CHAPTER – 1

ACCOUNTING FOR PARTNERSHIP FIRMS - FUNDAMENTALS

TOPIC – 1 CONCEPT OF PARTNERSHIP

Ques 1. Aley, Lisa and Chang are partners in a firm without a Partnership Deed.
(i) Aley, has contributed more capital than other partners and demands interest on capital at 10% p.a. But Lisa and
Chang do not agree with him.
(ii) Lisa devotes full time in the business and demands a salary of ₹5,000 p.m. But Aley and Chang do not agree
with him.
(iii) Chang demands interest on the loan of ₹50,000 given by her at the market rate of interest, i.e., @ 12% p.a.
(iv) Aley has withdrawn ₹10,000 from the firm for his personal use. Lisa and Chang demand that interest on
drawings should be charged @ 10% per annum.
(v) Profit before considering any of the above claims was ₹50,000 at the end of the first year of the business. Aley
demands share of profit in the capital ratio.
(vi) Lisa wants to introduce his son Inder as partner. Chang objects to his proposal.
How will be the matters resolved?

Ques 2. Define Partnership.

Ques 3. What is the maximum number of partners that a partnership firm can have? Name the Act that provides for
the maximum number of partners in a partnership firm.

Ques 4. Ritesh and Hitesh are childhood friends. Ritesh is a consultant whereas Hitesh is an architect. They
contributed equal amounts and purchased a building for ₹2 crores. After a year, they sold it for ₹3 crores and
shared the profits equally. Are they doing the business in partnership? Give reason in support of your answer.

Ques 5. A group of 40 people want to form a partnership firm. They want your advice regarding the maximum
number of persons that can be there in a partnership firm and name of the Act under whose provision it is given.

Ques 6. Pratibha, partner of a firm, has advanced loan to the firm of ₹1,00,000. The firm does not have a
Partnership Deed. Will Pratibha get interest on the loan? If yes, at which rate and why?
Ques 7. A, B and C are partners in a firm and do not have a Partnership Deed. A introduced further capital of
₹2,00,000 on 1st October, 2019. Whereas C took a loan of ₹50,000 from the firm on 1st October, 2019. Disputes
have arisen among them on the following issues:
a) A demands interest @ 10% p.a. on ₹2,00,000 being his extra capital.
b) B desires that his son Deep should be admitted as partner and he will give him half of his share. A and C do
not agree.
c) A and B are of the view that C should be charged interest on loan from the firm at the lending rate of the
banks, which is 12% p.a.
d) B has withdrawn ₹50,000 from the firm for his personal use. A and Care of the view that B should be charged
interest @ 10% p.a. You are required to give solution to each issue of dispute.

Ques 8. Following differences have arisen among P, Q and R. State who is correct in each case:
a) P used ₹20,000 belonging to the firm and earned a profit of ₹5,000. Q and R want the, amount to be given to
the firm.
b) Q used ₹5,000 belonging to the firm and incurred a loss of ₹1,000. He wants the firm to bear the loss.
c) P and Q want to purchase goods from A Ltd., R does not agree.
d) Q and R want to admit C as partner, P does not agree.
e) R had given loan of ₹1,00,000 to the firm and demands interest @ 10% p.a. P and Q do not want to pay the
interest.
 TOPIC – 2 PROFIT AND LOSS APPROPRIATION ACCOUNT

Ques1. Asin and Nihal started business on 1st April, 2019 with capitals of Rs.3,00,000 and Rs.2,00,000 respectively.
According to the Partnership Deed, Nihal is to get salary of Rs.5,000 per month, Interest is to be allowed of Rs.30,000
and Rs.20,000. Profit-sharing ratio between the two partners is 3 : 2. During the year, the firm earned profit of
Rs.2,50,000. Pass journal entries for distribution of profit and prepare Profit and Loss Appropriation Account. The
firm closes its books of account on 31st March every year.

TOPIC – 3 INTEREST ON CAPITAL

Ques 1: A and B are partners sharing the profits and losses in the ratio of 3 : 2 with capitals of Rs.2,00,000 and Rs.
1,00,000 respectively. Show the distribution of profits in each of the following alternative cases :
Case (i) If the partnership deed is silent as to the Interest on Capital and the profits for the year are Rs.50,000.
Case (ii) If the partnership deed provides for Interest on Capital @ 8% p.a. and the losses for the year are Rs.50,000.
Case (iii) If the partnership deed provides for Interest on Capital @ 8% p.a. and the profits for the year are Rs.50,000.
Case (iv) If the partnership deed provides for Interest on Capital @ 8% p.a. and the profits for the year are Rs.
15,000.
Case (v) If the partnership deed provides for Interest on Capital @ 8% p.a. even if it involves the firm in loss and
the profits for the year are Rs. 15,000.

Ques 2: X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals of Rs. 2,00,000 and Rs.
1,00,000 respectively. Pass the necessary Journal entry or entries for distribution of profit/loss for the year ended
31st March, 2020 in each of the alternative cases:
Case 1. If Partnership Deed does not provide for interest on capital and the profit for the year is Rs. 20,000.
Case 2. If Partnership Deed provides for interest on capital @ 6% p.a. and loss for the year is Rs. 15,000.
Case 3. If Partnership Deed provides for interest on capital @ 6% p.a. and the profit for the year is Rs. 21,000.
Case 4. If Partnership Deed provides for interest on capital @ 6% p.a. as a charge on profit and the profit for the
year is 20,000.
Case 5. If Partnership Deed provides for interest on capital @ 6% p.a. as a charge on profit and the profit for the
year is Rs. 2,000.

Ques 3: A and B have capitals of Rs. 4,00,000 and Rs. 2,00,000 respectively and interest on capital is to be allowed
@ 6% p.a. Their profit-sharing ratio is 2 : 3 and profit (before interest) for the year is Rs. 30,000. show the relevant
account to allocate interest on capitals if the partnership Deed provides for interest on capital.

Ques 4: A and B contribute Rs.5,00,000 and Rs.3,00,000 respectively by way of capital on which they agree to allow
interest at 6% p.a. Their respective share of profit is 3 : 2 and the profit for the year is Rs.40,000 before allowing
interest on capitals. Prepare the necessary account to allocate interest on capitals in the following cases :
(i) When the partnership deed is silent about the treatment of interest on capital, and
(ii) When interest is a charge as per the Partnership Deed.

Ques 5: E, F and G were partners in a firm sharing profits in the ratio of 3: 3: 4. Their respective fixed capitals were
E Rs.3,00,000; F Rs.4,00,000 and G Rs.5,00,000. The partnership deed provided for allowing interest on capital @
12% p.a. even if it results into a loss to the firm. The net profit of the firm for the year ended 31st March, 2018 was
Rs. 1,10,000.
Pass necessary journal entries for allowing interest on capital and division of profit/loss in the books of the firm.

Ques 6: A, B and C started a business in partnership. A contributes Rs.50,000 for the whole year. B introduces
Rs.40,000 at first and increased it to Rs.46,000 at the end of four months but withdraws Rs. 16,000 at the end of nine
months. C invests Rs.80,000 at first but withdraws Rs.20,000 at the end of five months. Firm earned a profit of
Rs.23,750 during the year. You are required to show the division of profits on the basis of the effective capital
employed by each partner during the year.

Ques 7: The capital accounts of Alka and Archana showed credit balances of Rs.4,00,000 and Rs.3,00,000
respectively, after taking into account drawings and net profit of Rs.2,00,000. The drawings of the partners during
the year 2018-19 were :
(i) Alka withdrew Rs. 10,000 at the end of each quarter.
(ii) Archana’s drawings were : Rs.
31st May, 2018 8,000
1st November, 2018 7,000
1st February, 2019 5,000
Calculate interest on partners’ capitals @ 10% p.a.

Ques 8: Puneet and Akshara were partners in a firm sharing profits and losses in the ratio of 2 : 3. The following
was the balance sheet of the firm as at 31st March, 2019.
Balance Sheet of Puneet and Akshara
as at 31st March, 2019
Liabilities Rs. Assets Rs.
Capitals: Sundry Assets 2,00,000
Puneet 90,000
Akshara 1,10,000 2,00,000
2,00,000 2,00,000
The profits were Rs.40,000 for the year ended 31st March, 2019. Interest on capital @5% p.a.
The drawings of the partners during the year were: Puneet Rs.2,500 per month, Akshara Rs. 10,000 per quarter.
Calculate Interest on Capital.

Ques 9: A and B are partners in a business and their capitals at the end of the year were Rs. 7,00,000 and Rs. 6,00,000
respectively. Calculate their opening capitals on the basis of the following information:
(a) Drawings of A and B for the year were Rs. 75,000 and Rs. 50,000 respectively.
(b) B introduced capital of Rs. 1,00,000 during the year.
(c) Interest on capital credited to the Capital Accounts of A and B were Rs. 15,000 and ₹10,000 respectively.
(d) Interest on drawings debited to the Capital Accounts of A and B were Rs. 7,500 and ₹5,000 respectively.
(e) Share of profit credited to Capital Accounts was Rs. 1,00,000 each.

Ques 10: Antony and Akbar were partners who share profits and losses in the ratio of 3:2. Balance in their capital
account on 1st January 2018 was Antony ₹ 60,000 and Akbar ₹ 40,000. On 1st April 2018 Antony introduced
additional capital of ₹ 10,000. Akbar introduced additional capital of ₹ 5,000 during the year. Calculate interest on
capital at 6% p.a. for the year ending 31st December 2018.

TOPIC – 4 INTEREST ON PARTNERS’ DRAWINGS

Ques 1: In a partnership, partners are charged interest on drawings @ 15% p.a. During the year ended 31st March,
2020, a partner withdrew as follows:
Date 1st May, 2019 1st August, 2019 30th September, 2019 31st January, 2020 31st March, 2020
Amount (Rs.) 2,000 5,000 2,000 6,000 2,000
What is the interest chargeable from the partner?

Ques 2: Raju and Madan, two partners, drew for their personal use Rs.1,20,000 and Rs.80,000. Interest is
chargeable @6%p.a on the drawings. What is the amount of interest chargeable from each partner?
Ques 3: Bala and Chaman are partners in a firm. They withdrew Rs.48,000 and Rs.36,800 respectively during the
year evenly in the middle of every month. According to the Partnership Deed, interest on drawings is to be charged
@ 10% pa. Calculate interest on drawings of the partners using the appropriate formula.

Ques 4: Dharam withdrew Rs.10,000 on 15th day of every month. Interest on drawings was to be charged
@12%per annum. Calculate interest on his Drawings.

Ques 5: A and B are partners sharing profits equally. A drew regularly Rs.4000 in the beginning of every month
for six months ended 30th September,2019. Calculate interest on drawings @5% p.a. for a period of six months.

Ques 6: Kajal and Garg are partners doing a dry cleaning business in Lucknow, sharing profits in the ratio 2 :1
with capitals Rs.5,00,000 and Rs.4,00,000 respectively. Kajal withdrew the following amounts during the year to
pay the hostel expenses of her son:
1st April Rs.10,000
1st June Rs.9,000
1st November Rs.14,000
1st December Rs.5,000
Garg withdrew 15,000 on the first day of April, July, October and January to pay rent for the accommodation of
his family. He also paid 20,000 per month as rent for the office of partnership which was in a nearby shopping
complex. Calculate interest on drawings @ 6% p.a.

Ques 7: Amit is a partner in a firm. During the year ended 31st March, 2020, Amit’s drawings were :
1st June 10000
1st August 7500
1st October 12500
1st December 5000
1st February 5000
Interest on drawings is charged @ 10% per annum. Calculate interest on drawings of Amit for the year ended
31st March, 2020.

Ques 8: X, Y and Z are partners in a firm. You are informed that (i) X draws Rs.4,000 from the firm at the
beginning of every month, (ii) Y draws Rs.4,000 from the firm at the end of every month, and (iii) Z draws
Rs.4,000 from the firm in the middle of every month. Interest on drawings is to be charged @ 9% p.a. Calculate
interest on partner’s drawings.

Ques 9: Calculate the interest on drawings of Mr. Aditya @ 8% p.a. for the year ended 31st March, 2021, in each
of the following alternative cases :
(i) If he withdrew Rs.5,000 in the beginning of each quarter.
(ii) If he withdrew Rs.6,000 at the end of each quarter.
(iii) If he withdrew Rs. 10,000 during the middle of each quarter.

Ques 10: Calculate the interest on drawings of Sh. Ganesh @ 9% p.a. for the year ended 31st March, 2021, in each
of the following alternative cases :
(i) If he withdrew Rs.4,000 p.m. in the beginning of every month;
(ii) If he withdrew Rs.5,000 p.m. at the end of every month.;
(iii) If he withdrew Rs.6,000 p.m;
(iv) If he withdrew Rs.72,000 during the year;
(v) If he withdrew as follows :
Rs.
30th April, 2020 10,000
1st July, 2020 15,000
1st Oct., 2020 18,000
30th Nov., 2020 12,000
31st March, 2021 20,000
(vi) If he withdrew Rs. 12,000 in the beginning of each quarter;
(vii) If he withdrew Rs. 18,000 at the end of each quarter;
(viii) If he withdrew Rs. 18,000 during the middle of each quarter.

TOPIC – 5 INTEREST ON LOAN AND RENT PAID TO A PARTNER

Ques 1: A and B entered into partnership on 1st April, 2019 without any Partnership Deed. They introduced
capitals of Rs. 5,00,000 and Rs. 3,00,000 respectively. On 31st October, 2019, A gave Rs. 2,00,000 as loan to the
firm without any agreement as to interest. Profit and Loss Account for the year ended 31st March, 2020 showed a
profit of Rs. 4,30,000, but the partners could not agree upon the amount of interest on loan to be charged and the
basis of division of profit. Pass a Journal entry for distribution of the profit between the partners and Loan
Account of A.

Ques 2: A and B are partners sharing profits equally. Business is being carried from the property owned by A on a
yearly rent of Rs.24,000. A is to get salary of Rs.1,20,000 p.a. and B is to get commission @ 5% of net sales,
which during the year was ₹30,00,000. Profit for the year ended 31st March, 2020 before providing for rent was
Rs. 5,00,000. Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2020.

Ques 3: Aman and Bheem are partners sharing profits in the ratio of 3 : 2. On 1st April, 2018 their capitals were
Rs.5,00,000 and Rs.3,00,000 respectively. Aman needed funds and hence took a loan of Rs.1,00,000 from the
firm on 1st July, 2018, agreed rate of interest being 12% p.a. Profit for the year ended 31st March, 2019 amounted
to Rs. 1,50,000 before charging interest on loan to Aman. Pass Journal Entries for interest and prepare Partner’s
Capital Accounts.

Ques 4: Aksha and Sami are in partnership. Business is being carried from the property owned by Aksha on a
monthly rent of Rs.5,000. Aksha is entitled to a salary of Rs.40,000 per quarter and Sami is to get commission of
4% on net sales, which during the year was Rs.50,00,000. Net Profit for the year ended 31st March, 2018 before
providing for rent was Rs.6,00,000. You are required to prepare Profit and Loss Appropriation Account for the
year ended 31st March, 2018.

Ques 5: Adam and daman are partners in a firm sharing profits in the ratio of 3 :2.They had given loan to the firm
of Rs.30,000 in their profit-sharing ratio on 1st October, 2019.The Partnership Deed is silent on interest on loans
from partners. Compute interest payable by the firm to the partners, assuming the firm closes its books every year
on 31st March.

Ques 6: M and N are partners sharing profits and losses in the ratio of 2 : 3 with capitals of Rs.2,00,000 and
Rs.3,00,000 respectively. On 1st October, 2019, M and N gave loans of Rs.80,000 and 40,000 respectively to the
firm. Show distribution of profits/losses for the year ended 31st March, 2020 in each of the following alternative
cases:
Case 1. If the profits before interest for the year amounted to Rs.21,000.
Case 2. If the profits before interest for the year amounted to Rs.3,000.
Case 3. If the profits before interest for the year amounted to Rs.5,000.
Case 4. If the loss before interest for the year amounted to Rs.1,400.

Ques 7. Batman and Superman are partners sharing the profits in the ratio of 2 : 3 with capitals of Rs. 1,20,000
and Rs.60,000 respectively. On 1st October, 2019, Batman and superman gave loans of Rs.2,40,000 and
Rs.1,20,000 respectively to the firm. Batman had allowed the firm to use his property for business for a monthly
rent of Rs.5,000. Loss for the year ended 31st March, 2020 before rent and interest amounted to Rs.9,000. Show
distribution of profit/loss.

Ques 8: A and B are partners sharing profits in the ratio of 3 : 2. A gave loan to the firm of Rs.1,00,000 on 1st
October, 2019. On the same date, the firm gave loan to B of Rs.1,00,000. They do not have an agreement as to
interest. A had also given his personal property for firm's godown at a monthly rent of Rs.5,000. Firm earns profit
of Rs.1,03,000 (before above adjustments) for the year ended 31st March, 2020. how the distribution of profit for
the year.

Ques 9: P and Q are partners in a firm sharing profits and losses in the ratio of 2 : 3. Their fixed capitals as on 1st
April, 2018 were Rs.6,00,000 and Rs.8,00,000 respectively. As per partnership deed both partners are to get
monthly salary of Rs.25,000 each and interest on capital @ 8% p.a. They are to be charged interest on drawings @
10% p.a. Drawings during the year ended 31st March 2019 were : P Rs. 10,000 per month and Q Rs. 1,20,000
during the year. Firm incurred a loss of Rs. 1,00,000 during the year before above adjustments. Pass journal entries
and prepare an account showing the distribution of profit/loss.

Ques 10. A and B are partners in a firm. On 1st April, 2018 their Capitals were Rs.3,00,000 and Rs.2,00,000
respectively. On 1st October, 2018 A granted a loan of Rs.50,000 to the firm. B had allowed the firm to use his
property for business for a monthly rent of Rs. 10,000. The partnership deed provides that interest on capital will
be allowed @ 9% p.a. and B is to be allowed an annual salary of Rs. 1,00,000. The firm incurred a loss of
Rs.28,500 for the year ended 31st March 2019 before any adjustment is made according to the partnership deed.
Prepare an account showing the distribution of profit/loss.

TOPIC – 6 REMUNERATIONS (SALARY OR COMMISSION) TO PARTNERS

Ques 1: X and Y are partners in a firm. X is to get commission of 10% of net profit before charging any
commission. Y is to get a commission of 10% on net profit after charging all commissions. Net Profit for the year
ended 31st March, 2020 was Rs. 55,000. Find the commission of X and Y. Also, show the distribution of profit.

Ques 2: A and B are partners sharing profits in the ratio of 3 : 2, with Capitals of Rs.5,00,000 and Rs.3,00,000
respectively. Interest on Capital is agreed @ 6% p.a. B is to be allowed an annual salary of Rs.60,000. During the
year 2019-20, the profits prior to the calculation of interest on capital but after charging B's salary amounted to Rs.
1,80,000. A provision of 5% of the profit is to be made in respect of commission to the Manager. Prepare Profit
and Loss Appropriation account showing the distribution of profit.

Ques 3: A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2 with capitals of Rs.5,00,000
and Rs.2,50,000 respectively on 1st April, 2017. Each partner is entitled to 10% p.a. interest on his capital. A is
entitled to a commission of 10% on net profit remaining after deducting interest on capitals but before charging
any commission. B is entitled to a commission of 8% of net profit remaining after deducting interest on capitals
and after charging all commissions. The profits for the year ended 31st March, 2018 prior to calculation of interest
on capital was Rs.3,75,000. Prepare necessary journal entries.

Ques 4: X and Y are partners sharing profits in the ratio of 3 :2 with capitals of Rs. 8,00,000 and Rs. 6,00,000
respectively. Interest on capital is agreed @ 5% p.a. / is to be allowed an annual salary of Rs. 60,000 which has not
been withdrawn. Profit for the year ended 31st March, 2020 before interest on capital but after charging Y's salary
amounted to Rs. 2,40,000. A provision of 5% of the profit is to be made in respect of commission to the Manager.
Prepare an account showing the allocation of profits.

Ques 5: P and O are partners sharing profits and losses in the ratio of 60:40. On 1st April, 2020, their capitals
were: P — Rs.5,00,000 and Q — Rs.3,00,000. During the year ended 31st March, 2021, they earned a profit of
Rs.7,60,000. The terms of partnership are :
(i) Interest on the capital is to be charged @ 8% p.a.
(ii) P will get commission @ 3% on turnover.
(iii) Q will get a salary of Rs.5,000 per month. .
(iv) Q will get commission of 5% on profits after deduction of interest, salary and commission (including his own
commission).
(v) P is entitled to a rent of Rs.20,000 per month for the use of his premises by the firm.
Partner’s drawings for the year were : P— Rs.40,000 and Q— Rs.30,000. Turnover for the year was Rs.20,00,000.
After considering the above factors, you are required to prepare the Profit and loss Appropriation Account and the
Capital Accounts of the Partners.

TOPIC – 7 PARTNER’S CAPITAL ACCOUNT

Ques 1: Shikha and Fatima were partners in a firm sharing profits in the ratio of 5 : 3. Their fixed capitals on
1.4.2017 were : Shikha Rs.3,00,000 and Fatima Rs.4,00,000. They agreed to allow interest on capital @ 12% per
annum and to charge on drawings @15% per annum. The profit of the firm for the year ended 31.3.2018 before all
above adjustments were Rs.63,000. The drawings made by Shikha were Rs. 10,000 and by Fatima Rs.20,000
during the year. Prepare Profit and Loss Appropriation Account. The interest on capital will be allowed even if the
firm incurs a loss.

Ques 2: A, B and C started a business in partnership. A contributes Rs.50,000 for the whole year. B introduces
Rs.40,000 at first and increased it to Rs.46,000 at the end of four months but withdraws Rs. 16,000 at the end of
nine months. C invests Rs.80,000 at first but withdraws Rs.20,000 at the end of five months.
Firm earned a profit of Rs.23,750 during the year. You are required to show the division of profits on the basis of
the effective capital employed by each partner during the year.

Ques 3: X and Y are partners sharing profits and losses in the ratio of 7 : 3. Their Capital Accounts as at 1st April,
2019 stood at X—Rs.5,00,000; Y—Rs. 4,00,000. Partners are allowed interest on capital @ 5% p.a. Drawings of
the partners during the year ended 31st March, 2020 were Rs. 72,000 and Rs.50,000 respectively. Profit for the
year before allowing interest on capital and salary to Y @ T 5,000 per month was Rs. 8,00,000. 10% of the net
profit is to be set aside as General Reserve. Prepare Profit and Loss Appropriation Account for the year ended 31st
March, 2020, and Capital and Current Accounts of the partners.

Ques 4: Arun and Arora were partners in a firm sharing profits in the ratio of 5 : 3. Their fixed capitals on 1st
April, 2010 were: Arun T 60,000 and Arora Rs. 80,000. They agreed to allow interest on capital @ 12% p.a. and to
charge on drawings @ 15% p.a. Profit of the firm for the year ended 31st March, 2011 before all above
adjustments was Rs. 12,600. Drawings made by Arun were 2,000 and by Arora Rs. 4,000 during the year. Prepare
Profit and Loss Appropriation Account of Arun and Arora. Show your calculations clearly. The interest on capital
will be allowed even if the firm incurs a loss.

Ques 5: A, B, and C are partners in a firm. According to the Partnership Deed, the partners are entitled to draw up
to Rs. 7,000 per month. On the first day of every month A, B and C drew Rs. 7,000; Rs. 6,000 and Rs. 5,000
respectively. Interest on capitals and interest on drawings are fixed @ 8% p.a. and 10% p.a. respectively. Profit for
the year ended 31st March, 2020 was Rs. 7,55,000 out of which Rs. 2,00,000 are to be transferred to General
Reserve. B and C are to get salary of Rs. 30,000 and Rs. 45,000 p.a. respectively and A is to receive commission
@ 10% on distributable profits after charging such commission. On 1st April, 2019, balances of their Capital
Accounts were Rs. 5,00,000, Rs. 4,00,000 and Rs. 3,50,000 respectively. Prepare Profit and Loss Appropriation
Account for the year ended 31st March, 2020 and Capital Accounts of Partners in the books of the firm.
Ques 6: A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2019, their capitals were:
A Rs. 50,000 and B Rs.30,000. During the year ended 31st March, 2020, the firm earned a net profit of Rs.50,000.
The terms of partnership are:
(a) Interest on capital is to be allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of ₹ 500 per month.
(d) B will get commission of 5% on profits after deduction of all expenses including such commission.
Partners' drawings for the year were: A Rs. 8,000 and B Rs.6,000. Turnover for the year was Rs.3,00,000.
After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners'
Capital Accounts.
Ques 7: Sajal and Kajal are partners sharing profits and losses in the ratio of 2 :1.0n 1st April, 2019 their Capitals
were: Sajal — Rs.5,00,000 and Kajal — Rs.4,00,000.
Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts at the end of the year 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 Rs.3,00,000.
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal Rs.1,00,000 and Kajal Rs.80,000.
(d) 10% of the divisible profit is to be transferred to General Reserve.
Profit, before giving effect to the above, for the year ended 31st March, 2020 is Rs.7,02,600.

Ques 8: Kabir, Zoravar and Parul are partners sharing profits in the ratio of 5 :3 :2.Their capitals as on 1st April,
2019 were: Kabir--- Rs.5,20,000, Zoravar—Rs.3,20,000 and Parul— Rs. 2,00,000.
The Partnership Deed provided as follows:
(i) Kabir and Zoravar each will get salary of Z 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, 2020 were Rs.50,00,000. Drawings by each of the partners during the year
was 60,000. Net Profit for the year was Rs.1,55,500. Prepare Profit and Loss Appropriation Account for the year
ended 31st March, 2020.

Ques 9: X and Y entered partnership on 1st April, 2017.Their capitals as on 1st April, 2019 were Rs.2,00,000 and
Rs.1,50,000 respectively. On 1st October, 2019, X gave Rs.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 was to be transferred
to General Reserve.
(ii) Interest on capital is to be allowed @ 12% p.a. and Interest on Drawings is to be charged @ 10% p.a.
(iii) X to get monthly salary of? 5,000 and Y to get salary of Z 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 Rs. 1,75,000 and balance equally.
Profit for the year ended 31st March,2020, before allowing or charging interest was Rs.4,61,000. The drawings of
X and Y were Rs.1,00,000 and Rs.1,25,000 respectively. Pass the necessary Journal entries relating to
appropriation of profit. Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts.

Ques 10: Lata and Mamta are partners with capitals of Rs.3,00,000 and Rs.2,OO,O0O respectively sharing profits
as Lata 70% and Mamta 30%. During the year ended 31st March 2021 they earned a profit of Rs.2,26,440 before
allowing interest on partner’s loan. The terms of partnership are as follows:
(i) Interest on Capital is to be allowed @ 7% p.a.
(ii) Lata to get a salary of Rs.2,500 per month.
(iii) Interest on Mamta’s Loan account of Rs.80,000 for the whole year.
(iv) Interest on drawings of partners at 8% per annum. Drawings being Lata Rs.36,000 and Mamta Rs.48,000.
(v) 1/10th of the distributable profit should be transferred to General Reserve.
Prepare the Profit and Loss Appropriation Account.

TOPIC – 8 GURANTEE OF PROFITS

Ques 1: Aman, Babita and Suresh are partners in a firm. Their profit-sharing ratio is 2:2: 1. However, Suresh is
guaranteed a minimum amount αf Rs. 10,000 as share of profit every year. Any deficiency arising on that account
shall be met by Babita. The profits for the two years ending 31st March, 2020 and 2021 were Rs.40,000and
Rs.60,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.
Ques 2: Mita, Rita and Sandra were partners in a firm, sharing profits and losses in the ratio of 2 : 2 : 1. Mita had
personally guaranteed that in any year Sandra’s share of profit, after allowing interest on capital to all the partners
@5% per annum and charging interest on drawings @4% per annum, would not be less than Rs. 10,000.
The capitals of the partners on 1st April, 2015 were: Mita Rs.80,000, Rita Rs.50,000 and Sandra Rs.30,000.
The net profit for the year ended 31st March, 2016, before allowing or charging any interest amounted to
Rs.40,000. Mita had withdrawn Rs.4,000 on 1st April, 2015, while Sandra withdrew Rs.5,000 during the year.
You are required to prepare the Profit and Loss Appropriation Account for the year 2015-16.

Ques 3: Moli, Bhola and Raj were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. Their
partnership deed provided for the following :
(i) Interest on capital @5% p.a.
(ii) Interest on drawing @12% p.a.
(iii) Interest on partners’ loan @6% p.a.
(iv) Moli was allowed an annual salary of Rs.4,000; Bhola was allowed a commission of 10% of net profit as
shown by Profit and Loss Account and Raj was guaranteed a profit of Rs. 1,50,000 after making all the
adjustments as provided in the partnership agreement.
Their fixed capitals were Moli : Rs.5,00,000; Bhola : Rs.8,00,000 and Raj : Rs.4,00,000. On 1st April, 2016 Bhola
extended a loan of Rs. 1,00,000 to the firm. The net profit of the firm for the year ended 31st March, 2017 before
interest on Bhola’s loan was Rs.3,06,000.
Prepare Profit and Loss Appropriation Account of Moli, Bhola and Raj for the year ended 31st March, 2017 and
their Current Accounts assuming that Bhola withdrew Rs.5,000 at the end of each month, Moli withdrew Rs.
10,000 at the end of each quarter and Raj withdrew Rs.40,000 at the end of each half year.

Ques 4: Anil, Sunil and Ravinder entered into a partnership on 1 st April 2018 to share profits in the ratio of 2 : 1 :
1. It was provided in the deed that Ravinder’s share of profit will not be less than Rs.70,000 per annum. The losses
for the year ended 31st March, 2019 were Rs.2,00,000 before allowing interest Rs.8,000 on Anil’s Loan which is
due for the current year. You are required to show necessary account for division of loss and also pass the
necessary journal entries.

Ques 5: A, B and C were partners of an architect firm sharing profits in the ratio of 2 : 2 : 1. Their partnership deed
provided the following :
(i) A monthly salary of Rs. 15,000 each to A and B.
(ii) C was guaranteed a profit of Rs.5,00,000 and A guaranteed that he will earn an annual fee of Rs.2,00,000. Any
deficiency arising because of guarantee to C will be borne by A and B in the ratio of 3:2. During the year ended
31st March, 2018. A earned fee of Rs. 1,75,000 and the profits of the firm amounted to Rs.15,00,000.
Showing your workings clearly prepare Profit and Loss Appropriation Account and the Capital Accounts of A, B
and C for the year ended 31st March, 2018.

Ques 6: (Guarantee of Profit to a Partner in Case of Loss).

A, B and C are partners having capitals of Rs.10,00,000; Rs.8,00,000 and Rs.6,00,000 respectively in a firm and
sharing profits and losses equally. C is guaranteed a minimum profit of Rs.1,00,000 as share of profit every year.
The firm incurred a loss of Rs.3,00,000 for the year ended 31st March, 2020. You are required to show the
necessary accounts for division of loss and giving effect to minimum guaranteed profit to C.

Ques 7: X, Y and Z entered into partnership on 1st July, 2019 to share Profit and Losses in the ratio of 3 : 2 : 1. X
guaranteed that Z's share of profit after charging interest on capitals @ 6% per annum would not be less than
Rs.36,000 p.a. The capital contributed by X - Rs.2,00,000; Y- Rs.1,00,000 and Z- Rs.1,00,000. Profit for the year
ended 31st March, 2020 was Rs.1,38,000. Prepare Profit and Loss Appropriation Account.

Ques 8: A, B and C are partners in a firm. Their Capital Accounts stood at Rs.8,00,000; Rs.6,00,000 and
Rs.4,00,000 respectively on 1st April, 2013. They shared profits and losses in the ratio of 3 : 2 : 1 respectively.
Partners are entitled to interest on capital @ 6% per annum and salary to B and C @ 4,000 per month and 6,000
per quarter respectively as per the provisions of Partnership Deed.
B's share of profit including interest on capital but excluding salary is guaranteed at a minimum of Rs.82,000 p.a.
Any deficiency arising on that account shall be met by C. Profit for the year ended 31st March, 2014 amounted to
Rs.3,12,000. Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2014.

Ques 9: Vikas and Vivek were partners in a firm sharing profits in the ratio of 3 :2. On 1st April, 2019, they
admitted Vandana as a new partner for 1/8th share in the profits with a guaranteed profit of Rs.1,50,000. New
profit-sharing ratio between Vikas and Vivek will remain same but they decided to bear any deficiency on account
of guarantee to Vandana in the ratio 3 :2. Profit of the firm for the year ended'31st March, 2020 was Rs.9,00,000.
Prepare Profit and Loss Appropriation Account of Vikas, Vivek and Vandana for the year ended 31st March, 2020.
Ques 10: A, B and C are partners in a firm. Their Capital Accounts stood at Rs.6,00,000; Rs.5,00,000 and
Rs.4,00,000 respectively on 1st April, 2019.They shared Profits and Losses in the proportion of 4 : 2 : 3. Partners
are entitled to interest on capital @ 8% per annum and salary to B and C @ Rs.7,000 per month and Rs.10,000 per
quarter respectively as per the provision of the Partnership Deed. C's share of profit (excluding interest on capital
but including salary) is guaranteed at a minimum of Rs.1,10,000 p.a. Any deficiency arising on that account shall
be met by A. The profit for the year ended 31st March, 2020 amounted to Rs.4,24,000. Prepare Profit and Loss
Appropriation Account for the year ended 31st March, 2020.

TOPIC – 9 PAST ADJUSTMENTS

Ques 1: A, B, C and D are equal partners in a firm. Their capitals on 1st April, 2018 were Rs.50,000; Rs.30,000;
Rs.25,000 and Rs. 15,000 respectively. After closing the accounts for the year ended 31st March, 2019 it was
discovered that according to the partnership deed interest @ 10% per annum on partner’s Capitals was not
provided before distribution of profits. It was agreed among the partners to make the adjusting entry at the
beginning of the next year rather than to alter the Balance Sheet. Pass the necessary journal entry.

Ques 2: X, T and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. After the final accounts have
been prepared, it was discovered that interest on drawings @ 5% p.a. had not been taken into consideration. The
drawings of the Partners were: X Rs. 1,50,000; Y Rs.1 ,26,000; Z Rs. 1,20,000. Give the necessary adjusting
journal entry.

Ques 3: Mudit and Uday are partners in a firm sharing profits in the ratio 2:3. Their capital accounts as on April 1,
2015 showed balances of Rs.70,000 and Rs.60,000 respectively. The drawings of Mudit and Uday during the year
2015-16 were Rs. 16,000 and Rs. 12,000 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 capitals @ 6% p.a.;
(b) Interest on drawings @ 6% p.a.;
(c) Mudit was entitled to a commission of Rs.4,000 for the whole year.
Showing your workings clearly pass a rectifying entry in the books of the firm.

Ques 4: The net profit of a firm for the year ended 31 st March, 2021, was Rs.30,000, which has been duly
distributed amongst its three partners A, B and C in their agreed proportions of 3 : 1 : 1 respectively. Tt was
discovered on 10th April, 2021 that the undermentioned transactions were not passed through the books of
accounts of the firm for the year ended 31st March, 2021, which stood duly closed on that date :
(a) Interest on capital at 10% p.a.
(b) Interest on drawings : A Rs.350; B Rs.250; C Rs.150.
(c) Salary of Rs.5,000 to A and Rs.7,500 to B.
(d) Commission due to A on a special transaction, Rs.3,000.
The capital accounts of the partners on 1st April, 2020 were : A Rs.25,000; B Rs.20,000; C Rs. 15,000.
You are required to suggest a journal entry to be passed on 10th April, 2021 which will not affect the Profit and
Loss Appropriation Account of the firm for the year ended 31st March, 2021 and at the same time will rectify the
position of the partners.
Ques 5: Rohit, Raman and Raina are partners in a firm. Their capital accounts on 1st April, 2019, stood at
Rs.2,00,000, Rs. 1,20,000 and Rs. 1,60,000 respectively. Each partner withdrew Rs. 15,000 during the financial
year 2019-20.
As per the provisions of their partnership deed :
(a) Interest on capital was to be allowed @5% per annum.
(b) Interest on drawings was to be charged @4% per annum.
(c) Profits and losses were to be shared in the ratio 5:4:1.
The net profit of Rs.72,000 for the year ended 31 st March 2020, was divided equally amongst the partners without
providing for the terms of the deed.
You are required to pass a single adjustment entry to rectify the error (show workings clearly).

Ques 6: Rajeev and Sanjeev were partners in a firm. Their partnership deed provided that the profits shall be
divided as follows :
First Rs.20,000 to Rajeev and the balance in the ratio of 4 : 1. The profits for the year ended 31st March, 2017
were Rs.60,000 which had been distributed among the partners. On 1-4-2016 their capitals were Rajeev Rs.90,000
and Sanjeev Rs.80,000. Interest on capital was to be provided @6% p.a. While preparing the profit and loss
appropriation interest on capital was omitted. Pass necessary rectifying entry for the same. Show your workings
clearly.

Ques 7: A, B and C are partners in a firm. After the accounts of partnership have been drawn up and the books
closed off, it is discovered that for the years ended 31 st March 2016 and 2017, interest has been allowed to the
partners upon their Capitals @ 6%p.a. although there is no provision for interest in the partnership deed. Their
fixed capitals on which interest was calculated were Rs. 1,00,000; Rs.80,000 and Rs.60,000 respectively.
During the last two years, they have shared the profits as follows :—
2016 3:2:1
2017 5:3:2
You are required to give necessary adjusting entry on 1st April, 2017.

Ques 8: The capital accounts of Alka and Archana showed credit balances of Rs.4,00,000 and Rs.3,00,000
respectively, after taking into account drawings and net profit of Rs.2,00,000. The drawings of the partners during
the year 2018-19 were :
(i) Alka withdrew Rs. 10,000 at the end of each quarter.
(ii) Archana’s drawings were : Rs.
31 st May, 2018 8,000
1st November, 2018 7,000
1st February, 2019 5,000
Calculate interest on partners’ capitals @ 10% p.a. and interest on partners’ drawings @ 6% p.a. for the year ended
31st March, 2019.

Ques 9: From the following Balance Sheet of A and B, calculate interest on capital @ 5% p.a. payable to A and B
for the year ending 31 st March, 2019:.
Liabilities Rs. Assets Rs.
A's Capital 1,00,000 Sundry Assets 1,92,000
B's Capital 80,000 Drawings : A 18,000
P & L Appropriation A/c
-2018-19 30,000
2,10,000 2,10,000
During the year ending 31st March, 2019, A’s drawings were Rs. 18,000 and B's drawings Rs.12,000. Profit
during the year ending 31 st March, 2019 was Rs.58,000.
Ques 10: Himanshu and Vikrant are partners in a firm and share profits equally. Their Balance Sheet as at March
31,2017 is as follows :
BALANCE SHEET
as at March 31, 2017
Liabilities Amount Assets Amount
Rs. Rs.
Capitals : Fixed Assets 3,60,000
Himanshu 2,00,000 Current Assets 40,000
Vikrant 1,40,000 3,40,000
Creditors 60,000
4,00,000 4,00,000
During the year 2016-17, Himanshu’s Drawings were Rs.30,000 and Vikrant’s Drawings were Rs.40,000. During
the year 2016-17 the firm earned profit of Rs. 1,00,000. While distributing profits for the year 2016-17, interest on
capital @ 5% per annum and interest on drawings @ 12% per annum were ignored.
Showing your workings clearly, pass necessary rectifying entry.

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