Chapter 2 Accounting for Partnership Basic Concepts Solutions

Question - 41 : -
Amit, Babita and Sona form a partnership firm,sharing profits in the ratio of 3 : 2 : 1, subject to the following :

(i)

Sona’s share in the profits, guaranteed to be not less than ₹ 15,000 in any year.

(ii)

Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is ₹ 25,000). The net profit for the year ended March 31, 2017 is ₹ 75,000. The gross fee earned by Babita for the firm was ₹ 16,000.

You are required to show Profit and LossAppropriation Account (after giving effect to the alone).

Answer - 41 : -

Profit and Loss Appropriation Account as on March 31, 2017
Dr.				Cr.
Particulars		Amount ₹	Particulars	Amount ₹
Profit Transferred to			Profit and Loss	75,000
Amit’s Capital {84,000 × (3/6)}	42,000		Babita’s Capital	9,000
Less: Sona’s share of deficiency {1,000 × (3/5)}	(600)	41,400	(Deficiency of Fees 25,000 – 16,000)

Babita’s Capital {84,000 × (2/6)}	28,000
Less: Sona’s share of deficiency {1,000 × (2/5)}	(400)	27,600

Sona’s Capital {84,000 × (1/6)}	14,000
Add: Deficiency received from
Amit	600
Babita	400	15,000

		84,000		84,000

Question - 42 : -
The net profit of X, Y and Z for the year endedMarch 31, 2016 was ₹ 60,000 and the same was distributed among them in theiragreed ratio of 3: 1: 1. It was subsequently discovered that the undermentioned transactions were not recorded in the books:

(i)

Interest on Capital @ 5% p.a.

(ii)

Interest on drawings amounting to X ₹ 700, Y ₹ 500 and Z ₹ 300.

(iii)

Partner’s Salary : X ₹ 1000, Y ₹ 1500 p.a.

The capital accounts of partners were fixed as: X ₹1, 00,000, Y ₹ 80,000 and Z ₹ 60,000. Record the adjustment entry.

Answer - 42 : -

PastAdjustment

	X	Y	Z		Total
Interest on Capital	5,000	4,000	3,000	=	12,000
Less: Interest on Drawings	(700)	(500)	(300)	=	(1,500)
Add: Partner’s Salaries	1,000	1,500	NIL	=	2,500
Right distribution of ₹ 13,000	5,300	5,000	2,700	=	13,000
Less: Wrong distribution of ₹ 13,000 (3:1:1)	(7,800)	(2,600)	(2,600)	=	(13,000)
	(2,500) Dr.	2,400 Cr	100 Cr	=	NIL

Explanation:

Capitalhave credit balance if it deducted will be debited and if it is added itwill be credited.

Here X wrongly takenexcess ₹ 2,500 hence ₹ 2,500 will be deducted from X capital Account on theother hand Y and Z taken less amount as they should have been taken, hencecapital account of Y and Z will be added.

Date	Particulars			L.F	Debit Amount ₹	Credit Amount ₹
	X’s Capital A/c		Dr.		2,500
		To Y’s Capital A/c				2,400
		To Z’s Capital A/c				100
	(Profit adjusted among partners)

Question - 43 : - The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2: 2: 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this account. The profits for the last three years were:

₹

2014-15

22,000

2015-16

24,000

2016-17

29,000

Show adjustment of profits by means of a single adjustment journal entry.

Answer - 43 : -

Distributionof Profit

Old Ratio (2:2:1)	Harry	Porter	Ali		Total
Year
2014 – 15	(8,800)	(8,800)	(4,400)	=	(22,000)
2015 – 16	(9,600)	(9,600)	(4,800)	=	(24,000)
2016 – 17	(11,600)	(11,600)	(5,800)	=	(29,000)
				=
Total Profit of 3 years in old ratio	(30,000)	(30,000)	(15,000)	=	(75,000)
Distribution of 3 years profit in new Ratio (1:1:1)	25,000	25,000	25,000	=	75,000
Adjusted Profit	(5,000)	(5,000)	10,000		NIL

Journal(Adjusting entry)

Date	Particulars		L.F	Debit Amount ₹	Credit Amount ₹

	Harry’s Capital A/c	Dr.		5,000
	Porter’s Capital A/c	Dr.		5,000
	To Ali’s Capital A/c				10,000
	(Profit adjusted due to change in profit sharing ratio)

Question - 44 : - Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3: 2. Following is the balance sheet of the firm as on March 31, 2017.

Amount

Amount

Liabilities

₹

Assets

₹

Mannu’s Capital

30,000

Drawings :

Shristhi’s Capital

10,000

40,000

Mannu

4,000

Shristhi

2,000

6,000

Other Assets

34,000

40,000

40,000

Profit for the year ended March 31, 2017 was ₹ 5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was inadvertently enquired. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.

Answer - 44 : -

Adjustmentof Profit

	Mannu’s	Shrishti		Total
Interest on Capital	1,500	500	=	2,000
Less: Interest on Drawings	(120)	(60)	=	(180)
Right distribution of ₹ 1,820	1,380	440	=	1,820
Less: Wrong distribution of ₹ 1,820 (3 : 2)	(1,092)	(728)	=	(1,820)
Adjusted Profit	288	(288)	=	NIL

AdjustingJournal Entry

Date	Particulars		L.F	Debit Amount ₹	Credit Amount ₹
	Shrishti’s Capital A/c	Dr.		288
	To Mannu’s Capital A/c				288
	(Adjustment of profit made)

Question - 45 : - On March 31, 2017 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for profits, drawing, etc; were ₹ 80,000, ₹ 60,000 and ₹ 40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin ₹ 20,000; Monu, ₹ 15,000 and Ahmed, ₹ 9,000. Interest on drawings chargeable to partners were Eluin ₹ 500, Monu ₹ 360 and Ahmed ₹ 200. The net profit during the year amounted to ₹ 1, 20,000. The profit sharing ratio was 3: 2: 1. Pass necessary adjustment entries.

Answer - 45 : -

In this questioninterest on capital shall be calculated on opening capital

	Eluin	Monu	Ahmed
Capital on 31 Mar. 2017 (Closing Capital)	80,000	60,000	40,000
Add: Drawings	20,000	15,000	9,000
Less: Profit ₹ 120,000 (3:2:1)	(60,000)	(40,000)	(20,000)
Capital on April 01, 2016 (Opening Capital)	40,000	35,000	29,000

Adjustmentof Profit

	Eluin	Monu	Ahmed		Total
Interest on Capital (on Opening Capital)	2,000	1,750	1,450	=	5,200
Less: Interest on Drawings	(500)	(360)	(200)	=	(1,060)
Right distribution of ₹ 4,140	1,500	1,390	1,250	=	4,140
Less: Wrong distribution of ₹ 4,140 (in the ratio 3:2:1)	(2,070)	(1,380)	(690)	=	(4,140)
	(570)	10	560	=	NIL

AdjustingJournal Entry

Date	Particulars		L.F.	Debit Amount ₹	Credit Amount ₹

	Eluin’s Capital A/c	Dr.		570
	To Monu’s Capital A/c				10
	To Ahmed’s Capital A/c				560
	(Adjustment of Profit made)

Question - 46 : - Azad and Benny are equal partners. Their capitals are ₹ 40,000 and ₹ 80,000, respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.

Answer - 46 : -

Adjustmentof Profit

	Azad	Benny		Total
Interest on Capital	2,000	4,000	=	6,000
Less: Wrong distribution of Profit ₹ 6,000 (1: 1)	(3,000)	(3,000)	=	(6,000)
Adjusted Profit	(1,000)	(1,000)	=	NIL

AdjustingJournal Entry

Date	Particulars		L.F	Debit Amount ₹	Credit Amount ₹

	Azad’s Current A/c	Dr.		1,000
	To Benny’s Current A/c				1,000
	(Adjustment of profit made)

Question - 47 : - Kavita and Pradeep are partners, sharing profits in the ratio of 3: 2. They employed Chandan as their manager, to whom they paid a salary of ₹ 750 p.m. Chandan deposited ₹ 20,000 on which interest is payable @ 9% p.a. At the end of 2017 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan. 1, 2014 with 1/6 th share in profits. His deposit being considered as capital carrying interest @ 6% p.a. like capital of other partners. Firm’s profits after allowing interest on capital were as follows:

₹

2014

Profit

59,000

2015

Profit

62,000

2016

Loss

(4,000)

2017

Profit

78,000

Record the necessary journal entries to give effect to the above.

Answer - 47 : -

			Interest on Loan	+	Salary	=	Total
2014	59,000	+	1,800	+	9,000	=	69,800
2015	62,000	+	1,800	+	9,000	=	72,800
2016	(4,000)	+	1,800	+	9,000	=	6,800
2017	78,000	+	1,800	+	9,000	=	88,800
	1,95,000	+	7,200	+	36,000	=	2,38,200

Chandan receivedas Manager = Interest on Loan + Salary = 7,200 + 36,000 = ₹ 43,200

Total Profit of 4years before interest on Chandan’s Loan and Salary = 2, 38,200

Intereston Chandan’s Capital for 4 years = {20,000 × (6/100) =1,200}

= 1,200 × 4 = ₹ 4,800

Profit after intereston all partners’ Capital

= Total Profit of fouryears before interest on Chandan’s loan and Salary – Intereston Chandan’s Capital for four years

= 2, 38,200 –4,800

= ₹ 2, 33,400

Wrong Distribution –Distribution of 4 years

Profitwhen Chandan as a Manager

		Kavita {1,95,000 × (3/5)}	=	1,17,000
		Pradeep {1,95,000 × (2/5)}	=	78,000
Chandan received as manager = Interest on Loan + Salary
	= 7,200 + 36,000		=	43,200
				2,38,200

Right Distribution –Division of Profit when Chandan as Partner

Chandan Share of Profit {2,33,400 × (1/6)}	38,900
Interest on Capital	4,800
	43,700

Kavita’s Share of Profit {(2,33,400 – 38,900) ×(3/5)} =	1,16,700
Pradeep’s share of Profit {(2,33,400 – 38,900) × (2/5)} =	77,800

Adjustmentof Profit

	Kavita	Pradeep	Chandan	=	Total
Distribution of profit when Chandan as partner	1,16,700	77,800	43,700	=	2,38,200
Less: Distribution of profit when Chandan as manager	(1,17,000)	(78,000)	(43,200)	=	(2,38,200)
Right distribution of ₹ 4,140	(300)	(200)	(500)	=	NIL

Date	Particulars		L.F.	Debit Amount ₹	Credit Amount ₹
	Kavita’s Capital A/c	Dr.		300
	Pradeep’s Capital A/c	Dr.		200
	To Chandan’s Capital A/c				500
	(Adjustment of profit made)

Question - 48 : - Mohan, Vijay and Anil are partners, the balance on their capital accounts being ₹ 30,000, ₹ 25,000 and ₹ 20,000 respectively. In arriving at these figures, the profits for the year ended March 31, 2017 amounting to Rupees 24,000 had been credited to partners in the proportion in which they shared profits. During the tear their drawings for Mohan, Vijay and Anil were ₹ 5,000, ₹ 4,000 and ₹ 3,000, respectively. Subsequently, the following omissions were noticed:

(a)

Interest on Capital, at the rate of 10% p.a., was not charged.

(b)

Interest on Drawings: Mohan ₹ 250, Vijay ₹ 200, Anil ₹ 150 was not recorded in the books.

Record necessary corrections through journal entries.

Answer - 48 : -

	Mohan	Vijay	Anil
Closing Capital	30,000	25,000	20,000
Add: Drawings	5,000	4,000	3,000
Less: Profit (1:1:1)	(8,000)	(8,000)	(8,000)
Opening Capital	27,000	21,000	15,000

Intereston Capital

Mohan = 27,000 ×	10	= ₹ 2,700
	100

Vijay = 21,000 ×	10	= ₹ 2,100
	100

Anil = 15,000 ×	10	= ₹ 1,500
	100

Adjustmentof Profit

	Mohan	Vijay	Anil		Total
Interest on Capital (on Opening Capital)	2,700	2,100	1,500		6,300
Interest on Drawings	(250)	(200)	(150)		(600)
	2,450	1,900	1,350		5,700
Wrong distribution	(1,900)	(1,900)	(1,900)	=	(5,700)
	550	NIL	(550)

AdjustingJournal Entry

Date	Particulars		L.F	Debit Amount ₹	Credit Amount ₹

	Anil’s Capital A/c	Dr.		550
	To Vijay’s Capital A/c				550
	(Adjustment of profit made)

Question - 49 : - Anju, Manju and Mamta are partners whose fixed capitals were ₹ 10,000, ₹ 8,000 and ₹ 6,000, respectively. As per the partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the same have not been made for the last three years. The profit sharing ratio during there years remained as follows:

Year

Anju

Manju

Mamta

2014

4

3

5

2015

3

2

1

2016

1

1

1

Make necessary and adjustment entry at the beginning of the fourth year i.e. Jan. 2017.

Answer - 49 : -

Intereston Capital

Anuj = 10,000 ×	5	= ₹ 500
	100

Manju = 8,000 ×	5	= ₹ 400
	100

Mamta = 6,000 ×	5	= ₹ 30
	100

Adjustmentof profit

Year2014

	Anuj	Manju	Mamta	=	Total
Interest on Capital	500	400	300		1,200
Wrong distribution of ₹ 1,200 (4:3:5)	(400)	(300)	(500)	=	(1,200)
	100	100	(200)		NIL

Year2015

	Anuj	Manju	Mamta	=	Total
Interest on Capital	500	400	300		1,200
Wrong distribution of ₹ 1,200 (3:2:1)	(600)	(400)	(200)	=	(1,200)
	(100)	NIL	100		NIL

Year2016

	Anuj	Manju	Mamta	=	Total
Interest on Capital	500	400	300		1,200
Wrong distribution of ₹ 1,200 (1:1:1)	(400)	(400)	(400)	=	(1,200)
	100	NIL	(100)		NIL

FinalAdjustment

	Anuj	Manju	Mamta
2014	100	100	(200)
2015	(100)	NIL	100
2016	100	NIL	(100)
	100	100	(200)

AdjustingJournal Entry

Date	Particulars		L.F	Debit Amount ₹	Credit Amount ₹
Jan. 2017
	Mamta’s Capital A/c	Dr.		200
	To Anuj’s Capital A/c				100
	To Manju Capital A/c				100
	(Adjustment of profit made)

Question - 50 : - Dinker and Ravinder were partners sharing profits and losses in the ratio of 2:1. The following balances were extracted from the books of account, for the year ended December 31, 2017.

Account Name

Debit

Amount

₹

Credit

Amount

₹

Capital

Dinker

2,35,000

Ravinder

1,63,000

Drawings

Dinker

6,000

Ravinder

5,000

Opening Stock

35,100

Purchases and Sales

2,85,000

3,75,800

Carriage inward

2,200

Returns

3,000

2,200

Stationery

1,200

Wages

12,500

Bills receivables and Bills payables

45,000

32,000

Discount

900

400

Salaries

12,000

Rent and Taxes

18,000

Insurance premium

2,400

Postage

300

Sundry expenses

1,100

Commission

3,200

Debtors and creditors

95,000

40,000

Building

1,20,000

Plant and machinery

80,000

Investments

1,00,000

Furniture and Fixture

26,000

Bad Debts

2,000

Bad debts provision

4,600

Loan

35,000

Legal Expenses

200

Audit fee

1,800

Cash in Hand

13,500

Cash at Bank

23,000

8,91,200

8,91,200

Preparefinal accounts for the year ended December 31, 2017, with following adjustment:
(a)  Stockon December 31, 2017, was ₹ 42,500.
(b)  AProvision is to be made for bad debts at 5% on debtors
(c)  Rentoutstanding was ₹ 1,600.
(d) Wagesoutstanding were ₹ 1,200.
(e)  Intereston capital to be allowed on capital @ 4% per annum and interest on drawings tobe charged @ 6% per annum.
(f)  Dinker and Ravinder areentitled to a Salary of ₹ 2,000 per annum
(g)  Ravinder isentitled to a commission ₹ 1,500.
(h)  Depreciationis to be charged on Building @ 4%, Plant and Machinery, 6%, and furniture andfixture, 5%.
(i)   Outstandinginterest on loan amounted to ₹ 350.

Answer - 50 : -

Financial Statement as on December 31, 2017 Trading Account
Dr.						Cr.
Particulars			Amount ₹	Particulars		Amount ₹
Opening Stock			35,100	Sales	3,75,800
Purchases	2,85,000			Less: Sales Return	(3,000)	3,72,800
Less: Purchases Return	(2,200)		2,82,800
				Closing Stock		42,500
Carriage Inwards			2,200
Wages		12,500
Add: Outstanding		1,200	13,700

Gross Profit			81,500

			4,15,300			4,15,300

Profit and Loss Account
Dr.				Cr.
Particulars		Amount ₹	Particulars	Amount ₹
Stationery		1,200	Gross Profit	81,500
Discount Allowed		900	Discount Received	400
Salaries		12,000	Commission	3,200
Rent & Taxes	18,000
Add: Outstanding	1,600	19,600

Insurance Premium		2,400
Postage		300
Sundry Expenses		1,100
Depreciation on
Building		4,800
Plant and Machinery		4,800
Fixtures and Fittings		1,300

Provision for Bad Debts	4750
Add: Bad Debt	2,000
	6,750
Less: (Old) Provision for Bad Debt	(4,600)	2,150

Legal Expenses		200
Audit Fee		1,800
Outstanding Interest on Loan		350
Profit and Loss Appropriation		32,200

		85,100		85,100

Profit and Loss Appropriation Account
Dr.					Cr.
Particulars		Amount ₹	Particulars		Amount ₹
Interest on Capital			Net Profit		32,200
Dinker	9,400		Interest on Drawings
Ravinder	6,520	15,920	Dinker	180
			Ravinder	150	330
Partner’s Salaries
Dinker	2,000
Ravinder	2,000	4,000

Commission (Ravinder)		1,500
Profit transferred to
Dinker’s Capital	7,407
Ravinder’s Capital	3,703	11,110

		32,530			32,530

Partners’ Capital Account
Dr.						Cr.
Particulars	Dinker	Ravinder	Particulars	Dinker	Ravinder
Drawings	6,000	5,000	Balance b/d	2,35,000	1,63,000
Interest on Drawings	180	150	Interest on Capital	9,400	6,520
Balance c/d	2,47,627	1,71,573	Partner’s Salaries	2,000	2,000
			Profit & Loss Appropriation	7,407	3,703
			Commission		1,500
	2,53,807	1,75,223		2,53,807	1,75,223

Balance Sheet
Liabilities			Amount ₹	Assets		Amount ₹
Bills Payable			32,000	Bills Receivables		45,000
Creditors			40,000	Debtors	95,000
Loan		35,000		Less: 5% Provision for Bad Debts	(4,750)	90,250
Add: Outstanding Interest		350	35,350
				Building	1,20,000
Rent Outstanding			1,600	Less: 4% Depreciation	(4,800)	1,15,200
Wages outstanding			1,200
Capital:				Plant and Machinery	80,000
Dinker	2,47,627			Less: 6% Depreciation	(4,800)	75,200
Ravinder	1,71,573		4,19,200
				Investments		1,00,000
				Furniture and Fixtures	26,000
				Less: 5% Depreciation	(1,300)	24,700
				Cash in Hand		13,500
				Cash at Bank		23,000
				Closing Stock		42,500
			5,29,350			5,29,350

Free - Previous Years Question Papers

(i)	Sona’s share in the profits, guaranteed to be not less than ₹ 15,000 in any year.
(ii)	Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is ₹ 25,000). The net profit for the year ended March 31, 2017 is ₹ 75,000. The gross fee earned by Babita for the firm was ₹ 16,000.

(i)	Interest on Capital @ 5% p.a.
(ii)	Interest on drawings amounting to X ₹ 700, Y ₹ 500 and Z ₹ 300.
(iii)	Partner’s Salary : X ₹ 1000, Y ₹ 1500 p.a.

		Amount			Amount
Liabilities		₹	Assets		₹
Mannu’s Capital	30,000		Drawings :
Shristhi’s Capital	10,000	40,000	Mannu	4,000
			Shristhi	2,000	6,000
			Other Assets		34,000
		40,000			40,000

		₹
2014	Profit	59,000
2015	Profit	62,000
2016	Loss	(4,000)
2017	Profit	78,000

(a)	Interest on Capital, at the rate of 10% p.a., was not charged.
(b)	Interest on Drawings: Mohan ₹ 250, Vijay ₹ 200, Anil ₹ 150 was not recorded in the books.

Account Name	Debit Amount ₹	Credit Amount ₹
Capital
Dinker		2,35,000
Ravinder		1,63,000
Drawings
Dinker	6,000
Ravinder	5,000
Opening Stock	35,100
Purchases and Sales	2,85,000	3,75,800
Carriage inward	2,200
Returns	3,000	2,200
Stationery	1,200
Wages	12,500
Bills receivables and Bills payables	45,000	32,000
Discount	900	400
Salaries	12,000
Rent and Taxes	18,000
Insurance premium	2,400
Postage	300
Sundry expenses	1,100
Commission		3,200
Debtors and creditors	95,000	40,000
Building	1,20,000
Plant and machinery	80,000
Investments	1,00,000
Furniture and Fixture	26,000
Bad Debts	2,000
Bad debts provision		4,600
Loan		35,000
Legal Expenses	200
Audit fee	1,800
Cash in Hand	13,500
Cash at Bank	23,000
	8,91,200	8,91,200

Chapter 2 Accounting for Partnership Basic Concepts Solutions

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