12th | Accounting for Partnership Firm – Fundamental | Question No. 66 To 70 | Ts Grewal Solution 2023-2024

Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2023 after closing the books of account, their Capital Accounts stood at  ` 4,80,000 and  ` 6,00,000 respectively. On 1st May, 2022, Simrat introduced an additional capital of  ` 1,20,000 and Bir withdrew  ` 60,000 from his capital.On 1st October, 2022, Simrat withdrew  ` 2,40,000 from her capital and Bir introduced  ` 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March, 2023 amounted to  ` 2,40,000 and the partners' drawings had been: Simrat –  ` 1,20,000 and Bir –  ` 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.

Answer:

Case 1: If Capitals are fixed:

Calculation of Interest on Capital

Interest on Capital Simrat=(6,00,000×6×1/100×12)+(7,20,000×6×5/100×12)+(4,80,000×6×6/100×12)=35,400

Interest on Capital Bir=(3,60,000×6×1/100×12)+(3,00,000×6×5/100×12)+(6,00,000×6×6/100×12)=27,300

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Simrat	Bir
Capital at the end	4,80,000	6,00,000
Add: Drawings out of capital	2,40,000	60,000
Less: Fresh capital introduced	1,20,000	3,00,000
Capital at the beginning	6,00,000	3,60,000

 

Case2: If Capitals are Fluctuating:

Calculation of Interest on Capital

Interest on Capital Simrat=(5,76,000×6×1/100×12)+(6,96,000×6×5/100×12)+(4,56,000×6×6/100×12)= 33,960

Interest on Capital Bir=(3,24,000×6×1/100×12)+(2,64,000×6×5/100×12)+(5,64,000×6×6/100×12)= 25,140

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Simrat	Bir
Capital at the end	4,80,000	6,00,000
Add: Drawings out of capital	2,40,000	60,000
Add: Drawings out of profit	1,20,000	60,000
Less: Fresh capital introduced	1,20,000	3,00,000
Less: Profit already credited	1,44,000	96,000
Capital at the beginning	5,76,000	3,24,000

 

 

Mita and Usha are partners in a firm sharing profits in the ratio of 2 : 3. Their Capital Accounts as on 1st April, 2015 showed balances of  ` 1,40,000 and  ` 1,20,000 respectively. The drawings of Mita and Usha during the year 2015-16 were  ` 32,000 and  ` 24,000 respectively. Both the amounts were withdrawn on 1st January 2016. It was subsequently found that the following items had been omitted while preparing the final accounts for the year ended 31st March, 2016:
(a) Interest on Capital @ 6% p.a.
(b) Interest on Drawings @ 6% p.a.
(c) Mita was entitled to a commission of  ` 8,000 for the whole year.
Showing your working clearly, pass a rectifying entry in the books of the firm.

Answer:

Journal
Particular		L.F.	Debit ( `)	Credit ( `)
Usha’s Capital A/c	Dr.		6,816
To Mita’sCapital A/c				6,816
(Adjustment made)

 

Particular	Mita	Usha	Total
Interest on Capital @ 6% p.a.	8,400	7,200	(15,600)
Interest on Drawings @ 6% p.a.	(480)	(360)	840
Commission	8,000	–	(8,000)
Right Share	15,920	6,840	(22,760)
Wrong Share	(9,104)	(13,656)	22,760
Net Effect	6,816 (Cr.)	6,816 (Dr.)	Nil

 

A, B and C were partners. Their fixed capitals were `60,000, `40,000 and `20,000 respectively. Their profit sharing ratio was 2 :2 : 1. According to the Partnership Deed, they were entitled to interest on capital @ 5% pa. In addition, 8 was also entitled to draw a salary of `1,500 per month. C was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to B. The net profits for the year, `80,000, were distributed in the ratio of their capitals without providing for any of the above adjustments. Showing your workings clearly, pass the necessary adjustment entry. (CBSE 2019)

 

Answer;

 

Date	Particulars				L.F.	Dr.`		Cr. `
31 March	A’s  current      A/c          To B ’s  current      A/      To C’s  current      A/ (Being omission of salary , interest on capital , commission now profit corrected)			Dr.		16,080		14,253 1,827
						16,080		16,080
Correct Profit and loss appropriation account year ended 31 March
Particulars		`	Particulars				`
To cc B=1500×12=18,000 To Commission (C=80,000-6,000×5/100)   To Interest on capital A-60,000×5/100=3,000 B-40,000×5/100=2,000 C-20,000×5/100=1,000 To profit A-52,300×2/5=20,920 B -52,300×2/5=20,920 C -52,300×1/5=10,460		18,000   3,700         6,000       52,300	By  Net profit				80,000 4,500
		80,000					80,000

 

Statement showing Adjustments
Particulars	A		B		C		FIRM
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Interest on capital Salary omitted Commission omitted Correct Profit omitted Wrong Profit credited	40,000	3,000     20,920	26,667	2,000 18,000   20,920	13,333	1,000   3,700 10,460	6,000 18,000 3,700 52,300	80,000
Total	40,000	23,920	26,667	40,000			80,000	80,000
Net effect	16,080			14,263		1,827

 

Pass the necessary adjusting entry and show the working clearly.

Answer:

JOURNAL
Date	Particulars		LF	Dr. (Rs.)	Cr. (Rs.)
2023	Rahim's capital A/c	Dr.		3,000
31st March	To Karan’s capital A/c				3,000
	(Being Interest on capital was omitted now adjusted)

 

1. Interest on capital: Pranav - 50000; Karan - 30000; Rahim - 20000.

Total interest on capital was to be credited = 1,00,000, Which is more than the profit  78,000.

2. Profit is to be distributed in the ratio of interest on capital which is 5:3:2

Pranav =78,000 × 5/10 =  39,000

Karan=78,000 × 3 = 23,400

Rahim =78,000 × 2 / 10 = 15,600

3. Wrongly distributed as follow in profit sharing ratio 3:2:1

Pranav =78,000×3/6= 39,000

Karan =78,000×2/6= 26,000

Rahim =78,000×1/6= 13,000

4. Calculation of amount to be adjusted

	Pranav	Karan	Rahim
Amount to be credited	39,000	23,400	15,600
Wrongly Amount to be credited	39,000	26,000	13,000
	nil	2,600	2,600

 

 

On 31st March, 2023, after the closing of the accounts, the Capital Accounts of P, Q and R stood in the books of the firm at  ` 40,000;  ` 30,000 and  ` 20,000 respectively. Subsequently, it was noticed that interest on capital @ 5% had been omitted. Profit for the year ended 31st March, 2023 was  ` 60,000 and the partners' drawings had been P –  ` 10,000, Q –  ` 7,500 and R –  ` 4,500.  Profit-sharing ratio of P, Q and R is 3 : 2 : 1.

Give necessary adjustment entry.

Answer:

Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
2023 Mar.31	P’s Current A/c	Dr.		300
	To Q’s Capital A/c				8
	To R’s Capital A/c				292
	(Interest on Capital was omitted, now adjusted)

Working Notes:

 

WN 1Calculation of Capital at the beginning (as on April 01, 2022)

 

Particulars	P	Q	R
Capital as on March 31, 2022(Closing)	40,000	30,000	20,000
Add: Drawings	10,000	7,500	4,500
Less: Profit ` 60,000 (3:2:1)	(30,000)	(20,000)	(10,000)
Capital as on April 01, 2022 (Opening)	20,000	17,500	14,500

WN 2Calculation of Interest on Capital

Interest on P’s capital=20,000×5/100=1000

Interest on Q’s capital=17,500×5/100=875
Interest on R’s capital=14,500×5/100=725
WN 3

Statement Showing Adjustment
Particulars	P	Q	R	Total
Interest on Capital (to be credited)	1,000	875	725	2,600
For sharing above Loss (3:2:1)	(1,300)	(867)	(433)	(2,600)
Net Effect	(300)	8	292	NIL