12th | Accounting for Partnership Firm – Fundamental | Question No. 76 To 80 | Ts Grewal Solution 2023-2024

On 31st March, 2018 the balance in the Capital Accounts of Abhir, Bobby and Vineet, after making adjustments for profits and drawings were `8,00,000, `6,00,000 and `4,00,000 respectively.

Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 10% p.a. and were to be charged interest on drawings @ 6% pa. The drawings during the year were: Abhir- `20,000 drawn at the end of each month, Bobby- `50,000 drawn at the beginning of every half year and Vineet- `1,00,000 withdrawn on 31st October, 2017.The net profit for the year ended 31st March, 2018 was `1,50,000.The profit-sharing ratio was 2 :2 : 1.

Pass necessary adjusting entry for the above adjustments in the books of the firm. Also, show your workings clearly.  (CBSE2019)

 

Answer;

 

Date	Particulars		L.F.	Dr.`	Cr. `
31 March	Bobby’s  Capital      A/c          To Naveen ’s  Capital      A/c               To Qadir’s  Capital      A/c     (Being omission of salary , wrong interest on capital credited , now profit corrected)	Dr.		24,660	17,240 7,420
	Total			24,660	24,660

 

Working note;

Calculation of opening Capital ;

Particulars	Abhir	Bobby	vineet
Closing capital Add; drawings Less; Profit	8,00,000 2,40,000 60,000	6,00,000 1,00,000 60,000	4,00,000 1,00,000 30,000
Opening capital	9,80,000	6,40,000	4,70,000

 

Calculation of opening Drawings ;

Abhir= 20,000×12×6/100×5.5/12=6,600

Bobby= 50,000×2×6/100×9/12=4,500

Vineet = 1,00,000×6/100×5/12=2,500

Statement showing Adjustments
Particulars	A		B		C		FIRM
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Interest on capital omitted Interest on Drawing omitted	6,600	98,000	4,500	64,000	2,500	47,000	2,09,000	13,600
Net interest omitted Net loss of above omission	78,160	91,400	78,160	59,500	39,090	44,500	1,95,400	1,95,400
Total	78,160	91,400	74,160	49,500	37,080	44,500	1,85,400	1,85,400
Net effect		17,240	24,160			7,420

 

On 31st March, 2014, the balances in the Capital Accounts of Saroj, Mahinder and Umar after making adjustments for profits and drawings, etc., were  ` 80,000,  ` 60,000,  ` 40,000 respectively. Subsequently, it was discovered that the interest on capital and drawings has been omitted.
(a) The profit for the year ended 31st March, 2014 was  ` 80,000.
(b) During the year Saroj and Mahinder each withdrew a sum of  ` 24,000 in equal instalments in the end of each month and Umar withdrew  ` 36,000.
(c) The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be allowed @ 10% p.a.
(d) The profit-sharing ratio among partners was 4 : 3 : 1.
Showing your workings clearly, pass the necessary rectifying entry.

Answer:

Journal
Particular		L.F.	Debit ( `)	Credit ( `)
Saroj’s Capital A/c	Dr.		2,350
Mahinder’s Capital A/c	Dr.		1,300
To Umar’s Capital A/c				3,650
(Adjustment made)

 
Working Notes:
 

Particular	Saroj	Mahinder	Umar
Closing Capitals	80,000	60,000	40,000
Add: Drawings	24,000	24,000	36,000
Less: Profit Share	40,000	30,000	10,000
Opening Capital	64,000	54,000	66,000

 

Particular	Saroj	Mahinder	Umar	Total
Interest on Capital @ 10% p.a.	6,400	5,400	6,600	(18,400)
Interest on Drawings@ 5% p.a.	(550)	(550)	(900)	2,000
Profit (80,000 – 18,400 + 2,000)	31,800	23,850	7,950	(63,600)
Right Share	37,650	28,700	13,650	(80,000)
Wrong Share	(40,000)	(30,000)	(10,000)	80,000
Net Effect	2,350 (Dr.)	1,300 (Dr.)	3,650 (Cr.)	Nil

 

Capitals of kajal, Neerav and Alisha as on 31st March, 2023 amounted to  ` 90,000,  ` 3,30,000 and  ` 6,60,000 respectively. Profit of  ` 1,80,000 for the year ended 31st March, 2023 was distributed in the ratio of 4 : 1 : 1 after allowing interest on Capital @ 10% p.a. During the year, each partner withdrew  ` 3,60,000. The Partnership Deed was silent as to profit-sharing ratio but provided for interest on capital @ 12%.
Pass the necessary adjustment entry showing the working clearly.

Answer:

In the books of A, B and C Journal
Date	Particulars			L.F.	Debit ( `)	Credit ( `)
2023 Mar.31	kajal’s Capital A/c		Dr.		66,600
	To Neerav’s Capital A/c					30,000
	To Alisha’s Capital A/c					36,600
	(Being adjustment made for interest on capital and profits)

 

Statement Showing Adjustment:

Particulars	kajal’s Capital A/c		Neerav’s Capital A/c		Alisha’s Capital A/c		Firm
	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)
Profits wrongly credited in the ratio 4:1:1(Dr.)	1,20,000		30,000		30,000			1,80,000
Interest on Capital wrongly credited @10% p.a. (Dr.)	33,000		66,000		99,000			1,98,000
Interest on Capital to be provided @12% p.a. (Cr.)		39,600		79,200		1,18,800	2,37,600
Profits to be credited in the ratio 1:1:1 (Cr.)		46,800		46,800		46,800	1,40,400
Balance to be adjusted	66,600 (Dr.)		30,000 (Cr.)		36,600 (Cr.)		NIL

Note: Since, there is no provision of interest on drawings in the partnership deed so we will not provide it.

Calculation of Opening Capital of the Partners: 

Particulars	Kajal ( `)	Neerav ( `)	Alisha ( `)
Closing Capital of the partners	90,000	3,30,000	6,60,000
Add: Drawings made during the year	3,60,000	3,60,000	3,60,000
Less: Profits for the year	1,20,000	30,000	30,000
Opening Capital of the partners as on 1st April, 2022	3,30,000	6,60,000	9,90,000

Note: Interest on Capital is always computed on the opening capitals.

 

Guarantee of Minimum Profit to a Partner

 

Mohit and Sobhit are partners sharing profits in the ratio of 3 : 2. Rohit was admitted for 1/6th share of profit with a minimum guaranteed amount of  ` 10,000. At the close of the first financial year the firm earned a profit of  ` 54,000. Find out the share of profit which Mohit,Sobhit and Rohit will get.

Answer:

Profit and Loss Appropriation Account
Dr.	for the year ended 31st March				Cr.
Particulars			( `)	Particulars	( `)
Profit transferred to:				Profit and Loss A/c (Net Profit)	54,000
Mohit’s Capital a/c		26,400
Sobhit’s Capital a/c		17,600
Rohit’s Capital a/c		10,000	54,000
			54,000		54,000

Working Note

Rohit will get higher of the two:

(i) Share of Profit as per profit sharing ratio, i.e., 54,000×1/6==9,000

(ii) Minimum guaranteed profit, i.e.` 10,000
Thus from net profit of ` 54,000, minimum guaranteed profit to Rohit of ` 10,000 is to be adjusted first.

And the balance profit of ` 44,000 (54,000 – 10,000) is to be shared by Mohit and Sobhit in the ratio 3:2

final share:

Mohit’s share =44,000×3/5=26,400

Sobhit’s share =44,000×2/5=17,600

Rohit’s share =10,000 (minimum guarantee)

 

A, B and C were in partnership sharing profits and losses in the ratio of 4 :2 : 1. It was provided that C’s share in profit for a year would not be less than `75,000. Profit for the year ended 31st March, 2023 amounted to  `3,15,000. You are required to show the appropriation among the partners. The Profit and Loss Appropriation Account is not required.

Answer;

Working notes;

Profit and loss appropriation account for year ended 31st March, 2023
Particulars	`	Particulars	`
To Profit A-  18,000-2,000   =16,000 B-   9,000-1,000   =  8,000 C-   4,500+3,000    = 7,500	31,500	By net profit	31,500
	31,500		31,500

 

Note; initial profit distributed 3000 in 4;2 or 2:1 in the absence of any information in the question No profit and loss a/c is required we can appropriate as below;

Appropriation of profit

A-  18,000-2,000   =16,000 B-   9,000-1,000     =  8,000 C-   4,500+3,000     = 7,500

31,500