Professional Documents
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Q.1 A and B are partners but they do not have partnership agreement. How will
they solve the following disputes between them?
(a) A wants that profits be shared in the ratio of Capital.
(b) B wants that he should be paid salary for devoting more time for the
business of the firm.
(c) B had advanced a loan to the firm. He claims interest at the usual interest
rate charged by banks. The rate of interest is 13% p.a.
(d) A has contributed Rs.1,00,000 and B Rs.50,000 as capital. B Wants profit
to be shared equally.
(e) A invested Rs.1,00,000 and B only Rs.50,000 as capital. A wants interest
on capital @12% p.a.
(f) A spends twice the time that B devotes to the business. He wants salary of
Rs. 2000 per month for the extra time spent by him.
(g) A wants to introduce his son Rajesh in to the business. B objects it.
(h) A used Rs. 1,00,000 belonging to the firm and made a profit of Rs. 75,000
in speculation. B wants that A should return Rs. 1,75,000 to the firm while A
wants to return Rs. 1,00,000 only.
(i) A used Rs. 50,000 belonging to the firm and suffered a loss of Rs. 20,000 in
speculation. He wants to return only Rs.30,000.
(j) B wants to add 30 more partners but A says its not possible.
Ans.1
(a) Profit will be shared by A and B equally.
(b)B will not get the Salary because no partnership deed is given.
(c) B will be given interest on his loan @ 6% p.a.
(d)In the absence of the partnership deed profits will be shared equally so,
B is correct.
(e) No, interest on capital will be allowed because partnership deed is not
given.
(f) A is not entitled to any salary because partnership deed is not given.
(g) As son Rajesh cannot be admitted as a partner because B objects it. In
the absence of the partnership deed all the partners must agree to admit
Rajesh as a partner so, he cannot be admitted in the firm.
(h)A must return Rs.1,75,000 because he used firms money for business.
(i) A must return Rs.50,000 and bear loss himself.
(j) A can do so as per Companies Act, 2013 a partnership can be formed with
max. 50 partners
2. A,B and C are partners in a partnership firm with a capital of Rs.1,00,000
each.Partnership deed provides interest on capital @8% p.aDuring the year
2014-15 ,frim incurs the loss of Rs.24,000.What will be the interest on capital on
partners capital?
Ans: Interest on capital is not allowed in case of loss
3. Can a partner be exempted from sharing losses in a firm?If yes ,under what
circumstances.
Ans: Yes, if it is agreed between the partners that one or more of them shall not
be liable for losses.
4. State the reason for contribution of Goodwill by a new partner at the time of
admission.
Ans: To get share in future profits of the firm and to compensate the sacrificing
partners.
5. I f the partners capital accounts are fixed, where will you record the following
items :
i)
Salary to a partners
ii)
Drawing by a partners
iv)
ii)
Debit
side
of
Partner's
iv)
Credit
side
of
Partners
partner
Ans.5
i)
current A/c
iii) Credit side of Partners current A/c
current A/c
INTEREST ON CAPITAL
6. Girish and Satish are partners in firm. Their capitals on 1 st April 2013 were
Rs.5,60,000 and Rs. 4,75,000 respectively. On 1 st August 2013 they
decided that their capitals should be Rs.5,00,000 each. The necessary
adjustment in the capitals were made by introducing or withdrawing cash.
Interest on capital is allowed @6% p.a. You are required to compute
interest on capital for the year ending 31st March 2014.
Ans.6. Interest on Capitals Girish Rs.31,200 and Satish Rs.29,000.
INTEREST ON DRAWING
7. A is a partner in a firm. During the year ended 31st March 2014 As
Drawings wereDate and Month
Amount of drawings
(Rs.)
st
1 June
1,000
1st August
750
st
1 October
1,250
st
1 December
500
1st February
500
2
(ii)
Interest on drawings at 9%p.a Each partner drew Rs. 12,000 on 1st July,
2014.
(iii)
(iv)
Profit sharing ratio is 5:3: 2 upto Rs. 80,000 and above Rs. 80,000 equally.
(v)
Net Profit of the firm before above adjustments was Rs. 1,98,360.
From the above information prepare Profit and Loss Appropriation Account, Capital
and Current Accounts of the partners.
Solution: 13
Profit and Loss Appropriation Account
for the year ended 31st December, 2014
Particulars
Amount
To Interest on Capital at 6% :
Particulars
Amount
750
197610
A
12000
9000
on Rs 12,000
4
6000
27000
540
To reserve A/c
25000
To profit
A's current A/c
62410
46410
38410 147230
540
540
199230
1620
199230
14. P and Q are partners with capitals of Rs. 6,00,000 and Rs. 4,00,000 respectively.
The profit and Loss Account of the firm showed a net Profit of Rs. 4, 26,800 for the
year. Prepare Profit and Loss Appropriation account after taking the following into
consideration:(i)
(ii)
(iii)
(iv)
Q is to be allowed a commission on sales @ 3%. Sales for the year was Rs.
20,00,000
(v)
Solution:14
Particulars
To Interest on P's Loan A/c
Amount
12000
Particulars
Amount
426800
To Profit transferred to
P&L Appropriation A/c
414800
426800
426800
Amount
Particulars
Amount
414800
36000
24000
By interest on drawings
60000
3200
To Q's commission
60000
2000
To reserve A/c
30000
5200
To profit
P's Capital
135000
Q's capital
135000 270000
420000
420000
Notes:
(i)
(ii)
(iii)
(iv)
Reserve Fund is calculated at 10% on Rs. 3,00,000 (i.e. Rs. 4,26,800 + Rs.
5,200- 12,000 - Rs. 60,000 - Rs. 60,000.
15.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 1 st April 2013They shared profits
and losses in the ratio of 1:1:1.partners are entitled to interest on capital @10%
p.a and salary to B and C @Rs.7,000 per month and Rs.10,000 per quarter
respectively as per the provisions of partnership deed. From 1 st October 2013
they shifted their business on the premises of partner B,for which B takes
Rs.6,000 as rent from the firm.Cs share of profit (excluding interest on capital
but including salary ) is guaranteed at a minimum of Rs.80,000p.aAny deficiency
arising on that account shall be met by A.They decided to transfer 10% of
divisible profit to Reserve .The profits for the year ended 31 st March 2014
amounted to Rs.4,24,000.Prepare P& L Approriation account for the year ended
31st March 2014.
Ans 15:
Profit and Loss Appropriation account
(for the year ended 31st March 2014)
Particular
To Interest on Capital
A
60,000
B
50,000
C
40,000
To salary
B 84,000
C 40,000
Amount
Particular
By net profit
1,50,000
1,24,000
6
Amount
3,88,000
To General reserve
(10% of 1,14,000)
11,400
To profit transfer to
capital A/cs
A 34,200-5,800
B 34,200
C 34,200 +5,800
28,400
34,200
40,000
3,88,000
3,88,000
16.
A and B are partners sharing profits in the ratio of 3 : 2. Interest on
Capital is allowed @10% p. a. and charged on drawings at the same rate.
Fill up the missing figures in the following accounts
Profit and Loss Appropriation Account
Dr.
For the year ended 31st March 2015
Cr.
Particulars (Dr)
Amount(R Particulars (Cr.)
Amount(R
s.)
s.)
To Salary to B
------------- By Profit and Loss ------------A/c
To
..
To
Partners
Current
ByInterestonDraw
Account :
ings
------------ 1,20,000
A- 2,500
-------------B1,500
------------------------------------------------2,84,000
Dr.
Cr.
Particulars
To
--------------
Dr.
Cr.
Particulars
B (Rs.)
----------
---------
----------
Particulars
By
-------------------
A (Rs.)
B (Rs.)
--------------- ------------------------ ----------
B
(Rs.)
Particulars
A (Rs.)
B (Rs.)
To ----------------
----------
To ----------------
----------
----------
-----------------
--------
By Balance b/d
16,000
22,000
By ----------------
---------
By Int.
on 80,000
Capitals
By ---------------------------------
60,000
----------------
(Hints to the answers: Capital opening balances interest on capital *100/r ,Net
profit Rs.2,80,000 Divisible profit A Rs.72,000 and B Rs.48,000 , Bs Salary
Rs.24,000)
GUARANTEE OF PROFIT
17.A and B are partners in a firm sharing profit in the ratio of 2:1.On 1 st Apr 2002
they decided to admit C for 1/5 share in the profit with the guaranteed amount of
Rs.25000 p.a. A and B equally undertook to meet the liability arising out of the
guaranteed amount . The firm earned a profit of Rs.75000 for the year ended 31 st
Mar 2003.Prepare P/L appropriation account.
(Ans: Deficiency Rs.10,000 to be met by A and B Rs.5,000 each)
18.
A, B and C entered into partnership on 1st April, 2014 to share profits &
losses in the ratio of 4:3:3. A, however, personally guaranteed that C's share of
profit after charging interest on Capital @ 5% p.a. would not be less than Rs.
40,000 in any year. The Capital contributions were:A, Rs. 3,00,000; B, Rs.
2,00,000 and C, Rs. 1,50,000. The profit for the year ended on 31st March, '2015
amounted to Rs. 1,60,000. Show the Profit & Loss Appropriation Account.
19.
A , B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is
given a guarantee that his share of profit in any given year would be
5,000. Deficiency if any would be borne by A and B equally. The profit for
the year ended 31st March 2011 amounted to Rs.40,000. Prepare profit
and Loss Appropriation Account and also give Journal entries in the books
of the firm.
Ans. Deficiency of C borne by A and B Rs. 500 each.
20.A,B and C are partners in a firm .On 1st April ,2015.The balance in their capital
accounts stood at Rs.4,00,000 ;3,00,000 and 2,00,000 respectively.They shared
profits in the proportion of 5:3:2 respectively.As share of profit is guaranteed at
not less than Rs.12,500 p.a The firm suffered a loss of Rs.10,000 during the year
ended 31st march 2015.Show the journal entries for the distribution of profit and
loss.
(Ans: As share in profit Rs.12,500 Share of loss after deficiency B Rs.13,500 and
C Rs.9,000)
PAST ADJUSTMENT
21.
A, B and C are partners sharing profits in the ratio of 1 : 2 : 3 They
have been omitted interest on capitals @8% p.a. for year ended 31 st
March 2008 Their Fixed capitals were Rs.4,00,000 , Rs 6,00,000 and Rs.
8,00,000 respectively. Pass necessary adjusting entry.
Ans. Cs Current A/c Dr.
8,000
To As Current A/c 8,000.
22.
A, B, C, and D are partners sharing profits and losses in the Ratio of
2 : 2 : 3 : 3 respectively. After the accounts of the year had been closed it
was found that interest on drawings @6% p.a. has not been taken into
consideration. The drawing of the partners were A- Rs. 20,000, B- Rs.
24,000, C- Rs. 32,000 and D- Rs. 44,000. Give the necessary adjusting
entry.
Ds Capital A/c Dr. Rs. 240
To As Capital A/c
120
To Cs Capital A/c
120
st
23. On 1 April 2010 the capitals of A and B were Rs. 40,000 and Rs.
20,000respectively. They divided profits in their capital ratio. Profits for the
year ended 31st March 2011 were Rs.30,000 which have been duly
distribute among the partners but the following transactions were not
passed through the books
(a) Interest on Capitals @ 12 % p.a.
(b) Interest on Drawings A Rs.1,200 , and B Rs. 1.000.
(c) Commission due to B Rs. 2,000 on a special transaction.
(d) A is to be paid a salary of Rs. 5,000.
You are required to pass a journal entry on 10th April 2011.
23.
On 31st March 2006 after the close of accounts the capitals of
Mountain, Hill and Rock stood in the books of the firm at Rs.4.00,000,
Rs.3,00,000 and Rs.2,00,000 respectively. Subsequently it was discovered
that the interest on capitals @ 10% p.a. had been omitted. The profit for
the year amounted to Rs.1,50,000 and the partners drawings had been
Mountain Rs.20,000, Hill Rs.15,000 and Rock Rs.10,000. Calculate interest
on Capitals.
Ans.6 Interest on Capitals Mountain Rs.37,000 , Hill Rs.26,500 , and Rock
Rs.16,000.
24.The balance Sheet of P and Q as at 31st march 2015 after distributing profits ,but
without providing interest on capital @55p.a was as under:
Liabilites
Ps capital
Qs capital
Profit and Loss
Appropriation
account(2014-15)
Amount
60,000
50,000
20,000
Assets
Fixed asset
Current Assets
Drawings -Q
1,30,000
Amount
90,000
30,000
10,000
1,30,000
Profit during the year ending 31st March 2015 was Rs.35,000.P and Q share
profits in the ratio of 2:1.Drawings during the year ending 31 st March 2015 were
P Rs.8,000 and Q Rs.10,000.
Pass adjusting entry
Ans: Ps capital A/c Dr.
533
To Qs capital a/c
533
Opening capital of P and Q 58,000 and 45,000
VALUATION OF GOODWILL
25.A business has earned average profit of Rs. 60,000 during the last few years. The
assets of the business are Rs. 5,40,000 and its external liabilities are Rs. 80,000.
The normal rate of return is 10%. Calculate the value of goodwill on the basis of
capitalisation of super profits.
(Ans: Goodwill = Rs. 140000)
26.The capital of a firm of Arpit and Prajwal is Rs. 10,00,000. The market rate of
return is 15% and the goodwill of the firm has been valued Rs. 1,80,000 at two
years purchase of super profits. Find the average profits of the firm.
(Ans: Average Profit = Normal Profit
240000)
27.The average profits for last 5 years of a firm are Rs. 20,000 and goodwill has
been worked out Rs. 24,000 calculated at 3 years purchase of super profits.
Calculate the amount of capital employed assuming the normal rate of interest is
8 %.
(Ans: Capital Employee = Normal Profit X 100/ Normal rate of return = 12000 X
100/8= Rs.150000)
28.Firms average profit are Rs.70,000 including abnormal profit of Rs.5,000.Capital
invested in the business is Rs.5,50,000 and the normal rate of return is
10%.Calculate Goodwill at four times of super profit.
29.Total capital employed by the firm is Rs.1,00,000 and its super profit is
Rs.5,000.Rate of return 20%.Calculate average profit.
30.A business earned average profit of Rs.1,00,000.and normal rate of return is
10%.Calculate Goodwill
(a)
(b)
The assets of the business were Rs.10,00,000 and its external liabilities
Rs.1,80,000
CHANGE IN PROFIT SHARING RATIO
31.Why is it necessary to revalue assets and reassess liabilities of a firm in case of
reconstitution of partnership?
10
Ans. The assets are revalued and liabilities of a firm are reassess, at the time of
reconstitution of partnership because the new partner should; neither benefit nor
suffer because change in the value of assets and liabilities as on the date of
admission.
32.What journal entry is to be passed if profit & Loss Dr. balance appearing on the
asset side of Balance Sheet at the time of change in profit sharing ratio among
the existing partners A and B ,from 3:2 to 1:1.They decided not to distribute it.
Ans: (As Capital a/c Dr
To Bs Capital A/c)
33.Punit and Shikhar are partners sharing profits in the ratio of 3:2 R is admitted
with 1/5th share and brings Rs.84,000 as his share of Goodwill which is credited to
the capital accounts of P and S respectively with Rs.63,000 and Rs.21,000 .What
will be the new profit sharing ratio?
(Ans:9:7:4)
34.
Ans.11 Debit Z,s Capital A/c 3,600 and Credit Xs Capital A/c 3,600. Gaining
ratio of Z -1/10 and Sacrificing ratio of X 1/10.
35. A and B were partners in the ratio of 3:2. They admit C for 3/13 th share. New
profit ratio after Cs admission will be 5:5:3. C brought some assets in the form of
his capital and for the share of his goodwill.
Following were the assets:
Assets
Rs.
Stock
2,44,000
Building
2,40,000
1,40,000
At the time of admission of C , goodwill of the firm was valued at Rs. 12,48,000.
11
36. X, Y and Z are sharing profits and losses in the ratio of 5:3:2. They decide to
share future profits and losses in the ratio of 2:3:5 with effect from 1 st April,
2002. They also decide to record the effect of the reserves without affecting their
book figures, by passing a single adjusting entry.
Book Figure
General Reserve
Rs. 40,000
Rs. 10,000
Rs. 20,000
37.
A and B are partners in a firm Sharing profits and losses in the ratio
of 2 : 3 they decided to share future profits and losses equally with effect
from 1st April 2008. An extract of their Balance Sheet as at 31 st March
2008 is as follows:Liabilities
Workmen
Reserve
Amount
(Rs.)
Compensation 40,000
Assets
Amount
(Rs.)
Show the accounting treatment under the following alternative cases:Case (i) If there is no other information and
reserve.
Ans. Case (i) Credit As Capital A/c by Rs.16,000 and Bs Capital A/c by
Rs.24,000.
Case (ii) Credit As Capital A/c by Rs.6,000 and Bs Capital A/c by
Rs.9,000.and Balance showed a balance Workmens Compensation at the
liabilities side Rs.15,000.
12
Dr. 4,000
To Bs capital A/c
4,000
38.
A ,B and C are partners in a firm Sharing profits and losses in the
ratio of 4 : 3 : 2 they decided to share future profits and losses in the ratio
of 2 : 3 : 4 with effect from 1st April 2008. An extract of their Balance
Sheet as at 31st March 2008 is as follows:Liabilities
Investment
Reserve
Amount
(Rs.)
Fluctuation 54,000
Assets
Investment
cost)
Amount
(Rs.)
(at 6,00,000
Show the accounting treatment under the following alternative cases:Case (i) If there is no other information.
Case (ii) If the market value of investment is Rs. 6,00,000.
Case (ii) If the market value of the Investment is 5,91,000.
Ans. Case (i) and Case (ii) Credit As Capital A/c by Rs. 24,000 , Bs Capital A/c
by Rs.18,000 and C,s Capital A/c by Rs.12,000.
Case (iii) Credit As Capital A/c by Rs.20,000 , Bs Capital A/c by Rs.15,000
and C,s Capital A/c by Rs.10,000.
39.
(i) When they want to transfer general reserve in their capital Account.
(ii) When they dont want to transfer general reserve in their Capital Account
and prefer to record an adjustment entry for the same.
Ans.39 (i) General Reserve A/c Dr. Rs. 54,000 , Cr.As Capital A/c 32,400 and Bs
Capital A/c Rs.21,600
(ii) Dr. Cs Capital A/c 12,000 Cr. As Capita A/c 8,400 and Cr. Bs Capital
A/c 3,600.
40. A, B ,C and D are partners in a firrm sharing profits and losses in the ratio of
2:1:2:1.With effect from 1st April 2015 they decided to share future profits and
losses equally.The Goodwill of the firm is to be valued by capitalization method
assuming that the firm owns total assets worth Rs.5,00,000 including therein
cash of Rs.50,000 and the firm has to pay Rs.1,00,000 to the outside
liabilities.The firm has earned an average profit of Rs.55,000 during the last year
13
and the normal rate of return in similar type of business is 10%.At that time firm
had a balance of Rs.24,000 in General reserve.Firm does not want to distribute
General Reserve .Calculate the value of goodwill and give necessary journal
entry yo record it.
(Ans: Goodwill rs.1,50,000
Bs capital A/c.Dr.
14,500
Ds capital A/c.Dr.
14,500
To As Capital A/c
14,500
To Cs capital A/c
14,500
14