be transferred to Reserve

Amount for Reserve = 10% of Divisible Profit

Divisible Profit = Profit + Interest on Drawings -` Interest on Capital

= 68,460 + 540  4,500 = ` 64,500

Amount of reserve =64,500×10/100=6,450

 

WN 4Calculation of Profit Share of each Partner

Profit available for Distribution = 68,460 + 540 – (` 4,500+` 6,450) = ` 58,050

Profit sharing ratio = 2 : 1

Sajal’s profit share = 58,050×2/3=38700

kajal’s profit share = 58,050×1/3=19350

 

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, 2022 stand as Ali  ` 2,50,000 and Bahadur  ` 2,00,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2023 amounted to  ` 35,000 and  ` 25,000 respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @  ` 30,000, amounted to  ` 4,00,000, 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.

Answer:

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
			Balance b/d	2,50,000	2,00,000
Balance c/d	2,50,000	2,00,000
	2,50,000	2,00,000		2,50,000	2,00,000

 

Partners’ Current Accounts
Dr.					Cr.
Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
Drawings A/c	35,000	25,000	Interest on Capital A/c	1,2500	1,0000
			Bahadur’s Salary A/c	-	3,0000
Balance c/d	1,96,420	1,08,830	P/L Appropriation A/c	21,8920	9,3830
	2,31,420	1,33,830		23,1420	13,3830

Working Notes:

WN 1

Profit and Loss Appropriation Account for the year ended March 31, 2023
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Interest on Capital:			Profit and Loss A/c	4,00,000
Ali	12,500
Bahadur	10,000	22,500
Reserve		34,750
Bahadur’s Salary		30,000
Profit transferred to:
Ali’s Capital A/c	2,18,920
Bahadur’s Capital A/c	93,830	3,12,750
		4,00,000		4,00,000

 

WN 2Calculation of Interest on Capital

Interest on Ali’s capital=2,50,000×5/100=12,500

Interest on Bahadur’s capital=2,00,000×5/100=10,000

 

WN 3Calculation of Amount to be transferred to Reserve
Amount transferred to Reserve=10% of Divisible Profits =10%×(4,00,000-22,500-30,000)=` 34,750

 

WN 4Calculation of Profit Share of each Partner

Profit available for distribution = 4,00,000-` 22,500-` 30,000- ` 3,4750 = ` 31,2750

Ali's Profit Share = 3,12,750×70÷100=2,18,920

Bahadur's Profit Share = 3,12,750×30÷100=93,830

 

Kabir, Zoravar and Parul are partners sharing prohts in the ratio of 5 :3 :2.Their capitals as on 1st April, 2022 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, 2023 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, 2023.

 

Answer;

Profit and loss appropriation account year ended 31st March, 2023
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, 2023
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, 2022 were ` 2,00,000 and  ` 1,50,000 respectively. On 1st October, 2022, 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, 2023 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.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2023
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.

Answer:

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