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

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

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Case Set 1

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Ravi and Sunita entered into a partnership on April 1, 2019. They agreed to share profits and losses in the ratio of 3:2. Their capitals were Rs. 60,000 and Rs. 40,000 respectively. The partnership deed provided for interest on capital @ 6% p.a. and interest on drawings @ 5% p.a. Ravi drew Rs. 12,000 and Sunita drew Rs. 8,000 during the year. The partnership deed also stated that Sunita would receive a salary of Rs. 500 per month for managing the business. The net profit for the year ended March 31, 2020 before any appropriations was Rs. 30,000. The partners wish to prepare the Profit and Loss Appropriation Account and capital accounts under the fluctuating capital method.

Question 1: What is the total interest on capital to be credited to Ravi and Sunita for the year 2019-20?

Interest on Ravi's capital = 6% of Rs. 60,000 = Rs. 3,600
Interest on Sunita's capital = 6% of Rs. 40,000 = Rs. 2,400
Total interest on capital = Rs. 3,600 + Rs. 2,400 = Rs. 6,000

Question 2: Calculate the interest on drawings for Ravi and Sunita assuming amounts were withdrawn evenly throughout the year.

Interest on Ravi's drawings = 5% × Rs. 12,000 × 6/12 = Rs. 300
Interest on Sunita's drawings = 5% × Rs. 8,000 × 6/12 = Rs. 200
Total interest on drawings = Rs. 500

Question 3: Prepare the Profit and Loss Appropriation Account and calculate each partner's final share of profit.

Debit side: Sunita's salary Rs. 6,000; Interest on capital Rs. 6,000 (Ravi Rs. 3,600 + Sunita Rs. 2,400); Share of profit Ravi Rs. 10,980; Sunita Rs. 7,320
Credit side: Net profit Rs. 30,000; Interest on drawings Ravi Rs. 300; Sunita Rs. 200
Net distributable profit = 30,000 + 500 – 6,000 – 6,000 = Rs. 18,500 – wait: 30,000 + 300 + 200 – 6,000 – 6,000 = Rs. 18,500 shared 3:2
Ravi's share = 3/5 × 18,500 = Rs. 11,100; Sunita's share = 2/5 × 18,500 = Rs. 7,400

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Case Set 2

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Amit and Babita are partners in a firm sharing profits equally. Their fixed capitals stood at Rs. 1,00,000 and Rs. 80,000 respectively on April 1, 2019. As per the partnership deed, interest on capital is allowed @ 10% p.a. On July 1, 2019, Amit introduced additional capital of Rs. 20,000 and Babita withdrew Rs. 10,000 from her capital. The firm earned a net profit of Rs. 25,000 for the year ending March 31, 2020, before providing interest on capital. The partners are now required to calculate interest on capitals correctly and prepare necessary accounts.

Question 1: Under the fixed capital method, where are adjustments like interest on capital and salary recorded?

Under the fixed capital method, adjustments like interest on capital, salary, commission, drawings, and share of profit or loss are recorded in the Partner's Current Account, not in the Capital Account.
The Capital Account remains fixed and only changes when fresh capital is introduced or capital is permanently withdrawn.

Question 2: Calculate the interest on capital for Amit for the year 2019-20.

Interest on Rs. 1,00,000 for 12 months = 10% × Rs. 1,00,000 = Rs. 10,000
Interest on Rs. 20,000 (additional capital from July 1) for 9 months = 10% × Rs. 20,000 × 9/12 = Rs. 1,500
Total interest on Amit's capital = Rs. 10,000 + Rs. 1,500 = Rs. 11,500

Question 3: Calculate the interest on capital for Babita and determine whether the firm has sufficient profit to pay full interest on capital to both partners. If not, how will the available profit be distributed?

Interest on Babita's capital: Rs. 80,000 × 10% × 3/12 = Rs. 2,000 (April–June) + Rs. 70,000 × 10% × 9/12 = Rs. 5,250; Total = Rs. 7,250
Total interest on capital = Rs. 11,500 + Rs. 7,250 = Rs. 18,750
Net profit = Rs. 25,000 which is more than Rs. 18,750, so full interest is paid
Remaining profit = Rs. 25,000 – Rs. 18,750 = Rs. 6,250, shared equally: Rs. 3,125 each

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Case Set 3

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Mohit, Rohan and Rahul are partners in a firm. Mohit and Rohan share profits and losses in the ratio of 2:1. They admit Rahul with 1/4 share in profits, with a guarantee that his share of profit shall not be less than Rs. 50,000 per year. The guarantee is given by all old partners in proportion to their existing profit sharing ratio. The net profit of the firm for the year ending March 31, 2020 was Rs. 1,60,000. The new profit sharing ratio after admission was determined as 2:1:1. Students need to prepare the Profit and Loss Appropriation Account.

Question 1: What is the concept of 'guarantee of minimum profit' to a partner?

When a partner is admitted with an assurance of receiving a certain minimum amount as share of profits, it is called guarantee of minimum profit.
If the partner's actual share as per profit sharing ratio is less than the guaranteed amount, the deficiency is borne by the guaranteeing partners.

Question 2: Calculate each partner's share of profit as per the profit sharing ratio before applying the guarantee clause.

Total profit = Rs. 1,60,000; New ratio = 2:1:1
Mohit's share = 2/4 × 1,60,000 = Rs. 80,000
Rohan's share = 1/4 × 1,60,000 = Rs. 40,000
Rahul's share = 1/4 × 1,60,000 = Rs. 40,000

Question 3: Prepare the Profit and Loss Appropriation Account showing the final distribution of profit after applying the guarantee clause.

Rahul's share = Rs. 40,000 but guaranteed Rs. 50,000; deficiency = Rs. 10,000
Deficiency borne by Mohit and Rohan in ratio 2:1 i.e. Mohit Rs. 6,667 and Rohan 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. 50,000
P&L Appropriation Account total = Rs. 1,60,000 both sides balanced

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Case Set 4

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Nusrat, Sonu and Himesh are partners sharing profits in the ratio of 5:3:2. The partnership deed provides for charging interest on drawings @ 10% p.a. During the year ending March 31, 2015, the drawings of Nusrat, Sonu and Himesh were Rs. 20,000, Rs. 15,000 and Rs. 10,000 respectively. After the final accounts were prepared and profits distributed, it was discovered that interest on drawings had not been taken into consideration. The partners now need to make a rectification entry to correct this past error without reopening the books.

Question 1: What are 'past adjustments' in partnership accounts and why are they needed?

Past adjustments refer to corrections made in partners' capital accounts when certain items like interest on capital, interest on drawings, salary, or commission were omitted or wrongly recorded after final accounts were already prepared.
Instead of reopening old accounts, adjustments are made through Profit and Loss Adjustment Account or directly in partners' capital accounts.

Question 2: Calculate the interest on drawings for each partner assuming amounts were withdrawn evenly throughout the year.

Interest on Nusrat's drawings = 10% × Rs. 20,000 × 6/12 = Rs. 1,000 (assuming average period)
Interest on Sonu's drawings = 10% × Rs. 15,000 × 6/12 = Rs. 750
Interest on Himesh's drawings = 10% × Rs. 10,000 × 6/12 = Rs. 500
Total interest on drawings = Rs. 2,250

Question 3: Prepare the statement showing net effect of omitting interest on drawings and pass the necessary adjustment journal entry.

Total interest on drawings = Rs. 2,250 (should be debited to partners)
Amount each partner should have been credited as share of profit from IOD: Nusrat 5/10 × 2,250 = Rs. 1,125; Sonu 3/10 × 2,250 = Rs. 675; Himesh 2/10 × 2,250 = Rs. 450
Net effect: Nusrat = Debit 1,000 – Credit 1,125 = Credit Rs. 125; Sonu = Debit 750 – Credit 675 = Debit Rs. 75; Himesh = Debit 500 – Credit 450 = Debit Rs. 50
Journal Entry: Sonu's Capital A/c Dr. Rs. 75; Himesh's Capital A/c Dr. Rs. 50; To Nusrat's Capital A/c Rs. 125

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Case Set 5

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Sameer and Yasmin are partners with capitals of Rs. 15,00,000 and Rs. 10,00,000 respectively. They agreed to share profits in the ratio of 3:2. On October 1, 2019, Sameer introduced additional capital of Rs. 3,00,000 and Yasmin introduced Rs. 2,00,000. Interest on capital is allowed @ 5% p.a. During the year 2019-20, drawings were: Sameer Rs. 30,000 and Yasmin Rs. 20,000. Interest on drawings: Sameer Rs. 1,800 and Yasmin Rs. 1,200. Sameer's salary Rs. 20,000. Commission: Sameer Rs. 10,000, Yasmin Rs. 7,000. Share of profit: Sameer Rs. 60,000, Yasmin Rs. 40,000. Books are closed on March 31.

Question 1: Calculate the interest on capital for Sameer for the year 2019-20.

Interest on Rs. 15,00,000 for 12 months = 5% × 15,00,000 = Rs. 75,000
Interest on Rs. 3,00,000 for 6 months (Oct to March) = 5% × 3,00,000 × 6/12 = Rs. 7,500
Total interest on Sameer's capital = Rs. 75,000 + Rs. 7,500 = Rs. 82,500

Question 2: What is the difference between fixed capital method and fluctuating capital method in terms of number of accounts maintained?

Under Fixed Capital Method: Two accounts are maintained for each partner – Capital Account and Current Account. The capital account balance remains fixed.
Under Fluctuating Capital Method: Only one account, i.e., Capital Account, is maintained for each partner. All transactions are recorded directly in the capital account.

Question 3: Prepare the partners' capital accounts under the fluctuating capital method for the year 2019-20.

Dr. side: Drawings – Sameer Rs. 30,000, Yasmin Rs. 20,000; Interest on drawings – Sameer Rs. 1,800, Yasmin Rs. 1,200; Balance c/d – Sameer Rs. 19,40,700, Yasmin Rs. 12,80,800
Cr. side: Balance b/d – Sameer Rs. 15,00,000, Yasmin Rs. 10,00,000; Bank (additional capital) – Sameer Rs. 3,00,000, Yasmin Rs. 2,00,000; Interest on capital – Sameer Rs. 82,500, Yasmin Rs. 55,000; Salary – Sameer Rs. 20,000; Commission – Sameer Rs. 10,000, Yasmin Rs. 7,000; Profit – Sameer Rs. 60,000, Yasmin Rs. 40,000
Total both sides: Sameer Rs. 19,72,500, Yasmin Rs. 13,02,000

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

Passage

Question 1: What is the total interest on capital to be credited to Ravi and Sunita for the year 2019-20?

Question 2: Calculate the interest on drawings for Ravi and Sunita assuming amounts were withdrawn evenly throughout the year.

Question 3: Prepare the Profit and Loss Appropriation Account and calculate each partner's final share of profit.

Passage

Question 1: Under the fixed capital method, where are adjustments like interest on capital and salary recorded?

Question 2: Calculate the interest on capital for Amit for the year 2019-20.

Question 3: Calculate the interest on capital for Babita and determine whether the firm has sufficient profit to pay full interest on capital to both partners. If not, how will the available profit be distributed?

Passage

Question 1: What is the concept of 'guarantee of minimum profit' to a partner?

Question 2: Calculate each partner's share of profit as per the profit sharing ratio before applying the guarantee clause.

Question 3: Prepare the Profit and Loss Appropriation Account showing the final distribution of profit after applying the guarantee clause.

Passage

Question 1: What are 'past adjustments' in partnership accounts and why are they needed?

Question 2: Calculate the interest on drawings for each partner assuming amounts were withdrawn evenly throughout the year.

Question 3: Prepare the statement showing net effect of omitting interest on drawings and pass the necessary adjustment journal entry.

Passage

Question 1: Calculate the interest on capital for Sameer for the year 2019-20.

Question 2: What is the difference between fixed capital method and fluctuating capital method in terms of number of accounts maintained?

Question 3: Prepare the partners' capital accounts under the fluctuating capital method for the year 2019-20.

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