Chapter accounting-for-partnership-basic-concepts: Accounting for Partnership: Basic Concepts Application Questions | accountancy Class 12 CBSE

Chapter accounting-for-partnership-basic-concepts: Accounting for Partnership: Basic Concepts Application Questions | accountancy Class 12 CBSE | ByteNotes.in

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 1

Applied Concept

Ramu and Shamu are partners in a firm. The partnership deed is completely silent on interest on capital, interest on drawings, salary, and profit sharing. During the year, Ramu contributed Rs 4,00,000 and Shamu Rs 1,00,000 as capital. Ramu managed the business throughout the year and claims a salary of Rs 2,000 per month. State how profits should be divided and whether Ramu's salary claim is valid, with reference to the Indian Partnership Act 1932.

Since the deed is silent on profit sharing, profits must be shared equally between Ramu and Shamu as per Section 4 principles and the default provisions of the Indian Partnership Act 1932, regardless of the unequal capital contributions.
Ramu's claim for salary is not valid. The Act specifies that no partner is entitled to any salary or remuneration for participating in the conduct of the firm's business unless the partnership deed explicitly provides for it.
Similarly, no interest will be allowed on either partner's capital (since the deed is silent) and no interest will be charged on any drawings. The entire profit after deducting interest on any partner loan (if any) at 6% p.a. will simply be shared 50:50 between Ramu and Shamu.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 2

Applied Concept

A and B are partners sharing profits equally with fixed capitals of Rs 80,000 and Rs 60,000 respectively. During the year 2019-20, A withdrew Rs 10,000 from her capital and B withdrew Rs 15,000. Profit before charging interest on capital was Rs 50,000. Calculate the interest on capital for both partners @ 12% p.a. if (a) interest on capital is allowed only out of profits, and (b) the deed provides for interest on capital.

Adjusted capital for interest calculation: A's opening capital = Rs 80,000 (full year before withdrawal of Rs 10,000, which is a reduction). Since capitals are fixed and the withdrawal is from fixed capital: A's capital for interest = Rs 80,000 for the full year; B's = Rs 60,000 for the full year. Interest: A = 12% × Rs 80,000 = Rs 9,600; B = 12% × Rs 60,000 = Rs 7,200. Total interest = Rs 16,800.
Under scenario (a), the available profit is Rs 50,000 which exceeds Rs 16,800, so full interest is allowed: A gets Rs 9,600 and B gets Rs 7,200.
Under scenario (b) where the deed specifically provides for interest on capital, the full amounts of Rs 9,600 and Rs 7,200 are allowed and charged to the Profit and Loss Appropriation Account; residual profit of Rs 33,200 is then shared equally.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 3

Applied Concept

Sameer and Yasmin are partners with capitals of Rs 15,00,000 and Rs 10,00,000. On October 1, 2019 (mid-year), they each introduced additional capital of Rs 3,00,000 and Rs 2,00,000 respectively. Interest on capital is allowed @ 5% p.a. Calculate the interest on capital for each partner for the year ending March 31, 2020.

For Sameer: Interest on Rs 15,00,000 for full year (12 months) = 5% × 15,00,000 = Rs 75,000. Interest on additional Rs 3,00,000 for 6 months (October to March) = 5% × 3,00,000 × 6/12 = Rs 7,500. Total for Sameer = Rs 82,500.
For Yasmin: Interest on Rs 10,00,000 for 12 months = 5% × 10,00,000 = Rs 50,000. Interest on additional Rs 2,00,000 for 6 months = 5% × 2,00,000 × 6/12 = Rs 5,000. Total for Yasmin = Rs 55,000.
Total interest on capital = Rs 82,500 + Rs 55,000 = Rs 1,37,500. These amounts are debited to the Profit and Loss Appropriation Account and credited to the respective partners' capital or current accounts.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 4

Applied Concept

John Ibrahim, a partner, withdrew Rs 3,000 per month at the beginning of each month during the year ending March 31, 2020. Calculate his interest on drawings @ 9% p.a.

Since a fixed amount is withdrawn at the beginning of each month, the average period = (12 + 1)/2 = 6.5 months.
Total drawings for the year = Rs 3,000 × 12 = Rs 36,000.
Interest on drawings = Rs 36,000 × 9/100 × 6.5/12 = Rs 36,000 × 9 × 13 / (100 × 2 × 12) = Rs 1,755.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 5

Applied Concept

Shahnaz withdrew the following amounts from her firm during the year ending March 31, 2020: Rs 16,000 on April 1, 2019; Rs 15,000 on June 30, 2019; Rs 10,000 on October 31, 2019; Rs 14,000 on December 31, 2019; and Rs 11,000 on March 1, 2020. Calculate interest on drawings @ 7% p.a. using the product method.

Products: Rs 16,000 × 12 months = Rs 1,92,000; Rs 15,000 × 9 months = Rs 1,35,000; Rs 10,000 × 5 months = Rs 50,000; Rs 14,000 × 3 months = Rs 42,000; Rs 11,000 × 1 month = Rs 11,000. Total of Products = Rs 4,30,000.
Interest = Total of Products × Rate/100 × 1/12 = Rs 4,30,000 × 7/100 × 1/12 = Rs 30,100/12 = Rs 2,508 (approximately).
The product method calculates interest based on the actual time each withdrawal remained outside the firm until year-end, making it the most precise method for varying withdrawals.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 6

Applied Concept

With reference to Illustration 3 in the chapter, Yadu, Madhu and Vidu are partners sharing profits 2:2:1 with fixed capitals and a net loss of Rs 75,000. The deed provides interest on capital @ 5% and Yadu gets Rs 2,000/month salary and Vidu a commission of Rs 18,000. How is the Profit and Loss Appropriation Account prepared and what does it reveal about treatment of losses?

Since the firm has incurred a net loss of Rs 75,000, no interest on capital is allowed, no salary to Yadu, and no commission to Vidu — all appropriations require the existence of profit.
The Profit and Loss Appropriation Account simply shows the net loss of Rs 75,000 on the debit side, which is then distributed among partners in their profit-sharing ratio: Yadu = 2/5 × 75,000 = Rs 30,000; Madhu = Rs 30,000; Vidu = Rs 15,000.
This illustrates the fundamental rule: interest on capital, salary, and commission are appropriations conditional on profit; when the firm incurs a loss, these entitlements are forfeited and the entire loss is shared in the profit-sharing ratio.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 7

Applied Concept

Mohit and Rohan share profits 2:1. They admit Rahul with 1/4 share with a guarantee that his profit share will be at least Rs 50,000. Net profit for the year = Rs 1,60,000. Show how the deficiency will be distributed and calculate each partner's final share.

New profit-sharing ratio: Mohit 2/4, Rohan 1/4, Rahul 1/4. Shares: Mohit = Rs 80,000; Rohan = Rs 40,000; Rahul = Rs 40,000. Rahul's share is Rs 10,000 short of the guarantee of Rs 50,000.
The deficiency of Rs 10,000 is borne by Mohit and Rohan in their mutual ratio of 2:1. Mohit's share in deficiency = 2/3 × Rs 10,000 = Rs 6,667; Rohan's = Rs 3,333.
Final distribution: Mohit = Rs 80,000 – Rs 6,667 = Rs 73,333; Rohan = Rs 40,000 – Rs 3,333 = Rs 36,667; Rahul = Rs 40,000 + Rs 10,000 = Rs 50,000. Total = Rs 1,60,000, confirming the distribution is correct.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 8

Applied Concept

Rameez and Zaheer are equal partners. After the accounts for 2015-16 were finalised, it was discovered that interest on capital @ 6% p.a. had not been credited (Rameez's capital Rs 50,000; Zaheer's Rs 1,00,000). Show the direct adjustment entry.

Interest not credited: Rameez = 6% × Rs 50,000 = Rs 3,000 (Cr); Zaheer = 6% × Rs 1,00,000 = Rs 6,000 (Cr). Total omitted interest = Rs 9,000.
This Rs 9,000 should have been debited to the Appropriation Account and shared equally, meaning each partner should have borne Rs 4,500. Net effect: Rameez should get Rs 3,000 credit but actually bore Rs 4,500 (excess debit = Rs 1,500); Zaheer should get Rs 6,000 credit but bore Rs 4,500 (short credit = Rs 1,500).
Adjusting entry: Rameez's Capital A/c Dr. Rs 1,500; To Zaheer's Capital A/c Rs 1,500. This corrects the over-distribution to Rameez and under-distribution to Zaheer.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 9

Applied Concept

Amitabh and Babul share profits 3:2 with capitals Rs 50,000 and Rs 30,000. Interest on capital is @ 6% p.a.; Babul gets annual salary Rs 2,500; manager's commission Rs 5,000; Amitabh gave a loan of Rs 50,000 on April 1, 2019 without any agreement. Profit for 2019-20 = Rs 22,250. Determine the net profit available for appropriation and prepare the Profit and Loss Appropriation Account.

Interest on Amitabh's loan (charged in Profit and Loss Account, not Appropriation Account): 6% × Rs 50,000 = Rs 3,000. Manager's commission = Rs 5,000. Net profit transferred to Appropriation Account = Rs 22,250 – Rs 3,000 – Rs 5,000 = Rs 14,250.
In Profit and Loss Appropriation Account — Debit: Babul's salary Rs 2,500; Interest on capital (Amitabh Rs 3,000; Babul Rs 1,800) = Rs 4,800; Profit transferred to capitals (Amitabh Rs 4,170; Babul Rs 2,780) = Rs 6,950. Total = Rs 14,250. Credit: Net profit Rs 14,250.
Key insight: Interest on a partner's loan is a charge against profit (goes to P&L Account) and must be given at 6% p.a. even without agreement, whereas interest on capital is an appropriation given only if the deed provides and only when profit exists.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 10

Applied Concept

Mansoor and Reshma are partners. On April 1, 2019 their capital balances were Rs 2,00,000 and Rs 1,50,000. Mansoor introduced Rs 1,00,000 on August 1, 2019 and Reshma introduced Rs 1,50,000 on October 1, 2019. Interest is allowed @ 6% p.a. Calculate interest on capital for the year ending March 31, 2020.

For Mansoor: Interest on Rs 2,00,000 for 12 months = 6% × 2,00,000 = Rs 12,000. Interest on Rs 1,00,000 for 8 months (Aug to Mar) = 6% × 1,00,000 × 8/12 = Rs 4,000. Total for Mansoor = Rs 16,000.
For Reshma: Interest on Rs 1,50,000 for 12 months = 6% × 1,50,000 = Rs 9,000. Interest on Rs 1,50,000 for 6 months (Oct to Mar) = 6% × 1,50,000 × 6/12 = Rs 4,500. Total for Reshma = Rs 13,500.
These amounts (Mansoor Rs 16,000 and Reshma Rs 13,500) are debited to the Profit and Loss Appropriation Account and credited to the respective partners' capital/current accounts.

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Chapter accounting-for-partnership-basic-concepts: Accounting for Partnership: Basic Concepts | Application Questions

John Ibrahim, a partner, withdrew Rs 3,000 per month at the beginning of each month during the year ending March 31, 2020. Calculate his interest on drawings @ 9% p.a.

Mohit and Rohan share profits 2:1. They admit Rahul with 1/4 share with a guarantee that his profit share will be at least Rs 50,000. Net profit for the year = Rs 1,60,000. Show how the deficiency will be distributed and calculate each partner's final share.

Rameez and Zaheer are equal partners. After the accounts for 2015-16 were finalised, it was discovered that interest on capital @ 6% p.a. had not been credited (Rameez's capital Rs 50,000; Zaheer's Rs 1,00,000). Show the direct adjustment entry.

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